Volume 248, March 19 – March 21, 1940

DIARY Book 248 March 19 - - 21, 1940 - B - - Book Page Brazil See Latin America Business Conditions Noble (Commerce Department) memorandum on economic developments - 3/21/40 248 443 - C - Cavelcente, Anthony Snyder (Congressman, Pennsylvania) told why HMJr cannot appoint him - 3/20/40 213 - F - - Finland See War Conditions France See War Conditions - G - Gold See War Conditions: France Great Britain See War Conditions: Purchasing Mission - H - - Harrison, George L. New York Life Insurance Company presidency offered him - 3/20/40 82 - I - Indiana See Tax Evasion - L - Latin America Brazil: Aranha agrees that Government of Brazil "will advise bondholders in advance of purchases," et cetera, as requested by Foreign Bondholders Protective Council; reasonably sure Minister of Finance will agree - 3/19/40 1 Regraded Uclassified - S - Book Page Snyder, J. Buell (Congressman, Pennsylvania) Told why HMJr cannot appoint Cavalcante (Anthony) - 3/20/40 248 213 Spain See Mar Conditions - T - Tax Evasion Indiana: Conference; present: HMJr, Foley, Sullivan, Landis, Magill, Graves, Helvering, and Mooney - 3/20/40 216 a) Resume of case and decision that Treasury must make concerning securing of court order discussed b) Hoosier Democratic Club: Record of inquiry relative to inquiry of taxable status 315 - U - - U.S.S.R. See War Conditions United States Savings Bonds HMJr's memorandum to FDR discussing (a) terms of bonds and (b) further limiting of sales - 3/19/40 77-A a) Currie (Lauchlin) memorandum to FDR raising these questions - (2/13/40) 77-J b) Currie memorandum to HMJr - (2/13/40) 77-I c) Currie memorandum to FDR attaching Eccles' recommendations (2/29/40) 77-E 1) FDR's memorandum to HMJr asking him to discuss matter - (3/8/40) 77-D - W - War Conditions Airplanes: Aluminum: Self (Sir Henry) explains difficulties to HMr who reports them to Collins - 3/19/40 64 HWr and Purvis discuss situation 3/20/40 94 Hunt (President, Aluminum Company of America) glad to come down for conference with Treasury; thinks HMJr has done marvelous job - 3/21/40 336 Conference; present: HMJr; Captains Kraus and Collins; Major Lyons; General Brett; Foley; Purvis, Colonel Cave; Hunt, Wilbur, Davies, and Stanley - 3/21/40 349 Regraded Uclassified - W - (Continued) Book Page For Conditions (Continued) Airplanes (Continued): Rolls Royce situation discussed by Purvis, Collins, and HWr - 3/20/40 248 91 Marshall (General) "given his orders by FDR in regard to planes for Allies" - so General Watson informs HMJr - 3/20/40 103 Memoranda concerning Navy Department orders of airplane engines 385 "Interceptor" (built by Curtiss-Wright at St. Louis plant) described in Collins memorandum - 3/21/40 422 Pratt-Whitney plant (East Hartford, Connecticut) visited by subcommittee of House lilitary Affairs Committee - 3/21/40 423 American mission to French war front arranged by French Ambassador at HMJr's request - 3/21/40 424 a) Ambassador's letter 425 b) HMr's note of thanks 424 c) Cochran's memorandum that State Department will be notified by French Ambassador 427 Closing Agreements: Navy's new attitude explained by Sulliven at 9:30 meeting - 3/21/40 327 a) No longer cares to certify Exchange market resume - 3/19/40, et cetera 47,83,428 Finland: Reconstruction: White outline as discussed at Sea Island - 3/20/40 135 FDR asked to consider plan 206 a) Hull sent copy 210 France: Third big shipment of gold ($170 million) arrives from Canada - 3/19/40 63 American mission to French war front arranged by French Ambassador at HMr's request - 3/21/40 424 a) Ambassador's letter 425 b) HMJr's note of thanks 424 c) Cochran's memorandum that State Department will be notified by French Ambassador 427 Purchasing Mission: Great Britain: Data on official sales of British-owned foreign securities requested by Securities and Exchange Commission 36 a) Treasury answer - 3/19/40 33 b) Cochran memorandum of discussion with Purcell (Securities and Exchange Commission) - 3/20/40 78 Reports of sales of British securities - 3/18-19/40 45,80 a) March considered too early for second vesting operation Regraded Uclassified - W - (Continued) Book Page War Conditions (Continued) Securities Markets (High-Grade): Current Developments: Haas memorandum - 3/19/40 248 51 Spain: Anglo-Spanish commercial agreement explained by American Embassy, Madrid - 3/19/40 2,123,133 Strategic Materials: Nickel: Canadian future shipments to Japan postponed - Purvis informs HMr who notifies FDR - 3/20/40 106,107 U.S.S.R.: Orders to "cease loading" discussed by HMJr and Harris - 3/19/40 71,87 a) FDR notified - 3/20/40 88 Regraded Uclassified 1 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Rio de Janeiro NO.: 117 DATE: March 19, 1940. Reference is made to the Department's telegram no. 76 of March 18, 1940, 2 p.m. I am informed by Aranha that he is willing for the Government of Brazil to promise that it will "advise bondholders in advance of purchases" et cetera, et cetera, as set forth in the inquiry of the Foreign Bondholders Council, and he is reasonably sure that this will be agreed to by the Minister of Finance. Aranha will go to see Souza Costa in Pocos de Caldas Saturday. They will discuss the matter and Aranha will then send me a written reply to the question. CAFFERY EA:EB 2 PARAPHRASE OF TELEGRAM To: Secretary of State, Washington. From: American Embassy, Madrid. Dated: March 19, 10 p.m. Rec'd: March 19, 1940, 10:33 p.m. No. 51 The significance of an Anglo-Spanish commercial agreement was announced in the Spanish press today. Al- though no details have been made public I am advised confidentially by the British Embassy that the agreement, which will become effective April 1, makes no provision for quotas or tariff concessions but rather 18 a financial arrangement for the purpose of liquidating sterling credits arising from trade in the past and a clearing agreement to promote trade in the future. The British agreement includes a loan agreement whereby a sum of 2,000,000 pounds will be advanced to the Spanish Government for the purchase of commodities and new materials originating in the "sterling area", and a further sum will be made available together with the nearly 2,000,000 pounds held by the Bank of England to the credit of Spain under the clearing agreement concluded in 1936 to make possible an immediate payment of fifty per cent on outstanding blocked commercial credits. There Regraded Jclassified 3 -2- There will be no further payment until 1942 after the initial payment of fifty per cent. Beginning in January 1942 50,000 pounds will be made available monthly from current clearing receipts. This amount is estimated to be sufficient to make possible 8. further payment of ten percent in 1942 and each year thereafter through 1946 when liquidation of these accounts should be concluded, The agreement covers the following debts: 1. All debts which under the 1936 payments agreement are already awaiting transfer; 2. All other debts resulting from British exports and reexports to Spain as well as royalties, insurance, and other financial payments from Spain to the United Kingdom which fell due before April 1 of last year; 3. Amounts due acceptance houses in London on accep- tances covered by terms of the Spanish exchange control office outside the clearing agreement of 1936. Payment of interest on the loan will be made from the beginning but no repayment of capital will be made by Spain until 1942; repayments in ten equal annual install- ments will thereafter be made from funds for this purpose obtained from sterling receipts paid into a sterling account established under the clearing agreement. It is provided in the clearing agreement that all sums due for Spanish goods exported to the United Kingdom shall be paid into a sterling -3- sterling current account at the Bank of England set up in the name of the Controller of the Anglo-Spanish Clearing Office. After making provision for service on the loan the sums paid into this account will then be allocated as follows: 45 per cent for Spanish purchases of goods from the United Kingdom and payments of freight charges on British vessels between the two countries; 45 per cent to cover Spanish purchases through firms in the United Kingdom of merchandise originating in certain parts of the British Empire and other countries within the "sterling Area" (by "sterling area" is meant the British Empire, including Egypt, the Sudan and Iraq, but excluding Canada, Newfound- land and Hong Kong) and freight charges on British vessels between any of these countries and Spain; the remaining 10 per cent is for payment of insurance and reinsurance premiums, patent fees, royalties, interest and other financial payments due from Spain to the United Kingdom of a revenue nature, except that by agreement the amount reserved for these financial payments for the year 1940 shall not exceed 400,000 pounds sterling. The payments agreement will become effective on April 1 and will continue in force until September 30, 1940 and thereafter unless denounced on one month's notice by either country. Although the exchange of specific commodities is not provided for under the clearing agreement, I am informed that an additional confidential 5 -4- confidential protocol has also been concluded under which various Spanish commodities needed by Britain in connection with war purposes and including specifically pyrites will be purchased by private British firms. DOM: - 08 6 Statement of Secretary Morgenthau Before the Benate Committee on Banking and Currency, March 19, 1940. As I understand it, this Committee is considering a bill proposed by Senator Townsend, the effect of which would be to terminate all power and authority of the President, the Secretary of the Treasury, and any other agency in the Executive branch of the Government with respect to the acquisition of silver (except newly-mined domestic silver acquired pursuant to section 4 of the Act of July 6, 1939), and also to terminate any orders, regulations, and other action taken with respect to silver. The bill would also terminate the existing 50 percent profits tax imposed on transfers of silver. I assume that the Committee, in determining what should be the future policy of the United States with respect to silver, would want to be fully informed as to what we have been doing during the last six years to carry out the duties and responsibilities that have been placed upon us by the Silver Purchase Act. Accordingly, I have brought with me today records of our acquisitions of silver since 1933. I have also brought with me members of the Treasury staff who will be able to supply the Committee with any available information concern- inc the administration of the Silver Purchase Act and the acquisition of silver. I have had prepared for the convenience of the Committee summary tables showing the silver contracted for by the Treasury, the acquisitions of silver by the Treasury, and the Regraded Uclassified 7 - 2 - imports of silver into the United States since 1933. I should like to mention that the difference between the figures of silver contracted for and the figures of silver acquisitions shown in the tables lies in the fact that the first set of figures records the silver purchased regardless of when delivery 18 to be made; and the acquisition figures record the actual silver received by the mints and assay offices pursuant to such purchases. Incidentally it is the Irtter figures which have been made public from time to time and repear in the monthly Bulletin of the Treasury Department. I night also mention that none of these figures includes acquisitions of newly-mined domestic silver or silver which was nationalized pursuant to the Executive Order of August 9, 1934. I would also like to leave with your Committee several statements which are a consolidation of all silver burchases up to February 15, 1940. These consolidated statements were prepared for the use of this Committee by our fiscal agent, the Federal Reserve Bank of New York, at the direction of the Treasury Department. These statements show the country which 1s the source of silver purchased by the Treasury wherever such information was known to the Treasury. I presume the Committee is also interested in figures showing the relative proportions of gold and silver in the monetary stocks of the United States at various dates. I have here a statement of such figures for the use of the Committee. You will note that notwithstanding continued acquisitions of Regraded Uclassified 8 - 3 - silver, both domestic and foreign, by the Treasury during the six year period, the ratio of silver to our total monetary stocks has not reached the ratio stipulated in the Silver Purchase Act. The obvious reason for this has been the increase in our gold acquisitions, In order that the Committee may have before it a complete picture of the silver acquired by the United States since 1933 the Department has also prepared a statement showing the amounts of newly-mined domestic silver and nationalized silver acquired since 1933. I have also prepared a statement showing the amounts collected each year by virtue of the 50 percent silver profits tax, You will noto that the amount of tixes collected in each of the first three years of the silver profits tax is substan- tially greater than the amount of tax collected in each year thereafter. One reason for this is that the yield of the tax is higher during & period of rising silver prices than during a period of stable or declining silver prices. The Committee may have a number of questions which it would like to ask in connection with these tables. The members of my staff, who are here with me today, are available to answer such inquiries. I should also like to explain how we have been purchasing silver. Firstly, we acquire silver for sbot delivery. That means that the silver is delivered to us no later than the working day following the purchase of the silver. Generally Regraded Uclassified 9 - 4 - speaking, silver which we purchase for spot delivery comes from the stocks or inventories of refining companies, or other dealers in silver such as banking institutions, etc. Secondly, silver which is newly-mined silver production of foreign countries is purchased by us for future delivery. Under our present practice we permit up to 5 months' time for delivery of silver thus purchased. Thirdly, the Treasury acquires silver pursuant to special arrangements with certain foreign countries. The Treasury normally requires that the silver which it purchases bear the stamp of 8 refinery located in the United States; and in cerrying out the silver purchase program, the Treasury has sought to divert to American refining companies a considerable amount of business which otherwise would have pone to foreign refiners, In all the instances in which the Treasury purchased silver directly from a forei government the price which the Treasury paid for the silver did not exceed the market price for silver prevailing at the time of the purchase. This was, of course, also true of all other purchases of silver under the Silver Purchase Act. As you know, the Treasury has made special arrangements with various foreign countries relating to the purchase of silver. The first, and perhaps the most important of such arrangements, was made with China, In June, 1936, and from time to time thereafter the Treasury entered into arrangements with China pursuant to which it acquired auproximately 565,855,000 ounces of Chinese silver, Regraded Uclassified 10 - 5 - Beginning with January, 1936, and up to March 31, 1938, the Treasury had a special arrangement with Mexico pursuant to which Mexico had the privilege of offering to the Treasury up to 5-million ounces a month of newly-mined Mexican silver production. We permitted this special arrangement to expire on March 31, 1938, and it has not been renewed, Since then Mexican newly-mined silver has been imported into the United States and has been offered for sale on the New York market. Such silver when acquired by the Treasury is acquired as any other silver in this country and bears the stamp of an American refinery located in this country. The third special arrangement is the one which the Treasury has with Canada. Pursuant to this arrangement Canada is given the privilege of offering to us up to 1,200,000 ounces of newly-mined Canadian silver monthly, This arrangement is on a monthly basis and continues in full operation and effect. Pursuant to mandate of Congress the Government has acquired a large stock of silver, In more recent years there has been greater stability in the price of silver than in prior years. Many countries with whom we have friendly relations have, or produce, substantial quantities of silver and it is very helpful to such countries that they be able to use such silver in order to acquire needed dollar exchange. If there were to be EL substantial decline in the price of silver such countries would suffer, and would of necessity curtail their purchases of commodities in this country at the very time we are eager to im- prove our foreign trade and our foreign relations. This Regraded Uclassified 11 - 6 - Committee is fully cognizant of the troubled condition of world commerce. I hope you will agree that this is not the appropriate time to inject another disturbing element into this already chaotic situation. This Committee has been authorized by the Senate to study and recommend a national monetary and banking policy and to consider and recommend the character of governmental machinery best calculated to carry out such a policy. Such a study, I assume, would be comprehensive in its nature and would necessarily include a study of the entire silver problem and the relation of silver to the other problems in the monetary field, It seems to me that the wise course is to re-examine our silver purchase program in the light of the entire monetary structure rather than attempt to treat it independently and prior to the completion of such a study, Regraded Uclassified 12 Table I Net Imports, Mint Acquisitions and Treasury Purchases of Foreign Silver, 1933 to date (In millions of ounces) Year : Net : Treasury : Mint and : Imports : purchases of : acquisitions month : 1/ : foreign silver : of foreign silver 1933 117.7 - - 1934 170.8 216.1 172.5 1935 525.7 597.9 494.4 1936 393.7 185.4 271.9 1937 194.9 255.0 241.5 1938 516.8 449.5 355.4 1939 177.4 159.6 282.8 1939-Jan 20.3 30.2 41.3 Feb 18.4 14.5 21.2 Mar 12.4 17.6 24.6 Apr 11.9 16.6 26.1 May 13.0 25.8 24.7 June 34.5 25.6 32.2 July 14.0 10.1 28.6 Aug 9.5 1.5 22.8 Sept 9.1 .2 17.8 Oct 15.4 3.1 11.4 Nov 10.6 6.4 15.3 Dec 8.3 8.0 16.8 1940-Jan 15.4 12.8 14.0 Feb 10.9 13.0 20.9 Mar (2 weeks) 7.4 Total 2,123.3 1,896.7 1,853.4 Treasury Department, Division of Monetary Research March 18,1940 Based upon the Commerce statistics of monthly imports and exports of silver converted to ounces by dividing by the aver- age monthly price of silver in New York as given by the Bureau of the Mint. Included in net imports are about 2.8 million ounces of silver from the Philippine Islands received by the U. B. mints under the classification of newly-mined domestic silver. Regraded Uclassified 13 Table II CONSOLIDATION OF ALL SILVER PURCHASES FROM THE ENACTMENT OF THE SILVER PURCHASE ACT ON JUNE 19, 1934 TO DEC. 11, 1935 - WITH - PURCHASES FROM DEC. 12, 1935 TO FEB. 15, 1940 Figures are shown in thousands only. When 500 or under, the amount has been dropped, when over, it has been added. This applies to both the ounces and the dollars on this summary. PERIOD OF June 19, 1934 to Dec. 11, 1935 Dec.12,1935 to Feb. .15,1940 TOTAL Source OZS. .999 Fine Cost 0ZS. .999 Fine Cost 028. .999 Fine Cost NEW PRODUCTION SILVER Countries south of the U. S. Various countries - 3 - 56,834 $ 24,366 56,834 $ 24,366 Mexico 72,493 45,924 60,833 26,500 133,326 72,424 Mexico under agreement - - 123,010 55,129 123,010 55,129 Sub-Total 72,493 45,924 240,677 105,995 313,170 151,919 Various Countries (not identified) - I 84,754 35,987 84,754 35,987 All Canada I - 62,507 26,876 62,507 26,876 Total New Pro- duction Silver 72,493 $45,924 387,938 $168,858 460,431 $214,782 * * # * * * - Regraded Uclassified 14 Table II, (continued) PERIOD OF June 19, 1934 to Dec.11,1935 Dec.12, 1935 to Feb.15, 1940 TOTAL Source OZS. .999 Fine Cost OZS. .999 Fine Cost OZS. .999 Fine Cost TRADING AND INVENTORY SILVER New York 174,491 $97,832 112,026 $ 49,638 286,517 $147,470 * * # * # * * OTHER PURCHASES OF SILVER Various Countries 6,687 $ 2,875 6,768 $ 2,935 Canada 81 $ 60 London 460,716 287,095 32,082 14,822 492,798 301,917 All others 75,422 46,584 539,422 260,911 668,844 307,495 Total other pur- chases of silver 536,219 $333,739 632,191 $278,608 1,168,410 $612,347 Grand Total 783,203 3477,495 1,132,155 $497,104 1,915,358 $974,599 Regraded Uclassified 2018 III IF C 311726 THE - in University aly- The 500 of calor, TM cast 3Y you TWM - - over, It nas been eddet. This emittee to 18. 2018 - rever 15, 1440 - and sõe Sollare on this exempty. (omes 999 7182) 1935 - December 12 to 31. 1446 1937 1935 1939 1940 I to No. is Total THE Number One Cost Das. tot Day. lost Du Cost Du Cast One Cost las. Dent NST PRODUCTION DILVER State of United States - 4 - - $ - - à - 155 3 71 1,250 # 535 - - 1,215 I 604 Argentina Chile - - 1 - I 210 8. - - - - ao 8. and Othere - - - - - 115 53 - , 1 - 115 51 . - 170 351 1,443 630 400 176 100 43 I La - 2,671 1,3% I - 1 - - 12 5 - - - - 12 5 Cube - - , - - 15 If 16 6 - a 31 12 nd Others , - - - - - 26 11 - - - - 26 11 Crumber - - - - - . 1/ 12 5 1 / 10 5 Duader nell Others - - 345 65 - - - . - - - 145 Gs EL inlvedor , - - - - RS 22 - 1 65 R / I 1,486 bay LINE 758 7.329 1,000 4,753 1,750 ENG 220 19,364 4.381 Home - - I 180 A - ) - tar TM Perso 100 62 8,423 3,791 8,216 1,697 12,655 5,498 9.198 3.719 1,85 Set WILMIS 17,409 Victure - - - - 11 5 1,201 W2 - - 1,912 857 5,019 2,760 107 45 57 773 28,932 12,443 25,795 10,707 719 71 60,WII 16,500 Norker los - 35,464 24,935 53,545 21,451 15,001 6,701 - - - 123,010 55,129 Oub-Total 9,115 2,823 66,335 29,233 64.595 18,913 59.071 36,063 43,454 17,217 3,773 7,349 240,577 105,900 (not (dentified) Total 5.555 3,048 78,165 15,751 80,206 35.938 2,98 36,094 56,621 27,843 11,99 4,167 325.411 141,90- - United Accident - - 7,497 3,350 9,759 4,350 14.419 5,212 12,136 4,818 1,992 GOT 45,823 19.497 Others 2,071 1,150 1,500 667 1,727 1,671 1,126 1,93 4,700 1,091 161 217 16,899 7,379 Total 2.00 1,15 6.997 @.017 13,486 6,037 15,167 1.675 17.71 0.309 155 / 35,876 the Traduction Silver 7,624 4,202 87,162 19,258 93,642 41.976 101,151 43,969 63,652 34,292 14,657 5,118 387,938 158,855 TRADING SLLVER form India Skiver 2.965 1,632 18,053 2.337 10,426 4,602 13,428 5.728 14,736 6,229 1,427 5nd 61,035 27.17€ INVENTORY ILVE - lark Investory Silver 7.80 4,400 4,040 2.095 7,154 1.597 10,908 4,728 12,899 5,314 6,664 2,336 50,991 22,460 OTHER PURCHASES OF SILVER isk I - - 1 - - 5,6m EV075 - - - I 6,687 2,875 Inside 9.277 4,962 9,050 5.955 11,806 5.055 1,949 As - - - I 32,082 14,882 Sinte - - F 1 - - 35,000 15.05% - - I - 35,000 15,030 Republic - I I - - 197 a - - - - 190 & Special Purchase - 1 I I 35,000 15,750 - - . - I 1 35,00 15.750 Insue de to live York 172 1117 - 1 - - - - - - F - 172 107 - 13 33 I - - - - Il 71 XX Sub-Total 3,449 5,069 0,12% 1,90 46,805 aum 41,886 16,051 - - - - 104,23 48,714 the Daten 115 174 66,975 11,157 130,00€ 56,512 265.890 115,530 33,341 15.782 I 1 496,349 718,760 India 3,647 1,961 1 - - F - - - - - - 3,587 1,96% Jejan - - 100 45 - - - - - . - # 100 45 Invo - - , - - - - - - 15 12 35 12 Ongla of 71 (Stra) - - 5,135 1,655 6,156 - . 22,716 9,911 1,802 2,035 E1,075 30,202 130,02E 54,412 274,391 119,105 07.650 10.943 35 17 522,987 229,579 MUI sliver 11,251 7.1% 76,198 14,190 176,812 79,17% $16.227 11,018 42,650 19,941 35 12 652,191 278,608 TRAND TOTAL 31.720 $17,334 $71,910 $129,506 057.523 158,945 22,76) $7,969 1,130,155 $497,104 Regraded Uclassified 16 Table IV MONETARY STOCKS OF GOLD AND SILVER (In millions of dollars - on basis, daily Treasury statements, revised) End of fiscal year or month Gold ($35 per Silver ($1.29* per Ratio of Silver fine ounce) fine ounce) to Gold and Silver in Monetary Stocks 1934 7,856.2 898.2 10.3 1935 9,115.6 1,463.1 13.8 1936 10,608.4 2,249.5 17.5 1937 12,318.3 2,542.1 17.2 1938 12,963.0 3,066.4 19.1 1939 16,110.0 3,595.3 18.2 1939 Jan 14,681.7 3,404.8 18.8 Feb 14,874.4 3,439.4 18.8 Mar 15,258.2 3,477.9 18.6 Apr 15,790.6 3,518.0 18.2 May 15,956.7 3,555.8 18.2 June 16,110.1 3,605.2 18.3 July 16,238.0 3,649.1 18.3 Aug 16,645.7 3,682.4 18.1 Sept 16,931.5 3,709.8 18.0 Oct 17,091.4 3,733.7 17.9 Nov 17,358.5 3,762.0 17.8 Dec 17,643.6 3,790.2 17.7 1940 Jan 17,931.0 3,817.6 17.6 Feb* 18,177.5 3,838.7 17.4 * Preliminary Division of Monetary Research March 18, 1940 17 Table V Silver of Specified Classifications Acquired by Mints and Assay Offices (In millions) Calendar : Newly mined : domestic 1/ Nationalized E : Foreign 31 : Total year or : : : month : Ounces : Dollars : Ounces : Dollars : Ounces : Dollars : Ounces : Dollars 1934 21.8 14.1 110.6 55.3 172.5 86.5 304.9 155.9 1935 38.0 27.3 2.0 1.0 494.4 318.2 534.3 346.5 1936 61.1 47.3 .4 .2 271.9 150.3 333.4 197.9 1937 70.6 54.6 - - 241.5 108.7 312.2 163.4 1938 61.6 42.2 - - 355.4 156.9 417.1 190.1 1939 60.7 39.9 I - 282.8 120.5 343.3 160.4 1939-Jan 4.5 2.9 - I 41.3 17.8 45.8 20.7 Feb 5.1 3.3 - I 21.2 9.1 26.3 12.4 Mar 5.4 3.5 I I 24.6 10.6 30.0 14.1 Apr 4.9 3.2 - - 26.1 11.2 31.0 14.4 May 4.7 3.0 - - 24.7 10.6 29.3 13.6 June 5.8 3.7 - - 32.2 13.8 38.0 17.5 July 5.4 3.4 - - 28.6 12.0 33.9 15.4 Aug 3.1 2.0 I 1 22.8 9.7 25.9 11.7 Sept 3.0 2.0 I 1 17.8 7.7 20.8 9.7 Oct 7.2 4.8 1 I 11.4 4.9 18.6 9.7 Nov 6.5 4.5 I I 15.3 6.3 21.8 10.8 Dec 5.1 3.6 - - 16.8 6.8 21.9 10.4 1940-Jan 7.3 5.2 - - 14.0 5.7 21.3 10.9 Feb 4.5 3.2 - - 20.9 7.8 25.4 11.0 Treasury Department, Division of Monetary Research March 18, 1940. 1/Acquired at 64.64+ cents per fine ounce until April 9, 1935; at 71.114 cents per fine ounce from that date until April 23, 1935; at 77.574 cents from April 23, 1935 to December 31, 1937; at 64.644 cents per fine ounce from December 31, 1937 to July 1,1939; and at 71.11+ cents since July 1, 1939. 2/Acquired at 50.01 cents per fine ounce. Exec. Proc. of August 9, 1934, repealed April 28, 1938. 3/Acquired at verious prices averaging approximately 52 cents per ounce. 18 Table VI AMOUNTS COLLECTED PURSUANT TO 50% SILVER PROFITS TAX (Sec. 1805 Int. Rev. Code) Fiscal Year Amount 1935 $1,149,390 1936 685,188 1937 633,712 1938 142,107 1939 261,772 1940 (first 7 months) 131,028 Total $3,003,197 During this period approximately 25,000 returns were filed with respect to this tax. O 0 O Regraded Uclassified 19 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Rio de Janeiro NO.: 119 DATE: March 19, 1940 Reference is made to Department's telegram no. 72 of March 15 and to my no. 114 of March 16. The states and municipalities have already been notified by the Ministry of Finance that they should prepare to make the necessary payments in milreis. These payments are to be deposited with the Bank of Brazil, which will be charged with distributing foreign exchange to the paying agents abroad. For your confi- dential information, it 1s hoped by the Ministry of Finance that it will be possible to distribute the total amount of foreign exchange which 18 payable in April at one time rather than to distribute it piecemeal as the milreis are deposited by the several states. Instructions to the paying agents for the individual loans are now being prepared by the Government. These instructions may be received by the paying agents by the last part of next week. With reference to details regarding Article III, I am still awaiting the delayed return of the official mentioned from Pocos de Caldas. CAFFERY EA:EB Regraded Uclassifie 20 Statement of Secretary Morgenthau Before the Senate Committee on Banking and Currency, March 19, 1940. As I understand it, this Committee is considering a bill proposed by Senator Townsend, the effect of which would be to terminate all power and authority of the President, the Secretary of the Treasury, and any other agency in the Executive branch of the Government with respect to the acquisition of silver (except newly-mined domestic silver acquired pursuant to section 4 of the Act of July 6, 1939), and also to terminate any orders, regulations, and other action taken with respect to silver. The bill would also terminate the existing fifty percent profits tax imposed on transfers of silver. Regraded Uclassified 21 - 2 - I assume that the Committee, in determining what should be the future policy of the United States with respect to silver, would want to be fully informed as to what we have been doing during the last six years to carry out the duties and responsibilities that have been placed upon us by the Congress. Accordingly, I have brought with me today records of our acquisitions of silver since 1933. I have also brought with me members of the Treasury staff who will be able to supply the Committee with any available information concerning the administration of the Silver Purchase Act and the acquisition of silver. Regraded Uclassified 22 - 3 - I have had prepared for the convenience of the Committee summary tables showing the silver contracted for by the Treasury, the acquisitions of silver by the Treasury, and the imports of silver into the United States since 1933. I should like to mention that the difference between the figures of silver contracted for and the figures of silver acquisitions shown in the tables lies in the fact that the first set of figures records the silver purchased regardless of when delivery is to be made; and the acquisition figures record the a ctual silver received by the mints and assay offices pursuant to such purchases. Regraded Uclassifie - 4 - 23 Incidentally it is the latter figures which have been made public from time to time and appear in the monthly Bulletin of the Treasury Department. I might also mention that none of these figures include acquisitions of newly- mined domestic silver or silver which was nationalized pursuant to the Executive Order of August 9, 1934. I would also like to leave with your Committee several statements which are a consolidation of all foreign silver purchases up to February 15, 1940. These consolidated statements were prepared for the use of this Committee by our fiscal agent, the Federal Reserve Bank of New York, at the direction of the Treasury Department. These statements show the country which is the source of silver purchased by the Treasury wherever such information was known to the Treasury. Regraded Uclassified - 5 - 24 I presume the Committee is also interested in figures showing the relative proportions of gold and silver in the monetary stocks of the United States at various dates. I have here a statement of such figures for the use of the Committee. You will note that notwithstanding continued acquisitions of silver, both domestic and foreign, by the Treasury during the six year period, the ratio of silver to our total monetary stocks has not reached the ratio stipulated in the Silver Purchase Act. The obvious reason for this has been the increase in our gold acquisitions. In order that the Committee may have before it a complete picture of the silver acquired by the United States since 1933 the Department has also prepared a statement showing the amounts of newly-mined domestic silver and nationalized silver acquired since 1933. 25 - 6 - I have also prepared a statement showing the amounts collected each year by virtue of the fifty percent silver profits tax. You will note that the amount of taxes collected in each of the first three years of the silver profits tax is substantially greater than the amount of tax collected in each year thereafter. One reason for this 1s that the yield of the tax is higher during a period of rising silver prices than during a period of stable or declining silver prices. The Committee may have a number of questions which it would like to ask in connection with these tables. The members of my staff, who are here with me today, are available to answer such inquiries. Regraded Uclassified 26 - 7 - I should also like to explain how we have been purchasing silver. Firstly, we acquire silver for spot delivery. That means that the silver is delivered to us no later than the working day following the purchase of the silver. Generally speaking, silver which we purchase for spot delivery comes from the stocks or inventories of refining companies, or other dealers in silver such as banking institutions, etc. Secondly, silver which is newly-mined silver production of foreign countries is purchased by us for future delivery. Under our present practice we permit up to five months' time for delivery of silver thus purchased. Regraded Uclassified 27 - 8 - Thirdly, the Treasury acquires silver pursuant to special arrangements with certain foreign countries. The Treasury normally requires that the silver which it purchases bear the stamp of a refinery located in the United States; and in carrying out the silver purchase program, the Treasury has sought to divert to American refining companies a considerable amount of business which otherwise would have gone to foreign refiners. In all the instances in which the Treasury purchased silver directly from a foreign government the price which the Treasury paid for the silver did not exceed the market price for silver prevailing at the time of the purchase. This was, of course, also true of all other purchases of silver under the Silver Purchase Act. Regraded Jclassifie 28 - 9 - As you know, the Treasury has made special arrangements with various foreign countries relating to the purchase of silver. The first, and perhaps the most important of such arrangements was made with China. In June, 1936, and from time to time thereafter the Treasury entered into arrangements with China pursuant to which it acquired approximately 565,855,000 ounces of Chinese silver. Beginning with January, 1936, and up to March 31, 1938, the Treasury had a special arrangement with Mexico pursuant to which Mexico had the privilege of offering to the Treasury up to 5-million ounces a month of newly-mined Mexican silver production. We permitted this special arrangement to expire on March 31, 1938, and it has not been renewed. Regraded Uclassified 29 - 10 - Since then Mexican newly-mined silver has been imported into the United States and has been offered for sale on the New York market. Such silver when acquired by the Treasury is acquired as any other silver in this country and bears the stamp of an American refinery located in this country. The third special arrangement is the one which the Treasury has with Canada. Pursuant to this arrangement Canada is given the privilege of offering to us up to 1,200,000 ounces of newly-mined Canadian silver monthly. This arrangement is on a monthly basis and continues in full operation and effect. Regraded Uclassified 30 - 11 - Pursuant to mandate of Congress the Government has acquired a large stock of silver. In more recent years there has been greater stability in the price of silver than in prior years. Many countries with whom we have friendly relations have, or produce, substantial quantities of silver and it 1s very helpful to such countries that they be able to use such silver in order to acquire needed dollar exchange. If there were to be a substantial decline in the price of silver such countries would suffer, and would of necessity curtail their purchases of commodities in this country at the very time we are eager to improve our foreign trade and our foreign relations. This Committee is fully cognizant of the troubled condition of world commerce. 31 - 12 - I hope you will agree that this is not the appropriate time to inject another disturbing element into this already chaotic situation. This Committee has been authorized by the Senate to study and recommend a national monetary and banking policy and to consider and recommend the character of governmental machinery best calculated to carry out such a policy. Such a study, I assume, would be comprehensive in its nature and would necessarily include a study of the entire silver problem and the relation of silver to the other problems in the monetary field. It seems to me that the wise course is to re-examine our silver purchase program in the light of the entire monetary structure rather than attempt to treat it independently and prior to the completion of such a study. Regraded Uclassified 31 - 12 - I hope you will agree that this 1s not the appropriate time to inject another disturbing element into this already chaotic situation. This Committee has been authorized by the Senate to study and recommend a national monetary and banking policy and to consider and recommend the character of governmental machinery best calculated to carry out such a policy. Such a study, I assume, would be comprehensive in its nature and would necessarily include a study of the entire silver problem and the relation of silver to the other problems in the monetary field. It seems to me that the wise course is to re-examine our silver purchase program in the light of the entire monetary structure rather than attempt to treat it independently and prior to the completion of such a study. Regraded Uclassified 32 TREASURY DEPARTMENT PROCUREMENT DIVISION FICE OF THE DIRECTOR WASHINGTON March 19, 1940 MEMORANDUM FOR THE SECRETARY Yesterday morning Mr. Joseph C. Green, Chief of the Division of Controls, State Department, accompanied by Mr. Lawrence Duggan, Chief of the Division of American Republics; Mr. Selden Chapin, Chief of the Liaison Division; brought to my office Senor Bianchi, the Chilean Ambassador to Spain who is now in this country on a special arms purchase; and Major Marin, his assis- tant, for the discussion of ordnance materiel which it is desired to procure in the United States. This afternoon I received from Mr. Chapin a list of materiel which they desire to purchase which has been forwarded to both the Army and the Navy for action. Although I understood from the Ambassador that he had been in this country three months, yesterday was the first time I had heard of their wishes with reference to the materiel they want to purchase. Chairman, President's Liaison Committee Regraded Uclassified 33 MAR 19 1940 Dear Mr. Cheirman: In answer to your letter dated March 13, 1940. I have pleasure in informing you that I shall be happy to have Mr. Purcell consult at any time with Mr. Cochran in regard to the details of an arrangement whereby there will be made promptly available to you the figures which are 78- ceived here in strictest confidence in regard to official sales of dollar securities by the British Government. It 10 my suggestion that Mr. Cochran telephone the data directly to Mr. Purcell AS and when received from the British officials. I have definitely insured the responsibility that the date which the British Government 10 giving in regard to security sales on this market shall be considered strictly confidential. I have undertaken that these date shall not be published. by this I include prohibition against using the figures given in confidence by the Dritish to correct or emplify or supplement any figures which are already being published by this Government. Furthermore. I have premised that the 10g which has obtained in the past in the publishing of figures in regard to cepital acvements shall be maintained. The figures received each day by Mr. Cochran are given to as by him, but are not circulated to any other officer or member of my staff. Any arrangement whereby these figures ATO passed on to you is subject to the condition that the case rules be fellowed in the Securities and Exchange Commission that have been adopted in the Treasury with the view to enfeguarding the confidential character of this material. Very truly yours, (Signed) H. Morgenthau, Jr. fecretary of the Treasury. ORIGINAL FORWARDED TO ADDRESSEE Honorable Jerome S. Frank, FROM OFFICE OF THE SECRETARY Chairman, Securities and Brohange Commission, By Messenger MAR 1 1940 so Washington, D. C. File to Mr. Thompson Regraded Uclassified 34 1 9 1940 Regraded Uclassified Dear Mr. Chairman: In answer to your letter dated March 13, 1940, I have pleasure in informing you that I shall be happy to have Mr. Purcell consult at any time with Mr. Cochran in regard to the details of an arrangement whereby there will he made promptly available to you the figures which are 20- ceived here in strictest confidence in regard to official sales of dollar securities by the British Government. It is my suggestion that Mr. Cochran telephone the data directly to Mr. Purcell as and when received from the British officials. I have definitely assumed the responsibility that the date which the British Government 10 giving in regard to security sales on this market shall be considered strictly confidential. I have undertaken that these data shall not be published. By this I include prohibition against using the figures given in confidence by the British to correct or suplify or supplement any figures which are already being published by this Government. Furthermore, I have premised that the lag which has obtained in the past in the publishing of figures in regard to capital movements shall be maintained. The figures received each day by Mr. Cochren are given to me by him, but are not circulated to any other officer or member of ay staff. Any arrangement whereby these figures are passed on to you is subject to the condition that the case rules be followed in the Securities and Exchange Commission that have been adopted in the Treasury with the view to sufeguarding the confidential character of this material. Very truly yours, (Signed) H. Morgenthau, Jr. Secretary of the Treasury. ORIGINAL FORWARDED TO ADDRESSEE Honorable Jerome 3. Frank, FROM OFFICE OF THE SECRETARY Chairman, Securities and Exchange Commission, By Messenger MAR 19 1940 9:50a.m. Washington, D. C. 78ml EMC:rmation 33 MAR 1 9 1940 Dear Mr. Chairman: In answer to your letter dated March 13, 1940, I have pleasure in informing you that I shall be happy to have Mr. Purcell consult at any time with Mr. Cochran in regard to the details of an arrangement whereby there will be made promptly available to you the figures which are re- ceived here in strictest confidence in regard to official sales of dollar securities by the British Government. It is my suggestion that Mr. Cochran telephone the data directly to Mr. Purcell 88 and when received from the British officials. I have definitely assumed the responsibility that the data which the British Government 1s giving in regard to security sales on this market shall be considered strictly confidential. I have undertaken that these data shall not be published. By this I include prohibition against using the figures given in confidence by the British to correct or amplify or supplement any figures which are already being published by this Government. Furthermore, I have promised that the 128 which has obtained in the past in the publishing of figures in regard to capital movements shall be maintained. The figures received each day by Mr. Cochran are given to us by him, but are not circulated to any other officer or member of Ky staff. Any arrangement whereby these figures are passed on to you is subject to the condition that the same rules be followed in the Securities and Exchange Commission tant have been adopted in the Treasury with the view to safeguarding the confidential character of this material. Very truly yours, (Signed) H. Morgenthau, Jr Secretary of the Treasury. ORIGINAL FORWARDED TO ADDRESSEE Honorable Jerome H. Frank, FROM OFFICE OF THE SECRETARY Chairman, Securities and Exchange Commission, Washington, D. c. By Messenger MAR I 9 1940 9:50a.m. HMC:rma:kma Regraded Uclassified 36 SECURITIES AND EXCHANGE COMMISSION WASHINGTON ICE OF THE CHAIRMAN Narch 13, 1940 Sir: As you may know, this Commission obtains, on a voluntary basis from some forty member firms of the New York Stock Exchange, daily figures 88 to trans- actions effected by them pursuant to orders emanat- ing from foreign sources. The information is, of course, ootained only from this limited number of firms having foreign connections and customarily doing a large volume of foreign business and is obtained only with respect to transactions known to the firms to have originated abroad. These figures cannot be re- garded as inclusive or entirely accurate, They have, however, when properly applied proved somewhat useful to our staff from of statistical point of view in at- tempting to appraise the effect of foreign trading in our securities markets. Recently it has been publicly announced that the British Government has, by order pursuant to previously adopted regulations, vested title in Mis Majesty's Treasury to securities previously held by British citizens of sixt- different American issuers. It was concurrently announced that those securities would be liquidated in an orderly manner through representatives of the British Government in this country. As I told you over the telephone, it is highly probable that salas of these securities will be made in such a manner B.S to result in many of the trans- actions not appearing on the reports which we presently obtain in the manner which I have described. I under- stand from you that under agreement with the British Government, you are currently obtaining daily figures on transactions in American securities entered into by the British representatives in New York. The Commission would very much appreciate it if a copy of these figures could be made available to us as they are received by your Department 80 that our foreign transactions statistics Regraded Uclassified 37 - 2 - may not become entirely useless to us. The Commission would, of course, subject itself to whatever conditions you might wish to attach with respect to the disclosure or public use of this information. I understood you over the telephone to say that you would be obliged to condition the Commission's receiving these figures upon an assurance from us that they would be treated as strictly confidential and for restricted statistical use only and would not in any way be made public property without prior approval by you. If this request meets with your approval, I would appreciate it if you would fix some convenient time when Mr. Purcell, Director of our Trading and Exchange Division could meet with the appropriate officials of your Depart- ment to work out the details of whatever arrangement is satisfactory to you. Very truly yours, Jerome Chairman. N. Frank, The Honorable, The Secretary of the Treasury, Washington, D. C. Regraded Uclassified 700 38 March 19, 1940 To: The Secretary From: Mr. Young Re: Loans to Small Business Mead Bill, S. 2998, Introduced October 31, 1939 This bill creates an Industrial Loan Corporation by amend- ing section 13b of the Federal Reserve Act. The Corporation would have officers and directors identi- cal with the Board of Governors of the Federal Reserve System and operate upon a decentralized basis presumably through Federal Reserve banks as agents. The Corporation would provide funds to commercial and indus- trial businesses on not more than a ten year basis with a maximum of $1,000,000 to any one business at any one time, The capital stock and surplus of the Corporation are to be obtained by sale to the Secretary of the Treasury of the F.D.I.C. stock heretofore subscribed to by the Federal Reserve banks and paid for out of devaluation profits. Provision is made for a $25,000,000 (maximum) insurance fund to be used for insuring F.D.I.C. insured banks against losses from conmercial or industrial loans. Insured loans are limited to $25,000 per obligor. Pepper Bill, S. 3511, Introduced March 4, 1940. This bill is very similar to the Mead Bill (s. 2998). It provides for an Industrial Loan Corporation under the control of the Board of Governors of the Federal Reserve System which would operate through the Reserve Banks on a decentralized basis. The Corporation would provide funds to commercial or indus- trial businesses on not more than a ten year basis but with a maximum of $25,000 to any one business at any one time. Regraded Uclassified 39 - 2 - The Corporation would have a capital stock and surplus of about $139,000,000 to be obtained by sale to the Secretary of the Treasury of the F.D.I.C. stock heretofore subscribed to by the Federal Reserve banks and paid for out of devaluation profits. Provision is made for an insurance fund (no maximum stated) to be used for insuring banks against losses from commercial or industrial loans. Insured loans are limited to $25,000 per obligor. Mend Bill, S. 3343, Introduced February 13, 1940 Section 13b of the Federal Reserve Act authorizes loans to, or purchases of obligations of, established industrial or commer- cial businesses for the purpose of providing working capital, the loans or obligations to mature in five years. This bill would make possible loans to new business enter- prises and broaden the scope of such loans by removing the re- quirements that the obligor be an established business enterprise, that the advances be for working cenital and that the loans or obligations mature in five years. Purther, the amount of loss to be assumed by financial institutions from which Federal Reserve banks had purchased obli- gations under section 13b would be decreased from 20 per centum to 10 per centum. Funds for loans under this bill would be made available through the purchase of F.D.I.C. stock from the Federal Reserve banks by the Treasury end paid for out of devaluation profits. P.Y. Regraded Uclassified 40 TREASURY DEPARTMENT WASHINGTON March 19, 1940. MEMORANDUM FOR THE SECRETARY: Just as a matter of interest, I am attaching state- ments of shipments from New York and from the West Coast etc. Basil Karris. Encl. Regraded Uclassifie 41 Shipments from New York PIETRO ORSEOLO from New York, January 24, believed for Vladivo- stock via Los Angeles (bunkers) 12/2/40, -5,177 tons copper, 94 steel, 1,024 brass, 224 tin, 2,520 machinery, etc. Suppliers included American Smelting and Refining Company, Copper Export Association, Whipple and Choate, E. F. Hutton Company, Bridgeport Brass, Co. * LIBERTY GLO from New York, January 31 for Vladivostock via Philadelphia. No details cargo. SYLVAPLANA from New York, February 4, Vladivostock via Clare- mont,-3,000 tons copper, 2,522 brass, 57 steel, 2,000 general, 389 rags. #: HARPOON Reported loaded copper and lead at New York which was transhipped to S.S. MINSK February 6 at Man- zanillo and balance in S.S. KIM later. ORGONTZ from New York February 8, believed for Vladivostock. No details cargo. WILDWOOD from New York, February 20, for Vladivostock- 4,188 tons copper, 981 brass, 335 steel, 1,475 gen- eral machinery. NORBRYN To sail during the next few days from New York for Vladivostock. No details yet, except for 85 tons latex. TEXAS Reported to be sailing from New York about Merch 15, for Vladivostock. N.B. One hundred tons of tin of British origin was purchased during the last few days by the Russians by means of a subterfuge. *LIBERTY GLO left Los Angeles for San Francisco on February 24th and will load lumber for U. S. ports and not Vladivostock. 2 HARPOON is proceeding to Puget Sound to load lumber for Atlantic seaboard ports. 42 Shipments from West Coast, etc. VLADIMIR MAYAKOWSKI from Los Angeles, February 8, for Vladivostock- 5,000 tons copper loaded at Manzanillo ex PIETRO ORSEOLO, GUYAQUIL and buenaventura, 216 tons molybdenum loaded San Pedro and supplied by Climax Molybdenum Company. FRIEDRICH ENGELS from Seattle, February 24, with 4,500 tons wheat loaded at Portland, and copper from Manzanillo bound for Vladivostock. Supplier of wheat was Continental Grain Company. NORTH STAR and NORTH KING loaded copper at Tacoma for Vladivostock during January, the latter reported to have sailed from Tacoma January 31, with 5,000 tons copper. * MINSK and KIM loaded copper, etc. at Manzanillo and were expected to leave for Vladivostock, February 20. GERASSIMOS VERGOTTIS is reported to be about to load 5,000 tons or wheat at Portland, Oregon for Vladivostock, PENELOPE supplied by Archer Daniels Midland Company. AMERICAN ROBIN may have sailed from Canal Zone direct to Vladivostock. Details cargo unknown. MEDICIO reported to have loaded at Baltimore recently. Destination uncertain. SEGUNDO and ANNA ODLAND reported may load Continental Grain Company's wheat at Portland soon. * MINSK left San Diego March 1st for Columbia River, probably Portland, via Los Angeles, to load full cargo of grain for Vladivostock. Regraded Uclassified 43 JR PLAIN London Lated March 19, 1940 Rec'd 1:02 p.m. Secretary of State, Washington. 690, March 19, 7 p.m. FOR TREASURY FROM BUTTERVORTH. '`The new three per cent war loan has remained today at a 1/2 to 3/8 discount and the city feels that the British monetary authorities are to blame for announcing the new minimum prices yesterday. This has added to the city's feeling of despondency which larger considerations had already induced. KENNEDY HPD 44 HSM GRAY Paris Dated March 19, 1940 Rec'd 2:42 P. m. Secretary of State, Washington, 362, March 19, 6 P, ml Today's Journal Official publishes Government revenue returns for the month of January 1940. Normal and permanent budgetary revenue totaled 5353 million francs an increase of 550 million over the figure for the corresponding month in 1939 but lower by 173,000,000 than DECEMBER 1939 (my telegram No. 288, March 4, 6 p.m.). The increase in revenue over January 1939 was occasioned both by yields from new levies introduced later in the year such as the armament tax (449 million) and the special national salaries tax (143 million) and by aug- mented returns from the income tax (202 million) the business turnover tax 72 million sugar and saccharine levies 58 million and customs 50 million. Reductions in relation to January 1939 collections occurred with respect to revenue from registration fees 121 million tax on income from stocks and bonds 86 million stamp taxes 54 million special indirect taxes 41 million and tax on stock Exchange operations 8 millions. MURPHY CSB STRICTLY CONFIDENTIAL 45 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 19, 1940 TO Secretary Morgenthau FROM Mr. Cochran Mr. Pinsent telephoned me this afternoon that official sales of British securities on Monday, March 18, were: 4,900 164,753 Nil Nil Pinsent said that he had been talking by telephone with Mr. Gifford, who is not at all enthusiastic about going ahead with a second vesting operation toward the end of March. Gifford thinks this would be too early for such a step. Further exchange of views with London on this point is now taking place. B.M.P. Regraded Uclassified STRICTLY CONFIDENTIAL TREASURY DEPARTMENT 46 INTER OFFICE COMMUNICATION DATE March 19. 1940 TO Secretary Morgenthau FROM Mr. Cochran Summary of Incoming Reports - March 19, 1940. From Berlin, #657, March 15, 1940. An appeal w3.8 made by Goering to the civil population voluntarily to offer as a present to the Fuehrer on his birthday, April 20, all objects which they can dispense with which are made of copper, brass, bronze, lead, tin, nickel, and "German silver". An order was issued March 13 prohibiting the employment in general of copper, nickel, chromium, cobalt, zinc, mercury, lead, tin, aluminum and magnesium in a long list of parts of industrial machinery, locomotives and vehicles. From Butterworth, London, #681, dated March 18, 1940. Chancellor of the Exchequer announced that 6300 million three percent war loan had been over-subscribed. From Butterworth, London, #690, dated March 19. 1940. The new three percent war loan has remained today at a 1/2 to 3/8 dis- count and the city feels that the British monetary authorities are to blame for announcing the new minimum prices yesterday. This has added to the city's feeling of despondency which larger considerations had already induced. From Matthews, Paris, #357, dated March 18, 1940. A private French banker estimates French private holdings of dollar exchange at $150,000,000. Ee says a substantial amount of French owned dollar securities is in Switzerland, where the French authorities will find it dif- ficult to get their hands on such securities. From Embassy, Rio de Janeiro, Written Report 2653, March 1, 1940. Brazilian Government plans to proceed with construction of steel plant, hoping for assistance from Mr. Thomas Fatson and Mr. Gerard Swope, together with the Export-Import Bank, and perhaps European interests. B.M.R. Regraded Uclassified 4 e TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE March 19, 1940 TO Secretary Morgenthau FROM Mr. Cochren The reported volume of business in sterling today was about the same as that of yesterday. In Amsterdam, the rate for sterling declined from 3.77 to 3.75-5/8. In New York, the opening quotation was also 3.75-5/8. The rate moved in an erratic manner during the morning, fluctuating between a high of 3.76-3/8 and & low of 3.75-1/4. During most of the afternoon, it remained steady at 3.75-1/2. The final quotation was 3.75-1/4. Sales of spot sterling by the six reporting banks totaled 1 673,000, from the following sources: By commercial concerns I 200,000 By foreign banks (Far East, Europe and South America) I 473.000 Total L 673,000 Purchases of spot sterling amounted to 6 554,000, as indicated below: By commercial concerns L 291,000 By foreign banks (Far East and Europe) 1 263,000 Total 10 554,000 The following reporting banks sold cotton bills totaling 1 18,000 to the British Control on the basis of the official rate of 4.02-1/2: 1 15,000 by the Irving Trust Company 2,000 by the National City Bank 1,000 by the Chase National Bank 1 18,000 Total The rate for the belga reached a new current high of .1704 and closed at .1702. The other important currencies closed as follows: French france .0212-5/8 Guilders .5310 Swiss france .2242-1/2 Canadian dollars 18-1/8% discount The Federal Reserve Bank purchased 50,000 Swies francs for account of the Bank of Latvis. We purchased $2,000,000 in gold from the earmarked account of the Bank of Venezuela. CONFIDENTIAL Regraded Uclassified 48 - 2 - The Federal Reserve Bank of New York reported that the Banque Belge pour l'Etranger, London, shipped $56,000 in gold from England to its New York agency for sale to the U. S, Assay Office. The State Department forwarded to us cables stating that the following gold shipments would be made: $16,935,000 from Sweden, representing four shipments by the Bank of Sweden for its own account to the Federal Reserve Bank of New York. 5,984,000 from Hungary, shipped by the National Bank of Hungary to the Federal Reserve Bank of New York. 205,000 from Hong Kong, shipped by the National City Bank, Hong Kong, to the American Trust Co., San Francisco. 129,000 from Hong Kong, shipped by the Chase Bank, Hong Kong, to the Chase National Bank, San Francisco. 113,000 from Switzerland, shipped by the Benque Federal, Bern, to the National City Bank, New York. $23,366,000 Total The disposition of the shipments from Sweden and Hungary is unknown at the present time; in the past, such shipments have been placed under earmark upon arrival. Those coming from Hong Kong will be sold to the U. S. Mint in San Francisco, while the one from Switzerland is for sale to the Assay Office at New York. On the report of March 13 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 $17,048,000, a decrease of $3,518,000 in the short position. The net changes in the positions are as follows: SHORT POSITION SHORT POSITION DECREASE IN COUNTRY MARCH 6 MARCH 13 SHORT POSITION England $10,059,000 $ 7,302,000 $2,757,000 Europe 6,136,000 5,951,000 185,000 Canada 369,000 (Long) 785,000 (Long) 416,000 (Increase in Long Position) Latin America 699,000 696,000 3,000 Japan 2,892,000 2,874,000 18,000 Other Asia 1,186,000 1,010,000 176,000 All Others 37,000 (Long) -0- 37,000 (Decrease in Long Position) Total $20,566,000 $17,048,000 $3,518,000 The principal item of interest in the above figures is the reduction by $2,757,000 in the short position in sterling. It will be recalled that the British foreign exchange regulations relative to the payment of certain exports were announced in the week ending March 13, and that the open market rate for sterling declined almost 20 $ during that period, from 3.91-1/2 to 3.71. confidential Regraded Uclassified 49 - 3 - The Bombay silver quotation worked out to the equivalent of 39.714, up 3/16#. In London, the spot and forward fixing prices were both unchanged at 20-13/16d. The U. S. equivalents were 35.18 and 34.99$. Handy and Harman's and the Treasury's prices for foreign silver were unchanged at 34-3/44 and 35$ respectively. We made seven purchases of silver totaling 1,125,000 ounces under the Silver Purchase Act. Of this amount, 800,000 ounces represented sales from inventory by two refining companies, and the remaining 325,000 ounces con- sisted of new production from foreign countries, for forward delivery. 3.m.P. confidential Regraded Uclassified CONFIDENTIAL COPY 50 PARAPHRASE A telegram (no. 87) of March 19, 1940. from the American Embassy at Peiping reads substantially as follows: No reliable information having a direct relation to a connection between the delay in the reopening of the Yangtze and the use in Central China of Japanese military notes has been received by the Embassy. Although other reasons than the use of military notes may be mainly re- sponsible for the delay in reopening the river, it appears to be a reasonable assumption that, unless suppressed by the Japanese, Chinese national currency would, if the river were reopened, appear again in trade at a number of places where almost the only legal tender now is Japanese military notes. Nevertheless, it is the opinion of the Embassy that there may be some basis for the prediction that increased issues of Hua Hsing Bank notes or a new currency resembling perhaps Federal Reserve Bank notes may, after a new central "government" 1s set up at Nanking, take the place of military notes at present circulating along the Yangtze River. (See also paraphrase of telegram no. 221 of March 17, 1940. from the American Consul General at Shanghai.) 893.515/1488 Regraded Uclassified Prepared by: Mr. Murphy Mr. Tickton Mr. Turner Mr. Haas 11 51 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION CONFIDENTIAL DATE March 19, 1940 TO Secretary Morgenthau FROM Mr. Haas MA Subject: Current Developments in the High-Grade Securities Markets SUMMARY (1) Long-term Government securities rose in price through last Saturday, but fell back slightly on Monday (Chart I). The longer Treasury bonds are now only about a point below their prices of last June (Chart II). Both corporate and municipal bonde rose in price last week. (2) Following the announcement on March 4 that the March finan- oing would be confined to a note-for-note exchange, Treasury notes appear to have gravitated to New York, the holdings of weekly reporting banks in that city having increased by $75 millions in the week ended March 13 (Chart III). Bond holdings of these banks also increased, while the holdings of both bonds and notes by reporting banks outside of New York decreased. (3) The usual criterion of what constitutes a "short-term" secur- ity is the price stability of that security. It is interest- ing to inquire whether the extension of the designation "short-term" to maturities of up to five years is justified by the facts. The average price movement of the longest Treasury note in the major price swings of the last six years has been about two-thirds that of the longest Treasury bond (Chart IV). This comparison applies to price swings of vary- ing length (Chart V). (4) The existence of bearish sentiment with respect to the future course of the bond market is indicated by three recent re- funding operations in which money was borrowed to redeem securities which were not callable for & year or more. (5) New minimum prices on British Government bonds were placed in effect by the London Stock Exchange yesterday. The pur- pose of this step appears to be to insure low interest rates on Government war borrowing. Consols closed yesterday at 72-3/8 to yield 3.46 percent (Chart VI). Regraded Uclassified 52 Secretary Morgenthau - 2 I. Domestic High-Grade Securities Markets Long-term United States Government securities rose steadily in price through last Saturday, but fell back elightly on Monday, March 18. The average yield of long-term Treasury bonds decreased four basis points to 2.22 percent in the week ended yesterday (Chart I). Treasury notes changed relatively little in price. The relative movements by maturity classes are shown in the following table: : Average price change March 12 - March 18 (In thirty-seconds) Notes 1 to 3 years - 2 3 to 5 years + 2 Bonds 5 to 15 years to call +12 15 years and over to call +19 The movement during the week carried Treasury bonds to new highs for the upward movement which started last September. The longer Treasury bonds are now only about a point below their prices of last June (Chart II). Corporate and municipal bonds also made price gains last week. Our average of the yields of high-grade corporate bonds, which de- creased one basis point to 2.76 percent in the week ended Monday, March 18, 18 now close to the record low yield (high price) estab- lished last August. A sharp rise last week in municipal bond prices after several weeks of relative stability 1s reflected in B. decrease of four basis points, to 2.61 percent, in the Dow-Jones average yield of twenty 20-year bonds. Only one sizable new bond offering was made in the New York market last week, the $16 millions, 3-1/8 percent, 23-year issue of the Chicago Union Station Company, offered Friday at a price to yield 3.06 percent. The total of new offerings, including this 18- sue, according to New York Times tabulations, was only $18 millions. Regraded Uclassifie Secretary Morgenthau - 3 The Chicago Union Station issue 18 interesting in the light of current controversy over the matter of competitive bidding. The company has not previously invited competitive bide, but did 80 on this occasion at the suggestion of the ICC. Only one bid wes submitted -- by Halsey, Stuart and Company. This was rejected and the issue sold at 8, higher price to & syndicate headed by Kuhn, Loeb and Company. It 1e reported that the bonds were at & small discount from the offering price and moving slowly at the close on the day of offering. II. Bank Holdings of Government Securities The announcement at the close on Monday, March 4, that the March financing would be confined to a note-for-note exchange of- fering was an unexpected one in most quarters of the market. It resulted in a great number of switching operations on Tuesday and the few days following, as investors, who had anticipated that the Treasury would offer B. new bond, bid for securities at the long end of the market and sold note issues -- both the rights and the other note maturities. The notes, 1t appears, gravitated to New York, the weekly re- porting member banks in that City increasing their note holdings by 075 millions in the week ended March 13 (Chart III). Holdings of notes by other weekly reporting member banks decreased by $20 mil- lions, making the net increase for all reporting banks $55 mil- lions. It is also interesting to note that reporting banks in New York increased their holdings of Treasury bonds by $27 millions in the week ended March 13, while outside banks, during the same period decreased their bond holdings by 340 millions, a net decrease of 613 millions. III. Relative Price Stability of Treasury Notes And Treasury Bonds Short-term Government securities are particularly sought after because of their high degree of price stability -- the most urgent demand for them for this reason coming from banks in leading finan- cial centers. The market's definition of what constitutes a "short- term" security was formerly very strict. Up to within the past decade this term was generally reserved for securities with maturi- ties of one year or under. During the Thirties, however, there was & persistent tendency to liberalize the concept of what constitutes B. short-term" security, until now securities with maturities of up 54 Secretary Morgenthau - 14. to five years -- including even the longest-term Treasury notes -- have come to be looked upon 28 "short-term" securities. It is this liberalized concept of what constitutes 8. "short-term" Be- curity which explains the special demand on the part of New York banks for Treasury notes, commented upon in the preceding section. Assuming that a high degree of price stability 18 the best criterion of what constitutes a "short-term" security, it 1s inter- esting to inquire whether the extension of this designation to Be- curities with maturities of up to five years has really been Jue- tified by the facts or is, in part at least, a product of wishful thinking on the part of the market. Chart IV compares the relative price movements of the longest- term Treasury bond and the longest-term Treasury note then outstand- ing in each of the eleven major price swinge which have occurred in the Government bond market since the end of 1933.* The average maturity of the notes used in the comparison is four years and nine months and the average maturity of the bonds 18 nineteen years and four months. The average price swing of the longest note has been about two-thirds that of the longest bond. The price swings of the notes, however, have been far from negligible. The average upward price swing of the notes during the period covered was in fact about 5 points and the average downward price swing about 3 points. The greatest downward price swing (June - September 1939) was about 4 points. On B. note with a 1 percent coupon the average downswing would have absorbed 3 years' coupon-carry and the greatest downswing 4 years' coupon- carry. The foregoing comparison, it should be noted, applies to price swings of varying length. Their timing is indicated in Chart V, which shows, on a yield basis, the major movements since the end of 1933 in the Government security market. IV. Evidences of Bearish Market Sentiment Three recent refunding operations indicate the existence of & respectable body of bearish sentiment with respect to the future course of the bond market. In these three cases money was borrowed for the purpose of redeeming outstanding securities aggregating $ The last pair of bars on the chart, showing the price changes from last September's low through March 16, 1940, do not neces- sarily represent a complete swing. Regraded Uclassified 59 Secretary Morgenthau - 5 $114 millions which at the time the new securities were issued were not callable for a year or more. The largest issue -- $71 millions by the Triborough Bridge Authority -- will be used to redeem securities callable April 1, 1942. The other two refundings -- $33 millions by the Port of New York Authority, and $10 millions by the Elgin, Joliet and Eastern Railway Company -- will be used to redeem obligations due about one year hence. The bearish sentiment implicit in these transactions becomes apparent when one realizes that the issuers are under- taking to pay interest on both the new loans and the old loans until the latter mature or become callable. In the meantime, the proceeds of the new loans must be held idle until the old loans are repaid. Clearly the issuers fear that one year or two years hence, 8.8 the case may be, they may not be able to borrow except on terms less favorable than those now prevailing -- and less favorable by B. margin sufficient to more than offset the additional cost they are incurring by refunding at the present time. Additional evidence of some bearish sentiment 1s found in the report just released of a conference sponsored by the Savings Bank Journal at which eleven out of twenty-four financial experts expressed the opinion that bond prices would be lower at the end of 1940 than they are at the present time. Nine expressed the opposite opinion. The remaining four did not foresee any marked change in bond prices. V. New Minimum Prices on British Government Securities The London Stock Exchange yesterday out into effect new minimum prices on British Government bonds, superseding the mini- mum prices established last August. According to press dis- patches, the purpose of this step is to insure the Government low interest rates on future war borrowing. The following table shows the old and the new minimum prices, and the prices at yesterday's close on three British Government securities: : Old : New : March : minimum : minimum : 18 2-1/2 percent Console 62 70-1/2 72-3/8 (perpetual) 3-1/2 percent War Loan 88-1/2 95 98-5/8 (callable in 1952) 4 percent Funding Loan 100-1/2 108-1/2 111-3/8 (1960-90) Regraded Uclassifie 56 Secretary Morgenthau - 6 As the table above indicates, British Government securi- ties have made substantial advances from the minimum prices of last August. Lately the market has been marking time, but the tendency of the past week has been downward, culminating in & sharp drop yesterday. British 2-1/2 percent consols declined 3/4 points yesterday to close at 72-3/8, to yield 3.46 percent. This compares with 73-3/4 a week ago (Chart VI). It is also understood that the new 3 percent war loan sold on Monday, the first day of trading, at a fractional discount. Official announcement was made yesterday that the new loan was oversub- scribed. Attachments Regraded Uclassified Chart I COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM US TREASURY AND AVERAGE OF HIGH GRADE CORPORATE BONDS 1939 JAN FEB " as MAR " as . APR 12 & MAY 20 3 JUNE IF JULY is 29 AUG 12 24 SEPT. . a , OCT a 4 NOV - DEC . 30 JAN 13 17 40 FEB 14 . MAR 23 . APR 23 4 MAY is JUNE is 1940 24 JULY 9 " AUG 14 7 SEPT. $ OCT NOV DEC inverted Scale or E A a f 30 ! PER CENT Inverted Scale PER CENT WEEKLY. Saturday Quotations 2.0 2.0 Letses date them March 18, 1940 2.2 2.2 2.4 2.4 Long Term Treasury (12 years or more to sorviest call date) 2.6 2.6 2.8 2.8 3.0 3.0 Corporate 3.2 3.2 3.4 3.4 3.6 3.6 3.8 3.8 PER PER CENT CENT 1.00 1,00 80 80 Spread Between Long Term Treasury and Corporate 60 60 40 40 20 20 0 JAN 14 a FEB # is MAR " = . APR " . MAY as 1 JUNE CF I JULY is OF AUG N as SEPT . o , OCT E 4 NOV - I DEC . se JAN a = FEB - 34 MAR. . B . APR 29 4 MAY # # JUNE is - JULY a AUG SEPT a 5 OCT - # NOV - - DEC M 19 P € 14 , o 1939 1940 "Bream - line indicates change - composition of Long Term Treasury average la of the Secretary of the Treasury - of - - Service F-50-P Regraded Uclassified Chart II CHANGES IN THE PRICES OF U.S. SECURITIES Pointe Plotted Represent the Difference from June 5, 1030 Price of Bach Naturity Class 1940 1939 1940 JARUARY FERRUARY MARCH JULY SEPT. NOV. JAM. MAS. MAY 13 20 27 10 17 z 16 POLITS POINTS POINTS (NCT - (NET DRAWNE) Daily (RET - Saturday Quotalions -16 416 e = at of = & ++ + 4 1. el of Hores, +d + 3-6 Yes, HOTES, 3-5 Yes. o 0 0 e Bro, 1-8 Yes. T 4. 7 -1 Nores, 1-5 YRS, T + 4 4 T T +1 +1 -3 -3 Down, 5-15 Yes, TO CALL Boass, -16 -N 5-15 Yes. TO CALL 1 T -11 +1) teams, OVER 15 Yes. TO CALL -11 7 -5 ? 4 7 4 4 -21 & 4 - 4 -7 -H -28 Bonds, OVER 15 TM TO CALL - 9 -) +3 -38 & + & & ->) -10 -10 -H -M - 1 -If +11 i 7 -12 -12 F 7 JULY SEPT. suv. JAN. MAR. MAY 6 13 20 27 3 10 17 24 2 y 16 a 30 1938 1940 JANUARY PERBUARY I 1940 - # the Services of the Treasury 1 % 1 I 1 F-153-A Regraded Uclassi craet IN U.S. GOVERNMENT SECURITY HOLDINGS, WREKLY 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 B 15 22 29 DOLLARS DOLLARS MILL IONS MILLIONS New York City 600 600 400 400 BONDS 200 200 GUARANTEED o 0 NOTES BILLS -200 -200 TOTAL -400 -400 -600 -600 DECEMBER JANUARY FEBRUARY MARCH APRIL MAY 600 600 All Other 400 400 total TOTAL" 200 200 BILLS o 0 QUARANTEED NOTES -200 -200 -400 -400 -600 -600 DECEMBER JANUARY FEBRUARY MARCH APRIL MAY 1000 1000 All Cities 800 BOO 600 600 BONDS 400 400 200 200 TOTAL QUASMITTED o o -BILLS NOTES -200 -200 -400 -400 -600 -600 6 13 20 27 3 to 17 24 31 7 14 21 28 6 IS 20 27 3 ID 17 24 1 e 15 22 a DECEMBER JANUARY FEBRUARY MARCH APRIL MAY Office of the Secretary of the Transury F - 146 A Depose - end Statement Regraded Uclassifi Chart IV MAJOR PRICE MOVEMENTS OF LONGEST TERM TREASURY BOND* AND LONGEST TERM TREASURY NOTE Beginning of 1934 to Date POINTS POINTS Dates shown indicate and of a given movement and beginning of the next IN 10 Bond Note B B AVERAGE RISE, BOND 6 e AVERAGE RISE, NOTE 4 4 2 2 SEPT. SEPT. APR. SEPT. SEPT. 1934 1935 1937 1936 1939 o o JULY JULY FEB. DCC. JUNE JUNE MAR. 1934T 1935 1937 1936 1938 1939 1940 -2 -2 AVERAGE DECLINE. NOTE T T AVERAGE DECLINE, Bown & -B to -10 LONGEST BOND TO CARLIEST CALL DATE V BEGINNING or PRICE SWING: BOND, JAN. 10, 1934: NOTE, Dec. 9, 1933 . MOVEMENT TO LATEST AVAILABLE DATE: NOT NECESSARILY COMPLETED - of the Secretary of the Treasury Driven of Research and Statistics F 165 Regraded Uclassified MAJOR SWINGS IN THE YIELDS OF TREASURY BONDS AND NOTES 1934 1935 1936 1937 1938 1939 1940 PERCENT PERCENT (INVERTED) (INVERTED) Long Term Treasury Bonds 2.2 2.2 2.6 2.6 3.0 3.0 3.4 3.4 JAM. SEPT.17 SEPT.20 FEB.25 APR.1 JUNE2 SEPT.26 SEPT.25 JULY| JULY9 JUNES MAR.16 3.8 3.8 1934 1935 1936 1937 1938 1939 1940 1934 1935 1936 1937 1938 1939 1940 o o 3 - - 5 Year Treasury Notes .4 .4 .8 .8 1.2 1.2 1.6 1.6 2.0 2.0 2.4 2.4 2.8 2.8 3.2 3.2 DEC.9 SEPT.17 SEPT.17 APR.9 SEPT.27 SEPT.6 JULY21 AUG.1 DEC.8 JUNE16 JUNES / MAR.16 3.6 3.6 1934 1935 1936 1937 1938 1939 1940 Office of the Secretary of the Treasury Division of Research and Statistics F - 166 Regraded Uclassifie Chart VI COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY BONDS AND U.K. 2%% CONSOLS 1938 1939 MAY SEPT 1940 JULY NOV 1939 JAN. MAR 1940 MAY JULY REPT NOV JAN # MAR - - as = " -- - - is DEC JAN FES MAR - inverted Scale # : - - e - inverted Scale inverted Scale PER CENT PER CENT WEEKLY. Friday Quotations Daily PER CENT 22 22 22 14 24 24 24 Long Term Treasury 26 2.6 Long Term Treasury "Ye years - more - servest can dental 28 28 28 3.0 30 30 12 12 32 3.4 14 34 14 34 36 New - New U.K. 2%% Consols 18 38 3.8 UK 2½ N Consols 4.0 40 40 Prices et Minimum 42 42 42 PER PER PER CENT CENT CENT 1.6 1.6 16 14 14 14 12 12 12 Differential Differential 10 10 10 a e a . 6 4 4 4 4 2 2 2 e - 1 - a THE 0 B - # - - - - a # " - - - # # = . . = = - MAY . : - 0 : JULY SEPT NOV JAN MAS MAY JULY SEPT NOV JAN MAR DEC JAN FEB MAR 1938 1939 140 1939 1940 Brans . - change - - of (my - - everyone i I / I / PO-128-B STRICTLY CONFIDENTIAL 63 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 19, 1940 TO Secretary Morgenthau FROM Mr. Cochran By telephone this afternoon, Mr. Knoke let me know in strict confidence that there will be received at the Federal Reserve Bank in New York on about Thursday of this week a third big shipment of French gold which has arrived by Canada. He does not yet have the exact figure for this shipment, but understands that it will be one-half again as large as the last shipment. This means that this third shipment will total around $170,000,000. It is presumed that this shipment came to Canada by warship from France. It is likely that the procedure will be followed of earmarking this gold with the Federal Reserve Bank at New York, and of selling it as dollars are required. B.M.P. Regraded Uclassified 64 March 19, 1940. 9:10 8.m. H.M.Jr: Hello. Cantain Collins: : Good morning sir. H.M.Jr: Hello Harry. C: How are you sir? H.M.Jr: I'm fair. Harry? C: Yes, sir. H.V.Jr: You 68W the Kintner and Alson article last night? C: I certainly did. H.M.Jr: What did you think of it? C: Well I don't know. I think it's just about as concise an explanation of the difficulties 88 I've seen yet. H.M.Jr: Well I learned a lot from it myself that I didn't know before. Harry, the reason I'm calling you is, Sunday night I had Sir Henry Self at the house, alone. C: Yes sir. R.M.Jr: And he told me a lot about their troubles in connection with aluminum. C: Yes sir. H.M.Jr: I can't pronounce it the way they do. C: Aluminum they say. H.N.Jr: Now there seems to be that the aluminum company is asking the Canadian Government to release twenty thousand tons. Do you know anything about this? C: No, I only know this, the last time Purvis was down, Mr. Secretary, I told him, they were still having their consultations with Davies, the President of the eluminum company, and I told Purvis B.B. soon as they could make UD their minds Regraded Uclassified 65 - 2 - and 1f they had any difficulties to let me know and we'd take 1t un sgain through Pittsburgh. 5.M.Jr: Well, be's coming in et three tomorrow. C: Purvis? ".".Jr: Yes. C: Yes sir. E.V.IN: And between now end tonorrow I want you to find out all you can from whoever has handled strategic war material, whatever that board is. 0: Munitions Board. H.N.Jr: Yes. Find out all that you can what they know about aluninum, see? C: Well - R.M.Jr: Hello. 0: Yes sir. M.M.Jr: Will you have any trouble on that? 0: No, not & bit because what they know, I think, principally, 18 what we've written here. ".M.Jr: Well - C: In our majestic studies. I'll get the whole story. H.N.Jr: Sir Henry Self kept saving this, that the reason they can't met what they want is because United States Government has asked the aluminum coupany to keen certain reserve stocks. C: of course the United States has asked the aluminum company to set un reserves to meet their particularly- I know that end of the deal to set un reserves to particularly meet their airolane requirements. E.V.Jr: Well what are the reserves, and what did they ask them, see? C: Well I can met all of that, probably I could do Regraded Uclassified 66 - 3 - just 88 well by going directly un and talking with Wilbur of the aluminum company. He's got the whole story. H.M.Jr: Well, get 1t from both sides. 01 Yes sir. H.M.Jr: Get it from the Munitions Board and get it from - who is Wilbur? 0: He's the Washington representative. H.M.Jr: Well get it both ways. 02 Yes sir. H.V.Jr: Get it both ways. 02 Yes sir, I'll do that. H.M.Jr: Will you? 02 Yes sir. H.M.Jr: Because evidently this is - from English - well the British Empire standpoint, they consider it just as important as the engines and just 28 difficult. 0: Yes sir. Well of course now Wilbur has been talking with me formally for the last two weeks, and he called me last - I guess it was Friday morning and asked me if I had heard anything from the French-English and I told him I had not. H.M.Jr: Well, they evidently are coming to a head now. C: Yes sir. Well it would perfectly all right to talk frankly with Wilbur because he's dealt very frankly with us end he's very deeply in the confidence of the Munitions Board. H.M.Jr: Well, get it both ways, will you? C: Yes sir, I shall. Regraded Uclassified 67 - 11 - H.M.Jr: And then the other thing I'm supposed to 70 UD on the Hill at three. C: Today? H.M.Jr: Yes, but secretly, I'm being asked to see 2 Congressman Snyder and his people. C: Yes sir. H.M.Jr: So I'd be here about twenty minutes of three to TO un with me. C: Ave eye sir. H.M.Jr: Will you please? C: Yes sir, I shall. And do are take anything with us or just talk? H.M.Jr: Oh just our heads. C: That's all right. H.M.Jr: And anything new on - Mr. Edison called me - Mr. Woodring called me up yesterday afternoon. He was too busy to come this morning, he couldn't make it. 0: Oh that's too bad. H.M.Jr: Yes, And - so I don't know what the Army decided on, the engines or the planes. Do you? C: No I don't. I honestly don't know. There's another matter we can talk on our way up this afternoon about it. I've been having some talks with Arnold and it's all developing 8. very interesting phase of this and I think at last they're trying to find an out 80 they can throw everything wide open end at the same time save their faces. H.M.Jr: I see. C: And I worked last night, about four hours on this stuff and I've got two or three different ideas lined up that I'm going to pass it to him to see if he can develop them. Regraded Uclassified 68 - 5 - H.M.Jr: O.K. Well I'll see you later. C: I'll be there at twenty minutes of three sir. H.M.Jr: And then you go on this aluminum. C: I'll do that right away sir. H.M.Jr: Please. C: Aye aye, sir. Regraded Uclassified 69 March 19, 1940. 10:07 A.M. Operator: Go ahead. H.M.Jr: Hello. Alben Barkley: Henry? H.M.Jr: Yes sir. m How are you? H.M.Jr: Oh I'm just rarin' to 70. Coming un I not silver oozing out of every nore. B: Good for you. H.M.Jr: Yes. B: I just called to see if you were coming over. H.M.Jp: Oh sure, I hear Key Pittman is booked every minute all day and he can't appear. B: Yes. We're voing to have to lean on you. H.M.Jr: Well, it's a silver reed 80 don't lean too heavily. B: All right. I don't know why everybody - there's a silver lining to every cloud you know. H.M.Jr: And everybody 18 so scared. Well I think that what I'm saying is all right. We worked pretty hard on it. I have a prepared statement. B: Yes, Well I think it's better for you to come over because there's members of the committee you know, men saying well, we don't know what the Treasury, we don't want somebody down the line, we want the head of the Treasury. H.M.Jr: Well I'm - B: Of course I suppose Dr. White will be with you. H.M.Jr: Oh I've got twenty experts. B: Good. My golly, we'll just overwhelm them. H.M.Jr: All right. B: In numbers. All right, I'll see you. H.M.Jr: Thank you. Regraded Uclassified 70 March 19, 1940. 12:40 p.m. H.M.Jr: Hello Congressman Snyder: Mr. Secretary? H.M.Jr: Yes. S: This 18 Mr. Snyder. H.M.Jr: How do you do? S: All right. It looks as though we'll have some important roll calls between three and four, an important bill, 80 I suggest that you come up with your old hat on and come to the corner of New Jersey and C Street entrence of the new Capital building. New Jersey and C Street entrence. H.M.Jr: New Jersey and C Street. S: Entrance. New Capital - new House Office building. H.M.Jr: Entrance. New House Office building. S: And you just step right inside there and the first door to the right 1013. H.M.Jr: Room 1013 S: Yes, at four-thirty. H.M.Jr: Oh, at four-thirty. S: Yes. H.M.Jr: Is that when you want it? S: Yes, that's the best time because I want you to come there and I don't want to be interrupted when we get there. H.M.Jr: I see. Room 1013. S: Yes. H.M.Jr: At four-thirty. S: Yes sir. H.M.Jr: All right. S: Thank you. H.M.Jr: I'll be there. Regraded Uclassified 71 March 19, 1940. 2:40 p.m. Operator: Operator. H.M.Jr: Hello. 0: Mr. Harris. H.V.Jr: Basil. Basil Harris: Yes, Mr. Secretary. H.V.Jr: The President learned through Naval Intelligence that - got a pencil? H: Yes. H.M.Jr: A steamer called the Eastern Guide. H: What was the last word? H.M.Jr: Eastern Guide. G-u-i-d-e. H: Right. H.M.Jr: Loading - the Russians have given orders to cease loading. H: Yes. H.N.Jr: Somewhere out of New York I think. H: Yes. H.M.Jr: And there's two ships at Seattle who are supposed to sail for Vladivostok and the Russians have given orders not to let them sail. H: Two at Sea Island? H.M.Jr: Seattle. H: Oh yes. H.M.Jr: Sea Island, I'll be there Friday. H: Yes. H.M.Jr: Seattle. H: Right. Regraded Uclassified 72 - 2 - H.M.Jr: And find out what's going on. He's very much interested what the Russians are doing on their boats. H: Yes. H.M.Jr: Will you step on it for him. H: I'll get right on it. H.M.Jr: Thanks Basil. H: Thank you. Regraded Uclassified EXTRA CONFIDENTIAL 73 March 19, 1940. 4:00 p.m. H.N.Jr: Hello. Operator: Mr. James Fleming in New York. H.M.Jr: O.K. 0: Go ahead. H.M.Jr: Hello. James R. Fleming: Hello Mr. Secretary. H.M.Jr: Hello Mr. Fleming. F: This 10 Mr. Fleming. H.M.Jr: Yes. Mr. Fleming the last couple of weeks, Mr. Stettinius has been kind enough at this time, to give me a sort of 2. thumbnail sketch of how your business has been running for the previous week. F: Yes. H.M.Jr: And I wondered if you'd be willing to do the same. F: I rather imagined that's what you wanted Mr. Secretary, and I can tell you that our England production, which is the measure of our business, - H.M.Jr: Yes. F: Is estimated at 55.8% for this week. H.M.Jr: 55.8 F: That 1s the week ending the 24th. H.M.Jr: That's March 24th. F: And last week it was 57.0 H.M.Jr: 57.0, so it's down. F: Yes, it's down a bit. H.M.Jr: I see. Regraded Uclassified 74 - 2 - F: And a year 2go, the same week, the estimate of the 24th 1t was 53.9. H.M.Jr: I see. F: So you see it's still above that. Now, the orders, they have been coming in at the rate of two hundred thousand tons a week for this nest week. H.M.Jr: Yes. F: But the shipments are about ten percent higher than that, were two hundred and twenty-three thousand. H.M.Jr: Your shipments are two twenty-three. F: Yes. H.M.Jr: And your orders are about two hundred. E. Two hundred. Now, the capacity of those respective figures are 53% of the orders and 58% of the shipments. H.M.Jr: 53 for orders. F: The previous week the orders were only a hundred and thirty-seven thousand. H.M.Jr: I see. F: And the shipments were two hundred and thirty-nine thousand. H.M.Jr: Well isn't that considerably better? F: Sir? H.M.Jr: Isn't that - F: The orders are noticeably better for this week. H.M.Jr: The orders are un to two twenty-three? is What was that? H.M.Jr: How much are the orders up to? Regraded Uclassifie 75 - 3 - F: No, no, the shipments were two twenty-three for this nest week. H.N.Jr: And the orders? E. The orders were two hundred thousand. H.M.Jr: And the week before the orders were - F: One thirty-seven. H.M.Jr: I see. F: And the shipments were two thirty-nine the week before. H.N.Jr: Well, how are the foreign orders? is Well the export orders are holding off. I haven't got those figures but they are about the same 86 they were last month. N.M.Jr: I see. is I'm afraid I haven't got anything handy for that. H.M.Jr: But this figure that you rave me for orders combine domestic and foreign? F: Yes, that's domestic and foreign. H.K.Jr: I see. Well how do your people feel, I mean do they think the worst is over, the decline? F: Well of course we always like to be optimistic. H.M.Jr: Yes. F: We can't help but realize that there is 8 sort of a dropping off in business but we're hopeful that it'll recover. H.M.Jr: I see. F: It's hard to tell from one week's business Just what the trend will be. H.M.Jr: I see. Regraded Uclassifie 76 - 4 - F: But we can report that the tone of the reports that we get from our companies show an improvement over 8. broad range of products. H.M.Jr: They do. Well that's interesting. Well, is there anythingelse you could give me to throw light on it. F: Well I think, I'd have to draw my conclusions from these figures Mr. Secretary. H.M.Jr: I see. I see. F: And I would think that we're holding out pretty well. H.M.Jr: You are. F: That's the best I can say. I think it's encouraging, but of course not too encouraging. H.M.Jr: No. F: Maybe we hope for too much. H.M.Jr: Well I'm very much obliged. F: I hope that gives you what you desire. H.M.Jr: Yes it does. F: Thank you. H.M.Jr: Thank you. F: Goodbye. Regraded Uclassified STRICTLY CONFIDENTIAL 71 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 19, 1940 TO Secretary Morgenthau FROM Mr. Cochran I have spoken with Mr. Basil Harris and he has shown me his file of correspondence, from which it appears that the request forwarded by the Department of State to Paris is for the recognition by the French Govern- ment of two assistant Treasury attachés with diplomatic status. With your approval, I will telephone Mr. Leroy-Beaulieu at New York asking that he render any appropriate assistance toward obtaining proper status for these two officers. In a conversation by telephone this afternoon, Leroy-Beaulieu told me that he would be quite willing to go ahead on this proposition as soon as I indicated the Secretary's desires. Leroy-Beaulieu wanted to know how close to the Secretary's heart this matter really was. He wants us to tell him how many assistant Treasury attaches are desired, He also wanted to know whether the status was a matter of temporary or permanent character. He thought it might be necessary for the French to make some stipulation to the effect that if some other countries, learning of our obtaining diplomatic status for two or more additional officers, might request similar treatment, then the French might have to reconsider the question. Leroy-Beaulieu thought this last contingency unlikely, but at the same time, felt that the French might desire a safeguarding clause. 16.001. Regraded Uclassifi 77A Jakou 3-19-40 MEMORANDUM TO THE PRESIDENT: I have your memorandum of March 7th, enclosing A memorandum dated February 13, 1940, from Mr. Currie, and your memorandum of March 8th, enclosing a further memorandum of February 29th from Mr. Currie trans- mitting & memorandum dated February 15th from Mr. Recles, all concerning United States Savings Bonds. There really are two aspects involved: (1) the terms of the bonds, and (2) further limiting sales. Proposed changes in the terms of the United States Bonds have been under consideration in the Treasury from time to time since 1937. when interest rates got so low, but each time something subsequently happened to increase the rates 80 that the current rates on Government bonds were not no far out of line with the average rate on United States Savings Bonds. Last June, when yields on Government securities were at their lowest, I gave instructions to consider changing the terms and conditions of United States Savings Bonde no that the matter would be ready for my approval when I returned from a vacation. Ae you know, when I returned the European war had started and the yields on Government securities again increased so that they were more or less comparable with the average rate on savings bonds. The matter was again laid aside. Last December yields on Government securities began to decrease rather rapidly until at the present time there is again quite a variance between such yields and the average rate on savings bonds. Regraded Uclassified 77B - 2 - I have gone into the matter again just recently and I find that the further changes we can make are divided into three categories: 1. Those changes which can be made immediately in the regulations effective as of April let, or thereabouts. These would involve (a) limiting the sale of United States Savings Bonds to a natural person with one beneficiary or one co-owner, thus eliminating corporations, partnerships, fiduciaries, and trust estates; and (b) limiting the sale to residents of the United States, Alaska, Canal Zone, Philippine Islands, and Insular Possessions. 2. Those changes which can be made in the regulations effective not earlier than July 1, 1940. These would involve (a) possible limitation on the aggregate amount that may be issued under one ownership to & certain specified amount, say, $30,000. (This, however, presents serious administrative difficulties in view of the present statutory limitation.); (b) some curtailment of publicity efforts and laying more strees upon the fact that savings bonds are devised to care for the savings of those in the low-income group; (c) reduction of the average rate; and (d) the lengthening of the maturity. 3. Those changes which can be made only by securing an amendment to the Second Liberty Bond Act. These would involve (a) reduction of the statutory amount of $10,000 in any one calendar year to a lower figure, say, $3,000 a year; or (b) giving the Secretary authority to restrict by regulation the amount which may be acquired in any one year within the present limitation of $10,000. Regraded Uclassifie 770 - 3 - I have decided to change the regulations, effective as of April 1, 1940, so as to limit sales after that to a natural person with one beneficiary, or one co-owner, and to restrict the sales after that date to residents of the United States, Alaska, Canal Zone, Philippine Islands, and Insular Possessions. I am continuing to study all phases of this matter with a view to making such changes as are deemed desirable in the public interest. In this connection it should be borne in mind that changes in terms of these bonds require about three months' advance notice. DVB:NLR 3-14-40 WB Regraded Uclassified 77D THE WHITE HOUSE WASHINGTON March 8, 1940. MEMORANDUM FOR THE SECRETARY OF THE TREASURY will you speak to me about this? F. D. R. reales 77E THE WHITE HOUSE WASHINGTON February 29, 1940. MEMORANDUM FOR THE PRESIDENT: Re: Savings Bonds, Knowing that Marriner Eccles was greatly interested in this matter, I asked him for his suggestions, which are attached. The main difference from the recommendations I mace on February 13th is that he would limit total purchases by each investor to $12,000, whereas I suggested that in addition to this aggregate limitation, annual purchases might also be limited to a face amount of $1,200. He brings out the highly portinent fact that a limitation of $12,000 per purchaser would provide an investment outlet for the entire life-time savings of about 95 percent of our population. Lauchlin Currie TTF February 15, 1900 UNITED STAYES SAVINGS BONDS Recommendation The maximum purchase of United States Savings bonds permitted to an individual investor should be limited to B. total of $12,000 naturity value, instead of the present limit of $10,000 per annum which allows the acquisition of $100,000 in ten years. This change would per- mit each investor to purchase :75 B. month for ten yours and then receive the ecuivalent of an annuity paying $100 a month for the next ton years. An investor would be allowed to retain whatever holdings in excess of $12,000 he had obtained prior to the effective date of the proposed change in the regulations, which might be April 1 of this year, but he could buy no more. leasons for recommendation 1. Healthy investors are the principal beneficiaries under the present program. Although United States Savings bonds were originally deaigned to neet the needs of smll investors, they have become an increasingly Important investment nedium for wealthy individuals, corpora- tions, and financial institutions. In the fiscal years 1936-39 about as per cent of the dollar volume of sales was in $500 and $1,000 denominations, and other evidence indicates that practically all of those sales went to investors W.10 bought the maximum of $10,000 a year. It appears, therefore, that large investors held about $2,080,000,000 of the total of ,2,470,000,- 000 of Savings bonds outstanding on January 31, 1940. The record volume of sales in January and February of this year indicates that large investors are making even more extensive use of Savings bonds than previously. This trend is unfortunate because it is desirable that large investors should have to find outlets for their savings in the private capital markets. 2. Large interest subsidy. In view of the drastic decline in interent rates since Savings bonds vere first introduced in 1935, the pur- chosers of Savings bonds now receive an exorbitant interest subsidy. In addition, Savings bonds rive the extremely valuable privilege of redemp- tion on demand at the option of the holder any time 60 days after issuance without loss of principal and the holder receives on redemption an interest return which increases from 1.33 per cent at the end of the first year to the naximum average return of 2.9 por cent at the end of 10 years. Regular 10-year Treasury bonds yield only about 1 3/4 per cent, which means that the holders of outstanding Savings bonds receive B. higher average interest return of about $28,000,000 a year. From the standpoint of liquidity, the Savings bonds are more analogous to Treasury bills than to other types of Treasury securities, but rive the holders a higher average return of nearly 170,000,000 B. year. The computed interent cost on outstanding Savings bonds, obtained from the current average investment yield on the various series which have been outstanding for periods up to 5 years, is about $35,000,000 a year higher than would be paid on B. like volume of regular Regraded Uclassifi 776 - 2 .reasury bonás of comparable maturities. As compared with corporate securities, Savings bonds have a tax equivalent yield of 30h per cent to corporate and institutional buyers. While the interest subsidy on Savings bonds can be condoned in the case of the small savers, it cannot be justified on the more than $1,000,000,000 a year of bones which are currently going to large purchasers. 3. Possible interest saving to Treasury. The adoption of this proposal PAY be expected to reduce the prospective not sales of Savings bonce next year by about $1,000,000,000, or to FL volume of from 0100,000,- 000 to 200,000,000 a year. If this $1,000,000,000 loss of funds were raised by sales of Treasury bills, the average interest savings to the Government would amount to about $30,000,000 A year. The use of bills instead of Savings bonds for Treasury financing is even more justified et this sine because the Treasury in January reduced the bills outstanding to only 1,300,000,000, or about 3 per cent of the interest-bearing debt. Bills and notes together have been reduced in recent years to only 18 por cent of the total debt. 400 Effect on Treasury cash balance. The proposed change would reduce the need for the Treasury to maintain an abnormally large cash balance. As Savings Sondo are redeemable any time 60 days after issuance nt the option of the holder, they constitute n. domand obligation to the Treasury. The principal demand for redemption in dollar amount comes from large holders. or the $100,000,000 of Savings bonds redeemed in the fiscal year 1939, about $75,000,000 were in :500 and ,1,000 denominations, voile only $9,000,000 were in 25 and 250 denominations. In case of a rise or interest rates in the future or the development of a audden desire for liquidity for various other reasons, the large holders would undoubtedly be the first group to cash their Savings bonds. 5. Statutory debt limitation. Since the statutory debt limitation has been interpreted as applying to the naturity value of Savings bonds, raising money through open-market obligations would result in a debt one- fourth lower than would be represented by a similar amount of financing through Savings bones. To date, the use of Savings bonds instead of other Issues has increased the statutory debt by over $700,000,000. 6. The needs of shall savers would still be met. The adoption of this proposal would tond to confine sales of Savings bonds to the investors of the country with small or moderate means and would, therefore, restore the program to the purpose for which it was originally intended. The proposed maximum of 12,000 maturity value would permit an individual and each member of his family to invest B. lump sum of $9,000 cash, or to purchase :75 of Savings bonds & month for ten years. This amount of Savings bonds would provide an investment outlet for the entire life-time savings of about 95 per cent of our population. Regraded Uclassified 77H THE WHITE HOUSE WASHINGTON March 7, 1940. MEMORANDUM FOR THE SECRETARY OF THE TREASURY will you speak to me about this? F. D. R. 770 THE WHITE HOUSE come WASHINGTON February 13, 1940. MEMORANDUM FOR THE SECRETARY OF THE TREASURY: The recent tremendous sales of savings bonds, combined with the fall in the open market rate of interest since sales were initiated, has led me to believe that the program should be modified. I suggest, therefore, that permissible individual annual purchases of savings bonds be reduced to $ face value and that aggregate purchases should be limited to $ In order to prevent a rush of sales, this modification should be made effective 88 soon as announced on some early appropriate date. I suggest that cash receipts thus sacrificed be made up, so far as necessary, and for the time being, by the issue of Treasury bills. In explaining this move I should stress that the essential purpose of the program is to provide & safe outlet for the current savings of people of mod- est means; that wealthy people and financial institu- tions are taking undue advantage of the favorable terms and that we feel that the savings of wealthier individuals and institutions should be encouraged to go into private investment. tyth 775 THE WHITE HOUSE WASHINGTON February 13, 1940. MEMORANDUM FOR THE PRESIDENT: Re: Savings Bonds, In our discussion last Saturday you indicat d. that you thought either the rate or the Amount solo to any 0:10 individual should be lowered. The present rote 13 2.9 percent and the face amount $10,000. For the purpose of cutting com sules in order to keep down the gov rument interest costs and the debt applicable to the statutory dabt limit, a limitation of sales would Le more effective than a reduction in the rate. Even at 2 percent the savings bonds would be more attractive to wealthy investors than 10-year open market bonds because of the cash recomption feature. Moreover, a reduction in the yearly smount purchasatle could be more easily effected administratively. I suggest, therefore: 1. Ler.ve the rate at 2.9 percent end reduce permissible annuel purchases to $1,200 face amount. This world provide an outlet for current savings of $75 a month with a return, ten years later, of $100 a month. With four persons in a fam- ily, the outlet would be $300 a month. 2. Prohibit further purchases to any person whose hold- ings already exceed $12,000. The scheme would then provide 8. safe outlet for the savings of people of moderate means and the more than one percent subsidy could be justified on these grounds. A somewhat less drastic reduction would be to reduce the permissible annual purchases to $2,400 face amount. This would permit monthly purchases of $150 or, for a family of four, $600. Aggregate incividual purchases might, under this alternative, be limited to $24,000. Assuming that new sales less redemptions under this proposal would amount to around $100,000,000 a year and that in place of $1 billion of additional savings bonds, Treasury bills were issued, the annual interest saving to the government would be about Regraded Uclassified 77k⁷ morandum to the President -2- February 13, 1940. Savings Bonds. $30 million. Treasury bills now comprise only 3 percent of the interest-bearing debt and yield less than 1/100 of 1 percent per annum. Three to five year notes yield less than one-half of 1 percent. In the accompanying draft of a memorandum for the Secretary of the Treasury I have left blank spaces for the permissible annual purchases. Lambh a Lauchlin Currie Uclassi February 13, 1940. Cash Receipts From Sales of U. S. Savings Bonus By Denominations (In thousands of dollars) Place1 : $25 : $50 : $100 : $500 : $1,000 : Total : Redemp- year : : : : : : : tions : : : : : : : 1936 : 4,335 : 7,965 : 32,177 : 55,851 : 176,649 = 277,477 : 11 : : : : : : : 1937 : 3,801 : 14,426 = 49,523 : 79,692 = 319,324 : 471,765 : 36 : : : : : : : 1933 : 12,061 : 17,985 : 57,008 : 74,803 : 325,406 : 487,268 : 67 : : : : : : : 1919 : 16,096 : 22,200 : 68,794 : 92,289 = 491,956 : 691,334 : 32 : : : : : : : : : : : = : : Total : 41,793 : 62,576 : 207,502 : 302,640 1313,335 :1,927,844 : 196 : : : : : : : : : : = : : : : = : : : : : Per vent : : : : : : : n° totel. : 2.17 : 3.25 : 10.76 : 15.70 : 68.12 : 100.00 : 0.01 : : : : : : : Source: Annual Reports of The Secretary of Lite Treasury. Regraded Uclassified STRICTLY CONFIDENTIAL 78 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE March 20, 1940 TO Secretary Morgenthau FROM Mr. Cochran Mr. Purcell of the Securities and Exchange Commission called on me by appointment at 12:30 today. We discussed the exchange of correspondence be- tween Commissioner Frank and Secretary Morgenthau. The Commission is entirely willing to abide by Treasury terms on handling the confidential information received from the British in regard to sales of British owned dollar securities on the American market. I an to telephone the figures to Mr. Purcell as and when received from the British Embassy. He will keep a dossier thereof which he will hand directly to Mr. Frank. Mr. Frank will have the responsibility of maintaining this strictly confidential, but may show the figures to the other Commissioners, without giving them copies, and with the dossier always returning to Mr. Purcell. This arrangement was reached after I had turned down the suggestion of Mr. Purcell that the British data be given to all of the people who regularly receive the figures now obtained from unofficial sources in New York and distributed by the S.E.C. This distribution includes various S.E.C. people, some in the Federal Reserve Board, etc. I insisted that the only justification in asking the British to give us this information is to enable us to protect the American market. With Mr. Frank and the other Commissioners, together with Secretary Norgenthau, knowing the daily operations of the British, these American officials are immediately in a position to raise a question with the British if it should appear that British official sales of securities on this market are having & deleterious effect. I promised to commence giving Mr. Purcell figures tomorrow, and to give him a table summarizing sales from February 22 to date, in order that the S.E.O. may have a complete picture of British sales under the vesting orders. B.M.S. Regraded Uclassified 79 PARAPHRASE OF TELEGRAM RECEIVED From: American Consul, Rangoon To: Secretary of State Date: March 20, 1940 STRICTLY CONFIDENTIAL During the last half of February the United States attained first place in the amount of reexports of war supplies to China. American materials consisted of aircraft parts valued at 261,000 rupees or about $78,000, 57% of which were engines. The value of total reexports was $248,400 or 828,000 in local currency. Other than American materials the approximate values were $23,000 from Hongkong, Russian $61,000, French $38,000. and Belgian $50,000. The Burma railways during the period April 1, 1939. to March 10, 1940, transported from Rangoon 53.777 long tons of goods destined for China. It is estimated that more than 35,000 tons of these were war materials; in addition there were trans- ported 1,824 motor trucks. It is expected that total rail re- ceipts from China traffic will exceed 2,000,000 rupees in the present fiscal year ending March 31. Co:HWM:RB Regraded Uclassified STRICTLY CONFIDENTIAL 80 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE March 20, 1940 TO Secretary Morgenthau FROM Mr. Cochran Mr. Pinsent telephoned at 12 noon that official sales of vested securities on Tuesday, March 19, were: 12,300 589,193 N11 Nil Mr. Pinsent contemplates leaving Washington about March 29 or 30 for a fort- night. He has nothing to take up with the Secretary, but would be glad to come to the Treasury if the Secretary may desire to see him before the Secretary leaves Washington. The attached clipping from the New York Herald Tribune of Tuesday, March 19, is of interest. BMP. Regraded Uclassified 81 NEW YORK HERALD TRIBUNE - March 19, 1940 MOBILIZED SECURITIES The British order issued & month ago yesterday calling for the mobilization of sixty dollar securities held by British nationals has not resulted in the sale of a single share of the mobilized issues, BO far as can be learned in Wall Street. Stock market analysts continue to insist that the price level here is being held down by fear of foreign selling of substantial proportions, but commentators in London are unable to understand this attitude and insist that official liquidation, when and if it finally comes, will be conducted so as to have the least possible effect on local prices. There was a little more foreign selling last week than in recent months, as British traders eliminated dollar debit balances under Treasury order. The extent of the selling, however, was not sufficient to cause any difficulty, brokers say. Regraded Uclassified 82 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE March 20, 1940 TO Secretary Morgenthau STRICTLY CONFIDENTIAL FROM Mr. Cochran GOSSIP George Harrison 18 said to have received the offer of the presidency of the New York Life Insurance Company several weeks ago. The idea was that this matter should, of course, be kept strictly confidential, but the new Mrs. is reported to have been BO pleased with her husband's opportunity that she told Walter Winchell, and he told the world. The Insurance company is much embarrassed at not having received an answer from Harrison. If he should now turn down the offer, it would hurt the company, and make it difficult to get a good man in his place as second choice. The Federal Reserve Bank has been receiving many inquiries and poor Sproul, who is chosen by the press as the logical successor, has had to be very much on the defensive in providing answers. Eccles is said to be sore, alleging that he knew nothing of the matter until he read of it in the press. Some circles feel that Rocles might take ad- vantage of this opportunity to put a man of his own school of thought in the bank at New York as second, most likely Ransom. Some announcement by Harrison Is expected following his visit to Washington today. His friends think that he will accept the post which, I believe, carries a salary of $85,000. While Sproul is well liked in New York, it is not expected that be would exercise great influence BE head of the New York bank. The story in Europe is that when Harrison WSG first named Governor of the Federal Reserve Bank of New York, Governor Montagu Norman of the Bank of England in his message of felicitation told Harrison he understood that the latter was a bachelor, which was the prime prerequisite for a successful central bank governor. Since then Governor Norman has married, Smill TREASURY DEPARTMENT B3 INTER-OFFICE COMMUNICATION DATE March 20, 1940 TO Secretary Morgenthau FROM Mr. Cochran CONFIDENTIAL The reported volume of sterling transactions today was slightly lower than that of yesterday with sales exceeding purchases by approximately L120,000. In Amsterdam, sterling opened at 3.72-3/4, moved up to 3.74-5/16, and just before the opening in New York, it was 3.73-1/2. In New York, the first sterling rate was 3.73-3/8. During most of the day it moved in an erratic manner, reaching & high of 3.73-5/8 shortly before noon. In the afternoon, the rate had a weak undertone and touched a low of 3.71-1/4 just before the close. The final quotation was 3.71-1/2. Sales of spot sterling by the six reporting banks totaled L650,000, from the following sources: By commercial concerns I 135,000 By foreign banks (Europe, Far East and South America) 1 515,000 Total...L 650,000 Purchases of spot sterling amounted to 4531,000, as indicated below: By commercial concerns I 298,000 By foreign banks (Far East, So. Amer., Europe & Near East) 233,000 Total...L 531,000 The following reporting banks sold cotton bills totaling L13,000 to the British Control on the basis of the official rate of 4.02-1/2: L 12,000 by the Guaranty Trust Co. 1,000 by the National City Bank I 13,000 Total The belga improved further to a high of .1705 and closed at .1704. The other important currencies closed as follows: French francs .0210-3/8 Guilders -5309 Swise francs .2242-1/2 Canadian dollars 18-5/8% discount The Federal Reserve Bank of New York purchased 220,000 Swine france for account of the Bank of Latvia. Regraded Uclassified 84 - 2 - We sold $150,000 in gold to the National Bank of Belgium, to be added to its earmarked account. We purchased $21,000,000 in gold from the earmarked account of the Bank of Sweden. The Federal Reserve Bank of New York reported that the following shipments of gold were being consigned to it by the banks indicated below: $12,653,000 from Canada, shipped by the Bank of Canada, Ottawa, for sale to the U. S. Assay Office. 2,257,000 from England, shipped by the Bank of England, for a ccount of the Swiss National Bank. The disposition of this shipment is unknown at the present time. 1,949,000 from South Africa, shipped by the South African Reserve Bank, to be earmarked for account of the Netherlands Bank. $16,859,000 Total The State Department forwarded to us a cable stating that Erlangers, Ltd., London, was shipping $57,000 in gold from England to the Manufacturers Trust Co., New York, for sale to the U. S. Assay Office. The Federal Reserve Bank of New York informed us that the Central Bank of Turkey yesterday paid off $1,000,000 of the seasonal loans made to it by the Federal, using dollars in its account with the Federal for that purpose. This transaction reduces the total of such loans outstanding to $1,000,000, secured by $1,111,000 in gold. The U. S. equivalent of the Bombay silver quotation was unchanged at 39.71#, The London fixing prices for snot and forward silver advanced 3/16d to 21d for each delivery. The U. S. equivalents were 35.30# and 35.11# respectively. Handy and Harman's price for foreign silver was unchanged at 343/44. The Treasury's price was also unchanged at 35d. We made six purchases of silver totaling 331,000 ounces under the Silver Purchase Act, Of this amount, 26,000 ounces represented trading silver, and the remaining 305,000 ounces consisted of new production from foreign countries, for forward delivery. B.M.S. confidential Regraded Uclassified 85 March 20, 1940. 4:47 p.m. H.M.Jr: Hello 1 Operator: Mr. Miller. H.M.Jr: Hello. Harlan Miller: Hello Mr. Secretary. P.Y.Jr: How are you? ": Fine sir. How are you today? H.N.Jr: How's the coffee cup? M: Well It keeps me stirring around. Why I hear that you're going away and I know it's going to be difficult to scueeze me in for 8 little appointment. I'd like very much, on a matter that's slightly unusual, to come over end see you If possible. H.M.Jr: Couldn't give me an inkling? M: Well it has to do with - I'd be glad to give you en inkling if it won't interfere with my getting an appointment. V.V.Jr: No, no. M: It has to do with MoNutt's situation. H.V.Jr: I see. Well I tell - how long are you at your office? V: Well I cen - I can hold myself at your disposel if there's any chance of seeing you either this afternoon or tomorrow morning. R.V.Jr: Yes, I can - oh maybe - let me just see a minute. I tell you what you do. You come here at ten o'clock tomorrow morning, will you? M: Ten o'clock tomorrow morning. H.V.Jr: Yes. M: I'll be there on the dot. Regraded Uclassified 86 - 2 - H.V.Jr: Thank you. M: Thanks a lot sir. H.M.Jr: I called you because, well, I suppose it was - I'll do the best I can. M: How's that? H.M.Jr: I can't - 1f I talk I'll 20 to jail, but I'll be glad to see you. M: Well you can speak freely, just handle it any way you want to, but I thought you might be interested and I thought it was necessary to try to see you in this - H.M.Jr: Well there's a number of boys that got off on the wrong foot and I'd like to have my day in court. V: Well I'll be over then at ten o'clock. H.M.Jr: Thank you. M: Thanks a lot. Uclassifi 87 March 20, 1940 MEMORANDUM FOR THE SECRETARY: Steamer EASTERN GUIDE, New York to Vladivostok, Russia, was loading all day yesterday. Seattle: There are no ships in this port intended for or loading for Russia ports. (Signed) Basil Harris (Sent to President 3/20/40. ) Regraded Uclassifi 88 March 20, 1940 MEMORANDUM FOR THE PRESIDENT: Information has just been received that the "Eastern Guide" is unloading all copper taken on and loading only machinery, on instructions from the Amtorg Trading Company. This supplements information received in memorandum to me from Basil Harris sent to you this morning. (Signed) H. Morgenthau, Jr. ORIGINAL FORWARDED TO ADDRESSEE FROM OFFICE OF THE SECRETARY By Messenger MAR 20 1940 4:45 p.m. Regraded Uclassi 89 March 20, 1940 MEMORANDUM FOR THE PRESIDENT: Information has just been received that the "Eastern Guide" is unloading all copper taken on and loading only machinery, on instructions from the Amtorg Trading Company. This supplements information received in memorandum to me from Basil Harris sent to you this morning. (Signed) H. Morgenthau, Jr. ORIGINAL FORWARDED TO ADDRESSEE FROM OFFICE OF THE SECRETARY By Messenger MAR 20 1940 4:45 pm. Regraded Uclassifie 90 3/20/40 Memor an dum tothe Secretary:- Mr Harris called at 3:05 pm. and said he had just received in form ation that the Eastern Guide" was unloading all copper taken on and loading only machinery This on instructions from the amtorg Frading Co. contained in his menio The supplements information of this which you D.E.M. 91 March 20, 1940 3:45 pm Present: Mr. Purvis Captain Collins HM,Jr: Got my engine? Mr. Purvis: I think so, but, by Heavens! I can't tell you -- I feel as though I have won a war! HM,Jr: Well, by golly! you had better!, as we say. Mr. Purvis: Well, I would not think it a com- pletely comparatively easy thing. I have this little disadvantage. Sir Arthur Street is at the Front on a tour. He's the permanent Secretary. He's number one. HM,Jr: Who is number two? Mr. Purvis: Kingsley Wood is Minister. And apparently the Rolls Royce is longer drawn out than I realized and it's being moved into departmental machinery and frankly I won't express my views, but in effect here is the situation. HM,Jr: Well, don't let's take the time. You are working on it? Mr. Purvis: I have got it, I think. All I want to do is ask you two things. One is payment. HM,Jr; They will pay. Mr. Purvis: I want to avoid that. What we suggest is to go back to the original suggestion which, 92 -?- I believe, 18 acceptable to the Army, which will exchange an Allison against a Rolls Royce. That was the original suggestion, I believe, from this end, as far 88 I know, and that would be the easi- est way. Capt. Collins: I don't know. Mr. Purvis: That's a very practical suggestion as to the method of carrying it out. That would avoid the question of payment. HM,Jr: Well, ask General Arnold. Mr. Purvis: A comparison to be made at both ends, Allison with the turbo exhaust and the #10 motor, and I feel that there is something to that. We get a comparison at both ends. HM,Jr: Well, you (Collins) ask General Arnold. Capt. Collins: I will take care of that. HM.Jr: I want you to take care of it, because I am dead. Mr. Purvis: Well, anyhow, the answer is we are over the biggest hurdle. It becomes a question of method. There is apparently one other slight question which, on the telephone, this morning I could not get out because it's a bad line, and that is it's two en- gines, I understand, that you wanted. HM,Jr: That's right. Mr. Purvis: Some question abroad. Wrote from the Embassy on February 7th asking one and I could not get quite what they were after, but one is in their mind. HM,Jr: General Arnold said two, because they were afraid they might break one up. Regraded Uclassified 93 -3- Mr. Purvis: One is unqestionably just a question of method to avoid payment -- the question arising -- and the other I am perfectly sure we can handle. HM,Jr: (To Collins) Then let Mr. Purvis know tomorrow. Mr. Purvis: But the thing 1s disposed of ex- cept for detail. HM,Jr: Well, some detail! They want one of our engines in return. Mr. Purvis: I think it's the Army's own prop- osition and if by any chance it 1sn't, if you will let me know we shall go ahead while you are away. HM,Jr: Arnold told me "We will be glad to pay for it. He did not say anything about swapping to me, but find out. Captain Collins: Yes, sir. Mr. Purvis: Then, on the general program, I don't think I need to go over it. You have been over it with Self very recently. HM,Jr: Very good impression on me. I wrote it all down. Excellent impression. Mr. Purvis: We can't TTO far wrong with him here. After the preliminaries, we would like to get Collins in again. For the moment we are still in the preliminary stage. On the whole, it has been going very well this week. One point on which I would like a further word with you. The light alloys situation. At the pres- ent, we are running into A snag which we can't believe 1s real. The production of virgin aluminium in this country is 150,000 tons a year. That was the 1939 basis. It rises to 180,000 when the new crop in the State of Washington comes in towards the end of this Regraded Uclassifie 94 year. It is a very big tonnage, because the tonnage of light alloy manufacture -- I refer to extrusions, bars, shapes, sheets, all that which goes into the airplane manufacture -- the maximum is 50,000 tons and it may interest you to know, interest you enough to put a memorandum on the subject. That's about the quantity of light alloy shapes, sheets, extrusions, bars, all that kind of thing which goes into the making of 1,000 planes a month, 12,000 a year. HM,Jr: I would like a memorandum on it. Mr. Purvis: Would you? HM.Jr: Very much! Mr. Purvis: That is the British fashion plane. Because when I got a memorandum made up yesterday, I thought with a little change it might be valuable. It would point the finger in light alloys to where there are certain deficiencies, which I think might have real value. Self and I worked it out. But on the ingot, the virgin aluminum, which I did wonder we could get a little help on. During the last ten days, there has been a sudden change on the Aluminum Corporation. Up to that time we placed such orders as we pleased with them for bars and sheets and shapes, of whatever kind, and they supplied them with this huge aluminum produc- tion behind. A short time ago they began to say to us, "We can only accept those orders if you give us aluminum from Canada.' Actually, if there was a genuine shortage of aluminum, we will have to strain tremendously to do 1t, but actually we feel this 18 sort of something they had introduced without real reason. I am speak- ing very frankly. I wonder if we could have your help in running that down for it is really a vital point. I suppose somehow or other we will have to do 1t, but what we would like to do is get orders Regraded Uclassifie 95 -5- put through in a normal way and we feel they are using the arrangement the Government asked them to do with reserve stocks to do something which 1a reallyfantastic, not something you wanted them to do. HM,Jr: There is something wrong. I am going to ask you what 1s Mr. Davis' name? Mr. Purvis: I have met him twice. (To Lieut. McKay: Call un the office of Mr. Davis, President of the Alumnium Company of America in New York. Ask him if it will be con- venient for him to come to see me tomorrow at 11 8.m. Tell him I am leaving tomorrow night for See Island and I am very anxious to see him before I go, in connection with the English and French.) Captain Collins: I think Davies is Presi- dent. Mr. Purvis: No. Davis 1s the man. But, as I say, it has introduced a new phase which is a little worrying. HM,Jr: Look, in order to save your time, you are not telling me anything that Sir Henry Self has not already told me. Mr. Purvis: No. I imagine not. HM,Jr: In order to save you, I called up this man (Collins) yesterday and I said, "You get on this aluminum thing because I am sunk." Captain Collins: I am on. HM,Jr: Now, tell Mr. Purvis and me, at the same time, what you know. Can I be any fairer? Regraded Uclassif 96 -6- Mr. Purvis: Very fair. Capt. Collins: Now, as the result HI,Jr: Let's call n spade a spade. Caotain Collins: As the result of this talk yesterday, and this 18 as late as 2 o'clock today, here's some figures that we kicked out by memorandum from last night and from New York: total orders placed by the British for tubes, bars, round bars and sheets, are 1102 tons. There is under consid- cration for the British 10,900 tons. That's tubes, bare, sheets, forging, stuff of that kind, 1,000 of which 10 for Australia. And of this 10,000 tons there have been, according to report from Davis in New York, talks and talks and talks and talks, and nothing definite concerning sizes, quantities of different items, and this has been hanging fire -- some of this (roes back to February, early part of February. Mr. Purvis: Captain Collins, Mr. Davis is playing a rather interesting came, but I think now me have got to the bottom of this. It was sometime before we realized that this business of always say- the to us, "You are not giving us accurate specifi- cations", it 788 sometime before we realized we did not have the whole story. We gradually, completely put ourselves in position -- we have found always this story "You might get it tomorrow" -- that we don't -1ve them enough information. His main strategy has been all the time to say, "We can't deliver this be- ocuse we have not the specifications". Actually, we finally traced that to its lair. Take that extra quantity. We got the absolute detailed specifications. What we are met with, on the other hand, "It's no good your talking unless you can give us aluminum ingot". We know the output of ingot compares -- 150,000 on today's basis with 30,000 coming in the year. Require- ments for All the airplane industry, the whole thing, 57,000 tons. And there 1s the whole margin -- there 18 something going on behind 97 -7- Captain Collins: That's a phase I did not realize, because it has never been any question in our mind of ingots. HM,Jr: What I think you ought to do, depend- ing upon whether we hear from Mr. Davis or not, I need two pieces of paper. What I want 1s the orders that you have already placed and the ones you would like to place, talking -- I think the thing is ton- nage. Whether it's ingots or shapes, it all gets down to tonnage. Mr. Purvis: Thought the difference here is in the airplane industry, the light alloy side, for airplanes. You have an unbalanced situation here, where you have an excess in sheets, a short capacity in forgings. The actual forgings and the tubes are very, very short. They are out of balance. You have grand production -- for instance, of bars, but 1t's unbalanced. You have not enough forgings to take care of more than 4,000 planes whereas you have enough sheets to take care of 12,000 or 15,000 planes a year. It is an unbalanced situation in the working of the ingot into shapres which I would like to put in that memorandum to you. We are up against the diffi- oulty HM.Jr: If he's going to be here tomorrow and if it is important enough to you, you had better stay over. Mr. Purvis: Well, it might be. HM,Jr: I mean, if he's coming down, I could see him for half an hour at eleven and then have you Join us. He's going to say one thing and you are going to say another, and have you meet here and come back in the afternoon and say we are together or not. If it's important enough for that Mr. Purvis: This demand for ingot, which we believe to be -- he's using our necessity to get some ingots out of Canada. Iclassifie 98 -8- HM,Jr: What I would like to have in a memorandum is the over-all picture of what our production is in this country. As I understand, from Sir Henry Self, the basic raw material comes from British Guiana. Captain Collins: Bauxite. HM,Jr: I did not know that. I thought we had mines here. Captain Collins: No. Note of the type that 1s used, HM,Jr: I would like to get the total of bauxite produced in British Guiana; so much Roes to Canada; SO much to another place; so much to the United States. Mr. Purvis: I think whereas British Guiana 10 the place, I don't think it is the only place bauxite comes from. I think we could start with ingat aluminum and work from there. HM,Jr: You may not be able to do it tomorrow, but before I set through I would like to start from where bauxite starts; how much the tonnage 1s there. Is that enough? Mr. Purvis: Yes, or whether 1t requires the opening up of bauxite HM,Jr: Let's start with bauxite in the world and where does it come from. We might as well be thorough. Is that enough? Where is it distributed and where 1s it melted into invote? Where does it 100° Is that Canada, Niagara Falls? Hr. Purvis: It's Canada, United States, France. HM,Jr: Wherever it 1s, where they have elec- tric power to melt it down. It's all down by elec- tricity? 99 -9- Mr. Purvis: Yes. That's why Canada and countries like that HM,Jr: I was wondering about France. Well, France wants to get its plane production up to so many a month; England, so many; and we, 80 many, for which we need 80 much raw materials to go into so much ingots. Our present production is this. We are short or we are not. And from that stage, trace it right up and let's see where we are at. Mr. Purvis: Yes. of course, we started from ingot because it would take a. devil of a long time to change, but he must have that picture right at his thumbs. Davis is very knowledgable. Our practical difficulty, you see, for the moment 1s, as I say, we want to place these orders. We have met day after day with the little committee that I got Davis to put up. He put up a committee from his place, a man by the name of Davies as his first fellow, and we had two of our French people and one of our Britishers, because Davies was 1n- clined to say, "You don't speak with the same voice". HM,Jr: This thing has me worried, because if I am supposed to do any job for the President, this 1s certainly a coordinating job. Mr. Purvis: Yes. Quite. HM,Jr: I am really worried. You think the shortage in this country 18 where? Mr. Purvis: I know it. I can give you the actual chapter and verse. It's forgings, made from forgings stocks. No shortage of forgings stocks. It's the actual forging work itself, and in tubes. HM,Jr: Forgings and tubes? Mr. Purvis: Forgings and tubes. There is one other, possibly. Die castings, the kind of 100 -10- casting that makes the airplane carburetor. That is also a dangerous thing, because it means that you have to get a very high quality of skilled labor which takes time to train. That's another tersery one. The difficulty with the tubes is just this: it's the time it takes to do anything about it. Heat treatment is involved and heat treatment is a six months' proposition. HM,Jr: What is tubes? Mr. Purvis: Tube is extruded HM,Jr: What's it used for? Mr. Purvis: Airplane struts. The British use much more per airplane. Provision of more capacity for that is really difficult and actually in forgings your output 1s quite a menace to your airplane production possibilities. HM,Jr: On this thing, wouldn't it be helpful to have General Brett here? Would he know about this? Cantain Collins: No, I don't think so. I think one other man we should have here is the Wash- ington man. HM,Jr: That would be up to Davies, but wouldn't Brett know something about this? Who would know in the Navy? Captain Collins: Brett would have figures. HM,Jr: How about Kraus? Captain Collins: Kraus would have figures, but, of course, they don't buy this as such. Mr. Purvis: This is something in which our interests, I believe, Mr. Secretary, coincide with yours. Our airplane program may be a better way 101 -11- in bringing in A. more balance picture for aircraft production. I think that is a real need, not an imaginary one. (Lieut. McKay came in nt this noint, and the Secretary asked him If he had gotten the call. Lieut McXay sald the operator thought she had it a minute ago, "I will give you another five minutes, the Secretary told Nokay.) Mr. Purvis: But roughly speaking, it really comes down to this: to make 1,000 planes a month, British type -- because, efter all, we don't know your type and the British may take a little more than yours -- but it requires 23,500 tons of sheets, 9,400 tons of forgings and extrusions, 500 tons of castings, and 12,000 (?) tons of tubes, and then that totals up to approximately 50,000 tons for 1,000 planes R month. Then you have to allow 10,000 for scrap. So you have 60,000 tons of light alloy shapes and sizes to make 1,000 planes a month. The difficulty you are in from a National Defense viewpoint, if I may be per- mitted to suggest, 1s that your production of the various kind of alloys -- I mean the difference be- tween sheet, casting, forging, extrusion or bar -- 1s out of balance. You have a high productive ca- pacity in one and little or nothing in the other, but in any case when you have taken it all in all, the point that 1s being made to UE, that we must supply the aluminum before they will accept our or- ders any longer, does not seem to be common sense, because you have 160,000 ingot per month, rising to 180,000 at the end of the year. HI,Jr: In the United States? Mr. Purvis: From 150,000 to 180, yes. In the State of Washington there 1s 2 new plant coming in that will make 30,000 more this year. HM,Jr: What is your production in Canada? Mr. Purvis: I am & little off center, but I think approximately 200,000 tons. That's another Regraded Uclassifie 102 -12- big item because of water power. Mr. Davis has this suit on his mind. Every time you see him he takes three-quarters of an hour to tell you he has a suit pending and he has been in court every day for two years. (Lieut. McKay came in to say the Chairman of the Board is in Nassau and Mr. Davies 1s the manager in New York.) Mr. Purvis: Davishas the power. HM,Jr: The man in Nassau. What about Davies? Mr. Purvis: Awfully nice fellow, but in the final analysis, can't act. When the Chairman brings his men into the room, there is no question who's running the company. HM,Jr: Tell you what you (Collins) do. Get outside and talk to the man who is here in Washington and say I want to talk with whoever is boss while this man 1s in Nassau and I would like him here at eleven 'clook tomorrow. (At this point, HM, Jr spoke to General Watson and said: "I am having a meeting tomorrow on aluminum. I find it is a very critical situation. I would like to have General Brett here, who does the buying on the airplanes, and I think it's Captain Kraus in the Navy. Would you be willing to tell their bosses to have them here at my office. Aluminum in connec- tion with airplanes and those two or anybody they want to send along. In connection with supplying of alum- inum for airplanes. I find it is something that 1s quite serious. Another "neck of the bottle". "Did he see General Marshall today? Wonderful! Swell! "That was good stuff that you gave to Alsop. (Laughter). Boy, oh, boy! Not a bit!" Regraded Uclassifie 103 -13- (When the conversation was concluded, HM?Jr wrote out for Miss Chauncey what General Watson had said, and it 1s attached to this page.) Mr. Purvis: May I ask you a question and ask how the release is going? HM,Jr: I think this: I think the thing is going along beautifully. Those articles were not any accident. I told you the President gave two and one-half hours to it. The Army has got their orders. I think they have got to come through. If you have any trouble while I am gone -- I have a direct wire down there -- tell Collins what's on your mind and give him the time when you can be reached and your telephone number and I will call you. Mr. Purvis: Exactly! HM,Jr: (To Mr. Collins, who returned from the Secretary's outer office..) I was telling Mr. Purvis if something important came up to tell you; you phone. me down there and you have his phone number and where he will be and I will call him within half A day. Mr. Purvis: Splendid! Wonderful! Captain Collins: We are still suspended. Mr. Hunt, of the company, can't leave New York. He's tied up in a law suit and impossible to get him out. Mr. Purvis: That's the son-in-law. Captain Collins: Wilbur is phoning Pittsburgh concerning one Vice President who would be cognizant with the policies of the company. HM,Jr: Who is Hunt? Captain Collins: He's the President. HM,Jr: Why in the hell can't he be excused from Court? Regraded Uclassified Pres. gave general < marshall his he wanted in regard aders today what to have for addis. 11 104 -14- Captain Collins: Anti-trust suit, he said. Hunt is definitely out. He tried him the other day. Mr. Purvis: You see what I meant? There is one gentleman there has it like that (clenching his fist), but policyis under his direction. Davis has left instructions, no doubt, that every order must be subject to our getting the aluminum, so we are ham- strung. HM,Jr: How long 1s he going to be down in Nassau? Mr. Purvis: I don't know. I imagine a couple of weeks. What we may find there 18 just this one pocket. What they are trying to do is utilize the urgency of our demands as a means of getting some ingot out of Canada. HM,Jr: Let's lay this on the table. Where are you on engines right now? Are you anywhere? Mr. Purvis: Going much better than we thought even when Self was with you. HM,Jr: All right. Tell me where you are on engines. Mr. Purvis: We are in the position we are ex- pecting now to cable today for final authority on the program along the lines of 3500 Allisons, 4000 Pratt- Whitney, 4,000 Wrights. That's 11,500, but that in- cludes the 3500 of the French options for airplanes built in France. HM,Jr: What's that mean? Mr. Purvis: You remember there were 3500 on the old option which France had. HM,Jr: But those are not orders on the books? Regraded Uclassifie 105 -15- Mr. Purvis: They are options which the French have to exercise. What will be required for the 5000 planes that will be built here are 8000 engines, which is the difference. And there is the picture which we are hoping to cable to London and Paris to get a green light on, on that basis. As to type, subject to release always of planes, 3000; types mainly Curtiss, Lochkeed P-38 -- improved Curtiss, I mean, if we can get it -- and the Bell P-39. HM,Jr: You want the Bell airacuda? That ought not to be too difficult. Mr. Purvis: The Lockheed two-engine inter- ceptor and the improved Curtiss. HM,Jr: You want something better than the P-40. Mr. Purvis: Pursuit planes. The Lockheed intercention 39, the Bell 39, and the improved Curtise - I don't know its number. Captain Collins: Have we got the breakdown on those or 18 that supplied. Mr. Purvis: We have not got A breakdown, be- cause, frankly, we had to concentrate on engines and have had only preliminary talks on bomber. On bomber, 2100 bombers, which would Douglas attack, the Glenn- Martin 187 and the Lockheed 37. 3,000 fighters, the Curties, Lockheed P-38 and Bell P-39. But there is one difficulty in it and that will be in the forging, the aluminum. (Miss Chauncey was excused from taking any further notes.) (About ten minutes later, the Secretary Asked her to return and she took the following: Mr. Purvis: On nickel. I am advised that the Canadian Government, which had been considering allowing some tonnage to be shipped to Japan of nickel, 106 -16- has rescinded that and has advised the Japanese Minister in Ottawa that for the time being no nickel export license will be given either for the boat that was under consideration at the end of March or for the next boat, which I believe to be in two or three weeks -- later in April. That will give an opportunity for the development of policy along a little more different lines and the opportunity of discussion by Rist and Gwatkin and myself with Dr. Skelton in Ottawa about ten days from now. (At this point, HM, Jr dictated the attached letter to the President and directed that a copy of it be sent to Secretary Hull.) 000-000 107 March 20, 1940 My dear Mr. President: I have just had a conference with Mr. Purvis. You will remember that Mr. Purvis informed me that during the months of January, February and March, the International Nickel of Canada would export to Japan 835 tons, which was & balance of a 1939 contract. This has been shipped over the period of January, Feb- ruary and March, instead of January and February which was what the Japanese wanted. Mr. Purvis informs me, this afternoon, that the Canadian Government has postponed making any future contract for shipment of nickel to Japan for the time being and has so advised the Japanese Minister at Otta- wa. He further advises me that he will take this matter up again with the Canadian Government about April first. I am sure this will be very pleasing to you, because it shows that the Allied Purchasing Mission 1s cooperating with us. Sincerely yours, The President, The White House. 108 March 20, 1940 My dear Mr. President: I have Just had a conference with Nr. Purvis. You will remember that Mr. Purvis informed me that during the months of January, February and March, the International Nickel of Canada would export to Japan 835 tons, which was a balance of a 1939 contract. This has been shipped over the period of January, Feb- ruary and March, instead of January and February which was what the Japanese wanted. Mr. Purvis informs me, this afternoon, that the Canadian Government has postponed making any future contract for shipment of nickel to Japan for the time being and has so advised the Japanese Minister at Otta- was He further advises me that he will take this matter up again with the Canadian Government about April first. I am sure this will be very pleasing to you, because it shows that the Allied Purchasing Mission 1s cooperating with us. Sincerely yours, The President, The White House. Regraded NEW YORK THIS - March 70, 1940. PRESIDENT EXALTS pling within the last year of plant He found the totals of both plant capacity for building airplanes and and pilots to be wholly Insufficient airplane engines in the United at that ume, he asserted, and be States. He characterized this as began Immediately to smok means AIR EXPORT POLICY one of the most important things of making up the deficiency. What that had happened to our own no - happened since than, partion- Uonal defense In many years. Such larly in the matter of providing a development Ild not have taken production facilities for building place. be address thout the sale of planes. constituted a perfectly amas- steplaces abron ing story. be contended. He Says Foreign Buying Has The President out down as pure Il was abvious. the President bunk any magration that in the werl on, that such expansion would Expanded Plants and Given sale of ngb0oz airplanes to Earn- lumo bents impossible had not Inis pass nations, vital military secreta country been able to sell plane Vital Aid to Defense of this government were bring die- abroad-to any country, belligerent closed. Speaking specifically of the or neutral, who would come alim Curtise P-40, the pursult plane them and pay for them. And the which the War Department released only enterior for selling the planes, MUST SELL NEW MODELS in December for sale to the Allies, he said. was to sell to foreign pow- The said that he fond seen DOE of ema the planes they would buy. those types na early our 1938, that some of the newspaper men present Supplies Held Open to All in the ronth ha daeen it at the same Only Way to Gain Purchasers The President left no doubt that time. and that later he bad noticed fyll would Instal upon a continuation pictures, drawings and cross BBC- He Declares-Calls Talk of of sales abroad. He pareied . ques- (lon diagrams of the various parts tion whether he considered 11. more In technical magazines Lost Secrets 'Bunk' m the interest of the defense nt The President added that them the United States to sell planes to were three or four dévices, outside il particular side in the current E.u- of completed planes, which 1018 inpean war. He instated that (be government thinks other nations By TURNER CATLEDGE present policy was to nell to any naven't acquired or developed as WASHINGTON, March 10-Proel una who would come and get. them. vet These devises were heing leopt dent Roosevelt today entered a vig Being strictly in command of the absolutely Recret. ne stated, and administrative arm of the Govern- orous defense of the Administra would neither be and nor given to ment. as well as Constitutional Uon's policy of releasing lates: anybody. He cautioned the news- Commander-in-Chlef of the army model aircraft for sale abroad, de paper men not even to ask what and navy, Mr. Roceevell thus as- they Were, adding LE would not be claring that he was serving the best parently sattled the controveray good Americanium even in FFY in over foreign plane nains M far as ends of American national defense Tind out. the Executive branch le concerned. by encouraging expansion of de mestic plant facilities to fill for- Our Defense Called Rusie a controversy which arose when certain officials in the War Depart eign orders. Reviewing in considerable delad ment objected to the policy under The President stepped into the the American polley of permittible which It was proposed to release controveray over export of planes sales of was planes to Enroment intest design planes for esport. and munitions on the eye of 8. hear flans, Mr. Romevelt declared That There remained considerable que- ing by the House Military Affetest was premited all the nerds BY onf tion, however, whether the dispute Committee at which War Depart- nwn defenses. writ participarly was disposed of finally, for Con- ment officials will be questioned the registrements for additional pro- gream has been eshibiting a recent concerning the effact of foreign or Instion The deficiency in play) nervousness about the situation. dera upon the speed and price at capacity to produce fighting planse The House Military Affairs Com- which aircraft le being delivered was noted by him about a year ego. mittee's inquiry Was ordered last to the United States Army. he said, when, de Commander-In- week when the controversy. then Among those Invited to testify Unief of the nation's armed forces. brewing between the War Depart- are Secretary of War Woodring De began to take stock of defense mont and an unofficial coordiner- Assistant Secretary of War Jahn- problems in The light of the adjus- mg committee headed by Secretary son, General George Marshall, then drawine to & head In of the Treasury Morgenthal. seemed Chief of Staff, and Major Gen. sbow to burre into the прел. A H. H. Acoold chief of the Apout The first two questions the milling (m n. Air Corpa. like then De - How constigution uno the while matter planes titres the United States Clus Trippling of Capacity pháni wind arme mins was in BEACH time And how in He Restate or Recom tion Taking advantage of e question does the United States 3. evil 18 now The propormied at file 4 Milmare Calmmit title afterpoon. My USA computer (requisatile 110 THE QUEEN MARY TAKES ON A COAT OF WAR PAINT Admirally gray heing applied to the liner genteriar Associated - 111 Regraded Uclassified MAR 20 1940 My dear Senator: The following information is furnished you in compliance with your telephone request of this morning. In the 1941 Dudget submitted to the Congress in January of this year it in estimated that the Treasury's working balance on June 30, 1940, will be about $1,011,000,000, a reduction of $1,291,000,000 during the current fiscal year. The Treasury does not segregate its working balances in the General Fund to show its obligation on any particular class of accounts, but considers its total vorking balance as available to meet the demands made on any of these accounts as well as to neet general and trust fund expenditures of the Government. In view of the large amount of demand obliga- tions now outstanding which the Treasury may be called upon to meet, such as the checking accounts and deposits of governmental corporations, credit agencies, etc., in the aggregate amount of over $400,000,000; the Unemployment Trust Fund, emounting to $1,640,000,000; special obligations issued for account of the Postal Savings System and the Federal Deposit Insurance Corpor- ation, amounting to $142,000,000; and outstanding United States Savings Bonds with a redemption value of $2,700,000,000, it 10 felt that the estimated working balance of the Treasury on June 30. 1940, as contemplated by the President's Budget, will be about ao lov as it can be permitted to go. Sincerely yours, (Signed) H. Morgenthau, Jc. Secretary of the Treasury Monorable Harry 7. Byrd MAILED. 3-20 1940 United States Senate, (Floor) Washington, D. C. BY SPEC. MESSENGER 2:25P.M. DVD:NLS FILE TO March 20, 1940 COPY TO 112 1 MAR 20 1940 My dear Senator: For your information I all transmitting herewith 8. copy of my letter of today to Senator Byrd in response to his request for information on the working balance of the Treasury. Sincerely yours, (Signed) H. Morgenthau, Jr. Secretary of the Treasury Honorable Albem V. Barkley, United States Senate, Washington, D. C. MAILED 3-20 - 1940 40 Enclosure. BY SPEC. MESSENGER 2:25 P.M. DWB:NLE March 20, 1940 FILE TO COPY TO Regraded Uclassified 113 DEPARTMENT OF THE NAVY OFFICE OF THE SECRETARY WASHINGTON 20 March 1940 My dear Mr. Secretary: The enclosed is in connection with your inquiry on this subject. I am forwarding this information in Mr. Edison's absence and trust that it is what you wish. Very respectfully, M. L. Deyo Captain, U.S.Navy Aide to the Secretary Hon. Henry W. Morgenthau, Jr., The Secretary of the Treasury, Washington, D.C. Encs. Regraded Uclassif COPY 14 FROM: ALUSNA LONDON 191900CR872 ACTIONL SECNAV RESTRICTED MARCH NINTH BRITISH AGREED RELEASE THIRTEEN ITALIAN SHIPS AND CARGOES GERMAN COAL X ITALY AGREED HER SHIPS WHICH HAD NOT ALREADY SAILED FROM DUTCH PORTS WOULD LEAVE IN BALLAST AND NO FURTHER SHIPS WOULD ATTEMPT ENGAGE THIS TRAFFIC X THIS ACTION CONSIDERED HERE TACIT RECOGNITION BRITISH REPRISAL MEASURES AGAINST GERMAN GOODS ARE IN FULL OPERATION XX IT IS FACT VESSELS WHICH LEFT ROTTERDAM IN BALLAST CALLED AT CARDIFF FOR LOADING X SEE ALSO EMBASSY DESPATCH FORTY EIGHT ZERO SIX AND TELEGRAM FIVE SIX EIGHT BOTH SEVEN MARCH LIKEWISE DISPATCH FOUR EIGHT THIRTY NINE OF TWELVE MARCH FOR FULLER PARTICULARS PARA-UNABLE DETERMINE HERE CHARACTER AND DETAILS arrangements BETWEEN GERMANY AND ITALY FOR SUPPLY COAL TO LATTER X MINISTRY ECONOMIC WARFARE ESTIMATES ITALIAN YEARLY IMPORTS FOREIGN COAL ABOUT TWELVE MILLION TONS OF WHICH TEN MILLIONS HERETOFORE RECEIVED FROM GERMANY AND POLAND THEY BELIEVE INADEQUATE RAIL TRANSPORTATION FACILITIES WILL CURTAIL IMPORTS TO ABOUT FOUR MILLION ACTUALLY DELIVERED ALTHOUGH AOMIT TING HIGHER RATE COULD BE MAINTAINED FOR SHORTER PERIOD SAY ONE MONTH AND SUCH RATE USED FOR PROPAGANDA PURPOSES PARA ENGLAND HAS EXPORTED TO THEM SOMEWHAT OVER TWO MILLION TONS YEARLY AND CAN POSSIBLY DOUBLE THIS AMOUNT BUT CRUX IS PAYMENTS X SPECIAL MISSION FAIRCHILD NOW IN ROME ON THIS POINT X HEAVY GOODS NOT OFFERED BY ITALY IN SUPFICIENT QUANTITIES ESPECIALLY THOSE ASSIMILATED TO MUNITIONS AND ENGLAND UNWILLING ABSORB LARGER QUANTITIES LUXURY TRADE OR AGRICULTURE PRODUCTS PARA ABOVE AFFECTS SHIPPING AS COLLIERS FINDING DIFFICULTY SUITABLE AND PROFITABLE CARGOES FOR RETURN VOYAGE TO ENGLAND X ANTICIPATED BULK ENGLISH COALS WILL TRAVEL IN ITALIAN BOTTOMS WHICH MAY OR MAY NOT ACCEPT CONVOY BUT PRACTICALLY ALREADY SHOW DISPOSITION TO TRAIL PRESENT EAST COAST CONVOYS X RECKONED COAL FOR ITALY WILL COME ONE THIRD EAST COAST TWO THIRDS CARDIFF AREA PARA MY OPINION NEW ESTIMATE COAL DELIVERED BY RAIL FROM GERMANY PROBABLY LOWER THAN WILL ACTUALLY MATERIALIZE X CONSIDER BRITISH DELIVERIES CAN NOT FILL GAP AS A-PART FROM ECONOMIC ASPECT DOUBT If THEIR TRANSPORTATION STORAGE AND HANDLING FACILITIES ADEQUATE TO LIKET GREATER THAN TWO FOLD EXPANSION WITHOUT DIVERTING COAL SUPPLIED OTHER COUNTRIES WHICH REPLY UPON ENGLAND AS SOURCE NOTABLY ARGENTINA X BELIEVE NAZI AIR ACTIVITY EAST COAST CAPABLE CAUSING SERIOUS INTERRUPTIONS NEW CASTLE OUTPUT X SUGGEST POSSIBILITY AMERICAN COAL DELIVERIES ITALY OPPORTUNE TOR CODEROOM 0100 DISTRIBUTION 16 ACTION DDA - 01 - 10/11 - 12 - 13 - 38 -NAVAID - OPNAVDO - FILE 115 COPY NAVAL MESSAGE (Navy Department) SECNAV ALUSNA LONDON Released: R.Ad. W.S.Anderson Date: = 15 March 1940 INFORMATION DESIRED AS FOLLOWS ONE AGREEMENT BETWEEN GREAT BRITAIN AND ITALY COVERING RELEASE OF COAL TO ITALY TWO ARRANGEMENT AS TO SUPPLY OF COAL TO ITALY BY GERMANY AND HOW WILL DELIVERIES BE EFFECTED THREE ANY FURTHER INFORMATION OF INTEREST BEARING ON THIS SUBJECT AND PROBABLE EFFECTS OF THESE AGREEMENTS INCLUDING YOUR OWN OPINION REPLY FULLY BY DESPATCH Regraded Uclassit 116 HSM PLAIN London Dated March 20, 1940 Rec'd 2:29 P. m. Secretary of State, Washington. 702, March 20, 7 p. E. FOR TREASURY FROM BUTTERWORTH. 1. The Chancellor of the Exchaquer was asked in the House of Commons a number of questions regarding the Exchange control regulations, the most interesting of which was why the new regulations (my 594, March 9, noon) are confined to a limited number of commodities and for certain destinations only and whether to secure the maxi- mum of fortign Exchange for war purposes he would extend these regulations over the whole of the export trade of the country. Simon replied: "It was thought desirable that the regulation referred to should bE made applicable in the first instance to a list of commodities and currencies in regard to which the maximum amounts of the foreign currencies most required could bE obtained without EXCESSIVE administrative complications. The question will bE kept constantly under review as Experience of the working of the Regraded Uclassifi 17 ham -2- No. 702, March 20, 7 P. ma, from London the regulation 1s gained. I must however again point out that the obligation to offer for sale to the Treasury all American and Canadian dollars, French, Belgian and Swiss francs, Norwegian and Swedish crowns, Argentine pesos and Amsterdam and Java guilders, received for exports, applies to all commodities. The necessary steps are being and will continue to bE taken through the censor- ship and otherwise to SEE that this obligation is strictly complied with." 2. British national revenue has already EXCEEDED the war budget estimate for the full financial year. The latest EXCHEQUER return shows that up to Saturday last, when fifteen days remained to the close of the budget year, of revenue had reached £1,000,900,000, an increase/1114,800,000 on the figure for the corresponding period of the previous year and £5,700,000 above the Estimate for the whole of the budget year 1939440. As revenue totalled $41,200,000 in the last thirteen days of the EXCHEQUER year 1938-39 the estimate for the current year may Eventually bE EXCEEDED by some £50,000,000. Meanwhile expenditure of the supply departments continues to increase but slowly and a substantial short- fall on the year's Estimate is certain. The amount required last WEEK was ₺47,600,000, some £2,900,000 more than in the preceding WEEK and about £5,000,000 above the average for Regraded Uclassified 118 hsm -3- No. 702, March 20, 7 P. m., from London for the past few months. This brings total supply Expenditure since the beginning of the budget year up to £1,448,600,000 at which lEVEl it is still as much as £237,800,000 below the war budget Estimate for the full twelve months. Even if a marked acceleration in the rate of spending now takes place as & result of the usual End- year settlement of outstanding accounts the total required during the two weeks still to go is unlikely to EXCEED £120,000,000. Thus the short-full of supply Expenditure will bE at least £115,000,000 and may reach £140,000,000. The budgetary deficit was originally estimated at £938,000,000. 3. The three percent war loan closed today at only an eighth discount. British security markets were favorably affected at the opening by the Prime Minister's speech on the progress of the war and when the Paris Bourse streng- thened after the fall of the French Government the markets here responded. KENNEDY HPD Regraded Uclassifie 119 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Rio de Janeiro NO.: 121 DATE: March 20, 1940 Reference 1s made to the Department's telegram no. 73 of March 15, 4 p.m. Replying to the inquiry of the Foreign Bondholders Council regarding the settlement of the Ceará matter, Aranha said that if the Council made a "reasonable suggestion", it would be given careful consideration by the Brazilian Government. All of the Government offices in Rio will be closed until Monday noon. Aranha is going to Pocos de Caldas and will return on Tuesday. EA:EB Regraded Uclassifie DUNDED 1881 UNDER THE TREATY 0 / GENEYA 1" AMERICAN RED CROSS 120 NATIONAL HEADQUARTERS WASHINGTON, D. C. NATIONAL OFFICER - D. Received. President March 20, 1940 Checke Cress Hope Vice President Height Honsel, Vice Providers Batiers H laden, Completed law W Have Transfer Mater 1 Budhan, Securitary My dear Mr. Secretary: NATIONAL EXECUTIVE OFFICERS Name H Der's Cluimum - L Paint Ver - I MCland Vae Damn With reference to our conversation last night I-mail J. Yes Chairmin about Finland's needs, may I present the following facts: CONTRAL COMMITTE Shortly after the outbreak of war in Finland, - H Dam Clarman - Name Brissn the American Red Cross sent Mr. Wayne Chatfield-Taylor to Name 1 Helsinki to survey the needs and to report his conclusions. Mey Her # Davison It was on the basis of his recommendations and those of - il Tape Via Form Dr. H. A. Spencer, assigned to the American Red Cross by Juhn W Homes Gaorge L Harmen the United States Public Health Service, that our program Room H, Jackson has been planned. losse Known May Gen Junes Came Mages Know Admiral for 1. Mchive The endeavor of the American Red Cross has been F. Valor Mame to provide a measure of medical relief and to date we have Cummo 0 Prom Ma Hein 1 Res expended more than $328,000 in cash for supplies, including Open Sm - ten ambulances, hospital equipment, surgical instruments, Hoad a William tents, blankets and 1-ray machines, In addition, Chapter volunteers throughout the country have shipped over 66,000 MANIS ENDOWMENT FUND articles of clothing and 192,000 surgical dressings. - . Chamas 1 1 Date ) , Our latest purchases for Finnish relief were Ha D. How the A. 4am maue following reports of tragic needs from Dr. Spencer, a - 0 Mare copy of which is enclosed. These supplies were of various - H Perkan - W Herey character and included 10,000 blankets, 10 X-ray machines, - floor 40 basic sets of surgical instruments and a large quantity of clothing. In addition to cablegrams from Dr. Spencer, we have received through the International Red Cross Com- mittee and the League of Red Cross Societies appeals from international organizations. One received on March 15th from the Cajander Committee, which was signed by Suomen Huolto, is as follows: "Left alone to defend her independence and neutrality Finland after an unyielding fight of three and a half months as the advance post of western civilization has found herself forced to conclude a burdensome peace. The activity of the National Committee of the Relief Fund for Finnish Civilian Population will not be dimin- ished but on the contrary calls for greater effectiveness. The number of evacuees having increased the distress among them is great, 121 -2- - - The number of persons having suffered from air bom- berdments 16 considerable. Lerge families of killed on bettlefield and invalida are in need of constant assis- tance. Those who have suffered most from war are evac- uated children with a tendency to illness. Until situa- tion is settled broad assistance is necessary. Work will be more difficult than during war. The Committee sends you an urgent appeal for continual aid to relieve distress of civilian population." Another cablegram received from the Lengue of Red Cross Societies states that "Information from Finland emphasizes tragic plight Finnish children. 275,000 including thousands war orphans will return to ruined homes. AS result peace treaty two hundred thousand population Carelian Isthmus abendoning homes. Immediate relief imperative considering weakened condition que prolonged suffering danger disease due inadequate food clothing. Mest ur- gent needs money followed if possible by rapid despetch clothing especially underwear soap sheets towels dried Truits vegetables vitamins and milk products knitting and sewing needles thread wool materials." From the Lengue of Red Cross Societies on March 2nd came B cablegram informing the American Red Cross that refugees in Finland at that time numbered 600,000, of whom 300,000 were children, 270,000 women and 30,000 nen, the number increasing constantly. In 5. letter dated February 13th, Dr. Spencer points out the great need of hospital beds, not only for the army but for the civilian population as well. In this letter he asked that if pos- sible 10 complete hospital units of 10,000 beds each be assembled and shipped to Finland. Dr. Spencer further stated that there were needed in Finland at that time a minimum of 30,000 hospital beds to take care of a civilian population of over three million. Our lust cablegram irom or. Spencer came on March 16th in which he says"After detailed discussion with officials Finnish Red Cross it is clear that material requested in my telegram #82 is ur- gently needed for over 50,000 wounded and increasing hospital de- mands influenced by factors or great importance." The American Red Cross is continuing to help meet the medical, hospital and clothing needs in Finland but it is of neces- sity limited in its efforts by funds at its disposal provided from its own treasury and contributions received from the public. Please be good enough to let me know if there are any additional questions which occur to you. Sincerely The Honorable Hinry Morgenthau, Jr. Sicretary of the Treasury Ernast J. Swift Teshington, D. C. Vice Chairman Regraded Uclassifie COPY OF INCOMING CABLEGRAM AMERICAN RED CROSS NATIONAL HEADQUARTERS Date received: March 16, 1940 PASSACTAT received from: HELSINKI (FINLAND) Through State Dept. Dated March 15, 1940. #148. FOR AMERICAN RED CROSS FROM SPENCER. "On the evening of March thirteenth E shadow fell over Finland when it was learned that under the peace terms the penalty imposed was heavier than anticipated. This depression seen on every side was further increased by the pity and sympathy going out to over one hundred thousand persons who last night vera forced to leave their homes with a few personal belongings, hastily matched together, these to be added to unhappy five hundred thousand previously expelled from their homes by the relentless invader. of the total number four hundred seventy thousand are without home and must be given issueds late help: old men, old women and children are now travelling to an unknown destination by trains, trucks, afoot, horse drawn sled and by other means at hand from territory ceded to Russia. The new frontiers of Finland are indicated only by officials stationed on the road. "Jujo Koivisto, Minister in charge of evacuation, announced last night that the migration has started and stated in part 'they have had to leave their homes in centers where in many cases for generations and even centuries they developed traditions and affections.' The intimate familial and tribal characteristics of the Finnish people suet be under- stood to appreciate these terrible conditions adding mental suffering to the physical hardships. These people must be housed, fad, clothed and above all have careful medical attention to ensure their existence and with the children to prevent a warping of the mentality." (Section Two) "The expense and care borne by the state for ovacuses during the war was dollars seventy thousand per day saide from monies contributed by foreign organizations. No estimate can be obtained of the sum now needed except that it will be greatly increased. Assistance in preparing the above was given by Beatty and Fourche of United Press. Additional information relative to specific meeds will be sent as soon as information can be obtained in accordance our telephone conversation last evening. Sending further requests, advise hold all shipments." (Zed) SPENCER (signed Schoenfeld, American Minister) Circulated usual list. Uclassifie 123 MA PLAIN London Dated March 20, 1940 Rec'd 1:54 p.m. Secretary of State Washington 701, March 20, 7 p.m. Embassy's 32, January 5, 6 p.m. Details will bE published next WEEK of the Anglo- Spanish loan agreement and payments agreement signed in Madrid on March 18. The published summary indicates that under the loan agreement the British Government will advance 2 million pounds for the purchase of goods of sterling area origin and a sum sufficient, together with the amount of nearly pounds 2 million standing in the reserve fund at the Bank of England under the 1936 payments agreement, to Enable an immediate dividend of 50 per cent to bE paid on outstanding debts. These are Estimated at about pounds 7 million. Payment of interest on these loans will be made from the outset but no repayment of capital until 1942. The payments agreement refstablishes a clearing and as THE TIMES puts it provides "a framework within which each country can buy from the other what it needs up to the limit of available supplies and of the sums available for payment." There Uclassi 124 There is considerable satisfaction that these long-drawn out negotiations have Ended in what is regarded here as a favorable conclusion. Please supply copy to Treasury. KENNEDY CSB Regraded Uclassifie 125 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embasey, Paris, France DATE: March 20, 1940, 5 p.m. NO.: 366 FOR THE TREASURY DEPARTMENT FROM MATTHEWS. This morning at 11 o'clock I visited our friend at the Bank of France. On the market money was more plentiful in view of the vote of the Chamber yesterday and the resulting resignation this morning of the Government - as implying the "reorganization" in the Government which has been so strongly desired by the country so there could be a more vigorous prosecution of the war. He said that Government obligations, war maturities in particular, were strong. The Bank of England telephoned to him while I was there to inquire as to the reaction. He gave them the same optimistic assurances, and added his own view that the meeting between Hitler and Mussolini had been taken with great calm and "almost an indifference" in the country. Last week he had been to London, and received there a favorable impression of the smoothness with which the financial accord between Great Britain and France 18 operating. Rueff had expressed a similar view to me - reference, telegram of February 29, No. 274, from the Embassy. END SECTIONS ONE AND TWO. MURPHY. Regraded Uclassified 126 PARAPHRASE OF SECTIONS THREE TO FOURTEEN, INCLUSIVE, TELEGRAM NO. 366 OF MARCH 20, 1940. I asked whether the trend thereunder was still in favor of the franc. He said that there had now been a change in the tide, that the French credit balance has now been reduced to 21 million pounds, whereas at the beginning of January it amounted to 30 million pounds. Those who had been fearful about French accumulation of unwieldy sterling, he said, were proved completely wrong now, that from the beginning he had insisted that it could not be otherwise with all the French had to purchase in the British Empire. He expressed the belief that French purchases in the British Empire will continue to increase, in view of their vital need for husbanding resources of gold and dollars. Our friend mentioned that they hoped to get Katanga or Rhodesian copper, in partic- ular. In this connection he remarked that copper contracts between American concerns and the French had been "very stupid" and at prices which were far too high. He said that due to the restriction agreement, the copper mines in British Africa were not yet geared to maximum output, though he thought that in a year they would be able to supply French needs. Our friend continued that he felt financial negotiations between France and other countries had not been aggressive enough. In Argentina, for example, with all that France purchases there, it would be in B. position to refuse to make 127 - 2 - make payments in dollars at all instead of the percentage agreed upon, and the same situation held for Brazil, though the amount involved was on a lesser scale. I asked our contact whether he was worried about the New York free market quotations for the franc and sterling. He said that personally he was not, but some agitation had been shown by the Governor of the Bank of France. He added he was annoyed at people in France looking on the fall as franc weakness whereas it really was pound weakness, as the franc 1s necessarily tied to the pound. The sole reason for the drop, he said, was the British action in instituting exchange control measures reducing the free market demand for sterling by requiring delivery of foreign exchange for certain specified exports, and failing to take measures to reduce the supply at the same time. He thought that the British authorities would take steps in accord with the latter shortly. He estimated, incidentally, that daily franc transactions on the market in New York amounted to about 20 million francs. He did not deny that the French are following a policy of requiring certain exporters from the United States to invoice in francs. He described this policy as the most stupid and shortsighted possible, saying that he had made Regraded Uclassified 128 - 3 - made vigorous protests against it. - Similar views have been expressed by Couve de Murville and others, references, telegrams from the Embassy of February 14, No. 213, of February 20, No. 237 and of February 27, No. 262. However the policy still continues. He said that French purchases in the United States are increasing. For both Government and private purchases he gave me a figure of about $6,000,000 a month - which amount 1s substantially lower than the figure given by Couve de Murville of $45,000,000 on Government orders and $45,000,000 on private orders, although both agreed that the trend 1s upward, reference, telegram of February 28, No. 270, from the Embassy. He again made reference to Belgian "cooperation" in accepting gold instead of the dollars they had previously insisted upon in payment for French exports (reference, telegram of January 19, No. 94, from the Embassy) saying that since January he had saved $20,000,000 in this way. There is reasonable smoothness in the operation of the French exchange control, he said, but he did admit it 12 not entirely airtight; however, as for the control of franc accounts of foreigners, he does not think there are any important loopholes. There 1s possibility of some leakage in view of the large quantity of French francs in Belgium before the outbreak of the war and the daily workmen Regraded Uclassified 129 - 4 - workmen border traffic with Belgium, but it would be difficult to stop this. From several sources I have heard, incidentally, that French monetary control at the frontiers 1s far from thorough. He believes, however, that there has been liquidation of most of the important holdings of French francs which had been acquired when the belga showed weakness. Reference, telegram of March 18, No. 357, from the Embassy: my Bank of France friend confirmed the statement of Jahan that the authorities are working on draft regula- tions for the requisition of private holdings of foreign exchange - some of which holdings are already obligated for payments - and he thinks the estimate of 150 million dollars 18 probably the maximum amount. He also confirmed that consideration is not being given at the present time to 8. move for requisitioning of French owned dollar securities, and he again minimized the amount of such securities. In- cidentally, he said that the British think the Federal Reserve gave too high estimates of their dollar security holdings. He expressed the belief that in the near future gold also will be requisitioned, but that the authorities are reluctant to make this move. He agreed with all others with whom Regraded Uclassified 130 - 5 - whom I have discussed the question that it 1s hardly likely the gold which the peasants have been hoarding for so many years will be turned over to the Government. He said that he could make no estimate as to the amount of other gold holdings of individuals and companies, but they were probably substantial. As for the 30 billions gold which the Bank of France ceded to the stabilization fund recently, he said that confidentially it had been his personal view that at this time a larger amount should be ceded, but that Governor Fournier had opposed it, wanting even 8. lower figure of 25 billions (compare with telegrams of March 10, No. 320 and of March 13, No. 335 from the Embassy). While in London he said that he had heard a lot of discussion of the Keynes plan, but he did not believe the British were ready to adopt it yet. He said he had heard estimates that a figure of L300,000,000 would be reached for voluntary savings invested in savings certificates, and so on, and that this amount, in addition to the recent L300,000,000 war loan, would finance the Government for some time as far 28 concerned that aspect of the situation. Gold holdings of the Netherlands Bank still in the Netherlands he estimated at between L30,000,000 and L40,000,000 8.8 compared with the amount at the outbreak of the war of L80,000,000. I Regraded Ucla sified 131 - 6 - I remarked that I had noticed a private estimate in the March 16 issue of the London Economist that since the war the living costs in France have risen 17.3 percent, 12 to 13 percent of this being attributed directly to the war. He felt this was a fairly accurate estimate, and he thinks the trend continues upward. Since no seasonal adjustment has been made in the foregoing, he thinks that a brake against the rise may soon be operated through a reduction in agricultural prices. My friend 1s not as pessimistic as others that lack of labor, et cetera, will seriously hamper French agriculture. However, he is in agreement that the export trade of France is depressed, and that the obstacles to bringing about any material increase are almost insuperable. However, he remains supremely confident of eventual Allied success in the war. This attitude, since the Finnish defeat, 1s somewhat less universal here, although the overwhelming majority of Frenchmen continue to be determined to see it through and are opposed to bringing about a "white peace". END SECTIONS THREE TO FOURTEEN, INCLUSIVE. MURPHY. EA:LWW Regraded Uclassifie 132 JT GRAY PARIS Dated March 20, 1940 REC'd 5:47 p.m. Secretary of State, Washington. 366, March 20, 5 p.m. (SECTION FIFTEEN) The securities market today made a good showing in the face of the government's resignation and the Brenner meeting though it closed somewhat irregular. French bank issues advanced and rentes were up from 5 to 70 centimes. Daladier having declined to form a new government, Reynaud has just been called to the Elysees Palace and charged with the task. HE has asked till tomorrow morning to give his reply. (END MESSAGE) MURPHY LMS:NPL Regraded Uclassifie 133 PARAPHRASE OF TELEGRAM To: Secretary of State, Washington. From: American Embassy, Madrid. Dated: March 20, 1940, 8 p.m. Rec'd: March 20, 1940; 7:03 p.m. No. 52. Reference my telegram no. 51 of March 19, 10 p.m. I now have obtained copy of statement on the Anglo- Spanish commercial agreement prepared by the Press Attaché of the British Embassy and intended for the Spanish press, of which I quote hereunder the most interesting paragraph: "The most original and interesting aspects of the new agreement is that the Government of Great Britain recognizes the necessity on the part of Spain to make payment for the importation of raw materials with pounds realized from the exportation of Spanish goods to the United Kingdom. The fact that almost half of the current account in sterling has been assigned in recognition of this necessity is 8. notable indication of the spirit of English understanding of the economic situation of Spain and its desire to contribute in a material way towards the reestablishment of Spanish industries." I am also informed by the British Embassy that the Spaniards vigorously pressed up to the last moment for some reference in the treaty to quantities, even unguerenteed, of Spanish products to be imported by the United Kingdom. This Regraded Uclassified 134 -2- This was particularly desired by the Spanish Government because of the internal political effect. However, the British delegation declined to consider the inclusion either of a list of products which might be imported by the United Kingdom from Spain or a list of British products which might be exported to Spain. In the first case the refusal was based upon the fact that Spanish prices are frequently out of line with world values, and in the second case it was due to the difficulty of assuring delivery as a result of the current hostilities. Referring to the final paragraph of my telegram under reference, it 18 reported that private purchase agreements between British and Spanish firms cover iron ore, wines and foodstuffs in addition to pyrites. A maximum and minimum value in pounds sterling has been established in each case by the two governments covering Spanish exports, and contracts for private purchases must be made within the limits of these established prices on an indi- vidual basis. Regraded Uclassifie I 135 135 Miss Chauncey: Dr. White took this to Sea Island with him; the Secretary has seen it and this is the Secretary's copy. McH April 5th file 3/20 Summary of Report Regraded Uclassified 136 TREASURY DEPARTMENT INTER-OFFICE COMMUNICATION DATE March 20, 1940 TO Secretary Morgenthau Mr. White FROM Subject: Participation by the United States in Finland's Reconstruction Progrem This 18 a preliminary report on the proposed plan of American perticipation in a program of reconstruction for Finland. A definitive report must await the receipt of information from Finland on several importent aspects of the current Finnish economic situation and further study by the Treasury. SUMMARY 1. Finland needs funds for the following purposes: 8. To resettle and rehouse possibly 8.8 many 88 100,000 families who have lost or left their farms and homes. b. To reconstruct Finland's transportation and port facilities. C. To rebuild public buildings, plants, public util- ities which have been destroyed or damaged. d. To replace industrial establishments in areas ceded to Russia. e. To strengthen her monetary system. f. Contribute to the support of war casualties, economic and physical. B. To feed and clothe large sections of the popula- tion now in economically devastated areas. h. Possibly to construct military defenses. 2. The cost of the total program of reconstruction would, we roughly estimate, be in the neighborhood of three-fourths of B. billion dollars. I/ Prepared by H. D. White, H. Glasser, 0. Gase and D. N Wheeler. Regraded Uclassified 13/ Division of Monetary - 2 - Research A reconstruction program of this magnitude probably could not be carried out in less than several years. There are sound reasons why the program should not be rushed: (a) the maximum use should be made of local savings and local resources, and (b) every effort should be made to avoid the development of unsound boom conditions which would be in- evitably followed by serious maladjustments. To obtain the best results 8. reconstruction program would have to be worked out according to some preliminary plan. Such 8 plan would doubtless indicate how many years are neces- sary for its execution. In the light of Finland's annual in- come and her investments in the past, it 1s our tentative view that the program should occupy from four to six years. It may be found necessary to rely more heavily in the earlier years on foreign capital than it will in the leter years. 3. of the sum needed for reconstruction program we estimate that not more than one-third, or $250 million, should be obtained in the form of foreign capital, the remainder to be raised domestically in three ways: (a) Private savings; (b) Federal and local government investment; and (c) Expansion of commercial loans. 4. The $250 million which Finlend may need to borrow from abroad might be made up in the following way: a. $50 million gold loan, for strictly monetary purposes to be made with the United States Stabilization Fund (with the acquiescence of Congress but without new legislation). This loan should be granted under conditions which would permit only 8. small part of it to be used during any one year. It should bear 8 very low rate of interest, prob- ably 1 percent, and all of the gold should be kept on ear- mark in the New York Federal Reserve Bank. b. A $100 million long-term loan to be authorized by Congress and to be prorated over the period of reconstruc- tion. (To avoid an increase in the public debt, the funds could be obtained from the gold now in the Stabilization Fund or possibly from silver seigniorage.) The lower the rate of interest charged the greater will be the security of the loan end the better will be the credit of the Finnish Government. It will also meke it easier for Finland to borrow other funds from private foreign sources at low rates of interest. Amortization payments should be made flexible and tied up with developments in Finnish trade, to the end that the Government portion of the loan be paid off as rapidly as the economic conditions in Finland warrant and yet give the Finnish Government some relief during bad years. Regraded Uclassified 138 Division of Monetary - 3 - Research C. The remaining $100 million should be raised by a flotation of bonds in the United States or other foreign countries. The grant of a $50 million gold loan and $100 million dollar long-term investment loan by the United States Government, together with Finland's ex- cellent debt record would make it relatively easy for Finland to raise private funds in foreign markets. d. The present credit extended by the Export-Import Bank might be reserved for the extension of short-term credit of six months to three years for the financing of urgently needed imports into Finland. One advantage of making the present credit a short-term loan would be to add to the funds that the Export-Import Bank would have available for loans to other countries. 5. We estimate tentatively that after the war Finland will have enough foreign exchange currently available for outpay- ments of $25 million a year on capital account. From 1932 to 1938 Finland reduced her net foreign lia- bility by about $160 million. This 1s an excellent record. (Part of that reduction was achieved by refunding foreign into local indebtedness.) Assuming Finland's trade position will be no worse after war than it was after the past decade, B. figure of $25 million 18 not an unreasonable one. Our information (which is not adequate AB yet) indicates that the amount she needs currently to meet net outpayments 18 about $5 billion 8. year. Therefore she should have left about $20 million 8. year to meet the service charges on for- eign loans needed for her reconstruction program. This sum would be quite adequate to pay the interest and substantial annual repayments on the magnitude of borrowing indicated above. 6. This report 18 incomplete because we have little infor- mation on the Finnish situation as it 1s right now, and as it will be during the remaining months or years of the European war. Much of our report and conclusions are based upon the assumption that Finland will be able politically and economically to resume & foreign trade position comparable to the one she held before the outbresk of war last summer. Should the shipping situation interfere significantly with Finland's ability to conduct her commerce, or should Finland undertake special commercial and economic arrangements with neighboring countries of a character which would sub- stantially alter the picture which prevailed before the war, our conclusions will have to be modified. Regraded Uclassified 139 Division of Monetary - 4 - Research Clearly much more study and information is needed before anything like & definitive report which can be presented to any other department can be prepared. 7. There 1s appended in addition to the memorandum of which this is a summary, the following material relative to the Finnish situation: a. A survey of the economic situation in Finland based on such data as is available to us now. b. A survey of the political situation of Finland. The most recent developments are not included inasmuch 8.8 our information on such developments is very scanty. C. A map of Finland showing the main transport routes and the areas which will probably be ceded to the Russians with the main industries located in these areas. 140 Report on Participation by U. S. in Finland's Reconstruction Program 141 PARTICIPATION BY THE UNITED STATES IN FINLAND'S RECONSTRUCTION PROGRAM (Division of Monetary Research) I. What does Finland need money for? Finland needs funds for the following special purposes: A, To feed and clothe the refugees and the large sections of the population living in economically devastated areas. (1) The food stocks of Finland were probably ex- hausted during the period of hostilities. The normal imports of food were sharply reduced during the past four months and will need to be replaced, and stocks of food were probably destroyed in the bombings. (2) The normal imports of clothing and raw materials for manufacture of clothing probably ceased during the war period and will need to be replaced immediately. (3) Replacement of livestock losses. This is an essential item of replacement. b. To resettle and rehouse families who have lost or left their farms and homes, or whose homes have been destroyed. An estimate of 100,000 families has appeared in the paper but we have no reliable information as to the extent of this need. C. To reconstruct Finland's transportation system and port facilities. (1) A new railway from the Russian border to the West Coast is called for by the peace terms. Also, a large amount of railroad construction will be necessary because of the loss of Viipuri, which TBS a transportation center. (2) Considerable road and bridge building and repair is probably necessary to replace the roads passing through areas occupied by Russians, and to replace roads destroyed by military operations. 142 Division of Monetary - 2 - Research (4) Replacing of shins sunk during present hostilities. d. To replace the industrial establishments which were oeded to Russia. Although we do not yet know precisely where the new boundary lines will be drawn, it appears from the items indicated in the treaty of peace that Finland will lose the following: (See appended map) The largest part of her iron and metal industry. Most of her sugar refining plant. Her only copper smelter, at Imatra. Her principal hydro-electric development. Her only rayon plant nt Enso, of which 1,400,000 has been invested. About one-tenth of her saw mills. Her most important inland artificial waterway, which taps Finland's important timber resources. It has recently been rebuilt but is now included in Russian territory. e. To replace her public utilities, public buildings, and factories destroyed during the war. We have no reliable information as to the extent to which public utilities, hospitals, churches and public buildings of Finland were destroyed or damaged by bombing, but judging from newspaper accounts, the damage must have been widespread. f. To contribute to the support of persons made destitute by the war or persons incaracitated by the war. We do not know what the Finnish casualties were. According to Press reports, only 15,000 men were killed and 30,000 wounded. Yet to provide for the families of even that small number would call for annual expendi- tures of 5 to 15 million dollars & year for the next few years. This item would differ from the others enumerated above in that it would be for some time to come a recurrent expenditure. 143 Division of Monetary - 3 - Research 8. To strengthen her monetary system. Finland needs to increase her metallic reserves (a) to provide a more adequate basis for the expension of credit that will be called forth by the reconstruction gragram, (b) to increase confidence in Finland's currency 40 that capital will be more easily forthcomine both at hime and from abroad, (c) to strengthen her exchange vusition during the period of readjustment and uncertainty, >nd (c) to relieve some of her current foreign exchange passerves for meeting the adverse balance of payments during the coming critical period. (1) The present foreign exchange reserves of Finland are not known to us. The Bank of Finland in its latest official statement reported that they had $24 million of gold and 830 million of other foreign mesets. In addition there are about $9 million of private dollar deposits in the United States. To this sum must be added the private deposite in other Scandinavian countries and in England. The funds in these latter countries are probably small because the estimates we have of the total of Finnish foreign balances right before the war are only a few million larger than the figures we now have for their dollar holdings alone. (2) The Finnish mark has depreciated only 15 percent since July 1939. Whether the Finnish mark at the present level is appropriate to Finlend's competitive position and her reconstruction needs cannot be determined without more study and more information 8,9 to her present trade situation. But whatever the rate Finland decides would be most 8. propriate, she must be in 5. position to maintain that rate, because she must do everything possible to strengthen her credit standing in foreign countries, and maintain confidence in her currency. Continued weakness in mark exchange will make foreign borrowing from private sources much for difficult. (3) The note circulation on October 14, 1939 (the last we have available) was 3.3 billion marks. Demand deposits in banks at that time were 3.9 billion marks, making a total demand liability of some 7.2 billion marks or approximately 8140 million. In addition to these demand deposits in banks, there was about 8350 million of savings in various other 144 Division of Monetary - 4 - Research institutions. Some portion of these in practice are demand liabilities. We do not know how much her note issues and deposits expanded during the war months but it must have been a great deal. A metallic base of at least one-fourth of her demand liabilities would be desirable during the coming few years of her djustment period. She must have an adequate metallic base upon which to initiate a lending program to take care of the enormous demand for canital during the reconstruction period, and to promote the utmost confidence in the strength of her currency. Some portion of her present gold and foreign exchange will doubtless be used up to meet committments made during the war and to meet the a verse balance which Finland is bound to experience because of the difficulty she will experience of exporting goods in the near future and the need she will have for increased imports. How much additional gold Finland will need to adequately strengthen her monetary system will be clear only after we have more information with spect to matters indicated above. A portion of the gold should be set aside to be used as a. sort of Stabilization Fund protected by conditions such that its depletion will be 9 con- sequence chiefly of seasonal variations and possibly some minor cyclical flow. A Stabilization Fund is not designed to meet a continuous adverse balance of payments. h. Defense expenditures. Finland may decide to fortify herself against potential enemies. How much canital will be required for this pro- gram may be anything, depending unon whom she 1s defending herself against and why. Such expenditures will not, of course, increase Finland's standard of living, nor her ability to carry through the reconstruction program. If the United States is to extend any large loans, she may or may not wish to limit the use of those funds to BO- called non-productive purposes. II. How Much Money will Finland need for these Purposes? We estimate tentatively that the total expenditures re- quired for the above program 1a somewhere in the neighborhood 145 Division of Monetary - 5 - Research of $3/4 of a billion. The information that will be furnished by the Finnish Government may alter this figure substantially. (Our proposals are based tentatively on the estimate of $3/4 billions total capital required.) The 83/4 billion should be divided into two categories: 2. Local capital to be expended on domestic materials and labor. b. Foreign exchange to pay (1) for materials and equip- ment that she can not produce at home, and (2) an a verse balance of payments which will arise. The bulk of the capital needed should come from local sources since the bulk of the expenditure should consist of labor and materials that can be produced within Finland. We estimate that about 2/3 of the total expenditure should go for domestic labor and materials, leaving 1/3 to be expended on 1m orted equipment and materials. It 16 presumed that during the reconstruction period Finland will curtail her imports to non-essentials as much as possible. (The reconstruction imports are apart from the normal imports which Finland has been making.) During 1938 Finland imported about 8175 million of goods. She should be able to reduce these normal imports substantially, especially if she sets up import restrictions. The reconstruction program should be spread over a sufficient number of years to accomplish the following: a. The rate of capital construction should be enough to maintain employment at the highest reasonable level; b. The period should be long enough to avoid the development of any unsound boom conditions. Unless care is exercised in this point the prosperous period during reconstruction is very apt to be followed by severe dislocations; C. The longer the period of reconstruction, the larger the proportion of canital needed that can be raised from domestic sources. It is desirable from Finland's point of view to maximize the capital raised from domestic sources in order to lighten the burden on her balance of payments in future years, and to avoid the serious attacks on her currency that may arise if too great a Division of Monetary 146 - 6 - Research burden is imposed on her balance of payments. This is particularly important because Finland's balance of payments depends in substantial part upon climatic conditions. Fortunately, she has had favorable climatic conditions during the past decade but it would be unreasonable to assume that favorable climatic con- ditions can continue year in and year out. III. Can Finland obtain one-half billion dollars of savings from the domestic market? Insuruch as the period of the reconstruction program pre- summbly will last from 4 to 6 years, the rate of domestic sevings would have to be roughly $100 million 8. year, in a dition to the ordinary capital needs of the country, which may be 8.8 high as 850 million a year. Finland's national income before the war was between me-half and three-fourths of n billion dollars B. year. If Finland 1s able to save 15 percent of that income she is doing pretty well. A 15 percent saving would yield roughly 375 to $100 million. The Bovernment should have no difficulty borrowing what- aver domestic savings are available because her debt record and position 1s so excellent. Finland's total domestic debt immediately prior to the war WRS less than $50 million and the yield on her issues was very low. Savings of 375 to $100 million & year would not be adequate for current and recon- struction needs. Finland may find it necessary to adopt one of the following alternatives to increase the proportion of total national income that will be available for investment: (1) increase texation; (2) restrict imports and possibly promote rising prices through expanded note issue and govern- sent borrowing; (3) postpone a portion of her reconstruction program; or (4) borrow a lerger proportion of her capital needa from foreign countries. Probably it will be found desirable to proceed along all four lines should the rate of domestic investment prove inadequate, The Finnish Government can encourage domestic investment by increasing confidence In her currency system, and by peropriate banking policy. A program of the magnitude envisaged here would essily bring about a state of full employment in Finland, ao that a reduced standard of living for the individual through higher taxes and possibly moderate price rises would be politically feasible during the earlier years of the program. 147 Division of Monetary - 7 - Research Any program adopted will, of course, be flexible, so that the rate of expenditure can be adjusted to the amount of capital Finlend can raise during any given period. It 1s possible at the outset to know only very roughly the conditions which will determine how much can be borrowed and how much spent during the next four or five years. The Government would have to guard against attracting too large a proportion of her population to construction and developmental activities and away from those pursuits -- Agricultural, forestry and industrial -- unon which Finland must depend in the long run to maintain B. stable economy and 8 rising standard of living. IV. How much of Finland's capital needs can the United States sunnly? Finland would be best served by four types of assistance. 8. She needa short-term credits for her immediate relief needa, for imports to carry her over the immediate adjustment period from war to peace, and for the more urgent capital expenditures. The remainder of the Export- Import Bank credit of 830 million will probably fulfill these needs during the next few months. Furthermore, Finland probably will receive assistance during the next few months from friendly neighbors. b. Finland will need a long-term United States Govern- ment loan of possibly $100 million on 20 to 30 year maturity. This long-term loan would supply the core of Finland's foreign exchange needs for her reconstruction program. It 1s essential, however, that the rate of interest on this loan be moderate so R,B not to overburden Finland's balance of payments in future years and to provide reasonable assurance that the loan will be com- pletely amortized over the stated period. The usual practice is to require that Government loans be expended within the lending country. However, there may be some advantage under present circumstances in permitting Finland to use pert of such loan to spend in friendly neighboring countries. Politically it would be ensier to make the loan if the proceeds were required to be spent in the United States, but it may be of some value in the interests of more liberal trade policies to permit 8. portion of the proceeds to be spent elsewhere. Regraded Uclassified 148 Division of Monetary - 8 - Research Then, too, Finland might be able to make some savings 1f she could spend the money wherever she can get the most for it. This loan could take one of two forms. It could either be a direct loan by the United States Government (or one of its agencies), or it could be a United States Government guaranteed loan. The latter would have the advantage of not increasing the public debt, and of being, in effect, much less a Government operation than a private operation. It would probably also be easier to get 8 suaranteed loan out of Congress than B. direct loan. Wheth the loan 16 direct or guaranteed, the presumption 1s that new legislation would be required. The proceeds of a direct loan could come from several sources that would not increase the public debt. There are several advantages of an appropriation for loans of this type out of the Stabiliz tion Fund: (1) It would be regarded as making good use of an idle asset. (2) Whatever is used in this way can not be used for less desirable purposes. (3) The funds might otherwise come from sources regarded in some quarters a.s a less desirable source. Should a Government guaranteed loan be preferable, Congress might set aside a much smaller sum as a fund out of which any possible losses could be met, Two other features of her foreign borrowing could add to the security of the debt and to the ease of re- payment, Firstly, her borrowing could be extended over the period of reconstruction BO that the repayments will not become heavy until after Finland is fully reconstructed. Secondly, the rate of amortization charges could be flexible, and should be regulated by the balance of trade. It would probably be desirable to set conditions upon the loan which would ensure its use exclusively for productive purposes. Regraded Uclassified 149 Division of Monetery - 9 - Research C. Finland would find a monetary gold loan of consider- able assistance. This loan might be a gold loan of $50 million with the following restrictions; (1) The loan to be for 10 years but subject to cancellation by either side with six months' notice if the purposes for which the loan was originally made are not being served. (2) The gold to be held in New York under earmark. (3) Sale of the gold restricted to 10 percent per year and none of it to be used to supply foreign exchange for capital outflows. (4) Finland to be permitted to include the gold as aspart of her monetary reserves. (5) Finland might indicate her willingness to co- operate toward the promotion of stable world ex- changes by making 8. declaration of adherence to the Tripartite Accord. This would place here in the same category vis-a-vis monetary stability with Belgium, Switzerland and Netherlands. (The importance of this step 1s in the pattern it sets and not in any contribution that Finland can make to world stability of exchanges.) This gold loan would necessarily have to be at an extremely low rate of interest, perhaps 1 percent per year. The advantages of this tyne of loan from the United States' point of view are: (1) it would be the first real instance of a monetary stabilization loan made; (2) it would increase the prestige of gold; (3) it would show Congress that use can be made of our gold; (4) convert a dead asset into an earning asset. It is expected that this loan would be made by the Stabilization Fund (with the approval of either 2 Congressional Com ittee or of Congress), and regarded 28 a monetary stabilization fund procedure. As such all matters pertaining to it would necessarily follow under the jurisdiction of the Treasury Department. Regraded Uclassified 150 Division of Monetary - 10 - Research & Finland will need to borrow from $15 to $25 million a year for the next five years on bond issues floated in private banking circles. Private sources will be willing to lend to Finland if the United States establishes the basis of Finland's credit through the loans indicated above. Private loans of $15 to $25 million per year for B. period of five years is Just about what Finland borrowed in the United States during the period 1922-1928. These borrowing were serviced and amortized in full through the depression and there is less than $10 million still outstanding in the United States. This record should go EL long way toward & successful private flotation. However, it is not likely that any private flotation can be successful until the present government has firmly established itself and until the reconstruction program has gone far enough along to indicate clearly a success- ful consummation. This will include, of course, full public confidence in the successful maintenance of the present political structure in the face of the disturbed international situation in northern Europe. V. How much foreign debt can Finland service? Under conditions of international trade such as prevailed before the outbreak of war last summer, Finland could probably have serviced & foreign debt of approximately $250 million. From 1932 to 1938 she actually reduced her net foreign limbilities about $160 million. If her trading position should be regained, Finland should be able to set aside more than that sum because she should reduce her unessential imports. Finland's capacity to service foreign obligations WRS probably improving in recent years and the industrial projects already started before the outbreak of war would have further increased her ability to acquire foreign ex- change on trading account. Therefore, it is not unreasonable to expect that after the resumption of peace and the restora- tion of normal trading relations, Finland will have currently available some 830 million a year with which to service a foreign debt. In 1938 she needed less than $5 million to service her outstanding foreign debts. Therefore We can assume that she can increase her foreign debt by several hundred million dollars without raising insuperable obstacles for transferring her interest andamortization payments, and without endangering the position of her currency or gold resources. Regraded Uclassified 151 Division of Monetary - 11 - Research VI. The Next Steps in this Project a. The information which is necessary to complete the picture of the present situation in Finland should be obtained AS soon as possible. b. We are preparing a list of specific questions, the answers to which are essential in the preparation for a program such as is envisaged here. C. Further examination of the material already avail- able and conferences within the Treasury will proceed immediately. Regraded Iclassified 152 The Economic Position of Finland Regraded Uclassified 153 THE ECONOMIC POSITION OF FINLAND Division of Monetary Research Index Page Geography, National Resources and Population 1 Industry 3 Transportation 6 Agriculture 8 Honetary and Banking System 11 Foreign Trade 15 Foreign Capital and Foreign Liabilities 20 Public Finance 23 Effect of change in national boundary 27 Prepared by Mr. Wheeler and Mr. Gass. Regraded Uclassifie 154 THE ECONC. IC POSITION 02 FINLAND March 16, 1940 (Division of Konetary Research 1/) Geography, natural resources and poculation Finland is a country of low hills end marsh forests. The surface is highly glacisted and dotted with countless Takes which have been de- veloned into e fine system of inland waterways. Seventy-four percent of the area (spart from Lake Ladoga) is covered with forests, 7 percent is under cultivation, and 9 percent consists of inland waters. Though Finland lies in the same latitudes 85 the main body of Alaska (600 and 70° N), it is kept fairly temperate by the gulf stream. Liinshamari in Petsamo, Finland's Arctic port, is free of ice all the year round, The total area of Finland before the beginning of the war with Russia was 148,000 square miles, which compares with an area of 158,000 square miles for the State of California. According to press reports, the areas ceded to Russia add up to about 9 percent of the whole. Finland's agricultural land is suitable primarily for the reising of fodders, hardy grains and root crops. In 1937, about 52 percent of the cultivated land was devoted to hay, 18 percent to oats, 9 percent to rye, 5 percent to barley, 3 percent to potatoes and 13 percent to other crops. Finland still must import about 20 percent of her total grain consumption. Finland is richer in forests than any other country in Europe, if the relative area of forests is taken as the basis of comparison and she is second richest in absolute extent of forests. Moreover through an intelligent control over forest lands by the national government, Finland is constantly adding to her forest resources. Growing stocks of timber are estimated to be about 57 billion cubic feet, chiefly nine (61 ner- cent), spruce (28 percent), and birch (11 percent). The annual incre- ment of _rowth is estimated to be 1.6 billion cubic feet and the annual fellings only 1.4 billion cubic feet. Finland is fairly well-provided with mineral resources. The gross value of mineral production is about 03 million E year. She has copper, iron, zinc, sulphur, and nickel. The amount of corper mined in Finland has increased seven-fold during the past 10 years and the production of nig iron and ferro-alloys almost three-fold. Her copper production is more than sufficient for Finland's needs, but the by-products - iron and sulphur - fall short by over half of her curr nt consumption. 1/ Prepared by .r. Gess and Mr. Wheeler 155 Division of Monetary - 2 - Research In Finnish Lapland are numerous large deposits of iron ore but these, because of lack of chesp means of transportation, are not being worked =t present. Rich nickel deposits have been located in the mountains of Petsamo. These deposits have not been thoroughly pros- pected and actual mining and smelting will not get under way for sev- eral years to come. The ponulation of Finland in 1937 was about 3,800,000. The non- ulstion is still rising but the birth rate is declining. The number of births per thousand of the population fell from 25 in 1921-25 to 20 in 1935-37. The number of deaths fell during the same period from 15 per thousand to 13 per thousand. The average life expectancy of E child has risen by 10 years during the rest quarter century; the life expectancy of a Finnish child is now 56 years compared to 61 for the United States. Ninety percent of the population of Finland speak Finnish and nearly 10 percent Swedish. Illiteracy is virtually non-existent. One out of every 500 persons is in attendance at one of the three Finnish universities compared to one out of every 120 in the United States; a further considerable number of Finns attend foreign universities. Ninety-six percent of the ponulation is Lutheran. Seventy-eight percent of the Finnish copulation live in the country. Helsinki, the capital and largest city, has 2 population of less than 300,000. No other city has 100,000 people but Tampere, Viipuri and Turku each have about 75,00. In 1930, 60 percent of the population Was engaged in agriculture and forestry, 1. percent in industry and handicrefts, 8 percent in commerce and transportation, and 15 percent in other occupations, Since then the occupational distribution has shifted considerably in favor of industry and commerce but not so drastically as to transform the fundamental economic structure of the country. Regraded Uclassified 156 Division of Monetary Research - 3 - Industry The Forest Industries Forest industries are the backbone of Finland's economic life. violand exports E greater proportion of her national production than try European country except Denmark and switzerland, and eighty-five percent of her exports consist of foreign products. Finland is to an ex- septional degree E one-industry country. Not only do the Finnish cities denend uoon the processin_ and export of timber, but 2 large part of the form norulation is also partly dependent on income from the felling, bouling and flosting of timber. Finland enjoys exceptional natural adventages in iorest industries. ost of her great forest areas are concentrated in the southern part of the country, This is E land of low hills; the surface is dotted with countless lakes, which have been adented into E fine system of inland materMays. Practically t11 of the forests lie within easy reach of water transportation. The chief forest products are rough Sawn timber and puln. In the past three years, Finnish exports of sawn timber have been about 1 mil- lion standards, that is, about 2.4 billion board feet. (United States annual domestic production is about 35 billion board feet.) The greater nert of the sawn timber exported is of F coarse grade. It is used prin- circlly in the construction industry in britain. The sawn timber market is highly unstable, reflecting the instability of the building industry. Thus, sawn timber prices rose from an index of 100 in 1935 to 151 in 1937, and then iell back to 120 in 1938. The heavy fall in prices in 1938 occurred in srite of the Copenhagen agree- ment of 1936 which assigned quotes to the principal European producers. Viipuri has in the past been the principal noint of export for sawn timber. The Saima Genal has furnished B chesn route from the forests and mills around Lake Salma to selt water st Viipuri. The lumber mills and handling equirment are modern and efficient. Lumber mill capacity, however, has not been e xpanded in recent years. Exports of sawn timber even in the good year 1937 did not reach the 1528-29 level, The Finnish rulo and paper industry has been thoroughly reequipped and expended in the rest ten years. The output of chemical end mechan- icAl ouln has been trebled since 1930, and at the sume time the menu- focture of nuln boards and paper has been doubled. The culo and naper industry is concentrated in the hands of & few large concerns; the Finnish Paper ills Association alone exported 330 thousand tons of order in 1937, well over half of linland's paper exports. These large concerns have been able to finance the installation of the most modern types of equipment. &echanical nulr has been lorgely disclaced by sulphite and sulphate cel- lulose. 157 Division of bonetary Research The output of sulphite pulp has now reached the limit 01 the supply of spruce evailable in Finland. The increase in sulphate nulp output in the Dist few years has been the outstanding leature in the development ct !inlend's pulp and paper industry. The market lor paper and other cellulose products is much more stable than the sawn timber market. Consumption of newsprint and other proer products shows a strong upward trend. The introduction of paper containers in many new fields opens up new uses for wood ouln, and the use of synthetic cellulose fibres will undoubtedly continue to increase, Finlsnd his also increased her output of snools, bobbins, furniture, boxboards. well boards, and packing material. Production of rayon and collorhane CPS scheduled to begin on F amell scale in 1938. Collulose and other eleborated wood products, of course, have a note extensive and = more stable market then sawn timber. The #innish sovernment hrs Honed that the development of the more advanced brenches of the wood products industry would enable .inland to strengthen her export position. Other Industry The rapid development of Finland's industry may be read in the changing composition of Finnish imports. During the Dast ten years, rew meterials and machinery have represented a growing share of Hinland's importa et the expense of foodstuffs and menuisctured goods. ithin these ortegories, there is a shift towards the less elaborated com oli- ties. The expansion of hervy industry and building is reflected in the Mse in imports of metals and metal products such P8 nig iron, become, -Inter, nine, and rails and the shift from imports of wheat flour to in- norte of wheat. Similarly, imports of rew .ibres -- cotton and wool principally -- increased by 26 percent between 1935 and 1937. The principal consumers' goods industries in Finlend are the food Industries and textiles. The milling, mergarine manufacture, sugar refining, brewing, and confectionery industries process 4° large nart of the total supplies consumed in Finland, The textile industry produces about :wo-thirds (by value) of Finland's textile consumption. Cotton and woolen menuiscture have made un elmost all of the value of this, but a reyon plant has been completed at Enso at El cost of about $1,400,000 which WEB clanned to produce all of Finland's requirements of artificial silk, es well 55 about 350 tons of cellophane per year. Finlend has E small metal working industry which hes been until recently almost entirely besed on imported raw materials. While the output has been small in absolute terms, it has been considerable in- cortance to Finland. Outout in 1936 was valued st over -7 millions, Regraded Uclassified 158 Division of Lonetary - 5 - Research exclusive of smelting and refining. In 1938, 26,000 tons of rolled steel was produced. Finland is able to produce the grester part of her railway rolling stock, a considerable part of her rails, and some other machine products, including centrifugal cream seperators, a considerable quantity of which has been exported. She has a small shipbuilding industry, an airplane plant, and E rifle works. The Finnish steel industry has in recent years depended on im- corted nig iron and scrap. However, the production of iron from local ore has recently been resumed with the insuguration of the Intre Iron Morks. The raw material for the ne works will be supplied by ore from the Outokumpu mine aiter copper and sulphur have been extracted. It is estimated that over 50,000 tons of iron per year can be produced in this way. Finland's principal mineral resources consist of nickel end copper. Iron deposits are extensive, but owing to transport and other difficulties no development worthy of mention has been sttempted. Folybdenum deposits have been located, and some zinc andears to exist. As yet, no important development of either of these has been planned. Our trade statistics show imports of cobalt from Finland of 7400,000 in 1938, Although we have no specific information about such deposits in Finland. The outstanding mining development has been in Petsamo, where the Lond Nickel Company has made large investments in a mine at Kaulatunturi which is expected to be one of the most productive nickel mines in the world. The ore from this m ne will be concentrated in vinland and exported by highway via Petsamo for refining. The Outokumpu mine, east of Kuopio, produces conner, sulphur, and iron. Copper concentrates are shipped to the new electric smelter at Imatra where they are reduced to blister copper. In the past most of this blister copper had been exported to Vermany where it has been refined by electrolysis. Output of blister copper is about 12,000 tons per year. The sulphur is used in the pulp industry, and the iron is used in the Imatra Iron Works. There has been, then, a ranid development of manufacturing and mining in Finland during the nest ten years. Yet the possibilities for further industriali ation appear to be severely limited by the lack of basic raw materials, Finland has neither coal nor oil. Her agriculture cannot be developed to supply basic rew materials such 18 cotton, vegetable oils, or sugar. Finland is not richly supplied with any of the secondary minerals except perhaps nickel. Her water vower resources are valuable, but they cannot componsate for the lack of coal end oil, Regraded Uclassified 159 Division of Monetary Research - 6 - Transportation The development of Finland's basic industries has been dependent on of ficient transportation facilities. A great network of inland waterways has brought Finnish forest products to the Raltic ports from which they have been exported around the world. The Finnish Railway network is also well developed, and important extensions are planned. The highways however are in a backward state; there are about 18,000 miles of gravel road and only 120 miles of paved highway. The Canals of Finland carried nearly four million tons of merchandise in 1937. The greatest volume of traffic consisted of wood, wood products, and a largo volume of minerals. The heaviest traffic is cerried by the Caima Canal, from Lake Saima to Viipuri, which carried almost a million tons in 1937. The Karvis and the Pilnpa canals were next in tonnage. The Berijarvi, the Taipale, and the Konnus each carried over 400,000 tons. Extensive reconstruction work was in progress on the Saima Canal. This work is now almost completed: when finished, the canal will have a minimum depth of 14 feet and will carry a vessel of 1,300 tons. Tt is in large part due to such canals as the Saima that Finland has been able to compete on the wood products market with such "avored producers as Canada. (The probable effects on Finnish transportation of the cession of territory to the U.S.S.R. will be discussed below.) Finland's Baltic ports are unfortunately ice-locked during a large part of the year. The ice begins to form at the neads of the Gulf of Bothnia and the Dulf of Finland during November, and by December as a rule all of the Baltic ports are closed. It is some- times possible to keep the ports open longer by use of ice-breakers, myt they are ine *fective in ordinary severe weather, The ice usually blocks the Paltic ports until l'ay. Finland has an ice-free port in Petsamo, but it can he reached only by gravel highway from the rail head at Rovaniemi, two hundred riles distant. During the past winter, a few truckloads of paper products were sent out by this route, but 1+ is obviously not economically "easible to truck such bulky products as wood so car. on the other hand, it is planned to truck out nickel concentrates by way of Petsamo. The Finnish Diet has authorized initial expenditures for a rail- way extension to Patisamo, but this project is still in the survey stage. Regraded Uclassified 160 Division of Monetary - 7 - Research At present, the alternative routes by which Finnish products may reach the world's markets when the Baltic is closed are only two - by railway to Narvik, and by railway to Murmansk. Neither of these routes is feasible for any large volume of traffic. Both Narvik and Murmansk are nearly a thousand miles from Southern Finland. The Finnish railways are built on the Russian 5-foot gauge, and therefore through shipments via Narvik are impossible; all products must be reloaded at the Swedish frontier. The Murmansk railway is in doubtful state of repair, and in any case could not carry much additional traffic. The proposed extension of the railways to Petsamo would provide a feasible alternative route for the import and export of some commodities, but it would be an expensive route compared with the Paltic. Regraded Uclassified 161 Division of Monetary - R Research Agriculture The character of Finland's agriculture has been determined mainly by geograchic inctors. The whole of Finlend lies north of the 1stitude of the southern tip of Greenland. The growing season tends therefore to be short, late Spring and early Fall frosts are common, and crop isilures are frequent with many kinds of crop. The principal crops of Finland are hey, hardy grains, notatoes, end root crops, which are well adapted to rinland's climate. 011- producing end protein-producing plants do not thrive, and fruit grow- ing is scarcely possible. Until recent years, Finland produced very little wheet. Finland has therefore derended upon imports for most of her lard, wheat, fruit, and sugar, and of course for coffee, tobacco, and cotton, as nell 82 for all trocical foodstuffs. Since the world Mar, however, the Finnish Government has made con- siderable efforts to increase agricultural production with the object of reducing Firland's dependence on imported foodstuffs. The results have been truly remarkable. Since 1921, the cultivated area has been extended by 25 percent. At the same time, yields per acre have risen by about 50 percent. As a result, although nopulation has increased by 15 percent and ner cenita consumption hes increased, Finland is less dependent than in 1921 on imported food. In the years 1921-1925, Finland imported on the average 280 million kilos of bread grein; but from 1936 to 1938, she had to import only 160 million kilos on the 2V- ersse. Imports of enimal foodstuffs, which formerly were considerable, nave dwindled to negligible quantities since 1925. Finland has even become A considerable exporter of dairy products, :lthough, to be sure, on the basis of imported fodder. One mejor re son for this great increase in output has been per- sistent favorable wei ther during the whole decade of the 30's. Incred- ible as it may seem, in not 8 single year of this lecade did the adverse weather conditions develop which were formerly regarded as normal for the great increase in output of spring whest. Bread grains as a whole have in the past few years yielded double the pre-war yield. But weather conditions are not the whole reason. The cultivated area has been extended by 25 percent since 1921. This extension is a result of the Kallio tenure laws, the general pro- tective nolicy of the government, and the sctivities of the cooperatives in making credit available for development work on favorable terms. Regraded Uclassified 162 Division of Lonetary - 9- Research The technical level of Finnish egriculture has also been reised considerably since 1921. Chemical fertilizers were little used in 1921; since 1925 in particular the use of chemical fertilizers has increased greatly. In 1925, imports of all fertilizers were valued st 84 million marks: in 1937, the value had reached 25 millions of marks. The tech- nique of iculture has been improved equally in other respects for which statistical data is not svailable. Farm machinery of all types is ore wiriely used, technical education has been advanced, end electri- city has been brought to E large number of farms. The Cooperatives have played D leading part in the improvement of agricultural technique. Cooperative banks have made it nossible for firmers to equip their farms with needed machinery. Cooperative stock breeding societies have solved one of the toughest of agriculturel prob- lems - - how to improve breeds and raise the general level of quality of livestock in an s_riculture of independent smallholders. Cooperative creameries, which produce 93 percent of minland's butter exports, have greatly increased the efficiency of the dairy industry in Finland. The deiry cooperatives have been a strong influence for the improvement of methode at every stage of airy ferming. in srite of great improvements in the structure of Finnish e, ricul- ture, it has not been possible for Finland to free herself from a sub- stential decendence on imports not only of raw agricultural products, but of foodstuffs as well. The severe climate makes it improbable that sinlend csn ivoid large imports of Ifts, Finnish butter exports are based on the imnort of fets in cruder forms, Finland cannot produce any lerge part of her fruits, end it is probable that in the lon, run, she will have to im- nort considerable quantities of bread cereals. The favorable wer ther of the 30's is not likely to continue for lon_ unless it is E consequence of some secular climatic change. Finnish griculture therefore will continue to be dependent on foreign trade. The trend towerds greater imports of crude agricultural surplies -- fertilizers, oil seeds, end other concentrated fodder will continue. Conversely, imports of finished foodstuifs such as lard may fall somewhat. "heat imports will probably have to be increased in the long run, and fruit imports will supply almost All of Finland's consumption, Distribution of Cultivated Land in Finland Size of holding Number of holdings Area o - 5 acres 77,162 72,473 acres 5 - 7.5 n 31,993 72,896 " 7.5 - 25 " 108,642 601,518 " 25 - 62.5 If 51,683 766,121 " 62.5 - 125 " 12,219 401,377 If 125 - 250 1) 2,864 187,016 N Over 250 " 827 136,937 11 285,390 Total 2,236,338 Source: Annuiaire Statistique de Finlande Regraded Uclassified 163 Division of Monetary _10 - Research From the evidence of this table, it appears that smallholdings predom- inste in Finland. Compared with Poland or the Balkan states, there is E remarkable concentration of holdings in the range from 7.5 to 62.5 acres. Even in France the land tends to be more concentrated in the hands of the larger landowners. At the same time, the 827 largest holdings, totalling 137 thousand acres, included practically as much land as 109,000 of the smallest holdings. Regraded Uclassified 164 - 11 - Division of Monetary Research Monetary and Banking System The Pank of Finland, founded in 1811, is the State Ban'- and the only bank of issue. The capital of 1,250 million marks (about $22,000,000) is held entirely by the State. The management is en- trusted to a Board of l'anagement, consisting of a chairman and not more than four members appointed by the President of the Republic. The Foard of Management functions under the supervision of the Bank Supervisors of the Diet (the Finnish national levislature). The Supervisors have various functions normally carried out by the executive or directing body of a Central Pank, such as fixing the rate of discount and interest, decisions on questions of foreign credit, the distribution of work among the Managers, and the settle- ment of all matters relating to salaries. Their powers enable them to determine the broad policies of the bank and to decide many ad- ministrative details. The Pank of Finland is therefore a fully politically controlled institution. By law, as amended December 193°, the bank is entitled to issue notes to the sum of the full amount of its gold reserve, its foreign currency holdings, and 1,8 billion marks (approximately 132 million, at the present rate of exchange) against a so-called supplementary cover. or Finland's nine joint stock banks, with about 500 offices, two conduct about RO percent of the business. These two banks -- the Kansallis-Osake-Pankki and Nordiska Foreningsbanken - recently increased their share capital, a move necessitated by expansion of turn-over. The Finnish banking law requires: (1) that the banks keep a minimum reserve of 20 percent in cash assets against sight liabilities, and (2) that share capital and reserves represent at least 10 percent of total liabilities. Actually, the banks normally have a cash ratio far in excess of the legal minimum. Interest is paid on both time and demand deposits. In addition to her bank of issue and the joint stock banks, Finland has ravings banks with deposite of about R billion marks (8160 million) in September 1939, She has Post Office banks with savings deposits of about 500 million marks ($10 million), Cooperative Credit Societies with deposits of about 1,5 billion marks (330 million), and Consumers' Cooperatives with deposits of about 700 million marks ($14 million). Regraded Uclassified 165 - 12 - Division of "onetary Research The monetary unit The Finnish monetary unit is the markka (commonly written "mark"). In 1930, when Finland was on the gold standard, the mark was worth 2.52 cents. The depreciation of sterling forced the depreciation of the mark, and the especially depressed market for construction material made the mark even weaker than sterling. Under the gold standard the mark had been valued at about 193 to the pound. "Then, after a period of monetary independence extending from September 1931 to April 1933, the mark was again pegged to sterling, the rate chosen was 227 to the pound. The mark remained at this rate until August 1939, when it began to appreciate against sterling. The average rate on London during September 1939 was 197 instead of 227. Since July 1939 the rate in New York has moved in the following way: (In United States cents) 1939 - July 2.05 August 2.05 September 1.90 October 1.99 November 1.90 December 1.81 1940 - January 1.92 February 1.71 March 2 1.75 March 9 1.41 March 16 1.75 On March 16, 1940 the free market rate for Finnish marks in New York was 15 percent lower than the average for July 1939; during the same period, the free market rate for sterling fell 19 percent. on October 14, 1039, the last date for which we have official figures, the Pank of Finland had about 24 million of gold and about 140 million of foreign assets, At the end of September, the joint stock banks had foreign assets of about 30 million. Since then, no doubt, the foreign assets of Tinland have been seriously depleted. Ap will be shown below, `inland has decreased her foreign indebted- ness and increased her liquid foreign assets greatly since 1932. However, this past experience affords little presumption that Finland will be able to maintain - far less improve - her exchange position while there is war on her major sea lanes. Regraded Uclassified 166 - 13 - Division of Monetary Research The supply of money The supply of money increased gradually from the beginning of 1933 to the summer of 1939, as the result of the adoption of an easy money policy and the expansion of business. A more rapid in- crease took place in the later months of 1939 to meet special war demands. It. is probable that means of payment have been further increased since the beginning of hostilities with Russia but we have no figures for any date after October 14, 1939. Bank of Finland Note Circulation (Millions of marks at end of month) 1932 - December 1,085 1933 - December 1,184 1934 - December 1,277 1935 - December 1,381 1936 - December 1,630 1937 - December 2,052 1938 - December 2,086 1939 - July 2,179 August 2,262 September 2,547 October 7 2,552 October 14 3,308 As the above table shows, Finnish note circulation rose by slightly less than 1.1 hillion marks in the 6-1/2 years from December 1932 to June 1939 and by rather more than 1.1 billion marks in the 11 weeks from the end of July to October 14. Demand deposits also increased rapidly during the 1930's. Current accounts at the Bank of Finland increased more than tenfold, from an average of about 92 million marks in 1931 to an average of 1,062 million in 1938, Domestic deposits of the joint stock banks increased from 7,155 million in December 1932 to 10,755 in December 1938. Enormous withdrawals took place on the eve of hostilities and probably continued through at least the early weeks of war. Current accounts at the Bank of Finland fell from 1,088 million at the end of June to 448 million on October 14. Domestic deposits at the joint stock banks fell from 11,167 million at the end of June to 10,624 million at the end of September; no doubt even reater withdrawals took place in the period for which we have no figures. Regraded Uclassified 157 Division of "onetary - 14 - Research Interest rates and security prices The structure of Finnish interest rates is rather different from that of the United States, Most rates are, however, quite low and rates on commercial loans are perhaps lower than rates to husi- nesses of the same size in the United States. Since 1937 the banks have been paying an average of 3-1/2 per- cent on savings deposits. Formerly rates on deposits were even higher; in 1933, for instance, they averaged 4.8 percent, The affective rate on outstanding bonds has been 4.7 percent since 1937. In 1933 the effective rate was 7.0 percent, However, the effective rate rose sharply in the summer of 1939; the index of hond prices fell from 100 in March to 92 in September. We have no figures for any later dates. Rates of interest on all loans advanced by the joint stock banks averaged 5.85 percent in 1938, When it is considered that these banks were paying 3-1/2 percent on savings deposits, these loan rates are remarkably low. First class mortgage loans were made generally at 4-3/4 percent. Loans of the size made by Finnish banks would have probably paid higher rates in the United States. The "Unitas" stock exchange index shows a consistent rise from 101 in January 1936 to 163 in March 1937 and thereafter a fall to a low of 129 in December 1938. This index stood at 133 in September 1939, but since then has probably fallen greatly. Te have no comparable data for any period after the end of September. Capital formation According to the Finnish Central Statistical Office, there was a net increase of over 2500 in the number of corporations and of over 2 billion marks ($40 million) in the capital of corporations in the 3-3/4 years from January 1936 through September 1939, The increase was remarkably steady and undoubtedly mirrors the expansion of Finnish industry and commerce which took place during those years. Regraded Uclassified 168 Division of Monetary Research - 15 - Foreign Trade Exports Finland has increased her exports during the 1930's, and she has had a favorable balance of trade in every year of that decade except 1939. In the first 8 months of 1939 her exports expanded again, estah- lishing an all-time record. Finland's Foreign Trade (In millions of marks) Exports Imports Palance 1928 6,245 9,013 - 1,768 1930 5,404 5,248 + 156 1932 4,631 3,502 - 1,129 1934 6,226 4,776 + 1,450 1936 7,223 6,369 + 854 1037 9,380 9,306 + 73 1938 8,398 8,607 - 209 1038 (first 8 months) 5,178 5,549 I 371 1939 (first R months) 5,760 5,481 + 279 The bulk of Finnish exports (over 80 percent) consists of wood and paper products. About 10 percent consists of agricultural products and the rest is made up of many small items. Finnish Exports by Commodity Groups Timber Paper Agriculture Other 1928 57% 30% 119 2% 1934 49 37 8 6 1937 45 39 R 8 1938 41 41 10 8 The United Kingdom was by far the most important buyer of Finnish exports. Germany was second in importance. Regraded Uclassified 169 Division of Monetary Research - 16 - Principal buyers of Finnish Exports United Kingdom Germany U.S.A. 1928 35% 16% 7% 1938 44 15 9 1939 (first 8 months) 42 15 11 Imports About two-thirds of Finnish imports consisted of producers' goods, compared to about one-half in 1928. The decline in the rela- tive importance of consumers' goods reflects both the increased self- sufficiency of the country in staple foods and the expansion of industry. Finnish Imports by Major Types Articles of consumption Producers' goods Foodstuffs Finished indus- Raw 2. semi- P, luxuries trial products finished Finished 1928 26% 24% 33% 17% 1937 13 20 46 22 1938 14 22 41 22 Germany was the most important supplier of Finnish imports in the 1920's, but in recent years the United Kingdom has become almost equally important. Sweden now comes third and the United States fourth. Principal sources of Finnish Imports Germany U.K. U.S. Sweden 1928 37% 12% 15% 8% 1938 20 22 9 13 1939 (first R months) 20 21 10 14 Trade with the United States The balance of Finnish trade with the United States looks quite fferent in her statistics than in ours. Our exports, valued at embarkation in our statistics, must hear the costs of a long sea voyage before they reach Finland and consequently are valued about 20 to 25 Regraded Uclassified 170 Division of Monetary Research - 17 - percent higher in her statistics. Our imports (valued F.O.R. in her statistics and C.I.F. in ours) also cost us 20 to 25 percent more than they net her. These discrepancies in the basis of calculation may he quite mis- leading. For instance, our statistics show that Finland had a favor- able balance of trade with the United States both in 1937 and 1938. In each of these years, according to our figures, we bought about 18 million from Finland and sold her about $12 million, But in the Finnish statistics these facts appear quite differently. According to them, Finland sold us 740 million marks of goods in 1937 and hought from us 775 million; in 1938 she sold us 773 million marks worth and hought 774 million marks. Since the "innish statistics provide the more significant basis for the evaluation her foreign exchange position, we shall use her figures throughout this section except where specific statement is made to the contrary. The share of the United States in Finland's imports was à a lower level in the 1930's than in the previous decade and has risen only very slightly in recent years. The importance of the United States as a purchaser of Finland's exports has inc eased over the two decades but shows no consistent trend, Finland's Trade with the U.S.A. : Rought from U.S.A. :: Sold to U.S.A. :Millions of marks: of total: Millions of marks:% of total : C.I.F. : imports :: F.O.B. : exports 1920 795 22 192 7 1922 609 15 291 7 1924 629 13 301 6 1926 801 14 365 7 1928 1,179 15 409 7 1930 638 12 412 8 1932 269 B 444 10 1934 412 9 429 7 1936 517 8 667 9 1938 774 9 773 9 1939 (first 8 months) 551 10 631 11 Regraded Uclassified 171 Division of "enetary Research - 18 - "rade relations between Finland and the United States are governed be the Reciprocal Trade Agreement of May 18, 1936. In this agreement, the United States made concessions with regard to mechanical and chemical woodpulp, newsprint, rapping paper, cardboard, paper boards, blywood, spools, matches, separators, cheese and granite. Finland's engagements in favor of the United States covered fruit, raw cotton, secondhand sacks, films, patent leather, tires, copper rods, type- writers and business machines, motor cars and spare parts, This trade agreement did not raise Finnish purchases from the United States to the level of the 1920's. Finnish purchases from the United States have contracted because she now produces most of her own cereals; the increase in her purchases of our industrial raw materials, metals and machinery has not compensated for the decline in her pur- chases of our agricultural products. Finland's Imports from the TT. S. (In millions of marks) 1920 1923 1928 1932 1938 Cereals 3'71 330 346 43 63 Apples and pears I 1 10 5 27 Baising and plums 21 11 21 9 24 Petroleum products 99 51 133 39 10° Raw cotton 20 16 138 72 141 Retals and metal goods 26 15 55 14 77 Machinery 20 12 45 13 89 Passenger cars 4 9 151 2 50 Parts for means of transports I 3 47 3 36 Total (including others) 795 584 1,179 269 774 Finnish sales to the United States consist of 90 percent of pulp and caner products. The other 10 percent is made un of hides, granite, cheese and a number of minor articles. Regraded Uclassified 172 Division of Monetary Research - 19 - Finland's Exports to the U. S. (In millions of marks) 1920 1923 1928 1932 1938 Mechanical pulp 33 11 9 22 17 Sulphite puln 66 125 163 206 293 Sulphate pulp 44 54 77 83 117 Newsprint 34 86 95 90 250 Trapping paper 4 1 - 2 22 Cardboard 6 8 8 4 8 All other 5 58 57 37 66 Total 192 343 409 444 773 Regraded Uclassified 173 Division of Monetery - 20 - Research Foreign Capital in Finland and her Foreign Liabilities During the period of civil war and privation which followed the Russian revolutions of 1917, Finland accumulated debts to the govern- ment of the United States which were funded in 1923 in a single loan of 9 million at 3$ percent interest. On December 15, 1939 rinland still owed about $8,143,000 on this loan. In the 1920's Finland obtained further long-term capital abroad, principally in the United States. Ab ut 60 percent of the long-term capital she received from abroad during the years 1922-1938 came from ilotations of dollar bonds. Aside from the wer loan, Finland raised 499.3 million of long-term ranital from the sale of dollar bonds. Per other long-term issues, sold chiefly in England and Sweden, emounted to $75.5 million. Finnish 4 Bond Issues Year Original amount Rate of Amount out- Issued by of of issue in interest stending et issue , millions % end of 1938 Finnish Government 1923 10.0 6 4.9 Finnish Government 1923 2.28 6 1.9 Finnish Government 1925 10.0 7 - Finnish Government 1926 15.0 62 - Finnish wovernment 1928 15.0 52 1 Finnish Government 1934 10.0 4 4.0 Finnish Guar. Lunicio. Loan 1924 7.0 05 # City of Helsinki 1930 8.0 Not 7.0 Industrial Mortgage Bank 1924 12.0 7 - Residential Lortgage Bank 1928 10.0 5 4.0 At the end of 1938, there were 421.8 million oi doller bonds out- standing. About 42.4 million were redeemed in the early months of 1939, Loreover, about $10.8 million of these dollar bonds were estimated to be held in Finland. Therefore only about -8.6 million of Vinnish dol- lar bonds are held abroad, of which at least 42 million are believed to be 1.0% held in various Euronean countries. Finland reduced her net foreign liabilities (shirt from her debt to the government of the United States) from 9,060 million marks (roughly 5180 million) at the end of 1932 to 650 million marks (roughly :13 million) at the end of 1938. At the end of 1938 the declared Cold holdings of the wank of Finland were about twice as large ES the total of rinland's net foreign lisbilities. Regraded Uclassified 174 - 21 - Division of Monetary Research Finland's Foreign Liabilities, Excluding Current Mar Debt (In millions of marks) End of year 1932 1934 1936 1938 Liabilities 1. Finnish securities held abroad a. uovernment and municipal 5,300 3,750 2,370 1,440 b. Private long-term 3,070 2,255 1,680 1,060 2. Floating foreign debt 8, Government and municipal 258 139 49 I b. banks l'. Foreign deposits 132 247 250 310 2', Other debts 890 433 280 340 C. Other businesses and individuals 290 681 971 1,110 Total liabilities 9,940 7,505 5,600 4,260 Assets 1, Central and local government 10 58 55 235 2, Banks 8. Deposits abroad 419 1,811 1,889 2,610 b. Foreign exchange 261 253 245 215 3. Other businesses and individuals 190 328 261 550 Total assets 880 2,450 2,450 3,610 Net Liabilities 9,060 5,055 3,150 650 In addition to Finland's foreign liabilities, there are substan- tial amounts of foreign direct investments in Finland, The nickel mines are British owned, and we have heard that a large portion of the paper and pulp industry is German owned. More information on this point is needed for our evaluation of Finland's balance of payments situation. Regraded Uclassified 175 Division of Monetary Research 22 I I Balance of Payments Finlend has had a favorable balance of payments on current account in every year of the 1930's. This favorable balance has enabled her to redeem and buy back her foreign indebtedness, to add to her foreign deposits, and to accumulate gold. The reasons for her favorable balance have been: (1) the expansion of paper and nulp exports, (3) the exten- sion of cereal acreage, leading to greater self-sufficiency in foods, (3) F frugal standard of living, which permitted exports to rise while imports for consumrtion remained relatively stationary, (4) increased income from services, especially shipping, and (5) conversion of for- eign bonded indebtedness at lower rates of interest. Finland's Balance of Payments on Current Account means excess of inpayments, - excess of outpayments) (In millions of tarks) Merchandise Interest and Other Total dividends services 1922 + 479 - 238 268 + 509 1924 + 268 - 258 362 + 372 1926 1 65 - 284 420 + 71 1928 - 1,178 - 350 + 525 - 1,603 1930 + 183 - 412 + 441 + 212 1931 + 980 - 436 + 448 + 992 1932 + 1,129 - 583 + 630 + 1,176 1933 + 1,370 - 530 + 510 + 1,350 1934 + 1,461 - 425 + 535 + 1,571 1935 + 913 - 325 + 540 + 1,128 1936 + 1,028 - 270 + 560 + 1,318 1937 + 238 - 195 + 775 + 818 1938 I 72 - 150 + 750 + 528 Regraded Uclassified 176 - 23 - Division of Monetary Research Public Finance Finnish public finances have been managed quite successfully during the 1930's. The government has operated railways, post and telegraph services, the State forests and many other enterprises with considerable profit. Expenditures and receipts have increased quite steadily, the public debt has been reduced, and the foreign public debt almost eliminated. Receipts and expenditures Since 1932 Finnish budgets have observed the distinction between capital and current accounts. One of their distinctive financial mechanisms has been a Budget Equalization Fund, a liquid reserve against emergency demands. The Equalization Fund was particularly designed to compensate for varia- tions in receipts and expenditures resulting from cyclical changes. At the end of 1938 there was about 427 million in the Fund, but whatever was in the Fund has probably now been used for war purposes. Finnish national taxation bears primarily on consumption, rather than income or property. In 1938 about half of total receipts from all national taxes was derived from customs. Receipts from Taxes and Monopolies, 1938 Amount Percent (In l'illions) of Finnish Marks Taxes on consumption 2,752 71 Income and property taxes 944 24 Stamp duties on business transactions 136 4 Other tax revenue 18 1 3,896 100 Regraded Uclassified 177 Division of Monetary - 24 - Research National government taxation is officially estimated to be equal to about 15 percent of the national income. National Income and Taxation National Income Taxes Percent of (In Millions) (In Millions) National Income 1924 14,500 1,897 13.1 1928 19,600 2,491 12.7 1932 13,900 1,959 14.1 1936 20,500 2,993 14.6 1938 3,896 A general idea of the revenue and expenditure of the State in recent years is afforded by the following table: (In Million Marks) 1932 1934 1936 1938 REVENUE Current revenue 2,438 3,366 3,725 4,862 Loans 214 503 900 500 Other capital revenue 272 265 245 172 Total 2,925 4,135 4,870 5,534 Utilized out of balance from pre- vious years 42 I - 1 Deficit 34 - - - Grand Total 3,001 4,135 4,870 5,534 EXPENDITURE Current expenditure 2,484 2,599 2,983 3,487 Redeemed loans 58 394 915 244 Other capital expenditure 45G 1,107 932 1,351 Transfer to Budget Equalization Fund - I 31 350 Total 3,001 4,100 4,861 5,432 Surplus - 35 8 101 Grand Total 3,001 4,135 5,870 5,534 Regraded Uclassified 178 Division of Monetary - 25 - Research AS can be seen from this table, current revenue doubled between 1932 and 1938. This increase in revenue was not due primarily to increases in rates of taxation. Only alcohol and motor vehicles and their fuel have been taxed substantially more heavily in the 1930's than in the 1920's. The increase in current receipts has come primarily from the increase in the size of the national income. State enterprise, loans and guarantees The Finnish government owns and operates a large number of business enterprises. The most important of these, from a commercial point of view, are the State railways, the State forests and the post and telegraph office. The State also operates canals, dock yards, a margarine factory, State farms, and many smaller enterprises. The State does considerable lending for public purposes. Loans are regularly given to local Government authorities for performing pertain public duties, for example, the building of schools, hospitals and charitable institutions. Public loans are given also to private business engaged in activities affected with a special public interest such as private educational institutions, The greater part of State loans, however, refer to agriculture - the provision of land for the landless population, soil improvement, drainage, various forest Dro- jects, etc. The State also makes housing loans, There has been very little recent subsidization of large-scale industry, though a loan fund for shipping was being set up in 1939. Loans granted by the State have for the greater part been mortgage loans, with a comparatively long period of redemption. The rate of interest on such loans in 1939 was between three and four and one-half percent. At the end of 1937 the total State loans dutstanding amounted to almost 2 billion marks, or more than one- half of the full year's national government tax receipts. The State has guaranteed interest and principal of the bonds of financial institutions engaged in mortgage, agricultural credit, mining and other industries. Tht total of such guarantees was over 2.3 billion marks at the end of 1937. Public debt The total nominal public debt was reduced about 10 percent between the end of 1932 and the end of 1938. Regraded Uclassified 179 Division of Monetary - 26 - Research Finland's Public Debt (In Willions of Marks) 1932 1934 1936 1938 Funded Debt 2,937 3,273 2,981 3,195 Foreign 2,432 2,283 1,129 775 Internal 505 991 1,853 2,419 Floating Debt 535 109 138 57 Foreign 351 59 57 - Internal 184 50 81 57 Total Public Debt 3,472 3,382 3,119 3,251 The real reduction was even greater because the foreign debt is carried in the Finnish public debt statement at its mark value at time of issue. Since the mark depreciated from 2.52 cents to 2.05 cents and from 197 to the pound to 227 to the pount, the paying off of foreign debt was an even more considerable accomplishment than appears from the Finnish figures. And it was particularly the foreign debt which was paid off during these years. The foreign debt fell by about three-quarters, from 2,783 million marks at the end of 1932 to 775 million marks at the end of 1938. Furthermore, of the small outstanding public debt in foreign currencies, a large part was actu- ally held in Finland. We have no information on how much debt Finland incurred during the war with Russia. Most of the aid which she received from abroad, aside from the Export-Import Bank credit, probably took the form of gifts. However, she no doubt added considerably to her domestic public debt. Regraded Uclassified 280 - 27 Division of Monetary Research The Economic Refects of the New Frontiers "e do not have information as to the preciso location of the new Soviet-Finnish frontier in Karelia; in fact, the precise loca- tion has not yet been determined. The clearest available guide is the schedule of evacuation in the protocol attached to the recent treaty. In this protocol, a series of towns is mentioned which indicates that the new frontier will follow the boundary of Viborg province an ceded by, Charles XII to Peter the Groat by the Treasury of Nystad (1721). If the new frontier follows this line, it may cause serious disruption in Finland's industry and in the flow of trade, Finland pay reach an agreement. with the Soviets whereby the flow of materials may continue substantially on the old lines. If such an agreement is impossible, or if Finland chooses to follow a contrary policy, a very considerable reconstruction of her industries will he necessary. It would be irpossible to replace on Tinnish soil all 0" the facilities which have been ceded to the Soviets. The transportation routes of southern Finland will be severed by the new frontier in any CASE, The Soviets will get Viipuri and the terminus of the Faima canal, which is the outlet for all of the tim- bor and puln industry around Lake Saima. The re-routing of this traffic by rail would be expensive, and it may not be feasible at all. Other canals are involved in the same manner, such as the Taipale, an important carrier of wood and minerals. The Vuoksi Valley on the Karelian isthmus has a large part of Finland's smelting and metal working industry, * slight shift in the frontier one way or another might have far-reaching effects in this area. At Imatra on the Vuoksi river is located Finland's single copper smelter, Her main hydroelectric development at Imatra Rapids has a total canacity of over 400,000 horsepower. Some of the principal iron works are also at Imatra. The recently constructed sugar refinery at Antrea near Viipuri will he in the ceded area. 6+ Enso a rayon plant has just been completed at a cost of 1,400,000. This plant wa designed to supply all of Finland's requi rements in artificial silk, and in addition about 350 tons of cellophane per year, It Enso is located one of the higgest sulphite mills in Finland, At "artsilla there are iron works which may be in the ceded area. Regraded Uclassified 181 Division of Monetary - 28 - Research The new frontier will certainly cut many principal traffic routes, some of which cannot be replaced by construction within the new Finnish frontiers. The new line may also cut vital power lines. The complete reconstruction of Finnish industry to attain in- dependent of the routes and plants in the ceded area would involve Finland in very large capital expenditures. Regraded Uclassified 182 The Political Situation in Finland Regraded Uclassified 183 THE POLITICAL SITUATION IN FINLAND March 12, 1940 (Division of Monetary Research 1/) Summary 1. The traditions of democracy are deeply rooted in Finland, The struggle against the Tsarist regime in Finland before the "orld War took the form of a fight for democratic rights and national self- determination for the Finnish people. The small farmers and workers who took a leading part in that fight have remained staunch defenders of democracy to this day. The leading party in Finland today, the Social Democrats, represented in the government by "anner and several other "inisters, place at the head of their program the demand for the extension of democracy. The powerful cooperative movement in Finland represents a venture in economic democracy which has been admired around the world. 2. Powerful authoritarian forces have persisted in Finland. Although Finland became a Republic in 1918, this was an accidental result of the collapse of the German Empire. The founders of the Republic had originally intended to make Finland a German Kingdom, Both General Mannerheim and Regent Svinhufvud were Monarchist in their political views. A considerable part of the very influential Lutheran clergy has favored an authoritarian form of government. Dictatorial methods of government have also been supported at times especially under the impact of economic depression by the leaders of the timber trade, by high army officers, and by the banks. 3. The bitter political conflicts of the civil war period have never completely died down under the Republic. Tear of the U.S.S.R. has been a major factor in Finnish politics since 1918, Under all these circumstances, democratic civil liberties have not been secure. Measures aimed at restricting Communist activities have on occasion been extended to include progressive groups of all kinds. Thus in 1930 the Finnish trades unions were dissolved on the alleged grounds that they were Communist-controlled. Put since 1936 there has been a resurgence of democracy in Finland. 1/ Prepared chiefly by Mr. Wheeler Regraded Uclassified 184 Division of Monetary Research THE POLITICAL SITUATION IV FINLAND larch 12, 1940 Domestic traditions in Finland The Finnish Republic is not yet 22 years old. Yet those 22 years have brought every crisis which can confront a state - industrial de- pression, insurrection, foreign conflicts, and minorities quarrels. How have Finnish democratic institutions withstood the strain of the bitter conflicts which have developed over these cuestions? The traditions of democracy are deeply rooted among the Finnish people. The struggle of the Finns against the Tsarist regime in the early part of this century was fought chiefly for the extension of the democratic rights of the Finnish people. The Finnish labor movement played an important role in this struggle. In their own. social and economic life the Finns have built up a cooperative movement which has been the envy of cooperators throughout the world. These cooperatives, which have played such e vital part in the economic and social life of all the Northern countries, represent an extension of the democratic ideal to economic life. The Cooperatives, aside from their immediate objectives of providing better and cheaper acods to the poorest sections of the community, have had the larger aim of extendin: the spirit of cooperative endeavor in all spheres of public life, Thus the Cooperators hope to solve the economic and social problems of the country through voluntary cooperative effort, without abridgment of individual liberties and without the tragid waste and bitterness of class struggle. lost of the population of Finland is engaged in the forest industries and in agriculture. Small farms and small busiresses are the rule; only in the woodpulp and lumbering industries are there great industrial concerns, Firland is therefore a land of small proprietors, and this fact is clearly reflected in the tone of Finnish politics, Even the Social Democratic party, which is nominally a collectivist party, is in reality strongly individualist, in accord with the small priprietor outlook of its leaders, Liberal democracy in Finland is the political expression of the cooperative and the individualist trends in Finnish social life. Public opinion in Finland is lively and well informed. The Finns read an Regraded Uclassified LB5 Division of Vonetary Research - 2 - immense volume of political literature of all kinds; most of the people take an active part in the political life of the country through member- ship in the political parties or in other groups. The policies of the government are subject to constant scrutiny and criticism. The Finnish Constitution guarantees to the people the right to religious freedom, freedom of the press and of speech, and protection against illegal arrest or search. The people's Deputies to the Diet are immune to penalties for their political beliefs. Like the American Constitution, the Finnish Constitution provides that in part the de- fense of civil liberties rests with the Courts. The ordinary guarantee of these constitutional rights, however, rests with the Diet, which as the democratically elected representative chamber has supreme power in Finland. In general, the liberal guarantees in the Finnish Constitution have been carefully observed. However, in some respects the civil liberties of minority groups have been seriously invaded, This is especially true of the Communists. Since 1918, the Communist party has been proscribed in Finland. The C mmunists evaded this restriction by organizing and working under another name - the Finnish Labor Party. Under this name they were able to attract a considerable amount of support; in 1922 they elected 27 Deputies to a Diet of 200. The Finnish Government was worried by the strength of the Communists, and consequently dissolved the new party in its turn. The Communists were forced to reorganize under still another name. In 1930, they held 23 seats in the Diet at the time of the rise of the Lapuan movement which aimed at forcing a fascist form of government on Finland. Under the pressure of the Lapuans, the Communist deputies were arrested and imprisoned, their party and their press sup- pressed. During the years from 1930 to 1932, the structure of civil liberties in Finland was largely destroyed. Kidnapping and beating of the Idaders of the liberal and radical parties was common. All forms of radical political activities were rigorously suppressed. After 1932, the political tension relaxed somewhat, and minority croups were allowed more freedom. However, the prohibition against the Communists remained, although it was no longer rigorously enforced. By 1936, Finland had returned in large part to the liberal traditions of the late 1920's. Yet even in 1936 the shadow of social conflict lay over the liberal institutions of Finland. A significant example of the frailty of the system of civil rights in Finland is contained in & letter appearing in the English liberal weekly, The New Statesman, for January 6, 1940, over the signature "Barrister". It appears that The New Statesman had published an account of the ill-usage to which the Finnish Communist, Antekainen, had been subject. This account was reprinted in a Finnish journal, Tuleskantaya, as a result of which the Regraded Uclassified 186 Division of onetary Research 3 éditor, Erki Wala was sentenced to four months in prison. After the elections of 1936, Wala appealed to the Appeal Court at Abo, He hoped that, with the return to a more democratic atmosphere in Finland his sentence might be reversed. But, on the contrary, his sentence was increased to eight months. Another example of the persistence of the conflicts of the civil "&" period ap ears in the structure of the Finnish arried forces, The regular Finnish army is very small in peace time, less than 30,000 men. In principle the oblivation to serve in the regular army is universal. Actually, the Civic Guard, with about 100,000 men has in many ways been more important than the regular army. The Civic Guard (also known as the White Guard, the Protective Corps, and otherwise) is the successor of the privately-organized White Guards of the 1917-1920 period. Its direct historical affinity is with the various Freikorps organizations of Germany" and Austria, who were everywhere the central nuclei of the post-war fascist parties. Although under the Republic the Civic Guard has become a semi-public body, it has never entirely lost its political character. Thus it does not accept men whose political antecedents suggest socialistsympathies. The Social Democrats, for their part, have been extremely suspicious of the Civic Guard. The Civic Guard was deeply involved in the abortive insurrection of 1930. The Social Democrats have forbidden their members to join it, James Andridge, writing in the New York Times for March 12, re-arks that only a few meeks ago Vaino Tanner, the leader of the Social Democrats, "swallowed a bitter pill" in allowing members of Ids party to join the Civic Guard, The Social Democrats and other liberals have often complained that the Civic Guard was intended to be used against the labor movement. The special position and influence of the Swedo-Finns has been a cause of disputes and ill-feeling in Finland. The Swedish colonists who came to Finland during the long period when Finland was subject to Sweden established themselves in a dominant position in Finnish affairs. Swedo-Minns controlled a large part of the wealth of the country; they established a quasi-monopoly of political offices, and they occupied the leading positions in cultural life and in education. After Finland became independent, Finnish nationalists demanded that Swedish influence should be curbed. The quarrel centered on the education question: the Finns demanded that educational expenditures should be strictly in proportion to the numbers of the Swedish- and Finnish-speaking population. This would have been à severe blow to the Swedo-Finns, who held a pre- dominant place in secondary education. A compromise was finally arrived at, which left the Swedes part of their advantage; although they represent only 10 rercent of the population, 20 percent of the secondary school expenditures go to their schools, The quarrel has died down in recent years, althouch some of the Finns are stilldissatisfied. 187 Division of Monetary Research 4 Geography and Independence Geography has not favored the development of a strone and in- dependent Finnish nation. Finland has never had either the man power or the economic resources to support a successful national struggle against the expansionist aims of her neighbors, Nor has her geographic position afforded her anysure protection; she has been repeatedly overrun by the armies of Sweden, Russia and Germany. Frequently political quarrels in Finland have opened the door to foreign domination. As a result of these severe handicaps, the Finns throughout most of their long history have been a subject people. The first Swedish crusade against the Finnish tribes was or- canized in 1154. By the end of the thirteenth century Sweden had conquered all of Finland and had driven the Russians behind the line of the Neva. Swedish colonists established themselves in a dominant position in the social, cultural, and political life of the country. The whole history of Finland before 1815 is, in large part, the history of the struggle between Sweden and Russia for mastery of the Baltic. With Sweden's decline in the eighteenth century her grip on Finland weakened, and Russia under Alexander conquered the country in 1809. From that time until 1917, Finland was an autonomous Grand Duchy under the Russian Isar. Finland had her OWN Diet, her own financial and judicial administration, and a Governor-General representing the Tsar as Grand Duke, With the collapse of the Russian Empire in 1917, Finland became a German puppet state. Only as a result of the successive defeat and collapse of the Russian and the German Empires did Finland become independent. Revolution and Intervention In February 1917 the first Russian revolution broke out. The Isar was deposed, and a Provisional Goverment under the liberal Prince Lvov was formed. The Provisional Government acted at once to remedy some of the immediate grievances of the Finns. The Finnish Diet which the Tsar had refused to call was summoned; the liberal Stahkovitch was appointed Governor-General to replace the hated Seyn; and many political prisoners were released and recalled from exile. But on the fundamental question of Finland's relation to Russia the Lvov government never adopted & clear position, nor did the Regraded Uclassified 88 Division of Monetary Research - 5 - sycceeding government of Kerensky, In July the Finnish Diet in which the Social Democrats were B. majority passed a Bill which claimed for Finland complete independence except in military and foreign affairs, To this resolution the Kerensky government eventually sent E reply repudiating the right of the Diet to decide the matter without the consent of Russia, Stahkovitch dissolved the Diet and announced new elections in which the public could decide on the July Bill. Meanwhile the storm of Social revolution was gathering in Russia and Finland alike. The Finnish conservatives formed a White Guard which they equipped with arms from abroad. The Social Democrats organized B Red Guard armed by the sympathetle Russian garrisons. In the new elections the Social Democrats lost their majority; instead of 13 members out of 200, they now had but 92, When the new Diet met the October revolution had brought the Bolsheviks into power in St. Petersburg, The new middle-class majority of the Finnish Diet was therefore particularly anxious to sever all connection with Russia. On November 15, they declared that supreme power belonged to them by virtue of the fendal constitution of 1772. As the Bolsheviks in St. Petersburg did not oppose this move, the Diet proceeded (on December 6, 1917) to proclaim Finland an independent state, The Bolshevik regime for a variety of reasons did not oppose Finnish secession. Soviet Russia was the first state to recognize Finland; recognition by Sweden, France, Germany and other states followed. On the night of Sunday, January 28, 1918, the Finnish Reds carried out a coup d'etat. The Red Guards took over authority in Helsinki and in all the larger Finnish towns. Only In Northern Finland were the White Guards able to suppress the Red insurrection. The Reds issued a provisional corstitution along liberal parlimentary lines, and hastily set about building a Red Army at Helsinki. Heanwhile the Conservatives were rallying their forces at Vaasa, on the Sulf of Bothnia. General Mannerheim, a former Tsarist officer, was entrusted with the task of organizing the White Guard for action against the Reds. The Vaesa Committee appealed to Sweden and to Germany for help. À number of Swedish officers volunteered with the White Guard; many Tsarist officers, refugees from the Bolshevik revolution, also joined the conservative forces. But the decisive help came from another source, Svinhufvud, the conservative leader, had escaped from Helsinki to Germany on the outbreak of the insurrec- tion. There he had come to a close understanding with the German Government; Count von der Goltz was appointed to head a German expe- dition to Finland, Regraded Uclassified 189 Division of Monetary Research - 6 - On March 20, Mannerheim vas ready to begin his campaign against Tampere, the northern stronghold of the Rods. But the promised Gerran aid had been delayed. Mannerheim telegraphed via Stockholm to Berlin "I consider it an urgent duty to hasten the arrival of the German expedition. Delay fatal". As there was no satisfactory reply, Mannerheim had to undertake the attack on Tampere without help. However, von der Goltz's expedition finally arrived in time to turn the tide. The Germans, landing at Hango, took the Reds from the rear, and Mannerheim ras sooner able to take Tampere, The Germans captured Helsinki on April 12. The Reds were in full retreat towards the Russian frontier, but their retreat was cut off by another German detachment at Lahti. After that the Red forces soon collapsed. On May 16, General Mannerheim entered Helsinki in triumph. According to F,nnish government figures, fifteen thousand Rods were shot for their part in the insurrection; 80,000 supporters of the Red regime were imprisoned in concentration camps, where about 10,000 of them died of hunger or disease. The Reds are estimated to have executed upwards of a thousand men during their nonths in power. Thus ended the var which is known officially in Finland as the har of Independence. Novertheless, German troops were in occupation of Helsinki, and they had been sent to Finland, not to make Finland independent, but t.o make her one of a band of purpet German States, stretching from the Arctic Ocean to the Caspian Sea, which the German government hoped to create out of the fragments of the Russian Empire. Accordingly, in May the Finnish Diet vas called, or more precisely, 109 of its 200 mumbers were called, for the Social Democrats vere not allowed to take their seats. This rimp Parliament slected Svinhufvud as Regent, and Svinhufvud asked Kaiser Wilhelm II to put forward one of his zone &S King of Finland. The Kaiser refused the crown for his sons, but allowed his brother-in-law, Prince Friedrich Karl to be elected. Prince Karl spent an arduous summer learning Finnish; but as the summer were on he realized that Imperial Germany was on the verge 01" collapse. The fall of the German Empire meant the end of German ambitions in the Last, This the official Tar of Independence ended with Finland a German vassal state, Finnish independence in actual fact came about as accidental result of the Allied victory over the Central Powers. The Struggle Against Bolshevism The comine of the Armistice failed to bring quiet to Finland's stormy foreign and domestic politics. The bitter struggles of the Regraded Uclassified 190 Division of Monetary Research - 7 - civil war period were continued in a different form. With the collapse of German power, Svinhufvud was forced to resign as Regent. His place was taken by Baron Mannerheim; for, although up until day 1918 Nannerheim was regarded by the Allies (and particularly by Lansing) as a tool of the German, he had succeeded in freeing himself from this association and placing himself at. the head of the groups favoring close cooperation with the Allies. The conservative parties were all agreed that the very existence of the Bolshevik regime in St, Petersburg constituted the greatest threat to Finland's independence and indeed to all the things they held dear. Therefore they were extremely anxious to obtain assurances from the Western powers of support against the Bolsheviks if it should prove necessary. And General Mannerheim's Government I'88 ready to cooperate in any feasible plan for restoring the authority of the conservatives in St. Petersburg. The British government Was also anxious to replace the Bolshevik regime with one more in line with Russian traditions, but serious difficulties arise between General Mannerheim and the Allied governments, as a result of which full cooperation against the Bolsheviks was not achieved. When at the end of May 1919 the British 237th Brigade (of the expeditionary force under Major-General Maynard's command) reached Lake Onega, Mannerheim offered cooperation in return for Petrozavodsk, on the Kurmansk Railway. General Maynard refused Mannerheim's assistance, probably because Mannerheim's ambitions conflicted with the aims of other Russian groups with whom the British were cooperating. A Finnish volunteer force nethertheless assaulted the town, but it was driven back by the Red forces. Again, at the close of the year 1919 when the White General Yudenich marched on Petrograd, Mannerheim sounded the Allies on Finnish intervention. Nothing came of his pro- posals. Finally at the end of May 1920 the Finnish Minister in Washington appealed to the American government for the aid of American warships in the Gulf of Finland to act against the Bolsheviks, The Finnish government stated that if aid were not forthcoming, it might be nec- essary to conclude peace with the Bolsheviks. The American government through Hugh Gibson firmly declined to supply any warships for such a venture. The Finnish government, therefore, gave up its hopes of gaining Karelia and other territory from the Bolsheviks. In October 1920 the Treaty of Dorpat put an end to hostilities between Finland and the Soviets, Regraded Uclassified 191 Division of Monetary Research - 8 - The Formation of the Constitution The new Finnish Republic adopted a constitution which embodies principles drawn from the German, English and American political systems, A single Diet of 200 members has the supreme legislative power. The President is chosen by an electoral college, which unlike the American electoral college exercises considerable discretion. The President of Finland is powerful; the control of foreign policy and of the armed forces is in his hands, and he has the right of issuing administrative edicts provided that these do not contravene existing laws. He appoints the Cabinet members, not necessarily from the Diet, and he is not bound to take their advice. Finally, he has an effective suspensive veto. On the other hand, the President's decisions must be countersigned by the minister concerned, and his acts are furthermore subject to judicial review. The Finnish system is thus based in part on the American idea of checks and balances, The balance of political forces in Finland after the defeat of the Reds made it insvitable that some form of moderate coalition would as- sume power, depending on the votes either of the Swedish conservatives or of the moderate socialists. The Social Democrats had expelled their communistic left wing: the Agrarian and Progressive parties had forced through R partial amnesty for imprisoned Red adherents, The first greet political problem which confronted the Republic WES the land question. Throughout central and castern Burope, the peasant demand for land redistribution had become the paramount polit- ical issue, and Finland was no exception. The Finnish Agrarian party, the Social Democrats, and the Progressives agreed that in one way or another land must be made available to the poverty-stricken peasantry. At the same time, the Finnish government could not adopt a program of drastic expropriation. The Kallio agrarian law therefore represented a compromise; the peasants and rural workers themselves were obliged to bear part of the burden of redistribution, the State bore a share, and the great landlords a share. While the Kallio law did not please all political groups, it did result in great extension of land holding among the peasants and rural workers. Landholding is still far from universal; in 1930, 32 purcent of the rural population were landless laborers. Seventy-six percent of the holdings are less than 25 acres (cultivated), while on the other hand there are 827 estates of 250 acres or more of cultivated land. Nevertheless, landhilding in Finland has become more widely dispersed than in France, the traditional country of small hold- ings, and compared with the situation in Italy, Hungary, Poland, or Spain, Finland is indeed a land of democratic land ownership. Regraded Uclassified 192 Division of Monetary Research - 9 - Finland made rapid economic and political progress during the post- war decade. Democratic political organizations and cooperative societies drew into active public life great numbers of the Finnish people. The great political problems of the day were the subject of lively discus- sion and controversy which was carried on freely in the press and on the platform alike. The only exceptions to a general regime of free dis- cussion and free political activity were the measures taken against the Communists. With the continued prosperity of the late 1920's, the social conflict in Finland died down end the occasion for repressive measures against extremist minorities disappeared. The Communists remained subject to the legal ban, but in actual practice they were allowed to organize and agitate without much interference. By 1929, the regime of political liberty appeared to be as firmly established in Finland as in any country in Europe, But in fact Finland was about to enter another period of bitter political strife complete with violence and suppression of normal political rights, Economic Depression and Political Reaction By 1930, Finland was feeling the full effects of the great depression. As a producer of building material, Finland suffered severely from the collapse of building activity in Britain, her principal market. Unrest was widespread in Finland. In November 1929, a group of farmers broke up a meeting of the Young Communist League in Lapua. This riot inflamed public opinion throughout Finland, and Bapue became the center of a growing anti-Communist movement which reflected the suffering and dis- content of the farmers and middle-class people of Finland. The Lapua movement, led by Kosala, advanced a vaguely Fascist program; the Communists were to be exterminated, the Social Democrats suppressed, the party system abolished, and the powers of the Diet handed over to a powerful executive. The Lapua movement found powerful support for its organiza- tion. The leaders of the timber trade, well-to-do farmers, the Lutheran clergy, the banks, high army officers, and the Neutral Cooperatives all lent their support, because they saw in the Lapua movement a political organization which promised to destroy once and for all the threat of Communism in Finland. With such powerful backing, the Lapua group did not h-stitate to re- sort to direct action against the Communists and indeed egainst the organizations of the Left in general. Socirlist printing presses were smashed, Communists were kidnapped and beaten, and on July 5, 1930, two Communists members of the Diet were kidnapped from n meeting of a Standing Committee in Helsinki and taken to Lapua for punishment. The police were unable or unwilling to take any action against the Lapuans. Regraded Uclassified 193 Division of Monetary Research - 10 - Under the pressure of the Lapuans, Prime Minister Kallio resigned his office after havine ordered the suppression of the Communist press, His place was taken by Svinhufvud, who had been in retirement since 1922. Svinhufvud formed a conservative government which hastened to grant the essential demands of the Lapuans. The 23 Communist Deputies were arrested; the rump Diet proceeded to pass a series of laws dissolving the Trades Unions outright and outlawing virtually every kind of political activity of the opposition parties. In order to ratify these changes to the Constitution, it was neo- essary to hold new elections, in the course of which the Lapuans with government toloration engaged in every variety of illegality in order to be assured of the two-thirds majority necessary to the retification of the new laws, The elections of October, 1930 gave the conservatives the necessary votes in the Diet (plus one) and the "anti-communist" laws were passed. The Lapuans had succeeded in large part in their political aims; but their terrorist activities did not cease, After the October elections a group of terrorists led by General "allenius kidnapped President Stahlberg and his wife, but they vere released unharmed after a general popular outery. Throughout 1931, kidnapping of socialists and over- inquisitive journalists continued. In July Wallenius was acquitted of complicity in the Stahlberg kidnapping, although he had made a full con- fession of his guilt at the time when charges were first preferred against him. In the spring of 1932 General allenius, in cooperation with leaders of the White Guards, was planning B march on Helsinki. Before these plans had been carefully matured, Wallenius' hand was forced by a riot in Mantsala. Mallonius made immediate preparations for a march on Helsinki; but the expected cooperation of the conservative leaders failed to materielize, Svinhufvud came out against the plan, and as a result the armed forces of Wallenius melted away before a shot had been fired. Once again, however, the Lapuans were partially suce ssful, for as a result of General Wallenius' demonstration the government arrested and imprisoned a large number of Communists, while Wallenius and Kosala vero let off with suspended sentences, The fundamental reason for the failure of General Wallenius' attempted coup was the fact that by 1932 the Lapua movement had lost the support of the propertied classes in Finland, The latter no longer felt the necessity, (as they had in 1930) of relying on the Lapuen forces for keeping Communism in check. Svinhufvud and his supporters felt that the government "IS itself well able to copa with the Communists. Regraded Uclassified 194 Division of Monetary Research - 11 - After the defeat of General Wallenius' attempted coup, the Lapuan movement developed internal quarrels and ceased to be an immediate threat to the Republic. With the progress of economic recovery and expansion after 1933, the moderate parties regained their former strength. Throughout his presidency (1931-1937) Svinhufvud had persistently refused to accept any Cabinet containing a socialist, in spite of the predominant position of the Social Democrats in the Diet. The Social Democrats determined to defeat Svinhufvud when he ran for reelection in 1937. Therefore they formed a coalition with the Agrarians, and succeeded in electing the candidate of the latter, Kallio. Kallio called on Professor Cajander, a Progressive, to form a Cabinet. Since 1937 Finland has been governed by a coalition cabinet, headed by Cajander, including 5 Social Democrats, 5 Agrarians, and 2 Progressives. The defeat of Svinhufvud seemed to be a serious reverse for the Con- servative forces. For the first time, they had failed to block the inclusion of Socialists in the Cabinet. A thoroughgoing realignment of national politics seemed imminent. In fact, however, the revolution was not very profound; the Social Democrats remained a minority party. Regraded Uclassified 195 Division of Monetary Research - 12 - The Political Parties and Their Policies After the destruction of the Bolsheviks in 1918, the political center of gravity shifted to the Agrarian perty. But no one party in Finland is normally strong enough to form a cabinet alone. Therefore Finnish governments since 1918 have been formed on one or the other of two plans - a coaltion of the Agrarians with the Conservative parties, or a coalition of the Agrarians with the large Social Democratic party, The following table of the numerical strength of the various parties in the Diet shows how the Agrarians hold the balance. 1936 1939 (July 5) (Social Democrats 83 85 Government (Agrarian 53 56 Parties (Progressive 7 6 (Swedish party 21 18 (Unionist Party (Concen- Opposition tration) 20 25 Parties (Patriotic National Movement) 14 8 (Others 2 2 The Social Democratic Party is a party of industrial and farm workers, professional and academic people, and small farmers. Formally, the party is committed to a Socialist program. In fact, the Social Democrats are essentially conservative in outlook. They do not aspire to a dominant position in national politics, but rather regard themselves as a presure group working for increased Social Services and better working conditions within the limits of the traditional oconomic and political system. They are essentially an administrative party. The Agrarian perty is a centrist party of small farmers. Its principal asset is its historical achievement - the Lex Kallio which was the legal basis of the revision of land tenure in Finland. Under the Kallio law, tenants were given El certain amount of State aid in purchasing farms, Under this law, landholding in Finland has become more general and there has been some reduction in the concentration of holdings. Compared with the situation in Poland, Italy, or even France, Finland has become a country of small holders. The Agrarian party assumes the credit for this, although the Lex Kallio was Regraded Uclassified 196 Division of Monetery - 13 - Research also submorted by the Social Democrats. The Agrarian party has rur- sued & policy of protection for Finnish agriculturel products as well 15 extension of tenure. By this policy, Finnish agricultural produc- tion has increased to about three times the level of 1913, and the cultivated area extended by 30 percent. This schievement must be reckoned HS one of the most substantial victories of the new Republic, The Agrerian party is 8 practical party, little concerned with general principles of government or economics. It is not opposed to State controls of industry, but it is hostile to all forms of socialism and carticularly to Communism. In contrest to the French Socialist-Radicel party, the Finnish Agrarians BIE under EU pronounced clorical influence. The Progressives are F very small party representing certain middle class groups of Liberal-Conservative tendencies. They work in coalition with the /grerians. The Unionist (Concentrationist) party to ther with the Swedish party (end the Fascists) form the Right. These parties represent the timber trade, the menufacturers, the larger landholders, the church hierarchy, and the Army, The conservative parties are the defenders of the traditional social order, the Lutheren Church, and the rights of property. They believe themselves to the representatives of the permanent national interests and the unity of the nation. They have -layed the leading part in the fight a_ainst Bolshevism. The Swedish Peonle's party has its own neculisrities. Its program is ostensibly one of defense of Swedish language and culture, but in fact the main interest of the earty is in defending the privileges of the wealthy and governing classes, E very large nro- portion of whom are Swedo-Finns, By coming forward 08 the champion of the Swedish heople, the party has been able to control practically all of the Swedo-Finn vote, elthough the majority of Swedo-Finns ere iishermen, sailors, lumber workers, and form laborers. The Patriotic National Novement was a clerical iascist -ovement centered in Lapue, which succeeded in dominsting Finnish volitics from 1930 to 1934. It has declined since then. In recent elections it lost half of its 14 deruties. in 1930 it WSS strong enough to make full preparations for A coup, which failed because of dissention in the ranks of the conservatives, Although the Fascists did not succeed in their coup, they did succeed in forcing the suppression of the Communist party, the arrest of all the Communist denuties, and they were permitted to engage in E terrorist commaign of beatings, kidneppings, and intimidations spainst the Left parties. 197 Division of Monetary - 14 - Research The Communist party has never been allowed to exist legally in Finland since the defest of the Bolsheviks in 1918. However, the Communists have been able nartially to evade the restrictions im- nosed on them by organizing under other names and by working within the Socialist party and the labor unions. Under the name of the Finnish Labor party, the Communists won 27 seats in a Diet of 200 in 1922. Alarmed, the government outlawed the party, suppressed its press, and dissolved the Diet to which this dangerous number of Communists had been elected. The Communists reorganized once more, and by 1929, under the name of the Finnish Labor party, they held 23 seats in the Diet. In 1930, when the influence of the Lapuans was at its height, the Finnish Labor party was once more suppressed and its Deruties arrested and imprisoned. Since 1930, the Communists have not had any recognized political party in Finland. They have probably entered the Social Democratic party, although known Communists are excluded from it. Regraded Uclassifie 198 Division of Monetary - 15 - Research The Cooperative Movement in Finland The Finnish people combine an extremely tough kind of individual- ism with E highly developed tradition of cooperation. The independent small holders who form the backbone of the country's apriculture are no less devoted to cooperation than the city workers. Over half the edult mele population of Finland belongs to some form of cooperstive. The most important of these organizations are the two consumer cooperatives, organized on the hochdale pattern. They are both affilisted with the Scandinavisn Cooperative Union. The two great consumer coops have Di remarkable record in the pro- vision of goods and services to their members at reduced costs. The coops have furthermore been a strong influence for the improvement of quality in merchandise in general. The principle of cooperation in Finland has been developed in every brench of economic life. Cooperative farm banks, cooperative production and marketing societies are well developed. The coops have gone into manufacturing on 2 considerable scale. The rinnish cooperatives are organized on B thoroughly democratic basis. The entrance costs are very small, and the direction of the 81- fairs of the cooperative are subject to the full control and criticism of the membership on an equal basis. Furthermore, the cooperatives have 8 well developed literature of their own end en ambitious educa- tional program. Thus the problems of the consumers and the operations of the management are continually subject to the discussion, study, and criticism of the whole body of consumers. Of the two principal organizations, the Porgressive Cooperative Society, while it has refused affiliation with the Social Democratic party, drews mosto its strength from the working class, and it is generally pro-labour in outlook. The Neutral Cooperative Society, on the other hand, is ( farmer's cooperative end it has not been friendly with organized labor. It refuses to bargain collectively with its employees, In its larger social aim of substituting the cooperative attitude in public life for the attitude of class rivalry, the cooperatives have not been entirely successful. The relations of the two principal con- sumer coope have been bitter. They have frequently engaged in out- throat competition. In 1930, the Neutral Cooperative helped finance the Lapuan Fascist movement, probably with the idea that by this means the Progressive COODS might be suppressed. Regraded Uclassified 199 Division of Monet/ary 16 - Research Social Security in Finland In its program of social security, Finland lags behind the nations of western Europe. Unemployment insurance does not exist. An old-age pension scheme was supposed to come into effect in 1940. Finland has, however, 8 public health administration which is well supported. Un- fortunstely, most of its resources are absorbed by the fight against tuberculosis, which is particularly prevalent in Finland. nost os the housing development in Finland has been undertaken by the large companies. Many of these projects are modern and well planned; but Finland has not escaped a serious housing shortage. In Helsinki the average number of inhabitants per room was 1.5 in 1930. In belsinki rents absorb about one-third of the income of unskilled workers. Housing conditions in the rural areas of Finland (as in most countries) are even worse than they are in the cities. The security of Finnish workers is moreover impaired by the absence of E powerful trade union movement capable of advancing the interests of the workers. The weekness of the unions is the more surprising in view of the great numerical strength of the Social Democrats. At one time Finland had a powerful labor movement; that was before 1918, when the unions had 160,000 members. with the triumph of the Conservatives in 1918, the trades unions, most of which were under Bolshevik influence, were crushed. After peace was restored, the unions slowly regained their strength, until in 1930 they numbered about 100,000 members. But in 1930, the unions were suppressed agein by the Svinhufvud government during the high tide of the Lapuen movement. From the blow of 1930, the labor movement has never fully recovered. In 1939 the Finnish trades union federation had only 87,000 workers. The workers have not been strong enough to bargain collectively in the timber or other big industries; in printing end some of the smaller trades, however, they have been successful in obtaining collectivo contracts. As a result of the weakness of the labor unions, wages in Finland's important industries have remained low. From 1930 to 1932 wages dropped heavily; after that they rose slowly until by 1937 they were (in real terms) about 13 percent above the level of 1929. The low level of wages from 1930 to 1935 made it possible for Finland to accumulate capital, modernize her industrial plant, and reduce her foreign debt. Regraded Uclassified 200 Division of Monetary - 17 - Research The general standard of living in Finland Talls considerably by lov that of the other Scandinavian countries; however, it is undoubt- edly higher than in Poland, Italy or the Balken countries. Culture and Education in Finland German culture WFS the inspiration and the model for the well- to-do and educated Finn throughout the 19th and on into the 20th century. The Finns bought : third of their imports from Germany; they took / third of their iders from there. The first Finnish secon- dary schools were modeled on the verman Lyceums. Many of the concer- tions embodied in the Finnish constitution were derived from veimar. Helsinki's first public buildings were the work of = German architect, Engel, and the best of Finnish graduates went to verman universities to complete their studies. This cultural liaison was weakened by the rise of 11, tler and the closer trade relations developed with England after 1933. English iders EIR now taking the place of Jerman, Finns are wearing English clothes, operating English mechines, dealing with English salesmen and working with English technicians. A Finnish- British society flourishes in helsinki and E similar society W2B or- genized in Turku in the winter of 1937-1938. In Finlend, all children are compelled to attend elementary school between the age of seven and thirteen, (fter which 60 percent attend vocational schools until fifteen and 40 percent go on to secon- dary schools where they prepare for the civil service, teachers' training colleges or the University. Tuition is free at the state supported institutions except for E nominel fee paid by the children of the well-to-do. Besides Relsinki University, which has an enroll- ment of 6,600 students, half of whom are women, the state maintains a Technical High School end a High School of Pedagogy with a combined enrollment of about 1,000. There are two small privately endowed universities et Tuiku, one Swedish-spesking and one Finnish-speaking. They each have 300 students. Regraded Uclassified 201 Division of Monetary - In - Research APPENDIX Notes on Finnish Leaders Viano Tanner, Foreign Minister of Finland, head of the Social Democratic party, leader of the Finnish and the international coopera- tive movements. Porn in Helsinki to working-class parents. In 1910 he became a member of the Central Committee of the International Cooperative League. He joined the Social Democratic party, where he belonged to the more conservative wing. Tanner refused to associate himself with the Polshevik majority of his party in the Revolution of 1918, Ha remained aloof from the Red insurrection. However, when von der Goltz' troops occupied Helsinki, Tanner was arrested because of his association with the Social Democrats. He was soon released, however, when it as es- tablished that he had not been in any way connected with the uprising of the Social Democrats. This episode has given rise to erroncous stories linking Tanner with the Finnish revolution. After the defeat of the Finnish Rolsheviks, the Tanner group assumed leadership of the Social Democratic party, Tanner was one of the Finnish delegates who signed the Treaty of Dorpat with the Soviets in 1920. Tanner has worked to eliminate the radical and communistic wing from the Social Democratic party; he has pursued a policy of cooperating with the center parties. Tanner has continued to be an active official of Elanto, a lead- ing cooperative organization, and in 1927 he was elected president of the International Cooperative Alliance. In 1926 Tanner became Premier in a Social Democratic Cabinet. The following year he received the salute of the Civic Guard (often called the Whi'e Guard) an act which caused bitter controversy within the Social Democratic Party because of the reactionary associations of the Civic Guard. However, Tanner's act was in lino with the policy of reconciliation with the conservative forces which he has consis- tently followed. Tanner has also served as Finance Minister, in which position he made his reoutation as a cautious, conservative financier. Tanner is well liked by business and banking groups; in fact throughout the civil war period he was able to maintain valuable friendships with the conservative groups. Regraded Uclassified 202 Division of Monetary - 19 - Rosearch Risto Ryti, banker and statesman, at present Premier of Finland, for many years Governor of the Bank of Finland. Ryti was Finance "inister in the early years of the Republic. Ryti studied law in England, and has many associations with English life. He has been decorated AS Knight Commander of the Victorian Order. Ryti has frequently represented his country at international conferences on economic and financial questions. Ryti is extremely influential among all business and commercial groups in Finland. Hg is highly respected in international financial circles. Ryti is thought to be the principal initiator of Finland's economic policies since he became Governor of the Bank in 1923. He has favored the rigorous policy by which, at the cost of great sacrifice on the part of wage earners, Finland has been able to reduce her foreign debt and build up her capital since 1930. Ryti is also said to have been one of the leading sponsors of the program of agricultural expansion and industrial development since the war. Ryti is a staunch defender of the idoa that the Bank of Finland should he indpendent of government control, Paron Carl Mannerhoim, born to a noble Swedo-Finn family near Abo, educated at the St. Patersburg cavalry school. Mannerheim soon rose to the command of the Tsar's bodyguard. He fought in Manchuria during the Russo-Jananese Tar and was promoted to the rank of Major General. After the Russo-Japanese war he was stationed at "arsaw as commandant 09 the Imperial Russian cavalry. During the World War Mannerheim WAR stationed on the Roumanian front. After the Finnish declaration of independence he returned to Finland where he took an active part in organizine the hi'o Duard. After the Red coup of January 191° Mannerheim was placed in supreme command of the Thi'e Guard, and became in effect the supreme leader of the conservative forces. He depended largely on German aid in overthrowing the revolutionary Red government in Helsinki. The American Minister to 9veden, Morris, cabled to Secretary of State Lansing on April 2, 1918, strongly urging that no food should be sent to General Mannerheim's government in view of the pro-German Regraded Uclassified 203 Division of "onetary - 20 - Research leanings of the Finnish conservatives. Morris' opinion was strength- ened by the report of an Allied mission which had visited l'annerheim's headquarters, and which stated that "as far as they can see, the Thite Party of Finland is entirely under Ferman influence" and that "they personally were insulted by Finnish officers with pro-German sympathies, although travelling with General Mannerheim's special passport". by May, however, General Mannerheim had dramatically changed his orientation. He had quarreled with the authorities in Helsinki on the issue of German influence in the army, had resigned his position and had retired to Sweden. Swinhwfvud, the pro-German conservative, became the leading figure in Finnish politics. With the collapse of the German Empire, the return of Mannerheim was made possible, for he had succeeded in a few months, from May to November, in winning the confidence of the Allied diplomats. Accordingly, Mannerheim took over the Regency which Svinhufvud was was forced to resign when the Gormans withdrew. He hold this position until the installation of the new constitution in 1919. In 1920, Mannerheim attempted to organizo an intervention against the Poriets with Pritish aid. Then this plan fell through, he led an independent assault on the town of Petrozavodsk on the Leningrad- Murmansk railway. This attempt was beaten back, and in the same year place was concluded with the Soviets. Mannerheim has remained a powerful figure in Finnish politics. He has been venerated by all the conservative groups, and hated by the radicals. He has been the strongest opponent of communism and or any policy of rapprochement with the U.S.S.R. On the other hand, he has many close friends and associations in Pritain, and has heen made Knight Grand Cross of the British Empire. Regraded Uclassified Map 61 Name POTARI na No - Regraded Uclassified 206 March 20, 1940 My dear Rr. President: Since Finland and Russia have made peace, I have been giving considerable thought to what the future of Finland may be. It seems to me that the United States has a great opportunity to demonstrate, at this time, what we are will- ing to do for a country like Finland. There is 8 real reconstruction Job to be done for Finland. The thought that I have in mind is that you invite Finland to send a commis- sion to this country, at once, to explain to us what their needs are, headed by someone like Mr. Tanner who, before entering their Government, was the head of their consumer cooperative move- ment; that we, in turn, be prepared to help them do not only a physical reconstruction Job, but help them recreate a strong financial set-up. By helping Finland do a complete reconstruc- tion job, we can actually demonstrate to the rest of the world what we are prepared to do if and when peace should come in Europe or Asia. Yours sincerely, The President, The White House. Regraded Uclassified 207 March 20, 1940 My dear Mr. President: Since Finland and Russia have made peace, I have been giving considerable thought to what the future of Finland may be. It seems to me that the United States has & great opportunity to demonstrate, at this time, what we are will- ing to do for a country like Finland. There 1s a real reconstruction Job to be done for Finland. The thought that I have in mind is that you invite Finland to send a commis- sion to this country, at once, to explain to us what their needs are, headed by someone like Mr. Tanner who, before entering their Government, was the head of their consumer cooperative move- ment; that we, in turn, be prepared to help them do not only a physical reconstruction job, but help them recreate a strong financial set-up. By helping Finland do a complete reconstruc- tion Job, we can actually demonstrate to the rest of the world what we are prepared to do if and when peace should come in Europe or Asia. Yours sincerely, The President, The White House. 208 March 20, 1940 My dear Mr. President: Since Finland and Russia have made peace, I have been giving considerable thought to what the future of Finland may be. It seems to me that the United States has a great opportunity to demonstrate, at this time, what we are will- ing to do for a country like Finland. There is a real reconstruction Job to be done for Finland. The thought that I have in mind is that you invite Finland to send a commis- sion to this country, at once, to explain to us what their needs are, headed by someone like Mr. Tanner who, before entering their Government, was the head of their consumer cooperative move- ment; that we, in turn, be prepared to help them do not only a physical reconstruction job, but help them recreate a strong financial set-up. By helping Finland do a complete reconstruc- tion job, we can actually demonstrate to the rest of the world what we are prepared to do if and when peace should come in Europe or Asia. Yours sincerely, The President, The White House. Regraded Uclassifi first dectated dropt 209 My dear Mr. President: Since Finland and Russia have made peace, I have been giving considerable thought to what the future of Finland may be. It seems to me that the a heat United States has an opportunity, to demon- at this time strate what we are willing to do for & country like Finland, that has put up such a magnificent fight to defend itself against aggression and has made an honorable peace. real There is a great reconstruction job to be done for Finland. The thought that I have in mind is that you invite Finland to send a commission to this country at once, headed by someone like Mr. Tanner who, before entering the Government, was the head of their consumer cooperative movement, to explain to us what their needs prov That we be prepared to help him Finture turn them do not only a physical reconstruction Job, but help them recreate a strong financial set-up a complete can actually demondtrate to the By helping Finland do real reconstruction restol Job, we are serving notice on the rost of the world what n do we are prepared to if and when peace should come in Europe or Asia. Yours sincerely, Regraded Uclassified 210 March 20, 1940 My dear Cordell: I am sending you herewith & copy of a confidential letter I have today written the President. I thought you might be interested in reading it. Yours sincerely, Honorable Cordell Hull, Secretary of State. Regraded Uclassified 211 Narch 20, 1940 My dear Cordell: I am sending you herewith a copy of a confidential letter I have today written the President. I thought you might be interested in reading it. Yours sincerely, Honorable Cordell Hull, Secretary of State. Regraded Uclassified 212 March 20, 1940 My dear Cordell: I am sending you herewith a copy of & confidential letter I have today written the President. I thought you might be interested in reading it. Yours sincerely, Honorable Cordell Hull, Secretary of State. Regraded Uclassified 213 March 20, 1940. 9:21 R. m. 113mg Operator: Go shead. Congressmen Snyder: Hello. H.M.Jr: Good morning. S: Good morning. Congressman Snyder. H.M.Jr: How do you do? S: All right. The result of your visit up here was Just fine. H.M.Jr: Well I'm glad to hear that. S: Yes. I had B. little chat afterwards you know and they were all very well pleased and thought that your procedure was all right. H.M.Jr: Well I appreciate your having me un there, S: Well that's the way we have to handle it. H.M.Jr: Yes. S: Did you get that Cavalcante matter? H.M.Jr: Yes, I did. S: Well that's what I want before Easter. I've got to zo back there before Easter. H.M.Jr: Well here's the situation. I have this right before me. The Court of Common Pleas expressed its views AS follows: "We are of the opinion that there was fraud in this transaction and that the conduct of Anthony Cavalcante was unethical, unprofessional, reprehensible and he should be disciplined." S: I can't hear you cuite. H.M.Jr: Well this is what the Court of Common Pleas has to say about - S: When was this dated? H.M.Jr: When was this? Regraded Uclassified 214 - ? - S: Yes. R.V.Jr: Let me just see - Just B minute - 1932. S: Yes, that's it exactly. That was that old Republican Court back there, all Republican and they did that back in '32. He's elected State Senator twice since that time, and he's a reputable fellow, he's a wonderful fellow. He bolted the Republican State machine under Penrose, who - and went with the Independents with Pinchot in 132. You understand? H.V.Jr: I understand. S: And that's just what they did. They kicked him out because he went out and made speeches for Pinchot. H.M.Jr: Well I've got the facts of why they did it. I'd be glad to send them un to you. I mean if you want them. I mean, the reason back of the Court's action. S: Well why would they reinstate him then later on, right away? E.K.Jr: I don't know, but - S: Within six months. H.M.Jr: But I've got the facts and then also his record with the State Banking Department of Pennsylvania. S: Isn't that good? H.M.Jr: No, it's not. No it's not, and that's dated August '37. S: Well that micht have some weight with me but the others have no weight no matter what was on it. H.M.Jr: Well, for your confidential perusal I will send un his record. S: All right. H.M.Jr: And I do hope that you could find somebody else in your district that I could take. Regraded Uclassified 215 - 3 - S: I see. H.M.Jr: I'd be glad to take anybody else. S: I see. H.M.Jr: All I want 18 somebody that has - well hasn't got this kind of a record, and 1f you're going back I'm sure you could find somebody else. S: Well you send that un and let me see it, that - I knew all about the first. H.M.Jr: Well let me send the whole thing un for your confidential information. S: Thanks. H.V.Jr: And if, after you've read 1t, if you decide - the way I have it, I think it's almost an impossible appointment. I'd be glad to take anybody else out of your district. S: Huhhuh. H.M.Jr: We'll make no appointment until I hear from you anyway. S: All right. H.M.Jr: Thank you. S: All right, thank you. You'll send it up? H.M.Jr: I'll send it by messenger. S: Thank you. Regraded Uclassified