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Volume 318, October 2 – October 3, 1940
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Volume 318, October 2 – October 3, 1940
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 318
October 2 and 3, 1940
- A -
Book Page
Argentina
See Latin America
- B -
Ballinger, 1. R.
See Personnel, Division of
Bank for International Settlements
See War Conditions: Foreign Funds Control
Beaverbrook, Lord
See War Conditions: Airplanes
- C -
Chile
See Latin America
China
See War Conditions
Coast Guard
See also War Conditions: Ship Movements (Water Pollution)
Reserve: FDR's approval urged by HMJr - 10/3/40
318
216
a) Correspondence returned to FDR - 10/10/40:
See Book 320, page 431
b) Bill (approved by FDR) sent to Speaker for
presentation before House of Representatives -
10/11/40: See Book 321, page 144
Three new cutters: FDR urged by HMJr to authorise
construction - 10/3/40
233
Consolidated Aircraft
See Var Conditions: Airplanes (Defense Housing)
- D -
Dutch last Indies
See War Conditions: Export Control
- 1 -
Financing, Government
Public Debt: Absorption of increases since
June 30, 1933: Hass memorandum - 10/3/40
245
a) Chart
258
Savings Bonds: Hass memorandum - 10/3/40
266
a) Charts
270
France
See War Conditions: Foreign Funds Control
- G -
Book Page
Germany
See War Conditions: Foreign Funds Control
Gold
See War Conditions
- H -
Housing
See War Conditions: Airplanes (Consolidated
Aircraft - San Diego, California)
- I -
Italy
See War Conditions: Foreign Funds Control
- J -
Japan
See War Conditions: Export Control; Japan
- L -
Latin America
Priority to products for defense program
authorized by FDR; HMJr's acknowledgment -
10/3/40
318
283
Argentina:
Economic and financial mission: Status
discussed by Cochran, Collado, and
State Department - - 10/2/40
44
a) Collado feels Stabilisation Fund
should be utilized rather than
Export-Import Bank
Gold: Price stability discussed by Argentine
Minister of Finance and Pierson
(Export-Import Bank) - 10/2/40,
40,41
a) Current gold movement from Argentina
to United States
45
Chile:
Financial and economic assistance discussed by
HMJr and Chilean representatives 10/2/40.
37
Layton, Sir Walter
Memorandum reviewing needs: See War Conditions
(Purchasing Mission)
- M -
Book Page
Morgenthau, Robert
Frankfurter and HMJr discuss - 10/2/40.....
318
70
- N -
Netherlands
See Var Conditions: Foreign Funds Control
- 0 -
011
See War Conditions: Export Control
- P -
Personnel, Division of
HMJr discusses with Graves and Thompson his
concern over situation; points out that
he never approved appointment of Ballinger;
asks for investigation - 10/2/40,
36
Portugal
See War Conditions: Gold
- R -
Republic Aircraft
See War Conditions: Airplanes (Sweden)
Revenue Revision
1940 bill: Resume' provided for Budget Bureau -
10/2/40
176
- S -
San Diego, California
See War Conditions: Airplanes (Housing situation
at Consolidated Aircraft also discussed)
Ship Movements
See War Conditions
Sweden
See War Conditions: Airplanes
Switzerland
See War Conditions: Foreign Funds Control
- T -
Taxation
See Revenue Revision
- U -
Book Page
U.S.S.R.
See Var Conditions: Foreign Funds Control: U.S.S.R.
United Kingdom
See War Conditions: Military Planning: Foreign
Funds Control; United Kingdom
United States Savings Bonds
See Financing, Government
- V -
War Conditions
Airplanes:
Beaverbrook memorandum on six principal
operational types and pilots available -
10/3/40.
318
262
a) Beaverbrook thanks HMJr for help,
past and future - 10/3/40,
306
Consolidated Aircraft: Expansion of plant and
housing of employees in San Diego discussed
by HMJr, Foley, Young, and Buckley - 10/2/40
30
a) Buckley and Foley to go to San Diego
with Fairey (British Purchasing Commission)
and representatives of Army and Havy
62
PBY-5 Flying Boats: B-24 Bombers: Increase in
deliveries to Great Britian discussed by HMJr,
Knox, Purvis, Young, Ballantyne, Captain Ramsey,
and Lieutenant Anderson - 10/2/40
1
a) "Historical document" showing increased
delivery by Consolidated Aircraft attached
13
1) HMJr and Knox discuss report - 10/3/40
180
2) # # Purvis discuss report
187
3)
.
discusses at 9:30 meeting
195
Sweden: Republic Aircraft contract discussed by
HMJr and Patterson - 10/2/40
83
a) Discussed at conference with representatives
of British Purchasing Commission and
War Department - 10/3/40
218
China:
China-U.S.S.R.-United States deal discussed by Soong
and Jones; Jones reports conversation to HMJr -
10/2/40.
73
Exchange market resume - 10/2/40, 10/3/40
60,243
Export Control:
Knox discusses with HMJr State Department's
apparent OK for Japan for contract for three
million tons of oil from Dutch East Indies -
10/2/40
64
a) Standard 011 memorandum on recent developments
in Dutch East Indies - 10/2/40
151
Gasoline: 011: Exports to Japan covered in Havy
Department memorandum.
313
Scrap: President's Proclamation and regulations -
10/2/40
157
- V - (Continued)
Book Page
War Conditions (Continued)
Foreign Funds Control:
Extension of control beyond "blocking orders"
discussed in Hull memorandum to HMJr -
10/2/40,
318
163
a) Conference on situation arranged by
HMJr with Hull
201
Bank for International Settlements and Bank of
France account discussed by HMJr, Pehle,
Chamberlain, and Cochran - 10/2/40.
103
British negotiations with U.S.S.R. to relinquish
blocked Baltic states' funds discussed at
9:30 meeting - 10/2/40
15,172
a) Hull must request this before HMJr
will act
France: Paintings being sent to United States
and payment therefor discussed in Foley
memoranda - 10/2/40
169,281
German and Italian transactions with Chase
National Bank - 10/3/40
239,242
Netherlands: Situation discussed by Cochran and
Federal Reserve Bank of New York - 10/2/40.
173
Switserland: Transactions reported by Federal
Reserve Bank of New York - 10/2/40,
43
U.S.S.R. transactions with Chase National Bank -
10/3/40.
238
Gold:
Bank of Portugal shipments to United States
reported by American Legation, Lisbon -
10/3/40,
308
Japan:
Stimson's memorandum giving historical summary
on relations with United States which may
have bearing on present situation - 10/2/40.
148
Military Planning:
Reports from London transmitted by Lothian -
10/2/40
51,56
German air attacks on England, etc. - 10/3/40,
323
Purchasing Mission:
Needs reviewed for HMJr by Layton - 10/2/40,
86
a) Copy sent to FDR
284
b) Stimson-HMJr discussion: See Book 319, page 39
c) Discussion between HMJr, Purvis, Layton, and
Young: Book 319, page 58
Ship Novements:
Waesche (Coast Guard) reports on water pollution
on certain vessels - 10/2/40
138
- V - (Continued)
Book Page
Var Conditions (Continued)
U.S.S.R.:
China-U. S.S.R.-United States deal discussed by
Soong and Jones; Jones reports conversation
to HMJr - 10/2/40,
318
73
United Kingdom:
Chancellor of Exchequer becomes Minister of
War Cabinet - 10/3/40
315
Water Pollution
See Var Conditions: Ship Movements
- Y -
Yahuda, A. S. (Professor)
Received by HMJr - 10/3/40
326
1
RE BRITISH PURCHASING PROGRAM
October 2, 1940
9:00 a.m.
Present:
Mr. Knox
Mr. Young
Captain Ramsey
Lieutenant Anderson
Mr. Purvis
Mr. Ballantyne
Mrs Klotz
H.M.Jr:
While we are waiting, one thing that the
English have not got and which is scheduled
on the PBY-5's, showing just month by month
how many they are going to get. They would
like to have that to send to Beaverbrook.
Purvis:
To send to the Prime Minister. It is of that
much importance.
Ramsey:
Here, Mr. Morgenthau, is the last memorandum
we had from Admiral Towers.
Knox:
By the way, did Towers go to Jacksonville?
Ramsey:
No, he left today for Bethpage with Knudsen.
H.M.Jr:
This is the one I had originally. Does this
still stand?
Ramsey:
Yes, sir.
H.M.Jr:
The Joint Defense Board is recommending six
PBY-5's by next spring. Well, that would be
something that you would want to --
Purvis:
I can imagine Mr. Churchill perhaps wanting
to have a say on that.
H.M.Jr:
Could I have a copy of this made and give
it to you? See if that is what you wanted,
Arthur, will you? I will have it copied
if that is what you want.
2
- 2 -
Purvis:
Well, it is not one and one, but we are
very grateful.
Knox:
You will get one and one, because I promised
the President that, and Towers approved it.
Don't let them change it.
H.M.Jr:
I think you looked at the wrong column there.
Purvis:
Have I?
H.M.Jr:
Here, this is proposed.
Purvis:
For the United States.
H.M.Jr:
Here for them are three, and you people get
four. Where is my ruler? I am glad to
have you take a look at the horse's teeth.
I think you are all right on that. You see,
here is proposed, U. S. Navy, six; proposed
British, five; proposed Navy, nine; proposed
British, ten. February: proposed Navy, twelve;
proposed British, twelve. That is all right.
You see, you would get one more in November
and one less --
Purvis:
Our deliveries are a little faster than I
thought they were.
H.M.Jr:
The pick-up is - you get the increase up
until February, anyway. Take a look at it
now. I think it is all right.
Purvis:
Thank you very much. Sorry if I looked at
the figures backside to. That gives us
three more in November, one more in December,
one more in January, two more in February.
Very good. The same in March and one less
in April. As a matter of fact, that gives
them to us in the months that we want them.
I think perhaps that we have a little
3
- 3 -
exaggerated idea as to what deliveries you
were going to get. In the back of my mind,
I thought the deliveries were rather stouter
than that from your end, and that is what
struck me on the figures as I looked at them
the first time.
Knox:
Are those all four-engine ships?
Ramsey:
No, sir, that is a two-engine.
Knox:
Fleet told me they were going to be able to
turn those out in two weeks. Is that right?
(Mr. Ballantyne entered the conference)
H.M.Jr:
Good morning. Do you know where the rest of
the British Commission is?
Ballantyne:
I don't know about the rest of them, but I
have been hitchhiking. I couldn't get a taxi.
H.M.Jr:
Before you came in, I suggested to Colonel
Knox the possibility of sending somebody
at once to Consolidated to see if the thing
couldn't be stepped up for both the Navy and
the British. He said he would be willing to
send Mr. Forrestal there from Florida direct.
Purvis:
In that case, we might perhaps join somebody
with him, somebody of good weight, somebody
like Fairey. Don't you think Fairey would
be the man? I think that would be an excellent
thing.
Knox:
I would like to have him finish his present
inspection, which will take today and tomorrow.
He might be able to start to San Diego Friday.
When could Fairey start?
Purvis:
Fairey? I would have to ask his exact day,
because --
Regraded Uclassified
- 4 -
Knox:
He is perfectly willing to fly, isn't he?
Purvis:
He has been in the industry for 28 years.
I would be very regretful if he weren't.
Perhaps he knows his product too well.
I am sure that could be arranged. What
date would suit you, roughly?
Knox:
He is down in Florida now on an inspection
trip. There are a couple of big training
camps down there. He was getting back here
Friday, but I can divert him and send him
to Los Angeles first and have him fly right
out there.
Purvis:
So that Fairey ought to go straightaway?
Knox:
Yes, he ought to go straightaway. It is
shorter from Florida to San Diego than from
here, isn't it?
Ramsey:
Yes.
Purvis:
That is right, I think you would have to leave
straightaway.
Knox:
And you want to be sure Fleet is going to be
there before we start either of them. Fleet
is the only fellow to talk with there.
Purvis:
Yes. He does some of the talking himself.
Knox:
He is a ball of fire, isn't he? I never
saw such a fast worker in my life. Do you
know him, Captain?
Ramsey:
Very well, yes, sir.
Knox:
He had me breathless.
H.M.Jr:
Could somebody during the day contact Mr. Purvis
and let him know what day --
Regraded Uclassified
5
- 5 -
Knox:
What I think we had better do is, I will
go back and get Fleet on the phone and --
Purvis:
See what suggestions he has.
Knox:
He may say not to come at all or something.
Purvis:
Well, I don't think he will say that.
Knox:
He has just doubled the size of his plants,
you know, and he has got orders out for
another doubling.
H.M.Jr:
He is short of help and there are certain
things the Navy has to do in San Diego.
Knox:
Well, I know what goes out, without going
there.
Purvis:
If schedules can be increased, can we apply
the one and one up to that period just the
same?
Knox:
We have it applied up to the first of July.
Purvis:
Thank you very much. So that would apply
to any acceleration?
Knox:
Sure.
H.M.Jr:
Sure, if he can turn out two more ships,
the English can get one.
Knox:
I will talk with him and find out and send
these men out to talk with him. I won't
put it up to him over the phone, but I
will tell him why we are coming. It may
be we can work some other things. What
is he doing besides making the flying
boats?
Regraded Uclassified
6
- 6 -
Ramsey:
He has two orders for us now, Mr. Secretary,
the PBY-5 and then EL small order of four-
engine planes.
Knox:
Both types are Boeings?
Remsey:
Both types.
Knox:
And both are boats, are they?
Ramsey:
They are flying boats, and then he also has
8. small order for amphibians for us.
Knox:
We couldn't defer that amphibian order and
have them concentrate on the other?
Ramsey:
That is deferred, and it comes at the end of
the PBY-5 schedules.
Young:
As I understand the situation, there may be
some chance for speeding up production in
that the LB-30 which the British have on
order is not quite the same ship as the
PBY - I mean as the four-engine bomber.
Knox:
Mr. Morgenthau suggested a single type, if
we could get them to do that.
K.M.Jr:
That is what I am talking about.
Knox:
Who ordered this other ship?
Young:
The British have this LB-30 on order, which
is the British version of the four-engine
bomber, which they have on order for the
Army. Those two types are very, very close
and they should be --
Knox:
Identical.
Purvis:
I think the only difference is that our fighting
experience taught us the necessity for a slightly
Regraded Uclassified
7
- 7 -
heavier armor or something of that kind.
I think there is a certain armor requirement
that would be very dangerous for us to give
up.
Knox:
Why don't we take it?
Purvis:
I was going to say, if it can be approached
from the point of view of our fighting ex-
perience along with your requirements and
just get it down to common sense.
Knox:
Perhaps you had better send somebody from --
Young:
Perhaps an Army man ought to go out there.
H.M.Jr:
When I suggested yesterday to Stimson and
Patterson about this, they said Consolidated
was under the Navy sponsorship, but if you
want an Army man --
Knox:
No, I am talking about a man from my own
Aeronautical Department who can talk in-
telligently about the change of type.
Purvis:
It would merely be that type of thing.
H.M.Jr:
I want you (Young) to go.
Knox:
Could you go out there?
Ramsey:
Yes, sir.
H.M.Jr:
Would it upset your other work too much?
Ramsey:
Well, I am sure we could get somebody who
would represent us.
H.M.Jr:
I don't think the man could be too good.
Knox:
Neither do I. We have got nothing but good
men over there.
Regraded Uclassified
8
- 8 -
H.M.Jr:
Then it should be easy to spare one.
Knox:
I will canvass that when I get back.
H.M.Jr:
You see what a dream I had here, though.
If they can get down to turning out one
flying boat for you and the English, just
one type, and one four-engine bomber for
the Navy and the English, and get them to
concentrate on two types.
Purvis:
That would be bound to help, without ques-
tion.
Knox:
I think perhaps we will send Jim Forrestal.
He is an expert air man. It would be a ques-
tion of getting labor.
H.M.Jr:
He wants housing. He has no training shops.
Knox:
Yes, he has a training shop.
H.M.Jr:
Well, it is on the list that he asked us.
Young:
He wanted an increase in vocational schools.
Knox:
He had an apprentice school.
Ramsey:
Most of the big men have.
Knox:
What he wants out there, chiefly, Henry, is
water supply, which of course will cost
millions of dollars. He wants a sewage dis-
posal plant; he wants a lot of frills. It
went in one ear and out the other when he
was talking about it. I was only interested
in making an airport. They are trying to
build up San Diego.
Purvis:
He is just the man to sell the idea to, isn't
he?
Regraded Uclassified
9
- 9 -
Ramsey:
I understood him to say, sir, that a lot
of his people were living in trailers.
Knox:
They are. It is terribly overcrowded. Well,
here is a plant that has doubled in size in
the last year already with five or ten thou-
sand people.
H.M.Jr:
The thing he told Phil Young, if my memory
serves me right, he has got 10,000 employees
and he wants to go to 30,000 but he can't
do it on account of these certain situations
which really are largely up to the Navy.
Knox:
No, it is more than the Navy.
H.M.Jr:
They say you own the City.
Knox:
The Navy does own it.
H.M.Jr:
Yes, I think you pay 45% of the taxes.
Young:
Fifty-four.
Knox:
And we support the whole town. Well, I didn't
shed any tears over the municipal problem. I
had other problems to worry about. I am kind
of hard-boiled on these fellows who want to
live off the Government and then have the
Government provide the public utilities, too.
H.M.Jr:
Well anyway, during the day, could Philip
Young call up your office and find out from
your secretary when you can get Forrestal
and who is going? I am sending Philip Young,
too. He is going out to represent me.
Knox:
Good.
Purvis:
We will tie in accordingly.
Regraded Uclassified
10
- 10 -
Knox:
Do you want me to talk to Fleet, or do you
want to?
H.M.Jr:
No, I would much rather you would. I have
never met the gentleman.
Knox:
He is quite a boy. He will give you a sales
talk over the telephone.
Purvis:
I remember him sitting on the radiator in
my office in New York, getting closer and
closer and closer every second.
H.M.Jr:
Do you want to make use of this opportunity
to ask anything of the Secretary of the Navy?
Purvis:
The first thing I would like to make use of
the opportunity for is to express my very
real thanks for this. I know this is going
to be very welcome news to the Prime Minister.
I will cable it over. Thank you very much
indeed.
I don't think there is anything on the Navy
end at the moment, Mr. Secretary.
H.M.Jr:
I don't think you will be wasting your time.
Purvis:
It might be of interest to know that I was
going to say to you this morning, 8. merchant
shipping committee is on its way over. Mer-
chant ships are going to be a much bigger
problem than we thought, looking ahead, not
just now.
Knox:
Have you bought those old ships of ours?
Purvis:
We have bought a lot of old ships, but that
is only the immediate problem. The situation
in this regard we have to look to is a really
serious one about 18 months to two years from
now.
Regraded Uclassified
11
- 11 -
Knox:
Yes. Well, we are going to have another
thing there. We have got an awful lot of
auxiliary ships we have got to supply the
Navy with. It is going to take a lot of
these ships now being built for tankers
and transports and oil and ammunitions ships
and all kinds of facilities.
Purvis:
I have a cable just yesterday asking whether
help could be given now - the Admiralty has
an urgent need for fast tankers for special
Naval use. I suppose that is the very thing
you are talking about. I understand that
there are tankers wanted under the American
flag, but that the United States Government
paid the difference between their cost and
that of ordinary tankers and therefore has
hold on them for eventual Government require-
ments. Tankers required are generally of
the Cimarron class, Standard Oil, of 18
knots. Would you inquire as to the possi-
bility of the Government being willing to
release one or two of these tankers and
helping us to secure their use under reason-
able conditions?
Knox:
Has anybody ever made a study of the fleet
of tankers owned by the oil companies? Have
you, Phil?
Young:
No, I don't think anybody has, Mr. Secretary.
H.M.Jr:
I happen to have a personal friend in Pure Oil
and I know they have been building tankers
and very considerable fleets of them and they
are pretty fast ships and they won't build
with any aid from the Government, so they
have no strings on them.
Purvis:
I see. It is just one or two, apparently,
that are in question at this time that they
12
- 12 -
asked for. With whom could we discuss that
in greater detail?
Knox:
Where is your friend Saddler? He would know
all about that.
H.M.Jr:
He would, and Admiral Land would know.
Knox:
Yes, Jerry Land would know about it. Do you
know him?
Purvis:
No, I don't know him.
Knox:
You ought to meet him. He is a very swell
fellow.
H.M.Jr:
I think he would be the best man to talk with.
Knox:
Well, I will put you in touch with him. Is
that all on your mind, Henry?
H.M.Jr:
Yes, sir. Thank you very much. I am sorry
Mr. Fairey isn't here.
Purvis:
I apologize for that. I don't understand.
13
HM Jr was very pleased with
his accomplishment on getting
more bombers and PBY 5s for the
Br and said he considered this
an historical document
14
CONSOLIDATED AIRCRAFT 00.
:
PBY-5 Flying boat
B-24 Bomber
Month :
Scheduled deliveries
Scheduled deliveries
Total
: United States : British : British Gain
United States : British : British Gain
British Gain
October
0
o
X 0
a 3
3
3
November
6 3
1
4
3
X 2
Q 5
5
8
December
X
6
5
4
56
1+1
6 3
Q
3
3
4
January
10
9
X
10
/
X 4
Q
3
3
4
February
12
to
/2
2
x 4
x 5
4
6
March
12
12
x 4
x 7
4
4
April
12
N
12 13
-/ to
x 4
X //
4
3
May
26 21
15
20
+5
10
14
June
24 17
10
17
+ 7
10
16
94
6
26
32
Total
109 91
74
67
41
14
20
October 2, 1940.
15
October 2, 1940
9:30 a.m.
GROUP MEETING
Present: Mr. Heas
Mr. Graves
Mr. Thompson
Mr. Pehle
Mr. Foley
Mr. Chamberlain
Mr. Bell
Mr. Cox
Mr. Cochran
Mr. White
Mr. Young
Mrs. Klotz
H.M.Jr:
I haven't read everything you sent up, but I
did read this from Cochran. It has to do -
that the British Embassy has informed the
State Department that the British Government
18 negotiating with Soviet Russia to relinquieh
its blocked Baltic States funds as & concession
on the part of Great Britain to Russia in these
negotiations. Livesey told me the State Depart-
ment would not oppose such unblocking, but
desired to use the Treasury. If my memory
serves me right, it was the State Department
that asked us to move in in a hurry on those
three Baltic countries, didn't they?
Coohran:
We were in consultation with them, yes, sir,
and they have phoned me just a momènt ago, also
from the State Department and Jimmie Dunn said
he didn't see any reason for us standing against
this and that the British were pressing. They
wanted to cable to London today or tomorrow on
this.
H.M.Jr:
Well, you can tell Mr. Jimmie Dunn that I will
say nothing unless Mr. Hull either telephones
me or sends me a communication to let me know
qls
how he personally feels on this thing. I will
<
16
- 2 -
do nothing about it unless Mr. Hull personally
calls me up or sends me 8 written communi-
cation.
Cochran:
All right.
H.M.Jr:
Will you get that message to him?
Cochran:
Yes, sir.
H.M.Jr:
Because after all, if the British release the
situation, immediately the Russians can say,
"Well, why don't we do the same thing?" And
if we released the - if there 18 any place
where we are justified that they were under
duress, it is on those three Baltic countries,
I don't know of a better case. If you just
send that message back to Dunn, I won't -
the Treasury won't express any opinion unless
I hear verbally or in writing from Mr. Hull
how he feels on this. Okay?
Cochran:
Yes, sir.
H.M.Jr:
What do you think about it?
Chamberlain:
I think you are entirely right, Mr. Secretary.
Would this decision include in any way the
unblocking of private accounts or the turning
over of ships to the Russiane? We have had
several cases in which efforts were made by
the Russian Government to get hold of ships
of those countries. I think it is a ouestion
that would require more consideration.
H.M.Jr:
Well, I am sure that the State Department's
wisdom has looked at every angle of this
situation.
Chamberlain: I Am sure 80, too, but I would like to have
the result of their thought.
H.M.Jr:
That is what I want, and I want to make sure
that somebody has told Mr. Hull about it,
because if the English do this, then certainly
the Russians are going to ask us to do it and
Regraded Uclassified
17
- 3 -
if they ask us to do it, it doesn't leave
us a leg to stand on on the other countries.
Cochran:
You see, they came back to that long telegram
which the State Department sent with our
assistance insisting we were wrong.
H.M.Jr:
Who insisted we were wrong?
Cochran:
The Russian Government.
H.M.Jr:
And we did nothing on it?
Cochran:
No, we continued to sit tight.
H.M.Jr:
Do you disagree, Harry?
White:
No, I thoroughly agree.
H.M.Jr:
Bell?
Bell:
No, it 1s all right.
White:
I am just not sure whether the emphasis
should be on your hearing from Mr. Hull
personally or whether it should be 8 written
communication from the State Department. I
don't know whether there is a difference
between the two.
H.M.Jr:
Well, I will simply say I will do nothing
until I hear from Mr. Hull. I won't have
to say written or verbal. Until I hear from
Mr. Hull. Is that the point that you are
making?
White:
Well, it was the opposite I meant, until
you received something written from the
State Department I am not sure - but if you --
H.M.Jr:
I think just to hear from Mr. Hull is all
right.
Chamberlain: I think 80.
White:
I would emphasize the State Department and
you are emphasizing Hull. That was the only
difference.
18
- 4 -
M.M.Jr:
Well, I'm emphasizing Hull.
White:
Okay.
H.M.Jr:
Pehle, want to say anything?
Pehle:
No, I an entirely in agreement that we would
be in 8 much weaker position if the British
let it go. We would undoubtedly get intensified
demands from the Russians.
H.M.Jr:
I think you can say we don't want to express
en opinion until I hear from Mr. Hull.
Coohran:
I have the long legal opinion that the B.I.S.
got before they took the same position, which
they are maintaining.
H.M.Jr:
I see.
Norman?
Thompson:
I have nothing this morning.
H.M.Jr:
Bell?
Bell:
You recall that back in May, 1936, you sent
8 letter to the Federal Reserve Banks to be
distributed to the banking institutions and
others in the country in regard to subscriptions
to Government securities. We have been working
over that letter for some time, and got it now
to the point where the banks and the rest have
agreed upon it. I wonder if you would like to
take it and read it. There is no hurry about
sending it out. I would like to put it out
Just before the next issue.
H.M.Jr:
You do it.
Bell:
We are pretty well satisfied with it now.
We have got some things in it that I would
like to talk with you about at the time you
sign it.
H.M.Jr:
Okay.
Regraded Uclassified
19
- 5 -
Bell:
That is all I have.
H.M.Jr:
Harold?
Harry?
White:
There is a cable that you may have seen.
If not, I would suggest you read it. It
is from Heath on September 23rd.
H.M.Jr:
I didn't read it.
White:
I have only got a carbon. I will see that
you get the original of it.
Cochran:
He has it.
H.M.Jr:
Where?
Cochran:
In the group last night.
H.M.Jr:
Okay.
White:
There is also a cable from Rueff.
H.M.Jr:
From whom?
White:
Rueff. I don't know how to pronounce it.
Since the Germans occupied France, I am
having trouble with my French.
H.M.Jr:
A nice doggie.
White:
Well, this is quotes.
"The Bank of France, it was answered, would
be happy to do this provided American authorities
would approve the dollar transit."
This was interpreted by Rueff to mean that
the Germans have found or hoped to find e
way of getting around the United States
system of blocking currencies. They are
asking the Bank of France to do something,
so that they apparently are interested in
getting around the control.
20
- 6 -
You asked for something on Layton, and I
think that these memoranda will take care
of that.
H.M.Jr:
Thank you.
White:
The British have sent us a cable that Merle
may have told you about in which they are
going to give us many more figures of their
holdings, gold, et cetera, and the first 18
supposed to come in on the third of September
and we are going to get it twice a month,
all the figures that you asked for.
H.M.Jr:
Fine.
White:
Here 1s something on the - all the 011. Do
you want to leave it until you take it up
along with the Panamanian case?
H.M.Jr:
Yes. We will have another meeting on the
Panamanian case today. Supposing we say we
meet again on that thing at 3:30.
White:
Three thirty?
H.M.Jr:
Yes.
White:
I understand that the Chileans are pressing
for --
H.M.Jr:
You be here while they do it at 11:30 today.
White:
Then I will tell you now about the status of
the nitrate that you will have to tell them.
H.M.Jr:
Well, come in S. few minutes before. Come
in five minutes before.
White:
That is about Soviet gold production.
This 1s the first year's --
H.M.Jr:
What?
White:
Just 8 --
Regraded Uclassified
21
- 7 -
H.M.Jr:
Oh yes, this is the only copy I have. This
was sent up to the house last night. Oh,
I've got the wrong thing.
There was A memorandum came to the house
last night. This WRS given to me yesterday.
The point of it 1s - we will see if I can
find it - you get another copy, Phil, for
them today. Give it to Harry White this
morning. There are 150,000 tons, I think
that is what it amounts to, of scrap iron
down in Mexico which 1s going to Japan and
the English want to know if there isn't
something we can do about buying 1t. I
thought you might talk to Leon Henderson
about it.
White:
I will do that.
H.M.Jr:
You can tell him, BO 8.8 not to lose time -
the 150,000 figure is right in Mexico, which
they are afraid will go to Japan and would
the National Defense Council be interested
in it for the stock pile, you see.
White:
All right.
H.M.Jr:
Will you ask Leon?
White:
I will do that right away. There was a cable
came in stating that the men had left Argentine
en route to the United States after they stopped
at Brazil. I don't know whether that was prior
to the discussions or not.
H.M.Jr:
Well, supposing somebody, either you or Cochran,
find out whether they sent & cable yesterday.
White:
Well, we will let Cochran find out.
H.M.Jr:
Will you, Merle?
Cochran:
Yes, sir.
H.M.Jr:
Find out whether the State Department did send
a cable or any instructions that have to do
with the Argentine.
22
- OR -
Anything else?
White:
That is all.
Bell:
On that scrap iron, 18 anything being done
to stop these boats that are loading?
H.M,Jr:
Not & thing. I BAW & story in the New York
Times today on it, that they get a million
tons a year out of the Philippines, of
Eastern ore, the Japanese do, a million
tons a year.
White:
The public has interpreted that move as
imposing an embargo. They don't realize that
it merely requires licensing, which need not
necessarily be withheld.
H.M.Jr:
George?
Haas:
I have nothing except - do you want me to take
a few minutes out to tell you about that
development in connection with those airplane
statistics?
H.M.Jr:
Not now. Are you handling it all right?
Haas:
No, they are - you will probably hear from
them later on.
H.M.Jr:
What do they want to do, have the Treasury
get out of it?
Heas:
That 18 right, very briefly. The Air Corps
wants to handle it themselves and they are -
well, in a debate they brought up some things
which sort of indicate their motives. They
said the President gets one set of figures
and they have another set and he gete the
figures before theirs.
H.M.Jr:
The President gets some before theirs?
Hase:
That is right, and the Byrd mess, you know,
Senator Byrd, the story on that 1s the publicity
man on the Defense Council straightened that
out by using our figures.
23
- 9 -
H.M.Jr:
That is right. Well, it said 80 in the
paper.
Haas:
Yes, so - but you know, I can understand their
feeling about it.
H.M.Jr:
Well, who is worrying about it over there?
Haas:
I don't know how high up it goes. There are
some Colonels there.
H.M.Jr:
You tell them to sit tight, and when
Mr. Stimson wants to talk to me about it,
I am available.
Haas:
Mr. who?
H.M.Jr:
Mr. Patterson, either Mr. Stimson or Mr. Patterson.
When they want to talk to me about it - in the
meantime, we are going on Just as we are,
because the President does want to get the
figures.
Haas:
Well, I practically told them that. I didn't
use those names, but I told them if somebody
responsible wanted to make a proposition and
would guarantee delivery of B. figure satis-
factory to you --
H.M.Jr:
No, I 80 not going to give this up unless
Mr. Stimson says, or Patterson - unless they
ask me to give it up.
Haas:
That is what they are trying to do now, trying
to get a letter signed by the Secretaries of
War and Navy to you, and the timing of it
would be - you see, we get a report to you
Wednesday morning as of the figures of
Saturday. They said the best they could
do was - would be ten days after and on the
first and the 15th. That 18 the proposition
they are going to make.
H.M.Jr:
Let them stew. Anything else?
Haas:
That is all. I noticed in the morning paper
24
- 10 -
that Leonard Ayres is coming back to be
Chief Statistician in the War Department.
H.M.Jr:
Really?
Bell:
Called to active duty. He is a Colonel.
H.M.Jr:
To do statistics?
Bell:
He will be in charge of statistics in the
Assistant Secretary's office.
H.M.Jr:
Was he ever right in his life?
Bell:
Not very often, I don't believe. He has
been worse in the last five years. He 1s
getting old.
Haas:
I will just let that go, then.
H.M.Jr:
Yes, just say you won't discuss it.
Haas:
Yes.
Pehle:
I have nothing now, Will you be able to see
Professor Chamberlain and me later on?
H.M.Jr:
You are down for three o'clock this afternoon.
Chamberlain: Yes.
H.M.Jr:
That 1s a standing appointment. Anybody
else that you went to bring in with you?
Pehle:
I have nothing else.
H.M.Jr:
Philip?
Young:
Nothing.
Schwarz:
I understand from Harry that what Edgar Mowrer
would like to talk about is the aviation
picture, aircraft. He 1s going to do a book.
White:
If he was talking to you about what he was
talking to me about.
25
- 11 -
H.M.Jr:
I don't want to talk to him about it.
Schwarz:
He has asked you for tomorrow afternoon. He
1s out of town today.
H.M.Jr:
Edgar Mowrer?
Schwarz:
Yes.
H.M.Jr:
Three o'clock tomorrow.
Schwarz:
Tomorrow?
H.M.Jr:
Yes. What else?
Schwarz:
That is all.
H.M.Jr:
Professor Chamberlain?
Chamberlain:
I haven't anything.
H.M.Jr:
Do they give you & place to sit when you are
here?
Chamberlain:
Oh yes, I am pretty well taken care of,
Mr. Secretary. I talked that over with
Mr. Thompson.
H.M.Jr:
That is good. See you at three, then.
Chamberlain:
Yes.
Cochran:
Mr. Stopford gave me a memorandum yesterday
which I am circulating this morning and giving
to Customs also. He said there is a shipment
of 500 French paintings and drawings which
would be in on the Excalibur. We had a report
before that there were two New York firms
negotiating with Germans for works of art
from France.
White:
Are they going to sell them here?
Cochran:
Evidently they were purchased by New Yorkers.
H.M.Jr:
That is nice. What else?
26
- 12 -
Cochran:
That 1s all.
White:
That will raise the question of blocking the
proceeds, won't it?
Cochran:
Yes.
Bell:
Does the Secretary know that the French
approved that Argentine --
H.M.Jr:
Last night. Does the Argentinian Ambassador
know that?
Cochran:
I haven't told him. If you wish, I will
tell him.
H.M.Jr:
Oh, sure, I would tell him. Did he come
through with his information, Pehle?
Pehle:
Yes, he did, sir.
Cochran:
Alphand is coming down, as you might know.
He wanted to see Mr. Bell.
H.M.Jr:
Yes, Alphand and the Ambassador. Ten fifteen
on Friday. You can be here and translate.
Cochran:
Fortunately, he speaks English pretty well.
H.M.Jr:
I still say you can be here and translate.
What else?
Cochran:
That 1s all, sir.
Bell:
Do I have to Bee him if he 18 going to see
the Secretary?
H.M.Jr:
Are you seeing the Ambassador, too?
Bell:
No, I am seeing the Financial Attache. I
don't know what for.
H.M.Jr:
He thinks you are easier.
Bell:
He has got me after he BeeB you, then.
H.M.Jr:
Ed, have you got the tax bill written up
for the President?
Regraded Uclassified
27
-13 -
Foley:
I am working on it.
H.M.Jr:
Factual?
Foley:
Factual.
H.M.Jr:
Good. What else?
Foley:
I spoke to Sam Klaus about this Scalise case
yesterday. It isn't in John Cahill's district.
It is in the Eastern district, over in Brooklyn,
Kennedy's district. He has already sent a man
up there with the case with instructions
to present it to the Grand Jury Just 8.8 early
this morning as it 1s possible to do it.
H.M.Jr:
Is Kennedy the fellow who made the case against
Murder, Inc.?
Foley:
I don't know.
H.M.Jr:
I think he is.
Foley:
He 18 a new man, appointed by this Administration,
in the last year.
H.M.Jr:
If he is the man who has made that case, he 1s
good.
Schwarz:
That was O'Dwyer, former policeman who studied
law and worked his way up.
H.M.Jr:
I see. He must be good.
Graves:
O'Dwyer?
H.M.Jr:
Yes.
Graves:
He has certainly gone to town on Murder, Inc.
H.M.Jr:
Anything else?
Foley:
Tietjens was coming down to have lunch with us
and if you could see him --
H.M.Jr:
Right after lunch.
28
- 14 -
Foley:
I think it would be very nice.
Here 18 a little note I meant to show you
that I got from Nelson Rockefeller about
not being able to come over that day and
hoping you could give him some other time
to come.
H.M.Jr:
Well, I could do it tomorrow.
Foley:
All right. Lunch tomorrow?
H.M.Jr:
Yes. Will you please let Mrs. Klotz know?
Foley:
I will call him up.
H.M.Jr:
And let Dr. White know.
Foley:
Yes, sir.
H.M.Jr:
What else?
Foley:
I have nothing else.
H.M.Jr:
Okay, gents.
29
October 2, 1940
Present:
Standardization
Mr. Foley
Mr. Young
Mr. Buckley
Mrs. Klotz
HM,Jr: The purpose of this meeting is this:
This is mostly directed at you (Foley). It will take
me a couple of minutes.
I have had a theory, or hobby, or idea, whatever
you want to callit, that if the Army and Navy and the
English will show that we want one model and give people
enough orders that they can look ahead a year, that they
can turn these things out in pretty good order -- airplanes -
and it has been demonstrated in Buffalo that they can do it
because in Buffalo they are going to turn out the first 10
Curtiss P-40 pursuit planes per day when they get them-
selves straightened around. Cost them $190,000, changes,
on the $6,200,000 investment.
In this thing I have been able to do this week --
it has taken a long long time -- with the Consolidated
Aircraft, of which Major Fleet is the head, the Army, on
the four-engine bombers, are giving away 26 80 that the
English will get them sooner and they both have orders --
the English and the Army -- for 4-engine bombers. May be
slight differences. We also have gotten the Army to re-
lease the Sperry bomb sight, 40-odd of which they have on
the shelf; are not using it.
Mr. Foley: The Army has them, or Sperry?
HM,Jr: Army. Which are going to go into these
particular bombers. Now, Consolidated also makes a fly-
1ng boat which the English and the Navy have on order and
on that, from now on, each one gets one as they come off
the line.
30
-2-
Now, I would like to go out there myself and
see the thing, but I can't do it and I think you can
see more on the ground than any other way. Colonel
Knox was here this morning and he is sending Forrestal
himself there, at my request, and the English are going
to send Fairey, who has been in the airplane business
for 28 years and 1s here now in charge of airplanes, and
Phil can't go because he does not fly, 80 I am going to
send Buckley and I am going to ask you (Foley) to go, in
the first place because I think it's fun and, second, I
want to be re resented as much as I can personally and
the place where you (Foley) would come in, where you can
supply the brains, their problems, as I get it, are munici-
pal. They need water works, sewage and they need housing.
Mr. Buckley: The City of San Diego.
HM,Jr: 54% of the city is owned or controlled by
the Navy. As a side line -- and before you go you can
post yourself -- they want training schools and the man
who can give you that is our mutual friend, labor statis-
tics, Lubin. He can get it for you. To bring you up
to date, all the mix-up is between Madame Perkins and
Studebaker and the labor leader who 18 on the National
Defense, Hillman, all that rigamarole.
With your past experience, not 8.8 an attorney, but
from what you have known since you have been here -- Knox
said, "I have heard all this. It went in one ear and out
the other". This naval officer spoke up and said, "Well,
Mr. Secretary, these people are living in trailers." "Oh,"
Knox said, "that Fleet 1s a b1g talker, a big mouth." These
things which he has asked for are reasonable things and you,
Ed, knowing -- well, maybe we can get PWA or NPA ....
Mr. Foley: U.S.H.A., combination of both.
HM,Jr: A combination. I begged on my knees for
the National Defense to do this kind of thing and I can't
get them interested. I cannot get Knudsen interested, so,
by God!, I am going to do it. What they should do 1s do
this for each plant, but this thing, particularly the thing
they are asking for, are public works things which you (Foley)
know and, if the girls don't mind, It's God damned nonsense
31
-3-
that some body does not do this. We did do it in Buffalo,
a besutiful Job, but it wasn't a municipal thing.
Mr. Buckley: This has been studied by FHA. We
can check on that.
HM,Jr: But nobody does anything!
Mr. Buckley: They have a plan.
HM,Jr: But if Mr. Foley goes out and sees the
water end, the sewage end, the housing end, with his ex-
perience he can come back and give me a report and we can
Just turn this thing inside out 80 they give this fellow --
and he says given these things he can go from 10,000 to
30,000 employees. It's all very nice to talk about they
have let $7,000,000,000 in contracts, but every contract
they place on the other one delays the present contract
and nobody has tried to find out how to get more production
between now and next spring when this war will at least be
fought if not settled and he makes the thing that Churchill
wants more than anything else. They are making the four-
engine bomber and long distance flying boat. That's what
he wants and this fellow has got it and I want to increase
his production by 50%, not a year from now, but now. And
where he's being slowed up through models being different
either the Army or Navy and English will have to give way.
Just to show you what I have done, the Army put up
this big fight for Boeing flying fortresses. 0. K. Be-
cause they are no good and they can keep them, we are giving
them 120 engines. But this is the b1g fight Stimson made.
But in return for that, we get Consolidated which are marvel-
ous. These boys are doing the fighting. It's like with
the tank -- the English have certain things which they know
stand up under fire. We ought to adopt them. And out of
that, what I envisage coming off the line is one flying
boat which 1s the best in the world and one four-engine
bomber, which 18 the best in the world, that they can grind
out in three months, but make one a day of each of these
things. Half of the production, it has been agreed, half
of the production goes to the English and half to the Army.
That work has all been done.
I am not asking you to do something out of your line.
I am only asking you to do something that you have lived
Regraded Uclassified
-4-
with here for 8 years and the thing that Buckley and
Young don't know anything about, but Buckley will go
with you.
Mr. Foley: When do we go?
HM,Jr: That's the spirit! But you get the
1dea, Ed?
Mr. Foley: Yes.
HM,Jr: And this thing of Knox who does not -- in
this thing FHA has a plan. Straus told me that he has
$100,000,000 that he can start and have houses finished
in 4-1/2 months. Then I hear from somebody else that
Carmody says its illegal. Palmer is doing something else.
If they won't do it, you come bome and if the President
lets me I will just tell the story right out in the papers
and we will blow these fellows out of the ocean.
But I want it just the way We got it up in Buffalo.
I want two machines coming out of there click, click, click.
And if this fellow -- they say he has not produced. He has
built more flying boats than all the rest of the United States
put together and there will be enough technical fellows along
so they will know what's what and, I say, both Forrestal and
whoever is his best technical man, and Fairey will be going
so you will have enough technical men.
Mr, Foley: Forrestal 18 away.
HM,Jr: He's being ordered from Florida out there.
Do you get the picture?
Mr. Foley: Yes.
Mr. Young: Why not cover the other West Coast
plants while you are out there?
HM,Jr: No, I can't spare Foley. He's too valu-
able, but if I can sit back and say, "Mr. President, wé
have done Curtiss. We helped Curtiss. We have done
this thing. Here's another one. Please, this 18 not
Regraded Uclassified
33
-5-
Treasury business. Won't you get somebody, somewhere
in the United States, to keep doing that?"
The reason I don't want to do Douglas 1s there
is a big row on. You heard Patterson has written a
show cause letter to Douglas why he shouldn't cancel
contracts, and BO on. I don't want you (Foley) to get
mixed up on that.
Mr. Young: He has done the same thing on Lockheed.
HM,Jr: I am not putting you into anything, as
you know by now, but what 1s O. K., but I would not want
you to get into that mix-up. But this is purely a munici-
pal problem and Phil has a memo on it. It's a training
program and this fellow says, "I can't spend all my time
in Washington running from one damn Bureau to another
trying to get these people to do 1t. It's outrageous."
Now, we will have to go out there and help him and there
is the Council of National Defense -- I can do this be-
cause these two things are stuck and I can make a monkey
out of the Council in a very nice way and then come back
and say, "We can do this thing, but why don't you do it?"
Another reason this 1s a break, I feel that Knox
will 60 to town much more than the Army or Navy will, and
Forrestal and you get along well. So the whole set-up --
I have been thinking about this overnight and all day --
this is an ideal thing to make another thing -- and this
happens to be the two things that Churchhill says he wants
more than anything else and if you do it for Fleet this
will spread like wildfire. There 1s no more gossipy
crowd than the airplane people and they will come in and
say "Can't you do it for us?"
Mr. Young: Or a more gossipy fellow than Fleet.
HM,Jr: That's all right.
Mr. Foley: When do we got
HM,Jr: It would not be until Friday. You might
be looking into who is Mayor of San Diego.
34
-6-
Mr. Foley: I know that crowd. I have been
out there. I don't know whether they are still in
power. Byers used to be the Corporation Counsel.
HM,Jr: And check around town are there any
plans lying around, etc., in FHA and the various things.
It's a little change.
Mr. Foley: Sure! I would love it.
HM,Jr: I may end up by going myself.
Mr. Buckley: Along the same line, I understand
Palmer did not know about this problem until he was told
about it by FHA.
HM,Jr: Bill Bullitt's favorite expression 1s --
again pardon me ladies -- "it makes me vomit". It does.
If I could do this thing and go out there myself, take the
time to stay with one plant after another, but all these
people are so busy with all their satellites that they Just
haven't got the time to hit and cut through this thing and
and get it. We have permission to do this thing. O. K.
Me will help this fellow Fleet produce on the things which
are possible to get more employees.
Mr. Foley: Any problem insofar as financing his
plant expansion?
HM,Jr: I don't know about that. There does not
seem to be.
Mr. Young: It's primarily a municipal problem.
He has four municipal problems.
The Navy has 54% of the
city which leaves it impossible for the other 46% to pay
the taxation.
Mr. Foley: That is a PWA airport out there and
he leased the land from the city for a long time for a
nominal fee.
HM.Jr: I think this fellow has a grievance and
I think he has a good alibi.
Regraded Uclassified
35
-7-
0
Mr. Young: Perfectly possible that Ed and the
others will want to talk to Ryan who is the other manu-
facturer in San Diego.
HM,Jr: That's something different, but I don't
want him to get into the Lockheed-Douglas situation.
And if you want a letter to Joe Schenck while
you are out there or Shirley Temple
.....
(Laughter.)
o0o-o0o
October 2, 1940.
36
Memorandum of Meeting in the Secretary's Office,
Wednesday morning, October 2, at 11:15,
regarding the work of the Division of Personnel.
Present: The Secretary
Mr. Thompson
Mr. Graves
The Secretary expressed himself as concerned about the
activities of the Division of Personnel. He called atten-
tion to the fact that he had not personally approved the ap-
pointment of Mr. Ballinger as Director of Personnel, and in-
dicated that he had misgivings about Mr. Ballinger's qualifi-
cations for the work.
He indicated further that he doubted whether Mr.
Ballinger's assistants were properly qualified for their
duties.
He instructed Mr. Graves to make a thorough investiga-
tion of these matters and to report to him concerning the
qualifications of Mr. Ballinger and his assistants.
He specifically instructed that this inquiry should in-
clude, among other things, an exploration of the income tax
history of the persons involved.
At Mr. Graves's suggestion, he directed also that Mr.
Graves should formulate and submit a statement completely
and accurately defining the duties, responsibilities, and
authority which should properly devolve upon, and be exer-
cised by, the Personnel Division.
37
Meeting in the Secretary's Office, October 2, 1940, 11:30 c.m.
Present: Secretary Morgenthau
The Minister from Chile, Mr. Schnake
Mr. Maschje (interpreter)
Mr. Gamitua
Mr. White
The Minister, through his interpreter Mr. Maschje, stated that
he came to inquire what was the status of the consideration which
was being given by the Treasury on economic assistance to Chile. He
stated that they had submitted all memoranda and data which the
Treasury had asked for and had also given copies of the material to
the State Department.
The Secretary replied that an analysis of the very excellent
memoranda and comprehensive material which was submitted indicated
that other measures to be taken by other branches of the government
would be necessary before the Treasury could give further considera-
tion to the problem. Chile's need was for increasing her exports and
he suggested that the State Department and the Export-Import Bank
were the appropriate agencies to see to help them with that problem.
The State Department might be able to help them get the Council of
Defense to consider nitrate purchases for a stock pile and they should
talk with Mr. Jones to see if the Export-Import Bank might be able to
make a loan of a character similar to that which was advanced to
Brazil last year. The Secretary went on to state that the Treasury's
Stabilization Fund was not for the purpose of making loans but rather
for the purpose of helping to stabilize currencies.
The Secretary said that in a conversation with Mr. Jones the matter
of Chile had come up and Mr. Jones said that he didn't know very much
about the Chilean situation. The Minister replied that before Mr. Pierson
had left they had spent some time going over the situation and that he
had taken him to Mr. Jones and they had discussed the problem with him.
But that they had assumed that the Export-Import Bank confined itself
to productive long-term loans and that the Treasury was the place to go
for the consideration of providing foreign exchange to meet short term
difficulties.
The Minister explained that the export situation is getting steadily
worse and that they were in need of foreign exchange to maintain their
imports. The Secretary assured the Minister that he was still interested
in Chile and would be glad to see them after they had made what arrange-
ments they could with the Export-Import Bank and the State Department.
The Minister thanked him and said that he would get in touch with
Mr. Jones and the State Department.
38
HSM
PLAIN
London
Dated October 2, 1940
Rec'd 2 P. m.
Secretary of State,
Washington.
3290, October 2.
FOR TREASURY FROM BUTTERWORTH.
The Exchequer returns for the first half of the
fiscal year show revenue at L452.5 million, an increase
of 6114 million on the corresponding period of last
year and Expenditure at 61,610.1 million, an increase
of L1,048 million. The deficit of E1,157.6 million
is a little more than half the deficit for the full
year as estimated at L2,107 million in the July supple-
mentary budget but taxation will yiEld considerably
heavier totals in the second half year because direct
tax collections come in heavily towards the End of the
year, and because the higher direct tax rates imposed
in the July budget will then bE more evident. HOWEVER,
Expenditure will doubtless also increase.
The total Expenditure of 61,610.1 million was
financed as follows: L452.5 million or 28 percent from
revenue;
Regraded
39
ham -2- No. 3290, October 2, from London
Fl SB
revenue; L421.6 million or 26 percent from savings
certificates, baby bonds and on-tap war bonds; 5203
million from 3 percent war loan, while LA05.7 million
of 4-1/2 percent conversion loan was repaid and doubt=
less largely reinvested in the other securities mentioned
above: the total net from savings and public loans was
520.6 million or 32 percent of total expenditure. The
remainder was financed by an increase in the floating
debt of 6647.1 million or 40 percent of expenditure.
The proportion of the weekly expenditure being
financed by the floating debt is increasing, while total
savings are decreasing, a trend which is giving rise to
official Efforts to increase the weekly savings rate
that dropped from a weekly average in August of 617
million to 614 million in September. For Example,
following Stamp's speech reported in my No. 3230 of
September 26, Crookshank, Parliamentary Secretary of the
Treasury, in a speech on September 30 said that "not
until WE are saving at the rate of 540 million a week,
shall WE bE on a really good wicket". Such a figure
is obviously a desirable goal not only from the budget-
ary point of view but as a check on consumption spending.
KENNEDY
TFV
40
PARAPHRASE
No. 459, October 2, 6 p.m. from Buenos Aires
Last night the Minister of Finance inquired whether
Mr. Pierson could assure him that the Government of the
United States has no present intention of lowering the
price of gold. This might be of interest to the
Secretary of the Treasury. In reply Mr. Pierson said
that he had no official information regarding the sub-
ject but gave as his personal opinion that such action
was not likely.
It is possible that the real explanation for recent
shipments of gold from Argentina to the Federal Reserve
Bank which have up to the present amounted to some
$26,000,000 is to have it readily available for conver-
sion into dollars. It may be recalled in this connection
that the Central Bank's General Manager told Mr. Pierson
that their present plans called for shipment to the
United States of 230,000,000 pesos of gold prior to the
end of 1940.
RA:AED
eb
COPY
41
PARAPHRASE
No. 460, October 2, 8 p.m. from Buenos Aires
Mr. Pierson informed the Minister of Finance last
night. who showed great disappointment, that he was not
yet in a position to present definite proposals regard-
ing lar exchange credits and other economic coopera-
tion matters. The Minister appeared relieved when he was
:
told that within a few days a decision would be forth-
coming.
An offer of additional credits in any sum of less
than $50,000.000 will accomplish little in Mr. Pierson's
opinion and he believes that prompt action with reference
to purchases should be taken, and that there should be
no delay in this connection in the case of Argentina.
TUCK
LO WE
190 VOLICIVAL
INE
RA:AED
V Mrs 05
eh
COPY
BECEINED
42
HSM
PLAIN
Stockholm
Dated October 2. 1940
Rec'd 5:40 a.m., 3rd
Secretary of State,
Washington.
938, Second.
Retail prices coal coke increased October first by
approximately coke 24% coal 11-1/2% this will up rentals
all of which have fuel cost clause. Tallow and lard
probably rationed soon. Final regulation lubricant
trade effective September 29 licenses all luboils, fats,
regulates retail sales, expropriates all stocks waste
oil. All stocks binder twine over 25 kilos expropriated,
Riksbank September 30 million crowns metallic reserve
638 foreign exchange 753 loans discount 709 note circula-
tion 1470. Inform Commerce, Agriculture, Treasury.
STERLING
TRAT
RR
eh
COPY
43
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE October 2, 1940
Secretary Morgenthau
ROM Mr. Cochran
Mr. McKeon called and stated that the following amounts were transferred to
he account of the Swiss National Bank with the Federal today.
Amount Received
From
$3,000,000
Guaranty Trust Company
3,000,000
Swiss Bank Corporation, N. Y.
2,000,000
National City Bank
1,000,000
Chase National Bank
1,000,000
Credit Suisse, N. Y.
$10,000,000 Total
All of these payments were transferred from the banks indicated by order of the
vies National Bank.
Including these transfers there has now been & total of $28,000,000 transferred
$0 the Swiss account at the Federal during the last few days.
BMP.
44
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE October 2, 1940
Secretary Morgenthau
TO
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
In accordance with instructions given me by the Secretary at this morning's
Staff meeting, I telephoned Mr. Collado in the State Department at 10:15, finding
Mr. Collado in Assistant Secretary Grady's office. I told Mr. Collado that ve had
noted from our Embassy cablegrams from Buenos Aires, dated prior to the date of
the telephone conversation between Mr. Duggan and Mr. Pierson, that Mr. Predisch
had fixed his definite itinerary and schedule for proceeding to the United States.
via Rio de Janeiro, accompanied by Mr. Grumbach. I asked Collado just what the
exact situation is now, and particularly as to whether the State Department sent
any message to our Embassy in Buenos Aires or to Mr. Pierson following the con-
ference held in the Treasury Department yesterday, in which Messrs. Grady and Berle
participated.
Mr. Collado stated that no formal message had been sent yesterday to Buenos Aires.
Mr. Pierson had telephoned Mr. Duggan twice and they had talked briefly. Mr. Duggan
ad. told Pierson that nothing had been decided.
Mr. Collado said that there was still uncertainty as to whether the Argentine
visitors would come on to Washington. The State Department has been in touch with
Ambassador Espil end the future plans are still vague. Collado renewed the argument
which he had made to me earlier in the week, namely, that the Treasury Department
should be in on the Argentine business, this being, in his opinion, a casefor a
utilization of the Stabilization Fund rather than Export-Import Bank money. I told
Collado that there was nothing I could add to the conversation on this point held
yesterday between Secretary Morgenthau and the two State Department officials, I
stated that our interest was in knowing what had been sent to Buenos Aires following
that conversation. Mr. Collado thought that the State Department was in touch, or
would be in touch with Mr. Jones, and that we would hear from the State Department
further in regard to possible converentions between the State, Treasury and Mr. Jones.
At 10:30 this morning I telephoned Ambassador Espil of Argentina to let him
know that the Bank of France official in New York had received the necessary instruc-
tions and that the transfer of $3,751,000 from the account of the Bank of France with
the Federal Reserve Bank to the account of the Bank of Argentina with the Federal had
been made yesterday. He was delighted to have this information. The Ambassador then
immediately reised the question of the Argentine visit to the United States on
financial matters. I told him that we had been in touch with the State Department
officials and that he should look to then for B. clarification of the situation.
N.M.P.
TREASURY DEPARTMENT
45
INTER OFFICE COMMUNICATION
DATE October 2, 1940
Mr. Cochran The Secretary
TO
FROM Mr. Hawkey
Subject: Current Gold Movement from Argentina to this Country
A steady inflow of gold from Argentina has been taking place since September 3:
the gold has been shipped by The Central Bank of the Argentine Republic to the Federal
Reserve Bank of New York. The approximate value of the gold already arrived and still
in transit is as follows:
1. Arrivals between September 3 and October 1
$17,750,000
(All of this gold vas sold to the U.S. Assay Office.)
2. Still in transit
$28,250,000
(of this amount, $11,750,000 1s for sale to the
U. S. Assay Office; disposition of the balance of
$16,500,000 is still unknown.)
Total for current movement
$46,000,000
Most of the proceeds received from the gold already imported and sold have
apparently been used to meet Argentina's current requirements here. That country's
official and private short-term balances in New York rose only $5,000,000 between
August 28 and September 25, as against a gold inflow of $13,000,000 in the same period.
The Argentine gold account at the Federal experienced no change in the interval.
73ms
PH
46
October 2, 1940
Under Secretary Boll
Mr. Cochrem
STRICTLY CONFIDENTIAL
Mr. Mikkela, Secretary of the Legation of Finland, called ea m yesterday in
regard to & transfer of funds matter. Incidentally, he stated that his Legation had
recently written to Helsinki in regard to a conversation had by the Legation with Mr.
Livesey in the State Department concerning the Vandenberg resolution on payment of the
debt oved the United States W the Republic of Finland. Mr. Livesey evidently desired
to know what the present attitude of the Finnish Government was toward this resolution.
To assist in their study of the matter, Mr. Mikkola asked if we could let his know
Aother the Treasury Department considered the reselution still applicable to the
installment which the Finnish Government has already paid is June of this year.
Juil
HMC:dm:10.2.40
Regraded Uclassified
47
October 2, 1940
Mr. Pehlo
Mr. Cochran
While is the Centrol devep Meeting this afternoon Mr. Lathringer, Assistant
to Dr. Feis, telephoned m. 1a stated that the inquiry which I had passed to Dr. Feis,
seeking State Department views on as application for the transfer of dollars out of the
Russian State Bank account with the Chase Bank in Nov York to pay for rubber to be
shipped from Indo China to Vladivesteck, had been circulated and that the decision we
that the State Department does not desire to express any opinion in the premises. I
told Mr. Luthringer that ve had submitted this case to the State Department since we
thought 10 had political angles in which the State Department might be interested.
AMP
HMC:dm:10.2.40
48
G-2/2657-220
RESTRICTED
M.I.D., W.D.
October 2, 1940.
No. 209
SITUATION REPORT
12:00 M.
This military situation report is issued by the Military
Intelligence Division, General Staff. In view of the occasional
inclusion of political information and of opinion it is classified
as Restricted.
I. European Theater of War.
1, No ground operations.
2. Air Force Operations.
The British admitted heavy German raids at scattered
points all over Great Britain during daylight of the lst, and last
night. According to the German communique points attacked inclu-
ded port facilities at London, Liverpool and elsewhere, and indus-
trial plants in the Midlands.
British night operations were directed against the
Channel ports, Berlin and numerous communications centers in west-
ern Germany.
II. Mediterranean and African Theaters of War.
1. No ground operations reported.
2. The R.A.F. raided Italian communications along the
Mediterranean, notably Tobruk. Massawa and Berbera in East Africa
were also bombed. The Italians claim to have raided the seaplane
base at Aden and to have bombed two cruisers in the eastern Medi-
terranean.
RESTRICTED
49
Paraphrase of Code Rediagram
Received at the War Department
at 12:49 p.m. October 2, 1960.
CONFIDENTIAL
London, filed 22:05, October 2, 1940.
1. During daylight hours of Tuesday, October 208, six Bristel
Blemheim benbers made a reutine sweep over the North sen. During
that night the Benber Commend disputched 88 benbere against German
and French synthetic oil plants, reilreed yards, barges, and other
shipping. Two benbare were last and one erashed en lending.
20 German daylight attacks an the 1st were directed against
London, Biggin Hill, - Maidstone and Kenley. A single plane
mashine guaned and bonbed the Grayden airport but - reashed
London. Several flights by small mubers of German
planes were made over the eastern, northern, and southern coasts.
About 450 planes operated during the day. German activities during
the night that followed were - a reduced seals but over & wide area
that included Liverpool, Manshester, South Walse, the West Midismis,
Leicester and London.
3. Considerable damage was dene to buildings and to airplanes
were burned in an attack on a Reyal Mr Force station but the field
is still servicesble. There were - damages to the plants of the
Sussex Rubber Company and the Standard Motor Company in Acten. In
the Landon seven reilroad lines and small stations were
temperarily blocked. In London proper there were serious damages
to the electric station st Wandeworth, a warehouse in Woolad.ch,
CONFIDENTIAL
Regraded Uclassified
50
CONFIDENTIAL
& reilread at Hampstead, and to the Grand Union Camel. In addition,
there were industrial damages to the Tulse Hill Tumal, the desks in
Birtmhead, the Ando-Ansriem 012 Company at Purflest and & telephone
I
40 German plane losses were four confirmed, one probable
and five damaged. The British lest five planes and four pilots.
5. The sinking of & 14,000-ten merchant vessel by a terpodo
was reported.
6. There is no increased ovidence of a invesion.
LEE
Distribution:
Military Aide to the President
Secretary of Yes
State Department
Secretary of Treasury
sust. Secretary of War
Chief of Staff
War Plans Division
Office of Navel Intelligence
CONFIDENTIAL
Regraded Uclassified
51
BRITISH EMBASSY,
WASHINGTON, D.C.
Personal and Secret
October 2nd, 1940.
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a copy
of the latest report received from
London on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.
52
Telegram from London dated September 30th 1940,
1. Naval.
H.M.S. "Resolution" which was
damaged by torpedo during operations off Daker
has errived in port.
During the night of September 89th
+
30th 8 British unit with two destroyers in
company bombarded the Calais area.
On the evening of September 28th
6 navel aircraft were attacked by Curtiss
fighters off Deker. 3 of them are missing.
During the 29th three separate
attacks on U-Boats were carried out by our
aireraft but no definite results were obtained.
2. Royal Air Force.
During the night of the 28th - 89th
unfavourable weather prevented most of our
machines reaching
......
targets but 8 dropped
bombs near transformer station and 6. reilway
station. The remaining aircreft attacked
roilway targets and Wilhelmsheven navel base
where fires and explaions were caused.
A
highly successful attack W&B made on nickel
works near Frankfurt. Tremendous fires were
caused/
Regraded Uclassified
53
- 2 -
83
caused and the whole target area was net alight.
The attocks on shipping were difficult to observe
but 10 10 thought that 2 hits were soored on a
merchant ship at Le Havro and fires were started
in docks. Five large fires were also caused at
Larient.
Night of September 29th - - 30th.
115 sireraft were sent to the following
objectives:
Shipping in Channel ports. Bitterfeld
stuminium Works, synthetic oil plant at
Magdeburg, Boooh factory at Stuttgart. reilway
targets in north west Germany and gun employements
opposite Dover. Five airoreft were also sent to
lay mines. Three heavy bombers are missing.
3. Germen Ar Force.
Daylight September 28th.
German bomber formations mentioned in the
summary of the 29th were escorted by fighters in
the everage of about 5 to 1 and, although raids
were unaucoessful, the enemy sustained considerably
fever losses than usual.
Might September 20th - 19th,
Cosumlties in London area appear to have
been below the average, being about 40 killed and
100 injured; at Barnet hospital one nurse and 17
patients were killed end two nurses sariously
wounder. In a southern and south vest district
of the suburbs of London damage to mter mains is
seasing & temporary shortage of water in the areas.
Daylight/
Regraded Uclassified
54
- 3 -
Daylight 29th. During the morning
and afternoon enemy activity was limited to
bomber reconneissances, chiefly by single circraft
one of which was shot down by an infentry Lewis
gun. Lowestoft Harbour was bombed and some
damage to property and cosualties were caused.
Other minor bombing was reported from East
Anglia, Hent and Sussex. About 4.30 an enemy
formation of about 100 airoreft crossed the south
coast. All appeared to be fighters and were
flying at a great height.
The formation split up part flying
towards central London and others as far as
Reading before turning back.
Night of September 29th - 30th. From
8 p.m. onward enemy raiders operated throughout the
night chiefly in the London eree, though consider-
able activity also took place In south and south
east England, south Weles and Liverpool. The
seale of the attack on the London area Was the
Blue as usual, although bombing wes alightly
Less intense end there were fewer fires. The
principal damage occurred at leton where the
reilway, on aero-engine factory and another
factory engaged in aircraft work were amongst
industrial/
Regraded Uclassified
55
- 4 -
industrial targets hit.
A
serious fire was also caused in the City.
Outside London large fires, some of which were
still burning this morning, were caused in Liver-
pool dooks but the position is improving and little
damage is reported outside the dook area where
casualties were few. Numerous incidents of minor
bombing are reported from various parts of the
country. Damage was slight and casualties were
small.
4. Summary of Air Casualties.
Destroyed. Probable. Damaged.
Enemy:
By our fighters:
Bonbers
2
1
1
Fighters
1
2
1
By Lewis Gun:
1(bomber)--
-
:
By anti-siroraft:
2(unidentified)
:
night 28th - 29th
night 29th - 30th
1(bomber)--
-
Totals:
9
3
2
British: 5 sircraft ( E pilots safe) 3 bombers
missing.
5. Shipping Cosunities.
One British ship (5,300 tons) homeward bound
in convoy was attacked by aircraft and sunk off the
east Secttish coast on 28th.
A convoy of 14 British ships has safely arrived
in home waters; corges included oil. meet and whest
Regraded Uclassified
56
BRITISH EMBASSY,
WASHINGTON, D.C.
October 2nd, 1940.
Personal and Secret.
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a copy
of the latest report received from London
on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Ldaran
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.C.
57
Telegram from London, dated October 1st, 1940,
1. Noval.
September 30th His Mo jesty's Australian ship
STUART in cooperation with flying boat sunk Itelian
submarine off Alexandria.
Coastel battery at GRIO NEZ shelled Dover
morning of September 30th. one civilian killed end
seven wounded.
2. B.A.E.
In spite of unfavourable weather conditions
successful sttacks were carried out OR the night of
september 29th - 30th on six railway mershalling yards,
oil plant at MAGDEBURG, BOSCH factory and gas works at
stuttgart, oil refinery at HANOVER, power station near
ANTWERP, sircraft factory at AMSTERDAM, nine acrodromes
in Germany and Holland and the Channel ports. The crew
of one of the bombere reported missing, now safe.
September 30th 2 enemy flying boats were shot
duwn off northeast scotlend and one JU.88 off LINGOLE-
SHIRS const.
During the night of September soth - October 1st,
182 circreft attacked shipping and docks in the Channel
ports, aerodrome at Berlin and anroholling yards and a
synthetic oil plant in Generally. Results not get move.
Five bombers not yet returned.
30/
Regraded Uclassified
58
+
3. Genian Air Force.
Night of September 29th -
Fewer fires caused than usual in London.
Bad temporary damage to railways and public utilities.
Unexploded bomb fell in ST. PAUL'S Churchyard but has
been disposed of without damage to the Cathedral. Damage
caused to house and property and approximately 95 killed
and 100 injured.
Two formations each of about 80 aircreft
crossed the south coust during the morning of September
30th, but did not reach London. Third reid wes over
DOBSET and the fourth raid comprising 180 circreft crossed
the coast near Dover during the afternoon. Nine aircraft
reached the inner artillery none. The fifth raid of 180
aircraft reached WETBRIDGE and READING and at the same time
another 180 sircreft approached PORTLAND. All the above
reide intercepted by our fighter aquairons. Seme bombe
dropped in OUTSKIRTS of London, home counties and DORSET,
No damage to Was industry is reported.
During the night of september 30th - October
1st, about 275 energy aircraft operated over this country
of which about 175 penstrated to central Londone Raiders
operated over London, the indiante, NEWSEYOIDE and the
southern part of England. Bo serious fires caused in
London area and damage to industrial presises and command-
cations was not serious.
4. SUMMY of Me Cognelties,
I
destroyed
probable
damaged.
Bombere
14
Fightere
31
By enti-aireraft fire.
1
liight of Sept.20th - soth.
1
Boubere
8
15
My our fighters
24
14
British/
Regraded Uclassified
59
+
British 20 Aircraft 10 pilote safe. Five bonbers not
yet returned.
5. shipping Camalties
S.S. "SUSSEX" (23,000 tome) attacked by bonth and
machine gunned in western approaches on September soth.
Fire started but has been extinguished. Some minor
casualties. Two other air attacks on British ships in
western approaches and home waters on DATE day causing
no casualties.
Convoy of 11 ships has arrived safely in home
ports; cargoes included 8 iron and 8 grain.
6. Hiddle East.
No energy setivity reported from Egypt.
Some ensay air activity in KASSALA area.
HAIFA borbed by 10 unidentified streraft on
September 29th; festory damage negligible, one person
injured.
9, Projected invasion against United Kingdom,
Situation with regard to invasion 10 being very
clossly watched. Although there have been minor altera-
tions in consentrations of ships and barges in various
ports, general situation remains substantially unoltered.
Further indications have, homever, been received of
consinution of preparations for invasion.
Regraded Uclassified
60
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE October 2, 1940
TO
Secretary Morgenthau
CONFIDENTIAL
FROM Mr. Cochran
The reporting banks' transactions in registered sterling were 88 follows:
Sold to commercial concerns
L147,000
Purchased from commercial concerns
& 8,000
The Federal Reserve Bank sold 12,000 in registered sterling to 8 non-reporting
bank.
Open market sterling remained at 4.03-3/4 until late in the afternoon. It
closed at 4.03-1/2. Transactions of the reporting banks were as follows:
Sold to commercial concerns
6 12,000
Purchased from commercial concerns 19 19,000
Continuing its upward movement, the Swiss franc reached a high of .2303-1/2
this morning. The final quotation WELE .2301-1/2, as compared with .2301 yesterday.
The Swies National Bank was reported to have raised its selling rate for Swies
france to .2304.
The Canadian dollar had A weaker tone. As against yesterday's final discount
of 14-1/8% that currency closed at 15% today. Other closing rates were:
Swedish krona
.2383
Reichsmark
.4000
Mexican peso
.2049
Argentine peso (free)
.2330
Brazilian milreis (free)
.0505
Cuban peso
8-7/16% discount
Lira
.0505
There were no gold transactions consummated by us today,
No new gold engagements were reported.
Since there was a holiday in India, the Bombay bullion markets were closed.
In London, the price fixed for spot silver was unchanged at 23-7/16d. The
forward quotation was also 23-7/16d, representing a gain of 1/16d. The dollar
equivalent of this price is 42.56#.
Regraded Uclassified
61
- 2 -
Handy and Harman's settlement price for foreign silver was unchanged at
34-3/44. The Treasury's purchase price for foreign silver was also unchanged
at 35#.
We made four purchases of silver totaling 250,000 ounces under the Silver
Purchase Act. Of this amount, 200,000 ounces consisted of new production from
foreign countries, for forward delivery. The remaining 50,000 ounces represented
& purchase from the Central Bank of China.
R.M.S.
CONFIDENTIAL
62
October 2, 1940
2:13 p.m.
Secretary
Frank Knox:
Henry, just to bring you up to date.
H.M.Jr:
Yeah.
K:
I brought Purvis over here and I got an
engineer down in the Aeronautical Department -
he's starting tomorrow morning for San Diego
and I've got ahold of Forrestal on the phone
and he's leaving Florida tomorrow for San
Diego. I've seen Henry Stimson and he's
delegated a. man from the War Department and
he's starting tomorrow for San Diego and the
only fellow I haven't checked on since I saw
you was Purvis's man Fairey and on that I
was a little disturbed because a second man
up in the Aeronautical Department called up
Fairey and Fairey said he didn't know anything
about it.
H.M.Jr:
Well, I tell you. Fairey came in here at
9:25 this morning and told my man McKay that
nobody had told him about the meeting.
K:
(Laughs).
H.M.Jr:
So just where the slip-up was I don't know,
but between us, I personally told Purvie so
somebody forgot about it.
K:
Well, I called you not only to bring you up
to date but to suggest you call Purvis and
tell him that all these arrangements are made,
our people will be there Friday and he mustn't
fail to have his man Fairey there.
H.M.Jr:
I will tell him to get Fairey on a plane
tomorrow to be there Friday. Right?
K:
That's right. If he can get a morning plane
tomorrow he can be there by Thursday night
and everybody else will be there Friday.
H.M.Jr:
And then from my office I'm sending Ed Foley.
K:
You're sending who?
Regraded Uclassified
63
- 2 -
H.M.Jr:
Foley.
K:
Good.
H.M.Jr:
And Buckley.
K:
Well, will they start tomorrow morning?
H.M.Jr:
They'll start tomorrow and be there Friday.
K:
Well, I think the set-up is complete. I've
also talked with Marshall and Stimson about
the change in minor modifications in type 80
8.8 to get a uniform model.
H.M.Jr:
The reason I'm sending Foley is because, you
know, he was with Ickes for about 5 years 80
inasmuch as 80 much of this is municipal stuff,
he'd know his way around on what Government
agency could help on the financing, you see.
K:
Well, I wouldn't let Mr. Fleet, who is a
pretty/858kfe get you into a discussion about
municipal necessities out there. What I'd do
if I were - at least this is my advice, I'd
confine it to just the matter of making
uniform types and getting increased production.
He's not going to be able to build any
additional plants to do this, he's got to
do this in his present plant and what we
want him to do 1s to step up his production
by giving them a uniform model.
H.M.Jr:
You're right.
K:
See?
H.M.Jr:
Now as I understand it, there'll be a Naval
officer, an Army officer
.....
K:
And Forrestal.
H.K.Jr:
and Forrestal. Now when do they get
.....
there?
K:
Get there Thursday night and be ready for
business Friday morning.
H.M.Jr:
Well, I'll immediately get Purvis on the wire
and tell him that Fairey should go not later
than tomorrow morning.
64
- 3 -
KI
All right, and while I've got you on the phone -
I've forgotten whether you were going to call
up Fleet or I was,
H.M.Jr:
You were.
K:
I'll call him right away.
H.M.Jr:
You were and make sure that he was going to
be there.
K:
Now another question while I've got you on
the phone. I'll call Fleet right away. I
just got a confidential tip from my man who
is liaison with the State Department that
Hornbeck over there was disposed to say that
it would be O.K. from our point of view - not
officially - if the Japanese made a contract
for a lot of 3 million some odd tons of oil
from the Dutch East Indies, and I told my man
who is over there to not consent to that one
minute. Now, do you know about it?
H.M.Jr:
I didn't - what I knew about it was this, that
the total production as I get it of oil in the
Dutch East Indies is in the neighborhood of
3 million tons and the Standard 011 have been
asked to sign a contract for about 750,000
tons and the Shell Company to supply the rest.
See?
K:
Yeah.
H.M.Jr:
And that was the status late last week, but
what the State Department's attitude was I
didn't know.
K:
Well, did we decide to let them sell it?
H.M.Jr:
Well, there was no decision made 8.8 far as
the Administration went as far 28 I knew.
K:
Yeah. Well, what is our
....
H.M.Jr:
What is the attitude?
K:
Yeah.
H.M.Jr:
It's one, as near as I can make out, purely
that Cordell Hull is dictating, I mean, he's
never asked me.
Regraded Uclassified
65
- 4 -
K:
What?
H.M.Jr:
He's never asked me about it.
K:
Well, I'm kind of - both worried and somewhat
mystified. Are we going to let this English
and American oil be sold to Japan? That's
owned by the English and the Americans.
H.M.Jr:
Well, are you asking me so to speak off the
record?
K:
Yes, off the record.
H.M.Jr:
Well, I think that Cordell Hull 16 going to
say yes.
K:
I know he is. Now, are we going to let him
do it? Got any objection?
H.M.Jr:
Well - I don't - well, I mean - (laughs) -
you've got me on the spot.
K:
(Laughs). Well, you and I talk frankly to
each other.
H.M.Jr:
Well, you've heard me at Cabinet and I
certainly talk up don't I?
K:
Of course I have. Sure.
H.M.Jr:
And I certainly get knocked down.
K:
Well, that's all right. That doesn't make
any difference, I do too.
H.M.Jr:
But you and I - - let's just talk about a
concrete case. I've got that God-damn
Panamanian boat down in Texas. The President
turned to Cordell and said make it 65 octane.
Cordell won't do it and I'm holding it and
I may end up in jail.
K:
You may end up in what?
H.M.Jr:
In jail.
K:
Oh, to hell with that! You may end up in the
Cabinet room making an argument for your point
of view.
66
- 5 -
H.M.Jr:
But, anyway, the President turns to me and
tells me to do something and I either do it
or I go home. That's what my attitude 1s.
When I don't want to carry out his orders, I
go home.
K:
Yeah.
H.M.Jr:
But I've still got that boat and that boat
has 50,000 barrels of 86.9 octane gas on it,
and 80 I don't know. Now while we're on this
thing let me give you a little tip.
K:
Yeah.
H.M.Jr:
Somebody from your office sent me over 8.
report on how much oil the Japanese are
supposed to have.
K:
Right and at my request.
H.M.Jr:
Well, it showed 72 million
.....
K:
Or something like that. I thought it was 59
million but
.....
H.M.Jr:
No, it was up in the 70's.
K:
Yeah.
H.M.Jr:
Now this is the tip that I get and if you
can look at the date that that report was
made at the instigation of the State Department
K:
Yeah.
H.M.Jr:
.....and maintain the position that Welles
took and Hull took that the Japanese had 80
much oil that it was no use trying to stop
them - see - do you get what I'm saying?
K:
Yes, I do. I get you.
H.M.Jr:
And that report has been shown, not by me
but by somebody else because when you send
me something I don't let it out of the shop,
but somebody else has shown it to the Standard
Oil crowd and they just say it's crazy.
67
- 6 -
K:
Well, I heard Saddler say that myself -
fantastic.
H.M.Jr:
So I have shown it to nobody except in the
Treasury, but I just thought you might look
into it - how come that this officer
suddenly makes a report showing that there
are 70, which is just twice what the Standard
Oil and the English say that the Japanese
have.
K:
Well, I can answer that partially. I went
after them in exactly that spirit and I got
from my own Intelligence that this was the
most accurate report they could get.
H.M.Jr:
Well, it's purely a hypothetical one.
K:
I think it's based on certain information
that came from the Naval Attache out there.
H.M.Jr:
But you see this - again you ask - it's
right at the point, because Cordell is going
to refer to that report of the Navy to dis-
credit the report which I have just circulated.
X:
Yeah.
H.M.Jr:
And he'll say what difference does it make
whether we sell the oil from the Dutch East
Indies because the Navy says there's a 72
million barrel reserve anyway.
K:
Well, as far as I
H.M.Jr:
I'm kind of curious how that officer happened
to make it just at this time, whether this
thing that I was told that he did it at the
instigation of the State Department, whether
there's any truth to that.
K:
Well, I'll look into that again.
H.M.Jr:
See.
K:
Yeah.
H.M.Jr:
But to switch back, on what you did on this
Consolidated, may I say thank you.
Regraded Uclassified
Regraded Uclassified
69
October 2, 1940
2:23 p.m.
H.M.Jr:
Hello Felix.
Justice
Frankfurter: Hello. How are you.
H.M.Jr:
Wonderful. How are you?
F:
Very well. Did you have & good summer?
H.M.Jr:
Oh - .....
F:
So-so.
H.M.Jr:
So-so.
F:
Henry, do you ever lunch?
H.M.Jr:
Do I ever lunch - (Laughe).
F:
Do you ever have a full luncheon.
H.M.Jr:
Oh, yes.
F:
How would you like to lunch with me one of
these days.
H.M.Jr:
I'd love it, or vice versa, or anyway.
F:
Well, you look at your calendar right there
and see if next Monday 18 a bad day for you.
H.M.Jr:
Well, I don't think I'll be here next Monday
but I will be here next Tuesday.
F:
No, because we've got a - you Bee our judicial
hours are the rottenest in the world. We
begin at 12, we go to - BO on. How about
Wednesday?
H.M.Jr:
Well, next week?
F:
Yeah.
H.M.Jr:
Oh, surely.
F:
Well, put that down. Will you come here?
70
- 2 -
H.M.Jr:
Either - I'll do whatever is best for you.
F:
You come here, will you?
H.M.Jr:
To your office?
F:
Yes, down at the Court.
H.M.Jr:
I've never been in the Court House.
F:
Well, you come here at 1 o'clock.
H.M.Jr:
1 o'clock.
F:
Un-un - I don't care what hour because -
is 1 o'clock
.....
H.M.Jr:
1 o'clock will be fine.
F:
Now, Henry. Did you hear from Arthur?
H.M.Jr:
Arthur who?
F:
Goodheart?
H.M.Jr:
No.
F:
Well, there 18 a letter for you - I had an
airmail thing from him and he tells me that
he's written you and wants me to get in
touch with you and confer with you.
H.M.Jr:
Good.
F:
Now, I'll do nothing until I hear from you.
H.M.Jr:
Well, unless it's in the mail that came in
this morning .....
F:
Well, when you get around to it, because
he's written a document that I think is very
good and I think should be published. That's
my view.
H.M.Jr:
Fine.
F:
Tell me about your son, Bob, with whom I
had the great pleasure of talking.
3
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Regraded Uclassified
72
- 4 -
F:
Oh, there isn't any doubt about it. He's
got maturity and good sense - you know, some
boys are like that and some aren't, and he
is.
H.M.Jr:
Well, he enjoyed tremendously talking to you
and he got quite a thrill out of it.
F:
Well, it was a great pleasure to talk with
him, really. He's a superior article.
H.M.Jr:
Well, he got a real thrill out of meeting
you.
F:
And when he comes down here I would very much
like to see him.
H.M.Jr:
I'll tell him that.
F:
Give my best to your lady.
H.M.Jr:
And mine to yours.
F:
Fine.
H.M.Jr:
And I'll look forward - Wednesday at 1 o'clock
up at the Court.
F:
Fine. And when you get that letter
.....
H.M.Jr:
I'll read it and call you.
F:
Will you?
H.M.Jr:
Right.
F:
Thank you.
73
October 2, 1940
2:27 p.m.
H.M.Jr:
Hello.
Jesse
Jones:
Hello, Henry.
H.M.Jr:
Good morning-good afternoon. How are you?
J:
All right. How are you?
H.M.Jr:
Oh, I'm still one jump ahead of the sheriff.
J:
Good.
H.M.Jr:
How're things with you?
J:
Pretty good. I had rather a long visit late
yesterday evening - yesterday afternoon with
T. V. Soong.
H.M.Jr:
Oh, yes. How'd it go?
J:
Well, I'll just tell you just about everything
that was said.
H.M.Jr:
Yeah.
J:
First he came in and we were discussing the
closing up of the other transaction, drawing
the papers and thinge of that kind, and he
mentioned before I got to it something about
Russia and then that opened the subject
perfectly.
H.M.Jr:
Yeah.
J:
And I told him that we were all - the President
and you and Secretary Hull and I and everybody
else wanted to be of any help that we could
be to them and that if he could work out a
deal, but he would have to do it - we couldn't,
whereby we could buy to their advantage -
manganese or other things in Russia, that
we'd be very glad to do it.
H.M.Jr:
I see.
Regraded Uclassified
74
- 2 -
J:
That we didn't care very much about the amount,
I mean, that it was stuff that wouldn't decay
and we could pile it up and keep it indefinitely,
use it as a part of our stock pile, that we
didn't need it, that I wanted him to make that
clear to Oumaneky or to Chiang Kai-shek or whoever,
that we had already bought about 1,400,000 tons
of manganese, about half of it domestic, and
that we were developing our own resources
and 80 forth and so on - getting it from
other parts of the country - Cuba, Brazil
and 80 forth, so we didn't need it. I wanted
to get that over if I could that it isn't
something we need.
H.M.Jr:
I think that's a good point.
J:
And I was afraid that Oumansky got the
impression that we needed it badly, you see.
H.M.Jr:
Well, after all, he's not doing us any favor.
J:
No, and I told this fellow, I said, now, we
don't need it at all and our natural inclination
would be to buy in preference in South America
and our own stuff, and Cuba, but that we are
very, very friendly to Russia and want to be
friends with them and want to be helpful to
China and if they could work out a deal, why
we'd be very glad to buy this stuff.
H.M.Jr:
Well, I don't see how you could have put it
any better.
J:
Then I'll go a little further.
H.M.Jr:
I'm sorry.
J:
That's all right. I said, now maybe you can't
do anything - he looked as though maybe nothing
could be done. I said, I don't think you can
do anything with Oumaneky at all, I think
you've got to do it with Chiang Kai-shek -
he's the only man that can do it I would
think, but that's for you to determine and
maybe you won't even undertake it, and
talked along and I found this that Oumansky
had told him everything that we had said
75
- 3 -
and 80 I - in fact, he enumerated everything.
Not only that, Oumansky told him everything
that he had been getting at the State Depart-
ment.
H.M.Jr:
He did.
J:
Yeah.
H.M.Jr:
Did he elaborate on that?
J:
No, but he Just mentioned it.
H.M.Jr:
What did he tell them?
J:
Well, about the differences you know about
- oh, yes. Oumansky had impressed him with
the fact that - the very strained relations -
very strained relations, and enumerated five
or six things that were irritating and 80
forth and 80 on, which show that they've
been
H.M.Jr:
Did he enumerate them to you?
J:
Yeah.
H.M.Jr:
I see.
J:
I made a little penciled memorandum I haven't
got with me.
H.M.Jr:
Well, some time when I see you I'd like really
to know.
J:
I'll give it to you in detail because I wrote
it down purposely in my own handwriting on
a piece of paper and I'll show it to you.
H.M.Jr:
I really would like to know.
J:
But it did convince me of this that they're
pretty close together, at least, they're
visiting and frank in talking and 80 forth
and so on.
H.M.Jr:
Yeah.
76
- 4 -
J:
Now, he indicated that - I inferred - that
this fellow was showing him, trying to
convince him how friendly they were to China
H.M.Jr:
I see.
J:
.....
that any business that they had with
us would be on its own and anything and
anything that they did with China would be
on its own.
H.M.Jr:
I see.
J:
So up to that time I got the impression
that he didn't think he could do anything,
SO when the meeting was at an end, I said,
well, I just thought I'd mention that to you
and I guess you can't do anything about it.
Oh, he said, I'd like very much to submit
it to Chiang Kai-shek. So he is going to try.
H.M.Jr:
Well, I personally think it's all to the good.
J:
I think, Henry, at least we've done all we
can do.
H.M.Jr:
Well, I think the significant thing 1e that
the Russians and Chinese are close, that the
Russians want to stay close to Ohina, which
means that they don't want to stay close to
Japan, that you've made the move at the right
time and from what you tell me I think you
handled it beautifully.
J:
Well, I don't think it did any harm anyway.
H.M.Jr:
No, I think you did some good.
J:
I think 80.
H.M.Jr:
And I hope at the earliest possible time
you'll tell it all to the President
J:
I'll be glad to.
H.M.Jr:
particularly the troubles that Oumansky
18 having with State. I think the President
77
- 5 -
ought to know it because from my conversation
with the President I don't think he knew. I'm
almost positive he didn't know.
J:
I'll be glad to do that.
H.M.Jr:
I know that you feel the way I do, on a
ticklish thing like this he ought to have all
the cards.
J:
Absolutely. Now, may I open another subject?
H.M.Jr:
If you please.
J:
I saw the Secretary and Welles and Berle
and Duggan this morning a few minutes about
Argentine. Pierson - I had promised to call
Pierson today. He's kind of hot down there
and so I would like to talk with you about
that. I don't know whether we can do it on
the telephone, but maybe we can. I think I'd
enjoy it more if I could have & little visit
with you on it.
H.M.Jr:
Well, when do you want to do it?
J:
Would any time today suit you?
H.M.Jr:
Yes, I'm free at 3:45.
J:
Well, I've got a 4 o'clock appointment - just
a minute.
H.M.Jr:
Got a 4 o'clock?
J:
Yeah.
H.M.Jr:
Well, I can switch mine. Do you want to make
it at 3:30?
J:
(What have I got at 3:30 - aside). Just a
second, Henry. Yes, I could come over there
at 3:30, Henry.
H.M.Jr:
I'll switch mine.
J:
O.K. Thanks.
H.M.Jr:
Hello. Bring that little memo with you.
J:
I'll do that.
78
October 2, 1940
2:45 p.m.
H.M.Jr:
Hello, Mr. Fairey.
Mr. C. R.
Fairey:
Yes.
H.M.Jr:
We seem to have nothing but a succession
of misunderetandings today. Colonel Knox
called up and said he'd asked about your
going out to Los Angeles. He understood
that you knew nothing about it.
F:
Oh, no. I've heard about it since. I didn't
know about the meeting this morning. I wasn't
told but when I heard about it I said yes.
H.M.Jr:
Well, Colonel Knox called about your going to
San Diego today.
F:
Yes.
H.M.Jr:
He just called me and said wouldn't I please
get in touch with you because you didn't seem
to know anything about it.
F:
Yes, I've been told all about it and I said
yes.
H.M.Jr:
Well, I don't know. I'm just repeating what
I was told.
F:
Yes, I'm terribly sorry you've been troubled
with it.
H.M.Jr:
I mean, he just called me. Now the point is
that Army and Navy officials and Treasury
officials will all be in San Diego Thursday
night.
F:
Yes.
H.M.Jr:
Will you be able to go?
F:
I will, yes.
H.M.Jr:
Right. Mr. Edward Foley, my General Counsel
Regraded Uclassified
79
- 2 -
for the Treasury, I'm sending him out, and
I thought you might like to know because
he's trying to go this evening.
F:
Yes, well, I shall have to go this evening
to get there in time, shan't I.
H.M.Jr:
Yes, if you can get - - weather permitting.
He's trying to go on American Airlines tonight,
and I thought you might like to know. He's
a very charming fellow, and I'm sending him
because 80 many Consolidated troubles have to
do with the city of San Diego and he's an
expert on municipal financing, you see.
F:
I see.
H.M.Jr:
So I'm sending him out for that reason, but
the Army and Navy are sending their top
people and sending the Under Secretary of the
Navy, Mr. Forrestal. He'll be there also.
in
Oh, well, that's fine. No, I thought Mr. Purvis
had let you know. I didn't know about the
meeting this morning. There was some hitch
there and I arrived too late.
H.M.Jr:
Well, I'm sorry.
F:
But directly I was told when I got back what
it was you wanted, I said yes, of course.
H.M.Jr:
Well, I told Mr. Purvis myself on the telephone
that I expected him and you this morning, but
that's water over the damn. Colonel Knox just
called and he seemed sort of surprised because
he'd gone to all this trouble and then he said
wouldn't I please get Purvis or you to say
whether you would or wouldn't go.
F:
Well, there's the answer. I'm coming, yes.
H.K.Jr:
Good. Well, then I'm very hopeful that we
get results.
F:
I'll do my best.
H.M.Jr:
And when you get back I'd like very much to
see you.
80
- 3 -
F:
I'll come straight to see you, Mr. Morgenthau,
directly I'm back.
H.M.Jr:
Thank you. Will you tell Mr. Purvis of this
conversation, please?
F:
I will, yes.
H.M.Jr:
Thank you.
F:
I'm sorry this has been a misunderstanding.
H.M.Jr:
Yes, it's too bad.
F:
It's just a hitch-up, but there it 18, I'm
standing by to go.
H.M.Jr:
All right. Well, then you'll make an effort
to go tonight, won't you.
F:
I certainly will.
H.M.Jr:
Thank you.
F:
Good-bye.
81
October 2, 1940
3:57 p.m.
H.M.Jr:
Hello.
Operator:
Mr. Purvis.
H.M.Jr:
Hello.
Arthur
Purvis:
Hello, Henry.
H.M.Jr:
Arthur, Jesse Jones 1s sitting at my side
here and he says that if you can get an
extension of 48 hours on that steel scrap
in Mexico, he'll be glad to see Mr. Elliot
tomorrow and talk to him about it.
P:
Oh, excellent. We'll try and get that
straight away.
H.M.Jr;
And then if you'd call up Mr. Jones' office,
he'll give Mr. Elliot an appointment
tomorrow morning.
P:
I'm ever so much obliged.
H.M.Jr:
0. K.?
P:
Thank you very much. Go right to work on it.
H.M.Jr:
Thank you.
82
October 2, 1940
4:30 p.m.
H.M.Jr:
Hello.
Operator:
General Watson.
H.M.Jr:
Hello.
General
Watson:
E.M.W. speaking.
H.M.Jr:
H.M.Jr. broadcast. I just talked to a man
by the name of Roosevelt on this ship.....
W:
You're down for 10:30.
H.M.Jr:
Do you know that already?
W:
Yeah. We work fast around here.
H.M.Jr:
My, God! You certainly do in the daytime.
W:
Yes, sir.
H.M.Jr:
I'm not saying anything about dark. (Laughs).
W:
(Laughs).
H.M.Jr:
What a man!
W:
10:30.
H.M.Jr:
Yes, sir. Good-bye.
W:
H.M.Jr., 10:30.
H.M.Jr:
Signing off.
W:
All right. (Laughs).
83
October 2, 1940
4:42 p.m.
H.M.Jr:
Hello.
Operator:
Judge Patterson.
H.M.Jr:
Hello.
Robert
Patterson:
Hello, Henry.
H.M.Jr:
How are you?
P:
Fine.
H.M.Jr:
Bob, I wonder if you and I can't get together
and straighten out this mess with the
Republic Airplane Company Swedish plane
contract.
P:
Yes.
H.M.Jr:
We did the Vultee one.
P:
Oh, the Vultee's done?
H.M.Jr:
The Vultee's done. Republic will not sign
a similar contract to the one signed by
Vultee.
P:
What did Vultee take - the Canadians?
H.M.Jr:
No, they deal straight with the British
Purchasing Mission.
P:
For the Canadian account?
H.M.Jr:
I don't know. I don't think 80. I think
they just sold them to the British Purchasing
Mission.
P:
And took indemnity?
H.M.Jr:
Yes, took indemnity.
P:
Against planes by the Swedes.
H.M.Jr:
That's right.
P:
And let them have it.
Regraded Uclassified
84
- 2 -
H.M.Jr:
That's right. Now, that's Vultee.
P:
Well, that's sensible.
H.M.Jr:
But the Republic won't do it and I wondered
if you and I couldn't sit down and try to
work something out with Purvis and with the
Army.
P:
Well, the Army 1s out of it, ien't it?
H.M.Jr:
No, you've got to get into it now.
P:
Oh.
H.M.Jr:
You've got to get into it. There's got to
be some kind of a swap.
P:
Well, how can we do that - we take it over
and then release it again.
H.M.Jr:
Well, you can take it over or give them
something else.
P:
Well, these are planes that I understand are
old combat planes that are fit for training
and that there was some people over here in
the Air Corps wanted to use them for training.
H.M.Jr:
That's what my understanding 18.
P:
Although they're not designed as trainers.
H.M.Jr:
You've got it correct.
P:
Yeah.
H.M.Jr:
You've got it correct.
P:
Well, let me talk it over with the people
here first. How many are there, do you know?
H.M.Jr:
Oh, my guess 18 - - I think it's less than a
hundred but that's just a guess.
P:
Are those people going .....
H.M.Jr:
No, there's 120 - something in a lot of 100 -
but there's 60 of them which are finished
and all boxed and lying on the ground.
Regraded Uclassified
85
- 3 -
P:
And the deal relates particularly to those 60.
H.M.Jr:
Well, the whole lot.
P:
Well, I know.
H.M.Jr:
With the whole lot, but there are 60 which
are completed and I think it's around 120.
P:
Well, for that matter, we can find that out
easy enough.
H.M.Jr:
Yeah.
P:
I'll talk it over here.
H.M.Jr:
Well, here's the point. If you've got it
straight I thought we might get together with
Purvis sometime tomorrow at your convenience.
P:
And yours - your convenience too.
H.M.Jr:
Well, could I make it tentatively, say, for
3:30 tomorrow?
P:
Yes.
H.M.Jr:
And that would give you a chance to see where
you are.
P:
Yes.
H.M.Jr:
Supposing I make it tentatively for 3:30.
P:
All right, 3:30 at your place.
H.M.Jr:
Tomorrow.
P:
Yes.
H.M.Jr:
Because I'd like to go to town on it.
P:
Yes. I'll try to clear it before that and
see where I stand.
H.M.Jr:
Thank you.
P:
That's right. Thank you. Good-bye.
Regraded Uclassified
86
WILLARD HOTEL. WASHINGTON, D.C.
TELEPHONE REPUBLIC 7860
pee also
10-14 14 for
BRITISH PURCHASING COMMISSION
percent.
October 2nd 1940.
Dear in Secretary
I have been instructed by the British War
Cabinet to give to the American Administration a general pic-
ture of our supply position and to supplement by way of ex-
planation indetail the orders that have been transmitted to
the British Purchasing Commission.
Many detailed lists of proposed orders have
already been submitted to the appropriate authorities. In many
cases programmes have been agreed and many orders have been
placed. Little progress has, however, been made in the case
of weapons for the army.
In the attached memorandum, therefore, which
puts forward considerations affecting the supply position as a
whole, I have included a statement about the scale and charac-
ter of the Army programme towards which our orders in America
are designed to make a contribution.
87
2.
Arising out of the considerations in the
nemorandum, I venture to submit as matters of outstanding in-
portance the three following requests, the granting of which
would very greatly assist us in our war efforti-
1.
We invite the assistance of the Administration
in accelerating and treating as a matter of special
urgency the delivery of armaments on British order
which can be produced before the spring and early
summer of 1941. Priority in production should ap-
ply in particular to the output of aeroplanes and
aero-engines.
It is also urgent that the extended programme
of aeroplanes and engines should be ordered as soon
as possible.
2,
Permission is sought to place orders for
an extended aircraft programme and for guns, small
arms and various weapons included in the Army pro-
gramme; and it is common ground that as far as pos-
sible these orders should be for material of the
same type as that on order for the American Army.
But we ask that the rule barring the placing of
orders for planes or weapons of types which are not
standard in the American Army should be relaxed in
cases where the ordering of alternative types is
needed to make good specific deficiencies in the
British programme, to provide insurance against a
severe loss of British output as the result of en-
emy action, or to increase fighting efficiency at
the earliest possible date.
3. ciple that where the orders of our two countries
In July the President approved the prin-
are complementary the initial capital expenditure
would be advanced in the first instance from the
funds of the United States Administration. In view
of the large volume of British orders in the United
States and the need for conserving British finan-
cial resources, we ask that this principle should
be applied to all British war orders in the United
States. This course we suggest would be justified
Regraded Uclassified
88
3.
on the double ground that the manufacturing capacity
created by such capital expenditure is a permanent
addition to America's own war potential which can be
adapted at comparatively short notice to America's
needs and that the goods produced therefrom in aid
of British armament are, in the present world situa-
tion, a definite contribution to America's security.
Toms sin early
W.T.Layton
The Secretary of the Treasury,
Washington, D.C.
89
SECRET
MEMORANDUM ON BRITISH SUPPLY PROGRAMME
I
The military position of Great Britain has
greatly improved since the month of June.
On the sea the partial destruction or 1m-
mobilisation of the French fleet has removed the fear that
a large increment of naval strength might be immediately
available for the Axis powers. The addition of the American
destroyers to our fleet will enable us to carry out more
efficiently the work of convoy and blockade and will release
modern destroyers now employed in these tasks for more
specifically belligerent action.
In the air the output of our factories has
been stepped up substantially. In May last the production
of planes was gradually rising in accordance with previous
plans. But under the new Minister of Aircraft Production
a considerable increase in deliveries was achieved - by
more vigorous direction at the centre; by the response of
managers and workers throughout the munition industry to
the Government's appeal and the pressure of the war situation
and by the instruction to British industry to give 1.A.
priority to all work related to aircraft production or anti-
aircraft defence. Two months of comparative calm enabled
this increase of output to be converted into terms of
increased squadron strength and stronger reserves.
The greatest improvement has, however, taken
place in the state of our land forces. When the British
Expeditionary Force - which had lost all its equipment save
some of its rifles - returned to England there were available
Regraded Uclassified
90
- 2 -
in the country for issue to units for training some 800
field guns of all calibres, 120 anti-tank guns, 8,000 Bren
guns and 4,000 anti-tank rifles. By August the total
available had risen to some 2,500 field pieces as a result
of the speeding up of output from the factories, the re-
furbishing of 18-pounder 4.5 in. howitzers and other
survivors of the last war, and the timely release of 75 mm.
guns by the American Army. Thenumber of anti-tank equipments
in the hands of the Army had risen by the end of August to
over 600 while the stock of Bren guns and anti-tank rifles
had doubled.
Finally, the release of American rifles and
machine guns provided weapons for the new large force of
Local Defence Volunteers (Home Guard).
The supply of standard .303 small arms
ammunition was not planned on a sufficient scale to meet, in
the first year of war, the battle needs of such large forces
as those now under arms. But the fact that there has been
no land fighting for nearly four months has enabled a stock
to be accumulated sufficient to take care of any foreseeable
expenditure either on land or in the air during the rest of
this year. This, however, does not apply to .30 calibre
ammunition.
II
The improvement in our position still leaves
us far behind Germany both in the air and on land.
The air strength of Germany, with her great
advantage of early planning of large scale production, is
already greatly in excess of ours. It is now reinforced by
the resources of France to the extent that we must reckon on
having to face an output of combat planes of between 2,500
Regraded Uclassified
91
- 3 -
and 3,000 a month next summer,
It is a factor also of considerable import-
ance that as Germany's aerodromes are much nearer to London
than ours are to Berlin, the wear and tear on Germany's
bomber engines is much less than that of our own.
Yet, thanks to the quality of our machines,
our pilots and our petrol, and to the increased output of
planes, the disparity in the total number of machines has
not been sufficient to give Germany command of the air.
On the contrary the British Air Force has carried the
offensive not only into France and Belgium but to Berlin
and the vital spots of Germany.
15
German preponderance, however, remains
overwhelming in land armaments. Out present stock of
weapons is trifling compared with the 15,000 - 20,000 field
guns and equivalent other arms of Germany. Italian equip-
ment and the captures from France, Belgium and Britain make
the disproportion still greater. Fortunately these re-
sources cannot be effectively used against England without
command of the sea and air; nor can theybe transported
overseas to other theatres of war without hindrance. But
the existence of such powerful land forces makes the situation
in the Middle East and in Africa a cause for anxiety.
Taking a longer view, 8. rough idea of Germany's
war potential for all purposes is suggested by her capacity
for steel production. Before the war, Germany's out put
reached about 22 million ingot tons a year. That of France
and England was 23 million ingot tons. Today Germany has
at her disposal the output of France, Belgium, Luxemburg,
Czecho-Slovakia, Italy and Poland. This, with her own
production, amounts to 42 million ingot tons against the
Regraded Uclassified
92
4
15 million ingot tons of Great Britain to which should
be added the 31 million tons of the Empire. This great
disparity can only be balanced if we add in the 50 million
ingot tons of the United States of America.
But this is only a partial picture. German
industry has certain weaknesses. The steel figures, for
examples, must be qualified by such considerations as the
supply of ferro alloys, forging plant, lubricating oil and
many other things. Nor can a purely industrial comparison
be converted into terms of military force or regarded as a
measure of the prospect of victory without taking account
of many factors that will affect the issue of the war.
Such influences include:- the extent to which Germany can
utilise the full resources of conquered countries; the
effect of hunger and the steady influence of sea power on
the economic life of Europe and its morale; the prospect
of securing ascendancy in the air through the quality and
quantity of the pilots and aircraft that can be thrown into
the conflict; and finally the possibility which is open to
the British Empire of choosing fields and conditions of battle
in which the strength of the German army cannot be fully
deployed.
Nevertheless, Germany's war potential remains
a very formidable menace. We cannot do less than organise
to the utmost limit of our strength.
III
One conclusion to be drawn is that for some
time to come Germany has no need to devote much of her
industrial capacity to land armaments but is free to devise
Regraded Uclassified
93
5
other weapons. In particular, she can concentrate on
increasing her air force and on making the ships for transport-
ing an expeditionary force overseas. The fact that she is
removing machine tools from occupied countries into Germany
itself suggests that she is in fact doing something of this
kind.
We must assume, therefore, that the efforts
we have made to overhaul the monthly rate of German aircraft
production and training of pilots will have to be redoubled
and that the air attack on Great Britain in the Spring will
recommence on a still larger scale. The whole course of
the war has emphasized the dominating role played by air
power and it is vital that we should maintain our effective
control of the air over Britain and around our coasts.
Moreover, as we are greatly outnumbered in
land armaments, it is the more essential that we force the
decision with the weapon of our own choice. Great Britain,
therefore, puts in the forefront of her requirements in the
United States the speeding up of the programme of aircraft
and aircraft engine production that was launched last Spring
and is now coming into effect. Among other measures this
means that production of 1941 types should not be interrupted
by the introduction, of new types until the critical period
of the Spring and early Summer is over.
Our training of pilots is already on a
scale which - in spite of inevitable losses - is planned
to permit an appreciable increase in our squadron strength
by the Spring and to ensure & sharp rise thereafter. Steps
are now being taken to make yet a further acceleration of the
supply of pilots available in the early months of 1941. As
the wastage of machines in the present air battle is appre-
clably greater than that of pilots, and as we must be
Regraded Uclassified
94
- 6 -
prepared for the possibility that losses of British
factory production through enemy action may be worse
than our present experience, the speed-up of plane deliveries
from America is of first importance if we are to develop
our maximum fighting strength next Spring.
Germany's great lead in the air means also
that aircraft production in both England and the United
States must be planned on an increasingly large scale 1f we
are to establish air supremacy over Germany within measurable
time; and that as a first step arrangements should be made
by which the increased production programme which has been
discussed with the Defence Advisory Board be put into exe-
cution immediately.
In this connection it is of vital importance
that the types to be manufactured under this programme should
embody the experience that we are daily acquiring of actual
fighting conditions, since a quantitative superiority will
be of no avail against a superiority in quality. For example,
it is suggested that it would be of great advantage, both to
England and to the United States, if the new British Tornado
Fighter, equipped with the 2000h.p. in-line Sabre engine,
were put into production in this country. This machine is
now flying in England, and there is no parallel in this country
that could be ready in the same time. If this were done,
this plane would be flying and fighting within a year and
in quantities which might have a decisive effect.
We also attach great importance to being able
to lay down in North America for delivery in the Winter and
Spring a substantial number of motor torpedo boats and marine
engines.
As regards land forces the preceding figures
bean that we cannot hope to compete with Germany in sheer
weight of metal in the near future.
Regraded Uclassified
95
- 7 -
Yet expeditionary forces in various parts
of the world already play animportant role in the war as &
whole and when air superiority has been definitely estab-
lished we must assume that action on land will be both
necessary and possible even in Europe. What precise form
land action may take is difficult to foresee at this stage.
When Britain's defence has been assured, Africa and the
Middle East will make a heavy call on our military forces.
The opportunity may occur to make local raids in Europe,
lend assistance to countries which may be in revolt or
even, with the aid of local air mastery, recapture and hold
a bridge head across the Channel in order to drive back the
air menace against Great Britain.
The equipment of the Empire's Army must,
therefore, go vigorously ahead. From the point of view
of munition-producing capacity we must also not forget that
arms may have to be provided for countries which may event-
ually be in a position to come over to our side.
To provide arms on a sufficient scale
requires the creation in England and the United States of
armament-making capacity which will turn out planes, armoured
vehicles and mobile guns in many thousands a. year and small
arms or rifles in millions.
It is therefore clear that while the situation
must be sustained in the meantime by United Kingdom weapons
a final decision must be based on the full development of
the great industrial potential of the United States. If
the foundations are laid, on a wide enough basis and every
step is taken to preserve intact the war potential of Britain,
the combined strength of America and the British Empire can
certainly surpass and outlast that of Germany and her Allies.
America's potential is now being mobilised
for the equipment of a rapidly expanding United States
Regraded Uclassified
96
- 8 -
Defence Force. It is essential that the programme of
United States and British requirements be as much as
possible co-ordinated so as to prevent competition arising
in the industrial field. To this end we must seek a
common programme agreed and adjusted to the conflicting
requirements of immediate and of ultimate needs.
IV
After the French collapse the British Army's
munition programme was stepped up by more than 50% to f1g-
ures which were designed to equip by the end of 1941 the
number of divisions which on the previous programme would
only have been ready by the end of 1942.
Our forecasts of production of the main
forms of army equipment anticipate that the following will
be the situation at the end of 1941:
Stock on 1st
Output - August
August (Home
1940 to end 1941.
and Abroad)
Field Artillery
2,650
4,850
Medium Artillery
400
700
Anti-tank equipments
600
6,000
Tanks: Light
730
1,260
Light Cruiser
250
1,300
Heavy
230
4,330
Anti-aircraft Guns:
Heavy
1,775
1,660
Light
650
3,760
Bren Guns
22,000
54,000
Rifles
2 million
600,000
(approx)
Anti-tank Rifles
12,000
28,000
Stocks exclude Indian and Dominion stocks and
stocks with Indian or Dominion divisions taking
their own equipment to theatres overseas.
Machine gun output for aircraft is considerably
in excess of figure for Bren Guns. The only
overseas deliveries included are 500 37 m. anti-
tank equipments from the United States,
This production has to meet the needs of the British Field
Forces both at home and overseas as well as the Air Defence
of Great Britain and the Home Guard.
Regraded Uclassified
97
- 9 -
The equipment of the Army at the end of
1941 is not to be regarded as the total of the above columns;
from the combined figure we must deduct (a) wastage from
wear and losses in the field and (b) obsolete weapons (parti-
cularly in the case of field artillery) which will be replaced
in due course by modern weapons. I can, however, if neces-
sary, give further information as to the military formations
to which the figures are related.
From the production point of view I make the
following comments upon them. this table,
The forecasts on which these total figures
are based anticipate that at the end of next year our output
will be nearly equal to the peak output of the last war in
field artillery (1918). It will be much less in medium
and heavy artillery - - the demand for which is expected to be
relatively small under present-day conditions of warfare.
But it will be much greater in heavy and light anti-aircraft
guns - the former of which compares in manufacturing capacity
to medium artillery and the latter to field guns. The pro-
duction of tanks and of anti-tank and tank guns will also be
on a far higher scale than before. In other words, wa
expect in two years to reach an output of ordnance equal to
that of 1918 in spite of the fact that we are devoting to
aircraft production more than four times the labour force
that was used on the production of aircraft at the end of
the last war.
The chief reason why this is possible is
that we expect to have to produce much less artillery ammunt-
tion than in the last war. In the siege conditions of
1914-1918 the outpouring of ammunition production on B. stupend-
ous scale drained the resources of all belligerents in steel
Regraded Uclassified
98
- 10 -
explosive, machinery and labour power. We may have to
provide for a large ammunition expenditure at some stage
in the present war; but in the near future this is unlikely,
and, in fact, we have an immediate problem of providing
storage for the ammunition we are making. We therefore
intend to produce a moderate but sufficient flow of ammuni-
tion while providing a big reserve capacity of shell and
fuse manufacture, filling, etc. But at its maximum the
call upon our resources for ammunition will be by comparison
with 1914-1918 a moderate one.
The munitions problem of this war is to
produce as many weapons of all kinds as possible with an
adequate supply of ammunition - not to produce shells in
unlimited quantities.
y
British orders in the United States have two
aspects. On the one hand they are needed to fill deficiencies
- which in some cases amount to a high proportion of our total
needs. On the other they are an insurance against loss of
British production as a result of enemy action. This insur-
ance aspect has influenced the scale and nature of the orders
we have sought to place in North America in every branch of
war,production. *
The case of raw materials or explosive is
straightforward. But in finished munitions the problem
1
The rate of insurance needed to make good losses from
enemy action 1s at best a guess and in any case must vary
with the nature of the product. It is for example not
needed for clothing and engineering stores. But in the
case of important armaments produced from a few vulnerable
sources of supply it would not be excessive for the percentage
to run as high 6.5 25 or 35%. In the most important items of
production we have assumed it rate of 20 to 25%. Experience
up to she present has shown this margin is ample for the loss
of output on the whole is less than 10%. Of this 10% far the
greater part is due to the effect of lost time through air
raid warnings and only a small part to actual bombing losses.
But we have been lucky. Prudence suggests that 20% 1s not an
unreasonable basis for planning.
Regraded Uclassified
99
- 11 -
is complicated by the question of types, Clearly it is
desirable from the production point of view that types
should as far as possible be standardised. But the recent
decisions as to the types to be manufactured for the American
Army taken in conjunction with the advanced state of the
manufacturing programme in the United Kingdom mean that
this standardisation is not possible in all cases if
American orders are to serve as a real insurance and rein-
forcement of our own war output.
To illustrate this I will take the case of
the 25-pounder. The field gun is one of the most important
weapons which determine the number of divisions that can be
organised; and in fact the above figures of the production
of 25-pounder guns closely corresponds to the growth in the
British Army which is contemplated next year. But out
forecast may be falsified by enemy bombing and the effect of
air raids on the output of our factories. In order to be
sure that the military timetable should not be thrown out,
we should like to place orders which would ensure that a
supply of 25-pounder guns was coming forward from America
in the second half of next year.
Since the United States Army has adopted as
standard the 105 mill, gun there is undoubtedly 4 disadvantage
from the production point of view in manufacturing a different
type of field gun. Nevertholess it is suggested that in
the circumstances this argument might be overridden on the
following grounds:-
(a)
It would not be an effective insurance of
our field artillery and ammunition programme to arrange a
supply to Great Britain of 105 m. guns late in 1941. To
do this would introduce a new type into the army at 8. time
when a large number of 25-pounders would be in being -
probably in various theatres of war, It would moreover be
necessary to replace not a single item only of our production
but the whole complex of ammunition and other ancilleries of
Regraded Uclassified
100
- 12 -
artillery equipment. Real insurance means that each separate
item of a composite programme should be available from some
alternative source of supply.
(b)
The development of new capacity to make an
alternative type of gun is not to be regarded as a competitive
form of production but as a means of broadening the capacity
of American gun production in general. In particular, forging
plant and machining capacity would be created which would be
available in due course for other types of gun. Experience
of the last war in England showed that the creation of basic
capacity is the essential step. In a prolonged war this
capacity will certainly not continue to be used only for the
production for which it is originally planned but will be adjust-
ed from time to time to the products which the experience of the
campaign dictates.
I should welcome the opportunity of putting
forward in the appropriate quarter detailed suggestions which
would make possible the release of orders for ordnance (anti-
aircraft guns, anti-tank guns, field guns and medium guns) and
other Army weapons which would involve the production of common
types to the greatest practical extent consistent with military
considerations and the state of the British programme.
The argument for making exceptions to the rule
that common types only should be ordered in this country is even
stronger in the case of certain fighting aircraft (to which I have
already referred) whose output from British factories cannot be
sufficient for war purposes, but which, if put into production In
the United States, could be flying and fighting within a year.
VI
It 1a common ground that the integration of
the British programs with that of American defence La necessary
in order to prevent competition and lead to the speedient develop-
sent of America's war potential. A successful start in this
direction has already been made in the matter of tank production.
Regraded Uclassified
101
it 1 I
I recognise also with gratitude that the
complementary programme worked out in the case of tanks
has been the occasion for putting into effect financial
arrangements for easing the burden of initial capital
payments. It will greatly ease the financial problem
involved in launching the large volume of orders which Great
Britain needs to place in this country if the same facilities
can be made available in respect of all other types of
war purchases.
The joining up of the two programmes in the
United States should result in a more efficient production
planning; a speedier output, a lighter immediate financing
burden for the British Government and a greater capacity
of production always available for United States national
defence.
VII
Finally, /a substantial proportion of America's
munition production is to be shipped overseas, and If we
have to contemplate one or more British expeditionary forces
on a substantial scale, a very large shipping tonnage will
be required. At the moment we have a sufficient supply of
ships at our disposal. But the losses from submarine
action are running far ahead of our output of new ships which
is less than at the peak of the last war and cannot readily
be increased if the Admiralty programme of warships has to
be reinstated. The British Government is anxious to
acquire a substantial number of ships as soon as possible.
But this is to meet a short-term need. The
transportation problem needs to be studied from a very wide
angle If a large war potential is to be brought to bear
against the totalitarian powers in 1942.
2/10/40
W.T.Layton
Regraded Uclassified
102
CONFIDENTIAL
FOR YOUR INFORMATION
October 2, 1940
To:
The Secretary
From: Mr. Young
Re: Shipment of P-40 Airplanes.
Mr. Ballantyne advised me late this afternoon that
24 P-40's had been shipped from New York up to the end
of last week; 18 are now at New York awaiting shipment,
and that the British were receiving them at the rate of
approximately five per day.
Py.
103
RE FOREIGN FUNDS CONTROL
October 2, 1940
3:00 p.m.
Present:
Mr. Pehle
Mr. Chamberlain
Mr. Cochran
H.M.Jr:
Okay, at your pleasure.
Pehle:
The things we want to mention are, one, B.I.S.
transaction that we have still pending.
H.M.Jr:
I knew I needed Cochran. He is the unofficial
ambassador for the B.I.S.
Pehle:
He will have a chance to state his position.
He wrote a long memorandum on it.
H.M.Jr:
You can mov e those flowers to one side.
Pehle:
The transaction involving the payment to the
B.I.S. It is some $28,000 in all. It involves
the payment in dollars of a loan, French loan,
out of the French account, which is due in
Swiss francs. It is the transaction we turned
down in the committee at the same time we turned
down for the first time those two Swiss payments
which ultimately were made. The B.I.S. pro-
tested, cabled back and said they didn't under-
stand why it couldn't be paid to them, and the
question was taken up with the committee again
in Professor Chamberlain's absence. The com-
mittee's feeling was --
H.M.Jr:
Excuse me a minute.
(Telephone conversation with Mr. Purvis follows:)
Regraded Uclassified
104
October 2, 1940
3:03 p.m.
Arthur
Purvis:
Hello, Henry.
H.M.Jr:
Arthur, are you where you can talk?
P:
Yes, I am.
H.M.Jr:
(Laughs). You know, I don't know what's
the matter with this fellow Fairey - I mean
P:
What has happened?
H.M.Jr:
Well, Colonel Knox calls me up and says
he went to all this trouble getting Army
and Navy and Forrestal and everybody and I'm
sending Ed Foley and Buckley out .....
P:
You're sending Foley too, are you?
H.M.Jr:
Yes, because it's largely a municipal
matter, I mean, it's a question of getting
the City of San Diego straightened around
and Foley knowe 88 much about that as anybody
in Washington, I mean, housing, water supply
and sewage, you see.
P:
Oh, yes. Excellent.
H.M.Jr:
And that's one of the things, you see, and
he knowe that thing inside out. And Knox
calls me up and said he'd been in touch with
Fairey, he said everything was ready but
Fairey said he hadn't heard anything about
it, and knew nothing about it. So I call
up Fairey and he said, oh yes
.....
P:
Well, that's the damndest nonsense because
I sat with Fairey when I got back this morning.
You see, I went right over to Knox and then
I came back and sat with Fairey for quite a
time with Maurice Wilson, who came in later,
and with Layton and Fairey had said that he
was a little sorry that he had to go 80 soon
but we were unanimously of the opinion that
it was a wonderful opportunity and that he
should go immediately.
Regraded Uclassified
- 2 -
105
H.M.Jr:
Well, Knox called me up after 2
.....
After 2.
P:
H.M.Jr:
..... and Knox said he had been in touch with
Fairey and Fairey said he didn't know a thing
about it.
P:
Well, I'll call Fairey hard on that.
H.M.Jr:
Because - - (laughs) - after he worked 80 hard
to turn
.....
P:
My gosh! and I've just been ringing Knox and
found that everything was beautifully arranged
and he's released the tankers for me - I mean,
it's perfectly childish, it makes me 80 angry
I can hardly see.
H.M.Jr:
Well, I'm not angry but I'm Just a little bit
upset.
P:
Well, let me just take care of that. He did
know all about it, he agreed to go, he was
a little sorry that it came so soon but
everybody recognized that it WRB the right
thing to do.
H.M.Jr:
Well, look, if he's going in bad spirite
wouldn't it be better to let Maurice Wilson
go ae well?
P:
Well, I mean, I'll just ventilate this thing -
fortunately Maurice got into town at 10:30
this morning and joined us while we were
talking about this very subject and I'll just
find out what the story is.
H.M.Jr:
Well, don't you think Maurice Wilson ought
to go also?
P:
Well, the only thing about it 1s that I
think what we need for certain discussions
that Layton has got here - we need some of
them b and I think actually on the pro-
duction end I know Fairey 18 excellent
because I've watched him in meetings. But
I tell you what is happening, Henry, If you
could go on supporting for just a little
- 3 -
106
longer - there is 8 little disposition
to pull away if we give them a chance. Otherwise
H.M.Jr:
Pull away from
......
P:
Pull away from me a little. Otherwise, you
see, anything - what happened was this.
Fairey had full notice of this meeting
....
H.M.Jr:
This morning?
P:
Last night.
H.M.Jr:
You told him last night.
P:
Last night I got hold of his man Gray who
spent all the night until midnight last night
trying to reach him, then made sure by leaving
messages at his hotel, and then to check
called him at 8:30 a.m. this morning, so
that he still had time to get down. Now, I
think what 1s happening is that there's a
little disposition to pull away and to try
and get it BO that you communicate direct
with them. Now it only will take another
few days and we shall have that comfortably
arranged, but I think that may be at the heart
of it. It's very stupid if it 1s, but I
think it may be at the heart of it. It's a
little problem of mine. Now, he knew all
about this and I'll take care of this. There
won't be any question
H.K.Jr:
Well, I don't want to seem - you know. I
am upset because really - but I'll leave it -
you don't have to tell him anything unless
you want to but the point is
P:
Well, but I mean, it's the one thing we're
going to - we've just been preparing a memo-
randum to ask you to do this thing that
you've started on an even larger scale. The
thing is perfectly ridiculous.
H.M.Jr:
Well, the point 18, both Churchill and
Beaverbrook want these two types of planes.
Yes, exactly.
Regraded Uclassified
107
- 4 -
H.M.Jr:
Now, we've got them. Now, I'm trying to get
them faster even, and Knox goes over and
BeeB Stimson, drops everything, turns himself
inside out, I'm sending my General Counsel
out .....
P:
Well, after I left your office this morning
when I went over to his office, he Just
turned the whole place upside down, he got
after everybody, and he talked to Stimson while
I was there and, therefore, when I came back
and saw Fairey and Maurice Wilson, I was able
to give them - to impress them with the importance
of this thing and there's no question of that.
I'll find out
.....
H.M.Jr:
Then Knox calle me up and he evidently had
been in direct touch with Fairey and Fairey
said, I don't know what it's all about, I
haven't heard a thing.
P:
Well, that's curious. I spoke with Knox 15
minutes ago, as soon as I got his message. I
was delayed because I was talking with Morris
and I got his message 15 minutes ago, called
you, then him, got onto him, he gave me the
details of the arrangement and I was tickled
pink, I mean, everything - he'll be there
Friday morning, that's all.
H.M.Jr:
Well, I told him to be there Thursday night.
P:
Oh, well. Knox gave me Thursday night or
Friday morning.
H.M.Jr:
Right.
P:
Well, that's all right, he can be there one or
the other.
H.M.Jr:
Well, you had better tell him Thursday night
and maybe he'll get there Friday morning.
P;
Yes, in view of this morning. (Laughs).
H.M.Jr:
Well, you and I understand each other anyway.
108
- 5 -
P:
Oh, this to my mind - I put this thing in the
same category as the R.F.C. financing situation,
the various bigger moves that have been made
from time to time. I mean, I regard this as
of absolute paramount importance and 80 do
our people here. Please don't worry anything
more about it, I'll take care of this thing.
H.M.Jr:
And then I'm seeing you tonight.
P:
Thank you very much. May I ask you one
thing before you 6° off? On that scrap iron,
did you get that option that expired today,
is there anything
H.M.Jr:
I sent the people over this morning to see
the Council of National Defense to find out
whether they'd be interested. I did it as
soon 88 I got in.
P:
Fine. Thank you 80 much.
H.M.Jr:
I sent them over to Leon Henderson who has
been handling that because, on account of
ite being steel, Stettinius dion't want to
handle it.
P:
Oh, I see.
H.M.Jr:
And he has kept out of that. And the man
who has been handling it 1s Leon Henderson.
He had your memo this morning.
P:
Good.
H.M.Jr:
And I asked them whether they wanted to buy
it, 80 that was done. What the answer 1s
I'll know tonight when I see you.
P:
Thank you very much.
H.M.Jr:
Right.
P:
Much obliged.
Regraded Uclassified
109
- 2 -
H.M.Jr:
Make a note that Dr. White should see me
before I go home tonight or certainly by
7:30, what was the answer from Leon Hender-
son on scrap steel, Mexico.
Okay, gents.
Pehle:
We took the thing up in committee again. The
committee felt that we were right in the first
place in turning it down, with the exception
of Mr. Cochran, who can state his own views
better than I can, that we ought to approve
it.
H.M.Jr:
Give it to me very simply. I don't get that
transaction.
Pehle:
It is a payment out of the Bank of France
account of the Federal of $28,000 --
H.M.Jr:
Of frozen money?
Pehle:
Of frozen money.
H.M.Jr:
Not blocked accounts?
Chamberlain: Yes, blocked.
Pehle:
It is the blocked Bank of France account,
$28,000 to the B.I.S., which itself is
technically blocked.
H.M.Jr:
For what purpose?
Pehle:
For the payment of a loan, part of 8. loan that
the B.I.S. is holding. It is a French '39
loan which is payable itself in Swiss francs.
The committee's feeling was in the first
place --
H.M.Jr:
Part of a loan that the B.I.S. made or did
they buy some French bonds?
Regraded Uclassified
110
- 3 -
Cochran:
They bought some French bonds issued in
Switzerland.
H.M.Jr:
And this is the coupon on them?
Cochran:
Yes, it is really the - it is a note, you
see.
H.M.Jr:
Well, this is the interest on it?
Cochran:
This is the interest, yes.
Chamberlain: Is this the whole of the issue?
Cochran:
No, it is not the whole of the issue.
Chamberlain: A small piece of the issue.
Pehle:
The committee's feeling can be summarized
this way: they don't feel the action taken
in the Swiss case can be a precedent. In
the first place, they told the Swiss Minister
it wasn't a precedent even in its own case.
We did that to help Switzerland in difficult
times.
Secondly, the loan is payable in Swiss francs,
not in dollars. We feel that France has
Swiss francs for $28,000. The amount is
insignificant, of course. As a matter of
fact, Switzerland blocked French assets,
so obviously France has Swiss francs in
Switzerland.
H.M.Jr:
Swiss blocked --
Pehle:
French assets, according to newspaper reports.
In any event, it is too much to assume that
the French haven't got $28,000 of the Swiss
francs that they can get hold of, so the
issue comes down to, do we want to let France
pay her Swiss franc obligations to the B.I.S.
111
- 4 -
in dollars out of blocked dollars, and we
think that would be a bad precedent.
The committee, as you know, in the first
place thought the Swiss case ought not to
be allowed and now they agree in order to
help Switzerland those are special cases,
but they don't think that special circum-
stance exists in regard to B.I.S. I think
that is the summary of their feeling.
H.M.Jr:
Have you any idea on that?
Chamberlain: I agree it probably shouldn't be done, partly
because this is only a very small part of
a considerable loan, and I can't quite see
why we should pay a small amount to the B.I.S.
and not pay the others. I am afraid We would
get ourselves into trouble. That is my
reason. I am very friendly to B.I.S., as
you know.
H.M.Jr:
What is your idea?
Cochran:
I thought we should go ahead, I didn't mean
that the two accounts for the Swiss National
Bank should be construed as precedents. I
have been unhappy ever since the B.I.S. account
was blocked. I think it shouldn't have been
done in the first place, and now that we have
them there, we are trying to make a go of it.
We are having quite a lot of difficulties.
We have been embarrassed by this blocking,
not so much that it inconveniences them as
it does if you hurt the prestige of the Bank.
I thought we ought to go as far as WE could
on this. It is true that the French might
have Swiss francs. We don't know it at all.
They have kept most of their reserves in
dollars and the fact that they have blocked
francs isn't a sign that the French might
have Swiss francs.
Regraded Uclassified
112
- 5 -
The Swiss have blocked the assets of all the
countries invaded just as we have. There is
no separate action there. The B.I.S. has
been the paying agent for one of these loans
where we had permitted to be paid across, and
the eventual beneficiaries are the Swiss banks,
private banks, in fact, so when the B.I.S.
sees this payment go through, I think they
will feel rather badly if they don't get the
dollars if they ask for them.
There is nothing obligatory about it at all.
It is just & question as to whether we should
facilitate the B.I.S. in taking care of in-
vestments this way, and furthermore, their
account for us is blocked. These dollars
are blocked. It is just a transfer from
one blocked account to another.
Pehle:
Technically, we have blocked the B.I.S.
account. As a matter of fact, two things
have happened. One is, we gave the Federal
authority to license any transaction it thought
was normal. Secondly, we have licensed every
transaction they have asked us to pay, in-
cluding payments directly to the Germans, so
that - because the Germans have money with
them, 50 if this amount were put in the Swiss -
the B.I.S. account, it could go right out to-
morrow. It really isn't blocked in the real
sense, although we do have some --
H.M.Jr:
Well, this one is thumbs down. Would you
mind, so I will surely get it - the Bullitt-
Offie case?
Pehle:
Yes. After you called me, I had a thorough
search made in the office, and we haven't
any information. Mr. Cochran hasn't heard
about it. We called the New York Federal
and they knew nothing about it.
Regraded Uclassified
113
- 6 -
H.M.Jr:
Well, let me state it as he gave it to
Mrs. Klotz, and then you can call up Offie.
He is Bullitt's secretary. He is over at
the State Department.
I gather Mr. Bullitt personally wants to
send $5,000 to Vichy to pay the expenses
for lawyers to defend Lachambre. I gather
it is his own money and it is to pay French
lawyers in Vichy to defend Lachambre.
Pehle:
Do you know anything about this?
Cochran:
I know the man, and I know he was Minister
of Air. He is the one who came over here
and then returned to stand trial. I presume
he would have funds of his own.
H.M.Jr:
Let's put it this way. Supposing Mr. Smith
wants to send $5,000 to any Frenchman for
any purpose, to pay his rent or anything.
What would you do?
Pehle:
No.
H.M.Jr:
That is what I thought.
Pehle:
The amount would have to be very much smaller.
The only case where we have gone very far is
the case where they can convince us it is to
get the man out, If the man is in southern
France and he needs $500 to give to Portugal -
but that is not this case at all, as I see it.
H.M.Jr:
I want you to call up Mr. Offie, but just
remember this: no matter how nasty they
get over there, keep your shirt on. I would
tell them this, that you have no application,
and if the application is made, that you will
give them an answer - you will take it up
before the Treasury Committee on Foreign
Funds, which meets this afternoon, but that
Regraded Uclassified
114
- 7 -
there is no application here - but you want
to tell them in advance that these are the
kind of cases where we do not permit the
money to go. I would just be very courteous,
but just tell them. Will you?
Pehle:
Yes.
Cochran:
May I ask one question? When Lachambre was
here, he didn't indicate anything about his
dollar holdings, did he?
H.M.Jr:
Never mentioned his own funds. Has he any
money?
Cochran:
I don't know, but the last Frenchman we had
in had two million two hundred thousand.
H.M.Jr:
Two million two hundred thousand what?
Pehle:
Dollars.
H.M.Jr:
A Frenchman?
Pehle:
That is not necessarily an unusual case.
H.M.Jr:
Who is he?
Cochran:
Mr. Stern.
Pehle:
Jacques Stern.
Cochran:
He is a member of the Chamber of Deputies
who brought out an early resolution in
favor of paying off the war debt.
Pehle:
That is his argument for funds which he
gives at three minute intervals, that he
voted once to pay the war debt.
H.M.Jr:
And he has two million two hundred thousand
dollars?
115
- 8 -
Pehle:
In cash and securities, part of which was
in London with Stern Brothers, who are his
cousins.
H.M.Jr:
How would a man make that much money?
Pehle:
I don't know.
H.M.Jr:
If you ever run across any money belonging
to Mr. Bonnet over here, I would like to
know about it - the former Prime Minister.
Also the head of the Indo-China Bank. What
is his name?
Cochran:
Baudoin.
H.M.Jr:
If you run across any of his money, I would
like to know about it. They had their money
with Guaranty, didn't they?
Cochran:
I am not sure.
H.M.Jr:
If you hear about either of them, I would
like to know about their money.
Pehle:
One thing I want to mention, that I thought
you might be interested in, Swift of the
Red Cross called me yesterday and said that
they were going to do some active work in
China. You may already know it.
H.M.Jr:
No, I do not.
Pehle:
They wanted immediately to be able to pay
$300,000 through the Guaranty Trust to Indo-
China - beg your pardon, the Dutch East
Indies, to take into China through the Burma
Road.
H.M.Jr:
I am glad to hear that.
Regraded Uclassified
116
- 9 -
Pehle:
The only other problem I wanted to mention
was this group charitable remittance thing.
The remittance problem itself, individual
cases, is all under control and so far we
haven't received a lot of protest from our
attorneys down - that group of cases where
it was blocked dollars. You know, we de-
cided not to grant those and tool affirma-
tive action in turning them down and so far
we haven't received anything in protest,
to speak of. We did have one man that called
us on the phone and was upset about it. He
wanted to send $500 and it was cut down to
$80, and he felt that with the purchasing
power of the franc - whether he had any
accurate information or not, I don't know -
that wouldn't amount to an awful lot. That
is the only case of that type that we have
had, but this is a group problem.
What we are doing now is this: we have blan-
ket licenses for the Red Cross. We let them
send funds to France freely. We get reports,
but we are not supervising their operations
under the theory that they are & separate
Government, semi-governmental institution.
They have their own access to the President
and we are not responsible for their actions.
H.M.Jr:
Who?
Pehle:
Red Cross.
H.M.Jr:
And Mr. Bell is treasurer.
Chamberlain: And through the Procurement Division of the
Treasury, Mr. Secretary, you are up with
that situation.
H.M.Jr:
I know. I had John R. Motley here today.
He wanted to know how he could buy stuff,
Regraded Uclassified
117
- 10 -
books and various things for the prisoners
of war, so I told him - I checked with Bell -
that the place to go was see Norman Davis.
He says that there are at present three
million prisoners of war, counting the Poles.
He had the man with him who has been visiting
the prison camps and he said the Germans
were still treating them very well; that was
his report.
Chamberlain: You see, the responsibilities of keeping
prisoners in France are on the French.
Pehle:
Feeding them?
H.M.Jr:
You had better not cross-examine me, He
said the prison camps that he had been to,
the prisons that he had seen, they were
well treated, but I don't know whether it
was in France, but he did have this man
with him.
Pehle:
In addition to the Red Cross problem, we have
been, pursuant to your decision, allowing or-
ganizations that were well run American or-
ganizations to send funds to unoccupied France
where they have been sending them in the past
and against blocked dollars, so that the
free dollars aren't made available. We
haven't gone any further than that.
One question that is immediately before us
is the Ort group. They run both technical
trade schools in unoccupied France and
farm colonies and they have about 20,000
people that they are trying to get in such
shape that they can possibly get them out
of France and into particularly South America,
and they feel that unless they are skilled
workers or farm laborers, they are not
going to have any chance.
Regraded Uclassified
118
- 11 -
The thing runs a little different from what
we have done in the past; in other words,
it isn't food or medical supplies, but they
feel, and I feel the same way, that one of
their big problems is rehabilitation. It
doesn't do any good to feed these people
if there is going to be this problem going
on. What they are trying to do is work
with the French Red Cross, and they want
to take about 20,000 people and go on re-
habilitating them, running these farm
colonies and the trade schools. They feel
it will take about $50,000 or more, not any
more, for all the plans they have. All the
dollars would be blocked. After that they
hope to be able to set up a procedure whereby
they can borrow francs, and people over there
think they ultimately will be confiscated
anyhow, with an understanding they will pay
them after the war is over or if their people
get out.
H.M.Jr:
This is unoccupied?
Pehle:
This is unoccupied.
Chamberlain: I may be prejudiced, but I am interested in
this question. I think from that point of
view, this is quite an important angle. I
would be in favor of it, realizing that it
does go beyond the decision before. It isn't
just feeding the people, but it is & relief
measure that seems important. Personally,
I would be in favor of it, but I think I
should call your attention, as Mr. Pehle
did, to the fact that it is a little out-
side --
Pehle:
A little different case.
Chamberlain: A little different case, but I should - I
have always been in favor of granting this
if you have no objection.
119
- 12 -
H.M.Jr:
What kind of money is it they are going
to use?
Pahle:
It is blocked money, and they will obtain
their francs from the Bank of France. The
dollars will stay in the Federal in the
Bank of France account.
E.H.Jr:
Oh, it is still that kind of money?
Pehle:
Still that kind of money. As long as the
Germans will let them do it --
H.M.Jr:
If it stays here, I think as long as it
is that, I would do it. As long as they
will continue to let us do that - but you
remember just as soon as they won't let
us block it here
Pehle:
We are issuing it under that condition.
(Mr. White entered the conference)
White:
Mr. Secretary, I need to tell you about
it now or it will be too late.
H.M.Jr:
Then it will be too late. I am running on
a very tight schedule.
Pehle:
I just have one thing more. The Y.W.C.A.
wants to contribute some money to the
Belgian Y.W.C.A. for rehabilitation gener-
ally. The amount was not large, but we
turned them down. Free dollars was in-
volved. The Y.W.C.A. here wants to give
some money to the Belgian Y.W.C.A. for
rehabilitation. Professor Chamberlain has
talked to the Red Cross about Belgium, and
the Red Cross isn't doing anything up
there. Nobody seems to know anything about
what is going on. Free dollars would be
Regraded Uclassified
120
- 13 .
involved, and it was our feeling that we
ought not to go into that field at this
time.
H.M.Jr:
I agree with you.
Chamberlain: I agree.
H.M.Jr:
I agree. Is that your --
Pehle:
That's right, that was our recommendation.
121
October 2, 1940
4:00 p.m.
RE SHIP MOVEMENTS CONTROL
Present:
Mr. Foley
Mr. Young
Mr. White
Mr. Cairns
E.M.Jr:
This memorandum from Purvis on scrap, I let
Mr. Jones read it and asked him whether he
would discuss this matter of Mexican scrap
with the Allied Purchasing Mission if they
could get a 48-hour extension and he said
he would. I called up Mr. Purvis and told
him Mr. Jones was sitting next to me and
that Mr. Jones would be very glad to see
Mr. Elliott tomorrow morning and discuss
it with him. Mr. Purvis said he would go
to work and try to get 8 48-hour extension.
I 8lso told Jones that White had been over
to see Leon Henderson at the National Defense
Council.
What the hell are you (Young) in here for?
What have you got to do with 0117
Young:
Not a thing.
H.M.Jr:
Do you just want to be sociable?
Young:
Mr. Stimson wants to send you a memorandum
on the stuff for the British, on the procedure
involved, asking you to get 8. ruling from the
Attorney General.
H.M.Jr:
Listen, Mr. Stimson came over here and told
me that this was his proposal and all I did
was to accept.
Young:
But you told him you would help him with the
Attorney General.
Regraded Uclassified
122
- 2 -
H.M.Jr:
No.
Young:
You told Brett that when I was here.
H.M.Jr:
No, I told him I would lend him Cox.
Young:
You told him you would help him with the
Attorney General.
Foley:
What?
H.M.Jr:
I told him I would lend him Cox to work with
him.
Foley:
With him (Young)?
H.M.Jr:
With him. I said Cox would work with
Philip Young.
Foley:
Sure.
Young:
They worked out a procedure. What he is going
to do 1e refer it to this aircraft standardization
and say it is just a deferment. Therefore, it
doesn't have to be released.
H.M.Jr:
But I mean, Mr. Stimson, ex-Secretary of State,
ex-this and ex-that, needs poor little me to
help him with the Attorney General.
Young:
That is what he says.
H.M.Jr:
Do you tell me I should do it?
Young:
Well, he wanted to know if you were sympathetic.
H.M.Jr:
Yes. This was an afterthought. You see, he
came over here and made a grandstend play and
80 forth and Bo on and then - and I understood
that this was Marshall's memorandum. At lunch
he said to me, "Marshall is sorry he couldn't
come, and he asked Stimson to give me
Marshall's memorandum and at the discussion
at lunch - - you check me - there was no question
about Marshall having to sign anything, only
when Brett brought it up.
123
- 3 -
Young:
That 1s right.
H.M.Jr:
That was an afterthought.
Young:
That is right, and Brett said he is having
trouble with the procedure.
H.M.Jr:
Well, it's just too damn bed, and I told him
when you were here that if he wanted you
and Cox to help him, he could have you.
Young:
That 1s right.
H.K.Jr:
Is that right?
Young:
That 1s right.
H.M.Jr:
Now, what do you want me to do?
Young:
You also said something about the Attorney
General.
H.M.Jr:
I don't remember it. Do you say I did?
Young:
I think 80. I don't remember exactly, but
I would like to see the record on it.
H.M.Jr:
You (Reporter) take a look at it. I will
bet you a package of gum on it.
Young:
What kind?
H.M.Jr:
Beech-Nut. Did you ever have a Beech-Nut
Ham?
Young:
Sure. We never buy them.
H.M.Jr:
Did they give them to you?
Young:
They don't make those where we trade.
H.M.Jr:
All right. Now, as long B.B you are here
and crashed this meeting, what about --
Young:
I am adopting Harry's tactics.
H.M.Jr:
Did you hear about Harry, what happened in here?
Regraded Uclassified
124
- 4 -
Young:
Yes.
H.M.Jr:
We had to bring in a mop.
Young:
I didn't hear about the mop.
White:
I told him this morning. They have got a
story on Ed that he 18 going to run away to
get married. They are waiting for you (Foley)
out there. I can give you an advance tip.
Dorothy Thompson 1s coming out for the
President, Monday. Maybe it isn't advance
to you.
K.M.Jr:
It isn't. I have known it for two weeks.
I have kept it a secret for two weeks. That
18 what she came down here for.
Young:
I would like to check this procedure with
Ed. It seems silly that they need to go to
the Attorney General.
H.A.Jr:
Will you talk to Ed, if you can, before he
hops off for San Diego and places West, and
talk to Ed now. The only other thing - I
have really got to do oil. Do I or don't
I see Patterson on the Brewster plant?
Young:
Republic planes.
E.M.Jr:
Yes.
Young:
Yes, I think 80.
E.M.Jr:
You were going to let me know. You were going
to this ten o 'clock meeting this morning and
find out where Republic stood.
Young:
I sent you e memorandum on it.
H.M.Jr:
I haven't got it.
Young:
Maybe I didn't bring it in. I wrote it this
morning.
H.M.Jr:
What does it say? Do you want T.E to see
Republic about it?
Regraded Uclassified
125
- 5 -
Young:
Yes, I think you ought to talk to Patterson
about it and let's do something with the
planes. They are just eitting there on the
docks. Tell Patterson I would be delighted
to release them provided he gives us something.
H.M.Jr:
We will have a little meeting tomorrow.
All right? On your way. Thank you.
(Mr. Young left the conference.)
H.M.Jr:
Will you gentlemen come closer? I can't
see the whites of your eyes.
Did they tell you (Foley) I offered them Cox
and Philip Young?
Foley:
No. That 1s all right. I didn't know whether
you were loaning him for an indefinite period
or just this job.
H.M.Jr:
That 18 what he does, ien't it?
Foley:
Sure, absolutely.
H.M.Jr:
The Army makes this gesture. They come over
and we thank him and I call un Stimson and we
thank him and then suddenly somebody remembers
that they have to work out the procedure. I
am not going to worry about it. They have
passed their word on it.
All right, let's go. Where do we stand? Did
you get that message from Joe Green? I
referred him to you.
Cairns:
Yes.
H.K.Jr:
Isn't he just about 48 hours behind time?
Cairns:
A little further. We have tried to find out,
pursuant to your suggestion yesterday, how
many vessels are situated similarly to the
Panamanian. There is one at Port Arthur.
There is the Panamanian at Galveston. There
1s another at Los Angeles.
126
- 6 -
H.M.Jr:
Have they all got the same thing?
Cairns:
Carrying gasoline to Japan.
H.M.Jr:
Now, the Florence Luchenbach, No. 1, she has
got 60,000 barrels of Gulf oil, which 18 under
879
Cairns:
It is all under 87.
H.M.Jr:
Has that been settled?
Cairns:
No.
H.M.Jr:
Then there is the Panamanian, a Japanese
tanker, of 31,000 barrels.
Cairns:
That has not been issued.
H.M.Jr:
And 105,000 drums of outstanding licenses.
What does that mean?
Cairns:
See this note for Galveston? Licenses have
been filed with the Collectors.
H.M.Jr:
Well, for my purposes, that doesn't make any
difference.
Cairns:
No.
H.M.Jr:
What about this?
Cairns:
That 1s another vessel to sail October 5th.
That 1s for your purposes.
H.M.Jr:
What is this?
Cairns:
That 1e for your purposes. The LaFayette
sailed today.
H.M.Jr:
You lost that? Which sailed today?
Cairns:
The second one.
H.M.Jr:
The Maru?
Cairne:
Yes.
Regraded Uclassified
127
- 7 -
H.M.Jr:
She has gone?
Cairns:
That 1a & telegram that just came in after
I came in this office. We are still getting
reports. There are three ports not heard
from.
H.M.Jr:
But for my purposes, I am going to cross
that off.
Cairns:
Yes.
White:
And last week, you know, there were 220,000
barrels left for Japan, of that type of
gasoline.
H.M.Jr:
220,000 - how much left last week?
White:
These figures say 223,000.
Cairne:
250,000.
H.M.Jr:
250,000?
Cairne:
Yes.
H.M.Jr:
Gallons or barrels?
Cairns:
Barrels.
E.M.Jr:
And the Panamanian, do you know what has
happened?
Cairns:
Yes, the lawyer 1s sitting up in the Mayflower
waiting to hear one way or the other.
(Unrecorded telephone conversation with the
President.)
H.M.Jr:
What he said was, "I am still President of
the United States and the State Department 1s
handling foreign affairs." I said, "Granted,"
and he laughed. It 18 all right with me. I
don't give & damn.
I said to the President, "May I be 'carsastic',"
Regraded Uclassified
128
- 8 -
and he said, "Yes." I said, "Well, as soon
as the Japanese have got everything that they
want, I suppose then we will stop the gasoline
from going," and then he answered, "Well, I
am still President of the United States and
the State Department is handling foreign affairs
and you are Secretary of the Treasury." I said,
"Granted." It 1s okay. That is all right.
That clears the thing up. The President said,
"If they can give a bond that the ship will
return so it won't be scrapped, that 18 all
right."
Foley:
We can exact that as a condition, can't we?
We will let them go if they come back. If
they won't come back, they don't go.
H.M.Jr:
What about & bond?
Cairna:
That 1s present only in the Panamanian case.
I doubt it, but I don't want to say no.
H.M.Jr:
We can take e. bond if we think they are supplying
8. vessel on the high seas, that they won't supply
the vessel.
Foley:
I know, but let's Bay, "If you don't post a
bond that you are coming back, you can't go.'
(Telephone conversation with Secretary Hull
follows:)
129
October 2, 1940
4:18 p.m.
H.M.Jr:
Hello.
Operator:
Secretary Hull is coming right on.
H.M.Jr:
Hello.
Cordell
Hull:
Hello, Henry.
H.M.Jr:
Hello, Cordell.
H:
What's going on?
H.M.Jr:
Well, I just was talking to the President
about the Panamanian, and I pointed out to him
that 250,000 barrels left last week and that
the Panamanian was only one of a half a
dozen ships which would leave this week and
what did he want me to do. So he said he
had been talking to you and that you felt
that she ought to go in view of the situation
in the Dutch East Indies.
H:
What happened, Hornbeck and Hamilton and
those fellows up there sent word down to me
that they were in conference then with these
oil people in the Dutch East Indies and I
knew myself that we had been urging them for
some weeks to stand as firm as possible and
that they - Hornbeck's fellows said they were
standing up excellently BO far. But the
Japs are making every effort to push them
into long-term agreements for a maximum
amount of 011, and that they felt - they
ran into this case and they felt that this,
with the Japanese 60 cooky over there right
now, that they would take advantage of this
and force those people into any kind of a
contract nearly and since we didn't have
within the prohibition of our licensing
system this kind of oil, it was difficult to
hold it without Japan having some kind of
pretty plausible ground to use as her reason
for grabbing the oil in these other places.
Bo that's what they said and I laid it before
the President, and that's the whole thing.
Regraded Uclassified
130
- 2 -
H.M.Jr:
Well, I'm glad you did. Now he made this
suggestion, which I don't know whether it's
his or yours, but
.....
H:
I asked him to confer with you - whatever
you and he wanted to do about it.
H.M.Jr:
Well, I called him up because I'm on the
spot, and he said that we should exact a.
bond from them that the ship would return
to this port, but our boys aren't at all sure
that we can do that legally.
H:
Well, he and I talked about that. I was
trying to get the facts before him so he
could discuss them with you and you people
decide it, and he said he would, that's what
he told me.
H.M.Jr:
Well, I just called him on my own initiative
because I'm - I mean, I have no legal status
H:
I 800 your position and if you want - well, I
may say first that Green looked up the owner-
ship as he understood it, got it from you
people or somebody.
H.M.Jr:
He called up here. We got that message.
H:
It's owned by Japanese interests.
H.M.Jr:
I think he's wrong. We think it's part of the
Alfred Bernstein outfit, the thing that the
Germans took over.
B:
oh, I see.
H.M.Jr:
And I got that message to Green and I under-
stand that when he got that that he agreed
with us. He had the same information that I
had yesterday and then we got more recent
information which we ve given to Green, and
now I understand that Green agrees that the
more recent information is correct but we're
not definitely certain. But anyway .....
H:
I'd be glad, Henry, just to - 80 you'd have
the thing all first-hand - if you'd have
Regraded Uclassified
131
- -
somebody to call Hamilton or Hornbeck either
one. They're the heads of the Far Eastern
Division, and let them give you the exact
facts about the
.....
H.M.Jr:
Well, I'll do that, but let me just ask this.
Supposing our boys say that legally we have
no right to exact a bond from these fellows,
what would you like us to do then?
H:
Well, I think that - you see, these Japs
are watching that thing - the Government 18,
and this thing here is independent-owned
ship loaded with oil that no law and no
license of the United States Government
affects and we have - - they are holding it up
and we will retaliate in this way or that way
and so on, 80 I think right for the moment,
unless you get something from Hornbeck about
the details, that I would consider letting
the thing go until - at least until we get
a little further with those
.....
H.M.Jr:
Well, that's all right with me, but did you
remember the President turned to me at Cabinet
Friday and ordered me to hold this ship.
B:
Well, I've told the President that I wouldn't -
it was up to him what he wanted done about
it and he has promised me twice he would
talk with you.
H.M.Jr:
Well, I called him, I didn't know
.....
H:
That is what I'd want you to do, Henry. I'd
like for him to handle it.
H.M.Jr:
Well, now, may I - well, here's the point,
in order not to bother him again, let's say
that we cannot get a bond from them. You
still would like the boat to go, wouldn't
you?
H:
That's - of course, I feel like you do about
not wanting it to go and yet right now we
could get up complications, that's what our
Far Eastern fellows all think.
Regraded Uclassified
132
- 4 -
H.M.Jr:
Well, I tell you then what I'm going to do -
there's no use my calling Hornbeck - I may
want to have Huntington Cairns call your
attorney - what's his name?
Hackworth.
H:
H.M.Jr:
Hackworth, and if you could just get word to
Hackworth if he gets a call from the Treasury
on this on the bond, would he please drop
what he's doing and just try to work it
out 80 that we can still clear this tonight.
H:
Yes, I'll be glad .....
H.M.Jr:
But there's no use my talking to Hornbeck
because you've told me how you felt and
.....
H:
Now, that's the message he sent down by
Green.
H.M.Jr:
I understand. Well, I'm going to do this
one way or the other - if we can't get a bond,
I'm going to give word and let this ship go
tonight.
H:
The reason I called the President, I heard
him give you that instruction and I said
here's a new development that you should have
and you do what you think is wise.
H.M.Jr:
Well, Cordell, I'm delighted that you called
him because it made it easier for me.
H:
All right, Henry.
H.M.Jr:
I'm delighted that you called me.
H:
Good-bye.
133
- 9 -
H.M.Jr:
Well, I am not - I mean, I am just not going
to fuss around with this thing. Either you
can or you can't.
Foley:
And if we can't, we let her go anyway.
H.M.Jr:
Right. Don't you fellowe agree?
White:
Yes.
H.M.Jr:
The President tells me he 1s President of the
United States and that Cordell Hull is Secretary
of State and I am Secretary of the Treasury,
which means that I take care of the Treasury
and let the President and the others do the
others. He asked me to do something, and if I
can do it, I will, and if I can't, we will let
the boat go.
Cairne:
And we will let the others go, too, without a
bond.
Foley:
The bond has only to do with the use of the
boat as scrap and we don't know anything about
the other boats being used for scrap.
H.M.Jr:
No. Just a second until we get the thing
straight. It always ends up this way.
(To Commander McKay.)
MoKay, I have changed my position on the
Panamenian and BO there is no misunderstanding,
I delegate full power to Huntington Cairne to
decide whether the boat should or should not
sail.
MoKay:
All right. That 1s to go to - any further
word will go to Cairne?
H.M.Jr:
Yes. In this case he has full power to decide
on this end on all other matters until further
notice. On any ship movement until Mr. Gaston
gets back. I Just put 8 mark on the Panamanian.
McKay:
I think they understand that, but I will make
sure.
134
- 10 -
Cairns:
You have a signed order to that effect on
all vessels.
H.M.Jr:
I am telling McKay to Just lift that stop
order on the Panamanian.
Mckay:
All right.
H.M.Jr:
Well, it is the usual thing I don't blame
Cordell. He is doing this thing. I disagree
with him.
White:
It is absurd to say that the Japanese will --
Cairns:
You are just about a month ahead of what is
happening. You went forward on the scrap
iron and then a month later they caught up
with you.
H.M.Jr:
A month ahead?
Foley:
That was in July.
H.M.Jr:
I em two or three months ahead on it.
Cairne:
I was being conservative.
H.M.Jr:
I am two or three months ahead. I said, "May
I be 'carsastic'?" and he said, "Yes," and I
'said, "We will just wait until they get the
stuff and then they will say-" after they have
got everything they want- "they will say, 'Let's
stop it.'"
White:
What hurts 18, that 1s true. The truth always
hurts.
H.M.Jr:
Well, I laughed, and then I made him laugh, but
for the minute it made him a little angry. I
asked him. I said, "Can I -" it made him a
little angry, which 1a good. I will remind him
of it.
Foley:
Can I bring up one other thing?
H.M.Jr:
Yes.
- 11 -
135
Foley:
Huntington has a friend over in Justice who
reads the South American papers, and other
foreign language newspapers, and he picked up
in his perusal of a Brazilian paper an account
that a mission was coming over from Japan to
wait on Brazilians --
(Unrecorded telephone conversation with
"Pa" Watson.)
H.M.Jr:
"Hello, H.M.Jr. broadcasting. I just talked
to a man by the name of Roosevelt. Do you
know that already?
"My God.
"That is the regular procedure we go through.
"All right," H.M.Jr. signing off.
He had already heard it.
136
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Legation, Budapest, Hungary
DATE: October 2, 1940, 5 p.m.
NO.: 235
I refer to telegram of September 30, 7 p.m., No.
230 from the Legation.
The information with regard to the ultimatum was
confirmed by the General Manager of the National Bank.
The General Manager said that Germany was insisting upon
central European economic hegemony, and the sooner Hungary
fell in line with this the better it would be for Hungary.
Quandt said that as yet no decision had been reached
by Hungary as to the new premiums for the new currencies,
but before taking formal action he promised he would let
me know. On Saturday he leaves for Zurich to attend a
creditors meeting.
by the National Bank
No decision has been reached/regarding policy, he
asserted. However, consideration would be given to American
standstill loans, and on the matter of the interests in
Transylvania of the International Telephone and Telegraph
I would be kept informed. It 18 Quandt's opinion that
the principals should be quite satisfied if this claim
should be settled in two years. It 1s his belief that
the claim of this company 16 against the Rumanian Govern-
ment rather than against the Hungarian Government. He
could
Regraded Uclassified
137
- 2 -
could not envisage an immediate solution, since the
authorities in Rumania were doing all they could to delay
& settlement. He said that should it be decided by the
commission that indemnity must be paid to the American
company by Hungary, he did not consider that free devisen
would be used.
MONTGOMERY.
EA:LWW
138
ADDRESS THE COMMINDANT, U. & COAST GUARD
AND REFER TO ML - OP-64
TREASURY DEPARTMENT
UNITED STATES COAST GUARD
HEADQUARTERS
WASHINGTON
2 October, 1940.
CONFIDENTIAL.
MEMORANDUM TO THE SECRETARY OF THE TREASURY.
Via Assistant Secretary Gaston.
Subject:
Water pollution.
Reference:
(a) Headquarters memorandum, 30 September, 1940.
1.
With further reference to my memorandum of Sep-
tember 30th, there is attached a complete list of vessels
whose fresh water tanks showed signs of pollution.
2.
The Medical Officer attached to Coast Guard
Headquarters states that upon inquiry of the Public Health
Service he finds that the fresh water supply of Baltimore and
Norfolk is pure and safe.
pnusesche
R. R. WAESCHE
Rear Admiral, U. S. Coast Guard,
Commendant.
Inclosure
Regraded Uclassified
139
From Commander, New York District, U. S. Coast Guard, 30 September, 1940.
Vessel
Last port of call before
Remarks
assembling for convoy
LANGLEEBROOK
Norfolk
9 of 10 samples.
Norfolk
10 of 10 samples.
BLAKAHOIM
Baltimore
High bacteria count.
KALANI
EKNAREN
Baltimore
5 of 10 samples.
ONDMEA
Baltimore
6 of 10 samples.
EMMA PLEIN
Baltimore
8 of 10 samples.
MANCHESTER SPINNER
Norfolk
10 of 10 samples.
NOLISEMENT
Baltimore
10 of 10 semples.
OAKCREST
Norfolk
5 of 10 semples.
BEECHWOOD
Norfolk
Crew stomach trouble.
TREVORLAC
Baltimore
10 of 10 samples.
MIGUEL DE LARRINAGA
Norfolk (Scrap Pier,Army Base)
Water yellowish, dirty.
MARIPOSA
Norfolk
Case of typhoid; claims
due to crew swimming
in harbor at Baltimore.
140
WAR DEPARTMENT
WABHINGTON
October 2, 1940.
Dear Henry:
Here is a copy of a news reel address
by Rear Admiral Yarnell, former Commander of the Asiatic
Squadron, which I have just received and in which you
may be interested; also a memorandum on "American
Initiative in the Far East", which I have received from
Roger S. Greene.
Faithfully yours,
Henry L. Stimson
Hon. Henry Morgenthau, Jr.,
The Secretary of the Treasury,
Washington, D. C.
Regraded Uclassified
141
NEWS REEL ADDRESS BY REAR ADMIRAL H. E. YARNELL,
U.S.N. Retired. New York City.
September 18, 1940
For three years war on a vast scale has been waged in
China. China is fighting to preserve her freedom and her national
integrity. Japan is fighting to make China a vassal state. In
recent announcements she has stated her intention of dominating the
entire Far East, driving out all Western trade and influence.
In this war she has destroyed our trade with China, bombed
our citizens and property, violated our treaty rights, and ignored
our protests.
Few of our people realize the importance of this area to
the United States.
One fourth of our foreign trade is with the Far East. We
are almost entirely dependent on that part of the world for our rubber,
tin, hemp, quinine, tea, and to & lesser extent, for many other products
necessary in peace and in war.
We are responsible for the safety and welfare of the 16
million people of the Philippine Islands. Our trade with these Islands
stands fifth on the list. It is greater than our trade with any South
American country.
In China we have great commercial and cultural interests
built up during the past 100 years. Through our fair dealings we have
the friendship of the Chinese people. This is a great asset in these
days of international hatreds.
Regraded Uclassified
142
Withdrawal from the Far East and from other parts of the
world means isolation for us, and isolation is impossible in this
much shrunken world. We are a great nation and must assume our re-
sponsibilities and defend our rights.
There is a feeling on the part of some that we can take
no action until our great re-armament program is completed. They
forget the fact that we have now a powerful navy, vast resources, and
a just cause. That cause is the defense of democracy and the rights
of our citizens.
The aggressor nations are moving rapidly. It is far more
dangerous for us to remain inactive in the face of what is happening
day by day, than to follow a policy of action.
We should make a joint agreement with Great Britain, the
Netherlands and France for the protection of our mutual interests in
the Far East. We should strengthen our Asiatic Fleet, basing it at
Singapore. We should insist on the opening of the Burma Road. We
should aid China in every way possible with loans and munitions, and we
should stop sending war material to Japan.
Unless we are willing to defend our rights, we soon will
have no rights to defend.
The wars in Europe and in Asia are one and the same war.
It is crass folly to believe that this country can live in peace with
Germany and Japan if they win in the present struggle. A future war
with one or both is insvitable.
Regraded Uclassified
143
There can be no peace in the world until the rule of the
military element in both Germany and Japan is broken, and men who
recognize and practice honesty and decency in international relations
are placed in power.
144
AN AMERICAN INITIATIVE IN THE FAR EAST AND ITS
RELATION TO THE EUROPEAN WAR
1. The American Government and the great majority of our
people have made it clear by word and deed that they think it will be
to our advantage if both Britain and China defeat the aggressors against
whom they are now fighting. Additional measures are here suggested
which may contribute to the desired end and at the same time protect
important American interests in the Far East.
2. While Japan has no formal alliance with Germany and
Italy, she has helped them by threatening British interests in Asia
and the South Pacific. The same principles are involved in both wars.
3. Since Japan and Italy are the weaker pembers of the
aggressive combination, measures directed against them may prove the
most effective solution of the world problem.
4. The British position in the Mediterranean and in the
Near East has been gravely impaired by the French surrender. It is
now difficult for Britain to send badly needed reinforcements to her
esstern armies from the United Kingdom. Australia, New Zealand and
India would be the natural sources of reinforcements.
5. In the face of the hostile attitude of Japan towards
British interests in Asia, the British dominions cannot make such large
contributions to imperial defense as they mde in the last war. If
they were relieved of fear of a possible Japanese attack they could do
much more and might turn the scale against Italy in Egypt,
6. The Japanese threat to British communications in the
South Seas is a disturbing factor in British calculations, affecting
both troop movements and the transport of military and civilian supplies.
7. If we accept the hypothesis that Russian policy is
dictated mainly by fear for her own security, the Japanese threat to
the Bussian Far East tends to make Russia more cautious in the West
and consequently less disposed to a rapprochement with Britain.
8. China is now in such/critical position, with her most
important transport routes for military supplies closed at the Indo-
Coina and Burna frontiers, that it is now mcertain how long she can
maintain effective resistance to Japan.
Regraded Uclassified
145
9. The continuance and strengthening of Chinese
resistance is essential to prevent the concentration of Japanese
resources for an attack upon British and Dutch interests, and
possibly American interests, in Asia. So long as China resists,
Japan cannot afford to undertake any other extensive operations.
10. The stiffening of Chinese resistance by the re-
opening of the Burma road for military transport would greatly
strengthen the British position in southeastern Asia; but Britain,
though anxious to re-open the road, is unlikely to do so unless she
receives substantial encouragement to resist Japanese demands.
11. The Japanese advance threatens American trade
interests in China, the Philippines, the Dutch East Indies and Malaya,
from which we receive essential materials.
12. The United States is morally committed to the
defense of the Philippine Islands. If Japan should seize a base
in the British or Dutch East Indies it would be practically
impossible for us to discharge that obligation.
13. A Japanese base in the East Indies would greatly
intensify the threat to British communications with India and
Australasia, and thereby still further weaken the British position
in the eastern Mediterranean.
14. The dangers enumerated could almost certainly
be forestalled if the United States would seize the initiative by:
(a) securing from Britain the privilege of using
the Singapore base, and
(b) sending out a naval force of moderate strength
to be based on Singapore and Manila.
Japan in her present condition would be unable to
use armed force effectively in that area, 30 far from her own fully
equipped naval bases. The apanese threat to that part of the world
would be neutralized and almost certainly without war. Competent
American naval opinion supports this view, and the Japanese press
suggests that it is shared in Japan. An editorial from the Hochi
Shimbun of Tokyo, quoted in the New York Times of August 27, 1940,
(late City Edition, page 5) contains the following statement:
"If the United States secures the base at Singapore and
thus gains 8 foothold on the Asiatic continent, Japan's development
plans for the Netherlands Indies and Indo-China will become a dream."
Hochi goes on to say that American and Japanese strength in the
Regraded Uclassified
146
Pacific is evenly balanced but that the acquisition of Singapore
would tip the scale in America's favor.
15. Similtaneously economic pressure should be brought
to bear upon Japan. The supply of essential war materials which
are used to equip forces threatening our own interests should be ended,
and imports from Japan which supply the Japanese treasury with indis-
pensable foreign exchange should be severely restricted, The success
of such measures in bringing Japan to terms in the Siberian affair in
1918 shows their usefulness. Financial aid should be given to China.
16. The advantages believed certain to accrue from a
strong American initiative at this time may be summarized as follows:
Direct advantages to the United States:
a. The securing of the defense of the Philippines.
b. The maintenance of our trade with the Dutch East Indies
and Malaya.
c. The re-opening of our trade with "free China."
Indirect advantages to the United States:
a. Strengthening of the British position in the Near East
which would open the possibility of preventing the Axis
Powers from extending their control to that region and
the Suez Canal. This might produce eventually the
collapse of Italy.
b. Strengthening the Chinese position in southwestern China
by re-establishing transport of military and civilian
goods to and from those regions.
0, Creating favorable condition for a Chinese advance
against the invaders, with the prospect for the recovery
of China as a strong independent state, and the setting
up of 8. balance of power between China, Russia and Japan
which would conduce to peace in the Far East and the
restoration of our valuable trade there.
d. The relief of Russia from anxiety for her Far Eastern
territory, which would result from B. vigorous Chinese
offensive against Japan, would enable her to act more
independently of Germany in Europes a Russo-British
rapprochement should then become less difficult, and
Germany might no longer be free to devote 80 much of
her energies to the attack upon Britain. This might
have far-reaching results for good from the standpoint
of American interests.
Regraded Uclassified
147
17. Considering the enormous advantages of the initiative
in war and in situations threatening war, it is believed that the
course of action here proposed should receive serious consideration
without delay. If we leave the most important initiatives to Japan,
the dangers in the Mediterranean and in Asia are likely to become
constantly more grave.
September 18, 1940.
148
WAR DEPARTMENT
WASHINGTON
October 2, 1940.
Dear Henry:
Here is a rough historical
memorandum which I have just dictated as to
Japan's relations with the United States which
you may be interested in reading. While there
may be some alight inaccuracies in detail, I feel
sure that the statements are all substantially
accurate.
Very sincerely yours,
They h Stenson
Hon. Henry Morgenthau, Jr.,
The Secretary of the Treasury,
Washington, D. c.
149
HLS
Oct.2/40
HISTORICAL MEMORANDUM AS TO JAPAN'S RELATIONS WITH
THE UNITED STATES WHICH MAY HAVE A BEARING UPON THE
PRESENT SITUATION
1. 1914-17. Europe was preoccupied by the Great War and
the United States was taking the position of aloofness which was
generally attributed to pacifism. The Japan press indicated that
she so appraised it.
In 1915 she made the Twenty-one Demands upon
China which was & direct and a vowed blow at the Open Door Policy of
John Hay and Lord Salisbury looking towards the integrity of China.
During the dame period she ousted the Germans
from Shantung and moved in there herself intending to stay there.
Somewhat later she moved into Siberia with a
force exceeding that allotted to her by the Allied Council and by
going deeper than the other Allies into Siberia indicated that she
intended to stay there.
2. In 1917 the supposed pacifistic United States mobilized
4,000,000 men, transmitted2,000,000 to France and became the outstand-
ing factor in the victory of the Allies.
In 1919 the United States demanded that Japan should get
out of Shantung and should get out of Siberia and, to enforce the demand,
put into effect an embargo upon both exports and imports from Japan.
In 1921 the United States demanded that the Japo-British
treaty of mutual defense should be abrogated by Britain and this was done.
Regraded Uclassified
150
3. Japan evacuated Shantung, evacuated Siberia,
consented to the abrogation of the British Treaty and came to the
Washington Conference in 1921 and consented to a naval ratio of
inferiority to the American and British fleets.
4. For ten years after 1921 Japan lived the life
of 8 model international citizen.
She put up with indefensible provocation from
the United States with respect to immigration.
She put up with great provocation from the Chinese
during the disturbances of the Chinese civil war during the 1920's.
Not until the great depression of 1930 had
similtaneously distressed Great Britain, the United States, and most
of the rest of the world and had incidentally played internally into
the hands of the militaristic extremists of Japan, at the expense of
the Japanese moderate party, did Japan again set out upon her long
planned program of aggression upon China.
MORAL: Japan has historically shown that she can mis-
interpret a pacifistic policy of the United States for weakness.
She has also historically shown that when the United States indicates
by clear language and bold actions that she intends to carry out a clear
and affirmative policy in the Far East, Japan will yield to that policy
even though it conflicts with her own Asiastic policy and conceived
interests. For the United States now to indicate either by soft words
or inconsistent actions that she has no such clear and definite policy
towards the Far East will only encourage Japan to bolder action.
HLS,
Regraded Uclassified
151
October 2, 1940,
Deal Mr. Granet
I vant to thank you for your letter of
September 27th, and for the report prepared w
the Chairman of the Stundard-Vacum oil Company,
in regard to recent developments in the Dateh
East Indies. I read this material with interest
and appreciate your courtegy in sending 10 to no.
sincerely,
(Stgned) H. Morgenthau, Jr.
Mr. s. & Crune,
80 Reckefeller Plans,
Bev York, New York,
GEF/dbs
Regraded Uclassified
152
Outsber & 1940,
- No. Grande
r I any 1 E E 3 1 -
toytember 27th, and for the report propared w
the Chairmen of the Stundard-Ynown 012 Company.
in repart to resent developments in the Date
last Indies. I real this material with interest
at approxiate your courteay is sending 11 to 50g
I
(Signed) H. Mongesthan, Jr.
- & & -
80 Rechnfellew Masso
Bev York, Sev Test,
GEF/dbs
Regraded Uclassified
153
October 2, 1940,
Deal Mr. Granet
I vant to thank you for your letter of
September 27th, and for the report prepared W
the Chairman of the Stundard-Yesum 011 Company.
in regard to reasnt developments in the Dateh
Bast Indies. I read this material with interest
and appreciate your courtesy in sending 11 to no.
sincerely,
(Signed) H. Morgenthau, Jr.
in - of 1
80 Roskefeller Plann,
New York, New York,
GEF/dbs
Regraded Uclassified
154
30 ROCKEFELLER PLAZA
NEW YORK
J.E.CRANE
September 27, 1940.
Honorable Henry Morgenthau, Jr.,
Hopewell Junction,
N. Y.
Dear Mr. Secretary:
In response to your request of yesterday,
I take pleasure in sending you herewith copy of a meno-
randum which was prepared by the Chairman of the Standard-
Vacuum 011 Company dealing with recent developments in
the Dutch Fast Indies. As you know, the Standard-Vacuum
is our affiliate doing business in the Far East.
Faithfully yours,
gicrans
Regraded Uclassified
Suptember "7, 110.
J. CASE I' vir 10
30. TOTAL 1112 INT
IF
MRIN
INVOICE
MIS.
Compare Mission, in onforence with time gt Indian
-comic LAWe requested:
7,150,21 tona or crude no roducts per 10
semble in addition to the normal distribution Tuota in
of tons with is now being surplis by the
71 Odeh und Stand ré-Ver un's subsidiaries in the
what Inclos.
code unserstand this the PO want of Junis
unrentive availability of 1:14 volume of refects
100 100 XX Pive years Jana undert/kin to pay,
100 on hurned 'ove by the Document compate
de n evilement, vaich
--11
with
Unich
W.S.I.
Inlu
- ton in Inc. davolo ments -14% of: emennies
-
remble.
"n ent of -conomic in 5710 India 3.70 and
DE
Jagame
follows:
att 40 reste ction (a)' In
milments of et1 to James.
if oil to of IV ot1-ti bet onn to bump
voller, ca is :- Invité 11 to Meonorite affairs where
De Lace.
Unfinition S. rine. the "o rtuent of
States Le the 50 atter X infence to
Fee.
No il. - :. Department of Susnomic Affairs akm the oil
Les -- atres to then visit in the a Inter mximo or crude and -ro-
his counted could anke IV limble during the next welve months,
in sind that 1f they nout state fized amount to be
Regraded Uclassified
156
1+
smilable, with they haved sould be 2,800,000 - from both companies
the the twolve well give the $ definite beco and at
Department of vio-orris aboved to - for companies consecsions.
a I d I I I TN a I
before walling my nero onlo 012.
2. that they approciate 1 terms mis
in other directions.
3. as they approciate the importance w the companies
mistaining the process outlete M for NO these - be
I 1 X I 3
unit have smiletts as follows:
the oil Company has intioned the limit they
Grade
s I
test (containe me aviation
100,000
guestine)
I
I I 1 IN
Total:
492,000 -
the Guill are Likely be
intiante
bread Total:
taxe
miss to under dismosion in the Swites, bet no
definite have you boom
Regraded Uclassified
treasury miss bhaumey
IN REPLY REFER TO
157
DEPARTMENT
BUREAU OF customs
741
OFICE OF THE COMMISSIONER
WASHINGTON
- REPLY 19
- of CUSTOMS
October 2, 1940.
BUREAU OF CUSTOMS
CIRCULAR LETTER NO. 2128.
Re: Export Control Act of July 2, 1940.
TO COLLECTORS OF CUSTOMS:
Copies of the following, which are self-explanatory, are
transmitted herewith:
President's proclamation of September 30, 1940,
issued under the Export Control Act of July 2, 1940,
sent to you under Bureau Circular Letter No. 2096,
dated July 3, 1940;
Regulations, dated September 30, 1940, governing
the exportation of articles and materials designated
in the President's proclamation of July 26, 1940, is-
sued pursuant to the provisions of section 6 of the
Act of Congress approved July 2, 1940, sent to you un-
der Bureau Circular Letter No. 2109, dated July 27,
1940; and
Press release of the White House, dated September
26, 1940, relative to the control of iron and steel
scrap exports, issued in connection with, and in ad-
vance of, the regulations of September 30, 1940, above
referred to.
These documents are subject to the second and third paragraphs
of Bureau Circular Letter Bo. 2096.
W.R.Johnson Commissioner of Customs.
3 inclosures,
158
FOR IMMEDIATE RELEASE
THE WHITE HOUSE
FOR THE PRESS
SEPTEMBER 25, 1940
CONTROL OF IRON AND STEEL SCRAP EXPORTS
The President has approved the early establishment
of additional controls of the exportation of iron and steel
scrap with a view to conserving the available supply to
meet the rapidly expanding requirements of the defense
program in this country.
Effective October 15, 1940, all outstanding balances
of licenses which have been granted pursuant to the exist-
ing regulations of July 26, 1940, for the exportation of
No. 1 heavy melting steel scrap will be revoked. On
October 16, 1940, the exportation of all grades of iron
and steel scrap will be placed under the licensing system.
Under the new regulations which will be made effective
on October 16, 1940, licenses will be issued to permit
shipments to the countries of the Western Hemisphere and
Great Britain only.
Regraded Uclassified
159
REGULATIONS GOVERNING THE EXPORTATION OF
ARTICLES AND MATERIALS DESIGNATED IN
THE PRESIDENT'S PROCLAMATION OF
JULY 26, 1940, ISSUED PURSUANT TO THE
PROVISIONS OF SECTION 6 OF THE ACT OF CONGRESS
APPROVED JULY 2, 1940.
Pursuant to the authority vested in me by the
provisions of section 6 of the Act of Congress
approved July 2, 1940, entitled "An Act to expedite
the strengthening of the national defense", I hereby
prescribe the following additional regulations govern-
ing the exportation of:
Iron and Steel Scrap
1. As used in my proclamation of July 26, 1940,
issued pursuant to the provisions of section 6 of the
Act of Congress approved July 2, 1940, and in the
regulations of July 26, 1940, issued in accordance
with that proclamation, the construction and defini-
tion of the term "iron and steel scrap", is hereby
amended to read:
Iron and Steel Scrap.--All iron and steel
scrap of every kind and description, classified
or unclassified.
2. Regulations 2 to 12, inclusive, of the regu-
lations issued on July 2, 1940, pursuant to the act
of July 2, 1940, are applicable to the exportation of
iron and steel scrap.
3. This regulation shall become effective
October 16, 1940.
FRANKLIN D. ROOSEVELT
THE WHITE HOUSE
September 30, 1940.
Regraded Uclassified
160
ADMINISTRATION OF SECTION 6 OF THE ACT ENTITLED
"AN ACT TO EXPEDITE THE STRENGTHENING OF THE
NATIONAL DEFENSE," APPROVED JULY 2, 1940
BY THE PRESIDENT OF THE UNITED STATES OF AMERICA
A PROCLAMATION
WHEREAS section 6 of the act of Congress en-
titled "AN ACT To expedite the strengthening of the
national defense," approved July 2, 1940, provides
as follows:
"Sec. 6. Whenever the President determines
that it is necessary in the interest of national
defense to prohibit or curtail the exportation
of any military equipment or munitions, or com-
ponent parts thereof, or machinery, tools, or
material, or supplies necessary for the manu-
facture, servicing, or operation thereof, he may
by proclamation prohibit or curtail such exporta-
tion, except under such rules and regulations as
he shall prescribe. Any such proclamation shall
describe the articles or materials included in
the prohibition or curtailment contained therein.
In case of the violation of any provision of any
proclamation, or of any rule or regulation, issued
hereunder, such violator or violators, upon
conviction, shall be punished by a fine of not
more than $10,000.00 or by imprisonment for not
more than two years, or by both such fine and
imprisonment. The authority granted in this
section shall terminate June 30, 1942, unless
the Congress shall otherwise provide.'
NOW, THEREFORE, I, FRANKLIN D. ROOSEVELT,
President of the United States of America, acting
under and by virtue of the authority vested in me
Regraded Uclassified
161
-2-
by the aforesaid act of Congress, do hereby proclaim
that upon the recommendation of the Administrator
of Export Control I have determined that it is
necessary in the interest of the national defense
that on and after October 15, 1940, the following-
described articles and materials shall not be
exported from the United States except when authorized
in each case by a license as provided for in Proclama-
tion No. 2413 of July 2, 1940, entitled "Administra-
tion of section 6 of the act entitled 'An Act to
expedite the strengthening of the national defonse'
approved July 2, 1940," and in the regulations issued
pursuant thereto:
Fire Control Instruments, Military Searchlights,
Aerial Cameras and other types of Military
Equipment containing optical elements,
IN WITNESS WHEREOF, I have hereunto set my hand
and caused the seal of the United States of America
to be affixed.
Regraded Uclassified
162
-3-
DONE at the City of Washington this 30th day
of September, in the
year of our Lord
nineteen hundred
and forty,
and of the
Independence
of the United
States of America
the one hundred and
sixty-fifth.
FRANKLIN D. ROOSEVELT
By the President:
CORDELL HULL
Secretary of State.
5
5
Regraded Uclassified
163
1 1 2 1
nil RECRETARY OF STATE
- at a.
DEPARTMENT OF STATE
arranged state ber8" at on
WASHINGTON
My dear Mr. Secretary:
October 2, 1940
It seems to me that the time 18 now opportune
to consider whether additional measures of exchange
control should not be promptly imposed.
Heretofore measures of exchange control have
been confined to so-called "blocking orders" affect-
ing assets within the United States of countries
invaded or occupied as a result of the European war;
and affecting assets belonging to nationals of such
countries resident therein. It would now seem
appropriate to consider whether more general exchange
controls may not be both practicable and useful in
the interest of accelerated national defense.
Since the formulation and execution of any such
measures, though intimately connected with foreign
policy, are primarily within the province of the
Treasury, I suggest that you may find it appropriate
to call
The Honorable
Henry Morgenthau,
Secretary of the Treasury.
164
-2-
to call a meeting of the Cabinet officers who may
have an interest in such measures, to the end that
appropriate recommendations may be made to the
President.
Sincerely yours,
Cordells hull
165
October 2, 1940
MEMORANDUM
To: The Secretary
From: Mr. Young
Re: Republic Planes on Order for Sweden
I talked with Colonel Flickinger of Republic
Aircraft this morning and he advised me that there
had been no change in the Swedish plane situation.
By.
166
RDS
GRAY
LONDON
DATED October 2, 1940
Rec'd 4:13 p.m.
Secretary of State,
Washington.
3291, October 2, 6 p.m.
FOR TREASURY FROM BUTTERWORTH.
Supplementing the information contained in my No.
2959 of August 30, the British Treasury summarized the
payments agreement position as follows:
Às previously reported agreements have been concluded
with the Argentine, Brazil and Uruguay, a de facto arrange-
ment is working with Peru and in due course will be made
de jure. As regards Chile there is an agreement with the
Nitrate Corporation but difficulty is Experienced with
Chile itself because there is "in fact no real monetary
authority with which to deal Furthermore while the
Nitrate Corporation is long of pounds Chile itself is
short. Difficulties are being Experienced with Bolivia
due to the tin interests which the British Treasury is
aware are in the nature of complicated rackets. There
has been an Exchange of drafts with Colombia and conversa-
tions are proceeding with both Paraguay and Venezuela and
in due course the Cuban position will come up for treatment
but
Regraded Uclassified
167
-2- #3291, October 2, 6 p.m., from London
but probably efter informal consultation with us. As far
as Equador and Central America are concerned the problem
is of such small dimensions that the British Treasury in-
tends to do nothing about it until the more important
South American countries are out of the way and then to
deal with the former on a dollar basis. The British
Treasury has very much in mind the idea of multilateral
arrangements and plans for instance to work something
out of the fact that Bolivia will bE long of sterling and
in turn short of adverse balances with Peru, Chile, and
Uruguay which in turn tend to be short of sterling.
As regards Europe the agreement with Portugal is the
shining Example of friendly cooperation by a neutral,
Selazar having taken "a long range view of Portugal's
best interests". Discussions involving modifications of
the Anglo-Spanish arrangements proceed continuously and
the British Treasury is hopeful that Spain will realize
that a bird in the hand is worth two in the Axis. The
Rumanian agreement of course is quiescent and the Greek
agreement functions. The British Treasury is both sur-
prised and pleased that an arrangement is on the point of
being reached with Yugoslavia.
Às regards Japan the question of imposing a unilateral
clearing has been passed on by the British Treasury to
the
Regraded Uclassified
168
-3- #3291, October 2, 6 p.m., from London.
the Foreign Office. From the purely Treasury point of
view the problem is simple, namely, that Japan is buying
virtually nothing from the United Kingdom and the United
Kingdom is only buying from Japan that which it absolutely
needs but the position as regards the Empire and enters
into the realm of diplomatic policy,
KENNEDY
NPL
éver 2 W SO whose
WAGEINED
Regraded Uclassified
169
Secretary Morgenthan
Mr. Folsy
OCT - 2 1940
Ye have been informed that a number of paintings of
femous French painters are being shipped to this country on
the 85 Excelibur which will arrive in les York from Lisben a
Saturday, October 5, 1940.
Under our existing freesing control licenses are required
for any transactions involving evidences of ownership of property
in which a national of France has had an interest at any time on
or since June 17, 1940. Under this provision of the Insertive
Order it would appear that a license would be required before
bills of lading or other shipping documents covering the above-
described Prench paintings could be presented to the shipping
company by the consignee. Accerdingly, it is believed that before
such shipping documents are delivered to the shipping company and
the French paintings delivered to the consignee the shipping company
should be notified that a license will be necessary before they my
receive the shipping documents in question. The effect of this
requirement, of course, is that the French paintings may not be
delivered to the consignee until & license is obtained.
(Initialed) E. H. F., Jr.
JBFildh 10-2-40
Regraded Uclassified
170
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE October 2, 1940.
Secretary Morgenthau
20
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
Hr. Jay Crane telephoned me from New York at 11:00 this morning. He referred
to the helpful assistance the Secretary had given him in regard to the problem of
receiving dollars rather than sterling for oil sold to Great Britain. Crane men-
tioned that he had sent a memorandum to the Secretary in regard to the Standard's
situation with respect to Argentina, and particularly the request of Finance
Einister Pinedo that the Standard accept fifty percent of their payment for oil in
sterling. Crane asked if this memorandus was sufficient, or if the Secretary
esired anything further from the Standard 011 people. I told Mr. Crane that I
would mention this to the Secretary and let him know if he should submit any fur-
ther data. If Grane did not hear from us I told him it simply meant that we were
holding the memorandum for future consideration.
70ml
171
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE October 2, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
When Mr. Stopford of the British Embassy called on me at 12:30 yesterday noon
to deliver certain messages to no, he asked the very direct question as to whether the
Preasury was doing anything with respect to Japan, on the financial side. I simply
replied that nothing had been done. He volunteered that if the Japanese question did
come up, the British would be happy to give us information as to their practices with
respect to Japanese funds "in order that we may keep in step". Stopford then stated
that he understood the State Department was studying the question of French gold and
French ships. I professed ignorance of any such study.
70ml
Regraded Uclassified
172
TREASURY DEPARTMENT
Regraded Uclas
INTER OFFICE COMMUNICATION
DATE October 2, 1940
10 Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
At 9:25 this morning Mr. Livesey telephoned ne from the Department of State.
Be said that Mr. James Dunn had just called him about the matter which we had die-
cassed yesterday. involving the desire of the British to use as a bargaining point
in their negotiations with the Soviet the release of Baltic States funds blocked
is England. Dunn stated that the British Embassy was pressing the State Department
for an answer, since the Embassy desired to cable London today or tomorrow. Dunn
BSW no reason for objections on the part of our Government to the British proposal.
told ltr. Livesey that I had submitted this question to the Secretary by memorandum
last night, and that I would raise the question at the 9:30 Group Meeting to which
I vas proceeding.
In the Staff meeting this morning the Secretary himself raised the above ques-
tion, reading to our Group parts of By memorandum of last night. It was the
Secretary's decision, which had the full support of Messrs. Bell, White, Pehle,
Chamberlain and Cochran, whose opinion he requested, that Mr. Dunn should be informed
that Mr. Morgenthau desired not to indicate any position of the Treasury on this
point until he might hear directly from Secretary of State Hull.
Upon coming out from the meeting I telephoned this nessage to Mr. Livesey.
me
173
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE October 2, 1940
TO Secretary Morgenthau
FROM Hr. Cochran
STRICTLY CONFIDENTIAL
In the absence of Mr. Knoke. I talked yesterday with Mr. Cameron in the
Federal Reserve Bank at New York in regard to the accounts of the Netherlands
Government with the Federal. It will be recalled that at the outbreak of the war
the Netherlands Bank carried two gold accounts and two dollar accounts with the
Pederal. The Netherlands Bank informed the Federal when the Netherlands was being
invaded that the "p" accounts, one for gold and one for dollars, were the property
of the Netherlands Government. The Netherlands Bank gave instructions which con-
stituted freezing of their own ordinary accounts with the Federal. Arrangements
were made whereby the Netherlands Government transferred to London should have con-
trol of the age accounts. There has been some change in the identity of the
Yetherlands officials in London authorized to sign the "P" accounts, but the proce-
fure is still being followed of these accounts being controlled from London. I salced.
Cameron how payments were made out of the Nethorlands Government accounts for muni-
tions purchased in this country. He stated that the Royal Netherlands Government
ends orders by cablegram from London to the Federal Reserve Bank to hold certain
Unde at the disposal of the Minister of the Netherlands in Washington. The latter,
is tarn, instructs the Federal Reserve Bank by letter to open credits in favor of
cartain banks. Presumably these are the banks financing the exports.
The central bank of Java, that 1s, the Javasche Bank. has a separate account
with the Federal Reserve Bank and makes payments therefrom by telegraphic ordere
from Batavia.
Mr. Philip Young tells ne that there are two or three separate purchasing groups
in this country for the Netherlands. According to Hr. Cameron, there 10 no official
is this country, outside of the Netherlands Legation, who has any authority to draw
= the Metherlands accounts with the Federal. As described above the Netherlands
fixister does not himself draw except to the extent of ordering payments out of the
funds which are allocated to him by cabled instructions from London.
It Le my suggestion that the munitions business of the Notherlands Government
4a not perhaps sufficient to warrant asking them to set up. a system entirely analo-
DOB to that established by the British and French for paying for their war supplies
ad of 8. special account with the Federal. There might be serious legal complica-
time, considering the involved status of the accounts. Just nov the problem 18 up
14 to whether the Netherlands Government in London can obtain control of the funds
held in this country in the ordinary accounts of the Bank of the Netherlands with the
Tederal Reserve Bank. It should be possible, however, for us to obtain from the
Maister of the Netherlands specific information as to the disbursements which he
picks in this country for munitions. His figures could be checked against the totals
llocated to his account with the Federal Reserve Bank at Yes York,
BMP
October 2, 1940
Mr. Peble
Mr. Cochram
Mr. Mikkola, Secretary of the Legation of Finland, called on m yesterday after-
DOGE at 2:45 and left the attached memorandum, which we discussed at our Group Bosting
later in the ovening.
In accordance with the decision reached at the meeting, I have telephoned Mr.
Mickola this sorning. advising his to have the National City Bank or the Chase
National Sank, or both, make formal application for licenses to transfer the funds
in question. When Mikkela asked whether we desired indication of the wishes of the
Belgisa banks in the circumstances, 1 explained that the Bev York banks could only
nake the payments if the Bolgiam banks is whose DATES the funds are now held gave them
the usual instructions to pay. That is, our license approved the transfer of the funds,
but constituted no authority to 4. bank to make payment of a depositor's funds.
BMP.
EMC:dm:10.2.40
Regraded Uclassified
175
COPY
INSURIOE 03' FINIANT
KARHINGTON, D.C.
EMORANDUM
===========
During the last winter the Finnish Government placed a number
of orders for different goods with certain Belgian manufacturers. The
funds in dollars intended to cover these orders were put on accounts
held by Belgian banks and firms in New York benks, mainly in the
Metional City Bank and the Chase National Bank, Because of later
developments these orders were abandoned and the funde, amounting to
$2,190, 100:- approximately, are now blockaded on the accounts in
(uestion.
in view of the fact that these dollar funds are very badly needed
in Finland, the Finnish Legation is instructed by the Finnish Ministry
for Foreign Affairs to enquire whether the Department of Treasury could
in principle agree to release the dollar funds in question. Any details
in this matter will be gladly given if 80 desired.
inchington, D. C., October 1st, 1940.
Regraded Uclassified
176
selam
My dear Mr. Smith
Reference is made to H. 2. 10418 (70th come., as seas.),
entitled "An sot to provide revenue, and for other purposes".
Title I of such bill increases the normal corporate tax rate
of corporations having a normal tax net income in excess of
$25,000. Such increase anounts to 3.1 percent, except in the nase
of 4 corporation which, because its normal-tex net income is only
slightly in 020000 of $25,000, is subject to the alternative tax
imposed by section 18 of the Internal Revenue Code. the rates
applicable to corporations with normal-tax net incomes of $25,000
or less are not increased. coupled with beth the permanent and
temporary rate increases made by the first Revenue Act of 1940,
title I of the bill will produce & total rate of 26 percent.
Title II of the will imposes an excess-profits tax on corpora-
time at graduated rates running from 26 to so persent. Such rates
are to be applied against so smoh of the taxpayer's normal tax net
income (with cortain adjustments) as exceeds the sun of a specific
exemption of $6,000 and a excess-profits credit (plus the unused
asses-profite credit of the proceding year, in the case of corpora-
time having a normal-tax not income of $25,000 or less). In general,
the excess-profite credit my be computed a the basis of either are
of two widely differing nothods. At the taxpayer's election, such
credit my consist of either (1) 96 percent of the texpayer's average
income for 1986, 1937, 1930, and 1059, plus 8 persent of any net
capital addition or rime 0 persent of any net capital reduction
since the beginning of 1940, or of (2) 8 persent of the texpayer's
invested sapital for the temable year. Berrowed capital is included
in invested capital to the estent of so percent of such berrowed
capital.
the Mill provides for absormal situations in general as follows:
by excluding what night be termed meareoursing items of income or
deductions in the computation of excess-profits not incomes by anthor-
1sing alleentions to more than one year of certain specifically
described types at Insure which, in the light of the taxpayer's
business experience, are shootmal in kind or assents and by authoris-
ing the Comissioner to make necessary adjustments to recove shormal-
ities is income or capital, subject to review by the Heard of Tax
Appeals.
Regraded Uclassified
177
+
Regraded Uclassi
the bill permits consolidated returns to be filed by affiliated
groups of corporations for purposes of excess-profits tax. Corpora-
tions filing such consolidated returns must consent to the Commie-
sicner's regulations with respect thereto.
Personal service corporations, as defined in the bill, are given
the option of being subject to excess-profits tax like my other
corporation or, in lieu thereof, of having their income texed to
their shareholders.
Title III of the Mill provides for the amortisation of the coot
of energency facilities over & five-year period. An energency
facility is any facility, land, building, machinery, or equipment,
or part thereaf, the construction, resenstruction, crestion, or
installation of which vas completed after June 10, 1940, or which
was acquired after such date, and with respect to which a certificate
1a issued by the Advisory Commission to the Council of National
Defense and either the Secretary of Was or the Secretary of the Navy,
specifying that the construction, etc., of such facility is necessary
in the interest of national defense during the present emergency.
Provision is also made for a chorter amortisation period in cases
where the need for such facility disappears prier to the end of the
five-year period. Anoridation 10 denied in cases where, pursuant
to a Government contract, the taxpayer is relatured by the United
States in whole or in part for the cest of the facility, unless the
Advisory Comission and either the Secretary of War or the Secretary
of the Navy certify to the Commissioner of Internal Revenue that the
contrast makes adequate provision for the protection of the Govern-
net's interest in such facility. The terms and conditions of my
emtrast with respect to payment or reinbursement of the cost of
facilities and the protesting of the Government's interest therein
are to be made available to the public.
Title IV of the Mill excepends the profit-limiting provisions of
the Vinson-Trammell Ant with respect to contracts or subsentracts
for neval vessels of Army or Navy aircraft which are entered into in
my taxable year to which the excess-profits tax is applicable (or
would be applicable if the contractor or subcentractor were a corpora-
tiem), or which were entered into, but not completed, prior to 1940.
Title IV also cuspendo the profit-limiting provisions of the Marchast
Marine Act of 1986 as to subsentracts entered into between corporations
while the excess-profits tax is in effect, provided the emtractor and
subsontractor are not affiliated corporations.
Title v of the MII contains certain technical amendments of the
Internal Revenue Code, chiefly with regard to the computation of
corporate earnings and profits, and also provisions covering
texation of the Income of a yersemal service corporation to Ste
charcholders in cases where the corporation has elected not to be
subject to the excess-profite tax for the texable yes,
178
Title VI of the bill octablishes a am system of insurance,
called "National Service Life Insurance", for persons in the active
service of the land or naval forees (including the Coast Guard) of
the United States, and also contains provisions preventing less of
annuity credit under the Railroad Retirement Acts occasioned by
interruption of service in the railroad industry by military service
under certain described eircumstances.
Title VII extends the time within which contributions must have
been paid into an unemployment fund under a State 100, in order that
a credit may be obtained against Federal unesployment taxes, and pro-
vides for refunds in certain cases.
The Division of Research and Statistics of this Department has
made an estimate of the revenue yield under the bill at follows:
Estimated yield at estimated calendar year 1940 income levels and under
arbitrary assumptions as to increase in net income over the
lower estimates for calendar year 1940
Millions of dollars
#
#
8
I Assuming arbitrary income increase
# 1940 I
# lovelse,
$
.
I
-
$10 per-15 per-:20 per-125 per=130 per-
e
I cent # cent # cent I cent I cent
I
I
.
#
I
#
$
-
#
-
I
I
Gross yields
#
#
#
-
I
#
Excess-profits tax
#
188-295:
400
# 806
I 610
#
725
I 850
Increase in normal tax...
220-230.
240
I $50
# 260
I 270
I 280
I
#
$
#
a
#
#
a
I
-
-
#
Total
405-525
640
#
965
#
870
a
995
# 1,180
#
e
a
#
-
a
-
-
a
#
#
-
Net ybbld.**
I
-
I
#
I
-
Excess-profits tax
165-245,
sso
-
410
#
490
# 560
.
675
Increase in normal tex...
185-190,
196
I 210
220
225
-
205
-
.
I
I
I
I
#
I
#
#
-
-
#
-
Total
340-455:
625
I
615
I
900
I 800
I
900
.
#
I
I
I
$
I
*Probable range of revenue yields.
**Allows for decrease is income tax collections.
Regraded Uclassified
179
+
the rate increase contained in title I and the emeose-profite
tax contained in title II are effective as to taxable years beginning
after December 31, 1939, and are therefore applicable to 1940.
Very truly yours,
Secretary of the Treasury.
Hon. Harold D. Smith,
Director, Bureeu of the Budget,
Washington, D. C.
CRP/MEW 10-2-40
Regraded Uclassified
180
October 3, 1940
9:16 a.m.
H.M.Jr:
Hello.
Operator:
Secretary Knox 18 coming on.
Frank
Knox:
Hello, Henry.
H.M.Jr:
Hello, Frank. Say, listen - hello?
K:
I'm always listening to you, Henry.
H.M.Jr:
(Laughs). Don't get tired of me.
X:
No, I won't.
H.M.Jr:
I'm looking at this paper this morning
.....
K:
Bo am I and I'm admiring your nerve.
H.M.Jr:
Well, listen fellow, you skipped the months
of May and June and 88 you told them the
other day - you promised the President to do
this up until the 1st of July.
K:
Well, I know but you're only making 8. change
of one there and to give us one the best of it,
but you take four away from us.
H.M.Jr:
Well, in May
.....
K:
Well, you started in in November. We had -
no, in December. We had six and five to even
up the three and four the month before and
here you go giving us five and giving them six.
Well, that's all right. I don't care.
H.M.Jr:
Yeah, well, I thought the same thing.
K:
Now, who is this other side - this B-24 bomber.
Is that Army?
H.M.Jr:
I just wanted to show you how generous the
Army had been.
K:
(Laughs).
H.M.Jr:
See?
Regraded Uclassified
181
- 2 -
E:
Well, but I haven't added it up. Two, five,
nine, thirteen, seventeen, twenty-one.
H.M.Jr:
They gain - well, the British gain 32.
K:
Yeah, but they didn't have any on order, you
800. Aw, you see, they didn't have any
delivery coming until February and then they
only had one.
H.M.Jr:
Well, are you looking on the B-24
K:
Yeah, that's what I'm looking at.
H.M.Jr:
Well, I mean, they've given them three .....
K:
Yeah, I know they did.
H.M.Jr:
..... and if you notice, they gained 32
and you were only going to let them gain 6.
K:
Well, on the total we're giving 94 with only
41 over there. Wait a minute. Eight, deven,
fourteen, nineteen, twenty-six - they're getting
37 altogether and we're giving them 94. I'd
say that was pretty generous. (Laughs).
H.M.Jr:
Well, not too generous. (Laughs).
K:
Well, I'm certainly making good my promise
one-and-one. I'm taking 91 myself and
giving them 94 - that's the measure heaped up
and running over.
H.M.Jr:
Well .....
K:
All right. It's O.K.
H.M.Jr:
Will you go along on that?
K:
Sure. Sure.
H.M.Jr:
Can I tell the President at 10:30?
K:
What?
H.M.Jr:
Can I tell him at 10:30 the deal is closed?
4a
Yeah, as far as I'm concerned.
182
- 3-
H.M.Jr:
And the way it is on this piece of paper.
K:
Yeah.
H.M.Jr:
That's 94 to 91.
K:
So far as I can see there's only one change
between now and April and that's in December.
H.M.Jr:
That's right.
K:
And then the next one is not until next
April and then you only increase them one.
H.M.Jr:
That's right.
K:
So I don't think
.....
H.M.Jr:
And in May - a change in May and June.
E:
Yeah. Somehow I was considering more than
two. Yeah, the 26 to 15.
H.M.Jr:
Well, we make it 20, I mean, we give you one
more in May - 21 in May and the English 20.
K:
Yeah, that's taking 5 away from us and giving
them 5-
H.M.Jr:
Yeah.
K:
And then the next month you're giving them -
taking 7 away from us and giving them 7-
H.M.Jr:
Makes 17 and 17.
K:
Uh-huh. All right.
H.M.Jr:
Is it a deal?
K:
Yeah.
H.M.Jr:
Sold .....
K:
Lieten, Henry, why don't we - I talked with
this Consolidated boat people and told them
this crowd was coming out there and why they
were coming, and they're tickled pink. They
say it'll help immensely in getting deliveries
60 we may get more than this. Now, why don't
Regraded Uclassified
183
- 4 -
we go after this whole damned production -
airplane production problem one after another
and see if we can't do the same damned thing
on a lot of other models?
H.M.Jr:
Well, I've been down on my knees praying for
this for months but nobody'll listen to me.
I:
Well, now you're beginning to talk to a guy
who does. Pick out another good big one
and let's go to work on that.
H.M.Jr:
Well, the only reason that I didn't go
beyond that was because the Army are in trouble
with both Lookheed and Douglas.
K:
Well, what about Douglas? There's a hell of
a big plant.
H.M.Jr:
Well, the Army is in a Jam with them.
K:
What about?
H.M.Jr:
Well, they've written them a show-cause order
why they shouldn't cancel.
K:
Why what?
H.M.Jr:
Why the Army shouldn't cancel their order?
K:
What for, what's the idea?
R.M.Jr:
Well, because they say - I don't know -
Patterson tells me they are about a year behind
and he's got that whole story. He's very
angry at both Lockheed and Douglas 60 I thought
I'd let that blow over
K:
Who's angry - the Army is or
H.M.Jr:
No, the Army.
K:
The Army 18, huh.
H.M.Jr:
So if you'll tell me - which other companies
have you got beside Consolidated?
K:
Well, I'd have to get that list, I can't
remember them.
184
- 5 -
H.M.Jr:
Well, if you'll tell me which companies, 80
to speak, have been allocated to you, I'll
go over it with the English and 000 where they
have heavy orders and then we'll take another
one and do it again with the Navy and give
the Army a chance to get straightened out on
their legal difficulties.
K:
You see out of this thing comes only benefit
for both because what we do is to increase
production without having to spend a hell of
a lot of money and we get ships quicker.
There's every advantage in this for both of
us - for the British and for ourselves.
H.M.Jr:
Instead of squabbling over one or two planes
maybe we can get 100 more planes .....
K:
That's right. That's exactly what's in my
mind, and clear 100 planes more in the same
length of time.
H.M.Jr:
Well, that's what I hoped to come out of this.
K:
Well, I'll get hold of that list right away -
I sent it back upstaire - and I'll tell you
about it after I've studied it.
H.M.Jr:
But this thing that I talked to you about,
now, this 1s the deal - 91 and 94.
K:
That's right.
H.M.Jr:
Thank you so much.
K:
All right, Henry.
185
CONSOLIDATED AIRCRAFT CO.
:
PBY-5 Flying boat
B-24 Bomber
Month :
Scheduled deliveries
Scheduled deliveries
Total
: United States : British : British Gain
United States : British : British Gain
British Gain
October
0
o
X 0
Q 3
3
3
November
& 3
1 4
3
X 2
Q 5
5
8
December
X 5
& 6
2
6 3
Q 3
3
5
January
to
9
& 10
/
X 4
& 3
3
4
February
12
to
12
2
X 4
1 5
4
6
March
12
12
X 4
x 7
4
4
April
12
13
X 4
X //
4
4
May
26 2/
16
20
5
10
14
5
June
24
17
to
17
7
10
16
7
Total
109
91
X4
94
20
X
4/
N
67
26
46
October 3, 1940.
Regraded Uc
CONNOLIDATED AIRCRAFT 00.
I
PM-5 Flying beat
1-24 Bowber
Total
Meath #
Scheduled deliveries
Scheduled deliveries
# United_States : I British Delivish dain United States I British 8 British Data
British Gain
o
0
1 o
a 3
3
3
Nevember
63
$ 4
3
& 2
R 5
5
8
R 5
$ 6
2
& 3
23
3
5
H 9
yo
10
I
RH
23
3
4
February
12
M.
12
2
14
+
is
4
6
12
12
24
$7
4
4
12
13
24
X11
4
4
5
26.
21
15.
20
5
10
14
#
17
10.
17
7
7
10
16
-
-
Total
109
91
74
94
20
67
41
41
26
46
67
October 3. 1940.
Regraded Uclassified
187
October 3, 1940
9:27 a.m.
H.M.Jr:
Hello.
Operator:
Mr. Purvis. I reached him at the Embassy.
H.M.Jr:
Arthur?
Arthur
Purvis:
Yes.
H.M.Jr:
Have you got a pencil and paper?
P:
Yes - I've got to get the paper - just a
second. (Pause). All right, sorry.
H.M.Jr:
Hello.
P:
Yes.
H.M.Jr:
I've got good news for you.
P:
Good.
H.M.Jr:
At 6 o'olock this morning I started to study
that sheet of the flying boats that you are
getting and when I saw there was only six I
knew there was a fly in the ointment somewhere.
P:
Well, that was at the back of my mind
yesterday.
H.M.Jr:
Right. Well, I revised it, sent it over
to Knox by hand, I just got through talking,
and he's accepted my revision in toto, which
is quite different than what you had.
P:
Oh, I'm delighted to hear that because that
was really the most important almost of all.
H.M.Jr:
Well, if you'll put down on a column the
months - November, December, etc., you see.
P:
I've done that.
H.M.Jr:
And then up at the top of the page - United
States and then British.
188
- 2 -
P:
I've done that.
H.M.Jr:
Now, I'm going to give it to you the way it
18 now - not the way it was before.
P:
Exactly.
H.M.Jr:
In November Navy gets 3, U.K. gets 4;
December, Navy gets 5, you get 6. Well, Just
let's go back to November. You gain 3 in
November.
P:
Yes, that's right, we do.
H.M.Jr:
You gain 1 in December.
P:
That's right.
H.M.Jr:
In January Navy gets 9, you get 10, your gain
is 1. February, 12 and 12, you gain 2.
March, 12 and 12. Now here's where it begins
to change. April, Navy 12, you get 13.
May, Navy gets 21, you get 20, you gain 5.
June, Navy geta 17, you get 17, gain of 7, or
the total should be Navy gets 91, you get 94.
P:
That's it.
H.M.Jr:
And you gain on this 20.
P:
Well, you know that's excellent. And that
was really in a way more what you had in the
original figures.
H.M.Jr:
Yeah.
P:
Oh, that's simply excellent, I mean, that's
going to be very pleasing to them.
H.M.Jr:
Now what you would have gotten was 74 and you
now get 94, and you get a gain of 20.
P:
That's simply grand.
H.M.Jr:
Now that's something to cable home about.
P;
You bet it is. That'll go out in half an hour.
Regraded Uclassified
189
- 3 -
H.M.Jr:
And Knox has accepted it.
P:
He ahead. has accepted it 80 that I can go right
H.M.Jr:
I said I was going to tell the President at
10:30. He said O.K.
P:
Oh, I see, it'll be advised to him so I'm
O.K.
H.M.Jr:
Pardon?
P:
It will be advised to him 80 I'm safe all
right.
H.M.Jr:
It's safe. Now, the other thing, he talked
to Fleet and Fleet is wildly enthusiastic
about this group coming out.
P:
Oh, that's splendid.
H.M.Jr:
And here's the thing. Knox said, well, you
know, Henry, why can't we do this with other
companies?
P:
Oh, my heavens, you've started something!
H.M.Jr:
So I said, my dear Frank, I've been on my
knees for months begging various ones.
P:
(Laughs).
H.M.Jr:
So he said, well, how about some of the other
big ones. I said, well, we can't touch Douglas
or Lockheed because the Army 18 in a Jam with
them just now.
P:
I see.
H.M.Jr:
But if you'll give me the list of the ones
which, so to speak, have been allocated to
the Navy - - you know they've divided up the
companies - and let me know which so-called
companies are Navy companies, I will check
with the English and we can find a second
one, but for the time being, I said, I don't
want to do either Douglas or Lockheed because
Regraded Uclassified
190
- 4 -
P:
No, there's a complication.
H.M.Jr:
.....
there's a complication with the Army.
P:
Yes, and frankly, Douglas are a little
difficult. They've got to be tackled
rather carefully.
H.M.Jr:
8o he's going to call me back.
P:
Well, you know, that's really in my opinion
almost as good news as the other. In fact,
in the long-run it's very much better, I
mean, if Knox can be brought to that point
of enthusiasm by you in that short time, I
think we're going to get tremendous results
all around.
H.M.Jr:
So I said something - well, of course, the
thing that we'd like to do is to get another
100 flying boats for both the Navy and the
English in the next six months.
P:
That's splendid.
H.M.Jr:
So he said, well, of course. He said, wouldn't
it be marvelous.
P:
(Laughs). That's the way to go at it. I mean,
there's no doubt about it
.....
H.M.Jr:
He's all steamed up.
P:
Oh, that's splendid. Well, now we must keep
him there - I know you will - but we shall
have to play our part in keeping him there.
H.M.Jr:
Right. Now the other thing - during the day
look over that Republic situation, you see,
.....
P:
Oh, yes, I've got that to
H.M.Jr:
.....
and if you could give me a ring before
you come over and let me know which way
you're going to go
*****
P:
Yes, exactly. I'll see that you're posted
before hand.
Regraded Uclassified
191
- 5 -
H.M.Jr:
And I just had this in mind. I Just wonder -
you people have on order now three different
kind of pursuit ships. You've got your Curties
P-40, your Lockheed Interceptor and another
one .....
P:
Bell.
H.M.Jr:
..... and a Bell. Now, I just wondered if
you want to take on a fourth model with a
small company, you see. I mean, I just
wondered whether you want to take on another
pursuit ship - if we're going to go to
standardization, whether three models aren't
enough.
P:
No,
Now how would the engine situation fit into
that?
H.M.Jr:
That I don't know.
P:
That would be the immediate thing which would
have to be figured.
H.M.Jr:
That I don't know. I mean, if you were going
to buy another pursuit ship - well, now Curtiss
Wright told me, for instance, that they're
working now on what they call a 400-mile-an-
hour ship and if, when you get through with
the Curtiss P-40, I just wondered if you
wouldn't want to jump to the ship which the
Curties still have in the experimental stage
and get something which would be really up
to the minute.
P:
You mean by placing orders for it now.
H.M.Jr:
Well, just as soon as - Yes.
P:
Yes, because - I mean, we're quite eager as
you know
H.M.Jr:
Well, I mean, rather than go to this Republic
which
.....
P:
Yes.
Regraded Uclassified
192
- 6 -
H.M.Jr:
I'm just raising this point - whether you
don't want to think in terms of a 1000 or
2000 pursuit ships and give it to some
company that has a ship which is really,
let's say, a year ahead of anybody eloe.
P:
Yes. Well, now, were you thinking of their
farming out that ship in the same way that
the engines are being farmed out?
H.M.Jr:
Well, I was just thinking in terms - if
Curtiss has a 400-mile-an-hour ship, which
they think is better than anybody elses,
whether you wouldn't want to be thinking
as your next big order, to give them an order
to succeed - whenever they wind up with the
Curtise P-40.
P:
Exactly. Now, I - yes, I agree, I mean, it's
just a question of how long ahead we have our
orders placed for the P-40 and they ought to
be making them faster than fast for that. I
quite agree.
H.M.Jr:
Well, I mean, you ought to give them another
order six months in advance - whatever time
this order expires.
P:
I quite agree and, you know, if we can work
this thing now along the line of the point
which I was making last night, we could really
get - fit in this whole 1300 or 1400 additional
ships into the situation where they will best
go. I mean, it gives - in addition to the
acceleration work you are doing on the existing
.....
H.M.Jr:
Oh, yes.
P:
gives a great feeling to be able to
back it up all the time with other orders
in order to bring about that acceleration
H.M.Jr:
Yes, because unquestionably when your people
are out there, they'll want to give
Consolidated an additional order on the
4-engine bomber.
193
- 7 -
P:
Yes, I don't know - yes, that of course 1e
what Mansell, who went out before Fairey - to
look it over from the viewpoint of the future,
80 I think that will be taken care of without
question.
H.M.Jr:
Well, it wasn't - I'm thinking of what the
chances are - I don't know - that Fleet will
say, well, if I'm going to speed up on the
4-engine bomber I need enough orders to add
to my plant and have a decent-sized lay-out.
P:
That's right.
H.M.Jr:
Now, if I can get a really decent-sized order,
well, maybe I can turn out one a day.
P:
Well, I mean under those - I'm perfectly
sure that we shall be able to fit in anything
of that kind for good type machines either
there or in other factories, which was your
suggestion, and as you say the natural time
for the question to arise 1s when one is
discussing the acceleration of deliveries.
H.M.Jr:
And to get back to this Republic thing,
possibly the Army will say, I understand
that there are two types of ships there -
one is a single-seater and the other 18 a
2-seater, and maybe one or the other might
do for Canada for training purposes.
P:
Oh, those are the ones - you mean the P-44's?
H.M.Jr:
No, the ones which were on order for Sweden.
P:
The P-35's.
H.M.Jr:
Yeah.
P:
Yes, I see. Kind of a trainer.
H.M.Jr:
Yes. One is a 2-seater; the other is a
single seater.
P:
Ah, that that is the difference. I see.
H.M.Jr:
There are two different ships there.
Regraded Uclassified
194
- 8 -
P:
Is it still open for us to do something
along the line you thought of yesterday in
regard to - if these Swedish planes have to
go the other way? Well, I see what you
mean - you mean switch it on a sort of round-
about .....
H.M.Jr:
Well, the whole thing is open and won't be
settled until 3:30.
P:
No, so it's really up to - - there's a thought.
Of course, as you say if those older ones -
yes, all right, I think I see the picture.
H.M.Jr:
Have you got it?
P:
Yeah.
H.M.Jr:
Thank you.
P:
Thank you. Thank you very much.
195
GROUP MEETING
October 3, 1940
9:30 a.m.
Present:
Mr. Pehle
Mr. Schwarz
Mr. Haas
Mr. Graves
Mr. Thompson
Mr. Foley
Mr. Young
Mr. White
Mr. Cochran
Mr. Bell
Mrs Klotz
H.M.Jr:
Philip, Colonel Knox has accepted my revised
figures on Consolidated. I got up at 6:00
this morning and began to study this thing
and it seemed to me that they hadn't done
what they had agreed to do, so instead of
the English making a gain of six, they now
get twenty more between now and - Knox is
taking them.
Do you (Foley) want the story? Buckley has
it.
Foley:
I can get it from Buckley.
H.M.Jr:
Buckley was here this morning. But now on
the flying boats, between now and the first
of July, the Navy gets 91 and the English
get 94, where they only were going to get
74, so they gained 20. That deal is through.
Also, in the room, we get - who did these
figures? I don't understand the 26 and
32.
Young:
The 26 is just for the B-24, and the 32 is
the boats, plus bombers, total.
H.M.Jr:
Oh, that is out. Well, they gained 26
bombers.
Regraded Uclassified
196
- 2 -
Young:
Yes, the total comes up to 46 instead of
32.
H.M.Jr:
And the other amusing thing was, Knox
said, "You know, Henry, this is a great
idea." You know, he spilled it all in
the papers last night.
Foley:
I saw it. He didn't mention the Treasury.
H.M.Jr:
Not a word. And he included the job we
did up in Buffalo as though it was all his.
That is what I am going to call from now
on "pulling a Beaverbrook," and he said,
"Now, this is swell. You know, why can't
we do this for a lot of other companies?"
I said, "My God, Frank, I have been on my
knees begging you and the Army to do this."
"Why," he says, "this is the way to get
things done. All I could do was to say,
"So I see by the papers, If but I didn't.
He said, "Why can't we do it with some
other companies, and I said, "Well, if you
will tell me which other companies are so-
called Navy companies --" I don't want to
trust the Army ones, because they are in
legal difficulties with Douglas and Lock-
heed.
I said, "If you will call me back and say
which of those so-called Navy companies
besides Consolidated - which of them are
Navy companies, the English being willing,
we will go to work." He says, "Now, that
is the idea. This is wonderful."
Great work. Well, you see what is going
to happen. We have got Buffalo now turn-
ing out eight or nine planes a day, pursuit
ships, eight or nine a day, and they may
go to ten.
Regraded Uclassified
197
- 3 -
When the boys go out to Consolidated, in-
stead of their turning our three or four
a month, maybe we can get them to turn
out one & day.
Don't forget when you (Foley) are out
there at Consolidated, if they say they
can't increase their production unless
they get an additional order, the English
are willing to place orders for both the
flying boat and the four-engine bomber
if they can, by doing that, get more
deliveries. They are ready and he has
the authority to place additional orders
if he can get the deliveries reasonably
soon.
The other thing that Knox said, he talked
to Fleet and Fleet is very enthusiastic.
Foley:
He is always enthusiastic.
H.M.Jr:
And I told Phil to call him up on the phone
and let him know that the Treasury had a
little something to do with this and ex-
plain why you were coming out, you see.
Thompson:
I have a report on this Customs case, where
you had that inspector here the other day.
The baggage man's testimony is virtually
the same as the inspector's.
H.M.Jr:
I see.
Thompson:
Johnson recommends that the case be closed
without any disciplinary action.
H.M.Jr:
Well, would you let the State Department
know?
Thompson:
Yes.
Regraded Uclassified
198
- 4 -
H.M.Jr:
What would you do, let them have a copy
of the report?
Thompson:
Yes, I would say they could have one.
H.M.Jr:
Incidentally, and you might tell the State
Department - tell Johnson to tell the State
Department, C. D. Howe begged me to drop
the whole thing. His wife had never men-
tioned it to him and he was terribly em-
barrassed about it.
Thompson:
Johnson said that he had a confidential
report that this is the third time that
she had had trouble in Customs.
H.M.Jr:
Oh, she is a red-headed lady, is she?
Thompson:
Yes.
R.M.Jr:
Well, would you tell Johnson that he might
go over and see - who is the fellow on
that?
Cochran:
Jack Hickerson.
H.M.Jr:
Yes, let him go over and see Hickerson and
explain the whole thing to him and tell him
also that Howe was in here and begged me
to drop the whole matter.
Mr. Bell?
Bell:
I have a number of things. Shall I take
the time now or come in later?
H.M.Jr:
Later. When this meeting breaks up, you
can stay.
Graves?
White?
Regraded Uclassified
199
- 5 -
White:
There is an unusual letter here signed by
about 50 economists on "Why Gold is Good."
H.M.Jr:
You mean it is unusual because of the title?
White:
It is unusual for 50 economists to be right.
Bell:
We will agree.
White:
There is a letter here that you asked me
to bring up at the 9:30 meeting. I would
suggest if you can set aside a half hour or
an hour today or tomorrow, and we will have
an agenda prepared. That is & very important
discussion.
H.M.Jr:
Well, what I thought I would do is call up
Mr. Hull and tell him in answer to this
thing that - Hull comes back and says he
would like to have me call the meeting, but
I want to say that I would like him to call
it.
White:
I would suggest if you could have time to
have a meeting in the Treasury before you
meet with the State Department.
H.M.Jr:
That is possible. What else?
White:
The legislation which had been suggested to
provide the Administration - or the Govern-
ment with the power to control import quotas
and so on, in order to implement the coffee
agreement, was presented to the President,
and he said it was very interesting, but he
felt that the time was not appropriate --
H.M.Jr:
For what?
White:
To present the bill to Congress now.
Regraded Uclassified
200
- 6 -
H.M.Jr:
What bill?
White:
To control import quotas.
Bell:
Is that the one we had up the other day?
White:
No, it is the coffee one.
(Telephone conversation with Secretary Hull
follows:)
201
October 3, 1940
9:46 a.m.
H.M.Jr:
Hello.
Cordell
Hull:
Hello, Henry.
H.M.Jr:
How are you?
H:
I'm pretty fair.
H.M.Jr:
Cordell .....
H:
I appreciated your note.
H.M.Jr:
(Laughs). All right. How are things
today?
H:
Well, things look bad enough everywhere.
H.M.Jr:
I see. I'm sorry. I'm calling you in reply
to your letter that we get together on this
so-called blocking orders - you know?
H:
Yes. I want you to know that all I had in
mind was - people kept bringing up the subject
around and I said why can't the Treasury--
it's got the technical jurisdiction over all
this--why can't the Treasury and one or two of
you fellows here get together and talk out
this thing and Dee what is needed, and that
is really what I was driving at.
H.M.Jr:
Well, what I was going to suggest 18 this -
this 1s a very important subject and it's
going to take me a couple of days to study it.
H:
Well, take your time. I just brought it up
for study.
H.M.Jr:
And I thought if Tuesday afternoon 18 convenient,
I'd like to come over to your office and sit
down and have a half an hour talk about it.
H:
Yeah, sure. A11 right.
H.M.Jr:
Is 3 o'clock a good time for you?
H:
3 o'clock 1s all right.
Regraded Uclassified
202
- 2 -
H.M.Jr:
On Tuesday?
H:
Yeah.
H.M.Jr:
At your office. I don't think any other
Department is involved.
H:
Well, I hadn't
.....
H.M.Jr:
Did you have anybody else in mind?
H:
No, I hadn't anything except just the -
Berle and Feis among them kept bringing up
the subject
.....
H.M.Jr:
Well, I'll bring a couple of my boys with me
and if I know in advance the points we're
going to discuss, I'll send you over a little
note in advance.
H:
Well, I'll do the same thing for you.
H.M.Jr:
All right. And incidentally, that Panamanian
boat, we gave her a release last night.
H:
Well, that's - of course, we hate awfully to
see any kind of oil going that way .....
H.M.Jr:
Well .....
H:
I called down my fellows and checked that
and they felt that in a few days they'd get
that other thing closed up and then we'd be
more footloose.
H.M.Jr:
O. K.
Hi
Good-bye.
H.M.Jr:
Good-bye.
Regraded Uclassified
203
- 7 -
H.M.Jr:
That is the first time that he ever got
on the telephone before I did. It is
highly significant.
White:
There is. something wrong with his secretary.
H.M.Jr:
No, I have been making every effort to meet
him 75% of the way.
Well, what I thought we could do was this,
Harry. If we are going to do this, I won't
be able to hit this thing. I am going to
tell you now. I will give you 10:30 Tues-
day morning. I will give you an hour,
and I would like Mr. Bell and Mr. Cochran
and Mr. Foley. It is up to you to --
White:
10:30?
H.M.Jr:
Tuesday.
White:
And you will leave an hour?
H.M.Jr:
One hour.
White:
I think that will be all right.
H.M.Jr:
An hour alone with you.
White:
I think that will be enough.
H.M.Jr:
All right. Are you all through?
White:
No. I notice this imports of manganese from
Russia - there were more in August than any
previous month, which is interesting in the
light of the presumed difficulties of getting
manganese, and the Council of Defense made
a statement in a report that came to us that
Russia cannot ship any manganese by sea.
That is what made us look it up.
204
- 8 -
H.M.Jr:
Right. Thank you.
George?
Haas:
I have nothing.
H.M.Jr:
Did you call up Mr. Offie?
Pehle:
I called him, yes.
H.M.Jr:
And you are alive to tell the tale?
Pehle:
Yes.
H.M.Jr:
What happened?
Pehle:
I told him we didn't have any application,
but he said he would file one if I would
send him the blanks, which we did by special
messenger, and I told him that this isn't
the type of transaction we had been approving
and he said he realized it was a special case.
I told him we would consider it when it got
over here.
H.M.Jr:
Didn't he say --
Klotz:
That is what I understood, the State Depart-
ment couldn't proceed until they got orders
from the Treasury to go ahead.
Pehle:
The State Department said they would transmit
the funds once the Treasury had issued a
license, but the Treasury hasn't issued a
license.
H.M.Jr:
But there was no request over here.
Klotz:
He probably was making the request when he
talked to me.
Pehle:
That is what I understood.
205
- 9 -
H.M.Jr:
But you are not going to give it to him,
are you?
Pehle:
No.
H.M.Jr:
I don't see how we can.
Pehle:
I thought what we would do was prepare a
letter either for your signature or Mr. Bell's
signature as Acting Secretary, seeing that
Mr. Bullitt will probably sign the application,
saying that it was not in accordance with out
policy to grant that type of application.
H.M.Jr:
Well --
(Discussion off the record)
Pehle:
No, I was just mentioning the vehicle of dis-
approval if we were going to disapprove.
H.M.Jr:
I think it ought to come up through the regular
way, whatever the regular channel is.
Pehle:
I had one transaction I wanted to mention
involving a shipment of rubber from Indo-
China to Russia. The Foreign Funds Centrol
is involved only because the dollars are
to be paid to persons in Indo-China, but
they are coming out of the Russian account,
which, of course, is not blocked. Mr. Cochran
took the thing up with the State Department --
H.M.Jr:
Now, wait a minute. Go a little slower. I
have got to go back again. You live with
this stuff and I only get it on split seconds.
Describe the transaction again.
Pehle:
Russia wants the Chase Bank to take funds
in its account, Russia's account, and pay
to banks in Indo-China, to persons in
Indo-China, for rubber which is in Indo-China
206
- 10 -
and is being shipped to Russia. It is about
800 tons.
To Russia?
Fehle:
To Russia.
H.M.Jr:
I get it.
Fehle:
We discussed it in the committee and we asked
Ir. Cochran to consult the State Department to
see whether there is some attitude there that
might be helpful. They considered it all
around the table, apparently, and came back
with the very helpful suggestion that they
didn't want to express any opinion whatsoever.
M.M.Jr:
Pehle, you can keep that up. We will be very
glad to have you as a permanent member. You
are catching on.
Fehle:
So it is back on our doorstep. I don't think
the committee - the majority of the committee
feels one way or the other about it. We can
discuss it here if you want.
R.H.Jr:
All right. Have you any feelings?
schle:
=
Yes, I have. I feel that we ought to allow
this transaction because --
M.M.Jr:
Well, the judge rules yes, so stop arguing.
Peble:
That is all I have.
H.M.Jr:
And do it promptly.
Fehle:
All right.
E.E.Jr:
Now, on your (Pehle's) recommendation that
it should go through, I say yes.
Regraded Uclassified
207
- 11 -
White:
It is a good thing he didn't say no.
H.M.Jr:
You said yes, didn't you?
Pehle:
Yes, sir.
H.M.Jr:
And don't let Harry White - do you know
him?
Pehle:
I have heard of him.
H.M.Jr:
Can you take him on all right?
White:
He is worthy of my mettle - "said he, very
modestly."
H.M.Jr:
Now, don't spoil it. That is a compliment.
While we are on Russia, where does this thing
stand, where the State Department asked us,
as I understand it, how we feel - or some-
body asked us how would we feel if the English
would release the frozen funds that are up
in Latvia, Esthonia and Lithuania. Is that
right?
Cochran:
Yes, sir.
H.M.Jr:
Who has asked that?
Cochran:
We have asked them to put it over --
H.M.Jr:
Where does that stand this morning?
Cochran:
I will have to look at the memorandum on
that.
Pehle:
Wasn't it left that you were to hear per-
sonally from Secretary Hull?
Cochran:
That is it, yes,
208
- 12 -
Bell:
You were to hear personally from Secretary
Hull before you indicate an attitude on
it.
H.M.Jr:
Would you (Cochran) when you leave here call
up Mr. Gray and say could we hear this morn-
ing?
Cochran:
All right, fine.
H.M.Jr:
Could we hear this morning.
White:
You might be interested, Mr. Secretary, in
the fact that one of my boys said yesterday
afternoon on the radio it was stated that
the British wanted to release Russian blocked
funds, and have requested the American Govern-
ment to state their attitude before so doing
and that Secretary Hull was opposed.
H.M.Jr:
Do you consider Secretary Hull worthy of your
mettle?
White:
I can't think of one fast enough for that.
H.M.Jr:
All right. If you think of one during the
day, give me a ring.
White:
I will do that.
H.M.Jr:
I think when you (Cochran) call up Gray, tell
him of this transaction that we have passed
on in connection with the 800 tons of rubber,
that we have done it, and as long as you are
doing it, I think I would also call up
Mr. Jones' office and tell him We have done
it also.
Cochran:
We have done that.
H.M.Jr:
Yes, on the rubber, because he is buying
rubber all the time, 80 I would get word
209
- 13 -
both to the Secretary of Commerce and the
Secretary of State that we have done it.
I would like them to know it. And then also
ask Mr. Gray whether he can't get an answer
on the other. What is that - do you suppose
that was in a press conference, Chick?
Schwarz:
I don't believe SO, It wasn't on the ticker.
H.M.Jr:
Isn't that amazing?
Schwarz:
It sounds like one of the boys got it from
somebody down the line there.
H.M.Jr:
Is that all?
Pehle:
Well, we have another transaction on sisel
which is exactly the same facts as the other
except we haven't gone to the State Depart-
ment yet. It involves about half a million
dollars. This sisel is to be purchased in
the East Indies and shipped to Russia.
Whether it has a strategic importance, we
haven't had time to check.
H.M.Jr:
Also from their funds here?
Pehle:
Also from Russian funds here.
H.M.Jr:
I would handle it the same way.
Haas:
They can make rope out of it.
Bell:
Maybe they will hang themselves.
H.M.Jr:
Okay. You (Cochran) might tell them about
that also.
Philip?
Young:
I received a note from Burdette Wright ex-
pressing thanks for his audience the other
Regraded Uclassified
210
- 14 -
day, and he attached to it a copy of a
very super-super-cablegram that he received
from Beaverbrook congratulating him upon
getting out this stuff for the first Hawk
squadron.
H.M.Jr:
What is a super-super-cablegram?
Young:
Would you like me to read it?
H.M.Jr:
You don't complete your sentence. Super-
super-what?
Young:
Cable.
H.M.Jr:
Yes, please.
Young:
It is addressed to Burdette Wright. It is
from London, September 29.
"I learn with joy and gratitude and with
admiration of the delivery at the promised
hour of the complete Hawk squadron. This
faithful performance of an onerous pro-
duction task is a magnificent testimony to
the energy, drive and efficiency developed
by you, your staff, and your workpeople.
The Prime Minister, to whom I have reported
the achievement, asked me to convey his
personal thanks for a precious contribution
to the battlefront of our people. I am
most happy to know of the even better pros-
pects for next month. To Pete Jansen, I
send my special gratitude for his share in
the triumph."
Jansen is the factory manager up there.
Would you like to send a copy of that to
Mr. Knox?
H.M.Jr:
I don't think it is necessary, but I would
like it to go to my files. It is very
211
- 15 -
interesting. Anything else?
Young:
That is all.
H.M.Jr:
Chick?
Schwarz:
I have nothing.
H.M.Jr:
The reason I called, I am going to the
White House at 10:30.
Schwarz:
The boys hadn't arrived yet at 9:30 to
check for tomorrow.
H.M.Jr:
If you would let me know, because Purvis
wants to bring in tomorrow Sir Walter Layton
and depending upon - well, I will have to
give him some time tomorrow.
Schwarz:
They may ask for it. I will know very shortly.
H.M.Jr:
All right.
Cochran:
There is quite a story in the New York Times
this morning from Buenos Aires on Pierson's
visit.
H.M.Jr:
I read that. It is very interesting.
To bring you all up to date, when Jesse Jones
was here, he had been over to see the State
Department and he had everybody there, I
gather, to discuss this, and Jones said several
interesting things. In the first place, he
said he had not been consulted about Pierson
going down to South America. Pierson had
gone without any instructions from him.
They told him over at the State Department
that I was all keen for making a stabiliza-
tion loan and I wanted these people to come
up from the Argentine.
212
- 16 -
I got out the Havana cable and let him
read that and stressed the point, knowing
how close Jones is to Hull, that when Hull
had his back up against the wall in Havana
and it looked as though the thing was going
to be a failure, I came through a hundred
percent, and that the thing which we gave
him down there was very useful. Am I right?
White:
A slight exaggeration, but still --
H.M.Jr:
Well, I was just quoting you.
White:
You mean your memory of what I said.
H.M.Jr:
Well, I understood from you that they shook
this around under all their noses.
White:
That is still - I don't know whether they
said that, but I still think that statement
probably - I don't know whether he had his
back up against the wall.
H.M.Jr:
Well, did they use this statement?
White:
Oh, it was useful and they were glad to get
it and it doubtless was a help. I merely
don't feel that their backs were against
the wall without it, but I don't know.
H.M.Jr:
Maybe it was against the floor.
White:
I am just getting even for that remark on
the telephone.
H.M.Jr:
Well, you can use your judgment whether you
should tell it to me in private or not.
Look to your bell-wether. Look to your
bell-wether here (Foley). Anyway - and then
I got this over to Jones, that whatever they
did in the Argentine, I wanted them to move
213
- 17 .
first, and Jones said no, couldn't we move
simultaneously, that they would be willing
to make a loan if we would move together,
50 I explained to him what we could or
couldn't do, and we would very much like
to move together if they come up, and I
understand from Jones that the State Depart-
ment has invited these people to come up
here.
White:
Has?
H.M.Jr:
Has.
White:
The last thing was a cable that I heard of
yesterday that they were not coming up until
they had received further instructions, but
this may be later.
H.M.Jr:
He also told Warren Pierson to keep his
mouth shut, so we will wait and here.
Cochran:
I have nothing.
Foley:
Forrestal doesn't expect to be in San Diego
until about half past ten tomorrow morning,
so we will be there by the time he gets there.
H.M.Jr:
Good. Were you able to reach his secretary?
Foley:
Yes. That wire was very helpful. He sent
it down to Pensacola last night. He got
the reply back last night.
Green called up this morning and said there
is a Dutch vessel in New York loading five
Fairchild 24's for Siam. They have already
granted the export license, but they are
reconsidering the matter now, and they would
like to have a few hours. He asked me if
we could stall the crates on the docks 80
if they changed their minds and revoked
214
- 18 -
the license, they wouldn't have to be taken
off the ships again. I think we won't have
any trouble giving them a few hours. I just
mentioned it.
H.M.Jr:
Well - because I like to do everything in
the way that is regular. You are handling
it through Cairns?
Foley:
Cairns told me about it, yes.
H.C.Jr:
Okay.
Foley:
The other thing is, those 500 French paint-
ings that are coming over on the Excalibur,
she left from Lisbon, I think, on the 25th
of September. Those shipping documents that
will be necessary for the shipping company
to release the paintings to the consignee
are evidences of ownership of property and
a license under the regulations would be
required before the company, the shipping
company, can turn the paintings over to the
consignee, so if it is all right with you,
we will proceed that way.
K.H.Jr:
Is that - you treat it just like money?
Foley:
Just like money. It is evidence of owner-
ship.
E.M.Jr:
Do you know to whom the pictures are con-
signed?
Foley:
No, I don't know. Do you, John?
Pahle:
No.
Foley:
The consignee hasn't been divulged. Of
course, we will get all the information
Regraded Uclassified
215
- 19 -
when they request the license. We will
notify the shipping company that they have
to have a license before the paintings may
be released.
H.M.Jr:
Okay.
Foley:
That is all.
H.M.Jr:
Well, you will be here for lunch today,
won't you?
Foley:
If it is all right with you, I would like
to come to lunch.
H.M.Jr:
I will change the order. And you are coming,
Harry.
White:
If it is still okay.
H.M.Jr:
Okay.
216
TREASURY DEPARTMENT
WASHINGTON
2 October 1940.
teurorandum FOR - The President
I urgently request your approval of a proposed Bill for
the establishment of a Coast Guard Reserve. The enactment of this
proposed legislation is essential for me, through the Coast Guard,
to carry out the duties resulting from your Proclamation of June
27, 1940, placing upon the Secretary of the Treasury the responsi-
bility for the control of all merchant shipping and the security
of the harbors and waters of the United States including the move-
rents and anchorages of vessels and the lading and unlading of
explosives, inflammables and other dangerous cargo. The Coast
Guard needs approximately 270 additional small craft immediately
to carry out these duties. Even though time did permit, it is
more economical to use Coast Guard Reserve craft for these duties
than to build or buy these vessels and use regular Service men to
san them. It will cost to operate these boats, including the per-
sonnel to man them, about 6525 per month per boat.
The final draft of this proposed Bill was drawn up by
the Havy Department with minor changes being made by the Coast
Guard. The Bill as submitted by me to the Bureau of the Budget
had the official approval of Admiral Stark in writing. It does
not conflict with Naval Reserve legislation. It permits the nation
to use to best advantage trained yachtamen and small boat men.
The Chief of Naval Operations is interested in the Bill
and has recommended favorable action for the reason that it will
permit the Coast Guard to organize for the use of the Navy in time
of war smll yachts and other motorboats of the country. There are
other minor advantages such as permitting the federal government to
keep close supervision over a large percentage of the several hundred
thousand motorboats of the country and obtain information regarding
possible subversive activities on the part of some of these craft.
This proposed Bill was submitted by me to the Bureau of
the Budget on August 20, 1940 and was returned tome by the Director
of the Bureau of the Budget on September 11, 1940 with an unfavorable
report, If you will approve this Bill, and I urgently recommend that
you do so, I feel confident we can have it enacted by the Congress in
the near future.
/s/ H. 11. MORGENT HAU, Jr.,
Secretary of the Treasury.
Copy Thompson
hy Lt. mekay
Regraded Uclassified
217
RDS
GRAY
BERLIN
Dated October 3, 1940
Rec'd 3 p.m.
Secretary of State,
Washington.
4219, October 3, 3 p.m.
My 4186, September 28, 1 p.m.
FOR TREASURY FROM HEATH, AND FOR DEPARTMENT'S INFORMATIO
The Berlin press announces that the Yugoslavian autho-
rities have agreed to raise the clearing rate of the
reichsmark from 14.80 dinars to 17.82 dinars Effective
October 1.
KIRK
NPL
218
RE BRITISH PURCHASING PROGRAM
October 3, 1940
3:30 p.m.
Present:
Mr. Young
Mr. Buckley
Mr. Purvis
Mr. Fairey
Mr. Patterson
Mr. Self
Mr. Gray
Mr. Cox
Mr. Wilson
Mr. Childs
Mrs Klotz
H.M.Jr:
Well, Mr. Patterson, the purpose of this meet-
ing is, we find ourselves in the position where
we have been trying to negotiate with the
Republic Company for the sale of these planes
which they have on order and delivered in
part to the Swedish Government, and we have
reached the position now where the Republic
just won't do anything, but we hope that
they will follow the course which we have
laid down in connection with the Vultee. But
that seems impossible, so I communicated with
you yesterday and asked whether you would
think it over, what suggestion you have which
might be worked out for your advantage --
Patterson:
What is the size of the lot?
Gray:
110, all together.
H.M.Jr:
110. How many are completed?
Young:
About 60. About 30 of each type. There are
two types of these planes, what is known as
the 2-P-A, which is the two-seated training
and reconnaissance plane, and the EP-1, which
is a pursuit plane.
H.M.Jr:
This is what Phil Young prepared for me.
219
- 2 -
Patterson:
I understand that these were the same type
of planes that were certified as obsolete
by the War Department some months ago,
planes which were returned to the manufacturer
and eventually found their way to Britain.
Isn't that right?
H.M.Jr:
Philip?
Young:
I didn't know that there were any Republic
planes which had been so certified.
Patterson:
I am not certain that they were Republic
planes.
Young:
I am perfectly sure it is an Army plane of
about three years ago, the model, which
definitely makes it more than obsolete at
the present time, at least for combat pur-
poses.
Patterson:
Well, our course, you see, is not very easy
in view of that fact. Some people in the
Air Corps say that these planes are avail-
able for training. Is it felt that the
Army can take them over from the Republic
people without any embarrassment to the
Republic people?
H.M.Jr:
Would you like to talk with me for & couple
of minutes alone? I can go in the other
room.
Patterson:
No, I just - is it the idea that the Army
can take them without any trouble from
the Republic people?
H.M.Jr:
Well, who can talk on that? Cox?
Cox:
Yes. As I understand it, the Swedish Govern-
ment is perfectly willing to consent to
220
as 3 -
release these planes to the Army and they
don't care what the Army does with them
afterward. Now, both Bostrom and the other
man made that statement, and Flickinger of
Republic has gotten that same statement out
of them. I also understand that he is
perfectly willing and wants to turn them
over to the Army if he gets that kind of
consent from the Swedish trade delegation
so there won't be any legal set-to.
The next problem is what you do with them
once you get them into the hands of the
Army, and the Swedish Government, as I under-
stand it, isn't concerned with what the
Army does with them.
H.M.Jr:
Well then, if you are correct, and I am sure
you are, and the Army gets them, it is just
a question of how generous they feel about
what disposition they will make of them, I
mean whether they feel they can use them
themselves or whether they want to turn them
back to the company or trade them or what.
Is that about the situation?
Cox:
Yes.
Patterson:
Of course, that was the design, originally,
I think, as to both lots, the Vultee and
the Republic. I think it was at the Army's
suggestion that it was left out of the matter.
Cox:
That is right.
Patterson:
We saw no reason for taking them in and then
feeding them out again. That course has
succeeded in the case of the Vultee, but
now in the Republic we are back again to
the initial plan.
H.M.Jr:
That is right. That is where we are.
Regraded Uclassified
221
- 4 -
Patterson:
And evidently can't go forward.
H.M.Jr:
Can't go forward unless the Army will take
the first step. Am I right, Cox?
Cox:
That is right.
Young:
The greatest difficulty with Republic is
Republic does not take the same position
that Vultee did and they won't do business
on that basis.
Patterson:
I suppose the Republic will still have to
get a release in view of the attitude they
take. They will still have to get & re-
lease from the Swedes.
Young:
Yes, the Swedish Government is quite --
Patterson:
They think they can get such a release in
favor of the Army?
Young:
Yes, the Swedish Minister has taken the stand
all the time that if the planes are disposed
of by the Swedish Government, they will only
be disposed of to the Air Corps or under the
orders of the Air Corps.
H.M.Jr:
The original plan was that the Army would
take them and turn them back to the Swedes,
I mean to the Republic, and the Republic
would sell them to Canada and you would
get a credit with Republic for additional
planes, new planes. That was the original
plan. Then it has gone round and round and
round and now we are back to where the only
way we can do this thing is for the Army to
take them, and then it is up to the Army to
say what disposition they would like to make
of them.
Patterson:
Does the Army, by taking them, imply, so far
222
- 5 -
as the Swedes are concerned, that we shall
keep them?
Young:
I don't think so, necessarily. I don't
believe that the Swedish Minister would
consider looking beyond the fact that the
Air Corps had taken over the planes. I don't
see how he could.
Patterson:
Well, I would be glad to see what kind of a
certificate I could get out of the Air Corps
on these planes, or out of General Marshall.
H.M.Jr:
Well, let me ask you --
Patterson:
There are only two embarrassments that might
come up. One is the one I mentioned a
moment ago, it seemed to me that if we take
them over on release of the Swedes from the
Republic, I don't want any implication in
there that we keep them.
H.M.Jr:
Well, wouldn't the best --
Patterson:
The other is the question of a certification
from the Chief of Staff.
H.M.Jr:
Well, Bob, wouldn't the best way be to have
you satisfy yourselves or let some Army
officer see the Swedes and get it direct?
Patterson:
You might get it where you didn't like it
if you asked the question.
H.M.Jr:
Well, let's just jump two hurdles. Let's
say that the Chief of Staff will certify
it, and let's say that the Army owns them.
Have you crossed the next hurdle, that is,
the British Purchasing Commission being
willing, would you be willing to turn these
over to them for whatever use they might
want to make of them?
Regraded Uclassified
223
- 6 -
Young:
You would have to turn them back to the
Republic.
H.M.Jr:
Let's forget the mechanics of it.
Patterson:
If we take these, there may be some slacks -
they may release some spot and allow some
slack or something equivalent. I think
that is suggested in your paper, isn't it?
Young:
Yes. I thought the other might look just
a little bit crude.
Purvis:
It would relieve that point you were saying,
as to whether there is a permanent owner-
ship, or not permanent, but an ownership
certificate.
H.M.Jr:
As I read this memorandum which was handed
to me at the start of this meeting, I take
it the English Purchasing Commission will
be glad to take the Republic P-44's which
they now have on order for you, and anything
they can deliver before April '41. Is that
right?
Purvis:
On such an exchange, I think that is right,
isn't it?
H.M.Jr:
You have 60-odd of these Republic P-44's
on order.
Purvis:
It might take the curse off.
Patterson:
How good are these things?
Fairey:
Your guess is as good as ours. They are
not as good as the Moulton type. They are
just about good enough. They are about
three years old, I believe. They are not
as heavily armored or as well armed as
the Moulton type. There is the 43, 44, and
the 47 coming. That is the one that we are
224
- 7 -
the most interested in.
H.M.Jr:
The 44?
Fairey:
The 44 immediately, and the 47 in the future.
Purvis:
the 44 comes into production when?
Fairey:
About next summer.
Buckley:
These planes have protected gas tanks. They
would have to sacrifice about 15 miles an
hour speed.
Patterson:
What would you deem the equivalent of these,
the nearest thing to an equivalent We have
in stock?
Fairey:
Have you got any 44's in stock?
Patterson:
I don't --
Purvis:
No, their deliveries just started.
Fairey:
I don't know what you have in stock.
Young:
You mean something approximately the same
age, three years?
Purvis:
No, something, please, more modern.
Fairey:
I know what I would like, but that is not
the same thing.
Young:
Well, P-40's.
Patterson:
Well, I was wondering whether the acquisition
of these would relieve us - not long, because
that is impossible, but not acutely short in
some item.
Fairey:
Well, I imagine. I don't know what you have
got, because the item that we want and want
Regraded Uclassified
225
- 8 -
badly is P-40's. That is opening my mouth
rather wide. That is in exchange for a much
older machine.
Patterson:
It involves some 60 units immediately, doesn't
it?
Fairey:
Yes.
Purvis:
Would you be willing to trade off 8. rather
lesser number of P-40's?
Fairey:
Certainly.
Patterson:
Well, I know, except you will have some diffi-
culty on certification there, I am quite sure.
I was trying to achieve the substance of the
plan we had to be carried out in the case of
the Vultee.
Young:
How does that compare with the Northrups, older
Northrups?
Fairey:
No, I think these are rather preferable to the
older Northrup. I haven't anything in mind
besides that at the moment.
Self:
The P-40's --
Purvis:
We had & request for 200 of those for two
months.
Self:
We might even suggest the P-39. It sounds a
little bit anterior.
Fairey:
36, you mean.
Self:
No, Bell P-39.
Patterson:
I know that the design of the Air Corps, if
they had these planes, would be to use them
226
- 9 -
for training planes.
Purvis:
Yes.
Patterson:
And I have hope that we can whack up some
bargain.
H.M.Jr:
No one has suggested this, but I will raise
this, just to be knocked down. I think if
it was forced on them, they might take a
few of these North American Harvard trainers.
Purvis:
That is a thought.
Fairey:
Yes, that is a thought.
H.M.Jr:
They might resist terrifically, but they might
be willing to take them.
Purvis:
Properly weighted.
H.M.Jr:
Wouldn't you be willing to accept some of those?
Fairey:
Yes.
Patterson:
What do you call them?
H.M.Jr:
Harvard trainers, made by North American.
Purvis:
They are the advanced trainer.
H.M.Jr:
You have them on order.
Purvis:
There is somewhat of a shortage in the advanced
trainer class, but if they were going to use
these as trainers, then it would make --
Wilson:
It would be a trainer for a trainer.
H.M.Jr:
That is what I had in mind.
Purvis:
It does make a simpler approach.
227
- 10 -
Fairey:
It has the advantage from our point of
view of being the type we already have &
great many of, instead of introducing
another one with all the complications of
spares and new equipment.
Patterson:
It conforms to your standards?
Fairey:
Oh, absolutely, yes.
Purvis:
It is the advanced trainer.
Fairey:
There is a slight difference between the
American pattern and the British pattern
of the Harvard, but not enough to disturb
me.
H.M.Jr:
According to my figures --
Patterson:
I think the most promising of these three
alternatives Mr. Young has here is the
second.
H.M.Jr:
Which is that?
Patterson:
That is the one we are discussing now.
Young:
Releasing something else. Isn't that the
one you mean?
Patterson:
Yes.
H.M.Jr:
You have on order with North American a
little over 700 of these trainers which
begin to come through in a goodly number,
beginning in November.
Patterson:
Well, I think I had better let it go at
that. I will go and discuss it with the
Air Corps people and try to take these
over and try to give you an equivalent.
Regraded Uclassified
228
- 11 -
Self:
May I mention that when you are considering
it, our test pilot tried these Republic air-
craft and they have a vicious stall character-
istic. They have worked out quite & simple
device which can easily be adapted to the
aircraft, so if they say anything about
trouble with the aircraft, it has been recti-
fied.
Purvis:
You can demonstrate that, can't you?
Fairey:
It was modified entirely to our satisfaction.
Purvis:
That is a good thing to have on the table.
H.M.Jr:
What would be a reasonable time to expect
an answer from you on this?
Patterson:
Tonight or tomorrow morning.
H.M.Jp:
Wonderful.
Patterson:
If I can catch them now, I will take it up
at once.
H.M.Jr:
Do you think we could do it before Cabinet?
Patterson:
Yes, I think SO.
Fairey:
I am going away tonight, or I was going to
say I would offer to come around and see you.
I must leave shortly, and if there are any
other alternatives you want to suggest.
Patterson:
Shall we use Mr. Young 8.5 a clearing house?
Fairey:
He could get in touch with Sir Henry. I am
going away.
Self:
I shall be here, Mr. Young.
Patterson:
I will put it up to you (Mr. Young), then.
229
- 12 -
Young:
I am quite hardened to it.
Patterson:
You can act as the central.
H.M.Jr:
That is what he is here for.
Patterson:
For the central, yes.
H.M.Jr:
"Information Please".
Fairey:
He has done his part very well.
Purvis:
We are always saying, "Information Please."
Patterson:
All right.
230
CONFIDENTIAL
FOR YOUR INFORMATION
September 30, 1940
To:
The Secretary
From:
Mr. Young
Be: Republic Planes on Order for Suedea.
Last Friday morning, Colonel Flickinger of Republic Aircraft
dropped in to ... Occar Cox and no at w request. Colonel
Flickinger stated that 172 planes had been ordered originally
by the Swedish Government, of which 120 VOTO HP-1's (single par-
suits) and 52 were 2-PA's (twe-seater training and reconnaiseance
planes). or these, 60 EP-1's and 20 2-PA's have been shipped,
leaving & balance of 110. or this balance, 30 of each type have
been completed leaving about 50 to be produced at as approximate
rate of one plane por day.
The planes which have been completed are already boxed for
export shipment and are stored at the Republic plant as Long
Island City. These planes are all bought and paid for and the
Swedish Government has title. Colonel Flickinger stated that
Republic could not break its contract with the Swedish Govern-
mat for two reasons: first, because the Sweden already had
title to the planes and Republic had no claim on them, and, second,
because the finished planes include accessory equipment, radio,
camera, etc., which had been furnished by the Sysdes and was not
part of Republic contract.
Thus, the Republis situation is distinct free the Vultes
situation where planes had not been completed and did not include
any extra equipment. As Republic stated point-blank that 11 would
not cancel its contract, and as the Swedish Government is taking
the stand that it wants delivery of the planes, if 15 cannot sell
then to the Mr Corps, there would --- to be three possible willing
of action: first, lot the Air Corps take over the planes from the
Swedish Government and then trade back part of then to Republic for
sale to Canada (so 10 assumed that the Air Corpelwould be interested
in single pursuits only): OF, second, let the Air Corps take over the
planes and release 0 different batch of planse for ultimate sale to
Canadal UP, third, to take over the Republic plasse is exchange for
flying fortresses.
Pring
Regraded Uclassified
Excerpt from 9:30 meeting of October 3, 1940
231
H.M.Jr:
Philip, Colonel Knox has accepted my revised
figures on Consolidated. I got up at 6:00
this morning and began to study this thing
and it seemed to me that they hadn't done
what they had agreed to do, 80 instead of
the English making a gain of six, they now
get twenty more between now and - Knox 1s
taking them.
Do you (Foley) want the story? Buckley has
it.
Foley:
I can get it from Buckley.
H.M.Jr:
Buckley was here this morning. But now on
the flying boats, between now and the first
of July, the Navy gets 91 and the English
get 94, where they only were going to get
74, so they gained 20. That deal is through.
Also, in the room, we get - who did these
figures? I don't understand the 26 and 32.
Young:
The 26 is just for the B-24, and the 32 is
the boats, plus bombers, total.
H.M.Jr:
Oh, that is out, Well, they gained 26 bombers.
Young:
Yes, the total comes up to 46 instead of 32.
H.M.Jr:
And the other amusing thing was, Knox sald,
"You know, Henry, this 1s a great idea.' You
know, he spilled it all in the papers last night.
Foley:
I 88W it. He didn't mention the Treasury.
H.M.Jr:
Not a word. And he included the job we did up in
Buffalo as though it was all his. That 18 what
I am going to call from now on "pulling & Beaverbrook,"
and he said, "Now, this 18 swell. You know, why can't
we do this for a lot of other companies?" I said,
"My God, Frank, I have been on my knees begging you
and the Army to do this." "Why, If he says, this is
the way to get things done." All I could do was to
say, "So I see by the papers," but I didn't. He
said, "Why can't we do it with some other companies,"
and I said, "Well, if you will tell me which other
companies are so-called Navy companies --' I don't
want to trust the Army ones, because they are in
legal difficulties with Douglas and Lockheed.
I said, "If you will call me back and say which of
Regraded Uclassified
2
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Regraded Uclassified
203
) October 1940.
My dear Mr. President:
I cannot too strongly urge you to ruske
available issediately from the $100,000,000 emergency fund the
sus of $1,500,000 to begin construction of three Coast Guard
cutters of the 327-foot - 20-knot type (CAMPHELL class) the
total cost of which will be $11,370,000, with authority to let
contracts imediately for these ressels. The reasining 19,070,
000 will be included in the regular 1942 estimates for appropria-
tions for the Const Guard.
Thase three cutters will replace tires
cutters from twenty-seven to thirty years old, with E speed of
ten knote : less which are not cepable of performing officient-
ly the duties of the Coast Guard.
The plans and specifications are ready
for immediate distribution to prospective oddiors ud contracts
can be entered into imediately. The Coordinator of hipirui14-
ing nas given se the names of five fires that should be in a
position to consence construction of these vessels immediately.
Telegraphic reply has already been received from four of these
companies that they are ready to commence the construction of
these three culters inmediately.
There Le now an scute shortage of the
larger type of Goast Guard cutter caused by the denands rade
upon the Coast Guard by the enforcement of the Neutr-lity imm,
by special advations necessitated by the present international
situation, by additional duties pursuant to your Proclamation
of June 27, 1940, charging the Secretary of the Treasury with
the repervision and centrol of merchant shipping and other
responsibilities during the present energency period. I have
every reason to expect that the need for this type of outter
will increase in the 0002 future. The 327-foot - 20-knot cutter
has already demostrated its value as a national defense unit.
Regraded Uclassified
234
There are but seven modern outters of the
327-foot - 20-knot type in the Coast Guard, ten cutters of the
250-foot - 16-knot type, built in 1928, and four outters of the
240-foot - 12-knot type, built in 1922. All other cutters are
small vessels less than 200 feet long except the 216-foot
NORTHLAND, built for Arotic work and now in Greenland. Pour of these
larger cutters are engaged in the mid-Atlantic Weather Observe-
tion Patrol, in accordance with your direction. Two of these
vessels have been engaged in special missions to Greenland since
last May, and another outter, the CAMPBELL, has sailed for duty
overseas under the direction of the Chief of Naval Operations.
Only recently I have been asked informally by the Havy Department
of the practicability of assigning & 327-foot culter to duty as
flagship for submarines. The pressure of additional duties on
the Atlantic seaboard, such as described, has necessitated
practically stripping the West Coast and Alaska of the larger
type of outter for duty on the East Coast. The Alaskan work of
the Coast Guard is of necessity being neglected, particularly
the patrol of the Aleutian chain of islands stretching nearly
a thousand miles to the westward and within & few hundred miles
from the northern end of the Japanese Archipelago, all is the
surveillance of Japanese fishermen in the Doring Sea. And this
at a time when recent international developments in connection
with agreements among the totalitarian nations make the Alaskan
patrol more necessary and urgent than it has ever been before.
May I urge your imediate consideration of
this request?
Faithfully yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
The President,
The White House.
Ann
Delivered by Lt. Kay
Regraded Uclassified
235
RDS
GRAY
BERLIN
Dated October 3, 1940
Rec'd 5:15 p.m.
Secretary of State,
S
I'E
Washington.
NECTIVED
4220, October 3. 4 p.m.
Lictum
as
109 016
My 253, January 31, 4 p.m.
The VOLK of October 2 reports that summer time has
proven of such great advantage that it will be continued
for an indefinite period. It is further stated that 8
decree of the Council of Ministers for National Defense
to this effect will be published within the next few days
in the Reich Law Gazette. It was originally planned to
revert to Standard Time during the night between October
5 and October 6.
KIRK
NPL
Copy
of
Regraded Uclassified
236
G-2/2657-220
RESTRICTED
M.I.D., W.D.
October 3, 1940.
No. 210
SITUATION REPORT
12:00 M.
This military situation report is issued by the Military
Intelligence Division, General Staff. In view of the occasional
inclusion of political information and of opinion it is classified
as Restricted.
I. Western Theater of War.
1.
No ground operations.
2.
Air Force Operations.
On the 2nd the German Air Force was active over
England by day and night. Satisfactory details are not available,
except that the weight of the attacks was apparently directed
against southeast England and the London area. The British state
officially that little damage was inflicted, while the Germans
claim that heavy damage was done to communications and port facili-
ties.
II. Mediterranean and African Theaters of War.
No information available.
III. Miscellaneous.
A report from an American official source at a European
capital outside the U.S.S.R. gives the following distribution of
the Red Army as of August 15, 1940:
FAR EAST
40 Divisions
CAUCASUS REGION
20
Il
ODESSA-LWOW
20
H
WESTERN UKRAINE
10
=
WESTERN WHITE RUSSIA
6
11
BALTIC STATES
13
If
FINNISH BORDER
20
H
35
#
STRATEGIC RESERVE
164
n.
TOTAL STRENGTH
RESTRICTED
Regraded Uclassified
237
TREASURY department
INTER OFFICE COMMUNICATION
DATE October 3, 1940
TO Secretary Morgenthau
FROM Mr. Cochran
Some days ago I took up with Mr. Collado the question of our failure to
receive, or only after delay, messages from American diplomatic and consular officers
in Latin America upon financial matters. I also discussed this with Mr. Livesey.
Mr. Collado has told me this morning that a system is now being worked out whereby
the officers in his division in charge of various Latin American countries will be
charged personally with preparing paraphrases of communications with our officers
in those countries, and sending them promptly to Mr. Collado's own office, for
etransmission to my office in the Treasury. We discussed the question of copies,
paraphrases, mail despatches etc. It is hoped that this new system will keep us
more promptly and fully informed on Latin American developments.
76mg
238
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE October 3. 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
Mr. McKeon of the Federal Reserve Bank of New York gave us the following
information regarding transactions in the account of the State Bank of the U.S.S.R.
mintained with the Chase National Bank,
Principal changes in the account during the period September 26 to October 2,
inclusive, were as follows:
Date
Amount Credited
Received From
Amount Debited
Paid To
September 26
$246,000
U.S. Mint,
$ 750,000
Amtorg Trading Co.
San Francisco -
final payment against
123,000
Commercial Letter
gold shipment.
of Credit Account
98,000
Jord Brukarbanken,
80,000
Bohemian Union
Stockholm
Bank, Prague
September 27
250,000
Skandinaviska Banka,
750,000
Amtorg Trading Co.
Stockholm
98,000
Commercial Letter
of Credit Account
September 28
162,000
Jord Brukarbanken,
60,000
Amtorg Trading Oo.
Stockholm
September 30
178,000
Commercial Letter of
329,000
Commercial Letter
Credit Account -
of Credit Account
cancellation
93.000
Leonard J. Buck,
Jersey City, N. J.
ctober 1
469,000
Antorg Trading Co.
420,000
Commercial Letter
of Credit Account
ctober 2
541,000
Commercial Letter
of Credit Account
278,000
Payment of bill
drawn by American
Society for Jewish
gmp
Farm Settlements
in the U.S.S.R.
Regraded Uclassified
239
TREASURY department
INTER OFFICE COMMUNICATION
DATE October 3, 1940
Secretary Morgenthau
TO
FROM Mr. Cochran
Xr. McKeon of the Federal Reserve Bank of New York gave us the following
information regarding the transfers listed below from German and Italian accounts
mintained with the Chase National Bank.
German
Date
Amount Debited
Account Debited
Paid To
October 1
$ 67,000
Deutsche Asiatic
Hideo Itoha, Manager,
Bank, Shanghai
Showa Tsusho Kaisha,
1775 Broadway, N. Y.
October 2
150,000
Reichsbank, Berlin
Swiss Bank Corporation,
(by order of Dresdner
N. Y. for account of
Bank, Berlin)
Swiss Bank Corporation,
Zurich
Italian
Date
Amount Debited
Account Debited
Paid To
October 1
$100,000
Credito Italiano,
Post and Flags
New York.
October 2
54,000
Credito Italiano,
Guaranty Trust Company of
New York.
N. Y., for account of
Banco de Lisboa 7 Acures,
Lisbon
70ml
240
TREASURY department
INTER OFFICE COMMUNICATION
DATE October 3. 1940
TO Secretary Morgenthau
FROM Mr. Cochran
At 11:00 this morning the Argentine Ambassador telephoned me. He stated that
le and talked with Mr. Duggen in the Department of State yesterday in regard to the
indepective visit of Argentine officials to the United States. He had been informed
test Secrotaries Morgentheu and Jones were to consult on this matter yesterday after-
1000. Since Mr. Duggan is absent in Philadelphis today. the Ambassador asked me
visitlet 1 could inform him as to the outcome of this conversation. I told him that
Cat not been present and had only A general idea of the matter. I suggested that
(
1 mest with someone else in the State Department, perticularly Mr. Collado. The
interendor sald he had been trying all morning but had falled to reach Collado.
& be selted if anyone in the Treasury could give him some information in the
misses. I said he might try Dr. White, and I transferred the call.
B.M.
Regraded Uclassified
241
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE October 3, 1940
TO Secretary Morgenthau
FROM Mr. Cochran
At this morning's Staff meeting Secretary Morgenthau approved the recommendation
of Mr. Pehle that applications for licenses be approved for two transactions, one
involving the payment by Soviet Russia from its account with the Chase Bank in
lew York for rubber to be shipped from Saigon, Indo China, to Vladivostok, and
snother for sisal to be shipped from Batavia, Java, to Russia. The Secretary asked
that I inform the offices of Secretary of State Hull and Secretary of Commerce Jones
if our action on these two applications. After the meeting, the Secretary asked
I by telephone to give the same information to the secretary of the Russian
Ambassador.
I have this forenoon communicated the messages to Mr. Stone in Secretary Hull's
office, to the private secretary of Mr. Jones in the Department of Commerce and to
the private secretary of the Russian Ambassador.
N.MR
Regraded Uclassified
242
TREASURY DEPARTMENT
Miss Channosy
INTER OFFICE COMMUNICATION
106
DATE October 3. 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
Mr. McKeon of the Federal Reserve Bank of New York gave us the following
information regarding the transfers listed below from German accounts mintained
with the Chase National Bank.
Date
Amount Debited
Account Debited
Paid To
October 2
$ 153,000
Reichsbank, Berlin
Santierle Nabale Galati,
(by order of Dresdner
Bucharest
Bank, Berlin)
otober 3
250,000
Reichsbank, Berlin
Stockholms Enskilda Bank,
Stockholm
October 3
200,000
Reichsbank, Berlin
First National Bank of
Boston for account of
Reichsbank, Berlin
October 3
1,132,000
Deutsche Gold Dis-
Marine Midland Trust
count Bank, Berlin
Co., N. Y., for account
of Topicen and Farley
(lawyers) 17 Battery
P1., New York
October 3
250,000
Reichsbank, Berlin
Brown Bros. Harriman
Co., N.Y. for account
of Deutsche Ausland
Schulden
nml
243
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE October 3. 1940
TO
Secretary Morgenthau
FROM Mr. Cochren
confidential
The recorting banke' transactions in registered sterling were as follows:
Sold to commercial concerns
£6,000
Purchased from commercial concerns
£4,000
Open market sterling remained at 4.03-1/2 throughout the day. Transactions
if the reporting banks were as follows:
Sold to commercial concerns
£2,000
Purchased from commercial concerns
£6,000
The Sviss franc touched a new current high of .2304 this afternoon, and
closed at .2303. It was believed that the volume of Swise frano-dollar business
liminished today in both New York and Zurich.
The Cuban peso discount narrowed to 7-7/8%, as against 8-7/16% yesterday.
the improvement in that currency vas probably associated with a press report that
M official Cuban delegation had left for Washington today to negotiate an Import=
Export Bank loan of $50,000,000. The Mexican peso advanced to .2083; it vas
quoted at .2049 yesterday.
The other currencies closed as follower
Canadian dollar
14-3/4% discount
Swedish krona
.2383
Reichemark
.4000
Argentine peso (free)
.2340
Brazilian milreis (free)
.0505
Lira
.0505
We purchased $410,000 in gold from the earmarked account of the Central Bank
of Chile.
The Federal Reserve Bank of Sev York reported that $2,900,000 in gold had
been shipped from Japan to the Chase National Bank in San Francisco for account
If the State Bank of the U.S.S.R. This shipment, due to arrive here around
October to on the President Taft. will be sold to the San Francisco Kint. The
Tes York office of the Chase National Bank stated that the gold vas originally
dispatched from Vladivostok and transshipped in Yokohama, probably by the
Tokobare Specie Bank. It will be recalled that s. similar gold shipment of
$10,500,000 arrived in San Francisco on September 3. description of which une
Regraded Uclassified
244
confidential
- 2 -
contained in my memorandum to the Secretary dated September 14.
The Bombay gold and silver prices were equivalent to #33.96 and 44.56
respectively, both slightly lower than yesterday's quotations.
The London price for spot silver was unchanged at 23-7/16d, while the
forward quotation moved off 1/16d to 23-3/8d. The dollar equivalents were
42.56# and 42.44.
Handy and Harman's settlement price for foreign silver was unchanged at
34-3/40- The Treasury's purchase price for foreign silver vas also unchanged
at 350.
Ve made four purchases of silver totaling 275,000 ounces under the Silver
Purchase Act. Of this amount, 200,000 ounces represented sales from inventory.
50.000 ounces were purchased from the Central Bank of China, and the remaining
25,000 ounces consisted of new production from foreign countries for forward
delivery.
10m8
245
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE October 3, 1940
Secretary Morgenthau
TO
FROM
Mr. Haae MA
Subject: Absorption of Increases in the Public Debt Since
June 30, 1933
Outline
I. The Fiscal Year 1940
II. The Period June 30, 1933 to June 30, 1940
A. The Period as a Whole
B. Trends During the Period
III. The Distribution of Government Security
Holdings as of June 30, 1933 and as of
June 30, 1940
IV. Details of Absorption by Banks
I. The Fiscal Year 1940
During the fiscal year 1940, the total direct and guaran-
teed public debt increased by slightly more than $2.5 billions,
of which all but about $50 millions consisted of direct obliga-
tions. Only about $500 millions of the increase in direct
obligations reflected growth in the volume of market issues, the
remainder of the increase being about equally divided between
special issues and restricted issues (United States savings bonds
and Adjusted Service bonds).
The largest single block of this increase was absorbed by
Federal agencies and trust funds ($1.2 billions) as may be seen
in Table I and in Chart I.* All banks, other than Federal
6 The data underlying Charts I and II will be found in Table A,
and those underlying Charts III and IV will be found in Table
3, attached to this memorandum.
Regraded Uclassified
246
Secretary Morgenthau - 2
Reserve Banks, increased their holdings of direct and guaran-
teed obligations by $900 millions. Weekly reporting member
banks in New York City, together with J. P. Morgan and Company,
accounted for the entire increase. 8mall increases in the hold-
ings of weekly reporting member banks in leading cities, other
than New York City, and of mutual savings banks were offset by
decreases in the holdings of banks in the remaining two cate-
gories (chiefly country banks and banks in small cities).
Insurance companies absorbed about $300 millions of Govern-
nent securities in the fiscal year 1940. When this amount is
added to the increase in bank holdings, the absorption of
Government obligations by the principal financial institutions
of the country is brought to a par with that of Federal agencies
and trust funds. Each group absorbed 48 percent of the increase
in total debt during fiscal 1940. This 1s shown in Table II.
The $1.2 billions increase in the holdings of financial insti-
tutions, however, was 2.4 times the $500 millions increase in
the privately held marketable supply of Government securities.
"Other holders", principally individuals and non-financial
corporations, reduced their holdings of market issues by $700 mil-
lions in the last complete fiscal year. Thus, more than half of
the increase in the holdings of financial institutions consisted
of securities already outstanding which had been held previously
by individuals and non-financial corporations.
"Other holders" absorbed $900 millions, or somewhat more
than 90 percent of the increase in United States savings bonds
outstanding. Up to April 1, 1940, when revised regulations
governing sales of savings bonds became effective, banks had
purchased about 10 percent of all bonds issued.
J. P. Morgan and Company, although not e member bank,
was included in this category because its size and type
of business 18 more closely analogous to that of weekly
reporting member banks than to that of "non-member" banks,
The privately held marketable supply does not include
special or restricted issues, or the holdings of Federal
agencies including Federal Reserve Banks.
Regraded Uclassified
Secretary Morgenthau - 3
247
Table I
Absorption of Increase in Direct and
Guaranteed Public Debt Outstanding
Fiscal Year 1940
(Billions of dollars)
Absorbed by:
Weekly reporting member banks
in New York City 1
.9
Weekly reporting member banks
outside New York City
.1
Other member banks
- .1
Non-member banks
- .1
Mutual savings banks
.1
All banks 3/
9
Insurance companies
3
Federal Reserve Banks
1
Federal agencies and trust funds
1.2
Other holders:
Restricted issues
9
Market issues
- 7
2.5
1/
2/
Excluding mutual savings banks and J. P. Morgan and Company.
Including J. P. Morgan and Company.
M
Excluding Federal Reserve Banks.
248
Secretary Morgenthau - 4
Table II
Percent of Debt Increases Absorbed by
Various Classes of Holders
Fiscal Year 1940
:
:
:
Total
:
Privately
Privately
:
Held.
:
Held
Debt
Debt
:
:
:
:
Marketable
:
1
:
:
Supply 2/
(Percent of Total)
Absorbed by:
Federal agencies and
trust funds
48
-
-
Federal Reserve Banks
- 4
I
-
Banks other than Federal
Reserve Banks
36
64
180
Insurance companies
12
22
60
Other holders:
Restricted issues
36
64
-
Market issues
- 28
- 50
- 140
100
100
100
1/ Excludes holdings of Federal agencies and trust funds and
Federal Reserve Banks.
2/ Excludes United States savings bonds and Adjusted Service
bonds, and holdings of Federal agencies and trust funds,
and Federal Reserve Banks.
249
Secretary Morgenthau - 5
II. The Period June 30, 1933, to June 30, 1940
A. The Period as a Whole
In the seven fiscal years since June 30, 1933, the total
direct and guaranteed public debt has increased by $25.7 bil-
lions, of which $20.2 billions represents direct obligations
and $5.5 billions, guaranteed securities. The increase in
market issues of direct obligations amounted to $12.6 billions,
while special issues amounted to $4.5 billions, and restricted
issues (United States savings bonds and Adjusted Service bonds),
to $3.2 billions.
Private financial institutions have constituted the
principal market for this increase in the public debt. Banks
other than Federal Reserve Banks absorbed $11.7 billions, or
nearly 46 percent of the total increase, while insurance 00m-
panies absorbed $5.1 billions, or 20 percent of the total.
These two classes of institutions, however, between them
absorbed more than the whole increase in the privately held
marketable supply -- the banks accounting for 74 percent and
the insurance companies, for 33 percent. This 1s shown in
Chart II and in Tables III and IV.
Individuals and non-financial corporations, although they
absorbed about 90 percent of the net increase in United States
savings bonds and, of course, the whole increase in Adjusted
Service bonds, actually reduced their holdings of market issues
by 81 billion. A glance at Charts I and II will reveal that at
no time in the seven-year period has this class of investors
played an important part in the market for Government securities,
other than restricted issues.
It should be noted that while Federal agencies and trust
funds absorbed $6.5 billions, or about one-fourth of the in-
crease in total debt, about two-thirds of this sum consisted
of special issues.
Regraded Uclassified
250
Secretary Morgenthau - 6
Table III
Absorption of Increase in Direct and
Guaranteed Public Debt Outstanding
June 30, 1933 - June 30, 1940
(Billions of dollars)
Absorbed by:
Weekly reporting member banks
in New York City 1/
3.0
Weekly reporting member banks
outside New York City
3.3
Other member banks
1.7
Non-member banks 2/
1.1
Mutual savings banks
2.6
All banks 3/
11.7
Insurance companies
5.1
Federal Reserve Banks
.5
Federal agencies and trust funds
6.5
Other holders:
Restricted issues
2.9
Market issues
- 1.0
25.7
Including J. P. Morgan and Company.
Excluding mutual savings banks and J. P. Morgan and Company.
M
Excluding Federal Reserve Banks.
251
Secretary Morgenthau - 7
Table IV
Percent of Debt Increases Absorbed by
Various Classes of Holders
June 30, 1933 - June 30, 1940
:
:
Total
:
Privately
Privately
:
:
Held
Debt
:
Debt
:
Held
:
:
Marketable
:
1
:
:
Supply 2/
(Percent of Total)
Absorbed by:
Federal agencies and
trust funds
25
-
-
Federal Reserve Banks
2
-
-
Banks other than Federal
Reserve Banks
46
63
74
Insurance companies
20
27
33
Other holders:
Restricted issues
11
15
-
Market issues
- 4
- 5
- 7
100
100
100
1/ Excludes holdings of Federal agencies and trust funds and
Federal Reserve Banks.
2/ Excludes United States savings bonds and Adjusted Service
bonds, and holdings of Federal agencies and trust funds,
and Federal Reserve Banks.
Regraded Uclassified
252
Secretary Morgenthau - 8
B. Trends During the Period
Chart I shows the increase in total debt and the absorption
of the increase by principal classes of holders for each fiscal
year since June 30, 1933. It will be seen that the period of
greatest debt increase covered the fiscal years 1934-1936. In
fiscal 1938, the increase was only $1 billion, the smallest in the
seven-year period. Banks, other than Federal Reserve Banks, were
the principal absorbers in the first three years of the period,
but decreased their holdings in the fiscal years 1937 and 1938.
Insurance companies also were more important, in terms of absolute
amounts absorbed, during the earlier years of the period than they
were later.
Federal agencies and trust funds have furnished a fairly
stable market in terms of amounts, but not in terms of percent of
total, during the past four fiscal years. In the fiscal year
1938, they absorbed an amount equal to the whole debt increase of
that year and $200 millions more -- enough to offset the reduc-
tion in bank holdings -- while in the fiscal year 1940 an increase
in the holdings of the agenoies and trust funds of the same amount
88 in 1938 was equal to only 48 percent of the increase in total
debt.
III. The Distribution of Government Security
Holdings AB of June 30, 1933 and as of June 30, 1940
The trends in absorption of increases in the public debt de-
scribed in the foregoing section have resulted in marked changes
in the distribution of holdings of United States Government obli-
gations. Table V, below, shows in part "A" the distribution of
holdings of the total debt, including both direct and guaranteed
obligations, on June 30, 1933, and on June 30, 1940, in absolute
amounts and as percentages of the total debt.
It will be seen that private financial institutions (banks
and insurance companies) increased their share of the total debt
from 40 percent in 1933 to 54 percent in 1940. Federal agencies
and trust funds likewise increased their share from 3 percent in
1933 to 15 percent in 1940. Restricted issues, of which none were
outstanding in 1933, constituted about 6 percent of the total debt
in 1940. "Other holders" of market issues, howsver, decreased
their holdings from 48 percent in 1933 to 20 percent in 1940.
Table V shows in part "B" the change between June 30, 1933
and June 30, 1940, in the distribution of the privately held mar-
ketable supply only. Here, the changes are much more striking --
banks and insurance companies combined increasing their holdings
from 45 percent to 72 percent of the total marketable debt, while
the holdings of "all others" decreased from 55 percent to 28 percent.
Regraded Uclassified
253
Secretary Morgenthau - 9
Table V
Distribution of Holdings of the Public Debt
June 30, 1933 and June 30, 1940
:
June 30, 1933
:
:
:
June 30, 1940
:
:
Class of holder
Amount
:
Percent
:
Amount
:
:
of
:
Percent
in
:
billions
:
in
of
:
total
:
billions
total
A.
Total Debt
Federal agencies and
trust funds
$ .6
3
$ 7.1
15
Federal Reserve Banks
2.0
9
2.5
5
Banks other than Federal
Reserve Banks
7.9
36
19.6
41
Insurance companies
1.0
4
6.1
13
Other holders:
Restricted issues
-
-
2.9
6
Market issues
10.7
48
9.7
20
Total
22.2
100
47.9
100
B. Marketable Debt
Banks other than Federal
Reserve Banks
$ 7.9
40
$19.3 1/
55
Insurance companies
1.0
5
6.1
17
Other holders
10.7
55
9.7
28
Total
19.6
100
35.1
100
1/
Estimated holdings of United States savings bonds have been
deducted.
254
Secretary Morgenthau - 10
IV. Details of Absorption by Banks
Charts III and IV show the absorption of Government securi-
ties during the seven fiscal years 1934 to 1940 by various classes
of banks. Chart III shows the data for individual years and
Chart IV shows the data cumulatively from June 30, 1933.
Principal bank markets for Government securities were banks
in the larger cities. Weekly reporting member banks in New York
City and J. P. Morgan and Company accounted for $3.0 billions dur-
ing the entire period, and weekly reporting member banks outside
New York City, for another $3.3 billions out of an $11.7 billions
increase in the holdings of all banks. This 1s nearly 54 percent
of the total increase in bank holdings, and, as 1a shown in
Table VI, about 25 percent of the increase in the total debt and
about 40 percent of the increase in the privately held marketable
supply.
Next in importance to the commercial banks in the larger
cities just referred to, were the mutual savings banks which ab-
sorbed 10 percent of the total debt increase, and 16 percent of
the increase in the privately held marketable supply. This group
of banks constitutes only about 4 percent of the total number of
banks, but holds about 16 percent of all deposits in the banking
system. Their absorption of Government securities equaled about
22 percent of the total increase in bank holdings of Governments
between June 30, 1933 and June 30, 1940.
Only mutual savings banks have consistently increased their
holdings of direct and guaranteed Government obligations in every
year of the seven-year period (Chart III). During the first three
fiscal years, 1934 to 1936, weekly reporting banks in New York
City became increasingly important buyers of Governments, while
reporting banks in other cities purchased smaller amounts in suc-
cessive years.
In fiscal 1937, when there W&B a net reduction in the direct
and guaranteed obligations held by all banks, there was also &
shift of holdings from weekly reporting member banks in leading
cities to other classes of banks. In the following fiscal year,
during which bank holdings again declined, most of the decline 1s
to be attributed to member banks outside of New York City. New
York City banks increased their holdings elightly in that year.
In the last two fiscal years, weekly reporting banks in New
York City have furnished the principal bank market for Govern-
ments, accounting for almost half in 1939, and in 1940, for
practically all of the increase of bank holdings.
Regraded Uclassified
255
Secretary Morgenthau - 11
Table VI
Percent of Debt Increases Absorbed by
Various Classes of Banks
June 30, 1933 - June 30, 1940
:
:
Privately
Privately
Total
:
Held
:
Held
Debt
Debt
:
:
Marketable
:
Supply
(Percent of Total)
Absorbed by:
Weekly reporting member banks
in New York City 3/
12
16
19
Weekly reporting member banks
outside New York City
13
18
21
Other member banks
7
9
11
Non-member banks
4
6
7
Mutual savings banks
10
14
16
All banks 5/
46
63
74
Excludes holdings of Federal agencies and trust funds and
Federal Reserve Banks.
2/ Excludes United States savings bonds and Adjusted Service
bonds, and holdings of Federal agencies and trust funds,
and Federal Reserve Banks.
3/ Includes J. P. Morgan and Company.
4/ Excludes mutual savings banks and J. P. Morgan and Company.
5/ Excludes Federal Reserve Banks.
Regraded Uclassified
Absorption of Increase in Direct and Guaranteed
Public Debt Outstanding by Classes of Holders
Since June 30, 1933
:
#
:
:
Absorption by:
:
:
#
:
:
Increase in
Federal
:
Other Holders
:
#
:
Insurance
:
Total Debt
Federal
:
Agencies
:
#
:
All Banks
:
Companies
:
Fiscal
Reserve
:
and trust
:
Restricted
:
Market
:
:
:
:
Banks
:
Year
Funds
:
issues
b
:
issues
:
:
:
:
:
:
:
:
:Cumula-:
:Cumula-:
: Cusula-:
: Cumula- :
: Cumula- :
:Cumula-:
:Cumula-
:
: tive
:
: tive
:
: tive
:
:
tive
:
: tive
:
: tive
:
: tive
Annual
: from
Annual
: from
Annual
:
:
:
from
Annual
:
from
Annual
:
:
:
from
Annual
Annual
:
:
: from
I
:
from
:
: 1933
1
: 1933
:
: 1933
:
: 1933
:
: 1933
#
: 1933
:
I 1933
(Billions of Dollars)
1934
5.6
5.6
3.7
3.7
.5
.5
4
.4
.7
.7
o
0
.2
.2
1935
4.0
9.6
2.6
6.3
1.1
1.6
0
.4
.7
1.4
.1
.1
-
.5
- .3
1936
5.7
15.3
3.1
9.4
1.3
2.9
0
.4
.3
1.7
.9
1.0
.1
- .2
1937
3.0
18.3
- .4
9.0
1.1
4.0
.1
.5
1.3
3.0
.1
1.1
.8
.6
1938
1.0
19.3
- .2
8.8
.2
4.2
c/
.6
1.2
4.2
.3
1.4
- .6
0
1939
3.9
23.2
2.0
10.8
.6
4.8
.6
1.1
5.3
.5
1.9
- .3
- .3
1940
2.5
25.7
6"
11.7
.3
5.1
-
.1
.5
1.2
6.5
.9
2.8
-
.7
-1.0
Excluding Federal Reserve Banks. Absorption figure for the fiscal year 1934 gives effect to adjustment for
the apparent omission of J. P. Morgan and Company from the published data for 1933.
e
United States savings bonds and Adjusted Service bonds.
Less than $50 millions; increase in 1938, decrease in 1939.
2
5
Regraded
Absorption by Banks of Increase in
Direct and Guaranteed Public Debt Outstanding
Since June 30, 1933
I
# Weekly Reporting = Weekly Reporting :
:
:
:
:
Member Banks in
2
Member Banks out-:
Other Member
:
Non-Member
All Banke
: Mutual Savings
#
Fiscal
:
New York City
: side New York City
Banks
I
Banks c/
1
Banks
#
:
:
:
Year
:
:
:
1 Cumula-
:
: Cumula-
:
: Cumula-
I
# Cumula-
:
= Oumula-
:
# Cumula-
:
:
tive
:
:
tive
:
:
Annual
Annual
tive
:
:
tive
Annual
Annual
:
1
tive
#
from
from
from
Annual
:
Annual
:
tive
1
:
:
:
:
:
:
from
:
:
from
:
:
from
:
:
1933
:
: 1933
:
:
1933
:
: 1933
:
:
1933
:
: 1933
(Billions of Dollars)
1934
3.7
3.7
.6
.6
1,3
1.3
.9
.9
.4
.4
.5
-5
1935
2.6
6.3
.7
1.3
1.0
2.3
.2
1.1
.2
.6
-5
1.0
1936
3.1
9.4
1.0
2.3
6*
3.2
.4
1.5
.2
.8
-5
1.5
1937
- .4
9.0
-1.1
1.2
-.2
3.0
.4
1.9
.3
1.1
+3
1.8
1938
- .2
6.8
.1
1.3
.3
2.7
.2
1.7
- .1
1.0
.3
2.1
1939
2.0
10.8
.8
2.1
.6
3.3
.1
1.5
.1
1.1
.4
2.5
1940
.9
11.7
+9
3.0
A
3.4
- .1
1.7
- .1
1.0
.1
2.6
a/ Excluding Federal Reserve Banks. Absorption figure for the fiscal year 1934 in this column and in the column
for weekly reporting banks in New York City gives effect to adjustment for apparent omission of J. P. Morgan
and Company from the published data for 1933.
Including J. P. Morgan and Company.
of
Excluding mutual savings banks and J. P. Morgan and Company.
257
Regraded Uclassifie
ANNUAL ABSORPTION OF INCREASH IN DIRECT AND
GUARANTEED PUBLIC DEBT OUTSTANDING BY CLASSES OF HOLDERS
DOLLARS
DOLLARS
BILLIONS
BILLIONS
INCREASE in TOTAL DEBT
6
6
5
5
4
4
3
3
2
2
1
1
0
o
1934
'35
'36
'37
'38
'39
'40
*41
FISCAL YEARS
Classes of Holders
258
DOLLARS
DOLLARS
DOLLARS
BILLIONS
BILLIONS
BILLIONS
ALL BANKS .
INSURANCE COMPANIES
3
3
2
2
2
2
-
1
I
1
o
o
1934 '35 '36 '37 '38 '39 '40 '41
3
3
0
o
OTHER HOLDERS
(RESTRICTED ISSUES*)
2
2
T
-1
.
1934 '35 *36 '37 '38 *39 '40 '41
1
1
1
1
FEDERAL RESERVE BANKS
0
o
o
o
1934 '35 '36 *37 '38 *39 '40 '41
2
2
T
T
OTHER HOLDERS
1934 '35 '36 '37 '38 '39 '40 14)
(MARKET ISSUES)
3
3
I
1
FEDERAL AGENCIES AND TRUST FUNDS
2
2
o
o
1
I
-1
-1
o
o
-2
-2
1934 *35 '36 *37 '38 *39 '40 '41
1934 '35 *36 *37 '38 '39 '40 '41
FISCAL-YEARS
FISCAL YEARS
"ENCLUDING FEDERAL RESERVE BANKS
70,5. SAVINGS BONDS AND ADJUSTED SERVICE BONDS
Office of the Secretary of the Treasry
Regraded Uc
B 202
and
Statement
CUMULATIVE AUSORPTION OF INCREASE IN DIRECT AND
OUARANTSED PUBLIC DEBT OUTSTANDING BY CLASSES OF HOLDERS
Since June 30, 1933
DOLLARS
DOLLARS
BILLIONS
BILLIONS
INCREASE IN TOTAL DEBT
28
28
24
24
20
20
16
16
12
12
8
8
4
-
o
D
1934
'35
'36
'37
'38
'39
'40
'41
FISCAL YEARS
Classes of Holders
DOLLARS
DOLLARS
DOLLARS
BILLIONS
BILLIONS
BILLIONS
ALL BANKS .
INSURANCE COMPANIES
12
12
8
8
0
8
4
.
1A76
*
4
o
o
1934 '35 136 *37 '38 '39 '40 '41
12
12
o
o
OTHER HOLDERS
1934
'35
'36
'37
'38
'39
'40
'41
(RESTRICTED ISSUES")
8
a
8
5
FEDERAL RESERVE BANKS
4
4
4
4
e
o
o
o
1934
'35
'36
'37
'38
'39
'40
'41
1934
'35
136
'37
'36
'39
'40
'41
12
12
8
8
FEDERAL AGENCIES AND TRUST FUNDS
OTHER HOLDERS
(MARKET ISSUES)
8
a
4
4
4
-
0
o
o
o
1
1934 '35 '36 '37 '38 139 *40 '41
T
1934
135
'36
*37
138
'39
140
'41
FISCAL YEARS
FISCAL YEARS
*CROLUDING FEDERAL RESERVE BANKS
Regraded Jclas
- - WASTED SERVICE -
ANNUAL ABSORPTION BY BANKS OF INCREASE
IN DIRECT AND GUARANTEED PUBLIC DEBT OUTSTANDING
DOLLARS
BILLIONS
DOLLARS
BILLIONS
ALL BANKS
4
4
3
3
2
2
1
I
o
o
-1
-1
1934 '35 '36 '37 '38 '39 '40 141
FISCAL YEARS
Classes of Banke
DOLLARS
DOLLARS
DILLIONS
DOLLARS
WEEKLY REPORTING MOMER BANKS
BILLIONS
BILLIONS
WEEKLY REPORTING MOMBER BANKS
IN NEW YORK CITY+
OUTSIDE New YORK CITY
260
2
2
2
2
I
t
1
I
0
o
0
o
-1
-1
-1
-1
4
-2
7
&
1934 '35 36 '37 '38 '39 '40 '41
1934 '35 '36 '37 '38 '39 '40 '41
2
2
2
2
OTHER MOMER BANKS
NON-MOMBER BANKS
1
1
1
I
0
0
0
o
T
-1
-1
-1
1934 '35 '36 '37 '38 '39 '40 41
1934 '35 '36 '37 '38 '39 '40 '41
DOLLARS
DOLLARS
BILLIONS
BILLIONS
MUTUAL SAVINGS BANKS
1
1
o
o
1934 '35 '36 '37 '38 '39 '40 '41
FISCAL YEARS
*EXCLUDING FEDERAL RESERVE BANKS *INCLUDING J.P.MORGAN AND COMPANY
RETUAL SAVINGS BARKS - J.P.NORGAN AND COMPANY.
Regraded Uclass
the of the Supervery of - Trumy
CUMULATIVE ABSORPTION BY BANKS OF INCREASE
IN DIRECT AND GUARANTEED PUBLIC DEBT OUTSTANDING
Since June 30, 1933
DOLLINES
DOLLARS
BILLIONS
BILLIONS
- DANKS
La
12
10
IC
8
8
6
6
4
4
2
2
0
o
1934
'35
'36
'37
*38
'39
140
'41
FISCAL YEARS
261
Classes of Banks
DOLLARS
DOLLARS
DOLLARS
BILLIONS
BILLIONS
BILLIONS
BEERLY REPORTING MEMBER BANKS
WEEKLY REPORTING MEMBER BANKS
IN NEW York CITY
OUTSIDE New York CITY
4
4
4
4
2
2
2
2
o
0
0
o
1934
135
'36
'37
*38
'39
'40
'41
1934
'35
'36
'37
'38
'39
'40
'41
6
6
6
6
OTHER MEMBER BANKS
NON-MEMBER BANKS
4
4
4
4
2
2
2
2
o
o
o
D
1934
'35
'36
137
*38
*39
'40
'41
1934
'35
'36
*37
'36
'39
140
141
DOLLARS
DOLLARS
BILLIONS
BILLIONS
MUTUAL SAVINGS BANKS
4
4
2
2
0
o
1934 '35 '36 *37 '38 39 "40 '41
FISCAL YEARS
*EXCLUDING FEDERAL RESERVE BANKS FINCLUDING J.F.MORGAN AND COMPANY
Regraded Uclassif
EXCLUDING U.A. SAVINGS BANKS - J.P.VORGAN AND COMPANY
Revin copy 262 s
art. M fled
1014 date
6 principal aircraft Hurricane operational types
7 Print
transmettal et. of
Fighters
Spitfice
Bombers
Blenkein
Willington
Whittey
Hampden
May 10
June 15
Sept.27
noving
2.3,1940 Report
3209
3735
w.7,1940 Report
3209
3735
4185
Bifots available
Dec 3, 1940 Report
3101
4149
be 7, 1940 Report
3101
4149
4398
Regraded Uclassified
263
3,209
B
3,735
C
3,101
D
4,149
E
1,874
Regraded Uclassified
264
Copy No.
Following for Morgenthau from Beaverbrook
MOST SECRET
To be disclosed only to President
Morgenthau
Stimson
Knox
On May 10th last, 6 principal operational
sircraft that is, Hurricane, Spitfire, Wellington,
Blenheim, Whitley, Hampden A. Same types on September
27th after continuous air battle numbered B, showing
increase of just over 500.
This statement excludes all aircraft in
C.R.O. which await repair and inspection including E.
Pilots available for these airplanes on June
15th were C. On September 27th D.
During the next nine months production must
show considerable decline: for instance at Vickers,
Weybridge, 65 Wellingtons were being produced monthly.
After enemy bombing on September 3rd production fell
to 18 monthly. Bombing attacks on Bristol destroyed
output of Beauforts for the last week in the month.
Bristol dispersal and reconstruction making
rapid progress but losses in October must be about
25 aircraft and 100 engines.
At Supermarine which supplies 100 Spitfires
monthly, 2 factories out of 3 were destroyed on
September 25th. Estimated loss 50 for October and
uncertain quantity after.
Therefore it will be seen that continuing
and increasing flow of aircraft from U.S.A. is com-
pletely essential to pilot programme in Great Britsin.
Machine tools urgently required to replace aircraft
tools lost in bombing operations.
No danger of losing tools from U.S.A. in
the future as wide schemes of dispersal and underground
factories now in operation protecting us against enemy
attacks. We promise that all new machine tools received
In future from U.S.A. will be dispersed or assembled
underground.
As compared with output in May 1940 output
of pilote from our service schools increased rapidly
end in August and September show immense gains. Output
of pilota will be more than doubled in the first four
months of 1941 and more than trebled in the second
four months.
Output of Empire Training Scheme will be 70
pilots in November and will rise to 300 in March when
the total output from all sources will be 1350 in that
month, thereafter rising steeply to 2300 in July and
2700 in October 1941.
A large part of our training organization 1s
already established overseas secure from enemy attacks.
The aircraft which we expect to receive during the next
12 months are not only required to match increased
output of pilots, but fighters are wanted to supplement
the production of British types, reserves of which are
nov dangerously low.
Regraded Uclassified
265
-2-
Twin engine bomber types are now required
to replace our obsolescent Battles and Blenheims.
Dive Bombers are wanted to replace Lysanders
and Hudsons to replace Ansons.
Moreover it must be remembered that the
wastage in aircraft is considerable in excess of
that of pilots, many of whom on operations over this
country escape by parachute.
There is also destruction of aircraft on
the ground.
Sir Archibald Sinclair has seen this message
and approves of it.
October 3, 1940.
Regraded Uclassified
266
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE October 3, 1940
TO
Secretary Morgenthau
Mr. Heas
FROM
Subject: United States Savings Bonds
I.
In accordance with Mr. D. W. Bell's request for proposed
schedules of redemption values for United States savings bonds
with ultimate maturity yields of 2-1/2 percent, 2-3/8 percent,
and 2-1/4 percent, respectively, there are attached hereto a
series of tables and charts analyzing the present position of
savings bonds relative to the yield of market securities, and
presenting and snalyzing schedules of the character requested.
Chart I compares the yield on United States savings bonds
with that on Treasury bonds and notes on March 1, 1935, and on
September 14, 1940, respectively. It shows that during the
period of about 5-1/2 years since the sale of savings bonds was
first commenced, the yield on Treasury bonds with an effective
maturity of 10 years has declined by about 0.9 percent, and
that the yield afforded by market securities ie now far below
that afforded by savings bonds, whether held to final maturity
or to any intermediate redemption date.
Table I shows the issue price and redemption values for
savings bonds issued under the present plan and for two pro-
posed plans for each of the lower rates specified in Mr. Bell's
request. (The 2 percent plan appearing in the last column
of this and each of the succeeding tables is discussed in the
second part of this memorendum.) All incremente in redemption
values in all plane are in even multiples of 20 cente per 3100
bond. Table II showe for each of the plans listed in Table I
the "Yield During Period Held", while Table III showe "Yield
During Remainder of Ten-Year Period If Held to Maturity", and
Table IV shows "Yield During Next Six Months If Held One A001-
tionel Period".
The 8-1/2 percent plans require that 13 be taken free the
increment in value enjoyed by the bonde between the
LATLE price and the final maturity velue, while the 2-7/8 percent
Regraded Uclassified
26?
Secretary Morgenthau - 2
and 2-1/4 percent plans require that the aggregate amount of
increment be reduced by $4 and $5. respectively. In the case
of the 2-1/2 percent plan, labeled "A", the entire $3 is taken
out of the step-ups at present occurring in the redemption
value during the first 4 years. At the end of this period,
the redemption value for bonds under plan "A 2-1/2" would be
$82, the same as under the present plan, and after that date
redemption values under the plan would be identical with those
at present obtaining. Plans "A 2-3/8" and "A 2-1/4", which
require a total reduction in increment of 84 and $5, respectively
follow plan "A 2-1/2" during the first 4 years and secure the
additional reduction by postponing the increase from $1 to $2
in semiannual increments (first occurring under the present plan
between the fourteenth and fifteenth semiannual periods) for one
and two semiannual periods, respectively. The effect of all
these changes 1s to cut yielde to intermediate redemption dates
such more sharply than final maturity yields. This 18 brought
out clearly in Chart II, which compares the present plan with
the three proposed "A" plane.
The proposed "B" plans involve both B sharper depression
in intermediate redemption values and a greater departure from
the scheme of increments of the present plan than do the "A"
plane. The thought underlying plan "B 2-1/2" 18 that the cumu-
lative yield to each intermediate redemption date should be
0,25 percent per annum for each year held -- e.g., if the bond
18 redeemed at the end of 2 years, the yield for the period
held would be 0.50 percent per annum; if redeemed at the end
of 5 years, the yield for the period held would be 1.25 percent
per annum; and BO on, until a yield of 2.50 percent per annum
would be realized if held until final maturity. The actual
plan departs slightly from this ideal scale due to exigencies
of rounding. Proposed plans "B 2-3/8" and "B 2-1/4" are modi-
fications of this plan with the indicated final yields to
seturity -- the additional reduction in aggregate increment
occurring in each case during the second half of the ten-year
period. Such plans naturally give B. much smoother progression
of increase in yield with period held than either the present
Plan or the proposed "A" plans. This is shown in Chart III,
which compares the present plan and the proposed "B" plans on
the basis of yield during the period held.
One of the principal disadvantages of the issuance of
securities of the type of savings bonds 18 the large amount
of demand indebtedness which they build up, The reality of
this danger would soon appear if at any future date the
Regraded Uclassified
Secretary Morgenthau - 3
268
interest rate should rise to a level sufficiently high to
make it attractive for holders of outstanding savinge bonds
to cash them and devote the proceeds to alternative forms
of investment. This danger is best minimized by building
up as rapidly as possible their yield during the remainder
of the 10-year period if held to maturity, as it is this
yield, and not the yield for the period held, which deter-
mines the decision of holders under such circumstances
either to hold their bonds or to cash them in.
In general, the "A" plane proposed in this memorandum
are more effective, relative to their total return, in
building up such "Yield if Held to Maturity" than is the
present plan, and the "B" plans are more effective than
the "A" plans. This is shown in Chart IV, which compares
the "Yield During Remainder of 10 Year Period If Held to
Maturity" of the present plan and of the "A" and "E" plans
yielding 2-1/2 percent. As may be seen from the chart, the
"A" plan, despite its reduction, as compared with the present
plan, of 0.4 percent in yield over the whole period has the
same "Yield if Held to Maturity" as the present plan from the
end of the fourth year onward; while the 2-1/2 percent "B"
plan has a greater "Yield if Held to Maturity" than does the
present plan from the third year onward, except at the end
of the seventh year when the present plan attains a maximum
from which it subsequently recedes.
II.
As has been previously noted, the last column of each
of the four tables contains & 2 percent plan for which the
same data are presented as for the 2-1/2, 2-3/8 and 2-1/4 per-
cent plane discussed in the first section of this memorandum.
The plan is of the "B" type and is based on the underlying
thought that the cumulative return for the period held should
be equal to 0.20 percent for each year held, working out to
an even 2 percent yield if held for the full 10-year period.
As in the case of the other plans, this ideal has had to be
departed from slightly, due to rounding. The issue price, AH
worked out, is $82.00 and the yield if held to maturity, 1.99
percent.
Chart V compares this 2 percent "special" plan on the
basie of "Yield During Period Held" with the present plan
Regraded Uclassified
269
Secretary Morgenthau - 4
and with the yields of outstanding Treasury bonds and notes
as of September 14, 1940.
It is suggested, in view of the desirability of placing
as large a proportion as possible of the increase of the public
debt in the hands of private investors and of doing this with
& minimum of fiscal diseconomy, that a special series of savings
bonds be offered with a lower ultimate interest return and more
rigorous terms of intermediate redemption than the regular
series, such special series to be open to individuals who desire
to purchase a larger amount of savings bonds in any year than
the maximum amount permissible under the regular plan. The
2 percent "special" plan is presented for consideration in this
connection and it is suggested that individuals might be per-
mitted to subscribe up to an amount of perhaps $50,000 a year
of this series, in addition to whatever amount may be permitted
of the regular series. It is recognized, of course, that this
would require additional legislation.
Attachments.
270
Chart I
YIELD ON UNITED STATES SAVINGS BONDS COMPARED WITH THAT
ON TREASURY BONDS AND NOTES
YEARS
0
1
2
3
4
5
6
7
8
9
10
PER
PER
CENT
CENT
2.8
2.8
SAVINGS BONDS
PRESENT PLAN
2.4
2.4
2.0
TREASURY BONDS
MARCH 1, 1935
2.0
1.6
1.6
TREASURY NOTES
MARCH 1, 1935
1.2
1.2
TREASURY BONDS
SEPT. 14, 1940
.8
.8
.4
.4
TREASURY NOTES
SEPT. 14, 1940
0
o
0
1
2
3
4
5
6
7
8
9
10
YEARS
Office of the Secretary of the Treasury
Division of Research and Statistics
I - 129
271
Chart II
UNITED STATES SAVINGS BONDS
Yield During Period Held, Present Plan and Proposed "A" Plans
YEARS
0
I
2
3
4
5
6
7
8
9
10
PER
PER
CENT
CENT
2.90
2.8
2.8
2.50
PRESENT PLAN
2.4
2.4
2.87
2.24
2.0
2.0
PLAN "A" 2%
1.6
1.6
PLAN "A" 21%
PLAN "A" 2½%
1.2
1.2
.8
.8
.4
.4
0
o
0
I
2
3
4
5
6
7
8
9
10
YEARS
Office of the Secretary of the Treasury
I - 127
Division of Research and Statistics
272
Chart III
UNITED STATES SAVINGS BONDS
Yield During Period Held, Present Plan and Proposed "B" Plane
YEARS
0
2
3
4
5
6
7
8
PER
9
10
PER
CENT
CENT
2.90
2.8
2.8
1.50
2.4
2.4
PRESENT PLAN
2.87
2.24
2.0
2.0
PLAN "8" 21%
PLAN "B" 21%
1.6
1.6
1.2
1.2
PLAN "8" 2½
.8
.8
.4
.4
0
0
0
I
2
3
4
5
6
7
8
9
10
YEARS
Office of the Secretary of the Treasury
Division of Research and -
I - 126
273
Chart IV
UNITED STATES SAVINGS BONDS
Yield During Remainder of 10 Year Period if Held to Maturity, Present Plan and 25% Plans
YEARS
0
I
2
3
4
5
6
7
8
9
10
PER
PER
CENT
CENT
4.8
4.8
4.4
4.4
4.0
4.0
PLAN "8" 21%
3.6
3.6
PRESENT PLAN
3.2
3.2
PLAN "A" 21%
2.90
2.8
2.8
2.50
2.4
2.4
2.0
2.0
o
I
2
3
4
5
6
7
8
9
10
YEARS
Office of the Secretary of the Treasury
Division of Research and Statistics
I - 128
274
Chart v
UNITED STATES SAVINGS BONDS
Yield During Period Held, Proposed 2% Special Plan Compared to Present Plan
and Yields of Treasury Bonds and Notes
YEARS
0
I
2
3
4
5
6
7
8
9
10
PER
PER
CENT
CENT
2.8
2.8
PRESENT PLAN
2.4
2.4
2.0
2.0
1.6
1.6
2% SPECIAL PLAN
1.2
1.2
TREASURY BONDS
SEPT. 14, 1940
.8
.8
.4
.4
TREASURY NOTES
SEPT. 14, 1940
0
0
0
1
2
3
4
5
6
7
8
9
10
YEARS
Office of the Secretary of the Treasury
Division of Research and Statestics
I 125
Table I
United States Savings Bonds
Redemption Values
Number of
Present
Proposed Plans
semi-
annual
plan
2-1/2%
2-3/8%
2-1/4%
periods
2.9%
2%
held
A
B
A
B
A
B
Issue
Price
$75.00
$78.00
$78.00
$79.00
$79.00
$80.00
$80.00
$82.00
1
75.00
78.00
78.00
79.00
79.00
80.00
80.00
82.00
2
76.00
78.40
78.20
79.40
79.20
80.40
80.20
82.20
3
77.00
79.00
78.40
80.00
79.40
51.00
80.40
82.40
4
78.00
79.60
78.80
80.60
79.80
81.60
80.80
82.60
5
79.00
50.20
79.20
81.20
50.20
82.20
81.20
83.00
6
80.00
80.80
79.80
81.80
80.80
82.80
81.80
83.40
7
81.00
81.40
80.40
52.40
81.40
83.40
82.40
84.00
8
82.00
82.00
81.20
83.00
82.20
84.00
83.20
84.60
9
83.00
83.00
82.00
84.00
83.00
85.00
84.20
85.40
10
84.00
84.00
83.00
85.00
84.00
86.00
85.20
86.20
11
85.00
85.00
84.20
86.00
85.00
87.00
86.20
87.20
12
86.00
86.00
85.40
87.00
86.20
88.00
87.20
55.20
13
87.00
87.00
86.60
88.00
87.40
89.00
88.40
89.20
14
88.00
88.00
88.20
89.00
88.60
90.00
89.80
90.40
15
90.00
90.00
89.80
90.00
90.00
91.00
91.20
91.80
16
92.00
92.00
91.40
92.00
91.80
92.00
92.80
93.20
17
94.00
94.00
93.40
94.00
93.60
94.00
94.40
94.60
18
96.00
96.00
95.40
96.00
95.60
96.00
96.20
96.40
19
95.00
98.00
97.60
98.00
97.80
98.00
98.00
98.20
20
100.00
100.00
100.00
100.00
100.00
100,00
100.00
100.00
Division of Research and Statistics.
September 18, 1940.
5
Regraded Uclassifie
Table II
United States Savings Bonds
Yield During Period Held
Number of
semi-
Present
Proposed Plans
annual
plan
2-1/2%
2-3/8%
2-1/4%
periods
2.9%
2%
held
A
B
B
A
B
o
.00%
.00%
.00%
.00%
.00%
.00%
.00%
.00%
1
.00
.00
.00
.00
.00
.00
.00
.00
2
1.33
.51
.26
.51
.25
.50
.25
.24
3
1.76
.85
.34
.84
.34
.83
-33
.32
4
1.97
1.02
.51
1.01
.50
.99
.50
.36
5
2.09
1.12
.61
1.10
.60
1.09
.60
.49
6
2.16
1.18
.76
1.16
-75
1.15
.74
.57
7
2.21
1.22
.87
1.21
.86
1.19
.85
.69
8
2.24
1.25
1.01
1.24
1.00
1.22
.98
.78
9
2.26
1.39
1.11
1.37
1.10
1.35
1.14
.90
10
2.28
1.49
1.25
1.47
1.23
1.45
1.26
1.00
11
2.29
1.57
1.40
1.55
1.34
1.53
1.36
1.12
12
2.29
1.63
1.52
1.61
1.46
1.59
1.44
1.22
13
2.30
1.69
1.62
1.67
1.56
1.65
1.54
1.30
14
2.30
1.73
1.76
1.71
1.65
1.69
1.66
1.40
15
2.45
1.92
1.89
1.75
1.75
1.73
1.75
1.51
16
2.57
2.07
1.99
1.91
1.89
1.75
1.86
1.61
17
2.67
2.21
2.13
2.06
2.01
1.91
1.96
1.69
18
2.76
2.32
2.25
2.18
2.13
2.04
2.06
1.81
19
2.84
2.42
2.37
2.28
2.26
2.15
2.15
1.91
20
2.90
2.50
2.50
2.37
2.37
2.24
2.24
1.99
Division of Research and Statistics.
September 18, 1940.
Yields are nominal annual rates compounded semiannually.
276
Regraded Uclassified
United States Savings Bonds
Yield During Remainder of Ten-Year Period
If Held to Maturity
Number of
semi-
Present
Proposed Plans
annual
plan
2-1/2%
2-3/8%
2-1/4%
periods
2.9%
2%
held
B
B
A
B
0
2.90%
2.50%
2.50%
2.37%
2.37%
2.24%
2.24%
1.99%
1
3.05
2.63
2.63
2.50
2.50
2.36
2.36
2.10
2
3.07
2.72
2.75
2.58
2.61
2.44
2.47
2.19
3
3.10
2.79
2.88
2.64
2.73
2.49
2.58
2.29
4
3.13
2.87
3.00
2.71
2.84
2.56
2.68
2.40
5
3.17
2.96
3.13
2.80
2.96
2.63
2.80
2.50
6
3.21
3.07
3.25
2.89
3.07
2.71
2.89
2.61
7
3.27
3.19
3.38
3.00
3.19
2.81
3.00
2.70
8
3.34
3.34
3.50
3.13
3.29
2.93
3.09
2.81
9
3.42
3.42
3.64
3.20
3.42
2.98
3.15
2.89
10
3.52
3.52
3.76
3.28
3.52
3.04
3.23
2.99
11
3.64
3.64
3.86
3.38
3.64
3.12
3.33
3.07
12
3.81
3.81
3.98
3.51
3.75
3.22
3.45
3.16
13
4.02
4.02
4.15
3.69
3.89
3.36
3.55
3.29
14
4.31
4.31
4.23
3.92
4.08
3.54
3.62
3.39
15
4.26
4.26
4.35
4.26
4.26
3.81
3.72
3.45
16
4.21
4.21
4.55
4.21
4.32
4.21
3.77
3.55
17
4.17
4.17
4.60
4.17
4.46
4.17
3.88
3.74
18
4.12
4.12
4.77
4.12
4.55
4.12
3.91
3.70
19
4.08
4.08
4.92
4.08
4.50
4.08
4.08
3.67
20
-
-
-
-
-
-
-
-
Division of Research and Statistics.
September 18, 1940.
Yields are nominal annual rates compounded semiannually.
222
Regraded Uclass
Table
United States Savings Bonds
Yield During Next Six Months If Held
One Additional Period
Number of
semi-
Present
Proposed Plans
annual
plan
2-1/2%
2-3/8%
2-1/4%
periods
2.9%
2%
held
B
A
B
A
B
o
.00%
.00%
.00%
.00%
.00%
.00%
.00%
.00%
1
2.67
1.03
.51
1.01
.51
1.00
.50
.49
2
2.63
1.53
.51
1.51
.51
1.49
.50
.49
3
2.60
1.52
1.02
4
1.50
1.01
1.48
1.00
.49
2.56
1.51
1.02
1.49
1.00
1.47
.99
.97
5
2.53
1.50
1.52
1.48
1.50
1.46
1.48
.96
6
2.50
1.49
1.50
1.47
1.49
1.45
1.47
1.44
7
2.47
1.47
1.99
1.46
1.97
1.44
1.94
1.43
8
2.44
2.44
1.97
2.41
1.95
2.38
2.40
2.41
1.89
9
2.41
2.44
2.38
2.41
2.35
2.38
1.87
10
2.38
2.38
2.89
2.35
2.38
2.33
2.35
2.32
11
2.35
2.35
2.85
2.33
2.82
2.30
2.32
2.29
12
2.33
2.33
2.81
2.30
2.78
2.27
2.75
2.27
13
2.30
2.30
3.70
2.27
2.75
2.25
3.17
14
4.55
4.55
2.69
3.63
2.25
3.16
2.22
15
4.44
4.44
3.12
3.10
3.56
4.44
4.00
2.20
3.51
3.05
16
4.35
4.35
4.38
4.35
3.92
4.35
3.45
3.00
17
4.26
4.26
4.28
4.26
4.27
4.26
3.81
18
4.17
4.17
4.61
3.81
4.17
4.60
4.17
3.74
3.73
19
4.08
4.08
4.92
4.08
4.50
4.08
4.08
3.67
20
-
-
-
-
-
-
-
-
Division of Research and Statistics.
September 18, 1940.
Yielde are nominal annual rates compounded semiannually.
278
Regraded Uclas
279
October 3, 1940
10:24 a.m.
H.M.Jr:
Hello.
Operator:
Coohran.
Merle
Cochran:
Yes.
H.M.Jr:
Merle.
0:
Yes, Mr. Secretary.
H.M.Jr:
I thought after you've noticed my statement
to Commerce on these two rather unusual
transactions where I'm releasing the soney
for the Russians for - вівоl and for rubber
that you might call up the Russian Embassy
and ask for Mr. Oumansky's secretary and say,
as & matter of interest, we thought we'd let
his know that we've licensed these two
transactions.
C:
411 right, sir, fine.
H.M.Jr:
Don't you think it'd be a good idea?
C:
Yes, I think it would be very nibe.
H.M.Jr:
Just say as & matter of interest you might
like to know that we've licensed these two
transactions.
C:
All right, sir. I tried to get Gray, but he'll
be back in 5 minutes.....
H.M.Jr:
Well, I think I would do those two.
C:
All right.
H.M.Jr:
I'd wait until you do the State and Commerce
and then I would call up Mr. Oumansky.
C:
All right, sir. Fine. Oh, there's just one
point - may I mention it - I didn't bring it
out in the meeting because I knew you were
rushed, on that picture business, you know -
French pictures coming in, this is the first
280
- 2 -
instance in which you've put on any
restrictions on the importation of
merchandise.
H.M.Jr:
I didn't know that.
C:
It 18, and there was some legislation up
in Congress which was turned down in the
House of Representatives yesterday or day
before where there had been a bill to bar
imports of goods which might have been taken
by invaders. So - I mean, I brought this up
in the committee yesterday.
H.M.Jr:
Well, please mention it to Pehle.
C:
I did mention it in the meeting yesterday,
you see.
H.M.Jr:
Well, tell Pehle - Foley brought this up
didn't he?
C:
Yes, Bernstein brought it up yesterday and
I said, well, look, Bernie, this is the first
instance in which we've used this .....
H.M.Jr:
Call up Foley, tell him of your conversation
and tell Foley I'd like him to talk to me
about it.
C:
All right, fine.
H.M.Jr:
Will you do that?
0:
Yes, sir. But I thought you ought to know
it .....
TREASURY DEPARTMENT
281
INTER OFFICE COMMUNICATION
DATE October 3, 1940.
TO
Secretary Morgenthau
FROM Mr. Foley
We have been informed that about 500 paintings and drawings by
famous French painters have been sent from Paris to New York via the
SS EXCALIBUR which left Lisbon on September 25 and is due to arrive in
New York on October 5.
Under the existing freezing control licenses are required for
transactions involving transfers or other dealings in "evidences of the
ownership of property" in which France or a national thereof has had an
interest at any time on or since June 17, 1940. A bill of lading or
other document entitling the consignee of the paintings to obtain pos-
session of the same from the shipping company is clearly an evidence of
the ownership of property within the meaning of the Executive Order, and
accordingly there is clear legal authority to require that a license be
obtained before the bill of lading covering the French paintings could
be presented to the shipping company by the consignee. This does not,
of course, mean that the import of such paintings will be prohibited,
but only that such paintings will come under the freezing control in the
same manner as other property in this country which is now under the
freezing control.
We have had a great number of cases involving bills of lading and
comparable shipping documents in which we have taken the position that
they are evidences of ownership of property within the meaning of the
Executive Order and that a license is needed in order to transfer such
documents. Some of these cases involve the export of merchandise where
we have required that a license be obtained before the bills of lading,
etc., covering such merchandise could be transferred. I am told that
at the present time there is a large amount of aluminum and machine
tools in which the French have an interest, the export or transfer of
which can not take place until the Treasury issues an appropriate
license. There have also been cases involving millions of dollars'
worth of tin and sisal coming to this country from the Dutch East Indies
where we have required that licenses be issued covering the transfer of
the bills of lading from a bank in this country to the American importer
of the goods.
Of course, large amounts of funds and gold have come to this
country from blocked areas after the freesing control was applied. Such
funds, or the money which we have paid for such gold, have also been
put under our freesing control.
282
- 2 -
On October 1, 1940 the House of Representatives, on e vote
of 129 to 123 (175 not voting) rejected 8. bill which, upon the making
of certain findings by the President, prohibited the importation
into this country of property which had been confiscated by a foreign
country without payment of just compensation. The purpose of the
bill was stated to be the protection of American business men and
American markets from the unfair competition of foreign dumping,
particularly with respect to oil confiscated by Mexico which web
stated to be flooding our markets. An examination of the debate in
the House indicates no intention to modify the freezing control law
or policies of the Government as applied in Executive Order No. 8389,
which Order had been ratified and approved by Congress in the Act of
May 7, 1940. You will recall that it was the Act of May 7, 1940 which
expressly made the freezing control applicable to "evidences of
ownership of property".
The Treasury W&B not consulted with respect to the bill
recently rejected by the House and surely if Congress had intended in
any way to affect the freezing control this Department would have been
asked for a report or otherwise consulted in connection with the bill.
It is also interesting to note that the Senate, without any debate,
enacted the bill in the form much more comprehensive in scope than
the bill rejected by the House. Nothing in the action taken by the
House affects the licensing requirements under the Executive Order for
the transfer of evidences of the ownership of the French paintings.
Regraded Uclassified
283
OCT 3" 1940
My dear Mr. President:
I have received your letter of September 27,
requesting that priority of consideration be given to
Latin American products in the procurement in foreign
markets of strategic and critical materials for the
defense program. The policy which you have outlined
will be strictly adhered to by this Department.
Faithfully yours,
(Signed) H. Morgenthau. JT.
The President,
The White House.
HNG/mff:dm
File to Mr. Thompson
original lts signed
By Messenger 300
dog. Pres. in office
Regraded Uclassified
284
October 3, 1940
My dear Mr. President:
I attach herewith a copy of a report and
covering letter dated October 2, 1940, prepared
by Sir Valter Layton at the direction of the British
Var Cabinet.
It is the purpose of this report to present
to the United States Government a general picture
of the British supply position and to supplement in
detail the orders that have been transmitted to the
British Purchasing Commission.
Faithfully yours,
(bigned) a. Morgenthau, vi.
The President,
the White House.
Exce.
Fishj
Dy.
By Messonger 3ʳᵈ
Regraded Uclassified
285
October s, 1940
My dear Mr. President:
I attach herewith a copy of a report and
covering letter dated October 2, 1940, prepared
by Sir Walter Leyton at the direction of the British
Var Cabinet.
It is the purpose of this report to present
to the United States Government a general picture
of the British supply position and to supplement in
detail the orders that have been transmitted to the
British Purchasing Commission.
Faithfully yours,
(Digned) B. Morgenthau, J)
The President,
The White House.
Excess
Pribj
By Messenger
286
October 3, 1940
Dear Mr. MoReynolds:
I attach herewith & copy of a report and
covering letter dated October 2, 1940, prepared by
Sir Walter Layton at the direction of the British
Var Cabinet.
It is the purpose of this report to present
to the United States Government a general picture
of the British supply position and to supplement in
detail the orders that have been transmitted to the
Dritish Purchasing Commission.
Sincerely,
(Sagned) H. Morgenthau, Jr.
Honorable William H. MaReynolds,
Secretary, The Advisory Commission to
the Council of National Defense,
Room 2348, State Department,
Washington, D. 0.
Ff:bj
P4.
bnes.
By Messonger 3ʳᵈ
Regraded Uclassified
287
October 8, 1940
My door Mr. Secretary:
I attach herewith a copy of a report and
covering letter dated October 2, 1940, prepared by
Bir Walter Layton at the direction of the British
Var Cabinet.
It is the purpose of this report to present
to the United States Government a general picture
of the British supply position and to supplament in
detail the orders that have been transmitted to the
British Purchasing Commission.
Sincerely,
(Signed) H. Morgenthau. J1
the Manorable,
the Secretary of Yar.
Enca.
By Messanger 3ʳᵈ
Pribj Py.
Regraded Uclassified
288
October s, 1940
My dear Mr. Secretary:
I attach herewith a copy of a repurt and
covering letter dated October 2, 1940, prepared
by Sir Walter Layton at the direction of the British
War Cabinet.
It is the purpose of this report to present
to the United States Government a general picture
of the Dritish supply position and to supplement in
detail the orders that have been transmitted to the
British Purchasing Commission.
Sincerely,
(Signed) H. Morgenthau, J1
The Honorable,
The Secretary of State.
Enca
PY:bj
DU.
By Messonger 330
Regraded Uclassified
289
October 5, 1940
My dear Mr. Secretary:
I attach herewith a copy of a report and
covering letter dated October 2, 1940, prepared by
Sir Valter Layton at the direction of the British
Var Cabinet.
It is the purpose of this report to present
to the United States Government a general picture
of the British supply position and to supplement in
detail the orders that have been transmitted to the
British Purchasing Commission.
Sincerely,
(Signed) H. Morgenthau, JI
The Honorable,
The Secretary of the Havy.
Excs.
PT:bj
Py.
By Messenger 3"
Regraded Uclassified
290
WILLARD HOTEL. WASHINGTON, D.C.
TELEPHONE REPUBLIC 7860
BRITISH PURCHASING COMMISSION
October 2nd 1940.
Dear in. Secretary
I have been instructed by the British War
Cabinet to give to the American Administration & general pic-
ture of our supply position and to supplement by way of ex-
planation indetail the orders that have been transmitted to
the British Purchasing Commission.
Many detailed lists of proposed orders have
already been submitted to the appropriate authorities, In many
cases programmes have been agreed and many orders have been
placed. Little progress has, however, been made in the case
of weapons for the army.
In the attached memorandum, therefore, which
puts forward considerations affecting the supply position as a
whole, I have included a statement about the scale and charac-
ter of the Army programme towards which our orders in America
are designed to make a contribution.
2.
291
Arising out of the considerations in the
memorandum, I venture to submit as matters of outstanding in-
portance the three following requests, the granting of which
would very greatly assist us in our war effort:-
1.
We invite the assistance of the Administration
in accelerating and treating as a matter of special
urgency the delivery of armaments on British order
which can be produced before the spring and early
summer of 1941. Priority in production should ap-
ply in particular to the output of aeroplanes and
aero-engines.
It is also urgent that the extended programme
of aeroplanes and engines should be ordered as soon
8.8 possible.
2.
Permission is sought to place orders for
an extended aircraft programme and for guns, small
arms and various weapons included in the Army pro-
gramme; and it is common ground that as far as pose
sible these orders should be for material of the
same type as that on order for the American Army.
But We ask that the rule barring the placing of
orders for planes or weapons of types which are not
standard in the American Army should be relaxed in
cases where the ordering of alternative types is
needed to make good specific deficiencies in the
British programme, to provide insurance against a
severe loss of British output as the result of en-
emy action, or to increase fighting efficiency at
the earliest possible date.
3.
In July the President approved the prin-
ciple that where the orders of our two countries
are complementary the initial capital expenditure
would be advanced in the first instance from the
funds of the United States Administration, In view
of the large volume of British orders in the United
States and the need for conserving British finan-
cial resources, we ask that this principle should
be applied to all British war orders in the United
States. This course we suggest would be justified
292
3.
on the double ground that the manufacturing capacity
created by such capital expenditure is a permanent
addition to America's own war potential which can be
adapted at comparatively short notice to America's
needs and that the goods produced therefrom in aid
of British armament are, in the present world situa-
tion, a definite contribution to America's security.
Jours sin cerely
W.T.Layton W.T. ay Zon
The Secretary of the Treasury,
Washington, D.C.
SECRIT
on ERITISE STREET PROGRAMME
The military position of Great Britain has
greatly improved since the month of June.
On the sea the partial destruction or 1m-
mobilisation of the French fleet has removed the fear that
a large increment of naval strength might be immediately
available for the Axis powers. The addition of the American
destroyers to our fleet will enable us to carry out more
efficiently the work of convoy and blockade and will release
modern destroyers now employed in these tasks for more
specifically belligerent action.
In the air the output of our factories has
been stepped up substantially. In May last the production
of planes was gradually rising in accordance with previous
plans. But under the new Minister of Aircraft Production
a considerable increase in deliveries was achieved - by
more vigorous direction at the centre; by the response of
managers and workers throughout the munition industry to
the Government's appeal and the pressure of the war situstion,
and by the instruction to British industry to give 1.A.
priority to all work related to aircraft production or anti-
aircraft defence. Two months of comparative calm enabled
this increase of output to be converted into terms of
increased squadron strength and stronger reserves.
The greatest improvement has, however, taken
place in the state of our land forces.
When the British
Expeditionary Force - which had lost all its equipment save
some of its rifles - returned to England there were available
Regraded Uclassified
2 # I
in the country for issue to units for training some 800
field guns of all calibres, 120 anti-tank guns, 8,000 Bren
guns and 4,000 anti-tank rifles. By August the total
available had risen to some 2,500 field pieces as a result
of the speeding up of output from the factories, the re-
furbishing of 18-pounder 4.5 in. howitzers and other
survivors of the last war, and the timely release of 75 mm.
guns by the American Army. Thenumber of anti-tank equipments
in the hands of the Army had risen by the end of August to
over 600 while the stock of Bren guns and anti-tank rifles
had doubled.
Finally, the release of American rifles and
machine guns provided weapons for the new large force of
Local Defence Volunteers (Home Guard).
The supply of standard .303 small arms
ammunition was not planned on a sufficient scale to meet, in
the first year of war, the battle needs of such large forces
as those now under arms. But the fact that there has been
no land fighting for nearly four months has enabled a stock
to be accumulated sufficient to take care of any foreseeable
expenditure either on land or in the air during the rest of
this year. This, however, does not apply to .30 calibre
ammunition.
II
The improvement in our position still leaves
us far behind Germany both in the air and on land.
The air strength of Germany, with her great
advantage of early planning of large scale production, is
already greatly in excess of ours. It is now reinforced by
the resources of France to the extent that we must reckon on
having to face an output of combat planes of between 2,500
Regraded Uclassified
- 3 -
and 3,000 a month next summer,
It 1s a factor also of considerable import-
ance that as Germany's aerodromes are much nearer to London
than ours are to Berlin, the wear and tear on Germany's
bomber engines is much less than that of our own.
Yet, thanks to the quality of our machines,
our pilots and our petrol, and to the increased output of
planes, the disparity in the total number of machines has
not been sufficient to give Germany command of the air.
On the contrary the British Air Force has carried the
offensive not only into France and Belgium but to Berlin
and the vital spots of Germany.
German preponderance, however, remains
overwhelming in land armaments. Out present stock of
weapons is trifling compared with the 15,000 - 20,000 field
guns and equivalent other arms of Germany. Italian equip-
ment and the captures from France, Belgium and Britain make
the disproportion still greater. Fortunately these re-
sources cannot be effectively used against England without
command of the sea and air; nor can theybe transported
overseas to other theatres of war without hindrance. But
the existence of such powerful land forces makes the situation
in the Middle East and in Africa a cause for anxiety.
Taking a longer view, a rough idea of Germany's
war potential for all purposes is suggested by her capacity
for steel production. Before the war, Germany's out put
reached about 22 million ingot tons a year. That of France
and England was 23 million ingot tons. Today Germany has
at her disposal the output of France, Belgium, Luxemburg,
Czecho-Slovakia, Italy and Poland. This, with her own
production, amounts to 42 million ingot tons against the
Regraded Uclassified
296
4
15 million ingot tons of Great Britain to which should
be added the 31 million tons of the Empire. This great
disparity can only be balanced if we add in the 50 million
ingot tons of the United States of America.
But this is only a partial picture. German
industry has certain weaknesses. The steel figures, for
examples, must be qualified by such considerations as the
supply of ferro alloys, forging plant, lubricating oil and
many other things. Nor can a purely industrial comparison
be converted into terms of military force or regarded as a
measure of the prospect of victory without taking account
of many factors that will affect the issue of the war.
Such influences include:- the extent to which Germany can
utilise the full resources of conquered countries; the
effect of hunger and the steady influence of sea power on
the economic life of Europe and its morale; the prospect
of securing ascendancy in the air through the quality and
quantity of the pilots and aircraft that can be thrown into
the conflict; and finally the possibility which is open to
the British Empire of choosing fields and conditions of battle
in which the strength of the German army cannot be fully
deployed.
Nevertheless, Germany's war potential remains
a very formidable menace. We cannot do less than organise
to the utmost limit of our strength.
III
One conclusion to be drawn is that for some
time to come Germany has no need to devote much of her
industrial capacity to land armaments but is free to devise
Regraded Uclassified
207
- 5 -
other weapons. In particular, she can concentrate on
increasing her air force and on making the ships for transport-
ing an expeditionary force overseas. The fact that she is
removing machine tools from occupied countries into Germany
itself suggests that she 1a in fact doing something of this
kind.
We must assume, therefore, that the efforts
we have made to overhaul the monthly rate of German aircraft
production and training of pilots will have to be redoubled
and that the air attack on Great Britain in the Spring will
recommence on a still larger scale. The whole course of
the war has emphasized the dominating role played by air
power and it is vital that we should maintain our effective
control of the air over Britain and around our coasts.
Moreover, as we are greatly outnumbered in
land armaments, it is the more essential that we force the
decision with the weapon of our own choice. Great Britain,
therefore, puts in the forefront of her requirements in the
United States the speeding up of the programme of aircraft
and aircraft engine production that was launched last Spring
and is now coming into effect. Among other measures this
means that production of 1941 types should not be interrupted
by the introduction, of new types until the critical period
of the Spring and early Summer is over.
Our training of pilots is already on a
scale which in spite of inevitable losses - is planned
to permit an appreciable increase in our squadron strength
by the Spring and to ensure a sharp rise thereafter. Steps
are new being taken to make yet a further acceleration of the
supply of pilots available in the early months of 1941. As
the wastage of machines in the present air battle is appre-
ciably greater than that of pilots, and as we must be
Regraded Uclassified
6
prepared for the possibility that losses of British
factory production through enemy action my be worse
than our present experience, the speed-up of plane delivery
from America is of first importance if We are to develop
our maximum fighting strength nert Spring.
Germany's great lead in the air mans also
that aircraft production in both England and the United
States must be planned on en increasingly large scale if TO
are to establish air supremacy over Germany within neasurable
time; and that as a first step arrangements should be male
by which the increased production programme which has been
discussed with the Defence Advisory Board be put into -
cution immediately.
In this connection it is of vital importancy
that the types to be manufactured under this programe shoul
embody the experience that we are daily acquiring of actual
fighting conditions, since a quantitative superiority will
be of no avail against a superiority in quality. For example
it is suggested that it would be of great advantage, both to
England and to the United States, if the new British Tornado
Fighter, equipped with the 2000h.p. in-line Babre engine,
were put into production in this country. This machine is
now flying in England, and there is no parallel in this country
that could be ready in the same time. If this were done,
this plane would be flying and fighting within a year and
in quantities which might have a decisive effect.
We also attach great importance to being able
to lay down in North America for delivery in the Winter and
Spring a substantial number of motor torpedo boats and marine
engines.
As regards land forces the preceding figures
mean that we cannot hope to compete with Germany in sheer
weight of metal in the near future.
Regraded Uclassified
- 7
Yet expeditionary forces in various parts
of the world already play animportant role in the war as a
whole and when air superiority has been definitely estab-
lished W must assume that action on land will be both
necessary and possible even in Europe. What precise form
land action my take is difficult to foresee at this stage.
When Britain's defence has been assured, Africa and the
Middle East will make a heavy call on our military forces.
The opportunity may occur to make local raids in Europe,
lend assistance to countries which may be in revolt or
even, with the aid of local air mastery, recapture and hold
a bridge head across the Channel in order to drive back the
air menace against Great Britain.
The equipment of the Empire's Army must,
therefore, go vigorously ahead. From the point of view
of mmition-producing capacity we must also not forget that
arms may have to be provided for countries which may event-
ually be in a position to come over to our side.
To provide arms on & sufficient scale
requires the creation in England and the United States of
armament-making capacity which will turn out planes, armoured
vehicles and mobile guns in many thousands a year and small
arms or rifles in millions.
It is therefore clear that while the situation
must be sustained in the meantime by United Kingdom weapons
a final decision must be based on the full development of
the great industrial potential of the United States. If
the foundations are laid,on a wide enough basis and every
step is taken to preserve intact the war potential of Britain,
the combined strength of America and the British Empire can
certainly surpass and outlast that of Germany and her Allies.
America's potential is now being mobilised
for the equipment of a rapidly expanding United States
Regraded Uclassified
300
- 8 -
Defence Force. It is essential that the programme of
United States and British requirements be as much as
possible co-ordinated so as to prevent competition arising
in the industrial field. To this end we must seek &
common programme agreed and adjusted to the conflicting
requirements of immediate and of ultimate needs.
IV
After the French collapse the British Army's
munition programme was stepped up by more than 50% to fig-
ures which were designed to equip by the end of 1941 the
number of divisions which on the previous programme would
only have been ready by the end of 1942.
Our forecasts of production of the main
forms of army equipment anticipate that the following will
be the situation at the end of 1941:
Stock on 1st
Output - August
August (Home
1940 to end 1941
and Abroad)
Field Artillery
2,650
4,850
400
700
Medium Artillery
Anti-tank equipments
600
6,000
Tanks: Light
730
1,260
Light Cruiser
250
1,300
Heavy
230
4,330
Anti-aircraft Guns: Heavy
1,775
1,660
Light
650
3,760
22,000
54,000
Bren Guns
Rifles
2 million
600,000
(approx)
Anti-tank Rifles
12,000
28,000
Stocks exclude Indian and Dominion stocks and
stocks with Indian or Dominion divisions taking
their own equipment to theatres overseas.
Machine gun output for aircraft is considerably
in excess of figure for Bren Guns. The only
overseas deliveries included are 500 37 m. anti-
tank equipments from the United States.
This production has to meet the needs of the British Field
Forces both at home and overseas as well as the Air Defence
of Great Britain and the Home Guard.
Regraded Uclassified
301
- 9 -
The equipment of the Army at the end of
1941 is not to be regarded as the total of the above columns;
from the combined figure we must deduct (a) wastage from
wear and losses in the field and (b) obsolete weapons (parti-
cularly in the case of field artillery) which will be replaced
in due course by modern weapons. I can, however, if neces-
sary, give further information as to the military formations
to which the figures are related.
From the production point of view I make the
following comments upon them. this table.
The forecasts on which these total figures
are based anticipate that at the end of next year our output
will be nearly equal to the peak output of the last war in
field artillery (1918). It will be much less in medium
end heavy artillery - the demand for which is expected to be
relatively small under present-day conditions of warfare.
But it will be much greater in heavy and light anti-aircraft
guns - the former of which compares in manufacturing capacity
to medium artillery and the latter to field guns. The pro-
duction of tanks and of anti-tank and tank guns will also be
on a far higher scale than before. In other words, we
expect in two years to reach an output of ordnance equal to
that of 1918 in spite of the fact that we are devoting to
aircraft production more than four times the labour force
that was used on the production of aircraft at the end of
the last war.
The chief reason why this is possible is
that we expect to have to produce much less artillery ammuni-
tion than in the last war. In the siege conditions of
1914-1918 the outpouring of ammunition producti n on a stupend-
ous scale drained the resources of all belligerents in steel
Regraded Uclassified
- 10 -
302
explosive, machinery and labour power. We may have to
provide for a large ammunition expenditure at some stage
in the present war; but in the near future this is unlikely,
and, in fact, we have an immediate problem of providing
storage for the ammition we are making. We therefore
intend to produce 1 moderate but sufficient flow of ammuni-
tion while providing & big reserve capacity of shell and
fuse manufacture, filling, etc. But at its maximum the
call upon our resources for ammunition will be by comparison
with 1914-1918 a moderate one,
The munitions problem of this war is to
produce as many weapons of all kinds as possible with an
adequate supply of ammunition not to produce shells in
unlimited quantities.
Y
British orders in the United States have two
aspects. On the one hand they are needed to fill deficiencies
- which in some cases amount to a high proportion of our total
needs. On the other they are an insurance against loss of
British production as a result of enemy action. This insur-
ance aspect has influenced the scale and nature of the orders
we have sought to place in North America in every branch of
war,production. #
The case of raw materials or explosive is
straightforward. But in finished munitions the problem
.
The rate of insurance needed to make good losses from
enemy action is at best a guess and in any case must vary
with the nature of the product. It is for example not
needed for clothing and engineering stores. But in the
case of important armaments produced from a few vulnerable
sources of supply it would not be excessive for the percentage
to run as high as 25 or 35% In the most important items of
production " have assumed 8. rate of 20 to 25%. Experience
to to the present bis albown this margin is ample for the loss
of outyut DO the shole 5 less than 10%. or this 10% far the
raid wintings and only a mall part to actual bombing losses.
greater part is due to the effect of lost time through air
htt R MW Was Inky. Protence suggests that 20% D not all
lests for planning.
Regraded Uclassified
- 11 -
303
is complicated by the question of types. Clearly it is
desirable from the production point of view that types
should as far as possible be standardised. But the recent
decisions as to the types to be manufactured for the American
Army taken in conjunction with the advanced state of the
manufacturing programme in the United Kingdom mean that
this standardisation is not possible in all cases if
American orders are to serve as a real insurance and rein-
forcement of our own war output.
To illustrate this I will take the case of
the 25-pounder. The field gun is one of the most important
weapons which determine the number of divisions that can be
organised; and in fact the above figures of the production
of 25-pounder guns closely corresponds to the growth in the
British Army which is contemplated next year. But our
forecast may be falsified by enemy bombing and the effect of
air raids on the output of our factories. In order to be
sure that the military timetable should not be thrown out,
we should like to place orders which would ensure that a
supply of 25-pounder guns was coming forward from America
in the second half of next year.
Since the United States Army has adopted as
standard the 105 m. gun there is undoubtedly d disadvantage
from the production point of view in manufacturing a different
type of field gun. Nevertheless it is suggested that in
the circumstances this argument might be overridden on the
following grounds:-
(a)
It would not be an effective insurance of
our field artillery and ammunition programme to arrange B.
supply to Great Britain of 105 m. guns late in 1941. To
do this would introduce 8 new type into the army at a time
when a large number of 25-pounders would be in being -
probably in various theatres of war. It would moreover be
necessary to replace not a. single item only of our production
but the whole complex of ammunition and other ancilleries of
Regraded Uclassified
- 12 -
304
artillery equipment. Real insurance means that each separate
item of a composite programme should be available from some
alternative source of supply.
(b)
The development of new capacity to make an
alternative type of gun is not to be regarded as a competitive
form of production but as a means of broadening the capacity
of American gun production in general. In particular, forging
plant and machining capacity would be created which would be
available in due course for other types of gun. Experience
of the last war in England showed that the creation of basic
capacity is the essential step. In 8 prolonged war this
capacity will certainly not continue to be used only for the
production for which it is originally planned but will be adjust-
ed from time to time to the products which the experience of the
campaign dictates.
I should welcome the opportunity of putting
forward in the appropriate quarter detailed suggestions which
would make possible the release of orders for ordnance (anti-
aircraft guns, anti-tank guns, field guns and medium guns) and
other Army weapons which would involve the production of common
types to the greatest practical extent consistent with military
considerations and the state of the British programme.
The argument for making exceptions to the rule
that common types only should be ordered in this country is even
stronger in the case of certain fighting aircraft (to which I have
already referred) whose output from British factories cannot be
sufficient for war purposes, but which, If put into production in
the United States, could be flying and fighting within a year.
VI
It is COMBOD ground that the integration of
the British programs with that of American defence is necessary
in order to prevent competition and lead to the speediest develop-
amt of America's war potential. A successful start in this
direction bas already been made in the matter of tank production.
Regraded Uclassified
- 13 - -
305
I recognise also with gratitude that the
complementary programme worked out in the case of tanks
has been the occasion for putting into effect financial
arrangements for easing the burden of initial capital
payments. It will greatly ease the financial problem
involved in launching the large volume of orders which Great
Britain needs to place in this country if the same facilities
can be made available in respect of all other types of
war purchases.
The joining up of the two programmes in the
United States should result in a more efficient production
planning; a speedier output, a lighter immediate financing
burden for the British Government and a greater capacity
of production always available for United States national
defence.
VII
Finally, it a substantial proportion of America's
munition production is to be shipped overseas, and if He
have to contemplate one or more British expeditionary forces
on 8 substantial scale, a very large shipping tonnage will
be required. At the moment we have a sufficient supply of
ships at our disposal. But the losses from submarine
action are running far ahead of our output of new ships which
is less than at the peak of the last war and cannot readily
be increased if the Admiralty programme of warships has to
be reinstated. The British Government is anxious to
acquire a substantial number of ships as soon as possible.
But this is to meet a short-term need. The
transportation problem needs to be studied from 1 very wide
angle if a large war potential is to be brought to hear
against the totalitarian powers in 1942.
2/10/40
W.T.Layton Regraded Uclassified
30S
Secretary had the original of this framed
and taken to the Secretary's house.
307
BRITISH EMBASSY,
WASHINGTON, D.C.
October 3rd 1940.
My dear Mr. Secretary,
Lord Beaverbrook has cabled
asking me to convey to you the following
message from him:
"It is with gratitude for
your understanding of our problems
in past and with confidence in your
goodwill for the future that Air-
craft Ministry gives its pledge to
pilots of & flow of aeroplanes
sufficient to carry them through
battle to victory. This pledge is
only possible owing to help we
derive from you. We cannot public-
ly acknowledge your assistance but
we hope the day will come when you
will visit us and receive from our
lads the thanks we owe you."
It gives me great pleasure to
pass this on.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.C.
308
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Legation, Lisbon.
DATE: October 3, 1940, 5 p.m.
NO.: 211.
On October 2nd the Bank of Portugal sent approximately
five million dollars in gold bullion to New York on the
Spanish ship Magallanes and the S. S. Excambion. On
September 28 (7) 3,000,000 was sent on the Japanese
vessel Akosaki Maru. Shipments totalled about 10,500,000
this week, greatly exceeding usual requirements or ex-
change needs.
WILSON
EA:MSG
LD INE 2t RECAT VVA
LECIBIGY
OF 04/105 06JUF
BVO 001 3 bill 2 30
тизмт, YOURSH
Regraded Uclassified
309
OCT 3 1940
My dear Admiral Andersons
I want to thank you for your letter of September 17,
1940 and the enclosed nemerandum, pertaining to the export
of gasoline and oil to Japan.
(Signed) H. Morgenthau, dr.
Secretary of the Treasury.
Bear Admiral Γ. s. Anderson,
Director of Navel Intelligence,
Havy Department,
Weshington, D.C.
will
9/24/40 resh you FILE COPY
310
OCT 3+ 1840
W dear Madral Andersons
I want to thank you for your letter of September 17,
1940 and the enclosed memorandum, partaining to the export
of garaline and oil to Japan.
(Signed) H. Morgenthau, J1.
Secretary of - Treasury.
Near Matral 11. 8. Anderson,
Director of Noval Intelligence,
May
Do
:
WLU resh
9/26/40
Regraded Uclassified
Treasury Department
311
Division of Monetary Research
Date September 27, 1940. 19
To: Secretary Morgenthau
The Navy material sent to us and referred to in
the attached letter contains nothing new. It consists
of a digest of the Japanese Consul General's (San
Francisco) communications to his Government, as
follows:
1. The Japanese have no di ficulty in arranging
shipments of ordinary gasoline and crude
petroleum.
2. Export permits are being left in the hands of
American agencies.
3. There appears to be no chance of obtaining
licenses to ship aviation gasoline contracted
for prior to the export control.
4. Recent shipments of ordinary gasoline have
been loaded on Mitsui and Mitsubishi vessels.
5. American dealers feel that there will be no
difficulty in shipping ordinary gasoline.
MR. WHITE
Branch 2058 - Room 208
NAVY DEPARTMENT
312
In reply refer to No.
OFFICE OF NAVAL INTELLIGENCE
White
WASHINGTON
Op-16
's
17 September 1940
Confidential
Dear Mr. Secretary:
With reference to my letters of 29 and 30 August 1940,
enclosing copies of memoranda relative to the export of gasoline
and oil to Japan, I am enclosing, herewith, for your information,
a memorandum dated 16 September containing additional information
on the subject.
With best wishes,
Very sincerely yours,
W.S.tnderson
W. 8. Anderson,
Rear Admiral, U. S. Navy,
Director of Naval Intelligence.
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
Confidential
313
a
la reply refer to No.
Op-16-F-2
WASHINGTON
CONFIDENTIAL
16 September 1940.
Memorandum for the Chief of Naval Operations
SUBJECT:
Gasoline and Oil Exports to Japan.
1.
Highly reliable information has been received that on 20
August 1940 the Japanese Consul General at San Francisco informed his
government that in spite of the restrictions on exports of petroleum pro-
ducts from the United States, no difficulty had been experienced in ar-
ranging for shipments of ordinary gasoline and of crude petroleum.
2.
The Consul General at San Francisco informed his government
in detail as follows:
(a) All the details connected with applications for export
permits for petroleum products are being left in the hands of
American agents by the Mitsui and Mitsubishi companies of San
Francisco. These American agencies from whom the oil is bought
go ahead and make suitable arrangements with the government auth-
orities at Washington.
(b) The Mitsubishi agency at San Francisco has been noti-
fied by the local office of the Associated Oil Company that of
the applications for export permits already filed in Washington
by the Associated 011 Company export licenses have been granted
for about 22,000 tons of Kettleman Hill crude oil and for a similar
amount of other California crude oil. This material was applied for
as "special blend" crude oil.
(c) Considering results so far, there would appear to be no
chance of securing export licenses for aviation gasoline contracted for
prior to 1 August nor that export permits will be issued for this mater-
ial on the basis that exports should be permitted because the companies
were under contract prior to the application of the export license sys-
tem.
(d) Recently ordinary gasoline was loaded on board vessels of the
Mitsui and Mitsubishi companies in the amount of some 85,000 barrels.
Permits for the export of this gasoline were granted on application
for the export of ordinary freight.
CONFIDENTIAL
Regraded Uclassified
314
"CONFIDENTIAL
-2-
(e) American oil dealers in the San Francisco area selling to
Mitsui and Mitsubishi, of which the principal one is the Associated
Oil Company, feel that there will be no difficulty about continuing the
shipment of ordinary gasoline to Japan.
W.S. Anderson.
Original to Aide to the President
CC - C.N.O.
M.I.D.
State
File (2)
Certified to be a true copyr
A.H. McCollum,
Lieut. Comdr., USN.
CONFIDENTIAL
315
AO
PLAIN
London
Dated October 3, 1940
Rec'd 12:30 p.m.
Secretary of State
Washington
3307, third.
FOR TREASURY FROM BUTTERWORTH.
As a result of today's Cabinet changes the
Chancellor of the Exchequer becomes a Minister of
the War Cabinet.
KENNEDY
RR
316
WAR DEPARTMENT
OFFICE OF THE CHIEF OF STAFF
WASHINGTON
October 3, 1940.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Dear Mr. Morgenthau:
Thank you very much for the following reports,
which you sent me this date:
Part I - Airplanes
Deliveries of and New Orders for Airplanes,
June 9 - September 28, 1940; Unfilled Orders
and Estimated Deliveries on September 28,
1940.
Part II - Airplane Engines
Deliveries of and New Orders for Airplane
Engines, June 9 - September 28, 1940; Unfilled
Orders and Estimated Deliveries on September
28, 1940.
Faithfully yours,
Chief of Staff.
1
goats OFFICIAL COMMISSIONS TO
THE SECRETARY OF STATE
317
WASHINGTON, a e.
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
Co
October 3. 1940
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses
for Mr. Morgenthau's information several copies of the
President's proclamation of September 30, 1940, with
respect to the administration of section 6 of the Act
entitled "An Act to Expedite the Strengthening of the
National Defense", approved July 2, 1940, and also
several copies of the regulations issued by the President
on the same date governing the exportation of articles
and materials designated in the President's proclamation
of July 26, 1940.
Enclosures:
1. Proclamation.
2. Regulations.
⑈ WEST
318
ADMINISTRATION OF SECTION 6 OF THE ACT ENTITLED
"AN ACT TO EXPEDITE THE STRENGTHENING OF THE
NATIONAL DEFENSE," APPROVED JULY 2, 1940
BY THE PRESIDENT OF THE UNITED STATES OF AMERICA
A PROCLAMATION
WHEREAS section 6 of the act of Congress en-
titled "AN ACT To expedite the strengthening of the
national defense," approved July 2, 1940, provides
as follows:
"Sec. 6. Whenover the President determines
that it is necessary in the interest of national
defense to prohibit or curtail the exportation
of any military equipment or munitions, or com-
ponent parts thereof, or machinery, tools, or
material, or supplies necessary for the manu-
facture, servicing, or operation thereof, he may
by proclamation prohibit or curtail such exporta-
tion, except under such rules and regulations as
he shall prescribe. Any such proclamation shall
describe the articles or materials included in
the prohibition or curtailment contained therein.
In case of the violation of any provision of any
proclamation, or of any rule or regulation, issued
hereunder, such violator or violators, upon
conviction, shall be punished by a fine of not
more than $10,000.00 or by imprisonment for not
more than two years, or by both such fine and
imprisonment. The authority granted in this
section shall terminate June 30, 1942, unless
the Congress shall otherwise provide."
NOW, THEREFORE, I, FRANKLIN D. ROOSEVELT,
President of the United States of America, acting
under and by virtue of the authority vested in me
Regraded Uclassified
319
-2-
by the aforesaid act of Congress, do hereby proclaim
that upon the recommendation of the Administrator
of Export Control I have determined that it is
necessary in the interest of the national defense
that on and after October 15, 1940, the following-
described articles and materials shall not be
exported from the United Strtes except when authorized
in each case by a license as provided for in Proclama-
tion No. 2413 of July 2, 1940, entitled "Administra-
tion of section 6 of the act entitled 'An Act to
expedite the strengthening of the national defense'
approved July 2, 1940," and in the regulations issued
pursuant thereto:
Fire Control Instruments, Military Searchlights,
Aerial Cameras and other types of Military
Equipment containing optical elements.
IN WITNESS WHEREOF, I have hereunto set my hand
and caused the seal of the United States of America
to be affixed,
Regraded Uclassified
320
-3-
DONE at the City of Washington this 30th day
of September, in the
year of our Lord
nineteen hundred
and forty,
and of the
Independence
of the United
States of America
the one hundred and
sixty-fifth.
FRANKLIN D. ROOSEVELT
By the President:
CORDELL HULL
Secretary of State.
5
5
Regraded Uclassified
321
COPY
DISPATCH
RNI PT Z MUSK 022340 NRDC Q F5L G1Z P5Z QUAH ZONA P GR 103
FROM:
RESTRICTED CHIEF NAVAL OPERATIONS
ACTION:
CAMPBELL
INFORM:
COMIT 3RD NAVDIST = CINC US FLEET
COMRON 40-T
(PRIORITY MSG)
COMATRON US FLEET
COMDT USCG
WHEN FUELED PROVISIONED AND IN ALL RESPECTS READY FOR SEA
INCLUDING NAVY COMMUNICATIONS PUBLICATIONS ABOARD PROCEED VIA
PONTA DELGADA AZORES FOR REFUELLING TO LISBON PORTUGAL REPORTING
TO OPNAV YOUR RESPECTIVE ITINERARY PRIOR DEPARTURE YOUR NOON
POSITIONS ENROUTE AND TIME OF ARRIVAL ALSO INFORM AMERICAN
MINISTER LISBON OF YOUR ARRIVAL X CULTIVATE FRIENDLY RELATIONS
AND PROTECT AMERICAN INTERESTS X KEEP CLEAR OF PROCLAIMED COMBAT
ZONES X OBTAIN PRIOR APPROVAL FROM NAVY DEPARTMENT BEFORE
VISITING ANY SPANISH OR PORTUGUESE PORT OTHER THAN LISBON AND
REPORT ALL SUCH MOVEMENTS BY DISPATCH X
NOTE:: THIS IS PLAIN LANGUAGE OF RESTRICTED SO GR COUNT MAY
NOT CHECK JUST USE YOUR OWN CHECK
TOD 0016 3 OCT 40/NM WR
Regraded Uclassified
322
THE SECRETARY OF STATE
WASHINGTON
October 3, 1940
Dear Mr. Secretary:
Thank you very much for your note of
September twenty-fifth enclosing the inter-
esting message from Mr. Nicholson, which I
was very glad for the opportunity to read.
Sincerely yours,
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
Regraded Uclassified
323
CONFIDENTIAL
Puraphrase of Code Cablegram
M
Received at the War Department
at 1:48 P.M., October 3, 1940.
London, filed October 3, 1940.
During daylight hours of October 2 German bomber operations
resolved themselves into six attacks over Southeast England. While
the total number of planes involved was estimated at 250, all form-
tions were mall. In only one of the six attacks were formations of
as many as six beabers seen. Operations give the impression of being
half-hearted. Bambing activity last night was likendse on a reduced
scale and caused little disturbance in London.
Reports of the damage caused by the bombing included the
following: temporary blockage of five railroads. In this connection
railroad blockages are apparently repaired very rapidly. A statement
yesterday indicates that the maxima duration of any rail blockages
to date has been nine hours, with the majority of blockages being
cleared in such shorter tim. One air depot and five airdromes were
attacked with little damage. Production in one chemical factory
halted for two days. Production in one radio company was suspended
for one week. One aircraft parts and sound locator factory was
forced to suspend operations due to unexploded bombs. One electric
light bulb factory was forced to slow up production due to low gas
pressure. One section of & metal works in Clasgow suspended production
for several days. One paper will was damaged.
CONFIDENTIAL
Regraded Uclassified
CONFIDENTIAL
324
british Crestal Command operations yesterday reparted w
w invelving 96 planes, in addition to the accort of 18
- all without casulties. Last right British sperations in
valuing 96 were directed against two synthetic all plants,
- eil refineries, and rail shipping and part facilities.
The situation in regard to invasion 10 considered unchanged.
German losses wro 10 sonfirmed, 1 probable, and 2 damgei.
the British lest come plane and no pilots.
One cervey of 25 ships arrived safely from Canada. Inc
shipping leases reported, all due to submerines, were two ships of a
total of 10,300 tens and a third ship of unknown tomage.
Casulties for the night of October 1-2 were: Lendon, 57
Milled, 283 injured) Idverpool, 20 killed, 60 injured) other areas,
10 Milled, 49 injured.
Important disputches left here by air today with Studler.
LEE.
Distributions
Military Aide to the President.
Bearetary of Yes
State Department
Secretary of Treasury
Amt. Secretary of for
Chief of Staff
for Plane Division
Office of Naval Intelligence.
CONFIDENTIAL
Regraded Uclassified
ADDRESS THE COMMANDANT. U.S. COAST ou
325
AND REFER TO NO. IOF-64
TREASURY DEPARTMENT
UNITED STATES COAST GUARD
HEADQUARTERS
WASHINGTON 3 October, 1940.
CONFIDENTIAL
Subject: Reported departure of French vessels from the Port of
New Orleans.
Summary of Information:
The Commander, New Orleans District, has received reliable confi-
dential information advising that the following French vessels will
attempt to depart from the Port of New Orleans in the near future,
either by compliance with clearance and departure regulations or
otherwise, with ultimate destination Germany:
SS MICHIGAN
SS WYOMING
SS ANGOULEME
MS TOURAINE
MS SHEHERAZADE
MS OREGON
SS WINMIPEG
SS INDIANA (due New Orleans
in the near future)
The Collector of Customs at New Orleans has requested the Coast
Guard not to permit these vessels to pass the head of the Mississippi
River Passes, even though they present a clearance, until dissuance of
clearance has been verified by the Commander, New Orleans District,
U. S. Coast Guard.
The Commander, New Orleans District Patrol Force has been directed
to station an offshore cutter armed with 3-inch or larger guns at the
head of the Mississippi River Passes until further orders, so that if
an illegal departure is attempted it can be prevented.
Source of Information: Reliable
Distribution:
Treasury Department
Bureau of Customs
State Department
Naval Intelligence
Regraded Uclassified
326
October 3 1940
I
Professor A. S. Yahuda.
25 Eleworthy Road,
London, N. W.3
Received by HM, Jr at 11:30 a. m.