Volume 320, October 8 – October 10, 1940

DIARY Book 320 October 8 - 10, 1940 - A - Book Page Airport - Elisabeth City, North Carolina Gaston memorandum concerning dedication - 10/10/40.. 320 426 a) HWr approves Gaston's participation - 10/11/40: See Book 321, page 1 Allison Engineering Company See Var Conditions: Airplanes (Engines) Aluminum See War Conditions: Airplanes (Consolidated Aircraft) Angell, James R. (Dr.: former President of Yale University) Lauds HMJr for generous aid to Britain 301 a) HMJr's acknowledgment - 10/9/40. 297 Argentina See Latin America ATLANTIC GULF, SS See Var Conditions: Japan - B - Beaverbrook, Lord See War Conditions: Airplanes (message of thanks to HMJr) Bomb Sight (Norden) See War Conditions Bombers See War Conditions: Airplanes - C - Carmody, John M. (Administrator, Federal Works Agency) See War Conditions: Airplanes (Consolidated Aircraft) China See Day, Charles H. See War Conditions: China: Foreign Funds Control Consolidated Aircraft See War Conditions: Airplanes Cuba See Latin America - D - Day, Charles H. McReynolds asks HMJr to see Day. who has just returned from China - 10/10/40. 351 a) Biographical sketch. 353 1) War Department report - 10/11/40: See Book 321, page 23 See also Book 322, page 122 Diamonde See War Conditions: Foreign Funds Control (Netherlands) - I - Book Page Elisabeth City, North Carolina Gaston mimorandum concerning dedication of new airport - 10/10/40 320 426 a) Bill approves Gaston's participation - 10/11/40: See Book 321, page 1 - ? e France Boe War Conditions - G - General Counsel, Office of Report on projects during September 1940 256 Germany See War Conditions: Foreign Funds Control; Germany Gold See War Conditions Grsesinski, Albert (Former Chief of Police, Berlin) Recommended by Charles Hewitt, Jr. (sponsored by Edgar Ansel Mowrer) for undercover work in connection with Fifth Column activities - 10/8/40. 204 - H - Hewitt, Charles, Jr. Mowrer (Edgar Ansel) introduces Hewitt to HMJr - 10/8/40 204,208 Housing See United States Housing Authority See War Conditions: Airplanes (Consolidated Aircraft) - I - Italy See War Conditions: Foreign Funds Control - J - Japan See War Conditions: Foreign Funds Control; Japan - L - Book Page Lacour-Gayet, Mr. See Var Conditions: France Latin America Argentina: Industrial survey considered in cooperation with United States - 10/8/40 320 73 Conference agenda discussed by Argentine Ambassador and Cochran 97 a) Welles-HMJr conversation - 10/9/40. 308 Cuba: Economic Mission: White designated Treasury representative at State Department meeting - 10/10/40 427 Mexico: Hochschild transmits memorandum on mining industry - 10/10/40 442 (See also Book 321, page 242) Layton, Sir Walter See War Conditions: Purchasing Mission - M - Martin, Glenn L., Company See War Conditions: Airplanes Mexico See Latin America Mint, Bureau of Increased demands causing extremely serious situation; Philadelphia Mint one of those being enlarged; new manufacturing plant in West may be necessary - 10/8/40 10 Monetary Research, Division of Report on projects during August and September, 1940.. 445 Mowrer, Edgar Ansel Introduces Hewitt (Charles, Jr.) to HMJr - 10/8/40. 204,208 - N - National Gallery of Art Issuance of commemorative stamp disapproved by HMJr - 10/10/40 332 Naval Bases See War Conditions Netherlands See War Conditions: Foreign Funds Control (Diamonds): Netherlands North American Aviation See War Conditions: Airplanes North Carolina Elisabeth City: Gaston memorandum concerning dedication of new airport - 10/10/40 426 a) HMJr approves Gaston's participation - 10/11/40: See Book 321, page 1 Regraded Uclassified - P - Book Page Portugal See War Conditions: Gold - R - Research and Statistics, Division of Report on projects during September, 1940 320 74 Revenue Revision Tax Bill, H.R. 10413: FDR requests study: Does Bill (now an Act) discriminate in favor of corporation with small amount of actual invested capital but with high earnings over last four years - 10/9/40 305 Roosevelt, G. Hall See War Conditions: Foreign Funds Control (Netherlands diamonds) Roumania See Var Conditions: Foreign Funds Control - S - San Diego, California Housing: See War Conditions: Airplanes (Consolidated Aircraft) Schnacke, F. D. See War Conditions: Airplanes (Consolidated Aircraft) Ship Movements See War Conditions Sweden See War Conditions Switzerland See War Conditions - T - Tax Evasion Darryl Zanuck case: Settlement discussed at 9:30 meeting - 10/8/40. 16 Taxation See Revenue Revision - U - U.S.S.R. See War Conditions: Foreign Funds Control United Kingdom See War Conditions: Military Planning: United Kingdom United States Housing Authority Thompson recommendations for administrative officer - 10/9/40 295 United States Savings Bonds Change in rates and new booklet discussed at Treasury conference - 10/9/40 209 - M Book Page War Conditions Airplanes: Beaverbrook thanks HMJr for understanding and assistance, 320 129 a) Personal message of gratitude sent by HMJr through Lothian - 10/8/40 128 See also Book 321, page 337 Bombers: British-type Martin bomber 187-B and United States-type B-26A compared - 10/8/40 162,314 Consolidated Aircraft (Fleet, President) refuses additional commitments but later accepts Havy order for 200 long-range bombers: Forrestal-HMJr conversation - 10/10/40 316 a) Conditional bid discussed at 9:30 meeting. 326 b) Fleet sends Forrestal conciliatory telegram - 10/11/40: See Book 321, page 4 Vaughan (Curties-Wright) and HMJr discuss dive bombers - 10/10/40 336,345 Conference: present: HMJr, Buckley, Purvis, Fairey, Young, Towers, and Knox - 10/10/40 393 a) Dive bombers discussed Consolidated Aircraft: Housing of employees at San Diego revealed by visit to plant - HMJr asks for memorandum for FDR - 10/8/40. 24 Findings discussed by Treasury representatives with British Purchasing Mission - 10/8/40 45 Foley memorandum on visit - 10/8/40 111 a) Carmody (Administrator, Federal Works Agency) compliments Foley - 10/10/40: See Book 321, page 175 Agenda for conference on facilities 130 HMJr aske FDR to speed legislation - 10/8/40 200 a) Conference report adopted almost simultaneously 201,203 b) FDR announces signing of bill - 10/18/40: See Book 323, page 144 Conference: present: HMJr, Knudsen, Knox, Stimson, Patterson, Forrestal, Marshall, Brett, Towers, Pennoyer, Young, Foley, and Buckley - 10/9/40 274 a) Agenda. 278 Forrestal transmits letter from Schnacke (Smith, Schnacke & Compton, lawyers) - 10/9/40 303,425 Knudsen sends Mead to plant: discussion at 9:30 meeting - 10/10/40 326 a) Patterson informs HMJr 412 Aluminum supply investigated by Forrestal 362 Forrestal telegram to Fleet concerning contract - 10/10/40 425 Regraded Uclassified - y - (Continued) Book Page War Conditions (Continued) Airplanes (Continued): Employment in the Aviation Manufacturing Industry: Haas memorandum - 10/10/40 320 377 a) September figures sent to White House 373 1) Map 376 Engines: Allison Engineering Company: HMJr-Evane conversation concerning output - 10/10/40 418 Martin, Glenn L., Company: HMJr plane to visit plant - 10/10/40 313 a) Knudsen asked to accompany HMJr 334 b) Purvis # . II # 415 c) Trip cancelled - HMJr informs Purvis - 10/11/40: See Book 321, page 92 North American two-seater advanced trainer: One out of every seven to be transferred to the British - 10/8/40 2 Bomb Sight (Norden): Knox tells HWr he 19 prepared to recommend to FDR that Navy share with British - 10/9/40 273 China: Peiping, China, staff at German Embassy increased by about sixty - many air officers - 10/9/40 290 McReynolds asks HMJr to see Day (Charles H.). who has just returned from China - 10/10/40 351 a) Biographical sketch. 353 1) War Department report - 10/11/40: See Book 321, page 23 See also Book 322, page 122 Exchange market resume' - 10/8/40, etc 98,271,440 Foreign Funds Control: Agenda for discussion with State Department of extension to additional areas, 36 a) Discussion by Treasury group - 10/8/40 24 b) Attorney General's memorandum for FDR 40 c) Conference at State Department - 10/8/40 148 China: Possible blocking discussed - 10/9/40 218 Germany: Transactions of Consulate General, New York City, reported by Federal Bureau of Investigation and State Department - 10/8/40 71 Transactions with Chase National Bank - 10/9/40. 255 Italy: Transactions with Chase National Bank and National City Bank - 10/9/40 253 Japan: Possible blocking discussed - 10/9/40 218 Netherlands: Diamonds: Roosevelt (G. Hall) inquiry concerning - 10/10/40 356 See also Book 321, page 14 - V - (Continued) Book Page War Conditions (Continued) Foreign Funds Control (Continued): Roumania: State Department asked views concerning Treasury control of Roumanian funds in United States - 10/9/40 320 306 a) Welles-HMJr conversation - 10/9/40 306 b) Discussed at 9:30 meating - 10/10/40 321,329 e) Hull=HMJr conversation - 10/10/40 324 d) State Department approves freezing - 10/10/40. 367,413 Roumanian balances blocked in United Kingdom - 10/10/40. 361,367 State Department officials' accounts discussed - 10/9/40 217,242,245 U.S.S.R.: Transactions with Chase National Bank - 10/9/40 264 France: Foedick, of Rockefeller Foundation, discusses situation as reported by their representatives with Treasury group - 10/9/40. 215 Henri-Haye's conference with Welles, at which time he bitterly denies cooperation with Germany - 10/8/40. 224 Conference: present: HMJr, Lacour-Gayet, Bell, and Cochran - 10/10/40, 342 a) Lacour-Gayet to supervise all French financial problems and liquidate French Purchasing Commission in New York 1) Confere with HMJr, Bell, and Cochran - 10/12/40: Cochran memorandum See Book 321, page 198 Germany: Wiedemann, Fritz - German Consul General, San Francisco: FederalBureau of Investigation reports on his lack of sympathy with present regime in conversation with British official to ascertain British terms at end of war - 10/9/40 269 Peiping, China, staff at German Embasy increased by about sixty - many air officers - 10/9/40 290 United States stocks in invaded countries sold by Germans: New York Post article - 10/10/40, 386 (See also Book 321, page 10 Gold: Portugal: Holdings transferred to United States - 10/10/40 429 United Kingdom: Holdings of gold and exchange - British Embassy memorandum - 10/10/40 358 Japan: Discrepancies in report from New York bank on amount on deposit discussed at 9:30 meeting - 10/10/40 320 SS ATLANTIC GULF: Ickes informs HMJr of proposed sale to Japanese subject - 10/10/40 387 - Y - (Continued) Book Page Var Conditions (Continued) Military Planning: Tentative Lessons bulletins: German Training in Marching and March Discipline" 10/8/40 320 101 "Use of Aviation in German Attack on Maginot Line" 10/9/40 283 Reports from London transmitted by Lothisn - 10/8/40, etc 107,291,456 Var Department reports - 10/10/40 452,453 Naval Bases: Banks to be used as depositories for United States funds where United States plans to use British bases discussed by British Embassy and Cochran - 10/8/40 147 Netherlands: Hull acknowledges letter concerning purchases in United States - 10/10/40, 392 Purchasing Mission: Vesting Order: Official sales of British-owned dollar securities - 10/8/40 159 Purvis consults HMJr concerning Layton memorandum - 10/10/40 416 Ship Movements: 88 OREGON, MICHIGAN, and WINNIPEG departure permits issued: Gaston memorandum - 10/10/40, 356 QUEEN ELIZABETH, OSLOFJORD, and BERGENSFJORD to sail soon: Gaston memorandum - 10/10/40 357 Sweden: Situation reviewed in American Embassy, Stockholm, report - 10/10/40 430 Switserland: Rise in Swiss franc stopped; British blockade discussed by Somary and Cochran - 10/10/40 372 United Kingdom: Reports of visit by Generals Strong and Emmons sent to HMJr - 10/8/40. 164 Holdings of gold and exchange: British Embassy memorandum - 10/10/40 358 Sterling area - newly-mined gold: British Embassy memorandum - 10/10/40 359 War Department Military Intelligence Division bulletins: See Yar Conditions: Military Planning Wiedemann, Fritz (German Consul General, San Francisco) See War Conditions: Germany Winston, Harry, Incorporated (New York) See War Conditions: Foreign Funds Control (Netherlands) - 2 - Zanuck, Darryl 7. See Tax Evasion 1 October 8, 1940 9:08 a.m. H.M.Jr: Hello. Operator: Judge Patterson. Robert Patterson: Hello, Henry. H.M.Jr: Hello. How are you? Bob, how are you coming along with that Republic deal? P: They told me yesterday that we didn't have funds enough appropriated to take them up. That I can get around some way or other, but that was just a temporary snag. I understood that Arnold had put it up to the Advisory Commission to help him on giving an equivalent; that 1s, which things he can spare best if he acquired those. H.M.Jr: Uh-huh. P: Now, I'm glad you - I want you and Young to push me on it because it recalls it to me and I can get at it with more vigor. H.M.Jr: Will you? P: I will. H.M.Jr: Because I really think we ought to clean it up. P: Absolutely. I'll see, Henry. H.M.Jr: Right. Will you call me? P: Yes, sir. H.M.Jr: Thank you. P: Good-bye. 2 October 8, 1940 9:30 a.m. H.M.Jr: Hello. Robert Patterson: Henry? H.M.Jr: Yeah. P: This 18 Bob Patterson. H.M.Jr: Yes, sir! P: On the Republic business ..... H.M.Jr: What a man, what a man! P: ..... we're trying to find the money to pick them up. It costs around 7 million I think, something like that, and we're getting down fairly well to the broke stage but we've got to fix that, of course. H.M.Jr: Yeah. P: The other thing 18 this, on the equivalent - we've proposed to the - we've put it to this Board that General Brett and Towers and these fellows from the Navy are on too ..... H.M.Jr: What do you call that Board? P: Well, the British are on it - Fairey - it's kind of an allocation board, and it has been suggested to that Board, and I suppose Fairey will hear of it through the Board which meets tomorrow on the matter, that 70 of the AT-6's be turned over. That's the equivalent, I understand, of the Harvard and that, I think, is what was mentioned at the meeting at your office Thursday. H.M.Jr: That's the 2-seater 18 it? P: Just a minute. (Pause). 2-seater advance trainer. 3 - 2 - - H.M.Jr: And that'd be turned over to whom? P: To the British, 70 of them. That is the proposition that 1s put to the Board. They are advance trainers. They will start coming in and we'll have some 400 or so between now and May, and the proposal is that the British take their 70 right out of that - 1 in every 7. H.M.Jr: One out of every 7? P: Yes. Well, you see, our order is around 490 or something like that. H.M.Jr: I certainly must have missed something. With what company is this? P: North American. H.M.Jr: Oh, I didn't get that. P: That's the one. H.M.Jr: Oh, I didn't get that. P: There's an order there. H.M.Jr: Now I'm clear. You're proposing that 1 out of 7 go ..... P: of our order, yes, you know, proportionately. Now, of course, that's a rather slow delivery but that's the proposition that's been put up to the Board. Fairey I understand is on the Board. H.M.Jr: I see. Now those 70 ..... P: They're in Baker. H.M.Jr: ..... are worth about - are they worth 7 million? P: I'll find out. H.M.Jr: They can't be. They can't be worth $100,000 a piece. 4 - 3 - P: (Talks aside). He says they run around $25,000 per plane. H.M.Jr: Yeah. I see. P: They're probably worth about #1# million. H.M.Jr: Well, then as I get it they're going to let this go over until this Board meets tomorrow. Is that right? P: That's right. I understand that was it. H.M.Jr: Well, I think that that sounds pretty good. P: Well, I'm just not familiar enough to know whether it is or not. Well, of course, you see there's a little difficulty in this case in this way. The British haven't any real order at all for the Republics, it's not a question of their releasing something they have on order to get something we have on order. H.M.Jr: I know. P: Their only claim on these is a historical one in the, I mean, the development of the case. They were kind of put in a pigeon-hole for them in our own minds, but it was all mental. H.M.Jr: Granted. P: What? H.M.Jr: You are right. P: It was all mental. Of course, the President under the new legislation has the power to commandeer those planes, you know, on the administration of goods marked for export, for which export licenses have been refused, 80 that he can take them over anyway. H.M.Jr: Yes, I know. P: But I suppose the Republic people are - don't need to do that. They'll sell anyway to us. Regraded Uclassified 5 - 4 - H.M.Jr: Then, as I get it, ..... P: The Swedes have released us and Republic will sell to us. H.M.Jr: And you're going to keep those Republic planes and use them yourself. P: We'll use them as trainers, but due to the form in which the thing came up and the way for the last month it was developed, it was expected that maybe the British would get them though they couldn't. We're willing to give something for them, I mean, give the British some sort of equivalent. H.M.Jr: And that's the offering of 70 Harvard trainers. P: That's the one that's being put up to the Board as I understand it. H.M.Jr: Is that the first offer? P: Yes. H.M.Jr: (Laughs). You started to say the only offer. P: Yeah. Well, that's the only thing we've put up to the Board, as I understand it. H.M.Jr: Well, I should think that they'd be delighted to get Harvard trainers. P: Well, they said they were the nearest thing as the equivalent of it. H.M.Jr: That's what they need anyway. P: Do they? H.M.Jr: Yeah, they do. They need them for Canada very badly. P: Oh, this will go to Canada. H.M.Jr: Oh, yeah, as I understand it, they go to Canada for their training program. P: Yeah. All right. H.M.Jr: Right. Thank you. P: Fine. Good-bye. 6 October 8, 1940 9:30 a.m. GROUP MEETING Present: Mr. Haas Mr. Young Mr. Thompson Mr. Pehle Mr. Graves Mr. Cochran Mr. Gaston Mr. Schwarz Mr. Bell Mr. White Mrs. Klotz H.M.Jr: Good morning, everybody. Norman? Thompson: Nothing. H.M.Jr: Professor Bell? Bell: We have sold Treasury Bills yesterday, and they paid us $18.50 for the privilege. H.M.Jr: Quite a business. Bell: I think we ought to increase the amount to $200,000,000. It 1s cheap money. You remember last week we had that Processing Tax Board of Review matter and I think Chick got the Republican release. There 1s an indication there that this man Hathcock that we have had some trouble with might be responsible for giving that out. His name is mentioned. Schwarz: The information 18 too detailed. They didn't come to the Treasury to get it. Regraded Uclassified 7 - 2 - H.M.Jr: Fifth Columnists, 1e it? Schwarz: It appears 80. H.M.Jr: Well, I gave the Job of firing Hathoock originally, as I remember it, to one John Hanes. Then I gave the job to Sullivan, didn't I? We were going to have a Board of Review. What happened on that? Foley: Doughton got in the way. Bell: They were waiting until after the tax bill. H.M.Jr: The tax bill is through. Bell: It isn't signed yet, is it? H.M.Jr: No. That is just a detail. Why not wait until Sullivan comes back? I don't like to interfere with his work. Schwarz: If it is good work. H.M.Jr: All right. Well, he was wrong, wasn't he, on his figures? Schwarz: Oh, very definitely. H.M.Jr: Well, I didn't see any paper run that except on the release. It came out on the ticker. Schwarz: The New York Times has our story and just a reference to the Republican statement and the Washington Star on Sunday had about a paragraph on the Republican side. H.M.Jr: Now, on a thing like that, do you suppose there would be some way or other of letting Mr. Michelson have the direct facts? Schwarz: Burely. H.M.Jr: Do you think that could be done? Schwarz: I will do it today. 8 - 3 - H.M.Jr: And in the future, when & thing like this comes if he could be notified right away. Schwarz: Immediately, H.M.Jr: Had you thought of that? Schwarz: Yes. H.M.Jr: But you hadn't done it? Schwarz: Yes. H.M.Jr: Well, I am glad of that. Schwarz: We started immediately lest Thursday afternoon to dig up the facts. H.M.Jr: Well, in the future if there was some way that Mr. Michelson could also get the facts. It 1s only fair to let the Republicans know so why not let the Democrats know? Schwarz: That is very good. H.M.Jr: What else, Dan? While we are on that thing, there 1s this story this morning again. I got Harry White out of bed at five o'clock this morning and he eays, "Where is the fire?" and I said, "Cordell Hull is doing away with all the frozen assets and from now on we can't move unless he says yes." Harry says, "Just a minute and I will put on my raincoat and I will come down." He came down and he was all flustered and he couldn't think of an excuse. He says, "What about that man Foley has up on the Hill? He ought to know about it." And then they find out it 18 just a bill -- Foley: It is a Federal Reserve bill, Mr. Secretary. H.M.Jr: I know, but look at the story. Foley: Well, I saw it on the ticker yesterday and I sent for Bernie and Larry. I was worried, too. But the ticker story we wrong. 9 4 H.M.Jr: Well, was there anything done - that was last night. I got the ticker story at eleven last night. What W&B done from the time it was on the ticker until the papers went to press this morning to correct it? After all, the Treasury 18 supposed to be on 8 24-hour basis and not B. monthly basis. Schwarz: I talked to John Pehle yesterday. H.M.Jr: This 1s 4:30. There was plenty of time to correct that story for the morning papers. Schwarz: That was United Press. H.M.Jr: 4:30 yesterday. Schwarz: I talked to the United Press about it. H.M.Jr: Last night? Schwarz: Late yesterday afternoon. H.M.Jr: He didn't get his correction in this morning's paper. They all had it wrong. Schwarz: United Press WAB primarily responsible for that. H.M.Jr: Did you talk to them? Schwarz: Yesterday afternoon. They don't correct it unless they feel like it. H.M.Jr: I see. But you did speak to them? Schwarz: I spoke to the Treasury man at United Press. H.M.Jr: Okay. That is all you could do, I suppose. Schwarz: Yes. We call attention to the facts, and it 1s up to them to be accurate if they are 80 minded. H.M.Jr: It was tough on Harry. What else, Dan? Bell: I approved on Saturday an order allowing the 10 - Coast Guard to work more than the required 40 hours a week in some connection with some work on that survey, and Herb was supposed to have a report on that this morning. I knew you were against working overtime, but they had an emergency down there and I thought we might approve it subject to the full report. Gaston: This 1s the wartime equipment on the cutters and they have to install new guns and 80 on and they can't get enough men to get the work - enough fully skilled men to get the work through in time without going on & 48-hour week. The Navy 1s - all the Yards are on a 48-hour week. H.M.Jr: So 1s the Army. Gaston: The outside figure 18 $22,000 for the entire Job and I think it 1s very reasonable to let them go on A 48-hour week. H.M.Jr: Absolutely. Graves: I have a report from Mr. Irey on the indictment of "Win or Lose". It is very brief. There is also a full account of the agent. H.M.Jr: I am just sort of surprised this came along. Is this sort of 8. hangover? Graves: Apparently from the report of Mr. Irey's agent, this was before 8. grand jury some time ago, which failed to indict, and the new grand jury has now investigated the matter again and has brought the indictment. H.M.Jr: I see. Good. Are you following this other thing? Graves: Yes, I am. H.M.Jr: Graves tells me there may be real trouble. We may not be able to make enough money to keep up with the demand. Graves: Ae you know, I spent Friday in the Mint at - 6 - Philadelphia and found that they were in difficulty in having changes made in their building which would permit the installation of the new equipment we have in mind. That money for alterations to the building 1a provided by the Public Buildings Administration. I went over there yesterday, and Mr. Reynolds, when he became aware of the seriousness of the situation, has now cancelled out certain other projects 80 as to transfer the money. H.M.Jr: Do you get 8. new building? Graves: No, for the alterations and remodeling of that building. H.M.Jr: How soon will that be in? Graves: Our ambition is to have it in by the end of this fiscal year. It 18 a long job. It takes months to build this new equipment and it will take a long time to make the alterations to the building. H.M.Jr: But it is underway? Graves: It is underway. Bell: Does that interfere with the present program of manufacturing very much? Graves: No, we are working three shifts up there and of course one of the objects of the additional equipment is 80 we won't have to work three shifts, seven days B. week. Bell: Harold said he thought we might need a new manufacturing plant, probably in the West some place. Graves: I also went over that in a preliminary way with Mr. Reynolds. H.M.Jr: I think we should have. Graves: Pretty soon I think we ought to lay some 12 - 7 definite plans. H.M.Jr: I am ready. Okay? Graves: Yes, H.M.Jr: Harry? White: Here 1e a letter from Secretary Welles (October 4) informing you about the Cubane. It doesn't leave any response, but we will have a report in here today on the general situation 80 that in the event he does call you up, you will be prepared. There is a cable from London (October 2) which you may not have read. It indicates that the British Government is now spending at the rate of 13 billion dollars a year, during the first six months, of which ten billion dollars is being borrowed. That 1s, they are running into a deficit of almost 10 billion dollars out of an annual expenditure of 13 billion, BO far this year. Scrap iron and oil are still going out in large quantities. H.M.Jr: I just 88W that report this morning. White: This 1s a memorandum that I think either Mr. Cairns or Mr. Foley have or will call to your attention, but I want to make sure that they do because it relates to a bill which will give Colonel Maxwell of the State De- partment very considerable authority that it seems to me infringes on some of the Treasury authority already with respect to control and administration of exports. I don't know whether you -- H.M.Jr: Is it imminent? White: Either you have or you will, I think, because I got this from your (Foley's) office. Young: "I sent that report up to the farm with you 13 - 8 - laet week-end H.M.Jr: All right. White: Here is that proposed French plan -- Foley: Yes, this 1s the thing we had R. meeting on in your office, Dan. White: On petroleum, just for the record, and another one for the record, on petroleum, also. That 18 all. H.M.Jr: What else? White: That 1s all. H.M.Jr: George? Haas: Allison didn't do quite 8.8 well. It 18 high, relatively. The last six weeks they averaged 52. H.M.Jr: What did you say? Haas: The last six weeks averaged 52. H.M.Jr: Well, they did 49 engines last week. Haas: They are getting a lot of P-40's to the British, you know. H.M.Jr: Airplanes with engines, shipped, 76. All right. White: Did you notice the picture in the - last Saturday's News on the front page, a picture of oil barrels being rolled onto a Japanese ship all over the front page? H.M.Jr: T didn't see it. White: With an editorial on it. H.M.Jr: Which News? White: . Washington News. 14 - 9 - H.M.Jr: Pehle? Pehle: Nothing. H.M.Jr: What did you hear about that money that Bullitt wanted to send? Pehle: I gave Offie the message, which he thanked me for, and he called back about two hours later and said that the State Department wasn't inclined to stretch its authority that far. He said there were a number of people over in the State Department that had friends in France that they would like to send money to, but they couldn't send it in that amount, and he didn't think they were going to be very sympathetic and I just repeated what I told him before and told him that if anybody in the State Department asked me about it I would tell them the same thing. That was Saturday morning and we haven't heard anything since. H.M.Jr: Okay. Philip? Young: I understand that those North American dive bombers that were bound for Siam, which the State Department took off in Manila, which General Arnold wanted 80 badly for the Philippine Air Corps, have no engines in them. Haas: They can dive well. Foley: They are lighter. White: They don't need them. H.M.Jr: That 18 what you call a "One Dive Bomber." Not bad. What other good news have you got? Young: None. White: Maybe they sent the engines to Japan? 15 - 10 - Young: I think the engines are still in San Diego. H.M.Jr: Anything else, Phil? Young: No, sir. H.M.Jr: You are going to find out about those two Martins for me? Young: Yes. H.M.Jr: Maybe you could know by 11:30. Young: All right. H.M.Jr: Chick? Schwarz: Could I have about one minute afterward. I have two minor matters. H.M.Jr: You can if I can get through before ten. Ambassador Lothian is coming. Cochran: Nothing. H.M.Jr: I thought on this thing here that you wrote me about this man Kollmar, that you might ask George Harrison to take that up with the Chemical. Cochran: All right. There 18 one other memorandum that I gave you that Archie told us about. H.M.Jr: It 1e the same thing. Cochran: We are getting & lot of material from Stopford on hie operations and he hoped we might hold off a little while to see just what he le doing. H.M.Jr: Really? Cochran: Yes, because we are getting something almost every day. H.M.Jr: He wants to wait, then? 1G - 11 - Cochran: He prefers to. H.M.Jr: Then you carry it in your shop. I don't have to charge my memory? Cochran: No, sir. H.M.Jr: All right. Ed? Foley: Scalise has been indicted but the indictment hasn't been handed up. It 18 to oe handed up to the Federal Judge today. H.M.Jr: Well, in the paper there is nothing about a Federal Income Tax. I read it very carefully. Foley: Well, this is a Federal Income Tax indictment. It isn't public property yet, because it - the true bill hasn't been given to the judge but it is going to be handed up today. H.M.Jr: Well, the other one was all in the papers. Foley: Well, ours will be in the paper today. H.M.Jr: He 1e & bad boy, that Scalise. Foley: You knew that the British took off those pictures down at Bermuda? H.M.Jr: So I also saw in the papers. Foley: They had no confidence in Merle Cochran. H.M.Jr: That 1e very cute, it is all right. Foley: We want to settle the Darryl Zanuck case for $584,250, which 18 the amount of tax for the year 1935, the amount of the deficiency. We included in our letter an additional $146,000 of penalty. This has been recommended by John Cahill and Sam Clark and if Mr. Irey and Oftedal are agreeable, I think we ought to take it. H.M.Jr: How about Guy Helvering? 17 12 1 I Foley: The Commissioner, Mr. Irey, Special Agent Oftedal -- H.M.Jr: Is there 8. letter from Helvering? Foley: I have a memorandum from Wenchel. He says Commissioner Irey and Oftedal are agreeable. H.M.Jr: I want a letter from Helvering and Irey and ftedal, who is the man out on the West Coast, isn't he? Foley: Yes. H.M.Jr: I want each one of them to write A letter which should come up attached to Helvering's letter to me saying whatever they want, whatever they believe. Irey should write a letter to Helvering, Oftedal should write a letter to Helvering, and let him forward it to me or let him forward it to Assistant Secretary Sulliven and then let Sullivan write me a recommendation and then let the General Counsel write me one. Foley: All right. H.M.Jr: I want all of that. I want Sullivan on record in writing; I want Helvering, Irey, Oftedal and Foley, and when I get it all, we will take a look at it. I am ready. I am not trying to stall, I just want - I mean, I will skip Sullivan if he is not here but the others -- it 1s too important. Do they all include the fraud penalty? Foley: No. We got the fraud penalty. We just include the $584,250, which is the amount of the deficiency without the fraud penalty for the year '35. We never take that on a settlement. If we go to trial and we establish that more than 25% of the gross income was omitted from the return, which we have to prove, because the statute is run otherwise, we can make this stick and then we will get the fraud penalty and the tax, but I think this is a pretty decent offer of settlement. 18 13 H.M.Jr: Well, if it comas up to me I would like to have that formula followed, please. It is really important. Foley: All right. Bell: Did you get rid of the ship down on the Gulf Coast? Foley: Yes. Bell: Did you hear it sunk? H.M.Jr: It is funny. I said at Cabinet, "Mr. President, I hope you won't accuse me of malice," but I said, "I did let that Panamanian ship sail the same night that the Secretary of State told me he wanted it to 80," and I said, "the next day they had an explosion and now it 1s beached with a 30 degree list at the mouth of -" whatever body of water it 1s. He says, "Leave it to Henry." He Just laughed, and for the first time I saw old Cordell laugh, even Cordell laughing. He thought - everybody thought it WBB very funny. Have they taken her off the beach? Foley: I don't know. Gaston: I don't think 80. This 1s the same ship that was sunk by sabotage in Baltimore harbor a few months ago. White: They don't need a permit to take her off the beach, do they? H.M.Jr: Herbert? Gaston: Hoover wrote B. letter on September 30 about Dr. Francis Howard in Los Angeles who 1s trying to sell to the Japs a formula for making aviation gasoline from orude oil. That is - the new proclamation forbids the sending of such plans and specifications out of the United States, 80 we will try to stop him. 19 - 14 - Did something happen on that plan for pursuing the - I guess I can get that from Harry. H.M.Jr: I Baw Malone and the resultof that is that just two letters were sent to the farm, which ex- onerate him. I saw Malone. Gaston: In the meantime, those boys are still at work in developing -- H.M.Jr: Well, the way the thing 1s, Sammy Klaus has taken over, supposedly. I mean, Hoover is working for him now. Gaston: Oh, that 18 swell. I can always get information from Sammy. H.M.Jr: I told him - I told him not to be mealy-mouthed about it and here 1e one of the ablest fellows we have got in the General Counsel's office, but we will have him help Hoover, "But I am warning you now, he will just take your whole organization over." He said, "Good, I like that kind of fellow." He said he would get in touch with him over the week-end. You (Foley) might ask Sammy what he did. Foley: Bill Campbell wante Sammy to go out to Chicago this week-end for a couple of days. He says it 18 the last time he will ask for him. F.M.Jr: I referred Hoover to Campbell for reference on Klaus. Foley: Bill has been appointed Federal Judge, you know. E.M.Jr: I didn't. I also told Hoover that Campbell thought he WEB always shadowed by the F.B.I. Campbell has lots of funny ideas. Foley: He 1s a Judge now, he 18 immune. Gaston: I haven't anything more. H.M.Jr: Okay. Regraded Uclassified 20 October 8, 1940 10:15 a.m. H.M.Jr: Hello. Henry Stimson: Henry? H.M.Jr: Yes. S: Sometime ago I promised to send you an estimate of the general situation connected with the American preparedness munition program. H.M.Jr: Yes, I know. S: Did you ever get it? H.M.Jr: No, the only thing I got as I recall is the one that General Strong wrote on the European one. S: Yes, just purely his report. H.M.Jr: Yeah, but I didn't get ..... S: Well, I just - you didn't get another shorter paper entitled "An Estimate of the Position of the United States in Relation to the World Situation." H.M.Jr: No, I'm 90% sure I haven't got it. S: Well, then I'll send you a copy. I just found that it had been held up for further polishing. H.M.Jr: No. I would like very much to have it. S: Well, I'll send it at once. H.M.Jr: Right. S: Now, one other question. What is the situation in regard to exports? H.M.Jr: It's absolutely - nothing new. 8: Nothing new at all. 21 - 2 - H.M.Jr: No. B: Is the boat still on the - is the Iffiana or whatever it was ..... H.M.Jr: (Laughs). 8: ..... the Panamanian? H.M.Jr: Yeah, she's still on the rocks, she's still on the beach. S: Good. Don't let her be unleaded. H.M.Jr: No, no. I'm looking forward to seeing you tomorrow. S: Well, I'm coming. I've got an appointment with the President this morning which has been brought up by an unexpected move that he made bearing on my Department without. my knowing anything about it. H.M.Jr: I see. S: A gesture to Hawaii, and that rather brings up the whole situation a little bit and may well go into that. H.M.Jr: Well, we've just got to get our heads. ..... S: I didn't know whether there was anything new that you knew on that ..... H.M.Jr: On Hawaii? S: No, no, that's only a part of the whole Pacific situation. H.M.Jr: No, no. S: I mean, the whole thing is 80 clear to me, I mean, there's such a clear answer to - our other friends fear that if we put on the pressure that we've been speaking about, that I spoke about at the last Cabinet meeting, that it would result in an immediate movement to the South that I want to bring that to his attention. The thing to do there is to have - is to make sure that there's a sufficient 3 even if it was small naval - or Australian 07 possibly also # British an American squadron or two there that could flood the wells before they got down H.M.Jr: Right. Well, I think that it's & great idea. S: Because the presence of vessels of those three countries will bring home to the enemy the futility of making a move - BC there's a gesture that counts. You see? H.M.Jr: Right. Well, you know where I am, I mean, I'm with you every minute. 9: Yeah. H.M.Jr: But it's hard work. S: (Laughs). Well, I'll send you this paper. H.M.Jr: I was reminded last week that I was Secretary of the Treasury. S: (Laughs). Well, other than the reminder that I saw given the week before? H.M.Jr: Oh, yeah. Yeah. I'll tell you sometime. S: Yes, tell me sometime. K.M.Jr: It's all right. I want to be reminded once in a while. S: Well, I may need the same admonition. H.M.Jr: No, I wasn't thinking of you this time. S: (Laughs). H.M.Jr: It's all right. S: Well, I don't want to run into it. It's safer for you to run into that danger than it is for me. H.M.Jr: Well, I think you'd like it and could take it just as well. - 4. - 8: (Laughs). All right. H.M.Jr: Thank you. S: Ill send this at once H.M.Jr: Thank you. Good-bye. 24 RE FOREIGN FUNDS CONTROL October 8, 1940 10:30 a.m. Present: Mr. Bell Mr. White Mr. Cochran Mr. Foley Mr. Bernstein Mr. Pehle H.M.Jr: This memorandum here came up in Cabinet. Attorney General Jackson had it and read it. I spoke up and said we were having & meeting Tuesday at 3:00 o'clock on this subject, would he care to attend, and he said no, but he would have Francis Biddle attend. Now, I think you ought to get this over to Mr. Hull before lunch and tell him this is a copy of the Biddle memorandum that Jackson brought up in Cabinet. I would like to have him read it before 3:00 o'clock. Cochran: All right. H.M.Jr: Now, who is following this thing particularly? Bell: Have we heard from the State Department? (Mr. Foley, Mr. Bernstein and Mr. Pehle entered the conference) H.M.Jr: Look, Ed, before we get started on this meet- ing, I would like to send the President a little memorandum telling him something like this, that as a result of the trip of the Army and the Treasury and the English to Consolidated, we are impressed with the absolute necessity of getting this housing bill through, you see, and this is the way the thing stands. I want to bring it to his attention. Possibly he would like to leave it on the Hill that he also is interested. Just dictate that to somebody. Do you get the idea? I can send it over to him. 25 - 2 - Fcley: I think it is all right. H.M.Jr: And in the letter, see, to show him the need, San Diego alone will need 20 million dollars. Foley: Approximately, yes. H.M.Jr: Approximately 20 million dollars for housing. Foley: Want it in the form of a memo or a letter? H.M.Jr: Letter, but that also puts him on record. You get the idea. San Diego alone needs 20 million dollars. (Mr. Foley left the conference) Here is something all digested and everything else. Isn't that marvelous? This is what I am to say this afternoon? White: No, it is to be presented. H.M.Jr: Agenda for discussion. Now, are we going to get this into the hands of Mr. Hull before the meeting? White: I don't know whether you would wish to. If so, we can. H.M.Jr: Yes. I would do it via Merle Cochran. I think he ought to have a copy of this. White: Would it be all right to give him 8. copy? We have run out of the ribbon on that. H.M.Jr: You could have mine, which would give you a chance to do another one. Just give him this one. Cochran: I will send that over. 26 - 3 - H.M.Jr: I think you ought to. How do we start? White: Well, I think you might want to just run over the various pros and cons. Some you will want to skip right over; some you may want to spend a little time discussing, and then after you have gone through them, you can go back to the varying possibilities and which of them, if any, you want to -- H.M.Jr: Well, let me just argue a minute until I think out loud for a minute, you see. Let's just say for the moment that we do it for Europe. White: For the whole of Europe? H.M.Jr: The whole of Europe. Would that include Russia? White: Russia is a part of Europe, certainly, the western part. Pehle: It wouldn't have to be. White: You could find it either way. H.M.Jr: I was thinking of Europe and not Russia, not China and Russia. White: How about England? H.M.Jr: England is not continental Europe. White: The bulk of Russia is in Asia, but whether -- H.M.Jr: We could exclude it. Bernstein: That would be just a matter of the words you used. You could say Europe, except Great Britain and Russia. (Mr. Foley returned to the conference) 27 - 4 - H.M.Jr: Ed, what I was suggesting is the possibility of doing it for continental Europe. I mean not Russia and not England. Foley: Yes. Bell: How about Japan? H.M.Jr: Well, it is just a question of whether we want to hit them again. If we don't want to hit them again, okay. White: It is getting pretty close to the elections, and whether it is - will lead people to think we are driving more rapidly toward or away, is a question which -- H.M.Jr: That isn't in the memorandum, what you are saying now, is it? White: Well, I just said in the last phrase, I didn't want to refer to it that way. I merely said, "The public reaction to an extension of controls is very important and must be carefully evalu- ated. H.M.Jr: Well, I tell you how I feel, just talking among ourselves. I can't describe it very well, but the old elbow sort of hesitates at this time. It just looks to me as though we are trying to speed up the tempo -- White: That we ought to speed it up? H.M.Jr: That it would be interpreted as speeding up the whole thing. White: It is very hard to know how the public would interpret an imposition against Japan at this time. It might be that they would say, "Well, that is the next step and we are hell- bent for trouble." 28 - 5 - H.M.Jr: No, I understand that the State Department has been put on notice and 80 has Japan, that the English are going to open up the road. I asked Lothian this morning, but I am not supposed to think in terms of foreign policy. You see, in this thing, the Solicitor General points out the difficulty of tracing down the money. Well, I don't think it is so difficult if the FBI would run some of this down in the field, but they don't do anything about it. Bell: I think the Germans have had plenty of time to find escapes, and I wouldn't be surprised if they have anticipated such a move and they have got this money into hands where it can be moved without -- Cochran: It is some internal policing rather than this external control through which you have to get that. It is some internal policing such as the FBI or our own service or some news service that you would get this stuff on the use of funds by the Embassies, rather than the control which we have. White: Except I suspect that putting it on the basis of detection of subversive influences, which is quite important, if that were of paramount interest, I should think we would hesitate a long time before doing it now, but I am wondering whether there aren't some more im- portant reasons that ought to be considered. H.M.Jr: Such as? Bell: I should think there ought to be more important reasons before you would freeze them than just the subversiveness. White: Yes. Why, I would say that there are two, 29 - 6 - it would seem to me. One is the political repercussions, which is of tonic about which there could be considerable difference of opinion, how the public would react, how Japan, Germany and Italy would react to a step which would be unquestionably played up very much in the press and would be inter- preted by, I think, many people B.S an im- portant diplomatic and economic move, a move in the direction of increased economic de- fense. That would be the first point. The second point is that the extension of this instrument, B.S suggested in the memo, is the adoption of easily the most effective weapon of economic defense. Through this exchange control you do everything or any- thing, or nothing or little. You can con- trol trade from particular countries on par- ticular commodities, on particular trans- actions; you can discriminate very easily without raising any questions other than that of basic discrimination. In other words, you are adopting - you are making another move in what constitutes a very important weapon of economic defense. Bell: What retaliation could Germany and Italy make? Just take those two countries against us. White: Well, at present we are getting very little out of Germany, although I understand that they are ready to consider now some arrange- ment whereby some of the German bonds may be brought back at certain rates. This is a dribble of funds coming out of Germany, not very much, but there is something. Bell: That is Kollmar's activity over there. He is interested in this repatriation of German securities. 30 - 7 White: How much will eventually develop, I don't know, or whether that has been started to promote better feelings, I can't say. In Italy there have been a few bonds which have recently defaulted, and you can get very little out of Italy. Japan, the oil companies do get some of their current profits, and there isn't much else there. Now, they could stop all withdrawals of funds from those countries. They would be hesitant to do so in the case of the oil companies, possibly, because the only reason they are letting them take it out is in order for them to do more business, and they would suffer more by preventing them from doing business than otherwise, but I take it that if these controls were imposed, one of the things that would happen very soon thereafter would be either a curtailment or almost a complete elimination of our trade with Japan. It al- ready has stopped with Italy and Germany. That would have rather important economic consequences. Bell: How about Switzerland and Sweden? Do we have any trade there to amount to anything? White: We have some. Pehle: Not much. How can they get in there? White: It has dropped very sharply, but there is some. You could continue to let that go through just as you do now. Whatever there would be need not be affected by the control. That is the beauty of the control. You can manipulate it by virtue of its flexibility to either strengthen it at any time, weaken 31 - 8 - it or be less or more generous. Bell: In other words, by putting on the control, there isn't much that would be thrown to other countries such as South America, like Venezuela and the oil. White: Yes, they might attempt to - if they can get by the blockade, as far as Italy and Germany are concerned, they could do that now, but Japan would unquestionably divert more of her purchases to those countries, but she would be in & very serious situation if we stopped our purchases from her. She wouldn't have very much to spend but she would have some and she would divert some. H.M.Jr: We have been so aggressive here on all this and we are talking about Japan. If they want to stop Japan, they could stop the silk from coming in. Why not do it through the front door? White: I think if they are contemplating anything of this kind, this is easily the best method. If they are not contemplating anything of that kind, there is much less reason for im- position, aside from the political conse- quences, and those would, I think, be very large. H.M.Jr: Now, after all, if they are worried about the propaganda, anybody can just take a list of the staff of the German Embassy, any of these Embassies, and compare them with what they were five years ago, and you know they have got five-fold. The fellows that weren't there five years ago, send themhome. The same way with the Consulates. You don't have to go through all this rigamarole. The State Department 32 - 9 - knows which of these men - when I was in Copenhagen a year ago last summer, they had ten press secretaries in the German Embassy in Copenhagen. Every other Em- bassy had either one or none, but they had ten. White: It is pretty easy to get money in and not to cover those expenses. It may be a little difficult for a while, but there are so many ways of getting funds in -- H.M.Jr: And they have had plenty of time. White: I don't say that you don't make it more difficult, and I think you also could help trace some of the activities, but -- H.M.Jr: For instance, if FBI had traced a case down to where the money was being used - I read all of this stuff over the week-end. They took over tracing the money in '39, and they have been doing it a year. They wrote me a report and sent it up to the country. It is absolutely nothing. It is just absolutely nothing to show that the money being traced is being used for other than legitimate purposes. Bell: I haven't seen anything that came over that was important enough to send over. H.M.Jr: From where? Bell: FBI. White: Well, they had a list of funds going to Russians and Germans. Did they trace them? That is what they should do. Bell: I don't think they went beyond that point. Regraded Uclassified 33 - 10 - H.M.Jr: We will put Sammy Klaus on that. He will run it down to the man's grandmother. Bell: We had one of them in a report of a guy on a ranch milking a cow. They have been watching him for a couple of years. White: I believe that this control, Mr. Secretary, is inevitable, and the question is one very largely of timing and whether they can put it on now and what the consequences would be, as compared with what would happen if you waited until after election and put it on, I don't know, but those are the con- siderations. I think we are moving into this field and if things continue as broad as they seem to be likely to, I think it is very essential that they should take this. H.M.Jr: I tell you what let's do. You people can all accompany me. We will all go over to- gether at 3:00 o'clock this afternoon and we will send this thing over in advance to Mr. Hull. You can have my copy and give me another one later on. Let's go over there and say that the State Department asked us to consider it. What have they got in mind? White: Do you mind if we go over this to make sure it is all right? H.M.Jr: Well, of course on the theory that it is their meeting, maybe we had better not send an agenda over. White: Either way. It would help the discussion. I have merely enumerated all the points, pros and cons. Regraded Uclassified 34 - 11 - Bell: They won't have any memorandum on it and we will just sit there like 8. blank wall. Why don't We go into my room and go over this and send it over there? H.M.Jr: We will get it to Mr. Hull before 1:00 o'clock. Bell: Yes. Foley: Who else is going to be there, Mr. Secretary? Anybody else besides Mr. Hull and his people? H.M.Jr: I suppose Berle. Foley: I mean any other departments, Commerce or -- H.M.Jr: Francis Biddle. Cochran: They have a committee of four people on this over there. Grady and Berle and Feis and Pasvolsky, I think. H.M.Jr: Personally, I think the whole thing is to take the thing over to State Department. The Treasury is in foreign affairs too much. Cochran: It is financial sanctions, that is what it is. It is their business to decide whether they want us to try that. H.M.Jr: To do what? Cochran: I interpret any further move when a country is not invaded as purely a financial sanction, H.M.Jr: Do you think it would be financial and economic? Cochran: Well, we are tying up their money here. White: I would rather regard it as economic defense. 35 - 12 - It is a part and parcel of an aspect of defense. All defense is aimed at somebody. of course. Otherwise, it wouldn be de- fense. H.M.Jr: I will go with you, fellows, but I am going to listen. We can leave here at ten minutes to 3:00. White: There is no position we take here. If there is anywhere, we will water it down. It is merely an attempt to give the pros and cons. H.M.Jr: Okay. White: And it has some confidential information on the assets here. H.M.Jr: Go over it in Bell's room. C 0 36 P Y October 7, 1940 Secretary Morgenthau Mr. White Subject: Agenda for discussion on the question of extending foreign exchange controls to additional areas I. Possible unit areas to which our exchange control can be extended: (a) All the "aggressor" nations (b) All remaining countries in continental Europe (excluding British Empire) (c) Continental Europe plus Asia (a) The world except American republics (e) The world (including transactions of every character and of every country) (Summary of foreign balances and investments in the United States according to the above groupings are in Appendix I attached.) The advantages and disadvantages of extending foreign exchange controls are for the most part similar to those considered when the question of freezing Scandinavian, Dutch, etc. balances was discussed. There are, however, some additional factors and many of the old considerations are of growing im- portance as the area of control is extended. II. The chief disadvantages that should be re-evaluated are: (a) Possible retaliation against American assets abroad. Americans have balances and investments in foreign countries and imposition of control on transactions with those areas may make it more difficult to withdraw funds from those areas. (A table of the foreign holdings, investments and claims against foreign countries will be found in Appendix II attached.) Regraded Uclassified 37 (b) Loss of trade. If extended to include Germany, Italy and Japan, and if licenses are to be granted sparingly, our trade with those coun- tries would probably cease. Whether or not this would be SO depends, of course, upon the policy we would pursue in granting licenses. It is to be noted that our direct trade with Germany and Italy is already negligible because of the British blockade. (See table in Appendix III for amount of trade involved.) (c) Burdens on foreign trade and finance. Our foreign trade and international financial transactions would be burndened with delays, annoyances, and additional expense. American banks and concerns engaging in international transactions of any character will be put to some additional expense because of the addi- tional paper work, etc. involved. (a) Added cost to the taxpayer. The administrative cost to the government will increase as the areas to be controlled are extended. If the whole world is placed under control, the cost of administration might well be several times the cost of current controls. (e) Government interference with private business. Extension of exchange controls would be regarded in many quarters as an extension of government interference with private enterprise, and hence as a step toward "Totalitarianism". (f) Possibility of non-economic reprisals. Areas subjected to restrictive measures on their move- ment of dollar funds may be thereby stimulated to adopt a more unfriendly attitude toward the United States. In the case of certain countries it may precipitate further aggression. (f) Might harm our Good Neighbor Policy. If applied to Latin American countries the restrictions may make more difficult promotion of our Good Neighbor policy. (h) Violation of liberal trade policies. If the control is extended it must be recognized that we will engage in discriminatory practices which constitute a violation of 8. commerçial policy which we have been hitherto pursuing. 38 . 3 III. Advantages to be weighed against the disadvantagen (a) Foreign exchange control an instrument of national defense. The measure should be re- garded primarily B.S en important weapon of national defense and not as a means of ob- taining commercial gain. If this be so, the administrative costs and the burden and annoy- ance to American business are small in compari- son with the costs and burdens of other defense measures of equal potential effectiveness. (b) Effective instrument for implementing foreign policy. Foreign exchange control is the most effective, comprehensive and flexible weapon, for controlling international transactions of every kind - trade, capital movements, tourist expenditures, financing of subversive activities, etc. Since most international transactions involve money at some point, the control will come into play. The system of licensing will permit varying forms of treatment for different countries, for different commodities, or for different transactions - varying all the way from a complete economic blockade against a selected country to minor conservation of strategic materials. Exchange control, as an instrument for im- plementing foreign policy, can be employed with a minjmum of publicity and with a minimum of administration explanation of particular meas- ures undertaken. Licenses can be turned down, delayed, or granted in part or in whole, with no public explanation and according to the needs of the public interests at the moment. (c) Provides an additional bargaining instrument. By the use of general and special licenses and by flexibility of controls it is possible to accord favorable treatment to selected countries and thereby facilitate closer relationships with those countries. One of the most important economic weapons utilized by Germany is the granting or withholding of exchange favors. Regraded Uclassified 39 - 4 - (a) Would make present policy less inconsistent. Extension of control to the aggressor nations would remove one source of criticism that our present policy is inconsistent in that it works hardships on some non-aggressor nations, leaving the aggressor nations free to operate in our market. (e) The administration of extended controls does not create insuperable administration problems. The administration will be more expensive and more cumbersome but no more complex. The essen- tial machinery is already operating and would merely need to be enlarged. However, the policy making aspect would be considerably complicated. The policy making aspects would involve a much wider range of consideration and greater liaison with interested departments and agencies. (f) Is extension of control inevitable? If economic pressure from other nations continues to increase, it is certain that in the future we will have to adopt exchange control. Therefore, we may want to set up the machinery ahead of time in order to avoid having to take such steps at a time when there will be a host of other pressing tasks and problems. IV. The public reaction to an extension of controls is very important and must be carefully evaluated. Attachments HDW:esh 10/7/40 Received fun Bot Jeskan at Cobinet Oct 1940. Geteber no 1949 It has boen suggested to may in connection with preventing German propeganda in this country and South America, that bank bade anoes is this country directly of indirsetly use German control should be blocked. These funds are, 18 is reported, being used for such propaganda purposes. The Treasury has already blocked balances belonging to the mationals of the conquested countries - - Hale land, Desmark, Bolgium, etc. - and there is no deubt of the right of the Valted States to bleck German balances. This is done by pendt- time of the withdrawal of the funds only under lisenses und by you quiring a certificate showing to what use the funds are to be pub before housering the check. I understand that no specific reason for refusal to bener the check to given. Centrol of these large reserves would accomplish more than any other stagle step to check Wast propaganda, and would be issuessly offective and simple. For 6 20mg time Germany bas made it impossible for Americans to withdraw their old deposite or liquidate old credits with Garnen books, and has out off almost entirely the payment of dividends and interest to incrious from their investments in Currently and in inveded countries. Under theme aircumstances it 10 8 little naive, to my the least, for us to permit Gerwan balances to be with drewn to subsidise propaganda designed to undersine American institue Regraded Uclassified 41 Regraded Uclassified tions. I understand that when the suggestion vas submitted to the State Department last June it me not favorably received. Ferhaps & suggestion that this procedure be applied to all comtrice at me, so as to include England, would make the step seen less vindictive, and would satisfy any objections that the State Department might have. The restriction might also be applied to other countries not at war - such ne Spain and the Soviet Union. To make control even more certain, I suggest that a regulation be promulgated requiring the Treasury or the Federal Reserve to photostat all checks and that the photostatic copies be filed with the Treasury. It would them be comparatively easy to discover where the money is going. Treasury Orders and Statute. The Treasury orders blooking the balances held in this country by nationals of occupied countries (31 C.F.R., 6 130.1; 5 Federal Register 1401, 1616, 1680, 2283.) are based upon B 5 (b) of the Act of October 6, 1917 (40 Stat. 411) as amended by the Act of March 9, 1933 (48 Stat. 1). See also Excess- tive Order No. 6550, January 14, 1934. The statute reads in part as follows: During time of war or during any period of national energency declared by the President, the President may, through any agency that be may designate, or otherwise, investigate, regulate, or prohibit, under such rules and regulations that he may prescribe, by means of licenses or otherwise, any transactions in foreign exchange, transfers of credit between or payments by banking institutions as defined by the President, and export, hoarding, melting or ear- marking of gold or silver soin or bullion or currency, by any person within the United States or any place subject to the jurisdiction thoreof; and the President may require 42 my person enguged in any transaction referred to in this subdivision to furnish, under cath, complete information relative thereto, including the produe- tion of any books of assount, contracts, letters, @ other papers, in connection therewith in the custody or control of sush person either before or after such transacton is completed. That portion of the statute permitting the President to require persons engaged in these transactions to produce any documents in connection therewith permit a regulation requiring the checks them- selves to be produced. Certainly the checks could be photostated while in the possession of the Treasury and then returned to the various banking institutions. If it is more desirable to have the regional Federal Reserve Banks actually make the photostatic copies the regulation could accomplish this, since the President may not under the Statute "through any agency that he may designate." FRANCIS BIDDLE SOLICITOR GENERAL Regraded Uclassified 43 October 8, 1940 11:03 a.m. H.M.Jr: Hello. Operator: The Postmaster General. H.M.Jr: Hello. Frank Walker: Hello. H.M.Jr: Hello, P.M. W: Well, hello, Mr. Secretary. How are you? H.M.Jr: O.K. W: That's good. Did you call in response to my call? H.M.Jr: That's right. W: Well, I tell you, Emily Post wasn't in town yesterday Bo I called you. I just wanted to know how you attired yourself when you went to a tea...... H.M.Jr: (Laughe). W: ..... (laughs) - but you didn't go and I went with & business suit. H.M.Jr: Good for you. W: I just wanted to make sure. H.M.Jr: Looking after the deficit, eh? W: Being a novice down here, you see, I didn't ..... H.M.Jr: Well, I'm glad ..... W: This was an affair that my wife had to go to and it was her first one and she didn't want to go alone. H.M.Jr: Oh. Regraded Uclassified 44 - 2 - W: How are you? H.M.Jr: I'm fine. I hope to 800 you soon. W: I hope so, Henry. H.M.Jr: Take care of yourself. W: I'll do that. H.M.Jr: Good-bye. 45 RE BRITISH PURCHASING PROGRAM October 8, 1940 11:30 a.m. Present: Mr. Ballantyne Mr. Buckley Mr. Fairey Mr. Gray Mr. Young Mr. Purvis Mr. Foley Mrs Klotz H.M.Jr: I hear you don't know why you were shanghaied here. Purvis: I was just taken out of a taxicab as I got to the airport. H.M.Jr: I came back last night and I was so anxious to hear a report of what these men had done and I thought - I did have this period here today and I wanted to hear directly from Mr. Fairey, because it is most encouraging and discouraging, but I always feel I would rather know. Purvis: I agree. Fairey: Right. H.M.Jr: ....than to be in ignorance. How do you feel about the possibilities? Fairey: Of standardization? H.M.Jr: Well, the way I have divided them for our- selves, I have divided them into three phases. One, what we can do for the muni- cipality of San Diego, which is purely a domestic matter which we will carry the ball on if they will let us. Two, the question on speed-up on orders on hand. Three, the new orders which will be placed for standard- ization. That is the way I have classified them. I don't know whether that falls in -- 46 - 2 - Fairey: Well, dealing with the second one, we can do very little on the present ones because the firm are so committed. There are two different types, two different types of both, two different types of bomber. They look alike outside but the insides are different. The firm are better off keeping along on these two lines than they are try- ing to change it. We have done a few things. We went through every item. We went through every detail. We did a few little things where we were able to standardize a bit. The main standardization is hanging on prac- tical considerations, whether you are going to use the machines for long range or heavy bombers or the short range. The question is to get together on that. And it is tied up with the Norden sight. The Norden sight is built right into those machines. Purvis: Must we take that advantage, Mr. Secretary? Fairey: It isn't quite so bad as it looks. The Norden sight is divided into three parts. First there is the optical part, which is the secret sight. Then there is the stabilizer and the automatic pilot. Now, the pilot is built into the machine, you know, like the lungs into a man, and to tear that out would be rebuilding the machine. Our machines are built for the Sperry, our PBY's -- H.M.Jr: Are they built for the Sperry? Fairey: For the Sperry stabilizer, yes. H.M.Jr: But none has been put in yet. Fairey: Not the sight, the stabilizer. H.M.Jr: What you call the stabilizer, is that the same as an automatic pilot? 47 - 3 - Fairey: Automatic pilot, yes. And the U. S. machines, Army and Navy, are built for the Norden. That affects the internal arrangement of the machine, where you put your bomber, where you move your other apparatus about, you see. You can't standardize between those two separate systems. You have got to have one system. Now, we can help a lot if you could release to us the automatic pilot half of the Norden, because then the machines would be ready. We could fly them with the Norden stabilizer, but we could put in the Sperry sight and work it by hand. It wouldn't be so good. H.M.Jr: That is what the boys told me. Fairey: Now, that is your biggest feature on the pre- sent machines, and the future from the point of view of interchangeability, from the point of view of standardization. All the other things are different, but we can get over it. The bomber is different, armor is different, self-sealing tanks are lacking in the early machines. H.M.Jr: You mean the ones that are still on the line? Fairey: The provision is made for them in the first few, but they are not there yet. H.M.Jr: Heavens. Purvis: How many will come out before the self-sealing is added? Fairey: I gather, ten or twelve. The provision is made for them and there is a lot of trifling differences, cameras and that, which we can adjust. We did adjust, when we got down to the smaller things, a good many things. 48 - 4 - Now, if it comes to planning for the future, I think if we could get the service heads together, you know, doing it on a practical plane to start with, I think we could do it. Particularly with the PBY-5 boat, which is nearer than the bombers are. H.M.Jr: Nearer together? Fairey: Nearer together. H.M.Jr: Well now -- Fairey: Now, I beg your pardon. H.M.Jr: Go ahead. Fairey: There is another big difference that is going to affect this future standardization. All the 24-A's, which are the first batch of the bombers, are built for non-superchargers. The 24-C's which come out for the Army are built for superchargers. That again alters the machines, makes a radical difference in them. The supercharger is a tremendous improvement. H.M.Jr: Isn't that just part of the engine? Fairey: Unfortunately, no. It goes back into the structure. It goes back into the spars of the center section and it affects the con- trol, run of the engine controls. H.M.Jr: But it is that part of a machine which enables it to go at 8. high altitude, isn't it? Fairey: That is right. H.M.Jr: Is that also the part that creates this pressure in the cabin or not? Fairey: No. 49 - 5 - H.M.Jr: That is something else again? Fairey: That is a different matter. So you see, to start with in the first batch, we have got to face the fact We have got two different types and this fact sticks out, that as re- gards the bombers, it would take at least two months to convert those - you know, if we didn't have the Norden sight - this other thing is two something -- Purvis: If you didn't have the Norden sight or Norden stabilizer -- Fairey: Norden stabilizer. It is like trying to tear the liver out of a man to try to tear the sight out of that machine. If you leave the optical part out, we can still use the machines. Buckley: Isn't there a difficulty there, if I may raise the point, that in those Army bombers there isn't sufficient room to use the Sperry sight, even manually, with the Norden automatic pilot? Wasn't that the final decision they came to? Fairey: The Sperry sight would go into those we are building for ourselves, the LB-30's. It wouldn't go into the early Army ones. A manual sight would go in. Buckley: Your other manual sight will go in? Fairey: Yes. H.M.Jr: Philip, for this meeting at 3:00 o'clock to- morrow, I think the things that we need should be listed. I mean, like just the things we are talking about. Do you follow me? Young: Yes, sir. 50 - 6 - H.M.Jr: That if you want to give the English the one for one within the period, we will have to release the stabilizing part of the Norden sight. I think that should be put on the agenda. I have got Stimson and Knox to be here at 3:00 tomorrow and I thought if you could be in Philip Young's room at 3:15 with Fairey, if something comes up, if you don't mind, I could simply say, "Well now, Mr. Purvis and Mr. Fairey are down the hall on call." Purvis: With a chance of something coming up of that kind, we shall be there. H.M.Jr: Yes. That is the kind of agenda I want, Phil, so they can say yes or no. Fairey: That is the heart of the whole scheme. It is built right into those machines, and the one for one business, the success of it largely hangs on getting that stabilizer. The rest of the things we can adjust, al- though the early bombers - I am not talking of the PBY boats - it will take, as I say, at least two months to alter them, perhaps less than that with that sight, and they won't take a turret. They are a different type from the later ones. They won't take a table turret, a gun turret, and they are not armor plated and there is quite a lot to do to them. Purvis: Those are the first ten to twelve? Fairey: No, the first six we want for transportation, so we don't care about armor or guns or any- thing, as long as we can have this stabilizer. That gives the firm a good start off. We will give six and that will be a great help in time, because the firm has this attitude. 51 - 7 - They say, "We won't change a thing." You see, they have got to build an Army machine as an Army machine and a British machine as a British. H.M.Jr: And the first six will be used for trans- portation? Fairey: Yes. You know, those are the six we have been bothering you about. Purvis: To keep the North American route open. H.M.Jr: I keep forgetting about it. I forget that these are the six. Fairey: These are the six. Purvis: B-24's, so that in a way that may be just as well. Fairey: It is a godsend. H.M.Jr: And these have no self-sealing tanks? Fairey: It doesn't matter for transport. H.M.Jr: They can only take one turret? Fairey: They can only take one turret. H.M.Jr: Again for the agenda, it is a point of argu- ment that they should give them up because they are not, you might say - they are semi- obsolete, Phil. Young: Yes. Buckley: That is a source of nine more planes, because the Army is only going to get nine of these after the British get six plus twenty, and 52 - 8 - the Army Air Corps men indicated in San Diego that as far as they were concerned, they would just as soon the British had all 29 50 they wouldn't be left with 9 B-24-A's, which would be different from anything they would get in the future. H.M.Jr: Well, put that down. That is the purpose of this meeting. I am getting my agenda ready for tomorrow. Purvis: Yes. H.M.Jr: How many of these? Buckley: There are seven B-24's yet to come, of which six will go to the British. That is the first six. Then one to the Army for ex- perimental purposes. After that, there are 29 B-24-A's to come, of which 20 were assigned to the British, and then that left 9 orphans going to the Army. H.M.Jr: Yes. Buckley: And the Army is probably perfectly willing to give those up. After that, you could come into the B-24-C's and the LB-30's, which are the corresponding ships. Purvis: They begin to come out at about what date? Buckley: It is April of next year. H.M.Jr: Well, the Army doesn't show - they have 30 B-24's. Buckley: Of those, only 29 are B-24-A's and the rest are B-24-C's. H.M.Jr: Well, get it down on a piece of paper for tomorrow, will you? And then they have got 53 - 9 - - this big order for B-24-D's. Buckley: That is right. H.M.Jr: That is the B -- Buckley: That is the one that should be standardized alongside of the LB-30, because that is the ultimate ship for both services. H.M.Jr: Well, that is the one that should be stan- dardized. Buckley: That is right. H.M.Jr: And there is still time, isn't there? Buckley: Yes, if we go right to work on it. Purvis: Deliveries start on the 24-B when? Fairey: That is the supercharged one. That assumes they are going to release to us the super- charger. H.M.Jr: Haven't they, yet? Buckley: Oh, they will release the supercharger. It is just a question of adjusting production. Fairey: Oh, they will? Buckley: Yes. Purvis: Actually, the disposition with the exception of the Norden bomb sight has been really to release to us these various things as orders necessitate. I think it is only the Norden bomb sight that has been kept back from us. In fact, the bomb sight until recently, and now the Norden bomb sight. 54 - 10 - H.M.Jr: Well now, leading up - your English four- engine Sterling bomber, will that be 8 better - what has that got? Can we learn anything from that that we might put into this? Fairey: Oh yes, it is a lot better than the 24-A, but the - from the armament point of view. H.M.Jr: How about the B-24-D? Fairey: The 24-D doesn't come out yet with super- chargers. H.M.Jr: Does yours have a supercharger? Fairey: No, but by virtue of the supercharger, the 24-D will be better than the Sterling in performance and height, but the Sterling is a wonderfully armed machine, turrets and armor plate. H.M.Jr: Can't that be adapted to our bomber? Fairey: Yes. H.M.Jr: To a four-engine Consolidated. Fairey: The system, yes. Purvis: If I understand you correctly, you are taking the situation that if we are now going to come together on the type, we take the very best out of everything we know on both sides? H.M.Jr: Yes, and concentrate - let's - looking forward from six months ahead or nine months ahead, the next four-engine bomber that we have, we learn everything you people have got and put it in and decide this is one that both the English and ourselves will use from now on. 55 - 11 - Purvis: I see. H.M.Jr: The thing will be coming along. Fairey: Yes, we will be able and pleased to give all the information. In fact, we have done it. H.M.Jr: And the same on the flying boat. Purvis: And you are assuming that we will get informa- tion on the American side? Fairey: Yes. It is not so easy, Mr. Morgenthau, always to agree. We can give you information and the U. S. Army may say, "Well, we don't agree with you. We think our system is still better." H.M.Jr: Well, I think you will find more and more that they will listen. Fairey: You see, I will give you an example of the arguments we run into. Our bombs have two different fuses. On one, they can be set in the air. You can go off "contact" or you can go off deep. Now, when you are attacking a submarine, the submarine might be on the top and you want it contact or it might be deep, but the pilot can set it as it starts and perhaps just before he drops the bomb, he can change it into a depth bomb. The American bomb has only one type of fuse and you have got to commit yourself before you go out on a flight which sort of fuse you have. Those are the points the two services have got to get to- gether on. H.M.Jr: I think you should, as far as you can, and tell them you will have to come up to the top side where the civilians are who have an imagination. 56 - 12 - Fairey: All right. Purvis: That applies to us. Fairey: Quite right. H.M.Jr: Well, I want all the help on this agenda for tomorrow, and then going on the assumption that we are going to whip this Consolidated company into a real company - I just wrote a letter to the President telling him - warn- ing him that we wanted $23,000,000 for the City of San Diego on housing alone. It has gone over. $23,000,000. That will give you some idea of the size. Now, continuing this line of thought, in one of these memoranda I read, you people will want a long-distance two-engine bomber, and looking - I had Phil do a little inquiring - it seems the North American has one and I think you ought to leave them alone and let them concentrate on the trainer, so it comes to the Glenn Martin. What I don't know - after you take a look at it - is what you want, but I am thinking in terms of Glenn Martin as the next company to try to do a job on. I did see them turn out 21 and 3 bombers a day for the French. He can do it, you know. Have you (Young) found out the difference between the English and the U. S.? Young: Not specifically; I know some differences. It is evidently still up in the air, as a matter of fact, as to just what the differ- ences are going to be. H.M.Jr: Well -- Young: It hasn't been built. 57 - 13 - H.M.Jr: Phil says it is still in the air, which -- Young: Mr. Perry may know offhand. H.M.Jr: The Army has an order on the B-26 bombers and you have an order. You have two different orders. You have one 67-F-4, which you have 168 on order, and the 187, of which you have got 600 on order. Fairey: 187, yes. H.M.Jr: Are they the same? Fairey: No. The 167 is the French converted. The 187 is our own type. H.M.Jr: Let's talk about that. Is that at all the same as the B-26? Fairey: No, it is medium. It is not so heavy. H.M.Jr: In view of the most recent advices from England, is that what they want? Fairey: For its class, yes. It is a medium bomber, not a heavy. We want the 187, but it is the same sort of style that we are using now, the medium bomber. H.M.Jr: Well, what I was trying to get over is this: this B-26 takes roughly a 2,000 horse engine and I guess it is heavy. Fairey: In between. It doesn't range quite up with the heavy. It doesn't carry quite as much weight. H.M.Jr: You know, this is only two-engine. But would you want to concentrate with Glenn Martin on the long-distance two-engine bomber and 58 - 14 - try to get together with the Army and say that, "Here is Martin, and we have B. two- engine bomber coming off,' which would be again as near as possible the same for the English and ourselves? Purvis: Fairey, does the new English program that we have been talking about embody such & bomber of such proportions? Fairey: I am not very familiar with the B-22 and the B-26 because it is a secret type. They have got them shrouded with secrecy. But from what I understand, it is not so big. H.M.Jr: It takes the 2,000 engine. Fairey: It is an American machine that I am not familiar with. H.M.Jr: It takes the biggest engine we have. Young: It takes two Pratt & Whitney 2800's. Fairey: It sounds good enough. H.M.Jr: And this is the one the Canadians have been asking for recently, the B-26. Purvis: This discussion - it would seem to me that in a way, if there were no objection, it would be well if our people could see some of the American types. Fairey: Mansell just has seen this particular one, but he hasn't reported to me yet. Purvis: But he is able to see them? Fairey: Yes. H.M.Jr: The Martin B-26? 59 - 15 - Fairey: Yes. H.M.Jr: He has seen it? Fairey: Yes. Purvis: Then we ought to be able very quickly to get -- H.M.Jr: From what I hear of it, it looks to me as though it was one step ahead and I am just - you see, not just saying, "What company do you want to take next?" And I was going to suggest Martin, if it was agreeable to you. Fairey: I quite agree. H.M.Jr: And try to concentrate on this B-26 with whatever modifications you fellows could bring in, bringing it up to date. Fairey: Yes. H.M.Jr: I know that from what I have actually seen with my own eyes that Martin can turn out planes and he can turn out & number of them a day. He has done it. I saw him do it. He said he could do much more. Purvis: He ought to be organized in such a way -- Fairey: He has a very good organization. H.M.Jr: He could. He could turn out from three to five of these a day, if he had the orders. Purvis: We want to enable them to plan ahead. H.M.Jr: Would you like to do Martin next, if that was agreeable? 60 - 16 - Fairey: Yes, certainly. It is a very good or- ganization. H.M.Jr: This is the way I am looking, just so you get this idea. If you agreed on & four- engine bomber and you agreed on the flying boat, then you agreed on a - you call this B-26 a heavy bomber, don't you? Fairey: Yes. H.M.Jr: If you agree on that, and then the next thing after that, whatever is going to be the most advanced type of pursuit ship when you get through with the P-40. That is the line I am thinking along. Then bring them together on those things, and that is pretty well - that pretty well covers the program for the fighting ships, doesn't it? Fairey: Yes. Purvis: If you could get the quantities you wanted. H.M.Jr: What else would you need? Fairey: Except for special types like dive bombers. H.M.Jr: Well, will you agree on that? Fairey: Yes. H.M.Jr: That is a Navy thing, isn't it? Fairey: Yes, or Army. H.M.Jr: Better stick with the Navy because they are way ahead on it. But that would make five types, wouldn't it, four-engine bomber, fly- ing boat, two-engine long-distance bomber, fighting ship, and a dive bomber? 61 17 Fairey: Yes. Purvis: There is no real reason, is there - there is no real reason why We should have & number of pursuit ships, if you could get the quantity of the type that is best. Fairey: No, not at all, as long as you have got two firms going so that one is coming up with a new type while the other is in pro- duction, you see, so you don't stop them both together. Purvis: Yes, that is right. Fairey: We always work at home with two firms like the Hurricane and the Spitfire, so that now you see the Spitfire is ahead. The Hurricane people have just brought out their new one, you see. The Spitfire can go on long enough and keep going to let them get their new one perfect, and then it will be Spitfire's turn to change. H.M.Jr: That is all right. Fairey: We always work with two firms and two types. H.M.Jr: That is good, but if we just went through this and then as soon as you got these people set, you could say, "Who has got a better four-engine bomber, let's take a look at that one. Of course, we would have two firms going there. We would have Boeing on the four engine and the other, but if we could just go right through this in the next two or three weeks and get that thing set. Purvis: It sounds wonderful. - 18 - Fairey: I quite agree. H.M.Jr: I understand from Curtiss they have what they call their 400 mile an hour ship coming along, which they think will be one jump ahead of anything else. Fairey: Their fighter, pursuit? H.M.Jr: Yes. Fairey: We want to bring forward our Tornado, which is over 400, with a 2,000 horse engine. It has twelve guns. That is flying now. H.M.Jr: Is that the one I suggested bringing over here? Purvis: Yes. Fairey: I know we were trying to get it. We have taken steps to get it. We have got our new 2,000 horsepower liquid-cooled engine flying and through its tests and we have got the machine flying. H.M.Jr: If we could do that, we would make several jumps ahead, wouldn't we? Fairey: Yes. We are really pleased with the new Tornado. And of course we are very well impressed with the Sterling. H.M.Jr: Well, I think for tomorrow, Phil, if Mr. Fairey could sit down with you and fix up this agenda and then Ed, you see, we would get it over to Forrestal still today. Foley: He won't be back, I don't believe, until the first thing in the morning. Regraded Uclassified 64 H.M.Jr: I agree with you. Fairey: Because they have got an advanced amount of primary structure built, you know, all the hulls, shells, going on. They have laid out the shop on an enormous scale. They have expanded very fast, but the diffi- cult part of building an airplane is putting the stuff inside it, organizing the assemblers and getting all the equipment in, and that they will find is going to take them longer than they plan on. H.M.Jr: I think you are right, but that is why I started off the meeting by saying I would much rather know the worst. Purvis: What can we do to overcome that? Fairey: There is nothing we can do. Purvis: Is there no stiffening - I am just using we -- H.M.Jr: Yes, the boys - I think we definitely have a program. There is some talk, I mean, if he can't do it, we will have to put in some- body who can. Purvis: On those conditions, there is nearly always something. Fairey: Mr. Buckley was merely inviting my opinion, as one who knows, and my opinion is that they will be behind hand on the organization and the works. It may be all right. H.M.Jr: I think it is a shocking condition out there, but I hope when they go around that they won't find all as bad as that. I don't think they will. I think we have visited the worst, at least I hope so. 65 . 21 - Fairey: Yes. Well, the officers felt the Curtiss- Wright was marvelous, and Glenn Martin is very well. H.M.Jr: I think he is all right. That is why I would like to see him -- Fairey: I think he could cope with expansion. H.M.Jr: You see, the beauty of the thing now, we are at this phase where the Army have let all their contracts and they are through. Now, we come along and really talk business to them. Purvis: Yes. It is a better tactical position. H.M.Jr: Much better. I think Martin will do a good job. Fairey: Oh, yes. I have known them for a long time and they have a very good firm. H.M.Jr: Did the men tell you of this proposal that they are going to make tomorrow of this board that you were going to sit on, on the Republic? Fairey: No. H.M.Jr: I have spoken twice today to Patterson, and the last comeback is that as a compensation, as Patterson put it, for the mental earmarking on these planes for you, they are talking of giving you every seventh Harvard trainer, a total of seventy. Fairey: That is very nice. Purvis: That might enable us to get some more pilots in the air. 66 - 22 - H.M.Jr: And I took the liberty - I made that sug- gestion over here. I said, "Why not Har- vard trainers?" I took the liberty of saying that I was quite sure they were going to Canada. Purvis: That is right. H.M.Jr: They would, wouldn't they? Purvis: Oh, yes. H.M.Jr: Which seemed to please Patterson a lot. Wouldn't that be about as useful as any- thing? Fairey: Certainly. Purvis: That is about as good a deal as we could expect. H.M.Jr: Did you notice I said "mental earmarking"? He looked through the whole thing and couldn't find out how you people got in on this. Purvis: That was the day Patterson was here. H.M.Jr: Yes. I didn't enlighten him any. It is the big order that they have. I think it is called the AP-6 trainer, I think that is what it is. Young: That is right. H.M.Jr: That is a big order and you are to get every seventh out of that up to 70. That is his first order. That is going to come up at this committee which you sit in on tomorrow. Fairey: Thank you very much. 67 - 23 H.M.Jr: That would seem fairly good, wouldn't it? Fairey: Yes, very good. Purvis: After all, it is better - this is in exchange for it? the Republic machines We can't get, isn't H.M.Jr: You have got it. I think it would be very nice. So far, they haven't asked for any- thing back. It is in exchange for a machine that nobody wants. Fairey: Yes. Purvis: You were going to give up the Republics grace- fully tomorrow. H.M.Jr: Philip, is that everything, if these gentle- men will help you with the agenda for to- morrow? Young: Yes, I think that covers it. H.M.Jr: Ed? Foley: I have nothing else. H.M.Jr: Does that cover it? Foley: Yes. H.M.Jr: I was thinking of the experience that you (Buckley) had on the boat. Did Mr. Fairey go out on the boat, too? Buckley: Yes, he was on the boat. H.M.Jr: Was he asked to -- Foley: It wasn't a yacht club. - 24 - Buckley: They let him run the boat. I was the one who had to go over and make the survey. H.M.Jr: I gathered you all had a good time. Fairey: Well, we got there around a bout 10:30 in the morning and we had a bath and then we worked that night until we slept. We started a conference at 8:30 on Saturday morning and we just thought we had finished when they took us out and we had the boat ride. Sunday we got up - we had two hours rest on Sunday. I had some conferences with my people on the West Coast side and then we came back again. Purvis: A boat ride, but no buggy ride. H.M.Jr: Our people think it is distinctly worth while, and Forrestal is very enthusiastic. Purvis: Well, it is bound to develop the problems - I mean, a joint attack of that kind seems to me just excellent. Fairey: It gives you such an insight into the whole situation. You can swap ideas about it. You get a much better idea instead of just wondering what it is like. H.M.Jr: Foley wants a flag designed for the General Counsel of the Treasury. He says not having his own flag is a great disadvantage. Fairey: You were addressed as General? Foley: I told the Secretary about my new title out there. Purvis: What is this? 69 - 25 - Foley: Admiral Cook and General Foley and Commander this and Major that. H.M.Jr: But he had no flag. Foley: No flag. Purvis: You get titles instead of airplanes, is that the situation? Foley: That is right, lots of conversation. H.M.Jr: Buckley insisted they got Hollywood and this plant mixed up. He thought he was going through a Hollywood plant the whole time. Buckley: Scooters going back and forth and buttons, telephones, titles on all the doors -- Fairey: But no deficiency list. Buckley: Yes. The production man knew he was deficient, there were lots of parts he ought to have, but when we asked him for a list, he didn't have it. He had to make a list and mail it to us. H.M.Jr: Put the aluminum on that thing tomorrow. Buckley: Right. H.M.Jr: Well, I am awfully glad you went out. My people are very enthusiastic about it. Fairey: I think it would be a good thing to do some of the other towns, too. H.M.Jr: They were very enthusiastic about having you out there. Thank you all for coming. 70 CK GRAY Montevideo Dated October 8, 1940 Rec'd 4:23 p.m. Secretary of State Washington 224, October 8, 5 p.m. The Bank of the Republic announced today quotas for the last quarter of 1940 for imports from the United States at the free rate of $60,000 for automobiles and $60,000 for bus and truck chassis. WILSON NPL 20 INC. decommar medical 06 00 DCL 11. be 71 DEPARTMENT OF STATE ASSISTANT SECRETARY October 8, 1940 Memorandum to Secretary Morgenthau Department of the Treasury You possibly have the following from the FBI: "As of possible interest to you, please be advised information has been received from a confidential source that on October 3, 1940, the Marine Midland Trust Company, Whitehall Branch, 17 Battery Place, New York, New York, received $1,233,600 from Deutsche Goldidiskont- bank, Berlin, Germany, to be credited to the account of the law firm of Topken and Farley, New York, New York, attorneys for the German Consulate General. "Arrangements have been made whereby the Federal Bureau of Investigation will be notified concerning any transfer of these funds." There has likewise been received the following from the FBI, under date of October 1: "As of possible interest it 1s to be noted that the German Consulate in New York City has withdrawn the following funds: 7/10/40, $13,000 ($2,000 in $500 bills, $5,000 in $100 bills, $5,000 in $50 bills, and $1,000 in $10 bills ); 7/17/40, $35,000 in $1,000 bills; 7/24/40, $18,609 ($17,000 in $100 bills, ten $100 bills, and the remainder in small denominations) 8/16/40, $20,000 ($15,000 in $100 bills, $2,500 in $50 bills, and the remainder in smaller denominations) 8/24/40, $5,000 in $100 bills; 8/27/40, $10,000, half in $50 bills and half in $100 bills; 8/29/40, $10,000, 72 -2- $10,000, half in $10 bills and half in $50 bills; 8/31/40, $10,000, half in $50 bills and half in $100 bills. This last strikes me as pretty serious business. According to this, inside of six weeks $121,000 has been withdrawn by the German Consulate in New York City in bills -- chiefly of the denominations of $50 and $100. This can only reflect a desire to carry on some kind of activity in the United States without leaving any trace. Adolf A. Berle, Jr. Assistant Secretary 73 PARAPHRASE No. 474, October 8. 8 D.M., from Embausy, Buenos Aires Dr. Pinedo, during the course of a general conversation today with regard to plans for the further development of Argentina's industries, said that he was very desirous of CO- operation by the United States in having conducted an industrial survey by 8. combination of private interests and Government experts. The Minister of Finance said that he would like that such a survey should be of a comprehensive character but with emphasis laid on certain industries. He said, by way of 11- lastration, that he would like to explore the possibility of the BECEINED USED manufacture of newsprint and other paper products. Dr. Pinedo expressed the view that any survey to be made should be made keeping in mind conditions in the United States and other Latin American countries 80 that the industries established or expanded should be well suited to Argentina and should complement the industrial development of other countries in this region. I informed the Minister that his interest in an industrial survey would be communicated to the Department by cable. TUCK RA:AED copy of TREASURY DEPARTMENT 74 INTER OFFICE COMMUNICATION DATE October 8, 1940 TO Mr. Thompson FROM Mr. Haas MAR In further response to your request of December 26, 1939, there 18 submitted herewith for the Division of Research and Statistics a memorandum listing, with brief descriptions, the studies or projects completed or under way, and the names of persons working on each, for the month of September 1940. 75 DIVISION OF RESEARCH AND STATISTICS Report of Studies or Projects Completed or Under Way, and the Names of Persons Working on Each, for the month of September 1940 For convenience of reference, the studies listed are grouped under general subject heads. The names shown for persons working on each project include only those who participated fairly directly, as explained in the introductory note to the corresponding report submitted on December 28, 1939. No attempt has been made to cover also persons whose responsibility in each particular case was mainly in planning, supervising, or consulting. Financial Analysis I. Projects or studies completed 1. A review of current developments in the high-grade securities markets was prepared, and a memorandum was transmitted to the Secretary on September 6. - Mr. Haas, Mr. Murphy, Mr. Turner, Mr. Purvis. 2. A memorandum was prepared on the pricing of the Treasury securities to be offered in the September financing, and was transmitted to the Secretary on September 10. - Mr. Murphy, Mr. Tickton, Mr. Conrad 3. Five tables were prepared of probable yield bases and premiums of the Treasury bonds to be offered in the September financing, assuming two-year and three-year call periods, and were completed on September 14, 23, and 24. - Mr. Murphy, Mr. Tickton, Mr. Conrad 4. Yield rates on United States securities, direct and guaranteed, on the basis of over-the-counter closing quotations were calculated daily. These were summarized each day in a table showing for each issue the closing price and yield that day, the change in price and yield from the preceding day, and the price range since date of issue and also for the years 1939 and 1940 to date. A chart for each issue was kept up to date showing re- cent daily price and yield figures together with compara- tive monthly data since 1933 or since date of issue. - Mr. Brown, Mr. Moody, Mr. Kroll 76 2 - 5. At the request of the Secretary, arrangements have been made to secure periodically from the British Purchasing Commission certain information regarding purchases in the United States by the British Empire. - Mr. Haas, Mr. Lindow, Mr. March (1) Weekly statements are received covering in dollar volume itemized purchases through the Commission by British Empire countries, itemized purchases made by these governments with the knowledge of the Commission but not through its facilities, and inquiries made by the Commission or with its knowledge for future purchases. In these reports all orders and deliveries are being classified in some twenty-five commodity groups designed 08- pecially for the purpose of this project. Tables showing weekly orders placed by the British Empire, classified by commodity groups, were prepared for the weeks ended August 24, 31, September 7, and 14; and tables showing the delivery status of orders placed by Great Britain through the British Purchasing Com- mission, classified by commodity groups, were pre- pared for the weeks ended August 10, 17, 24, and 31. These tables were transmitted according to instruc- tion by the Secretary. (2) Arrangements have been made also to secure from the same source periodic statements showing com- mitments and actual payments by British Empire countries for the purpose of providing capital assistance to United States companies in order to expedite deliveries. These commitments are classified by four industry groups: (a) airplanes, (b) airplane engines, (c) airplane accessories, and (a) other than aircraft. Tables showing capital commitments as of August 24, 31, and September 14 were prepared and were transmitted according to instruction by the Secretary. (3) Special attention 18 being directed toward the air- craft industry, both as to the effect of capital assistance and as to output. Weekly statements are prepared showing by airplane and airplane engine companies the physical volume of orders placed, de- liveries made, and scheduled deliveries on unfilled orders and on options. These stat ements give detail by type of airplane or type of engine. Summary tables give similar information with regard to purchases of 77 secondhand planée and engines, Tables giving details and summaries regarding purchases of air- alanes and airplane engines, as of August 31, September 7, 14, and 21, were prepared, and were transmitted according to instruction by the Secretary. (4) A table show ng the status of iron and steel purchases by the British Government was prepared as of August 31, 1940, and was transmitted on September 19, according to instruction by the Secretary. (5) A table showing a forecast of future deliveries of orders by Great Britain placed through the British Purchasing Commission, unfilled as of August 31, 1940, classified by commodity groups, was prepared on September 19, and was transmitted according to instruction by the Secretary. (6) A statement showing estimated future payments in the United States by the British Government on balances due as of August 31, 1940, was prepared on September 25, and was transmitted to the Secretary. 6. At the request of the Secretary on May 23, arrangements were made for securing weekly until September 11, and after that fortnightly, from more than forty airplane and airplane engine manufacturers data on deliveries, new orders, unfilled orders, and estimated deliveries by months on the unfilled orders. Analytical tables are prepared fortnightly showing this information by type of plane or engine and by class of purchaser. Reports for the weeks ended August 31, and September 7, and for the two weeks ended September 14, were transmitted according to instruction by the Secretary. - Mr. Haas, Mr. Tickton, Mr. D. J. Leahy 7. A memorandum was prepared at the request of Under Secretary Bell on September 24, on the provisions of the proposed excess profits tax bill which would affect United States Government securities, and was transmitted to him on the same date. - Mr. Murphy 8. A memorandum was prepared at the request of Under Secretary Bell on September 19, on the earnings on invested capital by banks during the calendar year 1939, and was transmitted to him on the same date. - Mr. Murphy, Mr. Conrad, Mr. Purvis - 4 - 78 9. Chart and annotations with respect to the factors in- fluencing the movement of interest rates during the last World War have been completed, and were transmitted with & memorandum to Under Secretary Bell on September 27. - Mr. Turner. 10. At the request of Assistant Secretary Gaston on September 17, the figures in an article by the Assistant Secretary, en- titled "The Government AS a Business", were brought up to date, and were transmitted to him in a memorandum on September 21. - Mr. Turner 11. At the request of Under Secretary Bell on September 5, in connection with an article for publication by Fortune Magazine, a memorandum entitled "A Prologue to War Finance" was prepared, and was transmitted to the Under Secretary on that date. In response to a request by Mr. John Davenport of Fortune Magazine on September 7, three tables and charts were pre- pared showing the public debt of the United States and the United Kingdom, classified by the number of years to maturity; the amount of guaranteed obligations by agency; the interest-bearing public debt and guaranteed obligations, by type; and the interest-bearing public debt and guaranteed obligations by the number of years to maturity. A letter to Mr. Davenport transmitting the data was prepared for signa- ture of the Under Secretary, and was mailed on September 12. At the request of the Under Secretary on September 28, a draft of the article submitted by Fortune Magazine was revised and checked, andwas transmitted to the Under Secretary on September 30. - Mr. Haas, Mr. Murphy, Mr. O'Donnell 12. A review was made of a report by the Legal Division on 8.4213 (to prevent profiteering and to make the financial resources of the nation available to the Government for National Defense), in response to a request by Senator Sheppard, Chairman of the Committee on Military Affairs, 8.8 requested by the Legal Division on September 26. The report was approved, and was forwarded to Mr. Sherbondy on September 27. - Mr. Murphy 13. A review was made of a report by the Legal Division on 5.4214 (to mobilize financial resources by drafting money), in response to a request by Senator Sheppard, Chairman of the Committee on Military Affairs, as requested by the Legal Division on September 26. The report was approved, and was forwarded to Mr. Sherbondy on September 27. - Mr. Murphy Regraded Uclassified 79 - 5 - II. Projects or studies under way 1. Chart comparing yields on long-term Treasury bonds and over-the-counter volume depends for completion upon ar- rangements to secure the necessary data. - Miss Eyre 2. Study of the relationship between the yields and maturities of high-grade securities immediately pre- ceding prior major bear markets in such securities. - Mr. Turner, Mr. Conrad 3. Comparison of relative amplitude of price fluctuations of long-term and short-term securities. - Mr. Lindow, Mr. Conrad 4. Study of the effect of the maturity, call period, coupon, premium, and size of the issue on the prices and yields of U. S. securities. - Mr. Conrad 5. Discussion of various problems encountered and solutions devised in connection with war borrowing. - Mr. Murphy 6. Memorandum comparing and contrasting war and depression deficit-financing. - Mr. Murphy 7. Review of war-financing measures in the British Dominions and Germany in the present war. - Mr. Murphy 8. United States Savings Bonds - An analysis of factors affecting redemptions of United States savings bonds, as a guide to future experience. - Mr. Conrad 9. A memorandum is being prepared in connection with a request of Under Secretary Bell of June 24, on the distribution among the various classes of investors of increases in the direct and guaranteed public debt since June 30, 1933. - Mr. Murphy, Mr. Turner, Mr. Purvis 10. At the request of Mr. Broughton on September 14, a memorandum 1s being prepared for Under Secretary Bell on interest rates of United States savings bonds. - Mr. Murphy, Mr. Brown 11. At the request of the Division of Statistical Standards, Bureau of the Budget, on September 20, B. review 1s being made of the "Base Book of Financial Statistics", to be issued by the Federal banking authorities. - Mr. Murphy -6- 80 12. In response to a request by Mr. Foley dated September 25, cooperation 18 being given the Legal Division in pre- paring a review of the tax compromise case of the Erie Forge and Steel Company. - Mr. Conrad 13. A review of a report by the Bureau of Accounts on S. 4269 (to extend the Social Security Act), at the request of Senator Harrison, Chairman of the Finance Committee, is being made in response to 8. request by the Bureau of Accounts on September 10, - Mr. Murphy, Mr. Brown Revenue Estimates I. Projects or studies completed 1. The regular monthly statement was prepared for the Bureau of Accounts, showing the latest revised esti- mates of receipts, by months and by principal sources of revenue, for the period September-June 1941, and was transmitted on September 5. - Mr. Wilson 2. The regular monthly summary comparison of estimated re- ceipts and actual receipts in August 1940 on the daily Treasury statement basis, was prepared, September 7. - Mr. Wilson 3. The regular monthly detailed comparison of estimated and actual receipts in August 1940, and for the period July-August 1940, based on the collections classifica- tion, was prepared, September 30. - Mr. Wilson 4. Population estimates of the Continental United States, based on the 1940 census data, were prepared for the months from March 1940 through November 1041, and were forwarded on September 27 to Deputy Comptroller of the Currency Mulroney, and to Mr. Weber, Office of the Treasurer of the United States, in response to re- quests from their offices on September 20 and 25, respectively. - Mr. Wilson 5. A detailed estimate of additional yield from the pro- posed excess-profits tax on the basis of the calendar year 1940 liabilities as requested by the Division of Tax Research on July 20, was prepared, and was trans- mitted to Assistant Secretary Sullivan. - Mr. T. F. Leahey 81 - 7 - 6. An estimate of the revenue effects of the bill H. R. 1, 76th Congress, First Session (a bill providing for an excise tax on retail stores) which was being prepared for the Division of Tax Research, has been abandoned because the bill 18 no longer current. - Mr. T.F. Leahey 7. Preliminary estimates were made of miscellaneous internal revenue, except from the capital stock, estate, and gift taxes, for the fiscal years 1941 and 1942. - Mr. Daggit, Mrs. May, Mr. Chevraux, Miss Rastall, Mr. Smith, Miss Hagedorn 8. In connection with consideration of the proposed "Second Revenue Act of 1940", Title I, Excess Profits Tax, a number of revenue estimates listed below, were prepared for use of Assistant Secretary Sullivan. - Mr. O'Donnell, Mr. T. F. Leahey, Mr. Wilson (1) Estimates were prepared of gross and net yields, at estimated income levels for the calendar year 1940, from a proposed provision allowing corpora- tions to select their earnings in three out of four income years in determining the normal earn- ings during the base period, with loss years during the base period to be eliminated, and the average earnings to be computed by dividing only by the number of earnings years, and were transmitted orally to Assistant Secretary Sullivan on September 6. (2) Estimates were prepared of gross and net yields, at estimated income levels for the calendar year 1940, which would be derived from an excess profits tax on all profits above 8 percent of invested capital, with B. specific exemption of $5,000, the rates and other provisions except for the base period to be the same as those in the original Treasury proposal, and were transmitted orally to Assistant Secretary Sullivan on September 6. (3) Preliminary estimates were prepared and were transmitted to Assistant Secretary Sullivan in a memorandum on September 10, showing the revenues to be derived from the bill as tentatively ap- proved by the Senate Finance Committee on September 9, at estimated income levels for the calendar year 1940, based upon elimination of Regraded Uclassified the privilege tax of 4.1 percent on the normal tax net income of corporations electing to com- pute excess profito under the average earnings method; making the bracket rates of corpora- tions under the invested capital method coincident with the bracket rates of the average earnings method in the House bill; raising the specific credit to $10,000; permitting corporations elect- ing to use the invested capital method an OR per- cent return on the invested capital in the taxa- ble year, and increasing the normal tax rate of all corporations by 3.1 percent. Separate estimates were given of gross yield, yield from the excess profits tax, yield from the 3.1 per- cent increase in the normal tax rate, and net yield. (4) Estimates of gross and net yields, at estimated calendar year 1940 income levels, were prepared and were transmitted orally to Assistant Secretary Sullivan on September 10, on the basis of an amend- ment proposed by Senator La Follette, providing for excess profits to be determined by the rela- tion of net income to invested capital, wi th the earnings of previous years not to be taken into consideration. (5) The following estimates were requested during the testimony of Assistant Secretary Sullivan on September 3, 4, and 5, in the public hear- ings before the Senate Finance Committee, and were presented by the Assistant Secretary in the period of September 6 through 12, in Execu- tive sessions of the Committee. (a) Estimates of gross and net yields, at estimated income levels for the calendar year 1940, were prepared on the basis of a proposed provision to allow corpora- tions to select their earnings in any three out of four years from 1936 through 1939, rather than their earnings of the entire four years in computing the ex- cess profits tax credit in the base period. Regraded Uclassified - 9 - 83 (b) Estimates of gross and net yields, at estimated income levels for the calendar year 1940, were prepared on the basis of a proposed provision to increase the specific credits to $10,000, $15,000, $20,000, and $25,000. (c) Estimates of gross and net yields, at estimated income levels for the calendar year 1940, were prepared on the basis of a proposal to eliminate the privilege tax of 4.1 percent of normal tax net. income from the tax on corpora- tions choosing the average earnings method of computing the tax. (d) In connection with the provisions of the bill as of that date, at estimated income levels for the calendar year 1940, estimates were made of the percentage of income which would be represented by the total normal and excess profits tax liability, and of the percentage of the normal tax net income which would be represented by the total tax. (6) A tentative estimate was prepared of the revenue which would be derived from a proposal to increase the specific credit for excess profits tax computa- tion from $10,000 to $25,000, and an estimate was made also of the number of corporations which might be affected by such a proposal, and were transmitted orally to Assistant Secretary Sullivan on September 13. (7) The following estimates were prepared and were trans- mitted in & memorandum to Assistant Secretary Sullivan on September 28. (a) Tentative estimates were prepared of gross and net yields, at estimated income levels for the calendar year 1940, showing amounts to be derived from the increased normal tax and from the excess profits tax, from the fol- lowing proposed changes: (1) to reduce the excess profits tax credit of the average earnings method of the Senate Finance Com- mittee bill to replace the estimated yield of the 4.1 percent privilege tax under the House bill; (2) to reduce the specific exemp- tion from $10,000 to $5,000; (3) to permit 84 - 10 - corporations to select any three out of four years in the base period to determine the excess profits credit; and (4) to in- crease the normal tax rate of 3.1 percent on corporations with incomes slightly in excess of $25,000. (b) Estimates were prepared, in connection with the proposed compromise plan by Senator George, in & table showing the percentage of the excess profits credit of the average earnings method under the Senate Finance Committee bill, which would increase the yield of that bill by amounts equivalent to those which would have been yielded at estimated calendar year 1940 income levels under the Senate Finance Committee bill at specified rates by the type of privilege tax contained at 4.1 percent in the House bill. (c) Estimates were prepared, in connection with the proposed compromise plan by Senator George, in a table showing the percentage of the excess profits credit of the average earnings method under the Senate Finance Committee bill, which would increase the yield of that bill by amounts equivalent to those which would have been yielded at estimated calendar year 1940 income levels under the House bill at specified rates by the type of privilege tax contained at 4.1 percent in the House bill. (8) Tentative estimates were prepared of gross and net yields, at estimated income levels for the calendar year 1940, showing amounts to be de- rived from the increased normal tax and from the excess profits tax, from the following proposed changes: (1) to reduce the excess profits tax credit of the average earnings method of the Senate Finance Committee bill to replace the estimated yield of the 4.1 percent privilege tax under the House bill; (2) to reduce the Regraded Uclassified 85 12 specific exemption from $10,000 to $5,000; and (3) to increase the normal tax rate of 3.1 per- cent on corporations with incomes slightly in excess of $25,000. estimates were trans- mitted in B. memorandum to Assistant Secretary Sullivan on September 28. 9. A study was completed of the provisions of the Revenue Act of 1940, and their application in revising studies previously made for improving the methods of estimat- ing revenues from specified taxes. - Mr. Daggit, Mrs. May, Miss Rastall 10. Projectsfor revising and improving methods of estimat- ing revenues from the following taxes: - Mr. Daggit, Mrs. May, Miss Rastall (1) Admissions to theaters, concerts, and cabarets, etc. (2) Floor taxes. (3) Processing tax on coconut and other vegetable oils. (4) A new study relating to the tax on small cigarettes, taking into consideration possible changes in the general price level in 1941 and 1942. II. Projects or studies under way 1. A preliminary revision of the Budget estimates of re- ceipts for the fiscal years 1941 and 1942 18 being made for the Director of the Budget in response to his re- quest addressed to the Secretary on September 7. - Mr. O'Donnell, Mr. T. F. Leahey, Mr. Wilson, Mr. Bron- fenbrenner 2. Tentative plans for a WPA statistical project in con- nection with work on the excess-profits tax, as well as material proposed to be obtained from the Securities and Exchange Commission, are being reviewed in accord- ance with requests by the Division of Tax Research on July 12 and 17. - Mr. T. F. Leahey 3. At the request of the Division of Tax Research on July 12, an estimate 18 being made of the additional revenue which would be derived if mutual insurance companies other than life insurance companies taxable under Section 207 of the Internal Revenue Code were 86 - 12 - made taxable in the same manner as stock insurance companies other than life insurance companies taxable under Section 204, and at the same time the exemption under Section 101 (11) were restricted to local mutual companies of the assessment type. - Mr. T. F. Leahey 4. At the request of the Bureau of Accounts on August 29, in connection with the 1942 Budget, estimates are being made of (1) tax collections under the Federal Insurance Contributions Act (formerly Title VIII of the Social Security Act), for the fiscal years 1941 and 1942; (2) taxes to be collected from carriers and their employees, for the fiscal years 1941 and 1942; and (3) amounts to be deposited in the Unem- ployment Trust Fund under the Social Security and Railroad Unemployment Insurance Acts, for the fiscal years 1941 and 1942. - Mr. Wilson 5. At the request of the Division of Tax Research on September 20, a review 1s being made of & proposed revision of gift tax Table 2 for Statistics of Income pursuant to recommendations made to the General Com- mittee on Statistics of Income by its subcommittee on estate and gift tax tabulations. - Mr. Wilson Economic Conditions Related to Fiscal and Revenue Matters I. Projects or studies completed 1. Memoranda on the business and price situation were prepared and were transmitted to the Secretary on September 3, 9, 16, 23, and 30. - Mr. Haas, Mr. Daggit, Mrs. May, Mr. Chevraux, Mr. Smith These memoranda contained in addition to analysis of the current situation the following special study: The relationship of steel production to steel scrap consumption and to steel scrap prices (Chart in memorandum of September 30). - Mr. Daggit, Miss Rastall 2, Memoranda on employment under the Work Projects Ad- ministration were prepared and were transmitted to the Secretary on September 3, 9, 16, and 23. - Miss Rastall, M188 Hagedorn 87 - 13 - 3. At the request of the Secretary, a table 18 prepared each week summarizing exports of petroleum products, scrap iron, and scrap steel, from the United States to Japan, the U.S.S.R., Spain, and Great Britain, 8.6 indicated by departure permite reported daily by the Office of Merchant Ship Movements. The tables were prepared for the weeks ending August 31, September 7. 14, 21, and 28. On September 3, 9, and 16, the original and 12 photostats, and on September 23 and 30, the original and 13 photostats were transmitted to Assistant Secretary Gaston. In addition, each week two photostats were transmitted to Mr. Young, one of which was for Mr. Purvis. - Miss Kailey 4. Compilations were made of daily quotations on selected commodities and daily and weekly figures on selected business indices, foreign and domestic security trans- actions, security prices, exchange rates, etc., as well as other data for the Secretary's chart book. - Mrs. May, Mr. Chevraux 5. A study was made of the relationship between the New York Times index and the new FRB index in an attempt to estimate the weekly level of the new FRB index from the New York Times index. This estimate super- sedes the estimate in the study completed in May of the relationship between the New York Times index and the FRB index on the old basis. - Mr. Daggit, Mrs. May 6. A method was worked out of deriving the FRB index of industrial production, old basis, from the new, by means of a basic study for each month of the year. - Mr. Daggit, Mrs. May, Miss Hagedorn 7. In connection with the preliminary estimate of internal revenue for the fiscal years 1941 and 1942, requested by the Bureau of the Budget, forecasts were made through June 1942, of the following basic series: the FRB index of industrial production on the old and new bases, the BLS index of wholesale prices, the BLS index. of factory payrolls, our index of the value of industrial produc- tion, United States Department of Commerce series of salaries and wages; Standard Statistics index of prices of 419 stocks, Federal reserve series of bank debits Regraded Uclassified 88 - 14 outside of New York City, and New York Times series of volume of stock transfers. Mr. Haas requested and received from the Board of Governors of the Federal Reserve System, the Department of Agriculture, and the Department of Commerce, forecasts of the new FRB index of industrial production and the BLS all-commodity price index, which were utilized in making these forecasts. - Mr. Haae, Mr. Daggit, Mrs. May, Miss Rastall, Mr. Smith 8. As a basis for forecasting business series through June 1942, for use in making revenue estimates, a study was made of the componente of the new FRB index of industrial production as affected affe directly and indirectly by the armament industry. - Mr. Daggit, Mrs. May 9. A revision of an earlier study for making quarterly forecasts of the BLS index of factory payrolls, for use in connection with estimates of internal revenue. - Mr. Daggit, Mrs. May, Miss Rastall, Mr. Smith 10. The quarterly forecast of factory payrolls through March 1942, for use in estimating revenues from Social Security taxes, was made for the Bureau of Accounts. - Mr. Daggit, Mrs. May. Mr. Smith 11. A study of buying in anticipation of increased taxes was made in connection with the estimate of miscel- laneous internal revenue for 1941. - Mr. Daggit, Mrs. May 12. A study was made of the decline in consumption of taxable articles that may be expected in the fiscal years 1941 and 1942, because of increased taxes paid by consumers. - Mr. Daggit, Mrs. May II. Projects or studies under way 1. Index of unfilled orders. An attempt 18 being made to improve our information on the volume of unfilled orders by working out a composite index based on data from individual industries. - Mr. Daggit, Miss Rastall 89 - 15 - 2. Forces determining trends of basic commodity prices. This project involvee B. study of (2) the forces 86- termining general commodity prices and (2) the forces determining the prices of individual commodities. With respect to (1), general commodity prices, an analysis is in process of disparities between demand and production as a basie price factor which, under excessive war demand, might lead to inflation. For use in this analysis two indexes of demand are being constructed:' An index of export demand which expresses the exports of manufactured goods in physical volume, and the index of consumer buying in terms of physical volume, which is part of the project on measures of consumer buying listed as item 3 below. With respect to (2), prices of individual commodities, shipments of a given commodity, or deliveries to con- sumers, are taken as 8. measure of demand, to be com- pared with production. Ten basic commodities have been selected tentatively for study, and this work 18 in process. - Mr. Daggit, Mrs. May, Mr. Smith, Miss Rastall, Miss Hagedorn 3. Measures of consumer buying. A project is under way with the object of developing (1) an index to measure the buying power of consumers in terms of physical volume of purchases, after cor- recting for the effect of changes in price on the ap- parent demand; and (2) an index to measure changes in total consumer expenditures, in dollar volume. These two indices will supplement our present "index of sales", which 18 designed to measure the "offtake" of manufactured goods into various consumption channels. Studies on a monthly basis have been nearly completed on individual components of two physical volume in- dexes of consumer buying, one corrected for the effect of price changes, and the other corrected both for the effect of price changes and for the effect of changes in national income. The weighting of the individual components remains to be done. In addition, with respect to the index of consumer expenditures in dollar Regraded Uclassified 90 - 16 - volume, substantial progress has been mde in develop- ing individual series, in determining their suitability for inclusion and the necessary edjustments. The pur- pose 18 to cover as large A.8 possible a proportion of the purchases of ultimate consumers. - Mr. Daggit, Mrs. May, Miss Rastall, Mr. Smith 4. Trends of individual commodity prices andprice factors during the World War period. This project is patterned after the general study of prices and price factors, 1913 to 1922, made in October 1939, but deals with six individual basic commodities - wheat, cotton, hoge, steel, copper, and zinc. The project 1s designed to determine the principal price factors associated with the wartime rise and subse- quent collapse of prices of the se commodities. - Mr. Daggit, Mrs. May 5. Index of commodity stocks. This project is designed to develop a composite index of basic commodity stocks as a measure of one important factor in the general price level. Stocks of sixteen important industrial materials, expressed in terms of their net effect on prices, are being compiled for this index. - Mrs. May 6. Index of goods inventories. A better index of inventories of finished goods is needed as an indication of business maladjustments, with & break- down as between inventories of finished gooda held by manufacturers and those held by others. An attempt to develop such an index 18 under way. - Mr. Daggit, Miss Rastall 7. Index of buying on deferred payments. A study of the volume of installment buying and con- sumer credit has nearly been completed. This study 16 designed eventually to provide a monthly index of the volume of buying on deferred payments, which at times 1s an important business factor. It is in abeyance at present, pending publication of a new study by the - partment of Commerce. - Mrs. May 91 - 17 - 8. Weekly approximations of the FRB index of industrial production. Project was started during March and for completion awaited the new FRB monthly index which was recently released. This project 1a designed to develop an index of industrial production that will indicate week by week the approximate level of the FRB index. It will include a larger number of weekly series than are included in any current business indices, with weight- ings and seasonal adjustments approximating those in the FRB index. - Mr. Daggit, Miss Rastall, Mr. Smith 9. Classifications of specified export data by Commerce and Treasury Departments. A new study was made during the month to determine how to classify export data from the Department of Commerce to conform as closely as possible to the classification in the weekly reports summarizing exports of petroleum products, scrap iron, and scrap steel, from the United States to Japan, the U.S.S.R., Spain, and Great Britain, as shown by departure permits granted. Monthly sta- tistics were compiled, on the Commerce classification developed by this Division, from January 1937 to July 1940. A memorandum 18 in preparation showing the Com- merce series chosen, with an explanation of divergences in the Commerce and Treasury series. - Mr. Daggit, Mrs. May 10. New orders in the lumber industry. This project is designed to obtain current figures on a seasonally-adjusted basis for appraising the outlook for lumber production. Work has been done toward more accurate determination of seasonal trends, which has in- volved obtaining new data for earlier years. - Mr. Daggit, Mrs. May Actuarial Problems I. Projects or studies completed 1, Municipal Finance Officers Association In response to & request received on September 4, from Mr. Carl H. Chatters, Executive Director of the Municipal Finance Officers Association, a manuscript entitled, "Retirement Systems for Public Employees" was reviewed, and the review was transmitted in a letter addressed to Mr. Chatters on September 14. - Mr. Reagh 92 - 18 - II. Projects or studies under way 1. Board of Actuaries of the Civil Service Retirement and Disability Fund. There 1s pending before the Board of Actuaries the matter of approving regulations with respect to the optional benefits payable under the Civil Service Retirement Act. The Comptroller General has decided that a cash refund of voluntary contributions would not be permissible under the Act. On the basis of this decision and other information the Board of Actuaries 1s now deciding whether to approve the regulations. - Mr. Reagh 2. Report of the Civil Service Assembly of the United States and Canada on "The Retirement of Government Employees." A first draft of the chapter on "Financing the Plan" 1s in process of preparation. - Mr. Reagh 3. Retirement system for Haitian Government employees. The State Department has requested assistance in de- vising a retirement system for employees of the Haitian Fiscal Service. Cooperation will be given the Fiscal Representative of Haiti in that cost estimates will be prepared on the basis of data sub- mitted and plans will be suggested for financing the system. The work 1s temporarily in abeyance. - Mr. Reagh 4. Federal Communications Commission. A request from the Federal Communications Commission was received on May 18 to review an actuarial report of the American Telephone and Telegraph Company re- garding recent changes which they have made in the valuation of their pension plan. Members of the Division's staff are serving in an advisory capacity. A preliminary report has been submitted to the Com- mission. During the month additional data were obtained and further work was done. - Mr. Reagh, Mr. Brown 5. Actuarial valuation of the Foreign Service Retirement and Disability Fund. The Foreign Service Retirement law, as approved April 24, 1939, Section 26(m), provides that the 93 - 19 - "Treasury Department shall prepare the estimates of the annual appropriations required to be made to the Foreign Service Retirement and Disability Fund and shall make actuarial valuations at intervals of five years, of oftener if deemed necessary by the Secretary of the Treasury". An outline of the data required for making an actuarial valuation has been submitted to the State Department. During the month a preliminary estimate of the appropriation required for the fiscal year 1942 was prepared, and was submitted to the State Department. - Mr. Reagh, Mr. Brown Other Projects or Studies 1. Treasury Bulletin. Data were prepared for the September issue of the Bulletin on average yields of long-term Treasury bonds and high-grade corporate bonds. - Miss Eyre All the material submitted for the September issue was reviewed and edited. - Mr. Lindow, Miss Eyre, Miss Westerman 2. Annual Report of the Secretary of the Treasury. Manuscript for the Annual Report for the fiscal year 1940, both for the regular features of the Report and for the special review articles, is being given an editorial review as received. The usual handling of the material is going forward. - Mr. Tickton, Miss Westerman 3. Other material for publication. Two tables on the distribution of holdings of direct and guaranteed Government obligations are being brought up to date for Moody's Government Manual. - Mr. Turner 4. Cumulative index of Treasury Publications. Work has been begun on the preparation of a cumula- tive subject index of Treasury publications since the establishment of the Department covering (1) Annual Reports of the Secretary, (2) other publica- tions issued by the Department, including annual reports of the bureaus and offices in the Department, and (3) material prepared in the Treasury Department 94 - 20 - which was published in Congressional documents, hearings before Committees of Congress, or the Congressional Record. - Mies Westerman 5. Correspondence. Replies were prepared to letters received on subjects relating to the work of the Division, andletters drafted elsewhere and submitted to the Division for that purpose were reviewed. - Miss Michener, Miss Ziegler, and other members of the staff in appro- priate fields of work. During September 387 letters were received in the Division and 394 were handled as required. 6. Charts. Charts are prepared and continually brought up to date for use in memoranda and in chart books on special subjects, and corresponding photographic, photostatic, and multilith work is carried on. This is done in the Graphic Section under the supervision of Mr. Banyas. A statistical report on the work of the Graphic Section for the month of September is attached. 95 Work completed is the Graphic Section, Division of Research and Statsitics, during September 1940 For Division For Total pe of work of R & 8 Others. hiel In Charts: Total charts completed 28 11 39 Bond book charts completed - - - Charts brought up to date: 3 bond chart books brought up to date 26 (times) - 26 (t) All other charts brought up to date 689 27 716 Viscelleneous: Total jobs 22 14 36 tographic: Photographs; Total jobs 51 15 66 Number of- Negatives 146 12 158 Contact prints 169 81 250 Enlargements 174 22 196 Photostate: Total jobs 137 12 149 Number of- Lettersize copies 309 111 420 All other copies 8,909 58 8,967 Multilith: Total jobs 4 1 5 Number of- Zinc plates 79 1 80 Miscellaneous: Total jobs 15 12 27 wlt 1-40 Statistical Report on Work Completed by the Graphic Section, Division of Research and Statistics, by months, beginning July 1940. 2 : I I # I : Type of work July Ang. Sept. Oct. Nov. Dec. Total : : I $ : 1 I L Graphic Yes charts completed 45 18 39 Charts brought up to date 748 687 716 Bond book charte completed - 2 - Bond books brought up to date 28 (times) 27 (t) 26 (t) Wiscellaneous jobs completed 23 17 36 96 6 3. Photographic Photography Total jobs 53 48 66 Burder of- Negatives 151 170 158 Contact prints 164 158 250 Malargements 177 96 196 Photostate: Total Jobs 123 116 149 Number of- Lettervise copies 3,657 342 420 All other copies 8,165 12,467 8,967 Multilith: Total jobs 7 5 5 Number of- Zinc plates 91 131 80 Miscellaneous: Total jobs 14 12 27 Regraded Uclas 97 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 8, 1940 Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL The Argentine Ambassador telephoned at 10 a.m. this morning. He told me that the State Department had given him the agenda for the conversations to be carried on between the Argentine delegation and the American Government. He had read this agenda to Mr. Prebisch over the telephone this morning. Mr. Prebisch will leave for the United States in about ten days. In the meantime, the Ambassador asks whether ve could give him any further information, in elucidation of the agenda, and particularly with respect to what plan the Treasury may have in mind. The mbassador feels that this information would help him considerably, since he is to sit in the conferences, and would also be of value to Mr. Prebisch if the Ambassador can pass it on to him before he leaves Buenos Aires. mml 98 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October E, 1940 TO Secretary Morgenthan CONFIDENTIAL FROM Mr. Cochram The six reporting banks' transactions in registered sterling were as followe: Sold to commercial concerns £95,000 Purchased from commercial concerns £63,000 Open market sterling remained at 4.04 throughout the day. Transactions of the reporting banks were as follows: Sold to commercial concerns £2,000 Purchased from commercial concerns £1,000 The Swiss franc touched a new high of .2317-1/2 this afternoon. It subsequently eased to close at .2316-1/2, as compared with yesterday's .2313. Although the Canadian dollar strengthened to 13% discount at noontime. it later reacted to close at 13-1/2%. unchanged from last night's final rate. The other currencies closed as follows: Swedish krona .2383 Reichemark .4005 Mexican peso .2061 Argentine peso (free) .2350 Brasilian milreis (free) .0505 Cuban peso 7-1/4% discount Lira .0505 There were no gold transactions consumated by us today. The Federal Reserve Bank reported that it had made two three-months loans of $20.000 each to the Central Bank of El Salvador. setting aside as collateral $42,702 in gold from the Salvadorean bank's earmarked account. The total of such loans now outstanding amounts to $520,000. secured by $578,498 in gold. The State Department forwarded to us cables stating that the following gold shipments would be made from Hong Kong, for sale to the U.S. Mint at San Francisco: $218,000 shipped by the National City Bank, Hong Kong, to the American Trust 149,000 shipped by the Chartered Bank of India. Australia and China, Hong Kong. Company, San Francisco. to the Bank of California N.A., San Francisco. $367,000 Total Regraded Uclassified 99 CONFIDENTIAL The report of October 2. received from the Federal Reserve Bank of New York giving foreign exchange positions of banks and bankers in its district, revealed that the total position of all countries vas short the equivalent of $10,570,000. an increase of $184.000 in the short position. The not changes in the positions are as follows: Short Position Short Position Increase in Country September 25 October 2 Short Position England* $ 542.000 $ 658,000 $116,000 4,171,000 4,186,000 15,000 Europe Canada 10,000 71,000 (Long) 81,000 (Increase in Long Position) Latin America 403,000 438,000 35.000 Japan 4,202,000 4,395,000 193,000 Other Asia 1,114,000 1,044,000 70,000 (Decrease) All others 56,000 (Long) 80,000 (Long) 24,000 (Increase in Long Position) Total $10,386,000 $10,570.000 $184,000 *Combined position in registered and open market sterling. The Bombay gold price was unchanged at the equivalent of $33.88. The silver quotation was equivalent to 44.56#. off 1/16#. In London, the prices fixed for spot and forward silver were both unchanged at 23-7/16d and 23-3/84 respectively. The dollar squivalents were 42.56# and 42.444. 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 354. Ve made five purchases of silver totaling 750.000 ounces under the Silver Purchase Act. Of this amount, 250,000 ounces represented a sale from inventory and 200,000 ounces consisted of new production from foreign countries, for forward delivery. The remaining 300,000 ounces was purchased from the Central Bank of China. and represente another portion of the 1,122,000 ounces sent to this country from Hong Kong by the Central Bank of China. So far, we have bought 675,000 ounces of this particular importation, which arrived here September 24 on the President Adams. BMP 100 G-2/2657-220 RESTRICTED M.I.D., W.D. October 8, 1940. No. 214 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. The Germans operated over England on the 7th and on the night of the 7th-8th in as great strength as in any previous 24-hour period of the war. Activity centered over southern England and over the London area, although some attacks were made in the northwest. Night operations were concentrated over London. Liver- pool, Manchester and Edinburgh were also attacked. The R.A.F. made a few daylight attacks along the Channel coast on the 7th. That night they made a large-scale attack on Berlin, dropping about 100 heavy bombs. Scattering attacks were made against many ports, several communications cen- ters in western Germany, and on various airdromes. Great aerial activity is reported over England today. II. Mediterranean and African Theaters of War. No ground operations and only minor air activity. III. Miscellaneous. Entry of German troops into Rumania and movement of Span- ish troops from Malaga to Morocco are regarded as indications of a forthcoming increase in military and political activity in the Medi- terranean and Near Eastern areas. RESTRICTED 101 RESTRICTED TENTATIVE LESSONS BULLETIN MILITARY INTELLIGENCE DIVISION, No. 56 WAR DEPARTMENT 0-2/2657-235 Washington, October 8, 1940 NOTICE The information contained in this series of bulletins will be restricted to items from official sources which are reasonably confirmed. The lessons necessarily are tentative and in no sense mature studies. This document is being given an approved distribution, and no additional copies are available in the Military Intel- ligence Division. For provisions governing its reproduction, see Letter TAG 321.19 M.I.D. (8-16-40) M-B-M. GERMAN TRAINING IN MARCHING AND MARCH DISCIPLINE SOURCE Motion picture newsreels, operation reports, personal obser- vation, and conversations with German military personnel were the sources from which an official American observer secured the following information during August, 1940. For previous comment on the physical aspects of Ger- man training, see TL 3-2; TL 4-3; TL 30-I c, IICla, II C 2 a; III C 1; TL 52-3. CONTENTS 1. NECESSITY FOR TRAINING 2. GENERAL PRINCIPLES AND PRACTICES 3. BAGGAGE WAGONS AND THEIR USE 4. INDIVIDUAL COMBAT EQUIPMENT 5. MUSIC 6. THE MARCHING TRADITION RESTRICTED -1- 102 RESTRICTED 1. NECESSITY FOR TRAINING The march discipline and marching ability of the German Infantry 18 sometimes overlooked by students of German operations, especially those which took place in Poland and on the Western Front, where motor transpor- tation was used extensively. In training and other preparation for motorized and mechanized warfare, the Germans did not neglect the importance of providing Infan- try capable of making extended marches under adverse conditions, and they continue to emphasise this principle. In spite of the presence of motor vehicles in large numbers, Infantry units and even units of other combat arms are required at times to move on foot. Hence the German soldier - especially the Infantryman - is trained both physically and psychologically to endure such marches. The following statement is from German instructions in troop leadership: "A great part of the combat activity of troops consists of narching. The success of all ground combat operations is based upon the dependable marching ability of the units involved and their ability to function efficiently after the completion of the march." 2. GENERAL PRINCIPLES AND PRACTICES The normal distance between rifle companies on the march is ten paces. When horse-mounted units similar in size to infantry com- panies march in the same column with foot troops, this interval is increased to 15 paces. Horse-mounted units, if followed by foot elem- ents, never gain lost distance by trotting, for such a remedy creates an impossible situation for the foot troops. If horse-mounted units have lost distance, they regain it during the next halt-not by trotting. According to conversations and motion picture newsreels, horse- drawn transportation marching with a company or similar unit maintains its place in the column even if it becomes necessary for men to assist by pushing or pulling it over difficult terrain. The narrower the road, the more necessary it is for troops to march on the right. This allows space for motor traffic, bicycles or horse-mounted messengers. A unit has no march discipline if it must be cautioned to keep to the right of the road. When a commander has given an arm signal or an oral command to his unit while marching, he does not give the command of execution until he is certain that all subordinate elements have received the initial command. Otherwise the leading elements change their pace or formation before the rear elements understand the command. RESTRICTED -2- RESTRICTED 103 Individuals are forbidden to drink water from canteens while actually marching. The Germans consider such action an indication of lack of training. Thirst should be quenched during halts. 3. BAGGAGE WAGONS AND THEIR USE Rolls are carried on the back or in the company baggage wagon, and this vehicle moves with the company or in a special train according to the situation. In a column of marching troops observed near Saarbrucken on July 11, 1940, company baggage wagons apparently were assembled by battalions. They moved in the battalion train at the rear of each battalion. In other marching columns company bag- gage wagons carrying individual rolls have been seen moving at the rear of their respective companies. Much leeway is given to battalion and higher commanders in making these arrangements. 4. INDIVIDUAL COMBAT EQUIPMENT When the unit is approaching combat, rolls are normally car- ried in the company baggage wagons. The individual rifleman carries his weapon, ammunition as issued, canteen, mess kit, gas mask, two or three hand grenades, and possibly his rain mantle. 5. MUSIC The Germans love music, and commanders often use it to help maintain morale and spirit during marches. Marching songs are fre- quently heard when columns are passed on the road. 6. THE MARCHING TRADITION Probably the most important factor contributing to the march- ing endurance of the German soldier is the fact that walking is a tradition with him. In his youth he carried part of the family camping equipment on hikes into the woods or along the rivers during vacations. In the Hitler Youth and in working camps he received further training. When he entered the Army, he expected to make long and fatiguing mar- ches in the normal course of events. His ability to endure them is a matter of tradition and personal pride. RESTRICTED -3- CONFIDENTIAL 104 Paraphrase of Code Radingram Received at the War Department 3817 Polle, October 8, 2940. Landon, filed 6:26 D. October s, 1940. 1. During Nonday, October 7th, the Coastal Command operated 86 planes on 49 aissions and escorted 27 convoys. One British and one German plane were lost in these operations. During daylight hours 12 planes from the Bomber Command were dispatched against primary targets, mostly petroleum plants. Owing to the lack of clouds the primary ter- gets were not reached and only two planes were able to bomb their secondary objectives. Six other planes conducted a recomaissance over the North Sea. No planes were lost during the day. During that night 150 boubers laid sines along the coast of the Continent, attasked invesion ports, bombed railroad yards, shipping, and gun emplacements in ensay territory, and operated against Berlin targets. Results of these operations are not available. During October 7th the Fighter Command operated 822 planes on 129 patrols. 2. During daylight hours of October 7th the German Air Fords conducted four main attacks against London, employing about 120, 130, 50, and 30 planes, respectively. The first and the last raids our in over Dorset. During the night about 200 planes operated between 7:00 p.m. and 6:00 a.m. an a large scale and over widely separated areas. 3. German plans losses were 27 confirmed, 5 probable and 14 damaged. The Royal Air Force lost 16 planes and 6 pilots. Regraded Uclassified CONFIDENTIAL 105 4 the airfialds that - benied - smill - - planes were mushed at - and - hape ni - mustin - destroyed nb - other é a rale in - address major damage from fire. three reflreed lines are blooked, - protably for - or three days. a fastery was not a fire but production is not affected. 4 consurcial deck alsog the Thanes River - not on fire and - where damaged. Two fires was started in both notther have my military effect. to large bents full an - corner of Ryde Pask. Marly a w morning of October on & stick of heavy benie full - Ehitchall, ⑉ striking the Air Rindstry and the other the - cities. 5. one 910-tem merchant ship - ank w a nine, Two British destrupeurs suffered - from fire and the other from a mine. One 33 ship - cleared the British Islas and another of n ships entral suffily. 6. 28 to estimated that Commany has smt about 200 JU-90 and JU-52 mili-enging transport planes to Italy. (These planes would have a - Ing expective of about 2,000 M for such twip. c-2). Created returned to Libya from - Ostober 4a. 4. There is no change in the military situation. Hertford, who left Parts e Debeber 200, reports that termine claim that they are writing to a - for before they attorgt - termster. - Capics to: Hilitary Aide to the President Secretary r Stuff CONFIDENTIAL Regraded Uclassified CONFIDENTIAL 106 of Code Cablagram Accurred the for Department 6:30 - Crimber as 1949, adjust, stree 16035, October " 1949, The Yugeslaw chief of Military Intelligence total - that the position of Ingredavia toward Gergen dominds works depend - the stidtude of mede. If help - be had from masta, Tegeslavia s I $ I i 1 2 I s i It TOPAL I - This to in regily to - as w what would do 1 a I 1 r s 1 I I I territory. Defention appears to be - general is Belgende, FORTIER. Capdes to: Hilltary Adde to the President r CONFIDENTIAL 107 BRITISH EMBASSY, WASHINGTON, D.C. October 8th, 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, Louran The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. 108 Telegram from London dated October 7th, 1940. 1. Navel. a writish submarize reports in dnylight on october let when neer Cherbourg she attacked four enemy destroyers with torpedoes the result la unknown (venfirmation of paragraph i, aub-paragraph two, of sumary of October 2nd). Reference para/roph 1, sub-paragraph 3, of currery of Detober 6th, twenty-e:ght survivors of this trawler have been landed in spain. Three attacks ware mude on U-bonto yesterday; one by a Dutch submarine, one by aircraft and one by e naval mit. In all cases, results could not be seen. 2. Royal Air Force. Owing to unfavourable weather conditions on night of the 5th/6th, only a for of the aircraft despatched penetrated into Sermany, fires were started at delsenkirchen oil plant and at three railway targets, end grupp works were attacked with unknown results. Other aircraft bashed serodroses in Holland, and anchines of constal coumand bombed shipping at Breat, 104 barges and mechanical transport near Calmie. Mine- laying operations were made difficult by cloudy and joing conditions. During the daylight or october 6th, twentyone sedium bombers were despatched and all returned safely. Attacks were sinde on Calais hapbour, three serodromes, sna/ Regraded Uclassified 109 at as bargas and shipping is Disch partes 1 dircet Mt - obtained # 6 vissel off Do Dateh count. £2.109 was obet down tate the DER eff coleis. Three Dombors attacked with bonks and machine gune two arued serenent vessele off the vest coest of Dennark. Bullets were aven to hit target, but one of our aircraft was hit and net on fire; novertheless 11 continued attack until the fire spread, when it dived into sea and vag lest. All operations were cancelled last night, owing to unfavourable weather. 3. German Air Force. Day of October 6th, weather was rainy with lew cloud, and enemy activity was confined to raids by single aireraft, which in come cases penstrated to London owing to the difficulty of interesption, come bombs were dropped in central area. OUP fighters patrolled is pairs, and interesptions did take place, but only one every aircraft was destroyed. A number of Royal Air Feree acrodrones were attacked, and at one a Hurricane vas destroyed on the ground, but at no other serodrone was any serious damage done. owing to the weather conditions, enemy machines flow very low, and in one London enburb end at Southempten machine gunning of the streets from the sir Book place. Some bombs were also dropped in south-cost ... side towns and casualties caused. Some essall oil eisterns were set alight at e depot on the Theree Satuary, the fire was extinguished by four L.S. today, four sisteras damaged and the contents of nine destroyed. There was no easy activity in daylight after 5.45 Della Dummary/ Regraded Uclassified 110 gumsex of sir corrultion: Easay Destroyed Dewaged Probable By our fighters Bombers 1 - 1 Fighters 1 - I (off Calmis) Totals 2 I 1 British In the air: one medium beuber on the ground; one Hurricane and pilot. During the night of October 6th/7th only 9 onesy aircraft operated over Great Britain. 4. Shipping Casualties. Although a British tanker was terpedood, no definite shipping cacualties were reported on October 6th. 5. Middle East. Libya. Inetions air reconnsissence on the morning of the fifth showed approximately 1,300 mechanical transport vehicles in various localities in a sector of about 40 miles extent, south and west of sidi Barrani. These concentrations suggest establishment of forward bases. ca October 5th, about 60 enemy aeroplanes including 16 fighters, attacked Zerea Metruh and dropped 160 books. Casualties 2 killed, 1 wounded; damage to a few vehicles; anti-screraft elaims 3 seroplance hit. Regraded Uclassified 111 October 8, 1940 Secretary Morgenthau 3. H. Foley, Jr. Pursuant to your instructions, I left Washington at 6:15 Thursday afternoon, October 3, 1940, for San Diego, California, arriving there at 9:00 o'clock Friday morning, October 4, 1940. At about 11:00 o'clock on that day I attended a conference at the office of the President of the Consolidated Aircraft Corporation at Lindbergh Field, San Diego, at which (in addition to J. C. Buckley, C. L. Kades and myself represent- ing the Treasury Department) the following were present: Representing the Navy Department: James V. Forrestal, Under Secretary of the Navy Admiral A. B. Cook, Commander, Aircraft Scouting Force Captains Ravenscroft, Murray and Zeigler Commanders Pennoyer and Gingrich Representing the War Department: Colonel George Kenney Lieutenant Colonel L. H. Smith Majors Al. Lyon and E. R. McReynolds Representing the British Purchasing Mission: Mr. E. R. Fairey of Fairey Aeroplane Works, England Mr. C. N. Gray Air Commodore Mansell Wing Commander Addams Representing Consolidated Aircraft Corporation: R. H. Fleot, President C. A. Van Dusen, Vice President and Works Manager I. M. Laddon, Vice President and Chief Engineer D. G. Fleet, Assistant to the Manager 112 - 2 - From information obtained at this conference and at subsequent conversations, and on the basis of what I personally observed during two days in San Diego, I wish to make the following points: 1. The national defense program 1a causing critical conditions affecting the health, safety and welfare of persons engaged in defense activities in the City of San Diego. The Federal Government has an important and valuable stake in San Diego, The population of San Diego will increase by 100,000 persons in the next year as the direct result of the national defense program. The national defense program presently amounts to about $30,300,000, including naval public works costing $13,500,000, naval housing costing $4,200,000, army public works costing $2,300,000 and aircraft plant expansion costing $10,000,000. In addition, the backlog of orders from the Navy, the Army, and the British for Consolidated planes aggregates $300,000,000 and will require nearly 20,000 employees by June 1, 1941. 2. Approximately $23,500,000 should be allotted to the Public Buildings Administration (or the Navy Department) for the construction of housing facilities for employees of the Consolidated Aircraft Cor- poration plant and persons engaged in other defense activities. 3. Approximately $2,000,000 should be allotted to the Works Projects Administration (or the Navy Department) for the construction of a comprehensive system for the collection and disposal of sewerage in San Diego. Regraded Uclassified - 3 - 113 4. Approximately $7,700,000 should be allotted to the Bureau of Reclamation (or the Navy Department) for the construction of an aqueduct from the All-American Canal to El Capitan and San Vicente reservoirs. 5. Consideration should also be given to undertaking other needed projects in San Diego, such as constructing an express military and naval harbor drive costing about $1,500,000 and expanding voca- tional training for the aircraft industry through the erection and equipment of new buildings costing about $1,250,000. The basic assumptions which underlie these points are: (a) That workers in defense industries have the right to naintain a standard of living in decency and comfort, with the opportunity of providing their families with safe and sanitary dwellings, having adequate water and sewerage facilities; (b) That the existing emergency justifies immediate Federal financial aid for projects serving prinarily naval, military and civilian personnel engaged in performing naval, nilitary or aircraft manufacturing functions; and (c) That the Federal Government will ultimately have to provide for the comprehensive development of San Diego as a new Federal city. Attached hereto is a discussion of the reasons on which I have based the foregoing suggestions. Regraded Uclassified 114 I. THE NATIONAL DAFENSE FROGRAM IS CAUSING CRITICAL CONDITIONS AFFECTING THE HEALTH, SAFETY, AND WELFARE OF PERSONS ENGAGED IN DEFENSE ACTIVITIES IN SAN DIEGO. A. The Federal Government has an important and valuable stake in San Diego. 1. The City of San Diego, a municipal corporation of the State of California, is the headquarters for the Eleventh Naval District and the site of the largest naval operating base on the Pacific coast. The naval base enbraces a Naval Air Station, Marine Base, Naval Fuel Depot, Naval Supply Depot, Destroyer Base, Naval Hospital and Naval Training Station, a. Coast Guard Base, and naval radio stations. 2. San Diego is also the site of Fort Rosecrans, an important nilitary post, an Arny Air Corps training school and supply depot. 3. San Diego is a center of aircraft nanufacturing activities, the plants of both the Consolidated Aircraft Corporation and the Ryan Aeronautical Corporation being located there. Ryan namifactures train- ing planes and conducts a training school for aircraft pilots. Consolidated manufactures savy patrol bonber flying boats, twin-engine army bonbers and other types of nilitary and naval airplanes. 115 - 5 - 4. Property owned by the Federal Government in San Diego consti- tutes about one-quarter of the City's assessed valuation of about $200,000,000. Likewise, about one quarter of the City's present popu- lation of 202,000 consists of Navy personnel, on active duty and re- tired. B. The Federal Government is presently increasing its stake in San Diego by carrying out a vast public works and aircraft plant ex- pansion program there. 1. The Navy has undertaken a building program in San Diego which, exclusive of a four million dollar low-cost housing program, amounts to about $13,500.000. Included in this program are the following described projects estimated to cost the following amounts: Project Estimated Cost Destroyer Base: Cruiser graving dock, store- houses, shop buildings, etc. $4,500,000 Naval Air Station: Land and seaplane hangers, gasoline storage tanks and piers 3,900,000 Marine Corps Base: Barracks, messing facili- ties, dispensary, etc. 1,550,000 Naval Supply Depot: Pier and transient shed 1,700,000 Naval Training Station: Temporary barracks and other buildings 1,200,000 Naval Fuel Depot: Diesel and fuel oil storage facilities 500,000 Naval Hospital: Temporary ward buildings 150,000 $13,500,000 2. The War Department has under way harbor improvements costing $2,300,000. including dredging the seaplane basin opposite the Coast Guard Base at a cost of about $300,000. 116 - 6 - 3. The Consolidated Aircraft Corporation (which recently com- pleted & plant expansion program costing $2,500,000) proposes to 0%- pend an additional $12,300,000 on the construction of (1) 8. new separate parts plant estimated to cost $8,500,000, (2) new improve- ments in its existing plant estimated to cost $3,800,000, including $1,200,000 for machinery and $300,000 for a badly-needed supplemental sprinkler system. In this connection it was agreed at a conference on October 5 in San Diego that Consolidated would accept the offer of the Reconstruc- tion Finance Corporation of September 13, 1940, under which the new airplane parts plant will be built by Consolidated on behalf of the Defense Plant Corporation (a subsidiary of the RFC) which will hold title to the plant and will lease the same to Consolidated. The site of the plant (which had already been acquired by Consoldiated) will be deeded to the Defense Plant Corporation. It is also contemplated that the Reconstruction Finance Corpor- ation will lend Consolidated the $1,500,000 for the machinery and sprinkler system in the existing plant: the remaining $2,300,000 will be financed by Consolidated from its own funds. C. San Diego's population is rapidly increasing as a direct re- sult of the national defense program. 1. Navy personnel increased 10,400 from September 1, 1939 to October 1, 1940, notwithstanding that part of the fleet ordinarily based at San Diego has been absent since March 1940. During this period enlisted personnel increased from 8,300 to 17,700, officer Regraded Uclassified 117 - 7 - personnel from 500 to 750, and civilian personnel attached to the Savy from 2,400 to 3,150. 2. Consolidated Aircraft Corporation personnel increased from 3,170 employees on December 29, 1939, to 11.702 employees on October 3. 1940. Consolidated will require an additional 7,000 employees by May 31, 1941, bringing the total to 18,000. It has been estimated that Consolidated will employ by 1942 more than 30,000 persons in San Diego. 3. The City's total population increased more then one-third in the decade from 1930 to 1940, there being 147,000 inhabitante according to the 1930 census and 202,000 according to the 1940 census. It is conservatively estimated that its population will increase an addi- tional 50 per cent during 1941 to & total of 300,000, due preponderantly to the national defense program. II. APPROXIMATELY $23,500,000 SHOULD EE ALLOTTED TO THE PUBLIC BUILD- INGS ADMINISTRATION (OR THE NAVY DEPARTMENT) FOR THE CONSTRUCTION OF HOUSING FACILITIES FOR CIVILIANS EMPLOYED AT CONSOLIDATED AND ENGAGED IN OTHER DEFENSE ACTIVITIES. A. There is an acute housing shortage in San Diego due to the national defense program. 1. The housing vacancies are less than 2 per cent. These vacan- cies on the whole exist in dwellings renting from $70 per month upwards which were formerly occupied by naval officers now with the fleet in Hawaii. 118 - 8 - 2. The families of workers at the Consolidated plant are forced to live in abandoned street care, auto trailers and shacks, without proper newage or toilet facilities. 3. The Federal Housing Administration has made several surveys but has apparently been unable to obtain private capital to undertake housing projects for labor. 4. The City Council has never created a local housing authority. Even if it had done so, it is doubtful if such an authority would be authorized under the State Housing Authorities Law to construct pro- jects for persons engaged in defense industry because such persons re- ceive wages enabling them to pay normal rents without being subsidized. An amendment to the state law which would have permitted local housing authorities to engage in such projects was defeated at a recent special session of the Legislature of California called by the Governor partly for the purpose of passing such an amendment. B. The Navy Department's housing project will only slightly alleviate the shortage of safe and sanitary dwellings. 1. The Navy Department is about to begin construction of 1,200 housing units in San Diego, half for married enlisted men and half for married civilians attached to naval activities. Money for this pro- ject has been made available from the fund established by I 201 of the Second Supplemental National Defense Appropriation Act, 1941. In ad- dition, a project of 1,650 units has been approved for a later program when funds are available. Neither of these projects, however, will be sufficient to take care of civilians to be employed at the Consolidated Aircraft Company. Regraded Uclassified 119 9 2. It is essential that at least 6,000 units for married civilians and 6,000 units for bachelor civilians to be employed by the Consolidated Aircraft Company be built as quickly as possible. It is estimated that B. housing unit for a married person would cost not to exceed $3,000 (including land which in the past has been obtained in San Diego for an average of $500 per unit) and could be leased at & rental of about $15 per month. The units for bachelor civilians would consist of semi-permanent barracks similar to bachelor quarters at existing naval bases and would probably not cost more than $425 per person housed. 3. It is essential that a joint resolution appropriating $150,000,000 to carry out the provisions of H.R. 10412 (which authorizes the expenditure of $150,000,000 for the construction of housing facilities for persons engaged in national defense activities and their families) be enacted at the earliest possible date. 4. In this connection, it was settled at & conference on October 5, 1940 in San Diego that a wholly-owned subsidiary of Consolidated Aircraft Corporation (called Frontier Enterprises, Inc.) would offer in writing to sell two parcels of land to the Navy for housing purposes at a total price of $97,625, the County appraised value being $134,650 and the assessed value being $67,325. These parcels would be sufficient to provide land sufficient for 1,400 married employees of Consolidated, and, in addition, 1,000 enlisted married Navy personnel. Additional land near the parcels mentioned for housing workers employed at Consolidated can be obtained within walking distance of the plant by condemning land owned by a private flying service. Regraded Uclassified 120 - 10 - III. APPROXIMATELY $2,000,000 SHOULD BE ALLOTTED TO THE WORKS PROJECTS ADMINISTRATION (OR THE NAVY DEPARTMENT) FOR THE CONSTRUCTION OF A SYSTEM FOR THE COLLECTION AND DISPOSAL OF SEWAGE IN SAN DIEGO. A. The pollution of San Diego Bay is a serious menace to health. 1. Sewage is now dumped into San Diego Bay from nine outfall sewers. The density of pollution in the Bay is startling. If an epidemic is to be avoided, immediate correction of this condition is imperative. Not only is the health of civilians engaged in defense industries imperilled, but the pollution is hazardous to Navy personnel stationed on vessels in the harbor as well as those stationed ashore. 2. The anticipated increase in the City's population will, of course, accentuate the gravity of this problem. 8. The proposed WPA sewage disposal plant should be supplemented by an intercepting sewer system. 1. Among projects certified as necessary for the national defense to the Works Projects Administration by the Secretary of War and the Secretary of the Navy is the construction of an outfall sewer at the Destroyer Base estimated to cost $108,000 and the construction of a sewage disposal and treatment plant estimated to cost $430,000. In addition, a modern and adequate sewage collection system costing about $1,500,000 is needed. Such an intercepting sewer would begin at the Naval Reservation on the west side of San Diego Bay and would run past the Naval Training Station, the Marine Base, the Consolidated plant, the Naval District Headquarters to the Destroyer Base on the east side of the Bay where the proposed treatment plant will be located. 121 - 11 - 2. WPA would seem to be the logical agency to construct this it. However, in the last month more than 700 persons have been ed from WPA relief rolls because of their ability to secure private ment and there remains only 1,400 men on relief of which about e skilled mechanics. It will be necessary to use these men in to carry out other WPA projects (which have also been certified cessary for national defense) costing in the aggregate the sum of 0,000. These projects consist of the following: Description Amount Improvements to the Lindbergh airport $1,400,000 Naval Operating Base: repairs & improvements 900,000 Naval Reserve Armory 210,000 Improvements to fire alarm system 100,000 Naval Fuel Depot: road improvements 40,000 Water line from Chestertown to Camp Elliott 90,000 Construction of sewage disposal plant & sever outfall near the Destroyer Base (referred to above) 530,000 $3,270,000 3. Unless it is desirable to give the intercepting sever project ity over one or more of the other national defense projects, either PA might be permitted to bring relief labor (if available) from some y locality or (2) the Navy Department might be permitted to construct ewer by ordinary contract procedure under the supervision of the C Works Officer of the Eleventh Naval District as & national defense ency facility since it will service military and naval establishments efense industries. -12- 122 IV. APPROXIMATELY $7,700,000 SHOULD BE ALLOTTED TO THE BUREAU OF RECLAMATION (OR THE NAVY DEPARTMENT) FOR THE CONSTRUCTION OF AN AQUEDUCT FROM THE ALL-AMERICAN CANAL TO EL CAPITAN AND SAN VICENTE RESERVOIRS. A. The water supply of San Diego is not adequate for the contemplated expansion of Naval and Aircraft Manufacturing Activities. 1. The net yield of water obtainable by the City from the presently developed surface supply is 26.6 million gallons daily. The inhabitants of the City and the naval, military, and aircraft manufacturing establish- ments are using 25 million gallons of water daily at present. The antici- pated expansion of the City and the rate of population growth has been pointed out above. 3, The City has planned to supply water required for only a normal increase in population. 1. On November 5. 1940, the voters will be asked to authorize a bond issue of $3,000,000 which, together with an additional $550,000 now on hand, will be used for the construction of an additional reservoir on the San Vicente Creek, a tributary to the San Diego River. They will also be asked to authorize the expenditure of $1,300,000 for extensions and improvements to the water distribution system. However, tho new reservoir, when filled to capacity, will only add approximately 5 million gallons per day to the City's supply. It is estimated that a million gallons of water per day is required for each 8,000 persons added to the population. 2. To construct the works necessary to obtain an additional Regraded Uclassified 123 -13- 25 million gallons of water per day, a pipe line can be constructed from the All-American Canal to El Capitan Reservoir at an estimated cost of $7,700,000. 3. The City has rights from the State of California and from the United States, in accordance with the Boulder Dan Project Act, mabling it to obtain 100 million gallons per day of water from the Colorado River. The Bureau of Reclamation has completed the main All-American Canal, and is now constructing the Coachella branch of the All-Anerican Canal on the east side of the Imperial Valloy. It is anticipated that the Bureau of Reclamation will soon start construction of the west nesa pumping Interal. 4. In 1937 a board of consulting engineors recommended the con- struction of such a conduit from the west end of the All-American Canal to the City's El Capitan Reservoir, in order to protect the City's al- location of Colorado River water and to supplement the local sources of supply when required by the growth of the City, On October 1, 1940 the Commandant of the Eleventh Naval District recomended that an allocation of $7,700,000 be nade to construct this pipe line, stating that any unduo dolay in the provision of funds for this very vital inprovement night result in seriously jeopardizing the progress of national defense projects in San Diego, especially if & severo drought such as was oxperienced in this vicinity several years ago, should reoccur. C. The aqueduct project might be nade self-liquidating. 1. It is suggested that the cost of construction could be reinbursed to the Bureau of Reclamation over a reasonable period of years by neans of a lease of the aqueduct from the Bureau to the City under which the City Regraded Uclassified 124 -14- would pay an agreed annual rental sufficient to amortise the cost over the lease period. In order to avoid having the lease constitute the incurring of indebtednoss by the City (which would require a municipal election to authorize its execution) the loase could grant the City an option to cancel. 2. In this connection, it night be noted that part of the Moffet Water Tunnel Project for the City of Denver, Colorado, was built on a lease basis by the Public Works Administration, and a. state prison for Georgia was also built by PWA on a lease basis of the character suggosted. V. CONSIDERATION SHOULD ALSO BE GIVEN TO (A) CONSTRUCTING AN EXPRESS MILITARY AND NAVAL HARBOR DRIVE CONNECTING THE VARICUS NAVAL AND MILITARY ESTABLISHMENTS AROUND SAN DIEGO BAY, AND (B) EXPANDING EXISTING VOCATIONAL TRAINING FACILITIES FOR THE AIRCRAFT INDUSTRY. д. The Bureau of Public Roads has beon cooperating with the Army and the Havy in planning and aiding in the construction of strategic nilitary highways and access roads. It is undorstood that a report on an access road to Fort Rosecrans on the peninsula at the western side of San Diego Bay has been submitted by the Bureau of Public Roads to the War Department. In addition, however, it has been urged that the various naval establishments around the Bay should be linked by a two- hundred foot drive with a view to increasing the nobility of naval and narine units from one part of the Naval Base to another. The project is estimated to cost $1,500,000. A survey to determine the necessity and feasibility of the road would be nade by the Bureau of Public Roads upon request of the Secretary of the Havy. 125 -15- B. The present vocational courses include aircraft sheet netal, aircraft welding, machine shop practice, tool naicing, bench netal work, blue print reading, shop nathenatics, aeronautical terms and ground school flight training in connection with the Civil Aeronautics Author- ity's progran. According to the City Superintendont of Schools, more than 1,000 students were placed in the aircreft industry in the first six nonths of 1940. Consolidated hiros 60 students a week upon their graduation from a Kansas aircraft industrial school. Over $250,000 has been appropriated by the Board of Education of San Diego for the fiscal year 1940-41 for this purpose. On June 11, 1940 the Superintendent of Schools applied to Connis- sioner Studebaker of the Office of Education for a grant of about $700,000 to expend the present vocational school system of San Diego. Of this sum about $550,000 was for the construction and equipment of new shop buildings, the balance being for energency supplies and salar- ies of additional instructors. In view of the proposed construction of a new parts plant for Con- solidated, it is now estimated by City officials that approximately $1,270,000 is required to meet the neods of national defense training, this sun being arrived at as follows: Equipment Machine Shop (100 stations) $100,000.00 Aeronautics (riveting, welding, etc.) 65,000.00 Ship Building 15,000.00 Pattern Making 5,000.00 Experimental Laboratory 15,000.00 Miscellaneous Shop Equipment 50,000.00 Total $250,000.00 Regraded Uclassified 126 =16- Total Equipment forward $ 250,000.00 Land (additional) 50,000.00 Building (four story - Market and Union) 450,000.00 250 X 100 X 1: - 100,000 sq.ft. Building (four story - present vacant lot 300,000.00 plus building site directly north 165 X 100 X 4 - 74,000) Elevators 20,000.00 $1,070,000.00 1 Story Factory Type (50,000 (Acro) ) 150,000.00 Equipment for above 50,000.00 $1,270,000.00 127 AGENDA FOR OCTOBER 9TH CONFERENCE FACILITIES IMMEDIATELY NECESSARY FOR CONSOLIDATED AIRCRAFT PLANT AND SAN DIEGO Description of Project Estimated Cost Recommended Agency Statutory Authority & Appr opriation 1. Low-cost housing for civilians employed $23,500,000 Federal Works Agency, Public If PBA, H.R. 10412: if Navy, 2nd Sup- at Consolidated (6,000 units 'for married Buildings Administration or plemental National Defense Appropri- men, 6,000 bachelors quarters. Land for Navy Department. ation Act, 1941. 1,400 family units has been offered by Consolidated to Navy Dept. and additional adjacent land is available and may be condemned.) 2. Sewerage: (a) Sewage disposal plant & outfall at 530,000 Federal Works Agency, Works Emergency Relief Appropriation Act, Projects Administration Fiscal year 1941, B1(c) ($25 million Destroyer Base fund) 1,500,000 Federal Werks Agency, Works If WPA, same as above: if Navy, Pub. (b) Intercepting trunk sewer. Projects Administration or No. 672, 88(b) Navy Dept. 3. Aqueduct from All-American Canal to 7,700,000 Dopt. of Interior - Bureau Emergency Fund for the President: of Reclamation Pub. No. 588, and Military Appropri- El Capitan Reservoir ation Act, 1941. " " If 11 # 4. Express military and naval harbor drive 1,500,000 Federal Works Agency, Bureau of Public Roads If " If " " 5. Erection and equipment of vocational 1,270,000 Federal Security Agency, school buildingafor aircraft manufacture Office of Education training. Federal Loan Agency, Defense Pub. No. 671, 15. 6. New aircraft parts plant. 8,500,000 (Consideration should be given to locating Plant Corp. (RFC subsidiary). this plant in Salt Lake City) $44,500,000 128 October 8, 1940 Lord Lothian was in today and I asked him to take back the following message to Lord Beaverbrook. I said to him that I was deeply touched by Lord Beaver- brook's message (copy attached hereto) and that while I did not believe that I needed encouragement to be of help to the British, still it was very nice to get it. I sent him my warm regards. Lord Lothian said, "I can certify that you do not need any encouragement". COPY 129 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 a 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, (Signed) Lothian The Honourable Henry Morgenthau, Jr., United States Treasury, Washington, D. C. Himis reply the delivered per - person in London by ford Lother ( plast 10/8/10. 130 AGRIDA FOR OCTOBER 9TH COMPERNSCE FACILITIES IMMEDIATELY NECESSARY FOR CONSOLIDATED AIRCRAFT PLANT AND SAN DIEGO Description of Project Estimated Cost Recommended Agency Statutory Authority & Appropriation 1. Low-cost housing for civilians employed $23,500,000 Federal Works Agency, Public If РВД, E.R. 10412; if Havy, 2nd Sup- at Consolidated (6,000 units for married Buildings Administration or plemental National Defense Appropri- sen, 6,000 bachelors quarters. Land for Havy Department. ation Act, 1941. 1,400 family units has been offered by Consolidated to Navy Dept. and additional adjacent land is available and may be condemned.) 2. Sewerage: (a) Sewage disposal plant & outfall at 530,000 Federal Works Agency, Works Emergency Relief Appropriation Act, Destroyer Base Projects Administration Fiscal year 1941, I1(c) ($25 million fund) (b) Intercepting trunk sewer. 1,500,000 Federal Works Agency, Works If WPA, same as above; if Navy, Pub. Projects Administration or No. 671, 88(b) Navy Dept. 3. Aqueduct from All-American Canal to 7,700,000 Dept. of Interior - Bureau Emergency Fund for the President: 11 Capitan Reservoir of Reclamation Pub. No. 588, and Military Appropri- ation Act, 1941. 4. Express military and naval harbor drive 1,500,000 Federal Works Agency, Bureau If II If # of Public Roads 5. Erection and equipment of vocational 1,270,000 Federal Security Agency, If If - # . school buildings for aircraft manufacture Office of Education training. 6. New aircraft parts plant. 8,500,000 Federal Loan Agency, Defense Pub. No. 671, 15. (Consideration should be given to locating Plant Corp. (RFC subsidiary). this plant in Salt Lake City) $44,500,000 TREASURY DEPARTMENT 131 INTER-OFFICE COMMUNICATION DATE October 8, 1940 TO Secretary Morgenthau FROM B. H. Foley, Jr. Pursuant to your instructions, I left Washington at 6:15 Thursday afternoon, October 3, 1940, for San Diego, California, arriving there at 9:00 o'clock Friday morning, October 4, 1940. At about 11:00 o'clock on that day I attended a conference at the office of the President of the Consolidated Aircraft Corporation at Lindbergh Field, San Diego, at which (in addition to J. C. Buckley, C. L. Kades and myself represent- ing the Treasury Department) the following were present: Representing the Navy Department: James V. Forrestal, Under Secretary of the Navy Admiral A. B. Cook, Commander, Aircraft Scouting Force Captains Ravenscroft, Murray and Zeigler Commanders Pennoyer and Gingrich Representing the War Department: Colonel George Kenney Lieutenant Colonel L. H. Smith Majors Al. Lyon and E. R. McReynolds Representing the British Purchasing Mission: Mr. E. R. Fairey of Fairey Aeroplane Works, England Mr. C. N. Gray Air Commodore Mansell Wing Commander Addams Representing Consolidated Aircraft Corporation: R. H. Fleet, President C. A. Van Dusen, Vice President and Works Manager I. M. Laddon, Vice President and Chief Engineer D. G. Fleet, Assistant to the Manager 132 - 2 - From information obtained at this conference and at subsequent conversations, and on the basis of what I personally observed during two days in San Diego, I wish to make the following points: 1. The national defense program is causing critical conditions affecting the health, safety and welfare of persons engaged in defense activities in the City of San Diego. The Federal Government has an important and valuable stake in San Diego. The population of San Diego will increase by 100,000 persons in the next year as the direct result of the national defense program. The national defense program presently amounts to about $30,300,000, including naval public works costing $13,500,000, naval housing costing $4,200,000, army public works costing $2,300,000 and aircraft plant expansion costing $10,000,000. In addition, the backlog of orders from the Navy, the Army, and the British for Consolidated planes aggregates $300,000,000 and will require nearly 20,000 employees by June 1, 1941. 2. Approximately $23,500,000 should be allotted to the Public Buildings Administration (or the Navy Department) for the construction of housing facilities for employees of the Consolidated Aircraft Cor- poration plant and persons engaged in other defense activities. 3. Approximately $2,000,000 should be allotted to the Works Progress Administration (or the Navy Department) for the construction of a comprehensive system for the collection and disposal of sewerage in San Diego. Regraded Uclassified 133 2a 4. Approxisately $7,700,000 should be allotted to the Bureau of Reclamation (or the Mavy Department) for the construction of an aqueduct from the All-American Canal to XL Capitan and San Vicente reservoirs. 5. Consideration should also be given to undertaking other needed projects in San Diego, such as constructing an express military and naval harbor drive costing about $1,500,000 and expanding voca- tional training for the aircraft industry through the erection and equipment of now buildings costing about $1,250,000. The basic assumptions which underlie these points are: (a) That workers in defense industries have the right to maintain a standard of living in decency and comfort, with the opportunity of providing their families with safe and sanitary dwellings, having adequate water and sewerage facilities; (b) That the existing emergency justifies immediate Federal financial aid for projects serving primarily naval, military and civilian personnel engaged in performing naval, military or aircraft manufacturing functions, and (c) That the Federal Government will ultimately have to provide for the comprehensive development of San Diego as a new Federal city. Attached hereto is a discussion of the reasons on which I have based the foregoing suggestions. P.N.Falmy 2. 134 - 3 Io THE NATIONAL DEFENSE PROGRAM IS CAUSING CRITICAL CONDITIGNS AFFECTING THE HEALTH, SAFETY, AND WELFARE OF PERSONS ENGAGED IN DEFENSE ACTIVITIES IN SAN DIEGO. A. The Federal Government has an important and valuable stake in San Diego, 1. The City of San Diego, a municipal corporation of the State of California, is the headquarters for the Eleventh Naval District and the site of the largest naval operating base on the Pacific coast. The naval base embraces a Naval Air Station, Marine Base, Naval Fuel Depot, Naval Supply Depot, Destroyer Base, Naval Hospital and Naval Training Station, a Coast Guard Base, and naval radio stations. 2. San Diego is also the site of Fort Rosecrans, an important military post, an Army Air Corps training school and supply depot. 3. San Diego is a center of aircraft manufacturing activities, the plants of both the Consolidated Aircraft Corporation and the Ryan Aeronautical Corporation being located there. Ryan manufactures train- ing planes and conducts a training school for aircraft pilots. Consolidated manufactures navy patrol bomber flying boats, twin-engine army bombers and other types of military and naval airplanes. 135 - 4 - 40 Property owned by the Federal Government in San Diego consti- tutes about one-quarter of the City's assessed valuation of about $200,000,000. Likewise, about one-quarter of the City's present popu- lation of 202,000 consists of Navy personnel, on active duty and re- tired. B. The Federal Government is presently increasing its stake in San Diego by carrying out a vast public works and aircraft plant ex- pansion program there, 1. The Navy has undertaken a building program in San Diego which, exclusive of a four million dollar low-cost housing program, amounts to about $13,500,000. Included in this program are the following described projects estimated to cost the following amounts: Project Estimated Cost Destroyer Base: Cruiser graving dock, store- houses, shop buildings, etc. $4,500,000 Naval Air Station: Land and seaplane hangars, gasoline storage tanks and piers 3,900,000 Marine Corps Base: Barracks, messing facili- ties, dispensary, etc. 1,550,000 Naval Supply Depot: Pier and transient shed 1,700,000 Naval Training Station: Temporary barracks and other buildings 1,200,000 Naval Fuel Depot: Diesel and fuel oil storage facilities 500,000 Naval Hospital: Temporary ward buildings 150,000 $13,500,000 2. The War Department has under way harbor improvements costing $2,300,000, including dredging the seaplane basin opposite the Coast Guard Base at a cost of about $300,000. - 5 - 3. The Consolidated Aircraft Corporation (which recently 000- pleted a plant expansion program costing $2,500,000) proposes to ex- pend an additional $12,300,000 on the construction of (1) a new separate parts plant estimated to cost $8,500,000, (2) new improve- ments in its existing plant estimated to cost $3,800,000, including $1,200,000 for machinery and $300,000 for a badly-needed supplemental sprinkler system. In this connection it was agreed at a conference on October 5 in San Diego that Consolidated would accept the offer of the Reconstruc- tion Finance Corporation of September 13, 1940, under which the new airplane parts plant will be built by Consolidated on behalf of the Defense Plant Corporation (a subsidiary of the RFC) which will hold title to the plant and will lease the same to Consolidated. The site of the plant (which had already been acquired by Consolidated) will be deeded to the Defense Plant Corporation. It is also contemplated that the Reconstruction Finance Corpor- ation will lend Consolidated the $1,500,000 for the machinery and sprinkler system in the existing plant, the remaining $2,300,000 will be financed by Consolidated from its own funds. C. San Diego's population is rapidly increasing as a direct re- sult of the national defense program. 1. Navy personnel increased 10,400 from September 1, 1939 to October 1, 1940, notwithstanding that part of the fleet ordinarily based at San Diego has been absent since March 1940. During this period enlisted personnel increased from 8,300 to 17,700, officer Regraded Uclassified 137 - 6 - personnel from 500 to 758. and civilian personnel attached to the Navy from 2,400 to 3,150. 2. Consolidated Aircraft Corporation personnel increased from 3,170 employees on December 29, 1939, to 11,702 employees on October 3, 1940. Consolidated will require an additional 7,000 employees by May 31, 1941, bringing the total to 18,000. It has been estimated that Consolidated will employ by 1942 more than 30,000 persons in San Diego. 3. The City's total population increased more than one-third in the decade from 1930 to 1940, there being 147,000 inhabitants according to the 1930 census and 202,000 according to the 1940 census. It is conservatively estimated that its population will increase an addi- tional 50 per cent during 1941 to a total of 300,000, due preponderantly to the national defense program. II. APPROXIMATELY $23,500,000 SHOULD BE ALLOTTED TO THE PUBLIC BUILD- INGS ADMINISTRATION (OR THE NAVY DEPARTMENT) FOR THE CONSTRUCTION OF HOUSING FACILITIES FOR CIVILIANS EMPLOYED AT CONSOLIDATED AND ENGAGED IN OTHER DEFENSE ACTIVITIES. A. There is an acute housing shortage in San Diego due to the national defense program. 1. The housing vacancies are less than 2 per cent. These vacan- cies on the whole exist in dwellings renting from $70 per month upwards which were formerly occupied by naval officers now with the fleet in Hawaii. Regraded Uclassified 138 - 7 - 2. The families of workers at the Consolidated plant are forced to live in abandoned street cars, auto trailers and shacks, without proper sewage or toilet facilities. 3. The Federal Housing Administration has made several surveys but has apparently been unable to obtain private capital to undertake housing projects for labor. 4. The City Council has never created a local housing authority. Even if it had done so, it is doubtful if such an authority would be authorized under the State Housing Authorities Law to construct pro- jects for persons engaged in defense industry because such persons re- ceive wages enabling them to pay normal rents without being subsidized. An amendment to the state law which would have permitted local housing authorities to engage in such projects was defeated at a recent special session of the Legislature of California called by the Governor partly for the purpose of passing such an amendment. B. The Navy Department's housing project will only slightly al- leviate the shortage of safe and sanitary dwellings. 1. The Navy Department is about to begin construction of 1,200 housing units in San Diego, half for married enlisted men and half for married civilians attached to naval activities. Money for this pro- ject has been made available from the fund established by il 201 of the Second Supplemental National Defense Appropriation Act, 1941. In ad- dition, a project of 1,650 units has been approved for a later program when funds are available. Neither of these projects, however, will be sufficient to take care of civilians to be employed at the Consolidated Aircraft Company. Regraded Uclassified 139 - 8 - 2. It is essential that at least 6,000 units for married civil= ians and 6,000 units for bachelor civilians to be employed by the Con- solidated Aircraft company be built as quickly as possible. It is estimated that a housing unit for a married person would cost not to exceed $3,000 (including land which in the past has been obtained in San Diego for an average of $500 per unit) and could be leased at & rental of about $15 per month. The units for bachelor civilians would consist of semi-permanent barracks similar to bachelor quarters at existing naval bases and would probably not cost more than $425 per person housed. 3. It is essential that a joint resolution appropriating $150,000,000 to carry out the provisions of H.R. 10412 (which authorizes the expendi- ture of $150,000,000 for the construction of housing facilities for per- sons engaged in national defense activities and their families) be enacted at the earliest possible date. 4. In this connection, it was settled at a conference on October 5, 1940 in San Diego that a wholly-owned subsidiary of Consolidated Air- craft Corporation (called Frontier Enterprises, Inc.) would offer in writing to sell two parcels of land to the Navy for housing purposes at a total price of $97,625, the County appraised value being $134,650 and the assessed value being $67,325. These parcels would be sufficient to provide land sufficient for 1,400 married employees of Consolidated, and, in addition, 1,000 enlisted married Navy personnel. Additional land near the parcels mentioned for housing workers employed at Consolidated can be obtained within walking distance of the plant by condemning land owned by a private flying service. Regraded Uclassified - 9 - 140 III. APPROXIMATELY $2,000,000 SHOULD BE ALLOTTED TO THE WORKS PROJECTS ADMINISTRATION (OR THE NAVY DEPARTMENT) FOR THE CONSTRUCTION OF A SYSTEM FOR THE COLLECTION AND DISPOSAL OF SEWAGE IN SAN DIEGO. A. The pollution of San Diego Bay is a serious menace to health. 1. Sewage is now dumped into San Diego Bay from nine outfall sewers. The density of pollution in the Bay is startling. If an epidemic is to be avoided, immediate correction of this condition is imperative. Not only is the health of civilians engaged in defense industries imperiled, but the pollution is hazardous to Navy personnel stationed on vessels in the harbor as well as those stationed ashore. 2. The anticipated increase in the City's population will, of course, accentuate the gravity of this problem. B. The proposed WPA sewage disposal plant should be supplemented by an intercepting sewer system. 1. Among projects certified as necessary for the national defense to the Works Projects Administration by the Secretary of War and the Secretary of the Navy is the construction of an outfall sever at the Destroyer Base estimated to cost $108,000 and the construction of a sewage disposal and treatment plant estimated to cost $430,000. In ad- dition, a modern and adequate sewage collection system costing about $1,500,000 is needed. Such an intercepting sewer would begin at the Naval Reservation on the west side of San Diego Bay and would run past the Naval Training Station, the Marine Base, the Consolidated plant, the Naval District Headquarters to the Destroyer Base on the east side of the Bay where the proposed treatment plant will be located. 141 -10- 2. WPA would seem to be the logical agency to construct this project. However, in the last month more than 700 persons have been dropped from WPA relief rolls because of their ability to secure private employment and there remain only 1,400 men on relief of which about 100 are skilled mechanics. It will be necessary to use these men in order to carry out other WPA projects (which have also been certified as necessary for national defense) costing in the aggregate the sum of 3,270,000. These projects consist of the following: Description Amount Improvements to the Lindbergh airport $1,400,000 Naval Operating Base: repairs & improvements 900,000 Naval Reserve Armory 210,000 Improvements to fire alarm system 100,000 Naval Fuel Depot: road improvements 40,000 Water line from Chestertown to Camp Elliott 90,000 Construction of sewage disposal plant & sewer outfall near the Destroyer Base (referred to above) 530,000 $3,270,000 3. Unless it is desirable to give the intercepting sewer project priority over one or more of the other national defense projects, either (1) WPA might be permitted to bring relief labor (if available) from some nearby locality or (2) the Navy Department might be permitted to construct the sewer by ordinary contract procedure under the supervision of the Public Works Officer of the Eleventh Naval District as a national defense emergency facility since it will service military and naval establishments and defense industries. Regraded Uclassified 142 -11- IV. APPROXIMATELY $7,700,000 SHOULD BE ALLOTTED TO THE BUREAU OF RECLAMATION (OR THE NAVY DEPARTMENT) FOR THE CONSTRUCTION OF AN AQUEDUCT FROM THE ALL-AMERICAN CANAL TO EL CAPITAN AND SAN VICENTE RESERVOIRS. A. The water supply of San Diego is not adequate for the contemplated expansion of Naval and Aircraft Manufacturing Activities. 1. The net yield of water obtainable by the City from the presently developed surface supply is 26.6 million gallons daily. The inhabitants of the City and the naval, military, and aircraft manufacturing establish- ments are using 25 million gallons of water daily at present. The antici- pated expansion of the City and the rate of population growth has been pointed out above. B. The City has planned to supply water required for only a normal increase in population. 1. On November 5, 1940, the voters will be asked to authorise a bond issue of $3,000,000 which, together with an additional $550,000 now on hand, will be used for the construction of an additional reservoir on the San Vicente Creek, & tributary to the San Diego River. They will also be asked to authorise the expenditure of $1,300,000 for extensions and improvements to the water distribution system. However, the new reservoir, when filled to capacity, will only add approximately 5 million gallons per day to the City's supply. It is estimated that a million gallons of water per day is required for each 8,000 persons added to the population. 2. To construct the works necessary to obtain an additional Regraded Uclassified 143 72 25 million gallons of water per day, & pipe line can be constructed from the All-American Canal to El Capitan Reservoir at an estimated cost of $7,700,000. 3. The City has rights from the State of California and from the United States, in accordance with the Boulder Dam Project Act, enabling it to obtain 100 million gallons per day of water from the Colorado River. The Bureau of Reclamation has completed the main All-American Canal, and is now constructing the Coachella branch of the All-American Canal on the east side of the Imperial Valley. It is anticipated that the Bureau of Reclamation will soon start construction of the west mesa pumping lateral. 4. In 1937 a board of consulting engineers recommended the con- struction of such a conduit from the west end of the All-American Canal to the City's El Capitan Reservoir, in order to protect the City's al- location of Colorado River water and to supplement the local sources of supply when required by the growth of the City. On October 1, 1940 the Commandant of the Eleventh Naval District recommended that an allocation of $7,700,000 be made to construct this pipe line, stating that any undue delay in the provision of funds for this very vital improvement might result in seriously jeopardising the progress of national defense projects in San Diego, especially if a severe drought such as was experienced in this vicinity several years ago, should reoccur. C. The aqueduct project might be made self-liquidating. 1. It is suggested that the cost of construction could be reimbursed to the Bureau of Reclamation over a reasonable period of years by means of a lease of the aqueduct from the Bureau to the City under which the City - 13 - 144 would pay an agreed annual rental sufficient to amortize the cost over the lease period. In order to avoid having the leuse constitute the incurring of indebtedness by the City (which would require a. minicipal election to authorize its execution) the lease could grant the City an option to cancel. 2. In this connection, it might be noted that part of the Moffat Water Tunnel Project for the City of Denver, Colorado, was built on & lease basis by the Public Works Administration, and a state prison for Georgia was also built by PWA on 8. lease basis of the character suggested. V. CONSIDERATION SHOULD ALSO BE GIVEN TO (A) CONSTRUCTING AN EXPRESS MILITARY AND NAVAL HARBOR DRIVE CONNECTING THE VARIOUS NAVAL AND MILITARY ESTABLISHMENTS AROUND SAN DIEGO BAY, AND (B) EXPANDING EXISTING VOCATIONAL TRAINING FACILITIES FOR THE AIRCRAFT INDUSTRY. A. The Bureau of Public Roads has been cooperating with the Army and the Navy in planning and aiding in the construction of strategic military highways and access roads. It is understood that a report on an access road to Fort Rosecrans on the peninsula at the western side of San Diego Bay has been submitted by the Bureau of Public Roads to the War Department. In addition, however, it has been urged that the various naval establishments around the Bay should be linked by a two- hundred foot drive with a view to increasing the mobility of naval and marine units from one part of the Naval Base to another. The project is estimated to cost $1,500,000. A survey to determine the necessity and feasibility of the road would be made by the Bureau of Public Roads upon request of the Secretary of the Navy. Regraded Uclassified - 14 - 145 B. The present vocational courses include aircraft sheet metal, aircraft welding, machine shop practice, tool making, bench metal work, blue print reading, shop mathematics, aeronautical terms and ground school flight training in connection with the Civil Aeronautics Author- ity's program. According to the City Superintendent of Schools, more than 1,000 students were placed in the aircraft industry in the first six months of 1940. Consolidated hires 60 students a week upon their graduation from a Kansas aircraft industrial school. Over $250,000 has been appropriated by the Board of Education of San Diego for the fiscal year 1940-41 for this purpose. On June 11, 1940 the Superintendent of Schools applied to Commis- sioner Studebaker of the Office of Education for a grant of about $700,000 to expand the present vocational school system of San Diego. Of this sum about $550,000 was for the construction and equipment of new shop buildings, the balance being for emergency supplies and salar- ies of additional instructors. In view of the proposed construction of a new parts plant for Con- solidated, it is now estimated by City officials that approximately $1,270,000 is required to meet the needs of national defense training, this sum being arrived at as follows: Equipment Machine Shop (100 stations) $100,000.00 Aeronautics (riveting, welding, etc.) 65,000.00 Ship Building 15,000.00 Pattern Making 5,000.00 Experimental Laboratory 15,000.00 Miscellaneous Shop Equipment 50,000.00 Total $250,000.00 146 -15- Total Equipment forward $ 250,000.00 Land (additional) 50,000.00 Building (four story - Market and Union) 450,000.00 250 X 100 x 4 - 100,000 sq.ft. Building (four story - present vacant lot 300,000.00 plus building site directly north 165 X 100 X 4 - 74,000) Elevators 20,000.00 $1,070,000.00 1 Story Factory Type (50,000 (Aero) ) 150,000.00 Equipment for above 50,000.00 $1,270,000.00 147 dateker s. 1940 Files Mr. Cookram After consulting Under Secretary Bell on Mr. Pincent's contration of October 7. I telephoned Mr. Pincent yesterday. I told his that practically all of the British and Canadian basks which have branches is the areas where this Government has at- ranged with the British for naval bases have new been is to see as is the Treasury of have written, with the view to obtaining our accounts. I explained to Mr. Pineent that 11 is the Treasury Department which decides what banke shall to the depositaries for Government funds to be disbursed in the areas under reference. Since there are American branch banks in these areas, we will necessarily utilise the British and Canadian banks. Furthermore, I agreed that the narmal procedure would be for the Treasury to purchase through the Federal Receive Bank at New Task any sterling which the Treasury night require. This would neet the British request that sterling be procured through a recognised channel. Finsent was glad to have this information and planned to cable 11 to his Government. pme MMC:1sp-10/5/40 Regraded Uclassified 148 October 8, 1940. MEMORANDOM There was & meeting in Secretary Hall's office at 3 p.m., October 8, which lasted for three-quarters of an hour and was attended by the following: Messrs. Hull, Berle, Grady, Feis and Pasvolsky of the State Department; Solicitor General Biddle, and Mesers. Morgenthau, Bell, Foley, Cochran, White, Pehle and Bernstein of the Treasury. The subject of discussion was the question of extending the area of foreign exchange controls raised in Secretary Hull's letter of October 2, 1940, to the Treasury. Several hours before the meeting the Treasury had forwarded to the State Department a. memonandum of a suggested agenda for the discussion which had been prepared by Jr. White and reviewed by the group in Mr. Bell's office on the morning of October 2. In response to & question from Secretary Hull, Mr. Grady stated that the problem was one of controlling movements of funds, particularly European funds and he felt that exchange control should be employed only as a last resort in dealing with the problem. Secretary Morgenthau referred to the memorandum that the Treasury had submitted indicating the alternatives and the problems that might arise in connection therewith and stated that the Treasury had the machinery for handling the matter but that the policy was for the State Department to decide and that when the State Department decided the policy the Treasury, BO long as it had the machinery, would carry out the policy. Mr. Berle stated that in June the Departments had discussed general exchange control but it was decided that the time was not then ripe for such action but that the matter should be studied further. Now that the Japanese- Aris Pact has been announced, the time has arrived to review the question. He stated that there were three problems: 1. Use of the funds by Germany for propaganda purposes and subversive activities. 2. Control of the funds to protect the domestic economy. 3. Control as a weapon of defense. Berle also stated that the public reaction should be taken into account in view of the Far Eastern situation. Thereupon the discussion took place 6.8 to certain figures included in the aforementioned memorandum, particularly the figures relating to Swise balances. lb. Biddle then stated that he believes that Germany is operating through Switzerland and Swies accounts and that he felt that German assets should be blocked. He said such action would be justified and would eliminate in- consistencies in our present freezing policies. In response to a question by Solicitor General Biddle, Secretary 149 - 2 - Morgenthau stated that under the mechanism of the freezing control, it was possible to unfreese in such 8. manner as to help countries in accordance with Government policies. Biddle then went on to state that he WE.D anxious to know how Germany was using money here and expressed the hope to be able to obtain information with regard to this matter. The possibility of getting this information by reports without application of freezing control W&E thereupon discussed. Mr. Feis thought that it might be valuable to get reports even though freezing control was not invoked. Pesvolsky stated that if We wanted to prevent German funds from going to South America, it would be necessary to apply more stringent control to South American money transfers than would be imposed in the case of the other countries. He also raised the question as to the legal basis for preventing Germany from using its funds if the funds actually belonged to Germany as distinguished from the cases now under our freezing control where the possibility exists of money being used by an invader. Secretary Hull and Grady then discussed the question of obtaining more information before any action was taken. Thereupon Secretary Hull suggested that 8. comittee of the Departments be designated to consider the matter further and report to the two Departments. Secretary Morgenthau agreed to this end stated that Mr. Bell would head the Treasury Committee and for Secretary Hull to communicate with Mr. Bell whenever he wished the committee to meet. Mr. Biddle stated that he did not think it was necessary for the Department of Justice to be represented on such committee. 150 SUGGESTED AGENDA FOR DISCUSSION on QUESTION or EXTENDING THE AREA OF FOREIGN EXCHANGE CONTROLS RAISED IN SECRETARY EVLL'S LETTER or OCTOBER 2. 1940 I. Some of the unit areas to which our exchange control can be extended: (a) All the "aggreesor" nations (b) All remaining countries in continental Europe (excluding British Empire and possibly Russia) (s) Continental Europe plus Asia (d) The world except American republies (o) The world (including transactions of every character and of every country) (There are appended tables of some data pertinent to the discussion. The data on earmarked gold and our- rent balances are confidential.) The advantages and disadvantages of extending foreign exchange controls are in part similar to those son- sidered when the question of freezing Boandinavian, Dutch, etc. balances was discussed. There are, how- ever, additional factors and sany of the old con- siderations are of growing importance as the area of control 10 extended. II. The chief disadvantages to be considered are: (a) Possible retaliation against American assets abroad. Americans have balances and investments in foreign countries and imposition of control on transactions with those areas may make it more difficult to withdraw funds from these areas. (b) Lass of trade. If extended to include Germany, Italy and Japam, and if licenses are to be granted sparingly, our trade with those coun- tries would probably sease. whether or not this See C.#18 for tables attached 10/8/40 - For meeting in State Dept. Regraded Uclassified 151 would be 00 depends, of course, upon the policy 99 would purene in granting licenses. It is to be noted that our direct trade with Germany and Italy is nov negligible because of the British blockade. (o) Burdens OR foreign trade and finance. OUP foreign trade and international financial transactions would be burdened with delays, annoyances, and additional expense. American banks and concerns engaging in international transactions of any character will be put to some additional expense because of the addi- tional paper work, ets. involved. (d) Added cost to the The administrative cost to the government will increase as the areas to be controlled are extended. If the whole world is placed under control, the cost of administration might well be several times the cost of current controls. (e) Government interference with private business. Extension of exchange controls would be regarded in sany quarters as an extension of government interference with private enterprise, and henoe as a step toward "Totalitarianism". (f) Possibility of non-esonomic reprisals. Areas subjected to restrictive neasures on their BOTO- ment of dollar funds may be thereby stimulated to adopt & more unfriendly attitude toward the United States. In the case of certain countries 18 may precipitate further aggression of belligerence. (s) Might hare our Good Heighbor Policy. If applied to Latin American countries the restrictions may make more difficult promotion of our Good Neighbor policy. (b) Violation of liberal trade policies. If the control is extended it sust be recognized that we will engage in discriminatory practices which constitute a violation of a commercial policy 10 have been hitherto pursuing. Regraded Uclassified 152 Division of Mometary - 3 - Research III Advantages to be weighed against the disadvantages (a) Foreign exchange control an instrument of national defense. The masure should be ro- garded primarily AB a weapen of national co- fense and not " a coang of obtaining commercial gain If this be so, the adain- istrative costs and the burden and annoyance to American business assume e smaller impor- tonce. (b) Provides an additional bargaining instrument. By the use of general and special Licenses and by flexibility of controls it is possible to accord favorable treatment to solected eoun- tries and thereby facilitate closer relation- ships with these countries. (e) Would make present policy less inconsistent. Extension or control to the aggressor nations might remove the criticism that our present policy is inconsistent. (a) The administration of extended controls does not create insu erable administrative problems. The essential machinery is already operating and would merely need to be enlarged Novever, the policy making aspect would be considerably complicated. The policy making aspects would involve 8. such wider range of goneideration and greater lisison with interseted depart- mente and agencies. IV. The public reaction to an extension of controls is very important and must be carefully ovaluated. Attachments 10/8/40 Regraded Uclassified Append, I Table 1 Assets of Selected Foreign Countries in the United States (In millions of dollars) I I Deposits of = : Funds # I = $ I : Governments :Other funds: in other :Holdings of Direct : Other I I Gold - I 1 Central : in Besond # Federal : U. s. Total of Country I ournark : Dealts in 1 Federal : Reserve :Securities :im the U.S.:1a the U.S.I Income :in U. 8. on: I.T. Federal: Reserve I Metricts I as of # as of 1 as of I Items I Oct. 2. Reserve Banks:Distriet on: en 1 Des. 31, # Des. 31, 1 Don. 31, # : 1940 # - Oct. 2, : Sept. 25. I Sept. 18, # 1939 I 1939 I 1939 # I $ 1940 I 1940 : 1940 I I I I I 0 -3 10.8 . 16.0 55.0 29.0 111.9 Italy 0 .01 25.4 -9 6.0 12.0 22.0 66.3 Japan o - 93.4 3.5 - - - 96.9 Total o 04 129.6 5.2 22.0 67.0 51.0 275.1 Switeerland 197.5 176.7 276,1 2.0 647.0 74.0 25.0 1,398.3 Index 47.7 160.7 60.1 1.1 269.6 Grosse 6.7 12.1 31.1 D 49.9 limgury 0 o 4.8 D 4.8 i 12.1 4.2 24.9 D 41.2 Jugeslavia 56.3 4.0 11.3 D 71.6 spain 0 0 10.2 D 10,2 Portngal 70.5 .2 27.0 D 97.7 Total 390.8 357.9 445.5 3.1 647.0 74.0 25.0 1,943.3 Treasury Department, Division of Monetary Research. October 7. 1940. There M figures are given, the datum either is too old to be reliable or unsvailable. D - Deposits ealy. 153 10/7/90 Regraded Uclassified Regraded Uclassified Appealix I 155 6 Tistike 3 Accets of Foreign Commiss in the United States, as of Various Dates in which dentrols were Instituted (In millions of dellars) $ Reposits on I I Other I - Bullion Governments: Other I United Investments: I and I and I Banking I States I in the I Total I Currency I Central I Funds Securities: United I Banks States 1 . 8, 1940 22 4 31 16 # a 8, 1940 20 23 65 19 13 140 WATE - D, 1940 1/ - 31 14 2 by 0, 1940 173 1 299 189 14 676 Lands - D, 1940 351 6 428 734 33 1,552 17, 1940 560 264 197 354 89 1,464 Betheada Usuanda - 10. 1940 9 20. 13 1 w 27 tal 1,135 302 1,064 1,327 159 3,967 Tabulated Debite Total (Incemplete) Lass Debits 6 75 11 129 1 0.4 my 196 480 once < 1,468 63 1,401 and Milmania 1 27 $ 360 3,627 Mvision of Memotary Research. October 7. 1940 then $500,000. X 10/7/40 0 Appealix II Table 3 Assets of United States in Persign Countries (In millions of dellars) # United Short-form 3 1 8. ## # Claims 08 Persi 1 Dollar Denis $ Direct # III for Debis Country # Broand # or Other Jod. I as of # Investments # Total III be # 318. Dist. Only,Res. Met., as I Dec. 31. 1939 1 Abroad 1 111 United States # na of 9/25/40 $ 1 $ ⑉ 25.0 € Cormany 17.5 173.2 233.5 452.2 3,162.4 Italy 2.4 .1 73.0 TA - [VIS 146.3 2,026.9 Japan 41.5 2.9 111.8 46.7 202.9 Total 71.9 20.5 358.6 350.4 $01.4 5,188.3 Switserland 2.0 - - 8.6 10.6 - Sveden 2.4 .2 - 25.5 28.1 - Greece - - 14.8 8.5 23.3 34.8 Hungary - - - 9.3 9.3 2.4 Remania - - 4.4 44.0 48.4 65.8 Tugeslavia - - 32.5 3.2 35.7 61.9 - - I spain 80.5 80.5 - Portngal - - - 5.7 5.7 - Total 4.4 .2 51.7 185.3 241.6 104.9 Treasury Department, livision of Nonetary Research. Ostober 7. 1940. These figures are 18 of December 31, 1936. These 820 the latest figures available and probably represent a sinisms, im to inability to vithirav earnings from may countries. 1 5 Regraded Uclassified Appendix a Table z Assets of United States in Foreign Countries (In millions of dellars) I United States Short-Term $ I # III # Claims on Tereigners 4 Dollar Inds a Direct = 111 Was Debts # Becond Yederal: of Other Yed. # as of I Investments I Total 111 June 130s. Mst. Only: Res. Mst., as: Dos. 31, 1939 = Abroad w : 111 United States I as of 9/25/40 # of 9/18/40 I # : III V.S.S.R. - - 10.1 - 10.1 359.9 I - - 10.7 13.7 24.4 - Gkina 23.3 1.2 13.2 90.6 128.3 - Thailand - - - 1.0 1.0 - Total 23.3 1.2 34.0 105.3 263.8 399-9 Vicited Kinglen 18.8 3.0 - 474.2 495.9 5,651.8 1 26.7 2.1 1,424.3 1,951.6 3,399.7 - If I 3.1 n # - 3.5 - 1 THE 1 - - - - - - Brittick Intia - - - 29.7 29.7 # brittsh Malays - - 1 23.7 23.7 - Palectine - # .1 - is - Amstralia - - 96.0 111.0 207.0 - British forth Africa - - - - - - more and Angle- Egyptian bein - - - 8.3 3 - Vision of South Africa - - - 55.1 95.1 - Total 48.6 5.5 1,510.4 2,653.5 4,218.0 5,651.8 Treasury Department. Division of Nonetary Research. Outsber To 1945. w These figures are as of December 31, 1936. These are the latest figures available of probily represent a sinim, - to insbility to vithiraw carnings from may countries. 157 10/10/40 Regraded Uclassified 158 Appealix *** United States Trade with Super, Germany and Italy. during the first 8 months of 1940 (In millions of dollars) Junuary-June July August 1940 1940 1940 loss United States experts 106.9 15.4 25.2 United States imports 66.5 13.4 13.3 United States experts .2 - - United States imports 3.8 .2 .2 Italy United States exports 52.1 .02 .01 United States imports 22.3 . .2 United States Trade with Japan w Leading Commedities, the first six months of 1940 (In millions of dollars) U.S. Reports U.S. Imeris All commedities 106.9 All commedities 66.5 Raw cetten 25.5 Raw silk 41.3 Petroleum and products 16.3 Crabment, samee and paste 2.5 Notal-vorking machinery 15.5 China, persolsin and Iron and steel scrap 7.6 earthemare 1.5 Copper, refined 7.4 Cotton cloth, bleached 1.0 Yes .8 Steel ingets, billets and slabs 4.5 Irea ast steel hare and reds 3.4 10/20/40 Regraded Uclassified 159 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE October 8, 1940 Secretary Morgenthau TO Mr. Cochran FROM STRICTLY CONFIDENTIAL Official sales of British-owned dollar securities under the vesting order effective February 19: No. of Shares $ Proceeds of Nominal Value $ Proceeds of Sold Shares Sold of Bonds Sold Bonds Sold September 30 5,321 82,532 89,000 51,289 October 1 5,925 228.750 32,000 17,361 2 7.895 266,251 171,000 104,723 3 3.599 122,048 19,000 8,396 11 3.144 225,437 8,000 3,518 5 300 16,523 16,000 9,027 26,184 941,541 335,000 194,314 Sales from February 22 to September 28 1,556,503 53,876,560 4,699,000 3,747.718 TOTAL FEBRUARY 22 TO OCTOBER 5 1,582,687 54,818,101 5,034,000 3,942,032 Mr. Pinsent reported sales of non-vested securities for the week ended September 28 totaled $500,000. B.M.S. Regraded Uclassified 160 PLAIN London Dated October 8, 1940 MHO RECEIVED 8th 1:10 p.m. Secretary of State, Washington. 3340, Eighth. For Treasury from Butterworth. 1. With reference to my 3291, October 2, 6 peme the British Treasury states it has, after previously advising La Paz, imposed a clearing on Bolivia as the only means of accelerating progress. As soon as the arrangment is concluded with Peru the Bank of England's representative will go from Lima to La Paz. 2. A committee appointed by the British Treasury is now reconsidering the question of an insurance scheme to cover air-raid damage to property. KENNEDY CSB 161 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Consulate, Dakar, French West Africa DATE: October 8, 1940, 3 p.m. NO.: 19 I refer to telegram of October 6, noon, No. 17 from the Consulate. I have been informed by Stefan Michalski, who introduced himself as a Director of the Bank of Poland, that Poland owns 56,920 kilos of the gold which is now in French West Africa. The gold was loaded on the vessel VICTOR SCHOLCHER at Brest, and instead of being taken to the United States was brought here. WASSON. 10 THE 261 OEFICE BND OCL a THEY DCE EA:LWW 162 October 8, 1940 To: The Secretary From: Mr. Young Attached herewith is a brief comparison of the British type Martin bomber 187-B and the United States type bomber B-26A. This comparison was furnished to me by the British Purchasing Commission. Fy. 163 British U.S. Martin 187-B Martin B26A Engine 2 Wright 2600-A5B-5 2 P & " Rv1800-5 SHP 1400 BHP at 10,000 ft. 1500 BHP at 14,000 ft. Normal weight 21,050 lbs. 28,340 lbs. Crew 4 5 Top speed 336 MPH at 12,500 ft. 313 MPH at about 16,000 ft. Fixed guns in wings 4 x 0.3 Florible guns in nose* 1 X 0.3 Pixed guns in fuselage firing aft 4 X 0.3 Flexible gun in tail 1 K 0.5 Plaxible gune firing above fuselage 2 X 0.3 Flexible guns firing below fuselage 2 X 0.3 1 x 0.3 Normal bomb load (total) 1,000 lbs. 2,000 lbs. Overload boab load (total) 2,000 lbs. 4,000 lbs. range with normal load about 1,350 miles about 1,000 miles Maximum range with no bomb load about 1,400 miles about 3,000 miles Guns in upper non-retractable power-operated turret 2x0.5 Guns in rear bomb bay 2 K 0.3 Firing forward. Sockets for mounting 1 X 0.3 gun at each side window. * Provision made for additional 2 K 0.3 flexible guns in nose 10-8-40 Regraded Ucla 164 October s, 1840 Dear General strongs I appreciate your kindness in making available to me your several we- ports on your trip to England. I have read them most carefully and found then intensely interesting. Yours sincerely, (Signed) H. Morgenthau. Jr. Brig. Gen. George V. Strong, U.S.A., Mar Department General Staff, Mar Plans Division, Washington, D. c. Personal an envelope Regraded Uclassified 165 October s, 1940 your General strongs I appreciate your kindness in name available to me your several ye- parto on your trip to England. I have read then mest carefully and found them intensely interesting. Yours sincerely, (Signed) H. Morgenshau, Jr. Brig. Gon. deorge V. strong, U.S.A., the Department General Staff, for Plans Division, mahington, D. c. Regraded Uclassified 166 October a, 1940 Personal on envelope Dear General stronge I appreciate your kindness in making available to me your several 70- ports on your trip to England. I have read them most carefully and found them intensely interesting. Yours sincerely, (Signed) H. Morgenthau, Jr. Brig. Gen. George v. strong, U.S.A., War Department General Staff, War Plans Division, Washington, D. c. (Signed) H. Morgenthau, dr. Regraded Uclassified on 41 X WAR DEPARTMENT WAR DEPARTMENT GENERAL STAFF w/n WAR PLANS DIVISION 167 WASHINGTON September 28, 1940. Mr. Henry Morgenthau, Secretary of the Treasury, Washington, D. C. Dear Mr. Secretary: In connection with our con- versation of Wednesday night, en- closed are copies of reports sub- mitted to the President and Secretary of War on my trip to england. Respectfully yours, GEO. V. STRONG, Brigadier General, U. S. Argy. SECRET 168 for The President Subjects Proliminary Report of Generals Street and - 1. General - Commanding GHQ Air Foree, and General streng, Assistant Chief of staff, for Plans Division, who left for England - August 6 as Far Department observers, have returned to Washington and have submitted their report, the essential features of which are summarized as follows: 40 British nerale is high. Both Government and public are confident, perhaps over confident, that they can defeat decisively any attempts at invasion by Axis Fovers. They display as equal confidence is their ultimate vistory. he Internally England is united behind Churchill. Externally the situation Le fluid. The Chief British ⑉ corns aside from invasion of England are the Moditerransan, the Near last and the Far East. They regard it as to their best interests that the American Navy remain in the Pasific. & Industrially the situation is not bed at the present. British policy is to utilise to the street the material resources of the Empire and of the United States. Production, particularly in aircraft is increasing, but their factories are vary vulnerable to attack and have suffered seas damage since September T. Production of is not so satisfastory due largely to shortage of machine tools, Until September 7 industrial production had been haspered but little by air raids, after that date it decreased markedly is - lines, dropping for instance 40% in the Ford festory. The British do not know their full teabled requirements for mmitions, ser do they bair their own actual or potential production supubilities. They have + SECRET Regraded Uclassified SECRET 169 making comparable to CLP Intestrial Mobilission rism, nor - they the date on which to base aush a plan, Thair from - in de a http-to-menth bests. They desire M to assure or our expense their miterial require- make If Givegr use libe facilitive - ostablished they will pay if possible, if 1 then M mn feet the MIL s The financial outlook is debices if not dis- tiestly bad. On September 2 Lard Beavesbrook, with the consurrence of the Prime Minister, stated that their gold supply, including the French onld, the - and legal status of which to debatable, envented to 1. 750,000,000. This stabement, 48 pointed out at the time w the American Anbansader is not consisted with Treasury statemate. 2. The shipping situation is - due to short- age of declarages, flying-beats and light craft with which to meet the apparently increasing subsarine - which is resulting in looses of temage that will be crippling if not prospily controlled. & the military situation is fair insefer as the British Isles in conserned. If invoice be delayed will after Cataber 15 the situation will improve decidedly dur- ing the winter. The lask of fully trained treeps and - math, and the divorcion of treeps to the Mear East has apread defensive IN dangerently this the must vulmerable areas, whole less sould be very serious are Egypt and Cibralter. the British are hopeful that they can be - cossfully defended. 1 the air situation is not too - The Tighter Consent has does massificent work, bet as yet has not faced SECRET Regraded Uclassified SECRET 170 - the 29% of team air strength. the Tuber Commail bes and is miking may profitable curtixe into Germany and Italy. The natual operating strength x the Reyal Air I 1 I 1 I All 1 a 1 Turns and confidence rewain high. The production of tradned combat arems, including pilots, is the bottle meek with the Reyal Air Force new md will be for - time. no the neval situation is unfaverable at the present time, due to ladk of destreyers and the relative weakness of the Naval air are. Lesses in nevel material, due to submirizes and booking, have been havy but have not affected nerale - apparently the contact efficiency of the Flest. The problem of cofegranting the shipping lanes has not bosn mired in spite of the fact that the Reyal Havy has experse confidence in its ability to min- tain control of the - s The present defensive phase existing since Dunkird has been essentially an air war, the Army and Havy playing subsidirate reles. Coordination of the three are is effected by metual occparation. Just how this cooperation would work in the face of & coubined German land, - and dr attack is problematical. New it will work in combined operations in an offensive in an overseas Weater is questionshle in view of British failures in Morney, Belgium and France. 1 The outstanding lessons of the - for W appear to be as follows: SECRET Regraded Uclassified SECRET 171 (1) w dr progress - be refically revised. Overvetion evistion as 4 type - be comppel. n amot fastim under solum bettle conditions. 2a the place - be & fast light benber, will and, espable of currying a attack beat load and fitted with - for aerial photography and de-detog equip- mmt. The firepouse of parents and bonkers must z 1 I B 1 partidad der à dling the motor of bonks of all since that the sirplane om curry. (2) Antistreraft - havey and light, must be provided for all bases, sirfields, vital installe- time and mobile estume. Sools - must be capable of harizontal fire against ground targete. Ground mekine - must be formished with adapters for antiaireraft fire. (3) A high propertion of engineer treeps must be available for repairs to reads, landing fields, for emering depolitions, for construction of de- times - and for niking enti-tenk ebstenles. (4) Dypendable mitiple inprevement of - estime - be furnished all eshalms. I (5) in air, grand and neval forese must be established as di (6) Here rigerous physical and disciplinary tratuing and be given both condectioned and enlisted personnel. A state of high played.coll training is de 1 s SECRET Regraded Uclassified SECRET 172 (7) 1 high impros of tastinal. of efficers at officers el a occrespondingly 1ssal devestrulisation of - Milly too addertinate 1a straigly disated. (8) There is & marked need the my effective and repid radio communication in code. (9) A marked increase in anti-tank defensive power in Divisions is necessary. ko On September 7 Mr. Churchill asked these officers to convey to you the fellowing statements of his urgent model (1) Expediting the manifacture and shipment of mehine tools already under order, it being vital to British production that these tools, particularly capatana and millers, be furnished with the least practicable delay. (2) Flying-bests (Swedlah contrast) which are essential to contating the present submarine - In addition Mr. Churchill desires 50 PER is over and above these that are on order, They are needed at I (3) Motor torpode boats, Twenty of these are urgently needed for policing the Channel in the event an attempted German invasion, in order to combet the Germa B-beats. (4) Riflee. Mr. Charchill stated that be feels the urgent med of every rifle that W our spare evely and above the 275,000 Les-Rafields (evidently referring to the 250,000 - being shipped) which SECRET Regraded Uclassified 173 and not boon chipped by September 2. (5) Angthing that - be - to expedite the and delivery of airplanse - of contract would be a distinct contribution to meting the only chartage of assbals planse which new extete. (6) 16° Coses Defense - Mr. Qurshill expressed himself w urgently desiring to (2) coset defense - of & range of approximately 45,000 yards too counter bettery work against the German big as installations apposite Develt. (7) is may pilets, trained w the Any or Havy, M will volunteer, Mr. Charchill stated that be would provide any Any or May pilet a & leave of absense status for a few months, a wonderful training by giving then actual enstat experience. " On September 16 during & farewall call en Lerd Beaverbrook, the latter stated he was mush concerned ever the extertionate action of the Stinson sirplans people in delaying prospective delivery of 100 0-74 Stinson planse unless an increased price of 85,000 per plane were paid. Lard Beaverbrook desires priority en 100 of those planse new being delivered to the United States Government. Lord Beaverbrook 10 also very andows to nor at once from the United States Covernment, 20 "Flying Fortresses" to - in lang range booking operations against Germany and Italy during the visiter. No intimated that - had already taim place with the President 4a. this subject. Im addition, Lord Desverbrook desires that Regraded Uclassified SECRET 174 the release of be expedited, 2. & complete copy of the report of these officers will be available if desirede in a day w - Secretary of Ware NOTE FOR RECORDS Delivered by hand by A.C. of Beg UPD to Chief of staff for signature of See. of Ware 9/23/10. + SECRET Regraded Uclassified 175 WAR DEPARTMENT m 4368 No Department General Matt WPD VAT Plans Division ave Washington Regraded Uclassified September 25, 1940 FOR THE CHIEF or STATE: Subject: Observations in Implant. 1. In compliance with orders from the Secretary of Mar, dated August 3, the undersigned proceeded on August 6 from Washington, D.C., to New York, and embarked on August 7 an the S. 3. ERITANNIC to the British Isles, arriving in Liverpool on August 15. Confidential in- structions furnished the undersigned were carried out until Septem- ber 18, on which date they departed by Imperial Airways for Lisbon, Portugal. Arrived in New York on September 20 and returned to Washington. 2. The personnel of the American Embassy made the necessary er- rangements so that the undersigned had the opportunity to talk with the King, the Prime Minister, the War Cabinet, practically all members of the Government and with the Chiefs of Staff, the Vice Chiefs and the person- nel of the Righ Command of the Army, Navy and Air Forces, to visit mili- tary, naval and air commande, sirplans factories, defense works, training establishments and so forth. Every question asked we fully answared, or arrangments unde to procure the necessary information except in regard to procurement of minitions in the United States for which they apparent- ly have no long range plan. All concerned were perfectly frank and sp- parently no effort WAS made to conceal anything or to put their best foot forward. The Governant and the High Command realise fully that they are facing the most desparate crisis that the British Empire has over net. They are parfectly frank in their statements that they are dependent upon us for means that they cannot produce themselves. They are supressly confident of winning out in the end. They are going about their job coolly, calaly, and a bit grialy, with a firm determination that if they cannot win out they will go on fighting to the bitter end and then go down with the flag flying. 3. Morale is high. The undersigned discussed conditions with government officials, Military, Naval and Air Force personnel of all ranks and ratings, civilians, farmers, business men, policemen, waiters, and texicab drivers. They were all A unit behind Mr. Churchill, and are confident, perhaps over-confident, that they can defeat decisively any attempts at invasion by Avis powers. There was no flag waving. There was no hysteria, but there - manifestly a grim determination cheerfully to & on and see the show through, thoroughly convinced of their ultimate viotory. We talked to no children, but a little tyke of about 2-1/2 years of age, sitting in his prem in Hyde Park, wearing a tin hat and playing with a gas mask, seemed as cheerful as his elders. This cheerfulness, a trifle grin and somewhat forced, appears almost universal] how long-contimied bombing of the character to which London has been subjected since September 7, will affect the British, remains to be seen. The internal situation, as has just been indicated, is relatively stabilised. Externally, the situation is fluid the to the fact that it is as pet impossible to determine how the Spaniah will jump and how the Balkan situation will develop. It is assumed that BOOTHEY or later the ixis powers will nove into both Spain and Portugal. This action, when taken, is likely to have serious effect upon American - 1 176 a to Europs, unless - present nevirality proclamtions are accordance with tax development.com The chief Brittish GORGETTS, azide from the present danger of invasion of England, in are der of priority are the Mediterransan, the Basy East, and the Yes Kart. the Brittab, insofer as the future 1s concerned, are visualising net only the present war but adbesquent operations on the Empire bagis rather than ao the British Islas bacts. It is to be noted, however, that the first See Lord of the Admirality on two occasions stated that be deemed 11 to their bart interests that the American Nevy remain in the Pacific. 4. Industrially, the situation is not bad at present. The tab, however, apparently have not fully realized and discounted the possible effect of long continued bambing upon industrial production. last Prilay, the plant manager of the Ford factory in Britain informed the American Ambassador that Ford production had dropped 60 per cent since September 7, as the result of the intenes bombing raids over England. We were unable to check the effect on other industrial con- certify The British policy, at present, 1a to utilize to the utmost the mterial resources of the Empire and of the United States, Pro- duction, particularly in d roraft, is increasing but their factories are extremely vulnerable to air attack. The bombing of the Wellington factory, south of London, on September 10, decreased the production of Wellington bombing planes by 30 per cent for an estimated period of 000 south. These figures were given by the plant manager and are marely an ostimate. The production of arrament is not satisfactory, due largely to the shortage of machine tools. Until September 7, when in- tenne air raids bogan, industrial production had been haspered but little by air raids; after that date it decreased markedly in some lines as witnessed by the statement of the manager of the Ford plant. It 1s to be noted and seriously considered that the British do not know their All combined requirements for material, nor do they know definitely their OWD actual or potential production capacity. Their procurement From us has been and La on a hand-to-nouth basis. They desire THE to assure, at our expense, their material requirements. If they use the facilities thus established they will pay if possible, if not then - not foot the bill. This statement is made as the result of two com- ferences with Sir Walter Layton, who arrived in this country yesterday to act as the Chief Economic Adviser of the writish Purchasing Comis- sion, and the undoubtedly will see the President. Sir Walter Layton is an sconomist of note, Re knows little or nothing about military procurement or about military supply. His attitude is typically 716 10h and his primary concern 10 British procurement. 5. The financial outlook 10 dubious if not definitely bail, On September 2, Lard Beaverbrook, with the concurrence of the Prime vinia- Ler, stated to the undersigned that the British Cold supply, including the Tranch gold (the mount and legal status of which 10 debatable) Amount ad to 750,000,000 Founds. This statement, as pointed out at the time by the American Ambassador, is not consistent with Treasury state- hants, Lord Beaverbrok insisted that his statement was correct. 6. The shipping situation is serious due to shortage of Mestroy- my, Flying boats, and light craft with which to most the apparently Increasing culmarine monace. This 19 resulting in the loss of tonnage that will be crippling if not controlled. The British, publicly, are not admitting the very serious losses that are constantly corurring. Details of this will be furnished the Navy Department by Admiral Choralsy. 2 Regraded Uclassified 177 CONTIDENTIAL % The additary attention La fair # for M Intes are If invoice is delayed will after Detober 15, the should improve decidelly during the virter, The lack of name Lynded kroops, the 1ask of adepate - and the diversion of trops to the Sear met bee syread defensive in the Brittich Islue despensaly this Octsd.de of the Printsh Islue the noes valnerable you chose lase would be very and are RETTLE which of would involve the for Canal, and director, with weld involve the loss of the sontrol of the Western the Brittin are hopeful, - that both en be messeafully defended. 8. The air situation is not too bad, The Fighter Commend has done magnificant work but as you has not feeed more the 25 per eart of Ourman air strength, The Bomber Command has, and Le making, may profitable sorties into Germany and Italy. The actual operating strength of the Royal Mr Perso is work and losses have been very herry, but quality of personnel and naterial, morale, and confidence remains high. The production of trained combet areas is the bettle- neck with the ReA.F. now and will be for - time to own, 9. The neval situation is unfavorable at present, due to lack of destroyers and the relative weakness of the nevel air an, Lower in noval asterial, dos to submarines and boubings, have been heavy bet have not affected morale, nor apparently the combet efficiency of the Flest. The problem of safeguarding shipping lanes has not been solved in spite of the fast that the Royal Havy has - confidence is its ability to maintain the control of the No. 10. The present defensive phase, existing since Desiric, has been essentially an air war, the Any and the Nevy for the time bedng playing subordinate rolls. Coordination of the three Arms is effected by estal cooperation. Just how this cooperation would work in the face of a coubined Oprasn land, 605 and air sttack is problematical, How 14 will work in combined operations in - offensive overseas theater is questionsble in view of the fiasco in Norway and in Belgima, 11. It should be noted throughout this report that our observe- time were made of conditions existing in a very special situation, that 10 a. defensive phase of & war being waged essentially en British seil, and what appear to be devices lessons under these conditions may not be applicable to their MI extent under offensive conditions is a theater outside of Great Britsin. This astier has been duly considered in this report, and the report itsulf is limited to what appear to be conditions and developments which my be of value to W and are not of & special character or limited application. We ⑉ such from which W can learn lessons. To - mith that is and certainly should be avoided M for as our development is omeerned, This report will deal primarily with the positive matters that appear to have a application either to our material, or to our training, or to our tactical handling of the various areas, In may respecte, the British are far shead of us in certain specific lines. In other respects they are years behind We This report will endeevor to avoid criticism and Michae emphable on the obvieus mistakes the British have sada but which have little or no application to our physical conditions. It has been customary in the past for may American efficers to disparage the efforts of the British, especially to Unity technical progress, and particularly in comparizione with that of the Certify In our opinion the British 120 doing & diffieds job and doing 10 will, and 06 far as - be Judged from reperts - explared German wilitary equipment and from personal observation of ourtain of this equipment, especially in eviation, the British 479 will shoul of the - CONFIDENTIAL , - Regraded Uclassified CONTIDENTIAL 178 12. In commention with the trips of to which reference is inde hereafter, the officers detailed to secort us made effort to show or everything n desired to 100. These trips individed invariably stope for inspection of damage caused by boxbs of Regraded Uclassified different types dropped in the course of air reids, and TO were allowed free were to all barred or prohibited ervas. As illustrative of the cortestes that were extended to us, at Plymouth our guide over the which is under repair after the fight with the "Graf Spee* off Destavideo, was the Chief Engineer who eurved on the "Tatter" during this fight. for our visit at the Bonber Commend they fles in from other stations, all types of ships that are natually used in the Doniver Command. or which they anticipate using. These insluded the DEV Stirling four-engine bomber which is superior in boab aspacity and insured to * our 3-17's. At Croydon, Kenlay and Birston, - sux the affects of bonb- ing very shortly after the raids were over, And before may of the de- layed action bombe had been exploded. While every effort who rade to afford us reasonable protection, 10 were not coddled or wet nursed. Te were allowed out in the open to ⑉ air fights overhead, the only restriction being that we were strongly advised to war tin hate. 13. The following paragraphs record the results of our obser- vations and are accompanied with recommendations partinant thereto. In this connection # should be noted that the personnel in the office of the Military Attache have reported in datail on many subjects on which TO asked questions. It is to be regretted that the outstanding write that has been done in this office apparently has not been given the widespread discomination in the War Department that its intrinsio mrit deserves. This applies in particular to the superier work which has been done by Major 1. R. Studler who is freely acknowledged to be an outstanding althority OR areasent and ordnance material. Apparently the reports and recommendations which have been submitted by Major Studler have not been given the weight and consideration which they deserve. In regard to aircraft armand in particular it is believed that it would be the part of vision to order Major Studler baok to the United States for a period of about three months in order that our air- craft areasment program may be gotten on its fest and the lessons of the present war be properly considered and insorporated in our OWN rears- net program. 14. is stated in the first cablegram sent to you, this place, under present conditions, is a gold wine of information, and the under- signed would be lax is their duty if they did not point out the visdom of taking imediate advantage of the experience over here, and urge that due consideration be given to the progress that has born made by the British in the devalopment of wespons, and in the change in tastical doctrine impressed upon them by the bitter lessons of this mr, in order that - may not find ourselves, either M the result of ignorance e of smig self-complacency, in the sur boat that the British found themselves a year ago, Development is proceeding ao rapidly, tactics are buing 80 altered, the interplay and the interdependence of the old are is becoming 60 vital and the cooperation and ulilisation of new are is attaining wish importance that vs mut, in self defense, keep hilly abroast of these resent developments. To de 40, IN mast be close- ly in touch with the multifarious questions which are beding solved, and solved satisfactorily, over there. To that and, the Military At- tache there, in order to do his job must have mare Kpace, more personnel, and nors funds, and this applies particularly to highly akilled tech- nicians in the Air Carps, in Ordnance, in the Signal Corps, in the PAL CONFIDENTIAL 179 insured Corps, in the Ingineurs, and in Industrial Mobilimation. 2 addition, highly competent officers of infastry and field artillery Regraded Uclassified. should be kept in Crest Britain constantly to keep abroad of the - developments in training and in the technique of employment. 15. The following detailed observations are submitted under the beads indicated at the beginning of each paragraph in an endosve to present a general pdoture covering the subject which my be of - use to the interested agencies in the Mar Department. They are based primarily either upon personal observation « upon conversation with high ranking officers whose activities have been influenced thereby. 16. AIR MATERIAL. The modern British aviation equipment is excellently designed to meet the problems they had in adnd st the time such de- sign as approved. It has proven to be superior in nost every respect to the German equipment that has so far been used in the battle of Britain. British fighters are fast, mansuverable, and relatively easy to fly. They have been successfully largely because of their superior offensive fire power. All have self-sealing tanks and armar for the pilot. The British are adding mere guns to, and increasing calibers on, their fighters as repidly as they can, consistent with delivery requirements. Armor is being added, for example on glycol tanks, where experience proves the necessity. The additional weight is be- ing cared for by installing engines of greater power. In spite of added weight, performances of the NM types sppear to be going up rather than down. British bombers are characterised by very large bosb bays. The British believe in and apply the fundamental principle that tomb and fuel loads should be interchangaable to the miss practical degree. The British require a reasonable of speed but consider speed to be eccondary. British bombers are wall protected by armer and defensive machine puns. They have developed two excellent types of power turrets and are using them as shown by the Halifax and the Stirlins, their new four-angined bombers. The British are prodicing four-engined boabers in order to secure increased ranges and boib loads. Some of the details R observed with respect to British aviation equipment follows (1) The British have & very high opinion of the North incrican trainers md Lookheed Rudsons. 1. Fighter aircraft to be successful, other things beding equal, must have more offensive fire power than that of the enery. The only effective fire up to the present time has been at very short range and the effect for the few seconds available mut be very great if the hostile sirplanes are to be shot dow. In this connection, and because of the arair DOW being put on the German sirplanes, the British have accepted the policy of araing their fighters with as many cannon as can be carried and still retain the required performance. Service test installations are new being unde in British fighter airplanes as follows: In a Spitfire two-20 m. and four-303 mohine guns in other Spitfires aix-50 calibre mohins guns; in & Hurricans four-20 m. can- non, To had an opportunity of seeing the Typhoon type of simplans, equipped with the Salure engine, which had on it 12-303 machine guns. Ye also had - opportunity to are the Beaufighter, which will have counted on it four-20 m. sannon and aix-50 calibre machine guns. There is no doubt that such of the success that the British have had over fighter. the Oarmans is due to the superior fire pour of the British CONTINUAL CONFIDENTIAL 180 In all the large Imbore W emained N rest the heab-bays to be dirt.ded into Mares sockins alds allms - sere of the mills types of babe to be carried md, del is of great importance, Also biob-bay doems so be very light and mill. the pilots atate that the setion of these book-bay doors tot opened is practically mill. the Dirling ml Malifax beabars have as only - beat-bays is the fullage bei also our in the wing as each side of the fuellage. In the Shirling the ving Nob- by doors are drawn up into the beab-bay. This airplane has 1 - bay space to carry 24-500 pound bombs. S. It should be noted that the Minister of Airoraft Production is very andows to some 100 of the Otherse type for work with the artillery. It is understood that these airplance will be named by artillery officers. 4. Ye had an opportunity to speak with a number of fighter commanders and pilots and their complaint invariably was that they require more ammittion. The Spitfire for example has eight 303 machine gans and 15 seconds of fire. On several occasions to date, fighters have had to land three times in order to replemish their ammition. 2. It was noted that all gum and camon en sirplanes are provided with heaters. It also The noted that in order to make successful photographic recommissances, cameras had been nomted in Spitfires. The B&W some of the photographs taken at altitudes in excess of 30,000 fest and they were excellent. & Both Spitfires and Burricanes are being ferried considerable distances because they have been provided with suxiliary fuel tanks. It is most essential that our pursuit planes be equipped se that they too can be flown greater distances for ferrying purposes. & The British Fighter Command appear to think highly of the De Wilds explosive incondiary bullet. It is understood that report has been mde of this bullet and that a sample has been sent to the United States. h. It was the opinion of several officers of the Fighter Command with whom - talked that the ordinary explosive bullet with the instantaneous fase 1a of little value because no penstration 10 secured. They - to think that a bullet of the dum-dvan type which will tear a large hole in the sirplane streeture would be of greater value. 1. Inquiries showed that fire-control developmento for defensive and fighter guafire are still in the experimental stage. 1. The had an opportunity to see on a mp the location of all searchlights in the Searchlight Commend. To were astounded at the very large muber of searchlights DON in operation. From & quick examination of this mp 16 appeared that almost the entire country - checkered with searchlights, with distances between lights varying from 3,500 to 6,000 yardey certainly this was the of the Landon area and that part of England south of Landon. s To also learned that the British had developed an air-to-sir detector and that 11 is in limited we at the present time. The Commister-in-Chief Fighter Commend stated to a that be themght 11 w the mm to night interesption. This device is MR installed in two-seater fighters because of the woight, the necessity of having or 6 CONFIDENTIAL Regraded Uclassified 181 CONFIDENTIAL - to devote nost d his time to werking the sperkroecepes and because of the brightmass of the Mgh. This device TOT watche countriers between 150 and 200 pounds and has a suches Purps of 6,000 yards and a adadam TOP of from 800 to 450 feek. n is being reducigned to weigh about Regraded Uclassified Milf its present weight, of late the 100 pounts, to combine the - into 004 and to 4th the Merk potris, Than this is - altained this device will be installed in single-seater fighters. This device is used in commotion with their preend-centrol eystem the Fighter Commind knows where the hestile airplane is md by direc- timal radio tracks the fighter. The righter Commed directs the fighter to the past violaity of the health beaber, the fighter the with the use of his air-to-air detector using interception. This device Se of tresendous importance. 1. We learned that the British had developed and are using an airplane-to-ship detecter which can locate a ship the sise of a cruiser as far away M approximately 50 adles. This device is also of tremendous importance because it simplified the problem of recommissance and the problem of interception by our bombers of surface craft. The Coastal Command pilots actually use this device to home on coastal points. 3. The British have found the definite necessity for de-icing equipment; they have been equipping many of the Hampden bombers with de-icing equipment and will shortly equip the Wellingtons. It 10 expected the fighters must content themselves with alinger rings and protection for the control hinges. n. There is no doubt of the value of the self-seeling gasoline and oil tanks these are demanded by all. The British are now armoring the glycol tanks to avoid fires. 2. The British fighters now adjust their fire to cross at 250 yards. R+ On BOM of the reflector-sights used by the fighters there are stched rings which give to the sight range-finding properties. g. The mtter of identification of aircraft is of the utmost importance. The Military Attaches have submitted reports on the methods used in England. The pip-squeak radio signal or some other mens of radio identification is The fighters have a. pyrotechnic projector in the tail of the ship, fired electrically from & switch in the cookpit. This is used to signal to the anti-aireraft artillery their identity if picked up by the searchlights or fired on and to inform the anti-aircraft artillery that the fighter is ready to attack, Such an instantaneous visual signal is absolutely necessary. L. Interceptar fighters are very closely controlled from the ground, and their location is determined by the use of directional radio tuned to the pip-squesk signal. 1. It is the usual thing for the Dritish to install loud-speaker system that cover the whole airdress except the officers' quarters. 1. The self-starters of the airplanes are not used to start the fighter enginess instead, batteries and on carls are used for the purpose. B. The following is - brief description of the Stirling bomber. Performance figures were given us by the pilot of the mig, and my not be accurate. It has for Berevias enginee and weight in the mighborhood of 64,000 penals. It has as extressly long fusilage, which - CONFIDENTIAL CONFIDENTIAL give 11 the sppearance of a pregon fly. Its operating eruising speed de around 220 adles per hour, and the sort eroising speed about 185 adise per hear. n his & renge at meet compated apoid et about 2500 miles. n has a very lang birth-lay is the fustlage divided into Regraded 182 Uclassified the enotions. It also has a book-bay on each alde of the featlage. IS - carry 24 - 500-pound beate, un shari-rup states. I The data - the Imailey Page "Milifax" for-engine behar are in the hands et the Chief of Lip Garge. 1. The British have had several secidents by runding into their on barrage ballooms. to svoid this they have developed a radio device sixilar to our marker beacon which indicated when there 1a & balloon in the mar visinity. & The British have developed a glide-bombing sight, and the Bomber Command considers.it absolutely essential to effective operations. I. They have in their Intelligence Room a projector which enables a. photograph or a mp to be projected on 4. screen. The mp or photograph is laid horisontally in the mohins. Such a thing is of great value in pointing out to the cembat crows details till 000- nection with their nission and the objective. 1. It YOU learned that the Frenth had, when col- lapse came, & four-angined Stratosphere Tarman Boaber. This beaber performed many missions over Berlin and Italy. It was named with a Noval combat crew. It is probably now in the hands of the Carwans. m. A jacks unde out of unter-proof aloth was ob- served. This jacket had as an integral part of it, water wings and provision for the parachute harness. Two straps with hooks protruded from the jacket near the breasts and two others from near the seat. This would permit a bally type or sect type parachute to be attached to the harness by the vary simple and quick operation of attaching two hooks. The officer who wore # said it was very satisfactory and TO have asked the Military Attache to purchase one and send it to the United States. bb. We ware told that clay-pigeen shooting with shot pm mounted in al rplans turrets using a wake-shift fusilage we & very good form of flexible-gumary training. 00. To had an opportunity to see - high altitude combate and the condensation formed behind the fighters, oft times this condensation causes a fighter to be picked out by anti-aircraft and hostile fighters. It is desirable that some means be devised to do away with this condensation. 14. It THE also learned that some of the German dive- bonbers have an automatic pull-out arrangement which performs the oper- ation 46. & Mard radius 60 as to avoid undus strain 60 the structure. M. The British are new interesting themselves in the construction of Aliders. the Chief of the Operation Flairing Division stated that they expected to have gliders which will carry 40 ma. They fully appreciate that a far greater load can be taken off the ground by an airplane dragging a glider than can be carried in the sirplane itself. They have & project, in order to get off with large a - CONFIDENTIAL CONFIDENTIAL 183 leade, of loading the airplane with the acciss load of body, and e Regraded Uclassified Limited - of fuel, and loading & glider with sufficient gasoline to MIL the take of the booker. the they are both is the sir, the glider pilet takes bis position consides above the airplane and allow the geodine to flow from the glider tanks into the airplane tasks, u. It is noted that Gerses Airplance have been - structed so that quick engine changes oan be made. It 1a estimated that - a 109 - engine change GAD be made in $ admites. It is a great weakness in aircraft assufactured in the United States, and # are going to loss 40 immes amount of flying time unless our streraft are built so that engines can be changed in the address of time. u. The British are using smumition balts that are are flexible than ours. To will have to have them for installation in four-gun turrets. hh. The camara guns on the British fighters are of great value in checking the training of their pilote and in pointing out nistakes. To must mount them on our fighters as soon as possible. 11. The British have made a very satisfactory mounting of the 20-m cannon in the Banker Purricane. The success of this instal- lation can be attributed to the belt feed obtained from the French; drum feed cannot be 48 satisfactory. Each gun in the Banker Burricans will have 100 rounds in a belt. 11- The Traser Nash hydraulis turret and the Boulton Paul electric-hydranlie turret both appear to be very satisfactory. The hydraulic turret is superior as far as case of handling is concerned, but is enro vulnarable than the electric-hydraulic turret. kk. The British have developed & hydrostatic sins of the type recomended by the OHQ Mr Force. The Military Attache has been promised full details of this and they will be forwarded shartly. 11. It is understood that the British are equipping & squadren of terplenes for Maditerraness service. Colonel Hunter will visit this squadron if it existe and determine the data on it. B. The British have had great with night bombing and 19 tried to find out the real reason. It - not until - had an opportunity to essaine the British bamb eight that we learned the reason. In our bomb sights the bonbardier aut look at the objective through a pariscope containing half a dosen leases. This cote down the light by about 50 per cent. The light is still further out down when the cross Hairs are illuminated. The result has been that - have had vary little success with night boabing. The British, on the other hand, have incorporated the reflector principle in their boab aight. Their bombardier looks directly at the objective through a piece of non-glare ground class; on this glass is reflected the cross hairs. The result is that practically all of the light on the target reaches the are of the bembardier. It is recomended that our bomb sights be modified so that this device can be used for night bombing. m. No had the opportunity to examine the three types of the Lotfe bomb sight used by the Germans. The latest model Le better arranged and sure compact than the other two and has incorporated is it 4a adaptation of the pandulus principle in order to get directional no- bility. The principle of the Comman bomb eight is exactly the same M that of the British. The asterial division is fumiliar with this principle. + CONFIDENTIAL 184 no with. Both use the hondspherical Lane 1 s 3 1 and 1 I e <<< - 819 the only the they was, are both balky ==== the - walk as - miti-leneus. the in of Mary. 9a Brink - us the other - is very MM at # 1 3 I 5 9 8 M 1 company, will do the job that or do 10am 11 is recommed 1000 this the nateriel division otrily the posadhilities of valag such & The civilian in charge w the cincra laboratory stated that 1000. there - no indication the the - - taking color is infre- red pictures or that they WE further in abreses is photography the the British. n. A min of German types of airplane were examined during this trip to England. One is stank by the lask of defensive fire power, the small bonth capacity, and the lack of werking spase given to the crew. It is very evident that the Germans have sacrificed offer- give fire power is order to secure speed. The damage dans by the Germans in England has been very small considering the very large number of bombers used and the reason for is is that their below and the fusing of their bombs are not estisfactory. They have dose only a fraction et the damage that they could have done had they been equipped with the British types of bombardment sirplanes. 17. FORCE PERSONNEL. The Royal Air Force is sulf-curtained insofar as personnel is concerned) even the medical officers war Royal Air Fores uniform with special insignia. No were informed that the infestry and artillery now engaged in protecting air stations will chartly be transferred to the Royal Air Force in order to assure housgementy, avoid complications and to improve morals. No were streek by the alert young an in commend of the combat units of the Royal Air Force. Be found that the Royal Air force has two fundamental policies with respect to this a. To place is commend MR. your enough to load their units in action and stand the physical strain of continuous sir operations. n. To give commanders the rank that their position calls for. Rapid promotion in the Reyal Mr Force is achieved by the following Issue: (1) Accelerated war service promotion. This applies to officers up to and including Squadron Leaders. In time of war a grade corresponding to First Mestment my be reached in - year. the grade oorresponding to Captain my be reached in about two years. ron Leader and above. Each position, whether commat or staff, (2) Selective temporary promotion, to Squad- The for my reason be is transferred from the job be losse his is given a grade and the right - is selucted to fill the Job. holds a temporary grade for a cartain pariod « time, maying the with temporary prode, emergt that provision is sale that if as officer wary should be be retired be is retired with de verporary rusk. the grade, be retains Ma tesporary renk for the deretion of charge. Segular officers 679 retired e on an in grade policy. (3) & ruthless policy of retirement and dis- Should they in the newsite be found IN my not net with nuch & hardship M 15 might soon M most of them who eyest they are imediately pet - - pension. This policy desire CONFIDENTIAL -10- Regraded Uclassified CONFIDENTIAL 185 with to are imediately given in the Me Ministry, at 8. 25 per cant increase in their yearsion. In this commetion it to interesting to note that the adm of the Regular Officers COTTA la the Boyal He Force is shout the Dir # to 722 before a vir - about 1500. The British 444 not, after the last me, use any large number of officers of about the ICES # date the regular Air Force, and as a result have not the vary serious problem sonfrunting OUP My Foros. the Britden at the present time are W- in take their regular ectshlishment very fee my officers each year in order to cover the attrition rate and to provide . hope to the may temporary officers who desire permanent cosmissions. Retur- ally the officers who & into the regular establishment are very carefully selected. The advantages of such a policy are obvious. TO questioned the effect on norale of the entire policy and the unit was uniform and to the effect that it did not harm norale because every officer when he case into the service knew exactly what to expect, It is interesting to note that approximately 10,000 young wash are now a part of the Royal Air Force, They fill all kinde of positions and do may jobs far better then can be done by sea. It is said that they help morale and that no DEC problems of any moment have been ancountered. Before the was it MM the policy that all officers of the Noyal Air Force be pilots excepts 1. Officers assigned to the equipment branch. è Medical efficers. 2. Chaplains. Since the beginning of the war there has been organized en administrative and special duty service and the officers in this service are non-pilots and also temporary officers. It is the policy of the Air Ministry to give the fighting units the officers they want; in ther words the soubst units have first shoice of officers rather than last, as 19 have in our Air Corps. It is nateworthy that every step is taken to relieve Coobek Commanders from administrative matters. The only exception in the Reyal Mr Force is the Station Commander who is charged with the administration of the station and the operation of the squadrons on that station. This Station Commander, however, is given a very high ranking officer to handle administrative work. Newever, it has become perfectly evident that the Station Commander who is challed with the defense of this airdross, the edainistration of the station, a considerable amount of training, and the operation of the combat units at the station, has entirely too meh to do. A change, no doubt, will be mis. In Line Air Force the Higher Compand has indoctrinated personnel with the idea that periodic leave of absence is a rested right and that they are privileged to take this leave of absende abon they feel the cocasion for 15, and they de grant lanse of above when 10 would not think of 14. lie had unusual opportunitise to sheck on the morals of the British arred forces. 18 found the to have extressly high morale and to be full of confidence. They recognise the situation and the very difficult tacks before them bet they are suppently confident that they will be able to meet them, Regraded Uclassified CONFIDENTIAL 186 Be also learned that the policy is to assign to all ANY and Royal Air Fores with imadiately they take the field a 18 per out initial replacement ta M. This means that these units are, visa they take their position is the line at fall strength and not below Regraded Uclassified strength by reason of sickness, lasse of above, and as forth. 15. AIR FORCE SUPPLI One officer in the Reyal dir Turee la responsible for all supply. A tactical commander secures his supplies from one source rather than from many as 19 have to in our Army, The Air Marshal. charged with the responsibility of supply procures his supplies from three sources) (1) From the Ministry of Supply of those things used in comon by all arms and services, such as emmunition. (2) From the Ministry of Aircraft Production for all aircraft and aviation material. (3) From the Trade. These supplies are then turned over to what is called the Maintenance Command, which is charged with the distribution and maintenance of them. For this purpose the Maintenance Command has a number of repair depota and universal storage depots. The Maintenance Command is charged with the distribution of all supplies except retions. Rations are supplied by the aray system of supply. All supply as far as tactical commanders are concerned is practically automatic. It must be said that such a. eye- tes for the supply of Air Force units is immassurably superior to that of our own) the saving in administrative work alons is anormous. 19. AIR RAIDS During the time - spent in England, the island has been subjected to 4 large number of air raids. Some of them were made in eom- siderable force. Most of them prior to August 26 were made during day- light. Since then, however, there have been sany night raids. Weather conditions have been excellent. Visibility and ceiling have been - limited for & great portion of the time. 1 large number of bombs, both high explosive and incendiary, have been dropped. In most cases the German bomber formations have been intercepted by British fighters and have suffered severe losses. Practically all boabing raids during day- light hours have been accompanied by strong pursuit protection, and the loss of their pursuit protection has been heavy. The reasons why the Germans have suffered such severe relative losses are easy to determine. They are (1) the comperatively large volume of fire that can be delivered from British fighters) (2) the very poor rear headsphare gun defense of the German bombers) (3) the employment by the Germans of diver bombing tactics; (4) the use by the Germans of large inflexible formations, and (5) poor air discipline. The British operational officers with whom we have discussed this situation state that as a rule the Germans, An individuals, especially pilots, are very wall trained. 1 criticism that they have to offer an the Garman training 10 that they believe they have not been sufficiently trained in navigating at night. While the silitary results of these raids have been DON- paratively mall, the best additary sinds in England are endeavoring to determine the purpose of the raids. The best probable answer is that it 1a a. combination of harrasment, training, attrition of Britiab fighters and material destruction, particularly of those installations which night contribute to the success of the British air effort. 20, AIR TACTICS. It is the general opinion anong fighter pilots that because of the difference in mansuverahility the two-engined fighter is not a match for the etc.) agle-engined fighter in individual combat. is & result - 12 - COMMENTIAL CONFIDENTIAL 187 the and is to Lefe the too-englued fighters work with to single-mgined Cigiters. Ote soliced of a contributed attack to to the tw-ongined rights on Him the hertile formation, and the single-angined righters on above. 2a mulying methods of attack 15 should be approxiated that the Defined - fire below the motal while flying level. The Britdsh have found w experience that the ske-skip formation of boabers is the largest that ⑉ assistactorily and they consider manouverubility of a formation to be of great 1 Taxy an also of the epinim that it is large anough is take full advantage of cooperative fire. Their present method is to employ M a rule six-ship formations fer daylight attacks, although forwations of three Elenheims do mike frequent attacks against the German air installations just scross the Charnel. The British feel that the six- ship formation, if the bembers have sufficient defensive - and a reasonable amount of protective arwe, can reach its objective during daylight hours without serious looses. The British, bewever, are INW using their heavy bembers mostly during the hours of darkness; they are securing fair results and by night operations are reducing their leases. At the present time they have not enough equipment or enough trained combat crews to take uncosseary risks. In this comesties it should be appreciated that the objectives selected by the British are selected for their words as well as for their physical value. It as noted that both the Germans and the British take full advantage of clead cover in their air operations. The British suales a careful staty of the objectives they plan to attack. As & rule, they have, for abrieve reasons, been attacking gasoline storage tanks, gasoline producing plants, large railmy consentrations, factories, German shipping, assembled lots of mall boats which wight be used tor invasion, hostile airdroms and other wall selected targets. They do not attack anything but mill- tary objectives. Each combat Grew always is given two areas, each of which contains a primary and & securdary objective. The two areas are given because of the impossibility of forecasting very far ahead the wather conditions. They are instructed that if they cannot attack my of these objectives because of veather or other conditions to bring their bonbs home. We have greatly empgerated the value of air attacks on airdrement occupied by an alort air force. The damage done to British airdroms has not been serious not vas it worth the cost. The beet exemples to date are Malta and Stavanger. 21. BOMES. The British in addition to the general purpose bomb have & send-armor-giercing and an arear-piereing bemb. Year quastioned as to the value of the armer-pisroing beeb the statement we sade that they have not had enrogh experience against German warships to determine its value, The Naval Air Attache in London had as apportunity to examine may British ships that have been damaged by aircraft Wils. a reports that be has arrived at the following conductions That the sining effect of the Gerial beab has been greatly amggurated) that the fraguation offect of a benb striking the uster and exploding MAP the surface dees real damage md has boon greatly mixtrised in the past) that kits - the deck with practically instantaments funes agrees we or (mage. His general consultion is that the nost valuable book against shipe is & boats which will carry the and anount of explosive, which will have & NM think enough to provide substantial fraguate, and which has & the with a delay of from to a assend. It is also to be acted stat such a losb will be ideal for the attack of structures, the reafs of which est be postracted by this type s 1 CONFIDENTIAL - 15 - Regraded Uclassified CONFIDENTIAL 188 It is highly probable that in total destruction disry bonhe have booth responsible for prester losses than have Migh explosive bombs. This is the fast that nort of the constru- sice in England is of many, Against woden construction, such M - have in this country, inesstiary books used in accordance with the Regraded Uclassified German tactics would understadly have a terrific effect. 22. COMMAND POSTS. We had apportunity to visit several operation and control room#+ They ranged from the Cabinet Operation Room does to a station operating room, They occupy a large and of agade and require a large mout of personnel. However, they do present to a communder & clear and simple picture of the situation at any and and, in a modern var where time is of the essence, 99 feel that the creation of suitable command posts, including operation rooms, in the United States in time of peace is necessary. Many are under ground. The design, construction and organisation of these command posts have covered a. period of years. There is smoh that can learn from them. The Military Attache has made detailed reports of ame of them, such as the very complicated one of the Fighter Command. The secret of the success of the operations is rapid, reliable and accurate channels of commi- cations. The British have installed a very elaborate system of - nications, consisting of the telephone, the teletypewriter and the radio. This system of commissions must have been extremaly exper- sive and required years, but it is the franswork upon which the de- fenses of Britain are built. If England successfully resists an inva- sion it will be because of this communication system. The fact that an airplane can be picked up by a radio watchman and its position, direction of flight, and 90 forth reported to a. fighter station in a matter of seconds is illustrative of the care with which this system has boen designed and of its value. 23. The following are brief comments on the Fighter Command, the Bomber Commend, the Coastal Command, the Balloon Command, the Antiairoraft Command, the Searchlight Command, the Air Radds Precaution Service, the Observer Corps. Full details of these organisations have been reported by the Military Attache. & Fighter Command. The following tabulation show the fighter strength of the Royal Air Force in England at the present time in squadrons Spitfire - 33 Hurricans - 19 Blenhaim - 8 Defiant - 2 Oladistor - 2 or the above 3 are included in the operational training units and 1 in the non-operating units. The British squadron strength in fighters is as follows: 12 in the first line or ready tw operations. 6 in imediate reserve. 4 in command reserve. The use of this last four is restricted to unergencies er approval by group commander. In England all purely defensive means against air attacks are, as they should be, under one command, the Fighter Command. This organisation is a model for us to follow. It is beautifully organised and operates most effectively. In the Continental United States it is believed that four Fighter Commis should be organized in our for great strategic areas. CONFIDENTIAL - 14 CONFIDENTIAL 189 Funber Comund. Oa the 27th of August a visit was yard to the Baber with consists of the fellewing: A operational 6 non-sparational equiros 11 Operational Training Units, IS is to be noted that the Operational Training Unite are used to the stanet for training OFFEB for the operational spadross, the oxiget of the operational training with which and ast imadiately needed Law operational squadrons, are pet in reserve equatrons where fall operational training is saintained will with time as replacements are required for the operational units. The operational unite 670 divided up into five groups each of which have the - equipment throughout, each pm consisting of from four to eleven operational squadrens, The number of groups shortly will be increased to six. It is to be noted that there was a marked shortage of serviceable equipment in - squadrons of the operational forces, one squadron being reduced to two serviceable planes. Others had as high M seventeen serviceable planes. It is doubtful whather in the latter part of August the Bomber Constand could actually operate as many as 300 bombing planes. According to Lard Beaverbrook this situation will be vary greatly improved in the near future. g. Coastal Command. The primary functions of the Coastal Command are the air protestion of convoys along the coast of Great Britain, and the operation of patrols to determine the lesation of easy surface and submarine forces and their attack when practicable, to furnish the necessary generd recommaisance for the defense of Britain and the check 00 the location and operation of British surface and sub- marine forces. It is intimately connected with the Mayy, with the Fighter Comand, and to & certain extent with the Bomber Command. Outside of its sain functions of providing earning against invasion, escorting convoys and locating and attacking easay submarines, and certain miscellaneous duties in connection with minafields and photography, its squadrons are used for attacks against hostile porte and shipping. 4. Balloon Comard. Under the Fighter Command comes the Balloon Command. This Command handles all barrage balloons in England except a small musber that are beding experimented with by the Havy in comsetion with the protection of convoys against dive bombing. The mmber of balloons, their altitude and the hours for change from one altitude to another are determined primarily by Fighter Command requirements with a constant flow of information from the Balloon Commend Headquarters to the Boaber Command, the Coastal Command, and the Navy. It reared to be the consensus that the barrage balloon system acted as a very useful deterrent against lew altitude bombing operations in those places protected by a balloon barrage. In the boalding operations on August 16 at Kenley, it was noted that all bombs dropped were at least half & mile south of the southern line of barrage balloons protecting South London. Similarly, during the rather intensive raiding during the period August 21 to August 30, fully 90 per cent of the boabs were dropped east and north of the ballom barrage protecting London. It 10 to be noted that barrage ballooms do not offer an immity tree boabing, particularly high altitude boxbing, but they do not constitute & very marked deterrent against lew altitude or dive boulding. No recomendat that $5,000,000 be made available imediately for the development and tart of barrage ballecas, cables, carriers, end 1 observed 4 large number of terrage bellows around the important cities. The altitude to with these ballooms ean go at present is about 6,000 feet. the Commission-Chief, liaber Commond, informed - that the Serman benrage ballooms can go up as high as 14,000 feet but use lighter cables. One of CONFIDENTIAL the officers at the - 15 - Regraded Uclassified CONFIDENTIAL 190 righter Commend informed M that the British would probably de the - under In this comestion - had as opportunity so - the installation of the cable outters a labes. No vers informed that this cable while not as extisfactory M # should be does astually et Regraded Uclassified balloos cables and does contribute & grest deal to the revale of eafety of bould.ng oreen which mut atback Ourses installations protested by berries bellows when washer conditions require 1aw altitude busing. They have and still do note wash attacks and have ed a miner of ballose larrage cables. The Hampden benter this 19 saw had six of thees, three € each wing. It was stated that although they veightquite s good deal and project in treat of the leading enge five = six instea thing do not naterially affect the performance of the airplane. One verry they have in this connection is that the present type of cable outter carmot be used in conjunction with the best type of de-icar. 2. AUTI-AIRCRAFT COMMAND. The Anti-aireraft Comund has headquarters adjoining the Fighter Command Headquarters and is under the operational control of the Fighter Commend. It emaists of six regiments which are part of the any artillary. The Commaning General of the Anti-airoraft Artillery Command, General Mile, advocates 40 per cent of heavy gitts and 60 per cert of light - w automatic wespons such as the 40 - and the 37 - or the .50 culiber machine pa, in each tactical unit. General File exporsed Musclf quite emphatically that in his opinion, the .30 caliber machine gun was utterly useless for anti-airoraft work for the reason that it had neither the hitting power nor the rate of fire that is necessary. & COMMAND. The Searchlight Command, which consists of many thousands of searchlights, is under the operational control of the Anti-airoraft Command. & AIR NAID PRECAUTION SERVICE. The Air Raid Pro- cartion Service is beautifully organised and is performing a most valuable service. It is under the operational control of the Fighter Command. Its organization has been reported on by the Military Attache. We should adopt it to our requirements without delay as the creation and equipping of a force of the size NO require will take many months. n. OBSERVER CORPS. The Observer Corps is also wall organized and is performing & most useful service. It is under the control of the Fighter Command and is a modal for us to follow. It is further discussed on page 21. 24. ARMI COMMINDS. All Army Forces in Regland are grouped. for operations under the Commander-in-Chief, Rome Forces. The Home Forces are divided into & mmber of commands, of which the only 0000 visited were the Southern Command and the Eastern Command. The Southern Command oon- stated of the 7th Corps and the 12th Corps. The Commending General of the 7th Corps we General MoNeughton, a Canadian who had a fine record in the last war and who has developed - very such of a leader in the present mr. Be has very decided ideas as to organisation and equip- must which have been more @ less in conflist with the ideas of the Mar Ministry but which have received the consurrence of nost Commission of ground forces. General McMaughten approved himself quite asphatically that as the result x his experience in the last var and in the present var, the Carps should constet of the stations of three divisions, each with the strength of about 15,000, and each infentry brigade should have four battalions instead of three. Re instate that all, replacements wast tom into divisions fully trained in an infentry training center and fed in from holding battalisms in which they have been trained ta battalion operations. This indivience - receiving fully trained - rather than attempting to train then in divisions - road to be CONFIDENTIAL - 16 CONFIDENTIAL 191 - throughout England, Its is generally accepted that a divisim 1 earry - basts training for replacements and at the - time keep w the standard that has been friend for the efficient performine of field debites. The brief Helt paid to the Considian Corp# indicates a very Make state of efficiency a the part of both afficers and and. the latter are will set up, clean, intelligent, and speractly loose their seb throughly. They are working hard and show the results such write & better appearing body et - would be hard to find any place. The Cussidian Corpo have developed & system of adapters during all sachine - and light antentis waspons are given adapters se that they can be used for either horisontal e vartical fire. Working bearings of these adapters were obtained and given to the Military Attache with instructions that they be furnished 0-2. This system of having all automatic weapons espable of antiaircraft fire has put a very definite etop to the German dive-bombing tactics insofar as England is conserned. Other natters noted in this visit to the 7th Corps will be found under paragraphs headed Engineers and Anti-tenk defense. The 12th Carps, under command of Lieutenant General Therne, is charged with the defense of southeast England, and - were given the opportunity to na.ks a tour with General from over his area and examine the defense system prepared to meet a possible invasion. The tour covered the general area of Tumbridge Wells, Centerbury, Shourmass, Margate, Ramagate, Dover, Deal, Dungemess md Winchelses. The entire area Le covered by three lines, consisting of & beach defense, a corps line with highly organised strong points, ed a S.B.Q. line, the neces- any switch lines being laid out. The area is wall grided, with nedal points strongly organized for defense, and in these defensive features concealment is strongly emphasized. It is to be noted that the original work frantically put in immediately after Dunkirk, contained many 12- preparly sited strong points and wrks, which have been left as they were, very larguly as bait, because they certainly must show up well in earial photographs. The constanding festure of this defense system which is based essentially on holding beach defenses, consists in having highly mobile, fully actorized reserves available under O.H.Q. Corps and Divisions, to be thrown immediately into my sector attacked. The system being very the same M our normal fire protection system in cities, with a prospt shifting of apparatus from ⑉ station to another in the event of a fire. While the 12th Corps has as encrudes front and at present an inadequate maber of divisions, it has at its disposal the troops of the 7th Corps in the event of an energency. It is understood that 4. number of additional divisions will be put in the 12th Corpe by the widdle of Ostober. It is to be noted that the Comming Generals of both the 7th and the 12th Corps are quite insistent upon mintaining noter transportation so that their reserved are fully actorised and can be thrown from con station to mother in a adadms of time. At every modal point and at practically every read intersection obstacles and road blooks have been established - that they can quickly be put into effect. It is further to be noted that the Local Defense Volunteers in such regions and districts which go to mke up the Southern Command are at the disposal of Corpe Communders in the event of en emergency, the freeing combat personnel we very high degree for service in commection with the bench defenses or en the divisional dafense lines. For the organisation the defense in this are the engineers of the 7th Carps NEW used for two ml a half is addition to the agreement of the 12th Corps. 25. ATHORID DIVISIONS. Both the First ad Second Amered Divisions were visited and in both of them demonstrutions mere pols - to alsow their tectine. While the visit to the First knowl Division, with its night have been staged for our benefit, the domunition is the Second - 17 - Regraded Uclassified CONFIDENTIAL 192 soured Division - as a surgelas visit In manuary via the Secretary of state for your, Mr. Man, and strietly was united to the Invi- de Communder prior to the and of Mr. Man. speaking, - Amored Divisions are divided Late from everyo. The someting fores of 11ght *shoulat* taxico which exerapent to our most are but wideh have nather the upsed, thank, nor of our smoth care. They are accompanted my a large tabe of notorgycles, most of which AM armad with tomy pms, The mehine par carriers wish form an integral part of the accept force brigade each have ETA Baya gain for horisocial firs, but the rate of fire - childrised M inadequate to met requirements. Both the machine gm ourders and the soont core have very Iteliad cross-combry shility. 11 " 4 be mind, however, that all .30 ealiber machine para ware capable of vertical a well as horizontal fire. The preference was very generally expressed for .50 caliber unchine grand in place of the .30 caliber. The striking force of the Armored Division consists of one brigade armed primarily with cruiser tanks which have been reported upon by the Uilitary Attache, and which seem to be an eminently satis- factory vahicle, although two or three tank commanders who served in France believe that they should be more heavily amored, particularly around the engine. The third brigade of the Armored Division which 10 the support force, donsists of only two battalions of infantry. The need of & third battalion, more heavily armed in machine guns, anti-tank guns and mortars was indicated. The Division Headquarters under which are grouped the engineers, the signal troopa, the supply schelon and the artillery, appeared to be quite as mobile as the other brigades, but a marked preference was expressed for the 25-pounder gun of which they had only one battalion, is against the 18-pounder gun of which they had two battalions and with which they had been armed in France. Greater flori- bility, greater fire power and higher trajectory of the 25-pounder were apparently the chief factors leading to the preference for this gun. In regard to tank tactica, on four separate training problems it was noted that the light tanks and the cruiser tanks both operated as platoon units, usually separated by a distance varying from 400 to & thousand yards, with platoon formation in echelon either to right or left, and with & platoon mission of breaking through the object- ive and then immediately circling back, either by platoon or individual tacks, to nop up anti-tank weapons that had been located during the advance. Smoke was employed in prectically all attacks. It was noted that the radio equipment was built into a tank and not makeshift devices sub- sequently installed. Radio communication means seemed to be eminently satis- factory. Tank commanders were almost a unit in expressing an opinion that the amor on light tanke should not be less than 50 millineters in thick- ness and on medium tanks not less than 70 millinsters in thickness. 26. TRAINING CENTERS. Officers. A visit was paid to the officers' training center at Sandhurst. This course consists of four months and is supposed to be adequate to indoctrinate newly appointed officers for the parformance ar their duties as platoon commiss. The instruction weegh Insefar If driving of motor vehicles, that is motorcycle, passenger car and truck which is compulary for all officers below the grade of brigadier general, me entirely theoretical, we dans by antiquated nethods axcept insefar as the use of the sand table for staar tactico MAY concorned, and appeared to be utterly devoid of any useful results insofar M training a platoon leader is concerned. It valid the must insfficient and the most useless thing that was EVER in Inglant. Infenter A detailed inspection vas made of the activities of the Infactry Training Center run by the Dapos Better lice of the Quest's Noyal Rifles at Oxildord, the course constate of sixtem weeks' Intensive training in are and individual mains an citimaly thorough and apparacily as extresly afficiest training in the CONFIDENTIAL 18 Regraded Uclassified CONFIDENTIAL 193 rifle, the automatic rifle, Use 30 caliber mashine pm, the Bays enti-lesk the infentry morter, and is hand Add rifle greater. The escunta of indition, (10) both sub-caliber and survice as fired in each coe of these weapons, have been reported upon by the Military Attache. The greatest 10 placed 00 physical training and DD hardening the recrdite. TMY work on the average of from eight is twelve hours 4 ear, with includes Regraded Uclassified a advisions of four hours'night operations per week. The sex were clean, wart, apparently in magnificent physical shape and showed elearly, parti- cularly the advanced platoms, the result of their intensive training. notual instruction in each particular subject was dre aither by a note- comissioned officer, a retired officer, or a civilian who VMS as apart is his own particular line. They were all up on their tom and worked with the greatest enthusiase and push. The course MM devoted entirely to training, all administrative, supply, fatigue and guard work was date by permanent personnel, none of it by the trainess. This course and schedules pertaining thereto have been furnished by the Military Attachs. Serious consideration should be given to this system in the United States for the reason that it produces astonishing results in & very short time. The sen turned out are trained soldiere and not recruits. Engineers. The Commanding General of the 7th Corps stated very forcibly that his own experience in France indicated the vital neces- sity of increased strength in engineers which be doesa assential for road blocks, for exploding bombs, for making road repaire and for demolitions. de is now sorking to a strength in the Canddian Corps of 5,859 engineers for a two division Corps, and 6,759 engineers for a three division Corps. This gives an engineer strength of approximately 14.6 per cent. An inspection was made of the Engineer Training Center at Cambridge. The outstanding feature of this inspection was an exhibition of the construction of four types of a. tabular steel bridge known se the Inglis Bridge. The normal type is a two-way bridge, capable of handling 34 tons on a 90-foot span. Other types are variations of this basie type but are made out of standard links of tubular steel and are espable of extremely rapid construction. On one test, with four gange of approxi- mately 16 sen each working on the bridge, it progressed at a rate of approximately 7-1/2 fest per simite. The material is simple, 1% is easy to produce and appears to be most effective. A full report, as to cast, production problems, weight, transportation loads, etc., should be required of the Military Attache in London. 27. SEACH DEFENSES. In the defense of England, the British Army is committed to the principle of meeting the energy at the beach and there defeating it. To this end, at every practicable landing basch in England there has been constructed obstacles of concrete, of railroad iron and of barbed wire, all ocvered with machine gun fire which have to be our- mounted before an enery could got 4 too hold. Back of these beaches but still within field of fire of mall arms, are machine gun nests and in some cases concrete strong points that would make a landing as extremaly costly effort. In the Southern Command, at varying distances back of the beach, are 4. series of strong points to 26/70 as centers of resistance until mobile forces held on the Division or C.H.Q. lines in rear can be brought up to reinforce the local defendare and drive the attempted landing back into the sea. The types of obstacles, some of which are new in character, appear to be very wall suited for the particular type of terrain which is found on these beaches. They are designed termest . local situation and in consequence will not be described in detail. These beach defenses represent an imense amount of intelligent engineering effort and form an accomplishment that is worthy of very high praise. 28, ANTI-TANK DEFENSE. The British, in preparation for the defense of England scainst landing attacks, have devoted considerable attention to anti-tank defense. They have provided chatacles on all important reads which are designed to dalay an advancing force and subject it to anti-tank eun firs, - 29 . CONSTITUTION 194 is addition to anti-tank CM that AN specifically Assigned to particular localities for anti-tank defense, each British battalion Le IMM working toward 12 anti-tank guas per bettalion. here possible, Britie desire the 47 - anti-tank (in which they consider the lightest gun espable of enti-tank dafense. The present British anti-tank are is considered eat- infactory on account of leek of hitting power and on account of excessive weight. British Line Officers claim that 4 andem traverse of 30 degress is all that is ever required, and a 360 degree traverse for anti-tank pas Le an absurdity. They do desire and in DOBB 05805 have an adapter to permit the use of the anti-tenk pai for anti-aireraft fire. It la very questionable whether any affective results can be obtained by this system. The Engineers of the Canadian Divisions have devised a tank defense system which is apparently remarkably effective, It has been put into effect throughout the area covered by the 7th and 12th Corps and is worthy of serious consideration. The engineers are very wall equipped with various types of machines such as concrete mixers, post hole diggers, road machines, bull-dosers, cranes, well-drilling machines, atc. In digging a tank trap, & well-drilling machine forces a 50-foot, 2-1/2 inch pipe diagonally into the ground at an angel of about one on five to one on eight, depending upon the soil. These pipes are put in over- lapping at about 15 foot intervals. When in, they are filled with explosives at the rate of about 2-1/2 pounds per lineal foot of pipe. they are then tamped with water and exploded. The result is 4. ditch about 12 feet in depth and about 20 feet in width with very spongy soil at the aides and bottom. Actual tests show that this is far more affective than the hand or machine dug ditch with reveted aidas because a track vehicle getting in the ditch, shurning up the spongy soil, buries itself and is unable to got out. This system, devised by Card- dian engineers, is vary such more rapid than the construction of the conventional form of tank trap. 29. ANTI-AIRCRAFT DEFENSE. Great attention has been paid by the British to the subject of anti-aircraft defense and they have usde very considerable progress in this respect. Every important industrial installation, every air field, and every important command post 10 given some measure of anti-airoraft defense. This consists, generally speaking, of about 40 per cent heavy guns and about 60 por cent light. The British are leaning vary strongly to the 3.7 and the 4.7 anti-aircraft gun in order to get burste at high altitudes. They are definitaly of the opinion that the 3-inch anti-aircraft gun is ao ineffective that no more should be procured. As to lighter weapons they look upon the .30 caliber eachine gun as extremaly ineffective except against very low flying bombers. They very strongly favor the .50 caliber machine gun with a high rate of fire, approximately 1,000 per sigute. The 20 - gun is very favorably considered and is reported to be artremely effective against low flying aircraft. The 40 - gun has done a great deal of damage against low flying aircraft but its rate of fire is held to be totally inadequate. Searchlights were very extensively used in con- nection with antiaircraft defense at night up until September 11, thereafter it was very unusual to see a searchlight at all, and the consensus seemed to be that searchlights did more harm than good in guiding 4.0 enemy to an objective and illuminating a target so that antiaircraft guns could fire on the target. After September 11 antiaircraft guns were used effectively without searchlights by - of the R.D.F. instruments which will be referred to in the succeeding paragraph. About this time the British devised the system of an aerial barrage by seans of antiairsraft fire. This barrage - 4)= parently more successful in interferring with bombing attacks. In this - 20 Regraded Uclassified CONFIDENTIAL 195 THE infinites a marked treat toward dx and P. insted of for pas batterise. We also learned that the 20d of against ta Newsy prevanted the Brittle from Regraded Uclassified supleting the airdress they heyed to ecoupy. This to one TMAIL for the failure of that undertaking. In comection with antialreraft dafance, the documer Corps plays - imported part is all reports coulng to from a Over Corpo to the Fighter Demand are also relayed to the MM- aircraft Commind. the Observer Corps consists of volunteers not of attitary MP who offer the country VR) thereaghly in meb the - number M our observers for the anti-aireraft commol, but who are provided with a Mr arate telephone net insefar as information centers are conserned. Lines into the information centers usually are normal civilian lines which are exployed either by individual observers or by groups of such observers. from information centers into section headquarters and to the commends, are run direct lines which de not go through any civil board. The фоф- vers work in four hour shifts and are new paid 80 the basis of twenty hours service per week. Telephones are allotted 9 the basis of one telephone for each post of three observers. The system appears to work with reark- able efficiency in day time, very for unobeerved planse getting in. The work of the observers of course is supplemented by the radio direction (9.4) finders which function under the autiniroraft Command. The long distance R.D.F. stations only provide information to securd. After the hostile airplanes cross the shore line they are tracked by the Observer Corps. 30. RADIO The Chief of Staff wes informed by cable M to our + servations upon the British R.D.F. system. The undersigned - in opera- tim the 0.1. set, the C.H. est and the G.H.L. est. Due to shortage of time - did not 000 the fourth net, that is the air-to-air set which sppears to be vital to our G.E.Q. Mr Force. We have boen given to understand that complete data on these four este are in the hands of the Chief Signal Officer. It is to be noted, however, that the O.L. set for compectness, for lightness, and for efficiency is markedly superier to are short-range datector. the O.H. out, which corresponde to our long- renge detector, appears to be more efficient except in the matter of tubes. Its operation is simple and highly affective. The C.H.L. set, which is primarily for ceast decemes purposes and functions to cover a - area, appears to be extremaly Sefficient. In all three sate the escilloscope appears to be much mire flexible, smoh clearer of definition and much easier 8 the area of the observer then our om type. If steps have net already been taken to this onl, 1t is urgently recomended that a competent Signal Carps officer be sent to England with the primary daty of observing net only the operation of these ests but studying their construction in order that - my have the benefit of British experience. In this commestion, the British type of serial appears to be far simpler and such more effective then - - type. It is also to be noted that the radio watchess give approximate musbers and altitudes. 31. CONSTICATIONS. Às has been indicated heretofore the British place great weight upon signal communications. In meet - they have to or three May of commination - that no new shri haypens to one they ein always be in touch with other handquarters and with alounts in each commend. The British loan very strongly to the telephone, usually by - of orparate wires that de not P through civil switchboards. This is replemented by rather extensive 11:00 of teletype machines, M many 4a 50 being in one headquarters, and in addition to them SIN - s. large mber of radio sets are provided, and insidentally the British radio note, from a additary standpoint, are distinctly experier to our - in ringe, in weight and in portability. In this commestion, the asks met CONFIDENTIAL & CONFIDENTIAL 196 M designed and built take the mashine and and added afterwards - - additional guiget. This results is and botter reseption the is the - for instance is our tasks and nows in the United Blates, 14 The strategical of the ser and the general time of plane for the fature at the war vers discussed in hotail with the Chiefs of Staff of the three armed services and with the Vise Chiefs of staff of the three cervices, This vas w detailed dise cusciens with the Yer Plane Officers of the kny and the Reyal Air Fores. Certain documentation that was furnished - is this respoct was given with the distinct understanding that it would not be embedied to any report but vas solely for the information of the Chief of Maff and the President, and that after the papers had been presented separately to the Chief of Staff and the President they must be destroyed. The under- signed gave our assurances to this effect. On September 2, Mr. Churchill asked the undersigned so convey to the President the following statement of his urgent needas (1) Expediting the manufacture and shipment of machine tools already under order, 14 being vital to British production that these tools, particularly capatans est millers, be furnished with the least practicable delay. (2) 71ying bosts (Spedish contrast) which are essential to combating the present submarine masse. In addition to those, Mr. Churchill desires 50 PST's over and above these that are now - order, They are needed at case, (3) Motor torpodo boats. Twenty of these are urgestly needed for policing the channel in the event of as attempted German invesion in order to combat the German Reboats. (4) Rifles. Mr. Churchill stated that he feels the urgent need for every possible rifle that we can spare ever and above the 275,000 Lec-Infields which had not been shipped by that date. (5) Anything that can be done to expedite the manufas- ture and delivery of airylance nov on contrast would be a distinct contribution to meeting the serious shortage of combet planes which now azista. (6) 16-inch c.n. guardo Mrs Churchill expressed himself as urgently desiring two (2) court defense pass of a range of approx- imately 45,000 yards for counter battery work against the German big gun installations opposite Dever, (7) As may pilets, trained by the Army and Havy, as will volunteer. May Churchill stated that he would provide any Army or Havy pilot, on a leave of absence status for a for menths, & wonder- nd training by giving them natual soubet experience. On September 16, in the course of - farewall call, Lard Deaver- breek stated that be desired the President to know that be 155 very mash over the notion of the stinnes aviation people - the order for 100 0674 light observation airplanes. Os July 6 the British Government requested a diversies of 100 planse ordered by the United ligies Apay is order that they might receive the first hundred to and thair 22 CONFIDENTAL Regraded Uclassified CONTIDENTIAL 197 Regraded Uclassified requirements. On Ampart 14, the best date the British Government could obtain tree the Hisses fastery, FOR from January 10 se My 14, 1941. later the Junuary 10th delivery date via arbitrarily shanged by the fax- tory to August 1942, Shoes setting bask balance of the deliveries. as the - time the British Purchasing Consission - told by the Main fastory that deliveries sould start as these airplance in March 1941 provided the British Government pay $5,000 more per plane. Land Beaverbrook leoks upon this price intrease and Juggling of dates - extortion and states further that the delivery dates propered are not in relation to the extertion prices asked. Lard Beaverbreak desires the intervention of this Government in effecting a realless- tion of this type of aircraft which would serve British Government requirements. At this meeting Lard Benverbrook requested further that 32 B-17 Besing beaders be placed at the disposition of the British Government at case in order that long-range bombing of Germany my continue through the winter. Re intimated that - versations had already taken place with the President on this subject. Lard Beaverbrook further requested that at the carliest possible date six complete turbo superchargers, with spares, be turned over to Great Britain for tests, it being propered to put two on & twe-engine bember, two on a fighter, and two on other type of aircraft that was not designated. The Vinistry of Air- craft Production desires that these superchargers be released at the earliest practicable date. These requests of Mr. Churchill and Lord Beaverbrook are submitted for transmission to the President in accordance with their request. 33. CONCLUSIONS. & Insefar as the defense of England is concerned, 19 has been for some meaths, is nov, and probably will be for seas time to come, an air var. It is very probable that - too will be ⑉ fronted with a similar air was phase in the erest that - become engaged in war. The lessen from this wr, " far as we are concerned, is that - must build up the striking component of our Air Foree as quickly as pensible. no We both have the very definite feeling that scener or later the United States will be drawn into this war. A study should be initiated imediately us to how TO best can build up our air striking foree and our air defense force in the shortest prac+ ticable time. The asquisition by the United States of bases is this hemisphere has made a very definite change is our situation. It may mean a revision of our requirements and to this and 16 is recomended that the Air Board be reconventd to make this study and to make recommendations as W how to build up an adequate Air Force in X the shortest possible time. 2. During this tour ve had an opportunity to usedes, as few people have, the preparations that a great nation has made for var that involves antional existence. In addition, 18 had a chance to get a perspective of our - Var Department and to make . 23 - CONFIDENTAL CONFIDENTIAL 198 & comparison with that of the British. It is quite obvious that the British in some respects are markedly more advanced than 1999 are. Our sumbersoms procedure is the Far Department is too sell known to bear comment. We appresidte that no changes can be made st this late hour which will spset current placning and operations, but it is believed that the simplification of admin- istration, precurement and planning is highly desirsble. 1. The outstanding lessens of the var for us appear to be as follows: (1) Our air program must be radically revised. Observation aviation as a type must be scrapped. It cannot function under modern battle conditions. In its place must be a fast, well-armed light bonber, capable of carrying an adequate basb lead and fitted with mana for aerial photography and de-ising equipment. The fire power of our pursuit and bombers must be increased. Bemb bays must be provided for handling the maximum mumber of bombs of all sizes that an sirplane can carry. (2) Antiaireraft guns, heavy and light, must be provided for all bases, air fields, vital installe- tions and mobile columns. Such armant must be espable of horisontal fire against ground targets. Ground machine guns must be furnished adapters for anti-aireraft fire. (3) A higher proportion of engineer troops must be made available for mobile forces for repairs to land- ing fields and roads, for executing demolitions, for the construction of defense works, and for making anti-tank obstacles. (4) Dependable multiple means of communications must be furnished all scheleus. (5) More effective combined training between air, ground end naval forees must be established at a routine miter. (6) More rigerous physical and disciplinary training must be given both commissioned and sulisted personnel. A high state of physical training is neces* sary for modern operations. 24 CONFIDENTAL Regraded Uclassified CONFIDENTIAL 199 (7) A high degree of tactical indostrination of officers, and a surverpendingly indressed local deceme tralization of responsibility for subordinate communders 10 strongly indicated. (8) There is a marked need for more effective and rapid radio comunication in code. (9) A marked increase in anti-tank defensive power in Divisions is necessary. (20) The quantity, equipment and method of util- intion of communication troops must be thoroughly reviesd and expanded. (11) The using service rather than a supply agency must have final determination of types and specifications of equipment to be used by that service. The determination of these matters by a supply agency is uncound. DELOS C. EMMONS, GEO. V. STRONG, Major General, Brigadier General, Commanding G. H. Q. Air Force. Assistant Chief of Staff. -15- CONFIDENTIAL 200 OCT 8" 1940 My dear Mr. President: is a result of the trip which M Folsy took to San Diego this past week-end with representatives of the Army and Nevy, and the British Purchasing Wission, I am convinced that it is imperative that H. R. 10412, which would provide $150,000,000 for the construction of housing for persons engaged in national defense activities and their families, be enacted at the earliest possible date. For example, to illustrate the need, approximately $23,500,000 is required to provide adequate housing facilities for civilians who will be exployed at the Consolidated Aircraft Corporation plant in San Diego. This - will emable dwelling units to be constructed for 6,000 families and for 6,000 bachelor employees according to estimates made by the Federal Housing Administration. I understand that Congressman Lanham, Chairman of the House Committee on Public Buildings and Grounds, is handling the appropriation as well as the bill and you may wish to speak to his and the leaders concerning this matter. Faithfully yours, (Signed) H. Morgenthau, JI. Secretary of the Treasury The President The White House "r. Thommson By Moreanger 11: 30 CLX:LJBst 4 New Watern 10-8-40 Regraded Uclassified 201 OCT 8" 1940 By dear Mr. President: I have just learned that the House early this afternoom adopted the conference report a H.R. 10412, the national defense housing bill, I wrote you about this morning. This completes legislative action on the bill. The House this afternoon also passed and sent to the Senate a joint resolution apprepriating the $150,000,000 authorized by 1.1. 10412. I have been advised that the Senate intends to complete action on the apprepriation before adjourament this aftersoon. Faithfully yours, (Signed) H. Morgesthau, fr. The President, File to Mr. Thompson The White House. By Memeragee 455 LJB:KHF Jr.rvla - 10/8/40 Regraded Uclassified 202 OCT 8" 1940 By dear It. President: I have just learned that the House early this afternoon adopted the conference report on H.R. 10412, the national defense housing bill, I wrote you about this morning. This completes legislative action on the bill. The House this afternoon also passed and sent to the Senate a joint resolution appropriating the $150,000,000 authorized by H.R. 10412. I have been advised that the Senate intends to complete action or the appropriation before adjournment this afternoon. Faithfully yours, (Signed) H. Morgenthau, Jr. The President, The White House. By Меннодер LJB:EHF Jr.tvls - 10/8/40 Regraded Uclassified TREASURY department 203 INTER-OFFICE COMMUNICATION DATE October 8, 1940 TO Secretary Morgentheu , FROM E. H. Foley, Jr. For your information I have just been informed that the Senate this afternoon appropriated $150,000,000 to carry out the purposes of the National Defense Housing Bill for civilian employees. This completes legisla- tive action on the bill and the appropriation. Both measures are now going to the President for signature. i.N.7h. 204 October 8, 1940. TO: Secretary Morgenthau was FROM: Mr. Gaston You had as your guest at lunch today Mr. Charles Hewitt, Jr., the young man whom Edgar Ansel Mowrer mentioned when he called on you several weeks ago. Howitt lived in Munich for some seven years and for about two years worked under Mowrer as a correspondent of the Chicago Daily News. His home is in North Ton@wanda, a surburb of Buffalo, where his family runs a newspaper. Since his return from Germany Hewitt has been interested in developing on his own account evidence of German "Fifth Column® work in the United States. He told us at luncheon today that because of the excellent letters he presented to Bavarians from Dr. Jacob Gould Schurmann and others he had very good access to persons of many ranks in Bavaria, including men who later became important Nazis. He thought also that his appearance counted in his favor, as he is of the blond type that might be considered German. His particular object today was to interest you in the possi- bilities of this Government's making use of the ability and experience of Albert Orsesinski, who has been in this country since 1937 when Messersmith cooperated in accomplishing his entry from Canada. This man was the officer in charge of the demobilization of the German army after the last World War, was later successively Chief of the Prussian Police, Chief of Police of Berlin (in which capacity he visited the United States on the first voyage of the dirigible Von Hindenburg) and Controller of the Political Police of Germany from 1923 until Hitler's access to power in 1933. Hewitt said that G at one time signed an order for the deportation of Hitler as an undesirable alien (his nationality was then Austrian) but this order was not executed because of the timorous character of Chancellor Bruning. Hewitt says he has been in frequent contact with G, who has extensive files, in- cluding dossiers of many important characters and would be of unique value in assisting our Government because of his knowledge of the manner in which the various German organizations operate. He had called G to the attention of the F.B.I., but the only result was that F.B.I. men at various times had called on G to ask information on specific cases and individuals. He cited several instances of what Regraded Uclassified 205 - 2 - seemed to him the failure of the F.B.I. to operate effectively on this problem and said, citing instances, that the German representa- tives were cynically bold in their operations in this country. While he didn't think G had a list of German under-cover men in Government Departments and key industries, he thought that G could be of unique value in compiling such 8 list. He said the F.B.I. didn't have adequate records even on what is publicly known of German operations in this country. In conversation with Hewitt afterward he assented vigorously to a suggestion that 0 could very profitably be put to work at going over the records of the McCormack-Dickstein inquiry of several years ago, which he thought highly important, the Dies Committee hearings, the files of German language newspapers and other material, and in suggesting a plan of action to combat the Fifth Column menace in this country. As to G's source of income, he told me that he believed G had some capital and income from his writings, which include a book called "Inside Germany." He is very confident of G's reliability and his thorough-going antagonism to the present German regime. He said G fully intended to become an American citizen, had taken all the necessary steps and would be an American citizen in about another year and a half. C's wife, he said, is of English descent and her name was Daisy Torrance. Since leaving Germany in 1933 and up until he came to this country in 1937 G was a member of the Comite Consultatif, attached to the French Home Ministry, which had chart' of the entry of refugees into France and their supervision while in Fr. nce. He thought gen- erally that this Government was failing to make use of its most important asset for counter-espionage, which was the knowledge of the methods of German espionage possessed by Cernans in the United States who are thoroughly hostile to the Nazi Government. You explained to Rewitt that such a matter as the utilization of I's services was outside the sphere of the Treasury Department but that within twenty-four hours you thought you would be able to name the man who would exercise general direction over this sort of work and that you thought it would be Francis Biddle. You said you would let him know. The following addresses are for the record: Albert Grzesinski, Charles Hewitt, Jr., 146 West 79th Street, 146 East End Avenue, liew York City. Telephone: Regent 4-6992 Telephone: Trafalgar 7-8464 In Washington - c/o John M. Billings, Dupont 4411. (Rewitt thinks he made an error in giving you 0's New York address.) Regraded Uclassified 206 October & 1900. 20s Secretary Margentheu PROM: Fr. Gaston You had - your guest at lunch today Mr. Charles Hemitt, 20., the young - when Rógar lasel lisurer mentioned when be called on you several weeks age. Britt lived in Manich for - seven years and for about too years worked under Mouror # & correspendent of the Chicago Daily His Income is in North Tonomada, a surburb of Buffalo, where his family runs a newpsper. Since his return from Germany Regitt has boen interested in developing on his own account evidence of German "Firth Column® work in the United States. Be told us at Imahoon today that because of the excellent letters he presented to Bengrians from are Janob Gould Schurmenn and others be had very good - to persons at may ranks in Bavarie, including non who later I important Maxis. Be thought also that his appearance counted in his favor, as be is of the blood type that might be considered Comm. His particular object today - to interest you in the possi- bilities of this making use of the ability and experience of Albert Greeninabi, who has been is this country sinee 1937 the eseparated in accomplishing his entry from Canada. this - M the officer in charge of the domobilisation of the German my after the last World Tar, the later successively Chief of the Pression Police, Chief of Police of Barlin (in which capacity be visited the United States a the first veyage of the dirigible Fax Rindenburg) of Controller of the Political Pulice of Germany from 1923 mtil Ritler's - to - is 1933. Bruitt and that OF at cos time signed - order tor the departation of Hitler M an undesirable alim (ids sationality - the hustrism) but this order was not executed because of the themses character of Chanceller Braning. Health says be has been is frequent entert with o, who has estensive files, in- aluding dussiers of may important staracture of wold he of value value in neclating w Government because of his knowledge of the number in shich the verious Oursan exmisations operate. b had called 0 to the sitention of the F.B.I., but the only result was that F.B.I. MI as verious time had called en G to ask information el specific - ml individuals. no cited several instances of what Regraded Uclassified 207 Regraded Uclassifi - 2 geened to his the failure of the F.D.I. to operate effectively a this problem and said, eiting instmess, that the - represents» tires were synically bald in thair operations in this country, Hills be didn't think 0 had 8 list of Generan under-cover M in Government Departments and key industries, be thought that 0 could be of under value in compiling such a list. a said the F.B.I. den't have adequate records even on what is publicly known of Comman operations in this country. In conversation with Hewitt afterward be assented vigorensly to a suggestion that G could Tery profitably be put to work at going over the records of the MeCormach-Dickstein inquiry of several years ago, which he thought highly important, the Dies Counditee hearings, the files of German language newspapers and other naterial, and in suggesting a. plan of action to combat the Fifth Column senace in this country. is to G's source of income, be told no that he believed G had - capital and income from his writings, which include a book called "Inside Germany." Be is very confident of G's reliability end his thorough-going antagonima to the present German regime. Be said 0 fully intended to become an American citisen, had taken all the necessary steps and would be an American eitizen in about another year and a half. G's wife, he said, is of English descent and her name IM Daisy Terrance. Since learing Germany in 1933 and up until be case to this country in 1937 G was a member of the Comite Consultatif, attached to the French Home Ministry, which had charge of the entry of refugees into France and their supervision while in France. Be thought - orally that this Government - failing to sales use of its met important asset for comter-espiemage, which was the knowledge of the methods of Genera espionage passessed by Germans is the United States who are thoroughly bestile to the Resi Government. In explained to Houitt that such 1 mttar us the utilization of 0's services w outside the aphare of the Treasury Department but that within twenty-four hours you thought you would be able to - the - who would exercise general direction over this sort of work and that you thought it would be Francis Siddle. In and you wild let him know. The following addresses are for the records Albert Orsesinski, 4 India, Gurlas 146 West 79th Street, 146 But Ind Andrew, Bey York City. Telephone: Regard with Telephone: trafulger 7-8464 In Washington - a/c Jahn & Billings, Digreet 4411. (Hreitt thinks be made a orror in giving you ⑆ In Tailt address.) 208 October 8, 1940. MEMORANDUM CONFIDENTIAL - TO BE DESTROYED TO: Secretary Morgenthau w.b FROM: Mr. Gaston Hewitt talked more freely and with much less hesitation when he was in my office, confirming my impression of him. I noted that he bites his finger nails, which is added evidence. I think though that it might be a good idea to check further with Edgar Mowrer about him, which I hope to do. 209 October 9, 1940 10:30 a.m. RE BABY BONDS Present: Mr. Bell Mr. Haas Mr. Sloan Mr. Broughton Mr. Bryan H.M.Jr: How much does this booklet cost? Bryan: This costs less than a cent apiece. H.M.Jr: How many are you getting out? Bryan: We would ordinarily use around 500,000. H.M.Jr: $500,000? Bryan: Oh no, that 18 $50,000. H.M.Jr: You mean you get that out for a cent and a half? Bryan: Oh yes, we do it for a cent and a half. The cost, Mr. Secretary, 1s in the preparation and then we are using lithography and we are doing beautiful things at very small cost. Sloan: There has never been one yet that has cost over 8. cent and a half. Bryan: And for every eight assemblies we send out, we sell $250 worth of bonds. H.M.Jr: You credit everything that comes in, don't you? Bryan: Sure. 210 - 2 - R.M.Jr: I wonder what if you didn't send anything out? Bryan: Well, even -- Bell: If you stop advertising, your sales go down. Sloan: You are not figuring post office sales, are you? Bryan: Yes. But I will say this, it costs us less than - it costs about one sixth of one percent from a mail order standpoint. It costs us less than half of one percent including the postage, Mr. Secretary; charged to us as if we were B. commercial organization. H.M.Jr: Where is Jefferson? Bryan: Well, that 1s just -- H.M.Jr: Where do you come from, Maine? Bryan: Tennessee. H.M.Jr: What? I don't believe it. If you are going to have three people, why not stick Jefferson in there? Bryen: Yes, Mr. Secretary, I quite agree with you. That was just a suggestion for the artist. H.M.Jr: Just 8.8 soon 8.6 you give them Civil Service status, they go -- Bryan: I think that would be 8. nice thing. Bell: I was just explaining that we have in mind E. portrait later for Treasury bills of the denominational basis and we thought probably Ogden Mills should go on there, because he was the originator of Treasury bills, but we went back and picked out Carlyle. H.M.Jr: Well, stick old Jefferson in there. Bryan: I shall, sir. 211 - 3 - Bell: How do you like that idea, Mr. Secretary? H.M.Jr: Good. I think it is 80 much better than the other Bryan: idea. H.M.Jr: That is all right. Bryan: I am sorry I made & bust on the portrait. H.M.Jr: If you had got away with that, I never could have gotten it explained to the President. Now, Dan, you have got until eleven o'clock. Bell: You cut me out an hour, I see. H.M.Jr: Yes. You just tell me what you want, and I will say yes. Bell: Well, this 1s the conference on the question AS to whether we should change the rate on United States Savings Bonds and if we are going to change, we ought to know now because it takes about six weeks to two months to make the changes and get everything out into the hands of 16,000 postmasters. We have had some discussion among ourselves end we have a table here to show the various rates, if you want to look at them, but I think this group feels that we should make no change at the present time, just go shead, but that when we go to Congress and get a change in our debt limitation, which we certainly will have to do, we will also get a change of a $10,000 limitation on savings bonds and put it into your hands 88 P. discretion, and then we make that limitation, say, $3,000 insteed of $10,000 and maybe at the same time out out another issue that will appeal to the larger fellow and the trust estates and make it a lower rate. H.M.Jr: Why do you want to cut them down to three? Bell: Well, we think that gets the small investor and the fellow that we are trying to encourage Regraded Uclassified 212 - 4 - to save, and how many would you (Sloan) say that would take care of, in your group now? Sloan: Well, we figure there are only about 3% of the number of people who buy these bonds who buy more than $5,000 in any one year. H.M.Jr: Only 3%7 Sloan: Yes, sir. About 97% of them are people - in number of people that buy less than $5,000. H.M.Jr: Buy less than $5,000? Sloan: Yes, sir. Bryan: No, more than $5,000. Sloen: And of our regular purchase plan people, 96% of those people buy less than $1,000 a year. Bryan: $37.50 & month. H.M.Jr: Now, wait & minute, I'm all mixed up. 97% of the people buy $5,000 or less? Sloan: That is right. H.M.Jr: Is that right? Sloan: Yes, sir. H.M.Jr: 97% of the people buy $5,000 or less? Sloan: Yes, sir. H.M.Jr: In numbers? Sloan: Yes, sir. H.M.Jr: What 1s this -- Sloan: 96% of the people who buy on our regular purchase plan -- Bell: That 1s a monthly basis. Sloan: ...... buy less than $1,000 a year. 213 - 5 - Broughton: That is worth considering. H.M.Jr: Yes. So you would cut it down to $5,000? Sloan: What we understood WAB that we would get full freedom of action 60 that you could change it at any time at will, but that if it was still decided that you wanted to hold it down to 8. figure below what it has been running, if the sales got away from us again, we could cut it down to $3,000 in any one year and you can limit it to R total maybe of 30 after January 1 of next year. H.K.Jr: One reason why I am willing to stall on the thing is that this National Defense Program is really getting going, and you don't know what it 1s going to do to the money market and it might be the height of stupidity to do it just now. What do you think, George? Hase: I agree with you. I think, Mr. Secretary, that the type of investor you need in here 18 not the general market type of investor. You have to compete with building and loan associations and even banks give preference to small deposits, higher interest rates, the Mutual Savings Bank. So I think the way to meet this situation 16 not to cut the rate at this time. I agree with you that you don't know what the future rate is going to be, but cut the amount and then you have not only the Defense Program going into R high level of business activity, you want to do everything you cen to keep the Government securities out of banks 80 that they will not increase deposits any more, 80 Dan's suggestion about putting out another series and maybe have a top on that of 25,000 or $50,000 there, but price it more nearly the market, 18 all right. Dell: That is something we have plenty of time to consider and have it ready if we get the legislation. H.M.Jr: Okay, let her ride. What else do you want? 214 - 6 - Bell: Well, the other thing I had was a despository matter. H.K.JP: What the hall 1a that? or that 18 that thing that you have been talking about. Are these men in on that? Bell: No, they are not in on that. Broughton: Then we are going to leave it as it 1s? Bell: Yes. H.M.Jr: And don't forget Jefferson. Bryan: I shall not. 215 October 9, 1940 11:00 a.m. RE FREEZING Present: Mr. Pehle Mr. Chamberlain H.M.Jr: What have you gentlemen got? Pehle: Mr. Fosdick of the Rockefeller Foundation was down and left with us a long letter which they received from their people in France which again describes conditions. It quotes from a diary that their man over there is keeping and they promised to keep sending us those things. Chamberlain: I think it is very interesting. Pehle: He also left with us a copy of the agreement which the Rockefeller people have with the French authorities. They are dealing with the French authorities in Paris, who are the technical people, and they tell me they have talked to Atherton in State and other people over there who encourage them to deal with the technical people and stay away from the political side. They have this very general agreement with the technical people for the Regraded Uclassified 216 - 2 - setting up of public health services and assisting the French in combating epidemics, 8. copy of which is here. Dr. Fosdick mentioned that we gave them a license several months ago covering about a quarter of a million dollars which they were going to use throughout Europe in surveying the public health field. They have used but a small portion of that. The time, however, is running out and they wanted to be sure it was to be renewed and I told him we would consider it promptly. It won't run out for a couple of weeks yet, but they want to be able to plan, of course, what they are going to do and I assume there has been no change. H.M.Jr: I don't know of any change. Pehle: One the number of pending cases, there are now six hundred seventy-nine, which is about current. I think that is about what we would expect to have in. Chamberlain: It is very good. New York had over six hundred cases yesterday, just New York alone. You see, there are still a lot of cases coming in. I wanted to mention to you about Rumania which we didn't discuss yesterday at the State Department. You recall we wrote them a letter and asked them whether they wanted to extend the freezing control. Have we heard from them? H.M.Jr: Here is a letter from the Secretary of State. This is an answer - I will let you gentlemen read it. "Proposed Circular Telegram "To all Diplomatic and Consular officers in 217 - 3 - Belgium, Denmark, France, Luxemburg, Nether- lands, Norway, and to Consular officers at Leopoldville, Algiers, Saigon, Tahiti, Tunis, Cayenne, Martinique, St. Pierre-Miquelon, Dakar, Batavia, Curacao, Medan, and Surabaya." Pehle: I think I know what that is. It is & minor matter. It involves State Department offi- cials' accounts. H.M.Jr: Will you take care of it? Pehie: Yes, sir. H.M.Jr: Try to get it out within twenty-four hours. Pehle: Right. About Rumania, we wrote them 8. letter and they wrote back and wanted to know how much money was involved, and we told them. Then we haven't heard. We have had 8. number of people call us up and say, "Have you blocked Rumania yet?" and so forth, and the only question is, should we let the State Department know or should we let it rest? H.M.Jr: Have we brought it to their attention? Pehle: Yes, we have. H.M.Jr: I would let them decide. Chamberlain: It isn't very important. It is a question of principle more than anything else. H.M.Jr: How long ago did we nudge them? Pehle: We wrote them about ten days ago. They re- plied and wanted to know what the amount was and we promptly told them the amount, so it is pending there and has been for about a week, I should say. Regraded Uclassified 218 - 4 - H.M.Jr: I think I would let it go. Chamberlain: The question of Japan arises, of course, Mr. Secretary, blocking Japan. Mr. Pehle discussed it for a few moments, and I think that is a question of very high politics. The only point we made was that if Japan is into it, we should block at least the occupied part of China. Mr. Pehle raised the question as to whether we would block all China. He said he understood the Chinese were quite willing to have it done. H.M.Jr: I think if we did Japan, we ought to do the whole works. Pehle: That is the thing that would hurt. Chamberlain: I think we ought to take it up with the Chinese Ambassador. H.M.Jr: Yes, but I think until we know pretty much what we are going to do, I don't think we ought to even hint about it. Chamberlain:. I.think so too. That is what we felt. We just wanted to mention the importance of blocking all China or at least certainly all occupied China in the event of a-- H.M.Jr: Am I not right that the Chinese have sort of asked us to do this? Pehle: Yes, sometime ago. Chamberlain: Hinted. Pehle: I thought you would be interested to know that the Aluminum Company of America is spending about eight hundred fifty thousand dollars to build a new bauxite plant. That is Vienna. That has been cleared with the defense and fits 219 - 5 - into their program on bauxite. Of course, they have a mine down there. This will tend to speed up production down there in the 70- fining process in Dutch Guiana. When the French Ambassador was in here I understood he mentioned something in a very glib fashion about the French fleet at Alexandria. We now have a letter from Alphand in which he says that they want an immediate release of one hundred thousand dollars and a hundred thousand per month thereafter for the mainte- nance of the French fleet demobilized at Alexandria. These expenses fall entirely under the control of the British authorities, and they want to take it out of their blocked account here. We have prepared a letter to State asking for their views. H.M.Jr: Let me see. Mr. Welles sent me 8. memorandum he wrote of his conversation with the French Ambassador. "Blocked French funds in the United States The Ambassador then inquired whether I had been informed by the President of his conversation with the Ambassador with regard to the request for the unblocking of French funds in this country so as to permit the French Embassy here to pay from these funds the expenses of French diplomatic and consular establishments in the Western Hemisphere and in certain countries of Europe, and also to utilize $1,500,000 for the purchase of beef in Argentina to be used in feeding French prison- ers of war in Germany and in French occupied territory. The Ambassador also asked whether I had any information concerning his recent conversation on this subject with the Secre- tary of the Treasury. - 6 - "I replied that while the President had spoken to me concerning certain features of his interview with the Ambassador, the President had not spoken with me concerning the question of blocked funds. "The Ambassador thereupon stated that he had outlined the situation to the President and that as he was leaving, the President had said "I hope you will work out satisfactorily the ques- tion of your diplomatic and consular establish- ments on the American continent". "I said to the Ambassador that I had spoken only this morning with the Secretary of the Treasury on the telephone and that I was afraid the Ambassador had misunderstood the President, since I was informed by the Secretary of the Treasury that the President had made no commit- ment in that regard whatever. I then went on to say that I would have to inform the Ambassador that he could expect no relaxation by this Government of the blocking of French funds in so far as the suggested purchase of beef by France for the relief of French prisoners of war was concerned. I said that under the accepted rules of international law and in accordance with various international agree- ments, the German government was obligated to undertake the proper feeding and care of the prisoners of war under its control. I stated that there seemed in the judgment of this Government no justification whatever for the purchase by the French Government of large quantities of beef to be used in the feeding of prisoners of war, thus relieving the German Government of its valid obligations in this regard and making it easier for the German Government to feed its own troops and its own civilian population. I said that with regard to the facilitation of funds for the payment of diplomatic and consular establishments of Regraded Uclassified 221 - 7 France in the Western Hemisphere, I could at this time give him no definite reply. I said that all I could add in this regard was that questions of this character could undoubtedly be more readily solved if the French Govern- ment showed a more friendly and cooperative spirit in its dealings with the United States and that I trusted that the reply made by France as communicated to me this morning by the French Ambassador with regard to French colonies in the Americas would seem to the high officials of this Government as an indi- cation of such desire on the part of the Vichy Government to cooperate to our mutual advantage. "The Ambassador then launched into a very long and exceedingly vehement tirade. He stated that the refusal of this Government at this juncture to release funds for the payment of French diplomatic and consular missions in the American continent was tantamount to a desire on the part of the United States to liquidate such establishments and as proof that this Government did not regard the Vichy Government as a sovereign government. He said that our refusal to permit French funds in the United States to be used for the purchase of food supplies to relieve the situation of French prisoners of war was 8 proof that this Govern- ment had no humanitarian interest in the fate of these unfortunate individuals and that our action in this regard would be equivalent to a sentence of death for them." Chamberlain: You have seen Mr. Berle's memorandum on that? H.M.Jr: No, I don't think I have. Chamberlain: On the French purchase. H.M.Jr: No. 222 - 8 - Pehle: Mr. Cochran had it. It came up after the thing had been presented, " I understand it, at Cabinet, or at the same time, and Berle sent 8. memorandum over that Davis had presented to him saying that we had examined the prison camps in Germany, and we found there was plenty of food and the conditions were not what the French said they were and practically saying the French were giving us a false story. Chamberlain: We made the point, Mr. Secretary, that these prisons should be used for work. H.M.Jr: There is nothing on that. I just would refer it - what is that? Pehle: That is a proposed letter just asking the Secretary's views. H.M.Jr: That is that. Pehle: Are we going to be in a position to take any action on the various French things that are here or should we just sit tight? H.M.Jr: Sit tight. The President said, "Now--" Pehle: I am not turning them down. We have a number of cases where-- H.M.Jr: Oh, I don't think I would turn them down. I just think I would do nothing. Chamberlain: I think SO. If we do nothing, it practically amounts to temporarily turning them down, and we have great doubt as to what is going out of South America, anyway. H.M.Jr: Have we? Chamberlain: They reported to us on one large purchase, 223 - 9 - you remember, after we objected. We said we wanted to know what they were using the money for. They said they had been able to cancel a contract and provide for a forfeit of ten percent of the amount of the original con- tract, so that you can see from that, Mr. Secretary, that this is not just a straight business transaction. Pehle: The other thing, we have an application here to use some French funds in Federal Reserve. This amount is two hundred forty thousand dollars which they say they want to use to cover imports of clothing, haberdashery, and spare parts for their sugar refinery, all in Martinique. H.M.Jr: Well, I certainly would write also to Mr. Hull on that because that is part of the French deal, Martinique. Pehle: That is all I have. Chamberlain: That is all. H.M.Jr: Fine. Chamberlain: I see you are getting close to the question of an extension of this. H.M.Jr: Yes, I am watching it. It is always nice to see you. Chamberlain: It is always nice to see you. 224 THE UNDER SECRETARY OF STATE WASHINGTON October 8, 1940 Personal and Confidential Dear Henry: In the belief that it will be of interest to you, I am enclosing for your personal and con- fidential information a memorandum of my conversa- tion with the French Ambassador yesterday. Believe me Mehs Enclosure. The Honorable Henry Morgenthau, Jr., Secretary of the Treasury.