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Volume 352, January 28 – January 29, 1940
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Volume 352, January 28 – January 29, 1940
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 352
January 28 and 29, 1941
Regraded Unclassified
- A -
Book Page
Alsop, Joseph
Aske HMJr for appointment 80 that he may be brought
up to date on economic defense - 1/29/41
352
212
Aluminum
See Var Conditions: Price Control
Argentina
See Latin America
- B -
Brazil
See Latin America
- C -
Cicogna, Gian Luca (Count)
See War Conditions: Italy
Coast Guard
Knox asks Attorney General for opinion on President's
authority to order immediate transfer to Navy -
1/29/41
208
a) HMJr and Gaston expect transfer within a
week - 1/30/41: See Book 353, page 4
- E -
Export Control
See War Conditions
- 7 -
Federal Bureau of Investigation
For Wiley report on Count Cicogna, see page 104
Klaus memoranda - 1/28-29/41
105,192,193
Financing, Government
Debt Limitation: Conference; present: HMJr, Bell,
Sullivan, Foley, Haas, Schwars, Odegard, Stewart,
and Kuhn - - 1/28/41
114
a) HMJr's testimony before House Ways and Means
Committee reviewed
1) Draft
153
2) Reading copy
166
"Fivefold Aid to Britain"
See Sternberg, Fritz
- H -
Book Page
Halifax, Lord
See War Conditions: United Kingdom
Harrison, George L.
Address before Bond Club of New York - 1/29/41
352
185
a) "Personal observations about present and
future position of private investment market"
Thanks HMJr for letter on leaving Federal Reserve
Bank of New York - 1/29/41
210
Hungary
See War Conditions: Foreign Funds Control
- I -
Italy
See War Conditions
- J -
Japan
See War Conditions: Export Control
- L -
Latin America
Argentina; Brazil:
Foreign Minister Aranha (Brazil) asks for
information concerning recently consummated
stabilization arrangement between United
States and Argentina - 1/29/41
188,189
- K - -
Metals
See War Conditions: Price Control
- P -
Price Control
See War Conditions
Regraded Unclassified
- S -
Book
Page
State Department
Subversive activities to be covered by newly
established Intelligence Division - 1/29/41
352
190
Statements by HMJr
Before Senate Committee on Foreign Relations, on
Lend-Lease bill - 1/28/41
3,21,39
a) Press comment
50,65
Before House Ways and Means Committee, on debt
limitation - 1/29/41
166
a) Draft
153
Sternberg, Fritz
"Fivefold Aid to Britain" together with Gaston
memorandum concerning - 1/29/41
239
Studebaker Corporation
See War Conditions: Airplanes (Engines)
- U -
United Kingdom
See War Conditions: Military Planning: United Kingdom
- W -
War Conditions
Airplanes:
Engines: Studebaker Corporation asked for
up-to-date report - 1/29/41
217
Exchange market resume' - 1/28/41, 1/29/41
93,229
Export Control:
Shipments to Japan covering six months since
President's Proclamation, 7/26/40--1/25/41
2
Foreign Funds Control:
Hungary:
Transaction with National City Bank - 1/29/41
187
Italy:
Cicogna, Gian Luca (Count): Wiley report on
activities - 1/28/41
104
Military Planning:
War Department bulletin: "Exploit of a German
Reconnaissance Detachment in France" -
1/28/41
106
Report from London transmitted by Halifax -
1/29/41
232
Price Control:
Metals: Difficulty in controlling prices
(aluminum and sinc scrap particularly) reported
by Henderson's office - 1/28/41
70
Purchasing Mission:
Vesting Order: Stocks sold outside national exchanges
in blocks 'of 1000 shares plus, January 7-24, 1941,
as reported by Gifford and Forrestal - 1/29/41
198
- V - (Continued)
Book Page
War Conditions (Continued)
Security Markets (High-Grade):
Current Develepments: Haas memorandum - 1/28/41.. 352
95
United Kingdom:
Halifax, Lord: Makes first call on HMJr -
1/29/41
293
White, Harry D.
HMJr advocates vacation (possibly Cuba) at
Government's expense
67
- Z -
Zinc
See War Conditions: Price Control
s
January 28, 1941.
1
4:49 p.m.
H.M.Jr:
Hello.
Operator:
Secretary Ickes.
H.M.Jr:
Hello.
Harold
Ickes:
Helle, Henry.
H.M.Jr:
Harold, my apologies for not calling but I've
been on the hill all day.
I:
Well, when I want to talk to you, you haven't
any business being on the hill.
H.M.Jr:
You're right.
I:
Yeh. Say I'm debating this lease-lend bill
with Phillip LaFollette - Town Hall of the Air -
Thursday night.
H.M.Jr:
on yes.
I:
Let me read you six lines here.
H.M.Jr:
Please do.
I:
"Do not be misled by the propaganda of the
appeasers that the British can pay cash for their
armaments; they can not. They can scrape together
in this country approximately three billion dollars
and virtually every cent of this has already been
obligated. This means that, on its own account,
Britain can place no further orders in this country.
But British war needs are mounting steadily."
H.M.Jr:
That's right.
I:
That's right. All right, I thought I ought to
help educate the people for you if I could.
H.M.Jr:
Well.
I:
All right, Henry.
H.M.Jr:
More power to you!
I:
All right. Good bye.
H.M.Jr:
Good bye.
2
AV
Treasury Department
Division of Monetary Research
Date January 28
1941
To: Mr. White
From: Mr. Ullmann
Export Control - Shipments to Japan
Six months since President's Proclamation
(July 26, 1940 - January 25, 1941)
1. Gasoline: 3.4 million barrels - - about 86% high
octane and licensed.
(Total 1939 shipments: 1.2 million bbl.)
2. Crude Petroleum: 6.2 million barrels - - about
half high octane crude and licensed.
(Total 1939 shipments: 16 million bbl.)
3. Lubricating oil: 693,000 barrels
(Total 1939 shipments: 500,000 bbl.)
40 Gas oil and fuel oil: 3 million barrels
(Total 1939 shipments: 9 million bbl.)
MR. WHITE
Branch 2058 - Room 208
2
Treasury Department
B
Division of Monetary Research
Date
January 28
19 41
To:
Mr. White
From:
Mr. Ullmann
Export Control - Shipments to Japan
Week ending January 25
1. Gasoline: 25,000 barrels (relatively small com-
pared to recent shipments).
2. Crude: 4,000 barrels (small)
3. Gas and Fuel Oil: 98,000 barrels
4. Inbricating Oil: 11,000 barrels
5. Scrap: none
MR. WHITE
Branch 2058 - Room 208
3
1/28/41
Secretary's Testimony before Senate Committee on
Foreign Relations on Senate 275 (Lease-Lend Bill).
4
January 27, 1941
The Secretary of State has already outlined to you
the broad policy behind this Bill. The Secretaries of
War and Navy will tell you how this Bill will strengthen
the defenses of the United States. I am going to confine
myself to the financial facts and figures which relate
to this Bill.
The British Government owes American manufacturers
$1,400,000,000 on orders already placed. This sum will
largely have to be met in the calendar year 1941. It
has enough gold and dollar exchange assets to meet these
outstanding commitments, but the British just haven't
got the dollars to take care of their additional needs.
5
- 2 -
I appreciate the opportunity of being invited
to come here today to discuss this problem with you
fully. I should like to put into the record a number
of tables and other facts which I have already submitted
to the House Foreign Affairs Committee.
The first table shows available assets of the
United Kingdom, in gold, in dollar balances, in
American securities and in British-owned properties
in this country. These are figures which governments
normally keep confidential and closely guarded; but
they are being submitted to you with the consent
of the British Government.
6
- 3 -
TABLE I
Gold and Dollar Exchange Assets of U.K.
Dec. 31, 1940
(In Millions)
Gold
$
292
Official dollar balances
54
Private doller balances
305
Marketable U.S.
securities
616
Direct and miscellaneous
investments in U.S
900
$ 2,167
From the total British gold and dollar exchange
assets of $2,167 million on December 31, 1940, the
British exclude as unavailable $305 million of private
dollar balances regarded as necessary for the conduct of
business, $30 million of gold scattered in different parts
of the world, and $21 million on account of forward
exchange contracts. This leaves a total of $1,811 million
in gold and dollar exchange assets which the British
7
- 4 -
regard as available for purchases in this country.
I should like to present next to you a table of
the estimated dollar expenditures and receipts of the
British Empire, excluding Canada and Newfoundland, for
the calendar year 1941. This will show what the British
owe on outstanding contracts to American manufacturers
for war materials and other purchases here, and what they
can count on from exports and other sources of dollars,
to help in meeting these obligations.
TABLE II
Estimated Dollar Expenditures and Receipts of
British Empire, Excluding Canada and Newfoundland,
from January 1, 1941 to January 1, 1942.
Dollar Expenditures
(In Millions)
A. U.K. payments to be made on total pur-
chases from the U.S.
1. Sums to be paid during 1941 on
orders placed before Jan. 1,
1941
$ 1,274
(In addition, $119 million will
fall due after Jan. 1, 1942)
2. Imports from U.S. not purchased
through the British Purchasing
Commission, -largely on private
280
accounts
$1,554
Regraded Unclassified
8
- 5 -
B. Purchases by Empire countries (exclud-
ing U.K., Canada and Newfoundland)
from U.S. during 1941
1. Commodity imports
$ 333
2. Payments for shipping, tourist
expenditure, interest payments,
etc
5
338
C. Purchases by Empire countries, exclud-
ing Canada and Newfoundland, from
areas outside the U.S. requiring
gold or dollars
1. Purchases by Empire countries
(chiefly U.K.) from areas outside the
U.S., Canada and Newfoundland
requiring dollars
247
2. Payments by Empire countries
(chiefly U.K.) to Canada and
Newfoundland
880
1,127
Total dollar requirements for all
transactions
$3,019
Dollar Receipts
A. Dollar receipts by U.K. from U.S.
1. U.K. exports of merchandise
to U.S.
$ 165
2. Net balance from U.S. to U.K.
on shipping, tourist expendi-
tures, interest payments, etc.
:
15
180
B. Dollar receipts by Empire countries
(excluding Canada and Newfoundland)
1. Commodity exports
560
2. Australian gold exports to U.S.
75
3. South African exports of gold
480
1,115
C. Canadian assistance to U.K.
260
Total dollar receipts by Empire countries,
excluding Canada and Newfoundland
1,555
Regraded Unclassified
9
- 6 -
Total dollar deficit with countries other
than Canada and Newfoundland during 1941 . $ 844
Total dollar deficit with Canada and
Newfoundland during 1941
620
Total dollar deficit of British Empire,
excluding Canada and Newfoundland,
during 1941
1,464
Total receipts and deficit on operations
with all countries other than Canada
and Newfoundland during 1941
$ 3,019
Next may I explain how British old and dollar
exchange assets have declined by more than two and a
quarter billion dollars during the first sixteen months
of their war.
Regraded Unclassified
10
- 7 -
TABLE III
Estimated Gold and Dollar Expenditures and Receipts
of British Empire, Excluding Canada and Newfoundland,
from September 1, 1939 to December 31, 1940.
(Compiled by the Treasury Department, the
Department of Commerce and the Federal Reserve
Board from data furnished by the British Treasury)
(In Millions of U.S. Dollars)
Gold and Dollar Expenditures
A. Payments to the United States by United Kingdom.
1. On British Government orders in
the United States
Goods delivered.
$660
Advance payments
570
Capital assistance
150
1,380
2. For other merchandise imports
from the United States
705
3. For shipping, interest, etc
Shipping disbursements
125
Interest and dividends
48
Miscellaneous (chiefly film
royalties)
24
197
$ 2,282
B. Payments to the United States by Empire
countries, excluding U.K. and Canada
and Newfoundland
1. For commodity imports
435
2. For shipping, interest, etc.
Interest and dividends.
40
Shipping (net)
8
48
483
C. Payments by Empire countries, excluding
Canada and Newfoundland, to areas out-
side the U.S. requiring gold or dollars
1. Payments by Empire countries
(chiefly U.K.) to areas outside
the U.S. and Canada and Newfound-
land requiring gold or dollars
550
Regraded Unclassified
11
- 8 -
2. Gold payments by Empire countries
to Canada and Newfoundland
(net)
$ 225
775
D. Withdrawal of Capital
1. By American and others, through sale
of free sterling to American importers
300
2. By repayment of outstanding export
credits as required by our Neutrality
Act
200
3. By liquidation of forward exchange
position in dollars
235
735
E. Residual - - Miscellaneous items and errors
of estimation.
$ 71
Total gold and dollar requirements for all
transactions
4,346
Gold and Dollar Receipts
A. Receipts from United States by United
Kingdom
1. From merchandise exports.
......
205
2. From interest, shipping, etc.
Interest and dividends
$ 85
Shipping earnings.
35
Remittances from insurance
companies
20
140 $ 345
B. Receipts from United States by Empire
countries, excluding U.K. and Canada
1. From merchandise exports.
640
2. From tourist travel, remittances,
etc. (net)
30
670
C. Dollar receipts by Empire countries, ex-
cluding Canada, from areas outside
the U. S
50
Regraded Unclassified
- 9 -
D. Receipts from sale of gold
(new production and dishoarding)
905
Total gold and dollar receipts by Empire
countries, excluding Canada
$2,030
Total drain on gold and dollar resources of
British Empire, excluding Canada, and
Newfoundland, Sept. 1, 1939 to Dec. 31,
1940
2,316
Total gold and dollar requirements for all
transactions.
4,346
Supplementary Table
Estimated Expenditures and Receipts of Canada and Newfoundland
With the Rest of the British Empire from September 1, 1939 to
December 31, 1940
(In Millions of U.S. Dollars)
A. Payments to Canada and Newfoundland by
Empire countries
1. For purchases from Canada and New-
foundland by the United Kingdom.
$795
2. For purchases from Canada by other
Empire countries
125
3. Other payments to Canada by Empire
countries
10
$930
B. Receipts from Canada and Newfoundland by
Empire countries
1. From merchandise exports to Canada
and Newfoundland by U.K.
170
Regraded Unclassified
13
- 10 -
2. From merchandise exports to Canada
by other Empire countries.
....
$100
3. From interest and dividends paid by
Canada to United Kingdom
.....
85
4. Other U.K. receipts from Canada,
principally Canadian Expeditionary
Forces
20
$375
British Empire deficit with Canada and
Newfoundland on merchandise, interest and
dividends, etc.
555
Canadian assistance to U.K.-repatriation of
British-held Canadian securities and increase
in sterling balances held by Canada
...
330
Gold payments by British Empire countries with
Canada and Newfoundland Sept. 1, 1939 to Dec.
31, 1940
225
One vital factor in this drain of assets was the collapse
of France last Summer. The French had at least as much as
the British in gold and dollar assets in this country; these
resources were available, together with the British, to pay
for purchases here in the first nine months of the war. -
When the French collapse came, last June, the British took
over all French contracts in this country, although they
Regraded Unclassified
14
- 11 -
no longer had the help of French money to pay for the.
British liabilities were doubled. They were left to
face Germany alone. The result was that the British be-
"an to lose gold and dollar assets twice as fast after
June as refore.
This war is now costing the British Government more
Unan 12 million pounds sterling every day, or approximate-
17 00 per cent of the national income, ano this expendi-
Mire is steadily mounting. The British are raising about
40 per cent of this cost by taxing their people. To give
you some idea 01 what the British people are doing to pay
for the war, you may be interested in the following table
comparing British and United States taxes at the present
time:
Regraded Unclassified
15
- 12 -
Comparison of British and United States Taxes
1. Personal income tax. A married couple with two
children would pay the following taxes in Great Britain
and the United States under present laws:
: British :
U.S.
Income
tax
:
tax
$ 1,500
$
43
-
2,500
311
-
5,000
1,196
$
75
10,000
3,451
440
20,000
9,426
2,143
50,000
32,401
13,741
100,000
76,276
42,948
2. Corporation income tax rates
British
....
U.S.
421%
24%
3. Excess profits tax. The British excess profits tax
is 100 percent of profits In excess of base period earnings
for certain years 1935-1937. The United States excess
profits tax ranges from 25 to 50 percent of earnings in
excess of the average base period earnings for 1936-39, or
8 percent of invested capital, whichever exemption is higher.
4. Purchase tax. The British impose a purchase tax of
33-1/3 percent on the wholesale value of certain luxuries
and 16-2/3 percent on certain goods in common use, exempting
food.
16
- 13 -
5. Excise taxes. The British impose excise taxes
on several commodities at substantially higher rates than
the United States. Examples are 1ven below:
: British : U.S.
Spirits, domestic, per
U.S. proof gallon
$15.60
$3.00
Beer, domestic, per bbl.
of 31 U.S. Gallons
11.16
6.00
Cigarettes, per thousand
weighing 3 lbs.
11.70
3.25
l'ea, Empire, per lb.
10¢
Coffee, full outy per lb. 2.8d
=
I should like to submit one more table to you which
is an estimate of the long-term foreign investments of
the United Kingdom outside the United States. These
figures, most of which are based upon studies made Dy
British economists before the outbreak of war, are
necessarily estimates. Nobody can f1x a definite valua-
tion upon such properties as ranches in Australia, railways
in Argentina or oil wells in Mexico.
Regraded Unclassified
17
- 14 -
Most of the investments are in sterling securities;
a large part of the Canadian investment is in Canadian
dollars, and some of the other investments are in the
respective domestic currencies. However, for convenience
of presentation, the estimated nominal value of the
investments has been converted into sterling.
The market values, where given, are calculated from
current market quotations of the securities. Since
market quotations are not available for a large part of
the Investment, no total market value can be calculated:
Regraded Unclassified
18
- 15 -
Estimated Long-Term Foreign Investments of the United
Kingdom Outside the United States
(Million Pounds)
Government
Railways
Other
Total
In British Empire
Canada
Nominal
75
187
219
481
Market
(70)
Australia
Nominal
425
3
75
503
Market
(410)
New Zealand
Nominal
131
1
14
146
(125)
India
Nominal
300
1/
250
550
Market
(250)
British Africa
Nominal
188
1/
250
438
Malaya
Nominal
6
78
84
Other
Nominal
31
Total in
British Empire Nominal
1125
191
886
2233
In Latin America
Argentina
Nominal
45
263
83
390
Market
(32)
(52)
Brazil
Nominal
75
38
47
160
Market
(6)
(5)
(22)
(33)
Chile
Nominal
20
20
65
105
(2)
(5)
Uruguay
Nominal
18
14
10
42
Market
(8)
(1)
(12)
(21)
Regraded Unclassified
19
- 16 -
Government
Railways
Other
Total
Mexico
Nominal
38
90
44
173
Market
(1)
(1)
Peru
Nominal
6
1/
23
28
Market
(1)
(4)
(5)
Cuba
Nominal
2
25
2
28
Market
(2)
(1)
Venezuela
Nominal
N11
3
18
20
Market
0.2
(17)
(17)
Colombia, Ecuador
Bolivia, Paraguay,
Central America Nominal
50
International Nominal
6
Total in
Latin America
Nominal
204
453
292
1002
In Asia
China
Nominal
200
Japan
Nominal
50
Netherlands
East Indies
Nominal
50
Philippines
Nominal
8
Total Asia
308
In Europe
Nominal
250
In Other Areas 2/ Nominal
75
Total U.K. Investments outside
United States - Nominal Value
3868
1/ Not shown separately.
2/ Mainly Iran, Egypt, Iraq and Portuguese
East Africa.
Regraded Unclassified
20
- 17 -
The problem before us is not whether the British
have resources; of course they have, all over the
world. The problem is whether the British have got
the dollars they need, or can get the dollars they need
to spend in this country.
That, gentlemen, is the problem as I see it.
21
January 28, 1941
Carbon copy of Secretary's reading copy of his
testimony before Senate Foreign Relations Committee
which was prepared for his appearance following Sec-
retary Hull on January 27th, but postponed to Jan. 28.
Regraded Unclassified
22
The Secretary of State has already outlined to you
the broad policy behind this Bill. The Secretaries of
war and Havy will tell you how this Bill will strengthen
the defenses of the United States. I am going to confine
myself to the financial facts and figures which relate
to this Bill.
The British Government owes American manufacturers
$1,400,000,000 on orders already placed. This sum will
largely have to be met in the calendar year 1941. It
has enough gold and dollar exchange assets to meet these
outstanding commitments, but the British just haven't
got the dollars to take care of their additional needs.
Regraded Unclassified
23
- 2 -
I appreciate the opportunity of being invited
to come here today to discuss this problem with you
fully. I should like to put into the record a number
of tables and other facts which I have already submitted
to the House Foreign Affairs Committee.
The first table shows available assets of the
United Kingdom, in gold, in dollar balances, in
American securities and in British-owned properties
in this country. These are figures which governments
normally keep confidential and closely guarded; but
they are being submitted to you with the consent
of the British Government.
Regraded Unclassified
24
- 3 -
TABLE I
Gold and Dollar Exchange Assets of U.K.
Dec. 31, 1940
(In Millions)
Gold
$
292
Official dollar balances
....
54
Private dollar balances
305
Marketable U.S.
........
securities
616
Direct and miscellaneous
investments in U.S.
....
900
$ 2,167
From the total British gold and dollar exchange
assets of $2,167 million on December 31, 1940, the
British exclude as unavailable $305 million of private
dollar balances regarded as necessary for the conduct of
business, $30 million of gold scattered in different parts
of the world, and $21 million on account of forward
exchange contracts. This leaves a total of $1,811 million
in gold and dollar exchange assets which the British
Regraded Unclassified
25
- s -
regard as available for purchases in this country.
I should like to present next to you a table of
the estimated dollar expenditures and receipts of the
British Empire, excluding Canada and Newfoundland, for
the calendar year 1941. This will show what the British
owe on outstanding contracts to American manufacturers
for war materials and other purchases here, and what they
can count on from exports and other sources of dollars,
to help in meeting these obligations.
TABLE II
Estimated Dollar Expenditures and Receipts of
British Empire, Excluding Canada and Newfoundland,
from January 1, 1941 to January 1, 1942.
Dollar Expenditures
(In Millions)
A. U.K. payments to be made on total pur-
chases from the U.S.
1. Sums to be paid during 1941 on
orders placed before Jan. 1,
1941
$ 1,274
(In addition, $119 million will
fall due after Jan. 1, 1942)
2. Imports from U.S. not purchased
through the British Purchasing
280
Commission,--largely on private
$1,554
accounts
Regraded Unclassified
26
- 5 -
D. Purchases by Empire countries (exclud-
ing U.K., Canada and Newfoundlend)
from U.S. during 1941
1. Commodity imports
$ 333
2. Payments for shipping, tourist
expenditure, interest payments,
etc.
.
5
338
C. Purchases by Empire countries, exclud-
ing Canada and Newfoundland, from
areas outside the U.S. requiring
gold or dollars
1. Purchases by Empire countries
(chiefly U.K.) from areas outside the
U.S., Canada and Newfoundland
requiring dollars
247
2. Payments by Empire countries
(chiefly U.K. to Canada and
Newfoundland
ano
1,127
Total dollar requirements for all
transactions.
$3,019
Dollar Receipts
A. Dollar receipts by U.K. from U.S.
1. U.K. exports of merchandise
to U.S.
.$ 165
2. Net balance from U.S. to U.K.
on shipping, tourist expendi-
tures, interest payments, etc. ..
15
180
B. Dollar receipts by Empire countries
(excluding Canada and Newfoundland)
1. Commodity exports.
560
2. Australian gold exports t U.S.
75
3. South African ex, orts of gold
4801,115
C. Canadian assistance to U.K.
260
Total dollar receipts by Empire countries,
excluding Canada and Newfoundland
1,555
Regraded Unclassified
27
- e -
Total dollar deficit with countries other
than Canada and Newfoundland during 1941 . $ 844
Total dollar deficit with Canada and
Newfoundland during 1941
620
Total dollar deficit of British Empire,
excluding Canada and Newfoundland,
during 1941
1,464
Total receipts and deficit on operations
with all countries other than Canada
and Newfoundland during 1941
$ 3,019
Next may I explain how British gold and dollar
exchange assets have declined by more than two and &
quarter billion dollars during the first sixteen months
of their war.
Regraded Unclassified
28
- 7 -
TABLE III
Estimated Gold and Dollar Expenditures and Receipts
of British Empire, Excluding Canada and Newfoundland,
from September 1, 1959 to December 31, 1940.
(Compiled by the Treasury Department, the
Department of Commerce and the Federal Reserve
Board from data furnished by the British Treasury)
(In Millions of U.S. Dollars)
Gold and Dollar Expenditures
A. Payments to the United States by United Kingdom.
1. On British Government orders in
the United States
Goods delivered.
$660
Advance payments
570
Capital assistance
150
$1,380
2. For other merchandise imports
from the United.States
.....
705
3. For shipping, interest, etc.
Shipping disbursements
125
Interest and dividends
48
Miscellaneous (chieflyifilm
royalties)
24
197
$ 2,282
B. Payments to the United States by Empire
countries, excluding U.Ke and Canada
and Newfoundland
1. For commodity imports
435
2. For shipping, interest, etc.
Interest end dividends.
40
Shipping (net)
10
8
48
w
483
C. Payments by Empire countries, excluding
Canada,and Newfoundland, to areas out-
side the U.S. requiring gold or dollars
1. Payments by Empire countries
(chiefly U.K.) to areas outside
the US. and Canada and Newfound-
land requiring gold or dollars
550
Regraded Unclassified
29
- - -
8. Gold payments by Empire countries
to Canada and Newfoundland
(net).
$ 225
775
Do withdrawal of Capital
1. By American and others, through sale
or free sterling to American importers 300
20 By repayment of outstanding export
credits as required by our Neutrality
Act
200
3. By liquidation of forward exchange
position in dollars
235
735
E. Residual - Miscellaneous items and errors
of estimation.
$
"
Total gold and dollar requirements for all
transactions
4.546
Gold and Dollar Receipts
Ao Receipts from United States by United
Kingdom
10 From merchandise exports.
205
2. From interest, shipping, etc.
Interest and dividends.
s
05
Shipping earnings.
35
Remittances from insurance
companies
20
140 s 545
B. Receipts from United States by Empire
countries, excluding U.K. and canada
1. From merchandise exports.
......
640
20 From tourist travel, remittances,
etc. (net).
30
670
Ce Dollar receipts by Empire countries, ex-
cluding Canada, from areas outside
the U. See
50
Regraded Unclassified
30
- 9 -
D. Receipts from sale of gold
(now production and dishoarding). ...
965
Total gold and dollar receipts by Empire
countries, excluding Canada.
$2,030
Total drain on gold and dollar resources of
British Empire, excluding canada, and
foundland, Sept. 1, 1939 to Dec. 31,
1940.
2,316
Total gold and dollar requirements for all
transactions.
4.346
Supplementary Table
Estimated Expenditures and Receipts of Canada and Newfoundland
with the Rest of the British Empire from September 1, 1939 to
December 31, 1940
(In Millions of U.S. Dollars)
A. Payments to Canada and Newfoundland by
Empire countries
1. For purchases from Canada and New-
foundland by the United Kingdom. .
8795
2. For purchases from Canada by other
Empire countries
e
125
30 Other payments to Canada by Empire
countries
...
10
$950
B. Receipts from Canada and Newfoundland by
Empire countries
1. From merchandise exports to Canada
and Newfoundland by U.K.
.....
170
Regraded Unclassified
31
- 10 -
2. From merchandise exports to Canada
by other Empire countries.
....
$100
5. From interest and dividends paid by
Canada to United Kingdom
.....
85
4. Other U.K. receipts from Canada,
principally Canadian Expeditionary
Forces
20
$575
British Empire deficit with Canada and
Newfoundland on merchandise, interest and
dividends, etc.
555
Canadian assistance to U.K.-repatriation of
British-held Canadian securities and increase
in sterling balances held by Canada ...
350
Gold payments by British Empire countries with
Canada and Newfoundland Sept. 1, 1939 to Dec.
31, 1940.
225
One vital factor in this drain of assets me the collapse
of France last Summer. The French had at least as much as
the British in gold and dollar assets in this country; these
resources were available, together with the British, to pay
for purchases here in the first nine months of the war.
When the French collapse came, last June, the British took
over all French contracts in this country, although they
Regraded Unclassified
32
- all -
no lenger had the help of French money to pay for them.
British liabilities were doubled. They were left to
fact Germany alone. The result was that the British be-
gan to lose gold and dollar assets twice as fast after
June as before.
This war is now sosting the British Government more
than 12 million pounds sterling every day, or approximate-
17 60 per cent of the national income, and this expendi-
ture is steadily mounting. The British are raising about
40 per cent of this cost by taxing their people. TO give
you some idea of what the British people are doing to pay
for the war, you may be interested in the following table
comparing British and United States taxes at the present
time:
Regraded Unclassified
33
- 12 -
Comparison of Aritish and United States Taxes
1. Personal income tax. A married couple with two
children would pay the following taxes in Great Britain
and the United States under present laws:
: British :
U.S.
Income
:
tax
:
tax
$ 1,500
$
43
-
2,500
311
-
5,000
1,196
$
75
10,000
3,451
440
20,000
9,426
2,143
50,000
32,401
13,741
100,000
76,276
42,948
2. Corporation income tax rates
British
****
U.S.
421%
24%
3. Excess profits tax. The British 0.0088 profits tax
is 100 percent or profits in excess of base period earnings
for certain years 1935-1937. The United States excess
profits tax ranges from 25 to 50 percent of earnings in
excess of the average base period earnings for 1936-39, or
8 percent of invested capital, whichever exemption is higher.
4. Purchase tax. The British impose 8 purchase tax of
33-1/3 percent on the wholesale value of certain luxuries
and 16-2/3 percent on certain goods in common use, exempting
food.
Regraded Unclassified
34
- 13 -
5. Excise taxes. The British impose excise taxes
on several commodities at substantially higher rates than
the United States. Examples are given below:
1
British
1
U.S.
Spirits, domestic, per
U.S. proof gallon
$15.60
$3.00
Beer, domestic, per bbl.
of 31 U.S. Gallons
11.16
6.00
Cigarettes, per thousand
weighing 3 lbs.
11.70
3.25
Tea, Empire, per lb.
10g
Coffee, full duty per lb.
2.84
:
I should like to submit one more table to you which
18 an estimate of the long-term foreign investments of
the United Kingdom outside the United States. These
figures, most of which are based upon studies made by
British economists before the outbreak of war, are
necessarily estimates. Nobody can fix a definite valua-
tion upon such properties as ranches in Australia, railways
in Argentina or oil wells in Mexico.
Regraded Unclassified
35
- 14 -
Mest of the investments are in sterling securities;
a large part of the Canadian investment is in Canadian
dollars, and some of the other investments are in the
respective domestic currencies. However, for convenience
of presentation, the estimated nominal value of the
investments has been converted into sterling.
The market values, where given, are calculated from
current market quotations of the securities. Since
market quotations are not available for a large part of
the investment, no total market value can be calculated:
Regraded Unclassified
36
- 15 -
Estimated Long-Term Foreign Investments of the United
Kingdom Outside the United States
(Million Pounds)
Government
Railways
Other
Total
In British Empire
Canada
Nominal
75
187
219
481
Market
(70)
Australia
Nominal
425
3
75
508
Market
(410)
New Zealand
Nominal
131
1
14
146
(125)
India
Nominal
300
w
250
550
Market
(250)
British Africa
Nominal
188
I/
250
488
Malaya
Nominal
6
78
84
Other
Nominal
31
Total in
British Empire Nominal
1125
191
886
2233
In Latin America
Argentina
Nominal
45
263
83
390
Market
(32)
(52)
Brazil
Nominal
75
38
47
160
Market
(6)
(5)
(22)
(33)
Chile
Nominal
20
20
8
105
(2)
(5)
Uruguay
Nominal
18
14
10
42
Market
(8)
(1)
(12)
(21)
Dogradod
37
- 18 -
Government Railways Other Total
Mexico
Moninal
8
90
44
198
Market
(1)
(1)
Peru
Nominal
6
Market
v
(1)
18,
(8)
Cuba
Nominal
2
Market
(2)
(1)
s
#
Venezuela
Nominal
Mil
3
18
20
Market
0.2
(17)
(17)
Colombia, Ecuador
Bolivia, Paraguay,
Central America Nominal
so
International Nominal
6
I
-
I
Total in
Latin America
Nominal
204
458
292 1002
In Asia
China
Nominal
200
Japan
Nominal
50
Netherlands
East Indies
Nominal
50
Philippines
Nominal
8
Total Asia
S08
In Surope
Nominal
250
In Other Areas el Nominal
75
Total U.K. Investments outside
United States - Nonimal Value
3668
y Not shown separately.
Mainly Iran, Egypt, Iraq and Portuguese
East Africa.
38
- 17 -
The problem before us is not whether the British
have resources; of course they have, all over the
world. The problem is whether the British have get
the dollars they need, or can get the dollars they need
to spend in this country.
That, gentlemen, is the problem as I see it.
Regraded Unclassified
39
23-28
Statement of Secretary Morgenthau
Before the Senate Committee
On Foreign Relations
January 28, 1941.
The Secretary of State has already outlined to you the broad
policy behind this Bill. The Secretaries of War and Navy will tell
you how this Bill will strenghten the defenses of the United States.
I am going to confine myself to the financial facts and figures which
relate to this Bill.
The British Government owes American manufacturers
$1,400,000,000 on orders already placed. This sum will largely have
to be met in the calendar year 1941. It has enough gold and dollar
exchange assets to meet these outstanding commitments, but the
British just haven't got the dollars to take care of their additional
needs.
I appreciate the opportunity of being invited to come here today
to discuss this problem with you fully. I should like to put into
the record a number of tables and other facts which I have already
submitted to the House Foreign Affairs Committee.
The first table shows available assets of the United Kingdom, in
gold, in dollar balances, in American securities and in British-owned
properties in this country. These are figures which governments
normally keep confidential and closely guarded; but they are being
submitted to you with the consent of the British Government.
40
- 2 -
TABLE I
Gold and Dollar Exchange Assets of U.K.
Dec. 31, 1940
(In |dillions)
Gold
$
292
Official dollar balances
54
Private dollar balances
305
Barketable U.S. securities
616
Direct end miscellaneous investments in U. S.
900
= 2,167
From the total British gold and dollar exchange assets
of $2,167 million on December 31, 1940, the British exclude
as unavailable $305 million of private dollar balances
regarded as necessary for the conduct of business, $30
million of gold scattered in different parts of the world,
and $21 million on account of forward exchange contracts.
This leaves a total of $1,511 million in gold and dollar
exchange assets which the British regard as available for
purchases in this country.
I should like to present next to you a table of
the estimated dollar expenditures and receipts of the
British Enpire, excluding Canada and Newfoundland, for
the calendar year 1941. This will show what the British
owe on outstanding contracts to American manufacturers for
war materials and other purchases here, and what they can
count on from exports and other sources of dollars, to help
in meeting these obligations.
Regraded Unclassified
41
- 3 -
TABLE II
Estimated Dollar Expenditures and Receipts of British Empire,
Excluding Canada and Newfoundland, from January 1, 1941 to
January 1, 1942.
Dollar Expenditures
(In Millions)
A, U.K. payments to be made on total pur-
chases from the U.S.
1. Sums to be paid during 1941 on
orders placed before Jan. 1,
1941
$1,274
(In addition, $119 million will fall
due after Jan. 1, 1942)
2. Imports from U.S. not purchased through
the British Purchasing Commission, -
largely on private accounts,
......
280
$1,554
B. Purchases by Empire countries (excluding
U.K., Canada and Newfoundland) from U.S.
during 1941.
1. Commodity imports,
$ 333
2. Payments for shipping, tourist expendi-
tures, interest payments, etc.
5
338
C. Purchases by Empire countries, excluding
Canada And Newfoundland, from areas outside
the U.S. requiring gold or dollars
1, Purchases by Empire countries
(chiefly U.X.) from areas outside
the U.S., Ganada and Newfoundland
requiring dollars.
247
2. Payments by Empire countries (chiefly
U.K.) to Canada and Newfoundland
880
1,127
Total dollar requirements for all transactions
$3,019
Dollar Receipts
A, Dollar receipts by U.K. from U.S.
1. U.K, exports of merchandise to U.S.
..
$ 165
2. Net balance from U.S. to U.K. on
shipping, tourist expenditures,
interest payments, etc
15
180
B. Dollar receipts by Empire countries (exclud-
ing Canada and Newfoundland)
1. Commodity exports.
560
2. Australian gold exports to U.S.
75
3. South African exports of gold
480
1,115
C. Canadian assistance to U.K.
260
Total dollar receipts by Empire countries,
excluding Canada and Newfoundland
$1,555
Regraded Unclassified
42
- 4 -
Total dollar deficit with countries other
than Canada and Newfoundland during 1941
$
844
Total dollar deficit with Canada and
Newfoundland during 1941
620
Total dollar deficit of British Empire,
excluding Canada and Newfoundland, during
1941
$1,464
Total receipts and deficit on operations with
all countries other than Canada and
Newfoundland during 1941
$3,019
Next may I explain how British gold and dollar exchange assets
have declined by more than two and a quarter billion dollars during
the first sixteen months of their war.
TABLE III
Estimated Gold and Dollar Expenditures and Receipts of British
Empire, Excluding Canada and Newfoundland, from September 1, 1939
to December 31, 1940.
(Compiled by the Treasury Department, the Department of Commerce
and the Federal Reserve Board from data furnished by the
British Treasury)
(In Millions of U.S. Dollars)
Gold and Dollar Expenditures
A. Payments to the United States by United Kingdom.
1. On British Government orders in the U.S.
Goods delivered
$660
Advance payments
570
Capital assistance
150
$1,380
2. For other merchandise imports from the U.S
705
3. For shipping, interest, etc.
Shipping disbursements
125
Interest and dividends
48
Miscellaneous (chiefly film royalties)
24
197
$2,282
B, Payments to the U.S. by Empire countries, exclud-
ing U.K. and Canada and Newfoundland
1. For commodity imports
435
2. For shipping, interest, etc.
Interest and dividends,
40
Shipping (net)
8
48
483
C. Payments by Empire countries, excluding Canada and
Newfoundland, to areas outside the U.S. requiring
gold or dollars.
1. Payments by Empire countries (chiefly U.K.) to
areas outside the U.S. and Canada and Newfound-
land requiring gold or dollars
550
Regraded Unclassified
43
- 5 -
2. Gold payments by Empire countries
to Canada and Newfoundland (net)
..
$225
775
D. Withdrawal of Capital
1. By Americansand others, through sale
of free sterling to American
importers
300
2. By repayment of outstanding export
credits as required by our Neutrality
Act
200
3. By liquidation of forward exchange
position in dollars
235
735
E. Residual - Miscellaneous items and errors of
estimation
71
Total gold and dollar requirements for all trans-
actions
4,346
Gold and Dollar Receipts
A. Receipts from United States by United Kingdom
1. From merchandise exports
205
2. From interest, shipping, etc.
Interest and dividends
S 65
Shipping earnings
35
Remittances from insurance
companies
20
140
s 345
8. Receipts from United States by Empire
countries, excluding U. K. and Canada
1. From merchandise exports
640
2. From tourist travel, remittances,
etc. (net)
30
670
C. Dollar receipts by Empiro countries, ex-
cluding Canada, from areas outside
the U. S.
50
D. Receipts from sale of gold
(new production and dishoarding)
965
Total gold and dollar receipts by Empire
countries, excluding Canada
$2,030
Total drain on gold and dollar resources of
British Empire, excluding Canada, and
Nowfoundland, Sept. 1, 1939 to Dec. 31,
1940
2,316
Total gold end dollar requirements for all
transactions
04,346
Regraded Unclassified
44
- 6 -
Supplementary Tablo.
Estimated Exponditures and Receipts of Canada and Nowfoundland
With the Rost of the British Empire from September 1, 1939 to
December 31, 1940
(In l'illions of U. S. Dollars)
A. Payments to Canada and Newfoundland by
Empiro countrios
1. For purchascsfrom Canada and New-
foundland by the United Kingdom
8795
2. For purchases from Canada by other
Empiro countries
125
3. Other payments to Canada by Empire
countries
10
$930
B. Receipts from Canada and Nowfoundland by
Impire countries
1. From merchandise exports to Canada
and Newfoundland by U. K.
170
2. From merchandise exports to Canada
by other Empire countries
100
3. From interest and dividends paid by
Canada to United Kingdom
85
4. Other U. K. receipts from Canada,
principally Canadian Expeditionary
Forces
20
0375
British Empiro doficit with Canada and
Nowfoundland on merchandise, interest and
dividends, etc.
555
Canadian assistance to U. K. -- repatriction of
British-hold Candian sccurities and incroase
in sterling balances hold by Canada
330
Gold payments by British Empiro countrics with
Canada and Nowfoundland Sept. 1, 1939 to Doc.
31, 1940
225
Regraded Unclassified
45
- . I
On vital factor in this drain of assets was the collapse
of France last Summer. The French had at least RS much as the
British in gold and dollar assets in this country: these
resources were available. together with the British, to pay
for purchases here in the first nine months of the war. When
the French collapse came, last June, the British took over all
French contracts in this country, although they no longer had
the help of French money to pay for them. British liabilities
were doubled. They were left to face Germany alone. The result
was that the British began to lose gold and dollar assets twice
as fast after June as before.
This war is now costing the British Government more than
12 million pounds sterling every day, or approximately 60 per
cent of the national income, and this expenditure is steadily
mounting. The British are raising about 40 per cent of this
cost by taxing their people. To give you some idea of what the
British people are doing to pay for the war, you may be inter-
ested in the following table comparing Britich and United States
taxes at the present time:
Comparison of British and United States Taxes
1. Personal income tax. A married couple with two children
would pay the following taxes in Great Britain and the United
States under present laws:
: British
:
U.S.
Income
:
tax
:
tax
1,500
$
43
-
2,500
311
-
5,000
1,196
75
10,000
3,451
440
20,000
9,426
2,143
50,000
32,401
13,741
100,000
76,276
42,948
Regraded Unclassified
46
- 8 -
2. Corporation incone tax rates
H
British
$
U. S.
423%
24%
3. Proess profits tax. The British excess profits tax is
100 percent of profits in excess of base period earnings for
certain years 1935-1937. The United States excess profite tax
ranges from 25 to 50 percent of earnings in excess of the
average base period earnings for 1936-39, or 8 percent of
invested capital, whichever exemption is higher.
4. Purchase tax. Tue British impose & purchase tax of
33-1/3 percent on the wholesale value of certain luxuries and
16-2/3 percent on certain goods in common use, exempting food,
5. Excise taxes. The Britian in nose excise taxes on
several commodities at substantially higher rates than the
United States. Exemples are given below:
:
British
:
U.S.
Spirite, domestic, per
U.S. proof gallon
$15.60
$3.00
Beer, domestic, per
bbl. of 31 U.S. G: llons
11.16
6.00
Cigarettes, per thousand,
weighing 3 lbs.
11.70
3.25
Tea, Empire, per lb.
10$
-
Coffee, full duty ner lb.
2.80
-
I should like to submit one more table to you which is an estimate
of the long-term foreign investments of the United Kingdom outside the
United States. These fi ures, most of which are based upon studies made
by British economists before the outbreak of war, are necessarily
estimates. Nobody one fix & definite valuation upon such properties as
ranches in Australia, railways in Argentina or oil wells in Mexico.
Regraded Unclassified
47
- 9 -
Most of the investments are in sterling securities; a large
part of the Canadian investment is in Canadian dollars, and some
of the other investments are in the respective domestic currencies.
However, for convenience of presentation, the estimated nominal
value of the investments has been converted into sterling.
The market values, where given, are calculated from current
market quotations of the securities. Since market quotations are
not available for a large part of the investment, no total market
value can be calculated;
Estimated Long-Term Foreign Investments of the United Kingdom
Outside the United States
(Million Pounds)
Government
Railways
Other
Total
In British Empire
Canada
Nominal
75
187
219
481
Market
(70)
Australia
Nominal
425
3
75
503
Market (410)
New Zealand
Nominal 131
1
14
146
(125)
India
Nominal
300
250
550
Market (250)
British Africa
Nominal
188
1/
250
438
Malaya
Nominal
6
78
84
Other
Nominal
31
Total in British Nominal 1,125
191
886
2,233
/ Not shown separately.
Regraded Unclassified
10.
Government
Railways
Other
Total
48
In Latin America.
Argentina
Nominal
45
263
83
390
Market
(32)
(52)
Brazil
Nominal
75
38
47
160
Market
(6)
(5)
(22)
(33)
Chile
Nominal
20
20
65
105
(2)
(5)
Uruguay
Nominal
18
14
10
42
Market
(8)
(1)
(12)
(21)
Mexico
Nominal
38
90
44
173
Market
(1)
(1)
Peru
Nominal
6
1/
23
28
Market
(1)
(4)
(5)
Cuba
Nominal
2
25
2;
28
Market
(2)
(1)
Venezuela
Nominal
Nil
3
18
20
Market
0.2
(17)
(17)
Colombia, Ecuador
Bolivia, Paraguay,
Central America Nominal
50
International
Nominal
6
Total in Latin
America
Nominal
204
453
292
1002
In Asia
China
Nominal
200
Japan
Nominal
50
Netherlands
East Indies
Nominal
50
Philippines
Nominal
8
Total Asia
303
In Europe
Nominal
250
In Other Areas Hominal
75
Total U.K. Investments outside
United States - Nominal Velue
3868
Not shown separately.
Mainly Iran, Egypt, Iraq and Portuguese East Africa.
Regraded Unclassified
49
- 11 -
The problem before us is not whether the British have
resources; of course they have, All over the world. The
problem is whether the British have got the dollars they
need, or can get the dollars they need to spend in this
country.
That, gentlemen, is the problem a.s I see it.
50
Testimony - - Sin For. Rel. Com-Secy. Morgenthan
SECRETARY MORGENTHAU TOLD THE SENATE FOREIGN RELATIONS COMMITTEE
TODAY THAT THE "BRITISH JUST XAVEN'T GOT THE DOLLARS® TO NEET THEIR WAR
PURCHASES IN THIS COUNTRY AFTER THE END OF THE CURRENT YEAR.
ABD MORGINTHAU
MORCENTHAN APPEARED BEFORE THE COMMITTEE IN SUPPORT OF THE
ADMINISTRATION'S ALL-OUT BRITISH AID BILL. HIS TESTINONY was LARGELY
A REPETITION OF WEAT KE PREVIOUSLY HAD TOLD THE HOUSE FOREIGN
AFFAIRS COMMITTEE. KE POINTED OUT THAT BRITISH COMMITMENTS HERE
NOV AGUNT TO $1,400,000,000 (B) COMPARED TO $1,511,000,000 IN COLD
AND DOLLAR EXCHANGE ASSETS WHICH THE BRITISH REGARD as AVAILABLE
FOR PURCHASES IN THIS COUNTRY.
NOREGENTHAN SAID THAT THE WAR IS COSTING THE BRITISH COVERNMENT HORE
nt assete
THAN 12,000,000 POUNDS ($45,000,000) A DAY, APPROXIMATELY 60 per CENT
of THE NATIONAL INCOME.
1/88--R1035A
Regraded Unclassified
DD MORGENTNAU
NE TOLD THE COMMITTEE THAT THE COLLAPSE OF FRANCE LAST JUNE CAUSED
RITISH COLD AND BOLLAR ASSETS TO DUINDLE TUICE as TAST AS PREVIOUSLY.
ME POINTED OUT THAT BESIDES TAKING OVER FRENCH CONNITMENTS IN THIS
COUNTRY-THEREBY BOUBLING THEIR LIABILITIES--THE BRITISH LOST THE USE
or FRENCH ASSETS, WHICH VERE "AT LEAST AS MUCH AS THE BRITISH THEM-
SELVES HAD,
Collape France
THE FRENCE HAD AT LEAST AS MUCH AS THE BRITISH IN COLD AND DOLLAR
ASSETS IN THIS COUNTRY," MORGENTHAU SAID. THESE RESOURCES WERE
AVAILABLE, TOGETHER WITH THE BRITISH, TO PAY FOR PURCHASES HERE IN
THE FIRST MINE NONTES OF THE WAR.
"WHEN THE FRENCH COLLAPSE CAME LAST JUNE THE MITISH TOOK OVER ALL
FRENCH CONTRACTS IN THIS COUNTRY, ALTHOUGH THEY NO LONGER HAD THE HELP
DF FRENCH MONEY TO PAY FOR THEN.
"BRITISH LIABILITIES VIDE BOUBLED. THEY WERE LEFT TO FACE CERMANY
ALONE. THE RESULT WAS THAT THE BRITISH BEGAN TO LOSE COLD AND DOLLAR
ASSETS TWICE AS FAST AFTER JUNE AS BEFORE."
AS A RESULT OF THIS BRAIN, MORGENTHAU SAID, BRITISH DAILY EXPENDI-
TURES HAVE RISEN PST THE 12,000,000 POUND MARK AND ARE "STEADILY
NOUNTING.
1/28--21045A 20-0
Regraded Unclassified
52
e MORGENTHAN
TREASURY CENERAL COUNSEL EDUARD N. VOLEY, STABILIZATION FUND DIRECTOR
HERLE COCHEAM, MONETARY RESEARCH DIRECTOR HARRY D. WHITE AND PHILIP
SUNG, A MEMBER OF THE FOREIGN PURCHASES COORDINATION COMMITTEE, SAT
EXIMB MORGENTHAU AS BE TESTIFIED.
SENATOR VANDENBERG LED OFF THE QUESTIONING BY OBSERVING THAT HE WANTED
0 "EXPLORE" THE BRITISH ASSET FIGURES BUT DID NOT WANT TO ARGUE THE
UESTION OF WHETHER THE BRITISH SHOULD M GIVEN CREDIT.
Sen.
MORGENTEAU TOLD VANDENBERG THAT HIS NEW RECAPITULATION or BRITISH
ASSETS SHOULD A TOTAL or $36,000,000 NORE THAN WAS REPRESENTED IN FIGURES
ME PRESENTED LAST SEEK TO THE HOUSE FOREIGN AFFAIRS COMMITTEE. THE NEW
IGURE, RE EXPLAINED, 13 BASED ON LATER INFORMATION FROM BRITISH
SOURCES.
Vandenberg
1/28--R1103A 20-0
ADD MORGENTRAN
VANDENBERG ASKED UNY CANADIAN ASSETS SAD BEEN EXCLUDED rain THE
BRITISH EMPIRE BALANCE SEEETS.
Regraded Unclassified
"THE CANADIAN COVERNMENT HAS NOT RAISED THE QUESTION or WHETHER
NET CAN OR CAMMOT MAKE ADDITIONAL PURCHASES HERE se I SAN NO PURPOSE
N MAKING PUBLIC THEIR DOLLAR PURCHASES HERE," MORGENTHAN REPLIED.
THE TREASURY SECRETARY REPLIED THAT THE INSTATE FOR THE SEPARATION
ARE FROM THE BRITISH GOVERNMENT, AND THAT THE MOTIVE was "BOTH
OLITICAL AND FINANCIAL" RESULTING FROM RELATIONSHIP BETWEEN THE BRITISH
ND CANADIAN COVERNMENT.
Vanden beig- ber
VANDENBERG ASKED IF INCLUSION or CANADIAN ASSETS WOULD
IMPROVE THE BRITISH FINANCIAL PICTURE.
*I DON'T THINK THE PICTURE WOULD BE IMPROVED ANY IF TOU CONSIDER
THE FACT THAT (1) CANADA ALREADY HAS A LARGE BUYING PROGRAM IN THE
WITER STATES AND (2) CANADA IS ALREADY ASSISTING THE BRITISH PURCHASING
ROCRAN THROUGH THE REPATRIATION OF SECURITIES."
1/28--RI107A
ADD MORGENTHAU
Canachan aset Was Debt
NORCENTRAU TOLD THE COMMITTEE THAT HE was ABANDONED HOPE THAT GREAT
ITAIN EVER WILL PAY HER WORLD WAR DEBT TO THE U.S.
1/28--R1124A
Regraded Unclassified
54
D NOREENTHAN
"ARE YOU PREPARED TO WRITE THONE (BENTE) ARR for SUMATOR
undersere ASKED.
"ANY TIME," NORCENTEAN REPLIED. "I DID se SOME TIME AGO, NEWTALLY."
MORGENTEAU SUBMITTED & BRITISH "SALANCE SHEET* TO THE COMMITTEE,
IOVING TOTAL BRITISH BOLLAR ASSETS as COMPILED in RES ASSISTANTS AND
IFICIALS OF THE BRITISH TREASURY. BE SAID THAT THE BRITISH JAST
AVEN'T GOT THE DOLLARS* TO PAY FOR PURCHASES AFTER THE CURRENT YEAR.
But.Balance
1/28--R11334
ADD MORCENTRAU
MORCENTHAU SAID HE was UNABLE TO SAY NON MUCH HONEY WOULD HAVE TO
DE EXPENDED WOR THE BRITISH AID PROGRAM, AND HE ABDED THAT IT WOULD
M FUTILE 10 ATTEMPT TO GIVE ESTIMATES.
VANDENBERG ASKED IF THE PROPOSID INCREASE OF THE U.S. DEST LIMIT
ROM $42,000,000,000 TO $65,000,000,000 WILL COVER THE SPECIME
FUDER THE AID-TO-ORITAIN PROGRAM.
"THAT WILL TAKE CARE or THE SITUATION, AS FAR AS we CAN SEE IT
TODAY, UNTIL JUNE 30, 1942, THE END OF THE NEXT FISCAL YEAR," MORGENTUAU
EPLIED. "UE NISSED THE mark LAST YEAR."
Vandenberg- Debt Lmat
VANDERBIRG TO KNOW "WEAT THE PRESIDENT CAN DO INDER INIS
ILL THAT и CAN'T 30 NOV.°
Regraded Unclassified
55
AFTER CONFERRING WITH SEVERAL OF THE AIDES WHO ACCOMPANIED NIN TO
II HEARING, NORGENTHAN SAID:
"THE CHIEF POWER NE VOULD GET WOULD MAKE IT POSSIBLE FOR KIN TO
ET AVAILABLE MUNITIONS OF WAR TO NATIONS VEICE NEED THEM AND
VEN'T THE DOLLARS TO PAY FOR THEN."
NORGENTHAU REVEALED FOR THE FIRST TIME THAT "FROZEN^TREMCH ASSETS
X THIS COUNTRY AMOUNT TO $1,593,000,000. THE FRENCH HOLDINGS WERE
French Assets
IDERED SIQUESTERED BY PRESIDENT ROOSEVELT AFTER THE FALL or FRANCE.
1/28 11:51
10 MERCENTKAU
VANDENBERG CONCLUDED HIS QUESTIONING of AFTER BRINCING
UT THAT THE ADMINISTRATION BILL, WHILE DESIGNED PRIMARILY TO LEXD AND
EASE MATERIALS TO GREAT BRITAIN, REQUIRE REPAYMENT.
THE MICHIGAN SENATOR ASKED WHETHER THE PURPOSE or THE BILL COULD
ют BE ACCOMPLISHED BY A SIMPLE ANIMONENT TO THE JOHNSON AND MEUTRALITY
CTS. NORCENTRAU ASKED TREASURY CENERAL COUNSEL FOLEY TO REPLY
TO THE QUESTION.
Concludes
Regraded Unclassified
56
FOLEY SAID TRAT WERE EXTENSION OF DOLLAR CREDITS THE PROCHASES w
R MATERIALS HERE WOULD "NEAN THAT IT WOULD M MONTHS AND NONTES
FORE THE NATERIALS GREENED VOULD st COMING 497 THE ASSEMBLY LINE."
IX MEASURE - BEFORE CONGRESS AUTHORIZES THE PRESIDENT TO MAKE
Foley
VAILABLE MATERIALS ALREADY - KAND IF ME DEENE IT RECESSARY, NE ADDERS
1/28-21155A
D MORCENTRAU
NOT *ONE DINE* OF GRATUITONS ASSISTANCE IS BEING GIVEN THE BRITISH
VERMMENT BY THE AMERICAN GOVERNMENT AT THE PRESENT TIME, NORGENTHAN
DD.
*EVERYTHING IS BEING PAID FOR," XX SAID.
SENATOR CAPPER IMVIDED IF BRITAIN COULD CASH POSSESSION or
RODUCTS INVOLVED IN THIS NATION'S $17,500,000,000 DEFENSE
BOCRAN.
"I DON'T THINK 20,0 THE SECRETARY BAID FIRMLY,
SENATOR ELSERT D. THOMAS OBJECTED TO A PROVISION IN THE BILL WHICH III
AID WOULD EMABLE THE ARMY AND HAVY 20 RETAIN POSSESSION OF FUNDS
ICEIVED FROM THE SALE OF MATERIEL TO OTHER COUNTRIES, RATHER TEAM
VENING THEN OVER TO THE TREASURY.
1/25--R120
Sen.ElbeatThomas
Regraded Unclassified
57
D NORCENTEAU
NORCENTHAU DISCLOSED THAT DEFENSE PRODUCTION CHIEF WILLIAM s.
UDSEM IS SEEKING ways TO PLACE & NEW BRITISH ⑉⑉ FOR 2,000 WARPLANES,
DR WHICH PRODUCTION CAPACITY IS AVAILABLE INMEDIATELY AND FOR WHICH
XX BRITISH HAVE no FUNDS TO PAY.
EXPLAIMING THAT BRITISH PURCHASING HAD PRACTICALLY CEASED IN
ICENBER BECAUSE OF LACK OF DOLLAR ASSETS, MORGINTEAU REVEALED THAT
UDSER NAB TELEPHONE NIM TESTERDAY ASKING VERTED SOUETHING COULD
Knudsen Plane Order
M
DONE TO MAKE IT POSSIBLE FOR THE BRITISH TO cases SOME 2,000 PLANES.
NORCENTEAU SAID TEAT WE ASKED KINDSEN WHETHER PRODUCTION FACILITIES
DE AVAILABLE AND KNUBSER SAID THEY WERE.
'/28--21206P
MERCENTUAN
NORCENTEAU ABDED THAT "STRANGELY ENSUR SOME AIRPLANE MANUFACTURERS
ILL DECIS TO RUN OUT or ORDERS IN APRIL IF THE BRITISH DO BUT GIVE
WEN ADDITIONAL ORDERS RIGHT AWAY,
Regraded Unclassified
58
SENATOR LAFOLLETTE, REFERRING TO THE LAC IN THE U.S. PROCUREMENT or
LAMES FOR ITS OUN ARMY AND MAVY DESPITE APPROPRIATIONS AND
ONTRACT AUTHORIZATIONS TOTALLING BILLIONS, ASKED UNY THERE WOULD M
RODUCTION FACILITIES COMING AVAILABLE WHICH WOULD NOT M PREIN-
TED FOR PRODUCTION FOR THE U.S.
MORGENTHAU REPLIED THAT THE PLANTS IN QUESTION VERE TOOLED FOR "so-
ALLED BRITISN TYPE PLANES* WHICH THE U.S. arry AND SAVY AIRFORCES
Sen.Lafolletts Sen
ID NOT DESIRE. NE SAID THESE PLANTS HAD BEEN "TOOLED UP4 on
UNDS SUPPLIED BY THE BRITISH AND FRENCH COVERNMENTS.
1/28--1210P 20-0
DD NORGENTHAN
MORCENTRAU DECLINED TO DISCUSS THE BROAD PRINCIPLES AND IMPLICATIONS
F
THE LEGISLATION. HE SUGGESTED THAT SECRETARY KULL BE INTERROGATED
THAT SUBJECT.
"YES, BUT ME DID NOT CARE TO DISCUSS IT SE was REFORE us
ESTERDAY," SENATOR LAFOLLETTE SHOT BACK. "VIDI HE was BEFORE THE HOUSE
CONNITTEE NE CALLED IT A TREASURY BILL."
NORCENTRAU REPLIED THAT HE WOULD st MORE THAN ANXIOUS TO PLACE HIS
#OWLEDGE OF FISCAL NATTERS BEFORE THE COMMITTEE, BUT DID NOT "FEEL
WALIFIED TO DISCUSS OTHER ASPECTS or THE BILL."
Regraded Unclassified
59
SENATOR WIBAM U. JOHNSON SAID = WANTED TO ASCERTAIN - UNITS
BE BILL AND MORCENTRAN REPEATEDLY TOLD HIM THAT THE MEASURE IS THE
RODUCT or MANY NINDS." IT SPRAMS INTO BEING, NE SAID, AFTER CURTERINC-
B ATTENDED BY MAJORITY LEADER BARKLEY, SPEAKER RAYBERS, EDWARD N. FOLET,
BEASURY COUNSEL, CREEN N. HACKWORTH, LIGAL ADVISER TO THE STATE DEPART-
SenJohner
ENT, HIDDLETON BEAMAN, wase LEGISLATIVE COUNSEL, AND SENATE AND HOUSE
LADERS.
"THE IMPRESSION THAT THE TREASURY WROTE THE BILL IS INCORRECT,"
SECENTHAU INSISTED.
1/28--21232P 20-0
ADD NORGENTHAN
IN REPLY TO QUESTIONS BY SIMATOR HURBAY, SAID THE
U.S. *N 0 T ONLY HAS not GIVEN ANY AID to GREAT BRITAIN, INT IN
sent INSTANCES US HAVE NADE IT EXTREMELY DIFFICULT FOR THEM to MAKE
PURCHASES." HE CITED THE BRITISH EXPENDITURES FOR TOOLING AND
RESEARCH.
NURRAY BEPARKED THAT U.S. NAMIFACTURERS HAD MADE LARGE PROFITS -
THE MRITISH GRDERS.
TOT LARGE PROTITS," IMEGENTRAL SAID, "BUT 6009 PROFITS."
THEN INSTEAD or THIS COUNTRY AIBING MITIAN, BRITAIN $0 FAR HAS
BEEN AIRING THE UNITED STATES TO PREPARE ITS - DEFENSES," INTERAT
HEMARKED.
Regraded Unclassified
60
SENATOR PEPPER ASKEED WHETHER "IN DOLLARS AND CENTS* IT WOULD M
CHEAPER you THE U.S. TO AID ENGLAND IS DEFEATING THE AXIS POWERS OR
to SPEND LARGE SUMS FOR U.S. ARMANENT FOR POSSIBLE EVENTUAL WAR WITH
THE AXIS POUERS.
"VE'D SAVE MONEY BY MAKING AVAILABLE TO. ENGLAND or ANY OTHER
COUNTRY WHICH IS ATTACKED THE IMPLEMENTS OF war TO FIGHT ou THEIR
OWN GROUND RATHER THAN WAITING UNTIL we ARE LEFT IN THIS NEWISPRERE
TO FIGHT ALONE," MORGENTHAU REPLIED.
20-0
DE
MORGENTHAU SAID GREAT BRITAIN, GREECE AND CHINA CANNOT CONTINUE
TO FIGHT IF THE WAR AID BILL 1$ NOT PASSED.
1/25--21243P
ADD NORGENTHAN
"CONSRESS WEST VEIGE VERY SERIOUSLY THE QUESTION 07 WHETHER IT WANTS
CREAT BRITAIN, GREECE AND CHIMA TO CONTINUE TO FIGHT," WORCENTRAN
TOLD THE COMMITTEE.
"IF THIS BILL DOESN'T PASS, THEY CAMMOT CONTINVE /TO FIGHT."
SENATOR WYE ASKED VRETHER THE BRITISH COVERNMENT MAD "SAID as
HUCH."
"NOT IN se MANY WORDS, BUT THAT'S THE SITUATION," MORCENTRAN
REPLIED.
1/25--21246P
Regraded Unclassified
61
DD HOREINTHAN
we asked MORGENTRAM TO FURNISH THE COMMITTEE, IS SECRET SESSION, A
IST of MITISH SECURITY HOLDINGS If THE 5.5., BUT CHAIRMAN CHERGE
AID их THOUGHT IT was "INADVISABLE" TO PUBLICIZE SUCH A DESTER.
IMBUIDY ABOUT AM INDIVIDUAL - a COMPANY, REVERER,
OULD at ANSURED WITHOUT CAUSING IDJURY, BE SAID.
THE LIST IS OF *TREWENDORS WONETARY VALUE,* MORGENTHAN SAID, AND
$ KEPT FOR SAFE-KEXPING IN HIS OUR PRIVATE SAFE IN THE TREASURY
EPARTMENT.
WYE INDICATED HE will REMEN HIS REQUEST IN all EXECUTIVE
ESSION.
THE INFORMATION IM THE LIST, NE INDICATED, IS NEEDED IN ORDER TO
STAIN AM ACCURATE UNDERSTANDING of BRITAIN'S REAL FINANCIAL POSITION.
VEEN THE COMMITTEE RECESSED AT 12135 P.M. UNTIL 2 P.M., NORGENTHAN
TILL was BEING QUESTIONED BY were SENATOR TAFT, wwo IS NOT A MEMBER
THE COMMITTEE, SAT AT WYE'S ELBOW, HANDING NIN WRITTEN QUESTIONS.
1/25--21254P 1720-0
DD NORGINTRAU
WYE PUT THIS DIRECT QUESTION TO one ESSENTIAL
BU RECARD THIS PROPOSED LEGISLATION IN REFERENCE TO BRITAIN'S
ULITY TO CARRY 651°
"I M CONVINCED THAT THEY 30 NOT HAVE BOLLAR ASSETS
10 THOSE WHICH TREY HAVE DISCLOSED TO RE,° HORGINTHAN REPLIED.
Regraded Unclassified
62
*LACKING A FORMULA BY WHICH GREAT BRITAIN CAN CONTINUE TO BUY SUPPLIES
DI, I THINK THEY'LL JUST HAVE TO STOP FIGHTING. TEAT'S ALL. XXX
of AM CONVINCED THAT IF CONGRESS BOESN'T ACT ON THIS BILL, THERE'S
OTHING FOR BRITAIN TO DO BUT QUIT FIGHTING.
"THE DECISION RESTS IN THE NAMDS OF YOU CENTLENEN.
1/28-2244P
DD NORCENTHAN
NYE ASKED MORGENTRAU WHETHER THE TREASURY PLANNED AM INDEPENDENT STUDY
0 CHECK THE ACCURACY OF THE PRITISH *FALANCE SHEET" AND TO DETERMINE
OR ITSELF WHETNER BRITAIN COULD PAY FOR ADDITIONAL ARMS HERE.
NORGENTHAN SAID THAT HE HAD no REASON TO DOUBT THE ACCURACY of THE
VIGURES GIVEN KIM BY THE BRITISH COVERNMENT, ABBINE THAT IN HIS DEALINGS
SeniNy
WITH THE BRITISH IN THE LAST SEVEN YEARS WE "HAD NEVER KINGU THEN TO
p
VILLFULLY NAKE A MISTAKE."
TURNING TO THE QUESTION OF SECURITY you U.S. LOADS, BYE ASSED
WHETHER SIR FREDERICK PHILLIPS, BRITISH TREASURY REPRESENTATIVE HERE,
HAD TALKED ABOUT TRANSFERRING BRITISH POSSESSIONS on ISLANDS TO THE
U.S. IN PAYMENT FOR ARMANENT LOANS.
"NOT TO us," MORCENTRAU SAID.
1/28--2254P 17-20-0
Regraded Unclassified
63
⑉ NORCENTRAU
*IF ENGLAND SOLD EVERY BOLLAR or NER INVESTMENTS IN THE UNITED STATES,
on
AMERICAN INVESTORS vot WILLING TO NY THEN, THE sum RAISED WOULD
AT ONLY FOR ORDERS ALBEADY PLACED," MORGENTHAU SAID.
ON SEVERAL OCCASIONS HE EMPHASIZED HIS BELIEF that BRITISH SPOKESMEN
OLD THE TRUTH UKEN THEY ADVISED HIM THAT THEIR MATION was REACHING THE
Nye
19 OF ITS FINANCIAL ROPE.
WVE ASKED NORCENTRAU IF THERE was ANY HOPE OF REINDURSEMENT LATER
THE AID TO BE EXTENDED.
*I'D RATHER NOT COMMENT ⑉ THAT," THE VITNESS SAID.
/26--R302P 303P 1720-0
ADD NORGENTHAN
SENATOR MIRAM W. JOHNSON ASKED MORGENTHAN VHY THE U.S. SHOULD
NOT GIVE EVERYTHING IT HAS TO BRIGAIN, IF HER success IS VITAL TO
AMERICA.
HORGENTHAU PATIENTLY REITERATED THAT HE IS A "FINANCE OFFICER."
AND MERELY WANTS CONGRESS TO HAVE ACCURATE INFORMATION on WHICH TO
Sen Johnson
BASE ITS ACTION.
"WITH ONE NAME YOU TOSS THE JOHNSON ACT OUT OF THE WINDOW AND WITH
THE OTHER YOU TOSS THE NEUTRALITY ACT OUT OF THE NINDOW." JOHNSON
SHAPPED.
"I DON'T THINK IT TOSSES THE JOHNSON ACT OUT OF THE WINDOW,"
MORCENTEAN PROTESTED.
Regraded Unclassified
64
"ON YES IT DOES," JOHNSON INTERRUPTED. "THE JOHNSON ACT WAS
AM ADMINISTRATION MEASURE, PASSED WITH ADMINISTRATION SUPPORT AND
ITS COING TO BE TOSSED OUT or THE VINDOW."
NORGENTHAU SAID THE ADMINISTRATION HAS BEEN "FRANK AND OPEN°
ABOUT THE ENTIRE SITUATION.
1/25-2410P CATER
DD MORCENTHAU
SEWATOR CARTER CLASS TOLD THE CONNITTEE THAT NE WAS IN FAVOR OF AID-
BC CREAT BRITAIN TO THE FULLEST EXTENT *EVEN IF IT PROVOKES A CHALLENGE
VAR FROM GERMANY AND I'M FURTHER IN FAVOR or ACCEPTING THE CHALL-
KE AS SOON AS IT'S MADE.
CLASS' OUTBURST CAME AFTER SEMATOR MIRAN JONNSON HAD SAID HIS ONE
GOAL WAS TO KEEP AMERICA OUT or war, AND HAD REFERRED TO CLASS AS THE
ONLY MAN ME KNDI WHO FRANKLY ADVOCATED A DECLARATION or WAR AGAINST
GERMANY.
1/25-2412P
Regraded Unclassified
65
ADD NORCENTHAN.
UNDERSICARITARY OF TREASURY BELL, SUNNOMED yes QUESTIONING n
SEMATOR BENNETT C. CLARK, SAID THE APPROXIMATE SERVICE CHARGE on THE
TOTAL FOREIGN WAR DEBT or $10,140,000,000 IN 1920 RAINSED BETWEEN
$6,500,000,000 AND $7,000,000,000 IN THE PAST 20 YEARS.
undersery Bell
BELL AND OTHER TREASURY AIDES SAID MR. RECEIVELT COULD NOT ENGAGE
IN UNLIMITED SPENDING BECAUSE THE EXTENT OF AID TO OTHER NATIONS CAN BE
CONTROLLED THROUGH CONGRESSIONAL APPROPRIATIONS, THE PRESIDENT, THEY
SAID, COULD NOT ENTER INTO CONTRACTS UNLESS THE NONEY HAS BEEN ADVANCED
BY CONGRESS.
1/28--W0530P C45TA
Regraded Unclassified
66
January 28, 1941
D. W. Bell
Secretary Morgenthau
Don't forget to put a paragraph in my statement
for the Ways and Means Committee on economy. Something
along these lines - that I think every non-defense
appropriation should be e xamined with a magnifying glass
to make sure that they need it.
Regraded Unclassified
67
January 28, 1941
Mr. Thompson
Secretary Morgenthau
I want Harry White to go away on the 31st and stay
away until a week from the following Monday. See if you
can't think of some place to send him - Cuba or some
place like that. I don't know whether the Virgin Islands,
Puerto Rico or the Panama Canal need any inspection. I
want Harry to have a trip at the Government's expense.
Regraded Unclassified
68
January 28, 1941
Mr. Young
Secretary Morgenthau
If we don't hear from Arthur Purvis by Thursday
morning regarding the 1,960 planes, I want to take up
on Thursday with Purvis the possible suggestion that
they discard the so-called English type and place orders
with us for American types. However, I want to see what
happens to the suggestion we made to them in my office
on Monday as to what kind of a come-back he has because
I believe he is going to take it up with Lord Halifax.
I an willing to wait until Thursday morning.
Regraded Unclassified
69
The Secretary asked Mr. Haas to phone Mr.
will and say the Secretary is terribly
worry, but he is going away and cannot be
of any assistance to him.
1/30/41
70
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE January 28, 1941.
TO
Secretary Margenthau
FROM
Mr. Hass
In accordance with your request I telephoned Mr. Ham and
he explained the extreme difficulty they are having controlling
prices in some of the metal markets. He mentioned in particular
eluminum scrap and zinc scrap.
Taking zinc 88 an illustration, he said that through the
efforts of Mr. Henderson's office the producers of virgin zine
have maintained a price of $7.50, whereas because of the extreme
demand for zinc, scrap zinc upon which they have no control at
present is selling for $10.50. He pointed out that new capacity,
which would relieve the situation somewhat, would not come into
production until sometime in June.
Mr. Ham was confident that a price situation of this kind
should be handled by a system of priorities, rationing the output
of the industry. He said that additional legislation would be
required to grant power to the President to ration such products
for civilian as well as for military uses. He spoke to Attorney
General Jackson about the legislation and also raised with him the
question as to who should be responsible for the priority or
rationing policy. He said that Mr. Jackson suggested that he
discuss the matter with you as he thought you had discussed this
matter with the President et one time.
Mr. Ham said his study of the British procedure and organ-
ization for rationing clearly indicated that responsibility should
be placed in the hands of one agency. He said the British exper-
ience also indicated that the best results were obtained when it
was in the hands of civil service employees rather than in the
hands of businessmen.
He would like to know that he had your help And backing in
getting a priorities and rationing organization set up, presumably
under Mr. Henderson or somewhere where the work would be conducted
to their satisfaction. He considere this problem of the most vital
importance in the control of prices and feels that it 18 very urgent.
As there 18 to be a meeting of the Defense Commission tomorrow
morning at 11 o'clock, Mr. Ham had hoped to see you, along with Mr.
Ginsberg (Mr. Henderson's legal adviser in the Defense Commission),
sometime this afternoon, if only for ten minutes. He said he was
greatly in need of your help.
Mr. Ham said that Mr. Henderson 10 in Florida and may be
away for a month or more.
Regraded Unclassified
71
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Legation, Bern, Switzerland
DATE: January 28, 1941, 10 a.m.
NO.: 16
CONFIDENTIAL.
The following 1s submitted as of possible interest
in connection with telegram of January 21, No. 13 from
the Department.
The Bank for International Settlements has refused
requests by Japan, Sweden, Rumania, and others, for guarantee
of their dollar balances.
Equal distribution between New York, London and
Paris was made of the gold stock of the National Bank of
Belgium. Paris gold had been removed to Dakar for safe-
keeping, under the Bank of France's control, before Germany
invaded Paris. A request was recently made of the National
**** Bank of Belgium by the German authorities that it
instruct the Bank of France to transfer the gold held at
Dakar to Berlin to be held by the Reichsbank, assurances
being given that the gold would be safe and would be held
for the Bank of France's account. This request was refused
by the Belgian National Bank. Therefore on December 19,
1940, the German authorities issued a decree under which
the German Commisar at the National Bank of Belgium was
given power to take any action on the Bank's behalf which
would
Regraded Unclassified
72
THE ORIGON
- TRUBABAT
would be binding on the Bank if the German military
MAL 1AG
authorities in Belgium should countersign his orders.
The Legation does not have any subsequent details.
HARRISON. oT
EA:LWW
73
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, (Paris) Vichy
DATE: January 28, 1941, 3 p.m.
NO.: 115
Reference 18 made to telegram of January 18, 8 p.m.,
No. 53 from the Department.
Since strict orders were issued by Bouthillier that
the subject of Belgian gold 1s not to be discussed at all,
it 1s extremely difficult to get any accurate information
about its transfer to the German authorities. A high
official in the Finance Ministry confirms, however, that
approximately 8,000,000,000 French francs of Belgian gold
were sent to Dakar in the spring of 1940. Roughly two-
thirds of this amount still remains in "depots in French
West Africa", according to this official. Part of the
remainder has already been delivered to the German authorities,
and part 18 in North Africa awaiting delivery to them.
This official asserted that the French are employing "slow
down" tactics in deliveries of the gold, and they hope they
can drag the matter out as long as possible. Reference,
telegram of January 2, 10 p.m., no. 9 from the Embassy.
An official of the Bank of France has told the Embassy
that the Ministry of Finance has written a letter to the Bank
in which it 1s stated that the Bank of France is relieved of
all responsibility in connection with surrendering the gold
belonging to Belgium. According to this same informant, the
French authorities had turned down a proposal put forth by
the
Regraded Unclassified
74
- 2 -
the German authorities that the gold be transported from
North Africa in German planes.
LEAHY.
EA:LWW
75
TREASURY DEPARTMENT
STRICTLY CONFIDENTIAL
INTER-OFFICE COMMUNICATION
fee memo from Hans m
Reed 8 7ca to 1/29
DATE January 28, 1941
TO
Secretary Morgenthau
Ace Himis note
FROM
Mr. Haas 9th
of conversation with
sein Warkard 1/30
I am attaching to this memorandum three
exhibits covering the activities of Thomas D.
Campbell of Hardin, Montana:
(1) A short biography taken from "Who's
Who in America".
(2) A table prepared by Mr. Irey at our
request summarizing the data on
Mr. Campbell's personal income tax
returns from 1933 to 1937. To this
table we have attached a short
discussion of the principal items
therein.
(3) A summary of Mr. Campbell's activities
prepared by Governor Black of the
Farm Credit Administration at our
request.
Attachments
Exhibit 1
76
CAMPBELL, Thomas Donald, agricultural engineer;
born Grand Forks, N. D., Feb. 19, 1882; вол of
Thomas and Almira Cathrine (Richards) Campbell;
A.B., University of North Dakote, 1903, M.E., 1904,
LL.D., 1929; post-graduate study, Cornell University,
1904-05; D.E., University of Southern Calif., 1929;
married Bess McBride Bull, of Grand Forks, N.D., Oct.
3, 1906; children--Thomas D. (deceased), Elizabeth
Ann, Jean, Cathrine. Engaged in farming since 1898;
president and chief engineer since 1922 of Campbell
Farming Corporation, operated 95,000 acres of land in
Montana and raising wheat and flax. Special investi-
gator of available farm lends on Indian reservations
for U.S. Department of the Interior, World War.
Special adviser and consulting engineer for Russian
Government, 1929, to assist in forming plane covering
operation of 10 million acres in Russis. Member,
American Society of Mechanical Engineers, American
Society of Agricultural Engineers, American Institute
of Consulting Engineers, American Association of
Engineers, Society of American Mil. Engineers, Delta
Tau Delta, Republican. Presbyterian. Mason Shrine).
Clubs: University (Los Angeles): Twilight, Valley
Hunt (pasadena): Union League (Chicago) Racquet
(Washington). Author: Russia, Market or Menace.
Inventor of Campbell Grain Dryer: developer of Campbell
windrow method of harvesting and threshing grain And
furrow dammers on grain drills for conserving molature.
Home: Hardin, Montana, and Fasadena, California.
Regraded Unclassified
77
Exhibit 2
STRICTLY CONFIDENTIAL
Mr. Campbell's principal source of income in
the years 1933-1937 -- the only years for which
income tax returns are immediately available --
appears to have come from dividends received on
stocks owned by his wife. Most of these dividends
were derived from an investment in the shares of
the Cream of Wheat Corporation, the president of
which 18 Daniel Bull of Minneapolis. (Mrs. Campbell's
maiden name was Bess McBride Bull). Mr. Campbell's
salary of $3,000 per year from the Campbell Farming
Corporation appears to have been mainly for the
purpose of covering expenses personally incurred
in conducting the corporation's business. The
corporation has lost money for many years and
carries an accumulated deficit of $1,000,000 on
its books.
Between 1933 and 1937 Mr. Campbell appears
to have traded in grain contracts in his personal
capacity, but these transactions were not conducted
at a profit. In 1936 the Campbell Ferming Corpora-
tion also appears to have traded in grain contracts,
but on purchases of $124,000 the corporation appears
to have lost $3,000.
Mr. Campbell appears to have made several
investments in oil and ranch properties, but these
investments were written off as losses. A partner-
ship return for an enterprise known 8.8 "Thomas D.
Campbell Ranches" was filed in Wilmington, Delaware,
in 1937, under the name of "Campbell-Raskob Partner-
ship". Operations during that year were conducted
at B. loss.
The attached table shows the details of
Mr. Campbell's income for the years 1933 to 1937
as reported on his income tax returns. For the
year 1933 dividends amounting to $45,000 on stocks
owned by Mrs. Campbell are not included because
separate income tax returns were filed by the
Campbells in that year. Joint returns were filed
in 1934 and subsequently, however, to permit in-
vestment and other losses to be deducted from grose
income.
Regraded Unclassified
STRICTLY CONFIDENTIAL
Thomas D. Campbell and wife,
Hardin, Montana, and Pasadena, Calif.
1933
1934
1935
1936
1937
Income:
Salaries*
3 2,775.14
$
a 3,849.56
# 339.48
$ 1,508.49
Interest, bank deposits,etc.
6,840.88
6,038.96
5,454.36
4,616.41
Capital gain or loss
-1,312.29
-1,165.64
Dividends**
35,188.82
40,767.70
40,091.30
41,571.42
Rents
66,50
237.03
155.47
278.75
Net profit from business
236.95
Income or loss from part-
nership, etc.
-6,784.48
Income from fiduciaries
1,540.43
Total income
$ 2,775.14
$42,096.20
$50,893.25
$44,965.27
$41,565.38
Deductions:
Contributions
$
$ 1,555.00
$2,751.50
$ 1,921.00
$ 2,222.30
Interest paid
304.98
2,657.89
2,054.97
3,914.95
992.02
Taxes
276.94
1,415.35
1,510.37
2,222.07
1,961.49
Losses (mining,oil & wheet)etc.
13,288.79
14,608.44
511,35
Bad debte
2,200.00
427.30
2,889.90
250.00
Other deductions authorized by
law
14,508.35
2,328.01
4,724.30
659,53
Total deductions
$15,090.27
$23,445.04
$21,352.58
$15,672.22
$ 6,596.69
Net income
$
None
$18,651.16
$29,540.67
$29,293.05
$34,968.69
Total tax
None
$ 765.62
# 2,333.23
$ 3,481.90
8 4,727.95
*1933 salary received from Standard 011 Co. of Calif. 1935-1937,incl. from Campbell Farming Corp.
** Dividends from Cream of Wheat Corp. - 1934 $32,725., 1935 $37,882.50, 1936 $37,202.50, 1937 not listed.
Note: The 1938 and 1939 returns are in field for examination by agents.
78
Regraded Unclassified
79
Exhibit 3
THOMAS D. CAMPBELL
Summary
Engineer: Graduate Montana Agricultural College; post-graduate Cornell.
Operated for a time his father's 4,000 acre farm near Hardin, Montena.
In 1906, had charge of large farming interests of J. S. Torrance, West
Coest financier.
Requested by Food Administration to do large scale farming to produce
wheat. Formed Montana Farming Corporation, backed by J. P. Morgan, James
Stillman, Francis H. Sisson, Charles H. Sabin, and Charles D. Norton, all
directors.
Following war bought out the corporation and formed the Campbell Farming
Corporation. It owned and leased about 95,000 acres, much of which was
Indien land.
Said to have made money first 8 years. 1930 first year to lose money.
Difficulties in getting financed.
Strong supporter of Farm Board.
AAA put bottom under price of wheat; said to find financing essier since
then.
Strong supporter of present Administration and particularly AAA.
Long advocate of restriction of screage.
For McNary-Haugen Bill; against debenture plan; for maintaining teriffs.
Femiliar with Presidents Wilson, Harding, Coolidge, and Hoover.
John J. Raskob & business associate since 1928.
Now has 7,000 acres under lease in New Mexico - mostly rented for pesture.
Advisor to Russia in its collective farming efforts. Friendly with Stalin.
Early predicted Russia would not continue long its original collectivism
programs. Apparently his work was highly approved by Russian Government.
Regraded Unclassified
80
Thom D. Cumpbell, of Hardin, Montana, is probably the best known
divocate of mechonized agriculture who has practiced what he preaches,
It'm operations, hovever, always have been on 6. grand scale, such as
the 95,000 servs of the Campbell Farming Corpora'd where ne uses
moi ern machinery in a thoroughly organized way, reducing the cost of
production per bushel And per mandower. He is perhaps equally as well
known na the expert hired by the Russian Government to advise it In its
stront to form millions of NET'S collectively.
er. Campbell is Il men of unbounded energy, big, impetuous, and has the
ability to talk with amazing rapidity. He has had the ear and been the
intime te of many Government officials end financiers. These include
Presidents Wilson, Harding, Coolinge, end Hoover and their Department of
Agriculture secretaries, Secretary Frenklin D. Lane, Anare' Tardieu, the
Montene Congressional Lelegation, Senator Hatch, Alex Legge, James C.
cone, Tecretary Rallace, J. P. Morgen, Jemes Stillmen, Francis E. Sisson,
Charles il. Sobin, Charles D. Norton, J. S. Torrence, end John Fankob.
Mr. Compbell, born near Grand Forks, North Dakota, now nearly 60 years
of NEO, 10 the son of E Scottish farmer. He witnessed the beginning of
the nocheni ation of agriculture in the grein country, his father intro-
onced the first stem plow and steam threshing machine in that section
of the plains. At 17 Mr. "empbell took charge of the family's 4,000 acres,
meunwhile continuing his education et the University of North Dekota,
3 miles from his home. At that institution he received an A.B. in 1903
ETRL in 1904 he obtained 8 degree in engineering. He took a post-gradunte
course et Cornell University the following year. He was merried in 1906
to Bess McBride Bull. It about that time he became operator of all of
the properties owned by J. S. Torrence, 0 West Coast capitalist.
The orld her estapulted Campbell into national prominence. He is said
to have come to ashington to obtain a commission in the Engineering
Corps, but Franklin D. Lane, then Secretary of Interior, Herbert Hoover,
then Food Comminsioner, and Andre' Tardieu, who wes the French High Com-
missioner to the United States, decided his services would be more
valumble if he raised wheat. It WES first proposed that Mr. Campbell
go to Algiers to do the job, but it KCS finally decided it could be done
more (uickly in this country on Government land. After an inspection
trip with Frank Thackery, of the Department of Agriculture, Mr. Cempbell
chose 125,000 ter s on four Indian reservations in Montana.
Money for this activity wes not forthcoming from ashington, End he in
exic to have convinced J. P. Morgan, after 2 hours' talk, that he should
finance him to the extent of 12,000,000. The result was the formation
of the Montans Farming Corporation. It was backed by Mesers. Morgan,
Stillman, Sisson, Sabin, Norton end perhaps others - All mentioned were
on the board of directors. After the wer, Mr. Campbell bought them out,
Regraded Unclassified
81
changed the name of the company to the Compbell Farming Corporation,
re-leebed 95,000 acres from the Government and let the other go. It 1a
seiú that for 8 years he made money and that in 1930 he lost money for
the l'irst time.
In 1929, Nr. Campbell was appointed special adviser and consulting
engineer to the Russian Government, to assist in formulating plans cover-
ing the operation of 10,000,000 acres in Russia. He made several trips
to that country and is reported to have had much to do with the organiza-
tion of the efforts put forth to farm large areas collectively, advis-
ing in the training of the personnel to operate the machinery and the
plane for growing and harvesting a vast area of land. The Russian
Covernment reputedly thought very well of Mr. Campbell's efforts, and
it used him in its propaganda to put over its first 5-year plan. It
le said he was offered 1,000,000 acres for his own use and profit if
he would consent to stay in Russia and personally operate the farm as
e sort of demonstration as to how it should be done. He apparently W&B
very close to Stalin and discussed with him at length his plans for
collective mechanical farming. By 1931, it is said that the Soviet State
farms had grown to almost I5 willion acresand the individual peasant farmer
had been replaced on some 42,000,000 acres by "collectives." Mr. Campbell
is reported 68 having brought to the United States millions of dollars
of orders for farm machinery. His writings reflect 8 good deal of faith
in the Soviet Government, and in 1931, concerning the situation that
obtained at that time, he said:
"I don't advocate recognition of Russia by the government.
I advocate trade with Russia. It's too big to be ignored.
If you're afraid of Communism, well, I'll tell you this: I
don't think Comminism will last twelve years longer. They
are changing already. General education will prove the end
of Comminism, I think. Why, there are already more distinc-
tions of class among the Communists in Russia than there are
among us democrats in the United States. When I go to Moscor
I joke with them about that. I tell them that I em B farmer
and that when I visit New York I eat with bankers. They don't
understand that. A Russian fermer from the sticks would have
8 hell of & time trying to get in to see en official of one of
the state banks in Moscow. I told them that when I was over
there, and they admitted it."
Mr. Campbell apparently was on very intimate terms with Federal Farm Board
officials, and excerpts from correspondence and newspaper clippings attached
hereto reflect his thoughts on a number of policies. They will also show
that Mr. Campbell has frequently been in print 85 an advocate of the AAA
and the limitation of acreage.
Regraded Unclassified
82
Lewis Swift is said to be among those who backed Mr. Campbell in
the 20's.
After the "Supreme Court decision* Mr. Campbell is said to have been
very intimate with Mr. Wallace. Campbell has always been close to
the Montana Congressional delegation, is friendly with Senator Hatch,
close to Senators O'Connor and Murray. Probably not nearly 80
friendly with Senator Wheeler.
John J. Raskob and Mr. Campbell apparently had been in business to-
gether in one way or another since 1928; they together are supposed
to own the Campbell Farms in Montana with Hardin as headquarters.
In 1937, Raskob and Campbell were reported as planning to develop
a 286,000-acre traot which they had acquired on the Rio Grande
between La Joya and Belen at a cost of less than $1 per acre,
mostly tax sale land. Mr. Dodd, however, says Mr. Campbell
recently told him that he and Raskob owned or controlled about
7,000 acres. It is not yet well stocked but water holes have been
developed. Part of the area is now being rented for pasture. Most
of the land is tax-title or distress lend.
Regraded Unclassified
83
At one time or another in the last several years it appears that Mr.
Campbell has had difficulty in financing his operations and the wheat
market has not always been in his favor. Since the AAA put a bottom
under the wheat market, it is believed that Mr. Campbell finds it much
easier to finance himself. It is said that much of his financing is
being done by a bank in Chicago, although this has not been checked.
It is said that at one time he was delinquent on the amount due the
Department of Interior on Indian land rented from it. The sum given
WES $60,000.
Mr. Campbell seems to have the ability to handle his help without trouble,
and he is reported to pay good wages.
84
À letter from Henry J. and Charles Aaron, Chicago lawyers, to Stanley
Reed, general counsel of the Federal sarm Board, inquires about the amount
of the Government's lien on crops produced by the Compbell Farms on land
leased from the Government, being an effort to ascertain if there would
be any equity in the wheat for other creditors. The inquiry said: "Re
represent several banks who have a substantial claim against the Campbell
Farming Corporation and Thomas D. Campbell individually, in the aggregate
amount of $100,000, and we have received information that a shipment of
about 150 cars of wheat was made from the farm of the Campbell Farming
Corporation with the bill of lading in the name of Mr. Hyde (secretary),
consigned to the Government at Minneapolis."
Regraded Unclassified
85
Thoms: D. Camobell - Excerpts
"I think the Federal Farm Board, under the leadership of Mr. Legge,
will contribute more towards the solution of the farm problem than
has been done for many years, although I feel that 75 percent of our
farm problems could have been solved at any time during the last 7
years with our present lows."
Mr. Campbell Wes very friendly with Alex Legge and frequently tele-
graphed or wrote him his ideas concerning actions that the Board should
take.
Mr. Campbell was also very friendly with Julius Barnes, and falt that
the farmer did not understand him.
Although Mr. Cempbell was friendly with the Boerd and its activities in
general, he was more or less a public critic of it. For instance, in
6. full-page article in the New York Times for October 19, 1930, he said:
"It has not been able to fulfill the expectations of its supporters and
friends." During that year when there was a short corn cΓop, he advocated
using wheat as & supplemental feed.
Frequently in his talks and writings he urged a better understanding
between the farmer and the businessman. The burden of many of his speeches
is to the effect that business is not unfriendly to agriculture.
He applauded the action of the Federal Farm Board and the Secretary of
Agriculture in regulating the grain futures market, and, judging from
telegrams sent to the Board, he personally was interested in seeing
higher prices for wheat.
He told Alex Legge that he should get the right men to head the $20,000,000
Grain Marketing Corporation end that he should be authorized to pay some-
body $100,000 a year in salary, if necessary.
"There are but two types of successful farming in the United States today:
namely, the small farm on which the farmer and his family do all the work
and there is no payroll; and the large farm operated on en industrial
bosis with economical units, skilled workmen, high wages, and scientific
business management."
"Less than 20 percent of our population will be on farms in another 20 years."
At times the Ferm Board apparently urged Mr. Campbell to give publicity
to certain of his ideas pertaining to the markets.
Mr. Campbell was pleased to see James C. Stone appointed to succeed
Mr. Legge.
Regraded Unclassified
86
2
Mr. Campbell advocated in print and to Mr. Legge and Secretary Hyde
that regulations of boards of trade should be changed so that short
sellers would be required to deliver merchantable or B milling quality
of grain on future contract, or else be penalized the same way the
farmer is for failure to do 50. He said, "All daily elevator cards
are based on the price of the nearest future, which is always 10 cents
to 30 cente less than the cash price. In other words, the farmer sells
on B future and delivers on a cash basis. This also can be corrected
with our present laws and regulations."
On August 28, 1930, Mr. Campbell wrote to Mr. Legge, "All the farmer
needa to be prosperous is to be given the same advantage of the tariff
which industry enjoys and which labor enjoyed through restricted 1mm1-
gration. It is evident that the farmer must reduce his production in
order to get advantage of our tariff, but such reduction will be of no
use 15 we still permit a rebate of 40 cents a bushel on Canadian whest
milled in bond. On the other hand, there is no reason why the farmer
should not have tariff protection on our domestic consumption and sell
his surplus at any price - the same as other industries do."
In his public writings Mr. Campbell frequently advocated a flexible
beriff.
He was a frequent sdvocate of placing 8. tax од foreign Governments'
activities in hedging grain in this country. At one time or another
he discussed the subject with President Coolidge, Secretary Jerdine
And President Hoover. This subject was brought to the front when Russia
WES short selling large quantities of wheat on the Chicago market.
Mr. Campbell WEB one of the early advocates of McNery-Heugenisn. In
1928, he advocated development of waterways, suggesting shipment of
grain from the Northwest to New Orleans for distribution East or Nest -
East to Europe, or West through the Panama Canal.
He seid agriculture should be represented on all national boards,
especially farm loan banks, intermediate credit banks, and interstate
commerce commissions. "Industry, which represents one-third of our
total railway tonnage, surely has EL right to representation, but he
must not be a fermer who fails to appreciate service."
In August 1929, Mr. Campbell wrote Mr. Legge urging the Board to hold
wheat off the market and directed him to look for storage facilities.
He indicated that the borrowers controlled the storage facilities and
advocated the establishment of e cooperative marketing organization to
be nurtured by the Federal Farm Board. The Board apparently believed
there WELB plenty of public warehouse space. In a succeeding letter
Mr. Campbell says: "I have supported the Administration. I have been
friendly to the Board of Trade, I favor big business and I know that
Regraded Unclassified
87
- 3 -
1 have contributed something towards the election of the Republican
party last fall. No party, however, can flagrantly violate its promises
to the people and completely !gnore a situation when it has the authority
and the resources to eat.'
On August 7. 1929, Mr. Campbell, writing to Chairman Legge, said: *Well
informed men, including such experts as Mr. Cutten, feel positive wheat
will go to $2 in Chicago before Christmas. Nevertheless, my benkers
sold 16 cars of the finest wheat ever shipped into Minnespolis during the
panic yesterday at a price to net us $1.02. This is the experience of
85 percent of all farmers in the United States, and is en intolerably
reprehensible condition, 98 some provision whereby the farmers could
hold their grain would eliminate it."
A letter from Mr. Campbell to President Hoover in June 1928 congratulated
him on the appointment of Mr. Legge. He also said: "Your attitude on the
Farm Bill from the beginning has been in strict accordance with your pre-
vious statements, and every farmer should be grateful for the fact that
you had the strength and courage to oppose the debenture plan.*
In 1932, Mr. Campbell advocated invoking the flexible provision of the
tariff aot to raise the duty on jute and sisal so as to increase the
domestic price and stimulate the use of cotton as a substitute.
In a signed article in the Washington Star in 1933, Mr. Campbell advocated
fixed prices for grain and other raw products, provided they were fixed
high enough to enable the average producer to make 8. profit. He advocated
the use of the processing tax to adjust the price on domestic agricultural
products to B. higher level than such products would command abroad. He
predicted the new Agricultural Adjustment Aot would do more for agriculture
than any other legislation.
Clippings indicate that Mr. Campbell frequently backed up in print the
activities of the AAA. For many years prior to 1933, he advocated acreage
reduction- At one time he harvested as many as 45.000 aores of wheat, and
under the AAA allotment it was 22,500 acres. The heavy out was supposed to
be caused for the reason that the acreage allotment was based on acreage
for 3 years preceeding the introduction of the processing tax - years in
which he "public spiritedly" and "volunterily" out his own acreage BO he
could be practicing what he preached.
Newspapers in several Instances tried to make it appear that Mr. Campbell
had benefited unduly from the AAA Act, because he leased KL large screage
of wheat land from the Indians, paying them from 75 cents to $1.50 per aore
although he collected a large payment. Mr. N. E. Dodd, Western Administrator
of the AAA, feels that the figures quoted are inscourate und do not reflect
the situation. In other words. Mr. Campbell is said not to have gotten any
Regraded Unclassified
88
- 4 -
undue advantage as the result of his leasing of Indian land. In April
1936, Secretary Ickles pointed to Mr. Campbell as a sharecropper who
paid the Indians only 15 percent of his earnings on their land.
It is said that Mr. Campbell advocated a small payment to the small farmer,
perhaps as provided in the AAA, but maintained that acreage allotment is
fundamental in any plan for handling the wheat situation.
89
Writing in The Magazine of Business in June 1928, Mr. Campbell said:
"The relationship of government to farming is very important.
Many plans and suggestions have been offered to Congress,
many ideas proposed, all of which have been rejected, much
to the disappointment of the farmer. He feels that all other
industries, as well as labor, have been rather well provided
for by our tariff and restricted immigration. Banking and
financial interests have been well stabilized through our
Federal Reserve System, created by the Federal Reserve Act,
and by the McFadden Banking Act. The necessity of a fair
return for transportation has been recognized by the Trans-
portation Act of 1920 which works through the Interstate
Commerce Commission. Industry has been well safeguarded by
our unprecedented tariff, and labor enjoys many advantages
through restricted immigration. Public utility corporations
are Allowed a fair return on their investment."
"If the tariff ie lowered, the manufacturer and the laborer will
suffer. If railway rates be lowered, wages will be reduced and
service impaired. If the Federal Reserve System and the McFadden
Banking Act be repealed, credit will suffer and panic will stare
us in the face. Business confidence will disappear and industrial
depression will follow. If cooperative marketing is advocated or
government control and price-fixing suggested, all commission
merchants and city organizations will loudly protest and the cry
of special privilege will be raised. If the farmers endeavor to
help themselves, or demand the same advantages as other industry
enjoys, their efforts are - in certain quarters, at least - decried
as socialism, unsound paternalism, or radicalism.
"All of these questions are debatable and I em not advocating or
denying them. It does seem, however, that several things can be
accomplished with our present laws and regulations which will solve
many of the farmer's problems without the need for any new legisla-
tion or the appropriation of large funds from the national treasury.
"We have farmed for many years and know that the following sugges-
tions will greatly relieve the present condition.
"Give the farmer the same protection through our tariff as other
industries enjoy, and the advantages which labor has through
restricted immigration. I feel that it would be a serious mistake
to reduce our tariff on manufactured goods or to reduce wages, but
Regraded Unclassified
90
it is only fair, as long as the farmer pays his share of this
industrial and labor protection, that our flexible tariff be
adjusted to give him similar advantage on his products.
"For instance: We have a tariff of 42 cents a bushel on wheat -
certainly high enough for anyone - but most wheat imported is
milled in bond and 40 cents a bushel is rebated. That is one
reason why inland flour mills have so much difficulty in succeed-
ing in making money.
"Economists, free traders, manufacturers, and bankers interested
in these mills, all say that this grain would all go to Europe
from Canadian mills if we did not grind it, and as a result a
reduction in rebate would make no difference. This would be true
if we produced enough hard spring wheat, high in protein, similar
to what we import from Canada; but we do not. A reduction of this
rebate would have the effect of increasing the prices of our Dark
Hard Nothern spring wheat. And it is the first law of merchandis-
ing that if the better goods are increased in price, the other
grades will increase accordingly or in proper proportion."
Regraded Unclassified
91
Mr. Campbell says of himself in Who's Who for 1940:
114 * * Mem. Am. Soc. M.E., Am. Soc. Agrl. Engra., Am. Assn.
Engra., Soc. Am. Mil. Engrs., Am. Inst. of Consulting Engrs.,
Delta Tau Delta. Republican. Presbyn. Mason (Shrine).
Clubs: University (Los Angeles); Twilight, Valley Hunt
(Pasadena); Union League (Chicago); Racquet (Washington).
Author: Russia, Market or Menace. Inventor of Campbell Grain
Dryer; developer of Campbell windrow method of harvesting and
threshing grain and furrow dammers on grain drills for con-
serving moisture. Home: Hardin, Mont., and Pasadena, Calif."
Who's Who frequently reprints statements year after year without
referring them to the people involved. This report lists Mr. Campbell
as & Republican. People who are very close to him say he has supported
the present Administration consistently since 1933.
Regraded Unclassified
92
(Regrinted /rom MECHANISM ENGINEERING / Clitater, LOBS)
The American Farm Problem
The Present Unsatisfactory Economic Status of the American Farmer, and How It May Be
Improved Through Tariff Adjustments, the Development of Inland Waterways, Better Grain
Grading, and the Application of Engineering and Industrial Methods to Agriculture
BY THOMAS D. CAMPRELL BARDIN, MONT.
T
HE condition of agriculture is the greatest oconomic prote
in peace and war alike, be driftml from the moil to form is de-
lever before our country today. All other industries have
generate lown rabble, which listened to agitaters and unscrupo-
had imprevedented prosperity and all employees have had
low politicians who told him that the government owed him a
pay whecks. Industry has been huying from itself
living. Conditions became 80 serious that about the time of
for the para five years until (to workers have hypothecated their
Augustus Caesar the Roman Government, seeking to appear
extendes and pay checks for filteen
the people, put an established price
in Chirty months, chiefly by in-
on grain, but history tells us that
to the extent
engineer, particularly the mechanical and
this did not solve the problem
of live to Bix billion dollars per
construction type of engineer, is joing to be a
The Rumian revolution WILE
year, Meanwidle the purchasing
jurives of the farmer has dressin-
big factur in the solution of the agricultural problem.
made possible because of the de-
sire of the Ruminist provints to own
intend billium. dollars in eight
He is going to do for agriculture what he has done for
Total The wolkers in industry,
industry, Industry long age accepted the advice and
their land.
particularly their wives, are hegin-
reports of the engineer, and recently has not only
England has always had her age
ang in realize-that they have AM-
accepted his advice but has adopted him. Twenty-five
rarian discussioni, and now We
years ago, when many of as were being graduated
have it as the fuggest and trical im-
-onied large fulure commitments
and am curtialing (heir purchase
from callege. the engineer was consulted and some-
portant economic problem in mur
" they to 800 how is great in-
times called in of direclars' meetings-lo be dismissed
country today.
clastries? information could ROOD de-
immediately afterward, Num he is ineariably a
There were many good and
member of the Board-very aften the vice-president,
sufficient causes for the Non-Par-
words if paymills were reduced or
as well as chief engineer, and there are many inslances
time League in North Dakota,
eliminated. Varuum cleaners,
millio outfun, electro washers,
in which the chief engineer has become the president
It in impossible to stampede no,-
000 people into B. revolt against
and many other no-
or general manager. Business men and the owners
consider would las returned to One
of capital are beginning lo realize that the modern
conditions in three months, as the
election of 1917 in North Dakola
manufacture because the monthly
engineer in a good eseculize as well as a technically
mentiments condit must be met.
trained man.
showest, without some injustice
Farming will soon be recognized ga a dignified
back of it all. TL takes years of
Business men, manufacturers,
and other thinkers mislize this con-
business People will give it the classification to
wrong or unfair practices, either
differen mail that it in very new
which il belongs. and Il will attract the smart. amb(-
fancied or otherwise, to move
unity that The farmer because a
Hour young man. The higgest industrial opportunity
people into such a political revolt,
in the United States Inday in in agriculture and the
and the fear BOW in that We may
intercluser GRAIN if we are going to
have a national Non-Partisan
maintain DMF untional prosperity.
broadest field for the technical man la in agricultural
League if our businoss mm and
(( e " Programised fact that we enti-
engineering.
our statements do not give their
hast have national pro-
time and attention to our own ng-
without agricultural
ricultural problem, for DU one will
There has always been a farm problem. The Pharoabe had
day that we have such A problem.
it when they were building their pyramida in the valley of the
It ie not an easy problem to solve, & it involves our entire
Nile, The Creeks had it. the Carthaginians had it, and there
national life, economic and social. It has many aspects, and no
was no more sersons time in all of Roman history than when the
one suggestion will curo. The average tenant or farmer has
revolted after the accound Macedonian war. The land
little hope or enthusianm. Hjs children leave the farm as Being
then was what the wege question is now to our more
M they are educated ENC feel their obligations to their parents
complex industrial exclety. The rift between the rich and the
have been fulfilled. No woman in any other industry puta in BA
(ince wont on widening. Cheap grain was shipped in from
many hours of toll as the farmer's wife.
other providers and undersold the Italian farmer. The small
Few realize the magnitude of the agricultural industry and its
farmer bad no expe: formerly the mainatay of Italian society
relationship to all business. Farming as an industry in greater
President, Campbell Farming Corporation. Mem. A.S.M.E.
than all our other industries combined, and over fifty per cent
Address délivered at banquet, A.S.M.E. Summer Moeting, SL
of our export business consista of products manufactured from
&ugust IT to an, 1928.
78W farm products. How important & factor this in will he -
745
Regraded Unclassified
MECHANICAL ENGINEERING
Vot.. M), No. 10
746
alum 0 . malized that THAF export business averages atomst
Europe from Cansdian mills if we did not grind it, and, "
$160,000,000 1st month. Agriculture in the United States
result, a reduction in rebate would make no difference. This
represents an myestment of approximately @00,000,000,000
would be true if we produced enough hard spring wheat, high in
There have twen years when the products of our farms sold
protein. similar to what we import from Canada, but We do not,
fine $20,000,000,000,000. This is reacthinds of will Total war (%)
A reduction of this rebate would increase the price of our Dark
person, stid almost equal En the 1922 approinal of all the railways,
Hard Northern Spring whent, and it in the first law of merchands.
reducting terminals, in the United Histon It requires more
ing that if the better goods are increased in price, the other grades
power to plow the farm lands in the United States within proper
will increase accordingly or in proper proportion.
than is show to operate all of our other imlustries combined,
About twenty-five years ago, when the Statulard Oil Company
Unterportation It in not alrangr. therefore, that
(irst began selling kerosene to the Chinese in five-gallon tim rate,
every ne in the United Mistre is name if less interested in the
it used to ship timplate into this country for the manufacture of
surver of agroulture
these cana by the boatload. The cana were manufactured,
Many twilds and suggestime have been offered, many julean
filled with kerowene, and shipped to China duty free, as the
programed, all of which have been rejerted - withesit other phr
manufacture was made in transit. The steel industry was will
painte murch to the discouragement of the larnet. He fools
enough organized and strong enough to provent this. It in Dot
that without including labor, have been railer well
altogether & paralle) case to milling whent in bond, but there in
provided for by nif tariff and recricted immigration. Banking
certainly BISTER analogy.
and financial internate have been well stabilied through unit
We have a duty of 45 cents & bushel on flasseed, but the manu-
l'evieral Rowirve and the McFadders Banking Hill. The
facturers of lineed oil crush this seed in New York, ship the oil
why of a fair return for Invesportation las twon recignized by
rake to Europe, where it is sold for five dollars a ton Irem than
HIFF Transportation Art and Interviale Commerce Commission
it will bring in this country, and by ao doing they get a rehale
Publicatify orrginations are allowed a fair return on Chrir
equivalent tu 15 centa per bushe) on the imported flaxored,
anventment
making the daty but 25 cents per bushel, and at the name time
Ted milling incures have absendement Class bonsos IMPORTER 1920,
depriving the American cattleman of the use of this cheap all
and de contitum of the small (armet is work their il has over
cake:
india He INVOICE about a dollar for on pounds of whent, and
Tons and tons of molarses are imported into this country yearly
the vity man poss 10 rents à pound for lorad. He received 10
from Chilie for the manufacture of industrial alcohol. This is
resile a persont for [sork and 70 rente a bushel for earn, while the
a by-produel of their raw sugar, Cuba in not An industrial
consultant 50 cevits for have lle (ervives time ha three dol-
country, and this hy-product in purchased very cheaply. It comm
last a land for and white will for ID to 15 dollars per larrel,
in practically duty free and takes from our com farmer a markel
and en with all other relamodities everyt eitima Truits and woul.
which he used to have for bis low-grade corn, entimated by -
The margine 5ª town evit: something in devidedly wrung.
authorities M equivalent to 100,000,000 bushela. As a result
If the ⑈ Lowered, the maindacturer and The talmer will
this poor CAPD deifts to terminal markets, and because it can be
If railmay are lowered wages will to reduced and
delivered in future contracts nt a ressonable discount it keeps
sugmated, If the Poleral Kendy system and the Mo
the price down OR 2,000,000,000 bushele of cúrn. This condition
Faildon Banking are repested, errodit will mailer and pasir will
1968 lie changed with our present laws and regulations.
Pare un in the law will disappear and
No one works harder than the dairy farmer. He oversgal
infustrial dependents will follow II importative marketing is
lawn year for the entire output about $00 per cow, which included
advocated ie government ented and price foring are
the cuid of the cow's feed, his labor, and the sale of the product
all neerelhante and city organizations will hoully pro-
Yel we Imparted for the twelve months ending September, 1077,
(m) and the very of approval privilege will for mind. If The father
17,000,000 pounds of cheese, 4½ million gallons of creait.
one embrave to help or denimint the safie advan-
1,000,000 gallone of milk, 6,000,000 pounds of condensed milk,
tages as where industry mijoya, il is nocialista, unsound paternal-
of milications.
and 500,000 pounds of butter. It is only recently that we had
any duty (Vf) milk and milk products, and there in very little DON
All of throw questions are delintable, and I am birt advising of
on milk, but when manufactured into butter the duty je 12 cents
amount Chem 11 done sen. however, that moveral filings
per for the manufacturer but none for the
THE le accomplished with our laws and regulations which
producer.
will wilve many of the (seurers problems willout new legislation
HF appropriation of large Duide from the treasury,
The United States imported for the year ending June 3), 1027.
We have farmed for biancy yours and know that the following
over two and one-half billion dollar's worth of agricultural and
suggestions will greaty relieve the prowing condition.
form products, one billion of which can be produced in our own
muntry, much as any besim, eggs, milk, hiden, buckwheat, rim
Tax TAMPY AND LATION
totacco, flax, ele The tariff should be increased on these prod-
live Our former the same protection rhrough H&F card as other
ucté DO that we could afford to raise them. Recently the duto on
indianation enjoy and the advantages which labor has change
coast from and structural ateel was raised 80 per cent because
retrieted Immunition I foot that a would be a artious mistake
little cart iron and steel was coming in from Belgium and Gen
to reture 1917 taniff on manufactured goints (IF To Inwin the for
many.
sifectude no uninigratori, hert " is only fair, IM buing M the farmer
RAILWAY RATES AND WATERWATS TRANSPORTATION
pays his share of the and Isbor protection, that our
products. Resible taniff be adjusted for give him similar advantage 100 his
A diservasion of the farm problem would not be complete mile-
out some reference to transportation, ne a is such A big
Por Instance, we have a in of 42 cents a bushel on wheat-
in that business. During the period of recept low prices of gift
certainly high enough for any one-bus that when imported in
it required practically one-third of the gross selling price of our
malied in Insual and 4a crote per bunke] rebated.
grain from Montana to pay for the transportation costa. the
Economica. (ree traders, manufacturers, and bankers inter-
other industry in the United States could stand such 5 proper
miled in time mills unite in my that all this grain would gn to
tionate charge, with the pomible exception of heavy commodities
such as iron ore and coal, which are mined by machinery all
OUTOBER 19291
MECHANICAL ENGINEERINO
747
yery low mat. I do not favor a reduction of railway rates M
in the spring-wheat area milimated at an average of 15 omis a
the (tem of service is 6 great part of the mail, and in order to get
bushel if they will in Inco than our lota, and when is wold in
this anvior, rales must be in accordance. There can be, how-
inm than car tom. The farmer will take . storage Linket for bis
ever, an adjustment of rates without any resultant reduction
whent, It may be extra lancy. The ticket by law mil
to the transportation companies. For instance, any une known
better than Dark Northern Spring. The next day, next work,
that the movement of A nar of nattle two thousand miles la
OF next month the farmer mile has whoat and presente his tinket.
market is more hasardous and expensive than that of a nar of
He in paid the card price for Dark Northern Spring, while his
whent, and the value al present prives in live times as much.
wheat may la worth 25 cente more This can be changed very
Still it conta twice as much to And A car of whent to market as it
early and should be done, M the of higher grades is only .
does - car of livestock:
sublerfugs to buy chewper,
Hailway companies have always been friendly to agriculture.
Some stiention should be paid to the regulation discounts,
If is to their best interest to be BO. Our transportation facill-
etc., which apply to grain which nan be delivered HB future con-
ties are now overtased and will continue to be. The one great
tracta, as the future price determines the daily price card, govern.
milief for ilum congestion without distrimination against any
the the purchase of all grains. This grading of grain alone will
milway line will be the development of our inland waterways.
go & long way toward adving the spring-wheat growned problem.
AO big railway systems in the United States either crom the
Missimippi and Missouri or reach them. Grain and other com-
FARM REPRESENTATION
modition from the Northwest can be delivered at New Orleans
Agriculture should be represented on all national
for distribution nast or west-east to Europe or west through
especially farm loss banks, intermediate credit banks, and
the Panama Canal. Such an improvement would at the mine
interstate commerce commissions. An industry which repre-
Lime sulve to a great extent our flood problem, and the entire
senta one-third of our total railway tonnage surely lans a right box
Northwest would profit by it. Grain in transported in Canada
representation, but be must not be a farmer who falls to appre-
for approximately one-half what it costs the farmer in the United
ciate service. Moving the major portion of n crop of approxi-
Rtates for the name distance. Sometimes you hear the remark
mately 800,000,000 bushels of wheat meh year, together with
that the railways in Canada are government-owned and that
our other farm products, in approximately three months, requires
(d) why it in postible, hut the Canadian Pacific in not govern-
an investment in care, motive power, and organizations narrely
ment-owned It transporte the greatest bulk of Canadian wheat,
realized by most people.
and its earnings are comparable to those of any milway in the
United States.
INDOSTRIALITATION
BOARDS OF TRADE AND GRAIN GRADING
The foreguing suggestions are all big factors in the
of the present farm problem, but more effective and positive
Many farmers are of the opinion that boards of trade are
still will be the application of engineering and industrial mothods.
unformilly toward them and try to depress the price. This is
There are bei two types of nucomful farming in the United
not - hat Ibere are of course membere of boards of trade who
States today under present economic conditions namely, the
manufacture a Antebed product from the PAW form product, and
mall farm on which the farmer and his family do all the work
they very naturally buy that commodity MI cheaply - they
and there in no payroll; and the large form operated on an in-
(B) and oppose any legislation which will increase the price.
dustrial basis with economical units, shilled workmen, high
They are, howeyer, a very small percentage of the membership.
wagen, and scientific business management. All other industry
The established rate for selling grain on the boards of trade
has Increased lia output por man many times. The economical
je my low, shout 1% cente per bushel, and is the chespest part
unit is well established. What chance has the farm to engage
in a farmer's operations. Most commission houses will got for
skilled men when they can -arn several times as much in the city
the miler in better grades, reinspection, better markets, and
What inducement is there for the farmer boy with braine to -
better prices - with equal to several times the celling poet.
main on the land when be can be more prosperous in the city
Practically all grain purchased by line elevator companies,
and where capital will finance bia ideas? The farmer in like
terminal elevators, and millers in "bedged." This means that
every other manufacturer who has foreign competition or .
a Unshel is sold short on the market for every busbel purchased.
surplus. He must either reduce his custs, get tariff protection,
Bankere require this in order to keep the account belanced. A
or limit his production. We have too many people on the land
part of this hedging is done during the time the farmer LE market-
DOW. Loss than 20 per cent of our population will be on the
Ing los grain, and often when the speculator in milling short. The
farms in another twenty years. This farm population will drift
father is selling also, 60 we have practically the nato of four
to the city to meet our ever-growing industrial demands,
of grain for every one produced, not including specu-
The farmer in trying to compete in an unurganized way with
A great portion of Canada's crop is purchased in Canada,
the thoroughly trained and organized purchasers of his products.
delivered to England and Europe, and sold short in the United
He needs the support of the business man and the Government
Hales There in no duty on short sales, and we have lo almorb
until be can better organize his production and marketing. He in
all of this European bedging pressure each year without any
not entitled to any special privilege not extra consideration,
duty protection. This in a subject which is worthy of oon-
but the same recognition, the same protection, and the ame
siderable thought.)
advantages that other industries enjoy through our national
The Government should establish grades representing the
laws and regulations will give him unprecedented prosperity,
highest grade, and buyere should not be permitted for trade in
The engineer, particularly the mechanical and construction
grades having more value. To illustrate: All terminal bayers
type of engineer, in going to las . Trig factor in the molutions of the
in the Northwest trade in four grades-namely, ohnine, extra
agricultural problem. He is going to do for agriculture what he
charges, fancy, extra lancy-higher than Dark Northern Spring,
has done for industry. Industry long ago accepted the advice
the highout grade recognized by the Department of Agriculture
and reporte of the engineer, and recently has not only accepted
and the highest grade which can be put on a storage ticket.
his advice but has adopted him Twenty-Bre years NO, when
These four grades vary in value from five to thirty rents more
many of us were being graduated trum college, the engineere and
their Dark Northern Spring This DELIVERY - from to all fattors
consulted and cometimes called m al directors' meetings-to is
MECHANICAL ENGINEERING
Vot., 50, No. 11
Octuals, yes
MECHANICAL ENGINEERING
748
149
Farming will and be respuised as & dignified I
- afternant Now - a # mim
too of The hand way the - will NP shief
People will give is the classification to which it beings, Add a
and live - am instrumento der chief engineer
will attract the smart, ambitions young mail, The bignes is.
las - (he provident LE grand nun
dustrial opportunity in the United States today is in
and the of registal am signature to native that the mixtero
sel the broadest finkd fur the technical man is is Administral
engined , good M sell - - trained ann
englowring.
Operating a 95,000-Acre Wheat Farm
Thomas D. Campbell, of Montana, Employing Engineering Methods and Ingenious Combina-
Fine 2. Firness TRACTOR Deawise a Dra Time
tions of Power-Driven Machines on a Tremendous Scale, Operates With
Skilled Men on an Industrial Basis
puyDoss
FARM
No)
0,000
ACRES
Tip a
FARM
No.3
crow
9,000
AGENCY
SVSTER
ACRES
NATIONAL
CEMETERY
G
FARM NoB
4000
ACHES
FARM
No a
GRAZING
5,000
22000 ACRES
ACRES
Fis 4
FARM
No.5
FARM No.#
4,000
42,000
ACRES
ACRES
RALE-WILLES
FARMET
Sode
ACRES
the
Fine
Mar
zu
dinn
IIF
TWE
CAMPARIL
FARMING
COMMINATION
T
gniet individual teslay win service
Themas D. Campbell far provided the truth a this himmn
As the - of a farmer, Campbell's young dreams - of
Comparation By the (MI) of main membinery,
statement en the withs of the Complete Farming
insuring the drudgery of farm work and of bringing valid
fruitful liarvest for the employment of great unite of memberial
stat by throughly Mehls skilled. and may,
lie themfore etudied merbanical engineering. later MM
la less above that producing and Our at . profit and
kindwind from the Cuversity of North Dakins and the taking
depend in inviving He have prims in 9 carter
pref-graduate work at Careell the vision of machinery is
for three nomalities 11is represe in medicial un ihr
barge-seals farming was realized during the war when for est
Receipt M that ad any riker girl infustry, the Bas and Tigure- No:
drafted to give wheat for the allied smies on 7000 acris of the
ing skill sul julgement to traiks - - farming intery, and
Chris Indian Reservation in southern Montana. Be use -
Pip "
la horks M mathering And informal Priveiçãos to play a large
control in the venture, and after the Wat organized the Compted
part in the solution of the Airerican spiratural problem,
Farming Corporation which operates 95,000 gest (M
Pros. 3-6 Mercuse Now Bacomise Description
exce of his first success,
(Fle a. Resping Fis . When Via 9. Pig. #, The Threshing Cree)
Inclassified
UNBIXEERING
VAL
lu
a
ruite
MECHANICAL ENGINEERING
TAI
Camptell El fam for prime is for either keep the of the
registe - definite conditions If its coodi-
hi high wigh with a hund Ave performant and loss lached
item
farming
to
di
the
to indianal The fisht of grain must be milforely
glowing
and
during
the
early
dayan
for good nen, applications mmiling to from fines all - the
(os from work and the grain itelf about Heresh
und
raisfall
-
overrel
About
15,000
the - seperially when the
Each um - - in bis will in deld
of
usone late - planted. Crija are grown in
to threety the mail in grown and etringy and will
required in its and Depending enjoir Her
years, al the third yest the govind Das fallow I'm
combine Tv uffet the objertions Camplell
type of Marchin, a bene of Inm 7 to in LYNES ET mile is (nid
for every maile a leavers Tom Instruct
of the land e therefore in rep wish - The
- bis method (Fip. 10-12). The grain
are charged to the operative and deducted from 240 divistment
(dive is due onb plans in BY degits
- a mapers drawn for one
The quality of end that will roature unihe
family Farming M - a - uperation
last their device mirigued if and Alle-
amili and (he will packed in by wighout
and in harvesting Time the machines 9ay her in the No sixteen
Instituted The First requer in Or cur sings the
- titute di day Dirtinue and initime am mid for
mo now the result A carrier which dropsi 11a grain in
fail the is has riting and fine miss adjustions.
- mail the painter has a still longre carrier, he las
During Be A - (la - (D) to Ne Hine IIF ark
both rilat time revelues at the from reschines fall in une
employment. The (vermit and managers end begal - daring
Time Date mapere are represent by obé raise who
This time ob openent
two
Mom
Form THE Wisnnow OF -
In " Base Tow
Have III, Writern ID in Visa
100 Women ****** )
The and metions. Harrowing Inllema MI
- le 1 the under dom and work the surface Street de
11 (Im other will is ruming lean] and -
Exciment AM No
the will new allowed to BTHIR sild ume The
by di bell not Tie grain drive in the
The enjuigment unl in receive of this time and operations,
fall the growtli if from - Total troughten inclus
priof is with . for lowber in place el
all Amering total. If the ture Genting
for del plane. The ground permite the full ribe.
anderming mertanism. As the la drawn
and bp- 200 plass el (v)wa, (M) dalla 72
and adval mine to persolate into it. The
lindo - the grain from One missinm and deliveres ⑉
2) and 11 marhine-nim
- provides the poverary for fertilize XII
relume it in theminal and plan) in the lie
Via transportation Hame CTF yes, 12 under mike and
is unl the wirew that falls aftir de las
- in & wingin strawn et Her mile The
un Farma work is MI The argaipment and
de need exclusively in these operation, OF
loans and thresdy the knin Rupea
Le . - person All of the expirient P
dress (ran DOE phones, 6vo - and five Infrom
This medical dresting the grain our from .
por our thoroughly during On einer, Twit air
Creditall une the rembined respect and
jero Tue the noal of paing IMPF the ground the
in Tranties and farms marking minute in instruting at
the Fip, T, and which has ments
the grain and 10th il in the The
full bad providedly par INF cell of De und No. whole
- 19" The combine offers may emmunies
luss thus mule for
le hope numing Laght mailing repairs in valo all the Redd,
total of hinding the grain, plaring it and
Camptell has patented if and plumi " at
fail N slive maint he skiller - bested of
wid lleu becime a to the thinking machine, The
American farmers
Handon to lando the frevy repairs. Here a fungr alive, -
mg - nas maily and trought with it falme
please welding experiment, markine alum, well shop and linew
De as is reaje, and eliminates ninny 1
Provings
eu
Internity are nade to overfusal equipment and plane y Jack in
- and handlings li the Include
of the minderw method - typical of the
the held is the preside time. Overhaoling B data we
en the mayor WILD De for twink and
which Camphell has largely done away with unskilled
production tambo are - fur the different types
for deaking, Inviling, and bauling the grain to the 1
live of his forms: instrud be maintaine a remains furvo
of machine, and . Fixe of Jan. Associa, and special corting todo
Hg markines The Illustrations is page 740 show
too skilled NIFE for the farming organis, which
are mady to carry hut the mal Temprent repair operations The
The (lifference in fator required is
Titula from April I to Derember 1. The believe
ship alan emiribuies greatly for the pressurity of -
Regraded Unclassified
MECHANICAL ENGINEERING
You XI, No. 16
T82
CAMPBELL FARMING CORPORATION
RESERVATION Crow
DATE May now,
i
DAILY REPORT
UNIT ad. One
TRACTORS
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AUTOMOBILES AND TRUCKS
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GENERAL INFORMATION
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DANASE
-
Fio. IT FARM MANAGER'S DAILY HADORT
I'm 14 This ne GRAIN WAIRINS FOR HARLING Foom PIELO TO POINT
(2400 weiching 72 tame moved at the Fale of a miles per hour.)
machining replarement parts from rough castings, by making up
interchangrable traction bearings, by providing bushings for
these ways be entimates hie shop with skilled mechanics -
valve seals that may be replaced in the Geld, and by developing
him $2000 à month.
methods of using scrap parts such as tractor axles, which are
upant and turned down info value Farm machinery gnta rough
ORGANIZATION
ervire, and its life may be increased by strengthening it before
The organization which the Campbell Parming Corpon
it gues into the field. Camphell accordingly truses and stiffone
tion employe is relatively simple. An operation manager #
his machines, and practically rebuilda wooden paris, In all
in charge in the field. There in a farm manager in charge of
each of the seven farms who in responsible to the operation main
OCTOBER, 1928
MECHANICAL ENGINEERING
753
ager for the economical operation of his unit. His daily report,
with four Tear driving wheels which will draw two trailers and
repreduced in Fig. 13, brings out all the important facts regarding
handle 1000 bushela or 30 tons at from ten to twelve miles
day's work. Each farm has its own quota of men, machinery,
per hour,
spare parts, and repair trucks for emergency repairs, and ie
climped and provisioned as a unit. The field operations of
Done IT PAY!
plowing, seeding, etc. are under the supervision of separate fore-
Does large-scale farming pay? Many farmers not familiar
term who report to the farm manager.
with machinery are skeptical. However, here are antoe inter-
HAULING GRAIN FROM THE FIXLD
esting figures. With an investment in machinery of $10 per
acre in crop, the labor cost per acre for plowing is 27 cents;
On a 05,000-sem farm, the hauling of the grain from the field
for seeding, 7 cente; and for harvesting and threehing, 40 centa.
to the shipping point offers an excellent opportunity for engi-
The total operating cueta for this farm per year, including labor,
mering analysis. The wagon train shown in Fig. 14 cut the cost
operating expense, and overhead, will average about $5 per acre.
from one cent per bushel per mile to one-quarter cent per bushel
The average yield for wheat in dry farming of this kind may be
per mile. With it two men transport 2400 bushels weighing 72
about 12.5 bushels per acre and for flax about 7 busbels, A sim-
trins at A speed of three miles per hour. A further out to one-
ple computation inserting the prices paid for wheat and flax at
eighth cent in expected from & new scheme using A heavy truck
the elevator tella the story.
93
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 28, 1941
TO
Secretary Morgenthau
FROM Mr. Cochren
CONFIDENTIAL
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
£91,000
Purchased from commercial concerns £14,000
Open market sterling held steady at 4.03-1/2. Transactions of the reporting
banks were as follows:
Sold to commercial concerns
£15,000
Purchased from commercial concerne £10,000
The Swise franc-dollar exchange situation was further clarified by a cable
which the Federal Reserve Bank of New York received from the Swies National Bank
today. The latter stated that it WAS buying free dollars from sellers domiciled
in Switzerland at 8. fixed rate equivalent to .2320-3/16 per Swiss franc, and buying
ree dollars from abroad at the same rate if the Swisa franc equivalent was used for
commercial payments in Switzerland. On the basis of quotations received from Swiss
commercial banks this morning. New York banks continued to offer Swise france for
strictly commercial use at .2327, unchanged from last night's final quotation. This
rate prevailed until late afternoon; the closing quotation was .2376.
We understand that there is also a market in New York for Swiss france
against B. non-commercial demand, wherein very small transactions have been consumated
to the neighborhood of .2370. Dealings in this category apparently involve the
transfer of ownership of Swine franc balances between non-Swise interests. The fact
that New York banks held less than $100,000 worth of available Svies franc balances
on January 22 suggeste that non-commercial trading in Swies france will not reach
sizable proportions.
Closing quotations for the other currencies were:
Canadian dollar
17-1/4% discount
Swedish krona
.2387
Reichemark
.4005
Lira
.0505
Portuguese escudo
.0401-1/2
Argentine peso (free)
.2375
Brasilian milreis (free)
.0505
Mexican peso
.2066
Cuban peso
7-3/4% discount
Chinese yuan
.05-9/16
94
- 2 -
We sold $22,500,000 in gold to the National Bank of Switzerland, which VG#
added to its cormarked account.
No new gold engagements were reported.
The Bombay gold price again declined 24 to the equivalent of $33.98. Silver
VA9 priced at the equivalent of 44.81#, up 1/16#.
The prices fixed in London for spot and forward silver both declined 1/15d,
to 23-1/4d and 23-3/16d respectively. The dollar equivalents were 42.21# and
42.10#.
Handy and Harman's settlement price for foreign silver was unchanged at
34-3/48- The Treasury's purchase price for foreign silver was also unchanged at 35#.
We made three purchases of silver totaling 400,000 ounces under the Silver
Purchase Act. Of this amount, 250,000 ounces represented a sale from inventory and
the remaining 150,000 ounces consisted of new production from foreign countries, for
forward d=livery.
We also purchased 75,000 ounces from the Bank of Canada under our regular
monthly agreement. So far this month. we have bought 475,000 ounces from that
source, as compared with the agreed monthly limit of 1,200,000 ounces.
The report of January 22 received from the Federal Reserve Bank of New York,
ving foreign exchange positions of banks and bankers in its district, revealed
that the total position of all countries was short the equivalent of $8,282,000,
E. decrease of $594,000 in the short position. Net changes were as follows:
Short Position
Short Position
Change in
Country
January 15
January 22
Short Position*
England**
$ 322,000
$ 53,000
- $269,000
Europe
3,397,000
3,291,000
- 106,000
Canada
409,000 (Long)
563.000 (Long)
- 154,000
Intin America
234,000
243,000
+ 9,000
Japan
4,281,000
4,339,000
+ 58,000
Other Ania
1,061,000
922,000
- 139,000
All others
10,000 (Long)
3,000 (Long)
+ 7,000
$8,876,000
$8,282,000
- $594,000
"Plus sign (+) indicates increase in short position, or decrease in long position.
Kinus sign(-) indicates decrease in short position, or increase in long position.
"Combined position in registered and open pm market sterling
CONFIDENTIAL
95
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE January 28, 1941
TO
Secretary Morgenthau
FROM
Mr. Has OA
Subject: Current Developments in the High-grade Security Markets
(1) The prices of Treasury bonds are now below their
levels at the bottom of the break which occurred
during the first week of January. Notes are
slightly above their lows of that time (Charts I
and II).
(2) At the close on the first day of trading, the new
Defense note was quoted "when-1ssued" at 100-3/32
bid. This is the lowest price on the first day of
trading on B. new Treasury issue since September
1937. The new note 1s out of line with the market
(Chart III). The explanation for this does not ap-
pear to lie either in the note's taxable status or
in the possible impairment of its "rights value",
but rather in the extreme thinness of the market
since the beginning of the year.
(3) Weekly reporting member banks continue to absorb
the whole increase in the privately held marketable
supply of Government securities. Since the end of
September 1940 the privately held marketable supply
has increased by about $900 millions, more than one-
fourth of which reflects sales by the Federal Reserve
Banks. During the same period, holdings of weekly
reporting banks increased by about 8950 millions
(Chart IV). Thus weekly reporting banks have ab-
sorbed all the newly issued Governments plus those
sold by the Reserve Banks.
(4) High-grade corporate bonds have suffered only a
small net price decline since the first of the year.
Municipals have declined more markedly. The market
for new issues has been quite thin since the begin-
ning of 1941.
Regraded Unclassified
96
Secretary Morgenthau - 2
I. United States Government Securities
The sharp decline in the prices of Treasury securities,
following the official indication given after the close of
the market on December 30 that the Federal Reserve System
would presently issue an important statement, was followed by
& moderate recovery lasting from January 9 through January 13.
Since then prices of Treasury bonds have drifted generally
downward. Treasury notes, on the other hand, are slightly
above their low prices of January 8. The price swings since
December 30 are shown, by maturity classes, in Chart I and in
the following table:
:
Average price change
December 30: January : January
:- January 8: 8 - 13 : 13 - 27
(Decimals are thirty-seconds)
Notes
1 to 3 years
- .06
+.02
.00
3 to 5 years
- .13
+.05
-.04
Bonds
5 to 15 years to call
-1,15
+.14
-.15
15 years and over to call
-2.04
+.19
-.30
The average yield of long-term Treasury bonds, which
moves inversely to prices, has increased 16 basis points on
balance from its record low level of 1.86 percent on
December 30 (Chart II).
II. The New Defense Note
At the close last Friday, the first day of trading, the
bid price of the new 3/4 percent Defense note was 100-3/32 on
a "when-1ssued" basis. This 1e the lowest price on a new
Treasury issue on the first day of trading since September
1937, when each of the two issues of 8. two-way note offering
closed their first day of trading at the same price. The
Regraded Unclassified
97
Secretary Morgenthau - 3
price on the new Defense note was equivalent to a yield of
.72 percent. Since Friday the price of the new note has risen
only 1/32,
It is difficult to discover an explanation for this be-
havior of the new note. It may be seen from Chart III, which
shows the yields of all outstanding Treasury notes selling on
a positive yield basis, that the new note is considerably out
of line with outstanding notes, even after allowance for dif-
ferences in tax-exemption status. The spread between the tax-
able Defense note and the tax-exempt Treasury note due the
same date 18 28 basis points. This is more than twice aa
large as the spread between the yield of the Defense note
issued in December and the estimated yield basis of a tax-
exempt note of the same maturity, as indicated by the curve
on the chart. It 18 also half again as great 8,8 the whole
amount of the normal tax rate to which the interest on the
notes would be subjected if held by taxable corporations.
(The 24 percent corporation tax rate applied to a 3/4 percent
coupon amounts to 18 basis points.
It does not seem likely that the value attached to the
tax-exemption privilege exceeds the normal corporation tax
rate or that it increases with shorter maturities. Banke are
the chief purchasers of short-term securities. They are now,
for the most part, not in a taxable position. (In 1938, the
latest year for which figures are available, $50 billions of
total assete were held by banks which paid no normal corporation
income tax as compared with $20 billions of total assets held
by banks which did.) If banks not now in a taxable position
were to buy tax-exempt securities against 8. possible future
need for tax exemption, they would be more likely to seek
relatively long issues for this purpose, for their tax status
18 more uncertain in the more distant future than in the near
future.
* The "tax-equivalent" yield of the tax-exempt 1 percent
Treasury note due on September 15, 1944 18 .68 percent, or
only 4 basis points less than the full yield of the new tax-
able issue due on the same date. Logically, of course, this
comparison 18 irrelevant, since it 18 based upon a tax (that
upon the 1 percent coupon of the tax-exempt note) which is in
fact never paid, rather than upon the tax (that on the 3/4
percent coupon on the taxable note) which might be paid, but
it may well be that it has, nevertheless, influenced many
purchasers in their evaluation of the new note.
Regraded Unclassified
98
Secretary Morgenthau - 4
Although it is not known at this time whether Defense
notes will carry exchange "rights" at maturity, H. R. 2653
introduced last Friday would place them on & parity with
all other Treasury notes in this respect. Thus it hardly
seeme likely that the low price of the new issue reflects
impaired "righte value" to any material extent.
The probability is that the erratic behavior of the new
note is not due primarily either to its taxability or to its
impaired "rights" value, but 1s merely a reflection of the
extreme thinness of the market which has prevailed since the
Federal Reserve statement. This statement, by raising an-
ticipations of an entirely new level of prices and yields,
appears to have given the market & "shock" which makes the
quoted prices of the outstanding issues unreliable 88 &
guide to the prices at which new securities can be placed.
It 18 probable, therefore, that the new issue would have
caused B. like "break through" of the existing price and
yield structure whatever had been its maturity or tax charac-
teristics.
III. Bank Holdings of Government Seourities
The trend of weekly reporting member bank holdings of
Government securities -- which has enabled that group of banks
for some time past to account for the whole increase in the
privately held marketable supply -- 1s still continuing.
Since the end of September 1940 the privately held marketable
supply of Government securities has increased by about $900
millions. During the same period Government security hold-
inge of weekly reporting member banks have increased by about
$950 millions (Chart IV).
This increase is particularly interesting in that sales
of Governments by the Federal Reserve Open Market Account
were responsible for more than one-fourth of the increase in
the privately held marketable supply. Thus weekly reporting
banks absorbed not only the whole amount of new issues but
all of the securities sold by the Federal Reserve Banks.
Chart IV also indicates the extent to which new issues
have found their way into the hands of banks in leading cities.
Thus the sharp drop of the note curve and the sharp rise in
Regraded Unclassified
99
Secretary Morgenthau - 5
the bond curve early in October reflect the refunding of the
December notes into 13-15 year bonds. It will be seen that
the bonds were acquired in the first instance principally by
banks outside of New York City; but that these banks have
since sold bonds on balance, while New York banks have steadily
gained in bond holdings since the end of October.
Similarly it may be seen that New York banks continued
to add to their Treasury note holdings after the initial
increase due to the issuance of the Defense note in December.
Banks outside New York City, on the other hand, show B. slight
decline in note holdings since the December financing.
The sharp drop in total Government holdings of all weekly
reporting banks at the end of 1940 is due almost entirely to a
decline in Treasury bill holdings, and probably represents
acquisition of bills by individuals and non-financial corpo-
rations in States where intangible personal property is assessed
as of December 31 or January 1.
IV. Other Domestic High-grade Securities
High-grade corporate bond prices show only a small net de-
cline from their level at the end of December Chart II).
Municipals have lost considerably more ground than corporates
since the beginning of the year. The Dow-Jones average yield
of twenty 20-year municipal bonds, moving inversely to prices,
has increased 16 basis points from its record low of 2.09
percent on December 28.
Although new bond offerings to the public in the New York
market have averaged about $65 millions a week for the past
four weeks, the market does not appear to be as receptive to
new issues as it was two or three months ago. Several new
issues are reported to have moved slowly. Among these were a
$46 millions offering of 2-3/4 percent, 40-year bonds of the
Illinois Bell Telephone Company (rated Aaa by Moody's) offered
to yield 2.61 percent to maturity, and B. $28 millions offering
of 3-1/4 percent 20-year bonds of the Jones and Laughlin Steel
Corporation (rated Baa) offered at par. Both of these issues
sold off about 2 points with the removal of price restrictions
by the respective syndicates. At the end of last week 14 out
of 24 recent corporate issues listed in the Wall Street Journal
were quoted below their offering prices.
100
Chart I
CHANGES IN THE PRICES OF U.S. SECURITIES
Points Plotted Represent the Difference from April 6, 1040 Price of Rech Maturity Class
1940
1940
1541
1941
DECLARER
JANUARY
MAY
JULY
MPT.
NOV.
FEBRUARY
JAM.
MAR.
MAY
7
14
21
28
4
POINTS
16
a
I
0
15
ALIEN
IT POINTS
(NET quant)
(MLT DRANNE)
(NET DIANE)
Saturday Quotations
Daily
+3)
1.38
:
:
#3
13
+3
+3
+21
will
not
+21
=2
12
+26
all
OVER 15 Yes,
+2
el
TO CALL
2
*1
NOTES
NOTES
+18
off
1-3 Yes.
3-5 Yes,
0
0
all
+1)
413
old
of
Boxes
-1
5-15 Yes,
41
TO CALL
+1
7
&
+1
+1
++
:
+1
-3
Bomps,
+1
NOTES
5-15 YRS.
3-6 Yes,
TO CALL
0
o
&
T
.
-1
-1 *
Boxos,
4
OVER 15 Yes.
TO CALL
&
-1
++
NOTES
1-3 Yes.
-1
-1 1
Y
9
-1
-1
+7
-7
-16
-11
-11
-1)
+
&
-HI
-HI
4.
-2
+
,
-26
6
à
-N
-10
+2)
MAY
JULY
SEPT.
NOV.
JAR.
MAR.
MAY
7
M
21
y
4
II
18
be
-
8
15
22
1940
1941
DECEMBER
JAMMARY
FERMARY
1940
1941
Office el the Secretary of the Treasury
- - - -
101
Chart II
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY
AND AVERAGE OF HIGH GRADE CORPORATE BONDS
1940
FEB
APR
MAY
JUNE
JULY
AUG.
1941
1940
MAR
SEPT.
OCT.
1941
NOV.
DEC
JAN.
JAN
FEB
MAR.
APR
-
ET
:
=
-
MAY
#
-
.
a
=
a
H
-
JUNE
JULY
AUG.
SEPT.
OCT
NOV.
DEC.
DEC
-
a
4
-
.
JAN
"
as
-
FEB
-
-
15
a
"
-
"
#
as
a
ill
.
-
.
17
=
-
,
:
#
"
#
-
=
se
.
4
inversed Scale
Inverted Scale
inversed Scale
PER CENT
PER CENT
PER CENT
WEEKLY. Saturday Quotations
DAILY
16
is
1.8
2.0
20
2.0
Long Term
Treasury
22
22
1.1
Long Term Treasury
the years or more to services toll dota)
24
24
24
26
26
24
Corporate
28
28
28
Corporate
3.0
10
10
12
12
32
3.4
14
14
36
36
16
PER
PER
PER
CENT
CENT
CENT
1.00
1.00
100
Spread Between Long Term
Treasury and Corporate
80
so
80
60
40
NO
Spread
40
40
40
20
20
20
0
o
o
a
-
4
:
-
.
.
-
is
en
"
4
If
.
If
,
.
19
=
.
JAN = , FEB . MAR - se APR " MAY M JUNE JULY AVE if - EEPT. - OCT, NOV us DOC or JAM 4 FEB MAR. - - APR. . - MAY - - JUNE - 1941 JVLP - AUG 18 - SEPT OCT NOV. SEC.
DEG
JAM
FEB
1940
1941
1940
# Change in composition of Long Form Treasury everage
May . Tax lactury of the Treasury
- # - -
Begraded
102
Chart III
YIELD OF TREASURY NOTES AND
255 TREASURY BOND OF DEC. 15, 1945
Based on Closing Bid Prices, Jan. 27, 1941
1942
1943
1944
1945
1946
PERCENT
PERCENT
.8
.8
X
NEW NOTE
X
BOND
.7
.7
.6
.6
X
.5
.5
X X
.4
.4
X
-3
is
X
.2
X
.2
-1
al
o
o
1942
1943
1944
1945
1946
LEGEND
X Defense note (taxable)
X
Treasury note (fully tax-exempt)
Fixed maturity bond (partially tax-exempt)
VPsa of the Secretary of the Treasury
Drive of - and -
F - 196 - A
Regraded Unclassified
Chart IV
U.S. GOVERNMENT SECURITY HOLDINGS, WEEKLY REPORTING MEMBER BANKS
Cumulative Net Change from September 25, 1940
1940
1941
OCTOBER
NOVEMBER
DECEMBER
JANUARY
FEBRUARY
MARCH
APRIL
25
2
9
16
23
30
6
B
20
27
4
11
18
25
8
15
22
29
5
12
19
26
5
12
19
26
2
9
16
23
30
DOLLARS
DOLLARS
MILLIONS
MILLIONS
New York City
BOD
800
600
600
TOTAL
400
400
GUARANTEED
200
200
o
0
BILLS
BONDS
NOTES
-200
-200
-400
-400
OCTOBER
NOVEMBER
DECEMBER
JANUARY
FEBRUARY
MARCH
APRIL
600
600
All Other
400
400
BONDS
TOTAL
200
200
BILLS
0
0
103
QUARANTEED
-200
-200
NOTES
-400
-400
600
-600
OCTOBER
NOVEMBER
DECEMBER
JANUARY
FEBRUARY
MARCH
APRIL
1,200
1,200
All Cities
1,000
1,000
800
800
TOTAL
600
600
400
400
BONDS
BILLS
200
200
QUARANTEED
o
0
-200
-200
NOTES
-400
-400
-600
-600
a
2
9
16
23
30
6
13
20
27
4
11
16
25
I
5
15
22
29
5
12
19
26
5
12
19
26
2
5
16
23
30
OCTOBER
NOVEMBER
DECEMBER
JANUARY
FEBRUARY
MARCH
APRIL
1940
1 94 I
Office of the Secretary of the Tramy
of I - Mate
F - 146 - .
Regraded Uncla
104
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
STRICTLY CONFIDENTIAL
DATE January 28, 1941
TO
Secretary Morgenthau
FROM
Mr. Wiley
Under date of January 23 FBI reported that an anonymous
communication was addressed to Stephen Early, as follows:
"An Italian whose name is Count Cicogna suc-
ceeds in getting informations in some Federal De-
partment in Washington, particularly in the office
of the Secretary of the Treasury, and he reports
to the Italian Library (D'Annunzio) and to the
Italian Consul."
This apparently refers to Count Gian Luca Cicogna who has
just been made Assistant Military Attache to the Italian Embassy.
He is said to be married to an American woman, nee Browning, who
is reputedly very wealthy. They have been living in Ogden, Utah
but Count Cicogna, I am told, spent some time in New York last
year connected in some way with the Atlas Corporation.
piep
105
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
strictly CORFIDENTIAL
DATE January 28, 1941
TO
Secretary Morgenthau
FROM
Mr. Klaus
VBI reports:
January 16. An account concerning the German merchant vessel ARAUCA, moored
at Fort Everglades, Florida; this ship can leave on full ateam within en hour.
One of its crew has taken a position with the German Embusey at Washington and
another WALD admitted to the United States on January 26, 1940, as a student et
Rensselser Polytech. An official of the Coca Cola Corporation in Atlanta donated
200 in November 1940 for distribution among the crew members; FBI is investiga-
ting the identity of the official. (We have had prior reports concerning sus-
icious relations between Coca Cola and the Nazis.)
January 24. On December 31, 1940, National City Bank received $80,000 in
United States bank notes, contained in four envelopes sent via South America,
air mail, from Berlin, from the Reichebank and credited to the Skandinaviske Banken,
Stockholm; the notes seem to have bean in denominations of $1,000 and $100.
January 24. At our request (made as result of information from the Federal
Reserve Bank) FBI has begun an investigation of a $100,000 cash withdrawal on
January 16, 1941, at the Lawyers Trust Company, New York City, by 8 Mexican called
Rodrigo.
January 27. It appears (eral report) that Rodrigo deposited a million dollars
and withdrew $800,000. largely in $1,000 bills, since January 16th.
8.25
Regraded Unclassified
106
RESTRICTED
TENTATIVE LESSONS BULLETIN
MILITARY INTELLIGENCE DIVISION
No. 83
WAR DEPARTMENT
G-2/2657-235
Washington, January 28, 1941
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 tenta-
tive and in no sense mature studies.
This document is being given an approved distribution,
and no additional copies are available in the Military In-
telligence Division. For provisions governing its repro-
duction, see Letter TAG 350.05 (9-19-40) M-B-11.
EXPLOIT OF A GERMAN RECONNAISSANCE DETACHMENT
IN FRANCE
SOURCE
The account contained in this bulletin was given to a
group of American official observers in November, 1940, by a
German junior officer who participated in the action described
as commander of a platoon of 88-m. antiaircraft guns.
According to one observer, the narrative is "considered
reliable."
There is no objection to publication of Section 1, the
account itself, in service journals, but Section 2, the comment
of an observer, is classified Restricted.
CONTENTS
1. NARRATIVE
2. COMMENT BY OBSERVER
RESTRICTED
-1-
Regraded Unclassified
107
110 OBJECTION TO PUBLICATION II: SERVICE JOURNALS
1.
NARRATIVE
"Soon after we crossed the Seine, my platoon, consisting
of two 88-mm. antiaircraft guns and twenty men, was attached to a
reconnaissance detachment composed of motorized infantry, antitank
troops, and pioneers.
"The major in command of this detachment was ordered by
the division commander to proceed at once to Mantes and to seize
the bridges over the Loire, which were located near the city. I
was astounded at such an order. Nantes was 250 kilometers - about
155 miles - from our position. I didn't know the location of the
French troops at the time, but I feared the worst.
"We began to march at daylight. At first we were rather
cautious about entering towns, crossing bridges, and passing through
defiles of any kind, but after a while, when nothing happened, we
became rather reckless and didn't stop to make detailed reconnais-
sances. When we passed through towns, civilians would wave their
hands, smile, and shout "Vive l'Angleterre." Apparently they thought
we were British. We waved and smiled back at them.
"We reported our position directly to division headquarters
every hour by radio.
"Upon errival at Nontes, I discovered that KY map was of
very little help to me in getting through the town and locating a
bridge that the major had instructed me to guard with my platoon.
"Near the entrance to the town I saw two French officers
standing on the sidewalk, each carrying a riding crop and smoking
a cigarette. I dismounted from my car and asked them the nearest
way to the main bridge over the Loire. They looked amazed. Fin-
ally one of them said he was afraid he couldn't answer that question,
I then told them that they were my prisoners and that I didn't have
any time to talk. I asked one of them to get into the car and the
other to stand on the running board and show us the nearest route to
the bridge. To my surprise, they did this without any further
argument.
"Upon arriving at the bridge, we found it intact and
guarded by two French riflemen. I drove up to them in the car and
dismounted. The guards, like the officers, looked dumbfounded at
first. Then, after recognising my German uniform and seeing my
motorcyclemen approaching, they threw aside their rifles and raised
their hands, Thus the bridge came into our possession, and the two
officers and two soldiers were our prisoners.
NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS
Regraded Unclassified
108
NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS
"The major soon arrived and instructed me to put my guns
into position and to guard the bridge. At the same time I was to
watch him while he crossed the bridge in order to determine what
was beyond the crest of a hill on the other side.
"As soon as the major arrived at the top of the hill, he
began to wave his arms. I jumped into my car and drove up to him,
He pointed down the road, and immodiately I saw a long motorized
column approaching Nantes from the south. It was moving slowly,
and apparently it had no advance guard or protection of any kind.
"I knew we were outnumbered, and I wondered what the
major was going to do. My twenty men at the guns and at the
bridge were the only German troops immediately available. As
far as we knew, the only reinforcements for our reconnaissance
detachment were about 200 kilometers - 125 miles - away. The
major, after thinking over the situation, walked the short dis-
tance down the hill to the road and waited for the column to
arrive.
"I remained and observed. I could see that the French-
men were fully arned and equipped. The leading sidecar motorcycles
had machine guns mounted on them.
"The major stood in the middle of the road and halted
the leading vohicle. When he asked for the column commander, an
elderly French colonel wearing World War decorations immediately
dismounted and slowly approached the major dn foot. The major
told the colonel that he and his column were now prisoners, and
added, 'I am the commander of a bridge guard detachment of the
Second German Army. The Second Army has occupied Nantes, and
it is useless for you to resist.'
"The French colonel, after remaining silent for a
moment, shrugged his shoulders, said 'Very well,' drew his
saber, and handed it to the major. The major told him to keep
his saber, but to have his men dismount, pile their arms at the
side of the road, and line up in close order formation. The
order was complied with.
"We had learned in the meantime that this was a motor-
ized infantry regiment consisting of 2,700 men. We wondered how
they were to be handled and what was to be done with them.
"The major ordered me to take ten men from my detach-
ment and to conduct the prisoners to an empty barracks in town.
We were apprehensive every step of the way to the barracks-and
NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS
-3-
Regraded Unclassified
109
NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS
even after we arrived there-for fear the Frenchmen would learn
that there were no other Germans in town, but nothing happened.
"The remainder of our division did not arrive in Nantes
until two days later. !feanwhile, we had the problem of feeding
the orisoners and our own troops as well.
"The major was given the Knight's Cross of the Iron
Cross for this feat, and I received the Iron Cross, First Class,
for my part in the operation."
RESTRICTED
2.
comment BY OBSERVER
The German officer seemed reluctant to answer questions
concerning dates and additional details of this operation. Accord-
ing to their official communiques, the Germans arrived at Nantes
on June 20-three days after Marshal Petain's appeal to the French
Army to lay down its arms-and one day before initial armistice
negotiations. This fact possibly accounts for the apparent reck-
lessness of the German commander in giving a reconnaissance
detachment en objective 155 miles into enemy territory. It may
also account for the lack of resistance encountered by the de-
tachment and for the ease with which it captured French personnel
and materiel.
It seems rather inconsistent, however, for a French motor-
ized regiment to have been marching north towards the advancing
Germans at this time unless it had the mission of delaying or resis-
ting the advance. In any case, it is difficult to understand why
the French column did not take proper security measures. If it had
done so, the German reconnaissance detachment could have been anni-
hilated, or the French column could have at least avoided capture.
The German officer's narrative indicates that his division
commander had sufficient information to enable him to make an accurate
estimate of the situation. In answer to a question, the officer stated
that he believed his division commander was constantly informed by
radio reports as to the location of all patrols and reconnaissance
detachments sent out ahead of the division.
In this and other conversations, it has been repeatedly
emphasized that German reconnaissance groups operating at a con-
siderable distance ahead of the main body were often mistaken for
RESTRICTED
-4-
Regraded Unclassified
110
RESTRICTED
British troops by Allied civilians and even by Allied military
personnel. This fact indicates inadequate dissemination of in-
formation concerning the identity of both Allied and hostile
troops and materiel. German officers state that mistaken identity
frequently prevented the annihilation of such groups and enabled
them to carry out their missions successfully.
RESTRICTED
-5-
CONFIDENTIAL
111
Puraphrase of Code Radiogram
Reseived at the Mar Department
at 8:18, Junuary 20, 1941.
Leaden, filed Junuary 28, 1941.
1. On Menday, January 37, planes of the British Coastal
Command dropped land mines a a French constal city from - altitude
of 2,000 feet and dive bembed two Cerman vessels off the Denish coast.
On this day only - British benber we dispatched and, while German
aircraft was damaged by it, it did not susseed in locating its target.
During the proceding night an explesion was caused and fires were
started in the industrial area of number by a mall mumber of planes
of the Beaber Command.
2. While Lendon had - alert in the early marning hours of
January 28 no German air operations were reported during the proceding
night. During daylight hours of January 27 German planes were - re-
connaissance missions over the Firth of Forth and engaged in mall
seals attacks en Newsartle-upem-Tyne and the Themes Natuary. British
fighter planes were up but were unable to intercept the attashere
although antiaireraft unite shot down me Junkers boaber. Qa the
night of humany 20-26, to individuals of the military service were
billed by too land nines dropped by the Germans on a South Vales air
field. These nines had no affect on operations at the field.
CONFIDENTIAL
Regraded Unclassified
CONFIDENTIAL
112
3. m the Agendat and Barents areas of Britrea motor transport
emertrations and bridges were bended by Brittich aircraft based $
the Dulan. Assub, in southern Britrea, was attached by Britdsh basters
from Mm. m the Derma-Neckili area of Libya the Reyal Air Fores
occurated with ground forces and also attacked airfialds at Maram
and Bares. Axis air casualties in this theater were six destroyed
and - damaged. Italian forees a public reads were makine gemed
by British planse in Kenya.
do the damaged British aircraft currier ILLUSTRIOUS while being
esserted from Malta to Alemedria, was dive benked by 18 denta
planse and attached by 18 other benefors from high altitudes. Five
of the attacking planes were sho's dem and no damage was inflicted
either en the ILLUSTRIOUS or - my ship in her court.
s. A British vessel in the Theme Betuary was hit in - attack
- January 26 and had to be beached. A nershant reasel of Swedlish
registry was burned during the - raid. Mx destroyers have arrived
in Magland from naross the Atlantic. Fear are MW Canadian vessels
and the others are destroyers transferred from the United states. It
is indicated by recommaissance that & Curren heavy order of the
10,000-tem Admiral Mipper class is proparing to leave Brook.
SCANLOW
Distribution:
Secretary of Mar
State Department
Secretary of Treasury
Asst. secretary of for
Chief of Hult
Mar Plane Division
Office of Navel Intelligence
Air Garge
=
CONFIDENTIAL
Regraded Unclassified
113
RESTRICTED
0-2/2657-220
M.I.D., W.D.
No, 302
January 28, 1941.
12:00 M.
SITUATION REPORT
I. Western Theater of War.
1. Air Force Operations.
Bad weather prevented aerial operations in this thea-
ter during the night of January 27.
II. Greek Theater of War.
Local actions reported.
III. African and Mediterranean Theaters of War.
1. Ground:
Libya. Fighting is reported east and south of Derna.
Eritrea. The British report they are closing in on
the enemy holding positions about Agordat and Barentu.
Ethiopia and Italian Somaliland. Successful opera-
tions are reported by the British.
2, Air:
Naples. Italian communique admits bombing of Naples
and environs on the night of the 27th. Claims only slight damage.
Libya. Italian Air Force bombed and machine-gunned
British armored vehicles and infantry at Derna.
Note: This military situation report is issued by the Military In-
telligence Division, General Staff. In view of the occasional in-
clusion of political information and of opinion it is classified as
Restricted.
RESTRICTED
Regraded Unclassified
114
January 28, 1941
8:30 p.m.
RE DEBT LIMIT
Present:
Mr. Bell
Mr. Sullivan
Mr. Foley
Mr. Haas
Mr. Schwarz
Mr. Odegarde
Mr. Stewart
Mr. Kuhn
H.M.Jr:
What are you worrying about, Chick?
Schwarz:
I was just going to tell you the final editions
of the English papers look pretty good.
(Mr. Kuhn entered the conference.)
H.M.Jr:
They took me for a ride on your figures today,
Mr. Sullivan. If you had been there, you could
have defended them.
Sullivan:
I would have been delighted to have done it.
H.M.Jr:
We won't get started on that now.
Bell:
On the tax figures?
H.M.Jr:
Yes.
Kuhn:
Well, they simply were upset because there was
no state tax in there. That was it, wasn't it?
Regraded Unclassified
115
- 2 -
H.M.Jr:
Well, and the fact that they weren't fair, as
they put it, state income taxes and state excise
taxes.
Kuhn:
But there is also & local tax in England which
takes the form of a property tax, but it is very
heavy.
H.M.Jr:
Well, we have it in New York.
Schwarz:
When you brought out the local tax, they sub-
sided, the local tax in England.
H.M.Jr:
Anyway. we won't go into that. Go ahead, Dan.
It went all right on the whole.
Kuhn:
You bet.
Bell:
"When I appeared before you last spring at the
time the first revenue bill of 1940 was under
consideration, the National Defense program then
before Congress was less than $4,000,000,000.
I pointed out that on the basis of that program
the balance of the borrowing authority under
the general debt limitation of $45,000,000,000
would be dangerously depleted early in the
calendar year 1941. In view of this situation,
Congress provided in the first Revenue Act of
1940 for the issuance of not more than
$4,000,000,000 of short-term obligations to
raise funds to finance the National Defense
expenditures. The same Act provided additional
taxes, most of which were intended to be used
to retire within five years any such obligations
issued under this authority. As I reported to
you, the provisions of the bill then pending
before your Committee were sufficient to meet
the situation as it existed at that time. But
since that time the situation has undergone a
radical change.
Regraded Unclassified
116
- 3 -
"The balance of borrowing authority on January
1, 1941, was $887,000,000 under the general
limitation, and $2,764,000,000 under the
National Defense limitation. These combined
balances provide the Treasury with borrowing
authority sufficient only for the next three
months. I am therefore appearing before you
today in support of H. R. 2653, which raises
the debt limit of $65,000,000,000, provides
for the elimination of the partition in the
debt limit, provides greater flexibility in
our financing operations, and provides that
the income from all future issues of Govern-
ment securities, both direct and indirect, be
subject to all Federal texes.
"Our contemplated National Defense program,
according to the 1942 Budget, just submitted,
has now been increased until it aggregates
approximately $28,500,000,000 in appropria-
tions, contract authorizations, and recommen-
dations. The estimated expenditure programs
included in this Budget will result in com-
bined deficits for the fiscal years 1941 and
1942 of more than $15,000,000,000. I do not
believe that it would be advisable to under-
take to finance this enlarged program through
the issuance of short-term securities and their
retirement out of earmarked taxes within a
specified period as contemplated in the first
Revenue Act of 1940. Moreover, short-term
securities would for the most part be pur-
chased by banks resulting in EL further increase
of deposits. It is highly desirable to avoid
further increases of deposits as far as possi-
ble and to some extent this can be accomplished
by issuing obligations attractive to permanent
investors outside of the banking system. In
such times it is imperative that the Govern-
ment borrow as much as possible from real
savers rather than from banks. It seems clear,
Regraded Unclassified
117
- 4 -
therefore, that in order to make it possible
for the Treasury to pursue this objective,
the provisions of law authorizing the issuance
of $4,000,000,000 of short-term public debt
obligations and their retirement within five
years out of earmarked taxes should be repealed.
the deficit figures just given also clearly
indicate that the general debt limitation of
$45,000,000,000 must be increased. It would
appear advisable to increase this limit to an
amount sufficient to enable the Treasury to
meet all of its financing requirements for the
next two fiscal years ending June 30, 1942. I
believe that the amount fixed in the bill be-
fore you is ample for this purpose."
Foley:
Dan, does that follow "In such times it is
imperative that the Government borrow as much
as possible from real savers" and "It seems
clear, therefore, in order to make this pos-
sible--"?
Bell:
Where is that?
Foley:
That that ought to be repealed. I mean, that
seems to jump there, doesn't it?
Sullivan:
Well, the four billion, those short term notes,
were borrowed from banks.
Haas:
Those were all short term. That is the argu-
ment.
Bell:
The four billion will all go to the banks so
it ought to be repealed, and we ought to get
bond authority.
Sullivan:
A billion of that has already been issued.
Foley:
Yes, I can understand that, but I didn't think
Regraded Unclassified
118
- 5 -
the thin, followed very well. I thought it
it. sort of jumped in my mind when you went over
Bell:
No, I think that is all right. It is in order
for the Treasury to follow this objective - we
want that short-term financing repealed and
we want other financing provisions so that we
can appeal to the real savers. That is what
was intended.
Sulin:
You mean that if, after short-term public debt
obligations, you had something to show that those
are usually taken up by banks?
Foley:
Yes, that is right, to get back into what you
had before, you see.
Bell;
That is this sentence at the bottom of the
previous page. "Short-term securities would
for the most part be purchased by banks result-
ing in a further increase of deposits. It is
highly desirable to avoid further increases of
deposits as far as possible and to some extent
this can be accomplished by issuing obligations
attractive to permanent investors outside of
the banking system."
Foley:
I think that covers it there, if you say, "In
the issuance of four billion dollars of short-
term public debt obligations, which are normally
taken up by the banks.
Ochwars:
Maybe we had better repeat that?
Foley:
Yes.
Sell:
Let's see now, "public debt obligations and
their retirement.' You want to strike out "and
their retirement"?
Regraded Unclassified
119
- 6 -
That makes it a little long.
Foley:
All right, "which are normally taken up by the
banks should be repealed."
Bell:
And strike out about the retirement?
Foley:
Yes.
Bell:
O.K.
Sullivan:
Well, wait a minute. It is the earmarking of
taxes you also want to repeal, Ed.
Bell:
Yes, but here we are just--
Foley:
He is saying that because they are short-term.
They are taken by the banks and they wouldn't
reach these real savers that you want to reach.
H.K.Jr:
Could we come back to that? Because I don't
know how long I am going to last, so we won't
argue about words.
Foley:
O.K. I an sorry.
N.M.Jr:
No, put a question mark there and let's come
back to it, see.
Foley:
O.K.
Jr:
Because I am not - I am going to take what Ed
gives me tomorrow morning unless there is some
sentence I don't like as a whole.
Bell:
"The deficit figures just given also clearly
indicate that the general debt limitation of
$45,000,000,000 must be increased. It would
appear advisable to increase this limit to an
amount sufficient to enable the Treasury to
meet all of its financing requirements for the
Regraded Unclassified
120
- 7 -
next two fiscal years ending June 30, 1942.
I believe that the amount fixed in the bill
before you is ample for this purpose.
"The bill proposed to amend the Second Lib-
erty Bond Act, as amended, so as to limit the
face amount of that public debt obligations
issued under the authority of that Act to an
amount not to exceed in the aggregate
$65,000,000,000 outstanding at any one time."
Would it read smoother to you if we had that
"as amended" out? I don't think it is impor-
tant in the statement.
"This provision as written will repeal section
21(b) of that Act which authorizes the issuance
of $4,000,000,000 face amount of National
Defense notes. As previously explained, this
increased limitation will amply cover the
Treasury's present anticipated financing re-
quirements for the current and ensuing fiscal
years."
H.M.Jr:
Dan, I testified today that to the best of my
knowledge as I saw the situation today, even
though the Lease-Lend Bill passes, based on the
production capacity of this country that this
increase to 65 billion would amply take care of
anything that we could spend between now and
June 30, 1942.
Bell:
I think it will.
H.M.Jr:
Are you and I together?
Bell:
Yes.
H.M.Jr:
O.K.
Bell:
"The proposed bill terminates certain obsolete
Regraded Unclassified
121
- 8 -
authority to issue debt obligations which the
Treasury does not need and which, therefore,
might as well be repealed and eliminated from
the statute books. The debt limitation fixed
by this bill will then be all inclusive. It
also repeals certain provisions of the first
Revenue Act of 1940, which sets up a special
fund to consist of earmarked taxes for the
retirement of any obligations issued under the
National Defense debt limitation of $4,000,000,000.
As previously pointed out, this section consti-
tutes an undesirable restriction on public debt
financing at a time when the greatest freedom of
action is essential. I urge its elimination."
M.I.Jr:
Don't you repeat yourself there?
Bell:
A little bit. You see, the first part is
general, and here you are telling about the
bill.
E.W.Jr:
I see. Do you think that is necessary?
Bell:
Well, we thought that it didn't hurt anything.
H...Jr:
Drives it home?
Bell:
Yes.
"Tax-exemption.
"This brings me to another matter of vital
importance in connection with the financing of
the National Defense program, and that is the
tax exemption feature of the debt obligations
issued by the Federal Government and its
agencies. I said last year that if it were
within my power, I would issue National Defense
series obligations subject to all Federal taxes.
The discretionary authority of the Treasury to
issue securities subject to all Federal taxes
Regraded Unclassified
122
- 9 -
is confined to Treasury notes with 8. maturity
of from one to five years. As to all other
types of Government securities, the law itself
definitely fixes the exemptions from taxation
and there is no discretionary authority in any
executive officer of the Government to vary
these exemptions.
"Ordinarily, the Treasury would have raised in
December 1940 & substantial amount of additional
cash and it would have carried out its usual pro-
gram of refunding, three months in advance, the
obligations aggregating $1,220,000,000 that
mature on March 5, 1941. However, anticipating
that the Congress would consider the question
of tax exemptions in this session, it seemed to
me highly desirable that the Treasury make no
further offers of long-term tax-exempt securi-
ties until the Congress had had an opportunity
to consider the question again in the light of
the huge defense financing program before us.
I decided, therefore, to defer our refunding pro-
gram and to meet our immediate cash requirements
through the sale of short-term notes, the income
from which the Treasury made subject to all
Federal taxes, pending the decision of this
Congress on the question of eliminating tax-
exemptions from all future issues of Federal
securities. I conferred with both the leaders
of the Ways and Means Committee of the House and
the Finance Committee of the Senate.'
The question raised here is you had one member
of the Ways and Means and you telephoned Doughton,
I believe, and Rayburn was the Speaker.
H.M.Jr:
Just skip it.
Foley:
Why don't you say, "I conferred with members of
the Senate Finance Committee and the House Ways
and Means Committee, and you get the plural
Regraded Unclassified
123
- 10 -
up ahead of the Senate Committee, which is
true, and then it follows afterwards about
the House Committee, and it isn't so obvious.
Bell:
I was wondering if it would be, "I conferred
with some members of the House and Senate"?
What do you think?
Schwarz:
Members of Congress.
Foley:
You can say, "I conferred with members of the
Finance Committee and the House Ways and Means
Committee who were in town at that time."
Bell:
You don't think you would insult them by put-
ting the Finance Committee first?
M.M.Jr:
Yes, you would. I think just "some members of
the House and Senate."
Bell:
Yes, or just "some members of Congress." No,
"some members of the House and Senate." That
is all right.
Foley:
Well, you could say, "members of the two com-
mittees who were in town."
H.M.Jr:
No.
Foley:
Congress was not in session.
K.E.Jr:
Ed, really--
Odegarde:
The use of the term is perfectly grammatical
as it is.
H.M.Jr:
I know, but Doughton was so sensitive about
not being in town.
Bell:
He will probably ask the Secretary, "Well,
just who did you confer with?"
Regraded Unclassified
124
- 11 -
Jr:
I think I should 11 say, "some members of the House
and Senate.
(cll:
"
and explained to then what I had in rind
and that in taking these steps it W&S my hope
that Congress would promptly enact legislation
which would provide that the income from all
future issues of securities of the Federal
Dovernment or any of its agencies be made sub-
ject to all Federal taxes. The program explained
to them met with their hearty approval. I am
sure this Committee appreciates the importance
of prompt action in this connection so that the
Treasury can take steps to refund the large
March 15 maturities in advance of that date.
"The proposed bill also provides that all obli-
gations issued after its effective date by the
Treasury or any agency or instrumentality of
the United States, shall, as to both principal
and interest or other rain, be subject to all
taxes now or hereafter imposed by the United
States. As you know, every administration for
the past twenty years has recommended the con-
plete elimination of tax-exempt securities. The
bill now before you proposes that the United
States Government actually take the first step
to eliminate this undesirable feature from our
financing by providing that all iuture Govern-
ment securities, whether issued by the Treasury
under the authority of the Second Liberty Bond
ict, or by any corporation, instrumentality, or
other agency of the United States under author-
ity of any other act of Congress, shall be sub-
joot to all Federal taxes.
"It is particularly appropriate that this step
should be initiated in connection with the
financing of the National Defense program. I
have just dwelt on the fact that all should be
called upon to share in this task. This nekes
Regraded Unclassified
125
- 12 -
it urgent, from an equitable point of view,
that no subscribers to any given class of
securities should receive preferential treat-
ment. This is impossible if some of the
securities are issued with tax-exemption privi-
leges which are worth nothing to the poorest
class of subscribers, and which are worth a
brackets." great deal to those in the very high income
Il.M.Jr:
That is now?
Bell:
Yes, that is George Haas'.
"Such preferential treatment to this latter
class is compatible with the democratic financ-
ing of the defense program and should be removed."
H.M.Jr:
That is very good. What with George saving Leon
Henderson's life and doing this, he is getting
to be quite a fellow, isn't he. (Laughter)
Did Ham get in touch with you?
Haas:
Yes. Did you get the note?
II.K.Jr:
No, I didn't read anything when I came back.
Should I read it?
Haas:
Well, he thinks it is very urgent.
H.M.Jr:
Do you?
Haas:
I don't know, they seemed to be in trouble.
Henderson is out of town.
H.M.Jr:
Sure, Henderson left town and told me to hold
the fort. Are they encroaching?
Haas:
No, he wants to call on you for assistance. He
needs it awfully bad.
Regraded Unclassified
126
- 13 -
H.M.Jr:
So do I.
Haas:
I mean, that is the whole problem.
H.M.Jr:
Well, if we get through, maybe he can. Got to
do it before 11 tomorrow. How the hell am I
going to do it between now and 11 tomorrow?
Haas:
I think all he wants to know is if you would
help do it.
H.M.Jr:
How would I help him?
Haas:
I suppose in getting the Administration to set
up a system of rationing that they want to do.
He thinks it is the only effective way of handling
some of these price situations.
H.M.Jr:
Not between now and 11.
Bell:
"Economy in Non-defense Expenditures.
"At this time our whole economy and effort should
be concentrated on national defense. One step
which the Government should take is economy in
Federal expenditures. I believe, therefore,
that all magnifying glass--"
H.M.Jr:
I like that.
Bell:
"....to make certain that no more is granted
than is absolutely essential in the existing
circumstances."
H.M.Jr:
No more what is granted?
Bell:
More funds.
H.M.Jr:
Better put it in.
Bell:
"I also believe that the State and local govern-
Regraded Unclassified
127
- 14 -
ments should be asked to contribute to national
defense by eliminating from their budgets all
non-essential items, particularly new construc-
tion during this period of emergency."
Some of them thought we might be stepping into
something there.
H.M.Jr:
I think it is all right.
Schwarz:
It will get a headline.
H.M.Jr:
That is what we are after.
Foley:
Do you want to say that, "No more public con-
struction"?
Sullivan:
I raise that question, too.
H.S.Jr:
Sure. A headline a day keeps the doctor away.
Bell:
That very definitely ought to be curtailed if
we are running short of plant capacity in other
directions.
Sullivan:
We haven't used up the unemployed yet, have we?
Bell:
Well, they have got 17 million dollars in the
budget next year. We ought to pretty near use
them up.
Foley:
I don't know whether that is the right thing to
say.
Bell:
Is the President going to see this?
H.M.Jr:
No.
Foley:
It is all right to curtail our own non-defense
expentitures, but to recommend that the state
and local governments do the same thing is
Regraded Unclassified
128
- 15 -
getting a little out of our field, isn't it?
H.M.Jr:
Don't we always?
Foley:
We get criticized for it, too. That is why
we are always in trouble. (Laughter)
H.M.Jr:
Don't you like it?
Foley:
Sure, it is all right.
H.M.Jr:
Old Ed is getting a little sensitive. I kept
saying all the time, "That man Foley is shaking
his head again."
Schwarz:
Everybody at the press table was asking which
one is Foley.
Foley:
That guy shaking his head. That fellow with the
shakes up there. (Laughter)
Bell:
Well, I kind of like that.
Haas:
There is a technical question involved in it,
that the Secretary is talking to this Committee
and they have nothing to do with that.
Bell:
Well, you could say, "It would be a good thing
if the state and local governments would con-
tribute to national defense by limiting, and
so forth."
Schwarz:
I also believe--
Bell:
How about saying, "It would be a good thing if
the state and local governments would contribute
to national defense by eliminating from their
budgets all non-essential items"? I don't get
much enthusiasm, do I?
Kuhn:
I am with you, Dan.
Regraded Unclassified
129
- 16 -
Schwarz:
It would also help?
H.M.Jr:
I will tell you, Dan, there is just this thing.
I think this thing of the state and local
government expenditures or contributions toward
national defense is a subject almost in itself.
We kind of throw it in here as a - I think we -
if and when they admit there is 8. shortage of
steel and that kind of stuff, I think somebody
is going to have to say something about it,
but I just wondered if one sentence, without
going into 8. lot of explanation, would do.
Paying my respects to state and local govern-
ments and their expenditures.
Foley:
I am' just thinking of eliminating the exemp-
tions on the state issues. They say first
we can't issue any more obligations that are
exempt from taxes, and now they tell us that
we can't have any more public works while this
program is going on.
Bell:
What they ought to do is cut down their expenses
and out down taxes during this period.
Foley:
I know, but we are & little paternal, aren't we,
in telling them that?
Bell:
That is what we ought to be. That is what we
are here for. Don't you think those tunnels
up in New York ought to be cut out.
Foley:
It is certainly right to do it if we don't
have funds.
H.M.Jr:
It is all right to do it in a non-election year,
though. (Laughter) I would take it out. There
is one thing here. Make certain that no more
is granted--
Bell:
No more funds are granted.
Regraded Unclassified
130
- 17 -
H.K.Jr:
Oh, you put that in. O.K.
Bell:
"Savings bonds and savings certificates."
H.M.Jr:
Is this new?
Bell:
No, this is new still. This is some of Pro-
fessor Odegarde's stuff.
H.H.Jr:
I haven't seen this.
Bell:
You have seen some of it.
"In view of the enlarged program facing the
Treasury, it is desirable to have greater
flexibility in the types of securities which
may be offered to meet the requirements of
various classes of investors. Therefore, this
bill further amends the Second Liberty Bond Act
so as to broaden the authority under which
United States Savings bonds are issued and to
provide for a new class of security to be called
Treasury savings certificates.' The statutory
limit on the term for which Savings Bonds may
be issued would continue to be twenty years,
as at the present, while a limitation of ten
years would be placed on the Treasury savings
certificates."
E.Z.Jr:
Excuse me, does everybody agree that is what
we are going to call them, "Treasury savings
certificate"?
Bell:
In the bill they are called "Treasury savings
certificate."
Foley:
I think 80. I have got the bill here.
E.K.Jr:
It is all right with ne. I just wondered.
Regraded Unclassified
131
- 18 -
Kuhn:
You can call them anything later, can't you?
Give them a nickname?
Foley:
"Savings certificates."
Stewart:
Not "Treasury savings certificates", just
"Savings certificates"?
Bell:
Well, we would put that on. Other bonds in the
Liberty Bond Act, we called them Treasury bonds.
Foley:
Use "Savings bonds" and use "Treasury savings
certificates.'
H.M.Jr:
O.K.
Bell:
"It would also provide that both classes of
securities may be issued on an interest-bearing
basis, on a discount basis, or on a combination
interest-bearing and discount basis, and that
the Treasury may fix by regulation the amount
of Savings Bonds and savings certificates which
may be held by any one person at any one time.
"In addition, the Treasury would be authorized
to issue stamps or provide other means to evi-
dence payments for Savings Bonds and savings
certificates, and to provide for the exchange
of savings certificates for Savings Bonds.
H.M.Jr:
Did Marriner and Sophia approve this?
Bell:
Marriner did. Marriner wrote a long letter
that under the broad authority of the act he
was sorry he didn't get a chance to see the
bill before it was introduced, and the only
thing he hoped was that sentence - do you
remember in the first draft? I expected you
would miss it. When it said the market was
so variable in December that it afforded the
Treasury an excellent opportunity, and so
Regraded Unclassified
132
- 19 -
forth, and I said, "Don't worry we had taken
it out before you got to it.
H.W.Jr:
And he didn't see the bill before it was intro-
duced?
Bell:
He is sorry that he didn't see the bill because
he thinks it is important that you have broad
enough authority to make special deals with
insurance companies and other people of that
type, and I told him I thought we already had
that authority, but I wasn't certain that you
would use it.
H.M.Jr:
I would be pretty hard pressed before I would
use it.
Bell:
I told him we already had that authority. His
counsel didn't think we had.
H.M.Jr:
How about my counsel?
Bell:
He thinks we have got authority. I am speak-
ing for him. I haven't asked him.
Foley:
He is telling me, he is not asking me. Well,
he told Bennett Clark that he agreed with me
when Bennett said he would rather have his
opinion than mine, so it is O.K., I will take
it.
Bell:
We work together. (Laughter)
"This would permit the Treasury to carry on
& program somewhat similar to the war savings
and Treasury savings certificates program dur-
ing the World War, programs which provided
means for popular participation in the financ-
ing of the War through saving small amounts,
and at the same time were effective in raising
Regraded Unclassified
133
- 20 -
substantial amounts of funds directly from
the investing public."
H.M.Jr:
Through savings small bonds? Go ahead. If
that is satisfactory to everybody else, it is
all right.
Bell:
Through small amounts saved.
Sullivan:
Through small savings.
Bell:
That probably would be better, wouldn't it?
Schwarz:
Do you have to bring in the War there?
Bell:
"And at the same time were effective in rais-
ing substantial amounts of funds directly from
the investing public." You mean leave out all
that?
Schwarz:
By using 1917 or something like that. I am think-
ing of somebody hopping on the war analogy.
Bell:
Do you want to leave out World War?
H.M.Jr:
Doesn't bother me. Does it bother you, Odegarde?
Odegarde:
No.
Bell:
"In this connection, the Treasury wishes to be
able to offer Government securities of a charac-
ter which should facilitate and encourage
thrift and savings. We hope that a substantial
part of the defense program for which we have
to borrow funds can be financed out of the real
savings of the people.
"One of the most important services the American
people can render at this time is to cooperate
in supplying the means for national defense.
We ought to make it possible for workers and
Regraded Unclassified
134
- 21 -
farmers no less than bankers and business men
to contribute to the financial needs of the
Government, not only through their taxes but
through their savings as well."
This is new.
H.M.Jr:
Just one second, please. O.K.
Bell:
"I am therefore asking for authority to issue
securities on such terms and in such denomina-
tions as will enlist supprt from the largest
possible number of subscribers. There is no
reason why a substantial part of the savings
made possible by the current increase in
employment should not be conserved by invest-
ment in United States Government securities.
The small investor who puts his savings in
Government securities will in this way contribute
not only to national defense but also to his own
individual security."
H.M.Jr:
Just to digress a minute, this Mrs. Maloney was
down from the New York Tribune. She, all Sunday
evening, was trying to fill me up. She has some
plan where, over the normal wage, the factory
should pay a difference, as she put it, between,
say, eight dollars a day that B. man might get
and the $25 a day, the difference be paid in
Government bonds which would not be cashable
until the emergency was over.
Haas:
That is similar to Douglas Brown's.
Bell:
Douglas Brown has got some plan along that line.
At least he wants to talk a lot about it and
work it in some way.
H.M.Jr:
Who is he?
Regraded Unclassified
135
- 22 -
Schwarz:
Princeton.
H.M.Jr:
Oh, yes.
Bell:
Thinking of some form of dismissal wage in the
end. It is very good.
Haas:
I think there is something in it. It makes an
easy way to--
H.M.Jr:
Hasn't Douglas got another initial?
Kuhn:
J. Douglas Brown.
Bell:
"There exists in the country today an over-
whelming desire on the part of nearly every
man, woman, and child to make some direct and
tangible contribution to the national defense.
Somehow we ought to give them a sense of
personal participation beyond that which comes
from doing their daily job faithfully and well."
H.K.Jr:
Why say, "Somehow"? Why not leave that out?
Bell:
That is all right.
H.M.Jr:
How about that?
Bell:
"We ought to give them a sense of--"
H.M.Jr:
Odegarde? I take it, it is yours.
Odegarde:
I am not particularly--
H.M.Jr:
Do you think it is an improvement?
Odegarde:
I thought of it in terms of means, that is some-
how, by some means, we ought to. It doesn't add
anything to it to say, "Somehow."
Bell:
I think "We ought to--"
Regraded Unclassified
136
- 23 -
M.I.Jr:
I think "We ought to" is just a little more
positive.
Bullivant
Yes.
0.2.Jr:
"We ought to."
Bollivan:
Right, and "This is how We are doing it", not
"Somehow We are doing it", "This is how we are
going to do it."
1.2.Jr:
Is it agreenble to you to leave out "Somehow."
Bell:
All right, oross it out. "We ought to give
them.
"Every day letters come to ше, as I am sure
they do to others, from people who, regardless
of partisan affiliation or economic position,
ask, What can I do to help?' Our plan to
offer securities in varying denominations at
& fair rate of interest in an attempt to answer
this question. I can think of no other single
way in which so many people can become partners
of their Government in facing this emergency."
I am not sure, Walter, that this next change
ought to go in. We had it, "It is the purpose
of the Treasury to raise money for national
defense by methods which strengthen the na-
tional morale", and Walter put in, "Under the
provisions of the present bill, the Treasury
could raise money for national defense by
methods which strengthen the national morale."
I am not sure we couldn't do it without the
bill.
I like this sentence, "It is the purpose of the
Treasury to raise money for national defense
by methods which strengthen the national morale.'
Regraded Unclassified
137
- 24 -
I don't get the significance of the rest of it.
Foley:
Well, I think that is implied anyway, because
we are appearing in support of the bill.
H.M.Jr:
If we don't need it, I want to go over this
last part because this is all new to me, but
I like that last sentence. I want to go over
it. the last part once more. Just finish reading
Bell:
It didn't seem to me, Walter, it tied in with
the bill.
"I am sure the members of this Committee ap-
preciate that it will soon be necessary for
the Treasury to raise additional funds for its
own account and also for the Reconstruction
Finance Corporation to meet expenditures
under the enlarged National Defense program now
under way and that prompt passage of this measure
will greatly facilitate the handling of our prob-
lems.
H.M.Jr:
Well, I don't know but what Chick is right.
When I read this thing here, "This would permit
the Treasury to carry on a program somewhat
similar to the war savings and Treasury savings
certificates program during the World War,
programs which provided means for popular par-
ticipation in the financing of the War." If Now,
there is three wars.
Schwarz:
It was just a reaction.
H.M.Jr:
And all day today I tried to keep mentioning
that I didn't want this country to go to war.
Kuhn:
You wanted '18 and '19 in there instead of
World War?
Regraded Unclassified
138
- 25 -
Schwarz:
Yes.
Sullivan:
You can take out the last one easily enough.
"Which provided for popular financing through
small savings."
Haas:
You could cut the whole business out.
Odegarde:
You could cut out that intervening sentence,
"would permit the Treasury to carry on a pro-
gram which " provides means for popular partici-
pation.
H.M.Jr:
What is that?
Odegarde:
Drop out three of the wars by going from the
top line, "which would permit the Treasury to
carry on a program, Il and then drop down--
Bell:
"Which would provide--"
Odegarde:
"....means for popular participation--"
Bell:
"....means for popular participation--"
Odegarde:
If ...through small savings."
Bell:
"....through small savings."
H.M.Jr:
I think that will be good.
Bell:
"And which will at the same time be effective,"
or do you want to leave that out?
Odegarde:
"And at the same time would be effective--"
Bell:
"
in raising substantial amounts of funds
directly from the investing public."
H.M.Jr:
Read it once more, Dan.
Regraded Unclassified
139
- 26 -
Hell:
This would permit the Treasury to carry on 8
program which would provide means for popular
participation through small savings and at
the same time would be effective In raising
substantial amounts of funds directly from
the investing public."
I like it. That is a big improvement on it.
What do you think, John?
Bullivan:
Yes, I am in favor of that change.
L.S.Jr:
All right. That is all right now. Now, that
sentence, "Not only through their taxes."
That doesn't just - it is the taxes that they
pay, isn't it? Is that clear, "Not only
through their taxes"?
Kuhn:
Tax payments, you mean?
2.2.30:
Something, yes.
Soley:
Tax contributions?
Something. I just don't think it is all right
the way It is.
Bell:
"Make it possible for them to contribute not
only through their taxes but their savings 88
well."
Do you think it is all right?
Sullivan:
I think tax payments would be an improvement
It would help ne a little bit in reading it.
Sullivan:
Yes, I think it would, sir.
Sell:
Would it improve it if you said, "Not only in
paying taxes but by investing their savings
Regraded Unclassified
140
- 27 -
as well"?
Sullivan:
Not quite as smooth, I don't think, Dan.
Bell:
O.K., tax payments, is it?
Sullivan:
I think so.
H.M.Jr:
"Possible number of subscribers" or "possible
number of people"?
Odegarde:
"Subscribers", anyway, isn't it?
Bell:
They are subscribers.
H.M.Jr:
Is that what they are?
Bell:
It wouldn't read smoother if you took out pos-
sible, would it?
H.M.Jr:
I don't care. Are they subscribers? I suppose
SO. It is all right. Well, you have got two
"possibles" there. "Largest possible number" and
then "they made possible." Let's cut out one
of those possibles."
Kuhn:
"The largest number."
H.M.Jr:
Let's cut out the word "possible."
Bell:
Yes.
H.M.Jr:
Instead of saying, "There is no reason why,"
why not put it in the positive side, "There is
every reason why"?
Odegarde:
Yes, I think that is an improvement.
H.M.Jr:
How about that, "There is every reason why"?
What? What do you think, gents?
Regraded Unclassified
141
- 28 -
Foley:
O.K.
H.M.Jr:
What? "There is every reason why & substan-
tial part of - substantial part of the sav-
ings made possible" and 80 forth. Do you think
that is all right?
Kuhn:
"Should be considered."
H.M.Jr:
"There is every reason why."
Kuhn:
Much, much better.
H.M.Jr:
"The small investor puts his savings in Govern-
ment securities" and so forth. Now, if you
want to say this, "Every day letters come to
me, as I am sure they do to others" - I would
like to leave out, "regardless of partisan affili-
ation." I don't like that. I would like to
leave out "regardless of partisan affiliation
or economic position." How about that, Amherst?
I am looking at two fellows.
Odegarde:
It is all right. Some one might ask you, though,
if all these letters are from Democrats and
people on WPA.
H.M.Jr:
Well, they might say - but I don't think they
would think in terms of Democrats or Republicans,
and I don't like to put it in their minds.
Sullivan:
I think you are right, sir.
H.M.Jr:
You know who the minority leader is of this
committee? Your Congressman from up there.
Treadway.
Odegarde:
Oh.
H.M.Jr:
And he never thinks of partisanship. I think if
we just leave that out. "Every day letters come
Regraded Unclassified
142
- 29 -
to me, as I am sure they do to others, from
people who ask, "What can I do to help?"
I gents? think that is better. What do you think,
Bell:
I wonder if we need to put in that "as I am
sure they do to others.
H.M.Jr:
I don't think you need that, either. "Every
day letters come to me from people.' Let's
leave out "as I am sure they do to others.'
Do I get those letters?
Bell:
Yes, you get a lot of them.
Haas:
I was just going to ask.
Kuhn:
A 12 year old boy wrote to you about it.
H.M.Jr:
You (Schwarz) have got two and you (Kuhn) have
got one, O.K.
Bell:
We really get a lot of letters from people who
helped in the last campaign and want to help
this time.
Foley:
Helped in what campaign? There is only one I
can remember.
Bell:
The old politician.
Sullivan:
And they wouldn't be writing to Dan now, would
they? (Laughter)
Odegarde:
Ed, you are thinking of a campaign on the
capital seas.
Sullivan:
I would suggest changing the next sentence.
"Our plan to offer securities suitable to
requirements of various classes of investors."
Regraded Unclassified
143
- 30 -
I think "within the means of all classes of
investors" more clearly conveys what you
intend to say.
H.M.Jr:
I think that is a good one.
Sullivan:
"Within the means of all classes of investors."
H.M.Jr:
That is good.
Haas:
That isn't quite, because you can get any
denomination of almost any type of securities.
this other thing is - they have different
investment requirements.
Sullivan:
Well, you don't talk about an investment suit-
able to the requirements of somebody who can
only save about $10 a week.
Odegarde:
You mean just saying, "In various denominations"?
Haas:
Well, it is more than that.
Sullivan:
I know.
Bell:
We struck out that, Professor Odegarde, "vari-
ous denominations at a fair rate of interest."
We were afraid that would haunt us a little.
H.M.Jr:
Well, I don't care, you can fix it up.
Bell:
"Offer securities within the means of all classes
of investors."
Haas:
That is too simple a statement. One could buy
a 25 dollar bond and one a so and so, and you
are issuing up these different types of savings
bonds, for example. Somehave a discount basis
and some with coupon. That is to meet an in-
vestment requirement.
Regraded Unclassified
144
- 31 -
Sullivan:
That is right.
Bell:
This other is more nearly correct, "suitable
to the requirements.
Kuhn:
"More attractive to all classes of investors." If
Sullivan:
Ferd. Yes, that carries both of them. That is good,
H.M.Jr:
What is it now?
Kuhn:
"Securities attractive to all classes of in-
vestors."
Bell:
Very good.
H.M.Jr:
Now this next sentence, I think, is a little
clumsy. "I can think of no other single way
in which so many people can become partners
of their Government in facing this emergency."
I wish somebody would improve that.
Kuhn:
I like that sentence very much.
H.M.Jr:
You do?
Kuhn:
Yes, sir.
H.M.Jr:
Is that so?
Kuhn:
Yes.
H.M.Jr:
Want to make something of it. (Laughter)
Kuhn:
I think it sounds swell toward the end of your
statement.
Bell:
We have got & lot of partners paying taxes.
Kuhn:
It sounds like Winston Churchill when he says,
"So many owed, so much to so few.' Do you
Regraded Unclassified
145
- 32 -
remember?
Foley:
About the air corps?
millivan:
The RAF. It had a good ring to it.
.....Jr:
I see. "I can think of no other single way in
which so many people can become partners of
their Government. 71 All right, you have downed
me. I am not fair meat tonight.
National unity rather than national morale,
isn't it? I don't know, it doesn't make any
difference.
Hell:
We had to have some morale in this statement
today.
Jr:
I would like this last sentence to be a separate
paragraph. I would like it to stick out, unless
it is bad construction.
Serarde:
It is never bad construction.
...Jr:
I like it to stick out, "I think it is the pur-
pose of the Treasury - 11 that is kind of & plat-
form. I like that. Now, did I EO over this
last thing?
all:
This was in before.
Well, hell, Bell - hell's bells. We have told
them 28 billion dollars at the beginning, and
then We end on this. I don't think this is -
I would like to end right here.
Soll:
That is what we called a snapper.
.....Jr:
What?
Bell:
That last,
Regraded Unclassified
146
- 33 -
K.K.Jr:
That isn't a snapper, I take it. No. I like
that paragraph, that last sentence. I would
end right there.
Schwarz:
I like it, too.
E.V.Jr:
How about it, gentlemen, "It is the purpose of
the Treasury to raise money" and so forth?
Kuhn:
You can say what is in the last paragraph,
"Appealing for speed during the questioning."
H.M.Jr:
Well, another thing about that, they might say,
"Well, now, let's see. This is the 27th of
January. Why the hell weren't you and Sulli-
van up her long ago?" (Laughter)
Sullivan:
It will be all right if they include you.
H.M.Jr:
They are going to say, "Sully, why weren't you
up here & long time ago?"
Bell:
We have got something, you know. We say, "I
am sure this Committee appreciates the impor-
tance of prompt action in this connection so
the Treasury can take steps to refund the
large - II
H.M.Jr:
I know you do.
Bell:
You remember the other night you said, "We
ought to put something in about RFC." Of
course that is no more important than Treasury
borrowing. The most important thing you have
got is the refunding of it March 15.
H.M.Jr:
Personally, I don't like to end on that last
note. I like to end on this other note.
Bell:
It is out.
Regraded Unclassified
147
- 34 -
H.M.Jr:
O.K. Now, do you want to go back to Foley
at the beginning where he was upset?
Foley:
I am not upset.
H.M.Jr:
Well, you argue with him (Bell). I am going
to take Stewart in the other room. Do you
(Stewart) want to come in here for & minute?
Stewart:
Yes.
(The Secretary and Mr. Stewart left the con-
ference.)
Kuhn:
There is nothing in here about the kind of
campaign that this will bring, that is, no
coercion, no intimidation, no high pressure
stuff. All that can wait until some later
statement, can't it?
Bell:
It was in there.
Kuhn:
But we don't really need to tell Congress now
what kind of promotion campaign we are going to
run.
Schwarz:
That is up to the Treasury. That is a technical
financial--
Odegarde:
It might put ideas in their head.
Haas:
You cover that at the end, about the morale.
Kuhn:
The only thing that covers it is where you say
"democratic financing."
Haas:
That is right.
Kuhn:
That is the only descriptive note about the
whole thing.
Regraded Unclassified
148
- 35 -
Sullivan:
What you are thinking of, Ferde, is the whole
speech in and of itself, isn't it?
Kuhn:
That is right. I think it is good to keep it
wondered. separate. I knew it was in originally, and I
Sullivan:
It is germane, but it isn't significant in this
particular discussion.
Kuhn:
I think I agree with you.
Schwarz:
You are asking them for legislation and not for
guidance as to procedure.
Kuhn:
Don't give away your--
Odegarde:
Of course, the question may come up, and you
can meet it if it comes up.
Kuhn:
What if they ask questions about it?
Sullivan:
Oh, we will--
Odegarde:
Someone asks, "Are you going to repeat the
War savings stamps?"
Schwarz:
We have no such intent.
Kuhn:
Or the Liberty Loan?
Odegarde:
We have studied those and profited by their
experience.
Kuhn:
Yes, I think that is good.
Foley:
Dan, I really believe that whole sentence can
come out.
Sullivan:
Which one is that?
Regraded Unclassified
149
- 36 -
Foley:
At the bottom of page three.
dell:
"It seems clear, therefore, that in order to
make it possible for the Treasury to pursue
this objective, the provisions of law author-
ized in the issuance of four billion dollars
of short-term public debt obligations which
would normally be taken by the banks should
be repealed.'
Toley:
And you talk about increasing the debt limit.
Leas:
Well, that is--
Poley:
Well, I know, but look, George, you go right
over on the next page.
Haas:
And say that again?
Foley:
Sure
"The bill proposes to amend the Second Liberty
Bond Act, as amended, so as to limit the face
amount of public debt obligations issued under
the authority of that Act to an amount not to
exceed in the aggregate $65,000,000,000 out-
standing at any one time. This provision as
written will repeal section 21(b) of that Act
which authorizes the issuance of $4,000,000,000
face amount of National Defense notes."
How many times are you going to repeal it?
Laas:
That is another one.
Bell:
What we had was his oral statement and then
a discussion of the provisions.
Haas:
Then they were combined together.
Foley:
Then you get down there again. "It also repeals
Regraded Unclassified
150
- 37 -
certain provisions of the first Revenue
Act of '40, which sets up & special fund
to consist of earmarked taxes for the re-
tirement of any obligations issued under
the National Defense debt limitation of
$4,000,000,000."
Sullivan:
That ought to keep it repealed.
Foley:
That ought to take care of it, three times
in two pages.
Sullivan:
I didn't sense that it was a triple repeti-
tion.
Odegarde:
I knew it had been repeated, but I thought
maybe you wanted it.
Foley:
It is, isn't it?
Sullivan:
Yes, of course it is.
Bell:
Well, you see what we had at the beginning was
a general statement of what was before the
Treasury, and then we went into discussing the
provisions of the bill, and today when we shifted
it all around we got the provisions of the bill
in with the general discussion.
Haas:
Merged it in some places, and there is still some
duplications. This is one spot, I think.
Bell:
Then I think maybe the whole thing should come
out down to and including the 45 billion.
Foley:
Yes.
Bell:
You could say, "It would appear advisable to
increase the general debt limitation to an
amount sufficient to enable the Treasury to
meet all its financing."
Regraded Unclassified
151
- 38 -
Haas:
Well, maybe you could leave it there, Ed, and
cut it out over in one of these other places,
because right there it follows that argument.
It makes the purpose of that argument--
Foley:
I know, but you are talking about the proposed
bill here in the next two pages.
Bell:
Yes, the first is more general.
Schwarz:
Just before that you say, "It is highly desir-
able, If and then you say, "It is imperative."
Haas:
Oh, you have got it another time, four times.
Schwarz:
Do you think we will get it repealed?
llaas:
If we don't, it won't be because he didn't
mention it. Do you see there, Dan? "Issued
short term things as specified in the contem-
plated - first Revenue Act of '40."
Bell:
He can say, "I do not believe it would be ad-
visable to undertake it."
Haas:
Dan, I think you can cut that whole business
off, right to the bottom of the page.
Kuhn:
Well, the one sentence--
Bell:
I think right there, "In such times," that can
come out, and I think "The deficit figures
indicate that the general limitation of 45
billion must be increased," that could come
out.
Haas:
Are you going to cut out that sentence begin-
ning with "In such times"?
Bell:
Yes.
152
- 39 -
conference.) (The Secretary and Mr. Stewart reentered the
H.M.Jr:
clear. I thought If you were going to cut out "It seems
Bell:
Oh, yes, you are right.
Kuhn:
This is a statement of general principle saying
that in times like this it is not only desirable,
but it is highly imperative.
H.M.Jr:
Well, I am counting on somebody for a reading
copy tomorrow.
Schwarz:
We will get it.
H.M.Jr:
There is a car outside, I think a Buick, trans-
portation.
153
DRAFT
When I appeared before you last spring at the time the first
revenue bill of 1940 was under consideration, the National Defense
program then before Congress was less than $4,000,000,000. I
pointed out that on the basis of that program the balance of
the borrowing authority under the general debt limitation of
$45,000,000,000 would be dangerously depleted early in the
calendar year 1941. In view of this situation, Congress pro-
vided in the first Revenue Act of 1940 for the issuance of not
more than $4,000,000,000 of short-term obligations to raise
funds to finance the National Defense expenditures. The same
Act provided additional taxes, most of which were intended to
be used to retire within five years any such obligations issued
under this authority. As I reported to you, the provisions of
the bill then pending before your Committee were sufficient to
meet the situation as it existed at that time. But since that
time the situation has undergone a radical change.
Debt Limitation
The balance of borrowing authority on January 1, 1941, was
$887,000,000 under the general limitation, and $2,764,000,000
under the National Defense limitation. These combined balances
provide the Treasury with borrowing authority sufficient only
for the next three months. I am therefore appearing before
you today in support of H. R. 2653, which raises the debt limit
of $65,000,000,000, provides for the elimination of the partition
in the debt limit, provides greater flexibility in our financing
operations, and provides that the income from all future issues
of Government securities, both direct and indirect, be subject
to all Federal taxes.
Our contemplated National Defense program, according to the
1942 Budget, just submitted, has now been increased until it
aggregates approximately $28,500,000,000 in appropriations, contract
authorizations, and recommendations, The estimated expenditure
programs included in this Budget will result in combined deficits
for the fiscal years 1941 and 1942 of more than $15,000,000,000.
I do not believe that it would be advisable to undertake to
finance this enlarged program through the issuance of short-
term securities and their retirement out of earmarked taxes
Regraded Unclassified
154
- 2 -
within & specified period as contemplated in the first Revenue
Act of 1940. Moreover, short-term securities would for the
most part be purchased by banks resulting in a further increase
of deposits. It is highly desirable to avoid further increases
of deposits as far as possible and to some extent this can be
accomplished by issuing obligations attractive to permanent
investors outside of the banking system. In such times it is
imperative that the Government borrow 8.8 much as possible from
real savers rather than from banks. It seems clear, therefore,
that in order to make it possible for the Treasury to pursue
this objective, the provisions of law authorizing the issuance
of $4,000,000,000 of short-term public debt obligations and
their retirement within five years out of earmarked taxes should
be repealed. The deficit figures just given also clearly
indicate that the general debt limitation of $45,000,000,000
must be increased. It would appear advisable to increase this
limit to an amount sufficient to enable the Treasury to meet
all of its financing requirements for the next two fiscal years
ending June 30, 1942. I believe that the amount fixed in the
bill before you is ample for this purpose.
The bill proposes to amend the Second Liberty Bond Act,
as amended, so as to limit the face amount of public debt
obligations issued under the authority of that Act to an
amount not to exceed in the aggregate $65,000,000,000 outstanding
at any one time. This provision 88 written will repeal
section 21(b) of that Act which authorizes the issuance of
$4,000,000,000 face amount of National Defense notes. As
previously explained, this increased limitation will amply
cover the Treasury's present anticipated financing requirements
for the current and ensuing fiscal years.
The proposed bill terminates certain obsolete authority
to issue debt obligations which the Treasury does not need and
which, therefore, might as well be repealed and eliminated from
the statute books. The debt limitation fixed by this bill will
then be all inclusive. It also repeals certain provisions of
the first hevenue Act of 1940, which sets up & special fund to
consist of earmarked taxes for the retirement of any obligations
issued under the National Defense debt limitation of $4,000,000,000
As previously pointed out, this section constitutes an undesirable
restriction on public debt financing at 8. time when the greatest
freedom of action is essential. I urge its elimination.
Regraded Unclassified
155
- 3 -
Tax-exemption
This brings me to another matter of vital importance in
connection with the financing of the National Defense program,
and that is the tax exemption feature of the debt obligations
issued by the Federal Government and its agencies. I said
last year that if it were within my power, I would issue
National Defense series obligations subject to all Federal
taxes. The discretionary authority of the Treasury to issue
securities subject to all Federal taxes is confined to Treasury
notes with B. maturity of from one to five years. As to all other
types of Government securities, the law itself definitely fixes
the exemptions from taxation and there is no discretionary
authority in any executive officer of the Government to vary
these exemptions.
Ordinarily, the Treasury would have raised in December 1940
8 substantial amount of additional cash and it would have carried
out its usual program of refunding, three months in advance, the
obligations aggregating $1,220,000,000 that mature on March 5,
1941. However, anticipating that the Congress would consider
the question of tax exemptions in this session, it seemed to me
highly desirable that the Treasury make no further offers of
long-term tax-exempt securities until the Congress had had an
opportunity to consider the question again in the light of the
huge defense financing program before us. I decided, therefore,
to defer our refunding program and to meet our immediate cash
requirements through the sale of short-term notes, the income
from which the Treasury made subject to all Federal taxes,
pending the decision of this Congress on the question of eliminating
tax-exemptions from all future issues of Federal securities. I
conferred with some members of both the Ways and Means Committee
of the House and the Finance Committee of the Senate and explained
to them what I had in mind and that in taking these steps it was
my hope that Congress would promptly enact legislation which
would provide that the income from all future issues of securities
of the Federal Government or any of its agencies be made subject
to all Federal taxes. The program explained to them met with
their hearty approval. I am sure this Committee appreciates the
importance of prompt action in this connection so that the
Regraded Unclassified
156
Treasury can take steps to refund the large March 15 maturities
In advance of that date.
The proposed bill also provides that all obligations issued
after its effective date by the Treasury or any agency or
instrumentality of the United States, shall, as to both principal
and interest or other gain, be subject to all taxes now or
hereafter imposed by the United States. As you know, every
administration for the past twenty years has recommended the
complete elimination of tax-exempt securities. The bill now
before you proposes that the United States Government actually
take the first step to eliminate this undesirable feature from
our financing by providing that all future Government securities,
whether issued by the Treasury under the authority of the Second
Liberty Bond Act, or by any corporation, instrumentality, or
other agency of the United States under authority of any other
act of Congress, shall be subject to all Federal taxes.
It is particularly appropriate that this step should be
initiated in connection with the financing of the National
Defense program. I have just dwelt on the fact that all should
be called upon to share in this task. This makes it urgent,
from an equitable point of view, that no subscribers to any
given class of securities should receive preferential treatment.
This is impossible if some of the securities are issued with
tax-exemption privileges which are worth nothing to the poorest
class of subscribers, and which are worth & great deal to those
in the very high income brackets. Such preferential treatment
to this latter class is compatible with the democratic financing
of the defense program and should be removed.
Economy in Non-defense Expenditures
At this time our whole economy and effort should be
concentrated on national defense. One step which the Government
should take is economy in Federal expenditures. I believe,
therefore, that all non-defense expenditures should be reexamined
with 8 magnifying glass to make certain that no more is granted
than is absolutely essential in the existing circumstances. I
also believe that the State and local governments should be asked
to contribute to national defense by eliminating from their
budgets all non-essential items, particularly new construction
during this period of emergency.
Regraded Unclassified
157
- 5 -
Savings Bonds and Savings Certificates
In view of the enlarged program facing the Treasury, it is
desirable to have greater flexibility in the types of securities
which may be offered to meet the requirements of various classes
of investors. Therefore, this bill further amends the Second
Liberty Bond Act so as to broaden the authority under which
United States Savings bonds are issued and to provide for a
new class of security to be called "Treasury savings certificates."
The statutory limit on the term for which Savings Bonds may be
issued would continue to be twenty years, as at the present,
while a limitation of ten years would be placed on the Treasury
savings certificates. It would also provide that both classes
of securities may be issued on an interest-bearing basis, on
a discount basis, or on a combination interest-bearing and
discount basis, and that the Treasury may fix by regulation
the amount of Savings Bonds and savings certificates which may
be held by any one person at any one time.
In addition, the Treasury would be authorized to issue
stamps or provide other means to evidence payments for Savings
Bonds and savings certificates, and to provide for the exchange
of savings certificates for Savings Bonds. This would permit
the Treasury to carry on a program somewhat similar to the war
savings and Treasury savings certificates program during the
World War, programs which provided means for popular participation
in the financing of the War through saving small amounts, and
at the same time were effective in raising substantial amounts
of funds directly from the investing public. In this connection,
the Treasury wishes to be able to offer Government securities
of a character which should facilitate and encourage thrift
and savings. We hope that a substantial part of the defense
orogram for which we have to borrow funds can be financed out
of the real savings of the people.
One of the most important services the American people can
render at this time is to cooperate in supplying the means for
national defense, We ought to make it possible for workers
and farmers no less than bankers and business men to contribute
to the financial needs of the Government, not only through their
Regraded Unclassified
158
- 6 -
taxes but through their savings as well. I an therefore
asking for authority to issue securities on such terms and
in such denominations as will enlist support from the largest
possible number of subscribers. There is no reason why a.
substantial part of the savings made possible by the current
increase in employment should not be conserved by investment
in United States Government securities. The small investor
who puts his savings in Government securities will in this
way contribute not only to national defense but also to his
own individual security.
There exists in the country today an overwhelming desire
on the part of nearly every man, woman, and child to make some
direct and tangible contribution to the national defense.
Somehow we ought to give them a sense of personal participation
beyond that which comes from doing their daily job faithfully
and well. Every day letters come to me, as I am sure they do
to others, from people who, regardless of partisan affiliation
or economic position, ask, "What can I do to help?" Our plan
to offer securities in varying denominations at a fair rate of
interest in an attempt to answer this question. I can think of
no other single way in which so many people can become partners
of their Government in facing this emergency.
It is the purpose of the Treasury to raise money for
national defense by methods which strengthen the national
morale.
I am sure the members of this Committee appreciate that
it will soon be necessary for the Treasury to raise additional
funds for its own account and also for the Reconstruction
Finance Corporation to meet expenditures under the enlarged
National Defense program now under way and that prompt passage
of this measure will greatly facilitate the handling of our
problems.
Regraded Unclassified
159
23-31
Statement of Secretary Morgenthau before the Committee
On Ways and Moans of the House of Representatives,
Wednesday, January 29, 1941.
When I appeared before you last spring at the time the first revenue
bill of 1940 was under consideration, the National Defense program then
before Congress amounted to less than ₩4,000,000,000. I pointed out
that on the basis of that program the balance of the borrowing authority
under the genoral debt limitation of $45,000,000,000 would be dangerously
depleted early in the calendar year 1941. In view of this situation,
Congress provided in the first Revenue Act of 1940 for the issuance of
not more than $4,000,000,000 of short-torm defense obligations. The
samo Act provided additional taxes, most of which were intonded to be
used to retire within five years any such obligations issued under that
authority. I stated that the provisions of the bill then pending
bofore your Committee word sufficient to meet the situation as it
existed at that time. But since thon the situation has undergono E
radical change.
Debt Limitation
The balance of the borrowing authority on January 1, 1941, was
$887,000,000 under the general limitation, and $2,764,000,000 under the
National Defense limitation. These combined balances provide the
Treasury with borrowing authority sufficient only for the next four
months, end even in that poriod we would be greatly rostricted in our
financing operations.
Regraded Unclassified
160
- 2 -
I an therefore appoaring before you today in support of H. R. 2653,
which raises the debt limit to $65,000,000,000, provides for the
:limination of the present partition in the debt limit, provides greater
flexibility in our financing operations, and provides that the income
from all future issues of Federal socurities, both direct and indirect,
be subject to all Fedoral taxes.
Our contemplated National Defense program has now been increased
until it aggregates approximately $28,500,000,000 in appropriations,
contract authorizations, and recommondations, according to the 1942
Budgot, just submitted. The estimated expenditure programs included in
this Budgot will rosult in combined deficits for the fiscal years 1941
and 1942 of more than $15,000,000,000. I do not boliove that it would
be advisable to undertake to finance this onlarged program through tho
issuance of short-torm securities and thoir retirement out of carmarked
taxes within a specified poriod LS contemplated in the first Revenue Act
of 1940. Moreovor, short-torm socurities would for the most part be
purchased by comercial banks, thereby causing a further increase of
deposits. It is highly desirable to avoid further increasos of
doposits as far as possible and to some extent this can be accomplishod
by issuing obligations attractivo to permanent investore outside of the
banking systom. In times such as those, it is imporativo that the
Government borrow as much as possible from real savers rather than from
banks.
The bill proposes to amond the Second Liborty Bond Act so as to
limit the face amount of public debt obligations issued under the
authority of that Act to an amount not to exceed in the aggrogate
Regraded Unclassified
161
- 3 -
$65,000,000,000 outstanding at any ono time. This provision as written
will repeal soction 21(b) of that Act which authorizes the issuance of
$4,000,000,000 face amount of National Defense notos. This increased
limitation will amply cover the Treasury's present anticipated financ-
ing requirements for the curront and ensuing fiscal years.
The proposed bill terminates certain obsolote authority to issue
debt obligations which the Treasury does not nood and which, therefore,
might as well be reponled and olininated from the statute books. The
futuro borrowing authority fixed by this bill will thon be all-inclusive.
It also repeals cortain provisions of the first Rovenue Act of 1940,
which sots up a special fund to consist of earnarked taxos for the
retirement of any obligations insued undor the National Dofense dobt
linitation.
Tax Exemption
This brings me to another matter of vital importance in connection
with the financing of the National Defense program, and that is the tax-
exemption feature of the debt obligations of the Fodoral Government and
its agencios. I said last year that if it word within my power, I
would iosuo National Defense notes subject to all Fedoral taxes. The
discretionary authority of the Treasury to issue socurities subject to
all Fodoral taxos is confined to Treasury notos with e maturity of
from one to five years. As to all other typos of Government socurities,
the law itsolf definitoly fixos the excmptions from taxation and thoro
is no discretionary authority in any executivo officer of the Government
to vary those exemptions.
Regraded Unclassified
162
4 -
Ordinarily, the Troasury would have raised in December of 1940
n substantial amount of additional cash and it would have carried out
its usual program of refunding, three months in advance, the obligations
aggregating 1,220,000,000 that mature on March 15, 1941. However,
inticipating that the Congress would consider the question of tax
exomptions in this session, it succed to no highly docirable that the
Treasury make no further offers of long-term tax-cx-pt accurities until
the Congross had had an opportunity to consider the quostion ogain in
the 11ght of the hugo defense financing program before us. I docided,
therefore, to dofor our refunding program and to not our invidiato
each requirements through the salo of short-tom notes, the incono from
which the Treasury made subject to r.ll Federal texos, ponding the
docision of this Congress on the question of (liminating tax-exemptions
from all future issuos of Foderal socurities. I conforred with some
nombers of the House and of the Sonnto and explained to them what I had
in mind and that, in taking these stops, it WCS my hope that Congress
would promptly enact legislation which would provide that the incomo
from All futuro issues of occurities of the Fodoral Government or any of
its aguncios be nado subject to all Foderal taxes. The program explained
to then act with their hearty approval.
As you know, every administration for the past twenty years has
recomended the complete climination of tax-bonpt socurities. The bill
now before you proposes that the United States Government actually take
the first stop to climinate this undosirable focture from our financing.
Regraded Unclassified
163
- 5 -
It is particularly appropriato that this etcp should be initiated
in connection with the financing of the National Dofense program. In
financing this program all should be callod upon to sharo in this task,
This nakos it urgent, from an cquitable point of viow, that no
subscribers to any given class of sccurities should receive proferential
treatment. This is impossible if some of the socurities aro issued
with tax-axomption privilogos which are worth nothing to the poorest
class of subscribers, and which are worth P. groat doal to those in the
very high income brackets. Such proferontial treatment to this latter
class is incompatible with domocratic financing of the dofonse program
and should be renoved.
I - suro this Committee approciates the importance of prompt action
in this connection so that the Treasury can take stops to refund the
large March 15 maturities in advance of that date.
Economy in Non-defenso Expenditures
At this time our whole oconomy and offort should be concentratod on
national dofense. One stop which the Government should take is oconomy
in Fodoral expenditures. I believe, therefore, that all Foderal non-
defonse expenditures should be rocxamined with a magnifying glass to
make certain that no moro funds are granted than are absolutely ossential
in the existing circumstances.
Savings Bonds and Savings Cortificates
In view of the onlarged program facing the Treasury, it is desirable
to have greater floxibility in the types of socurities which may be
offored to neet the requirements of various classes of investors. There-
fore, this bill further anonds the Second Liberty Bond Act so as to
Regraded Unclassified
164
- 6 -
broaden the authority under which United States Savings Bunds are issued
and to provide for a new class of security to be called "Treasury
savings certificatos." The statutory limit on the term for which Savinga
Bmds any be issued would continue to be twenty years, as at the
present, while 2. limitation of ten years would be placed in the Treasury
savings cortificatos. It would also provide that both classes of
sucuritios may be issued on en interest-bearing basis, on & discount
basis, or on a combination interost-bearing and discount besis, and that
the Treasury my fix by regulati in the tmount of Savings Bonds and
savings cortificates which may be hold by any one porson at any one
time.
In addition, the Treasury would be authorized to issue stamps or
provide other means to evidence payments for Savings Bonds and savings
cortificates, and to provide for the exchange of savings cortificatos
for Savings Bonds. This wold purnit the Treasury to carry on a program
encouraging more pupular participation in the financing. In this
connection, the Treasury wishin to be able to offer securities of a
character which should facilitato and promote thrift and savings. We hope
that a substantial part of the defonse program for which we have to
borrow funds can be financed out of the roal savings of the people.
One of the most important servicos the American people can ronder
at this time is to cooporate in supplying the means for national defonso.
Wo rught to nake it possible for workers and farmors no less then bankers
end business has to contributo to the financial noods of the Government,
not only through their tax payments but through their savings 25 well.
Regraded Unclassified
165
- 7 -
The bill therefore provides authority to issue securities on such torms
and in such donominations as will onlist support from the largost
number of subscribers. There is every reason why a substantial part of
the savings made possible by the current increase in employment should
be conserved by invostment in Unitod States Government securities,
The small invostor who puts his savings in Government socuritios will in
this way contributo not only to national defense but also to his own
individual sccurity.
There exists in the country today on overwholming desiro on the part
of nearly every man, woman, and child to make some direct and tangible
contribution to the national defenso. We ought to give then a sense of
personal participation boyond that which comos from doing their daily
job faithfully and well. Every day letters como to me from people who ask,
"What can I do to holp?" our plan to offer securities attractive to all
classes of investors is an attompt to answer this question. I can think
of no other single way in which so many people can become partners of
their Government in facing this cmergency.
It is the purpose of the Treasury to raise money for national defenso
by mothods which strongthen the national norale.
-o0o-
Regraded Unclassified
166
of Seriy
before House ways
and means Committee
on January 29,1941,
on belt Limit
CHR. 2653)
Regraded Unclassified
167
When I appeared before you last spring at
the time the first revenue bill of 1940 was under
consideration, the National Defense program then
before Congress amounted to less than $4,000,000,000.
I pointed out that on the basis of that program the
balance of the borrowing authority under the general
debt limitation of $45,000,000,000 would be
dangerously depleted early in the calendar year
1941. In view of this situation, Congress provided
in the first Revenue Act of 1940 for the issuance
of not more than $4,000,000,000 of short-term
defense obligations.
Regraded Unclassified
168
- 2 -
The same Act provided additional taxes, most of
which were intended to be used to retire within
five years any such obligations issued under that
authority. I stated that the provisions of the
bill then pending before your Committee were
sufficient to meet the situation as it existed at
that time. But since then the situation has under-
gone a radical change.
Debt Limitation
The balance of the borrowing authority on
January 1, 1941, was $887,000,000 under the general
limitation, and $2,764,000,000 under the National
Defense limitation.
Regraded Unclassified
169
- 3 -
These combined balances provide the Treasury
with borrowing authority sufficient only for the
next four months, and even in that period we
would be greatly restricted in our financing
operations.
I am therefore appearing before you today in
support of H. R. 2653, which raises the debt limit
to $65,000,000,000, provides for the elimination
of the present partition in the debt limit, pro-
vides greater flexibility in our financing operations,
and provides that the income from all future issues
of Federal securities, both direct and indirect,
be subject to all Federal taxes.
Regraded Unclassified
170
4 -
Our contemplated National Defense program has
now been increased until it aggregates approximately
$28,500,000,000 in appropriations, contract
authorizations, and recommendations, according to
the 1942 Budget, just submitted. The estimated
expenditure programs included in this Budget will
result in combined deficits for the fiscal years
1941 and 1942 of more than $15,000,000,000. I do
not believe that it would be advisable to undertake
to finance this enlarged program through the
issuance of short-term securities and their retire-
ment out of earmarked taxes within a specified period
as contemplated in the first Revenue Act of 1940.
Regraded Unclassified
171
- 5 -
Norsover, short-term securities would for the most
part be purchased by commercial banks, thereby
causing a further increase of deposits. It is
highly desirable to avoid further increases of
deposits as far as possible and to some extent this
can be accomplished by issuing obligations attractive
to permanent investors outside of the banking system.
In times such as these, it 1s imperative that the
Government borrow as much as possible from real
savers rather than from banks.
Regraded Unclassified
172
- 6 -
The bill proposes to amend the Second Liberty
Bond Act so as to limit the face amount of public
debt obligations issued under the authority of
that Act to an amount not to exceed in the
aggregate $65,000,000,000 outstanding at any one
time. This provision as written will repeal
section 21 (b) of that Act which authorizes the
issuance of $4,000,000,000 face amount of National
Defense notes. This increased limitation will
amply cover the Treasury's present anticipated
financing requirements for the current and ensuing
fiscal years.
Regraded Unclassified
173
- 7 -
The proposed bill terminates certain obsolete
authority to issue debt obligations which the
Treasury does not need and which, therefore, might
as well be repealed and eliminated from the statute
books. The future borrowing authority fixed by
this bill will then be all-inclusive. It also
repeals certain provisions of the first Revenue
Act of 1940, which sets up a special fund to
consist of earmarked taxes for the retirement of
any obligations issued under the National Defense
debt limitation.
Regraded Unclassified
174
- 8 -
Tax Exemption
This brings me to another matter of vital
importance in connection with the financing of
the National Defense program, and that is the
tax-exemption feature of the debt obligations of
the Federal Government and its agencies. I said
last year that if it were within my power, I
would issue National Defense notes subject to all
Federal taxes. The discretionary authority of
the Treasury to issue securities subject to all
Federal taxes 1s confined to Treasury notes with
a maturity of from one to five years.
Regraded Unclassified
175
- 9 -
As to all other types of Government securities,
the law itself definitely fixes the exemptions
from taxation and there 1s no discretionary
authority in any executive officer of the Government
to vary these exemptions.
Ordinarily, the Treasury would have raised
in December of 1940 a substantial amount of
additional cash and it would have carried out
its usual program of refunding, three months in
advance, the obligations aggregating $1,220,000,000
that mature on March 15, 1941.
Regraded Unclassified
176
- 10 -
However, anticipating that the Congress would
consider the question of tax exemptions in this
session, it seemed to me highly desirable that
the Treasury make no further offers of long-term
tax-exempt securities until the Congress had had
an opportunity to consider the question again in
the light of the huge defense financing program
before us. I decided, therefore, to defer our
refunding program and to meet our immediate cash
requirements through the sale of short-term notes,
the income from which the Treasury made subject
to all Federal taxes, pending the decision of
this Congress on the question of eliminating tax-
exemptions from all future issues of Federal securities.
Regraded Unclassified
177
- 11 -
I conferred with some members of the House and
of the Senate and explained to them what I had
in mind and that, in taking these steps, it was
my hope that Congress would promptly enact legisla-
tion which would provide that the income from all
future issues of securities of the Federal
Government or any of its agencies be made subject
to all Federal taxes. The program explained to
them met with their hearty approval.
As you know, every administration for the past
twenty years has recommended the complete elimination
of tax-exempt securities. The bill now before you
proposes that the United States Government actually
take the first step to eliminate this undesirable
feature from our financing.
Regraded Unclassified
178
- 12 -
It 1s particularly appropriate that this step
should be initiated in connection with the financing
of the National Defense program. In financing this
program all should be called upon to share in this
task. This makes it urgent, from an equitable point
of view, that no subscribers to any given class of
securities should receive preferential treatment.
This is impossible if some of the securities are
issued with tax-exemption privileges which are worth
nothing to the poorest class of subscribers, and
which are worth a great deal to those in the very
high income brackets. Such preferential treatment
to this latter class is incompatible with democratic
financing of the defense program and should be
removed.
Regraded Unclassified
179
- 13 -
I am sure this Committee appreciates the
importance of prompt action in this connection so
that the Treasury can take steps to refund the large
March 15 maturities in advance of that date.
Economy in Non-defense Expenditures
At this time our whole economy and effort
should be concentrated on national defense. One
step which the Government should take 1s economy in
Federal expenditures. I believe, therefore, that
all Federal non-defense expenditures should be
reexamined with a magnifying glass to make certain
that no more funds are granted than are absolutely
essential in the existing circumstances.
Regraded Unclassified
180
- 14 -
Savings Bonds and Savings Certificates
In view of the enlarged program facing the
Treasury, it 1s desirable to have greater flexibility
in the types of securities which may be offered
to meet the requirements of various classes of
investors. Therefore, this bill further amends the
Second Liberty Bond Act so as to broaden the
authority under which United States Savings Bonds
are issued and to provide for a new class of security
to be called "Treasury savings certificates." The
statutory limit on the term for which Savings
Bonds may be issued would continue to be twenty years,
as at the present, while a limitation of ten years
would be placed on the Treasury savings certificates.
Regraded Unclassified
181
- 15 -
It would also provide that both classes of
securities may be issued on an interest-bearing
basis, on a discount basis, or on a combination
interest-bearing and discount basis, and that the
Treasury may f1x by regulation the amount of
Savings Bonds and savings certificates which may
be held by any one person at any one time.
In addition, the Treasury would be authorized
to issue stamps or provide other means to evidence
payments for Savinga Bonds and savings certificates,
and to provide for the exchange of savings certificates
for Savings Bonds. This would permit the Treasury
to carry on a program encouraging more popular
participation in the financing.
Regraded Unclassified
182
- 16 -
In this connection, the Treasury wishes to be
able to offer securities of a character which
should facilitate and promote thrift and savings.
We hope that a substantial part of the defense
program for which we have to borrow funds can be
financed out of the real savings of the people.
One of the most important services the American
people can render at this time is to cooperate in
supplying the means for national defense. We ought
to make it possible for workers and farmers no less
than bankers and business men to contribute to the
financial needs of the Government, not only through
their tax payments but through their savings as well.
Regraded Unclassified
183
- 17 -
The bill therefore provides authority to issue
securities on such terms and in such denominations
as will enlist support from the largest number of
subscribers. There is every reason why a substantial
part of the savings made possible by the current
increase in employment should be conserved by
investment in United States Government securities.
The small investor who puts his savings in
Government securities will in this way contribute
not only to national defense but also to his own
individual security.
There exists in the country today an
overwhelming desire on the part of nearly every
man, woman, and child to make some direct and
tangible contribution to the national defense.
Regraded Unclassified
184
- 18 -
We ought to give them a sense of personal participa-
tion beyond that which comes from doing their
daily job faithfully and well. Every day letters
come to me from people who ask, "What can I do to
help?" Our plan to offer securities attractive to
all classes of investors 1s an attempt to answer
this question. I can think of no other single way
in which so many people can become partners of their
Government in facing this emergency.
It is the purpose of the Treasury to raise
money for national defense by methods which strengthen
the national morale.
-ooOoo-
Regraded Unclassified
185
Dra, Henry :
you may / interested if net
holls in apeement but 2 lean it with
you anyway, with my compliments,
An Address
G.L.H.
by
GEORGE L. HARRISON
at Luncheon of
THE BOND CLUB OF NEW YORK
NEW YORK CITY
JANUARY 29, 1941
Mr. President, Honored Guests, Members of the Bond Club:
I am grateful indeed for the opportunity to be with you
again, even if only for the brief space of 3. luncheon time. For
the past month I have been experiencing the ordeal of an
initiation into a new job in a field that is new to me. So it is
good to be downtown again in a more familiar atmosphere,
with more familiar problems.
I come to you now not to tell you anything about the
insurance business, in which I am still a neophyte; not to tell
you anything about the bond business, in which you are much
more expert than I; nor to speak for the Federal Reserve Bank,
with which I am no longer connected. Rather my purpose is
simply to make a few personal observations about the present
and future position of the private investment market.
May I, therefore, first outline some of the objectives of
Federal Reserve policy in recent years, as I see them, with
particular reference to their impact on the capital market?
As you know, the traditional central bank practice is to
adopt a "firm money" policy-a policy of restraint-whenever
3
there appears danger of over-expansion and inflationary develop-
due primarily to the tremendous inflow of gold and silver
ments, and to adopt an "easy money" policy,- a relaxation of
during the past eight years. The effect of all this has been to
restraint and the promotion of an ample supply of available funds
depress money rates to unprecedentedly low levels. As was
at low rates-in periods of business recession and deflation.
stated in the report of the Federal Reserve System to the
Pursuing that general practice the Federal Reserve System,
Congress, which was released for publication on January 1, 1941,
"some rates are well below the reasonable requirements of an
after the collapse of the speculative boom in 1929, changed from
easy money policy, and are raising serious, long-term problems
a policy of restraint to an "easy money" policy, which was
for the future well-being of our charitable and educational
pursued with increasing vigor as the depression progressed.
institutions, for the holders of insurance policies, and savings
Immediately following the break in the stock market in October
bank accounts, and for the national economy as a whole."
of that year, the Federal Reserve Bank of New York alone
bought $120,000,000 of government securities, and the rate
These low rates have persisted in spite of the fact that the
of discount was reduced from 6% in October, 1929, to 11/2%
Treasury has borrowed approximately $30,000,000,000 of new
in May, 1931. More securities were acquired in 1930 and
money to finance its requirements during the last ten years.
1931. Then, in the spring of 1932, the System bought
$1.000,000,000 of securities, and in 1933, after the banking crisis,
It might be asked how an easy money policy was supposed
$600,000,000 additional were purchased. At the conclusion of
to stimulate a recovery through the medium of the capital
the open market purchases in 1933, member banks held
markets. You no doubt know the answer but, in theory, easy
approximately $800,000,000 of excess reserves. At that time
money or idle money in the banks should have the following
that was an unprecedented amount which seemed more than
results:
ample to enable the banks of the country to provide what-
First-A decline in open market money rates-initially in
ever amount of credit might be required to finance business
short-term rates extending gradually to yields on
recovery.
long-term bonds of the highest grades, first govern-
Since then, excess reserves have risen to nearly $7,000,000,000
ments and then other high-grade bonds.
4
5
UUnclassified
Second-As yields on high-grade bonds reach levels unattrac-
investment cannot be said to have been wholly successful. Why
tive to investors, a diversion of investment interest
was this so and what part did government deficit spending play
to medium-grade bonds and stocks, because of the
in that program?
more attractive yield obtainable on such securities.
In its early stages the expansion of government spending was
Third-A refunding of high interest rate obligations into
referred to as "pump priming." It was supposed that by this
lower interest rate obligations.
method consumer spending would be stimulated and that the
Fourth-Because of attractive rates available to borrowers, a
demand for additional consumer goods would lead to increased
revival of investment of new capital in industries for
business spending for industrial plants and equipment which,
improvement and expansion, thus promoting business
in turn, would stimulate business recovery and reduce unemploy-
ment, But until the great activity of the defense program
recovery.
developed, the transition from government spending to business
Some of the developments in this chain occurred as expected.
spending did not develop except to a limited amount. Instead of
Yields on high-grade bonds have gone far below any levels that
tapering off when business recovery appeared to be progressing,
had been contemplated and much refunding of corporation
government spending was maintained at high levels. That is
indebtedness has been done to take advantage of the progressive
one of the difficulties in choosing the path of deficit spending,
decline in interest rates. But the amount of new capital supplied
instead of private investment, as a means of recovery. It lacks
to industry through the flotation of new securities has been
flexibility in that it is usually too slow in beginning and too slow
relatively small. Hesitant and intermittent recovery in business
in stopping; or else it may fall off so rapidly as to be unsettling to
occurred in the 1930s, it is true, but it attained real vigor only
our whole economy. No one can fairly question that deficit
in the minor boom of late 1936 and early 1937, and again since
financing and spending by the government provides a necessary
the outbreak of war, especially since the inauguration of our
and proper outlet for idle bank funds in a period of temporary
program of defense.
depression when private spending does not result in maintaining
So, the program of "easy money" to stimulate private
production and employment. But there is an important differ-
6
7
Regraded Unclassified
ence, on the one hand, between temporary deficit financing that
the heavily increased rates of taxation on such incomes, has
is intended to induce private investment, and, on the other hand,
tended to eliminate a large source of risk or equity capital.
deficit financing that is intended to take the place of private
Furthermore, the raising of both income and estate taxes has
investment on the theory that our economy has now matured
encouraged the investment of large estates in tax-exempt
and that private investment has neither the opportunity nor the
securities, thereby further depleting the amounts available for
will to revive. The former I think necessary and desirable on
undertakings involving risk.
political, social and economic grounds; the latter I believe to be
These conditions apply only in lesser degree to incomes of
unnecessary and undesirable on any ground.
intermediate size. The proposals to impose still heavier taxation
In my opinion, we need not conclude that the original pro-
on such incomes is a further potential deterrent to the invest-
gram of "easy money" was based upon a false premise or that it
ment of savings in securities that involve any appreciable degree
was foreordained to failure. There were unforeseeable develop-
of risk.
ments and conditions in recent years that operated to prevent
As to smaller incomes, there has been a substantial diversion
its complete success.
of savings from such incomes into government channels through
These developments and conditions affected, on the one
social security and unemployment insurance taxes, and through
hand, the ability and inclination of investors to provide new
the investment in government securities of large portions of the
capital for private enterprise; on the other hand, they affected
savings of investors which have been deposited with insurance
the inclination of business management to assume the rink of
companies and savings banks, as well as commercial banks.
employing additional capital for expansion and improvements.
A further deterrent to investment in private enterprise was
Some of the more important of these developments and con-
a widely prevalent impression that business was in the "dog
ditions may be mentioned briefly.
house." Partly because of this impression and probably more
First, as to the ability and inclination of investors to provide
largely because of the unfavorable record of corporation profits
new capital for private enterprise, The great reduction during
during the past decade, the incentive to make so-called business-
the past decade in the gross incomes of the wealthy, plus
man's investments was greatly checked. In no year since 1930
8
9
Regraded Unclassified
for which figures are available, has the number of corporations
In addition to these general conditions affecting all business,
reporting any net profit been appreciably above 40 per cent of
there have, of course, been specific conditions affecting particular
the total number of corporations. It is true that some companies,
industries which, in the past, have been important fields for the
especially those in rapidly developing industries, have been able
investment of savings. The outstanding example is the group
to make larger profits than ever before but their experience is not
of industries known as public utilities, including railroads, as well
typical. It has been computed that in no year of the 1930s has
as electric, gas and traction companies.
the rate of net profit on total invested corporation capital been
Finally, and this thought applies perhaps to both investors
much in excess of the yield obtainable on government securities,
and business management, for a number of years there was no
despite the writing down of much capital in depression years.
doubt a very real feeling of discouragement and a lack of con-
Second, as to the inclination of business management to
fidence which appeared to have pervaded large areas of business,
assume the risk of employing additional capital. Here, the
as well as the investing public, due not only to conditions already
increased taxes of corporations have had an important effect,
mentioned, but also to the fact that many people felt, rightly
tending, as they do, to diminish the opportunity for profit and
or wrongly, that government policies were going to make it
impossible for capital to earn a living wage,
causing, therefore, greater besitancy on the part of business
management to enlarge facilities. Corporation tax rates are now
But, in this connection, it should be remembered that while
much higher than ever before, not excluding the World War year
recovery was slow and hesitant, the depression of the early 1930a
of 1918. Total taxes paid to the Federal government, together
was without precedent in its severity. Consequently, recovery
with State and local taxes, have exceeded net profits of all cor
had a long way to go and the process of recuperation was
porations, after taxes, in every year since 1929. In the nine
perhaps unavoidably protracted and difficult. This in itself
years ending with 1938, all corporations paid a total of about
should make us slow to put the full blame for all of our dis-
$30,000,000,000 of taxes, Federal, State and local, while their
appointments on any one of these conditions-either on a
net profits (after deducting losses), reported to the Bureau of
tendency toward maturity of our economy or on the lack of
Internal Revenue, amounted to not much over $1,500,000,000
confidence as to the future of business.
11
10
Unclassified
In all these circumstances it is not surprising that the
concern is not so much with the success or failure of that busi-
capital market has not been called upon in recent years to raise
ness, as such, as it is with the protection of private enterprise,
large sums of new capital for private enterprise. Many of the
which I still believe is the essential basis of our American
conditions discussed above still prevail. Some, in fact, such as
economy. But private enterprise depends upon private invest-
heavy taxation, will necessarily be accentuated by the demands
ment, and private investment presupposes that we must have
of the defense program. Furthermore, it is not impossible that
some machinery for bringing together borrowers and investors,
to prevent a future price inflation growing out of the huge
both big and little.
demands of the defense program and British war purchases,
This is all the more important now that the energies of the
some action may have to be taken to absorb a part of the present
whole nation, industrial and financial, are being devoted to the
surplus of bank reserves. In fact, the special report of the
successful prosecution of the program of defense. In the
Federal Reserve System, previously mentioned, recommended
financing of that program, private capital must do its part if we
certain definite means for absorbing excess reserves in case it
wish to lighten the already heavy burden upon the government.
should become necessary. And along with this recommen-
That program, quite properly, relies, in the first instance, upon
dation, the lend-lease bill implies the possibility of a diminish-
established industrial concerns, and it would seem equally
ing inflow of gold. These measures, if adopted, should at
important, in the interest of national defense itself, that those
least tend to check the downward trend in interest rates, if
concerns should obtain much of the funds required to finance
not to reverse it. If reversed, large scale funding operations to
expansion of plant or equipment, either through the capital
reduce interest charges may then be curtailed, and these oper-
market or through established banking channels.
ations have been the mainstay of the investment banking busi-
This presupposes an active, fair, and experienced machinery
ness in recent years.
for negotiating, issuing, and selling securities. For that reason,
In view of all this, must we necessarily conclude that invest-
if for no other, I seriously question the wisdom of undertaking
ment banking is threatened with extinction? To my mind that
any experiment, certainly at this time, such as the proposed plan
conclusion is not warranted, although, frankly, my primary
for the compulsory competitive bidding of certain classes of
13
12
public utility securities. Such an undertaking, especially if
and the continuing responsibility of caring for the needs of large
extended in scope, would, I believe, risk material curtailment of
and small borrowers, as well as large and small investors, in both
the existing machinery of the capital market without any
good times and hard times.
assurance whatsoever that securities 60 issued would be better
securities for investors. Personally, I would much prefer the
To keep our productive and distributive facilities going full
continuation of negotiated sales, where the investor has an
speed will require large amounts of capital. How is it to be
experienced representative to protect his interests in drawing
supplied? Unless we are to risk an unhealthy expansion of bank
the contract and where security as well as price will be an
credit, much of it must, of course, come out of the accumulated
important influence. At the very least, a borrower should be
savings from national income, whatever channel is employed.
free to choose to negotiate a sale, if he thinks it desirable in the
If those savings are to be taken by the government by taxation
or borrowing and if the financing of industry is then to be done
circumstances of his own case.
entirely by the government, we will be resorting, at least
I also believe that the practice of privately placing securities
temporarily, to a form of state socialism which is wholly contrary
should be considered from a broad-gauged, long-range point of
to all of our traditional concepts and which is not demanded even
view rather than from the immediate advantage to buyer and
by the extreme exigencies of the present situation. But if we
want, as I presume we all want, to preserve our system of
seller that might result in individual cases. It is a practice
private enterprise, we must make sure that the bulk of the
which has grown up out of the tedium and expense incident to
avings of individuals and business is reinvested in business
registration in a period of very easy money when large investors
and that appropriate machinery is available for that purpose.
avidly compete for an easy means of employing large blocks
of idle funds. Possibly no one investor can alter the practice in
It is becoming more and more apparent that we do not have
fairness to its own beneficiaries-1 am not sure. But I do feel
as wide a margin of efficient productive capacity as was first
that the public interest will be better served, in the long run,
thought. Large amounts of capital will still be required either
if the practice were substantially restricted, leaving to the
for expansion or adaptation of present equipment if output is to
established machinery of the capital market both the capacity
be increased as fast as it should be to meet defense requirements
14
15
Regraded Unclassified
in addition to civilian needs. Otherwise, curtailment of civilian
Of course, we may later find that the volume of idle savings
consumption will be essential to avoid so-called bottle-necks or
may not be as great as world needs. Vast amounts of capital
price inflation. An increasing demand for capital has already
are being destroyed or consumed in non-productive channels.
been reflected recently in the revival of security financing and
Considerable sums of the country's accumulated savings have
it is likely that the trend will continue as the defense program
already been absorbed in financing government requirements.
progresses.
Furthermore, there are some who still feel that as the country
has matured, opportunities for private investment have lessened
The need for a substantial flow of private capital into
or may shortly disappear. In some degree they may be right
productive employment probably will not end with the defense
though 1, personally, do not question that new opportunities in
program. Another major problem will have to be faced at the
the form of new inventions and new industries will arise in the
end of the war and after the completion of our defense program.
future as they have in the past. Our national genius has too
Much of the current expansion of plant and equipment is of
much momentum to become static overnight. But even if we
specialized types designed for the manufacture of war materials,
must assume that there are long range changes in progress which
which, unfortunately, will be of little use in the production
are tending to decrease new investment, as was the case in
of goods for civilian consumption. That being so, peace-
England in the decade preceding the outbreak of the war,
time requirements may have to be met by the enlargement
nevertheless, as was also true in England, we shall probably find
that as new investment wanes, the slack in the national income
or readaptation of present facilities to peace needs. Certainly,
vill be taken up by replacement and modernization. To the
the present diversion of productive activities to defense needs/
extent that replacement and modernization are financed out of
together with heavy taxation to help pay for it, may well leave
current earnings of industry, your business in the investment
large latent consumer demand at the end of the war. In addition
banking field will, of course, have to suffer.
to these potential post-war demands for domestic purposes, there
will likely be a substantial foreign demand for both credit and
But, for the various reasons I have enumerated, [ believe that
goods if, as I hope and expect, the democractic system is pre-
during this emergency, and after the emergency is past, we shall
served.
have continuing need for private capital and for the maintenance
17
16
Regraded Unclassified
of a capital market mechanism by which borrowers and investors
may be brought together. If that mechanism is to run smoothly
and effectively, it will require not only a sympathetic and
constructive attitude on the part of the government, but, even
more than that, it will require an increasing effort on the part of
the market itself to lose no opportunity to improve its own
mechanism in order that as conditions change it may do a better
job both for the borrower and for the investing public, That
abuses in the past have invited government intervention is not,
I think, a reason to despair. The government has, no doubt,
done much to arouse a keener consciousness on the part of the
investment bankers, as a whole, of their greater responsibilities.
Some of you may feel that the government has gone too far and
that some relaxation of its supervision may now be more appro-
priate than further regulation. That may be true. But I venture
the hope that the tremendous unified effort that the nation is
now making for defense in the utilization of its resources in
industry, capital and man-power, will impress upon all of us, in
and out of government, the vital importance of tolerance,
mutual understanding and co-operation in order that each of
us may give the maximum of strength and ability to the great
task before us.
18
Regraded Unclassified
186
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 29, 1941
Secretary Morgenthau
TO
FROM Mr. Cochran
Mr. Incour-Gayet, Financial Advisor to the French Embassy, called me at 3:20
this afternoon from New York. He stated that his Ambassador has on last Monday
discussed with Under Secretary of State Welles the question of emigrants coming
from France to the United States. Lacour-Gayet said that Under Secretary Welles
had at that time been told by the French Ambassador that it was desired that
Mr. Lacour-Gayet present the same question personally to Secretary Morgenthau.
Lacour-Gayet now desires to know whether the Secretary could receive him personally
on Friday for this purpose. I told Lacour-Gayet that I would take up this subject
immediately with the Secretary. but I was not at all sure it would be possible con-
sidering the Secretary's program. Mr. Lacour-Gayet felt that the Secretary would
have & keen interest in the proposition, and is anxious to submit it to him. If
this is not feasible, Lacour-Gayet will come later to see Mr. Bell and myself.
Juil
Regraded Unclassified
187
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 29, 1941.
TO
Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
The Federal Reserve Bank of New York reported the following transaction in
the account of the National Bank of Hungary, Budapest, maintained with the National
City Bank, New York.
Date
Amount Debited
Paid To
January 29
$120,000
Federal Reserve Bank of
New York for account of
Sveriges Riksbank, Stock-
holm
11ml
188
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 29, 1941
TO Secretary Morgenthau
FROM Mr. Cochran
Mr. Arno Konder, Counselor of the Brasilian Embasey, called on me at 12 noon
today. He said that Foreign Minister Aranha of Brasil desired to be confidentially
informed of the recently consummeted Stabilization arrangement between the United
States end Argentina. I gave the Counselor copies of the press release which was
fesued on December 27. 1940. after the agreement under reference was signed.
Xr. Konder thanked me for this, but said that he was anxious to provide full details
of the agreement confidentially to his Ambassador for the Minister for Foreign Affairs.
I told the Counselor that it had been agreed by the two parties to the arrangement
hat no details would be given out beyond those set forth in the communique. In the
circumstances I wes not free to disclose any further information. Notwithstanding
the Secretary's close friendship with Minister Aranha, I doubted whether Mr. Morgenthau
would auprove of any disclosure of facts which might possibly be considered as 8.
violation of our confidence with the Argentine Delegation. I promised, however, to
meak to the Secretary upon this point and to communicate later with Mr. Konder.
75ml.
Regraded Unclassified
189
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE
Press Service
Friday, December 27, 1940.
No. 23-5
The following joint statement is made by the Secretary of the
Treasury, the Argentine Ambassador and the General Manager of the
Central Bank of Argentina:
As another practical proof that the Good Neighbor policy is a
living force among American Republics, the United States and
Argentina have completed a stabilization arrangement by which
$50,000,000 of the United States Stabilization Fund 18 set aside
to promote stability between the United States dollar and the
Argentine peso.
The agreement provides, under conditions acceptable to both
carties, for the purchase of Argentine peBoB with dollars, and for
the exchange of information and of views bearing on the proper
functioning of such a program.
This is a cooperative arrangement between old and good friends,
It has been discussed and formulated in this spirit by represental
tives of the Argentine Government and the Central Bank of Argentina,
and by the officials of the United States Treasury. The monetary
authorities of the two countries expect to hold further discussions
in the same friendly spirit durin. the coming year; and it is
hoped that these conversations will enable both countries to reap
the greatest possible benefit from the workings of the present
agreement,
-000-
Regraded Unclassified
190
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
PERSONAL and STRICTLY CONFIDENTIAL
DATE January 29, 1941
TO
Secretary Morgenthau
FROM
Mr. Wiley
State Department has finally set up an Intelligence Division
to cover subversive activities. It is headed by Mr. George Gordon,
American Minister to The Netherlands, who is assisted by David William-
son and Fletcher Warren, foreign service officers. In addition, a
member of each geographical division of the State Department is to be
assigned to this new unit.
As I understand the functions of this division, its primary
purpose will be that of establishing close liaison with the State De-
partment's geographical divisions, FBI, MID, ONI, the Treasury Depart-
ment, the Rockefeller Committee, and other agencies of the Government.
I WBS told that the division will be very glad to make available to the
Treasury all information which may be received from the field or other
sources which might present interest.
Mr. Gordon's division is not to be an investigative unit and
will, I WAS told, dispose of no special funds. I understand it wes set
up on the direct initiative of Mr. Sumner Welles, against considerable
opposition from certain of the geographical divisions.
law
Cogy to Mr. Gaston.
Regraded Unclassified
191
January 29, 1941
SECRETARY MORGENTHAU:
Has this been brought to
your attention?
Jue
JCW
FROM: JOHN C. WILEY
192
in
W.P. 1004/6/41
Dreadmer Bank, Berlin has requested Isternabi
to credit 77,100 dollars to Beeng account at Skendinavisku
Steckhelm without mentioning Dreadner's name and to in-
strust Stockholm that amount must be credited to Reichsbank.
Jenuary 21st, 1941,
CONFIDENTIAL
REC'D JON 1/28/42
1879
Regraded Unclassified
193
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
STRICTLY CONFIDENTIAL
DATE January 29, 1941
TO
Secretary Morgenthau
FROM Mr. (laus
FBI reports:
On Saturday, January 25, I was told orally by FBI that the Italians had
80 far depleted their accounts in the United States that the Italian Vice
Consul in Philadelphia was unable to receive funds to perform the routine work
of his office and was compelled to rely on his personal funds. (This would in-
dicate that the Italians are not using their large balances in New York City
for the support of the diplomatic service.)
January 25. On December 27, 1940, the German Embassy purchased with $1,000
bills from the Riggs Bank in Washington, D.C., drafts for their Consulates General
in San Francisco ($8,000) and in New York ($7,500) and their Legation in Mexico
($1,000) end to "Ernest Laessing" of Mexico City. On January 3 they repeated this
program, sending a draft of $2,850 to the Consulate General in New York; $300 to
the Legation in Panama City, and $492.35 to the Bacardi Run Company. (This would
indicate that the Germans are now doing their business in cash and must have large
amounts of currency in the Embassy vaults.)
Regraded Unclassified
:
194
COPY
ROYAL NETHERLANDS LEGATION
Washington, D. C., January 29, 1941
Dear Mr. Cochran:
I send you herewith the draft of a circu-
lar to be addressed by the Netherlands Minister to the
Consular Officers of the Netherlands in the United States.
I believe this document contains all the
information on the subject of registration of Netherlands
Government securities that will be of interest to your
Department.
You would oblige me by addressing any
comment you may have to offer to the Commercial Counselor
at this Legation - Mr. B. Kleijn Molekamp.
Yours sincerely,
(Signed) A. Philips
Adviser to the Treasury Department of
the Royal Netherlands Government
Mr. H. Merle Cochran, Technical Assistant
to the Secretary of the Treasury,
United States Treasury Department,
Washington, D. C.
dm
Regraded Unclassified
195
COPY
DRAFT
CONFIDENTIAL
The Netherlands Minister at Washington has the honor to inform the
Consular Officers of the Netherlands in the United States that a notice
will be released for publication on the 1st of February in various news-
papers in this country, the contents of which are given in the enclosure
of this letter.
If the Consular Officers are approached for information in connection
with this notice, they are requested to suggest to the applicant that he
communicate with one of the Consulates General of the Netherlands at New
York, San Francisco or Chicago.
Attention is drewn to the fact that the registration in question only
applies to securities held in allied and neutral countries. If therefore
information is requested concerning securities which do not fall within
the above-stated category there is no need to direct applicants to an
office of registration.
In order to be considered for registration, the securities will have to
be produced at one of the registering offices and their owner will have to
fill out and sign a form in triplicate showing inter alla his nationality
(or, in the case of B. company, the nationality of the managers, directors
and shareholdere, as far a.s. possible, end in which country the company has
its domicile), where he resided on and since May 15, 1940, and where the
securities were held on and since that date. The form also contains a
declaration by the owner of the securities that the interest, if paid, will
not benefit in any way the enemy or & party (whether an individual, a firm
or & legal body) in enemy or enemy occupied or controlled territory, nor
Regraded Unclassified
196
- 2 -
a national or a resident of a country with which diplomatic relations
have been severed. The bonds themselves will not be stamped or other-
wise defaced.
A registration fee of $0.50 per fl. 1000,- will be charged, with a
minimum of $1.00.
Registration will not automatically entitle the holder to payment
of interest. Registration takes place in order to provide the statistical
information needed by the Netherlands Government to decide whether it
will be possible to resume interest payments.
dm
Regraded Unclassified
197
DRAFT
REGISTRATION OF METHERLANDS GOVERNMENT SECURITIES
The Netherlands Government has issued a Decree to the effect
that payment of interest and redemption on the outstanding debt of
the Kingdom has been suspended. (It will be recalled that
there are no Dollar bonds of the Netherlands outstanding; the
entire debt is stipulated in Guilders). However, the Govern-
ment will consider the possibility of resuming interest payment
to bona fide bondholders as soon as data are available concern-
ing the amounts held on and since May 15, 1940, in countries
outside the territory controlled by Germany and her allies.
To this end, facilities for registering bonds and other obligations
of the Kingdom of the Netherlands will be available during the
month of February 1941. Holders in the continental U.S.A. of
such claims should get in touch with the Consulate General of
the Netherlands either in New York, San Francisco or Chicago.
dm
198
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 29, 1941
TO
Secretary Morgenthau
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
Stocks sold outside National Exchanges in Blocks of 1,000 shares and upwards
January 7 to January 24, 1941
Gifford Reports:
Forrestal Reports:
Standard Oil Co. of California
1,000 - Jan. 7
3,000 - Jan. 9
-
Mueller Brass Co. Com.
13,000 - Jan. 7
1,900 - Jan. 21
-
Socony-Vacuum Oil Co. Inc.
1,000 - Jan. 8
2,000 - Jan. 11
100,000 - Jan. 17
100,000
General Electric Co. Com
1,500 - Jan. 8
4,500 - Jan. 8
5,000 - Jan. 9
-
Chase National Bank of the City of N.Y.
1,000 - Jan. 8
2,000 - Jan. 8
1,000 - Jan. 9
1,000 - Jan. 10
1
Buffalo, Niagara & Eastern Power Corp.
2,500 - Jan. 8
$1.60 Pfd.
2,000 - Jan. 10
4,000 - Jan. 14
18,906 - Jan. 15
-
Air Reduction Co. Com.
3,600 - Jan. 8
-
Timken-Detroit Axle Co. Com.
4,700 - Jan. 9
-
Purity Bakeries Corp. Com.
10,000 - Jan. 9
10,000
Phillips Petroleum Co.
1,500 - Jan. 9
7,800 - Jan. 20
-
Pacific Gas & Electric Co. 6% 1st Pfd.
2,000 - Jan. 9
if If 1
2,000 - Jan. 10
46,891 - Jan. 10
46,891
Com.
6% 1st Pfd.
1,000 - Jan. 20
# # #
7.533 - Jan. 20
199
- 2 -
Gifford Reports:
Forrestal Reports:
North American Co. Com.
72,945 - Jan. 9
172,945
100,000 - Jan. 9
Johns-Manville Corp. Com.
1,000 - Jan. 9
-
International Harvester Co. Come
2,000 - Jan. 9
-
General Refractories Co. Com.
2,500 - Jan. 9
-
Crane Co. Com.
25,000 - Jan. 9
4,807 - Jan. 13
-
Chrysler Corp. Com.
1,500 - Jan. 9
-
Celotex Corp. Com.
31,528 - Jan. 9
-
American Gas & Electric Com.
1,000 - Jan. 9
1,000 - Jan. 14
5,000 - Jan. 14
1,100 - Jan. 16
-
son Oil & Snowdrift
6,900 - Jan. 10
7,000
Valgreen Co. Com.
4,000 - Jan. 10
-
Union Carbide & Carbon Corp.
1,250 - Jan. 10
-
Continental Can Co. Com.
1,000 - Jan. 10
-
Commercial Credit Co. Com.
27,000 - Jan. 10
-
Bankers Trust Co. N.Y.
1,000 - Jan. 10
-
American Cyanamid Co. Com "B"
5,000 - Jan. 10
7,993 - Jan. 11
12,900
United Shoe Machine Corp. Com.
1,000 - Jan. 13
-
Eontgomery Ward & Co. Inc. Com.
79,243 - Jan. 13
80,000
Marshall Field & Co. Com.
2,000 - Jan. 13
-
General Motors Corp. Com.
8,000 - Jan. 13
-
Continental Gas & Electric Corp. 7% Pr.Pfd.
2,402 - Jan. 13
-
Regraded Unclassified
200
Gifford Reports:
- 3 -
Forrestal Reports:
Consolidated Edison Co. of N.Y. Inc. Com.
1,200 - Jan. 13
-
Union Pacific R. R. Co. Com.
42,534 - Jan. 14
42,534
Deere & Co. Com.
10,000 - Jan. 13
-
Sears Roebuck & Co.
10,000 - Jan. 14
2,500 - Jan. 17
-
E. L. Green Co. Inc. Com.
13,825 - Jan. 14
13,825
Crown Zellerbach Corp. $5.Cum. Conv. Pfd.
2,747 - Jan. 14
-
Boston Edison Co.
2,000 - Jan. 14
-
Southeastern Power & Light Co. 6% Debs. "A" 14,800 - Jan. 15
362,000 - Jan. 15
-
First National Stores Inc. Com.
1,000 - Jan. 15
-
Lone Star Cement Corp. Com.
21,657 - Jan. 16
-
nesapeake & Ohio Ry.Co.Gen.Mtge.4-1/26
5,000 - Jan. 17
-
Union 011 Co. of Calif.
1,750 - Jan. 17
-
U. S. Rubber Co. Com.
20,460 - Jan. 18
-
Pacific Lighting Corp. Com.
3,808 - Jan. 20
-
United Fruit Co.
1,500 - Jan. 20
25,461 - Jan. 23
-
Swift & Co. Com.
6,000 - Jan. 20
-
Republic Steel Corp. Com.
8,000 - Jan. 20
-
American Fork & Hoe Co. Com.
5,000 - Jan. 20
2,831 - Jan. 21
2,500 - Jan. 22
-
U. S. Treas. 3/15/55-51
50,000 - Jan. 21
U. S. Treas. 3-3/8% June 15, 1947-43
1,000,000 - Jan. 21
-
Wayne Pump Co.
11,300 - Jan. 21
11,300
United Gas Corp. $7. Cum. Pfd.
10,000 - Jan. 21
-
Regraded Unclassified
201
- 4 -
Gifford Reports:
Forrestal Reports:
Radio Corp. of America Com.
5,000 - Jan. 21
3,000 - Jan. 22
-
General American Transportation Corp. Com. 1,300 - Jan. 21
-
Atchison, Topeka & Santa Fe Ry. Co. 5% Pfd. 2,500 - Jan. 21
-
American Radiator & Standard Sanitary Corp.
Com.
218,557 - Jan. 22
218,000
Lehman Corp.
2,300 - Jan. 23
-
American Rolling Mill Co. Com.
2,000 - Jan. 23
-
Blue Ridge Corp. $3 Cum.Conv.Pfd.
23,397 - Jan. 24
-
Fairbanks, Morse & Co.
-
9,000
Bell Tel. Co. of Can.
-
30,000
ollinger Consolidated Gold Mines
-
39,000
Bathurst Pv & Paper Ltd. Class A
-
21,000
Suid
Regraded Unclassified
NAVY DEPARTMENT
202
OFFICE OF THE UNDER SECRETARY
0
2
Date
194
From: The Under Secretary.
To:
The Secretary of the Navy
The Assistant Secretary
Admiral Stark
Rear Admiral Nimitz
Rear Admiral Robinson
Rear Admiral Furlong
Rear Admiral Towers
Rear Admiral Moreell
Rear Admiral Spear
Rear Admiral Woodson
Rear Admiral Anderson
Mr. XXXXXXXXXXXX
WISE
Commander Gingrich
SEC. Morgenthan
For information
For comment or recommendation
For preparation of reply
Please send me (data for reply)
Please nee me in regard to this
Pleana consult with
Ple
return
M. a. GOVERNMENT PRINTING - 270740
Regraded Unclassified
203
January 2, 1961
M.P. Purrestalr
disce FV - of January 75h, the following blocks of stock have less offered for mis, : have
#118 e red " Losse Wast 1 balieve are for British e/o.
Offering
Approx. Total
Dealer
Offered By
Price
Spread
Concession
with
4,900 Jos, 7. More & Do.
Laward Preres & Co.
45 1/2
(not available)
$1
Dominion Sec. Corp. and
156
3 1/2
1 1/2
00,000 Rell Tabe T. Co. of CEG.
Group (In Canada)
(Canida)
Union Sec. Corp (For a/c
17
3/4
5/8
0,000 derth (ip.
Tri-Continental Group)
(1/8 amagement)
(100,000 sha. sold to Blue
kidge Corp at 1743/47
Balance 72,945 shs.
17
1.
1/4 to Dealers
1,945 Morth American Do.
divided between Smith,
actelde of New
Barney & Co. and Blyth &
York City.
Co., Inc., for retail)
Pacific Gas à Kisetric Co. Blyth 5 Do., Inc.
28 5/8
$1.15
.70 caute
Shearaon Hamill & Co.
R
.55 cente
(sold at retail)
7,000 oil & Snowdrift
a
10,000 Montgomery Ward & Co.
Desinick & Dominick
79
1 5/8
7/8 (off'd to their
om dealar corre#-
Leitumen grotbers
pundants)
0,534 Union Pacific N.R.
Euho, Loeb & Co.
6A
1 7/8
1 1/4
(1/6 management)
F.
(1/2 underwriting)
11.900 American Cynnamid "0"
Laurence M. Marks & Do.
36 1/8
1 1/2
5/8
11,825 H. L. Green & Co.
Rayden, Stone & Co.
33 7/8
1 1/4
1
in
10,000 Purity Bakeries
Spencer Track & Co.
11 1/2
.50 cente
(sold at retail)
F-
10,000 Stand. Oil of N.J.
Dillon, Read & On.
34 1/2
$1.66
#1
(.16 management)
(1/2 underwriting)
40,000 Brunkwick Balke Collender
Lateren Brothers
22 3/4
2 1/2
L
Coldman, Sachs & Co.
100,000 Soenny-Venum
Lee Higginson Corp.
9
.50 cente
.30 Dente
F.
Spencer Trank & Do.
10,000
Reymond Concrete Pile
W.E.Rutton & Co.
16 7/8
1. 1/4
I
Eldder, Peabody & Co.
39,000 Hollinger Consolidated
(Bought from "British Hold-
(not available)
(not sveilable)
Gold Mines 7.
ings" for distribution in Canada)
= 100 Grast Northern Paper
Smith Barney & Co.
42
tv
1 I/A
and Associates
(.25 cente MANAGEMENT
.50 cente Und.)
21,000 Bethurst Pw & Paper LAd.
Nesbitt, Thomases & Co.
13
(not svailable)
Class A
F.
Montreal
(Canada)
20,000 Public Nat'L Bix & Tr. (lo, Warthale & Co.
32
(not weilable)
1
12,000 Rn. Wrigley & Co.
Clore, Forgan - Car.
77 1/2
2 1/2
1 L/2
6,800 Novedel-Agene Corp.
Slyth & Co., Inc.
29
2 1/2
1
45,000 M. soolworth * Do.
Allen 5 Co.
32 3/8
(not available)
1
(Stone & Wobster and Biodgett
11,100 Esyne Pump Do.
(Shielde & Company
19
1/4
(sold as retail?
1.
Graham, Persons & Co.
(Heory Herrsan & Co.
.30 certe
/214,000 American Redistan &
Werthein & Do,
6 5/6
Stand, Sentary
G. reale
Regraded Unclassified
204
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Consulate General, Zurich, Switzerland
DATE: January 29, 1941, noon
NO.: 66
The following 1s strictly confidential:
I am told by my British colleague that a bank contact
of his here in Zurich informed him that his institution
very recently had negotiated a transaction involving
one million Swiss francs, which covered a shipment to
Russia from General Motors in the United States, which
shipment ultimately was delivered to the Skoda Works.
The nature of the goods delivered was not learned by
my informant.
STEWART.
EA:LWW
Regraded Unclassified
205
- - CHAIRMAN
DAVID I. skin. VICE CHAIRMAN
MAI 1. HAVES
JOMM c. CLINE
ou = MIRARRAN
ROUTENT
CLEVELAND METROPOLITAN HOUSING AUTHORITY
DIVILLAND
HOUSING CENTER
INSURED ! HAL )
WEBT HALL DRIVE
CLEVELAND OHIO
JANEST A. son. DIRECTOR
January 29, 1941
Dear Daddy,
\ am enclosing a copy of the
"clevelend News" article on your
testimony yesterday. 1 Think you
did a swell job and classive all The
credit you xcm to be getting.
Love
Huny
is pec'f Dero That to
aregon e depper"
Regraded Unclassified
EVELAND NEWS
Exclusive Evening News of the Associated Press and International News-Wirephotos
7TH FINAL RACE
TUESDAY, JANUARY 28, 1941
THREE CENTS
MORGENTHAU PINS BRITISH
FATE ON LEASE-LEND BILL
Has "Charge or Was Beht
Marshall
He asserted. too, during question-
log. that "mentally" he had charged
off "some time ago" Dritain's multi-
billion dollar war debt to the United
States.
Says U.S.
Morgenthau said Britain had
placed before the Treasury the
"cold, hard facts" that they were
running out of money to pay for
Help Can
additional orders. He said it was up
to Congress to decide quickly what
should be done.
At the other end of the Capital,
Beat Nazis
the House foreign affairs committee
tentatively closed its hearings no
the bill with private testimony from
Marshall and General George H.
Brett, acting Army Air Corps chief,
Army Chief Predicts
Agree on Four Changes
After di meeting of Democratic
Hitler Will Attempt
members of the House committee.
Chairman Bloom announced tenta-
Invasion in Spring
live agreement on four amendments
to the bill, including one prohibiting
the use of United States vessels as
WASHINGTON (PP) -
convoys.
The other proposed changes would
Treasury Secretary Morgen-
limit the life of the powers greated
thau bluntly told the Senate
President Roosevelt to two years;
require the president to report to
foreign relations committee
Congress all operations under the
today that Great Britain,
law and require him to consult with
the chief of staff of the Army and
Greece and China "can't con-
the chief of naval operations prior
tinue to fight" unless Con-
to taking any action under the AU-
thority granted him by the bill.
gress enacts the administra-
Urgina speedy approval of the
tion's British-aid bill.
administration's British-aid 6111
"If this bill doesn't pass Con-
Morgenthau said its necessity was
demonstrated by . telephone con-
gress." he said, "they can't con-
versation yesterday with William 5.
tinue to nght. The declaion reste
Knudsen director of the Office of
with Congress whether Great
Production Management
Britain, China and Greece are to
Waris something Dane
continue to fight."
Knudsen called him. the witness
Meanwhile General George C,
wid. and asked if something couldn't
be done by which Britain could get
Marshall. Army chief off staff, 82-
2.000 planes which they want. but
premed belief that Great Britain
DUE which they can't place ordera.
could defeat Germany with the sid
There is plant capacity for the
which the United States would give
orders Knudsen explained. If the
credit can be arranged. Some plants
under the lease-lend measure He
have been tooled up for months to
gave this view at e pewis confer-
take care of British and French
ence . short time after Secretary
orders but they may become idle
Morgenthau appeared before the
after April unless credit is F1.
ended. because they cannot turn
committee. Testifying that the British had et ser
Tum in Page Five
have buying war supplies. Morgenthau
their
said British orders for 3,000 fighting
planes ware being held up for lac%
Regraded Unclassified
of cash.
207
Tuesday, January 28, 1941
Morgenthau Pins British
Fate on Lease-Lend Bill
Continued From Page 1
give sue the time we desperately
need to prepare."
out the type of planes wanted by
Morgenthau replied "Yes" when
the American Army and Navy.
Senator Connally (D-Tex.) asked
Morgenthau made bis statement
about Britain's debt from the last
whether the British have paid for
war in response to 6 question by
all war materials to date with "hard
Sensior Vendenberg (R-Mich.).
cash" and that "not . dime" of
Specific Agures were not men-
American money had been supplied
tioned but Treasury records show
to Britain,
that the net amount owed by
Britain on the principal of World
"Stemply Pay From Dr
War borrowings is $4,138,000,000.
"As a matter of fact." Connelly
Unpaid interest brings the total to
added, "the United States is not
65,728,810,000.
alding Pritain et all. The British
The Brittsh-ald bill would author-
simply buy from our manufactur-
on who make . prodit on the or-
be President Receivelt to make
ders."
war materials available to Britain
"That's correct," Morgenthau said.
without immediate payment and, in
"That's the idea some folks have
effect, leave an accounting to a
of all possible aid to Britain," Con-
post-war settlement.
nally remarked.
Morgenthau seld the Brittsh now
Morganthau's testimony came
have available only $1,811,000,000 tn
after . White House conference last
gold and dollar exchange assets for
night at which President Roosevelt
war supply purchases. As against
reportedly told Republican and
this, he testined, the British owe
Democratic legislative leaders that
American manufacturers $1,400,000,-
while the bill would authorise him
000 on orders they already have
to "de anything under the aun," he
placed in this country
had no intention of doing more
under It than was deemed necessary
Calls Bridale "Good Risk"
by his Army and Navy advisers.
When asked by Senator Nye
(R-N. D.) whether be considered
Bights Spring Invesion
Britain . "good loan risk," Mor-
In his interview, General Mar-
gentheu deplied: "Xes, I do.
shall told reporters that all Indi-
"Do you think so in the light of
cations were that Hitler would
our experience with the 1917-18
probably make an all out attempt
war loan?" Nye inquired.
to invade England this apring.
"I'm not thinking of it in terms
"Do you believe that Great Brit-
et dollars or terms of being repaid
ain with the aid of the United
in dollars." Morgenthau replied.
States could whip Germany?" Mar-
"I'm thinking nt it in terms of
shall was asked.
whether it is a good risk to give
"Yes," he replied
them the materials they need so
"Do you think she could defoat
that they can keep Aghting end
Germany with all aid except man-
power*
"I think so." Marshall replied
That certainly is user hope
Without American aid, he de-
clared. Britain's situation would be
extremely hazardous
"I think It's a serious situation
-nne of the most critical periods
in the history of the world."
208
January 29, 1941.
MEMORANDUM
TO:
Secretary Morgenthau
FROM: Mr. Gaston
Mr. Cairns advises me that Secretary Knox made a formal
request for an opinion from the Attorney General as to whether
the President has authority to order an immediate transfer of
the Coast Guard to the Navy. Townsend asked Cairns to prepare
a memorandum. There seems no doubt that the authority exists.
Section 1 of Title 14, U.S.C., reads in part as follows:
"The Coast Guard shall constitute a part of the
military forces of the United States and shall operate
under the Treasury Department in time of peace and
operate as a part of the Navy, subject to the orders
of the Secretary of the Navy, in time of war or when
the President shall so direct."
Cairns, however, is looking up the legislative history. An in-
teresting feature of the law is that appropriations for the
Coast Guard have to come through the Treasury Department except
in time of war notwithstanding that the Coast Guard may be oper-
ating under the Navy by direction of the President. The law
reads:
"When subject to the Secretary of the Navy in
time of war the expenses of the Coast Guard shall be
paid by the Navy Department."
Mr.
Regraded Unclassified
209
Regraded Unclassified
January 29, 1941.
TO: Secretary Margenthew
FROM: Mr. Gaston
Mr. Cairns advises Be that Secretary Knox made a formal
request for an opinion from the Attorney General as to whether
the President has authority to order an imadiate transfer of
the Coast Guard to the Havy. Townsend asked Cairne to prepare
a memorandum. There some no doubt that the authority exists.
Section 1 of Title 14, U.S.C., reads in part as follows:
"The Coast Guard shall constitute & part of the
adlitary forces of the United States and shall operate
under the Treasury Department in time of peace and
operate as a part of the Navy, subject to the orders
of the Secretary of the Havy, in time of we or when
the President shall 90 direct."
Cairns, however, is leeking up the legislative history. As in-
teresting feature of the law is that appropriations for the
Coast Quard have to come through the Treasury Department except
in time of war notwithstanding that the Coast Guard may be oper-
sting under the Nevy by direction of the President. The Law
reads:
"Then subject to the Secretary of the Navy in
time of war the expenses of the Coast Quard shall be
paid by the Havy Department.
210
FIFTY ONE MADISON AVENUE
New YORK
January 29, 1941.
Dear Henry:
Just after receiving your gracious and welcome
note of January 6, I had to go away for ten days to attend
my first insurance convention. On my return I found that
your note had been misplaced with the mail that had accumu-
lated in the meantime. So, I hope you will please under-
stand and forgive this long delay in thanking you for it
and for the good wishes which it brought to me.
It was not easy for me to leave the Federal Re-
serve System after so many years, and I know that I shall
miss it and my associations with you more than I dare to
contemplate. However, I hope that some day when I am in
Washington and when the great pressure of work under which
you are now laboring, will have let up somewhat, you will
let me call on you. In the meantime, please accept my
thanks and my best wishes.
Faithfully yours,
Hon. Henry Morgenthau, Jr.,
The Secretary of the Treasury,
Treasury Department,
Washington, D. C.
Regraded Unclassified
211
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 29, 1941
TO
Secretary Morgenthau
FROM Xr. Cochran
STRICTLY CONFIDENTIAL
Mr. Playfair of the British Treasury Delegation talked with me by telephone
yesterday noon and came over to are me yesterday evening. In both conversations he
centioned that Great Britain was being obliged to release more gold to Canada than
had been immediately anticipated.
Playfair again brought up the question of interim assistance for the British. He
stated that if the Lend-Lease Bill should become effective by March 1 it would find
the British on that date with only about $45,000,000 of gold or foreign exchange on
hand. A fortnight ago we calculated the balance at the end of February as nil.
This increase to $45,000,000 1a approximately the amount of the revision of the gold
holdings of Great Britain as made after our first table was submitted and prior to
the hearing before the Senate Committee. I gained the impression that the British
night desire to approach the Secretary on this subject yet this week. Playfair
stated that orders placed since the new stringency arose had amounted to approximately
$130,000,000 to date.
Playfair stated that a message had been received from London to the effect that
about $1,500,000 of silver was required for coinage and industrial purposes. Silver
to this amount will be received from India in April, but because of the urgency of
the need for coinage and industrial purposes inquiry was made as to whether the silver
night be obtained elsewhere. I told Playfair that the Treasury could not sell any
of its stock at current prices. The British could procure the desired silver through
market transactions to be handled by banks and dealers in New York. Furthermore, I
explained our arrangement with Canada and suggested that this Dominion might provide
the necessary silver. Playfair pointed out that dollars would have to be paid for
the silver coming from either of these two sources and that he would regret to nee
his Government expend dollars for this purpose at this time, especially considering
that the Empire itself is producing silver, which can be obtained against sterling. silver
I told him that we did not have any sterling abroad which we could away for
in India to help in the British emergency.
16m8
Regraded Unclassified
212
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
Secretary Morgenthau
January 29, 1941.
TO
FROM
Mr. Kuhn
Joe Alsop would like very much to see you tomorrow
to bring himself up to date on economic defense. He has
the impression that the situation has changed materially
since he last discussed it with you.
J.K.
WASHINGTON POST - February 7, Dall.
213
Capital Parade
live order SAM January a, Prepara-
Time for active economic defense
were actually started at the Treas.
By Joseph Alsop And Robert Kintner
very
Then un January # Secretary
Mull asked for more time is civi-
ONLY TWO or Biree works Agm
As cappans, must of the pow.
sider the draft order Time any
there was a good prospect of our
in Desided for economie defense
proparty, we granted And time
putting our massive economic pow-
are already lodged in the Treas-
er behind Britein's effirt of eco-
ury. Through the stabilization
has prolanged Hself, end new ob-
fund, is controls world money mar-
jections have been hañed, unill the
nomie warfate. An excellent ecm
keta, Its tregzing and balance-
prospect of . decision bas almost
namic defense plan had been
blocking power permit " to con-
vanished.
taunched, and seemed to have plain
selling ahead. Indeed. Die Presi-
trol foreis & assets in this country.
Z
dent had virtually agreed to sign
The form of shipping control 12-
VARIOUS REASONS eye given
the necessary Executive order.
Into in the Coast Guard's power to for the delay Amietant Secretary
not then, at the last moment, the
grant or withhold port clearances of State Adolph A. Berle, Its who
plan was eaught in one of those
And its banking connections make has advised Secretary Hull on the
governmental eddles, an too com-
n easy for the Treasury to mobil- subject, le extramely doubtful
ment in Washington, where hap-
Iss the influence of American whether the right organization has
less projects are toming endiessly
firms abroad. Only export control, been hit upon, He particularly
la and fro in the crois-curremis
exercised by the office of the ad questions whether lbs Treasury,
ministrator under the While already burdened with responsi-
or the bureaucracy.
The disagreement was chiefly
House, and the important control bility, should receive such a large
between the Treasury and State
orising from purchases of strategie accretion. Other State Depart.
materials. not In the RFC. are not ment omoials are not satisfied with
Department, with Commerce and
other agencies playing subsidiary
under the Treasury roof.
the velo power conferred ne Sec-
IN
retary Hull,
parts If areas more than is unit
from bonest difference of opin-
THE TREASURY plan called
NJ
inn, less from petty conflicts of
for addition of espirt control to
THE WASTE of time has had
smbition: But whatever the tes-
the other Treasury powers. forma-
same pretty unpleament results,
son, the plan now seems destined
Uon of . # general staff within 104
The Germans and Dialians. fearing
to revolve" in its eddy until at 14
Treasury to apply the several con-
freezing order, have removed
finally knocked to pieces, like "
trols, and equipment of an
inter-(every dollar they could Siguidate
rudderies ship in & whirlpool.
departmental committee to direct
from this country to South Amer-
this general staff, IL contemplated
lea, where the dollars will Inevi-
243
soveral bold changes in Govern-
tably be used against us Although
DURING RECENT months sev-
ment pulicy such as general frees
proposed and becked LA both
oral departments and agencies
ing of the American address of all
Treasury and State Departments
have interested themselves in the
even 5. selective freezing order,
economic defense problem. Six
of foreign export nations, controls and in make estensione them applying Swine only assets, to German, has not Italiso been
weeks nd so REO a memorandum
proposing action. said to have orig-
more plan, damaging presented to to the the Aria Presiden Third agreed to. Yes the waste of Lime.
insted with Leon Henderson, was
by Secretary Henry Morgenthau being irregarable, should cause
ment the President from the De
Jr. was promptly objected to Date present soncern than the con-
tense Commission. Even before
the State Department State De linued disagreement. As has been
that, . special projects division
partment afficials naturally fearnd the disagreement in for
was 000 up In the office of the Ad
much aggressive sellon might honest not accompanied and disin-
ministrator of Export Control, to
our
relations
with
Japan
Rumia,
by the usual sundid hiskering But
study the problem under the
guidance of former Assistant Sec-
Allorney
General
Robert
H
however unusual In manner and
Jackson was thereupon called in matter, to have the disagreement unral effect-sne of
the
be
likely
retary of the Treasury Themas
Mewes AL the Commerce Depart-
and on bis advice the plan and theme preservations of the buresu-
mont ever since his appointment
order were redrafted, to give full cratte Status que, nurting no one
44 Under Secretary, Wayne Chat-
power to vato or modify any pro-feelings Dut rendering Use Gov+
Reld Taylor has been considering
posed move to Secretary of State erriment administratively Impa-
& scheme to combine economic
Cordell Holl, as chairman of the tent,
defense and preparations for post-
interdepartmental directing com-
war economic reconstruction.
milles This !! was thought out-
Finally, at the Treasury, where
lifted the policy objections to the
Interest in economic defense first
plan. On the undermanding that
swokened to Washington, a com-
something like an agreement but
piete plan and Executive order to
been reached, the President der
implement is Were drawn up to
clared he would rign the Execu-
wards the end of December.
Regraded Unclassified
214
>
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 29, 1941
TO Secretary Morgenthau
FROM Mr. Cochran
Mr. Playfair of the British Treasury Delegation telephoned me this forenoon.
Since Secretary Morgenthau had, according to the press, mentioned in his testimony
before the Senate Foreign Relations Committee yesterday the fact that the British
representative who was coming to the United States to take charge of the disposal
of direct British investments in this country was detained at Lisbon, it was felt
by the British that this gave clearance and a reason for the early release of a
communique by the British Government in regard to Sir Edward Peacock's nomination
to this post and his departure. I agreed that there was no reason why the communi-
que should not now be issued. Playfair called me back around noon to tell me that
a notice on this subject would appear in tomorrow morning's London papers, I gave
this information at once to Mr. Kuhn. I told Mr. Kuhn that I thought this should
be a British release and that no further statement was required by Secretary Morgenths
just
Regraded Unclassified
215
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 29, 1941
Secretary Morgenthau
TO
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
I have learned in strictest confidence from our British friends that the gold
which we learned B few days ago had been deposited with the Bank of Brasil for French
account, end amounting to 500 kilograms, had reached Rio de Janeiro between
December 6 and 11, after having been transported from Casablance on the S.S. Katiola.
It 10 understood that this gold will be used to pay from Brazil for oil to be pur-
chased in Venezuela and shipped to Dakar. This gold is held in the name of the
B.I.S. at Rio de Janeiro. The next to the last paragraph of cablegram No. 15 from
the American Legation at Bern explains the transaction insofar as the B.I.S. is
concerned. I have given the foregoing information to Dr. Feis in the Department of
State since we had consulted on the subject before he despatched the cablegram to
the Legation at Bern asking for an investigation of this matter with the B.I.S.
N.M.P.
Regraded Unclassified
216
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Argentina (Madrid)
DATE: January 29, 5 p.m.
NO: 77
British Ambassador informs me that 50,000 tons of
wheat from Argentina which his government is preparing to
furnish Spain will be paid for from available Spanish funds
but that any amount beyond that must be met through credits
to be voted by Parliament. Spanish Government has sent 70
vessels to Buenos Aires and probably anticipates getting more
wheat.
Representative of the Minister of Industry and Commerce
has told the Embassy that the Spanish Government is discuss-
ing with the Argentine Government the purchase of 500,000
tons of wheat to be paid for by certain securities available
to Spain and by credits to be accorded by Argentina.
COPY:aja
Regraded Unclassified
217
- $ 9 1941
Dear RF.
Is connection with reports I - receiving hi-weskly tra the airplans
and airplane englas labuatry, I should like to - eartain information
regarding unfilled orders, new enters, and deliveries of stryland ongine
for your complete. I - enclosing s table which has been propered for your
company from various date svailable at the Vap Department showing the muser
of airplane enginee ea order N Junuary 18, 1941, will you planse revice
this table in accordance with the presedure outlined below.
Iring revenued to February 1 the estimated deliveries of the unfilled
orders by (1) insurting new orders received during the period Junuary 19
through Terruary 1 in their proper plane, consining - orders with orders
now shown on the table viaus the type of simplane engine and slass of -
chaser are the - and wing a nov line for My type of sirplane englue
not already included is the eshodule, and (2) indicating any revisions that
have been unde is the setimated delivery dates of the remaining orders -
showe on the schodule, After these revisions have bons main, the schedule
should show estimated deliveries of all ordere unfilled on Telenary 1, 10-
cluding an orders reselved during the period. - deliveries start, of
everse, a further adjustment of the figures to reflect with deliveries would
have to be más,
Take should ensivio que parte. If my epare parte the insluded is
the contract, please show the percentage these bear to the total order in
the selumn at the extreme right of the table.
Please forward the sevieed table. together with & statement of MY
orders reseived end deliveries sale in the partod Junuary 19 through
February 1. to Hr. George 0. Thes, Director of Research and Statistics,
Treasury Department, Vachington, 1, 0., - I have ested to arreage to
obtain from you figures M are to bring the
information - to date. I shall appreciate 10 If you vill send your
regly w sir mail special dolivery 00 that 19 will reach kim an Monday,
February 3.
Disearcly.
He. Pan). a, Haffman, President,
(Sagned) H. St.
Corporation,
633 Health Meda Street,
1 I I
Residence YOR
FILE COPY
Regraded Unclassified
per Hadley to got to to
218
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 29, 1941
TO
Secretary Morgenthau
FROM 1. H. Hadley
GOVERNMENT SECURITY MARKET
AS VIEWED FROM THE CHICAGO AREA
In talking to representatives of the Federal Reserve Bank of Chicago
and five largest commercial banks there, I anked the following questions:
1. What is the general attitude toward the government security market
in this area?
2. What has been the reaction to recent Treasury offerings?
3. What type of securities are the banks and customers looking fort
4. What type of security would you propose which would attract
individual investors and exclude banks?
I. Attitude Toward Government Security Market
The general impression of the market is that it ie rather thin and
tending toward lower levels. The general opinion is that there are more
forces pushing the market down than tending to raise it. One of the forces
which practically all the commercial bank men mentioned was the uncertainty
as to whether Eccles' proposale will be approved or not. This uncertainty
applies especially to the smaller country banks where they hesitate to make
further investments not knowing whether their excess reserves will be avail-
able for investments or will be completely eliminated. The next sixty days
in the European picture to them appears critical and adds further to their
hesitancy to make committments. The prospect of 6. heavy Treasury financing
program has also tended to keep buyers out of the market until they can get
Regraded Unclassified
-2-
219
N broader perspective of what the Treasury financing program will be, and
this 10 coupled with the question of when will the tax exemption feature be
removed from Treasury bonds.
48 to the taxability of new issues, there was no complete agreement.
Some felt that completely taxable issues will result in higher interest rates
for new bonds than would appear on first glance because more and more banks are
getting into a position where their taxable income is becoming an important
factor. Heretofore taxable securities meant little or nothing to the banks.
The general feeling is that a lower level of security prices would be much
healthier because large Treasury offerings at high levels may have a tendency
to knock the market down and, above all, the Treasury must guard against
unsuccessful issues at the start of such A huge program as is planned. They
seem to feel that the rise from November to the first of the year was rather
artificial and a level somewhere around the pre-election prices would give a
steadier market,
II. Reaction to Recent Treasury Offerings
For the most part, the defense notes did not appear to be attractive
to the banks in this area because they neither give a high return which the
small banks are looking for nor the type of liquidity which the large banks
seem to desire. Feeling was that the greater percentage of the first issue
bought in this area found its way into the New York banks where they
estimate 75% are now held. On the December issue, the New York banks gave
buying support to the note whereas on the one Just offered the New York banks
did not hold an umbrella over the new issue and appear to be picking it up less
aggressively. The impression was that the market can only take GO much of this
type of issue in a given period and that this second offering had a tendency
to load up the market with 8 note issue. Customer subscriptions to the last
offering were considerably lower and the small banks were practically out of
Regraded Unclassified
220
the picture. These smaller banks appear to be waiting for lower levels in
order to reinvest funds obtained from sales of their longer bonde which they
unlonded in the Fall of 1939 and the Spring of 1940, A lot of the subscribers
that stayed out of the last defense note because of relatively low price
appeared to be "free riders" and from this engle the subscription list is
mich more heal healthy than it has been for some time. A high percentage of the
subscribers appear to be those who will hold on to the notes. However, this
conflicts to some extent with the opinion that a high proportion of these
notes will be re-sold to the New York banks, One factor which tende to make
the defense notes less attractive to the banks 16 the uncertainty AS to
whether these issues will be exchangeable for new offerings at maturity. As
the law rends now they are not. Some of them felt that because bank loans
are tending higher, committments for governments by banks aren't going to be
no large in the future ae they have been in the past. Some mentioned that
they took and would take any defense issue of fered whether they planned to
hold them or not because they wanted to do their share on the defense program.
III. Type of Securities Banks and Customers are Looking For
The larger banko in this area are not in agreement ao to the type of
securities they desire for their own portfolio. Some tend to the short terms
and some to the longer terms, However, there was complete unanimity of
opinion that the country banks want the higher coupon issues which for future
issues means long term bonds. These smaller banks have to earn a higher rate
on their investments because their costs and interest payments to depositors
are proportionately higher than the big banks. The larger banks are split
between the long term issues and bonds of about 10 years or less, depending
upon individual investment policy. They all talked in terms of higher coupon
rates than have been offered on previous issues. In part this appeared to be
#ishful thinking but there was also the general feeling that the market is
Regraded Unclassified
221
going lower and therefore higher rates will have to be pet d. Most of them
felt that it was absolutely necessary that the Treasury be sure to make issues
so attractive that there will be no question of their falling below par. There
was general agreement that poor offering at the start of such a heavy program
would cost much more in the long run than what at the time of offering might
appear to be an issue that looks too attractive.
IV. Treasury Offerings Designed for Individual and Buyers Other Than Banks
Feeling was that since banks can always under-bid other investors because
of heavy cash resources and lower earning requirements, securities designed to
80 to individuals should be designed definitely to exclude possibilities of banks
taking these issues. The general feeling was that some type of offering similar
to the baby bonds but with the elimination of the demand liability feature would
be most satisfactory. The experience and education of the public that has come
from these baby bonds should not be thrown away on some entirely different type
of offering. Just what a new offering would be, opinions vary, al though they
seem to feel that, excluding our active participation in the war, the only real
incentive for the individual to buy would come from an attractive coupon rate,
perhaps as much as 3%. They felt that simplicity should be the feature of the
issue and that a really patriotic motive was rather nebulous unless we were
active participants in the war. They felt you can always sell any type of
issue if the return is attractive end that most individuals think of 3% as
such a rate.
Although this 3% rate may seem out of line with what we have been offer-
ing, the taxability of future issues coupled with what they feel is 8 tendency
toward lower lovels, may make such a rate necessary. Above all, they agreed
that the demand aspect of the baby bonds is a danger which should be circumvented
by any new offering to the public but they do not feel it wise to upset the baby
Regraded Unclassified
222
-5-
bond program as it stands now. If an offering without this demand liability
feature should be made of securities to the public, they propose an increase
in the limit which any one buyer could take to a much higher figure than now
exists for the baby bonds. They felt that the largest source of funds from
non-banking investors would come from insurance companies and trust funds
and that individuals as such would not be as great a factor as might be
thought. Some felt that the cost on very small units such as savings stamps
would more than offset the inflow of money from this part of the investing
spectrum.
223
January 29, 1941
H.M.Jr:
Lord Halifax called and made an excellent
impression. He is very simple and very
direct, and very badly dressed. I believe
he is hard of hearing, and I didn't know
that he only had one arm. He wanted to
thank me for all I had done.
I told him I was very glad to see that
England was putting pressure on us to help
along the economic line. He said he had
taken this up with Sumner Welles and left
a memorandum with him, and Summner Welles
stalled him by saying that possibly they
could hold all the ships at the Panama Canal
and examine them there, but I gathered that
Welles must have told him he would have to
get the other South American countries to
agree to this, and he wondered if that was
at all feasible; and I said I doubted it
very much.
I cited the case of oil in Central and South
America and then I got on to the question of
freezing funds, and I said that I was going
to be undivlomatic, but that what I was going
to say to him now or in the future, I never
would say that I hoped he would do something
that the President wanted, but that if they
could put pressure on the State Department,
and particularly on Mr. Hull, to let us go
ahead and freeze all funds that I didn't know
anything that we could do right now which
would be more helpful.
Regraded Unclassified
224
- 2 -
He thanked me very much and assured me that
he would be discreet, and I think he will,
at least I might as well test him and find
out; and if he breaks my confidence this
time, he will never get another chance.
I asked him whether he didn't think that
they had a better chance of winning now that
they no longer had France as an ally, and he
first stuck at the question; but then he said
there were a lot of Englishmen who felt that
their chances of winning were greater without
France than with it, and then he said some-
thing very interesting, "And at the peace table,
the role will be easier without France, because
we hope it will only be the United States and
ourselves dealing on the one side as against
out enemies." He didn't put it just that way,
but that is what he meant; but he did say,
"United States and ourselves without France."
He asked me how I liked Sir Frederick Phillips,
and I told him I got along very well with
him; and he said he was interested, because
he said Phillips did have a habit of being rude
to certain people, and I said he had never been
rude to me. He said, "As long as he gets
along with you, that is all that counts."
And then after I said I liked him, he let me
know that he also thought highly of him. I
put in an extra good word for Purvis, and a
pat on the back for Pinsent.
Regraded Unclassified
225
January 29, 1941
Arthur Purvis called to tell me that he had quite a
discussion with Sir Frederick Phillips about getting the
money to buy 1960 English type planes; that it seemed out
of the question to use the French gold in Canada, for po-
litical reasons. As to the Belgian gold, they might be
able to borrow it provided they could get the money, say,
from the sale of wool or tin or rubber, to pay back in 60
days, but it presented a very serious situation and the
Belgians might yell their heads off about it.
I told him he should forget it for the time being and
save the French and Belgian gold for some great crisis. My
suggestion to him was that he should go over and see Bill
Knudsen this morning and say "We need 1960 planes. What
American prototype have you got that can do this particular
job that we need, such as dive bombers or reconnaissance
work, etc.' and see if Knudsen can't suggest an American
type plane. He said he thought that was an excellent, prae-
tical suggestion and said he was sure that the Americans had
a type plane for every need with one possible exception and
he would see if Knudsen would not be willing to manufacture
a plane to fit this type inasmuch as the Americans had no
plane already along these lines.
I then mentioned to him that I was worried about the
size of the English orders that were coming through and
asked him to study this situation and he said he would. He
said that he had also been surprised and it had been largely
steel and machine tools and that he only learned about it on
his return from England.
Regraded Unclassified
226
January 29, 1941
Memorandum
I would like to have an exact copy of what General
Marshall said yesterday as the accounts in today's
papers are so sketchy. I also would like to know under
what circumstances and where he said it.
Copy to Mr. Schwarz
Regraded Unclassified
1-29-47
FROM: MR. SCHWARZ'S OFFICE
The Secretary
TO:
General Marshall reports that he
has no transcript of his press
conference in his office yesterday.
The conference, he said, was one
that had been long-deferred and
turned out to be unfortunately timed
because it followed so soon after
his executive session testimony
before the Foreign Affairs Committee.
He was perturbed by this morning's
stories because he repeatedly told
the reporters that he did not like
to comment publicly on pending legis-
lation. They wormed his opinions from
him as background and then some used
them as if they were statements made
before the Committee.
s)
Co
-
228
January 29, 1941
Mr. Foley
Secretary Morgenthau
In my testimony yesterday where I said I never heard
of Barron's Weekly, I would kill it because that was an
incorrect statement.
Regraded Unclassified
229
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE January 29, 1941
TO
Secretary Morgenthau
FROM
Mr. Cochran
CONFIDENTIAL
Registered sterling transactions of the reporting banks were as follower
Sold to commercial concerns
50,000
Purchased from commercial concerns
634,000
The Federal Reserve Bank of New York sold $57,000 in registered sterling to
two non-reporting banks.
Open market sterling was quoted at 4.03-1/2. Transactions of the reporting
banks were as follows:
Sold to commercial concerns
61,000
Purchased from commercial concerns
$2,000
Until late afternoon, Swiss francs available for commercial use were offered
.2326, unchanged from yesterday's close. The final quotation was .2325. The
New York banks reported that little non-commercial business had been transacted in
Swine france, and that the only rate recorded was .2345 bid for a moderate amount.
Closing quotations for the other currencies were:
Canadian dollar
17-1/4% discount
Swedish krons
.2386
Reichemark
.4000
Lira
.0505
Portuguese escudo
.0401-1/2
Argentine peso (free)
.2375
Brazilian milreis (free)
.0505
Mexican peso
.2066
Cuban peso
7-11/16% discount
Chinese yuan
.05-9/16
There were no gold transactions consummated by us today.
No new gold engagements were reported.
The New York banks stated that the Bombay bullion markets were closed today
and no metal prices were received from India.
Regraded Unclassified
230
In London, & price of 23-3/16d W&B fixed for both spot and forward silver,
representing a decline of 1/16d in the spot quotation and no change in the forward,
The dollar equivalent of 23-3/16d 18 42.10$.
Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44.
The Treasury's purchase price for foreign silver R&S also unchanged at 35#.
Tie made one purchase of silver amounting to 250,000 ounces under the Silver
Purchase Act, representing a sale from inventory.
BMR
CONFIDENTIAL
Regraded Unclassified
TIME
1/28
231
jine
mate
pum
with
reland
1/30/41
January 29, 1941
Mr. George Haas, Director
Division of Research and Statistics
Room 259
Treasury Department
Washington, D. C.
Dear George:
Still further inquiry concerning Mr. Thomas Campbell reveals
that apparently he is about the only man who ever took Mr.
Morgan to a cleaning. It is said he did just that in the
wheat dicker at the time of the last war. Mr. Campbell also
is credited by his friends with the ability to sell a man the
Brooklyn Bridge every morning before breakfast, and make him
like it.
Senator Murray says Mr. Campbell was on President Roosevelt's
side of the argument during the last campaign and that he made
a speech in California but it is doubted if he did the President
any good for it was about what the Administration had done for
the big farmers.
I am told there has been a movement lately to try to make Mr.
Campbell Secretary of Agriculture, but that has perhaps been
self-generated and apparently did not take to amount to much.
A New Mexican Senator is said to have been somewhat busy. Mr.
Campbell's latest ranching efforts are located in New Mexico, as
you will recall.
Sincerely yours,
EBRil
E. B. Reid
Director of Information & Extension
Regraded Unclassified
232
BRITISH EMBASSY,
WASHINGTON, D.C.
Personal and Secret
January 29th, 1941.
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,
Halifax
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.
233
Telegram received from London
dated January 27th, 1941.
Maval. Photographic reconnaissance of
Brest on the morning of January 26th showed dock being
flooded and therefore German cruiser my be intending to
put to sea.
2.
2 ex-American destroyers and 4 others of the
Royal Canadian Navy have arrived in home waters.
3.
Mediterranean. During the passage of the
Illustrious to Alexandria, enemy aircraft (words
undecypherable) failed to locate her but escorting
cruiser forces were attacked by 12 high level and
18 dive-bombers on the evening of January 24th, when
about 130 miles north of Benghasi. In spite of many
near misses, no damage was sustained by our ships; 4
or 5 aircraft believed to have been damaged.
4.
Attacks on shipping. The afternoon of January
26th East Coast convoys were bombed in the Thames Estuary.
One British ship (1600 tons) was hit and beached and
Swedish vessel (2000 tons) was net on fire. 2 enemy
aircreft destroyed by escort vessels.
5.
1 enemy aircraft was shot down by a trawler,
the crew of 4 taken prisoners.
6.
Military Libya. Our troops are now in
position 10 miles southeast of Perna with forward elements
overlooking the town.
7.
Bulgaria The thew continues and the roads
open in the plains. Mountain passes believed also open.
8.
Royal Air Force. Night of January 26th/27th,
17 heavy bombers were sent to attack industrial targets
at Hanover. Reports not yet received. Regraded Unclassified
234
-2-
9.
Brythrea. January 25th, 5 Gauntlete
dive-bombed enery motor transports near Barentu with
considerable effect.
10.
Albania. January 25th, medium bombers scored
direct hits on military torgete near £1 Basan.
11.
Malta
Night of January 25th/26th an
Italion sesplane disabled cruising round lighted
off the island; the crew of 4 taken primoner.
12.
German dr Morce. January 26th. Enemy
activity Blight, although shipping attacked in the
Thomse Ratuary and off Norfolk coast. Night of January
26th/27th. Only one energy aircraft came over.
13.
Aircraft Cesualties. In operations over
and from British Isles. Enemy: Destroyed, 3 aircraft.
British: nil
14.
Home Security, Night of January 25th/26th.
Now reported 2 parschute mines also some high explosive
and incendiary bombs dropped at a south Wales негобтов.
Damage alight and operations not affected but 20 military
personnel killed.
Regraded Unclassified
235
CONFIDENTIAL
Peraphrase of Code Radiogram
Reseived at the Var Department
at 9:03, January 29, 1941
Lendon, filed January 29, 1941.
1.
On Tuesday, January 28, recomaiseance flights over the
soast of France and the usual patrols were operated by the British
Constal Commend. Adverse weather prevented activities of the
Donber Command ⑉ this day and during the preceding night. There
has been no report of British air losses.
2. During the night of January 28-29 Derman raiders were
over the Bristel Channel but their activities were primarily limited
to the laying of admes. On January 28 German planes were 8 read-
naissance missions over the east coant of Scotland and over &
great sany airfields of the Reyal Air Force. During the IM day
ainer attacks ware unde an Isher, Essex, Heaton, Kent, Partmonth
and the suburbs of Lendon. No information has been reported -
cerning Geram air losses.
3. The Italians have shandomed the airfields at Mechili and
Derma in Libya. Fourteen unserviseable Italian planes were left
behind at the Darma field. Italian foross at fortified points 11
Derna, however, are continuing their resistance. The Royal Air
Force machine gunned Itelian notor transport units retreating a 1
Mechill and bonked the airfield as Apollenia.
4. The Royal Air Force was active in other Middle Eastern
theaters. The Aiscia station - the Djibouti-Addis Ababa reilreed
in Ethiopia - attacked by British bashers based in Adam. Am
CONFIDENTIAL
Regraded Unclassified
236
CONFIDENTIAL
Itelian supply base et Elbasan, Albenia, - beded by British
planse from Greece. The British have sussessfully attached five
railread stations in the Daten area, Malta-based British beabers
havily attacked the control station, the marshalling yerds
and the Capadishine airdress in Exples with great non. the
airfields at Comise and Catania, on Sicily, were also sussessfully
I
5. the airfield at Laga, Malta, and the tem of Diff in
Kanya an the Italian frontier - benbed by Avis planes.
6. According to the British Military Intelligence,
communications systems are being constantly improved ad other
preparations are being mide to assist the I of German treeps
through this country. there are no MW indications that properation
are being use for the transfer of German foress into Spain. Thile
there is no evidence that there are enough German forees in Italy
to land an attack en Malta, it to believed that - ⑉
guarding sirfields in Sicily and southern Italy. is yet no Dermitt
write in Italy have been identified and the reports of the strength
of German forces in this area are conflicting.
7. The vater situation in Telank 10 DEF bask to nermal. Im
this area 150,000 gallene of gaseline ware expirared by the British.
6. It is estateined w the British that they are MIT able
to explede all General ulnes planted in British harbers.
CONFIDENTIAL
- 2 -
Regraded Unclassified
237
CONFIDENTIAL
9. It is claimed by the Greeks that three Italian vessels
have been terpedeed and sunk by a Greek U-beat.
SCANLOW
Distributions
Secretary of Far
State Department
Secretary of Treasury
Asst. Secretary of is
Chief of Staff
War Plans Division
Office of Havel Intelligence
Air Corps - 2
0-3
CONFIDENTIAL
-3-
Regraded Unclassified
238
RESTRICTED
G-2/2657-220
M.I.D., W.D.
No. 303
January 29, 1941
12:00 M.
SITUATION REPORT
I. Western Theater of War,
1. Air Force Operations.
Unfavorable weather prevented R.A.F. action.
German High Command communiques claimed successful
attacks on military objectives in London and southern England. One
4,600-ton ship was sunk and two others damaged.
II. Greek Theater of War.
1. Air. An Italian comunique stated that Italian planes
had intensively bombed military objectives at Salonika and the Salon-
ika-Athens railroad.
2. Ground. Local operations reported.
III. African and Mediterranean Theaters of War.
1. Air:
Ethiopia and Italian Somaliland. British patrols are
active, with no special change in the situation.
2, Ground:
Libya. The British are concentrating their forces in
the Derna area.
Eritrea. British operations are progressing satisfac-
torily.
Note: This military situation report is issued by the Military In-
telligence Division, General Staff. In view of the occasional in-
clusion of political information and of opinion it is classified as
Restricted.
RESTRICTED
Regraded Unclassified
239
January 29, 1941.
MEMORANDUM
TO: Secretary Morgenthau
FROM: Mr. Gaston
Fritz Sternberg, whose writings in the New Republic
you have noticed, came in to see me today with a letter of
introduction from Bruce Bliven. After some conversation
with him I turned him over to Coe of Harry White's staff.
Dr. Sternberg will be in Washington for several days and
is staying at the Hotel Annapolis. He was an economist and
writer in Germany up to 1933 and left there at the time of
Hitler's accession to power. He lived six years in France
and England, during which time he devoted increasing atten-
tion to the development of the German war machine and the
general problem of military economics. He came to the
United States in 1939. His book "Germany and the Lightning
War" published about the time of the Munich crisis, has attracted
a great deal of attention. He called my attention to the fact
that the conclusions in his latest book "Fivefold Aid to Britain"
closely parallel the conclusions of the Purvis report, as re-
ported this morning by Alsop and Kintner. I am attaching a
copy of "Fivefold Aid to Britain," which he left with me.
Regraded Unclassified
WASHINGTON POST - January 28, 1941,
Capital Parade
nunce
of
naturnal
are
ungently
-
By Joseph Alsop And Robert Kintner
pollor
of
whing
its
purfume
get
the
The
and
summes
On
Purvis Schedule Gathers Dust
cant
its
purpose
LP
D
the in sid the world,
THE
RESIDENT
and
William
good and dit, of the universi
that
Purvis
New
in
in Kovi-m DOW have on their persuade the British Cabinet la this la of In the be new accorplished
England,
to
threat
deeks
the
first
consolidated communicate to our Government United 513/04 must begin to
schedule ou war needs ever
complete war plan and warthe Inng view, gearing (la
propared To meet these needs,
material balance sheet.
to the Brunk WAP plan and
industrial plant must undergo
Ing both delay and
additional expansions.
THE PRESIDENT has been underes
motion
of
LIKE
the British have no cash,
demanding a balance sheet of our hand.
the schedule has simply been
defense program for the last six
thering dust since it Will
months. So many statistical ob.
light to this country. four
sincles have had to be surmount- la (CINTUDE down in the that Task
THE
of
oko wgn, by Arthur Purvis,
nf the British purchasing
ed that the President is still wait- schedule which alan gives exi-
mg. although ne will get what be dence the the task Le will
11 will continue to
non dust until the lease-lend
wants before long. The same sort sible II will be dond. the ex-
nill 14 nassed.
of obstacles stand in Purvis' way perts estentate, If we convert entry
Purthermore. If letting con-
LEY London. Yet he managed to 25 per cent of nur productive Dr.
for Use new expansions 19
beg and persuade the necessary cilitier in war As Germany
agures and information auf of for years and Britain for maile
off much longer. the entire
the service and supply depart- have devoted much minre than on
wat plan will have to be
ments in a emporatively short per cent of their production to
virulated and another your
he added in the war. The
time. The schedule was finished war und, we should and boggie
in December, and Purvis imme- at the attendant nactificos.
programs to take the of-
diately flow back to this country. Sacetiens will be how
fensive in the spring of 1942, and
To prepare the schedule II WAR even M long as some system of
(1) on this country to supply
necossary 10 compute Brithin's Anancine the British war effort
definities in was materials war materials on hand, the Quan- Temains to be approved I've
the
15 listed III the Purvis schedule. titles of new materials called for last two months the Brillah have
Defence production experts ber by the British war plan, the mi-not her able to place even the
llave the definiencies can be Purp- terials experted to be produces in most urgent orders in this MIAM
plied on but only If the Britain and the Empire, and NY. Plinning the expensions
BAR of building the Anally the deficiencies to las sup- called for In the Purvis schedule
required now (acilities is started
plied here As the result plainly has Mad to walt, while British
whin the next on to eo days.
discloses Britzin's strategy, the and American officials searched
schedule's mart Agures are nat for a way out to finance contracts
SUCH ARE hard facts of a
urally the most closely guarde that should have been placed in
whichen which lies been almost
military accreis. communicated by November. Only in the last week
initially misrépresented. Even
Purvis only In the President, and has the RFC approved a scheme
thinks supporters of gid to Brit-
by the President only to ihrer or by which money will be part up
bill con many safely be debated indel- an the Government
sin,
assume the lease-lend four of the most responsible men on the bouis of "we'll take the
grands If you don't and this
nitely. since "there's nothing we
NO
If only to anoiv to above
can
do
In
the
next
few
months."
TWO THINGS about the school.
Titaly vim order Some nation
The assumption is doubly Incor- ule are known. however
the evient nt the expánsions
reet, for the crucial reason above 11 is based on the expectation they
et La to Married me be gained
stated. and also because the bill Britain will survive the terrini
from the Tart that the Flirve nf
N/F aircraft Paparty will have to
permits solution of the Incressing- time immediately ahead,
ly serious shipping problem with- gather strength nest winter,
amot upward. put the mark of
946 repeat of the neutrality act or with arms from the United State
3,000 planes I month Kny set for
use of American ennvoys.
will undertake a great offensive
One spring of 1042, to a new mark
The Purvis schedule In unques- in the spring of 1042 This *X*
of 4.500. In short time is unimage
Family The must significant ein- pectation la understood to have
inably DISCOUP, and the watte nt
give document got produced by the-been impressively documented
of
much
..
day
le
folly,
war It WINE obtained with diffi- and particularly with respect m
mills, As loss export as last Sep- the possibility of 811 effective ot-
at the defense fensive, Segund, powever, the
commiciion and British purchas quantities of arms natred for from
LOS mission wire enough to grand This country are almost astrononi-
the tragin mailequiey of nur scope teat. Even William S. Knudsen,
et preparation, began to realize ordinarity so phingmatic was
that Brilain must surcincily list briefly attaken when he saw how
needs in have them fully met many more planer and <DU>> were
by this country, At that time, of wanted And he and
course. American policy WUB Im- his production experts think they
mobilized by the election. IL visa can do the job in time, prompt
not until rather Late in the tall nari and cim concentration of
Regraded Unclassified
FIVEFOLD
IDroBRITAIN
-TO SAVE
300
HER
AND KEEP
-210 PATLLIONS
US
OUT OF
1500
WAR
plants
HOUR
/
a
BILLION
by
FRITZ
STERNBERG
AUTHOR OF
"GERMANY AND THE
LIGHTNING WAR"
JOHN DAY COMPANY
NEW YORK
Regraded Unclassified
A NOTE ON THE STATISTICS
IN THIS BOOK
This discussion is not primarily a work of research and the staristics on which
it is based are not of prime importance. By far the most significant feature
of it is the way in which statistics are used, compared, and interpreted to draw
conclusions concerning the course that America is to follow in the immediate
future. Since neverrheless the argument is based on statistics, some of which
may be surprising to the reader, it should be stated that every statistical
figure cited by Dr. Sternberg is and has been available to any researcher who
takes the trouble to seek it out,
About nine-tenths of the statistics cited are from sources of one of the
following kinds:
L Official statistics of the German, British, American, French, Belgian.
and other governments.
2. Published statements by officials of these governments.
3. The terms of the Franco-German armistice,
4. Reports in publications of the highest repute in the respective coup-
tries, such as the New York Times, the New York Herald Tribune,
Iron Age. the London Economist, the Deutsche Volkswirt, the
Vierteljabrn für Konjunkturforschung, and the monthly statistical
summary of the Dresdner Bank.
In a few cases, it has been necessary to use authoritative estimates in the
absence of any official figures. In other cases, it has been necessary, in the
absence of up-to-date official figures, to use pre-war statistics modified in
accordance with published reports on current conditions,
Dr. Sternberg is recognized in Europe, England, and the United States al
an authority on military economics and war potentials. He is the author of
several books published in German and in English; has contributed 0 the
Army Quarterly, the Royal Air Force Quarterly, and the Economis, in
England; to the Infantry Journal, the American Mercury, Aria, the New
Republic, the Nation, and other American magazines, and has done research
for Fortune,
Unclassified
FIVEFOLD AID
TO BRITAIN
Fivefold Aid
To Britain
To Save Her and Keep Us Out of War
FRITZ STERNBERG
Author of Germany and the Lightning War
With Charts and Drawings by Harry Roth
THE JOHN DAY COMPANY . NEW YORK
COPYRIGHT, 1941, BY THE JOHN DAY COMPANY
All rights reserved. This book, or parts thereof, must
not be reproduced in any form without permission.
PRINTED IN THE UNITED STATES OF AMERICA
CONTENTS
INTRODUCTION
DEFEAT STILL THREATENS BRITAIN
I
HITLER ORGANIZES ALL EUROPE AGAINST BRITAIN
II
BRITAIN BY ITSELF CANNOT DEFEAT HITLER
III
AMERICA'S AID TO BRITAIN IS LESS THAN OCCUPIED EUROPE'S TRIBUTE TO HITLER
IV
BRITAIN NEEDS 2.5 MILLION TONS OF STEEL, 1,500 PLANES, ONE BILLION
DOLLARS IN GOODS FROM US MONTHLY
V
ONLY FIVEPOLD AID TO BRITAIN CAN KEEP AMERICA AT PEACE
Regraded Unclassified
INTRODUCTION
Defeat Still Threatens Britain
A
the time of the publication of this little book, it is January, 1941. The second
World War is almost & year and a half old. Outwardly, at least, the course is
has taken thus far has been completely erratic, It commenced with Hitler's Blitzkrieg
against Poland, after which, late in 1939, and early in 1940, the German Fuehrer
ordered the suspension of military operations for months, But behind this "Sítz-
krieg," behind this "phony was," Hitler continued Germany's gigantic armament
program, Despite many years of intensive armament production in times of "peace,"
Germany kept on arming twice as heavily as Great Britain and France together.
The full in military operations was shattered with dramatic suddenness when
Germany invaded Denmark and Norway and then turned to the Western offensive
which wound up in the lightning war, followed by lightning victories, in the Nether-
lands, in Belgium-and finally in France.
The war has changed the face of the earth. It has left France a shambles. Hitler
has become the unchallenged master of Continental Europe.
Germany's land army of today has no equal on the European continent.
The Battle of France was followed by what started out as the first phase of the
Battle of Britain. The American people, dismayed by France's rapid collapse, feared
that Hitler might be in London by the fall of 1940. Bur thus far the Bartle of Britaln
has failed to bring a decision. Americans breathed somewhat easier when Hitler's
schedule failed to materialize. The long-dreaded invasion of the British Isles did not
come off on time.
And now, the American people perceive the possibility of an ultimate British
victory. The argument most frequently advanced runs something like this:
Hitler's Germany was armed to the teeth when it embarked upon this war. A
further increase of its armament production is well-nigh impossible. On the very
summit of its military might, Germany has been unable to defeat Great Britain. Now
time is about to turn against Hitler. Prior to the war, and during its first phase, under
the late Neville Chamberlain, Britain failed to arm on a scale consistent with its
needs and resources. With Winston Churchill at No. 10 Downing Street, and with
the labor leaders in his coalition Cabinet, all British production is now being shifted
to war purposes at a steadily increasing rate. Britain has been pursuing this course
for only a short time. It is certainly calculated to improve Bricain's position from
within. In the end, it is bound to change the military balance in Britain's favor. In-
creasing American support will tend still further to rob Hitler of his former chances
9
10
PIVEFOLD AID TO BRITAIN
DEFEAT STILL THREATENS
11
of victory, There is, indeed, wide agreement that the chances of an ulcimate Bereish
actest, owing to the small volume of orders placed here by the Chamberlain Govern
victory are constantly becoming brighter
ment, is now sending increasing supplies to England compared to the fine months all
Certain signs seem 10 confirm this općimism.
1940. Since then, for instance, plane deliveries to Britain have increased almost tem
During the early stages of the intensified air raids, in August and early in Sep-
fold Americao armament production is growing. According to the Camous statement
rember, German sources insisted that the German Luftwaffe had complete control
made by President Roosevelt. Britain is to receive 50 per cent of America's total arm-
uver the English Channel and London Facts, however, show that this was mere
ament production.
German propaganda.
Thus everything appears to be in the best of order and to justify if Mate of
The air raids are causing considerable damage in England. But the daylight raids
of which the Germans were sû boastful have failed dismally and become the excep-
optimism
in the summer of 1940, Americans seriously discussed the possibility of Hicher's
tion rather than the rule, During the day, at least, the Royal Air Force retains supre-
triumphant entry into London They pondered the possibility that be might. in the
macy in the air over the Channel and London, in fact, over the whole of England
course of the ensuing 11X months, use the combined German, English. French. Italian,
Nor has the Royal Air Force confined its activities to the defense of Brirain It
and Japanese (leets to attack and, possibly, to conquer the United States
planged into offensive operations carrying out nightly raids upon widely scattered
Now the opinion prevails Bricish will ulcimarely win Some
German objectives with systematic regularity, Recent weeks show an increase rather
think that this may take a long time; others that it will occur in à telat(vely short
than à letup in Britain's carefully planned air offensive against the Reich, the occu-
time It may happen in 1941, or perhaps not until 1943 or 1944. But LET part wars.
pied territories, and especially the Channel ports.
England has always won at the end; and even today, an ultimate British victory is
When in September, 1940-as Mr. Churchill pointed our later-the Germans
certain, since its military strength is increasing steadily and more capidly than that
astempted 10 carry Our an invasion of the Bricish Isles, they were effectively checked
of the Third Reich:
by the Royal Air Force, even before the troop contingents assigned to this difficult
Such oprimistic views are based on supposed facts; and what is even mon im-
rask could umbark.
portant. they correspond to the feeling and mood of the American masses. Millioni
Since early in October, such ambitions attempts at invasion seem to have hown
of Americans desire a Beitish victory, but they are reluctant to change their daily life
postponed The interim has been utilized by Britain to increase its military strength
even slightly in the interest of such a victory. When they are told that the danger D)
at home
Brimin has passed. chat the situation IS bound to improve, that Britain will win
One of the more serious repercussions of the French disaster was that the British
ending all danger to the United States, they are well satisfied The slogan that realli
Hapeditionary Force. wirhdrawing from Dunkirk, lost all its heavy arms equipe
describes the American attitude is not "All aid to Britain short of war," but rasher,
memt. Consequently, there were no well-equipped divisions in England during those
AU aid to Britain short of a change in our daily lives."
days of Acute danger which followed in the wake of France's final collapse. Bur in
This complacent optimism cannor by the greatest stretch of the imagination be
the meantime Betrain has gained a precious breathing spell to re-equip what was left
tonsidered justified. Even more than that We perceive in It extreme dangers für the
of the ner, and also to produce weapons for the additional millions that are being
fature of the American nation. It is simply not true that the danger to Britain has
trained. Ever since Dunkirk, British armament production has been working full
passed. Even though DO invasion may be attempted during the winter months, the
blast.
Janger may steadily increase, and become greater by next spring than it was in the
Despite the fact that Germany today possesses better bases for its furious naval
all of 1940
war against Bricish merchant shipping, which is suffering gradually increasing
la the chapters of this book we shall try to prove the following theses:
losses, the Brirish Isles are still able to provide food and raw materials from over-
(1) Te is not true that Hitler's Germany is in no position to increase its arms
seas, from the Empire possessions as well as from the United States and Latin
mont production. On the contrary, it is well capable of doubling its armament prix
America. On the other hand, the Royal Navy is still effectively maintaining the
duction. If need be, for the final struggle against England This can be attained
blockade against Germany and that part of the Continent now controlled by the
a) by concentrating all production on those arms which are designed to plan
Nazis. Half of Germany's normal imports are affected by this watch and want on die
A decisive role in the final Battle of Brirain,
soyan nas.
b) by organizing the national economy of the conquered territorior and
The United States, which was delivering but little up to the time of France's
barrersing them to the greater German war economy
Regraded Unclassified
12
FIVEFOLD AID TO BRITAIN
(2) Britain's present armament production is, of course, far greater today than
it was early in the war. However, the danger remains that the acceleration of Britain's
armament production will continue to lag behind the acceleration of that of Ger-
many, which is now in a position to commandeer and control the resources and re-
serves of Continental Europe. Presumably, Britain by itself will not be able to defeat
Hitler's Germany, and is, on the contrary, still threatened with imminent defeat, if
left to its own resources.
(3) American help, and American help alone, can save Britain. American aid to
Britain, if maintained at its present level-indeed, even if slowly increased from its
present utterly inadequate rate-will never accomplish this salvation. American sup-
port in 2 steadily and considerably increasing amount is needed to save Britain.
(4) American aid, if it is to fill Bricain's requirements, should equal the entire
British production as of today. With such support forthcoming in the near future,
Hitler's victory may become improbable, and even impossible. Britain will then re-
main the only free country in an enslaved Europe.
To win the war and free the subjugated nations from Nazi serfdom, Britain
needs American aid to exceed its total production.
(5) If Britain obtains such support as quickly as possible, then, and only then,
may we hope that the United States will remain at peace.
A tenfold increase in American aid to Britain is not a step nearer to war but, on the con-
trary, the decisive stop which will keep America out of the European war.
Increase deliveries tenfold in the shortest possible space of time-and the United States
will be saved from war!
FRITZ STERNBERG
New York City
January, 1941
FIVEFOLD AID
TO BRITAIN
Regraded Unclassified
Hitler Organizes All Europe against Britain
in the winter of 1939-40, when the second World War, instead of developing
into large-scale military operations, settled down to what British jokesters called a
"Sitzkrieg" and certain American observers a "phony war," it was widely assumed
that Germany's armament effort had attained its peak at the very outset of the war.
German military strength in the spring of 1940 was not expected to exceed its highest
mark reached in the fall of 1939.
British and French armaments, on the other hand, were growing, rhough slowly
and gradually; thus it was generally accepted that the position of the Allied Powers
would improve by the spring of 1940 in contrast to their military strength are the
beginning of the war.
Hitler's lightning wars and victories in the spring and summer of 1940 brought é
rude awakening, since they threw light upon two facts.
On the one side, they revealed the immense quantities of war materials the Nazis
had been storing ever since their seizure of power in 1933. On the other, they demon-
strated that Hitler's armament program had by no means been suspended at the end
of the Polish campaign, nor during the interval that followed it up to the Western
offensive. Now the overwhelming majority of Germany's armed forces was thrown
against the enemy in the West, while its war-material production was ceaselessly
increased to peak capacity in all the territories then controlled by the Nazis.
Immediately after completing the conquest of Poland, the Nazis went to work
and organized the entire national economy of the vanquished country, incorporating
everything from Polish coal mines to agriculture into the greater German war econ-
omy, In addition, Germany, throughout the winter of 1939 and 1940, steadily con-
tinued to increase its production of arms, which was already working in high gear.
Despite the preponderant war economy which existed in Germany even prior to
the war, certain peacetime industries-such as residential construction and the manu-
facture of automobiles-had been retained in the Third Reich. Now they too had to
give way before a still further increase in war-material production.
Thus, during the winter of 1939-40, the German Army and armament production
forged still further ahead of those of Great Britain and France.
During that winter of apparent German inaction, Hitler still managed tu drain
his 100 million Germans, Czechs, and Poles of twice as much in armaments as the
Chamberlains and Daladiers squeezed out of Bricain and France together. This in-
creased production, added to the enormous stocks stored in advance, became the basis
upon which the Battle of France was drawn up and brought to a successful con-
15
16
FIVEFOLD AID TO BRITAIN
clusion. With its aid Hitler advanced to the position of master of Conridenta) Europe.
In a way the struggle of Britain today is only a repeat performance on a larger
scale of a spectacle witnessed once before. Again, military operations appear to have
been suspended for the winter, millions of German soldiers are kept in apparent idle-
ness. Again the war is confined to a few military and diplomatic sideshows, more
intensified and widespread than those in the winter of 1939-40, but limited to
secondary cheaters of war. Neither German U-boats raiding Britain's merchant
shipping, nor the air attacks of the Luftwaffe and the Royal Air Force will be able to
decide the ultimate outcome of the war by themselves. The Mediterranean has become
an important battlefield. It may well usher in the decisive phase of the war-but the
war will not be decided in the Mediterranean alone.
Once again, neutral observers everywhere indulge in the belief that Britain will
be able to accumulate sufficient strength during this winter to embark upon next
spring's intensified warfare much better prepared than it was in the fall.
Again they tend to misjudge Hitler's actual position and overlook the important
fact that during the winter of 1940-41 he still CaN, and indeed will, mobilize immense
new reserves-both Germany's own and those obtained in the conquered and
occupied territories.
It would be a fatal error to believe that Germany reached the highest attainable
peak of its military efficiency in its war against Great Britain during the summer
and fall of 1940. On the contrary, it is still capable of greatly intensifying the prose-
cution of the War. Most of Germany's reserve strength has long left the blueprint
stage and is now rapidly being translated into realities.
THE REALIGNMENT OF THE GERMAN ARMY
Let us first survey the present status of the German Army and its equipment.
Early in this war, in the spring and summer of 1940, Germany's Army and armament
production were not primarily prepared for the war against England. They were
both geared to a continental war on land, for the campaigns against Poland and
France, for the gigantic struggle that was designed to bring about German domins-
tion of Continental Europe.
The overwhelming part of the German Army was fully trained, and the major
part of German industry was geared to the immediate task. And the campaign aimed
at German predominance in Europe brought amazing success. The immense striking
power of the German Army stood its test well. Unlike the first World War, when
Germany had to fight for four long years, the new German Army now required but
four weeks to vanquish France.
Boch the Polish campaign and the Western offensive revealed the Nazi High
Command as a past master of co-ordinating the various arms and services. It was
amazingly successful in bringing about the closest possible co-operation between the
ALL EUROPE AGAINST BRITAIN
17
Luftwaffe and the Panger divisions, infantry and artillery, Aside from the over-
whelming superiority of Germany's up-to-date arms equipment, this brilliant
co-ordination was the key to the secret of Nazi victories.
The German High Command itself was trained for this war in long years of
military tradition. Beyond that, it was the first to learn the military lesson that this
wat is, to AD ever-increasing degree, an industrial war. It WAS also quick to realize
that tanks and planes, properly employed for all they are worth, provide modern
armies with new offensive possibilities.
All these discoveries and realizations were extremely valuable and useful in the
war on land, bjøre in the Polish campaign and the Battle of France. This does not
mean, however, that they are necessarily valid for the impending Battle of Britain
as well. The invasion of the British Isles certainly requires the most precise and
meticulous co-ordination of the various arms, but this particular kind of co-ordina-
tion has not even been tested as yet.
First of all, it requires the co-ordination of the German Navy and the Luftwaffe,
motorized and mechanized landing divisions, parachute troops, and so forth. It re-
quires the development of new landing methods on effectively defended enemy shores.
This, in turn, necessitates the retraining of important contingents of the German
Army especially for this task.
This reorganization and retraining of the German Army for its new and greater
assignment commenced in July and August 1940, immediately in the wake of France's
collapse, But it was merely a beginning! From June 25, the date of the French Armi-
stice, to the middle of September, when the invasion was allegedly scheduled, only a
comparatively short space of time was left to the Germans-some 85 days.
The heroic action of the Royal Air Force, showering thousands of tons of bombs
on all the so-called invasion ports along the Continental coastline of almost 2,000
miles, prevented the Nazis from continuing their landing experiments on a large
scale. But the mere postponement of the invasion by no means indicates that Ger-
many has now finally abandoned all attempts at invasion at some future date.
On November 6, 1940, Prime Minister Churchill told the House of Commons:
"I agree with those who think the invasion danger has for the time been diminished.
But do not let us make the mistake of assuming it has passed away, or it may not
recur in acuter form."
England reckons that attempts at invasion may well be resumed when condi-
tions in Germany are more favorable for Germany than they were in September, 1940.
In the spring, weather conditions are favorable over longer periods of time and the
retraining of large contingents of the German Army for the specific requirements of
the Battle of Britain will have been concluded.
Since the collapse of France, the German Army has not been called upon to
carry out large-scale military operations. This does not mean, however, that it is
18
FIVEFOLD AID TO BRITAIN
idly wasting precious hours. It is continually kept in action, being trained and re-
trained for the gigantic task it will have to perform in the course of the all-out Bartle
of Britain. It is quite safe to take it for granted that by the spring and summer of
1941, it will be much better prepared for this immense task than it WAS in the fall of
1940.
Moreover, it will be far better equipped for this particular task than it was but
six months before.
The Battle of France took only 2 comparatively short time. Despite the tremen.
dous consumption on each day of battle, the sum total of war material used was not
particularly large, quite aside from the fact that it was partly made up for by the
immense quantities of enemy stores which fell into German hands both in Belgium
and France.
For the time being, the German Army has no equal on the European Continent.
Temporarily, at least, it is confronted with no exacting tasks; its present consump-
tion of war material is hardly worth mentioning; its present need for arms and muni-
tions places but a light burden on Germany's armament production, even smaller
than during the preparations for the huge and furious Western offensive.
THE RISE IN AIRCRAFT PRODUCTION
Consequently, German armament industry is now better able than ever before
to concentrate on the production of those arms which are to play a decisive role in
the invasion of the British Isles. Primarily, these are warplanes of various sizes and
designations.
Of course, German aircraft production was considerable even before it exceeded
the combined production of Britain, France, and the United States.
But it would be a grave fallacy to suppose that German aircraft production
actually reached its peak during the summer of 1940. The reduction in war-material
needs for the land army now enables Germany to increase its production of war-
planes.
The sheer fact that Germany is able to hold down the damage done to its vital
aviation industry by incessant British bombings, indirectly aids German aircraft pro-
duction. While German heavy industries, for instance, are frequently tied down to
certain regions, such as the coal deposits of the Ruhr, the aviation industry is not
bound by such limitations. Actually, German aircraft factories are now being moved
to an increasing extent to regions in Greater Germany which are beyond the range
of British bombing planes.
Were Germany compelled to conduct a large-scale land war involving a con-
siderable consumption of all sorts of war materials, the High Command would have
to continue diversifying war material production and man power. But today the
Germany Army already possesses all the tanks, guns, machine guns, and munitions
ALL EUROPE AGAINST BRITAIN
19
it needs for the time being, and so Germany is in a position to restrict the production
of all these war materials. Thus its industrial production gains an undreamed of
elasticity, and Germany is now able to concentrate the bulk of this production on
material required for the Battle of Britain.
In so far as the production of aircraft is concerned, an increase is not only po-
tentially possible, but is now actually apparent, both in Greater Germany and in the
occupied territories. All aircraft factories in these regions have been put to work,
and their production facilities are being exploited to the utmost.
We caution most emphatically against the common practice of speaking only of
the progress made in British and American aircraft production, while disregarding
further advances in German production, which is far from being stationary; the
tremendous dynamic power of German military developments has made itself felt in
this field too.
We must compare the growing production of Great Britain and the United
States not with old German figures, but with the number of planes now being produced
in Germany and with those which will be turned our during the winter months.
Undoubtedly, there will be a considerable further increase. British superiority in the
air will never be accomplished by a mere increase in British production and American
deliveries. It might be achieved, however, if and when the tempo of British produc-
tion and American supplies surpasses the tempo of German production. But more of
this later.
Of course, the Battle of Britain is not waged by the Luftwaffe alone. Participating
in it are scores of Nazi U-boats and individual raiders which manage to outwit the
British blockade and escape to the high seas. The increased offensive power of Ger-
man naval warfare has already been manifested in the gradual increase of British
shipping losses.
It cannot be doubted that the Third Reich will, during this winter, make further
progress in this branch of warfare. German naval units now have a dual task to per-
form: They represent an effective weapon aimed at Britain's vital merchant shipping,
and they are slated to play an important role in any attempt to invade the British
Isles. For these reasons Germany is now doing everything in its power to accelerate
its naval shipbuilding. The Nazis seem to be refraining from building capital ships,
which are not expected to be of decisive value in the Battle of Britain, Instead, they
are building destroyers, torpedo boats, submarines, small auxiliary craft, and the fast,
so-called E-boats, or mosquito boats, whose construction can be completed within
a comparatively short space of time. All available facilities are now fully utilized to
build them at a forced speed, not only in Germany's own shipbuilding yards, but
also in those of the conquered and occupied territories, from the Arctic Circle down
to the Bay of Biscay.
20
FIVEFOLD AID TO BRITAIN
ALL EUROPE AGAINST BRITAIN
21
ABRMANY ORGANIZES HEAVY INDUSTRY IN THE OCCUPIED ABOTONE
If even at the very outset of the war, Germany's economic system was superior to
that of Britain, this superiority has today greatly increased
The extent of Germany's military preparations for the Battle of Britain can best
Germany's present economic organism, incorporating the economies of the con-
be gauged by the fact that it now urilizes the productive capacity of the conquered
and occupied terricories in addition to the whole economic system of Germany
quered countries, is at least twice the size of Britzin's The balance has turned in
Germany's favor particularly in those branches of industrial production which play
proper.
a decisive role in war economy, such as iron, steel, and iron orc, the most essential
In September, 1940, when the menace of an imminent invasion seemed to be
of all raw materials required for the production of steel.
most acute, the French Armistice was less than three months old. By then Germany's
Let us now compare in a few striking figures the German and English levels
Economic General Stall was just about to begin the inclusion of the toral economic
of production. We have drawn them up in charts and diagrams to make the compart-
reserves of the conquered territories into Germany's own huge war economy Their
son as graphic as possible.
immediate tank was to repair the widespread damage wrought by the lightning war.
Even AT the early stages of the war, German steel production by far exceeded the
By now, however, they are well advanced in their work. In the course of this winter,
corresponding production both in Great Bricain and its Empire. Germany then prin
all German organizational activities will atrive to strengthen Germany's war-
discest 25 million tous, while Bricain's toral steel production amounted to only 17
material production by adding in it the rehabilitated production of the occupied
million tons (See Figure 1)
rerrimartes.
Naturally, the Blitzkrieg caused enormous suffering and devastation as long as
STEEL PRODUCTION
it lasted. Dur WE should never overlook chis fundamental fact: the decisive Bartle of
or MILLIONS OF TOME NE YEAR
France was concluded in as many weeks as the first World War required years; com
25
siderable areas of France and the Low Countries were but indirectly affected by the
zermal lighting and the destruction that followed in its wake. Nor must we forger
that this time, in striking contrast to the first World War, an Economic General Staff
17
was functioning in Germany long before the ourbreak of hostilities, systematically
and methodically organizing German economy for the war to come, and subordi
name everyone and everything to the one supreme aim! the efficient prosecution of
the war wich ultimate victory to be achieved in the decisive Battle of Britain.
On November 10, 1940, the New York Times carried the following dispatch
"The economic and financial situation in occupied territories at the beginning of
winter is characterized as progressive adjustment of their economies to conditions
GERMANY
BUTTISH EMPIRE
prevailing in the Reich, according to information available here.
Production.
Figure 1.
planning, and marketing regulations along the Reich's highly developed pattern are
the order of the day in all occupied countries. Heavy industries in Belgium,
However, German steel production early in the war suffered from at least time
hours. and France gradually an reaching production figures of the period preceding occupation
scrious hottleneck. Ir depended on foreign countries for its supply of ore and allays
(Italics by the author.)
Most of the Reich's peacetime imports of irom are came from French, Swedish, and
Prior to the outbreak of hostilities, the combined British and French economic
Spanish mines, A considerable portion of which were now cut off by the efficient
systems, at full exploitation of their productive reserves, were somewhat superior (i)
Bricish blockade.
that of Germany France's rapid collapse was partly due to the Western Powers' fasal
Germany's invaston of Scandinavia and the victory in the West served to elimi-
impotence to translate in time their productive forces into military forces.
Date this bortleneck almost completely, and at the same time greatly increased the
production of steel at the disposal of Hitler. The combined capacity for the produc-
DEEMAN PRODUCTION TWICE AN OREAT AS parrist)
Time of steel in Germany and the occupied (deritories now amounts LO 42 million toms,
Of course, France's defoat has further changed the situation in Germany's (AVO)
against 17 million tons still produced by the Beizish-
FIVEFOLD AID TO BRITAIN
ALL EUROPE AGAINST BRITAIN
22
23
At the name time, Germany's supply of iron ore ceased to worry the Nazi Eco-
The chart is not meant to suggest that all the coal production of the occupied
nomic General Staff, for the British blockade is no longer able to prevent Germany
termiories 110 now simply be added to Germany's own output. A considerable pur-
from importing the iron one it requires (See Figure 2)
(ion must be reserved for their own estential civilian requirements, such as the heat-
GERMAN STEEL PRODUCTION AND IRON ORE
COAL PRODUCTION
SITUATION
MILLIONS OF TONS
MILLIONS OF TONS
PER YEAR
PER YEAR
210-
327
CZECHO-
60-
SLOVAKIA
17
70-
SWEDEN
300-
POLAND 34
14.90
HOLLAND
60-
245.1
245.1
114
LUXEMBOURG
250-
BELGIUM
50-
42
77
29.6
OCCUPIED
166.4
FRANCE
40-
TERRITORY
200-
40.2
30-
25
17
FRANCE
37.77
IMPORTS
150-
20-
21.9
GERMANY
OWN
GERMANY
10-
22
OWN
100-
PRODUCTION
PRODUCTION
185.4
11.12
-
TLI2
STEEL
IRON ORE
STEEL
IRON ORE
50-
PRODUCTION
PRODUCTION
TOTAL CAPACITY
71,54
I
1938-1939
1940-1941
GERMANY AND
Figure 2
GREAT BRITAIN
GERMANY
GREAT BRITAIN
OCCUPIED
1940
TERRITORY
1938
1938
1940
Of course, it will not do to accept all these figures at their full face value. When
this book goa to prou, not all the damage in war-torn Continental Europe will
Figure 3.
have been fully repaired France's heavy industries have not as yes been fully in-
corporated into the greater German war economy. But every day until next spring
will undoubtedly bring further German progress in this direction Even though the
ing of houses, etc. Preceding their occupation, the total cost imports of these
present volume of steel production in the occupied territories may show a decline of
countries were in excess of the sum total of German coal exports
about 20 per cent, (some 3.4 million tons under the prewar level of 17 million, leavility
On the other hand, Germany's present ability to commandeer the immense coal
13.6 million tons available to Germany). the Reich's own production of 25 millina
production of the Reich, Poland, France, and other occupied corritories provides the
tons plus 13.6 million tons produced in the occupied territories still represents A total
German Economic General Staff with a remendous clastic reserve tú play with The
of 38.6 million tons of steel, more chan twice the quantity produced by the whole of
Nazis, moreover, now have a new trump card la their hands if they want to put
strong pressure on those forces in the occupied territories which are still reluctant
the Bricish Empire.
Next to iron, steel, and iron ore, coal is the most important FILW material nieded
to co-operate with their new overlords.
by practically all industries. Let us now see how the coal situation has changed in
One of the most vital raw materials required by the aircraft industry is alumi-
num, German production WAR considerable, and the Reich, accordingly. was com-
Germany's lavor since the collapse of France. (See Figure 3)
24
FIVEFOLD AID TO BRITAIN
pelled to import huge quantities of bauxite, the raw material that goes into the
making of aluminum. While previously the importation of bauxite was among the
more serious problems of Nazi war economy, today all its needs are more than suffi-
ciently secured and covered. (See Figure 4)
ALUMINUM AND BAUXITE
IN TONS
BAUXITE AVAILABLE
TO GERMANY
TOTAL 1,600,000
-
ITALY
GERMANY'S BAUXITE
363,000
IMPORTS 1938,
1,185,000
-
-
HUNGARY
541,000
GERMANY'S ALUMINUM
-
PRODUCTION,
180,000
I
FRANCE
682,000
-
I
Figure 4.
The conquest of Continental Europe served to improve to an almost staggering
extent the productive capacity of Germany's heavy industries. Her aviation industry
has at its disposal Europe's best-developed machine-tool industry, and now possesses
aluminum, its essential raw material, in abundance.
Nevertheless, Germany has failed to find in the vanquished lands certain metals
which are also lacking in Germany proper, or which are available only in insufficient
quantities. Thus the Third Reich still is short of copper, manganese, nickel, tungsten,
and chromium. But one of the foremost tasks of the Nazi Economic General Staff was
to accumulate in advance considerable reserve stocks of all these vital metals. At any
rate, we must always bear in mind that for its present air, sea, and probable invasion
war against England, the Reich needs far less in the way of raw materials than it
required for the supply of its huge land armies fighting for four years in the first
World War. Germany is now mainly interested in sustaining the armament program
ALL EUROPE AGAINST BRITAIN
25
until the spring and summer of 1941, when the decisive Battle of Britain will be
fought.
GREMANY'S OIL SITUATION
The raw material most urgently needed for the operation of planes and warships,
and thus for the Battle of Britain, is oil. Early in this war, Germany's oil supply
was by far the most serious problem of its war economy. By now, however, the oil
situation has also changed in Germany's favor; and this on two grounds.
First, the prosecution of the war and, with it, the consumption of oil underwent
2. decisive change. Just now, Germany is not conducting any large-scale military
operations on land in Continental Europe. Its present consumption of oil is largely
confined to what the Luftwaffe is using, and to the limited consumption of its Navy:
later, during an invasion of the British Isles, tanks and motorized units will also
require considerable quantities of oil.
Germany's present consumption of oil cannot be considered large. The prewar
estimates of experts, according to which 12 to 15 million toos of oil would be re-
quired per year by a first-rate belligerent power, do not correspond to realities, since
all these estimates proceeded from the supposition that a combined land, sea, and air
war would be fought on an immense scale.
Since the Battle of Britain is not likely to compel Germany to employ an army
of four million troops, annual oil consumption is certain to remain far below the 12-
million-ton mark. An additional saving has been made by throttling private con-
sumption of oil both in the Reich and the European territories, conquered or other-
wise, now controlled by the Nazis.
While Germany's actual consumption of oil since the collapse of France is con-
siderably less than was anticipated, its supply is better assured, due to the occupation
of Rumania's rich oil wells.
How big was Germany's peacetime consumption of oil? Dr. Rudolf Eicke,' 2.
director of the Reichsbank, reported that in the last prewar year, Germany's natural
and synthetic oil production amounted to 2.7 million tons, while 4.4 million tons
were imported from abroad. In 1937, total German consumption amounted to 5.15
million tons of which 1.85 million tons were produced at home.
It is safe to say that, in 1938, not all of the available 7.1 million tons was
actually consumed; a considerable quantity was stored to be drawn upon in whatever
emergency might arise. While the campaigns in the west and east have naturally
drained Germany's oil reserves, the consumption was partially compensated for by
considerable stores which fell into Nazi hands in the conquered territories.
Today, Germany is the undoubted master of all Rumanian oil production. In
I "Why Foreign Trade?" Valag 16 Socialpolitis, Wirrasheft 1 Statistik, Paul Schmidr, Berlin. The fifth edition appoind to
1939, shortly before the outbreak of the war.
26
FIVEFOLD AID TO BRITAIN
1936, this production totaled 8.7 million tons, but slumped to 6.7 million tons in
1938. This gradual decline of production continued right up to the Nazi occupation
of that country: nevertheless, it remained at approximately 6.2 million tons per year,
Let us now compare German imports with Rumania's output. (See Figure 5)
OIL
IN MILLIONS OF TONS
6.2
4.4
RUMANIA'S OUTPUT
GERMANY'S IMPORTS
1940
1938
Figure 5.
As revealed by this diagram, Rumanian production exceeded Germany's total
imports of oil during the last prewar year. Still, it would be wrong simply to com-
pare Rumanian production with German imports, since it is utterly impossible that
the former will ever go exclusively to the Third Reich.
Germany is waging this war in partnership with Italy, whose oil difficulties are
both greater and more acute than those of Germany Unlike Germany, Italy has no
coal surpluses at its disposal. Italy is even compelled to import almost all the coal
it needs from abroad, mainly from Germany
Consequently, Italy has no synthetic oil production worth mentioning. Its
peacetime consumption of oil amounted to just over 3 million tons per year, of which
less than half a million tons were produced in Italy, chiefly in Albanian wells, Of
course, the Albanian production is seriously impaired by the trend of the Italo-Greek
war.
Prior to entering the war, Italy imported annually more than half a million tons
of oil from Rumania. Since it is now cut off from its normal overseas sources of oil
supplies, its imports from Rumania are bound to increase if it desires to continue the
war on European and African battlefields.
Aside from Italy's increasing requirements, Rumania's own as well as Hungary's
needs must be taken into consideration. Rumania's oil exports to Germany are esti-
mated to have reached 1.4 million tons in 1940. Owing to the circumstances men-
ALL EUROPE AGAINST BRITAIN
27
tioned above, they will hardly go beyond 2.5 million tons in 1941, despite the Nazi
occupation of the oil-producing regions around Ploesti.
The Third Reich is hardly likely to encounter great difficulties in its attempts to
invade Bricain next spring or summer, so far as oil is concerned, though German oil
production has suffered considerably from RAF raids, Of course, this may become
very much more acute-and it is one of the contributing factors which may induce
Hitler to start his land army marching on Suez, not merely for the possession of the
Suez Canal, but also for the oil fields of Iraq and Iran, as Mr. Churchill predicred in
one of his reports to Commons.
In so far as iron, steel, iron ore, coal, and its whole industrial structure are con-
cerned, Germany, with the annexed resources of Continental Europe now at its dis-
posal, will be approximately twice as strong AS Great Britain.
Under the Chamberlains and Daladiers, Germany was able to arm at twice 11
great a rate as England and France together. So it may be said today that, even
though Churchill is now transforming Britain's economic system so as to satisfy
the requirements of total war, the Nazis in Germany proper as well as in conquered
Continental Europe will be able to obtain at least twice as much of practically
everything as Churchill will ever be able to get out of Britain and the Empire.
Not only were the confiscated arms of the dissolved Czech army assigned to the
German Army, but the Skoda armament works of Czechoslovakia were put to work
and now continue the manufacture of arms and ammunition. All the captured stores,
weapons, and ammunition of the French, Belgian, and Netherlands armies were
placed at the disposal of the German Army, and Hitler, in his speech of November 9,
announced that the Schneider-Creuzot works of France, the Fokker aircraft factories
in the Netherlands, the Belgian and French heavy industries, the Danish and Nor-
wegian shipbailding yards will be utilized to capacity to produce for the German
Army in its preparations for the Battle of Britain. Hitler thus has mobilized the
whole of Continental Europe for his gargantuan struggle with Great Britain.
GERMANY'S MILITARY BUDGET
This is clearly reflected in all German production figures, as well as in the curve
of the German budget both before and during the war. It has become a truism thas,
prior to the outbreak of the second World War, the Third Reich employed its im-
mense terror apparatus to force millions of Germans into the exclusive service of a
war economy. Even during the years preceding the outbreak of hostilities about half
of the German production was either directly or indirectly working for war.
In a significant speech shortly before the outbreak of the war, Hitler revealed
that about 90 billion marks had been devoted to Germany's rearmament since his
advent to power. In an article, published in the third week of this war, on September
22, 1939, and entitled "Germany's Industrial Military Preparedness," the German
28
FIVEFOLD AID TO BRITAIN
Institute of Business Research, basing its conclusions on Hitler's figure of 90 billion
marks spent on armaments, stated:
"Over the same period, calculated on a purchasing power parity basis, Britain's
armament expenditures amounted to 25 billion marks, those of France to is billion
marks."
Viewed in the light of the Battle of France, it may be accepted as a fact that
Germany's production of war materials was, as stated in the Institute's survey, more
than twice as much AS Britain's and France's together
Germany's army of millions now lacks a large-scale theater of war. Thus one
might have been justified in assuming that German war expenditures would be
sharply reduced after the signing of the Armistice with France. According to our
analysis of present-day German production, the exact opposite is the case
Norwithstanding the Franco-German Armistice, both German armament ex-
penditures and the whole German budget show further increases. Taxation and the
rate of public borrowing are also increasing in Germany. During the first complete
year of the war, official German figures revealed an increase in the públic debt of 29
billion marks.³ But while the monthly average of new borrowing was but 2.1
billion marks during the first six months of the war, recent months show a monthly
average increase to 2.8 billion marks. All in all, it may be said that 3. German budget
which amounted to about 4 billion marks per month during the early stages of the
war, has now increased to no less than 5 billion marks.
These figures are identical with those arrived at by the London Economist. On
October 26, 1940, the Economist wrote:
"Expenditure during the Blitzkring, it can be calculated, has been 3 little over
five billion marks (exclusive of miscellaneous revenue), or at the rate of 60 billion
marks a year, which is equivalent to about £4,000,000,000."
Yet even these figures are not conclusive, since they merely reveal Greater
Germany's war expenditures. The "contributions" extorted from the conquered and
occupied territories must be added.
Since the signing of the Franco-German Armistice, France has been compelled
to pay 20 million marks per day into the German treasury. These 20 million marks
are now converted at the compulsory rate of exchange of 20 francs to the mark. This
means that France is obliged to pay 400 million francs every day, or 12 billion france
per month. This is equivalent to about 300 million dollars.
Aside from these 300 million dollars extorted from France every month, Belgium
and the Netherlands, Norway and Denmark are also forced to raise immense sums to
cover the costs of German armies of occupation. These "contributions" may well
exceed 100 million dollars per month.
By way of summary, we may say: Germany embarked on the second World War
3 New York Temas, October 28, 1940
ALL EUROPE AGAINST BRITAIN
29
with a budget which appropriated about 4 billion marks per month to cover all ex-
penditures. Of this sum total, approximately 3 billion marks went toward strictly
military expenditures, while the rest was used to cover the State's other expenses
If. following a rate suggested by the London Economist, the pound sterling is con-
verted at 15, and the dollar at 3, marks, Germany's military expenditures amounted
to one billion dollars per month.
In the meantime Hitler's Germany conquered Continental Europe. This con-
quest completed, the Nazis proceeded to bolster their own war economy by including
in, and adjusting to, their greater war economy the entire economic systems of the
conquered and occupied territories. While early in the war Germany's military ex-
penditures did not exceed 1 billion dollars per month, today the sum roral devoted
to military expenditures in Germany proper and the conquered territories is well up
in the vicinity of 2 billion dollars per month,
From the winter of 1939-40, to the winter of 1940-41, the Third Reich has well-
nigh doubled its military expenditures.
Thns Germany entered the new phase of the Battle for Britain with a completely
integrated production system of Greater Germany, with an attempt to include the
regional economies of the subjugated countries in this greater economic system, and
with a gigantic military budget that has once more been doubled since the winter
of 1939-40.
In an article entitled "Germany's Economic Mobilization," published in April,
1939, more than a year before Hitler's invasion of the Netherlands, and almost two
years before the publication of this little book, in the Army Quarterly, Britain's fore-
most military review, T summed up my survey as follows:
"Germany's economic mobilization for war is being carried on 20 the highest
possible speed, and up to the present the industrial mobilization of the Western
Powers has reached nothing analogous in proportion. In the matter of economic
mobilization for war National Socialist Germany will in all probability rerain the
lead and enjoy an advantage down to the outbreak of hostilities. The great problem
of the Western Powers now is to keep that advantage within such bounds that it can-
not prove sufficient to give National Socialist Germany a decisive surprise success
right at the beginning of the war, and to insure that their own first line of defense
holds out long enough to permit the mobilization of the Western Powers and the
United States."
This goal has not been reached by the Western Powers.
France, their first line of defense, is now a shambles.
Britain and the United States, indeed the whole world, today are facing the
same burning problem.
Thus 1 reiterate the concluding sentences of my article of April, 1939. with only
a few appropriate changes:
30
FIVEFOLD AID TO BRITAIN
"In the matter of economic mobilization for war National Socialist Germany
will in all probability retain the lead and enjoy an advantage. The great problem
of the United States and England now is to keep that advantage within such bound;
that it cannot prove sufficient to give National Socialist Germany a decisive surprise
success in the second year of the war and to insure that their own first line of defense
holds out long enough to permit the mobilization of the industry of the United
States."
II
Britain by Itself Cannot Defeat Hitler
T
HIS is not the place to describe how Britain underrated Germany's rearmament.
Instead of going into such "historical" details, we shall confine ourselves to a
more immediate comparison between the German and English military budgets.
In this connection it is well to repeat that Germany, even prior to the war, devoted
about half of its entire production system to armament.
Let us now see the development of British and German armament expenditures
during the war. At the outbreak of hostilities, the English budget contained provi-
sions for expenditures at the following annual rates!'
Million Pounds
Four months, September to December, 1939
1,991
Three months, January to March, 1940
2,592
Three months, April to June, 1940
2,700
Three months, July to September, 1940
3,746
In October and November, the total English budget amounted to more chan 4
billion pounds."
To arrive at the net sums showing strictly military expenditures, either early
in the war or in its recent months, we must deduct 700 million pounds annually
spent on the British Government's civilian requirements. Thus at the outset of che
war, net military expenditures amounted to about 1.3 billion pounds, while today
they total 3.3 billion pounds and are still rapidly increasing. This means that in a
little over one year, military expenditures were increased two-and-a-half-fold, while
the whole budget was but doubled.
The Empire's expenditures for military purposes connected with the war effort
may be estimated at 200 million dollars."
1 London Economist, October 5. 1940.
a "Describing this AS the most ently war the world has ever known, Sir Kingiler Wood, Chancellor of the Exchequer, sold
today that Britain's average daily war expenditures bad risen from 5.5 million pounds for the first year to 9.1 million pounds
for the first seventy-seven days of the second year." (New York Times, November 18, 1940.) A daily expenditure of 9.1 million
pounds equals 3.3215 billion pounds per year, If W add 700 million pounds, representing civilian expenditures, we arrive at tour
billion pounds, the sam total of the British budget.
a Canada's present military expenditures amount to about 65 million dollars per month. On November 23, 1940, the New
York Times wrote:
"Finance Minister J.L. Ilsley today gave notice that the best war toan would be Boased next Summer. He announced that was
expenditures had now reached the rate of DOB billion dollars a year and were readily increasing. This amounts to coe-fifth of
Canada's national income."
Of Australia's military expenditures the New York Times reported DO November II: "The budget (ntroduced by Treasurer A
W. Fadden in the House of Representad ves today imposes taxation on an unprecedented scale and, with Scate CARES, will devine 20
per cent of Australia's national income en the was effort.
War expenditure for 1919-40 was 55 million pounds Australian
31
32
FIVEFOLD AID TO BRITAIN
In Figure 6 we compare Bricish military expenditures with those of Germany
BRITAIN BY ITSELF CANNOT DEFEAT HITLER 33
(See also the figures in Chapter I.) To facilitate a further comparison with American
expenditures were 2. little over one half of Germany's corresponding expenditures,
military expenditures, all values have been computed in dollars, basing our calcula-
despite the immense Nari advantage of advance war preparations and accumulated
tions on these rates of exchange, also suggested by the London Economist: The do-
stocks and reserves. Second, it shows that even in June, 1940, British military ex-
mestic purchasing power of one British pound is set at 15 marks and 5 dollars 10-
penditures were below the German expenditures in the early stages of this war, in,
spectively, while that of the dollar is set at 3 marks.
one billion dollars per month. Since then, Britain's expenditures have shown a. rapid
increase, overtaking Germany's early rate of expenditure. However, Germany's ex-
penditures were also increased in the meantime. Thus today British milicary expen-
MILITARY EXPENSES
BILLIONS OF DOLLARS
ditures are still below those of Germany, especially if we consider the contributions
PER MONTH
M
GERMANY
of the conquered territories, which were gradually added to the sum total of the
3.0
latter.
18
1.6
An analysis of the Bricish budget compared with the budget of Germany tends
if
to confirm our conclusions drawn from a comprehensive survey of German production
16
BRITISH
after the subjugation of Continental Europe. Even if Britain's economy runs full
Le
EMPIRE
blast, it will at best be able to produce as much as Germany is now turning out alons,
without the conquered territories.
14
La
UNITED KINGDOM
Despite extreme efforts in the next six months, Britain by itself remains incapa-
1.2
ble of accomplishing two things forced upon it by the emergency. First, it will not
M
be able to exceed the immense advantage which Germany gained by organizing half
14
of its industrial system into armament production many years in advance of the war
9
and by subordinating its whole national economy to the production of armaments.
a
Second, Britain by itself is incapable of creating an armament production corre-
/
sponding to that of Germany plus its conquered territories.
-
On October 9, 1940, Churchill told the House of Commons: "No one ever pre-
tended that we should overtake the Germans with their long lead in the first year
ok
of the war. We must give ourselves a chance. Perhaps it would be possible to make
a
,
UNITED STATES
a more satisfactory statement 00 this subject at this time next year. But do not forget,
the results of the enemy will also be substantially increased by the exploitation of
-
the wealth and the plants and to some extent of the skilled labor of the captured
9
OCT.
NOV.
DEC
JANL
Fed
MAR
APR
MAY
JUN
JUL
AUG.
SEP.
OCT.
NOV.
countries."
1939
1940
BRITAIN'S ARMAMENTS LAG FAR BRHIND GERMANT'S
Figure 6.
How far Britain's military power still lags behind the immense armed strength
of Germany is clearly demonstrated by this single fact: Without the protection of
In addition to British and German military expenditures, the chart also shows
the English Channel, Great Britain would long ago have succumbed to German
those of the United States. These latter amounted to about 200 million dollars per
invasion. Britain's land army, even in co-operation with the Royal Air Force, is still
month from July to September, and increased to 280 million dollars by October.
no match for its German opponent. Bricain's survival is due to the protective barrier
This chart shows, first, that when Britain embarked upon the war in military
of the English Channel which has enabled the Royal Navy, together with the RAF,
(she Asstralian pound does! Wednesday at 2).23). For the chining your it la milimated as L56 milling punk
to frustrate all German attempts at invasion.
The puchasing pome of the American pound AT borne may be above (z) official PAID of exchange of n.o. just -
the domentic purchasing power of the Beglish pound is higher this in THE of enchange The paid pur of albert R -
In the fall of 1940, Britain's insular situation, its Royal Navy and Air Force,
expended by the Empire no the afters may will be considerably increased.
combined to prevent Germany from making effective use of its much greater war
Regraded Unclassified
34
FIVEFOLD AID TO BRITAIN
BRITAIN BY ITSELF CANNOT DEFEAT HITLER 35
potential. It has also deprived the German Army of a field of operations worthy of
its strength. Germany's huge land army (and the German Army is still cremitally
drafted into the growing Brieish Army, and now British factorios must work day
a land army). has been left without a theater of war since the collapse of France.
and night to (uro out the equipment for the new troops. Under the circumstances we
Prior to the was, during its first phases and roday, as the time of writing this
must point out with particular emphasis that all these tasks have taxed Bricish pm-
book, Britain's production within the framework of its war effort lagged far behind
duction to a limit beyond which a further increase of production is hardly feasible
Germany's production. Compared with Germany's total war effort, It is welll in
li is well within the realm of immediate possibilities that Bricish war-material
ferior But the barrier of the sea has, up to now, prevented 4 clash between Germany's
production will decline racher than increase, especially under the impact of Ger-
and Brissin's land armies.
many's prolonged air attacks.
Consequently, Hitler found himself compelled to look for new battlefields on
BRITAIN's OFFENEIVE CHANCES
which to attack Bricain and its Empire when his large-scale air attacks failed to
bring about à quick decision.
On the other hand, Britain is on the offensive in three fields, First and foremost
Instead of moving westward, which would have been the logical move to end
comes the Royal Air Force. Britain, however, is well aware of the established mils-
the was as quickly as possible, he decided upon a penetration of the Balkans. His
ary fact that an air force alone is incapable of defeating the enemy, It may gradually
troops were ordered to occupy Rumania. The ultimate goal of this penetration was
wesken the German war potential to a considerable degree-but the road to such
not merely Rumanian oil; it was the escablishment of advanced bases to bolsrer an
success is di long one, and is can be traveled only after Britain succeeds in obesining
impending campaign for Suez as well as the Mosul oil fields of Traq, i.t., a cimpaign
superiority in the air. But the Royal Air Force cannot conquer Germany or defeat
the German Army alone.
against the British lifeline. Hitler also concluded di pact with Japan, designed to
back up that country in a projected attack on British positions in Asia and to en-
Bricain is on the offensive with her Royal Navy This Navy, operating in the
courage all Japanese moves of expansion, if only to prevent the U. S. Fleer from sail-
seven seas, utterly confounded all military calculations drawn up after the collapse
ing into the Atlantic while potential danger looms in the Pacific.
of France. Then armchair strategists resorted to the obvious formula of adding up
An attempt was made to bring the Soviet Union closer into the Axis for the
the aggregate tonnage of the German, Italian, and French navies, and, remembering
total war against the British Empire. Hitler, moreover, now utilizes all the ports
that part of the British Fleet was based Off faraway Singapore, they arrived at à
and naval bases of the conquered territories for the prosecution of a large-scale sub-
figure which revealed a numerical superiority of the totalitarian fleets over their
Bricish adversary.
marine and air war, to impede the shipping of war material, raw material, and food
to the British Isles. His intensified air raids against British industrial centers are de-
If nothing else, the German Navy was fatally weakened during its Scandinavian
signed to reduce Britain's own war-material production, its own industrial supply
loray; a few determined blows sufficed to paralyze the French Navy; the Tralian
and it cannot be denied that he has been successful up to a certain point.
Navy has been considerably damaged. and its fighting efficiency almost tarally im-
Now master of Continental Europe, Hitler is trying to turn the tables on Drirain
paired by Admiral Sir Andrew Cunningham's masterful strategy in the Modicer-
ranean and the Red Sea.
and organize a deadly blockade to starve it into unconditional surrender.
What can Bricain's answer be to this threat, and, in fact, what is its answer?
However, even this superior Royal Navy cannot defeat the Third Reich and in
Army by itself.
In the face of German military might, Britain is still on the defensive. For the rime
being, all its successes are within this defensive sphere. It succeeded in foiling 3.
Britain's third offensive wespon is the blockade. lo the wake of Hitler's ITI-
German invasion and thus managed to upset Hitler's timetable. This is particularly
umphs in the west, the Royal Navy extended its blockade to include practically the
significant, since Hitler hoped to wind up the Battle of Bricain prior to the out
whole of Continental Europe. Of course, the efficiency of this British blockade means
come of the American Presidential election.
à considerable weakening of the German war effort. Scores of raw materials vital
Meanwhile, Britain proceeded to convert itself into a veritable anenal. for
for warfare are lacking in Europe, and, though considerable reserves were accumu-
lated in advance, despite francic attempre at autarchy, they cannot be procured in
the supply of in steadily increasing forces. Bricain succeeded in salvaging most of
the divisions of the original expeditionary force from the disaster in Flanders, but
the quantities now required. The longer the war drags on, the more injurious che
lack of these raw materials will become, the more asrious will be the Consiment's
most of their equipment Was left behind. The first rask was to provide new equipe
food difficulties.
ment for the rescued divisions From week CO week additional contingents were
However, Britain knows well that the blockade alone cannot win the war,
Regraded Unclassified
36
FIVEFOLD AID TO BRITAIN
BRITAIN BY ITSELF CANNOT DRFEAT HITLER 37
just as it proved incapable of bringing about final decision in the last war Then the
hlockade was attned At Hohenxollern Germany, which failed to prepare its economic
This places it in a position where it is able to free itself of many hardships and shift
system for a protracted campaign and which for many years was forced to conduct
them to the more than a hundred million entlaved peoples,
. war on two fronts with millions of its troops permanently engaged in battle. Even
For the Battle of Bricain, Germany does not need an army of millions la striking
then, after four years of fieree fighting, the blockade alone failed to decide the Wat.
contrast to the first World War, chousands of German xoldiers drafted from agricul-
The Allied victory of 1918 was the result of a series of factors, such as the decisive
tural occupations may be returned to the land for its efficient cultivation. War-
defeat of German troops in France and the realization within the German High
material consumption, moreover, is trilling in comparison with the noods of an army
Command that America's entry into the war was bound to improve the Allied
of millions actually engaged in fighting a modern Industrial was to the end.
scrength from month to month.
Thus the blockade is but one of several weapons available to Britain-despite
Germany's present position, in 50 far as the immediate future is concerned, is far
in increasing expediency and efficiency. It is a. contributing factor to victory effective
note advantageous. For many years before the outbreak of the war the Economic
only in conjunction with other factors.
General Staff prepared Germany for a prolonged war. The Reich's TXW material and
The Royal Navy is also Britain's most effective defense Wespon, But, just as the
food economy were fully and effectively organized. The conquest and the plundering
Navy was unable to defeat the German Army in 1914-18, it will again fail to accom-
of the subjugated territories of Europe prevented a deterioration in Germany's food
plish this fear in the present campaign.
supplies or in the feeding of the Germany Army and armament workers.
Next to the Royal Navy, the Royal Air Force is Britain's best defensive arm,
On October 12, 1940, the London Economist wrore:
Simultaneously, it is rapidly developing into (1 dreaded offensive wespon against
"Most guesses about the state of morale in wartime Germany are just guesses
Germany. Bur in effectiveness is still rather limited. Britain's land army is still in
and after a year's experience of the problems of war economy we can no langer glibly
the formative stage and by far inferior to its German counterpart.
write off the enemy's siringent rationing of food and other necessities as a proof of
With the blockade capable merely of weakening the enemy, Great Britain is in
weakness. Food shortage does indeed undermine morale-and health-more than
no posicion to defeat Germany even if it throws into the battle its three-cornered
offensive arms.
any other single factor, bur measures to eke out existing supplies and provide against
What Britain can do now, and what it is actually doing, is a clever utilization
shortage in the future may be a source of encouragement It is, in face, not rationing
that will break German morale, but the actual lack of food, and that is not likely
of the pause during this winter to prepare everything at its disposal to avert 4 com-
yet, chough the existence of so wide and so complicated a system of rationing will
plete defeat in the spring. Britain is now facing 2. dual task: it must build up in OWN
forces and continue to weaken Hitler's Germany to that an invasion can be frus-
scarcely be emollient to public temper If the serain of war continues and increases
The German workman is neither well fed nor well clad, but he is not hungry
trated and, consequently, its own defeat can be averted. Behind these defensive
or ragged yet. It may indeed prove that another winter or, still more surely, two
efforts Britain also prepares for the later stages of this war-a carefully plarmed,
long-range program, to bring about ultimate victory over Nazi Germany
further winters, will bring out the most dangerous consequences of chis ascetic
But ler us here repeat with all the emphasis we can command Britste by mill
system in the shape of ill-health and sickness. But at present German supplies are
COMMON achieve this ultimate victory On the contrary. leh to itself. Britain is still
boistered by the loot from the conquered countries, where severe rationing has been
introduced.
threatened by conquest and collapse, Only lavish American aid an provide the
In IMM, then, Germany is in no danger of graw scarcity in the Mult
titainly of Britain's escaping defear. The probability of an eventual Bricish victory
future, and the Reith's complete rystem of rationing has been a great aid in conserving supplies
can be provided by increasing this American aid to really grandiore proportions.
and building "P stocks." (Italics by the author)
Thus, in this second World War, the United States now occupies an all-impor-
It is imperative, moreover, to take into careful consideration the radically
changed character of warfare since the first World War in its obvious influence on
tant, all-decisive key position to cast the deciding vote for victory or defeat.
Germany's total supplies. In 1914-18, Germany was forced to conduct a long and
exhaustive war with a huge land army over a period of four years. Today, the immedi-
are task of its land army is practically concluded after but - few weeks of actual
fighting. Even though these six weeks of large-scale military operations did com-
sume considerable supplies, Germany gained absolute control of Continental Europe
Regraded Unclassified
BRITAIN HELPED LESS THAN HITLER
39
III
ing so well. Early in 1940, the monthly average of warplanes sent to England was
but 21. By June, their number increased to 97; by August, to 278, by October, to 281;
further increases are promised during the months to come.
America's Aid to Britain Is Less Than Occupied
In line with this steady and relatively considerable increase of plane deliveries,
Europe's Tribute to Hitler
general American exports sent to Britain show a similar growth. During the year
that preceded the outbreak of the second World War, American exports to Great
Britain rotaled 497 million dollars, or 41.4 million dollars per month. In the line war
T
HE United States of America is the leading industrial power in che world. In
year, they increased to 780 million dollars, or 65 million dollars per month. While in
production in all the important branches of peacetime industry is not only far
May, 1940, exports amounted to 49.4 million dollars, they increased to 12) million
greater than chae of Germany, hat even proceds the aggregate production of Germany
dollars by August. Over such a short period, they increased by 150 per Dent
plus all its conquered and occupied territories. The pooled production system of the
Similar increases were noted in the supply of steel, the most essential raw material
Birtish Empire and the United States is superior to the industrial capacity of any
for the efficient prosecution of a modern war In the first year of the war, the Bruish
combination of countries Adolf Hitler will ever be able to organize
Empire received less than 2.5 million tons of steel, or & monthly average of only
However, the bitter lesson cannot be driven home often enough Productive
200,000 tons. But by August, 1940, the export of steel reached the record mark of
capacity is mail the decisive factor in this war, Only actual production can num the scale-
596,000 tons, and almost 720,000 tons if we include Canada.
and the mere potential ability to produce huge quantities of war materials is A far
Accepting these figures at their face value, everything might seem to be in fairly
try from actual production
good order. The fatal error inherenc in such superficial comparisons is the com-
In their sheer ability to produce all sorts of war materials, Britain and France
placent belief that Hicler remained idle while all these supplies were going to
were (ar superior to their German opponent. Yer by the time they settled down 10
Britain. On the contrary, he was busier than ever. He had in the meantime conquered
mobilize all their reserves to produce sufficient war materials to bring about an
the whole of Continental Europe and he is now engaged in organizing the total
actual superiority liver Hitler's Germany, France was already vanquished. Even the
national economy of those unhappy countries for inclusion in the greater war econ-
fall of France could have been adequately counteracted by America's material sup-
omy of his Third Reich. To present a true picture, the gradually increasing American
port, since America's and Britain's combined ability to produce war materials is still
supplies must be compared with the actual gains of Nazi Germany.
superior to the corresponding capacity of aggrandized Nazi Germany
Such a comparison reveals an extremely delicate stato of affairs the dangerous
But the fate of the world will depend on their faculty to translato in time this
potentialities of which cannot be overrated.
potential economic superiority into military realities. It is dependent on America's
will and ability to convert its immense peacetime production into war-material pro-
AMERICAN STREL EXPORTS
duction in time-making the bulk of this redoubled output available to Bricain
In the first chapter of this book, We presented the exact figures of German steel
45 quickly as possible And in this connection I critical fact must first of all be
production including that of the conquered territories. We showed that in so far as
entablished
iron ore, steel's basic raw material, is concerned. the Reich has succeeded in elimin-
Thus lar, we have no assurance that American aid to Britaio will be extensive
ating all previous import difficulties. Now we compare Germany's domestic steel
enough and Case enough to prevent complete British defeat and German victory
production plus her gains in Europe with the quantities exported from the United
The American public has perhaps begun to realize that, despite all the COD-
States to Britain Granting that England will receive throughout the year quantities
spicuous growth of American supplies. the present volume and rate of deliveries are
equal to the record supply of August, 1940, we have the situation shown in Figure 7.
still inadequate But the public does not realize how very fat from adequare they are.
What is the message of this chart? Hitler is in the midst of organizing the heavy
Americans must be warned not to make the mistake of comparing the volume of
industries of the conquered territories for the war against Britain. Even now von-
present supplies with the sum total of deliveries that went to Britain in Chamber-
siderable progress has been made roward the final realization of this project. It would
lain's time, preceding Hirler's Western offensive. If present supplies are compared
be too much to expect 2. complete German success in the face of formidable difficulties.
with deliveries but a year or even six months ago, we are likely to he misled by .
But the report to the New York Times cited in the first chapter reveals that a. major
pretty picture of America's steadily increasing aid. Everything seems to be function-
portion of the heavy industries in the conquered lands is already working full blast
30
40
FIVEFOLD AID TO BRITAIN
BRITAIN HELPED LESS THAN HITLER
At the outset of the war, Germany's steel production by far exceeded the output
41
of the Bricish Empire Up to date all the American supplies of steel going to Dettain,
of the British was effort.
and the Empire, particularly Canada, lince all Canadian imports are for the benefit
computed at the rate of the record export of August, 1940, have only resulted in
Canada, and the rest of the Empire received goods and raw materials valued 4d 420
During the months of August and September, 1940, the United Kingdom,
STEEL
million dollars, or 210 million dollars per month.
IN MILLIONS OF TOMS PER YEAR
The Franco-German Armistice was signed in the Forest of Complègne on June
CAPACITY
25. Ever since, France has been paying the costs of the German army of occupation
83
RC the rate of 20 million marks per day. which, figuring the mark at 20 francs, comes
to 400 million francs iL day-12 billion francs, or 300 million dollars every month.
Germany received this sum every month throughout the fall and winter, it is
still being paid. France is unlikely to be able to continue such large-scale unpaid
deliveries indefinitely, Bue We are not here concerned with the exigencies of the
42
future. What we now must do is to bring France's present payments that are awell-
ing German war economy to bear upon the important new state of the war in
OCCUPED
TERRITORY
25.6
which the Third Reich in concentrating everything it has on the Battle of Brinsin.
17
EXPORTS
FROM
Therefore, it is of particular interest to compare American expores to the British
U.S. 8.6
EXPORTS
GERMANY
TO
EMPIRE
Empire with the sums Hitler is DOW extorting from France and the occupied regions
25
PRITISH
PRODUC
EMPIRES
(See Figure 8.)
TON 17
54
CAPACITY OF
BRITISH EMPIRE
GERMANY AND
PRODUCTION AND
UNITED
OCCUPIED
IMPORTS FROM
STATES
GERMAN TRIBUTE AND BRITISH IMPORTS
TERRITORY
UNITED STATES
FROM U. 5.
Figure 7.
FROM METT OF
OCCUPED TERRITORY
raising British production plus American supplies to the level at which Germany
año MELION
- MONTH
stood prior to the conquest of Continental Europe,
ROM
The gains Hitler recured for his war economy in the conquered territories are far
FRANCE
you
BACK
in
greater than the steel supplies now being shipped from this country to the whole
FEW
MELION
AMYTH
PER
British Empire.
MONTH
From September 1, 1939, DO August 31, 1940, the United States shipped 2.4
CERMANY OBTAINS
FROM
BRITISH EMPIRE IMPORTS
million tons to the United Kingdom. But the stéel production of Luxembourg, only
OCCUPIED TERRITORY
FROM UNITED STATES
one of the conquered countries, rotaled 2.51 million tons. Thus its steel production
alone exceeds the entire American steel exports to Bricain and Canada.
Figure A.
TOTAL AMERICAN EXPORTS TO THE DRITISH EMPIRE
The chart reveals that Hitler's receipts from France exceed by about 90 million
The objection may be raised that such comparisons are valid only in so far If
dollars per month the suni total of American exports going to the Brieish Empire.
steel is concerned. But this is not the case. Unfortunately, they are equally valid for
In addition, however, his looting of the Necherlands, Belgium, Luxembourg,
the total of American supplies to Britain. The utter inadequacy of these supplies call
best be expressed in figures revealing the sum total of American exports to England
4. October, lses, de espira NO England m in million dollars. - Camlo, M. and - de - Empire,
110 milling dollars la November the - remainel - the use
42
FIVEFOLD AID TO BRITAIN
BRITAIN HELPED LESS THAN HITLER
41
Norway, Donmark, Poland. and Rumania also swelled the stores and reserved On
which the Nach war economy is based by at least 100 million dollars more
We have shown that Germany's armament production underweit A bank re-
Unfortunately, no signs can be detected TO indicate a basic change of the sing.
organization after the collapse of France Today, it is primarily producing for the
tion in the immediate future According to a Washington dispatch of the Associated
particular needs of the Battle of Britain, while previously it catered to the diversited
Press on September 17, 1940, "foreign-trade experts estimated that anocher year of
requirements of the German land army, Consequently, throughout the winter,
war abroad would push United States exports up to a 450-million-dollare-month
Germany's aircraft production will be accelerated on two grounds. first, by comen-
volume new) summer, or double that of the period before hortilities started in
crating a considerable portion of all production facilities on the manufacture of war
Effect of the British blockade on the foreign trade situation was
planes, and second, by putting to work all aircraft factories in the conquered count
Europe
tries, parricularly in France and the Netherlands,
shown in the estimate by these experts that of the probable 450 million dollars
exports TO all nacions next June, the British Empire would take 315 million dollars."
The same Hicler who succeeds in draining the occupied rerritories of twice ai
Even at this figure of goods and raw materials valued at 315 million dollars a
much steel as the United States exports to the Bruish Empire, will similarly manage
to por into high gear the aircraft industries of those countries
month, the Bricish Empire would thus receive approximately the equivalent of what
We know the number of planes produced by France in the lieve World War
Germany now extorts from France, without the rest of the conquered territories
When Hitler embarked upon this war, be was at a tremendous advantage in the
We also know the number it could now produce were its manufacturing capacities
fully unlixed. It is too low an estimate rather than 100 high a one, if we now alless
possession of secumulated arms and munitions. In fourteen months of fighting, he
the number of fighter planes which the aircraft industries of the conquered terri-
capsured the armament stores. raw-material reserves, and natural resources of sight
tories can contribute to Hisler's campaign against England AC 500 unirs per month.
countries, including Rumania.
Figure 9 shows American plane deliveries to Brirain on the one side, and the
This is his first advantage in the Battle of Briesin
Germany's highly developed industrial system alone is capable of producing
MONTHLY CAPACITY
more than Bricain's own production apparatos.
OF OCCURED TERRITORY
AIRPLANES
This is his second advantage
Unhappily, these immense advantages have as yet in no way been counter-
balanced by American supplies. Until DOW, American exports have remained far
500
below the NUM total of the supplies Hitler has managed to get our of the conquered
MONTHLY DELIVERIES FROM
and occupied territories
U.S. TO BITAIN
AMERICAN PLANE EXPORTS
And how about planes?
Here, 100, we must most emphatically caution against slipping into a mood of
overoprimism. Of course, we have no figures with regard to the exact output of
276
German or British aviation factories. These are the war's most profound secrets.
250
But we know that due to the magnificent showing of the Royal Air Force, 4 plane
on the one side does not mean a corresponding plane on the other, since Bricain's
172
fighting Spicfires and Hurricanes, as well as some American designs, are superior to
their German counterparts.
125
But it would be foolish to prepare A balance sheet by simply adding American
97
plane deliveries to Bricain's doubtlessly increasing aircraft production-and then
21
indulge in the belief that Britain is bound to attain superiority in the air in due
course
1940
There is no evidence to support such a conclusion.
JAIL
FEB
MAR
APR
MAY
JUN
JUL
sus
ACP.
OCT
HOT
Figure 9.
44
FIVEFOLD AID TO BRITAIN
THE BALANCE OF WAR
productive capacity of the aircraft industries in the conquered territories on the
other.
Even before the war entered its decisive stage, Hitler possessed an enormous
numerical superiority in warplanes. Nevertheless, he has never ceased to expand bis
aircraft industry and to increase the output of planes in Germany proper. Thus
German production by itself still exceeds British production. These are important
advantages, indeed, and the mere fact that American deliveries have so far failed to
alleviate the British shortage of aircraft, tends to increase the odds in Germany's
favor.
If plane deliveries to Britain increase at no more than their present rate, as it in
generally assumed (the New York Times quoted British sources as expecting that
Britain will receive 600 American planes per month by June, 1941),* Britain will
obtain from the United States only as many planes as Germany is now getting from
the conquered countries alone.
In other words, an English superiority in the air by 1941 is practically our of
the question: Germany remains the master of the air.
This is our conclusion If American aid to Britain continues to linger on its present
comparatively low level, or increases but gradually and slowly in all branches of
exports, the United Kingdom will remain in 2. state of extreme danger. Hitler may
yet succeed in bringing about the total collapse of Britain in the course of the
perilous year 1941.
How can this be prevented? That is shown in the last panel of the drawing "The
Balance of War." More concretely, it is shown in the next chapter.
. The New York Time reported on October 31, 1940:
"Shipments of aircraft to Great Brizain is September mulal abtut 150 uito, Brizish sources anid raday in commenting de
reports that only 138 had been sent. October shipments are expected @ be about the ane as September's, with expectations of
shous 300 planes in November, By jou, these sources said, not lews than 800 a month will be shipped."
45
Regraded Unclassified
BRITAIN'S MONTHLY NEEDS FROM US
IV
untestricted submarine and air war now conducted against in merchant shipping
As long as Britain succeeds in keeping the sea lanes open and maintaining sufficient
Britain Needs 2.) Million Tons of Steel, 1,300 Planes,
ronnage plying between Bricish ports and overseas markers, it will remain in a posi-
tion to import a considerable part of those goods which the Third Reich is forced to
One Billion Dollars in Goods from Us Monthly
manufacture and produce within its own borders. It is nor merely a question of
Britain's ability co do so, Britain mast pursue such à course.
Almost three (ourths of all the food supplies required by Bricain are imported
T
HE idea that Britain is America's first line of defense has taken hold of the
from overseas. It would be a foolish undertaking to impair Britain's industrial
minds of che American people. Yet if this formulation is to be made into
efficiency in the midst of this all-out industrial war by withdrawing workers from
living reality, the United States will have to take on two interrelated tasks.
the factories and assigning them to agriculture in an attempt to feed half of the
First, America will have to increase and speed up its aid to Britain during the
population from Bricain's own soil.
months of this winter of 1940-41 so that chis most momentous of all possible Hitler
In addition to 75 per cent of its food supplies, Britain also imports raw materials
conquests can be averted and the heart of the British Empire preserved as à bulwark
vital in war. All the oil it needs comes from abroad. Even in pescetime, a considerable
against Nazism, which has its malignant hand set against the American continent.
pare of the iron ore for British steel production was imported. As long as Bricain's
As long as Britain is free and strong to defend itself, a German onslaught against
vital foreign trade functions, millions of British workers are free to manufacture
the United States is automarically foiled.
arms and munitions.
Second, this aid to Britain must be expanded to an extent which will enable
If the sea lanes are kept open and Britain's shipping losses continue at a com-
Britain to overtake German armainent production. Only American support (in such
paratively low rate, and if at the same time all available torinage is fully utilized to
a large scale provides the possibility of ultimate British victory.
carry goods to Bricain, then-and only then-will Britain be able to exploit its
manpower and the full efficiency of its industrial system, to increase its armanient
BRITAIN NEEDS WAR AND MRRCHANT SHIPS
production, and to complete the establishment of its Army. The distance which now
What is it that England needs-and what can America supply? Basically, the
separates British production from its German enemy will then gradually diminish.
existing discrepancy between German and Bricish armament production must be
We must always bear in mind that Britain stands or falls with its imports
reduced Just now, with Hitler working feverishly to subordinate the industrial
Aside from arms and munitions, those ships bring foodscuffs and raw materials M
system of che conquered territories to Greater Germany's war economy and, simul-
well, thus relieving Britain of the necessity of producing them on the spot with in
taneously, inflicting the greatest possible damage 00 Britain's industries, this dis-
limited facilities.
crepancy chreatens to increase in Germany's favor. This musc be prevented, and the
American aid can do much to alleviate Bricain's plight in this field. First of all,
United States has three means for preventing it.
the United States could introduce a series of measures to increase the security of sea
England is in the process of being converted into a single gigantic arsenal. Of
lanes on England's behalf. The exchange of 50 overage destroyers for naval and air
course, any intensification of Bricish armament production at home, as well 25 the
bases in the Western Hemisphere was an important step in this very direction.
training of the British Army; any attempt to increase Bricain's war potential to its
However, the barter failed to prevent the alarming intrease in Britain's shipping
full capacity represente a step toward catching up, at least part way, with Germany's
losses. It would be necessary to investigate whether America could place at Bricain's
present military superiority.
disposal more destroyers and other naval units without impairing its own national
By now, Britain is an arsenal in all but name-and yet, in many decisive respects
defense.
it still differs from the arsenal that is Nazi Germany.
According to à dispatch from the London Bureau of the New York Herald
Germany and Continental Europe, now controlled and administered by che
Tribuna, the late Lord Lochian brought back a memorandum, believed to have been
Naxis, are cut off from overseas by the efficient Bricish blockade Thus Germany is
discussed with President Roosevelt, announcing the British Government's deaire to
compelled not merely to manufaccure its arms and munitions. but also to provide
buy, lease, or borrow from the United States three bartleships, six cruisers, and I
les population with foodscuffs and estential consumer goods.
hundred destroyers.
Brieain, on the other side, still has free access to overseas resistes, despire the
No York Triss 26,
46
Regraded Inclassified
48
FIVEFOLD AID TO BRITAIN
BRITAIN'S MONTHLY NEEDS FROM Us
49
Germany is now acuadily intensifying its efforts to send its own U-boats and
Italian submarines against Britain's merchant shipping, utilizing all the available
materials to Britain are almost certain to be attacked by Nasi submarines or reiders.
ports along the endless Atlantic coastline. Bricain is short of small naval units,
still, the solution is quite simple. Today, and not when Bricain's lack of cargo
urgently needed to escort the convoys now seriously chrestcard by the unrestricted
ships issumes disastrous proportions, American vessels should be sold to British
submarine warfare.
firms Moreover, the building of ships for Britain should begin at once in American
Just AS every American destroyer sent to Bricain helps to maintain the flow of
yards, which should also be used to repair and recondition damaged British shipa.
imports which, in turn, are the arteries of British defense, every destroyer and war-
"Great Britain has arranged for the building and acquisition of merchant
ship bolscers Britain's ability to resist and repel Hicler's attempts at invasion.
ships in the United States to offset losses that have been, or may be, suffered in the
Experience shows that considerable time elapses between the decision to give
submarine campaign waged by Germany and Italy, shipbuilding circles reported
Bricain destroyers and their actual delivery, with further time required to train the
today. The program calls for the building of 120 freighters in this country at . cost
crews for these foreign warships. Yet immediate delivery is imperative if they are
of about 100 million dollars, these sources said. Early deliveries on the firse ships
to arrive in time for the decisive phase of the Battle of Britain in the spring of 1941.
have been guaranteed, and the entire program is to be completed in a short time, "
was asserted."
In addition to its own tonnage, Britain now hás at its disposal the greater part
It is an open question whether the etisting shipbuilding facilities in the United
of the merchane flects still flying the flags of countries conquered and subjugated by
States ruffice for this new construction: According to a disparch in the Herald Tribum
Hitler. But it is a grave fallacy to believe chac the total connage now available to
of December 6, 1940:
Bricain mosts all present and future needs.
The British Government has decided to build in own ship assembly yards and
Even prior to the war, the bulk of these foreign ships was at Britain's disposal
construct prefabricated freighters on a mass-production basis from parts made at
for the transport of its foreign trade. Even more important is the fact that Germany's
factories throughout the United States and shipped to the two assembly points, one on
conquest of Continental Europe caused & considerable lengthening of the trade
the cast CORSE and one on the West coast, it was learned from government officials
mutes now negotiated by British shipping. The convay system also prevents a full
tonight
and efficient utilization of the available tonnage. When traveling in convoy, faster
"The British Shipping Mission, which has been in the United States for nearly
boars are compelled to adjust their speed to slower vessels, and thus their actual
two months, has returned to New York to complete the final details and sign the
capacity diminishes, since they are en rouce longer than normally required. All this
last contracts before announcing the plan. The assembly plants will be similar in
happens at - time when Britain must utilize its manpower both for its new Army
many respects to the Hog Island shipyard, which the American government con-
and armament production while simultaneously facing the necessity of increasing
structed and tan during the World War.
the quantity of its imports to the greatest possible extent.
According to British estimates, the first ships should be completed within ten
Consequently, Britain is now confronted with the immediate task of enlarging
months, or perhaps even sooner. However, shipping circles are less optimistic and
its merchant fleet by all available means. Normally, the annual capacity of British
suggest that, considering the difficulties, the first ships may not be finished and de-
merchane shipbuilding yards is estimated at two million tons, but today it is far
livered to the British before a year.'
below this figure.
Each addicional ton available to Britain increases its imports. In turn, an io-
Ronald E. Cross, Minister of Shipping, revealed in Commons that . very Large
crease of imports releases men, raw materials, and production facilities within Grear
part of Britain's domestic shipbuilding capacity had to be given over to naval con-
Illntain for the Brirish Army and military production.
struction, and that many yards are engaged in repair work instead of building
However, Britain's own production will never suffice to overtake Germany's ad-
merchant ships.¹
vantage. Britain DOW needs American aid insofar as weapons and municions are
What can the United States do?
concerned. In the beginning, aside from certain limited plane deliveries, American
The merchane marine of the United States is idle, its shipe are laid up. wasting
aid cunsisted in placing at Britain's disposal arms from existing American stocks,
precious hours in ports. The Neutrality Act prohibits the shipment of goods to
left-overs from the first World War, Thus, for instance, in June, 1940,* the United
belligerent countries on American vessels. A change in rhese provisions is bound to
Stares delivered to the British surplus stocks of 80,000 Hotchkist and Lewis machine
lead to unpleasant consequences, to say the least, since American ships carrying wail
has L 10 the Has Ins They, Number 1, TMI
Now Tel Hould Traine, Nirmaler 17, 1940.
to . mide by Perfinant H., - the Now York Times, lepation II I
50
FIVEFOLD AID TO BRITAIN
BRITAIN'S MONTHLY NEEDS FROM US
51
guns, 500,000 Lee-Enfield rifles and several million rounds of ammunition. There are
more such stocks kept in American arsenals which could be made available to
ment production of the United States would amount to no less than 50 billion dollars
per year.
Britain. According to Ferdinand Kuhn, another 250,000 of the Ler-Enfield rifles could
With Britain getting half of it, 25 billion dollars worth of armamonts, ammuni-
be supplied.
On the whole, however, only new production and not the depletion of old
tion and essential raw materials per year, or about J. billion dollars jor momb, would go
to bolster our first line of defense.
stocks can mean A real and efficient support
Les us now sum up the three forms of aid which Britain needs from the United
Such American aid to Britain would lead to A Drinsh victory,
But today We are still very far from shifting half of America's industrial expecity
States.
10 the production of armaments. From July TO September, 1940, America an military
Fini of all, it needs all the warships America can spare without weakening in
expenditures coraled about 200 million dollars per month," while they increased
own national defense; in addition, idle American merchant ships must be transferred
to 280 million dollars by October At this rate, annual production will total from
to Bricish registry, and new cargo vessels must be built here as quickly as possible.
2.5 ID 3.5 billion dollars. The deliveries to Bricain were valued 4E 100 to 120 milling
An extension of the 300-mile neutrality zone, patrolled by American naval vessels,
dollars, those to the Empire a little over 200 million dollars. These figures alone re-
would further implement the security of Bricain's vital sea lanes and free more
real that not even a 100-per-cent share in America's present armailient production
Briensh ships to escort convoya through the most perilous passages.
will suffice to provide Bricain with positive protection against defeat Only A tre-
Second. Britain needs additional supplies from America's reserve stocks-every-
mendous increase in America's arthament production within the shürtest possible
thing from machine guns to flying fortresses.
space of time will avert a British defeat.
We shall draw up a picture of this dangerous situation as simply and as clearly
AN HOUR A DAY ICDEPS HITLER AWAY
as possible. Bricain, America's first line of defense, already devotes about half of as
Third, and this is the decisive need, American deliveries of newly produced arms,
production in the manufacture of armaments. This means that every man, woman,
ammunition, war matérials, as well as essential raw materials must increase to a
and child works 4 hours a day producing atmaments, while another 4 hours are
really considerable extent. However, the prerequisite for such aid is the immediate
spent on manufacturing other commodities. At a full utilization of her industrial
organization of America's own armament production to a far greater speed than has
cipacity, American production would amount to 90-100 billion dollars per your
been done chos far
Working 8 hours per day, each hour would produce about 12 billion dollars per year
After his re-election, President Roosevelt proclaimed a new policy according to
Today, American armament production (280 million dollars), and exports 10
which all America's future war production will be equally distributed berween the
Britain (210 million dollars) amount to about 500 million dollars per month, OF
United States and Great Bricain. In his press conference of November 9, the President
6 billion dollars per year, representing one sixteenth of the total American producsion
announced that "deliveries of airplanes and was materials needed both by Great
at a full utilization of industrial capacity. Thus, America spends but so minutes
Britain and the United States shall be divided, generally. on a 50-50 basis:"
our of the full 8 hours of a work day on the production of atmaments, lite 15 minutes
This by itself represented a considerable improvement over previous pracrices.
for its own, and 15 minutes for Bricish needs.
However, even this improvement in the ratio of division could be of value only
la Nazi Germany, however, overy day 4 out of 8 working hours are devored to
If the volume of the goods to be divided, in the total volume of American artiva-
the produccion of armaments. The German Economic General Staff now sees DI in
ment production, further increased both steadily and rapidly. A 50-per-cent share in
that the population of the conquered territories also works 4 hours every day for the
America's armatment production may mean much, if the country has already com-
Name purpose. The Britain of Winston Churchill also devotes 4 hours daily to
pleted the shift to the primary production of armaments. Such a shift was executed
armament production.
by Germany long before the outbreak of the war.
Let as repeat: Britain is America's first line of defense against Hitler aggression.
If the United States succeeds in liquidating unemployment while at the same
With Germany and Britain both devoting 4 full hours per day to the manufacture of
time fully utilizing its industrial capacity, the national income, or the volume and
la AM article entitled "The Web is Edward H. Colline winne anthe Name Tark Hould Tribam of United % 1941
value of production, will amount to between 90 and 100 billion dollars per year.
The National Delease Address Commission Case - then - - 13 billine Billars had -
Part . ilem to pm last of the present secional bank (well , mini be - name) Antival - for Mir
as against the 74 to 75 billions for 1940. If America's fully utilized industrial capacity
- the modo 475 mail when plant because - Sgram MD - TMP HAVE maint any é - dallano Times
were to be transformed into producing war materials on the German scale, the arma
- during - very imas, and a must be Special DE - deliver, Against TW milliam includes
leg - midien
Regraded Unclassified
52
FIVEFOLD AID TO BRITAIN
BRITAIN'S MONTHLY NEEDS FROM US
51
armaments and the production of essential raw materials, no further proof is needed
for the statement that an American armament production of only 30 toimures 1 day,
DAILY WORKING HOURS FOR ARMAMENT
DAILY WORKING HOURS
of which 15 minutes are spent on aiding Britain, is fatally inadequate to satisfy all
BRITAIN
GERMANY
NEEDED IN U.S.
the requirements of this streamlined war of factories.
FOR VICTORY
With America working but 15 minuses for Britain's needs, the danger of invasion
and subsequent defeat remains like a dark cloud overhanging Dritain, and an altimate
Bricish victory appears well-nigh impossible
In order to avert defeat, England requires, not 15 minutes', hur a full hour's
work every day in the United States, just as the United States needs a full hour's
work for in own defense.
This is made plain in Figures 10 and 11, (See opposite page.)
One Bour of American labor corresponds to production valued at 12 billion
I HOUR
FOR BRITAIN
dollars per year. Such A volume would soon enable Britain to equalize her armi@em
production with that of Germany.
To attain this balance, Britain requires American support at least as great in
volume as (CS own production, Were Bricain able to double its industrial ourpor by
HOURS
HOURS
obtaining an equal volume of support from the United States, Hitler would certainly
fail to vanquish it.
UNITED STATES
American aid to equal Britain's UWA production-this may not be sufficiently
1 HOUR
concreté for some of us.
FOR DEFENSE
Let V), therefore, demonstrate the extent of such support, using the same group
of three examples by which we explained the insufficiency of American support.
Again, let us start with steel.
In an article, written for the Infantry Journal of Washington,* I wrote that the
"secret [of the first World War] was the history of iron and steel production." In
(ace, iron and steel production provides the key to the secret of the first World War,
as well as of the present war. Immediately. at the outset of the last war, the moops
of Hohenvollern Germany invaded France and occupied its heavy industrial regions.
Consequently, the ratio of steel production was 24 for the Central Powers to 13 for
the Allies.¹ It was the steel production of the United States which sipped the scale
in favor of the Western Powers
Indisputable facts and figures presented on the pages of this book reveal that
30 MINUTES
42 MINUTES FOII BRITAIN
Hicler's present position is even more favorable.
M MINUTES FOR DEFENSE
At hame and in its Empire, England produces 17 million tons of atcel. while
Germany produces 42 million tons at home and in the conquered terricories. Accord-
Figure 10.
Figure 11.
ingly, Britain needs American steel in sufficient quantities to equal and overtake the
Is the American steel industry able to satisfy this immense requirement? It can
total German production. It needs, nor the 8 million-odd tons per year which it is
be emphatically stated that it isl
now actually getting at the rate of the August exports, but a full go million letts.
Figure 12 00 page 54 shows the capacity of the American Meel industry and
the deliveries that have been made to Bricain up to now, it shows, turnher_ the
"Jews and Best," by Divis burning (be before Jurnal, November-Depender nos.
Ilium, PAR 518
volume of American steel exports necessary for 4 Bertish victory.
Regraded Unclassified
54
FIVEFOLD AID TO BRITAIN
BRITAIN'S MONTHLY NEEDS FROM US
55
Britain needs steel, both in its nw form and manufactured into goods.* If
American supplier can he rebled, England's own and the Empire's production added
industrial system, on the other hand, is inferior to that of Germany proper. even
co America's increased supplies will nced Germao production, both from in Gwg
without the occupied countries. To make "p for this deficiency, Britain needs
American exports at least twice as great DI the sum total of Hirler's gains from the
conquered countries.
STEEL FOR VICTORY
Germany cannor defear Britain if Brieish imports from the United States
Amount to
IN MILLIONS OF TONS
83
83
ONE BILLION DOLLARS PER MONTH
CAPACITY
instead of the 210 million dollars now going to the whole Empire, or the 315 million
dollars planned for next year.
At tirst sight, this one billion dollars may seem abnormally large,
One may object that the delivery of goods to this amount will prove impossible.
47
42
To reality, however, it is far from impossible. It seems abnormally large only in
OCCUPIED
REO.
comparison with the aum total of exports now going to the Empire. It is large If
TERRITORY
JMP,
compared with total American exports now sent to all parts of the world, expected
25.6
17
FROM
U.S
EX
to amount to 5.4 billion dollars during the current year. What we are calling for are
FROM U.S.
PORTS
30
EXPORTS
8.6
exports to Britain alone, (which today receives about two thirds of the total), of
TO
ISTRANY
TO
EMPIRE
25
BRITISH
BOTOH
twice the estimated total of the current year.
BATISH
PRODUCTION
EMPIRE
EAVIRS
EMPIRE
Nevertheless, it is quite possible to reach such a volume. After the conclusion
B.6
17
30
IX
of the first World War, American exports exceeded 600 million dollars . month, and
BRITISH EMPIRE
CAPACITY OF
BIRTISH EMPIRE
PRODUCTION
GERMANY AND
PRODUCTION
in certain months the exports amounted to more than 700 million dollars A: the
U.S.
U.S.
AND IMPORTS
OCCUPIED
AND IMPORTS
full utilization of its industrial capacity and at full employment, America's annual
FROM U.S.
TERRITORY
FROM U.S.
production will amount to 100 billion dollars. And 12 billion dollars' worth of
TODAY
NECESSARY
goods sent to the British Empire represents but 12 per cent of the total. Britain's
Figure 12
peacetime foreign trade represented a greater percentage of its total production. A
corresponding increase in America's foreign trade, with the overwhelming portion
furnaces and from the conquered territories. Thus this German advantage could be
of its exports going to Britain, is by no means impossible.
counteracted.
But this requires certain sacrifices tight here in America. It requires that the
Aside from steel, Britain needs ao endless variety of industrial products,
American public take stock of itself and become conscious of the fact that the world,
machines, raw materials, to double its industrial capacity for the benefic of in
including the United States, is passing through an epoch of world revolution. As
soon as the seriousness of the hour is fully realized here and all appropriate steps are
armaments.
taken to meet its demands, America can and will esport one billion dollars" worth
America has 95 per cent of all that Britain needs.
The figures of its trade with Britain reveal what the United States now actually
of goods a month to the British Empire. The gist of our proposal is incorporated in
supplies. We hope we have succeeded in proving beyond the shadow of A doube
Figure 13 on page 56.
that present American exports are falling (ar short of Brirain's real needs in this
Most distinct of all British needs is an immediate increase of American plane
production for the benefit of Britain. Today, Germany is scill far superior to Britain
hour of emergency.
Without heing obliged to pay cash OF to pay at all, Hitler now extracts goods
in so fac as the number of planes at (ta disposal is concerned This discrepancy between
valued at 400 to 500 million dollars from the conquered territories while Bricain's
the German and Brisish air fleess must be cut, even though that alone does not mean
English superiority in the air. With but 300 planes going to Britain per month,
Of - - could la supplied boch as new me) and as of intabed gomals. Every - of -
Retrain in Des manifactional form, partionalarly if mile uno - and musitions, improves Britale's lighting -
Germany's initial advantage will not be climinated, especially if we keep in mind
Regraded Unclassified
16
FIVEFOLD AID TO BRITAIN
BRITAIN'S MONTHLY NEEDS FROM US
17
that Germany is just about to incorporate the aircraft industries of the conquered
territories into its own highly developed plans.
from the United States
which it entered the war. Ta attain a balance in the dif, Grear Britain now Tiveils
On November 10, 1940, Edwin L. James, writing in the New York Times, mid
Hitler was probably in possession of information that this country is shipping 200
AT LEAST 1,500 PLANES PER MONTH
Once chis figure is reached, German and superiority will be broken, German air
EXPORTS NECESSARY FOR BRITISH VICTORY
supremacy over Britain will be made improvible, and 2 decisive step will have been
taken to avert the possibility of IF Brieish defear, (See Figure 14.)
$1 BILLION MONTHLY
AIRPLANES NECESSARY FOR BRITISH VICTORY
SHORTAGE por MILLION
PER MONTH
U.S. DELIVERIES TO
MONTHLY
BRITAIN TODAY
SHORTAGE
$400 MILLION MONTHLY
EXPORTS TODAY,
$210 MILLION
MONTHLY
U.S. EXPORTS TO
GERMANY OBTAINS FROM
1200
BRITISH EMPIRE
OCCUPIED TERRITORY
Figure 13.
MARGIN
to 300 planes month to Britain Of course, if those shipments do not greatly
OF VICTORY
increase, and rapidly, it will result that there was some foundation to his boasts.
IF SHORTAGE
IS FILLED
With the plane factories outside of Germany now in his hands, Hitler can Increase his
production by greater numbers than the United States If Heil sending acress the Atlantic."
300
500
(Italics by the author.)
Even aside from the planes Hitler is now getting out of the conquered territories,
PRODUCTION CAPACITY OF
Figure 14
OCCURED TERRITORY
his own production must be taken into consideration. Calculations about future
deliveries to England' proceed from the assumption chat Germany's aircrafe pro-
duction is two and a half times greater than that of Britain, to which must be added
This chart, like the other illustrations, is designed to slow IN di striking manuer
Germany's initial numerical superiority in the form of the accumulated planes with
the length of the road still to be covered until Americao and to Britain, oven street
stendily increasing, reaches the volume necessary no with absolute al
- Amounting - withers. in a representative of . beling estimated, poin that the American surrent a fan
M Washington dispanità of she from York Hould Tribune el November 1/1, 1940: The obligations - inform
Hitler victory over Britain The chart suggess the actual requirements chas
is buy experied M programs, intive iss production expensity mine as tuo M Germany did under A and les -
still be met.
Private - - shie do The United Preu repies from London, (New York Times, Denember 15), - will New
production Graft - have ** milay in - Information ascribed to the unelligmice service of . and priver
THE IMPORTANCE of THE TIME ELEMENT
graduation la 5,500 planse recluding - with camin and is nachine -
suite - -- - the - bight they addiscred de the German and 1 bigine because (san
However, it cannot show the immense importance of the time element Is will
Bringin x - Goldenly that Denials world is appraciably with the Genman AM you
avail bur little if American supplies increase to the extent suggested above code
understal -
Regraded Unclassified
58
FIVEFOLD AID TO BRITAIN
BRITAIN'S MONTHLY NEEDS FROM US
59
after, let us say, one year, by which time Hicler may have succeeded to carrying our
his invasion and administering the final blow.
operations. The damage will be repaired at a comparatively rapid rate, if it has not
been already repaired.
It is imperative, and the significance of this urgency cannot be sufficiently
emphasized, that American aid to Britain be doubled and even trebled during them
However, it will take time to adjuse the ecunomic systems of the conquered
winter months. The Germans convincingly demonstrated the overwhelming impor-
territories to the greater German war economy. This requires a certain period of time
tance of the time element in their campaign against France. Even before that they
even within Germany, The Nasi was economy was not created overnight; it THE
built up, moreover, during a period of so-called "pesce," unimpeded by British air
publicly stared their opinion of the supreme inportance of the time element with
attacks, for example.
regard to all aspects of war.
Even in the event that all strata of the population in the conquered territories
Ao article, entitled "Military Preparation," published in the Manual of Madem
were willing to co-operate with the Nazis, the co-ordination of their productive
Military Science, maintains:
power at the rate of exploitation now practiced within Germany will certainly take
"Only one conclusion can be drawn
to prepare the shift in peacetime
time.
as systematically as possible. If the supply of war material is not equal to the demand,
Such or spirit of unconditional co-operation is by no means evident. For instance,
then military mobilization itself will be retarded; the length of time needed for
an editorial in the Dentsche Volkrwirm, entitled "Reconstruction of the Occupied
economic mobilization will play just as important 1. role as the speed of military
Territories," writes of Belgium:
mobilization."
"In view of the barrage of enemy propaganda, they [the inhabitants] were
On page 16 of the book, Industrial Mobilization, published by the German
pleasantly surprised by the correct behavior of the German troops, and of the mild-
Institute of Business Research, we read:
ness and philanthropy [sicl] of the German suthorities. There was I spontaneous
"The shortening of the period necessary for war production to reach its peak
willingness to co-operate. However, no sooner was the pattern of everyday life
is so important that some authorities consider this to be the only task which indus-
restored to normal when it became obvious that the change was only on the surface.
trial mobilization has to perform."
Many upper-class leaders lulled themselves into the illusion that they could con-
These quotations should suffice. They are clear enough. Germany's victory over
tinue their life where the war had interrupted it. It was like being in the house of a
France was an even more obvious demonstration to the world of the importance of
wealthy merchant on the day after his bankruptcy. Kitchen and larder were still
industrial mobilization executed in time. Everything must be done to prevent
stocked, the servants were not yet discharged, life was still pleasant. Those who
Britain from lagging behind Germany in this gigantic race in which Hitler is now
were prejudiced against Germany were merry once more, indulging in the hope that
mobilizing the resources of Continental Europe for the (inal showdown with Britain.
they would be able to evade co-operation."
The editorial writer of the Deatsche Velkswirt then advises these members of the
AMERICAN AID AFFECTS THE SITUATION IN TAB OCCUPIED TRERITORIES
leading class that they will be able to save part of their properties only if and when
The importance of the time element is overwhelming, not merely because
they demonstrate their willingness to co-operate with the Naris.
British military production directly depends on the tempo of American supplies, but
"If the propertied classes in those countries draw up an bonest balance sheer,"
because it may have repercussions on Hitler's ability to strengthen Germany's war
be writes, "they will realize that they will be able to salvage some part of their
economy by utilizing the resources and production facilities of the conquered and
estates only if they place all their remaining asseta in the service of reconseruceion
occupied territories.
instead of anxiously trying to protect them."
This point requires a comprehensive explanation.
The German General Staff expects more chan passive co-operation. It demands
We have presented a few figures to show how Germany's war potential may be
active co-operation. Thus the Deutsche Vollawirs writes:
improved by adjusting the economic systems of the conquered terricories to the
"Above all, this means that they must now strive day and night to adjust their
greater Nazi war economy. But such potential and actual increases are by no means
regional economy to the realities of the New Europe." But what are the "realities
identical.
of the New Europe"? The Volkswirt gives the frank answer:
We may disregard the fact that the war, no matter how short and lightninglike
"Beyond that, the German authorities expect 10 receive all evailable support
it was, wrought considerable havoc in the territories scrually affected by milisary
" and the MWF al quickly as possible." (Italics by the Destribe Valkwin)
- - - - not 1, F 73), Belin soil Lipan 1996
a Val. 14, No. 4.
Regraded Unclassified
60
FIVEFOLD AID TO BRITAIN
BRITAIN'S MONTHLY NEEDS FROM US
61
These passages reveal that thus far neither the German High Command nur its
resisting clements. To carry out this policy of intimidation, the Germans have an
Economic General Staff have been able to count eyen on the limited co-operation of
efficient machinery first, the Army. plus the Gestapo, plus the contralized power of
Belgium's propertied classe They also reveal the determination of those authorities
the State: second, the monopoly of influencing public opinion through their control
in introducing measures they deem necessary to take advantage of the time element
of press, radio, motion pictures, etc,
in organizing the occupted territories for the race against British and American
What defenses have the subjugated peoples againse these tactics? First of all,
armament.
they may categorically refuse to acknowledge National Socialism as a political and
This is the siruation in Belgium,
economic system of power. Unquestionably such an attitude of rejection is wide-
It is well known that the Germans failed in their attempts to set up LIT Norway
spread throughour subjugated Europe But this negative actitude alone accomplishes
and the Netherlands servile puppet governments that would have any support among
lirtle. Even within Germany a majority still rejects National Socialism; yet terror
the population.
and the Gestapo have proved sufficient to force even this majority to co-operate. Of
The situation in France is equally well known. The sec-saw struggle within that
course rejection of Nazism is sharper and more vigorous in the subjugated countries,
country goes on unabated between circles favoring total co-opetation with the Axil
where it is aggravated by national sentiments Bot in the face of the immense
powers and those remaining more or less loyal to Britain. This is accompanied by a
executive power of the Nazis, this negative atticude and passive resistance by them-
distinctly perceptible political apathy in the tank and file of the population, still
selves will never serve to retard the German war economy.
staggered by the extent of the defeat and cormented by worry for its daily bread,
The peoples of the conquered territories must be made conscious of the fact chat
the futile séarch for work. apprehension over the uncertain fate of sons, husbands,
Hirler's regime will not last forever, that it will soon be eliminated. They mass be
fathers, and brothers. now kept in German prison camps.
imbued with a Janatical fairb in ultimate British victory.
Throughout chis winter Germany is likely IO make an immense effort to wheedle
The mere fact that Bricain succeeded in repelling all Nazi attacks, that Hitler
or coerce the inhabitants into active co-operation to the interest of organizing the
failed to arrive in London by October, 1940, has had its effect and has contributed DO
economic systems of the conquered territories for the final struggle with Bricain.
the secretly cherished faith in a British victory. The morale of Germany's civilian
It is well to bear in mind that its conquests have provided Germany with
masses will certainly be influenced by the fact that British bombing raids *gainst
immense power that can be ruthlessly exploired. Germany is now in a position 10
German military objectives remain a permanent fixture of this second World War
apply to the population of these countries whatever pressure appears necessary
But the mere fact that Britain is still holding out, that it continues to be able
Germany has won and holds power-factors that are extremely effective. Of course.
to repel German air attacks, is by no means accepted as a British victory. Aside
Britain has not yet been defeared but neither has it succeeded in scoring spectacular
from continued air raids, from cerrain offensive forays of the Brieish Mediterraneso
victories le is the Nazis that have been victorious. This is fully realized by the
Floet, and operations in Africa, the hundreds of millions of peoples in countries con-
people of the conquered territories, and thas the German Army is rightly basking
trolled by Germany still find the Nazis maintaining the initiative, now as before.
in the spotlight of its victories. It has no equal on the European Continent.
As things stand today, they are convinced that Bricain alone cannot win. It may
Since Germany requires only a comparatively small army for the Barrle of
win with the help of the United States. These self-same millions of subjugated
Britain, the Nazis have been able to keep adequate garrisons in all the occupied
peoples doubt, however, that America's aid to Britain if fast and extensive enough
rerritories to frustrate brewing rebellions, indeed, to make the very idea of such
gradually to tip the scale in Britain's favor and to prevent - Hitler victory over
revolts appear like an act of insanity.
Britain.
With their centralized might, with the State's power over economy, the Nazis in
War potentials are poncrete factors. They are made "P of figures representing
every one of the occupied countries play off those sections of the propertied classes
planes, tanks, machine guns, artillery, warships, submarines, trained soldiers, iron,
willing to co-operate with them against those who refune DO do so. The hold-outs
stee), iron a and thousands of other items.
may lose their properties; worse than that. they may be dragged into concentration
But war potentials contain factors beyond there concrete items
camps or even executed. To the compliant, the Nazis promise, if not the return of
Especially in the case of subjugated peoples in conquered cerritories, they also
their former wealth, at least continued profits on a limited scale. Today the Nazis
embrace political and psychological factors
control and regulate the feeding of the population in the greater part of Continental
to this respect che eremendously comples character of the war once more becomes
Europe, which is another instrument of might DO impose their will on revolting or
evident
Regraded Unclassified
62
FIVEFOLD AID TO BRITAIN
BRITAIN'S MONTHLY NEEDS FROM US
63
If the support of the United States is to be increased both in estene and scope.
(vefold increase in American aid, if given quickly, may have . tenfold effect if if
il and when supplies reach Britain in the amounts scipulated in this chapter, the
prevints Hitler from organizing the reserves of conquered countries whose popula-
immense dynamic force of American Democracy will be convincingly manifested to
rinne, encouraged by America's interest in Brirain's war effort, refuse to comperate
the whole world, and millions of subjugated people will gain new hope the the
with him, and if, consequently, it serves to stiffen the Russian and Turkish arcitudes
balance of the war is (urning, this time in favor of Great Britain.
joward Germany.
Only in such an event will the contribution of the conquered countries 10
Three- to fivefold help to Bricain within the months just ahead-this is the
Germany's war potential fail to materialize. Only in such an event will the German
command of the hour, this may save Britain from defeat and collapse! Five- to ten-
plan be failed
fold deliveries would practically guarantee an ultimáte British victoryl
Then American help may assume the character of an avalanche.
The United States is fortunare in not being hampered in such an acceleration
It will, or course, directly strengthen the hand of Britain: on the other side, it
by one of the barriers to дл acceleration of British production namely, German
will weaken Hirler's Germany, since the expected co-operation of the conquered
bombing raids. American factories may be considered to be that section of Britain's
countries will Jiminish, or slow down in scale and scope. It may be an avalanche,
armament industry which is not exposed to such raids.
since it will undoubtedly influence the attitude of those countries which are still
It is well known that Britain is far more exposed to air raids than Germany,
neurral
(or four reasons. First, it has fewer planes than Germany; second the British planes
must fly over longer diseances to reach their targets, carry more fuel and a smaller
AMERICAN AID AFFÜCTS THE ATTITUDE OF THE MOVIET UNION
bomb load, third, England's industries are concentrated while German industries
This is a distinct possibility in so far as the Sovier Union is concerned. Three
are scattered; fourth, even if the Royal Air Force destroys German industry to the
who figured that. if only on ideological grounds, the Soviet Union would light with
same extent as the damage done to British industry by the Lafricaffe, the rasio will
the Allier, have all proved to be wrong. Russia never even contemplated such 4
show a disascrous deterioration to Britain's disadvantage Hitler now has courrol
contingency on the contrary, it was ready to share the Polish boory with Hitler
of twice as great an industrial network as Great Britain, therefore the Brirish must
But all those who now go to the orher extreme and believe that the Saviets,
destroy twice as much in Germany as the damage wrought by the Luftwatte. to impair
again on ideological grounds, as a rotalicarian state, will join the Axis. are hound
German production to the extent British production is now being weakened by the
to be equally wrong in their conclusions. Obviously the Soviet Union's primary aim
Nazi raids.
is to stay our of the war, at least until such time as the German Army has been
The latest phase of Germany's aerial Blitzkrieg against Britain's industrial
exhausred by campaigns on other battlefields.
centers reveals the enormous importance of American aid to Briesin From Britsic's
Frederick the Great once said that God is always on the sides of the stranger
point of view, America is a production center beyond the range of German bombers
hattalions. Stalin 100 seems eager to base his policy on this precept. One factor may
If we said before that Britain needs American aid to equal in own production, we
have 2 decisive influence on Russia's future policy, and that is the strength of
should now add that our yardstick is Bricish production at its fullest capacity, un-
Britain's defensive and offensive power Every step designed to strengthen Britain's
discurbed and undamaged by Nazi raids.
military might, making it strong enough to avert defeat by a Germany that now
Is it possible to organize such immente aid within NO short a time, even it wy all
controls the greater pare of Continental Europe-every such step will contribute to
agree to do it in principle?
changing Russia's aloofness into a benevolent neutrality toward Great Brecain and,
Is it possible to shift America's peacetime production to war production in to
thus indirectly. roward the United States as well.
short a space of time? Is it possible to get, practically overnight, about 12 por cone
Here too practically everything depends on the volume and speed of American
of the total American production, at full unilization of parential productive capacity,
aid to Britain. An old Latin proverb says: his dat que cita dat. So far as this will is
to the British Empire?
concerned, this may be translated as: He who gives quickly-gives tenfold.
I am sure many an observer will declare this impossible Looking at America.
We have Britain on the one side, Germany on the other.
still enjoying the blessings of peace, they will say that the is going too far and
We now have Britain with American aid, while on the other side Germany le
asking roo much! They will refer 10 other democraçies which failed to carry out
organizing the reserves and resisurces of millions of subjugated peoples in the com-
such A Rigantic trantiormation of their production while they were at peace.
quered territories. Russia and Turkey, two important factors, are still neurcal. A
This is quite true.
Regraded Unclassified
64
FIVEFOLD AID TO BRITAIN
No democratic nation has hicherto succeeded in carrying our I program on ruch
scale in pracetime-a program of the kind that we here demand.
But none of them had the hope of gaining so much in return.
V
If America at peace succeeds in shifting its production instantly to rum out all
the things we have shown Britain needs, it will not only have achieved a gigantic
leat, it will have won a priceless treasure for itself.
Only Fivefold Aid to Britain Can Keep America at Peace
it will have saved peace for America!
T
HE overwhelming majority of the American people have declared themselves
in favor of giving all aid to Britain short of war. Bue it is imperative to realize
that only very great increase and acceleration in American aid to Bricain will enable
the United States to stay out of war
When America exchanged fifty overage destroyers for Bricish naval and air
bases in the Western Hemisphere, certain observers expressed apprehension that this
step had pushed the United States 2 long way forward on the road leading to ultimate
involvement in war.
What a misreading of the true facts!
In recent years, the totalitarian states have frequently demoustrated with
characteristic realism that the distinction between war and peace, as in existed in
former years, no longer holds good. De jure, Japan is still not at war with China.
De facto, their war is in its fourth year.
Hitler's decision to declare war on the United States does not depend on the
amount and quality of war materials supplied to Britain. It merely depends on his
own judgment as to whether he may improve Germany's political and military
position with such a declaration of war.
Unless be has something to gain by going to war against the United States, he
will certainly refrain from doing so. At the time the fifty destroyers were handed
over, be does not seem to have perceived any possible gain in a declaration of war,
So the German press received orders to minimize the portent of this barter. German
newspapers, echoed by the Italian press, were loud in their prediction that the
American destroyers would arrive too late to influence the outcome of the war.
They did not arrive too late; today, they represent an important factor in the
protection of British convoys against constant raids by Nazi U-boats, Yet despite
this deal, the United States remained at peace. Thus it may be said that this country's
peace will be preserved even though its aid to Britain may increase five- or tenfold,
since Hitler can gain nothing by going to war against the United States. On the con-
trary, he must expect that a declaration of war would increase both volume and
speed of American deliveries to Bricain, since che United States, once actually
involved in the war, would certainly harness its entire economic system as well as
its immense resources to the production of war materials. In view of the fact that
the United States is not directly menaced ag long as Bricain is holding the first line
65
66
FIVEFOLD AID TO BRITAIN
AID TO BRITAIN CAN KEEP AMERICA AT PEACE 67
of defense, even a war could hardly change the race between further aid to Britain
state of his brand cannot coexist with democratic States. This is equally the in 4
and the requirements of America's own national defense. The reverse is true.
world-wide sense: if the United States remains 2. powerful free democracy, it will
A five- or tenfold increase of all supplies going to Britain, together with 8.
sooner or later be drawn into a war against Hitler's Germany, dominating three
speed-up of deliveries, is the safest guarantee chat the United States will not be
continents. The United States will have ED enter the war alone, without an advanced
drawn into the war. The implications are readily grasped. Let us assume that
first line of defense, without the support of the Royal Navy, withour powerful allies,
deliveries will continue to rise at but a slow rate. The quantities extorted by Hitler
at the time when the U.S. Fleet is still far from adequate for the protection of two
both from Germany and its conquered territories will continue to exceed American
oceans.
supplies going to Britain. We know that Hitler has armed and trained his Army for
If Hitler ever succeeds in vanquishing Britain, the United States will bethresteued
chis war many years in advance. If aid to Britain is insufficient, this Army may
by war: Americao peace can be preserved only as long as Britain remains # (ree
succeed in invading and defeating Britain. Once an invasion is successfully concluded,
country, undefeated.
Hitler will be the master, not only of Europe, but also of Africa and, in alliance with
But what does the word "undefeated" imply? It is by no means enough for
Japan, of Asia.
Britain to continue to repel German attacks. Bricain itself must attack and take the
initiative. On November 5, 1940, Churchill told Commons that Bricain must grado-
WITH BRITAIN DEFEATED, WAR MENACES AMERICA
ally move to offensive operations to avoid a disastrous stalemate.
The United States will then be left without allies, alone in the world.
Again tongues are busy, declaring that peace can be restored by giving Europe to
England will lack the strength to continue the war from Canada and the other
Hitler, in which case he would permit Britain to keep its Empire.
Dominions. The Royal Navy will hardly be able to maintain a blockade of the
Such talk only shows how short human memory C&O be, how poorly learned
whole of Europe, since such a blockade would place immense burdens 00 it and
the lessons history teaches.
cause rremendous suffering in the British Isles. It is well to remember that no country
The very existence of National Socialism is threatened if it is compelled to keep
in the world is more dependent on food imports than the United Kingdom.
peace and order, or if democracies remain in existence. With Germany astride Europe
Great Britain alone imports more grain than the rest of Europe taken together.
and Britain retaining its Empire, Hider would simply continue in "peacetime"
After the collapse of France the so-called Vichy Government came into being.
what he is today doing in wartime, while heavily attacked by British bombers be
Certain elements in it are quite willing to turn France's badly dislocated economic
would arm and prepare the whole of Continental Europe for the final showdown
forces into an armory to serve German needs. And, if this Vichy Government still
against the British Empire.
embraces certain elements that make attempts at resisting German pressure, it is
is there really anybody who, after all the experience with Hitler, still believes
only because the great majority of the French people continue to count upon a
that he would disarm and demobilize if he accepted such terms in 2 peace treaty with
British victory.
England?
With Hitler firmly entrenched in Britain, all the resistance now displayed by
Who is to supervise disarmament wichin the Third Reich? So long as Richer
some members of the Vichy Government will promptly collapse. This would mean
remains undefeated, no power on earth will have the power to control whether dis-
the virtual end of all British hopes, since it cannot be expected that the United
armament is actually carried our. And with no powerful control in sight to check
States will ever send an expeditionary force to Europe to save Britain from Nazi
on the folfillment of his pledges, Hitler will go on breaking one promise after
slavery.
another, abandoning this "peace" at the first opportunity to attack England with
Thus Bricain is more than merely America's first line of defense! Were he able
forces better armed than ever. No, peace with Hitler in only possible on his terms,
to remove the staunch British obstacle from his path, Hitler would organize bis
with Nazi domination of the world duly recognized, or his Army must be defeared
Immense European resources, including those of the United Kingdom, for a call
before a really permanent peace can be made with Germany.
paign against the United States.
Such a victory over Hitler's Germany will only be feasible if and when Brirain
This would mean the decisive step toward world dominion. The was egainst the
atrives at a position where it can do more than merely repel Nazi air attacks. It
United States would be the final phase,
must be strong enough to seize the initiative, to move to the offensive.
If Britato falls, it is bound to follow
To bring abour chis decisive increase in British strength, American aid must
Ricler's struggle for European hegemony has already shown char 4 totalitarias
increase live- to renfold. These it is obvious that such an aid would be no up raking
Regraded Unclassified
68
FIVEFOLD AID TO BRITAIN
AID TO BRITAIN CAN KEEP AMERICA AT PEACE 69
the United States nearer to war: on the country, " is the only solution to keep
production means in today's industrial wars. Throughout those years the German
America out of the war,
people, living in the shadow of the Gestapo terror, donated half of their income and
It has been said a thousand times that valuable conclusions should be drawn
production to armament.
from the lessons so forcefully taught by the European war. One of the first lessons
Under Churchill, and somewhat belatedly, England is doing likewise today.
should be the rejection of a strategy based on pure defense-the strategy so fatefully
With Bricain vanquished, the United States would be lefe alone to face the alliance
represented by the Maginot Line.
of toralitation states, compelled to spend at least as much as Hitler had forced on
The Royal Air Force has already gone over to offensive action. But however
his own people, since it would of neccessity strive to overtake the German advantage.
efficient the RAF may be, it will never suffice for victory, just as the Luftwaffe,
This, however, would mean that half of the American national income, and half of
strong and powerful though it is, will never by itself be able to defeat Bricain.
the American production must go toward armament. At full employment, the
Britain needs a well-organized, well-equipped, well-led Army for the offensive to
American national income amounts to about 100 billion dollars. On the German
come. Insofar as the equipment of this Army is concerned, Britain depends on
scale, the United States would then spend an annual 50 billion dollars on armament.
American aid. À real offensive strategy can be developed in England only when
It would have to spend the sum without assistance of any kind, for there would be no Britain
American aid to Britain increases tenfold.
left la refund all or part of it en cash.
By withholding credits from Britain and insisting 00 the cash clause, the United
QUESTIONS OF FINANCE ARE SECONDARY
States would fatally weaken its own first line of defense Such short-sighted action
All considerations of finance are bound to fade away in view of this one supreme
would enormously increase America's own risk of becoming involved in a war that
task. Several attempts ba been made to establish the actual extent of Brieish assets
would certainly swallow up 50 billion dollars per year, ten times the sum
in this country, and to find out how long Britain will be in a position to pay cash
Britain's support DOW would cost, even were the cash clause eliminated.
for all her war material purchases in the United States.
Prudent people insure their houses against the hazards of fire. They pay = rela-
Of course, it is the volume of purchase that will determine the length of this
tively small premium, since usually only few of the insured houses burn down
time.
throughout the years, If a man refuses to insure his house, he may say that the
If, on the basis of our stipulations, supplies were to increase to a tate of one
chances of his house burning down in his lifetime are alight,
billion dollars per month, the available and quickly liquidated British assets would
A five- to tenfold increase in the supplies going from here to Britain strongly
soon become exhausted. The United States, however, would commit a fatal error
resembles a fire insurance premium. Support to Bricain in the form of war and other
if it were to permit the exhaustion of British assecs here to mean the final and irrev-
material is to keep the United States from being caught in the fires of war. But in
ocable termination of American deliveries.
contrast to the real fire insurance, this fire is sure to envelop America if chese supplier.
It would be equally fatal if American aid to Britain were to be currailed during
this premium, is not quickly and fully paid to Britain. Thus America here pays a
the extremely dangerous and vital months now just ahead, in order to preserve
premium in the conviction that otherwise it would have to spend twenty times on
British assets and prevent their rapid exhaustion.
repairing the damage.
Let us now face the facts and their possible consequences. England counts on and
Increased aid to Britain and elimination of the cash clause for this very purpose
prepares for a long war. In one of his speeches, Charchill has drawn up the picture
are often argued pro and con, 00 the ground that they constitute A demonstration of
of a war that will drag on into 1943 and even 1944.
sympathy for Britain, and that their scope and volume will depend on the fervor of
Now let us assume that American supplies continue at a level not exceeding 200
the existing undercurrent of sympathy, on how far the country is willing to go. In
million dollars per month and, consequently, England is invaded, since chis sum will
this connection it must be emphatically stated that an acceleration and a five- to
by no means enable Britain to satisfy all the requirements of a defense against a
tenfold increase in supplies to Britain are matters that should be entirely independent
German milirary machine fed by the combined resources of Continental Europe
of personal sympathies or antipathies in Anglo-American relations. It is America's
In such an event, the American people will find themselves compelled to spend
own interests that now dictate the sending of increased supplies at an accelerated
five to ten times more on their own armament than the fictitious sum "saved" by
pace, to spare America the sacrifice in blood, to save it ten times the sum spent on
insistence on cash payments for all supplies going to Bricain.
supplies to Britain and to prevent America's own national defense expenditures from
Throughout the years Hitler has demonstrated to the world what
being waited on futile, unproduccive armanente
R
FIVEFOLD AID TO BRITAIN
AID TO BRITAIN CAN KEEP AMERICA AT PEACE 71
WAR PRODUCTION MOVT an MULTIPLISO IN PRACETIME
added advantage of possessing the world's foreminse industrial system The United
The present war, AS has often been said, is a war of factories-an industrial War.
States has just started to draw the conclusions from the latest events. The far,
To is now up to the American people to draw the logical conclusions from this unde-
however, the cnormous dynamics of the war abroad, in which the German Army
niable fact. Merely DO say that this is 4 war of factories is by no means enough It
vanquished Denmark in one day, the Netherlands in five, Poland in eighteen, France
should M added that it is of un of factories that have been geared to war production.
in forty-three days, have not been marched by equal dynamics in the United States
Hitler so geared his (actories years in advance, in times of peace, long before
Americans still believe, as did the British too long, that material produccion for
France and Britain realized the importance of this shift. It is this chec has given him
a war against Hitler can be organized while business is going on as usual.
his superiority during the first year of the war, leading to the defeat of France and
Britain has outgrown this belief and by now knows that this is impossible.
making him master of Europe. The old strategy, now modernized to fie the require-
Churchill was well aware of it long ago. Britain is today fully convinced of chis fact,
ments of industrial war, is to gain the superiority in battle at the right moment,
so much so that the totalitarian press now asks with apprehension whether there ETO
The Germans possessed this superiority in the Battle of France, a clear-cur superiority
47 million Churchills in England.
in all the weapons of modern industrial war-of tanks, airplanes, and all the rest.
In the United States, however, the same firm conviction is by no means wide-
They possessed it, since neither France nor Britain transferred their production
spread Of course supplies are sent to Britain, deliveries are rising from month to
(which together exceeded that of Germany), in time and to a sufficient extent to the
month, causing an optimistic mood among the people of the United States whenever
production of armaments and other war materials
the curve is on the upgrade.
Now Hitler is at war with Great Britain. Germany by itself is far superior to
But this occasional optimism merely serves to obscure the for more gigantic task
Britain. Combined Anglo-American production, however, is far greater than that
of grim reality, billing the task of making England, with American aid, so strong chat
of Germany even if it commands the whole of Continental Europe. The question in
its war potential will overtake that of Germany.
this phase of the war is similar to that posed by the Batcle of France, just as it was
Americans are closing their eyes, hiding their heads in the sand. Even though is
the main strategic question in the wars of past centuries: Will Hitler be able to cop-
has been recognized that We are in the midst of a world revolution, that not only
centrate all his superior military forces for his war against Britain? Will be re-
Europe but the whole world, including America, is at a turning point in history,
tain superiority in war-material production throughout the war?
they try to continue business as usual.
The conclusive answer to all these questions now rests with the United States.
The policy of "too little and too late" caused France's downfall and drove
British war-material production has almost reached its peak. Even if we add
England to the edge of the abyss. "Too little and too late" was the cancer of Cham-
the slowly growing American supply, it is still far inferior to the productive capacity
berlain's whole policy in which everything was "'so little and NO late" that today
at Hitler's disposal. Thus Hitler's strategic superiority again threatens in the decisive
Bricain needs, not one, but 47 million Churchills to make up for past failures. Why
Barrie of Britain, and now it is the United States char fails to realize the vital impor-
should America take on itself the 0004 of history which may record that this nation,
tance of the time element, since it has but inadequately geared its industrial system
in its own hour of extreme emergency, consisted of 130 million Chamberlains?
to the production of war materials.
America must provide England with sufficient war materials to make it superior
If the United States is anxious to spare its own people the terrors of war, it has
to Germany. It must do so, not romorrow or the day after tomorrow, bue today!
but one means; to develop the greatest possible war-material production at the
THE PROPLE MUST OVERCOMS ALL OBSTÁCIAS
quickest possible pace while the country is still at peace. It is essential that coday,
in times of peace, everything must be subordinated to this one supreme aim. Here is
Such 2. course is now cucountering enormous resistance. That resistance is pri-
the test of American democracy, The European democracies have flunked this tost.
marily based on the fact that the people of a democracy can, in peacetime, be moved
France had to pay for in inadequate preparations with the loss of its freedom
only with immense difficulties to increase their war-material production at the
England is now paying off by being involved in a struggle for life or death.
expense of depriving themselves of many commodities for their OWD personal life.
History places the United States in a more favorable position. The American
Hitler, with his machinery of terror, concentration camps, and secret police, could
people have followed and are still following events in Europe Thus, in this hour of
impose such a sacrifice on his owe subjects.
par emergency, they have 2 greater experience and still have time to organize the
England was compelled to do it under duress when the danger became visible to
transfer of their production while America is at peace America, moreover, has the
everyone in all its immense implications. When the overwhelming majority of the
72
FIVEFOLD AID TO BRITAIN
THE RAMPARTS WE BUILD
Bricish Expeditionary Force was rescued from Dunkirk, even though practically all
its equipment was left behind, when England was left to stand its ground practically
unarmed and without allies, it was then that history hammered into every English-
man's and English family's mind the necessity for shifting everything, but really
everything, to the production of war materials.
The tragic cataclysm of Dunkirk made the full danger acrually visible to every
300
Englishman. This graphic visibility does not yet exist here in the United States.
America is at peace. The two oceans prevent the American people from "seeing"
the war in the literal sense of the word. They only hear and read about it. This,
however, is by no means sufficient to convince the American people of the absolute
and imperative necessity of a tenfold increase in aid to Britain, to make such aid
ISMIK
appear as the most urgent, vital necessity for America's own survival.
In chis respect, further help is required:
The American people should be graphically shown the real stake in history.
There should be a motion picture to show Americans how Hitler gets his iron ore
from Sweden, his oil from Rumania, his aluminum from Hungary and Yugoslavia,
livestock from Denmark and the Netherlands, iron and steel from France, Luxem-
bourg, and Belgium, part of his arms from Czechoslovakia.
This should be the one side of the picture. The other should show how arms and
war materials, raw materials and foodstuffs flow from America to Britain. The
motion picture should further show how much Britain received at the outset of the
war, what it is receiving today and how much more is most receive to equalize all
that Hitler is extorting from the conquered countries and their subjugated peoples.
1500
Again and again such films and, in addition, the press should hammer into American
minds that Britain needs at once 1,500 planes, 2.5 million tons of steel in its raw
PLANES
form or manufactured into arms, a total export volume of one billion dollars per
month. Such is the rampart we must build against Hitler. (See page 73.)
If cargo boats-plying between Atlantic ports will carry these quantities to Eng-
land for one full year, the danger to America will diminish, if not vanish. America
will be spared the necessity of sending its sons to war. Every week, and from week
to week, the American people should be shown how much is actually delivered and
THOUR
how far we still are from the goal. This should create a movement of the people to
become the motive power, insisting on moving toward the goal, overcoming all
resistance.
Of course, there are many real difficulties.
It is by no means an easy task to shift a productive apparatus established for
peaceful purposes so quickly and comprehensively. However, the American people
should know that the resistance can be overcôme. Anyone speaking of this resistance
should be asked If the Nazis were at the Panama Canal, organizing air and naval
bases from which to conduct taids against the United States, would the increase in
#
74
FIVEFOLD AID TO BRITAIN
AID TO BRITAIN CAN KEEP AMERICA AT PEACE 75
our production to 1,500 DO 2,000 planes - month, the increase in the production of
not conduct one But ler w assume that we will have to defend ourselves if Hiller
tanks, guns, machine gum, rifles, municions, take AS long " We are now cold by
conquers England It is the Nazis and DOL we who have brought down this recond
our experts?
World War upon as!
Everyone knows that it would not!
If we are for peace, our desire, resolucions at mass meerings, our letters to
What immediate danger is now accomplishing in Great Britain, what Hitler was
Senstors and Representatives will not help us to preserve it. Words won't do-but
able to accomplish by terror. concentration camps, and the Gestapo, the people of
acts may! We must act-not tomorrow or next month-but throughout the difficult
the American democracy must accomplish on # voluntary basis, of their own free
period ahead of us until Britain achieves victory and Hitler is defeared.
will
America's peace will not fall into our laps as a gift from heaven.
The American people should give no credence to those experts who assure them
It must be organized in constant, hard, enduring work.
that an increase of war-material production must take 50 much time, If America is
All women, pacifists, the millions of young men who now enter the new Amer-
to be saved from war, the time required to reach peak production must be consider-
ican Army should know that America's peace can be preserved only if Bricain remains
ably cut.
a free land of free men, undefeated, LE American help reaches England in sufficient
Even under Churchill, certain circles in Bricato maintained that a further accel-
volume and fast enough to prevent a Hitler victory. An increase in deliveries demands
cratton of production was no longer possible To this, the London Economic
more than mere words, resolutions, and pathetic speeches in mass meetings. It calls
answered on June 29. 1940, four days after France had concluded the armistice
for a decisive change in the American life. This has not yet come to pass.
"In every vital matter of war organization, in home defense, production, labor,
To there any further proof required for our assertion?
and finance alike, Ministers should ask themselves one question, and one only.
On October 26, the London Economist contained this item:
Could Hider do in? If Hitler could, then they can. The mood of the people DOW
"On October 19, the Ministry of Transport announced that the manufacture of
is such, that they, unlike Hitler, can do it without the aid of any Gestapo or concen
- for civilian the in this country has ceased.
tration camps. Go to it, Mr Morrison has urged the nation The nacion is now
The reasons are quite clear. Britain needs every (ON of steel for armaments, for
echoing back to the Government itself the Government's own appeal. Go to it-and
the Army. It needs the factories which have heretofore manufactured automobiles,
les nobody stand in the way
it needs the raw tusterials which WEDE into their manufacture, in needs the workers
This has been done in Britain; here it has not yet been done. In Seprember and
who have buile them
October, 1940, only about 250 planes were sent to Britain per month. The American
On the other side of the picture, America reports that William Knudsen ap-
people more ask themselves: Is this necessary? Would Hitler send an ally no more
proached leading automobile manufacturers with the suggestion not to bring our
than 250 planes per month? Hitler would certainly send more. What Hitler can do
new models in 1942. A reduction in the 1941 volume of automobile production has
with terror and concentration camps, the American people must do of their own (ree
not even been discussed thus far. On the contrary, the newspapers point out that, in
will; they must accomplish even more. The country must stay out of war; peace can
Ocrober and November. 1940, American automobile production has reached an
be saved for this country and its sons. But more than ever before in history, peace
almost unprecedented peak of One million cars. As long as the United States it lurning
an be surved only if we work for it, if all energies are bent to this nne aim.
our you, 000 cars a month, England, America's first lim of defense, 22 threatened with defeat
We have spoken of the necessity to double, treble, and Increase renfold American
PEACE FOR THE UNITED STATES MUST DE ORGANIZED
aid DO Britain We have spoken of the necessity that America must work a full hour
America's womanhood is for peace. They dread to sure their husbands, sone.
a day for Britain instead of fifteen minutes. One hour of daily work for Britain's
brothers, and (athers going to war. Thousands of antiwar resolutions are passed by
armament means that the ephemeral slogan of Britam being America's first line of
themi Yet they must be told, just as pacifists must be told: we are all united in our
defense has effectively been translated into action; it means a realization of the seri-
desire for peace.
outliess of the hour, with the United States, together with the rest of the world,
But let us nor forget that the preservation of peace does not depend on whether
eaught right in the middle of A world revolucion, it means the realization of the face
we desire it or not, even though the overwhelming majority of the American people
that in this second World War history has placed the decision into the hands of the
United States.
may desire it.
We do not want an offensive war, and it may be said with certainty that we will
This must be hammered meo the minds of all American women and pacifice:
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76
FIVEFOLD AID TO BRITAIN
If you desire peace, then demand that chree, five, ten times more war material should
be sent to Bricain. If you desire peace, start a sweeping movement 30 strong that
nobody shall be able to prevent deliveries from being sent to America's first line of
defense immediately at three times the present rate, and ten times later. Build a wall
of such strength that Hitler will be unable to climb over it-or even fly over it,
If America is to be spared the terrors of war, Bricain must win, If Britain is to
win, it must obtain all decisive weapons in considerable quantities, not only in 1942
but as soon as possible.
If the United States succeeds in this gigantic task which has been realized by
Britain only in the midst of its struggle for survival, if America succeeds today, then
and only then will America remain at peace.
More than that: it will then be the decisive factor among the forces that will
create a new order in the world after the collapse of the totalitarian states.
FIVEFOLD AID TO BRITAIN
-Jo Save Her and Keep Us Out of War
by FRITZ STERNBERG
Author of Germany and the Lightning R° ar, etc.
Faitz STERNBERG states here what is believed to be the very first estimate made by any-
one of the amount of aid short of war" which the United States must send to England
If England is to achieve victory against Germany-or. in truth, if England is to avoid defeat.
Pollowing are his mayor conclusions:
England needs al volume of military aid from the United
States equal to the whole of England's own present
military production:
She needs from NS a monthly volume of exports worth
$1,000,000,000. or five times what we are now ship-
ping to the entire British Empire:
She needs 1500 airplanes from us monthly, instead of
two to three bundred:
She needs steel from NS at the annual rate of 30,000,000
10115, instead of the present rate of 8,600,000 tons;
Americans must work for Britain on an average of one
hour per day, instead of the present fifteen minutes.
A large majority of Americans now are agreed that British victory in the was with
Germany is essential DI the future well-being of the United States. Virtually every news-
paper, every magazine of opinion, every news commentator in the press and on the air,
is voicing the need, and many of them in recent weeks have begun seriously to raise the
(Contraund inside back cover)
Illustrated with Charts and Drawings
$1.00
THE JOHN DAY COMPANY NEW YORK
Regraded Inclassifie
(Continued /rum hand rever]
question whether the amount of help which America has been providing to Britain to far
is sufficient.
Bor what can be the measure of sufficiency? The measure which Dr. Steenberg presean
here, with conclusions that are so starrling as perhaps to shock many readers, is A simple
one. The volume of military products which the United States must send to England is BY
be determined not by the volume which the United States believes she can para our of
what she believes the can manufacture (fifty per cent, according to the President's "rule
of thumb"), but by Britain's need. And Briein's need is measured by the difference
berween her own military ourput as capacity production and the military ourpur of Germany.
This sounds self-evident, but the enormous requirements that follow from it have appair
ently been recognized by 00 one up to now. The key to an understanding of them is the
recognition of the part being played in Germany's armament by the conquered countries
of Europe. The production facilities of Luxembourg, Poland, Czechoslovakia, Denmark, Not-
way, Holland, Belgium, and France, are at Hitler's command, His huge army, far from
being "idle" since the Barrle of France, actually has been engaged in forcing these production
facilities to produce. Far from having given up the invasion of the British Isles, Hitler il
spending the winter of 1940-41 in feverish activity similar to that of last winter, when many
Americans were deluded into thinking the war was "phony": he is piling up immense
resources for the new kind of warfare the invasion will require, and by spring may be ready
and able to overwhelm England unless England in the meantime can match the production
of Greater Germany.
England has reached, it is believed, the absolute peak of production of which she is cap-
able by henelf. At that peak, she can produce no more, probably less, than can be produced
within the former boundaries of Germany. Thus every IDD of steel, every airplane that Hider
commandeers from the conquered countries is for him e margin of victory over England, It
follows that if America desires British victory, America must provide England with a volume
of matériel greater than that which Hitler is squeezing from conquered Europe
As present the United States is exporting to England less than Germany is receiving
from France alone; total American exports to England are so far below Germany's receipts
from all the conquered countries that the task of equalizing them might seem TO many viru-
ally impossible. But the truth is that ar present the United States is barely capping her
own resources to aid England. She can give much, much more help, Bur as Dr. Sternberg
says, it will be necessary a understand that what we are giving now is not "all aid short of
was," but "all aid short of changing our mode of life" The requirements Dr. Sternberg
sets forth are chose which be believes are necessary DO give Britain a winning margin over
the production of Germany plus conquered Europe. To moet them means great sacrifices in
America - and there is scarcely an individual in America who can say that be has surificed
anything yet for England. Bur to meet them is also the only way to save England, says
Dr. Sternberg, and at che same time it is the way DD keep America out of war. For in dis-
patching huge quantities of arms to England, and vastly expanding our own arms produc-
tino capacity, we shall be raising a giant earnpart which no foreign inveider CED surmoun.
Regraded Inclassified