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Volume 413, June 24 – June 25, 1941
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Volume 413, June 24 – June 25, 1941
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 413
June 24 and 25, 1941
- A -
Book Page
Agriculture
Rationing of scarce foods "by throwing Stamp Plan
into reverse" (Milo Perkins' plan) sent to HMJr
by Wickard for comment - 6/24/41
413 162
Alphand, Herve
See War Conditions: France
"America the Beautiful"
See Financing, Government: Defense Savings Bonds
- B -
"Ballad for Americans"
See Financing, Government: Defense Savings Bonds
Budget, Bureau of
Decentralization survey as affecting Treasury
discussed by 9:30 group - 6/24/41
18
- C -
Canada
See War Conditions: China
China
See Var Conditions
Coast Guard
Resume' of activities in connection with national
defense given by Waesche to 9:30 group - 6/24/41..
25
- D -
Decentralisation of Treasury Activities
See Budget, Bureau of
Defense Savings Bonds
See Financing, Government
Denmark
See War Conditions: Foreign Funds Control
- E -
El Salvador
See Latin America
Export Control
See War Conditions
- 7 -
Book Page
Financing, Government
Defense Savings Bonds:
Robeson, Paul
Schiaperelli, Blse
Availability for programs discussed by Mr. and
Mrs. HMJr - 6/24/41
413
1
a) Callahan memorandum concerning
7
b) "Ballad for Americans" discussed at
9:30 meeting - 6/24/41
15
Post Office-Treasury cooperation discussed at
9:30 meeting - 6/24/41
23
Treasury Hour (donated by Texaco Company) to be
inaugurated July 2; 100 tickets each sent to
Lieutenant General Hugh A. Drum and Rear Admiral
Adolphus Andrews - 6/24/41
128
a) Andrews' acceptance - 6/27/41:
See Book 415, page 209
Boy Scouts of America thanked for assistance by
HMJr - 6/24/41
137
Picture with Grace Moore or Deanna Durbin singing
"America the Beautiful" discussed in HMJr's
memorandum - 6/25/41
194
Food Stamp Plan
See Agriculture
France
See War Conditions
- H -
Haiti
See Latin America
- I -
Inflation
See Speeches by HMJr
- J -
Japan
See War Conditions: Export Control
- L -
Latin America
El Salvador:
Loan ($1 million) against gold in New York
discussed by Cochran and Collado - 6/24/41
92
(See also Book 415, page 291)
Haiti:
Withdrawal by Haitian Bank of important franc
deposit (representing funds to be used in payment
of service on 1910 gold loan floated in France)
in National City Bank, New York, discussed by
Cochran and Collado (State Department) - 6/24/41.
94
- P -
Book Page
Price Control
See Speeches by HMJr
II War Conditions
- R -
Revenue Revision
Tax anticipation notes discussed by HMJr, Sullivan,
Heas, Murphy, Bell, and Schwars - 6/24/41
413
49
a) Bell memoranda.
71,74,75,96
b) Currie invited to next conference
79
Amortization principles discussed in Sullivan
memorandum after conferences with Greenbaum and
Kyle (War Department) - 6/24/41
126
Federal-State-Local fiscal relations: Gulick and
Groves report on progress of project - 6/25/41
206
Robeson, Paul
See Financing, Government: Defense Savings Bonds
-.S - -
Schiaperelli, Elsa
See Financing, Government: Defense Savings Bonds
Speeches by HMJr
Inflation: Blough draft of outline for proposed
speech - 6/24/41
148
- T -
Taxation
See Revenue Revision
- U -
U.S.S.R.
See War Conditions: Foreign Funds Control
United Kingdom
See War Conditions: Military Planning
- V -
War Conditions
Airplanes:
Deliveries by purchasers and types, 1/1/40-6/21/41 -
6/25/41
230,231
Shipments to United Kingdom and overseas commands -
British Air Commission report - 6/25/41
233
Canada:
For cooperation with China, see War Conditions: China
- Y - (Continued)
Book Page
Var Conditions (Continued)
Chinal
Currie discusses with Bank of Canada emigrants'
and charitable remittances totalling some
$6 willion a year to China: discusses with
Minister of Munitions and Supply possibility
of securing certain items in Canada for Chine
with Lease-Lend funds - 6/24/41
413
171
a) Cochran memorandum discussing draft of
message to Fox - 7/14/41: See Book 420.
pages 493 and 495
b) White memorandum "Should remittances of
$6 million a year from Canada to China
be continued?" - Book 424, page 108
c) Treasury answer to Currie - 7/23/41:
Book 424, page 107
Fox confers with Kung, Chiang Kai-shek, etc. -
6/24/41
176
a) Generalissimo and Madame Chiang
Kai-shek's opinion of Rogers given
"China's Export Trade" - The Economist - 6/25/41.
234
Denmark:
See War Conditions: Foreign Funds Control
Exchange market resume' - 6/24/41, 6/25/41
181,237
Export Control:
Japan:
Shipments, week ending June 21, 1941 - 6/24/41
159
Foreign Funds Control:
Denmark:
Release from blocked dollar funds in United
States of sufficient money to resume
payments on Danish dollar bonds in Swedish
possession discussed in letter from Danmarks
Nationalbank to Cochran - 6/25/41
239
U.S.S.R.:
General license for transfer of U.S.S.R. and
its nationals approved by Welles and discussed
by him and HMJr - 6/24/41
81,86,88
a) Press release - 6/24/41
90
France:
Alphand calls on HMJr to say good-bye - 6/24/41
47
a) Letter of resignation: Book 415, page 324
b) Confusion about appointment with HMJr -
Cochran memorandum - 7/2/41: Book 417, page 36
Lend-Lease:
Memoranda (British Purchasing Commission) - 6/24/41:
Inclusion of "administratively difficult" United
Kingdom imports under Lease-Loan procedure.
166
Suggested procedure for bringing miscellaneous
manufactured goods under Lease-Lend procedure..
169
Jesse Jones, HMJr, etc., discuss line HMJr will take
with Peacock, 1.e., now that Jones has received
required legislation from Congress, British
representatives should approach Jones directly to
obtain loan against British direct investments in
United States or when British-owned American
corporations wish to borrow and make funds available
to British Government - (6/10/41)
197
a) Initialed by Jones - 6/25/41
196
- Y - (Continued)
Book Page
War Conditions (Continued)
Military Planning:
Reports from London transmitted by Butler and
Halifax - 6/24-25/41.
413 183,243
Var Department bulletin: Levis light
machine-gun in anti-aircraft defense -
6/25/41
246
Price Control:
Minutes of meeting - 6/25/41
198
a) Discussion of
1) Automobile prices
2) West Coast steel facilities
3) Cotton textiles
Purchasing Mission:
See War Conditions: Lend-Lease
1
June 24, 1941
9:00 a.m.
HMJr:
down now.
Mrs.
Morgenthau:
I don't because - Hello?
HMJr:
Yeah, go ahead.
M:
I was at the party last
night that the Biddle's
gave.
HMJr:
You're making a record now.
M:
Yes. I was at the party the
Biddle's gave and there was
a young woman there who works
for Conney (?), I can't remember
her name, but she worked for us
during the campaign and she 18
apparently connected with the
radio. I never thought she
was particularly able but she
was sort of an assistant to
Conney (?) - she's apparently -
knows the whole radio crowd.
HMJr:
Yeah.
M:
And she was very much upset
because she said that she
heard that the Treasury was
putting Schaperelli, you
know the
HMJr:
Song?
M:
Designer, the French designer,
you know, Schaperelli
2
- 2 -
HMJr:
I don't know.
M:
Well, she - I don't know
if it's a he or she, myself,
because I didn't dare ask
because he's 80 well known.
HMJr:
Yes.
M:
Any how it's the well known
French dressmaker and they're
putting - the Treasury is
putting Schaperelli on Friday
night...
HMJr:
What's the first letter in
the alphabet?
M:
8 - it's spelled 8-c-h-i-a-p-
e-r-e-1-1-1, I think.
HMJr:
Oh yes, I know. I see now.
I think it's a man.
M:
And the Treasury 1e putting
on Friday night for a 15 minute
broadcast and she said it was
very shocking to people in
New York. It's been announced
over the radio by NBC because
she claims Schiaperelli is
definitely one of the people
suspected of being a Fastist
over here.
HMJr:
Yeah.
M:
That he came over twice on a
Vichy passport and has - just
very recently become converted,
but is suspect. Now, she asked
Howard Deitz about it and he said
that he had nothing to do with
those programs, that if it was
a Treasury program, it was
under Mr. Callahan.
HMJr:
That's right.
3
- 3 -
M:
And she said this, that
if Schiaperelli was just
speaking for NBC and was
not a part of the Treasury
program and speaking for
bonds, why she thought that
was all right and was none
of our business, but if we
were definitely putting
Schiaperelli on our program,
she thought it was great
mistake, and I thought you
would want to look into it.
HMJr:
Well, I'll find out.
M:
I agree. I don't think -
I have heard talk of that
myself.
HMJr:
Well, we can find out.
M:
And I thought I ought to let
you know because I thought
you would want to can it.
HMJr:
Yes.
M:
I heard Paul Robeson sing
last night end I met him
and had a long talk with
him afterwards at the Biddle's.
HMJr:
Yes.
M:
of course, he is absolutely
supreme. I mean his singing
and the way he had filled the
last row in that tremendous
stadium, he just had the
people in the palm of his hand.
4
- 4 -
M:
And I've never heard such
singing and he's a terribly
nice person and afterwards
Biddle said to me, "I think
with very little words, we
could have him with us". I
don't know just what he meant.
Now, you ought to send today
and play it to yourself tonight
this thing that he sings called,
Ballad for Americans.
HMJr:
Ballad for Americans?
M:
I'll get you the exact name.
Ballad for Americans.
HMJr:
Yes.
M:
It's the most amazing thing.
I don't know how I've ever
missed it. He sang it the
first time on some hour in 1939.
HMJr:
Well, I tell you who I think
mentioned it to me, it was
Odegarde.
M:
Well, I mean, it's the greatest
thing - I've heart Tibbet sing it
and I mean it's just like a
different song.
HMJr:
Yeah.
M:
When Paul Robeson sings it, it
is the most amazing and of course
as far as morale goes, it's a -
that's the kind of a thing that
we ought to have and I thought
you could check with Biddle
HMJr:
Yeah.
M:
Whether he thinks there's any
reason why he shouldn't do it.
5
- 5 -
HMJr:
Yeah.
M:
Because he certainly, in
New York - I mean
personally amongst the colored
people and amongst the white,
I've never seen anything like
it.
HMJr:
Yeah.
M:
Of course, he's an extra-
ordinary fine person any
way, very high class, very,
very intelligent and I just
thought I'd throw that out -
I'd get that today and play
it to yourself.
HMJr:
All right.
M:
That's all as far as the
public announcement goes.
HMJr:
All right.
6
TREASURY DEPARTMENT
HS Callu que 24/41
INTER OFFICE COMMUNICATION
DATE June 24, 1941
TO
Mr. Graves
FROM
Mr. Callahan
1A1
Attached are two copies of the letter which I have
sent to Mrs. Morgenthau. The Secretary wanted this. Will
you please send a copy to him,
HC
Enclosure
7.
June 24, 1941
Dear Mrs. Morgenthaus
The Secretary has asked as to write to you
about Madame Elsa Schiaparelli, the French stylist.
When Madame Schiaparelli came to this country
several weeks ago we contacted her with a view to
having her speak about Defense Bonds and Stamps. She
said that she would like to broadeast for us and a
tentative date was eet.
Meanwhile, we heard rumors that perhaps she
was not just the type of person who should participate
in our campaign and we started an investigation. Before
this inquiry got under way a representative of Madame
Schiaparelli wrote us and asked that she be excused from
speaking.
I an attaching a copy of the letter requesting
Madame Schiaparelli's cancellation.
We do not plan to have Madame Schiaparelli
broadeast for us at any time.
Cordially,
Vinsent P. Callahan
Chief, Radio Section
Mrs. Heary Morgenthau, Jr.
Hopewell Junction
New York
Enclosure
VFC/men
Regraded Uclassified
8
(COPY)
ELSA SCHIAPARELLI, INC.
Klaa Schiaparelli, President
21, Place Vendome
Paris, France
Hortense MaeDonald, Vice President
Colby Stilson, Treasurer
17 East 45th Street
15 Broad Street
New York, No Y.
New York, No Y.
June 20th, 1941
Miss Marjorie L Spriggs
Director Women's Programs
Treasury Department - Radio Section
Washington, D. C.
Dear Miss Spriggs:
In view of the present tension between France and the
United States, Madame Schiaparelli would greatly
appreciate it if you could postpone her broadcast of
June 27th until a later date.
Her French friends in New York feel that she might be
misunderstood if she made any public statement at
this particular time.
Madame Schiaparelli wants to help in your campaign,
but her position is embarrassing, because she was born
Italian, although now a citizen of France.
We are sure that you will understand.
Sincerely yours,
(signed) HORTENSE MAINDONALD
Hortense MaeDonald
Regraded Uclassified
9
Follow up June 30th
79
Formally accepted
accepts,
my 7/9/41
6/26/41
10
Foley reported at 9:30 meeting that he had
been in touch with Patterson on the phone.
Patterson would like 48 hours to think it
over, and asked that some literature be
sent to him on defense savings bonds. The
literature was sent by Mr. Graves' office.
11
Discussed at 9:30 meeting on June 24th.
Decided that Mr. Foley should call in
Richard Patterson for a conference.
Follow up June 30th to see whether Mr.
Foley has seen Mr. Patterson.
12
June 24, 1941
Harold Graves
Secretary Morgenthau
Please let me know this morning at 9:30 what
luok you have had in New York State in getting & state
chairman for the defense savings bonds organization.
If you don't have anybody, I would be willing to call
up Governor Lehman and ask him to suggest some one to
head up the organization.
13
June 19, 1941
HM Jr telephoned Farley and asked him to take
chairmanship of Defense Bonds Organization in NY State.
June 20, 1941
Farley telephoned and said he could not take the
chairmanship. Suggested Dick Patterson. Later same
day telephoned and suggested Clarence Lowe. HM Jr said
he had already passed Patterson's name on but he would
think about Clarence Lowe. See also letter from Farley
dated 6/20/41.
HM Jr telephoned Graves and told him Farley had
refused} suggested he get in touch with Robert Patterson.
Told Graves to hold up on Swope until we hear from
Patterson.
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 17, 1941
TO
Mrs. Klotz
FROM Mr. Morgenthau
Please see that I call up Colonel Donovan
this morning. I want to have him give me a yes or
no on whether he is going to take the chairmanship
in New York State. I am not going to wait any longer.
I would like to have the letter that I wrote him
originally asking him to take this position. Thank
you. letter to Donovan dated 6/5/41-
Hm grCalled Donovan 6/17/41 A.M. -
Donovan will call back
today-
Hm Jr called Donovan's Seeg.
in absence of Mr. Donovan. at
4:00 R m. 6/18/41- asked him
to has Donovan give him
a direct answer tonight.
Donovan 6/15/41- telephoned mrs. Lot eveningof
6/18/41 and said he could not take
the position-
Regraded Uclassified
I
15
June 24, 1941
9:30 a.m.
GROUP MEETING
Present:
Mr. Sullivan
Mr. Haas
Admiral Waesche
Mr. Graves
Mr. Johnson
Mr. Thompson
Mr. Cochran
Mr. Blough
Mr. Foley
Mr. Kuhn
Mr. Odegarde
Mr. Bell
Mr. Schwarz
Mr. Viner
Mr. White
Mrs. Klotz
H.M.Jr:
To start the morning on the proper plane,
Odegarde, check my memory. When I wanted
this one hymn, "America the Beautiful",
which was the one that you said you liked
as well or better?
Odegarde:
I was speaking of the Ballad of America.
H.M.Jr:
That is what Mrs. Morgenthau heard Paul
Robeson sing last night. She said she
couldn't understand why whe had never
heard it. I have never heard it. He sang
it last night. She said she has never heard
anything to equal it.
16
- 2 -
White:
The greatest song.
Schwarz:
Written by John Latouche.
H.M.Jr:
That is what you said.
Kuhn:
You remember we mentioned his name in a
discussion before as & man who might write
some of this for us.
White:
You heard it, Jake?
Viner:
I certainly did. It is written as a Bolshevik
song.
Odegarde:
WPA workers.
White:
You should have said that before we liked it.
Viner:
Well, I think it is a very good song and a
very good thing of its kind, and it is very
American. It is what Walt Whitman --
H.M.Jr:
What do you mean, it is written Bolshevik?
Viner:
That is what it was written for.
Odegarde:
Latouche is a left winger.
Viner:
It was written as a fellow traveler's song.
H.M.Jr:
Really?
Odegarde:
He was terribly shocked when he heard that
it was sung at the Republican National Con-
vention. (Laughter)
Viner:
Robeson took it up for that reason, too.
You see, Robeson is even more than a fellow
traveler.
H.M.Jr:
I wanted Harold Graves to have Elmer Irey
check Paul Robeson very carefully.
Regraded Uclassified
17
- 3 -
Viner:
On the other hand, "God Bless America" is
verboten at the America First meetings.
They say it is an interventionist song.
H.M.Jr:
Have Paul Robeson checked, the Negro singer.
Graves:
I know who he is.
H.M.Jr:
Everybody says he is a Communist. I would
like to know.
Viner:
He is keeping his children in Russia and
having them trained there.
Graves:
You want a real investigation into this,
not merely an inquiry into his tax background
and 80 on?
H.M.Jr:
I want to know, is he or isn't he a Communist.
White:
He has been spoken of in the past --
Viner:
Look up Lewis Fisher's autobiography. He
doesn't deny it.
White:
He always - he has many times been referred
to in the past as one, certainly. He spent
some time in Russia.
Viner:
I think he is still keeping his children in
Russia.
H.M.Jr:
I think we might as well find out.
White:
He has got a good voice.
Viner:
A good what?
White:
His voice is all right.
H.M.Jr:
But you think this song that Peter Odegarde
likes is a marching song for the Communists?
18
- 4 -
White:
Oh no.
Viner:
You see, it has been taken over. I think
it is a perfectly good song. It is a
perfectly good song and in many respects
I think ideally suited.
Schwarz:
Bing Crosby sings it now. That doesn't --
Odegarde:
It was sung at the Republican National
Convention, which ought to disinfect it.
(Laughter)
H.M.Jr:
That is wonderful.
Viner:
I think it has this shortcoming. It is
awfully long and sometimes people get tired
of it before they are through. Have you
heard it?
Klotz:
Yes.
White:
Have you got all this in the record?
Bell:
It is good for the record.
H.M.Jr:
Admiral Waesche most likely wondered what
we discuss at our nine-thirty meetings. Now
you know.
Waesche:
Quite interesting, Mr. Secretary.
H.M.Jr:
Norman?
Thompson:
As you may know, the Bureau of the Budget
has been making a survey of the departments
and agencies of the Government with a view
to moving out any units from the District
to relieve the space situation. We have
had the Bureau chiefs in and have gone over
the whole Treasury organization.
H.M.Jr:
Going to move them all out?
Regraded Uclassified
19
- 5 -
Thompson:
We don't find anything to move out.
H.M.Jr:
How about Coast Guard?
Thompson:
The Admiral probably can speak for himself.
H.M.Jr:
You can't find anything?
Thompson:
No, sir. We are already decentralized
eighty-one percent in the field and nine-
teen percent in Washington.
H.M.Jr:
What do I do?
Thompson:
I am going to report that to the Budget.
H.M.Jr:
All right. Anything else?
Dan?
Bell:
This is a letter approving the issue of
RFC notes. They are going very well this
morning.
H.M.Jr:
I haven't heard. Are they?
Bell:
Started at twenty-one and are up to twenty-
four thirty-seconds.
H.M.Jr:
Good. Is that all, Dan?
Bell:
We have had for some time this letter of
Tinkham's (May 26, 1941) which hasn't been
answered, and Dr. White drew up a reply
which I thought was very good, and Mr. Foley's
office took it and shortened it a great deal
and didn't say as much as was said in the
other letter. I don't think it is as com-
plete an answer, and whether we ought to
senda long reply or a short one, I don't know.
I prefer the long, because I think it gives
him more information on the subject --
20
. 6 -
H.M.Jr:
Is it another one of these cases where
White and Foley didn't get together?
Bell:
Yes. The short form is all right --
Sullivan:
Let's frame that one.
Bell:
If you think you can get away with it, but --
H.M.Jr:
Well, you decide. I will take either one.
Bell:
Well, I would prefer the long letter.
H.M.Jr:
All right.
Bell:
But I think maybe we ought to get together
and --
H.M.Jr:
Will you?
Bell:
.....go over it with Foley and probably
Jake ought to take a look at it and we
will give you a reply.
H.M.Jr:
All right.
Bell:
I think he was rather decent before the com-
mittee and with you, and he has asked you
a number of questions in view of the questions
he put to you up there, and I think he is
entitled to a very good reply.
H.M.Jr:
All right, what else?
Dan, I would like to see you at ten-thirty
on those tax certificate things.
Bell:
All right.
H.M.Jr:
If anybody is interested, ten-thirty, tax
certificates. Anybody who wants to come
that has got an interest.
21
- 7 -
Bell:
In the taxes or in the certificates?
H.M.Jr:
Anything else?
Bell:
The only other thing of interest, we have
received a number of donations, you know,
for national defense. We got & curious one
from a man in Texas. He gives us a twenty
year note for twenty-five thousand dollars,
two percent interest. (Laughter)
The reason he does it is, he says - just two
short paragraphs addressed to the President.
"Twice in my life I have experienced as
great personal gratification as life can
hold for & man, first on March 4, 1933,
when I listened to your inaugural address
and heard you say in your words almost
identically what I had written you in my
words on December 24, 1932." (Laughter)
"Second, last night when I listened to
you address the nation and heard you say
in your words almost identically what I
had written you in my words --" (Laughter)
H.M.Jr:
He and me both.
Bell:
I think he dreamed it.
Viner:
Say, he should have asked the President to
send him a note. (Laughter)
Haas:
Maybe it is just a hint.
H.M.Jr:
Wonderful.
Bell:
That is all I have.
H.M.Jr:
Marvelous.
Harold?
22
- 8 -
Graves:
I had & telegram this morning from B. M.
Edward saying that he was quite sick, and
I thought you might like to drop him a
little note.
H.M.Jr:
Swell.
Bell:
He wanted to see you, you know, about leaving
permanently.
H.M.Jr:
Oh. I would like to talk to you later.
Graves:
Yes, sir. You will recall that --
H.M.Jr:
You stay behind, will you please?
Graves:
Yes, sir.
You wrote quite a long letter to the Postmaster
General (June 12, 1941) outlining a pattern
for cooperation between the Treasury and Post
Office people on this Defense Savings Bond
program.
You now have a very cordial letter from
General Walker about that (June 20).
Yesterday afternoon, all afternoon, our
people were in conference with representatives
of the Post Office Department, including six
or eight postmasters from various parts of
the country. They will still be here today,
and out of that conference I think will come
a definite program for stronger help for us
from the Post Office on this whole program.
H.M.Jr:
Good.
Graves:
I have your note about New York. (June 24, 1941)
H.M.Jr:
Yes.
Regraded Uclassified
23
- 9 -
Graves:
I had not spoken to Mr. Foley about that
until this morning after I got your note.
We talked about Patterson, and Mr. Foley
is going to talk over the phone today
to Patterson and invite him to come down
here for a conference.
H.M.Jr:
I gave you that --
Graves:
Friday.
H.M.Jr:
I thought it was going to be done Friday.
Graves:
Well, I had too many other things on my
mind. I thought I would wait until I could
get a report first from Commerce, which I
did.
As I told Ed this morning, it was none too
good, but Ed seems to think that this man
would be satisfactory.
H.M.Jr:
Well, if it is none too good, I would rather
call up Governor Lehman and ask him for some
names.
Graves:
Well, from what Ed says, I think it would
be worth our while to have a talk with him.
H.M.Jr:
Do you think so?
Foley:
Well, I think that that is the kind of thing
that Dick Patterson can do, Mr. Secretary.
H.M.Jr:
I agree with you.
Foley:
I grant he is no great hearyweight and per-
haps the kind of a report that you would get
from the people in the Department of Commerce
wouldn't be awfully good, but he is in 8.
position as Chairman of the Board of RKO to
give some time to a thing of this character.
24
- 10 -
I think he has the personality and the easi-
ness of manner to do it, and probably can do
it well. I think he probably would like it
a lot.
H.M.Jr:
Well, could you do it as the second thing
after you have done the first thing I have
asked you?
Foley:
Yes, sir.
H.M.Jr:
Today?
Foley:
Yes, sir.
Graves:
That is all I have.
H.M.Jr:
If you will stay behind, I want to see you
alone.
Graves:
Yes.
H.M.Jr:
Harry?
White:
You might be interested in knowing that the
American portion of the newly created American-
Canadian Commission to examine economic prob-
lems between the two countries has met and they
are preparing a rather comprehensive agenda
of topics to be discussed and presented to
the Canadian group.
H.M.Jr:
Chick?
Schwarz:
Here are some stories.
H.M.Jr:
Chick, you bring me too many of these damn
things.
Schwarz:
I will thin them down. You want some represen-
tative ones?
H.M.Jr:
Yes. It is getting to be too thick again.
25
- 11 -
Schwarz:
I took the old idea that - it takes time
to do that, even.
H.M.Jr:
Peter?
Viner?
Admiral, I wish you would take about five
minutes or less. I haven't heard in a month
or two and I am sure the group hasn't, just
what Coast Guard is doing differently than
it has been doing in connection with National
Defense, recruiting personnel and so forth
and 80 on. Will you give me a little thumb-
nail sketch? I mean, what has happened in
the last couple of months in Coast Guard
which is different than your routine work.
Give us a little lecture.
Waesche:
I will begin today and go backward.
H.M.Jr:
Talk louder, will you please?
Waesche:
Three transports are supposed to sail today
from New York manned entirely by Coast Guard
officers and men, about three hundred seventy
enlisted men per transport, and about twenty
officers per transport. Where they are going
we do not know. They are loaded with troops.
The fourth transport, which is manned by
Coast Guard officers is 8. larger vessel,
the Manhattan. She is manned by seven hundred
fifty Coast Guard enlisted men and some thirty
or thirty-five Coast Guard officers. She is
due to sail on July the tenth.
In addition to that, the landing boats, the
small motor boats which both the Navy and
the Army have developed for the landing of
troops, the Navy have asked us, urged us,
to furnish small boat men to man those boats,
Regraded Uclassified
26
- 12 -
80 in addition to the crews of the trans-
ports, we are furnishing some two hundred
fifty men to man these small boats. That
is two men per boat, one coxswain and one
engineer.
H.M.Jr:
Are those the boats they built down in
New Orleans?
Waesche:
Yes, sir, Higgins type of boat, what the
Army call the "I" boat.
As I say, all of these transports will
carry Army troops. We first were to man
the America, and we were sorry we didn't
get the America, being the largest vessel
under the American flag, and we were slated
to man that ship, but that is to carry
Marines and the Army particularly requested
the Navy for the Coast Guard to man all
boats that were carrying Army troops.
I presume that might be considered & compli-
ment, 80 all four vessels that we are manning
will carry Army personnel. Three of them
sailed today. The fourth one sails on
July 10.
In connection with the vessels which are
being operated by the Navy, three of the
seven are three hundred twenty-seven foot
cutters; the large cutters have been trans-
ferred to the Navy for operation. One of
them is in Lisbon. The second one just came
back from Lisbon, and is up in New York having
the rest of her armament put aboard but still
under Navy operation; and the third one,
the Taney, stationed at Honolulu, was just
recently ordered to report to the Chief
of Naval Operations and in turn was ordered
27
- 13 -
to report to the Commander of the Fourteenth
Naval District at Honolulu for duty.
The Navy held up taking over that vessel
due to the fact that they had nothing at
all to take care of the Hawaiian Islands,
Wake, and so forth.
The other four of those cutters are on the
Weather Patrol, and the Navy phoned me about
two times a week, have for the last month
or six weeks, trying to find some ships to
take over that Weather Patrol so they can
put those four vessels on other duty.
At the request of the Navy, we sent an officer
up on the Lakes to look over some old coal
carriers, vessels about twenty or twenty-five
years old, coal burning vessels, reciprocating
engines, built before the first World War,
in the hopes that they could be repaired and
reconditioned. The Navy say they have the
money to do this.
Admiral Stark is trying to get some of these
Danish ships which we tried some time back,
and, of course, did not get them; so the
matter of obtaining ships to replace these
vessels on Weather Patrol has been quite a
problem for the Coast Guard and now is quite
a problem for the Navy.
The two Greenland squadrons have been organized,
the Western Greenland squadron and the South
Greenland squadron, both of which are under
the command of Coast Guard officers, the Western
squadron reporting directly to Admiral King,
Commander in Chief of the Atlantic Fleet - the
East Greenland squadron, I mean, and the West
Greenland squadron is operating directly under
28
- 14 -
the Chief of Naval Operations and has to
do largely with the establishment of air
bases in Greenland and the radio stations
and meteorological stations.
The East Greenland squadron consists of
the Northland and the North Star, which
we took over from the Department of Interior,
and the old Coast Guard cutter Bear, which
is being manned by the Navy.
All those are ice ships, and they compose
the East Greenland squadron.
The West Greenland squadron is the Comanche,
one of the new hundred and ten foot ice
breaking tugs that we built for New York
and Boston, and the Modoc, one of the two
hundred forty foot class; and in addition
thereto, MacMillin's ship, and also another
one of the hundred and sixty-five foot
cutters is a stand-by vessel for that
squadron to replace any of those which
must come back for repairs or fuel.
H.M.Jr:
Where is the General Greene?
Waesche:
The General Greene is now in St. Johns.
H.M.Jr:
What is that?
Waesche:
It is a hundred and twenty-five foot patrol
boat, one of these little hundred and
twenty-five footers.
29
- 15 -
She has every year performed what we call
the oceanographic cruise. She goes up
to Baffin Bay and around Greenland to
gather scientific data for us in connection
with the International Weather Observation
Patrol, and she was up there on that weather
patrol duty, scientific visit, at the time
that she went out and picked up the survivors
of that convoy.
H.M.Jr:
Well, that report about - on Chief Boatswain
Jordan, is one of the most amazing things I
have ever read. I want to send it to the
President. I am sure he will be interested.
Isn't there something we can do besides
just 8. letter?
Waesche:
Yes, sir, we are going to give him a commis-
sion in the reserve, 8. two-stripe commission
in the reserve and put him on active duty 80
that he will jump from chief boatswain up
to & lieutenant.
H.M.Jr:
It is the most amazing record I ever read.
Waesche:
A wonderful piece of work.
H.M.Jr:
How about some of the men, those two cooks?
Waesche:
We are going to do that too, and figure out
some way of maybe trying to give that whole
crew a step-up in rating.
H.M.Jr:
I think they should; and if you will give me -
write some kind of a letter for me to Jordan
and his men. I would like to sign it. I think
Regraded Uclassified
30
- 16 -
that whole crew ought to get some kind of
recognition.
Schwarz:
Can we make it public, Mr. Secretary.
H.M.Jr:
Yes.
Waesche:
Well, We are working along that line and when
we have actually decided what We think we
should do, I will let you know.
H.M.Jr:
I would like to get in on it, because it is
an amazing record.
Waesche:
Yes, sir.
We will have another very interesting report
that ought to be in today or tomorrow from the
Modoc. It was up there when the planes dive-
bombed on the Bismarck. As a matter of fact,
those British torpedo planes came out there
and dived on the Modoc, but fortunately they
didn't let any of their torpedos go. They
recognized her in time. She was only about
four or five miles from the Bismarck and saw
the torpedos hit the Bismarck, saw the flash
and heard the sound when those aerial tor-
pedos hit the Bismarck. The planes, of course,
coming out there from Iceland, the Modoc,
being a white ship, they decided they didn't
know what she was and they all dived on the
Modoc first; but, as I said, they didn't let
anything go, and we understood they came down
within B. hundred and fifty or two hundred
feet of the Modoc just on & regular dive,
so those boys got out of there just about as
fastas they could. The details of that report
should be in here very shortly.
H.M.Jr:
I see.
Waesche:
There is one other interesting matter in con-
31
- 17 -
nection with the operation of our ships and
that is the Redwing. The Navy have also
asked for the Redwing, which is 8 mine-sweeper
type of vessel. They want to make a salvage
vessel out of it. She has been doing some
work for the Bureau of Fisheries along with
Coast Guard work in Alaska, and we have
pulled her out of Alaska and she is leaving
today for Seattle to be transformed into a
salvage ship at the urgent request of the
Navy. She falls within that class of vessels
which you said we would transfer to the Navy
if and when they wanted them.
This ship, however, has a peculiar case. The
Navy do not want - she will be manned by
civilians. A man named Scott will take the
contract from the Navy to establish certain
salvage stations. The Navy phoned yesterday
they could not spend any money on her and
wanted us to transfer title to the ship which
was a new suggestion, and we said, "No," at
least we said we would give it some further
study, but I think that could be worked out
without transferring title because, as I
understand it, we can't transfer title unless
we declare her surplus to the needs of the
Coast Guard, and we certainly can't go on
record as declaring any ships surplus to the
needs of the Coast Guard at this time, so
there will be no question at all about our
doing anything but handling that in accord-
ance with the plans which have been worked
out previously and approved by you.
The other point is, Stephens asked me out-
side to--
H.M.Jr:
One other thing which I am not familiar with
because nobody ever tells me. I don't know
anything - I don't know first what success
you are meeting with in getting in these
Regraded Uclassified
32
- 18 -
boats, you know, Coast Guard Reserve, is
that what you call them?
Waesche:
Yes, sir.
H.M.Jr:
What success have you met with on that?
Waesche:
We haven't been able to get the boats as fast
as we would like to get them, because all
these people, boat owners, like to have their
boats on Sunday and the Fourth of July and
now and then to take a trip. They are will-
ing to give them to us three or four days of
the week, but not turn them over absolutely.
I wouldn't be surprised from the - the in-
formation we get from the field is that when
the war situation becomes 8. little bit more
critical, that the boats will flock over to
us. I don't know exactly how much more
critical they want it to get.
We have actually enrolled and are operating
in the Coast Guard some fifty reserve boats
today, and we are getting a few more every
day.
H.M.Jr:
That is disappointing.
Waesche:
Very disappointing, yes, sir.
H.M.Jr:
Because you--
Waesche:
We - however, we have worked out another plan
which we can use temporarily and that is by
using Coast Guard auxiliary boats, using
these boats without taking them into the re-
serve, and putting our own men, the chief
petty officer and one or two other men on it,
and get the use of one boat for three days,
and then transfer our men to another boat,
and thereby augment our patrol by shifting
33
- 19 M
a crew from one boat to another. Not
exactly a crew so much as the officer in
charge.
H.M.Jr:
Well, let me ask you another question. How
about your enlistments?
Waesche:
Our enlistments have been falling off, but
we are still enlisting quite a few men and
we are making a drive. The Army and the
Navy and Marine Corps and Coast Guard all
feel, particularly the Army and Navy, that
they have combed this country pretty well.
H.M.Jr:
How many men have you got in Coast Guard
now?
Waesche:
We have, counting some twenty-five hundred
remaining civilians in the Lighthouse - former
Light House Service, we have approximately
about twenty-one thousand five hundred total
in the Coast Guard today, officers and men.
H.M.Jr:
Have you distributed the officers and men
that came off those ten cutters that were
given to the English?
Waesche:
Yes, sir. Of course, 8. lot of those of-
ficers and men went to man these trans-
ports, and we are very, very short of com-
missioned officers. We are enrolling re-
serve officers and making very good progress
in that. We have enrolled from thirty-five
to forty commissioned officers in the Coast
Guard Reserve and put them on active duty,
all of them very excellent type of men.
H.M.Jr:
They go on active duty, not desk duty?
Weesche:
No, sir, every one of them is on 8. ship, and
we require, before we even take them into the
Reserve - they must pass a pretty stiff
34
- 20 -
examination in navigation and seamanship
and must have had some experience at sea.
In other words, we - our Reserve is entirely
a sea-going reserve and not a desk reserve.
H.M.Jr:
Where is Mac these days?
Waesche:
He is Exec on one of these transports that
sails today.
H.M.Jr:
Is he? He is Exec on one of those?
Waesche:
Yes, sir, he and Bradbury is in command.
Bradbury and McKay have a kind of mutual
admiration society, and they were together
as Captain and Exec of one of the ships we
turned over to Great Britain. When we
sent her to Great Britain we took that pair,
Bradbury and McKay, and sent them to the
Empire State, which we are taking over to
train merchant seamen. However, before they
got to the Empire State, their orders - be-
fore they reported aboard this transport
business came up so we yanked them off that
and put them on a transport.
H.M.Jr:
He will be happy there. Good.
Now, what about that letter?
Waesche:
This--
H.M.Jr:
Do I have to do it? Didn't somebody double
up?
According to Frank Knox, it looks like it.
Waesche:
The reply we made to the Navy's letter was
& little bit confusing. I went over to the
Navy and asked them to give us a strong letter.
35
- 21 -
As a matter of fact, we wrote the letter in
our own office and took it over there, and
the Secretary of the Navy signed it.
H.M.Jr:
That is in the first instance?
Waesche:
That was the first letter. Then when it
came over of course we made an acknowledgment,
and I think it was probably a mistake to
put that last paragraph on there asking
them--
H.M.Jr:
Now, what do I write him?
Waesche:
Nothing at all, I think.
H.M.Jr:
Well, you had better write him a letter for
my signature and get it over to me this
afternoon and say that there is nothing more
we have done. We appreciate what he has done.
Waesche:
All right, sir, we will do that.
H.M.Jr:
Whoever put on that second paragraph slipped
& bit, but if you would write another letter
and say "Thank you, we don't want anything
more, to close it, you see.
Waesche:
I will be glad to. Just one more matter
of interest, just before I left the office
we got a flash again from the General Greene
which is up in that country, up in St. Johns,
that & submarine attacked a convoy of four
ships a hundred and thirty miles south of
Cape Farewell.
H.M.Jr:
Four ships?
Waesche:
Yes.
H.M.Jr:
Johnson?
36
- 22 -
Johnson:
Well, our new activities have been to shift
from a concentration almost entirely on imports
to & new field on exports. We are giving
supervision of exports that has never been
given before. Exports now, both of goods
and persons since the orders of a week ago
last night and later on on the Italians -
we are clamping down on movements of persons.
We have been working with other agencies,
including FBI and Naval Intelligence, Military
Intelligence, on looking over some of the
things that passengers take out of the country
with them, which is completely new.
And one of the most unusual things in Customs
is that our receipts have not fallen off. The
last complete figure I saw were for sometime
in April when we were six percent ahead of
the corresponding period of the previous
fiscal year in collections.
Now, the number of transactions, of course,
have fallen down. We are collecting more
duty per importation. So we have been able
to release men from the work on imports and
shift them over and balance them out on the
new work we are doing on exports.
We have got just one little increase in
personnel for the next fiscal year, and that
is sixty additional guards to be scattered
around the country at the seaports.
H.M.Jr:
Anything else?
Johnson:
That is all, sir.
H.M.Jr:
I have got a thing here. Senator Connally
recommended Alvin W. Scharff for the position
of supervising customs agent at Houston. We
wrote to Senator Connally that when the
position was filled Scharff would be con-
37
- 23 -
sidered along with other eligible persons.
Mr. Harmon has now been appointed supervising
agent at Houston. Should 8. letter be written
to Senator Connally explaining the matter to
him?
Johnson:
I think we explained it fully when we told
him that Scharff would receive consideration.
I don't see any objection to writing him a
letter.
H.M.Jr:
What are you going to do with Scharff?
Johnson:
We are leaving Scharff right where he is,
second in the Houston office.
H.M.Jr:
Would you leave it alone, just let it die?
Johnson:
That is what I thought.
H.M.Jr:
Well, Harmon has been appointed?
Johnson:
Harmon was appointed on either the fourteenth
or the sixteenth of June.
H.M.Jr:
And then just let it rest?
Johnson:
Yes, sir.
H.M.Jr:
Thank you.
George?
Haas:
I have nothing this morning.
H.M.Jr:
Roy?
Blough:
Nothing this morning.
H.M.Jr:
You are going to leave something Wednesday night?
38
- 24 -
Blough:
Either today or tomorrow night, yes, sir.
H.M.Jr:
Well, I have got ten hours on the plane to-
morrow with Mr. Sullivan who has thrust him-
self upon me and we could discuss it. (Laughter)
Sullivan:
I don't want to get squeezed out of that,
either.
Blough:
I will have it for you tonight.
H.M.Jr:
All right.
Cochran:
Alphand sent word yesterday he would like to
see you on Friday, if possible. You know,
he has resigned as French Financial Counsellor.
H.M.Jr:
Why?
Cochran:
Well, the story was that he was in disagree-
ment with what the French Government is doing.
H.M.Jr:
Oh, I don't--
Cochran:
I think it is just to say good-bye. That is
my idea.
H.M.Jr:
Where is he going?
Cochran:
I mean taking leave here. He has been ac-
credited here.
H.M.Jr:
HaveI ever - have I ever seen him?
Cochran:
Yes, sure.
H.M.Jr:
Let him say goodbye to you.
Cochran:
All right. (Laughter)
Bell:
I think he wants 8. job. I got some indication
that he would like to have somebody around
39
- 25 -
here help him get a job. He hasn't any
money.
H.M.Jr:
Well, let him--
Cochran:
I will see him.
H.M.Jr:
Weep on your shoulder.
Cochran:
Yes.
I have a letter from the Visa Section. I
think they are reversing that Rodzinski
case. (Letter dated June 23, 1941.)
H.M.Jr:
Oh, wonderful. That is grand.
Cochran:
That is all.
Sullivan:
You know Martin C. Schwab, a consulting en-
gineer in Chicago?
H.M.Jr:
Never heard of him.
Sullivan:
That is the answer. He wants to see you in
Washington. He is interested in prepayment
of state taxes. He knows your father, and I
didn't know whether you knew him or not. I
will be glad to talk to him.
H.M.Jr:
Ed?
Foley:
I have nothing, Mr. Secretary.
H.M.Jr:
At the group meeting, June 11: "You again
asked Mr. Foley to arrange a conference with
the Attorney General for the purpose of
deciding whether we do or do not need legis-
lation on states' taxing contractors. Is
the matter still pending?"
Foley:
I don't know who is the Attorney General. I
40
- 26 -
haven't tried to talk to Francis about this.
H.M.Jr:
Well, supposing you--
Foley:
I think as soon as Bob is confirmed as a
Justice in the Supreme Court, I might go over
and talk to Francis about the whole problem.
We see more nearly eye to eye than Bob and I
do.
H.M.Jr:
Will you do that?
Foley:
Yes.
H.M.Jr:
All right, if you (Graves) will stay, I would
like to see you.
41
June 24, 1941
Dear Frank:
With reference to my letter of
June 19th and your reply of the same
date, I can see that some little mis-
understanding may have been caused by
the last paragraph of my letter.
Your letter of June 18, 1941,
was all the support I had in mind in
obtaining an appropriation for the
Coast Guard training station and I
want to assure you that I appreciate
your prompt cooperation.
Yours sincerely,
(Signed) Henry
Honorable Frank Knox,
Secretary of the Navy.
s
42
June 24, 1941
Dear Frank:
with reference to By letter of
June 19th and your reply of the same
date, I can see that some little mis-
understanding my have been caused by
the last paragraph of my letter.
Your letter of June 18, 1941,
was all the support I had in mind in
obtaining an appropriation for the
Coast Guard training station and I
want to assure you that I appreciate
your prompt cooperation.
Yours sincerely,
(Signed) Henry
Honorable Frank Knox,
Secretary of the Havy.
new
\
43
June 24, 1941
Dear Frank:
with reference to my letter of
June 19th and your reply of the same
date, I can see that some little mis-
understanding my have been caused by
the last paragraph of ay letter.
Your letter of June 18, 1941,
was all the support I had in mind in
obtaining an appropriation for the
Coast Guard training station and I
want to assure you that I appreciate
your prompt cooperation.
Yours sincerely,
(Signed) Henry
Honorable Frank Knox,
Secretary of the Navy.
By Memonter
44
THE SECRETARY OF THE NAVY
WASHINGTON
June 19, 1941
is
My dear Henry:
I presume your letter of June 19th
was dictated without your knowledge that I
had already signed a very urgent letter
supporting the appeal of Admiral Waesche for
a three million dollar appropriation, in
order to enlarge Coast Guard training facil-
ities.
I mention this because the final
paragraph of your letter of the 19th sug-
gests additional support from me. If you
want something beyond this, please let me know
and I will be glad to render it.
Yours as ever,
Hon. Henry Morgenthau,
The Secretary of the Treasury.
45
THE COMMANDANT OF THE UNITED STATES COAST GUARD
WASHINGTON
24 June 1941.
MEMORANDUM FOR - Mr. Frank Rose
Lieutenant Stephens
At the Staff Conference this morning
the Secretary told me to prepare a letter to the
Secretary of the Navy along the lines as per
attached. It may be that the Secretary will want
this letter written on his note paper. We have
no note paper at Coast Guard Headquarters.
R. R. WAESCHE.
your
TO: mr. Cochan 46
Scentary will
see m m. alphand
on Tues FOR day at
300 pm
Tuesday, provided July /
Alphards PM OHIGON 6/24/91
From: LIEUT. STEPHENS
n
47
TREASURY DEPARTMENT
INTER-OFFICE
For Miss
DATE June 24, 1941
TO Secretary Morgenthau
FROM Mr. Cochran
After the Staff meeting this morning, By office telephoned & nessage to
Mr. Alphand that the Secretary could not receive him on Friday, but that I would
50 glad to receive him at any hour on that day. Mr. Alphand has now called no
directly from New York wanting to know when the Secretary could see him, to permit
him to explain his reasons for resigning and to allow him to take official depar-
ture from the Treasury. I stressed the pressure of official duties on the
Secretary and again indicated by willingness to visit with Alphand. He recalled
how difficult it had been to see us in the past, but thought that the situation
should be a little easier now that he is definitely an "ally". If you are willing
to receive Alphand for a few moments I think this unpleasant duty would be a very
nice gesture. He would like to come in next Monday or Tuesday.
Since I began dictating this memorandum Mr. Alphand has telephoned me once
more, pleading for the interview early next week. Will you kindly indicate the
answer?
7ml
48
June 24, 1942.
Dear Mr. Hunds:
I - very cerry to learn of your
illness, of which Mr. deaves has just
told - Please be sure to take care
of yourself. I will want to see you
as soon as you get back to Washington.
With best wishes for your specify
recevery, I -
Sincerely,
(Signed) 1. Morgenthas, 32%
Mr. B. M. Edwards,
Columbia, s. Car.
HNG/mff
File to Mr. Thompson
49
June 24, 1941
10:30 a.m.
RE TAX ANTICIPATION NOTES
Present:
Mr. Sullivan
Mr. Haas
Mr. Murphy
Mr. Bell
Mr. Schwarz
H.M.Jr:
How is that bond going?
Bell:
Very good.
H.M.Jr:
It is?
Bell:
We haven't any report as to subscriptions, but
we will have something at two o'clock, but the
price on it is up to twenty-five or twenty-
six thirty-seconds. It is going right out
the window.
H.M.Jr:
All right.
Now, I read this thing carefully. I have got
& couple of questions I want to ask. Why do
you limit this one to twelve hundred?
Bell:
Because of the high rate that is on it, and
we thought that we ought to give the small
fellow an inducement to save his money for
this purpose.
H.M.Jr:
I see. Twelve hundred seems so little.
50
- 2 -
Bell:
Well, it is a saving of 8. hundred dollars &
month. In this group that we had in from the
Federal Reserve Banks, there was some sug-
gestion that we raise it to two thousand.
On the other hand, there were one or two
suggestions that we cut it down to a thousand.
I didn't see much sense in that. There were
some suggestions that we raise it to two
thousand. Of course this twelve hundred
dollars, the way we have got it fixed, every-
body could buy it, corporations and all.
H.M.Jr:
I see.
Bell:
It is just like savings bonds of the five
thousand dollar series. Any individual can
buy even though he buys the fifty thousand
dollar, which is at a lower rate.
H.M.Jr:
Well, do you think that a fellow that has a
hundred a month income tax is going to hear
about this?
Bell:
Well, that is one of the things we have got
to work out as a matter of education and a
matter of publicity. I am going to have a
conference tomorrow with eleven supervising
collectors of Internal Revenue, and I have
discussed already some of the problems with
George Schoeneman. He thought maybe we might
circularize the fifteen million names we have
got down who are potential tax payers next
year, the ones that filed returns during this
calendar year.
H.M.Jr:
How are you going to pay for it?
Bell:
That is, circularizing?
H.M.Jr:
Yes.
Bell:
It is a public debt transaction. It comes under--
51
- 3 -
H.M.Jr:
You that? don't think we are paying too much on
Bell:
Well, there was some thought among the
Federal Reserve people that the two forty
rate was too high; and, of course, it is high
for two year money, but it is like savings
bonds. It is too high, too. But this is an
inducement to the small fellow to save his
money, and I believe that you have to have
it, certainly up around the two percent
level in order to induce him to save his
money.
Now, we could cut that five cents down to
four cents 8. month, and that makes it around
one ninety-two.
H.M.Jr:
I would rather be above two.
Bell:
Well, it is B. little difficult to put it on a
cent basis and make it easy to compute.
H.M.Jr:
Now, these fellows - they don't have to
keep it any length of time, do they?
Bell:
On the twelve hundred dollar note, we thought
that they could turn it in any time and get
the cash back without interest.
H.M.Jr:
Why don't you have that registered?
Bell:
It is very difficult, administratively, to
keep all those accounts, but we thought that
we would have the name inscribed and maybe
have the Federal Reserve just keep 8. little
card record of each note sold and the indi-
vidual, and then the collector can compare
the name inscribed on the security with the
name on the return.
There was a suggestion by one or two Federal
52
- 4 -
Reserve Banks that we make these bearer
securities, but we think there would be
quite a traffic in them and a. market. We
don't want a market in them. We think maybe
the banks would come in and buy or some people
would come in and buy quite a bunch of them
and then sell them out to their - just before
tax payment date at a little discount, and
they would get a nice return on them for a
year or a year and a half.
H.M.Jr:
Now, the other one, you have to keep it
sixty days?
Bell:
On the ones over twelve hundred, we thought
that they ought to keep it sixty days, and
then they ought to give us thirty days notice
before they turn it in for cash, because
there might be some rather large amounts in
that.
H.M.Jr:
Thirty days notice?
Bell:
Yes, thirty days notice.
H.M.Jr:
Is that enough?
Bell:
Yes, I think that is enough. And they get
their cash back without any interest at all.
H.M.Jr:
I see.
Bell:
There is no inducement to buy these except
for tax purposes.
H.M.Jr:
Why on a - where you are only limited to
twelve hundred dollars do you have a thousand
dollar denomination?
Bell:
Because we thought that people over twelve -
paying taxes in excess of twelve hundred would
also buy the twelve hundred and would buyit
53
- 5 -
all at once, 80 we out down administrative
difficulties by making a thousand dollar
denomination.
H.M.Jr:
I see. I think it is 8. mistake psycholog-
ically.
Bell:
Do you?
H.M.Jr:
Yes.
Bell:
Well, it doesn't have to be done you know,
but you take a man who has ten thousand
dollars in taxes. He is going to buy twelve
hundred dollars immediately.
H.M.Jr:
Well, let him - I wouldn't have a thousand
dollar denomination.
Bell:
If he didn't buy the thousand, then he would
have to buy twelve one hundred dollar cer-
tificates.
H.M.Jr:
That is all right.
Bell:
And that is administratively a little diffi-
cult to handle in the collectors' offices and
in the Federal Reserve Banks.
H.M.Jr:
For the little fellow, I don't want a thousand
dollar denomination.
Bell:
It is very simple to put out.
H.M.Jr:
I wouldn't do it. I- would cut out the thousand
dollar denomination. Now, what is the Federal's
objection to this thing in New York? I said
I would speak to them.
Bell:
Well, New York and Chicago both - the first
question that Bob Rouse asked in the conference
the other day, was this a scheme to raise money
54
- 6 -
or is it a facility to the tax payer? and I
answered that it was primarily & facility to
the tax payer, but incidentally if we got
some money we wouldn't kick, and one of
our thoughts in getting up this second
security was that we could tax some of these
idle balances that Mr. Eccles talked about so
long and wanted to put out a special type
security. Particularly we would tax the
idle reserves of corporations laying aside
specifically for taxes. We think that would
be a good thing in this situation.
Now, New York objected to the rate as being
too high. They said that the Treasury was
paying more than was necessary, that if we
wanted money we ought to go out and do it
through open market.
Of course, if we did it that way, the people
who would get the securities would be those
that are not necessarily paying taxes, the
banks and others.
H.M.Jr:
What is that, Dan?
Bell:
I say if we sold it on the open market, the
banks and others would get these securities
and would not necessarily use them for taxes.
H.M.Jr:
That is right.
Bell:
They would get them just like they get all
other securities.
Now, eliminating the right values, our boys
here figure that we have to pay at least 8.
half percent for two year money, so that it
isn't much out of line when you take it in
six tenths. It is non-transferable. They
can get their cash back only through the
Treasury and then without interest, and if
55
- 7 -
they want the return on it they can use it
only for one purpose and that is tax payment,
80 that we don't feel that it is out of
line very much with current money rates when
you take all those things into consideration.
H.M.Jr:
How about on the Hill, John?
Sullivan;
Well, it is the first I have seen of it, and
I just told Dan out here that I thought that
the aspect of it that is most important on
the Hill isn't covered here because the
fellow they are worrying about is Joe Bananas
who works in the shoe shop for eighteen dol-
lars and a half a week, and it gets around
to March 15 and he has got to pay twenty
dollars. That is more money than he has in
his pocket at any one time during the year,
and it is the purchase of stamps week by week
out of his monthly payroll that the fellows
on the Hill are interested in and about which
I am concerned.
I mean, this plan, I think, will adequately
care for the people who pay the bulk of the
income taxes in terms of dollars, but I think
there are going to be literally millions--
H.M.Jr:
Well, what is the matter with that first
thing?
Sullivan:
Twenty-five dollars?
Bell:
Mr. Secretary, we considered that, and we
thought that was as low as we could go
in a denominational public debt security
and pay interest on it, was twenty-five
dollars.
Now, a man who has taxes can save up and buy
a twenty-five dollar security, and provision
Regraded Uclassified
56
- 8 -
is made that they can turn them in any time
within the maturity of the obligation for
income taxes, any month. We thought about
the fellow who had less than twenty-five
dollars to pay, but we thought that we might
say in our circular that he can buy Defense
Savings Stamps or Postal Savings Stamps and
turn those in with his income tax, and we
will make an adjustment between the Treasury
and the Postal Savings System.
The difficulty with that is that he is turn-
ing in with his tax return bearer securities,
which, if lost, he is out.
H.M.Jr:
Let me just see if I can't answer Sullivan.
Supposing you had some special arrangement for
a drive that we go from stamps to this security,
you see.
Sullivan:
That would answer my problem.
H.M.Jr:
I mean if some way you could go from the stamps
to this.
Sullivan:
That is right.
H.M.Jr:
Put a special - I mean in this, when we cir-
cularize these fifteen million people, say,
"Now, look - If stress the thing, "Now, if
you collect twenty-five dollars worth of
stamps, we have a special book for that."
We haven't got one now. Have we got a book?
Bell:
No, not for this, but that we could do.
H.M.Jr:
We could get a special book, you see, a
twenty-five dollar book for the fellow to
collect for his - convert 8 twenty-five
dollar book of stamps into this, get out a
special book just for that. How would that
be?
Regraded Uclassified
57
- 9 -
Sullivan:
That would be fine for the fellow who owes
twenty-five dollars, but we would have to
arrange that & lesser amount than twenty-
five dollars in stamps could be turned in
to take care of thousands of fellows who owe
eleven dollars and sixty-five cents and
twelve dollars and ninety cents.
Bell:
He can turn in his book.
H.M.Jr:
We will take in his stamps.
Sullivan:
Now, that is just it. I think this should be
linked up with an educational program with
the industrial leaders so that the paymasters
in these big companies will explain this and
say, "Now, Joe, do you want me to take out
thirty-five cents in stamps every week?"
H.M.Jr:
When you are on that you had better talk to --
Bell:
No pressure?
H.M.Jr:
Talk to Houghteling, who is handling the
labor union thing for us.
Sullivan:
Yes.
H.M.Jr:
We are doing it - we don't go to the owners
of business. We go to labor unions. We have
the labor unions explain it to their people.
Sullivan:
That is all right.
H.M.Jr:
That could be done, John.
Sullivan:
I think it ought to be done for the protection
of these people.
H.M.Jr:
That can be done. They are coming in very
fast. The payroll deductions are coming in
very fast now.
58
- 10 -
Bell:
I don't believe that there is a serious
problem there, John, as you seem to think.
The man who owes twenty-four dollars is going
to pay it at the rate of six dollars every
quarter, and it doesn't seem to me to be 8,
very serious problem, although We can meet
it through these stamps and that is going
to be very expensive, from our standpoint,
very expensive administratively.
Sullivan:
That is what they are all interested in on
the Hill, Dan.
Bell:
The other point I think John raised is whether
these could be used for state taxes. We did
not have in mind at this time providing any-
thing for state income taxes. They could be
used, if we wanted to provide it, for, say,
an administrator or executor to buy when he
takes charge of the estate, and I understand
he has fifteen months to liquidate it, to be
turned in at the end.
H.M.Jr:
Well, let's do this thing first, when you are
talking about it. If I am going to do this
thing, I would like to announce it Thursday
for July 1.
Sullivan:
Well, now, let me see, Dan, when B. fellow--
Bell:
Well, we can't begin to issue them on July 1.
H.M.Jr:
Why not?
Bell:
It is quite a problem getting out your litera-
ture.
H.M.Jr:
When can you issue them?
Bell:
I planned on July 15.
H.M.Jr:
That is all right, but we can announce it.
59
- 11 -
Bell:
They ought to be dated July 15 80 they will
mature on the fifteenth of a month. I said
these will be eighteen months. I am coming
around to making them two years, even though
they overlap, because of the high rate in
both cases. I think two years would be better.
Sullivan:
Let's see what happens. I buy one next month
for twenty-five dollars. I want to turn than
in on the fifteenth of March. Do I have to
cash that and then send my check to the col-
lector or do I send the bond in with my tax
return?
Bell:
Send your bond in with the tax return.
Sullivan:
And in March of '42 I get how much credit for
that bond, twenty-five dollars and forty cents?
Bell:
If you buy a twenty-five dollar bond in July,
in March you would get twenty-five dollars and
forty cents credit.
Sullivan:
I see. And there will be schedules printed
on them 80 that the fellow who buys them in
August will know how much--
Bell:
That is right. That schedule attached will
be printed right on the face of each of the
denominations mentioned. If you buy that bond
in October, you pay twenty-five dollars and
fifteen cents for it. If you turned it in
in September '42, you would get twenty-five
dollars and seventy cents credit.
Haas:
Just like 8. war savings stamp?
Bell:
Yes.
Sullivan:
Twenty-five dollars and seventy cents credit?
Bell:
In September 1942 you get twenty-five dollars
60
- 12 -
and seventy cents credit of which seventy
cents includes the fifteen cents that you
paid as accrued interest. You get that back.
Sullivan:
Yes.
Bell:
And if you want to cash it in any time, sup-
posing you come along down in September and
you want to cash it in. You don't want to
pay it in income taxes or you have over-
estimated your taxes. You get back the
twenty-five dollars and fifteen cents that
you paid back there in October.
Sullivan:
And if I hold it until December '42 when it
matures, and I still don't want to use it
for taxes, I then get twenty-five eighty-
five?
Bell:
No, you get twenty-five fifteen, the same
as you paid for it. You only get the credit
for interest when you turn it in for income
taxes.
Sullivan:
I am inclined to think now that it is better
to announce this separately and disregard the
present payment of state taxes for the time
being, but that is the matter that they have
gone into very thoroughly up there. There
have been any number of members of Congress
who have testified on it, and I would like
to be able to tell the Committee that we are
announcing this separately because, if we
try to combine them, they will be confused,
and they are working and studying on the
present payment of state taxes, and we
believe we can work it out.
Bell:
John, I would rather you would say to them
that we have a United States Savings Bond
in the form of Series G, which a man can buy
to put in his estate; and, if he dies, whenever
61
- 13 -
he dies that thing can be cashed in at par.
H.M.Jr:
Are you familiar with that?
Sullivan:
No, I am not.
Bell:
And he gets current return of two forty -
two fifty.
H.M.Jr:
Will you save my time on that?
Sullivan:
Yes, I will go through that with Dan.
H.M.Jr:
We have had the best people in the United
States working on that. Would you mind?
Sullivan:
I will.
H.M.Jr:
And just let me call up Allen Sproul. That
G Bond thing, we even sold it to the Presi-
dent.
Bell:
A man can save fifty thousand dollars a year
for his estate taxes on that.
H.M.Jr:
Are you fellows sold on this, both of you?
Haas:
Yes.
Murphy:
Yes, sir.
H.M.Jr:
Any doubts?
Haas:
Maybe we are biased.
H.M.Jr:
Why?
Haas:
Well, you like the cake you worked on yourself.
Schwarz:
One point I think we ought to consider is
several books that I am thinking of for dollar
stamps and five dollar stamps, possibly because
62
- 14 -
every group is going to be centered about
their own tax bill, what their tax bill
amounts to. I would like, for example,
maybe to save ten or fifteen dollars a
month and somebody else would want to save
five dollars a month.
(Telephone conversation with Mr. Sproul
follows:)
63
June 24, 1941
10:55 a.m.
HMJr:
Hello.
Operator:
Mr. Sproul.
HMJr:
Hello.
Allan
Sproul:
Hello, Mr. Secretary.
HMJr:
How are you?
S:
All right.
HMJr:
How 18 the thing going?
S:
It's going very well, just
a little too well again
I should say.
HMJr:
Well, that's good news,
isn't it?
s:
Can't complain about that,
however.
HMJr:
No. Going a little bit too
well, well, that's all right.
S:
Yeah. The rights are
quoted at 25, 27 or 25, 27
and the subscriptions are
coming in in good shape.
HMJr:
Well, we are 80 much more
conservative than you fellows,
you know.
S:
(Laughs)
HMJr:
Now, let me ask you this,
I'm thinking very seriously
of going ahead with this
Treasury plan for tax
anticipation notes.
3:
Yeah.
64
- 2 -
HMJr:
Now, you have some objections
to it?
8:
I have some question about the
notes for unlimited subscription
by large taxpayers. I have no
question or objection to the
smaller subscription notes for
the small fellow.
HMJr:
Well, what are you worrying
about on the other one?
S:
That if it's priced at anything
away from the market, it will
cause a lot of funds to flow
into that special security and
above the market price for no
purpose.
HMJr:
Well, did you talk with Dan
about it?
S:
Yeah, we've talked with -
we've been talking with Dan.
HMJr:
You don't like it, huh?
S:
Well, I think the rate should
be on any unlimited subscriptions,
security should be on the market.
HMJr:
Well, how much above the market
are we?
s:
Well, at 6/10 of a percent,
I should say you were - oh,
twice :the market.
HMJr:
Is that right? He says that -
Dan says not if you eliminate
the right value.
s:
Huh?
HMJr:
Not if you eliminate the righte
value.
65
- 3 -
S:
Well, it would be about
that I think.
HMJr:
Wait a minute. (talks aside)
Dan says - he can hear you
on the loud speaker - that
if you eliminate the rights
value, the market would be
about a half.
8:
Well, I figured a little
lower than that, that eliminating
the rights value would take
something out of - would change
the
HMJr:
You think we'd get a lot of
money this way?
3:
I think you'd get quite a
bit on that sort of an offering,
but I don't see why it should
be - myself, tied up with tax
anticipation, I think if you'd
get the same amount of money
with less mechanical difficulty
and a - Just the same or a lower
rate on a market security.
HMJr:
Well, we're thinking about it -
I'll talk some more to the boys.
S:
All right and we'll figure about
it and talk to Dan some more.
HMJr:
Will you do that?
Thank you.
S:
All right. Goodbye.
66
- 15 -
H.M.Jr:
Have you talked with Eccles about this?
Bell:
I have talked to Piser and he was at our meet-
ing the other day, and I have also talked to
Ronald Ransom and asked him if he would be
thinking about it. They havehad 8. memorandum
over there before the whole Board, but I
told Ronald that I would call him again this
week and get his views on it.
Haas:
The market security, Mr. Secretary, would
increase bank deposits, and this will not.
It will tap these idle funds.
H.M.Jr:
What did you say?
Haas:
A market security, such as Sproul suggested,
would increase bank deposits.
H.M.Jr:
Why?
Haas:
Because the banks would buy them, and when
they buy securities they have--
H.M.Jr:
And this won't?
Haas:
This will not.
Bell:
This would tap the bank deposits.
H.M.Jr:
Is that important?
Bell:
Very important.
Haas:
At this time, I think it is.
Bell:
It is the second step in this program. You
first issued your United States Savings
Bonds.
H.M.Jr:
Has Viner seen this?
Bell:
No, I guess not.
67
- 16 -
Haas:
Another thing about it, if you issue an open
market security, as one of the Federal Reserve
men said, that the corporations that needed it
for tax purposes wouldn't get it. The banks
would just buy more.
(Telephone conversation with Mr. Eccles'
secretary follows:)
68
June 24, 1941
11:00 am.
HMJr:
Hello.
Operator:
Chairman Ecoles 1s on the
Hill testifying. He will
not be back until about
12:30 or 1.
HMJr:
Who is there in his office -
let me talk to them?
Operator:
I have his Secretary.
Miss Egbert.
HMJr:
Hello.
Miss
Egbert:
Yes, sir.
HMJr:
This 1s Mr. Morgenthau.
E:
Yes, sir.
HMJr:
I wondered if Mr. Eccles
could come over to see me
about 3:15 this afternoon.
E:
3:15?
HMJr:
Is his calendar
E:
I'm quite sure that he can,
unless they keep him up on
the Capitol which I don't
think they will do.
HMJr:
Well, I'll tell you what it's
about and if he'd get in touch
with Mr. Bell, he might want
to post himself before he comes
over. It's to discuss this
tax anticipation warrant -
tax anticipation warrant.
is
Yes, sir.
69
- 2 -
HMJr:
And it's Mr. Bell - is Piser
familiar - Piser is familiar
with it.
E:
He 18.
HMJr:
Yesh. I'd like to come to
a decision this afternoon -
(talks aside) Ronald Ransom
has been on it too.
is
Un huh.
HMJr:
And if Mr. Eccles would bring
him, Mr. Ransom or anybody else
that he'd like to.
E:
All right, sir.
HMJr:
Mr. Piser or anybody he'd like
to. I'd like to if possible
settle it this afternoon.
is
Yes, sir.
HMJr:
And I'll hold 3:15 until I
hear from you.
is
All right. Well, I'm quite
sure that he can come, and
as soon as I can get in touch
with him, why I'll will let...
HMJr:
Well, if I don't hear from
you, I'll take it that it's on.
E:
All right, sir.
HMJr:
Thank you.
E:
All right, thank you.
70
- 17 -
H.M.Jr:
Could you fellows show this to Jake before
three fifteen?
Bell:
Sure.
H.M.Jr:
And then let's have a meeting at three fifteen.
But let's settle this thing this afternoon. I
think it is - you are satisfied, aren't you?
Haas:
Yes, sir.
Murphy:
I certainly am.
Haas:
The rate is high.
H.M.Jr:
Has White seen this at all?
Bell:
No, I talked to White, you remember, that day
we had a discussion in the nine thirty meet-
ing, and I talked to White about the thing,
and he wanted a graduated rate. He thought,
well that is just - well, it is mechanically
impossible. There are a number of people
that have got to handle this and there would
be complications and so forth, but this fits
into that as near as you can get it, to his
ideas on it.
H.M.Jr:
Let's see if we can't settle it at three
fifteen.
Do you (Sullivan) want to sit in or not?
Sullivan:
No. From my point of view this will cover
it providing the stamps are available.
H.M.Jr:
But I think if he would explain this thing
to you. There is no need of your sitting in
this afternoon, but I would like Bell to
explain that to you on that G Bond.
71
20 Le recommental that de some to curies of notes - outlined
below, both dated day 15. 1992. In view of the fast that - are
starting the program in the middle of the columber year, 11 is -
mended that these series nature Recember 31. 1942, approximately w
seaths instead of 2 years after the isems date. On January let of
each year hereafter - new series should be provided # that 8 far-
payer - always purchase notes is afrance to cover to yours -
All mates are to be will at per and occured interest, If my, and
will be returned at my time when presented is payment of Income taxes
at par and accrued interest up to and including the month in with 1
taxes are paid. If not presented in payment of Income taxie, they will
be redemed under cartain specifica conditions at par and assurant 100
terest, if my, wp to the date of yorchase. is other write, the taspayer,
is this case, gate back just the movet he paid for the notes and me
more. the notes will mt be registered, but will have the purchaser's
- and altreas Insert bed thereon w that the falloster of Internal
Revenue - compare tide - with that - the tax rebin. they will
not be transfershic.
Demoninations will be 605. $50. $100, and $1,000. the - of
this series which one be presented in payment of Esseme taxes will be
limited to $3.200 is my one text year. The mates will provide & return
of 2.40 per cast a year. bet the return will not be expressed is terms
Regraded Uclassified
72
- I -
E = TIME 2 I in I I = 4 of
a month, 650 denomination at 10 casts a math, and - on for the other
demoninations. m following this method 10 to main simple w compute
the cost when the tampayer purchases the notes and staple both to the
texpsyer and the Collecter of Internal Reverne to compute the credit
that may be applied to the income Name due. There will be a schedule
of values printed on the fact of each note. (See attached schodule show-
ing the purchase price and the tax payment values for each month from
July 1941 to December 1942.) These notes will be redeemed for ash at
my time at the purchase price.
It is realized that this rate of return (2.40%) is considerably out
of line with two-year may rates, but 10 should be a real Indusement to
the texpayer, particularly the small case, to safe Me taxes surrently
as he carne his income rather than paying his taxes due on this year's
income out of next year's income. the rate is not too much out of line
with the rate paid in - cases on savings assounts and the rate yaid
en postal savings deposite. Anyway, 10 gives the temper a break and
be pays the MII is the end.
Denominations will be $100, $500. $1,000. $10,000, and $100,000.
Other domeninations our be made available if a need for them is show.
There 10 no limit ⑉ the - of these notes which our be presented
is payment of Issume taxes. The Secretary will, haverer, receive the
right to reject my and all unheartptions. It to necessary to keep this
Regraded Uclassified
73
- 3 .
control in order to provent their use for a purpose met Intenied. the
notes will provide a return of 3/5 of 1 per cost (0.60%) a year, that
here, as in Series 4 the rate persentage will not be expressed. 10
will be stated at 5 cente a month for a $100 donomination, 85 emte for
a $500 demonination, and 80 one There will be a acholule of values
printed on the face of each mote. (See attached eshedule showing the
purchase price and the tax payment values for eash month from July 1941
to December 1942.) These notes will be released for each after sixty
days and upon thirty days advance notice at the purchase price.
It might also be argund that this rate (0.60%) too is out of line
with two-year many. We probably would have to pay 3/8 of 1/2 per cont
if offered is the market, but these tax notes are net transferable and
therefore a elightly higher rate - be justified.
DUBICO
6-23-41
Regraded Uclassified
74
-
#
I
July 1941
25.
É
200.
1,000
August 1941
25.05
50.10
100.20
1,000
September 1941 ...
25.10
50.20
100.40
1,004
October 1941
25.15
50.30
100.60
1,006
November 1941
....
25.20
50.40
100.80
1,008
December 1941
25.25
50.50
101.00
1,010
January 1942
25.30
90.60
101.20
1,018
February 1942
25.35
50.70
101.40
1,014
March 1942
25.40
50.80
101.60
1,016
April 1942
25.45
50.90
101.80
1,025
May 1942
25.50
51.00
102.00
1,020
June 1942
25.55
51.10
102.20
1,022
July 1942
25.60
52.20
102.40
1,024
August 1942
25.65
51.30
102.60
1,026
September 1942
...
25.70
52.40
102.60
1,028
October 1942
25.75
52.50
103.00
1,030
November 1942
....
25.00
52.60
103.20
1,038
December 1942
....
25.05
52.70
103.40
1,034
Office of the United Secretary
June 23, 1941
75
-
I
6
asse
I
62,000
$20,000
I
July 1941
100.
&
1,000.
20,000.
100,000.
August 1941
100.05
500.29
1,000.90
20,005.
1
September 1941
....
100.10
500.50
1,001.00
10,010.
100,100.
October 1941
100.15
500.75
1,001.50
10,015.
140,190.
November 1941
.....
100.20
502.00
1,002.00
10,000.
100,200.
December 1941
100.25
502.25
1,002.50
10,025.
100,290.
Junesy 1942
100.30
502.50
1,003.00
10,030.
100,300.
February 1942
100.35
501.75
1,003.50
10,035.
100,350.
March 1942
100.40
502.00
1,004.00
10,040.
100,400.
April 1942
100.45
502.25
1,004.50
10,045.
100,490.
May 1948
100.50
502.50
1,005.00
10,050.
100,900.
tune 1942
100.55
502.75
1,005.50
20,055.
100,550.
July 1942
100.60
503.00
1,006.00
10,060.
100,600.
August 1942
100.65
503.89
1,006.50
10,065.
100,650.
September 1942
....
100.70
503.50
1,007.00
10,070.
100,700.
October 1948
100.75
503.75
1,007.50
10,075.
100,750.
November 1942
200.80
504.00
1,008.00
10,000.
100,800.
December 1948
100.85
504.25
1,005.50
10,085.
180,550.
Office of the Valor Secretary
June 23, 1941.
76
June 24, 1941
11:13 a.m.
HMJr:
Hello.
Grace
Tully:
Hello, Mr. Secretary.
HMJr:
How are you?
T:
All right, sir. How are
you.
HMJr:
I'm all right.
T:
That's good.
HMJr:
Was I able to crash the
many gates to reach you
yesterday.
T:
Yes. I said I was over at
the house at the time, so
Crim took it and brought it
right up. I was on the
second floor at that moment
and sent it right over the
office where the man came
but I got it and it was signed
and was mailed last night.
HMJr:
Oh, you're wonderful.
T:
So you can say it must be
there this morning.
HMJr:
Well, that's grand.
T:
Yes, sir.
HMJr:
Thank you 80 much.
T:
You are very welcome, Mr.
Secretary.
77
June 24, 1941
11:25 a.m.
Isadore
Lubin:
Ready out in St.
Paul and his suggestion is
that I go Bee Father Bob White,
who is the Dean of the Catholic
University Law School here.
HMJr:
Yes.
L:
Who comes from Boston, who is
an intimate friend of Walsh's
and who is also a friend of
Jim Landis' and likes Jim very
much.
HMJr:
Isn't it wonderful.
L:
And he said that he thinks that
that's the best way to handle
it and Father - I can tell Father
White about the Vatican end of it
which Ready says has been handled
from the Treasury standpoint to
their entire satisfaction and he
perhaps will be willing to go
down and talk to Walsh. He says
a personal visit from either
himself or from Bob White would
be the way to handle that, and
he told me if I had any trouble
at all about getting in touch with
Father White to call him back and
he'd call Walsh on the telephone
but he thought it'd be better to
do it this other way through a
personal visit.
HMJr:
Oh - mean have a
Li
Have Father Bab. White go down
and see Walsh.
78
- 2 -
HMJr:
I see. Well, now...
L:
He's all right. Father White's
a fine fellow.
HMJr:
What's his position?
L:
Well, he's the Dean of the
Catholic University Law School
here in town.
HMJr:
Oh, yeah.
L:
And he used to be Assistant
United States Attorney up in
Boston before he became a
priest.
HMJr:
Oh, I think it sounds perfect.
L:
I don't know why I didn't think
of it myself. (Laughs)
HMJr:
Well, if you did, you'd have
wings.
L:
Yeah. (Laughs)
HMJr:
Or you might....
L:
Or a Roman collar or something.
HMJr:
Or 8. priest.
L:
(Laughs) Well, I'll call him
and see if I can E° out and
see him.
HMJr:
Well, don't get a Roman collar,
stick with me.
L:
Okay (Laughe) Thank you.
HMJr:
All right.
79
June 24, 1941
11:38 a.m.
Lauchlin
Currie:
Hello, Mr. Secretary.
HMJr:
How are you?
C:
Fine.
HMJr:
If you are not busy around
3:15, would you like to sit
in on a discussion on Treasury
tax anticipation warrants?
C:
Yes. I'm afraid I don't know
much about them, but I'd like
to.
HMJr:
I tell you, I'll send you my
own memorandum over.
C:
Fine.
HMJr:
And if you don't mind bringing
it back, that 16 if you read
it before
C:
Yeah.
HMJr:
To give you the idea. The
idea is one of convenience and
one of drawing down on reserves.
C:
Yeah. Well, I'll be delighted
to
HMJr:
Eccles will be here.
C:
To learn something about it.
HMJr:
I say, Eccles will be here
and you might want to write
& memo on it for the President.
C:
Well, maybe you want me to (Laughs)
80
- 2 -
HMJr:
Well, I mean, anyway let' 8....
C:
Yeah.
HMJr:
I mean, I'd like him to know
about it through you.
C:
Okay. I'll check with you on
anything you'd like to have me
do on that.
HMJr:
All right.
C:
Fine. I'll be there.
HMJr:
Thank you.
C:
Thank you.
81
June 24, 1941
11:51 a.m.
HMJr:
Hello.
Operator:
Go shead.
HAJr:
Hello.
Sumner
Welles:
Good morning, Henry.
:
HMJr:
Good morning, Summer.
W:
Dean Acheson has brought
in to me a proposed letter
for me to send to you
approving of this general
license and also suggesting
a change in the first paragraph
of the suggested press release.
HMJr:
Yeah.
is
Which would read 8.8 follows:
"A general license was today
issued under the Freezing Control
Order with respect to transactions
of the U. S. S. R. and its
nationals, the State Department
requested and the Treasury and
Justice Departments approved
the issuance of the license
without requirement of the
formal assurances which have
been requested of European
neutral nations affected by
the Freezing Order."
HMJr:
Yeah.
W:
Is that agreeable to your
HMJr:
Yes.
W:
I wanted to ask in view of the
time element, Henry, in order
82
- 2 -
to save time, if it wouldn't
be well for the President to
be telephoned to just get his
approval of this.
HMJr:
Yes.
W:
Without waiting until it goes
through all the red tape
involved, which might be late
afternoon before we get around
to it.
HMJr:
Yeah.
W:
And I wanted to ask if you
didn't want to telephone him
or if you wanted me to telephone
him?
HMJr:
No, you telephone him.
W:
All right, Henry.
HMJr:
Now, I'm going to get a letter
from you, though.
W:
I've already signed it.
HMJr:
You have?
W:
Yeah.
HMJr:
Good. Will that be coming over?
W:
Well, it's on my desk now and
it will be sent over to you by
messenger immediately.
HMJr:
Good. No, you telephone the
President.
W:
All right, and
a.......
HMJr:
On the initiative of - after all
you're taking the initiative of
this thing.
83
- 3 -
W:
All right, and then this
suggested change in the press
release will be sent over to
you at the same time.
HMJr:
Well, how was it before? I
don't - don't see....
W:
The first paragraph read in
the original version, "The
Tressury Department has today
issued a general license under
the Freezing Control, etc.".
The change which I believe you
wanted indicates that we requested
and that you and Justice approved.
HMJr:
That's right.
W:
All right. I'll ask Dean to
send this over immediately to
you.
HMJr:
Thank you.
W:
Thank you, Henry.
84
June 24, 1941
12:00 noon.
HMJr:
(Is talking aside)
Operator:
Mr. Foley.
HMJr:
Ed.
Ed
Foley:
Yes, Mr. Secretary.
HMJr:
Welles Just called me.
Number one; the press release -
release reads that this is
being done at the direction of
the State Department.
F:
At the direction or request?
HMJr:
Request.
F:
At the request.
HMJr:
Number two; he's signed a
letter asking me to do it
and number three; he asked me
to call the President. I sald
I wouldn't, it was his job and
he's calling the President.
F:
Good. Well, that's fine.
HMJr:
I tell you, I can't quite
take both Giannini and Welles
in the same week.
F:
(Laughs) Well, I guess the
world is getting soft. (Laughs)
Well, that's fine.
HMJr:
Ae a matter of fact there isn't
a hell of a lot of difference
between them.
85
, - 2 -
F:
Well, we don't do anything
then until we hear further
that he's cleared it across
the street.
HMJr:
No.
F:
Okay and I'll - Father White
is in New York, he's at the
Park Lane Hotel up there and
I've got a call in for him.
HMJr:
Okay. But juet sit tight
until this stuff comes over.
F:
Fine. Thank you.
86
June 24, 1941
12:56 p.m.
HMJr:
Hello.
Operator:
Mr. Welles.
HMJr:
Hello.
Sumner
Welles:
Hello, Henry.
HMJr:
Yes, Sumner.
W:
I spoke with the President
and he's entirely in accord..
HMJr:
Good.
W:
And is quite willing for you
to have it issued immediately.
HMJr:
Good.
w:
All right.
HMJr:
Now, if you send - have we
got a copy of that release?
W:
Well, it left my office to
go over straight to you by
messenger about 50 minutes
ago.
HMJr:
Well, it's not here.
W:
(Laughs) Well, I'll check
up on it.
HMJr:
I'll check at my end too,
at least.
in
I'll check immediately and
find out what's happened,
it was to be sent by special
messenger straight to your office.
87
- 2 -
HMJr:
Well, I just asked Stephens'
and he said there was nothing
here.
W:
I'll check, Henry.
HMJr:
Thank you.
W:
And if it isn't already over
there, it will be.
HMJr:
Thank you.
W:
All right, thank you very much.
88
THE UNDER SECRETARY OF STATE
WASHINGTON
June 24, 1941.
My dear Mr. Secretary:
Mr. Acheson has told me of the recommendation
of the informal committee of representatives of the
Departments of State, Treasury, and Justice which
is considering matters arising under the freezing order
of June 14, 1941, that a general license should be 1s-
sued for transactions of the Union of Soviet Socialist
Republics and its nationals.
I approve of this recommendation. The press release
of June 14 provided for the facilitation of transactions
of certain countries and their nationals provided that
assurances were given that such transactions would not be
availed of to evade the purposes of the order. The
Ambassador of the Union of Soviet Socialist Republics
has informed us that last week he cabled his Government
recommending that such assurances be given. In view of
the state of war now existing between the Union of Soviet
Socialist Republics and Germany and Italy, this Department
does not regard further assurances as necessary, and
requests that the general license be issued.
Acting Sincerely Secretary yours, of State.
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. c.
89
FOR THE PRESS
June 24, 1941.
IMMEDIATE RELEASE
A general license was today issued under the freez-
ing control order with respect to transactions of the
Union of Soviet Socialist Republics and its nationals. The
State Department requested, and the Treasury and Justice
Departments approved, the issuance of the license without
requirement of the formal assurances which have been re-
quested of European neutral nations affected by the freezing
order.
At the time the freezing order was extended to all of
continental Europe, the President announced that it was
intended through the medium of general licenses to facili-
tate transactions of certain countries and their nationals
conditional upon the receipt of adequate assurance from the
Governments of such countries that the general licenses
would not be employed by such countries or their nationals
to evade the purposes of the freezing order. Recent events
concerning the Union of Soviet Socialist Republics have
made such assurances unnecessary.
0.15.1mg
Regraded Uclassified
90
<
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE,
Press Service
Tuesday, June 24, 1941.
No.26-9
A general license under the freezing control order was issued
today with respect to transactions of the Union of Soviet Socialist
Republics and its nationals. The State Department requested, and
the Treasury Department and the Department of Justice approved, the
issuance of the license without requirement of the formal assurances
which have been requested of European neutral nations affected by
the freezing order.
At the time the freezing order was extended to all of contin-
ental Europe, the President announced that it was intended through
the medium of general licenses to facilitate transactions of certain
countries and their nationals. Issuance of such licenses was to be
conditional unon the receipt of adequate assurance from the Govern-
ments of such countries that the general licenses would not be
employed by such countries or their nationals to evade the purposes
of the freezing order. Recent events concerning the Union of
Soviet Socialist Republics have made such assurances unnecessary.
-000-
91
TREASURY DEPARTMENT
Office of the Secretary
June 24, 1941.
GENERAL LICENSE NO. 51
UNDER EXECUTIVE ORDER NO. 8389, APRIL
10, 1940, AS AMENDED, AND REGULATIONS
ISSUED PURSUANT THERETO, RELATING TO
TRANSACTIONS IN FOREIGN EXCHANGE, ETC.
#
(1) A general license 1s hereby granted licensing
the Union of Soviet Socialist Republics as a generally
licensed country.
(2) As used in this general license:
Any foreign country licensed as a "generally
licensed country", and nationals thereof,
shall be regarded for all purposes as if
such foreign country were not a foreign
country designated in the Order.
E. H. FOLEY, JR.
Acting Secretary of the Treasury.
Part 131; - Sec. 5(b), 40 Stat. 415 and 966; Sec. 2, 48
Stat. 1; 54 Stat. 179; Ex. Order 8389, April 10, 1940,
BB amended by Ex. Order 8785, June 14, 1941; Regulations,
April 10, 1940, as amended June 14, 1941.
92
due A,
film
Rr. Customers
AS 2:15 this aftersoon $ returned a telephone sall from m. Collade of the
Department of state. Be told at that the Minister of n Salvador tot been is
tooch with his informally is regard to the desire of the Contral Task of n Salvator
to berrow $1,000,000 against gold is Nev York, the National City Task and been
interested is this prepecition and had submited a americation wherein 19 vas inst-
school that the National city would be willing to lend $1,000,000 for a paried of
- year against gold hold as collatoral is the Federal Reserve Bank of New Yesh.
A rate of 1/2% would be paid "es stand w basts. and 1-1/2% would be the rate of
interest $5 any may used.
Mr. Collade told - that the State Department vas anzione to see the meed of
n Salvader for dollars taken GA70 of. I teld Collade that Mr. Kasice had teld as
- veeks age that this question eight artee. AS that time Mr. and 1 hel
diseased the desirability of endonvering at this time so ostablish a procedent
transaction of the type which the National City Bank has under consideration. Ve
agreet, knower, that the present sight net be the sypertume time for creating
each a presedent, seasidering that w are actually tightening our gold regulations
and vatching carefully all 017 gold assessis. Mr. Collade nade the point that the
Department of State would feel that V0 chould not be at strict with our latin
incriess friends as with nations is other parte of the world is carrying est sale
transactions. I tald Mr. Collade that I vas sare the Federal Receive Bank would
be glad 16 lack late the question at to what 19 might de to accommiste the 1s1-
valarens, and I effered to wing the latest developments to the attention of
b. Insks. No. Gellado agreed be this.
46 3 o'cleat this afternoon I spoins with Mr. Knoke W telephone and - a
report of If conversation with Mr. Gollods. Mr. Incite said that he 414 ast vasi
- to feel that the prosibility of the Totoral learn Bask of Bev York taking ears
of the Gentral bat of Sex Salvader should be ruled onl. Be said that If I would
give his & memorandes is the premises is would be glat to have this studied the
mast day OF two, since 10 would likely involve a resommentation to the Directors
of the Federal Recerve that their rules be liberalised to peralt the Federal lossive
Just of Bov Terk to make leans of the type of that contemplated W the National City
leak. Consequently I - forwarding to m. Kaske this evening the original of the
attached
" telephone at 3:30 this afternoon I tald Mr. Gellate of w talk with
No. Insire and let his know that the use golar fermal.
MIR
Regraded Uclassified
93
Regraded Uclassified
Im 20, 254d
m.
Mr. Cockren
with reference to m. facto's - addressed under date of Mar si to
m. Cookram. onl is confirmation of their conversation w tolephone of this after-
- the fellowing nate Le submitted:
Mr. Collado of the Repartment of State told Mr. Cookran w telephone at 2:30
this afternoon that the Minister of x Salvader had system with Ma informally is
regard to the offer of the National city Test of New York be load $1,000,000 to
the Central lask of n Salvator for a parted of ⑉ year. with a charge of 1/85 66
a "stand w basis. and with Interest of 2-1/85 on any funds drun. this wesld
involve. however, the use of 6024 deposited w 11 Salvader with the Federal Receive
Bank of New York as cellsteral for the National City Sent loss.
Mr. sold Mr. Collade that Mr. Banks and be had disement the credit
problem of n Salvador ⑉ vocks age, and that m. Into had anticipated that M
approach such as the present ⑉ would be note otther to the State w Treasury
Department. It bed been their feeling at the time that this sight net be the
propitions month be ostablish . presedent transaction of this type, considering
that the tendency has been is reseal make to Highton gold regulations and super-
visa gold mevements.
Me. Cockerun told m. Gollode that he ves confident the Federal Becorve
of New York well be gird to staty the pessibility of greating - accommodation to
need the mode of n Solveder If approached as this askject. 80 use agreed, there-
fore, that Mr. Cookren should telephone Mr. and report the latest develop-
make in the premises. then Mr. Cockres telephoned m. Tache this afterness. the
latter said that a 65 the subject could be nood at the basis for study
as to whether the Directors sight lesk favorably upon & liberalization of their
credit terms to met the situation under reference.
40 3:30 this aftersess No. declares talked W telephone again with m. dellate
and told his that the Selvadores matter had been referred to Mr. Ensire and that
- werd sight be bed from the Federal Recerve Bank of New Tesk after the Mrosters'
meeting on Therelay.
In conslusion 10 should be stated that both the State and Provery Departmento
sincerely hope that the credit useds of 11 Selvader w be tabon an of w Sex York.
Jul
MM0:1ap-6/24/41
94
Regraded Uclassified
n. I 1941
Files
Mr. Cochres
AS 3130 this afterness Mr. Collade tolephened M from the Department of
State. Be said that the Saitian Legation had mought his advice as & letter addressed
under date of time 12 to the National Beak of Mairi by the National 0117 Deak of
lav York. the National City was requesting the Maition Bank to withdraw the important
fress deposit which the Haities Bank has bad with the National City for ceveral years.
This is a frame deposit carried on the books of the National City Bank, Paris, M a
deposit of the National City Bank of New York. The deposit represents funds to be
used in payment of service on the 1910 gold leas of Naiti, which had been floated is
Franco. This round-about way of making the deposit had resulted from litigation
12 the part of French holders of the bends is question who demanded payment on a
gold basis, and who night conseivably endocrer to attach a deposit in Trease nate
is the SAMP of the National Bank of Maitt. The present development is that the
National City desired that the deposit be reserved and the recommendation was note
" the National City, is the letter of June 12 signed W Assistant Ties President
Factsker, that 11 could be transferred to cas of the French basks, such as the
Credit Lyonais or the Societe General. Mr. Collade VAS unsertain as to what advice
should be given the Raitians. Be had telephoned as because of my femiliarity with
the assount in question while on daty at Paris. I teld his that I would glodly call
Mr. Robert Pearoo, who was fermerly is charge of the National City Beak at Paris,
int visa 1s nov is New Tork, and 665 if 1 could informally gain any information to
supplement that is the letter unter reference. 1 told Mr. Gollade that the Treasury
was already AVA76 of the efforts of the National City Boak so reduce to the misims
the deposite hold with their branches is Dureyo,
At 3145 I spoke with the National City Bank is Box York. Mr. Pearce vas
about on account of illness, 80 I talked with Mr. Bastsber. to sold 50 that the
letter se the National Bank of Maiti VAS only one of any addressed to clients of
the test with the view to having them withdrew their deposite. Is to n
question, be sald that he vas not familiar with the extent to which complete
liquidation of the bank is France night be was var. but he definitely know that of-
fort vas being made to return deposite to a statem. Be was headling this Maivian
account, is the abovene of Mr. Peareo, simply because he is the 400 is charge of the
bank's Entian transactions.
1 told Mr. Bastsker that I valid man that a considerable movel of
interest had been paid $6 the account is question. Be told me that interest vas
as factor visatover is the present desision of the National 0117 to cook the
olimination of this deposit. In never to Ky further question as to whether the
National City Bank of New York would continue as M internation and hold the Saltian
funds with a French bank is the - of the National City Bank of Bev York, be
replied is the angative, stating that the National City desired to be relieved of
95
- 2 -
all liability for this accesst. 90 or final question, he said that be deabted
whether any other American bank is Paris would be villing to take the account, but
that the National City Boak had 90 objection to our aggreaching the other American
banks having effices in Parto.
At 4:10 I telephened Mr. Gollado and - his the above report. Be
agreed with - that the Treasury could not properly spyreach another imprican bank
selititing its taking ever the deposit is question, since w have been taking the
position that a reduction of the business of those bealre is Bareye 10 highly
desirable. Rr. Collado said that be thought w should de nothing more is the
premises pending a report of the matter to Under Secretary Vellee.
pm
HMC: dm: 24.
Regraded Uclassified
96
June 24, 1941
3:15 p.m.
RE TAX ANTICIPATION NOTES
Present:
Mr. Currie
Mr. Haas
Mr. Murphy
Mr. Viner
Mr. White
Mr. Bell
Mr. Eccles
Mr. Ransom
Mr. McKee
Mr. Piser
H.M.Jr:
Dan, do you want to tell them about the
work you have been doing on these tax
anticipation notes?
Bell:
Well, we have been considering the matter
of issuing a tax anticipation certificate.
When we first started out, we thought we
would make it a certificate and sell it on
a discount basis, but the more we got into
it, the more we found that an obligation
of that type would cause difficulty in the
collectors' offices and the taxpayer would
probably have difficulty in figuring it
out and there would be all kinds of ad-
justments.
Then we also thought that a certificate
which could only be used for 8 year or less
would not quite fit the situation, because
a man might want to buy a security in January
to turn in for March of the following year,
97
- 2 -
which is a fifteen month security.
So we then went to a note. We can't sell
notes on a discount basis more than a year,
80 then we had to try the coupon feature.
The coupon didn't quite work because we didn't
want to give 8. flat rate on the obligations
because the taxpayer and the collector would
have to do the computing on each obligation.
So finally we arrived at this conclusion,
that we would issue two series of tax notes.
One would be used for the small taxpayer up
to, say, B. twelve hundred dollar limit. He
could not use more than twelve hundred dollars
of these notes in any one year in payment of
taxes.
The denominations would be twenty-five, fifty,
and one hundred dollars. At first we had a
thousand, but the Secretary thought that
psychologically that was wrong, 80 we elimi-
nated the thousand dollars. These notes
would run for two years and could be used
at any time by the taxpayer in payment of
income taxes due within that two year period.
He would get interest on his notes at a
rate of two forty a year, but we would not
express it in terms of percentage. We would
express it in terms of 30 many cents 8. month,
five cents a month for his twenty-five dollar
denomination, ten cents for his fifty, and
twenty cents for each one hundred dollar note.
If they are not used for income tax payment
purposes, he could turn them in at any time
and get his cash back without any interest
at all.
Now, that is the limit - that is the twelve
hundred dollar limit.
98
- 3 -
For the taxpayers who pay more than twelve
hundred dollars, we would provide another
series of notes with the denominations
running from a hundred dollars up to 6.
hundred thousand dollars, and they would
yield & return of six tenths of one percent,
again not expressing it in terms of per-
centage but five cents 8. month for each one
hundred dollar denomination.
There would be no limit on these notes that
could be presented in payment of income
taxes except the limit is the amount of
taxes that a man owes. The Secretary, however,
would reserve the right to reject any and all
subscriptions, because we do want to keep
control over certain situations such as the
communities where they have 8. racket of
avoiding local taxes. We didn't want any-
body to buy them for that purpose.
In order to get their cash back on these
notes, they would have to hold them for
sixty days and give us thirty days' notice.
They would not get any interest on them when
they turned them in in that fashion.
Ransom:
Could the same taxpayer buy both series?
Bell:
Yes. We didn't contemplate making any dis-
tinction. Every taxpayer could buy the
twelve hundred dollar limit, and if he had
more taxes than that, he could then jump
to the other series for the balance of the
taxes.
We contemplated that the value of the notes,
both from 8. purchase standpoint and redemption
standpoint, and "Turn them in for taxes,"
would be stated right on the face of the
note and that all denominations would have
the same value on 8. given date.
99
- 4 -
For instance, if a man bought his - any of
these notes at any time between now and
March 15 and turned them in on March 15,
all the collector would have to do is count
the types of denominations, turn to March 15,
and multiply that figure by the number of
certificates, and he has got the amount of
credit on the tax.
Ransom:
He pays the accrued interest up to the time
he buys it if they have run 8. month or two?
Boll:
That is right. He buys it in September for
twenty-five dollars, and he pays twenty-
five dollars and ten cents. He pays it in
March and gets twenty-five dollars and forty
cents for it. Any other way would make the
collector compute what is due on each note,
and he may have to compute anywhere from
five to twenty or twenty-five, and that would
be quite 8. job for him, especially during
8 time when he is snowed under anyhow. Tax
payment time.
So we had to make it 8.S simple as we possibly
could, both from the standpoint of the tax-
payer, simply figure it so that he could
easily compute what his credit would be and
from the standpoint of the collector in
computing immediately that the return is
in with the remittance as to what the credit
should be.
Now, we have had some questions raised as to
whether the two forty rate on the small note
and the six tenths rate on the long note
aren't too high in terms of the money market
rates. Certainly the two forty rate is much
above the money market.
McKee:
On the mechanics, Den, can any certificate
be turned in within two years, or will they
Regraded Uclassified
100
- 5 -
be so issued that they are just do on a
certain tax payment date.
Bell:
No, they could be turned in at any time in
payment of income taxes up to the maturity
of the note, and I see no objection to
turning them in after the maturity of the
note; but they would only get interest up
to the end of the period.
McKee:
Let's take your twelve hundred dollars. Say
a fellow had twelve hundred dollars worth
of taxes. Say he had twenty-four hundred
dollars worth of taxes and he would withhold
his certificates until the last payment.
What does he do in that case in order to
earn his interest? Would you call for
8. certain percentage of his certificates?
Bell:
No, we are going to have to put some sort
of a control in the collector's office, and
we don't know yet how that can be worked
but he could turn in any time during the
calendar year '42, twelve hundred dollars
of these notes in payment of his taxes.
It wouldn't make any difference whether he
turned them in on one tax payment date or
on four tax payment dates.
MoKee:
But the longer he kept them the more interest
he would get, so he would probably keep his
certificates until the last payment date and
pay cash otherwise.
Bell:
That is right, but Dr. Viner raised the
question this morning as to whether we
shouldn't make provisions for permitting
the man to turn in all of his notes, say
on March 15, and get credit for the interest
that he would have gotten had he held them
until the tax payment date, September - June,
September and December.
101
- 6 -
Ransom:
What advantage to the Treasury is in that?
Viner:
In this --
Bell:
That saves bookkeeping.
Viner:
The advantage to the Treasury is that it
saves the Treasury having to send - the
Treasury would only have to send one bill
for such persons instead of four. The tax-
payer would only have to make out his payment
once instead of four times. Naturally, they
are exactly on a par.
All I am suggesting is that these certificates
can be presented all on March 15 for the whole
year.
McKee:
That is right.
Viner:
The taxpayer saves nothing in interest, the
Treasury loses nothing.
McKee;
The Treasury already has the money.
Viner:
And it saves bookkeeping on both sides.
Bell:
That is right, it does. It is a pretty good
point.
White:
Since you are providing 8. method of saving
out of your current earnings to meet the
tax which is applicable during that year,
doesn't that remove most of the justification
for permitting an individual to spread his
payments over the ensuing year? Why shouldn't
it be required that he pay his comple te tax
in March, since you are making this mechanism
possible to save a lot of bookkeeping.
Viner:
That would be another proposal.
102
7
White:
It might obviate --
Viner:
You see, this way, what this does, too, it
enables you to compensate the person who
in any case would have made advance pay-
ments on an interest basis. You are putting
him on a parallel.
McKee:
Yes. Aren't you getting into the compli-
cation of changing the tax law?
White:
I thought it was a tax regulation rather
than & law.
H.M.Jr:
Well, you mustn't lose sight of the fact
that we are starting in the middle of the
year and asking the fellow on the fifteenth
of July to save for a year's taxes.
Viner:
I would also say that at a time when you
are increasing taxes sharply is not a time
to bunch required payments earlier. It
is two blows at the same time. That would
be a thing to introduce gradually, from
four payments say to three or two or then
to one at & time when the tax payments aren't
going up, but this year to hit them all at
once, dumping, as the newspapers say --
H.M.Jr:
You read the Chicago Tribune.
Viner:
They would say tripping. I say this is not
the right time to do that.
McKee:
I agree with you, but Doctor, I think there
have been & lot of sentiments for increasing
the number of payments from four to maybe
six every two months or something like that.
H.M.Jr:
Well, if you don't mind, I mean - if we
could get the benefit of your advice as
to principles and then these other refinements
103
- 8 -
could be worked out afterward with the
help of you gentlemen. I am sort of
anxious either to go forward on this along
these lines, if you people think the
principle is right, you see. I mean, if
the principles are right.
Ransom:
Let me ask one other question. Is there
popular demand for these obligations?
H.M.Jr:
When we said we were going to study this
thing, if you can gauge your demand by
the press, we got an awfully good press on
it, and they liked it on the Hill.
Bell:
We have had 8. number of letters also asking
if we were going to get out something like
this.
H.M.Jr:
There is real interest in it, but it does
go back to the original suggestion of
Eccles' to tap these - the funds of the
corporations. We think we can do this
pretty successfully this way.
Ecoles:
Yes. When you get ready, I would like to
suggest, if it is appropriate to do so
today, an alternative to part of the program,
the first series, that is, the series up to
twelve hundred dollars.
As you propose it here, I think it is all
right and I would have no alternative
suggestions to make. I think it is the
only practical way that I know of that can
meet the problem of the small taxpayer,
that is, the taxpayer up to say twelve
hundred dollars. It is an excellent way,
it seems to me, of inducing him to prepare
for the payment of his taxes when he is
getting his income rather than spend his
income. It enables the Government to get
104
- 9 -
the money now and avoids the lag between
the period of earning and the period of
collection.
When it gets to the larger amount, I would
like to suggest an alternative program
that I think would do all that this pro-
poses to do in the case of the large tax-
payer, and would possibly do more by way
of utilizing what otherwise are idle funds
and keep the banks from supplying a credit
to whatever extent existing idle funds were
used.
H.M.Jr:
What is that, Marriner?
Eccles:
I was just going to say, I was just going
to suggest - would you like me to do that?
H.M.Jr:
Sure.
Eccles:
Well, I didn't know that we were going to
have this conference today, 80 yesterday,
knowing that this subject had been under
consideration and was still under consider-
ation, I discussed this matter yesterday
with the Board, Mr. Piser and Dr. Goldenweiser,
and prepared a brief memorandum here which is
just a little bit more than a page.
H.M.Jr:
It scared me.
Eccles:
I couldn't quite get it on one page, but
I practically did.
H.M.Jr:
Can't you get along with B. piece of paper?
(Laughter)
Eccles:
Possibly we should have taken a perfectly
blank sheet and got it on one page.
H.M.Jr:
When this Administration is over, the Roose-
velt Administration is going to be noted as
105
- 10 -
8. one page Administration.
Eccles:
Well, it is a good thing to teach us to say
what we have to say in & short space, short
period.
Well, the Board in considering this matter,
I think, pretty well agreed to this sort of
a proposal. I won't say anything about the
Series A except that there was a question as
to whether or not twelve hundred dollars was
enough. There was some question as to whether
we should go up to fifteen, maybe eighteen
hundred dollars. That may be debatable.
Nobody had any very strong feeling on it,
but it did seem that it was possibly advisable
to do that. We also thought of some of the
mechanics.
Since we discussed it yesterday, we find that
you have worked out that problem in a very
excellent way here 30 as to avoid the compli-
cations that appeared at first and that was
having the Reserve Banks pay checks for the
interest, which made it rather complicated,
and that has been worked out, 80 I won't read
the first paragraph.
Bell:
That has been worked out since our con-
ference with the Federal Reserve people.
Eccles:
That is right, and yesterday when we dis-
cussed this, we hadn't had advice as to
the matter having been worked out.
Now, on the other one --
Piser:
Mr. Chairman, in the first paragraph there
is also the suggestion for a receipt for
payments.
106
- 11 -
Focles:
Oh, yes.
There is this suggestion that John McKee
made that people in paying taxes issue a
check and they have the check, usually, as
a receipt for their taxes. It was suggested
in this case that there might be B. stub form
attached to these notes that would be stamped
by the Bureau and returned to the tax payer
which would be a receipt or an acknowledgment
to the tax payer that he had paid so much
in these notes in payment of his taxes.
That is a suggestion that John made. I
think it might be worth considering.
Now, regarding the Series B notes, it seems
to me that the proposal made sometime ago
for issuing the non-negotiable notes, having
a two year maturity and paying semi-annual
coupons at the suggested annual rates -
now, these rates could be any suggested rate -
of a quarter for six months, a half for the
second six, three-quarters for the third, and
one percent for the forth would be preferable
to the issuance of the B Series, because it
would meet not only the immediate problem of
tax anticipation, but also the larger
problem of tapping some of the larger bal-
ances that would go into short term securi-
ties because they want liquidity, and it will
not go into the long term market securities.
The notes that have been suggested would be
sold to investors other than banks. Banks
would be prohibited from taking them. They
would be registered, and they would be is-
sued in denominations of a thousand and over,
nothing less than a thousand, because this
would take care of the smaller ones, you see,
so it would - you could confine it to a
thousand dollars or over. It would be re-
deemable on thirty days' notice on any interest
payment date or you could say on thirty days'
Regraded Uclassified
107
- 12 -
notice any time, but - or, that is my sug-
gestion, that thirty days' notice, but on
any interest - not less than thirty days'
notice, redeemable on any interest payment
date, and that would reduce the problem of
interest figuring because the coupon would
take care of it.
A provision might also be made for extending
the maturity beyond two years, if that seemed
to be advisable. There is no use, it seems
to me, having both the notes that were pro-
posed and the Series B notes, since this
would only add to the already large number
of types of issues. The Series B notes are
not necessary from the point of view of
enabling the larger tax payers to budget their
tax requirements. This is done in any case
by most of the larger tax payers who would
purchase the Series B notes. These larger
companies have substantial amounts of cash
available, a great many of them, not only
as reserves for tax payments, but for other
purposes as well. Idle money, most of it.
The plan which I suggest, therefore, would
tap not only the tax reserves at the time
they were set up, at the time earnings were
made, but large additional sums of money.
This proposal would be better than the is-
suance of additional bills or short-term
market notes, because the bills and the
short-term market notes would go largely to
the banks, while the special issue would not
go to the banks.
Bell:
You would prohibit that?
Eccles:
You would prohibit it, yes. An advantage of
the proposed securities over Series B notes
is that the interest that the Treasury would
pay would be smaller. For instance, you
proposed six tenths. This would be a quarter,
108
- 13 -
a half, three-quarters, and one. Only in
case of carrying the full two-year period
would they then average six - I think it is
sixty-two and a half is what it averages.
Some of them would only be carried six
months, some of them, maybe, a year, some
of them a year and a half, but only would
they equal or slightly exceed the Treasury's
charge of six tenths here, which is a rather
high rate to pay if they are only held for six
months or for a year, so it would have that
advantage.
Another advantage is that the holders, further-
more, might well find that they had sufficient
cash when income taxes are due to pay the
taxes out of balances rather than use the
notes. They, therefore, would continue to
keep the money invested in the short Treasury
securities which would be - reduce the amount
of market financing that might be required
in the long-term securities. In this way
there would be a constant increase in sub-
stantial holdings of the non-negotiable
Government securities and a corresponding
decrease in the need for the open market
issues which the banks always take. It would
tend to shut off, in other words, the infla-
tionary development through the bank pur-
chases.
Now, I would just like to - that is the memo-
randum and that is the picture.
Viner:
What does that mean, is that September 15,
June 15, March 15? The interest dates are
these quarterly dates?
Eccles:
No, the interest dates are semi-annual dates.
McKee:
Of any particular issue that he is speaking of,
109
- 14 -
it would be dated some date due in six months
or a year or eighteen months or twenty-four
months.
Viner:
You would have - I see. You would have to
make these interest dates correspond to the
tax payment dates.
Eccles:
Well, you could do that.
Viner:
And if you need A cashing in process, in fact
you would need a day or two leeway.
Eccles:
Well, you would have to give thirty days'
notice.
Viner:
I didn't mean that. Supposing I have a tax
payment due on March 15. I also have one of
your notes due on March 15. I would have to
arrange it 80 as to get the cash--
Haas:
They could make them acceptable for taxes.
Viner:
Will you make them acceptable--
Eccles:
The notes themselves - you could do that, but
my thought was, let them pay the cash. You
are dealing with fairly substantial tax payers
when you get into this class.
Viner:
There is this March, and the time that is
necessary in order to get in before the dead
line, and you would be crowding them if the
thing were only to mature on March 15 and
the payment has to be in before midnight on
March 15, you are putting an unnecessary
jam in there.
White:
I imagine it could be easily arranged to
accept the maturing notes the same as a
check.
110
- 15 -
Eccles:
There could be no objection to that.
Viner:
You are throwing everybody in on that date.
Eccles:
The point is B. great many of these corpora-
tions that have 8. substantial amount of taxes
to pay would merely invest their funds in
these, and they would find maybe they have
money to pay the taxes, and they would pay
the tax by check and keep these running. To
the extent they needed them, they have got
the securities they could turn in or cash in
at any interest day in anticipation.
White:
Then what interest rate would they yield?
McKee:
Fixed rate.
White:
The maximum of one percent.
Eccles:
The idea would be & quarter, a half, three
quarters, and one. That would make it two
years. At the end of that time you could
have it mature, and they could buy some
more.
White:
Oh, they would begin over again.
Eccles:
You could either do that or you could keep
them running if they once had them at a
five year rate.
Viner:
Then what you are doing is, even a one-day
note at one percent, because after that--
McKee:
Sure.
Viner:
They are payable on thirty days notice. You
are giving them B. thirty-day note.
McKee:
About a two-year contract, you are right.
111
- 16 -
Ecoles:
Would give them a two-year note, and they
would mature. Then they would be buying them
currently. They would automatically just
run off and get the money, that is right.
White:
I think that has much to commend in it.
Eccles:
You can get a lot of money both for taxes
that would meet the tax problem of 8 great
many institutions and individuals who are the
larger payers who had money that was idle,
and they would say, "Well, I might just as
well buy these, and then if I don't have
money when my taxes come due, I have got
something I can cash in."
Ransom:
But there is an advantage in relating it
to your tax situation which you could easily
do by dating them and maturing them so that
they would fall on tax payment dates so
the purchaser could use them if he chose
or cash them in and use the cash or carry
them on if he preferred to do it that way.
White:
Are those cheaper than what the Government
is borrowing for now, that rate?
Murphy:
Yes.
Haas:
They are about equal, about the same.
Bell:
About the same.
Haas:
Including the rights.
Viner:
Dan, isn't it true that a large part of the
tax payment starts flowing in,say, as early
as March 5 or 10?
Bell:
About the tenth.
Viner:
You see, that is what I have in mind. You
Regraded Uclassified
112
- 17 -
don't want to force everything into the
tax collector on March 15. He is very
anxious to have a few days leeway. His
pressure is very great. And, therefore,
if you make these acceptable in lieu of
cash on these dates, I think you could save
8 lot of work.
Eccles:
You could do that.
McKee:
May I ask a question, Mr. Secretary, for
the benefit of all of us, and I think maybe
Dan might be able to throw some light on it.
The tax anticipation certificates that
followed the World War that were sold for
tax purposes and due on tax paying dates,
was the experience of the Department - is
there any evidence that much of that was
used as actual payment for taxes or weren't
they cashed and paid in by check, especially
with the large holders?
Bell:
Yes, they were cashed in just like any other
public debt obligation. Some of them were
turned in, but those certificates were sold
to raise money. They weren't sold to facil-
itate tax payment at all.
MoKee:
I understand that, but in any--
Bell:
And very few of them were used.
McKee:
They could have been. You were privileged
to do so, weren't you?
Bell:
That is right, yes. But most of them turned
them in for cash and then used the cash to
pay it. And they were largely bought by
banks and otherinstitutions, financial insti-
tutions.
Eccles:
This would tend to reduce the need of issuing
Regraded Uclassified
113
- 18 -
notes or bills and keep the banks - reduce
your market issues and would tend to use idle
funds that desire a certain amount of liquid-
ity and won't go into the long securities,
and there are a substantial amount of those
funds that I think it is a sound fiscal
policy to utilize rather than the creation
of additional funds through bank borrowing,
and this seems to me to get at both problems
of providing the liquidity for tax purposes
and also the use of - letting the Treasury
use funds that corporations and individuals
have that are now idle and that they can't
put into long securities for various - a
great many reasons that they may have.
H.M.Jr:
Well, could we do it this way, Marriner,
because I didn't know that you were going to
make this suggestion, you see. Could Dan
take it and talk it over with our crowd and
then have another meeting with you, maybe,
tomorrow?
Eccles:
It would be fine.
H.M.Jr:
So maybe by Thursday you could tell me which
one of these you think is the best.
Bell:
Yes.
H.M.Jr:
Could you do that, Dan?
Bell:
Yes. We considered some this proposal of
Mr. Eccles. You remember he made this once
before at 8. financing meeting.
Eccles:
That wasn't in connection with this present
tax thing.
Bell:
No, it was not, it was a regular financing
matter.
114
- 19 -
H.M.Jr:
Can you meet with them tomorrow?
Bell:
Be glad to.
H.M.Jr:
And give me an answer which you think is the
best?
Bell:
Yes. We have got a problem to work out in
making this as simple as possible.
Ransom:
For the afternoon, tomorrow afternoon? Be-
cause we have an engagement in the morning.
H.M.Jr:
Is that all right?
Bell:
That is all right.
Eccles:
I have got to go up on the Hill again.
H.M.Jr:
You will enjoy it.
Bell:
You should have gone up on Saturday when we
all wanted to go away for the week-end.
Ransom:
They tell me you did a fine job, Dan.
Bell:
In two hours and a quarter, I got by.
H.M.Jr:
You didn't tell me.
Bell:
I told you I was going up. Oh, we had 8. nice
time, a lot of nice questions.
Ransom:
They were very complimentary to you.
Bell:
Oh, really? I am surprised.
Viner:
I think this two point four rate is pretty
high myself. I would like to see it a
four-cent rate instead of a five-cent, so
that it will be just as low as Postal Savings.
115
- 20 -
Bell:
That would make it one ninety-two.
White:
Well, there is supposed to be some added in-
ducement here for them to take advantage
of this method in view of the fact that the
rates are going to be substantially increased
this year and in view of the fact that there
may be a lot of people paying who hitherto
have not been, so that there is an element
of added inducement--
Viner:
But I don't want to throw out the Postal
Savings thing by giving them another security
that is more advantageous to them than Postal
Savings. I would protect the Postal Savings
System.
McKee:
Don't you think you can pay a little premium
on this, Doctor, because they can be used for
only one purpose.
Viner:
Or it can be cashed in.
Haas:
No interest?
Viner:
Yes, I know.
McKee:
The only way you are going to get revenue out
of this is for a single purpose security.
Viner:
On the other hand, it has certain conveniences
as compared to Postal Savings.
Eccles:
But it goes to just the comparatively little
people in this thing.
Viner:
These people aren't as small as the Postal
Savings people, and yet you are giving them B.
better rate.
Eccles:
Except the Postal Savings, you don't limit
116
- 21 -
them to the twelve hundred dollars.
Haas:
It is really not an investment, Jake. It is
an interim investment.
Ransom:
Anybody can buy it. The fellow who would be
buying the Series B could still buy the Series
A.
Eccles:
The Postal Savings can be cashed in at any
time. It is practically a demand deposit
on which they can get two percent, whereas
this is a two-year - or is a security that
can only be used for a certain purpose; and,
if it is cashed in prior to that time, they
get nothing, so it has disadvantages--
Viner:
Yes, it has some disadvantages. In some
ways it is more convenient, though. These
are higher income people than the ones that
get the two percent.
White:
Is the income from this taxable?
Bell:
Yes, sir.
Eceles:
It would have to be.
H.M.Jr:
Well, would you fix the time?
Eccles:
Well, any time tomorrow afternoon or the next
afternoon.
H.M.Jr:
I would like, if you don't--
Eccles:
It would be satisfactory to me, Dan, if you
fix it. Is it satisfactory to you, Ronald, and
John?
Ransom:
Any time tomorrow afternoon.
Bell:
Three o'clock is all right with me.
Regraded Uclassified
117
- 22 -
McKee:
I was just wondering, if, instead of taking
the Secretary's time, whether we could retire
now with Dan and maybe work out some of these
details?
Bell:
I think we would like to discuss it and see
now it fits into the mechanics of the thing.
Just a straight obligation is all right.
Eccles:
We might get together for a little while be-
fore we meet with the Secretary and save his
time.
H.M.Jr:
I won't be here tomorrow. I wanted you to
have a meeting while I was gone.
Eccles:
O.K.
H.M.Jr:
I thought you might have a meeting while I
W&S gone.
Ransom:
We can get together, all of us.
Eccles:
You don't expect to announce this this week,
necessarily?
H.M.Jr:
I had hoped to do it Thursday, but I ought
to do it Monday by the latest.
Eccles:
You will be back by Monday?
H.M.Jr:
Oh, I em going down and back in the same
day. I am flying.
118
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Tuesday, June 24, 1941.
Press Service
No. 26-7
6/23/41
The Secretary of the Treasury announced last evening that the
tenders for $100,000,000, or thereabouts, of 91-day Treasury bills,
to be deted June 25 and to mature September 24, 1941, which were
offered on June 20, were opened at the Federal Reserve Banks on
June 23.
The details of this issue are as follows:
Total applied for - $267,792,000
Total accepted - 100,068,000
Renge of accepted bids:
High - 100.
Low - 99.978 Eqi ivalent rate appr oximately 0.087 percent
Average Prkce - 99.983 "
If
11
0.066
"
(88 percent of the amount bid for at the low price was accepted)
-000⑉
TREASURY DEPARTMENT
119
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Tuesday, June 24, 1941,
Press Service
No. 26-6
6/23/41
The Secretary of the Treasury, on behalf of the Reconstruction
Finance Corporation, today announced the plan for refinancing the
outstanding notes of Series N of the Corporation maturing July 20,
1941, and raising additional funds for the Corporation, through
offering for subscription, at par and accrued interest, through the
Federal Reserve Banks, notes of the Corporation, designated 1 percent
notes of Series W, in the amount of $500,000,000, or thereabouts,
and At the same time offering to purchase on July 3, 1941, at par
and accrued interest, the outstanding notes of Series N to the extent
the holders of such maturing notes subscribe for the new notes.
The notes of Series W now offered will be dated July 3, 1941,
and will bear interest from that date at the rate of 1 percent per
annum payable on a semiannual basie on April 15 and October 15 in
each year. They will mature on April 15, 1944, and will not be sub-
Ject to call for redemption prior to maturity. They will be issued
only in bearer form with coupons attached, in denominations of $1,000
$5,000, $10,000 and $100,000.
The notes will be fully and unconditionally guaranteed both as
to interest and principal by the United States. Pursuant to the
provisions of the Public Debt Act of 1941, interest upon the notes
now offered shall not have any exemption, as such, under Federal Tax
Acts now or hereafter enacted. Otherwise the notes will be accorded
the GAme exemptions from taxation as are accorded other issues of
Reconstruction Finance Corporation notes now outstanding. These
provisions are specifically set forth in the official circular
released today.
120
- 2 -
Subscriptions will be received at the Federal Reserve Banks and
Branches, and at the Treasury Department, Washington; they will not
be received at the Reconstruction Finance Corporation, Banking
institutions generally may submit subscriptions for account of
customers, but only the Federal Reserve Banks and the Treasury De-
partment. are authorized to act as official agencies. Others than
banking institutions will not be permitted to enter subscriptions
except for their own account. Subscriptions from holders of
Series N notes tendered for purchase should be accompanied by such
notes to a par amount equal to the par amount of notes of Series W
subscribed for. Other subscriptions from banks and trust companies
for their own account will be received without deposit but will be
restricted in each case to an amount not exceeding one-half of the
combined capital and surplus of the subscribing bank or trust
company. Other subscriptions from all others must be accompanied by
payment of 10 percent of the amount of notes applied for.
The right is reserved to close the books as to any or all sub-
scriptions at any time without notice. Subject to the reservations
set forth in the official circular, subscriptions from holders of
Series N notes who tender them for purchase under this offering will
be allotted in full. Payment for any notes allotted must be made or
completed on or before July 3, 1941, or on later allotment. Series
N notes are outstanding in the approximate amount of $211,000,000.
The text of the official circular follows:
121
RECONSTRUCTION FINANCE CORPORATION
1 PERCENT NOTES OF SERIES W, DUE APRIL 15, 1944
Dated and bearing interest from July 3, 1941
FULLY AND UNCONDITIONALLY GUARANTEED BOTH AS TO INTEREST AND PRINCIPAL
BY THE UNITED STATES, WHICH GUARANTY IS EXPRESSED ON THE FACE
OF EACH NOTE
1941
TREASURY D EPARTMENT,
Department Circular No. 664
Office of the Secretary,
Washington, June 24, 1941.
Fiscal Service
Bureau of the Public Debt
I. OFFERING OF NOTES AND INVITATION FOR TENDERS
1. The Secretary of the Treasury, on behalf of the Reconstructic
Finance Corporation, invites subscriptions, at par and accrued interest
from the people of the United States for notes of the Reconstruction
Finance Corporation, designated 1 percent notes of Series W. The
amount of the offering is $500,000,000, or theresbouts.
2, The Secretary of the Treasury, on behalf of the Resonstruc-
tion Finance Corporation, offers to purchase on July 3, 1941, at par
end accrued interest, the outstanding notes of the Corporation
designeted Series H, meturing July 20, 1941, to the extent to which
the holders thereof subscribe to the issue of Series W notes here-
under. Tenders of Series N notes for that purpose are invited.
II. DESCRIPTION OF NOTES
1. The notes will be dated July 3, 1941, and will bear interest
from that dato at the rate of 1 percent per annum, payable on B semi-
annual basis on October 15, 1941, and thereafter on April 15 and
October 15 in each year until the principsl becomes payable. They will
mature April 15, 1944, md will not be subject to call for redemption
prior to maturity.
Regraded Uclassified
122
- 2 -
2. The notes will be issued under authority of an act of
Congross (known 08 "Reconstruction Finance Corporation Act") approved
fanuary 22, 1932, as amended and supplemented, The income derived
from the notes shall be subject to all Federal taxes, now or hereafter
Emposed. The notes shall be subject to estate, inheritance, gift or
other excise taxes, whether Federal or State, but shall be exempt
from all texation now or herenfter imposed on the principal or
interest thereof by any Territory, dependency, or possession of the
United States, or by any State, county, municipality, or local taxing
authority. These notes sholl be lowful investments, and may be
accepted as security, for nll fiduciary, trust, and public funds the
investment or deposit of which sholl be under the authority or
control of the United States or any officer or officers thereof.
3. The authorizing net provides that in the event the Recon-
struction Finance Corporation shall be unrble to pay upon demond, when
due, the principal of or interest on notes issued by it, the Secretary
of the Trensury shall pry the amount thereof, which is authorized to
be !pproprinted, out of any moneys in the Treasury not otherwise
appropriated, and theroupon to the extent of the mounts so paid the
Secretary of the Treasury shall succeed to nll the rights of the
holders of such notos.
4. Bearer notes with interest coupons attached will be issued
in denominations of $1,000, $5,000, $10,000 and $100,000. The notes
will not be issued in registered form.
123
3 -
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve Bonks
and Branches and at the Treasury Department, Washington. Subscribers
must agree not to sell or otherwise di spose of their subscriptions, or
the securities which may be allotted thereon, prior to the closing of
the subscription books. Banking institutions generally may submit
subscriptions for account of customers, but only the Federal Reserve
Banks and the Treasury Department are authorized to act as official
egencies. Others than banking institutions will not be permitted to
enter subscriptions except for their own account. Subscriptions from
holders of Series N notes tendered for purchase should be accompanied
by such notos to & par smount equal to the par mount of notes of
Series W subscribed for, Other subscriptions from banks md trust
compenies for their own account will be received without deposit
but will be restricted in each case to on amount not exceeding one-
half of the combined capital and surplus of the subscribing bank or
trust company. Other subscriptions from pll others must be accompanied
by payment of 10 percent of the amount of notes applied for.
2, The Secretary of the Treasury reserves the right to reject
any subscription in whole or in port, to allot less than the amount
of notes applied for, end to close the books as to any or all sub-
scriptions et any time without notice; and any action he may trke in
these respects shall be final. Subject to these reservations, sub-
scriptions from holders of Series N notes who tendor them for puchase
herounder will be allotted in full. Allotment noticos will be sent
out promptly upon allotment, and the basis of the allotment will be
Dublicly ennounced.
- 4 -
124
TV, PAYMENT
1. Payment at par md accrued interest, if any, for notes allot-
ted hereunder must be made or completed on or before July 3, 1941, or
on Inter allotment. In every case where payment is not so completed,
the payment with application up to 10 percent of the amount of notes
applied for sholl, upon decls ration made by the Secretary of the
Truesury in his discrotion, be forfeited to the United States. Notes of
Series N tendered for purchase must have coupons deted July 20, 1941,
attached, and payment will be made at par and occrued interest to
July 3, 1941. The principal proceeds of the Series N notes will be
applied in pryment of the Series W notes, and accrued interest from
January 20, 1941 to July 3, 1941 on Series N notes ($3.96409 per
$1,000) will be paid following acceptance of the notes.
V. GENERAL PROVISIONS
1. As fiscal agents of the United States, Federal Reserve Banks
are authorized end requested to receive subscriptions, to moke cllot-
ments on the basis end up to the Amounts indicated by the Secretary
of the Treasury to the Federal Reserve Brnks of the respective
districts, to issue allotment notices, to receive payment for notes
sllotted, to make delivery of notes on full-paid subscriptions
Vilotted, md they may issue interim receipts pending delivery of the
definitivo notes.
2. The Secretary of the Treasury may at my timo, or from time to
time, prescribe supplemental or amendatory rules and regulations
governing the offering, which will be communicated promptly to the
Federal Reserve Banks.
HENRY MORGENTHAU, JR.,
Secretary of the Treasury.
Regraded Uclassified
125
June 24, 1941
TO:
Harold Graves
FROM: Secretary Morgenthau
1. Can you get me a copy of the button
which this bank started to issue in New York for
people who had bought a Savings Bond? I would
like to see it.
2. Now that Ford has signed up with the
C.I.O., how about getting him to put in a payroll
deduction plan for our Savings Bonds?
Please give me a report on both of these
Thursday morning.
Regraded Uclassified
126
MEMORANDUM
June 24, 1941.
TO:
Secretary Morgenthau
FROM:
Mr. Sullivan
Intermittently for the last month I have been working
with Lt. Colonel Greenbaum and Mr. Kyle of the War Department,
informally advising them in their attempts to modify certain
sections of the amortisation law 80 that it can be more easily
handled from the administrative point of view. I have made it
clear to them the Treasury is not to be involved in this question
in any manner which might result in our being obliged to join with
any other department in issuing the necessary certificates.
Under present law 4. contractor is entitled to amortiza-
tion of 20 percent a year, provided he obtains a certificate of
necessity and - when his tax returns are examined - can success-
fully refute any charge by the Internal Revenue Bureau that the
contractor was directly or indirectly reimbursed by the government
for any part of the cost of construction of the new facilities.
Under the existing law he can also request either (1) a certificate
of adequate protection of the public interest or (2) a certificate
of non-reimbursement. If he secures either of these two certificates
he is then automatically entitled to amortization and the Internal
Revenue Bureau is foreclosed from charging that the contractor was
directly or indirectly reimbursed for the cost of these facilities.
The principal changes in the law proposed by the War and
Navy Departments and agreed to by the Defense Commission are as
follows:
1. The elimination of the Defense Commission as a
certifying agency.
2. An extension of the filing period for certificates
of necessity from 60 days after the completion of construction
of new facilities to 6 months after said completion.
Regraded Uclassified
127
- 2 -
3. The elimination of the requirement of certificates
of non-reimbursement when the contract involved is for an amount
less than $2000.
4. Under the present law the certifying agency is re-
quired to investigate every contract the contractor has with all
government agencies before it is authorized to issue a certificate
of non-reimbursement. It 1s now proposed to limit this investiga-
tion to the War and Navy Departments, the Maritime Commission, and
such other departments and agencies as the President may designate.
5. The language of the present statute relating to
certificates of non-reimbursement is so drafted that the mental
attitude of both the contractor and the governmental contracting
officer as to whether they intended direct or indirect reimburse-
ment is a factor in determining whether such a certificate should
be issued. This is a subjective approach which is very difficult
of application. It is proposed to change this language to eliminate
the mental attitude of contractor.
We have been requested by the Bureau of the Budget to
make to them a report on these proposed changes. If you approve,
I propose to notify the Budget that this is a matter with which the
Treasury Department is not concerned and that we have no objections
to the passage of the amendments.
TVS
Regraded Uclassified
128
June 24, 1941
MEMORANDUM FOR MR. CALLAHAN:
The invitiations to the opening of the Treasury
hour, Texaco program, July 2nd, should be sent to the
following:
100 tickets to:
Lieut. General Hugh A. Drum,
Commanding General, First Army,
Governor's Island,
New York, N.Y.
100 tickets to:
Rear Admiral Adolphus Andrews,
Commandant, Third Naval District,
90 Church Street,
New York, N. Y.
N. M. Chauncey
129
June 24, 1941
PERSONAL
My dear General Drumt
I take pleasure in having sent to you 100
invitations for the opening of the Treasury hour.
July 2nd, at 9 p.m., at the studio of the Columbia
Broadcasting Station. They will be delivered to
you on Friday.
This hour has been given by the Texas Oil
Company to the Treasury in the interest of promot-
ing the sale of Defense Savings Bonds. The per-
formances will run for 13 weeks and if the users
of the tickets enjoy the first performance, I will
be very glad to furnish you with additional tickets
for the succeeding 12 performances.
with kind regards, I remain
Yours sincerely,
(Signed) 1. Morgenthau, 32.
Lieut. General Hugh A. Drum,
Commanding General, First Army,
Governor's Island,
New York, N. Y.
130
June 24, 1941
PERSONAL
My dear General Drum:
I take pleasure in having sent to you 100
invitations for the opening of the Treasury hour,
July 2nd, at 9 p.m., at the studio of the Columbia
Broadcasting Station. They will be delivered to
you on Friday.
This hour has been given by the Texas 011
Company to the Treasury in the interest of promot-
ing the sale of Defense Savings Bonds. The per-
formances will run for 13 weeks and if the users
of the tickets enjoy the first performance, I will
be very glad to furnish you with additional tickets
for the succeeding 12 performances.
with kind regards, I remain
Yours sincerely,
(Signed) 1. Horgenthon, to:
Lieut. General Hugh A. Drum,
Commanding General, First Army,
Governor's Island,
New York, N. Y.
131
June 24, 1941
PERSONAL
My dear General Drum:
I take pleasure in having sent to you 100
invitations for the opening of the Treasury hour,
July 2nd, at 9 p.m., at the studio of the Columbia
Broadcasting Station. They will be delivered to
you on Friday.
This hour has been given by the Texas Oil
Company to the Treasury in the interest of promot-
ing the sale of Defense Savings Bonds. The per-
formances will run for 13 weeks and if the users
of the tickets enjoy the first performance, I will
be very glad to furnish you with additional tickets
for the succeeding 12 performances.
With kind regards, I remain
Yours sincerely,
(83gmed) B. on
Lieut. General Hugh A. Drum,
Commanding General, First Army,
Governor's Island,
New York, N. Y.
Copy to mrs m
" Robert
Regraded Uclassified
132
The Secretary
Colonel Lindroth, aide
to Dennal hhum, assured
me the army in the hew
york area would be
most happy to make
use the the 100 tickets.
He further extended the
Goveral's thanks.
Eadress:
LIEUT. GENERAL HUGH A. DRUM
COMMANDING GENERAL,
FIRST ARMY,
GOVERNOR'S ISLAND
NEW YORK, N.Y.
(PERSONAL)
133
June 24, 1941
PERSONAL
My dear Admiral Andrews:
I take pleasure in having sent to you 100
invitations for the opening of the Treasury hour
July 2nd, at 9 p.m., at the studio of the Columbia
Broadcasting Station. They will be delivered to
you on Friday. I would appreciate it if 25 of
them could be allocated to the "PRAIRIE STATE".
This hour has been given by the Texas Oil
Company to the Treasury in the interest of promot-
ing the sale of Defense Savings Bonds. The per-
formances will run for 18 weeks and if the users
of the tickets enjoy the first performance, I will
be very glad to furnish you with additional tickets
for the succeeding 12 performances.
With kind regards, I remain,
Yours sincerely,
(Signed) 1. Bergesthen, and
Rear Admiral Adolphus Andrews,
Commandant, Third Naval District,
90 Church Street,
New York, N. Y.
Regraded Uclassified
134
June 24, 1941
PERSONAL
My dear Admiral Andrews:
I take pleasure in having sent to you 100
invitations for the opening of the Treasury hour
July 2nd, at 9 p.m., at the studio of the Columbia
Broadcasting Station. They will be delivered to
you on Friday. I would appreciate it if 25 of
them could be allocated to the "PRAIRIE STATE".
This hour has been given by the Texas 011
Company to the Treasury in the interest of promot-
ing the sale of Defense Savings Bonds. The per-
formances will run for 13 weeks and if the users
of the tickets enjoy the first performance, I will
be very glad to furnish you with additional tickets
for the succeeding 12 performances.
With kind regards, I remain,
Yours sincerely,
(Signed) 5. Morgesthan, 39.
Rear Admiral Adolphus Andrews,
Commandant, Third Naval District,
90 Church Street,
New York, N. Y.
Regraded Uclassified
135
June 24, 1941
PERSONAL
My dear Admiral Andrews:
I take pleasure in having sent to you 100
invitations for the opening of the Treasury hour
July 2nd, at 9 p.m., at the studio of the Columbia
Broadcasting Station. They will be delivered to
you on Friday. I would appreciate it if 25 of
them could be allocated to the "PRAIRIE STATE".
This hour has been given by the Texas Oil
Company to the Treasury in the interest of promot-
ing the sale of Defense Savings Bonds. The per-
formances will run for 13 weeks and if the users
of the tickets enjoy the first performance, I will
be very glad to furnish you with additional tickets
for the succeeding 12 performances.
With kind regards, I remain,
Yours sincerely,
(Signed) B. Morgenthau, Jr.
Rear Admiral Adolphus Andrews,
Commendant, Third Naval District,
90 Church Street,
New York, N.Y.
Copy to Rodert
Regraded Uclassified
136
The Scentary
admiral andrews, said
Stent Jahnke, aide to
he would effect distribution
of the 100 thinkey the
have in herd york
hlistrid and would lar-
mark 25 for the "PRAIRIE
STATE": the extended
Danks.
address:
REAR ADMIRAL ADOLPHUS ANDREWS
COMMANDANT, THIRD NAVAL District,
90 Church Street,
New york, n.y. (Perjonal)
137
JUN 24 1941
My dear Dr. Weak:
I have been greatly impressed with the proupt and thorough
distribution by the Boy Scoute of America of the Government
Posters announcing the sale of United States Savings Bonds and
Stamps for Defense. I learn that to date Secute have distributed
in excess of 1,100,000 posters throughout America. This is &
splendid response to the President's request. will you kindly
convey to the members of your organization our very sincere appre-
ciation of this "Good Turn for Uncle San,"
In appraising our publicity program 19 have come to the
conclusion that 16 should distribute an additional 400,000 of
the larger posters which are more commanding of attention.
Because of the fine work already done, - request that the Boy
Scouts assume the responsibility for this additional distribution
as a further service to our country.
I an confident that the Boy Scoute of American will undertake
this service and that it will be done effectively and with dispatch
and will prove a real contribution to our Defense Program.
Sincerely,
(Signed) 1. -
Secretary of the Treasury.
Dr. James 1. West,
Chief Scout Executive,
Boy Scouts of America,
2 Park Avenue,
New York, New York.
File to Mr. Thompso:
ENS:DEP
Regraded Uclassified
138
JUN 24 1941
My dear Mr. Secretary:
You will recall giving no a note at Cabinet meeting
on June 6th about Defense Bond sales in Auglaise County,
Ohio.
I have now had this matter investigated, and quote
below significant extracts from the report of the investi-
gation:
"General Information
"The inhabitants of Auglaise County, which is
a thriving agricultural district are chiefly of
German descent. However, through interviews had
with the various officials, as mentioned, and also
with several farmers, whose names I did not obtain,
it is my opinion that residents of this county con-
stitute a good American community. Undoubtedly,
there are a few people living in that territory who,
through their descent are somewhat pro-German, but
from all the information obtained and my general
impression, I feel that Auglaise County is as fairly
American as any average community one might visit.
"The only towns in which industries are located
that benefit through the Defense Program are Minster
and St. Marys, and the benefits so derived by these
two localities are not sufficient to noticeably in-
orease wage income materially over an average period
in years wherein the Defense Program is not involved.
Bearing that in mind, and the fact that the county
is primarily agricultural, ready money generally is
not available to a farmer this time of the year.
Several of the persons interviewed stated that they
are of the opinion that later on during the year,
when the farmers begin to receive money for their
Regraded Uclassified
139
- 2 -
produce, in all probability the investments in
United States Savings Bonds and Stamps in
Auglaise County will compare favorably with
those of any other similar comunity. While
calling on the banks, records were produced
for Ky examination which showed that the invest-
ments in United States Savings Bonds were in
creditable amounts.
"Summary
"This investigation has shown that the sale
of United States Defense Bonds and Stamps has not
been as large as in some other communities. How-
ever, I believe that conditions such as the high
rate of interest received by depositors in two of
the local loan associations has had considerable
to do in governing how the people invested their
money. The lack of increased wages coming into
the community through defense manufacture has
resulted in no noticeable addition to the regular
income received from the ordinary agricultural
district. Subversive or un-American activities
were not encountered during my investigation, and
I do not believe that the fact the majority of the
people are of German descent materially affects
their attitude toward this government. It is my
opinion that Auglaize County is a thriving, average
American comunity."
Sincerely,
(Rigned) 8. Mergesthon, 89%
The Honorable,
The Secretary of Agriculture.
By Messenent
M
Regraded Uclassified
140
THE SECRETARY OF THE TREASURY
WASHINGTON
My dear Mr. Secretary:
You will recall giving me a note at
Cabinet meeting on June 6 about Defense
Bond sales in Auglaise County, Ohio.
I have now had this matter investi-
gated, and I enclose herewith the report
of the investigation, for your information.
Sincerely,
The Honorable,
The Secretary of Agriculture.
141
TREASURY DEPARTMENT
OFFICE OF COORDINATOR
TREASURY ENFORCEMENT AGENCIES
WASHINGTON
June 12, 1941.
TO:
Mr. Graves
FROM:
Elmer Irey
There is attached a communication
of Special Agent H. R. Sunball dated
June 11, covering his investigation of
conditions relating to the sale of
defense bonds and stamps in Auglaize
County, Ohio.
And
Enc.
Transittal
142
TREASURY DEPARTMENT
INTERNAL REVENUE SERVICE
425 Federal Building,
INTELLIGENCE UNIT
Detroit, Michigan,
!reasury District fe.
June 11, 1941.
(Name of Division)
SI*Special
Report Examined, Approved and
Unjacketed.
INTERNAL REVENUE
Fewarded to Calel, Intelligance list
HRS:meg
JUN 12 1941
INTELLIGENCE UNIT
JUN 11 1941
Chief, Intelligence Unit,
Special Agent in Charge
Transury District No. .
Bureau of Internal Revenue,
Washington, D. C.
In re: Sales of U. S. Defense Bonds
and Stamps,
Auglaize County, Ohio.
In compliance with your telephonic instructions of Friday,
June 6, 1941, an investigation was made in Auglaise County, Ohio,
to determine the reason for the relatively small amount of noney
that has been invested by the inhabitants of that county in
United States Defense Bonds and Stamps. The following listed
Post Offices and Banks in Auglaize County and the officials who
were interviewed are noted:
First Class Post Office
None
Second Class Post Office
A. J. Brown, Postmaster
-
Wapakoneta, Ohio
William H. Uetrecht, Postmaster - St. Marys, Ohio
Herman J. Laut, Postmaster
-
New Bromen, Ohio
Third Class Post Office
Mrs. Ruth II. Brinkman, Postmistress - Minster, Ohio
E. H. Katterheinrich, Postmaster - New Knoxville, Ohio
Mrs. Theodore C. Gilroy
-
Waynesfield, Ohio
(Wife of Postmaster and Postal Clerk)
- 1 -
143
SI*Special
Unjacketed.
Fourth Class Post Office
C. E. Dingledine, Postmaster -
Buckland, Ohio
S. W. Frazier, Postmaster
-
Uniopolis, Ohio
Vernon Mertz, Postmaster
-
St. Johns, Ohio
A. O. Wagstaff, Postmaster
-
New Hampshire, Ohio
Fred Reichelderfer, Postmaster -
Cridersville, Ohio
National Banks
First National Bank
-
Wapakoneta, Ohio
Edwin J. Stroh, Cashier
Peoples National Bank
-
Wapakoneta, Ohio
H. W. Knost, Cashier
First National Bank
-
New Brenen, Ohio
W. W. Grothaus, President
State Banks
Home Bank
-
Cridersville, Ohio
Robert DeLong, Cashier
Home Banking Company
-
St. Marys, Ohio
H. H. Brinkmeyer, President
Minster State Bank
-
Minster, Ohio
Leo H. Frericks, Cashier
Peoples Savings Bank
-
New Knoxville, Ohio
H. H. Kuhlman, President
The information obtained during this investigation in
Auglaize County through interviews had with the above-named bank
and postal officials can be grouped as follows:
Information Obtained through Interviews had with
Postmasters
The various postmasters of the small fourth class offices
informed me that they had not received orders from the Post Office
- 2 -
144
SI*Special
Unjacketed.
Department instructing them to handle Defense Savings Bonds or
Stamps. They also stated that they had not stocked the Defense
Bonds or Stamps, and the few inquiries that they had received
relative to Defense Bonds or Stamps they had in turn directed
the person making the inquiry to go to Wapakoneta, Lina, or some
other village or city where at larger Post Office was maintained.
The postmasters now referred to also advised me that they were
of the opinion that it would not be worth their while to handle
these bonds, as the inquiries they had received were not sufficient
to warrant carrying Defense Bonds and Stamps in stock. However,
they stated that if it were the wish of the department that they
have the Stamps and Bonds for sale, all agreed that they would
willingly comply with such instructions.
Postmasters of the second and third class offices also
showed me their reports relative to the sale of Defense Sonda
and Stamps. In several instances, when the bonds first came
out, sizable sales were made by several of the offices. During
the last month, most of the reports show that there has been a
drop in sales, but this undoubtedly is in E. large part due to the
fact that Auglaise County is primarily an agricultural district
and available money at this particular time of the year is rather
scarce with the farmers. & rather lengthy interview was had with
Mr. A. J. Brown, Postmaster at Wapakoneta, who stated that in
his opinion the sales had been fair for his office, considering
the fact that there are no noticeable defense industries in his
territory which would tend to boost the current wages received by
workers in manufacturing plants. Mr. Brown further advised me
that the farmers in and about Wapakoneta were displeased with
the acreage or wheat quota that has been imposed upon then by
the government regulations, but he added that he did not believe
that would in any way affect these farmers in purchasing Defense
Bonds or Stanps had they the available money with which to naice
the purchases. Mr. Brown continued by stating that he believed
that the rate of interest received by depositors in the City Loan
and Savings Association (llome Office in Wapakoneta) and also the
Welfare Finance Company, which are paying four and five per
cent respectively, was in B. large measure a controlling factor
in regulating where the people deposited their extra funds. Ac-
cording to Mr. Brown, these two finance and loan associations
are financed practically in their entirety by money received
from people in and around Auglaize County, and they went through
the last depression without necessitating any loss whatsoever to
their depositors. In other words, he stated that these two one
panies have gained the confidence of the people. He added that
- 3 -
145
SleSpecial
Unjacketed,
he did not wish to infer that there was any doubt whatmever in
the minds of the local people with respect to the worth of United
States Bonds or Stamps, but because of the high rate of interest --
four and five per cent--that they could command on investments in
these companies as compared with a. lower rate received through
government investment, he felt that it was in a large measure a
controlling factor.
Information Received During Interviews With Banking Officials
None of the Federal or State Banks in this county handle
?ederal Defense Bonds. The various cashiers and presidents inter-
viewed advised me that when calle were had for Defense Bonds, they
referred the prospective purchaser to the local Post Office, where
the bond could be procured. All officials were of the opinion that
because these toms are rather small, that it was not necessary for
both the banks and the Post Offices to handle the United States
Bonds. These men stated that they did all they could to promote the
sale of bonds, in that when people made inquiries as to & good
investment, they often referred them to the Post Office and instruct-
ed them to invest in government bonds. The information given me by
Mr. Brown and several other postmasters with respect to interest
received from depositors at the City Loan and Savings Association and
the Welfare Finance Company was corroborated by the bank officiale
interviewed. They even added the information that because of the
high rate of interest paid by the two aforementioned finance groups,
that they in turn suffered somewhat because the rate of interest they
pay is for below that paid by the finance groups.
General Information
=
The inhabitants of Auglaize County, which is a thriving
agricultural district are chiefly of German descent. However,
through interviews had with the various officials, as mentioned,
and also with several fermers, whose names I did not obtain, it is
my opinion that residents of this county constitute a good American
community. Undoubtedly, there are & few people living in that
territory who, through their descent are somewhat pro-German, but
from all the information obtained and my general impression, I feel
that Auglaise County is 9.5 fairly American as any average community
one might visit.
11
The only towns in which industries are located that benefit
through the Defense Program are Minster and St. Marys, and the
benefits so derived by these two localities are not sufficient to
noticeably increase wage income materially over an average period in
years wherein the Defense Program is not involved. Bearing that in
mind, and the fact that the county is primarily agricultural, ready
Regraded Uclassified
146
SI=Special
Unjacketed.
money generally is not available to a farmer this time of the
year. Several of the persons interviewed stated that they are
of the opinion that later on during the year, when the farmers
begin to receive money for their produce, in all probability
the investments in United States Savings Bonds and Stamps in
Auglaize County will compare favorably with those of any other
similar community. While calling on the banks, records were
produced for my examination which showed that the investments
in United States Savings Bonds were in creditable amounts.
Summary
This investigation has shown that the sale of United
States Defense Bonds and Stamps has not been as large as in
some other communities. However, I believe that conditions
such as the high rate of interest received by depositors in
two of the local loan associations has had considerably to do
in governing how the people invested their money. The lack of
increased wages coming into the community through defense
manufacture has resulted in no noticeable addition to the
regular income received from the ordinary agricultural district.
Subversive or un-American activities were not encountered during
my investigation, and I do not believe that the faot the majority
of the people are of German descent materially affects their
attitude toward this government. It is my opinion that Auglaize
County is B. thriving, average American community.
HRSunball
H. R. Sunball
Special Agent
- 5 -
Secretary Morgenthau - Room 280
147
DEFLNSE SAVINGS STAFF
ADVANCE NOTICE RADIO PROGRAMS
TUESDAY - JUNE 24, 1941
Time:
1:00 - 1:15 P.M.
Program: Light of the World
Station: WRC
Time:
8:30 - 9:00 P.M.
Program: Fibber NcGee and Molly
Station: WRC
Note: In addition to the above, each of the 868 radio
stations in the United States, territories, and
possessions are broadcasting five Defense Bonds
and Stamps announcements each day.
THESE PROGRAMS PROMOTE SALE OF DEFENSE BONDS AND STAMPS.
148
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE June 24, 1941
TO
The Secretary
FROM
Mr. Blough
Attached is an early rough draft of the outline
for the proposed speech on inflation, which you
requested. I have talked it over with Mr. Kuhn.
Attachment
149
June 24, 1941
OUTLINE FOR PROPOSED SPEECH ON INFLATION
I. Introduction.
so Inflation is here; what are we going to do
about 1tg
B. Inflation is very harmful.
C. Inflation is a hard spiral to stop but it can
be stopped through action on all fronts.
1. Profits
2. Wages
3. Prices
II. The threat of rising prices.
A. The increases in prices during and after the
World War and their undesirable effects.
B. The increases in prices and cost of living
since the beginning of this war, compared
with increases in prices and cost of living
before the first World War.
C. Price increases may take the form of decreases
in volume or quality at the same unit price;
such increases in price are insidious and
should not be tolerated.
150
- 2 -
III. The interrelation of prices, wages and profits.
A. If prices are expected to increase, everyone
tries to get his income increased.
1. Workers strike for higher wages in
anticipation of higher living costs.
2. Farmers seek governmental action to
increase prices and are stimulated to
this end by increases in wages.
B. The wage increases and farm price increases
are themselves an important cause of infla-
tionary price rises.
1. They add to costs of production. While
there are often profits out of which
increases in costs may be absorbed, this
is frequently not the case. Furthermore,
monopolies say use the increased costs as
an excuse to increase their prices.
2. The increase in income results in greater
demand, which leads to higher prices.
This would not happen in large degree if
there were free expansibility of goods
which the workers and farmers want, but
this expansibility does not exist in
numerous lines due to shortages of raw
materials, plants and labor.
151
- 3 -
C. Profits in some industries, especially those
affected by defense, go up markedly due to
larger volume, even when prices do not increase.
They go up even more when there are price in-
creases in excess of cost increases. In other
industries profits may decline or disappear due
to shortages of materials or of demand.
la The increases in profits stimulate workers
to demand increases in wages and farmers
to demand increases in prices.
D. Profits, wages and prices must accordingly be
considered together if inflation is to be
avoided.
IV. What can be done to prevent rising pricest
A. Non-fiscal steps that can be taken.
1. Price controls, such as the freezing of
prices by government order. Opinion differs
as to effectiveness of the controls when
applied to numerous commodities and at the
retail level. Rising costs make price
controls very difficult.
2. Credit controls, such as curbs on
installment buying.
152
- 4 -
B. Fiscal policy.
1. The Savings Bond program encourages saving
and the withdrawal of purchasing power
from the purchase of goods.
2. Heavier taxes. The #3.5 billion tax program
will take a large volume of purchasing
power out of circulation and thus reduce
the danger of inflation.
3. Excess profits taxes. This is one element
in the tax program. It is particularly
important both as a matter of equity and
for its psychological effects.
a. It is equitable that those who make
profits out of the defense program
should return to the Treasury as much
of such profits as can be taken with-
out paralyzing the incentive to be
efficient and productive.
b. Concerns making larger than average
returns on their investment have, by
and large, greater ability to pay
taxes than other corporations and can
equitably be called upon to pay addi-
tional taxes. When such heavyfinancial
Regraded Uclassified
153
- 5 -
burdens must be met as we face today,
it is fair and economically sound to
burden the presperous concerns rela-
tively more heavily than the less
prosperous.
0. The stabilization of profits through
the taxation of defense profits and
excess profits is necessary if we are
to expect workers to avoid demanding
higher wages and farmers to avoid
demanding higher prices.
V. The Excess Profits Tax Act of 1940.
A. Although the Treasury last Summer urged a tax
that would have reached both defense profits
and excess profits, the Excess Profits Tax Act
of 1940 as passed failed to do so. It imposed
taxes on part of the defense profits but left a
large part of defense profits free from tax and
imposed no tax on other excess profits.
B. This Spring the Treasury again urged the passage
of a tax that would reach both defense profits
and other excess profits. The Committee on Ways
and Means in the House tightened the tax on
defense profits but chose not to subject other
excess profits to taxation.
154
- 6 -
C. Tightening the tax on defense profits, while in
itself 8. good thing, further accentuates the
discrimination among business competitors which
results when well-established, high-profit
corporations are free from tax on amounts of
profits which they earned in years prior to
the defense program and are taxed only on
amounts in excess of such earnings.
VI. Conclusion: The control of inflation and the pre-
vention of great resulting harm can be achieved only
through a combined effort along many fronts.
A. The taxation front is an important one, and a
sound excess profits tax is one of the key
elements in the sound taxation policy to prevent
inflation.
B. The government should take a firm hand to pre-
vent large price increases, and its citizens
should not aggravate the problem through demands
which must inevitably lead to further increases,
but should put the national interest ahead of
their apparent immediate self-interest,
155
June 24, 1941
Dear Francis:
I as enclosing herewith a
copy of a letter which I sent to
the President last week.
Yours sincerely,
(Signed) Henry
Honerable Francis Biddle,
The Solicitor General,
Department of Justice,
Washington, D.C.
no extra copy
attached
By Messenger 330
156
June 24, 1941
Dear Francis:
I an enclosing herewith &
copy of a letter which I sent to
the President last week.
Yours sincerely,
(Signed) Henry 1
Honerable Francis Biddle,
The Solicitor General,
Department of Justice,
Washington, D.C.
By Messenger
157
June 24, 1941
Dear Francis:
I an enclosing herewith a
copy of a letter which I sent to
the President last week.
Yours sincerely,
(Signed) Henry
Honorable Francis Biddle,
The Selicitor General,
Department of Justice,
Washington, D.C.
n I
158
s
THE SOLICITOR GENERAL
WASHINGTON
June 24, 1941
Dear Henry:
I appreciate more than I can
tell you, your letter to the President, which
was as vigorous as it could have been.
Sincerely yours,
transportal
Honorable Henry Morgenthau
The Secretary of the Treasury
Washington, D. C.
Treasury Department
Division of Monetary Research
159
Date
June 24,
19 41
:0: Mr. White
s: Mr. Ullmann
Export Control - Shipments to Japan
Week ending June 21
Gasoline: 211,000 barrels - - all high octane.
Crude oil: 70,000 barrels - - all high octane.
Lubricating oil: 2,000 barrels.
Fuel and gas oil: none.
MR. COE
Branch 2061 - 210
160
Exports of petroleum products to Japan in the
first ten months they ware under export control
(July 26, 1940 - May 31, 1941), compared to the
whole year 1939
Confidential
10 months: export
12 months:
control
1939
Gasoline
High octane (licensed)
3,778,000 bble
1/
Unlicensed
681,000
1/
4,459,000 bbls
1,200,000 bbls
Lubricating 011 - Total
1,437,000 bbls
480,000 bbls
Crude 011
High Octane (licensed)
5,516,000 bbls
1/
Unlicensed
4,560,000
1/
Total Crude
10,076,000 bbls
16,000,000 bble
Breakdown not available
Source: Report by the Office of Merchant Ship Control, U. S. Treasury
Department.
Regraded Uclassified
161
June 24, 1941.
MEMORANDUM
TO:
Mr. Schwarz
FROM:
Mr. Shaeffer s.
Copies of the Secretary's talk before the
4-H Clubs yesterday were sent to our regular list,
I arranged for its distribution to the list of
the Department of Agriculture, and delivered it
personally to the following papers in agricultural
areas:
St. Paul Pioneer Press
St. Paul Dispatch
Duluth Herald
Duluth News-Tribune
Des Moines Register
Minneapolis Star-Journal
162
JUN 24 1941
Bear Clamics
I approciate your thoughtfulness is
sending - the outline of as 14m for
retioning seares feese through a nodifice-
tisa of your Stamp Plan. unile 10 to not
quite clear to me, from your brief descrip-
Men, just how the plan would operate to
simplify the administration of a retioning
system - particularly with respect to the
problem of allocating "Sted conservation
stamps® - the 14am would - vall worth
further study.
Sincerely,
(Signed) Henry
the Membership
the Secretary of Agriediture
Fashington, D. a.
Copy to NMC.
File to Mr. Thompeo
By Messenger
3ʳᵈ
C
163
o
P
y
Ve hope, of course, to provint the prise-fixing of foods
in this country by pleaning for studies production. Should
rationing besome absolutely housver, we have workshie
mahinery in existence for doing & much better job then the British
are BOV doing or than the Food Administration 414 in the last var,
Scares foods could be rationed, by throwing the Stamp Plan
"inte reverse." if prohibiting the purchase of seares foods with
money and X limiting their purchase to these who had bought "food
conservation stamps" in predatermined amounts, supply and denand
could be adjusted in such & fashion as to assure an equitable dis-
tribution between our various income groups at reasonable prices,
This would avoid the administrative difficulties isharent
in policing millions of individual transactions at hundred of
thousands of licensed stores on a basis.
If farm prices fall too much because of reduced consumption, the
amount of conservation stamps sold could be increased or heavier
purchases for Britian could be mão to assure stability of farm
income,
The list of foods which it #ight be desirable to
could be changed from time to time as the list of surplus foods
is now changed. Food Conservation Stamps could be bought from
present stamp solling offices or from post offices or over from
greenry stores.
Regraded Uclassified
164
DEPARTMENT OF AGRICULTURE
Washington
28835
June 18, 1941.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury.
Dear Henry:
Sometimes ideas develop that may be of
considerable utility later on. Just with the
thought of letting you have this one in the
back of your mind for possible later use, I
am sending a copy of a suggestion from Milo
Perkins that has to do with the handling of
scarce foods by throwing the Stamp Plan
"into reverse. II
I shall be glad to have your comments.
Sincerely,
/8/ Claude R. Wickard
Secretary
Enclosure
Regraded Uclassified
THE WHITE HOUSE
WASHINGTON
JESO 24, 1911
My dear Mr. Secretary:
Section 3(a) (2) of the Act of March 11, 1941-the
Lend-Lease Act--empowers me to authorize you to transfer to
any country whose defense is vital to ours defense articles
procured from funds appropriated prior to March 11, 1941 to
the extent of $1,300,000,000.
will you please let me know as soon as possible
what defense articles your department has available and will
have available for transfer under this Section 3(a) (2) now
and month by month until the end of the fiscal year 1942.
Sincerely yours,
The Honorable
The Secretary of the Treasury
Regraded Uclassified
166
MEMORA
RE: INCLUSION OF "ADMINISTRATIVELY DIFFICULT"
U.K. IMPORTS UNDER LEASE-LOAN PROCEDURE.
During March and April 1941 a series of meetings
were held by the competent Departments in London to consider
the creation of machinery for bringing under lease-lend U.K.
imports (valued at approximately $140 millions a year) of
certain miscellaneous goods, There were two main problems:-
(a) The range and variety of goods was so great
that it would be essential to retain the special-
ized services of existing importers in order to
obtain the products rapidly, to correct specifi-
cation (often a vital matter), and at the right
price. It must be borne in mind that as a result
of war demands there is now in the United Kingdom
a most acute shortage of personnel suited to ad-
ministrative work and that it would therefore be
very difficult to establish or extend the appropriate
government departments to take over from existing
trade channels the detailed work and specialized
knowledge involved.
(b) Assuming, however, that the specialized
knowledge of the trade could be retained but the
goods themselves were imported under government
auspices, there would remain the problem of handling
and distributing the goods on arrival, and in
particular of dealing with the documents and
invoicing work. Although the value of the
miscellaneous manufactures class is relatively small,
the number of transactions covered is altogether
out of proportion to the value. A very large staff
would have to be established and trained before the
work could be handled smoothly. It is most
Regraded Uclassified
167
-2-
important that delays should be avoided in pro-
curing goods in this class which include many
small components required to case bottlenecks
and maintain U.K. production in balance, or to
replace output interrupted by enemy action. Hero
again the shortage of administrative personnel
was & serious difficulty.
Difficulty would also arise in planning the
organisation which would have to be established
in America to handle the documents involved, to-
gether with the general agency and forwarding business
which would arise. At present the documents are
handled and the forwarding business despatched
smoothly and efficiently by existing commercial
organisations. It was clear that 8 very large staff
110.13 have to be assembled and trained in the U.S.
to deal with the great numbers of transactions -
a purchase costing $10.00 may involve just as
many documents as a large consignment under
lease-lend.
MUT considering a number of projects, the Committees exam-
ining this problem were unable to devise any entirely satis-
factory scheme. The accompanying Appendix outlines a
procedure which had been tentatively put forward, but which
- far from meeting All the problems. It would have overcome
port of the difficulties in the U.K. by retaining the special-
Ised skill and connections of commercial importers and by
cutting down the need for organisation in Great Britain to
handle documents. But it would still have required a very
large addition to the B.P.C. staff in America and the
ostablishment of an organisation in the U.K. to receive
payment from importers' banks against the goods obtained
under lease-lend.
Regraded Uclassified
-3-
Mr. Harriman, who was privately consulted, teld
that he gravely doubted whether Washington could even consid
a procedure which left the negotiation to private traders.
the end of April it was decided that no further work should
done on these projects, the hope being entertained that as 4
result of an extension of lease-lend in other directions,
6
sufficient current surplus might accrue in dollars from 0004
changes between the sterling area and the dollar area to provide
means of payment for this "administratively difficult* class.
If, however, the U.S. administration were prepared to
consider a procedure which left the detailed work of negotiation
and specification to private traders and only brought in the
lease-lend procedure when the stage was reached where the order
itself could be confirmed, it is possible that a considerable
part (by value) of the miscellaneous class could be brought
within lease-lend without imposing too great a burden on the
administrative organisation at either end. Since the miscell-
aneous manufactures have never been handled by Government
purchase, little information on detailed schedules is avail-
able in Washington. But it is known that among miscellaneous
manufactures there are classes, which both in point of being
essential to the war effort and in representing substantial
sums, appear suitable for requisition under lease-lend.
Washington, D.C.,
June 26, 1941.
Regraded Uclassified
APPENDIX
169
SUGGESTED PROCEDURE FOR BRINGING MISCELLANEOUS
MANUFACTURED GOODS UNDER LEASE-LEND PROCEDURE.
1. The B.P.C. puts in a blanket requisition for, say,
$20 millions worth of miscellaneous manufactured goods for
delivery by H.M. Government to persons other than its agents.
2.
The U.K. importer (who is presumed to have been In
touch with his potential American supplier and to know prices
and delivery possibilities) approaches the U.K. Import Licensing
Department for permission to import the goods. This 1s normal
procedure under present arrangements. The Import Licensing
Department sotisfies itself that the goods are essential* and
fall within the total amount (and value) for such class of goods
39 passed by the Inter-departmental Import Licensing Comittee***
(also current procedure), and issues a licence subject to:-
(a) The import being submitted by the 3.2.C. to the
appropriate U.S. authority for decision on Its eligi-
bility for lease-lend procedure. If it is passed eligible
it must be handled under lense-lend.
(b) Opening at his bank an irrevocable credit for the
appropriate starling c.i.f. value of the goods in favour
of the appropriate department of B.% Covernment. It would
be agreed tlatin the event of the goods not being passed
eligible for lease-lend the credit would be cancelled.
3. On issuing the import licence the I.L.D. would allot
lease-lend serial number to the transaction and cable to the
UP.C. Stores Clearance Department (in stindardized form) giving
the serial number and brief particulars of the goods, price,
supplier, importer and importer's bank (for subsequent forward-
ing of documents). The B.P.C. Stores Clearance will transfer
the particulars to a standardised card and file under serial
number, with a cross-index to importers' nage for safety.
The above is not an actual draft but has been put together
by a member of the Commission from his memory of what was
under discussion.
Committee have established a searching standard in assessing
The Import Licencing Department and The Import Licencing
the essentiality of imports in the "Miscellaneous" class,
and have an efficient machinery for investigation.
Regraded Uclassified
-2-
170
4. U.K. importer informs American supplier of serial
number and instructs him to confirm particulars of specifi-
cation, price, delivery, terms, etc., to B.P.C. Stores
Clearance Department.
5. B.P.C. S.C. Department check supplier's particulars
against the card in their file and submit & requisition to
the U.S. Government representatives (who, it is suggested,
might sit in with the Stores Clearance Department in New
York for this purpose). If the U.S. Government approves
the application, they confirm the order to the supplier and
Instruct him to make delivery to the B.P.C. Stores Clearance
Department as agents for the U.K. importer. The cost of
the goods is charged off against the market requisition
referred to in (a) above.
6. On taking delivery, the B.P.C. Stores Clearance
Department sign the receipt in the usual way, and forward
the documents to the U.K. bank named in the original cable
Prom the Import Licencing Department. On receipt of the
documents the bank pays H.M.G. under the irrevocable credit
referred to In 2(b) above, and releases the documents to
Sie importer.
mahington, D.C.,
June 24, 1941.
Regraded Uclassified
June 24, 1941
171
Photostats given today to Foley, Bell,
White, and Cochran.
172
THE WHITE HOUSE
WASHINGTON
June 20, 1941.
Dear Mr. Secretary:
I was in Ottawa on Tuesday and while there Governor
Towers of the Bank of Canada raised EL matter with me
which I undertook to pass on to the Treasury. Canada
is now sending some $6 million a year to China on account
of emigrants' and charitable remittances. The Canadian
position, as I understand it, is that they would permit
these remittances to continue if they were convinced that
they were serving a really useful purpose. They were,
howev Γ, uncortain on this latter point. I suggested that
our Treasury, through Mr. Fox, would doubtless be in a
position to ascertain whether emigrants' remittances for
Cantonese, remitted via Hongkong, result in payments to
the designated recipients and exchange sveilable for Free
China; whether the same is true for remittances for
charitable purposes; and the probable use of funds remitted
via Shanghei.
There was another matter which I think will interest
you. I took up with Mr. Howe, the Minister of Munitions
and Supply, the possibility of securing certain items for
China in Canada with lease-lend funds. I received 90
much encouragement that I have arranged for B. joint Army -
China Defense Supplies mission to go to Canada on Monday
to explore the possibilities. Anything we can work out
along these lines will, of course, case the Canadian dollar
exchange problem, and I will keep you informed as to the
progress of our negotiations.
Yours sincerely,
bauchlin Currie
Administrative Assistant
to the President.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Regraded Uclassified
173
THE WHITE HOUSE
WASHINGTON
June 20, 1941.
Dear Mr. Secretary:
I was in Ottawa on Tuesday and while there Governor
Towers of the Bank of Canada raised a matter with me
which I undertook to pass on to the Treasury. Canada
is now sending some $6 million a year to China on account
of emigrants' and charitable remittances. The Canadian
position, as I understand it, is that they would permit
these remittances to continue if they were convinced that
they were serving a really useful purpose. They were,
however, uncertain on this latter point. I suggested that
our Treasury, through Mr. Fox, would doubtless be in a
position to ascertain whether emigrants' remittances for
Cantonese, remitted via Hongkong, result in payments to
the designated recipients and exchange available for Free
China; whether the same is true for remittances for
charitable purposes; and the probable use of funds remitted
via Shanghei.
There was another matter which I think will interest
you. I took up with Mr. Howe, the Minister of Munitions
and Supply, the possibility of securing certain items for
China in Canada with lease-lend funds. I received so
much encouragement that I have arranged for a joint Army -
China Defense Supplies mission to go to Canada on Monday
to explore the possibilities. Anything we can work out
along these lines will, of course, case the Canadian dollar
exchange problem, and I will keep you informed as to the
progress of our negotiations.
Yours sincerely,
Landline Lauchlin Currie
Administrative Assistent
to the President.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
THE WHITE HOUSE
WASHINGTON
June 20, 19/1.
Dear Mr. Steretary:
I YES in Ottown on Tuesday PM while Mare Governor
Tower of the Bonk of Canada raised E matter with ne
which I undertook to pass on to the Treasury. Canada
is now sending some $6 million de ye I' to China on account
of emigrants' and charitable remittonces. The Canadien
position, (.) I understand it, 1: that they would permit
these remittences to continue if they were convinced that
they were serving a really useful purpose. They were,
howev r, uncertain on this latter point, I suggested that
our Treasury, through Mr. Fox, would doobtless be in a
position to ascertain whether emicronts' remittances for
Cantonese, remitted via Bongkone, result in payments to
the desi mated recipients and exchange :veilable for Free
China; whether the same is true for remittonces for
charitable nurposes; and the probable uso of funds remitted
via Shanghri.
There was another matter which I think will interest
you. I took up with Mr. Howe, the Minister of Munitions
and Supply, the possibility of securiry certain items for
China in Con-da with lesse-lend funds. I received so
much encours gement. that I have arranged for a joint Army -
China Defense Suoplies mission to go to Canada on Monday
to explore the possibilities. Anything "e can word out
along these lines will, of course, ease the Canadian dollar
exchange problem, not I will keep you informed 65 to the
progress of our negotlations.
Yours sincerely,
Lauchlin Currie
Administrative Assistant
to the President.
Honorable Henry Morgenthou, Jr.,
Secretary of the Treasury,
Washington, D. C.
Regraded Uclassified
THE WHITE HOUSE
WASHINGTON
June 20, 19%1.
Dear Mr. Necretary:
I in Ottawn on Tuesday ANI vhile there Governor
Towers of the Bank of Canada raised x metter with me
which I undertook to pass on to the Treasury. Canada
is now sending some $6 million E ye r to China on account
of emigrants' and charitable remittances. The Canadian
position, C.S. I understand it, i: they would permit
these remittences to continue if they were convinced strt
they were serving a really useful purpose. They were,
howev T, une rtain on this latter point, I suggested that
our Treasury, through Mr. Fox, sould doubtless be in a
position to ascertain whether emicronts' remittances for
Cantonese, remitted via Hongkong, result in payments to
the designated recipients and exchange evailable for Free
China; whether the same is true for remittances for
charitable purposes; and the probable use of funds remitted
via Shanghei.
There was another matter which I think will interest
you. I took up with Mr. Hove, the Minister of Munitions
and Supply, the possibility of securiry certain items for
China in Con de with lease-lend funds. I received so
much encouragement that I have arraneed for a joint Army -
China Defense Supplies mission to go to Canada on Monday
to explore the possibilities. Anythine we can wore out
along these lines will, of course, ease the Canadian dollar
exchange problem, -nd I will keep you informed AS to the
progress of our negotiations.
Yours sincerely,
Lauchlin Currie
Administrative Assistant
to the President.
Honorable Henry Morgenthou, J:.,
Secretary of the Treasury,
Washington, D. C.
Regraded Uclassified
175
6/25/41
Original to Mrs. Klotz for the Secretary
Photostats to:
Mr. Bell
Dr. White
Mr. Foley
Mr. Cochran
176
ADDRESS THE COMMANDANT, M. s. COAST -
MO are TO a
TREASURY DEPARTMENT
UNITED STATES COAST GUARD
(ADQUANTERS
WASHINGTON
24 June, 1941.
From:
Spagent, Hongkong, China.
TO :
Secretary of the Treasury.
We need confidential clerical assistance as none is avail-
able in Chingking from the embassy. Have managed somehow and continue
to do so, but all of us have been devoting time which could have been
nore profitably otherwise employed.
We have been working ten to twelve hours a day under most
difficult conditions. It is quite necessary to have adequate living
quarters if we are to keep reasonably well and function efficiently.
Although Kung has ordered the matter to be taken care of, it has pro-
ceded slowly, but trust that it can be effected during our short ab-
sence.
Have seen Kung a number of times in a shelter during air
raids and have discussed any matters of particular and zoneral interest
and he always reaffirms his complete support of our efforts.
In conversation with Vice-"inister of Finance Y. C. Koo
in the presence of Kung in an air-raid shelter, Fox learned that it
has seriously been suggested that stabilization funds should be used
to bring gold to China from America to be made into rings and trinkets
and thus absorb excess note issue. Further suggested that funds should
be used to allow Chinese to remit abroad again absorbing Papl. In con-
Versation with the Generalissimo noted below, Fox, without revealing
Regraded Uclassified
177
- 2 -
the source, noted these and other nonsensical propositions.
Both Pei and Hai in a number of private conversations have
indicated the importance of Shanghai to stabilization operations.
Met with a number of leading government economists on the
21st to get their views and cooperation. During our absence statements
from these and others will be analyzed and summarized.
Pei informed Fox after returning from a meeting of joint
board of four government banks that question was raised about financing
of small industries in mining areas where they are badly needed. Vice
Governor remarked that financing of such undertakings by the issuance
of additional notes micht not be in accord with the policy of the sta-
bilization board. He asked Pei what the stabilization board proposed
to do about such matters and would it be willing to finance these par-
tigular injustries. Pei replied that of course he could not speak for
the heard, but he was sure that it would approve the Issuance of more
notes for such worthwhile undertakings. Pei is also a member of fund
mi revealed that on June 13th there was remaining 965,000 nounds.
At the Generalissimo's request, had a three-hour conference
including dinner. Madame Chiang and Wellington were present. The
Meralissino was greatly interested in the discussion of economic
roblems and approved the procedure thus far of the board. He is de-
rous of having the board organized formally at the earliest oppor-
Imity. Fox replied that unless it did so within a month he would be
Regraded Uclassified
178
5 -
on his way home. The Generalissimo said that would not be necessary
for if the British did not appoint their member to the board, it would
organize anyway. He is not going to allow the British to doninate the
situation. He asked if Fox the Rogers situation, for he wanted him to
he fully acquainted with all the facts and stated that on the British
ambassador's return to Chunglding on the 18th a compromise was proposed
which he summarily rejected. Madame Chiang said that the Generalissino
has definitely made up his mind in this matter and will not change his
position. She also stated that the Generalissimo knew all about the
corrations of the Anglo-Chinese board and did not like the set-up or
its operations, and felt that Rogers was experienced only along narrow
exchange lines.
In connection with the Hismission on production ^nellities,
X manifented interest in visiting during spare moments progration
wilts in violatty of Changhing. stare Thiane -Teral to
take 07 on a tour of woment' Titness inhetrial cooperaily Willia
the lay's journey from Two king. lunference entirely satisfactory
and gave definite evidence of interest in economic problems and full
support in putting into effect alleviation measures. The Generalissimo
also stated that the way we were going about developing and shaping vy
the **inomic problems and possibilities of going In immediately with
Milization heards' operations made him toubt the need of an economic
SWALAM et this time. The Generalissino an ! Kung are vitally interested
Regraded Uclassified
179
- 4 -
in the possibilities of developing immediate and future exports for
United States market.
Have the Tariff Commission send me immediately a few copies
of Japanese report containing analysis of 271 items and if convenient
follow up with tabulation of import items since publication of report.
Please tell our wives our air-mail letters to them have
been delayed, but we are all well.
180
PARAPHRASE or TELEGRAM RECEIVED
FROM: American Embassy, Gragking, via N.A.
DATE: June 24, 1941, 9 a.m.
NO.: 253
Supplementing American Embassy's telegram No. 252 of
June 23, 1941, 4 p.m.
The following is from Fox for the Secretary of the
Treasury:
QUOTE Having reference to instructions in your tele-
gram of June 18, 1941 on the matter of confidential secretary,
Ambassador Gause tells no that the Embassy here is short
of confidential clerical assistance. It is expecting all
additional staff but it will probably be sometime before
it can get it, It may them be possible to spare one person
part time. In view of the poor transportation facilities
and the long distance in Chungking, such arrangements will
be accepted, END QUOTE.
BEDEINED
:Bv ! ЭЛИ se bW IS with
3HT 10 301990
THAT2122A JACINHORT
YRAT38032 ЭНТ oT
GAUSS
a
EASFLIPAX
Regraded Uclassified
181
THE /
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE June 24, 1941
Secretary Morgenthau
TO
FROM Mr. Cochran
confidential
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
244,000
Purchased from commercial concerns E 2,000
Open market sterling moved from an initial quotation of 4.03-1/4 to
4.03-1/2 at the close. There were no reported transactions.
The Canadian dollar discount widened to 11-3/4% by the close, 6.8 compared
with 11-1/2% yesterday.
The Uruguayan free peso opened 1/2# higher at .44-3/8 and remained steady
for the rest of the day. The rise of 2-1/2# in the free peso quotation since the
current movement began on June 13 may be due in part to conversions of dollar
holdings into pesos by Europeans who have taken refuge in Uruguay. A. Central
Bank official in Montevideo expressed the belief that such immigrante have brought
(
sizable amounts of dollars into his country. Another factor that may have in-
fluenced the rate is that Uruguayan importers of goods from the United States are
no longer permitted to sell pesos in the free market in order to obtain dollar
(
exchange. A Uruguayan measure requiring that such importers cover their exchange
only at controlled and compensated exchange rates has been in effect since the
first week of June.
In Sev York, the closing quotations for the foreign currencies listed
below were as follows:
Argentine peso (free)
.2380
Brasilian milreis (free)
.0505
Mexican peso
.2070
Ouban peso
1-1/16% discount
In Shanghai, the yuan was quoted at 5-13/324, off 1/324. Sterling vas
1/20 lower at 3.91-1/2.
We purchased $194,000 in gold from the earmarked account of the Central
Bank of Chils.
The State Department forwarded to us a. cable reporting the following
gold shipments from Australia. for sale to the San Francisco Mint:
$4,991,000 shipped by the Commonwealth Bank of Australia. Sydney, to the Federal
Reserve Bank of San Francisco.
177,000 shipped by the Bank of New South Vales, Sydney, to the American Trust
Co., San Francisco.
$5,168,000 Total
Regraded Uclassified
182
- 8 -
According to a cable from Bonbay, the gold price in that center on June 21
valid equivalent to $34.10, not far above export parity. A Yes York bank stated
this morning that its estimate for the Indian gold export point was about $34.04.
but only if shipping space could be obtained within & reasonable tim. The bank
further reported that the Bombay gold price fell 9# over last weak-end to the
equivalent of $34.01 on June 23. The decline to below export parity was attributed
by the bank to the bearish effect of the German-Imassian situation. la for silver
in Bombay. ve were informed that the price for June 21 was equivalent to 44.76#.
or 1/84 higher than the quotation of June 14.
In London, spot and forward silver were again fixed at 23-7/16d, equivalent
to 42.55#.
The Treasury's purchase price for foreign silver was unchanged at 350. Handy
and Harman's settlement price for foreign silver was also unchanged at 34-3/44.
We made no silver purchases today.
The report of June 18 received from the Federal Reserve Bank of New York
giving foreign exchange positions of banks and bankers in its district, revealed
that the total position of all countries vas short the equivalent of $6,690,000,
an increase of $9,000 in the short position since June 11. Net changes were as
follows:
Short Position
Short Position
Change in
Country
June 11
June 18
Short Position*
England**
$1,120,000
$1,230,000
+ $110,000
Europe
3,211,000
3,040,000
- 171,000
Canada
372,000 (Long)
463,000 (Long)
- 91,000
Latin America
498,000
523,000
+ 25,000
Japan
373,000
639,000
+ 266,000
Other Asia
1,883,000
1,777,000
- 106,000
All others
32,000 (Long)
56,000 (Long)
- 24,000
Total
$6,681,000
$6,690,000
+ $ 9,000
*Plus sign (+) indicates increase in short position, or decrease in long position.
Minus sign(-) indicates decrease in short position,or increase in long position.
N.M.S.
confidential
183
BRITISH EMBASSY,
WASHINGTON.D.C.
Personal and Secret
June 24th, 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,
Unite Buth
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.C.
184
TELEORAM FROM LONDON DATED JUNE 22nd 1941,
1.
German .... "Raritonga" 4422 tone
disguised as a Dutch ship when intercepted by the
"London" scuttled herself. Vichy - French "Desirede"
9645 tons intereepted 7th and taken into St. Helena.
Vichy - French hospital ship "Caneds" intercepted by
H.M.S. "Jackal" on 21st and taken to Heifs for
examination.
2.
During the night of Elst - 22nd,
perschute mines md high explosives dropped in
Southampton and surrounding district. Fires started
in the dooks and central station, latter badly damaged.
About 55 people known injured but full details not
yet to hand. Other incidents are Orpington, Poole,
Ryde, Iale of wight, Tisted, isstleigh, Fareham,
Durley, also Orkneys. Two enemy bombers destroyed
by night fighters definite, and one probable.
3.
On the night of 20th - 21st Royal Air
Force dropped 134 tons of high explosives on industrial
areas of Kiel. During daylight of 21st Blenhe as
escorted by fighters attacked serodromes near St.
Omer and Boulogne. One Blenheim missing. Twenty-six
E. 109's destroyed and 7 probable. lie lost six fighters
four vilote safe. on the night of Elst - 22nd 152
aircraft attacked Cologne, Dusseldorf and Boulogne.
One Manchester missing.
4.
No details yet available of Russo-German
operations.
8.
Libyn and &gypt.
Reconmaissance confirm reduction of
300 to 400 M.T. in frontier area since June 18th.
Regraded Uclassified
185
a .
6.
Patriot forees led by British Officers
have captured Girms.
7.
Syria.
June 21st - Vichy forces evacuated
Damascus. Town occupied same day by Free French.
Centre sector. Our attack on Merjayoum from the
North unsuccessful. After heavy fighting our
troops forced to withdraw to a line on River Liteni
north-west of Merjoyoum. Coastal sector, Our
infantry consolidating at Jadra 10 miles north of
Sidon. 20th. Eight Tomahawks destroyed or disabled
100 mechanical transport on Damascus - Bayrout
road, further 20 mechanical transport were destroyed
or damaged by Blenheims in the same area.
Regraded Uclassified
186
RESTRICTED
0-2/2657-220; No. 425 M.I.D., W.D. 12:00 M., June 24, 1941.
SITUATION REPORT
I. Eastern Theater.
Ground: German pressure, so far as it can be identified,
continues to be exerted in the North. Brest-Litovsk has been
captured.
Air: Good indications of German air superiority.
II. Western Theater.
Air: German. Extremely limited offensive activity.
British. Strong daylight sweeps over Northern
France yesterday. Last night attacks were renewed on Dusseldorf,
Cologne and Kiel, together with several minor raids over Germany.
III. Middle Eastern Theater.
Ground: North Africa. No important developments.
Syria. The British column invading Northern
Syria has reached Palmyra (Tadmor)
Air: Raids on Alexandria and Beirut.
RESTRICTED
187
CONFIDENTIAL
Presphrace of Code Cakley
Resel.ved at the Mar Department
at 18:00, Jane 24, 1941
Landon, fileds 18:00, Ims 24, 1941.
2.
a. - transmitted as the
night of June 23-24-0-2.) During this night 51 tome of high
explosive bombe and 3700 incondiaries were dropped upon Brown)
6 taxe of high explosive bombs were dropped upon Median, and 3000
insendiaries and 29 tons of high explosive bashe were dropped upon
Wilhelmahaven.
b. Day of June 23. Six Blembein basbers escarted by two
equadrons of fighters and supported by twelve squadrons of fighters
unde an attack on the airdrome at Mardyck. The chemical works at
Chooques THE attacked by twenty-three Blenheims escorted by six
squadrons of fighters, with twelve squadrons of fighters furnishing
the support. off the coast neer Brest mines were laid by six
Besufert minalaying aircraft. Attacks was also made upon shipping
etf the Dutch Ceast by ten Blenhein aireraft.
4. Right of June 23-24. At dusk D nightfighters were
sent to the areas of Vitry, Mervills, Lills, La Bourget and
Villascublay, during which mission very small German activity vas
morentered. Aircraft of the Bember Command attacked the railmy
center at Coleges with a force of 44 bombers, the industrial area
of Coleges with 20 banbers, Dusselderf with 41, Kiel with x, Boulogns 2,
Inden 1, Ironan 1, and Summer with 1. Eight bubers dropped leaflets
over Visity and Paris.
INFORMATION COPY
CONFIDENTI
Regraded Uclassified
CONFIDENTIAL
188
2. German Air Activity over Britain.
as Night of June 22-23. During this night Germany
operated against Ingland with a force of 20 permit aircraft,
50 long range bombers, 5 recommaisemes and 20 minelaying
aircraft.
be Might of June 23-24. Small operations against shipping
and some nine laying missions were carried out by the Sermans in
the Thanes Estuary and off the coast of East Anglia. There were
also a few raids over Norfolk and Suffolk.
3. Aircraft losses Reported.
a. British losses. Two Blenheins and four Spitfires
were lost in the operations of the day of June 22.
b. Axis losses. During the daylight attacks of June 23
fifteen ME-109's and five ME-109F's were destroyed, two more
ME-109's were probably destroyed and four were damaged. British
night fighters shot down one HE-111 and one JU-S8 during the
operations over occupied France the night of June 23-24.
40 British Air Activity. Other Theaters.
& Middle Eastern Theater. All operations were en &
very small scale.
LEE
Distributions
Secretary of War
State Department
Secretary of Treasury -
Under Secretary of 18r
Chief of Staff
Var Plane Division
Office of Naval Intelligence
G.H.Q.
CONFIDENTIAL
Regraded Uclassified
CONFIDENTIAL
189
Paraphrase of Code Cablegram
Received at the The Department
at 13:40, June 25, 1941.
London, filed 20:07, June 25, 1941.
The Fieseler Starch liaison planes were used by the
Germans only for liaison purpose in the Balkan invasion, It was
not used for observation of Artillery fire. In any campaign
where there was opposing air force present this airplare has not
been found successful.
IXE
Distributions
Secretary of War
State Department
decretary of Treasury
Under Secretary of Mar
Chief of Staff
Assistant Chief of Staff, 0-2
War Plans Division
Office of Maval Intelligence
CHQ
0-3
Air Corps
CONFIDENTIAL
INFORMATION COPY
190
SECRET
By:authority JUN 27 A. C. of Faj G-2
Puraphrace of Code Cablagram
Date
1941
Reseived as the Me Department
young
Initials
at 13:58, im m, 1941.
Gaire, filed 21:15, too m, 1941.
The Allies have used two equatrens of - equires
in the Vestern Decort since June 12, prior to that 10 had boom used in
Gaire and Alemandria. The other oquatron 10 in - is Syria and Polectime.
In Alexandria formations of the Tumber's patrolled over the barber at
tventy-five thousand feet when advised W varning not of the enery's
approach.
In the first skirsich of - was directed by radio
and entiaireraft burste to the altitude of a Coat 2007. Attacks vare mis
from the been and free above. One fifty caliber - James because of a
split shell case and two thirty caliber (m) very not londed. The cont
dare dom to sea level and flod with the Tombark chasing it until the
ammition we expended. The year - was claimed.
The assent assomber was with a JU-00 at eighteen thousand feet.
Two attacked from the storm end from above. The member
fimily developed into a storm chase mail the Germa plans we loot in
the overcast. It was claimed that white each excled from - engine.
On the third occusion a Tumberk flying at eighteen through
fest we directed to attack a - engined plane at twenty-fear
feetbut 18 could not eatah up with the may. At BOTES Instred fifty
yards the P-40 opened fire, but as the are net tw 250 yerds
it and no effect. There we a atopyage das to failure of the - to artrest.
Corponter and Mong investigated and 18 use found that - - - in the
SECRET
INFORMATION COPY
Regraded Uclassified
SECRET
191
ogenáren the comilian has mot Years claims off. -
correct. there has net been my treable - they
vere clossed. and correctly adjusted. From
Distribution:
Secretary of Your
State Department
Bearebary of Treasury
Chief of Staff
Assistent Chief of Staff, 6-2
-
Plane Division
Office of Navel Intelligence
Accistent Unief of staff, 6-3
Air Garge
+
SECRET
192
Parephrace of Date Cablegram
SECRET
Received at the the Supertment
By authority A. C. of 8,, 0-2
as 17:12, - m, 1941.
Date JUN 27-1941 thang Initings
Gaire, filed $1.15, im se, 1941.
too Tennsants in scholan made an attack st treaty-Moree
thousand feet a an Italism Out 1007 in the fourth member. for
made a diving attack and the - , undersouth, while the other mis
its attack from below and hung on the Cont's rear with all - firing.
The Can't dave with parts falling off, then crashed.
The Tumbersk, making the dive, expended one hundred treaty
reads of thirty caliber and treaty remis fifty caliber. The other fired
three hundred thirty remain of fifty caliber and twelve hundred remis
thirty saliber. Cas Tennbook was hit by M Italian fifty caliber bullet
in leading edge which piereed the ving task. There was no fire, but the
engine beardings failed, in to following the Cast does is a fall throttle
dive. the other P-40 - hit in the flap W its on antinireraft but
landed all right.
The - pilots in their firsh skirmish, enocuntered 6 JV-88
at treaty-tro thousand feet. Case made storm quarter attacks and per
peason from est of the - while the other out an the JU-89's toil after
midding too frest quarter attachs. the JU-00 creaked in the - with both
engines damaged. The German plane used. extensive evaling assien w pulling
49, diving and turning.
One Tenabork received four bits, ⑉ in the vindahield, and the
other fourteen hits. These ware detailed is a provious suble an the -
subject.
SECRET
yellers
Distribution:
Plans Division
of
diffee Intelligence
Assistant thief of Staff, 0-3
Assistent dated of staff, 6-8
Air Gurgo
INFORMATION COPY
Regraded Uclassified
193
TREASURY DEPARTMENT
WASHINGTON
FOR RELEASE, MORNING NEWSPAPERS,
PRESS SERVICE
Wednesday, June 25, 1941
NO. 26-8
6/24/41
Secretary of the Treasury Morgenthau announced last night
that the subscription books for the current offering of 1 per-
cent notes of Series W of the Reconstruction Finance Corporation
closed at the close of business Tuesday, June 24, except for the
receipt of subscriptions from holders of Series N notes of the
Corporation who tender them for purchase by the Secretary in
a par amount equal to the par amount of notes of Series W sub-
scribed for. The subscription books will be closed for the
receipt of subscriptions of the latter class at the close of
business Wednesday, June 25, at which time the offer to purchase
Series N notes of the Corporation will terminate.
Subscriptions of either class addressed to a Federal Reserve
Benk or Branch, or to the Treasury Department, and placed in the
mail before 12 o'clock midnight of the respective closing days,
will be considered as having been entered before the close of
the subscription books.
Announcement of the amount of subscriptions and the basis of
allotment will probably be made the afternoon of Friday, June 27.
00000
194
June 26, 1941
Ferdinand Kuhn
Secretary Morgenthau
I wish you would pass this suggestion on today to
Howard Dietz. I wonder if the motion picture industry
would be willing to do for us a movie in four colors,
having somebody like Grace Moore or any other equally
good American singer, possibly Deanna Durbin, sing
America The Beautiful" with various shots of America
as a background. Then at the end, I would like to have
her turn towards the audience and say, "Now join me in
singing the chorus."
I wouldn't expect to try to plug defense bonds
other than to say at the beginning that this was under
the auspices of the Defense Savings Bonds Organization
of the United States Treasury, and possibly say the same
thing at the end.
I wish you would get this over to Dietz today
and ask him to think about it.
I also thought that possibly we might ask Walter
Disney to do it for us unless it would take him too long
to do it. In any event, get this suggestion to him today
so that I can have his reaction when I come back.
I spoke to Diets last night, and he is either going
to contact you or call Carmer today. Diets was not feeling
well last night, but he said if he felt well enough he would
like very much to see Carl Carmer this morning.
Regraded Uclassified
195
Secretary Morgenthau -
DEFENSE SAVINGS STAFF
Room 280
ADVANCE NOTICE RADIO PROGRAMS
WEDNESDAY - JUNE 25, 1941
Time:
3:15 - 3:30 P.M.
Program: Stella Dallas
Station: WRC
Time:
6:00 - 6:15 P.M.
Program: Easy Aces
Station: WMAL
Time:
7:00 - 7:30 P.M.
Program: Big Town
Station: WJSY
Time:
8:00 - 9:00 P.M.
Program:
TEXACO STAR THEATRE
Mr. Harold N. Graves, Assistant to the Secretary
of the Treasury, will officially accept the Texas
Company's time for the summer months. The approxi-
mate time at which hr. Graves will broadcast is
8:30 P.M.
Station: WJSV
THESE PROGRAMS PROMOTE SALE OF DEFENSE BONDS AND STAMPS.
196
K 1
12
o
THE SECRETARY OF COMMERCE
THE STATES of
WASHINGTON
June 25, 1941
Dear Mr. Secretary:
I have initialed and am
returning herewith the memorandum of our
conference of June 10, 1941.
Sincerely yours,
Honorable D. W. Bell
Under Secretary of the Treasury
Washington, D. C.
197
June 20, 1941
Secretary Norgenthan
Mr. Sockram
AS 11 c'sleck this seraing the Secretary of the Treasury received the
Secretary of Comeros. Mesero, Dell, Feley. White and Cechran were present.
Mr. Margenthan teld Mr. Jense that be is receiving 012 Mward Peacedt this
aftersoon. In added that he would like to speak to Sir Feasesk along the
fellowing lines. Yes that Mr. James has reseived the required legislation free
Congress, the British representatives should appreach Mr. James directly is any
instance where they desire to obtain & lean against British direct invostments is
the United States, or where Britteh owned American corporations wish to berrer for
the purpose of ming funds available to the British devernment. The responsibility
for passing ea each transactions would be that of Mr. James. Mr. Jesse agreed to
accept this responsibility with the understanding that be be free to call upon the
Secretary of the Treasury and members of his staff for support, assistance and is-
formation, with a view to obtaining for the Britter, ar British companies, the
largest possible annual of dellar leans in cash situation. Mr. Morgesthau and
kr. Jones agreed that their basic desire was to see that the British do net have
to sacrifice their Lavestments is this country through foreed sales. or fail to
obtain the maxima momt of dollars through leans be British owned American -
panies. or upon the security of Britten award American investments. be meet their
commitments is this country.
the foregoing outline of the approach be SirEdward Peaceek was agreed upon by
the two Mr. Margenthan streeted the point that be could not leek
tate every transaction which the British proposed to enter. Unless 6004 system each
as the above is adopted. there would be chance for confusing triangular converse-
tions such as took place this past week is the case of Control threed deal.
Mr. Margesthan considers 10 undesirable for the British to appreach consummation of
simie to obtain approval of the Secretary to the transpation under reference. Se
& deal with private bankers and then - to the Treasury in a rush at the last
believes that Britten intereste would best be served by the plan which he has one-
gested. The point was nade that the Secretary of the Treasury. with the accistance
of the British, made birn to Congress the various holdings of the British is the
United States at the sime the Lend-Lence Mill vas under consideration. It is sev
the daty of the British themselves to handle these assets is the manner most likely
be procure - nations of dollar exchange to pay for their commitments is this country.
which he passes. and stated that his yeryear vas, 44 far as practicable, to make
Rr. Jense agreed so inform the Treasury of the results of of transactions upon
DO leans available to the British to emble the to most their for
American supplise.
11m.n.
suB
JHJ
Dic:lap-6/17/41
Regraded Uclassified
198
TREASURY DEPARTMENT
M
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
June 25, 1941.
FROM
J. J. O'Connell, Jr.
For your information
The regular weekly meeti of the Price Administration
Committee was held in Mr. Henderson's office this morning
at 11 o'clock. All agencies which are members of the
Committee were represented. The important matters
discussed follow:
1. Automobile prices. Mr. Henderson reported on
the results of conferences held with a number of the
automobile manufacturers as a result of his request
for e. recision of the recent advance made in the price
of cars by most companies. Mr. Henderson advised that
& very unsatisfactory conference was held with the
Chrysler people yesterday, the attitude of the company
being that the question of the price of automobiles was
one of business judgment and that the company would not
brook any Government intervention in that field. The
company officials in effect said "We'll run the automobile
business and you can run the Government."
The Company's earnings are at & very high level
(Chrysler has consistently earned higher profits than
any other company in the industry for a number of years)
and the action suggested by Mr. Henderson would have
resulted in 8. saving to consumers on this year's models
of about $4 million. This would have reduced the
earnings of the company by less than one dollar a share
(their earnings for the first six months of this year
will exceed $5 a share). The only offer the company
was willing to make was that as a "gesture" they would
be willing to reduce their prices for this-year's models
by an amount which would equal about $250,000 if, in
return, they were given credit for their "cooperative"
attitude.
199
2.
Mr. Henderson pointed to the contrast between this
type of leadership in the industry and that represented
by General Motors, which has not advanced its prices
at all, and with that of the Packard Company, which, at
Mr. Henderson's request, refrained from putting into
effect a price increase when the other companies did,
although to do so would have meant an increase in its
income of about $9,000 per day. Mr. Henderson also
reported that the smaller independent companies were
generally willing to cooperate. He advised the Committee
that the Studebaker people had indicated that they were
entirely willing to do what the Government told them to,
provided only that all companies were treated the same
way.
Mr. Henderson also advised that in spite of 8. letter
and three telegrams to the Ford Company he has not yet
been in consultation with them.
The situation described represents the first case
in which a substantial company has absolutely refused
to cooperate with Henderson's office in its attempt to
control the trend toward inflation. Henderson's
office proposes to issue a statement either today or
tomorrow outlining the situation fully and, it is
understood, placing responsibility for the fact that
there will be no price reductions for automobiles where
it rightfully belongs. Obviously, under the circumstances,
the smaller companies will not be asked to reduce their
prices nor will Packard be asked not to increase its
prices in line with the others. What General Motors
will do is not known. No attempt will be made to fix
a ceiling on prices for this year's models inasmuch as
the season only has five weeks to run. However, the
recalcitrant attitude of Chrysler will doubtless give
impetus to a move to fix ceiling prices for next year's
models, as well as give impetus to legislation to give
Henderson's office the powers it sadly needs.
200
3.
2. West Coast steel facilities. Henderson also
referred to the request made by Henry Kaiser for approval
of his plan to build steel producing facilities on the
West Coast in an amount of 1,500,000 tona capacity, and
his request for its financing, through RFC, in an amount
approximating $150,000,000. OPACS has been asked by the
President to give him its views, as has OPM. Mr. Henderson
feels that the situation is not sufficiently clear at this
time to permit of 8. definite yes or no answer on Mr. Kaiser's
proposal, and feels that he should suggest to the President
that some impartial group study the over-all picture in the
steel industry 80 as to determine more definitely than is
known now where the additional facilities should be built,
how much expansion is needed and what kinds of steel should
be produced. Mr. Henderson is, of course, highly
sympathetic to the idea of expansion of capacity in steel.
At the present time, however, he apparently inclines to the
view that this can be done more cheaply, more quickly, and
to better all-around advantage if the additional capacity
results from the expansion of existing facilities rather
than through the creation of new ones. For example, he
points out that it is estimated that it will cost approximately
$100 per ton of capacity to build a new plant on the West
Coast whereas existing facilities can be expanded at 8.
cost of about $35 per ton of capacity. These figures do
not give any weight to the cost of transportation, which might,
if taken into account, reduce if not remove the apparent
disadvantage of the West Coast plan. Obviously there are
many other considerations that should enter into B. decision
to build or not to build new facilities on the West Coast,
and it is for this reason that Mr. Henderson intends
advising the President that some study should be made of
the over-all problem before a definitive answer can be
given to Mr. Laiser. I gathered the very definite impressi on
that Mr. Henderson had in mind 8. somewhat more objective
approach in such & study to that of Mr. Gano Dunn in his
recent studies of the capacity of the steel industry to pro-
duce.
Regraded Uclassified
201
4.
3. Cotton textiles. Mr. Henderson's affice is
presently working on an order fixing ceiling prices on
the more important types of cotton textiles. He stated
that it has been reported to him that Senator Smith's
Committee on Agriculture intends making some move to
prevent Henderson's office from taking such action.
Mr. Henderson stated that in the absence of express
instructions to the contrary from the President, or of
legislation by the Congress which would prevent it,
he proposes to issue the order irrespective of what
Senator Smith or his Committee may indicate as their
attitude on the subject.
The meeting adjourned at 12.30.
Josy de
202
June 25, 1941
MEMORANDUM FOR THE SECRETARY'S FILES:
A meeting relative to the administration of Executive Order
8389, as amended, was held in Mr. Foley's office at 3:00 p.m.,
June 25, 1941, attended from time to time by the following:
Messrs. Foley, Bernstein, Pehle, Coe, and Aikin for the
Treasury, Messrs. Acheson and Luthringer for State, Messre. Shea,
McNamara, Kreeger and Rosenwald for Justice, and Mr. Cohen.
Mr. Foley stated that he believed it would be a good idea
to have representatives of all the Federal Reserve banks come to
Washington for & conference relative to the administration of the
Executive Order. Following this conference, the Treasury could
send two representatives on an educational tour to each of the
Federal Reserve banks. It was agreed that immediate considera-
tion should be given to Mr. Foley's proposal.
Mr. Foley mentioned that since the last meeting Russia had
been licensed as a "generally licensed country" and that he under-
stood the Spanish Ambassador had indicated his government would
furnish assurances. In connection with Spanish transactions,
Mr. Pehle explained an application relative to the "Santa Helena",
a vessel registered in Panama and owned by 8. Greek presently in
Barcelona. The Greek wished to sell the ship, which has been
loaded with B. cargo of oil and is ready to sail for Spain from
a Texas port. According to Mr. Pehle, Admiral Land of the Mari-
time Commission is opposed to the sale of the vessel to Spanish
interests. If the ship is permitted to depart the sale, in one
way or another, is likely to be consummated. Hence, it was decided
that the application should not be approved.
Mr. Foley mentioned that Breckinridge Long had telephoned
to say that the State Department was negotiating with Admiral
Land for & vessel to repatriate Italian and German officials.
Mr. Acheson said that the State Department did not wish to search
the Italian and German diplomats because of retaliatory action
which the Germans and Italians might take in respect to American
citizens departing from Axis-dominated Europe. Mr. Acheson said
that a memorandum had been prepared outlining a tentative proce-
dure to be followed in connection with departing officials. The
203
- 2 -
State Department proposed to ask what the Italian official ac-
counts were and where located, who has signing power on such
accounts, what are the accounts for, and how much must be with-
drawn to wind up the affairs of the officials. The Italians
are also to be told that it will facilitate matters if we are
advised of all cash and other assets held in the United States.
If this information is obtained, State will turn it over to the
Treasury. Mr. Foley emphasized the necessity of the State De-
partment's indicating exactly what steps it wishes the Treasury
to take in connection with the departure of these officials.
Mr. Foley stated that the International Telephone and Tele-
graph Company had proposed a swap of their German property, worth
approximately 23 million dollars, for stock physically located
in the United States of the General Aniline Film Company, which
stock is owned by I. G. Chemie. Mr. Acheson reiterated Mr. Welles'
position with respect to the sale by American concerns of foreign
property for blocked funds. Mr. Acheson mentioned other companies
which had approached the State Department for an expression of
its views on the sale of foreign properties. After considerable
discussion, it was decided that these firms should submit their
proposals in writing, setting forth full details. The companies
should be informed that each proposition will be scrutinized very
carefully, and considered entirely on its own merits.
Mr. Acheson stated assurances had been received from the
Finns, but that Mr. Atherton preferred that no action in respect
to a General License for Finland should be taken at this time.
Mr. Pehle mentioned that Finnish diplomatic and consular expenses
could be treated in the same manner as in the Rumanian and Hungar-
ian cases.
Mr. Luthringer brought up the Leonardo da Vinci exhibit,
suggesting that the Italians be permitted to ship it to Japan.
Since to do this would be inconsistent with previous policy in
respect to French paintings, and would have the effect of giving
the Italians free dollars, the Treasury questioned the policy of
allowing the export. It was decided to take no action until the
State Department had had an opportunity to go into the matter
further.
Mr. Foley stated he had told the Associated Press permission
would not be granted for the payment of $10,000 in free funds to
the DNB for the repatriation of the AP's European representatives.
Regraded Uclassified
204
- 3 -
It was explained that this Government can not get into a bargain-
ing position for preferred classes. Mr. Bernstein stated that,
when considering the whole question of free funds for Italy and
Germany, it must be remembered that, as a result of General
Licenses 32 and 33 and the negotiation of State Department drafts,
free dollars are accumulating to these countries. Before re-
quests for additional free dollars are granted, these countries
should be told to use those they already have.
Mr. Pehle stated that from 60 to 70 applications had been
received for licenses relative to import and export transactions
with South American firms which were German or Italian. Some of
the latter are on the British Statutory and Rockefeller lists.
It was agreed that these applications should not be approved and
that the applicant be requested to furnish complete information
similar to that called for on TFBE-1 Reports, in respect to the
German or Italian concern.
205
TREASURY department
INTER OFFICE COMMUNICATION
Personal and Confidential
DATE June 25, 1941
TO
Secretary Morgenthau
FROM
John C. Wiley
I had word last night from Colonel Donovan's secretary
that the Colonel wanted to get in touch with ne but that his
plans for this week were very indefinite; that towards the
end of the week he would communicate with me by long distance
telephone. I told the Colonel's secretary to let him know
that I could make myself available at any time, anywhere.
Bullitt wents me to come over there for the week-end.
If you have no objection, I shall leave late this afternoon.
Colonel Donovan's secretary has Bullitt's telephone num-
ber, which is Ambler 1510,
June
Regraded Uclassified
TREASURY DEPARTMENT
Fame 206
INTER-OFFICE COMMUNICATION
Bend July 9,1941
DATE June 25, 1941.
to
Secretary Morgenthau
FROM Mr. Gulick and Mr. Groves.
In accordance with your recent request we are
submitting herewith certain documents relating to the
project on Federal-State-Local fiscal relations. There
are six memoranda, as follows:
1. Statement of objectives - this is primarily for
our own use to keep our aim clear.
2. Summary of program, indicating major divisions.
3. Summary of possible special projects and
personnel.
4. Copies of proposed letters inviting selected
persons to participate actively in the project
and 8. more general letter seeking wider
cooperation.
The next two memoranda are more detailed supporting
statements concerning:
5. The program.
6. Specific projects and personnel
Handld m. Groves
Regraded Uclassified
207
MEMORANDUM
Number 1.
Statement of Objectives
The long-standing problem of federal-state-local
fiscal relations is rendered more acute by the defense
program and post-war fiscal prospects. Governments must
draw upon fiscal resources to 8. greater degree than in
the past and the post-war problems will especially require
fiscal policy carefully adapted to economic ends. The
prospect of price rises during the war period is one that
has serious implications for state and local finance.
In these times of emergency the case for coordination and
integration of tax and expenditure systems becomes
especially strong. It is therefore the objective of this
study to gather the facts, develop principles and seek
out specific suggestions leading toward 8. better co-
ordination of federal, state and local revenue and
expenditure systems and to plan for their cooperative
development, in harmony with sound fiscal policy, to meet
the needs of the Federal Government and at the same time
to maintain the independence and vitality of state and
local institutions.
Regraded Uclassified
208
MEMORANDUM
Number 2.
Summary of Tentative Program of Investigation
of Federal-State-Local Fiscal Relations.
1. Complaints and Possible Modifications.
COMPLAINTS
1. Dual administration of state and federal tax laws;
unsuitability of revenue sources.
2. Multiple taxation.
3. Diversity of state tax laws and regulatory procedures.
4. Competition among states for tax bases.
5. Inadequacy of local sources.
6. State and federal financial embarrassment due to
increased revenue demands.
POSSIBLE MODIFICATIONS
1. Federal-State agreements for the joint administration
of taxes.
2. Federal credits for state taxes.
3. Federal-Collection-State-Sharing.
4. An extension of federal aid to the states.
2. Possible changes in federal revenue laws to meet the
financial requirements of proposed modifications in federal-state-
fiscal relations; proposals for a new system of business taxation.
3. Impact of expanding federal revenues and expenditures on
state and local finance.
209
4. The over-all picture of governmental taxes, expenditures,
and so forth; status of public debt at various governmental
levels.
5. Quantitative estimates of future revenues and expenditures
and of prospective national income; prospects for the post-war
period.
6. History and literature of the Coordination movement;
federal state fiscal relations in other systems.
210
MEMORANDUM
Number 3.
Summary of Supplementary Memorandum on
Special Projects and Personnel
1. Problems of administration and suitability of taxes at
different levels of government. Prof. Martin of Kentucky.
2. Diversity of revenue laws; impact of the federal defense
program. Mr. Lepawsky. Federation of Tax Administrators.
3. Multiple taxation; other legal aspects. A good tax lawyer
yet to be selected.
4. Quantitative estimates. Prof. Shoup, Columbia University.
5. Inadequacy or unsuitability of the property tax and sales
tax. George Mitchell, Illinois Tax Commission; Mr. Jacoby,
University of Chicago.
6. Federal aid programs and the allocation of governmental
services in relation to resources. Prof. Heer, University
of North Carolina.
7. Federal-State-Fiscal relations in other federal systems.
Prof. Newcomer of Vassar.
8. Status of public debt at various governmental levels.
Prof. Leland of Chicago.
9. New system of business taxation. Prof. Haig of Columbia
University.
211
10. Interstate competition; federal credits; federal collection -
local sharing; prospective changes in federal revenue laws;
fiscal capacities of the states; factual picture of over-all
taxes. The Treasury Staff.
Each of these programs will require the cooperation of
federal agencies including at many points the Bureau of
Internal Revenue.
The budgetary implications of these appointments cannot
be determined until we have conferred with the specialists
concerned. On the basis of preliminary estimates we are
allowing about $35,000 for the projects here set forth.
Regraded Uclassified
212
Dear Jim:
The Treasury Department, as you may have seen from
Secretary Morgenthau's recent announcement, is making an
examination of & number of fiscal and administrative questions
arising from the interrelation of Federal, state and local
revenue needs and tax systems. Luther Gulick, Clarence Heer
and I are doing some preliminary planning and are helping to
get work in this field started.
Among the vital aspects of this problem is the matter of
the suitability of taxes for different levels of government
particularly from the administrative point of view. Because
of your very extensive contact with the problem of revenue
coordination and equally extensive experience with state tax
administration you are uniquely qualified for a study of this
kind.
What we have in mind is this:
It is proposed that a study be made of state and
local administration of taxes in comparison with actual
or possible federal administration. The object is to
determine the unit of government most suitable for the
administration of taxes. Among the matters which might
be taken into account are:
1. Actual costs of administration; especially where
state and federal administration exist side by
2. Possible side; saving from the elimination of duplication:
3. Unnecessary cost of compliance;
4. Leakage in administration and collection;
5. Other limitations in state or federal administration;
(a) Propensity of the base to migrate;
(b) Inadequacy of information;
(c) Inability to allocate properly;
(a) Constitutional barriers (as in sales tax):
Regraded Uclassified
213
- 2 -
(e) Extra-territorial incidence (as in
Manufacturers' excise on cigarettes);
(f) Inefficiencies of centralization;
(g) Vitality of local institutions.
Possibly much of this information could be obtained by
correspondence and some of it certainly must come from personal
experience such as you have had, but the whole problem calls
for & rigorous, comprehensive and fresh analysis.
I am writing to see if we can persuade you to join us in
this enterprise and to undertake this important and difficult
study. We will have to talk over the work involved and see
what sort of arrangements are appropriate. Perhaps you could
arrange to take off one semester, or at least to lighten your
schedule. But in any case the Treasury is prepared to pay for
the service rendered.
I hear that you are to be West this summer and that you are
working on a state tax program. Does this mean that you will be
unavailable here in the East before September?
Perhaps you better write about your plans. I can then
suggest when and where we can get together most conveniently.
We are very anxious indeed to see this project launched and
we are sure that you are the man to do it. We know that you are
interested, we hope that arrangements can be made, and we shall
look for an early reply.
With best wishes
Sincerely yours,
Professor James E. Martin,
University of Kentucky,
Lexington, Kentucky.
214
Dear Simeon:
The Treasury Department, as you may have seen from
Secretary Morgenthau's recent announcement, is making an
examination of a. number of fiscal and administrative
questions arising from the interrelation of Federal, state
and local revenue needs and tax systems. Luther Gulick,
Clarence Heer and I are doing some preliminary planning
and are helping to get work in this field started.
Among the projects we have in mind, three appear to
be especially "down your alley". One has to do with debts,
their status, economic significance, relation to fiscal
policy, and intergovernmental and administrative relations.
A second project consists of 8. survey of the status
of the property tax including rates, further elasticity,
delinquencies, symptoms of revolt, attitudes of farmers,
homeowners, city officials and 80 forth. The objective
is to learn how valid is the contention that the sources
of local revenue are highly inadequate and breaking down.
A third project consists of 8 survey similar to the
above but in the field of sales taxation. Here it would
be important to inquire as to the present status and
significance of the constitutional barriers, the effective-
ness of the use tax, the acceptability of these taxes to
the public and other matters which would throw light on
the degree to which the sales tax states have solved
their revenue problem.
We are definitely counting on you for a comprehensive
memorandum on debts - just as soon as you have finished
your book, unless, perhaps, you think it feasible for
you to do the memorandum for us first and your book
second. Is this possible?
Assuming that "Debts" will keep you occupied for
the time being, what about George Mitchell for number two
Regraded Uclassified
215
- 2 -
and Jacoby for number three? Frankly we want your advice
before talking turkey to them.
We very much hope that you and the University of
Chicago group can help us along the lines above suggested.
If you have any other ideas for work in this field we
would be glad to get them.
Best wishes
Sincerely yours,
Professor Simeon Leland,
University of Chicago,
Chicago, Illinois.
216
Dear Mr. Lepawsky:
As you probably know the Treasury Department is
making 8. preliminary examination of 8. number of fiscal
and administrative questions arising from the inter-
relation of Federal, state and local revenue needs and
taxes. We appreciate the assurance you have already
given of your interest in this work and your willingness
to cooperate.
We very much need your help, first, in making plans,
and second, in carrying through specific sections of the
research.
Can you by any chance be in Washington conveniently
on the 1st and 3rd of July? If 50, we can talk things
over more fully. If that is not possible we can, I am
sure, arrange a more convenient date.
As things shape up now we hope you and the Federa-
tion will help us with two preliminary studies:
(a) The diversity of revenue laws and the cost
of compliance;
(b) The impact of defense on state and local
taxation.
Will you be thinking about these questions 80 that
we may work out together their scope and content, their
timing and the costs of the research work involved?
We would also opreciate any further suggestions
you may have as to this whole inquiry.
217
- 2 -
When you come to the Treasury, you will find us
in Room 1181.
Sincerely yours,
Mr. Albert Lepawsky,
Federation of Tax Administrators,
1313 East 60th Street,
Chicago, Illinois.
218
General letter asking for suggestions
and cooperation to be sent to selected
administratore and tax experts.
As you already know from Secretary Morgenthau's
recent announcement, the Treasury Department is now
making a preliminary examination of a number of fiscal
and administrative questions arising from the inter-
relation of federal, state and local revenue needs and
tax systems. This is something which has concerned you
and me and others for many years.
What we are now doing is preliminary in nature.
Especially at this stage it will be most helpful to the
Treasury to have the benefit of suggestions from those
who, like yourself, are really informed and interested
in the problems involved. What aspects now seem to you
most to deserve investigation? Is the situation changed
by the emergency? Is the work now called for primarily
knowledge, i.e., research, or primarily thinking,
planning, contriving and action?
Though I am writing you informally now, I hope we
can talk things over at length in the not too distant
future.
If you come to Washington won't you let me know
and look me up? (Treasury, Room 1181). We shall, of
course, keep you posted.
Very truly yours,
Regraded
classified
219
MEMORANDUM
Number 5.
Tentative Memorandum for B. Program of Investigation
concerning Federal-State-Local Fiscal Relations.
It is proposed to approach the subject from the following
angles:
I. What are the complaints leveled against the present system
of intergovernmental relationships and what are the proposed modi-
fications in these relationships? Each of the complaints and
proposed modifications should be examined in some detail as to
its nature and validity. Among the complaints the following are
especially recommended for consideration.
1. Dual administration of state and federal tax laws.
What are the wastes of dual administration in terms of:
(a) Unnecessary costs of duplicate administration;
(b) Evasion of taxes because of unsuitable administration;
(c) Unnecessary cost of compliance.
2. Use (that is, collection) by the State of sources of
revenue unsuited to them because of
(a) Propensity of the base to migrate;
(b) Inadequacy of information;
(c) Inability to allocate properly;
(d) Constitutional barriers (sales tax);
(e) Extra-territorial incidence (manufacturers' excise
on cigarettes).
220
- 2 -
An attempt should be made to appraise the advantages of federal
as compared with state administration for each tax.
3. Inadequate revenues from available and desirable tax
bases to provide an adequate standard of public services:
a. Among cities;
b. In rural districts;
C. In depleted areas;
d. In districts with sub-normal tax resources.
It is complained that the property tax, now heavily relied
upon for local support, has reached the limit of its elasticity
and that it is regressive. The retail sales tax is also criticized
for regressivity. Some study of the social effects of these taxes
and their expansion could be made. For example, what is the effect
of the property tax on housing and what is its effect on farm and
home foreclosure?
4. Bad correlation in location of wealth and need for public
services; unfair allocation of such wealth for taxation
(for example the taxation by Delaware of a domestic
corporation nearly all of whose assets and business
are located elsewhere; or the taxation by New York of
estates built up in nation-wide distribution of ability
and need by means of tables and maps.) (See Blough:
Geographic Distribution of Wisconsin Tax Bases.)
Regraded Uclassified
221
- 3 -
To what extent are differences in taxation resources
inter=local as well as interstate? Are poor counties
in New York as "bad off" 8.8 good counties in Mississippi?
5. Multiple taxation in the application of state taxes.
6. Undue diversity of tax laws and procedure resulting in
confusion and excessive cost of compliance. The out-
standing case of this is business taxation, an institu-
tion which "cries aloud" for simplification and
standardization.
7. The importation of value; for example, unfair allocation
in the application of the property and gross income
taxes to railroads.
8. Competition among states for tax bases and the migration
of wealth and industry to avoid state and local taxes.
Some data on the relation of taxes to the costs of
manufacture and the relation of tax differentials to
these costs would be helpful.
9. Extent of state and local fiscal embarrassment resulting
from "mandatory" expenditures incident to federal
programs.
10. Limitation of Federal defense program alleged to result
from state occupation of tax fields otherwise fully
available for Federal utilization.
222
- 4 -
11. Uncertainty and confusion in state and federal fiscal
planning; neither level of government can predict with
assurance what the other will do.
12. Local resources have been strained by federal projects
which have tempted local matching of federal funds.
13. Intergovernmental embarrassment caused by the fact that
governmental instrumentalities have certain immunities
from intergovernmental taxation. (State sales taxation
of defense contracts.)
Is there a popular consciousness of this problem, a demand
by large numbers of people and their legislatures that "something
should be done" in the field of intergovernmental fiscal relations?
Do these complaints taken collectively add up to a cause for
action and if so what should it be?
Among the proposed remedies the following are specially
recommended for consideration:
14. Legislation to implement federal-state agreements whereby
the Federal Government will undertake to administer
certain state taxes for an agreed fee or on a cost basis.
15. A federal-state commission (with equal representation) to:
(a) Arrange agreements for the exchange of inter-
governmental administrative services;
(b) Facilitate exchange of information;
223
- 5 -
(c) Encourage reciprocal legislation;
(a) Discourage diversity of tax laws;
(e) Conduct research concerning federal-state and
interstate fiscal relations.
16. An extension of federal aid to the States. This
presumably would be 8 post-defense program. The aid
might take the form of a general subsidy or of a grant
for one or more specific functions (such as education,
welfare, highways). It might be a differential aid
distributed in some ratio of need related to resources;
or it might be distributed on some other basis without
regard to ability to support the function.
What is the degree of local and central interest in the
various functions of Government and how does it correlate with the
responsibility for the support of these functions?
17. An extension of federal credits for state taxes (as
presently applied in death taxes).
18. Federal oollection plus state distribution.
19. Further reallocation of functions. If, in the post-
defense era, the Federal Government embarks on a program
of works in such fields as housing, nutrition, health,
highways, and electricity, it will be necessary to
decide whether this should be through the assumption
224
- 6 -
of these functions by the Federal Government directly,
or through grants-in-aid to subordinate units, or
through direct outlays to individuals.
20. Federal assistance to facilitate state and local
borrowing.
II. What are the possibilities of federal revenue adequate
to finance additional fiscal support for the states? What are
the proposed means of "strengthening" the federal tax system and
are these desirable or undesirable? Some consideration might
be given to the following:
1. Proposals to strengthen the federal income tax:
a. Collection-at-the source; corresponding proposals
to lessen the time-span between earning income and
paying income taxes;
b. Taxation of undistributed profits (to the corporation
or the individual);
C. Elimination of tax-exempt securities.
What is the maximum proportion of the income of the United
States which it is feasible to collect through an income tax?
What are the limiting factors?
2. Proposals to develop a new system of business taxation.
3. Use of special excises or general sales taxes.
225
- 7 -
4. Development of 8. stronger - perhaps permanent-excess-
profits tax.
5. Increased payroll taxes to cover the obligations of the
social security program.
6. Use of a flexible tax, automatically adjustable.
7. For the period of defense financing some attention might
be given to possible programs of borrowing from indi-
viduals, as for example, in the Keynes Plan for financing
the British war budget.
Are there important possible sources of federal, state or
local economy which would release fiscal resources? For example,
how sizeable are the economies, if any, which might result from
the reorganization of local units of government?
III. What is the impact of the defense program on state and
local finance? To what degree have tax bases been improved by
government spending? To what degree have they been depleted by
federal tax expansion? What are the prospects of the taxpayer
subject to the impact of both federal and state systems?
The above would constitute the major theme of the investigation.
However, it should be supported by much background material
including:
226
- 8 -
IV. The over-all picture of present taxes, expenditure,
debts, and governmental transfers (aids) at all levels of government.
What is the incidence and impact of the over-all tax system?
V. Quantitative estimates of future revenues, expenditures
and of effects of changing the fiscal system.
VI. Prospective national income and its effect on revenue
possibilities and fiscal policy; the relation of fiscal policy
to inflation.
VII. Possibilities of relieving post-war fiscal pressure by
means of & "capital budget" and a partially self-liquidating
public works program.
VIII. A survey of the literature on federal-state-local fiscal
relations and of the practices in other federal systems. Intro-
ductory material portraying the development of present problems
in intergovernmental fiscal relations. Some reference should be
made to the roots of these problems extending into economic
history, economic geography, and constitutional history.
Conclusion: Coordination of state and federal taxes is 8.
subject to which great quantities of writing and speaking have
been devoted. A very considerable. amount of funds and effort
have been invested in this cause. Yet singularly little real
progress has been made. Why?
227
SUPPLEMENTARY MEMORANDUM
Number 6.
Suggested Special Projects and Personnel.
1. Suitability of taxes (particularly from the angle of
administration.) (Prof. Martin)
2. Diversity of Revenue laws. (Mr. Lepawsky)
3. Multiple Taxation (including the importation of value.)
(A good tax lawyer.)
4. Immunity from intergovernmental taxation (instrumentalities.)
(A good tax lawyer.)
5. Interstate competition for tax bases; migration of industry
to escape taxation. (Treasury Staff)
6. Impact of the federal defense program upon state and local
sources of revenue. (Treasury Staff - Mr. Lepawsky)
7. Federal credits and federal-collection-state-sharing of
revenue. (Treasury Staff)
8. Proposals to strengthen the federal tax system from the
revenue standpoint. (Treasury Staff - Carl Shoup)
9. Future financial balance sheet of the social security
program; Prospective trends in expenditures. Payroll taxes.
(Social Security Board)
10. Quantitative estimates of future revenues, expenditures
and effects of changing the fiscal system. (Prof. Shoup)
11. Prospective national income and its effects on revenue
possibilities and fiscal policy; the relation of fiscal policy
to inflation. (Prof. Shoup)
12. Possibilities of relieving post-war fiscal pressure by means
of a "capital budget" and a partially self-liquidating public
works program. (National Resources Board)
13. A survey of the present status of the general property tax.
Regraded Uclassified
228
1. rates
George Mitchell
2. elasticity
(Illinois Tax
Commission)
3. delinquencies
Possibly
(Tax delinquency
Mr. Silverkers.
Tax limitation
Help from the
4. symptoms of revolt Homestead exemption
Census Bureau
14. A survey of the general status of the state sales tax;
1. Significance of the no-taxation-of-interstate-commerce
impediment.
2. Effectiveness of the use tax.
3. Incidence and effects of the tax. (Mr. Jacoby)
15. Inadequacies in state and local support for education.
(Prof. Heer)
16. Inadequacies in state and local support for welfare and
health. (Social Security Board)
17. Possibilities for economy in the reorganization of governmental
machinery or the reallocation of governmental functions.
18. Federal state aid programs. (Prof. Heer)
19. Federal-state-fiscal relations in other federal systems.
(Prof. Newcomer)
20. Roots of present difficulties in federal-state-fiscal
relations (economic history, economic geography, and
constitutional history). History of the Coordination
Problem. (Treasury Staff)
21. Bibliography. (Prof. Newcomer)
22. Status of public debt at various governmental levels;
prospects for the larger units serving the smaller in the
latter's public borrowing. (Prof. Leland)
229
23. A new system of business taxation for the United States.
(Prof. Haig. Possibly Prof. Studenski)
24. Fiscal capacity of States. (Treasury Staff - Social
Security Board)
25. The over-all tax picture in statistical and graphic terms.
(Treasury Staff)
Other personnel who have been suggested for specific projects are:
Prof. Wynne
- Comparison of fiscal coordination problems
in Canada, Australia, and the United States.
Frederick Bird - The fiscal plight of the cities.
John Maxwell
- Fiscal coordination in Canada and the United
States.
DELIVERIZE OF AIRPLANED. DI PUNCHAREM AND at TIPS a PLANTS
RICTLY CONFIDENTIAL
January 1, 1940 - June 21, 1941
Other
3ombers
Pursuits
Trainers
allitary
Commercial
planes
Total
planes
TOTAL ALL PURCHASERS
1940
Tab. 1 - June 29
580
June 30 - Jan, 4 (1941)
610
905
105
400
2,600
65A
1,215
Total
2,020
95
601
4,609
1,234
1,625
1941
2,925
200
1,021
7,209
Jan, 5 - Jan, 18
so
Jan. 19 - Feb. 1
97
188
5
36
NOS
Feb. 2 - Fab. 15
75
151
323
53
22
604
Feb. 16 - Mar, 1
79
113
155
19
R
391
Mar. 2 - Mar. 15
175
102
304
19
27
Mar. 16 - Mar. 29
101
223
17
45%
22
627
100
13
Mar, 30 - Apr. 12
155
114
326
16
34
6%5
149
110
Apr. 11 - Apr. 26
261
16
34
570
171
136
Apr. 27 - May 10
340
13
19
May 11 - May 24
133
129
319
21
679
26
628
151
May 25 - June 7
127
368
16
13
123
675
June 6. - June 21
101
288
21
KM
545
151
74
142
30
24
EM
Total
1,542
1,355
3,437
220
291
6,045
Grand Total Jan. 1, 1940 June 21, 1941
2,780
3,160
6,362
420
1,312
14,054
APOCY
1940
Jan. 2 June 29
34
47
511
64
-
June 30 - Jan. 4 (1941)
656
72
286
934
17
-
1,309
Total
106
333
1,445
61
-
1,965
1941
Jan. 5 - Jan, 1.8
6
6
no
-
-
Jan. 19 - Feb. 1
58
1
2
166
Feb. or - Feb. 15
-
13
9
74
4
169
-
Feb. 16 - Mar. 1
100
43
33
153
Mar. 2 Mar. 15
7
.
236
25
84
120
67
our
-
214
Mar. 16 - Mar. 29
29
185
-
28;
Mar. 30 . ADP. 12
35
81
169
6
-
Apr. 13 - APT. 26
291
50
82
237
7
.
Apr. 27 - May 10
is
336
37
202
May 11 - May 24
15
14
262
:
1
266
-
May 25 - June 7
295
27
10
154
9
-
200
June 5 - June 21
32
8
222
13
-
275
Total
295
413
2,030
69
-
2,807
Grand Total Jan. 1, 1940 - June 21, 1941
401
746
3,475
150
.
*,772
HAVY
1940
Jan. 1 June 29
42
1
65
17
-
165
June 30 - Jan. 4. (1941)
66
76
292
76
.
530
Total
125
77
377
113
-
695
1941
Jan. 5 - Jan. 18
17
14
79
5
-
115
Jan. 19 - Peb. 1
31
11
113
33
-
1.5M
Feb. a - Feb. 15
21
17
41
8
-
07
Pab. 16 - Mar. 1
30
12
32
12
-
de
Mar. 2 - Mar. 15
23
-
35
12
-
70
Mar. 16 - Mar. 29
37
15
AI
10
-
143
Mar. 30 - Apr. 12
6
19
$
10
-
119
Apr. 13 - Apr. 26
28
22
53
6
1
109
Apr. 27 - May 10
27
20
58
9
-
114
May 11 - May 24
33
19
51
12
-
115
May 25 - June 7
19
15
69
12
-
135
June e - June 21
44
10
58
17
-
129
Total
340
170
750
146
-
1,410
Grand Total Jan. 1, 1940 - June 21, 1941
468
251
1,127
259
-
2,105
BRITISH EXPIRE AND FRANCE
1940
Jan. 1 June 29
468
376
193
2
9
1,050
June 30 - Jan. 4. (1942)
436
791
447
2
27
1,703
Total
924
1,167
640
4
36
2,772
1941
Jan. 5 - Jan. 18
57
69
9
-
5
140
Jan. 19 - Feb. 1.
43
126
8
-
-
209
Feb. 2 - Feb. 15
45
67
26
1
10
168
Feb. 16 - Mar. 1
72
57
96
-
2
227
Mar. N - Mar. 15
52
33
58
-
-
143
Bar. 16 - Mar. 29
73
18
46
-
2
133
Mar. 30 - Apr. 12
84
6
30
-
2
122
Apr. 13 - Apr, 26
22
26
4g
-
-
168
Apr. 27 - MAY 10
67
68
56
-
I'
213
May 11 - May 24
103
61
51
-
,
235
Ray 25 . June 7
77
62
40
-
-
179
June in - June 21
7%
52
5%
-
-
180
Total
659
679
555
1
21
2,115
Grand Total Jan. 1, 1940 - June 21, 1941
1,763
1,846
1,195
5
57
4,MBE
OTHER
1940
Jan. 1 - June 29
16
186
116
2
391
712
June 30 - Jan. L (1941)
64
&
347
-
594
1,067
Total
no
pas
463
2
985
1,778
1941
Jan. 5 - Jan. 18
-
e
14
-
a
57
Jan. 19. - 7eb. 1
-
12
4
-
22
30
7wb. 5 - Feb, 15
1
-
14
-
W
36
7eb. 16 - Baz. 1
R
23
-
25
78
Regraded Uclassified
War. 2 - Mar. 15
-
%
10
-
13
77
Mar. 16 - Mar, 29
16
20
14
-
32
e
Mar, 30 Apr. 12
1
M
2
-
32
X
Apr. 13 - Apr. 25
-
5
1
-
19
of
Apr. 27 - May 10
.
a
2
#
2
R
Pay 11 - May 24
-
13
-
13
30
May 25 June 7
-
14
in
-
12
If
June e - June 21
1
.
-
24
17
Total
5
89
LOS
a
270
533
limite Total Jan. 1, 1940 - June 21, 1941
128
337
565
6
1,255
2,151
office of Line Bearatary at the treasury, Division of Beaearch and statistics,
1
June 25, 2941
Deliveries waser Prensh vara base - to Titas 30, 1340.
DELIVERIES OF AIRPLANED, DY PURCHASERS AND BY TYPE) or PLAYER
RICTLY CONFIDENTIAL
23/
January 1, 1540 - Jung 21, 1341
Other
Sumbers
Pursuite
Trainers
military
Comercial
Total
planse
planse
TOTAL ALL PURCHASERS
1940
Jan. 1. - June 29
580
610
905
105
licia
2,600
June to - Jan, 4 (1941)
658
1,215
2,020
95
621
4,609
Total
1,238
1,825
2,925
200
1,021
7,209
1941
Jan,
5 - Jan. 18
50
97
188
5
36
NOE
Jan. 19 - Feb. 1
75
151
323
33
22
604
Feb. e - Feb. 15
79
113
155
13
B
391
Feb. 16 - Mar. 1
175
102
304
19
27
627
Mar. e - Mar. 15
100
101
223
17
13
458
Mar. 16 - Mar, 25
155
114
326
16
of
645
Mar. 30 - Apr. 12
140
110
261
16
3b
570
Apr. 13 - ADT. 26
171
136
340
13
19
679
Apr. 27 - May 10
133
129
319
21
26
626
May 11 - May 24
151
127
we
16
13
679
May 25 - June 7
123
301
200
21
12
545
June e - June 21
15t
74
342
10
24
521
Total
1,5%
1,355
7,437
220
291
6,845
Grand Total Jan, 1, 1940 - June 21, 1941
2,780
3,380
6,362
420
1,312
14,054
ARMY
1940
Jan. 1 - June 29
34
nz
511
64
-
656
June 30 . Jan. 4. (1941)
72
286
054
17
-
1,309
Total
106
333
1,445
81
-
1,965
1941
Jan. 5 - Jan. 18
6
6.
86
-
-
95
Jan, 19 - Peb. 1
1.
2
166
-
-
169
Fab. 2 - Feb. 15
13
9
74
-
-
100
Feb. 16 - Mar. I
43
33
153
7
-
236
Mar. 2 - Kar. 15
25
64
120
5
-
214
Kar. 16 - Mar. 29
29
67
185
6
-
28;
Mar. 30 - Anr. 12
15
61
169
6
-
291
Apr. 13 - Apr. 26
50
82
237
7
-
376
Apr. 27 - May 10
19
27
202
8
-
266
May 11 - May 24
15
14
262
4.
-
295
May 25 - June 7
27
10
154
9
-
200
June 8. - June 21
32
A
222
11
-
275
Total
6
413
2,030
69
,
2,007
Brand Total Jan. 1, 19ko - June 21, 1941
746
3,475
150
-
*,772
HAVE
1940
Jan. 1 - June 29
No
1
85
27
-
165
June 30 - Jan, 4 (1941)
&
76
292
76
-
530
Total
Lee
77
377
113
-
695
1941
Jan. 5 - Jan. 18
17
14
79
5
-
115
Jan. 19 - Pib. 1
31
11
113
33
-
168
Feb. 2 - Feb. 15
21
17
si
8
-
of
Feb. 16 - Mar. 1
30
12
32
L2
-
se
Par, 2 - Mar. 15
23
-
35
12
-
70
Mar. 16 - Mar. 29
37
15
81
10
-
143
Mar. 30 - Apr. 12
3,
19
8
10
-
119
Apr. 13 - Apr. 26
28
22
53
6
-
109
Apr. 27 - May 18
27
20
54
9
-
114
May 11 - May 24
"
19
51
12
-
115
May 25 - June 7
19
15
2
12
=
135
June 5 - June 21
as
10
58
17
1
129
Total
340
174
750
146
-
1,410
Grand Total Jan. 1, 1940 - June 21, 1941
468
251
1,127
259
-
2,105
DRITISH DOTAL AND FRANCE*
1940
Jan. 1 - June 29
966
376
193
=
9
1,068
Zune 50 - Jan. - (1941)
436
292
447
2
27
1,703
Total
924
1,167
540
5
36
2,771
1941
Jan. 5 - Jas. 15
57
65
9
-
5
140
Jan. 19 - Fett, 1
:
126
40
209
Two. 2 - Feb. 15
E
67
26
1
10
166
Feb. 16 - Mar. 1
72
57
go
2
227
Mar. 2 - Mar. 15
52
33
58
-
-
143
dar. 16 - Mar, 29
73
12
46
-
2
133
Mar. 30 - ADT. 12
:
5
30
-
2
122
APF. 13 - ADT. 26
93
26
$
-
-
168
Apr. 27 - May 10
67
&
56
-
-
m
May 11 - May 24
103
12
51
-
-
235
May 25 - June 7
77
62
No
.
-
179
June 6 - June 21
74
52
5ª.
%
-
150
Total
859
679
555
1
21
2,115
Grand Total Jan. 1, 1940 - June 21, 1941
1,783
1,846
1,195
5
57
4,886
OTHER
1940
Jan. 1 - June 29
16
186
116
2
391
TH
June 30 - Jan. 4. (1941)
5%
E:
347
.
594
1,067
Total
8
248
463
2
965
1,778
1941
Jan. 5 - Jan. 16
,
6
24
I
R
53
Jan. 19. Feb. 1
-
12
4
-
28
$
Feb. 2 - Peb. 15
1
-
14
1
R
16
Feb. 16 - Kar. 1
30
-
23
-
25
78
Mar. or - Mar. 15
4
10
-
13
27
Mar, 16 . Mar. 29
16
20
14
-
32
a
Kar. 30 - Apr. 12
-
4
2
-
32
19
Apr. 13 - Apr. 26
I
&
1
-
is
26
Apr. 27 - May 10
-
4a
3
4
26
37
May 11 - May 24
-
13
4
-
13
30
Ear 25 - June 7
-
14
5
-
12
31
June 5 - June 21
1
.
a
-
24
37
Total
5
89
102
4
270
513
Drand Total Jan. 1, 1940 - June 21, 1941,
125
337
565
6
1,855
2,291
Office of the Secretary of the Treasury, Division of Research and Statistics.
June 25, 1941.
- Delivaries under French contrasts ware nade up to June 30, 1940.
MEMORANDUM
232
0
FROM British Supply Council in North America
TO Mrs. Henrietta Klotz
Compliments of E.N. Gray
6/26/41
Regraded Uclassified
232
233
STATEMENT NO. 20
AIRCRAFT SHIPPED TO U. K. & OVERSEAS COMMANDS
By Sea
By Air
During week
During week
ending
ending
E
DESTINATION
ASSEMBLY POINT
May 31, 1941
June 22, 1941
TER
iffalo I
F.E.
Singapore
6
ISS
mahawk
M. E.
Port Sudan
46
8
hesapeake
U. K.
U. K.
4
LAS
oston II
U.K.
U. K.
2
bston III
U.K.
U. K.
8
IKED
adson V
U. K.
U. K.
1
adson V
U. K.
U. K.
(VIA GANDER)
-
13
LIDATED
-
3
talina
U. K.
U. K.
(VIA BERMUDA)
1
talina
-
F. E.
Singapore
(VIA SAN DIEGO)
ALS
67
17
ish Air Commission
25, 1941
D
234
T
THE WORLD OVERSTAN
CHINA'S EXPORT TRADE
(From Our Shanghai Correspondent)
JUNE 25th
China's export season started in June. The various districts had one
feature in common-no increased production of any export commodity. but a
very general decrease. Obstacles to exporting, such as inland transport
difficulties, Chinese and Japanese control of trade and foreign exchange,
DE well as B scarcity of shipping space for transport overseas, are all
considerably greater than a year ago. But in other respects, export con-
ditions vary substantially Ln the different regions.
Free China now relies for exports upon the Yunnan-Burna Road almost
exclusively. The Road continues to be improved on the Chinese side, and
some 150 miles of new railroad track to relieve the road traffic are under
construction from Kunming westward; but the rainy season is just ahead
threatening to curtail, if not to block entirely, the outgoing road traffic.
The recent month's extension of Japanese naval operations on the South China
coast. and especially the quasi-piratical Japanese raids on a large number
of constal or near-coastal points still controlled by China, sharply reduced
what remained of Free China's commercial and shipping intercourse with
Hongbong in the sphere both of legitimate trade and smuggling. In the 1n-
terior of Free China, many chronic bottlenecks and traffic jame also obstruct
the outflow of export commodities. The Chungking Chinese Government early
this month amalgamated the semi-official Fooshing and Fuhus export monopolies
in order to centrelise Govornment-managed exports, but the immediate result
is not important. The growing of agricultural export produce in Free China
for the past year and I half has been discouraged by the comparatively low
prices which Government monopolies allow for such produce. and farmers pre-
fer to cultivate produce for their own requirements and the domestic market.
Free China's metal output does not promise any further increase in the near
future.
In the countryside of Japanese-oscupled North China, the output of ex-
yort produce has also not Improved. The recent large-scale military cam-
unigna in Honan and Shanel Provinces: Japanese inability to oust from this
territory the Chinese Government and Commonist armies: the revived guarilla
warfare everywhere behind the Japanese front lines; Japanese monopolist
regimentation and seizure of farm produce by methods and at prices which
nake these messures appear to Chinese farmers little short of confisontion-
Regraded Uclassified
235
China's Export Trade (cont'd)
- 2 -
all these factors combine to keep production for export by North China at a
very low level and far below pre-war standards. Moreover, exports to coun-
tries outside the you bloc are permitted only under the export-import link
system at an artificial rate of U.S.$0.115 per Pelping F.R.B.$1.00, which
is paid by the Japanese Tokohama Specie Bank for foreign exchange proceeds
from all exports. Japan's efforts to divert additional export trade from
Tientain's British Concession to Tsingtao, which is dominated by Japan and
since early this spring has enjoyed direct railroad connection with West
Hopei and Shansi, are also upsetting export trade. North China transit
trade via Shanghai 10 being systematically obstructed by Japan's treatment
of North and Central China 8.9 different countries.
In Central China, the forwarding to the coast of all produce from
Japanese-occupied areas is now subject to strict regimentation by the
Japanese military and to payment in military yen. This regimentation has
had the same adverse effects on production ae elsewhere in China. Non-
Japanese Shanghai exporters may secure supplies of export produce only on
the condition that the Japanese are allowed a share in the export profits
and part of the foreign exchange proceeds. Except for tea, arrivals at
Shanghai of Free China produce have practically stopped since the recent
Japanese onslaught against the East Chekiang coast. The production of
Central China's major export commodity, raw silk, is being discouraged by
the Japanese in an effort to relieve the silk market of Japan proper; the
1941 spring cocoon gethering in Central China yielded 30 per cent less
than the past year's crop. However, high silk prices, almost reaching the
peak quotations of November-December, 1939. compensate for the reduction
in output. Shanghai's silk stocks are extremely low, and domestic demand
competes sharply with export requirements.
SHANGHAI'S SHARE
Shanghai's exports continue to dominate the exports of the whole of
China. During the first half of this year, North China and Free China
accounted for one-sixth each of the whole of China's export trade, while
Shanghai alone accounted for two-thirds. This 1a now primarily due to the
fact that produce coming from the interior plays but B. secondary part in
Shanghai's exports while the products of Shanghai's industries rank first.
Most important among these products are cotton yarus and piece-goode,
followed by iron, steel and other metal manufactures. These textiles and
metal manufactures sell successfully in South-Hast Asiatic countries and
British India, taking the place of former imports from Continental Europe,
Regraded Uclassified
236
China's Export Trade (cont'd)
-3- - -
Great Britain and Japan. More than half of Shanghai's exports in January-
May, 1941. were contributed by these and other local industrial products,
while the share of raw silk in local exports declined to 12.5 per cent.
Shanghai's chief foreign customer remains the British Empire, which
in January-May this year purchased 40 per cent of Shanghai's exports. In
this trade, Hongkong ranked first as the leading distributor of local tex-
tiles and metals in South-East Asia; British India as a large-scale buyer
of the same goods VELS second; while the United Kingdom ranked third owing
to its continued purchases of raw silk, bristles, egg products and vegetable
oils. The United States maintained a 25 per cent share in Shanghai's ex-
ports, 80 that the two great Anglo-Saxon Powers together accounted for two-
thirds of all local export shipments. The Japanese Empire with a 19 per
cent share vas third, but a large part of Shanghai's shipments to Japan's
Kwantung Leased Territory (Dairen) went via Siberia to Germany, and this
latter trade has been completely interrupted by Germany's attack on Russia.
from-THE ECONOMIST--August 9. 1941.
Copy:wec:9-2-41
Regraded Uclassified
237
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE June 35, 1941
TO
Secretary Morgenthen
FROM Mr. Cochran
CONFIDENTIAL
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
£37,000
Purchased from commercial concerns £91,000
The Federal Reserve Bank of New York sold £15,000 in registered sterling
to the American Express Company.
Open market sterling held steady at 4.03-1/2. The only reported trans-
actions consisted of £10,000 in sales to commercial concerns.
Continuing its improvement, the Uruguayan free peso opened 11/16# higher
at .45-1/16, remaining at that level for the rest of the day.
The Cuban peso, which closed last night at 1-1/16% discount, eased to a
final quotation of 1-1/4% today.
In New York, closing quotations for the foreign currencies listed below
were as follows:
Canadian dollar
11-3/4% discount
Argentine peso (free)
.2375
Brasilien milrois (free)
.0505
Mexican peso
.2070
In Shanghai, the yuan was again quoted at 5-13/324, and sterling remained
at 3.91-1/2.
There were no gold transactions consumnated by us today.
No gold engagements were reported.
A price of 23-7/16d was again fixed in London for spot and forward silver,
equivalent to 42.55#.
The Treasury's purchase price for foreign silver was unchanged at 35#- Handy
and Harman's settlement price for foreign silver vas also unchanged at 34-3/44.
We made two purchases of silver totaling 100,000 ounces from the Bank of
Canada. Bo far this month, ve have bought 1,025,000 ounces from that source
under our regular monthly agreement to purchase up to 1,200,000 ounces.
238
- 2 -
The Federal Reserve Bank's report of June 18, listing deposits of banks in
Asia with the New York agencies of Japanese banks, showed that such deposite
totaled $66,829,000, a decrease of $3,157,000 since June 11. Most of the change
in deposits took place on the books of the Tokohama Specie Bank's New York agency.
The latter's principal dollar liabilities to and dollar claims on Japanese banks
in Asia stood as follows on June 18:
Change from
June 18
June 11
Liabilities:
Deposits for Japan and Manchuria
$44,025,000
-$4,294,000
Deposits for China
15,917,000
+ 565,000
I
I U.S. Treas. Bills, comm. paper, etc..
30,831,000
- 17,000
Claims
# Loans
$14,325,000
-$5,214,000
.
: Other - mainly Jap. import bill
7,515,000
+ 1,605,000
It will be noted that the decline of $4,294,000 in Japanese and Manchurian
bank deposits was accompanied by & reduction of $5,214,000 in Agency loans.
A.M.S.
CONFIDENTIAL
239
C
0
P
Y
Copenhagen, June 25th 1941.
Mr. Horace Merle Cochran,
The United States' Treasury,
Washington, D.C.
Dear Mr. Cochran,
I take the liberty to trouble you with the following
question:
During the present difficult period we in the National
Bank of Denmark have made an effort to continue the payments in the
United States on the various Danish Dollar loans. I am glad to say
that this effort has been successful and that it has been possible
for us up to now to meet all our Dollar obligations in respect of
interest and amortization within the United States of America. The
National Bank has been using its funds within the United States for
these purposes. To appreciate this very much as we feel that the
financial prestige of Denmark in the United States has been maintained
by means of these payments.
A special situation, however, has now arisen as far as
the Danish Dollar bonds in Swedish possession are concerned. These
bonds are now in default, and as I an sure that you are aware of the
very close and friendly co-operation existing between Sweden and
Denmark I hope that you will realize that this state of affairs is
very disagreeable to us. In order to render a service to the
Sveriges Rikebank with which we are on very friendly terms we are
240
- 2 -
Regraded
now endoavoring to resume the payments on the Denish Dollar bonds in
Swedish possession. We are doing this not only to meet the demand
of Sweden, but also because no find that there is no reason why a cer-
tain section of our Dollar bonds should be in default and give cause
for complaints.
The Swedish Riksbank has just given us figures showing
the amount involved, vis. $.137.603,25, and the National Bank of
Denmark which has no other funds available for this purpose has to-
day on the basis of these figures sent an application to our cor-
respondent in the United States, the Federal Reserve Bank of New
York, and asked them to secure a license from the United States'
Treasury for the release of mch an amount of our blocked Dollar
funds in the United States as will be necessary for the payment in
Dollars to the Sveriges Rikebank in New York, The Swedish Riksbank
will thereafter make payments in Sweden in Swedish Kroner to the
bond-holders in question. They have given us the assurance that
they will only make payments to Swedish bond-holders and sake the
payments dependent on an affidavit securing that the bonds are in
the possession of Swedish citizens and have been so since April 9th
1940.
I should be very much obliged to you if you would give
your attention to this question which we are anxious to see settled
in a satisfactory manner. I trust that you will realize the value
of & settlement which will be fair and in COMMON interest of the
countries concerned.
241
- 3 -
For the details I refer to the enclosed copy of our letter
of yesterday to the Federal Reserve Bank of New York.
I hope that you are very well and that conditions will
change so that it will be possible for us to meet again.
Thanking you beforehand for your valuable help I remain
with kind regards,
Yours sincerely,
(Signed) Bramnaes
Governor of Danmarks Nationalbank
Copy:1g 7/15/41
242
C
0
P
I
DANMARKS NATIONALIANE
Copenhagen, June 24th 1941.
Original by Air-Mail.
The Federal Reserve Bank of New York,
New York.
Dear Sirs,
By the present we ask you to apply to the United States
Treasury Department for license to transfer from our ordinary ac-
count
$.137,603,25
to the credit of Sveriges Riksbank's free account with you. This
amount represents proceeds of coupons of Danish dollar bonds on
Swedish hands and bonds of the following loans are concerned:
Kingdom of Demark, 6%, 1921
Kingdom of Denmark, 5-1/2%, 1925
Kingdom of Denmark, 4-1/2%, 1928
Danish Producers Loan, 5% 1928
Mortgage Bank of Denmark, 5%. 1927
City of Copenhagen, 5% 1927
City of Copenhagen, 4-1/2%, 1928
We have been negotiating the question of payment of the said
coupons with Sveriges Riksbank, and we on the part of the Danmarks
Nationalbank are anxious to fulfill the Danish obligation to the
Swedish bond-holders of the said loans. The Sveriges Riksbank is
willing to pay the Swedish bond-holders as soon as the credit has
been placed at their disposal in New York, and the Riksbank has given
us the formal assurance that they will only mine payment to Swedish
bond-holders and make the payments dependent on affidavits securing
that the bonds are in the possession of Swedish citizens and have
been 80 since April the 9th 1940.
When the license is obtained please give us telegraphic advice,
Yours faithfully,
DANWARKS NATIONALBANK
H. Haugen-Johansen
/E. Meiner
Copy:lg 7/15/41
243
BRITISH EMBASSY,
WASHINGTON, D.C.
June 25th 1941.
Personal and Secret.
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a
copy of the latest report received
from London on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Halifax
The Honourable
Henry Morgenthau Jr.,
United States Treasury,
Washington, D.C.
244
TELEGRAM FROM LONDON DATED JUNE 23rd 1941.
On June 21st "Arrow" mined off Plamborough
Head has arrived herbour.
2.
On June 22nd/23rd two M.S. trawlers bombed
and sunk.
3.
Maradale O.B.V. a.m. June 22nd. Sighted
suspicious vessel believed enemy supply ship which
escaped to the north cast at 21 hours. Catalina
aircreft attacked her with bombs but without success,
operations continuing.
4.
During air raid Alexandria Harbour night
of June 20th/21st no navel or military damage caused.
5.
British ship of 5,000 tons bombed and
sunk whilst in convoy off Cromer night of June 21st/22nd.
6.
Convoy previously sighted off Lampeduse on
June 22nd attacked and medium sized merchant vessel
severely damaged.
7.
LIBYA and EGYPT. Enemy covered by offensive
patrols of A.F.V.S. appears to have carried out
extensive recovery of derelict vehicles.
8.
benghazi. Night of June 21st/22nd again
attecked: one ship set on fire.
9.
ABYSSINIA. After sharp engagement June 20th
our troops captured prepared enemy position 15 miles
west of Lechemti inflicting severe casuelties end
capturing four guns and 20 mechine guns. Small enemy
parties still being rounded up southwest of Soddu.
Deserters have confirmed presence of 3,000
white and 1,000 Banda 10 miles north of Debarech.
Steps being taken to round these up.
10/
Regraded Uclassified
245
- a -
10.
SYRIA. All resistance in Demasous has coased.
Capture of Messe complete. Merjayoun sector operations
proceeding.
11.
IRAC. Tigre's convoy arrived at the area
on the evening of June 19th.
18.
ROYAL AIR FORCE. June 22nd. Formation of
Blenhoims attacked railway centre at Zealbrouck.
Sixteen squadrons of fighters acted as escort and
destroyed 29 enemy fighters in air combats. Two were
lost but one pilot safe. The Blenheims also probably
destroyed one enemy airoreft and destroyed another
which hed already been damaged by fighters.
13.
Night of June 21st/22nd. Manchester reported
missing yesterday has returned.
14.
Night of June 22nd/23rd. 111 bombers sent to
Brenen and Wilhelmshaven. Three missing. Seven
coastal command aircraft operated against shipping.
One missing.
246
NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS
MILITARY INTELLIGENCE DIVISION
TENTATIVE LESSONS BULLETIN
WAR DEPARTMENT
No. 124
Washington, June 25, 1941
0-2/2657-235
NOTICE
The information contained in this series of bulletins
will be restricted to items from official sources which are
reasonably confirmed. The lessons necessarily are tentative
and in no sense mature studies.
This document is being given an approved distribution,
and no additional copies are available in the Military Intel-
ligence Division. For provisions governing its reproduction,
see Letter TAG 350.05 (9-19-40) M-B-M.
THE LEWIS LIGHT MACHINE GUIT IN ANTI-
AIRCRAFT DEFENSE
SOURCE
This is the first of a series of three bulletins based
upon information contained in a British handbook for light machine
gunners. The handbook was written by a retired English army officer
and its publication was approved by the Ministry of Information.
The second bulletin of the series will cover similar
data on the Bren and the Hotchkiss light machine guns, together
with firing instructions, and the third will give instances of
light machine gun successes against low-flying aircraft.
CONTENTS
1. GENERAL
2. .303 LEWIS GUN
3. .300 LEWIS GUNS
4. MINOR VARIATIONS BETWEEN THE .303 AND THE .300
NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS
- 1 -
247
NO OBJECTION TO PUBLICATION IV SERVICE JOURNALS
THE LEWIS LIGHT MACHINE GUN IN ANTI-
AIRCRAFT
1, GENERAL
Originally introduced into the British Army during the
World War to supplement the fire power of infantry platoons engaging
ground targets, Lewis light machine guns are now used mainly 8.8
weapons of antiaircraft defense - both ashore and afloat - against
low-flying enemy aircraft.
Against ground targets, short bursts of about ten rounds
are sufficient for good fire effect, a fresh aim being taken after
each burst to ensure accuracy and fire control. For antiaircraft
defense, however, short bursts are ineffective, and continuous fire
16 essential. With its special air cooling system, the .303 Lewis
1a capable of sustained fire to a greater degree than other air
cooled automatics, and is thus well suited for use against air
targets.
The ring foresight formerly fitted to Lewis gune was designed
when the maximum speed of & plane did not exceed 150 M.P.H. It
provided for B lead of six degrees, the angle of deflection needed
to engage a target crossing the gun position at that speed. Since
this rate has increased to an average of about 300 M.P.H. - fighters
fly considerably faster than that; bombers somewhat slower - the
angle of deflection necessary to engage targets crossing at right
angles to the line of fire is now approximately twelve degrees, or
double the old angle.
The result is that not only has the ring foresight become
obsolete, but in addition it has been found impracticable to align
any eight on crossing targets moving at top speeds within effective
range. Accordingly, aiming and fire control are now carried out
by the "hosepipe" method of continuous fire, aided by observation
of tracers.
2. 303 LEWIS GUN
The .303 Lewis is air cooled, @as operated, and magazine fed.
Normally the magagine, & circular rotating steel drum, is made to
hold 47 rounds, but the design of the drum enables it to be enlarged
to double normal size. Some of the enlarged 94 round magazines are
in use, and they have greatly increased the value of the gun for use
against air targets. The .303 has the following characteristics:
Weight of gun
26 1b;
Weight of bipod
2 3/4 1b;
NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS
- 2 -
248
NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS
Weight of magazine (empty)
1 1/2 1b;
Weight of magasine (full)
4 1/3 1b;
Length of gun
50 1/2 in;
Length of barrel
26 1/4 in;
Normal rate of fire*
10 rounds per second;
3 to 4 magazines - about 150
rounds - per minute,
The barrel is in close contact, throughout its length, with
an aluminum radiator casing, Concentrated in the barrel mouthpiece,
and from thence striking against the fore radiator casing, the gases
act to create a vacuum and consequent suction, which draws a con-
tinual current of cool air through the radiator flanges, thus
rapidly expelling heat from the barrel.
To ensure even greater volume of fire for antiaircraft
purposes, Lewis guns are also used in naval craft, mounted in pairs
or in multiple form to engage enemy dive bombers attacking convoys, etc.
When the gun 1a fixed on an antiaircraft mounting - either
& folding tripod or a vertical pillar - it 10 held according to one
of the following methods for firing against aircraft:
a. Gun is rested firmly against hip with butt under right
arm, and is hold down by left hand pressing on small of
butt. Sights cannot be used, and elevation and point of
aim must be estimated;
b. Gun is held tightly to shoulder. Sights may be used.
3. .300 LEWIS GUN
Lewis guns of .300 calibre purchased from the U.S.A. are the
same as those used by the United States Air Force in its aircraft.
Since the speed of the plane through the air automatically cooled
the .300, no system of cooling was necessary, and the guns were not
fitted with aluminum radiator and radiator casing. A considerable
reduction in weight was thereby accomplished, the .300 Lewis weighing
about 17 pounds as compared with the 26 pounds of the .303 gun.
In England, however, the .300 has been issued to the Home
Guard, not to the Air Corps, 00 that the gun there has no natural
cooling system and has 2. normal rate of fire limited to short bursts.
Consequently it is not BO well suited for antiaircraft firing as the
.303.
- Lewis guns mounted in aircraft have been speeded up for air fighting
to 20 rounds per second or 1,100 rounds per minute, about double the
normal rate of fire.
NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS
- 3 -
249
NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS
Enemy aircraft diving down to attack troops on the move,
or other military objectives, are fleeting targets though, and present
themselves for only a few seconds at & time, At such moments all
units must protect themselves with the weapons at their disposal,
and it may be necessary to use the .300 Lewis to engage such planes.
4. MINOR VARIATIONS BETWEEN THE .303 AND THE ,300
Aside from the difference in cooling systems of the two Lewis
guns, the .300 type varies from the .303 as follows:
a. The cocking handle is fitted on the left-hand side of
the body instead of on the right;
b. The pinion is painted with a red band to distinguish it
from that of the .303. The pinions of the two guns are
not interchangeable.
C. The trigger spring is fitted to the sear, and not to
the trigger itself, as in the .303;
d. The gas regulator has four holes - Nos. 1, 2, 3, and 4 -
varying in size. That of the .303 has two holes only.
The gun should be regulated so as to use the smallest
hole that gives sufficient gas.
e. The gas chamber includes a gas chamber gland.
NO OBJECTION TO PUBLICATION IN SERVICE JOURNALS
- 4 -
250
RESTRICTED
0-2/2657-220; No. 426 M.I.D., W.D. 12:00 M., June 25, 1941.
SITUATION REPORT
I. Eastern Theater.
Ground: German main pressure seems to be developing along
the axes Konigsberg-Vilna (Lithuania) and Luvow-Kiev. The Germans
are advancing on a broad front in Central Poland. Fighting is in
progress all along the front. In general the intensity of combat is
still undetermined,
Air: German. No detailed reports available. It is as-
sumed that the primary air effort continues against the Russian air
force and communications.
U.S.S.R. Numerous scattered attacks, including
Memel, Konigsberg, Danzig, Lublin, Warsaw, Constanza and Sulia
(both in Rumania) and probably points in Bulgaria.
II. Western Theater.
Air: German. Night attacks involving an estimated 100
planes against Liverpool and ports on the Tyne and Tees.
British. Continuation of the day offensive across
the Channel and of the night offensive against Germany. In the
latter Cologne, Dusseldorf and Kiel were attacked. The invasion
coast was also raided by the coastal command.
III. Middle Eastern Theater.
Ground: No change in the situation.
Air: Aris. Attacks on Haifa and around Tobruk.
British. Raids on Tripoli (Libya), Benghasi and
Beirut.
RESTRICTED
CONFIDENTIAL
251
Paraphrase of Code Cablegram
Received at the Har Department
at 13:40, June 35, 1941
Landon, fileds 20:09, June 85, 1941.
1. British Air Activity over the Continent.
a. Eight of June 23-24. During this night British
bombers dropped the following number of tons of high explorive
bombs and numbers of incendiary bombs upon the targets specified:
the railway yards at Cologne, 54 and 5700; the industrial center
of Cologne, 17 and 800, Dusseldorf, 38 and 1600; Kiel 52 and 2500,
which included three high explosive bombs of 4000 pounds each.
b. Day of June 24. The power station at Comines
was attacked by 15 Blenheim bombers, with the protection of
19 fighter squadrons.
0. Night of June 24-25. The following number of
British bombers attacked the following objectives: Dusseldorf,
31, Colegne, 54, Boulogne, 1, Enden, 2, and Kiel, 48,
2. German Air Activity over Britain.
a. Day of June 25. On this day the Germans operated
against England with so fighters, 5 long range bombers and 20
recomaissance aircraft. Over the occupied countries defensive
patrols were mintained by 230 German fighters.
b. Night of June 28-24. During this night were dispatched
16 fighters, 40 long range bombers and 5 reconnaiseance aircraft.
0. Eight of June 24-25. A few operations were carried
out in the area of the Midlands, Cornwall, Bristol and Liverpool.
CONFIDENTIAL
INFORMATION COPY
Regraded Uclassified
CONFIDENTIAL
252
s. Aircraft Leases Reported.
4a British leases. the Spitfires were lest from
the fighter protection furnished during the daylight operations
of the 24. Due beater was shot down and - were unreparted
in the raids of the night of June 24-25.
be Axis leases. During the day of June 24 nine
MI-1e9's were destroyed, , probably destroyed and five
damaged, 6 MB-1019's being included in the total.
4g Moltish Air Activity Other Theaters.
a Middle lastern Theater. No change is reported.
LEE
Distribution:
Secretary of Mar
State Department
Secretary of Treasury
thief of staff
Assistant Chief of Staff, 6-8
Ver Plans Division
Office of Naval Intelligence
Air Garge
CONFIDENTIAL
Regraded Uclassified
253
Paraphrase of Code Cablagrem
SECRET
Reserved as the Ver Department
By
at 21.49, I'm 25, 1941.
DEVEJUN
1941
Daire, filed 21:30, June 83, 1941.
The ground strafing of motor vehicles as reads and - probective
patrols over forward troops and airtrams was the mission assigned to the
squaires of F-40's in the Vestern Egypties decort.
Two or note sections of two planes each would fly at altitudes
of free fear thousand to fifteen thousand feet to spot colume of vehicles
for gromá strafing. They would then attack, with all gune firing on the
column R consentration, from altitudes of fifty to one hundred feet.
Four missions have been reported. Without loss to the Tountavk equatron,
several motor vehicles have been destroyed and - segualties to ground
personnel essued. Several 7-40's received hits from mehine someted
is trucks. It vas reported that one comeentration of motor vehicles had
BETER machine am.
Year Tennhavire, on returning from a mission, at four thousand
feet altitude vere curprised by fear ME-109's sad all failed to retars)
- was - to ⑈ dom in flame. One pilot took to his persobate but
we she's on the way dom. A fifth Tomahavk near this formation turned
and fired 2 or 3 bureto, when surprised by a MR-109, them dived and gos
any W flying as ground level. Due to the possibility of being out of
after these strafing missions, there are standing instructions
to return to their base by flying at ground level.
I
Distribution:
Secretary of War
Assistemt Chief of Staff, 0-8
State Department
Mar Please Division
decretary of Treasury
Office of Nevel Intelligence
Valor Secretary of Dar
Assistant Chief of Staff, 0-5
Chief of staff
Air Corpe
Regraded Uclassified
of Code Coblegram
Dates
By JUN 28 of S., G-2
SECRET
Received at the Yes Department
1941
10H
as 15:30, 1 95, 1941.
)
Initials
Cadre, filed 21,50, Jame se, 1941.
Year - patrol - the forward an in the
decort, - & fematies of two ME-109's at 22,000 fees. Two of the
made a surgrise attack - then, cas of the ME-109's turned in frest of a
Termbork. the P-40 first a buret of 30 soliber and the followed the MR-109
does in a dive, firing 1 more 50 caliber burete at a Plage of 500 yerds.
Eits - engins and state vere sees. the ME-109 dived out to sea. The
other Tembers flow formation with the other NE-109 after having approached
X fired 6 three I buret of thirty caliber only, as he
bed forgotites to charge his fifty caller gune. The MR-109 lost como
Presture and began to make, then dived to ground level and got every.
Two other ME-109's vare - five hundred feet above the P-40
and the latter attacked with both fifty and thirty caliber guns.
Over Sollum, smother patrol of four Tomalavise at eighteen thousand
feet, is three ship Yes formation with a fourth as Tail m Charley, were
surprised by tracers from - MB-109 which dived past them. the Charley
took chase and had two tare of . dog fight. The MI-109 broke any and
dived for ⑉ level. Dursts of fire, is the squatron, are limited to too
# three seemis. A pilot stated that the P-40 will compare favorably, if
not be better then the MR-109, after the pilots have had are smbet proctice.
TELLERS
Distribution:
Secretary of Var
State Department
Becretary of Treasury
Under Secretary of Ver
Chief of Staff
Assistant Chief of staff, 0-2
Yes Plans Division
Office of Revel Intellig
SECRET
INFORMATION CODE
Air Cargo
Regraded Uclassified