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Volume 426, July 30 – July 31, 1941
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Volume 426, July 30 – July 31, 1941
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 426
July 30 and 31, 1941
Regraded Unclassified
- A -
Book Page
Australia
See War Conditions
- B -
Bolivia
See Latin America
Butcher Workmen, International Union of
See Financing, Government: Defense Savings Bonds
- C -
Chautemps, Camille
See War Conditions: France
Cotton
See War Conditions: Price Control
- D -
Defense Savings Bonds
See Financing, Government
- I -
Financing, Government
Defense Savings Bonds:
Sales of savings bonds, first twenty-four days,
June and July - 7/30/41
426
32
International Union of Butcher Workmen: Gardner
Jackson tells HMJr they are prepared to buy
$1,100,000 worth of bonds - 7/31/41
245
France
See War Conditions
= , #
Henri-Haye, Gaston
See War Conditions: France
- I -
International Union of Butcher Workmen
See Financing, Government: Defense Savings Bonds
Regraded Unclassified
- 1 -
Book
Page
Lash, Joseph P.
Private life as given by Westbrook Pegler -
7/31/41
426
265
Latin America
Bolivia:
Proposed State Department draft "giving concrete
evidence of United States Government's desire
to back Bolivia in present situation of Nazi
agitation and plotting" - 7/30/41
267
a) Bell memorandum concerning - 7/31/41
266
- P -
Price Control
See War Conditions
- Q -
Queensland
See War Conditions: Australia
- R - -
Revenue Revision
Joint returns discussed by FDR, Bell, Sullivan,
and Foley - 7/30/41
16
a) Possible letter to Doughton and Rayburn;
may also comment on excess profits tax
1) Tentative draft of letter to FDR
stating Treasury position - 7/30/41
83,118,123,137
a) Discussion of FDR's corrections
108,126
2) FDR's actual letter to Doughton
141
a) Doughton's answer
146
3) Rayburn-HMJr conversation
90
4) Miss Tully gives HMJr background
96
5) Doughton-HMJr conversation
113
(See also Book 427, pages 71 and 83)
- 8 -
Socony Vacuum 011 Company
See War Conditions: Japan
- T -
Taxation
See Revenue Revision
Regraded Unclassified
- U -
Book
Page
United Kingdom
See War Conditions: Military Planning
- V -
War Conditions
Airplanes:
Shipmente to the British, by air and sea - Kamarck report
7/30/41
426
34
Australia:
Queensland loan: Memorandum addressed to Cochran
from Australian Legation, Washington -
7/30/41
42
Exchange market resume' - 7/31/41
256
France:
Henri-Haye (Gaston) and Chautemps (Camille):
Wiley memorandum concerning activities -
7/31/41
261
Japan:
Socony Vacuum chairman G. S. Walden discusses
petroleum supplies in Japan - 7/31/41
268
Military Planning
Report from London transmitted by Halifax -
7/30/41
71
War Department bulletin:
Italian chemical warfare - notes on - 7/30/41
73
Price Control:
Report of meeting - O'Connell memorandum - 7/30/41
11
(See also Book 428, page 162)
a) Discussion of
1) Silk
2) Automobiles
3) Cotton
a) HMJr's resume' of situation for
FDR - 8/1/41: Book 427, page 88
b) Vickard-HMJr conversation -
8/4/41: Book 427, page 300
4) Price legislation
Regraded Unclassified
July 30, 1941
Files
Mr. Codtras
At 2:15 yesterday afternoon Mr. Brown of Oscar Cox's office telephoned BO,
10 said a policy question had arisem is commection with Lend-Lease operations,
namely, as to whether ve should permit Great Britain to lond-lease through us 200
training planes masufactured is and to be bought from Camada. In assver to Mr.
Brown's inquiry, I told him that there had been some conferences with Conadian
officials in the Treasury before and after the Hyde Park conference between the
President and the Prime Minister of Canada at which Lond-Lease policy was discussed.
It vse ay recellection that there had been - reference to the particular question
which Mr. Brown raised, as well as rather lengthy discussion of the earlier problem
as to whether Lond-Lease would cover engines manufactured is the United States and
sent to Camada for plasing there is airplanes which Great Britain vas purchasing
directly from Canada. I promised Mr. Brown to leek into the matter and let his
hear from the Treasury. No asked that this be done yesterday evening or this more-
ing. einee the matter was urgent.
After looking ever with Miss Channesy the simtes in her room of a few of
the conferences with Canadian officials, ye found and took to Acting Secretary Doll
the record of the conference hold in the Secretary's office on April 18 and attended
by Heaurs. Clark and Coyse for Canada and the usual Treasury droup. After reading
the record on page 9. Mr. Bell telephoned Mr. Drown at 5115 yesterday ovening. with
Nice Channesy and Mr. Cechram present.
Mr. Bell referred to Mr. Brova's inquiry of Mr. Cookram. Mr. Bell told Mr.
Brown that when Mr. Olark, Deputy Minister of Please of Camada, had raised she
question with Secretary Morgenthan on April 18, just two days before the Myde Park
meeting, Secretary Morgesthan had expressed the strong hope that the Lond-Lease
policy would permit the to lend-lease to Great Britain articles which Canada 10 in
a position to produce beyond her own noods. This would be is addition to the
American policy of purchasing for 11:01f each products of Canada's excess capacity.
In the comversation which envast Mr. Bell pointed out to Mr. Brova the dual
adventage of such as arrangement, that is, first, the prevision of model supplies
to our friends the British, and secondly, the provision of mooded dollar exchange
to Genada which will postpose the day on which Canada might be obliged to come to
the United States directly for Land-Lease facilities.
110
HMC: 8/1/41
Regraded Unclassified
Regraded Unclassified
daily 30. 1941
Pilse
Kr. Cookran
AS one e'cleak yesterday Mr. Fordinand Inha asked that I speak with his friend,
Mr. Den Maisdell in the Department of State, who wanted certain information is
regard to Land-Lease policy. I called Mr. Blaisdell (Dreach 462, Department of
State) but did not get communication with him until 2:30 yesterday afternoon. Is
told me that a cablegram had been received from the American Gonsul General at
Calcutta requesting information is regard to the Lend-Lease arrangement which vas
understood to have been made to cover Indian purchases in the United States.
Mr. Blaisdell was drafting a reply. In our conversation Mr. Blaisdell mentioned a
purported agreement between the Treasury, Lend Lease and British efficials with
respect to India. the details of which I could not confirm. I suggested to
Mr. Blaisdell that a espy of the incoming message and of the draft reply be provided
Acting Secretary Bell before the instruction to the Geneal General at Calcutta 10
dispatched. Mr. Blaisdell mentioned that there had been conversations between
Mr. Adminster's office in the State Department and Dr. Barry White in the Treasury
and Mr. Philip Young is the Land-Lease office. I told Mr. Blaisdell that Mosure.
white and Young vore, of course, entirely familiar with the conversations which
have been held with the British insefar as these two offices are concerned.
At 10:30 this morning Mr. Mainster telephoned me from the Department of State.
referring to Mr. Blaimdell's conversation with no. Mr. Adminator teld as that be
had drawn up a memorandum on the subject. setting forth certain questions as to
American trade policy which wight be involved if all Indian purchases on this market
are put under Land-Lease. Be had submitted this memorandes to Assistant Secretary
of State Achoson, who had, in turn, asked for certain further details of the arrange-
ment under reference, as well as date with respect to British balances. etc. Is
VAE agreed that Mr. Mainster would send me, personally and confidentially. a 1057
of his memorandum, as well as a copy of Mr. Acheson's note, in order that the
Treasury say have full information as to how the State Department officials are
thinking, and with the hope that the Treasury will mosist in providing information
necessary to the preparation of a reply to the American Censul General at Calcutis.
Mr. Edminster reminded se that his assorandus is only his personal thought. and
requested that this should not be taken as approved State Department policy.
July 31. 1941
There are attached hereto copies of the memoranda which Mr. Beninster ent M
last night.
No
EMC:lap-7/30/41
3
DEPARTMENT OF STATE
Special Assistant to the Secretary
7/30/41
Rr. Cochrance:
This 10 the material I promised
to send you is the light of w tolephone on-
versation this seraing.
(Signed) Edminater
COPT - in - 7/31/41
Regraded Unclassified
July 30. 1941
Nate
with regard to the attached, I doctro to call attention to the
following:
1. 19 vas written on the basis of reported facts which. bevover,
may not be wholly accurate OF which may have important emissions.
Specifically, more information is needed with respect to the points
to which Rr. Ashwoon salls attention is his appended commons.
2. The observations made is this newersetun are is no var
intended to question the ased for effective steares of collaboration
between Great Britain and the United States for the protection of
British dellar balances and, is general, for maintaining the vartine
and post-var financial solvency of the British Septre, There are two
points in particular that I - emphasising:
The first to that the particular methods reserted so, as referred
to is the attached memorander, are leaded with "pelitical dynamite",
for reasons 001 forth. If, notvithstanding this, there are se salis-
fastory alternatives, then 11 comes obvious that what we are doing
should be increased with every possible enfoguard against the manifect
absors be which this arrangment se readily lends itself. It would be
extremely helpful is this commection if I sould be advised of any
specific stops that are being taken to safeguard our interests.
the second point is that asquiescence by our Government to the
type of sollaboration hereis referred to reinferces and makes import-
tive the taking of - strong position at this time with respect to
emeting explisit accurance from the British that they will collaberate
vholehoartedly with this country is the post-var period is support of
pelicies and which vil) eliminate AS repidly as possible British
discriminations against American trade. the dangerous attitude taken
by Mr. Keynee this matter should be emple varateg on this MIN.
Lynn 1. Edminster
COPT - is - 7/31/41
Regraded Unclassified
0
5
Y
July 30. 1941
Mr. Edminster:
We need more fasts on
1) The present status of British balances.
2) British dollar obligations.
3) the actual arrangements between the United
Kingdom and the Decisions referred to.
b) then ve can reach a understanding with the
Brittsh.
Dean Achosen
COPT - in - 7/31/41
Regraded Unclassified
6
0
Information has recently - so hand, and has been
verified, that the United Kingdom representatives ⑉ the
Brittsh Supply Council recently informed the represents-
gives of India, Australia, New Sealed and South Africa
that, es the suggestion of the American authorities, 11
had been decided is the fatraire that purchases in the
United States by these Deminious and India would be
limited to purchases obtainable under the Lond-Lease son,
with the exception that all these Governments combined
would be allowed, as a suchies, to eyend $2,500,000 a
year is the United States for goods not covered w the
head-Lease Act. the central objective being the conserve-
tiem of the dollar recources of the storling area.
This decision raises questions of carious urgeney
for our government, as regards both 190 impliate and
long-range implications.
the first and more invediate result vill be the heavy
New that will be dealt to American foreign trade inter-
eats. American middlests will presumably be virtually
eliminated from - emport trade with the Dominions, elsee
practically all orders for American emporte will have to
be placed directly w the British Dayply Commoil with -
Regraded Unclassified
7
-2-
lond-lence authorities. Purtherners, is the absence of
new commercial leans w this country to the Resisions.
nado - the understanding that the processing would be need
to enhance normal commercial purchases from the United
States beyond the procent $2,500,000 limit now enther-
ined for non-lend-lesse purchases. there will inevitably
be a marked reduction is Deminion purchases of non-co-
fease goods. Discussion of this matter with efficials
of the Mvision of Beforee Are Reports indicates that
there will be m dispecition in that quarter to stretch
the Lond-Lease Act to the numest limite to cover goods
net really assential for dafence. Bease there will is-
critably be a virtual constion of exporte of may types
of goods to these Decinions. the deficiency either not
being not at all or being met through imports from -
trice in the sterling area.
is illustration of this last point will be in order.
Let " take cash registers. Amstralia needs them. Seving
as demostic ansh-register industry and being unable to
disponse with imports, the meet make her cartine your
chases from, say. Canada (where there is. is fees, some
production). that is the result? American firms Loss
this business: a now and artificial channel of trade is
est 10. hased upon martine financial bi-lateralism; and
Regraded Unclassified
8
- 3 -
the deliberate policy of discrimination and comalization
of trade which Keyaes contends the British mut and will
fellow after the var is on tep. to course that the var-
time canalisation is carried ever into the post-war
period.
The vartins discrimination time set up against
American export trade, with the danger of its continu-
anso and possible intensification after the war, becomes
all the more serious in view of the following facts:
Under the present set-up. the not result will be
this: that the British will be emabled not ealy to
maintain a sisime reserve of dollar assets but continu-
onely to increase that reserve throughout the var period.
via the Lond-Lease set, and at the expense of American
tampayers. m time utilising the balk of their dollar
Income to increase dollar assets rether than to pay for
importe from the United States, the British will be using
the Lend-Lease Act as a means of siphoning into their
seffers, 0200 payment has been made for pre-lend-lease
purchases of goods from this country, increasingly large
holdings of American dollars which they would otherwise
be unable to sequire. In effect, the Lend-Lease set
vould be utilized is this devious very usd to this extent
as as instrumentality for securing large "leans" BEE for
post-var purposes and is place of pest-ver lease, rather
Regraded Unclassified
9
4 -
then for the purposes for which the law we emasted.
20 permit such use to w made of the Lond-Lease
Act comes 2017 to being a since of 10, and will give
the isolationists and the Anglophobee & nov handle with
which to earry es their poisenous propaganda against
effective Angle-American collaboration. This is true,
notwithstanding the bread fast--vhish the public, how-
ever, night not readily understand-that 11 is emphati-
cally not is our interest that the British Empire should
be bankrupt at the close of the war and unable to buy
the surplus of our farms and factories which ve will ⑉
greatly need to export. For 10 is obvieus that the
dollar assets asquired by the British--vhether is this
dubious names? on in any other ver-cast eventually
result is greater purchases of goods and services from
the United States than would otherwise take place.
For our government to allow the present situation
to stand without further stops to enfeguerd our legitimate
interests would ROOM unvise is the extreme, for the fel-
loving reasons:
1. The control measures adopted w the British
create a situation which constitutes an abuse of the
previsions and purposes of the Land-Lease set, with
the danger of seriens repersensions upon public opinion
sace the fasts because have.
Regraded Unclassified
-5-
10
2. While this 10 being dame, Britich discrimina-
tiem against American conserce, net only in the Impire
but is other countries. make " Argentina, continues:
and Mr. Keynes beldly security that 10 will continue per-
force after the was as & widespread and wholesale scale.
Time, at the case time that - are taking far-renching
seasures at the expense of our texpayers to misteds
British wartine financial selvency and to sustain British
war effert is the interest of both countries, $9 face the
prospect of continued British discrimination against our
COMMITS after the var on the plea that the financial
position of the Impire will necossitate 10. In shert,
99 are to pay twice for the une thing. That is as is-
tolerable situation. To permit the Lond-Lease Act to be
exploited is the manner above described, and to take me
positive and immediate stops meanshile to incare against
the persuit by the British of a deliberate and wholesale
policy of trade distrimination against us after the war.
seems uhally indefensible.
3. Finally, there is the problem of alleviating -
for as pessible the imediately unformable effects of
the British control herein deceribed upon
American foreign trade interests. To what extent these
results are to be regarded as unavoidable hy-gesensts
of the our mergonsy and to what extent stops can be
taken to sefter then, IN matters that require further
consideration.
Regraded Unclassified
11
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO Secretary Morgenthau
July 30, 1941.
FROM J. J. O'Connell, Jr.
For your information
The regular weekly meeting of the Price Administra-
tion Committee was held in Mr. Henderson's office this
morning at 11 o'clock. The matters of general interest
which were the subject of discussion follow:
1. Silk. Representatives of OPACS are discussing
the raw silk situation with representatives of the in-
dustry. Their primary purpose is to develop the facts
with regard to the existing supply of raw silk in this
country and the extent to which dislocation of industry
and displacement of labor will result from a cessation of
the importation of raw silk from Japan. It is too early
to know with certainty what the facts are in this regard,
but I am advised by OPACS' representatives that the dis-
location and displacement of labor will not be anything
like as great as interested groups would have us believe.
There are several factors which should tend to minimize
the dislocation. The mills will be able to some extent
to change over to a use of substitutes such 8.8 rayon, nylon
or cotton. Many of the mills have apparently been experi-
menting in this regard for sometime as the view has been
prevalent in the industry for several years that these
synthetic fibres will ultimately almost completely displace
raw silk in this country. Admittedly, in the present state
of the art, no substitute is available which will be entirely
satisfactory from the point of view of the consumer or
entirely usable by the mills. However, in this respect
a complete cessation of the importation of raw silk
merely accelerates a change-over process which has been
going on for some years (now about 90 per cent of all raw
silk goes into women's hosiery). Another possibility
Regraded Unclassified
12
Secretary Morgenthau,
2.
to minimize the repercussions of cutting off the supply
of raw silk is the importation of 8 type of machine
which will process rayona and cotton to a much finer
state than can be done by machines presently available
in this country. Donald Nelson stated that there are
quantities of machines of this type available in Great
Britain which are not now being used at all. Another
factor which, of course, must not be forgotten, is the
possibility of transfer of skilled workers from the
silk mills to other types of work. This is difficult
to evaluate at this time but it is the fact that bottle-
necks in skilled workers are appearing in any number of
industries at the present time. The picture I get
from OPACS is that with intelligent cooperation the
silk industry should be able to meet the problem created
by the complete cutting off of silk supplies without any
very great hardship either to labor employed in the
industry or to its capital. I expect to keep current
on the discussions between OPACS and the representatives
of the silk industry and to make periodic reports thereon
to you, and also to Mr. Foley and to Dr. White.
2. Automobiles. Mr. Henderson announced that
he had 8. meeting yesterday with Mr. Knudsen and Mr. Hillman
in connection with the problem of cutting down the manu-
facture of passenger cars and light trucks for the pur-
pose of conserving scarce materials and for a better
utilization of skilled workers for defense. OPACS and
OPM have up until now been working very much at cross
purposes in this regard, but Mr. Henderson indicated
that he thought that as 8. result of the meeting yesterday
the two organizations would be able to come to an agreement
between themselves and with the industry as to the number
of passenger cars and light trucks that may be produced
during the coming year. He stated, however, that the
general question as to which organization has the ultimate
authority and responsibility in allocating civilian supply
remains undetermined, and he was unable to make any
definite assertion as to when or how that question will
be settled.
Regraded-Unclassified
13
Secretary Morgenthau,
3.
It seems to me that the issue is much deeper than
merely a struggle between the two organizations for power,
inasmuch as on practically all questions the approach of
the two agencies is entirely different. As in the case
of silk, interested parties tend to over-emphasize the
effect on labor and capital of a reduction in civilian
production or an allocation to them of smaller supplies
of raw materials. For example, both Messrs. Knudsen
and Hillman seem to believe that any reduction in production
of passenger cars and light trucks will automatically
result in an equivalent amount of displacement of labor and
of loss to capital. On the other hand, OPACS is inclined
to go a little deeper and to analyze the situation de novo.
As a result of their analysis of the automobile industry
OPACS representatives believe that a 50 per cent reduction
in the production of passenger cars and light trucks (or even
the complete elimination of their production during the
next year) can be had without the dire results forecast by
OPM. In support of this position they can point to the
fact that the industry now has over $2 billion in defense
orders, that the needed production of heavy trucks during
the next year will be more than 50 per cent in excess of
that produced during the past year (they are already
experiencing difficulties in getting steel and other
materials needed for truck production), and that defense
orders still awaiting allocation which must be shouldered
by the automobile industry will give them a scale of opera-
tions in terms of dollar volume, in excess of anything
ever experienced by the industry. Of course this takes
little or no account of distributors and dealers, but most
of the OPM argument seems addressed to manufacturers and
factory workers.
3. Cotton. The rising price of cotton was the
subject of a substantial amount of discussion, largely
between Secretary Wickard and Mr. Henderson and members
of his staff who have been dealing with the cotton textile
people. OPACS staff members pointed out that they are
Regraded Unclassified
1.)
Secretary Morgenthau,
4.
being caught in a "squeeze" between the cotton textile
manufacturers and the cotten people. The recent revision
of the price schedule for cotton textiles was made in the
light of the then existing price of cotton, although with
some leeway. The price of cotton has been steadily
advancing ever since and is now above parity. The existing
level of textile prices can be maintained only if cotton
prices do not advance substantially above parity, and in
view of the fact that cotton prices are already above
parity and are showing no signs of stopping it will be
necessary to revise cotton textile prices upwards again
unless something is done about cotton prices.
At B. meeting of the Committee held several weeks ago
Secretary Wickard stated that he and Mr. Henderson had
reached 8. general understanding that Agriculture would
sell Government owned cotton when, as and if the price
reached parity. The purpose of this, of course, would
be to keep cotton prices from going substantially above
parity. Despite the fact that cotton prices have gone
above parity Agriculture has not yet sold any, and Secretary
wickard was somewhat hard-put to explain why none has been
sold. His apparent reason is fear of what the cotton block
in Congress will do to him if he sells any. He stated that
he didn't know what they would do, but that they might
restrict further his right to sell cotton. His reasoning
did not seem to me particularly persuasive, at least in BO
far as the results of his inactivity are concerned, inasmuch
as the Senate tacked a rider on to an Agriculture bill
yesterday the effect of which is completely to freeze all
Government stocks of cotton. The bill is now in conference
and may quite possibly go to the President in that form.
Secretary Wickard indicated that he was undecided as to
whether to go to the Senators responsible for the amendment
and suggest 8. compromise or whether it would be better
to let the bill take its course without any comment from
him with the thought that the President might veto the
6111 if it becomes law.
Regraded Unclassified
15
Secretary Morgenthau,
5.
I ventured the suggestion that there is another
alternative which does not seem to have been considered
by him or anyone else opposed to the bill. That is
that if the bill is 8. bad bill, and everyone but the
cotton block seemed convinced of that, it might be a
good time for the Secretary of Agriculture and others
in the Administration to speak up and create a little
articulate opposition to the bill without waiting for
it to be sent to the President for his approval or veto.
I am not sure Secretary Wickard thought very highly
of my suggestion, although he stated that he has
indicated to Senator Barkley that he is not in favor of
the bill. It was my point and I believe it to be &
valid one, that it might be helpful for the Secretary
of Agriculture to take the lead in opposing legislation
of this character rather than to sit silently by and
expect the President to veto a bill as to which neither
he nor any members of his Administration have given
any affirmative indication of opposition. As is often
the case, the subject was left hanging in the air and
Mr. Henderson is to discuss it further with Secretary
Wickard with 8 view to taking it up with the President.
4. Price Legislation. The message on the long-
awaited price legislation is to be sent to the Congress
today by the President and bills are to be introduced
in the Senate and the House today or tomorrow. Mr.
Henderson reported that general agreement has been
reached with the legislative leaders and with the
legislative counsel of both Houses as to the form and
content of the bill, and that there is general agreement
between his office and the legislative leaders 8.8 to the
necessity for it. The bill is to be introduced in the
Senate by Senator Glass and in the House by Congressman
Steagall.
The meeting adjourned at 12.45.
Joyn of
Regraded Unclassified
16
MEMORANDUM
July 30, 1941.
TO:
The Secretary
FROM:
Mr. Sullivan
TLS
About 3:15 at the House Ways and Means Committee room in
the Capitol, I was advised by Mr. Bell that he, Mr. Foley and I were
to be at the White House at 4 o'clock. I returned to the Treasury
and neither Mr. Bell nor Mr. Foley could imagine the reason for the
summons. Shortly before we left the Treasury we were advised we
should come in by the front door.
The President said he had a call from Speaker Rayburn and
had discussed with hdm mandatory joint returns which the President
contended should be eliminated from the 3111. He spoke about the
number of divorces it would cause, the opposition of the churches,
and the united opposition of the women of the country. I advised
the President that we had had opposition from members of the Episcopal
clergy and the President interrupted to say there had been opposition
from all the churches. He added that a Catholic archbishop had seriously
protested to him. I advised the President that the original vote on
joint tax returns was 16 to 9 in favor of the proposal; that later the
sentiment shifted until 13 of the Committee were opposed to the proposal;
and that finally what swung the Senate and the Committee back to favor-
able consideration of the proposal by a vote of 15 to 10 was the letter
from Bishop Manning. Someone recalled that Bishop Vanning was America's
leading Anglophile and spread the word that although England had had
mandatory joint returns for twenty-five years, the divorce rate was
lower there than anywhere else in the world. The President said, "Well
I went this out of the Bill, and for political considerations it must
come out of the Bill."
He then stated that in order to make known his opposition
to mandatory joint returns he was going to write a letter to Chairman
Doughton and then write to the Speaker enclosing a copy of his letter
to Chairman Doughton, and he asked Vr. Bell as Acting Secretary to write
A
letter to him advising him that the Treasury had opposed mandatory
joint returns. At this point I interrupted to advise the President
Regraded Unclassified
17
- 2 -
that this was not true, - that after two weeks of deliberation and
just 10 few minutes before the vote, I had told the Committee that
the Secretary had asked me to advise them that be favored mandatory
joint returns if there was relief for earned incomes. The President
replied that I was playing both ends against the middle and I stated
that 1 was definitely in one corner. Mr. Voley said that be thought
we should review the record to see what position the Treasury had
taken in the past and he advised the President there had been times
when the Treasury had definitely favored mandatory joint tax returns.
He then went on to discuss the unnecessary complications of
the income tax and said that he would like to have everybody who
earned 750 pay BO much tax, those who earned 850 pay so much, those
who earned 950 pay so much. "In other words, he said, a separate,
distinct amount that everybody would know in advance was due. The
trouble today is that too many people are earning money and not con-
tributing to the Government." I then said that what he really wanted
was a gross income tax. After a moment's hesitation he said, "That is
just it." I then advised him that if he was interested in taking more
people on the tax rolls this could be accomplished by lowering personal
exemptions, but I was sure he didn't want that. He replied, "Of course
want that. I have been trying to get it for years but nobody will
help me do it." I then stated that we had been battling for three
months to prevent a lowering of personal exemptions and we had been
doing so because I understood that was his position. He then said we
did not understand his position. I advised him that it would be poss-
ible in the present bill to reduce personal exemptions but that it
would not be possible to effect a gross income tax.
He reluctantly agreed to my suggestion and I asked if he wanted
the amount by which personal exemptions would have to be reduced to
raise the three hundred million we would have on mandatory joint returns.
Ple replied that he did. He then went into a discussion of excess profits,
which he intended to open up again. Mr. Pell inquired if the President
had any notion that he was going to be able to change excess profits at
this session and the President replied, "No, but I am a woodchuck and 1
keep digging when there is a chance to dig, and since I have to write a
letter on one phase of the tax bill I might just as well comment again
on excess profits." He then went on to speak of the additional money
that would be collected through a change in excess profits. I advised
him that the change in excess profits could not be defended on that
ground because the present system was capable of raising an incressed
amount of revenue.
Regraded Unclassified
18
- 3 -
The President then stated that he would like to see a tax
which would tax all income above $100,000 at the rate of 995 per
cent. When Mr. Bell expressed his astonishment the President
joldngly said, "Why not? None of us is ever going to make 100,000
a year. How many people report on that much income?" I replied
that I thought about 1100 taxpayers reported income in excess of
$100,000 a year.
He then discussed the form of the letter he desired and
he asked that we write stating the opposition on mandatory joint
returns and excess profits, omitting from the letter any reference
to the position the Treasury had taken on lowering personal exemp-
tions. He stated that he would also like some material on excess
profits which would not be included in our letter but enclosed for
use in his letter to Chairman Doughton. Wr. Bell said, "This is
certainly going to be 8 bombshell." The President made no comment.
On our return to the Treasury Messrs. Bell, Foley, Kades,
Blough and Sullivan worked on the composition of the letter until
6:30 p.m. Mr. Bell phoned the Secretary and advised him of the
situation, expressed his anxiety, and urged the Secretary to return.
This the Secretary readily agreed to after calling the White House,
asking for a postponement 60 he could have his day in court, and
learning that he would have to be here by 9:30 tomorrow morning in
order to see the President about this matter. Messrs. Sullivan,
Tarleau and Blough went to the dinner being tendered by the members
of the House Ways and Means Committee. We returned from this dinner
later in the evening and the group worked until about 12:30 s.m.
The next morning, July 31st, Messrs. Bell, Foley and
Sullivan met the Secretary at the airport and discussed this matter
riding to the office where Mesars. Gaston and Blough joined the
group. Mr. O'Donnell furnished us with the estimate that to raise
three hundred million dollars additional by lowering personal exemp-
tions the married couples exemption of $2000 should be reduced to
1600 and the single persons exemption of $800 should be reduced to
3650. At 9:30 a.m. the Secretary, Mr. Blough and Mr. Sullivan went
to the White House where the Secretary conferred with the President
for one-half an hour and Messrs. Blough and Sullivan waited outside.
At the conference the President asked the Secretary for some slight
changes in the Treasury letter and on our return to the Treasury the
Secretary asked Mesars. Blough and Kuhn to make these changes.
Regraded Unclassified
July 30, 1941
19
EMORICEDURE FOR THE SECRETARY'S FILES:
A meeting relative to the administration of Executive Order
was neld in Mr. Foley's office ct 4:30 p.m., July 29, 1941,
attended from time to time by the following:
Messrs. Foley (Chairman), Gaston, Cochran, Pehle, B. Bernstein,
White, Viner, E. V. Bernstein, Ullman and Timmons for the Treasury;
Dessrs. Acheson, Luthringer and Miller for State; Messrs. Shea,
and Kreeger for Justice.
Ir. Acheson said it would be desirable for him to receive some
sort 32 E record of the decisions taken by the committee. It was
agreed that copies of the minutes of the meeting should be sent to
sssre. Acheson and Shea.
Dr. Foley referred to the desirebility of keeping the British,
Sanadian, Australian, and Dutch Governments in touch with the
ocisions taken with respect to the administration of the freezing
control in order that, on the basis of such knowledge, parallel
action be taken be all overmients concerned. This is particu-
Larl, true ..ith res ect to the policy to be followed toward Japan.
lr. Pehle read a telegram received from the Federal Reserve
TANE of Dallas, relative to application No. Dallas 423, involving
Lice export of approximately $1,000,000 worth of cotton to Shanghai,
Chine, by order O₂ Missho Cotton Co., Osaka, Japan. The telegram
stated that Missho in Osaka is the consignee of such cotton but that
L.E cotton will be delivered to Shanghai and will not be trans-shipped
to Japan. Missho is Apparently L Japanese firm in Japan with an
in Coine. Mr. Pehle stated that the transfer might con-
ceivably come under the General License No. 58, but that if it did
at 40 so, the General License should not be stretched to include
such D. transaction. Mr. Acheson remarked at this point that he had
Valized with Under Secretary of State Welles, who thought that for
next week or SO the happiest solution with respect to Japanese
with would be for the Forei Funds Control to take no action on
Managese applications.
with respect to the several Jepanese ships that are now
overin_ off the Pacific coast, .r. Welles had told the Japanese
_ bassader that specific licenses were necessary to fuel such boats,
18 put into port. There is, however, Mr. Welles said, no intention
on the part of this Government to refuse such licenses at the
resent time. Mr. Foley interpreted this to mean that ship control
Regraded Unclassified
20
2 -
departure permits would be granted, but that other transactions,
especially those involving the freezing control, would be subject to
special licenses, application for which would be given consideration.
Ir. Bernstein then raised the question whether action was to be
withheld on such applications as part of the general delaying
program. Mr. Gaston stated that a representative of NYK Line had
asked the Collector of Customs at San Francisco whether the Tatuta
Jaru could come in and depart without hindrance; also, whether she
would be permitted to discharge and load cargo. Mr. Gaston had
advised the Collector that there had been no change in the policy
of the merchant ship control with respect to the granting of permits.
The NYK representative had repeatedly inquired of the Collector
whether the boat will be permitted to dispose of her cargo and, if
the Tatuta Maru discharged her passengers in port, whether she could
clear for Japan without discharging cargo. It was pointed out here
that the cargo of silk on board would, if the boat put into port,
become subject to Export Control. Mr. Pehle called attention to
the fact that many American importers have opened letters of credit
available to Japanese exporters of the silk on board the Tatuta Maru
and that drafts may have already been drawn and paid under such
letters of credit. Such American importers would, if the boat were
allowed to clear with the cargo of silk still on board, probably
subject this Government to strenuous criticism. It was generally
agreed that the basic decision involved in this question is whether
this Government is to relax the newly-applied economic controls.
1r. Foley remarked that a solution could only be reached by this
committee if it is known what Mr. Welles wants done in the premises.
Mr. Foley suggested to Mr. Acheson that he mention the matter
immediately to Mr. Welles, find out what Mr. Welles had told the
Japanese Ambassador, and relate this conversation to this specific
case. Mr. Acheson, after a telephone conversation with Mr. Welles,
reported that the latter had stated that the Tatuta Maru could come
in, take on fuel and supplies and depart. In that conversation,
the question of cargo of silk was not mentioned. It had suddenly
been remembered, however, and an official of the Japanese Embassy
was at that moment waiting to see Mr. Welles. Mr. Welles had
indicated to Mr. Acheson that he had not made a final decision with
respect to the cargo. It was agreed that Mr. Gaston should inform
the Collector of Customs that the whole matter is being discussed
between the Japanese Ambassador and Mr. Welles. Later in the
meeting, Mr. Acheson reported that Mr. Welles' present inclination
Has to tell the Japanese that the boat could put in and unload cargo.
The cargo would then be subject to license but could be taken out
again if the Japanese so wished.
Mr. Cochran read a telegram from Wellington, New Zealand,
stating that the New Zealand Government has taken parallel action
with our Government and frozen Japanese funds in that Dominion.
Regraded Unclassified
. 3 -
21
Mr. Bernstein read EL telegram just received from Mr. Frank
Coe, Treasury attache in London. Mr. Coe reported B. conference
attended by officials of the British Treasury and the Bank of
England, and the Chinese Ambassador. The Ambassador was informed
at such meeting Chinese Assets in the sterling area had been frozen
and that the British Government would look to the Chinese Government
for advice as to what accounts should be freed. The British also
indicated that they were prepared immediately to free all official
accounts of the Chinese Government, certain Chinese banks, and
British and American banks in China.
Mr. Bernstein informed the meeting that a conference was
being held at that time with the object of coordinating the actions
of the Foreign Funds Control, Customs and Merchant Ship Control,
with respect to imports from and exports to Japan or Manchuria.
Mr. Bernstein inquired of Mr. Pehle whether any applications
had been filed to pay interest on Japanese bonds due August l. Mr.
Pehle reported that no such applications had been filed nor had the
Japanese Embassy requested that any diplomatic or governmental
accounts be released.
Reference made to the Special Accounts "A" and "B" of the Bank
of Indo-China, Saigon. The balances in such accounts as of July 29
were as follows:
A account
---
$343,000
I account --- $120,000
The question whether licenses allowing payments and transfers from
such accounts should be revoked obviously raises several delicate
problems, inasmuch as these accounts were originally set up to
secure for this Government certain necessary strategic materials
and that an explicit commitment to allow the free utilization of
such accounts has been made. With respect to the possibility that
oil will be purchased out of such accounts, Mr. Acheson remarked
that the general export license covering oil shipments to the Far
East could be revoked if nocessary. Mr. Pehle stated that the
freezing control license could not, for several reasons, be revoked
but that the export control licenses could be, in view of the fact
that no commitments with respect thereto had been made.
Mr. Pehle discussed briefly a proposed transaction in which
the Brazilian Government would buy with milreis Brazilian bonds
held in France and the French Government would use such local
currency balances to purchase Brazilian cotton, to be stored in
Trazil until the end of the war. Anderson, Clayton and Company
is interested in this transaction because their Brazilian affiliate
Regraded Unclassified
22
would presumably sell part of the cotton to be 80 purchased. The
Legal Department is to consider whether Anderson, Clayton and Company
can be advised that a license must be obtained for the Brazilian
affiliate to sell cotton to the French Government. Mr. Acheson
stated that the State Department desires to see such transaction
stopped if possible.
Mr. Bernstein read to the meeting & draft of a reply to 8 letter
received from Mr. Noel Hall of the British Embassy relative to the
litigating of British claims against the German and Italian debtors,
by attaching their assets in the United States. Reply is to be
made to the effect that it is believed that in view of all the
circumstances there might be some objection to such cases and that
it would be premature for this Government to agree to issue appro-
priate licenses covering payment of such German and Italian assets in
settlement of court judgments obtained by British creditors.
Mr. Pehle referred to an application that had been filed in
December last by the Chase National Bank to transfer some $500,000
from the Rumanian National Bank to Russia. At that time the State
Department had indicated that it could not give its approval of
such transaction. A new application was subsequently filed raising
the amount to approximately $600,000. The Treasury addressed a letter
concerning this application to State, to which State replied there
had been no change in its previous attitude. It was agreed that if
a license is granted the Chase Bank would probably not pay out unless
new instructions are obtained. Mr. Acheson stated that the State
Department had no objection to approval and it was unanimously
agreed that such action should be taken immediately.
Dr. White said that the Sooony Vacuum Oil Company had inquired
whether to reply to an inquiry from the Japanese Government relative
to 8 shipment of oil from the Netherlands East Indies on a boat
arriving there tomorrow. If they are to be requested not to send such
shipment, they are anxious that parallel action be taken by British
and Dutoh firms as well. It was pointed out that such & shipment
involves two licenses, one from the Dutoh export control and one from
the freezing control, as payment for the oil is to be made from c.
blocked Japanese account in New York. Mr. Acheson has suggested to
Mr. Welles that pressure be applied to Japan through the medium of
the freezing control licenses. It may be possible to leave out-
standing export licenses unrevoked, but to limit types and quantity
of merchandise that is to be allowed to be exported to Japan. For
crample, exports to Japan in an average year, say 1935-1936, might
se taken as a standard end exports of high octane-rating gasoline
Regraded Unclassified
23
- 5 -
and lubricating oils be cut to such average amount. Mr. Bernstein
suggested that a workable plan might be developed along the lines
of limiting to Japan to her needs for a normal, peaceful life,
excluding her war needs. It was agreed that the techniques involved
can be worked out once the final line of policy is formulated.
Mr. Acheson stated that he had been requested by Export Control
to initial an Executive Order to be signed by the President, which
would have required that the ultimate consignee of all exports be
named. lle had not done 50 in view of the fact that the questions
raised by such Order cut across the problems of several departments,
including the Treasury. Mr. Pehle said that members of the Treasury
Legal Department were developing workable definition of the term
"ultimate consignee."
Mr. Shea said that he had recently a note from Mr. Francis
Biddle to the effect that certain "Free Frenchmen" in the United
States are worried over the filing of TFR-300 reperts, for fear that
the information contained therein will be disclosed to the Vichy
government. Mr. Foley said that this material would obviously be
treated as confidential and handled in the same way as any other
confidential information received by the department.
Regraded Unclassified
21
7/30/41
1888
EXECUTIVE ORDER
8839
ESTABLISHING THE ECONOMIC DEFENSE BOARD
By virtue of the authority vested in ne by the Consti-
tubion and statutos of the United States, by virtue of the exist-
ence of an unlimited national emergency, and for the purpose of
developing and coordinating policies, plans, and programs designed
to protect and strengthen the international economic relations of
the United States in the interest of national defense, it is hereby
ordered as follows:
1. The term "economic defence, whenever used in this
Order, means the conduct, in the interest of national defense, of
international economic activition including those relating to
exporto, imports, the acquisition and disposition of materials and
commodities from foreign countries including preclusive buying,
transactions in foreign exchange and foreign-owned or foreign-con-
trolled property, international investments and extensions of credit,
shipping and transportation of goods among countries, the international
aspects of patents, international communications portaining to com-
merce, and other foreign coonomic matters.
2, There is hereby established an Economic Defense Board
(horeinofter reforred to as the "Board"). The Board shall consist
of the Vice Progident of the United States, who shall serve as Chair-
man, the Secretary of State, the Secretary of the Treasury, the Sec-
retary of yes, the Attorney General, the Secretary of the Navy, the
Secretary of Agriculture, and the Secretary of Cormerco. The Chair-
man may, with the approval of the President, expoint additional mom-
nors to the Board. Each member of the Board, other than the Chairman,
may designate on alternate from among the officials of his Department,
subject to the continuing spyroval of the Chairman, and such alternate
day act for such camber in all matters relating to the Board.
3. In furtherance of such polician and objectives as the
President noy irom time to time determine, the Board shall perform
following functions and Oution:
N. Advise the President as to economic defense mma-
surea to be taken or functions to be performed
which are essential to the effective defense of
the Nation.
as Courdinate the policies and actions of the several
departments and agencies carrying on activities
relating to conomic defense in order to assure
unity and balance in the application of such meas-
ures.
c. Develop integrated economic defense plans and pro-
grans for coordinated action by the departments and
agencies concerned and use all appropriate means to
assure that such plans and programs are carried into
effect by such departments and agencies.
d. Make investigations and advise the President on the
relationship of economic defense (as defined in
paragraph 1) measures to post-war economic recon-
struction and on the steps to be taken to protect
the trade position of the United States and to ex-
pedito the establishment of sound, peace-time inter-
national economic relationships.
Regraded Unclassified
25
4, Adview proposed or saleting Regislation relating
to or affecting economic defense and, with the
approval of the Prosident, recommend such 4001-
tional legislation GS may bd nicessary or dosir-
able.
4. The administration of the vorious activities relating
to oconomic defense shall ramain with the several departments and
agencive now charged with such duties but such administration shall
nonform to the policies formulated or approved by the Board.
5. In the study of problems and in the formulation of
programs, it shall be the policy of the Board to collaborate with
stisting departments and agencies which perform functions and ac-
tivities portaining to economic defense and to utilizo their
scrvices and facilities to the muximum. Such departments and agen-
niva shall cooporato with the Board in clearing proposed policios
nnd measures involving oconomic defense considerations and shall
mpply such information and data as the Board may require in per-
forming its functions. The Board may arrango for the estoblishment
of committees of groups of advisers, rupresenting two or more de-
partments and agencies as the case pay require, to study and develop
nennomic defense plans and programs in respect to particular commo-
dities or services, geographical areas, types of measures that might
bi exercised, and other related matters.
6. To facilitato unity of action and the maximum use of
utisting services and facilities, each of the following departments
and agencies, in addition to the departments and agencies represented
en the Board, shall designate a responsible officer or officers, sub-
foot to the approval of the Chairman, to represent the department or
agency in its continuing relationships with the Board: The Depart-
ments of the Post Office, the Interior, and Labor, the Federal Loan
Agency, the United States Maritime Commission, the United States
Teriff Commission, the Foderal Trade Commission, the Board of Gov-
ernors of the Federal Reserve System, the Securities and Exchange
Commission, the National Resources Planning goard, the Dofense Com-
munications Board, the Office of Production Management, the Office
of Price Administration and Civilian Supply, the Office for Goordi-
netion of Commercial and Cultural Relations Between the American
Republics, the Purmanent Joint Board on Defenne, the Administrator
x Export Control, the Division of Defense Aid Reports, the Coordit-
Ator of Information, and such additional departments and agencies
AT the Chairman any from time to time determine, The Choirman shall
provide for the systematic conduct of business with the foregoing
departments and apencios.
7. The Chairman is authorized to make all necessary ar-
rangerents, with the advice and assistance of the Board, for dia-
charging and oerforming the responsibilities and duties required to
carry out the functions and authorities set forth in this Order,
and to make final decisions when necessary to expedite the work of
the Soard. Fe is further authorized, within the limits of such
funds-as may be allocated to the Board by the President, to employ
necessary personnel and take provision for the necessary supplies,
facilities, and services. The Chairmen =/, with tire approval of
the President, appoint an executive officur.
FRANKLIN D. ROOSEVELT
THE WHITE HOUSE,
July 30, 1941.
Regraded Unclassified
26
HOLD FOR RELEASE
HOLD FOR RELEASE
HOLD FOR RELEASE
CONFIDENTIAL: To be held in STRICT
CONFIDENCE and no portion, synopets,
or intimation to be published or
given out until the READING of the
President's Message has begun in the
Senate. Extreme care must therefore
be exercised to avoid premature
publication.
STEPHEN EARLY
Secretary to the President
TO ThE SENATE:
I return herewith, without my approval, S. 1200, a bill
"To authorize additional appropriations to provide for the further
development of cooporative agricultural extension work."
The basic acts authorizing grants to States and Territories
for agricultural extension work set un a formula under which the
funds appropriated are largely apportioned among the States and
[erritorios in the proportion which the rural or farm population of
the State or Territory bears to our total rural or farm population
35 determined by the lost preceding decennial census.
The 1940 census reveals that important shifts have occurred
in farm population since 1930, and, an one consequence, redistribu-
tion of Federal funds contributed to the agricultural extension
program in accordance with the basic nots would entitle twenty-four
States and Puerto Rico to increased shares aggregating approximately
$340,000, while the sharea in twenty-four States and Hawaii would
be decreased in a total amount of approximately $555,000.
S. 1200 would authorize annual appropriations of $555,000
with which to continue at the present level the annual grants to these
latter twenty-four States and Hawaii. In effect, the bill rendero
maningless the apportionment formula of the basic acts, which WELD
Mioughtfully written by Congress, and which must have contemplated
the possible necessity of adjustments in apportionments thereunder
as shifts in population occur.
If that formula is now considered unsount, it would seem
to me that the proper corrective is to replace it with a new and
better one, rather than timply make offsetting special appropriations
whenever the operation of the formula decreases the chares of one or
% group of Statis and Territories.
The enactment of the Bankhead-Jones Act in 1935 greatly
strengthened the participation by the Federal Government in the
general agricultural extension program. I de not feel that there
is sufficient warrant for further increasing at this time the
continuing annual appropriations provided By that Act and earlier
related legislation.
FRANKLIN D. ROOSEVELT
THE WHITE HOUSE,
July 31, 1941.
Regraded Unclassified
27
HOLD FOR RELEASE
HOLD FOR RELEASE
HOLD FOR RELEASE
JULY 30, 1941
1385
CONFIDENTIAL: To be held in STRICT CONFIDENCE and no
portion, synopsis or intimation to be published or
given out witil the READING of the President's Mesange
has begun in the Senate or the House of Representa-
tives. Extreme care must therefore be exercised to
avoid premature publication.
STEPHEN EARLY
Secretary to the President
TO THE CONGRESS CF TIC UNITED STATES:
Inflationery price rinco and incrusses in the cost of living an
today threatening to undermine our defenso effort. I Em, therefore, recom-
manding to the Congress the adoption of meaduran to deal with this threat.
We are now spending more than $30,000,000 a day on defense. This rate
must and will increase. In June of this year We opent about $808,000,000 -
more than five times the 1158,000,000 WL spent In June 1940. Every dollar
spent for defonse presses against an already limited supply of materials,
This pressure is onerply accentuated by no ever-increasing civilian
decand. For the first time in years many of our workers are in the market
for the goods they have always wanted. This means more buyers for more
products which contain steel and aluminum arto other materials noeded for
defense, Thus a rapidly expanding civilian demand has been added to a vast
and insistent dewand by the Government.
Those who have money to spend are willing to bid for the goods. The
Government cust and mill satisfy its defense needs. In such a situation,
price advances mercly determine who gota the scarce materials, without 1n-
creasin; the available supply. We face inflation, unless we act decisively
and without dolay.
The conséquences of inflation are well known We have seon them
before.
Producers, unable to obtermine what thoir costs will be, hositate to
enter into defonse contracts or otherwise to commit themselves to ventures
whose outeo/s they cannot foregot, Time whole production machinery falters.
Speculators anticipating successive price advances, withhold commodi-
ties from essential military production.
Costs to the Covernment increase, and with it the public debt.
Increases in the workors' cost of living, on the one hand, and EXCES-
sive profits for the manufacturer, on the other, lead to spiraling demands
for higher wages. Chic means friction between employer and employed.
Great profits are reaped by some, while others, with fixed and low
incomes, find their living standards drastically reduced and their 11ft-
long savings chrunken. The unskilled worker, the white-collar morker, the
farmer, the small businessman and the small investor all find that their
dollar buys ever loss and less.
Regraded Unclassified
28
- 2 -
The burden of defense is thrown haphasarily and inequitably
on those with fixed income or whome bargaining power La too weak to
secure increases in income commensurate with the rize in the cost of
living.
And over all hovers the specter of future deflation and depres-
sion, to confuse and retard the defense effort and inevitably to agra-
vate the dangers and difficulties of a return to a normal peacetime basis.
Economic sacrifices there will be and we shall bear them chest-
fully, But we are determined that the satrifice of one shall not be the
profit of another. Nothing will sap the morale of this Nation more
quickly or ruinously than ponalizing its sweat and skill and thrift by
the individually undeserved and uncontrollable poverty of Inflation.
Our objective, therefore, must ba to seu that inflation, aris-
ing from the abuse of power to increase prices because the supply is
limited and the demand influxible, does not occur during the present
emergency.
Today We stand, an TO did in the closing months of 1915, at
the beginning of an upward swe/p of the whole price structure. Then, too,
wes enjoyed relative stability in prices for almost a year and a half After
the outbreak of var abroad. In October 1915, however, prices turned
sharply upward. wordbox April 1917 the wholesale price 1ndox had jumped 63%:
by June 1917, 7451 and by June 1920 it was nearly 140% over the October
1915 mark.
The facts today are frighteningly similar.
The Bureau of Labor Statistics Indox of 28 basic commodities,
by the end of June, had Advanced 50% beyond its August 1939 level. It
has increased 24% since January of this year.
Since August 1939 the Bureau of Labor Statistics Index of 900
wholesale prices has advanced 17.3. It has increased 10% sinco January
of this year, In the past 60 days wholemale prices have rison more than
five times an fast 68 during the proceding period since the outbronk of
the war abroad.
Since August 1939 the Burezu of Labor Statistics Indox of the
cost-of-living has advanced 5 1/2%. It has increased 3 1/2% sinco the
beginning of this year, and the upward prossure is now intenso. In a
single month, from the mare of May to the middle of June, the cost-of-
living jumped 25. During the last quarter the increase in the cost-of-
living was greater than during any similar period since the World War.
But. even yet the indox does not fully refluct past increases, and only in
n faw months will It respond to current increases,
In 1915 the upward price movement procueded unchocked so that when
regulation was fimily bogun it wis alroady too Into. Now wa have an op-
portunity to Act. before disastrous inflation in upon us. The choice is
oura to make; but With munt act speedily.
For twelve months TV have triad to maintain n stable levol of
prices by anlisting the voluntary cooperation of business, and through in-
formal persuasive control. The effort hrs boan widaly supported bacauso
fur-sighted business leadors realize that their own true inturost would be
juopardised by runnway inflation. But the existing authority over prices
La indirect and circumscribed, and operates through measures which are not
appropriate or applicable in all circumstances. It has further been weak-
ened by those who purport to recognize need for price stabilization yet
challenge the existence of any effective power. In some cases, moreover,
there has been evasion and bootleg ing; in other cases the Office of Price
Administration and Civilian Supply has been openly defied,
Faced now with the prompect of inflationary price advances, 1sg-
islative action can no longer prudently be postponed. Our national safety
damands that We take steps at once to extend, clarify and strengthen the
authority of the Government to not in the interest of the general wolfare.
Regraded Unclassified
3 -
29
Legislation should include authority to establish collings
for prices and rents, to purchase materials and commodities when
necessary, to assure price atability, and to deal more extensively
with excesses in the field or installment credit. To be effective,
such authority must be flexible and subject to exercise through
Itcense or regulations under expeditious and workable administrative
procedures. Liko other dofense legislation, it should expire with
the passing of the need, within B limited time after the end of the
emergency.
The concept of B. price ceiling 18 already familiar to us
ЦЕ u result of our can World Wer experience. Prices are not fixed
or frozen; an upper limit alone is set. Prices may fluctuate below
this 21015, but they cunnot go above it.
To meke ceiling prices offective it will often be necessary,
unone other things, for the Government to increase the evailable
supply of a commodity by purchases in this country or abroad. In
other change it will be essential to stabilize the market by buying and
setting as the oxigencies of price any require.
Housing 18 43. commodity or universal use, the supply of
which cannot spoudily be increased. Duspita the stops taken to assure
adequato housing for defende, we 021 already confronted with rent
incremation oninously reminiecent of thos) which provailed during the
World War. This is e development that must De strusted before rent
profiteering van develop to increase the cont of living and to damage
the Givilian morelo.
or course there cannot du price stability if labor costs
rios abnormally. Lobor hud for aore to gain from price stability
than from obnermal wege increases. For theat are likely to be
illusory, and quickly overtaken by sharp rinea in living costs which
fall with particular hardship on thu least fortunate of our workers
and our old people.
There will always be nued for wage adjustments from time
to time to rectify inuquituble situations. But Inbor na u whole will
faro buat from o letor policy which recognizes that wages 10 the
defenso industries should not substantially exceed the provilling
wage rates in compurable non-defense industries Where fair lobor
policies have bown mointained. Alfundy through the efforts of the
National Defonse Medintion Bourd cac wage stubilization committees
wago standards are heing ustablishud and u McCoure of wage stability
is being brought to particular industrios. It ia expocted that such
activitive will be continued, extended, und auto incruesingly
affective,
I recognize that the obligation not to work as EXCESSIVE
profit from the defunce amergency roots with oqual force on Inbor
end on industry, und that both must assume thoir responsibilities
If We who to avoid inflotion.
I elso recognize that we my expect the wholehearted und
voluntury corporation of Lubor only Which it has buth ossured to rouson-
able and etable incomo in torma of the things money will buy, and
equal restroint or sacrifico on the part of all others who participate
in the defense program. This means not only u rensonable stobiliza-
tion of prices und the cost of living but the affective texation of
excess profits and purchasing power. In this way alonu cun the Nation
be protected from the uvil consequences of u chootic struggle for
gim which must provo oithor illusory or unjust, und which must lead
to the disbuter of unchocked inflution.
FRANKLIN D. ROOSEVELT
THE WHITE HOUSE,
July 30, 1941.
Regraded Unclassified
30
TREASURY DEPARTMENT
WASHINGTON
July 30, 1941
Memorandum for THE SECRETARY
The following report is made of requests received
for "Any Bonds Today?" from the experimental mailing of
10,000 cards:
No. Requests
No. Copies
July 1 - 29
1099
6369
July 30
24
203
Total
1123
6572
GRAVES
Regraded Unclassified
31
TREASURY DEPARTMENT
WASHINGTON
July 30, 1941
Memorandum for THE SECRETARY:
The following report is made of Stamp sales at
"Treasury House":
July 1-28
$21,050.15
July 29
996.90
Total
$22,047.05
GRAVES
Regraded Unclassified
32
CONFIDENTIAL
UNITED STATES SAVINGS BONDS
H
Sales in July Compared with June, 1941
On Basis of Issue Price
First Twenty-four Business Days
(June 1-28, July 1-29)
(Amounts in thousands of dollars)
:
Sales
: Increase or Decrease (-)
:
: in July Compared with June
Item
:
:
:
:
I
July
June
Amount
Percent
:
:
#
Series E - Post Offices
$ 47.385
$ 38,139
$ 9,246
24.2%
Series E - Banks
87,997
58,723
29,274
49.9
Series E - Total
135,382
96,862
38,520
39.8
Series 7 - Banks
24,420
27,530
- 3,110
- 11.3
Series G - Banks
150,636
177,025
- 26,389
- 14.9
Total
$310,437
$301,417
$ 9,020
3.06
Office of the Secretary of the Treasury,
July 30. 1941.
Division of Research and Statistics.
Source: All figures are deposits with the Treasurer of the United States
on account of proceeds of sales of United States Savings Bonds.
Note: Figures have been rounded to nearest thousand and will not
necessarily add to totals.
Regraded Unclassified
Daily Sales - July 1941
On Basis of Issue Price
(In thousands of dollars)
Post Office
All Bond Sales
Bank Bond Sales
Date
Bond Sales
Total
Series E
Saries 7
Series G
Series E
Total
Series E
Series ?
Series G
July 1941
1
$ 9,505
$ 2,387
$
957
$ 6,160
$
595
$ 8,910
$ 1,793
$
957
$ 6,160
2
11,612
4,066
845
6,701
1,735
9,877
2,331
845
6,701
3
15,045
4,903
843
9,299
2,077
12,969
2,827
843
9,299
5
22,900
9.589
2,437
10,875
3,191
19,709
6,397
2,437
10,875
7
11,028
6,315
472
4,242
3,908
7,120
2,407
472
4,242
8
11,226
4,867
1,197
5,162
1,346
9,881
3,522
1,197
5,162
9
16,570
6,277
880
9,413
2,229
14,341
4,048
880
9,413
10
11,430
6,013
605
4,805
2,459
8,972
3.559
605
4,808
11
16,311
5,504
1,197
6,610
2,405
13,905
6,098
1,197
6,610
12
12,689
4,482
860
7.347
1,672
11,017
2,810
860
7,347
14
13,435
7.754
1,046
4,636
3,060
10,375
4,693
1,046
4,636
15
10,083
4.754
602
4,728
1,458
8,625
3,296
602
4,728
16
11,994
5.541
808
5.645
1,645
10,349
3,896
808
5.645
17
15,332
6,213
1,189
7.930
1,799
13,533
4,414
1,189
7,930
18
12,404
6,730
836
4,837
2,042
10,362
4,689
836
4,837
19
7,553
4,513
926
2,114
1,505
6,048
3,007
926
2,114
21
14,136
7,105
1,015
6,016
3,060
11,076
4,046
1,015
6,016
22
12,191
3,820
1,208
7,164
1,001
11,191
2,819
1,208
7,164
23
14,677
5.018
1,208
8,451
1,514
13,163
3,505
1,208
8,451
24
11,634
5,382
959
5,293
1,623
10,011
3.759
959
5,293
25
10,589
5,828
904
3.857
1,670
8,919
4,158
904
3,857
26
11,149
4,420
474
6,256
1,303
9,846
3,117
474
6,256
28
15,050
6,986
1,109
6,954
2,983
12,067
4,003
1,109
6,954
29
11,892
3,910
1,844
6,138
1,106
10,787
2,805
1,844
6,138
Total,
$310,437
$135,382
$ 24,420
$150,636
$ 47,385
$263,052
$ 87,997
$ 24,420
$150,636
Office of the Secretary of the Treasury, Division of Research and Statistics.
July 30. 1941.
Source: All figures are deposits with the Treasurer of the United States on account of proceeds of sales of
3
United States Savings Bonds.
Note: Figures have been rounded to nearest thousand and will not necessarily add to totals.
Regraded Unclassified
34
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 30, 1941
TO
Secretary Morgenthau
FROM
Mr. Kamarok
Subject: Airplane Deliveries to the British
Summary
1. A total of 69 planes shipped is reported in the
latest statement received. Except for the delivery of 20
Tomahawks to the Middle East, all the planes were shipped to
England.
2. The delivery of Curtise Tomahawks to the Middle
East is in a fairly consistent flow. The following are the
weekly shipments reported in the last six weeks: 46, 50, 20,
40, 30, 20.
Regraded Unclassified
35
- 2 -
Division of Monetary
Research
Airplane Shipments to the British
(From February 1 to July 27 by air
January 11 to July 5 by sea)
Table A. - Shipments by Area
Total
Latest
Reported
Week
To Date
To the United Kingdom
Light and medium bombers
45
607
Heavy bombers
o
41
Naval patrol bombers
o
72
Pursuit
4
17
Total to United Kingdom
49
737
To the Middle East
Light and medium bombers
0
150
Pursuit
20
481
Total to Middle East
20
631
To the Far East
Light and medium bombers
0
6
Naval patrol bombers
0
9
Pursuit
0
145
Trainers
o
55
Total to Far East
0
215
Totals
Light and medium bombers
45
763
Heavy bombers
0
41
Naval patrol bombers
0
81
Pursuit
24
643
Trainers
0
55
Grand Total
69
1,583
Regraded Unclassified
36
- 3 -
Division of Monetary
Research
Table B. - Shipments by Types
Total
Latest
Reported
Week
To Date
Bell Airacobra (P-39)
4
8
Boeing B-17
o
21
Brewster Buffalo
0
145
Consolidated Catalina
o
81
Liberator
O
20
Curtise Tomahawk
20
481
Douglas Boston I
0
1
Boston II
o
72
Boston III
18
107
Glenn Martin Maryland
o
150
Grumman Martlet II
o
9
Lookheed Hudson I
o
1
Hudson III
o
57
Hudson IV
0
18
Hudson V
27
324
North American Harvard II
0
55
United Chesapeake
0
33
Grand Total - All Types
69
1,583
Regraded Unclassified
37
- 4 -
Division of Monetary
Research
Table C. - Plane Deliveries to the British by Weeks
Light
Naval
Week
and Medium
Heavy
Patrol
Ended
Bombers
Bombers
Bombers
Pursuit
Trainers
Total
Feb. 8
-
22
-
3
-
-
25
Feb. 15
-
39
-
-
100
-
139
Feb. 22
#
35
-
-
27
-
62
Mar. 1
7
-
5
25
-
37
Mar. 8
16
-
3
10
-
29
Mar. 15
26
1
4
-
-
31
Mar. 22
#
17
-
2
22
-
41
Mar. 29
-
25
-
3
18
-
46
Apr. 5
21
-
7
73
*
101
Apr. 12
21
2
2
27
-
52
Apr. 19
20
3
4
5
-
32
Apr. 26
23
2
3
-
28
56
May
3
61
1
2
15
27
106
May 10
36
1
8
10
-
55
May 17
61
13
7
19
-
100
May 25
30
10
-
25
-
65
June 1
28
5
5
21
-
59
June 8
37
2
7
-
-
46
June 15
#
26
1
4
20
-
51
June 22
*
28
-
4
52
-
84
June 29
*
45
-
1
50
-
96
July 6
#
19
-
3
20
#
42
July 13
*
34
-
3
48
-
85
July 20
4
41
-
1
32
-
74
July 27
+
45
-
-
24
-
69
763
41
81
643
55
1,583
The date given is for shipments by air. Shipments by
water start three weeke earlier. That is, the statement
reporting the shipment of planes by air for the week end-
ing July 27 would report the shipment of planes by water
for the week ending July 5.
Regraded Unclassified
1,
38
July 30. 1948
N. Fels
Mr. Gechrem
will you kindly, with the approval of your Division and as Treasury
Stabilization Fund empense, send the attached callegram.
(Init.) H. M. C.
HMG:1ap-7/30/41
Regraded Unclassified
39
THE WISH SECRETARY OF YES TREASURY
Vashington
July 30, 1941
20 MR. COCHEANS
8 just talked with Mr. Devilop 42 the tolephone is
the absence of sir Frederick from the city. about the
attached tolegram. Be = se objection to 10 but hopes
that we will cenfer with his again if w get a regly free
Yes to the effect that 10 is important to proceed im-
diately se not - the Beard.
Be also told se that he had received a cable from
Leader advising that the British deverament had enggested
to the Chinese Government the temperary appointment of
Hall-Patch. they have not yet reseived 6 reply to this
suggestion. Be thought that the few days to
send our cable and ⑉ a reply from Yes would give time
to solve their problem also.
The attached cable cas, therefore, - out after you
and White have initialed 10.
(Init.) D.V.B.
Copyroln 7-30-41
Regraded Unclassified
40
0
o
I
GABLE
AMERICAN EMBASSY, OHUNGKING,
For Fox from Acting Secretary of Treasury.
Reference your cablegram of June 27 - through Spagest, Shanghai,
and your 752 ceat through Lockhart June 28.
Team were provided with copies of all documents pertinent to American
and British Stabilisation Agreements with Chim. Letters apparently N-
forred to are those dated April 25, 1941, emchanged between Secretary of
Treasury and Sir Frederick Phillips and containing three pointe. Addi-
tional copies of these letters are being formaried to you by pouch.
Nothing in such letters provent the eetting up of a four-man
Stabilization Board, including the American member, and net including
the British smber, for the purpose of menaging the United States dollar -
Chinese Year Stabilisation Fund. If you think It important to proceed
immediately to set w the Beard please advice, and instructions to you
the words deleted in
will be sent prosptly.
final message.
The Treasury is informed that Sir Otte Nieneyer will leave Lendon
within the next fortnight for makington. No is exposted to disease
Chinage problems with this deverament before proceeding to China. It is
anticipated that his visit to China will be of only a few month's dura-
tiem and that be will devote his attention to broad lines of commis and
financial policy. It is not exposted that he will serve on the Stabilism-
tion Heard.
33:hug
Initialed:
EMO
B
DWB
EN
Copy:lg 7/30/42
Regraded Unclassified
41
July 30, 1941
Dr. Feis
Mr. Cochran
will you kindly, with the approval of your Far Bastera Division and of
Mr. Currie, (who suggested this draft) sond a cablegram, at Treasury Stabilization
Fund expense, along the fellowing lines:
"American Fabruary,
Chungking, China.
For Yes free Acting Secretary of Treasury.
What progress is being mão is the rehabilitation of China's internal
financel In this connection we should like to have your comments on the
Ambassader's despatch No. 21, of June 20, on China's general economic com-
dition. Ve assume that each reports are más available to you."
HNC:10>7/30/41
Regraded Unclassified
42
C
0
P
Y
Australian Legation,
Washington, D. C.
July 30th, 1941
Dear Mr. Cochran,
With reference to our telephone conversation
today, concerning the State of Queensland Loan, I enclose
herewith the original and one copy of an opinion on this
subject supplied by Davis Polk Wardwell Gardiner & Reed.
Yours sincerely,
(Signed) A. S. Watt
Mr. Merle Cochran,
Room 279, Treasury Building,
U.S. Department of the Treasury,
Washington, D.C.
Copy:1g 8/1/41
Regraded Unclassified
43
C
Davis Polk Wardwell Gardiner & Reed
o
(Statson Jennings & Russell)
P
15 Broad Street
Y
New York
July 28, 1941
The Honorable L. R. Macgregor,
Australian Government Trade Commission,
630 Fifth Avenue,
New York City.
Dear Sir:
We understand that the State of Queensland has out-
standing approximately $7,200,000 principal amount of its
Twenty-Year 7% Sinking Fund External Loan Gold Bonde dated
October 1, 1921, due October 1, 1941. We also understand
from you that under the Financial Agreements (Commonwealth
Liability) Act of the Commonwealth of Australia, assented to
March 12, 1932, the Commonwealth of Australia expressly under-
took to pay from time to time to the bondholders principal and
interest of certain state obligations and that among such
obligations were the State of Queensland Bonds above referred
to. An opinion in our files dated April 12, 1932, from Messrs.
Blake & Riggall, of Melbourne, states that the aforesaid Act.
amongst others, was upheld as valid in 1932 by the High Court
of Australia. We assume that there has been no change since
then in the text or construction of the Act and that under the
law of Australia the obligation of the Commonwealth to the bond-
Regraded Unclassified
- 2 -
holders atill continues.
You have asked our opinion whether so exchange by
the Commonwealth of Australia of its own bondo for the above
mentioned State of Queensland Bonds (such exchange to be directly
with the present bondholders) would constitute a violation of the
United States Neutrality Act of 1939.
The applicable provision of the Neutrality Act of 1939
is Section 7 (Financial Transactions), which reads as followst
"Sec. 7. (a) Whenever the President shall
have issued a proclamation under the authority of
section 1 (a), it shall thereafter be unlavful for
any person within the United States to purchase,
sell, or exchange bonds, securities, or other obli-
gations of the government of any state named in such
proclamation, or of any polition] subdivision of any
such state, or of any person acting for or on behalf
of the government of any such state, or political
subdivision thereof, issued after the date of such
proclamation, or to naice any loan or extend any credit
(other than necessary credits accruing in connection
with the transmission of telegraph, cable, vircless
and telephone services) to any such government, 9°
litical subdivision, or person. The provisions of
this subsection shell also apply to the sale by any
person within the United States to any person in A
state named in any such proclamation of any articles
or materials listed in a proclamation referred se in
or issued under the authority of section 12 (1).
(b) The provisions of this section shall not
apply to B. renewal or adjustment of such indebtedness
as may exist on the date of such proclamation.
(c) Whoever shall knowingly violate any of the
provisions of this section or of any regulations issued
thereunder shall, upon conviction thersof. he fined not
more than $50,000 or imprisoned for not more than five
years, or both. Should theviolation be by a corpora-
tion, organization, or association, each officer or
director thereof participating in the violation shall
be liable to the penalty herein prescribed.
Regraded Unclassified
45
- 3 -
(d) Whenever any proclamation issued under
the authority of suction 1 (a) shall have been
revoked with respect to any state the provisions
of this section shall thereupon cease to apply
with respect to such state, except as to offenses
committed prior to such revocation."
In Proclamation No. 2348 of the President of the
United States dated September 5. 1939. the President found
there existed a etate of war between the Commonwealth of
Australia and Germany which Proclamation is still in force
so that the exchange is prohibited under the provisions of
subsection (a) of Section 7 unless the proposed transaction
can be excluded under the exception provided in subsection
(b). This subsection (b) provides that Section 7 shall not
apply to a "renewal or adjustment of euch indebtedness" as
may exist on the date of the Proclamation. We understand
that all the State of Queenaland Bonda now outstanding were
outstanding on September 5. 1939. so that the only question
remaining 10 whether the above-mentionsd exchange of Common-
wealth of Australia bonds for the State of Queensland Bonds
constitutes a "renswal or adjustment" of the bonded indebted-
DOBS represented by the Queenaland Bonds,
Whether or not the proposed exchange would constitute
such a renewal or adjustment if the Commonwealth of Australia
were not itself obligated upon the existing bonds (so that the
exchange would be the issuance of indobtedness of the Common-
wealth in exchange for cancellation of indebtedness of the
Regraded Unclassified
4
46
State of Queenaland only) we need not now consider since in this
case, on the basis above stated, we understand the Commonwealth
is itself directly obligated to the holders of the Queenaland
Bonds and the new bonds of the Commonwealth of Australia would be
issued directly to such holders.
The are of the opinion that much emhange of Commonwealth
Bonds for Queensland Bonds where the Commonwealth is already liable
to the holders of the latter would constitute a "renewal or adjust-
ment" of the indebtedness represented by the State of Queensland
Bonds and existing September 5. 1939, and 1e therefore not pro-
hibited by the provisions of the Neutrality Act of 1939.
While there has been no court decision construing sub-
section (b) of Section 7 of the Neutrality Act of 1939. our con-
clusion is we think the same ae that indicated by the then Attorney
General of the United States in his opinion dated May 5. 1934, dis-
cussing the question of the meaning of "renewal or adjustment" of
existing indebtedness as those terms are used in the "Johnson Act
(Approved April 13, 1934)", which also excepts from its provisions
a "renewal or adjustment of existing indebtedness". The pertinent
parts of this opinion are as follows:
"¹(3). What constitutes a renewal of an existing
credit?'
Your legal adviser has concluded, in the memoran-
dum transmitted with your letter of April 23. that:
'It would seem that any instrument which would be
issued for the purpose of replacing the evidence of any
existing indebtedness would constitute a renewal or an
adjustment of an existing indebtedness. If new bonds
were issued to replace old ones, it would seem that
Regraded Unclassified
47
- 5 -
such a transaction would be permissible, Any instrument
given in antiefaction or extension of an existing indebt-
edness would, it is believed, come within this exception.'
In general, I approve this statement, but obviously
it will be a question of fact in each case whether or not
what is done amounts in good faith to the mere 'renewal
... of existing indebtedness.'
It 1e made unlawful, AS I have said, 'to purchase
or sell the bonds, securities, or other (similar) obliga-
tions of any foreign government ... issued after the
passage of this act, or to make any loan to such foreign
government ... except a renewal or adjustment of exist-
ing indebtedness.' The word 'renewal' needs no defini-
tion by me - it is frequently used and commonly under-
stood in banking business and commercial transactions --
and the word 'adjustment', relating to accounts or claims,
has been used in our statutes since the formation of the
government. (See the Act of Sept. 2, 1789, 1 Stat. 65.
and the Act of March 3. 1817. 3 Stat. 366.)
It is used, I think, in the sense of compromising
or determining how much ie to be paid, when and where,
upon what terms and the like. Thus an adjustment of an
existing indebtedness within the meaning of the act is
any lawful arrangement entered into in good faith be-
tween the debtor and the creditor which compromises or
determines the amount to be paid by the debtor to the
creditor and it may include other details of composition
or settlement."
While the opinion of the Attorney General is not binding
on our courts, it is at the least very persuasive with them, and
the Attorney General's views above quoted appear in accord with our
opinion as herein get forth.
Very truly yours,
DAVIS POLK WARDWELL GARDINER & REED
EDMac V:MF
Copy:alm: 1g 8/1/41
Regraded Unclassified
C
48
o
P
y
DEPARTMENT OF STATE
Washington
In reply refer to
EA 840.51 Frozen Credits/2735
July 30, 1941.
The Secretary of State presente his complimente to
the Honorable the Secretary of the Treasury and encloses
six copies of a peraphrase of telegrem No. 318, dated
July 29, 1941, from the American Embassy at Chungking,
China, transmitting a message from Mr. A. Manuel Fox for
the Secretary of the Treasury.
Enclosure:
From Embassy, Chungking,
No. 318, July 29, 1941.
(Six copies)
Regraded Unclassified
49
C
o
De
Y
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy. Chungking, China, via N.R.
DATE: July 29, 1941, 8 p.m.
NO.: 318
THE FOLLOWING IS FROM FOX FOR THE SECRETARY OF THE TREASURY,
CONFIDENTIAL.
Because of continual air raids, the messages in regard to
freezing are slow in arriving. Fox and the Board are handicapped in
their observations with respect to the operations of freezing order.
Under my instructions, (1) is proceeding at once to Hong Kong.
I would like to send him on to Shanghai unless the Department ad-
vises as of a compelling reason for his not going at this particular
time. He has been instructed to make a report regularly to Fox of
his observations in regard to the working of the freezing ordere
and also, if necessary. to the Treasury Department.
Plans of organization are being made by the Board. It is
necessary that I stay in Chungking. (?) is returning at the earli-
est opportunity possible. Concern over the freezing of funds of
the Chinese Government has been shown by Dr. Kung.
Fortunately, immediately upon the receipt of the press release
reports in regard to freezing, I had & long conference with the
Minister of Finance. At this conference, I stated that, although
Regraded Unclassified
50
- 2 -
I did not have any definite information, I could assure him that the
Government would not be handicapped by the freesing order. During
the conference it was evident that the Minister for Foreign Affairs
and Dr. Kung had discussed this subject. In order that the misunder-
standing might be cleared up, K. P. Chen is seeing the Foreign
Minister.
Should it be found necessary, would it be possible for the
Department to send competent observers who are familiar with freezing
operations 80 that they could be stationed in Shanghai and Hong Kong?
At five o'clock on Wednesday, I am to meet with General Chiang.
GAUSS
EA:PAK
Copy:lg 7/31/41
Regraded Unclassified
51
KD
PLAIN
Shanghai via N. R.
Dated July 30, 1941
REC'd. 4:01 a.m.,31st
Secretary of State,
Washington.
976, Thirtisth.
Following from Chefoo,
"Twenty-ninth. No business operations possible
with freezing of British and American assets.
Chinese and foreign firms unable to obtain Federal
RESErVE currency pending more definite information
about control policy. Roberts".
Sent to the Department. Repeated to Chungking,
Priping. Copy to Tokyo by air mail,
LOCKHART.
NK
Regraded Unclassified
52
KD
PLAIN
Shanghai via N. R.
Dated July 30, 1941
REC'd. 4:20 a.m.,31st
Secretary of State,
Washington.
981, Thirtisth (SECTION ONE)
REference my 963, Twenty-ninth quoting notification
issued by the Japanese Consul General regarding trans=
actions undertaken by Japanese with foreign nationals.
Following is Dome1 translation of full text of
notices No. 19, 20 and 21 issued by Japanest Consul
General:
"Japanese Consul General notice No. 19.
One. The acquirement or disposal of the following,
by those parties hereby prescribed by the Japanese
Consul General, or by those who transact on behalf of
such partits, shall bE required to obtain the per-
mission of the Japanese Consul General. (A). Sights
regard immovable property; (B). Enterrists, business
und funds usable in enterprists or business; (c).
Securities valued at more than yen twenty; (D). Fortign
and domestic Exchange; and (E) Japanese military notes
or their equivalent in Chinese currency amounting to
more than yen five hundred monthly. (Amounts of more
than
Regraded Unclassified
53
-2- #981, Thirtisth (SECTION ONE), from Shanghai.
than yen five hundred per housthold, including postal
money orders which may bE used as a means of payment
in China); (F). Foreign currencies other than those
mentioned in (E); (G). Movable properties other than
those mentioned in (c) and (F) and amounting to more
than yen one hundred.
"Two. The following, by parties prescribed by
the Japanese Consul General or by others who transact
for those prescribed by the Japanese Consul General,
shall require the permission of the Japanese Consul
General, excepting those CASES wherein permission al-
ready has been obtained in accordance with regulations
set forth in the preceding Article One.
LOCKHART.
NK
Regraded Unclassified
54
EJ
PLAIN
Shanghoi vic N. R.
Dated July 30, 1941
Rec'd 4:25 a.m., 31st
Secretary of Stote,
Washington.
981, Thirtisth, (SECTION TWO).
A, To make or recover D. loan; B. To contract
or return C. debt; C. To make or withdrew n monetery
deposit; D. To , CCEPT or to pay a monetery deposit;
E. To belonce credit and debts; F. To underwrite or
accept a debt; G. To ocquire or dispose of credits or
debts not mentioned in the preceding subarticles..
"Three. The following, by parties prescribed by
the Jrponese Consul General, or by others who transcct
for those prescribed by the Japanese Consul General,
and regarding prosperity mentioned in articles One,
suborticles A C E F G, shrll require the permission of
the Jepanese Consul General, except in those COSES
wherein permission already has been obtained in 00-
-
cordance with regula tions set forth in the preceding
orticle One and Two. A. To make or accept C. deposit;
B. To accept the return of c. deposit; C. To return
any
55
-2- 981, July 30, 4:25 n.m., from Shenghoi
any accepted deposit; D. Lending or borrowing for use;
E. Lending or hiring; F. LENDING OR HIRING; F. Lending
or borrowing for consumption; G. Subletting or sub-
leosing.
"Four, The provisions of rrticles one two and
three shall not be applicable to the following CASES:
A. Receiving of payment C.8 public trxes or rates; B.
Receiving of solories, r.llowences, or the like by Em-
ployees or other workers of those who have been pre-
scribed by the Jepenese Consul General.
"The above is so notified: by Tateki Horiuchi
Jepanese Consul General in Shanghei July 28, 1941.'
LOCKHART
HTM
Regraded Unclassified
56
EJ
PLAIN
Shonghei via N. R,
Dated July 30, 1941
Rec'd 7:30 D. E., 31st
Secretary of State,
Washington.
981, thirtisth, (section three)
Jopanese Consul Generals number twenty worn
"in relation to notice number nineteen 'control of
transactions by Japenese with forign nationals'
dated July 28, 1941, the following is prescribed:
"United States nationals, including citizens of
United States territories and the Philippine Common-
wealth, United States corporations, United States
controlled corporations end residents in territories
of the United Stotes.
The above is 80 notified by Trteki Soriuchi
Japantst Consul General in Shanghri July 28, 1941.
Japanese Consul Generals notice number twenty-
one supplement and amendment to notice number twenty
July 28, 1941.
One. A. United States of America.
B. All territories and possessions of the
United States of America.
C
Regraded Unclassified
57
-2- 981, July 30, 7:30 c.m., from Shrnghni
C. Philippine Commonwerlth.
D. Conrdo.
E. The United Kingdom of Grert Britcin and
Northern Ireland.
Two. A. All designated countries and their admin-
istrative districts or those under the similar category.
B. Legal persons other then those in the
countries designated in h.
C. Legal. Actually coming under notice B.
D. Branch offices and other offices of lt-
gal persons loonted in the designated countries.
(Notice: this rule rpplies only to legal persons
other then the designated countrits or to those owned
by the designated countries. And)
E. Persons holding citizenship of designated
countries and those who have their domicile in the desig-
E
noted countries,
End of message . Sent to the Department. Reperted
to Chungking, Priping. By cirmail to Tokyo.
LOCKHART
RR
58
PARAFERATE OF TELEGRAM RESERVED
FROM American Consulate, Charee, China.
DATES duly 30, 1941, 11 Date
NO. I 12.
is male to telegram no. 9 which I cent on
the 19th day of July, 1941 at 11 D.
Although no business netivities are allowed, police
guards have been withirm from all American and British
business premises, with the exception of oil companies.
Chinese bankers have resumed limited trading operations
In exchange ON shanghai, purchasing changhal orders from
American and Brittsh firms (1), and paying therefor Federal
Receive Bank currency. The Hong Kong and thanghal Bank is
not (repent not) purchasing foreign emchange and only small
amounts for living expenses will be paid against Federal
Receive Bank currency accounts.
Travel of all Americans and British has been stopped by
the anthorities of Japes. Ten American missionaries and
school children atthoduled to sail on August third for thanghad
by coastal steamer and so sail for the United States or the
sa PRESIDENT COOLIDGE are unable to present.
Mail too Americans and Britten, including ELVBA consulates,
Le stall being held, and ealy LEOHNICYE a fer business telegrams have
been released w the conser.
B71 vne PROVIDE
MPL
BECEMED
EASVOL
Regraded Unclassified
59
TEM
GRAY
Tokyo
Dated July 30, 1941
Rec'd 9:30 a.m.
Secretary of State,
Washington.
RUSH
1130, July 30, 9 p.m.
The chief of the Foreign Exchange Bureau of the
Ministry of Finance advised a member of my staff that
the Japanese Government has made no provision for ex-
tending any special banking privileges to this Embassy
or American Consulates in Japan for official or per-
sonal money requirements. He stated that the Japanese
Government would extend precisely the same treatment
to the American Embassy and Consulates and their per-
sonnel that the American Government is extending or
18 prepared to extend to the Japanese Embassy and Con-
sulates and their personnel in the United States, but
that no information with regard to the latter point has
as yet been received.
I would appreciate the Department sending me ur-
gently information regarding the treatment of Japanese
officials
Regraded Unclassified
60
-2- 1130, July 30, 9 p.m. from Tokyo.
officials and their accounts in the United States.
He also stated that a general license is to be
granted the National City Bank of New York on July 31.
Sent to the Department only.
GREW
WSB
Regraded Unclassified
61
DEPARTMENT OF STATE
0
WASHINGTON
P Y
In reply refer to
July 30, 1941
RA
The Secretary of State presents his compliments to the
Honorable the Secretary of the Treasury and encloses six
copies of a paraphrase of telegram No. 963, dated July 30,
1941, from the American Embassy at Rio de Janeiro, Brazil,
in regard to a request which the Director of Exchange of
the Bank of Brazil has received from the Yokohama Specie
Bank, decision of which must be made tomorrow.
Enclosure:
From Embassy, Rio de Janeiro,
No. 963, July 30, 1941.
COPY:lap-7/30/41
62
C
o
P
Y
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embasey, Rio de Janeiro, Brazil
DATE: July 30. 1941, 1 p.a.
NO.: 963
The Director of Exchange of the Bank of Brazil has asked
whether the Department has any objection to the following request
which he has received from the Yokohama Specie Bank, and on which
he must decide tomorrow.
The request of the Yokohama Specie Bank concerns the liquida-
tion of the Japanese dollar credits with the Bank of Brazil:
1. Transfer $1,000,000 to Banco da Provincia, Buenos Aires:
2. Transfer $1,000,000 to the Banco da Chile in Santiago:
3. $815,000 should be allocated for payment of drafts of the
Yokohama Specie Bank on New York banks for products of Brazil which
have already been shipped to Japan and for which exchange has been
closed;
4. $300,000 should be allocated to guarantee payment of thirty
percent of official exchange which Japanese interests owe to the
Bank of Brazil:
5. The balance of $1,800,000 should be purchased by the Bank
of Brazil which should credit the milreis proceeds for Brasilian
products to be shipped to Japan in the future. The Director of
Exchange says that the Japanese dollar balances would be fully
liquidated by these operations.
CAFFERY
EA:FL:PAX
Copy:lg 7/31/41
Regraded Unclassified
63
LET
GRAY
Rio de Janeiro
Dated July 30, 1941
Rec'd. 2:45 p.m.
Secretary of State,
Washington.
971, July 30, 5 p.m.
D. Duarte Atalaya, Portuguese citizen, Director
of Copacabana Palace Casino here, has $30,000 on
deposit in Chemical Bank and Trust Company, New York,
for payment of contract with Eddie Duchine orchestra
for 10 weeks at $3,000 weekly. The bank has informed
him the fund is blocked by executive order 8785.
He has already given Duchin four checks of 3,000
each.
Duarte 1s well regarded and 18 friendly to the
United States. I recommend release of fund. STCOR
CAFFERY
JRL
Regraded Unclassified
64
PARAPHRASE OF TELEGRAM SENT
TO: American Embassy, Panamá, Panama.
DATE: July 30, 1941, 7 p.m.
NO.: 161
The authorities of Panama may be informed that the
Department of State will not interpose objections or
obstacles to the Panamanian Government's requisitioning of
the Santa Helena even though this ship is now in & port of
the United States.
The Department recommends the following procedure
as regards the question of whether the United States would
render assistance to Panama in resisting any claims which
might be made because of the requisitioning of the
Santa Helena:
first) That the payment of a fair compensa-
tion accompany the requisitioning.
second) That the Government of Panama confer
with the United States Government to determine
what the amount of this compensation should be.
third) That the United States Government pur-
chase the ship, if the Panamanian Government
60 desires, and that it be allowed to remain
for the present time under Panamanian registry,
and that Panama be reimbursed for all expenses
insident to the requisitioning, such expenses
having previously been determined.
Assurances have been given by the Maritime Commission
that it will give its full ocoperation in meeting any pro-
blems brought about by this action.
In connection
Regraded Unclassified
65
÷
In connection with Government requisitioning of
vessels not in the home waters of the requisitioning
country, it can be said presedents exist.
WELLES
Acting
DA
819.852/38
MCYF
DELICE OL THE
RA:JOC
IN:VAW:JDG
lavreb SA ЫМ IS :2
EA:VGL
(mse)
IBEVENBA DEbVanment
BECEINED
66%
PARAPHRASE OF TELEGRAM SENT
TO I American Embasey, Rite do Janeiro.
DATES July 30, 1941, 11 p.m.
NO. I 603.
TRIPLE PRIORETE
This is in reference to telegram no. 963 which you
sent on the 30th of July, 1941, at 1 pom.
Your telegram has been, the subject of discussion between
the Department and Treasury. You are requested to inform
the Director of Exchange of the Bank of Brazil that the
information received conserning the proposed transactions
of the Tokohama Specie Bank As approciated by this Government.
As regards transactions nás. 1 and 2 the Director of
Exchange should be Informed that the Bank of Brazil should
point out to its correspendent bank in the United States
which is ordered to make the payment that the transfer is
for the account of the Yokohama Specia Bank and that applica-
tions for the necessary licenses should be fibed.
Treasury has no objections to the transfers described
in transsetions no, 8 and no. 4. The Bank of Brasil should
be no advised.
Before reashing a conclusion on transaction no. a the
Director of Exchange should be informed that the Treasury
Department and the Department of State would like to receive
information conserning the views of the Bank of Brazil and
the Braxiliar Finance Ministry, especially how important
they
Regraded Unclassified
67
they feel the final conclusion of the transaction to be
from Brasil's point of view.
WELLES, Acting
(DA)
A-AtDA:NOL$SS
03/12/19
e0 04 EASTEL 4 DUA 1A9
LECHNICYC 10 mare, It 111
THE 26 2604 IVBA
Regraded Unclassified
68
C
o
DEPARTMENT OF STATE
P
WASHINGTON
Y
In reply refer to
July 30, 1941.
EA 840.51 Frozen Credits/2703
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses
six copies of a paraphrase of telegram No. 90, dated July
28, 1941, from the American Consulate General at Batavia,
Java, concerning the freezing of Japanese assets by the
Government of the Netherlands Indies.
Enclosure:
From Consulate General,
Batavia, No. 90, July 28,
1941. (Six copies.)
Regraded Unclassified
69
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Consulate General, Batavia, Java
DATE: July 28, 1941, 2 p.m.
NO. : 90
1. The Government of the Netherlands Indies, after
remaining in conference all day yesterday and nearly all
last night, reached & decision with regard to the freezing
of assets owned by the Japanese. Ven Nook sent for ne and
gave me the following information as soon as this decision
had been reached.
2. All foreign exchange transactions between Japan
and the Netherlands Indies are suspended temporarily,
beginning today.
3. Exports of everything from the Netherlands Indies
to the following countries are subject to special permite:
(1) Indochina: (2) the Japanese Empire: (3) Manchukuo China.
4. Payment to and receipt of money from Japanese
subjects cannot be made by the Banks unless they have
special permits from the Director of Economic Affairs to
perform such services.
5. Money and goods traffic with Janen are frozen as
a result of these measures. This is not intended to place
any obstacles in the way of domestic operations of Japanese
concerns in the Netherlands Indies, according to Van Nook.
6. I was then informed by Van Nook that the new
export restrictions promulgated by the Government of Japan
Regraded Unclassified
70
-2-
on July 7, 1941 caused imports from Japan practically to
cease by July 20 even though the Netherlands buyers in
Japan were required to take delivery of and pay for the
goods when delivery was made in Japan to the warehouses.
Then the Japanese Government refused to grant export
permits. However, they offered to buy back such goods at
eighty percent of the price which had been paid for them:
payment would be made only in yen then.
In view of Japan's actions in this respect (described
above) this Government, prior to July 25, took steps to
ensure that the Japanese guilder balances in this country
be retained so that they might be used to counterbalance
losses of Netherlands in Japan. Moreover, the agreement
between the Yokohama Specie Bank and the Java Bank has been
suspended; yen quotations can no longer be made.
The Foreign Exchange Control Office is at present
holding about eighteen million Netherlands Indies guilders
which represent the favorable trade balance of Japan.
Private bank accounts and investments are not included in
this amount.
This message was repeated to Tokyo.
This is the end of the message.
FOOTE
EA:PAK
840.51 Frozen Credits/2703
Copy:bj:7-31-41
Regraded Unclassified
71
BRITISH EMBASSY,
WASHINGTON, D.C.
PERSONAL AND
SECRET
July 30th, 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,
Halfax
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D.C.
72
TELEGRAM RECEIVED FROM LONDON
DATED NIX 32%. 1941.
NAVAL
On the 24th floating deck towed by two
tuge and escorted by one destroyer and two
torpedo boats was hit with two torpedoes off
Caps Spartivento (Italy).
2.
28th Italian eruiser, Emanuele Filiberte
class, hit with two torpedoes from submarine
so miles west of Traplet.
3,
ROYAL AIR FORCE.
28th bad weather curtailed operations
from United Kingdom and trawler off Dieppe net
on fire by British fighter, Wight of the 28th/
29th the Royal Air Force operations confined to
mine-laying in enemy waters. One aircraft missing.
4.
Benghasi again bombed night of 26th/27th.
8.
In enemy air attack on Port Said night of
26th/27th mest bombs fell outside the harbour and
fear large basbs dropped cast of El Kantare, No
damage,
6,
MILITARY. RUSSIA.
Only appreciable change is in Balta area
Ukraine and at where energy thrust probably aim
at encireling Odosse and perhaps Nikolaev. Germans
apparently matering the situation west of
Finish advance en Petrosavodak making progress.
German drive on Leningred still apparently halted.
90
TOERUE,
87th ensay aircraft damaged lighting system,
Three half=bearted Italian patrols attempting ruide
wise repulsed, Our casualties mills
Regraded Unclassified
73
CONFIDENTIAL
MILITARY intelligence DIVISION
TENTATIVE LESSONS BULLETIN
WAR DEPARTMENT
No. 138
Washington, July 30, 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) H-B-M.
NOTES ON ITALIAN CHEMICAL WARFARE
SOURCE
These notes are based upon information compiled by the
British War Office in March, 1941.
CONTENTS
1. ORGANIZATION
a. General
b. The Chemical Regiment
C. The GHQ Mixed Chemical Group
2. WAR GASES
3. WEAPONS AND EQUIPMENT
a. General
b. Defense Equipment
CONFIDENTIAL
- 1 -
Regraded Unclassified
74
CONFIDENTIAL
NOTES ON ITALIAN CHEMICAL WARFARE
1. ORGANIZATION
a. General
It must be realized that in many branches of the Italian
Army, theory and practice are far apart. and in no case is this
more apparent than in the organisation of chemical troops. The
organization set out below is largely based on theory. as revealed
in Italian military publications and in reports recently received,
but it may be found that the full theoretical establishment has not
been reached.
Chemical warfare in all its forms is the responsibility of
the Military Chemical Service, which serves the Navy and the Air
Force, as well as the Army. Its organization 1s as follows:
(1) A directorate at the Ministry of War;
(2) A chemical regiment;
(3) Experimental centers;
(4) GHQ Mixed Chemical Group.
b. The Chemical Regiment
The chemical regiment, commanded in peace by a colonel,
consisted of the following:
One Headquarters; chemical battalion composed of three chemical companies;
One mixed battalion composed of
Two chemical companies,
One company of cadet complement officers,
One company of NCO pupils;
One flame-throwing battalion composed of two companies;
One depot.
Since 1938, the chemical regiment has assumed the functions
of a central training school for chemical troops. In war, the
regiment, or parts of it, would probably operate as GHQ or army
troops. and it might provide the GHQ "Nebu" Chemical Battalion.
*The significance of the term "Nebu" 1a not clear. Apparently it is
used to describe B. light truck carrying gas equipment; but judging
from the types of gases and equipment with which the "Nebu" battalion
la issued, it seems unsafe to assume that the word is an abbreviation
of Nebbiogena, or in any other way is particularly connected with
smoke. G-2
CONFIDENTIAL
- 2 -
Regraded Unclassified
75
CONFIDENTIAL
c. The GHQ Mixed Chemical Group
Functions of the GHQ Mixed Chemical Group are not clear.
It probably contains B. "Nebu" battalion and chemical and flame-
throwing battalions and mortar groups. Its theoretical war time
organization may be as follows:
(1) Headquarters at GHQ - in theory there should be one
mixed chemical group for the GHQ on every front;
(2) "Nebu" chemical battalion;
(3) Headquarters chemical battalion;
(4) Headquarters flame-throwing battalion;
(5) Headquarters mortar group.
The "Nebu" battalion does not appear to have existed in
peace, but it may be formed in war from the chemical regiment. The
battalion consists of two heavy companies and one light company.
The heavy companies have the following stocks of chemical warfare
agents:
20 tons of chloropicrin;
4 tons of D.A. - diphenylchlorarsine;
6 tons of 0.11. - tear gas;
12% tons of H.A. - phenyldichlorarsine, a mixed blister
gas and toxic smoke.
The remainder of the equipment consists of:
Technical equipment and protective clothing for handling gases;
32 sets of spraying apparatus for producing cloud;
16 sets of spraying apparatus for use in light trucks;
Neteorological equipment.
The light company has the following stock of generators:
3 tons of 2 kilogram D.A. generators;
1 ton of 5 kilogram D.A. generators;
3 tone of 2 kilogram tear gas generators;
1 ton of 5 kilogram tear gas generators.
The function of this battalion could be either that of an
offensive unit under GHQ command, or that of a depot for issuing
and charging chemical weapons. Since neither mustard nor lewisite
is issued to the unit, the battalion's use as & depot seem less
probable, and the spraying apparatus of the heavy companies support
the view that it is an offensive unit.
The chemical battalion, flame-throwing battalion, and mortar
group form part of the mixed chemical group and have their head-
quarters at GHQ. The chemical and flame-throwing battalions provide
CONFIDENTIAL
- 3 -
Regraded Unclassified
76
CONFIDENTIAL
companies, and the mortar group provides batteries, on a scale of
one for each army corps. Whereas in peace each army corps pos-
sessed 8 mixed chemical company composed of chemical, smoke, mortar,
and flame-throwing sections, in war each corps possesses one
chemical company, one flame-throwing company, and one morter
battery. Presumably, these units can be sub-allotted to divisions
as required.
The corps chemical company may have two platoons: it is
issued smoke apparatus and stores for contamination and decontamina-
tion. The following are the chief items of its equipment:
6 tons of H.S. - mistard gas - in drums;
6 tons of bleach;
9 tons of smoke liquid - probably C.S.A. - chlorsulphonic
acid;
200 chemical mines filled with mustard gas;
Apparatus for spraying smoke liquid, mistard gas, and bleach
from trucks;
1,000 two-kilogram smoke generators.
The corps flame-throwing company has three platoons, each
consisting of three squadrons of six sections each. There are two
equipments - knapsack flame throwers, model 35 - per section, or
108 per company. Four tons of liquid are carried in the company.
B. sufficient supply to refill each flame thrower three times,
The corps mortar battery, which may have four 81-mm.
mortars, carries ten sete of protective clothing, and 200 rounds
of chemical and 50 rounds of ordinary ammunition for each mortar.
The Alpine divisional chemical company - one platoon in
peace - has four platoons with B total strength of five officers,
eleven NCO's and 212 men. It carries 11} tons of H.S. and 900
chemical mines, a larger stock than the chemical company ordinarily
has. Its transport consists of four cars and twenty trucks.
Each of the three fast-moving - Celeri - divisions has
one chemical platoon in peace time. It 1s not known whether or not
additional chemical platoons are assigned in the war time organization,
These are all of the offensive gas units thought to exist
in the Italian Army, though there are alm antigas and decontamina-
tion units, and smoke screen companies.
2. WAR GASES
A report recently received confirms information concerning
the use of gas by the Italians in the Abyssinian War. It states
CONFIDENTIAL
- 4
Regraded Unclassified
77
CONFIDENTIAL
that the only gas used by the army was D.A. in 105-mm. artillery
shells, and that the effects were above expectations. It also says
that 4,336 mustard gas bombs end 540 D.A. bomba were dropped by
aircraft, but it does not mention the use of spray from aircraft,
which verifies advices from another source that this form of
attack was not used at all.
An undated report, evidently after 1937, states that the
production capacity for war gases in Italy had then considerably
increased. At that time the daily production of mustard had been
raised from three to 18 tone daily, of chloropicrin from zero to
at least four tons, of D.A. from 1/2 tons to 20 tons of a purer
product, and of smoke producing liquid from three to about 20 tons.
As these quantities are within limite set out in a recent reliable
British report on Italian capacity for production of war chemicals,
there is no reason to doubt their accuracy.
A further report states that in November, 1937, orders
were given directing the formation of B. chemical warfare depot for
Libya. The depot, which was to be in two sections, one at Tripoli
and the other at Benghazi, was to be provided with the following
materials:
50 tons of mistard gas mixture;
25,000 small bombe filled with mustard gas:
25,000 double bombs filled with D.A.:
A quantity of artillery shell filled with mustard gas
and D.A.
It has been reported that 25 drums of mustard gas, approxi-
mately five tons, were discovered in recently dug caves at Bardia.
Samples from this batch have been analysed and found to consist
of very good quality mustard gas, with B. melting point of 12.5°C.
The gas was probably made by the thiodiglycol process and distilled
before storage. It had obviously not been stored for long in
Libya, and there can be no doubt that it is a remnant from the
Abyssinian campaign.
Since the total quantity discovered at Bardia was too
small to suggest offensive chemical warfare intentions, it was
thought that that cache had been intended merely for research and
experimental purposes. However, the capture of a further and
considerably larger dump of chemical warfare material at Benina,
near Benghasi, has somewhat altered this idea. The dump there
contained the following:
96 drums of blister gas, probably mustard gas;
36 empty drums, which had contained blieter gas;
93 drums of chlorsulphonic acid, or smoke liquid;
CONFIDENTIAL
- 5 -
78
CONFIDENTIAL
100 drums of liquid, probably a flame-thrower v.xture:
3,030 lachrymatory generators:
165 toxic smoke generators.
A great may drums of blister gas had been dumped in Benghari
harbor, and gas aball and gas bombs had been stored outside the city.
From 100 to 200 o', the drume have already been located, but the shells
and bombs are e)leved to have been shipped away,
These quantities are far greater than would be required for
experimental purposes, and it is probable that further stocks will
be discovered. Until the full disposition is known, it 1a impossible
to ASSOSS the scale of chemical warfare attacks which the Italians
could have launched.
3. WEAPONS AND EQUIPMENT
a. General
In an undated report, written subsequent to 1937, it vas
stated that mustard bombs of the 0-500 type, which explode from
200 to 300 meters above the ground, had not given satisfactory
results because of the irregular action of their fuses.
It was said further, that very satisfactory serial ground
contamination had been obtained by dropping bombs of the Spezzoni
type. The Spezzoni bombs weigh about three pounds and contain
one and two-fifths grans of D.A. in two and nine-tenths (rans of
explosive; the Boppio or double Spezzoni weigh about six pounds,
and contain three and three-tenths grams of D.A. in six and seven-
tenths grams of explosive; the Puretto, which weighs 25 kilograme.
is a 0.17. generator, and contains ten kilograma of C.H.
The agents and weapons used by chemical warfare troops are
of the usual well known types. It is interesting to note that the
artillery uses smoke shells of two types, one filled with white
phosphorus and the other with a smoke mixture, probably oleum and
sulphur trioxide. Tear @as shells are filled with a mixture of 20%
C.F. in 80% chloropicrin, and lethal shells contain either mustard
gas, phosgene, or D.A. Air bombs include the C-500 time bomb filled
with mustard, the C-100P, 0-40P, and C-15P filled with D.A. in high
explosive, the small Spezzoni bomb, and the Furetto, as well as
Irroratore bombs* for anoke liquid and mustard products.
b. Defense Equipment
A list of the authorised issue of antigas equipment besides
*Smoke curtain installation. G-3
CONFIDENTIAL
- 6 -
Regraded Unclassified
79
CONFIDENTIAL
showing the personal issue of a respirator to every individual, shows
issues to various types of units. The materials consist of dry
bleach, liver of sulphur, formalin, potassium permanganate, soda,
antigas suits and gloves. The one notable point about the list
is the very small issue of dry bleach, only 300 pounds per infantry
battalion, or equivalent unit of other arms, which may be a con-
firmation of prior indications that supplies of bleach may be
limited by the chlorine situation. It is possible that this is
the reason why Italian antigas instructions lay emphasis on using
sand, gravel, sawdust, leaves, dry gas, etc., for decontamination
of ground.
CONFIDENTIAL
- 7 -
80
RESTRICTED
0-2/2657-220: No. 454
M.I.D., W.D.
12:00 M., July 30, 1941
SITUATION REPORT
I, Eastern Theater.
Ground: No further information has been received from
the Finnish or Leningrad front.
Fighting continues in the area to the north of
Vitebsk centering around the towns of Velikiyeluki and Wovorshew.
The major battle between Smolensk and Vyasma continues without &
decision having as yet been reached.
In the southern Ukraine, Axis troops have ad-
vanced about twenty miles east of Balta.
Air: No change in the general situation.
II. Western Theater.
Air: Limited activity on both sides.
III. Mediterranean Theater.
No important ground or aerial activity. Normal
harassing air raids continued,
RESTRICTED
Regraded Unclassified
81
SECRET
By authority A.C. of S., G-
Purchase of Date Cablegges
Date AUG 2 1941
Received at the Ver Department
Initials
at 13:93, July 30, 1941.
Dairo, filed 13:36, July 19, 1941.
The following recommendations are male:
1. That in the construction plans for temporary housing, be to
used in the theater of operations, the 1 of glass should be relassed
to a ataims, because of personnel and the necessity for black out. the
- of air-conditioning to provide sustraless heat and light-tight vustilation
met be considered.
2. That a eystem of military police be initiated to provide -
adoguate gurd over a airplance, within - hour after falling bohind
our lines. A great doal of very valuable information regarding Free French
and Come and Italian equipment has been Loob to the British because of the
looting of these airplanes.
3. that there be at least - , to mobile creas, six trailers
and about two Instred - with tracks and meterapoles, to form six mbile
working parties, as & salvage unit for vrosked planse. Dash combut (no
should be assigned - of these mite and the trailers of the 6 mildle
parties should be able to transport - completely discumbled airplane of
the type essigned to the group. the mit should also be able to make
repairs on large airplance while in the field.
4. Purmit equalvans should be increased to thirty airplance no
that eighteen will alseys be available for each niecion. the allowed of
airplance in benhardment and atteck aqualress should be increased proportion-
staly so that twelve airplance my be available for each mission.
SECRET
Regraded Unclassified
82
SECRET
go that there should be obtached to each division, too
persuit agenávous and - attack oristies operations.
6. That experiments be to Cobernine the volue of
using nissr's type hord Jamps W stryless - for night -
1 : il I I I I 2 s 1 2 I I
graphol, 00 that advantage my be - of the entering ground from
in the name one disporsed of sosh treeps.
Distribution:
State Department
Accistant Chief of study, 6-2
the Plane Division
Office of Noral Intelligues
of s s
United of the - Alr Purcess
Value Becretary of for
I I r
Deputy thist of staff
Atr Garge
Assistant Ghief of Staff, 6-3
SECRET
Regraded Unclassified
83
THE UNDER SECRETARY OF THE TREASURY
WASHINGTON
July 30, 1941
My dear Mr. President:
There are attached tentative draft
of a letter from the Treasury to you, draft
of a paragraph to go in your letter to
Chairman Doughton, and a memorandum of the
examples of corporations escaping excess profits
taxes. We will continue to work on this tonight
and will have a finished letter tomorrow morning
when the Secretary sees you.
Faithfully yours,
swBree
The President,
The White House.
His went to President 9.30 P.M.
Regraded Unclassified
84
anginal with
Preis papers
DEAFT
July 30, 19:41
My dear Kr. President:
You have asked no to indicate the position taken by the
Treasury Department during the consideration of the present tax
bill with regard to mandatory joint returns and the excess profits
tax provision.
1, Mandatory joint tax returns. The Treasury indicated
to the Ways and Means Committee its approval of mandatory joint
the impolition.
tax returns but only H substantial relief is granted to earned
nd with
income, 1 No relief is afforded by the provisions of this bill from
the resulting increased tax in those cases where husband or wife
contributes through his or her labor to the family income.
2. Excess profits tax. The Treasury has consistently taken
the position that the excess profits tax should apply to profits
in excess of a reasonable return on invested capital regardless of
whether those profits are also greater than the profits of the pre-
oeding base period years. The pending bill exempts from the excess
profits tax an amount of profit equal to the average profits of the
base period years notwithstanding the fact that such profits may
have been excessive.
Failure to epply the ------------------------- profile texation to profite La
of - ressonable return on invested capital is
Regraded Unclassified
85
- 2 -
Some of the reasons for the Treasury's position are:
(a) The highly prosperous, well established corporation
which has been making 30. 40, 50 per cent or more on its invested
capital has & greater ability to pay taxes than a corporation
which has been earning only 3. 4. or 5 per cent on its invested
capital, even though the dollar incomes of the two companies are
the same, Congress has established the principle of taxation in
accordance with ability to pay in respect of individual incomes.
The Treasury advocates the application of this principle to corpora-
tione as well as individuals. Taxation of corporations in accordance
with ability to pay calls for higher taxes on the profits of those
corporations which have the higher rates of return.
(b) The corporation which has been making high returns in
the base period years is given a competitive advantage over newly
organized concerns or concerns which have been struggling to establish
thomselves. The latter corporations are limited to & much smaller
rate of return free of excess profits tax than are the former. The
effect is to confirm monopolies and to protect well established
prosperous businesses against competition.
(e) If we are to expect all classes of society, including
laborers and farmers, to accept the sacrifices of the emergency
period and not to press for every possible dollar of advantage,
86
- 3 -
they must be convinced that burdens are being distributed
according to ability to bear them and that no one is making
unreasonably large profits. The imposition and enforcement
of a true excess profits tax will help to prevent inflation.
Faithfully yours,
Acting Secretary of the Treasury
87
DRAFT OF PARAGRAPH TO GO IN THE PRESIDENT'S LETTER
The elimination of the provision for mandatory joint
tax returns from the present bill would result in a loss of
revenue of approximately $
each year. In order
to restore this loss of revenue through a reduction in the
personal exemption it would be necessary to reduce the exemption
of a married couple from the present $2,000 to $1,600 and that
of a single person from the present $800 to $650,1f no other
changes are made in the bill.
In view of the additional number of returns which would
be filed as a result of lowering these exemptions, taxpayers
should be afforded the opportunity of filing a simple return with
the local postmaster, who could be authorized by law to administer
the necessary oath.
July 30, 1941.
C
88
o
?
I
EXAMPLES OF CORPORATIONS ESCAPING
EXCESS PROFITS TAXES
The way in which the present law and the Committee's
tentative plan leave exempt large amounts of excess profite is
illustrated by the following actual examples.
L. After paying all taxes an automobile company made during
the base period years of 1936 through 1939 approximately 25 per cent.
Practicallyall (95 per cent) of this amount can be earned and yet
be free from excess profits tax under the present law and under the
Committee plan. In 1940 the earnings of this concern, after the
payment of taxes, will be approximately 26 per cent of its invested
capital, under the present law.
B. The earnings of & manufacturer of tractors with nearly
$50 million of invested capital averaged, after all taxes, approxi-
mately 18 per cent of invested capital during 1936-1939. which amount
will be free of SICORS profits tax under the present law and the
Committee's tentative plan.
c. Similarly a company which has practically a monopoly on
one of the important Defanse materials had earnings after taxes during
the base period years averaging approximately 19 per cent of its 1940
invested capital, which it can continue to earn free of excess profits
tax.
D. A large manufacturer of beverages can continue to earn
C
89
0
P
Y
- 2 -
free of excess profits tax over 25 per cent of its 1940 reported
equity capital.
Thus, large amounts of the kind of profite which are commonly
defined as excess profits and were taxed as such under the 1918 Act
are free from excess profits tax under the present law and the
Committee plan.
July 30, 1941
Regraded Unclassified
90
July 31, 1941
8:44 a.m.
Speaker
Rayburn:
Hello.
HMJr:
Well, I left Malone, New York, this
morning at five-thirty.
R:
Yes.
HMJr:
I think I'm down to see the President
*
at nine-thirty, follow in your footsteps.
R:
(Laughs.)
HMJr:
What have you been up to, you rascal?
R:
Well, I just - well, all I went down
there and told the President was this. I
think this thing's got family and political
implications in it and everything like that.
It's a damn dangerous thing.
HMJr:
Yeah.
R:
And all the married women and all the working
women and all the Catholic priests and the
Episcopalians
HMJr:
Yeah.
R:
they're all out against this thing.
HMJr:
I see.
R:
And I think it's going to raise hell if
its put into the law; and if we knock it
out now, there won't be a damn thing to
it in the Senate. They'll never take it
up over there. They'll go searching some
place else and get the money.
HMJr:
Well now, last time I talked to you about
taxes in November, you gave me good advice
and I followed it.
R:
Yeah.
91
- 2 -
HMJr:
Now
R:
Well, I don't know it was his suggestion
about making a suggestion to you about
writing him a letter. I - my approach was
in that he felt like making a statement
himself or Steve making a statement. See?
HMJr:
Yeah.
R:
And he thought it better be dropped out
and got somewhere else. And then he said,
"Well, let's do it this way. I'll suggest
that Henry write me a letter and then I'll
transmit that to Bob Doughton with a letter."
Now, I don't know whether that's the way to
do it or not, but that was his suggestion.
HMJr:
Well, you remember last time whether he
wanted to do that, I spoke to you and you
said that he just had to see Doughton and
Cooper first, and I told him that and he
did it.
R:
Yeah.
HMJr:
Now, if he drops a letter into the lap of
these fellows at noon today, what's going
to happen?
R:
Well, it may raise a little hell.
HMJr:
What?
R:
It might raise a little hell.
HMJr:
Yeah. I hear that Doughton made a regular
torch speech yesterday on this thing.
R:
I didn't hear him. I was on the Chair, of
course, and I had to be away.
HMJr:
Yeah.
R:
Made what kind of a speech?
Regraded Unclassified
92
- 3 -
HMJr:
Well, I mean, you know - carrying the torch,
they say.
R:
Oh yeah.
HMJr:
He was all
R:
Yeah.
HMJr:
Well
R:
Well, you talk it over with him and 888
HMJr:
I
R:
It's perfectly satisfactory to me now any
way he does it. I just - I.....
HMJr:
You just wanted him to
R:
I just wanted him to know what I thought
about it, politically and otherwise.
HMJr:
You want it knocked out, huh?
R:
I certainly do.
HMJr:
Do you care what the substitute 18?
R:
No. I don't care whether there is any or
not in the House bill. Let it go to the
Senate. The Senate will never take this
up. They can find it on lowering the base
and they can find it on a little bit more
excess profite on some of these guys that
aren't paying much.
HMJr:
I see.
R:
That's the way I feel about it.
HMJr:
Uh huh. Well
R:
Well, you - now I tell you
HMJr:
Yeah.
93
- 4 -
R:
I just told him that
HMJr:
Yeah.
R:
He feels the same way I do about it - about
this community thing.
HMJr:
Then why the hell didn't he say 80 a long
time ago that the boys could.
R:
God damned if I know where the thing - he
raised the question - he said something
about it last Monday morning.
HMJr:
Yeah.
R:
And I said nothing at the time - well, I
might have said a little something and then
I was sitting in here talking to a fellow
the other night - grest friend of mine -
ex-member of Congress - and I called him
uo and went down there and he said, yes,
he'd agree to that all over.
But now if he doesn't want to bombshell it
or anything like that, why all right with
me, but the only thing I can do 18 to make
a statement and I made it. Then he said
the - about the best way to do was to make
an inquiry of you.
HMJr:
Yeah.
R:
And here's what Milton West just carried
around there that - and he's got a case
joint returners have got enough to make
them mad because Treasury, you know, indicated
very strongly that they weren't going to
recommend this at this time, and they didn't
even have a hearing.
HMJr:
Who's that?
R:
This fellow didn't bring anybody here that
was opposed to this.
Regraded Unclassified
94
- 5 -
HMJr:
I Bee.
R:
And because you either said somebody feels
that there wasn't going to be advocated ae far as
this bill 1s concerned that probably would
be taken up later.
HMJr:
No. I'll tell you exactly what we did, Sam.
About right at the end there, we said that
the Treasury favored thie provided there were
exemptions for women who worked for a living,
and that's all we did say.
R:
Uh huh. Well, anyhow, they - Milton West and
those fellows claim there's a plain indication
that the committee wasn't going to take it up
at all and they told their folks not to come
HMJr:
Yeah.
R:
and then when they got through with the
hearings and went in Executive Seasion, why
they socked them with this thing.
HMJr:
Yeah. Well, I think that this justification -
while they were voting and everything else,
we just said the Treasury took no position.
R:
Yeah.
HMJr:
You see?
R:
on sure.
HMJr:
And then at the end they were kind of crowding
us to say something, 80 right at the end.
R:
Well, you took no position. They didn't
say that, that you took any position during
the consideration of the amendmentsand so
forth.
HMJr:
Well, we didn't.
R:
Yeah.
HMJr:
And we stayed on the sidelines.
Regraded Unclassified
95
- 6 -
R:
Yeah.
HMJr:
But - well, I just wanted to know how the
ground lay. I knew you'd tell me and
R:
Well, that's exactly how it was, I went
down there to talk to the President. I
thought he ought to say something about it.
I think it's a bad
HMJr:
Well, I wish to hell - this has been in the
papers for months, and I think it's just
going to kill poor old Bob Doughton.
R:
Well, don't do it that way then.
HMJr:
And
R:
You can call him and tell him he's sending
him a letter or something.
HMJr:
Well, if you could somehow soften the blow.
R:
What?
HMJr:
I say if the President could somehow soften
R:
Sure, sure. I think you're right.
HMJr:
Okay, Sam
R:
You're a hundred percent right on that.
HMJr:
I may want to see you later.
R:
Oh, I get it.
HMJr:
Thank you.
Regraded Unclassified
96
August 1, 1941
9:13 s.m.
HMJr:
Hello.
Grace
Tully:
Good morning, sir.
HMJr:
How are you?
T:
As I don't write notes to married men,
I thought I'd telephone you, by gosh.
HMJr:
Oh, you're careful, huh?
T:
(Laughs)
HMJr:
What?
T:
Yes, sir.
HMJr:
I hope you haven't learned from experience.
T:
No, not - not very serious.
HMJr:
(Laughs)
T:
(Laughs) Look, I - on the Doughton thing,
do you want to get the background of what
happened?
HMJr:
Yes, because he's calling me every five
minutes.
T:
Well, he said he was going to have 8 conference
with you this morning, he told me.
HMJr:
Yes.
T:
What happened was, he called last night and
he wanted to talk to the General, and the
General was gone and Steve was not there;
80 I talked with him.
HMJr:
Yeah.
T:
And he said that he wants me to tell the
Regraded Unclassified
97
- 2 -
President that he had had his letter
HMJr:
Yeah.
T:
and with the - your letter, et cetera,
and I said, "Yes, sir." And he said, "Well
now, we - it's too late to do anything about
two of those things
HMJr:
Yeah.
T:
!!
and the bill 18 all ready to come out
and under the rules we operate under, we
couldn't include them anyway.'
HMJr:
Yeah.
T:
And 80 I told the President that, and he seld,
"Well now, I don't know about this," and what
I was trying to get out of him was whether he
was going to release it or not.
HMJr:
Yeah.
T:
And so I said, he said, "Well, I don't know
about this letter, et cetera." And I said,
"Well, I tell you, Mr. Congressman, there are
some people have copies of that letter."
HMJr:
Yeah.
T:
And he said, "Oh, who?"
HMJr:
Yeah.
T:
And I said, "Oh, well I know a few.'
HMJr:
Yeah.
T:
I said, "The Speaker and Congressman Cooper
and Senator George and there's a couple of
others I don't remember."
HMJr:
Yeah.
T:
And there aren't any others at all, but if
Regraded Unclassified
98
- 3 -
he thought somebody on the outside besides
the Congress had 1t, he might let it go
before they did.
HMJr:
Yeah.
T:
And I said, "It's just a possibility that
it might come out
HMJr:
Yeah. Well, my
T:
If
since there are 80 many copies around."
HMJr:
my hunch when I called you that he wouldn't
let it aut.
T:
Well, I gathered very definitely he didn't
want to.
HMJr:
No. It was correct.
T:
Yes. Oh, yes.
HMJr:
Now, the thing that t he's shunning for me to
come this morning is
T:
Yes.
HMJr:
he wants me to tell them what to do
with the letter.
T:
Well, the President wants it out.
HMJr:
Well, then it's perfectly safe for me to
tell him to give it out.
T:
Well, I tell you what the President now means -
he doesn't seem to want to - he could give it
out himself. He said, "Well -" Oh, I know
what he asked me. That's how we got on the
subject - "Did the White House release this
letter?"
HMJr:
Yeah.
T:
And I said, "No, sir. We don't release letters
addressed to you."
Regraded Unclassified
99
- 4 -
HMJr:
Yeah.
T:
In other words, it's up to you to release it.
HMJr:
Yeah.
T:
And then he came back and he said, "Well,
I'm going to talk to Secretary Morgenthau.
I'm going to have a conference with Secretary
Morgenthau in the morning."
HMJr:
Yeah.
T:
And then I thought, well, maybe he's going
to take it up then. But I tell you what -
I told the President I got the very definite
feeling, A8 you did, that he was going to
bury it if he could.
HMJr:
Yeah.
T:
And he eaid, "Well, remind me to talk to
Sam Rayburn tonight" - of course he had a copy
HMJr:
Yeah.
T:
H
and in some way get it out."
HMJr:
I
T:
So I think the President did talk to Sam
Rayburn, and perhaps Rayburn got ahold of
Doughton last night and he may say that he's
giving it out, I don't know what happened
after that conversation.
HMJr:
Well, would it do any harm for me to call
up Sam?
T:
No, if the President actually did
HMJr:
Well
T:
I haven't checked on that, but I can do that
through my board. If the President spoke to
him lest night, it was about that.
Regraded Unclassified
100
- 5 -
HMJr:
Oh, I see.
T:
And then I'm sure that's what he told him.
HMJr:
Right.
T:
So do you want me to check that?
HMJr:
Do you mind?
T:
No.
HMJr:
All right.
T:
Then if you want to, you could call Sam
Rayburn.
HMJr:
That's right.
T:
All right. Grand, Mr. Secretary.
HMJr:
Do you want me to hold on?
T:
Yeah. Will you flash your - will you flash
my operator there?
HMJr:
Yeah.
Operator: Yes, sir.
HMJr:
Miss Tully wants her operator.
Operator: All right.
Hello.
HMJr:
Yes.
Operator:
I have Mr. Kelly here for you.
HMJr:
Well, keep off. I'm waiting for Miss Tully.
Operator:
All right, sir.
HMJr:
She wants to talk to the White House, then
speak to me again.
Regraded Unclassified
101
- 6 -
Operator: All right.
HMJr:
Hello. Hello.
Operator: Did the White House Operator come in?
HMJr:
No. Do they want me? She said she'd talk
to me again.
Hello.
Operator:* Yes.
HMJr:
I'll hang up now. I'll wait till Miss Tully
calls.
Operator: All right, I'll ring you back.
Regraded Unclassified
102
July 31, 1941
9:20 a.m.
HMJr:
Hello. Bob?
Robert
Patterson:
Henry?
HMJr:
How are you?
P:
I'm fine. How are you?
HMJr:
Good. Bob, I tried to get Mr. Stimson,
but he's not available. What 18 the
situation on your bill about the draftees?
Where does it stand in Congress?
P:
It 1s on the Floor of the Senate. You
mean the one year limit?
HMJr:
Yes.
P:
It's on the Floor of the Senate, and has
been approved by both Senate and House
Military Affairs Committees and is now in
debate in the Senate.
HMJr:
It has not passed the House?
P:
Not passed either.
HMJr:
Is there any
P:
A Congressman was just in and told me that
it would receive quite a hot fight on the
House.
HMJr:
A hot fight?
P:
From the Republicans. He said the Republicans
in the House Military Affairs Committee voted
almost solid against it. The vote was fifteen
to seven, which was pretty much a party vote.
HMJr:
Bob, is there any particular significance in
August 1? I mean, if you don't get your bill
up?
P:
No. No. That was a date selected, and it merely
Regraded Unclassified
103
- 2 -
meant based, that's all.
HMJr:
Oh, I mean when
P:
There isn't any - nothing will happen on
August 1.
HMJr:
Well, when will it - supposing Congress
doesn't move. When do you have to begin
to let the first draftees out?
P:
About - the first draftees about November.
HMJr:
oh, not till November?
P:
No. And the first National Guard in
September.
HMJr:
In Sentember.
P:
Yes.
HMJr:
Well, when
P:
National Guard in September.
HMJr:
Well, why has everybody been eaying you
had to get the bill passed by August 1?
P:
Well, they've got to know where they stand,
Henry. You take, they've got National Guard
fellowe out in Hawaii.
HMJr:
Yeah.
P:
Well now, you've got to arrange for transporte
to go out there and bring them back.
HMJr:
I see.
P:
And new troops to go and take their place.
HMJr:
Yeah.
P:
It's just the uncertainty of it
HMJr:
I see.
Regraded Unclassified
104
- 3 -
P:
which 1s damaging to the morale and
80 on.
HMJr:
I see.
P:
There is no significance in the very day
August 1.
HMJr:
Well, that's what I wanted to find out.
P:
No. They - I think General Marshall said
August 1 just as a convenient day - quick -
he meant we must have speed in this.
HMJr:
How do you stand in the House on your bill?
P:
On that bill?
HMJr:
Yeah.
P:
Well, I had thought that it was going to
have clear sailing.
HMJr:
I see.
P:
McCormack and Rayburn got off poorly at
first, you know.
HMJr:
Yeah.
P:
But they're all right now and they're going
to make a good speech, I understand.
HMJr:
I Bee.
P:
I think that - I think we're all right in
the main. The only trouble will be the
Republican votes which - of course, Jim
Wadsworth will carry probably twenty or
thirty Republican votes for the bill.
HMJr:
Yeah.
P:
But otherwise, they're just hopeless.
HMJr:
Okay.
Regraded Unclassified
105
- 4 -
P:
All right.
HMJr:
Thank you.
P:
How are you?
HMJr:
I'm fine. I just got in.
P:
Where you been?
HMJr:
I've been up at Malone. I left there at
four-thirty this morning.
P:
Malone, New York?
HMJr:
Yeah.
P:
What, fishing?
HMJr:
Yeah.
P:
Yeah. Good country.
HMJr:
Yes. It's nice country.
P:
All right. I hope to see you soon.
HMJr:
Yes. That's mutual.
P:
I called you up last Sunday up in Fishkill,
but no answer.
HMJr:
We were up at Malone.
P:
Yeah. Well, I only called up to ask you to
come down, but that was all.
HMJr:
Oh.
P:
To see a good county.
HMJr:
Do it again.
P:
All right, I will.
HMJr:
All right.
P:
Good-bye.
Regraded Unclassified
106
July 31, 1941
10:37 a.m.
Frank
Knox:
Hello.
HMJr:
Frank?
K:
Yes, Henry.
HMJr:
How are you?
K:
Fine.
HMJr:
Could I give you a little Treasury chow
for lunch?
K:
I've got a luncheon at the Willard, with
all the Public Relations officers from all
over the country coming in.
HMJr:
Oh, I'm sorry.
K:
So I'm going to be tied up. Sorry, Henry.
HMJr:
Okay.
K:
How about you coming down and having dinner
with me on the Sequoia tonight?
HMJr:
Well, I've got a couple of people that I
invited for tonight. That's my trouble.
K:
Who are they? Somebody I could entertain
with you?
HMJr:
A couple - they're Treasury boys, that's
who they were. I mean, I've invited Foley
and White, but I can put them off.
K:
Well, why don't you do that. I'm free
tonight and
HMJr:
All right.
K:
if you can get free, we'll have a nice,
quiet dinner, just the two of us.
Regraded Unclassified
107
- 2 -
HMJr:
I'd love to do that.
K:
All right, then. We'll say come down there
then about six-thirty?
HMJr:
All right. I'll postpone them.....
K:
All right, fine. Do that.
HMJr:
.....and be down at your place about six-
thirty.
K:
Down at the Navy Yard, you know.
HMJr:
I know.
K:
Yeah. All right.
HMJr:
I'd like to do that.
K:
All right. Fine, Henry.
HMJr:
Thank you.
K:
Good-bye.
HMJr:
Good-bye.
108
July 31, 1941
10:45 a.m.
RE EXCESS PROFITS TAX
Present:
Mr. Brown
Mr. Kuhn
Mr. Sullivan
Mr. Foley
Mr. Blough
Mr. Bell
H.M.Jr:
This part here, part two, in his own handwriting
which I want back - you two men make notes
(Mr. Kuhn and Mr. Blough). He has corrected
number one. He says, The Treasury indicated
to the Ways and Means Committee its conditional
approval of mandatory joint tax returns, the
conditions being that substantial relief is
simultaneously granted to earned income of
both husband and wife."
He thinks that that is bad.
Now, on the excess profits on paragraph two,
he said, "Try and simplify it and make it
English," and what he means is this: "The
Treasury has consistently taken the position
that the excess profits tax should apply to
profits in excess of reasonable returns on
invested capital regardless of whether those
profits also exceed the profits of the base
period years. He says, "Nobody that doesn't
sit on the Committee knows what base period
years is."
Regraded Unclassified
109
- 2 -
Blough:
'36 to '39.
H.M.Jr:
Well, he said, "Spell it out," just like I said -
if you are talking about parity payments, no
one knows what parity payments are, but he
wants that part spelled out so that the man
who doesn't sit on the Committee and the man
on the street knows what you are talking about,
you see.
He made one other correction here. Now, that
is all. I will give you this. lie has written
8. letter in which he says that he - that inas-
much as the Treasury's position is this in
regard to this joint return business, the
Committee has not taken our suggestion, you
see, and therefore he is opposed to it as it
is in the bill. It is all right. He is
playing ball with us. You can't ask for any-
thing fairer, as long as he has made up his
mind. Then he is going to say about - that he
talked with Doughton about excess profits, and
they haven't followed his advice and our ad-
vice on that and therefore the companies are
getting away and making profits in times like
this when they shouldn't and then he says,
"Third and last, I did not - " this is his
letter to Doughton. I haven't seen it. It
wasn't written. He says, "I have not discussed
with you the question of lowering exemptions, but
I feel that every man would be glad to make &
contribution, a direct contribution toward
national defense." Now he says, "You fellows
can't understand simple arithmetic," and he
says, "By dropping the thing from eight hundred
to seven fifty _" then he is going to double
it for the married man to fifteen hundred.
He says, "After all, the married man, it
oughtn't to cost him more than twice as much as
for a single man to live." He would like
seven fifty and fifteen hundred, but he is
leaving us entirely out of the picture.
Regraded Unclassified
110
- 3 -
He is saying to Doughton, "I did not discuss
this with you before." He is playing one
hundred and one percent with the Treasury.
You can't ask for anything better than that.
He is determined. There is no use arguing
with him. This is what he wants. He has changed
since last night, you see. He is only against
this joint return business because they haven't
followed the Treasury's position.
Have you (Mr. Kuhn) been in on this?
Kuhn:
No.
H.M.Jr:
Now, in order not to waste any time, because
he is going to call me, and I am not going
to be - you two men (Mr. Kuhn and Mr. Blough)
go and take this copy, which I would like to
have back, and in this case - who is going to
do the typing?
Blough:
I can have it done in my office.
H.M.Jr:
All right. There is the whole business.
Bell:
You see there were two drafts. I am afraid
he got the wrong one.
H.M.Jr:
Here is my draft. I will put "H.M.Jr." on this.
He is in a grand humor.
Bell:
He didn't read this one.
H.M.Jr:
He said send you all his love and he is sorry "
he can't see you, and he said, "All right -
what?
Bell:
This letter was much improved over the one he
had.
H.M.Jr:
He won't care. He wants it improved. The
Regraded Unclassified
111
- 4 -
Treasury letter?
Bell:
Our letter that you had was much improved.
H.M.Jr:
That is all right. The two of you go to work
and make it - listen, 80 the newspaper reader
can understand what it is all about. Just as
soon as you are ready, the two of you come back
and the jury of Bell, Foley, and Sullivan and
Morgenthau will be waiting, but please hurry.
I am glad to have seen you. Oh, and the Presi-
dent wants & poem. I will tell you about it.
I promised to have it read next week. It is
8. thing called "Islanders." Send for it. It
was written in 1900.
Kuhn:
You don't know by whom, do you?
H.M.Jr:
He didn't know, but I have got the quotations.
It is a British book, "The Islanders."
He is in a wonderful mood. The fellow is the
President of the United States and he wants to
do it this way.
Foley:
He is determined all right, there is no doubt
about that.
Bell:
Yes, I guess you found that out, that he was
determined.
H.M.Jr:
And he is absolutely playing fair with us in
the sense that he isn't coming out point blank.
He is simply saying he is opposed to the
thing because the Congress didn't follow us.
(Laughter) He is saying in his letter that
he didn't discuss the other proposal with
Doughton.
Foley:
That is right. He says we don't have to put
it in our letter to him.
Regraded Unclassified
112
- 5 -
H.M.Jr:
No.
Foley:
And our letter to him is consistent with the
position we have taken and all we are doing is
reporting what we have said on the two matters
before the Committee.
H.M.Jr:
Are you going to use the example? I think
we are in a perfect position. Now, Doughton
wants to talk to me.
Foley:
He isn't going to call him?
H.M.Jr:
Oh, no, he is on the wire.
Foley:
No, the President. He isn't going to talk to
Doughton?
H.M.Jr:
I don't know what I am going to say.
Bell:
He knows you are in town, and he knows you came
back for a purpose.
Foley:
How does he know?
H.M.Jr:
The newspapers had it.
Regraded Unclassified
113
July 31, 1941
10:55 a.m.
HMJr:
Hello.
Robert
Doughton:
Hello, Henry.
HMJr:
How are you?
D:
This 18 your honorable, obedient, obstreperous
servant.
HMJr:
Well, the same to you. Ditto.
D:
Thank you. How are you feeling?
HMJr:
Well, I feel all right. I had a week's
rest and I feel like a new man.
D:
Well, that's fine. I know you deserve it -
I know you were entitled to it, and I'm glad
you got it and got the benefit of it.
HMJr:
Yeah.
D:
We down here have so little to do we never
need any rest, you know.
HMJr:
I know, you're hard working fellows.
D:
We need more work.
HMJr:
You need more work?
D:
Yeah. (Laughs) Yeah.
What I called you about - I know you'll
pardon me - about the situation with respect
to this provision of bill 1011, the section
dealing with mandatory joint returns.
HMJr:
Yes.
D:
Now, you, of course, have kept up with and
know that we had agreed to modify our rule
so as to give them 8. separate vote in the
committee on that section.
Regraded Unclassified
114
- 2 -
HMJr:
Yeah.
D:
And that'll come up Monday.
HMJr:
I see.
D:
Now you - when you - Sullivan came down
finally and made a statement presenting
the views of the Treasury
HMJr:
Yeah.
D:
you gave us an endorsement with a
condition.
HMJr:
That's right.
D:
And your condition was not approved by the
committee. You know that.
HMJr:
Sullivan so reported.
D:
What's that?
HMJr:
Sullivan reported that.
D:
Yeah. Now, I was wondering what was the
position of the Treasury as the matter now
stands. We're going to have a devil of a
fight on that.
HMJr:
Well, we haven't changed any.
D:
You haven't changed any?
HMJr:
No.
D:
You're still for it?
HMJr:
With the condition.
D:
Well, the condition's not in it.
HMJr:
Well.....
D:
And we can't get any members. Now what
Regraded Unclassified
115
- 3 -
about the position on taking care of it
in the Senate? I just wanted to know
HMJr:
Oh.
D:
whether or not we were going to get
any help from you people as it now stands.
HMJr:
Well, you're asking me a pretty important
ouestion and I'll have to think it over.
DI
Well, that's - you see, here's the situation.
If you put that out, we're three hundred and
twenty-nine million dollars short.
HMJr:
Yeah.
D:
And I don't know whether it will go through
the Senate. Of course, in my opinion, I
don't know of any other way that we could
agree on. Of course, we couldn't get out,
because if it was re-referred to the committee,
why there we'd be maybe a week trying to agree
on something, I think it'll go there that
much short. I don't see any chance at all
to make it uo in the House. I don't know
what they'd do in the Senate. It's what
they did do whether or not we'd ever agree
to it, you know.
HMJr:
Well
D:
If we could keep it in there, it would
simplify our situation if we'd raise
three and a half billion dollars which
would build out the margin a little more -
keep that in there.
HMJr:
Yeah.
D:
And, of course, I can't advise you about
your position.
HMJr:
Yeah.
Regraded Unclassified
116
- 4 -
D:
But we're picking a desperate fight trying
to give him three and a half billion dollars,
and we think we can get the three hundred
and twenty-nine million there easier and
less burden and less injustice to anybody
than any other place under the sun we can
get it. That's our conviction - not only
our opinion, but our conviction. And I
wish you'd think it over; and if you can
give us some help, we'd greatly appreciate
1t.
HMJr:
Well, I'll think it over; and if I can be
of any help, I'll call you. But, I'm
afraid I'm not going to be of any help.
D:
Uh huh.
HMJr:
But, let me think it over.
D:
All right. Well, if you don't, why it'll
be construed that you aren't against it;
but that's your responsibility. That's
not for me to suggest what you do about
it.
HMJr:
Well, I appreciate your courtesy and
friendship in calling, and
D:
Yes.
HMJr:
and don't forget, no matter what
happens, I'm your friend.
D:
Well, I'll be your friend forever; there's
no question about that. No separating our
friendship. We may not just agree about
some detailed legislation. We're trying -
we're both striving for the same goal
HMJr:
Yeah.
D:
and our friendship is unbreakable.
HMJr:
Yeah. Well, that's the way I feel, Bob.
Regraded Unclassified
117
- 5 -
D:
All right. Thank you, Henry.
HMJr:
Good-bye.
Regraded Unclassified
118
0
0
P
Y
July 31. 1941
My dear Mr. President:
You have asked as to indicate the position taken
by the Treasury Department during the consideration of the
present tax bill with regard to (1) the mandatory joint tax
returns provision, and (2) the excess profite tax provision.
1. Mandatory joint tax returns. The Treasury indi-
cated to the Ways and Means Committee, that it would approve
the provision for mandatory joint tax returns if substantial
relief was granted to earned income. No substantial relief
is afforded by the provisions of the pending bill from the
resulting increased tax in those cases where husband and wife
contribute through their labor to the family income. Therefore,
in this important respect the pending bill is inconsistent with
the Treasury's suggestion.
2. Excess profits tax. The Treasury has consistently
adhered to the position that the excess profite tax should
apply to profits in excess of a reasonable return on invested
capital. In general, the pending bill exempts from the excess
profits tax an amount of profit equal to 95 per cent of the
average prefite of the base period notwithstanding the fact
that such profits my be in excess of a reasonable return.
(This draft went to the Secretary 7/31/41 morning--using it, with
pencilled corrections,-final was typed. ) This draft prepared by
Messrs. Bell, Foley, Blough. Sullivan and Kades.
Regraded Unclassified
119
(
- 2 -
Some of the reasons for the Treasury's position are:
(a) The highly prosperous, well established corpora-
tion which has been making 30, 40, 50 per cent or more on its
invested capital has a greater ability to pay taxes than a
corporation which has been earning only 3. 4, or 5 per cent
on its invested capital, even though the dollar incomes of the
two companies are the same. Congress has established the prin-
ciple of taxation in accordance with ability to pay so far as
individual income, estate and gift taxes are concerned. The
Treasury advocates the application of this principle also to
corporation taxes. Taxation of corporations in accordance with
ability to pay calls for higher taxes on the profits of those
corporations which have the higher rates of return on invested
capital.
(b) The corporation which has been making & high rate
of return in the base period is given, by the existing law, a
competitive advantage over newly organized concerns or those
struggling to establish themselves. The former corporations
are given & such greater rate of return free of excess profite
tax than are the latter. The effect is to confirm monopolies
and to protect well established prosperous businesses against
competition.
Regraded Unclassified
120
- 3 -
(e) If we are to avoid those cenditions which lead
to inflationary price rises, all must make sacrifices during
this emergency, and none should be allowed to take advantage
of the situation. With this in mind we should endeavor to
distribute burdens according to the ability to bear them and
ve should prevent unreasonably large profits.
Faithfully yours,
The President,
The White House.
121
DRAFT OF PARAGRAPH TO GO IN THE PRESIDENT'S LETTER
The elimination of the provision for mandatory joint
tax returns from the present bill would result in an snnual
loss of revenue of approximately $300 million. In order to
restore this loss of revenue through a reduction in the personal
exemption it would be necessary to reduce the exemption of a
married couple from the present $2,000 to $1,600 and that of
a single person from the present $800 to #650 if no other
changes are made in the bill.
In view of the additional number of returns which would
be filed as a result of lewering these exemptions, taxpayers
with small incomes and simple returns might be afforded the
opportunity of filing their returns with the local postmaster,
who could be authorized by law to administer the required oath.
July 31. 1941
Regraded Unclassified
EXAMPLES OF CORPORATIONS ESCAPING
122
EXCESS PROFITS TAXES
Regraded Unclas
The vay in which the present law and the Committee's tentative
plan leave exempt large amounts of excess profits is illustrated by
the following actual exemples.
1. After paying all taxes an automobile company made during
the base period years of 1936 through 1939 approximately 25 per cent.
Practically all (95 par cent) of this amount can be earned and yet be
free from excess profits tax under the present law and under the
Committee plan. In 1940 the earnings of this concern, after the pay-
ment of taxes, will be approximately 26 per cant of its invested capital,
under the present law.
B. The earnings of a manufacturer of tractors with nearly $50
million of invested capital averaged, after all taxes, approximately
18 per cent of invested capital during 1936-1939, which amount vill be
free of excess profits tax under the present law and the Committee's
tentative plan.
C. Similarly a company which has practically a monopoly on one
of the important Defense materials had earnings after taxes during the
base period years averaging approximately 19 per cent of its 1940
invested capital, which it can continue to earn free of excess profits
tax,
D. A large manufacturer of beverages can continue to earn free of
excess profits tax over 25 par cent of its 1940 reported equity capital.
Thus, large amounts of the kind of profits which are commonly
defined as excess profits and were taxed as such under the 1918 Act are
free from excess profits tax under the present law and the Committee plan.
123
July 31. 1942
My door Mr. President:
You have asked me to inficate the position taken w the
Treasury Department during the consideration of the present
las bill with regard to (1) the malatery joint tax returns
provision, and (2) the - profite M provision.
1. the Pressury indicated
to the Wage and Besse Committee its conditional approval of
matatory joint tax returns, the condition being that mb-
stantial relief is similteneously greated to carned income of
both busbend and wife. the embetantial relief to afforted w
the provisions of the pending MII from the resulting increased
las is these cases where Instand and wife contribute through
their labor to the family Income. Therefore, in this important
respect the pending will is with the Treasury's
suggestion.
a. the Treasury has consistently
adhered no the position that the - profite tax shrald upply
to profite is - of 6 recomeble return # invested expital.
Many corporations between 1936 and 1939 (the base pariod)
carned average profite for sa - of a reasonable normal
7/31 frial return. - the revised pending will (ey emagle Knlen all and Blough) took to
from the 8:30 due seey
FILE COPY white House at 2 P.m.
Regraded Unclassified
124
of 6 8
earnings from - prefite termitten unless they are more
then 95 percent of the average profits enrast in the 1936
to 1939 parted. therefore, is another Emportant respect
the penting Mill is inconsistent with the Treasury's clearly
namember yargese.
loss of the reasons for the Pressury's position are:
(a) the highly prosperves, will ostablished corpora-
tiem which has been midng 30, no. 90 persent or nore on its
invested capital has . greater ability to pay taxes then s
corporation which has been carning only 3. n, or 5 persont
on its invested capital, - though the dellar income of
the two evapanies are the - Congrass has outsblished
the principle of tasation is accordance with ability be my
- for as individual Income, estate and an taxes are -
corned. the Treasury advocates the application of this
principle to corporations as will as to individuals. fan-
atten of corporablems is nacestance with ability to my
calls for higher tasse ⑉ the profite of those corporations
which have the higher rates of return on invested empital.
(b) the corporation which has been making 6 high rate
of return is the period from 1936 to 1939 is given, w the
existing 100, a competitive advantage one souly organized
conserno or these struggling to establish themselves. the
FILE COPY
Regraded Unclassified
125
- 3 -
older corporations which have been carning high profite are
given a such greater rate of return free of ...... profits
tax then are their - competitors. the offect is to
confirm menspolies and to protect will octablished prosper-
as businesses against competition.
(e) If we are to expect all classes of seciety, is-
cluding laborere and formers, to assept the sacrifices of
the energency period and not to press for every possible
dollar of advantage, they met be convinced that burdens
are being distributed according to ability so hear them
and that as cas is making unreasenably large profite. the
imposition and enforcement of a true @@@@@@ profite tax
vill time help to prevent inflation.
Faithfully years,
Decretary of the Treasury
The President
the White House
FILE COPY
Regraded Unclassified
126
July 31, 1941
11:45 a.m.
RE EXCESS PROFITS TAX
Present:
Mr. Bell
Mr. Foley
Mr. Sullivan
Mr. Blough
Mr. Kuhn
H.M.Jr:
Should I read this?
Kuhn:
It is all the same except - it is all the same,
Roy, isn't it, from there down?
Blough:
Well, we went back --
Foley:
Base period, where is that?
Kuhn:
We changed the base period at the end of page
two.
Bell:
Why shouldn't we put in parentheses, "after
thirty-nine", the base period, from thirty-
six to thirty-nine?
H.M.Jr:
Where is that, Dan?
Bell:
At the bottom of page one.
H.M.Jr:
You would say what?
Bell:
"Many corporations", the preceding sentence,
"between 1936 and 1939", and then in parentheses,
"base period".
Regraded Unclassified
127
- 2 -
H.M.Jr:
I think that would be good if we had time to
do it over. Why can't I just put this in
in ink?
Bell:
What is your deadline?
H.M.Jr:
In brackets?
Blough:
In parentheses, yes.
H.M.Jr:
The 1936 to 1939 --
Bell:
Parentheses, the base period.
H.M.Jr:
Now, if we have time, we can do that one page
over. I don't know what is the matter with
the ink?
Bell:
It is all right.
Blough:
If there is no more than that, I should think
it would be all right.
Bell:
The chances are he won't send the original
anyway. He will send a copy.
H.M.Jr:
What else is there? I just want to read this
over. "Not to press for every possible dollar
of advantage".
Kuhn:
That was in the part the President approved.
Blough:
We went back from the second paragraph to the
first one. I think it was eliminated as
stronger than the President would take, and
he took it, so we thought we would go back to
it.
H.M.Jr:
You kind of throw that in as an after thought,
"will help to prevent inflation".
Regraded Unclassified
128
- 3 -
Kuhn:
"Would thus help to prevent inflation."
Bell:
That is what bothered us last night. Two
things bothered us. One was the last sentence.
We re-wrote that whole sentence. He approved
that, you think?
Blough:
He didn't change it.
H.M.Jr:
I like that farmers business but I just question
that last sentence.
Supposing we put the last sentence at t he be-
ginning of C.
Well, Texcess profits is going to prevent infla-
tion," that alone --
Bell:
Going to help, that is what we had in there.
Kuhn:
Isn't that the real argument for 8. true excess
profits tax now, that it will induce labor and
farmers to accept whatever limitations you
want to put on them?
H.M.Jr:
Then if you do, I would put the sentence up
at the beginning of this paragraph. What?
Sullivan:
I like it where it is, sir. I hadn't seen
this before.
H.M.Jr:
No. You haven't seen it?
Sullivan:
No, I mean this new draft.
H.M.Jr:
There is nothing new about this, is there?
Bell:
Yes.
Sullivan:
This last sentence.
Bell:
This was the first draft last night that Foley
drew up.
Regraded Unclassified
129
- 4 -
H.M.Jr:
But these boys didn't throw that sentence in, did
they?
Kuhn:
Only the word "thus".
Bell:
John didn't see the draft last night. When
he got back it was entirely different.
Blough:
That last paragraph, except for the word "thus"
is the paragraph that went to the President and
which he read.
H.M.Jr:
All except the la st paragraph?
Blough:
Except the word "thus".
H.M.Jr:
Well, I would personally like to see that sen-
tence up at the beginning of (c).
Bell:
I am afraid there will be some criticism on
the farmers because I don't think there is any
inclination to ask or expect the laborers and
farmers to go along.
H.M.Jr:
I am glad to see it.
Kuhn:
Dan, the President said 30 in his message
yesterday.
Bell:
But we have allowed a lot of wage increases, and
allowed them to run wild, and the farmers
only now have passed a bill that they can't
sell surplus crops.
H.M.Jr:
Will you make it a (d) and make it B. separate
paragraph?
Blough:
That is the heart of (c), Mr. Secretary.
H.M.Jr:
Do you agree to that?
Regraded Unclassified
130
- 5 -
Kuhn:
Yes, I think that sentence about inflation
is your whip at the end of the letter which
gives a bigger justification for what you
are doing.
H.M.Jr:
All right. They are all inflation minded around
here. Now what we do is, I will keep this bird
in hand. Now, you can do this base period
thing over. Good. Now, where is the examples
and all that? He gave me everything back, you
see.
Blough:
Right here, sir. Here is the - what went to
the President last night, and here is his hand-
writing. That includes the examples.
H.M.Jr:
This went to the President last night?
Blough:
Yes.
Bell:
Does that include the examples, Roy, did you
say?
Blough:
Yes. In addition, you have another sheet
typed.
H.M.Jr:
This is dated the thirtieth, so that is clear
enough, isn't it? What time did this go to
the President?
Bell:
Nine thirty, wasn't it?
Foley:
About nine thirty.
Bell:
Nine fifteen or nine thirty, something like
that.
Blough:
This went to the Secretary this morning.
H.M.Jr:
Now, what else?
Blough:
That is all that went to him.
Regraded Unclassified
131
- 6 -
H.M.Jr:
Couldn't I have an extra set of examples?
Bell:
That, you mean, noy, that is the way it went
to him?
Blough:
Yes. Here is a carbon copy. We had an original
copy, but we will do that over.
H.M.Jr:
What is that?
Blough:
This is a set of examples.
H.M.Jr:
What you can do, I will try to find out when
he is going to want to see me, before lunch
or after lunch.
(Secretary on White House phone.)
I hear if you want to get to the President in
"Look" you have got to know the voice. Have
you seen that?
You have got to know the business
Is Grace busy, the voice that knows him
.....
Grace, according to "Look" it says that Miss
LeHand doesn't go out nights. Does that
apply to you, too? (Laughter)
.....
Well, I just wanted to know where I
No, it talks about Miss LeHand, but it doesn't
say anything about you. All right
.....
Yes
No
.....
I saw the President this morning
.....
Regraded Unclassified
132
- 7 -
I got left up - left up there at five twenty-
five this morning. I got up at four, just as
you were going to bed
And he said that you were to type that thing
this morning and he said when he had that I
was to come over with a re-draft of the one
that we had done
Well, what I wondered was if he wouldn't want
to see me right after lunch, or does he
rest
Well, would you mind finding out and letting
me
Just before lunch
Right, and you let me know. Thank you
H.M.Jr:
She gave it to him just a little while ago
and he said he wanted to see me. He didn't
say when, but she will now ask him.
Well, there we are. I will keep this on my
desk, and as long as you have got it typed
I think it would be nice to sort of keep this
set together, you see, and I will have them
both like this. You get busy, you see, giving
me the complete set to take to him.
Bell:
Do you want the letter we gave you this morning,
the one that went to the White House, for your
files?
H.M.Jr:
For the files, yes. I will say to the President,
"Here is what we gave you last night, here is
the re-draft, and here is the complete," you
see.
Blough:
Then you want another ribbon run so that you
will also have the complete set of those
papers?
Regraded Unclassified
133
- 8 -
H.M.Jr:
That is right.
Blough:
And do you wish also - well, you will wish
that for the files, but for now this is all
you want?
the
H.M.Jr:
For now goodbye.
Bell:
When do you want the first sheet re-written?
H.M.Jr:
Now. But I am keeping it here. Blough will
do it from the copy.
134
July 30. 1942
my door Mr. Presidemb:
Tom have asked se to indicate the position taken w
the Treasury Department during the consideration of the
present tax will with regard be (1) the maniatory joint
tax returns provision, and (2) the - profite tot
provision.
1. the Treasury incl-
ented to the Vegre and Homes Committee the conditional
approval of maniatory joint tax returns, the condition
being that embetential relief is similtenevely grasted
to caraol Isseme of both Instruct and wife. no
tial relief to afferial w the previsions of the pending
Mill from the resulting increased tax is these - where
Instand and wife contribute through their labor to the
family income. Therefore, is this important respect the
yealing will to insensivient with the Treasury's suggestion.
a. the Treasury has consistently
adhered to the position that the - prefite tax should
eagly to profits is - of a reasonable return on 10-
vested cepital. Many corporations between 1936 and 1939
carned average profite for is - of a reseonable some)
return. the penting bill anamyto all mah
40
Regraded Unclassified
135
- 2 -
caraings from - profits termien unless they are -
then 95 persent of the average prefite ourset is the 1936
to 1939 period. Therefore, is emother important respect
the pending will is inconsiates) with the Treasury's clearly
assoussed purpose.
Some of the for the Treasury's position arel
(a) The highly prosperate, will ostablished corpora-
tion which has been making 30. no. 50 persont or note 48 its
invested capital has a greater ability to pay taxes than &
corporation which has been carning only 3. 4. or 5 persont
on its invested capital, - though the dollar Incomes of
the two companies are the - Compress has octablished
the principle of tamition in asseriance with ability to my
- for as individual issue, estabe and gift taxes are -
carned, the Treasury alvortes the application of this
principle to corporations M will as to individuals. Tas-
atten of corporations is acceptance with ability to pay
calls for higher bases a the profite of these corporations
which have the higher rates of return on Invested empital.
(b) The enrporabien which has been mides a high rate
of return is the period from 1936 to 1939 is given. w the
oristing law. a competitive simntage over sevly organized
or these struggling to establish themselves. The
Regraded Unclassified
136
- 3 -
clder corporations which have been caraing high profite are
given a make greater rate of return free of emerge profite
tas than are their new competitors. the effect to to
confirm menspolies and to protest will established prosper-
ass businesses against competition.
(a) If wo are to expect all classes of society. is-
cluding laborere and furners, be assept the exerifices of
the energency povied and net to pross for every possible
dollar of alventage, they must be convinced that burdene
are being distributed according to ability to bear them
and that w ⑉ is making unreasenably large profite. the
imposition me informement of a true - prefite tax
1 into s I 1111
Faithfully yours,
Secretary of the Treasury
The President
the White livese
Regraded Unclassified
137
July 31, 1941
The President gave this to me, when I saw him for
the second time today at 2 o'clock. I was there for
half an hour. He read me his letter he is sending to
Congress. He is making a few changes. I thought it
was a very good letter.
138
C
July 31,1941
0
P
Y
My dear Mr. President:
You have asked me to indicate the position taken by the
Treasury Department during the consideration of the present
tax bill with regard to (1) the mandatory joint tax returns
provision, and (2) the excess profits tax provision.
1. Mandatory joint tax returns. The Treasury indicated
to the Waye and Means Committee its conditional approval of
mandatory joint tax returns, the condition being that sub-
stantial relief ie simultaneously granted to earned income of
both husband and wife, No substantial relief is afforded by
the provisions of the pending bill from the resulting increased
tax in those cases where husband and wife contribute through
their labor to the family income. Therefore, in this important
respect the pending bill is inconsistent with the Treasury's
suggestion.
2. Excess profits tax. The Treasury has consistently
adhered to the position that the excess profits tax should apply
to profits in excess of a reasonable return on invested capital.
Many corporations between 1936 and 1939 (the base period)
earned average profits far in excess of a reasonable normal
return. Nevertheless, the pending bill exempts all such
Final draft-used at 2 PM-7/31/41
Regraded Unclassified
139
- 2 -
earnings from excess profite taxation unless they are more
than 95 percent of the average profits earned in the 1936
to 1939 period. Therefore, in another important respect
the pending bill is inconsistent with the 1 reasury's clearly
announced purpose.
Some of the reasons for the Treasury's position are:
(a) The highly prosperous, well established corpora-
tion which has been making 30, 40, 50 percent or more on its
invested capital has a greater ability to pay taxes than B.
corporation which has been earning only 3.4, or 5 percent
on its invested capital, even though the dollar incomes of
the two companies are the same. Congress has established
the principle of taxation in accordance with ability to pay
BO far as individual income, estate and gift taxes are con-
cerned. The Treasury advocates the application of this
principle to corporations as well as to individuals. Tax-
ation of corporations in accordance with ability to pay
calls for higher taxes on the profits of those corporations
which have the higher rates of return on invested capital.
(b) The corporation which has been making a high rate
of return in the period from 1936 to 1939 1e given, by the
existing law, a competitive advantage over newly organised
concerns or those struggling to establish themselves. The
Regraded Unclassified
140
- 3 -
older corporations which have been earning high profits are
given & much greater rate of return free of excess profits
tax than are their newer competitors. The effect is to
confirm monopolies and to protect well established prosper-
ous businesses against competition.
(o) If we are to expect all classes of society, in-
cluding laborers and farmers, to accept the sacrifices of
the emergency period and not to press for every possible
dollar of advantage, they must be convinced that burdens
are being distributed according to ability to bear them
and that no one is making unreasonably large profits. The
imposition and enforcement of a true excess profits tax
will thus help to prevent inflation.
Faithfully yours,
Secretary of the Treasury
The President
The White House
Regraded Unclassified
see 8/2/41 141
July 32, 1941.
My dear Bobi-
Because of some uncertainties which seen to have
developed in regard to the position of the Treasury Depart-
next in regard to some provisions in the Tax Bill as reported
out by the Ways end Means Committee, I asked the Treasury
Department for 8 slerifying letter, and I think it is only
fair to send this to you. I enclose a copy of Secretary
Morgenthau's letter to at and also an appendix showing
examples of corporations which would largely escape ******
profits taxes under the bill.
I an sure that I make it clear that the Treasury
Department does not approve of mandatory joint tax returns
except on the condition of granting substantial relief to
earned income of the husband and wife. In this I heartily
conour. But the Committee draft leaves out the proviso
altogether.
You and Jere Cooper have talked over the problem
of the profits tax in its relationship to the
omission in the bill of application of this tax to certain
types of corporations. These corporations may be making
20 or 30 or 50% on their equity capital. It is my definite
opinion that they ought to contribute to the cost of our
great defense program far more heavily this year than last
year or the year before. But just because they happened to
have made equally large profits in recent years, they are
colled on to contribute no more to the national defense
under the proposed bill than they did before. That seems
to no clearly a discrimination in their favor.
There is one other subject which I did not have
& chance to talk with you about. It relates to lowering
the exemptions in the lower brackets. I know that very
few tax experts agree with no but I still think that some
way ought to be found by which the exemption of e single
person should be reduced to $750.00, with a provision
for 8. straight simple payment of some small contribution
to the national ter income through some simple agency
and on some simple form.
Regraded Unclassified
142
+
In the some way I think that the married exemption
should be reduced to $1,500.00, again with a simple method
of paying the tax through & simple agency and on a simple
form.
Further, I an convinced that the overwhehming
majority of our citizens want to contribute something
directly to our defense and that most of them would rather
do it with their eyes open than do it through a general
sales tax or through a multiplication of what we have
known as "nuisance taxes". In other words, most Americans
who are in the lowest income brackets are willing and
proud to ship in directly oven if their individual con-
tributions are very small in terms of dollars. After all,
the majority of all Americans are in these lowest brackets.
One other thought. Perhaps your Committee will
think it worthwhile to study the filing of low income
returns through the machinery of the Post Offices. This
will undaubtedly seve a good deal of the cost of collection
under the present system. These simple returns could be
sworn to before the local Postmaster who, of course, would
have to be authorised to administer the necessary oath.
Very sincerely yours,
Honorable Robert L. Doughton,
Chairman, Ways and Means Committee,
House of Representatives,
Washington, D. C.
Regraded Unclassified
143
THE SECRETARY OF THE TREASURY
WASHIMOTON
July 31, 1941
My dear Mr. President:
You have asked ne to indicate the position taken
by the Treasury Department during the consideration of the
present tax bill with regard to (1) the mandatory Joint tax
returns provision, and (2) the excess profits tax provision.
1. Mandatory joint tex returns. The Treasury in-
dicated to the Ways and Meana Committee its conditional
approval of mandatory joint tax returns, the condition being
that substantial relief is simultaneously granted to earned
income of both husband and wife. No substantial relief is
afforded by the provisions of the pending bill from the
resulting increased tax in those 06888 where husband and
wife contribute through their labor to the family income.
Therefore, in this important respect the pending bill is
inconsistent with the Treasury's suggestion.
2. Excess Profits Tax. The Treasury has consistently
adhered to the position that the excess profite tex should
apply to profits in exoess of & reasonable return on invested
capital. Many corporations between 1936 and 1939 ( the base
period) earned average profite far in excess of a reasonable
normal return. Nevertheless, the pending bill exempts ell
such earnings from excess profits taxation unless they are
more than 95 percent of the average profits earned in the
1936 to 1939 period. Therefore, in another important respect
the pending bill is inconsistent with the Treasury's clearly
announced purpose.
Some of the reasons for the Treasury's position are:
(a) The highly prosperous, well established corpora-
tion which has been making 30, 40, 50 percent or more on its
invested capital has E greater ability to pay taxes than a
corporation which has been earning only 3, 4, or 5 percent
on its invested capital, even though the dollar incomes of
the two companies are the same. Congress has established
the principle of taxation in accordance with ability to pay
BO far as individual income, estate and gift taxes are con-
corned. The Treasury advocates the application of this
principle to corporations as well 08 to individuals. Taxs-
tion of corporations in accordance with ability to pay calls
for higher texes on the profits of those corporations which
have the higher rates of return on invested capital.
Regraded Unclassified
144
- 2 -
(b) The corporation which has been making a high
rate of return in the period from 1936 to 1939 1a given,
by the existing law, a competitive advantage over newly
organized concerns or those struggling to establish them-
selves. The older corporations which have been eerning
high profits are given a much greater rate of return free
of excess profits tax than are their newer competitors.
The effect is to confirm monopolies and to protect well
established prosperous businesses against competition.
(c) If we are to expect all classes of society,
including laborers and farmers, to accept the secrifices
of the emergency period and not to press for every possible
dollar of advantage, they must be convinced that burdens
are being distributed according to ability to bear them and
that no one is making unreasonably large profits. The in-
position and enforcement of a true excess profits tax will
thus help to prevent inflation.
Faithfully yours,
s/ Henry Morgenthau, Jr.
Secretary of the Treasury
The President
The White House
Regraded Unclassified
145
EXAMPLES OF CORPORATIONS ESCAPING
EXCESS PROFITS TAXES
The way in which the present law and the Committee's
tentative plan leave exempt large amounts of excess profits
is illustrated by the following actual examples.
A. After paying all taxes an automobile company made
during the base period years of 1936 through 1939 approxi-
mately 25 per cent. Practically all (95 percent) of this
amount can be earned and yet be free from excess profits
tax under the present law and under the Committee plan.
In 1940 the earnings of this concern, after the payment
of taxes, will be approximately 26 percent of its invested
capital, under the present law.
B. The earnings of a manufacturer of tractors with
nearly $50 million of invested capital averaged, after all
taxes, approximately 18 percent of invested capital during
1936-1939, which amount will be free of excess profits
tax under the present law and the Committee's tentative plan.
C. Similarly a company which has practically a monopoly
on one of the important Defense materials had earnings after
taxes during the base period years averaging approximately
19 percent of its 1940 invested capital, which it can
continue to earn free of excess profits tax.
D. A large manufacturer of beverages can continue to
earn free of excess profits tax over 25 percent of its
1940 reported equity capital.
Thus, large amounts of the kind of profits which are
commonly defined as excess profits and were taxed as such
under the 1918 Act are free from excess profits tax under
the present law and the Committee plan.
July 30, 1941
Regraded Unclassified
COMMITTEE ON MAYS 4ND MEANS
146
HOUSE OF REPRESENTATIVES
WASHINOTON, D. c,
August 2, 1941
Ny dear Mr. President:
I wes very greatly surprised to receive your latter of July 31,
criticising certain features of the pending tax 0111, which our
Committee has recently reported to the House after more than three
ponths of most careful deliberation and study. The matters discussed
IA your letter have all received our most careful consideration.
After receiving your letter, I called a meeting of the Committee
for ten c'clock this morning and at that time I lold before it the
contents of your letter. Each of the three items mentioned by you ware
again discussed. Then, by decisive majorities the Committee voted to
reaffirm the action previously taken with respect to each of them and
instructed me to BO advise you with the reasona therefor.
As to mandatory joint returns, WG are pleased to learn that you,
0.0 well no the Treasury, approve of it in principle. Our whole desire
WESS to place the family upon an equitable basis from e tax standpoint
and remove the admitted evil of tax avoidance. The eristing law permite
a rank discrimination in levying different taxes upon two married couples
enjoying equal incomes, marely because in one case the income belonged
wholly to one spouse and in the other, to both. This has been recognized
by the Treasury as an evil for many years and mandatory Joint returns
have been suggested by the Treasury on many occasions, without qualifi-
cation, to remedy this situation.
While the Treasury gave belated approval to mandatory joint returns
in the pending bill, such approval was qualified upon the condition that
we continue this inequitable festure of existing law us to earned income.
After careful consideration of the Treasury qualification, the Committee
was unable to see any logic in fevoring a family in which both spouses
earned the income, as against e family where one spouse carned the entire
resount for the support of the family. That was the controlling reason
any the Committee almost unanimously rejected the Treasury qualification.
It was aguinst extending special earned income relief to a family in which
both spouses contributed to the income. I would be surprised if anyone
would be In favor of penalizing the femily in which the husband 1a the
sole bread-winner in fevor of the family where the wife also draws a gal-
ary. Yet this is exactly what the Treasury qualification would have
accomplished if we had permitted it to be incorporated in our bill, The
mandatory joint return proposal of the pending bill will not only remove
the inequities and close some of the most glaring income tax loopholes
of eristing law which are especially pronounced in the community property
states, but 18 will also result in the Government securing additional
revenue of more than $300,000,000, which in our judgment could not be
reised from any other source with 50 little burden or hardship.
Referring to the excess profits tax proposal of your letter, our
Committee recognized that there are differences of opinion as to the
proper base for messuring excess profits. This question was thoroughly
discussed before the excess profits tal was enmoted last year by the
Committee on Ways and Means, the Committee on Finance, and the Congress.
It me again fully discussed this year, when the Treasury urged the same
proposel, which the Congress had decisively rejected in 1940, and arten-
vive hearings were again held on this subject. Following the bearlogs,
our Committee again refused to adopt this proposal of the Treasury. As
a result of your recent conference with Mr. Cooper and myself, I again
brought the matter before the Committee. After carefully reviewing the
subject in the light of our discussion with you, which was fully reported
by us to our colleugues, the Committee again overwhelmingly rejected the
Treasury proposal.
Regraded Unclassified
147
While 3 corporation's return on invested cepital may som large in
IN instances, and this is especially true Ln the case of a business,
which nas grown from e Dumble beginning, 1% does not follow that such .
corporation has realized excess profits. The difficulty is that expert-
agee has shown that invested capital La not a proper base for memeuring
profite in many cases. Our studies and the overwhelming tentimony
of witnesses before our Committee has convinced us of the undesirability
and inequity of measuring excess profits by the sole standard of invested
capital, The experience of this method in the last World War and its
abandonment by foreign countries show that 11 doos not determine the OX-
masivencess of profits even reasonably well,
The major objections to this form of taxation are set forth on pages
85 and 84 of our Committee Report.
I feel that no one would be inclined to favor the corporation which
had retained its earnings over a long period of time, as against the
corporation which distributed its earnings and thereby permitted the
Government to secure the individual normal and aurtaxes on such cornings.
OF to ravor the company which by chance was incorporated in a year of
bigh values, as compared with 8 company organized in e year of low values.
or to conclude that the present abareholders of n corporation have realized
an excess profite on what the original shareholders paid for their stook.
Or not to Cive recognition to factors of personal erficiency 86 well A8
capital in determining the measure of excess profits. Yet it was demon-
strated to our Committee that not only these but other inaquities existed
under a straight invested capital mothod, which would prevent such en ex-
0085 profits tax from operuting fairly on the bosis of ability to pay.
To punish the small corporation in [avor of the heavy or overcepitelized
@orporations would punish conservative corporation finance and reward
stock-watering, It would put & penalty on bruins, energy and enterprise,
dod confirm old ventures in their monopolies.
Our Committee believes that the A20088 profits tax plan in the pend-
ing bill is the fairest which could be devised. Under the existing law,
the oxcess profits tax was estimated to yield for the calender year 1941,
the amount of 51,025,400,000. An additional smount of $1,199,300,000 is
estimated from this source under the bill, making a total yield of
$2,224,700,000 from the excess profits tax, When it La considered that
this is the first your to which the defense program has been in full oper-
atton, it 1s believed that we have provided o very effective excess profits
fox for preventing the retention of unreasonable profits from the defense
program. In fact, If we had followed the original recommendations of the
Treasury, we would have secured only $400,000,000 additional revenue from
the excess profits tax, end if we had followed their revised proposal, WII
would have secured only $716,800,000 from the excess profits tax.
In regard to personal exemptions, there were several members of the
Committee, including myself, who were inclined to look with fevor on
broadening the tax base by reducing the personal exemptions ellowed single
and married persons. However, the Treasury representatives in their
appearance before our Committee were strenuously opposed to any reduction
in personal examptions, citing the rising cost of living and the burden of
hidden taxes on persons in the low income groups to justify their view.
Undoubtedly, this position of the Treasury had some influence upon our
action. I en surprised to learn that your views are antagonistic to those
expressed so emphatically by the Trunsury ne the representative of the
administration. The Committee st times found it impossible during the
sourse or Its beerings to reconcile the testimony of different officials
representing the administration.
with respect to thet part of your letter relating to nidden taxes,
the Committee bill more nearly conforms to the views expressed by you
than the recontondation made by the Treasury Department to our Comittee.
The Treasury recomended that the Committon Levy $1,248,900,000 from
this source. The bill, as reported by our Committee recommende only
$850,100,000 be collected from exclada and other miscelleneous sources,
401 $160,200,000 of that amount can in no way be termed or classed as I
kidden tax,
Regraded Unclassified
148
I submit to you, Mr. President, the record of our Committee, as
well as that of myself, for the past eight years as evidence of our desire
to cooperate with you and the representatives of your administration to
the fullest extent consistent with the proper discharge of our solemn obli-
gations.
Nothing in this letter is intended as a defense of or an apology for
the action, which we have taken, but only as an explanation, so that you
and the Country may understand some of the reasons for our conclusions.
With great respect, I am
Sincerely yours,
R. L. Doughton.
The President,
The White House.
149
OFFICE OF GOVERNMENT REPORTS
July 31, 1941
No. 262
INFORMATION DIGEST
THE PRESIDENT
President Roosevelt, by Executive Order, established an Economic
Defense Board consisting of Vice President Wallace, as Chairman, the
Secretary of State, Secretary of the Treasury, Secretary of Mar, the
Attorney General, Secretary of the Navy, Secretary of Agriculture, Secretary
of Commerce, and such additional members sa the Chairman, with the approval
of the President, shall appoint.
The President said the Board shall be concerned with "the conduct,
in the interest of national defense, of international economic activities
including those relating to exports, imports, the acquisition and disposition
of materials and commodities from foreign countries including preclusive
buying, transactions in foreign exchange and foreign-owned or foreign-
controlled property, international investments and extensions of credit,
shipping and transportation of goods among countries, the international
aspecte of patents, international communications pertaining to commerce, and
other foreign economic matters." The Board shall perform the following
duties and functions:
"(A) Advise the President as to economic defense measures to be
taken or functions to be performed which are essential to the effective
defense of the Nations (B) Coordinate the policies and actions of the
several departments and agencies carrying on activities relating to economic
defense...; (c) Develop integrated economic defense plans and programs for
coordinate action by the departments and agencies concerned...; (D) Make
investigations and advise the President on the relationship of economic
defense. neasures to post-war economic reconstruction and on the steps
to be taken to protect the trade position of the United States and to expedite
the establishment of sound, peace-time international economic relationships;
(E) Review proposed or existing legislation relating to or affecting economic
defense and.,. recommend such additional legislation as may be necessary or
desirable."
The Order states "The administration of the various activities
relating to economic defense shall remain with the several departments and
agencies now charged with such duties but such administration shall con-
form to the policies formulated or approved by the Board." In addition
to the departments and agencies represented on the Board, the following
shall designate officers "to represent the department or agency in its
continuing relationships with the Board...to facilitate unity of action
and the meximum use of existing services and facilities":
The Departments of the Post Office, Interior, and Labor, the
Federal Loan Agency, the Maritime Commission, the Tariff Commission,
Federal Trade Commission, Board of Governors of the Federal Reserve System,
Securities and Exchange Commission, National Resources Planning Board,
Defense Communications Board, OPM, OPACS, Office for Coordination of Com-
mercial and Cultural Relations Between the American Republics, Permanent
Defense Aid Reports, the Coordinator of Information, and such additional
Joint Board on Defense, the Administrator of Export Control, Division of
agencies as the Chairman may determine.
Regraded Unclassified
8/1'41
Miss Chauncey
150
This is the letter which
the President approved as the
policy to be followed in
connection with exports and
imports from Japan.
Mr. Acheson made copy
of this available to Mr. Foley
and I have given copy to you;
Bell; White and Bernstein.
McGuire
STRICTLY CONFIDENTIAL
MR. FOLEY
Regraded Unclassified
SW
151
THE UNDER SECRETARY OF STATE
WASHINGTON
OK
KIR
July 31, 1941.
My dear Mr. President:
A few applications to license exports from the
United States to Japan have been made under the Japanese
freezing order. A few inquiries have been made regard-
ing imports from Japan. For the time being, the Foreign
Funds Control Committee is holding these applications
without action. It seems desirable that the Committee
and also the export control authorities be given instruc-
tions as to the policy which you desire it to follow.
I submit for your consideration the following statement
of policy.
1. Exports to Japan. Many categories of exports
are already forbidden by the export control regulations.
It is recommended that the Foreign Funds Control Commit-
tee deny all applications for:
All articles the exportation of which is now
prohibited by the existing export controls and
such of the following products (or grades or types)
as are not already prohibited by those controls:
Wood
The President,
The White House.
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152
-2-
Wood pulp;
Metals and manufactures;
Machinery and vehicles;
Rubber and manufactures;
Chemicals and related products except
certain products such as some pharmaceutical
preparations, et cetera, to be specified
after further study.
The above list includes all commodities in which
there is any substantial trade except cotton and petro-
leum products (the latter being dealt with below). In
none of the items in the list is there any large export
at present. Raw cotton exports have averaged about
$600,000 per month in the first six months of 1941 as
against slightly over $4,000,000 per month average in
1938.
It is recommended also that action similar to that
outlined above be taken at once by the export control
administration, so that its action may conform to action
taken under the freezing order.
2. Imports from Japan. It is recommended that no
licenses be granted for importation of silk or silk
products. The military authorities inform me that they
have no need for further silk imports. Should that
situation alter, policy can be changed immediately to
meet suoh an altered situation.
It
Regraded Unclassified
153
-3-
It is also recommended that purchase of gold from
Japan be discontinued.
It is doubtful whether application will be made for
any substantial imports from Japan other than silk.
Should such applications be made, it is recommended that
they be acted upon depending upon the estimated need for
the products involved in the United States. Proceeds
from such imports, if any, can be made available for the
payment of such exports as are permitted.
3. Petroleum Products. It is recommended that action
here issue from the export control authorities on the
basis of national defense needs. The action recommended
is the issuance of appropriate directives and the revoca-
tion of outstanding specific and general licenses to pro-
hibit the exportation, except to the British Empire, the
Western Hemisphere and to nations resisting aggression,
of
Gasoline above a specified quality and beyond
a specified quantity (normal 1935-36 amount);
Lubricating oils above a specified quality and
beyond a specified quantity (normal 1935-36 amount);
Other petroleum products above a specified
quality and beyond a specified amount (normal
1935-36 amount).
(Specifications to be such as will preclude
shipment of gasoline or oils capable of use for
aviation gasoline and the high grade raw stocks
suitable for their manufacture.)
The
Regraded Unclassified
154
-4-
The Foreign Funds Control Committee will continue
to hold without action applications relating to petro-
leum exports from the United States and subsequently
grant licenses under the freezing order only in accord-
ance with the policy to be initiated by export control.
Believe me
Faithfully yours,
1
Regraded Unclassified
155
July 31, 1941
10:30 a.m.
RE AID TO BRITAIN
(Conference held in Mr. Bell's office)
Present:
Mr. Kades
Mr. Brown
Mr. Cochran
Miss Kistler
Mr. Chance
Mr. Childs
Mr. Keyes
Mr. White
Mr. Bewley
Mr. Archer
Mr. Robinson
Mr. Hicks
MR. BELL:
I thought possibly we might have 8. meeting the
first of the week with the Secretary. Maybe
we had better discuss for a moment the agenda
of that meeting.
One would be payment for U.S. purchases of raw
materials from sterling area in advance of
shipment. I would like to have you gentlemen
comment on this agenda and add anything to it
for discussion that you can.
Bewley:
I don't know whether the Secretary would be in
8. position to say much about that.
White:
Well, we have got a little. You remember,
this was in the memorandum you left with us
last week. We have explored the matter a
Regraded Unclassified
156
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little with the head of the Metal Reserve
and the others, and Mr. Clayton would be very
glad to sit down with you gentlemen and to
re-examine the situation and see what can be
done with mica and other things.
He is a little bit dubious about the rubber
because they are doing, they think, as much as
they can, but they are not sure, and they are
willing to re-examine it.
Now, with respect to wool, which we can lump
in to that, al though it is a separate item,
he thinks that there might well be & proba-
bility - 8. possibility of their making some
substantial advances against cotton which you
have here --
Bewley:
Wool.
White:
Excuse me. That is, it wouldn't be a purchase
but for your purpose it might be equally satis-
factory. I don't know that the terms are set,
but he would be prepared to discuss that.
Now, he seemed to think that you had only
about - he was speaking offhand, but he
thought it was only about twenty-five million.
It was our impression it was something closer
to forty million, either there or on the water.
Now, maybe you can find out approximately be-
fore you see him what it is, and it would
be - it might be helpful if you could see
him before the meeting with the Secretary.
He said if you would call him up he would be
very glad to go over the matter with you.
Bewley:
Where is he?
White:
He is in the Department of Commerce. You have
never done business with him?
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157
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Bell:
At Fifteenth and H.
White:
Suppose I make an appointment for you with
him and call you up, just the first time.
At that time you will discuss both the
possibility of extending purchases f.o.b.
and the possibility of getting some form
of a loan on the wool that is here and maybe
that would make 8 fairly substantial amount.
Bell:
Proposal to Lend-Lease Caribbean sugar.
White:
Well, that is another item which
was left here, and I take it that Mr. Brown
might want to discuss that further. Have you
given that consideration?
Brown:
Yes, sir, we have, and we have talked to the
Department of Agriculture about it, and
I understand Mr. Wheeler has talked to the
Bureau representatives in the Food Commission,
and it was pointed out to them that sugar
is a very touchy item in our economy. It
might be a wise thing if any requisition
for Caribbean sugar would be held in the
banks until after this appropriation bill.
White:
Well, I can see where sugar is a touchy sub-
ject when it comes to a question of lowering
duties, but we are importers of sugar.
Brown:
That is perfectly true, sir, but --
White:
And I can't quite see why Agriculture is con-
cerned with the problem from their angle. I
can definitely see why your group might be.
That is, it might be 8 question of establishing
8. new --
(Mr. Bell and the reporter were called to the
Secretary's office).
Regraded Unclassified
158
- 4 -
Childs:
Another item we have been leaning very heavily
upon is the capital facilities which you
(Robinson) will report on this morning. Are
you getting stuck again?
Robinson:
Just getting bogged down.
White:
Which one is that?
Childs:
Capital facilities.
Kistler:
The fifty-two million, is that the one?
White:
No, this twenty-one of plants taken over, twenty-
one and twenty-two and--
Childs:
That is the one that is bogged.
Kistler:
Fifty-two.
White:
Why is it bogged now?
Robinson:
I think the difficulty at the moment is that
the Defense Plant Corporation can't work out any
arrangements with the War Department for a take-
out. That is what I gathered at the Defense
Plant Corporation this morning. The difficulty
is that Mr. Jones and his people are not sure
that they will take an agreement by the Army to
take out defense plants when, as, and if they
get appropriations. They may be wanting the
Army to agree to take out some of it, at least
out of existing appropriations which the Army
say they haven't got it. That is as nearly
as I can arrive at it. Apparently the other
difficulty is that - I think the other diffi-
culty is that nobody in the Army - the same
thing Mr. Brown mentioned, they are not push-
ing it.
Childs:
It was really Army and not Defense Plant then?
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159
- 5 -
Robinson:
I think the Defense Plant is going as fast as
they can subject to whether Mr. Jones will be
willing to accept this contingent take-out.
White:
That it? applies to the item of fifty-two, does
Robinson:
That is right. That group of eleven. It may
be all lumped together.
White:
Eleven items totalling fifty-two.
Robinson:
They total about seventy-eight or seventy-nine,
but we put down fifty-two as being the probable
coverage value.
White:
That is fifty-two left, with the understanding
twenty-one has already been provided and twenty-
two is about to be provided.
Childs:
That is machine guns.
White:
No, eight is machine guns.
Robinson:
I think that your item--
White:
You see, it was ninety-five altogether. There
is twenty-one which was provided, and then the
break-down we have here is that twenty-two was
about to be provided and fifty-two was likely
to be provided.
Robinson:
Well, the fifty-two that is likely to be pro-
vided is a net figure, I believe, after taking
out probable deductions, the actual cost being
somewhere around seventy-five.
White:
Then the twenty-two is really part of the
fifty-two?
Robinson:
No.
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160
- 6 -
Childs:
The twenty-two is machine guns, isn't it?
Robinson:
I think 80. I don't know what that is because
we have got--
Kistler:
Twenty-one is the twenty-six minus five.
Robinson:
Yes.
Childs:
Twenty-one is Tennessee.
Kistler:
What about New Jersey powder?
Childs:
That is fifty-two.
White:
Then you think the twenty-two is machine guns?
Robinson:
That is right. It has come back.
White:
Then twenty-two is machine guns, and it is
proper to say it is about to be provided.
Robinson:
That is right.
White:
Then the item you are now speaking of is the
fifty-two million which is bogged down, and
you say it depends on Jones or on the Army?
Robinson:
I think it depends on Jones and the Army getting
together.
White:
Well, if Jones is financing it, why should the
Army be concerned?
Robinson:
Because Jones is only financing it - this is
all indirect from what they tell me - but he
is only financing it provided he can get B.
proper agreement from the Army to take them
out of Army appropriations when they get it.
Maybe he won't take it on such a contingency
but only on the contingency that part of it
they will agree to take out.
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161
- 7 -
White:
I see, and that is why they are reluctant to
come together.
Robinson:
Yes.
Kades:
Of course, I think that is understandable on
the part of the War Department. Why should
there - their position is, why should they have
to bail out the Defense Plant Corporation.
They have got funds.
Childs:
The Defense Plant Corporation does this as 8.
matter of habit, I understand.
Kades:
But it seems the War Department is reasonable.
White:
Which means that the other is not quite as
reasonable.
Kades:
Yes.
White:
Then it is a question of working on Jones.
Kades:
I think SO.
Brown:
I didn't understand the Defense Plant Corpora-
tion finances any plants without a commitment.
Kades:
That is right, which seems to be some reason
for it.
Brown:
They are a financing agency rather than one
actually buying plants to keep.
Kades:
That is the way it has been set up, but you
would never guess that from looking at the
statute.
White:
They have so interpreted the statute, but the
statute is susceptible of other interpretations?
Kades:
No, it is merely a policy by Jones.
Regraded Unclassified
162
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White:
Which seems to be contrary to the statute?
Kades:
Sure, but it is his policy and it seems to
me the War Department has cooperated with it
a long way in the past in being willing to bail
him out.
White:
Who is it that you talk with that --
Kades:
Jones.
White:
Jones himself?
Kades:
On this one.
White:
Well, then we will so report that to the Secre-
tary and see what happens.
Kistler:
Mr. White, going through the rest of these
figures, did someone say forty-one million of
the contract subsequent to March 11 is uncertain?
Childs:
Most uncertain of the lot, I think.
White:
Sometime earlier, Mr. Brown, did you say you
would ascertain part of that forty-one?
Brown:
The list I had included some for airplane train-
ing in private schools, but Miss Kistler tells
me that - there was a revised list later
which we do not have.
White:
So that forty-one then is all right.
Kistler:
We checked yesterday and the forty-one is B.
correct figure.
White:
Then what about the thirty?
(Mr. Bell returned to the conference).
Bell:
That is definitely settled, is it?
White:
So their suggestion is to postpone this until
Regraded Unclassified
163
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after the appropriation.
Bell:
Then it ought to come off the agenda for Monday.
Mite:
I thought it was something you might want to
report on.
Sell:
O.K.
White:
Now we are discussing this question and to
summarize briefly what Mr. Brown had to report,
it was that they now are B. little bit more
hopeful about some portion of the items which
they had considered originally. They are hope-
ful now of about forty-five million on tanks
and forty million on airplanes. They think
they might be able to take it out. But the
Army is reluctant to do so without 8. directive
from the President, and they are going to re-
quest the President for a directive.
Bell:
That is about in line with your conversation
with McCloy.
Brown:
Yes, I checked that again this morning.
Whiter
And we were just--
Kades:
We were talking about that Defense Plant, the
capital facilities.
White:
Yes, and there is this other point. This item
of fifty-two million dollars which remains on
possible take-out of plant facilities has sim-
mered down to a question between Jones and the
Army. Jones doesn't want to finance those
plants unless the Army will buy them back
from him out of their appropriation. The
Army is reluctant to allocate any of their
appropriations for such a purpose. Mr. Kades
suggested that that policy which Mr. Jones
Regraded Unclassified
164
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has decided upon of not acquiring plants unless
they are going to be repurchased is his own
policy which he has established which seems to
be contrary to the intent of the act under
which he is operating.
Bell:
With a definite commitment from the Army on the
plants that he has taken over.
Kades:
He gets 8. regular contract from the Army as
though it were an outside organization.
Bell:
He did that with the Tennessee powder and all
those other things?
Kades:
That is the general policy, is to get a firm
commitment. In fact, he requires that the
Army place orders in the amount of two-fifths,
I think. Originally it was three-fifths, and
it was later reduced to two-fifths of the
amount that he is advancing for the construc-
tion of the plant 50 that he is sure of getting
two fifths back; and, if there are any orders
later placed, he is sure of getting whatever
additional orders are placed back. Now, in
so far as these plants are concerned, he is
applying the same standard, and I suppose the
War Department is reluctant to go along with
the feeling here that the War Department
probably was being stubborn about it, but it
seems to me they are justified in being stub-
born.
When Congress makes an appropriation to the
War Department for the acquisition of capital
facilities, it doesn't intend the War Depart-
ment to use that appropriation to reimburse
the Defense Plant Corporation's expenditures,
but that is the policy that has been estab-
lished.
White:
But Jones doesn't want--
Regraded Unclassified
165
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Kades:
They did do that very thing because Jesse was
holding the bag before Congress ever appropriated
the money for the plant facilities, and they
did it with the understanding that he would be
reimbursed when he got the - when the War
Department got the money.
Bell:
He is 8. banker and that is all.
Kades:
But the Defense Plant Corporation isn't the
RFC. He is treating the Defense Plant Corporation
as though it were a banking organization
rather than an organization to construct and
lease plants.
Bell:
Well, they are one and the same organization.
Kades:
He could have done everything that he is doing
without powers - without the Defense Plant
Corporation, and I think when they created the
Defense Plant Corporation it was thought that
he was going to acquire capital facilities.
The Government was going to own armament plants
and lease them to private concerns to operate
for the benefit of the War and Navy Departments.
White:
He takes the position that he doesn't want to
acquire any plants if the War Department won't
pay him back for them.
Kades:
That is right.
White:
He may take that position on the grounds that
if the War Department doesn't want it, then
they are of no use to him, but that would seem
to be contrary to the view that the War Depart-
ment is merely taking the position that it
deesn't want to use funds which are appropria-
ted to it, that the plants may be perfectly
desirable for America to have, but that is no
reason why they should take it out of their appro-
priation.
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166
- 12 -
Kades:
Because they don't want the plants.
White:
If they don't want the plants, why should they
be built, on grounds of general emergency and
so forth, which is where the Defense Plant
Corporation steps in and says, "We will take
the rap. Congress has given us that function."
Robinson:
Of course the War Department has to certify
before Jones will agree to any of these things
that these plants are necessary for the national
defense, which, in effect, leaves the Army
holding the bag on the thing because they
have said, "We need them, and the Defense
Plant says, "If you need them, you can take
them over.
White:
And the Army says, "Well, but we don't want
to use our appropriated funds. We have got
other purposes for them.
Bell:
Are you using the full capacity of these
facilities?
Childs:
No question about it.
Kades:
I was simply saying I thought the War Depart-
ment's position was not unreasonable because
of the general feeling that it was the War
Department being unreasonable. It seems to
me there is something to be said on both sides.
Childs:
So far as that part is concerned, these orders
we have will be running out from time to time
and undoubtedly will be replaced in many cases,
if not all, by Lend-Lease orders.
Bell:
So it will have to go through the War Depart-
ment then.
Childs:
Yes.
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167
- 13 -
White:
To digress for a second, the Secretary sent
back 8. message - he has been away and just
returned, and he wants to send his regards
to all those in this meeting. Well, is there
anything further you want to add to that?
Childs:
No, just the idea which I expressed first.
If you are going to put this up to the Secretary,
I think it would be better to get this ironed
out in the meantime.
White:
Can we do that right here? Do you have the
information?
Bewley:
I don't know quite what the figures and pros-
pects are.
Childs:
I wanted to get them and then balance them off
against Purvis' needs, you see, the way we do
with Brown.
White:
Would you have that ready on a single sheet if
possible, what the specific situation is, if
you could get that to us as soon as you get it
completed.
Childs:
All right.
Bell:
They ought to add to this title too that facil-
ities item.
Kistler:
Defense plant.
Bell:
And facilities.
Kades:
Isn't some of the appropriation appropriated to
expedite production, including the facilities
used, to bail out the Defense Plant Corporation?
Brown:
I don't know.
Regraded Unclassified
168
- 14 -
Kades:
It would be interesting if we could get the
figures on the amount of the appropriation
made to facilitate increased production.
You are familiar with that appropriation
which was made in the War Department of 80
many million dollars to facilitate increased
production, including the acquisition of
facilities. How much of that is earmarked
to bail out the Defense Plant Corporation?
White:
Well, we wouldn't know.
Kades:
Well, that would be in Accounts and Deposits,
wouldn't it?
Bell:
No.
Kades:
Because that would --
Bell:
Not if --
Kades:
That would show the picture.
Bell:
If that authority is given to the Secretary
of War and Secretary of Navy, it wouldn't be
upstairs at all. It would be in & lump sum
appropriation, and they would do it on their
own books, but if the President had it allocated,
then we would get it.
Kades:
The Bureau of the Budget would know, wouldn't
it?
Bell:
Yes.
White:
Couldn't we find out from somebody?
Bell:
Yes, just ask Lee Martin. All right?
Transfers of Lend-Lease goods to commercial
distributors.
Regraded Unclassified
169
- 15 -
White:
Well, you are going to have & meeting on that.
That came up in another connection.
Bell:
We are having a meeting this afternoon with
Cox and Philip Young and Mack on that.
Bewley:
My preliminary impression is if he had any
points it would be on the one, two, three,
four, and five on page two.
Bell:
Have you got 8 copy of that draft letter?
Bewley:
Yes. It was sent to Mr. Purvis.
Bell:
I see. We haven't got the draft here, have
we? We have & copy, but it is in the office
getting typed or duplicated. What page - here
is one.
Bewley:
Two. My preliminary impression is that it
might be if one or two of these one, two, or
three, or four, or five might possibly give
rise to some difficulties. I don't know what
the details are at the present stage.
Childs:
It is a primary operation.
Bewley:
It is just & question whether Number four, for
instance - the extent which the Government has
exercised its authority over purchasers and
the price of - just points of that sort.
Brown:
I think what was intended by that is more or
less what kind of regulatory statutes should
be adopted.
Bewley:
Yes, it was. I don't imagine there is anything
really between us. It is rather a question of
putting it into words.
White:
I understand there is some discussion of this
also going forward right now in London.
Regraded Unclassified
170
- 16 -
Bell:
It has been sent over there, has it? Or you
mean just the matter?
White:
Just the matter, not this particular draft.
Bewley:
Oh, yes, I see.
Childs:
Thompson and Keynes, you remember, have gone
back now.
Kades:
I understand in connection with that distribut-
ing thing that some conversations had been pro-
ceeding between the Federal Surplus Commodities
Corporation and the Food Commission, and I won-
dered whether those resulted in any kind of
8 memorandum or --
Bewley:
About methods of distribution?
Kades:
Yes.
Bewley:
I didn't know that. I know that this letter
is being considered. I didn't hear about the
meeting.
Kades:
If you mention a few of the names I could
remember them.
Bewley:
Huttendon is one.
Kades:
Yes. I just thought that some memorandum or
some determination had been arrived at which
might be useful to us.
Bell:
You mean on distribution?
Kades:
I just heard about it in an unofficial way,
and it may not be true.
White:
You mean with Milo Perkins?
Kades:
Yes. I thought it might be helpful here, but
this is pure rumor.
Regraded Unclassified
171
- 17 -
Bewley:
I am completely ignorant of any memorandum
of the sort.
Childs:
This is generally the lines we have been fol-
lowing heretofore, fortunately, and does follow
instructions which we have ourselves issued
to the Commission, 80 very closely that there
is no substantial difference. We are not
going to have to be revolutionizing the
thing.
Archer:
Can anything be done to unfreeze that position,
because we are in the unfortunate position
that there is a lot of shipping becoming avail-
able in August and valuable time is being lost
in Procurement on these things in the time
of getting that stuff aboard the ships.
Bell:
That is what we are trying to do this afternoon.
Archer:
I would be very grateful if something could
be done.
Chance:
These particular cases of the agricultural im-
plements and timber?
Archer:
Yes, and a number of others that have gone in
since those.
White:
I should like to return for a moment to the
sugar thing to clear up what I think is possibly
8. misunderstanding of the Canadian-American
agreement. There was some mention in your
memoramdum that you felt that part of that
sugar which goes to Canada might be under that
hundred million dollar allocation of funds.
I think if you will read your own memorandum
that accompanies it, which is a description
of the Hyde Park arrangement, that it would be
very doubtful whether that was intended to
apply to that category of goods at all.
Regraded Unclassified
172
- 18 -
What it referred to was that the hundred
million dollars might be expended on goods
going from the United States to Canada for
materials entering items shipped to Britain
when the material was not identified. I don't
think you would include sugar under that cate-
gory at all. In other words, it intended to
apply to items which were either such small
parts or which through the processing lose
their identity, but which was known that it
went to the U.K., whereas that sugar that would
be going from Cuba to U.K., if some such
arrangement were made, would not be of that
character at all.
Bewley:
But there were two classes in the Hyde Park
agreement, as I understand it. There were
first, the identified blocks and then there
were a hundred millions of unidentifiable stuff
which does go to the U.K., but which you can't
find out what they are, and as I understand
it, they were not to be brought under Lend-
Lease, but 8. hundred millions dollars of other
stuff used in Canada was to be substituted
for it.
Kistler:
That is correct.
White:
Yes, what Canada would have to buy from us
for her own war effort - well, whether it
would apply to foodstuffs is what I am raising.
I thought it would apply to her own armaments,
and so forth. I thought that was the interpre-
tation. But if you are correctly assuming
that it would apply to anything that she buys
from us --
Bewley:
I thought it was intended to apply to defense
articles, and I thought sugar was a defense
article.
White:
I see. Well, maybe. Then that can be dis-
cussed later.
Regraded Unclassified
173
- 19 -
Bewley:
Anyhow, that is --
White:
Yes, for the moment it is gone.
Bewley:
But this point of Mr. Archer's, you say you
are going to discuss that this afternoon?
Bell:
We are going to talk with Young and Cox this
afternoon on the matter,
Base costs in Iceland. Anything new on that?
Brown:
Well, we tried to get the Chief of Naval
Operations to ask the President for an alloca-
tion of two million four out of his emergency
fund to take care of that item. The Chief
of Naval Operations says he doesn't want
to do it. However, it seems to us that that
is an item which would come under the Lease-
Lend. Assuming that you have got room for it
in your - you would rather have gotten some-
thing else and that we can probably take care
of it. Whether we do it --
Childs:
As a Lend-Lease item.
White:
Then that is a decision --
Brown:
The Chief of Naval Operations says that the
facilities which are being constructed in
Iceland are very much greater than we can
ever want, and that they are primarily
designed for you, and that therefore he
doesn't want to use his funds for that.
We can Lease-Lend them all right if the
British want to.
Bell:
is that something that is being done, or is
that money that has already been spent?
Regraded Unclassified
174
- 20 -
Brown:
Well, the British had sent a check to the
Navy for two million four which is still being
held, and our thought was to see if we couldn't
give it back to them.
Childs:
That was only part of the over-all cost. That
was labor.
Brown:
Well, we have already given you ten million
five of Lend-Lease funds.
Childs:
The two million four is the only item in
question?
Brown:
That is right.
White:
And that is a decision which they will have
to make?
Brown:
If they want to put in a requisition for that,
we don't see why we can't take care of it.
Kistler:
Wasn't that requisitioned once?
Brown:
It was turned down before the occupation of
Iceland on a policy question.
White:
Then you might have an answer to that either
one way or the other before the meeting, 80
if you don't want to include it --
Childs:
Yes, I hope to answer it.
Bell:
We have got on this agenda, the deferment of
payments due France. We will have to do some
more work on that. We may be able to discuss
it a little later.
Requisition progress during the week. Anything
on that?
White:
Do you have any of the requisitions?
Regraded Unclassified
175
- 21 -
Keyes:
I have some sheets to submit here.
Bell:
Before we go into the requisitions, have you
gentlemen anything to suggest for this next
meeting with the Secretary in addition to
what we have?
Bewley:
I can't think of anything. I was going to
suggest the payments to France, but you say
you have it on there.
Bell:
Yes, but we have to do some work on it over
the week-end.
Childs:
It all depends on certain developments.
Bell:
Give us a ring Monday morning as to whether
you have anything additional to go on the
agenda.
Cochran:
Mr. Bewley, I have already taken up the question
of the French ships which you mentioned to
me.
Bewley:
Oh, yes. That isn't necessary to bring up
now.
Kades:
May I ask one question before we go into the
requisitions?
Bell:
Sure.
Kades:
In connection with the transfers of Lend-
Lease goods for commercial distributors,
your question, Mr. Archer, related to the
Lend-Lease Administration, 88 I understand it,
and not to the Procurement Division, is that
correct? I mean, we haven't any requisitions,
have we, which haven't --
Archer:
They were sent down to the Treasury Procurement
Division for distribution on them and then
Regraded Unclassified
176
- 22 -
they were sent back to the Lend-Lease adminis-
tration because some of them were questions of
policy. They wouldn't proceed to procure them.
Kades:
Without a clearance from Lend-Lease?
Archer:
That is the whole point.
Chance:
We were notified of their being turned back
but the discussions would proceed to see if
it was possible to find a way out.
Archer:
The whole point is that the shipping is becom-
ing available in August and it is very necessary
to get the goods for them.
Kades:
And they were put through in the groove which
we understood it was the way --
Archer:
As we understand it, and it was substantially
this detail on here.
Chance:
Just this other point of agricultural imple-
ments, that they have got to be got there for
the fall work.
Bell:
That is right.
Chance:
Otherwise they are not much good until spring.
Bell:
That is right. We will see if we can get
a decision on that. As 8. matter of interest,
are there a lot more ships available in August
than you first anticipated?
Archer:
Yes.
Bell:
Or are you replacing some other material?
Archer:
No, the - a large tonnage is becoming available
through Maritime Commission taking over B. lot
of these French and Italian and Danish ships,
which had been interned in U.S. ports.
Regraded Unclassified
177
- 23 -
Bell:
The reason I asked, the Secretary of Agricul-
ture told me the other day that you had in-
creased your requests for agricultural products
from about a hundred thousand tons to three
hundred thousand tons..
Archer:
About two or three hundred thousand tons of
shipping have become available.
Bell:
I see.
Archer:
Which we didn't know about until just a week
or so ago.
Chance:
There has also --
Bell:
That is good news.
Chance:
There is also at least temporarily a rather more
favorable situation in the matter of handling
them.
Bell:
I see. Yes, the sinkings have gone down in
the last few months.
Chance:
It is an improving picture, but it is still grave.
Archer:
And you can work your docks eighteen hours of
the day, almost. You can get & quicker turn-
around. When winter comes around we shall have
to slow up, because there will be less daylight.
Bell:
You make hay while the sun shines.
Chance:
Hitler has apparently got all his bombers
bombing the Russians.
Bell:
That is pretty good news. If he can't bomb
two fronts at once, he must be either short of
planes or men.
Chance:
They are spread out so greatly.
Regraded Unclassified
178
- 24 -
Bell:
Yes. now? All right, do you want to go over these
I don't think we ought to go over them unless
there is some question.
Bewley:
There are two I would like to ask about to
make sure. They are on page two. They are
the only two big ones. The first one is the
ferrying. There is two million eight hundred
thousand dollars which was suggested for that.
The position, as I understand it, is that you
were going to provide us dollars for these
ferries as far as you could, but the decision
was that you could only do 50 properly for
American plants and not for British plants.
Brown:
That is right, and anything connected with
American plants like personnel, maintenance,
supplies, and so forth.
Bewley:
I can take that as a definite decision? You
do draw the line on that?
Brown:
You see, under the statute we have got to have
& defense article.
Bewley:
I see.
Brown:
The way the statute is set up, it has got to
come through our Government.
Bell:
Is this two million eight --
Brown:
We can give you the freight on something bought
here.
Bewley:
Two million eight is the cost of ferrying
British planes, and the rest is the cost of
ferrying American planes.
Brown:
That is right.
Regraded Unclassified
179
- 25 -
White:
Wasn't there some question that that might
be - if they wanted to transfer the title
to that it could be regarded 8.8 American
planes? Does that apply in this too?
Brown:
No.
White:
That related merely to the taxes?
Childs:
We were talking about transfer of title for
flying out of California. That matter has
since been adjusted.
Bell:
You mean you are not going to transfer title?
Childs:
No, that was to avoid sales tax, you see.
Bell:
You might use it for this too.
Childs:
Sure, it would be fine for this if a gratuity
came to it, but the company decided that they
would be taxable.
Chancer
Who decided?
Childs:
All the companies. Still, if we could work
out a system of transfering title in Califor-
nia it could be transferred back later.
Brown:
We were considerably reluctant to go as far
as we did on the California situation because
our desire here is not to stretch these things
unless we have to, naturally, because of the
fact that we want to be able to say that in
every respect we have only done exactly what
the Lend-Lease says we could do, and in con-
nection with the California proposition, we
have the question of transporting them via
the South Atlantic route to Brazil, and also
we were going to keep some for our Army train-
ing. There were & whole lot of reasons that
Regraded Unclassified
180
- 26 -
we can justify pretty well, and in addition
there was & very large amount involved, but I
think we would be very reluctant just to have
a transfer of title of British planes, not
even made in this country, and which never would
get to this country, just for the purpose of
providing & few million dollars cost of fer-
rying.
White:
You say they weren't made here?
Brown:
They are talking about British planes not ever
produced here.
Bewley:
I am not questioning this. I only raised the
point because I wasn't clear what the position
was.
Bell:
I don't understand that.
Brown:
We have put up 8. - facilities for ferrying
aircraft from Takoradi to Khartoum, and we are
prepared to pay the e xpenses of establishing
the ferry and ferrying any Lend-Lease planes
which are being sent by that route, but it is
also proposed that that route will be used to
carry British personnel, passengers, and also
to ferry British built planes.
White:
Where are they built, Canada?
Keyes:
No, I think they are built in this country,
Bob.
Brown:
They are?
Childs:
They are British contract planes in this country,
must be, because they come across the South
Atlantic first. They are not going to take
anything out of the U.K. up there. It would
be simply taking the same planes we are talking
about from California.
Regraded Unclassified
181
- 27 -
Brown:
Are Command? these to be ferried by the Army Ferry
Childs:
Yes. You see, you get the training in them
just the same.
Brown:
Then maybe we can work out something on that.
I didn't understand that was the kind of planes
they were.
Childs:
Yes, I am pretty sure of it.
Bell:
Maybe you can reconsider that and get something
out of it.
White:
And you want to withdraw this and reconsider it?
Bewley:
What about the following one? I just want to
get it clear in my own head what could be
brought under Lend-Lease and what couldn't.
Brown:
On that, those are the payments for - made for
the medical attention and transportation of
RAF students.
Bewley:
British students?
Brown:
Yes. We are Lend-Leasing you the planes to
do the training and their maintenance and tuition,
all of which we have classified as a defense
article or information pertaining to a defense
article, which comes under the statute.
However, when it comes to their pay and trans-
portation facilities for themselves, we would
be hardly justified in doing that.
Bewley:
Yes. I just saw that you said dollars, possibly.
Brown:
If there was any substantial item of goggles
or flying suits or something like that, we could
consider those defense articles.
Regraded Unclassified
182
- 28 -
Bell:
O.K.? What else?
Bewley:
I have nothing else.
Bell:
Any others? What else?
Childs:
We have nothing else, have we?
Bewley:
I think there is nothing else.
Bell:
Then we will hope to have & meeting next week
with the Secretary.
183
AGENDA FOR MEETING WITH SECRETARY
MORGENTHAU (POSSIBLY MONDAY)
1. DEFERMENT OF PAYMENTS DUE FRANCE.
2. PAYMENT FOR U.S. PURCHASES OF RAW MATERIALS FROM
STERLING AREA IN ADVANCE OF SHIPMENT.
3. PROPOSAL TO LEASE-LEND CARIBBEAN SUGAR.
4. TRANSFER OF CERTAIN LARGE BRITISH CONTRACTS TO THE
ARMY - SIR FREDERICK PHILLIPS AND MR. COX.
5. TRANSFERS OF LEND-LEASE GOODS TO COMMERCIAL DISTRI-
BUTORS.
6. BASE COSTS IN ICELAND - MR. COX
7. REQUISITION PROGRESS DURING WEEK - MR. BROWN AND MR.
KEYES.
Regraded Unclassified
C
0
184
P
EXECUTIVE OFFICE OF THE PRESIDENT
Y
OFFICE FOR EMERGENCY MANAGEMENT
OFFICE MEMORANDUM
To:
Mr. Daniel Bell
Date: July 31, 1941
From:
W. G. Brown
Subject:
Attached are three copies of the revised
form of suggested letters to Mr. Purvis discussed
at this afternoon's conference.
C
o
185
P
Y
OFFICE FOR EMERGENCY MANAGEMENT
DIVISION OF DEFENSE AID REPORTS
WASHINGTON, D. C.
August 1, 1941
Dear Mr. Purvis:
Section 4 of the Lend-Lease Act requires the consent of the
President to any retransfers of lend-lease articles by His Majesty's
Government. Distribution through commercial channels in the United
Kingdom and in other parts of the Empire of necessity involves a re-
transfer and Presidential consent.
Before granting such consent, it has been the President's
policy in the administration of the Lend-Lease Act to require assur-
ances that:
(a) The articles to be distributed commercially, and
those into which they are incorporated, are essen-
tial to the British war effort.
(b) The commercial channels of distribution to be used
are the most effective and economical means of
assuring the efficient use of the articles or their
prompt delivery to the places where they are needed,
and
(c) No profiteering by commercial distributors of the
articles will be permitted.
Regraded Unclassified
186
- 2 -
Since the nature of distribution and ultimate destination
of the various articles to be commercially distributed either in their
original or in an advanced form naturally varies widely with a partic-
ular article, it is impossible for any blanket consent to retransfer
to be given and each case must be determined on its own facts. The
following, however, are suggested as items of information which would
assist the President in determining whether the three basic criteria
set forth above have been met.
(1) Destination of articles - in original and advanced
form, e. so United Kingdom, Dominions, colonies, etc.
(2) Intended use of articles and those into which they
are to be incorporated, e. B.. military, civilian, etc.
(3) Method of distribution to be adopted, showing the
channels through which the materials pass to the user.
(4) The status of the distributors, 1. 0. whether they
are acting as agents of the distributing Government
or as principals purchasing to re-sell to consumers.
(5) The extent to which Government supervision is exer-
cised over distributors to insure that the prices and
fees charged by them will be limited to a minimum
reasonable remuneration for services actually performed.
(6) Details of distribution, e. ... will the recipient
Government sell the articles to a manufacturer, or will
it deliver them to him gratis for incorporation in 8
completed article.
Regraded Unclassified
187
- 3 -
More detailed information will be expected in case of dis-
tributions in the Dominions and other parts of the Empire than in the
United Kingdon in view of the strict controls known to be in force in
the United Kingdom.
The foregoing are suggestions only and are not intended to
be all-inclusive, as the necessity for further and different informa-
tion will undoubtedly become apparent in particular cases. I am
confident that most cases will fall into more or less standardized
patterns, 80 that a method of presenting the necessary information can
be worked out which will avoid useless repetition and complication of
requisitions.
Very truly yours,
J. H. BURNS
Major General, U. S. Army,
Executive Officer
Hon. Arthur B. Purvis,
Chairman, British Supply Council
in North America,
Willard Hotel,
Washington, D. C.
Copy:dtg:8-2-41
Regraded Unclassified
188
July 31, 1941
Dear Mr. Purvis:
In view of current public discussions of British export
policy and its relation to the administration of the Lend-Lease
Act, it seems timely to set forth in concrete form certain of the
principles which have guided this Division in the administration
of the Land-Lease Act and will continue to do 80 in the future.
As you know, it has been the policy of this Division
from the ontset to limit the aid rendered under the Lend-Lease
Act to that which is essential to the maintenance of the war
effort and to refuse consent under Section 4 of the Act to the
use of Lend-Lease articles for re-export in commercial trade.
To execute this policy we have required a stipulation in the
requisitions that Lend-Lease articles which might be available
for such export be used in the United Kingdom or in other parts
of the Empire for needs essential to the maintenance of the war
effort.
We appreciate that Great Britain must continue exports
in order to obtain imports. However, this Division has urged and will
continue to urge upon His Majesty's Government the importance of
Great Britain's making every effort to concentrate her exports in the
field of traditional articles, such as Scotch Whiskey, fine textiles,
etc., and other similar articles, and cutting down exportation of
articles similar to those being provided through Lend-Lease funds to
the irreducible minimum necessary to supply or obtain materials
essential to the war effort.
I would appreciate your confirming that the foregoing
conforms to your understanding of the basis upon which Lend-Lease
articles are being provided and receiving your assurance that every
effort will be made to carry out the foregoing policy to the fullest
extent.
Sincerely yours,
J. H. Burns
Major General, U. S. Army
Arthur B. Purvis, Esq.
Executive Officer
Chairman, British Supply
Council in North America
Willard Hotel
Washington, D. C.
Regraded Unclassified
189
C
0
?
Y
DEPARTMENT OF STATE
Washington
July 31, 1941.
My dear Mr. Secretary:
I enclose the first section of telegram no. 3310 of July
31 from London, containing a personal and strictly confidential
message for you from Ambassador Winant. The remaining sections
of the telegram have not yet been received.
Sincerely yours,
(Signed) Herbert Feis
Adviser on International
Economic Affairs
Enclosure:
No. 3310 of July 31
from London, sec. 1.
The Honorable
Henry Morgenthau, jr.,
Secretary of the Treasury.
COPY - dm - - 7/31/41
Regraded Unclassified
C
o
190
P
GRAY
Y
London
Dated July 31, 1941
Rec'd 7:35 a.m.
Secretary of State,
Washington.
3310, July 31, noon (SECTION ONE)
PERSONAL AND STRICTLY CONFIDENTIAL FOR THE
ACTING SECRETARY FOR THE SECRETARY OF THE TREASURY
In Mr. Hopkins' message to me 2483, July 9. and
in Secretary Morgenthau's message to Coe 2657, July
18, in which I was asked to collaborate and also in
a section of Secretary Wickard's message 2761, July
24, inquiries were made as to the distribution of
articles under the Lend-Lease Bill. I have made re-
plies to these messages in my messages 3189 July 24;
3251, July 28; and 3278, July 29, to the Secretary
of the Treasury and also in my message 3229, July 26,
to the Secretary of Agriculture.
Mr. Hopkins asked me to follow this matter up
for him as he did not have time to press the impor-
tance of the issue himself. Since there seems to be
no agreement in principle, I asked the Chancellor of
the Exchequer for & statement as I explained in my
Regraded Unclassified
191
- 2 -
message 3251, June 28.
The statement handed to me this evening by the
Chancellor is as follows:
"One. All materials which we obtain under the
Lend-Lease Act are required for the prosecution of
the war effort. This principle governs all questions
of the distribution and use of such goods and His
Majesty's Government have taken and will continue to
take action to see that these goods are not in any
case diverted to the furtherance of private interests.
WINANT
WSB
Copy:dtg:7-31-41
192
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0
P
Y
TEM
GRAY
London
Dated July 31, 1941
Rec'd 10:45 a.m.
Secretary of State,
Washington.
3310, July 31, noon. (SECTION TWO)
export policy.
Two. No lend-lease materials sent to this
country have been used for export.
Three. For some time past exports from the
United Kingdom have been more and more confined
to those essentials (1) for the supply of vital
requirements of overseas countries, particularly
in the sterling Empire: (1.1) for the acquisition
of foreign exchange particularly in the Western
Hemisphere. His Majesty's Government will not
adept the policy summarized below:
(1) In the future no materials on which the
use is being restricted in the United States on the
grounds of short supply and of which ve obtain
supplies from the United States either by payment
or on lend-lease terms will be used in exports with
the exception of the following special cases:
(A) Material
193
-2- 3310, July 31. noon. (SECTION TWO) from London.
(A) Material which is needed overseas in con-
nection with supplies essential to the war effort
for ourselves and our allies, and which cannot be
obtained from the United States. This would enable
us (1) to export supplies essential to the var effort
to countries within the Empire and to our allies, and
(1.1.) to export such articles as tinplate for canning
to Portugal and the Argentine for our food require-
ments, if such tinplate could not be supplied by the
United States of America.
(B) Small quantities of such materials needed
as minor though essential components of exports which
otherwise are composed of materials not in short
supply in the United States.
(c) Repair parts for British machinery and plant
now in use, and machinery sea plant needed to complete
installations now under construction so long as they
have already been contracted for.
Steps will be taken forthwith to prevent the
execution of existing contracts for the export (ex-
cept to Empire and allied territories) of such goods which
do not come within the exceptions referred to in
(A), (B) and (c) above. (1.a.) Materials which
are not
Regraded Unclassified
194
- 3 -
are not in short supply in the United States but
which we obtain on lend-lease terms will not be
used for export in quantities greater than those
which we ourselves produce or buy from any source.
Distribution in the United Kingdom chancell-
eries lend-lease goods.
Four. The general principle followed in this
matter is that the remuneration received by the dis-
tributors, whatever the method of distribution, is
controlled and will be no more than a fair return
for the services rendered in the work of distribution.
The arrangements rigorously exclude any opportunity
for a speculative profit by private interests from
dealing in lend-lease goods. In most cases lend-
lease supplies will be distributed through organi-
zations acting as agents of His Majesty's Government
in the strict sense of the term and not as principals.
Where, for strong practical reasons, this cannot be
done & full explanation will be supplied to the
United States administration and their concurrence
sought before hand in any alternative arrangements
proposed. The justification for retaining existing
Regraded Unclassified
195
- 4 -
channels of distribution operating under strict
government control is that the creation of elaborate
new organizations in their place would inevitably
result in loss of efficiency and the wasteful use
of manpower, and retard the war effort.
WINANT
PEG
Copy:8-1-41
Regraded Unclassified
196
C
0
P
GRAY
Y
London
KD
Dated July 31, 1941
Rec'd. 9:32 a.m.
Secretary of State,
Washington.
3310, July 31, noon (SECTION THREE)
Five. Food is a special case. Only some five
or six percent of the total British food supply will
come from the United States and without great practical
complications it would be impossible to have 8 separate
system for the distribution of lend-leased food. Food
distribution is carried out in the United Kingdom by
wholesalers to whom the Government sells food as
principals. In fact the Ministry of Food has established
a close control over all district margins so that neither
the wholesalers nor the retailers receive any greater
remuneration than is adequate to cover the cost of the
services performed. No food obtained on lend-lease
terms is or will be sold at uncontrolled prices. Thus,
the general arrangements as regards the issue of lend-
leased food fit into His Majesty's Government's policy
of stabilising the whole price level of foodstuffs,
a. policy to which the Government contributes pounds
Regraded Unclassified
197
- 2 -
one hundred millions & year.
Six. In some cases direct free distribution is
practicable and will be adopted. For example, some
milk products (including lend-leased supplies from
the United States) are distributed direct and free of
charge to children and others in need through schools,
clinics and hospitals. The distribution is undertaken
by state agencies and the cost of the distribution is
borne by the Government."
The statement handed me by the Chancellor should
be read in connection with the public announcement
made in the House by the Prime Minister in his address
of Tuesday (see message 3278, July 29).
Coe is preparing, with the cooperation of British
Treasury officials an exact description of the methods
of distribution of all articles under the lend-lease
bill which will be forwarded on completion.
I would appreciate your informing the President
on this matter as I understand from Mr. Hopkins that he
is interested in this situation. It would also be help-
ful if you would let General Burns have copies of this
entire correspondence for his own information and for
Mr. Hopkins on his return.
I explained to the Chancellor that I was forward-
ing this statement to you. An early answer would be
greatly appreciated. (END OF MESSAGE)
WINANT.
PEG
Copy:1g 8/1/41
C
0
198
P
Y
Department of State
Adviser on
International Economic Affairs
July 31, 1941.
To: Mr. Cochran
From: Mr. Feis
With regard to your request for the confidential
report mentioned by Ambassador Winant in his telegram
to Secretary Morgenthau, I enclose a confidential
report dated July 8, 1941 which was submitted by the
Acting Agricultural Attache, London. I believe this
might be the report to which the Ambassador referred.
Since this is our only record copy, will you please
return it when you have read it?
/=/ Herbert Feis
COPY:mew 8/2/41
Regraded Unclassified
C
0
198
P
Y
Department of State
Adviser on
International Economic Affairs
July 31, 1941.
To:
Mr. Cochran
From: Mr. Feis
With regard to your request for the confidential
report mentioned by Ambassador Winant in his telegram
to Secretary Morgenthau, I enclose a confidential
report dated July 8, 1941 which was submitted by the
Acting Agricultural Attache, London. I believe this
might be the report to which the Ambassador referred.
Since this is our only record copy, will you please
return it when you have read it?
/-/ Herbert Feis
COPY:mew 8/2/41
Regraded Unclassified
199
0
0
P
I
VOLUNTARY REPORT NO. 341
(For Department of Agriculture)
CONFIDENTIAL - NOT FOR PUBLICATION
BRITISH RATIONING PROBLEMS
AND
FOOD SHIPMENTS UNDER LEASE-LEND
From:
Alton T. Murray,
Acting Agricultural Attache.
American Embassy, London, England.
Date of Completion: July 8, 1941.
Date of Mailing:
July 8, 1941.
Regraded Unclassified
200
I
BRITISH RATIONING PROBLEMS
AND FOOD SHIPMENTS UNDER LEASE-LEND
British Food Rationing Problems
During the past six months the British food situation has de-
teriorated. Qualified only by some mild variations in the stock
position of the miscellaneous commodities composing the aggregate
food supply, the deterioration has been progressive.
Co-extensive with the diminution of supplies of individual
foods, the Ministry of Food has extended the acope of the food
retioning. More foods were edded to the list of those subject to the
coupon system, some further restrictions were placed upon commodities
already rationed, and further reductions were made in the alloca-
tious of Government-controlled foods to retailers.
Currently, the sole purpose of rationing is to share food sup-
plies equitably. Earlier in the war, food rationing served an ad-
ditional purpose: to implement the Government's policy of reducing
the standard of living. No such viewa are entertained in official
circles now. On the contrary, the Ministry's efforts are directed
toward raising the standard of living (insofer as food is concerned)
up to some as yet unspecified level compatible with the neede of B.
seximum war effort.
Despite the general movement toward subjecting more foods to
official rationing restrictions, a very large number of foods are
as yet not officially rationed. This situation is the fountain-head
for many distribution difficulties. Obviously the mere fact that
one set of foods is restricted diverts consumption to unrationed
foods. To some extent, therefore, the general principle of fair
distribution of food is defeated.
Retailers have long since devised informal rationing systems
of their own, limiting quantities customers may obtain at one time
or during 8 given period. Nevertheless, informal rationing is not
altogether satiafactory. In the first place, in the nature of
things, retailers are not in the position to enforce absolute 1m-
partiality. Favored customers develop and business tends to function
on an "under-the-counter" basis. Secondly, retailers have no sure
method of determining the amount of their unofficial ration. By
merely noting a diminution in stocks of some particular product on
their shelves, retailers may decide to restrict customers hence-
forth to a fraction of the quantity given to shoppers earlier in
the week, establishing thereby a premium upon customers getting
Regraded Unclassified
201
- 2 -
there first. Moreover, the mere fact that quantities obtainable are
dependent upon such uncertain factors leads the public to hoard
food suspected of becoming short in the near future. One of the
visible results of this situation is the practice of shoppers forming
in line to purchase some particular product under suspicion of
disappearing from the market. Under such conditions shopping takes
on almost professional attributes. Many housewives visit & large
number of shops in order to track down some product unobtainable
locally. To combat this practice, retailers frequently specify
certain products can be purchased by customers registered for of-
ficially rationed foods only. Unfortunately, this restriction is
not 8. complete answer since few grocers are in 8. position to assure
customers that an assortment of products to meet general household
requirements will at all times be available.
The control of food prices 1s intimately connected with food
rationing. Maximum retail prices are now officially specified for
most foods and for & large number prices are controlled through all
stages of distribution. Generally speaking, of course, it is far
simpler from an administrative standpoint to apply price controls
than devise means to ration the physical distribution of food.
Maximum retail price control is no solution to the equitable
distribution of food at 8 fair price. Unfortunately, a considerable
section of the public believe it 1e. Indeed the illusion that
equitable distribution of food may be established by price controls
has been substantially fostered by & naive public. If any confirms-
tion of this statement is necessary, one has merely to witness the
reaction to the introduction of price controls to some seasonal
fruit or vegetable. The pattern is about as follows:-
1. Small supplies appear in the markets.
2. Prices are extremely high and few can afford
to buy.
3. Under public pressure the Ministry of Food
introduces naximum price controls at sub-
stantially lower levels.
4. Supplies "disappear" from the market when more
people can afford it.
5. The Ministry of Food is blamed for creating
shortages, or the trade 18 accused of unfair
practices.
The inadequacy of price control without physical control by
rationing 1s, of course, also generally apparent among many hundreds
of food items which have long since been subject to fixed retail
Regraded Unclassified
202
-
prices. The Ministry of Food's announcement of the introduction of
price control to any unrationed food 1a in effect merely a warning
to the public to buy as quickly B.O. possible and as much of the food
as circumstances permit.
Inequality of income overshadows the food rationing system.
Obviously, 80 long as & large proportion of all British vage carnere
have an income insufficient to maintain themselves and their depend-
ants upon an adequate diet, there 18 little hope of rationing food
in the absolute sense. The fact that B. considerable section of the
population, therefore, do not have the money to buy their rations
provides B. serious leak in the rationing system since it leads to
the ostablishment of a "black market" which is most difficult to
stop. When registered customers do not take up their rations,
shopkeepers and their employees are in a position to cell extra
quantities to favored customers for a special consideration.
A miscellaneous assortment of unrationed foods also find their
way into the "black market" in varying degrees, largely for the
some reason. Foods in short supply, for which the Ministry of Food
has established meximum prices, are particularly susceptible. Re-
tailers conducting part of their business on an "under-the-counter"
basis in effect constitute B. "black market". Maximum prices are not
exceeded in all cases, but supplies of these foods are conveniently
discovered only for favored customers.
The foregoing comments are confined, of course, to some of the
sub rosa aspects of the inequality of consumer income as it relates
to food retioning. The inequities of food distribution have almost
official recognition, however, since it is quite possible to live on
B. fairly opulent scale in the more expensive hotels. restaurants and
health resorts in sharp contrast to the bread-potatoes-and occasional
protein diet of the poorest consumers.
It would seem apparent that a more satisfactory distribution
of food could be obtained by rationing more foods, if not all foods.
The short answer as to why 5. more comprehensive rationing policy
has not been adopted 10 that the Ministry of Food does not know how
to 60 about it. A large number of miscellaneous foods. which vary
88 to quality, quantity, type of preparation, flavor, seasonality,
end many other factors, cannot be rationed under the present ration-
ing methods for administrative reasons. As the Minister of Food
said recently in Parliament: "I have reached the end of the com-
modities I can ration on this basis (conventional methods now in
use) with the exception of bread, which I hope I never shall have
to ration, and milk, which I believe I shell ration, whether I have
to by force of necessity or not." At the same time the Minister
announced the determination to deal with the problem of unrationed
Regraded Unclassified
203
foods by wider extension of food control. A new system of rationing
was to be introduced of an experimental nature admittedly "full of
administrative pitfalls". Among other commodities egge were to be
rationed under the new system.
When the nev "EE rationing system was introduced, the Minister
vas immediately revealed as & prophet of some stature. The "admin-
istrative pitfalls" presumably were all too apparent to the general
public, and a storm of criticiem arose. Some immediate changes were
announced, although the echeme is still undergoing repairs.
Pending the time when the Ministry of Food discovers some method
or methods to ration foods more generally, it may be assumed that the
difficulties indicated above will continue. This assumption carries
considerable significance as it relates to the prospective shipments
of foods obtained from the United States under the Lesse-Lend Act.
Rationing Problems arising from American
Food Shipments
From about the fall of France until the enactment of the Lease-
Lend Act, the food policy of the Ministry of Food has been largely
predicated upon (1) the supply of food available from domestic agri-
culture, (2) the possibility of obtaining supplies from (a) the
Dominions and (b) the Plate, and (3) failing the foregoing sources,
the United States, if and when the Treasury released dollar exchange.
In other words, as much food as possible should be obtained from
domestic sources supplemented by purchases from the Dominione and
the Argentine, as shipping conditions permitted. The United States
vas, therefore, almost out of the picture.
This arrangement is significent from the standpoint of ration-
ing problems, since it emphasised the sources with which Britain
normally maintained trade relations before the war. Moreover, the
Ministry was able to deal with a comparatively mall list of foods
fairly standardised and available in considerable volume which
tended to minimise distribution problems. Furthermore, the trade
WEB familier with the physical handling of the commodities, an
important point in war time when trained personnel are reduced to
a minimum.
Since the passage of the Lease-Lend Act, the position of the
United States as a potential sup lier to the United Kingdom has
risen to at least next importance to domestic agriculture. Presum-
ably, the United States will eventually become the chief oversess
food supplier, while shipmente from more distant sources will decline.
Regraded Unclassified
204
- 5
Nevertheless, the United States may not be able, for at least
a considerable time, to substitute adequate or similar products
heretofore obtained from more distant sources. This situation com-
plicates British rationing problems. For example, for a considerable
time United States meat shipments have been confined largely to pork
products because exportable surpluses of other meats cannot be made
svailable readily.
Before the war, the United States had B. considerable trade with
the United Kingdom in pork products. Apart from han and lard,
however, the trade consisted of miscellaneous specialty pork products
which played a emall part in the most diet of British consumers in
general. The mere réstoration of the pre-war trade, therefore,
would contribute very little toward improving the British food
situation.
Meat is rationed by value (1s.2d. per person per week) in order
to take into account the various cuts of fresh meat. The system
works fairly well since consumers are well acquainted with traditional
cuts. If whole hog carcases arrived, of course the rationing
problem would be simplified since present methods could probably be
adapted. On the other hand, assorted varieties of canned pork,
especially if the volume were small, would create rationing dif-
ficulties. Should it be impossible to include pork in the present
meat ration, the products could only be added to the miscellaneous
unrationed foods which have caused the Ministry such grief. However,
if & sufficient volume of standardized canned pork products were
available, supplementary meat rationing system could be introduced.
The difficulties experienced by the Ministry of Food arising
from importing some badly needed oranges further illustrate the
problema occurring when foods are imported which cannot be retioned
under existing methods. Until comparatively recently, citrus fruits
had been practically nonexistent. The Ministry, however, bought a
small quantity of Spanish oranges (about three small cargoes). With
the arrival of the oranges, well heralded by unfortunate newspaper
publicity, the Ministry found it had a distribution problem of major
proportions on its hands. On a strictly arithmetic basis consumers
would receive EL fraction of a single orange. To make matters worse,
the fruit were not uniform in quality. The Ministry, however,
allocated the fruit among dealors largely on the basis of their
pre-war volume of sales. An extremely keen demand for the oranges
caused many retailers to distribute them largely on an "under-the-
counter" basis. Considerable public dissatlefaction arose and charges
were made that favoritium had been shown in distributing the fruit.
Eventually the Minister had to defend himself in Parliament against
accusations that his organization had "muddled" the whole matter.
Regraded Unclassified
205
- 6 -
A few small orange shipments subsequently arrived of which the
Minister tactfully preferred to confine allocations to "heavily
bombed" areas. Obviously, such distribution methods are no adequate
solution. The corollary to the distribution of unrationed foods,
particularly those. in keen demand, is, unfortunately, that it is
perfectly obvious to the general public that no absolutely fair
distribution can be made. Consequently, mispicions are aroused that
distribution 1e intolerably unfair.
In regard to the specific problem encountered in the orange
distribution example, it cppears quite likely that B. reasonably
satisfactory rationing system could be devised provided that (1) a
fair volume of uniform quality fruit was available (say, one-quarter
the pre-var volume) end (2) there vas some assurence that the fruit
could be available regularly (even for B. limited period).
Some rationing problems will arise, and in fact have arisen,
from dissimilarity of domestic products and United States products.
American bacon, for example, is B. different product from the stand-
point of quality, cut, and amount of fat from the English product.
The question erises 88 to how to distribute the lens desirable American
products in conjunction with domestic supplies. To consumers receiv-
ing only three or four slices of bacon per week under the present
ration, it makes a considerable difference whether English, American
or Canadian bacon is obtainable.
To some extent the problem may solve itself with English becon
supplies declining under the slaughter program, but here again is
a case for maintaining 8. uniform quality of American bacon (also as
nearly similar to the English product as possible) and in a volume
at least sufficient to meintain existing rationing methods.
Recapitulation
The British are not concerned with a food shortage in the
aggregate sense. They are seriously pinched, however, by the volume
of food which can be distributed under the rationing system. In
other words, the amount of food the individual consumer can obtain
is limited by the volume of products which lend themselves to the
present means of distribution.
If American aid in supplying food is to be effective, therefore.
it must confine its food shipments to commodities which can go "on
the ration". On the other hand, shipments of American food of a
miscellaneous character may actually do more harm than good. Such
shipments will contribute to the inequities in food distribution
unfortunately already in existence and create more administrative
problems for the Ministry of Food.
Regraded Unclassified
206
-7 -
The optimum conditions for rationing food under the British
system are about as follows:-
1. An adequate volume, so that there is some
assurance that everybody can get at least
some of the product.
2. A fairly regular flow of supplies, so that a
definite ration may be fixed.
3. As uniform quality as possible of products
with which the public is familiar.
ATH:EWH
820
COPY:mew 8/4/41
207
July 31, 1941
3:13 p.m.
HMJr:
Hello.
Operator:
Senator Walsh.
HMJr:
Hello.
Operator:
Go ahead.
HMJr:
Hello.
Senator
Walsh:
Hello, Mr. Secretary.
HMJr:
How are you?
W:
Very well, thank you. How are you?
HMJr:
I'm very well, Senator. I wondered if
either this afternoon or the first thing
tomorrow morning I could come up by myself
and see you?
W:
Well, let me drop around and see you.
HMJr:
Oh
W:
I'll drop in at your office. What time
do you get there?
HMJr:
Oh, early.
W:
Nine o'clock. How's that? Quarter past
nine?
HMJr:
Yes. I'm here at eight-thirty.
W:
Well, I'll be there, at nine o'clock.
HMJr:
Nine o'clock.
W:
I'd be glad to.
HMJr:
I'd love to come up and Bee you.
W:
No, that's not necessary, Mr. Secretary.
Regraded Unclassified
# 208
- 2 -
HMJr:
About nine.
W:
Fine.
HMJr:
I'll look forward.
W:
Fine.
HMJr:
Thank you.
209
July 31, 1941
3:15 p.m.
GROUP MEETING
Present:
Mr. Bell
Mr. Sullivan
Mr. Viner
Mr. Cochran
Mr. Thompson
Mr. Gaston
Mr. Odegard
Mr. Foley
Mr. Blough
Mr. Schwarz
Mr. White
Mr. Kuhn
Miss Chauncey
Mr. Graves
H.M.Jr:
Harry White's prescription, how to keep cool.
Read the July 8 New Republic, "The Mirage of
Production".
White:
How to keep cool in your feet and hot under
your collar.
H.M.Jr:
And straight.
Norman, you look as though you had had a little
golf.
Thompson:
I stole some time and played golf.
H.M.Jr:
Good for you. Getting sense in your old age?
Regraded Unclassified
210
- 2 -
Thompson:
I really enjoyed it. It was awfully hot.
H.M.Jr:
What did they do, get you back this morning?
Thompson:
Yes.
H.M.Jr:
Tough luck. What do you know, anything?
Thompson:
No, I find everything all right in my shop.
H.M.Jr:
Dan, next to Norman, you look pale.
Bell:
Really?
H.M.Jr:
Yes. You had better get sensible like Norman.
Bell:
He looks disgustingly healthy.
The State Department is rather anxious to
send a note this evening to the Bolivian Govern-
ment to show that they are behind the President's
statement in connection with this Nazi upris-
ing in Bolivia, and they want to include in
that statement a paragraph along these lines:
"The Government of the United States is pre-
pared to consider the practicability of measures
which may be suggested for cooperation with
the Government of Bolivia in the stabilization
of the Bolivian currency, and the appropriate
authorities of the Government of the United
States are undertaking studies with a view
to formulation of specific suggestions" --
H.M.Jr:
How many initials are there on it?
Bell:
"Which may be made by the Bolivian authorities."
None. But what I would like to know is if you
are willing for us to work on a paragraph.
H.M.Jr:
Give me a half dozen initials and I will O.K.
it.
Regraded Unclassified
211
- 3 -
Bell:
I think I can get the O.K. of the policy, but
not of the paragraph.
H.M.Jr:
Just give me half a dozen initials. You have
got damn. enough talent around here. I don't give EL
Bell:
I will get the initials. You tell me whether
you will go along.
H.M.Jr:
If there are enough initials on it, I will go
along.
Bell:
That doesn't answer my question. (Laughter)
H.M.Jr:
I want six initials, and you can start with
Miss Chauncey. (Laughter)
All right. What else have you got?
Bell:
Well, can I work it out with the State Depart-
ment?
H.M.Jr:
Yes, work it out.
Bell:
That is all I want to know.
H.M.Jr:
How is the fishing down in Bolivia?
Bell:
Indeed I don't know.
H.M.Jr:
I just came back to sign these blankety-blank
commissions and then I can go back and go
fishing. What else?
Bell:
At one of the last meetings with the British,
you made some statement about profiteering in
connection with the sale of Lend-Lease goods
in Great Britain, and I think the statement you
made was that there should be no profit anywhere
along the line.
Regraded Unclassified
212
- 4 -
H.M.Jr:
On material that we bought.
Bell:
On material that they buy from us under
Lend-Lease.
H.M.Jr:
hat is right.
Bell:
Well now, that is holding up a number of
requisitions until some policy is worked out
and there has been drafted --
H.M.Jr:
Don't hold up any requisitions.
Bell:
A letter over in the Lend-Lease office and
sent over for our approval which we have just
gone over and we think it is a good letter.
H.M.Jr:
From us?
Bell:
No, it isn't from us, it is from General Burns
to Purvis, and we think that the policy, first,
whether or not the commodities can be le gally
bought and whether or not as a matter of policy
they should be bought under Lend-Lease, is &
matter for General Burns and the President to
decide.
H.M.Jr:
That is right.
Bell:
As to whether or not the commodities or articles
can be spared is a matter for the President to
decide through the OPM.
H.M.Jr:
Check again.
Bell:
And that when Mr. Mack gets the requisitions
with those indications on there that everything
is otherwise clear, that he has nothing to
do but go ahead and purchase them, and that he
shouldn't raise any questions about profits
and anything else.
Regraded Unclassified
213
- 5 -
H.M.Jr:
But I raised that question.
Bell:
I know you'did, but because you raised it,
you are holding up a lot of requisitions,
and we think that --
H.M.Jr:
Well, I didn't say hold up the requisitions.
I haven't heard, for instance, from Coe yet.
Cochran:
We have the wires in now, three cablegrams
from Coe.
Viner:
But Procurement is holding them up because some-
body who was doing the distributing gets
a commission or 8 fee, and they are interpreting
it as not profiteering, but they are looking
for a profit, which is a term that covers
the ordinary cost of distribution.
Bell:
That is right.
Viner:
And Procurement is holding up these shipments
because some private distributing agency
in England is getting a commission or 8 fee.
The fee may be less than their cost and yet
Procurement would hold it up.
Bell:
Mr. Keynes made the statement at our last
meeting that the British Government was paying
out annually over B hundred million pounds
in this distribution system, that that was
a subsidy to the distributors.
H.M.Jr:
Well, until I have got time to look at it -
there you are, right there, Graves. You
tell Cliff Mack go right ahead today until I
get a chance to look at it.
Graves:
Right.
H.M.Jr:
Clear things up until I have time to take
a look at it.
Regraded Unclassified
214
- 6 -
Graves:
Yes, sir.
Bell:
Go ahead on the requisitions he has got?
H.M.Jr:
Sure, clear everything today until I get time
to look at it.
Bell:
You ought to have a meeting the first of the
week, Monday or Tuesday, with the British,
at which time this might come up.
H.M.Jr:
Well, I have got to first decide before that
which are good songs to go on the next radio
program. That has got to come first, so in
the meantime don't hold up any requisitions.
Then I have got to read Harry White's New
Republic. I have got a lot of stuff to do.
Bell:
In the III antime, the machinery is stopped.
H.M.Jr:
In the meantime, it is going. A green light,
Harold. Tonight. Nothing is stopped.
Bell:
We have got a. couple of letters to go to Pur-
vis and he is leaving.
H.M.Jr:
He can clear the stuff two minutes after this
fellow leaves here. Two minutes after Harold
Graves leaves here the letters are cleared.
Bell:
But these letters are not cleared.
Cochran:
Could we continue to clear those until we
do get the le tters straightened out?
H.M.Jr:
Clear what?
Cochran:
There will be some more of these requisitions,
about ten or fifteen a day.
H.M.Jr:
Clear them every day.
Regraded Unclassified
215
- 7 -
Vinert
They item. are holding up sixty requisitions on that
H.M.Jr:
I hope I never live to see the day that I am
called the neck of the bottle. What do you
say, Viner?
Viner:
I didn't say anything. On sober second thought,
I didn't say a word. (Laughter)
White:
It is a funny name for sober.
H.M.Jr:
Harry's neck is better. What els e, Dan?
Bell:
Can you have a meeting the first of the week
with the British?
H.M.Jr:
Sure. Wednesday, three o'clock.
Bell:
It is a little late.
H.M.Jr:
Tuesday at three o'clock?
Bell:
Tuesday would be better.
H.M.Jr:
Sold.
Bell:
All right.
H.M.Jr:
In the meantime, the stuff goes through every
day. What else?
Bell:
That is all.
H.M.Jr:
It is all clear at the White House on the tax
letters. It was & damn good letter, too.
The President was very much pleased with our
letter. He didn't change anything, but fixed
his up 8. little.
About tomorrow again, I think you might go
up on the Hill as long as you put on your armor,
John.
216
- 8 -
Sullivan:
This letter gets mailed out just before you
and he leave tomorrow?
Bell:
There has been a lot of arranging done this
week.
White:
You will deliver it by hand.
H.M.Jr:
As you set your foot on the plane, Frank Knox's
plane to leave town, we deliver the letter.
Sullivan:
Are those orders?
H.M.Jr:
Yes.
Sullivan:
I already have the invitation.
H.M.Jr:
You had better go. You will need the strength
next week. I am going down the river with
him tonight.
Sullivan:
In course of duty. (Laughter)
Foley:
Cited for bravery.
H.M.Jr:
Anything else, Dan?
Bell:
That is all.
H.M.Jr:
The President was very complimentary on the
Treasury letter, and so am I. Certainly
there is nothing we have got to apologize for
on that.
Bell:
Our letter is all right. I don't know what
he said in his.
H.M.Jr:
He not only didn't say anything to weaken it,
but he strengthened our letter, because the
part on lowering taxes, lowering the bases,
I mean, he says that he didn't discuss it,
you see, so it leaves us all right.
Regraded Unclassified
217
- 9 -
Sullivan:
He never mentioned that at all?
H.M.Jr:
He says, "I never discussed this with you and
Jere before. I am bringing this to your
attention for the first time."
Bell:
He isn't mentioning what the Treasury has said
about it?
H.M.Jr:
No, but before that he keeps referring to the
Treasury letter.
Bell:
That is all right.
H.M.Jr:
Then he switches. It is three different things
he is talking about. One is excess profits,
two is joint returns, and three lowering the
base. Now, the first two refer to the Treasury
letter. Then he goes on to the third and
says, "I have never discussed this before,"
and he doesn't refer to the Treasury le tter,
80 it is obvious that it is his own stuff.
Gaston:
In the letters to Doughton?
H.M.Jr:
To Doughton. Needless to say, everybody be
careful not to say anything until it is on
the ticker.
Bell:
What are we to say after that?
H.M.Jr:
Well, Sullivan holds 8. press conference and
explains it the way Foley did the other night
on explaining the other thing.
Schwarz:
You will get your picture in Time Magazine.
Sullivan:
There is a complete answer..
H.M.Jr:
Don't you think a vacation for me is good?
From now on I work one day a week. Harry?
Regraded Unclassified
218
- 10 -
White:
The machinery is going forward on getting
daily reports of exports of those three
countries. I already have some, but I will
keep them until --
H.M.Jr:
What about Professor Hall? Who is contacting
Professor Hall and who does he see? Do you
know Professor Hall?
Viner:
Noel Hall?
H.M.Jrz
Yes.
Viner:
I have never met him.
H.M.Jr:
Who is bringing him into the picture?
White:
I will get in touch with him and have him
meet Foley.
H.M.Jr:
May I remind you again in two weeks?
White:
If he is in town I will get him right away.
H.M.Jr:
Wonderful. What else, Harry?
White:
You asked --
H.M.Jr:
It is asinine not to use a man with his infor-
mation. He has got more information about
Germany than anybody else in the world, and
here he is sitting in Washington and as far
as I know, nobody uses him. And he has the
rank of Minister.
White:
You asked us to get in touch with the Standard
Oil, Walden of the Dutch East Indies. He is
down here and here, I think, is a rather
interesting statement. His name is Walden.
The other chap was away on vacation and he
took his place, but he was thoroughly cogni-
zant of what is going on there. There have
219
- 11 -
been no shipments of oil to Japan. We are
keeping daily shipments and so on in the last
few days. We have a memorandum, if you are
interested, on the impact of prohibition of
silk on our economy. I can merely say briefly
that the various agencies agree that there
would be no harm in stopping all imports of
silk, but I will make the memorandum avail-
able.
Sullivan:
Could I have a copy of that, Harry?
White:
Right.
Foley:
The barrage is just beginning to come, Harry,
because on the ticker today & couple of
mills have been closed and another mill is
going to be closed, and they are going to throw
eight hundred or five hundred additional
employees out of work.
White:
Well, that doesn't check with the data which
is available.
Foley:
And those labor organizations are going to
be descending on us, and I think we had better
be equipped with all the data and material
and information --
H.M.Jr:
I ought to send somebody up to Gotham Hosiery
and find out why they closed.
White:
I have got a man who knows a good deal about
textile manufacture, from whom we could get
8. lot of information if you want to send him
around to examine the hosiery. (Laughter)
Bell:
Where is it?
Foley:
You don't want to know yourself, do you,
Harry?
White:
I will survey the field after he deletes the
rayon users. (Laughter)
Regraded Unclassified
220
- 12 -
H.M.Jr:
Well, Harry, I really think it would be worth-
while sending somebody up to Philadelphia. The
story I saw was about Gotham. Philadelphia
is the hosiery center. That is where they
make them.
White:
Well, I think somebody from George's shop
ought to go up.
H.M.Jr:
Where is George?
Bell:
He stayed away this week. He wasn't feeling
so well.
White:
But I will be glad to send somebody.
H.M.Jr:
No, if it is George - ask somebody, will you,
Dan, from George's shop to go, will you?
Bell:
Yes, sir.
H.M.Jr:
The sooner the better.
Foley:
And before he goes, Dan, you might have him
talk to Joe O'Connell and Harry's man, who have
attended some meetings with Henderson and OPM
and some of the other agencies.
Bell:
All right.
H.M.Jr:
Will you?
White:
I think what we might do is send one man to
Philadelphia and one to the New Jersey area,
which is a big textile center, and see how
their reports are reconciled.
H.M.Jr:
Let somebody be on the spot Monday morning.
Bell:
I will do that.
221
- 13 -
H.M.Jr:
And they might, before they go, also see
Lubin and see whether Lubin has any suggestions.
Sullivan:
On the Hill they are talking about B. tax on
silk.
Gaston:
Harry, you were speaking about a daily report
on oil shipments to Japan. You are familiar
with that report, aren't you, that George gets
out that shows daily all shipments of oil to
Japan?
White:
I am not familiar with it. We get this from
our shipping control downstairs.
Gaston:
¹here is such & report that George is getting
out daily that we have been getting out for
some months. Copies go around to different --
H.M.Jr:
I don't get them.
Gaston:
I think you said it wasn't - I think some
time ago you said you didn't want them any
more. There is 8 daily report --
H.M.Jr:
I get a weekly one.
Gaston:
Well, this is the daily on which the weekly is
based. It gives the name of the ship and the
amount of oil and so on.
White:
Well, I think we get that from the same place
George gets it, which is from our shipping
control. I didn't know he was getting it.
H.M.Jr:
Get together with George.
Gaston:
Shipping control? What is that?
White:
There is 8 shipping control office downstairs.
Gaston:
The Merchant Shipping Control office is not in the
Coast Guard. It isn't here.
Regraded Unclassified
222
- 14 -
H.M.Jr:
It used to be here. Anyway, it is Coast Guard.
White:
Our man said he gets it from a downstairs
office.
Gaston:
The only point is that there is no use duplicat-
ing it.
Viner:
Harry, that is the White House across the
street.
White:
You mean we are on top of the White House in
many ways? (Laughter)
H.M.Jr:
What else have you got, Harry?
White:
That is all.
H.M.Jr:
Wonderful. Chick?
Schwarz:
If you are not having a meeting in the morning
I would like to check - will I take you or
you and Dan tomorrow across the street for &
picture?
H.M.Jr:
The word I got was Dan and me.
Bell:
I thought it would just be you and the President.
H.M.Jr:
The word I got was Dan and me.
Chauncey:
I got that message from General Watson and I
told Mr. Bell about it.
H.M.Jr:
A quarter of one with Dan and me, and the
President feeds me at one o'clock.
Schwarz:
I will check on that.
Chauncey:
Mr. Bell has the check.
Bell:
Yes, sir, and the bonds.
Regraded Unclassified
223
- 15 -
H.M.Jr:
All right. We will have Barry Wood come down
and sing a song.
Schwarz:
"Any Notes Today"?
H.M.Jr:
Yes. Anything else?
Schwars:
That is all.
H.M.Jr:
Harold?
Graves:
While you were away we received addressed to
you a very cordial letter from the Secretary
of the Interior, acceding to our request for
an indefinite extension on this Treasury House.
H.M.Jr:
I see that you are pleasantly disappointed by
your figures of July exceeding May. I think
you ought to be ashamed of yourself.
Graves:
I am. On the basis of our cash deposits, the
sales of all three bonds through yesterday
were nine hundred ninety-two million.
H.M.Jr:
Nine hundred how much?
Graves:
Nine ninety-two, and I think it is almost certain
that today, the thirty-first, we will go over
the billion.
H.M.Jr:
Why not let's have a little something for --
Viner:
Press release.
H.M.Jr:
To take over and let the President give it
tomorrow when he signs.
Graves:
Mr. Kuhn, I think, has a statement ready now.
We won't know until about noon tomorrow.
H.M.Jr:
Well --
Regraded Unclassified
224
- 16 -
Kuhn:
We can take a chance.
Graves:
If that will be too late.
Bell:
Harold, you could include stamps.
Graves:
No, you can't include stamps, because in the
first place we don't know stamps, and in the
second place, stamps duplicate on the bonds.
H.M.Jr:
Well, if worst comes to worst, Dan can shove
some of Saturday's in to Friday's. He has
done that before. (Laughter) In the good
old days when Mellon was here.
Bell:
the President used to accuse me of having an
extra pocket.
Graves:
I think no doubt, without any fudging, we
will have it --
H.M.Jr:
Oh, Dan can fudge the figures.
Viner:
He might make a mistake in addition.
Bell:
That is right.
White:
Jake can always give you that.
Bell:
It might go the other way, Jake.
Viner:
That is subtraction.
H.M.Jr:
Anyway, we will take it over and see if we can't
get the President to give it.
Graves:
What time do you need it for that?
H.M.Jr:
A quarter of one.
Kuhn:
A little statement for the President to make
rather than for you?
Regraded Unclassified
225
- 17 -
H.M.Jr:
If he will do it.
Kuhn:
If he won't, then will you do it tomorrow?
H.M.Jr:
Yes.
White:
I had occasion to see a long letter that had
Mr. Graves' signature to Mr. Studebaker
describing their campaign and the purpose of
it. I must say it was very excellent.
I don't know who wrote it. It was an ex-
cellent job.
H.M.Jr:
Harold, will you stand up and take a bow?
He can't be & hundred per cent nice. He says
it was a letter but he doesn't know who wrote
it.
Graves:
As & matter of fact, that letter was done, as
I understand, by George Forte Milton and Peter
Odegard, and it was, I thought, a very excel-
lent statement of our program in so far as it
affects the educational institutions, but I
decline to take a bow, because all I did to it
was sign it.
H.M.Jr:
Would you mind asking Mr. White what the hell
he is doing putting his nose into Studebaker's
shop? Why can't he come and see your letters
in your room?
White:
It was Studebaker's foot in my shop, not
mine in his.
H.M.Jr:
What else, Harold?
Graves:
I have nothing else to bring up here.
H.M.Jr:
I thought if we had a few minutes you and Peter
and Ferdie might stay behind and we will chew
the fat a little bit.
Regraded Unclassified
226
- 18 -
Odegard:
I have some people waiting in my office
and I will come back.
H.M.Jr:
All right.
(Mr. Odegard left the conference).
Dr. Viner, will you be here tomorrow?
Viner:
Yes.
H.M.Jr:
We will get together. Right after the nine
thirty meeting?
Viner:
Yes.
H.M.Jr:
Miss Chauncey, put Dr. Viner down, please.
Did they treat you all right?
Viner:
Oh, yes, I had a nice vacation.
H.M.Jr:
Did you get my message about looking into this
whole business?
Viner:
No.
H.M.Jr:
Do you sit in on this meeting on --
Foley:
Yes.
H.M.Jr:
You do?
White:
He not only sits but participates.
Viner:
No.
Foley:
Yes. (Laughter)
H.M.Jr:
All right. Well, I personally - I mean, I
think everything that I heard is grand
227
- 19 -
in the matter of operations, but I am not
convinced or sold yet that people like Noel
Hall, and all these people are all tied
in, and that everything is locked up tight,
all the loopholes for stuff that gets
to Germany is tied up in South America.
White:
Why don't you tell the Secretary about
the suggestion of yours for this coordi-
nating committee with them, which is
part of this picture?
Foley:
That is what I started to tell him, and
you shut me off. (Laughter)
White:
Do you remember what I shut you off
with?
Well, go on.
Foley:
Yes.
H.M.Jr:
I am so glad he is feeling well.
Go on, do some more, Harry.
228
- 20 -
Foley:
We made the suggestion to Dean Acheson
that he organize a coordinating committee
over in the State Department so that the
other governments that have machinery similar
to ours to handle the Far Eastern situation
operate in concert. In other words, Aus-
tralians, Canadians, and the other dominions,
Great Britain.
Viner:
Dutch East Indies.
Foley:
Dutch East Indies ought to - I mean, they want
to cooperate and they don't have much inter-
change of information among themselves. They
will give the United States the information,
but Canada won't give it to Australia and
Australia won't give it to Great Britain, and
I suggested to Dean that he draw those groups
together and he keep them informed as to what
we are doing here 80 that if we grant a license,
then they grant the license. If we shut down
on a particular commodity, they shut down too,
so that we have & united front and we have
the most effective control, if possible.
H.M.Jr:
And I hope from time to time you will tell
Mr. Wallace about it.
Foley:
Yes, we will let him know once a week.
H.M.Jr:
I think it is swell.
Were you through, Jake?
Viner:
Yes.
H.M.Jr:
Ferdie?
Kuhn:
Nothing.
H.M.Jr:
What is that, Merle, some --
Regraded Unclassified
229
- 21 -
Cochran:
I have all of those.
H.M.Jr:
Will you send them up to the house?
Cochran:
All right, fine. This is a copy of the message
that went to Casa Blanca (July 24, 1941). Mr.
Welles initialed that personally the other
night.
H.M.Jr:
Oh, yes.
Cochran:
And I wrote Mrs. Lehman and sent her & copy.
H.M.Jr:
Can you send a copy to Mrs. Morgenthau at
Hopewell Junction?
Cochran:
I gave one to Mrs. Klotz. I thought Mrs.
McHugh sent it.
H.M.Jr:
Mrs. Klotz wasn't here Monday.
Chauncey:
No, this was Friday before she left.
H.M.Jr:
You haven't heard?
Cochran:
No.
H.M.Jr:
Thank you.
Cochran:
Here is the plaque. That is a sample of what
they are giving the crews of those three de-
stroyers. They wanted to know whether you
approved that finish before they go on with
the others.
H.M.Jr:
Yes.
Now, if I am not mistaken, I think Captain
Beardall is the President's Naval Aide.
Cochran:
Yes. We have two of those now.
230
- 22 -
H.M.Jr:
That is perfect.
Cochran:
Then I will get the other two finished. I
will send these messages to the house.
H.M.Jr:
If you please. Everything else all right?
Cochran:
We have one also from Turkey. You remember
we sent an inquiry out there about taking
over French properties and 80 on.
H.M.Jr:
Yes.
Cochran:
I will send you that.
H.M.Jr:
What sort of report did you get over the week-
end on your Mrs?
Cochran:
Very good. We went up to New York for two
days.
H.M.Jr:
You got a good report?
Cochran:
Very good, thank you.
Sullivan:
"Skeeter" Johnson is being retained as Clerk
of the Senate Finance Committee. "Skeeter"
Johnson, who was Clerk of the Senate Finance
Committee under Pat Harrison is being retained.
They think he is about the only one in the
staff who is being retained, and he called
right after lunch. Senator George expects
the bill will be over there by next Wednesday,
and he would like to spend Wednesday and
Thursday in executive session with Beaman
and O'Brien and Stam and myself and just
explain the bill, not arguing any of the
merits of it, to the members of the Committee.
And then go ahead either Friday the eighth
or Monday the eleventh with you, starting
public hearings.
H.M.Jr:
When?
231
- 23 -
Sullivan:
Either Friday the eighth or Monday the eleventh.
He intimated that he thought that the eleventh
would self. be preferable, and I didn't commit my-
H.M.Jr:
That would be perfect, because I am planning
to leave on the fifteenth again, you see.
Sullivan:
Well, I think in view of certain delays that
may occur, I had better tell him that the
eighth would be a little bit too soon.
H.M.Jr:
No, I would tell him the eighth and then let
him postpone it. Say I am ready the eighth.
Sullivan:
Well, they will announce it right off.
H.M.Jr:
Well, so much the better. It will go over
anyway, but--
Sullivan:
I don't think it will.
Bell:
What is the matter with the eighth?
Sullivan:
Well, I am not 80 sure that this thing is going
to get out of the House.
Bell:
Then it will be postponed.
Sullivan:
Then in that event it would be postponed.
Foley:
But it won't be the Secretary's fault.
H.M.Jr:
I would tell them I will be ready the eighth.
Sullivan:
The eighth or which ever date they prefer?
H.M.Jr:
No, I am ready the eighth.
Sullivan:
You are ready the eighth?
H.M.Jr:
Yes.
Regraded Unclassified
232
- 24 -
Sullivan:
All right. He asked me to get your preference.
H.M.Jr:
I will be ready any time from the eighth on.
Sullivan:
Right. All right, I will--
H.M.Jr:
Now, with that in mind, I would like Roy
Blough and Ferdie to go to drafting at once.
Sullivan:
Roy has already started on that.
H.M.Jr:
And then as soon as we - I would like to have
something Monday, you see, and if you have
anything before Dr. Viner goes, give him some-
thing so he can take it, and then he can
telephone back his criticisms, you see, but
I would like very much to use that memorandum
that--
Sullivan:
The first part.
H.M.Jr:
That we prepared for the President.
Sullivan:
That is very good.
H.M.Jr:
Bringing it up to date simply in view of what
the President has said and Henderson and so
forth. I think that is about as good as any-
thing. I haven't read it, but Eccles sent
me this morning his article which is going to
appear in the August Fortune on, I gather,
taxes. Has anybody seen it?
White:
For correction before he sends it or merely
for information?
H.M.Jr:
No, no, it is all printed. I said it was
Eccles. (Laughter) I won't read it. Why
don't you give it to those people? It came
in this morning, and I said to send it to the
house. Did I give it to you?
Regraded Unclassified
233
- 25 -
Chauncey:
No.
H.M.Jr:
It must have been Bob McHugh. He is the only
other person I have seen. I won't read it
over the week-end.
Chauncey:
Give it to who?
H.M.Jr:
Blough.
Sullivan:
Among your fan mail was a declaration of the
second war between the states. "Much opposed
to joint income tax returns. In fact, refuse
to pay that way. Great majority of Kentucky
women are with me."
Bell:
Women are women. (Laughter)
H.M.Jr:
Ask George Haas' experts who investigate the
silk industry, et al., to go down to Kentucky
on it. Maybe White will want that job.
White:
Not Kentucky.
Viner:
That isn't an industry, it is an institution.
Sullivan:
That is all sir.
H.M.Jr:
I am going to call Senator George to congratu-
late him.
Sullivan:
Fine. You are not going to call Doughton?
H.M.Jr:
No.
Sullivan:
Good.
H.M.Jr:
I will take the leaf out of Sullivan's book.
I will gradually pick up 8. little New Hampshire
politics. All right.
Foley:
Before you went away Gordon Rentschler came in
Regraded Unclassified
234
- 26 -
to see you and mentioned the Silesian-American
Corporation, a matter that came up before the
policy group on Saturday afternoon. After
a good deal of Saturday afternoon--
H.M.Jr:
When?
Foley:
Last Saturday afternoon.
H.M.Jr:
Were you there?
Foley:
I was there. After a good deal of considera-
tion and debate back and forth, it was the
unanimous decision of the three Departments
that the license not be granted, and we put
it out. We expected to have a good deal of
pressure, and we did have some pressure.
Averill Harriman is interested and a fellow
by the name of Wolfe who represented the
Anaconda Kellys. He tried to get through
to the President on the matter Saturday
night.
H.M.Jr:
I have heard of the New Hampshire Sullivans,
but not the Anaconda Kellys.
Sullivan:
I am kind of suspicious. This is the high
bracket for that tribe.
Gaston:
You never heard of Kelly, the King of Montana?
H.M.Jr:
No.
Foley:
He got hold of Steve Early, and Steve put him
in touch with Herbert. They were quite--
H.M.Jr:
Steve?
Foley:
Early.
He tried to get through to the Presi-
dent.
Gaston:
He just tried to get to the President and was
Regraded Unclassified
235
- 27 -
referred to Early, and Early said, "Well,
talk to Gaston about it," and he did.
Foley:
Colonel Donovan got hold of me on Sunday
morning, and he wanted to send out a memorandum
which he did and --
H.M.Jr:
In which capacity?
Foley:
Well, he said that you had told him that he
might bother me from time to time, and he
wasn't going to take over until Tuesday in
his new capacity, and therefore he felt that
he could call me up and send out 8 memorandum,
so I called him back after I got the memorandum
and I told him that we had turned the thing
sown and there wasn't anything that could be
done about it.
H.M.Jr:
He is doing this as an attorney?
Foley:
Yes.
H.M.Jr:
It is the damndest thing I ever heard of. I
told him he could bother you as working for
President Roosevelt. I am surprised that he
should twist a thing like that.
Foley:
He said, "These fellows are going to put out
a statement, If and I said, "We are going to
put out a statement also. We will be on the
ticker before the market opens Monday morning."
So then he talked about Wiley and some of the
other things in connection with this new set-up,
but I thought you ought to know that there
was 8. good deal of commotion because we did
turn them down.
H.M.Jr:
There was one thing which I am not satisfied
on that Rentschler mentioned, and I want that
run down to the bottom. Did you get the
message?
Regraded Unclassified
236
- 28 -
Foley:
Yes, and Mr. Secretary, the reason that that
was held up is just because of the number of
applications in the New York office.
H.M.Jr:
That isn't what I mean.
Foley:
That Jewish organization?
H.M.Jr:
No.
Foley:
Oh.
H.M.Jr:
What I am talking about is that Rentschler
told me that the go-between was Lazard Freres
working through a Swiss corporation.
Foley:
That is right.
H.M.Jr:
Now, what I want to know--
Foley:
That is right. I just got your memorandum
on that a few minutes before I came in here.
H.M.Jr:
Just wait a minute, Ed. I happen to know that
a lot of that went on during the last war and
the man who is handling it, he mentioned it,
is this former German banker.
Bell:
Jeidels.
H.M.Jr:
What I want to know is, and I don't have to be
knocked over the head twice, is how many other
deals has Jeidels got on, and I wouldn't hesi-
tate, on the part of the United States Govern-
ment, to send for Mr. Jeidels and say, "Now,
here is this deal. How many more have you got
on? We would like to know.
Cochran:
We had correspondence yesterday with the
British on Jeidels.
H.M.Jr:
You see, I never forget these things.
Regraded Unclassified
237
- 29 -
Viner:
Mr. Secretary, if anything develops on Jeidels,
talk to me. I have got some - I know him, and
I know something about him.
H.M.Jr:
I would like to know it right after this meet-
ing.
Bell:
Jeidels came to see me late last week on this
very case at the suggestion of Johnny Hanes,
and I offered to turn him over to Foley, and
he said, "No, I just want to put in a word
for the thing," and I passed him on to Foley.
Foley:
I cleared with Dan our action before we an-
nounced that we had rejected the application,
and Dan said, "O.K."
Pell:
That is right.
H.M.Jr:
Now let me tell you something. The former
Undersecretary of the Treasury used to be-
the last one under Mills.
Bell:
Ballantyne?
H.M.Jr:
Arthur Ballantyne. That was Lazard Freres'
pipeline into this Treasury.
Now, they never could have one as long as I
was here, and the Lazard Freres in London -
well, I won't go into the whole story, but
they have always got their pipelines with the
Government, and this is the only time they
have never been able to have a pipeline into
the Treasury. Along comes Jeidels. He comes
down here and he gets just like that with
Johnny Hanes. I warned Johnny.
Viner:
Johnny Hanes? General Wood. That is what I
know.
H.M.Jr:
Johnny Hanes and General Wood ?
Regraded Unclassified
238
- 30 -
Viner:
No, Jeidels.
H.M.Jr:
That I didn't know. But I know this Lazard
Freres crowd, so when he dropped the word
"Lazard Freres," I wanted to find out about
it. I don't see why we don't send for
Jeidels. I don't think he has got his citizen-
ship papers. Simply send for him and say,
"What other deals have you got?"
Gaston:
Do you want to have a little look into him
and see what there is down town on him?
H.M.Jr:
I sent a message through I wanted Lazard
Freres.
Chauncey:
That went through this morning.
Foley:
Jake, we didn't - every one of us felt that
this Swiss Banking Corporation for which
Lazard Freres was acting as agent in this
country was fronting for a German interest.
We didn't have the proof. You can't know those
things definitely with documents, but we all
had the same impression, and we turned it
down. It is very funny that - I mean they
have got the property. The American interests
haven't had anything to do with the property,
don't know what is going on in the property,
haven't been near the mines, so that the
Germans can't get any more control, but it is
like all these other deals that are coming
along. The I. T. and T. deal, the Standard
Oil in Hungary and the Standard Oil in Germany,
all of these properties now the Germans want
to buy and we have turned down all of them
so far because there is no need of determin-
ing a policy in so far as our property there
and their property here until an over-all
policy can be established.
H.M.Jr:
Now, I want to make this suggestion, that we
Regraded Unclassified
239
- 31 -
consider sending a group which is comparable
to the group we sent to the Philippines to
Switzerland. I think it is far more important.
And one to Sweden. I think it is far more
important that they go to Sweden and Switzer-
land than it is that they do to the other
place. I would like - because the State Depart-
ment wouldn't go along with me on Sweden and
Switzerland that you had to prove your story
before you acted, the burden of proof, but
only after. But I would like that committee
when you meet - you meet at four o'clock don't
you.
Foley:
Yes.
H.M.Jr:
I suggest that we send comparable experts
immediately to Sweden and to Switzerland.
Bell:
There will be a handicap that they wouldn't
get cooperation in those countries.
Foley:
The problem will be different in so far as
Sweden and Switzerland are concerned.
H.M.Jr:
Now, look. You have got this Swiss Corporation
with two or three million dollars right here
in New York, and I am sure that - well, look,
supposing it costs us twenty-five thousand
dollars to each place. That would be 8. top
figure, wouldn't it, for one year?
Bell:
I suppose SO.
H.M.Jr:
You might catch - you might lose fifty thousand
and you might catch--
Foley:
Five hundred million.
H.M.Jr:
Yes.
White:
I think you might insure their cooperation by
Regraded Unclassified
240
- 32 -
the fact that you control whether or not they
shall have these general licenses, 80 under
normal circumstances you might have difficulty
getting their cooperation, but under the
present circumstances I think they would be
eager to cooperate because if they don't
cooperate there might be 8. cancellation of
the general license.
Foley:
That is right. We would put them on a special
license basis. Both countries are operating
that way.
H.M.Jr:
When I heard Jeidels, Lazard Freres - here is
Bob Brant, a member of Lazard Freres of London,
controlling the food purchases in this country
for England. I think it stinks.
Cochran:
In a cablegram today Fox is asking for observers
on freezing at Shanghai and Hongkong.
H.M.Jr:
God, I--
White:
That is even more important, I think.
H.M.Jr:
I would spend the money liberally.
Foley:
I think you are right. Of course the problems
in so far 8.8 Honolulu, Manila, and Fox are con-
cerned, are operating problems. The problems
in Sweden and Switzerland are problems of
observation and detection, and you require a
different kind of personnel, but you have to
have people who are familiar with our controls.
H.M.Jr:
I wouldn't keep any man out too long. I would
keep him out and let him get the experience
and send him back and send somebody else. We
will train these fellows.
Cochran:
I have 8. message today, and I will send it
along with these other things tonight.
Regraded Unclassified
241
- 33 -
H.M.Jr:
All right?
Foley:
Yes.
H.M.Jr:
But that kind of stuff - was there something
else about Jeidels you wanted to tell me?
Viner:
I can tell it here. Jeidels was invited to
talk to a small group, of which General Wood
is chairman, in Chicago, and I was there at
that meeting, and it was an argument that
democracy was through and finished and that
Hitler really had the right idea but had
made certain mistakes, gone too far in certain
directions, and General Wood was saying,
"You are right. You are right." And I
protested a little, and then the meeting
broke up, and I walked over to his hotel with
him, and I told him, "You are not doing &
Service to the United States by talking like
that in this country, Mr. Jeidels." Now,
I think I have a record on that, because I
think the meeting was one in which there was
a secretary that I know--
H.M.Jr:
I would like to know, and I would like to
know whether he is an American citizen. You
say Johnny Hanes got into this?
Bell:
Johnny Hanes called me up and said he knew
this fellow, and he was all right and wondered
if I would see him. I said, "Sure, I will see
him if he has got business with the Treasury."
He came in and this was the story he told me
about this company, and I said, All I can
do is pass it on to the people who are handling
it, and I am sure they will give it every con-
sideration.'
Then Saturday Ed called me up and asked me
if I was interested in the case, because of
this conference I had, and I said, "No, go
Regraded Unclassified
242
- 34 -
ahead and do what they thought was right."
Viner:
I would like to add this item that just the
other day the Financial Attache of the Hun-
garian Embassy came in to see me and told me
that on that deal that so far has not been
approved--
H.M.Jr:
The Hungarian has not?
Viner:
He said he and his Minister hoped we would
disapprove it, and it is their impression in
the Embassy here that while they can't tell you
that, that everybody in Hungary hopes you dis-
approve it because they think it is being
done under coercion.
Foley:
You see, Mr. Secretary, up until the time
Germany picked up gold and picked up foreign
exchange in Holland and Belgium and these other
countries, she wasn't interested in buying
any of these properties in Germany. She had
the benefit of the use of those properties.
Now she has got some gold and some exchange,
and she is coming around and the same deals
appear in each one of these.
H.M.Jr:
She has got a billion dollars of gold that she
picked up at Casa Blanca, the French and
Polish and Belgian gold.
Foley:
Ane she is trying to buy out American interests
in German concerns.
Gaston:
To alienate them no matter what happens in the
war.
Foley:
That is right, no matter what the result of
the war may be.
Viner:
And she doesn't care what price she pays, so
Regraded Unclassified
243
- 35 -
that these people who owned the property are
being offered much more than the book value
now.
Foley:
This Silesian thing was much more than it
was worth because the bonds were no good and
they were running up an exchange on the antici-
pation we would grant the license and this
money would be made available to this Swiss
banking group to be used to pay off these
bonds here in order that the equity in the
German properties would be repatriated in
Germany. And that is the only value that the
darned bonds had.
H.M.Jr:
Talk to me sometime about publicity on that,
will you. I have got some ideas.
Foley:
Yes.
H.M.Jr:
O.K.?
Foley:
Yes.
H.M.Jr:
Want to go to your meeting?
Foley:
Yes.
Viner:
On that--
H.M.Jr:
Wait a minute.
Viner:
Talk to Miller. You know, "You Can't Deal
With Hitler." Douglas Miller. If you want the
history on that, get the lines from him. He
knows those details. He is still in the State
Department, isn't he?
White:
No, he was, but he is no longer. He is a
free-lance now.
Viner:
Oh, yes, Rockefeller Foundation.
Regraded Unclassified
244
- 36 -
White:
Merle problems. said he was mixed up in some exchange
Gaston:
I had some other things I have been working
on with him that are pretty bad in that
investigative set up.
H.M.Jr:
Really.
Gaston:
I would like to get them straightened out,
but this looks a little worse than the rest
of them.
H.M.Jr:
Oh!
Thank you all.
Doaradod
245
July 31, 1941
4:15 p.m.
Gardner
Jackson:
Yes.
HMJr:
Hello.
J:
How are you?
HMJr:
I'm fine. How are you?
J:
All right, thank you. I have this query.
HMJr:
Please.
J:
A friend of mine, representing the International
Union of Butcher Workmen, which are the meat
cutters and the packing house fellows
HMJr:
Yeah.
J:
A. F. of L. - they're anxious to plunk
down & million and a hundred thousand on
Defense Bonds.
HMJr:
Yeah.
J:
They want to beat the too figure that is now
existing, which I think is Amalgamated.
HMJr:
Yeah.
J:
They want to extract the most good for your
campaign and the labor movement in the process.
HMJr:
Yes.
J:
They asked me whether I could possibly talk
with you and maybe get them a chance to have
five minutes with you if that was advisable
or not. What do you think?
HMJr:
Well, I'll tell you what I'd like to do, Just
80 to keep my organization line straight
J:
Yeah.
Regraded Unclassified
246
- 2 -
HMJr:
What's-his-name handles these labor things
for me.
J:
Houghteling.
HMJr:
Houghteling, yes.
J:
Well now, I'll tell you what they did. They
went to the man whom Houghteling took on
HMJr:
Yeah.
J:
who is a friend of mine - old Gil Hyatt.
HMJr:
Yeah.
J:
They went to him
HMJr:
Yeah.
J:
and he just wanted to be sure that every-
thing of the most nature could be extracted
out of this for the campaign
HMJr:
Well, Gardner, unless there's something I
don't know about, I'd love to have you bring
them in. But just let me check through
Houghteling's office.
J:
Okay.
HMJr:
And either I or Houghteling will give you a
ring in the morning.
J:
Okay.
HMJr:
How's that?
J:
That's fine.
HMJr:
Thank you 80 much. Sounds good.
J:
Yes, it 18.
HMJr:
Are those the same people who put on that
swell art exhibit up at New York?
Regraded Unclassified
247
- 3 -
J:
They're the ones.
HMJr:
Well, they're good people.
J:
You bet.
HMJr:
All right, Gardner.
J:
Okay.
HMJr:
Take care of yourself.
J:
Thanks.
HMJr:
Good-bye.
Regraded Unclassified
248
July 31, 1941
4:39 p.m.
HMJr:
Hello.
Operator:
Senator George.
HMJr:
Hello.
Senator
George:
Hello.
HMJr:
Henry Morgenthau speaking.
G:
Yes, Henry. This 1s Walter George.
HMJr:
Walt, I just wanted to tell you I was delighted
to read that you accepted the Chairmanship of
the Finance Committee and to tell you that
G:
Well, Henry, I don't know. Of course, there's
more work involved and I'm - I'm not as strong
as I used to be
HMJr:
Yeah.
G:
but I want to talk with you because I
want to work with you. We have to work to-
gether on this thing
HMJr:
I know.
G:
and ain't any use of having contrary
theories about things, because what we've
got to do 1s get the best program we can.
You and I both know that.
HMJr:
Yeah.
G:
And work it out.
HMJr:
Well
G:
I'm at your command any time, and I told
Skeeter Johnson to confer with the Depart-
ment today and say that I thought that we
would begin Wednesday with an informal
Regraded Unclassified
249
- 2 -
Executive hearing Just by - - from the experts
HMJr:
Yeah.
G:
and from the draftsmen
HMJr:
Yeah.
G:
to analyze just what has been done by
the House bill.
HMJr:
Yeah.
G:
And you all could appear Friday, or, if you
preferred, you could go over to Monday.
HMJr:
Well, I - - I'll be ready any time from Friday
on.
G:
Well, leave that with you.
HMJr:
At your convenience.
G:
But I'll keep in touch with you.
HMJr:
And, I Just want to let you know that anything
I can do to make your job easy, 18 what I'd
like to do.
G:
Well, it's highly important that every effort
be made to have a program that we can all get
along with, even if it 1sn't all that anybody
wants.
HMJr:
Well, I
G:
And you and I know that you are not going to
get anything that anybody wants in taxes now.
HMJr:
That's right.
G:
Because if we did, we wouldn't get much of a
tax act at all.
HMJr:
Well, all I can ask 18 any time there's any
misunderstanding, you give me a ring, and
Regraded Unclassified
250
- 3 -
I'll come un and see you.
G:
Well, I'll certainly confer with you.
HMJr:
Don't let the sun set on any misunderstanding.
G:
Oh no. There'll be no misunderstanding; and
even if we have honest differences, I think
there's some way to harmonize those differences
in the interests of the country: and we just
have to do that, because it's quite impossible
for anybody to have a program that involves now
as much as - money 88 we have to have
HMJr:
Yeah.
G:
that was going to meet everybody's views.
I know that, and you do, too.
HMJr:
Well, thank you; and I'm here and I'm at your
service.
G:
All right, Henry. Thank you very much.
HMJr:
Yes.
G:
Thank you very much.
Regraded Unclassified
251
TREASURY DEPARTMENT
WASHINGTON
July 31, 1941
Memorandum for THE SECRETARY:
The following report is made of Stamp sales
at "Treasury House":
July 1-29
$22,047.05
July 30
447.70
Total
$22,494.75
GRAVES
252
TREASURY department
WASHINGTON
July 31, 1941
Kill
Memorandum for THE SECRETARY
The following report is made of requests received
for "Any Bonds Today?" from the experimental mailing of
10,000 cards:
No. Requests
No. Copies
July 1 - 29
1123
6572
July 30
10
130
Total
1133
6702
GRAVES
Regraded Unclassified
253
JUL 31 1941
Dear Eleanor:
We are going to take care of
Mrs. Maidee as seen as We establish
the Los Angeles headquarters of the
Defense Savings Staff, which I hoge
will be within the next few welm.
Affectionately,
(Signed) Henry
Mrs. Franklin D. Ressevelt,
the White House.
12:15
HNG/mff
By Messenger 17/37/11
co - Mr. Thompson together with copy
of incoming letter.
(See original
returned by
Mrs. R. and
filed under
4A
date of 8/12/41)
Regraded Unclassified
254
JUL 31 1941
Dear Kleaner:
We are going to take care of
Mrs. Medico as coun as - establish
the Les Angeles headquarters of the
Defense Savings Staff, which I hogo
will be within the next for wells.
Affectionately,
(Signed) Henry
Mrs. Frenklin Do Receivelt,
the White House.
12:15
HNG/mff
By Messenger
7/31/11
00 - Mr. Thompson together with copy
of incoming letter.
Regraded Unclassified
255
THE WHITE HOUSE
WASHINGTON
July 25, 1941.
Dear Henry:
I have just heard from
Helen Gahagan what has been suggested
in reference to Eleanor Wilson McAdoo.
If such a thing is possible, I shall
be deeply grateful as she has been on
my mind.
Affectionately,
3P
256
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
Chauncey
DATE July 31. 1941.
TO
Sequetary Morgenthau
FROM Mr. Cochran
confidential
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
£60,000
Purchased from commercial concerns & 1,000
The Federal Reserve Bank of New York purchased £26,000 in registered
sterling from the New York agency of the Swiss Bank Corporation.
Open market sterling held steady at 4.03-1/2. Transactions of the re-
porting banks were as follows:
Sold to commercial concerns
£2,000
Purchased from commercial concerns
£1,000
The Canadian dollar has had a fire tendency this week, Today's closing
discount was 11-1/4% as compared with 11-5/8% on July 26.
There has also been some improvement in the Cuben peso quotation. Today's
discount who 1-1/16%, as compared with 1-5/16% a week ago.
In New York, closing quotations for the foreign currencies listed below
were as follows:
Argentine peso (free)
.2380
Brasilian milreis (free)
.0505
Uruguayan peso (free)
.4380
Colombian peso
.5800
Mexican peso
.2070
In Shanghai, the yuan declined 1/164 to 5-3/164. Sterling in that center
again moved upward to 4.02-1/2. a gain of 1-1/20.
There were no gold transactions consumented by na today.
No new gold engagements were reported.
In London, spot and forward silver were again fixed at 23-1/2d. equivalent
to 42.67#.
The Treasury's purchase price for foreign silver was unchanged at 35#.
Handy and Harman's settlement price for foreign silver was also unchanged at
34-3/44.
Regraded Unclassified
257
- 2 -
We made one purchase of silver amounting to 50,000 ounces under the
Silver Purchase Act. This silver represented new production from various
foreign countries, and was bought for forward delivery.
During the month of July, our purchases of silver under the Silver Pur-
chase Act amounted to 4,365,500 ounces, the sources of which were as follows:
Type of Silver
Ounces
New production
1. From various countries
2,565,500
2. From Canada under agreement
1,200,000
Inventory silver
600,000
Total
4,365,500
pmp
258
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 31, 1941
TO
Mr. White
FROM Mr. Ullmann
Subject: Interview with Mr. G. 8. Walden (Socony-Vacuum).
At the July 28 meeting in your office, Mr. G. S. Walden, Chairman
of the Board of Socony-Vacuum Company, made the following interesting
comments:
1. His company estimates that Japan has stocks of approximately 35 million
barrels of petroleum products, or & year's supply. He claims that this
estimate 18 made after a detailed and thorough study.
(A completely independent Treasury estimate places present Japanese
stocks at 34.5 million barrels.)
2. The Netherlands East Indies has established the detailed machinery to
destroy the islands' refineries, pipe-lines, storage tanks and to blook
up the wells (with concrete). He says that all this destruction can be
completed in a four-hour period. The destruction plans call for pump-
ing wet concrete into the wells, using the same pipes by which oil is
now extracted.
He thinks the Japanese would gain almost nothing by an invasion of the
Indies.
3. He feels that the Netharlands Government is prepared to stop any
"appeasement." However, it is also prepared to grant oil export licenses,
if this Government and the British decide to follow a policy of allowing
oil to Japan.
4. His company is willing to discontinue sales of oil to Japan, provided
that competing companies follow a similar policy.
5. His company was approached in New York by the U. S. representative of
Mitsui. The latter said that if Japan could only get "some oil" from
U. S. companies, Mitsui wight be able to deter the Japanese Government
from an invasion of the Netherlands East Indies.
Walden had pointed out to the Mitsui man that the whole world, includ-
ing the U. S. east coast, was now on oil rations; and that the Japanese
Regraded Unclassified
259
- 2 -
should be willing to curtail its oil imports--especially in view
of its large stocks. The Mitsui representative agreed to this line
of reasoning, and said they would be content if they would receive
"some" oil-even though the quantities be at substantially lower
levels.
July 31 - 1941
TO:
260
SECRETARY MORGENTHAU
The Colonel telephoned me Sunday,
saying he wanted to see me and
would be in Washington Tuesday and
telephone me then. So far I have
heard nothing from him, but sup-
pose he will turn up sooner or later.
Jew
FROM: JOHN C. WILEY
261
Confi dential
July 31, 1941
MEMORANDUM FOR THE SECRETARY:
In re: Your inquiry regarding
Henri Haye and Camille
Chautemps.
I have collected a great deal of material on both Henri
Haye and Chautemps from a number of different sources.
There are many sidelights and interesting bits of gossip,
but the essence is:-
The French Ambassador, Henri Haye, according to all re-
ports, is completely committed to the "collaborationist"
policies of Darlan and Laval. His chief collaborator in the
Embassy is M. Brousse, who is described as dangerous and
most objectionable. Colonel Bertrand-Vigne, also of the
Embassy, works closely with them, but is said to be acti-
vated by conviction rather than malice. Henri Haye's re-
ports to Marshal Petain and the Vichy Government are said
completely to distort the American picture. Lindbergh,
Wheeler and other isolationists are played up, labor troub-
les are exaggerated, and the national defense effort is de-
rided. It is alleged that the Ambassador is giving a free
hand to Brousse (who is described as "worse even than Henri
Haye") in running the Embassy, the Ambassador being much
preoccupied with his personal affairs -- one of which is
said to be with Mme. Georges Picot, wife of the Counselor.
It appears that nothing really definite is known with
regard to Chautemps' activities, if any. Pleven suspects
he may be behind a quiet movement in the United States to
discredit De Gaulle 88 a "Fascist". Pleven has, however,
nothing to substantiate the suspicion except a conviction
that the Petain regime would not be giving Chautemps large
sums of money for nothing. (Herve Alphand states that he
receives $2,000 & month.) In general, however, the impres-
sion is that Chautemps is chiefly engrossed in his domestic
affairs, his young wife and infant child, and is biding his
time.
Regraded Unclassified
262
- 2 -
Chautemps and Haye are supposed to be at swords' points.
Henri Haye has allegedly made repeated, determined but un-
successful efforts to have Vichy recall his rival. The
Chautemps, in private conversations, do everything possible
to discredit the Ambassador and to suggest that he should
be sent back to France as persona non grata, along with
Brousse and Bertrand-Vigne. Perhaps Chautemps believes
that, should Picot be left as Charge d'Affaires, he, Chau-
temps, could play an important role in this country.
My impression of Chautemps' situation is that he is
here as & "pay-off" for his part in the conclusion of the
armistice and facilitating Petain's advent to power. He
probably knows & lot and Petain may be somewhat frightened
of him.
John a. Wiley.
Regraded Unclassified
263
C
o
P
Y
Department of State
DIVISION OF THE AMERICAN REPUBLICS
July 31, 1941
Dear Mr. Bernstein:
Herewith the draft of the note
Collado and I handed Turbay yester-
day afternoon for his presentation
to us.
With kindest regards,
Sincerely yours,
(Signed) Jim Wright
Copy:1g 7/31/41
Regraded Unclassified
264
0
0
P
Y
DRAFT OF NOTE COLOMBIAN AMBASSADOR WOULD
ADDRESS TO THE SECRETARY OF STATE
His Excellency
The Secretary of State,
Washington, D. C.
Sir:
In continuation of conversations held with representatives of
the Departments of State and Treasury concerning a. stabilization
loan to Colombia, I now have the honor to confirm the following:
The issuance of import licenses or exchange approvals will be
kept commensurate with exchange availabilities to avoid unpaid
backloge and retroactive exchange decrees or regulations detrimental
to the United States will not be promulgated. Colombia will seek
to avoid undue delay in the payment of legitimate United States ex-
change requirements and recognizing that the stabilization loan
and credits from other United States governmental agencies have in-
portant stabilizing influence on Colombian exchange, funds BO pro-
cured will not be diverted to countries whose interests are inimical
to those of the United States or to those of Colombia, and there
will be consultation on this point when there might be a difference
of views.
I take this opportunity to renew to Your Emellency the as-
surances of my highest consideration.
Copy:lg 7/31/41
Regraded Unclassified
265
Tye Washington Post
July 31, 1941.
Fair Enough
By Westbrook Pegler
Private Life Of Joseph Lash
A8 SOME may remember, Mrs.
aliss Dediord-Jones declared
yes that be was a dirty only liar
Franklin D. Roosevelt, recently
that this WM 1 pan name adopted
the Was alandering Amizican
entertained as the summer home
for this occusion by her
South and the editor's blurs said
of the President of the United
father, H. Bedford-Jones, e pro-
Maney had been "forced by her
States on Cam-
fessional Actioner. Nancy said
father's lies to denounce him."
pobello Island
Shaw's article in Liberty was a
no
something called
pack of Lies about her, although
the Summer Stu-
her name was not mentioned and
800N AFTER. on November 28.
dent Leadership
the was not otherwise Identified.
1935, The Daily Worker, Muscovite
Institute Among
The Liberty article created an
those prominent-
Impression that young communist
house organ, which does not go
by present along
agents Inferted American college
in very heavily for marriage stuff
with Justice Fellx
compuses and mixed politics with
outside the party circle, reported
Frankfurter of
something which we In the writ-
that Nancy had married In Yums,
the United States
Ing trade and the moyles have
Ariz, none other than Joseph
Supreme Court
agreed to describe #4 remarice
PEGLER
Mr. Shaw, whoever be may have
P. Lash, whom we now discover
and dear old Dr.
William Allan
Seen, Dieged that young girls
sometimes in the White House
Nellson, president emeritus of
were seduced not only from the
and then again of Campobello an
Smith College, was a veteran
political and religious faith &
a guest of Mrs. Ronsevelt in some-
member of the younger genera-
their parents but from their
thing called a Student Leader-
Hon and coreer man of the youth
chastity as well, wherein he was
ship Institute.
business. Joseph Lash. The fre-
anticipating the revelations set
The worker's marriage notice
quent presence of Mr. Lash In the
down by the backalid Comrade
minitimed Mins Nancy's father
White House surely may be taken
Benjamin Gitlew, late base-Com-
is "% Red-baiting pulp magazine
as evidence that Mrs. Roosevelt
munist of the United States of
writer." and said the marriage
regards him as 4. pratty nice
America. in his book entitled "I
"culminated a friendship which
sample of and for American youth
Confess."
grew out of thair participation in
and his presence at the Student
pas
student adtiwar and anti-Fascial
Leadership Institute at Campoballo
mems equally Indicative that she
MISS Namey Bedford-Jones ex-
setivities."
claimed, in effect. "That's my
Z
regards him BA one who 18
equipped, intellectually and moral-
pup!" And lose into him to the
MR. LASH is still s youth
IV, for leadership among Ameri-
after . dozen years in the busi-
exuiting applause of the Com-
can students.
new, still employed and hustling.
munista in the pages of The New
first with one youth or student
With this preamble. let us now
Masses. Incidentally, lest It be
council, service or Institute, then
cast aside the bigoted record of
mid that The New Masses, like
with snother, and he is still in
The Dies Committee which dis-
there, DE therembouts, with his
covered Mrs. Roosevelt's young
Mrs Roosevelt's model youth,
patientes, Mrs. Franklin D. Rbose-
hims often In the company or
Mr. Lash, was not communistic,
Communist youth. Let us con-
note should be made of the fact
vdlt. when the pictures are being
sider something else in order to
tallen.
obtain a fair impression.
that the paper listed - its Busi-
The institute al Campobello, of
Let us frink the Ales of Liberty
néts Manager William Browder,
course, would have no wish to
Magazine and the Communist
the brother of Ear| Browder.
conceal from the youth of the
publication. The New Masses, to
Earl Browder successed Gltlow
American camplia, of the parents
the sulumn of 1998.
45 chief of the Communies Party
of that youth. this pretty little
story from the political and love-
here, but in now in prison for
life of one whom Mrs. Rouevelt
IN THE Issue of The New Masses
freud.
entertains as a candidate for atu-
dated September 3, 1635, the lead
"The author of there slanderous
dont leadership.
story le 4 charming expression of
lies La my father, R Bedford-
an American daughter's devotion,
Jones," the way this lively
7/1/24 "My Father is 1 Liar!"
example of American youth
Nancy Bedford-Jones
astuted his daddy. "Why did
the How pu 17.
my father write these cold-blooded
the very
lies about his daughter?" the
speed
then démanded and proceeded to
tall you why, according to her
view of the matter. Her view
Regraded Unclassified
C
0
266
P
The Under Secretary of The Treasury
I
Washington
July 31, 1941
MEMORANDUM FOR THE FILES:
I advised Mr. Hooker of Mr. Collado's office in the State Depart-
ment today that the Treasury apparently is not much concerned with the
first five paragraphs of the Bolivian memorandum transmitted with
Mr. Collado's memorandum of July 30. 1941. I told him that ve in the
Treasury felt that the first sentence of this suggested paragraph was
sufficient to cover the situation. We have no objection if the State
Department wants to keep in the last sentence, but we do not see that
it adds very much to the paragraph. I read to him over the telephone
the following revised paragraph to take the place of his suggested
paragraph six.
"The Government of the United States 1s prepared to
consider the practicability of measures which may be
suggested for cooperation with the Government of
Bolivis in the stabilization of the Bolivian currency
in its relation to the dollar. The appropriate
authorities of the Government of the United States
are also undertaking studies with a view to the
formulation of suggestions in the monetary field to
be jointly considered with any corresponding sugges-
tions which may be made by the Bolivian authorities."
Later Mr. Hooker called ne back to say that the State Department
was in agreement with the Treasury's suggestion that only the first
sentence of the revised paragraph six be included in the statement to
be given to the Bolivian Government with the addition of the last
"United States" before the word "dollar" at the end of that sentence.
The rest of the paragraph is to be eliminated.
DWB
COPY:mew 8/1/41
Regraded Unclassified
267
0
Department of State
P
Division of the American Republics
Memorandum
July 30, 1941
Mr. Belli
The Department is most anxious to send B. note to the Bolivian
Government which will give some concrete evidence of the desire
of the Government to back up the President's statement that the
United States io fully behind Bolivia in its present critical
situation of Nezi agitation and plotting. It 1a proposing to
hand the Bolivian Minister tomorrow the attached memorandum
regarding several forma of technical and financial cooperation.
This has been fully cleared with Mr. Jesse Jones.
The Department would 11ke to add to this memorandum B. most
general statement regarding stabilization or sonetary coopera-
tion. I have taken this up before with Messra. White and Southard.
The Department would like to BAY something as follows:
"6. The Government of the United States is prepared to con-
sider the practicability of measures which may be suggested for
cooperation with the Government of Bolivia in the stabilization
of the Bolivian currency, and the appropriate authorities of
the Government of the United States are undertaking studies with
B. view to the formulation of specific suggestions to regulared
corresponding suggestione which may be made by the Bolivian
authorities."
As I have indicated, the Department must hand the memorandum
to the Bolivian Minister by tomorrow evening. I should be very
pleased to discuss this matter further with you tomorrow morning
in person or by phone.
2. G. Collado
COPY:mew 8/1/41
Regraded Unclassified
C
268
0
P
Y
DRAFT
MEMORANDUM
1. The Department of State has been considering
with other agencies of the Government of the United States
measures which might appropriately be included in a long-
term plan of collaboration to foster continued mutually
beneficial economic relations between the United States
and Bolivia and to develop the national economy and
national resources of Bolivia.
2. It 1a believed that the basis of such B. plan must
be in the development of communications-largely of highways,
but perhaps including certain railway facilities. The
report of the United States Army engineers who studied the
Vila Vila-Santa Cruz railway project does not support the
construction of such a railway, but suggests as an alternative
consideration of the construction of a highway joining the
two points. It is believed that EL decision regarding a long-
term program for the development of communications in Bolivia
can best be taken after a general survey by competent
engineers. The Bolivian Government has recently inquired
concerning the possibility of a general survey by highway
experts, and there is attached a memorandum outlining the
studies which the appropriate officials of this Government
believe may be practicable at this time. The Government
Regraded Unclassified
269
- 2 -
of the United States is prepared to detail qualified experts
to Bolivia under the provisions of Public No. 63 (76th
Congress) to carry out this survey work.
3- The development of communications should encourage
an expansion and diversification of aggricultural production
in Bolivia, involving both an increased degree of self-
sufficiency and perhaps the development of certain tropical
products for export. It is believed that this development
might be advantageously speeded up and assisted by &
comprehensive survey of the several potentially important
agricultural regions of Bolivia, The Government of the
United States is prepared at the request of the Bolivian
Government to detail competent agricultural experts to
carry out such a survey in cooperation with the Bolivian
authorities.
4. It has been suggested that it may be feasible
and desirable to stimulate production of tin, tungsten
and certain other minerals in Bolivia of small minere by
assisting them in improving their methods, providing them
with appropriate machinery. end possibly erecting a
reduction plant for the treatment of low-grade tin ores.
Such possibilities of course would require cereful study,
and the Government of the United States would be glad
Regraded Unclassified
270
- 3 -
to consider any request that may be made by the Government
of Bolivia for the services of a qualified expert.
5. The Government of the United States is
prepared to cooperate in giving effect to the recommenda-
tions arising out of thorough technical and economic
surveys of Bolivian communications needs and agricultural
and mineral potentialities by the extension of financial
and technical assistance in appropriate manner and amounts
for the execution of individual projects which are
considered desirable, useful, and practicable by both
the Bolivian and United States Governments.
RA:Collado: GRS
CMS 7/30/41
COPY:mew 8/1/41
Regraded Unclassified
C
o
271
P
Y
DEPARTMENT OF STATE
Washington
In reply refer to
July 31, 1941.
ZA 840.51 Frozen Credits/2723
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses
six copies of a paraphrase of telegram No. 3275, dated
July 29, 1941, 6 p.m., from the American Embassy at London,
in regard to the British Treasury's impression with respect
to the effects of the freezing order in Japan.
Enclosure:
From Embassy, London,
No. 3275, July 29, 1941.
(Six copies.)
Regraded Unclassified
272
C
o
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Y
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, London
DATE: July 29, 1941, 6 p.m.
NO. : 3275
FOR THE TREASURY DEPARTMENT -- STRICTLY CONFIDENTIAL
Reference is made to the Embassy's telegram No. 3274,
dated July 29, 1941. This telegram dealt with the comment
of the British press in regard to the effects of the
freezing order in Japan.
Waley of the British Treasury informed Coe today that
the British Treasury's first impression, which it had re-
ceived from its representatives in Washington, was that
the freezing control would be very severely applied. How-
ever, he said that there was some confusion in regard to the
cabled report that the United States was granting a general
license for commercial transactions. To Waley, this step
seemed to indicate that trade with occupied China would be
permitted and, too, that the American control was to be
much less restrictive than had been contemplated. However,
he had not received the text of the general license as yet.
According to Waley, the work required to bring Hong
Kong into the sterling area had not been completed in time.
He also said that this step would probably be taken on
July 30.
WINANT
EA: PAK
Copy:bj :7-31-41
Regraded Unclassified
273
AI
01
PARAPHRASE or TELEGRAM SENT
TO:
American Embassy, Chungking, China, via N.R.
DATE: July 31, 1941, 7 p.m.
NO.: 172
THE FOLLOWING IS FROM THE ACTING SECRETARY OF THE
TREASURY FOR FOX.
The Treasury Department would appreciate it if you
would inform it of the progress which is being made in
regard to the rehabilitation of internal finance in China.
It is assumed that you have access to the report which
pertain to the general economic conditions in China;
such as the Ambassador@s despatch No. 21. The Treasury
Department would appreciate receiving your comments in
regard to the despatch of the Ambassador. (No. 21.)
WELLES, ACTING
(MMH)
FE:JMJ:MBW n
EAt PAK
Regraded Unclassified
274
PARAPHRASE OF TELEGRAM SENT
20: American Embassy, Chungking, China, via N.R.
DATE: July 31, 1941, a p.m.
NO.1 175
THE FOLLOWING IS FROM THE ACTING SECRETARY OF THE
TREASURY FOR FOX,
It is requested that you refer to your telegram of
June 27 which was sent through Spagent, Shanghai. Also
refer to your telegram of June 28, No. 752, which was
sent through Lockhart.
Apparently, the letters which you referred to are
those which were exchanged between the Secretary of the
Treasury and Sir Frederick Phillips and which contained
three points, The letters were under date of April 25,
1941. You were provided with all of the documents which
were pertinent to the Stabilization Agreements between
the United States Government and the British Government
and China. Newever, additional copies of the letters in
question are being sent to you by poush,
Mething in the letters in question would prevent the
establishment of a Stabilization Board of four men to
manage the U.S. dellar-Chinese Yuan Stabilisation Test-
the feur nen on this Beard includes the American member
but does not include the British members It is requested
that you advise the Department immediately should you
consider it important that stops be taken to not up the
Board without delay,
Within
Regraded Unclassified
275
Within the next two weeks, according to information
which has been received m the Treasury Department, Sir
Otto Niemeyer will leave the British capital for Vashington.
It is expected that he will discuss various Chinese problems
with the U.S. Government before he continues his trip to
China.
Sir Niemsyer's stay in China is expected to be for
only a few months. He is not expected to become a member
of the Stabilisation Beard. It is expected that broad
policy questions of a financial and economic nature will
occupy mest of his attention while he is in Ohina.
WELLES, ACTING
(MH)
FE:JMJ:MBW
FE
KAtPAK
the
evine à WOIS
ABERIVE
Regraded Unclassified
276
DES
PLAIN
HONG KONG VIA N.R.
Dated July 31, 1941
Rec'd 6 p.m.
Secretary of State,
Washington.
282, July 31, 10 a.m.
Hong Kong Government has frozen certain Chinese
assets Effective July 30th. Copy of order forwarded by
airmail. Colonial Secretary has issued public statement
to the Effect that action was in common with similar
orders throughout British Empire, made at the request
of the Chinese Government, and does not prohibit the makin
or acceptance of payments in Hong Kong to or from persons
in Hong Kong.
SENT to the Department, repeated to Chungking,
Peiping.
BRUINS
CSB
Regraded Unclassified
277
PARAPHRAVE OF TELEBAN RESEIVED
FROM: American Consulate General, Shanghai.
DATE: July 31, 1941, 1 p.m.
NO. # 907.
Piret: One of the results of the freening order w to
bring to Shanghai, more earlier than was anticipated, an
expert eystem such as that which has been used for about the
years in North China. This eystem suriously retarded trade
between non-Azis countries and North China and 18 will have
the - result in Changhai. by imposing the same restric-
tions in Shanghai a memogoly on many commedities which favore
Japan is created just " in North China. 18 is feared that
such restrictions may also be used in the case of American
vessols desiring to obtain supplies end stores during their
stay here. American shipping compenies are concerned about
this and they are also conserned about possible interference
with the picking up of cargose which have already been
becket and cleared through the customs. Virtually all items
of vital importance, with the exception of you silk
embroideries, estton piece geods and ootton yarn, sanaage
casings and briethes, are already included is the list of
items which require export lieunses. 18 to explain that there
will be delays and irritation similar to those which conserved
in North Ohina because the establishing of a consittes to
administer the system of expert permits is todious.
Regraded Unclassified
278
+
Deceme: The economic position of thanghes has perhaps
never before been no profoundly affected as it was when the
freesing order THE issued. Although the sheek is gradually
wearing off, may people look to the future with grave fore-
bedings because they believe that rigit restrictions vill
further reduce the already greatly curtailed shipping
facilities available, seriously handisap export trade, pre-
vent the importation of needed rav materials to neet
manufacturing demand, thus contributing to unemployment
and resulting in diversion of a previously profitable consered
between Ohina and the United States away from American into
Japanese hands. The posstation prevalent in business circles
has recently become slightly relaxed as A result of reports
that the freezing rules will be administered more liberally
than YEE at first anticipated. At losst (veebel, month-)
more will be required before the full uffect of the restrie-
tions on the port our be ressonably estimated.
Third: Notwithstanding persistent pross reports from
Washington and London that one of the retallatory maine
which the Jayanese intend to employ would be that of taking
over the International Bettlement, there have been as outward
indications of such e Japanese intention at the present time.
The spreading of such rumps does great have and creates
needless uncasizess amount the Chiness.
This
Regraded Unclassified
:- 279
+
This telegram is being sent to the Department and
repeated to Peiping and Quanghing. The esde text is being
B Totyo s * entit s
LOCKHART
NPC
10 THE BACK 1V8A
EASHINGTOL
LECHMIGVE 1022 CIVIL
CHE or THE
B41 vne 2 bW IS 03
BECEINED
Regraded Unclassified
PM
PLAIN
280
Peiping via NR.
Dated July 31, 1941.
Rec'd 11:50 p.m.
Secretary of State,
Washington.
194, July Thirty-first.
It was announced here today that enforcement
of the retaliatory freezing messures mentioned in the
Embassy's 189, July 29, 5 p.m., will be entrusted to a
new group of persons known as the "Central Special
assets Commission" composed of North China representa-
tives of the Japanose Army, the Japanese Imbassy,
the China Affairs Boari, the Japanese Ministry of
Finance and the Federal Reserve Bank. The head office
of the Commission will be in Peiping; branches will be
establishod at other places in North China under
supervision of the special affairs section of the
Japanese Army.
Other local developments resulting from the
retaliatory measures which camo into force July 28
include the freezing of substantial Amorican deposite
hold by Chinese and Japanese banks, the suspension of
foreign
Regraded Unclassified
-2- #194, July 31, 1941, from Peiping via NR.
281
foreign exchango transactions for American citizens,
and the impounding of American travelers baggage at
the railway station in Peiping.
This office made inquiry of the Japanese Embassy
yesterday in regard to the impounding of baggage.
Part of the baggage was roleased this morning.
Sont to the Department, repeated to Chungking,
Shanghai, Tientsin.
Copy airmailed to Tokyo.
BUTRICK.
KLP
282
TEM
Foochow via N. R.
Dated July 31, 1941
Rec'd 10 a.m., August 1.
Secretary of State,
Washington.
July 31, 4 p.m.
Referring to my telegram of July 29, 6 p.m. Japanese authorities
in Foochow today told the British Consul no further withdrawals may be
made from the local Hong Kong and Shanghai Bank, in which many Americans
have deposits, except under Japanese permits and subject to regulations
which they have informed me will be made known in a few days. Chinese
police have been stationed at the bank's gates. On the request of the
British Consul the bank has suspended operations.
Japanese are visiting British and American properties for the
alleged purpose of making an inventory which was ordered begun on or
before July 25.
Sent to Peiping, repeated to the Department and Chungking.
RICE
NPL
eht copy
8-5-41
Regraded Unclassified
283
PARAPHRASE or TELHIRAN RECEIVED
FROM: American Conculate, Rangoon, home.
DATE:July 31, 1941, 4 pollo
PLYAS: Chinese assets in Burnes have been frosen today
by the Government of Burn. Newsver, the object to not so
interfere with the operations of the Chinese Government and
with legitimate trade with uneccupied China. The Receive
Bank of India 1s issuing instructions to release from the
effect of the Order certain accounts belonging to persons and
fires in thous sections of China not affected by the control
OF occupation of Japan. It May be added that the order does
not affect transmetions carried out by Chinese residents of
Burna on their private accounts.
Second: During the last two days Japanese ships have
arrived at this port for the purpose of loading vice which
had already been purchased. One of these is the boat that
turned back last Friday night at the entrance to the river,
An efficial statement indicates that shipments of rise which
had been purchased and paid for prior to the date of the from-
Lage order will be allowed. However, no licenses for rice
contracted for but umpaid will be granted. Bo fer during 1941
shipments to Japan of namess riso have been valued at sparent-
mately 41,000,000 rupees (more than $12,000,000 in United
Avivne 2 W 11 28
States surrency). Payment has not been made for about 20,000
tons of outstanding Japamese orders.
CONRITION
BECOMED
BRADE
ask
saive.
Regraded Unclassified
C
o
P
284
Y
DEPARTMENT OF STATE
Washington
In reply refer to
EA 840.51 Frozen Credits/2728
July 31, 1941
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and transmits
herewith copies of the paraphrase of telegram no. 1120,
dated July 29, 1941, from the American Embassy at Tokyo
concerning export and import trade between the Japanese
Empire and Malaya and the bearing of the Executive Order
No. 8389, as amended, thereon.
Enclosure:
Paraphrase of no. 1120
from Tekyo,
July 29, 1941.
Regraded Unclassified
C
0
285
P
Y
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Tokyo, Japan.
DATE: July 29, 1941, to p.m.
NO. : 1120
According to a request made by the American Consul
General at Singapore there is transmitted the following
telegram, dated the 28th day of July at 5 p.m.
"Refer to my telegram no. 180 dated the 27th day of
July at 1 p.m.
"I have been informed by the Foreign Exchange Controller
that all export and import trade between the Japanese Empire
and Malaya, subject to barter arrangements made in cooperation
with the United States Government, will be eliminated because
of the Executive Order freesing Japanese assets.
"Further, he said that this would apply to exports of iron
ore which had not yet been paid (at a fixed rate of exchange)
before the 26th day of July. The Government is at present
considering the problem of permitting the exportation of iron
ore for which payment had been made prior to July 26. Ship-
ments of tin and rubber to Japan will not be approved regard-
less of the date on which payments were made.
"It in my understanding that residents of Japan who are
leaving Malaya will not be permitted to withdraw amounts
exceeding the equivalent of $100 in currency of the Straits
settlements."
This telegram W&S also sent to Tokyo.
EDA
GREEN
EA:VCL
Copy:dtg:8-1-41
Regraded Unclassified
286
PARAPERASE OF TELEGRAM RECEIVED
FROM: American Settlements Consulate General, singapore, straits
DATE: July 81, 1941, 2 p.m.
no.: 105
WW31
02 MA DUA 1A9
BETWEED
STRICTLY CONFIDENTIAL.
The freesing of assets here has been taken mush more
seriously by the Japanese than by the British.
It is assumed by the Japanese that the expertation of
iron ore would be stopped automatically, The Japanese ATPO
planning to elese the two largest iron mines, according to
reports, London has advised the local authorities that
it was not the intended to stop the movement of iron ore
at this time. Newever, if the Japanese continued agression
in other areas, this economic weapon was to be used at a
later date.
It is the inclination of the authorities here to believe
that it is most desirable to withhold for a period of several
weeks any information that is indicative of any less drastic
administration of the freesing order, It is believed that
disclosure of any tendency to relax strictures would diminish
seriously the deterrent effect of this economic seasure upon
the Japanese,
PATTON
KAIPAK
840.81 Prosen Gredite/2794
Regraded Unclassified
287
6:15 p.m.
Paraphrace of telegram from Rio de Janeiro, July m, 1941,
Arrangements have been made by the Bank of Bragil
with the Tokehama Specie Bank not to transfer the many
to Argentina and Chile. The Bank of Brasil has placed
the dollars in & special ascount where they will remain
until further notice. The $1,000,000 has been purchased
today by the Bank of Branil, which has credited the as-
count of the Tokemaha specie Bank in the Bank of Brasil
with the milrois preceeds. The Director of the Bank of
Brasil is of the opinion that the milrois credited to
the account of the Tokebane Specie Bonk vill be used to
pay for future exports from Brazil. This, of course,
appeals to the Brasilian Government. The Director has
promised to keep me informed of the use of these funds.
CO or MA - . UA 118
OD 151
RA:JSH:LM - 8/1/41
Regraded Unclassified
C
288
o
P
Y
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
July 31, 1941.
EA 840.51 Frozen Credits/2752
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and encloses
six copies of a paraphrase of telegram No. 149, dated
July 29, 1941, 11 a.m., from the American Consulate at
Godthaab, Greenland, concerning the dollar accounts in
the United States of citizens of Greenland.
Enclosure:
From Consulate,
Godthaab, No. 149,
July 29, 1941. (6.)
mb - Copy
C
289
o
P
Y
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Consulate, Godthaab, Greenland
DATE: July 29, 1941, 11 a.m.
NO. 149
Governor Brun, in recent conversations with repre-
sentatives of Ivigtut Union, agreed to the opening of
personal American dollars accounts in the U.S. by the
minere. It is understood that these accounts will,
of course, be blocked in accordance with the regulations
of the Treasury.
The Consulate has been requested by the Governor to
inform the Government of the United States in regard to
the following: The Greenland Administration fully supports
the applications for licenses to permit the transfer of
funds from the Administration account to personal accounts
in New York banks to be opened by the individual miners;
such applications are understood to be at present pending
with the Treasury Department.
PENFIELD
EA:PAK
mb - Copy
290
RESTRICTED
G-2/2657-220; No. 455 M. I. D., W. D. 12:00 N., July 31, 1941
SITUATION REPORT
I. Eastern Theater.
Ground: No important changes in front lines. The great
battle in the Vyasma area continues. There is strong German pressure
to the south of Leningrad.
Air: No change in the general situation. British carrier-
based aviation made a raid on Kirkenes, Norway, and Petsamo, Finland,
losing a large proportion of the planes employed.
II. Western Theater.
Air: German - Exceedingly light activity.
British - Reduced scale night operations against
the Rhineland and Boulogne.
III. Mediterranean Theater.
No important ground or air activity.
RESTRI CTED
CONFIDENTIAL
291
3.
Aircraft Lesses Benerted.
a.
British lesses. One bomber was unreported from the
raid on st. Nassire during the night of July 27-28. One Burricane
and pilot were lost on July 27.
b.
Avia loases. During the day of July 27th 1 Me-109 was
shot down and 3 Me-109's were probably destroyed. One unidentified
aircraft and one He-lll were shot down by British night fighters
during the night of July 27-28.
The report to the effect that the Rumanian oil fields at
Ploesti bad been bombed by the Soviet Naval Air Force from the
Crimes has now been confirmed, according to a statement from the Air
Ministry.
During the last three days and nights there has been no
report of an attack by the German Air Force on shipping in British
home waters.
LEE
Distribution:
State Department
Assistant Chief of Staff, G-2
War Plans Division
Office of Naval Intelligence (2)
0. E. Q.
Secretary of Treasury
Chief of the Army Air Forces
Assistant Secretary of War for Air
CONFIDENTIAL
2 -
Regraded Unclassified
CONFIDENTIAL
292
of date Othlogen
Received at the the Department
at 6:45, July 31, 1941.
Landen, filed 18:14, July 31, 2941.
1.
2. A early vest of Polvers was atteched w 6
Blenhoins. Three motor vessels, totaling 3290 teas - damget. Bouth of
Holigoland mother motor vessel of 1500 bone we attached onl damaged w 6
Bleahrine. Seven Bleakotas are nissing out of 13 dispatched to attack
shipping. Be activity wes reported by the aireraft as this
A total of any fighter aircraft ware disputched as follows:
chipping protection 176, % a interception missions, 17 currying est epecial
missions, with 18 a effensive No essualties www expirated from
these aparations.
m. 135 beabers disputched to Colegne to book
rellway years and infustrial embere. a this niceion there - - Malifor
and five Stirlings, all of which returned safely. Twelve beahere - -
to boath et Beulegne, of which , ereched in the United Elagian end ,
are sureparted. the mjerity of the atrents was able to land at the -
strèrement despite the fact that fog was commented - their have bases.
2.
1. 15 recommisement and s Long - beabows.
2. , fighters, 10 Long reage beabere ml 25
nine laying planse.
3.
CONFIDENTIAL
INFORMATION COPY
Regraded Unclassified
CONFIDENTIAL
293
4. 7 Bleakstus missing. Hight
of dair 30, , bonkows crushed out , - unreported.
in
, dectroyed at Xime.
i
2. The airtrase and
semplane base as - obtached w 6 Desefighbers from Malta. b this
atteck GOTOS aireraft were damaged and , was destrayed.
LES
Distribution:
State Department
Assistent Chief of staff, 6-2
Wes Plane Division
Office of Sevel Intelligence
with s s
Chief of the Any Air Forces
I I %
Alr Garge
CONFIDENTIAL
Regraded Unclassified