Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
28276805
label
Volume 446, September 29 – September 30, 1941
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
28276805
sourceUrl
contentType
document
title
Volume 446, September 29 – September 30, 1941
citationUrl
collections
Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
28276805
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
685c2edd197305f0
ocrText
DIARY
Book 446
September 29 and 30, 1941
Regraded Unclassified
American Federation : LARGE
See Financine. hime onfice MAY
- el -
Barth, Alan
See War Conditions: United Kingdom
Brookings Institution
See War Conditions: Inflation
Business Conditions
Haas memorandum on situation for week ending
September 27, 1941
446
66
Lubin report: "The Economic Picture" as of
September 12 and September 29, 1941
77,312
- C -
Onina
See War Conditions
Copper
See War Conditions: Strategic Materials
- D -
Defense, National
Luncheon conference; present: HMJr, Nelson,
Henderson, Eccles, Ransom, Weiner, Bell, Hass,
White, and Kuhn - 9/30/41
251
a) Discussion of
1) Copper supplies
2) Shortage of all raw materials
3) General lack of sense of urgency
b) Capital expenditures - report on
control of
253
for Lubin reports, "The Economic Picture, a see
Business Conditions
Defense Savings Bonda
See Financing, Government
- 3 -
"sconomic Picture"
See Business Conditions
- , -
Financing, Government
Ten- and fifteen-year Treasury Securities: Proposal
for offering on each quarterly date
e) HAAS memorandum - 9/30/41
296
01 Hadley memorandum - 9/30/41
294
Regraded Unclassified
daying "any Bonds
Nov MDO promoted the juice recep, #:
"gangeter" - Greenbaum report -
122,111
American rederation of Labor: HMJr invited to
convention in Seattle - 9/30/41
257
a) Boettiger consulted by HMJr -
10/1/41: See Book 447, page 1
b) HMr's acceptance - 10/1/41:
Book 447, page 8
c) HMJr's notification he cannot attend -
10/4/41: Book 448, page 27
1) Gaston to substitute:
Book 448, page 43
- H -
Henderson, Leon
See War Conditions: Inflation
- I -
Iceland
See War Conditions
Inflation
See Var Conditions
- L -
Latin America
Mexico:
Standard Oil Company of New Jersey: Holdings
reported by HMJr to State Department -
9/30/41
323
Lubin, Isador
See Business Conditions
- M -
Mexico
See Latin America
Mosely, Mr.
See War Conditions: Purchasing Mission
- P -
Prices
See Inflation
Regraded Unclassified
BE I 1
Book Page
Raw Materials
See War Conditions| Defense. National: Raw Materials
DO 1 1
Small, Roy
See Financing, Government: Defense Savings Bonds
Standard Oil Company of New Jersey
See Latin America: Mexico
. и -
United Kingdom
See War Conditions
- W -
War Conditions
Airplanes:
Shipments to United Kingdom and overseas
commande - British Air Commission report -
9/29/41
446
159
China:
Fox sent resume' of new program for study -
9/29/41
167,326
a) Fox answer - 10/2/41:
See Book 447, page 196
Report on United States dollars and English
pounds: Applications for and actual
payments - Fox report - 9/29/41
174
Exchange market resume' - 9/29/41, 9/30/41
186,331
Iceland:
Stabilization agreement of $2 million discussed
by Berle and Bell - 9/30/41
317
Icelandic sterling holdings in London, July
and August, 1941 - 9/30/41
318
(See also Book 447, page 206)
National Bank of Iceland has not cabled receipt
of Federal Reserve Bank, New York, test key -
10/6/41: Book 448, page 173
United States-Iceland economic relations - copy
of memorandum sent to British Embassy -
10/9/41: Book 449, page 349
Inflation:
Prices: Summary of Brookings Institution study -
9/29/41
160
Henderson's speech before National Association
of Manufacturers - 9/30/41
307
Regraded Unclassified
- - (Continued)
Book Page
War Conditions (Continued)
Purchasing Mission:
Vesting order sales - 9/29/41
446
142,143
Federal Reserve Bank of New York statement
showing dollar disbursements, week ending
September 17, 1941
144
Mosely, purchasing agent, reported to show
favoritism - 9/29/41
156
Raw Materials:
Stock-piles - Wallace memorandum to Nelson
concerning maximum balanced production of -
9/30/41
303
Strategic Materials:
Copper: Mack (Procurement Division) and group
of Lake Superior miners discuss - 9/29/41.
164
United Kingdom:
Barth (Alan) gives resume' of English newspaper
articles showing impact of war - 9/29/41
150
Regraded Unclassified
September 29, 1941
10:00 a.m.
GROUP MEETING
Present:
Mr. Blough
Mr. Morris
Mr. Thompson
Mr. Cairns
Mr. Haas
Mr. Bell
Mr. Gaston
Mr. White
Mr. Graves
Mr. Schwarz
Mrs. Klotz
Thompson:
Several years ago when the Procurement Divi-
sion was established, we transferred to it
most of the duties of our whole Printing and
Stationery Division. We are now proposing
to transfer the balance of the Division. It
is a Printing Division now. It is 8 small
unit and can function better in Procurement
Division.
H.M.Jr:
Where is it now?
Thompson:
It is an independent office now. Mr. Mack
has agreed to take it over and the chief of
the Division recommends it. The Bureau of
the Budget and the Legal Division have cleared
it.
Regraded Unclassified
- 2 -
H.L.Jr:
What is it called?
Thompson:
Division of Printing. Requisitions on the
Government Printing Office go through them.
H.M.Jr:
It is O.X. with me. what is this?
Thompson:
There are two orders.
11.M.Jr:
Incidentally, Clif Rack did quite a job. I
don't know whether you have given it out yet,
but he found that--
Schwarz:
We did rive it out. It got on the wire.
R.M.Jr:
Anyway, he found that on this mimeograph
paper the specifications were written so
there was only one company could bid for it,
so he changed the specifications. How much
did he save? Three hundred or--
Schwarz:
Three hundred thousand dollars.
H.M.Jr:
Three hundred thousand dollars. And he is
looking into the thing surrounding it, why were
the specifications always written SO just this?
one company could get it.
Schwarz:
One company had a monopoly on the cellulose
material.
H.M.Jr:
Just that one thinz. I mean, it interested
me. Nowadays the fact that a person saves
three hundred thousand dollars interests
most people. I mean outside the Treasury.
Bell:
On our aluminum sales, we have gotten seven-
teen dollars and fifty-three cents in the
Treasury to date in receipts.
B.H.Jr:
Well, now, who is responsible that the
Regraded Unclassified
3
- 3 -
aluminum dumps are all over the country and
they don't sell it? Is that our responsi-
bility, Harold, under Procurement?
Graves:
I so understood that the Procurement Division
was responsible for the--
H.M.Jr:
Once they create--
Graves:
Yes.
H.M.Jr:
Would you find out - God, the Government is
getting terrific publicity. They have got
these dumps all over the country. It is
terrific. If it is up to us to move them,
for Heaven's sake, let Mack put some one
man on to move them. We have got policemen
guarding them, and the women have given up
their pots and pans and there they are staring
them in the face.
Graves:
All right.
Bell:
We have got word from the - through the Navy
Department that the General Accounting Office
has approved a plan of payroll deduction for
the Navy people in the purchase of Savings
Bonds, and I think the General Accounting
Office gave consideration at the same time
as to whether other Departments might not do
it, and I think they have worked out a
scheme that would fit any Department if they
want to do it.
H.M.Jr:
Wonderful.
Bell:
You know we have 8 conference today on
Social Security at eleven.
H.M.Jr:
Eleven o'clock?
Bell:
And the luncheon tomorrow.
Regraded Unclassified
4
- 3a - -
H.M.Jr:
Right.
Bell:
Eccles and Henderson and Nelson will be
here.
H.M.Jr:
Fine.
Bell:
As you noticed, the Treasury tax notes picked
up a hundred and ninety-two million.
H.M.Jr:
How much?
Bell:
A hundred and ninety-two million. My reports
indicate about two hundred fifteen million
up to Friday night.
H.M.Jr:
Fine.
Bell:
So that the estimates both on tax notes and
Savings Bonds are not going to look so bad
after all. We probably won't reach them,
but they won't be so bad at the end of the
month.
H.M.Jr:
Do we start talking financing next Monday?
Bell:
Monday, yes.
H.M.Jr:
Do you and I TO to work?
Bell:
Yes, sir, we will be ready.
H.M.Jr:
I have got some new ideas that I passed on
to George.
Bell:
Really?
h.M.Jr:
have you got anything on that, George, for me?
Hans:
we are working on it now, Mr. Secretary.
Regraded Unclassified
5
- 4 -
H.M.Jr:
If you have them, let Mr. Bell see them and
Mr. Morris and myself. Harold, Colonel
Greenbaum called me up this morning, and he
says one of these juke box fellows that I saw
in Detroit is a gangster. He mentioned his
name. His name didn't sound familiar to
me.
Graves:
Not Small, I hope.
H.M.Jr:
Small, yes.
Graves:
Says he is & gangster?
H.M.Jr:
Yes, he is sending me over all the facts.
is that the fellow that came here?
Graves:
That is the fellow that came here.
Gaston:
Aren't they all? (Laughter)
H.M.Jr:
Not when they play "Any Bonds Today."
Well, you might start - have we got an
Internal Revenue man in Detroit?
Graves:
Oh, yes.
H.M.Jr:
Get a wire off, will you, on Small? But
wait until he puts the deal across for the
country.
Graves:
You don't mean that?
H.M.Jr:
What do you mean?
Graves:
I mean you don't mean that literally? I
suppose if he is a gangster we would--
H.M.Jr:
What do you think?
Graves:
I don't think you do mean it.
Regraded Unclassifie
6
- 5 -
H.M.Jr:
Well, if after eight years you don't know,
Harold, it is too bad. We are getting "Any
Bonds Today" played in every juke box in the
United States. That was my chief mission
to Michigan. Now it seems the man I am do-
ing business with, my palsey-walsey, is a
gangster. (Laughter) If he is, the fellow
out there in Detroit should have known it.
Graves:
Yes, that is right. I am inclined to doubt
that he is.
H.M.Jr:
Well, when the stuff comes over, I will turn
it over to you.
Graves:
Fine.
H.M.Jr:
What else, Harold?
Graves:
You asked for a memorandum on what we had done
on schools.
H.M.Jr:
Right.
Graves:
Three hundred thousand of them are going to
play "Any Bonds Today."
Klotz:
All the time?
H.M.Jr:
Whenever you put a nickel in.
Bell:
Don't you have to punch a button?
H.M.Jr:
Oh, yes.
We have got 80 many machines playing it
between eighteen and twenty times a day, but
one song is a little bit more popular than
ours. It is called "Blue Champagne."
(Laughter) You can't tell me anything about
juke boxes and so forth and so on. I am
with the people these days.
Regraded Unclassified
?
- 6 -
Graves:
You raised a number of questions in the
memorandum you sent me this morning.
H.M.Jr:
Well, we will get around to them.
Graves:
There is one thing that I would like to
mention. Perhaps now is as good a time as
any. The annual convention of the A. F. of
L. is to begin in Seattle on the sixth of
October and run for two weeks. The annual
convention of the CIO is to begin in Detroit
on November 17. It has been suggested that
you might speak at each of those conventions.
Mr. Kuhn and Mr. Odegard and I think that that
would be a good thing for you to do.
H.M.Jr:
Well, I don't think I am going to talk in
October any more.
Graves:
The trouble there is that you could scarcely
appear at either of those conventions unless
you are prepared to appear at both.
H.M.Jr:
When is the Seattle one?
Graves:
It begins the sixth of October and runs for
about two weeks.
Gaston:
That is A. F. of L.?
Graves:
That is A. F. of L. You have spoken to
bankers' gatherings and advertising clubs
and so on.
H.M.Jr:
Why are you so serious about it, Harold?
Klotz:
This is Monday morning.
H.M.Jr:
Well, you are dropping the seed. Let it--
Graves:
We would like to know. That is, we would
have to know pretty quick.
Regraded Unclassified
H.M.Jr:
Well, do they want me?
Graves:
Oh, they would be very enthusiastic about hav-
ing you, but they have - as far as the A.
F. of L. convention is concerned, they have
simply said they want someone from the Treasury.
There is no question but that they would be
overjoyed to have you--
H.M.Jr:
Well, let me kind of think about it a little
bit, you see.
White:
Of course, it means both or none.
Graves:
Both or neither.
H.M.Jr:
You see, I promised my son, Henry, the next
place I talked would be Cleveland.
Graves:
He might let you off.
White:
Maybe you have got some pull with your son.
(Laughter)
H.M.Jr:
Well, you, as a father, know what your word
to your children means. Let me think about
it. I won't forget about it.
Graves:
Then these other things that you raised with
me, I would like to talk with you about them
as soon as convenient to you.
H.M.Jr:
Why don't you stay after this meeting.
Graves:
All right.
H.M.Jr:
Supposing you stay, Harry, do Mexico?
White:
Well, the question is that Monteros called me
again and said their Finance Minister is
waiting. He is their representative up here
who has been negotiating. They also have in
Regraded Unclassified
mind discussing here--
H.M.Jr:
What am I to do, Harry?
White:
Merely say you want the Finance Minister up
here, and he will be up here pronto on the
next plane.
H.M.Jr:
See how Mexican he is. He goes "pronto."
You sure it isn't "mañana"? (Laughter).
Bell:
I thought we told them we wanted him.
H.M.Jr:
From south of the border.
White:
On the agreement, there is complete agreement
here on the agreement, so all that is neces-
sary--
H.M.Jr:
Can you sing "That South American Way"?
Klotz:
He doesn't know Carmen Miranda.
H.M.Jr:
If he doesn't, he should.
Well, let him come. Not mañana mañana, but
pronto.
Do you know why he shouldn't Daniel?
Bell:
No. I understood from the beginning that you
wanted the Finance Minister to come up here
and discuss this agreement with you, and you
two could sign it together. I told Collado
that, and he called me last week about the
signing of the agreement, and I said that you
could sign it, I thought, up to noon Wednes-
day of this week. After that you would have
to wait until probably the following week,
and that you still wanted the Finance Minister,
there had been no change in that.
Regraded Unclassified
10
- 9 -
H.M.Jr:
Well, does he have to bring his wife, who is
the seventeenth daughter of a seventeenth
son?
White:
I don't know his wife. Do you know his wife?
H.M.Jr:
She speaka no English, and I speaka no Spanish.
She is the seventeenth daughter of a seven-
teenth son. She is. (Laughter)
White:
I take it you were going to do the business
with the Finance Minister. (Laughter)
H.M.Jr:
Well, after all, women have the vote, you
know, and you want a well-rounded conference.
White:
I had better remain quiet.
H.M.Jr:
If you think so, I am with you. (Laughter)
All right, that is settled.
White:
That opens the question of Equador, which
you asked me to see about. The question is
whether you want to continue those discus-
sions which were held in abeyance. I don't
think there is any rush about this.
H.M.Jr:
One South American country at a time.
White:
Mr. Coe is here, and will be available any
time you wish to see him.
H.M.Jr:
Just the minute I get 8 breathing spell.
White:
You will let him know?
Regraded Unclassified
11
- 10 -
H.M.Jr:
Yes.
White:
We have prepared this memorandum for the
Vice President on the economic defense
functions administered by the Treasury.
It is several pages long. I think it would
be interesting for you to read it. But
they raised two questions that we need your
opinion on. They have been cleared all
over, but we are all doubtful about two
points.
I could mention them very briefly, and I
think you could give a yes or no answer
on those two points.
One is, we do say that the Treasury has
power to make Stabilization arrangements
- oh, I noticed that your initials are not
on this, Dan. I thought you had cleared it.
I am sorry. I will see that he gets it.
I thought his initials were on it.
The Treasury has the power to make Stabili-
zation arrangements with foreign countries,
such as, for example, the arrangement with
China can be used to achieve some of the
objectives of economic defense. Specifically,
the Stabilization Fund arrangements may be
utilized to render economic aid to friendly
nations and to induce third nations to
cooperate more fully with the United States
in economic, political, and military matters.
Now, that is a fact. But whether we want
to state that is something --
H.M.Jr:
The answer is "No".
White:
Then I think the answer to the second will
likewise be "No".
Regraded Unclassified
12
- 11 -
"The Treasury purchases of silver from foreign
countries as in the case of Stabilization
Funds are 8 means of helping friendly nations and
of persuading" --
H.M.Jr:
I didn't hear you, Harry.
White:
"The Treasury purchases of silver from foreign
countries as in the case of Stabilization
Funds are 8. means of helping friendly nations
and of persuading other third nations to
cooperate with us."
H.M.Jr:
The answer is "No".
White:
Those are the only two points about which
there would be difficulty. We will delete
those and if we get Mr. Bell's signature,
we will send it to you and it is quite la te
so --
H.M.Jr:
I can clear it today if Bell will clear it.
White:
Miss Chauncey returned this question of the
proposed Inter-American Treasury Bulletin
and said that she wanted it raised here.
All we are asking for is six thousand
dollars which the Rockefeller Foundation
said they would give us for a preliminary
investigation among the South American
countries of thei willingness to cooperate
on an Inter-American Treasury Bulletin.
H.M.Jr:
You mean to say it is going to cost me six
thousand dollars to send you to Cuba?
White:
No, it is going to cost not us, but the Rocke-
feller Commission six thousand dollars to
send somebody else, and not to Cuba, but to
South America. Outside of that, you are
correct.
Regraded Unclassified
13
- 12 -
H.M.Jr:
Harry is feeling fine today.
White:
All right then, I will return the letter
and sign it. There is a question here
you raised about Keynes, but since Mr. Coe
is here, I think possibly you might want to
take that up with him.
H.M.Jr:
What I will do is, see, I have got to do
this. I will give Coe tentatively 11:30
tomorrow.
White:
Right.
H.M.Jr:
Tentatively.
White:
That is all.
H.M.Jr:
Mr. Schwarz?
Schwarz:
General Surles, the War Department man, assures
me that there was & genuine letter they received
from the little town in Arkansas telling them
about Defense Bonds. He said if that had
been all, they would have sent it over to
us, but the lady simply told about their
purchase of the Bonds to explain why they had
no money left to build & booth at their
county fair, and for that reason she asked
the Army to supply the material for the booth.
H.M.Jr:
I was delighted. General who?
Schwars:
Surles. S-u-r-l-e-s.
H.M.Jr:
Does he speak to you?
Schwarz:
Very much. He is an old friend. He was
a colonel last time he was here.
H.M.Jr:
That is wonderful. They said they got out
a three-page release on that.
14
- 13 -
Schwarz:
He is sending me the release. It hasn't
arrived yet.
H.M.Jr:
Fine.
Schwarz:
I have here your room numbers for the Hotel
Stevens that the American Bankers have set
up, and F.M. Edwards is in town today, and
he will be glad to take out any messages
that you might like.
H.M.Jr:
I will have to see him some time today.
Schwarz:
Walker Stone of the Scripps-Howard papers
has asked us for an auditor from the Treasury
to help them on an informal basis, to help
them analyze the budget to find places where
non-defense expenditures can be cut. I
don't think we ought to do that. While they
agree to do it anonymously, I think it would
be a bad precedent.
H.M.Jr:
The answer is "No".
Schwarz:
And press conference at four o'clock today?
H.M.Jr:
Yes.
Schwarz:
That is all.
H.M.Jr:
Schwarz and Gaston, will you be here at two
thirty? What time are you leaving, Gaston?
Gaston:
Three thirty.
H.M.Jr:
Well, I have got a meeting at two thirty that
I want you and Schwarz at, please.
Gaston:
Good.
Schwarz:
This copy of the press release just arrived.
Regraded Unclassified
15
- 14 -
H.M.Jr:
Let Harold see it.
Graves:
Thank you.
H.M.Jr:
And then, Herbert, you just walk out when
it is train time.
Gaston:
I will have plenty of time.
H.M.Jr:
Just walk out.
George?
Haas:
Draper is now working on that small loan
figure.
H.M.Jr:
Yes. I want to follow through on that.
I think that they can do that thing.
Haas:
You wanted to know how much --
H.M.Jr:
Does he know it is from Mrs. Roosevelt?
Haas:
Yes. I thought I had better send that man
over there along with that.
H.M.Jr:
I don't think it is a hopeless case. And
stress the fact I want to get the son a
job.
Haas:
Fine.
H.M.Jr:
Won't the local man get their son a job,
see? And I would like to talk to him about
it, would they stress getting the boy a
job?
Haas:
A week or so ago you asked me to follow
daily these prices.
Regraded Unclassified
16
- 15 -
H.M.Jr:
Yes.
Haas:
On cotton, see, since your speech, it has -
what is happening here in cotton, a new
crop is coming.
H.M.Jr:
Wickard was very fair about it. He said
that my speech and the new crop happened to
come on together, and I wish everybody that
has been helping me on prices would please
read what Brookings Institute said, and give
me an analysis.
Haas:
All right.
The retail price hasn't shown any decline
yet.
H.M.Jr:
Thank you.
Blough:
The first stop-gap rough draft of the six
per cent profits tax bill which you talked
about last week has been prepared. We would
like to keep it in the safe, however, and
not show it to anybody because it is just
there in case you want it as a stop-gap.
H.M.Jr:
You are coming in to see me at two o'clock.
Two fifteen.
Blough:
Mr. Sullivan will be speaking tomorrow
noon at the Bar Association in Indianapolis
on the inter-governmental fiscal relations
business which you talked with him about
before. I am just reminding you that he is
going to be there.
H.M.Jr:
Did John call up? Have you spoken to him?
Blough:
Several times since last Wednesday.
H.M.Jr:
I couldn't understand that he didn't call up.
It seemed inhuman.
Regraded Unclassified
17
- 16 -
Blough:
He waited until after your press conference,
Mr. Secretary, and then called and asked
what happened. I told him what happened,
and that is about all there is to it.
He didn't express any opinion at all.
H.M.Jr:
Didn't he?
Plough:
No. And then I talked to him again last
night about this speech for tomorrow. I
think he plans, if the weather is suitable
for flying, to be at the fight tonight also,
so Mr. Gaston might see him there. I
don't know that he plans to be in here any
earlier than his earlier plans, which I
don't quite know.
H.M.Jr:
He is supposed to report back on the sixth.
What is he going to do between his speech
and the sixth?
Blough:
I haven't the slightest idea, Mr. Secretary.
I suppose take B. vacation.
The tax treaty with Canada which they asked
for is scheduled - the negotiations are
scheduled to begin in Ottawa next Monday
and you asked me to help negotiate that.
The present plan is for Mr. Eldon King and
myself to spend a good part of next week in
Ottawa. It probably won't take more than
three or four days. However, you did make
the reservation that if necessary, we might
not --
H.M.Jr:
Speak to me the day you are leaving. That
is my understanding with Harry on his trip
to Cuba.
Blough:
All right. I will probably leave Saturday
or Sunday, but I will speak to you at the
end of the week about it.
Regraded Unclassified
18
- 17 -
The National Tax Association has its annual
convention in St. Paul two weeks from today.
I think Mr. Foley is speaking at it. Mr.
Sullivan isn't going to be able to go, and
he has asked me to attend that for him. I
think it is quite an important gathering.
H.M.Jr:
When is that?
Blough:
that is two weeks from now.
H.M.Jr:
Well, tentative.
Blough:
Yes.
H.M.Jr:
By the way, is the man from Wisconsin in
town, the tax man?
Blough:
Yes, sir, Mr. Groves is here and has been
on the job, and we have been in very close
touch with him.
H.M.Jr:
Wouldn't he have some ideas on this six
per cent business?
Blough:
Yes, he is a very able tax economist.
H.M.Jr:
Why don't you bring him in with you at
two fifteen?
Blough:
All right.
H.M.Jr:
And let him see that confidential draft
before.
Blough:
All right.
H.M.Jr:
Will you?
Blough:
Surely.
H.M.Jr:
Supposing you bring him in at two fifteen.
Regraded Unclassified
- 18 -
White:
You won't want to get him in on the Social
Security, too, would you?
H.M.Jr:
Not at this late date, I don't think, Harry.
I have got 8. particular thing I want to do.
Bring him in at two fifteen, will you? Tell
him whatever we are doing is very confidential.
Blough:
Well, he is very good about that sort of
thing. I am still trying to get a little
vacation in between times. I enjoyed the
three days I had last week very much, indeed.
So I am really not back here, with your
permission, full time, except just when
you need me.
H.M.Jr:
You are back just for today, as far as I am
concerned.
Blough:
That was my understanding.
H.M.Jr:
Just for today. You have had more than three
days.
Blough:
Well, off and on I had one or two days in
addition.
H.M.Jr:
No, my understanding with you is just for
today.
Blough:
That is not quite fair. I have had more
than three days, but only three consecutive
days.
H.M.Jr:
I would like you and what is the man's name?
Blough:
Harold Groves.
H.M.Jr:
I would like you to come in and let him
read this thing beforehand, and if you could,
I would very much like to have him read
everything that I have said on the Hill back
and forth before that, too.
Regraded Unclassified
- 19 -
Blough:
I am sure he would he very glod to.
H.M.Jr:
Will you?
Blough:
Yes, indeed
H.M.Jr:
Is that all?
Blough:
That is all.
Cairns:
I have nothing, Mr. Secretary.
H.M.Jr:
What is the matter?
Cairns:
Well, Ed left last night and there have
been no new developments.
H.M.Jr:
You haven't discovered any new and un-
heard of orations by Demosthenes, have
you?
Cairns:
No, I assume that one has been used.
H.M.Jr:
I don't think so.
Morris:
I can only report I am still trying
to find out about things, and I just
Regraded Unclassified
21
- 20 -
want to see if I am going on a tangent
or not.
I have spent quite & little time trying
to learn something about the background
of the Treasury's tax proposals and the
whys and wherefores, and tying it in with
this six per cent thing, so that when
I get asked as to reasons, I will know
something about it.
I have just been studying along those lines.
H.M.Jr:
That is all right. Have you got in on
the - have you had a chance to look in
to our trust funds?
Morris:
I have got a bowing acquaintance with them,
and expect to go into them further as I
get time.
H.M.Jr:
Well, you come to the eleven o'clock
meeting today on the Social Security.
I thought it might be useful for you if
you went with me to Chicago, seeing that
they are bankers. Would you like to go?
Morris:
Yes, sir, very much.
H.M.Jr:
Well, if you will ask Fitzgerald what time -
I know I am going out on the Baltimore and
Ohio and coming back on the Baltimore and
Ohio. So if you will find out, I think as
long as it is bankers you had better go.
22
- 21 -
Morris:
Yes, sir.
H.M.Jr:
O.K. And then George, as you begin to
prepare this stuff for me on my next
financing, I want Mr. Morris to be kept
posted, you see. I mean this new idea I
have evolved, if you will give it to Mr.
Bell and also give it to Morris. Will you?
Haas:
I will be glad to.
H.M.Jr:
But you had better spend as much time as
you can talking with George and Henry
Murphy, Morris, on the next financing.
Morris:
All right.
H.M.Jr:
I would like you to get in on that. Will
you?
Gaston:
One of the new eighty-three foot patrol
boats, a series of them that are being
built in Brooklyn, is here now. They are
& little different design than we have had
before. I thought you might possibly have
B. chance to look at it in the next day or
two. It is down here in the Washington
Channel. It is the first of the new series.
They are about twenty-one miles an hour,
eighty-three foot boats.
H.M.Jr:
How long will it be there?
Gaston:
As long as you want but it will be here for
8. couple of days, anyway. I planned to go
down tomorrow and take a look at it.
H.M.Jr:
I will try to go too.
Gaston:
All right. I will remind you tomorrow, then.
H.M.Jr:
Will you, please?
Regraded Unclassified
- 22 -
Gaston:
Yes. You asked about this case that I
reported back to the White House, the
man who was detected in tax fraud and
was not prosecuted. One of the OPM dollar-
a-year men.
H.M.Jr:
Oh, yes, I wanted to know what happened to
that.
Gaston:
Jim R ome says that the system is that he
takes those things up direct with the
President and he hasn't - he will take
this up and be will let me know what happens
but he hasn't yet done SO.
H.M.Jr:
The purpose of my note is, if we find that
there is 8 fellow who is in trouble with
the Government in OPM, what are they going
to do about it? If they are not going to
do anything, I want to stop my investigating.
If they are just going to whitewash these
fellows, there is no sense of our going to
all this trouble.
Gaston:
You know what the situation is about this
man? Back in 1937 they discovered that he
had falsified his inventory for 8. previous
year, and it was a plain, open and shut case
of wilful deceit.
H.M.Jr:
I know.
Gaston:
But the decision over there in the Bureau was
not to prosecute --
H.M.Jr:
I read it.
Gaston:
He made a compromise settlement so he has
nothing pending now but he did cheat in 1935
and '36.
H.H.Jr:
What sort of things is he the head of?
Regraded Unclassified
01
- 23 -
Gaston:
wholesale hardware.
H.M.Jr:
I am just curious because if they are going
to let 8. fellow like that represent the
Government, then what is the use of our
making any investigations? That is the
way I feel.
Gaston:
And you asked about that other thing, that
radio installation. Norman is taking it up
in that way and the same thing on the
Krasin. There are three ways we can work
it. I have written a little memorandum
about it.
There are three ways that we can work. One
is Lend-Lease, which isn t so good. Another
is special presidential fund. We are sending
a letter over today on special presidential
fund. At the same time I had them prepare
a request for an appropriation to be
inserted in this deficiency bill which we
might try if the other doesn't work. Of
course, we would have to lay the whole deal
out before Congress if we go through the
Appropriations.
H.M.Jr:
Well, the best way would be . how much is
involved?
Gaston:
We don't know. They would like to ask for a
hundred thousand, just as a guess. But it
may run less than that or it may run three
hundred thousand.
H.N.Jr:
Well, we have got to repair it, that is all
there is to it. The President knows about it.
Gaston:
I think that is the safest way because I
think you will get & knock down and drag out
debate up there on the Hill if you don't.
Regraded Unclassified
- 24 -
H.M.Jr:
All right.
Gaston:
You asked about the plane at New Hackensack.
H.M.Jr:
Yes.
Gaston:
Well, the explanation is that the passenger
was Kossler, who is our chief engineer on
airplane design and so on. He went up.
He was in New York and he had the boys take
him up to New Hackensack to ride back to
Washington and they say that this is not a -
this is not - I forget what kind of an
airport it is. It isn't an airport that
requires communications.
"Did not establish communication with New
Hackensack radio. No radio communication
was received from New Hackensack radio.
Pilot estimated time of arrival of your
plane and landed in New Hackensack about
five minutes after your plane. New Hacken-
sack field in not a radio controlled airport
and radio communication is not required.
That is his story.
H.M.Jr:
Herbert, all that is true. It is like saying,
well, green lights don't work after twelve
o'clock so I don't have to be careful. But
I have never been in 8. Coast Guard plane
that I have gone into a place where there is
a radio that they don't call in and say, "I
am coming in in five minutes, or ten minutes,
and is it all right for me to come in?"
There is a school there where they fly these
planes around and for that man to come in,
just because the regulations said he didn't
have to ask --
Gaston:
It is possible to communicate, is it, with
that field?
Regraded Unclassified
26
- 25 -
H.M.Jr:
Oh, we always do. That is the point.
Gaston:
It says the ship did not establish communi-
cation with New Hackensack radio or no radio
communication was received.
H.M.Jr:
How could they, if he didn't ask?
Gaston:
I don't know whether that means that he tried
to establish it and failed. It says no
radio communication was received from New
Hackensack.
H.M.Jr:
Of course not. If he didn't say - my plane
starts talking ten minutes before, "I am
coming in in ten minutes, nine minutes, or
five minutes." The place is full of these
little flivver planes.
Gaston:
Do you want me to ask whether he attempted
to establish a radio communication?
H.M.Jr:
Yes.
Gaston:
This is not clear.
H.M.Jr:
And also the fact that he landed five minutes
afterward, I think, is incorrect. I think
it was less than that. I mean, he came
right in on our tail. They have got this
little school and the planes are there. I
think he was over the field before we were.
Now, if he had phoned in, you see, "Can I
come in?" they would have said, "No, keep
off," that my plane was coming in, "keep off".
Gaston:
Well, I think he knew that. That is, he
knew the time of arrival of your plane.
Wasn't he watching your plane?
H.M.Jr:
That I don't know. But Herbert, this has
Regraded Unclassified
27
- 26 -
radio and it has everything. The man has
radio. A careful pilot would use it and
say, "Is it clear for me to come in?" They
have got those tremendous graders running
right across that thing. It is under
repair.
Gaston:
There was an operator on duty there, wasn't
there?
H.M.Jr:
Oh, twenty-four hours.
Gaston:
Do they have twenty-four hour service?
H.M.Jr:
They have got the same sort of equipment
that they have on the thing on account of
it being the field that the President's
messengers use. It has got complete radio
service, twenty-four hours.
Gaston:
Even though it is not listed as a controlled
field?
H.M.Jr:
That I don't know. These trucks go through
there and there might just as well have
been a truck crossing or a little plane or
me.
Now, the fellow was over the field before
I was, I am pretty sure, and then he ducked
out to make room for me. Was that Burke -
not Burke, what was that, the fellow in
charge in New York? The pilot?
Gaston:
This message does not indicate who it was.
It probably was not.
28
- 27 -
H.M.Jr:
Well, anyway, my example, just because the
green light stopped working after midnight
on the corners doesn't mean that a fellow
shouldn't watch his corners when he crossed.
Gaston:
No, if he could communicate with that field,
he certainly should have.
H.M.Jr:
And he could. Ask if he has ever been
in to that field before, because if he
has, he would know that they have the
latest radio telephone equipment in
America there. They have got everything
the last word because it is the field
that the War and Navy Department use.
Gaston:
I will follow that up a little more.
We had some hurricane damage last week
on the Texas coast at Galveston. A
radio beacon tower was destroyed.
A lifeboat station was destroyed near
Galveston; two of them, in fact. We
had two patrol boats driven ashore.
H.M.Jr:
All right.
O.K., that is all, Herbert?
Gaston:
That is all.
Regraded Unclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Sept. 25, 10112
TO
Secretary Norgenthau
FROM
S. D. White
Subject: Argentine Loans
Press dispatches indicate that the present attempt of
the Argentine Government to get Con ressional approval for
the U. S. loans was at least temporarily frustrated again
yesterday (September 24) as the result of a political tangle
that may be connected with the abortive insurrection of
Argentina's air corps personnel.
Radioals in the Chamber of Deputies apparently refused
to approve the U. S. loans without assurances from the
Castillo Administration respecting the forthcoming December
elections in Buenos Aires Province. The National Democrate
(conservatives - Castillo's party) thereupon walked out of
the Chamber of Deputies. Whether the action of the Radicals
was connected with Castillo's accusation that some of the
lnsurrectionists were Radicals is not clear.
Regraded Unclassified
ASSISTANT SECRETARY OF THE TREASURY
September 29, 1941.
MEMORANDUM
TO: Secretary Morgenthau
FROM: Mr. Gaston
(1) Jim Rowe at the White House
has agreed to inform me what action
is taken with respect to William A.
Parker, the OPM appointee who was
detected in 8. tax fraud but not
prosecuted. Approval or disapproval
of these appointments is by the Presi-
dent personally and Rowe will tell him
the substance of our memorandum.
(2) Norman Thompson is making appli-
cation for an allocation from the
President's Special Fund in an amount
necessary to take care of the Hyde
Park radio installation.
Regraded Unclassified
31
September 29, 1941
10:40 a.m.
HMJr:
Hello.
William H.
McReynolds: Good morning, sir.
HMJr:
I'm honored, General, I'm honored.
Me:
Well, I'm honored that you're available, sir.
HMJr:
I'm always available. Easiest man in Washington
to get.
Mc:
Yeah. Except when there are forty people in
your office, which is usually true when I get
over there. Listen, the General Motors people
who run this show, you know, that they had
down on the lot a few years ago
HMJr:
Yeah.
Mc:
.....are starting a new one. They've got a
lot of good stuff in it. They're in here -
Charlie Lewis, who's the daddy of it - in
here talking to me about whether you folks
wouldn't like to run a stamp booth and bond
sales booth to be run by the post offices
and the various people at places where they go
in connection with that, sir.
HMJr:
I wrote them to that effect.
Mo:
Oh, you did?
HMJr:
I wrote to the fellow in - the vice-president
in charge of promotion
Mc:
Uh huh.
HMJr:
Hello.
Mo:
Yes.
HMJr:
asking them whether they wouldn't do
that.
Regraded Unclassified
32
- 2 -
Me:
Well, he - Charlie is - I guess it hasn't
gotten around to him yet. Well, he's the one
that handles the show and runs it, and he's
here in my office and is very anxious to work
something of that kind out.
HMJr:
Well, have you ever heard of Major-General
Harold Graves?
Mo:
oh, yeah. I tried - I called for you and then
I called for him and they said you had him in
your office, and I thought I'd just tell you
exactly
HMJr:
of course, Graves 18 always buey. He's sitting
right across the way from me.
Mc:
Yes. Well
HMJr:
You send him over to see the Major-General.
Mc:
Yeah. I'll send him right over.
HMJr:
Okay.
Mc:
Okay.
HMJr:
Good-bye.
Me:
Thank you.
Regraded Unclassified
33
September 29, 1941
11:10 a.m.
RE SOCIAL SECURITY
Present:
Mr. Brown
Mr. Currie
Mr. Blough
Mr. Morris
Mr. Bell
Mr. Haas
Mr. White
H.M.Jr:
Well, Dan, for Heaven's sake, tell me
what I am to say because at Cabinet Paul
McNutt has been writing the President for
a two hour conference. I think he is
going to get it. Does the Treasury know
which way it is going?
Bell:
Well, I am not 80 sure whether it does or
not.
H.M.Jr:
Well, I don't, on this.
Bell:
Well, it seems to me that this is a pretty
big program. Whether this is the time to
do it or not I don't know but I suppose it
is as good a time as any. The one thing
that worries me, I think, most - he would
say two things.
First, I am not sure that they know where
this is leading us in the future or whether
or not it is going to pay for itself. That
is on the unemployment, on the insurance
end, the old age end. But on the direct
assistance end it worries me a little to
start that scheme at this time and just up
Regraded Unclassified
34
- 2 -
the budget and it is something that you
will never get out and in the future you
will increase it substantially and you
will probably have WPA and everything else
to boot.
H.M.Jr:
Well, may I just interrupt? There is one
thing interesting. I said to Paul McNutt,
"If you don't mind my saying it, the trouble
with you fellows is, you haven't given
the fiscal aspect of this thing any consider-
ation.' He says, "You are right", which
interested me. He says, "You are right. We
haven't", which is encouraging.
Bell:
Well, now, Altmeyer doesn't want to
emphasize the fiscal side of this at all
in going to Congress. They want to put it
on a strictly Social Security basis.
H.M.Jr:
He can't get away from it, whether he likes
it or not.
Bell:
I think most of us feel just the other way.
We think the President at least - we don't
care what the Board does in its report -
but the President in sending it up with a
message really ought to have strongly
emphasized the fiscal needs at this time.
H.M.Jr:
Yes. Well, here is the point. I have
traveled this far. I am ready to go along
with increased unemployment insurance. Now,
just what does that mean in terms of
percentage? What have you got to do?
Brown:
Well --
H.M.Jr:
What do they want to do, increase it from
what to what?
Brown:
They want to lengthen the benefit period and
Regraded Unclassified
my
shorten the waiting period and they want it
Federalized.
H.M.Jr:
That Federalized business, I haven't studied
that. I don't know what that means.
Brown:
That in the long run will save in that the
reserves will be available for unemployment
in any area of the country, whereas now
we are building up pockets of reserve that
are useless in one state or against another.
S.M.Jr:
Have you met Kr. Morris, Professor Brown?
Brown:
Yes.
So that it is more economical in the long
run. You get your dollars worth more to
have a central reserve available for any
heavy lay-off area.
Bell:
I think the most of us in the Treasury are
definitely in favor of Federalizing the
unemployment insurance.
H.S.Jr:
Who isn't?
Bell:
I don't know but I was talking about
Treasury only.
Blough:
There will be certain members of Congress
who will be definitely against it.
R.M.Jr:
I don't know, but I take it the Senator
from Arkansas would be opposed to it. What?
I mean, the poor states.
Brown:
Well, they may be helped by it.
White:
The poor states will like it.
Regraded Unclassified
- 4
Blough:
Politicians won't like it.
H.M.Jr:
Where will New York be?
Brown:
That depends on what will happen to them
after the defense program and if they are
scared at all as to the drains on their
funds in their state, like Michigan, they
intend to come along because they will be
part of the over-all insurance scheme.
Bell:
The politicians might be against it
because it takes some of these state
appointments out of their hands.
Blough:
For instance, the appropriation bill for
the Social Security Board gave them the
right to spend the money in direct adminis-
tration under some circumstances in the
states. The Senate Finance and Ways and
Means Committee members were up in arms
about that because they, in all legislation
heretofore, have tried to protect the
state control over unemployment compensation.
I think some resistance will certainly
be met there.
White:
The people in Social Security feel that
that is, and they have felt for some time,
one of the most essential reforms.
Bell:
I think SO.
White:
In the whole Security program, the Federal-
ization of unemployment insurance.
Currie:
Both the C.I.O. and A.F. of L. are on
record as favoring it.
H.M.Jr:
How about the juke box operators?
Currie:
That I haven't gone into.
Regraded Unclassified
37
- 5 -
H.M.Jr:
It is very important.
Currie:
I know it is. I an sorry, I slipped on
it. (Laughter).
Blough:
In answer to your question, they proposed
8. one percent increase in the tax for
that purpose.
H.M.Jr:
One percent?
Bell:
It goes from three to four.
H.M.Jr:
How is that paid now, how much - fifty-fifty,
is it?
Blough:
It is now all paid by the employer.
Brown:
Except in a few states.
H.M.Jr:
It is all paid by the employer?
Blough:
Yes.
Brown:
There are about five or six states that
have employee contributions, but that is
entirely a state action.
H.M.Jr:
It is all paid by the employer?
Brown:
That was partly due to the fact that quite an
employer group were willing to go along on that
on account of merit rating. They were hoping
that if they paid this three, as merit
rating took effect they would drop down to
two or one.
Blough:
Which is what is happening.
H.M.Jr:
I don't understand.
Brown:
There was an idea developing in Wisconsin that
Regraded Unclassified
ises
. 6 -
you could cure a lot of this unemployment
if the employer would really stabilize
and the way to get an incentive was to
charge them three percent in the first
instance, then if he stabilized, he would
get a lower rate. I know practically
all students of social insurance are against
that because it tends to lower standards
in the whole system. A good many of the
people --
H.M.Jr:
What do you call it, the merit?
Brown:
Merit rating. Experience rating is
another word for it.
Blough:
The employer doesn't have any unemployment
or very little unemployment -- if he
doesn't, they out his tax rate.
S.H.Jr:
well, now, they increase it from three to
four on the employer.
Blough:
They propose an over-all scheme, an over-all
system in which the total tax would be
increased from five to ten and whereas now
the employer pays four and the employee
pays one, they wind up with the employer
paying five and the worker paying five.
S.H.Jr:
Oh ..
Sell:
That includes old age.
Flough:
,,hich would mean that in effect this
additional one percent for unemployment
insurance would be on the worker instead
of the employer, althouch they might not
so recognize it in the law,
H.N.Jr:
Well, I have just got to go step by step. I
Regraded Unclassified
39
- 7 -
mean, let's say we - for the moment we
will say we are for increasing the unem-
ployment insurance by one percent, which,
as I remember it, would bring in to the
Treasury five or six hundred million
dollars more, what is that figure?
Bell:
No, I don't think it is that much, is it,
Roy?
Blough:
Well, with the extended coverage and
somewhat an improvement in business
conditions they expected seven hundred
million dollars more.
Bell:
Just from that one percent?
H.M.Jr:
No.
Blough:
Yes.
M.L.Jr:
I thought we went over - in taking out business
improvement I thought it came back to five
hundred million dollars.
Blough:
That is quite true if you take out business
improvement.
H.M.Jr:
That is what you told me the last time we
met. Taking out the normal increase would
come anyway - by increasing it one percent
would mean five or six hundred million.
Blough:
One percent wouldn't do it but that plus
the extended coverage is expected to do it.
M.M.Jr:
That is right. How what is the extended
coverage?
Blough:
They propose to extend the coverage. Their
Regraded Unclassified
40
- 8 -
statement is a little vague. They
propose to extend it to all employees
except Government employees and agricult-
ural workers and domestic servants.
That means not a very broad extension
of coverage. But they intend also to
cut down the waiting period for workers
that are covered. That is not on the tax
side.
H.M.Jr:
Who were they going to extend it to, again?
Blough:
They were vague in their statement and I am
not sure just what groups would be involved
there. Are you sure what groups they would
have?
Brown:
One group is the less than eight. The law
as it now stands covers only eight or more
employees by & given employer. Some states
have it four or more. But the idea would
be to have the Federal law go down to one
or more, just like old age insurance. That
would add a considerable number to coverage.
Blough:
About three million, they expect.
H.M.Jr:
Going down to one?
Brown:
One or more employees by a given employer.
You see, when the act was first passed they
thought the administrative problems would
be so much greater on those small employers,
but they are finding in the case of old age
insurance that they can cover them pretty
well,
White:
Who would be excluded - what workers would be excluded
H.M.Jr:
If you get down to one who would be excluded.
Brown:
It would be B. category exclusion. That is,
Regraded Unclassified
- 9 -
if they cut out domestic servants or
farm labor, but in any industry normally
covered, they go down to one.
White:
I understood from Roy that they were going
to include servants and agricultural
workers.
Blough:
No, exclude them. Everybody except those.
White:
I see.
II.M.Jr:
Well now, let me see. As I understand it,
they are going to take everybody when
they say one or more; that is everybody.
Brown:
In the covered industries.
H.K.Jr:
What about agriculture?
Brown:
It is my understanding that they still
want to exclude farmer labor and domestics
under unemployment insurance but cover
them under old age and disability insurance.
11.M.Jr:
But we are only talking about unemployment.
They are going to exclude them on that?
Brown:
That is my understanding.
H.M.Jr:
How about domestic servants?
Brown:
It is my understanding that they would
exclude them. That is a difficult administ-
rative problem.
H.M.Jr:
It still means that I wouldn't have to pay
any unemployment insurance. They take mighty
good care of us farmers up on the Hill,
don't they?
Brown:
They expect you to hire them all the year
round, in good times and bad.
Regraded Unclassified
E.H.Jr:
Well, let me just say this. - mean, Dan,
put down as number one that we will go along,
shall we say, with the increasing of the
unemployment insurance.
White:
And the Federalization.
H.M.Jr:
And that. Do we want to do much more than
that at this time?
White:
Old age.
Brown:
Sir, I think it is an extremely critical time
to broaden the Social Security program generally.
H.M.Jrs
I know. I wrote that letter which was
written for me. I wrote a beautiful letter.
But I have got to go in there - I mean,
Miss Perkins and Paul MeNutt are just going
to be on me with - I mean, I will be the
whipping boy in that meeting. It will be a
beautiful time.
Brown:
Mr. Secretary, what I would say --
H.M.Jr:
Are you going to that meeting with anybody?
Brown:
No, sir.
H.M.Jr:
Will you go as my assistant?
Brown:
I will be glad to, sir.
H.M.Jr:
I would like you to go.
Brown:
The point I was going to make was that in
any expansion of Social Security it should be
on the basis of a - what can be done as a
permanent proposition. That is, the fiscal
side of it must be considered as a continuing
cust and not merely as intake at this time.
H.M.Jr:
Well, does the old age work to the Treasury's
benefit?
Regraded Unclassified
43
- 11 -
Prown:
Yes, sir, to put it this way, to the extent
that you have the intake from the people
now under sixty-five being considerably
larger than those over sixty-five - I
don't know what the figures are, Roy.
Blough:
You mean the expansion of coverage?
Brown:
Yes.
White:
There is a net acquisition.
H.M.Jr:
Just to interrupt for one minute to keep
from getting too serious, the funny thing
which happened, which nobody can explain,
the National Townsend Club - I think that
is what they call them, they are all writing
in for copies of my boston speech. When
I say "all", great numbers of the Townsend
Club want copies of my Boston speech, and
nobody can understand why. Isn't that
amazing?
Brown:
Well, they want expansion of Social Security
their way, which would be an extremely costly
way.
H.V.Jr:
You think it is what I said on Social Security
that they want?
Brown:
Yes.
H.M.Jr:
I was hoping they were interested in the cost
of living. (Laughter).
Frown:
Those fellows are only interested in one
thing.
Whites
They are, but they don't need the speech for
that. They still have to buy.
Regraded Unclassified
ns
- 12 -
H.M.Jr:
Well, again, give me what is the old age
thing now. Just what happens now?
Brown:
Well, the old age now is limited to
these things, to the protection of persons
over sixty-five by annuity.
H.V.Jr.
Over sixty-five?
Brown:
Over sixty-five. That is, including the
man himself, his wife, if she is over sixty-
five, his widow, when she becomes sixty-
five long after his death. Then & very
small outlay with dependent parents that
doesn't amount to much. Now, what they
suggest is first, that women be brought
down to sixty, because the usual thing is
that a man's wife is younger than himself.
It covers up a blind spot where there are
a lot of wives who go two or three years
after their husbands go on annuity before
they can go on annuity.
Then there is the protection of the permanent
and totally disabled that was recommended
by the Advisory Council two or three years
ago with the question on timing. There was
a split on timing. But I think the whole
Council and others felt that it was due
in time.
Bell:
Then there is additional coverage?
Brown:
Yes, sir.
White:
Do you have an estimate of what that would
bring in, net?
Bell:
1942, they claim three billion two over
payments.
Regraded Unclassified
45
- 13 -
H.M.Jr:
You have got to go a little slower with me.
How is it set up and who makes the
contributions the way it is now?
Brown:
Well, 8.S it is now, it is one and one.
One from the employer, one from the
employee.
H.M.Jrz
One and one.
Brown:
And you remember it was due to go up in '40.
That was held back. It is now to go up in
'43 to two and two, two from the employer
and two from the employee.
H.M.Jrz
In '40?
Brown:
January 1, '43. Now, the benefits they
propose additional to the present are,
first, the permanent and the total disability
feature that was considered back two years
ago. There was a recommendation in prin-
ciple from the Advisory Council and most
people favored it in principle. It was a
question of timing. Personally, it seems
to me an appropriate time to make that
addition. Now, the reduction of the
retirement age for women is a thing which
experience has shown to be necessary.
H.M.Jr:
It is how much now, the tax?
Brown:
The tax is one and one.
H.M.Jr:
And you are proposing to make it two and two?
Brown:
Their suggestion is to bring that up to next
January.
H.M.Jr:
In other words, advance it a year.
Brown:
Yes.
Regraded Unclassified
- 14 -
H.M.Jr:
And reduce women's age from sixty-five to
sixty?
Brown:
To sixty, and add various classes like
agricultural labor, domestics, non-profits,
and so on.
H.M.Jrt
Let's see. Right now the employer for
unemployment --
Brown:
Pays three.
H.M.Jr:
Pays three.
Prown:
Yes.
H.M.Jr:
And they are suggesting an increase of
one?
Brown:
Yes.
H.M.Jr:
And then for old age we are suggesting -
he is paying now?
Prown:
Jumping to two and two, two on the employer --
H.M.Jr:
He is paying two now?
Brown:
One now. It would be a jump to two.
Il.M.Jrs
He is paying one now?
Brown:
Yes.
H.M.Jr:
And we are suggesting an increase of --
Brown:
One to two.
H.M.Jr:
One plus one.
Brown:
Now, however, they are making their recommen-
dation as an over-all set of percentages.
That is sort of breaking it down & bit arti-
ficially.
Regraded Unclassified
- IS -
H.M.Jrs
Well, I just wanted - an employee on
unemployment is paying --
Prown:
Nothing, in most states.
H.M.Jr:
Zero. And on old age he is paying --
Frown:
One now.
H.M.Jrt
And it is suggested that he pay --
Brown:
Two. That is breaking it apart. They,
however, have it bundled together in a
five and five, but you include certain other
things.
H.M.Jrs
But if you stopped right t here, it would be
as six to two.
Brown
Yes, six to two.
Currie:
Unless you add on that additional one per
cent of unemployment insurance to the employee
instead of the employer.
Brown:
It would be five to three then.
Blough:
Which you would certainly have to do if the
five - five is going to come out.
H.M.Jr:
Is that in the works?
Currie:
It can be put in the works. It is rather
difficult, as Brown says, to break it down,
because they have got it all in one bundle,
five - five, covering 8 whole lot of things.
Flough:
They want an insurance system that throws
everything into one pot, five per cent
from the employer and five per cent from
the employee. We are trying to break the
pot down, you might say.
Regraded Unclassified
48
- 16 -
Thite:
But it does mean that up to date the employer
has paid four.
Blough:
that is right.
White:
And under this new scheme he will pay one
more. Under the old scheme the wage earner
pays only one. Under the new scheme he will
go from one to five.
Blought
You mean for the whole works?
White:
Yes.
Bell:
If you combine
H.M.Jr:
That is pretty tough.
White:
It is a very big increase. You have got to
be 8 little bit self interested in this thing.
If you go to the employee from one to five
and then come alongand say you want to set
aside some of his things for savings, will
this take - will this replace our volunteer
payroll deduction plan?
Brown:
One --
White:
He is paying four per cent more out of hls
wages than he did before.
Frown:
One way it could be done is to add the extra
one on the employee. That makes unemployment
insurance three and one, giving the employee,
however, a lot longer protection when he is
unemployed. Then have the old age insurance
two and two, two on the employer, two on the
employee. That makes the over-all five and
three.
H.M.Jrz
Now, wait a minute. I have got old age
two and two.
Regraded Unclassified
- 16 -
Whites
but il noes mean that up to date the employer
has paid four.
Blough:
*hat is right.
Walter
And under this new scheme he will may one
more. Under the old Joheme the wage earner
pays only one. Under the new scheme he will
go from one to five.
Plough:
You mean for the whole works?
White:
Yes.
Pell:
If you combinethem.
H.W.JPI
That is pretty tough.
White:
It is a very big increase. You have got to
be 8 little bit self interested in this thing.
If you go to the employee from one to five
and then come alongand say you want to set
aside some of his things for sevings, will
this take - will this replace our volunteer
payroll deduction plan?
Prown:
One --
White:
He is paying four per cent more out of his
wages than he did before.
Frown:
One way it could te done is to add the extra
one on the employee. That makes unemployment
Insurance three and one, giving the employee,
however, a lot longer protection when he is
unemployed. Then have the old age insurance
two and two, two on the employer, two on the
employee. That makes the over-all five and
three.
R.
Now, wait A minute. I have got old age
two and two.
Regraded Unclassified
49
- 17 -
Brown:
That is right.
H.M.Jr:
Under the new proposal. Employer, four under
unemployment insurance and employee nothing.
Brown:
Tell, shift that to three and one. That
will give you a total of five and three.
H.M.Jr:
Shift that to three and one, which would
give you five and three. That would be more
equitable, wouldn't it?
Whiter
So that the employer would not be paying
any more, but the employee would be paying
two per cent more.
Currie:
The employer would be paying one more.
Whiter
No, he is paying four and one now.
Bell:
No, he is paying three and one. He would
pay three and two.
H.M.Jr:
At the present time he is paying four. You
told me three for unemployment and one for
old age.
Whiter
That is four.
H.M.Jr:
And you are upping him one.
White:
You would up him to five, and you would
up the other from one to three.
Haas:
Then you would leave out, Doug, the --
Brown:
I was just taking this so far. Personally,
I feel that in order to get an all-round
program, as much as you can afford now,
and to at the same time convince the employee
of his interest in adding to the contributions
from his side, that you need to push 8. bit into
some of these other things. Now, personally,
Regraded Unclassified
BU
- 18 -
I haven't had sufficient time to study this
hospital business, as to - how it is
sound to go now, but that is a thing which
has been in the woods for a long time.
The idea is to take only the easy part,
that is, the actual cash reimbursement
from the hospital side and then a cash
disability benefit, leaving out the med-
ical care in the home. The hard part has
always been in health insurance, the
medical care in the home.
H.M.J.:
But supposing you just stopped here for this
year. This would be quite B. step forward,
wouldn't it, for one year?
Currie:
How much more revenue would you get from
those two steps?
H.M.Jr:
Wouldn't it be quite 8 step forward?
Be'l:
Are you talking now about the six and the
two, Mr. Secretary?
H.M.Jr:
I am talking of - the way he put it, live
and three, as opposed to four and one.
Hell:
Well, that leaves out the hospitalization,
I take it.
Blough:
You would have nearly two billion dollars
increased revenue, between 8 billion seven
hundred fifty and two billion dollars revenue
from these two steps.
H.M.Jr:
Say it again.
Blough:
You would have in the neighborhood of two
billion dollars of increased revenue annually
during the good years from these two steps
of increasing the unemployment insurance and
increasing the old age insurance.
Regraded Unclassified
- 19 -
Currie:
That is quite a lot.
H.M.Jr:
Don't you think so?
White:
That will be all the income the first
year?
Currie:
Yes.
Blough:
Practically all.
Currler
I think it is too much.
H.V.Jr:
But it is - I mean, you have got to remember
this thing. I mean, I want to be understood
by my own people and the people that come in
to help me. I have always made a statement.
I am saying this for the benefit of everybody
in this room. If you try to ride two horses,
the one the profit system and the other the
State Socialism at the same time, you are
going to fall between them, and you have got
to do this thing gradually. O+herwise, it
is just going to ruin the profits system
and after all, that is the way we are run-
ning the Government. We have got to collect
the profits. I think a thing like this -
this is 8 considerable step forward.
Blough:
May I point out that the one and one for
old age is in 8 sense making up for the action
in 1939 of postponing the increase.
White:
For fiscal reasons. Tt was postponed for
fiscal reasons. This is the logical time.
Blough:
And it is being made up now for fiscal
reasons.
Rellt
It is right along the line that you are talk-
ing about to control inflation.
H.M.Jr:
Oh, yes.
Regraded Unclassified
Dell:
This whole Social Security picture.
This would all be food from Я standpoint
of mopping up money for inflation.
Bell:
Very good.
Blough:
In other words, the one and one for old age
is just what would happen in 1943, anyway, and
in a sense is offsetting what WHS done in 1939.
White:
In other words, the reasons that led us to
postpone it in 1939 should be the very reasons
which should cause us to impose it now.
Blough:
So that in effect, all this would be doing
aside from speeding that up for the reasons
stated, would be adding one per cent for unom-
ployment insurance on to the worker, which
isn't quite as violent perhaps as it looks.
Currier
It would take care of the heavy load to be
expected in the post-war period.
H.V.Jr:
That is right. That is what I had in mind.
Currie:
That is a justification for both halves of
the program.
Pell:
This is the kind of money that would go out
very fast. First on your unemployment and
then you will have 8 lot of people who will
retire when this is over, who are now working.
Those will go up very rapidly.
H.M.Jr:
By dropping it from sixty-five to sixty?
Brown:
That is just for women. It will cost a tre-
mendous lot.
H.M.Jr:
You mean it is unfair to have it at sixty-five?
Brown:
You see, women, by and large, the wife is younger
than her husband and this puts them both on re-
tirement about the same time, whereas under the
present system the wife may have to wait two or
three years before she is sixty-five and goes
on retirement.
Bell:
Is it proposed, Roy, to increase It up to ten
per cent immediately if the whole system goes
in as one or is that --
Regraded Unclassified
53
- 21 -
Blough:
If this whole thing went in, it would
increase it to ten percent immediately,
and eventually it would get as high as--
Bell:
Twelve?
Blough:
Twelve.
White:
The remaining two percent would not yield an
equivalent amount, would it, because some of
them would be out-payments at once?
Blough:
It would probably come at a time when out-
payments were heavy.
Bell:
That comes in '46, doesn't it?
Blough:
Part of it in '46 and part in '49.
Brown:
That two percent would be for hospital bene-
fits and disabilities.
White:
Then the net would not be as fruitful as the
other, and therefore it is B Social Security
proposition and not a fiscal proposition.
Brown:
People get sick any time in life.
Blough:
They probably get 8. little sicker during
depressions.
White:
That still leaves, it seems to me, a reasonable
room for demanding some additional contri-
butions, voluntary or otherwise, because two
percent out of a salary is not - that is all
that would be two percent under this arrange-
ment. It should not exclude any further
demands.
Currie:
Three percent altogether.
Blough:
Two percent added to the present one.
Regraded Unclassified
22 -
51
Currie:
Yes.
Tiough:
Then the remaining question would be: Do
you want as a hart of the Social Security
program hospital benefits and temporary
disability now with another two percent?
Actle
But if you put in the whole program and then
your employee contribution is increased by
four percent - from four to five - from one
to five.
Bloughs
It is increased three hundred percent.
Bell:
That is right.
White:
From a fiscal point of view, I suppose we
should be opposed to that additional. It
would be merely an expenditure. You collect
it and spend it; if your idee is to divert
some of that purchasing nower which the
employee has, you would prefer to have him
either invest it in bonds - either voluntarily
or by forced savings. From a social point
of view, there are the same reasons for it
as there ever were. From a fiscal point of
view, there is less reason for it this year
than there has been in the past or may be
in the future.
Brown:
Well, let's put it this way, that the two
percent for temporary disability, cash bene-
fits and hospital is almost B. pure social
insurance question because the in-novement
and out- Lovement of funds would be almost
gratuitous from a fiscal point of view. There
might be some additional outlay in time of
depression because people would take advantage
of it, but by and large it would be deter
mined by the health of people rather than
by any business conditions.
Regraded Unclassified
- 23 -
hell:
There would be some intake during mood times
over expenditures.
prown:
That is right. They would rather work than
take their benefits.
vorie:
How, there are two things when you are looking
at it from the point of viow of benefits.
What we are proposing now is that on the
unemployment insurance they get longer and
larger bonefits. On the old age, not only
this point about the women, but in addition
it would cover permanent disability, wouldn't
it?
Brown:
The two and two.
Currier
That is a pretty bad gap in the lan now,
Mr. Secretary. When & man becomes totally
disabled at forty or forty-five he gets
nothing at all until he is sixty-five. Then
he qualifies for an old-age pension. I think
we ought to classify permanent disability as
a loss of earning power equivalent to old age,
I would kind of like to stop here on the
theory that this is et pretty big bite of the
apple, you see, and then let the other people
argue why they should go further. What?
Brown:
If--
White:
I think that is the thing to do. You have
but one argument to oppose their going
further. I don't know how much you would
want to weight it. That is, that they are
taking away two additional percent from the
worker even though he gets it right back in
a sense in social insurance at this time may
make it more difficult in any future plans,
severance wage or any other type of saving.
That is the one argument against it, but
Regraded Unclassified
56
- 24 -
aside from that one argument, I think you
are quite right, it is wholly a matter for
social insurance. It has no fiscal--
Brown:
The two and two though does include permanent
disability in their figures. 30 I mean you
could move to that and add that as a benefit
side which has been accepted. I mean the
Advisory Council, going back to that - I
don't want to overemphasize their decision,
but it represents employers and labor and
public. They did accept that unanimously
in principle and the division was only on
timing. As to whether we have come to that
time, if two to two will finance it, as they
said--
H.K.Jr:
What I would like you to do is to write me
up a little statement of the pros and cons,
why, from the Treasury standpoint, we should
go SO far, you see, Brown.
Brown:
Yes.
H.M.Jr:
And if you could get it over to me the first
thing tomorrow morning, you see. Would you
do that?
Brown:
Do you want me or Mr. Blough to do it?
R.M.Jr:
No, Blough is on another matter for me. He
is all tied up. Then he goes home tonight.
He is on holiday. You might not know it.
But he has got something else he is working
on, so I am going to ask you to do it.
Brown:
All right.
Blough:
You don't have anything else to do.
H.M.Jr:
When you send it over, to be sure it doesn't
90 through the whole Treasury, mark it for
Regraded Unclassified
57
- 26 -
Mrs. Klotz, will you? You know, K-1-o-t-z?
Brown:
I am just wondering, Mr. Secretary, if we
could do it justice with the troubles over
there, but I will do my best.
H.M.Jr:
Have you got troubles over there?
Brown:
Oh, lots of them.
H.M.Jr:
Well, would you try? Is that asking too
much of you?
Brown:
I never like to say that much. I just
wanted to be sure it is a worthy effort.
Bell:
Probably the time isn't enough. He has got his
own problems over there. Give him another day.
H.M.Jr:
Well, I will give him another day provided
that--
Bell:
That the President doesn't call.
H.M.Jr:
Yes. Let me find out from Watson if I can.
Currie:
Watson is not here today.
H.M.Jr:
Well, they would know.
Currie:
He is away today.
H.M.Jr:
You mean--
Currie:
I mean the President is not there.
H.M.Jr:
You mean this is the - well, it would be the
reverse. This is his usual day. (Laughter)
Brown:
Would it be all right, sir, if it were
done over here, and I will come over
here this afternoon late or this evening
Regraded Unclassified
58
- 26 -
and whatever is necessary we can go over it?
Il.M.Jr:
Sure. Can you make a deal with him, Roy?
Blough:
We can fix it up.
H.M.Jr:
You made 2: deal with him?
Blough:
Yes.
H.M.Jr:
0. K. I want something to read with an
argument, you see, so that I can say, "We
feel that one bite out of this cherry is B
pretty big bite, and it will increase taxes
and everything else, so we don't want to
give these fellows indigestion." Then next
year you can do something else.
Blough:
Well, on the public assistance, do you want
to rather frown on that at this time?
II.M.dr:
Oh, I think this is enough. This is enormous.
Brown:
Well, the one thing on the public assistance
side is the old-age assistance, and what the
fear has been is that the Townsend boys, if
some of these poorer states don't get a
better due out of old-age assistance, will go
whole hog for Townsend.
H.U.Jr:
Now look. I have listened to Arriculture -
well, I don't want to mention any names, but
somebody over thore that tried to scare me
by telling they were going to ask the veto
of the President on the freezing of the
cotton. I told them they were crazy because
I knew they couldn't. On that particular
thing, I mean, they used these arguments.
I don't believe in these times that the
Towsend people have got the influence, and
it is not an election year anyway. I may
be wrong, but I just don't think the people
Regraded Unclassified
51:
- 27 -
are interested today in what the people have
particularly to say. Right?
Currie:
Yes.
R.M.Je:
So I mean, they are always - I mean, somebody
in Cabinet on WPA. Well, this would interest
you. I guess they are going to have to
begin to build un the WPA rolls to solve the
transitional thing on the lay-off in auto-
mobiles and so forth. Now, they haven't got
the ingenuity to say, "Here are three hundred
thousand employees, and we are Toing to make
Fischer and General Motors use them on
national defense because they have got to
use them, but instead of that they say, "We
will put them on WPA." Now, I think it is
terrible. Not that I am worried about the
increase of money, because they haven't got
the brains to find a place to put these
people to work to make munitions of war.
That is where they should 20 to work, not
on WPA. An I not not -ht?
Currie:
That is right.
Well, I know there are places that they could
nut them to work if they weren't so damn
mentally lazy or more serious than that. So
I mean you get - all I am saying is, we,
here in the Treasury, all the time have
pressure on us. That is all. Don't mis-
understand me. It is always Townsend,
a ricultural bloc, soldiers' bonus. It is
always something. Silver bloc.
Milte:
We don't give in to any of them. (Laughter)
Brown:
On the part of unemployment--
R.K.Jr:
Harry is feelin- wonderful. We will not In
an off election year, Harry.
Regraded Unclassified
- 28 -
GO
White:
No.
R.M.Jr:
That makes at lot of difference. (Laughter)
After all, Roosevelt isn't running again,
80 we can pick up courage.
Beil:
Is that a statement of fact? Is that an
Administration statement?
M.M.Jr:
I was with him for the fifth time when he made his
swing through Dutchess, Orange, and Ulster
Counties. For the fifth time I have ridden
with him on election night on that swing
that he makes. In every single place he
spoke, and he talked about eight or ten
times, he said, "Gentlemen, this is the last
time I will appear before you as EL candidate."
He says, "I may run some day for sheriff,
but that is as high as I want to go." He
says, "This is the last time I will ever
make this trip, and everybody had tears in
their eyes, including myself. And if ever
a man meant it, he meant that. But I heard
him say that ten or eleven times on election
eve, and I believed it.
Bell:
I think he hated to run this time.
H.M.Jr:
I know darn well he did. Just like I hated
to come back, too.
Fix me up something, will you?
Bell:
Well, I think of the whole program the public
assistance is the one that I am worried
about, because it is a new field to them.
They are getting over into WPA fields, and
I think there will be a clash there of
personalities. I am talking about the
direct relief. I don't think they have
threshed that out within the departmental
area yet officially.
Regraded Unclassified
- 29 -
Brown:
Well, I might say this: I opposed right
alon this variable grant to the states on
old-are assistance. I testified against
it two different times un on the Hill, and
finally the only reason that I have weakened
on the variable grants to some of these
states is, when you look at the low level
of benefits - that is, assistance, that they
get and then see the way they are swinging
on an all-out ravy train proposition, if
there is some connection you hate to concede
it, but it does seem that Townsend is going
good in these backward states where old-age
assistance is pretty low.
V.Jr:
Well, I have had enough for today unless
somebody wants to dissent.
Bell:
I hope they don't start it on a big program,
and then met all the benefits and no taxes.
That is what I am afraid of, too. I think
the President has got to tie them up in his
message.
Regraded Unclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE September 29, 1941
TO
Secretary Morgenthau
FROM Mr. and
A slight decline of 2,000 brought Work Projects Adminis-
tration employment to 1,035,000 persons during the week ended
September 17, 1941.
Attachments
Regraded Unclassified
WORK PROJECTS ADMINISTRATION
Number of Workers Employed - Weekly
United States
Week ending
Number of Workers
1941
(In thousands)
February 5
1,892
February 12
1,893
February 19
1,885
February 26
1,867
March 5
1,806
March 12
1,764
March 19
1,736
March 26
1,708
April 2
1,662
April 9
1,634
April 16
1,607
April 23
1,586
April 30
1,560
May 7
1,519
May 14
1,497
May 21
1,474
May 28
1,464
June 4.
1,442
June 11
1,423
June 18
1,410
June 25
1,368
July 2
1,172
July 9
1,030
July 16
1,016
July 23
1,025
July 30
1,036
August 6
1,041
August 13
1,042
August 20
1,043
August 27
1,045
September 3
1,043
September 10
1,037
September 17
1,035
Source: Work Projects Administration.
Regraded Unclassified
64
WORK PROJECTS ADMINISTRATION
Number of Workers Employed - Monthly
United States
Number of Workers
1939
(In thousands)
January
2,986
February
3,043
March
2,980
Anril
2,751
May
2,600
June
2,551
July
2,200
August
1,842
September
1,790
October
1,902
November
2,024
December
2,152
1940
January
2,266
February
2,324
March
2,288
April
2,092
May
1,926
June
1,665
July
1,701
August
1,691
September
1,704
October
1,779
November
1,821
December
1,878
1941
January
1,895
February
1,867
March
1,708
April
1,560
May
1,464
June
1,368
July
1,036
August
1,045
Source: Work Projects Administration
Monthly figures are weekly figures for the latest
week of the month.
They include certified and noncertified workers.
Regraded Unclassified
****
PROJECTS ADMINISTRATION
Number of Workers Employed
United States
Monthly W.P.A. Employment
weekly W.P.4. Employment
1936
1940
MAY
JULY
sept.
NOV,
MILLIONS
WILLIONS
ACT
or
or
WORKERS
WORKCAS
il
2.7
worker,
447
2.6
3.2
del
2.5
M
2.4
4/4
ne
2,8
20
dil
2.2
of
2.4
al
2.1
2.0
2.0
2.0
1.9
1,9
1.8
1.8
1.8 1+1
1,1
1.6
1.6
12
1.5
1.2
1.4
1.4
1.1
NJ
.8
1.2
1.2
M
()
+
140
1.0
,8
48
o
, D
:
.
MAR.
MAY
JULY
SEPT.
JAVA
WAR,
MAY
SEPT.
1937
1938
1019
1940
1941
*42
1540
-
( 5 4 )
social: will PROJECTS ADMINISTRATION
7
Truesury
I-BI.C
Regraded Unclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
CONFIDENTIAL
DATE September 29,1941
TC
Secretary Morgenthau
CRSH
Mr. Haes
subject:
The Business Situation,
Week ending September 27, 1941
Summary
(1) Expansion in business activity during the current
sonth may fall slightly short of the usual seasonal propor-
tions. The New York Times weekly business index thus far
in Beptember has shown an average decline of 1.4 points, or
about 1 percent, from August levels.
(2) Rural chain store and mail order retail sales last
month, seasonally adjusted, fully matched the unusually sharp
spurt shown by department store sales, Variety store sales
also rose substantially above previous record high levels
after allowance for seasonal factors. There is evidence,
how-ver, that these sharp increases have been due in part to
over-buying in advance of the effective date on the new excise
tares, and to inflation fears, hence a reactionary tendency
may be seen in later months.
(3) New orders for steel during the current month have
fallen noticeably below August levels, probably reflecting a
dezline in civilian orders following the application of full-
priorities regulations. The OPA has amended the price schedule
on steel scrap to a limited extent in order to facilitate the
collection of scrap in remote areas of the country.
(4) Due to declines in prices for farm products and foods,
the BLS all-commodity index declined 0.1 point to 91.5 in the
week ended September 20. Cotton prices declined further last
week, but wheat prices were firm despite the publication of B.
report near the end of the week forecasting a record domestic
carryover of whest next July.
(5) Increased exports of agricultural products contributed
inyortantly to a rise in exports of United States merchandise
in July, which ran 8 percent above the previous month. Exports
of neat products and lard continued to rise sharoly.
Regraded Unclassified
67
Business rise moderating
Evidence continues to accumulate that business expansion
Auring the current month may fall slightly short of usual Bea-
sonal expectations. As a result of a decline of 1.9 points
to 128.3 during the third week in September, the New York Times
index of business activity in the week mentioned stood more
than 2 points below the average level of the previous month.
(See Chart 1.) This decline was somewhat offset by 8. frac-
tional rise in Barron's index of business activity, which ad-
vanced 0.7 point to 138.4 in the same week. However, despite
two successive small gains, Barron's index 18 still 8. trifle
below last month's average level.
A dominant factor in the failure of weekly business in-
daxes to make a stronger showing recently has been the less
than seasonal rise in freight carloadings. The contra-
seasonal decline of 6,000 cars during the week ended
September 20 was due to the falling off in coal loadings as a
result of labor troubles. Nevertheless, freight traffic for
some weeks has been showing signs of failing to fulfill earlier
expectations. Reference to Chart 2, will disclose that total
loadings in recent weeks have been hovering around late-June
levels, whereas the normal rise by the third week in September
1s nearly 10 percent. A somewhat stronger showing, however,
has been made by miscellaneous and 1.0.1, freight which have
risen to a new high for the year. (Refer to Chart 2.)
Soope of August retail trade boom
The widespread scops of the August boom in retail trade
is strikingly revealed by additional figures which have be-
come available, showing that rural chain store and mail order
eales have fully matched the sharp gaine previously reported
by department stores. Variety store sales also rose substan-
tially and sales for all three branches of retail trade, after
ellowance for seasonal factors, soared substantially above
previous record highs. (See Chart 3.)
The very sharpness of the Rains indicates that, in add1-
tion to the underlying upswing in consumer purchasing power,
other factore of a transitory character contributed to the
buying splurge. These appear to have been principally
(1) the fears of shortages of many products, touched off by
the frantic buying of such items as silk stockings, (2) heavy
buying to anticipate the October 1 increase in excise taxes,
and (3) attempts to anticipate the curb on installment buying.
Regraded Unclassified
Thus, in reporting a gain in August furniture sales of 40 per-
cent over year-earlier levels, the National Retail Furniture
Association states that a particularly sharp increase occurred
10 the last two weeks in August just before the installment
credit curbe became effective.
September retail sales slacken
A natural result of the August trade rise 18 that some
business -- perhaps & considerable volume -- has been borrowed
from succeeding periods, and this appears to be borne out by
current trade reports. Thus, furniture sales are now reported
to be showing only minor gains over year-earlier levels, while
department store sales gains have narrowed down considerably.
During the week ended September 20, department store sales
showed a gain of 12 percent over year-earlier levels as compared
with a gain of 8 percent in the previous week and 32 percent
in August. However, B.S. the October 1 effective date of new
excise tax levies approaches, some additional anticipatory
buying is undoubtedly going on, and further borrowing from
future business volume 18 in progress.
Steel orders decline
New orders for steel during the current month have shown
a noticeable decline, with trade sources reporting incoming
business to be running from 30 to 45 percent below August
levels. This probably reflects a falling off in civilian orders
following the application of full priorities. New orders booked
by the U. B. Steel Corporation in the week ended September 18,
fell 15 percent to 89 percent of capacity, the lowest level
touched thus far this year. Nevertheless, despite this decline
in new business, the Iron Age asserts that consumers requiring
steel for non-essential uses oan expect little or no steel for
a while at least.
At the beginning of the week minere returned to work at
the captive coal mines of the steel industry, and by Tuesday
nearly all of the plants which had been affected by recent
sporadic work stoppages were again operating normally. However,
at the end of the week & strike of 17,000 workers broke out in
the Birmingham steel mills, which was settled on Sunday except
for one group of 500 blast furnace workers. Steel operations
last week were scheduled at 96.8 percent of capacity -- an in-
crease of 0.7 point over the previous week, Operations during
the current week are scheduled at 96.9 percent of capacity.
Steel scrao price schedule amended
As a step toward alleviating the serious shortage of steel
scrap, near the end of the week the OPA amended its price
Regraded Unclassified
69
schedule to facilitate the flow of scrap from certain remote
HTRUS to consuming centers. The amendment, which expires
December 31, permits higher prices for scrap and increased
transportation allowances in Florida and certain western states.
This action was characterized as experimental, and 16 intended
to move scrap from remote areas before winter weather slows up
scrap collection. Steel industry officials have been concerned
for some time over the industry's inability to make the usual
headway in building up steel sorap stock piles before the ad-
vent of winter weather.
New orders index declines
Due to the decrease in new orders for eteel to the lowest
levels of the year, our index of new orders for the third week
In September declined 3 percent. (See Chart 4.) Textile orders
and new bookings in other industries on the whole showed gains,
but they were insufficient to offset the drop in ateel orders.
BLS all-commodity index declines slightly
The extended rise in the BLS all-commodity index of whole-
sale prices (nearly 900 commodities) was temporarily halted dur-
ing the week ended September 20. Due entirely to declines in
farm products and foods, the index during that week decreased
0.1 point to 91.5. In addition to the 2 major commodity groups
that declined, 2 others were unchanged during the week, while
the remaining 6 major groups continued to rise.
Basic commodity prices level off
Prices of basic commodities show a levelling-out tendency
for the second successive week. (See Chart 5.) Due to a elight
docline in the price index for domestic commodities, which more
than offeet a slight rise in import commodities, the BLS index
of 28 basic commodities showed a fractional decline in the week
ended September 26.
A dominant factor in the decline in domestic commodity
prices was the weakening of ootton prices early in the week,
attributed in part to hedge selling and mill liquidation. Wheat
prices were steady, and at the close of the week futures dis-
played a slight firming tendenoy, but the market showed a lack
of the enthusiastic buying seen early in the month. Near the
end of the week the Department of Agriculture reported that the
estimated domestic carryover of wheat stocks on July 1, 1942,
would rise to a new record of no less than 650,000,000 bushels
-- or 260,000,000 bushels above the carryover on July 1 of this year.
Regraded Unclassified
Agricultural exports feature July export gain
Due largely to substantial gains in shipments of agri-
cultural products, firearms and ammunition, exports of United
States merchandise in July rose 8 percent above the previous
month to a total of $349,000,000. Exports of meat products
and lard continued to rise sharply, while tobacco and dairy
roducts also showed good gains. As a result, agricultural
exports for the month reached the highest levels since
March 1940. (See Chart 6.)
Non-agricultural exports rose 3 percent above the previous
month as a result of a very sharp gain in shipments of fire-
Arms and ammunition to a total of $20,000,000. Exports of
machinery and iron and steel remained virtually unchanged, but
aircraft exports expanded moderately to B. total of $43,000,000.
(Refer to Chart 6.)
The Department of Commerce, in releasing the foreign
trade figures for July, again indicated that the month's figures
were not fully comparable with earlier periods due to delays
in the receipt of shipping documents.
Regraded Unclassified
BUSINESS ACTIVITY. N.Y. TIMES
PER
Seasonally Adjusted
CENT
Est Normal = 100
130
41
----
120
40
110
39
100
90
80
JAN.
MAY
JULY
SEPT
NOV.
MAR.
Office of the Sucretary of the Treasury
C-410
Divoice of insuré and Statistics
Regraded Unclassified
the nt
72
FREIGHT CAR LOADINGS
CARE
THOUSANDS
Total
900
800
40
4/
700
'39
Y
600
500
Am. Ry Aeen
400
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
CARE
THOUSANDS
Marchandise L.C.L. and Misc.
40
500
"41
400
39
300
Am Ry. Aean
200
JAN.
MAR.
MAY
JULY
SEPT
NOV.
no Ce of the Secretary of the Treasury
of Research and Todation
C-394
Regraded Unclassified
RETAIL TRADE
Urban and Rural Sales of General Merchandise
1924 - ao ADJUSTED
Chart H
Department Store Sales
PER
CENT
PER
20
Rural Chain Store and Mail Order Sales
CENT
120 180
180
115
175
175
110
170
170
105 165
165
100
160
160
45
1941
95 155
155
1940
40
90 150
150
B5
85 145
1/939
145
90
80 140
140
75
1938
75
135
135
Dr
4
(AN
FEB
MAR
APR
MAY
JUNE
70
JULY
AUG
SEPT
OCT
NOV
DEC
130
130
/5
125
125
125
Variety Store Sales
120
120
120
115 115
1941
115
1940
110 110
no
105 105
105
1941
1940
100 100
00
1939
1939
95
95
95
1938
90
90
90
1938
85
es
AN
FEB
MAR
APR
MAY
JUNF
JULY
AUG
SEPT
OCT
NOV
DEC
JAN
FEB
MAR
APR
MAY
85
JUNE
JULY
AUG
SEPT
OCT
NOV
DEC
Regraded Unclassified
INDEXES OF N/A ORDERB
Inites of - Orders and belected Componente
200
270
(70
260
200
250
250
240
240
230
230
220
120
210
210
Total (combined Indes:
1936 . 100
200
200
ISN
190
160
160
170
170
100
too
1%
150
140
140
1 AM
130
120
120
110
110
100
100
-
90
NO
Total excluding Staul and Testiles
so
70
76
où
E
50
X
40
&
Steel Orders
30
8
x
10
Testile Orders
TM
0
-
e
1940
1941
Chart n
Regraded Unclassified
75
MOVEMENT OF BASIC COMMODITY PRICES
Chart 5
Domestic and Imported
AUGUST 1939.100
PER
PER
PER
PER
CENT
Weekly Average
CENT
CENT
Daily
CENT
165
150
150
165
" Imported
160
Commodities
160
(40
140
// Imported
Commodities
155
155
30
130
17 Domestic
150
150
Commodities
120
120
145
17 Domestic
145
Commodities
110
110
140
140
100
100
135
135
A M J J A S o N D J F M A M J J A S o
14
2
,
16
25
30
à
=
20
27
4
H
9
25
SEPT.
OCT
1940
1941
JULY
AUG
1941
Percentage Change for Individual Commodities. August 1940 Low to September 19 and to September 26,1941
PER
PER
CENT
17 Domestic Commodities
Tollow 16432
CENT
II Imported Commodities
Cottonseed Dif 1555%
450
150
*125
*125
Lard 1/2.3%
Shelloc 110.32
Hoge 770X
*100
Catton 71.3%
4100
Coffee 9822
Cocad 96.0%
Print Cloth 69.34
Wheat 685%
Barley 64.7%
+75
Burlop 729%
+75
Resin 636%
Hides 590%
Butter 196%
Wool 536%
Lead 23.2%
-50
+50
Zine 1512
Flaxteed 407%
Stears 15.02
Sugar 3982
Carn 14,5%
-25
Silk 210%
*25
Copper 1182
Rubber 182%
Steel Scrap dum 8.7%
Tin 30X
Steel Screp exp 27%
0
0
Sept 26
Aug 1940
Sept. 19
Sept. 24
Aug 1940
Sept. IV
Low
Low
- - 11
U.S. TOTAL TRADE AND EXPORTS BY COMMODITIES
1111
1120
1931
MR
1933
1934
1938
1986
TIP
ITIS
an
1942
1941
-
-
-
TOTAL TRADE
1
440
4M
suo
460
no
Exports
Mm
⑉
Imports
320
600
aso
⑉
ede
100
150
(90
100
100
110
(80
Trode Balance
100
100
so
se
5
o
-so
-an
-100
-
INSURE
no
ou
on
-190
1734
1935
1736
1937
1938
1939
1940
(94)
EXPORTS OF U.S. MERCHANDISE
Total Nonagricultural
Selected Nonagricultural Commodities
DOLLARS
DOLLARS
Milliams
Milliams
1
BULLARS
COLLARN
Mashinary
Milliam
Inco and State
Additional
then --- time times
is
44
a
- Service)
19
325
at
as
16
"
an
-
"
"
.
300
,
M
»
D
à
-
H
.
/
-
N
in
45
"
"
115
5.
Patrelation and Products
9
22
"
R
28°
"
11
45
250
E
30
10
48
"
If
*
zzs
is
,
"
é
10
0
or
4.
M.
.
M
a
N
=
-
a
"
200
14
so
29
Automobiles
as
16
26
If
175
*
M
is
38
9
à
a
,
B)
6
a
-
19
21
150
es
If
.
kirsijaft
"
16
-
+
125
et
if
16
IM
Cost
40
1
15
100
-
14
#
.
-
-
.
-
-
+
-
4
.
.
a
+20
-
10
"
#
75
4d
I
a
.
12
Chemicals
14
"
is
:0
(§
:
Capper
so
is
?
m
14
if
II
É
-
15
10
:
it
-
-
.
,
-
a JAR MAR MAY JULY BERT NOV
a
4
F
M
A
-
4
A
#
-
a
é
.
#
al
-
/
-
Total Agricultural
Selected Agricultural Commodities
DOLLARS
DOLLARS
DOLLARS
DOLLARS
Milliams
Millions
Catten
Millians
Tobacco
Milliams
se
44
When - -
1%
rão
"
"
is
se
"
-
(If
=
as
.
I
49
CE
23
(00
Jan
"
Carn
a
is
a
E
10
18
18
15
-
N
"
.
€
F
in
à
-
#
#
se
é
-
5
a
-
VM
18
IN
is
ZY
Mania And Land
India Drug and
/M
25
is
is
11
Canned
21d
26g
-
.
.
.
€.
--
e JAN MAR MAY JULY SEPT acv
#
-
.
J
-
.
y
.
-
.
- the Service Transmy
Cable
Regraded Unclassified
TREASURY department
INTER OFFICE COMMUNICATION
DATE Sept. 29, 1941.
TO
Secretary Morgenthau
FROM
Mr. Hear MARK
The attached report, mentioned in my memorandum to you
of last Friday, WAS received today from Dr. Lubin. A new report
should be out around the middle of this week.
Regraded Unclassified
THE
ECONOMIC PICTURE
SEPTEMBER 12, 1941
Regraded Unclassified
79
THE ECONOMIC PICTURE
September 12, 1941
INDEX OF
NOUSTRIAL PRODUCTION
1935-39:100
PRODUCTION of American industry in August
200
200
was at about the same level 8.6 in July.
161
161
The output of steel, nonferrous metals, and
150
150
lumber was virtually unchanged from the high
116
July rate.
104
100
100
Increases in production were in machinery,
aircraft, ships, and railroad equipment. Crude
oil output was at a. record high, and coal
50
50
production was up.
Automobile plants, with reduced schedules
o
o
AUG
MAY
JUL
AUG
for the change-over to new models, still produced
1939
1940
1941
1941
160,000 cars in August.
Cotton mills reduced activity slightly, and silk output was drastically
curtailed.
INDEX OF
EMPLOYMENT in all occupations, including
FACTORY EMPLOYMENT
farming, was up 100,000 in August.
1923-25-100
150
150
(3)
134
In factories, employment increased by
about 265,000 men,
100
103
100
100
PRIORITY UNEMPLOYMENT was reported in silk
mills, where about 25,000 workers were laid
off between August 2, when the freezing order
was issued, and August 30.
11
50
Reduction
Number of Percent
Employees
Full-fashioned hosiery
12,000
12
o
-
MAY
JUL
AUG
Silk throwing
10,000
45
19
1940
(941
1941
Silk weaving
1,000
6
uch greater reduction is expected in September.
Some consumers' durable-goods industries -- vacuum cleaners, aluminum
8, refrigerators -- also cut employment because of shortages of netals
key chemicals.
Regraded Unclassified
TIONAL INCOME
IONS OF DOLLARSI
100
100
NATIONAL INCOME has been rising steadily
80
890
900
for 16 months.
80
76.0
00
vot
In July national income was at the rate of
$90 billion a. year. For the whole year 1941
60
60
it is estimated at $69 billion.
The greatest 1941 gains in income so far are
40
40
to farmers and to wage earners.
20
20
PAYROLLS in manufacturing, mining, and con-
struction were 37 percent greater than in the
0
first half of 1940. All wages and salaries were
o
1939
1940
1941
JUL
about 20 percent greater.
EST.
(94)
FARM INCOME has increased much more than usual in the past 2 months, with
prices received by farmers up by 11 percent since Juné.
Total cash farm income may be nearly $11 billion for 1941, including
benefit payments. This is more than 20 percent above 1940, and almost a.e
high as in 1929.
WEEKLY EARNINGS
WORKERS' EARNINGS AND REAL INCOME this
IN FACTORIES
/AVERAGE IN DOLLARS)
summer are st the highest levels on record.
40
40
Factory workers' weekly earnings have risen
31.85
3120
nearly 30 percent since the outbreak of war. The
AC
30
cost of living has so far advanced by only 7
2452
25.79
percent. Thus, there has been an increase of
23 percent in real weekly earnings of factory
20
20
workers.
Hourly rates are up 11 cente an hour, from
12
10
63.4 cente in August 1939 to 74.4 cents in
July 1941. This is due to overtime, to the
great expansion in the high-wage durable-goode
o
MUG
JUN
industries, and partly, to increased wage rates.
JUN
JUL
39
1940
1941
1941
Big wage increases are 80 far notable in
tel, coal, automobiles, shipbuilding, and aircraft, but these are now
eading out into other industries.
PRICES are skyrocketing in BASIC COMMODITY markets. They have gone up
1y 4 percent since late August; are now 56 percent above pre-war levels.
The rise is greatest in domestic agricultural products, which have advanced
arcent since August 25. Cottonseed oil is up 14 percent; spot cotton, 1.6
its to 17.7 cents; cash wheat at Kansas City, 10 cents a bushel to $1.162.
Industrial row materials are little changed. Prices of many of them -- such
netals, tin, rubber, sile, and burlap -- are controlled.
Regraded Unclassified
GRAPHIC REPORTS OF THE WEEK
St
STEEL PRODUCTION
AUTOMOBILE PRODUCTION
INDEX
% OF CAPACITY
INDEX
THOUSANDS OF CARS
120
140
(94)
1941
120
100
100
80
1940
1940;
80
€0
1939
60
40
1939
40
20
20
o
o
J F M A M J J A S o N D
J F M A M J J A 5 o N D
AUGUST 1939
62
&
AUGUST 1939
21
- REVISED
SAME WEEK 1940 63
SAME WEEK 1940 40
LAST WEEK
97
LAST WEEK
40
THIS WEEK
96
THIS WEEK
33
TOTAL FREIGHT CAR LOADINGS
WHOLESALE PRICES
INDEX
THOUSANDS OF CARS
INDEX
1926:100
1000
100
1941
1940
750
90
1941,
1939
500
NO
1939
250
70
0
60
di F M A M J J A S o N D
J F M A M J J A S o N o
AUGUST 1939
2672
AUGUST 1939
75
SAME WEEK 1940
695
SAME WEEK 1960 78
LAST WEEK
LAST WEEK
91
913
THIS WEEK
798
THIS WEEK
91
DEPARTMENT STORE SALES
INDEX
1935-39:100
300
250
200
150
1940
17419
100
y
1939
50
J F M A M J J A 5 o N D
AUGUST 1939
77
SAME WEEK 1940 109
LAST WEEK
152
THIS WEEK
122
"This week" refors to the week endors September :-
Regraded Unclassified
82
Sentember 29, 1941
2:15 p.m.
EXCESS PROFITS - SIX PERCENT
Present:
Mr. Blough
kr. O'Connell
R. Kades
Mrs. Klotz
Ir. Gaston
Mr. Kuhn
Mr. Solwarz
Mr. White
All of this is in the room. Let me ask you
a question, Rot. The others are coming in
at 2:30. Now long would it take you - suppos-
ing I said, "How, this six percent, over and
above, you see - now, how long to work out
all the inequities and to -ine the little
fellow a credit and this person and that.
How lon would it take you?"
Flough:
That could never. be done, Mr. Secretary, of
course, in E hundred percent fashion. To io
it as well as it could be done, I should
think we would went six weeks to two months
or longer.
I see. That is et very 7000 answer. That
is why I didn't want anybody else around, you
SEC. You are doin Fine. (Laughter) Let
me ask you this, Mr. Bones. I gave you &
notice - last ni -ht with this terrifically
sick headache I went down to lie iown in the
house. Irs. Mor renthau sald, "Whet did you
say you were doing?" I said, "I wes talking
to LOY Slough to ret him started on this.
Regraded Unclassified
- 2 -
What are, I ask you, some of the selient
points that the man in the street would
understand that we would have to study?
Slou
Now, 20 far as that man in the street
understanding, I didn't ouite catch that.
I have here two pares and there are two more
coming, and they should be here in a couple
of minutes in which those are outlined and,
without going into them in detail, I can
outline them very briefly.
E.V.Jr:
Go ahead.
lough:
4
I would say there are four questions, four
big questions. The first question is, what
is invested capital?
Go aread, Roy.
Hourh:
Well, I would say out of four important
cuestions, the first question that you -
that would have to be worked out is what
is invested capital? If we are going to
limit profits to six percent of invested
capital, what is invested capital? and in
that there are certain very difficult problems.
First, if I started a corporation in 1890,
which is unlikely, and nut in a certain amount--
I have heard all that. Let de interrupt you.
All right, "Ur. Morgenthau, why didn't you
know about the difficulties of invested
canital? You eve been advocatin- that 52
of basis now for the last two years, so that
is nothing new."
Te diá know about it, and it is not nearly
B.S serious n. difficulty when you have B.
ten percent unner limit instead of etx, and
Regraded Unclassified
84
- 3 -
when you have rates which we have never
recommended above sixty-five and our rates
recommended last year only went to fifty
on the very top return of over thirty per-
cent of invested capital. So that what is
an admitted difficulty with any excess profits
tax based on capital becomes of vital
importance when you plan to take everything
over six percent.
H.M.Jr:
That doesn't help me 8. bit. I have got to
be terribly - that doesn't help me in what
I want.
Blough:
Well, now, possibly I misunderstood what you
wanted. If you want something to help you,
we will work out - it depends on what you
want to do.
H.M.Jr:
Well, let me - in order to save time, and I
don't have to do it twice, I will get the
other people in.
(Secretary sends for Mr. Gaston, Mr. Kuhn,
Mr. Schwarz, and Mr. White.)
This is the thought that I had in mind,
simply say, "Now, look, gentlemen, I said
the other day - I was asked the question,
how much excess profits?" I answered, as a
rule of thumb, "Everything above six percent
on invested capital." Now I have asked -
this is my thought - my tax experts - is
that what you call yourselves?
Blough:
Other people call us that. We don't like
the name.
(Mr. Gaston and Mr. Kuhn entered the con-
ference.)
H.N.Jr:
Hello. Sit down. I have asked my tax experts -
Regraded Unclassified
85
- 4 -
why not wait one minute and then we won't
have to do it all over again.
(Mr. White and Mr. Schwarz entered the
conference.)
Anyway, gentlemen, this is what I asked for.
Each fellow will get his turn to talk. What
I would like to do, with your help, between
now and four o'clock, is write something out
in my own handwriting, whereby I will say,
"Now, gentlemen, since testifying last Wednesday
our Tax Division have been studying this sug-
gestion of mine, this rule of thumb of mine,
that we take all profits over and above six
percent on invested capital, and they inform
me that it will take them at least a couple
of months in order to make an intelligent
study, and a study so that this plan can be
an equitable - as equitable as possible.
Inasmuch as - I am going to give you what I
have in my mind. Inasmuch as it is going to
take a couple of months, and they usually
understate the length of time rather than
overstate it, from past experience - " which
is true.
9100th:
Sure, it in true.
"I feel that I would like to reassure the
people to this extent, to say that we will
study it for the balance of this year and
will not be prepared to present P new tax
bill--"
Schwarz:
During this calendar year.
Now--
Schwarz:
Pardon me.
"Until the first of January, and at that time
Regraded Unclassified
- 5 -
I will follow my usual procedure, that I
will sit down with Senator George and Mr.
Doughton and any gentlemen they care to bring,
and lay all the facts that we have studied
in the Treasury before them for their advice."
Now that is something that I have been think-
ing about, and this is largely EL matter of
public relations. That is why I have got
three newspapermen here. I will start with
the senior, Mr. Gaston, and we will go around
the room. That is the sort of thing I had in
my mind.
laston:
Well, m;" feeling about this is that I wouldn't
put out anything that looks like a correction
at this time. I don't believe - you will get
questions on this thing. I don't believe
I would volunteer anything on it.
Well, it is easy enough to get a question.
Well, Herbert, can I--
Inston:
Yes.
H.K.Jr:
We do have this, and this thing is bothering
me. We do have, for instance, a Navy con-
tractor coming over and saying, "I am about
to take a three million dollar contract, but
I am not going to take this thing until the
Treasury tells me where I stand. Now, the
thing is so bad on the contractor, and it in
ewfully easy to get a goat at this time. I
don't want to be that goat. I understand
there are several of them in correspondence
with us, you see. The people are excited.
How, if they felt that this thing was going
to be very carefully studied for two or three
months by the Treasury, and then I will follow
the usual procedure sitting down. At lenst
they know I am not going to do this thing -
Regraded Unclassified
87
- 6 -
not going to rush it. There won't be
any more tax bill on 1940 taxes.
listed:
I think they ought to be told that in re-
sponse to questions, yes.
think it is
all right. I don't think you need to write
anything out. I wouldn't make it at all
look as though it were a prepared statement
because 1 think the thing is so simple it
doesn't need to be written out at all. I
would make it perfectly offhand in response
to questions.
What would you say? What kind of question
would you want and how would you want, and
how would you answer it?
Golon:
Well, the question is, is there going to be
any new tax bill this year? A new corpora-
tion tax bill this year? "Why, no, I don't
think so. In an offhand statement of my
belief before the Committee - of course, it
is a thing that takes a lot of study. I
don't think we could possibly zet a new bill
before the first of the year."
11.15.Jr:
You will get a chance at rebuttal, Harry?
White:
I see the need, possibly, for reassuring some
people. I don't like to include in your
statement that "of course, this thing needs
a lot of study," because the statement has
been made, and, The time to study is before
a statement has been made," is what others
might say, and I don't think you need to
accept that. I think it would be possible
in response to a direct question: "Is there
going to be a tax bill this year?" to say,
"No," "and is the Treasury preparing a draft
of a bill on this six percent?" You say
that your staff has been working and is work-
ing to work out the details of a bill of that
kind, but it is a long process, but in any
Regraded Unclassified
- 7 -
case the - they are not awaiting Treasury
action, that that is a matter for Con ress;
and, "Off the record, boys, I don't expect
that Congress will take this ur this year
even if they take it up next year."
C.M.Jr:
What do you mean, "They are awaiting action"?
White:
I mean Congress is not going to take this
up the moment he completes a study of it.
That isn't what is holding the thing up. I
think I would attempt to give the impression,
which is true, that this is a matter for
Congress. "The statement of six percent is
my view of the general principle which should
guide our action on that watter." I don't
think I would be apologetic. I don't think
I would say that it will take several months
for them to work out the details. After all,
if these men are worried about that, they
are not worried about what hannens in the
next few months. What they are 105 ied about
is the profits that they may not et next
year and the year after.
Yes, but there is one thing at least, Harry,
which I can lay to rest and which I would
like to and which has been raised. This is
not something which I expect - which I expect
to apply to 1940 business.
Wilte:
I would say that definitely. That I would
say.
That was the impression of the people who
are writing, that this WAS to be superim-
posed on 1940 taxes.
White:
On 1941, that is.
n.M.Jrs
1941, yes.
White:
Well, you could say that. 1 mean, it would
Regraded Unclassified
89
- 8 -
seem to me that you can say anything in that
line so long as you are, (a) not apologetic,
(b) make it appear that upon further study
you might withdraw. Beyond those two things,
you can say anything you like.
H.M.Jr:
Roy?
Blough:
I didn't quite catch the last. You mean he
should not indicate that you might withdraw?
White:
He should not indicate that he would withdraw
from his adherence to the reneral principle.
If there is any emphasis to be placed on
his further remarks, any expansion, it should
be in the nature of, well, that is 8 general
approach, obviously. When you get to writing
a tax bill, there are all kinds of condi-
tions that have to be met, all kinds of in-
equities that have to be ironed out, and
all kinds of exceptions that have to be made,
but the statement of a general objective,
EL general principle, stands as my philosophy.
Saston:
I would be very careful. I would agree
wholly with that. I would be very careful
not to give any indication that you are
backing up from your position.
N.M.Jr:
Do you think my position is all right?
Gaston:
Yes, and I think you should stick to it.
H.M.Jr:
Listen, the only people for me now are the
Non-Partisan League. I would have been the
last person to have suspected you of being
a Non-Partisan Leaguer. It is a very
interesting thing, because I made the
prophecy here over the weekend that if I
hadn't said this thing Nye and Wheeler and
the next thing - I think I said it to you -
that the next thing they would be attacking,
Regraded Unclassified
DO
- D -
they said that the moving picture people
wanter to help England in order that they
could get their money out of England for
moving pictures. So I said the next thing
they would attack would be the war profit
motive. Now, they haven't done it yet,
but if I did nothing else, it removed that
very important segment of the front.
lesten:
Of course, I don't think you will get any
six percent bill, and I don't think you do
either, but I think it is a tood thing to have
said to indicate your line of intentions.
That is what Walter Winchell said last night.
Shlte:
Mr. Secretary, I think you are going to con-
tinue to get attacks- a criticism from various
sources includin those who for one reason or
another don't want to expand their nlant or
undertake Government contracts, but I think
you are going to et that unless you completely
recede from your position.
No, I am not going--
I think it would be c. Tave error --
Even the Chairman of the Utah Construction
Company has 1st me down.
Julton
Has let you down?
Sure.
Quaton:
Today?
Tuhn:
Didheoppose it on the Mill?
---,Jr:
Yes.
-
En wants hi -her taxes, but not guite that high.
Regraded Unclassified
91
- 10 -
Gaston:
I would hate to volunteer anything that would
look as though you were crawling down.
H.M.Jr:
The other day I wanted to get over my point,
and I told Chick to ask them E. question, and
the boy did, and I got over this whole
story, idea, about whatever I said--
Schwart:
Taking the profit motive out of war.
H.R.Jr:
It was good enough that the Post ran it
verbatim.
Taston:
There is no reason why we shouldn't make a
direct positive answer to the question: "Is
there going to be any new piling of taxes
on '41 income?" "No, it wouldn't be fair."
Schwarz:
The question, Herbert, will be: "llow are
you coming on your bill?" because you have
told them that there is a bill.
E...Jr:
"I have told my tax section to do it, and I
have had 8. conference with them today, and
I find that they can't - they certainly can t
get ready before the new bill comes up for
administrative changes."
When does that start?
Blough:
As I understand it, they are planning: to have
that started - introduced before the end of
October.
Caston:
There is no hurry about it anyway, because
you are certainly not going to make it apply
to '41 income, and there is plenty of time
for a bill which applies to - you are not
going to make it apply to - yes.
Blough:
Retroactively.
Regraded Unclassified
92
- 11 -
Gaston:
Retroactively, and there is plenty of time
for 8. bill which will apply to the following
year.
White:
And your division is working out the details,
as you said, in order to be ready should
Congress call for such a bill.
Schwarz:
The outstanding question that me are getting
is, will it be retroactive, even if it is
next spring?
II.M.Jr:
Yes.
Gaston:
You can give them something really definite
then and shoot it right at them frankly and
that is a good story.
H.V.Jre
I can if the President doesn't throw me
down. I don't think he will. Well then,
let him take the brunt. He won't. I am
safe.
Blough:
I think this sounds very good. I felt fairly
happy when you were making your statement
as long as you stuck to generalities. I
felt a little less happy when it came to
specifically saying a hundred per cent and
so on, because while six per cent is enough --
H.M.Jr:
Who asked me the question that day? Who
was the fellow?
Mlough:
Williams.
H.M.Jr:
Was that the result of you (O'Connell) and
Harry having lunch with him? Why did he
ask that.
White,
It may be.
H.M.Jr:
You know, I thought of that the other night.
I said, "Who was the last person who Williams
Regraded Unclassified
93
- 12 -
saw," and I said, "It was White and 0' Connell,
and that is where the damn question was
planted. (Laughter)
Mite:
I wouldn't be surprised.
Giston:
You intimation. would think they would give you some
E.M.Jr:
Well, they would if they were palsey-walsey.
Srite:
But you see, we know what the Secretary
will say because we know his heart is in
the right place.
I woke up in the middle of the night and
I said, "Who did Williams see last? It was
Harry White and Joe O'Connell."
malto=
No, Joe dropped behind for a second or two.
I don't know what he said.
H.M.Jr:
All right. How far had we gotten?
Blough:
As I say, I certainly would quite agree
with your general statement, namely, that
in times like these six percent is enough
to receive. I would hardly be in agreement
with either, (a) that six percent is enough
to have in prospect for everybody in view
of the risks which are involved, or (b) that
you can take a hundred percent over that
without having a lot of inefficiency and
extravagance and 80 on. But it seems to me
that your position is a fairly good one.
Your statement was fairly general. He could
allow six percent return on capital and still
make provisions for a lot of things like
personal contribution, the contribution of
the owner-manager to the business by a
salary allowance. You could even, I think,
introduce, and not be inconsistent, a special
Regraded Unclassified
- 13 -
risk allowance of some kind in cases of specially
risky businesses. I think you could not around
this difficulty of no inducement by doing what
the English have done, namely, providing that a
portion of the tax should be--
I was about to say that it seemed t to me yoursitun-
tion was not at all bad on this. By special allow-
ances of the type I have mentioned, by perhaps doing
as the British have done, providing for & return of &
portion of the tax at the end of the war, by provid-
ing for making sure that this is an average of six
percent over a period of years and not just six per-
cent as of a specific year, by perhaps providing
for a recasting of the profit picture at the end
of the defense period after the slump, you can do--
K.K.Jr:
What did you say the English did? You started to
say.
Blought
The English put on a hundred percent tax - not
above six percent but on profits above the present
war level, and then they decided that Was too much
but rather than lower the tax, they left the tax
at a hundred and then provided that twenty percent
of that should be put up as a credit to be paid
back afterward.
E.M.Jr:
Well, acording to the former manager of the New
York Times Bureau in London, that isn't quite
what happened. He said the Tory Party had El
campaign pledge which was very interesting to
me.
This is the Tory Party, a campaign pledge, that
they would take ever thing over six percent. He
said they had to go through with their pledge and
that when they did there was such a holler that
they had to throw in the twenty percent credit.
Blough:
I think that is correct.
Regraded Unclassified
.......
Hut that the Tery party should Love such
:- thing and lad It for years, to DD is
interesting.
They made it a General Motors Acceptance
Corporation, six percent. Their six
percent plan, you know, is between eleven
and twelve,
It was done as a result of the same kind of
hullabaloo that Nye and his party raised
in this country. They had the counterpart
of that in England and Chamberlain had to
make such an undertaking before they went
into the war. Mas that right, Harry?
Litet
I don't know.
If he doesn't know, then you are right.
(Laughter). Are you through, Roy?
Diaugh:
Yes.
H.Adr:
.ell, all of those things you say, if :
got into that today --
The
No, I don't want to get in that. I think
you are perfectly justified in going along
with the suggestions made here because I think
we can follow through and give you something
which will stick to your principle and, at
the same time, not ruin the country.
Well, can you make it as good as the Tory
party?
Blough:
well, that was bad, it seemed to ne.
S...Jr:
They are good boys. Now, Harry, you have
got an answer.
It was something along the lines of this kind.
Regraded Unclassified
96
- 15 -
I think you can dispose of this question
very briefly and very quickly by saying it
isn't something that is coming up this
year and sometime very soon, and it need
not be months at all; I think you could
get something satisfactory in a week or
two, you could have a statement of "My
tax philosophy with respect to earnings."
You don't have to write a bill. You can
say, one, two, three, four, and then you
can use these various aspects of the bill
that you would, I am sure, approve of, which
would be in harmony with your six percent
and yet answer most of the criticism against
it and that could be "My tax philosophy
with regard to the six percent profits."
In fact, it could either be the subject of
another speech or it could be another
statement, and I think it would be a very
excellent thing.
R.W.Jr:
Well, Lubin at lunch said two things
which impressed me. One, you will never
lick the high cost of living until you lick
high profits. That was number one. And
the other thing, he is very insistent
that I talk to the two big labor organiz-
ations.
Thite:
It would be an ideal place to develop it.
U.M.Jr:
You just jumped the gun. If I was going
to do it, Seattle would be a nice place.
What is that, A.F.of L. or C.I.O.?
Kuhn:
A.F.of L.
E.N.Jr.
That would be a nice audience to do it.
I didn't realize. Lubin says you can get
on B. plane here at five o'clock in the
afternoon and be in Seattle at eight o'clock
Regraded Unclassified
97
- 16 -
the next morning. I didn't know that.
Thite:
Now, in a speech of that kind, you see,
you can have adequate time to pay your
respects to the necessity for proper
incentive. You can do it up brown.
11.M.Jr:
Now, are you through, Harry?
White:
Yes, I am through.
H.M.Jr:
Well, you are through for the moment.
White:
Through for the moment.
H.K.Jr:
All right.
0'Connell:
1 think Mr. Gaston and Harry are not very
far apart. It seems to me that you
should say something very simple and the
reverse of being apologetic because I
think it was a very good statement, it
seems to me, and one that you should be
willing to defend and not at all appear
to be on the defensive. On the exact
language, I thought what you said when we
started off was pretty good.
E.M.Jr:
What was that?
O'Connell:
The statement that you made to the group as
we sat down. Incidentally, I think you
may find, to your surprise, that you will
get some support from some people other than
the Non-Partisan League. Summer Pike,
Commissioner of SEC, who is not a radical,
told me he thought it was fine and he was
all for it.
H.M.Jr:
Did he say 50 publicly?
0'Connell:
I don't know, I suppose he would. Congressman
Regraded Unclassified
- 17 -
Williams, also, who was the one who brought
that answer out, is in favor of your
position on that.
11.2.Jrs
Well, if some of those people would come
out publicly, it would make me less lonesome.
(Laughter).
0'Connell:
I will see what I can do.
D.H.Jr:
Well, you will all get 8. chance. I have
got lots of time. Chuck?
Rades:
I feel exactly the same way, that a short
and quick answer to that question is the
right way to handle it, because I think
that there is a good deal of silent support
for the cause that you made. Six percent
on invested capital is & different thing
today, with the huge amortization allowances
that are being granted, than it was a year
ago.
Let me ask you this and I will just show
my ignorance. Am I not correct - I wouldn't
make this statement today - that B very
large proportion, I would say certainly
ninety percent - let's say ninety percent
without arguing. It may be ninety and it
may be eighty percent - of the money which
has gone in to private expansion has been
advanced by the RFC. T mean, just --
Kadap:
That is right. I think it is about two
thirds.
Well, as I say, the percentage is unimpor-
tant. But let's say seventy-five to ninety
percent. And that then the man writes
off one fifth each year.
Rades:
That is right.
Regraded Unclassified
- 18 -
99
Blough:
They put the money up?
EXP:
Weit a minute.
Blough:
Excuse me.
E.V.Jr:
I an just asking that, where the Government
puts the money up.
Rades:
The RFC puts it up in two ways. One way
they advance it to the manufacturer and the
manufacturer takes no risk at all because
the RFC through one of its subsidiaries
takes title to the plant and loans it to
him. He has the free use of it at a
nominal rent during the emergency.
Gaston:
They lend the plant rather than the money?
mades:
That is right.
11.2.Jr:
And at the end of the emergency, what hold
has the man on the plant?
Kades:
He has an option to buy at a price which is
in the contract.
H.K.Jr:
At his option?
Mades:
That is right.
Is there any demolition clause in that, where
they keep it?
Mades:
No.
The RFC can say "If you don't want it, I want
it"?
Tades:
"If you don't want it we are going to give it
to the War Department.
Regraded Unclassified
23313
. 19 -
11.2.Jr:
But there is nothing in there that they
have to destroy it?
Rades:
No. On the contrary, they can buy it.
U.K.Jr:
But that is where the RFC lends the plant
to the manufacturer?
Kades:
That is right.
M.M.Jr:
Do they charge him any rental?
Inden:
It is a nominal rental.
M.M.Jr:
What is the other plan?
Kados:
The other is straight loan. Either the
RFC or private banks loan the manufacturer
money and he builds a plant. Assuming
that he is not reimbursed in the price of
the product he sells, he is entitled to
deduct one fifth of the cost of that plant
every year.
R.M.Jr:
And at the end of five years --?
Kades:
He has it completely written off and the
plant belongs to him.
E.M.Jr:
It belongs to him?
Mades:
Yes.
E.M.Jrs
Can he destroy the plant if he wants to
at the end of five years?
Endes:
Ile can do whatever he wants with it.
E.M.Jr:
What is the thing Greenbaum spent so much
time on?
Tades:
Determining whether or not the manufacturer
Regraded Unclassified
101
- 20 -
has been reimbursed in the price of
his product.
That is the simplest explanation I have
gotten yet.
Flough:
Because if he is reimbursed he can't take
amortization.
E.M.Jr:
But isn't it the accusation that they get
it both ways?
Lades:
Yes because the accusation is that the
War Department is lenient in --
H.T.Jr:
Isn't that the thing that the Rosenman
meetings - wasn't that the whole discussion,
that they are getting the thing twice,
where they put Greenbaum on the carpet?
Endos:
Yes.
H.M.Jr:
The fellow - OEM fellow put him on the
carpet? Were you there?
Redons
No but I heard about it.
R.S.Jr;
Isn't that the thing they accused them of,
of getting it in the price of the article?
Rades:
That is right and also getting it in the
amortization. He can get them both provided
he protects the Government's interest by
agreeing not to demolish so that he - it is
very liberal.
U.S.Jr:
I just wanted it in my head. I don't expect
to use it today. But when they talk about
business initiative and plant expansion,
it is just zero because the Government takes
Regraded Unclassified
102
- 21 -
the initiative. You either lend them a
plant or you lend them the money, in three
out of four cases.
Kades:
That is right. The manufacturer isn't
running any risk, as far as plant expansion
is concerned today.
I.K.Jr:
I an right, an I not?
Kadee:
That is right, a hundred percent.
H.M.Jr:
I don't want to use it now but some day it
may come up. This talk about risk and all
that, as though the American business man,
the great hero, is going out and risking
his money, my eye. What?
Kades:
That is right.
D.S.Jr:
Now what about this thing? ..hat about --
Kades:
Today?
S.M.Jr:
Yes.
Mades:
I think -- that is why I think you should
stand your ground and not give any ground
at all. Simply say that there is nothing
pending for - that will apply to 1941 tax.
H.S.Jrs
Just say that?
Kades:
Yes.
E.V.Jr:
And nothing else?
Lades:
No.
E.N.Jr:
Do you want to say anything?
Metz:
No, I agree.
Regraded Unclassified
102
- 22 -
E.K.Jr:
Mr. Ferdinand H. Kuhn, Jr.
Kuhn:
I would always stick to the big principle
in anything that you say about this because
so much of the discussion has gone away from
the principle, which is that nobody is to
make an inordinate profit out of this
defense emergency and Senator George and
Doughton and everybody will have to be with
you on that part of it.
Now, it is not as if this was something
new but you have said this several times
and I have found your statement to the Ways
and Means Committee last spring.
E.M.Jr:
What did I say, Mr. Kuhn?
Frien:
In which you said, "We all want labor to
earn fair wages, the farmer to have &
proper share of the national income and
business to make 8. fair profit. Please
note that I used the term 'fair profit'.
No business, no Americans, should make
inordinate and excessive profits out of
this national emergency.
"The Congress has tried to deal with the
problem of defense profiteering through
excess profits taxes. We all know how
hard it is to devise any excess profits tax
which is B. hundred percent protection
against defense profiteers but I hope that
the bill to be written by this committee
will be helpful in reducing the evil.
The American people do not intend that any
of their number shall grow rich and fat
out of this country's danger. They
will, in my opinion, support any fair and
workable tax that will halp to keep this
from occurring."
Well, that is the principle - that is the
Regraded Unclassified
- 23 .
same thing that you stated to the
committee up on the Hill last Wednesday.
Well, I don't think I would show that to
the boys. That is an excellent statement.
I don't think I would show it to them
today because that sounds apologetic,
don't you think so?
inite:
It is not the same position he is taking
now. That is a question of war profits
and the fundamental situation that the
Secretary is now taking does not relate to
war profits.
Schemes:
That is right.
hite:
It is a question of sacrifices on the part
of all in time of war.
Ruhn:
That is right, but when you talk of defense
profits you talk not only of profits on
defense orders but profits that come from
the activity produced by defense orders.
\hite:
Well --
Jaim:
But the principle seems to me the same and
I think the Secretary --
Mough:
I shouldn't agree the principle is the
same at all.
Julin:
You don't?
Bloughts
No. The company may have been making & lot
and may continue to make a lot. Defense
may have very little to do with it.
Mite:
Coca Cola.
Blough:
They are not defense profits and yet they
ought to pay.
Regraded Unclassified
- 21 -
to:
Just the same as the soldier. Tle was making
a living before the war started and suddenly
he finds himself earning twenty-one dollars
a month. He can fall back on that. You
demand sacrifice on the part of everybody.
WA:
Wasn't the Secretary's position the other
day one of broad principle which Senator
George and Doughton and so on wouldn't dare
to challenge?
I an in agreement on that, that he can
reiterate time and again that"I don't believe,
while the soldier," etc., etc., that business-
men ought to be making more than six percent.
Don't you think that he should reiterate
it?
Lite:
The principle?
Ruhn:
The principle. Menever this comes up
for discussion on the detail.
Secter:
I would keep this thing as simple and
straightforward as possible, Ferdie, as
simple and direct 0.8 possible, because
there may be E smart reporter here. That
is, he may start to ask you, pinning down
now, whether you are talking about principles
or something specific, the six percent tax
and so on, and if there is somebody who is
hostile and smart he might interpret it
into a position of withdrawal, retirement,
and we don't want that.
No, I thought that it would be strengthen.com
If the Secretary were to stick to that
principle publicly.
It seems to Me that you have sald twice last
Regraded Unclassified
- 25 -
week exactly what your position was and
nothing needs to be said at this meeting
today other than that there is not goin:
to be E tax bill this year or that this
tax that we propose will not be applied
to 1941 income.
Paston:
Can I leave?
Sure.
Alotar
llave a good time.
Fulm:
Do you want to say anything about small
business?
M.H.Jrt
No. I did at first, but in view of this
conversation, unless somebody says something
about the small business man, then I would
say, "Don't make me laugh." The Treasury
has always looked after the small business
man and always will.
Tuhn:
That is right.
S.L.Jr:
See? And these crocodile tears for the
small business man certainly give ne the
horse laugh.
currurs:
We haven't heard any criticism from the
groups of small business men.
These crocodile tears for the small business
man. What?
Kulch =
I think a great weakness of the case against
you is the crocodile tears about the small
business man. The great strength of your
case is your position toward small business.
Shiter
You know, that is misunderstood, that question
of the small business man, and I don't think
Regraded Unclassified
- 30 -
you should be - recede on that. The small
business man is not the one who suffers
from this six percent. In fact, most
small business men, If they took - as I
take it your plan would permit - an adequate
wage for their services, they never make
more than six percent on their invested
capital. That isn't where the inequities
come on the small business man. The
inequities come on the businesses of
higher risk, if you can pick them out.
The Lord knows how you can pick them out,
incidentally. I would like to see Roy try.
Blough:
I agree.
Bill.Jrs
Well, now, let me just give Schwarz 8 chance.
ochwarz:
I would be careful, Mr. Secretary, this
afternoon, not to say that there won't be
any new tax bill this year but that this
proposal that you have made is now being
studied and it won't be ready for any
consideration that might apply - any
consideration by Congress that might apply
to 1941 incomes. That is the principal
point that we have been --
You think there ni ht be another tax bill?
Schwarz:
There might be and I don't think you should
make a statement that would hold you
responsible for Congress' action.
Chick, suppose you have somebody ask me,
is this thing going to apply to 1941
business, and my answer is no because I
find after talking it over with our tax
experts that they can't possibly get an
equitable bill ready under several months.
Flough:
Why wouldn't your answer, Mr. Secretary, be
Regraded Unclassified
- 27 -
108
"no" for another reason?
H.M.Jr:
Don't you like that? Is that a slur?
Dought
No, I don't mind that, but I think the
real reason why it shouldn't apply to
1941 business is that before it is passed
1941 will be passed too and that you don't
want a tax of that rigidity and size
levied retroactively.
No, that isn't it. I am sorry. As 8.
matter of fact, that tax division couldn't
draft a bill under two months. Let's
be honest with ourselves.
Blough:
Well, we have got B. draft, Mr. Secretary,
but it isn't any good because we haven't
solved these problems.
H.E.Jr:
Then you haven't got a good one.
Dlough:
No, we haven't got a good draft and we
won't have for two months.
E.-,Jr:
Well, there you are. Nobody can draft a
good bill that is going to take care of the
people who should be taken care of under
a couple of months.
Hlough:
I would repeat what I said at the beginning.
I don't believe you can in any amount of
study remove 8 great many inequities and
hardships. I think in the course of a
couple of months we can do probably as well
as we could, however long 22 time you take.
I think I have got the answer. You see,
you have got to look at this thing from the
human standpoint. I said there is no
reason why you can't introduce two tax
bills. "Have you asked your people to start
Regraded Unclassified
109
- 28 -
a bill?" I said yes. The last tax bill -
how long did it take to prepare the last
one?
Mouth:
The last bill, we went before the Committee
on the 24th of April.
S.E.Jr:
But before that?
Blough:
The bill started on Pan-American Airways
on the 26th of November or thereabout, and
you --
S.U.Jr:
And when were you ready?
Blough:
I don't know as we ever did get ready. The
thing began to shape up and I think it was
in fairly definite form by about the
middle of March or thereabout.
Holder:
Well, does anybody see anything apologetic
in saying that in order to do a good,
equitable job, it takes B. couple of months?
Blough:
And we are asking for 8 lot more than the
bill did last year.
H.M.Jrs
And therefore I would like to let the tax-
payers of America know that I don't propose
to raise this question on 1941 income.
Schwarzt
I think that is O.K. That is what they
want to know. That would squelch a lot of
the criticism.
White:
I don't know. I am a little bit troubled
about the tone and the implication. I
want to let the taxpayers know two things.
In the first place, it appears as though
there has been tremendous pressure brought
to boar on you and you have been forced to
Regraded Unclassified
- 29 -
110
make that public statement.
In the second place, it seems as though
when you are ready in two months this
thing is going through. I rather like
your original statement, the briefest
statement, that this is not going to
apply. You don't have to give any reasons
why. In your opinion or definitely, this
isn't going to apply to 1941. In fact,
I think your answer could be reduced to
a "no". Let somebody ask you, "Do you
propose this tax bill to apply to 1941
incomes?" No, let somebody else say,
"Is the tax bill ready?"
You can say, "Oh, well, you know how
tax bills are. It usually takes a few
months to whip them into shape. Even
then we don't know when Congress will be
ready for it." And I would drop it.
Hithn:
That is right.
Slowght
That is right.
H.W.Jrr
What do you think?
Klotz:
I agree a hundred percent with Harry. I
would bring out the fact that it will not
apply this year.
Well, if everybody is satisfied, then have
somebody ask me the question, is it in my
mind that this should or should not apply --
Schware:
I think it is important that you indicate
that it masn't originally, the question
wasn't raised.
No, I didn't say that. I said you could
Regraded Unclassified
- 30 -
1
have two tax bills. Don't say that, that
is going too far. Just say, ....r. Morgenthau,
this suggestion of yours, is that to apply
to 1941 income or not?" I can say, "No,
it is not."
Schwarz:
That is perfectly adequate, perfectly O.K.
Now that the stock market is closed, everybody
can be excused.
Mater:
Will that make them happy?
alwars:
Sure.
E. .Jr:
Just a second. You fellows (Kades, Kuhn,
Schwarz, O'Connell) might as well sit hers.
This is the matter of this disagresable
thing in Detroit.
Regraded Unclassified
112
EDWARD s GREENBAUM - 1245 . 29TH STREET. N. W. - WASHINGTON D C
September 29, 1941
-1.0 To Secretary morgenthau
I an enclosing the papers that I men-
tioned in our telephone conversation this corning.
1. A clipping from the"Detroit PRESS", dated
September 25, 1941.
2. A memorandum in regard to Roy Small.
C.S.M.
Encle.
Regraded Unclassified
L'NGLE-SAM COCKS AN EAR
City's Juke Boxes Ring Gong
Selling U.S. Defense Bonds
BY JACK PICKERING
gether ATTANGED to have "Any
(The Tawa (rier)
Bonda Today" put in the proferred
The story of the Secretary of the
apot on all 5,100 of the music boxes
United States Treasury trying to
in Wayne, Macomb and Oakland
win a $100 bet in Woodward Ave.
Counties.
hot-dog stands, and revelation that
The tune has been - *(Terlive
is Detroit-born Idea is spreading
in prodding the saje of licrense
over the nation were made known
bonds that word apread to Wash-
Wednesday night.
ington, and Was one of the factors
The atory came out when Il was
which brought Henry Morgenthau,
learned that Roy Small, concillator
secretary of the treasury, to De-
THE Local 747, United Phonograph
trill les find nut why Michigan WAS
Operators Association, established
was lending all other states in sale
in eonjunction with the C10, would
of defense bonde
lenve ny plane for Washington
When Morgenthau arrived Frank
Thursday murning
N. Ishey, cheirman of the Michigan
Local 737. in co-operation with
defense-savings compaign, offered
the United Munic Operatore Anio-
Morgenthau $100 if he could Time
clation of Michigan on ordinary
a juke box nn which "Any Bonds
innguage. the operators of entn-
Today" WAS not. the Arst time.
music machines, up juke boxes)
Morgenthan took him up. The
sorrecived the idea of putting a
Treasury Chief, Inling and Tillam
- called "Any Bonds Today" nn
Kayanagh. collector or customs in
all Detroit juke DOXPE as the No.
Detroit, along will two OF Ihren
Inturne,
others, went to stands DALYTHING HAM
Operators know that my tune
Tum to Page 1. Column à
payed by the No. 1 multon of 4
where box is played more often
WITE WITH HOME
12am any other. The operators and
JAMES 4.
the phonograph operators' local to-
MV.
Juke Boxes
Tops at Selling
Defense Bonds
Continued from Page One
dogs and dropping nickels in the
juke boxes. In all, they visited
A dozen or so small places with
machined. It cost Morgenthad &
pocketful of nickels, but the cam-
paign of spreading the tune had
been ao thorough that be didn't
And 9 machine without the time
Diary of course, kept his $100.
National enterfainment world
magazines, including Billhoant,
with a mil-page editorial. have
noted the effective seil-bonds-with-
musie campaign in Deteilt, and
2mail and other CIO officials
learned Wednesday that Indiana
was preparing to copy the idea.
Small will By to Washington for
further talks with Morgenthat,
and it was learned that Small
might be "loaned" by the CIO to
the Treasury Department to help
make the music-box drive a nation-
of compaign.
the companies already have 05
fere) their help, the J. P. Section
Org. and the Radio Corp. of
Anferies.
Regraded Unclassified
114
September 25, 1941
The Detroit Free Press today rints an article in which
!t states that ROY STALL, Conciliator for Docal 737 Thited
Operators' Association, established in conjunction
ALE the UIC was to leave for Washington today. The article
infore that during Secretary organthau's recent visit
to Detroit, he apparently had conferences with Roy call and
that this trip to Washington on the part of Small is for the
urpose of having further conversations with the ecratory
e the purpose of accepting an appointment to utiline the
vertising possibilities of the music boxes for the promo-
Von of the tale of bonds and stemps on n nation-wide nevie.
be It annears, according to this article, Is oir to
was the services of Small to the !reasury lepartment. he
in question is prominently fentured on the Pront DE e
name of ..P. Morganthau and UNIT are bloody linked
originators of this publicity feature.
(07 mall's name arrested my subsation immodiately in
with some of the underworld activities In Detroit.
10100 at the CIO headquarters revealed that Small is definitely
not for a high appointment in the Treasury Department. Itdia
me very long to identify him as one of the notorious
and panderers of this community. (is present position
the United thonograph perators' Association is in itself
less of e racket set-up by Small for the purpose of com-
"Ith a similar racket established by the AFL. Both of
None organizations have been putting up strenuous efforts to
menomolise the Juke Box industry in Mayne County, Lichigan.
mall 10 an operator and in listed on the CIC rolls 08 C.
Zy understanding is that his conciliation consists
to the union a certain fee for each box for the privile
loyin the CIC union labor on that box.
ethics of this proposition, = reclize of course, 12 9
matter, but what concerns no more than anything
:- Roy -mall's criminal record und the possibilities that
my I'mll into the hands of anry yord, arold Smith
induer h and the subsequent ude that they con wake
upon Mr. orgenthau.
matter of fact, while I WAS injuiring st :clice Bond-
for mall's record, : was informed that come one from
the
regenization beat me to it over the telephone by about
sinutes. don't believe they Lt over the telephone,
certainly believe the bire, can and will et It.
itside of his police record, been adjuciated
Gurling their heyday in ichigan, and I bunished from that
for recketeering.
police record reads as follows:-
Arrested Cop Larceny by Prick, July 18, 1924 110-
Regraded Unclassified
113
EAVA 2
- 10-16-35 Charge-pandering-complainin; witness Petty Cook-
Court File No. 53013. Case discharged by Judre
Sweeney.
-
3-31-37 Charge-pandering-warrent No. A 13930-Discharged
by Judge Stein. Police officer Are. Clinski who
handled this case stated that & raid was made
upon a house of prostitution operated by Roy
Small and that the case was dismissed on account
of witnesses disappearing. She secured state-
ments from two girls who were inmates in that
house and that Small was arrested upon the
premises.
in the kind of record that would certainly be utilized by
e: ogien in this town, who have been stressing particularly
= parality alleged by them to be prevalent amon the Jews,
el lvin this 89 the reason why Mitler has heen so opposed
Jewn.
Regraded Unclassified
September 29, 1341
3:10 p.m.
SE REFENSE SAVINGS BONDS
Present:
Mr. Graves
Mr. Cairns
Mr. Kades
Mr. O'Connell
Mr. Kuhn
Mr. Schwarz
Mrs. Klotz
H.".Jos
Well, for Frank Iseby to send 8 man like
this fellow Small down here is outrageous.
Kuhnr
Did he present him to you in Detroit?
H.V.Jp=
Oh, yes, sure.
Tchnoper
lle was convicted on that charge, Mr. Secre-
tary?
E.M.Jrs
No.
Motar
+he mitnesses walked out on him.
H.M.Jr:
They disappeared. This is one of the great
things he had done, you see. He started
right in telling me about it as soon as 1
had got there. He wanted me to meet these
union fellows the next day.
Ruhar
Is that an AFL or CIO union?
CIO.
Kilkn:
He wanted to put our bond song in every
juke box in the State of Michigan, and did
it in Wayne County. lie came here to try to
get the thing done nationally
Regraded Unclassified
- 2 -
And we paid him to come here.
7/e paid his expenses?
Yes.
That mokes it better, doesn't it?
His plan was still good.
Ferdie, you are a man after my own heart,
lecause you fought me on it right to the
lltter end.
No, I was only afraid of the "re sury buying
three hundred thousand records.
Ferdie WAS opposed to it. It was all right.
AS long AS I found it wouldn't cost us
anything, it was all right.
(Mr. Graves and Mr. Cairno entered the con-
ference).
Well, what is the story?
Tell, we know no more about the criminal
record than appears in this letter, because
me haven't yet heard from retroit. Chief
Wilson phoned out there right after our
talk, but he has had no report. In fact,
he ol n't ask for one before three thirty,
because he gave this man that much time to
get it. But I think we cen assume the accu-
racy of this record. How, I don't think
there is any --
Have you talked to Iseby?
I couldn't find Iseby. Iseby Was not in his
office. I still have 8 all in for him.
Regraded Unclassified
118
- 3 -
I may get him. But Mr. Cairns and I have
discussed this together and We don't believe
there is any occasion for you to speak about
this at press conference. After all, we never
appoint anybody in the Defense Savings staff
except after an investigation, and to say
that you did have it in mind to appoint this
man - you wouldn't have appointed him in
view of his record, because an investigation
would have brought these facts to life, so
that the worst anybody could criticize the
Treasury Department for would be one, our
meeting this man in Detroit and two, our
inviting him to come here for 8. conference.
I see nothing about either of those things
that constitutes any reflection whatever
on you or on the Department. Nobody could
make any case against the Treasury unless
we had actually hired this man. That we
couldn't have done.
H.M.Jr:
Listen, fellow. Have you ever heard of a
fellow by the name of Pegler?
Graves:
Yes.
H.M.Jr:
Pegler has made a story out of B5 much as
one tenth as much as this.
Graves:
Yes, but he could make no story out of this
that would reflect on this Department.
H.M.Jre
I disagree with you.
Graves:
What could he say?
H.M.Jr:
He could say that Vr. Morgenthau invites
a fellow who in 1937 was up for pandering
and brings him down here to advise him on
how to sell Defense Savings Bonds.
Graves:
Well --
Regraded Unclassified
119
- 4 -
And of course Mr. Morgenthau knew what
his record was because look at the vast
detective organization he has rot, so he
knew, but he never paid any attention to
that, 30 he went ahead just the same. You
have read Pegler.
Traves:
Well, of course Pegler is apt to say any-
thing that is extreme and --
R.M.Jr:
I know, and 80 is Mr. Ford and so is Father
Coughlin, and so is - well, half a dozen
other fellows.
Let me say what I would like to do. What
I would like to do is this, and I certainly
wouldn't say it until I was sure that
this record is right, that upon investigation,
the Treasury finds that Mr. Small's record
was such that we cannot use him in our
Defense Savings Bond work. Give it enough
legalistic language so that I - but I wouldn't
be even too much afraid to be sudden - I mean
I wouldn't make it so legalistic, but I would
like to come out and say point-blank, and
get there first - I don't want to say it
was brought to my attention. I will simply
say, following our usual procedure of
investigating all people that we employ, we
find that Mr. Small's record is of such a
nature that we have decided that we cannot
use him in connection with our Defense Savings
Bonds. Now, what the hell js the matter with
that?
Graves:
I think this is the matter with that. I
don't think it has been in the papers any-
where that we ever did contemplate using
him except in an advisory capacity. The
only reference that I knew of is this
reference here in the Detroit paper where
this paragraph here, "Small will fly to
Regraded Unclassified
100
- 5 -
Washington for further talk with Morgen-
thau, and it WAS learned that Small might
be loaned by the CIO to the Treasury
Department to help make the music box drive
8 national campaign." It has appeared
nowhere that we intended to offer this man
8 job or a connection.
Vister
Why do you have to may anything about his
record at all? Why not just make some
sort of a statement, saying that he is
not going to be used? You don't have to
give an explanation.
Schwarze
I could tell them orally, Mr. Secretary, to
the Detroit and Michigan people.
Calms:
Why don't you notify this man right away?
Is he waiting to hear from you?
Proves:
Oh, no.
H.M.Jre
Listen, gents, now get this thing straight.
T am not going to wait to be attacked.
I want to disown this fellow. Now, it is
just 8. question of how to do it. Even though
1 don't sell another record to the juke boxes,
I want to disown him. Now, that I am determined
to do. Now, it is just 8 question of what
is the best way to do it. I am not going
to wait to be attacHed. I think it is an
outrageous thing of Frank Iseby to wish
a man like this on me, and I am certainly
not going to - I did consort with this fellow
unknown and now I want to wash my hands of
him.
Times
I don't think I would speak of his past
record.
You are right. All We can say is we have
decided not to use him. You are perfectly
right.
Regraded Unclassified
121
- 6 -
Klotz:
That can be done.
N.M.Jr:
I think you are perfectly right. He can
simply say that we are not going to make use
of the services of Mr. Small.
That is much better.
".".Jr:
I think you are absolutely right, Mrs.
Klotz. What Mrs. Klotz suggested,
we would just announce we are not going to
make use of Mr. Small's services.
chirms:
Why don't you have a reporter ask you n.
question?
Traven:
That would be much better.
Bairas:
You can say, "Absolutely not," period.
M.M.Jr:
That is following Mrs. Klotz' suggestion.
shware:
It is up to anybody else to nursue it further,
but you have already divorced yourself from
any association with him. If you start
talking about a man's record then it nuts
you in of vulnerable position.
Well, it puts all future applicants to the
Treasury in a dangerous position.
"Well, it also raises the question of why did
he go this far without having learned more
about the man.
Elste:
supposing they ask you the question, "Well,
why not?"
When did you study law?
Minte:
Well, I have been sitting in 30 many confer-
ences.
Regraded Unclassified
122
- 7 -
M.M.Jrs
What is the answer to that question?
:chware:
We have made a careful investigation.
irevest
You couldn't do that now. If you want to
say that, Chick, We have to go ahead and
complete our investigation. I think all
the cereful investigation would be to look
up the Detroit police record.
Calmose
when will we get that?
By three thirty.
D'Connell:
I think you could just sky, ne decided not
to use him.
H.M.Jrs
I think that is right. Just say T.e are
not going to use him, "Ye don't care to "0
into it. I just don' t care to to into it,
Ten:
I still think there is something in Harold's
point. The Petroit paper also stated the
nature of Small's connection here with the
Treasury. He wasn't to be used by us in
any way. lie was doing something on his own,
of volunteer service which he came down here
to discuss with us. That is All.
Proves:
As I remember what you said to this man --
Excuse me. Ferdie hasn't read the thing.
Ferdie, read the thing that WAS sent to ne
and let Schwarz read it. You will cet the
implication back of that thing, both of
you will. You read it, too, Chuck. You
will get what is behind it.
Proves:
I remember what you said to the man was
that you would like to have him come to
Washington to go over with us a plan for
extending that Wayne County activity to the
rest of the country. That is as fer as you
ever committed yourself.
Regraded Unclassified
123
- 8 -
Harold, listen, I have been in the Govern-
ment service eight years, and you have been
in it twenty-eight years but the one thing
that normally - I always say in Washington
you get at least one or two warnings.
I don't want to even wait for one. I don't
want to wait to be attacked on this fellow.
I simply want to come up and say the normal
thing would be for somebody to say, "well,
are you using this man?" "No, we just
decided not to use him."
Traves:
I certainly can see no objection to that.
H.".Jr:
Then if somebody attacks me I will say,
"I announced on September 29 that we were
not making use of Mr. Small's services."
Apoves:
If somebody in your press conference could
ask that, your answer then could be "No,
we are not going to use him."
Calma:
But you don't have to wait for verification
if you don't give any reasons.
Klots:
That is right.
E.M.Jrz
No, I am not going to give any reasons.
Drives:
That is perfectly all right, but for you to
bring this up yourself, right out of thin
air, would be terribly bad, in my opinion.
R.Y.Jrs
Tell, we can zet the question, "Are you
going to use --"
Schwarz:
"Is Mr. koy Small going to be appointed to
the Defense Staff in Michigan
B.V.Jr:
Yes.
Nuhn:
Was there ever any question of his being ap-
pointed to the Defense Savings Steff?
Regraded Unclassified
124
- 8 -
Well, just some question, "Are you going to
use him in connection with that?" The plan
was, we were going to use him to help
sell the thing nationally, not just at
Detroit. The man was brought down here to
help us get all of the - all of the juke
boxes and he did help us. That is the joke
of it.
Traves:
Well, no more than to make a plan. If
this thing happens, that plan collapses and
we will have to make another plan.
E.M.Jr:
That plan collapses?
Traves:
Yes, because Small was to be used as an
important cog in that --
E.V.Jr:
How was he going to be used?
graves:
Contacting his organization throughout the
whole country. That was Small's part in
that.
9.M.Jr:
Well, I would drop the plan.
Wryvest
Of course we will drop it, but nothing
actually has been accomplished.
Flotz:
If they ask that question and you answer it,
does it necessarily mean that they will make
use of it, that they will print it?
chwarze
Not necessarily, but the record is there.
B.M.Je:
They will use it. They will send it back
to Detroit. Chick will tell them that this
is for the Detroit papers.
Schwarze
Yes.
And the Ford organization, whoever is watching
that, he will see it in the papers and say,
Regraded Unclassified
125
- 10 -
"Oh, oh, Morgenthau was too smart," Or
Father Coughlin, who is terrifically anti-
labor - Father Coughlin was so anti-labor
he will say, "Well, Morgenthau is too -"
here Father Coughlin, for instance, if he
writes the thing attacking me, I will say,
"Here are the stenographic notes, and you
have got to retract this thing," and I will
go to the Archbishop of the district and
tell him Father Coughlin has got to publish
a retraction in the paper, because I said
it, you see.
Schwarze
If you make this statement you will have
taken the wind out of any story.
H.M.Jrs
Then if they do it, if they attack me,
I can do what we did before, prepare
the letters for a basis of the suit, which
was written, and I sent it to the Cardinal
in Chicago and I sent it to the Bishop in
Detroit, and a copy to what-is-his-name, and
just 88 soon as they saw I was getting ready
for & suit, Father Coughlin backed out. Were
you in on those things?
Cairns:
No.
H.M.Jes
And I made them back down, I think it is
twice now. But then my record is clear.
Otherwise he would say, "Well, Morgenthau
never said he did." Am I right on the
slander?
Crimas
Oh, yes. If you don't go into any reasons
today --
11."-Jes
But I meant if Father Coughlin - supposing
he devotes D. page, how I employed this panderer
to help me sell things.
Cairns:
Well, there you have him.
Regraded Unclassified
126
- 11 -
H.M.Jrs
And if I say here that - "Are you going to
use Mr. Small's services?" "No, Mr. Bones,
we have decided that we are not going to use
Mr. Small in connection with any Treasury
work."
Cairna:
"Anywhere in the United States."
H.M.Jps
"Anywhere in the United States." Isn't that
the basis, if they attack me?
Graves:
That is basis - you have a sufficient
basis for --
Cairns:
Without that.
Proves:
If you didn't employ him.
Calrna:
By making the statement, you have a psycho-
logical advantage.
H.M.Jr:
+hen I can go to court, can't 1?
Coirns:
Yes, but you will need --
M.V.Jr:
Joe?
0'Connell:
I say in answer to 8 question you should say
that you won't use him. That is all.
H.M.Jr:
Kades?
Kades:
I think you should, Mr. Secretary. I
was just asking Ferdie whether it would be
possible to say that you are not and don't
intend to use him because we have simply
been speaking about intending to use the
services anywhere, and he thinks it would
be possible.
H.M.Jr:
I will simply say, "I have no intention of
Regraded Unclassified
- 12 -
using Mr. Small anywhere in the United Sales
in connection with any - I don't intend in
any way to employ Mr. Small."
Graves:
I wouldn't overstate that, Mr. Secretary,
I would not over-emphasize that, because
if you do, then reople are going to smell
a rat.
Tebours:
I would answer just 8. direct question.
S.M.Jre
"I don't intend to employ him."
Schwarz:
You might want to say you found it is not
necessary to employ him.
H.".Jr:
No.
0'Connell:
No.
Xuline
No, you are not employing him.
B.Y.Jr:
Am not and don't intend to.
Xanea:
I think there is an additional reason, Mr.
Secretary, beside the possibility of Pegler
or somebody picking it up. It seems to me
that an ordinary person in Detroit reading
that in the newspapers will say, "What kind
of fellows are going to be used in the
Defense Bond program?"
I am glad you put it on the higher plane,
Chuck.
The implications in that story are even though
they might have been planted by him and his
group that he is going to be connected.
Well, I don't know whether he give it out
or whether it is Frank Iseby.
Regraded Unclassified
125
- 13 -
Kuhn:
You remember Small's line here the other dey.
about how juke boxes hed been tainted with
racketeering and how the juke tox industry
was so anxious to get away from this --
Mote:
Maybe he has turned over 8 new leaf.
Kuhne
.... to get away from this taint, that
they want to show what good fellows they
can be?
Entrnor
Don't forget he was acquitted of these three
charges.
Traves:
Case dismissed. He was never tried.
Klotz:
Well, the witnesses ran out on him.
Cairns:
Well, that is what the blotter shows. It
is probably true.
H.V.Jr:
It says here, "Small will fly to Washington
for further talks with Morgenthau. It was
learned that Small might be loaned by the
CIO to the Treasury Department to help in
the music box drive. Two companies have
already offered their services to help."
T think that is all right. Are you satisfied?
Klotz:
Yes.
E.M.Jr:
I am satisfied.
RIcts:
If Mr. Graves is.
Gravest
Yes, I am, entirely, if there is a question.
All I objected to was your making more out
of this than I think you should, by bringing
it up yourself.
H.V.Jr:
O.K., Counsellor.
Regraded Unclassified
129
- 14 -
Graves:
Fine.
E.".Jr:
Listen, Counsellor, at three thirty, between
three thirty and four, if you should hear
anything more on his record, let me know,
will you?
Traves:
Well, if it is simply a verification of the
record, I won't bother.
H.M.Jr:
But if the man is a lilly --
Graves:
Oh, yes.
E.".Jr:
I have been done a great harm, injury.
Regraded Unclassified
TREASURY DEPARTMENT
130
WASHINGTON
September 29, 1941.
MEMORANDUM FOR THE SECRETARY:
Complying with your note of this morning, we
have done the following since Mr. Isbey's visit on
Thursday:
Schools
The opinion here (including Odegard) is that
Isbey's school plan needs much revision before we
can properly suggest it for other States. It
smacks too strongly of straight sales promotion.
we are accordingly proceeding with the preparation
of material which can go out to all States, sug-
gesting a program for the schools in connection
with Defense Savings, which will be primarily
educational and only secondarily selling.
I believe that this can be ready for distribu-
tion shortly.
Labor Unions
We have authorized Mr. Isbey, as en experiment,
to hire on his rolls a group of five or six Union
workers to be used in promoting interest in the
salary allotment plan among employee groups in
Michigan. Further activity will depend upon the
outcome of this experiment. We hope that we may
find material in this way to put on our staff
permanently for use in other States
GRAVES.
Regraded Unclassified
September 29, 1941
131
My dear Mr. Barnard:
I beg to acknowledge receipt of
your letter of September 25th enclesing
copy of your letter to Mr. E. K. Rand,
of Harvard.
I an delighted that you will be
with me, starting en October 6th, and I
feel that together we can render & service
to our country in these most difficult
days.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
Mr. Chester 1. Barnard,
540 Broad Street,
Newark, N. J.
File to mine Channey
Regraded Unclassified
132
CHESTER 1. BARNARD
540 BROAD STREET
NEWARK, N.J.
September 25, 1941
THE Henry Morgenthou, Jr.,
Secretary of the Treasury,
Disington, D. C.
the
Confirming our conference and Y pronversation with
370 his telephone this afternoon:
I shall report for dut: et you office on Details: 6
to give you By entire List except for the ninth of
Delabor, then I have an endagement I CE., not properly avoid.
My Board has granted 26 leave with pay.
You asked se to send you L CODY of the statement
12ct I wrote for the Harvard Committee. I and enclosing the
mil the letter which elicitec it. I have been tole
... - it 200 published in March or April in a Sunday edition
4 flie New York Nerald Tribune but I have never seen it, nor
Decid any comment about it.
Yours respectfully,
Cleated Bamard
Regraded Unclassified
COPY
133
107 Lake View Avenue
Cambridge, Year.
Jamuary 21, 1941.
Chester i. Barnard, Enq.
040 3,002 Street
Low Jersey
Door UT.
an writing to you on behalf of our Committee on Defense
of Farward to inquire if you would be willing to malce a statement -
not too lon - for us of your viewn on the probable conditions of
Justness in our country in case Hitler should subdue Britain but
not attempt an invasion of the U.S.A. No are specially concerned
with 1:0 tone of "appeasement" manifested amon, certain business
mos, 10 think that our commercial and financial success would not
20 soriously injured if Hitler's Germany controlled & now urope.
1 have secured & statement against "appeasers" from my
friend, Tomas ". Lamont, and we are anxious to add to that
similar declarations from other men of ominence and then to unite
the in one communication to be disseminated as widely as possible.
If you are willing to lot us have such & statement, the
Comittee will be most gratoful. Lot me add the hopes expressed
30010 friend, Miss Cladys 11. McCafferty, who is & member of
i.o central committee of our organization.
Sincerely yours,
(Sgd) E. :- Rand
Professor of Latin
Harvard University
Regraded Unclassified
COPY
134
January 27, 1041.
Professor E. K. Rand,
107 Lakeview Avenue,
Cambridge,
Doar Professor Rands
In reply to your letter of the 21st instant, I submit
the statement following this paragraph. It seens to no unsuited
to the propaganda of the Committee on Defense, of Harvard; but
you my 100 It, if you wish, in whole but not in part.
Decisions relating to the possibility of a German
defeat of Britain, not to be followed by an attempted German
invasion of the United States, should be based upon our estimate
of the intereste of our children's children, not upon our imad-
into interests, with DD little admixture of present sentiments as
may be. The comle of world-wide interdependencies in too large
for any shorter focus, and the conditions are too cloudy for a
longer one.
I at present believe their interest would be best served
by a coherent formal organization of the world politically and
economically; and that any method of accomplishing this will have
become by the second generation preferable to failure. The methods
now possible seen to be three, each involving force of arms at
loast initially: (1) organisation under the hegemony of Cermany
and hor allies; (2) a similar authoritarian organization under
Great Britain and the United States; and (3) a world federal
overnment (not league) democratic in ultimate orientation under
the leadership of Creat Britain and the United States.
The defeat of Great Britain by Dermany would appoar to
eliminate the second and third alternatives, the most promising
For our people. The first would be incomplete, meaning the
consurcial and political isolation of the United States. The
dependence of the German people upon external supplies of raw
materials for subsistence would constitute a persistent motive for
the exclusion of the United States from world commores except on
terms 5 Jormany and her allies. It 10 possible for us to subsist
in this degree of isolation, though it would restrict our welfare,
The restrictions would be less onerous, but perhaps more irritat-
in than probable under continued world disorganization. Such
condit ans might be tolerable except for the constant threat of
welfare. war for political reasons. This would cortainly jeopardize our
Against such views are these, for example, among several
other possibilities: (1) & successful but impoverished Cermany
co.11 not exploit its victory fast enough to maintain its organiss-
tion. It could collapse for many reasons. If it did, I believe
Regraded Unclassified
-2-
135
the world Misorganization then resulting would be a calamity
eve. to us. (2) The British might become totalitarian and & boat
Concerous and uncomfortable partner. This 10 an important
possibility, also leading to disorganization. (3) The United
States wight become totalitarian, either fascist or communist
varioty. This would wo mean general impoverishment for this country.
(4) a world organization, If achieved, would not enchire XII first
attempt. This 1a probable.
Notwithstanding my opinions as expressed, I believe that
neltier I nor anyone 1a capable of B. probably sound estimate of
future conditions under the various alternatives which may now be
contemplated. We are compelled to gamble rather desperately with
the interests of our children and their ch ldren, not knowing what
they will think, after we are gone, their interests are. I would
muble with the British, and attempt to set up a world government.
However, the question of better or worse business Q.D such for its
own salce now or later 000.00 to me of so little importance in
comparison with the major issues that I am unable to discuss it.
In fact, it 1a a question which has no acnse for no.
It was pleasant to hear from Mium McCafferty by your
letter. Please convey to her my best compliments.
Sincerely yours,
Regraded Unclassified
September 29, 1941
>
136
Dear Harry:
I am sending you herewith a complete (et dated
copy of the correspondence that I have had
with the President in regard to the Russian
9-25)
financial situation as it ties in with the
English.
To date, I have had no reply from
the President.
After reading this correspondence,
I would appreciate it if you would tele-
phone ne as I really think the English
should have en answer.
Yours sincerely,
Monorable Harry Hopkins,
The White House.
Regraded Unclassified
1,5,
September 29, 1941
3:55 p.m.
HWr:
Hello.
Harry
Homine:
On, hello, Henry.
-MJr:
Hello, Harry.
8:
I've just read this letter.
RWJr:
Yes.
E1
From the British.
ENGER
Yes.
M:
That's
HMJr:
Kind of complicated, isn't it?
59
I'll say it's comulicated.
H&Jr:
Yeah.
R:
I can see the real comolication gets into
this business of the British taking dollars.....
Hower
Yeah.
#
from the Ruesians. And after we've
broken our necke to provide dollars for the
British to buy over here.
And who gete the gold? I mean, they want the
gold.
71
They want gold, too. Yeah.
MRJr:
I thought
4:
I wonder how much of their stuff, actually
though, would come under that section of the
stuff.
ENJOY
I don't know.
Regraded Unclassified
2 -
B:
I think most of it - for instance, they're
selling - they're sending them two hundred
airplanes a month.
HMJr:
Yeah.
H:
Well, now, that would come under the section
where they say that military supplies from
the sterling area we shall not ask for payment
for military supplies from the sterling area.
HMJr:
Yesh. Well, two things.
H:
Yes.
HMJr:
One, don't you think that Averill Harriman ought
to have that?
H:
You mean the British one?
HMJr:
No, the British memo to me.
H:
Well, he's got the British - he knows what the
British financial arrangements are with the
Russians.
HMJr:
Well, I wonder if he knows that they're putting
a thing like that up to us.
B:
But I don't think he thinks - I don't think he
has any idea of the complications of this
dollar business and gold business.
HMJr:
Well, what
H:
You mean, what we can aay to him - you mean
that apropoe of the wire that went to him
Saturday or Friday.
HMJr:
Yeah.
H:
Your wire.
HMJr:
Yeah.
H:
To let Harriman know the: the British are
Regraded Unclassified
- 3 -
trying to get gold for certain types of
purchases.
HVJr:
Yeah.
E:
Is that it?
-MJr:
Yeah.
Hr
And won't he please pry loose that other
answer to that wire.
NAME:
Yeah.
Et
You don't want him to handle - do anything
about the British thing, do you?
EXJr:
No, Just that he knows, because he'e - after
all, he's on the spot. He's dealing with them
every minute.
⑈
Yeah.
4XJr1
And I kind of thought it was, oh, a little
bit kind of pushing us.
9:
Yeah.
TWr:
You know.
F:
Yeah.
But I've had no enswer from the President.
in
Uh huh. I haven't seen him. I suppose he
took this to Hyde Park with him.
Yeah. And I'm not going to answer Bewley until
I do hear from the President.
E:
No. I don't see how you dare.
EVr:
lio.
in
Henry, I think the real implication in your letter,
Regraded Unclassified
140
- 4 -
apart from the detail of that British thing,
is that I think that this thing - this whole
dollar problem with Russia in the light,
especially, of this British memoranda
HMJr:
Yeah.
H:
the whole thing are all hooked up to-
gether.
HMJr:
I think BO.
H:
I don't see how you get away from them.
HMJr:
That's what I was trying to get over to the
President.
H:
Yeah. What I think, the President should write
you a letter saying that this all sounds a
little complicated to me and I don't know how
to answer you and I want you to handle all
things concerning dollar relationships with
the Russians and relate them in an appropriate
manner to the British.
HMJr:
Well, that's what I'm doing for the British,
the Chinese, and the Canadians.
R:
Well
HMJr:
And
H:
I can see here how the British might take
your eye teeth while you're not looking.
HMJr:
That's right. Somebody ought to be in the
position he knows the whole picture.
8:
That's right. That's right.
HMJr:
That was what I was trying to get over to him.
H:
Yeah. Well, that was perfectly clear to me
that that ought to be done right away.
HMJr:
Yeah.
Regraded Unclassified
- 5 -
141
H:
He's coming back when - tonight or tomorrow?
HMJr:
I understood he 18 leaving there tonight.
H
Uh huh.
HMJr:
Uh huh.
R:
Well, let's see
HMJr:
How are you feeling?
H:
I'm feeling pretty good, Henry. I'm struggling
with this Russian stuff, airplanes and tanks,
and everything.
HMJr:
Are you taking care of yourself?
H:
Yeah, within limit. I go to bed early and
try to
HMJr:
Alone?
H:
(Laughs) Yes.
HMJr:
I see.
H:
I usually do.
HMJr:
(Laughs) All right.
H:
I certainly do, Henry.
HMJr:
Well, I've got to take your word for it.
H:
Yeah. All right, Henry.
HMJr:
All right.
H:
All right, old boy.
HMJr:
Good-bye.
H:
Good-bye.
Regraded Unclassified
For Miss Chauncey
TREASURY DEPARTMENT
142
INTER-OFFICE COMMUNICATION
DATE September 29, 1941
Secretary Morgenthau
TO
FROM Mr. Bell
AWB
STRICTLY CONFIDENTIAL
Official sales of British-owned dollar securities under the vesting order
effective February 19, 1940:
No. of Shares $ Proceeds of Nominal Value $ Proceeds of
Sold
Shares Sold
of Bonds Sold
Bonds Sold
Sept. 22
593
20,240
5,000
3,080
23
440
8,749
31,500
16,780
24
180
11,186
11,000
7,286
Nil
Nil
25
10
1,088
26
10
1,330
Nil
Nil
27
Nil
Nil
Nil
Nil
1,233
42,593
47,500
27,146
(
Sales from
Feb.22,1940 to
9,809,153-1/2
280,387,849
45,093,716
37,057,781
Sept.20,1941
Total
Feb.22,1940 to
Sept.27,1941
9,810,386-1/2
280,430,442
45,141,216
37,084,927
Regraded Unclassified
For Miss Chauncey
TREASURY DEPARTMENT
143
INTER-OFFICE COMMUNICATION
DATE
September 29. 1941
Secretary Morgenthau
TO
Mr. Bell
FROM
suB
STRICTLY CONFIDENTIAL
Official sales of British-owned dollar securities under the vesting order
effective February 19, 1940:
$ Proceeds of
$ Proceeds of
Shares Sold
Bonds Sold
Total
Sept. 22
20,240
3,080
23,320
23
8,749
16,780
25,529
24
11,186
7,286
18,472
25
1,088
Nil
1,088
26
1,330
Nil
1,330
27
Nil
Nil
Nil
42,593
27,146
69,739
Sales from
Feb.22,1940 to
Sept.20,1941
280,387,849
37,057,781
317,445,630
Total
Feb.22,1940 to
Sept.27,1941
280,430,442
37,084,927
317,515,369
317,515,369
$ proceeds of non-vested securities sold
Sept.15,1941 to Sept.20,1941
400,000
$ proceeds of non-vested securities sold
Sept.1,1939 to Sept.13,1941
233,200,000
$ proceeds of non-vested securities sold
233,600,000
233,600,000
Sept.1,1939 to Sept.20,1941
GRAND TOTAL
551,115,369
$42
9 Units sold from Aug.18,1941 to Sept.27,1941 for
11 Shares Stock Dividend sold from Aug.18,1941 to Sept.27,1941 for
$123
$47
35 Rights sold on Sept.22,1941 for
55,537 Rights sold from July 24,1941 to Sept.20,1941 for
$102,543
55,572 Rights sold from July 24,1941 to Sept.27,1941 for
$102,590
Regraded Unclassified
FOR Visa Chauncey
144
September 29. 1941
CONFIDENTIAL
Dear Hr. Inske:
Permit Be to acknowledge, on behalf of Bearetary
Margenthan, the receipt of your letter of September 25. 1941.
enclosing your compilation for the week ended September 17.
1941. showing dollar disbursements out of the British Empire
and French accounts at the Federal Reserve Bank of New York
and the sease by which those expenditures vere financed.
Faithfully years,
(Signed) D.W. DELI
Under Secretary of the Treasury
L. V. Encke, Require,
Vice President,
Federal Receive Bank of New Terk,
You Terk, Bev Tork.
lap-9/29/41
Regraded Unclassified
145
COPY
Federal Reserve Bank of New York
September 25. 1041
CONFIDENTIAL
Dear Hr. Secretary:
Attention: Mr. H. Merle Cochren
I am enclosing our compilation for the week ended
September 17. 1941. showing dollar disbursements out of the
British Empire and French accounts at this bank and the
means by which these expenditures were financed.
Feithfully yours,
(Signed) L. Y, Knoke
Vice President
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury.
Weshington. D. C.
Enclosure
COPY: lap-9/27/41
Regraded Unclassified
ANALYSIS OF BRITISH AND ACCOUNTS
In Millions of Dollars)
Yook Ended Dept. 17. 1941.
OF
Cor't
Proceeds or
Not Incr.
Sales of
(+) or
GOVE
Total
Patel
Other
Bepr. (m)
Total
Expendi-
Other
PERIOD
Total
of Gold
Invoice
surba(a)
Debite
Other
Creddite
Gold
in Balance
protes
tures (a)
Debits
Crodit
sales
First year of WRIT
8/29/39-8/28/40)
1,795.2
600.8
3,167,61,868x8
1,866.1
58.0
420.1
35.0
866,3(e)
415-6 (a)
449.7
,095,3(e)
1940
900.2
195,2(g)
we 29 - Dot. 2
316.8
244,8
92.5
308.9
291.5
6.0
31,4
- 7,9
8.6
4.4
4.2
Oct. 3 - 30
196.7
1.3
-
167.8
28.9
198.5
1:50
n.
- T.
160,5
6.0
32,0
+ 1.8
0.5
0.3
0.2
0.5°
-
0,80
Oct. 31 - Nov. 27
201.1
39.9
259.5
£10.0
18.0
31.5
- 18.5
O.S
0.1
0.7
0,7
-
0,7
- del
DOT. 88 - Doo, 31
254.8
206,8
27.8
198.0
111.0
26.0
60,6
36.6
2.1
2,1
0.6
o
-
0,6
WI
is through Dec.
2,782.2
1,425.6
1,356.78
79341
2,109.6
108.0
676.6
10.8
878,3
422.4
456.9
1,098.4
900.2
198.8
+220,
1941
VI
Jan. 8 - - 29
197.4
162.7
34.7
259.9
176.2
52.0
31.7
+ 62.5
1,7
-
1.7
0.3
,
-0.5
- 1.
Jun, 30 - Feb. 26
164.6
137.8
26.8
101.4
26.6
26.0
48,8
- 63.2
0.2
-
0.2
0.2
-
0.2
Here 27 - Apr. 2
229.7
157.6
32.11
237,9
103,7
72.0
62,2
+ 8,2
0,7
-
0.7
1.6
X 6
1:116
Cab
Apr. 3- Agr. 30
0,
126.0
101,9
24.1
226.90
125.6
15.0
78,3
92.9
0.2
-
0.9
0.9
-
May 1 - May 28
0.8
122.5
90.6
32,0
91,0
6.3
32,0
52.7
- 31,6
0.4
-
0.4
0
0,8
MI
0,0
:
May 29 - July 2
140.5
113.8
26.7
105,1
1,9
11.0
92,2
- 35,4
21.5
-
21.5
0.9
-
0.9
-
July 3 - July 30
101.4
75.6
28.3
61.5
-
6.0
55.5
- 39.9
0.5
-
0.5
0,3
-
0,3
-
July 31 - ARE 27
131.7
92.2
39.5
149.2
-
4.0
145.2
+ 17.5
1.0
-
1.0
0.5
-
0.5
-
stand mar of war
(6/29/40-8/27/41)
27)
Ang. 28 - Ost, 1
we 2 - Octo 29
Oct, 30 - Dec. 3
4 - 31
BE ENDED:
Aug. 27
36.5
22.5
14.0
5.2
-
-
5.2
-31.3
-
-
-
-
-
-
Dept. 3
34.5
29.9
4,6
9.0
-
2.0
7.0
-25,5
-
-
-
0,1
-
0.1
10
31.9
20.0
11.9
11.7
-
-
11.7
-20.2
-
-
e
0.1
-
0,1
19
26.3
18.0
8.3
32.0
19.6
-
12.4(f
+ 5.9
O.1
-
0.1
0,2
-
0,2
inno leekly Impenditure since Outbreak of Mar
Transfers from British Purchasing Commission to
Printed (Throl) These 19 1940) $19.6 million
Bank of Canada for French Account
(See footnates on
England (through June 19,1940) 27.6 million
Feek ended Sept. 17, 1941
-
million
facient (sinee June 19,1940) 45.0 million
Ommilation from July 6,1940 $162.7
million
.
In monthly breakdown 200 tabulations prior to April 23, 1941.
Regraded Unclassified
Tisley,
2000
Also
To
Intor
Hert
York
prosects to the official melling, substantial liquidation of securities for private British account occurred, particularly during the
or
official
19b
of
1000 to Lots
sarly months or the wer, although the of the proceeda at Myde/Bank gshnot be any ADDRESS Angerding
to data supplied by the British Treasury and released by Secretary Morganthau, total official and private Britlah liquidation
-
THE
of our securities through December, 1940 amounted to 1334 million.
(a) Includes about $85 million received during October, 1959 from the essounts of British authorized banks with New York benks,
presumably reflecting the required tioning of grivate dollar bulances. Other large transfers from such mocnunts aince October,
-
1930 apparently represent the acquisitied of -prodeeds of exports from the sterling area And other current ly scorying dollar
receipts.
LEE
(4) Includes payments for account of French Air Commission and French Purchasing Commission,
(a) Adjusted to eliminate the effect of $20 million paid out on June %, 1940 and returned the following day,
V - 1
-
AS
E
(f) Includes $5.0 million received from New York bank for secount of 1 Brittish authorized bank, presumably representing
proceeds of rubber end tin exporte out of Singapore.
I too - as
es NSP S
E 1200 - DE
-
verse
reser, or am/t was
not Lasa 0.55 eaut banings
mail sental
of
DGC medicated
Regraded Unclassified
ANALYSIS or GARADIAN AND AUSTRILIAN ACCOUNTS
(In Millions of [ollare]
Week 17, 1941,
tratidential
CO
113111
083176
Transfers
Transfers from Official
Transfers
3
Proceeds
British A/C
Not Incr.
to
Proceeds
M
Total
Official
Other
Total
of
Other
(+) or
Total
Official
Other
Total
of
Other
(+) or
Debits
British
Debite
Credits
Gold
For Own
For French
Credite
Desr. (-)
Debite
British
Debite
Credite
Gold
Credits
Deer. (-)
PERIOD
A/C
Sales
A/C
A/O
in Balance
A/C
Sales
in Balance
Pirst year of was
(8/29/39-8/88/40)*
323,0
16.6
306.4
504.7
412.7
20.9
38.7
32.4
+161,7
31.2
3.9
27.3
36,1
30.0
6.1
+ 4.9
1940
Aug. 29 - Oct. 2
44.3
-
44.3
43.9
16.4
-
27.3
0.2
- 0.4
8.7
2.5
6,2
8.0
6.7
1.3
- 0,9
Oct. 3 - 30
26.7
-
26.7
28,6
14.0
-
14,3
0.3
+ 1.9
10,1
7,5
2.6
7,9
6.5
1,4
- 2.2
Oct, 31 - Nov. 87
35,2
-
35.2
69,6
49,2
-
16,7
3.?
+ 34.4
3.1
0.6
2,5
3.6
2.1
1.5
+ 0,5
Nov, 28 - Dec. 31
48,0
-
48.0
60,6
42.5
-
13,7
4.4
+ 12.6
4,8
-
4.8
6,8
4.8
2.0
+ 2,0
Mar pariod through Den.
477.2
16.6
460,6
707.4
534.8
20.9
110.7
41,0
+230.2
57.9
14,5
43,4
62.4
50.1
12.3
+ 45
1941
Jan. 2 - 29
33.7
-
33.7
33.9
16.9
-
15.0
2.0
+ 0,2
4.8
"
4.8
6.8
5.1
1.7
* 2.0
Jan. 30 - nob 25
31.1
-
31.1
24.3
14.3
-
6.8
3.2
- 6,8
5.0
1.7
3.3
3.2
0.6
2,6
. 1,8
Feb. 27 - Apr. 2
60.9
-
50.9
46,0
23.1
-
19.1
3,8
- 14,9
5,6
0,8
5.0
13,7
18,5
1.2
. 7.9
Apr. 3 - Apr. 30
34.9
-
38,9
35,9
12,5
-
10.5
12.9
+ 1.0
2.8
-
2.8
5.9
1.6
4.3
+ 3.1
May 1- May 88
39.2
-
39.2
25.6
15.8
-
0,5
9,3
- 13,7
5,4
1
5,4
4,9
4,1
0.8
- 0.5
May 29 - July 2
43.2
-
43,2
48,2
16.3
-
-
31.9
+ 5.0
10.1
-
10.1
5.8
4.5
L3
- 4,3
July 3- July SO
30.6
-
30.6
21.8
15.2
-
-
6.6
- 8.8
6.4
-
6.A
6.3
4.8
1.5
- 0.1
July 31 AUG- 27
32.5
-
12.5
23.6
10.0
3.4
-
10,2
- 8.9
5.2
-
5.2
8.3
6.6
1.7
+ 3.1
Brand part of war
(8/29/40-8/87/41)
ARE- 88 - Oat. 1
Oct, 2- Oct. 29
are 30 - Dec. 3
Doe. 4 - 31
RESK IND:
Aug, 27
10,2
-
10.2
2.9
1.5
-
-
1,4
- 7-3
2.1
-
2.1
0.7
0.2
0.5
- 1,4
Sept. 3
2.6
2.6
26.7
0.1
-
-
26.6
-
+24.1
0.9
-
0.9
-
-
-
- 0.9
10
3.5
-
3.5
3.4
2.9
-
-
0.7
- Oal
1,0
-
1.0
0.1
-
0.1
- 0,9
5.8
4.4
3.5
-
-
11
5.8
0.9
- 1.4
1.4
-
-
1.4
0.2
-
0.2
- 1.2
Weekly Average of Total Debite Since Outbreak million of Mr
For monthly breakdown are tabulations 7.4 prior to 4pril 25, 1941.
Through Sept. 17, 1941
-
-
Regraded Unclassified
Treasury Department
Division of Monetary Research
149
Date
September 30, 1941
701
Secretary Morgenthau
From: H. D. White
Digest of British Newspaper
Clippings
This digest of clippings was done as
an experiment by Mr. Barth. We think it
16 first rate. If you agree and are inter-
ested, we will turn over the clippings to
him as they arrive and let him put them
together into a readable story.
Regraded Unclassified
Late
2, 1041.
_01 s Thite
... In nrth
Ilence nt Inglish menspapers Turnishes zome
the sidoli lite on the impact of the MP the the
Main of an embuttiod people. Te norml pottern
existence les loen altrol in insurers. le de-
=210 1c:, Licen schornted their contecting seem
5. 10, tut taken to other suggest
CASH perminent changes in Junial presulsation.
2- nationing and distribution of Lood under
Inc Loc: expecially responsible 20b 8112% in
If Mits. to a considerable Cogree, tip
-- Irom TO: a ricultional to :- r.n/
:: - mcal -- has loen taken ov r W the
- to this is the can le discorned _rom
story in the Daily Impress U.S compridos: "Laterand
the 00 petition rom for bolton's ritick
------------------------- is = existence of 5000 pintsly
have astel the "ood to rocoive
Regraded Unclassified
- 2 -
151
Production and distribution in accordance with need,
rather than in accordance with ability to purchase, has in
large measure become the rule in England, The principle is,
of course, implicit in any system of rationing. But the
principle must have achieved a high degree of acceptance
when The Daily Herald can inveigh editorially as follows:
"In shops in the West End of London there were yesterday
on sale peaches at Ss. each, grapes at 17s. 3d a lb.,
nelons at £2 each. The same sort of thing can be seen in
a score of other cities and towns. Stupid, vulgar, trivial?
Stupid and vulgar certainly. But trivial, no
For it is
1 symptom of something radically wrong in our var-time
economy
These are days of shortage of labour, shortage
of fuel, shortage of transport; of urgent need of all of
then for essential and vital war services. And yet labour,
Tuel and transport are being used to produce, not munitions,
not essentials of food and clothing and heating and service,
but melons at ₺2 apiece. Either that -- or shipping is being
used to import them. Is not that a sign and a symptom of
something radically wrong?"
Regraded Unclassified
152
account in the payse of The taily Dorald of the
et Llandudno of the ransport and General Torkers'
Inion affords further illustration of this trand. Some of the
resolutions offered at this aceting and calaly reported in
As green would have been denounced ns anarchy by some of our
conservative newspapels over here. One resolution adonted
called for nationalization of all forms of transport at the
arliest possible moment. Its proponent, a 12% Arthur Deaking,
seting general secretary of the union, insisted that the
transport problem would never be solved without elimination
0, the profit motive. Private enterprise, he said, lad
similarly proved a failure with inland maternays. the
conforance demanded the rationing of all Coods, control of
control of catering establishments, more communal feeding
conters and adequately supplied canteens for workers. "Jood
is a inmition of war," said one speaker, complaining that "Lt
present it is possible for rich people and others who can oull
strings not only to ret more than their share, lxt to corner
:- ore mourishing foods."
There is still Lootlegging of food in England as the
Inints of the Transport Workers indicate. 30$ the penalties
102 bein caught at it are extremely stoop. in Date Order
Regraded Unclassified
- 4 -
153
issued in August by Lord Woolton provides that, from a date
to Le fixed for each food, no trader may, except under
license, sell any of the specified foods, and no trader may
we cay specified food unless the seller holds a license to
tell it. Since the outbreak of the var, all food retailers
have been required to be licensed by Local Food Control
(duitoes if they sold any of some 30 specified foods
including bread, cakes, confectionery, fish, fresh fruit,
dilk, meat, poultry and all the principal provision and grocery
items. In July alone, food prosecutions over the whole of
Ingland totaled 2,846, the highest number of any month since
the war began. Only 137 of these were unsuccessful.
A news story reports that, for refusing to sell tomatoes
unless customers purchased somethin else, Frederick Verbert
of Satimal Creen was sent to prison for one month and fine £25.
& words was lined 110 on each of two charges for not displaying
mise tickets on tomatoes and onions. The Evening Standard
payorts that "A section of the crowd at Salisbury racecourse
on June 8 made & hostile demonstration against two men who
soll oranges at an excess price." the offenders were fined A10
in each of four cases, selling oranges without 2 licenso,
failing to exhibit a notice of maximum prices and two cases of
selling oranges st an excess price.
Regraded Unclassified
- 5 -
154
in the other side of the lodger, The Daily Sketch
reports that "Ten guineas were awarded against the "inistry
OF 000 when summonses against an Ilford store and the
at its Rayleigh tranch were dismissed at Southend.
me rather interesting device which has evolved out
of to war's necessities is 1 "Shop while you Work scheme"
for momen wer workers. Before coin to work, women call
at the ,rocers, leave an order, together with = certificate
showln that they are doin & job of national importance
and require special facilities for shopping. Their procories
mill be ready for then to collect any time on Saturday 112
to 10 o'clock at night. Women war workers are reported in
the occurs to be celicated with the scheme.
An editorial in The Enchester Guardian throus = rather
revealin li-lt on the spirit in which such changes in the
que of living are accepted: "That gee :S & very shrend
emple of vit anú miscon which Ico the London Divisional
1005 officer to say yesterday that Le prefor the word
"sitre" to "ration," because plenty of 200016 were prepared
63 boast that they had secured aore than their ration of
-30° cut not BO many would Loast that they had pt :Ore thang
their
share
The notion of a share 28 something which it
to to exceed oes leep."
Regraded Unclassified
155
October 1, 1941
I gave a photostat of the memo signed
by Hugh McDiarmid to Mr. Taylor, personal
assistant to Mr. Morris Wilson.
Regraded Unclassified
156
TREASURY DEPARTMENT
PROCUREMENT DIVISION
pince of THE DIRECTOR
WASHINGTON September 29, 1941
MEMORANDUM TO THE SECRETARY:
In accordance with your memorandum of September 24,
1941, I talked with Captain Kintner who advised that the source
of his information concerning an alleged "rake-off" from the
English on 8. typewriter deal was Mr. Hugh McDiermid, an employee
of the Royal Typewriter Company.
Mr. McDiarmid's signed memorandum is attached, and he
states, in substance, that Mr. Mosely, Purchasing Agent for the
British Purchasing Commission, has favored personal friends with
office supplies business to the exclusion of competitors, most
of the business reportedly going to Don MacDonald, 6. personal
friend of Mosely's.
It is understood that Mosely is an American employee
of the British Purchasing Commission and that he purchases, with
British funds, miscellaneous office supplies for use by the
British Purchasing Commission organization.
If you wish, I will take this matter up with Sir Clive
Baillieu of the British Purchasing Commission.
Clifton ton E. Mack,
Director of Procurement
In)
Regraded Unclassified
Deptember 30, 1921
This memorandus is in accordance rith 8. request that the svallable
furnished with reference to Mr. Mosely, Purchasing Agent for the
Purchasing Commission, 914 G Street NW., Reshington, D. C.
15. Mooely, I understand, is the Purchasing Agent for office equip-
n. supplies for the BPC. There have been cortain indications which
tive question B.S to the propriety of Mr. Moselv's wethods
1.06 be briefly summarized #8 follows:
2. Don MacDonsld of the MacDonald Typewriter Company, 318 12th
ashington, D. C., in alleged to have been fuvored with Include
E. souely because of personal friendship. MecDonald's own reputation is
yor study. His concern sells typewriters end certain office equipment to
Dritish Purchasing Commission. He appar.ntly is very friendly with Mr.
Waile there is no specific evidence of any irregularity, it has been
that MacDonald has been able to get 8. substantial amount of business
- The Tritish Purchasing Commission and that competitors who have sttemp-
tal a sell the RPC were unable to do so. It is further runcred that, after
ytliors attempted unsuccessfully to sell the HPC, Mr. MacDonald loter
bount the c) me machines from the some compotitors and resold them to the
ne through Mosely necessarily at a higher price.
Mr. W. H. Wollowitz, president of the United Typearitor Communy,
813 14th Street NV/., visited Mr. Mosely approximately 10 days ago one told
nie Use he would like to be considered insofer DE any RPC purchases eje con-
virwed :nd wished to quote prices. According to Mr. Wollowits, the remark
+4 by Mr. Mosely that "MacDonald gots the business because he is le
friend of mine." Mr. Wollowitz then commented in substance, "As 8 purchasing
world you interented in buying et the lowest competitive prices?" and
Versity 18 quoted &B having replied, "Who is going to tell anyone shout it?"
It clso rumored that Mr. Nye of the Allen Weles Adding Machine Co.
"D I'ved connection" with Mr. Mosely and Nye has made statements that he
Imen ble to sell Mosely because of a "kick-back."
R. C. Sigloch, auditor for the Royal Typewriter Company, commented
Type:/Ty that Mr. Mosely was formerly employed by the Royal Typewriter Company
In : do Carolina and that he had difficulties with the Company which culmi-
nick in il threstened law suit. Further, that EL bonding company that zaid
S. Couly's indebtedness to the Royal Typewriter Compuny has not been repaid
17 Us.
Whore If = similar nature with reference to alleged irregularities
se the British Purchasing Commission have been so persistent that I fael it
though distasteful, to present the metter to the attention of Blosse
=miged with the administration of the lend-lease funds
Hugh ReDiarrid
Regraded Unclassified
A23
MEMORANDUM
158
FROM British Supply Council in North America
TO
Mrs. Henrietta Klotz
Compliments of E.N. Gray
Regraded Unclassified
159
SMILL NO, 34.
SHIPPED D TO T. %. AND OVERSTAS CONSTANTS,
DESTINATION ASSEMBLY POSIT
By See
By Air
Tank Unded
Veck Inded
Tept. 6/41 Sept.28/41
". K.
U. I,
2
:
III
", K.
T.X.
6
:
III
Iddle Cast Port Sudan
2
:
Mare
U. K.
U.K.
1
:
"II
T.K.
T. K.
--
28 *
(via Mander)
::
T.K.
". F.
--
1
(vis Gender)
12
29
16 systime at doctitation
disn't Monted crosined at Duninlk,
11-
11 ST 20, 1941.
Regraded Unclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Sentember 21, 1941
Secretary Norgenthau
TO
FROM
Subject: Summary of Brookings Institution report on prices,
Mr. PH Heas
I Buil submitting herewith, in response to your request, a
civest of the Brookings Institution report on "Rffects of the
Defense Program on Prices, Wages, and Profits", by Meyer
Jacobstein and Harold G. Moulton.
Conclusions in brief
This report, published in a 43-paye booklet, presents
the following conclusions:
(1) We are now at the stage where & vicious soiral of
rising costs and rising prices threatens the living standards
of vast numbers of people with relatively fixed incomes. The
lac's of a sound coordinated price policy has already resulted
in much damage that cannot be repaired.
The 21 percent rise in wholesale prices since 1939 16
crimarily attributable to the rest rise in farm prices and
to increasing labor coats.
(3) A further extensive price rise can be prevented by
the montion of policies directed At the primary sources of
price disturbance:
(a) The most important ein le step is "to reduce
somewhat the prices of important asricultural products.
This could readily be done by releasing to the market a
portion of the croos now stored in Government verehouses."
Farmers, nevertheless, could expect some increase in
income as a result of the Department of Apriculture's ex-
consion program.
(b) The second es ential step 16 to control ware
rates. This can be done. while set uarding the recent
improvement in the position of labor, 1f the forces
resognsible for rising living costs are checked. Labor
may in any case expect some further expansion of earnings
from increasing hours of work AS defense needs become mor-
intense.
Regraded Unclassified
161
(c) It would still be necessary, however, to make
sure that Government fiscal and credit policies work in
harmony with the program adopted,
(a) If stabilization of production costs should result
in higher business profits, additional gains to stockholders
can readily be prevented by taxation methods.
(4) The Administration's price control bill does not
reach the heart of the present inflation process. "Unless
the Government 18 willing to restrict further increases in
the prices of agricultural products and wages, it will be
impossible for the Office of Price Administration to keep
the prices of manufactured products from rising." If & 00-
ordinated price program of the kind here indicated were put
into effect, the whole price problem would be profoundly
altered.
The developing price problem
The authors introduce their report by calling attention
to the enormous increase in total production and income dur-
ing the first year of the defense effort, which has brought
appreciable gains to each of the three broad classee of the
population - businessmen, farmers, and laborers.
Citing National City Bank tabulations, the profits of
corporations representing 90 percent of all corporate income
rose 19 percent in 1940 over 1939. More recent data for 200
leading corporations, representing one-fourth of the total
corporate income, show a year-to-year increase of 16 percent
in the 12-month period ended June 30, 1941, after allowances
for taxes, although the increase in published earnings has
levelled off since the beginning of 1941.
Labor has enjoyed more extensive gaine. Average weekly
earnings oer worker in manufacturing industries, for compari-
son, rose 26 percent between July 1940 and June 1941, while
incomes of workers have risen at B. much more rapid rate, taking
total payrolls in those industries rose 55 percent. Real
into account the rise of only 4.7 percent in living costs
during the period mentioned.
Parmers' cash incomes in 1941, on the basis of preliminary
estimates of the Department of Agriculture, will show an in-
crease of about 18 percent over the previous calendar year,
faot that the cost of goods bought by farmers has shown n.
Almost entirely due to increased farm prices. In view of the
Regraded Unclassified
162
relatively small advance, the increase in real incomes of
farmers has been substantially greater.
In contrast to these gaine, large numbers of people
(particularly those with relatively fixed incomee) have suf-
fered declines in real earnings as a result of rising living
coets, increased taxes, and other factors, The seme 1e true
of numerous business enterorises that have not benefited from
the defense program.
Origin of advance in prices
The report indicates that farm products have led the
price advance, and the "Government policy with respect to
agriculture has
been primarily responsible for the
great rise in raw material prices." It cites the striking
fact that the smallest price increase has been in metale and
metal products, which lie at the very center of defense de-
mands, while the greatest increase has been in farm products,
where large surpluses exist. Farm products have advanced
45.3 percent since August 1939, while metals and metal prod-
ucts have advanced only 5.9 percent. Had it not been for the
arricultural program, prices of farm products "would not have
shown any extensive general rise."
The full effect of recent advances in farm prices has not
yet been manifest at the consuming end, partly because of the
usual lag in retail prices and partly because only a small
portion of the new crops has yet been marketed and processed.
Yet the high cost of living 18 already being used by labor as
en argument for another cycle of wage advances. As the ef-
fects of the recent price increases become cumulatively apparent,
insistent demande may be expected this fall for higher wages
and salaries in every field of industry.
The dominating influence of agricultural prices in the rise
in raw material coste leads the authors to conclude that B.
reduction in these prices is the most important step necessary
for price control. The sale of Government holdings would be
one method of accomplishing this. If the Government were in
due course to offer the warehoused surpluses for sale in the
market "the rise would be checked or even turned into a de-
cline." No other definite suggestions are made.
Wage rates must be controlled
Control of wage rates 18 considered the second inescapable
necessity, if we are to prevent the operation of the wage-
price spiral with which we are immediately faced. Attention
Regraded Unclassified
is called to the fact that If wages continue to advance, the
resulting increase in prices of goods farmers buy will mean
that farm prices must advance further to achieve the desired
price parity. "There 18 no escape from the spiral of rising
prices If the parity provisions of the law are enforced and
If wage rutes are not stabilized. Either the city worker
must bear a higher cost of living or the farmer must give up
narit?,
Rise not due to general inflation
The wide variations in price movements of individual
commodities is cited as additional evidence that the rise so
far has been due to the individual factors mentioned, rather
than to some general inflationary factor such as credit ex-
pansion or Government fiscal policy, although the latter
[actors may become more important in the future. Furthermore,
the advance cannot be directly attributed to the increase in
masa purchasing power, since the price rises began at the
producing and not at the consuming end.
The authors criticize the belief held by some economists
that our unemployed labor force and unutilized plant capacity
would prevent any extensive price rise. "The prevailing belief
in Government circles that price rises could not occur so long
as there remained a large volume of unemployed labor and capi-
tal goes far toward explaining why no deep concern was mani-
fested until fairly recently over the price question
Had the nature of the price inflation process been clearly
perceived, steps would doubtless have been taken at a much
earlier date to control the sources of price disturbance."
Finally, the authors conclude that since the Office of
Price Administration has no authority over the farm price pro-
gram and no authority over wages, this agency 16 fundamentally
impotent to handle the price problem; likewise the price con-
trol bill now before Congress embodies no adeguate measures to
meet the real issues.
Regraded Unclassified
TREASURY DEPARTMENT
161
INTER OFFICE COMMUNICATION
DATE September 29, 1941
TO
Age Decretary of the Treasury
FROM
i. L. lloughteling
I called or. Sidney William last Thursday, as
14 suggested, and W& 2 able to arrange for CIVE of his
deputies to take a group of Lake Superior couer cluers
to call or, Clifton Leok of the Produce.ort Division on
Friday morning. All concerned re art that i very catis-
2, story meeting took place. Thile this neeting naturall,
had ID direct bearing on the Procure ent Division's
negotiation for the purchase of coppor, in Millman felt
last it would have a very beneficial psychological effect
on of difficult Labor situation in the Lane Superior 4is-
trict.
Regraded Unclassified
165
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
September 29, 1941.
10 MR. GRAVES:
Re: Aluminum Collection Campaign
AA of today O.P.L. has allocated 11,329,918 pounds to
the smelters, of which Procurement Division has directed
the smelters to ship 11,241,503 pounds. The smelters how-
ever have shipped only 5,127,133.10 pounds.
the arrangement to dispose of this scrap was made be-
tween O.P.S. and the smelters and was to the effect that
the smelters were to pay the prices fixed by O.P.A.C.S.,
and to pick scrap up at the various central concentration
points. O.P.A.C.S. fixed the prices but since the date
thereof the maximum price of virgin aluminum has been
reduced by the Aluminum Company of America, As a result,
and also because of the small percentage of aluminum in
the scrap, the smelters claim that the prices which have
Lien fixed are too nigh for them to pay without suffering
substantial loss. They have therefore, for one excuse or
another, refused to move the scrap.
O.P.A. has been negotiating with Metals Reserve Company
to Leve that company purchase the scrap aluminum from the
Amelters at E. price lower than the present maximum price,
in which event the price to be paid for the various scrap
metals by the smelters would also be reduced. Some time
has been consumed on these negotiations and I was given to
understand that they had been completed last Friday, but I
was informed this morning that Metals Reserve Company has
added a condition that O.P.A. will not reduce the maximum
price on secondary aluminum below the prevailing price.
the matter therefore is still under negotiation between
O.P.A. and Metals Reserve Company.
Director of Procurement.
Regraded Unclassified
166
legisher 19. 1948
Mr.
Mr. D. V. Bell
will you please mi the attached colds to the merious The ling.
for Per from the Secretary of the Treasury.
(Message attached.)
(Cable No. 304. September 29, 1941)
Int : DwB
FD:1ap-9/30/41
Regraded Unclassified
SATE
167
PM
GRAY
September 21, 1941
F.M.
MAER CAR CONSITE,
DONG KONG, (CHINA) VIA N.R.
204.
POB PO... FROM THE secretary 07 THE TREASURY.
Your 584 of September 25 and joint statement.
QUOTE The following program in being sent to
you for your confidential study md comments.
1. In sushary the following program is con-
templated:
A. GENEral License No. 53 will bE amended so
that: (1) Imports into China from the United States
oan be Effected only if financed through dollars
acquired from a SUB.,COTE cooptrating bank END SUB-
UOTE. (2) Exports from China to the United States
can bE effected only providing the proceeds thereof
20E sold to 8 STEVOL cooperating bank END SUBMOTE.
(3) The term SUBJUME cooptrating bank ZIID SUDO ME
shall naan any of gloss banka ccoperating with the
Stabilization Borrd of China, the names of which
super
Regraded Unclassified
168
-2- #304, September 2, B Pelic, to Hong ong.
appear on Schedule & attached to General License
No. 58. (Included on such Schedule A will DE the
names of all the banks licensed under General
License Ros. 39, 30 and 61 together with such other
Chintse banks, Et COVERA, as the Board may from time
to time suggest. It is Expected that the name of
suique BELBE pour l'Etvanger with offices in Shang-
hai and Tientsin will be added to GEnEral License
To. 59 unless you advise to one contrary. DElECions
from such Schedule vill also bE considered upon the
Soard's recommendation.) Thus the general license
by express language will indi este that the backs
must cooperate with the Board,
B. General License No, 64 will undergo
similar revision to that referred to above for
General License No. 58 or Chinese trade with the
Philippints will bE brought directly within GEN-
eral License No. 58 and Excluded from GENERAL
License No. 64.
C. A new general license covering remittances
will bE issued. Such general license will stipu-
late that: (1) Any bank in the United States can
accept orders for remittances out of free funds or
out of
Regraded Unclassified
169
-3-
1304,
SEptEmber
2,
Ы
B
Zong
cong.
it of blocked accounts of all persons in China
including Japanese. (2) The uen or other suchange
for effecting such remittances can bE obtained only
by payment of the dollar amount of the remittance
into an account in the name of one of the SUBQUOTE
cooperating banks EVD suppose. (Such cooperating
banks will be the BOXIE banks 12 referred to la
GENERAL 1 icense No. 58.)
D. JENERAI Vicense Non. 32 and 33 relative to
remittances will we modified 20 as 00 bE consistent
with (3) above.
E. Elther by a new general License or through
the amendment of General License Nos. 59 and 61
the transfer of blocked accounts of all persons in
China including Japantac to any one of the cooper-
at ng banks will be freely permitted. The précise
language of the license vill probably follow along
the lines of paragraph 3 of Gentral License no. 50.
2. For your information the Above proposals
7EDE based on the following considerations:
A. Recognizing your argument that speedy
action is preferable to waiting for an ideal scheme,
HE surgest the foregoing program with the Thought
that
Regraded Unclassified
170
-4- #304, September 21, B Paine, to Hong Mong.
that if you concur it be put into effect at once.
B. It leaves unresolved the functions of the
Chinest Foreign Exchange Control Agency or Commis-
sion and its relation to the Board but VESÚS the
Board with strong bargaining powers.
C. It is intended that through this program
the Board vill bE better able to copt with the
problems referred to in your recent cables and
places the Control of all dollar exchange in banks
cooperating with you. It is Expected that the
Board will no doubt wish to Enter into arrange-
ments with the cooperating banks whereby they will
provide Exchange along the lines prescribed by the
Board and will Either sEll to the Board upon demand
any Foreign exchange accruin, under this program
which is not obligated under transactions entered
into with your permission, or that the Board will
retain he power to require one cooperating bank
toprovide un-needed Cortign exchange accruing under
this program to crictiver cooperating bank nerding
such Exchange. The precise terms of any arrange-
ment along these lings are being laft in the hands
of the Board and the foregoing is mertly offered
18 one possible line of approach.
D. This
Regraded Unclassified
171
-5- #304, September 29, 8 P.M., to long Dong.
D. This program leaves undecided the question
of whether ultimately it will be preferable to have
the American and British members added to the stand-
ing committee of the Commission or to have a joint
policy committee Established to serve as a link be-
tween the Commission and the Board. (SEE paragraph
3 of Joint Statement of Hall-Patch and Fox.)
E. The underlying philosophy of this program
is that it is c. provisional measure to be adopted
pending to more coreful consideration of all the
problems involved. If at any time the Chinase
Government or Commission indicates = desire to
modify this program and offer = better suggestion,
the proposal will receive prompt and sympathetic
consideration. WE fael that in the meantime this
proposal is necessary from the point of view of
administering United States freezing control end
to protect the operations of the Stabilization Board
in the interests of China.
F. It must be emphasized thrt the SUCCESS of
this program will require the Board to take a strong
and firm position in deoling with the demands for
Exchange in the Shanghai market. ThE proceeds of
export
Regraded Unclassified
172
-6- #304, September 29, 8 p.m., to Hing long.
export bills and remittances, in Effect, nre bring
,laced it the disposal of the Board and it is EXPECTED
chat the Board will take all necessary steps to SEE
that dollars are not made available for EXCESSIVE
imports into Shanghai or for other insporoprinte
purposes. The Government in Washington will dve
all proper support to decisions of Board curtailing
availability of dollar exchange.
3. WE have thus for only advised the British
of our contemplated action. You should advise other
members of the Board of this cable, and WE would
like your comments and those of the other Borrd
members as promptly as possible 30 that the program
can be carried out without delay.
4. It is also desired that the appropriate
authorities of the Chinase Government bE informed
of the proposed plan and that their reaction bE
undertained. IVE lEAVE it to your discretion to
.scertain informally and in the most Effective and
prompt manner possible the views of such Chinese
authorities.
5. In commenting on the foregoing it will
facilitate matters if you will refer to this oble
and the respective paragraph numbers involved.
6. Since
Regraded Unclassified
-7- #304, September 27, D Path, to Mans live.
6. Since drafting the foregoing WE have 2) served
points 10 to 14 of your joint message, the enble
quoting the Board's resolution of September 24, and
your cables of September 27, and JEE no renson for
changing the plan herein suggested. END QUOVE.
HULL.
(DA)
EX:0L:PAK
PE:JMJ:HHS FE
EA
PA/H
A-A
Regraded Unclassified
PARAPHRAND OF (126) RECEIVED
FROM: American Consulate General, Hong Kone, China.
DATE: September 29, 1941, 4 p.m.
NO.: 388
STRICTLY CONFIDATIAL.
THE FOLLOWING Is FROM FOX FOR THE SEGAI RY OF THE
TREASURY.
The following report 10 in response to the Denart-
ment's request. Reference 1a made to telegrat. No. 229,
unted September 25, from the Dep rtment to Chungking.
The figures which follow are cumulate; the period
being from August 18, 1941 to the close of business on
september 27, 1941,
A--LICATIONS FORI*
DOL. MSI
ACTUAL PAYMENTS:
U.S. dollars
$6,894,108
66,545,407
Pounds payments
913,665 lbs.
847,340 lbs.
*spproved by the Board
are
All of the payments/made against deliverive of Chinese
X tional dollars (at the rate of 5-11/32) for U.S. dollars
and 3-3/16 pence for sterling.
Adler and Fox are leaving for Chungking on Monday.
Fox will return to Hong Kong in time to meet Niemeyer and
Cochran.
893.51/7317
SOUTHARD
SHIPAX
Regraded Unclassified
DEPARTMENT 02 STATE
WASHINGTON
175
Y
publy refer to
2 520.51 Frozen
Credito/3538
September 29, 1941.
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury end encloses
P cony of telegrem No. 1364, dated September 25, 1941.
4 p.m., from the American Consulate General, Shanghai,
China, concerning the Committee for the Assistance of
Europeen Jewish Refugees in Shanghei, which is in great
diatress because of the failure of the American Jewish
Joint Distribution Committee, Incorporated, 100 Sest
Forty-second Street, Bew York City, to obtain a permit
under the freezing order to bake its customery remittence
of 25 to 30,000 United States dollars for September.
The Secretary of State would aopreciate being advised
52 to what reply may be communicated to the American
Consulate General at Shanghai.
Enclosure:
From Consulate General,
Shanghei, No. 1364,
September 35, 17+1-
Regraded Unclassified
GS
176
GRAY
Shanghai via N. R.
Dated September 25, 1941
Rec'd 8:34 D.M., 27th
Secretary of State,
Washington.
1364, September 25, 4 p.m.
Representatives of the Committee for the
Assistance of European Jewish Refugees in Shanghai
have informed me today that the Committee 18 in
great distress because of the failure of the American
Jewish Joint Distribution Committee, Incorporated,
100 East Forty-second Street, New York City, to
obtain a permit under the freezing order to make
its customery remittance of 25 to 30 thousand
United States dollars for September. The local
committee is in urgent need of this remittance
and I recommend that permit be issued with the
least possible delay for telegraphic transfer of
the September contributions and that arrangements
be made for prompt remittance each month hereafter.
Kindly inform me of action taken.
LOCKHART
KLP
Copy:bj:9-30-41
Regraded Unclassified
C
o
P
177
Y
TEM
PLAIN
Shanghai via N.R.
Dated Sentember 29, 1941
Rec'd 7:20 a.e. 30th
Secretary of State,
Washington.
1388, twenty-ninth (SECTION ONE)
Following is a summary of regulations restricting
the removal of commoditics within occupied areas in the
lower reaches of the Yangtze River jointly promulgated on
September 26th by the Commander-in-Chief of the Japanese
Expeditionary Forces and the Commander of the Japanese
China Seas Fleet.
Preamble of the regulations states that the flow of
commodities into and from "enemy territory shall as a
matter of principle be cut off"; that "full control shall
be imposed on the movement of certain specified goods into
and out of Shanghei and on the export of such goods from
the military occupied areas along the lower Yangtze and
Whangpoo Rivers"; that "the removal of commodities from
one place to another within the military occupied areas
shall not be subject to restrictions export where special
regulations have been made therefore"; and that "no permit
for the removal of goods or similar documents shall be
issued except by the organ authorized by the military and
Regraded Unclassified
178
- 2 -
naval authorities and with the approval of the Commander-
in-Chief of the Expeditionary Forces and the Commender of
the Japanese Ohina Seas Fleet". The export from and import
into the areas mentioned of the following commodities are
subject to rigorous control by a system of permits:
Arms and ammunition, salt, orium and nercotics, motor
cars and accessories, gasoline and petroleum, machinery,
communications apparatus, medicines, rubber, rubber goods,
cement, food oil, sugar, cotton yarn and textiles, wool
yarn and woolen goods, rayon and rayon fabrics, candles,
matches, soda, paper, tobacco, metals and non ferrous metals,
silver dollars, coal and minerals, rice, wheat end beans,
hemp, raw cotton and wool, hides end leather, cattle, tea,
tung oil, bristles and casings, rew silk and cocoons, egga
and egg products.
LOCKHART
NPL
Regraded Unclassified
170
UES
PLAIN
Shanghai via N. R.
Dated September 29, 1941
Rea'd 8:36 s.m., 30th.
Secretary of State,
Washington.
1388, Twenty-ninth (SECTION TWO)
Very small quantities of certain goods for per-
sonal use may be transported in these areas without
permit. The regulations further stipulate that
only certain specified Japanese military and naval
offices may issue permits; that "restrictions on
exports, especially from Shanghai, shall be enforced
by the gendarmerie with the assistance of the consular
police, the Chinese police and the Chinese maritime
customs: and that "those who violate or attempt to
violate these stipulations shall be punished accord=
ing to martial law".
These regulations become effective October 10,
1941 and are apparently designed to place practically
ell raw materials and goods of whatever description
under the complete control of the Japanese authorities
and further to restrict and regulate Shanghai's trade
with the hinterland.
In a statement issued by the !linistry of Industry
of the
Regraded Unclassified
-2-
180
of the Nenking Regime regarding these regulations,
he stated that following several months negotiations
between the "National Government" and the Japanese
authorities concerned a definite program for the
"readjustment of control over economic resources in
China had been decided upon" and that the Japanese
authorities had agreed to remove "as soon as possible
the restrictions hitherto imposed against the move-
ment of commodities and capital from one place to,
another within the peace area". However, as regards
the transportation of goods to and from Shanghai, it
WEB stated that "restrictions will contimue to be
enforced as this matter is closely bound up with the
question of export".
(END OF MESSAGE)
Sent to the Department, repeated to Peicing,
Chungking, Hong Kong. By airmail to Tokyo and Kanking.
LOCKHART
HPL
Copy:bj:hr:10-3-41.
Regraded Unclassified
C
0
P
GRAY
Y
181
Rome
PM
Dated September 29, 1941
Rec'd 4:03 p.m.
Secretary of State,
Washington.
1511, September 29, 7 p.m. (SECTION ONE).
My 1510, 29th.
Announced in press communiques as "designed to
limit any speculative possibility not consistent
with the discipline of war" the following financial
measures were adopted in the September 27 meeting
of the Italian Council of Ministers:
One. A requirement that bearer shares of
stock companies be registered incidentally carrying
with it the application to registered shares of the
20 percent tax on dividends previously imposed on
bearer shares only (Embassy's 1250, December 31,
1940, 10 a.m.)
Two. Modification of the special tax on
profits from sales of stocks (reported in Embassy's
1064, July 22, 8 a.m.) including substitution of a
uniform tax rate (charged as before to the seller)
of 20 percent
Regraded Unclassified
182
of 20 percent on such profits for the previous
graduated rate of from 10 to 50 percent depending
upon percentage of profits; this "reduction" being
accompanied (A) by the unification at 6 per mil of
the normal "negotiation tax" (which previously was
6 per mil on bearer and 3 per mil on registered
shares). and (B) by the establishment a "negotia-
tion surtex" charged only to the purchaser of 4
percent on the value of the securities purchased.
Three. Declaration of the pullity of acts
for the transfer of real estate unless registered
within required time limite and of any acts designed
to evade registration requirements obviously
designed to defent any attempte to sell without
payment the taxes mentioned in the following nars-
graph.
Four. Increase of the basic registration tat
on transfers of real estate from the former rate
of 6 percent to 8 percent; and as regards the
special registration tax of 60 percent of profits
derived from real estate sales (see page 114 of
Commercial Attache's annual report mailed August 26)
establishment
Regraded Unclassified
183
establishment of a uniform exemption of properties
valued at not more than 50,000 lire, thus eliminat-
ing the 300,000 lire limit formerly applicable in
certain cases.
PHILLIPS.
KIP
Regraded Unclassified
181
TEN
GRAY
Rome
Dated September 29, 1941
Rec'd 10:55 B.m. 30th
Secretary of State,
Washington.
1511, September 29. 7 p.m. (SECTION TWO)
Regarding the first measures it may be pointed
out that the required registration of bearer stocks
- which have constituted the principal medium of
speculation on Italian bourses - does not technically
obstruct dealings. Officer will, however, make it
possible for the Government to learn (1) who are the
principal owners of stock (useful for eventful new
tax levies) and (2) who through their speculations
are chiefly responsible for the conspicuous inflation-
ary trend in quotations which threatens both the
appeal of government bonds and the prestige of the
lira. Efforts to check by taxation the internal
flight of the lira in the form of stock speculation
having signally failed (the stock index rose rapidly
from 320 on July 18th. date preceding that of the
publication of the decree heavily taxing speculative
profits,
Regraded Unclassified
-3-
185
profits, to 450 on September 12) a perhaps stronger
repressing influence is introduced in the potential
identification of the speculators.
The remaining measures speak for themselves
being clearly designed to supplement and render more
workable decrees previously enacted or to prevent
evasions. As pointed out by authoritative Italian
commentators, the element of increased revenue is
entirely secondary.
(END OF MESSAGE)
PHILLIPS
BB
Copy:hr:10-3-41.
Regraded Unclassified
TREASURY DEPARTMENT
186
INTER-OFFICE COMMUNICATION
DATE September 29, 1941
TO
Secretary
FROM Mr. Dietrich
CONFIDENTIAL
Registered sterling transactions of the reporting banks were as follows:
Sold to commercial concerns
£21,000
Purchased from commercial concerns £ 4,000
Open market sterling remained at 4.03-1/2. The only reported transaction
consisted of £10,000 sold to a commercial concern.
In a. thin market, the Argentine free peso moved off to .2350, the lowest
quotation in five months. Saturday's closing rate was .2359.
Although the Cuban peso reached a new high of 5/16% discount this morning,
it subsequently returned to 3/8%
In New York, closing quotations for the foreign currencies listed below
were as follows:
Canadian dollar
11-1/8% discount
Brazilian milreis (free)
.0505
Colombian peso
.5775
Mexican peso
.2070
Venesuelan bolivar
.2685
Urugusyan peso (free)
.4400
There were no purchases or sales of gold effected by us with foreign
countries today.
The State Department forwarded a. cable to us stating that the Chase National
Bank, London, shipped $62,000 in gold from England to its head office in New York,
for sale to the New York Assay Office.
In London, spot and forward silver were unchanged at 23-1/2d and 23-7/16d
respectively. The U.S. equivalents were 42.67# and 42.554.
Bandy and Harman's settlement price for foreign silver was also unchanged at 34-3/44.
The Treasury's purchase price for foreign silver was unchanged at 35#.
We made no purchases of silver today.
20
Regraded Unclassified
187
RESTRICTED
G-2/2657-220; No. 505 M.I.D., W.D. 11:00 A.M., September 29, 1941
SITUATION REPORT
I. Eastern Theater.
dround: Definite information is scant.
The Russians report fighting along the whole front.
Both Leningrad and Odessa are being stoutly defen-
dad.
There are indications that the Germans are pre-
paring to Laurich a major attack against the Crimea.
Air: Both Moscow and Leningrad are reported bombed last
night, with counter claims by the Russians of heavy German losses
from antiaircraft fire and British aviation units.
II. Western Theater.
Air: British reports indicated a large-scale offensive
having been put into effect. Testern Germany was heavily attacked
and particularly Italy's vulnerable industrial center. Genoa was
the chief target. No German action in this theater has been report-
ed,
III. Middle Eastern Theater.
Ground: In East Africa the garrison of Wolchefit (Volche-
fit), one of the few remaining Italian centers of resistance in the
Gondar region of Ethiopia, has surrendered.
Air: Italian planes attacked Malta last night.
A British convoy in the Mediterranean was heavily
attacked by Italian Air Force units from Sardinia. The British claim
the arrival of the convoy with only one merchant ship lost. The Ital-
ians claim to have sunk three cruisers and to have damaged nine other
vessels.
RESTRICTED
Regraded Unclassified
188
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Press Service
Tuesday, September 30, 1941.
No. 27-81
9/29/11
The Secretary of the Treasury announced last evening that the
tenders for $100,000,000, or thereabouts, of 91-day Treasury bills,
to be dated October 1, and to mature December 31, 1941, which were
offered on September 26, were opened at the Federal Reserve Banks on
September 29.
The details of this issue are as follows:
Total applied for - $182,005,000
Total accepted - 100,045,000
Bange of accepted bids:
High - 100.001
Low
-
99.975 Equivalent rate approximately -0.099 percent
Average
H
"
11
Price
0.062
"
- 99.984
(65 percent of the amount bid for at the low price was accepted;
-000-
Regraded Unclassified
189
September 30, 1941
9:30 a.p.
GROUP MEETING
Present:
Mr. Bell
Mr. Graves
Mr. Haas
Mr. Cairns
Mr. Gaston
Mr. Thompson
Mr. Kuhn
Mr. Schwarz
Mrs. Klotz
Mr. Morris
Mr. White
....Jr:
Herbert, what have you?
laston:
I met Mr. Joe Ryan of the Longshoremen's Union
who was very indignant about an alleged theft
from a pier down on the New York waterfront
which We are investigating. I don't think it
amounts to much.
Anything else?
laston:
No.
Cairns:
Mr. Ecel S testified that there should be B
ceiling on farm prices, that surpluses should
be used to keep prices down, farm prices,
and that there should be discretionary power
to fix farm prices between a hundred and a
hundred and ten percent of parity.
Between EL hundred and a hundred and ten?
Cairns:
Yes.
Regraded Unclassified
190
- 2 -
H.M.Jr:
He is cutting it kind of fine, isn't he?
Cairns:
Well, he is following your lead except on
that point.
H.M.Jr:
Well, either. he didn't follow my lead on profits,
Cairns:
No, I meant just the farm prices. That is
all I have.
H.M.Jr:
I can't make out just what Leon said at - about
profits. I don't know whether he had a
prepared statement or not. You see, the
Wall Street Journal--
Bell:
I think he made a speech, didn't he?
H.M.Jr:
It says, Eccles and Henderson oppose plan to
limit profits."
(Mr. Morris entered the conference.)
H.M.Jr:
Good morning.
Morris:
Excuse me, sir.
Schwarz:
Henderson simply doesn't want it in his bill.
H.M.Jr:
Henderson supposedly is here for lunch.
Cairns:
I have a memo.
H.M.Jr:
Send it to me before lunch.
Would you (Bell) give Mrs. Klotz a list of
who is coming for lunch today.
Cairns:
That is all I have.
H.M.Jr:
Ferdie, right after this meeting we will do
our speech.
191
- 3 -
Kuhn:
I spoke to George already about that, and
it will not require any serious change.
H.M.Jr:
I was right, wasn't I?
Kuhn:
"Many commodities continue to go up, but
some of the food prices have--"
H.M.Jr:
Yes, but over-all commodities--
Haas:
The over-all commodity index is down slightly
and the food component and the farm price
component--
H.M.Jr:
It is much better than what I said, "The thing
continues to go up since I talked.
Kuhn:
No, you said, "The continued advance in the
price of many commodities may mean so and so,"
but you never said, "All commodities have gone
up.
H.M.Jr:
All right. What else, Ferdie?
Kuhn:
That is all.
H.M.Jr:
Chick, arrange - have you got them, just the
ones touching on the tax thing?
Schwarz:
I have them separate.
H.M.Jr:
All right.
Haas:
I talked to Draper again. He said he is go-
ing ahead a hundred and two percent. I told
him that you would talk to him sometime. I
don't think it would do any harm.
H.M.Jr:
I will do that. What is his name again?
(Mr. White entered the conference.)
Regraded Unclassified
192
- 4 -
Haas:
Ernest Draper.
H.M.Jr:
He is going to keep the boy down to one car?
Haas:
I think so,
H.M.Jr:
And try to get the boy a job?
Haas:
He said he would.
H.M.Jr:
And are you checking all price statements in
my speech?
Haas:
Giving it another check this morning.
H.M.Jr:
Good. I was very disappointed in it - that
super-confidential weekly letter that Lubin
gives to the President. I don't think it is
nearly as good as the one you give me.
Haas:
Thank you.
H.M.Jr:
I thought I was going to find something in it.
There is nothing in there at all about muni-
tions or anything.
Haas:
Maybe that was an off issue. That is what I
figured myself.
H.M.Jr:
His charts aren'tas good as yours or anything.
I don't think it is nearly as good as the
bulletin you have. I can say this much in
the room. Lubin sends the President a weekly
report and in it not one thing about armaments,
was there?
Haas:
Not in this one.
H.M.Jr:
Not a thing.
Haas:
He may have another report.
Regraded Unclassified
193
- 5 -
I am not supposed to see it. All right?
less:
I am all right.
A.M.Jr:
Harry?
White:
I have nothing.
Morris:
Nothing.
Tehwars:
I think the stories are quite good now. John
McCormack, New York Times, tipped me off last
night that some of the boys Were voin? to try
to twist it, and I did some missionary work.
M.V.Jr:
That they were going to twist it?
Schwarz:
They wanted to interpret it as backing away
completely. I reassured them they would be
far out on a limb if they did.
S.M.Jp:
Well, you see, the Tribune mixed my story
up with--
Schware:
With Eccles.
with Eccles. I love the editorial of
the "wrong timing" in the Post. They don't
have a man at ni tht to check with the news
stories.
delware:
The editorial was written earlier.
a.m.dr:
That is all right. You en forget about it
now.
Anything else?
Schwarz:
That is all.
S.M.Jr:
Harold, i loved this, and whoever -ot that in,
will you tell them, "Thanks," and I don't see
Regraded Unclassified
194
- 6 -
why we can't use that somewhere. (Showing
Mr. Graves cartoon from the Washington Post.)
I think it is grand. It is certainly some-
thing for the schools.
Bell:
Can't you get the original?
H.M.Jr:
You might get the original.
Graves:
I will try. They are getting these bond
plugs in a great many comic strips.
H.M.Jr:
That was 8. particularly nice one.
Gaston:
They had a good little plug at the fight
last night for savings bonds.
H.M.Jr:
Did they?
Gaston:
In one of the addresses.
Schwarz:
It was on the radio right afterward.
H.M.Jr:
Did they? I didn't hear it.
Graves:
You remember that at our lunch with the
Bankers at Detroit a man from the Manufacturers--
H.M.Jr:
A little louder.
Graves:
A man from the Manufacturers National Bank
raised a question about a case pending here
in the Foreign Funds Control.
H.M.Jr:
Yes.
Graves:
Subsequently he wrote me a letter attaching
one to you which I sent to Mr. Pehle, and
Mr. Pehle has now supplied a memorandum of a
draft of a reply to that.
H.M.Jr:
What does it say?
Regraded Unclassified
195
- 7 -
Graves:
Well, the case is one of many that are held
up pending determination of et policy, which
has got to go to the Inter-departmental
Committee, according to Mr. Pehle's memo-
randum.
H.M.Jr:
But this was from last May?
Graves:
Yes.
Pehle says that it is not true that any
promises were ever made as was said by our
banker friend, that the case would be dis-
posed of in a few days.
On aluminum, Mr. Mack has given me a memo-
randum, and I have talked with him too. The
total accumulation of aluminum in that drive
was eleven million three hundred thousand
pounds, of which Mr. Mack has given shipping
orders for all but just a fragment. The
billing and the shipment of about half is
held up because of some disagreement between
the smelters and Opacs on the question of
price. That is now being thrashed out, and
Mr. Mack expects to have that settled so that
he can go on with the billing and delivery of
the balance within the next few days, so it
isn't that the fiscal movement hasn't taken
place.
H.M.Jr:
Thank you.
Graves:
I talked with Iseby late last night.
H.M.Jr:
Oh yes.
Graves:
And simply told him what we had found. He
was shocked and chagrined. He knew nothing
of this man's background. I suggested that
he should go and see the Secret Service agent
there who has the man's record and also talk
Regraded Unclassified
- 8 -
196
with Thomas of the Automobile Workers Union,
who told our Secret Service people, or
who has said to someone out there and it
has come to the knowledge of our Secret
Service people, that he wouldn't have any
truck with this man, Small; and, of course,
we are starting all over again on this
record distribution thing so as to cut out
Small.
H.M.Jr:
Chick, be sure and see the Detroit papers.
Schwarz:
I put in an order for special service on
that.
Graves:
That is all I have.
Schwarz:
I talked to all three Detroit correspondents
last night.
H.M.Jr:
I talked to them at home last night about
my going to these meetings, and I am willing
to go to Seattle.
Graves:
You are?
H.M.Jr:
Yes.
Graves:
Fine. We will make those arrangements. Your
trip to Seattle will have to be within the
next ten days or 50.
Regraded Unclassified
197
- 9 -
H.M.Jr:
I thought there was two weeks out there.
Graves:
It runs from the fifth for about two weeks,
beginning the fifth.
Kuhn:
Mr. Secretary, did you see that Dubinsky is
not going to the Seattle meeting, because he
is worried about racketeers in the A. F. of
L. and because the Seattle meeting will do
nothing to take & position on that? He and
his union are boycotting it. The story was
in PM on Sunday or Monday.
H.M.Jr:
What do you think of that?
Graves:
Well, maybe you would like us to check
with somebody like Mr. Lubin about this
thing before you make a decision.
H.M.Jr:
I spoke to Lubin at luncheon yesterday.
Graves:
What did he say?
H.M.Jr:
He said I ought to go.
Graves:
What do you think, Ferdie, about a further
check?
Regraded Unclassified
198
- 10 -
Kuhn:
I think in view of that, the Secretary ought
to think that over again, because if this
is to be a whitewashing meeting for leaders
who Dubinsky and a lot of other good people
want to get out, I don't think the Secretary
ought to be there. If there were no trouble
brewing in Seattle, that might be a different
story.
Graves:
Well, can we help to make a check on that,
Ferdie?
H.M.Jr:
I tell you, if he is in town, an awfully
sound fellow is the Vice President of
RCA, who used to be Assistant Secretary,
McGrady. I wonder if McGrady is in town?
I think they sent him to England, didn't
they?
Klotz:
Yes.
H.M.Jr:
I don't even know which union he was. Sammy
Klaus is Dubinsky's nephew. You might ask
Sammy Klaus what there is to it. Am I not
right?
Klotz:
Well, I don't know what the relationship is,
but it is something.
H.M.Jr:
He is his nephew.
Graves:
Of course, I was aware that there are liable
to be fireworks at both of these meetings,
but it seemed to me that here was one thing
that there would be no fireworks about.
The Secretary's presence there would be
absolutely free from any connection with
any of the fireworks.
H.M.Jr:
I will call up John Boettiger in Seattle and
ask his advice.
Regraded Unclassified
199
- 11 -
Kuhnr
It is not that there will be fireworks.
The complaint is that there will not be fire-
works where there should be. The complaint
is that they are suppressing an issue here
and therefore the presence of any Cabinet
officer at Seattle would help the people
who want to suppress and make the thing
seem more patriotic.
Groves:
Well, we will check further then.
H.M.Jr:
Yes, you had better check.
(The Secretary held a telephone conversation
with Mr. Ernest Draper of the Federal Re-
serve Board).
Rell:
Adolphe Berle wants to come over this after-
noon at two thirty and talk about our
Stabilization loan to Iceland. They are
very hard put for dollars.
H.M.Jr:
He wants to freeze it, does he?
Bell:
He wents to freeze it, 80 I told him I would
see him.
H.M.Jpr
You want to see him?
Bell:
I will see him, yes. You don't want to see
him, do you, at this stage of the game?
H.Y.Jr:
what are they going to put up as collateral,
icicles?
Klotz:
[cicles. (Laughter).
Bell:
No, they are going to put up the possibility
of getting dollars through Lend-Lease, (laughter)
and repay the Stabilization loan.
H.M.Jp:
That is marvelous. That is the best one yet.
Regraded Unclassified
- 12 -
200
Vallr
The amount of bids on Treasury Bills yesterday
amounted to only a hundred and eighty-two
million, down from four hundred and four
million the week before. The rate went
from 037 to 062. That, I take it, is the
result of those large banks allowing the
Bills to run off to get them in position to
meet the November 1 increase in reserve
requirements. You remember there were three
large banks in New York which were deficient,
but they had somewhere in the neighborhood
of a hundred to a hundred and twenty-five
million of Treasury Bills. They were allowed
to run off.
Clark of San Francisco sends me a letter and
a clipping from 8. Lincoln, Nebraska paper
which quotes a man by the name of Nordskog,
Andrea B. Nordskog. I don't know him, but
he made a speech out there praising Lindbergh
and in it he says that if there is a general
run on Defense Savings Bonds, only one person
out of sixty would get his money back.
Now, that may spread, and I don't know
what we can do to --
H.M.Jrt
Turn it over to Harold.
Poll:
to counteract it. We really ought to
watch it, I should think.
H.V.Jrz
Turn it over to Harold.
Beilt
There was a cable in from Fox in which there
is one paragraph you may be interested in.
I don't think you need to read the whole
thing. I didn't send it to you last night
because I didn't think it was worth it.
H.W.Jre
Mr. Lauch Currie says he has lost face.
PAII:
Who has lost face?
Regraded Unclassified
201
- 13 -
H.M.Jr:
Lauch Currie has because we have sent Merle
Cochran to China in company with that English-
man.
Bell:
How does that make Lauch lose face?
H.M.Jr:
Well, I gethered that Lauch had opposed
our sending anybody. I didn't know about
it.
Bell:
No. He opposed his going.
H.M.Jr:
What is the name of this Englishman?
Bell:
Niemeyer.
H.M.Jr:
Niemeyer wanted to drag us in, and he feels
not only that he will lose face, but that
Fox will also. He was quite upset about it.
Bell:
He didn't say anything about it.
H.M.Jr:
It seems there has been all kinds of questions.
I told him I knew nothing about it. There
has been pressure from Niemeyer to drag an
American in. He referred to some case,
some cable, where they said that Fox was only
a third-rater, and he feels that the English
haven't handled themselves well over there
and by our joining with them that we now
drop to their level. So I told him that
I frankly knew nothing about it and that
the matter had been put up to me on the
basis that, one, Merle Cochran needed a
holiday and two, he needed to get away in
order to have a tour of duty so that he
could come back and stay here.
Bell:
Well, you said it would be a good thing
for him to go over and get first-hand
information on what was going on, yes.
I never heard this, did you, Harry?
Regraded Unclassified
- 14 -
202
White:
Hear what, Dan?
Bell:
What the Secretary is saying about Lauch.
White:
I didn't catch what he was saying.
Bell:
Lauch was against anybody going with Niemeyer.
White:
Yes.
Bell:
And he thought it would bring us down to the
level of the British.
White:
I did know that. You did, too
Bell:
No, I didn't know that. I knew that Lauch
didn't want to go himself because he didn't
like Niemeyer, but I didn't know that --
White:
Lon't you remember the position that Currie
took in the discussion we had was that he
didn't think anybody ought to go. You remem-
ber in a later discussion when we talked it
over we thought that if Currie would go it
would be all right, but nobody else. I
thought that was the conclusion.
Bell:
Well, we thought no one should go as an
economist except Currie because it would
detract from Fox. Now, Merle is on an
entirely different basis, and not going as
an economist, and not going as a part of the
mission at all, but merely travelling on the
same plane with Niemeyer. He isn't going
to do any of this economic work at all. It
wasn't set up that way.
H.M.Jr:
Well, as I told Lauch, I didn't know. I.
couldn't know because nobody told me any-
thing about it, that he wanted - had been
putting up a fight against in any way
supplanting or - Fox, you see.
- 15 -
203
Bell:
Yes, that is right.
H.M.Jr:
No one, either you or White, has ever men-
tioned it to me, 80 I couldn't know anything
about it, but I am just reporting what
Lauch mentioned to me, because that is
what is the purpose of these nine thirty
groups.
Bell:
I think I mentioned to you that we wanted -
the reason we didn't want to send anybody
else to China was because it would detract
from Fox's status, but that if Currie would
go, who is the daddy of the whole Chinese
economic mission, it would not detract from
Fox, and you said it was all right to get
Currie and I later told you that Currie did
not want to go, and wouldn't because he
didn't like Niemeyer, so I said, "Everything
is out," then. Then later it came up that
Merle would go on another status. He is not
going in the same status that Currie would
have gone at all.
H.M.Jr:
No, but I didn't know that Lauch had been put-
ting up a fight against sending anybody.-
any American there.
Bell:
I think we have all done that. I mean, he
hasn't been alone on that, on the economic
mission.
H.M.Jr:
If there is any damage done, it is done.
Bell:
I don't think any damage will be done.
H.M.Jr:
I don't know.
Bell:
I don't think so at all.
H.M.Jr:
I say, I am reporting my conversation.
Regraded Unclassified
204
- 16 -
Bell:
You remember I told you that Mr. Hull
wanted some information on the Standard
Oil Company of New Jersey?
H.M.Jr:
Yes.
Pells
He has asked for it officially, and here is
a reply. Harry and I are due at the
Appropriations Committee at ten o'clock.
Can we be excused?
H.M.Jr:
O.K.
Thompson:
I have a revision of our circular assigning
the various officers of the Department to
the Under Secretary and the Assistant
Secretaries. The only change is just to
bring us up to date.
(Mr. Bell and Mr. White left the conference).
H.M.Jr:
Assistant to the Secretary? Why this now?
Thompson:
Well, we have been more than a year without
a revision.
H.M.Jr:
Well, let me go over it. I don't want to do
it snappily. There is too much in there.
Thompson:
Could I see you just a minute?
H.M.Jr:
Sure. Is that all?
Thompson:
That is all.
H.M.Jr:
wo you want to give us a minute, Kuhn, and
then we will go on the speech. Have you got
the speech?
Kuhn:
Yes, sir.
H.M.Jr:
If you will wait outside, I will be with you
in 8 minute.
Regraded Unclassified
203
September 30, 1941
9:50 a.m.
Wr:
Hello.
Overator:
Governor Draver.
HWr:
Hello. Hello.
Ernest G,
Dracer:
Good morning, Mr. Secretary,
HYJr:
Hello, Mr. Draper.
D:
How are you?
EMJr:
Fine.
D:
Ernest Draper, to you.
H&Jr:
Right.
=
(Laughs)
MJr:
Ernest, I understand that you're going to
interest yourself in that case in Pennsylvania.
D:
Yes, We're getting right after that.
HMJri
Swell. I hope we can do something.
F:
Well, now, I understand exactly how you feel
and the only reason there wasn't any - there
hasn't been any delay, but I just made a
suggestion that according to the Federal
Reserve they thought that if they could get
Mrs. Cohen to write to them, then they'd have
a paper to work on; but for one resson or
another, that didn't seem to work out BO
we're getting in touch with Mrs. Cohen our-
selvee.
HWr:
Good.
I:
And then we'll start the ball rolling. And
as far es we're concerned, Xr. Secretary,
we're going to put on all the pressure in
the world to clean It up nuickly.
Regraded Unclassified
206
- 2 -
HMJr:
I'm trying to get the boy a job.
D:
Well, that's what we're after, too.
HMJr:
Good.
D:
Absolutely a remedial Job and it's interesting
to get into one of those things after all
these talks about over-all monetary control.
HMJr:
That's right. I always like to get right
down to these cases.
D:
Yes. Well, that's right. And we're sure
behind you a hundred per cent on this.
HMJr:
Three automobiles are two too many.
D:
(Laughs) That's right, Mr. Secretary. Well,
you'll hear from us very shortly.
HMJr:
Okay.
D:
Good. Good-bye to you.
Regraded Unclassified
September 30, 1941
207
10 am
Mr. Kuhn went over this draft with Secre-
tary, with Mrs. Klotz present.
Regraded Unclassified
20-
Draft of Secretary Morgenthau's Speech
to the American Bankers Association at Chicago,
October 2, 1941
Three weeks ago I said that we were in the early stages
serious price inflation, and that we must deal with the
.anger at once. I said then, and I should like to repeat it
"
the very start of this talk today, that if we do not check
the spiral of rising prices, and check it now, the conse-
will haunt us and our children for years to come.
I outlined then & twin program for fighting inflation,
30 :!.e one hand by reducing excess purchasing power in the
here of the public, and on the other hand by increasing the
supply of goods, like farm products, which GO not compete
sits. the over-riding nesès of our national defense effort.
Regraded Unclassified
- 2 -
209
I said then, and I meant it as earnestly as I have
ever meant anything in public life, that it was "sheer
folly" for the farmer to seek higher prices for his
crops at this time, for labor leaders to seek continual
new increases in wages, or for landlords, businessmen,
bankers, or any group to exploit the present emergency
for selfish gain. And I asked for the understanding and
support of 130 million Americans in fighting the evil of
inflation by every means in our power.
The continued advance in the prices of many staples
in recent weeks may mean that some people still doubt the
Administration's unity of purpose in checking inflation.
Yet you have seen the joint statement issued last week by
the Federal Reserve System and the Treasury, dealing with
the raising of bank reserve requirements to the limit of
D-C
Regraded Unclassified
- 3 -
210
the law, and pledging full cooperation with the Office
of Price Administration and the new Supply and Priorities
Allocations Board. That joint statement was I reminder
of the fact that the Government already has powerful
weapons of control in its hands, and that if it needs
more power it will ask Congress for whatever it needs, in
the fight against rising prices and falling living standards.
The Administration is just as determined to beat down the
forces of inflationary evil as it is to defeat, at what-
ever cost, the forces of military conquest that are running
rampant across the earth.
There is no need to tell this audience of bankers of
the need of common effort, on the part of every group and
every individual in the community, if inflation is to be
averted. You have shown abundantly in the past year that
D-C
Regraded Unclassified
4
211
you are conscious of your duties and your responsibilities
to the country. You have given magnificent help, and given
it unselfishly and cheerfully, in the selling of Defense
Savings Bonds and Stamps. You haven given further help in
the sale of tax anticipation notes which enable every tax-
payer to meet next year's heavy tax bill more easily. You
have cooperated willingly with the Treasury's control of
foreign funds, even though it interferes with the free
handling of your business affairs and subjects you to
many complicated regulations and questionnaires.
In all these and other ways you have been such real
partners of the government that I am very glad to be with
you this morning, to thank you personally for all that you
have done.
Regraded Unclassified
M2 I ,
212
But the most important tank of American bankers liss
immediately ahead, and it is a broader and bigger task
than any you have yet been called upon to perform. That
is the task of doing everything in your power, not only
as bankers but as influential and respected leaders in
your communities, to fight this evil of inflation wher-
ever it rears its head.
Many of you will remember, from your own experience,
that inflation is just as damaging to bankers as to farmers,
wage earners or businessmen. We had a. price inflation 25
years ago, and while there were sins of commission in those
days which we have not repeated and will not repeat, the
resent course of prices is following the old pattern with
remarkable precision.
D-C
Regraded Unclassified
- 6 -
213
We know now that the doubling of bank loans and
investments from 1916 to 1920, and the resulting doubling
of deposits in the same five years, contributed to the
great increase in prices which brought such hardship
to American consumers and such disastrous after-effects
to American farmers.
We know now that the inflation of a. quarter-century ago,
with all of its injustices and dislocations, could to some
extent have been avoided if the Government of those days had
acted more promptly, if it had taxed more heavily and
borrowed more widely from genuine savings.
When the inevitable collapse came, no fewer than 2,910
banks with 790 million dollars of deposits were compelled to
suspend operations in the five-year period from 1921 to 1925.
Humpty Dumpty had fallen from the top of a very high wall,
ano many years of effort were needed to pick up the pieces.
B-C
Regraded Unclassified
- 7 -
214
It is our job at the Treasury and the Federal Reserve,
and yours as custodians of the people's money, to make
sure that any present-day descendants of Humpty Dumpty
shall not go climbing up that wall of expanded credit and
higher prices again.
That is why my first plea to you as bankers is that
you scrutinize closely your own lists of applications for
loans. Those lists contain within them much of the
ammunition of inflation. You have in your hands, therefore,
one of the most effective weapons for checking inflation
at its source. You are sure to find, on looking over your
lists, many applications for money for non-defense projects
that would involve competition for steel or copper or any
of the thousand and one materials now needed 50 desperately
for our defense effort. If you can postpone all such
B-C
Regraded Unclassified
- 8 -
269
unnecessary loans until a later day, without waiting for
the priorities to become broader, you will be doing E. real
anu lasting service to your country.
I hope that in the not too distant future the priority
system will become so effective that the supply of all raw
materials for all purposes will be under full control in the
interests of national defense. That should mean that
materials which must be used for defense purposes will
not go into any unnecessary civilian projects. But until
that day comes, I hope that you will constitute yourselves
the sentinels of the nation, in your own bank and your own
community, in guarding against any private encroschment
upon the stock of resources needed for the national effort.
Another essential service which you cen perform is,
nuite simply, to teach the people of your communities the
facts about inflation ano defense financing, ano socut
B-C
Regraded Unclassified
B -
21
the situation in which this country stands.
You see in your daily work men and women from many
walks of life. You are in a key position to advise them,
and your advice carries 8.6 much weight as that of & family
doctor to his patient or a lawyer to his client. I know
that in these serious times you will give the right kind
of advice, and that your influence collectively and
individually will be joined with that of your Government
in its efforts to keep inflation in check.
There is a real need of convincing the average citizen,
right now, that he will have to accept far greater taxation.
There is a real need of preparing him to make greater
savings in his daily life to ensure the long-run survival
and improvement of his standard of living. Above all, there
is E real need of explaining to him that this war cannot be
won quickly or cheaply or easily.
B-C
Regraded Unclassified
- 98-
217
It will require all-out effort on our part to tip the
scales in this war. It will require every ounce of strength
that our giant industrial system can give. It will demand
sweat and sacrifice on the part of producers, workers, managers
and consumers alike. And it will mean the greatest public
expenditure that has ever been pumped into the arteries
of our economic system.
Defense expenditures have now risen slowly to & billion
and B. quarter dollars a month. They will soon be B. billion
and a half, but even then they will be utterly inadequate
compared to the need. Perhaps "inadequate" is too mild and
charitable 8. word. We are trying to make ourselves the arsenal
of democracy by devoting only 20 percent of our factory and
mining output to defense, only 30 percent of our output of
durable goods, only 10 percent of our output of non-durable
D-C
Regraded Unclassified
- 10 -
211
goods, and only 16 percent of our national income. That,
surely, is very far from total defense or all-out effort.
The magnitude of the job we have set out to do has not
yet been brought home to the American people. Let me give
you E. few simple illustrations. At present prices the cost
of the total defense program as now planned will be more than
50 billion dollars. This is 10 billion dollars more than the
original value of all building construction in the United States
during the last twenty years. It is more than the total
original value of all passenger automobiles now in use plus
the total investment in American railroads.
There is no reason whatever for us to be discouraged
over the mere size of the job ahead. In spite of B. slow start,
we are now on the road to en expansion of production which will
confound those of narrow vision and little faith who cried,
D-C
Regraded Unclassified
- 11 -
219
"It can't be done." The capacity of America to produce over
the long pull is almost limitless. We Americans can do any
job that we set ourselves to do.
It is not so much the size of the undertaking as the
limited time at our command which causes our economic system
to heave and strain. To telescope such a vast construction
or production job within, not twenty years or ten years, but
within one, two or three years, is bound to affect profoundly
every aspect of our economic and social life.
Under the impact of our comparatively modest defense
expenditures up to now, our national income has increased by
ten billion dollars in a year, and we are feeling all the
preliminary symptoms of a serious price inflation. What will
the inflationary forces be six months from now, when we shall
be spending much faster and when the supplies of materials
for civilian use will be smaller than they are today? Where
D-C
Regraded Unclassified
- 12 -
220
will prices be then, if we do not act courageously to check
them now?
It is imperative that we set aside a great part of that
national income, and especially the increase in the national
income, if we are to arm ourselves in time and also put an
effective brake upon inflation.
One indispensable method of paying for defense without
inflation is "all-out" taxation, a method that has not yet
been tried in spite of the good start that Congress has made
in raising $3,500,000,000 in additional revenue. With the
help of the new Revenue Act of 1941, our tax structure will
yield almost fourteen billion dollars in revenue, but in my
opinion it still contains many inequalities and many omissions
which will have to be corrected next year.
The tax bill next year will have to be & genuinely "all-
out" bill, a. genuine levy upon all in accordance with their
n-c
Regraded Unclassified
- 13 -
221
ability to pay, if it is to raise the necessary revenue,
place the necessary check upon inflation, and take the profit
out of war.
The second indispensable method of drawing off excess
consumer purchases is by borrowing as much as possible from
the genuine savings of individuals throughout the country.
(
We could always go to the banks for the bulk of our financing;
I have said repeatedly that this would be the easy way.
We
shall have to come to you for funds and I know I can count
on your wholehearted cooperation. The way to proceed now,
however, is to finance our needs as long as possible without
adding unnecessarily to bank deposits, to borrow instead from
private investors, large and small, and thus to reduce the
inflationary pressure of our swiftly rising national income.
The Defense Savings Program has now been in progress for
D-C
- 14 -
222
five months. It has yielded us a billion and a half dollars
from two and one-half million individual investors. The
result so far is certainly not below our expectations, but
just as certainly it falls far short of our needs. It falls
short especially in that it has only begun to reach workers'
payrolls. Every one of the great national labor organizations
has given its endorsement to systematic saving, and voluntary
payroll allotment plans are now in operation in more than
five thousand factories employing between five and six million
workers. Our strongest efforts must now be made in our great
industrial centers, and must be directed at the good sense and
patriotism of the workers themselves.
I can find no usefulness, for our present purposes, in
the old Liberty Loan method of fixing money quotas for communi-
ties, trades, labor unions, school classes or individuals in
this Defense Savings Program. I can see no value, either in
D-C
Regraded Unclassified
- 15 -
223
terms of economics or of morale, in high-pressuring people
to take money out of bank savings accounts or out of life
insurance. But I do see a great benefit, financial and moral,
in persuading spenders to set aside, systematically, week
after week, a part of their current income for their own
good and their country's good.
The kind of spending that the Treasury is most anxious
to divert into Defense Savings Bonds is the spending produced
by pay increases and bonuses, and by dividend payments.
I should like to offer as a suggestion, for example, that
every Christmas bonus in the United States be paid in Defense
Savings Bonds or Stamps this year. The banks of America can
start the fashion so that it will sweep the country. The
total amount of such bonuses may be small, but there could be
no finer example to the public, no more striking reminder of
D-C
Regraded Unclassified
- 16 -
224
the spirit of these times, no better safeguard for the days
of economic strain that are sure to follow the war.
We at the Treasury believe that the voluntary Defense
Savings Program has already awakened a greater sense of pride
in America and a greater sense of participation in the national
effort. We shall continue along that road of voluntary coopera-
tion, and I am perfectly confident that we shall reach vast
numbers who are willing and eager to put their savings to work
for their country.
In this effort the Treasury will continue to depend greatly
upon the bankers of America, not only as its agents in selling
Defense Bonds but also as missionaries in spreading the gospel
of savings in times like these.
There are no commissions for bankers in this work, and
you have asked for none. But in order to enable you to give
D-C
Regraded Unclassified
- 17 -
225
wider distribution to Defense Savings Bonds, I am happy to
announce to you this morning that it will no longer be
necessary for you to put up collateral for the series E
bonds which you keep in stock for customers. I hope that
this will relieve the banks, especially the small banks, of
& real burden, and I hope that you will not hesitate to tell
us at the Treasury of any similar burdens which you feel may
be hampering you in the sale of these bonds.
Wider savings and greater taxes will not, of course, be
enough in themselves to cope with the inflation that now
confronts us. I said earlier this morning that we might have
to ask Congress for further power to curtail bank credit.
I have already suggested an extension of the social security
program as a possible method of absorbing several billion
dollars of next year's national income and thus building a further
D-C
Regraded Unclassified
- 18 -
226
reserve for the future. I have already suggested, not once
but repeatedly, that the Government cut down immediately
on non-defense expenditure, not only as sound financial
policy but as sound anti-inflationary practice. I have
already expressed the hope that the price control bill be
passed without delay, as an essential step in combating
inflation.
Of course, such a combination of emergency taxes, priori-
ties, savings and price-control will cause some inconvenience;
of course it will cause some hardship, some sacrifice. We
are now engaged in 8. world struggle that will call for all
our energies and all the qualities that have made America
great. As & result of that effort we are compelled to fight
another enemy, the enemy of inflation, on the home front.
How can we hope to win unless we first throw onto the rubbish
D-C
Regraded Unclassified
- 19 -
227
heap all ideas of business as usual, pleasures as usual and
comforts as usual? In my opinion, complacency is our major
source of wakness today in building our defenses, for it saps
our will and clouds our minds, and blinds us to the stupendous
size of the job that confronts us.
We can conquer inflation on the home front if we act now,
just as we can ensure the defeat of foreign tyranny if we rouse
ourselves in time. Most Americans, I think, are beginning to
see that they have a personal stake in the fight against
inflation, just as most of them began long ago to see their
individual stake in the destruction of the Axis war machine.
I am confident about the outcome on both fronts, because I have
a deep and abiding faith in the common sense of the American
people.
D-C
Regraded Unclassified
September 30, 1941
10:25 a.m.
Operator:
I'll try to get him now.
HMJr:
Oh, gosh. It holds me uo so.
Operator:
Do you want his assistant?
HMJr:
What?
Oberator:
His assistant?
HMJr:
No, get him. I'll have to talk to him.
Operator:
Right.
10:30 a.m.
HMJr:
Hello. Hello.
J. Douglas
Brown:
Hello.
HINT:
Brown.....
B:
Yee, sir.
HMJr:
Morgenthau talking.
8:
Yes, sir.
HMJr:
I've just gotten word that I'm expected over
at the White House at twelve o'clock.
3:
Yes, sir.
HMJr:
And to be perfectly frank, I can only take
one person.
in
Yee.
HMJr:
I think I ought to take Blough.
B:
Yes, I think 50, too, sir.
Regraded Unclassified
229
- 2 -
HMJr:
So I always think that the most courteous way
18 to be perfectly frank.
B:
Absolutely.
HMJr:
I appreciate tremendously you're willing to
go
B:
Yes.
HMJr:
but I'd have to explain, and I don't
think it's - I should.
B:
I think you're a hundred per cent right.
HMJr:
Do you really?
B:
Absolutely, because he has the up-to-date
facts far, far more than I have.
HMJr:
Right. Well, thank you 80 much.
B:
Thank you, sir. Good-bye.
HMJr:
Good-bye.
230
September 30, 1941
11:25 a.m.
HMJr:
Hello, Miss Elliott. Hello.
Harriet
Elliott:
Hello.
HMJr:
Miss Elliott.
E:
Yes, sir.
HMJr:
This is Henry Morgenthau.
E:
Yes.
HMJr:
Miss Elliott, in the first place, I want to
thank you for all the trouble you and your
people have been taking to help me on my
various speeches.
E:
Well, we were Just delighted if we could be
any help at all.
HMJr:
Now, after lots of thought and consultation,
I decided that in talking to the American
Bankers that they were not a very good
example of the American housewife.
E:
(Laugha)
HMJr:
And that therefore I would sort of take B. little
different tone than I did at Boston.
in
Yes. Well, I think as of the publicity,
I think your Boston speech was excellent.
HMJr:
Well, that's very nice of you.
E:
The Southern papers carried - I was in the
South at the time - and they carried great
sheete of it. I was delighted.
HMJr:
Now I'm just as much interested or more
interested, if possible, in the American
housewife, and I need your help and I'd like
any suggestions and I'll be making other
speeches, but this one 18 to the banker and
Regraded Unclassified
231
- 2 -
not to his wife.
E:
Yes. All right.
HMJr:
Thank you 80 much.
E:
All right. Well, we were delighted to help
and don't hesitate to call on us at any time
that we can help.
HMJr:
And you know Mrs. Roosevelt. - I've got her
interested now.
25
Good.
HMJr:
And she's going to town on this.
E:
Fine.
HMJr:
But that's just between us.
E:
Yes.
HMJr:
But I mean, ehe expects to make it one of
her major projects.
E:
Oh, I'm so glad. And I'm so glad that she's
gone over everything to do that.
HMJr:
Well, she's going to town on this.
E:
Fine.
HMJr:
You'll hear from her direct.
E:
Good.
HMJr:
Yes.
E:
All right. Well, thank you BO much.
HMJr:
Good-bye.
E:
Good-bye.
Regraded Unclassified
232
September 30, 1941
MEMORANDUM FOR THE SECRETARY
Bobject: White House Conference on Social Security,
Tuesday, September 30, 1941.
The conference lasted approximately 40 minutes,
beginning at approximately 12:20 p.m. Present were
the President, Secretary Morgenthau, Secretary Perkins,
Mr. Harold Smith, Director of the Budget, Mr. Paul V+
McNutt, Administrator, Federal Security Agency,
Mr. Arthur Altmeyer, Chairman, and Mr. Jeorie E. Bigge
and Mrs. Ellen S. Woodward, members or the Social
Security Board, Mr. Lauchlin Currie, and Mr. Roy Blough.
The following report of the conference 16 from memory
and 16 sccordingly subject to error in details.
The President ssid he hoped everyone W.S.B in acree-
ment SO that It would not be necessary to take much
of his time. Mr. McNutt handed the President a copy
of the recommendations of the Social Security Board
which the President read. Mr. McNutt suggested that
Secretary Morgenthau end Budget Director Smith would
no doubt have some comments to make from the fiscal
point of view. The President said the objective of
the program was of course 100 percent, but where was
the money coming from. Mr. Altmeyer said the proposals
could be divided into those affecting the social insur-
ances and those affecting public assistance.
The President started talking sbout public assis-
twnce. He said he had been giving the problem of the
unemployables considerable thournt over the weekend.
Kr.Altmeyer said that the recommendations of the Board
with regard to general relief were !ntended to reach
the problem or unemployables. The President eaid there
wore A great many unemployables on WPA. Mr. McNutt
stressed this idea and there WAS no disagreement
expressed, The President said that he thought something
should be done for the unemployables but no was opposed
Regraded Unclassified
233
- 2 -
to granting money to the localities. Re said this
resulted in the waste of a great deal of money by
local politicians. Mr. Altmeyer replied that since
the Act of 1939 the staffs in the States administer-
ing public assistance had been brought under Civil
Service. The President said yes they had been
brought under Civil Service but what difference did
that make. Mr. Altmeyer said that it made a great
deal of difference - that politics had been largely
removed by bringing them all under the merit system.
The President said probably the politics side of it
had been improved but Civil Service was not always
efficient.
The President then mentioned some administrative
difficulties with general relief, He said what about
the village drunkard - what will he come under? If
he 1s sick he obviously should be taken care of by
the town. Secretary Perkins said that the Federal
supervisor would sit down with the local administrators
and decide what category such persons as this should
come under.
Mr. Altmeyer pointed out that at the present time
the Federal Government does not contribute to general
relief but matches other public assistance categories
fifty-fifty and pays the whole bill for WPA. As a
result the local authorities do their best to put all
their relief cases on WPA and as few as possible on
general relief. He said the idea of adding a relief
category was to make the contributions of the Federal
Government the same for all categories of public
assistance and then take all unemployables off WPA
and make it a genuine work program and not a partial
disability relief program as it 1s to a considerable
extent at present. The President said that it would
be highly desirable to do that with WPA. There was
general agreement.
Secretary Morgenthau stated briefly the contents
of a memorandum that had been prepared stating his
views and then handed it to the President, who read it.
(A copy of this memorandum 18 attached.)
Regraded Unclassified
234
- 3 -
The President at one or two pointe in the con-
versation indicated B. desire to take care of old age
indigency by means of a general old age pension but
did not press the idea far. He also indicated that
he would like to see the payroll taxes meet the cost
of the public assistance programs 88 well as the cost
of the insurance programs. Secretary Perkins stated
that in 1935 the Committee on Economic Security had
suggested such 8. program to him and that he and the
Secretary of the Treasury had vigorously opposed it.
(Mr. Altmeyer indicated to me later that this was not
quite an accurate recollection of the facts. The
Committee on Economic Security had recommended an
insurance program which would be partielly financed
by Federal appropriations. It wes this element of
general financing to which the President and the
Secretary took exception. The financing of assistance
out of payroll taxes was apparently not proposed.)
Secretary Perkins indicated that in her opinion
the broadening and improving of the old age insurance
program would strengthen the demands of the Townsend
group for a general pension unless the old age assistance
program 1e also improved. Mr. Blough, who spoke at the
Secretary's direction, suggested that the enlargement
of the old age insurance program to include a great many
more persons should, in point of fact, reduce the
pressure for public assistance. Secretary Perkins
agreed that this would be the case in the future but
seid that the opposite would be true in the more
immediate future since the insurance program would not
come into immediate operation for the bulk of those
over age 65.
Secretary Perkins also asked what Secretary
Morgenthau's view would be on increases in EL public
assistance program if reductions could be made in WPA.
Mr. Blough responded, at the direction of the Secretary,
indicating that the latter would not oppose improvements
and adjustments in the methode of granting relief but
did feel that no substantial increase in the emount
spent for relief purposes should be made and that,
accordingly, approval of the proposed expansion of
public assistance would have to depend on reduction in
other Federal relief programs such as WPA.
Regraded Unclassified
235
4
There was some discussion of veriable grants to
increase Federal payments to the poorer States.
Mr. Altmeyer and Mr. Bigge indicated that the Social
Security Board felt that per capita income constituted
the best measure of ability in the several States among
E large number the Board had considered, The President
pointed out some of the difficulties in measuring
income but it was suggested (I think by Mr. Altmeyer)
that the Department of Commerce was making these esti-
mates and had been doing BO for some time. The
President said he thought the variable grant was the
best way of handling the problem of poor States but
that he had some question about the political problems
involved. He wondered if the richer States like
New York, Pennsylvania and California would agree to
pay the bill when the poorer States received the benefits.
Mr. McNutt (?) suggested that the congressmen should be
willing to subordinate the specific interests of the
States to the general welfare and said he thought that
in some cases at least that would be the result.
At one point the President indicated that he had
been thinking about a disability oategory for public
assistance which would be narrower than the general
relief category.
Very little was said about the expansion of the
social insurances, the federalization of unemployment
compensation, or the temporary disability proposals.
The President broke up the meeting about 1 o'olock end
suggested that there be enother session in a few days.
He suggested that in the meantime the different depart-
ments might discuss the matter further among themselves
and try to arrive at B general agreement. He indicated
that he thought B comprehensive program should go up to
Congress rather than B. patchwork program even though
it might not pass.
After the meeting Secretary Morgenthau indicated
that in expressing the Treasury view he did not mean
that he would publicly resist the program of the Board.
He wanted to set forth his own views but Baid that he
would not go against whatever decision was arrived at.
Regraded Unclassified
236
- 5 -
He said he thought that it was merely a pious hope
to expect reductions in WPA expenditures to offset
the proposed increases in Federal aid. He suggested
the desirability of further conferences with the
Social Security Board and it was decided that Mr. Blough
should meet with Mr. Altmeyer the same afternoon.
(See memorandum on that conference.)
RoupBlough
Regraded Unclassified
237
Comments on the Social Security Board's
1941 legislative proposal
It is my conviction that the Social Security program
18 one of the greatest bulwarks of our Democratic system.
I can well see reasons for expanding the program in all the
ways proposed by the Board. Although the expension of a
permanent program of this kind should rest primarily on
other consideration, the timing of the adoption of such an
enlarged program should be determined with due regard to the
fiscal situation. This is particularly the case when we
face the dangers of inflation.
With respect to the proposal to extend unemployment
insurance, it is B. happy coincidence that the improvement
of the insurance plan harmonizes almost perfectly with
fiscal considerations. The collection of the proposed addi-
tional taxes will be greater during the years of full on-
ployment and high wages such as are anticipated during the
defense period and will be less during periods of greater
unemployment and lower wages which may follow. Benefit pay-
ments on the other hand will be relatively small during the
defense period and may be much greater thereafter. The
proposed federalization of the system, expanded coverage,
and more liberal benefits not only constitute an improvement
in the insurance system but will enhance the desirable fiscal
effect. For these reasons the Treasury Department is in
favor of the Board's proposals with respect to unemployment
insurance.
The proposals with respect to old age and survivor's
insurance are likewise in harmony with the needs of fiscal
policy. The extension of the coverage and the increase of
the tax rates will enlarge the collection during the defense
period. They will likewise make possible the expansion of
protection to include permanent and total disability. In
1939 it was recommended for fiscal reasons that the increases
in payroll taxes for old age and survivor's insurance should
not take effect on January 1, 1940, as previously provided
by law. At this time fiscal reasons give weight to the rec-
ommendation that rates be increased. The Treasury Depart-
ment therefore supporte the proposed revision in the old age
and survivor's insurance program.
Regraded Unclassified
a # #
The result of these revisions in the unemployment
insurance and old age and survivor's insurance systems will
be to increase the rates with respect to payrolls from five
percent to eight percent. The proposal for temporary die-
ability and hospital benefits also proposed by the Board
would involve an additional tax of two percent. Since in the
case of benefits for temporary disability and hospital care
the expenditures in any one year tend to approximate the in-
come there 18 no substantial accumulation of reserve. For
this reason this type of program has relatively little effect
on the flow of purchasing power and on the extent of infla-
tion. In the light of the necessity for building a tax system
which will have the maximum controlling effect on inflation
it in questionable whether the levying of A two percent pay-
roll tax for ourrent expenditures 1a desirable at this time.
The proposals in the public aosistance field involve
increases in expenditures with no increases in revenue. In
the 11ght of the present fiscal situation all such additions
to Federal expenditures especially for nondofense purposes
should be carefully scrutinized and postponed unless there
is B. peculiarly urgent necessity. I realize that it may be
found desirable to shift and adjust the public assistance
expenditures without increasing the total cost to the Govern-
ment. The principal additional item in the public assistance
program 18 the introduction of grante to the States for general
relief. This far-reaching proposal has received relatively
little public attention and involves important problems of
Federal-State relation. Since a large amount of Federal funds
18 involved, it seeme desirable to postpone A basic change of
this nature until after further consideration.
Regraded Unclassified
FIDENTIAL
An Expanded 5001a. Security Program
I. A Single Comprehensive Contributory Social Insurance Program. The
great adventage of contributory social insurance 1€ that it automatical-
Ly relates benefits to income Loss, automatically protects benefit
rights, and sutomatically controls costs. The Board recommends A single
national social insurance wystem which would involve:
1. Liberalizing the present Federal old-age nd survivors insur-
«TICE cystem.
B. Liberalising unemployment coopensation benefits.
C. Converting the present Federal-State unemployment compensation
system into a single national system.
D. Broadening the insurance protection to include temporary dis-
ability, persanent disability, and cash hospital benefits.
E. Combining all of the social insurances into one Federal 01d-
(6), Survivors, Disability and Unesployment Insurance system.
F. Extension of social insurance protection to additional groups
of workers, and in the CASH of old-age, survivors and permanent total
disability insurance, to farmers, business sen, and other self-employed
rons as well.
The advantages of a single national social insurance system GTAL
1. à safer and sounder system, particularly to the case of
unemployment compensation, because of the wider spreading of the risk
and were effective utilization of reserves, shich would be better bla
to cope *ith any post-defense depression.
Regraded Unclassified
:]
2. & more effective United States Employment Service which
10 imperative because of the defense program.
3. Better protection for workers employed in more then one
State.
4. Equalization of the cost of unesployment compensation end
other risks in the various States.
5. Greater adaptability to most unforeseen changes in indus-
trial conditions. This will be of special importance in the post-
defense period.
6. Simplified and reduced reports from employers.
7. Simplified, sore effective, and more economical administra-
tion.
The Effect on the Federal Budget. The immediate effort of these
insurance proposale is to bring in such lorger sums to the Federal
Treasury. The increased benefit costs, 80 long A& the defense program
is carried on at its present level, will be auco 1888 than the increased
yield of the present payroll taxes when applied to the extended coverage
which is recommended. Moreover, the Board recommends that the present
schedule of payroll taxes totaling 5% which automatically increase to 76
in January, 1943 be advanced to 8% in January, 1942. The Board also
suggests it would be sound public policy to levy an additional 2% con-
tribution while the defense program is being carried Jt. The net excess
of contributions over benefits under the social insurance system for the
four colendar years 1942-1945 would be 48 follows:
Regraded Unclassified
- 3 -
241
Under expended program, if there in no
increase in rate of contributions
$6 billion
Under expanded rogran, if combined
rate of contributions is incre sed
from 7% effective January 1, 1943 10
8% effective January 1, 1942
$9 billion
Under expanded program, if combined
rate of contributions 1a increased
from 7% effective January 1, 1943 to
10% effective January 1, 1942
$12 billion
The present situation as regards the unemployment compensation
tax not only affords a unique opportunity to broaden the social Insur-
ance program, but makes it imperative to do DO. Unless the social
insurence program is broadened, Congress may reduce the basic unemploy-
ment compensation tax since the States have already built up reserve
funds totaling over two billion dollars and are adcing to this reserve
at the rate of approximately 600 million dollars a year. Even if
Congress did not act to reduce ontributions, the States are already
roceeding to do so through the operation of employer ex erience rating
provisions.
II. An Adequate Public Assistance Program. No contributory social
insurance progres can provide protection for bazards that have already
occurred, any more than fire insurance can cover a house that has al-
ready burned down. Therefore, public assistance is necessary to provide
protection to those already old, disabled, or dependent for other
reasons. The Board recommendst
A. More adequate old-age assistance. All except about 15% of
the 9,200,000 persons over 65 years of age are either persons with 10-
dependent seens of support, or the wives of much ersons, or are already
Regraded Unclassified
4 -
242
being cared for at public expense through old-age assistance, or in
public institutions.
The two chief complaints regarding the present old-age assistance
progres are: (1) the needs test prevents some of the above 15$, who are
dependent on relatives and friends, from qualifying) (2) the amount of
cash assistance provided is inadequate.
The first complaint can be net through a simplified and liberal-
ised eligibility test. The second complaint can be met through larger
Federal grants to the poorer States where the cash assistance is 10-
adequate.
The most scientific may of providing larger grants to the poorer
States would be through . system of special Federal aid to low income
States made in inverse proportion to the economic capacity of the States.
This could be done on an objective basis by utilizing official figures
on per capita income compiled by the U.S. Department of Commerce.
The eventual annual additional cost to the Federal Government
would vary from $30,000,000 to $175,000,000 depending upon the smart
matching formula adopted and its effect upon the State programs.
3. More adequate aid for dependent children and needy blind.
Even greater need exists for helping the poorer States provide adequate
assistance to dependent children and needy blind. This need also could
be set through 4. system of special grants to low income States. In ad-
dition, the maximum matching provisions for aid to dependent children
should more closely correspond to those for the aged and the blind.
The eventual annual additional cost to the Federal Government
would vary from $10,000,000 to $60,000,000 depending upon the exact
Regraded Unclassified
- 5 -
243
matching formule adopted and its effect upon the State programs,
C. Federal grants for general relief. Federal grants to the
States for general relief would rélieve the wide disparity that now
exista in the assistance given to needy persons who fall within the
three existing Federal categories of the aged, blind, edult de endent
children, and the assistance given to those needy ersons who do not
fall within these categories. The adoption of a system of Federal
grants-in-aid for general relief would help to wake the Federal work
programs no.e effective since they would be relieved of to
meet the needs of persons who may be cared for better in another pay.
The annual cost to the Federal Government of such grants would
vary from $200,000,000 to $350,000,000 depending upon the exact match-
ing formula edopted and its effect upon the State programs.
III. Necessary Extensions of the Social Security Program Arising Out
of Defense Activities. The large transfer of ersons to the military
and civilien establishments of the Federal Government dves rise to the
following problems
1. Protection of Accrued Social Insurance Rights. In the CA30
of the Federal 01d-Age and Survivors Insurance system, the Board recom-
mends that that system be extended to cover all civilian employees and
all silitary employees with the possible exception of officers in the
regular military astablishments for whom non-contributory retirement
systems are already in effect. This proposal sould automatically pro-
test previously accrued rights and also oursit the development of
additional rights based upon government employment.
Regraded Unclassified
- 6-
244
If BO adjustment is made in the contributory government retire-
ment systems DOW in effect there would be duplication but this is not
altogether 8. disadvantage since when defense employees are separated
from the service they would be entitled to d. refund of the contribu-
tions they had made under the government retirement system which would
help tide them over the interval between the government job and a
private job. However, the Board believes that it is possible to work
out an adjustment between the old-age and survivors insurance system
and government retirement systems whereby government employees would
receive greater protection then they are now receiving.
In the case of unemployment compensation, the Board recommends
that any benefit rights that may have developed prior to entry into the
silitary service of the government be fromen as of the time of such
entry, but it does not recommend the extension of uneaployment compen-
sation to government employees, either allitary or civil.
2. À Federal System of Unemployment Allowances. The Board
recommends that the Administration prepare out not submit for ensetment
into law until and unless the necessity therefor is demonstrated, e
system of Federal unesployment allowances to be paid to persons entering
the silitary service of the government if at the time large numbers are
mistered out of the service a wide-apread condition of unemployment pre-
vails. The Board would recommend that weekly unemployment allowances
be paid at the rate of $15 per week for a stated maximus period
following separation from military service 80 long as the person
sustored out of the service is uneaployed and continues to register
at 6. public employment office for work.
Regraded Unclassified
- -
3. Dependents' Allowances. The Boord recol. and - Line
Aministration propere our not outside for ensetion 1860 la until food
miess the necessity therefor is demonstrated, 4 system of we doughts'
all sances for erront entering the allitary service of Lips overnment
1: Sarge numbers having de endents are recruited into LoB service.
IV. Social And Economic Stects. The Social Security recos
perided in intended to afford e minimum savic security upo vide we
10 le of this country could build to nor. or Ince recurity thro is
their OWD incividual efforts. Sucu L. should result 11, & 110->
creased rether than an increased Dost to use nation 6 shole. All
was such 4 Social Security Fogree does in to distributi editing COFFEE
more evently and equitable. Tui- 1: unle or DOL. the 10.10 tence
and social insurance banes of the di 1- 2020 a arent
in the can of social insurance, The sore even une distribu-
tion of costs which 4 Social Security годгам revision, - LIFE effect
of actually reducing Lotal costs Deceuse it reduce cestitution out of
shich flow untoward nocial and oconomic convequences.
A comprehensive Social Security rogt will la stabilizing
effect o. general economic concitions. During E m/10 o. accounte
reception zu n & regrea nol is to gustal - in urcas Ing our, dace
such larger summ ere oid out in benefits was are received 1a contribu-
tions. During 1. eriov of economic improvement it helpscarb inflationaly
tendencies, date much war suar are al. in in CO dirictions U.S. 24
pate our in b-nefits,
V. Relation of Social Insurance to e National Sevence Plan. If 6
national savings plan were insugurated 107 effectiveness sould De stortly
Regraded Unclassified
- 8 -
246
enhanced by the expanded social insurance system recommended. The
protection which the social insurance system would afford individual
workers would reduce to a minimum the necessity for refunding the
sevings of an individual worker prior to the completion of the defense
program because of untoward individual circumstances. The benefit
payments made under such a social insurance system would greatly in-
crease during the period of decline in industrial activity thus
bining with any savings system to maintain SASE purchasing power.
The foregoing program of social insurances and public assistance
would provide & sustained 20.00 purchasing power of at least six billion
dollars per year if se have a period of depression when our defense
program tapers off, comparable in severity to the depression beginning in
1929. Among other forms of protection, it would enable the Government to
pay 26 weeks unemployment insurance benefits without impairing the solvency
of the insurance reserve fund, even though such & depression should begin
during 1943. Such & program would provide a maximum amount of security for
the individual at & minisus cost to the government. It is & safe program
because it relates payments either to income loss or to need.
Regraded Unclassified
247
September 30, 1941
MEMORANDUM FOR THE SECRETARY
Subject: Conference with Mr. Altmeyer on Social
Security propossls, Tuesday afternoon,
September 30, 1941.
The conference took place in Mr. Altmeyer's
office and lasted from 3 p.m. to nearly 5 p.m.
Present were Mr. Altmeyer, Mr. Harold Smith,
Mr. Lauchlin Currie, Mr. J. Dougles Brown, Mr. Wilbur
Cohen (Mr. Altmeyer's assistant), and Mr. Blough.
The discussion related primarily to the two
aspecte of the social security program on which there
was a difference between the Social Security Board
and the Treasury, namely, enlarging public assistance
and esteblishing insurance to provide hospital bene-
Tits and cash benefits for temporary disability
(sickness).
1. Public assistance.
Mr. Smith seemed sympathetic to the 1dea of 8
general relief category for public assistance on the
grounds that it would help clean up the mess now
existing in relief and WPA and would provide more
adequate care for a large group of citizens for whom
little if anything is available in some States,
Mr. Currie, while agreeing that the general relief
category WAB desirable, expressed some doubt B.S. to the
timing, indicating that since this category had been
left out of the picture during the depression when the
need wae great and the ability or the States to meet
it was small, its introduction during the present emer-
gency could hardly be justified now that the ability
of States to meet the need 18 substantially greater.
Some discussion was devoted to the possibility of
substituting for the proposed "general relief" category
of public assistance a "physical disability" category
analagous to the present category of aid to the blind.
Regraded Unclassified
-
-
Federal aid would be paid to States water gave public
sesistance to permanently disabled persons. This
would be a logical expansion to TO along with the
proposed permanent disability Denefits to be provided
under the old age and survivors' insurence program.
Mr. Altmeyer indicated that a "physical disability"
category of public assistance was considered a sort
of "second string" which the Board would recommend if
its first recommendation were not accepted. Mr. Altmeyer
emphasized the desirebility of getting into operation
the machinery for an expanded public asmistance program
before the stringent needs of the post-Iefense decression
struck the country.
Mr. Altmeyer also pointed out that the addition
of a general relief category to old are essistance
yould take care of the problem of the transient unem-
ployed, which will become worse due to the migrations
doring and following the defense program.
2. Insurance to provide hospital benefite end cash
benefits for temporary disability.
With respect to the program of hospitel benefits
ene cash payments for wages lost due to temporary
disability to be financed by a 2 percent tax on payrolls,
Mr. Altmeyer emphasized the following points:
(1) The program would be definitely anti-inflaticnary
curing 1942. Since it would take at least a year to
set the system under way before benefit payments were
made, there would be excess collections of $800 million
In the year 1942 when the inflation problem will require
a large excess of tax collections over out payments.
(He has a point here, since 1942 may be a critical year
from the viewpoint of inflation. After 1942 the program
would be neither anti-inflationary nor inflationary.)
(2) The addition of temporery disability would
Increase the self-policing character of the social
insurances, making people more anxious to pay the taxes
in order to et the benefits, thereby improving the
operation of the system and bringing more money Into
the Treasury. (This appears to be B. strong argument;
in foreign social security systems the temporary 110-
ability features are considered very attractive to the
worker and help popularize the whole pregram.)
Regraded Unclassified
249
(3) The proportion of employees' contributions
to employers' contributions should be increased. If
expansions of unemployment insurance and old age end
survivore' insurance are the whole program, the
workers will resist enlarged employees' contributions,
e.g., for unemployment insurance. The presentation of
a broad program of comprehensive social insurance,
however, will make workers more willing to pay
employees' contributions all along the line since they
will get something new for their money, and there will
be one general overall program. Mr. Altmeyer supports
this contention with a letter dated July 28, 1941,
addressed by William Green of the American Federation
of Labor to Congressman Tolan, Chairman of the House
Committee Investigating National Defense Migration.
The following paragraph taken from that letter 18
pertinent:
"The American Federation of Labor has
upheld employer contributions alone for
unemployment compensation, believing that
workers bear a sufficient burden in their
lose of income uncompensated by unsurance
and that the expense of unemployment compen-
sation is a legitimate business expense. We
have always supported the contributory plan
for old age and survivors' insurance. In B.
comprehensive plan, providing for general
social insurance which will protect wage
earners and their families against the
financial burdens of 111 health and dis-
ability 8.8 well as unemployment compensation
we believe workers' contributions are entirely
Justified."
(4) Spreading the costs of sickness through insur-
ance will make the workers' paymente for this purpose
more regular and less difficult for him to meet and
will thus make him a better taxpayer and saver.
(Granting the desirability of spreadi ng the rieks of
sickness, this argument does not appear to be very
significant.)
Regraded Unclassified
4
250
Mr. Altmeyer le very much afraid that in the
absence of a program of this kind Congress will
reduce the unemployment insurance tax, Representative
Cellar of New York introduced a bill on September 15,
1941 (H. R. 5640) which would reduce the tax from
3 to 2 percent. The passage of this bill would reduce
the amount of money coming into the Treasury either in
taxes or in deposits to the unemployment trust fund by
roughly $300 million 8. year without any reduction in
outpayments. Mr. Altmeyer believes that a strong
eocial security program of the type proposed by the
Board will, even if it does not pass, be effective in
preventing such 8. reduction in tax.
Mr. Altmeyer appeared to be very much gratified
that the Treasury was supporting a large part of the
Social Security Board's program. He seemed to believe
that the unemployment insurance and old age insurance
tax increases alone have no chance of passage unless
they are tied up with the additional protection of
hospital benefits and cash benefits for temporary
disability. In his opinion the question 18 not one
of part of the program being passed by itself but of
getting all of the program or none. He seemed die-
couraged with the prospects of passing the program
unless very strong Presidential support wes given,
but said it was highly desirable to present the program
to Congress with a united front,
Mr. Altmeyer has said he would like very much to
have an opportunity to talk with you again about the
proposale and the reasons why the Board would like to
see its whole program presented to Congress.
RoyBlongh
Regraded Unclassified
TREASURY DEPARTMENT
251
Washington,
September 30, 1941
MEMORANDUM
For the Secretary's Diary:
Luncheon at the Treasury, September 30, 1941
Present: Secretary Morgenthau
Mr. Joseph Weiner
Mr. Donald M. Nelson
Dr. White
Mr. Leon Henderson
Mr. D. W. Bell
Mr. Marriner Eccles
Mr. Haas
Mr. Ronald Rensom
Mr. Ruhn
Mr. Nelson said that it was becoming more and more evilent
to him that priorities would have to be broadened to prevent the
civilisn economy from expanding. He cite the case of copper, in which
totol vailable supplies for one month were 133,000 tons, whereas the
Any and Nevy requirements for that month were 138,000. He also cite!
the case of Thomas Beck, president of the Crowell Publishing Company,
who came to him for advice on whether to begin construction of B. new
3 million dollar building for his publications in Roc) Seller Centre,
New York. Mr. Nelson said that he had tol Mr. Beck nót to start the
building, es the materiale would be needei for lefense. Mr. Beck tol:
nin, however, that his contractor had bromised to have all the necessary
steel and other materials within five months.
The Secretary esked whether shortage of raw neterials was
the chief reason for the continued slow production on defense orders.
Mr. Nelson realied that raw witerial was not in obstacle excent in the
CADES of aluminum and magnesium.
The Secretary then asked what the real obstacle was. Mr. Nelson
lied that it was the leck of EN seriso of urgency. The expansion of
lefense production, he said, had been started too late and too slowly.
He cite: the case of the Douglas Aircraft Company which had spoken to
him on June 17th about the buil ing of B-17 bombers and which was still
iting on September 30th for the letting of the contracts.
Mr. Nelson added, however, that there woul! have to be some
'llocations of materials for civilian purposes if the jefense program
itself were not to suffer. Ae an example be spoke of the netroleum
injustry which requires 8 certain amount of uluminum In order to keep
Fun and progressive. The aluminum, hu seil, WILS membed in the digging
if wolls in! in the provision of new equipment.
Regraded Unclassified
- 2 -
252
Mr. Eccles suggested that the petroleum injustry was really
an ;junct to defense and should be treated accordingly. Mr. Nelson
reolied that this was the kini of case which his Board WSS now studying
with a view to action in the near future. At present, he said, the
netroleum injustry can get no sluminum whatever.
Mr. Bell read the attached Report on the Control of Capital
Proceditures, prepared by B committee representing the Treasury, in the
Federal Reserve and the price and priorities agencies. Mr. Renderson
commented that his organization was already working on B three-point
stogram made up of (1) curtailment or priorities (2) price control
(3) credit control. All three methods, he said, seemei to him necessary.
The general oninion at the luncheon table was that the Report
10" codl as f general statement, but needed now to be made more specific,
pepecially on the second section dealing with inventories. Mr. Nelson
0018 that his organization already had a list showing the exact inventory
position of thousands of firms.
At. the end of the luncheon Mr. Neleon said that he would like
very much to consult with Secretary Morgenthau on these problems from
time to time, and it WE D agreed that & similar luncheon meeting should
be held approximately once every two weeks.
At the very start of today's luncheon there was much bantering
about the Secretary's proposal for a six percent limit on profits,
Rr. Recles protested that he hed been misrepresented in the press, and
that be was not. really so strongly opposed to a strict control of profits.
Mr. Nelson said that he had opposed the Secretary's six percent plan
because it did not provide any incentive to a manufacturer to expand
production, but that he favored the Treasury's proposel of last summer,
that is, of the summer of 1940, which attempted to fix A floor and a
ceiling for profits.
Anyway, said the Secretary, We can't accuse President Roosevelt
of being a dictator when his assistants disagree se freely as they did
at the hearings on the price control bill.
7.K.
Regraded Unclassified
253
Report on the Control of Capital Expenditures
Conclusions
This Committee believes that excessive capital expenditure for
construction and equipment, and investment in inventories puts pressure
on prices, and that such expenditure may have to be controlled. Vith
this object in mind it reached the following conclusions:
1. Prospective extension of priorities and allocations will
'Ye the affect of limitime capital expenditure on construction and
allipment. This Committee recommends that such control be antended
arther wherever feasible for the specific purpose of limiting un-
necessary and undesirable capital expenditure.
:.
Prospective ertension of priorities and allocations vill 10-
on control of inventories of basic materials and their products,
:- 02 cares It MAY be destrable to extend priorities and allocations
: the specific purpose of preventing excessive inventory Documile-
Use In addition, there All probable be = large mmber of compl-
His which to registrolled by priorities and allocations. For
100% compodition It may be desirable to establish financial at other
- of controlling inventories. the accumulation of actives
importyrles presents a complex problem, this Committee recomends
Date intensive study of the question.
construction :. and equipment, and investment in inventories, through
To achieve the most effective control of crytial expenditive
dontiles and allocations, 11 B) be helpful to have = representative
on concies concerted with price, credit, and fiscal policy act in
capacity 16 SPAR
Regraded Unclassified
254
Capital expenditure for construction and equipment
The primary objective of public policy at this time is the early
and successful completion of our program of national defense. L-
pansion of many types of expenditure 16 necessary to carry out this
program. But rapidly mounting expenditures for nonessential purposes
impede the achievement of our objective by foreing up prices. To
svaidd this development it is necessary, along with other methods of
control, to limit excessive capital expenditure and accumulation of
inventories. The particular question which confronts this Committee
to whether it is better to bring about this limitation by financial
maanz or by control over the required materials.
In order to assure an adequate supply of materials recdered
scarce by the defense program, OPM has already imposed general
priorities over B. wide area and specific allocations for some com-
coiition. This control, instituted for other purposes, door to some
Extent limit capital expenditures wherever they involve goods sub-
ject to priorities. Allocations that supplement priorities are
somewhat nore effective in limiting capital expenditure. Às bitherto
operated, however, priorities and allocations would not provide ruf-
Picient control of capital expenditure.
It 20002 likely that the continued expansion of priorities will
Disvitably restrict B. major portica of undesirable capital expenditures
because any large capital outlay is almost certain to require cone
naterial or product which will be subject to priorities. Cortain
types of capital outlay, however, especially those In small amounts,
may not be adequately regulated even under expanded priorities. Such
unregulated capital expenditures may be controlled through further ex-
tension of priorities for this specific purpose or through financial
means,
Control through priorities would appear to be preferable because
L priorities system is already in operation and is necessary in any
event. n n the other hand, financial control of capital expenditure
would inevitably have to consider the same complex factors that de-
termine the granting of priorities. It is preforable to avoid duplica-
tion and conflint by depending exclusively upon P comprehensive system In-
of priorities. This will aske possible & more prompt and thorough that
togration of the community's resources. The Committee recomends of
priorities be extended wherever feasible for the specific purpose
and undesirable capital expenditure. The Committee the need
believes limiting unnecessary that this can be done on & scale sufficient to obviate
for financial control of capital expenditure.
Regraded Unclassified
255
2 -
Accumulation of Inventories
Control of capital expenditure for inventories presents B. more
difficult problem because of the variety of commodities, the large
number of producers and dealers, and the various purposes for which
inventories are accumulated. In some instances, larger inventories
are required for processing and celling the increased volume of pro-
duction. It is essential, however, to prevent accumulation of in-
ventories. in anticipation of remote needs or as a bedge against in-
flation. The attempt to build up excessive inventories results in
pressure upon prices and, more important, restricts the flow of goods
available for current use.
No one method of control by excessive accumulation of inventories
appears feasible to us. For many basic commodities inventory control
is an indispensable part of priorities. This same method of control
is likely in any event to be further extended in the near future to
additional materials. Whether it in desirable to regulate the remain-
inc commodities by further expanding priorities for this specific pur-
pose or through financial means is mainly & question of administration.
In some cases control by an extension of priorities alone say be effec-
tive. In other cases it may be necessary to use a combination of
priorities and financial controls. Under any circumstances, bank credit
should not be made available for acquiring inventories not needed to
produce and market the current flow of goods.
Excessive accumulation of inventories is an urgent problem. Be-
canee of its importance and its complexities the Committee strongly
recommends the immediate study of concrete plans for controlling
inventories.
Cooperation with SPAB
The purpose of the priorities imposed by SPAB has been the most
effective utilization of scarce materials for the furthering of the
used also as a means of restricting undesirable capital expenditure
defense program. This Committee has recommended that priorities be
Regraded Unclassified
256
- 3 -
and excessive investment in inventories. This, however, involves the
extension of priorities for a new purpose. It may be helpful, there-
fore, to have a representative or representatives of the agencies con-
cerned with price, credit, and fiscal policy advise SPAB in these
matters.
Frank R. Garfield
Clayton Gehman
E. A. Locke, Jr.
Walter Salant
Henry H. Villard
E. M. Bernstein
257
September 30. 1941
3:42 o.m.
Hello, Mr. Watt.
Robert J.
Watt:
Mr. Secretary, what I wanted to call about
was, President Green is in Chicago today
SMJr:
Yeah.
X;
on his way to Seattle
SMJr:
Yesh.
X
and he called me about an hour ago and
aeked me to transmit for him to you an invi-
tation - a cordial invitation - to be with
us et the Convention in Seattle next Thursday -
or Thursday the ninth or Friday the tenth of
October.
HNJr:
I see. Thursday the
WI
The ninth or tenth, whichever day WAS most
convenient to you.
HMJr:
Yes.
V:
Now, 1f either of those days are convenient,
Mr. Secretary, then I'd like to send down by
messenger some time thie afternoon en invi-
tation to attend the Convention from President
Green.
MJr:
well, let me Just ask you a minute - are you
going to be there - am I not right - you're
going to be there for two weeks, aren't you?
W:
Yes. But to be trushful about it, Mr. Morgen-
thau, the first week is the best week.
EMJr:
It is.
W:
In other words, after the first week - you see
it opens on the morning of the sixth.
HXJr:
Yes.
Regraded Unclassified
- 2 -
258
W:
And really after Friday, the tenth, it's only
rarely a speaker 1a on because they pitch in
with a degree of seriousness into business
HMJr:
I Bee.
W:
on Monday of the second week.
HMJr:
Uh huh.
W:
And it would be preferable if you could 80
arrange your schedule and if it was convenient
for either Thursday or Friday.
HMJr:
Well, 1e Friday a good day or 18 that
W:
Friday is a. very good day.
HMJr:
Or 1e that too late?
W:
Oh, no, no.
Thursday or Friday are both very good days.
Very good, indeed. And, oh, if you just
couldn't find it convenient, it could be
arranged the following week. However, I want
to be perfectly frank and tell you that the
first week is the best. I'm personally going -
I'm flying out there on Tuesday night.
HMJr:
I see.
W:
I can - I find that I can leave here at
five-thirty and pick up a sleeper plane in
Chicago and be there at nine-thirty in the
morning.
HMJr:
That's on the seventh.
W:
I'm leaving here on Tuesday, the seventh. And
I'll be there on the morning of Wednesday, the
eighth.
HMJr:
Well, what I would do - if I do - I'd leave
here on the night of the eighth.
W:
Yes, yes. Well, if you do that - if you do
Regraded Unclassified
- 3 -
259
that, Mr. Morgenthau, when you arrive there,
if you'll Juet - if you'll just - it's at the
Olympic Hotel, Seattle.
HMJr:
Yes.
W:
and if you'll ask anyone for me, I'll
be around there.
HMJr:
Fine.
W:
Just ask anyone for Robert J. Watt or Bob
Watt, very few people know me by Robert. (Laughs)
HMJr:
Well, what time of day do you think you'd like
to
W:
Any time at all. Any time at all.
HMJr:
Well, when do you have your best meetings?
W:
The best - I would say, to be perfectly
truthful - I would suggest, if you can,
Thursday forenoon.
HMJr:
Thursday forenoon.
W:
Say about eleven o'clock.
HMJr:
What time does the plane get in?
W:
The plane gets in at nine-thirty-seven.
HMJr:
Well, that would give me time enough.
W:
Yes, it would. Just be - just be fine. And
that's really no - if you didn't make it on
Thursday morning at eleven o'clock, then I
would say the afternoon about two-thirty or
three.
HMJr:
Well, I think I'd rather do it in the morning.
W:
Yes. Yes.
HMJr:
Well, I think that would be fine.
Regraded Unclassified
260
- 4 -
W:
Well, all right, then, Mr. Secretary. I'll
have - this afternoon I'll have an invitation
from President Green delivered at your office
by messenger.
HMJr:
Thank you so much.
W:
All right. And you - will you arrive there
just - when you get up to your room, just
call for me and I'll be glad to then make
arrangements with President Green in regard
to when you can speak.
HMJr:
Thank you.
W:
All right. Thank you.
HMJr:
Good-bye.
W:
Good-bye.
Regraded Unclassified
September 30, 1941
261
4:30 pm
Final draft from which reading copy
was typed and sent to Secretary's
house.
Regraded Unclassified
262
welt of Secretary Mer enthad's Speech
LA the Amerlcan Bankers Association at C: leago,
October 8, 1041
ar
Ihree NECKS are I seld that no were in the carly stages
of # serious price inflation, and that we must deal with the
- et once. I seic il.on, and : Bround like to repeat it
at to very start of this talk today, that if we CO not check
a Iral of rising prices, and check It now, the conse-
- 00% 003 will caunt us 4AC our children for years to come.
I outlined then B. twin program for f1 Sting inflation,
on the 0.00 by reducing excess surchasin D ower in the
of the public, nice on the other have by increasing the
supply of coas, like farm products, which 00 n L compete
into over-riding needs of our national defense effort.
9
Regraded Unclassified
263
- 2 -
I said then - and I meent it EE curnectly 18 I have
fill use, it -
ever meent engthing In public life, that It was "sheer
folly" for the farmer to seek higher prices for his
Grops at this time, for labor leaders to seek continual
not increases in wages, or for landlords, ousinessmen,
tenkers, or any group to exploit the present emergency
for selfish gain. And I asked for the uncerstanding and
support of 130 million Americans in fighting the ovil of
Inflation by every means in our power.
The e continued sévance in the prices of many steples
in recent wooks may mean that some people still doubt the
delhistration's unity of purpose in checking inflation.
10t you ..ave seen the joint statement issued last week by
the oceral agreeve System and the Treasury, dealing with
Le ralsing of bank reserve requirements to the limit of
Regraded Unclassified
- 3 -
264
the law, and pledging full cooperation with the Office
of Price Administration and the new Supply and Priorities
Allocations Board. That joint statement was a reminder
of the fact that the Government already has powerful
weapons of control in its hands, and that if it needs
more power it will ask Congress for whatever it needs, in
the fight against rising prices and falling living standards.
The Administration is just as determined to best down the
forces of inflationary evil as it is to defeat, at what-
ever cost, the forces of military conquest that are running
rampant across the earth.
There is no need to tell this sublence of bankers of
the need of common effort, on the part of every group and
every individual in the community, If inflation is to be
averted. You have shown abundantly in the post year that
D-C
Regraded Unclassified
265
you are conscious of your dutles and your responsibilities
to the country. You have given magnificent help, and given
it unselfishly end cheerfully, in the selling of Defense
Savings Bonds and Stamps. You haven given further help in
make it provide for
the sale of tax anticipation notes which enable every tax-
N
payer to meet next year's heavy tax bill more easily. You
have cooperated willingly with the Treasury's control of
foreign funds, even though it interferes with the free
handling of your business affairs and subjects you to
may complicated regulations and questionnaires.
in all these and other ways you have been such real
partners of the governmentithat I an very lad to be with
you this merning, to thank you personally for all that you
Lave dons.
D-C
Regraded Unclassified
- 5 -
266
But the most important task of American bankers lies
immediately ahead, and it is & broader and bigger task
than any you have yet been called upon to perform. That
is the task of doing everything in your power, not only
AS bankers but as influential end respected leaders in
your communities, to fight this evil of inflation wher-
ever it rears its head.
of menna age,
Many of you will remember, from your own experience,
that inflation is just all camaging to bankers es to farmers,
sage carners or businessmen. be had & price inflation 25
yours ago, and while there were sins of commission in those
seys which we have not repeated and will not repest, the
resent course of prices 13 following the old pattern with
remarkable precision.
L-C
Regraded Unclassified
267
- 6 -
Be know now that the doubling of bank loans and
investments from 1916 to 1920, and the resulting doubling
of deposits in the same five years, contributed to the
great increase in prices which brought such hardship
to American consumers and such disastrous after-effects
to American farmers.
Me know now that the inflation of 1 quarter-century ago,
with all of its injustices and dialocations, could to some
extent have been avoided if the Government of those days had
acted more promptly, if it had taxed more heavily and
borrowed more widely from genuine savings.
When the inevitable collapse,came, no fewer than 2,910
banks with 790 million dollars of deposits were compelled to
suspend operations in the five-year period from 1921 to 1925.
Humpty Dumpty had fallen from the top of & very high wall,
and many years of effort were needed to pick up the pieces.
B-C
Regraded Unclassified
- 7 -
268
It is our Job at the Treasury and the Federal Reserve,
and yours as custodians of the people's money, to make
sure that any present-day descondants of (umpty Dumpty
shall not 20 climbing up that wall of expended credit and
bigher prices again.
That is why ay first plea to you es bankers is that
you scrutinize closely your own lists of applications for
loans. Those lists contain within them much of the
ammunition of inflation. You have in your hands, therefore,
one of the most effective weapons for checking inflation
at its source. You are sure to find, on looking over your
lists, many applications for money for non-defense projects
that would involve competition for steel or copper or any
of the thousand and cae materials now needed so desperately
for our defense effort. If you can postpone all such
D-C
Regraded Unclassified
269
- 8 -
unnecessary loans until & later day, without waiting for
the priorities to become broader, you will be doing a real
and lasting service to your country.
I hope that in the not too distant future the priority
practically
system will become so effective that the supply of all raw
materials for all purposes will be under full control in the
interests of national defense. That should mean that
materials which must be used for defense purposes will
not go into any unnecessary civilian projects. But until
that day comes, I hope that you will constitute yourselves
the sentinels of the nation, in your own bank and your own
community, in guarding against any private encroachment
upon the stock of resources needed for the national effort.
Another essential service which you can perform is,
quite simply, to teach the people of your communities the
Bigots about inflation and defense financing, and about
DC
Regraded Unclassified
270
the situation in which this country stenes,
You see in your daily work con and from many
welks of life. You are in a key caltion to acvise them,
the your nevice carries as auc): mi Lt. L8 that of E family
notor LO .is patient 07 E lawyer to 1s client. ! know
that in these serious times you will Ive the right kind
of advice, and that your Influence collectively and
!nciviously will be joined with that of your overnment
the Not of diving
in its efforts to keep inflation in check.
There 1s E real need of convincin the Average citi on,
191 now, that Ee will LEVE to mocent for zr ster texation.
There is a real need of reparin bim to anke rester
anvin 5 in his daily life tc ensure :- long-run survival
revement of ..is tenaned of living. above all, there
in real need of explainin to 1.15 that this was cendet 08
quickly or cheaply or easily.
D-
Regraded Unclassified
- 9a-
271
It will require all-out effort on our part to tip the
scales in this mr. It will require every cunce of strangth
that our giant industrial system can give. It will downl
sweat and sacrifice on the part of producers, workers, managers
and consumers alike. And it will mean the greatest public
expenditure that has ever been pumped into the arteries
of our economic system.
more Than
Defense expenditures have now risen slowly to a billion
and & quarter dollars a month. They will seon be a billion
and a half, but even them they will be utterly inadequate
compared to the need. Perhaps "inadequate" is too mild and
charitable a word. We are trying to make ourselves the arsenal
of democracy by devoting only 20 percent of our factory and
mining output to defense, only 30 percent of our output of
durable goods, only 10 percent of our output of non-durable
D-C
Regraded Unclassified
- 10 -
272
goods, and only 16 persent of our national income. That,
surely, is very far from total defense or all-out effort.
91 notody can emphosize In often or too strongly The
The magnitude of the job - have est out re so has not
which we
Chare set out to do.
yet been brought hour to the American peoplex Let no give
you a few simple illustrations. At present prices the cost
of the total defense program as now planned will be more than
50 billion dollars. This is 10 billion dollars nove than the
since 1927.
original value of all building construction in the United States
twice do much awth Total investment in american railways. It is donth twice as much
Last
produced in this country during The past fourteen years
the total original value of all passenger automobiles now in use plus
the total investment in pullroads
H yet there is no reason whatever for us to be discouraged
over the mero sise of the job ahsad. In spite of & slow start,
TO are now on the road to an expansion of production which will
confound those of narrow vision and little faith who cried,
D=C
Regraded Unclassified
- 11 -
273
"It can't be done." The capacity of America to produce over
the long pull is almost limitless. 10 Americans can do any
job that w net curselves to so.
It is not 00 rasch the size of the undertaking as the
limited time at our comund which causes our economic system
to heave and strain. To telescope such a vast construction
or production job withing net twenty years or ten years, but
within one, two or three years, is bound to affect profoundly
every aspect of our economic and social life.
Under the impact of our comparatively modest defense
expenditures up to now, our national income has increased w
ten fourteen billion dollars in a year, and we are feeling all the
A
preliminary symptoms of a serious price inflation. What will
the inflationary forces be six months from now, when we shall
be spending much faster and when the supplies of materials
for civilian use will be smaller than they are today? Where
D-C
Regraded Unclassified
- 12 -
274
will prices be then, if we do not act courageously to check
then now?
It is imporative that we set aside 6. great art of that
national income, and empecially the Increase in the national
Income, If we are to MM oursalves to and also put an
offective brake upon inflation.
One indispensable method of paying for defense without
inflation le "all-out" taxatlon, a aethod that as not yet
loan tried in spite of the good start that Congress LAS ado
in raising $3,500,000,000 in additional revenue. it. the
lalp of the now Revenue Act of 1041, our tax structure will
about
yield about fourteen billion dollars in revenue, but in V
opinion It still contains many inspealities and many omissions
which will have to be corrected next year.
The tax bill next year will have to be a cominely "all-
out" M11, a genuine levy upon all in accordance with their
-
Regraded Unclassified
- 13 -
275
ability to pays If it is to raise the necessary revenue,
place the necessary check upon inflation, and take the profit
out of war.
The second indispensable method of drawing off excess
consumer purchases is by borrowing as much as possible from
the genuine savings of individuals throughout the country.
le could always go to the tanks for the bulk of our financing;
I have said reportedly that this would be the easy This the
I
shall have to - to you for funds and I know I can count
whenever we have 7. come 7. your tanks for funds,
on your wholehearted cooperation, The may to proceed now,
however, is to finance our needs as Long for as possible without
adding unnecessarily to bank deposits, to borrow instead from
private investors, large and small, and thus to reduce the
inflationary pressure of our swiftly rising national income.
The Defense Savings Program has now been in progress for
D=C
Regraded Unclassified
- 14 -
276
five months. It has yielded us a billion and a half dollars
from two and one-half million individual investors. The
result so far is certainly not below our expectations, but
just as certainly it falls far short of our needs. It falls
short especially in that it has only begun to reach workers'
payrolls. Every one of the great national labor organisations
has given its endorsement to systematic saving, and voluntary
payroll allotment plans are now in operation in more than
companies
five thousand factories employing between five and six million
norkers. Our strongest efforts must now be made in our great
industrial centers, and must be directed at the good sense and
patriotism of the workers themselves.
I can find no usefulness, for our present purposes, in
the old Liberty Loan method of fixing money quotas for commi-
ties, trades, labor unions, school classes or individuals in
this Defense Savings Program. I can see no value, either in
D-C
Regraded Unclassified
- 15 -
277
terms of economics or of norale, in high-pressuring people
to take money out of bank savings accounts or out of life
insurance. But I do see & great benefit, financial and moral,
in persuading spenders to set aside, systematically, week
after week, & part of their current Income for their own
good and their country's good.
The kind of spending that the Treasury is most anxious
to divert into Defense Savings Bonds is the spending produced
increased
by pay increases and bonuses, and by dividend payments.
I should like to offer as a suggestion, for example, that
every Christmas bomes in the United States be paid in Defense
Savings Bonds or Stamps this year. The banks of Amrica can
start the fashion so that it will sweep the country. The
total amount of such bomises may be small, but there could be
no finer example to the public, no more striking reminder of
D-C
Regraded Unclassified
- 16 -
278
the spirit of these times, no better safeguard for the days
of economic strain that are sure to follow the war.
so at the Treasury believe that the voluntary Defense
Savings Program has already awakened a greater sense of pride
in America and a greater sense of participation in the national
effort. No shall continue along that road of voluntary coopera-
tion, and I am perfectly confident that no shall reach vast
numbers who are willing and eager to put their savings to work
for their country.
In this effort the Treasury will continue to depend greatly
upon the bankers of America, not only as its agents in selling
Defense Bends but also as missionaries in apreading the gospel
of savings in times like these.
There are no commissions for bankers in this work, and
you have asked for none. But in order to enable you to give
D=C
Regraded Unclassified
- 17 -
279
wider distribution to Defense Savings Bonds, I am happy to
announce to you this morning that it will no longer be
necessary for you to put up collateral for the series E
bonds which you - keep in stock for customers. I hope that
this will relieve the banks, especially the small banks, of
& real burden, and I hope that you will not hositate to tell
us at the Treasury of any similar burdens which you feel may
be hampering you in the sale of these bonds.
Wider savings and greater taxes will not, of course, be
enough in themselves to cope with the inflation that now
A
confronts use
I said earlier this morning that in night have
to ask Gengress for further power to cartail bank credit.
I have already suggested an extension of the social security
program as a possible method of absorbing several billion
dollars of next year's national income and thus building a further
D-C
Regraded Unclassified
280
Insert A - P. 17.
You have seen the joint statement issued last week by the
Federal Reserve System and the Treasury, dealing with the raising
of bank reserve requirements to the limit of the law, and pledging
full cooperation with the Office of Price Administration and the
new Supply and Priorities Allocations Board.
That joint statement was a reminder of the fact that the
Government already has powerful weapons of control in its hards, and
that if it needs more power it will ask Congress for whatever it
needs, in the fight against rising prices and falling living standards.
It has already asked for additional power through the price-control
A
bill, which I hope will be passed by Congress without delay.
In addition, I have already sugar sted an extension of the
social security program as B. possible method of absorbing several
billion dollars of next year's national income and thus building
further
Regraded Unclassified
15
reserve for the future. I have already suggested, not once
but repeatedly, that the Government cut down imediately
on non-defense expenditure, not only as sound /Inancial
policy but as sound anti-inflationary ractice. a have
already expressed the hope that the price control bill to
passed without delay, AS an assential stop in combating
Inflution,
X course, such a combination of shargency taxes, priori-
ties, savings and price-control will cause some inconvenience;
of course it will cause some hardship, nome sacrifice. o
cre now engaged in a world struggle that will call for all
our enorgies and all the qualities that have unde America
Treat. is & result of that effort TO are compelled to fight
another enemy, the enemy of inflation, on the home front.
lov can 10 hope to win unless DE first throw onto the rubblah
Regraded Unclassified
- 20 -
282
Leap all Ideas of business as usual, pleasures as usual and
comforts as usual? In my opinion, complacency is our major
source ofmakness today in building our defenses, for it sape
our will and clouds our minds, and blinds us to the stupendous
size of the job that confronts us.
We can conquer inflation on the home front If we act now,
just as we can ensure the defeat of foreign tyranny If THE rouse
ourselves in time. Most Americans, I think, are beginning to
000 that they have a personal stake In the fight against
inflation, just as most of them began long ago to 200 their
individual stake in the destruction of the Axis war machine.
I an confident about the outcome on both fronts, because I have
a deep and abiding faith in the common sense of the Amrican
people.
D-C
Regraded Unclassified
250
Sectember 30, 1941
4:35 0.0.
9VJr:
Hello.
Operator:
All right.
9Wr:
Hello.
Jesse
Jones:
Hello.
HXJr:
Hello, Jesse.
J:
Henry, have you heard about the gold?
9MJr:
Well, I've sort of heard it third-hand.
J:
I see.
HMJr:
out I don't know whether I've got it right.
J:
Yeah.
HMJr:
I heard you did something.
J:
I mean that - that they're going to - I mean
Are they going to send you some gold?
HMJr:
Oh, no, I was told third-hand that you were
going to let them have 5. lot of money.
J:
May I cell you back in just B. minute, Henry?
HMJr:
Yeah.
J:
Thank you
4:50 p.m.
HMJr:
Hello.
Onerator:
Go ahead.
Jones:
Hello, Henry.
HMJr:
What did you do, loan them a hundred million?
Regraded Unclassified
281
- 2 -
J:
(Laughs) Yeah, I just had to get off the
ohone.
HMJr:
What?
3:
Yeah.
EMJr:
You were calling me.
J:
Yeah, I was calling you.
HXJri
Yeah.
J:
To know hether or not you'd heard whether
they were going to ship you any gold.
XJr:
No, I haven't heard.
J:
They're going to use uo our money mighty
fast.
HMJr:
Well, I'd heard that you'd loosened uo a
little bit, but I didn't hear it from the
Russians.
No. Well, they originally wanted ten million
first and then ten on the first of October.
EXJ:
Yeah. What have you done?
2:
Well, we've been a couple of hours with them
this efternoon.
-XJp:
I see.
21
The situation is this. They've submitted a
list of things that they've bought that they
want to pay for, and it does not include any
tanks nor any airolanes or things that will
be moet effective.
HMJr:
Yeah.
And I've talked with Hookins and he's very
anxious to get them some tanks and girplanes.
Regraded Unclassified
285
- 3 -
HMJr:
Yeah.
J:
And he thinks he can get them if you allocate
it
HMJr:
Yeah.
J:
in a very few days. So that we've been
going over this list. They've been hammering
me yesterday for thirty million dollars, and
I don't want them to get out of soap buying
various and sundry things and them have them
say, "Well -" when Hopkins tells them they can
have some airplanes and tanks - they say, "Well,
we've got no money to buy."
HMJr:
Yeah.
J:
Then they'll be right back in our laps again,
don't you see?
HMJr:
Yeah. Well, they will be anyway.
J:
They will be anyway, but I'd like to - it's
like death, I want to put it off just as far
as I can - death and taxes.
HMJr:
(Laughs)
J:
I want to put them off as long as I can.
HMJr:
I haven't heard you come out for my six per
cent plan yet.
J:
I did over there at Cabinet there the other
day. I said if you'd guarantee it was six,
I'd be with you.
HMJr:
(Laughs) Well
J:
I'll trade with you.
HMJr:
Cabinet is almost like talking to the Press,
but not quite.
J:
That's right. Well, I was - I'm surprised
Regraded Unclassified
286
- 4 -
that you haven't heard that they're willing
to ship some gold.
HMJr:
No, I haven't heard a word from them.
J:
Uh huh.
HMJr:
Not a word. And I'm sitting here with my
phone open.
J:
I see.
HMJr:
That's the situation.
J:
Thank you very much.
HMJr:
Thank you, Mr. Jones.
J:
Good-bye.
Regraded Unclassified
287
Dr. "hite's dictated explanation:
Batches of mail come in and they are
quickly examined to see what is important enough
to call to your attention at once. We call
your attention to some of the remainder and
some is just filed. This particular cable was
a reprint from an editorial and I did not think
it important enough to call it to your attention
at once.
Regraded Unclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE September 50, 1,11
GU?
TO
Secretary Morgenthau
FROM
E. D. White
Ambassador Winant wants your attention celled to an
editorial in the London Times of September 12 re ardin,
the financin of Critish ald te ussia and also concerning
Lond-Lease,
The point of the editorial is that the Times deprecates
:.. lact that credita are bein extended to Aussia instead
04 subsidies or Dend-Leuge, the Name theses that the
overnment is making a misture in twin steys
to creste post-war debts. The lesson of the last war, the
11598 84"S, is that these debts cause CO petition in the
markets and restriction of Imports.
The aditorial cutlines the Oritish fear or energing
(re the war with a huge Forei n debt.
Regraded Unclassified
0071
DEPARTMENT OF STATE
WASHINGTON
Is reply refer se
September 15, 1941.
a $61.24/614
My dear Mr. Secretary:
AS the request of Anbesender Tleast, there is
enclosed herevith for your information a copy of
tolegram Se. 4240, dated September 12, 1941. from
London, in regard to as editorial which appeared in
the September 12 issue of the Lendon TIMES on later-
Ally credits.
Sincerely yours,
/./ Rerbert Feis
Herbert Feis
Advisor on International
Scenomic Affairs
Inclement
From London,
No. 4240, September 12,
1941.
The Honorable
Heary Margestham, Jr.,
Secretary of the Treasury,
fashington, D. 0.
Regraded Unclassified
0
0
7
T
290
no
PLAIN
Sender
Dated Boytomber 18, 1941
Res'd. 11:45 as
Secretary of State,
Fashington.
4340, frelfth.
the statement of the Prime Minister to
Parliament yesterday that fighter planes had al-
ready been sent so Insta and the Chanceller of
the Exchaquor's resent statement at Bdisburgh
that M financial limit sould be placed - the
help is mailions and materials going to Insia
vere taken as the occasion for 8 leading aditorial
in today's TIMES 48 inter-Ally credite is which 16
is urged that "It is regrettable when this principle
(of Lease-Lead) use adopted W the United States is
supplying our needs, 10 vas net applied w the
British is empplying the needs of 057
on allies." the editorial emphasises that the
case of Insis is exceptional because she will be
able to w with goods exchanged for the balk of
what she will receive, and because she had a faver-
able trade balance with the United Eingles before
Regraded Unclassified
297
the war. Det the assomessess of credite to Russia,
sening as the top of similar arrangements is the
case of seme of the smaller countries who will have
export balances insufficient to pay principle or
even interest on the credite accumulating "gives
- substance to the apprehension that 19 have still
to learn the leasons of the last var." Taking the
6840 of Greess, "whose hereis resistance rave time
to reasons the position in the Middle Sest", the
editorial sayst "surely the other partners in the
struggle - sere to her in soney for the lives she
has secrificed or the devastation she has suffered.
There is equally se question of sending her a bill
for the lives and materials lest is helping to do-
feed her territory. Viry should a. money debt be
marked up against her for the munitions 99 were
able to send her for her own forces to
Asserting that the credite to the smaller sllies
are in fact a more matter of bookkeeping, the
editorial describes them, novertheless, as "sie-
leading and dangerens se well as useless", and safe-
"Subsidies would certainly be better than credite.
but 11 would be better still to keep money out of
Regraded Unclassified
+
213
the picture altogether and to lead or give the
actual things." After pointing and that New-
struction is Burope will used supplies in great
quantities, the aditorial ovalution as fellows:
"unless - for-oighted application of the Lease-
lead principle le deviced is time these countries
will have to berrer may in large runs, which their
creditors will expect to be repaid is money, asross
the enchanges. They will be drives to strive
desparately for active balances of trade w ez-
porting all they eas, ones If they have to out-
citize their exports, and w outting loss their
tmporte to the statem. w their competition with
one another they will drive devs the prices they
receive for the goods they export, and W culting
dam their importe they will cause widespread 10-
employment arong their customers and time destrup
their wa markets. This is what happened after
1910. It will happen all ever again unless is the
menting 96 can learn to think loss in terms of
money and more is terms of real goods and services,
and to intulge loss is international competition
and more is international cooperation for the comman
good. the marificess for which this will sall will
Regraded Unclassified
not be searly ⑉ great as my appear on the
surface. It must not be forgotten that a very
large propertion of the lease made to foreign
countries have resulted is less for the investor
through partial or complete default, and this has
been sepecially trae of the loans made after the
end of the last mr. Iven from the business point
of view it my preve more profitable is the long
run to pat valuable potential customers on their
fees, without emeting s return, than 11 would be
to load them with matory obligations which they
will ultimately be foreed to repudiate, and which
in fast they will net be able to discharge without
reining themselves and their neighbore.' Please
send eggy to Treasury and Repitins.
VISANT.
we
Gegyrhjibbr:9-15-41.
10 THE
LECHNICATI YART
06/10- of THE
IMPORT
BVI 26 12 bit / Sv
Regraded Unclassified
TREASURY DEPARTMENT
PROCUREMENT DIVISION
(FFICE OF THE DIRECTOR
WASHINGTON
beptember 30, 1941
DL. TO THE all ETARY:
11th reference to Senator Herring's visit to your office
concerning the proposed purchase of 7,200,000 gallons of alcohol
for the British, it WGS finall decided by of. that the British
12 have to furnish the molasses, accordingly, we took steps to
-1.6 E contract for converting the molasses into alcohol.
Escause of the keen competition and numerous inquiries
ouncerning this order, formal purchase procedure W&S followed.
Invitations for bids were issued and seeled tids received with the
_.llowin- results:
C. S. Industrial Chemicals, Inc.
.0.08
per sal.
Publicker Commercial Alcohol Co.
.09875
di
If
Gul Distilling Corporation
.1025
0
=
Nahum Chapin Distilling Co.
.1950
If
it
Republic Chemical Corporation
.205
11
11
The last conversion contract for the same quantity was
att Publicker Commercial Alcohol Company at 30,1125 per vallon.
I just received a telephone call from Jenator Guffey's
in covising that it WBS understosa the Gulf Distilling Corpora-
tim 200 "got to get this business" and I advised that sealed tids
Lean obtained and that eward would be we to the lowest re-
sponsible bicher.
Evidently, the active competition resulting from the entry
Into icture of the Golf Distilling Corporation, the concern
- USE Denaif _enator Herring ,as active, wes Impely responsible
Sep to ascrease in grice. AMle this Company created new com-
otttion their :rice 8. not low enough to obtain an order.
Award le beinz nade tucay to f__e 1. S. Industrial C emicals,
RIV. to -,400, 000 callons, the amount ordered or them, at 00.00
At allon, and the Publicker Comercial 2100201 Company for the
nisshe of 4,800, 000 gallons at so. 03875.
Cirrton E. Mack,
Director of Procurepent
Regraded Unclassified
In accordance with your request, 295
conies of this memorandum have been
given g' to Mr. Bell and Mr. Morris and
2. have exchanged memorande with Mr.
Hadley.
Prepared by: Mr. Sendelin
Mr. Murphy
Mr. Heas
Regraded Unclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE Sentember 30, 1941
TP
Secretary Morgenthau
FROM
Mr. Hase CH
Subject: Proposal for Offering 10- and 15-Year Tressury
Securities on Each Quarterly Date
In accordance with your request, we have considered the
advisability of the Treasury adopting B. uniform policy of
offering 10- and 15-year securities on each quarterly date.
The balance of argument appears to be against such B. pro-
possl.
The principal argument in its favor is that it would
impart an element of certainty to the Treasury's financing
program and permit purchasers of Treasury securities to plen
their subscriptions in advance, rather than be asked to make
& hasty decision with respect to the purchase of 8 security,
the naturity date of which was unknown prior to announcement.
Against this, nowever, may be offset the following dis-
advantages:
(1) It would greatly increase the difficulty of
pricing new securities. At the present time
maturity and call date are the sensitive
factors by which new issues are priced. If
the coupon of a proposed security be considered
as fixed, its initial premium may, nevertheless,
be adjusted to any desired level with a feir
degree of accuracy by moving the cell date and/
or maturity backwerd or forward, the unit of
movement generally being three months. If, on
the other hand, the meturity or call date were
fixed, it would be very difficult to secure
such an adjustment by alterations in the cou-
pon -- the unit of change in this case being
1/8 of 1 percent. This difficulty could, of
Regraded Unclassified
297
Secretary Morgenthau - 2
course, be avoided by offering new securities
at prices above par. Buch procedure would,
however, involve difficulties of its own.
(2) A concentration of new borrowing in the 10-
and 15-year areas would tend to cause an over-
supply of securities in these areas, and 80
to push the yields on such securities out of
line with the remainder of the market. It
should be noted in this connection that most
purchasers of Government securities are on-
deavoring to secure a diversification of matu-
rities. The achievement of such a goal by the
whole market would, of course, be impossible
under the proposed plan, but attempts by in-
dividual purchasers to do so would tend to
throw yields out of line.
(3) Unsettled markets at the time of quarterly
financing dates might call logically for
short-term financing, or for no financing
at all. If the Treasury had committed 1t-
self to a plan of regular 10- or 15-year
offerings at each quarterly date, it would
in such cases be confronted with the dilemma
of either going through with its program at
the expense of putting out & sour issue, or,
if it did not do so, of causing bearish com-
ment to the effect that conditions were BO
bad the Treasury couldn't go ahead with its
announced program.
(4) A policy of the type suggested would bar the
Treasury from utilizing particularly good
markets to put out really long-term financing.
(5) Ten-year securities, in particular, would be
attractive to banks at the present time, 80
that the adoption of the policy suggested
would interfere with the present Treasury
policy of minimizing the sale of Government
securities to banks.
(6) From the long-term point of view, it may very
well be that in & future possible depression
the Treasury may be anxious to sell as many
Regraded Unclassified
298
Secretary Morgenthau - 3
securities to banks as possible, in order to
avoid a deflation of bank deposits. This
might call for a concentration on 5-year,
or even shorter, maturities.
(7) Borrowing during the next several years may
be expected to be exceptionally heavy. If
this borrowing should all be concentrated in
10- and 15-year maturities, it would result
in a great bulge in our maturity schedule 10
and 15 years hence. Maturities during the
period in which new 10-year securities would
fall are already heavy, as is indicated by
the following table showing the total amount
of direct and guaranteed securities due and
first callable 10 - 13 years and 15- - 18 years
hence:
:
First
Due
callable
:
(Billions of dollars)
10 13 years (October 1, 1951-54)
3.5
8.8
15 18 years (October 1, 1956-59)
.9
2.4
Regraded Unclassified
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE September 30, 1941
TO Secretary Morgenthau
FROM B. Madley
PROPOSAL: That the Treasury inaugurate a Pixed Financing
Program wherein offerings are made on quarterly
dates Lo mature on quarterly dates with maturities
of 10 and 15 or 20 years on each offering.
CONCLUSION: That such a proposal should not DE adopted.
ASUMENTS FOR TAE PROPOSAL:
1. ulves the Treasury a uniform maturity program after a period of
about 1, years.
2. lives all buyers an opportunity to work out uniform investment
programs.
AMOULEN'S AGAINST THE PROPOSAL:
1, Limits flexibility of Treasury's borrowing program.
a. Unless the Treasury is willing to sell new offerings al a price
other than 100, control over the amount of premium on each
offering would De practically impossible since the coupon rate
would De the only variable in setting terms.
Do Unsettled markets might call for short or no financing so that
such a fixed program of necessity might be short lived.
C. mereas extremely good market would permit long term borrowing
and the freasury right wish to take advantage of such a market.
2. Tends to pile up waturities in the 10-15 year area which is already
crowded. (Jee attached Table)
3. Short term financing would encourage bank buying which at present
is not the announced policy.
ALPERNATIVE SUGGESTION:
& program of W-year and 15 or 20-year offerings on each quarterly date
aight De attempted without committing the Treasury to adhere strictly
to suen a program. To announce a fixed policy would in effect tie the
reasury hands whereas the same result could De obtained by making
offerings whenever practicable closely following such a plan. The
cardet could draw its own conclusions as to whether this were to be a
Pinga policy.
Regraded Unclassified
300
QUARTERLY FINANCING
Dates and Maturity Distribution
10 Year
15 Year
20 Year
offering
Outstdg.
Outstdg.
Outstdge
Date
Date
Matur.
Date
Matur.
Date
Matur.
(millions)
(millions)
(millions)
1941
Oct.
Sept.1951
C 755
Sept.1956
C 982
Sept.1961
0
Dec.
Dec. 1951
C 1118
Dec. 1956
0
Dec. 1961
0
1942
Mar.
Mar. 1952
C 1024
Mar. 1957
0
Mar. 1962
o
June
June 1952
0
June 1957
0
June 1962
o
Sept.
Sept.1952
M 1186
Sept.1957
o
Sept.1962
0
Dec.
Dec. 1952
M 491
Dec. 1957
o
Dec. 1962
o
1943
Mar.
Mar. 1953
0
Mar. 1958
M 1449
Mar. 1963
0
June
June 1953
C 725
June 1958
C 919
June 1963
M 919
Sept.
Sept.1953
0
Sept.1958
0
Sept.1963
0
Dec.
Dec. 1953
( M 1118
Dec. 1958
o
Dec. 1963
0
( M 1786
1944
Mar,
Mar. 1954
II 1024
Mar. 1959
0
Mar. 1964
0
June
( g 1627
681
June 1954
June 1959
0
June 1964
0
Sept.
Sept.1954
0
Sept.1959
M 982
Sept.1964
0
Dec.
Dec. 1954
o
Dec. 1959
o
Dec. 1964
o
M - Maturity
C -
First Call
Regraded Unclassified
UNITED STATES SAVINGS BONDS
Comparative Statement of Sales During
First Twenty-Four Business Days of July, August, and September, 1941
(July 1-29, August 1-28, September 1-29)
On Basis of Issue Price
(Amounts in thousands of dollars)
:
:
Amount of Increase
Sales
: Percentage of Increase
:
:
or Decrease (-)
:
or Decrease (-)
Item
#
:
:
:
September
:
August
:
September
:
August
: September
2
August
=
July
:
over
I
over
=
over
#
over
:
1
:
:
August
I
July
I
August
:
July
Series 1- Post Offices
a 37,395
$ 38,116
$ 47.385
+1
721
$ 9,269
- 1,9%
- 19.6%
Series 1. Banks
64,897
71,675
87,997
- 6,778
- 16,322
- 9.5
- 18.5
Series 1- Total
102,292
109,791
135,382
- 7,499
- 25,591
- 6.8
- 18.9
Series F - Banks
17,313
18,866
24,420
- 1,553
- 5,554
- 8,2
- 22.7
Series G - Banks
103,078
117,942
150,636
- 14,864
- 32,694
- 12,6
- 21,7
Total
$222,683
$246,600
$310,437
-$23,917
$63,837
- 9.7%
- 20,6%
Office of the Secretary of the Treasury, Division of Research and Statistics.
September 30. 1941.
Source: All figures are deposits with the Treasurer of the United States on account of proceeds of
sales of United States Savings Bonis.
Note: Figures have been rounded to nearest thousand and will not necessarily add to totals.
Regraded Unclassifie
Daily Sales - September 1941
On Basis of Issue Price
(In thousands of dollars)
Post Office
Bond Sales
Bank Bond Sales
All Bond Sales
Date
Series E
Series E
Series F
Series G
Total
Series I
Series 7
Series G
Total
September 1941
2
$ 3,021
$ 3.385
$ 1,182
$ 5,510
8 10,077
$ 6,406
$ 1,182
5,510
$ 13,098
3
972
1,933
585
5.790
8,308
2,905
585
5.790
9,280
4
1,365
2,540
645
4,846
8,032
3,906
645
4,846
9.397
5
1,852
3,689
1,162
10,486
15,336
5,540
1,162
10,486
17,188
6
1,419
3,144
707
4,666
8,516
4,562
707
4,666
9.935
8
2,858
3,032
521
3,549
7,102
5,890
521
3,549
9,960
9
973
2,013
528
1,532
4,073
2,987
528
1,532
5,046
10
1,479
2,883
975
4,984
8,841
4,362
975
4,984
10,320
11
1,422
2,657
484
3,168
6,309
4,079
484
3,168
7.731
12
1,312
3,004
436
2,536
5.975
4,316
436
2,536
7,287
13
988
1,997
498
3,493
5,988
2,985
498
3,493
6,976
15
2,312
2,384
797
4,898
8,079
4,695
797
4,698
10,390
16
843
2,195
470
2,807
5,474
3.040
470
2,807
6,317
17
1,225
2,902
536
3,018
6,455
4,127
536
3,018
7,680
18
1,458
2,593
568
3,862
7.024
4,051
568
3,862
8,451
19
1,555
3,169
794
4,148
8,111
4,724
794
4,148
9,666
20
1,085
1,742
466
2,228
4,436
2,828
466
2,228
5,522
22
2.396
3,435
927
5,394
9.757
5,832
927
5.394
12,153
23
1,149
2,132
607
3.412
6,152
3,281
607
3,412
7,300
24
1,277
2,727
788
4,139
7,654
4,004
788
4,139
8,931
25
1,415
2,730
957
4,872
8.559
4,145
957
4,872
9.974
26
1,506
3.643
1,030
5,306
9.978
5,149
1,030
5,306
11,484
27
1,068
1,882
687
3,820
6,389
2,951
687
3,820
7,457
29
2,446
3,083
963
4,617
8,664
5,530
963
4,617
11,110
Total
$ 37.395
$ 64,897
$ 17,313
$103,078
$185,288
$102,292
$ 17,313
$103,078
$222,683
Office of the Secretary of the Treasury, Division of Research und Statistics.
September 30, 1941.
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
3019
September so, 1941.
1997 Manry:
Thank you for year letter of September
28th, which employee copies of communications
you have sent to Hilo Perkins ANd Donald Nelson.
1 have been interveted in reading these,
and you my be sure that the Treasury vill
cooperate in every possible vey is connection
with the program you outline is these letters.
Sincerely,
(812000) acce)
Honorable Heary À. Wallace,
Vice President of the United States,
Washington, D. 0.
Jay
it
CEF/dbe
cam
Regraded Unclassified
OFFICE OF THE VICE PRESIDENT
301
WASHINGTON
The Honorable,
The Secretary of the Treasury.
Dear Henry:
Copies of letters which I have just sent to :.
Donald Nelson and Mr. Vilo Perkins are enclosed. The
full cooperation of your offices will be necessary to the
successful completion of this Important assignment. Every-
thing which your staff can do to help them will be deeply
appreciated.
Sincerely yours,
Hawallace
Enclosures
Regraded Unclassified
September 24, 1941.
Mr. Donald Nelson,
Executive Director,
Supply Priorities and Allocations Board,
Washington,D. C.
Dear Mr. Nelson:
I have discussed with the President the matter of saxi-
rus, balanced production of critically needed ray materials,
including increased stock piles of some of them. It 18 of the
utmost urgency that we develop new action programs designed to
reach this objective at rates of production beyond what we have
planned in the past.
I wish you would get in touch at once with the affected
Departments and Agencies and submit reports to no, commodity by
commodity, BB soon as the Information is available to the end
that feasible programs for increased production and larger stock
piles can be worked out.
In a Commodity Summary report of September 5, prepared by
the Office of Production Management our estimated 1942 supplies
of various commodities are set forth. What I want are practical
suggestions as to how WO can increase each amount by the maximum
degree possible together with the estimated increase in cost for
each such program. This does not necessarily mean it will be
sound policy to reach such objectives in the case of every com
modity: on the contrary, balance in term* of maximum production
and adequate stock piles is our real goal. In achieving this,
homever, TO need to know the outside physical limitations of in-
creased production for each critically needed material. Please
submit the report in terms of the individual increases it will
be physically possible to secure in 1- 2 & 3 year periods, to-
gether with the increased costs and the methods recommended to
reach the objective for each commodity.
The primary responsibility for working out action programs
as they apply to production within our own country will be yours,
Regraded Unclassified
- 2 -
306
while that of doing so in other trade areas of the World still
open to us will be that of the Economic Defense Board. I would
like to have you and Mr. Perkins discuss this matter promptly,
however, and keep in close touch with each other so that your
reports can be coordinated. I as addressing & similar letter
to him, a copy of which is enclosed.
Sincerely yours,
P. 8. Time is definitely of the essence as you have DO appro-
priately recognised in the signs around your office. The
all-important thing is the results we get during the next 18
months. To this end, I urge doing everything possible to get
results at once. It may be Knudsen is right on farm machinery
for '42 when we consider this all important time factor.
Regraded Unclassified
TREASURY DEPARTMENT
307
INTER-OFFICE COMMUNICATION
DATE SET
(94)
TO
Decretary Morgenthau
FROM
Cairus
Attached is a copy of the speech Leon nenderson
Tave last night before the National Association of
manufacturers. The portion of his speech which relates
to the control of profits annears on page 7. Henderson
names two points in this connection:
(1) That control of wages is comparable to
control of salaries of management and other
forms of compensation and that, therefore,
there should be no attempt to control wages
without controlling profits as well as other
forms of income. As he puts it "profit
control, which is a form of income control,
is, of course, very similar to wage control,
and perhaps a necessary prerequisite to any
serious consideration of wage control'; and
(w) Although price control necessarily affects
indirectly both profits and wages, it does
not contemplate the control of the rate or
the amount of profit made by individual
sellers. He makes the point that price
ceilings under his bill will establish
conditions applicable to all sellers of 8.
certain category an that the profits of
individual sellers will be determined by
their own efficiency. He goes one step
further, however, and seems to oppose 8
100 per cent excess profits tax in view of
the following sentence with which he closes
his discussion:
If now We propose tast opportunities for
profit, and for greater or less profit,
will remain the incentive to efficiency,
foresight and initiative even during this
great effort to ac ieve supremacy in
production.
1 dunter Caims
Regraded Unclassified
OFFICE FOR EMPRODUCY MANAGEMENT
OFFICE CF PRICE ADMINISTRATION
yor Release at 8:30 P.M., EST
PM 1267
September 29, 1941
Miresse before the Eastern Regional Meeting
of the Sational Association of Manufacturers,
Hotel Astor, New York City, at 8:30 p.m. EST.
Konday, September 29, 1941, by Leon Henderson,
Administrator, Office of Price Administration.
Tonight I want to talk with you about a burning subject - or what unfortu-
nately may become IL durning subject to every business man, every worker, and every
farmer in America.
I an going to talk candidly and without reservation, just as plainly, and
straightforwarlly as 1 know how. Ky tomic, no enmebody sight have been farsighted
esough to gueis, is infention,
By inflation, I mean the rapid, irregular, errevie rise in prices that we
usually Associata with tericia of phormally interse business activity. Inflation
occure when wa street to 2013 zoney for goods and services then there are
2004 and services to buy. I: is caused by an uncontrolled PICESS of purchasing
power over the volume of goods for selo, We have an orcess of uncontrolled pur-
chasing nower nov. Infletion starts with jagged. irr ylar price advances because
prides sise more repidly where the shortages are greatect. We are having such
price increaser DOW. The excess purchasing power which threstens inflation today
00009 mostly firm government spending on the defense progrem but partly from exper-
sion of tank credit and from other stirces. Unless tant excess purchasing power
12 controlied, prices - beed to get out of control, end most of us, whether
instruct LA, workers or are sure to be hurt.
If we lift the time I r'34' 20 further into causes. 1 sight emplain how
itheness of fratories and the curing the depression left us a productive cochan-
: that VIS obsolete in come importent respects. I night discuss, with supropri-
eto resepies, Low our labor force has been allowed to run down by failure to main-
His the supply of skilled workers. I night emphasize that modern was places an
the decised not upon all things but A. heavily concentrated decend for certain
Mote " unterials, rachine tools, and skilled workers. 1 night elaborate on the
light spots in the import situation, like rubber, tin and many important foods.
fr, : wight dwell on now defense expenditures, which are etill miserably rall com-
pared with want they must be end what they will be, are yet large enrugh to be 31-
ready pressing with dangerous force agrinst e bottlenecked economic system.
but all these 050385 Are reasorably well known and there in little dispute
in them, Touight it my be more useful to begin by reviewing the consenuences
at inflation which ought tn be avoided as a plague - which it roally 18,
Want are the consequences of inflation which we west 10 arers? In perticular,
dres inflation mean to 8. action. which at the once time must defend isself sel
una the Eachines and the tools for democracy throughout the verle? Vast 100$ 11
PAS to the cen and women of this Estion - now and in the future? that jons it
Regraded Unclassified
PM 1287
sean it to business concerns which are the heart of our productive machine? What
PM 1267
Want does of the system of private Susiness enterprise under which vo now to
the Bean future to those who work in our factories and on our farmel What does It doe
Insured this lesson, the Treach learned in so the strent cost: the Stitish
signed to preserve?
it sean to the very institutions which our whole armainent program operate? is do-
M our own during World War No. 1.
it: we conjot excuse ourselve If we fail to profit by their experies
CBD stable produce the flood of unterials which ve need for defense only under
First of all, if ve have unrestrained inflation we cannot are. Management
Secondly, inflation If not curree, will threaten and perhape dentroy the
forriean system of social encurity. I any this I in not refer alone to the
economic conditions. Many of the defense commitments are for delivaries recentably
Encared Social Security Incluiption. : refer rather to she institutions net the
year or two years from nov, If business must content with akyracketing prices, & and
abite which vast pubbets of Appricant have utilized to provide for their section.
cyrating, fluctuating costs and weges, Business connot do ite job.
153. I have in mind the insurance commanies, the obviues brake, the knilding ml
lose associations and other inventent institutions, 5.9 well " the bobite of seving
DO able and apparienced business müministrator in the country who does not is
As Bernard Baruch told the War Policies Commission ten years ago, there
at frugality which have led Americans to use three Institutions for thoir (/VA 1Pm
11/1100. Infletion 1n E threat to Keta Street and to Well Street vilvo,
end operation under stable conditions to operation when prices are rising on all prefer
are in the unforesceable state of flur, Long time consitments for delivery wides of
A donaling of prices chane 9 reduction in fixed values of 56% a polential
goods require long the commitments on prices of the raw materials which 6º into
M Jery on every insurance policy, every annuity, every MATHER bank novement, every
those goods.
action that is peid out diffing in inflation. This 1. the inequity et inflation 6M
Dr come, It places the gross dispreportionale burden en the 114310 Thisn an
When prices BTM comming, PARPORTINI 70M asterials are distributed not In so-
will and noturer will minimiled acgplier and country = oc the Twice -
with cordance with defense needs, but then for of the speculator to the Duyez
sill account or na insurance policy additions at personal
increasen the largest packetBonk, Boarning person a Profitable. And faced with ubending
and on the carner vito LT not organizei god then Mo with 11.
VILE (cless,
granted, these nean higher costs and often Liner prices; if denied, they mean.
in the cost of living, lahor /ustifichly demands higher wages. If
the avrikes and disunity. Industrial Unrest bankidage and conoralizes production and in
live the Exting's norale is informinad - nnt 0127 the Korale of those -
end production Le statted.
3 und the Delhi tel the morale of no prislers, not No-
Thoom coldiers, who 1070 affort in the
country.
as all of you are comite to realize, in the heart of our eystem of Industrial mobil>-
Inflation undermines the defease effort in still another way. Priorision,
antion. Priorities 1.0 the tice disension of our effect, giving las the
rule Ene mer STGRT class, le 14: sinht, potent ten
11 couse destruction in our present sprates - incentry wason If case
huge large our areadent progras is on paper, how generous our oppropriations or tow
over to put first things first, In 0 world of bittheries It Novem't matter How
a =, be TOVIVOC.
by & well organized system of priorities, however, WE can RUS those aras tale or 1745. condor
our contracts --- 15 we don't get the gups and the planes until 1944 are,
IV 18:74 proportion 1 - that inflation, IT not condition, will smithly Increase
year and next year when we must have then,
the 1015 aré Burdes of the 21 costo come to finds N°
He - I've priore: and in an order private %) 100 20 mire must in
the difference yould Clinat our appropriations "y Time of shano oilitions,
Although in rechat Weeke the brais has been laid for a sound and offective
at ino, - be increased, con the dubt will be not 1001 that wissing prices ses
farce. relatively stable this effort to control the flow of goode will become prices
priorities system in the United States, I an frank to any that unless remain
I es EVER mill of us with N :/- mt
hut 90,85 can by street is Date - is M . drop in the the
For if prineision must compete with uncontrolled, insistent, inflationary an empty
- 10 (lorn las of in more.
price the increases, the getting of anterials will depera not on the buyer's need but
seller's greed, not on the nation's welfare but on private favor,
Inc divious, at junt an - of chat -- - the implications
if infletion for the fubure. If wo e topo to estage
vill menings the priority system anc, so far as in consistent with temptation the defense
Stable and soundly enforced prices will eliminate the to bootleg
post-war deflation. At the ml of the think = -
inclined increase in priore only - VIS . one doymert drep in prions
disrupt any fair system of priority control on the other band and price work havac with
give everyone bie and seall, his fair share. Inflationary increases propres, vill
the the is eyet. To of effects nf trice
desors are serious, but the remited et collère deflating Day be
control industrial mobilization. Recently et substantial amount of alucinum escaped priority
Itself A bootleg price, If there is no fair ayetem of price control, the government
was - to become sussement bechines instead of airplanes. The price, of course,
fort economy for the things which it mist have. That would destroy both our defense de
must enter Into a heartbreaking competition in order to outhid the private
and our private aconomy.
expanded defense production assept with & stable, reasonable price level. Gerbers
Let no coe blink this fact. Vo cannot have orderly, efficient, and above allo
Regraded Unclassified
PM 1267 320
12f
A for years ago It was commonplace to say that the cest War would
Price control is not & pleasant thing. It le unplearant to take, and I can
civilization, Recently ve've beard loss said about such things, Mons of costroy us
secure. It is even more unple to administer. Sellere are usually displeased,
courage and falth that our civilization will be preserved. But 1A1 us not Ton] Leve
myprs are midos appreciative when prices are controlled Vo have come to the point,
sent, VEY, and to vithatund the strain of the neat-war adjustment and readjues- survive
curseives :bis - it will take e strong, stendy, stable economic society to
however, where the preservation of the price system Itself requires price control.
The great majority of businessurg who are operating under the price ceilings estab-
Ifelied by the Office of Frice Administration are antitled to the assurance that
thate anteriale costs or will as their prices are subject to control. They who have
Let Ge just suppose, in the post-wer period, that along with all the dirri-
civen are than reluctant acquiescence met be protected from the denoralizing
culties of the pescetime emergnisation of an againized world we must also
offects of the chiseler who 11 croting rich by defying the ceilings. And the com-
with a collapse in prices, employment, inventory and real estate values, and cope YOUR
100 must be expanded over & much wider area than 1a now poesible on A memi-
phrase 16 differently #56 MAY that we have 6 depression twice as crastic and
and or proportions sictler to that which ve BOM after 1029, Op Intig
voluntary basis.
cratic institutions and our civilization can survive this final storm?
twice ne coop 46 that which followed 1920, Wast odda will you give that our -
The Congress now has before it A masure for the control of prices during the
defence emergency. It incorporates the Annohings of experience - our own during
the 1000 15 souths, and the experience of countries abroad during the present var.
by find proposition follows from those I have montioned, In my judgmant,
I 100k upon 16 00 the einimum, the absolute minimum, which vill provide us with a
undrecked Inflation YOU'R endanger for desocracy and the system of frée ecusuate
massive of security. More powerful resoures my be visa and desirable: anything
enterprise which we ILTER righting to proserve. Unarmed or balf-arned,
: I form, vill Ze fattle. I nek you, AE businessmen. to help in this choice
of efficient production, torn by disumity, with no Inflated and maldistribured
to and to your government that the price system must be disciplined.
burden of defence expenditure, ear freed with the virtual certainty of e post-war
tollowss, We words Nute cheated V.e world as the magnificant emample of WALL
Me ==ed a moundly conceived labor policy. In by testimony on the price con-
American should Leve Leen.
test bill. I have mit regentedly that wares must be kept within bounds if we are
Le inflation. But workers will not one cannot sit 1dly by while their living
There an alternatives to inflations I to not MIDE to tell you that they
- on and of 01/06 Ye - have =tabilization of living contr, and this must be
But not nearly or or as ungleavent or as Inspirate the connequences
are easy, mile or agreestin, They ACE not, Zuey WIN difficult and unpleasant,
TEA prelude to stabilization of water nt " fair level.
of unchecked inflation. These elkornative: de extet and with courage, vigor,
In his ------- of July 30, 10/1, recognenting spice legislation, the
patriotism, -- ul-ave ell, the will to Let - we COD still aboose
President unid:
these And 12 16 obliese to declare surselves, are WIL not an nuch
letter OIT thes IF oz. allow conditions to force us Into staright inckets.
"These will always be seed for vage adjustments from time
to time to rectify inequitable situations. But labor as a whole
As M polas eve, and in order to alghon off some of the excess parchasting
will Isre best frue a 1/brir olicy which recognized that virges to
the defense Industrier should not substantially exceed the prevailing
power, lover AS # offices PUR be willing 10 save and to tax until it purte. Playse
hote that 1 687 I vish there earn = more pleasant :pad to but
wage rates Ln comparable nondefence industries where fair lakor pol-
share 10n't, Ve are noze this o billion dollars II conth for defens.
intes have been mintsined. Alrendy through the efforts of the De-
Boon, I street, - dell mounte (seam, Size substantial portion of tris vast
Monal Defense Mediution Board and vace stabilication correction, vage
Timed of newly river nont le drawn aff, De at vill burst the
standards are being established ano a yearure of wire stability 10
otices of our economic types, nal American as all, Alrondy there are signt Shall A
being brought to certicular industrien. It in expected that wich
lisve too many but Trensms to be TpoHK for the svallable supply of goods
activiting will be continuot, assonded, and vade increasionly effective."
labor is not B comidity and 1624 fizing in the nature of to case so income
Ve have almost reached the stage in our defense effort when it is unpatriosic
not price fixing. Incono-fixing is = drastic step frought with deep and
to buy in EXCESS of need - whether ve call it Protective huying or "hoarting"
they mean the sume thing or to my in unnecessary competition with the
implications for business as well as lebor. I believe our policy of sare
sent. 1: La the responsibility of every citizen to determine whether his opending
atebtlization in something which we should develop separately from our commonity
price atabilization, as other decocratic countries have done,
Mut prestous element, free choice,
can be postponed - whether he can buy a defense hond Instead. Acsin 1 emphanize
I recognize, 0.0 I have said, that inflation cennot be avarted unless there le
stabilization of visges BE well An other costs, and that the development of - sound
Taxes, envings, priorities. and credit control are important, but alone they
cannot do the Vable Job, Secondly, and insediately, we cust have price control
Ishor policy 1e e rep which ve suit take in the interest of labor as well as
capital, I: should corrend the bont talent and thought of labor, management and
offective Trice control. Z raid a little vitile Age that inflation 18 rooted in
- now, And I do not care where the initiative rises -- whether from
sporadie, particular shortages arising from defense needs. These shortages and
Dierment OF from later - but I know It 1* better to have 11 man as A time choice
the pressure on prices which they bring are the forurunners of inflation. Calows
prizes LN stabilized In these shortage state, Mes the spiral of
or from pencle rather than to let it be dictated by circumstance.
inflation : - certain consequence.
Regraded Unclassified
by
311
PM 1267
I know there are many wao DATE criticisedtbe omission of VAges from
price control bill nov pending before Congress. I'd like to develop, at 9 the
Profit control, which le la form of income control, is, of course, very other
greater that length, 50120 of the recense vty vages ware onitted. A soisent Age I 7014
Inf to control, and perhage a necessary prerequiaite to any serious considern-
have controlled vages directly, although never, in those countries, by the
wege fixing in income-fixing. It is true that the totalitarian countries
1102 of wage control, In view of the close parallel, it LE unfortunate that many
VON unit that the price control bill doesn't control Wilghs but should, elso
" Mast 16 doca control profits and shouldn't. 1 bolieve they are vrong (7) both
agency enpowered to control prices. And in the Insclet countries value controls
200th The price cuntrol bill in right in not directly controlling MAZOR and
among Industries and occupations, control of hours of work, control of biring
are accompanied, and recessarily no, by direct control of the Revent of later
Die MII 10 right in not directly controlling profits,
and mrk this - firing, and, indeed, control of almost every phnse of human In
Frice control certainly Mill indirectly affect both profita end veges, In a
with 11 visiting of the Gustapo end the concentration camp always in the beckground,
time of rapidly rising prices, the strategically signated soller, the robber baron
Them new the becomeary commanions of direct wage control, just ne priorition and
purched BL bis areg above the vital trade passes, will got his loot, whether he
retioning urr the necessary adjuncts of direct price control. If Wares of later
NOR Inbor or capital for onle, Preventing inflation cust inevitably nean elinina-
are to bo ountrolled, could the mitor stop there without nloo regulating the
tion of this kind of profit, Due is duesn't mera the control of the rate of the
WAFER of management - the shinries, the blease, and other payments? I coult
acount profit unde by individual sellere, treated case by case -- the very
help wondering Whether nil three who criticise the sciering of direct Your e návol
MM that come have signed mhould be applied se the incone of thone dependent on
from the price control bill are fully sware of the implications of their prestin.
Frice cullings under the 3111 will outhblish conditions applicable to All
The free amgotisted contract, in R judgement, in at the heart of 3 from entorprise
seliere of n. certain Tax profite of individual sellers vill be deter-
convey and the democratio state. None of the democrecire of the British Empire,
does by their one efficiency and their power to edapt thouselves to changed
ell of Which have imposed direct control over prices, line as yet introduced drist
conditions. The price control agency any change año or the rules of the game: but
control yes prices, has se yet introduced direct control over mis levels. All
: Le Alt going to hand but predetormined Fidual genrun, We propose that
of time Invo assest to resure MAIN stabilization by other Their afficts,
oppertunities for profit, and Ive stunter or Inue profit, will remain the incentive
I have sit been altagether succossful. But they have served their
J afficioney, format, and initiative over forthe This crust effort to achieve
They have procerve collective burgetning ned B. missure of freelam in the
rentally in production,
midst the terror of MAT, NEC at the $100 time have overted the dancer of the Dated
when-urine optral. As montly no July, the Britist Government issued an important
Taxes and Orien control, priorition, credit control, and is sound
Pro-or on Price Stabilization not Industrial Policy. This stated:
milley, aru all Department. but we must nine take other steps,
"Since the outbroak of war, the existing joint voluntary machinery
To noet c cramptions policy An feeding depression - accusclated surplus
for wase copotictions has operated successfully. Inconness in vage
brek on the markets vo MAWE surele constantly ways of relieving shortnges by AI-
mses have boys ressonable; the outhority of the unine of the day-to-
- we must carb the word/L, und particularly this hemisphere, for
by adjustment of Where and conditi nn Ens been mintoined: the freeded
supplier, anterials, into facilities that are not ROW being used, Ve lock
of coortunity to wake claims and to have than discussed has emabled
emploimely et anciont or depression-born restrictions end restrainte, whether in
industrial pence " be
Incor or to accertain whether they QTO still justified to
&F within have SOV the tank of producine the atmont. 1 can téll you that
"The notiny of the Government, therefore, is to svild modification
SPAD ** determtual and expansion and needa your help, While se cant do all of
of the for VISO Regitistions and to cortime to Leave the yari'us
these Shipped let SM close by streiging оде Name in particular.
suluntary organisabions any which tribunals free to reach START decisions
In accorcance with their estimate of the relevant facts."
1: is 500 Into - when of clops showle eyele first. Wo: must
- about ON each just su rapiAly or We cho. line can be time DAD De
The of the Insie for avoiding direct vare osetrol 14 that such cid-
revel, = can the placed under -- tut in this esergency, 14 sill
legi implies the right to any, individual by individual, (T?I) by - just stal
Indine priceless that 18 consot to price-controlled.
the Incures of persons can Dr. This is the power of riler over nubject. or
course, may pulicies of povernment affect incomes, but BY long 05 this in dans
Date 10 M - of free choice :- seep that essence of
broadly nne generally, vitime opportunity for personal discrimination, naé sub-
visa 1a stability,
joct to the democratic controls, there is little canger.
Valah brince us to profit control.
Regraded Unclassified
THE WHITE HOUSE
312
WASHINGTON
MEMORANDUM
September 30, 1941
TO: THE SECRETARY
FROM: MR. LUBIN
&
I am enclosing a photostatic
copy of The Economic Picture as of
September 29. I think you may find
this of interest.
Regraded Unclassified
313
THE ECONOMIC PICTURE
SEPTEMBER 29, 1941
Regraded Unclassified
THE ECONOMIC PICTURE
314
September 29, 1941
BINESS ACTIVITY continues at about the same level 11 in August, except
for continued acceleration in armanent production, and seasonal expansion in
the food industries.
Steel output has remained fairly steady at about 96 percent of capacity.
Automobile production, stapping up gradually, is about the same -- in
1939 at this time, but about 18,000 cars - wook below 1940 records.
The railroads have carried more freight this summer than at any time
since the summer of 1929, In the first 3 weeks of September they hauled about
100,000 (13 percent) more cars per week than in 1940.
Loadings will reach their autumn peak within the next 1, weeks. Occasional
shorteges of cars have been reported. Searcity of coal is threatened in the
area west of Lake Superior,
COST OF LIVING
LIVING COSTS continue to rise rapidly, following earlier advances in whole-
sale markets. In mid-September they were Be percent higher than in August 1939.
Everyday purchases, that pinch the ordinery man's pocketbook, cost con-
siderably more than at the outbreak of war. The chart below shows percentage
increases in prices from August 1939 to August 1941 for important focus, articles
of clothing, and housefurnishings-
RISE IN THE COST OF LIVING, AUGUST 1939 TO AUGUST 1941
FOOD
GLOTHING
HOUSEFURNISHINGS
PERCENT
PERCENT
PERCENT
SALMON 462
18.0
LIVING ROOM
OVERALLS
24.3
SUITES
421
WORK SHIRTS
155
RUGS
22.7
fis
172
WORK TROUSERS
12
BEDROOM
14.4
SUITES
BEAN
143
WORK SHOES
104
SHEETS
12.6
SILK AND
WASHING
10.4
11.0
1.5
RAYON SLIPS
MACHINES
PERCALE
8.5
MATTRESSES
D
8.)
DRESSES
SHOES,
OHOK
24
ELECTRIC
3
WOMENS'
REFRIGERATORS
-10.7
o
SILM MOSE
15
LINOLEUM
-0%
Regraded Unclassified
BUILDING CONSTRUCTION
will be almost as much building construction in 1941 as in the boom
315
year:
the 20's. It will total about $7 billion.
vate building construction, aggregating +4 billion in 1941, although the
highur in a decade, will be #3 billion less than the average for 1926-29.
200110 building, totaling over 25 billion, accounts for the current high
level. All but $2 billion of the $22 billion increase over 1940 is public
bullding. Most of this is for defense -- centoments, industrial plants,
lefenso housing, and aviation facilities.
Residential building (nonfarm) is estimated at $2.9 billion, about $3/2
billion more than last year, but well below the peak of the 20's.
Vilitary and navel construction and industrial building make up over 2/3 of
the added building in 1941. Industrial bulloing this year will be almost as
great as the total for the entire 6 years [rom 1933 to 1938.
PRIVATE AND PUBLIC BUILDING CONSTRUCTION
ONS
MILLIONS
LARS
OF DOLLARS
8000
630
7278
PUBLIC
3115
PRIVATE
6000
1046
4000
954
1020
590
3520
651
627
2004
3055
1595
2000
2173
299
216
243
1340
935
943
o
7908
1151
1186
(64)
2800
3584
3237
4009
4566
7045
AVERAGE
1926 1929
1933
1934
1935
1936
1937
1938
1939
1940
1941
HOUSING
the end of 1941 construction will have been started on 625,000 - 550,000
cow
farm dwellings, of which 110,000 will be publicly financed, most of them
for
onso workers. This takes account of the expected curtailment of residen-
till
astruction during the last 2 months of 1941, caused by the scarcity of
materials. Plans for future home construction have teen sharply curtailed,
sec
AZ to FHA reports.
6 defense housing program still lags, Out of a. total of 77,000 units
ted for through August 1961. it is actimated that less then 33,000 have
Co:
mpleted.
Regraded Unclassified
316
GRAPHIC REPORTS OF THE WEEK
STEEL PRODUCTION
INDI
% OF CAPACITY
AUTOMOBILE PRODUCTION
INDEX
THOUSANDS OF CARS
120
140
1941
1941
100
120
100
80
1940
19405
80
60
1939
60
40
1939
40
20
20
0
o
J F M A M J J A S o N D
J F M A M J J A S o N D
AUGUST 1939
62
-
SAME WEEK 1940
-- REVISED
AUGUST 1939
21
93
LAST WEEK
97
1941
SAME WEEK 1940 96
LAST WEEK
61
THIS WEEK
96
THIS WEEK
79
TOTAL FREIGHT CAR LOADINGS
WHOLESALE PRICES
INDEX
THOUSANDS OF CARS
INDEX
1926=100
1000
100
19415
1940
750
90
19414
1999
500
80
1940
1939
250
70
o
60
di F M A M J J A S o N D
J F M A M J J A S o N D
AUGUST 1939
617
AUGUST 1939
75
SAME WEEK 1940
813
SAME WEEK 1940 78
LAST WEEK
914
LAST WEEK
92
THIS WEEK
908
THIS WEEK
92
DEPARTMENT STORE SALES
INDEX
1935-39-100
300
250
200
1940
150
19412
100
NEO
1939
50
J F M A M J J A S o N D
AUGUST 1939
77
SAME WEEK 1940 117
LAST WEEK
122
THIS WEEK
133
week" refers to the week ended September 20 for Steel, Freight Car Loadings,
whol
Prices, and Department Store Sales, and to the week ended September 27
for
obiles.
Regraded Unclassified
September 30. 1941
Files
D. V. Dall
AS . mosting la my office today Mr. Borls of the State Department brought up
the question of a $2,000,000 Stabilization agreement with leeland as that country
is in dire need of dollar exchange so cover 11. purchases.
Up to September 1, 1941, Great Oritein had made available to leeland
Can. $1,525,000 and U.S. $663,000. Since September 1. the Icelandie banks have
bound themselves to repay to the Mritish $2,071,000 should the British make this
eus available to Iseland to GOVER its purchases in the United States. The Brittleb
have not advanced any part of the $2,071,000 because of their insistence that
Iceland use its evailable dellars. such as the remainder of the Expert-Import Teak
loan. which is about $400,000. by granting a $2,000,000 Stabilization agreement
to Iseland 1% should net be necessary for that country to use the balance of the
Export-Import Bank leas nor to call upon the British for the $2,071,000
Mr. herle stated that he thought that the United States has a moral obligation
severá Iceland issumes as 11 was new is Joint scoupation of that country. Se ves
ensious that ve do anything that we could to help and suggested that perhaps the
Fund would vish to take over Iselandic bleeked sterling belances and advance dellars
against them. The concenses of spinion of the Treasury officials at the meeting 416 of
not favor this propesition. He then presented an alternate plan which consisted
the United States purchasing fish products from Iseland. payment for which would be
made in United States dellars. The fish products would then be Lend-Leased to Greet
due to the Stabilization Pust and any amount is 020000 of that saw vould be paid by
Britain. The dollars received by Iceland would be applied by it against the money
Iceland to the British is order to liquidate its abligations to them.
Kr. Berle left with as cepies of several documents which the Department is new
studying and at & meeting within the next few days this matter vill be discussed
further.
boer, Government's request to the British to use approximately 4800,000 blocked (this
R. discuss the stabilization agreement with the British, the subject of
Herlo pointed out that when either the State or Treasury Departments, the or
finire Icalandie is checked by the Isolandie Delegation) of their £7,000.000 that
belance to being liquidate bond issues is Lendon sight be brought up in the hope
the Pritish would accede to this request.
71:1ap-10/3/41
Regraded Unclassified
318
0
P
Y
DEPARTMENT OF STATE
Washington
In realy refer to
Eu 611. 59A31/
September 30, 1941.
The Secretary of State presents his compliments to the
Honorable the Secretary of the Treasury and encloses for
his information a copy of a memorandum from the Icelandic
Government Trade Delegation now in Washington giving the
status of Icelandic sterling holdings in London.
Enclosure:
From Icelandic Government
Trade Delegation, September 18,
1941.
Copy:alm 10-1-41
Regraded Unclassified
C
0
P
319
Y
MEMORANDUM.
The Icelandic Government Trade Delegation has the
honor to inform the Department of State that Icelandic
sterling holdings in London about July 1, 1941 were
1 4.903.057. During July and August 1941 the Icelandic
banks bought a total of & 1.871.256.
Washington
September 18, 1941
Copy:alm 10-1-41
Regraded Unclassified
Mr. addy and Mr. Spiegel received
their letters of instruction direct
om the State Dept.
Treasury Department
Division of Monetary Research
Date 10/1/41
19
To: Miss Chauncey
320
Mr. has noted and we
have copies in our Mies.
I. Shanalian
MR. WHITE
Branch 2058 - Room 2141
Regraded Unclassified
into FRIM. FE
THE REGUSTARE OF STATE
-
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
September
RA
My dear Mr. Secretary:
Reference 1s made to conversations between officers
of the Department, the Treasury, and the Board of
Governors of the Federal Reserve System with respect
to the request of the Cuban Government for & technical
mission to essist it in connection with monetary and
banking questions, and to your letter of September 25,
1941 indicating that Messre. White, Eddy and Spingel
of the Tressury would be sveilable for the purpose. The
Board of Governors has indicated that Messre. Walter R.
Jardner and George B, Vest will also be available for
the mission.
I am very glad to inform you that the Cuben Government
has indicated that this E roup will be satisfactory for
compliance with its request. There are enclosed for
transmission to Messrs. White, Eddy and Spiegel letters
of instruction regarding the work of the technical mission.
It
The Honorable
Henry Morgenthau, Jr.,
Becretary of the Treasury.
Regraded Unclassified
322
-2-
It will be noted that it 1e expected that they will
arrive in Habana during the firstweek in October.
The American Embassy at Habana has been instructed
to render all appropriate assistance to the mission.
I wish to take this opportunity to express my
personal appreciation for the assistance of your Depart-
ment in making possible this cooperation with the Cuban
Government.
Sincerely yours,
A For the Secretary of State:
Under Secretary Karths
Enclosures:
Three letters of
instruction.
Regraded Unclassified
323
SEP 30 1941
The Honorable,
The Secretary of state.
My dear Mr. Secretary:
In accordance with your request of
September 26, 1941, there are enclosed
balance sheets of the companies owned by the
Standard Oil Company of New Jersey whose
assets are in Mexico, together with an analysis
of property accounts.
I am advised that the examining officer
was unable to secure current mans of the
property in question but that most of the
property 16 believed to be in the Tampico
area.
Very truly yours,
(Signed) 1. Morgenthau, Jr.
Secretary of the Treasury
Enclosed: List of ownership
Balance sheet
Exhibits À and B.
Sectember 121
By 2.50
Charmony
Regraded Unclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
FROM
General Counsel Foley
There are enclosed balance sheets of the
companies owned by the Standard Oil Company of New
Jersey, whose assèts :re in Mexico, together with an
analysis of property accounts. I am advised that
the examining officer was unable to secure current
maps of the property in question but that most of the
property is believed to be in the Tampico area. The
balance sheets nd analysis of property in Mexico
which may be held by any of the other Standard Oil
compinies have also been requested and will be forwarded
uton receipt.
The information enclosed is taken from the
income tax returns of the respective companies ind any
other information which may be secured will be taken
from the sime source. Tre.sury Decision 4929, approved
by the President August 28, 1939, authorizes you to
mike income tax returns available to certain enumerated
persons, including heais of the executive departments,
but is conditioned upon a request in writing by the head
of the requiring Department. It is accordingly suggested
th t before the enclosed information is released, a
formal request in writing be made by the Secretary or
Acting Secretary of State, giving the name and address
of the taxpayer and the purposes for which the inspection
is desired.
Enclosure 9.N.7h.
Regraded Unclassified
THE SECRETARY OF STATE
WASHINGTON
My dear Mr. Secretary:
September 26. 1941
As you are aware, the Department 1e giving
active consideration to the problem of the
United States petroleum companies in Mexico
in connection with current negotistions for
8 settlement of sll issues outstanding between
the Governments of the United States and Mexico.
In order to aid me in my personal study of
the bases for B. petroleum agreement, I should
appreciate receiving for my confidential informs-
tion any information which the Treasury may have
from income tax returns or other sources regard-
1ng the valuation of the properties in Mexico
of the Standard 011 Company of New Jersey.
I shell greatly appreciate any assistance
which you can give me in this matter.
The Honorable
Sincerely Greeshee yours
Henry Morgenthau, Jr.
Secretary of the Treasury.
Regraded Unclassified
326
salaries 4 Impouses -
Foreign Include Centrol
CARLE
September 30, 1941.
H. MERLE COGERAN
e/o governor POINDRITED
HONOLULU, HAMAII.
as CARLE TO FOX COPY OF WRIGH HAS DRES AIRMAILED TO YOU GAME of PAR
AMERICAN AIRWAYS HONOLULU STOP CARLE AS VISALLY JERY ELIMINATES THIRD
PAGE ONE BEGISNING QUOTE IF TOU ARE Is & CORD. ETC. UNQUOTE AND AUDS
FOLLOWING TWO PARAGRAPHS AT AND OF CABLE:
QUOTE IF IS ALSO DESIRED THAT The APPROPRIATE AUTHORITIES 07 rus
CHINAGE GOVERBREET as INFORMED OF THE PROPOSED PLAN AND TRAS THEIR AMACTION
BE ASCERTAINED. VI LEAVE If TO YOUR DISCRETION 90 ASCERTAIN INFORMALLY AND
Is THE MOST REVECTIVE AND PROMPT MANHER POSSIBLE THE VIEWS OF SUCH CHINESE
AUTHORITIES.
SINCE DRAFTING THE FOREGOING or SAVE RECEIVED POINTS 10 TO 14 or TOUR
JOINT WRSSAGE, THE CABLE QUOTING THE HGAND'S RESOLUTION or SEPTEMBKE 24,
AND TOUR CABLES OF SETTEMBER 27. AND SEX 20 NEASON FOR CHANGING THE PLAN
HEREIN SUGGESTED. END QUOTE
DINTRICE
Regraded Unclassified
COPY
PLAC:
BS
Shanchei via The 3.
Dated September 30, 1941
Rec'd. 12:38 D.m., Oct 1st
Secretary of State,
Washington.
1390, Thirtieth, (SECTION ONE)
Special Economic China.
August recorded trade unadjucted values in millions imorts gold
units seven one voint eight or decrease sixteen percent from July, ex-
norts yuan two eight three voint four or increase five percent over
July. Unadjusted values in millions imports from non-yen bloc countries
gold units five seven point one five, or decrease twenty three moint four
percent from July, of which British Empire supplied forty four percent
United States and Phillippines nineteen percent French Indochina eleven
Brazil seven Thailand six point four Netherlands India six point three
nai Sermany three point five. Unadjusted values in millions with estimated
trensshiuments August exports to non-yen block countries yuan two four
four point six, or increase eleven moint four rercent over July, of which
British Empire took forty two noint six tercent United States and Philippines
thirty five percent Netherlands India ten point five sercent French Indo-
china seven noint five and Thailand three point seven. August recorded
imports from yen block countries to occupied China including Shanghei ad-
justed values in thousands totalled Jayen yen four one nine neught three,
or decrease eighteen percent from July, of which seventy five nercent
entered North China ports, recorded exports from occunied Chine to yen
bloc countries in thousands totaled local yen two two eight six nine,
LOCKEART
Regraded Unclassified
323
AS
PLAIN
Shanghai via N.R.
Dated September 30, 1941
Rec'd 6:05 p.m., October 1.
Secretary of State,
Mashington.
1390, September 30, (SECTION TWO)
or decrease twenty-four percent from July, of which forty-
six percent from North China porte and thirty-six percent
from Shanghai. China August recorded trade with non-yen
bloc countries by coastal zones in adjusted values in
thousands of United States dollars: imports into North
China three one naught one into Shanghai one seven one
nine eight into other occupied ports in central and South
China two seven five into Chinese controlled areas seven
eight nine six totalling two eight four seven naught represent-
ing decrease thirty point eight percent from July: exports
from North China two two naught four from Shanghai eleven
naught seven naught from other occupied ports four five from
Chinese controlled areas nine eight eight naught totalling
two three one nine nine representing increase four percent
over July. Highlights China August recorded trade: firstly,
imports into Chinese controlled areas sustained sharp decrease
from July, secondly, exports to yen bloc countries registered
further decreases due to continued severance Trans-Siberian
Railway
Regraded Unclassified
329
-2-
Railway affecting transshipments to Germany via Kwantung
Leased Territory, thirdly, exports from Chinese controlled
areas showed slight improvement over July but still much
below June, August shipments consisting mainly of tin,
wolfram, antimony and tung oil.
INFORM COMMERCE AND TREASURY.
Sent to Department, repeated to Chungking and Hong Kong.
(END OF MESSAGE.)
LOCKHART
GW
Copy:bj:hr:10-4-41.
Regraded Unclassified
0
0
330
BS
P
Y
GRAY
Mukden via Peiping & N.R.
Dated September 30. 1941
Rec'd. 10:45 a.m., Oct. 3d.
Secretary of State,
Washington,
September 30, 4 p.m.
Effective September 23 almost all Manchukuo
specific import rates of duty were greatly increased,
Complete report follows by mail. Sent to Department
via Peiping. Peiping please repeat to Shanghai.
Mail to Tokyo, Harbin, Dairen.
KRENTZ
EF
Copy:hr:10-7-41.
Regraded Unclassified
TREASURY DEPARTMENT
ICS
INTER-OFFICE COMMUNICATION
DATE Sentember 30, 1019
TO Secretary Morgenthau
CONFIDENTIAL
FROM ir. Districh
Registered sterling transactions of the regorting tenks were es follows:
Sold to com ercial concerns
1175,000
Purchased from commercial concerns
: 75,000
Although the benica reported that seles to commercial concerns emounted to
£175,000,WE understand that L123,000 of this le being used for charity
mercosse.
DEN market sterling remained et 11.03-2/2. The on' reported transaction
consisted of 12,000 sold to B. countrcial concern.
The Ar entine free peso, after holding et .2353 most of the declined
Inte in the afternoon to resch D new low of 23/12 at the close.
inne strength VPF exhibited in the Veneruelan boliver end free
000 cuotations. The former novenced to ,2700, se against 2688 vesteriew,
Vile the neso closed et PE reginst
In Sev York, closing quotations for the foreism currencies listed below
vere na follows:
Consdion Holler
12-1/83 iscount
Bramilion milreis (free) -2505
Colombian DESO
-5775
exicon TIESO
.2070
Customs peso
5/10 discount
e ourchased $1,125,000 In volo from the earnerical recount of the Bank
of :.e ico.
so new galo engagements vore reported.
In London, arot and forward silver were uncleaked et 27-1/20 PNA 23-7/16
respectively. The U.S. socivalente were 12.071 one 42.754
The Trensury's nurchase -rice for foreign Filver VIS uncluded At 35%
and settle ent rice for foreign silver was plen unchanged et
3'-3/14.
Regraded Unclassified
382
- 2 -
Ye surchased 250,000 cunces of silver from the Bank of Canada. This
ruises the total amount of silver bought from that source during Sentember
to 450,000 ounces, as against agreed monthly limit of 1,200,000 ounces. A
pent of Canada official advised the Federal Reserve Bank of New York today
that, during September, the Canadian Mint had purchased about 500,000 ounces
from one of Cenada's silver producers, probably for coinage use; this
probably exclains the reduction in Canadian sales to us.
During the month of September, our purchases of silver under the Silver
Purchase Act amounted to 1,805,000 ounces, reprementing the smpllest amount
of silver that we have bought in any one month since September, 1939. The
sources of this month's purchases were R.S. follows:
Type of Silver
Dunces
New Production
1. From verious countries
1,355,000
2. From Cenada under agreement
450,000
Total
1,805,000
CONFIDENTIA!
A
Regraded Unclassified
RESTRICTED
G-2/2657-220; No. 506 M.I.D., J.D. 11:00 A.M., September 30, 1941
SITUATION REPORT
I. Eastern Front.
Ground: The Russians report continued fighting along the
entire front.
The Germans, while regrouping their forces east of
Kiev, claim to have captured the town of Armyansk, on the Isthmus of
Perekop.
Russian pressure has caused the Germans to give
ground in the area west of Bryansk.
There is no change at Leningrad and Odéssa,
II. Western Theater.
Air: The heavy R.A.F. offensive which commericed on the 28th
was reported to have continued yesterday resulting in "terrific dan-
age", particularly at Genoa, Italy, and St. Nazaire, France. The
Rhineland, the French coast, and nine cities in Italy were said to
have been attacked. Avoidance of Rome in attacks on Italy might not
continue in the future if it is found to be of military value.
German planes attacked the Scottish east coast and ob-
jectives in southern England last night. Prime Minister Churchill
said today that Germany has a serious shortage of aviation but is
still strong enough to take the offensive against England, Spain and
Africa, provided only a defensive stand was made in Russia.
III. Middle Eastern Theater.
Air: Damage to the Nelson Was admitted by the Adminalty in
yesterday's convoy attack but It was stated to be the only damage in-
flicted.
RESTRICTED
Regraded Unclassified