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Volume 552, July 21 – July 22, 1942
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Volume 552, July 21 – July 22, 1942
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 552
July 21 and 22, 1942
- A -
Book Page
Aircraft War Production Council, Incorporated
See Financing, Government: War Savings Bonds
Airplanes
Shipments to British Forces - Hoflich report - 7/22/42.. 552 304
Australia
Reciprocal aid - draft notes on terms of: White
memorandum - 7/21/42
115
- B -
Bank of America
"L.M." explains his part in investigation - - 7/21/42
40
- C -
Canada
See also Customs, Bureau of
Evacuation (possible) from Victoria and southern end of
Vancouver Island: Treasury recommends to State
Department all possible assistance - 7/22/42
292
Customs, Bureau of
Canada: Treatment of war materials between United States
and Canada - report and proposed bill transmitted to
FDR - 7/22/42
280
- 1- E -
Exports
To Russia, Free China, Burma, and other blocked countries,
during 10-day period ending June 30, 1942 - 7/21/42
94,102
- F -
Financing, Government
War Savings Bonds:
Aircraft War Production Council, Incorporated: Now an
issuing agent - 7/21/42
46
Sales (daily) of $50 million plus - report on -
7/22/42
270
- H -
Hayes, Ralph
"Who's Who" report - 7/21/42
92
Hughes, Charles Evans (Supreme Court)
HMJr suggeste to FDR for Rubber Czar - 7/22/42
253
- L -
Book Page
Lend-Lease
Purchases, week ending July 18, 1942 - 7/21/42
552
37
- M - -
Merillat, Herbert L.
Letter after leaving Treasury for service with Marine
Corps - 7/21/42
88
Military Reports
British operations - 7/21-22/42
167,308
Hoflich summary - 7/21/42
168
- R - -
Revenue Revision
Tables showing deductions for Social Security tax,
income tax withheld at source during 1943, Savings
Bonds, and tax on 1942 income - 7/21/42
53
Roosevelt, Eleanor
See Secret Service
- S -
Secret Service
Mrs. FDR to be protected at cottage - 7/22/42
251
Shipping
Situation as of July 21, 1942 - Hoflich report
93
- T -
Taxation
See Revenue Revision
- U -
United Kingdom
Reciprocal aid - draft notes on terms of: White
memorandum - 7/21/42.
115
- W -
War Savings Bonds
See Financing, Government
1
July 21, 1942.
10:49 a.m.
HMJr:
I just wanted to thank you, Mr. McKeough, for
the magnificent fight you put up.
Congressman
McKeough:
(Laughs) Well, that's very kind of you to take
time out to say thanks, but it was a labor of
love.
HMJr:
Well, you did a swell job and I'm delighted.
M:
Well, I'm glad you're pleased. We didn't do as
well as we might have but we
HMJr:
Well
M:
we did much better than I thought we'd do.
HMJr:
That's right.
M:
Yeah.
HMJr:
Well, I want to tell you how much we in the
Treasury appreciate what you did.
M:
Well, that's very kind of you, and I hope that
I may be lucky enough to be back in the Senate
where I can continue to try and do what I think
is right.
HMJr:
I hope 80.
M:
Thank you, sir.
HMJr:
Goodbye.
M:
Goodbye.
2
July 21, 1942
11:00 a.m.
CANADA'S U.S. DOLLAR POSITION
Present: Secretary Jones
Mr. Bell
Mr. White
General Carter
Commander Strauss
Lt. Commander Linder
Mr. Stewart
Mr. Morrison
Mr. Kirsch
Mr. Griffith
Mr. Scoll
Mr. Bridgman
Mr. McCabe
Mr. Ecker
Mr. Livesey
Mr. Stinebower
Mr. Coe
Miss Kistler
Mrs. Klotz
H.M.JR: I asked you gentlemen to come over here
today because we here in the Treasury are supposed to
look after the dollar exchange position for these
United Nations.
In this original Hyde Park agreement, which has
worked very well, we want to raise the question, in
view of your various pooling arrangements that you have,
and so forth and so on, whether the Army, the Navy, the
Maritime Commission, and Lend-Lease, are confident that
what they are giving in the way of orders to Canada are
orders which England might not give direct. If Canada
weren't getting these orders from us, then possibly
they could make some special arrangement with England,
because the way the situation looks now, strictly on
the dollar exchange position, by the end of the year
Canada may have a seven or eight hundred million U. S.
dollar exchange, which would be far in excess of
anything which she hoped for.
3
- 2 -
With these very complicated dealings with these
various agencies, I thought I ought to check up on
the Government because the President does look to me
on the exchange position, to make sure that they have
enough, also not too much, that maybe somebody isn't
overdoing a good thing, meaning us.
I think I will start with the Army - General
Carter, if you don't mind. I just wondered - I don't
know how many months ahead that you could - what the
Army's plan is in the way of big orders - I mean
anything that you are contemplating, if you wouldn't
mind, and telling what the purpose was behind it.
GENERAL CARTER: Mr. Secretary, for industrial
operations the Army has orders in Canada now that
will roundly equal a half a billion dollars. Most
of those orders are on a cost-plus basis. In other
words, the cost in Canadian currency is paid by the
United States, and the adjustment is made, I presume,
on the exchange through the balance here.
Now, we have a long-range program in addition
to that that will involve approximately & hundred
and twenty million dollars. When that will be required
is problematical at the moment, but the work is pro-
gressing.
H.M.JR: Would it be asking too much to sort of
sketch what that long-range program is? That is what
I am interested in, what you are going to do from now
on.
GENERAL CARTER: Well, in connection with the
road that is being built, as you know, and in connection
with certain other developments concerning oil and
gasoline, and that sort of thing, that program will
be delayed, I think, because there is some chance
that the first operation will not prove feasible and
we may have to go to something else. So it would be over
a year, I should say, at least, and probably longer,
that that project would be in hand.
4
- 3 -
MR. BELL: The latter?
GENERAL CARTER: The latter. Now, this other
is a matter of production: Air Corps equipment, Signal
Corps, Chemical Warfare, Quartermaster, and Engineers.
That is pretty well distributed over their production.
H.M.JR: You mean that has already been placed?
GENERAL CARTER: Yes, sir.
H.M.JR: Are you contemplating any orders of any
size from now on?
GENERAL CARTER: If they could handle them I
think we probably would, but I doubt if it is possible
to load them up any more.
H.M.JR: Could I ask this - and we won't hold you
up a day - if before you place any more orders for
munitions with Canada, could we know what they are
and what the ultimate destination was going to be.
GENERAL CARTER: I don't know that the Army could
give you 8. satisfactory answer on that, Mr. Secretary,
because it would depend upon the transfers. I don't
know how much of this equipment there will be or
whether it will be transferred to allied Nations.
(Secretary Jones and Mr. Bridgman entered the
conference.)
H.M.JR: I am just going around the room and
trying to find out what orders they are thinking of
placing with Canada in the future in view of their
dollar exchange position, which at present looks very
favorable. General Carter was just telling us what
the Army had in mind.
MR. JONES: Fine.
5
- 4 -
GENERAL CARTER: Perhaps you know, Mr. Secretary,
the Army deals almost exclusively with War Supplies
Limited. There are very few contracts outside of that
organization. One or two I can recall are contracts
that have been let through American companies with
Canadian subsidiaries, such as American Locomotive,
and I think one other company, American Car and Foundry,
or some such company as that, where they have facilities
in Canada that have been augmented by the Canadian
Government.
Now, we have some contracts with those companies
of that sort, but that is a very small part of the
total.
H.M.JR: Yes, but again, if you don't mind my
pressing you a little bit, again looking to the future,
wouldn't it be possible - I mean, I don't know - I know
there is a pool but I don't know just how it works, you
see - I mean whether it is the Munitions Board or what
it is. But what we are interested here in trying to
find out is, are you going to place any orders of
considerable size in the future, and what is the
ultimate destination?
GENERAL CARTER: As far as the Army is concerned,
our orders will be placed for our requirements.
H.M.JR: For your own?
GENERAL CARTER: Yes, sir, unless we have specific
instructions under Lend-Lease to put orders for them.
H.M.JR: You see what my problem is?
GENERAL CARTER: Yes, sir, I see exactly.
H.M.JR: Could you bear it in mind in the future?
GENERAL CARTER: Yes, sir, I think we could give
you - from the Army viewpoint I think we could give
Regraded Unclassified
6
- 5 -
you a satisfactory answer to that question.
H.M.JR: Can you do that?
GENERAL CARTER: Yes, sir, and with cooperation
with Lend-Lease, which we have, we could perhaps give
you the correct answer at the end.
MR. BELL: You might not always know. You have
a contract for your own contracts, and what comes off
the line may go some place.
GENERAL CARTER: If the material is transferred
in the end, again there is a different transaction.
If it is ordered for us just as material in this
country--
(Mr. Livesey and Mr. Stinebower entered the
conference.)
H.M.JR: Well, you have got my problem. Most
likely you haven't been worrying about our end of it,
but now that you know what it is--
GENERAL CARTER: Yes, sir, I think we can give
you exactly what you want, and our end answer will be
even more correct than our first one because there
may be some transactions in there we will have to
adjust.
H.M.JR: And just so you know, this particular
phase of the Treasury work Mr. White looks after for
me, so if you have anything you could send it to him
direct.
Now, where is the Navy? Could you tell us,
Commander Strauss, the same thing, looking at the
future for the Navy?
COMMANDER STRAUSS: Mr. Secretary, the Navy's
purchases and orders in Canada have been, of course,
- 6 -
minute by comparison with the Army's. We have sur-
veyed the possibilities from the point of view of
some shipbuilding without finding anything that we
could place there that could not be more advantageously
built here. The survey with respect to airplane
construction has not been completed. The Canadians
are providing the Navy with small quantities, dollar-
wise, less than - oh, it will run into a few millions,
three or four millions of dollars of mat erial, primarily
involved in radar and in optical glass. They are items
which are, so far as I am aware, and I believe I can
be specific about it, not intended for Lease-Lend but
for our own equipment.
I will keep in touch with Mr. White and advise
him of other items that come to my attention, as you
have suggested to General Carter.
H.M.JR: Would you do that? You have got the
problem?
COMMANDER STRAUSS: Yes.
MR. WHITE: In both cases an aspect of it which
is apparently important, in so far as you can judge,
is do the orders replace production which the
Canadians are undertaking, either for themselves or
for the British. You may not be able to ascertain
that in many cases, but that is most significant.
COMMANDER STRAUSS: In both the cases I mentioned
I can be quite positive. The optical glass situation
was one in which we had exhausted the possibilities
here and they had a small surplus in Research Enter-
prises, Limited - I think that is its name - which
exactly filled our need. I might add that it was
through Mr. Coe's committee that we were able to
locate it.
The amount of radar equipment is infinitesimal
compared with our production, but they came in at a
time when we needed a few sets for installation on
8
- 7 -
planes, and I think are still supplying it, although
as to that I can't be quite certain.
MR. McCABE: Commander Strauss, did the Navy take
over all the auxiliary vessels that they are building
up there under Lend-Lease?
COMMANDER STRAUSS: I can't answer that question,
sir. I thought they were being built under some direct
arrangement. Probably Mr. Ecker would know.
MR. ECKER: No, I wouldn't know any more than Mr.
McCabe; he is my boss here. (Laughter)
MR. McCABE: Canada was building these Naval
auxiliary vessels for the British, and on account of
the Canadian dollar position a great appeal was made
to us, in line with the Hyde Park agreement, to put
through Lend-Lease requisitions for these Naval
auxiliary vessels. We finally did put through requi-
sitions for some of th em because our own Navy was
going to use them, and we refused to put through any
requisitions except those that our own Navy was going
to directly use here.
COMMANDER STRAUSS: Were these corvettes?
MR. McCABE: They were corvettes and mine sweepers,
and I think it was four different types of Naval--
MR. WHITE: A total of about thirty million
dollars?
MR. McCABE: Yes, but the main question I wanted
to ask was if the Navy now was going to take all
these vessels, because they took the same position
under their Lend-Lease appropriation that we did.
H.M.JR: What was that, Mr. McCabe?
9
- 8 -
MR. McCABE: That they would only requisition
those vessels that were going to be used by our Navy.
COMMANDER STRAUSS: I will undertake to find the
answer to that question and advise Mr. McCabe and let
Mr. White know.
H.M.JR: And us, will you? I am coming to you
last, if you don't mind.
MR. McCABE: That is all right.
H.M.JR: Can you think of anything else?
COMMANDER STRAUSS: No, sir, Mr. Secretary.
H.M.JR: Maritime?
MR. SCOLL: We have a firm commitment with the
Canadians, embodied in the contract with War Supplies,
to buy one hundred ships now under construction.
Twenty or more have been delivered already.
H.M.JR: What kind of ships are those?
MR. SCOLL: Those are cargo ships. Ninety of
them are about ninety-five hundred tons deadweight,
and about ten of them are forty-five hundred tons
deadweight. Those ships are being built by Canadian
builders for Wartime Merchant, Limited, an d we have
taken over the ships from the Canadians. The total
value of that commitment is about a hundred and
seventy-five million dollars - a hundred and seventy-
five million to two hundred million.
In addition, I might say that those ships are
purchased by us and then they are bare-boated to the
British. In other words, we hold the title, but the
British operate them and put crews on them and pay
the expenses of the voyages, in so far as they are
operated by the British; if they are operated under
Lend-Lease then we pay the dollar expense of the voyage.
10
- 9 -
Now, in addition to those ships, the Canadians
have been dickering with us to take over approximately
a hundred and fifty-five additional ships that are
under construction, which will be delivered over into
'44 - 1943 and '44. Of that number they have agreed
to build between seventy and eighty, which will be
oil-burning EC-2 types, that is, the liberty ship
type, which we are primarily interested in.
The hundred ships already under commitment are
of a British type, coal-burner, built on British
specifications.
This seventy or eighty that we have been talking
with them seriously about are now in designed process.
I believe some work has been done to expand a few
yards in Canada for this work. The ships will run
around two million dollars apiece, so that if we buy from
them the full eighty it will be another one hundred and
sixty million dollars.
MR. WHITE: Suppose you don't buy those, would
they produce them anyhow?
MR. SCOLL: That is a question.
MR. WHITE: Supposing you hadn't contracted for
them?
MR. SCOLL: Well, I don't know. The original
hundred, of course, they had already contracted for--
MR. WHITE: And were building when you stepped in
and bought them. Therefore, it didn't add to the
capacity but merely added to their exchange resources.
MR. SCOLL: That is so, and that was the reason
we bought them. It was pursuant to the Hyde Park
agreement.
11
- 10 -
MR. COE: They also get plate a little more
easily, I suspect, when they sell them here. Isn't
that so? I mean that is tied up with it.
MR. SCOLL: That is partially true. We have
been checking into the question of how much material
flows from the United States to build these ships in
Canada. An estimate which we now have which we are
checking into is approximately eight percent. It may
be higher than that, 80 I think that eight-percent
figure should be taken with caution.
H.M.JR: I just read in the papers, which
doesn't mean it is so, that they stopped a contract
for two hundred ships in Louisiana because we didn't
have the material to give them. Now, if we entered
into another contract with Canada would we have to
furnish the plates?
MR. SCOLL: Well, our feeling about that is
that we would not enter into any contracts in which
we had to furnish steel that would be taken away
from our own yards. We wouldn't do that. The
Canadians do have some steel production of th eir
own.
H.M.JR: Isn't it true that any steel you
furnish would be taking it away from our own yards?
MR. SCOLL: I can't answer that question.
H.M.JR: I should think so.
MR. SCOLL: If there is any I believe that it
is a small amount, but I would want to check on that.
In fact, we are checking on it now.
H.M.JR: Well now, have you an appropriation
to pay for those?
12
- 11 -
MR. SCOLL: Yes, we have an appropriation to
pay for probably the whole amount. I believe that
is so.
MR. KIRSCH: The first hundred, not the addi-
tional ships you speak of.
MR. WHITE: The General raises the question
with respect to the equipment that is used in these
shipbuilding plants, machine tools, and so forth.
Those are obtai ned from the United States?
MR. SCOLL: Most of these plants, General, I
believe, have made a very small amount of additional
facility construction. I believe that there are two
or three ways to be built in one yard in Montreal,
and I believe that is the sum total of the new
facility construction that is required.
H.M.JR: Would you think this over, on the
assumption, which may not necessarily be so, but
let's just assume that you entered into this original
agreement in the spirit of the Hyde Park agreement,
which I happened to instigate, and in order to assist
the Canadians, both with the exchange and to use
everything that they had - now let's just assume that
their exchange position is adequate - I mean I just
don't understand how you would decide to give them
an order for another hundred ships up there, using
this other case I read about in the paper, but you
wouldn't give a shipyard in Louisiana an order for
a hundred or two hundred ships.
I mean if the Hyde Park agreement - if that
idea was no longer necessary and Canada is all right
for a while and they don't need any more orders - I
am just assuming, I am not saying it is 80 - if you
had that information how would you decide about
placing additional ships with them?
13
- 12 -
MR. SCOLL: Well, if the exchange question were
moot and the Canadians were going to build the ships
anyhow, then the question would be one of policy as
to whether or not there were other reasons for build-
ing those ships there, such as, perhaps, some other
reasons why the Canadians wouldn't build them unless
we bought them. There is the exchange question, and
there might be some other questions.
We would not build the ships, I do not believe -
of course I can't speak for Admiral Land and
Commissioner Vickery, but I think their feeling in
the matter is that they would not build the ships
to take away supplies from the United States con-
struction. That wouldn't make sense, to deprive our
own yards to build ships in Canada, certainly if
Canada didn't need any exchange.
MR. WHITE: Would you assume that Canada might
not build those ships and leave the capacity idle
unless she could sell them to the United States?
MR. SCOLL: Well, I mean that is something - that
is an assumption that either of us might make that
might not be brought out by the facts. I mean, we
would have to find out whether Canada would build
them or not. That is something I couldn't answer.
H.M.JR: Would you do this for me? Would you
reexamine the picture and ask Admiral Land to re-
examine it, and before he goes into it I would like
to have a chance to sit down and talk to him about
it.
MR. SCOLL: Yes, sir, we are doing just exactly
that.
H.M.JR: I mean before you place a large order
with them I would appreciate it if you would consult
with the Treasury on it.
14
- 13 -
MR. WHITE: Mr. Scoll has informed us of this
very thing, and I think that the way he is doing now
is right in line with your request.
H.M.JR: Is that correct?
MR. SCOLL: Yes, sir.
H.M.JR: And you won't have any trouble here.
I mean if he calls up in the morning - I mean as far
as we are concerned - we will give you yes or no
before sunset. You won't have any delay here.
MR. SCOLL: Our policy is to work very closely
with your office, and we have been doing so through
Mr. White.
H.M.JR: Good. Does anybody want to ask the
Maritime anything?
MR. JONES: No.
H.M.JR: Anybody else?
MR. KIRSCH: Just one other matter, Mr. Secretary,
and that is the matter of ship repairs - other than
ship construction. We are repairing some ships,
particularly Russian ships, under Lend-Lease, in some
Canadian yards. That is a matter of our own con-
venience because of lack of shipping facilities along
the coast, the west coast, and the matter of saving
the time in placing these repair works in the yards.
H.M.JR: I would say that is perfectly proper,
and I would go right ahead with that.
MR. WHITE: How much is involved in that?
MR. KIRSCH: Well, ship repairs, depending on
the damages, might run anywhere from ten thousand
to a million or more per ship. It is quite likely
15
- 14 -
in the course of a year we may have repair work done
in Canada that may run from twenty to fifty or sixty
million dollars. There is no telling.
H.M.JR: But it is something that they can do
better and quicker?
MR. KIRSCH: Not that they can do it better or
quicker, but we need their facilities.
H.M.JR: We need their facilities. I wouldn't
question that.
Mr. Jones, are you going to buy any more
aluminum or anything up there in Canada?
MR. JONES: I think Mr. Bridgman is in a better
position to discuss our metal purchases than I. You
have got the memorandum with you?
MR. BRIDGMAN: Yes. On aluminum, Mr. Secretary,
I don't think we will be placing any more contracts;
but the amounts that we will be paying out do increase
very rapidly from this year to the next. The total
expectation, for instance, for '42 on aluminum is
forty-five million, and they jump to ninety million
in '43 and a hundred and eight million in '44.
Of those sums a certain amount has been prepaid;
sixty-eight million five hundred thousand has been
prepaid. That would come off those figures, thirteen
million off this year and twenty-five million off '43,
and thirty million off '44.
Those are the only very large increases of which
we are aware today. Other materials depend a good
deal on the allocations made by the Combined Raw
Materials Board. For instance, we got in '41
approximately six million dollars' worth of lead,
and at present the Combined Raw Materials Board I
don't think is going to be able to allocate any to
16
- 15 -
the United States for '43 and '44; that the United
Kingdom will need it. So that might tend to decrease
our figures.
Outside of that we have no very large expected
increases. We have a great many different activities,
but they are small in the aggregate.
H.M.JR: But I was more interested in something
new, I mean that you haven't already entered into.
MR. JONES: We have nothing new.
MR. BRIDGMAN: No. I think that if you put - we
are negotiating a number of new ones, and I think if
you put an increase of perhaps eight million for '43
and perhaps the same, or a little more, for '44--
H.M.JR: What would that be mostly, Mr. Bridgman?
MR. BRIDGMAN: Lead, zinc, copper, miscellaneous
small properties that are now being developed.
H.M.JR: For our own consumption?
MR. BRIDGMAN: For our own consumption.
H.M.JR: Not for Lend-Lease?
MR. BRIDGMAN : No, sir.
H.M.JR: Do you want to add anything, Jesse?
MR. JONES: No.
MR. WHITE: Possibly the BEW might have some-
thing. They have a sort of an overall picture of
the situation.
MR. COE: Not the BEW in this case but the War
Production Committee.
17
- 16 -
Mr. Secretary, we checked around in the Army
and Navy rapidly yesterday - our subcommittees,
which have representatives in the procurement places -
to see what orders were pending, and the degree of
firmness of these orders varies. Some of this is by
way of gossip, some of them have been placed since
June 30, when good figures are available. There is
a big tank deal, sixty million dollars pending, and
there is--
H.M.JR: May I interrupt you? Now, who is nego-
tiating that?
MR. COE: This is being negotiated, or being
discussed, rather, with our Army procurement officers
through the War Production subcommittee. War Produc-
tion Committee subcommittee--
H.M.JR: I mean, that would be something that
General Carter would catch, wouldn't it?
GENERAL CARTER: Yes, we have a contract already
in existence up there on tanks, and it may be that
what they are considering is an enlargement of that
contract, but I doubt very much if it can be enlarged
very much because of the facilities.
MR. COE: Well, I perhaps should explain that we
have a committee which includes Perkins, Milo Perkins,
and the Under Secretary of War, and the Under Secretary
of Navy, and then a group of ten subcommittees who are
the actual procurement officers in the Army and Navy.
There are a good many gun contracts under consideration,
one for as much as twenty million dollars; a good many
small arms contracts, some ten and fifteen million
dollar contracts underway. There is a new contract
mentioned on radar, which is really an extended or
revised and replacement contract.
Each of these problems from the point of view of
exchange is different. In tanks the British and the
U.S. people went up there and looked over their tank
18
- 17 -
installations and more or less told them that the tank
program ought to be changed, had to be changed - they
really have a tank assembly program - and suggested
that they gear in very closely with us, produce the
same sort, and looked at it from the standpoint of
using the facilities.
Now, they are discussing placing an order for it,
and it is going to require a flow of some equipment -
very little but a flow of components from us.
In shells there has been a tendency to place a
number of the contracts up there because they were
geared to British specifications, and we tried to make
the best use of facilities. You could usually - the
Army found you could usually place the orders there and
get delivery faster, or in some cases even expand.
MR. WHITE: British equipment for--
MR. COE: Yes, British specifications.
GENERAL CARTER: For Lend-Lease?
MR. COE: Yes, Army, Lend-Lease.
MR. WHITE: And with respect to the tanks, they
have been producing tanks before.
MR. COE: They were producing tanks before, but
different models.
MR. WHITE: Where were they going?
MR. COE: They were going to Britain and Russia.
MR. WHITE: And now they will produce tanks for us
with the same facilities though with alternate specifi-
cations?
MR. COE: That is right.
MR. WHITE: For which they will get paid dollars.
H.M.JR: What is the ultimate destination of
these tanks?
19
- 18 -
MR. COE: In the case of the tanks and many
other items in the Canadian program I think you can't
say. Their M-4 tank is practically the same as ours,
and the British now is being brought very closely
into line. Presumably Britain - this might interest
you - we have made a compilation of the Canadian muni-
tions program by sources of orders as of the second
quarter - as of '42. About fifty percent of their
orders, '42, are from the United Kingdom; thirty percent
are on Canada's account itself; and counting this month-
to-month ship arrangement that the Maritime Commission
has, roughly eighteen percent is on United States
account. But that doesn't mean that those particular
countries will get it.
H.M.JR: Well, now that you know we are not worried,
but interested in this, you will watch it particularly?
MR. COE: Yes, we will send you a report.
H.M.JR: You and Mr. McCabe - do you work through
this committee or do you work independently with your
orders? How do you do with Lend-Lease?
MR. WHITE: Possibly, Mr. Secretary, there is
just one more department.
H.M.JR: Want to keep him to the last?
MR. WHITE: Yes, because he is a sort of over-all
whereas the others are giving the orders. Mr. Morrison
is representing Mr. Batt.
MR. MORRISON: The matters in which Mr. Batt is
interested have been covered by Mr. Bridgman. That is
to say, the bulk of the materials purchased in Canada
under the auspices of whatever you call it, this Materials
Coordinating Committee, are purchased by the Metals
Reserve Company. There has been one other contract, I
believe, the carbide contract, that you didn't mention,
and at least one other under contemplation now that I
don't know whether Defense Supplies has heard of yet
involving meta para cresol. I can't keep track of the
amounts of these things because the RFC corporations
deal more directly with them as to actual deliveries.
20
- 19 -
I think from the point of view of Mr. Batt the
operations of the Combined Raw Materials Board with
reference to the diversion of lead, to which you
referred, he might have to have some direction on.
In connection with this lead diversion, the Combined
Raw Materials Board has asked me how the Canadians
would regard this diversion, and I think they were
loath to make it if it would involve a substitution
of sterling for dollars. But, on the other hand, I
don't think the Combined Raw Materials Board should
have jurisdiction over the terms of payment. They
don't usually in other things. I think it is a very
difficult question to settle, and they will only be
able to settle it with some direction from the Treasury,
or whoever is the appropriate authority to give' it to
them.
H.M.JR: Now, have you got anybody else here,
Harry?
MR. WHITE: Well, there is Lend-Lease and the
State Department.
H.M.JR: Well, I think the State Department is in
the same boat I amin. They are learning. Aren't you?
MR. WHITE: It follows pretty closely. I don't
know whether you have anything to add.
MR. STINEBOWER: No, I haven't. There is some
small chicken feed that might be saved with this know-
ledge. There have been occasions when, more as a part
of the Joint Economic Committees than part of the
Department - the question of the British desire to shift
& price adjustment or a source of supply. For example,
flax - the other day they made some price adjustments in
which the Canadians get the same amount of - not Canadian
dollars, but I mean, the producer gets the same amount of
Canadian dollars, but Canada gets more sterling and less
U.S. dollars. We had occasion to wonder whether that was
in line with the Hyde Park pronouncement. We finally
did agree. It will be much simpler when we have this in
front of us now.
21
- 20 -
MR. WHITE: I think it might be pointed out that
there is a different aspect between the Canadian-U.S.
situation and the British-U.S. situation. In the
British-U.S. situation the United Kingdom simply pro-
duces up to her maximum capacity, distributing in such
ways as the responsible authorities see fit, and the
United States Treasury takes the responsibility of
seeing that she is kept with an adequate dollar balance.
Apparently the Canadian situation has become
different. The dollar balance no longer is the fact
which is most significant, but Canada will sell things
for dollars which she otherwise could produce herself
and put into the common pool. "I think that difference
must be borne in mind. Maybe they ought to be com-
parable. Maybe Canada ought to produce everything she
possibly can, irrespective of where the orders come
from, and then the Treasury assume the responsibility
to see that she is supplied with what may be regarded
as a reasonable supply of dollars.
H.M.JR: Let's hear from Mr. McCabe now.
MR. McCABE: First I would like to ask Mr. Ecker
to speak because he is our specialist on this whole
dollar position.
MR. ECKER: Our interest in this is two-fold. I
would like to make this clear first, that when we receive
requisitions from the British, for example, we do none--
H.M.JR: Pardon?
MR. ECKER: When we receive requisitions for Lend-
Lease aid from the British we do none of the actual
buying ourselves. As you know, Mr. Secretary, it is
done either by Army, Navy, Maritime, or whoever it may
be, 80 that I do not recall that we have given them
any instructions as to where the orders would be placed.
That is up to them rather than to us. Now, as to the
second point, the big group of requisitions which are
known as Can.-Ex. requisitions, they are a direct out-
growth of the Hyde Park agreement and have the specific
purpose of assisting the Canadian dollar position.
22
- 21 -
Are you familiar with those requisitions because
I won't take time--
MR. WHITE: The Secretary was responsible for
them in the first place.
MR. ECKER: I am sorry.
H.M.JR: That is all right.
MR. ECKER: It would seem to us, in the light of
the information given to us today, that there no longer
was a need for honoring Can.-Ex. requisitions.
MR. WHITE: How much have they amounted to in the
past six months, do you recollect?
MR. ECKER: I do not have the figure for the past
six months. I think they have been in excess of a
hundred millions altogether. That is a figure that I
have recently received which I would like to have
checked and not actually stated as definite.
MR. WHITE: The Canadians have informed us they
amount to twenty-three million dollars in the first six
months; possibly you could give us the exact figures.
Your estimate seems to be much higher.
MR. ECKER: We can unquestionably get the exact
figures and by date. The estimate that I have is for
the entire period and shows a hundred and twenty-two
millions.
MR. WHITE: As having been delivered?
MISS KISTLER: Those are what, requisitions cleared?
MR. ECKER: I would assume that these are requisi-
tions cleared by Lend-Lease. It doesn't necessarily
follow that the goods have actually been bought.
H.M.JR: Mr. Ecker, I can't quite follow you. You
say you asked these various agencies to do the buying,
but evidently you give directions to them that they
should buy in Canada.
23
- 22 -
MR. ECKER: I was not aware of that, Mr. Secretary.
MR. McCABE: No, we have watched very carefully when
the British have put in requisitions specifying the pur-
chase of things in Canada. We have taken the position
that in the main our pelicy would be not to put through
requisitions for finished articles in Canada to be
shipped to Great Britain under Lend-Lease. We have made
an exception or two in that we made an exception on
trucks last winter, but in the main, as Mr. Ecker says,
if we place British requisitions with Treasury Procure-
ment, for example, we do not specify where that is to
be procured.
If we know that the British are requisitioning
finished articles in Canada we do not honor that requisi-
tion because we think that from a policy standpoint it
is poor policy to requisition inished articles in Canada
to be lend-leased to Great Britain. We have made that a
policy and have made exceptions only in very rare cases.
Now, in the case of the Army, the Navy, and the
Maritime Commission, they have their own direct Lend-
Lease appropriations from Congress; and in the case of
munitions and all Naval supplies, and in the case of
ships and ship repairing, they have the responsibility,
direct responsibility, of determining what they will or
will not purchase in Canada.
H.M.JR: Could I ask you and Mr. Ecker this? I
mean, from now on have you - are you in the midst of
any important deals with Canada?
MR. McCABE: No.
MR. ECKER: No. No, none that we have under
consideration.
MR. WHITE: But you get a constant flow of what
you call these Can.-Ex. requisitions which are for the
raw material which goes into goods to be lend-leased
to England. They come in from time to time.
24
- 23 -
MR. ECKER: From time to time, that is correct.
H.M.JR: Do these originate from Canada or from
England?
MR. ECKER: No, those are on a U.K. requisition,
but endorsed by the Canadians.
In putting in those requisitions they certify to
the fact that Canada has purchased in the United States
equipment or material to a dollar amount for use of
U.K., at least equal to the amount of the total Can.-Ex.
requisitions that have been put into that date including
the one that is at the time being offered.
H.M.JR: Mr. Ecker, would you object if, until we
sort of got the feel of it, on a day-to-day basis
Mr. White and his office could see those as they flow
through?
MR. ECKER: Certainly.
H.M.JR: So he would get some idea as to the magni-
tude of it.
MR. ECKER: Yes, I would be very pleased to make
that entire file available to him and inform him of
every additional one that comes along.
H.M.JR: Would you mind, until we can sort of get
the feel of the situation?
MR. ECKER: We have been acting automatically on
those because of the early instructions.
H.M.JR: Well, the whole point of this meeting is,
should we continue that policy; that is the whole point,
should we continue that.
MR. ECKER: Exactly.
25
- 24 -
H.M.JR: I don't know, but just within the last
two or three days I got a memorandum from the President
raising the whole question and that is why I wanted
this meeting.
MR. WHITE: Is it clear, Mr. Ecker, that the Secretary
13
is not suggesting changing this program until further
consideration, because the instructions come from the
President on the Hyde Park agreement?
MR. ECKER: We will clear each one with you as it
is presented in advance of any action from now on.
H.M.JR: Well, now, let's just go around and see
if there is anybody I have overlooked. Does anybody
have any afterthoughts? Bell?
MR. BELL: No.
H.M.JR: How about the State Department?
MR. LIVESEY: No, I don't want to comment on this.
Mr. Berle called me in just at the last minute. he had
apparently just seen the memorandum and told me about it.
I haven't even read the memorandum which was sent over.
H.M.JR: Maybe you are unbiased and your opinion
would be valuable.
MR. LIVESEY: Mr. Berle made some remarks. Of
course procurement is the thing, but those things
are obvious.
MR. COE: Mr. Secretary, could I say a word or
two on the other side of this orders business and suggest
that immediately, it seems to me, it is better to
proceed on the exchange position either by Lend-Lease, by
gold, or in the case of the orders with stricter instructions;
that no orders should be given which merely mean our pay-
ing for stuff up there which they would otherwise produce
on British account.
in the case of the--
26
- 25 -
H.M.JR: I don't agree with you.
MR. COE: No, I was going to suggest one or two
reasons for that position.
H.M.JR: But I mean, if I understand that last
statement, I mean - do you mind repeating that again?
MR. COE: That there is some advantage, at any rate,
in operating on the exchange position in terms of gold,
Lend-Lease, or in the case of orders limiting it to
instructing our procurement people not to buy where
Britain - not to bring it up there if it merely replaces
what Britain would buy. We run up against - Joint
War Production Committee runs up against a good many
cases which started out on that basis, where treating
Canada as a separate country in terms of production really
left the facilities idle.
For instance, here was a case that came up the other
day. A man, American manufacturer, was talking with the
procurement major in the Army and was told that he couldn't
buy anything in Canada, that this man's plant in the United
states was a bottleneck. It was running to capacity. They
had a plant in Canada, of which only thirty percent of
the facilities were being used, and the Army man, who
I think wasn't familiar - I know he wasn't familiar with
the Army's directives - didn't propose to purchase for
U.S. account any items which he badly needed, and was
talking in terms of stimulating this firm to expand
production. Obviously it was more sensible to place
the order up in Canada if there is no other machinery
for getting that private firm in Canada into operation.
Now, at the present time there isn't any other
machinery, as long as they don't go under Lend-Lease, and
we can't requisition stuff for them. Placing orders up
there is one way in which we get facilities used there.
H.M.JR: Well, Frank, no one is questioning that.
It is just that I wanted to reexamine the whole thing and
make sure that we weren't getting the short end of the
stick. If there are facilities in Canada which can
27
- 26 -
only be used by your placing orders I would say off-
hand, of course, place the orders. But, on the other
hand, if it is something else that maybe somebody in
England, a little smart, maybe is getting us to place
the orders and they are ducking and Canada is refusing
to sign Lend-Lease, I just think that at regular intervals
it should be reexamined from the exchange position.
MR. COE: That was the position I was taking.
H.M.JR: I don't want anybody to go out of the room
feeling that the President's policy of the Hyde Park
agreement has been changed until we have had a chance
to reexamine it and bring it to his attention. I would
carry on just the same. But we would like to watch it
from day to day. That is the whole purpose of this meeting,
and then try to get everybody in one room - we can't get
all the committees - I never heard of so many committees
in my life. I am overwhelmed. How many secretaries do
you need, Frank, to keep track of all of these committees?
MR. COE: Just two or three.
H.M.JR: You must be good.
Well, unless somebody has got something else I
think that is about all.
MR. WHITE: Would it be possible to scrutinize
sufficiently the contemplated expenditures so that they
could center all in one place? What we would like
to have would be the total in very rough categories. We
are not as interested in the items as the totals.
H.M.JR: Doesn't Coe know that now?
MR. COE: We do for munitions and will give you
everything we have.
MR. WHITE: There are the various procurement agencies
here, as well as our own.
28
- 27 -
MISS KISTIER: They center with Mr. Coe.
MR. WHITE: If we got them from Mr. Jones and Mr. Coe
and from our own we would get them all?
MISS KISTLER: Yes.
H.M.JR: Wouldn't Coe know? What is one of your
titles, secretary to--
MR. COE: Joint War Production Committee.
H.M.JR: Couldn't you get that?
MR. COE: Yes, we will shoot that in regularly.
MR. McCABE: I do think Mr. White has made a point,
that we ought to use the Treasury Procurement, and we
will take a quick review also with Agriculture to see
what extent we have got the procurement going forward
in Canada.
H.M.JR: I would like to say again I wouldn't -
I am not suggesting any changes today. All we are
trying to do is inform ourselves.
MR. JONES: I think this is very timely and
presents a very interesting situation, and I think
you are entirely right to watch it and watch it very
closely.
29
July 21, 1942.
12:09 p.m.
Congressman
Jere Cooper:
Hello, Henry.
HMJr:
How are you, Jere?
C:
Oh, fine, thank you, fine. Hope you are.
HMJr:
Fine. I just wanted to call you up and
thank you for all the help you gave us on
the tax bill.
C:
Well, all right, Henry. It was a pleasure.
We had one terrible battle, as you know.
HMJr:
Well, you came out on top.
C:
Fine, came out in fine shape, and I had to
maneuver and operate pretty smoothly yester-
day, but everything worked out fine.
HMJr:
Well, nobody can do it as well as you do.
C:
Well, that's very kind and I appreciate it.
HMJr:
And we all down here are very much obliged
to you.
C:
Well, thank you so much. By the way, tell
Randolph Paul he owes me a cigar. Don't
forget that.
HMJr:
Tell Randolph Paul he owes you a cigar.
C:
Yeah, I told him that we'd wind up getting
forty-five, and he didn't think we could
so - tell him not to forget that cigar.
HMJr:
I'll tell him.
C:
(Laughs)
HMJr:
I'll tell him.
C:
All right, Henry. Thank you so much.
HMJr:
Goodbye.
C:
Goodbye.
30
July 21, 1942.
4:13 p.m.
HMJr:
Hello.
Operator:
Miss Tully 18 with the President in press con-
ference.
HMJr:
Well, as soon as she comes out, I want to talk
to her.
Operator:
All right.
4:50 p.m.
HMJr:
Hello.
Operator:
Miss Tully.
Grace
Tully:
Hello.
HMJr:
Morgenthau's the name.
T:
Mr. Secretary, how are you?
HMJr:
I'm alive.
T:
That's good. Not more than that?
HMJr:
A little more, not much.
T:
(Laughs)
HMJr:
How's Shang-ri-la?
T:
Wonderful.
HMJr:
Is it?
T:
Grand. It really is a delightful spot. I en-
joyed it ever 80 much.
HMJr:
Good. Do I see Mr. Roosevelt or don't I?
T:
Well, you wait till I see Mr. Roosevelt. (Laughs)
HMJr:
oh, is that the way it is?
31
- 2 -
T:
That's the way it goes. I have to see Mr.
Roosevelt first.
HMJr:
Oh, is that 80.
T:
Yes, sir, and then I'll get you word.
HMJr:
Well, how will I find out?
T:
After I see him, I'll call you.
HMJr:
You what?
T:
After I see him, I'll call you.
HMJr:
All right, and....
T:
You see - he's finished with the press and he
still has people with him, and I- haven't had
an opportunity to take anything up with him yet.
HMJr:
I see.
T:
As soon as I do, I will let you know....
HMJr:
Thank you.
T:
....about the morning.
HMJr:
What?
T:
About the morning.
HMJr:
That's right.
T:
Fine, sir.
HMJr:
I don't - I don't want breakfast. I just want
to see him.
T:
I see. (Laughs) All right, fine.
HMJr:
Thank you.
T:
I'll call you, sir.
HMJr:
Goodbye.
T:
Goodbye.
32
July 21, 1942
4:55 p.m.
HMJr:
Hello.
Operator:
Mr. McCabe.
HMJr:
Hello.
Thomas B.
McCabe:
Hello, Mr. Secretary.
HMJr:
How are you? Two things, Mr. McCabe - I don't
know whether you're following this request of
ours personally or not, but I'd like to get a
"yes" or "no" out of your people in regard to
furnishing silver for coinage to England and
Australia.
M:
Yes, sir, we've been on that today, and we've
been on it for several days.
HMJr:
Do you think I might get an answer in a day or
80?
M:
I'm having the - our policy committee - a special
meeting called tomorrow morning at ten-fifteen
to try to get a "yes" or "no"...
HMJr:
Good.
M:
...recommendation because I wanted to from my
own angle here to get a recommendation from my
own policy committee before I....
HMJr:
Yeah.
M:
....answered that.
HMJr:
I think it's going on two weeks now.
M:
Yes. It's - I talked to Harry White about it
again this morning.
HMJr:
Yeah.
M:
It's....
HMJr:
Well, it was my idea to call you up, not his.
33
- 2 -
M:
Yes. Well, my feeling is on that I hate like
deuce to delay an answer to a question like....
HMJr:
Yes.
M:
....like that, but I did want to be absolutely
sure of my ground before I said "yes" or "no"
on it.
HMJr:
Well, that's fair enough. Do you think maybe
tomorrow we get a "yes" or "no"?
M:
I think tomorrow afternoon we can give you a "yes"
or "no" on it.
HMJr:
You see....
M:
The - the policy committee put that under a
special committee under Fred Ecker....
HMJr:
Yeah.
M:
.... to study all the various angles of it, and on
his recommendation today I asked him to call a
special meeting tomorrow morning to consider it.
HMJr:
Okay.
M:
But that's a tricky one.
HMJr:
Yeah.
M:
(Laughs)
HMJr:
All right. Now one other thing - I got word
through Cliff Mack you stopped us from buying any-
thing for Russia. Is that a - 1s that for every-
body or was that just for us?
M:
It stopped everybody...
HMJr:
Well, I know we got word we shouldn't buy anything
more for Russia.
M:
Yes.
HMJr:
Was that just for Treasury or does that go for
everybody?
34
- 3 -
M:
Well, that goes for everybody. The - I guess you
know that whole picture.
HMJr:
No, I don't.
M:
Well, everything's been shut off....
HMJr:
Yeah.
M:
....except to the southern port.
HMJr:
I see.
M:
And that means instead of operating on a fifty to
sixty-ship basis a month....
HMJr:
Yeah.
M:
....it's down to twelve ships a month.
HMJr:
My God!
M:
And the question there is going to be whether we
can get the British to give us another convoy within
the, say, the next month or two.
HMJr:
On the northern route?
M:
Yes.
HMJr:
I see.
M:
Well, it's the thing has personally been discussed
between the President and Churchill...
HMJr:
I see.
M:
....and it's - it's an extremely hot one, and what
we had to do was first ask the Russians to give
us the highest priority items....
HMJr:
Yeah.
M:
....because we have this large number of ships
from - strung all the way from here to - - to England
....
HMJr:
Yeah.
35
- 4 -
M:
....and we're having to unload ships there and
also hold certain ships at Iceland....
HMJr:
Yeah.
M:
....and then we have certain ships at l'ewfoundland
waiting for the convoy....
HMJr:
Yeah.
M:
....and then what we - we asked that shipments to
the ports cease except under direction of the
highest priority things.
HMJr:
I see.
M:
And that means that until the word's given out
that we just - I'd go easy on procurement.
HMJr:
Yeah.
M:
There's no definite - I mean there's - - it's not
just been laid down hard, hold and fast....
HMJr:
Because we....
M:
For diplomatic reasons, we didn't want to do that.
HMJr:
I see. Because we have an enormous amount of stuff
on hand for....
M:
Yes, I know that.
HMJr:
Well, I just was curious.
M:
And there's nothing we can do on that except just
wait for developments....
HMJr:
Yeah.
M:
....and we ought to have something in a few days
when the thing's a little better cleared in
London.
HMJr:
Good.
M:
And you know certain people are conferring there
now.
36
- 5 -
HMJr:
I know. Right.
M:
That's the situation. And on that - on that
other matter, I'll have a - I'll have a definite
statement for you on that tomorrow afternoon.
HMJr:
Thank you.
M:
Shall I call you or Harry White when we....
HMJr:
You might call - either one.
M:
All right.
HMJr:
Thank you.
M:
Thank you, Mr. Secretary. Goodbye.
37
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
July 21, 1942
MEMORANDUM TO THE SECRETARY:
There is submitted herewith the operating report
of Lend-Lease purchases for the week ended July 18,
1942.
The determination as to whether allocations or
priorities will be granted by the War Production Board
to cover Lend-Lease steel requirements is still pend-
ing. I talked with Mr. McCabe, Acting Lend-Lease Admin-
istrator this afternoon, and he proposes to discuss the
matter tomorrow with General Clay and Mr. Eberstadt,
both of the Army and Navy Munitions Board, and he will
emphasize that it is essential to have a definite ear-
marking of Lend-Lease steel requirements if we are to
plan a shipping program. I will report to you the re-
sult of the conference.
FQ
BUY
your Cititon'E. Mack
Director of Procurement
VICTORY
LEND-LEASE
TREASURY DEPARTMENT, PROCUREMENT DIVISION
STATEMENT OF ALLOCATIONS, OBLIGATIONS (PURCHASES) AND
DELIVERIES TO FOREIGN GOVERNMENTS AT U. S. PORTS
38
AS OF JULY 18, 1942
(In Millions of Dollars)
Administrative
Undistributed &
Total
U.K.
Russia
China
Expenses
Miscellaneous
Allocations
$1768.8
$976.4
$436.2
$56.4
$1.6
$298.2
(1693.7)
(953.8)
(419.0)
(56.3)
(1.6)
(263.0)
Purchase Authoriza-
tions (Requisitions)
$1312.0
$863.3
$395.5
$46.8
-
$ 6.4
(1272.9)
(835.4)
(384.8)
(46.5)
-
( 6.2)
Requisitions Cleared
for Purchase
$1256.4
$827.5
$376.6
$46.5
-
$ 5.8
(1230.2)
(810.8)
(366.9)
(46.4)
-
( 6.1)
Obligations (Pur-
chases)
$1198.8
$817.6
$335.6
$40.0
$1.6
$ 4.0
(1171.2)
(801.9)
(324.0)
(39.9)
(1.5)
( 3.9)
Deliveries to For-
eign Governments
$ 471.7
$377.2
$ 72.7
$20.0
-
$ 1.8
at U. S. Ports
( 454.9)
(362.8)
( 70.3)
(20.0)
-
( 1.8)
*Deliveries to foreign governments at U. S. Ports do not include the tonnage that is either in
storage, "in-transit" storage, or in the port area for which actual receipts have not been re-
ceived from the foreign governments.
Note: Figures in parentheses are those shown on report of July 11, 1942.
39
July 21, 1942
MEMORANDUM FOR THE SECRETARY'S FILES
Meeting in Mr. White's office
July 21, 1942
2:45 P.M.
Present: Dr. Kan Lee
Mr. White
Mr. Friedman
Dr. Kan Lee called at his own request. Mr. White discussed
with him the question of charges involved resulting from the sale
of gold in connection with the liquidation of the 1937 arrangement.
Mr. White said that he wished to make clear to Dr. Lee that the
charges were no factor in the decision of the Treasury and that
in fact the Treasury did all possible to find some means by which
they could save the Chinese Government this expense. However,
such a loophole could not be found. Dr. Lee said that he
appreciated perfectly the position of the Treasury and that he
was sure the Chinese Ministry of Finance would not think that
the charges involved were a factor in the decision. Dr. Lee said
that he had come up to discuss the question of the necessary paper
and the need for Treasury writing a letter to obtain this paper
for the Crane Company. Mr. White said that he thought this had
already been done but that he would look into the matter.
ISF/efs
7/28/42
39
July 21, 1942
MEMORANDUM FOR THE SECRETARY'S FILES
Meeting in Mr. White's office
July 21, 1942
2:45 P.M.
Present: Dr. Kan Lee
Mr. White
Mr. Friedman
Dr. Kan Lee called at his own request. Mr. White discussed
with him the question of charges involved resulting from the sale
of gold in connection with the liquidation of the 1937 arrangement.
Mr. White said that he wished to make clear to Dr. Lee that the
charges were no factor in the decision of the Treasury and that
in fact the Treasury did all possible to find some means by which
they could save the Chinese Government this expense. However,
such a. loophole could not be found. Dr. Lee said that he
appreciated perfectly the position of the Treasury and that he
was sure the Chinese Ministry of Finance would not think that
the charges involved were a factor in the decision. Dr. Lee said
that he had come up to discuss the question of the necessary paper
and the need for Treasury writing a letter to obtain this paper
for the Crane Company. Mr. White said that he thought this had
already been done but that he would look into the matter.
ISF/efs
7/28/42
7/2/10
Hon Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Dear Mr. Secretary;
I must get a matter off my conscie
nce. It has to do with the Bank of America. I am ashamed of
my part in the transaction. Mr. Crowley started the investig-
ation. We discussed how we could get the reports out of the
Comptrollers office without the knowledge of Mr. O'Connor but
we found it was necessary to make the request to him which Mr.
Crowley did and received the reports immediately. Mr. Crowley
said Mr. (Connor was not to learn who in the Federal Deposit
Insurance Corporation was making a study of the report. We
went over the report and found the Bank to be in much better
position than when President Roosevelt opened it after the Bank-
ing Holiday and that it had very large earnings. Mr. Crowley
directed us to try and find something wrong. He said you can
always find hat a Bank has too much real estate or its apprais-
als are bo high. Mr. Crowley then went to the Federal Reserve
Board and discussed the matter with Chairman Eccles and hewas
advised that the Bank of America was in good condition. He
thwn said he would get Dr. Viner from Chicago and as he did
not know much about banking he could convience him that the
Bank was in poor condition. He said Viner had the ear of the
Secretary and that you were suspicious of everyone. He said
Mr. O'Connor was not t know that he engaged Dr. Viner and he
would pay him with out O'Connor knowing anything about it as
he had done in other instances. He said he was sure he could
also get the cooperation of Mr. Tom Smith, President of the
Boatman National Bank in St Louis as Smith had be ear of the
Secretary and Smith knew nothing about Bank examinations as
he never was a Banker but get control of his bank thru his
wife's stock and also that Smith did not like Giannini. I
learned later that Mr. Crowley had strong backing from New
York interests who were fighting Mr. Giannini,
Mr. Crowley told me a bout a meeting in your office the
last week in January 1938 with Jones, Eccles, Taylor, Diggs
Viner and O'Connor and was angry because Dr. Viner 'spilled
the beans" by asking about the Bank of America and Mr. Crowley
did not want Mr. O'Connor to know about the situation. Mr.
Crowley said that you suggested to Mr. O'Connor that a meeting
of the F. D. I. C. be called and that Mr. Crowley makea report
to the Board of his criticisms of the Bank and that Mr. O'Connor
requested Mr. Crowley to make such a report. Mr. Crowley told
me he would not do so as he had no objections that would stand
up, and he told Mr, O'Connor the bank was O'K. He told me to
drop then whole thing and not say anything more about it.
My greatest surprise came the latter part of September 1938
when Mr. Crowley told me it was very necessary to convience
he President and the Secretary that the Bak of America was
in bad condition. He got the message to the President and had
the President take the matter up with you, Mr. Crowley said
41
you sent Mr. Upham to San Franablo to take over the
Bank and that must be stopped as he did not want the
matter to go that far he only wanted to use it us a
means of getting O'Connor out of the way and prevent
the President from appointing himComptroller of the
Currency . He said he would go to any end to accomplish
this as O'Connor was too particular about every act
done by the F. D. I. C. and O'Connor had caused an
investigation to be made of his personal conduct in
Wisconson and that you had the report and he would have
been asked to resign if the President every got his
hands on that reportbut Mr. Jessie Jones and Mr. McINtyre
prevented it going to the President. He told me the
report was in your hands.
Mr. Secretary, it all been a dirty mess. Everyone
regards you as one of the squarest and finest men in
Washington and for that reason I thought you should know
the facts in this case from one who is ashamed of them.
The Attorney General sent Mr. Roggie, Asst. Atty,
General to malea complete investigation of the Bank's
affairs and Mr. Crowley intimated that he was instructed
to try and find something irregular. He returned and
reported that everything was regular and that the hand-
ling of he bank by the Comptrollers office was above
suspicion. Mr. Crowley then had a long talk witht Mr.
Giannini and discussed the Bank and he told Mr. G. that
it was very unfortunate that his Bank had been caused
80 much trouble and he regretted the action of the
Treasury. He told Mr. G. that the Comptroller asked him
in January abdut the Bank and he told him it was O'K
and that the Comptroller had sent the Secretary a "Memo"
to that effect.
Since leaving the Treasury I have been told that
Mr. O'Connor has praised your work highly. I feel better
now that I have told you the story. Had I known in the
beginning what it was all about I would not have had any
part in it. For you I have the highest admiration,
Sincerely yours,
L. M.
42
SHINGTON M7942 JUL 34 D.C.18
HON,HENRY MORGENTHAU, JR.
22II 30th. Street
Washington. D.C.
o
43
OFFICIAL
JULY 21, 1942
MR. WALTER P. REUTHER
UAW CIO
281 WEST BOULEVARD
DETROIT MICHIGAN
SECRETARY MORGENTHAU WILL BE GLAD TO SEE YOU AT THREE THIRTY
WEDNESDAY JULY TWENTY SECOND
H.S. KLOTZ
PRIVATE SECRETARY
44
1 Grosvenor Square, W. 1.
July 21, 1942.
Dear Mr. Secretary:
I was glad to get your letter of July
1st and the newspaper spread of the welcome
given in our country to the contingent headed
by Squadron Leader John D. Nettleton, V.C.
They seem to have had a grand reception and
I am very happy to know that you feel that
the tour has done a great deal of good.
With kindest regards,
Sincerely,
John G. winnait
The Honorable
Henry Morgenthau, Jr.,
The Secretary of the Treasury,
Washington.
TO:
45
Miss Chauncey
NO. Mr. Mills
s
I, myself, can see no objection to acknowl-
edging Mr. Lee's letter. However, you may
have noticed that within the last two days
& vage conference for the Pacific Coast
sviation industry came to grief and one of
its conclusions was a statement made by the
industry that final results had been pre-
vented by conflicting positions taken by
different Government departments. I do not
believe that the wage conference has any
bearing on Mr. Lee's letter, but someone
night think otherwise.
Regraded Unclassified
46
AUL 21 1942
Dear Mr. Les:
In acknowledging your letter of July 15, 1942, I also
wish you to know the pleasure I felt when told of your pre-
vious telegram. The enviable production records unde by
the Vest Coast aviation industry have come from the energy
and enthusinem with which its individual companies set out
to overcome obstacles and got results. The members of the
Aircraft Var Production Council, Inc. are handling their
payroll savings programs and the problem of the prompt 10-
suance and delivery of Var Savings Bonds through becoming
issuing agents with the saxe spirit. I can predict that
here too the result will set a pattern of action for others
to follow.
Please express to your separate member companies the
Treasury's appreciation for their splendid cooperation.
Sincerely,
(Signed) H. Morgenthau, Jr.
Mr. John c. Lee, Manager,
Aircraft Var Production Council, Inc.,
7046 Hollywood Boulevard,
Los Angeles, California.
ALM.Jr./dwb
7/18/42
Original file to Thompson
Photo file to NMC.
AIRCRAFT WAR PRODUCTION COUNCIL, INC.
CONSOLIDATED DOUGLAS . LOCKHEED NORTHROP NORTH AMERICAN RYAN VEGA VOLTEE
July 15, 1942
Mr. Henry Mongenthau, Jr.
Secretary of the Treasury
Treasury Department Building
Washington, D. C.
My dear Secretary:
Direct and speedy issuance of war bonds to aircraft workers of
Southern California is assured by the action of the member com-
panies of the Aircraft War Production Council, who will issue
bonds directly from company to worker. This is in addition to
the former practice of handling regular payroll allotments.
Mr. Mills has no doubt advised you of the receipt of our telegram
regarding the adoption of this policy. As you probably know, en-
ergetic campaigns are being actively pursued by our member airplane
producers, who are the Consolidated Aircraft Corporation, Douglas
Aircraft Company, Lockheed Aircraft Corporation, North American
Aviation, Inc., Northrop Aircraft, Inc., Ryan Aeronautical Company,
Vega Aircraft Corporation, and Vultee Aircraft, Inc.
We believe, with you, that promptness in delivery lays the ground-
work for the next bond sale. The Council aircraft companies will
stress speed in delivery. That factor, with regular payroll al-
lotments, should result in increased war bond sales among aircraft
workers.
Each company handles its own sales programs and methods. Spirited
competition in departmental contests is evidenced and trophies,
banners, pins for members of the "Bond-a-Month" Club, house organs
and public address system publicity all contribute to the campaign.
Worker response is on the upswing.
In your own words, war production and war financing march together,
and the Aircraft War Production Council believes that war bonds,
directly issued and delivered, will show that Southern California
airplane workers have enlisted as "bankers to the United States"
for the duration. Millions of dollars for millions of man-hours
will come rolling back for war bonds.
The Council pledges its continued cooperation.
Sincerely,
Manager John C. Chee Lee
JCL:pm
46 HOLLYWOOD BOULEVARD, LOS ANGELES, CALIFORNIA HILLSIDE 7211
Regraded Unclassified
CONFIDENTIAL
48
UNITED STATES SAVINGS BONDS - SERIES I AND G COMBINED
Comparison of July sales to date with sales during the
same number of business days in June and May 1942
(At issue price in thousands.of dollars)
:
July
:
Oumulative sales by business days
Date
:
daily
:
July
:
June
:
May
:
July as
:
sales
:
:
I
:percent of June
July 1942
1
$ 12,597
$ 12,597
$ 9,705
$ 7,302
129.8%
2
9,389
21,986
17,601
15,168
124.9
3
10,455
32,441
26,235
25,516
123.7
6
16,734
49,175
40,009
33,145
122.9
7
13,386
62,561
49,353
48,751
126.8
8
21,852
84,413
55,888
60,817
151.0
9
17,172
101,585
67,414
67,213
150.7
10
22,983
124,568
72,366
72.794
172.1
11
17,050
141,618
82,310
80,845
172.1
13
20,614
162,232
89,852
85,410
180.6
14
14,358
176,590
95,254
94,391
185.4
15
15,400
191,991
101,464
102,106
189.2
16
13,842
205,833
108,715
108,923
189.3
17
15,314
221,147
112,279
114,129
197.0
18
9,696
230,842
119,749
123,534
192.8
20
21,888
252,731
126,048
127,724
200.5
Office of the Secretary of the Treasury,
July 21, 1942.
Division of Research and Statistics.
Source: All figures are deposits with the Treasurer of the United States on
account of proceeds of sales of United States savings bonds.
Note: Figures have been rounded to nearest thousand and will not necessarily
add to totals.
49
CONFIDENTIAL
UNITED STATES SAVINGS BONDS - TOTAL
Comparison of July sales to date with sales during the
same number of business days in June and May 1942
(At issue price in thousands of dollars)
:
July
:
Cumulative sales by business days
Date
:
daily
:
July
:
June
:
May
:
July as
:
sales
:
:
:
:percent of June
July 1942
1
$ 28,418
$ 28,418
$ 29,539
$ 19,981
96.2%
2
24,269
52,687
45,442
39,430
115.9
3
27,277
79,964
67,046
72,048
119.3
6
46,531
126,495
98,208
88,605
128.8
7
31,110
157,605
132,341
122,575
119.1
8
43,451
201,056
154,085
157,866
130.5
9
39,918
240,974
192,659
181,431
125.1
10
47,755
288,729
206,523
201,464
139.8
11
36,127
324,856
236,552
232,801
137.3
13
47,164
372,020
259,772
246,756
143.2
14
30,102
402,122
281,724
271,525
142.7
15
33,807
435,929
303,163
296,152
143.8
16
31,670
467,599
334,398
317,861
139.8
17
37,659
505,257
345,497
337,371
146.2
18
21,929
527,186
368.782
371,066
143.0
20
53.257
580,443
387,369
385,098
149.8
Office of the Secretary of the Treasury,
July 21, 1942.
Division of Research andStatistics.
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.
CONFIDENTIAL
50
UNITED STATES SAVINGS BONDS - SERIES I
Comparison of July sales to date with sales during the
same number of business days in June and May 1942
(At issue price in thousands of dollars)
:
July
:
Cumulative Sales by business days
Date
:
daily
:
July
:
June
:
May
:
July as
:
sales
:
:
:
;percent of June
July 1942
1
$ 15,821
$ 15,821
$ 19,834
$ 12,679
79.8%
2
14,880
30,701
27,841
24,263
110.3
3
16,822
47,523
40,811
46,532
116.4
6
29,797
77,320
58,199
55,460
132.9
7
17,724
95,044
82,988
73,824
114.5
8
21,599
116,643
98,197
97,049
118.8
9
22,746
139,390
125,245
114,218
111.3
10
24,772
164,161
134,157
128,670
122.4
11
19,077
183,238
154,242
151,956
118.8
13
26,550
209,787
169,920
161,346
123.5
14
15,744
225,532
186,470
177,133
120.9
15
18,407
243,938
201,700
194,047
120.9
16
17,828
261,766
225,684
208,939
116.0
17
22,345
284,111
233,218
223,242
121.8
18
12,233
296,344
249,033
247,532
119.0
20
31,368
327,712
261,321
257,374
125.4
Office of the Secretary of the Treasury,
July 21, 1942.
Division of Research and Statistics.
Source: All figures are deposits with the Treasurer of the United States on
account of proceeds of sales of United States savings bonds.
Note: Figures have been rounded to nearest thousand and will not necessarily
add to totals.
51
Sales of United States Savings Bonds
From July 1 through July 20, 1942
CONFIDENTIAL
Compared with Sales Quota for Same Period
(At issue price in millions of dollars)
:
Series I
:
Series I and G
:
Total
:
Actual Sales
:
Quota,
#
Sales
:
Actual Sales
:
Quota,
:
Sales
1
Actual Sales
:
Quota,
:
Sales
Date :
:
July 1
:
July 1
:
to Date
:
:
July 1
:
July 1
#
to Date
I
=
July 1
=
July 1
I
to Date
:
Daily
:
to
I
to
:
as x of
I
Daily
:
to
:
to
:
as x of
I
Daily
I
to
1
to
I
as x of
:
:
Date
I
Date
I
Quota
1
:
Date
:
Date
:
Quota
1
:
Date
:
Date
:
Quota
1
$ 15.8
$ 15.8
$ 23.6
66.9%
$ 12.6
$ 12.6
$ 19.4
64.9%
$ 28.4
$ 25.4
$ 43.0
66.0%
2
14.9
30.7
47.9
64.1
9.4
22.0
36.4
60.4
24.3
52.7
84.3
62.5
3
16.8
47.5
73.0
65.1
10.5
32.4
50.6
64.0
27.3
60.0
123.6
64.7
6
29.8
77.3
126.0
61.3
16.7
49.2
52.6
59.6
46.5
126.5
208.6
60.6
7
17.7
95.0
139.3
68.2
13.4
62.6
94.2
66.5
31.1
157.6
233.5
67.5
8
21.6
116.6
162.2
71.9
21.9
84.4
114.5
73.7
43.5
201.1
276.7
72.7
9
22.7
139.4
189.8
73.4
17.2
101.6
129.5
78.5
39.9
241.0
319.3
75.5
10
24.8
164.2
216.0
76.0
23.0
124.6
139.9
89.1
47.8
288.7
355.9
81.1
11
19.1
183.2
236.6
77.4
17.1
141.6
147.7
95.9
36.1
324.9
384.3
$4.5
13
26.5
209.8
273.2
76.8
20.6
162.2
160.6
101.0
47.2
372.0
433.8
85.8
14
15.7
225.5
287.6
78.4
14.4
176.6
168.0
105.1
30.1
402.1
455.6
88.3
15
18.4
243.9
311.6
78.3
15.4
192.0
181.8
105.6
33.8
435.9
493.4
88.3
16
17.8
261.8
335.5
78.0
13.8
205.8
193.5
106.4
31.7
467.6
529.0
88.4
17
22.3
284.1
358.7
79.2
15.3
221.1
202.8
109.0
37.7
505.3
561.5
90.0
18
12.2
296.3
377.4
78.5
9.7
230.8
210.5
109.6
21.9
527.2
587.9
89.7
20
31.4
327.7
411.8
79.6
21.9
252.7
223.9
112.9
53.3
580.4
635.7
91.3
21
425.9
231.8
657.7
22
451.1
247.0
698.1
23
477.5
260.1
737.6
24
503.8
270.7
774.5
25
525.0
279.5
804.5
27
562.7
295.1
857.8
28
577.2
304.3
881.5
29
601.3
322.1
923.4
30
625.8
337.5
963.3
31
650.0
350.0
1,000.0
Office of the Secretary of the Treasury, Division of Research and Statistics.
July 21, 1942
Source: Actual sales figures are deposits with the Treasurer of the United States on account of proceeds of sales of
United States savings bonds. Figures have been rounded and will not necessarily add to totals.
Note:
Quota takes into account both the daily trend during the week and the monthly trend during the month.
52
UNITED STATES SAVINGS BONDS, SERIES E
TOTAL DAILY SHIPMENTS BY DENOMINATIONS FROM JULY 1 TO JULY 20, 1942
:
Date of
:
Denominations - Number of Pieces
-
Total
Shipment
:
:
:
:
:
:
Pieces
:
$25
:
$50
:
$100
:
$500
:
$1,000
:
ly 1
441,453
79,590
78,344
2,256
2,527
604,170
2
515,964
94,404
93,481
3,068
3,510
710,427
3
464,350
80,760
79,220
8,320
3,565
636,215
6
736,205
82,647
89,767
8,475
2,235
919,329
7
678,221
163,951
160,712
24,510
13,894
1,041,288
8
558,650
106,000
115,461
15,039
3,790
798,940
9
440,389
89,212
112,623
7,807
5,816
655,847
10
672,288
117,122
107,512
5,508
5,967
908,397
11
643,310
121,615
135,412
5,062
15,649
921,048
13
654,983
118,591
98,816
6,314
8,528
887,232
14
673,000
109,750
102,000
7,775
10,000
902,525
15
548,501
156,626
152,361
12,270
14,535
884,293
16
384,250
91,600
107,800
13,010
19,955
616,615
17
555,023
138,080
124,232
8,378
10,066
835,779
18
599,366
109,552
98,646
6,052
9,777
823,393
20
629,367
60,200
98,900
4,150
9,885
802,502
tal
9,195,320
1,719,700
1,755,287
137,994
139,699
12,948,000
ly 21, 1942.
MRL/kwk
made
53
Table 1 - b
Amount and effective rate of deductions from weekly wages for Social Security tax,
income tax withheld at source during 1943, savings bonds and tax on 1942 income
Married person - two dependents
Weekly exemption for income tax withheld at source - $43
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
: Weekly
:
Social
: Income tax
:
Savings Bmd
Total :
Tax per week:
Total
Annual
: wage
: security de-:
withheld
=
bank
withheld:
on 1942
: withheld
wage
: (Col. 1
: duction
:
at source-
:
:
: + 50)
: (2% of Col. 2:
quota
(Cols.
:
income 1/
: plus 1942
(5% of (Col. 2:
:
(10% of Col.2)
3 + 4
: (tax on Col.
1: tax, per week
:
1/
:
$3,000) up to
:
- #43)
:
:
+ 5) :
+ 50)
: (Col. 6 + 7)
Amount
$1,200
$24
$ .48
-
$2.40
$2.88
-
$2.88
1,500
30
.60
-
3.00
3.60
-
3.60
2,000
40
.80
-
4.00
4.80
-
4.80
2,500
50
1.00
$ .35
5.00
6.35
$1.60
7.95
3,000
60
1.20
.85
6.00
8.05
3.44
11.49
3,500
70
1.20
1.35
7.00
9.55
5.28
14.83
4,000
80
1.20
1.85
8.00
11.05
7.12
18.17
Effective rates
$1,200
-
2.0%
-
10.0%
12.0%
-
12.0%
1,500
-
2.0
-
10.0
12.0
-
12.0
2,000
2.0
-
10.0
12.0
-
12.0
-
2,500
2.0
.7%
10.0
12.7
3.2%
15.9
-
3,000
-
2.0
1.4
10.0
13.4
5.7
19.2
3,500
1.7
1.9
10.0
13.6
7.5
21.1
-
4,000
1.5
2.3
10.0
13.8
8.9
22.7
-
Treasury Department, Division of Tax Research
July 21, 1942
1/ Assumes worker employed 50 weeks. 1942 taxes computed under rates in H. R. 7378.
2/ Employee's share of payroll tax for old-age and survivors' insurance.
CLH:DMH
Regraded Unclass
Amount and effective rate of deductions from weekly wages for U. S. Civil Service
Retirement Fund, income tax withheld at source during 1943, savings bonds, and
tax on 1942 income
Married person, two dependents
Weekly exemption for income tax withheld at source - $43
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
:
Civil Service:
Income tax
1
Savings
bond
:Total
: Tax per week ¡Total withheld
:
Weekly
:
Retirement
:
withheld at
:
quota
: withheld on 1942 in- :plus 1942 tax,
Annual : wage
:
fund
:
source
:
(10% of
(Col. 3 : come (tax on : per week
wage
(1
+
50)
:(5%
of
Col.
I 5% of (Col. 2
:
wages,
:+ Col. 4: Col. 1 + 50) (Col. 6 +
#
1/
:
2)
:
- $43)
:
Col. 2)
:+ Col.5) :
1/
: Col. 7)
Amount
$1,200
$24
$1.20
-
$2.40
$ 3.60
-
$ 3.60
1,500
30
1.50
-
3.00
4.50
-
4.50
2,000
40
2,00
-
4.00
6.00
-
6.00
2,500
50
2.50
$ .35
5.00
7.85
$1.60
9.45
3,000
60
3.00
.85
6.00
9.85
3.44
13.29
3,500
70
3.50
1.35
7.00
11.85
5.28
17.13
4,000
80
4.00
1.85
8.00
13.85
7.12
20.97
Effective rates
$1,200
$24
5.0%
-
10.0%
15.0%
-
I
1,500
30
5.0
-
10.0
15.0
-
-
2,000
40
5.0
-
10.0
15.0
1
-
2,500
50
5.0
.7%
10.0
15.7
3.2%
18.9%
3,000
60
5.0
1.4
10.0
16.4
5.7
22.2
3,500
70
5.0
1.9
10.0
16.9
7.5
24.5
4,000
80
5.0
2.3
10.0
17.3
8.9
26.2
Treasury Department, Division of Tax Research
July 21, 1942
1/ Assumes worker employed 50 weeks. 1942 taxes computed under rates in H. R. 7378.
3d 3draft
July 21, 19km
STATEMENT OF SECRETARY MORGENTHAU
55 9:300
BEFORE THE
SENATE FINANCE COMMITTEE
JULY 23, 1942
Less than a month ago the Federal Government ended
a fiscal year, carrying expenditures of over $32 billion,
of which almost $26 billion were for the war effort.
These were incomparably the greatest war expenditures
in our national experience. The total amount was almost
twice what we spent in the peak year that followed the
last World War, and in the final weeks of the fiscal
year we were spending at the rate of $130 million a day,
or a dollar a day for every man, woman and child in the
country.
Today even these expenditures have been overshadowed
by those we are incurring and shall incur in the new
fiscal year. In the past three weeks we have succeeded
in pushing our rate of expenditure to $150 million a day,
or almost $5 billion a month. In the fiscal year that
is beginning we are committed to spend the almost incon-
ceivable sum of $77 billion to win this war for human
freedom.
These figures are a measure of our firm resolve to
win the war regardless of cost. Their size, as I have
56
- 2 -
said once before, should frighten no one but our enemies.
I mention them at the outset of my statement today be-
cause they bear directly upon the problem that faces
this Committee in considering the first revenue bill of
this war. It is only against the background of these
figures that we can tell whether this revenue bill ful-
fills its purpose.
You will recall that in his Budget Message of
January 5, 1942, President Roosevelt asked for addi-
tional taxes for the fiscal year 1943, exclusive of
Social Security taxes, of $7 billion. On March 3rd,
I appeared before the Committee on Ways and Means of
the House and presented recommendations for a tax pro-
gram to produce $7,600 million in additional revenue
from taxes. On May 6th I wrote a letter to the Chairman
of the Committee on Ways and Means recommending a re-
duction in personal income tax exemptions to produce
approximately $1,100 million more revenue. These two
recommendations together involved a tax program of
$8,700 million of additional revenue. These amounts
represented what I believed, and still believe, was the
very least that the American people could afford to pro-
vide.
57
- 3 -
There can be no compromise with the war expendi-
tures which I have outlined to you. We cannot reduce
them if we would. Our whole effort must be to spend
as fast and as effectively as possible in the produc-
tion and use of our war materials. If our expenditures
this year are to reach $77 billion, our receipts in
revenue from the people must bear some reasonable rela-
tionship to that collossal figure. If we were to leave
present taxes on the statute books, the deficit for the
new fiscal year would be $56 billion. That deficit has
to be cut by the most drastic kind of self-denial on
the part of every American.) To the extent that we cut
it by enlisting our current income in taxes and in sav-
ings, we shall be protecting the future economic sound-
ness of our country and our free institutions. To the
extent that we fail, we shall be endangering the survival
of all that we are fighting to preserve.
It is interesting to compare the fiscal situation
here with the situation in Great Britain and Canada,
remembering, of course, that they have been at war
longer than we. In their first full year of war, namely,
the fiscal year 1941, Canada devoted 18 percent of its
58
- 4 -
national income to the war effort and Great Britain
devoted 48 percent. In the fiscal year 1943, which
will be our first full year of war, it is estimated
that the United States will devote 50 percent of its
national income to the war effort.
On the other hand, Canada financed 61 percent of
its fiscal 1941 expenditures by taxation and Great
Britain 44 percent. In the United States, including
Federal, State and local governments, only 37 percent
of total fiscal 1943 Government expenditures would be
financed through taxes on the basis of the revenue bill
now before you.
I might add that in fiscal 1943 Canada expects to
devote about 43 percent of its national income for the
war, and raise 57 percent of its expenditures through
taxes, while Great Britain expects to put about 50 per-
cent of its national income into the war and raise
52 percent of its expenditures from taxes. From these
figures it is clear that after two years of defense
preparations and war production we are devoting to the
war effort a proportion of our national income compar-
able to the proportions similarly devoted by Great
Britain and Canada. It is likewise clear, however, that
59
- 5 -
we are substantially behind these countries in the pro-
portion of our expenditures which we are raising through
taxes.
Taxation and the Cost of Living
Taxation does more than supply money to finance
the war. It does more than apportion the war burden
now, once and for all, instead of leaving it for further
distribution through taxes after the war. Wartime taxa-
tion also plays an important part in preventing rapid
and continued increases in the cost of living. The
President has announced a seven-point program for hold-
ing down the cost of living. Ceilings have been placed
on prices. This fact may have caused many people to be
unduly optimistic about the future of the cost of liv-
ing. It cannot be too strongly emphasized that if the
price ceilings are to be maintained and rapid and con-
tinuous price rises avoided, the pressure of the large
and expanding volume of consumer purchasing power on
the diminishing supply of goods must be reduced.
To reach the greatest possible volume of consumer
purchasing power, the bill now before you includes such
a broad reduction of personal exemptions that it will
60
- 6 -
affect almost seven million individuals who have never
paid direct taxes before. If this section of the bill
is passed as it stands, some thirty million income tax
returns will be filed in the new fiscal year as against
only 7,600,000 in 1940. Moreover, these thirty million
individuals control the bulk of consumer demand today.
The income tax has, in fact, become a people's tax for
the first time in our history.
Taxes cannot, by themselves, win the battle against
inflation. The battle must be fought with determined
and coordinated effort on many fronts. Effort on one
sector can be checkmated by timidity or half-heartedness
on another. What we do by way of taxation may be off-
set by less than a determined restraint in connection
with farm prices and wages. Nevertheless taxation is
an essential weapon in the fight against inflation,
and whatever setbacks may occur on other sectors of this
battle are no excuse for not using this weapon to the
utmost. Increases in taxes will, in any event, make
the price situation more controllable and less danger-
ous than it otherwise would be. Inflation has been
well described as "the ruthless process whereby sacri-
fice is imposed inequitably upon a people who have
61
- 7 -
lacked the unity, the courage and intelligence to im-
pose that sacrifice equitably upon themselves." It is
for us to show that we have the unity, the courage, and
the intelligence to check inflation now.
Treasury Program a Minimum Program
The Administration's revenue program calling for
$8.7 billion additional tax revenue was presented as a
minimum. It is even more emphatically the very minimum
today. The revenues from the bill before you would fall
below that minimum by approximately $2.5 billion.
In presenting its revenue program to the Committee
on Ways and Means, the Treasury outlined methods of taxa-
tion which it considered most desirable and appropriate
to raise the required amounts. I still believe that
these proposals are sound and present the most desirable
sources for a revenue program of this size. They are
based upon the principle of ability to pay, and they
avoid such devices as a general sales tax, which would
fall with the greatest impact upon those least able to
bear the burden. The various provisions of the Adminis-
tration program are well known and it is not necessary
to repeat them here. I should like, however, to emphasize
62
- 8 -
certain points which I hope will be especially considered
by the Committee.
1. Special privileges
The revenue bill as it stands violates the basic
principle of equity which is 80 important to an all-out
war finance program. It does this by leaving certain
highly privileged groups free from tax on large portions
of their income.
The first of these especially favored groups are
the recipients of tax-free interest from State and munici-
pal securities. Exemption of interest on State and local
securities is a serious breach in our system of taxing
according to ability to pay. For example, in the case of
one individual, out of a total reported income of approxi-
mately $975,000, over $668,000 came from State and local
securities.
If the bill as it passed the House should become
law, this individual would pay only $
: if, on the
other hand, your Committee would adopt my suggestion and
remove this pre-Pearl Harbor exemption, he would pay
$
The existence of this special privilege for
63
- 9 -
all holders of tax-free securities costs the Government
and the people of the United States, under the House
rates of tax, about $
million a year.
How can we expect to obtain an all-out war effort
from all our people if we go on permitting a group of
individuals and corporations owning $14 billion of State
and local securities to go tax free on the income from
these securities? We have no right to ask our young
men to give their lives in our defense if behind the
lines wealthy individuals are able to escape their fair
share of the war's financial burden. At a time when we
are straining our energies to the utmost to defeat a
powerful and ruthless foe, common decency requires that
we abolish these special tax shelters, and do it now.
Another highly privileged group having large amounts
of income exempt from income tax are the owners of oil
wells and mines. I refer to percentage depletion. Per-
centage depletion is a serious breach in our system of
taxation according to ability to pay. For example, a
leading oil company owned a number of oil properties
which had cost it $3 million. At the time the case was
64
- 10 -
examined percentage depletion of $3.6 million had al-
ready been allowed and the properties still had three-
fourths of the oil left.
I cannot believe that the taxpayers of America
would knowingly tolerate a provision of the law which
allows owners of oil and gas wells to deduct from their
income 271 percent of their gross receipts from such
wells--not for one year, two years, or the period neces-
sary to return investment, but for an unlimited period.
Certainly we cannot justify this exemption on the ground
that it encourages exploration and drilling for oil.
There is grave doubt that it has a substantial effect
on oil discovery. It would have been cheaper for the
Federal Government to have paid all the cost of every
wild-cat well that was drilled in 1941 than to have al-
lowed percentage depletion and the associated intangible
drilling expenses. (Check for accuracy).
A small minority of married couples living in the
eight so-called community property States receive tax
advantages which are in no way commensurate to any
special relationship that may exist between husbands and
wives in those States. The result is & breach in our
Regraded Unclassified
- 11 -
65
system of income taxation according to the principle of
ability to pay. For example, take a family in which
the husband has a salary of $10,000 after deductions.
If the family has its residence in, say, California
the family tax would be $2,138, while if the family
lives in, say, Iowa, the tax would be $2,549 or $411
more. A family in which the husband earned an income
amounting to $50,000 a year after deductions would pay
under the proposed Treasury rates and exemptions an in-
come tax of $21,018 in the eight community property
States, but $27,373 or 30 percent more in the other
forty States. In this national emergency how can we sit
in complacency and see citizens of these eight States
occupy a more favorable taxable status than those of the
rest of the country?
A similarly favorable position is granted under
the law to the married couples of the other forty States
when income is received by both husband and wife. The
tax of such a family is lower than the tax of a family
where the husband earns the whole income although the
family units enjoy the same income.
66
- 12 -
These and other examples of special privileges
are intolerable at a time like this, when we are im-
posing heavy taxes on persons with small incomes and
there is pressure for limiting wages and farm prices.
The country is in greater danger today than ever before
in its history. The war is now in its most critical
phase, and only by pulling together as a united people
can we make the effort that will turn the tide toward
victory. At such a time any special privilege for any
small group not only deprives the Treasury of revenue
that is badly needed for the war effort, but it hinders
the war effort by undermining the morale without which
the war cannot be won. I never would have recommended
lowering the personal exemptions if I had thought that
these loopholes were to remain in the law as a symbol
of special privilege in this time of national peril.
2. Excess Profits Tax
Another similar hindrance to the prosecution of
this "people's war" is the existence of excessive profits
in war time. There is no easier way to stir the
righteous anger of the American people than to let them
67
- 13 -
hear constantly of excessive war-time profits that are
not being recovered by adequate taxation. I have said
repeatedly that we are determined to take the profit
out of war, and the Treasury's recommendations have been
framed with this determination in mind.
An effective excess profits tax does much more
than produce badly needed revenue in time of war. It
also reassures the masses of our farmers and workers
that industry is not being rewarded unduly for its part
in the winning of the war.
Experience has shown, however, that when excess
profits taxes are too high they may result in extrava-
gance and waste in the conduct of business. It is
vitally important that we enable business to produce
for war purposes as economically and efficiently as
possible, if for no other reason than to avoid a waste
of war materials and labor and to hold down the cost of
the war to the Government, A businessman must plan for
the future, and for that reason we have recommended a
90 percent excess profits tax coupled with a 10 percent
credit for return to the corporation after the war. A
68
- 14 -
post-war credit to industry will not only encourage
economy and efficiency but at the same time will help
toward the rebuilding of our economic life. It should,
of course, be restricted in such a manner that it would
be used for the direct employment of labor, the conver-
sion of plant to peace-time business or for other uses
promoting economic adjustment and growth.
You will notice that I have not used the word
"incentive" in this connection. I have not used it be-
cause I do not believe that any businessman or any
patriotic American needs a selfish "incentive" at this
time. Millions of our people are willing to pay new
and genuinely burdensome taxes, to buy War Bonds with-
out stint, and to face rising living costs with frozen
wages and salaries. Their only "incentive" is their determined
grim resolve to win this war and build a better future.
3. Tax on Freight and Express
One tax that would be imposed by the bill before
you directly threatens the stability of prices. This
is the tax on freight and express which would add to
the cost of producing and supplying practically every
Regraded Unclassifie
69
- 15 -
commodity and service. In great numbers of cases the
added cost would make it impossible for businesses to
continue to operate under the price ceilings which have
been imposed and the breaches in the price ceilings
which would thereby De caused would threaten the whole
price structure.
Conclusion
I shall not attempt today to discuss the more tech-
nical aspects of the long and complex bill before you,
nor to enlarge further upon the subjects I have mentioned
already. The Treasury staff stands ready, as always, to
assist you in every way possible in carrying out your
difficult and responsible task. I should like, however,
to make just one more appeal. Every day consumed in
your Committee's work will lose us substantial amounts
of revenue under the excise tax portions of the bill.
Every day that can be saved in enacting this will enable
it to produce just 80 much more in needed revenue. Every
day saved will give our citizens additional time to adjust
themselves to the impact of the most severe tax bill in
all our history.
70
- 16 -
I make my appeal here today on broader ground
than that of revenue alone. It is my conviction that
the people of this country want a courageous tax bill,
and want it with the least possible delay. They are
ready for greater sacrifices than some of us imagine.
The overwhelming majority of them, I am convinced, want
us in Washington to show a determination that is worthy
of their own. They will be critical of us only if we
seem to palter or haggle, or if we pay too much atten-
tion to the demands of selfish groups, or if we seem
half-hearted in asking sacrifices of the people as a
whole.
Our acceptance of sacrifice on the home front is
a yardstick of our determination to win the war. For
this reason it is unthinkable to me that we should be
straining every effort on the production line and on
the fighting fronts abroad and at the same time be any-
thing less than all-out in the financing of the war
effort. This war, above all others, can be won only by
hard fighting and heavy losses, by the acceptance of
risks and deprivations, and by the united effort of
civilians and fighting men alike. In this kind of war
71
- 17 -
a tax bill can be a decisive battle. It could be lost
by narrow vision and faulty leadership. It can be won
by boldness and courage. I am confident that this
Committee will live up to its high responsibilities
and keep faith with a united people.
4th braft 7-21-42
72
of pm.
STATEMENT OF SECRETARY MORGENTHAU
BEFORE THE
SENATE FINANCE COMMITTEE
JULY 23, 1942
You will recall that in his Budget Message of
January 5, 1942, President Roosevelt asked for addi-
tional taxes for the fiscal year 1943, exclusive of
Social Security taxes, of $7 billion. On March 3rd,
I appeared before the Committee on Ways and Means of
the House and presented recommendations for a tax pro-
gram to produce $7,600 million in additional revenue
from taxes. On May 6th I wrote a letter to the Chairman
of the Committee on Ways and Means recommending a re-
duction in personal income tax exemptions to produce
approximately $1,100 million more revenue. These two
recommendations together involved a tax program of
$8,700 million of additional revenue. These amounts
represented what I believed, and still believe, was the
very least that the American people could afford to pro-
vide.
It is only against the background of our war expen-
ditures that we can tell whether the revenue bill before
you will fulfill its purpose. We are now spending
73
- 2 -
$150 million a day, or almost $5 billion a month. In
the fiscal year that is beginning we are committed to
spend the almost inconceivable sum of $77 billion to win
this war for human freedom.
There can be no compromise with these war expendi-
would notreduce them if we could
tures. We cannot reduce them if we would. Our whole
effort must be to spend as fast and as effectively as
possible in the production and use of our war materials.
If our expenditures this year reach $77 billion, our re-
ceipts in revenue from the people must bear some reason-
able relationship to that collossal figure. If the House
Bill were to become law it would be necessary to borrow
from the public during this fiscal year $ billion.
To the extent that we enlist our current income in taxes
to cut down that borrowing, we shall be protecting the
future economic soundness of our country and our free in-
stitutions. To the extent that we fail, we shall be en-
dangering the survival of all that we are fighting to
preserve.
It is interesting to compare the fiscal situation
here with the situation in Great Britain and Canada,
74
- 3 -
remembering, of course, that they have been at war
longer than we.
I have here a table of approximate figures which
summarizes the situation:
Percent of National Income
Devoted to War Effort
Fiscal
:
Great Britain
Year :
:
Canada
: United
: States
1941
48
18
1943
50
43
50
Percent of Expenditures Financed
through Taxes
Fiscal:
Great Britain
Year :
:
Canada
****
:
United
:
States
1941
44
61
1943
52
57
37
In its first full year of war, namely, the fiscal
year 1941, Canada devoted 18 percent of its national in-
come to the war effort; in the fiscal year 1943 it ex-
pects to devote about 43 percent of its national income
to the war. In the fiscal year 1941 Great Britain
75
- 4 -
devoted 48 percent of its national income to the war
effort, and in the fiscal year 1943 it expects to put
about 50 percent of its national income into the war.
In the fiscal year 1943, which will be our first full
year of war, it is estimated that the United States will
devote 50 percent of its national income to the war ef-
fort. Thus, thanks to the foresight of President Roosevelt
and the splendid cooperation of Congress, we shall in our
first full year of war have devoted to the war effort a
proportion of our national income comparable to the pro-
portions similarly devoted by Great Britain and Canada
today.
On the other hand, in the fiscal year 1941 Canada
financed 61 percent of its expenditures by taxation, and
in the fiscal year 1943 it expects to raise 57 percent
from taxes. Great Britain, in the fiscal year 1941,
financed 44 percent of its expenditures by taxation, and
in the fiscal year 1943 it expects to raise 52 percent
from taxes. In the United States, however, including
Federal, State, and local governments, only 37 percent
of total fiscal 1943 Government expenditures would be
76
- 5 -
financed by taxation on the basis of the revenue bill
now before you. It is clear that we are substantially
behind Great Britain and Canada in the proportion of
our expenditures which we are raising from taxes I Quite
atleast
frankly, I do not see why we should not do, as well as
Great Britain and Canada.
Taxation and the Cost of Living
Taxation does more than supply money to finance the
war. It does more than apportion the war burden now,
once and for all, instead of leaving it for further dis-
tribution through taxes after the war. Wartime taxation
also plays an important part in preventing rapid and con-
tinued increases in the cost of living. The President
has announced a seven-point program for holding down the
cost of living. Ceilings have been placed on prices.
This fact may have caused many people to be unduly opti-
mistic about the future of the cost of living. It cannot
be too strongly emphasized that if the price ceilings are
to be maintained and rapid and continuous price rises
avoided, the pressure of the large and expanding volume
of consumer purchasing power on the diminishing supply
of goods must be reduced.
77
- 6 -
To reach the greatest possible volume of consumer
purchasing power, the bill now before you includes such
a broad reduction of personal exemptions that it will
affect almost seven million individuals who have never
paid direct taxes before. If this section of the bill
is passed as it stands, some thirty million income tax
returns will be filed in the new fiscal year as against
only 7,600,000 in 1940. Moreover, these thirty million
individuals control the bulk of consumer demand today.
The income tax has, in fact, become a people's tax for
the first time in our history.
Taxes cannot, by themselves, win the battle against
inflation. The battle must be fought with determined
and coordinated effort on many fronts. Taxation can be
fully effective only if it is accompanied by restraint
and self-denial in other fields. Nevertheless, taxation
by itself can make the price situation more controllable
and less dangerous than it otherwise would be, and it is
an essential weapon that must be used to the utmost. In-
flation has been well described as "the ruthless process
whereby sacrifice is imposed inequitably upon a people
who have lacked the unity, the courage and intelligence
78
- 7 -
to impose that sacrifice equitably upon themselves."
It is for us to show that we have the unity, the courage,
and the intelligence to check inflation now.
Treasury Program a Minimum Program
The Administration's revenue program was presented
last Spring as a minimum. On March 3rd, when I first
came before the Ways and Means Committee, our total con-
templated expenditures for the fiscal year 1943 were
$63 billion. Since then they have risen by $14 billion,
and the total war appropriations, authorizations and re-
quests for this and succeeding fiscal years have risen
by $50 billion. Yet the bill before you would provide
only $6.2 billion additional revenue in place of the
$8.7 billion we recommended in the Spring. It would fail
by about $2.5 billion to reach that minimum of last
Spring, which is even more emphatically the very least
we can afford to provide today.
In presenting its revenue program to the Committee
on Ways and Means, the Treasury outlined methods of taxa-
tion which it considered most desirable and appropriate
to raise the required amounts. I still believe that
79
- 8 -
these proposals are sound and present the best sources
for a revenue program of this size. They are based
upon the principle of ability to pay, and they avoid
such devices as a general sales tax, which would fall
with the greatest impact upon those least able to bear
the burden. The various provisions of the Administra-
tion program are well known and it is not necessary to
repeat them here. I should like, however, to emphasize
certain points which I hope will be most carefully con-
sidered by the Committee.
1. Special privileges
The revenue bill as it stands violates the basic
principle of equity which is so important to an all-out
war finance program. It does this by leaving certain
highly privileged groups free from tax on large portions
of their income.
The first of these especially favored groups are
the recipients of tax-free interest from State and munici-
pal securities. Exemption of interest on State and local
securities is 8. serious breach in our system of taxing
according to ability to pay. For example, in the case
80
- 9 -
of one individual, out of a total reported income of
approximately $975,000, over $668,000 came from State
and local securities. If the bill as it passed the
House should become law, this individual would pay only
$ : if, on the other hand, your Committee would adopt
my suggestion and remove this pre-Pearl Harbor exemption,
he would pay $
.
The grossness of this immunity may be seen in an-
other way. Under the tax rates in the House Bill, &
person with a surtax income of $100,000 from other sources
who holds a 3 percent tax exempt security receives as much
net return after taxes as from a taxable security yield-
ing 20 percent. The existence of this special privilege
for all holders of tax-free securities costs the Govern-
ment and the people of the United States, under the
House rates of tax, about $ million a year; and it will
cost still more as our wartime taxes induce more and more
wealthy individuals to shift their investments into the
hide-out of tax exempt securities.
How can we expect to obtain an all-out war effort
from all our people if we go on permitting a group of
individuals and corporations owning $14 billion of State
81
- 10 -
and local securities to go tax free on the income from
these securities? We are asking our young men to give
the defense of their country
their lives in our defense, and safe at the same time we are
allowing many wealthy persons behind the lines to escape
their fair share of the war's financial burden. At a
time when we are straining our energies to the utmost
to defeat a powerful and ruthless foe, common decency
requires that we abolish these special tax shelters, and
do it now.
Another highly privileged group having large amounts
of income exempt from income tax are the owners of oil
wells and mines. I refer to percentage depletion. Per-
centage depletion is a serious breach in our system of
taxation according to ability to pay. For example, a
leading oil company owned a number of oil properties
which had cost it $3 million. At the time the case was
examined percentage depletion of $3.6 million had al-
ready been allowed and the properties still had three-
fourths of the oil left.
I cannot believe that the taxpayers of America
would knowingly sanction a provision of the law which
82
- 11 -
allows owners of oil and gas wells to deduct from their
income 271 percent of their gross receipts from such
wells--not for one year, two years, or the period neces-
sary to return investment, but for an unlimited period.
Certainly we cannot justify this exemption on the ground
that it encourages exploration and drilling for oil.
There is grave doubt that it has a substantial effect
on oil discovery. It would have cost the Federal Govern-
ment less than one-third as much to have paid all the
cost of every wild-cat well that was drilled in 1941 than
to have allowed percentage depletion and the associated
intangible drilling expenses, at an annual cost of
$208 million to the Treasury and the taxpayers.
The privilege of filing separate income tax returns
furnishes another example of special tax advantage to
many married couples having larger than ordinary incomes.
In families in which the income is earned partly by the
husband and partly by the wife and in families in which
income earning property can be divided between husband
and wife, the tax on the family income is less than where
the husband or wife receives the whole income. The
family is the true economic unit, and it is unfair for
83
- 12 -
the amount of tax on the family to vary depending upon
who earns the income or upon who in the family has in-
come producing property. Ability to pay taxes must be
judged in terms of family incomes and not the incomes
of members of the family, the failure to require joint
income tax returns constitutes a violation of the principle
upon which our tax system should be based.
The adoption of mandatory joint returns would also
eliminate another discrimination prevailing under exist-
ing law. Married couples living in the eight or nine 80-
called community property States receive tax advantages
which are in no way commensurate to any special relation-
ship that may exist between husbands and wives in those
States. For example, take a family in which the husband
has a salary of $10,000 after deductions. If the family
has its residence in, say, California, the family tax
would be $2,138, while if the family lives in, say, Iowa,
the tax would be $2,549, or nearly 20 percent more. The
discrimination is even more pronounced with larger incomes.
In this national emergency, how can we complacently per-
mit the citizens of these community property States a
more favorable tax status than those of the rest of the
country?
84
- 13 -
These and other examples of special privileges
are intolerable at a time like this, when we are im-
posing heavy taxes on persons with small incomes and
there is pressure for limiting wages and farm prices.
The country is in greater danger today than ever before
in its history. The war is now in its most critical
phase, and only by pulling together as a united people
can we make the effort that will turn the tide toward
victory. At such a time any special privilege for any
small group not only deprives the Treasury of revenue
that is badly needed for the war effort, but it hinders
the war effort by undermining the morale without which
the war cannot be won. I never would have recommended
lowering the personal exemptions, and thus increasing
the burden on millions with small incomes, if I had
thought that these loopholes were to remain in the law
as a symbol of special privilege in this time of national
peril.
2. Excess profits tax
Another similar hindrance to the prosecution of
this "people's war" is the existence of excessive profits
in war time. There is no easier way to stir the
85
- 14 -
righteous anger of the American people than to let them
hear constantly of excessive war-time profits that are
not being recovered by adequate taxation. I have said
repeatedly that we are determined to take the profit
out of war, and the Treasury's recommendations have been
framed with this determination in mind.
An effective excess profits tax does much more than
produce badly needed revenue in time of war. It also
reassures the masses of our farmers and factory workers that
industry is not being rewarded unduly for its part in
the winning of the war.
Experience has shown, however, that when excess
profits taxes are too high they may result in extrava-
gance and waste in the conduct of business. It is
vitally important that we enable business to produce
for war purposes as economically and efficiently as
possible, if for no other reason than to avoid a waste
of war materials and labor and to hold down the cost of
the war to the Government. A businessman must plan for
the future, and for that reason we have recommended a
90 percent excess profits tax coupled with a 10 percent
86
- 15 -
credit for return to the corporation after the war. A
post-war credit to industry will not only encourage
economy and efficiency but at the same time will help
toward the rebuilding of our economic life. It should,
of course, be restricted in such a manner that it would
be used for the direct employment of labor, the conver-
sion of plant to peace-time business or for other uses
promoting economic adjustment and growth.
You will notice that I have not used the word
"incentive" in this connection. I have not used it be-
cause I do not believe that any patriotic American needs
a selfish "incentive" to produce for war at this time.
Millions of our people are willing to pay new and genu-
inely burdensome taxes, to buy War Bonds without stint,
and to face rising living costs with static wages and
salaries. Their only "incentive" is their firm resolve
to win this war and build a better future.
3. Tax on freight and express
One tax that would be imposed by the bill before
you directly threatens the stability of prices. This
is the tax on freight and express which would add to
87
- 16 -
the cost of producing and supplying practically every
commodity and service. In great numbers of cases the
added cost would make it impossible for businesses to
continue to operate under the price ceilings which have
been imposed and the breaches in the price ceilings
which would thereby be caused would threaten the whole
price structure.
Conclusion
I shall not attempt today to discuss the more tech-
nical aspects of the long and complex bill before you,
nor to enlarge further upon the subjects I have mentioned
already. The Treasury staff stands ready, as always, to
assist you in every way possible in carrying out your
difficult and responsible task. I should like, however,
to make just one more appeal. Every day consumed in
your Committee's work will lose us substantial amounts
of revenue under the excise tax portions of the bill.
Every day that can be saved in enacting this will enable
it to produce just 80 much more in needed revenue. Every
day saved will give our citizens additional time to ad-
just themselves to the impact of the most severe tax bill
in all our history.
88
July n, 1942.
My dear Montenant Norillate
Thank you for year letter telling as of
your nov sesignment with the Marine Corps.
I as sure that this opportunity be get tate
action - such more to you than verking n
the too program I 1 hope that all will @ well
with you, and shall be glod to hear from you
any time you have M opportunity to tell no visat
you 170 doing.
Sincerely,
(Signed) H. Morgenthau, Jr.
Second Licutenant Bestert be Negillat,
Marine Corpo Date erso,
e/o The Postmaster,
less Franchose, California.
GEF/dbs
File-Nmc
89
My dear Mr. Secretary,
I had hoped to have & chance, be-
fore I left Washington, to tell you how
grateful I have been for the opportunity
to work for you and how sorry I am that
my work had to be out short.
When I was called back from Hawaii
to help with the new tax publicity pro-
gram which you had in mind, I was parti-
cularly pleased that you should want my
services in that connection. When I
left Hawaii, however, I knew it would be
only a few weeks before I should be in
one of the armed services. I heard of
an opening in the public relations section
of the Marine Corps which seemed to
promise my quickly getting to the scene
of some action, and here I am, "somewhere
with the Marines".
News from Washington is skimpy and
have completely lost touch with the
development of the tax program - to my
regret. I look forward to hearing the
outcome of the sales tax controversy
and of the war bond sales drive, hoping
the news will be good.
I learned to appreciate the
difficulties of the sort of fight you
have been waging. I wish you success
90
in that fight and look forward to
being in the Treasury again, in
happier days.
Very truly yours,
Herbert L. Mirillat
Herbert L. Merillat
2nd Lt., USMCR
Marine Corps Unit # 730
c/o Postmaster
San Francisco
California
я: I.. Verifical
7%
(Ormáten Sent rencise
JUN
18
1942
Personal
A.M.
NAVY
TREA
1942
n,1
SEAR
Hom. Henry Morgenthau, C Jr.
BY NATEL
U.S. Treasury Dept
OFFICE
of
Washington, D.C.
8 8.23 23
9:17
OF ICE TRE/ DURY
has who
7
7-21-42
92
RALPH HAYES
Hayes, Ralph; b. Cresline, 0., Sept. 24, 1894; 8. John and Margaret
(Costello) H.; A.B., Western Reserve Univ., 1915; unmarried. Sec. City
Club, Cleveland, 0., 1915-16; pvt. sec. to sec. of war Dec. 1916 - July
1918; asst. to sec. of war, Jan - June, 1920; asst. to pres. of Cleveland
Trust Co., 1920-22; asst. to pres. of Motion Picture Producers & Dis-
tributors of America, 1922-23; v.p. Chatham Phenix Nat. Bank & Trust Co.,
1927-29; 2d v.p. Press Pub. Co. (New York World), 1929-30; v.p. Trans-
america Corp. 1930-31; exec. dir. N.Y. Community Trust since 1923; v.p.
The Coca Cola Co. since 1933; dir. Studebaker Corp. Private 11th Div.,
U. S. Army, Camp Meade, July-Sept. 1918; commd. lt. inf. at Ligny, France,
Sept. 1918. Mem. Phi Beta Kappa (ex-pres. Alpha of Ohio), Delta Sigma
Rho, Alpha Delta Phi (ex-treas.) Phi Delta Phi. Clubs: City (Cleveland -
ex-treas., ex. sec., ex-dir.); Country (Wilmington); Concord Country
(Concordville, Pa.); Broad Street (New York). Home: Crestline, Ohio.
Office: 101 W. 10thSt, Wilmington, Del., and 120 Broadway, New York.
93
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 21,1942
TO
Secretary Morgenthau
FROM
Mr. Hoflich
Subject; Shipping Situation (Charts attached)
returned
1. Shipping losses during June were much higher
than in any other month since the beginning of the war.
June losses of Allied and neutral shipping totalled
808,249 gross tone, as compared with the previous all-
high figure of 696,958 tons in May. In the first six
months of 1942, losses amounted to over 3,800,000 tens.
2. Allied and neutral shipping losses exceeded
British and American launchings by a much greater margin
in June than in May, as indicated by the following gress
tonnage figures:
May
June
Losses
696,958
808,249
Launchings
626,000
656,945
Excess of lesses over
launchings
70,958
151,304
It was reported last month that launchings in May
had finally caught up with losses. The receipt of
revised loss figures, however, changed the picture
considerably.
94
211942
My dear Mr. President:
I - melesing repert on our experts
to some selected countries for the period
ending June 30, 1942.
Faithfully,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury
The President,
The White House.
Enclosure.
Delivered by Secret Service
Agent 4:50 7/21/42
cc-Dr. White
cc-NMC
How COPY
SECRET
95
July 11, 1942
Exports to Russia, Free China, Burna and other
blocked countries, as reported to the Treasury
Department during the tem-day period ending
June 30, 1942
1. Exports to Russia
Exports to Russia as reported during the ten-day period
ending June 30, 1942 amounted to about $50,000,000 as compared
with about $54,000,000 during the previous ten-day period. Among
the military equipment exported during the peried under review
were 69 one engine pursuit and fighter planes, 11 two engine
light bombers, 56 two engine medium bombers and 117 tanks.
(See Appendix C.)
2. Exports to Tree China and Burna
Exports to Free China as reported during the ten-day period
under review gmounted to $1,664,000 as ocupared with $2,707,000
during the previous tom-day period. Military equipment assounted
for about $1,106,000 of the total exported. (See Appendix D.)
Experts to Burne as reported during the peried under review
amounted to about $60. (See Appendix E.)
3. Experts to France
No experts to France were reported during the period under
review.
4. Exports to other blocked countries
Experts to other blocked countries are given in Appendix 4.
Exports to Switzerland and Fortugal were most important, amounting
to $591,000 and $165,000, respectively.
ISF/efs
7/11/42
Regraded Unclassified
STRICTLY CONFIDENTIAL
96
SUMMARY OF UNITED STATES
DOMESTIC EXPORTS TO SELECTED COUNTRIES
AS REPORTED TO THE TREASURY DEPARTMENT
FROM EXPORT DECLARATIONS RECEIVED
DURING THE PERIOD INDICATED w
July 28, 1941 to June 30, 1942.
(In thousands of dollars)
July 28
to
Period ended
Period ended
Total
June 10
June 20
June 30
Domestic Exports
S. S. R.
$534,073
$53,799
$49,919
$637,791
ee China
81,793
2,707
1,664
86,164
- 2/
12,435
-
y
12,435
nee 3/
56
-
-
56
in
2,849
-
-
2,849
itserland
10,710
5/
591
11,301
eden
17,778
-
2
17,780
rtugal
9,027
9
165
9,201
ench North Africa w
6,283
-
5/
6,283
easury Department, Division of Monetary Research
July 9, 1942.
Many of the exports declarations are received with a lag of several days or more.
Therefore this compilation does not accurately represent the actual shipment of
a particular period. The longer the period covered, the closer will these figures
come to Department of Commetroe revised figures.
From September 11, 1941 to date -- - it is presumed that a large percentage of
material listed here, consigned to Burms, is destined for Free China.
Includes both Occupied and Unoccupied France - no breakdown is obtainable from
Department of Comeros.
Includes Moroooo, Algeria, and Tunisia,
Less than $500,
Wirl 7/9/42
Regraded Unclassified
SECRET
APPENDIX B
97
Exports from the U. s. to Free China, Burma and
U.S.S.R. as reported to the Treasury Department
July 28, 1942 - June 30, 1942 w
(Thousends of Dollars)
Experts to
Exports to
Exports to
Pree China
Burna 3/
U.S.S.R.
July 28 - Aug. 2
395
4,523
Aug. 4 - Aug. 2
-
Aug. 11 - Aug. 16
309
Aug. 18 - 23
2
2,
Aug. 25 - 30
1
1,023
Sept. 2 - Sept. 6
204
4,
Sept. 8 - Sept.13
2,281
5,217
Sept.15 - Sept.20
3,822
Sept.22 - Sept.27
110
2,
Sept.29 - 4
1,225
Oct. 6 - 11
5,312
1,157
6,
Oct. 13 - 18
5
1
Oct. 20 - 25
403
Oct. 27 - 1
Nov. 3 - 8
1
342
Nov. 10 - 15
Nov. 17 - 22
1
1,021
Nov. 24 - 29
3,239
1,364
Dec. 1 - 6
Des. 8 - 13
2,
18
Des. 15 - 20
Des. 22 - 27
Dee. Dec. Aug. Nov. Nov. Des. Nov. Des. Nov. Feb. I Feb. Aug. Feb. Oct. Nov. Oct. Oct. Oct. Jam. Apr. Apr. Apr. Jan. Jam. Jam.
1
196
Des. 29 -
3
35
2
Jan. 5 -
10
1,073
Jam. 12 -
17
1,695
Jam. 19 -
24
Jam.
26
-
31
Peh. 1 -
10
1,054
Feb. 10
-
20
Feb. 20
-
28
Mar. 1
10
Mar. 10 -
20
Mar. 20 -
31
Apr. 1 -
10
Apr. 11
-
20
Apr. 21
-
30
May
1
-
10
5/ w w I/ 6/
May
11
-
20
May
21
-
June
1
-
11
-
-
21
30
.06
-
Total
#88,767
$11,322.06
0638,494
Regraded Unclassified
98
APPENDIX B
Page 2
1. These figures are in part taken from copies of shipping manifests.
2. Figures for experts to Free China during these weekliff include
exports to Rangoom which are presumed to be destined for Free
China.
3. It is presumed that a large persentage of exports to Burna are
destined for Free China.
4. Beginning with February 1 figures will be given for 10-day
period instead of week except where otherwise indicated.
5. 8-day period.
6. 11-day period.
7. Due to changes in reporting presedure by the Department twent of
Commerce this report is incomplete for the period indicated.
Treasury Department, Division of Memotary Research July 11, 1942
ISF/efs
7/11/42
Regraded Unclassified
SECRET
99
APPENDIX C
Principal Experts from U. 8. to U. a. s. R.
as reported to the Treasury Department
during the ten-day period ending
June 30, 1942
Value
Unit of
(Thousands
Quantity
Quantity
of dollars)
TOTAL EXPORTS
s 49,919
Principal Items:
Aircraft
14,510
Pursuit and fighter (1 engine)
No.
Light bembers (2 engine)
No.
Medium bembers (2 engine)
No.
SIX
Military tanks
9,076
Light tanks
No.
2
Medium tanks
No.
115
Sub-machine guns - .45 eal.
No.
21,980
4,440
Ammunition
4,228
.30 ealiber
No.
15,285,500
.32, .38, .45 saliber
No.
3,170,000
.455, .50 ealiber
No.
3,859,900
3 inch .50 caliber
No.
1,000
22 m. Oerlikem
No.
157,000
37 m. anti-aireraft
No.
33,020
37 m. tank and anti-tank
No.
134,780
75 m. artillery
No.
33,638
81 m. morter shells
No.
36,500
Puses
No.
13,150
Components for small arms
-
-
Aircraft parts and assessories
-
-
2,631
Pork and samsage, canned
Lb.
5,977.769
2,070
Motor trucks
No.
§
Sele leather
à
2,600,167
1,145
Copper wire, bare and insulated
LD.
3,607,338
Parts and assessories for game
-
-
Steel bare
à
5,777,067
Brass and brease plates, sheets & bars
Lb.
2,786,736
Diesel marine engines
No.
4
Steel sheets and strips
à
9,050,886
frinitre teluene (T.N.T.)
LD.
3,564,720
Smokeless powder
Lb.
1,495,000
388
reasury Department, Division of Monetary Research
July 11,1942
SF/efe 7/11/42
Regraded Unclassified
SECRET
APPENDIX D
Principal Exports from U. 8. to Free China
as reported to the Treasury Department
during the ten-day period ending
June 30, 1942
(Thousends of Dellars)
TOTAL EXPORTS
$ 1,664
Principal Items:
Military equipment
1,106
Other irem and steel manufactures
288
Other vegetable fiber memufastures
"
Radio transmitting and receiving sets and parts
40
Medicinal and pharmasoutical preparations
28
Telephone and telegraph apparatus and parts
25
Tires and tubes, other than auto and truck
16
Writing paper
13
Treasury Department, Division of Memotary Research July 11,1942
ISP/efs
7/11/42
Regraded Unclassified
SECRET
101
APPENDIX I
Principal Experts from U. s. to have
as reported to the Treasury Department
during the tem-day peried ending
June 30, 1942
(Thousands of Dellars)
TOTAL EXPORTS
$ .056
Principal Items
Motion picture film, exposed
.056
Treasury Department, Division of Monetary Research July 11,1942
ISF/efe
7/11/42
102
JUL 21 1942
By dear M. Secretary:
I - enclesing copy of report -
our exports to some solected countries
for the period ending June 30, 1942.
Sincerely yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury
the Honorable,
the Secretary of State,
Washington, D.C.
Delivered by Messenger Sturgis
7/21/42 4:50
7/13/42
cc-Dr. White
cc-NMC
HDW FILE COPY
Regraded Unclassified
SECRET
103
July 11, 1942
Exports to Russia, Free China, Burma and other
blocked countries, as reported to the Treasury
Department during the ten-day period ending
June 30, 1942
1. Exports to Russia
Exports to Russia as reported during the ten-day period
ending June 30, 1942 smounted to about $50,000,000 as compared
with about $54,000,000 during the previous ten-day period.
Military equipment accounted for approximately 75% of the total
exported. (See Appendix C.)
2. Exports to Free China and Burma
Exports to Free China as reported during the ten-day period
under review amounted to $1,664,000 as compared with $2,707,000
during the previous ten-day period. Military equipment accounted
for about $1,106,000 of the total exported. (See Appendix D.)
Exports to Burma as reported during the period under review
amounted to about $60. (See Appendix E.)
3. Exports to France
No exports to France were reported during the period under
review.
4. Exports to other blocked countries
Exports to other blooked countries are given in Appendix A.
Exports to Switzerland and Portugal were most important, amounting
to $591,000 and $165,000, respectively.
ISF/efs
7/11/42
Regraded Unclassified
STRICTLY CONFIDENTIAL
104
SUNMARY OF UNITED STATES
DONNSTXC EXPORTS 90 STENOTED OCCUPTRIES
M REPORTED to THE TREASURY DEPARTMENT
PHON HEPORT INSTARATIONS NEURSVED
EURISO THE PENIOD INDICATED V
ore July so, 1941 to June 30, 1942.
(In thousands of dollars)
July 28
to
Period ended
Period ended
Total
make
June 20
2000.30
s. S. R.
$534,073
$53,799
$49,929
8637,791
NO China
81,793
2,707
1,664
86,264
3/
12,435
-
5/
12,435
2/
%
-
-
56
in
2,849
-
-
2,649
teerland
10,720
s/
992
11,302
I
17,778
-
2
17,780
Phone
9,027
9
265
9,201
rench North fries w 6,283
#
st
6,20
Peasury Department, liviste of Honstory Recearch
July " 1942.
Many of the despons declarations are reselved with 8 lag of several days or mrs.
Therefore this empilation does mt accurately represent the astual shipment of
a particular pariod. The 2anger the puried covered, the decer will these figures
- to Department of Commerce revised figure.
From September 21, 1941 to date - 18 to prommed that a large persentage of
material listed here, oursigned to norm, 15 destined for Pyee China.
Includes both Occupion and Unsconpied France - no brookdown is obtainshile from
Department of Commerce,
Includes Neresse, and Tendsia.
Less then 8900,
Mirl 7/9/42
É
June
May
Dru
May
Apr. 21
Apr. 11
Apr. 1
Mar. 20
Mar. 10
Mar. 1
Feb. 20
Feb. 10
1 Peb.
Jan. 26
Jan. 19
Jam. 12
Jam. 5
Des. 29
Dee. 22
Dec. 15
Dee.
Dee.
Dee.
Dec. à - Dee.
Nov.
1
I
-
Apr.
Apr.
Nov. 24 - Nov. 29
lov. 10 - Nov. 15
Nov. 3
Total
55.000
1
11
1
17 - New.
Oct. 27 - Nov.
Oct. 20 - Cet. 25
Oct. 13 - Des. 18
Oct. 6 -
-
-
-
Des.
- Nev.
Sept.29 - Get.
Date 11
Sept.22 - Sept.27
Sept.15 - Sept.20
Sept. NO - Sept.13
Sept.
- Sept.
Aug. 25 - Auge 30
Aug. - Aug. 23
18
Aug. 11 - AMS. 16
AUG. 4 - Aug.
July 28 - Augo
20
13
8
00 m
1
for
6
NON
n ***
$88,767
PAWNP MAIS CONNER
... ......
1,695
2,
VPNFF
.....
3,239
2,
1,
MWNNGEN
5.3
:
1,225
1
110
3,822 3. z
2 2,281
204
309
.
t
2
395
Free China
Experts to Exports
Dellare) (Therwands of
July 28, 1948. - June 30, 1942 v
1,054
1,
1,073
s't
1.88
1,02
Burna
Department Treasury E = V.B.S.R. reported E
Exports from the U. 5. to Pree China, Burma and
APPENDIX B
$11,322.06 $638,494
234
19
X
-
5
¥
1,15
23
.06
to
2,
= Experts
105
SECRET
106
APPENDIX B
Page 2
1. These figures are in part taken from copies of shipping mairests.
2. Figures for exports to Free China during these weeks include
exports to Rengoom which are presured to be destined sur Free
Chima.
3. It is presumed that a large persentage of experts to Durne are
destined for Free China.
4. Beginning with February 1 figwee will be given for 10-day
period instead of week except where otherwise indicated.
5. 8-day period.
6. 11-day period.
7. Due to changes in reporting procedure by the Department of
Commerce this report 10 incomplete for the period indicated.
reasury Department, Division of Mometary Research
July 11, 1942
1%%
107
APPENDIX c
Principal Exports from U. S. to U. S. s. R.
as reported to the Treasury Department
during the ten-day period ending
June 30, 1942
(Thousands of Dollars)
TOTAL EXPORTS
$ 49,919
Principal Items:
Military equipment
36,654
Pork and sausage, canned
2,070
Motor trucks
1,458
Sole leather
1,145
Copper wire, bare and insulated
924
Steel bars
707
Brass and brense plates, sheets and bars
529
Diesel marine engines
477
Steel sheets and strips
474
Other rubber manufactures
378
Other vehicles and parts
365
Motorcycles
351
36h
Lathes
Tubular products and fittings
339
Treasury Department, Division of Monetary Research July 11, 1942
ISF/efa
7/11/22
SECRET
108
APPENDIX D
Principal Experts from U. s. to Free China
as reported to the Treasury Department
during the tex-day period ending
June 30, 1942
(Thousands of Dollars)
TOTAL EXPORTS
$ 1,664
Principal Items:
Military equipment
Other iren and stool name asteres
Other vegetable fiber manufactures
Radie transmitting and reseiving sets and parts
Medicinal - pharmacoutical preparations
Telephone and telegraph apparatus and parts
23
Tires and tubes, other than anto and truck
16
writing paper
13
Treasury Department, Division of Nonetary Research July 11,1942
ISP/efe
7/11/42
SECRET
109
APPENDIX I
1 : the s : Printipal
as reported to the Treasury Department
during the ten-day period ending
June 30, 1942
(Thousends of Dellars)
TOTAL EXPORTS
6 ,056
Principal Items
Metion picture film, expesed
.036
Treasury Department, Division Hometory Research July 11, 1942
TAX
110
JUL 211942
Dear Mr. Davis:
Thank you very such for your letter of
July 11, 1948, confirming your Arrangement
to have members of Dr. Libert's staff made
available for the Treasury Department's study
in Baffale. I shall be am to disense the
question of further studies after the Buffale
study has been completed.
Sincerely,
(Signed) H. Morgenthau, Jr.
Nenerable Niner Davis,
Director of Var Information,
Washington, D. c.
GOH:ek 7/17/42
Photo file NMC.
Complete file to Thompson.
EXECUTIVE OFFICE or THE PRESIDENT
OFFICE FOR EMERGENCY MANAGEMENT
WASHINGTON,D.O.
Office of War Information
July 11, 1942
The Honoroble
Henry Morgenthau
Secretary of the Treasury
Washington, D. C.
Dear Mr. Secretary:
In accordance with our telephone conversation this morning, I have
arranged to have members of Dr. Rensis Likert's staff made available for
the study the Trensury Department desires to make in Buffelo. Dr. Likert
estimates that the "pilot" study involved will require ten to fifteen man
days on the preliminary problem of sampling, and thereafter the full time
of four to six interviewors, one study director, And two analysts. If your
representative will communicate with :-. Keith Kenn, Chief of the Bureau of
Intelligence of the Office of War Information, Mr. Kene will be glad to
work out the details of the arrangement.
I did not fully appreciate, when I talked to you, that this arrange-
ment constitutes an exception to our general operations. Dr. Likert and
his people. though carried on the Department of Agriculture payroll, are
for purposes of operation a part of our Bureau of Intelligence, since the
Bureau of Intelligence, by arrangement with the Secretary of Agriculture,
\absorbs their full time on a reimbursable basie. The Bureeu conducts its
various surveys for the government 88 a whole, providing through this Office
essential information on problems of jublic opinion and general conditions
affecting information and policies. Needless to 88y, the Bureau of Intelli-
gence could not operate successfully for these purposes if members of its
staff were detailed freely to the various departments and agencies for
Bureau of Intelligence, welcomes opoortunities to serve other departments
specific studies. However, the Office of War Information, including the
and agencies of the government and vill be happy at all times to receive
suggestions as to studier that should be undertaken.
I shall welcome any suggestions you mey care to make from time to
time as to surveys or incuiries you would like to see the Bureau of Intelli- the
gence pursue. I shall also be glad to discuss with you the question of
continuation of the Buffalo studies, after the pilot study 16 completed.
Cordially,
Elmendans
ICTORY
Elmer Davis
BUY
Director
UNITED
STATES
purpose
BONDS
AND
STAMPS
Regraded Unclassified
112
MEMORANDUM
July 21, 1942.
TO:
The Secretary
FROM:
Mr. Sullivan
ThS
You will recall that about ten days ago you had a call
from Congressman Gearhart about moving the Alcohol Tax office from
San Francisco to Fresno. You referred this matter to me and I
assured Congressman Gearhart that there was no likelihood of the
office leaving San Francisco. He then stated that a majority of the
work of the Alcohol Tax Unit was done in the San Joaquin Valley and
asked if we would set up a branch office there. I discussed the
matter with Mr. Berkshire who gave me a list of the bonded ware-
houses, distilleries, plants et cetera in California and in the
San Joaquin Valley. This list showed that less than 15 percent of
the work of our agents was performed in and about Fresno.
Yesterday I called Congressman Gearhart and read him
these figures. He said that apparently he had been mislead as to
the extent of activity of our agents in that part of California.
He then asked me if there was any chance at all of our establishing
a branch office in Fresno and I told him there was not.
113
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATEJULY 21, 1942
TO
Secretary Morgenthau
FROM
Mr. White
Subject: Proposed Mexican Tax on Silver Exports
1. The Mexican Government has informed the Treasury that it
plans to place an export tax on silver to raise additional
revenue needed by the Mexican Government. Taxes derived
from silver mining have always been an important part of the
revenues of the Mexican Government, approximately 15 percent
of total federal revenues being derived from such taxes.
During the period of low silver prices these taxes were
reduced substantially. With the present increased demand
for silver the Mexican Government would like to place a tax
of about 10 cents an ounce on exported silver.
Mexico 1s the most important source of supply for the
silver market. More than 90 percent of Mexico's annual
production of 75 million ounces of silver is exported to
the United States, and this constitutes about 70 percent
of our total imports of 100 million ounces of silver. Even
if all the newly-mined domestic silver goes into the
market, nearly 45 percent of the entire current supply
other than reclaimed silver would be of Mexican origin.
The policy of the Mexican Government would, therefore,
directly affect the domestic silver market. An export tax
of 10 cents an ounce would necessitate & ceiling price
of 45-3/8 cents an ounce in this country.
2. Many domestic users of silver have been offering 50
and 60 cents an ounce for silver in Mexico, and some silver
users will probably pay more than 71 cents an ounce for
domestic silver. The WPB is instituting a system which will
make it impossible for American users of silver to buy
silver abroad and use it here unless they have paid more
than the price ceiling established by OPA. At present that
price ceiling is 35-3/8 cents. If Mexico imposes a tax of
10 cents an ounce, the producer in Mexico would receive
only 25 cents. The supply of silver and some by-products
metals would be somewhat curtailed.
We have talked to the WPB and they have said that the
question of price is the responsibility of the OPA. We
have talked with the OPA informally and they think they will
be agreeable to raising the price ceiling to 45 cents.
114
Division of Monetary
Research
- 2 -
3. Since the Mexican Government has raised the question with
you, you may wish to arrange 8- conference in your office to
be attended by the representatives of the OPA and WPB to
officially consider the Mexican proposal. You will remember
you said you would see Mr. Beteta after he had talked with
me about the subject.
115
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 21, 1942
TO
Secretary Morgenthau
FROM
Mr. White
Subject: Draft noses of U.K. and Australia on terms of reciprocal
aid.
The State Department has forwarded the attached copies of
draft notes on the terms of reciprocal aid submitted by the
British Embassy and the Australian Legation. These notes consti-
tute British and Australian counter proposals written in response
to the State Department drafts of June 1. The State Department
drafts of June 1 were written after the meeting of May 28 in your
office at which the State Department's proposed drafts were dis-
cussed.
1. The present drafts do not call for U.S. payment of
the balance due on B.P.M. contracts.
This was the point debated at the meeting of May 28,
the concensus of opinion being that the clause
calling for this action should be dropped from the
draft.
The Australian draft, however, states: "regard will
be had to the effects that may be produced on the
general Australian economy," and the notes to the
draft, written by the Australian Government, explain
that & the Australian Government desires that the
United States should transfer to Lend-Lease as much
as possible of existing Australian cash contracts in If
dollars for war and essential civil supplies
2. Both of the present drafts introduce a proviso that
the financial obligation falling on either party shall not
exceed his financial capacity nor be such as to hinder his
war effort.
3. Both add administrative expenses to the list of items
not to be provided.
This is based on Lend-Lease precedent. The previous
list was troop pay and allowances, and local purchases
not made through official channels.
116
Division of Monetary
Research
- 2 -
4. Both omit the clause providing for the extension of
the arrangement to others of the United Nations.
The effect of this omission will be to make more
difficult the conclusion of Lend-Lease arrangements
between members of the United Nations other than
the United States.
5. The Australian draft limits Australia's obligation
to provide supplies and services for construction of
military projects outside Australia except "in such other
cases as may be determined."
The original drafts called upon each signatory to
provide such supplies whenever those supplies can
be most effectively procured in the country concerned.
There is also attached a copy of an earlier Australian note
written by the Australian Minister before he had received instruc-
tions from his Government. The Minister's draft is of little
interest at this time, but it is essentially similar to the final
Australian draft.
117
C
0
P
Y
DEPARTMENT OF STATE
WASHINGTON
July 14, 1942
Dear Harry:
I enclose copies of draft notes on reciprocal
lend-lease aid which were given me today by the
British Embassy and the Australian Legation. These
are based on the drafts which we presented to them
on June 1.
As it seems desirable to conclude these negoti-
ations as quickly as possible, I should be grateful
if you could come to my office to discuss the matter
at 2:30 on Thursday afternoon, July 16. I am also asking
the War and Navy Departments, the Board of Economic
Warfare, and the Office of Lend-Lease Administration
to be represented.
Sincerely yours,
/8/ Dean Acheson
Enclosures:
2 draft notes
Dr. Harry White,
Assistant to the Secretary,
Treasury Department,
Washington, D. C.
0
DRAFT
P
118
Y
FROM THE BRITISH AMBASSADOR TO THE SECRETARY OF STATE
Regraded Uncla
In the United Nations declaration of January 1st,
1942, the contracting governments pledged themselves to
employ their full resources, military or economic, against
those nations with which they are at war and in the Agree-
ment of February 23rd, 1942, each contracting government
undertook to provide the other with such articles, serv-
ices, facilities or information useful in the prosecution
of their common war undertaking as each may be in a posi-
tion to supply. It is further the understanding of the
Government of the United Kingdom of Great Britain and
Northern Ireland that the general principle to be followed
inproviding mutual aid as set forth in the said Agreement
of February 23rd, 1942, is that the war production and
the war resources of both Nations should be used by the
armed forces of each and of the Other United Nations in
ways which most effectively utilise the available materials,
manpower, production facilities and shipping space.
With a view, therefore, to supplementing Article 2
and Article 4 of the Agreement of February 23rd, 1942,
between our two Governments for the provision of reciprocal
aid, I have the honour to set forth below the understanding
of the Government of the United Kingdom of Great Britain
and Northern Ireland of the principles and procedures
applicable to the provision of aid by the Government of
the United Kingdom of Great Britain and Northern Ireland
to the armed forces of the United States and the manner in
which
- 2 -
119
which such aid will be correlated with the maintenance
of those forces by the United States Government.
1. Where appropriate, decisions as to the most
effective use of resources shall be made in common, pursuant
to common plans for winning the war.
2. as to financing the provision of such aid, within
the fields mentioned below, it is my understanding that
the general principle to be applied, subject to the financial
liabilities falling on either party not being in excess
of their financial capacity and accordingly such as to
hinder their war effort, is that as large a portion as
possible of the articles and services to be provided by
each Government to the other shall be in the form of recip-
rocal aid 80 that the need of each Government for the our-
rency of the other may be reduced to a minimum. It is
accordingly my understanding that the United States Govern-
ment will provide, in accordance with the provisions of,
and to the extent authorized under, the Act of March 11,
1941, the share of its war production made available to
the United Kingdom. The Government of the United Kingdom
will provide on the same terms and as reciprocal aid 80
much of its war production made available to the United
States as it authorises in accordance with the Agreement
of February 23, 1941.
3. The Government of the United Kingdom will provide
the United States or its armed forces with the following
types of assistance, as such reciprocal aid, when it is
found that they can most effectively be procured in the
United
cu-
120
United Kingdom or in the British Colonial Empire:
(a) Military equipment, munitions and military and
naval stores.
(b) Other supplies, materials, facilities and serv-
ices for the United States forces, except for
-
the pay and allowances of such forces, local
administrative expenses, and such local purchases
as its official establishments may make other
than through the official establishments of the
Government of the United Kingdom as specified
in paragraph 4.
(c) Supplies, materials and services needed in the
construction of military projects, tasks and
similar capital works required for the common war
effort in the United Kingdom or in the British
Colonial Empire, except for the wages and salaries
of United States citizens.
(a) Supplies, materials and services needed in the
construction of such military projects, tasks and
capital works in territory other than the United
Kingdom or the British Colonial Empire or territory
of the United States to the extent that the United
Kingdom or the British Colonial Empire is a more
practicable source of supply than the United
States or another of the United Nations.
4. Requests by the United States Government for such
aid will be presented by duly authorized authorities of the
United States to official agencies of the United Kingdom
which will be designated or established in London and in the
areas
121
- 4 -
areas where United States forces are located for the purpose
of facilitating the provision of reciprocal aid.
5. It is my understanding that all such aid accepted
by the President of the United States or his authorized
representatives from the Government of the United Kingdom
will be received as a benefit to the United States under the
Act of March 11, 1941. In 80 far as circumstances will
permit, appropriate record of aid received under this arrange-
ment, except for miscellaneous facilities and services,
will be kept by each Government.
6. The detailed application of the principles formulated
in this note and the extent to which they will be carried
out will be worked out by agreement by the two Governments
as occasion may require, acting when possible through their
respective appropriate administrative authorities.
7. The procedure by which requests for aid are made
by one or other Governments and are dealt with shall be
settled from time to time by agreement between the respective
Governments.
If the Government of the United States concurs in the
foregoing, I would suggest that the present note and your
reply to that effect be regarded as placing on record the
understanding of our two Governments in this matter.
I have the honour to be etcetera, etcetera.
122
C
0
P
Y
LEND-LEASE AND RECIPROCAL LEND-LEASE BETWEEN U.S.A. AND AUSTRALIA
DRAFT EXCHANGE OF NOTES: AUSTRALIAN PROPOSALS
(A) FROM THE AUSTRALIAN MINISTER TO THE SECRETARY OF STATE
NEW DRAFT:
EXPLANATORY NOTES:
As contracting parties to the United Nations
The draft is based on the standard
Declaration of January 1, 1942, the Governments
U.S. draft (hereunder referred to
of the United States of America and the
as the Original), which has been
Commonwealth of Australia pledged themselves
adapted in Canberra to suit
to employ their full resources, military and
Australian conditions, after
economic, against those nations with which
consultation with the U.K., and as
they are at war.
'a result of conferences between the
Prime Minister (Mr. Curtis), the
Treasurer (Mr. Chifley), and the
Attorney General (Dr. Evatt).
With regard to the arrangements for mitual aid
It is the view of the Australian
between our two governments, I refer to the
Government that as it was a party
Agreement signed at Washington on February 23rd,
to the Agreement of February 23rd
1942 between the Governments of the United
no separate Master Agreement is now
States of America and the United Kingdom on
necessary.
principles applying to mutual aid in the
The Preamble therefore recites the
present war authorised and provided for by
original preamble and clause 1, with
the Act of Congress of March 11th, 1941 and
the following differences:
have the honour to inform you that the Govern-
It refers to the Master Agreement of
ment of the Commonwealth of Australia accepts
February 23rd and states that
the principles therein contained as governing
Australia accepts the principles
80 far as applicable the provisions of
therein contained as governing 80
mutual aid between iteelf and the Government
far as applicable the provision of
of the United States of America.
mutual aid.
Regraded Unclassified
123
- 2 -
Your concurrence in this note will therefore
It suggests that by concurrence
signify that each Government undertakes to
with this note the U.S. accepts
provide the other with such articles, services,
the same principles in relation to
facilities, or information, useful in the
Australia. The draft reply to the
prosectuion of the common war undertaking,
note suggests the followings
as each may be in a position to supply.
"In concurring therein I have the
honour to inform you that the
Government of the United States
also accepts the principles con-
tained in the Mutual Aid Agreement
signed at Washington on
February 23rd, 1942, as goveming
as far as applicable the provision
of mutual aid between itself and
the Government of the Commonwealth
of Australia".
It is the understanding of the Government of
the Commonwealth of Australia that the general
principle to be followed in providing such aid
The numbering of the clauses 18
is that the war production and war resources
altered 80 as to begin as shown in
of both nations should be used by the armed
the left hand column below.
forces of each, in the ways which most
effectively utilise available materials, man-
power, production facilities and shipping space.
I now set forth the understanding of the
Government of the Commonwealth of Australia
of the principles and procedure applicable to
the provision of aid by the Government of the
Commonwealth of Australia to the armed forces
of the United States and the manner in which
such aid will be correlated with the maintenance
of those forces by the United States Government.
Regraded Unclassified
124
- 3 -
1. Where appropriate, decisions as to the
As Clause 2 of original.
most effective use of resources shall be
made in common, pursuant to common plans for
winning the war.
2. As to financing the provision of such
As Clause 3 of original,
aid, within the fields mentioned below, it
except as noted.
is my understanding that the general principle
to be applied
subject to financial liabilities
The words beginning "subject to"
falling on either party not being in excess of
are inserted. The Australian
their financial capacity and accordingly such as
Government feels that the agreement
to hinder their war effort,
should on its face recognize that in
is that as large a
the case of Australia its financial
portion as possible of the articles and services
problems may operate as a limiting
to be provided by each Government to the other
factor.
shall be in the form of reciprocal aid 80 that
Continuation as in Clause 3
the need of each Government for the
of original.
currency of the other may be reduced to a minimum.
It is accordingly my understanding that the U.S.
Government will provide, in accordance with the
provisions of, and to the extent authorized under,
the Act of March 11, 1941, the share of its war
production made available to Australia.
The Government of Australia will provide
Substituted for "The Government of
on the same terms and as reciprocal aid so
Australia will provide, on the
much of its war production made available
same terms and as reciprocal aid,
to the United States as it authorises in
in accordance with the Agreement
accordance with the principles enunciated
the share of its war
in this note.
production made available to the
United States".
Regraded Unclassified
125
- 4 -
It is thought that the proposed form
of words should declare for Australia the
same rights to determine limits as exist
in the U.S. The Note is governed by the
relevant articles of the Master Agreement.
3. The Government of Australia will
Substituted for "The Government of
Australia will provide the United States
provide as reciprocal aid the following
or its armed forces with the following
types of assistance, as such reciprocal
types of assistance to the armed forces
aid, when it is found that they can most
effectively be procured in Australia".
of the United States in Australia or its
(Clause 4 of original)
territories and in such other cases as may
be determined.
The Australian Government feels that it
cannot at present give so large an under
taking as in the original draft, but it
does not wish to exclue all supplies for
U.S. forces in the S.W.Pacific area, nor
for such adjacent areas as Timor.
Supplies had been sent to the Philippines
and more recently to New Caledoria. Later
they may be sent further afield under the
terms of the proposed agreement. The
last words of the present draft allow the
discretion required, and they also cover
the problem of ordinary commercial ex-
ports which are in some degree materials
of war.
While the original draft also allowed
discretion and it was intended to inter-
pret obligations from time to time accord
ing to changing circumstances, it is felt
that the present draft is preferable for
Australia.
Regraded Unclassified
126
- 5 -
(a) Military equipment, ammunition and
Às 4 (a) of original but omitting
the commenuing word "all". The word,
military and naval stores;
appears to be unnecessary and might be
misunderstood.
(b) Other supplies, materials, facilities
As 4 (b) of original, but with the words
"Administrative expenses* inserted.
and services for the United States Forces
Hitherto the Land Lease principle has
except for the pay and allowances of-such
excluded such expenses, and it is
thought that each Government should
forces administrative expenses and such local
continue to bear them for itself, and
that the term should cover all accomoda-
purchases as its official establishments may
tion and incidental payments associated
with administrative personnel other than
make other than through the official
in camps and training areas.
establishments of the Australian Government
as specified in paragraph 4.
(3) Supplies, materials and services needed
As 4 (e) of original except that the
words "and in such other places as may
in the construction of military projects,
be determined" have been inserted
for the reasons given above.
tasks and similar capital works required
for the common war effort in Australia and
in such other places as may be determined,
except for the wages and salaries of United
States citizens.
4 (d) has been omitted for the same
reasons. That clause provided for
supplies "needed in the construction
of such military projects, tasks add
capital works in territory other than
Australia".
4. Requests by the United States
Government for such aid will be presented
As original clause 5.
by duly authorised authorities of the
United States to official agencies of the
Commonwealth of Australia which will be
designated or established in Canberra and
in the areas where United States forces are
located for the purpose of facilitating the
provision of reciprocal aid.
Regraded Unclassified
127
- 6 -
5. It is my understanding that all such
As original clause 6.
aid accepted by the President of the United
States or his authorized representatives
from the Government of sustralia will be
received as a benefit to the United States
under the Act of March 11, 1941. Insofar as
circumstances will permit, appropriate record
of aid received under this arrangement, except
for miscellaneous facilities and services, will
be kept by each Government.
Original clause 7 is omitted. Its
purpose is not clearly understood
and it may prove the source of
embarrasament.
Australia 18 not in a position to
undertake to give reciprocal aid
to other countries unless upon
particular examination of any given
proposal it is proved consistent
with her capacity to carry out her
obligations under this arrangement.
6. The detalied application of the principles
This new clause is proposed partly
for reasons already given, but
formulated in this note and the extent to
also to provide for subsequent
definition and variations as they
which they will be carried out will be worked
may be needed, e.g. shipping, Patent
rights.
out by agreement by the two Governments as
occasion may require, acting when possible
through their respective appropriate
administrative authorities and in working them The Australian Government desires
that the United States should
out regard will be had to the effects that may transfer to Lend Lease as much as
possible of existing Australian
be produced upon the general Australian economy cash contracts in dollars for war
and essential civil supplies but
considered in relation to its financial ability proposes that this matter should
be dealt with separately by
to prosecute the war to a successful conclusion.specific agreement embodied in a
note or notes.
7. The procedure by which requests for aid are This new clause is proposed
separately from the general
made by one or other Governments and are
principles of the preceding clause
because procedure has already been
dealt with shall be settled from time to time
the subject of arrangements made
locally in Australia.
by agreement between the respective Governments.
Regraded Unclassified
128
-7- -
If the Government of the United States
concurs in the foregoing, I would suggest
that the present note and your reply to
that effect be regarded as placing on
record the understanding of our two
Governments in this matter.
I have the honour to be, etc. etc.
129
- 8 -
(B) FROM THE SECRETARY OF STATE TO THE AUSTRALIAN MINISTER.
NEW DRAFT
EXPLANATORY NOTES.
I have the honour to acknowledge the
receipt of your note of today's date concerning
the principles and procedures applicable to the
As original.
provision of aid by the Government of Australia
to the armed forces of the United States, the terms
of which are as follows:
(The Australian Minister's note is
here quoted)
In concurring therein I have the honour to
Substituted. See notes on
Preamble. The original is
inform you that the Government of the United States
as follows:
also accepts the principles contained in the Mutual
"In reply I have the
honour to inform you that the
Aid Agreement signed at Washington on February 23,
Government of the United
States agrees with your
1942 as governing 80 far as applicable the provisions
understanding as expressed in
that note and that, in
of mutual aid between itself and the Government
accordance with the suggestion
contained therein, your note
of the Commonwealth of Australia.
and this reply will be
regarded as placing on record
Accept Sir, the renewed assurances of my
the understanding between our
two Governments in this matter
highest consideration
July 13, 1942
JBB:G
Regraded Unclassif
-
OFFICIAL COMMUNICAT - TO
THE SECRETARY OF STATE
D. e.
DEPARTMENT OF STATE
WASHINGTON
reply refer to
June 26. 1942
Dear Harry:
I enclose a copy of a draft note on Reciprocal
A1d left with me by the Australian Minister on June 22
and a memorandum of our conversation. You will note that
his changes in our draft represent his own ideas and have
not yet had the approval of his government.
I am sending a copy to the War and Navy Departments,
Office of Lend-Lease Administration and Board of Economic
Warfare. I will keep you advised of further developments
and will probably suggest a meeting as soon 88 the British,
Australians and New Zealanders have all received instructions.
Sincerely yours,
Aran Ghron
Dean Acheson
Enclosures:
1. Draft note.
2. Memorandum.
FORDEFENSE
Mr. Harry A. White,
BUY
Treasury Department.
UNITED
STATES
SAVINGS
SONDS
Regraded Unclassified
DEPARTMENT OF STATE
Memorandum of Conversation
DATE: June 22, 1942
SUBJECT:
Reciprocal A1d - Australia
PARTICIPANTS: The Australian Minister, Sir Owen Dixon
Mr. Acheson, Assistant Secretary
Mr. Achilles, Eu
COPIES TO:
...
I-HO
The Minister said that he had been endeavoring to
clear up the confusion as to whether there should be a
separate basic lend-lease agreement between Australia and
the United States or whether Australia should merely accept
the provisions of the basic Agreement of February 23, 1942
between the United States and the United Kingdom. After
careful consideration he had come to the conclusion that
it would be better for Australia merely to accept the pro-
visions of the Agreement of February 23. He said that the
New Zealand Minister held the same views and that the
British Government strongly preferred this course.
He left a draft note, based upon the American draft
given the Legation on June 2 but incorporating an open
statement that the Australian Government regarded the prin-
ciples of the Agreement of February 23 as applicable to its
relations with the Government of the United States, and
which had at the end a number of qualifying provisions.
He said that the draft represented his own ideas and
that, while he had telegraphed it to his Government, he had
not yet received its views.
Mr. Acheson
Regraded Unclassified
- 2 -
Mr. Acheson said that paragraph 7(b), relating to the
Australian dollar position, was to a considerable extent
covered by the American draft and that the new language
might present difficulties. Aside from that he believed
the new draft represented a useful basis or discussion.
Eu:TCA:PK
Regraded Unclassified
DRAFT
FROM THE AUSTR/LIAN MINISTER TO THE SECRETARY OF STATE
I have the honour to inform you that the Government
of Australia regards the principles set out in the Articles
of Agreement between the Governments of the United States
of America and of the United Kingdom of Great Britsin and
Northern Ireland, dated at Washington 23rd February 1942,
88 applicable to the relations between the Government of the
United States end the Government of Australia and with a
view of supplementing Articles II and VI of that Agreement,
I have the honour to set forth below my understanding of
the principles and procedures applicable to the provision
of sid by the Government of Australia to the armed forces
of the United States and the manner in which such aid will
be correlated with the maintenance of those forces by the
United States Government.
Each of our Governments pledged itself in the United
Nations Declaration of January 1, 1942, to employ its full
resources, military or economic against those nations with
which it is at war. Each Government undertook according to
the principles set out in that agreement to provide the
>
other
Regraded Unclassified
other with such articles, services, facilities or information,
useful in the prosecution of their common war undertaking,
at each may be in A mosition to supply. The general
principle to be followed in providing such nid le that
the wer production and wer repources of both nations should
be used by the roo. Corces of each, and of the other United
M :100s, In weys waten most effectively utilize avrilable
= write, memover, productive facilition and shipping
spece.
?. here propopriate, lecisions OF to the most
effective use of resources shell be made in common, purmuant
to common plane for winning the wer.
3. As to financine the provision of such aid, within
the fields mentioned below, it 10 my understanding that
the general princi le to be applied 1e that 08 large n
portion as possible of the articles and services to be pro-
vided by each Government to the other shell be in the form
of reciprocal #1d so that the need of each Government for
the currency of the other may be reduced to A minimum. It
1. accordingly my understanding that the United States
Government will provide, in accordance with the provisions
of
Regraded Unclassified
-3-
of, and to the extent authorised under, the Act of March 11,
1941, the share of its var production made available to
Australia. the Government of Australia will provide, on
the same terms and an reciprocal aid, in accordance with
the principles of such agreement, the share of its war
production made available to the United States.
4. The Government of Australia will provide the United
States or its armed forces with the following types of
assistance, as such reciprocal aid, when it is found that
they can most effectively be procured in Australia:
(a) All military equipment, munitions and
military and naval stores;
(b) Other supplies, materials, facilities and
services for the United States forces, except for
the pay and allowances of such forces administrative
expenses and such local purchases as its official
establishments may make other than through the official
establishments of the Australian Government as
specified in paragraph
(o) Supplies,
Regraded Unclassified
(o) Supplies, materials and services needed
in the construction of military projects, taske
and similar capital works required for the common
war effort in Australia, except for the wages and
salaries of United States citizens.
(d) Supplies, materials and services needed in
the construction of such military projects, tasks
and capital works in territory other than Australia
or territory of the United States to the extent that
Australia 1s a more practicable source of supply than
the United States or another of the United Nations.
5. Requests by the United States Government for such
aid will be presented by duly authorised authorities of
the United States to official agencies of the Commonwealth
of Australia which will be designated or established in
Canberra, and in the areas where United States forces are
located for the purpose of facilitating the provision of
reciprocal aid.
6. It is my understanding that all such aid accepted
by the President of the United States or his authorised
representatives
Regraded Unclassified
-E-
representatives from the Government of Australia will
be received as a benefit to the United States under the
Act of March 11, 1941. Insofar 88 circumstances will
permit, appropriate record of a1d received under this
arrangement, except for miscellaneous facilities and
services will be kept by each Government.
7. The aid to be provided each other by the
respective Governments and as indicated above, will be
provided on the same terms by each Government to the forces
of such of the other United Nations as shall enter into
similar arrangements with them.
There are some matters of more particular concern to
the Government of Austrelia and to these the following
special provisions shall apply:-
(a) The detailed application of the principles
formulated in this note and the extent to which they will
be carried in the verying conditions arising will be worked
out by agreement between the two Governments as occasion
may require, acting where possible through their respective
appropriate
Regraded Unclassified
-6-
riste administrative authorities and in working then
out regard will be had to the effects that naz be produced
upon the general Australian economy considered in relation
to the prosecution of the war.
(b) with a view to protect the dollar exchange or
dollar balances of Australia. the appropriate authority of
the United States will subject to the limitations of the
Act of Congress of March 11. 1941, and 80 far as may be
reasonably practicable. (1) bring within the operation of
the principles of Leage Lend transactions already entered
into by the Government of Australia and not already closed
if they involve & dollar expenditure and (11) apply those
principles to the future requirements of Australia which
BAL be eligible therefor.
(o) The procedure by which requests for aid are made
by one or other Governments and are dealt with shall be
settled from time to time by agreement between the respective
Governments. Governs
(a) The practical operation of peragraph 4 (a) of the
foregoing shall not be extended beyond islands of the Paolfic
adjacent
Regraded Unclassified
-9-
Weent to Australia or beyond navel and military operations
based UPOA Australia.
If the Government of the United States concurs in
the foregoing, I would suggest that the present note and
your reply to that effect be regarded as placing on record
the understanding of our two Governments in this matter.
I have the honour, etc.
Regraded Unclassified
140
Treasury Department
Division of Monetary Research
Date September 12, 1942 19
To:
Miss Chauncey
This was shown to the Secretary on August 27th
(while out walking with the Secretary) and the matter
was described to him. He approved the procedure and
stated that it was not necessary at this point to
discuss the matter with the President and that I
should go ahead with the conversations with the various
governments indicated.
H.D.W.
MR. WHITE
Branch 2058 - 214}
Treasury Department
141
Division of Monetary Research
Date August 14, 1942.19
To:
Secretary Morgenthau
From:
H. D. White
A copy of this was sent to Mr. Berle
and Mr. Berle later informed me that the
State Department approved of this procedure.
I presume the next step might be the
convening of a meeting in your office to be
attended by the same persons who attended the
last meeting on this subject in your office,
at which time you could inform them of the
report of the subcommittee and the State
Department's approval. Your committee might
then instruct us to go ahead with the pre-
liminary informal discussions as described
in paragraph 2.
or you might prefer at this stage to
ake it up with the President before anything
further is done.
142
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 2, 1942
TO
Secretary Morgenthau
FROM
Mr. White
At the last meeting of your Inter-Departmental Subcommittee
the following recommendation was agreed upon:
It is proposed that the following procedure be recommended
to the President for adoption:
1. That various friendly governments, from among the United and
Associated Nations, be advised through appropriate channels
that a group of technical advisers to the Government of the
United States has been directed to examine the economic and
financial problems relating to the establishment of an inter-
national stabilization fund, an international bank, and any
other international financial organizations which may be
necessary.
2. That a representative of the Department of the Treasury and
a representative of the Department of State, acting in con-
sultation with the interdepartmental committee of technical
advisers, initiate informal exploratory discussions with the
representatives of the governments of each of the following
countries: the United Kingdom, the U.S.S.R., China, Canada,
Australia, Brazil and Mexico. These conversations would be
carried out for the purpose of ascertaining their views on the
projected institutions, and in order to canvass the possibility
of obtaining the cooperation of their technical advisers in
the preparation of pertinent memoranda. Upon completion of
these exploratory discussions, a report on the view of these
seven governments and the reactions of their representatives
would be submitted to the Cabinet Committee.
3. That, 1f the Cabinet Committee then feels that the response
has been sufficiently promising, it instruct the Secretary
of the Treasury, after obtaining the approval of the
President, to convoke a preliminary meeting of the technical
advisers of all appropriate United and Associated Nations,
and fix the date for such a meeting, if possible. This
gathering WO uld be held for the purpose of preparing a draft
annotated agenda and other documents necessary for a formal
international conference of plenipotentiaries, to consider
the establishment of a stabilization fund, a bank and other
financial institutions for the United and Associated Nations.
143
Division of Monetary
Research
- 2 -
Prior to this preliminary meeting of advisers, the
interdepartmental committee of experts appointed by
the Secretary of the Treasury WD uld be directed to
prepare appropriate studies. Upon completion, such
memoranda would be transmitted to the seven govern-
ments mentioned, for consideration by their technical
advisers. As the technicians of these other seven
governments prepare memoranda on the same subjects and
submit them to this government, they would be studied
by the interdepartmental committee. Copies of selected
memoranda would also be forwarded to such other friendly
governments as it may be desirable to keep informed. The
appropriate technical advisers of these other governments
would be informally invited to initiate memoranda setting
forth their own ideas with respect to international finan-
cial problems of the post-war period.
4. That, if such a pr .iminary meeting reaches agreement upon
the draft annotated agenda, the Cabinet Committee evaluate
the situation again, after this meeting, with a view to a
final decision as to the advisability of calling a formal
conference of plenipotentiaries on a stabilization fund,
a bank, and other financial institutions for the United
and Associated Nations.
144
Treasury Department
Division of Monetary Research
Friday.
White 10:55
Date
July 21, 1942 1942
19
To:
Secretary Morgenthau
From:
H. D. White
You told Phillips that you would be glad to
see Lieth-Ross. Phillips indicated that Lieth-
Ross would wish to discuss the matter of International
Relief with you. He has been here for several weeks
in consultation on that subject with a State Depart-
ment committee. I participated in some of the
meetings.
Appended is a draft and an outline of the
agreement. I think the final draft has just been
completed and will probably be presented to the
Department for formal approval or to the President
directly without such approval.
I have been told that the President and Vice-
President do not feel the time propitious for
initiating the project. I believe final action
likely to be postponed until at least after
the election.
145
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 21, 1942
TO
Secretary Morgenthau
FROM
Mr. White
Subject:
Draft of a United Nations Relief and Rehabilitation
Administration.
The major provisions of the draft discussed at a meeting with
Leith-Ross on July 15, at which I was present, are summarized below;
only minor changes have since been made.
1. Objectives are to provide, immediately upon the liberation of
an area, food, clothing, shelter and means of resuming production, to
return exiled prisoners, to prevent disease, etc. Specifically the
Administration shall plan, coordinate and, where desirable, administer
international measures in any area under the control of any of the
United Nations. It may take, hold, and convey property, enter into
contracts and undertake obligations, manage undertakings, and perform
other appropriate legal acts.
2. Policy will be determined by a Council consisting of one repre-
sentative of each signatory government. A Policy Committee, comprising
the representatives of China, the U.S.S.R., U.K. and the U.S.A., with
the Director General presiding, will exercise all powers and functions
of the Council, when it is not in session. Appointments to regional
and standing committees will be made by the Policy Committee.
3. The Director General, appointed by the Council, will secure the
staff and carry out the policies of the Council. He shall at once pre-
pare plans for emergency relief of civilian populations, arrange procure-
ment, and create the necessary organization.
4. Member governments pledge funds, materials, equipment, supplies
for post-war relief, may be made abroad only after consultation with
and services, for use in any area in need. Purchases during the war,
the Director General. (Article VI should be read carefully.)
5. The Council will apportion expenses among member governments.
In addition, any government receiving aid shall contribute any amount
required by the Administration, in the currency of that area, for local
expenditures.
6. The agreement becomes provisionally effective upon signature
of any of the United Nations, and becomes fully binding after ratifica-
tion. It may be amended by unanimous vote of the Policy Committee,
accompanied by the approval of two-thirds of the Council. Other
governments may be admitted by the Council.
ASSISTANT SECRETARY OF STATE
WASHINGTON
July 14, 1942
Dear Harry:
I am enclosing a copy of Draft No. 1 of
Relief and Rehabilitation Administration. On
Wednesday, July 15, at 4:00 p.m., in my office
there will be an important meeting of the rep-
resentatives of the various agencies who have
been meeting with Sir Frederick Leith-Ross, at
which time the enclosed draft will be considered.
Sincerely yours,
ALAM Echnom
Mr. Harry White,
Assistant to the Secretary,
Treasury Department.
Regraded Unclassifie
147
STRICTLY CONFIRMITIAL
July 10, 2048
The Covernments whese dely-authorized representatives
have subscribed herets,
Having subscribed to a - program of purposes and
principles embedied in the Declaration of January 1, 1948,
known as the United Nations Declaration and the Joint
Declaration of the President of the United States of America
and the Prime Minister of the United Kingdom of Great
Britain and Northern Ireland dated August 14, 1941, known
as the Atlantic Charter,
Being determined that victory shall bring relief as
well as freeten from approssion and cruelty, and that
immediately upon the liberation of my area by their
armed forces the population thereof shall receive ase and
relief free their sufferings, seed, clothing and shelter,
assistance in obtaining the mane of recuming agricultural
and
industrial production and is restering essential
services, the return of oxiles and priceners to their
home,
Regraded Unclassified
148
homes, the prevention of postilence and the recevery of
the health of their people, and assistance in general in
restering the essential foundations upon which a liberated
world say build anow.
Being reselved that each shall contribute to the
fullest extent of its resources and powere, to the relief
and rehabilitation of its on and other peopless have
agreed as fellows:
149
-3-
Article %
There 10 hereby established the United Nations
Relief and Rehabilitation Administration, the purpose of
which shall be the planning, coordination and, where
desirable, administration of international neasures for
the relief and rehabilitation of the vietims of war in
any area under the control of any of the United Nations.
The Administration shall have power to take, hold and
convey property, to enter into contracts and undertake
obligations, to manage undertakings, and in general to
perform say legal set appropriate to its object and purpose.
Regraded Unclassified
150
+
Artiele II
Membership
The nembers of the United Nations Relief and
Rehabilitation Administration shall be the governments
signatory hereto and such other governments as my upon
application for membership be admitted thereto by
action of the Council or the Policy Committee thereof.
151
Article III
The Council
1. Each member shall name one representative upon
the Council of the United Nations Relief and Rehabilitation
Administration, which shall be the policy-making body
of the Administration. The Council shall, for each of
its sessions, select one of its members to preside at
the session,
2, The Council shall be convened in normal session not
less than twice a year by the Policy Committee. It may
be convened in special session whenever the Policy Committee
shall deem necessary, and shall be convened within thirty
days after request therefor by a majority of the members
of the Commoile
su The Policy Committee of the Council, consisting of
the representatives of China, the Union of Soviet Secialist
Republies, the United Kingdom, and the United States of
America, with the Director General presiding, shall between
sensions of the Council amereise all the powers and remotions
thereef, and, during sessions, shall constitute the avering
committee of the Council. The Policy Committee shall invite
the
Regraded Unclassifie
152
the participation of the representative of any member
government at meetings at which action of special interest
to such goverment is discussed.
4. The Council shall establish regional committees
to advise it on the making of plans and formulation of
policy for the relief and rehabilitation of Europe, the
Far East and of any other areas where such committees
may be found desirable. The regional committees shall
normally meet within the area and shall comprise
representatives of the member governments directly con-
cerned with the problems of relief and rehabilitation
in that area. The Regional Committee on European Relief
as 80 constituted shall take over and carry on the work of
the Inter-Allied Committee on European Post-War Relief
established in Lewion on September 24, 1941.
8, The Council shall establish such standing committees
as it considers desirable to advise it in respect of
particular problems such as materials and supplies, finance,
repatriation, agriculture, mirition, health, and transport.
The mumbers of such committees shall be appointed by the
Policy Committee, with the approval of the Commil if is
be
Regraded Unclassified
153
&
be in session and otherwise subject to its ratification,
from members of the Couneil representing the Governments
most directly conserned in each case or alternates whom
such nembers may nominate because of special competence in
their respective fields of work. should & regional 008⑉
mittee so desire, subcommittees of these standing committees
shall be established to advise the regional committees.
6. The travel and other expenses of nembers of the
Council and its committees shall be borne by the govern-
sents when they represent.
154
-8-
Article IV
The Director General
The executive authority of the United Nations
Relief and Rehabilitation Administration shall be in
the Director General, who shall be appointed by the
Council on the nomination of the Policy Committee.
2. The Director General shall have full power and
responsibility for carrying out relief and rehabilita-
tion operations within the limits of available resources
and the broad policies determined by the Council or its
Policy Committee. In arranging for the procurement,
transportation and distribution of supplies, he and his
representatives shall consult and collaborate with the
appropriate authorities of the United Nations and shall,
wheNever practicable, use the facilities made available
by such authorities. In any area receiving relief or
rehabilitation aid from the Administration, the activity
of voluntary agencies say be permitted with the consent
and subject to the regulation of the Director General
and of the appropriate authority of the United Nations
in control in that area.
Regraded Unclassified
155
3. He shall appoint such Deputy Directors, other
efficers, and staff, whether at his headquarters or in
other areas, including the staff of field missions, and
may delegate to them such powers as may be necessary to
perform the functions of the Administration and to provide
secretarial staffs for the Council and its committees.
Regraded Unclassified
156
-10-
Article v
Emergency Relief
The Director General immediately upon taking effice
shall in conjunction with the military and other
appropriate authorities of the United Nations pre-
pare plans for the emergency relief of the civilian
population upon the occupation of any area by the armed
forces of any of the United Nations, arrange for the
procurement and assembly of the necessary supplies and
create the emergency organization required for this
purpose.
-11-
157
Article VI
Supplies and Resources
1. Each member government pledges its fullest
possible support to the Administration, within the limits
of its available resources and subject to the requirements
of its constitutional procedure, through contributions
of funds, materials, equipment, supplies and services,
for use in its own, adjacent or other areas in need,
in order to assomplish the purposes of this agreement.
2. The supplies and resources made available by
the member governments shall be kept in review in rela-
tion to prespective requirements by the Director General,
who shall initiate action with a view to assuring addi-
tional supplies and resources as may be required.
s. All purchases, by any of the member governments
made outside their own territories during the war for
pest-war relief purposes shall be made only after -
sultation with the Director General, and shall, so far
as practicable, be carried out through the appropriate
United Nations agency.
Regraded Unclassified
158
-12-
The Director General, working with the appropriate
standing committees, shall draw up proposals for the coordi-
nation of purchasing, chartering of ships and other pro-
curement activities, after the war for relief and rehabili-
tation so as to avoid the dislocation of markets and provide
an equitable distribution of the available supplies.
159
+13+
Article VII
Administrative expenses shall be berne by the
member governments in proportion to be determined by
the Council. The governmental authority of any territory
receiving aid from the Relief and Rehabilitation Adminis-
tration shall in addition place at the disposal of the
Administration any sums required in the currency of that
territory for local expenditure in the administration or
distribution of such add.
Regraded Unclassified
160
-14-
Article VIII
Amendment
The previsions of this agreement say be amended by
unenimous vote of the Policy Committee and twe-thirds
vote of the Council.
161
-15-
o
Article IX
later into Effect
The present agreement shall become provisionally
effective upon signature hereef, and shall come
definitely into force in respect of each member country
upon compliance with its constitutional precedure.
Ster 1 I JUL
я
1
Unclassified
162
BOARD OF ECONOMIC WARFARE
WASHINGTON, D.C.
JUL 21 1942
The Honorable
The Secretary of the Treasury
Dear Mr. Secretary:
Enclosed is & copy of the minutes of the meeting of
the Board of Economic Warfare, which was held on July 16 in
the Office of the Vice President. If there are any correc-
tions which you care to suggest, please let me know.
Milo Sincerely yours Perkins
Executive Director
Enclosure
SECRE163
Minutes of the Meeting of the Board of Economic Warfare
Held July 16, 1942, at 10:00 A. M.
A meeting of the Board of Economic Warfare was held in the Office of
the Vice President in the Capitol Building at 10:00 4. M. on July 16, 1942.
The meeting was attended by the following members of the Board:
The Vice President, Chairman of the Board
Mr. Dean Acheson, representing the Secretary of State
Mr. Harry White, representing the Secretary of the Treasury
The Secretary of War
Mr. Charles Fahey, representing the Attorney General
Mr. James V. Forrestal, representing the Secretary of the Navy
Mr. Paul Appleby, representing the Secretary of Agriculture
Mr. Wayne Taylor, representing the Secretary of Commerce
Mr. Doneld Nelson, War Production Board
Mr. Nelson Rockefeller, Office of Inter-American Affairs
Mr. Thomas B. McCabe, representing Mr. E. R. Stettinius, Jr.,
Lend-Lease Administration
In eddition, the following persons were present:
Mr. Wayne Coy. Bureau of the Budget
Mr. Robert Patterson, War Department
Mr. Harold H. Neff, War Department
Dr. Joshua Bernhardt, Department of Agriculture
Mr. Thomas K. Finletter, State Department
Mr. Winfield Riefler, Board of Economic Warfare
Mr. John Fischer, Board of Economic Warfare
Mr. Milo Perkins, Board of Economic Warfare
Mr. Edwin 7. Gaumnitz, Board of Economic Warfare
Mr. Adlai Stevenson, Navy Department
Mr. John Lockwood, Office of Inter-American Affairs
The Vice President opened the meeting indicating that the first topic
would be the report on sugar.
SUGAR REPORT:
This report was requested for the purpose of determining whether the
estimated production and stocks of sugar available to the United States and
the friendly nations was such 8.6 to enable producing countries to shift from
sugar production to the production of other foods. Such a shift would be
for the purpose of making those countries more self sufficient and to reduce
the volume of food stuffs necessitating shipping. The report indicated that
sugar production could be reduced without prejudicing United States supplies.
Mr Appleby pointed out that we should strive to reduce our importa-
tions of sugar to a "return houl" basis and assist the producing countries
in making the necessary adjustment in food production. After discussion, it
164
was agreed that the Department of Agriculture and the Office of the Coordi-
nator of Inter-American Affairs should continue activity looking to an in-
crease in self sufficiency in various countries, taking into account the re-
sults of E. credit statement for Cuba being prepared by Treasury, and if a
further statement of policy by the Board was desirable, the matter should
be handled with Mr. Perkins. It was indicated that the Hawaiian sugar and
food situations were being considered by the Food Requirements Committee.
EUROPEAN NEUTRALS:
A "Statement on United Nations' Objectives in Economic Warfere Through
Trade with the European Neutrals and with Turkey" had been circulated.
Mr. Perkins stated that the report showing the principal exports from the
United States to Switzerland, Sweden, Portugal, Spain and Turkey, princiapl
imports into the United States from those countries and principal exports
from those countries to enemy areas was incomplete in that data had not been
evailable in Washington as to the total trade of these countries with coun-
tries outside the blockade area. He stated further that the United Kingdom
treated much of the data on neutral trade on a very confidential basis 80 that
it had been impossible to secure material for inclusion in the report. How-
ever, the Ministry of Economic Warfare did secure, and make evailable limit-
ed data as to tonnages. of specified products imported by the United Kingdom from
the blockaded area, which were presented by Mr. Perkins. He also stated that
the Blockade Committee in London has under its control the issuance of navi-
certs and that the Board is now represented on that Committee. Generally, the
Board Representative has been much more strict in the matter of quantities
to be certified than was the Committee. In fact, the British and neutral
country representatives apparently feel that the United States representatives
are too strict.
Mr. Riefler stated that the Blocknde Committee felt that it had quite
comprehensive information as to the movement of goods in and out of the block-
ade area; that items were reviewed very carefully; that particular attention
was paid to total movements in and out on a global basis; that reports of in-
ventories were being secured and that movement from the neutral countries to
enemy area was being kept to a minimum.
Discussion made it clear that trade with the aroe should be watched very
carefully, particularly as it pertained to items which were of great strategic
importance to the United Kingdom and the United States, as well as those of
importance to the Axis group, there being little concern about the movement
of food. It was agreed that the items being navicerted should be reviewed
carefully with all interested agencies end specifically by Mr. Nelson. Mr.
Perkins was to supply Mr. Nelson with the necessary data.
Regraded Unclassified
0
165
0
?
Y
PM
Quite
This telegram must be
paraphrased before being
Dated July 21, 1942
communicated to anyone
other than a Governmental
Rec'd 11:30 p.m.
agency. (BR)
Secretary of State,
Washington.
TRIPLE PRIORITY
RUSH
595, July 21, 9 p.m.
The Boundoran Government has canceled its
contract with the Spanish Pedagogical Mission and
is sending it back to Spain because of Falangist
propaganda. The mission has acquired American
currency presumably in Beuador to the amount of
$7250 from their savings. Due to the regulations
of the Central Bank regarding the purchase of
American currency the mission cannot obtain passage
from the Chilean line. Will the Treasury Depart=
ment reimburse the Central Bank if this currency
is accepted by it to provide funds for traveling
expenses paying the balance in Argentine pesos?
As the mission is scheduled to leave Guayaquil
July 24 and as it is desirable that there be no
delay in its departure a prompt reply is requested.
LONG
HTM
Copy:gj:7-22-42
Regraded Unclassified
0
0
165
?
Y
PM
Quite
This telegram must be
paraphrased before being
Dated July 21, 1942
communicated to anyone
other than a Governmental
Rec'd 11:30 p.s.
agency. (BR)
Secretary of State,
Washington.
TRIPLE PRIORITY
RUSH
595, July 21, 9 p.s.
The Boundoran Government has canceled its
contract with the Spanish Pedagogical Mission and
is sending it back to Spain because of Falangist
propaganda. The mission has acquired American
currency presumably in Ecuador to the amount of
$7250 from their savings. Due to the regulations
of the Central Bank regarding the purchase of
American currency the mission cannot obtain passage
from the Chilean line. Will the Treasury Depart-
ment reimburse the Central Bank if this currency
is accepted by it to provide funds for traveling
expenses paying the balance in Argentine peses?
As the mission is scheduled to leave Gusyaquil
July 24 and as it is desirable that there be no
dolay in its departure a prompt reply is requested.
LONG
XM
Copy:5317-22-42
Regraded Unclassified
166
D
P
ELP
Mexico City
Y
This telegram must be
parephrased before being
Dated July 21, 1942
communicated to anyone
other than a Governmental
Rec'd 2:38 a.m., 22nd
agency. (BR)
Secretary of State,
Washington.
URGENT
836, July 21, 7 p.m.
Conference held today with Director and Manager of Bank
of Mexico during which our proposal to permit immediate
exchange of American bills up to $1,000 was explained. It
now develops that Mexicans in prohibiting the importation of
dollar currency may not make any exceptions for tourists,
forcing conversion of dollars at the border. Measures proposed
by bank representatives specify confiscation of all currency
not deposited with Bank of Mexico prior to dead line. Entire
matter now under consideration by the Mexicans relative to
working out of details and legality of measures proposed. Many
details are now arising and it is very urgent that the treasury
representative arrive with the least possible delay as final
drafting of decree will be made after consultation with him.
MESSERSMITH
EMB
Copy:1c:7/22/42
167
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 248
Information received up to 7 A.M., 21st July, 1942.
1. NAVAL
Early this morning 3 motor gunboats intercepted a heavily escorted
enemy tanker between CALAIS and BOULOGNE. An A.A. ship was set on fire. One motor
gunboat is missing and the other two returned to harbour damaged. On the morning
of the 20th a British vessel, 5,200 tons, reported she was being shelled by an
armed raider 1,500 miles west of FREEMANTLE.
2. MILITARY
EGYPT. Little change. On the 19th slight progress was made by
Twenty-Sixth Australian Brigade in the TEL EL EISA area while in the south one of
our columns engaged the enemy on the eastern edge of the EL TAQA Plateau.
3. AIR OPERATIONS
WESTERN FRONT. 19th/20th. VEGESACK. About 240 tons of H.E. and
incendiaries were dropped. 20th. Two Bostons made a successful low level attack on
a power station in northern FRANCE. Sixteen squadrons of Spitfires attacked minor
military objectives in the DIEPPE area. One Spitfire is missing.
EGYPT. 18th/19th. Our bombers attacked shipping and harbour in-
stallations at TOBRUK and laid mines in the harbour and approaches. A large fire
was started at a petrol depot. 19th. Escorted bombers and fighter bombers made
a very successful raid on about 100 enemy aircraft at EL DABA landing ground.
About 40 aircraft on the ground were severely damaged by bombs and machine gun fire
and 4 transport aircraft and a dive bomber which were coming in to land were shot
down. We lost one Kittyhawk. In offensive patrols over the battle areas seven
Italian tanks were hit. Baltimores bombed M.T. assisted by ground signals from the
infantry which also enabled our fighter bombers to bomb within 400 yards of our
troops.
MALTA. Between 1620 19th and noon 20th about 6 enemy bombers and
20 fighters operated. One bomber and one fightor were destroyed. Two Spitfires
were shot down but pilots are safe.
BURMA. Our Light Bombers scored hits on workshops at AKYAB and
attacked objectives at PALETWA, KWASAN and KALEWA.
Regraded Unclassified
168
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATEJULY 21,1942
TO
Secretary Morgenthau
FROM
Mr. Hoflich
Subject: Summary of Military Reports
Russian and German tank strength
It is estimated by the Military Intelligence Division
that the Russians have approximately 6,000 tanks on the
Russo-German front, as compared with an estimated Nazi
strength of 5,000 first-line tanks and 10,000 in reserve.
Since the beginning of the present heavy fighting en the
southern sector, it is quite possible that a considerable
part of the German tank reserve has been moved up to the
front. Each of these estimates is admittedly very rough,
with a large probable error.
(M. I. D., July 15, 1942)
Magnitude of German forces on southern Russian front
Current estimates suggest that perhaps fifty infantry
divisions, 10 to 12 Panser divisions (two or three pro-
bably brought down from the central secter in recent weeks),
10 to 12 motorized divisions, and about 2,400 planes are
active on the German side of the Russe-German front between
Yelets (about 80 miles north of Voronezh) and Restov. In
the present offensive, it is estimated that the Germans
are using about 75 percent of their total Russian front
air strength.
(Office of Strategic Services, "The War This Week",
July 9 - 16, 1942)
169
July 22, 1942.
10:34 a.m.
HMJr:
How are you?
Colonel
Halsey:
I'm right here.
HMJr:
All right. Look, I'd like your help.
H:
Always, Henry.
HMJr:
I'd like to come up this afternoon any time
after two-thirty and - to see Senator Barkley
and Senator George and in 8. - off the record,
confidentially to go over my statement for to-
morrow with them and get their suggestions,
you see?
H:
That will be fine. I'd be very happy. Come
right to my office and you - the best - the
newspaper men and 80 forth - if you want to
if you'd be there promptly at two-thirty, I'll
open that outside door BO you can come in that
side way.
HMJr:
Well, I'm having lunch with the President. I
think I could say definitely I could be there
at three.
H:
Well, supposing we just look for you down the
corridor at three then.
HMJr:
You think that would be all right?
H:
You know how to come up on the second floor
and come in the
HMJr:
Yes, I know how to get there.
H:
Yeah, well, they'll have them - see, come in the
back door. No one sees who comes in there.
Then the newspaper men won't know why you're
down there, and want to know all about it and BO
forth.
HMJr:
I'll tell you, if you don't mind, could somebody
meet me down - I'm very ounctual - down at the
entrance maybe....
170
- 2 -
H:
Yes, I'll have my boy there to meet you there
at
HMJr:
Five minutes of three?
H:
Five minutes of three.
HMJr:
You - well, you're taking it for granted you can
deliver Barkley and George?
H:
Well, (laughs) I think it's a pretty big order
HMJr:
All right.
H:
to guarantee it but
HMJr:
Well
H:
....I know that if I gave them your message that
they'd be very happy to cooperate.
HMJr:
I - if there's any change, either let me or
Mrs. Klotz know.
H:
I'll let you know.
HMJr:
I thank you.
H:
All right, sir.
171
July 22, 1942
11:30 a.m.
WAR BONDS VERSUS WITHHOLDING TAX
Present: Mr. Graves
Mr. White
Mr. Sullivan
Mr. Foley
Mr. Kuhn
Mr. Blough
Mr. Paul
Mr. Stewart
Mr. Odegard
Mr. Tarleau
Mr. Friedman
Mrs. Klotz
H.M.JR: Now, where is this gang?
The idea of this thing is this - where is Graves?
MR. GRAVES: Right here.
H.M.JR: In the first place, if anybody is going to
get excited I am, and I am not going to so nobody is going
to get excited in this discussion. I haven't got - come
up here, Harry, where you can hear me. Sit up here where
you can hear me better. Also, I can throw something at
you better. (Laughter)
MR. WHITE: I am good at catching but not at this
close distance. (Laughter)
H.M.JR: I' don't know which is the better way to
do it, to have the proponents or the people who are
for the deduction at the source, give their case first,
and then have Graves say why he doesn't think so.
MR. PAUL: I think the other way around would be
better, have Mr. Graves - I haven't, for instance, even
talked with Mr. Graves about this, and collection at the
172
- 2 -
source is in the bill now, and there we are, and if we
are going to take it out we ought to have some compel-
ling reasons.
H.M.JR: Which way would you like to do it, Harold?
MR. GRAVES: I will be perfectly happy to state my
very simple point about this matter first, if you care
to have me.
H.M.JR: I don't care. After all, this isn't -
we are not on the air, as far as that goes-- (Laughter)
MR. WHITE: Just up in the air. (Laughter)
H.M.JR: Go ahead.
MR. GRAVES: Well, I start with the proposition that
this withholding tax will very substantially interfere
with, if it does not almost completely destroy, the pay-
roll allotment plan for the purchase of War Bonds. I
have that view because of the fact that a great many
companies have found it difficult simply to carry the
pay-roll allotment plan for the purchase of War Bonds.
H.M.JR: To do what?
MR. GRAVES: To carry the pay-roll allotment plan
for the purchase of War Bonds, and our experience has been
such as to justify the conclusion, in my opinion, that
many companies, once they are required to serve as
withholding agents under the pending bill, will give up
the pay-roll allotment thing. Many of them, in my judg-
ment, will have to give up the pay-roll allotment thing
in order that they can carry out the provisions of this
bill with respect to the withholding of income taxes at
the source.
The amount which I have heard as the estimate of
the collections to be derived from the withholding tax
for the first calendar year is a billion two hundred
fifty million dollars, and I assume that thereafter,
173
- 3 -
the other factors remaining the same, that amount would
be two and a quarter billion a year. That, of course,
is not additional taxes. It is merely the advance
collection of taxes which would be collected other-
wise later on. I have understood that the principal
reason for the withholding of income taxes at the
source is its value, whatever it is, as 8 means of
combatting inflation.
Now, on the War Bond thing, at the present time,
the withholding from pay-rolls toward the purchase of
War Bonds we estimate is about two hundred millions 8.
month, and a conservative estimate of the amount of such
withholdings by the end of this calendar year when the
new act becomes effective, if it is to become effective,
would be not le SS than three hundred millions a month
and might substantially exceed that figure.
Now, if it is a fact, as I think it is, that the
volume of withholdings on account of War Bonds will be
very substantially curtailed, we stand to lose in the
calendar year 1943 not less than three billion six
hundred millions, which we would otherwise derive from
the sale of War Bonds under the pay-roll allotment plan;
and we stand to gain a billion two hundred and fifty
million in the advance collection of income taxes.
That, I think, is the whole case. It seems to me
giving up an anti-inflationary thing that has a potential
value of not less than three billion six hundred millions
in the calendar year '43 for a thing that has a value of
a billion two hundred and fifty millions in the calendar
year '43. While I understand the situation we are in
as a matter of public relations, yet those facts, it
seems to me, are worth considering in deciding what the
position of the Treasury should be.
H.M.JR: Do you want to call on anybody to support
you, or do you want Paul or Blough--
MR. PAUL: We might draw the issue there, I think,
get the broad issue before the meeting on the basis of what
174
- 4 -
Mr. Graves has said.
H.M.JR: What do you mean? I don't follow you,
Randolph.
MR. PAUL: I mean, I think we could--
H.M.JR: Go to work on that?
MR. PAUL: Well, yes, in the sense that we can really
get distinctly in mind what the question before us is.
H.M.JR: You have got the question.
MR. PAUL: Yes, but I wanted to point to two or
three things in what Mr. Graves said where I think he
is overlooking some of the other end of the picture.
H.M.JR: Go ahead, sure. Don't be quite so polite.
Act more as though you were in your own office.
MR. PAUL: The inflationary aspect of the collection
at the source is only one aspect of it. It is true that
we collect the first year only a billion two hundred and
fifty, and there we would be really advancing the payment
and not collecting additional taxes; but collection at
the source has a much broader meaning than that. In
the first place, it collects money that otherwise wouldn't
be collected. In the second place, and much more important,
this is only the beginning of collection at the source.
We are looking ahead; it is a pilot engine. We are
looking ahead to a future when it will be an even more
important part of our income tax structure than it is
now - just getting it in through the door.
H.M.JR: You made a statement there I want you to
explain to me. You said we would get money this way
we wouldn't get any other way.
MR. PAUL: I meant there that is problematical;
nobody can estimate how much, but we get money we
wouldn't get before because you cannot police an income
tax system that has thirty million returns. Some of those
175
- 5 -
people will not file returns, and we will not be able
to collect the taxes they owe unless we have collection
at the source.
MR. WHITE: More than that you get a billion dollars.
that you would never get. It is an advance payment. You
get it once and always have it. So you get a billion
dollars interest. you never would get, and it doesn't cost you any
MR. SULLIVAN: Not, that is not SO.
MR. WHITE: I beg your pardon, we get it in advance;
you never catch up with yourself.
H.M.JR: Let's have a leader on both sides.
MR. WHITE: I wanted to press that point home.
H.M.JR: Do you want Harry to get in?
MR. PAUL: We have the broad aspects before us.
H.M.JR: Go ahead.
MR. PAUL: The other aspect, the assumption, basic
assumption of Mr. Graves, I think, needs examination,
and that is a matter that some of our men can talk on;
that is, the assumption that collection at the source
will interfere with or destroy the pay-roll allotment
plan. It doesn't seem to me that that assumption is
justified.
Canada is going in for colle ction at the source
notwithstanding its carrying out a pay-roll allotment
plan. All the information we get from the field study
is to the effect that there may be some effect on the
plan, but certainly it wouldn't completely destroy the
sale of two or, at the end of the year, three hundred
million bonds 8 month. I don't know what data Mr. Graves
has in support of that conclusion, but on the basis of
what we have it isn't justified.
MR. ODEGARD: Randolph--
176
- 6 -
MR. PAUL: I just wanted to get those broad aspects.
MR. ODEGARD: The Canadian analogy doesn't fit at
all so far as this is concerned because the Canadians on
their savings program have done practically nothing with
pay-roll savings. -That is, there is no - they can install--
MR. PAUL: That is not very important.
MR. ODEGARD: That is right. As a matter of fact--
H.M.JR: Is that correct?
MR. ODEGARD: Yes, that is true.
MR. WHITE: It isn't that they have failed; they
just--
MR. ODEGARD: They haven't tried it. We have tried
it at great length. They came down and asked, "How do you
install pay-roll savings? How does it work? We haven't
done it. So the fact that a thholding tax - they
haven't any experience.
MR. WHITE: That is right. It hasn't failed, but
they are just beginning.
MR. PAUL: That isn't 8 very important argument.
H.M.JR: Also you can't use the Canadians as an
example on deduction at the source because they haven't
put it in yet.
MR. BLOUGH: Two years they have had it, Mr. Secretary.
H.M.JR: Two years?
MR. BLOUGH: Yes. Mr. Friedman is here; Mr. Friedman
spent a couple of days - a day at least - in Canada last
week, as part of this study of collection at the source.
He can speak for himself, but he informed me that he talked
to Canadian employers who were deducting two kinds of
177
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savings for their workers under the Canadian plan and the
taxes at the same time, and they didn't seem to be of the
opinion that the taxes had any substantial effect on the
savings. Is that correct?
MR. FRIEDMAN: That is quite .correct.
H.M.JR: Let's hear from him.
MR. FRIEDMAN: So far as the Canadian experience
is concerned we spent two days in Toronto, one day
visiting employers and the other day with the inspector
of income tax in the Toronto district. We went to
two big employers. Both of those had withholding at the
source for the income tax and in addition two separate
types of savings bond programs. They have one form of
savings bonds on which the interest is exempt from tax,
and that is limited to a very small amount per year
for each employee. That is the reason they have two
different types, and both types were being handled in
both of these cases by collection at the source.
H.M.JR: How big were the companies?
MR. FRIEDMAN: One company employed over ten thousand
employees. The other company employed about three thousand.
H.M.JR: Now, the thing - I just want to give you
people the benefit of what Mr. Stewart gave me before you
came in because I have asked him, and I want to just say
that, and you can correct me. I mean, he has been listening
to both sides for me, and he says in this study, these
teams of people that you sent out into the field to inquire
how this thing was going, as far as he could tell in no
case in the United States did you ask the employer what
effect would this have on the sales of War Bonds; that
you have got no facts on it; that you went to & hundred
and eighty concerns butyou didn't say to these people -
you simply said, "How do you feel about deduction at the
source?" But you didn't say to them, "If you have
deduction at the source what effect will it have on War
Bonds?" Is that correct, Roy?
178
- 8 -
MR. FRIEDMAN: No, that is, there are two aspects of
that. We didn't ask the employers what they thought the
employees would do but we did ask the employers how it
would affect their own pay-roll system.
H.M.JR: That isn't the point Mr. Stewart makes.
The point he is making is in the one hundred and eighty
concerns that you visited you failed to have a question,
"If you have deduction at the source, what effect do you
think it will have on the purchase of War Bonds?" You
didn't ask that question.
MR. FRIEDMAN: That question was not on the questionnaire
but in our pe rsonal interviews with the employers the problem
of the pay-roll deduction for War Bonds came up. Since
we discussed with them all of the various deductions that
they were now making from the wage in computing the amount
actually to be paid--
H.M.JR: Mr. Friedman, it is correct that that question
wasn't on it?
MR. FRIEDMAN: On the questionnaire.
H.M.JR: I want to follow that. I think it is a
very important omission, and I think there is still
time to go back. Dut here is the thing. This, now, that
I am saying is my own idea, and this, I think, as far as
I know, everybody has overlooked. We go around to a
hundred and eighty concerns and say to these people,
"Gentlemen, how would you feel about having deduction at
the source and how much machinery will you need, and 80
forth and so on. Then I am raising the question that
I think we should go back and ask them, "Well, what would
your attitude be if you had deduction at the source in
regard to being issuing agents, in the first place, and
also handling war Bonds for the employees?" But the
more glaring omission on this survey is nobody has asked
the fellow who earns the money. Nobody in these hundred
and eighty factories has gone to the working man, whose
money we are talking about, and said to the workman,
"How do you feel about this?" Do you see?
Now, I think it is terribly important, and it isn't
too late to get it.
179
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MR. WHITE: Mr. Secretary--
H.M.JR: It isn't too late to get CIO and AF of L.
MR. BLOUGH: We have the CIO and AF of L support
on the plan.
H.M.JR: Now, what I want is - you have got the
men who sit in Washington - it is just like the American
Farm Bureau doesn't speak for the American farmer. I
would like to know from these three hundred AF of L
men who are going around and talking and having meetings
for us, or the CIO shop stewards, what does the man at
the bench feel and how would he like to have this handled?
Now, maybe they are red-hot for it, Roy, I don't
know. It would influence me a great deal more than
what the factory owner would think, because we are talking
about that fellow's money. It is his money. Now, maybe
he likes Social Security, and I think if we are going to
do another quick job we should ask him also about this
increase in Social Security. "Would you like to have
the Social Security increased?" Would he like deduction
at the source? And last of all, would he continue the
same amount of purchase of War Bonds or would it have
any influence on him.
Now, what the man at the bench through his shop
steward would tell me, what he thinks, that would pretty
much decide it for me. That has not been brought out.
That has not been broughtout, and I don't think anybody
in this room has got any facts on it. Now, what Mr.
Green or Mr. Murray thinks about it I wouldn't give
that. (Indicating) But if a fellow could talk to a
dozen shop stewards or women shop stewardesses - that
is what they call them - the kind of people that Harold and
I met with in Detroit, and find out what these people
think, that would have a real influence. It is their money
we are talking about.
Now, Mr. White?
180
- 10 -
MR. WHITE: I was going to merely comment, in
fairness to the committee, that I think I was there when
the decision was made to ask your approval to go out
and investigate it. The question which they were going
to investigate was the question which was - the doubts
were raised by Mr. Sullivan and Mr. Graves as to the
possibility of businesses being able to handle the pay-
roll deduction, and they were going out among the busi-
nesses, not to ask whether the employees would like it
or not. That is a separate inquiry and a very desirable
one, but they didn't think it was their particular
function. They were merely going out to see if they
could get data which would support either view or which
would give further information for both the gentlemen.
H.M.JR: Harry, you are right.
MR. WHITE: I didn't know but what you were feeling
they had overlooked something.
H.M.JR: I feel that they have, but that is the
fault of the people that gave them their instructions.
MR. SULLIVAN: We were trying to get the report as
quickly as we could.
H.M.JR: Now, look, I am trying to - I have listened
to this argument. I have heard both sides, and the thing
that I missed in this thing - let's say all of us over-
looked it - is what is the fellow whose money we are
talking about - how does he feel about it.
MR. SULLIVAN: I entirely agree with you, sir.
H.M.JR: I am not trying to blame anybody, but
trying to say we sit here so often and I make the mis-
take of trying to decide something that is going to
affect thirty million people, and we haven't even asked
the people how they feel about it.
Now, if the comeback was seventy-five percent, or
whatever it is, or a high percentage of these people say,
181
- 11 -
"Yes, that is the way we want it" - I mean, I have talked
to people, a few people, and they say they would like
to have it, that it would help them; but if the over-
whelming evidence was that the people who were working
want it, and that they would continue to buy their War
Bonds, it would be awfully hard to argue against it.
MR. WHITE: May I just add this one point. I am
wondering whether we are not talking about different
things. Mr. Graves raised the point that a good deal
of the voluntary savings would go out the window if you
had taxes withheld because - and this seems to me to be
the significant point at this moment - because the busi-
nessmen would not want to handle both. Now, that point
needs to be examined. I am very skeptical of that deci-
sion. If, however, you are raising a different point,
Mr. Secretary--
H.M.JR: Harry, again may I interrupt you? Stewart
makes the same point as you, that Graves in this study -
that Graves has no evidence to back that up. It is
purely his personal opinion.
MR. WHITE: I think that is true of all our judg-
ments.
H.M.JR: He has nothing to back that up with.
MR. WHITE: Neither have I. It is just a question
of judgment.
H.M.JR: So, therefore, it is a question of going
back to the field, Harry.
MR. WHITE: Yes, but you are now raising a very
separate point. You are now raising the question whether
the employee would like to pay his taxes and savings.
Now, I am wondering whether you want to take his
opinion because as soon as the employee understands it -
and it won't take him long to figure this out, that
what he is doing is not paying taxes in advance but
additional taxes for the first year, double taxes -
182
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he isn't going to like it any more than if you asked
him, "Do you like an increase in taxes?" I think that
the decision has to be made independently of how he
feels, though I do think it would be very helpful if
he would feel nicely about it.
H.M.JR: Oh, Harry, really, you shock me now. What
is this? A democracy. This is something we are going
to wrap up and--
MR. WHITE: If you want to go to the employees and
ask each employee whether he likes to pay more taxes -
maybe you do - I didn't know that you had any such in-
vestigation--
H.M.JR: Harry, you really shock me. I mean, the
whole - if your philosophy is right, then don't let's
bother about any of this stuff. I mean, let's just sit
here cold-bloodedly and decide the thing.
MR. WHITE: I think that is what you have to do
with respect to this question of taxation at the source.
H.M.JR: Are you afraid of what they would think?
MR. WHITE: Well, I don't see any more reason for
asking them on this than there is for asking them on
taxes. Now, we do like to get their general impression.
H.M.JR: The businessman through the NAM and the
Chamber of Commerce has his spokesman here. What is
the name of that Treasury man that used to be here and
is now over with the Chamber of Commerce?
MR. KUHN: Alvord.
H.M.JR: They pay him God knows what to be their
representative. The little fellow at the bench doesn't
get his chance to be heard.
MR. WHITE: I didn't know it was the Treasury's
function to use anything but the spokesmen for those
various groups. If you would like to do it, far be it
183
- 13 -
from me to be against additional information or additional
opinions from the fellow lower down, but it can't be
decisive.
H.M.JR: Our whole program of War Bonds is not to
go through the front door.
MR. WHITE: That is different.
H.M.JR: No, no, I am really shocked at that.
MR. WHITE: One is a question of a voluntary pur-
chase; the other is taxation.
H.M.JR: You read my tax speech and everything else -
well, if we are going to take the position here in the
Treasury that we are afraid that these people are going
to understand this thing and therefore we mustn't explain
it to them, I am on awfully weak grounds.
MR. WHITE: I am not making that implication.
H.M.JR: You said they would catch on to the fact
that they are going to pay more.
MR. WHITE: Therefore, if you ask the man, what
you are actually asking him - and if you wish to ask
him this question it is perfectly all right - you are
asking this man, "Are you in favor of paying more taxes
this year in addition to the additional tax bill which
we are going to impose?"
H.M.JR: No, I would explain the whole plan to him.
MR. WHITE: Well, that is the plan in its essence.
H.M.JR: I would explain it to him. Now, I am
being terribly sincere about this.
MR. WHITE: I am, too. I think that your reaction
if you went to the working man - I suspect if you went
to the working man in general and you explained this
and gave him a chance to understand it, he would say,
184
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"Now, let's see, you want me to buy bonds, you want me
to pay more taxes, and you now have got a new wrinkle,
you want me to pay double taxes the first year and you
are asking me if I like it."
MR. STEWART: It is five percent of his taxes.
MR. FOLEY: Yes, but that is over and above what
he would pay next year. I think Harry is absolutely right.
H.M.JR: It is five percent of his income. I made
the same mistake before the Committee that you did, and
I had a terrible time getting my record straightened
out. Didn't I?
MR. TARLEAU: Yes.
MR. BLOUGH: Mr. Secretary, there has been a Gallup
poll in which a substantial ma jority said they were in
favor of the ten-percent tax being withheld at the
source.
H.M.JR: But look, let me see if I can sum up the
the thing, as I understand it, and let me ask this
thing from either you or Friedman. Of the one hundred
and eighty concerns that you have asked, what percentage
of them will say that they are willing to put in deduc-
tion at the source?
MR. BLOUGH: That question was not asked. It very
definitely was not asked, "Are you willing to do this?"
H.M.JR: What was the question?
MR. BLOUGH: The question was, "What difficulties
will you meet in doing it?"
H.M.JR: Well, what was the answer to that?
MR. BLOUGH: I would rather Mr. Friedman, who
is intimately tied up with it, would speak.
185
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MR. FRIEDMAN: All told we interviewed - this one
hundred and eighty you referred to was a preliminary
sample. We now have returns from over four hundred and
fifty. We ourselves interviewed, personally, in the
Detroit area, and we find there would be no serious
difficulty in introducing the collection at source.
We asked each employer what effect it would have on
his pay-roll system, and I can speak on this point
primarily from my own personal experience. Not one
employer whom we talked to said that it would inter-
fere - that it would on the pay-roll side interfere with
the collection at source - not one.
MR. ODEGARD: Did you ask every one that question?
MR. FRIEDMAN: Yes, we asked every one about that.
We asked how it would fit into their pay-roll system
and what readjustment they would make, what other
deductions they were now carrying; and almost all .of
them are carrying between five and twelve deductions,
so that the additional deduction is not & serious
problem. All of them, when we asked them and pressed
them, indicated other deductions that were less im-
portant than either the bond purchase deduction or
the collection at source, tax deductions; and it was
these other deductions they said they would consolidate
or handle manually if they couldn't do it any other way.
Not one of them missed the War Bonds. All of
them were either proud of their record on War Bonds
or somewhat ashamed of what they had done, and their
whole feeling was that this War Bond thing must go on.
Their general reaction was that the collection at
source was a good idea, that it would be no serious
problem. To a few of them of course it would be a
more serious problem than to others, but in general
the reaction was there was no serious problem on the
bookkeeping and pay-roll side.
H.M.JR: Well now, you see the person that first
raised this thing wasn't thinking of War Bonds at all.
186
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There were two people that first brought this to
my attention. One was my son, Henry, out in Cleveland,
who worked very closely with the people there. They
have community chests; they have to do something about
medical care and Red Cross, and he counted up - there
were six or seven different things that a man living
in a housing authority, in which he was working, had
to deduct, you see.
Then the next man that brought this plan up
was a man by the name of Roosevelt, and he wasn't
thinking of War Bonds, but he was thinking of the
man making between two and three thousand dollars.
By the time we get all of these things, aren't we
asking this man to do too much?
MR. WHITE: That is exactly it, and there is no
doubt in my mind but that Harold is right when he says
that the amount they will buy voluntarily will be
curtailed; but it will be from the worker and not
because the employer doesn't want to handle both
things. The worker will simply say, "This is too
much, and therefore I am going to cut down on my
Bond purchases."
MR. PAUL: But you can't compare the figure one
billion two hundred and fifty with three hundred million
because you are not going to lose it all.
H.M.JR: Harry - also very much in the room -
another thing here that makes me want to go to work
is the fact that management unanimously wants this
thing. If nobody has talked to the man at the bench,
for us here - you and I and all of us in thi S room -
to approach this thing without finding out the
repercussions - we haven't had time yet to get results
from the study in Buffalo as to what is happening to
the people; but I say this, from the little I heard,
that I don't think anybody understands what will happen
to the workman's family. The thing I want to be 80
careful about is - and Harold will get the worst end
of this thing because I am SO anxious to see War
Bonds go so I treat him 8. little bit tougher than I
would anybody else, and I am going to be more careful
about it, that I don't side with him, because I am so
interested in it.
187
- 17 -
But the thing I would like to see at this stage,
Roy, or Harold, is what happens to a family with
between two and three thousand dollars, with two
children.
MR. BLOUGH: I have that.
H.M.JR: Do you want to read it out loud? I
would like to know, because there is a limit, you know.
You know, gentlemen, there is this thing - after all,
the only thing that everybody in this room is inter-
ested in is licking Mr. Hitler. Now, if you hit these
people too hard at this level you are going to hit
their morale, and we can't overlook this thing. What
are the figures, Roy?
MR. BLOUGH: Well, you want a man between two and
three thousand dollars, married couple, with two children.
H.M.JR: Yes.
MR. BLOUGH: And this is the tax computed under the
House bill. Let's take a man with an annual wage of
twenty-five hundred dollars. He has two children.
H.M.JR: Couldn't you start lower than that?
MR. BLOUGH: Yes, I can go down to twelve hundred
dollars. His weekly wage is twenty-four dollars. His
Social Security deduction next year will be two percent,
or forty-eight cents.
H.M.JR: Per week?
MR. BLOUGH: Per week on twenty-four dollars. He
will have no income tax to pay of any kind whatever. He
will have two dollars and forty cents deducted for bond
purchases, making a total deduction of two dollars and
eighty-eight cents out of twenty-four dollars.
H.M.JR: Go to the next level.
MR. BLOUGH: The next level is fifteen hundred
dollars. That is a weekly wage of thirty dollars.
Sixty cents a week, Social Security deduction; no income
tax; three dollars on the bond quota; total withheld
from thirty dollars is three dollars and sixty cents.
188
- 18 -
On two thousand dollars there is eighty cents
Social Security deduction; no tax; four dollars
Savings Bond quota; total withheld is four dollars
and eighty cents.
Twenty-five hundred dollars, or fifty dollars a
week; one dollar Social Security deduction; thirty-five
cents, income tax deducted at the source; Savings Bonds
quota, five dollars; total withheld, six dollars and
thirty-five cents; to which should be added tax on 1942
income, a pro-rated share, one dollar and sixty cents a
week. So he must meet seven dollars and ninety-five
cents all together.
H.M.JR: Out of how much?
MR. BLOUGH: Out of fifty dollars, and of that
amount six thirty-five would be withheld, and the
other dollar sixty cents is the amount he has to save
and scrape up to pay--
H.M.JR: Pay?
MR. BLOUGH:
...
the Government on his 1942 income
tax.
H.M.JR: Do that one again, because that is where
the deduction at the source comes in for the first time.
MR. BLOUGH: Under the House bill, yes, sir.
H.M.JR: At what level?
MR. BLOUGH: Above two thousand dollars. I didn't
have between two thousand and twenty-five hundred
dollars. I have twenty-five hundred dollars.
H.M.JR: Do that again.
MR. BLOUGH: Fifty dollars a week is what he gets.
Social Security will take a dollar a week; the collection
at source of income tax will take thirty-five cents from
189
- 19 -
him; his Savings Bonds quota will take five dollars
from him. He will have withheld from his salary six
dollars and thirty-five cents. He will also have to
meet income taxes which on a weekly basis would be a
dollar and sixty cents. Those won't be withheld.
That is the amount he will have to pay in installments.
So the total on a weekly basis is seven ninety-five
out of fifty dollars.
MR. PAUL: The greater part of that - five dollars
of that is a saving, not a tax.
MR. BLOUGH: Five out of seven ninety-five is
saving.
MR. WHITE: And Social Security is a saving.
MR. BLOUGH: Six including the Social Security.
At three thousand dollars he has a weekly wage
of sixty dollars; social security deduction of one
dollar and twenty cents; income tax withheld at the
source, eighty-five cents; Savings Bonds quota, six
dollars; total withheld, eight dollars and five cents;
in addition to which he has his regular income tax of
three dollars and forty-four cents, or eleven forty-
nine out of sixty dollars.
H.M.JR: Let me see that, please. Those are the
figures I have been crying for. Savings bank quota?
MR. BLOUGH: That is an error in typing. I am
very sorry, Mr. Secretary. It is Savings Bond quota.
H.M.JR: Just come back here over my shoulder.
This is starting with twenty-five hundred dollars.
(Mr. Paul left the conference.)
H.M.JR: How long have you had these figures
ready? They are the ones I have been trying to see.
190
- 20 -
MR. BLOUGH: Since yesterday.
H.M.JR: What is the difference?
MR. BLOUGH: That (indicating) is the percentage
of income.
H.M.JR: The twenty-five hundred dollar fellow
pays seven ninety-five?
MR. BLOUGH: Which is fifteen and nine-tenths
percent of his income.
H.M.JR: That is lower than what I thought. That
is, including the--
MR. BLOUGH: ... including the savings, including
the tax, including Social Security, and everything.
MR. WHITE: That is the increase in Social Security
which is being contemplated.
MR. BLOUGH: Not being contemplated - it is in the
law now to take effect as of January first.
MR. ODEGARD: This doesn't take account of the
other deductions such as you mentioned, Community Chest,
and so on.
MR. BLOUGH: The Government employee you asked for
also. He has a somewhat stiffer situation because he
in addition has the five percent Civil Service retire-
ment in place of Social Security.
H.M.JR: Have you got that?
MR. BLOUGH: Yes, I have that. Again a married
person with no - married person and two dependents -
these are comparable. Instead of the Social Security
he has a dollar and twenty cents. His Civil Service
retirement is five times the Social Security.
191
- 21 -
H.M.JR: He has no Social Security?
MR. BLOUGH: He has no Social Security, but he
has in place of that the Civil Service retirement.
H.M.JR: Who wants to take up from here on?
MR. GRAVES: I would like to ask Mr. Friedman
a question.
H.M.JR: Go ahead.
MR. GRAVES: Did you ask the Canadian employers -
you said you visited two - how many of their employees
were participating in the bond purchase program and
what their rate of participation was?
MR. FRIEDMAN: No, we did not, but I did see the
pay-roll books on one of those concerns. We looked
through the pay-roll books, and I can say from just
the inspection of the pay-roll books that a very large
percentage of the employees--
MR. GRAVES: But you didn't ask for any figures?
MR. FRIEDMAN: We did not consider that within
our purview.
MR. GRAVES: Of course that is a very significant
point, that obviously in any company where participa-
tion in the plan, although the plan is available, is
very small the difficulty of the employer in taking on
this additional job would be much less. Our objective,
as no one knows better than yourself, is to bring about
a ninety percent, at least, participation in this plan,
and on a basis, if we can attain it, of ten percent of
gross pay roll. A company that is in that or near
that objective would obviously be in an entirely dif-
ferent situation than the companies which had the plan
in on a nominal or token basis. I think that is very
192
- 22 -
important. I doubt if Canada, in view of the late-
ness of their start on this pay-roll allotment, would
have any substantial--
MR. FRIEDMAN: I know one of these was certainly
not nominal. As I say, we looked over the pay-roll
records and saw the columns and the amounts that
bonds. they were deducting for each of these types of savings
MR. SULLIVAN: Milton, were you with Dr. Atkeson
when he visited the AT and T? I just had an oppor-
tunity. to speak with him for a moment. I understood
from him that the comptroller--
H.M.JR: Who did you talk to?
MR. SULLIVAN: The comptroller of the American
Telephone and Telegraph gratuitously remarked that
this would be sabotage - the pay-roll allotment plan.
Is that correct?
MR. FRIEDMAN: The comptroller there was referring
to the employees' reactions, not the employer's side.
MR. SULLIVAN: That is what I understood. He
was expressing his own opinion about what the employees
would do. That was not an opinion about the effect on
the employer's pay-roll system.
H.M.JR: That is what I have pointed out; we
really don't know how the employees will react. That
is what we don't know. John, do you want to get in
on this?
MR. SULLIVAN: No, sir. The report will be ready,
we hope, tomorrow on the result of this investigation.
H.M.JR: You don't know how it will look?
193
- 23 -
MR. SULLIVAN: No, I don't. You will recall
that Monday I said Mr. Cann had stated that it looked
as though about fifteen percent of the employers would
need additional equipment. This morning he said it
might be nearer twenty-five, and they are trying on a
sampling basis to find out how much that means in
terms of additional machinery.
H.M.JR: Of course that is something that once
we get it - I mean, that isn't a question to argue
about. It is a question--
MR. SULLIVAN: It is purely factual.
H.M.JR: That is, to go to Mr. Nelson and say,
"They need so many typewriters, so many adding machines,
so many computing machines. Can we get them? That is
exclusive of the Bureau?
MR. SULLIVAN: Yes, sir.
H.M.JR: Foley?
MR. FOLEY: Well, I think that the fair way to
put the question to the employee is to ask him whether
or not it would facilitate his budgeting and facilitate
his income tax payments if a plan similar to the plan
under which he purchases War Bonds were instituted and
the company deducted at the source so much each pay
period for income taxes. I think that is the way to
put it to the employee. The other way is the unfair
way, because you are asking him, as Harry points out,
if he is willing to pay more than he has ever paid
before in the way of income taxes and pay-roll deduc-
tions for War Bond purchases.
It seems to me that now we are putting a greater
burden on the income tax system, and we will continue
to increase that burden as we go along; that we are
faced with a permanent improvement in our income tax
system that necessity compels us to take. While at the
moment there will be a clash with your War Bond purchases,
194
- 24 -
nevertheless it seems to me it is a step that we
inevitably must take if we are going to make our
income tax system workable with these additional
levies that the man in the low income brackets must
pay for the first time.
H.M.JR: The only thing there I don't - either
you and narry don't understand, or I don't - all I
was suggesting is that the thing be explained to the
workmen. There is nothing unfair about that, to explain
to him what the proposal is.
MR. WHITE: If you explain it, I think you would
have to say something more than Ed said. I think it
would have to be made clear to him that though he
is paying taxes in advance, he doesn't catch up to
himself until he dies, so that this one year - let's
put it this one year he is paying more. He will see
that. I don't think it is in any sense an insuperable
obstacle to his acceptance. I do think we can't over-
look the fact that it is in many cases going to cut
down on the voluntary savings. In many cases it is
going to cut it some; how much I don't know.
MR. FOLEY: I think any worker would like to pay
his income tax out of current earnings rather than
to have to save out of current earnings to pay income
taxes based upon income he received the year before.
H.M.JR: You didn't mean, Harry, he wouldn't
catch up to himself until he dies.
MR. WHITE: On this thing he catches up--
H.M.JR: On this he catches up - in '44 you
become current, don't you, Randolph?
MR. WHITE: That is right. What I meant is he
never gets this double pay back.
MR. SULLIVAN: Harry means in '44 it is being
withheld for '45.
195
- 25 -
MR. WHITE: One year he pays something out
which he never gets back.
MR. BLOUGH: Unless he becomes unemployed, in
which case that is not correct. If he becomes sick
or retires before he dies--
MR. WHITE: But for one year he is being asked
to pay more. That will become clear to him. I don't
think that is asking too much, but I merely mean that
will add to the curtailment of his voluntary purchases
in many cases, though I don't think it will be any-
thing like the amount suggested by Harold; but it will
be something, and I think that has to be anticipated.
MR. FOLEY: I think it is the most significant
thing that any Secretary of the Treasury has been
faced with since we instituted the income tax system,
and it is going to be a permanent thing when it is
done. It is an improvement in the collection of
taxes that has to be made, it seems to me, in view
of the exigencies of the burden that you are throwing
on the people.
MR. ODEGARD: Ed, is it contemplated that ulti-
mately there will be collection at the source which
will obviate the necessity for the income receiver
making an additional return?
MR. FOLEY: I don't think the thing will ever
be that perfect, but I think that as improvements are
made in the light of experiences that are gained in
the actual operation of the new system, there will be
less actually collected from returns, that the workmen
will have to fill out later on, than will be true in
the first instance.
MR. ODEGARD: I am thinking merely from his point
of view. That is, he has to make out an income tax
return in any case; and if it were possible to obviate
the necessity for him making out this return, it would
be much stronger - he would have a much stronger case.
196
- 26 -
MR. FOLEY: I agree with you, Peter, but I
think you will gradually work in that direction and
you will never--
H.M.JR: You asked that--
MR. FOLEY: ... attain perfection.
H.M.JR:
about getting a return out of these
thirty million people - I mean, this would be a sub-
stitute.
MR. STEWART: It is not a substitute.
H.M.JR: But if it was, it would be a big argu-
ment in his favor.
MR. FOLEY: There is the other argument in its
favor, that the fellow doesn't have to save.
MR. ODEGARD: Do the English require a return,
individual return?
MR. BLOUGH: Yes, the English do.
MR. STEWART: It seems to me the employer makes
out the return, and the employee signs it.
MR. BLOUGH: In Great Britain the Government
assesses the tax on all people, and the person simply
files the statement of his income, and the Government
makes the computation; but the return has to be filed.
MR. WHITE: I think the mass of the people will
be pleased next year. I think they will look back
and say, "I am glad this was done.
MR. KUHN: Mr. Secretary, could I ask a question
of the people who made the inquiry? Did you put it
to the employers as a withholding tax in principle and
in general terms, or did you explain to the employers
the procedure that they would have to follow under
the proposed bill?
197
- 27 -
MR. FRIEDMAN: We did the latter.
MR. KUHN: In all cases?
MR. FRIEDMAN: In all cases. We had a little
mimeographed two or three page statement which de-
scribed the steps the employer would have to take,
and in most cases we let the employer read that.
We supplemented it by explanations, but in all cases
we tried to investigate in great detail just exactly
how it would fit into his pay-roll system, what
additional steps he would have to take.
H.M.JR: Tarleau?
MR. TARLEAU: No, there is nothing much that I
can add, except that I always get a little nervous
when they talk about, just as you (Kuhn) do, 8. with-
holding tax, because that again prejudices the thing.
It isn't a withholding tax, but a method of collection
at the source; & withholding tax is something that is
in the Internal Revenue, and several examples of it
are a withholding tax on non-residential aliens, a
withholding tax on various types of income. But this
is not a withholding tax; it is a collection system.
I just noticed here when the Secretary was speak-
ing about low income people that single persons having
an income of eighteen hundred dollars a year last year
paid a tax of, I think, somewhere around thirty dollars.
This year he pays ninety-seven dollars and ninety
cents; and under the bill that passed the House, on 8.
salary of about eighteen hundred dollars a year, which
is about thirty-four dollars a week, he will have to
pay a tax of two hundred and thirty-six dollars and
twenty cents.
In the bill that the Secretary will appear for
perhaps next January or February, instead of paying
.two hundred thirty-six dollars and twenty cents, he
may be asked to pay four hundred dollars.
H.M.JR: Will you underwrite my appearance?
198
- 28 -
MR. TARLEAU: I will bet on it. The fact is
this fellow making thirty-four dollars a week isn't
going to have two hundred and thirty-six dollars and
twenty cents, or one-fourth of it, on the fifteenth
of March, June, September, and December unless some-
body gives him some help in forcing him to lay some
of that money aside now. I mean, this two hundred
thirty-six dollars and twenty cents is larger, in my
own opinion, than any individual debt, except some
unfortunate disaster, that this man has to meet. It
is something, moreover, in which we have jumped from
about thirty dollars to two hundred and thirty-six
dollars, and I should think that that is a compelling -
to my mind one of the compelling motives for going
into a collection at the source system.
H.M.JR: Why don't you go the whole hog and
collect his income tax at the source?
MR. TARLEAU: You mean collect the whole two
hundred and thirty-six dollars and twenty cents?
H.M.JR: Yes.
MR. TARLEAU: Well, for obvious reasons I would
like to go ahead and do that. You know the reasons
that compelled us to take the ten and bring it down
to five.
H.M.JR: If you could write it, wouldn't you
collect the whole thing, the whole two hundred and
thirty odd dollars?
MR. TARLEAU: I would, yes.
MR. WHITE: Don't you expect to move in that
direction?
MR. TARLEAU: Certainly.
MR. WHITE: Just give it to him gradually.
199
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MR. TARLEAU: We are moving into this thing
gradually. This transition period is a tough one.
You don't want to do it all at once, but that, I think,
is a factor that can't be overlooked. Moreover, now
going back on the other side, take some of the examples.
We are going into it 80 slowly that the present effect
on the bond program of 8. man making twenty-five hundred
dollars a year, married, with two dependents - he is
paying five dollars for Bonds of his fifty-dollar
income, and I should think that additional thirty-five
cents isn't going to prejudice the five-dollar ex-
penditure for Bonds. At least I would feel that needs
& great deal of explanation to make me feel he would
give up his five-dollar Bond purchase because of thirty-
five cents he is prepaying on his income tax.
MR. WHITE: Except that it psychologically has &
little more impact than the actual quantitative measure.
MR. TARLEAU: I can see that.
MR. WHITE: A lot of people are on the line, and
it doesn't take much pushing to get them to change
their minds about the amount of contributions. Look
how that is apparent in the letters that come to the
Treasury. No matter what the complaint is the man
has - it can be the Post Office, the taxes, the spending
of money, the way the Army operates - he says, "As long
as this continues I am going to stop buying Bonds." It
is the one avenue he has in which he can express his
dislike or antagonism and takes it out of buying Bonds.
There are many who are going to dislike this and take it
out of their Bonds as long as the voluntary plan is in.
MR. TARLEAU: That is true.
MR. WHITE: There can merely be a difference of
point of view as to the amount, but I don't think
that you can take the position that it won't interfere
to some extent.
MR. TARLEAU: Yes.
200
- 30 -
MR. PAUL: Yes, but the interference is not going
to be to the full extent by a long shot. We are com-
paring a reduction of the sale of War Bonds with a
system of collection at the source which is vital to
the income tax not only next year but for all time.
MR. ODEGARD: Randolph, on that I am not clear
about what data you have to say that if you don't
collect at the source you are going to lose 8. lot
of revenue.
MR. PAUL: I mentioned that. That is one point,
but I don't want to stress it too much because nobody
can compute it. All I feel is that quite definitely
there are a lot of people who are going to fai 1 to file
returns and pay their tax when we get thirty million
returns - and we are supposed to get that many - and
we can't go out and police that, particularly today,
so we are going to lose the money that those defaulters
would otherwise pay.
MR. WHITE: Might I ask a question? What will
the total be if you move up to the ten percent?
MR. PAUL: Two and a half billion.
MR. WHITE: If you move - when you get to the
ten percent it will be two and a half billions. If
you apply the average rate of interest to that two
and a half billion the Government will save fifty
millions a year, so that if there are some additional
expenses merely in the collection of the tax one would
have to--
MR. SULLIVAN: Oh, no, it isn't for a full year
you are saving - it is an average of seven and a half
months.
MR. WHITE: Well then, you would have to modify
it.
201
- 31 -
MR. SULLIVAN: That is about what withholding
would cost.
MR. BLOUGH: It is practically a full year, Mr.
Sullivan. If the tax is paid in quarterly installments
you have substantially a full year - in fact, a little
more than a full year in some cases.
MR. SULLIVAN: That is right, but the experience
in those brackets affected by withholding has been that
not a small number have taken advantage.
MR. BLOUGH: That has been true in the past, but
not in the future. I am willing to gamble on that,
because of the heavy tax.
May I before this meeting is over - I would like
to have a couple of words, if I may. The meeting seems
to be getting well toward the end. I would like just to
add one or two points to what has been said, especially
by Mr. Foley and Mr. Tarleau.
It seems to me that we have here a chance in the
United States - we are pretty much at the turning point
in the United States as to whether the people's tax,
and we are going to have a people's tax and we are
getting a people's tax - whether the tax on the masses
of the people levied by the Federal Government should be
an income tax in which you can have exemptions and in
which you can have deductions and recognition of
marital status and progressive rates, and so on, or
whether our people's tax is going to be a sales tax.
(The Secretary left the conference temporarily.)
MR. ODEGARD: It is not going to ease the burden
at all on handling the returns.
MR. PAUL: It will be harder for the Bureau.
202
- 32 -
MR. WHITE: It mustn't be compared to what it
is now. It must be compared with what it will be
with the expansion. Even so it will complicate it,
but we mustn't allocate all the troubles they are
going to have to collection at the source.
MR. FRIEDMAN: A large part involved with
collection at the source is already involved with
information at the source.
H.M.JR: What else did you want to say, Roy?
MR. BLOUGH: I was about to make this point, that
we can make the income tax a people's tax or we can
take heavy general sales taxes. I don't believe you
can make the income tax a people's tax on anything
like the scale that needs to be used under coming
conditions without collection at the source; and that
it has a permanent aspect of the income system and
has been used in other countries to very good
advantage. It can be used and should be used here
to good advantage.
Now, the second point I would make is this, that
if & billion dollars collected at the source through
this tax cuts down Bond purchases a billion dollars,
you are still considerably ahead because the billion
dollars in one case is taxes which never has to be
paid back. There isn't going to be any doubt about the
cashing of these things at a very embarrassing time,
no interest to pay, and so on. The Bonds, after all,
are bonds. It is borrowing and does let the Secretary
of the Treasury and the people of the United Stat es
in for the problem of repaying them and repaying them
with interest. You can take something in sacrifice
in order to get this sort of thing in operation.
MR. GRAVES: May I ask Mr. Blough a question
about a statement he just made. I don't understand--
203
- 33 -
H.M.JR: I want to save three minutes at the
end because I want to ask Stewart to give me his
impression when we are through.
MR. GRAVES: When you say this billion dollars
you are talking about is taxes and not borrowing,
you mean both are borrowing, if I understand this
scheme.
MR. BLOUGH: I may not have made myself clear.
I frankly don't believe that you can impose income
taxes on the plane on which we are about to impose
income taxes, even in this bill, and have them success-
fully operated and have the public stand up to them
without a method of this kind being put into operation.
MR. GRAVES: That isn't my point. I mean when
you say in one case it is taxes and in the other case
it is borrowing--
MR. BLOUGH: As to the billion dollars it is
borrowing for one year at no interest, but it is a
much bigger matter than that. You will get this billion
dollars and many other billions of dollars through
collection at source which you will never get in any
other way, and in that sense it isn't borrowing but
taxes.
H.M.JR: Well, you borrow this five percent for
a year, but then you give him a credit on his income
tax.
MR. BLOUGH: That is right, but you are going
to be able to impose taxes at a level you could never
expect to impose on them without collection at the
source, except through sales taxes.
H.M.JR: Now, Walter, if you want to - I am
very proud of myself--
MR. STEWART: I got the same impression as out
of the interviews I had yesterday. It is very
204
- 34 -
difficult. The strongest difference of opinion is
at the point where there is the least evidence. We
don't really know how much the withholding at the
source will affect the Bond sales, and I don't mean
to imply that the other inquiry was expected to cover
that. It is difficult evidence to get, particularly
to get it in a conclusive form.
The evidence up to date, I would say, on these
surveys, so far as the employer was concerned, is
that he would not find it an impossible task to
administer.
To get evidence as to how the employees feel
would be much more difficult. I also agree that the
test there is not its popularity.
The view that Foley and Blough expressed to
me yesterday about the withholding tax being 8.
permanent improvement and the long-term view, I am
entirely persuaded of. I think it is probably not
only desirable but essential if you are going to
administer an income tax at the levels that you are
working on and that it makes itself flexible. It
runs into 8: period where you have got the problem
of the sales of the Bonds, and on that we just don't
know, but I would be prepared to say it would
jeopardize it somewhat.
If you don't do it now you are quite likely
to have to do it at a less convenient time. It
would have been & fortunate thing to have had it
done a couple of years ago.
Now you are faced with, "When will you do it?"
If there are to be further reductions, further
exemptions and lowering the level, you will find it
more difficult in its flexibility of administration,
fitting the fiscal program into the economy. The
method of collection is & definite improvement,
and I think probably a requirement at this level.
205
- 35 -
What we don't know is the reaction which it
may have upon the Bond sales, and I would think
that the proper thing to do is first, perhaps, to
go back to these one hundred and eighty firms and
ask them the question in a more precise form, of
the kind we discussed this morning, and then get
such consensus of opinion as you can from the
employees.
H.M.JR: Well, what I would like to do is
this, because I am going on the assumption that
I will have two weeks' time from tomorrow if I
still decide to put in a hedge, so to speak,
tomorrow when I appear, in view of the machinery
side of the thing.
I wonder if this group here couldn't meet
right after lunch, or enough of them to meet and
then submit it to the bigger group - additional
questions. I don't know who did it in the first
case, but the questions are there. Go back to
these people, both the employer and the employee
in these factories, to find out what effect this
deduction at the source would have, what reaction
it would have generally on Social Security, Community
Chest, and what have you - how would they feel about
it.
I mean, is deduction at the source such a big
hurdle that they will say, "Well, if you are going
to do this that is all we can do", or will they say,
"We can do a little bit less", or, "It won't make any
difference."
Roy, I don't think that is impossible.
MR. BLOUGH: I am quite in favor of it, Mr.
Secretary.
H.M.JR: I have got enough confidence in the
people in this room here that if you people would
206
- 36 -
get together and fix up something and let the boys
go out into the field again - I would only let them
stay out a week, not more than a week.
MR. WHITE: Do you expect, Roy, that you would
get any meaningful quantitative results from an
inquiry of that kind? Certainly no investigation
which has ever been made of a similar thing- and
there have been & number of them made in universities,
and I know - I am familiar with three - has yielded
quantitative results which are worth the paper they
are written on. You will get what the Secretary has
asked; you will get what their reaction to the idea
is - it will be bad or good - but you will not emerge
with anything even approaching the estimate of the
extent to which your voluntary program will be inter-
fered with.
MR. STEWART: That is so far as the employee
is concerned. As far as the employer is concerned,
you will get everything.
H.M.JR: Well, look, let me just - I should be
on time - irrespective of what has happened before,
Harry, I would like this thing done. See? It may
not be worth the paper it is written on, but at
least--
MR. WHITE: From & quantitative, not qualitative -
you won't be able to say approximately how much.
H.M.JR: Well, you can get some idea, and I think
that Harold is on the weakest ground, if he doesn't
mind my saying it. He has got to find data to support
the thing. He is just giving his personal opinion,
for what it is worth; and he may be right and he may
be wrong. I think everybody here in the room agrees
it is going to hurt War Bond sales. I don't think
anybody here agrees that it won't.
But I would like this additional - I have got
& week, and I would like to spend that week finding
out.
207
- 37 -
This discussion for me was very helpful, and I
must say that I was impressed more with the argument
for deduction at the source than I was against it -
I mean, listening this morning.
I have always said here, and I would like you to
all keep this in mind - I have always made the state-
ment, as far as I am concerned I have got a plan for
a five-year war. Well, if I am planning for a five-
year war this is one of the fiscal steps that I should
take, because certainly if we are in a five-year war
we will have to do this and I have always said, "Let's
plan that this war is going to be a five-year war."
But the machinery thing, you will have that
ready Thursday?
MR. SULLIVAN: Yes, sir, I hope to have & report
tomorrow morning. We will not have gone to WPB to
find out--
H.M.JR: But you will go tomorrow?
MR. SULLIVAN: Tomorrow afternoon, yes, sir.
MR. ODEGARD: I was going to make another
suggestion, that in getting the opinions of employees
it would seem to me that you might use machinery for
doing that such as Likert's machinery rather than
Mr. Friedman's.
H.M.JR: Well, I think - I thought of that. I
don't know whether Likert's people are available.
But would this group in some room continue this thing
after lunch to get this questionnaire up so that
between now and tonight it will be settled; and I
think the Likert thing is a good idea.
I have got to stop, but this is one of t he
best discussions I have ever had, and may I compliment
you all on your low blood pressure. (Laughter)
Table 1- a
Amount and effective rate of deduction from weekly wages for Social Security tax,
income tax withheld at source during 1943, savings bonds and tax on 1942 income
Stughd person - no dependents
Veekly exemption for income tax withhold at source - $11
I
Veekly
1
Social
I
Income tax
I
favings
#
Total
# Tax per week szotal withheld
#
wage
I
Security
1
withheld at
I
bend
I withheld :
en 1942
Annual
tyles 1942 tax,
2
(Col. 1
1
doluction
I
course -
%
I
quota
:(001.34
:
income 1/
#
per week
wage
I
+ 50)
1(25 of Oal. 2
#
2
:
(10% of
: Gol. 44 I (Tax on Gol. 11 (Col. 6
I
1/
I 10 to $3,000):
- $11)
I
Col. 2)
I dol, 5)
I
& 50)
I
+ Gel. 7)
1
2
3
4
5
6
7
#
Anount
$1,200
#24
$ Jus
$ .65
$2.40
$ 3.53
$ 2.52
$ 6.05
1,500
30
.60
-95
3.00
4.55
3.62
8.17
2,000
40
.80
1.45
4.00
6.25
5.46
11.71
2,500
50
1.00
1.95
5.00
7.95
7.30
15.25
3,000
60
1.20
2.45
6.00
9.65
9.44
19.09
3,500
70
1.20
2.95
7.00
11.15
11.58
22.73
4,000
80
1.20
3.45
8.00
12.65
13.72
26.37
Effective rates
$ 1,200
#24
2.0%
2.7%
10.0%
14.7%
10.5%
25.2$
1,500
30
2.0
3.2
10.0
15.2
12.1
27.2
2,000
40
2.0
3.6
10.0
15.6
13.7
29.3
2,500
50
2.0
3.9
10.0
15.9
14.6
30.5
3,000
60
2.0
5.1
10.0
16.1
15.7
31.8
3,500
70
1.7
4.2
10.0
15.9
16.5
32.5
4,000
so
1.5
4.3
10.0
15.8
17.2
33.0
Treasury Department, Division of Tax Research
July 21, 1942
Assumes verker employed 50 weeks. 1942 taxes computed under rates in H. R. 7378.
Employee's share of payrell tax for eld-age and survivors' insurance.
208
CLH:3MH/bm
ong TREP
7/21/42
Regraded Unclassifi
Table 2 - a
Amount and effective rate of deductions from weekly wages for U. 8. Civil Service
Retirement Fund, income tax withheld at source during 1943, savings bonds, and
tax on 1942 income
Single person, no dependents
Weekly exemption for income tax withheld at source - $11
1
2
3
2s
5
6
7
8
1
# Civil Service
Income tax
# Savings bond #
: Tax per week :
Total
1
Weekly
:
retirement
:
withheld at
=
quota
# Total :
on 1942
#
withheld
Annual
I wage
I
fund
:
source
:
(10% of
I with- $
income
#
plus 1942
vage
I
1450
#
(5% of
#
(5% of
I
vages,
I hold
#
(Total tax
I
tax per
I
1
Gol. 2)
:
Cel. 2 - $11)
:
Gol. 2)
I
#
+ 50) 1/
I
week
Amount
$1,200
$24
$1.20
$ .65
$2.40
$ 4.25
$ 2.52
$ 6.77
1,500
30
1.50
.95
3.00
5.45
3.62
9.07
2,000
40
2.00
1.45
4.00
7.45
5.46
12.91
2,500
50
2.50
1.95
5.00
9.45
7.30
16.75
3,000
60
3.00
2.45
6.00
11.45
9.44
20.89
3,500
70
3.50
2.95
7.00
13.45
11.58
25.03
4,000
80
4.00
3.45
5.00
15.45
13.72
29.17
Effective rate
$1,200
$24
550$
2.75
10.0%
17.7%
10.5%
28.2%
1.500
30
5.0
3.2
10.0
18.2
12.1
30.2
2,000
40
5.0
3.6
10.0
18.6
13.7
32.3
2,500
50
5.0
3.9
10.0
18.9
14.6
33.5
3,000
8
5.0
4.1
10.0
19.1
15.7
34.8
3,500
70
5.0
4.2
10.0
19.2
16.5
35.8
4,000
80
5.0
4.3
10.0
19.3
17.2
36.5
Treasury Department, Division of Tax Research
July 21, 1942
Assumes worker employed 50 weeks. 1942 taxes computed under rates in H. R. 7378.
209
LOF/OLM:bm
7/21/42
Regraded Unclassified
Table 1- b
Amount and effective rate of deductions from weekly wages for Social Security tax,
income tax withheld at source during 1943, savings bonds and tax on 1942 income
Married person - two dependants
Weekly exemption for income tax withheld at source - $43
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
# Weekly
#
Secial
8. Income tax
#
$ security do-,
Savings
4 Total I Tax per week: Total
Annual
# wage
withheld
#
bank
!withheld:
on 1942
I withheld
wage
:(Cal. 1
# duction 21
$
at source -
#
#
(2% of Col. 2:
quota
(Cols.
I
income 1/
# plus 1942
# 50)
(5% of (Col. 2ª
3+4 (tax on Col. 1: tax,per week
to
(10% of Col,2)
#
1
#
$3,000)
$
- $43)
#
#
+ 5) :
+ 50)
# (Cal. 6 t 7)
Amount
it
$1,200
$24
$ .48
-
$2.40
$2.88
-
$2.88
1,500
30
.60
-
3.00
3.60
-
3.60
2,000
40
.80
-
4.00
4.80
-
4.80
2,500
50
1.00
$ .35
5.00
6.35
$1.60
7.95
3,000
60
1.20
.85
6.00
8.05
3.44
11.49
3,500
70
1.20
1.35
7.00
9.55
5.28
14.83
4,000
80
1.20
1.85
8.00
11.05
7.12
18.17
Effective rates
$1,200
-
2.0%
-
10.0%
12.0%
-
12.0%
1,500
-
2.0
I
10.0
12.0
-
12.0
2,000
-
2.0
-
10.0
12.0
-
12.0
2,500
-
2.0
&
10.0
12.7
3.2%
15.9
3,000
-
2.0
1.4
10.0
13.4
5.7
19.2
3,500
-
1,7
1.9
10.0
13.6
7.5
21.1
4,000
-
1.5
2.3
10.0
13.8
8.9
22.7
Treasury Department, Division of Tax Research
July 21, 1942
Assumes worker employed 50 weeks. 1942 taxes computed under rates in H. R. 7378.
Employee's share of payroll tax for old-age and survivers' insurance.
210
7/21/42
Regraded Unclassified
Table 2 - b
Amount and effective rate of deductions from weekly wages for U. 8. Civil Service
Retirement Fund, income tax withheld at source during 1943, savings bonds, and
tax on 1942 income
Married person, two dependents
Weekly exemption for income tax withheld at source - $43
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
#
:Givil Service:
Income tax
# Savings bond
:Total
: Tax per week :Total withheld
:
Weekly
1
Retirement
I
withheld at
# quota
I withheld on 1942 in- :plus 1942 tax,
Annual
# wage
I
fund
: source
:
(10% of
(Col. 3 # come (tax on I per week
wage
1(1 + 50)
1(5%
of
Gol.
I 5% of (Col. 2
$
wages,
14 Col. 4: Gol. 1 + 50) s(001. 6+
t
1/
2
2)
I
- $43)
2
Col. 2)
It 001.5):
1/
# Gol. 7)
Amount
$1,200
$24
$1.20
-
$2.40
$ 3.60
-
$ 3.60
1,500
30
1.50
-
3.00
4.50
-
4.50
2,000
40
2.00
-
4.00
6.00
-
6.00
2,500
50
2.50
$ .35
5.00
7.85
$1.60
9.45
3,000
60
3.00
.55
6.00
9.85
3.44
13.29
3,500
70
3.50
1.35
7.00
11.85
5.28
17.13
4,000
80
4.00
1.85
8.00
13.85
7.12
20.97
Effective rates
$1,200
$24
5.0%
-
10.0%
15.0%
-
-
1,500
30
5.0
-
10.0
15.0
-
-
2,000
40
5.0
-
10.0
15.0
-
-
2,500
50
5.0
,7%
10.0
15.7
3.2%
18.9%
3,000
60
5.0
1.4
10.0
16.4
5.7
22.2
3.500
70
5.0
1.9
10.0
16.9
7.5
24.5
4,000
80
5.0
2.3
10.0
17.3
8.9
26.2
Treasury Department, Division of Tax Research
July 21, 1942
1/ Assumes worker employed 50 weeks. 1942 taxes computed under rates in H. R. 7378.
211
7/21/42
Regraded Unclassified
Fifth Dest.
Julip13/42
STATEMENT OF SECRETARY MORGENTHAU
BEFORE THE
last dropt
SENATE FINANCE COMMITTEE
7/22/42
JULY 23, 1942
9:30am
You will recall that in his Budget Message of
January 5, President Roosevelt asked for additional
taxes for the fiscal year 1943, exclusive of Social
Security taxes, of $7 billion. On March 3rd, I
appeared before the Committee on Ways and Means of the
House and presented recommendations for a tax program
to produce $7,600 million in additional annual revenue
from taxes. On May 6th I wrote a letter to the Chairman
of the Committee on Ways and Means recommending a re-
duction in personal income tax exemptions to produce
approximately $1,100 million more revenue. These two
recommendations together involved a tax program of
$8,700 million of additional revenue. These amounts
represented what I believed, and still believe, was the
very least that the American people could afford to pro-
vide.
It is only against the background of our war expen-
ditures that we can tell whether the revenue bill before
you will fulfill its purpose. We are now spending
213
- 2 -
$150 million a day, or almost $5 billion a month. In
the fiscal year that is beginning we are committed to
spend the almost inconceivable sum of $77 billion to win
this war for human freedom.
There can be no compromise with these war expendi-
tures. We would not reduce them if we could. Our whole
effort must be to spend as fast and as effectively as
possible in the production and use of our war materials.
If our expenditures this year reach $77 billion, our re-
ceipts in revenue from the people must bear some reason-
able relationship to that colossal figure. If the House
Bill were to become law it would be necessary to borrow
from the public during this fiscal year $ billion.
To the extent that we enlist our current income in taxes
to cut down this borrowing, we shall be protecting the
future economic soundness of our country and our free in-
stitutions. To the extent that we fail, we shall be en-
dangering the survival of all that we are fighting to
preserve.
It is interesting to compare the fiscal situation
here with the situation in Great Britain and Canada,
214
- 3 -
remembering, of course, that they have been at war
longer than we. In its first full year of war, namely,
the fiscal year 1941, Canada devoted not quite one-fifth
of its national income to the war effort; in the fiscal
year 1943 it expects to devote more than two-fifths of
its national income to the war. In the fiscal year
1941 Great Britain devoted almost half of its national
income to the war effort, and in the fiscal year 1943
it expects to put just about half of its national income
into the war. In the fiscal year 1943, which will be
our first full year of war, it is estimated that the
United States will devote at least half of its national
income to the war effort. Thus, thanks to the foresight
of President Roosevelt and the splendid cooperation of
Congress, we shall in our first full year of war have
devoted to the war effort a proportion of our national
income comparable to the proportions similarly devoted
by Great Britain and Canada today.
We get a different picture, however, if we look at
the percent of expenditures financed through taxes in
the three countries, as shown in this table:
215
- 4 -
Percent of Expenditures Financed
through Taxes
Fiscal:
Year :
Great Britain : Canada
:
United
States
1941
44
61
1943
52
57
37
In the fiscal year 1941 Canada financed 61 percent
of its expenditures by taxation, and in the fiscal year
1943 it expects to raise 57 percent from taxes. Great
Britain, in the fiscal year 1941, financed 44 percent
of its expenditures by taxation, and in the fiscal year
1943 it expects to raise 52 percent from taxes. In the
United States, however, including Federal, State, and
local governments, only 37 percent of total fiscal 1943
Government expenditures would be financed by taxation
on the basis of the Revenue Bill now before you. It is
clear that we are substantially behind Great Britain and
Ganada in the proportion of our expenditures which we
are raising from taxes. Quite frankly, I do not see
why we should not do at least as well as Great Britain
and Canada.
216
- 5 -
Taxation and the Cost of Living
Taxation does more than supply money to finance the
war. It does more than apportion the war burden now,
once and for all, instead of leaving it for further dis-
tribution through taxes after the war. Wartime taxation
also plays an important part in preventing rapid and con-
tinued increases in the cost of living. The President
has announced a seven-point program for holding down the
cost of living. Ceilings have been placed on prices.
This fact may have caused many people to be unduly opti-
mistic about the future of the cost of living. It cannot
be too strongly emphasized that if the price ceilings are
to be maintained and rapid and continuous price rises
avoided, the pressure of the large and expanding volume
of consumer purchasing power on the diminishing supply
of goods must be reduced.
To reach a much larger volume of consumer purchasing
power, the Bill now before you includes such a broad
reduction of personal exemptions that it will affect
almost seven million individuals who have never paid
direct taxes to the Federal Government before. If this
section of the Bill is passed as it stands, some thirty
- 6 -
217
million income tax returns will be filed in the new fiscal
year as against only 7,600,000 in 1940. Moreover, these
thirty million individuals represent the bulk of consumer
demand today. The income tax has, in fact, become a
people's tax for the first time in our history.
Taxes cannot, by themselves, win the battle against
inflation. The battle must be fought with determined
and coordinated effort on many fronts. Taxation can be
fully effective in this battle only if it is accompanied
by restraint and self-denial in other fields. Nevertheless,
taxation by itself can make the price situation more con-
trollable and less dangerous than it otherwise would be,
and it is an essential anti-inflationary weapon that must
be used to the utmost. Inflation has been well described
as "the ruthless process whereby sacrifice is imposed in-
equitably upon a people who have lacked the unity, the
courage and intelligence to impose that sacrifice equitably
upon themselves." It is for us to show that we have the
unity, the courage, and the intelligence to check infla-
tion now.
Treasury Program a Minimum Program
The Administration's revenue program was presented
last Spring as a minimum. On March 3rd, when I first
218
- 7 -
camebefore the Ways and Means Committee, our total con-
templated expenditures for the fiscal year 1943 were
$63 billion. Since then they have risen by $14 billion,
and the total war appropriations, authorizations and re-
quests for this and succeeding fiscal years have risen
by $50 billion. It is true that the Bill before you
would produce by far the greatest revenues in our history,
and I would not wish for one moment to minimize the task
performed by the Ways and Means Committee. Yet this Bill
would provide only $6.2 billion additional revenue in
place of the $8.7 billion we recommended in the Spring.
It would fail by about $2.5 billion to reach that minimum
of last Spring, which is even more emphatically the very
least we can afford to provide today.
In presenting its revenue program to the Committee
on Ways and Means, the Treasury outlined methods of taxa-
tion which it considered most desirable and appropriate
to raise the required amounts. I still believe that
these proposals are sound and present the best sources
for a revenue program of this size. They are based upon
the principle of ability to pay, and they avoid such de-
vices as a general sales tax, which would fall with the
219
- 8 -
greatest impact upon those least able to bear the burden.
The various provisions of the Administration program are
well known and it is not necessary to repeat them here.
I should like, however, to emphasize certain points which
I hope will be most carefully considered by the Committee.
1. Special Privileges
The Revenue Bill as it stands violates the basic
principle of equity which is 80 important to an all-out
war finance program. It does this by leaving certain highly
privileged groups free from tax on large portions of their
income.
The first of these especially favored groups are the
recipients of tax-free interest from State and municipal
securities. Exemption of interest on State and local securi-
ties is a serious breach in our system of taxing according
to ability to pay. For example, in the case of one indi-
vidual, out of a total reported income of approximately
$975,000, over $668,000 came from State and local securi-
ties. If the Bill as it passed the House should become
law, this individual would pay only $
: if, on the other
hand, your Committee would adopt my suggestion and remove
this pre-Pearl Harbor exemption, he would pay $
220
- 9 -
The glaring inequity of this exemption may be seen
in another way. Under the tax rates in the House Bill,
a person with a surtax income of $100,000 from other
sources who holds a 3 percent tax exempt security receives
as much net return after taxes as from a taxable security
yielding 20 percent. The existence of this special privi-
lege for all holders of tax-free securities costs the
Government and the people of the United States, under the
House rates of tax, about $ million a year; and it will
cost still more as our wartime taxes induce tempt more and more
wealthy individuals to shift their investments into the
hide-out of tax exempt securities.
How can we expect to obtain an all-out war effort
from all our people if we go on permitting a group of in-
dividuals and corporations owning $14 billion of State
and local securities to go tax free on the income from these
securities? We are asking our young men to give their lives
in our defense, and at the same time we are allowing many
wealthy persons behind the lines to escape their fair share
of the war's financial burden. At a time when we are strain-
ing our energies to the utmost to defeat a powerful and
ruthless foe, common decency requires that we abolish
221
- 10 -
these special tax shelters, and do it now.
Another highly privileged group having large amounts
of income exempt from income tax are the owners of oil
wells and mines. I refer to those provisions of the law
dealing with percentage depletion. Percentage depletion
is a serious breach in our system of taxation according
to ability to pay.
I cannot believe that the taxpayers of America would
knowingly sanction a provision of the law which allows
owners of oil and gas wells to deduct from their income
271 percent of their gross receipts from such wells--not
for one year, two years, or the period necessary to return
investment, but for an unlimited period. For example, a
leading oil company owned a number of oil properties which
had cost it $3 million. At the time the case was examined
percentage depletion of $3.6 million had already been al-
lowed and the properties still had three-fourths of the
oil left.
Certainly we cannot justify this exemption on the
ground that it encourages exploration and drilling for
oil. There is grave doubt that it has a substantial effect
on oil discovery. It would have cost the Federal Govern-
ment less than one-third as much to have paid all the
222
- 11 -
cost of every wild-cat well that was drilled in 1941 than
to have allowed percentage depletion and the associated
intangible drilling expenses, at an annual cost of
$208 million to the Treasury and the taxpayers.
The privilege of filing separate income tax returns
furnishes another example of special tax advantage to
many married couples having larger than ordinary incomes.
In families in which the income is earned partly by the
husband and partly by the wife and in families in which
income earning property can be divided between husband
and wife, the tax on the family income is less than where
the husband or wife receives the whole income. The
family is the true economic unit, and it is unfair for
the amount of tax on the family to vary depending upon
who earns the income or upon who in the family has in-
come producing property. Ability to pay taxes must be
judged in terms of family incomes and not the incomes
of members of the family. The failure to require joint
income tax returns constitutes a violation of the principle
upon which our tax system should be based.
The adoption of mandatory joint returns would also
eliminate another discrimination prevailing under exist-
ing law. Married couples living in the eight or nine 80-
- 12 -
223
called community property States receive tax advantages
which are in no way commensurate to any special relation-
ship that may exist between husbands and wives in those
States. For example, take a family in which the husband
has a salary of $10,000 after deductions. If the family
has its residence in, say, California, the family tax
would be $2,138, while if the family lives in, say, Iowa,
the tax would be $2,549, or nearly 20 percent more. The
discrimination is even more pronounced with larger incomes.
In this national emergency, how can we complacently per-
mit the citizens of these community property States a
more favorable tax status than those of the rest of the
country?
These examples of special privileges are intolerable
at a time like this, when we are imposing heavy taxes on
persons with small incomes and there is pressure for limiting
wages and farm prices. The country is in greater danger
today than ever before in its history. The war is now in
its most critical phase, and only by pulling together as
a united people can we make the effort that will turn the
tide toward victory. At such a time any special privilege
for any small group not only deprives the Treasury of
- 13 -
224
revenue that is badly needed for the war effort, but it
hinders the war effort by undermining the morale without
which the war cannot be won. I never would have recom-
mended lowering the personal exemptions, and thus
increasing the burden on millions with small incomes,
if I had thought that these loopholes were to remain in
the law as a symbol of special privilege in this time of
national peril
2. Excess Profits Tax
Another similar hindrance to the prosecution of
this "people's war" is the existence of excessive profits
in wartime. There is no easier way to stir the righteous
anger of the American people than to let them hear
constantly of excessive wartime profits that are not
being recovered by adequate taxation. I have said
repeatedly that we are determined to take the profit out
of war, and the Treasury's recommendations have been
framed with this determination in mind.
An effective excess profits tax does much more than
produce badly needed revenue in time of war. It also
reassures the masses of our farmers and workers that
industry is not being rewarded unduly for its part in
- 14 -
225
the winning of the war.
I do not believe that any patriotic American needs
the "incentive" of profits to produce for war at this
time. Millions of our people are willing to pay new and
genuinely burdensome taxes, to buy War Bonds without
stint, and to face rising living costs with static wages
and salaries. Their only "incentive" is their firm
resolve to win this war and build a better future.
Experience has shown, however, that when excess
profits taxes are too high they may result in extrava-
gance and waste in the conduct of business. It is
vitally important that we stimulate business to produce
for war purposes as economically and efficiently as
possible, if for no other reason than to avoid a waste
of war materials and labor and to hold down the cost of
the war to the Government. (Mereover, a businessman must
plan for the future. ) For these reasons we have recom-
mended a 90 percent excess profits tax coupled with a
10 percent credit for return to the corporation after
the war. A post-war credit to industry will not only
encourage economy and efficiency but at the same time
will help toward the rebuilding of our economic life.
It should, of course, be restricted in such a manner
- 15 -
226
that it would be used for the direct employment of labor,
the conversion of plant to peace-time business or for
other uses promoting economic adjustment and growth.
3. Tax on Freight and Express
One tax that would be imposed by the Bill before
you directly threatens the stability of prices. This
is the tax on freight and express which would add to the
cost of producing and supplying practically every
commodity and service. In great numbers of cases the
added cost would make it impossible for businesses to
continue to operate under the price ceilings which have
been imposed and the breaches in the price ceilings
which would thereby be caused would threaten the whole
price structure.
Conclusion
I shall not attempt today to discuss the more tech-
nical aspects of the long and complex Bill before you,
nor to enlarge further upon the subjects I have mentioned
already. The Treasury staff stands ready, as always, to
assist you in every way possible in carrying out your
difficult and responsible task. I should like, however,
to make just one more appeal. Every day consumed in
- 16 -
227
your Committee's work will lose us substantial amounts
of revenue under the excise tax portions of the Bill.
Every day that can be saved in enacting this will enable
it to produce just BO much more in needed revenue. Every
day saved will give our citizens additional time to ad-
just themselves to the impact of the most severe tax bill
in all our history.
I am discussing our tax problem with you today on
broader grounds than that of revenue alone. It is my
conviction that the people of this country want a
courageous tax bill, and want it with the least possible
delay. They are ready for greater sacrifices than some
of us imagine. The overwhelming majority of them, I am
convinced, want us in Washington to show a determination
that is worthy of their own. They will be critical of us
only if we seem to palter or haggle, or if we pay too
much attention to the demands of selfish groups, or if
we seem half-hearted in asking sacrifices of the people
as a whole.
Our acceptance of sacrifice on the home front is
a yardstick of our determination to win the war. For
this reason it is unthinkable to me that we should be
straining every effort on the production line and on the
228
- 17 -
fighting fronts abroad and at the same time be anything
less than all-out in the financing of the war effort.
This war, above all others, can be won only by hard
fighting and heavy losses, by the acceptance of risks
and deprivations, and by the united effort of civilians
and fighting men alike. In this kind of war a tax bill
can be a decisive battle. It could be lost by narrow
vision and faulty leadership. It can be won by boldness
and courage. I am confident that this Committee will
live up to its high responsibilities and keep faith with
a united people.
229
- 18 -
I am discussing our tax problem with you today
on broader ground than that of revenue alone. It is my
conviction that the people of this country want a
courageous tax bill, and want it with the least possible
delay. They are ready for greater sacrifices than some
of us imagine. The overwhelming majority of them, I am
convinced, want us in Washington to show a determination
that is worthy of their own. They will be critical of us
only if we seem to palter or haggle, or if we pay too
much attention to the demands of selfish groups, or if
we seem half-hearted in asking sacrifices of the people
as a whole.
Our acceptance of sacrifice on the home front is
a yardstick of our determination to win the war. For
this reason it is unthinkable to me that we should be
straining every effort on the production line and on the
fighting fronts abroad and at the same time be anything
less than all-out in the financing of the war effort.
This war, above all others, can be won only by hard fight-
ing and heavy losses, by the acceptance of risks and
deprivations, and by the united effort of civilians and
fighting men alike. In this kind of war a tax bill can
230
- 19 -
be a decisive battle. It could be lost by narrow vision
and faulty leadership. It can be won by boldness and
courage. I am confident that this Committee will live up
to its high responsibilities and keep faith with a united
people.
231
Individual Income Tax
REVENUE
BILL
COMPARISON OF TOTAL RE
TREASURY
UNDER HOUSE REVENUE BILL
PROPOSAL
AND UNDER TREASURY PRO
From Principal Sources
Corporation Taxes
(Amounts in Millions of Dollars)
REVENUE
BILL
TREASURY
PROPOSAL
Estate and Gift Taxes
REVENUE
BILL
524
TREASURY
PROPOSAL
Excises
REVENUE
BILL
TREASURY
PROPOSAL
TOTAL
REVENUE
BILL
TREASURY
PROPOSAL
Office of the Secretary of the Treasury
Phone of les
Red
7-22-42
232
JUL 22 1942
STATEMENT OF SECRETARY MORGENTHAU
Final
BEFORE THE
SENATE FINANCE COMMITTEE
JULY 23, 1942
CONFIDENTIAL
You will recall that in his Budget Message of
January 5th, President Roosevelt asked for additional
taxes for the fiscal year 1943, exclusive of Social
Security taxes, of $7 billion. On March 3rd, I
appeared before the Committee on Ways and Means of the
House and presented recommendations for a tax program
to produce $7,600 million in additional annual revenue
from taxes. On May 6th I wrote a letter to the Chairman
of the Committee on Ways and Means recommending a re-
duction in personal income tax exemptions to produce
approximately $1,100 million more revenue. These two
recommendations together involved a tax program of
$8,700 million of additional revenue, These amounts
represented what I believed, and still believe, was the
very least that the American people could afford to pro-
vide.
It is only against the background of our war expend-
itures that we can tell whether the revenue bill before
you will fulfill its purpose. We are now spending
- 2 -
233
$150 million a day, or almost $5 billion a month. In
the fiscal year that is beginning we expect to spend
the almost inconceivable sum of $77 billion to vin
this var for human freedom.
There can be no compromise with these var expend-
itures. We would not reduce them if we could. Our
whole effort must be to spend as fast and as effectively
as possible in the production and use of our war materials.
If our expenditures this year reach $77 billion, our re-
ceipts in revenue from the people must bear some reason-
able relationship to that colossal figure. If the House
Bill were to become law it would be necessary to borrow
from the public during this fiscal year about $53 billion.
To the extent that we enlist our current income in taxes
to out down this borrowing, ve shall be protecting the
future economic soundness of our country and our free
institutions. To the extent that we fail, we shall be
endangering the survival of all that we are fighting to
preserve.
It is interesting to compare the fiscal situation
here with the situation in Great Britain and Canada,
Regraded Unclassified
234
- 3 -
remembering, of course, that they have been at war
longer than we. In its first full year of war, namely,
the fiscal year 1941, Canada devoted not quite one-fifth
of its national income to the war effort; in the fiscal
year 1943 it expects to devote more than two-fifths of
its national income to the war. In the fiscal year
1941 Great Britain devoted almost half of its national
income to the var effort, and in the fiscal year 1943
it expects to put just about half of its national income
into the war, In the fiscal year 1943, which will be
our first full year of war, it is estimated that the
United States will devote at least half of its national
income to the war effort. Thus, thanks to the foresight
of President Roosevelt and the splendid cooperation of
Congress, we shall in our first full year of war have
devoted to the war effort a proportion of our national
income comparable to the proportions similarly devoted
by Great Britain and Canada today.
We get a different picture, however, if we look at
the percent of expenditures financed through taxes in
the three countries, as shown in the following table:
235
- 4 -
Percent of Expenditures Financed
through Taxes
Fiscal:
Great Britain
:
Canada:
person
Year :
:
:
States
1941
44
61
(Not at War)
1943
52
57
37
In the fiscal year 1941 Canada financed 61 percent
of its expenditures by taxation, and in the fiscal year
1943 it expects to raise 57 percent from taxes. Great
Britain, in the fiscal year 1941, financed 444 percent
of its expenditures by taxation, and in the fiscal year
1943 it expects to raise 52 percent from taxes. In the
United States, however, including Federal, State, and
local governments, only 37 percent of total fiscal 1943
Government expenditures would be financed by taxation
on the basis of the Revenue Bill now before you. It is
clear that ve are substantially behind Great Britain and
Canada in the proportion of our expenditures which we
are raising from taxes. Quite frankly, I do not ...
why we should not do at least as well as Great Britain
and Canada.
Regraded Unclassified
236
- 5 -
Taxation and the Cost of Living
Taxation does more than supply money to finance the
war. It does more than apportion the war burden nov,
once and for all, instead of leaving it for further dis-
tribution through taxes after the war. Wartine taxation
also plays an important part in preventing rapid and con-
tinued increases in the cost of living. The President
has announced a seven-point program for holding down the
cost of living. Ceilings have been placed on prices.
This fact may have caused many people to be unduly opti-
mistic about the future of the cost of living. It cannot
be too strongly emphasized that if the price ceilings are
to be maintained and rapid and continuous price rises
avoided, the pressure of the large and expanding volume
of consumer purchasing power on the diminishing supply
of goods must be reduced.
To reach a such larger volume of consumer purchasing
power, the Bill nov before you includes such a broad
reduction of personal exemptions that it will affect
almost seven million individuals who have never paid
direct taxes to the Federal Government before. If this
section of the Bill is passed as it stands, some thirty
237
- b -
million income tax returns will be filed in the new fiscal
year as against only 7,600,000 in 1940. Moreover, these
thirty million individuals represent the bulk of consumer
demand today. The income tax has, in fact, become &
people's tax for the first time in our history.
Taxes cannot, by themselves, win the battle against
inflation. The battle must be fought with determined
and coordinated effort on sany fronts. Taxation can be
fully effective in this battle only if it is accompanied
by restraint and self-denial in other fields. Nevertheless,
taxation by itself can make the price situation more con-
trollable and less dangerous than it otherwise would be,
and it is an essential anti-inflationary weapon that must
be used to the utmost. Inflation has been well described
as "the ruthless process whereby sacrifice is imposed in-
equitably upon a people who have lacked the unity, the
courage and intelligence to impose that sacrifice equitably
upon themselves." It is for us to show that we have the
unity, the courage, and the intelligence to check infla-
tion now.
Treasury Program a Minimum Program
The Administration's revenue program was presented
last Spring as a minimum. On March 3rd, when I first
Regraded Unclassified
238
- 7 -
came before the Ways and Means Committee, our total con-
templated expenditures for the fiscal year 1943 vere
$63 billion. Since then they have risen by $14 billion,
and the total var appropriations, authorizations and re-
quests for this and succeeding fiscal years have risen
by $75 billion. It is true that the Bill before you
would produce by far the greatest revenues in our history,
and I would not wish for one moment to minimize the task
performed by the Ways and Means Committee. Yet this Bill
would provide only $6.3 billion additional revenue in
place of the $8.7 billion we recommended in the Spring.
It would fail by about $2.4 billion to reach that minimum
of last Spring, which is even more emphatically the very
least ve can afford to provide today.
In presenting its revenue program to the Committee
on Ways and Means, the Treasury outlined methods of taxa-
tion which it considered most desirable and appropriate
to raise the required amounts. I still believe that
these proposals are sound and present the best sources
for a revenue program of this size. They are based upon
the principle of ability to pay, and they avoid such de-
vices as a general sales tax, which would fall with the
Regraded Unclassified
239
- 8 -
greatest impact upon those least able to bear the burden.
The various provisions of the Administration program are
well known and it is net necessary to repeat them here.
I should like, however, to emphasize certain points which
I hope will be most carefully considered by the Committee.
1. Special Privileges
The Revenue Bill as it stands violates the basic
principle of equity which is so important to an all-out
war finance program. It does this by leaving certain
highly privileged groups free from tax on large portions
of their income.
The fitst of these especially favored groups are the
recipients of tax-free interest from State and municipal
securities. Exemption of interest on State and local securi-
ties is a serious breach in our system of taxing according
to ability to pay. For example, in the case of one indi-
vidual, out of a total reported income of approximately
$975,000, over $668,000 case from State and local securi-
ties. If the Bill as it passed the House should become
law, this individual would pay only $243,000; if, on the
other hand, your Committee would adopt my suggestion and
remove this pre-Pearl Harbor exemption, he would pay $832,000
Regraded Unclassified
240
- 9 -
The glaring unfairness of this exemption may be seen
in another may. Under the tax rates in the House Bill,
a person with a surtax income of $100,000 from other
sources who holds a 8 percent tax exempt security received
as much net return after taxes as from & taxable security
yielding 20 perdent. The existence of this special privi-
lege for all holders of tax-free securities costs the
Government and the people of the United States, under the
House rates of tax, about $200 million a year; and it will
cost still more as our wartine taxes tempt more and more
wealthy individuals to shift their investments into the
hide-out of tax exempt securities.
How can we expect to obtain an all-out war effort
from all our people if we go on permitting a group of in-
dividuals and corporations owning $14 billion of State
and local securities to go tax free on the income from these
securities? We are asking our young non to give their lives
for their country, and at the same time we are allowing many
wealthy persons, safe behind the lines, to escape their fair
share of the war's financial burden. At & time when we are
straining our energies to the utmost to defeat a powerful
and ruthless fee, common decemey requires that we abolish
241
- 10 -
these special tax shelters, and do it now.
Another highly privileged group having large amounts
of income exempt from income tax are the owners of oil
wells and mines. I refer to those provisions of the law
dealing with percentage depletion. Percentage depletion
is a serious breach in our system of taxation according
to ability to pay.
I cannot believe that the taxpayers of America would
knowingly sanction a provision of the law which allows
owners of oil and gas wells to deduct from their income
27 ₫ percent of their gross receipts from such wells--not
for one year, two years, or the period necessary to return
investment, but for an unlimited period. For example, a
leading oil company owned a number of oil properties which
had cost it $3 million. At the time the case was examined
percentage depletion of $3.6 million had already been al-
lowed and the properties still had three-fourths of the
oil left.
Certainly we cannot justify this exemption on the
ground that it encourages exploration and drilling for
oil. There is grave doubt that it has a substantial effect
on oil discovery. It would have cost the Federal Govern-
ment less than one-third as much to have paid all the
242
- 11 -
cost of every wild-cat well that was drilled in 1941 than
to have allowed percentage depletion and the associated
intangible drilling expenses, at an annual cost of
$200 million to the Treasury and the taxpayers.
The privilege of filing separate income tax returns
furnishes another example of special tax advantage to
many married couples having larger than ordinary incomes.
In families in which the income is earned partly by the
husband and partly by the wife and in families in which
income earning property can be divided between husband
and wife, the tax on the family income is less than where
the husband or wife receives the whole income. The
family is the true economic unit, and it is unfair for
the amount of tax on the family to vary depending upon
who carns the income or upon who in the family has in-
come producing property. Ability to pay taxes must be
judged in terms of family incomes and not the incomes
of members of the family. The failure to require joint
income tax returns constitutes a violation of the funda-
mental principle upon which our tax system has been based.
- 12 -
243
The adoption of mandatory joint returns would also
eliminate another discrimination prevailing under exist-
ing law. Married couples living in the eight or nine
so-called community property States receive tax advantages
which are in no way commensurate to any special relation-
ship that may exist between husbands and wives in those
States. For example, take a family in which the husband
has a salary of $10,000 after deductions. If the family
has its residence in, say, California, the family tax
would be $2,138, while if the family lives in, say, Iowa,
the tax would be $2,549, or nearly 20 percent more. The
discrimination is even more pronounced with larger incomes.
In this national emergency, how can no complacently per-
mit the citizens of these community property States a
more favorable tax status than those of the rest of the
country?
These examples of special privileges are intolerable
at a time like this, when we are imposing heavy taxes on
persons with small incomes and there is pressure for limiting
wages and farm prices. The country is in greater danger
today than ever before in its history. The war is now in
its most critical phase, and only by pulling together as
244
- 13 -
a united people can we make the effort that will turn the
tide toward victory. At such a time any special privilege
for any group not only deprives the Treasury of revenue
that is badly needed for the war effort, but it hinders
the war effort by undermining the morale without which the
war cannot be won.
2. Excess Profits Tax
Another similar hindrance to the prosecution of this
"people's war" is the existence of excessive profits in
wartime. There is no easier way to stir the righteous
anger of the American people than to let them hear constantly
of excessive wartime profits that are not being recovered
by adequate taxation. I have said repeatedly that we are
determined to take the profit out of war, and the Treasury's
recommendations have been framed with this determination
in mind.
An effective excess profits tax does much more than
produce badly needed revenue in time of war. It also
reassures the masses of our farmers and factory workers
that industry is not being rewarded unduly for its part is
the winning of the war.
I do not believe that any patriotic American needs
245
- 14 -
the "incentive" of profits to produce for war at this
time. Millions of our people are willing to pay new and
genuinely burdensome taxes, to buy War Bonds without
stint, and to do without many of the accustomed luxuries
and even conveniences of daily life. Their only
"incentive" is their firm resolve to win this war and
build a better future.
Experience has shown, however, that when excess
profits taxes are too high they may result in extrava-
gance and waste in the conduct of business. It is
vitally important that we stimulate business to produce
for war purposes as economically and efficiently as
possible, if for no other reason than to avoid a waste
of war materials and labor and to hold down the cost of
the war to the Government. Moreover, a post-war credit
to industry will help toward the rebuilding of our
economic life. For these reasons we have recommended
a 90 percent excess profits tax coupled with a 10 percent
credit for return to the corporation after the war. The
credit should, of course, be restricted in such a manner
that it would be used for the direct employment of labor,
the conversion of plant to peacetime business or for
other uses promoting economic adjustment and growth.
246
- 15 -
3. Tax on Freight and Express
One tax that would be imposed by the Bill before
you directly threatens the stability of prices. This
is the tax on freight and express which would add to the
cost of producing and supplying practically every
commodity and service. In great numbers of cases the
added cost would make it impossible for businesses to
continue to operate under the price ceilings which have
been imposed and the breaches in the price ceilings
which would thereby be caused would threaten the whole
price structure.
Conclusion
I shall not attempt today to discuss the more tech-
nical aspects of the long and complex Bill before you,
nor to enlarge further upon the subjects I have mentioned
already. The Treasury staff stands ready, as always, to
assist you in every may possible in carrying out your
difficult and responsible task. I should like, however,
to make just one more appeal. Every day consumed in
your Committee's work will lose us substantial amounts
of revenue under the excise tax portions of the Bill.
Every day that can be saved in enacting this will enable
247
- 16 -
it to produce just so much more in needed revenue. Every
day saved will give our citizens additional time to ad-
just themselves to the impact of the most severe tax bill
in all our history.
I am discussing our tax problem with you today on
broader grounds than that of revenue alone. It is my
conviction that the people of this country want a
courageous tax bill, and want it with the least possible
delay. They are ready for greater sacrifices than some
of us imagine. The overwhelming majority of them, I am
convinced, want us in Washington to show a determination that
is worthy of their own. They will be critical of us only
if we seem to palter or haggle, or if we pay too much
attention to the demands of selfish groups, or if we
seem half-hearted in asking self-denial of the people as
a whole.
Our acceptance of sacrifice on the home front is
a yardstick of our determination to win the war. For
this reason it is unthinkable to me that we should be
straining every effort on the fighting fronts abroad and
on the production line at home, and at the same time be
anything less than all-out in the financing of the war
Regraded Unclassified
248
- 17 -
effort. This war, above all others, can be won only by
hard fighting, by the acceptance of risks and deprivations,
and by the united effort of civilians and fighting men
alike. In this kind of war a tax bill can be a decisive
battle. It could be lost by narrow vision and faulty
leadership. It can be won by boldness and courage. I
an confident that this Committee will live up to its high
responsibilities and keep faith with a united people.
REP:el
7/22/42 12:15 P.M.
249
MEMORANDUM
To:
Secretary Morgenthau
From: Mr. Paul
July 22, 1942
This memorandum is intended briefly to review the
conference held by the two of us this afternoon with
Senators George and Barkley.
You handed a copy of the statement (without some
of the final changes made later in the afternoon) to
Messrs. George and Barkley. Both of them read it quite
carefully, taking some time to do 80. You told them
that you had gone over the statement with the President
at lunch and that he approved.
Senator Barkley asked whether you wished his
approval of the points made. You replied that you merely
wanted him to see whether the statement had any sins of
omission or commission, that is, if he wanted any
additional points added or anything in particular deleted.
Senator Barkley then said he did not but that he frankly
would like to tell you his inclination to be against you
on the tax exempt issue and joint returns issue. He said
that he was not adamant on these points. With respect to
the tax exempt issue, he had no constitutional doubts but
merely stressed the point that the States issued bonds at
a lower rate of interest because of the exemption feature,
thus saving money to the people of the States. I pointed
out this factor was a small one in the equation.
With respect to the joint returns issue, Senator
Barkley has the feeling that the provision is a reversal
of trend on women's rights. He expressed himself as be-
ing completely with us on the community property issue
but said that he thought such a provision would delay the
Bill considerably even if the Finance Committee inserted
it.
On the sales tax, Senator Barkley recounted that he
had always been against such 8. tax except as 8. last resort
and the only question in his mind was whether this was
250
- 2 -
the time for a last resort. Senator George said he did
not believe there was such a strong sentiment for a sales
tax as some months ago when he personally had been for
it, but now he was inclined against it.
Senator George also said that he did not think the
tax exempt and the joint returns points would go through
the Committee although at one point in his conversation
he indicated that perhaps one of the two of them would
on a trade. No mention was made during the session of
the percentage depletion point.
Both Senators expressed approval of the form of the
statement and a desire to increase the amount of taxes
in the House Bill. George explained more in detail that
he thought the individual rates at least, and perhaps
also the corporate rates, should be increased so as to
allow flexibility for debt deductions and insurance
premium deductions.
REC
251
July 22, 1942.
4:30 p.m.
HMJr:
Hello.
Operator:
Mr. Wilson.
HMJr:
Chief?
Chief
Wilson:
Yes, Mr. Secretary.
HMJr:
I spoke to the President and told him that I
thought that when Mrs. Roosevelt was at her
cottage, there should be a man there looking
after her just the way there is a man st my
place.
W:
Yes, sir.
HMJr:
And he agreed.
W:
All right, we'll have 8. man there all the time.
HMJr:
But not....
W:
When she's there.
HMJr:
Only when she's there.
W:
Yes, sir.
HMJr:
Only when - I said I wouldn't ask her, I'd just
do it.
W:
Yes, sir.
HMJr:
See?
W:
Well, all - all right, I'll work that out right
away, Mr. Secretary.
HMJr:
You might inform her or have whoever is up
there, your man up there, inform her.
W:
Yes, sir.
HMJr:
You see, but
Regraded Unclassifie
252
- 2 -
W:
Yes, sir.
HMJr:
I'd - I'd like you to do it.
W:
All right, sir, we will.
HMJr:
And they took good care ofher over the week-end.
W:
Well, that's fine, and I'm glad to hear that.
HMJr:
All right, Chief.
W:
All right, sir.
253
July 22, 1942.
4:34 p.m.
HMJr:
Hello.
Operator:
Mise Tully 18 with the President.
HMJr:
Who is there?
Operator:
Mrs. Brady?
HMJr:
Okay.
Operator:
I'll try to get her on.
Mrs. Kathryn
Brady:
Yes, sir.
Operator:
Mrs. Brady.
HMJr:
Mrs. Brady....
B:
Yes, sir.
HMJr:
....I don't know my baseball very good, but
when you throw from first to second to the
pitcher, what 1s that?
B:
That's a double-play.
HMJr:
Double-play.
B:
From first to second to the pitcher?
HMJr:
Well, anyway to - to the catcher.
B:
Yeah, that's a double-play.
HMJr:
Well, all right. Well, here's one from you
to Grace to the President now.
B:
(Laughs) Oh, come on.
HMJr:
What?
B:
All right, what 18 it?
HMJr:
What is it?
254
- 2 -
B:
Yeah, what 1s it? (Laughs) I'll let you know
if I can carry the ball.
HMJr:
(Laughs) All right. You look strong.
B:
(Laughs)
HMJr:
The President happened to tell me that the Chief
Justice turned him down on a request he made of
him.
B:
Oh !
HMJr:
Hello?
B:
Oh-oh.
HMJr:
Now I've got a suggestion to make to the President
and somebody else
B:
Uh huh.
HMJr:
....
that the ex-Chief Justice Hughes
B:
Uh huh.
HMJr:
.... to ask him to do that rubber business.
B:
Yes, sir.
HMJr:
Now can you carry that?
B:
Sure, that's easy.
HMJr:
Without dropping it?
B:
Oh, that's easy.
HMJr:
Okay.
B:
All right, sir.
HMJr:
Goodbye.
B:
Goodbye.
cc-Dr. White
255
July 22, 1942.
4:40 p.m.
HMJr:
Hello.
Operator:
Mr. McCabe.
Thomas
McCabe:
Hello.
HMJr:
Hello.
M:
Hello, Mr. Secretary.
HMJr:
Yes, Mr. McCabe.
M:
Why, we have a tentative draft of 8 memo on our -
decision on this silver thing.
HMJr:
Yeah.
M:
I was just getting ready to send that over to
Harry White.
HMJr:
Yeah.
M:
I was going to have Fred Ecker and Judge
? Weizinsky, who's down here - the two of them
have been working on this with our Policy
Committee.
HMJr:
Is Weizinsky with you now?
M:
Yes.
HMJr:
I didn't know that.
M:
Yeah, he's a grand fellow too.
HMJr:
Yeah, oh, he's a good man.
M:
And what I was going to have - send this over
informally.
HMJr:
Yeah.
M:
....to Harry
HMJr:
That's good.
256
- 2 -
M:
BO that it wouldn't be any official - no
signature at all.
HMJr:
And then see how we like it, humm?
M:
And then get his reaction.
HMJr:
Yes.
M:
And then I - then these two men will be glad to
sit down with him informally
HMJr:
Fine.
M:
and thrash it, and then if - if it reaches
the point where you want to discuss it with us....
HMJr:
Uh huh.
M:
....why, I'll be glad to. Now generally this 1s
the decision that we reached
HMJr:
Yeah.
M:
that - that BO far 86 lend-leasing silver for
industrial purposes, that seems okay
HMJr:
Yeah.
M:
that for coinage burposes, we have serious
doubts about that.
HMJr:
I see.
M:
Particularly now, and we've left the door open
on it.
HMJr:
Yeah.
M:
But unless there was some extraordinary reason given,
that 18, I could seize on & lump sum basis where
Norway was restored as a nation and had absolutely
no silver whatever, to start a coinage system that
we could consider.
HMJr:
Yeah.
M:
But the principal request here coming from Britain
257
- - 3 -
HMJr:
Yes....
M:
Ah
HMJr:
..Australia, where we have men and they have
no small coins - running out of them. Our troops
down there are suffering because they have 8. lack
of coins - Australia.
M:
Yes.
HMJr:
Well, anyway I'm....
M:
Well, anyway
HMJr:
....I'm - I'm much more interested in the coinage
than I am in the - for the industrial use.
M:
You are.
HMJr:
Oh, yes, because - it's these countries that -
where we have our troops like England and
Australia and that - I was interested in helping
them out. After all, through
M:
Well, now if we let Harry bring that out with
these two men,
HMJr:
What's that?
M:
I say
HMJr:
I'll tell Harry.
M:
You tell Harry.
HMJr:
Yeah - it was - it was these countries and their
coinages as treasury to treasury - because Nelson
is going to let them have this silver through a
corporation of Jones' for industrial use.
M:
He 18?
HMJr:
Yes. Well, let them come over and see Harry.
He knows the whole story.
M:
All right.
258
- 4 -
HMJr:
But it was the coinage thing I was principally
interested in.
M:
I see.
HMJr:
But let them come over, and I appreciate the spirit
in which you're approaching this.
M:
Well, we're - we don't want to make any hard-and-
fast decision on this
HMJr:
No. All right.
M:
...without having plenty chance to thrash it out.
HMJr:
Thank you, Mr. McCabe.
M:
And then, the next thing I don't think you could
that even when we reach a decision
on it, we feel that it would be very desirable for
us to informally discuss this at least with the
chairmen of the two Appropriations Committees.
HMJr:
Okay. Well, look
M:
Do you see why?
HMJr:
Well - let your men talk with Harry first, you see?
M:
Okay.
HMJr:
And see where we get, hmm?
M:
All right.
HMJr:
All right.
M:
Righto.
HMJr:
Thank you.
259
OFFICE OF LEND-LEASE ADMINISTRATION
FIVE-FIFTEEN 22d STREET NW.
WASHINGTON, D.C.
July 22, 1942
Dr. Harry White
Director of Monetary Research
Room 214#
Treasury
Washington, D.C.
Dear Mr. White,
I enclose herewith draft of proposed letter to
the Secretary on the subject of lend-leasing
silver concerning which Mr. McCabe phoned you
today.
I understand that if you desire us to go into the
matter further you will advise me.
Sincerely yours,
s/s Fred Ecker
F. W. Ecker
COPY
260
July 22, 1942
The Honorable
The Secretary of the Treasury
My dear Mr. Secretary:
This Administration has considered Dr. Harry D. White's
memorandum of July 11, entitled "Provision of Silver to meet
the needs of Friendly Foreign Countries", receipt of which
Mr. Stettinius acknowledged July 13.
It is our view that under the Act of March 11, 1941,
c.ll and under the policies adopted by this Administration,
silver is a commodity which is lend-leasable for industrial
uses to Lend-Lease countries, provided the usual standards of
justification for Lend-Lease aid are met. However, it is our
view that under existing circumstances and needs so far apparent,
it would not now be sound policy to lend-lease silver to any
country for purposes of coinage.
If silver is to be transferred, we understand that, aside
from the Act of March 11, 1941, the Treasury has not itself
independent statutory power to lend silver or sell it at the
world market price to a friendly foreign country. On that
assumption, we suggest that insofar as silver is to be trans-
ferred abroad for industrial uses, the preferable method to be
followed in acquiring the silver would be for this Administra-
tion to designate the Treasury as its agent to purchase silver
from American sources at the price now being paid by the Treasury
when it purchases silver for monetary purposes, i.e., a fraction
over 71# an ounce. If this is impractical, we suggest as an
alternative that this Administration purchase silver from the
Treasury's stock pile at the same price the Treasury paid when
purchasing for its own account. The power of this Administration
to make that purchase and the power of the Treasury to make that
transfer are given by Section 3(a) of the Act of March 11, 1941,
c.ll. We are not prepared to pay a higher price, or to secure
Treasury silver by offering for redemption silver certificates.
Regraded Unclassified
261
The Secretary of the Treasury -2- -
7/22/42
We have given consideration to the suggestion made by the
Treasury and by several members of the Senate Special Silver
Committee that with respect to silver we make special agreements
with friendly countries to assure the return to the United States
of the number of ounces of silver lend-leased. We suppose that
that proposed safeguard was intended only if silver were to have
been lend-leased for coinage. It seems to us unnecessary where
silver is to be lend-leased for industrial uses, and can be readily
subjected to the provisions of the applicable Lend-Lease Master
Agreement. Of course, the friendly country which received silver
could do 80 without prejudice to any option it may request and
obtain to discharge the obligation incurred by returning an equiva-
lent number of ounces of silver.
Before embarking upon any program for lend-leasing silver
we should wish to give to the Appropriation Committees of the two
Houses of Congress notice of our intention so that if they saw fit
they might express an opinion upon the subject.
Sincerely yours,
Thomas B. McCabe
Acting Administrator
7/22/42
CC: Mr. Tanbuskirk
COPY
262
July 22, 1942.
Dear Mr. Schlanger:
This is just to tell you how much I
appreciate all that you did to mke a
success of the visit of the fifteen war
herees to Philadelphia last month.
Most of these fighting men are back on
active service now, but they will long
remember the hospitality which you and your
committee provided for them.
My own belief is that this heroes'
tour did a great deal of good, not only to
the War Bond campaign but to the war effort
generally. It could not have been a success
without your help, and I feel that your work
has been a real service to your country.
Sincerely,
(Signed) H. Morgenthau, Jr.
Mr. Ted Schlanger,
Warners,
11th and Market Streets,
Philadelphia, Pennsylvania.
NMC - CC to Thompson
FK:eg
263
Similar letters dated 7/22/42 /a/ H. Morgenthau, Jr. were
sent to the following:
Mr. John Harris
Mr. Izzy Rappaport
Mr. Dave Idzal
Mr. Harold Fitzgerald
Mr. John Friedl
Mr. Rick Ricketson
Mr. L. B. Mayer
Mr. Sam Panansky
Mr. Martin Mullens
Mrs. Margaret Mayer
Mr. Tracy Barham
Mr. Frank L. Newman
Mr. Al Finke
Mr. Arch Bowles
Mr. Charles Skouras
Mr. Bob O'Donnell
Mr. Ed Collins
Mr. Frank Weatherford
Mr. E. v. Richards
Mr. Harry Arthur
Mr. Hardie Meakin
264
July 20, 1942
Dear Mr. Farwell:
Your very kind letter of July 10th has reached
my deak, and shortly after I read 19 the screp book,
which you were no good as to send m, arrived. This
is certainly a meet unsul and complete record of W
brief visit to the plant. 1 enjoyed being with you
on the Fearth and approciate your taking the time and
treable to prepare this record of the oscasion.
Tou ant your employees are smah to be congratu-
lated en the record that you have más is commetion
with the Var Dead effort.
with thanks egain for year courtesy is writing
and, E =
Sincerely,
(Signed) H. Morgenthau, Jt.
Mr. Fred B. Farvell,
Resident Manager,
International Business Machines,
Corporation,
File - NMC
Nov Terk.
GRF:ns
INTERNATIONAL BUSINESS MACHINES CORPORATION
SUCCESSOR BY MERGER TO
265
MUNITIONS MANUFACTURING CORPORATION
poughkeepsie, NEW YORK
July 18, 1942
Honorable Henry A. Morgenthau, Jr.,
Secretary of the Treasury of the United States,
Washington, D. C.
Dear Mr. Secretary:
You will recall during your recent visit to our Plant
that you requested a transcript of the stenotype notes taken dur-
ing the ceremonies. It is a great pleasure to send you not only
the stenotype notes but also pictures taken during those ceremonies.
It was a great honor to have you with us on July 4th
and certainly a great inspiration to all. Your evident desire to
meet the men and women of our shop and your democratic manner of
talking to them have made a deep and lasting impression on our
people.
It will please you to know that as a result of your
visit the sale of War Savings Bonds has increased and we are with-
in a fraction of 10% of the gross weekly compensation of the plant.
When we have achieved this goal we shall then endeavor to have every
single employee contribute at least 10% which will put the plant
average considerably above 10%.
Thanking you again for the honor of your presence in
our plant, I em
Respectfully,
FMF-M
Resident Manager.
266
July 22, 1942
Mr. Henry Morgenthau Jr.
Secretary of the Treasury
Washington, D.C.
Dear Secretary Morgenthan:
I feel obliged to register with you, on behalf of the United Electrical,
Radio and Machine Workers of America, (CIO), a most vigorous protest
concerning the contents of the Treasury-essued booklet describing the
sale of War bonds to the employees of the General Motors Corporation.
I an informed that the booklet makes no mention of the part played by
this union and by the United Automobile Workers of America in the sale
of bonds in this company, but that instead, it is indicated throughout
that this program was developed and carried through solely by the
Corporation.
May I relate to you some of the background describing our experience with
this problem? Some weeks ago a. similar booklet was issued relating to the
General Electric Corporation. This publication by the Treasury purported
to describe the program of selling bonds to the General Electric Corporation
employees which are represented by the union. Nowhere in this entire
booklet was their any mention of this Union or even of the existence of an
anonymous Union. The clear implication is that the Bond Sales program
was the product of management. In this case as in the General Motors case
this involved a flagrent misrepresentation and distortion of the true faots
Actually, this Union through the cooperation of its International Officers
its Local Officers, its Stewards and members took the initiative in the
drive and by their vigorous organized activity achieved the successful
results.
My organization was distressed when they first saw the General Electric
booklet. Consequently, I had a long discussion of the subject with Mr.
Peter Odegard and Mr. Ted Gamble of your department. Both of these
gentlemen apologized for the obvious unfairness of the General Electric
booklet, They indicated that the booklet had been prepared under circum-
stances which resulted in failure to properly sheck this aspect of the
booklet's contents. There was complete agreement with the position I took
on the matter and a definite specific statement that it would not happen
again. I left this conference with the substantial representatives of the
Treasury War Bond Drive, feeling that TO could expect just treatment in
further publications. You will understand my astomishment when I learned
that the General Motors booklet was as unfair as the General Electric
booklet.
267
Mr. Henry Morgenthau
-2-
July 22, 1942
The flagrant nature of the misrepresentations in this booklet is particularly
high-lighted by the fact that you requested Mr. Walter Reuther and myself
on behalf of our organizations to appear with Vice-President Anderson of
the General Motors Corporation and yourself before the Ways and Means
Committee to describe our joint efforts in the voluntary bond sale program.
I leave it to Walter Reuther to represent the United Automobile Workers
plants in this program. I can say, however, that in the case of the 30,000
UE employes of the General Motors Corporation Electrical Divisions it was the
local union and its stewards organization which did the major job in putting
across the bond sale. I do not believe that you will find this statement
contradicted.
I have protested this matter again to Mr. Odegard and to Mr. Houghteling.
Again I am confronted with apologies and with a complete agreement as to
the justice of our feelings in these matters. I am not confronted, however,
with any proposals whereby the Treasury Department will correct the situation
that they have created.
I presume to bring this matter to your attention not primarily our of a
feeling of indignation at the particular injustice done organized labor,
but rather out of a real feeling of concern over the effects of such
Treasury action on the confidence and enthusiasm of American workers in
the Treasury Bond Drive. I hope that you fully appreciate the situation
as it exists. Patriotic workers through their organizations have engaged
in an all-out effort to buy war bonds to aid the wat effort. The Treasury
then releases elaborately prepared company propaganda which totally disregard
the part played by the organization of the workers. Our membership has come
to have a feeling of confidence in yourself as a just and progressive
Cabinet member. In the interests of the war bond sale programs; in the
interests of honesty and justice, it is our belief that a recall by the
Treasury of these booklets together with a full apology and correction of the
misrepresentation involved is required. Needless to say, steps should be
taken to make sure that this unfortunate situation does not develop again,
It is my hope that you can give your personal attention to this very
important matter.
Very sincerely,
Ruse Nixon
RN:EW
uppen 27
268
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 22, 1942.
TO
Secretary Morgenthau
FROM Ferdinand Kuhn, Jr.
This struck me as such a beautiful piece of color
advertising for War Bonds that I thought you would like
to see it. It will appear on the outside back cover
of the August issue of the Farm Journal and Farmer's Wife,
with a circulation of 2,600,000.
7.K.
269
269
WAR MESSAGE FROM THE U. S. TREASURY DEPARTMENT
The MINUTE MAN" a farmer too.
IT is not by chance that the symbol of
Bonds to the limit of their powers.
America's War Bond drive
the
Are you putting your increased earnings
"Minute Man" shown here
is a
to work for you-and for your country?
farmer. It was the farmers of Concord
It's a sure way to save up for the things
Why Farmers Everywhere are
and Lexington who fired "the shot heard
you'll need when victory is ours. Your
Buying U. S. War Savings
Bonds
round the world" and gave this country
money will be safe, it will grow in value,
To help buy the guns, tanks,
the liberty it fights to preserve today.
and you can get it back-all of it-
planes and ships America needs
Now again the farmers of America are
any time after 60 days from issue date.
to win the war.
rallying to their country's call-by
Go to your bank or post office-start
To provide en easily cashable
feeding the Army, Navy, and Marine
buying U.S. War Savings Bonds now!
reserve for future years.
Corps and by buying U.S. War Savings
Make every market-day your Bond day.
To build a fund to put a boy
YOU GET A $25.00 BOND FOR ONLY $18.75
or girl through school,
Brief Facts About U. 5. War Savings Bonds (Series E)
the much de they cost?
Upon Maturity
What interest does my money earn? When held 10
To accumulate the money to
You LEND Uncle Sam
You Cet Bach
years, Bonde yield 2.9% on your investment, com-
modernize property, make re-
$18.75
$25.00
pounded semi-annually. You get back $4 for every $3.
pairs, or to purchase additional
37.50
50.00
When can / get my money back? Any time after 60
land,
T5.00
100.00
days from the date the Bond was issued. Naturally the
375.00
500.00
longer you hold the Bond, up to 10 years, the more money
750.00
1,000.00
you'll get back. But you'll never get back less than you
To have . nonshriskable
Con anyone cash the Bond
put in.
asset in case of sickness or
emergency.
Only the person or persons
What is a War Savings Bond? It is . written promise
whose names appear on the
by the United States Government to pay you for the
Bond as owners.
amount of money stated in the Bond.
To keep a part of their assets
in liquid-form instead of "put-
ting all their egge in one
basket."
To farm 33% on their money
in 10 years' time.
This Space is a Contribution to America's All-Out War Program by
FARM JOURNAL AND FARMER'S WIFE
Regraded Unclassified
270
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE JUL 22 1942
TO
Morgenthau
FROM
Subject: Daily savings bonds in excess of
Mr. Secretary Hase MR
$50 millions.
In accordance with your request, we have listed in the
following table the days on which cash deposits from the sale
of savings bonds (Series E, F and G) exceeded $50 millions.
Date
Cash deposits
(in thousands of dollars)
1941 - Dec. 26
$53,140
1942 - Jan. 5
53,352
Jan. 7
50,539
Jan. 12
65,853
Jan. 16
50,358
Jan. 19
68,380
Jan. 26
69,630
Feb. 2
68,571
Feb. 6
50,269
Feb. 9
50,176
July 20
53,257
CONFIDENTIAL
271
UNITED STATES SAVINGS BONDS - SERIES 7 AND G COMBINED
Comparison of July sales to date with sales during the
same number of business days in June and May 1942
(At issue price in thousands of dollars)
:
July
:
Cumulative sales by business days
Date
:
daily
:
July
:
June
:
May
:
July as
:
sales
:
:
:
:percent of June
July 1942
1
$ 12,597
$ 12,597
$ 9,705
$ 7,302
129.8%
2
9,389
21,986
17,601
15,168
124.9
3
10,455
32,441
26,235
25,516
123.7
6
16,734
49,175
40,009
33,145
122.9
7
13,386
62,561
49,353
48,751
126.8
8
21,852
84,413
55.888
60,817
151.0
9
17,172
101,585
67,414
67,213
150.7
10
22,983
124,568
72,366
72,794
172.1
11
17,050
141,618
82,310
80,845
172.1
13
20,614
162,232
89,852
85,410
180.6
14
14,358
176,590
95,254
94,391
185.4
15
15,400
191,991
101,464
102,106
189.2
16
13,842
205,833
108,715
108,923
189.3
17
15,314
221,147
112,279
114,129
197.0
18
9,696
230,842
119,749
123,534
192.8
20
21,888
252,731
126,048
127,724
200.5
21
9,447
262,178
134,062
138,908
195.6
Office of the Secretary of the Treasury,
July 22, 1942.
Division of Research and Statistics.
Source: All figures are deposits with the Treasurer of the United States on
account of proceeds of sales of United States savings bonds.
Note: Figures have been rounded to nearest thousand and will not necessarily
add to totals.
272
CONFIDENTIAL
UNITED STATES SAVINGS BONDS - SERIES I
Comparison of July sales to date with sales during the
same number of business days in June and May 1942
(At issue price in thousands of dollars)
:
July
:
Cumulative sales by business days
Date
:
daily
:
July
:
June
:
May
:
July as
:
sales
:
:
:
:percent of June
July 1942
1
$ 15,821
$ 15,821
$ 19,834
$ 12,679
79.8%
2
14,880
30,701
27,841
24,263
110.3
3
16,822
47,523
40,811
46,532
116.4
6
29,797
77.320
58,199
55,460
132.9
7
17,724
95,044
82,988
73,824
114.5
8
21,599
116,643
98,197
97,049
118.8
9
22,746
139,390
125,245
114,218
111.3
10
24,772
164,161
134,157
128,670
122.4
11
19,077
183,238
154,242
151,956
118.8
13
26,550
209,787
169,920
161,346
123.5
14
15,744
225,532
186,470
177.133
120.9
15
18,407
243,938
201,700
194,047
120.9
16
17,828
261,766
225,684
208,939
116.0
17
22,345
284,111
233,218
223,242
121.8
18
12,233
296,344
249,033
247,532
119.0
20
31,368
327,712
261,321
257,374
125.4
21
12,239
339.951
280,742
271,079
121.1
Office of the Secretary of the Treasury,
July 22, 1942.
Division of Research and Statistics.
Source: All figures are deposits with the Treasurer of the United States on
account of proceeds of sales of United States savings bonds.
Note: Figures have been rounded to nearest thousand and will not necessarily
add to totals.
CONFIDENTIAL
273
UNITED STATES SAVINGS BONDS - TOTAL
Comparison of July sales to date with sales during the
same number of business days in June and May 1942
(At issue price in thousands of dollars)
:
July
:
Cumulative sales by business days
Date
:
daily
:
:
July
June
:
:
:
sales
May
July as
:
:
:
:percent of June
July 1942
1
$ 28,418
$ 28,418
$ 29,539
$ 19,981
96.2%
2
24,269
52,687
45,442
39,430
115.9
3
27,277
79,964
67,046
72,048
119.3
6
46,531
126,495
98,208
88,605
128.8
7
31,110
157,605
132,341
122,575
119.1
8
43,451
201,056
154,085
157,866
130.5
9
39,918
240,974
192,659
181,431
125.1
10
47,755
288,729
206,523
201,464
139.8
11
36,127
324,856
236,552
232,801
137.3
13
47,164
372,020
259,772
246,756
143.2
14
30,102
402,122
281,724
271,525
142.7
15
33,807
435,929
303,163
296,152
143.8
16
31,670
467,599
334,398
317,861
139.8
17
37,659
505,257
345,497
337.371
146.2
18
21,929
527,186
368,782
371,066
143.0
20
53,257
580,443
387,369
385,098
149.8
21
21,686
602,129
414,804
409,987
145.2
Office of the Secretary of the Treasury,
July 22, 1942.
Division of Research and Statistics.
Source: All figures are deposits with the Treasurer of the United States on
account of proceeds of sales of United States savings bonds.
Note: Figures have been rounded to nearest thousand and will not necessarily
add to totals.
Sales of United States Savings Bonds
From July 1 through July 21, 1942
274
CONFIDENTIAL
Compared with Sales Quota for Same Period
(At issue price in millions of dollars)
:
Series E
:
Series F and G
:
Total
:
Actual
Sales
:
Quota, :
Sales
:
Actual
Sales
:
Quota,
:
Sales
:
Actual Sales
:
Quota,
:
Sales
Date
:
:
July 1
:
July 1
#
to Date :
:
July 1
:
July 1
:
to Date :
:
July 1
:
July 1
:
to Date
:
Daily
:
to
:
to
:
as x of :
Daily
:
to
:
to
:
as $ of
:
Daily
:
to
:
to
:
as $ of
:
:
Date
:
Date
:
Quota
:
:
Date
:
Date
:
Quota
:
:
Date
:
Date
:
Quota
1
$ 15.8
$ 15.8
$ 23.6
66.9%
$ 12.6
$ 12.6
$ 19.4
64.9%
$ 28.4
$ 28.4
$ 43.0
66.0%
2
14.9
30.7
47.9
64.1
9.4
22.0
36.4
60.4
24.3
52.7
84.3
62.5
3
16.8
47.5
73.0
65.1
10.5
32.4
50.6
64.0
27.3
80.0
123.6
64.7
6
29.8
77.3
126.0
61.3
16.7
49.2
82.6
59.6
46.5
126.5
208.6
60.6
7
17.7
95.0
139.3
68.2
13.4
62,6
94.2
66.5
31.1
157.6
233.5
67.5
8
21.6
116.6
162.2
71.9
21.9
84.4
114.5
73.7
43.5
201.1
276.7
72.7
9
22.7
139.4
189.8
73.4
17.2
101.6
129.5
78.5
39.9
241.0
319.3
75.5
10
24.8
164.2
216.0
76.0
23.0
124.6
139.9
89.1
47.8
288.7
355.9
81.1
11
19.1
183.2
236.6
77.4
17.1
141.6
147.7
95.9
36.1
324.9
384.3
84.5
13
26.5
209.8
273.2
76.8
20.6
162.2
160.6
101.0
47.2
372.0
433.8
85.8
14
15.7
225.5
287.6
78.4
14.4
176.6
168.0
105.1
30.1
402.1
455.6
88.3
15
18.4
243.9
311.6
78.3
15.4
192.0
181.8
105.6
33.8
435.9
493.4
88.3
16
17.8
261.8
335.5
78.0
13.8
205.8
193.5
106.4
31.7
467.6
529.0
88.4
17
22.3
284.1
358.7
79.2
15.3
221,1
202.8
109.0
37.7
505.3
561.5
90.0
18
12.2
296.3
377.4
78.5
9.7
230.8
210.5
109.6
21.9
527.2
587.9
89.7
20
31.4
327.7
411.8
79.6
21.9
252.7
223.9
112.9
53.3
580.4
635.7
91.3
21
12,2
340.0
425.9
79.8
9.4
262.2
231.8
113.1
21.7
602.1
657.7
91.5
22
451.1
247.0
698.1
23
477.5
260.1
737.6
24
503.8
270.7
774.5
25
525.0
279.5
804.5
27
562.7
295.1
857.8
28
577.2
304.3
881.5
29
601.3
322.1
923.4
30
625.8
337.5
963.3
31
650.0
350.0
1,000.0
Office of the Secretary of the Treasury, Division of Research and Statistics.
July 22, 1942.
Source: Actual sales figures are deposits with the Treasurer of the United States on account of proceeds of sales of
United States savings bonds. Figures have been rounded and will not necessarily add to totals.
Note: Quota takes into account both the daily trend during the week and the monthly trend during the month.
275
UNITED STATES SAVINGS BONDS, SERIES 1
TOTAL DAILY SHIPMENTS BY DENOMINATIONS FROM JULY 1 TO JULY 21, 1942
:
Denominations - Number of Pieces
:
Date of
:
:
Total
Shipment
:
:
1
$25
$50
:
:
$100
:
$500
:
Pieces
:
:
:
:
$1,000
:
July 1
441,453
79,590
78,344
2,256
2,527
604,170
2
515,964
94,404
93,481
3,068
3,510
710,427
3
464,350
80,760
79,220
8,320
3,565
636,215
6
736,205
82,647
89,767
8,475
2,235
919,329
7
678,221
163,951
160,712
24,510
13,894
1,041,288
8
558,650
106,000
115,461
15,039
3,790
798,940
9
440,389
89,212
112,623
7,807
5,816
655,847
10
672,288
117,122
107,512
5,508
5,967
908,397
11
643,310
121,615
135,412
5,062
15,649
921,048
13
654,983
118,591
98,816
6,314
8,528
887,232
14
673,000
109,750
102,000
7.775
10,000
902,525
15
548,501
156,626
152,361
12,270
14,535
884,293
16
384,250
91,600
107,800
13,010
19,955
616,615
17
555,023
138,080
124,232
8,378
10,066
835,779
18
599,366
109,552
98,646
6,052
9,777
823,393
20
629,367
60,200
98,900
4,150
9,885
802,502
21
603,350
57,130
93.272
11,947
10,035
775.734
Total
9,798,670
1,776,830
1,848,559
149,941
149,734
13,723,734
July 22, 1942.
MRL/kwk
mNL
276
Treasury Department
Division of Monetary Research
Date Aug. 6, 1942 19
To:
Mrs. McHugh
This was taken up orally
with the Secretary at a couple
conferences over the past two
weeks.
H.D.W.
MR. WHITE
Branch 2058 - Room 2141
Treasury
27%
Division of Monetary Research
Date July 23
19 42
To:
Mr. White
From: L.S.
Miss Chauncey returned attached, with
message:
"The Secretary is going to have a con-
ference on silver - doesn't think it
will be today. He wants Dr. White to
bring the attached memo in to the
silver meeting."
278
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 22, 1942
TO
Secretary Morgenthau
FROM
Mr. White
Subject:
The WPB Silver Import Order.
American fabricators of non-essential products containing
silver have recently been acquiring silver in the Mexican market,
bidding up the price to 60 cents and more an ounce. As a con-
siderable part of the silver required for essential war purposes
is imported from Mexico, the WPB found it necessary to control
imports of silver to assure an adequate supply for war purposes.
The proposed order was discussed by WPB representatives with
Treasury people at a meeting in Mr. Bell's office recently.
General Imports Order M-63, as amended, now restricts the
purchase of silver by private importers except by special
authorization. The effect of this amendment will be to prevent
the bidding up of the price of silver in Mexico by non-essential
users of silver. WPB authorizations for the import of silver
will be limited to the export supply available in Mexico and
will contain provisions safeguarding the imported supply for
essential war purposes.
The silver import order will be supplemented by a con-
servation order--M-199--which will restrict the use of foreign
silver. The present draft of this proposed order provides that
after October 1, 1942, no foreign silver will be made available
for non-essential uses except for orders bearing a preference
rating of A-10 and higher. Non-essential uses, under this con-
servation order, include the use of silver for such purposes as
silverware, watch cases and jewelry, photography, zippers, pens
and pencils, ornamental electroplating, mirrors and reflectors,
silverclad metal, and solders and electrical contacts.
The General Imports Order as supplemented by the Conserva-
tion Order will assure the allocation of the available supply
of foreign silver for essential war purposes at the ceiling
price. Such foreign silver as will be available for non-
essential uses will be distributed on the basis of preference
ratings. Non-essential uses bearing no preference rating or
inadequate preference ratings will have to use newly-mined
domestic silver.
Regraded Unclassified
279
Division of Monetary
Research
- 2 -
Since these orders can prevent avoidance of OPA price
ceiling now in effect (35 3/8 cents) by preventing American
firms from using silver purchased abroad at prices higher than
35 3/8 cents, it is a matter directly related to the subject of
the conference between Mr. Beteta and yourself last week.
I sent you a memorandum about it yesterday. I think that
you ought to have a conference on it as soon as possible since
the W.P.B. is urging us to comment on their order and inasmuch
as Mr. Beteta is eagerly awaiting our comments on his proposal.
280
July 22, 1942
My dear Mr. President:
In response to your letter of
July 15th, regarding the customs
treatment of war materials moving
between the United States and Canada,
I an enclosing herewith a memorandum
from Commissioner of Customs Johnson
and a draft of a proposed bill.
We shall be glad to clear the
bill with the Joint War Production
Committee, contact the Navy to us-
sure coverage of its problem, submit
the bill to Congress, and draft appro-
priate regulations, if it meets with
your approval.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
The President,
The White House.
(2 complete sets of enclosures)
Delivered by SS Agent 7/22/42
at 3:35 PM
File - NMC
my
Regraded Unclassified
281
July 22,1942
Secretary Norgenthau,
-
i. R. Johnson,
The only export inspections or restrictions
required under laws administered by the Treasury
are for censorship purposes, when drawback of du-
ties is claimed, and certain other ainor cases net
likely to apply to emergent shipments of var sa-
terials.
Export declaration requirements of the Depart-
ment of Commerce and export license requirements
of the Board of Economic Warfare and the State De-
partnent are enforced by customs officers under
regulations of those agencies.
Imports are subject in every case to customs
entry and examination requirements, and in many
cases to the payment of duty, even though imported
by the Government. Foods, drugs, and some other
commodities are subject to import requirements of
other agencies. All these are required by law.
Some relief could be granted by relaxing
regulations, particularly in the case of exports.
Satisfactory relief can be granted only if new
legislation is enacted.
The attached draft of a bill would enable us
to eliminate, under adequate safeguards, inspec-
tion, duties, and every import or export restriction
or requirement in the case of any class of ship-
ments to or from Canada.. It does not apply to
shipments to or from any other country.
Shipments to be exempted would be identified
by certificates issued by the Navy, Army, or such
other authority or authorities as the President
Regraded Unclassified
282
- 2 -
may designate. The extent of exemption would be
controlled by regulations to be issued by the
President, which could be changed from time to
time as new situations arise. The President could
delegate his powers.
If you approve, we shall clear the bill with
the Joint War Production Committee, contact the
Navy to assure coverage of its problem, submit the
bill to Congress, and draft appropriate regulations.
(Signed) W. R. Johnson
Approved:
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
VRJ/me 7/17/42
283
(H. R.
)
A BILL
To provide for more effective prosecution
of the war by carrying out the
recommendation with respect to the
elimination of certain customs berriers
by the Joint War Production Committee of
the United States and Canada.
1.
Be it enacted by the Senate and House of Representatives
2. of the United States of America in Congress assembled, That
3.
notwithstanding any other provision of law, any shipment
4.
imported into the continental United States (including
5. Alaska) from Canada for which a certificate provided for
6. in section 8 of this Act is presented to the collector of
7.
customs concerned, or his representative, shall be exempt
8.
from any duty, tax, or other charge or exaction
Public 635.
Regraded Unclassified
284
- 2 -
1. imposed upon, or by reason of, importation.
2.
SEC. 2. Notwithstanding any other provision of
3. law and subject to such exceptions or conditions as the
4. President in his discretion may prescribe from time to
5. time, any shipment imported into the continental United
6. States (including Alaska) from, or exported from the
7. continental United States (including Alaska) to, Canada
8. for which a certificate provided for in section 3 of this
9. Act is presented to the collector of customs concerned, or
10. his representative, shall be exempt from any inspection,
11. restriction, or requirement which would otherwise be
12. required by federal, state, municipal, or other authority.
13.
SEC. 8. Certificates for the purposes of sections 1
14. and 2 of this Act shall be issued in the United States by
15. such authority, under such regulations, and in such form
Regraded Unclassified
285
- 3 -
1. as the President shall prescribe. Certificates issued
2. by authority of the Dominion of Canada shall be accepted
8. for the purposes of such sections 1 and 2 when they
4. comply with such requirements as the President shall
5. specify. Such certificates shall be issued in the United
6. States only for shipments of articles specified by the
7. President as being essential or desirable for the
8. prosecution of the war by the United States and its allies
9. or associates, and before specifying the requirements
10. with which such certificates issued in Canada shall comply
11. the President shall satisfy himself that those certificates
12. will be issued only for such shipments.
18.
SEC. 4. (a) The President may, from time to time,
14. promulgate such rules and regulations as may be necessary
15. or appropriate to carry out any of the provisions of this Act.
Regraded Unclassified
286
- 4 -
1.
(b) The President may exercise any power or
2. authority conferred on him by the foregoing provisions
3. of this Act through such efficer or efficers, or agency
4. or agencies, as he shall direct.
5.
SEC. 5. Notwithstanding any "most-favored-nation"
6. or other provision in any treaty, convention, agreement,
7. or compact, no exemption authorised by this Act shall be
8. extended to importations from, or exportations to, any
9. country or place other than Canada.
en
10.
SEC. 6. This Act shall become effective on the day
11. following its enactment and shall remain in force until
18. the day following the date of a Proclamation by the
13. President that the war has ended, OF until such earlier
14. time as the Congress by concurrent reselution, or the
15. President by Proclamation, may designate.
287
THE WHITE HOUSE
WASHINGTON
July 15, 1942
My dear Mr. Secretary:
On December 23rd, 1941, I approved a. declaration of policy
adopted by the Joint War Production Committees of Canada and the United
States. That policy, calling for a combined all-out war production
effort, included the following statement:
"Legislative and administrative barriers, including
tariffs, import duties, customs and other regulations
or restrictions of any character which prohibit, pre-
vent, delay or otherwise impede the free flow of nec-
essary munitions and war supplies between the two
countries should be suspended or otherwise eliminated
for the duration of the war."
To further the implementation of the declaration, I asked
the affected departments and agencies in our Government to abide by
its letter and spirit, 80 far as lay within their power. I further
requested Mr. Milo Perkins, the Chairman of the American Committee,
to investigate, with the aid of the Tariff Commission and other inter-
ested agencies, the extent to which legislative changes would be necessary
to give full effort to the declaration.
It has come to my attention, through the Permanent Joint
Board on Defense, United States - Canada, that barriers to the free
flow of materials between Canada and the United States still exist.
Specifically, the shipment of materials, blue-prints, specifications,
etc., from the United States to Canada, in connection with the building
in Canada of airplanes for the United States Navy, is slowed down by
customs inspections, licensing, and other restrictions. Please use
your utmost endeavors promptly to eliminate all formalities that possi-
bly can be removed. If legislative or other measures are required by
your department further to facilitate the prompt shipment of materials
between the two countries, please take immediate action to bring about
early enactment thereof.
I have directed the Secretary of the Navy to furnish you such
information or other assistance you may require.
Very sincerely yours,
The Honorable,
The Secretary of the Treasury.
288
THE WHITE HOUSE
WASHINGTON
July 15, 1942
Yy dear Mr. Secretary:
On December 23rd, 1941, I approved a declaration of policy
adopted by the Joint War Production Committees of Canada and the United
States. That policy, calling for a combined all-out war production
effort, included the following statement:
"Legislative and administrative barriers, including
tariffs, import duties, customs and other regulations
or restrictions of any character which prohibit, pre-
vent, delay or otherwise impede the free flow of nec-
essary munitions and war supplies between the two
countries should be suspended or otherwise eliminated
for the duration of the war."
To further the implementation of the declaration, I asked
the affected departments and agencies in our Government to abide by
its letter and spirit, so far as lay within their power. I further
requested Mr. Milo Perkins, the Chairman of the American Committee,
to investigate, with the aid of the Tariff Commission and other inter-
ested agencies, the extent to which legislative changes would be necessary
to give full effort to the declaration.
It has come to my attention, through the Permanent Joint
Board on Defense, United States - Canada, that barriers to the free
flow of materials between Canada and the United States still exist.
Specifically, the shipment of materials, blue-prints, specifications,
etc., from the United States to Canada, in connection with the building
in Canada of airplanes for the United States Navy, is slowed down by
customs inspections, licensing, and other restrictions. Please use
your utmost endeavors promptly to eliminate all formalities that possi-
bly can be removed. If legislative or other measures are required by
your department further to facilitate the prompt shipment of materials
between the two countries, please take immediate action to bring about
early enactment thereof.
I have directed the Secretary of the Navy to furnish you such
information or other assistance you may require.
Very sincerely yours,
The Honorable,
The Secretary of the Treasury.
289
(COPT)
THE WHITE HOUSE
WASHINGTON
July 15, 1942
My dear Mr. Secretary:
On December 23rd, 1941, I approved a declaration of policy adopted
by the Joint War Production Committees of Canada and the United States.
That policy, calling for a combined all-out war production effort, in-
cluded the following statement:
"Legislative and administrative barriers, including tariffs,
import duties, custome and other regulations or restrictions
of any charaster which prohibit, provent, delay or otherwise
impode the free flow of necessary munitions and war supplies
between the two countries should be suspended or otherwise
eliminated for the duration of the war."
To further the implementation of the declaration, I asked the
affected departments and agencies in our Government to abide by its
letter and spirit, so far as lay within their power. I further N-
quested Mr. Mile Perkins, the Chairman of the American Committee, to
investigate, with the aid of the Tariff Commission and other interest-
ed agencies, the extent to which legislative changes would be more-
sary to give full effort to the declaration.
It has come to my attention, through the Permanent Joint Board
on Defense, United States - Canada, that barriers to the free flow of
materials between Canada and the United States still exist. Specifi-
cally, the chipment of materials, blue-prints, specifications, etc.,
from the United States to Canada, in connection with the building is
Canada of airplanes for the United States Havy, is slowed down by ass-
tome inspections, licensing, and other restrictions. Please use year
utnest endeavors premptly to eliminate all fermalities that possibly
our be removed. If legislative or other measures are required by your
department further to facilitate the prospt shipment of materials be-
twoom the two countries, please take immediate action to bring about
early emastment thereef.
I have directed the Secretary of the Havy to furnish you such 1a-
formation or other assistance you my require.
Very sincerely yours,
(Signed) FRANKLIN D. ROOSEVELT
The Honorable,
The Secretary of the Treasury.
Regraded Unclassified
290
July 16, 1942
COPIES TO:
Commissioner Johnson
Mr. Bell
Mr. White
Mr. Gaston
Regraded Unclassified
291
THE WHITE HOUSE
WASHINGTON
July 15, 1942
Vy dear Mr. Secretary:
On December 23rd, 1941, I approved a declaration of policy
adopted by the Joint War Production Committees of Canada and the United
States. That policy, calling for a combined all-out war production
effort, included the following statement:
"Legislative and administrative barriers, including
tariffs, import duties, customs and other regulations
or restrictions of any character which prohibit, pre-
vent, delay or otherwise impede the free flow of nec-
essary munitions and war supplies between the two
countries should be suspended or otherwise eliminated
for the duration of the war."
To further the implementation of the declaration, I asked
the affected departments and agencies in our Government to abide by
its letter and spirit, so far as lay within their power. I further
requested Mr. Milo Perkins, the Chairman of the American Committee,
to investigate, with the aid of the Tariff Commission and other inter-
ested agencies, the extent to which legislative changes would be necessary
to give full effort to the declaration.
It has come to my attention, through the Permanent Joint
Board on Defense, United States - Canada, that barriers to the free
flow of materials between Canada and the United States still exist.
Specifically, the shipment of materials, blue-prints, specifications,
etc., from the United States to Canada, in connection with the building
in Canada of airplanes for the United States Navy, is slowed down by
customs inspections, licensing, and other restrictions. Please use
your utmost endeavors promptly to eliminate all formalities that possi-
bly can be removed. If legislative or other measures are required by
your department further to facilitate the prompt shipment of materials
between the two countries, please take immediate action to bring about
early enactment thereof.
I have directed the Secretary of the Navy to furnish you such
information or other assistance you may require.
Very sincerely yours,
The Honorable,
The Secretary of the Treasury.
292
JUL 22 1942
STRICTLY CONFIDENTIAL
My dear Mr. Secretary:
Receipt is acknowledged of a letter dated
July 20, 1942 (Eu), signed for you by Assistant
Secretary Berle, requesting my views on whether the
United States Government would be willing to facilitate
the passage through American territory of persons who
may be evacuated from Victoria and the southern end of
Vancouver Island because of an emergency.
I consur in the view of your Department that,
should such an emergency arise, this Government should
be of all possible assistance to the Canadian authorities
in this matter. In the event of such an emergency,
appropriate instructions will be given to the United States
Customs authorities that arrangements should be made to
supervise the transit of the baggage and effects of
evacuees from the point of landing in the United States
to the port of exit into Canada. Customs officers will
Photostat file - NMC
Orig. File - Thompson
293
- 2 -
also be instructed to render any additional assistance
in their power.
In order that appropriate instructions of the
kind referred to above may be prepared for possible
future use, it will be appreciated if you will advise us
of the response made by the Attorney General regarding
the measures to be taken by Immigration authorities.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
The Honorable,
The Secretary of State.
Delivered by Simmons 5:35
7/22/42
HC/fn
7/21/42
SPINCIAL COMMUNICATIONS TO
THE BECRETARY OF STATE
D. c.
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
a
July 20. 1942
STRICTLY CONFIDENTIAL
My dear Mr. Secretary:
There 1s enclosed a copy of a memorandum dated
July 9, 1942, from the Canadian Legation at Washington
inquiring whether the United States Government would be
willing to facilitate the passage through American
territory of persons who may be evacuated because of
an emergency from Victoria and the southern end of
Vancouver Island.
This Department feels that should such an emergency
arise this Government should be of all possible assistance
to the Canadian authorities in this matter. Before BO
informing the Canadian Legation, however, I should
appreciate receiving an indication of your views on the
subject. I am also sending a copy of the enclosed
memorandum to the Secretary of War, the Secretary of the
Navy and the Attorney General.
Sincerely yours,
For the Secretary of State:
Enclosure:
Adolf A. Berle, Jr.
From Canadian Legation,
Assistant Secretary
July 9, 1942.
The Honorable
DEFENSE
Henry Morgenthau, Jr.,
Secretary of the Treasury.
BUY
UNITED
STATES
SAVINGS
SONDS
ARD STAILES
Regraded Unclassified
Confidential.
The Crom in is Ederition have pressred
plana for Buch evacuation of the civil population AS
may b: required by mill ry necessity. In particular,
plana ave been laid for the evacuation of women and
colloren Island. The redium of trans-
portat on will no H fl et of sall boats nost of toes
plear re wats, tow- vata, r.suin, Doata nad o
typical small craft to be found in constal waters.
In the event of evacuation from Victoria
A.d to e extreme nout ern end of Vancouver Island, it
will be necessary to transport large mun ers of people
to noints on'the United States ainland, 81 on as
Bellingham and Anacortes. It will be recognized that the
d'atances Invol ed in bringing people fron Victoria to
points on the minland north of the International boundery
W will involve extra time and distance an cuite possibly
acout onal any attonal azards For the s-aller vessela
tt woul: be utilized.
In V.ew of these circumstances, the Canadian
Government TV shop to know whether t.e comp tent author t-es
-1 the in ted States Government would be prepared to
facilitate the acceptance and transference back into Canadian
territory of any persons whom it : 8 found necessary to dis-
en.ark In United States territory. It is hoped that a
procedure CB : De established which will enable the
C nation B thorities to carry out this movement
expeditionsly in the event of an emergency.
CARA I/K DEGATION,
WASHI- 10%, ..C.
July 9, 1942.
Regraded Unclas
296
Treasury Department
Division of Monetary Research
Date July 23
1942
To: Secretary Morgenthau
From: Mr. White
Original of this report appended
to prepared letter to President.
SECRET
297
July 22, 1942
Exports to Russia, Free China, Burma, France and other
blocked countries, as reported to the Treasury
Department during the tem-day period ending
July 10, 1942.
1. Exports to Russia
Exports to Russia as reported during the ten-day period ending
July 10, 1942 amounted to about $36,000,000 as compared with ap-
proximately $50,000,000 during the previous ten-day period. Among
the military equipment exported during the period under review
were 60 P-40 pursuit fighters, 39 light bombers, 4 medium bombers
and 77 tanks. (See Appendix C.)
2. Exports to Free China and Burma
Exports to Free China as reported during the ten-day period
under review amounted to $7,900,000. Military equipment accounted
for nearly 85% of the total. (See Appendix D.)
Exports to Burma as reported during the period under review
amounted to about $45,000. (See Appendix E.)
3. Exports to France
Exports to France during the period under review amounted to
less than $500.
4. Exports to other blocked countries
Exports to other blocked countries are given in Appendix A.
Exports to Portugal were most important, amounting to $162,000.
ISF/fe
7/2342
298
STRICTLY CONFIDENTIAL
SUMMARY OF UNITED STATES
DOMESTIC EXPORTS TO SELECTED COUNTRIES
AS REPORTED TO THE TREASURY DEPARTMENT
FROM EXPORT DECLARATIONS RECEIVED
DURING THE PERIOD INDICATED w
July 28, 1941 to July 10, 1942.
(In thousands of dollars)
July 28
to
Period ended
Period ended
Total
June 20
June 30
July 10
Domestic Exports
B. S. S. R.
$587,672
$49,919
$35,618
$673,409
Pree China
84,500
1,664
7,900
94,064
Burne 2/
12,435
5/
45
12,480
France 2/
56
-
5/
56
spain
2,849
-
I
2,849
Switserland
10,710
591
93
11,394
Sweden
17,778
2
82
17,862
Portugal
9,036
165
162
9,363
French North Africa w
6,283
5/
-
6,283
Treasury Department, Division of Monetary Research
July 21, 1942.
Many of the export declarations are received with a lag of several days or more,
Therefore this compilation does not accurately represent the actual shipment of
a particular period. The longer the period covered, the closer will these figures
come to Department of Commerce revised figures.
2/ From September 11, 1941 to date - it is presumed that a large percentage of
material listed here, consigned to Burms, is destined for Free China.
z Includes both Occupied and Unoccupied France - no breakdown is obtainable from
Department of Commerce.
Includes Morocco, Algeria, and Tunisia.
Less than $500.
JMW:rl 7/21/42
Regraded Unclassified
SECRET
APPENDIX B
299
Exports from the U. S. to Free China, Burma and
U.S.S.R. as reported to the Treasury Department
July 28, 1941 - July 10, 1942 1
(Thousands of Dollars)
Exports to
Exports to
Exports to
Free China
Burna 3/
U.S.S.R.
July 28 - Aug. 2
395
4,523
Aug. 4 - Aug. 9
-
551
Aug. 11 - Aug. 16
309
986
Aug. 18 - Aug. 23
2
2,735
Aug. 25 - Aug. 30
1
1,025
Sept. 2 - Sept. 6
204
Sept. 8 - Sept.13
2,281
5,217
Sept.15 - Sept.20
3,822
Gept.22 - Sept.27
110
449
2,333
Sept.29 - Oct. 4
1,225
684
Oct. 6 - Oct. 11
5,312
1,157
6,845
Oct. 13 - Oct. 18
5
35
1,5
Oct. 20 - Oct. 25
269
403
5
5.
Oct. 27 - Nov. 1
4,772
58
Nov. 3 - Nov. 8
1,672
342
4.
lov. 10 - Nov. 15
2,851
88
2,
Nov. 17 - Nov. 22
1,228
1,021
3.
Nov. 24 - Nov. 29
3,239
1,364
1 - Dec. 6
791
64
3.
8 - Dec. 13
2,337
18
12,040
15 - Dec. 20
111
8
22 - Dec. 27
1
196
1,829
Dec. 29 - Jun. 3
35
2
3,993
Des. Dec. Dec. Dec. Mar. Mar. Feb. Mar. May May May Jan. Jam. Apr. Jan. Apr. Apr. Jam. June June June
5 - Jan. 10
91
1,073
12 - Jam. 17
1,695
447
5,874
19 - Jan. 24
-
-
26 - Jm. 31
6,938
923
9,608
Feb. 1 - Feb. 10
4,889
1,054
13,315
10 - Feb. 20
4,853
583
2
Feb. 20 - Feb. 28
2,921
-
28,119
1 - Mar. 10
w 5/ 61 V y
2,879
23
32,509
10 - Mar. 20
8,058
3
20
-
Har.
31
2
2
1
-
Apr.
10
4.836
447
11
4.
20
5,335
639
-
21
-
Apr.
30
2,827
-
1
May
10
296
-
11
-
May
20
1,872
5
18
21
-
May
31
2,533
-
1
-
June
10
3,399
234
11
-
June
20
2,707
-
21 - June 30
1,664
45.06
.06
July 1 - July 10
7,900
45
Total
$96,667
$11,367.06
$674,151
300
APPENDIX B
Page 2
1. These figures are in part taken from copies of shipping manifests.
2. Figures for experts to Free China during these weeks include
exports to Rangoom which are presumed to be destined for Pree
China.
3. It is presumed that a large percentage of exports to Burna are
destined for Free China.
4. Beginning with February 1 figures will be given for 10-day
period instead of week except where otherwise indicated.
5. 8-day period.
6. 11-day period.
7. Due to changes in reporting procedure by the Department of
Commerce this report is incomplete for the period indicated.
Treasury Department, Division of Monetary Research
July 22,1942
ISF/efe 7/22/42
Regraded Unclassified
SECRET
301
APPENDIX C
Principal Exports from U. s. to U. S. 8. R.
as reported to the Treasury Department
during the ten-day period ending
July 10, 1942
Value
Unit of
(Thousands
Quantity
Quantity
of dollars)
TOTAL EXPORTS
$ 35.657
Principal Items:
Aircraft
10,326
Fighter, pursuit (P-40)
No.
60
Light bomber (A-20)
No.
39
Medium bomber (B-25)
No.
4
Ammunition
2,675
.30 caliber
No.
7,222,829
.32,38 and .45 ealiber
No.
1,286,000
.50 caliber
No.
1,528,700
20 m. Oerlikon
No.
106,500
37 m. anti-aireraft
No.
102,330
75 m. high explosive and armor
piereing
No.
22,884
81 m. mortar shells
No.
21,168
Links and belts for small arms
ammunition
No.
1,165,000
Military tanks
2,665
Light tanks
No.
57
Medium tanks
No.
20
Aircraft parts and accessories
-
-
1,942
Copper wire
Lb.
3,853,946
1,218
Submachine guns (.45 cal.)
No.
5,700
1,212
Pork and sausage, canned & not
canned
Lb.
3,027,219
1,156
Tracklaying tracters
No.
181
1,126
Iren and steel bars and reds
Lb.
12,299,030
825
Motor trucks
No.
502
762
Combat vehicles
722
Secut ears
No.
97
Light armored cars
No.
Bo
Ordnance combat vehicles,n.e.s.
No.
39
Treasury Department, Division of Monetary Research
July 22,1942
ISF/efe 7/22/42
Regraded Unclassified
SECRET
302
APPENDIX D
Principal Exports from U. S. to Free China
as reported to the Treasury Department
during the ten-day period ending
July 10, 1942
(Thousands of Dollars)
TOTAL EXPORTS
$ 7,900
Principal Items:
Military equipment
6,634
Other iron and steel manufactures
Printed matter
Surgical and medical instruments
Relief supplies - surgical and hospital
Treasury Department, Division of Monetary Research July 22,1942
ISP/efs 7/22/42
Regraded Unclassified
SECRET
303
APPENDIX E
Principal Exports from U. 8. to Burna
as reported to the Treasury Department
during the ten-day period ending
July 10, 1942
(Thousands of Dollars)
TOTAL EXPORTS
$ 45
Principal Item:
Steel sheets, black
45
Treasury Department, Division of Monetary Research
July 22,1942
ISF/efs 7/22/42
304
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 22,1942
TO
Secretary Morgenthau
FROM
Mr. Heflich
Subject: Shipment of Planes to British Forces
1. In the week ending July 14, 1942, a total
of 81 planes of all types (80 combat planes) were
shipped to British forces from the United States.
This is substantially lower than the previous
week's shipments of 141 (111 combat) planes, and
the average of 117 (99 combat) per week during
the first six months of 1942.
2. of the week's shipments of 81 planes, 51
were sent to the British Isles, 23 to the Middle
East, six to India, and one trainer to Canada.
- 2 -
305
Table A - Shipments by Area
Week
Total Shipped
Total Shipped
Ending
in 1942
since
July 14,1942
to date
Jan. 1, 1941
To the United Kingdom
Light and medium bombers
16
508
1,669
Heavy bombers
11
122
226
Naval patrol bombers
o
8
110
Pursuit
24
849
1,160
Army Cooperation
0
71
102
Trainers
0
0
24
Total to the United Kingdom
51
1,558
3,291
Total to the Middle East
Light and medium bombers
20
331
661
Heavy bombers
0
0
5
Naval patrol bombers
3
3
3
Pursuit
0
344
1,192
Army Cooperation
O
12
12
Trainers
0
8
150
Total to the Middle East
23
698
2,023
To the Canadian Forces
Light and medium bombers
0
48
216
Heavy bombers
0
1
1
Naval patrol bombers
0
23
31
Pursuit
0
30
72
Trainers
1
500
1.741
Total to Canadian Forces
1
602
2,061
To the British Pacific Forces
Light and medium bombers
0
141
241
Naval patrol bombers
0
0
27
Pursuit
0
200
363
Trainers
o
0
105
Total to Pacific Forces
0
341
736
To the British Indian Forces
Light and medium bombers
6
32
32
Pursuit
o
40
40
Total to Indian Forces
6
72
72
Totals
Light and medium bombers
42
1,060
2,819
Heavy bombers
11
123
232
Naval patrol bombers
3
34
171
Pursuit
24
1,463
2,827
Army Cooperation
O
83
114
Trainers
1
508
2,020
Grand Total
81
3,271
8,183
Regraded Unclassified
- 3 -
306
Table B - Shipments by Types
Week
Total Shipped
Total Shipped
Ending
in 1942
since
July 14,1942
to date
Jan. 1, 1941
Bell Airacobra
o
315
469
Boeing B-17
10
41
61
Beston III
1
15
39
Brewster Buffale
0
o
168
Cessna Grane I-A (AT-17)
0
65
65
T-50
0
86
700
Consolidated Catalina
3
34
171
Liberator
1
82
171
Curtiss Kittyhawk
o
575
957
Tomahawk
0
0
544
Douglas Boston I,II and III
o
o
492
Fairchild 24 R-9
0
73
95
PT-26 Cornell
0
7
7
Glenn Martin B-26 A (Marauder)
2
4
4
Baltimore
6
255
323
Maryland
o
0
150
Grumman Martlet II
o
47
88
Lockheed A-29 A AC 151
1
1
1
Hudson
14
437
1,407
Lightning
0
3
3
Ventura I
0
12
12
Ventura Bomber
3
197
197
North American B-25
9
105
105
Harvard II
1
53
950
Mustang
24
518
598
Northrop Vengeance
o
5
5
Pitcairn Autogiro
o
o
5
Stearman PT-27
0
297
298
Vought-Sikorsky Chesapeake
0
o
50
Vultee-Stinson 0-49
o
10
14
ultee Vengeance
6
34
34
Grand Total - All Types
81
3,271
8,183
Regraded Unclassified
Table c - Plane Shipments to the British by Weeks
307
Light and
Naval
Week
medium
Heavy
patrol
Army
Ended
bombers
bombers
bombers
Pursuit
Cooperation
Trainers
Total
Weekly average
of shipments
in 1941
36
2
3
28
1
30
100
Weekly average
of shipments in
first six months
of 1942
36
4
1
55
3
18
117
July 7, 1942
77
17
o
17
o
30
141
July 14, 1942
42
11
3
24
0
1
81
Total shipments
since January 1,
1941 to date +
2,819
232
171
2,827
114
2,020
8,183
*
Total includes planes shipped in 1942 prior to March 17 which are not included in the weekly
totals up to that date.
308
COPY NO. 18
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 250
Information received up to 7 A.M., 22nd July, 1942.
1. NAVAL
MEDITERRANEAN. 2 of H.M. Cruisers and 4 destroyers bombarded
shipping and the harbour at MERSA MATRUH.
On 21st 28 Spitfires arrived MALTA from one of H.M. Aircraft Carriers.
2. MILITARY
EGYPT. Apart from a slight local advance south of EL ALAMEIN there
has been no change.
RUSSIA. A strong Russian attack against bridgehead formed by
Germans across River DON at VORONEZH has met with some success. The German thrust
southward towards the River DON continues to make progress particularly east of
River DONETS.
3. AIR OPERATIONS
WESTERN FRONT. 21st. 6 Mosquitos bombed targets in northwest
GERMANY, results not observed owing to thick cloud. Military targets, factories,
railways and shipping in BELGIUM were attacked by 12 squadrons of Spitfires. Goods
trains attacked in Northern FRANCE by 2 Mustangs. 7 aircraft missing, 3 pilots
safe. 4 enemy aircraft crossed south coast and a few bombs were dropped in ISLE
OF WIGHT, damage slight, no casualties.
21st/22nd. Aircraft despatched: DUISBURG 299, sea mining FRISIAN
ISLANDS and Dutch Coast 11, Aerodromes 8, leaflets, occupied FRANCE 6. DUISPURG
was attacked in good weather and several large fires reported. 13 aircraft missing,
22 enemy aircraft crossed east coest. Bombs, mainly incendiary, dropped in EAST
ANGLIA, little damage, no casualties reported. 1 aircraft destroyed by night fighter
EGYPT. 19th/20th. Dombers attacked shipping and laid mines in
TOBRUK Harbour. On 20th light and fighter bombers attacked landing grounds and
M.T. in FUKA Area, several aircraft on the ground and a large number of vehiclen
being either destroyed or damaged.
MALTA. 20th/21st. LUQA aerodrome attacked by 16 JU 88's of which
3 were destroyed by A.A. fire.
MEDITERRANEAN. 21st. A 7,000 ton ship, escorted by 2 destroyers
and a DO. 18 was attacked by 9 Beauforts south of CORFU. 3 hits claimed on this
ship and 1 destroyer also probably hit.
Regraded Unclassified