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Volume 588, November 23, 1942
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Volume 588, November 23, 1942
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 588
November 23, 1942
Regraded Unclassifie
- A -
Book Page
Argentina
See Foreign Funds Control
Army and Navy Journal
See Financing, Government: "Financing the War"
- B - -
Bank Examinations
Joint statement by Comptroller of Currency, Federal
Deposit Insurance Corporation, Federal Reserve System,
and Executive Committee of National Association of
Supervisors of State Banks - 11/23/42
588 135
BISMARCK
See Poland
- C -
Canada
United States dollar position since outbreak of war -
White memorandum based on Plumptre's memorandum -
11/23/42
222
Churchill, Winston
Thanked for his book and sent 12 most popular records
in United States - 11/23/42
161
Council of Electric Operating Companies
See Financing, Government: War Savings Bonds (Payroll
Savings Plan)
- 1- E -
Ecuador
See Latin America
Electric Operating Companies, Council of
See Financing, Government: War Savings Bonds (Payroll
Savings Plan)
Exports
To Russia, Free China, and selected blocked countries,
during 10-day period ending November 10, 1942 -
11/23/42
167
- , -
Financing, Government
"Financing the War" in Army and Navy Journal - Kuhn
memorandum - 11/23/42
57
a) Final copy
65
Regraded Unclassified
- P - (Continued)
Book Page
Financing, Government (Continued)
War Savings Bonds:
"Victory Fund Drive" (proposed name for next drive)
discussed by HMJr, Bell, Kuhn, Buffington, Wanders,
Thomas, Lemmon, and Hobbs - 11/23/42
588
42
a) Outline of proposed publicity and promotion
50
b) Sale of first bond to FDR discussed with
White House
53
1) Plans made by HMJr and Kuhn - 11/24/42:
See Book 589, pages 2, 5, and 65
Excess holdings of Series È over and above $5000
purchase price, and holdings in bonds in Series 7
and G of not more than $1000 (issue price): New
instructions to Public Debt - 11/23/42
113
Mitchell (Frank B.), of New York War Savings Staff:
Copy of speech sent to HMJr by LaGuardia - 11/23/42.
138
Payroll Savings Plan:
George L. Harrison reports 97% participation by
New York Life Insurance Company - 11/23/42
144
a) HMJr expresses appreciation - 11/30/42:
Book 591, page 35
Steel Workers of America: Letter from HMJr on start
of campaign - 11/23/42
146
Council of Electric Operating Companies: Letter
from HMJr on start of campaign - 11/23/42
147
Sales report, November 1-21, 1942 - 11/23/42
148
Foreign Funds Control
Argentina: Banco de la Nacion and Banco de la Provincia:
Paul memorandum on ad hoc freesing - 11/23/42
177
- H -
Harrison, George L.
See Financing, Government: War Savings Bonds (Payroll
Savings Plan)
Huntley, Donald (Sergeant, RAF)
Copy of film taken in Texas transmitted by Senator
Connally to Treasury for transmission to Huntley's
mother - 11/23/42
156,158,160
- I -
Inflation
"Alternative fiscal methods for reducing attempted
consumption by $16 billion" - proposed draft - 11/23/42.
71
Salary Stabilization: All correspondence to be routed
immediately to Commissioner of Internal Revenue -
11/23/42
155
Regraded Unclassified
- L -
Book Page
Latin America
Argentina: See Foreign Funds Control
Ecuador: Current situation - White memorandum - 11/23/42. 588
178
Lend-Lease
U.S.S.R.: Report as of October 31, 1942 - 11/23/42
173
- M -
Military Reports
British operations - 11/23/42
231
Office of Strategic Services Intercepts Digest, No. 19 -
11/23/42
232
"World Production of Combat Armaments" copy of War
Production Board report sent to HMJr - 11/23/42
280
Tanks: Reports on operation in Western Desert, Middle
East, etc., sent to HMJr from War Department - 11/23/42
290
Mitchell, Frank B. (New York War Savings Staff)
See Financing, Government: War Savings Bonds
- 0 - -
Occupied Territories
Civilian governments discussed by HMJr, Bell, Gaston,
and White - 11/23/42
34
- P - -
Poland
Ambassador thanked for book by Sub-Lieutenant Bryk Sopocko
on sinking of BISMARCK - 11/23/42
164
Public Debt
See Financing, Government: War Savings Bonds
- 8 -
Steel Workers of America
See Financing, Government: War Savings Bonds (Payroll
Savings Plan)
- T -
Tanks
See Military Reports
Thailand
Military Mission of Free Government: Office of Strategic
Services handling financial arrangement for equipment,
weapons, etc. - Paul memorandum - 11/23/42
176
Regraded Unclassified
- U - -
Book Page
U.S.S.R.
See Lend-Lease
- V -
"Victory Fund Drive"
See Financing, Government: War Savings Bonds
- W -
War Production Board
"World Production of Combat Armaments" - copy of
report sent to HMJr - 11/23/42
588 280
War Savings Bonds
See Financing, Government
Regraded Unclassified
1
November 23, 1942
9:45 a.m.
GROUP
Present: Mr. Bell
Mr. White
Mr. Buffington
Mr. Paul
Mr. Thompson
Mr. Blough
Mr. Haas
Mr. Schwarz
Mr. Gaston
Mr. Sullivan
Mr. Kuhn
Mr. Gamble
Mrs. Klotz
H.M.JR: What is this, "Political Bosses on the
Wane"? (Referring to article in the "Sunday Star",
dated November 22, 1942.) Am Ia political boss?
MR. KUHN: It is a good story, Mr. Secretary.
H.M.JR: It is all right, is it?
MR. KUHN: In accounting for the weakness of the
political machines in the last election, they gave you
the credit for the way you administered the Internal
Revenue laws.
H.M.JR: Who is doing blocked currencies in Spain?
MR. BELL: You mean our blocked currencies?
H.M.JR: It says: "to consider immediately the
enlargement of the scope of our present economic arrange-
ments with Spain prompts ne to urge reconsideration of the
decision of the Treasury Department concerning blocked
dollar currency, held by Spain."
MR. WHITE: That is regular freezing.
Regraded Unclassified
2
- 2 -
MR. BELL: Foreign Funds.
H.M.JR: I will appoint a committee of Bell,
White, and Paul. This is from the President.
(Memorandum from the President, dated November 21,
1942, and attached telegrams dated November 17, signed
by Hayes, handed to Mr. Bell.)
(The Secretary held & telephone conversation with
General Strong.)
H.M.JR: Norman?
MR. THOMPSON: I have nothing this morning.
H.M.JR: Norman, did they report to you my conver-
sation with Judge Rosenman?
MR. THOMPSON: Yes, Miss Chauncey showed me that.
He just does not understand the situation.
H.M.JR: The Judge called me up in the country.
This is very much in the room, here. He says, "I want
to make a suggestion to you on public relations." He
said, "The President is giving me all of these requests
from departments for deferments, and I am holding them
until further notice."
He said, "If I were you, I would cancel them all."
So I said, "Well, Sam, if you don't mind, I think you
just don't know what you are talking about. If I do
anything on public relations, I will make them public -
the letter. - but I am not going to cancel them. Maybe
I know more about it than you do."
I said, "Are you going to decide?" He said, "No,
I am just accumulating them." I said, "I asked for eleven.
I think the eleven should be deferred, and I am not going
to do it." He said, "Well, you should."
Regraded Unclassified
3
- 3 -
I said, "Did the President ask you to call me?" He
said, "No. If I were doing it, the only one I would
defer is the chemist.'
MR. THOMPSON: That is the weakest of the eleven.
Bill Heffelfinger is the strong one.
H.M.JR: I said, "I am not going to change a single
one."
At Cabinet the President spoke about the Treasury
and my letter, and how pleased he was. He said he
thought it was fine. He as much as said he hoped
the other departments would be 8.8 good.
Then they went into a big discussion, particularly
Justice, and they had not read the President's order.
They talked about the fact that he had told Army and
Navy not to give anybody a commission during this interim
stage, 80 that a Government employee could not go and
get a commission.
MR. THOMPSON: I think the President's second
memorandum indicated he wanted us to keep people who
are essential.
H.M.JR: Well, anyway, you never know who is going
to get his finger in the pie next. I told the Judge in
no uncertain terms what I thought. I was annoyed. It
is the worst kind of public relations. Everybody in
town blames me for the order. Now, after the position
which I have taken consistently - and there are many
people who have honestly differed with me - then the
President comes out and takes the same position that I
did. Then I should go before the public and say that
for the last six months I have been wrong, after the
President has taken the same position that I have.
MR. THOMPSON: Your position is just perfect.
Regraded Unclassified
4
- 4 -
H.M.JR: Right or wrong, it is the way I felt.
Now he has taken the same position.
As I told Frank Knox, who called me up on it - I
said, "The trouble, Frank, is that this is only a small
piece of it, and the President has got to settle this
manpower thing - the over-all." It is just because
Knox puts pressure on him, and then he says to exempt
the civilian people who are making torpedoes.
MR. SULLIVAN: And Navy Yard employees, too. It
is a small piece of a big pattern.
H.M.JR: You were here at the time. It is a
small piece. Well, anyway, that is that.
Bell?
(Mr. Bell exhibited a telegram, with attached
notice, "From the Secretary for Immediate Attention.")
MR. BELL: I got it at eight forty-five this morning.
H.M.JR: I did not want you to get it at nine forty-
five. Those are wonderful. Those are telegrams I send
from the farm instead of phoning, to be delivered at
eight-thirty Monday morning, with a copy to Mrs. Klotz.
MRS. KLOTZ: I get mine at seven.
H.M.JR: Did you?
MRS. KLOTZ: Not this morning, but generally.
MR. BELL: We have written - we did that last week -
to every Federal Reserve bank on the war loan account,
and each bank is going to circularize its banks in each
district, asking them to give consideration to this.
On the other matter, we wired that press release to
each Federal Reserve bank. It may be that they have
Regraded Unclassified
5
- 5 -
already sent them, or are preparing letters. Did you
want to duplicate it if it has been done?
H.M.JR: What I had in mind was, I just wonder
how many of these smaller banks really get the thing.
MR. BELL: They all get it because they are all on
some Federal Reserve bank mailing list. Every bank
gets notice of the financing. It might be that we could
have them send & special letter rather than have you
do it.
H.M.JR: You make a note and do this for me - to
the forty-eight States - I want to send out a thousand
return postal cards to a thousand banks, to find out
if they got this last release. Will you?
MR. BELL: Yes. Do you mean pick banks in each of
the States?
H.M.JR: Yes, just pick out some.
I asked Harold Graves to have sent out 8 thousand
postal cards for me to find out whether the people have
been solicited on War Bonds. Those went out either two
weeks ago today, or one week ago today, from Standard
Statistics, and Moody's.
MR. HAAS: Sloan called me about it right after.
H.M.JR: George, it is & statistical job, and I
would very much like to have the answer today if it is
in.
MR. HAAS: I haven't heard anything about it. I
will check up on it.
H.M.JR: Will you follow through on it?
MR. BELL: Moody's, I know, has finished theirs,
because they asked me and I told them to send it to Sloan.
6
- 6 -
H.M.JR: Get busy on the phone and find out where
it is.
MR. SULLIVAN: Do we have any check on WPB on bonds ?
The reason I ask, Mr. Secretary, is Mrs. Sullivan has a
friend who is working over there. She has been there
five weeks. She inquired in ten places where she should
make arrangements to have money held out for bonds. In
the ten places she inquired, almost everybody there said
they had no bonds and did not intend to get any.
H.M.JR: We have 8. man, this--
MR. BELL: In WPB?
MR. SULLIVAN: Yes.
MR. BELL: I think every department has got a man,
now - designated in every agency.
MR. SULLIVAN: That didn't look like it.
H.M.JR: No.
MR. BELL: In the convention of the State Commissioners
at Philadelphia last week, they passed a resolution offer-
ing to help you out on war finance. They also directed
their Executive Committee to cooperate in working up some
sort of a program of policies for supervisory agencies.
We worked Friday evening on revising that statement that
Eccles had submitted previously, and they met yesterday
with the State bank commissioners' Executive Committee,
and they approved that statement.
H.M.JR: Good.
MR. BELL: That is going to all of the supervisory
agencies, now, not necessarily to be made public.
H.M.JR: Not to be made public?
MR. BELL: They didn't think so. It is part of that
1937 program of supervisory policies.
Regraded Unclassifie
7
- 7 -
H.M.JR: It will leak.
MR. BELL: I suppose so, but--
H.M.JR: They know about it. The reporters asked
me about it.
MR. SCHWARZ: They know it is in the mill.
MR. BELL: There was an article in the Wall Street
Journal on it a couple of days ago.
H.M.JR: I would make it public; they know about it.
MR. BELL: They also are going to ask the Treasury--
H.M.JR: Will you do that?
MR. BELL: I will follow it up.
They are also going to ask you to give some con-
sideration to selling bills directly to small country
banks, rather than making them bid for them. They say
they do not know how to bid.
H.M.JR: I think that is good. Sell them at three-
eighths.
MR. BELL: If they bid, they might be able to get
them at less than three-eighths.
H.M.JR: I thought we were going to sell them at
a straight three-eighths.
MR. BELL: We gave consideration to it, and also to
the matter of selling into the Federal direct, and
letting the Federal sell them at three-eighths.
In all of our press releases on this financing, we
have overlooked the two hundred and thirty-two million
maturing notes on December 15. I thought maybe at
today's press conference you might want to give that out.
(Note handed to the Secretary.)
Regraded Unclassified
8
- 8 -
H.M.JR: Do you want to hang onto this for me,
Chick? (Note handed to Mr. Schwarz.)
MR. SCHWARZ: Yes, sir. We talked about new money,
80 that would give us an out.
MR. BELL: You recail that the Library of Congress
Trust Fund Board has special authority to deposit trust
funds in the Treasury and get four percent interest on
the fund up to four million dollars. The National
Gallery would like to do the same thing up to five
million.
H.M.JR: Can they do it?
MR. BELL: It takes legislation and we have to get
a bill, but I just want to know if you would approve
that bill.
H.M.JR: I don't see why I should.
MR. BELL: I think we should.
H.M.JR: You do?
MR. BELL: Yes. We have done it for some of the
others and, while it is a subsidy in interest, I do not
see any objection to a Governmental thing of that kind.
H.M.JR: Have I got any Art Gallery people around
here?
MR. GASTON: What others besides the Library of
Congress?
MR. BELL: We have the Library of Congress and we
have some Indian funds that are still getting four per-
cent- on trusts.
MR. GASTON: The Smithsonian?
MR. BELL: I think we are paying six percent, and we
are also paying six percent to the Printing House for the
Blind. This is really a Governmental organization, and
Regraded Unclassified
9
- 9 -
the trustees are going to donate five million dollars
to take care of the expenses of the organization.
H.M.JR: I happen to have been in on a Mellon
tax case which I didn't forget about.
I don't care - up to how much?
MR. BELL: Five million.
H.M.JR: Does anybody have any feeling
MR. HAAS: I think I would rather have the sub-
sidies direct, but I don't worry about it.
H.M.JR: Who approached you on this?
MR. BELL: Huntington Cairns brought in a bill.
We discussed it at the last meeting, and the trustees
have donated the five million to the Board and they
are holding it pending this bill.
If the bill does not go through, then they will
have to invest it in the two and a half's.
H.M.JR: It is a direct subsidy from the Government
for an art gallery. How much does the Government
control that art gallery?
MR. SULLIVAN: The trustees control it, don't
they, and they appoint their own successors?
H.M.JR: It is not like the Library of Congress,
which belongs to the people.
Does this belong to the people?
MR. BELL: I think it belongs to the Government
of the United States.
Regraded Unclassified
10
- 10 -
MR. SULLIVAN: The management is vested in the
trustees - self-perpetuating.
H.M.JR: Who do the pictures belong to?
MR. BELL: I think they belong to the Government.
I think title is in the Government. Congress has
accepted the gift, and the only things we pay for down
there, I think, are the guards and the heat and light.
The trust fund is supposed to pay for the rest.
MR. SULLIVAN: The only thing I think you ought
to check is whether or not any of the compensation of
the trustees would come out of the interest of this
fund.
That is where you might get into trouble.
H.M.JR: They do not get compensated.
MR. SULLIVAN: I do not know.
MR. WHITE: How do you pay six percent interest
when you--
H.M.JR: No, four percent.
MR. BELL: There is, as I recall, a six-percent
case. It is the Printing House for the Blind. It has
been going on for thirty years, I think.
MR. WHITE: Of course, if it is a Government
practice--
Regraded Unclassified
1
11
- 11 -
MR. GASTON: If it is a one-percent subsidy, it
is about fifty thousand a year.
H.M.JR: I tell you what let's do, let's get the
Chief Justice to do it the way he did last time. He
will write a letter to me and the President. I want
to be pushed a little bit. The last time the Chief
Justice did, on putting up that money, then we had
something to go by. He wrote a letter, you know -
what was that?
MR. PAUL: That was the Philadelphia Widener
Collection.
H.M.JR: He wrote a letter and we had something.
The Chief Justice of the United States writes you 8.
letter. He gives you something.
MR. BELL: Is he on the Board?
MR. KUHN: He is chairman of the Board.
H.M.JR: I would like & little evidence.
MR. BELL: The War Department is suggesting that in
the savings bonds you create a soldiers and sailors or
a military bond for the purpose of selling to the military
forces. They thought it might have a great appeal.
Would you like to have us consider it?
H.M.JR: A different kind of bond?
MR. BELL: The same thing, series E bonds, but
marking it military bonds.
H.M.JR: Can you give the sale of that to the
Victory Fund Committee? (Laughter)
MR. BELL: No, I don't think so.
H.M.JR: I see, all right. I think they have got
their hands full.
MR. BELL: Well--
Regraded Unclassified
12
- 12 -
H.M.JR: We will think about it.
MR. BELL: These are the circulars.
H.M.JR: I thought you stayed home Saturday.
MR. BELL: I did.
H.M.JR: Initial or sign?
MR. BELL: Sign.
(Department circulars Nos. 701, 702, and 703 signed
by the Secretary.)
H.M.JR: What else, Mr. Bell?
MR. BELL: We have got quite a problem in excess
holdings of savings bonds. By moving to Chicago that
put us back about three or four months. We have just
completed the survey of the 1941 purchases, and there
are about nine thousand cases of excess holdings, many
of them caused by mistakes, such as the husband buying
a bond and naming himself and his wife. Maybe they
will go to a theater and get all pepped up with patriotism
and buy another hundred dollar or five hundred dollar
bond, or maybe somebody else will go out and buy them &
Christmas present. It is just small things like that
that causes these excesses. We carry on a long corres-
pondence with these people to try to get them another
bond, say, in the next year. In eight cases out of
ten I think we make an enemy by this long correspondence.
I would like to suggest a procedure whereby we get
rid of about eighty percent of the cases and relieve us
of that work.
H.M.JR: How would you do that?
MR, BELL: Many of the mistakes are made because
people read the regulations and they think they can
Regraded Unclassified
13
- 13 -
invest five thousand dollars instead of thirty-seven
fifty in the series E bond, so they are over by that
sixteen hundred dollars. I would like to ignore all
excesses up to five thousand dollars on the purchase
price instead of the thirty-seven fifty, just like
we do now on the fifty thousand. Then I would like
to ignore all cases less than a thousand dollars on the
series F and G.
H.M.JR: If the General Counsel says it is all
right, it is all right with me.
MR. PAUL: How many cases are there of that?
MR. BELL: There are nine thousand cases in the
'41 savings bond.
This has been initialed by Tietjens and Cunningham.
They have been over it very carefully. What we would
like to do is put a memorandum in the file as to this
action, not make it public, and then say, "After the
war we will amend the regulations to confirm the whole
thing."
MR. PAUL: Why can't We amend them now?
MR. BELL: You can't amend them and make them
public. Then you have the excesses over the sixty-five
hundred. You keep on rolling up excesses.
MR. PAUL: I don't--
H.M.JR: Talk about it with Paul and see if you can
convert him. It is all right with me. He has some
doubts. Give him a chance to see it.
MR. BELL: The other problem we have is where a
man buys a bond for himself, and his wife as a co-owner,
and she buys one, and it is all mixed up.
H.M.JR: You settle those things. I am not interested.
Regraded Unclassified
14
- 14 -
MR. BELL: These are the amendments.
H.M.JR: Tell me what to do and I will sign them.
MR. BELL: I have the amendments if you will sign
them.
the Secretary.)
(Letter to Mr. Broughton and amendments signed by
too, incidentally.
MR. BELL: I think this increases the sale of bonds,
MR. PAUL: That relieves me of work.
H.M.JR: You most likely have got a couple of your
lawyers on here.
MR. BELL: Yes, they are.
That is all, thank you.
H.M.JR: I again say that I have a good job for a
couple of lawyers when I am out of the Treasury. One
thing we could do is get an appropriation through Congress
to defend me. (Laughter)
MR. PAUL: It is like the statute up in New York.
Corporations may charge the fees that are paid to
defend themselves. (Laughter)
H.M.JR: Seriously, when these suits begin to come
in, will the Government defend - no, they would be suing
me, wouldn't they - the Government will be, or won't
they?
MR. SULLIVAN: What suits?
H.M.JR: This kind of stuff. (Laughter)
MR. PAUL: The Government would be the plaintiff
in those suits - the Comptroller General or somebody.
5
15
- 15 -
H.M.JR: Well, I will wait. (Laughter)
MR. PAUL: You saw the suit the Government brought
against the estate of the man who went down in Puget
Sound with a lot of Government money, - an Indian agent.
H.M.JR: Recently?
MR. PAUL: That is kind of a Government we work for.
H.M.JR: You gave me that. You said it was all right
for General Clark.
MR. PAUL: Yes, because that suit was dismissed,
but the fact that the United States Government brought
the suit shows what kind of 8. government the people were
working for in those days.
MR. SULLIVAN: No, it just shows what kind of a mind
the particular fellow had who passed on that particular
problem.
MR. SCHWARZ: What agency?
H.M.JR: Listen, all the lawyers in the room will
be arguing this.
MR. GASTON: That is everybody. (Laughter)
H.M.JR: Well, pass the ammunition. (Laughter)
Are you through, Dan?
MR. BELL: Yes, sir.
H.M.JR: Harry?
MR. WHITE: There are several points that have
come up in regard to the Stabilization Board that we
are going to have a meeting on to prepare memoranda
that you may wish to send. One is on the
suggestion that the Ruml plan be the basis of any
Regraded Unclassified
6
16
- 16 -
good flexible fiscal legislation, and Roy Blough is
preparing a draft which we will go over.
The second is a letter from Eccles to the Board
which contains one or two points that we will talk over
this morning to see whether We think a memorandum ought
to be prepared.
The third is the subsidy memorandum which they
have asked for in the past.
And the fourth is a suggestion by Hansen.
H.M.JR: I saw that.
MR. WHITE: It is from Hansen to Cohen, which some
of us do not think much of at all, and I think we may
prepare a memorandum which you might want to send.
In other words, we think that anything that comes before
the Board which bears on fiscal problems we ought not to
ignore if we think there is something wrong with. Merely
as a general practice we ought to submit memoranda in-
dicating their short-comings.
H.M.JR: Showing that we are alive.
MR. WHITE: That is right.
We had a meeting on silver with the WPB last
Friday. They wanted us to reallocate the silver which
has been allocated for certain concerns, chiefly Handy
and Harman. They want us to reallocate it on the
grounds that Handy and Harman is not taking it up.
We said it would make the Government look foolish
because Handy and Harman were not taking it up, because
there is a lot more silver on the market than they said
there would be. They insisted--
MR. BELL: In other words, there was not a
shortage.
Regraded Unclassified
17
- 17 -
MR. WHITE: There was not a shortage, and they
kept hounding us, that there was a tremendous short-
age. They wanted that letter answered which they
sent to us. I said, "All right, we will answer the
letter, but in our answer to the letter we will give
the whole history of the case and indicate that the
WPB has taken certain positions which are no longer
apparently in accord with the facts." At that they
wanted to think it over, and they are going back and
discuss it, and they are going to let us know. They
are supposed to let us know today.
H.M.JR: Since when are you 80 worried about
the Government not looking foolish? (Laughter)
MR. BELL: Just the Treasury.
MR. WHITE: The Treasury is part of the Government.
We would make it clear that it was the WPB's error,
not ours. We may get a request for that today.
H.M.JR: I just want to put everybody on notice,
so they will know. I will be here today and tomorrow,
depending upon the weather. Wednesday I expect to
leave - Mrs. Morgenthau and I - to go out and spend
Thanksgiving with Henry. So I am not going to make
any appointments for Wednesday because they might say,
the way they did Saturday, that I had to leave at
eight o'clock. So don't leave anything for Wednesday.
If the weather is all right I will not leave until
after lunch, but I might get notice that I had to
leave in the morning.
Everybody is on notice, then try and see me.
(Laughter)
MR. SULLIVAN: Try and see us. (Laughter)
MR. WHITE: There is a cable that came in from
Clark, for Eisenhower. It is for the Treasury and
the State Department. It is the first cable to come
18
-18-
in about the North African currency situation.
H.M.JR: I would like to see it.
MR. WHITE: We are going to have a meeting this
morning on the matter.
H.M.JR: Can I have that?
MR. WHITE: Yes.
H.M.JR: Or will you need that for your meeting?
MR. WHITE: I don't think there is a carbon of
this.
H.M.JR: Make a copy and see that it goes up to
the house tonight. I will read it at the house.
MR. BELL: Feis called me on it and said they
were having a meeting and would like to meet with
us after they had had their meeting.
MR. WHITE: This raises the question of a
permanent dollar-franc relationship, so you will
have to be in on it. If you are going to be away
Wednesday I wonder whether you might not want to
glance at it - or you can do it tomorrow, if you
will leave some time tomorrow.
H.M.JR: I am in good shape tomorrow.
MR. BELL: I think the Secretary should see it.
H.M.JR: Do you men want to see me tomorrow?
MR. BELL: This brings something to light that
we did not know before.
H.M.JR: Ten o'clock.
Regraded Unclassifi
19
- 19 -
MR. PAUL: That ties in with that plan of sending
somebody over from the Treasury on this group. Have
you heard about that?
H.M.JR: On the what business?
MR. PAUL: This has not come through yet.
MR. BELL: It came to me Friday, and I intended
to tell you.
MR. PAUL: There is & plan to send a group of
people over to North Africa, and the plan has been
backfiring in the State tment, with all the
factions that are fighting with each other there. I
think it has been cleared now because Dean Acheson
told me yesterday that he expected to be in touch
with us about it. Part of the plan will involve
sending one or more Treasury men over in that group.
There will be State Department men, and I think BEW.
H.M.JR: Tell them after the first of January
I will be ready. (Laughter)
MR. PAUL: This is a thing that has to be done
right away. We will have to nominate somebody to go.
H.M.JR: In uniform or out of uniform?
MR. PAUL: Out of uniform.
MR. BELL: Feis called me Friday, Mr. Secretary,
and he said that the President had turned over to
the State Department this whole matter of working up
a government for the occupied areas.
H.M.JR: The President was on the war path Friday,
over this whole business. Somebody had certainly
gotten into his hair, and he was sick and tired of
the whole thing, and the thing was going to be handled
by the State Department.
Regraded Unclassified
20
- 20 -
MR. PAUL: That is cleared?
MR. BELL: Yes.
H.M.JR: I thought he was directing it at Wallace
because Wallace looked pretty sick all through Cabinet.
Has he been fighting that?
MR. PAUL: There has been a fight between BEW
and State. State has won that. Now there is another
fight within State. There are four factions there.
(Laughter) It is a very bad situation.
MR. WHITE: It was supposed to have been
settled Friday.
H.M.JR: Anyway, as far as I am concerned there
would not be time enough tomorrow morning.
Who is coming tomorrow morning - Bell, White
and Paul?
MR. WHITE: Somebody from the legal division and
one of my boys.
H.M.JR: What is the matter with Paul?
MR. WHITE: I didn't know he was going to be
here tomorrow.
H.M.JR: Tomorrow is his off day; he is not
speaking. (Laughter)
MR. WHITE: If he picks himself--
H.M.JR: All right, he picks himself.
MR. WHITE: Here is 8. note of some interest.
As a result of the North African activities, the
discount on the dollar has been cut in half in
Portugal. In other words, they are apparently
Regraded Unclassified
21
- 21 -
betting on an Allied victory.
There is a note here from Klaus--
H.M.JR: You mean the dollar?
MR. WHITE: The discount was about thirty cents.
It has been cut in half. It is now fourteen or
fifteen, in terms of escudos. The old dollars, you
remember, were at & discount.
H.M.JR: If they have become worthless, why is
that--
MR. WHITE: No, they will be worth more. That
is the discount that has been c ut in half.
Here is something from Klaus which he got from
the OSS.
H.M.JR: Klaus?
MR. WHITE: Which contains information that the
Germans--
H.M.JR: Klaus? (Laughter)
MR. WHITE: This came from Klaus.
H.M.JR: Is he still in the picture?
MR. WHITE: Very much, unless somebody is
signing his name. (Laughter)
H.M.JR: What is he doing now?
MR. WHITE: I guess he gets these from OSS,
Office of Strategic Services.
H.M.JR: Why is he getting stuff from OSS?
Isn't he supposed to be working for Internal Revenue?
12
22
- 22 -
MR. SULLIVAN: He is working over there.
MR. WHITE: This note says this agency - I presume
it refers to the Office of Strategic Services - has
received information from a secret source in France
that the Germans are buying a lot of pesetas
and are paying any price they can in France. What
significance that may have I don't know.
H.M.JR: What is Sammy doing in that field
again?
MR. GASTON: He is still doing the same thing as
he was.
MR. WHITE: He just passed this on. I suppose he
got it. He didn't get the information, he got the note.
MR. SULLIVAN: Now wait a minute - however Sammy
came across it, he did what he should with it. He had
information that he thought was important, and he sent
it over.
H.M.JR: But if the OSS office still thinks that
Sammy is their contact with the Treasury--
MR. SULLIVAN: That should be corrected.
H.M.JR: That is the point.
MR. SULLIVAN: I agree with you.
H.M.JR: Who is looking after Sammy these days?
MR. SULLIVAN: That is a syndicate. (Laughter)
MR. GASTON: He works for Randolph still 80 far as
I know.
MR. WHITE: Maybe it wasn't from Klaus. Let me
see. (Laughter)
Regraded Unclassified
r-13
23
- 23 -
H.M.JR: Who would talk to him? Is he still con-
tacting J. Edgar Hoover, and is he still contacting
Colonel Donovan and all the rest of that stuff?
MR. PAUL: He is contacting Justice, FBI, and
Colonel Donovan. He is following along the same work
that he has always been doing; and if you can find out
what he does, you are a better man than I am. All we
can do is'- he gives us the information when he gets it.
H.M.JR: Somebody have a talk with him, will you?
MR. PAUL: Yes, I will have a talk with him.
H.M.JR: Have another talk; just find out.
Is that all, Harry?
MR. WHITE: Also the French franc is rather sharply
dropping, which bears on the problem that we will
discuss tomorrow.
H.M.JR: What else?
MR. WHITE: That is all.
H.M.JR: Schwarz?
MR. SCHWARZ: I have nothing.
H.M.JR: George?
MR. HAAS: Nothing.
H.M.JR: Blough?
MR. BLOUGH: Nothing.
MR. KUHN: The Disney film on the education of
Nazi children is ready. It will be ready so you can
see a preview of it today. Disney himself wired me
last week end that he was anxious that you see a
preview of it.
Regraded Unclassified
24
- 24 -
MR. WHITE: If you want somebody to hold your hat,
I will volunteer. (Laughter)
H.M.JR: Have you seen it? Why not say right now
that we will show it at four-thirty?
MR. KUHN: It is not exactly the film that you
approved last spring, but it is pretty close to it.
H.M.JR: Why not say four-thirty? No, I will have
to wait until I hear from Mr. Hull.
MR. KUHN: I have only one thing more. Harold
Thomas is here. There are certain things that he needs
to get settled. One is the new name for this loan, and
for the securities, and it is quite important to get that
out to the people in the field quickly.
H.M.JR: Can't that be settled at three o'clock?
MR. KUHN: I was only going to suggest that it
would be better if it could be settled earlier, because
there is a lot of work to be done when those things
have been settled.
The second thing is to make it perfectly clear to
the War Bond people and the Victory Fund people what
you said the other day, and that will be done.
The third was to arrange some kind of a springboard
in place of these dinners which have now been postponed.
H.M.JR: I spoke - have you seen Thomas this morning?
MR. KUHN: Yes, sir.
H.M.JR: I told Buffington if he would come in with
some plan at three, I would give him all the time
necessary. I don't see why he can't wait until three
o clock.
MR. KUHN: Well, we will work on it until three. If
We have something settled before lunch, may I call you?
Regraded Unclassified
25
- 25 -
H.M.JR: Yes. I understood it was to be at three.
MR. BUFFINGTON: We wanted a little time to talk
to him and to Lemmon.
MR. GAMBLE: The railroads, all of them - some hundred
and forty - elected to hold this national drive, Mr.
Secretary - I thought you would be interested in knowing
that - to get their ten percent before the end of this
year. The steel industry has likewise started a drive,
and they hope to end it by December 7. The trucking
industry - something over two million people, is conduct-
ing its drives as a result of these meetings, one of
which you attended.
I thought you also would be interested to know that
"Information Please" is going to put on a tour for the
Treasury - war bonds.
MR. KUHN: They are going to charge admission and
try to raise millions of dollars by means of this tour.
H.M.JR: Fine.
MRS. KLOTZ: Wonderful.
H.M.JR: Buffington?
MR. BUFFINGTON: Nothing.
MR. PAUL: Nothing.
MR. SULLIVAN: I gave you a memorandum on the
distribution of that Know Your Taxes" booklet. Did
you see it?
H.M.JR: Yes, it looked very good.
MR. SULLIVAN: Can we go right ahead?
H.M.JR: Yes.
MR. SULLIVAN: There is a tax of ten cents a pound
on colored oleomargarine, which we have always thought
Regraded Unclassified
26
- 26 -
was a very bad tax. It is taxing the people who can't
afford to buy butter, and much less afford to pay a
tax. Saturday when I saw that forty percent of all the
butter stocks had been frozen, I called the Bureau and
asked them to get some memoranda for me, and I am going
to talk to Randolph. If you approve it, I think this
is the time to wipe that tax off the books.
H.M.JR: You know what you go up against.
MR. SULLIVAN: Sure, but I think this particular
time they will have difficulty.
H.M.JR: It is all right with me, if you go up
against one of the strongest lobbies in the country.
MR. SULLIVAN: That is right, but one which--
H.M.JR: This is the strongest.
MR. SULLIVAN: I understand, but I think this is
the time when we can do some business, because the
oleo people have done some pretty fine work for the
service. They now have a butter that will not melt at
less than a hundred and twenty-five degrees that our
boys in the tropics can use. I have had it, and it
is just as good as butter.
H.M.JR: While you are at it, you might as well
let them make the color at the factories instead of a
special--
MR. GASTON: That does not apply when it is an
extra pellet. It would apply if they color it at
the factory.
MR. SULLIVAN: A quarter of a cent a pound when it
is uncolored.
H.M.JR: I would be curious - if the Army, for
instance, wanted to buy oleo with the color mixed in
at the factory, couldn't they do that?
Regraded Unclassified
26
- 26 -
was a very bad tax. It is taxing the people who can't
afford to buy butter, and much less afford to pay 8.
tax. Saturday when I saw that forty percent of all the
butter stocks had been frozen, I called the Bureau and
asked them to get some memoranda for me, and I am going
to talk to Randolph. If you approve it, I think this
is the time to wipe that tax off the books.
H.M.JR: You know what you go up against.
MR. SULLIVAN: Sure, but I think this particular
time they will have difficulty.
H.M.JR: It is all right with me, if you go up
against one of the strongest lobbies in the country.
MR. SULLIVAN: That is right, but one which--
H.M.JR: This is the strongest.
MR. SULLIVAN: I understand, but I think this is
the time when we can do some business, because the
oleo people have done some pretty fine work for the
service. They now have a butter that will not melt at
less than a hundred and twenty-five degrees that our
boys in the tropics can use. I have had it, and it
is just as good as butter.
H.M.JR: While you are at it, you might as well
let them make the color at the factories instead of a
special--
MR. GASTON: That does not apply when it is an
extra pellet. It would apply if they color it at
the factory.
MR. SULLIVAN: A quarter of a cent a pound when it
is uncolored.
H.M.JR: I would be curious - if the Army, for
instance, wanted to buy oleo with the color mixed in
at the factory, couldn't they do that?
27
- 27 -
MR. SULLIVAN: Yes, we changed it. We gave them
a ruling, at the War Department's request, some months
ago, allowing them to buy oleo tax-free to be sent to
our troops outside continental America. Then when they
were on maneuvers in the south this summer, they just
could not have any butter. They would open it, put
it on the table, and away it would run, so we changed
the ruling so that the Army can buy it tax-free there.
H.M.JR: They had a great discussion on oleo.
Miss Perkins said she didn't see why everybody couldn't
eat oleo. The President said that he didn't like it.
He said, "I like butter; I don't want to eat oleo."
MR. WHITE: There is a poem by A. A. Milne in which
all the king asked for was a little butter for the royal
slice of bread. (Laughter) Send it to the President.
It is a very funny poem.
MR. SULLIVAN: That is all I have, sir.
H.M.JR: Herbert?
MR. GASTON: I haven't anything.
H.M.JR: I would like to see Gaston and Kuhn,
please.
Regraded Unclassified
Nov. 30
28
Here is & supplemental report on
the replies received to the Moody
and Standard & Poor questionnaire.
MFF
9:30-Mark
29
REPORT ON SURVEY CONDUCTED FOR THE TREASURY DEPARTMENT BY
MOODY'S
Number of Answers as of November 23 - 13 days after 1,000
cards were put in the mail to a sampling of their subscription
list taking in all parts of the country - 422.
REPLIES -
No - 298
Yes - 124
A breakdown of the replies to the question "Which type of issue?"
shows that,
2 - didn't remember
14g+- said TAX NOTES
45 - didn't answer the question
32% - mentioned various government issues
17-3/4 - said I bonds
20-1/4 - said F or G bonds
*Note: fractions indicate cases where more than one
answer to the question was given. Thus in scoring
"Tax Notes and E bonds" we gave 1/2 to each.
Note: In the "Yes" group were a number who said
"By Mail" or "Payroll Savings Plan". These were
counted as "No".
30
REPORT ON SURVEY CONDUCTED FOR THE TREASURY DEPARTMENT BY
STANDARD & POOR
Number of Answers as of November 23 - 9 days after 1,000
cards were put in the mail to a sampling of their subscription
list taking in all parts of the country . - 413.
REPLIES -
No - 304
Yes - 109
A breakdown of the replies to the question "Which type of
issue?" shows that:
3
- didn't remember
10$
-
said TAX NOTES
25
-
didn't answer the question
23
- mentioned various government issues
25-3/4
said E bonds
21-3/4 said F or G bonds
Regraded
31
November 23, 1942
9:53 a.m.
HMJr:
Hello.
Operator:
Go ahead.
HMJr:
Hello.
Gen. George
Strong:
Hello.
HMJr:
Yes.
S:
Mr. Secretary?
HMJr:
In person.
8:
General Strong speaking. About two weeks ago you
wrote me a note in regard to Mr. Harold Hochschild
....
HMJr:
That's right.
S:
....of the American Metal Company in New York.
HMJr:
That's right.
8:
I had him examined. He failed physically
HMJr:
Yes.
8:
....on account of his eyes. I had a little diffi-
culty. I got a waiver on his eyes and asked him
to sign a waiver in consequence, which he has done.
HMJr:
Yes.
8:
Now there's just one thing that comes up that I'm
a little bit embarrassed to raise, but I thought
I would raise it with you in view of the fact you
know the family.
HMJr:
Yes.
S:
I'd like to know, in view of certain reports -
certain reports the F.B.I. has filed with us,
just what the relationship between Harold Hochschild
is and Morifio Hochschild, who is down in Mexico
and seems to have a rather unsavory reputation.
Regraded Unclassified
32
- 2 -
HMJr:
I don't think there's any, but I
S:
Well....
HMJr:
....as far - I - - I never heard of there being
any.
8:
Uh huh. Well, this Morifio Hochschild seems to
be a rather unsavory chap, and he is reputed to
have some connection with the American Metals
Company. Now, of course, that may be - that may
be an erroneous report but he is - it is estab-
lished that he has some acquaintance, at least,
with a man by the name of Zimmer and Otto Susqman.
HMJr:
Yeah. Well, now don't you think the best way
would be to ask him direct?
S:
Well, you know - I have seen him only once. I
had him before me. He impressed me very favor-
ably indeed. One of my assistants knows him
very well, has known him for years, and speaks
very highly of him, and I thought I would contact
you first in regard to it, because I don't want
to embarrass his on questions that he might oon-
sider, if he was at all touchy, as
HMJr:
Oh, no....
S:
..reflected upon his own standing or loyalty
HMJr:
Oh, no.
8:
....or integrity or something of that kind.
HMJr:
I'd ask him point-blank or have one of your men
ask him point-blank.
S:
Uh huh.
HMJr:
That's what I would do.
8:
All right. Thank you very much, sir.
HMJr:
But I don't - I don't know about - about this
end of the thing at all, you see?
Regraded Unclassified
33
- 3 -
S:
Uh huh.
HMJr:
I mean I've known him personally all my life, but
when you get into his various business conneo-
tions, I wouldn't know.
8:
Well, of course, we may be a little bit allergic
on this Mexican end because just as you know there
has been a great deal of skullduggery going down -
going on down there in connection with the Axis.
HMJr:
Well, I - I wish you'd ask him and get it cleaned
up, and if there's anything in it that's - that
isn't all right, I personally would like to know
it.
8:
Hmmm. All....
HMJr:
See?
S:
....All right, sir.
MMJr:
No, I'd very much - if there's anything down there
which doesn't smell right, I - I hope you'll let
me know.
8:
All right, Mr. Secretary. Thanks very much.
HMJr:
Right.
8:
Good.
Regraded Unclassified
33
- 3 -
8:
Uh huh.
HMJr:
I mean I've known him personally all my life, but
when you get into his various business conneo-
tions, I wouldn't know.
S:
Well, of course, we may be a little bit allergic
on this Mexican end because just as you know there
has been a great deal of skullduggery going down -
going on down there in connection with the Axis.
MMJr:
Well, I - - I wish you'd ask him and get it cleaned
up, and if there's anything in it that's - that
isn't all right, I personally would like to know
it.
S:
Hmmm. All
HMJr:
See?
8:
....All right, sir.
MMJr:
No, I'd very much - if there's anything down there
which doesn't smell right, I - I hope you'll let
me know.
8:
All right, Mr. Secretary. Thanks very much.
HMJr:
Right.
8:
Good.
Regraded Unclassified
34
November 23, 1942
2:30 p.m.
Re: CIVILIAN GOVERNMENTS IN
OCCUPIED TERRITORIES
Present: Mr. Bell
Mr. Gaston
Mr. White
Mrs. Klotz
H.M.JR: Bell says that Feis called him up and said
they wanted somebody - in the first place, you had
better tell them--
MR. BELL: In the first place, they are setting up
an Interdepartmental Committee under the European
Division of the State Department to handle this civilian
government in occupied territory. Their first job will
be to concentrate on Africa.
If the thing goes well and works all right, then
they will go on from there to any other places where the
Army has occupied. But first they would like to have
a representative of the Treasury on this committee and
there will be representatives from the State and the
War and the BEW and possibly one or two others, maybe
Agriculture and the Office of War Information. But that
is the first task, to get one representative, and they
want a meeting tomorrow or Wednesday. Later on they may
want the second member on this committee.
The second thing--
H.M.JR: Let me do one at a time. You (White) can
represent the Treasury on that. I want White to repre-
sent me.
MR: BELL: O.K. The second thing is they may want
this week - they have already sent a cable to Murphy
regarding the new setup, and they think they may want
some men to go this week to Africa, and they probably
will want one or two men from the Treasury.
Regraded Unclassified
35
- 2 -
They think maybe they will have a reply to that
cable by Wednesday.
H.M.JR: What I would do is this. You talked about
it enough. This man - what is his name - your first
assistant, who is in the Army or Navy?
MR. WHITE: Southard?
H.M.JR: Southard is one.
MR. WHITE: There are three good men there.
H.M.JR: You like Southard; you told me 80.
MR. BELL: Yes. Isn't he in the Navy?
MR. WHITE: He is in the Navy.
MR. BELL: They want civilians.
H.M.JR: Oh, they can take them and--
MR. BELL: This is a shift by direction of the
President, from military government to civilian govern-
ment.
H.M.JR: Then, if necessary, get them out of uni-
form, or something.
MR. BELL: Decommission them.
MR. GASTON: They can furlough or retire them.
H.M.JR: Sure, that can be done.
MR. WHITE: Southard and Tasca--
H.M.JR: I just haven't got enough people unless
I go to the Army and Navy and have them furloughed.
Regraded Unclassified
36
- 3 -
MR. BELL: Who is the second one?
MR. WHITE; Tasca - Southard, Tasca, and Oliver.
You know Southard. Tasca is a very able chap who is
a Lieutenant in the Navy, who claims that he, together
with about two hundred and eighty other Ensigns, are
doing absolutely nothing, and they are all very dis-
satisfied and want to get out. He is a very able fellow;
he knows Italian very well, incidentally. He is an
excellent economist.
H.M.JR: Well, look, why don't you - to save my
time - he asked for a minute and had seven - give him
the names of the people, those men to be discussed,
and then get Norman Thompson busy talking to the
commanders of the Army and Navy, and tell them we have
been asked by the State Department to send sane people
over, and could these people have a furlough to go.
MR. WHITE: I think it is important, if they go,
that the idea is to have them Treasury men. If they
go they are important to the Treasury; they are not
Navy men.
H.M.JR: That is right. He can work it out. They
can use the same procedure they used for Secret Service,
with which Norman Thompson is familiar - the White
House detail. But I have got to keep moving.
Now, the other thing, the most important thing I
want to suggest, they have no man to head this thing,
you see, and you said they were going to take Ray
Atherton. The man I want to suggest - he belongs to the
Club with Mr. Sumner Welles and Ray Atherton, and the
rest - but he is about one thousand percent better than
Ray Atherton, and that is the Minister, now, to Cairo -
I cannot think of his name. Does anybody know his name?
MR. BELL: I don't.
MR. WHITE: He is going to head what - the mission?
H.M.JR: Yes.
37
- 4 -
MR. WHITE: Who are the alternatives? Atherton--
MR. BELL: No, not Atherton; they don't want him
to head it, definitely. They are looking for somebody.
H.M.JR: They want a Club member, and here is a
Club member who is O.K.
MR. BELL: What do you mean, "a Club member"?
MR. WHITE: Wears spats. (Laughter)
MR. GASTON: Alexander Kirk?
H.M.JR: Yes, he was Charge in Berlin; he is all
right. Alexander Kirk - where is he a Minister?
MR. HASTON: Cairo.
MR. BELL: They are perfectly willing to go outside
if they can think of the right man to head it.
MR. WHITE: To head the mission?
MR. BELL: No, to head this division over in the
State Department.
MR. WHITE: I thought they were going to put Don
Hiss at the head.
MR. BELL: I don't think 80. I just got this call
before I went to lunch.
H.M.JR: Anyway, Alexander Kirk - I will put my
money on him.
MR. WHITE: Do they ask the Treasury to recommend
somebody?
MR. BELL: They asked me.
H.M.JR: Don't say--
Doaraded
38
- 5 -
MR. BELL: They said to ask the Secretary. They
said, "If you have anybody, let me know." Feis asked
me to call him.
H.M.JR: Take it from me, Alexander Kirk, Chargé in
Berlin, American Minister in Italy - he knows the Nazis
and hates them, and he has stood up against them.
MR. BELL: Apparently this has been a little fight.
I think Berle has wanted it because it is a financial matter.
H.M.JR: Well, Alexander Kirk, I would be very
curious, how they would react to him. He is very able
and I know his record. He is enormously rich, I mean,
you never would pick the man at all. He is kind of -
he is the "fashionplate" diplomat, but under the most
trying circumstances, he showed up wonderfully. But
Messersmith? if they didn't want him, what would you people think of
MR. WHITE: Very good.
H.M.JR: I am suggesting Kirk and Messersmith.
MR. BELL: Messersmith might do a good job. He
is a little "wishy-washy" sometimes.
H.M.JR: But I think his heart is in the right
place.
MR. BELL: Oh, yes.
H.M.JR: John Wiley?
MR. BELL: Oh, no, Mr. Secretary.
H.M.JR: What is the matter?
MR. BELL: Do you think he could do this job?
H.M.JR: Oh, yes.
Regraded Unclassified
39
- 6 -
MR. BELL: Really? I have not seen a lot of him,
but I was never impressed with John Wiley. You mean
the fellow that was here?
H.M.JR: Yes.
MR. BELL: I never was impressed, but I could be
wrong.
H.M.JR: I am thinking of people whose hearts are
in the right places.
MR. BELL: This fellow has got to have some ability,
I should think.
H.M.JR: Well, Messersmith or Kirk - there are two
names for you, anyway.
MR. BELL: Yes, two good ones.
H.M.JR: There are two good names - what? They
can't turn down Kirk because he is not a Club member,
because he is. He belongs to that very exclusive
Club over there.
MR. BELL: Feis was thinking of somebody outside.
H.M.JR: I know how it is when it comes to Sumner
Welles; he will want to take somebody from the inside.
It is a terribly important position:
MR. BELL: That fellow that is in New York, a
lawyer or a financial man Cumberland - but he is a
black Republican, isn't he?
H.M.JR: I don't know aim. Either Kirk or Messersmith--
MR. GASTON: Tom Eliot?
MR. WHITE: It is to head up the Occupation Division
here in the State Department?
Regraded Unclassified
41
- 8 -
MR. GASTON: He can get somebody to help on the
feeding end.
H.M.JR: I didn't see the order, but my wife said
that Lehman comes under the State Department. He would
be under this man.
MR. WHITE: In other words, this would be a bigger
job than that.
MR. BELL: Sure.
H.M.JR: In the eyes of the State Department.
42
November 23, 1942
3:05 p.m.
FINANCING
Present: Mr. Bell
Mr. Kuhn
Mr. Buffington
Mr. Wanders
Mr. Thomas
Mr. Lemmon
Mr. Hobbs
MR. BUFFINGTON: We have prepared a memorandum,
Mr. Secretary, on the points that we are pretty much
in agreement on, starting out with the name of the drive
and the name of the bundle.
(Statement dated November 23, 1942, copy attached,
handed to the Secretary.)
H.M.JR: (Reading) "It is important that a name
should be decided upon at once. It is suggested that
the whole matter be referred to as the Victory Fund
Drive to sell the Victory Loan, and specifically that
the principal security be referred to as the Victory
2 1/2s."
It is all right with me, but I think you ought to
clear it with - don't you think you ought to clear it
with OWI?
MR. BUFFINGTON: Yes.
MR. THOMAS: Yes.
MR. KUHN: We will do that at four-thirty this
afternoon.
H.M.JR: I don't think I want to bother the
President with that.
Regraded Unclassified
43
- 2 -
(Mr. Bell entered the conference.)
H.M.JR: Should we call it the "Victory 2 1/2s",
that is the question.
MR. BUFFINGTON: Dan, those men were unanimous,
as you may not have heard, that "Victory Loan" and
"Victory 2 1/2s" would be & great thing to couple
with the Victory Fund Drive.
MR. BELL: Why not just call it the "Victory Fund
Drive" and let it go at that?
MR. BUFFINGTON: But you must have a name for the
bundle you are selling. "Victory Loan" seemed to be
the consensus.
MR. THOMAS: They did not want to call it a
"Victory Fund Drive" because of the Community Fund
and all the other funds. They wanted to get away
from the word "fund". That was their only point.
H.M.JR: What are you going to call the second one
and the third one and the fourth one? What are you
going to call them, the "Victory 2 1/2 A's"? What
about the third and the fourth and the fifth?
MR. KUHN: "Second Victory Loan."
MR. BUFFINGTON: We may be selling those "Victory
2 1/2s" at another time as part of that bundle but
call them the "Second Victory Loan" and the "Third
Victory Loan" as they came along.
H.M.JR: As long as it is the same issue there
would not have to be any reason to change it.
MR. BUFFINGTON: John Fleek particularly said,
"If you go out on this as a 'tap' issue or as a 'sale'
issue, you will get nowhere. If you could refer to them
as the 'Victory 2 1/2s' it would be a great stimulant to
sales." Their publicity men were unanimous on that.
Regraded Unclassified
44
- 3 -
MR. THOMAS: This particular phraseology sounds a
bit involved here. I just point out that at no time
would you use this whole story together, the Victory
Fund, the Victory Loan, and the Victory 2 1/2s. You
would not be talking about those three things at the
same time. You would be referring to the Victory Loan
or you would be referring to the Victory Fund or the
Victory 2 1/2s. You would not have the sequence, one
after the other.
MR. WANDERS: That is true. Of course I do have
the same feeling - I bridle a bit at the idea because
you may want to reserve it for later on, it strikes me.
But if everybody agrees that is the proper name, let's
have it.
MR. BELL: We are a long way from the victory.
MR. BUFFINGTON: But the purpose of this money is
to gain victory, and that is their approach to it.
H.M.JR: The way I feel is this. They are supposed
to have a lot of trained psychologists, or something or
other, over in OWI. Let's leave it this way. I am
willing to go along with OWI, but I would not fight
them on it if they are hesitant about it.
MR. BELL: Leave it as a Victory Fund Drive -
First Victory Fund Drive.
MR. BUFFINGTON: The reason that is so important
to decide as soon as possible is that all our copy on
our mats for this sponsored advertising is dependent
upon what name we use. Therefore, we want to decide
it as quickly as possible, because we have a limited
time in which to prepare these mats and get them out
to the newspapers.
H.M.JR: Have you a second choice if they say no?
MR. BUFFINGTON: I have not.
Regraded Unclassified
45
- 4 -
MR. THOMAS: There was only one other name that has
been used, and that came out of the headlines of the
papers. Naturally, I do not like it: "The Nine Billion
Dollar Drive." I do not think it means anything. It
is just a handle. It does not identify the security,
and it does not give it a handle by which you can use
it.
H.M.JR: I have a name as a second choice, "Freedom".
MR. THOMAS: We discussed that, too.
MR. KUHN: The selling organization--
MR. WANDERS: That is what I suggested.
H.M.JR: I am good, then. (Laughter)
MR. WANDERS: We are together on it, anyway.
MR. KUHN: The selling organization is known as
the Victory Fund Committee. That name has been in
existence for four or five months. That is why Victory
Loan is & natural one.
H.M.JR: The only reason is that I know the Presi-
dent, six months ago, didn't want to use the word
"Victory". A lot has happened since then. If you can
get it by the OWI nicely, without any friction, O.K.
and if you cannot, I would throw in the word "Freedom"
as a suggestion. "If you do not like that, give us
something else." Is that right?
MR. WANDERS: Would it perhaps improve matters if
you called it the "First Victory Drive"?
H.M.JR: When are you going to see OWI?
MR. KUHN: At four-thirty we are going over to
their shop.
Regraded Unclassified
46
- 5 -
H.M.JR: That is the only thing. "The Executive
Managers are to obtain statements from important people
in the district calling attention to the drive and
urging purchase. These statements are to be from time
to time in the local communities.
"A master speech, five minutes length, is to be
prepared covering the essential points of the drive.
This is to be sent to each community and used and adapted
locally for weekly luncheons like Kiwanis, for local
radio announcements, and 80 forth."
Who is going to make the master speech?
MR. KUHN: I will get up a draft of it this after-
noon.
H.M.JR: Who is going to deliver it?
MR. KUHN: It is & speech that can be used on all
occasions. It is a guide speech.
H.M.JR: (Reading) "Executive Managers and Regional
Managers are to contact all financial institutions having
radio programs using the master speech as material with
local adaptation. This list of financial institutions
having radio programs is to be obtained from the War
Savings Staff.
"Local spot announcements are to be prepared to be
sent to Executive Managers and Regional Managers for use
in contacting local radio stations."
This number six is all stuff I do not - that does
not have to be settled today, and neither does seven.
(Reading) "Executive Managers are to arrange meetings
between the Presidents of their respective Federal Reserve
Banks and the local financial writers. This will not be
done in New York because of the foregoing paragraph.
Regraded Unclassified
47
- 6 -
"National figures on the progress of the drive are
to be released for the A.M. papers on December 7.
Subsequent releases, the same kind, will be made at
intervals."
I made the suggestion on number ten to you. They
do not like my suggestion, that the mats be sent out by
the ABA?
MR. BUFFINGTON : Yes, sir, we have just learned
from talking with some of the banks that there is a
question as to whether the commercial house groups
will sponsor these advertisements. It is rather expen-
sive to do it unless we think it will get a good
response. It costs seventeen thousand dollars to get
one ad out to each of the fifteen thousand banks. I
think we should try it, even though it costs a little
money.
MR. KUHN: On Page 3, Mr. Secretary, number 14,
since these dinners were postponed, we do not have any
springboard for the first week's publicity, and we all
think that it is essential that we get the President
to do something before the drive begins.
Now, whether that could be you going over to the
White House tomorrow to sell him the first bond, and
have the news reel men take & little shot of you and
the President talking together about it, or whether
the President could go on the air for five minutes on
Sunday, or whether it would be confined to the still
cameras - that is something we will have to work out,
but it is terribly important and necessary.
H.M. JR: I will try it.
Reading this very hastily, it is all right with me.
MR. KUHN: If you do bring up that question with the
President, try to get the news reel, because we all
think it is so much better than anything else that could
be done.
Regraded Unclassified
48
- 7 -
(Draft of letter to the Fictory Fund Committee
handed to the Secretary by Mr. Buffington.)
H.M.JR: Who wrote this letter?
1
MR. BUFFINGTON: We did, in my shop. We have all
seen it here, and after approval it was to go out to
the Victory Fund workers, or to the salesmen of the
Victory Fund Committee. Many of them will have a kit
explaining how these securities should be sold. Canada
did this same sort of thing, and it is felt by the
Executive Managers--
H.M.JR: I do not like that last sentence, "When
the task is done"--
MR. KUHN: You mean you would like yourself left
out of it?
H.M.JR: No, no. Has everybody seen this?
MR. BUFFINGTON: Yes, sir, they have. We will re-
write it and change it a little bit if you don't like
it.
H.M.JR: I think that "when the task is done" - I
was thinking in terms of when it is finished you would
say, "well done."
MR. BUFFINGTON: But you do not like to ever thank
in advance, and that would seem to be the best way.
H.M.JR: I will be back again. Does this have to
go today?
MR. BUFFINGTON: Just as quickly as possible, today.
H.M.JR: I am willing to do it, but it does not
seem to have much "oomph" to it.
MR. HOBBS: I think we can improve on that.
Regraded Unclassified
49
- 8 -
H.M.JR: With all these high-powered fellows in
the room here, somebody ought to be able to put some
"oomph" in it. The big thing is to get the President
to do something.
(A Sales Manual entitled "Dollars for Victory"
handed to the Secretary.)
MR. BUFFINGTON: That is & proof; it is not final.
That is the type of salesman's kit that has been drafted.
A lot of it is blank in the back; that would be folded
and go to each man. Most of the Executive Managers
think it would be very helpful.
H.M.JR: I had better get downstairs. I am sorry.
The King of Ecuador is arriving.
If you want to see me when I get back, will you let
me know?
MR. KUHN: What time will you be back, do you know?
H.M.JR: The King of Ecuador arrives at four. I
ought to be back at four-thirty or quarter of five.
Regraded Unclassified
50
November 23, 1942.
The following is a brief outline of the publicity and promotion
that is planned for the financing program to be launched on November 30,
1942.:
1. It is important that a name should be decided upon at once.
It is suggested that the whole matter be referred to as the Victory
Fund Drive to sell the Victory Loan, and specifically that the prin-
cipal security be referred to as the Victory 2 1/2s.
2. The Executive Managers are to obtain statements from impor-
tant people in the district calling attention to the drive and urging
purchase. These statements are to be issued from time to time in the
local communities.
3. A master speech, five minutes length, is to be prepared
covering the essential points of the drive. This is to be sent to
each community and used and adapted locally for weekly luncheons like
Kiwanis, for local radio announcements and so forth.
4. Executive Managers and Regional Managers are to contact all
financial institutions having radio programs using the master speech
as material with local adaptation. This list of financial institutions
having radio programs is to be obtained from the War Savings Staff.
5. Local spot announcements are to be prepared to be sent to
Executive Managers and Regional Managers for use in contacting local
radio stations.
Regraded Unclassified
- 2 -
51
6. Under a covering letter from the Secretary, or from Mr. Bell,
to editorial writers enlisting their cooperation, there is to be sent
the Secretary's press release of the 19th and the letter to the
workers, referred to above.
7. On or about December 5 or 6, a meeting is to be arranged in
New York so that Mr. Bell can talk to the leading financial writers to
inform them in detail. These writers are to be primarily syndicate
writers.
8. Executive Managers are to arrange meetings between the Presi-
dents of their respective Federal Reserve Banks and the local financial
writers. This will not be done in New York because of the foregoing
paragraph.
9. National figures on the progress of the drive are to be
released for the A.M. papers on December 7. Subsequent releases, the
same kind, will be made at intervals.
10. Mats of one "ad" are to be sent to all banks (15,000) through
the War Savings Staff. This is to be covered by sponsorship from the
American Bankers Association.
11. Mats of six "ads" are to be sent to newspapers on a revised
War Savings Staff list with specific instructions to contact local
Managers and publicity men in regard to sponsorship.
12. Local Managers and publicity directors are to be urged to
contact newspapers and banks for local publicity releases.
Regraded Unclassified
- 3 -
52
13. Executive Managers are to make every effort to organize
Regional Managers, Committees and publicity men to foster all local
publicity possible. This is to be in the individual cities and towns.
14. The possibility of obtaining a news reel is to be explored.
15. A letter to each Salesman of the Victory Fund Committee is
to be prepared for the Secretary's signature. This letter will be
aimed to inspire each man. This will be the subject of a release aimed
to inspire workers and also aimed at prospective purchasers. This to
be ready for Monday, November 30, morning papers.
Harold Thomas:deb
Regraded Unclassified
53
November 23, 1942
5:18 p.m.
Operator:
Miss Tully is not in her office. Miss
Bachelder is there.
HMJr:
Let me have Miss Bachelder.
Operator:
All right. Miss Bachelder.
Toinette
Bachelder:
Yes.
HMJr:
Miss Bachelder?
B:
Yes, Mr. Secretary.
HMJr:
How do you do?
B:
How are you, sir?
HMJr:
Would you - you got a pencil?
B:
Uh huh.
HMJr:
Will you give this note to Grace Tully to
give to the President?
B:
Be glad to.
HMJr:
That I would very much like to have the
President let me sell him the first Victory
Bond.
B:
Uh huh.
HMJr:
Hello?
B:
Yes, sir.
HMJr:
And - before the newsreels...
B:
Uh huh.
HMJr:
.... tomorrow....
B:
Tomorrow....
HMJr:
to have this in all the newsreel theatres
next week.
Regraded Unclassified
54
- 2 -
B:
Uh huh. All right.
HMJr:
And - and this would launch our $9 billion bond
drive.
B:
Uh huh. All right, fine, Mr. Secretary. I'll give
it....
HMJr:
Now wait a minute - and - and I need the President's
help very much.
B:
Uh huh.
HMJr:
And - and if he would approve, why - I'd - oh, yeah,
and tell him I'd try to take it up through Steve
Early but he's out.
B:
Uh huh.
HMJr:
Hello?
B:
Yes, sir.
HMJr:
I tell - I wanted to take it up first through Steve
Early but he - but he's out. But that it would
have to be done tomorrow.
B:
I see.
HMJr:
See?
B:
Yes, sir.
HMJr:
So
B:
Fine, fine.
HMJr:
....will you tell Grace, and I....
B:
I certainly will, Mr. Secretary.
HMJr:
I thank you.
B:
Goodbye. Is there any particular time that....
HMJr:
Well, that'd be up....
Regraded Unclassified
55
- 3 -
B:
It's up to him.
HMJr:
Any time tomorrow that suits the President.
B:
I see. Fine, Mr. Secretary.
HMJr:
Any - any time that - tomorrow that would suit the
President.
B:
Grand, sir.
HMJr:
Thank you.
B:
I'll tell her. Fine. Goodbye.
HMJr:
Goodbye.
Regraded Unclassified
56
November 23, 1942
5:32 p.m.
HMJr:
....in to see me at nine tomorrow morning.
Daniel
Bell:
All right.
HMJr:
Do you think I should get in on the fact that
they out us $2 million dollars in War Bonds
because they said he could do it?
B:
Ah
HMJr:
Or should I keep out of it?
B:
I don't know all the facts yet. I Just got
that hurriedly before I came into the movies,
and....
HMJr:
Well, if - if they want something, then I
should be given a memo at about five minutes
of nine tomorrow if you think I should get in
on it at this stage.
B:
All right, I'm not 80 sure that you ought to
do it, but I'll look into it before.
HMJr:
No - because I understand that somebody's down
the line and they - the upper fellows did not
even - I mean said that they never said such a
thing.
B:
Really.
HMJr:
Some subordinate in Davis' office.
B:
I see. Well, that I don't know, because I just
got out....
HMJr:
Well, if you want me to talk to him, I should
have it by five minutes of nine.
B:
Okay.
HMJr:
Goodnight, Dan.
B:
Yeah, goodnight.
Regraded Unclassified
TREASURY DEPARTMENT
57
INTER OFFICE COMMUNICATION
DATE
November 23, 1942
TO
Secretary Morgenthau
FROM
Ferdinand Kuhn, Jr.
The Army and Navy Journal has requested a statement
from you on "Financing the War" as part of a round-up to
which the President, Secretaries Hull, Stimson and Knox
and others are contributing. The attached article has
been approved by Herbert Gaston and the others on our
publicity committee. We think you should sign it in
view of the importance of the Army and Navy Journal.
Regraded Unclassified
Army and Navy Journal
58
Financing the War
Readers of the Army and Navy Journal need hardly
be reminded that wars are won on the field of battle,
not in the field of finance. But while victory may not
be the result of financial triumphs, defeat might very
well be the result of financial blunders.
The American people, through their representatives
in Congress, have determined to devote one-half of our
total production in the current fiscal year to the business
of winning the war. Our task at the Treasury is to assist
in converting this expression of purpose into an expression
of fact.
The decision to devote one-half of our national
productivity to war will inevitably entail great sacrifices
in our physical comfort and well-being. Wise financial
policy attempts to keep to a minimum the sacrifices that
must be made--by encouraging the fullest practicable
use of our productive resources, by accomplishing a
prompt and adequate diversion of resources from peacetime
to wartime use, by distributing sacrifices among our
citizens with B. maximum of equity and 8. minimum of
hardship, and by causing the fewest possible postwar
Regraded Unclassified
59
- 2 -
dislocations in the economy as 8. whole.
War finance
must impose no burden on the people other than the burden-
of wartime sacrifice they have imposed on themselves
No financial legerdemain can alter the basie fact
the generation which
that those who fight a war must likewise pay for the war.
If one-half of the things we produce are to be devoted
to war, then one half of the income we create should
likewise be devoted to war. The diversion of goods and
services from peacetime to wartime use should should be accom-
panied by a corresponding diversion of purchasing power
from peacetime to wartime use. The failure to enforce
the necessary diversion of money incomes will not increase
the amount of goods and services available for purchase;
it will increase only the prices people must pay for the
same amount of goods and services as before.
The fact that the material and financial sides of
war-making are in reality complementary aspects of the
same problem has often been obscured by the employment
of financial policies running counter to the high goals
we have laid down. Governments at war have been known
to debase the coinage, issue new currency, and rely on
Regraded Unclassified
60
- 3 -
the credit-manufacturing mechanism of the banks to
provide them with the necessary resources to conduct
war. These practices did not reduce by one iota the
sacrifices people were called on to make during the war.
They simply added to the necessary burdens of wartime
sacrifice the wholly unnecessary, arbitrary, and inequitable
burdens of war inflation and postwar deflation, with
their attendant misery and injustice.
Taxes are the ideal method of distributing the costs
of the war consciously, deliberately, equitably. Since
the beginning of the rearmament program, We have increased
tremendously government revenues from taxes. Taxes
were increased twice in 1940, once in 1941, and once
again in 1942. Total tax revenue in the current fiscal
year will amount to about 21 billion dollars. While
this is nearly four times our tax revenue in fiscal 1940,
it is only one-fourth of our estimated expenditures in
this fiscal year. Against the standard of past achievement,
the result is impressive; against the standard of present
needs, however, it is not so impressive. We need still
more tax revenue.
Regraded Unclassified
61
- 4 -
In theory there is no reason why the war cannot
be financed entirely from taxes; in practice, however,
there are many obstacles to doing 80. Any attempt to
increase taxes tenfold from 1941 to 1943, the magnitude
required, would undoubtedly dislocate vital sections
of our economy, discourage individuals and firms from
putting forth their best efforts, drain industry of
necessary depreciation reserves, and work great hardship
on people whose sacrifices might better be invited by
way of a war savings bond than a tax receipt. From the
practical viewpoint, therefore, we must borrow as well
as tax.
Non-inflationary war financing requires, however,
that as much as possible of government borrowings be
directly from the people, and not from the banks. We
must do all we can to avoid either creating new money
or activating old money, but instead we must draw from
the current income stream money that would otherwise
have been spent in buying consumers' goods. Our borrowing
must not add unnecessarily to the total of purchasing
Regraded Unclassified
62
- 5 -
power already in existence; it must transfer from private
to public use the income that is being created by the
war program itself. Only in this way can the Government
check whatever tendency to & price rise it may be
producing by its own spending program.
The purchase of war savings bonds accomplishes
this very purpose. For the most part investments in
these bonds represent savings from current income. This
is particularly true of the investment in war bonds by
workers participating in Payroll Savings Plans, through
which some 23 million individuals are now investing
approximately 8 per cent of their incomes. By January 1
it is hoped 30 million individuals will be investing
regularly 10 per cent of their incomes.
The Treasury is leaving no potential source of
non-inflationary funds untapped. Investments in government
securities by Savings banks and Insurance companies
provide the government with considerable institutional
savings. Such nonbanking purchasers of government issues
as corporations, fiduciaries, and individuals provide
a growing market for both regular and so-called "tap" issues.
Regraded Unclassified
63
- 6 -
Various government trust funds, like social security,
constitute an important additional source of non-inflationary
funds. Finally, Treasury Tax Savings Notes, designed
both for individuals and corporations, provide the
government with the kind of funds it needs by removing
current income from the circulation while tax liability
is accruing.
What the government will not be able to obtain from
the people by way of taxes and savings must come from
the commercial banks. While borrowing from this source
is by no means necessarily inflationary in its conse-
quences, a large part of it could undoubtedly have
precisely that effect. Our policy, therefore, must
be to keep this type of borrowing to an irreducible
minimum, and at the same time employ added measures to
control purchasing power and the supply and prices of
consumer goods.
The overall objective of 8 sound wartime financial
achieve maximim utilyation 7th
policy, I repeat, is to impose no burden on the people
other than the burden of wartime sacrifice they have
nation's Namels while destrubuting the burden and ignitably.
75the attainment of these twin objective As #
Freesury the Treasury's myn tack in cructume.
Regraded Unclassified
64
- 7 -
imposed on themselves. To attain this objective we
?
must redognize frankly that we who fight the war must
likewise Ray for the war.
Regraded Unclassified
Army and Navy Journal
65
Final copy
Financing the War
11-23-42
By Henry Morgenthau, Jr.
Readers of the Army and Navy Journal need hardly
be reminded that wars are won on the field of battle,
not in the field of finance. But while victory may not
be the result of financial triumphs, defeat might very
well be the result of financial blunders.
The American people, through their representatives
in Congress, have determined to devote one-half of our
total production in the current fiscal year to the busi-
ness of winning the war. Our task at the Treasury is to
assist in converting this expression of purpose into an
expression of fact.
The decision to devote one-half of our national
productivity to war will inevitably entail great sacrifices
in our physical comfort and well-being. Wise financial
policy attempts to keep to a minimum the sacrifices that
must be made--by encouraging tho fullest practicable use
of our productive resources, by accomplishing a prompt
and adequate diversion of resources from peacetime to
wartime use, by distributing secrifices among our citizens
with a maximum of equity and a minimum of hardship, and
by causing the fewest possible postwar dislocations in
the economy as a whole.
Regraded Unclassified
66
- 2 -
The diversion of goods and services from peacetime
to wartime use should be accompanied by a corresponding
diversion of purchasing power from peacetime to wartime
use. The failure to enforce the necessary diversion of
money incomes will not increase the amount of goods and
services available for purchase; it will increase only
the prices people must pay for the same amount of goods
and services as before.
The fact that the material and financial sides of
war-making are in reality complementary aspects of the
same problem has often been obscured by the employment
of financial policies running counter to the high goals
we have laid down. Governments at war have been known
to debase the coinage, issue new currency, and rely on
the credit-manufacturing mechanism of the banks to provide
them with the necessary resources to conduct war. These
practices did not reduce by one iota the secrifices
people were called on to make during the war. They
simply added to the necessary burdens of wartime sacrifice
the wholly unnecessary, arbitrary, and inequitable burdens
of war inflation and postwer deflation, with their
attendant misery and injustice.
Regraded Unclassified
67
- 3 -
Taxes are the ideal method of distributing the costs
of the war consciously, deliberately, equitably. Since
the beginning of the rearmament program, we have increased
tremendously government revenues from taxes. Taxes were
increased twice in 1940, once in 1941, and once again in
1942. Total tax revenue in the current fiscal year will
amount to about 21 billion dollars. While this is nearly
four times our tax revenue in fiscal 1940, it is only
one-fourth of our estimated expenditures in this fiscal
year. Against the standard of past achievement, the
result is impressive; against the standard of present
needs, however, it is not 80 impressive. We need still
more tax revenue.
In theory there is no reason why the war cannot be
financed entirely from taxes; in practice, however, there
are many obstacles to doing 80. Any attempt to increase
taxes tenfold from 1941 to 1943, the magnitude required,
would undoubtedly dislocate vital sections of our economy,
discourage individuals and firms from putting forth
their best efforts, drain industry of necessary
depreciation reserves, and work great hardship on people
Regraded Unclassified
68
- 4 -
whose sacrifices might better be invited by way of a
war savings bond than a tax receipt. From the practical
viewpoint, therefore, we must borrow as well as tax.
Non-inflationary war financing requires, however,
that as much as possible of government borrowings be
directly from the people, and not from the banks. We
must do all we can to avoid either creating new money
or activating old money, but instead we must draw from
the current income stream money that would otherwise
have been spent in buying consumers' goods. Our borrow-
ing must not add unnecessarily to the total of purchasing
power already in existence; it must transfer from private
to public use the income that is being created by the
war program itself. Only in this way can the Government
check whatever tendency to 8. price rise it may be
producing by its own spending program.
The purchase of war savings bonds accomplishes
this very purpose. For the most part investments in
these bonds represent savings from current income. This
is particularly true of the investment in war bonds by
workers participating in Payroll Savings Plans, through
which some 23 million individuals are now investing
Regraded Unclassified
69
- 5 -
approximately 8 per cent of their incomes. By January 1
it is hoped 30 million individuals will be investing
regularly 10 per cent of their incomes.
The Treasury is leaving no potential source of
non-inflationary funds untapped. Investments in government
securities by Savings banks and Insurance companies
provide the government with considerable institutional
savings. Such nonbanking purchasers of government issues
as corporations, fiduciaries, and individuals provide
a growing market for both regular and so-called "tap"
issues. Various government trust funds, like social
security, constitute an important additional source of
non-inflationary funds. Finally, Treasury Tax Savings
Notes, designed both for individuals and corporations,
provide the government with the kind of funds it needs
by removing current income from the circulation while
tax liability is accruing.
What the government will not be able to obtain from
the people by way of taxes and savings must come from
the commercial banks. While borrowing from this source
is by no means necessarily inflationary in its conse-
quences, a large part of it could undoubtedly have
Regraded Unclassified
70
- 6 -
precisely that effect. Our policy, therefore, must be
to keep this type of borrowing to an irreducible minimum,
and at the same the employ added measures to control
purchasing power and prices of consumer goods.
The overall objective of 8 sound wartime financial
policy, I repeat, is to achieve maximum utilization of
the nation's resources while distributing the burdens of
sacrifice fairly and equitably. The attainment of these
twin objectives is the Treasury's major task in wartime.
Regraded Unclassified
71
Alternative fiscal methods for reducing attempted
consumption by $16 billion
DRAFT V-a
November 23, 1942
Introductory statement
In formulating a revenue program for 1943, several major objectives
mist be kent in mind. The present memorandum deals with one of those
objectives: the prevention of the inflationary rise in prices and dis-
organization in the distribution of consumer goods that might develop
if too much purchasing power were allowed to remain in the hands of the
public. It does not explore that objective to the point of demonstrating
the amount by which attempted consumption must be reduced during the
coming years. Rather it accepts a figure for this purpose of $16 billion
for calendar 1943 on the basis of present expectations of income, taxes
and savings, and indicates the principal fiscal alternatives by which
attempted consumption might be reduced by $16 billion. It does not go
into the question of non-fiscal methods of immobilizing or reducing
purchasing power.
Obviously since this memorandum does not examine the other major
objectives of wartime fiscal policy or the non-fiscal methods of
inflation control, it cannot by itself be accepted as the basis for a
properly balanced revenue program for 1943. But it does give a number
of alternative possibilities, and by implication suggests 8 number more,
all of which are suitable so far as checking inflation is concerned. The
Regraded Unclassified
72
- 1-a -
differences among these several possibilities are small so far as total
revenue is concerned. The range is only from $24 billion to $27 billion
in the programs given in this memorandum. The close similarity in
amount of revenue tends however to mask the very important qualitative
differences - - differences that may prove decisive when some of the
other major objectives of a revenue program are considered.
I. The problem
The present inflation problem arises from the attempt by individuals
to spend more than the total value (at existing prices) of the available
goode and services. Even if wage rates and farm prices are maintained
at present levels, total income payments to individuals will probably
reach $125 billion in the calendar year 1943. Personal taxes now
immosed by Federal, State, and local governments will take at most $15 bil-
lion of this income, leaving at least $110 billion for individuals to
spend or to save. If voluntary savings were to be maintained at the
level reached in the second quarter of the calendar year 1942, they would
absorb approximately $24 billion. This seems a maximum estimate for
1943, since, without substantial inducement or compulsion, the level of
savings reached during the second quarter of 1942 is not likely to be
much increased in the face of higher taxes, the adjustment of individuale
Regraded Unclassified
73
- 1-b -
to their new higher levels of income, and somewhat higher living costs.
But even with this level of savings, consumers would be trying to
spend $86 billion, while the supply of goods and services will be at
most $70 billion, at present prices. If upward pressure on prices
is to be relieved, the amount that individuals want to spend must be
reduced one way or another by $16 billion.
Regraded Unclassified
74
- 2 -
The attached Table 1 shows the estimated distribution of income
and of attempted consumption for calendar 1943 by net income classes.
The classes shown in the first column of this table are in terms
of statutory net income used for income tax purposes. Similarly, the
number
number of returns is an estimate of the whole of taxpaying units
that there would be if there were no exemptions and if the present
advantage to filing separate returns were retained. The total
number of returns of almost 67 million is therefore approximately
equal to the number of income recipients and is far larger than the
estimated 45 million consumer units, that is, families and single
individuals. Total income, equivalent to a Department of Commerce
income payment figure, is, as indicated above, estimated to be about
$125 billion for the calendar year 1943. Tax exempt interest, other
tax exempt income, and allowable statutory deductions reduce this to
aggregate net income of less than $108 billion. Federal and State
personal
from income taxes payable on this net income and estate and gift
taxes are estimated at $14.3 billion. This figure excludes the post-
war credit part of the Victory tax since most of this will be taken
currently. After personal taxes, individuals will have available
$111 billion of their total income to use for consumption, savings,
and gifts. If individuals were free to use this money as they wished,
they would try to spend $86.3 billion on consumer goods and services.
This estimate for attempted consumption includes the taxes payable on
consumption goods, for example, cigarettes are included at their full
Regraded Unclassified
75
- 3 -
sales price including tax, The last column of Table 1 shows the
amounts of savings and gifts individuals would voluntarily make.
The net income classes over $3,000 include less than g percent
of all returns, but account for 20 percent of total attempted
sumption. Nevertheless, the total attempted consumption of these
groups is only $18 billion, These groups cannot provide the entire
$16 billion reduction in consumption that is necessary to bring the
total attempted consumption down to the level of available goods and
services. We shall have to go farther down in the income scale. How
far must we got Às shown in Table 1, the group under $1,000 net in-
come, though including more than 40 percent of all returns, accounts
for only about as much of the total attempted consumption as the
8 percent of the returns with incomes above $3,000. Even if the
$18 billion attempted consumption by this group were not reduced at
all, there would still remain $68 billion from which the necessary
$16 billion reduction could be achieved. We do not have to impair
minimum subsistence standards in order to achieve the desired
reduction.
The attached Table 2 gives four different methods by which'the
necessary reduction in consumption expenditures might be achieved,
These methods are arranged in the order of progressivity. The last
method Schedule Coult - is designed to show the approximate effect
of a flat rate sales tax sufficiently large to reduce spending by the
required amount.
Regraded Unclassified
76
- & -
While, as noted above, the reduction in consumption can be
achieved without impairing minimam subsistence standards, it is clear
from Table 2 that this will not be easy. The most progressive schedule,
Schedule 0-1, involves a maximum reduction is consumption of 50 percent
for the net income class of $10,000 and over. In the absence of measures
to reduce consumption, individuals in this class would, on the average,
try to spend about $8,800. To achieve the reduction set forth under
Schedule 0-1, it would be necessary to reduce their average actual
consumption to $4,400. The $5,000 to $10,000 net income class would
attempt to spend an average of $4,000. Under Schedule 0-1, it would
be permitted to spend no more than an average of $2,200. The schedule
involves a reduction of as such as 16 percent for the $1,000 to $2,000
net impome class. The 5 percent reduction for the under $1,000 class
is intended to come primarily from single persons and supplementary
earners in that class, rather than from families.
By imposing the reduction in consumption in a less progressive
way, these vary large reductions at the top of the scale can be avoided
but only at the cost of much larger reductions at the bottom. For ex-
ample, if we take the extreme Schedule C-4, the average consumption of
the top group is reduced only from $8,800 to $7,800. Dut the average
consumption of the very lowest group is reduced from $650 to $500, or
by 22 percent from an already inadequate level.
The schedules shown in Table 2 are only & few of the possible
alternative ways of eliminating the discrepancy between what people
Regraded Unclassified
77
Regraded Unclassified
- 5 -
would want to spend and the supply of goods available. This discrepancy
must be eliminated one way or another. Be larger supply of consumer goods
can be made available except by impairing var output. If the discrepancy
is not eliminated by fiscal neasures, it must be eliminated by direct
measures; and if not eliminated by direct measures, it will be eliminated
by inflation.
II. Fiscal methods of solving the inflation proble
There are only two methods by which the amount that people will
try to spend can be reduced to the amount that will be available for
them to buy at existing prices; enough of their income must be taken
avay to reduce attempted consumption to $70 billion, or individuals
must be induced to save enough to reduce attempted consumption to
$70 billion. Some of the direct controls such as price control and
rationing help to stimulate additional saving. This memorandum 1a,
however, concerned with fiscal rather than direct controle.
Withdrawing income reduces the amount individuals vill save as
well as the amount they will attempt to spend. To achieve any given
reduction in consumer spending, it 1s therefore necessary to with-
draw substantially larger anoubte of income than the total desired re-
duction in consumer spending. Stated differently, withdrawal methods
bear on both spending and saving. They therefore bear with partioular
hardship on individuals who are committed to regular forms of savings,
such as the purchase of insurance, the repayment of debt, and the pur-
chase of var savings bonds. Examples of methods that rely primarily
78
- 6 -
on the withdrawal of income include the income tax, various forms of
compulsory lending, and to a very large neasure, a flat rate sales tax.
The problem of fixed savings commitments can be avoided by using
methods designed to reduce spending without, at the same time, reducing
saving. Saving can be made more attractive either indirectly by penalis-
ing extra spending, or directly by giving a premium for saving. Examples
of saving-inducement plans are a progressive rate sales tax, a spendangs
tax, and a combination of a spendings tax with an offset for savings.
4. Plans relving primarily on the withdrawal of income
An indication of the amount that would have to be withdrawn from
income in erder to achieve the desired reduction in spending is given
in Table 3. For Schedule G-1, the most progressive of the four schedules,
the table shows that over $27 billion would have to be withdrawa from
income in order to reduce consumption to the desired level. An example
will show how this figure was derived. For the $5,000 to $10,000 class,
average total income after present taxes is $6,608. The permissible
average consumption is $3,227. This is the average attempted consump-
tion before the additional taxes of individuals with an average income
of $2,984 (obtaned by interpolating in Table 1 between the $2,000 to
$3,000 class and the $3,000 to $4,000 class). a/ If when individuals
have their incomes reduced by additional taxes to $2,984 they spend and
save in the same vay as individuals who before the taxes had an income of
$2,984. then these individuals would have to have their disposable income
w For more detailed information see appendix 1.
Regraded Unclassified
79
- 7 -
reduced to $2,984 by additional taxes of $3,624 in order to induce
them to spend no more than $2,227. This is the assumption that was
made in deriving the estimate of additional taxes needed. The estimate
obtained in this way seems a minirum estimate of the amount of income
that would have to be withdrawn. When individuals have their incomes
reduced by additional taxes, they are reluctant to surrender their
former living standard, They are therefore likely to draw heavily
upon savings and to consume more than individuals who formerly had that
lower income.
The additional taxes required under Schedules 0-2, 0-3, and Calls,
were also derived by making the assumption indicated above. The total
amount of taxes needed decreases as the reduction in consumption is
distributed more regressively because individuals in lower income
groups have a smaller amount of savings on which they can draw than
individuals in the upper income groups. However, as shown in Table 3.
the differences are not very large. Even for Schedule 0.4, the equivalent
of a flat rate sales tax, approximately $24 billion would be needed if
withdrawal of income alone were relied upon. Any method that relies
primarily on the effect of withdrawal of income must therefore withdraw
in the neighborhood of $25 billion to $30 billion at the very least in
order to achieve the necessary reduction in consumption.
1. The income tax
The individual income tax is one of the fairest taxes that has yet
been devised. Differences in marital status and in number of dependents are
Regraded Unclassified
80
- 5
recegnised, exemptions are provided to protect the low income groups,
and the base has been adjusted in the course of many years of develop-
ment to reflect the ability of the individual to pay taxes.
Under existing law, taxes payable to the Federal Government on
calendar 1943 incomes are estimated to total about $11 billion under
the net income tax and another $2 billion under the Victory tax
(after post-war credit.). These taxes alone will take about 25 per-
cent of net income in excess of exemptions allowed under the Revenue
Act of 1942 - $500 for a single individual, $1,200 for a married
couple, and $350 for each dependent. 1/
In order to raise even the minimum additional amount required -
$25 billion - from an income tax with the same exemptions, the
effective tax rate on net income in excess of exemptions would have
to be increased by more than 50 percentage points, or to an aggregate
of about 75 percent. Even if exemptions were reduced to $400 for a
single individual, $800 for a married couple, and $200 for each
dependent, the effective tax rate on net income above exemptions
would have to be increased by almost 40 percentage points, or to an
aggregate of about 60 percent of the larger base. Such tax rates might
call for a still further lowering of exemptions: and the bulk of the
tax would certainly need to be collected at source. Rates that would
be required to raise a total of $38 billion (the yield of the present
income taxes plus $25 billion) with exemptions of $400, $800, and $200,
and to achieve approximately the reduction in consumption of Schedule 0-1
of Table 2, are given in Table 4,
1/ The Victory tax is levied on gross incomes above $624. The 25 percent
figure cited in the text neglects the Victory tax payable on incomes
below the net income tax exemptions.
Regraded Unclassified
81
- 9 -
Table A
Aa individual income tax rate schedule to raise an
aggregate of $38 billion (including the Victory tax
net of the post-war credit) and to achieve approxi-
mately the reduction in consumption indicated in
Schedule 0-1 of Table 2.
(Still in process of preparation)
Regraded Unclassified
82
- 10 -
2. Compulsory lending
In view of the heavy rates of tax and the lower exemptions that
would be required to withdraw enough income, it has often been suge
gested that the money taken away be treated not as a tax but as a
compulsory loan to be repaid after the war. In this way the levy would
have & less detrimental effect upon individual incentive to work
longer or harder, and certain groups would be compensated in the post-
war period for war levies that are considered too heavy as a
permanent burden.
There are, however, serious disadvantages to treating the money
taken away as a compulsery lean, A larger sum would have to be taken
in the form of a compulsory loan than in the form of taxes. Since
individuals would regard the loan to the Government as an asset and a
form of savings and hence would be considerably less hesitant to meet
the loan requirement by reducing other forms of savings or by drawing
on previously accumulated savings. Consequently, if $25 billion is
a minimum estimate of the amount that would be needed through taxes
to accomplish a reduction in consumption of $15 billion, perhaps as
much as $30 billion or #35 billion would be a minimum estimate for the
amount of compalsory lending that would be needed to accomplish the
same reduction.
The rate of levy needed to raise this sun would be heavy. Total
net income after present personal taxes will be about $95 billion. Of
this, perhaps $40 billion would be accounted for by exemptions of $400
Regraded Unclassified
83
- 11 -
for a single person, $800 for a married couple, and $200 for each
dependent, leaving some $55 billion in the tax base. To raise
$30 billion over and above present taxes therefore means an average
effective rate of 54 percent on net income after present taxes and
after exemptions.
The effect of & compulsory lean on the expenditures of any 1n-
come class depends not only on the income and current savings of that
class but also on the amount and distribution of assets owned, 1.0.,
of previously accumulated savings. At all income levels, individuals
will tend to meet a loan requirement, to a much greater degree than a
tax, out of such assets. Their ability to do BO and their willingness
to do so will depend on the amount of assets they already have, the
the case of converting them into cash, and the like. In general, it
seems probable that persons at the higher income levels will be in
a better position to meet the loan requirement out of current and
previously accumulated savings than the lower income groups. Com-
sequently, a. dollar of loan reduces consumption less at all income
levels than a dollar of tax; both reduce consumption more at the lower
income levels than at the higher; but the difference in consumption-
reducing effect between income levels is larger for a loan than for a
tax.
In the absence of information on the amount and distribution of
assets at various income levels, it is extremely difficult to appraise
the relative consumption-reducing effect of a loan at different income
Regraded Unclassified
84
- 12 -
levels, and heace to construct a compulsery lending rate schedule that
will produce the desired distribution of the reduction in consumption.
consumer
The rate schedule presented in Table B, designed to
spending in accordance with Schedule 0-1 of Table 2, was therefore
constructed on the assumption that the difference between income levels
in consumption reducing effect would be much the same for a lean as for
a tax. The consumption reducing effects of the loan were therefore
assumed to be somewhat less than was assumed in deriving the income tax
schedule given in Table 4, but to follow the same pattern. The actual
distribution of the reduction in consumption under such a schedule
would therefore be more regressive than Schedule 0-1.
Regraded Unclassified
85
- 13-
Table- B.
(This table is being revised)
Compulsory lending schedules
to yield 830 billion
(Lending requirement based on income, with no offsets
for other forms of saving)
Married couple, no dependents
-
I
Net income
8
-
brackets w
8
Bracket rates
I
Cusulative amount
(after deduction
#
(percent)
8
of lending
of regular
-
-
income tax)
8
-
8
I
0 - $ 800
0
0
$ 800 - 1,200
40
* 160
1,200 - 1,600
50
360
1,600 - 2,000
60
600
2,000 - 2,400
65
860
2,400 - 3,000
67
1,262
3,000 - 4,000
68
1,942
4,000 - 6,000
$
3.322
6,000 and over
70
-
w
For single persons, brackets would be half the width of those shown;
for families with dependents the width of the breakets would be in-
creased by 25 percent of those shown for each dependent.
Regraded Unclassified
86
- 14 -
A compulsery loan is likely to be less equitable than a tax is
its immediate effect. In the first place, as indicated above, a com-
pulsery loan with the same rate schedule as a tax will be more 16-
gressive in its current effect on consumption standards because the
upper income levels are in a better position to meet the lean out of
other savings or out of previously accumulated savings. In the second
place, because it is a lean rather than a tax there is likely to be
less opposition to imposing it in accordance with a more regressive
schedule. In the third place, a compulsery loan imposes considerable
inequities even anong individuals at the same income level. Persons
with liquid assets can avoid any current reduction in consumption
simply by converting their assets; persons without assets or with
assets that can only be realized OR at a loss are forced to pay
the loan out of reduction of consumption. Consequently, the burden
on two individuals who have the same income and have previously main-
tained the same scale of expenditure may be very different.
Repayment of the loan in the postewar period clearly does not
make the present distribution of the reduction in consumption more
equitable. Its effect is simply to commit the Government to making
specified payments to specified people in the post-war period, although
conditions at that time may call for distribution of different amounts
to different people.
Because of the discrimination under a compulsory leading plan
against persons who cannot easily transfer assete or who have fixed
Regraded Unclassified
87
- 15 -
savings commitments, there will probably be considerable pressure to
provide for offsetting against any lending requirement certain forms
of regular saving such as insurance premiums, repayment of debts, or
purchases of war bonds. This is the pattern that has already been
followed for the post-war credit of the Victory taxe
Providing for any such offsets greatly reduces the effectiveness
of the tax in curtailing spendings. Under a compulsory lending plan
with no offsets, there are at least frictional hindrances to convert=
ing voluntary saving into compulsery lending - insurance policies
must be lapsed, surrendered, or borrowed on, mortgages must be re-
financed, assets must be sold, and the like. But if various forms
of savings are permitted to be taken as a direct offset to the lead-
ing requirement, there are not even frictional hindrances. There is
merely relabelinge What vas formerly called voluntary saving is now
called compulsory lending. It fellows that the rates of a compulsory
lending plan which prevides for offsets for other forms of savings
would have to be heavier than the compulsery lending plan described
above if the same effect on spendings is to be ebtained.
One form of compulsory leading that would require less severe
rates to curtail spending by any desired amount is the payrell tax
under the social security system. In the first plase, the loan under
1/
This difficulty can be overcome to a considerable extent by pro-
viding for only a partial offset of other forms of savings rather
than for a complete offset. (See Section B(3) below.)
Regraded Unclassified
88
- 16 -
the social security system is in general for a considerably longer
period than the loan under most other forms of compulsery leading.
Repayment is scheduled not for immediately after the war, but only
for such a time as the individual reaches a specified age or satisfies
certain other conditions. In consequence, the benefits accruing under
the social security program are not likely to be regarded as as adequate
substitute for voluntary savings. In the second place, payrell taxes
are impesed without exemption and hence bear relatively heavier on the
low income groups with no substantial voluntary savings. While Its
quiring less severe rates, the payroll taxes involve a regressive dis-
tribution of the current reduction in consumption. They are levied
without exemption and at a flat rate apply only to wages and salaries,
and apply only to the first $3,000 of wages and malaries.
3. Flat rate sales tax
& third major type of levy that relies primarily upen the with
drawal of purchasing power is a flat rate sales taxe A flat rate sales
tax would have some incentive effect in making saving more attractive
relatively to spending, but its major effect would be through the with-
drawal of purchasing power. Ualess exemptions were previded it would
be impossible for individuals to escape the tax by curtailing consump-
tion. A considerable part of their spending pewer would necessarily
be drained off. This would be especially true at the lower income
levels where there is insufficient leeway in consumption pattern to
permit the saving incentive effect to be very important.
Regraded Unclassified
89
- 17 -
As the figures for Schedule C-4 in table 3 show, B. flat rate
sales tax operating primarily through withdrawal of income would
have to raise almost $25 billion. If every dollar of consumer spend=
ing--including expenditures on domestic services, professional ser-
vices, and the like--could be subjected to the sales tax, this would
require a 35 percent flat rate. In practice it is impossible to
collect & sales tax from all forms of expenditure. The practical tax
base with a total volume of goods and services at existing prices of
$70 billion is probably not over $50 billion. This would mean that
a 50 percent flat rate tax would be required on those types of expendi-
tures that can be reached.
B. Savings incentive plans
A reduction of about $16 billion in the amount that consumers
will want to spend could at one extreme be achieved without withdraw-
ing any income whatsoever. This could be done if individuals could
be induced one way or another to save an extra $16 billion out of
an unchanged income. The only certain way of accomplishing this
result would be to compel the required amount of savings. Such a
compulsory saving plan would require that each individual save a
specified amount out of his income after allowing for all capital
transactions. Such a plan is very different from compulsory lending
which is a requirement that an individual lend to the Government a
specified amount that might be derived either from income or from the
sale of assets.
Regraded Unclassified
90
- 18 -
It seems impracticable to achieve the objective of compulsory
saving directly by specifying saving requirements. No individual
could know that he had complied with the compulsory saving require-
ment until after the end of the period to which the requirement applied,
since he would know neither his income nor his spending until that
time. In consequence many individuals either deliberately or through
honest error, would fail to comply with the saving requirements. It
would not be feasible to "punish" these individuals except by sano-
tions laid down in advance, which would in effect convert the com-
pulsory saving scheme into expenditure rationing, expenditure taxa-
tion, or compulsory lending.
Short of compelling specified amounts of net savings from indi-
viduals any saving incentive plan will inevitably involve some with-
drawal of income. Indivi dials differ widely in their spending habits.
Incentives that will suffice to reduce the spendings of one individual
to the desired level will not suffice for another. Savings inducement
plans can, however, be constructed so as to involve much withdrawal
of income or relatively little. For this reason it is impossible to
1/
"The required amount of saving could be insured by issuing to all con-
sumers licenses to purchase only to the extent of the expenditures to
which they were entitled; in this case compulsory saving would become
Expenditure Rationing. Alternatively consumers might be required to
pay a regular schedule of penalties for spendings above their exempt
minimum; in this case compulsory saving would become a type of
Expenditure Taxation. Further alternative sanctions for excess spend-
ing are criminal penalties, fines adjusted to the individual circum-
stances, or punitive compulsory lending requirements. The use of any
of these last three sanctions, however, would involve great adminis-
trative difficulties and would cause widespread public resentment."
(Letter of November 10, 1942 to Mr. Byrnes, P. 14).
Regraded Unclassified
91
- 19 -
give any very precise indication of the amount that would have to be
obtained from EL savings inducement plan in order to achieve the desired
reduction in consumption. At the one extreme, it might be possible to
achieve a $15 billion reduction in consumption while withdrawing perhaps
as little as $5 billion. At the other extreme, almost as much might be
needed as under withdrawal of income plans, that is $25 billion or
$30 billion.
A progressive retail sales tax, a spendings tax, and a combination
of a spendings tax with a savings credit are examples of plans that
rely primarily on incentive effect rather than on withdrawal effect.
1. A progressive retail sales tax
Various plans have been suggested for 8. progressive ratail sales
tax either with or without exemptions. Most of these plans involve the
use of coupons. The progressive rates would be handled by selling
at successively higher prices books of coupons to cover purchases in
excess of exemptions. If an exemption were granted, it would be
handled by distributing specified minimum amounts of coupons free of
charge.
Such a plan would involve all of the administrative difficulties
of any retail sales tax, and many others 6.8 well. Careful and
costly registration would be required to prevent persons from obtain-
ing more than one tax-free set of coupons and to prevent persons
from purchasing additional coupons at tax rates lower than those
provided in the schedule. Some multiple registration and evasion
of proper tax payment could not be prevented.
Regraded Unclassified
92
- 20 -
More important, it would be almost impossible to prevent the
transfer of unused stamps--either unused exemption stamps if ex-
emptions were provided, or unused low-rate stamps. Persons who had
no use for the exemption stamps or for low-rate stamps would sell
them to persons whose spendings were larger than the exempt amount
or whose spendings were in higher rate brackets. Such transfers would
be in the mutual interest of both parties. In practice, it would
probably be preferable to permit such transfers freely rather than to
attempt the impossible task of preventing them.
Às with any retail sales tax, it is not feasible to tax certain
classes of expenditures such as expenditures on domestic service, pro-
fessional service, rent, and other similar items. With total spending
of about 870 billion, this means that the base would be not more than
about $50 billion before exemptions. Exemptions would reduce the base
still farther. For example, suppose only J300 of free coupons were
issued to cover expenditures for each adult and $150 for each child.
This would involve the issuance of free coupons covering in the aggre-
gate from $27 billion to $30 billion of expenditures. As indicated
above, practically all of the expenditures covered by free coupons
should be deducted from what would otherwise be the base of the tax,
leaving only $20 billion to $23 billion in the base.
With a base so small, there is little room for progression.
Suppose the first rate bracket is made $300 for each adult and $150
for each child, or the same as the exemptions. This would involve
Regraded Unclassified
93
- 21 -
first bracket coupons covering aggregate spendings of $27 billion
or $30 billion--more than the entire base. The most that would be
feasible, if exemptions were permitted, would therefore be a flat
rate tax above exemptions.
With a base of #20 billion to $23 billion and a necessary reduc-
tion in o onsumption of $16 billion, EL flat rate of 70 percent to 80 per-
cent would be needed if each dollar of tax reduced spending by a
dollar. Conceivably, a lower rate might do in view of the savings
incentive effect of such high rates.
The considerations that limit progressivity if exemptions are
allowed will also limit the possible progression in the absence
of exemptions. A rate bracket of 3300 for each adult and $150 for
each child would account for $27 billion to 830 billion of expendi-
tures. With a total base of 50 billion only about two such rate
brackets would be feasible. There would be many individuals whose
expenditures would be above these two brackets, but most of them
would be able to buy coupons at lower bracket rates from persons whose
expenditures were less than the sum of the two brackets.
The feasibility of a progressive retail sales tax either with or
without exemptions would, therefore, seem to hinge very largely on the
development of a practical plan for preventing the transfer of coupons.
If such BL plan could be developed, the progressive retail sales tax
would deserve serious consideration. It would have the merit of an
ordinary sales tax of collecting the tax bit by bit as the money is spent;
at the same time, it would not have the regressivity that is the major
disadvantage on grounds of equity of the flat rate sales tax.
Regraded Unclassified
94
- 22 -
2. A spendings tax
The spendings tax is an incentive plan very similar to a pro-
gressive rate retail sales tax. A spendings tax would be based
on the total amount that an individual spends in any specified period.
The amount he spends would be computed indirectly by computing the
total funds at his disposal and subtracting all funds used for pur-
poses other than current consumption--for payment of insurance
premiums, repayment of debt, purchase of war bonds or other assets.
Under the spendings tax it would be feasible to include all
types of expenditures, services as well as commodities. The
problem of trafficking in extra coupons would be entirely
avoided. An individual who spends less than the spendings exemp-
tion would have mothing to transfer to other individuals. lie
would merely be subject to no tax. Consequently, the base of the
spendings tax can be very much larger than the base of a progressive
retail sales tax.
The spendings tax would, of course, have administrative dif-
ficulties of its own. The final liability under the spendings tax
would not be determined until after the close of the year. It would
be computed at the same time as the regular income tax and on the
same form. The spendings tax would, however, be of little immediate
value as an anti-inflationary instrument if the actual collection of
the tax were delayed this long. Consequently, the tax will have to
be collected currently during the year by (1) collection at source
Regraded Unclassified
95
- 23 -
from income received in the form of wages and salaries, interest, and
dividends; and (2) quarterly returns for persons with incomes from
other sources and for persons in the higher spendings tax brackets.
The difference between the ultimate liability and the amount col-
lected during the year would be adjusted in the final year-end return.
The quarterly returns would involve a serious administrative
difficulty. So also would the adjustment at the end of the year.
In order to check on the ultimate liability shown on the year-end
return, information would be needed that is not now available for
income tax purposes, for example, information on bank deposits at
the beginning and end of the year, purchases of securities and the
like. One source of looseness for the first year or so of opera-
tion would be the extreme difficulty, if not impossibility, of check-
ing on the amount of cash, as distinguished from bank accounts, in
the hands of individuals at the beginning of the period.
The amount of revenue that will have to be raised by a spendings
tax designed to reduce spending by $16 billion depends on the extent
to which the spendings tax will be paid out of money that would other-
wise have been spent, or out of money that would otherwise have been
saved. With an extremely progressive spendings tax employing high
marginal rates, it is conceivable that spendings would be reduced by
even more than the tax. With a relatively flat low rate spendings tax,
spendings would be reduced by less than the tax. Perhaps the most that
can reasonably be expected is that & dollar of spendings tax will cut
spendings by a dollar, i.e., that none of the spendings tax would be paid
out of money that would otherwise have been saved. If we accept this
Regraded Unclassified
96
- 24 -
assumption that & dollar of tax will reduce spendings by a dollar,
a spendings tax would have to be designed to raise approximately
$16 billion from total spendings of about $70 billion.
Exemptions should be allowed under the spendings tax to protect
minimum standards of living. If the exemptions were $400 for a
single person, $800 for & married couple, and an additional $200
for each dependent, the total amount of spending covered by the
exemptions would be in the neighborhood of $35 billion, or half of
aggregate spendings. This would leave as the base of the spendings
tax $35 billion, implying an effective rate of 46 percent on spend-
inge above exemptions.
In view of the concentration of spendings in the lower brackets,
such an effective rate could be achieved only by a schedule with
relatively marrow brackets at the bottom, a relatively high initial
rate, and steep progression.
Table 0 shows for a married couple with no dependents the
schedule that would be needed to reduce consumption by the whole
of the necessary $16 billion in accordance with Schedule 0-1 of
Table 2. This schedule was derived by assuming that a dollar of tax
will reduce spending by a dollar, not only for all income classes
combined, but also for each income class separately. This implies
that the marginal rates increase just enough to offset the greater
availability of current and previously accumulated savings.
Regraded Unclassified
97
- 25 -
Table C.
(This table is being revised)
Spendings tax schedule required to reduce
consumption by $15 billion
(Married couple, no dependents)
I
I
Spendings
Bracket
brackets w
I
Cumulative
I
rates
tax
I
#
0 - $ 800
0
0
800 - 1,000
20%
$
40
1,000 - 1,200
8
120
1,200 - 1,600
60
360
1,600 - 2,000
100
760
2,000 - 2,400
150
1,360
2,400 - 3,000
200
2,560
3,000 - 4,000
260
5,060
4,000 - 6,000
300
11,060
6,000 - 10,000
350
25,060
10,000 and over
400
-
w
For single persons, brackets will be half of those
shown; for families with dependents, brackets will
be vider than those shown.
Regraded Unclassified
98
- 25 -
Regraded Unclassified
3. Spendings tax combined with savings credit
Under the spendings tax alone as individual who reduces his con-
sumption by the socially desired amount does not necessarily escape
the tax. The spendings tax can be escaped entirely only by reducing
spendings to the level of exemptions. But this involves a more
drastic equalization of spending than is either necessary or desirable.
Even the most progressive schedule of desired reductions in spending
shown in Table 3, schedule 0-1 permitted considerable inequality in
spending. Under this schedule, spendings vary from an average of
$616 for persons with incomes below $1,000 to an average of $4,400
for persons with incomes above $10,000.
Under a plan that is designed primarily to induce savings it
seems reasonable that an individual who reduces his spendings to
the degree desired, should escape all or most of the tax. This ob-
jective sould be accomplished directly by a spendings tax with
variable exemptions, the exemptions being higher the higher the income.
The same objective can be accomplished indirectly by combining
the spendings tax with a credit for savings. For example, & flat
50 percent levy on spendings might be combined with a credit against
the levy equal to 25 percent of the amount of savings. With these
rates if aa individual spent on consumption goods 1/3 of his income,
the not spendings tax would be sero. The tax on his spending would
be 50 percent of 33-1/3 percent, or 1/6 of his income. The credit
fer savings would be 25 percent of 66-2/3 percent, or also 1/6 of
his income. This is equivalent to a spendings tax of 75 percent on
spendings in excess of an exemption of 1/3 of income.
99
- 27 -
Regraded Unclassified
The plan would be more acceptable if the percentage of income
exempt declined as income rese, that is, if the spendings to be
permitted without the payment of the tax were a smaller percentage
of & large income than of a small income. This objective can be
accomplished by using a graduated spendings tax instead of a flat
rate spendings tax while keeping a flat rate credit for saving.
This type of plan permits a very strong savings inducement with
relatively small withdrawal of income. For every dollar that an
individual reduces his consumption, he gains in two ways. First, he
saves the spendings tax on that dollar and second, he gets a credit
of an additional 25 cents for the extra dollar of savings. Con-
sequently, with an initial spendings tax rate of 25 percent, the
marginal effect is at a 50 percent rate since as additional dellar
of savings will save 25 cents in tax and add 25 cente to the savings
credit.
With a 25 percent credit for saving, the spendings tax schedule
in Table D is a rough guess of a schedule that would be sufficient
to reduce consumption by $16 billion in accordance with Schedule 0-1.
of Table 2. The spendings that could be made at various income levels
without the payment of tax under this particular schedule are given
in Table 1.
This combination (Plan I) is estimated to raise approximately
$
billion, 1.0., to reduce spending in the aggregate by $
100
- 28 -
for each dollar of tax revenue. The net result would be to increase
total savings by $
billion, or from about $24 billion to $
billion.
Table 7 shows the estimated distribution of the tax revenue
and the additional savings by net income classes.
Table D.
- 23 -
(This table is being revised)
Spendings tax schedule to reduce consumption
by $15 billion, If combined with a 25 percent
savings credit 1/
Married couple - 20 dependents
I
Brocket rate
Spendings brackets w
(perecat)
Cumulative tax
o - $ 800
e
$
0
800 - 1,200
25
50
1,200 - 1,400
no
130
1,400 - 1,600
60
230
1,600 -
1,000
70
350
1,800 - 2,000
8
490
2,000 - 2,400
100
650
2,400 - 3,000
120
1,090
3,000 - 4,000
150
1.770
4.000 - 5,000
200
3,270
5,000 - 7,000
300
5,270
7.000 - 10,000
400
11,270
10,000 and over
600
23,270
w
Savings is the amount W which not income creeeds the - of
spendings, the income tax and the Victory tax,
2/ Yor single persons, brockets would be half the sise of these
shown: for families with dependents, brackets would be vider
then these shown.
Regraded Unclassified
-29- 29 -
Table E.
101
(This table is being revised.)
26r this could be usde at vartous house levels
of
under
this
are
as
Spendings that could be made without payment of tax,
under Plan I for selected net incomes
(Married couple, no dependents)
Net income after
I
Spendings
I
income and
pessible
Associated
2
I
Victary tax
1
without tax
1
savings
$
800
$
800
#
o
900
850
50
1,000
900
100
1,200
1,000
200
1,400
1,077
323
1,600
1,154
446
1,800
1,227
573
2,000
1,295
707
2,500
1,453
1,047
3,000
1,600
1,400
4,000
1,857
2,143
5,000
2,080
2,920
6,000
2,280
3,720
8,000
2,641
5,359
10,000
2,986
7,014
12,000
3,274
8,726
15,000
3,703
11,297
20,000
4,324
15,676
30,000
5,302
24,698
50,000
6,840
43,160
100,000
9,819
90,181
250,000
15,877
334,123
Regraded Unclassified
102
- 30 -
Table ,
Notimates of revenue and the estimates of additional
and total savings by income classes under the rates
and credit of Table D.
(Still in process of preparation)
Regraded Unclassified
103
Regraded Unclassified
- 31 -
Another modification of the plan that might be desirable would
be to give a credit only for savings in excess of some minimum
standard, since there seems little reason to give a credit for
savings that would be made in any event. In line with the war
bond saving campaign the minimum standard might be made 10 percent
of net income in excess of exemptions. The savings credit might
then be made 25 percent of savings in excess of this sinimum standard.
With this modification and with the mase schedule as before, the
spendings that could be made without the payment of tax would be
lower since the credit against the spendings tax would be less.
Consequently, a somewhat lewer schedule would have the same con-
sumption reducing effect. The amount of spending that could be
made without the payment of the tax would, however, be lewer than
under the first plan. With & 25 percent savings credit of this
type, a tentative schedule to accomplish the desired reduction in
consumption and the spendings that could be made without the pay-
ment of tax are given in Tables G and I.
104
- 32 -
Table 6
Spendings tax schedule to reduce consumption by
$15 billion, if combined with a credit of 25 per-
cent of savings in excess of 10 percent of income
(Still in process of preparation)
Regraded Unclassified
105
- 33 -
Table H
Spendings that could be made without payment of tax,
under Plan II for selected net incomes.
(Still in process of preparation)
Regraded Unclassified
106
- 34 -
This combination (Plan II) is estimated to raise approximately
$
billion; 1.0., to reduce spending by $
for each dellar
of tax revenue. The net result would be to increase savings by
$
billion, or from about $24 billion to $ billion.
Table I shows the estimated distribution of the tax revenue
and the additional savings by net income classes.
Table I
Betimates of revenue and the estimates of additional
and total savings by income classes under the rates
and credit of Table G.
(Still in process of preparation)
Regraded Unclassified
107
- 35 -
It should be noted that under a plan combining a spendings tax
with a savings credit, two persons who spend the mas amount in a
given year but who have different incomes, would pay different amounts
of tax, the person with the larger income, and hence the larger
savings, paying the smaller tax. This could be justified on the
grounds that there are two aspects to the reduction of consumption,
first, the final level of consumption, and second, the extent of
curtailment from former levels. The spendings tax part of the plan
is geared to the absolute amount of spending, imposing a heavier tax
the higher the amount of spending, regardless of former levels. The
savings credit aspects of the plan takes into account the extent of
curtailment and rewards the individuals who reduce consumption by
the largest percentage.
Even though with the same spending this new tax would decrease
as income increased, the retention of the present income tax would
insure that in practically all cases total taxes paid - income tax
and the nov levy - would increase with increasing income.
While the payments made by individuals to the Government under
a plan of this type could conceivably be treated either as a tax
or a compulsory loan, smoh of the effectiveness of the plan in our-
tailing consumption would be destroyed unless it were made a tax not
to be returned.
As under the spendings tax current collection of the levy com-
binang a spendings tax and a savings credit could be accomplished by
Regraded Unclassified
108
- 36 -
a combination of collection at the source and quarterly returns.
Cellection at the source would be somewhat less desirable than under
the spendings tax alone since if the individual spends no more than
the desired amount, he would be subject to no tax and the whole amount
collected at source would have to be refunded to him. Suppose, for
example, that collection at source from income were at the first
bracket spendings tax rate of 25 percent of income in excess of exemp-
tions. At all levels the individual, in order to pay no tax, must
save more than 25 percent of the excess of his income over exemptions.
If his spendings are sufficiently low so that he saves this amount,
he will have no current need for the money collected at source, unless
he has extremely heavy fixed savings commitments. What is collected
at source will in effect be a particular form of savings - in the
form of a Government liability to repay the amount collected. The
extra amount collected could be refunded in the form of a Government
bond.
Quarterly returns would in any event have to be used for the
higher spendings brackets and it might conceivably be desirable to
rely exclusively on quarterly returns.
LS/MFr
11/21/42
Regraded Unclassified
Estimated distribution of turns, total income, net income,
state and Federal personal taxes under the 1942 Act,
consumption and savings and gifts by net income classes
Calemdar year 1943
Net income
:
Number
:
Total
I
Net
: Personal
I
Total
:Attempted:
Savings
classes
:
of
I
income
:
income
1
taxes
1
income
I consump-:
and
(000)
:
returns 1/1
3/
2.
I
V
a
4/
E
after taxes
I
tien
5/1
gifts
Accregate amounts
(thousands)
(millions of dollars)
0 - 1
28,262
20,951
18,414
381
20,570
18,304
2,266
1 - 2
25,302
43,608
38,535
3,495
40,113
33,599
6,514
2 - 3
8,252
23,428
20,238
1,935
21,493
16,449
5,044
3 - 4
2,439
10,040
8,440
1,104
8,936
6,387
2,549
4 - 5
1,069
5,765
4,698
751
5,004
3,309
1,696
5 - 10
1,073
8,524
7,031
1,434
7,090
4,344
2,746
10 and over
448
12,694
10,473
5,200
7,494
3,948
3,546
Total
66,835
125,000
107,829
14,300
110,700
86,340
24,360
Average per return
0 - 1
1
$ 741
# 652
$
13
$ 728
$ 648
1 - 2
$ 80
1
1,723
1,523
138
1,586
1,328
257
2 - 3
1
2,859
2,452
235
2,604
3 - 4
1,993
611
1
4,117
3,460
453
3,664
4 - 5
2,619
1
1,045
5,434
4,436
709
4,725
3,125
1,600
5 - 10
1
7,944
5,553
1,336
10 and over
6,608
4,049
1
2,559
28,335
23,377
11,607
16,728
8,813
7,915
Treasury Department,
November 9, 1942
2/ Number of potential taypaying units if there were no exemptions and if the present advantage to
filing separate returns were retained.
2/
Corresponds to income payments,
Total income less tax exempt income and deductible items: taxes, interest paid, contributions,etc.
109
Includes Federal and State personal income taxes and estate and gift taxes; excludes post-war
credit part of Victory tax.
5/ Includes consumption taxes.
Regraded Unclassit
Table
Attempted consumption, alternative distributions of permissible consumption.
and percentage reduction, by net income classes
Calendar year 1943
Net 1
a
Schedule 0-1
:
Schedule C-2
:
income # Attempted a
Schedule C-3
:
Schedule C-4
2
:
:
classes :consumption: Percent :Permissible: Percent :Permissible: Percent :Permissible: Percent :Permissible
(000) a
irsductionsecnsuptica:reductioa:oonsumptioniraductio:osmpsion:reductioscosumptios
Aggregate amounts (1n millions of dollars)
$ 0 - - 1
18,304
5
17,389
5
17,389
5
17,389
22
14,277
1 - 2
33,599
13
29,231
16
28,223
20
26,879
20
26,879
2 - 3
16,449
23
12,666
25
12,337
25
3 - &
12,337
18
13,488
6,387
32
4,343
30
4,471
25
4,790
16
14. - 5
5.365
3,309
40
1,985
30
2,316
25
2,482
14
2,546
5 - 10
4,344
45
2,389
35
2,524
25
3,258
10 and
13
3.779
3,948
50
1,974
40
over
2,369
25
2,961
12
3,474
Total
86,340
19
69,977
19
69,929
19
70.096
19
70,108
Average per return
$0-1 -
$ 648
5
$ 616
5
$ 616
5
$ 616
22
1 - 2
8 505
1,328
13
1,155
16
1,116
20
1,062
20
1,062
2 - 3
1,993
23
1,534
25
1,495
25
1,495
18
3 - 4
1.634
2,619
y
1,781
30
& - 5
1,833
25
1,964
16
3,125
2,200
40
1,875
30
2,188
25
2,344
14
2,687
5 - 10
4,049
45
2,227
35
2,632
25
3,037
10 and
5,513
13
50
4,406
3,523
&
5,288
over
25
6,610
12
7.755
Treasury Department,
11
November 9, 1942
1/
Schedule a4 represents the approximate effect of a comprehensive flat rate retail sales tax sufficient
to produce the required reduction.
VSV
Regraded Unclassified
Alternative distributions of pervissible consumption, additional taxes required to produce
such distributions, and balances available for gifts and savings by net income classes 1/.
Net
: Total
:
Schedule C-1
:
Schedule C-2
:
Schedule C-3
:
Schedule C-4
in-
I income
I
Permis-: Add1- :Savings
I
Permis-:
Addi-
:Savings
I
Permis-:
Addi-
:Sevings
:
Permis-:
Addi-
:Savings
come
# after
I
sible # tional I and
I
sible : tional :
and
:
sible
:
tional
:
and
:
sible 1 tional : and
classes
: present
: consume-;taxes re-1 gifts
# consump-:taxes TO-1 gifts
: consult: taxes re-1 gifts
: bonsume-:taxes re-: gifts
(000)
I taxes 2
I tion 3/3 quired #
# tion 3/1 quired 1
: tion/3/1 quired 1
: tion 3/1 quired :
Aggregate amounts (in millions of dollars)
:
0 - 1
20,570
17,389
1,616
1,565
17,389
1,616
1,565
17,389
1,616
1,565
14,277
5,294
999
1 - 2
40,113
29,251
5,913
4,969*
28,223
7,092
4,798
26,879
9,202
4,032
26,879
9,202
4,032
2- 5
21,495
12,666
5,914
2,913
12,337
6,565
2,591
12,337
6,565
2,591
15,488
4,635
3,372
5 - 4
8,956
4,345
3,420
1,175
4,471
3,213
1,252
4,790
2,661
1,485
5,365
1,801
1,770
4 - 5
5,004
1,985
2,443
576
2,316
1,924
764
2,482
1,628
894
2,846
991
1,167
5 - 10
7,090
2,389
5,889
812
2,824
3,156
1,150
5,258
2,256
1,596
3,779
1,195
2,116
10 and over
7,494
1,974
4,217
1,503
2,569
5,419
1,706
2,961
2,164
2,569
3,474
1,102
2,918
Total
110,700
69,977
27,412
13,511
69,929
26,965
13,806
70,096
26,072
14,552
70,108
24,218
16,374
Average per return
$
0 - 1
$ 728
$ 615
$ 58
$ 55
$ 615
$ 58
$ 55
$ 615
$ 58
$ 55
$ 505
$ 187
$ $6
1 - 2
1,585
1,155
254
196
1,115
280
190
1,062
564
159
1,062
564
159
2 - 3
2,604
1,535
716
353
1,495
795
314
1,495
795
514
1,685
560
409
5 - 4
3,664
1,781
1,402
481
1,853
1,518
515
1,964
1,091
609
2,200
758
726
4 1. - 5
4,725
1,874
2,307
544
2,187
1,827
721
2,344
1,537
844
2,687
936
1,102
5 - 10
6,608
2,227
3,624
757
2,632
2,925
1,053
3,056
2,084
1,488
10 and over
5,522
16,728
4,406
1,114
9,415
1,972
2,909
5,288
7,652
5,808
6,610
4,830
5,288
7,755
2,460
6,513
Regraded Unclassified
Treasury Department,
November 11, 1942
1/
Additional taxes required computed by assuming that as individual with a specified amount of income after additional taxes will spead
and save the name amounts as the individual who had the same amount of income after existing taxes, The distribution of income after
eristing taxes between spending and saving is shows in Table 1.
111
From Table 1.
From Table 2.
WSV
112
iginal sent out from Mr. Kilby's office
11/23/42.
(File and extra copies - Mr. Kilby)
Photo file in Diary.
THE SECRETARY OF THE TREASURY
WASHINGTON
NOV 23 1942
Dear Mr. Broughton:
As a war measure, and in view of the circumstances and
conditions set forth in your memorandum to me of November 7, 1942,
particularly the delay in discovering excess holdings and notifying
owners, which, although necessary because of the tremendous volume
of transactions as a result of the war, cannot be readily explained
to the public, has caused some ill will, and if continued would
doubtless have an adverse effect on the War Savings Program:
It is ordered that holdings of United States Savings Bonds
of Series E which are not in excess of $5,000, purchase price, and
holdings in bonds of Series F and G of amounts not more than $1,000
(issue price) in excess of the limit be disregarded, except in cases
where the owner has voluntarily reported or submitted the excess
for adjustment. It is further ordered that the Department continue
to maintain cumulative records of each individual's holdings, but
that the Division of Loans and Currency confine the cross reference
of coownership stubs of Series E to those of the $1,000 denomination.
Until further notice, bonds of these series presented for
payment shall be paid at the redemption value current at the time
of presentation without reference to a possible excess, unless the
bonds are presented for the purpose of eliminating an excess, or
Regraded Unclassified
- 2 -
unless from the circumstances it appears probable that an excess
holding arose through intent to violate the regulations. If an
investigation in such case shall disclose that the excess was in
fact willfully created, payment of such excess shall be made only
at issue price.
This whole problem should be reexamined after the
termination of the war with a view to determining the advisability
of formally confirming holdings then existing in savings bonds of
all series issued on and after May 1, 1941.
Very truly yours,
(Secretary of the Treasury.
Mr. Wm. S. Broughton,
Commissioner of the Public Debt,
Treasury Department.
Regraded Unclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
NOV - 7 1942
TO
The Secretary
(Through the Under Secretary)
FROM Comissioner of Public Debt
The administrative work entailed in searching files for
excess holdings of War Savings Bonds of Series E, making cross
reference in cases of coownership of the large denomination bonds,
and especially in preparing the necessary correspondence and conduct-
ing the transactions required to adjust these excesses on the present
inflexible basis, is rapidly becoming an almost impossible burden.
This work could be conveniently done and was done for earlier series,
and for this reason, it may be argued that we have assumed at least
& moral duty to notify holders of any excess they may have acquired.
However, because of the greatly increased volume of sales
as a result of the war, and its relatively limited personnel, the
Division of Loans and Currency was only recently able to complete
the search of stubs of War Savings Bonds of Series E-1941 sold up
to and including December 1941, which revealed 9,000 cases of excess
holdings in bonds of that series on which steps have not yet been
taken to correspond with the owners, in addition to cases already
adjusted or in which action is pending. The Department is therefore
almost 10 months behind in policing holdings and, moreover, there
are a considerable number, on the average of about 500 a month, of
excess cases which are voluntarily submitted by owners. It is
Regraded Unclassified
- 2 -
obvious, therefore, that the Department is no longer able to discharge
its moral duty to notify holders of excess cases in a manner which is
either consonant with the efficient handling of its other operations
or satisfactory to the public.
Because of the necessary delay in settling cases of this
sort, considerable 111 will has arisen on the part of the purchasers
which has had and will continue to have an increasingly adverse effect
on sales, unless the situation is remedied.
Finally, most cases of excess holdings arise through ignorance
of the limitation which is computed on maturity value rather than issue
price, ignorance of the regulations as to bonds held in coownership,
which provide that each coowner is charged for the full amount of the
bonds held thereunder, through purchases in coownership form by other
persons without the knowledge of the owner whose holdings are being
examined, or as a result of enthusiasm, and of increasing sales pressure,
which is being exerted so constantly. In other words, by far the
greater majority of excess holdings do not constitute willful attempts
to evade the regulations.
For these reasons, I make the suggestions incorporated in
the attached proposed letter from the Secretary to the Commissioner
of the Public Debt:
Regraded Unclassified
- 3 -
(1) That the Department continue to maintain cumilative
records of each individual's holdings, but that the
Division of Loans and Currency be ordered to cross
reference coownership stubs only on bonds of $1,000
(maturity value), and to disregard cases involving
holdings which are not in excess of $5,000, purchase
price. It should be understood, however, that where
voluntary submission is made by a holder in excess,
the Department should continue to adjust the case in
accordance with present practice;
(2) That the Division of Loans and Currency be ordered
to disregard cases involving holdings in bonds of
Series F and G of amounts not more than $1,000,
issue price, in excess of the prescribed limit,
provided, of course, that the owner does not volun-
tarily submit his case to the Department for adjust-
ment. Although the settlement of excess cases in
bonds of these series does not present a problem
nearly so acute as that which confronts the Depart-
ment with respect to bonds of Series E, I believe
that this proposal is necessary for the orderly
administration of excess cases as a whole, as well
Regraded Unclassified
- 4 -
as to place holders of all series on as nearly an
equal footing as possible;
(3) That as a necessary corollary of the foregoing, in
all excess cases, not reported by the holder or
brought to his attention by the Department prior
to the presentation of the bonds for payment,
redemption, whether at or before maturity, be made
at the redemption value current at the time the
bonds are presented for payment, provided it does
not appear that there has been a willful attempt
on the part of the holder to evade the regulations.
By continuing, in accordance with present practice, to adjust
cases voluntarily submitted, the Department would appear to be imposing
a penalty on those who are honest enough to report the excess. However,
a line more or less arbitrary in the final analysis must be drawn some-
where and the penalty is more apparent than real, in view of the fact
that the Department offers as an adjustment of excess holdings of
Series E, bonds of Series F and G, in most cases bearing the same issue
dates as the bonds surrendered to eliminate the excess, or Series E
bonds with subsequent year dating.
Regraded Unclassified
- 5 -
I - also submitting herewith for your approval an amendment
to Department Circular No. 530, Fifth Revision, which would give effect
to several changes which seem to be highly desirable at this time. The
provision therein for a change in the method of computation of holdings
in bonds of Series E will in itself render unnecessary the adjustment
of a large number of excess cases discovered by the Department but still
outstanding, and will eliminate a large portion of such holdings which
could otherwise normally be expected.
I believe that your approval of the recommendations made herein
and of the proposed amendment to the regulations is necessary if our war
financing operations are to be maintained on an efficient basis. It will
to a great extent offset the present ill will, which is becoming increas-
ingly evident, on the part of bondholders, not only as a result of the
delay in adjusting excess cases but also on account of the rather complex
procedure necessary for that purpose. It will also be productive, I an
convinced, of increased sales and will save the Department substantial
administrative expense with a corresponding release of personnel for
other important work.
Mym
Attachment.
Heurs ok
Regraded Unclassifie
120
TITLE 31 - MONEY AND FINANCE
CHAPTER II - FISCAL SERVICE
SUBCHAPTER B - BUREAU OF THE PUBLIC DEBT
PART 315 - REGULATIONS GOVERNING UNITED STATES SAVINGS BONDS
1942
First Amendment to
Department Circular No. 530,
TREASURY DEPARTMENT,
Fifth Revision, dated
Office of the Secretary,
June 1, 1942.
November 23,1942.
-
Fiscal Service
Bureau of the Public Debt
To Owners of United States Savings Bonds, and Others Concerned:
Sections 315.10, 315.29, and 315.35 of Department Circular No. 530,
Fifth Revision, dated June 1, 1942 (7 F. R. 5158), are hereby revised
to read as follows:
"Sec. 315.10. Calculation of amount.- In computing the amount of
savings bonds of any one series issued during any one calendar year
held by any one person at any one time for the purpose of determining
whether the amount is in excess of the authorised limit as set forth
in the next preceding section, the following rules shall govern:
(a) The holdings of each person, as defined in the next
preceding section, individually and in a fiduciary
capacity, shall be computed separately.
(b) In the case of bonds of Series A, B, c, D and E, the com-
putation shall be based upon maturity values. In the case
of bonds of Series F and G, the computation shall be based
upon issue prices.
1/ The following sections, as amended, are prescribed under the authority
of R.S. 161 (U.S.C. title 5, sec. 22), The Second Liberty Bond Act,
as amended, and The Public Debt Act of 1941.
Regraded Unclassified
121
- 2 -
(c) There must be taken into account (1) all bonds originally
issued to and registered in the name of that person alone;
(2) all bonds originally issued to and registered in the
name of that person as a coowner or reissued to add his
name as coowner under the provisions of Section 315.29 (a),
or to designate him as coowner instead of as a beneficiary
under the provisions of Section 315.35 hereof: Provided,
however, that with respect to bonds of Series M held in
coownership form, the amount thereof may be applied to the
holdings of either of the coowners, but will not be applied
to both, or the amount may be apportioned between them; and
(3) all bonds acquired by him before March 1, 1941, upon
the death of another or the happening of any other event.
(d) There need not be taken into account (1) bonds of which that
person is merely the designated beneficiary; (2) those in
which his interest is only that of a beneficiary under &
trust; or (3) those to which he is entitled as an heir or
legatee of the deceased registered owner, or by virtue of
the termination of a trust or the happening of any other
event unless he became entitled to any such bonds in his own
right before March 1, 1941.
(e) Nothing herein contained shall be construed to invalidate any
holdings within, or, except as provided in subsection (c) above,
to validate any holdings in excess of, the authorised limits, as
Regraded Unclassified
122
- 3 -
computed under the regulations in force at the time such holdings
were acquired."
"Sec. 315.29. Reissue for certain purposes. - A savings bond of
any series registered in the name of one person in his own right, or
to which one person is shown to be entitled in his own right under
these regulations, may be reissued upon appropriate request for the
following purposes:
(a) Addition of coowner.- Reissue in the name of the owner
with that of another natural person as coowner, provided
that bonds reissued in accordance with this subsection
will be considered for the purposes of computation of
holdings under Subpart D of these regulations as originally
issued in both names and no reissue will be effective
which results in any one person holding bonds in excess
of the established limitation for the series to which the
bonds belong. Requests for reissue under this subsection
should be made on Form PD 1762.
(b) Addition of & beneficiary.- Reissue in the name of the
owner with the name of another natural person as designated
beneficiary. Applications for reissue under the provisions
of this subsection should be made on Form PD 1077.
(e) Reissue in living trust. Reissue in the name of a trustee
of & living trust created by the registered owner, after
the original issue date of the bond, for his benefit in
Regraded Unclassified
123
- 4 -
whole or in part, during his lifetime whether or not con-
taining an absolute power of revocation in the grantor;
but such reissue will be allowed only in the case of bonds
of those series which may be originally issued in the name
of a trustee."
"Sec. 315.35. Reissue during the lifetime of registered owner.-
A bond registered in the name of one person payable on death
to another may be reissued, on the duly certified request of the
registered owner, to name a beneficiary designated on the bond
as coowner subject to the same restrictions and conditions con-
tained in Section 315.29 (a). A bond may also be reissued
upon the duly certified request of the registered owner,
together with the duly certified consent of the designated
beneficiary, to eliminate such beneficiary or to substitute
another person as beneficiary, or to name another person as
coowner. Requests should preferably be made upon the forms
provided for such purpose."
Secretary of the Treasury.
Regraded Unclassified
124
FORITA
UNITED STATES OF AMERICA
2-1/2 PERCENT TREASURY BONDS OF 1963-68
ted and bearing interest from December 1, 1942
Due December 15, 1968
REDEEMABLE AT THE OPTION OF THE UNITED STATES AT PAR AND ACCRUED INTEREST ON AND
AFTER DECEMBER 15, 1963
Interest payable June 15 and December 15
1942
TREASURY DEPARTMENT,
Department Circular No. 701
Office of the Secretary,
Washington, November 30,1942
Fiscal Service
Bureau of the Public Debt
I. OFFERING OF BONDS
1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions, at par and accrued interest,
from the people of the United States for bonds of the United States, designated
2-1/2 percent Treasury Bonds of 1963-68. These bonds will not be available for sub-
scription, for their own account, by commercial banks, which are defined for this
purpose as banks accepting demand deposits. The amount of the offering is not
specifically limited.
II. DESCRIPTION OF BONDS
1. The bonds will be dated December 1, 1942, and will bear interest from that
date at the rate of 2-1/2 percent per annum, payable on a semiannual basis on June
15 and December 15, 1943, and thereafter on June 15 and December 15 in each year
until the principal amount becomes payable. They will mature December 15, 1968,but
may be redeemed at the option of the United States on and after December 15, 1963,
in whole or in part, at par and accrued interest, on any interest day or days, on 4
months' notice of redemption given in such manner as the Secretary of the Treasury
shall prescribe. In case of partial redemption the bonds to be redeemed will be
determined by such method as may be prescribed by the Secretary of the Treasury.
Regraded Unclassified
125
FORM A
- 2 -
From the date of redemption designated in any such notice, interest on the bonds
called for redemption shall cease,
2. The income derived from the bonds shall be subject to all Federal taxes,
now or hereafter imposed. The bonds shall be subject to estate, inheritance, gift
or other excise taxes, whether Federal or State, but shall be exempt from all taxa-
tion now or horeafter imposed on the principal or interest thereof by any State,
or any of the possessions of the United States, or by any local taxing authority.
3. The bonds will not be acceptable to secure deposits of public moneys be-
fore December 1, 1952; they will not bear the circulation privilege, and they will
not be entitled to any privilege of conversion.
4. Bearer bonds with interest coupons attached will be issued in denominations
of $500, $1,000, $5,000, $10,000 and $100,000. Bonds registered as to principal and
interest will be issued in denominations of $500, $1,000, $5,000, $10,000, $100,000
and $1,000,000. Provision will be made for the interchange of bonds of different
denominations and of coupon and registered bonds, and for the transfer of registered
bonds, under rules and regulations prescribed by the Secretary of the Treasury,
except that they may not, before December 1, 1952, be transferred to or be held by
commercial banks, which are defined, for this purpose, as banks accepting demand
deposits. However, the bonds may be pledged as collateral for loans, including
loans by commercial banks, but any such bank acquiring such bonds before Decem-
ber 1, 1952, because of the failure of such loans to be paid at maturity will be
required to dispose of them in the samo manner as they dispose of other assets
not eligible to be owned by banks.
5. Any bonds issued hereunder which upon the death of the owner constitute
rart of his estate, will be redeemed at the option of the duly constituted repre-
entatives of the deceased owner's estate, at par and accrued interest to date of
Regraded Unclassified
126
FORM A
- 3 -
payment, Provided:
(a) that tho bonds were actually owned by the decedent at the
time of his death; and
(b) that the Secretary of the Treasury be authorized to apply
the entire proceeds of redemption to the payment of Federal
estate taxes.
Registered bonds submitted for redemption herounder must be duly assigned to "The
Secretary of the Treasury for redemption, the proceeds to be paid to the Collector
of Internal Revenue at
for credit on Federal estate taxes due
from estate of
ET Owing to the periodic closing of the trans-
fer books and the impossibility of stopping payment of interest to the registered
owner during the closed period, registered bonds received after the closing of the
books for payment during such closed period will be paid only at par with a de-
duction of interest from the date of payment to the next interest payment date;
onds received during the closed period for payment at a date after the books re-
open will be paid at par plus accrued interest from the reopening of the books to
the date of payment. In either case checks for the full six months interest due
on the last day of the closed period will be forwarded to the owner in due course.
All bonds submitted must be accompanied by Form PD 1782, properly completed, signed
and sworn to, and by a certificate of the appointment of the personal representa-
tives, under seal of the court, dated not more than 6 months prior to the submis-
sion of the bonds, which shall show that at the date thereof the appointment was
still in force and effect. Upon payment of the bonds appropriate memorandum re-
ceipt will be forwarded to the representatives, which will be followed in due
course by formal receipt from the Collector of Internal Revenue.
1/ An exact half-year's interest is computed for each full half-year period irre-
spective of the actual number of days in the half year. For a fractional part of
any half year, computation is on the basis of the actual number of days in such
alf year.
2/ The transfer books are closed from May 16 to June 15, and from November 16 to
December 15 (both dates inclusive) in with your.
3/ Copies of Form PD 1782 may be obtained from any Federal Reserve Bank or from
the Treasury Department, Washington, D. C.
Regraded Unclassified
127
Form
- 4 -
6. Except as provided in the preceding paragraphs, the bonds will be sub-
ject to the general regulations of the Treasury Department, now or hereafter pre-
scribed, governing United States bonds.
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve Banks and Branches
and at the Treasury Department, Washington. Banking institutions and socurities
dealers generally may submit subscriptions for account of customers, but only the
Federal Reserve Banks and the Treasury Department are authorized to act as offi-
cial agencies. Subscriptions must be accompanied by payment in full for the
amount of bonds applied for.
2. The Secretary of the Treasury reserves the right to reject any subscrip-
tion, in whole or in part, to allot less than the amount of bonds applied for, and
to close the books as to any or all subscriptions at any time without notice; and
any action he may take in these respects shall be final. Subject to these reserva-
tions, all subscriptions will be allotted in full. Allotment notices will be sent
out promptly upon allotment.
IV. PAYMENT
1. Payment at par and accrued interest, if any, for bonds allotted horcunder
must be made on or before December 1, 1942, or on later allotment. One day's
accrued interest is $0.068 per $1,000. Any qualified depositary will be permitted
to make payment by credit for bonds allotted to its customers up to any amount for
which it shall be qualified in excess of existing deposits, when so notified by
the Federal Reserve Banksof its District.
V. GENERAL PROVISIONS
1. As fiscal agents of the United States, Federal Reserve Banks are author-
ized and requested to receive subscriptions, to make allotments up to the amounts
indicated by the Secretary of the Treasury to the Federal Reserve Banks of the
Regraded Unclassified
FORM *
128
- 5 -
respective Districts, to issue allotment notices, to receive payment for bonds
allotted, to make delivery of bonds on full-paid subscriptions allotted, and
they may issue interim receipts pending delivery of the definitive bonds.
2. The Secretary of the Treasury m.y at any time, or from time to time,
prescribe supplemental or amendatory rules and regulations governing the offer-
ing, which will be communicated promptly to the Federal Reserve Banks.
HENRY MORGENTHAU, JR.,
Secretary of the Treasury.
Regraded Unclassified
POIM 6
129
UNITED STATES OF AMERICA
7/8 PERCENT TREASURY CERTIFICATES OF INDEBTEDNESS OF SERIES E-1943
Dated and bearing interest from December 1, 1942
Due December 1, 19-3
1942
TREASURY DEPARTMENT,
Department Circular No. 703
Office of the Secretary,
Washington, November 30, 1942.
Fiscal Service
Bureau of the Public Debt
I. OFFERING OF CERTIFICATES
1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Burd Act, as amended, invites subscriptions, at par and accrued interest,
from the people of the United States for certificates of indebtedness of the
United States, designated 7/8 percent Treasury Certificates of Indebtedness of
Series E-1943. The amount of the offering is not specifically limited, although
allotments to commercial banks, which are defined for this purpose as banks
accepting demand deposits, for their own account will be limited to $2,000,000,000,
or thereabouts. The books will be open today and until further notice for the
receipt of subscriptions from others than commercial banks for their own account,
and on December 16, December 17 and December 18 for the receipt of subscriptions
from commercial banks for their own account.
II. DESCRIPTION OF CERTIFICATES
1. The certificates will be dated December 1, 1942, and will bear interest
from that date at the rate of 7/8 percent per annum, payable semiannually on
June 1 and Docember 1, 1943. They will mature December 1, 1943, and will not be
subject to call for redemption prior to maturity.
2. The incomo derived from the certificates shall be subject to all Federal
taxes, now or hereafter imposed. The certificates shall be subject to estate,
inheritance, gift or other excise taxes, whether Federal or State, but shall be
exempt from all taxation now or hereafter imposed on the principal or interest
thereof by any State, or any of the possessions of the United States, or by any
local taxing authority.
Regraded Unclassified
PORT: 6
- 2 -
130
3. The certificates will be acceptable to secure deposits of public moneys,
They will not be acceptable in payment of taxes and will not bear the circulation
privilege.
4. Boarer certificates with two interest coupons attached will be issued in
donominations of $1,000, $5,000, $10,000 and $100,000. The certificates will not
be issued in registered form.
5. The certificates will be subject to the general regulations of the Treas-
ury Department, now or horeafter prescribed, governing United States certificates.
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve Banks and Branchos
and at the Treasury Department, Washington. Subscribors must agree not to soll or
otherwise dispose of their subscriptions, or of the securities which may be
allotted thoreon, prior to Docember 19, 1942. Banking institutions and securities
dealers generally may submit subscriptions for account of customers, but only the
Federal Reserve Banks and the Treasury Department are authorized to act as official
agencies. Others than banking institutions and securities dealers will not be per-
mitted to enter subscriptions except for their own account. Subscriptions from com-
mercial banks for their own account will be received without deposit. All other
subscriptions must be accompanied by payment in full for the amount of certificates
applied for.
2. The Secretary of the Treasury reserves the right to reject any subscrip-
tion, in whole or in part, to allot less than the amount of certificates applied
for, and to close the books as to any or all subscriptions at any time without
notice; and any action he may take in these respects shall be final. Subject to
these reservations, subscriptions for amounts up to and including $100,000 from com-
mercial banks, and subscriptions in any amount from fill other subscribers, will be
llotted in full; subscriptions for amounts over $100,000 from commercial banks will
be allotted on an equal percentage basis, to be publicly announced. Allotment
notices will be sent out promptly upon allotment.
Regraded Unclassified
FORM
131
- 3 -
IV. PAYMENT
1. Payment at par and accrued interest, if any, for certificates allotted
hereunder to or for the account of others than commercial banks must be made on
or before Decomber 1, 1942, or on lator allotment. Payment at par and accrued
interest to December 28, 1942, for certificates allotted horeunder to commercial
banks must be made on that date. One day's accrued interest is $0.024 por $1,000.
Any qualified depositary will be permitted to make payment by credit for certifi-
cates allotted to it for itself and its customers up to any amount for which it
shall be qualified in excess of existing deposits, when so notified by the Federal
Reserve Built of its District.
V. GENERAL PROVISIONS
1. Ao fiscal agents of the United States, Federal Reserve Banks are author-
ized and requested to receive subscriptions, to make allotments on the basis and
up to the amounts indicated by the Secretary of the Treasury to the Federal Re-
serve Banks of the respective Districts, to issue allotment notices, to receive
payment for certificates allotted, to make delivery of certificates on full-paid
subscriptions allotted, and they may issue interim receipts pending delivery of
the definitive certificates,
2. The Secretary of the Treasury may at any time, or from time to time, pre-
scribe supplemental or amendatory rulos and regulations governing the offering,
which will be comminicated promptly to the Federal Receive Banks.
HENRY MORGENTHAU, JR.,
Secretary of the Treasury.
Regraded Unclassified
PORM B
132
UNITED STATES OF AMERICA
1-3/4 PERCENT TREASURY BONDS OF 1948
Dated and bearing interest from December 1, 1942
Due June 15, 1948
Interest payable June 15 and December 15
TREASURY DEPARTMENT,
1942
Office of the Secretary,
Department Circular No. 702
Washington, November 30, 1942,
Fiscal Service
Bureau of the Public Debt
I. OFFERING OF BONDS
1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, as amended, invites subscriptions, at par and accrued interest,
from the people of the United States for bonds of the United States, designated
1-3/4 percent Treasury Bonds of 1948. The amount of the offering is not specifi-
cally limited, although allotments to commercial banks, which are defined for this
purpose as banks accepting demand deposits, for their own account will be limited
to $2,000,000,000, or thereabouts. The books will be open today and until further
notice for the receipt of subscriptions from others than commercial banks for their
own account, and today, December 1 and December 2 for the receipt of subscriptions
from commercial banks for their own account.
II. DESCRIPTION OF BONDS
1. The bonds will be dated December 1, 1942, and will bear interest from
that date at the rate of 1-3/4 percent per annum, payable on a semiannual basis on
June 15 and December 15, 1943, and thereafter on June 15 and December 15 in each
year until the principal amount becomes payable. They will mature June 15, 1948,
and will not be subject to call for redemption prior to maturity.
2. The income derived from the bonds shall be subject to all Federal taxes,
now or hereafter imposed. The bonds shall be subject to estate, inheritance, gift
Regraded Unclassified
PORIT D
2 -
133
or other excise taxes, whether Federal or State, but shall be exempt from all taxa-
tion now or hereafter imposed on the principal or interest thereof by any State,
or any of the possessions of the United States, or by any local taxing authority.
3. The bonds will be acceptable to secure deposits of public moneys, but will
not bear the circulation privilege and will not be entitled to any privilege of
conversion.
4. Bearer bonds with interest coupons attached will be issued in denominations
of $500, $1,000, $5,000, $10,000 and $100,000. Bonds registered as to principal
and interest will be issued in denominations of $500, $1,000, $5,000, $10,000,
$100,000 and $1,000,000. Provision will be made for the interchange of bonds of
different denominations and of coupon and registered bonds, and for the transfer
of registered bonds, under rules and regulations prescribed by the Secretary of
the Treasury.
5. The bonds will be subject to the general regulations of the Treasury
Department, now or hereafter prescribed, governing United States bonds.
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve Banks and Branches
and at the Treasury Department, Washington. Subscribers must agree not to sell or
otherwise dispose of their subscriptions, or of the securities which may be allotted
thereon, prior to December 3, 1942. Banking institutions and securities dealers
generally may submit subscriptions for account of customers, but only the Federal
Reserve Banks and the Treasury Department are authorized to act as official agencies,
Others than banking institutions and socurities dealers will not bu permitted to
enter subscriptions except for their own account. Subscriptions from commercial
banks for their own account will be received without deposit. All other subscrip-
tions must be accompanied by payment in full for the amount of bonds applied for,
2. The Secretary of the Treasury reserves the right to reject any subscrip-
tion, in whole or in part, to allot less than the amount of bonds applied for, and
Regraded Unclassified
FORM B
- 3 -
134
0 close the books as to any or all subscriptions at any time without notice; and
any action he may take in these respects shall be final. Subject to these reserva-
tions, subscriptions for amounts up to and including $100,000 from commercial banks,
and subscriptions in any amount from all other subscribers, will be allotted in
full; subscriptions for amounts over $100,000 from cemmercial banks will be allotted
on an equal percentage basis, to be publicly announced. Allotment notices will be
sent out promptly upon allotment.
IV. PAYMENT
1. Payment at par and accrued interest, if any, for bonds allotted hereunder
to or for the account of others than commercial banks must be made on or before
December 1, 1942, or on later allotment. Payment at par and accrued interest to
December 11, 1942, for bonds allotted hereunder to commercial banks must be made
on that date. One day's accrued interest is $0.048 per $1,000. Any qualified
depositary will be permitted to make payment by credit for bonds allotted to it
for itself and its customers up to any amount for which it shall be qualified in
excess of existing deposits, when so notified by the Federal Reserve Bank of its
District.
V. GENERAL PROVISIONS
1. Às fiscal agents of the United States, Federal Reserve Banks are author-
ised and requested to receive subscriptions, to make allotments on the basis and
up to the amounts indicated by the Secretary of the Treasury to the Federal Reserve
Banks of the respective Districts, to issue allotment notices, to receive payment
for bonds allotted, to make delivery of bonds on full-paid subscriptions allotted,
and they may issue interim receipts pending delivery of the definitive bonds.
2. The Secretary of the Treasury may at any time, or from time to time, pre-
scribe supplemental or amendatory rules and regulations governing the offering,
hich will be communicated promptly to the Federal Reserve Banks.
HENRY MORGENTHAU, JR.,
Secretary of the Treasury.
Regraded Unclassified
135
JOINT STATEMENT OF THE COMPTROLLER OF THE CURRENCY,
THE FEDERAL DEPOSIT INSURANCE CORPORATION. THE BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM, AND THE EXECUTIVE COMMITTEE OF THE
NATIONAL ASSOCIATION OF SUPERVISORS OF STATE BANKS.
The Comptroller of the Currency, the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System, and
the Executive Committee of the National Association of Supervisors of
State Banks make the following statement of their examination and super-
visory policy with special reference to investments in and loans upon
Government securities.
1. There will be no deterrents in examination or supervisory
policy to investments by banks in Government securities of all types.
except those securities made specifically ineligible for bank invest-
ment by the terms of their issue.
2. In connection with Government financing, individual sub-
scribers relying upon anticipated income may wish to augment their sub-
scriptions by temporary borrowings from banks. Such loans will not be
subject to criticism but should be on a short term or amortization basis
fully repayable within periods not exceeding six months.
3. Banks will not be criticized for utilizing their idle funds
as far as possible in making such investments and loans and availing
themselves of the privilege of temporarily borrowing from or selling
Treasury bills to the Federal Reserve Banks when necessary to restore
their required reserve positions.
November 23, 1942
Regraded Unclassified
136
JOINT STATEMENT OF THE COMPTROLLER OF THE CURRENCY,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM, AND THE EXECUTIVE COMMITTEE OF THE
NATIONAL ASSOCIATION OF SUPERVISORS OF STATE BANKS.
The Comptroller of the Currency, the Federal Deposit Insûrance
Corporation, the Board of Governors of the Federal Reserve System, and
the Executive Committee of the National Association of Supervisors of
State Banks make the following statement of their examination and super-
visory policy with special reference to investments in and loans upon
Government securities.
1. There will be no deterrents in examination or supervisory
policy to investments by banks in Government securities of all types,
except those securities made specifically ineligible for bank invest-
ment by the terms of their issue.
2. In connection with Government financing, individual sub-
scribers relying upon anticipated income may wish to augment their sub-
scriptions by temporary borrowings from banks. Such loans will not be
subject to criticism but should be on a short term or amortization basis
fully repayable within periods not exceeding six months.
3. Banks will not be criticized for utilizing their idle funds
as far as possible in making such investments and loans and availing
themselves of the privilege of temporarily borrowings from or selling
Treasury bills to the Federal Reserve Banks when necessary to restore
their required reserve positions.
November 23, 1942
Regraded Unclassified
137
JOINT STATEMENT OF THE COMPTROLLER OF THE CURRENCY,
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM, AND THE EXECUTIVE COMMITTEE OF THE
NATIONAL ASSOCIATION OF SUPERVISORS OF STATE BANKS.
The Comptroller of the Currency, the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System, and
the Executive Committee of the National Association of Supervisors of
State Banks make the following statement of their examination and super-
visory policy with special reference to investments in and loans upon
Government securities.
1. There will be no deterrents in examination or supervisory
policy to investments by banks in Government securities of all types,
except those securities made specifically ineligible for bank invest-
ment by the terms of their issue.
2. In connection with Government financing, individual sub-
scribers relying upon anticipated income may wish to augment their sub-
scriptions by temporary borrowings from banks. Such loans will not be
subject to criticism but should be on a short term or amortization basis
fully repayable within periods not exceeding six months.
3. Banks will not be criticized for utilizing their idle funds
as far as possible in making such investments and loans and availing
themselves of the privilege of temporarily borrowing from or selling
Treasury bills to the Federal Reserve Banks when necessary to restore
their required reserve positions.
November 23, 1942
Regraded Unclassified
138
November 23, 1942
Dear Fiorello:
Thank you for sending me the
text of Mr. Mitchell's talk. I like
the passage you marked on page two,
and I think we can make good use of
it here at the Treasury.
Sincerely,
(Signed) Henry
Hon. F. H. LaGuardia,
Mayor, New York City,
New York, N. Y.
FK/cgk
Regraded Unclassified
ROM MRS. MCHUGH (11/21/42)
RRED TO MR. KUHN AT THE REQUEST
7 THE SECRETARY.
a
140 NOV 21
CITY OF NEW YORK
OFFICE OF THE MAYOR
November 19, 1942.
A
Hon. Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D.C.
Dear Henry:
Here is the speech I told you
about. You will find the statement on
page two.
Sincerely,
Fractlon
AJO&UN
Original address prepared and delivered by
Mr. Frank B. Mitchell, United States Treasury
141
Department, New York Nar Savings Staff, over WNYC
en Sunday, November 8,1942.
Ladies and Gentlemen:
Several days ago, I listened to a broadcast by three distinguished
men who discussed varying viewpoints concerning the attitude and morale
of the American public during these perilous days. One speaker expressed
the opinion that the reason for public apathy was the fact that we did
not want this war. One of the other speakers immediately declared that
no one ever did want a war and that statement was accepted by all three
gentlemen. It is my opinion that while it may sound quite civilized and
logical to say that people never want a war, that that statement is based
on wishful thinking.
Is it not true that Germany, Italy and Japan prepared for many
years to wage war and deliberately became aggressor nations, knowing that
they would encounter resistance? Was not the attack on Pearl Harbor a
dastardly declaration of war in the midst of a Peace Conference? These
and many other facts show all too clearly that a great portion of the
peoples of the world did want war and deliberately set about waging it.
It is undoubtedly true that the people of this nation did not want & war,
and because it was thrust upon them like a bolt from the blue, it has taken
time for us to become aware of its full implications. No know now that
there can be no compromise with the aggressors. Every intelligent person
certainly realizes that we are fighting for everything that we have or
ever hope to have.
The Village of Lidice and the countless thousands of massacred
Caechs, Poles, Greeks and others bear mute witness to the fate that is
in store for us, if we do not win. Why then, do not the people literally
storm the Banks and Post Offices to buy War Bonds? Why indeed do we still find
Regraded Unclassified
142
business organizations that do not have a Payroll Savings Plan, and why
do not all wage earners voluntarily save at least 10% of their earnings?
My experience leads me to believe that it is because we are convinced that
we are going to win this war, and you may be very sure that we will-eventually.
But what is not generally approciated, is that if we as individuals do not now
voluntarily do as our government asks, that we are guilty of prolonging the
war and adding to the cost, not only in money, but in human life and suffering.
There are still far too many people who are hoping to help win the war
while continuing to live their normal lives. Winning this war will require
sacrifice from each and every one of us. We are still told that many wage
earners cannot afford to save 10% of their own money for themselves, because
they have other financial obligations, or because they are raising and educating
their children. Such people should realize that the countless millions of our
Allies and the growing total of American boys whose bodies are strewn over the
battlefields of the world cannot "afford" to die. Every American should realize
that our armed forces are fighting and dying 80 that we may continue to meet
our financial obligations - 80 that we may continue to educate our children,
and so that we may preserve our civilian comforts.
The question is, what are we willing to sacrifice in order to preserve
these things? This is not & question to be decided by how much money we earn,
nor is the solution found in mouthing patriotic phrases. The answer lies in
action. Our soldiers are saying to you, "Praise the Lord but Pass that
Ammunition".
Depending on how readily you pass the ammunition, and the quantities
in which you pass it, will rest the answer to whether or not American morale
Regraded Unclassified
143
-3-
is as good as it should be. We all have the price of freedom. Your
government believes that you are willing to accept your duty to preserve
it. Let there be no more talk of inconvenience and personal budgets,
while our enemies are busy working and fighting day and night to annihilate
us. Let there be no more talk about what you can afford. Rather let us put
first things first now, so that when our men again come home, you and I may
look them in the eye, knowing that we did our part to help to bring them
back, and that we did our best by saving and sacrifice to maintain the country
they willingly and bravely fought to preserve.
Regraded Unclassified
144
November 23, 1942
Dear George:
Thank you very much for your telegram
telling me what your employees and officers
are doing in the Payroll Savings plan. Your
record of 97 percent participation and more
than 10 percent of payroll is a wonderful
accomplishment, and I think everyone in your
organization can be proud of it.
Please convey to all your people my
congratulations upon their fine achievement.
Sincerely,
(Signed) Henry
Mr. George L. Harrison,
New York Life Insurance Company,
51 Madison Avenue,
MuscHark, N. Y.
Original file to Thompson
Photo file in Diary
Regraded Unclassified
T
E
E
1942 NOV 19 AM 7 26
G
R
WE $5 DL
A
LF NEWYORK NY NOV 18 1942 516P
P
H
HON HENRY MORGENTHAU JR
T
SECY OF THE TREASURY DEPT
R
E
I AM GLAD INDEED TO BE ABLE TO ADVISE YOU PERSONALLY
A
5
THAT 97 PERCENT OF THE 4409 EMPLOYEES AND OFFICERS AT
U
THE HOME OFFICE OF THE NEWYORK LIFE INSURANCE COMPANY ARE
R
Y
PARTICIPATING IN THE PAYROLL SAVINGS PLAN AND THAT
T
MORE THAN TEN PERCENT OF THE PAYROLL IS NOW BEING
E
L
INVESTED IN UNITEDSTATES WAR SAVINGS BONDS
E
G
GEORGE L HARRISON.
R
725A
A
Regraded Unclassified
146
NOV 23 1942
To The Steelworkers of America:
Next Monday, November 30, your union, the United
Steelworkers of America, and your employers are opening
8. joint War Bond Drive with the objective of having every
worker in your industry set aside at least 10% of his pay
regularly for the purchase of War Savings Bonds.
Many thousands of steel workers are already subscribing
for War Bonds in amounts of 10% and more of their pay.
Perhaps you are one of them. If you are, I want to con-
gratulate you on investing in your country's future and
helping to win the war.
If you have not yet authorized your employer to set
aside 10% of your wages each pay day for the purchase of
War Bonds through the Payroll Savings Plan, I an sure that
you will want to do 80 immediately.
These War Bonds are playing a vital role in the war.
They help provide the weapons for our soldiers and sailors --
for the men who left your shop and your town to fight for
freedom. War Bonds also provide you and your family with
savings to buy peacetime goods when the war is won.
I know that I can count on you to do your part in
war production and also to take a leading part in the War
Savings Drive.
Sincerely,
(Signed) Henry Morgenthau, Jr.
Original to Odegard for
transmittal. (Also extra
copies)
CC in Diary
Regraded Unclassified
147
NOV 23 1942
Council of Electric Operating Companies
324 Homer Building
Washington, D. C.
Attention: T. P. Walker & Philip Ward
Gentlemen:
I was delighted to learn of the decision of the Council
to join hands with several other leading industries in a
concentrated drive to enroll at least 10% of their payrolls
in the purchase of War Savings Bonds.
The fact that our top-flight industries are engaged in
this nation-wide effort will aid materially our campaign
to enroll thirty million workers by December 31.
Of the 157,000 firms with Payroll Savings Plans, over
30,000 have already gone over the 10% goal. This under-
taking will be brought to the attention of literally
millions of Americans who are very determined in their
willingness to support the war effort through savings from
their current income.
I know that the men and women employed in your industry
will give their wholehearted support to this drive and I
should like to have you extend to them my appreciation of
the important job they are doing.
My best wishes to you for a successful campaign.
Sincerely,
(Signed) H Morgenthan ir
TRG:jrc
Copy to Ward in Philadelphia
CC in Diary
Copies to Thompson
u Ward the Mrs 141/25
Filed in her file
Regraded Unclassified
148
CONFIDENTIAL
Sales of United States savings bonds
November 1 through November 21, 1942
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
:
Quote,
:
Sales
Date
:
:
Nov. 1
:
Nov. 1
: to date :
:
Nov. 1
:
Nov. 1
: to date :
:
Nov.
1
:
Nov. 1
:
to date
:
Daily
:
to
:
to
: as % of
:
Daily
:
to
:
to
: as $ of :
Daily
:
to
:
to
: as & of
:
:
date
:
date
:
quota
:
:
date
:
date
:
quota
:
:
date
:
date
:
quota
Nov. 2
$ 5.2
$ 5.2
$ .3
$ .3
$ 5.5
$ 5.5
3
4.1
9.3
.8
1.1
4.9
10.4
4
11.2
20.5
6.7
7.8
17.9
28.3
our
10.8
31.3
6.9
14.7
17.7
46.0
21.8
53.1
$ 57.0
93.2%
16.7
31.4
$ 25.2
124.6%
38.5
84.5
$ 82.2
102.8%
7
9.3
62.3
80.7
77.2
2,6
34.0
31.4
108.3
11.9
96.4
112.1
86.0
9
34.0
96.4
121.1
79.6
9.9
43.9
43.6
100.7
43.9
140.3
164.7
85.2
10
14.6
111.0
141.9
78.2
5.4
49.3
50.1
98.4
20.0
160.3
192.0
83.5
11
35.5
146.5
159.4
91.9
9.5
58.8
59.2
99.3
45.0
205.3
218.6
93.9
12
15.4
161.9
188.5
85.9
5.3
64.2
68.2
94.1
20.7
226.1
256.7
88.1
13
19.2
181.1
212.6
85.2
7.2
71.4
75.8
94.2
26.4
252.5
288.4
87.6
14
7.4
188.5
226.4
83.3
2.6
74.0
78.6
94.1
10.0
262.5
305.0
86.1
16
41.6
230.1
262.4
87.7
9.3
83.2
87.5
95.1
50.8
313.3
349.9
89.5
17
11.5
241.6
276.0
87.5
5.6
88.9
90.6
98.1
17.2
330.5
366.6
90.2
18
20.7
262.3
293.8
89.3
8.3
97.2
98.3
98.9
28.9
359.4
392.1
91.7
19
25.1
287.4
324.4
88,6
7.3
104.5
106.9
97.8
32.5
391.9
431.3
90.9
20
27.2
314.6
350.7
89.7
8.7
113.2
114.9
98.5
35.9
427.8
465.6
91.9
21
12.9
327.4
365.9
89.5
3.7
116.9
118.1
99.0
16.5
444.3
484.0
91.8
23
406.5
129.8
536.3
24
421.8
134.3
556.1
25
441.9
146.1
588.0
26
476.8
160.0
636.8
27
507.9
174.0
681.9
28
541.0
189.0
730.0
30
595.0
205.0
800.0
Office of the Secretary of the Treasury, Division of Research and Statistics.
November 23, 1942.
Source: Actual sales figures are deposite 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.
Regraded Unclassified
CONFIDENTIAL
149
UNITED STATES SAVINGS BONDS - TOTAL
Comparison of November sales to date with sales during the
same number of business days in October and September 1942
(At issue price in thousands of dollars)
:
November
:
Cumulative sales by business days
Date
:
daily
:
:
October
:
November
:
September
November as
:
sales
:
:
:
: percent of October
ovenber 1942
2
$ 5,467
$ 5,467
-
-
3
4,920
10,387
-
$ 6,634
&
17,919
28,306
$ 7,263
34,336
389.7%
over
5
17,723
46,029
62,607
62,818
73.5
6
38,472
84,501
77,309
92,698
109.3
7
11,855
96,356
105,841
160,648
91.0
9
43,949
140,305
145,185
180,015
96.6
10
20,022
160,327
173,075
202,724
92.6
11
45,009
205,336
191,304
229,531
107.3
12
20,750
226,086
244,135
243,458
92.6
13
26,387
252,473
255,662
292,348
98.8
14
10,013
262,486
278;669
307,980
94.2
16
50,843
313,329
314,127
342,611
99.7
17
17,182
330,512
338,347
370,149
97.7
18
28,916
359,427
355.453
392,958
101.1
19
32,469
391,896
400,333
406,704
97.9
20
35,863
427.759
428,143
462,969
99.9
21
16,539
444,298
452,538
478,336
98.2
ffice of the Secretery of the Treasury.
November 23, 1942
Division of Research and Statistics.
purce: All figures are deposits with the Treasurer of the United States on account
of proceeds of sales of United States savings bonde. These figures have been
adjusted on the basis of wire reports and therefore will not agree with the
Treasurer's accounts.
Note: Figures have been rounded to nearest thousand and will not necessarily add to
totale.
Regraded Unclassified
CONFIDENTIAL
150
UNITED STATES SAVINGS BONDS - SERIES E
Comparison of November sales to date with sales during the
same number of business days in October and September 1942
(At issue price in thousands of dollars)
:
November
:
Cumulative sales by business days
:
daily
:
:
:
:
November as
Date
November
October
September
:
sales
:
:
:
: percent of October
vember 1942
2
$ 5,164
$ 5,164
-
-
4,108
9,272
-
3
$ 6,142
la
11,188
20,460
$ 5,045
24,448
5
10,849
31,309
42,285
42,251
74.0%
6
21,767
53,076
52,984
64,418
100.2
7
9,250
62,326
73,919
110,817
84.3
9
34,040
96,366
98,490
124,113
97.8
10
14,636
111,002
117,077
140,542
94.8
11
35,492
146,494
131,593
160,115
111.3
12
15,435
161,929
169,859
169,699
95.3
13
19,191
181,120
179,232
205,242
101.1
14
7,376
188,497
194,811
215,960
96.8
16
41,587
230,083
222,243
237,815
103.5
17
11,540
241,624
239,891
255,436
100.7
18
20,650
262,274
254,201
271,912
103.2
19
25,135
287,409
290,282
282,296
99.0
20
27,159
314,568
312,386
322,741
100.7
21
12,850
327,418
327,928
332,455
99.8
fice of the Secretary of the Treasury,
November 23, 1942.
Division of Research and Statistics.
urce: All figures are deposits with the Treasurer of the United States on account of
proceeds of sales of United States savings bonds. These figures have been
adjusted on the basis of wire reports and therefore will not agree with the
Treasurer's accounts.
Note: Figures have been rounded to nearest thousand and will not necessarily add to
totals.
Regraded Unclassified
CONFIDENTIAL
151
UNITED STATES SAVINGS BONDS - SERIES F AND G COMBINED
Comparison of November sales to date with sales during the
same number of business days in October and September 1942
(At issue price in thousands of dollars)
:
November :
Cumulative sales by business days
:
daily
:
:
:
:
November as
Date
November
October
September
:
sales
:
:
:
: percent of October
vember 1942
2
$
303
$
303
-
-
812
1,115
-
$
492
3
11
6.731
7,846
$ 2,218
9,889
353.7%
an
5
6,874
14,720
20,322
20,567
72.4
6
16,705
31,425
24,325
31,280
129.2
7
2,605
34,030
31,922
49,831
106.6
9
9.909
43,940
46,695
55,902
94.1
10
5,386
49,326
55,998
62,182
88.1
11
9,517
58,842
59,711
69,416
98.5
12
5,315
64,157
74,275
73.759
86.4
13
7,195
71,352
76,430
87.106
93.4
14
2,637
73.989
83,857
92,020
88,2
16
9,257
83,246
91,884
104,796
90.6
17
5,642
88,888
98,457
114,713
90.3
18
8,266
97,154
101,252
121,047
96.0
19
7.333
104,487
110,052
124,408
94.9
20
8,704
113,191
115,757
140,228
97.8
21
3,688
116,880
124,610
145,881
93.8
fice of the Secretary of the Treasury.
November 23, 1942.
Division of Research and Statistics.
urce: All figures are deposits with the Treasurer of the United States on account
of proceeds of sales of United States savings bonds. These figures have been
adjusted on the basis of wire reports and therefore will not agree with the
Treasurer's accounts.
Note:
Figures have been rounded to nearest thousand and will not necessarily add to
totale.
Regraded Unclassified
new york Parterson- Rice
WAWSS FIELD DIRECTORS OFFICE
Ric car.
NY WAR SAVINGS STAFF NY CLG 11-23-42
HON HENRY MORGENTHAU
I UNDERSTAND THAT YOU ARE GOING AWAY FOR THANKSGIVING AND IT
WILL PROBABLY BE INCONVENIENT FOR YOU TO LUNCH WITH US THIS WEEK
THEREFORE COULD YOU LUNCH WITH ME AND THREE OF MY COLLEAGUES ON
TUESDAY WEDNESDAY THURSDAY OR FRIDAY OF NEXT WEEK
RICHARD C PATTERSON JR
GA
MIN PLS
WILL REFER YOUR FIRST MSG
END CAR
OKEND
INEMIUM
11/24/42 Sects saw this
was on phone with
1942 NOV 24 PM 6 03
Patterson secty is to
notify, Patterson ow
SECRETAR DEFICE ASURY
/ which date he
152
should line down
5:30
Regraded Unclassified
153
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 23, 1942.
TO
Secretary Morgenthau
FROM George Buffington
GD.
Subject: Home and office addresses and telephone numbers.
CHICAGO
Mr. C. S. Young, President,
Home: 6700 South Crandon, Chicago.
Federal Reserve Bank of Chicago.
Dorchester 3233.
Office number: Harrison 2320.
Mr. F. F. Patton, Executive Manager, Home: 2733 S. Deere Park Drive, Highland Park.
Victory Fund Committee.
Highland Park 3876.
Office number: Harrison 2320.
Mr. Norman B. Collins,
Home address not given in Chicago
State Administrator,
directory and not known to War
War Savings Staff.
Savings Staff.
105 West Adams Street.
Office number: State 2940.
Mr. Harold H. Swift,
Home: Blackstone Hotel, Chicago.
State Chairman,
War Savings Staff,
Harrison 4300.
105 West Adams Street.
Office number: Union Stock Yards,
YARds 4200.
ST. LOUIS
Mr. Chester C. Davis, President,
Home: 4954 Lindel Street, St. Louis.
Federal Reserve Bank of St. Louis.
Forest 4312.
Office number: Garfield 1700.
Regraded Unclassified
154
- 2 -
ST. LOUIS (continued)
Mr. John R. Longmire, Executive Manager, Home: 340 Papin Street, St. Louis.
Victory Fund Committee.
Republic 3669.
Office number: Garfield 1700.
Mr. Dan M. Nee,
Not listed in Jefferson City, Missouri,
State Administrator,
directory.
War Savings Staff,
Post Office Building.
Jefferson City, Missouri.
Office number: Jefferson City 3800.
State Chairman of War Savings Staff recently resigned, no new appointment made.
KANSAS CITY
Mr. H. G. Leedy, President,
Home: 316 East 68th Terrace, Kansas City.
Federal Reserve Bank of Kansas City.
Highland 9181.
Office number: Main 6950.
Mr. Sigmund Stern, Executive Manager,
Home: 236 West 54th Street, Kansas City.
Victory Fund Committee.
Hilland 3792.
Office number: Main 6950.
Mr. Evan Griffith,
Home: Hotel Capitol.
State Administrator,
War Savings Staff,
Topeka 6587.
208-210 Federal Building,
Topeka, Kansas.
Office number: Topeka 3-6273.
Mr. William Allen White,
Home: Emporia, Kansas.
State Chairman,
War Savings Staff,
Emporia, Kansas.
Office number: Not available.
Regraded Unclassified
155
NOV 2 3 1942
To Heads of Bureaus, Office and Divisions,
and Chiefs of Divisions, Secretary's
Office, Treasury Department.
Some confusion has arisen in the handling and
dispatching of correspondence dealing with salary
stabilization. The authority to determine whether
payments are made in contravention of the Act of
October 2, 1942 entitled "An Act to amend the Emer-
gency Price Control Act of 1942, to aid in preventing
inflation, and for other purposes" or any regulations
thereunder rests solely with the Commissioner of In-
ternal Revenue. Every decision must, therefore, have
the signature of the Commissioner of Internal Revenue.
In the interests of the public speed in handling
mail is most important. The Commissioner of Internal
Revenue can in many instances eliminate the prepara-
tion of perfunctory acknowledgments for signature of
other Treasury officials by immediately ruling on the
question presented. It is also confusing to the
public to carry on correspondence with other than the
official duly authorized to make decisions.
To insure orderly expeditious procedure, effective
this date all correspondence received in the Treasury
on the subject of salary or wage stabilisation should,
upon receipt, be immediately routed to the Commissioner
of Internal Revenue for proper handling.
(Signed) H. Morgenthau, Jr.
Secretary.
Original and extra copies
to Thompson
CC in Diary
Regraded Unclassified
156
November 23, 1942
Dear Tom:
Thank you for sending me Mr. Lafe Pfeifer's
letter about Sergeant Donald Huntley of the R.A.F.
who has been killed in action over Germany. This
boy did a magnificent job for us when he was in
this country last summer, and Mr. Pfeifer's tribute
to him only confirms all that we had heard and seen
of him.
Please tell Mr. Pfeifer for me that I an
trying to arrange the shipment of his film to
Huntley's mother in Southern Rhodesia, together
with a copy of his letter to you.
Sincerely,
(Signed) Henry
Hon. Tom Connally,
Mr. Kuhn's office handled
United States Senate,
mailing of Connally and
Air Marshal D.C.S.Evill
Washington, D. C.
letters.
FK/cgk
Orig. of Pfeifer's ltr. went to
Evill for Mrs. Huntley (with film)
Photo to Connally.
File in Diary.
Regraded Unclassified
15
mik
me
United States Senate
November 12, 1942
Respectfully referred to
DING PAGE
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D.C.
with thanks for such favorable consideration as
the communication herewith submitted warrants,
and for a report thereon, to accompany return
of inclosure.
si
COMMUNITY
SERVICE
DALLAS, TEXAS
November 6, 1942
Hon. Tom Connally
United States Senate
Senate Building
Washington D. C.
Dear Senator:
You no doubt recall the United States tour of the War Heroes which
was sponsored by Mr. Morgenthau. During their visit to Texas a motion picture film
was produced and distributed to theatres throughout Texas through the auspices of
Mr. Karl Hoblitzelle, the president of our company.
It was Mr. Hoblitzelle's thought that the great message and inspiration
they bore deserved dissemination to other cities, towns and communities who were not
so fortunate as to be able to see them in person.
In this group of heroes, one lad stood out from all the rest for us
here in Texas. Although the tales of his deeds of bravery were not as vivid and glowing
as some of the rest, still he was the sort to win your heart and make you feel that
"here was a brave man". In his appearance on the speakers platform in both San Antonio
and the Dallas-Ft. Worth meeting, his remarks were pointed and outstanding. The remarks
of all heroes, when called to the microphone, were recorded on film and in the final
editing and cutting of the picture, we chose his "bit" as the "smash" finish for our
film. Audience reaction proved we were not wrong. The film received great ovation and
spontaneous applause in every theatre.
I spent the late hours of one evening with this lad, and took a great
personal interest in him. At that time, I had him give me his mothers name and address
and promised him that I would send her one of the films as a momento of his visit to
Texas.
We have just read in our local paper that this boy, Donald Huntly, has
been killed in an air raid over Germany. We want to keep our promise to this boy, and
it is Mr. Hoblitzelle's suggestion, that we write to enlist your aid.
Under separate cover, we are mailing you one of the films in the hope
that you may find time to arrange a screening for yourself and Mr. Morgenthau. Then if
you find nothing of an objectionable nature, we thought you might find a way of insuring
the safe delivery of this film to this boys mother. When you have screened this film
and seen this boy in action and heard him speak, you will well realize what a great
treasure this film would be for his mother.
Regraded Unclassified
INTERSTATE CIRCUIT. /INC.
MAJESTIC THEATRE BUILDING
DALLAS, TEXAS
His mothers address is --
Mrs. M. Huntly
Green Gates
20 Dale Road
Salisbury
South Rhodesia
South Africa.
We write this letter with the full realization of the tremendous
burden of your present duties and activities, but we know too, that if you can find
time to give your personal attention to this matter, you will have eased the heart-
break of one mother in a far corner of the world.
Respectfully yours,
Lafe LAFE R. PEEIFER R.Pfeifer.
LEPPURE
Regraded Unclassified
160
November 23, 1942
Dear Air Marshal Evill:
Senator Connally has just sent me a film
record of the reception which his State of Texas
gave last summer to Sergeant Donald Huntley of
the R.A.F., who has since been killed over Germany.
The Senator sent it to me with 8 letter from 8
constituent who had seen a good deal of Sergeant
Huntley and who wanted the film sent to Huntley's
mother.
I wonder if you would be good enough to send
the film and the letter for me. Mrs. Huntley's
address is: Green Gates, 20 Dale Road, Salisbury,
Southern Rhodesia. In the last two or three minutes
of the film, Huntley comes to the microphone and
delivers 8. personal message to the American people.
Sincerely,
(Signed) H. Morgenthau, Jr.
Kuhn's office handled mailing
Air Marshal D. C. S. Evill,
of Connally and Evill letters.
c/o British Embassy,
Washington, D. C.
Orig. of Pfeifer's ltr. went
to Evill for Mrs. Huntley
(with film)
FK/cgk
Photo to Connally
File in Diary
Regraded Unclassified
161
November 23, 1942
My dear Mr. Prime Minister:
It was very kind of you to send
me an autographed copy of your book,
"The Unrelenting Struggle". It will be
a pleasant memento of a most interesting
and encouraging trip to your country.
I would like to take this op-
portunity to again thank you for the
hospitality and many courtesies which
you extended to me during my visit.
Through the courtesy of Ambas-
sador Halifax, I am sending you the twelve
most popular phonograph records in this
country, and I hope that you will enjoy
them.
Sincerely yours,
(Signed) H. Morgenthan, Jr.
The Right Honorable,
Winston Churchill,
Prime Minister of England,
London, England.
Del. By Chauffeur 11:00 11/24
File in Diary
Regraded Unclassified
162
THE TWELVE MOST POPULAR RECORDINGS OF 1942
1. "White Christmas"
2. "Praise The Lord And Pass The Ammunition"
3. "Kalamazoo"
4. "Jingle Jangle Jingle"
5. "Deep In The Heart Of Texas"
6. "I Don't Want To Walk Without You"
7. "Blues In The Night"
8. "Moonlight Cooktail"
9. "Somebody Else Is Taking My Place"
10. "Rose O'Day"
11. "Johnny Doughboy"
12. "Sleepy Lagoon"
Regraded Unclassified
163
November 23, 1942
My dear Lord Halifax:
I would appreciate it very much
if you would forward the enclosed
letter and phonograph records to
Prime Minister Churchill.
With thanks for your courtesy in
this matter, and best regards,
Sincerely yours,
(Signed) H. Morgenthau, Jr.
His Excellency,
The British Ambassador,
Washington, D.C.
Del. by Chauffeur 11:00 11/24
File in Diary
Regraded Unclassified
164
November 23, 1942.
My dear Nr. Ambassador:
Thank you very such for your letter of
November 18, which transmite to - the book
written by the Polish Sub Lieut. Bryk Sopeeks.
I shall be most interested in reading this
account of the sinking of the Biemarek, end
appreciate your remembering by interest in the
subject, and your offer to send me the book.
I too enjoyed our conversation at the
recent lunchoon.
with cordial regards,
Sincerely,
(Signed) H. Morgenthau, Jr.
His Excellency,
Jan Ciechanowski,
Ambassador Extraordinary and
Plenipotentiary,
Polish Fabasay,
Washington, D. c.
GEF/dbs
File in Diary
Regraded Unclassified
165
L'AMBASSADEUR DE POLOGNE
A WASHINGTON
The
November 18th, 1942.
Dear Mr. Morgenthau,
I have much pleasure in sending you the
little book by the Polish Sub Lieut. Eryk
Sopocko on the sinking of the Bismarck, of
which I told you about yesterday. I hope it
will interest you.
May I thank you once again for the very
pleasant luncheon of yesterday and the conver-
sation with you which I so much enjoyed.
Yours very sincerely,
g. CicchanowsR
)
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
Regraded Unclassified
166
November 23, 1942.
Dear Archie:
It was good of you to ask your publishere
to send - a copy of the booklet including your
address on the *American Opinion and the Var, as
delivered at Cambridge last July. I shall be
interested is re-reading this in its printed form,
and I an glad to have it for my library.
Sincerely,
(Signed) H. Morgenthau, Jr.
Nonorable Archibald Macheich,
Librarian of Congress,
Washington, D. c.
GEF/dbs
Secretary kept book
File in Diary
Regraded Unclassified
SECRET
167
November 23, 1942
Exports to Russia, Free China and selected blocked
countries as reported to the Treasury Department
during the ten-day period ending
November 10, 1942
1. Exports to Russia
Exports to Russia as reported during the ten-
day period ending November 10, 1942 amounted to
$53,144,000. Military equipment accounted for
$19,251,000 of the total and included three light
bombers, 58 fighter planes and 20 tanks. (See
Appendix C.)
2. Exports to Free China
Exports to Free China reported during the period
under review amounted to $233,000 of which $221,000
was military equipment. (See Appendix D.)
3. Exports to selected blooked countries
Exports to selected blooked countries are given
in Appendix A. Most important were exports to Spain
amounting to $9,000.
ISF/efs
11/23/42
Regraded Unclassified
SECRET
168
APPENDIX A
Sumary of United States Exports to Selected
Countries as Reported to the Treasury Department
from Export Declarations Received
During the Period Indicated V
(Im thousands of dollars)
Total
Total
10-day
11-day
Domestic Exports
Domestic Exports
Period ended
Period ended
Aug. 1, 1942 to
July 28, 1941 to
Nov. 10.1942
Oct. 31,1942
Nov. 10. 1942
July 31,1942
S. S. R.
$ 53,144
$ 45,701
$ 418,999
$ 742,941
"99 China
233
-
7,166
97,720
spain
9
361
766
2,858
witserland
2
2,724
4,251
11,537
weden
1
-
2,626
18,056
Fortugal
-
211
796
9,743
rench North Africa 3/
-
-
2,088
6,305
reasury Department, Division of Monstary Research
November 21,1942
Many of the export declarations are received with a lag of several days or more.
Therefore this compilation dees not accurately represent the actual shipment of
& particular period.
Includes Merceco, Algeria and Tunisia.
Fli/efs 11/21/42
Regraded Unclassified
SECRET
APPENDIX B
169
Exports from the U. 3. to Free China and U.S.S.R.
as reported to the Treasury Department
July 28, 1941 - November 10, 1942 w
(Thousands of Dollars)
Exports to
Exports to
Pree China
U.S.S.R.
July 28, 1941 - Jan. 24, 1942
$ 32,758
$ 98,902
1942
Jan. 26 - Jan. 31
6,938
9,608
Feb. 1 - Feb. 10
4,889
13,315
Feb. 10 - Feb. 20
4,853
26,174
Feb. 20 - Feb. 28 3/
2,921
28,119
Mar. 1 - Mar. 10
2,879
32,509
Mar. 10 - Mar. 20
8,058
28,556
Mar. 20 - Mar. 31 n/
3
42,435
Apr. 1 - Apr. 10
4,836
51,698
Apr. 11 - Apr. 20
5,335
66,906
Apr. 21 - Apr. 30
2,827
50,958
May 1 - May 10 5/
296
28,652
May 11 - May 20
1,872
18,000
May 21 - May 31 4/
2,533
26,180
June 1 - June 10
3,399
12,764
June 11 - June 20
2,707
53.799
June 21 - June 30
1,664
49,919
July 1 - July 10
7,900
35,657
July 11 - July 20
590
33,940
July 21 - July 31 4/
3,066
35,669
Aug. 1 - Aug. 10
208
14,970
Aug. 11 - Aug. 20
192
23,325
Aug. 21 - Aug. 31 4/
2,850
112,492
Sept. 1 - Sept. 10
855
24,339
Sept.11 - Sept. 20
11
44,434
Sept.21 - Sept. 30
902
30,947
Oct. 1 - Oct. 10
1,885
14,564
Oct. 11 - Oct. 20
30
55,083
Oct. 21 - Oct. 31 4/
--
45,701
Nov. 1 - Nov. 10
233
53,144
Total
$ 107,489
$1,162,759
1. These figures are in part taken from copies of shipping manifests.
2. Beginning with February 1, figures are given for 10-day period
instead of week, except where otherwise indicated.
3. 8-day period.
4. ll-day period.
5. 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
November 20,1942
ISF/efe
11/20/42
Regraded Unclassified
SECRET
170
APPENDIX 0
Principal Exports from U. 8. to U. 3. 3. R.
as reported to the Treasury Department
during the ten-day period ending
November 10, 1942
Value
Unit of
(Thousands
Quantity
Quantity
of Dollars)
TOTAL EXPORTS
$ 53,144
Military Equipment ($19,251)
Ammunition
-
-
5,232
Aireraft
4,364
Light bombers (2 eng. A-20)
No.
3
Fighters (1 eng. P-39)
No.
10
Fighters (1 eng. P-40)
No.
48
Aircraft parts and accessories
-
-
4,028
Ordnance combat vehicles
-
2,486
Scout cars
No.
2,534
Armored cars, medium
No.
36
Ordnance combat vehicles, n.e.s.
No.
28
Military tanks
1,040
Light tanks (m-3, M3A1, M-5, & T7)
No.
10
Medium tanks (M4A-2)
No.
10
Explosives
Lb.
2,419,519
957
All other
-
-
1,144
Non-Military Goods ($33,893)
Industrial, electrical, and
agricultural machinery & parts
-
-
8,413
Metals and manufactures, n.e.s.
-
-
4,838
Iron and steel manufactures, and
semimanufactures
-
-
4,825
Motor trucks, motoroycles & parts
-
-
4,645
Regraded Unclassified
171
Appendix c (Continued)
Page 2
Value
Unit of
(Thousands
Quantity
Quantity
of Dollars)
Meat products
-
-
2,660
Aluminum and manufactures
-
-
2,054
Chemicals and related products
-
-
1,664
Relief supplies
-
-
1,037
All other
-
-
3,754
Treasury Department, Division of Monetary Research November 21, 1942
EFM/efs 11/21/42
Regraded Unclassified
SECRET
172
APPENDIX D
Principal Exports from U. 8. to Free China
as reported to the Treasury Department
during the ten-day period ending
November 10, 1942
(Thousands of Dollars)
TOTAL EXPORTS
$ 233
Principal Items:
Military equipment
221
Automobile replacement parts
10
Casings and tubes
1
Mica and manufactures
1
Treasury Department, Division of Monetary Research November 21,1942
EFM/efe 11/21/42
Regraded Unclassified
173
November 23, 1942.
Dear Mr. Stettinius:
I have received your note of November 21,
transmitting my personal copy of the report'on
the status of the Soviet A1d Program, as of
October 31, 1942. I appreciate your giving so
this current information.
Sincerely,
(Signed) H. Morgenthau. Jr.
Honorable E. R. Stettinius, Jr.,
Administrator, Office of Land-Lease
Administration,
Five-Fifteen 22nd Street, N.W.,
Washington, D, C.
Returned to Stettinius at his request, 8/24/43
GEF/dbs
File in Diary
Regraded Unclassified
SECRET
OFFICE OF LEND-LEASE ADMINISTRATION
174
FIVE-FIFTEEN 22d STREET NW.
WASHINGTON, D.C.
E R. Stettinium, Jr.
Administrator
November 21, 1942
The Honorable Henry Morgenthau
Secretary of the Treasury
Washington, D. C.
Dear Mr. Secretary,
Attached hereto is your personal and
private copy of the report on the status
of the Soviet Aid Program, as of October 31,
1942.
Enclosure E. R. Sincerely Stettinius, yours, Jr
Regraded Unclassified
Page 175
Report on status of Soviet Aid Program
as of 10/31/42: Returned to Stettinius
at his request, 8/24/43
Regraded Unclassified
176
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE NOV $ 3 1942
TO
Secretary Morgenthau
FROM, Randolph Paul
CONFIDENTIAL
You may be interested in the following develop-
ment:
The Free Thai Government has organized a
military mission, the first unit of which will be leaving
the United States for overseas service in the near future.
The Office of Strategic Services is handling the financial
arrangements for equipment, weapons, pay and other expenses
of the unit's operations abroad. A transfer of $500,000
from the Royal Thai Treasury Account to the Office of
Strategic Services was licensed by the Treasury Depart-
ment in connection with this program.
his
AAA
Regraded Unclassified
177
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
NOV 2 3 1942
TO
Secretary Morgenthau
Randolph Paul
FROM
For your information:
On October 31, 1942, we recommended to the
State Department that Banco de la Nacion and Banco
de la Provincia, both of Argentina, be subjected to
ad hoc freezing action. These two banks have long
been notorious for their failure to cooperate in any
way with our program of economic warfare in Argentina,
and, as you may recall, it was their failure to sign
undertakings to cooperate in such program which led
to this Government's refusal to permit Export-Import
Bank loans to these banks and, ultimately. to all
Argentine banks. To date, State has not agreed to
blocking action with respect to these two banks, one
of which is partly owned by the Argentina Government
and the other by Argentine provincial governments.
Within the past few days State has, however,
agreed that we should prevent these banks from
obtaining any new credit facilities in the United
States. Accordingly, pursuant to Section 5(b) of
the Trading with the enemy Act, we have instructed
banks in the United States that no new credit
facilities may be made available to these two banks
without a specific license from the Treasury Department.
It is not proposed to issue any such licenses.
By
M
Regraded Unclassified
178
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 23, 1942
TO
Secretary Morgenthau
FROM
H. D. White
Subject: The Current Situation in Ecuador
United States Assistance to Ecuador within Recent Months.
1. A stabilization arrangement between the Treasury and Ecuador
for $5 million was concluded in March of this year. (So far
no transactions have taken place due to the excellent
foreign exchange position of Ecuador.) Treasury now has an
advisor with the Ecuadorean Treasury, Mr. Joseph Friedman.
2. The Export-Import Bank has extended an $8 million loan for
the construction of sanitary waterworks in Quito and
Guayaquil. (This project has not proceeded because of the
inability to obtain machinery and supplies in the United
States.)
3. The Coordinator of Inter-American Affairs has made a gift of
$2 million for health purposes in Ecuador. (This project is
now proceeding.)
4. The Export-Import Bank has extended a $10 million loan to
the Ecuadorean Development Corporation for the development
of agriculture and industry. (This project is now getting
under way.)
5. The Department of Agriculture has recently established an
agricultural experimental station in Ecuador.
6. A Lend-Lease Agreement has been signed estimated at $10
million but so far only small amounts have been sent.
7. The Coordinator of Inter-American Affairs has made a grant
of several million dollars for the reconstruction and re-
habilitation of the Province of Ecuador which was invaded
by the Peruvian Army. (This oject is now proceeding.)
Regraded Unclassified
179
Division of Monetary
- 2 -
Research
Ecuador is Firmly Behind the United Nations in the War Effort.
1. Ecuador broke off relations with the Axis after the Rio
Conference.
2. Ecuador gave the United States Armed Forces an airbase on
the Santa Elena Peninsula and in the Galapagos Islands.
3. Ecuador has signed an agreement to sell all rubber produced
to the United States at fixed prices.
4. Ecuador has cooperated with the United States in the admin-
istration of the Proclaimed List, in freezing funds belong-
ing to Axis interests, and in dollar currency controls.
Current Problems Facing Ecuador.
1. The principal problem now facing the country is the shortage
of imported commodities due to United States export controls
and shipping shortage.
2. There is a very serious inflationary price movement in
Ecuador. (Prices have risen more than 40 percent within the
past year.)
3. There is considerable political instability in the country,
principally arising from the widespread feeling that Ecuador
was worsted in the dispute with Peru and that the Rio
Conference gave a settlement which was more favorable to
Peru.
Resources of Ecuador for Future Development.
Ecuador has a large area which is extraordinarily rich
and fertile and which has barely been developed. The
principal needs for development are irrigation, capital and
technical skill. In this area she can grow practically all
of the commodities which we formerly imported from the Far
East.
There are several gold and copper mines in Ecuador now
operated by American capital and other mineral potentialities for
probably exist. There are also extensive potentialities
petroleum production. Standard 011 and Shell are now explor-
ing for oil in various parts of the country.
Cacao formerly was the most important export of Ecuador.
In the last 15 years disease has ravaged cultivation, prices
in the world market have declined, and Ecuador has been
economically depressed since the end of the last war. this Only
new economic developments can bring Ecuador out of
depression.
Regraded Unclassified
180
Summary
181
ECUADOR
SUMMARY
Foreign Exchange:
1. Rigid exchange control, effective since June 1940, has held the
sucre at 6.7 cents (15 sucres per dollar, selling rate) since December,
1940. Its value was raised from 5.6 cents at the time control was
imposed.
2. Central Bank gold and foreign exchange reserves are relatively large
and have been increasing. In September, 1941 reserves totalled $5.7
million of which $2.5 million were in excess of legal requirements.
3. Excess reserves ($2.5 million in September, 1941) are equivalent to
exchange requirements for nearly 3 months. Since June, 1941 both
excess reserves and the reserve ratio have declined slightly, the
result of increased note issues brought about by the Peruvian dispute.
4. Ecuador's balance of payments position improved during 1941. b.
ports increased as a result of increased sales to the United States
and Latin America and imports declined because of restrictive ex-
change allocations by the Central Bank.
5. Estimated exchange availabilities in 1941 total $14 million, proba-
bly 80-85 percent in dollars, and requirements $11 million. Part
of the $3.0 million excess may have been absorbed in undisclosed
capital exports.
6. Dollar deposits in the New York district for Ecuadoran account at
the end of 1941 totalled $4.7 million, of which probably half was
for private account.
7. Gold output totalled $3 million in both 1940 and 1941.
8. Exchange proceeds of exports must be sold to the Central Bank at
14.8 sucres per dollar. Payment for imports and financial remit-
tances must be made at the official selling rate of 15 sucres per
dollar.
9. À black market exists but is unimportant, accounting for only about
$500,000 compared to $13-14 million of official exchange transactions
annually.
10. Jap funds have been frozen.
11. Increases in monetary circulation since June, 1940 might have put
pressure on the sucre in the absence of exchange control, although
internal prices have risen very little.
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Banking:
1. The banking system consists of the Central Bank, 13 commercial
banks, and 3 mortgage banks. There is a Bank of London and South
America branch in Ecuador but no American bank. An Italian bank
was recently taken over by Eouadoran businessmen to obtain removal
from the British blacklist.
2. The Central Bank has suffered from frequent changes of management,
political interference, and conflicts with member banks, particu-
larly with La Previsora which has about 40 percent of public deposits
in commercial banks.
3. The Central Bank makes direct loans to and accepts deposits from
the public. Some borrowers are said to be continuously indebted to
the Bank. Some commercial banks, including La Previsora, never
rediscount while others rediscount continuously.
4. During 1932-37 heavy Government borrowings from the Central Bank
were responsible for credit expansion, price increases, and depre-
ciation of the sucre. Large advances to the Government stopped in
1937.
5. Since June, 1940 the circulating medium, especially bank deposits,
has increased markedly. Internal prices, however, have risen by
a relatively small amount. Da the absence of effective exchange
control, continued increases in circulation might put pressure on
the exchange rate. On the other hand, costs have been slow to
rise and rising costs are not expected to affect exports adversely
for some time.
6. Excess reserves of commercial banks exceeded 100 percent of re-
quired reserves in mid-1940, were down to a low of 30 percent by
the summer of 1941, and had risen again to 130 percent by September
15, 1941. The existence of excess reserves during the earlier
period was due largely to the extreme caution of the Central Bank
in allocating foreign exchange. The changes in the summer of 1941
were due to the Peruvian border dispute, which brought about con-
version of bank deposits into holdings of bank notes, and later
increase in note issue by the Central Bank to relieve the situation.
7. Cedulas (guaranteed mortgages) constitute practically the only
private long-term security in Ecuador, but the amount outstanding
has shrunk materially since 1930. Banks are said to be reluctant
to make long-term loans despite the need for this type of credit.
Regraded Unclassified
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Foreign Trade,
1. Ecuador's export excess in 1941 will be the largest in several years,
on the basis of 9-month figures as shown below in millions of dollars:
1941
1940
1940
1939
1938
(9 mos.)
(9 mos.)
(12 mos.)
(12 mos.)
(12 mos.)
Exports
9.7
7.8
10.7
11.3
12.6
Imports
7.2
8.5
11.1
10.0
11.0
Balance
#2.5
-0.7
- 0.4
+ 1.3
1.6
2. The unfavorable trade situation in 1940 was due to a poor cacao crop
and low prices for coffee and petroleum. The improvement in 1941
has been due to increased United States purchases of tropical food-
stuffs and forest products and to higher prices for coffee.
3. The share of the United States in Ecuador's trade has doubled as a
result of the war, rising from about 35 percent of both imports
and exports before 1939 to over 70 percent in both categories during
the first 9 months of 1941.
4. Exports are made up chiefly of precious metals (22 percent in 1940);
cocoa (17 percent); other tropical foodstuffs (22 percent); crude
petroleum (15 percent); and various forest and animal products
(11 percent). Foreign companies producing petroleum, gold, and
certain agricultural products leave abroad various percentages of
the exchange proceeds, thus reducing Ecuador's exchange availabilities.
5. The United States in 1940 took almost all of Ecuador's gold, over
80 percent of the coffee exports, more than half the cocoa and
banana exports, and large proportions of the less important exports.
Most of the Ecuadoran petroleum which formerly went to France is
now sold in the South American market.
Public Finance:
1. The deficit for 1941 is expected to be 12 million sucres, out of an
ordinary budget of 117 million sucres, according to a press report
on December 30.
2. The Ecuadoran Government, however, stated in its reply to a Treasury
question that Ecuador is operating on the basis of a balanced
budget, and that expenditures are not made if there are no funds
available. In particular it stated that 8-month expenditures were
slightly less than 8-month revenues in 1941, even though the reve-
nues were much lower than anticipated in the budget.
Regraded Unclassified
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3. Ecuador has experienced rising expenditures since the early thir-
ties. The 1940 deficit was 7 million sucres in the ordinary
budget, partly offset by a 3.3 million sucre surplus in the extra-
ordinary accounts, leaving a net deficit of 3.7 million sucres
(about $250,000) with total expenditures of 123 million sucres.
4. Official statistics show deficits in 1938-40, surpluses in the
years 1935-37, and balanced budgets in 1930-34. Deficits are known
to have existed, however, as is shown by Government borrowing at
the Central Bank. Profits from gold revaluation in 1935 were used
to reduce the Government's debt to the Bank.
5. About 50 percent of ordinary revenues come from import duties and
receipts from Government monopolies (chiefly alcohol and tobacco).
6. Total ordinary expenditures have doubled since 1929. The chief
items of expenditure are, in the order of importance, national
defense, education, and public works.
7. The 1942 budget shows an increase in estimated revenues and expendi-
tures of 5 million sucres, equally divided between the ordinary
and extraordinary budgets.
8, Executive Decree No. 803, issued after the outbreak of hostilities
with Peru, provides a special extra-budgetary capital levy for
financing national defense. Rates of the levy are 1 percent on
assets of 10,000 to 500,000 sucres ($670 to $33,300) and 1 1/2
percent on assets of 501,000 sucres and over. It is estimated that
this levy will yield approximately 120 million sucres.
Public Debt:
1. Ecuador's external long-term debt amounts to about $12 million,
mostly in sterling, and has been in default for periods ranging
up to 27 years. Hence, interest arrearages roughly equal principal.
2. The Government of Ecuador has floated new loans when old loans were
in default and has repledged revenues already pledged.
3. There have been no recent negotiations for settlement of the out-
standing external debt. On occasions such as 1928 and 1930, when
funds were available for foreign debt service they were used to
purchase bonds in the market at a fraction of par.
Regraded Unclassified
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4. A reasonable debt settlement would probably involve about $750,000
per year in charges, or 10 percent of Government revenues.
5. The internal debt is in the form of a credit at the Central Bank
and is currently about $1.9 million. Part of the gold revaluation
profit in 1935 was used to reduce this debt.
6. In May, 1940 the Export-Import Bank made a loan of $1,150,000 to
the Republic of Ecuador, mostly for road-building purposes. The
disbursements under this loan have amounted to $382,000.
Direct Investments=
1. Foreign direct investments in Ecuador are variously estimated at
$12 to $25 million, of which about half are American.
2. The principal American direct investment is in gold mining. The
only relatively new direct investments have been in petroleum
(British), bananas (American), and airways (American).
3. There has been no expropriation of foreign-owned properties, but
the Government began a compulsory revision of concessions in 1938,
materially worsening their terms, under decrees issued in that year.
However, new legislation in October, 1941 repealed the 1938
decrees on foreign capital, with the purpose of attracting United
States capital.
Regraded Unclassified
186
Foreign Exchange
187
FOREIGN EXCHANGE
1. The exchange rate.
The Ecuadoran sucre is currently pegged to the dollar at a rate
of 6.67# (Central Bank selling rate of 15 sucres per dollar and buying
rate of 14.8). This rate has been maintained since December, 1940.
In May and June, 1940 (when a rigid exchange control system was adopted),
the Central Bank's selling rate depreciated to 5.6¢ per sucre or 18
sucres to the dollar and then appreciated again by successive stages to
the present level.
The following table shows the level of the sucre at selected dates:
Table 1. -- Sucre-Dollar Exchange Rates
(U.S. cents per sucre)
1933 December - 16.66
1940
March
- 6.67
1934 December - 8.33
June
- 5.56
1935 December - 9.52
September
-
6.05
1936 December - 9.52
December
- 6.67
1937 December - 7.30
1941
March
- 6.67
1938 December - 6.94
June
- 6.67
1939 December - 6.67
December - 6.67
Ecuador suspended the gold standard in February, 1932. Thereafter
for about five years Central Bank advances to the Government, monetary
circulation and prices rose rapidly. and the sucre, accordingly, declined.
Heavy Bank loans to the Government stopped in August, 1937. Thereafter
total monetary circulation end deposits remained roughly stationary but
began increasing again in 1940. The sucre declined till 1939 and has
remained roughly stationary ever since except for the summer end fall of
1940.
The Central Bank has at times established and adhered to its selling
and buying rates for foreign currencies despite strong pressure against
them and at other times has more or less allowed the sucre to seek its
own level, establishing its buying and selling rates in accordance with
market tendencies. Rigid exchange control was in effect during various
periods, the latest beginning in June, 1940, and continuing to date.
Since the outbreak of war the sucre has been pegged to the doller.
Regraded Unclassified
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2. Reserve position of the Central Bank.
In recent months the gold and foreign exchange reserves of the
Central Bank of Ecuador have increased markedly. There are now almost
$6 million of gold and foreign exchange reserves, of which about $2.6
million are excess reserves. The course of the reserves since December
1938. is shown in Table 2. Data for the first two years in the table
have been adjusted to make them comparable to the later figures. Im-
provement is due to increased exports because of greater United States
and Latin American purchases in Ecuador, and decreased imports because
of reduced exchange allocations by the Central Bank, and to shortages
in the United States. The increased note issue in mid-1941, due to the
Peruvian dispute, sent excess reserves down somewhat.
Table 2. - Legal Reserves of the Central Bank of Ecuador
(1,000 dollars)
Total
Reserve
Foreign
Legal
Ratio
Required
Excess
Date
Gold
Exchange
Reserves
(percent)
Reserves
Reserves
1938:
December
1/
3,386
236
3,622
53.1
2,045
1,577
1939:
December
3,550
130
3,680
51.2
2,157
1,523
1940:
June 30
3,351
749
4,100
58.4
2,110
1,990
September 30
3.797
890
4,687
59.4
2,369
2,318
December 31
4,062
1,015
5,077
58.2
2,619
2,458
1941:
January 31
4,135
1,027
5,162
62.2
2,490
2.672
June 30
4,541
805
5.346
60.4
2,651
2,695
September 4
4,611
1,062
5.673
54.2
3,137
2,536
Gold reserves for 1938 and 1939 are computed at their actual value of
$35 per ounce instead of the legal Ecuadoran value of about 12 sucres
per gram (roughly $25.50 per ounce at the then current exchange rate).
This necessitated special computation of reserve ratios, required and
excess reserves, for the reason that the legal reserve requirement of
30 percent necessitated the holding of actual reserves of over 40 per-
cent using gold valued at $35 per ounce. For the last half of 1940
and 1941, the legal Ecuadoran gold valuation of $34.67 per ounce (at
current exchange rate of 15 sucres per dollar) was used.
Regraded Unclassified
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Division of Monetary
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Until May, 1940, the Central Bank undervalued its gold holdings,
cerrying them at about 12.4 sucres per gram (equivalent to $25.50 per
ounce at the going exchange rates). and nevertheless had sufficient
excess reserves to carry on stabilization operations in the exchange
market. During the spring of 1940, however, the effort to maintain
the rate had brought its reserve ratio down to 32 percent--only 2 per-
cent above the legal minimum-and the exchange rate had broken away
from the former level of 15 sucres to the dollar.
By decrees of June 4 and June 13, 1940, Ecuador revalued the gold
in the Central Bank to 16.72 sucres per gram ($34.67 per ounce, at an
exchange rate of 15 sucres to the dollar), raised the exchange rate to
18 sucres per dollar, and established a comprehensive system of exchange
control. The first measure averted any immediate danger of falling short
of the reserve requirements, and the second two caused a rapid increase
in foreign exchange holdings at the expense of drastically curtailed
imports and some accumulation of exchange arrearages. Subsequently the
reserves of the Central Bank continued to increase and it was able to
restore by gradual stages the former exchange rate of 15 sucres to the
dollar, with little apparent strain, as evidenced by the reportedly
small volume of transactions on the black market.
3. The table below shows total Ecuadoran dollar deposite in the New
York district in 1940 and 1941. Probably half of the deposits are for
private Ecuadoran account. There was no gold earmarked in the United
States by Ecuador in this period.
Dollar Deposits in the New York District, 1940 and 1941
( In millions of dollars )
1940:
1941:
March 27
3.7
April 2
2.5
June 26
2.6
July 2
3.0
2,2
October 1
2.7
September 25
December 31
2.7
December 31
4.7
4. Gold output was $3 million in both 1940 and 1941.
Regraded Unclassified
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5. Exchange control system.
Purchase and sale of exchange was unrestricted August, 1936--
August 1937. The Minister of Finance, through the Department of
Exchange and Import Control of the Central Bank, has exercised rigid
exchange control since June, 1940. Payments for imports and all finan-
cial remittances must be made at the official selling rate of the
Central Bank which Vas depreciated to 18 sucres per dollar in June,
1940. but has since appreciated to 15 per dollar. Similarly the ex-
change proceeds of all exports must be sold to the Central Bank at its
established buying rate of 14.80 sucres per dollar.
Prior to this time exchange purchases and sales were unrestricted
except for brief periods of exchange control. during August, 1936--
August, 1937. and April, 1932--December, 1933.
A black market exists but is said to be unimportant. The Finance
Minister has estimated that annual transactions in the black market do
not total more than $500,000 compared to official transactions of $13-
$14 million. An important source of exchange for the black market has
been commissions paid agents of foreign firms, but a recent decree re-
quires these to be turned over to the Central Bank. After the outbreak
of our war with Japan, the black rate for dollars dropped sharply to
about 15 sucres per dollar.
Under the system adopted by Ecundor, the Central Bank under the
supervision of the Finance Ministry, makes periodic allocations of ex-
These allocations are now made on B. semi-annual basis, though formerly they
change for permissible uses on the basis of recent exchange receipts.
were made on a quarterly and originally on a weekly basis. On November 26,
1941, an additional quota of $1.5 million (about two months' importe at
current rates) was granted for immediate importation of various goods
such as automobiles, tires, machinery. iron, steel, etc. Importers and
other purchasers of exchange are granted individual quotas in accordance
with the size of the global allocation. Exporters must have permits,
which are granted only if exchange 1s cleared through the Central Bank.
The global Central Bank allocations are distributed among the fol-
lowing uses for exchange:
(1) Payment for new imports of private firms and individuals.
(2) Payment for imports of the Guayaquil and Quito Railway.
(3) Payment for new imports of the Government and other
public entities.
Regraded Unclassified
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Division of Monetary
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(4) Payment for new imports for agricultural and industrial
development.
(5) Remittance of profits, royalties, insurance premiums,
and travel, foreign resident, and student expenses.
(6) Settlement of import obligations existing prior to the
establishment of exchange control.
(7) Other uses.
Under a decree issued October 14, 1941, Japanese bank deposits in
Ecuador were frozen, except insofar as used to pay for exports from
Ecuador to Japan, which are negligible under Ecuador's export control
adopted August 1, 1941. Following outbreak of the United States-Japen-
ese war, it was ascertained that there was less than $100,000 of
Japanese funds exclusive of bank deposits in Ecuador, that only $1,000
a month is being allowed the Japanese Legation, and that the principal
loophole in the freezing control may be the free use of safety deposit
boxes.
6. Balance of Payments
Ecuedor's estimated balance of payments for 1940 and 1941 is shown
below:
(Million Dollars)
1940
1941
Availabilities
Exports other than those by foreign
7.9
9.0
companies
Exchange sold by foreign companies
1.8
2.0
Capital inflow, tourists, etc.
1.9
1.5
New gold production
1.5
1.5
13.1
14.0
Requirements
.2
-
Exchange arrearages
11.0
10.0
Imports
1.0
.8
Remittances
12.0
11.0
1.1
3.0
Excess of availabilities
1/ Includes proceeds from exports of some gold ore.
Includes $200.000 disbursed by the Export-Import Bank.
Regraded Unclassified
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Division of Monetary
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Research
The apparent surplus of $3 million in 1941 is not necessarily
all available to the Central Bank of Ecuador, because undisclosed cap-
ital exports might have been large during the border crisie with Peru
last summer.
The 1940 estimates include some free as well as controlled exchange.
The 1941 estimates are for controlled exchange. It is estimated that
transactions in the black market account for only about $500,000 per year.
The proportion of exchange receipts represented by dollars was 70
percent in 1940 and is estimated at 80-85 percent for 1941.
The distribution of exchange during the first 9 months of 1941 was
at the rate of $1 million per month, and probably was continued at that
rate in the last quarter. In addition, a special allocation of $1.5
million was approved on November 26, 1941. Actual imports in the first
9 months of 1941 totaled only $7 million, however, and therefore import
exchange needs for the year 1941 are estimated at only $10 million,
despite substantially higher allocations (which might not actually have
been disbursed).
In 1940 the Export-Import Bank approved & loan of $1,150,000 to
the Ecuadoran Government and $30,000 to a private corporation for devel-
opment in Ecuador. Only $210,000 had actually been disbursed by the
Bank up to August, 1941.
The improvement in Ecuador's balance of payments position during
1941 is due chiefly to increased purchases by the United States and
other American countries and to a reduction of imports, partly forced by
shortages of certain materials in the United States.
Foreign companies leave abroad their export exchange proceeds as
follows:
(1) Oil companies leave abroad all export proceeds. They
bring in exchange only for new explorations, etc. Normal
local expenses are met by internal sales revenues.
(2) Gold producers leave abroad 40 percent of their export
values, and pay for their imported supplies out of those
foreign balances.
(3) Foreign producers of bananas and other agricultural prod-
ucts leave abroad 20 percent of export proceeds.
Regraded Unclassified
193
Banking
194
BANKING
1. Structure of the Banking System
The Central Bank heads the Ecuadoran banking system, which 18
made up, in addition to the Central Bank, of 13 commercial banks and
3 mortgage banks. There is a good deal of rivalry between the Central
Bank and the commercial banks, especially with La Previsora Banco
Nacional de Credito, which has about 40 percent of the deposits of the
public in commercial banks. The Central Bank competes with private
banks in lending to the public, and on the other hand does little to
make itself useful to the private banks. Nearly all Central Bank
loans to the public are nominally short-term, but commercial banks
make short-term and mortgage loans.
Ecuador has a branch of the Bank of London and South America and
an Italian-owned bank which was recently taken over by well-known
Ecuadoran businessmen, in order to obtain removal from the British
blacklist (it was on our original black list and was subsequently re-
moved). There is no American bank in Ecuador. The following table
summarizes the deposit and loan situation of Ecuadoran banks as of
recent dates.
Table 1. -- Deposits and loans of the banks in Ecuador
(millions of sucres)
Demand Deposits of
Loans of the
Portfolio of
End
the public in
Central Bank to
Commercial Banks
of
Central
Other
Govern-
Loans to
Mortgage
Public
Bank
Banks
ment
Public
Loans
1936
4.1
60.1
15.9
22.1
68.1
59.0
1937
5.2
58.8
26.0
24.4
76.4
44.4
1938
6.4
67.7
29.7
21.0
74.7
30.9
1939
5.1
69.2
29.2
21.7
85.0
35.3
1940
14.0
95.6
26.0
19.8
96.8
44.4
1941-
July
12.6
82.4
27.9
25.9
109.8
45.4
Includes mortgage loans by all mortgage banks except the government-
owned Mortgage Bank of Ecuador.
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Division of Monetary
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Research
2. Operations of the Central Bank
The Central Bank does some rediscounting for commercial banks and
also purchases bankers' acceptances, an operation which is equivalent
to rediscounting. These extensions of credit have usually been of
minor importance (although they were large in 1928-31 and 1935-36). and
as a result most banks feel little dependence on the Central Bank.
Three or four banks, however, are said to be steady borrowers at the
Central Bank, while one or two (including La Previsora) never redis-
count.
To some extent the Central Bank may use rediscounting and purchase
of acceptances as an instrument of credit control, or as an offset to
changes in excess reserves of associated banks. At present, however,
the magnitude of Central Bank rediscounting for commercial banks is too
small (rediscounting of 1.1 million sucres and acceptances of 313 mil-
lion sucres, compared with loans to the public of 19.8 million sucres
at the end of December 1940) for this operation to have much effect on
credit conditions. In some recent periods, especially since June 1940.
the excess reserves of associated banks have been large enough to ob-
viate any need for rediscounting on their part. The latest recommende-
tions of foreign advisers have urged that the Central Bank gradually
retire from the direct lending field and exercise credit control through
rediscounting and other operations with commercial banks.
The Central Bank has 10 branches and 1 agency, and 6 of its branches
constitute the only banking service in the communities. This illustrates
the extension of the Bank into the direct lending business, in which its
loans comprise one-sixth of the total loans made by all credit institu-
tions. The Bank also accepts deposits from the general public, such
deposits totaling 12.6 million sucres as of July 31, 1941, compared with
deposits of associated banks totaling 20.2 million sucres and government
deposits of 9.5 million sucres. Foreign advisers have recommended that
the Central Bank discontinue its deposit business with the general public.
The Government has borrowed heavily from the Central Bank during
the past 10 years, and from 1932 to 1937 these borrowings were directly of
responsible for credit expansion, price increases, and depreciation
the sucre. (See the section on public debt for details of these borrow-
ings.) Besides direct loans to the Government the Central Bank has been
obliged to take shares of the government-owned Mortgage Bank of Ecuador
and to rediscount for that institution. Profits from gold revaluation
have been used to reduce the government's debt to the Bank. Since the 1937
there to have been a reduction in new advances made to
government appears and probably some repayment of previous loans to the govern-
ment.
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Division of Monetary
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Research
The Central Bank has suffered from frequent changes in management,
from political interference, and from bitter hostility of the commer-
cial banks, especially La Previsora. In the past the entire Board of
Directors has sometimes resigned when a new government was formed, and
few Directors have accumulated more than the 2-year experience of a
single term of office.
3. Operations of the commercial banks
Since June 1940 the commercial banks have had excess reserves,
which had exceeded 100 percent of required reserves in mid-1940, but
which fell to 80% by December and to 30% by the summer of 1941. This
excess reserve position was due in large part to the extreme caution
of the Central Bank in allocating foreign exchange: it purchased more
exchange than it sold, and payment for this excess of purchases was
made in deposit credits, which constitute legal reserves for commer-
cial banks. At the end of 1940 commercial banks had excess reserves of
13.7 million sucres--80 percent in excess of required reserves. By
June 30. 1941, excess reserves had declined to 51 percent of required
reserves, but on September 15 were 130 percent.
Table 2. -- Ecuador: Reserves and Deposits of Commercial Banks
(million sucres)
Reserves in the Central Bank
All Deposits of the Public
Date
Total
Required
Excess
in Commercial Banks 2/
1939:
March 31
19.6
13.2
6.4
94.9
June 30
24.1
13.8
10.3
101.9
September 30
19.7
13.9
5.8
99.0
December 31
19.9
14.3
5.6
102.3
1940:
18.5
14.3
4.2
105.3
March 31
June 30
28.4
14.1
14.2
112.2
September 30
31.5
15.7
15.8
123.1
December 31
30.5
16.9
13.7
130.3
1941:
March 31
29.8
13.0
128.0
16.8
June 30
28.4
18.7
9.7
141.0
22.5
9.7
12.8
119.1
September 15
1/ The term "commercial banks" here refers to all banks except the Central
Bank.
2/ Includes time deposits.
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Division of Monetary
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Research
The sharp drop in excess reserves during June and July, 1941, was
due to large-scale withdrawal of deposits and increased hoarding of
currency, occasioned by the capital levy announced in July. To replace
the notes which were said to be hoarded, the Central Bank put nearly 20
million sucres of bank notes into circulation from July to September 1941.
These developments are shown in Table 3. During the same period.it is
reported that there was a marked restriction of bank credit, " the large
increase of note issue may not have inflationary effects, at least for
the time being.
Typical bank loans in Ecuador are short-term, less than 6 months,
and are used for financing import trade or retail merchandising, where
there is a rapid turnover of goods. The banks are said to be very
reluctant to lend at long-term, even with funds deposited with them in
savings accounts, although the industrial and agricultural development
of the country requires long-term credits. However, 7 of the 13 commer-
cial banks have mortgage departments, and there are one government and
two private mortgage banks, all of which lend considerable sums at
medium or long term for mortgages. Only 20 to 30 percent of total mort-
gage loans are made directly by and held by the issuing bank. The re-
maining 70 to 80 percent are made by means of cedulas, or warrants, which
are sold in the open market and which bear the guarantee of the issuing
bank as well as of the mortgaged property.
Cedulas are practically the only securities on the Ecuadoran capital
market, and their quantity has shrunk drastically in recent years.
Cedulas outstanding in 1930 totaled 32 million sucres ($6.4 million at
the 1930 exchange rate) and had decreased to only 19 million sucres in
1936 ($1.8 million at the 1936 exchange rate). The decrease in cedulas
outstanding has been attributed by a recent foreign adviser to the con-
tinued expansion of credit and inflation of prices during 1932-1937,
which greatly reduced the real rate of return on cedulas, and may have
produced losses in terms of purchasing power during some periods.
4. Circulating medium, prices and exchange rates.
From March 1940 to July 1941. the Ecuadoran note circulation rose
sharply, particularly May to July, 1941. Bank deposits also increased
considerably. Internal prices showed only a moderate increase, and
actually decreased, February to May, 1941. However, there 10 a likeli-
hood that internal prices may rise because of excess reserves of commer-
cial banks, because the deposits of the public have risen nearly 50
percent, and because import prices are probably increasing.
Regraded Unclassified
198
Division of Monetary
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Research
Table 3. -- Ecuador: Circulating Medium, Prices, and Exchange Rates
Circulating Medium
Notes
Sight
Internal
Exchange
Period
and Coin Deposits Total
Prices
Rates
(million sucres)
(1927 - 100)
(sucres per
dollar)
1932:
December
27.7
30.3
58.0
66
6.0
1936:
December
62.4
70.4
132.8
148
10.5
1937:
December
73.6
76.2
149.8
168
13.8
1938:
December
73.1
81.1
154.2
157
14.4
1939:
March
68.1
79.8
147.9
162
14.6
June
68.5
82.4
150.9
160
15.0
September
75.3
77.4
152.6
161
15.0
December
77.8
83.9
161.7
165
15.0
1940:
March
69.2
80.5
149.7
170
15.0
June
72.6
93.6
166.2
172
18.0
September
76.7
104.2
180.9
171
16.0
December
80.0
118.4
198.4
177
15.0
1941:
February
77.4
118.7
196.1
173
15.0
May
121.7
205.0
166
15.0
83.2
July
100.3
105.5
205.8
176
15.0
In earlier years, as shown in Table 3. the increase in circulat-
ing medium corresponded fairly closely with the increase in prices and
the depreciation of the peso compared to the dollar. From 1932 to 1937
the notes in circulation increased by 165 percent, deposits rose by
150 percent and internal prices rose by 160 percent. The exchange rate
in terms of dollars more than doubled during the period 1932-1937. while
prices in the United States were rising by about 30 percent.
Regraded Unclassified
199
Division of Monetary
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Research
After the summer of 1937 the monetary circulation in Ecuador re-
mained relatively stable, and after October, 1937. internal prices
ceased rising. Subsequently the exchange rate was allowed to rise to
13.80, then in the course of another year to 15.00. The stability of
note circulation, total bank deposits, internal prices and exchange
rate in the period 1937-1940 was remarkable in view of the continued
inflation-devaluation process of the preceding six years. After May,
1940, as pointed out previously, the exchange rate rose and exchange
control was imposed.
Under the 1940 exchange control the Central Bank purchased con-
siderably more foreign exchange than it sold--its holdings of foreign
exchange increasing by 13.4 million sucres ($750.000) in the first
month. Since it paid for the foreign exchange by issuance of notes
or by opening deposit credits, the total monetary circulation rose by
an equivalent amount. Part of the deposits in the Central Bank are
held by the public, but individuals and firms tend to redeposit these
funds in the associated commercial banks, which in acquiring Central
Bank deposits increase their legal reserves. In the summer of 1940 this
created a very sizable excess reserve position for commercial banks,
and although these banks subsequently created additional deposits (a
multiple expansion of the circulating medium), they still had large
excess reserves in the Fall of 1941. These relationships are shown in
Table 2.
In the absence of an effective exchange control system, the excess
reserves, larger bank deposits and probable increases of internal prices
would put considerable pressure on the exchange rate. But under present
conditions prices have been slow to rise and even when they do rise
there need not be immediate effects on Ecuador's international exchange
position. The import control system can prevent an abnormal drain of
foreign exchange to pay for imports, even if price conditions should
increase the demand for imports. The volume of exports could be main-
tained even with an appreciable rise of domestic prices, because products
of foreign-owned enterprises (e.g., petroleum) would continue to be
shipped abroad even at lower profit rates, and tropical foodstuffs, (such
as cacao beans and coffee) are produced under virtual peonage conditions,
where rising prices may not be reflected in rising wage rates for a. con-
siderable time.
Regraded Unclassified
200
Foreign Trade
201
FOREIGN TRADE
1. Course of trade in recent years.
As in the case of most other countries, the value of Ecuador's
foreign trade declined sharply after 1929 and recovered after 1932.
By 1937 the value of her foreign trade was approximately four-fifths
of the 1929 figure. Another decline set in after 1937. but by 1940
both exports and imports had recovered to nearly two-thirds of their
1929 levels. For the first nine months of 1941 exports were running
at a rate only 7 percent below the 1936-1938 average.
Following a fairly continuous decline in the value of imports
relative to exports from 1929 to 1937. a reverse movement began in
1935. In the three years 1938 to 1940 the trade balance deteriorated
even more markedly. An excess of imports, the first in over a decade,
was shown for 1940. Chiefly responsible for this situation were B.
poor cacao crop in 1940, a reduced market for cacao and coffee exports
due to the European War, and a substantial drop in the price of
petroleum, one of Ecuador's principal exports. In the first nine
months of 1941, however, the trade balance turned sharply favorable
again and exports increased end imports decreased. Table 1 shows the
course of Ecuador's foreign trade since 1929.
2. Extent and reasons for the export excess.
Ecuador customerily has an excess of exports over imports, as
the table shows. This excess of exports, while never very large in
absolute amount, has been maintained rather near an average level of
$2.2 million, except during the past three years.
An important factor responsible for the excess of exports is the
existence of relatively large foreign direct investments in Ecuador.
These investments are chiefly in the fields of petroleum, gold, and
benene production. Not all of the foreign exchange proceeds of
petroleum, gold, and banana exports are converted into sucres and thus
available for the payment of wages, materials end taxes in Ecuedor.
Thus, the American-owned South American Development Company. which pro-
duces most of Ecuedor's cyanide precipitates. estimates that about 20
percent of the value of its exports 16 left abroad. Similarly, the
two British companies producing most of the country's petroleum have
from 25 to 30 percent of their export proceeds in foreign centers.
The result is that a part of Ecuador's international incone is not
available for expenditure on imports,
Since 1935 Ecuadoran imports have also been checked somewhat by
direct and indirect restrictions on the importation of merchandise, A
four-column tariff, with rates based on trade belances with particular
countries. was set up in 1935. Exchange-control restrictions date from
1936.
Regraded Unclassified
202
Division of Monetary
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Research
Table 1. -- Ecuador's Foreign Trade*
(Millions of Dollars)
Balance
Imports as a
Average
of
Percentage
Exchange
Exports
Imports
Trade
of Exports
Rate 2/
1929
$17.2
$17.0
$ .2
98.6
$.2000
1930
16.1
12.8
3.3
79.4
.2000
1931
11.3
8.8
2.5
77.7
.2000
1932
8.2
5.8
2.4
70.3
.1667
1933
7.4
5.3
2.1
72.0
.1667
1934
13.5
7.8
5.7
57.7
.1250
1935
11.4
9.7
1.7
85.5
.1000
1936
13.9
11.2
2.7
80.5
.0952
1937
14.9
12.0
2.9
80.2
.0910
1938
12.6
11.0
1,6
87.6
.0746
1939
11.3
10.0
1.3
88.5
.0674
1940
10.7
11.1
-0.4
103.1
.064
9 months
1940
7.8
8.5
-0.7
109.0
.061
1941
7.2
+2.5
74.0
.067
9.7
Treasury Department. Division of Monetary Research
Jenuary, 1941.
Includes all gold and silver.
Used in conversions from sucre figures.
-
Import values are stated to be c.1.f. at the frontier: in practice
they are f.o.b. costs, disregarding freight and insurance. Export
values are stated to be local market values, including duties and
charges up to the frontier: actually they are c.i.f. port of em-
barkation.
Regraded Unclassified
203
Division of Monetary
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Research
3. Effect of the war on Ecuador's trade.
The influence of the war on Ecuador's foreign trade has been
limited by (1) the overwhelming importance of the United States as B
market for Ecuador's exports and as a source of her imports, and (2)
the ability of the South American market to absorb a larger proportion
of Ecundor's exports. The United states in 1940 took almost all the
Ecuadoran output of gold and "Penama" hats, over 80 percent of the
coffee exports, and more than half the cacao and banane exports.
France was formerly an important market for Ecuador's petroleum and
coffee; while Germany had become an important market for cacao on a
compensation trade basis. American purchases of vegetable and forest
products have offset in large measure the loss of the European market
in these commodities. And most of the Ecuedoran petroleum which for-
merly went to France is now sold in the South American market.
On the import side, the reduction during 1939 stems as much from
the imposition of control over imports and bank credit (discussed below)
as from the reduced value of Ecuadoran exports. The sharp increase in
importe in 1940, however, was due mainly to the withdrawal of all import
restrictions during the first five months of the year. Imports in 1940
would have been larger had the Ecuadorane not re-imposed exchange con-
trol restrictions in June and October of that year. The abrupt decline
in imports in 1941 Was due to the combined effects of strict retioning
of exchange and unavailability of United States goods.
4. Major export commodities.
Ecuador's exports consist almost entirely of tropical vegetable
and animal products, precious metals, and crude petroleum. In 1940
agricultural foodstuffe (caceo, coffee, rice and banenas) accounted for
34 percent of total exports: the precious metals, principally gold, for
22 percent: crude petroleum for 15 percent: and miscelleneous forest
and animal products (tague nuts, toquilla "Panama" hats, crude rubber, These
balsa wood, hides and skins, and live animals) for 11 percent.
and other particulars are shown in Table 3.
It will be noted that the relative importance of precious metal
has increased substantially over the past decade, 8 percent of
total exports exports being in this category in 1929 as against 22 percent relative in
1940. On the other hand, the Cacao industry has declined in
importance from 25 percent of total exports in 1929 to 17 percent in
ment in the of the precious metals, while disease and unfavorable
1940. The higher dollar price of gold accounts for most of the improve-
weather conditions case together with lower commodity prices were principally
Regraded Unclassified
204
Division of Monetary
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Research
responsible for the showing of cacao. Crude petroleum and coffee have
also suffered a decline in their relative importance owing to lower
price levels. In both cases, however, the physical volume of exports
had risen appreciably since 1929.
5. Major markets for major exports.
The United States is an important market for nearly all of Ecuador's
principal exports. Moreover, since the outbreak of the European War
the ability of the United States to absorb large quantities of commodi-
ties formerly sold to Europe has reduced the impact of the war on the
Ecuadoran economy.
With respect to crude petroleum, 35 percent of Ecuador's 1939 ex-
ports went to Continental Europe (mainly France) and 43 percent to
South America. Japan took 13 percent. In 1940 only 6 percent went to
Europe, while Japan's share rose to 17 percent and South America's to
72 percent. The Uruguayan demand almost doubled in a year.
Cacao exports did not fare BO well. In 1938 60 percent of Ecuador's
cacao exports went to Germany, 25 percent to the United States, end the
remaining 15 percent to Continental Europe and Britain. In 1939 the
United States share increased to 44 percent, and in 1940 to over 50 per-
cent. The closing of the European market is responsible for a reduc-
tion of about $1 million in the value of cacao exports from 1938 to 1940.
In 1938 the United States took about one-third of Ecuador's coffee
exports, France about 40 percent, while the remaining 27 percent went
market in 1939, the United States increased its share to 61 percent (by
to Peru, Italy and Germany. With the virtual loss of the European
taking all of Ecuador's surplus stocks at reduced prices). In 1940 the
United States took over 80 percent of total exports.
Rice end bananas have been affected very little by the war. Rice
is exported as a rule to neighboring countries, while bananas are
shipped to the United States, Chile and Peru.
On the other hand, tague nuts have been adversely affected by the
wer, for the bulk of pre-war shipments went to Japan, Germany and Italy. de-
Toquilla "Penama" hats have suffered over the past decade from the
crease in the United States demand for "old style" hats. In 1940.
however, the Ecuadoran hat industry changed its product to meet the
style demand of the United States market, with the result that exports
of "Panama" hats recovered in this year.
Regraded Unclassified
205
Division of Monetary
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Research
Table 3. -- Ecuador's Principal Export Commodities
(Millions of Dollars)
1929 to 1940
Percent
Estimated
of Total
Exports
1929
1932
1938
1939
1940
in 1940
1941
Total
$17.21
$8.22
$12.62
$11.27
$10.72
100.0
10.2-10.9
Precious Metals:
1.42
1.13
2.64
2.85
2.36
22,0
2.4
1. Cyanide Precipitates
1.42
1.13
1.60
1.82
2.36
22.0
2.4
2. Gold and Silver, in
bars
/
1,04
1.03
a/
a/
Crude Petroleum:
3.03
2.41
1.97
1.72
1.57
14.6
1.5
Tropical Foodstuffs:
7.43
3.42
5.55
4.05
4.19
39.1
4.0
1. Cacao
4.25
1,88
2.93
2.15
1.85
17.3
1.6
2. Coffee
2.33
1.34
1.25
1.05
1,02
9.5
1.1
.93
8.7
.9
3. Rice
.85
.16
.81
.38
4. Bananas
a/
.04
.56
.47
.39
3.6
.4
Miscellaneous:
3.33
.75
1.66
1.50
1.12
10.5
1.3-1.5
1. Tagua Nuts
1.22
.20
.53
.66
.50
4.7
5
2. Toquilla "Panama"
1.36
.45
.47
.22
.28
2.6
.3
hats
.32
.20
1.9
.20-.25
3. Rubber, crude
a/
a/
.32
4. Hides and Skins
.17
.05
,18
.13
e/
a/
.10-.15
5. Balsa Wood (loge)
.04
.01
.16
.17
.14
1.3
.15-.20
6. Live Animals
.54
.04
a/
n/
a/
.05-.10
Other:
2.00
.51
.80
1.15
1,48
13.8
1.0-1.5
January, 1942.
Division of Monetary Research, Treasury Department.
/ Not shown separately.
Regraded Unclassified
206
Division of Monetary
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Research
6. Trade by countries.
Exports. As is shown below, the United States ranks far and away
as Ecuador's most important market. From a pre-war average of some 45
percent, in 1940 the United States took 60 percent of Ecuador's total
exports and 74 percent in the first nine months of 1941. The war has
interrupted trade with important European markets. Germeny took almost
a fifth of Ecuador's exports from 1936 to 1938. Exports to France
averaged nearly 10 percent of the total. The United Kingdom market has
taken on the average under 4 percent of Ecuador's exports. In 1940
Britain took but 2 percent of her exports. Japan's share has increased
from 1.8 percent in 1937 to 3.3 percent in 1940. The percentage taken
by the South American market has doubled, rising from 14 percent in 1937
to about 30 percent in 1940. Ecuador's principal South American markets
on this latter date were Uruguay, Peru, Colombia and Chile. Particulars
are shown in Table 4.
Exports
Imports
(In percent of Total)
(In percent of Total)
9 mos.
12 mos.
12 mos.
9 mos.
12 mos.
12 mos.
1941
1940
1939
1941
1940
1939
U.S.
73.6%
60.0%
49.1%
73.9%
59.4%
48.7%
Latin
23.0
27.3
19.6
6.5
5.5
6.9
America
United
in
3.7
2.0
7.2
7.5
5.5
Kingdom
Germany
-
0.0
6.8
.8
2.0
18.1
Italy
2.5
2.2
.2
4.1
3.0
1
Japan
1.0
3.3
3.9
3.9
10.4
5.2
Imports. The United States is regularly the principal source of
Ecuador's importe. As is indicated in the table above, the United States
has supplied on the average about 45 percent of her imports. In 1940 the
share jumped to 59 percent and in the first nine months of 1941 to 74
percent, Germany has been Ecusdor's second largest source of imports.
supplying an average of some 18 percent up to 1939. Britain ranks third
8.8 a supplier, with about 10 percent of Ecuador's importe coming from
this source. France and Italy together supply some 7 percent of the
imports. Imports from Japan have fluctuated a good deal, but in most
recent years have amounted to 7 - 10 percent of the total. Finally,
about 5 percent of Ecusdor's imports originate in South America. These
matters are shown in detail in Table 5.
Regraded Unclassified
207
Division of Monetary
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Research
Table 4. Ecuador's Exports by Countries
(Percent of Total)
1929
1932
1936
1937
1938
1939
1940
otal (Millions of Dollars)
$17.21
$8.22
$13.90
$14.93
$12.62
$11.52
$10.74
1.
United States
45.2%
45.3%
46.0%
33.2%
37.5%
49.1%
60.0%
2.
United Kingdom
2.7
6.4
3.3
2.7
4.7
3.7
2.0
urope:
3. Germany
5.9
5.0
14.1
21.9
17.5
6.8
0.0
4.
France
5.5
11.0
10.4
12.5
8.0
6.5
1.3
5. Italy
6.3
4.2
1.8
3.9
1.6
2.2
2.5
6.
Belgium
a
a
a
1.1
0.9
2.3
0.5
II
il
7.
Netherlends
a
2.2
1.5
2.5
0.1
II
If
II
8.
Switzerland
0.3
b/
b/
0.1
If
II
II
9.
Sweden
b/
0.4
0.7
0.3
#
II
If
10.
Denmark
0.4
0.6
1.1
0.1
If
If
#
Norway
b/
0.1
0.1
b/
sis:
"
If
II
12. Japan
1.8
2.5
3.9
3.3
outh America:
If
If
#
13.
Peru
1.7
7.4
3.5
4.7
Colombia
#
II
"
1.2
1.3
3.2
3.6
14.
15.
a
II
If
3.1
3.8
3.0
3.1
Chile
16.
Brazil
#
"
Il
1.7
2.9
1.3
2.1
#
"
II
1.1
0.2
1.4
0.6
17.
Argentina
18.
=
II
.
Uruguay
5.3
5.5
5.3
8.2
19.
Other
34.4
28.1
22.6
5.9
3.6
3.4
7.5
January
1942
reasury Department, Division of Monetary Research
Not readily available.
None reported.
Regraded Unclassified
208
Division of Monetary
- B -
Research
Table 5. Ecuador's Imports by Countries
(Percent of Total)
1929
1932
1936
1937
1938
1939
1940
Total (Millions of Dollars)
$17.0
$5.8
$11.2
$12.0
$11.0
$10.2
$11.1
1. United States
40.9%
58.1%
28.8%
39.6%
34.6%
48.7%
59.4%
la. Canada
a
a
0.4
0.3
1,4
2. United Kingdom
19.1
12.4
9.7
10.1
7.7
5.5
7.5
Europe:
24.1
24.1
2.0
3. Germany
12.6
9.2
21.3
18.1
4. France
4.4
4.6
2.3
3.1
4.4
5.0
3.6
5. Italy
4.5
2.9
2.1
2.9
3.2
3.0
4.1
6. Belgium
a/
a/
1,4
1.7
1.0
0.9
II
=
T
7. Netherlands
1.3
1.0
1.1
0.9
If
II
If
0.9
3.3
0.8
1.0
5. Switzerland
Il
If
il
1.0
0.5
0.5
9. Sweden
0.8
il
#
II
0.5
0.2
0.2
0.3
10. Denmark
n
II
H
0.4
0.6
0.6
0.3
11. Norway
Asia:
12. Japan
0,2
1.0
8.7
3.2
7.4
5.2
10.4
South America:
a
2.1
1.4
2.5
1.0
13. Peru
a
=
TI
II
b/
0.1
0.3
1.4
14. Colombia
1.4
Il
If
II
1.8
1.6
1.3
15. Chile
16. Brazil
II
If
"
b/
0,2
0.2
0.5
II
If
11
1.8
0.3
0.3
0.8
17.
Argentina
If
M
If
b/
b/
0.0
18, Uruguay
19. Other
18.4
11.8
27.1
5.5
6.8
5.4
2.6
January 1942
Treasury Department, Division of Monetary Research
Not readily available.
None reported.
Regraded Unclassified
209
Division of Monetary
- 9 -
Research
7. Trade balance by countries.
Except for 1940, Ecuador has regularly had favorable trade balances.
These have averaged $2.2 million since 1929. In 1937. about 80 percent
of Ecuador's trade was carried on with the United States and Europe in
roughly equal proportions. With respect to the favorable trade balance,
however, that with Europe was 10 times as large as that with the United
States, or $2.1 million as compared with $210,000. The trade balance
is heavily favorable to Ecuador in the case of her trade with South
American countries. On the other hand, unfavorable belances are regularly
shown for Ecuador's trade with the United Kingdom, Japan and Canada.
The tendency to greater unfavorable balances with most of Europe and
Japan has been in evidence since 1938. And in 1940 Ecuador's long stand-
ing favorable trade balance with the United States was reversed. Her
large favorable balance with neighboring South American countries has con-
tinued to date. The details regarding Ecuador's balance of trade with
various countries are shown in Table 6.
Regraded Unclassified
210
Division of Monetary
- 10 -
Research
Table 6. Ecuador's Trade Balance by Countries
*
e
(Millions of Dollars)
1937
1938
1939
1940
Total
$2.9
$1.6
$1.3
-0.4
1. United States
.21
.90
.62
- .18
la. Canada
(-.07)
(- .05)
(-.04)
- .16
2. United Kingdom
-.81
-.27
-.14
-,61
Europe:
3.
Germany
.39
-.46
-1.06
-.22
4. France
1.50
.53
.23
-.26
5. Italy
.23
-.16
-.07
-.19
6. Belgium
0.00
-.08
-.16
-.05
7.
Netherlands
.17
.08
.17
-.09
8. Switzerlend
-.07
(-.36)
-.05
-.10
-.05
9.
Sweden
(-.10)
-.06
.03
10.
Denmark
0.00
.06
.10
-,02
11. Norway
(-.05)
-.05
-.04
-.03
Asia:
.18
-.51
-,10
-,81
12. Japan
South America:
13.
Peru
.01
.78
.13
.40
(.18)
.15
.33
.23
14.
Colombia
15.
Chile
.24
.30
.20
.17
16,
Brazil
(.26)
.35
.13
.17
17.
-,06
-.01
.12
-.03
Argentina
18.
(.79)
(.69)
(.60)
.88
Uruguay
Treasury Department, Division of Monetary Research
January 1942
*
Figures in parenthesis denote that data for one of the trade factors, that
exports or imports, were lacking. A positive figure denotes
only the export figures are taken into account, and vice versa.
Regraded Unclassified
211
Public Finance
Regraded Unclassified
212
PUBLIC FINANCE
1. The deficit in 1940 was 7 million sucres in the ordinary budget,
but there was a surplus of 3 million sucres in the extraordinary budget.
Fiscal results for 1939 and 1940 are shown below and for earlier years
in Table 1.
(Millions of sucres)
1939
1940
Ordinary budget revenues
117.2
110.0
expenditures
121.9
117.0
balance
- 4.7
- 7.0
Extraordinary budget revenues
10.4
9.3
expenditures
8.2
6.0
balance
+ 2,2
+ 3.3
Net deficit
- 2.5
- 3.7
2. Revenues during the first 8 months of 1941 were about 7 percent
below the corresponding period in 1940, as indicated in the following
table:
(Millions of sucres)
8 months
8 months
1940
1941
Import taxes and consular fees
28.8
20.0
Government monopolies
14.6
18.3
Income tax
4.4
6.1
Other revenues
25.8
24.2
Total
73.6
68.5
3. With Treasury receipts for 8 months amounting to 68.5 million sucres,
a yearly rate of 102 million sucres, it would appear that a sizable defi-
cit, or an accumulation of unpaid bills, salaries, etc., would occur.
The Government states, however, that 8-month expenditures are slightly
less than revenues and that Ecuador is operating on the basis of a bal-
anced budget. For example, expenditures are not made if there are no
funds available and the Government does not borrow from other sources.
On the other hand, a press report from Guayaquil dated December 30,
1941 stated that Ecuador is expected to close the year with a budget
deficit of 12 million sucres, according to an estimate based on revenues
collected in that month.
Regraded Unclassified
213
Table 1. - Ecuador: Actual Revenues and Expenditures
Ordinary Budget
(In Millions)
Sucres
Exchange
Dollar Equivalent
Dec. 31
Revenues
Expenditures
Balance
Rate
Revenues
Expenditures
Balance
1941
117.2
117.2
$.0666*
$ 7.8
$ 7.8
$
1940
110.0
117.0
- 7.0
.0632**
7.0
7.4
- .4
1939
117.2
121.9
- 4.7
.0674
7.9
8.2
- .3
1938
120.8
129.6
- 5.8
.0746
9.0
9.7
- .7
1937
87.1
80.9
6.2
.0910
7.9
7.4
.5
1936
77.5
76.4
1.1
.0952
7.4
7.3
.1
1935
66.4
64.1
2.3
.1000
6.6
6.4
.2
1934
48.3
48.3
.0
.1250
6.0
6.0
.0
1932
42.2
42.2
.0
.1667
7.0
7.0
.0
I
1930
60.8
60.8
.0
.2000
12.2
12.2
.0
2
1928
61.6
58.6
3.0
.2000
12.3
11.7
.6
-
Treasury Department, Division of Monetary Research
January, 1942
Budgeted
.
Official selling rate
** Weighted average of Central Bank "free" selling rate (Ja nuary-May) and "official" rate (June-
December).
Research
Division of Monetary
earaded Unclassified
214
Division of Monetary
- 3 -
Research
4. It is known that in the period 1932-1938 the Ecuadoran Government
borrowed heavily from the Central Bank. Official statistics as to
government revenues and expenditures do not, however, indicate heavy
budgetary deficits during this period. On the contrary, as is shown
in Table 1, they indicate an approximate balance between revenues and
expenditures or the existence of a surplus. This circumstance is to
be explained by the following factors:
(a) The revenue and expenditure figures apparently apply
only to the ordinary and not to the extraordinary budgets.
Extraordinary budgets have been a normal feature of Ecundor's
public finance system in recent years. Usually, however, the
extraordinary budgets are small compared to the ordinary
budgets and they are generally balanced by receipts from extra-
ordinary sources (though the latter may include some borrowed
funds).
(b) Among the sources of ordinary revenues 1e an item
for miscellaneous receipts which is believed to include the
proceeds of public borrowings. In recent years this item has
varied from 3 to 21 percent of total ordinary revenues (see
Table 2).
5. In the 1942 budget estimated revenues are roughly 2.5 million
sucres higher than those estimated for the 1941 budget. and proposed
expenditures are increased accordingly. Comparative figures from the
two budgets are shown below:
(In millions of sucres)
1941
1942
$ in 1942
Estimated Revenues
Government monopolies
8.0
8.2
6.3
National services
8.0
9.1
7.0
Indirect taxes
76.1
70.9
54.2
10.4
17.7
13.5
Direct taxes
14.7
13.7
10.5
Other ordinary revenues
Total ordinary revenues
117.2
119.6
91.5
Extraordinary revenues
8.7
11.2
8.5
130.8
100.0
Grand total
125.9
Regraded Unclassified
215
Division of Monetary
- 4 -
Research
Estimated Expenditures
1941
1942
$ in 1942
National Defense
24.7
24.7
18.9
Education
20.3
20.1
15.4
Public Works
12.9
12.8
9.8
Other ordinary expenditures
59.3
62.0
47.4
Total ordinary
117.2
119.6
91.5
Extraordinary budget
8.7
11,2
8.5
Grand total
125.9
130.8
100.0
6. The major sources of ordinary revenue in recent years have been
import duties and receipts from government monopolies (particularly
alcohol and tobacco). The proportion of total revenue accounted for by
these two items has varied considerably in recent years but is generally
in the vicinity of 25 percent for each of them. Other important sources
of revenue include income from port and communication services provided
by the government, accounting for 5 to 10 percent of total revenues, and
income from government mines and railways accounting for another 5 to 10
percent.
7. Total ordinary expenditures have roughly doubled since 1929, amount-
ing currently to about 120 million sucres as compared to 63 million
sucres in the former year.
The major increases in expenditures have occurred in connection
with national defense and education which have roughly trebled as com-
pared with 1929.
The most important items of expenditure are national defense, edu-
cation and public works in that order of importance.
8. Though official statistics indicate substantial deficits for the
first time in 1938, the deficits reported since then are probably small
compared with the actual deficits of the preceding years.
In recent years budgetary deficite have been financed almost ex-
clusively by borrowing from the Central Bank, except for a small exter-
nal loan of $1 million obtained from Itely for purchase of munitions.
As indicated elsewhere, the government debt to the Central Bank has
been considerably reduced below what it would have been by the use of
profits of gold revaluation in 1935 to reduce this indebtedness.
Regraded Unclassified
216
Table 2. -- Ecuador: Actual Government Revenues from Major Sources
(Ordinary Budget)
(Thousands of Sucres)
1932
1933
1934
1935
1936
1937
1938
1939
1940
1941
Total (Dollars)
$ 7,028
$ 6,975
$ 6,035
$ 6,649
$ 7.374
$ 7,930
$ 9,014
$ 8,826
$ 7,145
$ 7.806
a
Total (Sucres)
42,162
41,842
48,282
66,486
77,463
87,138
120,500
130,950
113,050
117,200
Taxes:
29,454
32,609
40,157
61,934
61,624
68,276
96,470
95.370
88,950
92,222
1.
Export Duties
2,109
1,460
2,470
2.703
429
322
550
400
b/
2,
Import Duties
9,418
9,802
15,326
23,642
23,094
21,642
33,000
31,000
25,300
25,000
3.
Monopolies:
12,192
14,342
14,162
21,537
18,306
22,299
35,000
32,000
32,700
33,500
(a) Alcohol & Tobacco
8,653
9,863
b/
17,529
b/
b/
6
b/
b/
(b) Salt and Matches
3.538
4,479
b/
4,008
b/
b/
b/
b/
5
4.
Consular Fees
1,177
1,324
2,405
4,929
5.573
6.955
5,700
8,000
5.
Sales Tax
1,320
1,356
2,126
2,528
5,070
5.560
4,500
6,500
b/
6.
Rural Property Tax
1,175
1,532
1,268
2,231
2.777
4,490
4,500
4,500
b/
7.
Income Tax
1,083
1,554
1,321
2,861
3,876
4,125
5,100
6,300
b
b/
8.
Tax on Bequests
321
557
200
234
373
374
550
500
b/
9.
Stamp Tax
606
619
767
1,075
1,868
2,164
4,500
4,700
b/
10. Other
53
63
112
194
258
345
3.070
1,470
30,950
33,722
National Services
2,152
2,306
3,159
3,668
4,475
5,510
5,590
11,770
7.830
7.970
Income from National
Properties
1,717
2,706
2,091
2,598
1,929
2,858
8,500
8,565
8,365
8,031
Miscellaneous
8,839
4,221
2,875
2,289
9,435
10,494
9,940
15,245
7.905
8.977
This figure is quoted as the total by official publications, even where the detailed figures here listed are
Research
itemized. However, adding these figures results in a total of 70.489 million sucres.
Division of Monetary
b/ Notreadily available
This consists of port charges, mail, and telephone and telegraph revenues.
This consists of revenues from railways, mines, and other national properties.
Includ revenue from loans, treasury reserve, special funds, coined silver and mortgage bonds.
Inclassified
217
Public Debt
Regraded Unclassified
218
PUBLIC DEBT
1. Ecuador's public debt consists largely of an internal debt in the
form of a consolidated loan held by the Central Bank and an external
debt which 18 almost entirely in default.
2. External debt.
Ecuador has the longest history of default on its foreign debt
of any country in South America. Not only have there been repeated
defaults of unconditionally guaranteed loans but, in addition, the
government has several times pledged customs revenues against a new
loan which were already pledged against an outstanding loan.
The external debt is largely a sterling debt although a con-
siderable part of the bonds are held in the United States. The dol-
lar equivalent of the now outstanding pre-1929 debt is as follows:
(a) The Guayaquil-Quito Railway guaranteed bonds--
$10.7 million with accumulated arrearages since 1914 of
about $14 million.
(b) Salt Bonds, $600,000. in arrears since 1929.
(c) Condor sterling bonds, $500,000. in arrears
since 1921.
Despite the existence of this outstanding defaulted debt, the
Ecuadoran Government and the Mortgage Bank, in 1927 and 1929, nego-
tiated two loans totalling $3 million with the Swedish Match Monopoly.
both of which were settled in 1935 at 22 cents on the dollars. In 1937
a loan was secretly negotiated with Italy amounting to $1 million, to
be used for the purchase of munitions. This five-year five percent
loan has been serviced. so far as is known, through 1940.
On occasions such as 1928 to 1930, when funds were available for
foreign debt service they were used to purchase Guayaquil and Quito
Railway bonds in the open market at & fraction of par.
There have apparently been no recent negotiations for the settle-
ment of the Ecuadoran external debt. Ignoring the Italian loan, the
external loan has a principal amount of about $12 million
with remaining accrued interest of approximately another $12 million. If, the fol-
principal and half of the accrued interest is recognized in about the settle-
lowing the precedent in certain other foreign debt settlements,
ment, then the foreign debt thus scaled down will amount to
Regraded Unclassified
219
Division of Monetary
- 2 -
Research
$18 million. If interest and amortization payments were to be resumed
at 3 percent and 1 percent respectively, the annual service charges on
the Ecuadoren foreign debt would amount to about $750,000 per year or
approximately 10 percent of the average revenues of the Ecusdoran
Government in recent years.
In May, 1940, the Export-Import Bank made a loan of $1,150,000 to
Ecuador, of which $900,000 is for road-building. $200,000 for railway
equipment and $50,000 for agricultural development. The disbursements
under this loan have amounted to $382,231. repayments to $16,483, and
availabilities to $767,769.
3. Internal debt.
The present internal debt of the Ecuadoran Government consists
of a consolidated loan and a government account at the Central Bank.
At the end of December 1934 this Central Bank debt amounted to 37 mil-
lion sucres, or $3.1 million at the then current rate of exchange.
Part of the profits of gold revaluation in December 1935 were used
to reduce the government's indebtedness at the Central Bank to 19.6
million sucres or $1.9 million. Thereafter the consolidated end flost-
ing debt stood as follows at the end of December:
1936
16.9 million sucres or $1.6 million
1937
26.0 million sucres or $1.9 million
1938
29.7 million sucres or $2.1 million
1939
29.2 million sucres or $1.9 million
1940
26.0 million sucres or $1.7 million
1941(July) 27.9 million sucres or $1.9 million
Regraded Unclassified
220
Direct Investments
Regraded Unclassified
221
FOREIGN DIRECT INVESTMENTS
1. United States direct investments in Ecuador were estimated by
the Department of Commerce in 1936 at $5 million; other estimates
range up to $12 million. Most of the remaining foreign direct invest-
ment is British. Apparently the American investment is about one-
half of the total.
2. Principal American investment is the South American Development
Company which controls the principal--if not the only--gold mines now
being actively exploited. The petroleum industry is being developed
by British capital and represents the only major increase in foreign
direct investments in Ecuador since before the World War, The foreign
direct investment in public utilities is represented by an American
investment in light and power and the British investment in the tele-
phone system in Guayaquil. The cable service is furnished by All
America Cables. The insurance business is dominated by British and
American companies.
3. Until recently the air transportation was divided between the
German control of the local air lines through a registered Ecuadoran
company and international service supplied by Pan American Grace
Airways. The German lines have been recently squeezed out.
4. Early in 1938 the government decreed that existing concessions
held by foreign companies could be revised whenever advisable in the
public interest. Thereafter the changes in the concessions took the
form of additional tax burdens, loss of privilege of importing mater-
ials free of customs duties, etc. For instance, the South American
Development Company was forced to agree to an increase in the produc-
tion tax from 6 to 12 percent and to pay customs duties on imports which
it had previously been able to bring in free of duty. The banana com-
panies-Americen controlled--were subjected to a limitation of 80,000
hectares on the amount of their land holdings and were required by the
Decree of July 8, 1938 to sell any excess to natives within five years
in small plots. They were also required to purchase 50 percent of all
their bananas from native producers.
However, new legislation in October, 1941 repealed the 1938 laws
on foreign capital and asserted that "the Ecuadoran State respects the
judicial concept of contracts." The purpose of the repeal was to attract
United States capital.
Regraded Unclassified
Treasury Department
222
Division of Monetary Research
Date November 24,1942.19
To:
Secretary Morgenthau
From:
Mr. White
YDU
Mr. Plumptre of the Canadian Treasury
left a memorandum on Canada's U.S. dollar
position. It was written at the suggestion
of Dr. Clark, Deputy Minister of Finance, to
"correct" the impression which he heard you
had, namely, that Canada's U.S. dollar posi-
tion is better than it has been at any time
since the outbreak of war. The report was
drawn up presumably to show that Canada's
position is not improving.
Our analysis of the report and of the
general situation, however, indicates that
Canada's U.S. dollar position is not getting
worse, that her total international financial
position (1.e., vis-a-vis all countries) has
proved during the war and that the prospects
Le for continued improvement both vis-a-vis
the United States and vis-a-vis all countries.
223
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 23, 1942
TO
Mr. White
FROM
Miss Kistler
Subject: Canada's U.S. Dollar Position Since the Outbreak of war.
The attached document, submitted by Mr. Plumptre, contains no new
information, apart from a few minor revisions of figures for the early war
period. It summarises Canada's balance of payments vis-a-vis the United
States during the first three years of war in such a way as to highlight
Canada's cash deficit of U.S. dollars and the means by which it was
financed. Instead of proving a lack of any basis for optimism, the
document seems to me to give support to the opinion reputedly held by the
Secretary.
The document, however, sets forth a number of interesting facts:
1. The Cenadian Government's holdings of gold and U.S. dollars at
the close of September were as large as at the beginning of war - that is,
260 million. (They have since risen $25 million).
2, The entire decline in Canada's liquid U.S. dollar reserves is
represented by a decrease in Canadian private balances in tids country,
which have been reduced to minimum working levels - or by $130 million.
3. In addition, Canadians have sold $109 million of U.S. securities
and other assets in the United States as well as $203 million of Canadian
securities and other assets in Canada. (The figures included here for the
first sixteen months of war are $26 million lower than those previously
reported to us).
This brings the total increase in Canada's net debtor position vis-a-
vis the United States since the outbreak of war to over $400 million. But
this is only part of the story. Against this must be set the much greater
improvement which has occurred in Canada's position vis-a-vis the United
Kingdom; Canada has repatriated 8675 million of U.K.-held Canadian securities,
extended a $630 million loan to the British Government and granted a -900
million gift to finance British purchases in Canada.
4. The remainder of the $1.1 billion cash deficiency reported by the
Canadian Government in its transactions with the United States since
Leptember 1939 has been met in part by the sale of gold and dollars re-
ceived by Canada from third countries ($335 million) and in part from re-
ceipts from Hyde Park transactions ($291 million). Neither of these opera-
tions, however, represent a worsening of Canada's U.S. dollar position.
The use of receipts from third countries, with which she has & favorable
Regraded Unclassified
224
Division of Monetary
Research
- 2 -
balance of payments, is the customary way for Canada to meet her adverse
balance vis-a-vis the United States, while the distinction drawn in the
document between Hyde Park exports and other current receipts is an arti-
ficial one for purposes of evaluating changes in Canada's international
debtor position.
Regraded Unclassified
Handed to 11. lite b Mr. Plumptre, Nov. 20, 1942, 2:30 P.M.
The Worsening of Canada's U.S. Dollar Position during
the War and its Growing Dependence upon
Foreign Borrowing and Hyde Park
Exports,
IFIDENTIAL
month on the following Table entitled, Canada's Balance of Payments with the United
States Sept. 15, 1939 to Sept. 30, 1942.
Canada's liquid U.S. dollar position is worse than at the outbreak of the war
by the amount of the decline in total liquid reserves, $131 million.
The recovery of our official stock of monetary gold and U.S. dollar balances,
despite` our mounting needs for U.S. dollars, has been achieved by the use of
gold purchased from the United Kingdom and dollars obtained from other countries,
by sales of our foreign assets and of Canadian securities abroad, by receipts
under the Hyde Park agreement, and by the loss of our private balances of U.S.
dollars in that order of importance.
the changing relative importance of these ways of meeting our U.S. dollar
deficite is indicated by the following table:
Percentage contribution to meeting Canada's U.S. dollar deficit
Total
Sept. 15/39
1941 &
war
Secrees of Funds
to Dec.31/40
1942
Period
(1) Loss of total liquid reserves
15%
10%
12%
(2) Gold and U.S. dollars obtained from
United Kingdom and other countries
65%
10%
30%
(s) Canada's foreign borrowing
20%
33%
20%
(4) Hyde Park receipts
-
42%
26%
(8) Errors and omissions in the estimates
%
$
-
100%
100%
100%
From this table it will be observed -
1. That loss of exchange has been important in both periods.
2. That our foreign borrowing (1.0. sales of our foreign assets and of
Canadian securities abroad) has been a large factor and grows in
relative importance,
5. That the proportionate importance of Hyde Park receipts in the recent
period in meeting our mounting deficiency of U.S. dollars is not
yet as great as was that of gold and U.S. dollars from other countries
in meeting our deficit in the earlier period.
Regraded Unclassified
-2-
X asture of Canada's foreign borrowing is indicated in the following table:
Relative importance of the forms of capital imports
Total
Sept. 15/39
1941 &
war
to Dec.31/40
1942
Period
1) United States purchases of
Canadian securities
22%
51%
43%
(2) Sales of U.S. and other
foreign securities and other
forms of foreign assets
40%
33%
35%
B) Other U.S. investments of
(a)
capital in Canada (including
short term)
30%
10%
22%
(b)
100%
100%
100%
(e)
1. The dominent position of the sale in the United States of securities held
by residents of Canada.
2. That this took the form, in the earlier period, of the sale of U.S. and
other foreign securities.
3. That more recently sales of Canadian securi ties have been much more
important.
% should be added that nearly all the Canadian securities sold to the United States
are been bonds payable in U.S. dollars.
(a)
(b)
CANADA'S UNITED STATES DOLLAR POSITION
Sept.15, 1939 - Sept.50, 1942
(in millions of U.S. dollars)
(e)
arience over the whole of the war period
reserves of monetary gold and U.S. dollars decreased 131
Decrease in official balances
.....
1
Decrease in private balances
130²
stal U.S. dollar deficit for the period amounted to 1,115
Less decrease in Canada's
131
reserves
Deficit mt otherwise
........
984
remaining deficit was met -
(1) with U.S. dollars from other countries:
gold from the United Kingdom
227
dollars from other countries
108
335
(2) Canada's foreign borrowing
312
(s) Hyde Park receipts
291
938
Errors and omissions in the calculations
46
984
to the war, a very large propartion of Canada's exchange reserves was held by
to rather than official agencies. In the spring of 1940, the Foreign Exchange
Board, which had been charged with responsibility for mmaging the country's
age reserves, took over all such balances in private hands, other than the
amount considered essential for day-to-day working balances.
Regraded Unclassified
-3-
ience before the Hyde Park Agreement, Sept.15/39 - Dec.31/40
da's reserve of monetary gold and U.S. dollars decreased
61
Increase in official balances. 69
Decrease in private balances 130
Total U.S. dollar deficit for the period
414
Less decrease in Canada's reserves 61
Deficit met otherwise
353
This remaining deficit was met -
(1) with U.S. dollars from other countries:
gold from the United Kingdom . 227
dollars from other countries 41
268
(2) Canada's foreign borrowing
82
350
Errors and omissions
5 353
rience since the Hyde Park Agreement, 1.e., Jan.1/41 - Sept.30/42
Denada's reserve of monetary gold and U.S. dollars decreased
70
Decrease in official balances : 70
total U.S. dollar deficit for the period
701
Less decrease in Canada's reserves
70
Deficit met otherwise
631
No remaining deficit was met -
(1) with U.S. dollars from other countries:
gold from the United Kingdom
....
0
dollars from other countries
67
67
(2) Canada's foreign borrowing
230
(3) Hyde Park receipts
291
588
Errors and omissions
43
631
Regraded Unclassified
Canada's Balance of Payments with the United States
Sept. 15, 1939, to Sept. 50, 1948,
A Summary Statement. (Revised to date)
(in millions of United States dollars)
Item
Sept.
Calendar Years
1942
Totals
No.
15,
(to
Sept.15,
1941
Total
1939
1940
1941
Sept.
1939
and
our
to
30)
to
1948
print
Dec.51,
Dec. 31,
3
1939
1940
Sept.30
I
II
III
IV
Y
VI
VII
Dellars.
with the United States:
1
266
1,039
1,191
1,069
1,305
2,260
3,545
by
Setate
(exaluding Hyde Park
of. item 10)
a
213
735
905
714
948
1,619
2,567
your
payments ever receipts (1-2)
3
53
306
205
355
357
641
996
- Capital Account:
and other capital payments
6
51
42
18
57
$
119
5
59
355
388
375
414
701
1,115
the
ADM
Emporte by Canada:
sale is the United States of Camdian
billings of U.S. and foreign securities and
6
11
as
$
36
33
76
109
investments abroad.
ano
herrowing by the sale of Canadian
7
7
11
31
86
18
117
185
date
time is the United States
investments of United States capital
14
31.
57
60
a
24
7
as
9
42
40
94
156
BE
230
518
ital imports (6/7/8)
Y
V.S. dollars obtained by transactions
233
-
291
291
10
-
-
56
r
Ryde Park agreement
to the United States of gold purchased
-
287
1
327
11
2
225
United Kingdom
of U.S. dollars obtained from transactions
and other non-sterling area
21
20
24
45
41
67
108
18
the outside the United States
=
196
4.12
350
588
938
15
285
(* (0/10/11/18) 10 + 18)
-188
+30
-64
-113
-197
6 or Surplus (f) of United States dollars (5- (5-13).14
to
-70
(f) or Decrease (-) in Canada's Stock of
United States Dollars.
impos in official balances:
/13
-81
-14
-68
-14
-62
15
in monetary gold,
/105
-142
486
+137
-56
A81
16
/32
United States dollar balances
-182
+72
+69
of
-1
total official balances (15 t 16)
17
45
124
-
-130
-
-130
- in Private Balances:
reduction in private United States dollar balances
18
-37
-93
-69
172
-61
-70
-131
-142
Total change (17 t 18)
19
to
10
33
3
45
46
from and Omissions (14 of. 19)
20
2
1
Regraded Unclassified
5.
CANADA'S BALANCE OF PAYMENTS WITH THE UNITED STATES,
SEPTEMBER 15, 1939 TO SEPTEMBER 30, 1942 - FOOTNOTES
TO THE TABLE
Sources of information
1. For the years 1941 and 1942, the U.S.Dollar forecast made October, 1942.
2. For 1940, the Dominion Bureau of Statistics calculations of our balance of
payments with the United States converted to a U.S. dollar basis and modi-
fied slightly, in the light of the most recent information, by Mr. C. D.
Blyth, of the Foreign Exchange Control Board.
5. For September 15, 1939, to December 30, 1939, a special compilation made by
Mr. Blyth.
In general the estimates for 1940 are believed to be less reliable than
those for the later period, and the estimate for the autumn of 1939 is necessarily
arbitrary in some items in allocating some portion of the yearly total to the autumn
months of the year.
Bond anturities in the United States (Item 4).
For 1940 the annual total has been reduced from the former figure of $65
million to $51 million because of the following transaction. In August, 1939, the
Bell Telephone Company sold a $25 million bond issue in the United States, and with
the proceeds (which were not sold to the F.E.C.B.), paid off their own securities
(which were called for redemption) $11 milliom in the autumn of 1939 and $14 million
in 1940. Because this increase in Canada's private U.S. dollar balances in 1939 and
the decline in 1940 were not taken into the changes in stocks of U.S. dollars, the
mturities in 1959 and 1940 have been omitted likewise.
Short term borrowing in connection with Grain Trade Financing
In 1939 the Wheat Board, to facilitate the export of wheat for storage in
the United States and to assure the receipt of hard currency when the grain should
be sold, mde arrangements with grain companies in Canada and the United States which
bed the effect of a short term capital import. In 1940 these arrangements were aban-
and the short-term capital imported in 1939 was repaid in 1940 and 1941. The
- to comcerned have been included in Item 4 for 1940 and 1941, and in Item 8 for
1939. The latter entry explains the unusual size of the amount for the autumn of
1939 in Item 8.
Regraded
6.
E. Park receipts, Item 10.
The amounts here used are obtained from the October U.S. dollar fore
carb Table IV, Item 4. They are less than the amount used in Table I of the
October forecast, as good lend-leased to the United Kingdom and transferred to
Canada have been excluded.
Regraded Unclassified
231
NOT TO BE RE-TRANSHITTED
COPY NO.
13
BRITISH MOST SECRET
U.S. SECRET
OPTEL No. 408
Information received up to 7 A.M., 23rd November, 1942.
1, NEVAL
BOUGIE. 21st. 10 onemy aircraft attacked n the harbour, destroying
: lending craft and 1,000 gallons of petrol. One of H.M. Submarines senk L south-
yound oscorted 4,000 ton ship south of SARDINIA on the 11th.
Another of H.M. Submarines sank nn east-bound 6,000 ton passenger
this off MESSINA on 17th.
On the 21st, 700 miles south-south-weat of FREETOWN, an enemy
blockude runner was scuttled on the approach of & U.S. Cruiser. Some risoners
were captured.
2. MILITARY
LIBYA. Columns of 4th light armoured brigade are advancing along
the 1008--BANGHAZI und BARCE - EL ABIAR roads, but owing to mines progress is slow.
Further South, 7th Armoured Division made contact with enomy defences
on the ?1st and our advanced elements reached the area insodiately north-cost of
J.D.BYA.
The quaya at BENGHAZI have suffored extensive damage, and the water
supply has been destroyod:
3. AIR OPERATIONS
WESTERN FRONT. 22nd. 11 U.S. Fortresses bombed LORIENT and possibly
hit & ship. In operations over the BAY OF BISCAY enemy casualties were 2, nil, 3.
Ours 1, nil, nil.
22nd/23rd. 221 bombers were sent to STUTTGART, 10 are missing. Pre-
liminary reports indicate successful attack with fires well concentrated.
LIDYA. TRIPOLI will bombed by U.S. Liberators on 21st end R.A.F.
Liberators on 21st/22nd. A warehouse and ossibly an ammunition dump were hit.
SICILY. On 21st/22nd and 22nd, airfiolds at TRAPANI, GELA and COMISO
are attacked with bomba and/or cannon fire.
mediterrinean. 21st/22nd. 5 strongly escorted south bound ships
vera unsuccessfully attacked south-south-west of SARDINIA. On the following night
I of 3 ships 100 miles east of CAGLIARI WILD torpedood.
On 22nd fighters intercopted enemy aircraft near PANTELLARIA. Enemy
"sualties 6, nil, 2. Ours 1, nil, nil.
FRENCH NORTH AFRICA. 21st, Escorted U.S. Fortresses bombed mirficld.
THIS and BIZERIA. Enomy casualties - in the air - 4, nil, nil. On the Ground -
5, 20.
21st/22nd. Wellingtons Grop ed 10 tons of bombs on BIZERTA Irfiele
BURMA. 20th. B U.S. Liberators bombod railysy installation at
ANDALITY. At night R-NGOON and TOUNGOO cirfields word attacked.
Regraded Unclassified
232
November 23, 1942.
Dear NP. Langer:
Thank you for sending me the copy of
"Intercepts Digest No. 19°, which has been
prepared is your effice. I have read this
brief with a great deal of interest and shall
be glad to ... further documents of this nort
as they are issued.
Sincerely,
(Signed) H. Morgenthau, Jr.
Honorable Villiam L. Langer,
Director, Branch of Research & Analysis,
Office of Strategie Services,
Washington, D. c.
File in Diary
GEF/dbs
Regraded Unclassified
233
OFFICE OF STRATEGIC SERVICES
WASHINGTON, D. C.
November 5, 1942
The Honorable
The Secretary of the Treasury
Washington, D. C.
Sir:
At the suggestion of Mr. Alvah
Sulloway of this office, I am transmitting
herewith a copy of "Intercepts Digest
No. 19," prepared in the Research and
Analysis Branch of the Office of Strategic
Services and classified as confidential.
I am asking that your name be placed on
the distribution list to receive the
Digest regularly.
Sincerely yours,
William William L. Langer L.Lauger
Director, Branch of
Research & Analysis
Enclosure
00: A. Sulloway
Regraded Unclassified
Treasury Department
234
Division of Monetary Research
Date Nov. 24, 1942
To:
Mrs. McHugh
There is nothing of outstanding
current interest.
H.D.W.
MR. WHITE
Branch 2058 - Room 214}
Regraded Unclassified
235
11/23/42 - From Mrs. McHugh, for you
"to read and mark anything you think
236
the Secretary would be interested in."
Issue No. 19
INTERCEPTS DIGEST
Franco and tho German Occupation:
Opposition Activitios and Movemonts
OFFICE OF STRATEGIC SERVICES
Rosearch and Analysis Branch
Contral Information Division
NOTICE
This publication is rostrictod to Government officials
whoso knowlodge of its axtromoly confidontial contonts is
ossential to tho prosocution of tho war. In no caso shall tho
matorial bo copiod, roproducod, widoly distributed, or made
public in any form without tho expross consont of tho Diroctor
of Consorship.
105
Copy No.
(4737)
Regraded Unclassified
237
CONFIDENTIAL
EDITOR'S NOTE
This publication is a digest of confidential docu-
ments received from The Office of Censorship. The information
contained in these documents is abstracted by The Office of
Censorship from the following types of matter emanating from
various countries and intercepted by American and British cen-
sors: (1) personal communications, (2) business and commercial
communications, (3) newspapers and sundry literature, (4) trade
bulletins and reports, (5) press and radio bulletins, (6) Relief
Society Reports, (7) Reports by the Red Cross, (8) letters from
prisoners of war in bolligerent countries. No claim is made
by the Office of Censcrship for the roliability of information
intercepted from such channels.
The aim of thoso digosts is not to conjecture upon
actual conditions; but irrospective of existing fact, to ana-
lyzo morely the picture of conditions which appoars in the intor-
copts. The information included in the following pagos is of-
fored for whatover intorprotation the roador - recognizing the
uncortainty of its character -- may 300 fit to put upon it.
All documents from which this digost was propared are
on file in the Central Information Division and can be obtained
for further study on request to tho Intercopts Unit, Room 104,
South Building, Extension 2252.
(4737)
Regraded Unclassified
238
CONFIDENTIAL
TABLE OF CONTENTS
Page
SUMMARY
i
I. SABOTAGE, STRIKES, LABOR TROUBLE
1
II. ATTEMPTS AT REVOLT, MILITARY PREPAREDNESS,
ASSISTANCE TO THE ALLIES
9
III. ATTACKS, ASSASSINATIONS, ETC
14
IV. DEMONSTRATIONS, FOOD RIOTS, PASSIVE RESISTENCE
19
V. PEASANT OPPOSITION
25
VI. HELP TO ESCAPING REFUGEES, PRISONERS OF WAR.
27
VII. CLANDESTINE PRESS
29
VIII. RADIO: ALLIED PROPAGANDA BROADCASTS
40
IX. RESISTENCE GROUPS AND ORGANIZATIONS
43
Communists
Socialists
Trade Unions
Rightist Opposition
French Police
French Navy and Merchant Marine
Opposition of Foreign Refugees
Refugees from Alsace Lorraine
Religious Opposition
Masons
Jews
Youth Organizations
Resistance of the Intellectuals
De Gaullists
Anti-De Gaullists
(4737)
Regraded Unclassified
239
CONFIDENTIAL
SUMMARY
Approximately 230 intorcopts doaling with opposition
to the Nazis in Franco wore received in tho Intercepts Unit,
and thoy doal with mumerous idoologios and activities. Tho
activities described in the intercopted matorial more or loss
divido thomselves into the following distinct types: (1) acts
of sabotage, strikes, otc.; (2) actual attempts at rovolt,
military assistanco to the onomy, such as that rendored tho
British Commandos at St. Nazaire; (3) attacks and assassinations;
(4) demonstrations, food riots, and passivo rosistanco; (5)
poasant rosistance; (6) holp to oscaping refugees and prisoners
of war; (7) clandostino pross; and (8) radio propaganda, and
listoning to Alliod broadcasts.
(4737)
Regraded Unclassified
240
CONFIDENTIAL
FRANCE AND THE GERMAN OCCUPATION: OPPOSITION
ACTIVITIES AND MOVEMENTS
I. SABOTAGE, STRIKES, LABOR TROUBLE
Lottors from private individuals toll of sabotago in
Fronch factorios and numerous pross reports corroborato thoir
statomonts. Work for tho Gormans "slows up" machinos are dam-
agod; railroads are blam up; radio stations are put out of
commission.
A writor from Born, in an carly Soptomber (1941)
intercopt, givos such dotailed information on tho subject of
sabotago that it is worth noting horo (ho quotos a Fronch in-
dustrialist):
"In factorios, sabotago by slowing down tho work has
takon oncrmous proportions. It can bo ostimated at 70 percent
of tho production, which moans that the factorios produco half
of what thoy could produco. The output figuros for automobilo
construction factorios in tho plants which mako lorrios for tho
Gormans have gone down considerably." (BER 58469, 9/21/41; Born
to Now York, Pross Allianco, Inc.)
An April 26 rolease from the London Atlantic Pacific
Pross Agency gives figuros for tho last throo months of 1941:
"In France, during the last three months of 1941,
74 steel mills were sabotaged; 18,000 war tanks and trucks were
destroyed and 184 trains derailed. In the Dewoitine factories,
in Paris, the production decreased 45 percent due to sabotage
in the machines. it would be erroneous to suppose that these
aots of sabotage in occupied zones obey directions from any
organization outside of the nation where it takes place." (BA
5593/42, 4/26/42; London to Panama.)
An intercept not received in this Unit was quoted in
the Postal and Telograph Consorship Roport on Franco. Datod
Fobruary 1, it givos a dotailed picture of sabotago; but it
(4737)
Regraded Unclassified
CONFIDENTIAL
- 2 -
241
- 3 -
CONFIDENTIAL
adds that sabotago has boon largely stoppod, duo to the tight-
On strikes in Francer
oning rostrictions of the Germans:
"Courage is not wanting. I had a card from Madane
"When the Germans were ahooting hostages there was
Thomas, her husband was taken away with 240 conredes on the
always B. recurrence of acts of sabotage. After the shooting
21st March after one day's strike at the factory of Fives-
of 100 innocent people, 74 foundries were sabotaged, 18,000
Lille, she does not know where he is No doubt there is still
trucks carrying war materials destroyed, 30 amminition dumps
a shortage of workmen in Germany. He is a first class tracer
blown up and 194 railmay trains derailed. German fighter
and checker (HER 20028/42, 4/9/423 Auch (Gers), France,
planes repaired in Paris frequently cracked after a few hours
to Somersworth.)
flight. Tanks repaired in the Citroen and Rensult works broke
down after only going a for miles. But things are different
In April, a writer, probably from Paris or a near dis-
now. The Germana have tightened up and sabotage in now in-
fonsible, anyway in the plants. Each foroman is made responsible
triot, according to the censor, states:
for everything turned out by his workmon, if anything good wrong
he is takon out and shot." (HER/NAV 651/42; 1/2/12; P. 14,
"For a few days we have to be home at 11 p.m. All
Postal and Telegraph Censorship, Report on France No. 6/, July
entertaiments are closed down owing to a train running off
1, 1942.)
the lines through sabotage." (BER 20024/42, 4/21/42; Marscille
to Now York.)
A March 8 article from Portugal to the North American
A writer from Switzerland states:
Newspaper Alliance, How York, tells, according to the censor,
IF the industrial and outlying districts of Paris are
of sabotage in aircraft factorios, and lorries sabotagod on
being subjected to systematic sabotage." (NY 46308, 4/22/12:
Kusracht-Sch., Switzerland, to St. Borhard.)
route to Idbya. An articlo describing Fronch collaborationist
An April 25 edition of the French Libération (an
propaganda. appearing on the pagos of the strangled Paris pross
underground publication) tells of strikes in the Var Basin:
remarks that:
"After the strikes of St.-Etienne and Ales, serious un-
rest has broken out in the mining district of the Var basin,
the articles lose weight as they frequently appoar
the bauncite from which goes wholly to Germany. Strikes at Inc,
on the samo pago with notices of exocutions of uncooporating
strikes at Mascrques, strikes at Brignoles. At the factories
French workers." (SA 3512, 3/25/12; Mexico to Now York.)
in Beausset, the wives of the miners demanded bread! - they were
emprisoned for 'Robellion.' At the same time, the miners of
Interesting information 1a given in soveral lottors
Beausset started a sympathy strike. The Toulon guard was sent
out. Tumult. Two guards wore woundod." (BER/NAV 12962/42,
from individuals written in April. An April 6 lotter tolls of
5/23/42; Zurick to New York. Writer's translation.)
probable anbotago activity noar Nancy, Occupiod Franco:
In the same odition, the writers of Idboration call
"I an acting as chief of the district of Prouard, a
upon the workers of Franco to demonstrate their sympathics on
littlo workman's town 8 Km. away from Nancy. From the timo I
took up my dutios thoro has boon ono incident aftor another.
the first of May by murching past oither a statuo of the Republic
The first day ono of the workors on the railumy was run over;
and a for days Intor, six trucks ware dorailod." (HER 20247/42,
or tho Torn Hall (Mayor's house) of their Community. This is to
4/6/12; Dromo, Franco, to Flushing, Nov York.)
be donos
"For tho horior of the Workors,
1/
Tho cohsor has digosted the information in titlos without
"For an oconomic and social order founded upon Justice,
further dotails. (HER/NAV 12008/42, 3/8/423 Lisbon to Now York.)
"For a Froo Franco in a Proo World." (Rritor's translation.)
(4737)
(4737)
Regraded Unclassified
5 -
CONFIDENTIAL
242
CONFIDENTIAL
4 -
"Tho workers are Do Gaullist in contimont. They discuss
A privato lottor from Lámogon gives interosting dotails
the B.B.O. radio reports from London in spito of thronts and
prohibitions, and liston to the broadoosts of Proo Pranco.
of sabotago activity:
"Then Gonoral Huntsigor, The Vichy Minister, diod, a nin-
"Everyday now, there is sabotage; a train derailed, brok-
uto of silence was ordored in the factorics. During this poriod
on cables, a soldier killed. All that makes an excuse for re-
of silonoo, ono could hoar the ruttling of koys and tho noiso of
prisals; One 1a on tenter hooks when anything happens for foar
houmore." (W 1342, 5/11/42; Uruguny to Panama.)
one's brothers will be taken and shot." (NY 12569, 4/26/12;
Idmoges to New York.)
An articlo by Luisa Gorkin, Paris Under the Nord Terror,
From Cube comes an interesting report on the activities
milod from Maxico May 13, statos:
of Puul Louis Weiller, mos prominent aeronautics industrialist
"Acts of sobotago and attempts against Gorman officials
are moh moro froquent than the pross is allowed (to) know in
of Franco. According to this report, Woiller's company had about
factorios, in transportation - overywhoro. Much of it is duo to
the individual initintive of the workors; others respond to amot
20,000 employees at the time of the capitulation, and refused ab-
direction and all domostrato(sie) organization. Whenover possible,
thoy diroct sabotage agninst production for Cormany. Those note
solutely to collaborate with Germany. Aa a result, Weiller WOOD
of sabotago are vory popular, especially in tho area of Paris.
(BA 6072/42, 5/13/12; Maxico to Buonos Airos.)
doprived of French nationality and his property soized; his DOEM
According to El Immroial, Guatomnla, the fulso air ruid
pany was put under the management of an administrator jointly ap-
alarm in Puris on May 13 was the work of sabotours.
pointed by the German and Vichy Government. Tho moralo of tho
A Y.M.C.A. worker in Switzcrland writos of his work in
employees 1a doscribed an accollent, and the factorios, after the
Franco and tolls of sabotago in the Occupdod Territory:
capitulation, novor have boon ablo to roach moro than 20 parcent
"Within the last two wooks two trains locded with Gorman
of thoir production bofore the Fronch dofcat.
soldiers on loavo have boon wrooked with hoavy ansualty lists.
The Gormans now ordor that all such trains mist carry French
From a Proo Fronch Propaganda Bullotin, Informaciones
civilian passengers, as well." (HER 22611/42, 5/15/42; Gonova
to New York.)
do Francia Libro, published in Uruguay, comos a report on tho
A writer from Hauto-Vicnno tolls of the sabotaging of a
moralo of the French workers:
Nami radio station:
"In the factorios of Paris, and throughout Franco, the
"For the last ton days to have boon ablo to hour the B.B.C.,
French are forcod to work for the Gormans although thoy offor
stubborn resistance. Tho supervisors and watchmon are Gormand...
a powerful interforonco station at Bourges having boon blam up."
(HER/NAV 27251/42, 5/20/42; Hauto-Vicnno to Now York.)
"Although the Gormins have domanded an.output of two
Tho Mexionn El Universal Grafico corroboratos this stato-
planos por day from the nvintion inctorios, thus for the workors
have produced only one plano daily. Onco that a plano 1a 000-
mont with its doscription of tho siloncing of the poworful Radio-
plotod, the French are roquired to givo it its trial tost.
Puris, used for Nasi propaganda purposes, "dno to the work of sabo-
Indication of sabatago in Lámogos factorios is further illus-
tours at Bourgoa."
trated in SA 8508, 4/27/12; Maxico to Wollosloy, Mass.
MI 13154, 5/3/42; Ouba to Now York,
SA 16056, 5/15/12; Quatemala to Naxico.
BA 11809, 5/15/42; Madeo to Toms.
(4737)
(4737)
Regraded Unclassified
CONFIDENTIAL
- 6 -
- 7 -
CONFIDENTIAL
243
In articles evidently intended for the De Geullist press
"Sabotage is becoming vary difficult and it 1a equally
in South America, a writer gives interesting details concerning
difficult to slow down production. The papers of ench worker
are minutely examined. there are guards inside and out," (BA
the morale and activities of the French worker:
3522/42, 3/14/423 Uruguay to Mexico.)
"The last secret leaflet that we read before leaving
The need for actual planning and organization of sabotage
France, and which mysterious hands had placed in our coat pocket,
is illustrated by an intercept from Mexico, written by a prond-
hanging on a hook in the restaurant while we were dining, read thus:
"If, on arriving at home, we find only a piece of black broad and
nont Italian Socialist:
water in the saucepan; if we lack coal and they have rationed our
gas and electricity; if we cannot dress and shoe oursolves, the work!'
"Writer states that in France these Organisations (Politi-
onl and Syndicalist Workers Groups) exist both legally and ille-
"A group of Fronchmon, employed in B. coal mino, is in chargo
gally. Within the Legal Groups, which use the alogans of Vichy
of G. Fronchman who 1a hold rosponsible for thoir behaviour and
and the Germans, there are some who have joined in order to sabotage
production. Whom the mon loarn that tho coal 1a to bo sont to
the policy of colleboration. The Illogal Groups consist mostly
Gormany, thoir production falls off. Rowards are offored to pro-
of youths, whose offorts are not coordinated and thurofore fail
moto a higher production, but production continuos to fall off,
to produco the bost results.
until it is notiood by the Board of Gorman control. Whon tho sit-
ustion is brought to tho attention of the Fronchman in control,
"Rriter statos that if Propaganda is carriod on offectively,
ho makes a for his mon on the basis of their boing underfod.
sabotago can bo employed widoly, ospocially in France.
Ho in relioved within twonty-four hours of his rosponsibility,
but boforo loaving ho calls his non togothor and praisco thoir
"In conclusion, writer states that it is necessary to organ-
attitudo and behaviour.
ise. Action Groups with the Sicilians, the Spanish, and the
Gaullists, with the aim not only of Propaganda, but of Warlike
"Ho is not again given any position of trust; ho and his
Action, and of Sabotage. (SA 31501, 7/15/42; Mexico to New York.)
non are sont to concontration camps or sentenced to hard labor."
(MI 43837, 6/24/42; Moxico to Ouba.)
Six other intercepts, newspaper articles, dated from May
That the work of the saboteurs has been effective is sug-
through July, corroborate those quoted above in regard to nota
gested by heavy penalties, such as those mentioned in the foregoing
of sabotago. The Rensult works, thoroughly bombed by the Britdsh,
intercept, which the Nazia have imposed. The July 15 issue of the
were further damaged by sabotage; 1/ sabotage on railroads in
American-Swedish Nom Exchange Bulletin comments on the German
Occupded France has boen extensive; EL rubber deposit burned in
police docroe in Occupied France: if & saboteur escapes, all
Argenteuil; to train dynamited noar Fontainobloau; Jowish and
relatives are punished in his stead.
communist suboteurs completoly dostroyed acrodromo hangars by firo
An article in the Uruguayan Bullotin l'Information do
and killod ton soldiors with a bomb hurled into the group at
la Franco Libro statos that it is becoming increasingly difficult
Fountaine (noar Belfort).
to sabotago:
NO 6501/42, 6/21/12; Mexico (El Popular) to Ouba, and EP 3849,
7/7/423 Mexico (Journal Francais du Marique) to California.
CH 3194, 7/15/42, New York to Canada, BA 6072/42, 5/13/423
EP 3611: 6/30/42; Macioo (El Nacional) to California.
licrico to Buonos Airos, alroady quotod, tolls of hugh suma offor-
EP 3679, 6/29/12; Maxico (Journal Frangeis) to California.
od to thoso who will inform against the sabotours.
EP 3442, 6/25/42; Mercico (Journal Francais) to California.
Statements of sabotago also appoar in: SÁ 18635, 5/4/42; London
(4737)
to Maxioo; EP 2863, 6/27/423 Mexico (Alomnia Libro) to Arizona.
Soo also pagon 58 and 59.
(4737)
Regraded Unclassifie
CONFIDENTIAL
- 8 -
- 9 -
CONFIDENTIAL
244
That there 1a organization within the country of the
II. ATTEMPTS AT REVOLT. MILITARY PREPAREDNESS, ASSISTANCE TO THE
activities of French workers is suggested by two intercepts. The
ALLIES
first 1a a statement said to be taken from the address by the
When the English Commandos landed in April at St. Nazaire,
French Syndicalists living in France at the International Trade
many of the French thought their day of deliverance we at hand,
Union Alliance, May 1, 1942. This document says in part that
according to information derived through censcrship, and joined
France was betrayed, that the future of the French workers is in
in the fight against the Gormans, which resulted in tragic re-
the hands of their English, American, Russian brothers, that:
pricals after the attack was over. A lotter writton to America
"They will sabotage the German manufacturers (when?) they
in Fobruary shows the anticipation and hopo of the French at that
can, and will undergo justified bombardments of German Factories.'
(SA 18635, 5/4/42; London to Mexico.)
time. With the announcement of the disenbarking in Iroland of
That the French workers have made good their promise
the first American troops, they appeared roady for a Socond Front:
seens probable from the nows item in the June 3 edition of the
"That will happen in April? No have had groat hopos for
somo timo and wo are counting on you and your friends. The radio
Journal Francais do Merique, which states that as a result of B.
has just announced this ovoning that the first Amorican Contingont
has disembarkod in Northorn Iroland. Wo hope that whilst the
conference with Abota, Laval told the Syndicate of French Workers in
Germans are angagod in Russia during the Spring, you will oomo
to not us froo - overybody will help you." (BER 13074/42,
the Occupied Zono to stop outragos against the Germans.
2/23/421 Marsoillos to Now York.)
Privato letters and nowspaper articlos contain accounts
of Fronch participation in tho English raid on Saint Nazairo.
"The St, Namairo incident showed the immodinto roactions
of the Fronch population, which, rousod by an immonso hopo, dis-
closed its foolings too soon and suffored ghastly reprisals -- ono
Hun - ton Fronchmon shot; they opened tho doors by gronndo explo-
sions, thoy shot right through the cupboards, pushing the poor
poople, who were surprised in their sloop, into tho guttors to
missacro thom. Thore was no quostion of collaboration thon."
(TRI/MIL 12514/42, 4/10/42; Marsoillo to New York, unconscred by
Franco.)
An April intercopt gives the following information on
tho St. Nazniro raid:
"That the anti-Gorman spirit can riso into action on 0000-
sion is amply provod by what happened in Scint-Nnzaire. Haro,
pooplo naturally thought the British attack was part of an
EP 1493, 6/3/421 Mocioo (Journal Francais) Moxico to California.
Soo also RER 19808/42, 4/11/42; Toulon to Los Angalos, for a
doscription of the St. Nazairo mid.
(4737)
(4737)
Regraded Unclassified
CONFIDENTIAL
- 10 -
- 11 -
CONFIDENTIAL
245
invasion and the entire populace of the city turned out to buttle
A correspondent with Madia Boulanger gives an enocuraging
with the Germans. Old shot-guns and revolvers were resurrected
from hiding and & general street battle ensued. It took the
picture of military organisation and preparedness in France for
Germans nore than twenty-four hours to restore order in the city
after the British had withdrewn, and We understand that several
aid to the Allies in a Second Front:
hundred British unable to retire with their troops are still being
concealed by the French populace. of course, the population paid
"Moreover, a real unity outside of and beyond political
dearly for their couragoous action and 270 'hostagos' were mco->
parties, is in the process of being formed, by all those who
outod by the Gormans in roprisal. But it gavo the invedors such
want to work for the liberation of Prance; ares are being accu-
& scare that within a fow days they had movod seventoor
milated; those which balonged to the old army and could be hiddan,
divisions into occupied Franco, Incidentally, wo are informed
those that full from the skies; chiefs in charge of equipment are
that thoso divisions consist of boys undor oightoon and mon over
organizing the work, all that is being co-ordinated. When the
fifty years of ago." (HER 21690/42, 4/30/42; Y.M.C.A., Gonova to
English disembarked at St. Nazaire, ten adnutes after their arriv-
Now York.)
al, 2,500 armed men, organized in regiments, battalions, companies
and sections, occupied the streets and machine-gunned the Germans
"Tho exocutions continuo: 20 follows for having passod
who were marching towards the docks, When the account omes, the
a jako at the timo of an R.A.F. air raid, at St. Nazairo, 1000 of
invador will be expelled from France, and that with a speed that
thom, At Gennovilliors, at the funeral of victims and British
NO ean scarcoly imagino," (BER 28537/42, 5/29/121 Gwitsorland
airmon, tho population strowed flowors on tho routo and adorned
to Magmachusotts.)
the onskots with thoso words: Diod for tho Liboration of Franco,"
(CAN 5127/42; CAN 23501, 5/14/12; Fortugal to Montroal.)
That there are organizations of armod man, waiting for
A friend quotos a lottor from ono who was in Pranco in April:
the Allios and the chanco to join in a Socond Front in France, na
"Evorott said that whon tho Commndos raided St. Nazairo
montioned in the procoding intercopt, 1a corroborated by other
the French thought it was a roal invasion and wont for the Germans
tooth and nail with every worpon thoy could lay thoir hands on;
intercopts. The writer of an carly Docember 13 intercopt sponks
the Gormans had moro trouble putting down tho French rovolt than
in doaling with the British midors; of courso, when it was put
of sooing a list of names in the papers of Frenchmen shot at Brost
dom, countloss numbers word shot and hanged in roprisals."
(MI 39524, 6/16/12, Columbus, Chio, to Ohilo.)
for possessing firo-arms and having doalings with the anomy;
Intercopted nowspaper storios on St, Nazairo corroborato
and a Docember 24 intorcopt tolls of the organization of the
those personal once, and that of A, J. M. Williams to tho
ovacuoos from Alsaco-Lorrnino:
North American Nowspaper Allianco statos that a total of nourly
"Thero are whole regisents hero, composed exclusively
from soldiors of Alsaco-Lorraine, who will march somo day whon the
five hundrod Fronchmon, including thoso killod fighting alongsido
timo will at last arrivo." (NY 10367/42, 12/24/41; Lot Et Garonno,
to California.)
the British, as woll as hostages and others shot for harboring
A lotter from Pou, written on July 15, tells of arrosts
the British, wore buriod togother with tho English doad.
and roprisals by the Authorition for posscasing conconled arms:
BA 5533/42, 4/23/12; Mardoo to Chilo (Oficina do Informacion Aliada)+
"Wo are living almost under the roign of Torror. Rocontly,
HER/NAV 12/64/12, 4/20/121 Lisbon to Nov York (North American Nouspapor
your doctor, his wifo, and thair servants ward interned for throo
Allianoo).
wooks, with no roason given. Itr. Fonnior, after having given up
17 rifles, kopt 4 revolvers on his property, Mr. 7. has boen non-
BER/NAV 124/2/42, 4/20/42; Lásbon to Nov York.
tonood to 7 years imprinonment in a fortross Barnitcho has boen
2)
(4737)
HER 6714/42, 12/13/41; Zurich to Now York.
(4737)
Regraded Unclassified
CONFIDENTIAL
- 12 -
13 -
CONFIDENTIAL
246
shot in Bd (Bordomm). Larraldo should us a lotter ho had ro-
reservoirs," etc.
coived from him as follows--'I'm going to givo you a pioco of
bad news-I an to be shot today==I die a good Prenchman and a
That there have boon other uprisings bosides thoso
good Basque,¹ His friend believes that he was a partisan of
the British, and how many daily mourn for sinilar deeds,"
occasioned by the Commando raids is suggested by the following:
(TRI 19554/42, 7/15/42; Pau to Concepcion, Fr. unc.)
"Whan tho Parisians exporioned the groat English air
An item, "Concealed Weapons Somewhere in France," in
raids they thought that tho English and tho Amoricans had landod in
Franco, whoroupon the population scisod chairs, brooms - anything at
Excelsior, Mexico, further corroborates the story of secret mili-
hand - and bogan to bolabor the occupying troops. That's why thoro
word so many accoutions." (NY 46308, 4/22/12; Switsorland to
tary activities in France:
Chio.)
"...the Gestapo and Vichy police have searched in vain for
various concealed Arsenals in France that will be used by French
patriots to form a guerrilla rear guard when Allied forces land
on French shores. These arsenals were started when the French
Army fell in 1940 and have been strengthened by the English who
send weapons by airplano to secret fields in the French interior."
(EP 2014, 6/15/42; Mexico to Texas.)
A note to General De Gaulle from a representative of
Franco Libro in Moxico states that, in France, there are powerful
groups, organized and sccretly provided with arms, who are awaiting
tho moment for action. These groups are mking a list of the collab-
crators.
A further cocample of cooperation betwoon British and
French in given in a lottor from Quoboo, describing the experiences
of "young L...", aftor his demobilization from the French army:
"Tho understanding with tho inhabitants of the English
coast is extraordinary; so the day Gooring was installod in the
chatoau noar Boaumont, half an hour lator the R.A.F. bombod it..."
(GAN 20,337, 3/15/12; Quoboc to Bogota.)
From the Froo French organ in Uruguay comos the story,
BA 3954/42, 3/28/42; Montovidoo to Maxico City (Bullotin
rolated by ono of Gonoral do Gaullo's staff, that Froo French aviators
d'Information do la Franco Libro).
and the R.A.F. whilo crossing France received luminous signals from
Soo also Domonstrations, pages 19-22. For a description of tho how
Allios invado France, 800 SE 3611/42, 8/8/42; (France Good Underground
all organized De Goullists will riso to moot tho Germans when
the inhabitants, roading "Horo tho ammunitions dopot," "Horo gas
by Ronoo Chazarin), Ánchorago to Chicago.)
N)
1/ SA 14223, 5/23/12; Moxico to England.
(4737)
(4737)
Regraded Unclassified
CONFIDENTIAL
14 -
15
CONFIDENTIAL
247
III, ATTACES. ASSASSINATIONS, ETC.
In December of last year, as a retalistory neasure for
Private letters, corroborated by press reports and re-
an attack on the garrison at Thuir, Pyrenses Orientales, all Jess
leases, tell of minerous assaulta upon members of the Occupying
who arrived after 1936 were to be imprisoned, says a writer from
Army in France.
Thuir.
A letter written early in December of last year states:
The attacks sem to have occurred consistently through
"You should be happy that we are not at Nantas or Bor-
deam=-think about these families of those 50 innocents shot in
the period of Occupation; an American citizen in France in October,
each of these 2 cities and about 100 others who will be if the
guilty ones who killed those 2 German officers are not found be-
1941, states:
fore a specified date." (NY 6927/42, 12/10/41; Clermont Ferrand
to Carracas.)
"I ms in a metro-station when a German was pushed under
an incoming train and killed, The subway platform was crowded, it
A news letter from an American representative of NBC in
WES impossible to discover who did it, I dashed up the stairs and
out of the station precinct, cordon of Police WILD thrown round
Vichy expresses concern over these isolated attacks upon the
the metro station and identity papers examined. Ten persons about
whose documents there WES doubt were marched off to Vincennes and
Occupying force:
shot the next day. (HER 13902/42, 3/15/42; Idabon to New York,
North American Newspaper Alliance.)
"France today in like a volcano, Someday it will belch
forth with a vengeance. Isplated mirders of German soldiers are
That the average Frenchman is not in sympathy with these
merely the spouts which reveal the presence of the volcano. In
themselves these attacks are useless. The American colony here
assaults, which call forth reprisals on his food retions, hours of
even considers these local explosions as harmful under present
conditions.
amisement, and even take members of his family away for punishment,
"What may happen in the near future 1a the re-edition of
is evidenced by this early November intercept from Brittany:
Collete's gesture in Versailles, when he tried to kill Laval and
Dest. A French journalist recently left Vichy and turned collub-
"The and part is that executions are very frequent.
crationist for a consideration. Leaving the headquarters of his
Stupid attempted ascaults are made on members of the Army of
new employers he took a cycle taxi in Paris. A hundred yards
Occupation and every time a German is killed 50 hostages are shot.
farther on, a car crushed into the frail carriage. Purely by
If the culprit does not give hinself up, 50 more are shot. It is
accident the new collaborationist wes not killed. Someone had
idiotic to attack the Germans in this way; no good can come of it
missed his--shot-like Colette. But both his lega were shattered
and hundreds of innocent people are mssacred." (HER/NAV 60820,
beyond future usefulness.
11/9/41; Casablanca to Fort de France.)
"Yves Peringaux, the Director of Cabinot of Pucheu, Mini-
ster of the Interior who was midered three days ago in the 00>
oupded zone, was specially assigned to prosecuting communist agita-
which name a mimber of nen for their responsibility in the arrost
tions. The nurder may be & result of clandostino radio campaigns
and excoution of hostages, communists or otherwise." (HER/NAV.
538/42, 1/7/12; Lisbon to New York (NBC).)
reprisals against the Jews, see TRI 3507/42, 1/26/421 Lyon (Rhone)
TRI 6791/42, 12/20/41; Thuir (P.O.) to Argentina. For further
BER 4845/12, 12/3/41; Vichy to New York, also describes early
to Rio de Janciro, Uncensored in France.
asssulte on the Germians and the reprisal measures taken.
(4737)
(4737)
Regraded Unclassified
CONFIDENTIAL
- 16 -
248
That these assaults have not disdniched with the paso-
17
CONFIDENTIAL
ing of time under the Nazis¹ Regime is suggested by this letter
from Occupded France, the statue of Georges Clemenceau, aracted
from Soutlands
near his home in Vendee, was destroyed by German officers hil-
"The French and Dutch especially can't stand the sight
leted in that region.
of the German Police in their country, and sometimes molest them
or even take a shot at one of the soldiers ,Inst week it happened
"The Vendoe peasants took annoying reprisals against
in France, and they picked out 27 innocent ones, and drove them
the occupying foroes; such na tying solitary Germans to trees
hands tied through the streets in a big eart 40 mead pit and shot
where they were found the next day." (HER/NAV 223/42; 2/7/423
them. The people joined them in singing the Franch National song
Vichy to New York (UP).)
and at night put wreaths on their graves." (CH. 2258, 15/22/12;
Edinburgh to Illinois.)
According to a release from Teleradio, the news broad-
A woman in Chile writes that she has recently had a con-
casts from Vichy report that, on March 26, a lighted firecracker
versation with a woman from Occupded France who described the of-
was thrown at Marcel Deat as he lectured at Tours IA Republica,
forts of her family to make life miserable for the Huns:
"Newspaper for the Defense of the Democracy" in the Dominioan
This indomitable lass has carried the battle against
Republic, publishes in its April 14 edition a rather rhotorical
the hated Boche with dynamic fury, even to the extent of shoot-
ing then on several occasions with her own hands. Wero you to
description of underground activities in Parist?/
listen to her onthusisstic accounts of how she struck out on ther
am, a nodern Joan of Are, you would roalize that to call the
"The French people do not hide their contempt and utter
French cowards is B gross injustice and a genoralization prone
diadain for their oppressors and it in not unusual, in fact quite
to arror." (MI 26843, 5/25/42; Santiago to Watertown, Mass.)
common to see how they take their revenge at night, under cover of
darkness.
A letter not received here but quoted in the June 22
"In the early morninga, the turbulent water of the river
weekly Diary of the Interial Consorship, Borrada, tells of an
Seine given up its dead. Minerous bodies of German officers and
soldiers are seen floating on the surface of the river.
assault in Paris:
"The V,- is painted in large bright color on the will of
"A notice in the window of a butcher in shop read,
housed and public buildings and to that one letter is also added:
'sujourd' 'hui viande sans cartos' (today not without coupons).
V.- for Victory and Revenge--for Verdun and Valmy.- I have heard We
This naturally caused a sensation and a crowd of about 200 house-
the Frenchmen repeat these words, taken from the British: are
wives congregated in front of the shop which however remained
waiting for you, so are the fish in the Channel.'
closed. At last after several hours of waiving the police ar-
rived and forced the door. A German soldier in uniform who had
been shot the night before was hanging on a hook like the carcase
of B. calf. It MB in answer to this that the Geruans sent the
notorious Gestapo brute Heydrich," (Imperial Censorship Bermida,
Private Branch Weekly Diary; 6/22/12; No. 80, P. 3.2
Press releases and articles also corroborate reports
in private letters: In Jamury, the UP representative at Vichy
SA 3482, 3/28/42; New York (Teleradio) to Guatemala.
(Ralph E. Heinmon) reported that, according to private advices
another article of aindlar propaganda calibre, describing with Do
Gaulle's the workings Fighting French forces, 800 SE 3611/42, 8/8/42;
For of the French underground in collaboration France
(4737)
Goes Underground by Renee Chasarin, Anchoruge to Chicago.
(4737)
Regraded Unclassified
249
CONFIDENTIAL
- 18 -
- 19 -
CONFIDENTIAL
"I have seen Frenchmen of all ages leave the cosst of
France in frail embarkation to reach the shores of England and
IV. DEMONSTRATIONS, FOOD RIOTS, PASSIVE RESISTANCE
offer their services to the British to fight aguinst the common
enemy." (NO 3497/42, 4/14/42; Trujillo to Santiago de Chile.)
On May lot, De Geullists, Commists, workers' unions,
Although such material as the above is obvioualy of
and other anti-Nazis united in demonstrations against the Con-
propaganda calibre, it is substantially corroborated by other
queror. Evidence that these demonstrations did take place and
reports in the intercepted material quoted above.
that they were substantial eomes not only from De Gaullist liter-
ature but from private letters and from the clandestine press
articles on this subject. We have already quoted from the clandes-
tine newapaper Liberation, April 25th odition, (p.3) which
published instructions to the workers to demonstrato on May 1st.
& May issue of Lo Frenc-Tirour, also published illegally in Franco,
doscribos the success of the May domonstrations:
"From all corners of tho country wo have roccived in-
formation on the unhopod=for success of our domonstration on May
1st.
"At the call of the organizations of national rosist-
anco, Fronohmen of all classos domonstrated at 6:30 bofore tho
town halls and statuos of the Republic. 2,000 non and women an-
swored our call. Tho crowds sung the Marsoillaise, with its
double meaning, popular and national. Crying 'Down with Lavall'
the crowd demonstrated their desire for justice, and in acclain-
ing General De Gaulle, they showed their desire to re-enter the
war with the Allies.
"From all the information we have received, we affirm
was not just a party gathoring, but all classes participated, the pricets
that everywhere, at Toulouse as at St. Etienne, this demonstration
national anthom with Conservativos: and that we saw mombors tho
alongaido mombers of labor syndicatos; that Socialists sung of
Lègion lift thoir bannors to shout with us 'Jail Levall'
"At o'clock, the Marochal spoko! At 6:30, Franco an-
swored 6/6/42; him Zurich with to Now York. P. 2m3 of photostat; writor's translation.)
5 hor doublo cry of scorn and hopo!" (BER 24268/42,
An Amorican or Englishwoman in Franco writos on May 13 of
For other press reports on attacks upon the German army in
France, nee HER 58469, 9/21/42; Zurich to New York (Press Alliance
domonstrutions at lyons, possibly part of the May 1 appoal:
Inc.) Also, see BER/NAV 509/12, 1/8/42; Bern to New York (Inter-
national News Service). and EP 1615, 6/7/42; Mexico (IA Prensa)
to California,
(4737)
(4737)
Regraded Unclassified
250
CONFIDENTIAL
20 -
- 21 -
CONFIDENTIAL
"I think one thing is quite certain. Revolution is
A. refugee recently arrived from France is quoted in a
coming in this land and the hatred of the Germans was a rev-
elation to ne, I talked to a man in & restaurant, He had come
May 24 letter as stating that there had been food riots in HAP-
from Paris. He said it was worse there than Iyons. I did not
think that could be possible. My coiffeur told no since their
seille and Montpellier, caused by increased retioning, and 80
demonstration last week, the ravitaillement (rationing) had been
vary much out down." (NY 49114, 5/13/42; France to Long Island.)
serious did Vichy consider the riots in Nine and Montpellier,
Documents forwarded from Zurich on May 16 indicate the
according to a despatch from Berne in the Mexican Excelsior,
part the clandostine press plays in organizing and directing
that all newspapers published in Unoccupied Prance were ordered
demonstrations:
never to mention "the nows of revolt in Mimes, Montpollier, Sette
(1) A leaflet addressed by the Mouvement Ouvrier
and in other places," 2/
Français to French workers, instructing them how to not on May 1...
Throe intercopta quoted in the Imporial Consorship
(2) A paper, headed "People of France Bravo," put out
by the SILDU body, expressing their pleasure at the success of thoir
Bormida, Private Branch Wookly Diary, Juno 22nd, givo interest-
appoal and thanking Genoral De Gaullo for his broadcast mossage
ing accounts of a domonstration caused by the appoarance of the
(3) A May day appoal by the Comito D %otion Socialisto,
Borlin Philarmonic crohostra at Lyons:
(4) An appoal to tho workors of the part of Marsoillo to
+)
striko B May 1.
(1) "Tho Monday bofore there had boon a concert givon
by tho Borlin Philharmonic Orchostra and thoro word domonstrations
(5) An appoal to the poople of Savoy to march past the
in tho stroots from 10-12. They collocted two vans full of donon-
podostal of "Sassol" on the day of the fostivul of Joanno d'Arc B.B.
strators,"
a protost against the thoft of tho statuo, The appoil it in addod,
was successful. (BER 23364/42, 5/16/42; Zurich to Now York.)
(2) "The poor people in Lyons are deprived of meat,
vegetables and what not for having misbahaved when the moic cane-
Food shortages seem to arouse serious denonstrations. In
Berlin Philharmonic. A pity the innocent have to suffer and no
doubt it was not on account of the band!"
Junuary, e number of these broke out, according to intercepted me-
lin Philharmonic Orchestra. I can't toll you as much about it as I
(3) "On May 18th there was a concert given by the Bor-
berial:
"There have lately been demonstrations in two houses in
know that on Wed. 20th there was to be a concert conducted by Paray
should like to, suffice it to say that there was a big noisel I
the South as & result of the food difficulties; and I find the work-
and that this concort would and by becoming a Pronch manifestation
ing olnas very 'red,' At Sete they sang the International and to
calm them down the authorities wisely used only the Fire-hose
60 formanco na well 88 a patriotic domonstration. Flowers were showcred
I took a tickot for Puul. it was marvelous as & Musical par-
la on France, 1 and the Maracillaisc was sung!" (Imporial Conscrahip
tho conductor, and at the cpd there wore shouts of 'vivo
"I have just learned that after Sete and Montpellior,
Ninos has become the thontre of domonstrations, What gives riso
Bormida, Privato Branch Wookly Diary, 6/22/42; No. 80, p.3.)
to much disquiet is that the International sung at the top of the
voico transfers those outbronks of bad tompor from the plano of
'stamoch,' whore somothing can bo dono about it, to the plano of
political passion where wo (the government) are singularly import-
GA 13996, 5/24/421 Madoo to Vormont.
ant (impotent?). (BER/NAV 486/42, R 1/20/42; Vichy to Chioago.
A private lotter from ono nowspaporman to anothor.)
NO 3328/42, 4/9/423 Madico to Hondurus (i) Excelsior).
(4737)
(4737)
Regraded Unclassified
251
CONFIDENTIAL
- 22 -
23 -
CONFIDENTIAL
South-American newspaper releases and articles confirm
"The fires were barely extinguished at Boulogne-Billan-
court, Pecq and Sevres when the first slogans appeared: 'Vive
the above quoted reports concerning demonstrations in France,
le R.A.F., and 'Petain au dodo, Darlan au potoau, De Gaulle au
boulot,' which translated directly from slang means: "Petain
Three of these intercepts report the success of the May 1 demon-
to bed, Darlan to the firing squad, De Gaulle on the job. Iff
(PO 45369/42, 3/23/421 from Vichy; quoted in the Postal and
strations, taking place in Marseille, Lyon, Avignion, Toulouse,
Telegraph Censcrahip Report on France (No. 6), 7/1/42.)
Montpellier, and Nice, 1/ In a report to General De Gaulle, IL
The writer of a personal letter mentions the following
Mexican representative states that at Cannes there was an open
verse which can be read on the walls of Paris:
demonstration of protest over the food shortage by housowives.
"Il n'y a plus de fou.
Vive Pucheu.
Two intercepts contain a rolease from the Free French Journel in
Il n'y a plus do Marylands.
Vive Durlan.
Madoo concerning the socret docoration on American Monorial Day
Il n'y a plus de pain.
Vive Petain.
in Franco of the graves of Lafayotto and Anerican soldiors.
Et tout VIII tree mal,
Vive Laval."
Other French patriots take part in what might bo tormod
(MI 25078, 5/11/42; Buenos Aires to New York.)
a more passivo form of rosistance; thoy scribblo insults to Laval
With regard to private parties, a writer of a May 10 inter-
and Viahy on the walls of Puris; they give socrot partios at which
copted letter states:
they sing the Marscillaiso and expross their roal foolings.
"Wo were up all night at a surprise party. There were
quite a number of poople and principally naval officers with thoir
According to the Postal and Tolograph Consorship Ro-
wives.. The ovening opened with any number of patriotic specches
part on Franco (No. 6), July 1, 1942, an Amorican in Vichy gives
danced until dawn (which in forbidden) and everyone did honour to
(1t is indispensable now at nearly all private parties), then NO
the buffot and to all the good things which each ono had brought,
proof of the Fronch habit of scribbling political alogans on walls:
and which could only have boon supplied by the black market..."
(TRI 10037/42, 5/10/42; Marsoillo to Quadeloupo.)
The Froe French bullotin from Uruguay tolls the following
story:
1/ BA 6291/42, 5/18/421 (Agenoia Saporiti) Buonos Airos to Caracas:
"In a Parisian establishmont a portrait of Potain was
MI 31223, 5/23/42; (Bulloton D'Information do la Franco Libre)
Montovidoo to Tchad-Afrique, Françaiso Libro; MI 30230, 5/27/12;
displayed him. Whon the shopkooper romoved it, ho replaced it with tho shop sign
in the window. A patron naked that it be reserved the for
Montovidoo to Accre-Gold Coast.
'Sold. domandod an explanation. The shopkeeper answored that TOS of
1 The next day, tho Gorman authoritios entored ho
SA 14223, 5/23/42; Madeo to London.
and to put up tho sign sinco there wore no noro partroits ho put
up the another Marshal which road TExhaustod. If (W 1342, 4/11/42;
obliged loft. Whom he was forcod to romovo the sign, Montovidoo
EP 3343, 8/24/42; Maxico (Journal Francais du Mociquo) to
California; and SA 23466, 8/24/42; Maxioo (Journal Francais du
to Punama.)
Marique to Taxis,
At tho novios, the Fronch domonstrato their disliko for
(4737)
the Gormans whenover thoy can. The mtorial concerning these
(4737)
Regraded Unclassified
252
CONFIDENTIAL
- 24 -
25 -
CONFIDENTIAL
domonstrutions comos from the NBC reprosentative in Vichy, and
V. PEASANT OPPOSITION
from Froo Fronch litorature:
& special type of resistance in France, noted 00=
"Rocotions in moving picturos to nows rools aro amusing
and instructive. War flashes from tho castorn front are grooted
casionally in the intercepted material, ocncerns the opposition
with frigid silonco. Muddy roads with Gorman trucks dooply boggod
bring out surcastic morrimont. The roscuo by a Gorman crow of a
British avintor in tho Moditorranoan croatos noro laughs bocause
of the French peasant to the requisitioning of agricultural
the picturo looks posod and the Gormans are BO kind to the RAF
flior. Coering is grooted with loud and ribald laughtor. Hitlor--
products.
well thoro 1a a gonoral din of shricks, boos, hoots and catcalls
That the authorities fear resistance from the pessants
whenover ho is shown." (BER/NAV 538/42, 1/7/42; Liabon to Now
York (NBC).)
is recorded in an intercepted letter written in March:
An articlo in tho Froo French organ in Uruguay statos:
"They (the pessants) have apparently submitted very
well to a system of Draconian regulations, but which in fact the
"In the noving pdoturo thoators, the nows foatures aro
authorities have not darod to onforco (not evon in the occupded
exclusively Gorman, The lighting of tho auditoriums is obligatory
zono) for foar of boing confronted by a passivo rosistance of the
in ordor to provent whistles and boos at Nami londors." (W 1342,
possantry; which in a country living from day to day would roduco
4/11/42; Montovidoo to Panam.)
the urban population to fanino." (BER 16/16/42, 3/25/421 Linogos
to New York.)
A report from the assistant dologato of the National
Actual resistance is indicated in the following:
Fronch Committoo, Dologation do la Franco Libro, atatos:
"In the country the Gormans count the rebbite and the
"At the timo of the doath of Gonoral Huntzingor, the
films showing the Marchal shaking hands with the Gorman Commission
the number of hons. If you have doolared 25 fails and the Germans
fowls, wo have to give them a number of 0gga in accordance with
wore received with hostilo crios." (SA 16829, 6/2/42; Moxico to
on coning to verify thom find 30 (which has happonod) they take
London.)
away the five immodiately - 80 much lost! But the poasant who has
boon repressed for conturios has noro than one trick up his sloovo
but thoro are somo who are unlucky!" (BER 20974/42, 4/10/42;
and ho managos to choat thom. It is lucky for those who succood
Franco to Massachusctts.)
obstinacy will "The not deliver anything." (BER 19858/42, 4/23/42;
wheat isn't growing, the peasant in his savage
Hte. Loire, to San Francisco.)
"As part of the frantic campaign by Vichy to drum up B.
more food, supposedly for French consumption, the farmers in a
small town near Grenoble were summoned to deliver grain on
certain day. About the time it was stacked in front of the but City
Hall, farmers used their pitchforks and such a threatening attitude took
a train of Italian trucks drove up to take it away,
that their the grain back to their own houses." (BER 21690/42, 4/30/42;
the Italians drove away empty, whereupon the farmers
Geneva (ymca) to New York.)
(MI 22658, 5/1/423 Buenos Aires (letters enclos d from Nico)
"The peasants, over requisitioned, refuse to produce."
(4737)
to California.)
Regraded Unclassified
(4737)
253
CONFIDENTIAL
- 26 -
- 27 -
CONFIDENTIAL
"Anticipating the roquisitions of boasts and foddor the
VI. HELP TO ESCAPING REFUES, PRISONERS OF WAR
possants are killing thoir cattlo, 80 lator on what will there be
for mont or loathor?" (HER/NAV 27251/42, 5/25/42; Hauto-Vicnno to
Now York.)
Another form of illegal activity in France about which
The following lotter from a French poasant loader gives
the intercepted material gives some information is the aid to
an interosting picturo of the difficultios of his class, and also
escaping prisoners and refugees:
an indication of the indopendent spirit of this class, who attempt
"Writer states that his sister who is in the French
Espionage Service helping English soldiers to escape from occupdod
to ovado tho rostrictions of the Authoritics whonover possible:
Franco, has boon condenned to death but has succooded in oscaping
the Gostapo." (NY 60669, 11/16/41; Cliny to Curtisvillo.)
"Tho general food program in increasingly under tho
prossuro of growing misory and the authoritics of the occupation
A lotter to the oditor of the North Amorican Allianco,
foroo moro painful rostrictions upon us; for comple, I, as well
as the Syndic an to divido oqually among all tho ponsunts of By
writton in April, describes the exporience of en Amorican who
commino, the quota of potatoos which the said program is supposed
to forco from tho said comunity must admit that aftor having
oscaped into Unoccunded Franco 6. wook after the United Statos
givon the Syndio of the Dopartment notice, I myself, undertook
to reduce by half the ridioulously high quota that had boon filod
doclared war on Gormany:
The press makes us submit to a compaign of Scotch showers, which
are rather unhealthy alternatives betwoon dithyrambic proiso of
"Then I got into touch with...a person engaged in the
the horoio affort of our possants and throats of horriblo roprisols
against any opposition and lagging." (NY 49224, 5/28/42; Argentina
agrood to take no we roached the bordor village. All the Inds
tricky gumo of smiggling pooplo across the domaraction line. Ho
(lotter onclosed from Franco to London.)
us warning of any danger in the form of Gorman guards. ,WO travorsod
of the village know who my guido ma, they rushed ahoad. and gave
The April 25 odition of Liboration, the clandostino Fronch
French Polico are supposed to send anyone they catch illogally
a goat track through the forost into unoccupiod Franco. The
novepapor alroady quotod, tolls of possent opposition to tho hoavy
crossing the frontior back into Occupiod Franco. But I novor hoard with
of Amorican or n. Britisher being sont back. I una received the
requisitioning program:
nocessary open arms papors." (HER/NAV 12465/42, 4/21/42; Lisbon to Now York.)
an by the French gendarmo who quickly fixed no up with
"A dosporato Vichy has finally docided to throaton and
hunt down possants guilty of not submitting with sufficiont ontimision
Even "legal" aid to refugees sometimes oversteps the
to tho orders of the grafting slavos of Germany.
bounds and takes on a political significance. & document for-
"Mohy is sending food control officials (controleurs de
revitaillement) into the villages. At Mornant, for example, not
warded by one Rene Bertholet in Zurich describes the activities
far from Lyon, the officials even tore open a mattress to see if a
peasant had hidden flour therel" (HER/NAV 12962/42, 5/23/42;
and eins of three organizations - The International Relief
Zurich to Blmhurst, L.I. Translation 1a writer's.)
Committee, an organization composed of split-ups anong the Communists
and Social-Democruts; The Emergency Rescue Committoo, founded to
help a number of prominent writers, artists, and political men,
HER 13902/42, 3/15/42; Lisbon to Now York (North Amorican American
Nowspaper Seo also Allianes) in which the exporiences of another
caught in Occupiod Franco aro describod.
(4737)
(4737)
Regraded Unclassified
254
CONFIDENTIAL
- 23 -
- 29 -
CONFIDENTIAL
including not only loftists but oven well known fascists; and
VII. CIANDESTING PRESS
the Contro Amoricain do Soccurs, which attempts to aid all onto-
According to Free French sources in London, of approxi-
garice of refugees, of various political tondoncios, according
mately 200 underground newspapers circulating in Europe, about
to this intercopt. Tho activities of tho International
30 are published in France. Material concerning these news-
Roliof Committoo aro baroly toloratod by Vichy; and the Contro
papers ocmes via the intercepts from various sources: Rene
Amoriosin do Secours, according to ono intorcopt, was closod
Bertholet, a leftist in Zurich, has sent numerous cordes of many
by the authoritics because its members woro accused of boing
of those documents to Now York; they are occasionally montioned
Do Gaullists.
in porsonal lottors; Froo Fronch and pro-Alliod nowspaper arti-
Foroign refugoo groups are ospocially active in holping
clos list and doscribo thoir work. According to tho intercopts,
thoir members to escapo from Franco, or across the domarontion
thoy aro printod by hand, mimoographod, or actual printing
lino. BER/NAV 12606/42, 5/7/12; Lisbon to New York; HER 45701,
prossos are usod, somotimes supplied by parachuto. They
4/7/41; Franco to Now York; BER 9093/42, 1/41/42; Gonova to
appoar to bo small affairs, of a sizo casily slippod into & cont
Washington all give nows of Italian refugoos in France, thoir
pookot. They aro written in a slangy, dramatic stylo with
arrost and imprisonment, and plans to aid them with food and ob-
cocasional flashos of dry hunour. Thoro aro instructions for
tain their roloaso. That thoir activity is not necessarily illogal
sabotago; appoals to tho roador, liko thoso for domonstrations
but often assumos a diplomatic and political nature in evident from
on May 1; diatribos against Potain, the "Mossicurs do Vichy,"
the intercopts. Howover, a plain 0500 of illogal activity of
and tho Nazis. Thoro are short paragraphs liko the ono in
this naturo on the part of Polos in ovidont from the following:
Idboration doscribing the delicious dinnor caton by Darl'n, Cosiot,
In Nancy the Gostapo arrosted the wife of a Polish
and thodr guosts at a certain banquot, which onds with the romarks
official,
accusing hor of holping Polos to loavo occupded Franco
for the unoccupdod part illegally. (BER 11568/42, 3/2/421 Franco
"Voiln, Francis, coux qui vous prochent la "Privation'1"
to Now York.)
(BER/NAV 12962/42, 5/23/42; Zurich to New York, P. 9)
BER 16497/42, 3/1/42; Zurich to Now York.
s 1342, 4/11/42; Uruguny (Informationes do Franco Libro) to Punama
Soo Do Gullists, pp. 63-77.
SA 31141, 7/19/42; Taxas (IA Pronon) to Various Addressos.
Other activities of those groups, capocially the Spanish Anti-
Franco-ists, are given under Opposition of Foreign Refugoos.
to Now York; BER/MAV 12869/42, 1/25/42; Zurich to Nov York; HER/NAV
Soo tho photostat samplos attached to BER 24268/42, 6/6/42 Zurich
12962/42, 5/23/42; Zurich to Now York.
(4737)
Ibid.
(4737)
Regraded Unclassified
255
CONFIDENTIAL
- 30 -
- 31 -
CONFIDENTIAL
At the bottom of their pages often appear nottoes and
Combat Organ of the Liboration Pronouiso novement,
directions to the reader, like that in Libération: "Organize
Lo Gog Enchaine
yourself The lenders and the weapons are ready. Each sympa-
Lo Courrier do Sainto-Odile Said to be a Catholic
elandostino publication.
thiser must become a fighter, a soldier, Usually, the ad-
Lo Egg
monition is added that the reader, after ho has finished with
In Franco Continuo 5/
the paper, must pass it on to another: "Lectour, Continue la
In Franc-Tirour 6/* "Publishod twice a nonth whenover
Chaine, "Idboration" doit faire son chomin."
possible and by the pormission of Pierro Laval's polico." (quo-
tation from paper.) An intercept describes it as a socrot paper
Those newspupers are published by many difforent ro-
publishod by an underground organization of the samo name,
sistanco groups: among thom, trndo unions, Socinlists, Catholics,
In Quorro Continuo I/
Do Goullists, Comminists, rofugoo groups, and tho underground
movements, Liboration, Idbóration Françaiso, Libération Nationalo,
Boo Veritos, P- 32. Copios forwarded by Róno Bertholot, Zurich, ins
HER 16980/42, 7 Zurich to Now York; BER 23067/42, consored 6/3/121
and Mborto, Lo Franc-Tirour, and La Franco au Combat. Tho
Zurich to Now York. March issue quotod in Postal and Tolograph Con-
screhip, Report on Franco (No.6), 7/1/421 SE/PO 56175/42, 5/22/42.
titlos of those appouring in the intercopted matorial aro:
Montioned by title only in SA 41272, Mexico (International Pross
Service) to Tomas Un Pronon).
Alention Boy Scouts' Papor "Corrospondenec dos
Chofs Eclaircurs Unionistes d'Almaco." Editor, Jacquos Infon.
Montioned by title only in SA 4272, 8/12/42; Macioo (International
Edition 10 timos a yoar; no dofinito solling prico but donations
Prone Service) to Toxas (In Pronsa).
accopted. This some to bo issued by Alsation refugoos, and
although thore is no indication by the consor that this is an
Montioned in an intercopt quotod in Postal & Tolegraph Consorahip,
illogal publication, tho anti-Gorman naturo of tho matorial
Roport on Franco No. 7, 8/22/42; P. 51 BER 22812/42.
cortainly suggests that it is clandostino.
Titlo montioned only in LA 3549, 3/25/423 Suitzorland (Neuo Bundner
Cahicrs du Tómoignago Chrótions "Edition 60,000."
Zeitung) to California. Also montioned by titlo in SA 43014, 8/9/42;
Scrios of bi=monthly pumphlots against anti-Christian Nami philosophy,
Modoo (El Bravo) to San Antonio, Toxas,
sold to be publishod by the Catholics, forming tho "Unitod Front of
Spiritual Combot and Resistance for the Liboration of Franco,"
Titlo montioned only in IA 3549, 3/25/423 Switzerland (Now Bundner
Zeitung) to California.
BER/NAV 12962/42, 5/23/42; Zurich to Now York (pago 8.) Tho
6/* Astorisk indicated photostat available on request to Intercopts
translation is the writor's.
Unit. NY 91892, 4/16/42; Switscrland to Connocticut, nentions Lo
Ibid, pago 3.
Prano-Tirour as "a very strong anti-Gorman group" publishing its
Soo Rosistance Groups and Organizations.
scorot nowspaper. A copy of the actual paper 1a forwarded in BER
24268/42, 6/6/12; Zurich to Now York, Also montdoned by titlo in
Postal & Tolograph Consorship P.O. 73, LIV 25872/42, 3/15/42; Franco
BA 44272, 8/12/42; Moxico (Inturnational Pross Services) to Terms
to Now Calodonia (Froo French tarritory). For quotations from the
(Le Pronse).
paper, 800 Youth Organizations.
Postal & Tolograph Consorship Roport on Religious Movements, No. 3,
Titlo montionod only in LA 3549, 3/25/42; Suitsorland (Cano Bundner
Now Scrios, 5/2/42; P. 4. HER 233364/42, 5/16/42; Zurich to Now York.
Zoitung) to California
SA 37285, 7/31/423 Washington, D. C. to Costa Rion, BER 23364/42
indiontos that this group puts out individual pamphlots as woll na the
Cohiors.
(4737)
(4737)
Regraded Unclassified
256
CONFIDENTIAL
32
33 -
CONFIDENTIAL
L'Himonité Doscribod as a Communist socrot nows-
papor, stressing the soparato cxistonce of the Communist Farty
Pensos Libre Described as a Catholic publication.
as a party of the Prolothrint.
is Pere Duchegne Title derived from old French
Liboration Intercented matorial dosoribos it ne
Revolution publication. Said to have the same publisher as Le
pro-Aritish, pro-De Mcullo, a socret nowspapor published by nn
Franc-Tireur.
underground organisation of the same name; average circulation,
20,000,
Les Petites Ailes de France
Liborté Doscribed as A socrot nowspapor, published
Peurle do France
by an undorground organisation of the seme nemo, 160,000 copies
issued. Social to be gotton out by Do Goullists.
Le Populaire This old paper of Loan Blum soons to
have been revived for olandostine distribution.
L'Ordro Nouvocu do la Servitudo 4
Le Quatrions Resublique Described as a Socialist
Pontagruel Described as G Do Gablle publication.
organ, illogal publication, said to be put out in the North of Franco.
Wookly, printed on vory anril shoots of papor.
Reconquest of Smin Spanish anti-Franco publication
socrotly circulated among Spanish rofugoo workors in Franco.
1/ Mentioned by titlo only in SA 43814, 8/9/42; Moxico (81 Bruvo) to
San Antonio, Toxco. Montioned in intercopts quoted in Postal A Tolo-
Montioned in an intorcopt not roccived in this Unit but quotod
graph Consorship Report on Franco (No. 7), August 22nd, 1942, D. 3
in Postal & Tolograph Conscrship Roport on Franco, (No.7), 8/22/12;
and P. 5. (BER/NAV 12410/42, P. 3, BER 22812/42, P= 5.)
P. 5, HER 22812/42.
BER/NAV 12869/42, 4/25/12; Zurich to for York; BER/NAV 12062/42,
Ibid
5/23/42, Eurich to Now York, BER/MAV 883/42, 2/9/42, Furich to Nom
York. An odition of Liberation is also quoted in Postol end Tolo-
Montioned by titlo only in LA 3549, 3/25/421 Switzcrland (None
groph Consorship Roport on France (No. 6), 7/1/42, SR/PO 36702, 4/29/921
Bundnor Zoitung) to California.
Also, NY 91892, 4/16/421 Switzerland to Connecticut and LA 3302,
1/30/42, (Dio Wolt Wooho-), Switgorlend to California.
Ibid. (18542 S (cm) statos that this is a Communist papor.)
3/ "I hrve good nows from my friends in Franco who are publishing
BER 24265/42, 6/6/42; Zurich to New York, sponks of a socialist
clandostino nowspapor 110 Tiborto's vritos n. De Geullist in"
mnifosto appoaring "in the Populaire boaring date 15 Juno 1942."
TRI 9913/42, 5/30/12; Buonos Aircs to Day York. Also LA 3549,
Consor suggosto thorofore that Blum's old paper has boon clandos-
3/25/42, Switzorland (Pour Bundnor Zoitung) to Colifornia, BER/FAV
tinoly revived.
883/42, 2/9/12, Turich to NOV York.
Not montioned in any intorcopts roccived in this Unit, but
Title montioned only in LA 3549, 3/25/12; Sritzcrland (None
appears in Postal & Tolograph Consorship Report on Franco (No.7),
Bundnor Zoitung) to California.
August 22nd, 1942, P. 4, (LIV 48137/42, 4/12/42; quotod by Russian
nowspaper, New York.)
Titlo montioned only in LA 3540, 3/25/42; Svitzerland (Nouo
Bundnor Zoitung) to Celifornia, (NOTE: A sourco document in the
MI 92025, 8/24/42; Mexico to Cuba. Information given by ro-
CID, not nn intercopt, which contained n. list of clandostino papers
fugoo rocontly arrived in Maxico, who was in Gurs from Fobruary
end organizations, ves consulted to chock up on those nowspapers;
6th to September, 1939 - just how long ho remained in Franco 10 not
according to 18542 S (CID) Pontagruel and Vr.Imy have boon discon-
dofinitoly statod, or whon the paper was publishod.
tinued.) But SA (3814, 8/0/12; Moxico (F1 Dravo) to Sen Antonio,
Texas, montions it,
(4737)
(4737)
Regraded Unclassified
35 -
CONFIDENTIAL
257
CONFIDENTIAL
34
Verites Described as a secret newspaper pub-
Resistance Described by the consor nd a paper pub-
lished by Liberation Nationale; circulation of 10,000. Was
lished jointly by three underground organizations: Liboration,
violently anti-Communist; said to have altered its name and
Liberation Nationale, Liberté. Said to contain simple emergera-
possibly its policy and now appears as Combat, (dee p. 31)
tions of acts of resistance, shooting of Germans, sabotage, and
la Victoire Director, Gustave Herve,
lists of hostages shot,
Revue Hobdomadeire de la Prosses Frenceise
La Voix du Nord "keepa the workers in the Indus-
trial Regions of the North of France in a contimual state of
excitement." (Quotation from intercept).
Socialismo et Liberte "Bulletin" of the Comite
D'Action Socialistor published according to intercepted matorial,
Le Voix de Paris
for "functionsires" of the party in Occupied France.
Besides preaching rebellion, calling upon the people
Unser Vort Jowish publication. Nozia said to have
offared 100,000 francs for information concerning this publication.
for demonstrations against Vichy and the Name and giving general
Volmy Edited until his азспре to London by Faul Siuon,
information on the progress of underground activities, the clandes-
who storted propaganda activities by printing enti-Nand notices
on rolls of gurmett paper (for protection from splintoring less
tine press published accounts of the Rion trial which did not
during air raids) and graduated to Valmy.
appear in the missled French pross. A writer in Lindration, for
BER/MAV 003/42, 2/9/42; Zurich to How York; SA 23205, 6/25/42;
example, familiar with the unconsored account of the triel, declares
Moxico (Journel Francais) to Terns, describes Resistance as both an
that the prisoners were condumned before they 'oro judged, and
organization and a paper, out the intercopt is confused ono.
Also montioned in SA 43014, 8/9/42; Notico (m Bravo) to San Antordo,
that Potain -as the roal prisoner at the bar. Other illegal
Toms,
Nontioned by title only in SA 31141, 7/19/42; Toxas (in Prensa)
to various addrossos.
Mentioned by titlo only in LA 3549, 3/25/12; Switzerland (None
Bundner Zeitung) to California. BER/NAV 803/12, 2/8/42; Zurich
3/ Not mentioned in any intercopted matorial received in this Unit,
to Now York; BER/NAV 60577, 11/10/41; Eurich to Non York. Footal
but Postal & Telograph Consorship Report on France, (No.7), states
Telograph Consorship Report on Franco (No.7), LIV 24391/42:
that it in an organ of the Socialists, (p.16, SE/PO 56189/42, BTR
2/24/42; P. 4, and BER/NAV 067/42, P.4, clso SE/FO 12108/42, 3/21/42)
22975/42, issues for Docember, February, March.)
states that Voritos is now Combet ENÁ has refrained from discussing
Comunism, at loast in these issues.
MI 53570, 7/11/42; Now York to Palostino (Minutos of Juno 18th
mooting of Loft Foalo Zion Organization.)
Montioned in LA 3302, 1/30//2; Suitsorland (Dio Holt Hocha) to
California.
(Soo NOTE to Pantagruel, p.32, footnoto 5.) 1: 1342, 4/11/42;
Uruguay (Froo French Prose) to Panama, gives the history of the
Mentioned by titlo and the quotation from SA 43014, 11/5/42:
start of this paper, whose oditor oscaped to London. Montioned by
Mixico (=1 Brave) to San Antonio, Tomo.
titlo only in LA 3549, 3/25/42; Switzerlend (Mono Bundner Zeitung),
to California, Also montioned in started 5 rocks after tho
only in LA 3549, 3/25/42; Switsorland (Your Bundnor Zoitung) to
(18542 S (CID) calls this a Communist pápor.) Montional by title
Occupation by Simon in SA 43814, 6/9/42; Hoxico (1) Bravo) to
San Antonio, Taxas.
California, also in SA 43814, C/9/42; M vico (El Bravo) to San in-
tondo, Texas, and SA 44272, 8/12/42; Medico (International Fress
Services) to Toxas (La Pronsa).
Other intercopts muntion clandostino papers but give no title:
tions arrost of Do Gaullists in Nico who vero running an illegal
LA 3545, 2/28/42; Switzerland to California. Swins newspapor 5.77
(4737)
nors not given. For a suggestion that the Masons too publish en illogil
bullotin, the oditor Indus Halist Rono of paper
bullotin, SUO Insons,
Regraded I Inclassified
CONFIDENTIAL
- 36 -
258
documents containing accounts of the trial were circulated in
- 37 -
CONFIDENTIAL
France.
July 13
Rising in Eastorn Europo.
Another use of the clandestine press is suggested by
August 14,
Italians ask for en Armistico.
August 17
Accessination of Hitler.
an article in France Libre, which states that these publications
August 26
Franco takes up arms against the
Reich and Italy.
urge the population to demoralise the Occupying troops by ayu-
September 29th
Fronch onter Cologno,
October 18th
Gormany asks for an Armistico."
pathy and vivid descriptions of the horrors and dangers of var in
(BER 11568/42, 3/2/123 Franco to Now York.)
Russia.
Occasionally, soparato pemphlots are put out by the pub-
Besides the clandestine papers mentioned, various in-
lishors of tho clandostino papers alroady nontionod; for comple,
dividual documents soon to be secretly distributed from time to
Postal and Tolograph Conscrahip stato that the Comito D'Action
time. During the first half of February, an unknown hand
Socialisto and the Communists put out spocial papors celling for
distributed the following prophesy among French schoolchildren,
domonstrutions on May 1.
according to a writer from France:
The papers carry instructions and incitoment to sabotago
"February 17
The Japs take Singapore.
and other nota of violonco, according to Postal and Tolograph
March 15
The Germans invado Turkey.
March 29
The Germans take Sebastopol.
Consorship:
April 14
Anglo-American Sotback.
April 21
Rissians tako the offensive at
"Ono number of 'Idboration' carrios an articlo foreibly
Rouuborg.
donouncing the industrialists and onding: 'Do not forgot that
May 9
The English tako Tripoli.
sabotago is tho only arm wo still possoss - that not to maleo uso
May 15
Anglo-Amoricans land on the
of it is to dolny penco, to dosort. To commit acts of sabotago
Fronch coast.
10 to fight!!" (Postal & Tolograph Consorship Report on Franco
Juno 21
Gormans ovacuato Paris.
(No.7), p.2, SE/PO 33072, 4/29/42.)
June 28
Vigorous offonsive in the
Moditorrenoan by the British.
"Tho Communist Party has publishod an apponl to the
Turks push the Gormans back
Fronch pooplo similar to that in "Liboration," but much longor and
dotailed. Workers are urgod to striko, to damgo mehinos, to
towards the soa,
Womon must organiso food riots, and mlco raids on food The and fuol
more destroy goods dostined for Gormany and to disrupt comminications.
Postal and Tolograph Consorship Report on France (No.6) 7/1/12;
dopots, on black markot contros, and on rostaurants
p.9, gives an intoresting analysis of those illogal reports on the
Riom trial, including the report in Liboration quotod above.
poasants (Postal & Tolograph Consorship Report on Franco, No.7, 8/22/121
should harry the occupiors in every possible way."
P. 2. SE/PO 56/15/42; 5/23/42.)
EP 791, 5/19/42; Maxico (France Libro) to Los Angelos.
Postal & Tolograph Consorship Roport on Franco (No.7),
For other ovidonco of the activities of the clandostino pross
in Franco, 8001 HER 23496/42, 5/21/12; Corsica to Brazil;
SE/PO p.2, 56189/42, 5/1/12; SE/PO 56325/42, 5/15/423 ER 23364/42;
NY 36153, 5/27/12; Buonos Airos to London; MI 57883, 7/12/12;
Uruguay (Froo Franco) to India; ER 21690/42, 4/30/42; Gonova
tions concerning the domonstration, 600 Domonstrations.
5/16/42.) For a quotation from one of thoso papors giving diroc-
(Y.M.O.A.) to Now York,
(4737)
(4737)
Regraded Unclassified
- 38 -
- 39 -
CONFIDENTIAL
CONFIDENTIAL
259
So annoying has the clandestine press become to the Nazis
The news letter issued by British Friends of France
in France, that they have resorted to publishing clandestine
on February 7, 1942, states:
papers of their own, printed like the others, with the same ad-
"Scrutiny of the French pross of both occupded and un-
occupiod Zones, reveals many signs of opposition to Nozia and
monition found on most to "pass it on" when the reader is through.
Vichy on the part of the apparently docilo journalists. Some
timos oxamples are so glaring as to make it difficult to undor-
Even the legal and controlled press is not completely silent,
stand how they could have passed unoticod. At other times they
aro extromoly subtle." (NY 58858, 2/7/42; London to Port de
From France, a writer statos:
Franco.),
"Hero, wo don't know a groat doal. The Fronch Pross 1a
ompty, consorship is on watch and tho journalists are under
orders. to Tomps and Lo Figaro are holding on and in tho form of
literary articlos they expross tho lovo of the necessary froodom."
(SA 14125, 5/25/42; Costa Rica (lotter from Franco onclosed) to
Illinois.)
Early in November of last yoar, a writer in Cuba onclosed a
poom which ho statod appoared in Paris Soir in April, dospito Gorman
consorship. This pocm, which appoars lator in March of this yoar
in El Sonsanto (El Salvador), if road ordinarily, is a song of
praiso for Hitlor; but if a lino is drawn through tho contor of
the vorso, two vorsos are formod which aro violently pro-British
and anti-Nasi. Tho first two linos prosent a sufficiont samplo
of tho wholo:
"Wo lovo and admiro Chancollor Hitlor
Etornal England 10 unworthy to livo"
which, divided into two parts, roads:
"Wo lovo and admiro
Eternal England
"Chancollor Hitlor
is unwarthy to livo."
(NY 38923, 11/12/41; Cuba to Swodon)
BA 5593/42, 4/26/42; London to Panama (Atlantic-Pacific Nown
Agency), states that not even the controlled French press can
1/ IA 3549, 3/25/42; Switsorland (None Bundnor Zoitung) to California
remain silent about what is happening.
and NY 46214, 6/18/42; Now York (British Information Service) to
Mexico (Froo Fronch Dolognto).
(4737)
This poom also appoared in NO 2032/42, 3/30/42; El Salvador (El
Sonsanto) to Nov York,
(4737)
Regraded Unclassified
- 40 -
- 41 -
260
CONFIDENTIAL
CONFIDENTIAL
VIII. RADIO: ALLIED PROPAGANDA BROADCASTS
An April writer tells of the encouragement derived
Although listening to Foreign Broadcasts is forbidden -
from the New York broadoaster
even in the Unoccupied Zone, according to a Free French report,
"Every day in the afternoon the New York Radio brings
the punishment is 20 years at hard labor -- there is anule proof
the echo of American opinions and the effort which upholds the
nation. It is comforting to hear of their drive, energy and
in the intercepted material that these broadcasts are heard, al-
confidence, For two week(s) now the same Radio Station tells
us about a plot which is not very clear. The French newspapers
though it does not necessarily follow that they are heard with
don't breathe a word about The Marshal, up to now, has not
lent himself to the scheme, (NY 33643, 4/4/121 Nico to Managua.)
wholehearted approval;
"At Paris the speaker from Cincinnati is much listened to,
"Paula writes that Congenheim in Limoges is in difficulties
on account of his stentorian voice which the Parisians find very
because he listened to an English broadcast. This has been for-
comforting." (BER 19703, 4/10/423 Sote, France, to New York.)
bidden for some time now. But we hear New York and Boston very
well," (TRI 3397/42, 11/28/41; France (unoccupied) to Brazil.)
"It 1a becoming more and moro difficult to hear Anerica on
the radio. An to the (VOIX CHAUDE) it always speaks very well
A Parisian writos:
every. evening but the voice is as though it were covered and
veiled." (HER 20974/42, 4/10/42; France to Canhridge, Mass.)
"In the metro I often heard people beside me say: 'By
the say did you listen to London last night? What did they say...?'
A Y.M.C.A. representative in Goneva writes in April
If the same conversation had taken place in the unoccupied zone
the speakers would have been arrosted -- In Paris quite the contrary
of the dearth of nows in unoccupied Franco, duo to consorship,
happens besides the Fritzes themselves all listen in when they
can." (BER 6771/42, 12/28/41; France to Now York.)
but he adds:
In January of this year, & writer critizos the BBO:
"This deficiency is met to 6. certain dogroe by people
listoning to the foreign radio..." (HER 21690/42, 4/30/42;
"All our newspapors are subjected to Gorman end Italian
Geneva to New York.)
consorship
So one listens to the English radio. Unfortunately
the latter often attacks Marchal Potain and there is a danger that
An American writos of a friend in Francos
France will divide, part for Petain and part for De Geullo."
(BER 9260/42, 1/15/42; Lyon to Lima.)
"A friend, a doctor in Lyon, wroto no lately to thank
for him the French speaker at Radio-City... (MI 27021, 5/28/42;
"Un Francais Du Hidi No. 222" writes in January to his
Atlanta, Goorgia, to French Equatorial Africa.)
In an interviow in May with a refugee just arrived from
"Dear American Friends," trying to roach the Froe French in London
and Afrion; and ho wants to hoar through the BBC whother he has
Franco (Bormuda Travellors Consorship, Ships Passenger Report No. 147),
been successful in his aim.
the Fronchman is quoted as reporting:
"The B.B.C. was listoned to extensively in privato, and
In March, an Amorican in Unoccupiod Franco writes:
apparently pooplo word satisfied with the programos (p.1)
"The ovenings tro spond listoning in to London in spito
of the promiso of Prison and torrific fino if NO got caught."
Froo French litorature carroboratos thoso private reports: SA BA
(BER 11649/42, 3/2/12; Franco to Now York.)
6195/42, 5/13/12; Caracas (Proo Frunch bullotin) to Mardoo; London.
16829, 6/2/42; (Roport to General Do Gaullo; Maxico to
BER 9497/42, 1/22/42; Franco to Now Jorsey,
(4737)
(4737)
Regraded Inclassified
261
CONFIDENTIAL
42 -
- 43 -
CONFIDENTIAL
Not ovoryono who listons to the Alliod Radio in Franco
IX. RESISTANCE: GROUPS AND ORGANIZATION: POLITICAL, RELIGIOUS, NATIONAL,
approves of its propaganda nothods; an Amorican in Vichy writos
As stated in the introduction to this digest, the
in January an intorosting criticism of the attack on Vichy by
intercepts present a very confused picture of the 6 ingle and 000-
the Do Geullists (tho lottor was writton boforo the advont of
bined resistance groups in France. From the intercepted material
Laval):
on underground newspapers, it is evident that certain resistance
"How can they givo this government holl if they know
groups publish some of those papers, jointly and separately. There
all the problems of the caso?"
are the groups known as Liboration, Liberation Nationale, Idberation
Ho onds with the romark:
Francise, Liberté, Le France-Tireur, and La France Au Combat.
"But the lad or lads who will got the people startod,
von't bo thousands of milos away bohind a microphono. They will
Almost nothing is determinable from the intercepted interial concern-
have to be right horo in the thick of it." (BER/NAV 538/42,
1/7/12; Vichy to Now York. (The writor is a NBC represontativo.)
ing these groups, except that they soon to bo underground organiza-
There in vory littlo information in tho interceptod
tions publishing nowspapers, occasionally combining thair forces,
matorial about illogal propaganda radio stations within France
and allied to one or more of the various factions fighting against
itsolf. Intercepts quotod in the Postal & Tolograph Consorship
Nazion in Franco - the Communists, the Socialists, the Syndicalists,
Roport on France (No.7), give somo dotails of thoso stations:
and Do Gaullists, and the Catholics.
"Illogal broadcasts also play their part in rousing the
A. Commiststs
people to action. A priost of Gorman sympathics, doscribing a
'froodom radio' said to bo operating in Paris, says that it
Private lettors and documents from France, from Docember
'incitos and movos mon to rovolt; and that it rails against
the scarcity of food and the many employees 'bought over by the
through August, give ovidence of organized Communist activity;
Trusts' who are said to provent the ovon distribution of food
products. It bogs listonors to assessinato thoso traitors.
and the reaction of many Frenchman social usually unfavorable to
(P. 2, Postal & Tolograph Consorship Report on Franco, No.7,
8/22/42; LIV 45874/42, 2/5/42; Avoyron.)
their acts of violonco.
"Tho olandostino papor 'Liboration' advortisos throo such
stations, giving namos and wave-longths. (P.2, Postal & Tolograph
Consorship Roport on Franco, No.7, 8/22/42; SE/PO 12854/42.)
is combined with Liborté, Idboration Franceico and Liberation Nationalo be
18542 S (CID), not intercept material, statos that Idboration
may be one and the samo, and also the Liberation Franceiso may
combined with Liboration.
cribos 3302, Liboration as A pro-British organization with pro-Do
LA 1/30/42: (Dio Heltwocho) Switzerland to California, Genllo dos-
Sco also HER 9041/42, 1/16/42; Monaco to California, in which
followers, and Liberation Nationale as composed of loftists,
the writor gives a vory critical account of tho Do Gaullists'
broadoasts.
Catholics, and conservatives.
(4737)
(4737)
Regraded Unclassified
262
CONFIDENTIAL
- 44 -
- 45 -
CONFIDENTIAL
A December report from the journalist David Walker to the
"A report has just been issued of the police activities which
averted' a supress attempt on the part of the Comintern, to create
foreign aditor of The Christian Science Monitor talls of friction
a. diversion on Franch soil, which had it succeeded, would have
plunged France into deepest misery,
between the De Gaullists and the Communists:
"The police report exposes the comunist organization as
"Politically, Occupied France 1s as active as the Free Zone
revised in France after the defeat of 1940, In September 1939
is idle. De Gaulle's radio orders its nan in Occupied France to
the communists modified their nothods to meet the new conditions.
lie low, but these orders are being ignored. Free Frenchmen are
Until the outbreak of hostilities between Russia and Germany, the
being landed by British planes and patrol bosts with orders to use
communist movement in occupied France had an easy time, the
their personal authority to postpone B. general insurrection: but
conflagration between the two eastern powers changed all that.
the Communists, with or without orders from Moscow, continue to
Communism, in France, became the common enemy. The wave of terror-
murder German officers and cause the mass shooting of hostages
1am organized last year enabled the French police to execute a
Both Britain and De Gaulle feel that for the moment this is a
plan of suppression, ,mmerous arrosts and perquisitions(?) have
waste of life; but they have not been able SQ far to curb the
shown a vast organization so cleverly put together that its compon-
steady crescendo of revolution," (BER/NAV 60984, 12/14/41; Idabon
ent parts, working in close harmony, totally ignored one another:
to Boston.)
from the heads, directing from over the frontier, to the three
nembers of each cell existing in every city, factory, town and
An early picture of Commist activities in given by an clarmed
village. To ostablish communication a few agents sufficed;
vomen all of them; fanatics unconsingly active.
writer last September:
"The police have finally broken the back of the fabulous
"In Paris the Communists assassinate German Officers at the
monster that has done BO much harn to Frunce,."
rate of one a day-=casses of sabotage increase on railbays and in
factorios. The Peugot Garage 2, Quai de Toldo which WILD requis-
After a description of the arrost of Pauveau, considered a chief
itioned by the Gormano has been destroyed by B. Communist bomb,
Nearly a hundred hostages have alrendy been shot by the Germans.
agent, and the method used in cleaning up the other agents, the
All the houses in the 11th and 15th districts have boan searched
and the foreign Jown living there are sent to concentration camps.
article contimios:
"It is certain that if the German Army evacuated Franco, civil
"Thero in still an army of Intent comunists in hiding, waiting
war would broak out that very same day-and it would not be the
English Army who would protect us from Commist riots." (HER 65796,
in not composed of the activo elements necessary to a successful
for the good old days, of the Fopular Front to be revived; but it
9/17/41; Switzerland to New York.)
wo revolutionary hopo, for evor." (HER 14789/42, 3/9/121 Grasso to San Francisco.)
movement. We fool it will have a long time to wait -
In March of this year, a long article from France to The
That the "nonster's" back 1a far from "broken" howover, is tho
Argenaut, San Francisco, reports on Communist activities in France
conclusion drawn from the statomonts of nost interceptod material on
and their suppression. Although the correspondent soons anti-British
this subject. à writor, after surming up the difficult living con-
and extromoly pro-Vichy, the report givos interosting dotails
ditions in France, states:
about the Communist organization in France:
"Last October WO wrote of the communist-torrorist movement
in France, its manifestations at Remes and Nantos. in the fall
of last yoar a scries of murders had been committed against the
officors of the occupying force while train wrocks and criminal
attempts of all sorts marked a period of torrorism,
(4737)
(4737)
Regraded Unclassified
263
CONFIDENTIAL
- 46 -
47
CONFIDENTIAL
"The result of all this is that for the last year the country
A document sent from Vichy describes the execution of 27 French
has been advancing by leaps and bounds towards a morale state ripe
for a violent revolution. The working class are "en masse! against
hostages at Leir - Inferieure, the Chatesubriand Camp, on October
the government, which in not to be wonderedat as they have seen
all the conquests of a century taken away in a few months, The
22, 1941. All died with great heroism, despite the brutality
'bosses' have in general profited from the circumstances giving
proof of the narrowness of their views, which is leading them inex-
of the German soldiers; the writer quotes the last words of
orably to their destruction, one will see it in A few years no
matter what the result of the war may be. One would be greatly
Gabriel Peri, sworn Communist enemy of Hitler: "Adiou that France
mistaken in thinking that the working class are not organised at
the present time; in spite of the dissolution of the O.G.T. and
may live."
the outlawing of communism, they have at this moment a very strong
and able organization the framework of which is formed largely
That Communists were active in May of this year is shown
by the old leaders of the communists. The movement moreover avoids
calling itself, communist, and in fact contains many elements who
by a tract, forwarded by Bertholet, calling upon the workers of
are not commiststs at all, A terrifying hatred is actually ac-
cumulating in the working classes, and combined with the present
the port of Marseille to strike on May 1, 3/ A more possimiatic
material situation it is producing something quite now for those
of our generation." (HER 16/16/42, 3/25/42; Limoges to Now York.)]/
letter, written in May, states:
A woman writer in Mexico, with French contacts, gives all the
"...I do not think that 30 thousand French Comminists
could carry the day, in spite of their organisation, and their
credit for opposition activities to the Communists:
armaments (they are really responsible for the mjority of the
assaults.)" (BER/MAV 27251/42, 5/20/42; Hauto-Vienne to New York.)
"Opposition to Namis carried by Stalinists, who bocame active
at outbreak of Russo-Gorman war." (SA 8055, 4/30/42; Mexico to
A writer who loft Franco when the Riom trial was three wooks
New York.)
in adjournment, makes interesting observations on the Communists
And a May intercept, evidently written by a member of the Communist
in France:
party in Cuba, reports on Communist activities in France and their
the Commiststs are the activo clemint in the Franch
cooperation with the Socialists:
loft.
The writer was also informed about the accord reached between
the Socialist and Communist parties of France. They agreed to ork
"(5) The Comminists prenchod pacifism in the oerly part of
in close ocoperation, but they did not decide to have one common
the war and were the only body who kept at the masses, with
contral organ. They also agreed to widen their activities among
German setbacks in Russia, the Communists gained in influence and
the progressive elements of France. (MI 22522, 5/15/42; Habana to
published intoresting high-class novepapors, loaflots and booklets."
New York.)
(MI 25351, 5/26/42; Havana to Now York.)
For other commenta on possible revolution in France, see W 1383,
TRI 7140/42, 3/30/42; Vichy to Buenos Airos.
1/27/42; Geneva to Washington, D.C.; TRI 1134/42, Caracas to Fort
do Franco.
BER 23364/2, 5/16/12; Zurich to Nov York.
(4737)
(4737)
Regraded Unclassified
263
CONFIDENTIAL
- 46 -
47
CONFIDENTIAL
"The result of all this is that for the last year the country
A document sent from Vichy describes the execution of 27 French
has been advancing by leaps and bounds towards a morale state ripe
for a violent revolution. The working class are Job masse! agninst
hostages at Leir - Inferieure, the Chateaubriand Camp, on October
the government, which is not to be wonderedat as they have seen
all the conquests of a century taken away in a few months, The
22, 1941. All died with great heroism, despite the brutolity
'bosses' have in general profited from the circumstances. giving
proof of the narrowness of their views, which is leading them inex-
of the German soldiers; the writer quotes the last words of
orably to their destruction, one will see it in a few years no
matter what the result of the war may be, One would be greatly
Gabriel Peri, sworn Communist enemy of Ritler: "Adieu that France
mistaken in thinking that the working class are not organised at
the present time; in spite of the dissolution of the O.O.T. and
my live."
the outlawing of comunism, they have at this moment & very strong
and able organization the framework of which is formed largely
That Communists were active in May of this year is shown:
by the old leaders of the commists. The movement norsover avoids
calling itself, communist, and in fact contains many elements who
by a tract, forwarded by Bertholet, calling upon the workers of
are not communists at all, A terrifying hatred is actually ac-
cumulating in the working classes, and combined with the present
the port of Marseille to strike on May 1. A more pessimistic
material situation it is producing something quite new for those
of our generation." (BER 16/16/42, 3/25/42; Limoges to New York.)1/
letter, written in May, states:
A woman writer in Mexico, with French contacts, gives all the
"...I do not think that 30 thousand French Communists
could carry the day, in spite of their organisation, and their
credit for opposition activities to the Communists:
armanents (they are really responsible for the majority of the
assaults.)" (BER/NAV 27251/42, 5/20/42; Hauto-Vienne to New York.)
"Opposition to Nazis carried by Stalinists, who became active
at outbroak of Russo-German war," (SA 3055, 4/30/42; Mexico to
A writer who loft Franco when the Riom trial was three wooks
New York.)
in adjournment, nakos interesting observations on the Communists
And a May intercept, evidently written by a member of the Communist
in France:
party in Cuba, reports on Comminist activities in France and their
the Communists are the active clemint in the Franch
cooperation with the Socialists:
loft.
The writer was also informed about the accord reached betwoon
the Socialist and Communist parties of France. They agreed to work
1(5) The Communists prenched pacifism in the oarly part of
in close cooperation, but they did not decide to have one common
the war and wore the only body who kopt at the massos, With
central organ. They also agreed to widen their activities among
German setbacks in Russia, the Communists gained in influence end
the progressive elomonts of France, (MI 22522, 5/15/42; Habana to
published intoresting high-class novepapors, loaflots and booklets."
New York.)
(MI 25351, 5/26/42; Havana to Now York.)
For other comments on possible revolution in France, ace il 1383,
TRI 7140/42, 3/30/42; Vichy to Buonos Airos.
1/27/42; Geneva to Washington, D.C.; TRI 1134/42, Caracas to Fort
do France.
BER 23364/12, 5/16/42; Zurich to Now York.
(4737)
(4737)
Regraded Unclassified
264
CONFIDENTIAL
- 48 -
- 49
CONFIDENTIAL
How closely related to the other opposition movements in
From Bortholot, in Juno, conos a traot, given out as having
France is the Communist party? According to the Postal and
boon printod in Franco in Fobruary of this yoar. On the tract,
Telegraph Censcrship Report on France (No.7.), Communist literature
which calls for the wholo-hourtod support of General Do Gaullo,
denotes that members of the party are "at present submerging their
Bortholot has writton:
identity in that of the large general movement dedicated to the
"Tho position of tho Communists toward Do Gaullo is in-
torosting. A your ago it was very difforont!!!" (BER 24265/42,
ultimate expulsion of the Germans."1/ There would seen to be two
6/6/42; Zurich to Now York.)
types of Communists in France the cooperating type of the Front
Pross rolonses and Do Gaullist litoraturo corroborato thoso
Unique, supported by Libération, and urging cooperation between the
intercopts. A roport from the Moxican dolognto to Genoral Do Gaullo,
underground French, the British, the United States, and the "heroic
in London, statos that the Communists "who aro perfectly organized"
Red Army,"2/ and the type of Communist supported by L'Humanité, which
liston frequently to the B.B.C., and that thoy distributo English
constantly underlines the ceparate existence of the Communist Party
Inngungo tracts on tho Flaco Do La Comodio in Montpollior.1/
as a party of the Proletariat.3/ A report quoted in the Postal and
Juno 25 odition of tho Journal Francais du Mariquo, in describing
Telegraph Censorship states that, since the recent British reverses,
rosistanco groups in Franco, lists tho Comminist Party, whose
the Comminist influence has increased, "enabling them to boost the
"exporionco in clandostino opposition has no oqual" and who possess
successes of the Red Army at the exponse of the Gaullists, who now
consideruble financial moans and tho support of many thousands of
figure somewhat as poor relations."4/ There is even a threat that,
notivo and profossed sympathimor. From tho Juno 27 odition
if the British and Americans let Russia down now, the Communists
of Alemania Libro (Moxico) comos an articlo doscribing the shooting
in France will "revise their line of action."5/
of the 27 commiststs at Chatomubriand, who diod singing the
Marecilloise and tho International, shouting "Long live Franco;
Postal & Telegraph Censorship Report on France(no.7), August
Long livo the Sovict Union; Long livo the Communist Party, and Long
22nd, 1942; P. 3.
livo tho Communist Party of Germany." 3/
Ibid, (SE/PO 56/15/42, 5/23/42.)
bases these findings on a commentary on a booklet entitled What the
Ibid. The writer of the Postal & Telegraph Censorship Report
Commiststs liant, BER 24268/42, 6/6/12.
SA 16829, 6/2/42; Maxico to England.
Quoted from What the Communists Want; Ibid.
SA 23205, 6/25/42; Maxico (Journal Francois du Maxique) to Tomas.
Quoted on the same page 3 of the Postal & Telegraph Consorship
EP 2863, 6/27/42; Mexico (Alomania Libro) to Arisoni.
Report, PMS/PO 58455/42.
(4737)
(4737)
Regraded Unclassified
CONFIDENTIAL
- 50 -
- 51 -
CONFIDENTIAL
265
It is notod in tho Consorship Ropart quoted abovo that
B, Socialists.
Voritos, which used to doolaro itsolf foreibly against Communion,
A lottor written in March from a party nomber in Moxico
has changed its nano to Conbat, in which thoro aro no attacks up-
describes the situation of the Socialists in Franco, saying that
on Communion, na far as can bo dotormined from tho oditions of
many of the members in Franco have gono over to Vichy. The
that papor on hand. Liborto donounces the forces of capitalisn,
writer onds his lettor with the following romark:
and Liboration voloones all nonbors of the various rosistance
"It is too cloar to my cyce that nothing offective will be
dono against Nazion as long us the workors do not tako in thoir
groups into the forcos of Do Gaulle. The sano appoars truo of Lo
own onergotic hands the diroction of this world civil war."
(BA 3265/42, 3/13/42; Mexico to Uruguay.)
Franc-Tirour, which also advocates conforring any nocossary powers
Rono Bortholot forwards Zurich Socialist tracts from the
upon De Gaulle after the war, in order to establish the ultimate
Occupied Zono concorning resolutions pessod, rounions, mnifostos,
return of a constitution chosen by France herself. Le Pere
oto. The authors, ho states, are socialists and trodo unionists;
Duchesse, published by the same group, also welcomes all opposi-
although no very thorough digost vas mado of those writings in
tion members into the fight against the Germans. The Socialists,
the intercopt, they are montioned hero as ovidenco of Socialist
in their various publications, advocate the establishment in
activity in Franco.1/ The samo sender also forwarded in May a
France, after the War is won, of a Socialist Government. One
May Day appoal by the Comito D'Action Socialisto, of which 12,000
group, which the intercopts picture as emphatically opposed to
copies vore said to have boon circulated in the Froo 2ono.2/ No
the Communists, 1a the Partic Socialiste Ouvrior ot Paysan, a
also forwards a manifosto of the Comito D'Action Socialisto which
group denouncing the "Totalitarianism of Stalin., ,and his bar-
in corroborated by two other intercopts which rocord the pro-
barians," and oven reproving the Do Gaullists for attompting to
coodings and rosults of the mooting of the samo group:
combat tho Nazi idoology with arms, instead of with a total So-
"This, announcing that in Franco all activity on bohalf
cialist revolution.
of Socinlism is subordinated to the liberation of the country,
expresses the party's readiness to work with all movements of
Privato lottors and other documents have boon quotod
resistance and particularly with 'Gaulliamo,' It would be in-
which illustrato how Communism is fourod by the avorago Fronch-
man; Postal and Tolograph Consorship indiontos that thoro is
BER 23,078/42, 5/8/42; Zurich to Now York,
somo friction botwoon the Communists and other opposition groups,
BER 23364/42, 5/16/42; Zurich to Now York.
although the mjority wolcomo all fightors against Naziom. At
SA 17823, 6/6/42; (Frunco Libro Ropart) Moxico to Cuba; SP 1615,
6/7/12; Mexico (IA Pronsa) to Los Angoloo, California.
loast this much is obvious from a study of tho intercoptod mato=
rials the londorship of the opposition appoars divided botwoon
(4737)
tho Do Goullists and the Communists,
(4737)
Postal and Tolograph Conscrship Report on Franco, No.7, pp. 4,5,6.
Regraded Unclassified
CONFIDENTIAL
- 52 -
- 53 -
CONFIDENTIAL
266
conceivable that the temporary dictatorship-no doubt presided
for General De Gaulle's broadcast message.
over by General De Gaulle and in which the Comite D'Action Socialiste
from now on declares itself ready to participate--which will be set
D. Rightist Opposition.
up in France on the morrow of the fall of Hitler and Muscolini
should be anything other than the preparation for the return to
Belonging to the large opposition groups like Libération are
political democracy." (BER 24265/42, 6/6/42; Zurich to New York.)
many conservatives, Catholics, former officials, and army
The Free French France, in London, published in July BL
officers. A December, 1941, report states that
Socialist tract describing the rights enjoyed under the Republic
"The Vichy Government relies for support on the ex-front
and exhorting the people to have confidence in the final defeat of
soldiers' organizations but those (who know) the state of affairs
(in) these organizations realise that the majority is only miting
for a favourable. opportunity to break up all collaboration with
Hitler.
the Germans..." (BER/NAV 458/42, Lisbon to New York.)
C. Trade Unions.
The suggestion that some members of the old French Army are pro-
A writer, already quoted, who left France during the Riom
Allied occurs again in a much later intercept from Geneva to
trial adjournment, gives interesting information about the Social-
Time, Chicagor
Democrats:
"Hitler has asked Laval to disband the Legion Française
"The Social-Democrats are pro De Gaulle. Their excellent
des Combattants, Petain's own creation. This organisation is too
leader, Jouhaux, 10 in concentration camp, after powerful work
'patriotic' for the Germans who accuse it of doing all 1t can in
in trying to unite Socialists and Comminists, both of whom, and
order to 'sabotage' the franco-german 'rapproachment. III (BER
the middle class as well, praised him.
22419/42, 5/22/12; Geneva to Chicago.)
"The publication of leaflets of Leon Blum's Riom speech
An article in the Free French organ in Mexico, describing under-
signals the stirring of Social-Denocratic activity and they
are working on the trade unions and the Legion." (MI 25351,
ground movements in France, lists the Batalia de Francia as repres=
5/26/42; Havana to New York.)
enting the rightist opinion:
The trade unions seem, from intercepted information, to be var-
"It has stamped for violent deaths Pierre Laval, Marcel
iously influenood by the Communists, Socialists, and De Gaullists.
Deat, Jacques Dorict, and Sacha Guitry. It doos not publish a
regular bulletin but issues one frequently which is characterized
They apparently put out pamphlets and make resolutions of their
by a violent tone that can't help impressing both German and French
readers. It is believed that the nucleus of the group opposes
own; for example, Réné Bertholet forwards 6. leaflet addressed by
old members of the 'Partido Social Frances, a semi-fuscist organis-
ation created by Colonel LaRooque in 1934. (SA 23205, 6/25/42;
the Mouvement Ouvrior Francais to French workers, instructing
(Journal Francais du Mexique to Texas.)
them how to act on May 1, It wes circulated in all towns of
ber 23364/42, 5/16/42; Zurich to New York. Also nee HER 24265/12,
the Free Zone; another tract was also forwarded, giving thanks
6/6/42; Zurich to New York, and BER 23,078/42, 5/9/42; Zurich to
New York, in which Bertholet has forwarded trade unionist literature.
LA 3302, 1/30/42; Zurich (Die HeltWoche) to California. See also
NY 68806, 7/3/42; London (France) to Brazil.
the Report, originally submitted under SA 27039, International News
Service, to North American Newspaper Alliance. (Submission slip
not received yet in this Unit; copy of report received 8/10/42.)
(4737)
(4737)
Regraded Unclassified
CONFIDENTIAL
- 54 -
- 55 -
CONFIDENTIAL
267
1, French Police. Two documents suggest that there is
"Germany will never get the French Fleet: first because
the sailors are extremely Anti-Nasi and would mtdny if ordered
opposition activity among the French police. In a long report, a
to sail a ship into German hands;" (SA 1599, 3/18/42; New Haven
to Mexioo.)
iginally written in Spandsh, and sent by International News Service
A Y.M.C.A. report from Geneva states:
under the signature of J. Williams to the North American Newspaper
"In any event it seems unlikely that Laval will give up
Alliance, the writer statos definitely that such activity exists:
the fleet to the Germans. Another reason is the fleet's dialiko
of Laval-not heightoned by the fact that he has kicked thoir ad-
"It is truo that all detocted foreignors aro sent to con-
miral domatairs," (HER 21690/42, 4/30/12; Genova (Y.M.C.A.) to
contration camps without pity, but it is also truo that informa-
Now York.)
tion roachos tho camps of tho ponding visit of a Gorman Commission,
and tho prisoners aro allowed to oscapo sccretly. in ordor to provant
Four other intorcopts corroborato those reports. Franco Idbro,
them boing usod by tho Gormans. When this in not possible, tho
modical commination is usod to advantago and only thoso whom it
Maxico, in its April 28 odition, states that, although the Fronch
is impossible to doclaro ailing are pronounced fit...
sailors are anti-British, thoy aro strongly anti-Vichy and anti-
"Tho officials of the Contral offices, whore those practices
are known, overlook the infractions on the part of tho local
Gorman; it in this passivo rosistanco that makes it impossible
polico and in this manner boycott tho Gorman domands.
to codo the Fronch floot to Gormany.
"The polico forco of Franco today reprosonts a covor for the
protosts against tho invador, which protosts are incroased as
An ovidance of the opposition of the Fronch Morchant Marino, 3/
talks by Laval of cooporation with Gormany como from Vichy."
(Copy of roport sont with SA 27039, International Pross Service
as woll BB of the French Navy, comos in an accorpt from Documents
to North Anorican Novspapor Allianco. Submission slip SA 27039
not yot roccived in this Unit, copy of roport submitted 8/10/42,
D'Information, dated November 1 of last yoar:
quotation from pago 9.)
"Proof of rosistance to collaboration by tho French Morchant
In April, a French writor statos:
Marino más found in a lottor which Admiral Darlan addressed to
the Gonoral Socrotary of the Contral Committoo of French ship-
"Tho Fronch have somothing which 10 difforont from other
owners. The Fronch morchant marino 1a accusod of holping stor-
poople, in apdto of the rottonnoss tro have spokon about, somothing
aways, of performing thoir dutios inofficiently, end of caroloss-
fine and wholesome is emerging. and when we read such announcemento
noss in the looding of cargoos." (BA 6211/42, 5/19/42; Panama
or notices, that the State is absolutely sure of the loyalty of
(Froo Fronch) to Martiniquo).
the Police, we become thoughtful; why say it, write it, 1t is only
to be expected if evorything is all right!!!" (BER 19858/42,
El Diario, Bolivia, tolls of mutinios on board Fronch morchant
4/23/42; Hte. Lodro to San Francisco.)
ships; in ono caso, it reports on the succossful turning over of a ship
2. French Navy and Merchant Marino. That the French Navy is
by French officors to the British at Gibraltor.
not entirely with Laval, and that thore have been frequent mutinios
of tho Fronch Morohant Marino, 1a roported in various intercopts.
NO 4581/42, 4/28/42; Mexico (Frando Libro) to La Pas, Bolivia.
A woman in Compoticut refors to e conversation with M. Fouillorat,
tolla of the conflict botwoon the captain and crow (Do Goullist), of
SA 14740, 5/25/12; (Journal Pronocia du Marique) licrico to Tams,
in which ho is said to have statod:
tho Fronch tankor Moropo.
LA 2218/42, 3/24/12; (El Diario) Bolivia to Hollywood, Cal.
(4737)
(4737)
Regraded Unclassified
- 57 -
CONFIDENTIAL 268
CONFIDENTIAL
- 56 -
5. Opposition of Foreign Refugees.
That the French authorities are fearful of Naval morule seems
An interesting latter from Heinson to the UP in New York
to be evident from an interesting excorpt in & letter written to
indicates that the White Russians are opposing the New Order
the editor of The North American Alliance, New York:
in France:
"Some mystery seems to attain to what is going on in the
French navy. A young French lad was demobilised recently from
"After unsuccessful efforts to enroll them as 'volunteers'
the havy. Finding no civilian employment he applied for re-
for the Eastern front, all the several thousand non commist
entrance. Admitted, he WILB given a civilian rating in the French
Russians hitherto interned, ...have beenreleased by the occupa=
may, What is behind the readmission to the French navy of all
tion authorities. Captain Graff, chief of Nladimir's staff who
these young ex sailors with & civilian rating? And what are
continues interned, is blaned by the Germans for the Grand Duke's
they needed for? It is not by any means certain that Darlan has
resistance to the German offer of support of his claim in ecchange
the whole of the rank and file of the Vichy French navy behind
for a manifesto inviting Russian enigres to rally to the anti-
him, look stock and barrel." (BER/NAV 12465/42, 4/21/42; Idabon
Bolshevist stand.
to New York.)
"Wladimir. ,does not hide his pro-Russian sentiments.
The report on France, received in this Unit on August 10, and
"Maklakoff, Russian Ambassador to Paris from the provisional
already quoted, statos that the French sailor is "honostly patriotic,
1917 Government, who remained in France after the rise of Bolshevism,
has published a manifesto in the name of 30,000 enigrees announcing
full of courago, and void of all personal projudico,' The
that they are not partisans of the anti-Bolshevist crusade. They
refused to enroll either as fighters or interpreters.
writer, a journalist, interviewed sailors of the Fronch floot at
"Monsignor Euloge, Archbishop of the Russian Orthodox Church
various ports before leaving France, At the suggestion that the
in Western Europe, also announced in Paris that he is not support-
ing the anti-Russian crusade." (BER/NAV 12606/42, Vichy to UP, New
French floot might find its my into Gorman hands, the reaction
York.)
was "unanimous." The sailors answored: "Nover I 80 long as we
Other refugee groups especially active in France, as evidenced
are abound. No will not surrender the floot without a fight F
by the intercepts, are the anti-Fascist Italians and the Anti-Franco
At Toulon, where the sailors had nover hoard of the possible
Speniards. The intercepted material on these groups, however, has
surrender of the floot, their reaction was: "Nevor I No would
to do mostly with the efforts of these organizations to got their
rathor join the English," And the report adds:
mombers out of France - efforts which are not, strictly speaking,
"This WILD not just braggadecio. À fow days boforo thoro had
opposition activity. An intercept dealing with Spanish Republi-
boon a mutinous incident in ono of the boats. Whilo passing
Gibraltar, the crow had wanted to join the English," (France
cans in France, however, indicatos that members of this group are
Under Nazi Domination, report sont by International Hows Servico
to North Amorican Nowspaper Allianco, for publication in U.S.
aiding the opposition:
Copy of report submitted to this unit 8/10/42; Submission B lip
No. SA 27039, not received.)
See Pages 26, 27, 20.
Franco Under Nazi Domination, report scnt by International Nows
Servico to North Amorican Newspaper Allianco, for publication in
(4737)
U.S. A copy of this roport was submitted to the Unit C/10/42;
Submission slip SA 27039 was not rocuived, (This slip was the ono
to which tho report was originally attached.
(4737)
Regraded Unclassified
CONFIDENTIAL
- 58 -
- 59 -
COMPETITIAL
269
"The writer a tates that the Spanish Republicans are well
"The Franch people and the 'degaullists' are the friends
liked by the French population for their aid and heroism, espec-
of the Spanish refugees. French people in Nines and Remoulins
inlly in the occupied sone where there are many of them,"
opened their homes to the refugees. There they listened to the
(MI 3592, 2/9/42; Havana to London.)
broadcasts from England and Russia...
An item in France Libre, Mexico, states that a Speniah
"Many women were sent to work in factories working for the
Germans; there was DO much subotage that same were executed,"
Republican agitator WELD condemmed to death by Vichy "for a plot
(MI 92025, 8/24/42; Mecico to Cube -- informante recently returned
from France.)
against the state and for connection with the Communist party,"
Four intercepts from France, witten in veiled language, in-
Another August intercept from Mexico on Spanish refugees in
dicate that Anti-Franco Negrinist activity in France is well
France gives a detailed description of their subotage work there:
organized. The writer speaks of "wandering about the boulevards"
"From February 6th to September 1939, the informant was in
the concentration camp of Gurs, most of the time. The organiza-
in pursuit of his "Padres" business;" of the walfare of certein
tion of the party began with the constitution of "colla" which
kept in constant contact with one another, These "cells" did ex-
"commercial sones;" and of a "Book which caused much commotion
cellent work. Soon the refugees went to work, many in aviation
plants The informant went to work in Toulouse, There, there were
in those parts". Those and various other allusions are inter-
no reunions, no meetings, but a "troikn" (examiner: team) was
forned by the aviation commander, a mjor of the Medical Corps,
preted by the censor as mforing to organization of the Spanish
and the informant. This team received somo issues of L'Humanité,
whose distribution in the factory vas forbidden. The Spanish ro-
Communist party in France; to the circulation of the Union Nacional
fugoes met socretly with French comrades, and passed the watch
words. The result was that the factory put out 220 planos only
Manifestos, issued by that body; and to various friends of the
during the mar, and none of these planes could be used. All the
activities of the Party, in the "workers companies" were under-
party in France,
ground activities, Issues of L'Humanite and of Reconmuost of
Spain were distributed and the watchword was passed for all
A. Refugees from Aleace - Lorraine
Spaniards to unito under the orders of Negrin, Because of this
propaganda, and sinco the Party has no representatives by the
A intercepted letter from Nice, witten April of this year
Ambussador of Moxico in Vichy, all the contrados bolieve that they
must remain in Franco and noar the Spanish border, in order to be
states:
ablo to soiso the first opportunity to booomo the vanguard of the
forces which will reconquer Spain, Another aspoct of the work of
"Morale in Lorruino 1s apparently tremendous
the groups of the Party is Wood-production, Those ongugod in
outting wood to make charocal for gasogenes which manufacture gns
"II. Bandouin, deputo of Chatosu Salins, released from cap-
for the Gormans, do not evon out half a cubic motor of frood a day."
tivity because he is the father of 4 children, said that in
November he WELL received by the Marshal and told him that he had
After describing the conditions and work of the Spanish
recoived many lotters from his follow tounsmen mying No are fod
up, the government has forgotten us, I Potain jumpod up That, I
refugees in dotail, the report continues:
have forgotten 1. You will go back to your homes, I shall
load you back, I
2/
EP 1793, 6/2/42; Mexico (France Libro) to California,
BER 10985/42, 1/18/42; Franco to Mexico; UI 52, 2/25/12; Franco
to Mexico; HER 14082/42, 2/25/12; France to Cuba, A strengo inter-
capt from France to Arguntina, TRI 3657/42, 1/20/42; Franco to Ar-
gentina, written in especially fantastic language, my refor to
(4737)
capãonago work or to somo movement (possibly connected with the
Nogrinists, since the language is somowhat similar), which aids
prisonors to escape.
Soo also Youth Organizations, and BCR 22750/42 (?), 5/9/12; Born
to Now York, onclosing an articlo about resistance in Alasco-Lorruine
(4737) which is not digosted by the consor.
Regraded Unclassified
CONFIDENTIAL
- 60 -
- 61 -
CONFIDENTIAL
270
"And it seems that in Alsace, the walls are covered with
wearing cassock and decorated with the Legion of Honour, who
'711' which means The wollen wieder werden was wir waren! (We want
stared him straight in the face and finally shid, It is neither
to be again what we were). I must say that all expelled or 08-
French nor Christian. III (BER 45931, 8/6/41; Switzerland to lieu
caped Alastians are persuaded that their country will only remain
York.)
French if Germany is thoroughly besten." (Postal & Telegraph
Conscrehip, HOL/PO 123273/42; 4/15/42; Nico to Lisbon.)
A letter in April describes the arrest of several intellectuals,
The Postal and Tolograph Censorship Report on France (No. 7),
among them:
August 22, 1942, gives further details on the moralo and opposi-
"Vanhove, a Catholic friend of the Archbishop of Toulouse,
very active on behalf of the 'Syndicats chretien,' and many
tion activities in Alsaco Lorraine itself. The report corroboratos
other young people. They are docused of somo wicked plot or other,
but the charges brought against then are non-existent; of course
tho statoment that the moralo of both refugoos and inhabitants of
it is truo that they were woll known to bo ardont patriots."
(BER 23160/42, 4/7/423 Zurich to Now York.)
Alsaco Lorraino is excellent.
Another April intercept, from the Y.M.C.A. representativo in
"A fino mothod of irritating the Nazis in to continuo to wear
a Fronch borot. Not only French hats but also French expressions,
Genova, statos:
ovon such na have long boon assimilated in the Gorman language, are
bannod.
"Tho situation of churchos and Christian organisations in
genoral is boooming incroasingly difficult. Ono happy rosult,
"Bands of young Alsatians exprose thoir foolings in stronger
howover, is roally accollont collaboration botwoon Protostants and
ways. On March 31st, 1942, the Strasburger Court condomned a
Catholics in common resistance to Fascist tondoncios of the Viohy
well-organisod gang of ton of thoso potriots, for acts of sabotage,
government. First the Protostant, and thon the Catholio youth
torroristic attentata, otc., With the aid of explosives, hand
organization signed a lottor formally refusing to accept a
grenades and other engines they committed a great number of nots
government forbidding thom to accopt foroignors or Jous in thoir
of terror. They expressed anti-German sentiments by covering
membership. Thoro 1s groatly renowed intorost and spirit in
walls and billboards with anti-German inscriptions, by attaching
Protostant youth organization, IM, IN, Scouts otc," (BER 21690/42,
and destroying automobiles belonging to the Wehrmacht and the
4/30/12; Genova (Y,M.C.A.) to New York.)
police, cutting telophone wires, toaring up railway lines and
destroying railroad equipment. A single ono of the accused alono
In connoction with the protost of the Churchos against the
dostroyed 100 autos bolonging to the Party and the Army. ⑉ (HER
22758/42, 5/9/42; not recoived in this Unit but quotod on pago 12 of
anti-Somitic logislation of Viohy, a Swine nowspapor statos that
the Postal & Tolograph Consorship, Roport on Franco (No. 7), 8/22/12.)
the French Fodoration of the Association of Christian Students,
Roligious Opposition.
in ita roont publication, donotos its disapproval of antd-Somition.
According to the intercopted material, the Church in Franco
In May, Rono Bortholot forwards a tract, "Il Faut Choisior,
has boon activo against the Nazi Rogimo. Early in August, 1941,
Lo Christ Ou Hitlor," which ho statos was put out by "tho group
a writer reports:
which publishos and circulatos Tomoignago Chrótions" (a clandostino
"Tho wholo of the olorgy is against the porsccution. I told
you a Rabbi had assured mo that two curatos had boon imprisoned
scrios of pamphlots, montioned on pago 30, under Olandostino Pross.)
for two months at Bosancon, bocause they ahould thoir disapproval
of the docroo too openly. At lice, Milia was reading the now
regulations in front of the Town Hall, when ho noticod a priost
SF 6284, 5/29/42; Switsorland (Lo Potit Jurassion) to California.
(4737)
(4737)
Regraded Unclassified
CONFIDENTIAL
- 60 -
- 61 -
CONFIDENTIAL
270
"And it seens that in Alsace, the walls are covered with
wearing cassock and decorated with the Legion of Honour, who
17" which means Tir wollen wieder werden was wir waren' (We want
stared him straight in the face and finally said, It is neither
to be again what we were) must say that all expelled or 08-
French nor Christian. in (BER 45931, 8/6/41; Switserland to New
caped Alastians are persuaded that their country will only remain
York.)
French if Germany is thoroughly beaten." (Postal & Telegraph
Gensorship, HOL/PO 123273/42, 4/15/42; Nice to Lisbon.)
A letter in April describes the arrest of several intellectuals,
The Postal and Tolograph Censorship Report on Franco (No. 7),
among them:
August 22, 1942, gives further details on the norale and opposi-
"Vanhove, a Catholic friend of the Archbishop of Toulouse,
very active on behalf of the Syndicate chretien,' and many
tion activities in Alsaoo Lorraine itself. The roport corroborates
other young people. They are docused of some wioked plot or other,
but the charges brought against them are non-existent; of course
the statoment that tho moralo of both refugoos and inhabitants of
it 10 truo that they were well known to be ardont patriots."
(BER 23160/42, 4/7/123 Zurich to Now York.)
Alsaco Lorraino is excellent.
Another April intercopt, from the Y.M.C.A. representativo in
"A fino mothod of irritating the Nazis is to continue to wear
a French borot. Not only Fronch hats but also French expressions,
Gonova, statos:
ovon such 0.8 have long boon assimilated in the Gorman language, are
bannod,
"Tho situation of churchos and Christian organizations in
general is boooming incroasingly difficult. Ono happy rosult,
"Bands of young Alsations expross thoir foolings in stronger
howover, is roally excollent collaboration botwoon Protostants and
ways. On March 31st, 1942, the Strasburger Court condomned a
Catholics in common rosistance to Fascist tondonoics of the Vichy
well-organisod gang of ton of thoso patriots, for acts of sabotago,
government. First tho Protostant, and thon the Catholic youth
terroristic attentats, otc., With the aid of explosives, hand
organization signed G. lottor formally refusing to accept a
grenades and other engines they committed a great number of nots
government forbidding thom to accopt foroignors or Jows in thoir
of terror. They expressed anti-German sentiments by covering
membership. Thoro 10 groatly renoured interest and spdrit in
walls and billboards with anti-German inscriptions, by attacking
Protostant youth organisation, TM, YW, Scouts otc." (HER 21690/42,
and destroying automobiles belonging to the Wehrmacht and the
14/30/12; Genova (Y.M.C.A.) to Now York.)
police, outting telephone wires, tearing up railway lines and
destroying railroad equipment. A single ono of tho accused alono
In connoction with tho protost of the Churchos against the
dostroyed 100 autos bolonging to the Party and the Army. 111 (BER
22758/42, 5/9/42; not rocodved in this Unit but quotod on page 12 of
anti-Somitic logislation of Vioby, a Swiss newspapor statos that
the Postal & Tolograph Consorship, Report on Franco (No. 7), 8/22/42.)
the Fronch Fodoration of the Association of Christian Students,
P. Rolicious Opposition.
in its rocont publication, donotos its disapproval of anti-Semitism.
According to the intorcopted material, the Charch in Franco
In May, Rono Bortholot forwards a tract, "Il Fout Choisior,
has boon activo against tho Nazi Rogino. Early in August, 1941,
Lo Christ Ou Hitlor," which ho states was put art by "tho group
& writer reports:
which publishos and circulates Tomodgnago Ohrótions" (a clandostino
"Tho wholo of the clorgy is against tho porsccution. I told
you a Rabbi had assured no that two curatos had boon imprisoned
scrios of pamphlots, montioned on pago 30, under Clandostino Pross.)
for two months at Bosanoon, bocause they showed thoir disapproval
of tho docrco too openly. At Nice, Milla Tab reading the name
regulations in front of tho Town Hall, when he noticod a priost
SF 6284, 5/29/421 Switscrland (Lo Potit Jurassion) to California.
(4737)
(4737)
Regraded Unclassified
CONFIDENTIAL
62 -
- 63 -
CONFIDENTIAL
271
this document, with quotations from both Catholic and Protostant
"In Normandy tho churchos wore used as quartors and the ro-
ligious Joan of Are associations vero disbanded. However, on the
writers, is said by the comednor to onll on all Christions of
day of Joan of Are, English flags word soch floating in the Gorman
quartors.
whatover crood, to unito in a common front for tho liboration of
"In Chorbourg, prosidents and maids of a roligious association
Franco, 1/ An intercopt quoted in the Postal and Tolograph Consor-
no well as two priosts wore shot,
chip Report on Religious Movemonts, (No.3), May 22, 1942, Now
"The Archbishop of Paris, M. Subard, demanded bottor troatment
for the Catholics and rospoct for thoir churches," (SJ 7255, 6/20/42;
Scrios, also montions the Cahiors as a Catholic clandostino publi-
Cubo to Puarto Rico.)
cotion, donouncing tho ossontially anti-Christion naturo of the
G. Masons
Nomi philosophy. This roport goos on to stato that opposition
Ono intercopt, dated December of last year, indicatos that
is ospocially provalent among the roligious youth movements, much
tho Masons, although porsconted, continuo to somo attant thoir
as the Jounosso Ouvrioro Chrotienno(Catholic) and the Conscil
activities in Franco. It gives nove of a member who is boing caro-
Protostant do In Jounosso; but it states that thoro 1a insufficient
fully untehod:
ovidence in the moil for any comment on the pronouncements of the
"A priost consors his mil which makes it impossible to sond
him masondo lotters accopt through the comoctions to used to have,
Reformed Church,
The Masons can not holp hin, sinco all masons in occupiod Europo
aro cruelly persocutod.
The Froo Fronch roprosontativo in the Antillos encloses from
"You should know that all porsocutions of all of our H.H. (?)
Ouba a novepaper clipping on tho religious situation in Francos
originates in occupiod Franco and thoro (sio) (France) a daily
papor is published revonling mattors portoining to the Lodgo and
"Groat abusos have boon committed, especially in Brittony chich
its members who have fallon into the hando of the Gorrans..."
is ono of the most Catholic regions in the country. The Namia
(SJ 285/42, 12/27/41; Cubo to Puorto Rico.)
justify thoir violonces by anying that the 'nov order' requires
the throwing may of old idons. Pricats in Brittony have boon
H. Joys.
arrosted as hostages whenover any accident has occured to Gormans,
miking thom responsible, and not only priosts but Catholic individuals
Two intorcopts give a fou dotails conserning Joudsh resistanco
have boon arrostod, accused of n cortain crimo and hold under Bus-
picion just for boing Catholies.
in Franco. Minutes of the Juno 18 mooting of the Loft Poalo Zion
"Tho national Fronch sontinant hns boon donounced ns "a clori-
organization tall of an illogal paper publishod by the organization.
cal resotionary expression.
Groat prido in taken by this organisation in the fact that it is
"In the Dopartamonto do Calvados 10 where violonco and cruolty
have struck harder. Religious services have boon susponded no-
ono of the nost activo oncrdos of the Namis in Franco. Anothor
cusod of boing subversivo mootings. Churchos have boon plundored
and sacred things stolon.
intorcopt, Bullotin mimber 29, issued by the Amorican Reprosentation
BER 23364/42, 5/16/42; Zurich to Now York.
MI 53578, 7/11/42; Nov York to Polostino,
Postal & Tolograph Consorship Report on Rolisious Movoments (No.3)
Now Sorios, 5/22/12; pago 4. SA 37285, (NCWC Nove Service) Washing-
ton, D.C. to Costa Ricn also nontions this sorios of pumphlots, pub-
(4737)
lished by the Unitod Front of Spiritual Combat and Rosistanco for the
Liboration of Franco.
(4737)
Regraded Unclassified
- 64 -
- 65
COMPIDENTIAL
272
CONFIDENTIAL
of the "Bund" - Yiddish-Polish organization, states that the re-
Under the guise of a youth health organization, this
sponse to the request for funds for the underground movement of
accut group prenches rebellion to its young members:
the "Bund" in 1942 was very warm. The censor states that news
"Allons, debout! vaillants enfants d'Alsace!
Bientot vivra, pour nous, l'atbe du jour,
about the novement in France in given, but this information is
Ou nous prendrons d'un pas farme et tenace,
Le sac au dos, le chemin du retour]
not given on the submission slip.
"Heurence de rester Prancais,
I. Youth Organizations.
Dans la guerre ou dans la paix,
Soyona unis pour jamaiol
Mention has already been of the opposition of reli-
Et chantons, plains d'assurance,
Dans la joio et la souffrance;
Alsace et France!"
glous youth organisations to the Masi regine. Two intercepto
give details concerning the resistance of Alsatian youth:
(A footnote to this song states that it can be bought
for one franc a copy, 40 france for 50, and 75 france for 100.
Postal & Telegraph Gensorship, LIV 25872/42, 3/15/12: France to
"I read some very inspiring letters yesterday from a
young Alsatian girl going through all the pain and humiliation
New Caledonia.)
of losing French nationality and boooming German or rather Nazi,
The Communist youth are also organized, according to a
Her spirit 1a far from broken and her letters are splentid. She
met Antoinette Laufor's sister in a Guide Camp here in Switserland
June intercept from & Chilean nombor of the Free French who has
and has remained in contact with her since 1938 where they first net...
Hor letters are nost cleverly worded but all the samo I cannot
imagine how the consor passes them! Her rovolt and acorn and
received word, two months old, from France:
pain and hopo are crystal cloar." (BRI 3183/42, 1/18/42; Switser-
"I learned also that !tichaud, socretary for the Young
land to Argentina.)
Communists (Jounesses Communistos) had boon arrested in Lyon the and
Another intorosting ovidonco of Alsatian youth's ro-
was and directs the movement for the young girls called
in bed for the balance of his life. His wife continues the
sistance is a document which soona to bo B. publication by Alention
fight (Jeannes d'Aro Rougos) Rod Joans of Arc." (MI 45641, 6/23/421
Chilo to Now York.)
refugos boy socute, it is published ton times a yoar. Thoro in
J. Registance of the Intelloctuals.
no indication as to whother or not the paper in published clan-
Intercopted matorial indicatos that professors, scholars,
dostincly, but the subjoct mattor is cortainly not the typo which
and sciontists are also rosisting Nazi agrossion in Franco. One
would pass the Gorman consor:
of the documento forwarded by Bortholot on June 10 a menifosto
"This issuo contains a nossago from the Chief (Alfrod
"To the Professors of Socondary Education," a doclaration by
Bots), alludos to the sufforings causod by the war, which 10 'for
most of us the loss of liborty - it mattors littlo whother the
certain "syndicalist professors of Pario" on the future of
camp bo onclosod by barbod wiro or not. .aro wo of those who,
doocived by tho appcarance of a somblance of rostored posso,
liborated France, stating the stops which should be taken for
have alroady rosumed the calm of B. potty, quiot and solfish life?
Sons of France and Sona of God, the Scouts of Alsaco will descrvo
the restoration of the rights of the teaching profossion.
one day to hoist the colours they lovo on the spiro of their
outhodral!
A Colembian rofugoo has nows from Europe:
NY 10464/12, 3/17/42; Now York to Uruguay.
BER 24265/42, 6/6/42; Zurich to Now York.
(4737)
(4737)
Regraded Unclassified
CONFIDENTIAL
- 66 -
61
CONFIDENTIAL
273
"Two of By friends at tho Musoum. have boon shot
the British and of the Do Geullists, thoso French who fight
in Paris by tho Gormans, and tho Yvonno Odden librarian con-
domnod to doath, pardoned and doported to Germany bocauso tho
French, and have rialighed "the French Miraols" (Petain)
Fifth Column also had somo ropresentatives at tho Musoum and
if I had stayod over thoro I should no longor bo living today,"
Especially, they need afraid of the Commists, who they fear
(MI 40586, 6/12/42; Colombia to London.)
will seize control of France if the Allies win the war. Their
The Froo Fronch Bullotin D'Information published in
chief argument against the De Gaullists is that the movement
Uruguay givos somo lurid information on tho doath in April of
is conducted predeminantly from outside France by enigrants,
the "ondnont French sciontist", M. Fornand Holwook. Ho had,
mostly Jewn and Masons, they say, who have lost touch
the articlo continuos, worked on the development of a now woapon
with their country and her problems.
and was prosumbly torturod by tho Nazis to socuro the socrot
In December, a writer from France states:
of his invontion. Doath occurred ton days after his imprison-
"In Paris more and more people carry two rods (deux
mont, from a brokon nock.
gaules) when they walk on the streets." (MI 11462, 12/1/41;
Idmiso to Cochinchine.)
K. Do Goullists.
In January, 1942, an Englishwoman in Lisbon writes
The Genoral's causo soons to be variously ospoused
nown of France:
by the other opposition groups montioned in this report. The
"For of the bost funilies have joined De Gaulle be-
Commists, according to most of tho intercopts, aro pro-Do Gaullo;
cause of their 'interests,' ...I believe the bost spirit 1s in
the parte we bomb, They boar it in hopes that we hit a German
ao are the Socialists, the foreign refugeo groups, otc. The
now and thon. (BER 10950/42, 1/15/42; Portugal to New York.)
matorial concorning the Do Gaullists my bo divided into cortain
During the closo of January, a writor from Switsorland
ontogorios: a cortain body of lottors stato porcontagos of Do
sums up Fronch opinion, and under "Pro-English" ho includes:
Geullist followers in tho Occupied and Unoccupiod Zonos; others
"a. The Communists, naturally, who are Gaullists.
"b. Right-thinking people, for whom an English victory
doal with actual Do Gaullist activitios; others, with porsocutions
significs a return to the pleasant little promar adstonco.
"o. The dirty dogs who would like to get back to the
of Do Gaullists.
atmosphero of intrigue.
"d. Many pooplo who do not mako any distinction bo-
There is also & group of anti-Do Gaullo intercopts.
twoon boing against the Gormans and for the English, In my
Somo of those are writton by members of the uppor class in
country. Brotons and Normans, anongst others, are reputod to bo
opinion, this 10 the nontal background of the Gaullista in the
Gaullists, but ono must not bo mislod about this, and thoy are
abovo all anti+Occupdors. If ono day it voro the English who
Franco who still expoot salvation from Vichy. Writors of thoso
word occupying, they would bo anti-English." (HER 14919/42,
lottors are occasionally pro-Gorman; moro ofton, they couplo
1/31/42; Switscrland to Now York.)
violont hatrod of the Gormans with oqually violent hatrod of
NY 92980, 6/6/12; Uruguay (Bullotin D'Information do la Franco
Idbro) to California. In this issuo is a roport on the Fascist
ER 24265/42, 6/6/42; Zurich to Now York,
pro-Gorman movement, to which Potain is said to have belongod
during Daladior's promiorship.
2/ NO 7765/12, 6/2/42; Montovidoo (Bullotin D'Information Do In
Franco Libro) to Donvor.
(4737)
(4737)
Regraded Unclassified
CONFIDENTIAL
- 68 -
- 69 -
CONFIDENTIAL
274
The writer, who is violently anti=British, good on
In another interesting May intercept, an anti-Britiab
to list a special category of French opinion, ebviously the
writer (significantly enough, the addresses seem to be French
group in which be is interested, who and enti-British Vichy-ites.
Canadian) draws up a chart of French opinion in both sones, the
An interesting letter mailed from Nice in April gives
chief point of which seems to be the proving that De Ceullists
another Vichy-colored survey of French opinion:
are not necessarily pro-British:
"...90% of the population -e the occupded zone, ea-
"There has been B. noticeable evolution for the last few
pecially in the (east (2), the North and in Brittany are very
months. One doesn't like the Boches any more than one did, the
ardent and on the whole anglophile, not from a disinterested lovo
English even less Here's roughly the situation as regards cur-
of England itself nor of General De Gaulle but because they have
rent opinion:
only one idea; to get rid of the occupier. This 'Caulliamo' of
very special nature, which does not at.all mean a recognition of
For Petain
Occupied Zond 20%
Unooc. Zone 60%
If
If
the general as hoad of a government, 1s simply a way of exprossing
.
De Gaullo
80%
II
If
30%
If
The English
.
II
30%
"
If
their hostility to the occupation, it is a gesture of opposition
10%
If
Il
"
1%
e
3
to Germany and it adjusts itself in almost every case to a perfoct
The Germans
5%
fidelity to the Marshal and the respect due to him. It 1a a 'mood,'
I nontion this from what I hear, after collecting impressions from
People who are for the British my be for De Gaulle, but the con-
balanced and well-placed residents in the 0. Zono. In the free
trary is not necessarily emot. Many who are against the British
sono, it is almost impossible to generalizo; one moots all opinions,
fear the return of the Jom and free masons; they are also 8-
from 100% anglophilos to people who soen to like the Gormans
fraid of 8 revolution led by the Commists. unfortunately this
botter than the British; on the wholo, the immonso majority doosn't
tondency is malding grost progress, for Do Gaulle is surrounded by
worry about politics, for thore is no strugglo of partics. They
absurd, and too tondacious." (NY 39645, 5/13/42; Harsoillo to Quoboo.)
poople who aren't worth vary much and his propaganda is often
react against activo comunista and against peoplo who by too
scrious (faults) failuros, endangor the rovictualling of the
country.
In May, n recently coosped Fronchmen writon, in ungram-
"In the froo zono, they are very tirod of tho war, thoy
mationl but onthisisatic Englisht
want to 800 England win but thoy wonder If sho will manago to avoid
A stalomato, Noralo is firmor in the occupied sono, thoy cling to
"Do you roalise that in the cocupied sono moro than ono
anything which gives them hopo of gotting rid of the occupdors."
90% of the people thinks and says that the only Fronch Government
Láabon.) (Postal & Tolograph Consorship, HOL/PO 123272/42, 4/15/12; Nico to
roal and honored Chiof of the truo Franco Evon in the unoccupiod
1s that of Comito National of the General do Geullo. Ho is the
Franco, moro than half of the inhabitants think the samo thing,
A writer from Switscrland, howover, contradicts the
and functionarios, and many official people also. Do you imagine the
what would bo the rosult of rocognition from part of USA of is
impression given in the last two intorcopts quotod, that many
Goullists in the mind of the Fronch pooplo=-this ono, who
Do Gaullists are still for Potain:
unanimly government with the Gorman, and wait with pationco the promised Paru
amoricanophil, would leave much more his dospisod
and cortain victory of the allins." (MI 22586, 5/14/423
"Montion of the Marshal is avoided. I think they any to
to Chicago.)
thomselves that he 1s gotting old and tirod.
A final lottor writton in Juno statos:
"Do Garllian is making groat progross, particularly
lately. As long as thoro 1a no armed alliod intervention, it
"A Moxican doctor, who loft Lyen 6 wooks ago, como back
will do nothing as 10 the caso with all the other conquared coun-
to the Mercico, Fronch pooplo in occupded Franco aro for Do Geullo and in
I think it will bo of interest to you, that 100% that of
trios." (N.Y.82394, 5/4/42; Borno to Foral Rivor.)
Soo corroborating Froo Fronch reports, MI 26850, London. 5/11/423
(4737)
London to Puorto Rico; SA 14223, 5/23/421 Mardoo to
(4737)
Regraded Unclassified
CONFIDENTIAL
- 70 -
- 71 -
CONFIDENTIAL 275
the unoccupied part, the number of his followers is stendily
That could be seen on the day of the demonstration in honour
increasing. In Lyon the percentage is estimated at 80-90%.
of Jugoslavia. And that includes all classes of society, I
Laval is hated and Petain almost as much." (NY 55454, 6/26/12;
know for certain that there are a for foolish social climbers
Mexico to Lendon.)
of the middle-class (Bourgecia) who try to bosst of the collab-
cration but these are in the minority, an infinitesimal minority
Intercepts from September, 1941, through July of this
-I know workmen, pessants, country priests, well-known priests
belonging to various orders, republicans, royalists, who are
year give evidence of De Genllist activities. A September inter-
unanimously for England. My father who belongs to a shipping
firm asks me to tell you that 99% of the Mercantile Marino
cept from France states that there was no great show of fings
Service are for England
during the Legions's parado in August, but:
"The regulations do not prevent us from listening to
the radio--In the beginning we turned 16 on softly but now we play
"...00 July 14th (as the France Libre naked it to do)
it as before and we laugh when you say the ritual sentence:
there were some." (BER 66474, 9/17/41; France to New York.)
Reduce the volume, if it is necessary.' However we are do-
termined to shoot the first 'legionnaire' who attempts to cross-
An October, 1941, intercept tells of the persecution of
mxamine us. Our neighbours have collected all their old electric
bulbs and have given them to the boarder in the top storoy, who
De Gaullists:
is ordered to throw thom on sight, at the soldiers over the parapot.
"Ca the 2nd of May at 9 p.m. we were very peaceful in
"In spito of the throat of prison, overyone up to now,
our little home when the front door bell (rung?) violently.
the Cross of Lorraino but now they are applying the law.
Mother went to answer it and found berself in front of a. dosen
wears Our other rallying sign is the safety pin which overyono word last
young men who wore surrounding an old man. The latter asked why
winter with bits of mouroni pinnod on as a brooch.
we had placed two rods (Gaullos) in our garden, ,He got into a
rage calling us Gaullistes, saying that we listened to the English
"Wo also embroider 'V's' on all our clothos.
radio, etc
"Thoso poor Vs have survived everywhere in spito of TO-
"On May 25th, we found on our wall big inscriptions in
postod ovesions. They rival the portraits of the Marahel, Marchal's which
rod load 'Vive Petain, down with the Gaullistos; this house 1a a
lunatic asylum, otc.' The Police camo to aco the damages dono
are 1s inflicted ovorywhoro-that of General Do Gaullo
overywhere and which malco us siclo But if the 10
during the night. Since than they have not coased doing us dirty
distributed portrait frooly sub rose. Who has not ono nov?--I distributed soon
tricks, insulting us, making an uproar at night and throatoning us
15-but thing is forbiddon, that 10 ono thing to bo dono; pemphlets to
I lmow somo poople who distributed scoros osch--As
"Boliove no above all, TO want to maintain our self-
as and a socrot nowspapers circulate from hand to hand and holp
ostoom no matter what it costs, Many French people suffer with
koop rosistanco alivo.
admirable horedan!! No want to bo amongst them, because tho lifo
of Franco is more to us than our vury am,
and the other day in our philosophy class, to found at the on
"Tho students aro at the head of tho revolutionary
"The inquiry provod that the only things they could
movement blackboard B. suporb draving representing a hugo boot B
roproach us with wore our personal opinions, To be truo French
the which 1/83 a littlo rat with licked it with Dafont a tonguo to
poople, to have admiration and sympathy for friendly nations,
the only ches to live France and who work both hoart and soul
yard long-and signed by the artis. I do not know expelled
foot of at the sido vas this inscription: what vill the bo
for the liboration of Franco, is today very dangerous." (TRI
boot-lickors' soveral Gaullist pupils have alroady boon strugglo 10
3249/42, 10/29/41; Franco (Rivo Saltos, P.O.) to Buonos Aires.)
tho from rosult school as and 170 are always boing throatenod. The
kopt up by writing on tho valls.
In November, 1941, a young Do Gaullist wrote to the BBC
tho country na woll as in the city, overyone to listons a
about activities in Unoccupded Pranco:
noighbouring to tho BBC. farm whoro uo have hung up in fine stylo portrait
"In During the holidays, vo go, in tho ovening, tho
"I na from Marsoilles and I wish to toll you that in
of Gon. Do Gaullo
the Unoccupdod sono, at loast 95% of the population is on your side.
(4737)
(4737)
Regraded Unclassified
CONFIDENTIAL
- 72 -
- 73 -
CONFIDENTIAL
276
Then the writer describes morale in the Occupied
2/28/42; Switzerland (Oberlandisches Volksblatt) to California.)
Zone as pro-Allied, and goes on to give details of the demon-
De Gaullist literature from Uruguny gives descriptions
stration for Jugoslavia last March, when flowers were placed
of the demonstrations on May 1 called for by General De Gaulle,
on the monument to the King of that country, and a fight broke
by the Communists, Socialists, and Trade Unions; instructions
out between the police and the crowd, who sung the Marseillaise,
for these demonstrations were also published in the various
She continues:
olandestine newspapers. The Free French literature calls
"You know that the factories are working for the
the demonstrations an unqualified success; 50,000 persons took
Germans; the workmen who manufacture soaps for them, once filled
the onkes of scap with large nails in revenge. I was told of
part at Lyon, with minor riots occuring; the prefet of Bouches
this by one of the workmen and it is absolutely true." (TRI
1660/42, 11/26/41; Marseillos to Landon.)
Do Rhono reported, according to the Froo Fronch, that the domon-
She ocncludes by inviting various of her favoritos on
strators in Marscillo numbored 30,000, and the crowd shouted
the BBC broadcasts to a "mrvellous fete" on the day of victory
"Long Livo Do Gaullo!" At Toulouso, 8,000 persons marchod; at
for the Allies,
Nico, 3,000 at Avignon, 2,500; and at Montpollior, thoro word
The De Gaullist element in the Riom trials is brought
also domonstrations.
out by the December letter of Ralph Heinzen to the UP:
In connoction with Do Gaullist activity, it should
"The only charge against Reynaud was the export of
porhaps bo again notod that Liborto, an organization publishing
14,000,000 francs from Bordeaux in June 1940, after his overthrow.
Two of his secretaries carrying the money in two valises were
a clandostino papor of the samo namo, 10 according to the
arrosted in Spain. There 1s no doubt Reynaud sent the money out
to put it at the Disponition of Do Gaullo, The Germano .nover
intercopts quotod, 6. Do Geullist organization. Liboration is
have forgotton his very closo tics with Do Gaullo, whose book
domanding equality of tank divisions with Germany which Roynaud
also pro-Do Geullo, as woll as other groups and organs of tho
espoused and sponsored in Parliament in 1935. They apparently
foar that if Roynaud is not put away, he my bocome far too popular
underground.
a figuro and a loador among the anti-German 95% of tho French
population." (HER/NA7 169/42, 12/26/41; Vichy to New York (UP).)
Soveral intorcopts spoak of the arrost of cortain in-
A Swiss prograpir, forwarded from Switzorland in
dividuals for Do Gaullist activities, without stating tho nature
Fobruary of this year, gives the fillowing repert on Do Gaullist
800 Clandostino Progg.
activity:
NO 7744/12, 6/2/12; Uruguay to Colorado (& others); MI 30893,
"Montion is nado of the discovory by the Germans of a
5/23/42; Uruguay to Migoria.
scorot group in Nino, which was gathoring recruits for General
Do Goullo. An 122gal neus bullotin publishod by this group 165
directed by an investrialist of Nico Ten others wore arrosted
in connection with the activities of this group. Among those
(4737)
were ono law student, toachors and pensioned officors," (IA 3545,
For another lottor by a Do Gaullist to the BBC, 800 NY 14808/42,
12/8/41; Franco (Toulouse) to Mindon.
(4737)
Regraded Unclassified
CONFIDENTIAL
- 74
- 75 -
CONFIDENTIAL
277
of these activities.
Vichy and collaboration. An interesting group of those anti-Do
A letter written in April states:
Goullist interoopts, while criticizing the movement, givo partinent
"Wo tremble when we think of what Lavel may do next;
comonts on its growth, on the kind of poople who aro Do Goullists
we are furious and ashamed at his coming back to power; one good
thing 10 that he does not represent the majority of the French
in Franco, and on the kind of pooplo the aro against the movement.
people. You know By husband and I are 100% Do Gaullistes. We
were delighted about General Giroud 16 ascapo." (BER 22502/42,
"Thoso in Martinique who duro criticiso tho Marchal,
4/30/421 Lausanne to New York.)
mko DO laugh, where they aro mrs, with well fillod stomache - in
an island 5,000 kilomotors away from Franco, where they have no in-
A letter written in May by a Peruvian Free Frenchman
formation accopt the absurditios broadcast by all Radios.
tells of his relatives in Paris:
"Christion (tho writor's husband) who has n. vory important
French lover classes fill us with disgust thoy are all ill-brod,
how young ho is ho is a puro symbol of our country; Alas!
post, 0008 the Marshal from a closo anglo, and it is octruordinary the
"My sister-in-law and my nophow have boon thrown into
prison by the Hezia (protoxt: they were caught while calling
upon friends whose idoas aro friendly to Do Gaullo!!!) And
moon and stupdd, and I assuro you tho ascont is hard!!
that's the soum they want us to collaborato with!" (MI 18155,
5/7/42; Idm to Illinois.)
"All the alito and intellectuals of Franco of both sonos,
stand by the Marshal, he is the 'Frunch Mirnols' the only one to
In July of this year, a writer of an intercept states
koop us unitod, because without him wo could not avoid a bloody
revolution.
that he has been told that the American Add Center (Centre
Americain de Secours) in Marceille has been closed and the
away from Prance "Thoso do are not always understand. (TRI 2191/42, 1/3/421
the things which the people 5,000 Hilomotors
Viohy to Martiniquo, Unconsorod in Franco.)
chief and the employees arrested, because they were on the side
"The atmosphere in the drawing-rooms in like that at the
of the Anti-Pascist De Gaullists.
Anglophiles, collaborationist and Armand, Gaullist. Personally French-
time of Russophiles In the same family you will find I don't
the Dreyfus affair. There 1a warfare between Gaullists, Louis
There is a large body of intercepted matorial which is
Réne, people being pro-anything. Let us all be good Marshal
anti-De Gaullo, Fow of those intercopts som to be written by
understand do what the interests of our country demand. The united
men and, they are botter than any of us, so let us blood stay 10
knows what Everybody who has dollars or Jowish
pro-Germans; many of the writers 800m to bo comfortable, uppur-
in his support. the business non and manifacturers ,aro collabora-
class persons, afraid of the Communists who have alliod thomsolvos
pro-English; docun't moan pro-Gorman. Nobody 10 pro-Gorman... corrupted
The last twenty the froomasons, and tho popular front. They don't
tionists, which years have soon idcals porish in Franco, Whon I
with Do Gaullo,, and tho working-class in genoral, who coom to
by tho Jowa, poople hope for a Russian victoryl to the
bo tho most prenounced Do Gaullists. They still oling to
roalize that to Gormany and Italy, to Franco, to Spain. Francol What can't &
think that somo in 5 minutos Bolahovism would have sproad What I
Ballmns, Pooplo who boar arms against New York.)
BER 6466/42, 12/26/41; Franco to Now York; NY 68470, 1/28/421
disgracci..." onduro in Gaullism (HER 9010/42, 1/10/42; Antibos to
Now York to Lisbon. Soo also NY 40807, 5/29/42; Culifornia to
I am for tho Marshal Ho is A wonderful to As mn,
Landon (inclosing lottors in codo from Fronch Do Caulliate.)
"Of miraclo caurso wrought by God to have givon him moro so us, in
MI 50351, 7/4/423 Havana to Now York,
1t you is say, a roal unfortunately, in the opinions Unoccupiod aro Zono vory divided; - There is not if sufficient you are
Tho Froo Fronch thomsolvos stross this; SA 16829, 6/2/12;
woll organized Goullo. I say II om for Francol' Mario 7.,
tho Occupiod, than proprigunda. Pooplo call you pro-Gorman It is particularly
Mexico to London, report to National Comissioner of Foreign Affairs,
not for Do the Go lower classos that they aro dull-hoaded. I do as much
statos that in Nontpollior "tho working-class in in gront majority
Goullist. Tho Croix do Lorraino 10 sold oponly and tho pooplo
amenget my typdot, unfortunately in of that opinion.
are not unoasy." W 1342, 4/11/12; Uruguay to Panam, statos "tho
(4737)
workers are Do Goullists in sontiment."
(1737)
Regraded Unclassified
ONFIDENTIAL
- 76 -
- 77 -
COME MEDICAL
278
propaganda as I can for the Marahal." (TRI 6918/42, 3/12/12;
of tho boginning of our adafortunes" and continues
Lorient, Morbihan, Franco to Martiniquo. Uncunscred in Franco.)
An interesting November intercopt boars the Gorman
"Thoso who succoodod than did the rost, holpod by the
Jowish robblo and international Proo Mosonry...
consorship labol, but has not boon conscred the usual Gorman
"As for belioving that England and the troitor Do Goullo
way; and, although various passagos are blooked out, they are
york for tho liboration of Franco and restoring hor colonics, nol
not I don boliovo the first word of it. England has novor given
oasily logible. Sinco this document was going to the Boston
book what sho has stolon. England and Do Goullo assassinated our
soldiors at Moda el Kibir, at Dunkorque, at Daknr and in Syrin,
Transcript Syndicato, it sooma probablo that it was intended as
Sho has taken over a largo part of the torrisorios of our ompdro.
Sho 18 starving us in on atrocious manner, and for vohgoanoo with
a deliborato pioco of anti-Do Gaullo propaganda. It describos
a namolose cruclty. And you wish mo to boliovo in hor good fooling
toward us for tho futuro. Not Not
the "failure" of the five-mimite striko ordered by Do Gaulle,
"I 800 nothing out of the my in hor annihilating Nasism,
and allogos a "startling chango" of attitudo towards Do Gaullo,
if sho dosiros to continuo the war to the doath, but that sho
doctros is that others shall do the fighting...
based on an intorviow with about 300 people. Do Goullo is
"Tho assessinations of Gormán soldiors are provokod by
the foreignor, the Jou, tho Moson, to mko us postpono the Poaco,
variously doscribod as a traitor and as an office boy for tho
and to undorgo moro privations. The hostagos of Nantos word not
shot on abbount of Bordomoc. What ware those hostagos? Comunists
British. Thoro is also a not-too-subt.lo attompt throughout the
and Joup. I don't rity thom d: moment. I undorstand that Do Goullo
received the sympthy of Roosovolt and Amorica and whore the Jows
document to whito-mah the Gorman authoritics of Occupation, and
and Froc Madons roign 0.5 mstors." (CAN 21,103, 3/14/123 Puy-Do-Dono
to Quoboo.)
to omphasiso the British Blocknde. It 1a intorosting as an
An April intoroopt oncloses a lottor from Francos
indication of tho strongth of the Do Gaullo movement at no
"I do not know what will become of us Everywhere you
oarly a poriod, especially if 1t 1s, as it sooma, a Vichy or
see death, hunger, suffering, misery, and hatred. It is useless to
tell you that we are for Potain, and against the English who united
Nazi-dnapirod thrust against this londer.
with Do Gaulle only for the dirty work of miding Frenchmen right
against each other." (CA 119, 4/4/423 Martinique to San Francisco.)
In Fobruary, a writer comonts on air raid damago in
From Algeria, an out-and out collaborationist writes:
the constal sono, and adds:
the collaboration which almost every Pronohman dosired,
"Tho damago to the buildings 18 not vory serious, it
but which was rejected by the Geullists, some to have takon a
ma dono by a Goullist acroplano," (BER 14,839/42, 2/1/423 Franco
big stop forward, 1,0. the choico of Piorro Laval, by our Marshal,
to Maxioo.)
as the hoad of the now Government." (TRI 11829/42, 14/28/42;
Algoria to Massachisotts, Fr. Cons.)
In March, a writer, violontly anti-British and anti-
A lotter from Argentina is intorosting, bocause it
American, states that "Wilson and Lloyd Goorgo are at tho bottom
dosoribos tho attitudo of an a Fronch Ambassador, a violant anti-
JAM 3062/41, 11/1/41; Paris to Now Orloans (Boston Transcript
Syndicato). For other carly anti-Do Gaullo lottors, 500 TRI 6118/42,
Do Goullist and collaborationists
11/29/41; Franco to Chilo; BER 61/4/12, 11/30/41; Franco to Connoo-
ticut; TRI 6208/42, 11/30/41; France to Argentina; and TRI 6189/42,
MA for days ago I went to BOO Poyrouton who talkod to no
12/2/41; Franco to Chilo.
for noarly an hour. Ho is & violont opponont of the Gsulliate
(4737)
(4737)
Regraded Unclassified
CONFIDENTIAL
- 78 -
- 79 .
CONFIDENTIAL
279
when ho holds responsible for all the misfortunos of Franco
too much talk." (TRI 10023/A2, 5/22/12; France to French Gulann,
sinco the armistico,
unoenscred in France.)
"Ho says that Laval 18 a nonstor who will dolivor
That the ocnservative Catholic element 1a still for
Franco to tho Germans whorcas Potain, Darlan, Woygand, otc, word
purouing a policy of resistance and waiting, which, unfortunately,
Viohy, is the indication in another May intercept:
the English failed to undorstand and which was ship-trocked by
If
the attacks and insults of Do Goullo. Ho avoats by the Amoricans
in spite of difficulties of all kinds the lies
of
but 10 absolutoly against the English...
the De Geullist propaganda, all the sane French people think have 000⑉
fidonce
in
the
Marchal's
policy,
All
true
Fronchmen
thus;
"The idea which dominates him is a hatred of occrunism
The others are nothing moro than sham patriots and crosturs of
and the fear that the France of to-norrow will be, if not comunist,
trouble, working against Franco. Our Cardinal Gorhor says :-
than at least very socialist and consequently he will not be able
"Potain is Franco, and Franco is Potain.'
to play any role in 1t for he is an adversary of the left.
It 10 for that reason that, without admitting 1t, he would have
"If you hear anything against Marechal Petain do not
proferred I believe a German victory with the hope (for at the
believe it; all those wrong suggestions emanate from the English,
bottom he knows what a Nami domination moans) that, little by
and that traitor De Gaulle; all true Frenchmen are faithful to
littlo, France, ruled with an iron fist, but superior in intelli-
the Marechal, and by doing so, we are following the advice of the
ganoo, culturo and civilization to tho Gormans, would broak away
Holy Father, the Pope." (TRI 9989/42, 5/16/42; Lyons, Franco to
from hor slavory at the timo when Germany would crumblo
Santiago Chile, Fr. unc.)
"What an illusion! But I an cortain that many Fronchmen
A late intercept, dated June 15, statos:
think tho samo. Fortunately tho groat majority of the missis who
have much moro ocmmon sonso than cortain intolloctuals, BDO things
"When Joan writes that 99% of the people are Do Goullist,
noro simply and in thoir right light." (TRI 8568/42, 5/5/42;
I wonder where ho gots his information from. Obviously, the
Buonos Airos to Cambridge.)
majority of the Hoi Polloi popular front are Do Gaullists but
not the possants who are the majority of the French population,
A lotter from Franco, writton in May by a French Aristo-
whilst the class corresponding to ours unanimously backs Potain,
crat, statos:
Do Goullist traitors, and pro-Gorman traitors The Do Goullist
10 against tho Russions, Jows, Froomasons, British, Gormans,
"All Franco has tho sans heart and tho sano confidence in
movement 10 a mattor for the lowor middlo class, the students,
the Marochal who provanted our boing ontiroly occupdod and above all
bodng disporsod into Fonorania Poland and Silosia; It in not
swings (TRI 12348/42, 6/15/42; Paris to Martiniquo, unconscred in
(probably listonors to Raymond Gram-Suing), and Communists," Franco.)
the fino spoochos on the radio of onigrant Jome and tho Front
This last body of intorcopts indicatos thoro in a largo
Populaire, who loft Franco for foar of boing imprisoned, that will
savo us.
group of French who aro unfavoruble to the Do Goullists, when they
#
tho disgusting propaganda of political ordgrants
link with the Communists. It must bo notod, however, that thoso
responsible for our disastors (tho Tabouis, the Cote, oto,,
and worso stilli)
lottors soom, for tho most part, to be the opinion of the middlo
"Just now the country is beginning to have enough of
thoir lice on the rudio and their mannor of acting. Only tho
and uppor classes; and thomo samo vritors often admit the influence
Communisto and the Old Front Populaire aro for than (tho English)
of the Do Goullist upon the working =
but tho country 1a too unhappy to have further faith in thoir
promiscs," (HER 23212/42, 5/19/42; Franco (Hto. Vionno) to
and the middlo alass of Franco are for Potaint the
Massachusotts and Now Hampshire.)
"The spirit shown round here is ruther strained and in-
for Do Goullo, as they thomsolves have put It.
patient. One never knows what my happen, especially as the
undesirable activity of the De Gaullists and Commists causes
also on articlo in tho Martiniquo In Paix artimply to me
Viohy, Boo and onti-Do Goullo. (NO 9783/42,
Lyon.).
(4737)
(4737)
Regraded Unclassified
280
November 23, 1942.
Dear Mr. Goldsmith:
Thank you for your letter of November 20,
which transmitted a copy of the preliminary study
covering the subject of "World Production of
Combat Argaments". You are right in thinking that
I would be interested in the facts and figures
which these pages include, and I thank you for
your courtesy in seeing that I received this
material.
Sincerely.
(Signed) H. Morgenthau, Jr.
Mr. R. W. Goldemith,
Planning Committee,
Var Production Board,
Veshington, D. c.
File in Diary
GEF/dbs
Regraded Unclassified
281
WAR PRODUCTION BOARD
WASHINGTON, D. C.
PLANNING COMMITTEE
IN REPLY REFER TO:
November 20, 1942
The Honorable
The Secretary of the Treasury
My dear Mr. Secretary:
I am taking the liberty of sending you a copy of
a preliminary study of "World Production of Combat Armaments,"
recently prepared for the Planning Committee of the War
Production Board, because I felt, from previous contacts
with you while with the Securities and Exchange Commission,
that you might be interested in the subject.
Respectfully yours,
Attachment
FORVICTORY
BUY
UNITED
STATES
WAR
BONDS
and
STAMPS
Regraded Unclassified
SECRET
October 26, 1942
282
(Revised Nov. 12)
MEMORANDUM
TO:
Mr. Robert R. Nathan, Chairman, Planning Committee
FROM:
Raymond.M. Goldsmith
SUBJECT: World Production of Combat Armaments
I
To appreciate our war production effort correctly and to view
our own achievements in the right perspective it is necessary to compare
both with the level and the growth of munitions production among our
allies and enemies. The appropriate yardstick is the quantity of combat
armanente turned out rather than total war production, as the latter
includes much that is not of immediate military effectiveness and signi-
ficance. Since comprehensive data on the quantity of armaments produced
are lacking for mont countries and are unavailable for year-to-year
changes it has been found necessary to base this preliminary study pri-
marily on reported or estimated expenditures for combat armaments. The
results are shown in Tables I and II and are illustrated by the attached
two charts. The sources of the figures are indicated in the footnotes
to Table I.
II
Such & study is necessarily & hazardous undertaking and can
never show very accurate results. It ie primarily intended to give
an idea of the level of combat armament production in the two great
groupe of powers arrayed against each other, and to show outstanding
trende in combat armament production since pre-war days. The figures,
rough though they be, are, I trust, adequate for these two important pur-
poses. The most problematical part of the tables -- except the guess
for China which is chiefly a pro memoria item and without quantitative
importance -- is the estimate for the U.S.S.R. about whose munitions
production we apparently know less than about that of any of our ene-
mies. The estimates for Japan also contain a considerable margin of
error, but the order of magnitude indicated can hardly be wrong and any
mistake in the Japanese figures -- as well as in the estimates for the
Neutrale - is too small to affect significantly either the world total
or the relationship between the major groups of powers.
All figures are intended to cover the production of combat
armanents only. 1.0. aircraft, ground ordnance (guna, small arms, and
combat vehicles). ammunition, signal and communications equipment, and
army and naval vessele and equipment. They. therefore. exclude a consi-
derable proportion of total military expenditures, vis. those on merchant
shipe, clothing and personal equipment, automotive vehicles. war con-
struction, industrial facilities, and, of course, pay and subsistence.
The figures are supposed to reflect actual output of combat armaments
through Sentember 1942 and probable production (rather than production
schedules or objectives) thereafter.
Regraded Unclassified
283
Mr. Robert R. Nathan
- 2 -
10-26-42 (Revised 11-12)
Practically all the figures are based on reported (U.S.A. and
Canada) or estimated expenditures for combat armaments. The estimates
for foreign countries, originally expressed in their own currencies,
have been translated into U.S.A. dollare in such a way as to take BC-
count, as well as that can be done with our often insufficient informa-
tion, of the difference in the price level of armaments. (For Great
Britain e.g. & rate of $1 = in 0.15 has been used; for Germany one of
$1 = RM. 1.80). To the extent that this translation is correct, the
estimates provide an index of the relative volume of the production of
combat armanents in the different countries as well as of year-to-year
changes in their output,
The results of this translation of monetary expenditure f16-
ures into what is in effect a volume measurement of output have been
checked against quantity indices or estimates wherever they are avail-
able, 1.0. chiefly for U.S.A., Canada, Great Britain and Germany. They
have also been compared with estimates of direct military steel consump-
tion and of the mumber of persons employed in the metal and chemical
industries, both comparisons that provide a rough check on the reason-
ableness of the relative level of combat armament production indicated
by the calculations.
III
The two charte and the underlying tables best speak for them-
selves. The outstanding features of the figures, however, may be sum-
marized as follows:
1. World production of combat armaments has risen very rap-
idly, and without interruption, since 1933, and particularly since 1938.
(Chart I, upper panel). At the present time (October, 1942) it amounts
to more than twice the 1940 total, and more than five times the immediate
pre-war (1938) level. By the end of 1943, it will be fully three times
as large as it was in 1940 and well over seven times as large as in 1938,
By that time about one-third of total world output will be in the form
of combat armaments, and total munitions production (including var con-
struction) will account for over two-fifths of the world output of com-
modities and services.
2. The share of the United States in the production of combat
armaments has been increasing rapidly. (Chart I, lower panel). It has
advanced from 1% in 1938 and less than 3% in 1940 to 35% at the present
moment, and is likely to rise to almost 50% by the end of 1943. In other
words, in a little more than a year from now this country alone will pro-
duce almost as many combat armaments as all the reet of the world put
together. This is & remarkable achievement as the United States account
for not much over one-fourth of the real national income of the entire
1/
The pre-war level, in turn, was more than ten times 68 high AR that
of 1929 (not specifically discussed in this memorandum).
Regraded Unclassified
SECRET
CHART -
WORLD PRODUCTION OF COMBAT ARMAMENTS
1938 - 1943
284
1. U.S. ARMAMENT DOLLARS
INLLION 5
BILLION 1"
10
150
Nevides
Jupan
Arre
Aus Emise
USSA
British Enom
Livied
Nations
00
USA
100
50
D
o
1938
1939
1940
1941
1942
Oct
1943
Dec
1942
1943
2. PER CENT OF WORLD TOTAL
TER GENT
PER CENT
È
100
BO
es
60
60
40
40
20
20
o
e
1940
1942
Oct
1943
Dec
1938
939
(94)
1942
1943
: any - equipment
- PRODUC BIAND
parer
- Commine
SECRET
submit 18. 947
Regraded Unclassified
285
Mr. Robert R. Nathan
- 3 -
10-26-42 (Revised 11-12)
world and started on the large-scale production of combat argaments
only two years ago.
3. The position of the United Nations, compared with that
of the Axis, has improved with almost equal rapicity (Chart II, upper
panel). In 1940 the British Empire, France and the United States
produced not more than one-half the combat armament of Germany and her
satellites. (In 1938 their production had been as low as one-fifth of
that of Germany and Italy.) If U.S.S.R. and Japan are added on the
sides they ultimately have taken, the 1940 production of the United
Nations was still elightly behind that of the Axis. Even in 1941 the
United Nations together just managed to reach the level of their one-
mies' production of combat armaments. In the current year, however,
the munitions production of the United Nations 1n fairly certain to
exceed that of the Axis by not less than 50 percent. In 1943 the Uni-
ted Nations will probably turn out nearly two and A. half times 88 many
combat armarente as the Axis. In 1944 and later, finally, the United
Nations may even be able to produce three times as many munitions as
all the Axis nations combined.
4. These ratios are based on total quentities of combat nrca-
ments produced. They cannot take into account the distances between
the centers of production end the theaters of operation; the possibility
of concentrating armaments in strategic points; and the stocke of erma-
ments accumulated previously. On All these counts, the Azia partners
are, At the moment, better off then the United Nations. Their *dvan-
lages are rapidly declining. NOVOYET particularly those represented
by large accumulated stocks (Chart II. lower -wnel). Disregarding weap-
one produced before 1938 (AS we well mAy on account of obsolencence and
the then relatively low level of production) and battle usage, the Axis
has been ahead of the United Nations until about the -iddle of this
year. By the end of 1943, however, the custilated combat armstent pro-
duction of the United Nations stould he nearly one-half In excess of
that of the Axis. Ene year leter the lead of the "nited Nations will
have risen to fully 70 percent. The ratio of actual atocks of climbat
armanents (which reflects battle use na well NO ther Losses in AId1-
tion to cumulated new production) should be still more favorable to
the United Nations AR their combined consumption :f combat armadents 1"
likely to exceed that of their by EL must smaller morgin than
that by which their production vill purname that of the Avis.
who
The STATE of the United States Lf: the wirld's 160/F* and is
compresible srices, Data the Sechile 19"s un ceet with
-ated by Dillin Clary at 20% ("The Conditions of Scon
D. 26/-
Regraded Unclassified
SECRET
CHART II
ESTIMATED COMBAT ARMAMENT PRODUCTION*
266
OF UNITED NATIONS AND AXIS
I. ANNUAL PRODUCTION*
BILLION $
BILLION $
100
100
1938-1944
United Nations
Asit
80
80
60
60
40
40
20
20
o
o
1938
1941
1942
1944
-
1940
1943
1939
-
2. CUMULATIVE PRODUCTION
(CUMULATED FROM 1938,
BILLION 1
BILLION $
300
300
250
250
200
200
150
150
100
100
50
50
o
1941
1942
1943
1944
o
1938
1939
1940
. a realth, ground exanance and communication
" France included with joint Nations - 1938-1940; JSSA included 94 (44
any and MVS verson and
air PRODUCTION BCARD
- - ---
USSR included eth yours Notions IF (938)944 France excluded insurance Faver of and of par
SECRET
- 4. 942
.
,
us armament purchasing power
.
December 943 rates
Regraded Unclassified
287
SECRET
- 4 -
TABLE I
ESTIMATED WORLD PRODUCTION OF COMBAT ARMAMENTS*
1938 - 1943
A. In Billion of U.S.A. Armament Dollars
C. Y.
C.Y.
C. Y.
C. Y.
C. Y.
Oct.
C. Y.
Dec.
1938
1939
1940
1941
1942
1942
1943
1943
I. U. S. A. 1/
±
t
1
5
22)
30
49
60
II. Allies
1. U. K.
3/4
1)
6
95
12,
12 3/4
16
17
2. Canada
0
0
t
a
1t
13
21
24
3- Other British
Empire 4
o
o
±
±
I
3/4
3/4
1
4. U.S.S.R. 5
6
8
10
12
10
10
10
10
5. China 6/
t
±
±
±
±
t
±
±
6. Latin America 1/
o
o
o
0
o
o
o
o
TOTAL ALLIES
7
9 3/4
16 3/4
22)
24}
25)
29
30 3/4
III. Axis
1. Germany 8
6
9
15
20
22
22}
24
24
2. Italy 2
à
1
it
1 3/4
2
2
2
2
3. Other Axis
Europe 10/
j
-
3/4
2
3
3
3
3
L. Japan 11/
14
1 3/4
2
2/2/2020
3b
3 3/4
4
4
TOTAL AXIS
8}
11 3/4
19
26
30%
31÷
33
334
IV. Neutrals 12/
3/4
at
2 3/4
1t
it
11
it
it
WORLD
161
24
393
55
78 3/4
87 3/4
1124
1251
. Aircraft: ground ordnance and communications squipment; army and naval
vessels and equipment.
Note: (a) The figures for U.S.S.R. and China are subject to a particularly
wide margin of error.
(b) o stands for less than $ 1/8 billion.
(c) For sources of figures 800 following page.
October 24, 1942
(E-vised November 12, 1942)
Regraded Unclassified
- 5 -
288
Footnotes to Table I
Figures for 1941 through 1943 based on detailed breakdown of actual or (from
fourth quarter of 1942 on) expected production. Those for 1939 through 1940 esti-
mated on the baeis of ratio of combat armaments to total munitions production and
var construction of about one-third prevailing during second half of 1940.
Based on total expenditures for home produced munitions (See memorandum of
October 17, "Estimate of Value of Munitions Production in Great Britain:, Table I
and estimate of ratio of combat armaments to total home produced munitions. & 1
assumed equal to $6 2/3 in armament purchasing power. The relation between the
actual (first half of 1942) or scheduled (July 1942 - December 1943) production
of aircraft and ground ordnance in U.K. and U.S.A., as reflected in the CPRB indi-
ces, has been used as a supplementary basis of the estimates for 1942 - 1943.
3/ Figures for 1941 through 1943 based on detailed breakdown of actual or, begin-
ning with second half of 1942, scheduled production. (See "Estimates of the Value
of War Production, 1939 - lat. quarter 1944" by Department of Munitions and Supply).
Those for 1938 through 1940 represent rough estimates. $1 Can. assumed equal to
$1 U.S.A. in armament purchasing power.
Covers Australia, New Zealand, South Africa and British India. Baced on budgeted
total military expenditures (converted at elightly above current rates of exchange)
and estimated ratio of combat armaments to total military expenditures.
5/ Rough estimates, based partly on budget figures for total military expenditures
and partly on estimates of quantities of some important types of armaments.
Assumed unchanged at $1/4 billion a year. chiefly as a pro memoria item.
2/ Includes all Latin American republice except Argentina and Chile. Figures are
rough estimates based on budget figures for total military expenditures.
B/ Based on total expenditures for munitions and war construction (See memorandum
of October 24, "Comparison of Munitions Production in U.S.A., Canada, Great Britain
and Germany", Table I) and estimated ratio of combat armaments to total munitions
production. RM 1.80 assumed equal to $1 in armament purchasing power. For 1942 a
quantitative comparison between American and German armament production prepared by
the Office of Strategic Services has been used as & supplementary basis of estima-
tion.
Based on estimates of total military expenditures (adjusted for price changes) and
of share of combat armaments. Lire 10 of 1938 assumed equal to $1 in arnament pur-
chasing power.
10/ Included in 1938 and 1939: Csechoslovskia; in 1940 - 1943; Czechoslovakia, Poland,
Roumania, Hungary, Bulgaria, Norway, Denmark, Finland, Netherlande, Belgium and occu-
nied France. 1938 and 1939 figures based on budgeted military expenditures. For
1940 to 1943 estimated as a proportion (beginning with 1941, 10% to 15%) of German
production of combat armaments.
/ 1938 to 1940 based on estimates of total military expenditures (adjusted for
rice changes) and ratio of combat armaments to total. Yen 1 of 1936 assumed equal
:0 $1 in armament purchasing power. Figures for 1941 - 1943 are rough estimates.
2/ Covers all countries not specifically enumerated. Includes from 1938 through
940 all of France, from 1941 on only the unoccupied part. Estimates for Sweden,
witzerland, Ireland, Turkey, Argentina and Chile and France before 1941 based on
udgeted total military expenditures and estimated ratio of combat armaments to total.
ther figures rough guesses.
Regraded Unclassified
289
SECRET
- 6 -
TABLE II
ESTIMATED WORLD PRODUCTION OF COMBAT ARMAMENTS®
1938 - 1943
B. In Percent of World Total
C. Y.
C. Y.
C. Y.
C. I.
C. Y.
Oct.
C. Y.
Dec.
1938
1939
1940
1941
1942
1942
1943
1943
I. U. S. A.
1.5
1.0
2.5
9.1
28.6
34.2
43.5
47.9
II. Allies
1. U.K.
4.6
6.2
15.2
17.3
15.9
14.6
14.2
13.6
2. Canada
0.0
0.0
0.6
0.9
1.6
1.7
2,0
2.0
3. Other British
Empire
0.0
0.0
0.6
0.5
0.6
0.9
0.7
0.8
4. U.S.S.R.
36.4
33.4
25.5
21.8
12.7
11.4
8.9
8.0
5. China
1.5
1.0
0.6
0.5
0.3
0.3
0.2
0.2
6. Latin America
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
TOTAL ALLIES
42.5
40.6
42.5
41.0
31.1
28.9
26,0
24.6
III. Axis
1. Germany
36.4
37.5
38.0
36.3
27.9
25.5
21.3
19.1
2. Italy
3.0
2.1
3.1
3.2
2,5
2.3
1.8
1.6
3. Other Axis
Europe
3.0
2.1
1.9
3.6
3.8
3.4
2.7
2.4
4. Japan
9.0
7.3
5.0
4.5
4.5
4.3
3.6
3.4
TOTAL AXIS
51.4
49.0
48.0
47.6
38.7
35.5
29.4
26.5
IV. Neutrals
4.6
9.4
7.0
2.3
1.6
1.4
1.1
1.0
WORLD
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
. Aircraft: ground ordnance and communications squipment: army and naval
vessels and equipment.
October 24, 1942
November 12. 1942 Revision)
Regraded Unclassified
Receipt / oh fixed
SECRET
ALL COMMUNICATIONS SHOULD BE ACCOMPANIED BY CARBON COPY AND ADDRESSED TO
by m Thompson290 290
18
01
WAR DEPARTMENT
TO INSURE PROMPT ATTENTION
OFFICE OF THE CHIEF OF ORDNANCE
Capt. E.S.Davis Capi. E Davis
1.0. - REPLYING ATTENTION NO. REFER 451.25/334 of TO (5)
WASHINGTON
"/21/42
November 23, 1942
The Honorable
The Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
The following paraphrases of cables and letters, regarding
the performance of the IA-4 medium tank under battle conditions, are
furnished for your information:
PARAPHRASE OF A CABLE RECEIVED IN WASHINGTON, SUNDAY 1ST NOVEMBER,
1942, FROM MAJOR GENERAL, MIDDLE EAST, TO B.A.S., WASHINGTON
Confirmation has been received by reports from the Western Desert,
indicating great satisfaction with the W4 Medium Tank (Sherman).
The position of the main gun in the turret has made possible the ad-
vantage of maximum cover in "hull down" position in addition to good
observation by the Tank Commander. There is concrete evidence that
the enemy tanks, including the special P.Z. K.W. IV (with the long
barrelled higher velocity 75 mm gun) has been destroyed up to ranges
of 2,000 yards. All troops are indicating that there should be more
Shermans sent out at the earliest opportunity.
At the present moment there is no information regarding the use of the
Stabilizer, and it is not expected that this will be available early
as it is still the policy to fire from stationary "hull down" positions
whenever the op ortunity permits.
EXTRACTS FROM MIDDLE EAST CABLE Q (AE) 63086
Two. - Users are giving unstinted praise to all American equipment
particularly W4 which embodies all desired improvements except ideal
gun sights.
Three. - Would again stress it 18 vital we receive earliest large
numbers 144 regardless of the availability of tools and spares for
FORVICTORY
which we are prepared to wait.
BUY
UNITED
STATES
WAR
BONDS
AND
STAMPS
SECRET
Regraded Unclassified
Recerptin th
SECRET
6ym 290
ALL COMMUNICATIONS SHOULD BE ACCOMPANIED BY CARBON COPY AND ADDRESSED TO
10
WAR DEPARTMENT
10 INSURE PROMPT ATTENTION
Capi E.S Davis
OFFICE OF THE CHIEF OF ORDNANCE
0.00 IN REPLYING ATTENTION No. REFER OF TO (5)
WASHINGTON
"/21/42
November 23, 1942
The Honorable
The Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
The following paraphrases of cables and letters, regarding
the performance of the 14-4 medium tank under battle conditions, are
furnished for your information:
PARAPHRASE OF A CABLE RECEIVED IN WASHINGTON, SUNDAY 1ST NOVEMBER,
1942, FROM MAJOR GENERAL, MIDDLE EAST, TO B.A.S., WASHINGTON
Confirmation has been received by reports from the Western Desert,
indicating great satisfaction with the W4 Medium Tank (Sherman).
The position of the main gun in the turret has made possible the ad-
vantage of meximum cover in "hull down" position in addition to good
observation by the Tank Commander. There is concrete evidence that
the enemy tanks, including the special P.Z. K.W. IV (with the long
barrelled higher velocity 75 mm gun) has been destroyed up to ranges
of 2,000 yards. All troops are indicating that there should be more
Shermans sent out at the earliest opportunity.
At the present moment there is no information regarding the use of the
Stabilizer, and it is not expected that this will be available early
as it is still the policy to fire from stationary "hull down" positions
whenever the opportunity permits.
EXTRACTS FROM MIDDLE EAST CABLE Q (AE) 63086
Two. - Users are giving unstinted praise to all American equipment
particularly W4 which embodies all desired improvements except ideal
gun sights.
Three. - Would again stress it is vital we receive earliest large
numbers W4 regardless of the availability of tools and spares for
FORVICTORY
which we are prepared to wait.
BUY
UNITED
STATES
WAR
BONDS
AND
STAMPS
SECRET
Regraded Unclassified
SE
291
EXTRACTS FROM LETTER TO B.A.S., WASHINGTON
FROM MAJ. GEN., A.F.V., MIDDLE EAST
Sub-para. to 4.
The Tanks 144 have made & great impression on everyone, and the troops
are thrilled with them. The long gun is magnificent, both in accuracy
and in penetration, and the sights are evidently B. considerable in-
provement on the Grant.
PARAPHRASE OF THE PRIME MINISTER'S MESSAGE
DATED OCTOBER 30, 1942, TO THE PRESIDENT,
COPY OF WHICH WAS FORWARDED TO ORDNANCE
FROM THE WHITE HOUSE
The special 1/k IV enemy tanks are being destroyed with M61 ammunition
at ranges up to 2000 yards.
According to first reports from the Western Desert, the Shermans are
excellent. There is maximum concealment in the "hull down" position
and the commander has good observation.
The 105 mm Gun Motor Carriages and ammunition have proven very satis-
factory. Although they have not been used in E. very mobile role as
yet, great results are expected in use against enemy guns.
PARAPHRASE OF A CABLE FROM THE M.G., A.F.V.,
MIDDLE EAST TO THE DIRECTOR OF ARMOURED FIGHTING
VEHICLES, WAR OFFICE. RECEIVED ON 12TH OF NOVEMBER 1942
In continuance of my last cable relating to the Medium Tank 144 (Sherman)
further reports confirm satisfaction. Emphasis is placed on the extremely
tough nature of the fighting during the period 24th to 28th October.
Mines, anti-tank guns, and very heavy concentrations of artillery fire
restricted Tank movements until such time as a combined Infantry and Tank
attack on the night of November 1st-2nd opened up a clear road. However,
the period of close fighting wore out the enemy's Armoured and Anti-tank
gun strength, so that our Armour had a decisive superiority in the final
action between Armour on the 4th November.
Many of our Tank casualties were due to mínes and shelling which effected
the tracks and suspensions only. Enemy A.P. H.E. which penetrated our
Tanks caused fuel and cordite fires. All the evidence shows that gasoline
causes an instentaneous fire whilst Diesel fuel ignites more slowly and
gives a crew 8 better chance of evacuation.
An investigation is in hand as to whether many Tanks might be saved if
the ammunition bine are more heavily armoured even at the expense of the
number of rounds carried.
- 2 -
SECRET
Regraded Unclassified
292
SECRET
It is estimated that 50 Medium Tanks (M4) and 30 Medium Tanks (M3) have
been written off as damaged beyond repair.
There are 75 Medium Tanks (M4) and 60 Medium Tanks (M3) which have been
recovered and are repairable. Exact figures will be sent when the battle-
field is cleared.
Information to date shows that little use was made of the stabiliser during
the static fighting which is described in paragraph 1. No information is
to hand at present regarding its use during the more mobile operations which
have taken place since that date.
With reference to paragraph 2 requesting information on the per-
formance of the new Diesel engine in the M-4 tank, it is presumed that the
engine referred to is R. caterpillar Diesel engine, of which one engine has
been completed and which must be considered still experimental.
The above information is forwarded at the request of Mr. William
Thompson, Administrative Assistant.
For the Chief of Ordnance:
than J.C. RAAEN
SENT SPOGA
Colonel, Ord. Dept.
Executive Officer
Regraded Unclassified