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DIARY Book 652 July 28-31, 1943 Regraded Unclassified - B - Book Page Board of Economic Warfare "Japan's War Sconomy, 1943": Revised copy of report - 7/28/43 652 83 Minutes of discussion of a) Portugese trade 74 b) Swedish situation 74 revers side) c) Appropriation for Board of Economic Warfare 76.80 d) Wooden vessels 77 Budget Revision of budget figures discussed by Treasury group - 7/28/43 1 - C - - China Exchange situation for U.S. dollar notes reviewed in American Embassy. Chungking, cable - 7/30/43 242 Correspondence Mrs. Forbush's mail report - - 7/30/43 233 Crowley. Leo Salaries (various, discussed by Treasury group - 7/28/43 16 a) O'Connell memorandum on simultaneous employment in private corporation 210 - F - Financing, Government War Savings Bonds: 3rd War Loan Drive: FDR asked to launch with movie people - - 7/29/43 204 Ford Motor Company See Revenue Revision - G - Government Employees Simultaneous employment by private corporation O'Connell memorandum - 7/28/43 210 - I - - Italy See Occupied Territories - J - Japan See Board of Economic Warfare Regraded Unclassified - K - Book Page Kiplinger Tax Letter See Revenue Revision: Pension Truste - L - Lend-Lease Eleventh report, for period ending July 3B1. 1943 652 248 United Kingdom: Aircraft despatched, week ending July 20, 1943 - British Air Commission 3 report - 7/29/43 224 - 0 - Occupied Territories United Nations Relief and Rehabilitation / Administration: Lack of planning discussed by Treasury &group - 7/29/43 144 a) Italy: Exports of coal and cotton -- Bernstein memorandum 7/29/43 214 1) Discussion by Treasury group -- - 8/3/43: See Book 653, page 105 2) Ickes' reaction discussed - 8/23/43: Book 653, page 108 b) Italian foreign trade - Bernstein memorandum - 7/29/43 216 c) Financial planning discussed by HMMJr and Hull 168 d) m If n " HMMJr and Patterson (War) 171,175 Exchange transaction profit discussed by Treasury group - 7/29/43 152 - P - Pension Trusts See Revenue Revision Portugal See Board of Economic Warfare Post-War Planning Currency Stabilization: American proposal for International Stabilization Fund - Senators and Congressmen on committees concerned given resumé of steps - 7/28/43 62 - R - Revenue Revision Pension Trusts: 1942 provisions discussed 1 by HMJr, Paul. Surrey, and Fred Smith - 7/28/43 34 a) Senator Taft's proposition reportedd b) Peul memorandum 44 c) Excerpts from Kiplinger Tax Letter 46 Regraded Unclassified - S - Book Page Spain Financial Attache at American Embassy, Madrid: Difficulties outlined in memorandum to HMJr - 7/29/43 652 222 Stabilization Fund Gold transactions for 3 months ending June 30, 1943 - 7/31/43 254 Sweden See Board of Economic Warfare - T - - Taft, Robert A. (Senator, Ohio) See Revenue Revision: Pension Trusts - U - - United Nations Relief and Rehabilitation Administration See Occupied Territories - W - War Savings Bonds See Financing, Government Regraded Unclassified 12 July 28, 1943 9:00 a.m. GROUP Present: Mr. Bell Mr. Paul Mr. Gaston Mr. Gamble Mr. Smith Mr. Haas Mr. Blough Mr. Charles Bell Captain Kades Mr. Bernstein Mrs. Klotz H.M.JR: Dan, let's start the morning with something unpleasant. Did you see the release of the Bureau of the Budget? MR. BELL: Yes. H.M.JR: The summation? MR. BELL: Yes. It isn't out yet, is it? H.M.JR: Yes, but you had a chance to clear it? MR. BELL: Yes, sir, I went over it. I thought it was a pretty good statement. The only question was a quote from last year's budget regarding taxes and savings. I told Harold that I hoped in discussing it with the press that they wouldn't get into this discussion of enforced savings. He said that - he called me back later and said that they decided not to have the seminar this year, that the President was just going to hand it out and not discuss it, so there wouldn't be any discussion of the enforced savings. Regraded Unclassified 2 - 2 - H.M.JR: He even cut it down, as I read it this time - increased revenue in taxes or savings-- MR. BELL: He didn't say anything about amount. H.M.JR: That part of it was rather weak. MR. BELL: I didn't think it was a bad statement. As a matter of fact, I thought it was a pretty good state- ment. H.M.JR: But you had a chance-- MR. BELL: Yes. There is very little change in the figures, except the revenue is up about five billion dollars. There is very little change in the expenditure figures. H.M.JR: That makes & difference in the net. MR. BELL: Yes, sir, the deficit is down to about seventy instead of seventy-six, as I recall, including the corporations. H.M.JR: I remember when Aubrey Williams and Harry Hopkins got out 8. statement that the Government would have to be always on the basis of spending something like nine billion dollars and you and I thought it was terrible. (Laughter) MR. BELL: It scared us to death. (Laughter) H.M.JR: What has happened to Aubrey Williams? MR. BELL: He was still head of the National Youth up until the time it was abolished. I have an idea he is in education somewhere. MR. GASTON: Isn't he doing some liquidating work with a skeleton staff on National Youth? MR. BELL: Maybe; I don't know. Regraded Unclassified 3 - 3 - H.M.JR: When Sullivan is away like this, is anybody from the Office of the Secretary supervising Procurement? MR. CHARLES BELL: That was 8. rather recent arrange- ment. We have supervised Procurement from an administrative arrangement right along. Cliff clears with us, generally. H.M.JR: When Sullivan goes nothing happens? MR. BELL: I have been signing the mail, and Joe O'Connell has been looking over most of it. There hasn't been very much. H.M.JR: Charlie? MR. CHARLES BELL: I think we will take the equivalent of another whole floor in the Washington Building for the War Bond group. They are right crowded in the three floors. I got in touch with some of Reynolds' men yesterday. H.M.JR: Why don't you go with me when I go over with Gamble, and then when we get through we can look around? I haven't got much to do - kind of worried. (Laughter) MR. CHARLES BELL: I think air priorities between here and New York will be discontinued. The difference in time only amounts to about an hour. It breaks up transcontinental flights when they do grant it. H.M.JR: Do we ask for many? MR. CHARLES BELL: Not a whole lot, very few. MR. PAUL: They told me the other day that they didn't give them between New York-- MR. CHARLES BELL: No, sir, have to go all the way through the War Department to get them. MR. PAUL: In other words, when you are in New York you have to send to Washington to get a priority. H.M.JR: It is all right with me, Regraded Unclassified 4 - 4 - MR. CHARLES BELL: We are trying to get a priority three for the bond drive throughout-- MR. BELL: Sometimes it comes in handy when you want somebody to come down from New York quickly and they want to get back that evening. H.M.JR: There is one thing that is disturbing me on the war bond drive. Now, last night - this is the second night - around six or six-thirty - that Mr. Burgess called me. As a matter of fact, I was resting last night and he woke me up. When the hell is Randolph Burgess going to get organized? Now, night before last he wanted a man on a house-to- house canvass. Last night he wanted the president of General Foods to do something else. Good heavens, he has been up there for almost two months. I mean, when are they going to quit shopping around for people to head things up? MR. GAMBLE: I think they are pretty well up in their organization. They are moving pretty fast in some phases of their work. We have ordered delivered to New York - started delivery yesterday - the first materials they wanted for pay-roll savings. They are going to solicit five million people. H.M.JR: My feeling is that they are not organized. MR. GAMBLE: I think his community - the one phase of his work that seems to be bothering him the most is this community activity. He hasn't completed the organiza- tion of that. That is what he wanted Barton for was this community division. H.M.JR: Will you get him a message not to tie him- self up late tomorrow afternoon? I may drop in on him, because I am worried about New York. I mean, when they Regraded Unclassified 5 - 5 - begin to look around for a man to organize house-to- house canvass on the 27th of July and then they want another man to head up industry, my gawd - they haven't even got the industry thing headed up. MR. GAMBLE: They have that headed up, Mr. Secretary. H.M.JR: No, no, he called me last night - they are going to use my name - what was the man's name? MR. PAUL: Francis. H.M.JR: No. MR. SMITH: Chester. H.M.JR: Chester. Now, if they haven't got industry headed up and they haven't got the house-to-house, I don't think they can be in very good shape. MR. GAMBLE: They have organized an additional division. The pay-roll is under Stevens - Jack Stevens - and that is all organized. H.M.JR: Yes, but that isn't the important thing - that isn't so important for the drive as the house-to- house. MR. GAMBLE: They are going to canvass these people in plants - five million people. H.M.JR: Don't let's kid each other. You keep telling me everything is going so wonderfully. MR. GAMBLE: I think it is, as a matter of fact. H.M.JR: I am going to make a few spot checks if you don't mind. MR. GAMBLE: That is good. Regraded Unclassified 6 - 6 - H.M.JR: If there is no Cabinet tomorrow, I may make one tomorrow; I am not sure, but I may. I don't get the feel. Are others as far behind as New York? MR. GAMBLE: No. As a matter of fact, New York - what they are trying to do is to get people - such names that they can use to generate a lot of excitement and enthusiasm in New York when this drive starts. What Burgess wants, I think, is a lot of brass hats, to be real frank about it, that can help him pull the press from the time he gets underway. Actually, the people who are going to do most of the work are working now and have been working for thirty days. H.M.JR: You don't mind my challenging you? MR. GAMBLE: Absolutely not. I will be delighted to have you do it. H.M.JR: The last time I was there I was 80 dis- couraged that I didn't want to go back again. MR. GAMBLE: The worst that could happen to us would be that you would improve them - step it up a little bit - so it wouldn't hurt even if they are in good shape. (Laughter) H.M.JR: Well, anyway, if that is the worst, what would be the best that I could do? (Laughter) Did I clear you? MR. CHARLES BELL: Yes. H.M.JR: You? MR. BELL: That currency story that you asked McCloy to clear was cabled to Eisenhower, and he cabled back that he didn't want anything given out on it yet. He said he would cable back when he wanted it given out, and he would try to have it released in three places simultaneously, London, Sicily, and here. Regraded Unclassified - 7 - H.M.JR: Could I have a piece of that currency? MR. BELL: Yes, I am getting it for you today and tomorrow - for you and the President. MR. GASTON: In the meantime an officer over there in the War Department told Harry Eaton that they printed some currency here in lira denominations and shipped it to Sicily. He has that in his foreign letter out today. MR. BELL: Does he know it is a censored story? MR. GASTON: They told him that over at the War Department without any restrictions about his printing it. MR. BELL: It is a censored story. The AP has had it for a month. H.M.JR: I think you ought to call up McCloy and tell him that. Will you do that? MR. BELL: Is it out yet? MR. GASTON: It is, in a rather obscure way, but it is out. MR. BELL: There was something in last week's paper. It came out of London that such currency had been printed. MR. GASTON: Kingsley Wood told about the arrangement, about the lira and its value in relation to the pound and the dollar. H.M.JR: Just so he knows - incidentally, I am glad I asked Smith to rewrite that little story about the small-sized bond; in the New York Times it was nicknamed "the economy bond," which was very nice. MR. BELL: I hope it doesn't reduce our appropriation. (Laughter) Regraded Unclassified 8 - 8 - H.M.JR: That is all right. It is good publicity. That is the kind we need around here. MR. BELL: That is all I have. H.M.JR: Mr. Blough? MR. BLOUGH: I have nothing. H.M.JR: Have you seen those things - my exhibit? MR. BLOUGH: I have not seen the tail end of the exhibit - the last third. I want to see that when it is opened. H.M.JR: It is open to you; you had better see it. They brought in one on the Blough business which I couldn't understand. MR. BLOUGH: Then I will have to see it by all means. (Laughter) H.M.JR: Still, the thing isn't there - if I get time today I would very much like to sit down with you, and that is on this dismissal wage business. There is nothing there. MR. BLOUGH: Let me look at it. I have sort of lost touch with it. H.M.JR: That would come in on conversion of plants, Chuck. I think there ought to be something - we ought to somehow or other right now begin to build up a reserve. MR. PAUL: We are working very hard on that; we have the SEC working on it, and we have Blough's office working on it. We have B. preliminary study of it. H.M.JR: Well, nobody has shown it to me. Regraded Unclassified S 9 - 9 - MR. PAUL: It just came through - the first preliminary study. I didn't think you wanted to see that. I will send it in to you. It just came through yesterday. H.M.JR: Where did you meet me when we talked about that whole thing? Was it in the country? MR. BLOUGH: No, it was in the hospital. H.M.JR: That was two or three weeks ago. MR. BLOUGH: That is right. MR. PAUL: But we could put six months on that. It is a vast problem. H.M.JR: Yes, but I am interested. You have got to get those things to me, please. MR. PAUL: I just got one yesterday. I will send it in to you. It is the whole problem. H.M.JR: I just didn't want Blough to sit back on his 12 three meat meals a day and go to sleep on it. (Laughter) MR. PAUL: Nobody is going to sleep on that problem. H.M.JR: I still say I would like to see it. MR. BLOUGH: The least you could do would be to improve the situation, Mr. Secretary. (Laughter) H.M.JR: On the strength of that I will give you one point. (Laughter) MR. BELL: Meat point? (Laughter) H.M.JR: I don't know - I am a little long on canned goods. (Laughter) What would be the best I could do for you? (Laughter) MR. BLOUGH: I haven't thought that far. (Laughter) Regraded Unclassified 10 - 10 - H.M.JR: The best you could do is, between you and Paul and Chuck, to give me something on the dismissal wage. That would be the best. (Laughter) MR. PAUL: I was thinking of the whole broader problem. MR. BLOUGH: This memorandum is not on dismissal wage, but on the postwar. H.M.JR: I would like it to head up with Mr. McConnell and Kades, who is working on that exclusively for me. You (Paul are not the only fellow, you know, working on this in the Treasury. There are about four other groups in the Treasury working on it. They are coordinating the thing. MR. PAUL: They are always welcome to all my data. H.M.JR: How many other groups? CAPT. KADES: George and Harry have a man working on one phase of it - not in regard to the dismissal wage, however, but in regard to contract cancellation. H.M.JR: Anyway, get it. How will I get it, Paul? MR. PAUL: I will send in this memorandum to you. It is on my desk. It just came to my desk yesterday. H.M.JR: I don't know whether you got word that Mr.Hull, at my request, sent a cable to the Consul in Martinique. MR. BERNSTEIN: We were informed of that. Something has happened since then-- H.M.JR: Excuse me - they turned us down in Martinique. They said we couldn't see the bank accounts down there. I called up Mr. Hull and asked him if he wouldn't do some- thing about it. MR. PAUL: When is your man getting back? MR. BERNSTEIN: He isn't coming back for some time. Regraded Unclassified 11 - 11 - We have just sent him a list of names to lookinto to see whether he can get specific information on them. Mr. Secretary, you suggested yesterday that something might be done on the licensing program. I spoke to Mr. Paul's staff and to Mr. Pehle's staff, and they say they do now have a problem of a licensing program for Martinique, and before putting any program like that through, we will present it to Mr. Paul today and present it to you. H.M.JR: That is right; and then let's sit on it. MR. PAUL: I thought you were accusing me of sitting on it. (Laughter) H.M.JR: Let's let Paul and you (Bernstein) and Pehle come in and see me. I am very much interested in that Martinique business. I have got nothing to do today. MR. PAUL: When would you like to see us? H.M.JR: Any time you are ready. I asked Mr. Hull for a copy of the cable he sent to the Consul. MR PAUL: I would like to see you, if possible, be- fore ten-thirty. I have an exciting conference scheduled with Mr. Stam at ten-thirty. (Laughter) H.M.JR: You can see me right after this because I am going over to War Bonds. MR. HAAS: I have nothing. CAPT. KADES: I have nothing. H.M.JR: Got 8. letter for me on meals at hotels? CAPT. KADES: Yes, sir. I am clearing it with-- H.M.JR: With whom? Regraded Unclassified 5 12 - 12 - CAPT. KADES: With Joe O' 'Connell and Randolph. MR. GAMBLE: We would like to bring in about fifteen or sixteen more of these States. We would like to bring them in at a time when it would be convenient for you to spend time with them. H.M.JR: The middle of next week? MR. GAMBLE: Wednesday or Thursday? H.M.JR: Fine. MR. GAMBLE: That is all I have. H.M.JR: It had better be - Wednesday would be the best day. MR. GAMBLE: Fine, we will make it Wednesday. MR. PAUL: I sent you a story yesterday afternoon - rather late in the afternoon - published in the St. Louis Post Dispatch, in which I call your particular attention to - since it presents a mystery as to how those things get out - almost the exact language of a letter to you is quoted. H.M.JR: About what? MR. PAUL: From the President on that Illinois labor situation. I signed the memorandum about quarter of six yesterday, 30 I don't know whether - I remember we called you up - Mrs. Klotz - and we didn't dare leave it on any- body's desk. H.M.JR: How do you think it gets out? MR. PAUL: I don't know. H.M.JR: You don't know? MR. PAUL: No, I haven't any idea. Regraded Unclassified 13 - 13 - H.M.JR: You looked kind of like a wise old owl. (Laughter) MR. PAUL: I really haven't the slightest idea. But, of course, the Justice Department thinks we let it out. H.M.JR: Well, I refused to see any newspapermen. Were you here when Biddle talked to me? He said that the newspaperman that he had seen said so and so, He saw & whole slew of newspapermen. MR. GASTON: Yes, he has seen a lot of them. What he talked about was something he said you said at the press conference, which you didn't say. H.M.JR: But he is quoting a newspaperman. MR. GASTON: As saying you said that at a press con- ference. H.M.JR: I think that is kind of dead - the controversy between us is dead - because he had lunch with the President and right after that he transferred the thing to the Criminal Division. Evidently he was told-- (Mrs. McHugh entered the conference and handed to the Secretary a memorandum from Mr. Paul dated July 27, 1943, and attached St. Louis Post Dispatch clipping.) H.M.JR: Would you mind pointing the part to me? MR. PAUL: It is right at the beginning. It is almost an exact quotation - two words left out. H.M.JR: Well, for your peace of mind, if you are suspicious of me-- MR. PAUL: No, I am not; I don't know a thing about it. H.M.JR: Well, I can tell you that it is not in this office because there have never been important leaks out of this office. But this has been over with Justice Byrnes - this memorandum. Regraded Unclassified 14 - 14 - MR. PAUL: That might explain it. Of course, it might come out of Justice because Mr. Roth used to work over there and he says you can get anything out of there by going around and looking on people's desks any time you want to. H.M.JR: That has been over there with Justice Byrnes. He said it was in his desk and locked up when I called his secretary, finally, to get the thing back. I said, "I don't know whether you know"-- He said, "Yes, I know just where it is." He said, "I know all about it. It doesn't worry me; my conscience is clear, and you can tell that to anybody. MR. PAUL: I have been saying that there isn't any leak here. H.M.JR: You can keep saying it and still go to heaven. (Laughter) And that is the worst that could happen to you. (Laughter) : MR. PAUL: I am afraid there are other reasons why I might be excluded. (Laughter) MR, SMITH: Nothing. H.M.JR: Herbert? MR. GASTON: Elmer is writing B. memorandum on that McConnell thing, but what happened in the Bureau was that his return was approved; there was no additional tax and no refund. H.M.JR: Somebody told me he got 8. refund. MR. GASTON: No additional tax and no refund - so Elmer told me over the phone. H.M.JR: It was approved? Regraded Unclassified 15 - 15 - MR. GASTON: He contested the additional tax asserted by the Bureau. The Bureau's claim of additional tax, as I understand it, was denied. He was not given any refund, but it was left as it was on the basis of the return on the tax he had already paid. MR. PAUL: Is that the controversy that has been going on for some time? MR. GASTON: Yes. MR. PAUL: I represented him in that controversy. H.M.JR: Alvord represents him now. MR. PAUL: He called me in because he was dissatisfied with Alvord. I was his private advisor. MR. GASTON: You ought not to say anything about it at all, had you, Randolph? (Laughter) MR. PAUL: I am telling you so you will know the worst. (Laughter) H.M.JR: Would you - I am going to say this - would you take a look, Mr. Paul, the General Counsel, at the statute of the FDIC and see whether you can both be on its payroll and also receive compensation from an outside source. You can't in the Treasury, can you? MR. GASTON: By permission of the Secretary. H.M.JR: I thought as a Government employee you can't receive- MR. GASTON: You can't have any other Governmental job in any other unit of Government. You can only take such out- side employment as doesn't interfere with your work and is approved by the Secretary of the Treasury. H.M.JR: No, that isn't it. MR. PAUL: We ought to check both. Regraded Unclassified 16 - 16 - H.M.JR: I thought there was something in the statute - maybe it is Civil Service-- MR. BELL: There is something in the more recent regula- tions that prohibits Government employees from taking out- side employment, but that was during the days of unemploy- ment. MR. CHARLES BELL: No one can take an outside job in the Department without your approval. MR. BELL: That is an internal regulation. There is a report in the paper that Leo resigned from the Gas Company. H.M.JR: Yes, but that isn't the point. The point is that as late as '42 - now, this is Madison, Wisconsin, Capital Times, Crowley received from the Standard Gas and Electric, seventy-five thousand, Federal Deposit, ten thou- sand dollars, and a paper company, four thousand six hundred and ninety dollars. MR. GASTON: We didn't get the '42 returns, but the returns up to '42 - the '39, '40, and '41 check absolutely with the Wisconsin returns. H.M.JR: Now, look under the mail contracts. lie took forty dollars from the Pan American Airways-- MR. PAUL: Those were director's fees. H.M. JR: Yes, but under the mail contracts, isn't there something about a Federal employee taking money from a company that has B. postal contract? MR. PAUL: I don't know, but forty dollars would be 8. venial sin, wouldn't it? Maybe it is only one fee. H.M.JR: But I still say, isn't there something about a Federal employee taking conpensation from a company that has a Post Office contract to carry the mails? M.R. PAUL: I don't know. Regraded Unclassified 17 - 17 - H.M.JR: May I give you this? (Clipping from Madison, Wisconsin, Capital Times handed to Mr. Paul.) MR. BELL: That is probably confined to Postal employees. H.M.JR: Just look at it because I want to help Leo, you see. (Laughter) MR. PAUL: We will go into that in that same altruistic vein. (Laughter) Regraded Unclassified July 28, 1943 18 11:02 a.m. HMJr: Hello. Operator: Mr. Norman Cann is acting. HMJr: All right. Hello. Operator: Go ahead. HMJr: Hello. Norman Cann: Good morning, Mr. Secretary. HMJr: Good morning. Look, Cann, on this notice that is going out signed by Helvering - notice to federal income tax payers C: Yes. HMJr: I'm not satisfied with it. C: You don't like it? HMJr: I don't like it. C: What in particular don't you like, Mr. Secretary? HMJr: Well, a lot of things. The point 18 that - uh - I want it done over. C: All right. HMJr: Now, how far along 1s it? C: Well, it's been in the press, Mr. Secretary, I think sometime, but I'd like to check on that and see. HMJr: Well, Charlie Bell will watch it on the administrative end for me and Fred Smith on the public relations and I'm going to give these two men the authority to repre- sent me on this thing but I want the thing done over and Mr. Smith will take it over. See? So you had better call back Charlie Bell and let him know how far along it is. C: All right, I'll do that right away. HMJr: And you'd better stop it. C: All right. Regraded Unclassified 19 - 2 - HMJr: Whatever it is, you'd better just stop it. C: All right. HMJr: Will you do that? C: Yes, sir. HMJr: And, I don't know - I'm going to ask Bell - Charlie Bell - to work out with you a formal order whereby all publicity that goes out of Internal Revenue will have to clear through this new set-up of mine. C: Uh huh. HMJr: See? C: All right, sir. HMJr: We'll just have to do that. C: All right. HMJr: I mean, I can't get excited all these times. C: Uh huh. Well, now this particular matter 1s the one that I sent over, I think, yesterday to Mr. Blough. HMJr: Mr. who? C: I sent it over to Roy Blough HMJr: Well, he C: and he had been out of the city HMJr: Well he wouldn't - he wouldn't know anything about it. It's - to bring these things to the attention of the people in a manner that, if possible, that they will like it. Well, anyway, I want the thing - I want the publicity going out of the Treasury all centralized. C: Well, I'll be glad to talk to Charlie Bell right away. HMJr: Okay. He's in my office now. C: All right, sir. HMJr: But in the meantime hold it up. C: All right. You bet. Regraded Unclassified 20 July 28, 1943 2:24 p.m. Operator: Go ahead. HMJr: Dan. Daniel Bell: Yes, sir. HMJr: This isn't swfully important but it might be sometime. That telegram to Bruce Barton - I didn't know it went out. B: oh, you didn't? HMJr: No. B: Well, I was told by Burgees that you said call down and get one out. HMJr: No. B: Huh? HMJr: No. What I said was, as I remember it, I said, "Talk to Gamble to remind me"- uh - not on a telegram - I didn't know he'd asked for a telegram. B: Well, he said he was just talking to you and he said that you told him to call down here and get Ted Gamble. Well, he couldn't get Gamble - he got me.... HMJr: I know, but B: and said it was all right to send a telegram out. HMJr: Well, frankly, I don't remember it, but if that's what you say, that goes B: That's what he told me. I don't say that's what you said but that's what he told me. HMJr: Okay. B: That was about 6:30 HMJr: Yeah. B: last night. However HMJr: Well, night before last. Regraded Unclassified 21 - 2 - B: What? HMJr: It was the night before last. B: No, this was last night. HMJr: Last night? B: Last night he called me just as I was - put on my hat to go out the door and said, "I want to get this telegram out tonight. HMJr: No - no, last night he called me about the head of General Foods. B: Didn't he say anything to you last night about Bruce Barton? HMJr: No. B: Well, that's funny, because it was last night that I sent the telegram. HMJr: Well, I may be confused. B: He said he had just got through talking to you HMJr: That's true. B: and that he told you - you told him to call Ted Gamble and get the telegram out last night. It was important that he get on the job today. HMJr: Well.... B: That's the way I got it. HMJr: Well, anyway - uh.... B: Is something wrong? HMJr: Well, no. I was just trying to - no - I - - he got me last night at the house about a quarter past six.... B: Yeah. HMJr: and talked and then - did was it after . - when did he call you? B: Right after that. Regraded Unclassified 22 - 3 - HMJr: I see. B: It was about six thirty when he got me. HMJr: When he talked to me last night, the only thing that he mentioned that I can remember was about Chester Colby. B: Uh huh. Well, he didn't mention Chester Colby to me at all - mentioned nothing but Bruce Barton. HMJr: Okay. It's - if he'd asked me would I do it, I'd have done it, but I - I couldn't remember it and that's why I'm calling you. B: Well, apparently, he'd been in touch with Bruce Barton as you had told him in the morning. You see, you discussed it at the staff meeting yesterday morning HMJr: That's right. B: ....and Bruce Barton apparently wanted a telegram from you asking him to help HMJr: I get you. B: and HMJr: Well B: I guess Burgess thought it was very important - he even tried to find his home address 80 he would get it last night. HMJr: Well, I guess I'm slipping. B: (Laughs) No, I don't think 80. HMJr: All right. B: Maybe he slipped - something over on us. HMJr: It's possible. B: Yeah. HMJr: It's in a good cause. Regraded Unclassified - 4 - 23 B: Well, I hate to do those things but I thought he was just through talking to you HMJr: Well, my memory B: and I didn't want to bother you because I didn't think it was very important to bother you about. HMJr: As I remember it, he only talked about Colby B: Uh huh. HMJr: but it's all right. Okay. B: Well, I - - if it had been important, I'd have called you, but I didn't think it important enough to call you on it. HMJr: Thank you. B: Okay. Regraded Unclassified 24 July 28, 1943 3:30 p.m. MARTINIQUE BANKS; LOAN TO THE NETHERLANDS GOVERNMENT Present: Mr. Paul Mr. Bernstein MR. PAUL: On this Martinique problem, you asked what steps we could take. I have a written memorandum here, but I suppose it is better to discuss it. (Memorandum to the Secretary dated July 28, 1943 attached.) The first and probably most effective action you can take would be to stop payment for the expenses of a ship now about to sail from Puerto Rico. Now, that would be fraught with major political implication, and I am bound to say to you, since you asked me, that that is probably the most effective step you could take. If you did, you probably would have to get in touch with State. They certainly would be apprehensive about using this weapon, but at least the possibility of using it could be used as a basis for discussing the matter with State. Now, there are other specific things you could do. One thing would be to stop licenses on the operation of French banks - Martinique banks - in the United States. You might refuse to permit the French to provide North African funds to Guiana for the purpose of procur- ing food and supplies; and, finally, you might-- H.M.JR: I will get that from the memo. What I would suggest - is it Feis handling Martinique? MR. BERNSTEIN: He handled it with us. He is the one we have done business with. H.M.JR: Who contacts him from the Treasury? MR. BERNSTEIN: Mr. White has in the past, but it may be that Mr. Paul has on these matters. Regraded Unclassified 25 - 2 - MR. PAUL: I met him for the first time Tuesday. H.M.JR: Wouldn't this be something that White's alternate would do? MR. PAUL: I should think SO. I should think he should to it. MR. BERNSTEIN: I would be glad to. H.M.JR: If we agree as to the procedure - diplomatic procedure within the Treasury - (Laughter) I would suggest that you (Bernstein) call up Herbert Feis and say that I am quite exercised about this thing, there is a ship sail- ing, you see-- MR. PAUL: That part - that particular remedy has to be - you have to be pretty prompt about it or we have to let it go, because we have practically licensed the thing now. H.M.JR: When would it sail? MR. BERNSTEIN: It is ready to sail at any moment and we practically have to take a positive step immediately. We would have to explain to State why we are holding it up. H.M.JR: I know. I would call up Feis and simply say - I wouldn't get mixed up in North Africa. We can concentrate on the thing direct to Martinique. Say that we would like to bring it to his attention, the idea that pending their giving permission to gointo the bank, we would like to do any one of these things, only if it meets with State Depart- ment approval. MR. PAUL: If it doesn't-- H.M.JR: Then forget it. This cable to Martinique that we talked about yesterday, if those things didn't clear the Treasury the same day - I wrote Mr. Hull a letter on this thing asking him to send a cable to Winant; Acheson calls me up today - twenty-four Regraded Unclassified 26 - 3 - hours later - "It will go out promptly." But such a thing as clearing - now, if it went last night, it would be on Winant's desk this morning. MR. PAUL: Did you know that they had offered the Area Directorship of Italy to my partner, McCollester, yesterday afternoon? H.M.JR: You told me-- MR. PAUL: That was France, at that time. The Italian man is out now and they are in & bad hole on Italy and they wanted him to take it. H.M.JR: For the whole of Italy? MR. PAUL: Yes. H.M.JR: What was his position - what would it be? MR. PAUL: Area Director . - sort of an economic czar. H.M.JR: Colonel? MR. PAUL: No, he is civilian. H.M.JR: Is he fitted for it? MR. PAUL: I think he is ably fitted for that type of job. It is largely a diplomatic job. H.M.JR: Is he going to take it? MR. PAUL: I don't know. H.M.JR: Does he speak Italian? MR. PAUL: He reads Italian and speaks French. That is why they had him for French, first. H.M.JR: The man they had in Italy fell down on them? Regraded Unclassified 27 - 4 - MR. BERNSTEIN: They had two men in mind, I believe. MR. PAUL: Welles was unable to get away because McNutt grabbed the other fellow in his university. They couldn't get McNutt to give him up. MR. BERNSTEIN: I think Graham was the other man they had in mind. Graham didn't want to leave the Board. H.M.JR: Graham would be wonderful. MR. PAUL: McCollester would be wonderful. H.M.JR: All I want to say is, "Here are ways of bring- ing pressure. We would like to do it, but only if the State Department would approve." If they don't want to do it, to hell with them. MR. BERNSTEIN: At a later stage we are going to have an opportunity to press down on Martinique because they are bound to come to us for general licenses for their banks to avoid this repetitious licensing. We can hold them off then. H.M.JR: I think I would wait now to see the kind of cable Mr. Hull sent. MR. PAUL: I have another thing in which you are interested, Bernie. That is this Dutch business. (Memo- randum to the Secretary dated July 23 attached.) The Dutch people want to borrow three hundred million from the Government and use as collateral the assets of private citizens of the Netherlands in this country. We don't want to do it because it involves political implications, among which was practically the recognition of that Government. H.M.JR: That has been brought up before. Regraded Unclassified 28 - 5 - MR. PAUL: We started to talk about it. H.M.JR: No, I mean it goes back months. MR. PAUL: Yes. One of the things that Harry parti- cularly wanted you to know, apart from the memorandum that goes in the file - he didn't want this to go in the file - the agreement to such a proposal would undermine the Treasury's position with respect to blocked assets of all occupied countries and would substantially weaken its influence and work of postwar reconstruction and financial settlements. Adoption of the State Department's suggestion that the assets be vested in the APC would take those assets out of the Treasury's control and, for all practical purposes, would give the State Department complete and independent authority over the assets. Such a step would also have the effect of transferring to Crowley the power and influence arising in the control of the assets. They have plenty of funds through their central banks. We don't believe that that is their real purpose - sort of an oblique attack. MR. BERNSTEIN: They have a billion dollars in gold and dollars. H.M.JR: Well, I go along with you fellows. Regraded Unclassified 29 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE July 28, 1943 TO Secretary Morgenthau FROM Randolph Paul You have asked what measures Treasury can take for the purpose of inducing the Government of Martinique to cooperate in furnishing Treasury with information concerning gold held in Martinique and funds held in Martinique for the account of persons in France. The action that would probably be most effective in producing immediate concern on the part of the Government of Martinique would be to stop payment for the expenses of a ship now in Puerto Rico and about to depart for Martinique with a cargo of Lend-Lease food supplies for the Island. While stopping payment would be effective in producing immediate concern on the part of the Martinique authorities, it would, of course, be fraught with major political consider- ations since obviously food is a very touchy item in our relations with Martinique. State would doubtless be very apprehensive of using this weapon and it is recommended that this possibility not be utilized except perhaps as an excuse for discussion with State. Other specific measures which could be employed to bring pressure on the Martinique authorities would be the following: (1) Withholding licenses authorizing the operation of the accounts within the United States of the principal banks in Martinique; and (2) The refusal to permit the French to provide North African funds to Guiana for the purpose of procuring food and supplies in Brazil. Regraded Unclassified 30 - 2 - Actually, in view of the fact that Martinique is under the control of the French Committee in North Africa and since probably the final decision will have to be made in Algeria, the pressures which we have the power to exert are not confined to transactions with Martinique. Rather they involve all the pressures we can bring against North Africa and these are very great. On the other hand, such pressures may only be exerted with the consent of State Department and therefore the real issue is to what extent State is prepared to exert pressures to achieve cooperation in Martinique. AM Regraded Unclassified 31 July 23, 1943. MEMORANDUM TO THE SECRETARY: The Netherlands Government has submitted 1 proposal to the State Department and to the Treasury that the Notherlands Government be permitted to pledge privately owned Netherlands assets in this country for the purpose of securing & loan of $300 million from this Government to be used to finance post- war rehabilitation and reconstruction in the Netherlands. Certain additional sums may also be requested to cover current budgetary expenses. In order to permit the pledging by the Netherlands Govern- ment of privately owned Netherlands assets in this country as collateral, the adoption of one of the following measures would be necessary: (a) Recognition by this Government of the validity of the Netherlands vesting decree. (b) Issuing directive licenses compelling the transfer of the assets to the Netherlands Government. (e) Vesting the assets in the A.P.C., to be held by him as collateral. The State Department does not want to recognize the validity of the Netherlands vesting decree but is considering proposing that the funds be vested and held in custody subject to agree- ments entered into between the State Department and the Nether- lands Government. It is our view that the proposals should be rejected by the Treasury for the following reasons: 1. The Netherlands Government (according to its own memo- randum) already holds enormous resources in the form of gold, dollar balances, and foreign exchange amounting in all to more than $1,050 million, of which more than $900 million is in the form of gold and dollars. These funds are held in the name of Regraded Unclassified 32 - 2 - the Governments of the Netherlands, the Netherlands Rast Indies, the Netherlands West Indies and Surinam, and the central banks and other official agencies of these areas. This is in addition to the privately owned Notherlands assets held in this country. In view of the fact that the total budgeted expenditures of the Netherlands Government for 1943 - including military and naval expenditures - total only $65 million, it is obvious that these resources are, to say the least, more than adequate for all of the needs of the Netherlands Government without touching the privately held funds in this country of Metherlands nationals. It has been said by the Notherlands Government that the gold and dollar assets of the Central Banks are not available for use by the Netherlands Government because they are held for reserve purposes. It should be noted that the British and other Govern- ments have not hesitated to use the resources of their central banks for war purposes. Clearly the funds of official govern- ment institutions should be tapped by the Netherlands Government before calling on us to deliver to them the assets of private nationals of the Netherlands. Moreover, the credit of the Netherlands Government is such that she would have no difficulty in placing orders for post-war delivery with only 8. small down payment, particularly if she is willing to subject such orders to post-war priority requirements. 2. For this Government to lend $300 million to the Retherlands Government would require the borrowing by the Treasury of an approximately equal amount. It would be difficult from the popular point of view for the Treasury to justify to buyers of Car Savings Bonds the use of their savings to provide B. Government holding the enormous assets of the Netherlands with additional funds for expenditure in the post-war period. 3. The vesting of assets in this country of Netherlands nationals would generally be regarded as the beginning of a process of vesting all blocked balances and securities. Un- doubtedly, some banks would feel that such prospective action Impairs their reserve position and this In turn would affect their attitude toward bond subscriptions. Further, such action would involve the Treasury in much otherwise avoidable litigation with American creditors as well as Notherlands nationals. The Regraded Unclassified 33 - 3 - Treasury ought not to exercise its extraordinary powers on such 8. matter unless the action contributes directly to the war effort, which clearly the Netherlands proposal does not do. 4. The vesting of these assets at this time would require a large and unjustified expenditure in time and man ower on the part of this Government. When a reconstituted Netherlands Government has been established in the Netherlands it will have full power to enforce its own decrees and will be able at that time to obtain effective control over the dollar and other foreign exchange assets of its nationals with comparative ease. The undesirability of using our limited manpower resources to vest these assets at this time is further increased by the fact that the Netherlands Government, according to its own statement, desires these funds for its postwar reconstruction program. On the whole, it appears to us that the proposal made by the Netherlands Government is not for the purpose of obtaining funds, of which they have plenty, but rather of strengthening the position of the present government in exile by giving it control over the enormous assets held in this country by private Netherlands citizens. (Initialed) R.B.P. Suit Now Approved: 1943. 7/23/43 Regraded Unclassified 34 July 28, 1943 3:45 p.m. PENSION TRUSTS; FORD MOTOR COMPANY Present: Mr. Paul Mr. Surrey Mr. Smith (Memorandum dated July 28, 1943, handed to the Secretary, copy attached. Copy of ticker release also attached.) H.M.JR: Just tell me about this. MR. PAUL: Last year, 1942, new provisions were put in the bill about pension trusts. During the course of the consideration of the bill by the Finance Committee, a subcommittee was appointed consisting of six people. Taft was on that committee. At that time a problem which later arose was not anticipated or thought of by us or by the committee, or by anybody else. It involved higher mathematics in actuarial statistics. When the law was passed and we started to write the regulations We called in experts and consulted with the people most interested. We had a lot of conferences. We also called in an expert on the actuarial end, because our Government actuary couldn't give us enough time. We finally worked out the regulations, and there was one point involving how much benefits to give people over three thousand dollars a year if they excluded from the operation of the trust people under three thousand. (Mr. Smith entered the conference.) Regraded Unclassified 35 - 2 - MR. PAUL: We decided that the policy of the statute which said there should be no discrimination made it such that we could not allow people over three thousand, in the case of trusts, which didn't take in anybody under three thousand. H.M.JR: What do you mean by a trust? MR. PAUL: Pension trust. We couldn't allow them any greater benefits proportionately than people under three thousand got under social security. Taft - when we were at the later stage in an advisory way we consulted with George, and he suggested, "Why not call together this little group of last year, which we did. Taft took a violent position in this group meeting. The group never took a position, so it isn't true to say that we issued anything in defiance of anybody. H.M.JR: Wouldn't it be the simplest way if you came to the press conference tomorrow and tried to explain it to them? MR. PAUL: I think it would be either good to do it that way, or I think 8 better way, since the subject is rather highly technical, would be for Surrey and me to have a separate press conference with them. H.M.JR: What do you think? MR. SMITH: I don't think - I think it ought to be all in one press conference, because it is highly tech- nical; and if they are in this kind of press conference I think they are more likely to ask questions that will clarify it in their own minds. We don't want to try to clear this up with a technical discussion. Taft isn't very technical; he just says that we are nuts. MR. PAUL: Then I think in such a conference you either should have Surrey and me or just Surrey, because Surrey has been studying this problem for months. Regraded Unclassified 36 - 3 - H.M.JR: Let's have Surrey. MR. PAUL: I haven't the slightest doubt of the validity of our interpretation, and I know where all the pressure comes from. There is an organized racket in the United States, and they are high-pressuring Taft. H.M.JR: What is the organized racket? MR. PAUL: It is to sell pension trusts to large corporations so that they get 8 deduction and the Govern- ment pays the expense. H.M.JR: Why not say so? Why not call a spade a spade? MR. PAUL: That is what it is. In fact, I have been - recently I have had Sam Klaus make an investigation in preparation for the fall when I anticipated there would be trouble about this, burrow around and get at some of the dirty work being done. : MR. SURREY: You couldn't go too far in that, though, because part of it is a racket and part of it isn't & racket. In other words, you will have to be careful. A lot of these pension trusts - the great bulk of them - were in existence for some time. These particular ones that Senator Taft is concerned about came into existence in the last few years. MR. PAUL: Particularly in '40 and '41. MR. SURREY: And partly as a result of the Social Security Act stopping at three thousand dollars and partly taxes. as 8. result of the very high rates of corporate H.M.JR: Surrey, you came to one of my press con- ferences and you did a very good job. You have from now until tomorrow morning. Let him do it. Don't call any names until you can back it up twice. Regraded Unclassified 37 - 4 - MR. SURREY: I don't suppose we are free, are we, to give out what went on at the Senate Committee meeting? MR. PAUL: We can deny Taft's-- H.M.JR: Sure. MR. SURREY: Vandenberg directly disagreed with Taft on the law. H.M.JR: He started this thing. MR. PAUL: Vandenberg came in on account of the Hudson Store in Detroit. H.M.JR: What was this meeting - was it an executive? MR. SURREY: An informal meeting of only the Treasury staff, the Senators, and the Joint Committee staff. H.M.JR: Sure, they all fight dirty. If Vandenberg was in there and disagreed, I would say SO. MR. PAUL: Taft got so mad he started to leave the room, and Vandenberg made him come back. George never expressed a view. H.M.JR: This is something that Taft personally is interested in. On the other hand, Taft - it keeps the Republican National Committee from doing a job on us. Sure, bring in Vandenberg. MR. SMITH: If you don't think Vandenberg will back up on you. MR. PAUL: He won't on the correctness of the inter- pretation. He may disagree with you on the policy. MR. SURREY: The peculiar thing was Senator Taft said that we were dead wrong on the law, but we might be right on the policy. If the law just weren't written 50 Regraded Unclassified 38 - 5 - explicitly we could not put that policy into effect. Vandenberg said, "You are right on the law." H.M.JR: I would tell them the story. It makes a nice gossipy, newsy story. Fred, do you agree with me? MR. SMITH: I think so; I think it makes something nice for the boys to have. It will make it worth coming for once. (Laughter) MR. PAUL: You know we don't control the Kiplinger press, don't you? The last Kiplinger Letter said that these regulations were eminently fair and reasonable. H.M.JR: All right. You (Surrey) be here. MR. SMITH: You don't think there would be any - I don't know whether this is wise or not - business of calling Vandenberg beforehand and asking him to double check it. MR. PAUL: No. Then you will get into all sorts of qualifications. He expressed himself; let's stand on what he said. MR. SURREY: George is not in town, is he? MR. PAUL: He wasn't the last I heard. H.M.JR: I would say that as long as this was kind of an informal meeting I will introduce - as long as Senator Taft feels that it is beholden upon him to explain what is in this, why not have both sides of the story. "And this is what took place, and Mr. Taft was very much in the minority, from what I gather. MR. SURREY: I think he was on the legal point, which was the only one on which he forcibly expressed himself. Regraded Unclassified 39 - 6 - H.M.JR: He said we are doing something illegal; he is being very dirty. What can he come back and say in rebuttal? MR. SURREY: I don't know what he really can say. The problem never came up. If it had come up, it is hard to say what they would have done. The Senator is con- servative and they might have ruled against us. On an open debate - full debate - I think our position is a fair position. Everybody should be treated fairly and equally in these plans. Senator Taft's position gives a minority in the plan much greater benefits than the great majority. These pay- roll plans he is concerned about cover on the average about four percent of the employees, those earning over three thousand dollars. H.M.JR: I don't pretend to understand it, but if you and Paul - don't try - I will get it tomorrow at the press conference. Paul says he wants you to do it, 80 that is all right with me. MR. SURREY: I explained it once before to AP and others; they weren't interested at that time. H.M.JR: Do you read Kiplinger? MR. PAUL: When it is in my favor. (Laughter) They say, "Reasonably and well-drawn, generally fair." H.M.JR: I told you all the story about Cabinet - Biddle was going to unmercifully for McNutt on this question of the draft. Then I said - he said he was un- fair, he was dishonest, he cheated - I mean, practically everything - and McNutt was taking it. I don't know why. Finally I said - it was the question of classification of an important job - what do they call that? MR. SURREY: Key. H.M.JR: "On the key jobs," I said, "as far as Treasury was concerned we had complete satisfaction. I thought it was only fair to Mr. MoNutt to say so, whereupon Ickes said, "We don't want to hear from anybody who is satisfied with McNutt." (Laughter) Regraded Unclassified 40 - 7 - MR. SMITH: What does he mean there about the Internal Revenue Commissioner considering whether private pension funds provide better benefits to some employees than the Social Security Act? MR. SURREY: The statute gives to the Commissioner the authority to ascertain which trusts are discriminatory and which trusts are not discriminatory; you have to satisfy the Commissioner of Internal Revenue on that point. It is a clear delegation in the statute. MR. SMITH: Then what you will do tomorrow is just keep this discussion on the basis that you have inter- preted the law right. If Taft doesn't like it and wants to do something about it in Congress, that is something else again. MR. PAUL: They can always change the law. MR. SURREY: I think most of the people on the outside who were concerned with the answer we gave think we can give the answer under the law. We can also give some other kind of answer. Our hands are free to go either way. The question is a matter of policy which way we go. H.M.JR: What is the next thing? MR. PAUL: You wrote me a letter about-- H.M.JR: Does it concern either of these gentlemen? MR. PAUL: No. (Mr. Smith and Mr. Surrey left the conference.) MR. PAUL: You asked me if we could - how about turning over the information on the Ford Motor? H.M.JR: Yes. MR. PAUL: I would think that was a very inadvisable thing to do at this time, particularly for this reason: Regraded Unclassified 41 - 8 - There are two reasons. We have just gotten out the TFR- 500 questionnaire on foreign-owned property of American- owned corporations, and everybody in the country is looking under the bed. They will say, "Now you are getting that really for this purpose of turning it over to some Congres- sional committee." If it served any great purpose - but balancing one thing against another, I think we ought to stall on it until we get some of these other things done. H.M.JR: Don't forget about it. MR. PAUL: Yes, if you decide on that ground I don't need to give you the other. H.M.JR: O.K. Regraded Unclassified 42 SENATOR TAFT ANNOUNCED THAT WHEN CONGRESS RECONVENES HE WILL INTRODUCE A JOINT RESOLUTION TO DECLARE INVALID RECENT TREASURY REGULATIONS WHICH HE SAID "NULLIFY" TAX EXEMPTION FOR EMPLOYES' PENSION TRUSTS OF MANY LARGE COMPANIES. TAFT ALSO PROPOSED TO PREVENT THE INTERNAL REVENUE COMMISSIONER FROM CONSIDERING WHETHER PRIVATE PENSION FUNDS PROVIDE BETTER BENEFITS TO SOME EMPLOYES THAN THE SOCIAL SECURITY ACT. TAFT SAID THE TREASURY REGULATIONS WERE ISSUED "IN DIRECT DEFIANCE" CF AN OPINION GIVEN TO TREASURY EXPERTS BY THE SENATE FINANCE COMMITTEE THAT CORPORATIONS COULD DEDUCT, FOR INCOME TAX PURPOSES, THEIR CONTRIBUTION TO PRIVATE PENSION FUNDS. THE COMMITTEE FELT, TAFT SAID, THAT THE DEDUCTION SHOULD BE ALLOWED EVEN WHERE EMPLOYES EARNING LESS THAN $3,000 A YEAR DO NOT BENEFIT BY PRIVATE PENSION FUNDS. 7/28-GE1214P 10-0 ADD TAFT TAFT SAID THE 1942 REVENUE ACT "MADE EXTENSIVE AND DETAILED PROVISIONS REGARDING PENSION TRUSTS TO REMOVE ABUSES WHICH EXISTED." BUT, HE SAID, THE ACT PROVIDED "EXPRESSLY THAT A TRUST SHOULD NOT BE INVALID MERELY BECAUSE IT EXCLUDED EMPLOYES RECEIVING $3,000 AND LESS, IF IT INCLUDED SUBSTANTIALLY ALL Regraded Unclassified 43 - 2 - EMPLOYES RECEIVING MORE THAN THAT AMOUNT." "SOME TREASURY OFFICIALS DECIDED, HOWEVER, THAT THEY WOULD HOLD SUCH A TRUST TO BE INVALID IF IT TREATED THE EMPLOYES IN THE TRUST BETTER THAN THE SOCIAL SECURITY ACT TREATS THE EMPLOYES RECEIVING LESS THAN $3,000 A YEAR," HE SAID. 7/28--GE1217P CT Regraded Unclassified 44 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Secretary Morgenthau July 28, 1943 TO FROM Randolph Paul The particular aspect of the regulations with which Senator Taft is concerned relates to private pension plans which exclude employees nót earning more than $3,000 a year. In conformity with the statutory requirement and policy that pension plans can not discriminate in favor of officers, stockholders, supervisory or highly compensated employees, the Treasury regulations require that the benefits accorded by the private pension plans for those earning over $3,000 should not be proportionately greater than the benefits re- ceived under the Social Security Act by the employees under $3,000 excluded from the plan. The policy adopted in the regulations is merely in keeping with the $3,000 dividing line adopted by employers in creating such private plans, since the employees under $3,000 are excluded on the ground that they receive benefits from the Social Security Act. The Treasury Department believes that the regulations promulgated by it are entirely in accord with both the spirit and the letter of the pension trust provisions adopted in the 1942 Act. As a matter of statutory interpretation the question is hardly open to debate. As & matter of policy every effort was made to deal with 8. difficult problem in accordance with the policy of Congress 8.8 it was expressed in the Act. Officials of the Treasury Department informally discussed these regulations before their promulgation with some members of the Finance Committee who composed the subcommittee designated last year to study the pension trust problem. This was an advisory conference. While Senator Taft did express views in the course of this discussion contrary to the views held by officials of the Treasury as respects legal interpreta- tion of the statute and not the merits of the proposed policy, the members of the subcommittee as a group did not indicate Regraded Unclassified 45 - 2 - that the regulations were contrary to the statute. There is no direct or indirect defiance of any opinion given to Treasury experts by the Senate Finance Committee. It is unfortunate that Senator Taft has raised the question of legislation before any opportunity was granted to ascertain the effect of the regulations in practice. The Treasury Department announced at the time that the regulations were issued that compliance with the regulations did not require any particular formula and that each pension trust would have to be considered on its merits without reference to any preconceived formula. Until those employers interested in the question of pension trusts have had an opportunity to consider their trusts with representatives of the Treasury Department, it is difficult to see how any judgment can be formed as to the effect of the regulations upon existing plans. You may be interested in the comment on these regulations in the recent Kiplinger tax letter. Hot Regraded Unclassified Excerpts from Kiplinger Tax Letter of July 24, 1943 Regulations covering pension provisions have now been issued. This is main reason for making fresh check. Plans which have been pending before Internal Revenue Bureau should be re-examined by the employers in light of these regulations. Make whatever changes may be necessary. Don't wait for the Bureau to challenge any questionable features or provisions. Reasonable, well-drawn, generally fair these are the terms many tax specialists use in discussing the new pension regulations. This doesn't mean that everyone is fully satis- fied with every detail. Treasury wanted a much tighter law, to ry to make more certain that only honest-to-goodness bona fide pension plans were benefited, but Congress enacted less rigid law, relying on administrative officials to do the main job of policing pension plans. Fear that Treasury would try to "legislate" in the regulations has turned out, say many experts, to be unwar- ranted. On most points, the regulations seem to follow the intent of Congress, despite the fact that the statute it- self was loosely drafted permitted finagling. NO DISCRIMINATION in the operation of the pension system. this is just about the cardinal principle. There must be no discrimination in favor of the share- holders, officers, or higher-paid employes. It must be a bona fide pension plan created by an employer "for the ex- # clusive benefit of his employes or their beneficiaries. Plans which in effect are "deferred salary plans" for key men: Gov't is "after" these systems, wants tosee that they don't benefit from the preferential tax treatment pro- vided under the law. "Plan" implies & permanent setup, not a temporary arrangement. This point is specifically made in the regula- tions. point that such abandonment will be carefully checked Abandonment of plan "in a few years": Regulations make to Regraded Unclassified - 2 - be certain the plan was dropped ONLY by business necessity. If it was dropped by employer for any other reason, gov't will contend this is evidence that the plan was not bona fide from the time of its creation. Such a contention by the gov't would, of course, involve charges of "fraud." Here are some further points on employe-pension regula- tions, some additional interpretations: FORM of plan is less important than its EFFECT in opera- tion. For example, a plan might meet certain provisions set out under the law, and on its face NOT be discriminatory. But if plan inactual operation turns out to be discrimina- tory, it will not be tax-exempt. A plan which turns out to be a subterfuge for the dis- tribution of profits to shareholders will not be approved, even if other employes who are not shareholders are covered by the plan. It will not qualify as a plan for the EXCLU- SIVE benefit of the employes. Contributory plan which is too burdensome on low-paid workers will be considered as discriminatory in favor of the high-paid workers. This will be true even if the plan is offered to ALL the employes. Plan must provide "definite actuarially determinable benefits. This is the key to make sure that deferred- salary-payment proposals don't slip by as employe-pension systems. Former employes may be covered by a plan and still be OK the plan still accepted as one for exclusive benefit of employes. Also workers temporarily on leave in armed forces, for example. Plans which supplement the regular social security program may qualify as "acceptable plans but there are some strings attached. Benefits must be based on "total-benefit basis" which includes amount received under social security. This means that TOTAL benefits must be proportionate per- centage-wise. This means a private system which supple- ments the social security program must be correlated and Regraded Unclassified - 3 - integrated with the social security pension benefits. This is the provision about which there is the most objection. It is contended that Treasury "departed" from the intent of Congress. A pension fund must be for the exclusive use of the employes or their beneficiaries in order to qualify under the tax law provisions. It must be "impossible" for the fund to be used for any other purpose. Advance gov't approval of your pension plan is not a must. If you feel certain that your plan qualifies under the existing law and the regulations thereon, you may wait for gov't OK in due course. But it's probably safer to get the Bureau of Internal Revenue to give you a ruling on your pension plan now. Copy of pension regulations may be obtained by getting in touch with your internal revenue collector. Ask for T.D. 5278. Regraded Unclassified TREASURY DEPARTMENT 49 INTER OFFICE COMMUNICATION DATE Scoretary Morgenthau July 28, 1943 Randolph Paul Attached hereto is a preliminary statement on special postwar reserves. I call your particular attention to page 14 which discusses allowances which may be paid to employees who are discharged at the termination of the war. RST If you wish me to read this and similar menios please walk them in in person 10mg Doaradod A S TNC. Y 50 E1 9051 51 1943 JUL 28 PM 3 55 BINGHAMTON NY JUL 28 1943 259P E. G HENRY MORGENTHAU JR R A CONFIRMING YESTERDAYS CONVERSATION GANNETT NEWSPAPERS SHOW PRACTICALLY NO DECREASE IN EMPLOYEE WAR BOND COMMITTENTS SINCE JULY 1ST FOR INSTANCE BINGHAMTON NO DECREASE ELMIRA AN INCREASE HARTFORD TWO E CANCELLATIONS TOTALLING ONLY FIVE DOLLARS WEEKLY OUT OF THREE Si HUNDRED BOND BUYING EMPLOYEES AND SO ON AM MAILING SOME INTERESTING OBSERVATIONS ON TOPIC REGARDS. FRANK TRIPP. Regraded Unclassified THE BINGHAMTON PRESS - July 26, 1943 Pay-Go Tax Brought Loud Grouns At First but 'Pain' Is Forgotten Now l'ac-officials: le take what get but Industrial Executives Say JOHN L BARTON. IBM Chairmal iviably we cldn't have to hash IL +31 of the War Production Advisor over again next March--it's No Committee (which has under is Complicated Why don't they col- Most Everybody supervision . subcommittee on bond lect the tax and HE done with IL puchases) Generally, the 20 per Yes, I'll continue to purchase the Is Happy cent withholding tax has no effect sarge amount in bends as before. on brind purchases. We feel that GARPIELD M. McKENZIE, war work- our employes are aware of the of, 23 Rotary Agenue Makes withholding tax in budgeting their It easter for . joi of people: don't By GEORGE W. TETHERLY expense and that и is a much im- have to plan ahead so far. I've Singhamton Press Staff Writer proved method in comparison with heard no complaints It cub down the annual or quarterly payments on my pay but A won't affect my Low whistles and loud groans As definite proof of this. IBM em- purchase of bonds I think people evoked by the new withholding ployes are investing more than 10 understand but Sope that the cost per uent of their STORE pay each of living doesn't rise higher. Las were the order of the pays work and 96.5 per cent of the EDWARD L PERRY. motion pictate people here are in the payrell day not 10 long ago when Uncle operator. 100 South Washington allotment plan. Street-1 think II's . good plan If Sam's tax-digging steamshovel GEORGE W. JOHNSON. president. it helps win the war I've heard Endicott Johnson Corp.-1 think the no complaints and I don't belieye started working on John Q. Pub- plan is o. K. with our people. the sale of bonds will be affected: lie's wage check on a weekly 20 There might have been some grum- 1 know II won't cut down on my per cent basis. filing at first but I believe now the purchase et them. taxes are accepted as a "must" Fervent resolutions were heard GLEN L HOOVER, City of Bingham- Our people here have accepted it ton Pire Marahal, 10 Stune Street- the length and breadth of the in the same good grade as every- Valley of Opportunity that prom- thing eise, They realize 'axes ji doesn't make much difference how the tax will be collected. I must the heavy and are acting ac- ised curtaliment of the purchase cordingly As far " I know, bund think, however, that the sale of of everything from chewing gum sales have not been affected and bonds will be affected Mul on the I believe they're going to continue other hand I believe they won't be to War Savings Bonds. to go over with . bang, cashed in to pay quarterly income Like having a row of teeth laxes and for that reason those who LARENCE HOTCHKISS, president. pulled. however, the public "got buy them from new on will hang Stew Manufacturing Co-There on to them. used to it" after Uncle Sam M were a few who el Brat didn't un- derstand the plan but now that it's MRS ROBERT CLEARWATER. 184 dentist pulled dollars from sub- in operation, I think they like the Clinten Street, war worker-1 guesa sequent pays, new method of tax collecting. 1 in all the same when you get H Grumbling Dies haven't heard any complaints all Agured out but anti in all I'm in favor of the eld way of collect- It appears that the grumbling PAUL TITCHENER, president. K. H/ une I've always regarded income Titchenger Co-The reaction to the tax as a bill and planned accord- has died down: that most weekly plan has been favorable here. ingly, Now when the pay check wage-earners, after noting the des There were some questions because comes in it looks swfully small ductions on their wage checks\, of some of the confuring provisions It seems to have a psychological of the tax law, and because it's an reaction. I don't believe the ux three pay days in a row, have be- entirely different. There has been - affect bond sales except those come used to the idea. no effect on bond sales as yet. where incomes are small. I've heard Maybe pay-as-ywu-go isn't very JAMES A. McGARRITY. treasurer, of some who plan to cut down un different from paying in four Veil-Ballou Press-Workers here their insurance because of the sew have accepted the new tax as - tax. installments after all. They feel, matter of course. Our bond sales E. F. CARNS. policeman, 10 Pagree after they alopped la think. here haven't fallen off-in fact they Street-li) o. K. with me, After It's the same old tax they used increased the week before the tax a couple of weeks time I don't went into effect. know it's gone I've heard no 10 pay in from one to fout In- Spokesmen for two plants said: serious complaints and I don't be- stallments, lieve it'll cut down on the sale of And they don't appear to be AGPA-ANSCO DIVISION-There has bonds. I know n won't with me. been nn complaint about the new thinking about cutting duwn on FRED o. BLAKE shop foreman, 4 tax here. Vers, very few cancella- Amsbry Street-The new tax plan the purchase of War Bonds. tinns of finnds purchased under the has it's good and bad points. But Complaints apparently came payroll deduction plan have been under the new plan by the time chiefly from those employes- reported. the end of the year comes, you TINK AVIATION DEVICES. INC - We really know what you have. If we were overpaying their taxes have heard no complaint concern- aren't taxed more 28 time goes on dightly because their wages fell HE the pay-ar-you-go tax plan. I guess everyone will get accus- IF, the lower portion of a with- Bund sales are holding up well de- tomed to it. As for as bonds are holding bracket. An extreme ex- spite the deductions concerned those who are smart will ample was this, altributed to a Here are some typical comments keep on buying them. After all weekly wage-earner: from the men and women who they're doing themselves . (avor more than they are the govern- "My salary gois into a higher are bit by the tax AX. They were ment. brarket by just A few cents As selected at random by the Inter- FRANK M. DEWEY. Binghamton a result. I'm paying the Govern- viewer: Savings Bank secretary, 48 Davis Street-I think must people agree ment $80 a year too much Of JOHN if WILKINS. mechanic, 51 51. the new plan is a good Idea. course, I get credit on my taxes John Avenue- feel I can stand it be hard un sume people to ger If it. helps the war effort. It doesn't along mn less. but it seems to me at the end of the year: but 1 make much difference although [ moit everyone will gel used to the can't eat credit I want my think the new way makes it easter idea and approve and IT's better money. to pay. I think it will be felt most than having to pay out on a heavy by those people whose wages are annual tax. At for as hands an Credits Next March very low. concerned, I believe the country " Nevertheless, the tax collector MRS F D SILVERMAIL, clerk, 51 sold on gelling behind the war di Michell Avenue-1 (ne) we have fort and believe that bonds are the has observed, the wage earner best investment of them all because will be glad to have those credits there's nothing to worry about A next March, particularly if has them. income is to be higher this year than it was in 1942. Aside from this point. however, new seem to be satisfied Take it trom officials of Triple Villas industries and the general public Regraded Unclassified 52- July 28, 1943 Dear Mr. Schenok: I want you to know that I appreciate the loan of Mr. Coor Deab to the Treasury Department. I all sure that he will be a valuable addition to our ver hond group. It was very generous of you to lend him to us, and you can count it & real service to the var effort. Sincerely, (Signed) d. Morgenthau, / : Mr. Micholas schenck President Loen's, Incorporated New York, New York riamy F3:gr 7-28-43 Regraded Unclassified TO: 53 Secretary Morgenthau Dear Mr. Boss: I did not write the attached. I also have a weak stomach. I shall, however, rewrite it and return to you with a box of Bicarbonate of Soda attached. Fred Smith Room 2901 Regraded Unclassified 54 THE SECRETARY OF THE TREASURY WASHINGTON July 27, 1943 Dear Mr. Schenck: This note is just to let you know how appreciative I am of your courtesy in releasing Mr. Oscar Doob so that the Treasury Department may have the benefit of his valuable services during the momentous days that lie ahead. I am not unmindful of the sacrifice you are making in depriving yourself of Mr. Doob's able assistance, but I am sure that you can add this splendid gesture to the list of your other outstanding endeavors to help in the war effort. Sincerely yours, Mr. Nicholas Schenck President Loew's, Insurporated Too time a weak h we ch down Frating New York City Regraded Unclassified 55 WAR FOOD ADMINISTRATION WASHINGTON OFFICE OF THE ADMINISTRATOR July 28, 1943 Dear Henry: I want to thank you for your letter of recent date with enclosure, which I have read with much interest. I found that part of the cable to which you made particular reference es- pecially interesting. Cordially yours, Administrator Hon. Henry M. Morganthau, Jr., Secretary of the Treasury, Washington, D. C. Regraded Unclassified Treasury Department 56 Division of Monetary Research Date 19 To: Honorable Tom Connally, Chairman, Committee on Foreign Relations, Exes: United States Senate. This letter was also sent to the following Senators on the Committee on Foreign Relations: *Walter F. George *Robert F. Wagner Elbert D. Thomas Frederick Van Nuys James B. Murray Claude Pepper Theodore Francis Green Alben W. Barkley Robert R. Reynolds Joseph F. Guffey Guy M. Gillette Bennett Champ Clark Carter Glass James M. Tunnell Hiram W. Johnson Arthur Capper bbert M. La Follette, Jr. Arthur H. Vandenberg Wallace H. White, Jr. Henrik Shipstead Gerald P. Nye James J. Davis # Included with another Committee Treasury Department 57 Division of Monetary Research Date 19 To: Honorable Sol Bloom, Chairman, Committee on Foreign Affairs, PRIX. House of Representatives. This letter was also sent to the following Representatives on the Committee on Foreign Affairs: Luther A. Johnson John Kee James P. Richards Joseph L. Pfeifer Pete Jarman W. O. Burgin Wirt Courtney Herman P. Eberharter Thomas S. Gordon Howard J. McMurray Will Rogers, Jr. J. William Fulbright Mike Mansfield Charles A. Eaton Edith Nourse Rogers Robert B. Chiperfield John M. Verys Foster Stearns Karl E. Mundt Bartel J. Jonkman Frances P. Bolton 14 James W. Wadsworth Charles L. Gerlack Andrew C. Schiffler Treasury Department 58 Division of Monetary Research Date 19 To: Honorable Andrew L. Somers, Chairman, Committee on Coinage, Exex: Weights and Measures, House of Representatives. This letter was also sent to the following Representatives on the Committee on Coinage, Weights, and Measures: John J. Cochran Compton I. White Dan R. McGehee Eugene Worley John Lesinski Louis J. Caposzoli Augustine B. Kelley William L. Dawson Chauncey W. Reed August H. Andresen Hugh D. Scott, Jr. Richard P. Gale William H. Stevenson 0 Joseph Clark Baldwin Ranulf Compton Frank L. Sundstrom Homer A. Ramey Treasury Department 59 Division of Monetary Research Date 19 To: Honorable Henry B. Steagall, Chairman, Committee on Banking and Currency, *xxxx House of Representatives. This letter was also sent to the following Representatives on the Committoe on Banking and Currency: Brent Spence Thomas F. Ford Paul Brown Wright Patman William B. Barry A. S. Mike Monroney James A. Wright John H. Folger H. Streett Baldwin Brooks Hays LaVern R. Dilweg Roger C. Slaughter Maurice J. Sullivan Merlin Hull Jesse P. Wolcott Charles L. Gifford Fred L. Crawford Ralph A. Gamble Robert W. Kean Jessie Sumner Frederick C. Smith John C. Kunkel Thomas Rolph Henry 0. Talle B. J. Monkiewics Treasury Department 60 Division of Monetary Research Date 19 To: Honorable Walter F. George, Chairman, Special Committee on Post-War From: Economic Policy and Planning, United States Senate. This letter was also sent to the following Senators on the Special Committee on Post- War Economic Policy and Planning: *Alben W. Barkley Carl Hayden Joseph C. O'Mahoney *Claude Pepper Scott W. Lucae Charles L. McNary #Arthur H. Vandenberg Warren R. Austin Robert A. Taft 1/ * Included in Senate Com. on Foreign Relations 1/ Included in Sen. Com. on Banking and Currency Treasury Department 61 Division of Monetary Research Date 19 To: Honorable Robert F. Wagner, Chairman, Committee on Banking and Currency, Exem: United States Senate. This letter was also sent to the following Senators on the Committee on Banking and Currency: =Carter Glass *Alben W. Barkley John H. Bankhead, 2d. Francis Maloney George L. Radcliffe D. Worth Clark Sheridan Downey Abe Murdock Burnet R. Maybank James G. Scrugham John L. McClellan Charles W. Tobey John A. Danaher Robert A. Taft John Thomas Hugh A. Butler *Arthur Capper Joseph H. Ball C. Douglass Buck * Included in Senate Com. on Foreign Relations 73 25 JUL 28 1943 My dear Mr. Chairman: When I appeared before the Committees of the Senate and the House of Representatives last April, I informed you that the tech- nicel experts of the Treasury, in consultation with the technical experts of other departments, were studying the problem of how to avoid competitive currency depreciation and how to facilitate the stabilisation of currencies after the war. As you know, I wrote to the Finance Ministers of all the United and Associated Nations directing their attention to this problem. I enclosed a preliminary draft of a proposal for an International Sta- bilisation Fund and requested the Finance Ministers to submit this draft to their technical experts for study. I also invited then to send their experts to Washington to discuss with us the feasibility of international monetary cooperation along the suggested lines. During the past two months we have held informal discussions with the technical experts of nearly thirty countries. On the basis of these informal and preliminary discussions, a newly revised ten- tative draft proposal has been prepared, a copy of which I as send- ing to the members of the Senate and House Committees before whom I appeared in April to explain our tentative proposal. I should like to emphasise that the proposal for an Interne- tionel Stabilisation Fund is still in the preliminary and informal stage. lie expect soon to discuss with representatives of banking, business and other groups the various proposals that have been put forward for preliminary consideration. I shall keep the Congress fully informed of the progress we are making in our discussions on international monetary coopers- tim. When preliminary discussions have been completed and before an official conference is held, I intend to appear before the ap- propriate Committees of the Cangress to advise with them on what is being done and what is proposed to be done to secure the 00- operation of the United and Associated Nations in facilitating the stabilisation of currencies and the restoration and balanced growth of international trade. Regraded Unclassified 63 - 2 - In the meantime, I shall be available to any Congressman or Senator who wishes further information on the proposal for an In- ternational Stabilisation Fund. Sincerely yours, 1.1 H.Margenthan Dr. Secretary of the Treasury. Honorable Andrew L. Somers, Chairman, Committee on Coinage, Weights and Keasures, House of Representatives. Enclosure. 3 HDW/EMH/mb 7/21/43 Regraded Unclassified 64 OFFICE BOARD OF ECONOMIC WARFARE WASHINGTON, D. C. July 28, 1943 The Honorable, The Secretary of the Treasury. Dear Mr. Secretary: In order to complete the Board records, there are enclosed a revised copy of the report, "Japan's War Economy - 1943" which was sent to you prior to the Board meeting of June 3, 1943, copies of the minutes of the Board of Economic Warfare of July 1 and July 15, 1943, and some suggested modifications to the minutes of several of the Board meetings. Sincerely yours, E.W. Gaumnitz Enclosures Regraded Unclassified 65 Mr. Dean Acheson suggested the following restatement of the minutes of the meeting of the Board of Economic Warfare held on August 18, 1942. The paragraph to which reference is made is the third paragraph on page 2, (Mr. Acheson stated would be called.") Mr. Acheson stated that the action now pro- posed was the submission of the draft plan to the President for his instruction as to whether the plan was along lines which met with the President's approval, also as to whether and when any further action should be taken to develop it, He pointed out that both the Vice-President and the Secretary of State wished to discuss this matter with the President, and that the present question did not relate to action but to whether any members of the Board objected to the plan as drafted. He pointed out that, if and when the President wished to go forward with such a proposal, it would be necessary to discuss the matter with the Russian, Chinese and British Governments and, if they were in accord with the general idea, to discuss it then with cer- tain other of the United Nations and finally with all of them. Regraded Unclassified 66 Mr. John Lockwood suggested the following restatement of the minutes of the meeting of the Board of Economic Warfare held on November 27, 1942. The paragraph to which reference is made is the second full paragraph on page 2 following Food, ("Mr. Rocke- feller opened coal and 011.") Mr. Rockefeller opened the discussion by saying that in general the food problem in the other American Republics was a matter of transportation, both ocean- going and internal, involving such questions as trucks, tires, railroads, coal and oil. Mr. John Lockwood suggested the following restatement of the minutes of the meeting of the Board of Economic Warfare held on November 27, 1942. The paragraph to which reference is made is the fifth paragraph on page 2 following Food, (Mr. Rocke- feller stated development programs.") Mr. Rockefeller stated that his office was attempting to develop added local food supplies in the Central American area, not only for consumption by the local people, but for sale to the armed forces. The Coordinator's Office is guaranteeing a fixed price for certain foodstuffs being grown in Costa Rica which is considered an exportable surplus. Mr. John Lockwood suggested the following restatement of the minutes of the meeting of the Board of Economic Warfare hold on November 27, 1942. The paragraph to which reference is made is the first part of paragraph on page 3, last sentence, ("Approxi- mately 4,000 Amazon area.") Approximately 5,000 people are now employed, the majority being laborers engaged in a variety of activities ranging from drainage to the construction of water supply and sewage systems, hospitals and public hoalth conters. The ratio of American technicians to national techniciens is in excess of one to twenty-five; all laborers are nationals. Regraded Unclassified 67 Mr. John Lockwood suggested the following restate- ment of the minutes of the meeting of the Board of Economic Warfare held on December 17, 1942. The paragraph to which reference is made is the seventh full paragraph on page 3, ("Mr. Rockefeller stated .opened to criticism. ") Mr. Rockefeller inquired as to the use of Lend Lease funds in connection with the construction of the highway across Hispaniola and in connection with other supplies to Puerto Rico. He said that recent state- ments in the press had indicated that in Puerto Rico there had been some criticism of the methods of supply- ing that Island. Regraded Unclassified 68 Mr. John Lockwood suggested the following restatement of the minutes of the meeting of the Board of Economic Warfare held on December 31, 1942. The paragraph to which reference is made 1s the fourth full paragraph on page 3, (Mr. Rockefeller stated significant by itself.") Mr. Rockefeller stated that it was very difficult to obtain reliable statistics from Bolivia. Mr. John Lockwood suggested the following restatement of the minutes of the meeting of the Board of Economic Warfare held on December 31, 1942. The paragraph to which reference is made is the third full paragraph on page 4, (Mr. Rockefeller stated was satisfactory.") Mr. Rockefeller stated that in October of 1941 a nine men mission had been sent to Bolivia. That Mission's report indi- cated that food valued at around $6,000,000 was imported into Bolivia and recommended an increase in domestic food produc- tion. During the spring and early summer of 1942, the Coordi- nator twice inquired of the Embassy at La Paz whether there wes any shortage in food production and in each case received replies indicating that there was no important shortage. Mr. John Lockwood suggested the following restatement of the minutes of the meeting of the Board of Economic Warfare held on December 31, 1942. The paragraph to which reference 15 made is the last part paragraph on page 4, and the first part paragraph on page 3, (m/r. Rockefeller said extended to Bolivie.") Mr. Rockefeller said that his office was prepared with its health, sanitation, nutrition, and disease control program, which has already been inaugurated in Bolivia, to carry on such constructive work as is deemed appropriate by the Bolivian and U. S, Governments. The agreement covering such fields of activity was signed on July 16, 1942 between the Institute of Inter-American Affairs and the Ministry of Labor, Health and Social Welfare. Mr. John Lockwood suggested the following restatement of the minutes of the meeting of the Board of Economic Warfare held on December 31, 1942. The paragraph to which reference is made is the second full paragraph on page 5, ("Mr. Rockefeller stated might be considered.") Mr. Rockefeller stated that if the problem was one of better distribution of food 80 as to get increased production, possibly the serving of well-balanced meals, 65 was done at Cerro de Pasco, might be considered. Regraded Unclassified 69 Mr. Bernhard Knollenberg suggested the following restatement of the minutes of the meeting of the Board of Economic Warfare held on December 31, 1942. The paragraph to which reference is made is the sixth full paragraph on page 7, ("In this connection would be difficult.") In this connection, Mr. Knollenberg stated that bauxite and mahogany were two items the purchase of which on a cash basis would be difficult to explain publicly. Regraded Unclassified 70 Mr. John Lockwood suggested the following additional paragraph to the minutes of the meeting of the Board of Economic Warfare held on January 14, 1943, to be inserted after the second full paragraph on page 3. Mr. Rockefeller pointed out that upon appropriate documentation that both materials and shipping space would not be available for the export of gold mining machinery to Colombia and Nicaragua and upon further documentation that resultant cessation of gold mining operations would create unemployment which would have an adverse effect upon the stability of the countries in question, his Office would work out, with the Department of State, such cooperative programs as might alleviate serious unemployment. Regraded Unclassified 71 The following modification of the minutes of the Board of Economic Warfare held on May 6, 1943 is based on a letter from Mr. R. P. Patterson and a suggestion from Mr. Adlai Stevenson. The paragraph referred to is the last paragraph on page 3, ("There was general any support to Germany.") There was general feeling there should be a continuation of negotiations along the lines previously outlined, this opinion not being unanimous however, Mr. Patterson particularly noting that the Army was opposed to any traffic with Sweden as long as it was giving any support to Germany, Mr. Knox stating that he was opposed to further shipments to Sweden until concessions actually had been received, and Mr. White stating that he favored increased Swedish concessions. Regraded Unclassified 72 Mr. John Lockwood suggested the following restatement of the minutes of the meeting of the Board of Economic Warfare hold on June 3, 1943. The paragraph to which reference is made is the last part paragraph on page 4 and the first part paragraph on page 5, ("Mr. Rockefeller pointed out with U. S. paternalism.") Mr. Rockefeller pointed out that the monopoly in Mexico was created by the Mexicans as a matter of their policy. This would not be changed by either the accep- tance of the Cyanamid proposal or that suggested by the Alien Property Custodian. He had recently returned from Mexico and indicated that, as a result of his conversa- tions there, he believed that the Mexicans were very sensitive to action by the United States Government which would seem to tell them how they should run their own affairs. He pointed out that the Mexicans, having determined that they wanted B. monopoly, had freely entered into negotiations resulting in the Cyanamid proposal which appeared to be satisfactory to the Mexicans. He feared that for the United States Government now at this stage to offer a new proposal might be resented by the l'exicans as American interforence. Mr. Rockefeller also stated that he was somewhat puzzled on one point. As he understood it, the essence of the situation was that the United States Government, through the Alien Property Custodian, was prepared to underbid Cyanamid. He presumed that the United States Government must be taking this position because the Cyanamid proposal violated some foreign economic policy of the United States and the Alien Property Custodian proposal would aid that policy. But he was not clear as to what that foreign economic policy was. He thought that this policy should be clearly defined and made known so that foreign governments, government agencies and private concerns, such as American Cyanamid, might know where they stood and what were the rules in accord- ance with which they should act, Without such a dofini- tion of policy he folt that the not result of a transaction such as this would be simply to have the Government's temporary control over certain large firms used to underbid and eliminate private companies from business which could be legitimate if the private companies knew what the rules Waro. He further stated that in the absence of such cloar policies the trunsaction night appoar to the Mexicons as simply a caso of United Statos Government pater- nalism in their own affairs. Regraded Unclassified 73 The Minutes of the Meeting of the Board of Economic Warfare of June 17, 1943 should be corrected to show Mr. John Lockwood of the Office of the Coordinator of Inter-American Affairs instead of Mr. John Lockwood, representing the Administrator, Lend Lease Administration. Regraded Unclassified SECRET 74 Minutes of the Meeting of the Board of Economic Warfere Held July 1, 1943, at 10:00 a. m. A meeting of the Board of Economic Warfare was held in Room 201 Senate Office Building at 10:00 a. m. on July 1, 1943. The meeting was attended by the following members of the Board: The Vice President, Chairman of the Board Mr. Dean Acheson, representing the Secretary of State Mr. Harry White, representing the Secretary of the Treasury Mr. Charles Fahy, representing the Attorney General Mr. Adlai Stevenson, representing the Secretary of the Navy Mr. Leslíe Wheeler, representing the Secretary of Agriculture Mr. Wayne Taylor, representing the Secretary of Commerce Mr. Nelson the Rockefeller, Coordinator of Inter-American Affairs Mr. William Batt, War Production Board Mr. E. R. Stettinius, Administrator, Lend-Lease Administration In addition, the following persons were present: Mr. John Lockwood, Office of Coordinator of Inter-American Affairs Mr. Harold Neff, War Department Mr. Herbert Feis, Department of State Mr. John Lovitt, State Department Mr. Henry Labouisse, State Department Mr. Randolph Higgs, State Department Mr. Melvin Fagen, Board of Economic Warfare Mr. H. K. Fleming, Board of Economic Warfare Mr. E. W. Gaumnitz, Board of Economic Warfare Mr. W. T. Stone, Board of Economic Warfare Portugese Trade tá With reference to Portugal Mr. Stone stated that there had been in exist- ence a supply purchase agreement with the U. S. and the United Kingdom which had expired June 30, so the question of B. new agreement was raised. He stated that we had been securing tungsten from Portugal and that apparently reasona- ble cooperation had been forthcoming. Recently, however, it was learned that the Portugese government had entered into an agreement with Germany, permitting the purchase of certain "free" tungsten. Previously Germany had been securing approximately 75 per cent of the free tungsten. The new agreement between Portugal and Germany was made without consulting the United States or United Kingdom authorities and probably covered a year, although we have not seen the agreement. It was indicated that Dr. Salazar, the dominant influence in Portu- gese trade policy, was apparently attempting to treat both Germany and the United Nations on about an equal basis. Mr. Stone pointed out that U. S. and U. K. secure around 65 per cent of the total tungsten production of the present time and that the German-Portugese agreement roferred to the. so-called free tungsten. Mr. Stone also stated that Dr. Salazar had announced that Germany would get 45 to 60 percent of the sardine catch which placed the U. S. in a peculier Regraded Unclassified 75 3 position, since we in effect enable the procurement of patroleum used for British are to be free of any obligations to make basic rations available to fishing und also the procurement of steel plates used for trawlers. Sweden. The problem in connection with a now agreement was how far we are able to prezs for concessions, (4) Miscellansous concessions. The Swodish Government also agrees to un- Mr. White's thought was that with a changed war situation, the U. S. dortake not to replace any ship lost in the course of trade with onemy torri- should press for additional concessions. Mr. White stated that Treasury NOS tory, not to allow the number of its ships In this traffic to incroase, to exploring a "gold" question which night be of come use on conjunction with provide full statistics on trade, not to ruduce prices on exports to the enery, negotiations where the movement of gold NBS involved. In effect the propo- not to purnit an increase in prices of goods received from unamy torritory oul was that gold would not be accepted unless title were clear, Previously without a corresponding rise in its own prices, to restrict its exports to such a proposal probably would have been ineffective since Germany had ample Argentina to certain products approved by the United States and to mointain deedit, At the present time, however, there were indications that this ait- all of its commitments under the agreement, even though the Gothonburg traffic option to changing 50 that Germany would be forced to pay in gold or goods. la stopped. A refunel on our part to take gold except title were clear might force inter- modiate countries to require German payment in terms of goods. The Governments or the Unitod Statos and the United Kingdom agroo to the Nr. Stone indicated also that the Joint Chiefs of Staff had been consulted following: First, to pormit Sweden to import in hor own vossols by October 1, some time BRO 0.0 to whether there were any military reasons why me should not 1943 a total of 120,000 tono of potroleum products as the your's justa, such pross for more concessions from Fortugal and that the Joint Chiefe had suggested products to be exclusively for the use or the urred forces and to be subject that the negatiators proceed cautiously. to adequato control to provent diversion. Agreement on this point was author- Mr. Stevenson suggested, however, that possibly the situation had now ined by the President in communications to the Secretary of Stato under date changed 30 that this point should be checked again. of June ? and 11, 1943. The basis for this comitment is the dosire to annist the Swedish armed forces to be in a position to resist possible military action Sweden by Germany in rotaliation for the Swadish ban on military traffic. Secondly, to maku available cortain "basic rations" which have boan approved by the Con- Reporting on the Swedish vituation, Mr. Stone stated that the Governments bined Boards. Third, to permit a sixth ship in the Gothonburg traffic monthly. of the United States and Great Britain had reached an agreement In principle There was considerable discussion of the report with a number of weaknossos, with the Swedish Government on trade relations during the current year and 1944. boing pointed out mainly by Mr. White, Mr. Neff and Mr. Stovenson. These This agreement, negotiated in accordance with the President's directive of indicating the doubtful valuo of the agreement to the United Statos, November 30, 1942, represents is substantial achievement of the objectives out- WOTE sumarized by Mr. "hite as follows: Basicully, Sweden was not making largo lined in the Board's resolution of November 12, 1942. The major points of concessions. With reference to oxports to Germany, such reductions were small the agreement were outlined na follows: in 1943 and while reductions appoared material for 1944 it was pointed out that much reductions could be expected without any agreement, that the magnitudo of (1) Reduction in exports. For 1943, exports from Sweden to enemy terri- the reduction was over-stated since 1942 exports which wore used as a basin in tory to be at least 13 per cent less by value than 1942. For 1944, total the calculations were abnormally largo. In addition, Mr. Thito noted that exports to be limited to 700,000,000 kroner, which to 30 per cent below the there who domo avidence that the Swedes had violated thoir agreements in the 1942 level. Exports of iron are La 1944 to be in the ratio of two tons of ore last wur, word violating the agroement now in affect, and were in fact viola- for one ton of coal received from Gernany, with total exports of iron ore 11mi- ting while the present nogotiations were in process. Thorefore, thore was no tod to 7,500,000 tona for the year, This limitation would represent a reduc- reason to expoct compliance in the future. Further, it appeared that the Swodes tion of about 13 per cent from the 1942 level. In addition, exports of certain voro recoiving imports approximating 60 por cont of normal, exporting negligible specific compdities such as iron and steel manufacturors in 1943 are not to juantitios of goods to the United Nations but at the samo time exporting in exceed exports in 1942. In 1944, exports of iron and stoel manufacturers, increased quantities to Germany. With reference to the goods baing allowed chemicals, lumber and pulp und papor and cortain other Important commodities under badie rations, thoro wore included itoms of great value to Swedon, includ- are to be limited to 75 por cont by value of 1942 exports. With some exceptions ing, but not limited to oil. Mr. White also stated that as the war progressed all oxports of arms, munitions and souns of transport are to be eliminated. Ewoden would bocome moro and moro depondent upon the United Nations and therefore the V. S. nogotiators should be in a position to exact matorial concossions and (2) Credits. Except for limited crodits to Finland, no new credits to be thore was no reason why 5. weak position should be takon, grunted by Sweden to Germany or associated countries. In response to questions 55 to whether further action on the part of the Board was dosirable and whether the proposed agrooment would bo referred to the (3) Wilitary traffic. Unloss Sweden gives notice by August 1 that such Chiefs of Staff, Mr. Achoson indicated that the terms of the proposed agreement action in impossible, all energy troop and military traffic across Swedoa to be appeared to be within the broad terms of the Board resolution, that the petro- discontinued by October 1 and non-military goods traffic to be limited to loun question had been before the Chiefs of Staff, that the broad outline had 180,000 tons annually. If the Swedes do not close the traffic, the U. 3. and the approval of the President and that any further difficulties were to be re- Regraded Unclassified SECRET Minutes of the Meeting of the Board of Economic Warfare 76 Held July 15, 1943 at 10:00 c.m. solved by the Secretary of State. It appeared to Mr. Acheson, therefore, that the negotiators had accomplished the objectives and that the agreement repre- sented a real advance. He stated further that that position RGS also held by the U. K. authorities, by the negotiators, and-by the U. S. Ambassador to Eng- A menting of the Board of Economic Warfare was held in Room 201 Senate land. The Vice President suggested that the views of the several agencies, office Building at 10:00 a.m. on July 15, 1943. purticularly those of Treasury, War and Navy be brought to the attention or the Conrotary of State. The meeting was attended by the following members of the Board: The meting adjourned at 11:30 B. B. The Vice President, Chairman of the Board The Attorney General Mr. Adla1 Stevenson, representing the Secretary of the Navy The Secretary of Agriculture Mr. Wayne C. Taylor, representing the Secretary of Commerce The Coordinator of Inter-American Affairs Mr. William Batt, representing the Chairman, Mar Production Board Mr. Bernhard Khollenberg, representing Lend Lease Administration In addition, the following persons were present: Mr. Herbert Feis, Department of State Mr. Percy Douglas, Office of Coordinator of Inter-American Affairs Capt. A. M. Peabody, Office of Coordinator of Inter-American Affairs Mr. Harold H. Neff, War Department Mr. Kormit Roosevelt, Jt., State Department Mr. Monroe Oppenheimer, Board of Economic Warfare Mr. W. L, Clayton, Department of Commerce Dr. Milo Perkins, Board of Economic Warfare Sr. E. Caumnits, Board of Economic Marfare The Vice President stated that the first matter for discussion und the recent legislative action in connection with the B.E.W. appropriation and asked Mr. Perkins to review the situation. Mr. Perkins distributed copies of the amendment to the B.E.W. appropriation bill and a copy of his letter to Mr. Cannon, Chairman, House Appropriation Committee. Mr. Perkins reviewed the legislative history briefly, stating that the House hourings were in great detail, following which the House passed the appropriation bill carrying the full amount of $36,150,000 as requested. The Senate Committee hearings were rather short. Apparently there was discussion in the Senate Committee on an amendment requiring the approval of three cabinet officers on expenditures of B.E.W. funds abroad. This idea was later modified to require majority approval of the members of the Board on all its economic programs and policies and such an amend- ment was presented to the Sanate. On the floor, Senator McKellar intro- duced an amendment inserting the word "general" before the term "economic programs". That amendment, however, was defeated. Mr. Perkins stated he then wrote Mr. Cannon pointing out that the effect of the amendment was to give veto power to the B.E.K. over W.P.B. with refer- ence to operations on imports as well as exports, and that the Senate re- jection of the word, "general" opened the possibility that the General Accounting Office night take a very narrow interpretation to the amendment requiring that the majority of the Board approve all individual export licenses, all individual import contracts, and all economic warfare analysis work abroad specifically. Regraded Unclassified 7 - 2 - The Conference Committee reinserted the word "generol" and it was accepted by both Houses with no discussion. Mr. Perkins also pointed out that the anendment was not operative until August 15. Hr. Perkins proposed that the Board arrange to neet on the twenty-second, prior to which time he would attempt to have drafted and circulated pro- posed broad policy resolutions with supporting data. He pointed out, how- over, that while resolutions covering broad policy night serve the letter of the law and enable operations to continue, the intent apparently went beyond the letter. To meet the spirit of the law, he therefore suggested that following the filing of resolutions covering broad programs and policies that members bring up specific programs and policies for additional reviow. He pointed out that to ask the Board to pass on every purchase contract under the va- rious directives now operative, and on every license would be an adminis- trative nightmare. It were his suggestion that each Board member be free to ask for the presentation of material bearing on any spot problem, however. Ho stated that he interpreted the amendment to moon that the Congress recognized the Board as a Board, from which it would be possible to secure complete judgmant and policy direction on foreign economic programs. There was general acceptance of the approach outlined by Mr. Perkins. In the general discussion the point was made that while previously the Board was advisory in character with the administrative power in the hands of the Vice President, under the amendment it was necessary that a mijority of the Board approve general policies and programs before administrative funds might be erpended abroad. It was also notud that majority approval would require six members an the Board wes now constituted. It was also cloar that Board nembers might ap- prove general policies and programs without necessarily being present at meetings of the Board and that alternates were empowered to act. It was also suggested that 6. representative of the General Accounting Office be consulted in drafting the resolutions. It was also agrood that approved resolutions be filed with the Department of State, and should be available to Board members. The Attorney General expressed it as his opinion that this was E routine provision of the law. There vas also discussion of the desirability of making the resolution avail- able to the chairmen of the House and Senate Appropriation Committees, but because of military security, this matter was left for further consideration. Wooden Vessels The Vice President indicated that lir. Rockefeller was ready to report on the wooden vessols program. b. Rockefekler referred to the Board action requesting the Coordinator's Office to undertake # general program of constructing, purchasing, and opera- Regraded Unclassified 78 - 3 - ting wooden vessela under a thousand tons to relieve the shipping situation. Pursuant to those general instructions, the Coordinator's Office had ac- quired and operated wooden vessels, and had worked closely with War Shipping Administration on the matter of additional constructions. His office had canvassed the possibilities of construction in South America and very briefly the results of that canvass were that there was no place except Mexico where such vessels could be constructed. He stated that a written report had been submitted to the Board. Mr. Rockefeller also stated that upon its inception the Maritime Commission had not been interested in the wooden vessol program. Some three months ago, however, the War Shipping Administration had agreed to take over vessels previously acquired and to operate such vessels. His Office had therefore transforred the vessels to the War Shipping Administration, retaining only the job of construction. He stated also that War Shipping Administration had agreed to the transfer of any vessels which might be constructed. Presently, however, he had received a letter from Admiral Land recommending the discontinuance of any further construction of wooden vessels because of improved shipping conditions. Prior to the receipt of the letter, but fol- lowing conversations with Admiral Land, Mr. Douglas of his office had pro- ceeded to Mexico for the purpose of checking the possibilities of cancel- lation of construction contracts, In view of the report, and Mr. Rockefeller's further statement that it would take ten to twolvo months to construct additional vessels, it was agreed that the program should be discontinued, The moeting adjourned at 11:20 s.m. Attachments: Copy of Appropriation Amendmont and copy of letter to Mr. Clarence Cannon Regraded Unclassified 9 Amendment to the Bill as passed X K X (2) No part of any funds appropriated or made available horein to the Board of Economic Warfaro shall be used after August 15, 1943, directly or indirectly for the procurement of services, supplies, or equipment outside the United States except for the purpose of executing general economic programs or policies formally approved in writing by a majority of the Board and such writing has been filed with the Secretary of State prior to any such expenditure. X X H Regraded Unclassified 30 0 P Juno 30, 1943 Hon. Clarence Cannon, Chairman, House Appropriations Committee, House of Reprosentatives. Deur Mr. Cannon: We focl that wo must express grave concern over the Conate amendmont to our appropriation. From sn administrativo point of viow, we are not in favor of it sinco it Givos the Board of Economic Varfare what amounts to voto power over the far Production Board. As things now stand, we oporato our imports work under directives received from the War Production Board and also recoivo allocations from the War Production Board on a largo number of matorials for oxport. If this appndment in adopted, tho Board of Economic Warfare will be enpowered by logislation to over-rido the War Production Board if it dosiros to do BO. As the amendment now stands, we are frankly uncortain as to what it moans. As you know, it was not adopted by the Senate with the word "Conoral" bofore the words "oconomic programs and policios". Schator McKellar, as you know, triod to have the word "Acnoral" included, If the General Accounting Offico word to make = narrow, Limitod interprotation, it night mean that we could not pay for norvices, supplies or oquipment unless e majority of the Board approved ull our individual export liconses, all our in- dividual import contracts and all our Economic Warfare analysis work abroad. This, of course, would bo impossible from an op- orating point of view. The logislativo history in the Bonato is bnd, from our standpoint, since an offort vos mdo to introduce thoword "genoral" and the word VR18 subsequently deleted. Regraded Unclassified 81 - 2 - I fool that 1/0 can do a much more officient job if the emendment is not adopted in the conforence roport. If it is adopted, I would hope the House Conforens could cithor re- inscrt the word "gonoral" or eliminato the words "oconomic pro- grans", in which caso only policios would bo subject to Board approval. Tho Vice President prosidos over regular mootings of the Board of Reonomic Farfare which ore hold overy two wooks when the Vico Prosident is in town. I furnish the completo list of much noetings to the Senate Conmittoo on Appropriations. The Board, no n Board, is chormously holpful in our work on specific policy mattors as they ariso from time to timo, but obviously our operating responsibilities nro too vast for day-to-day manage- mont by a majority of the Board. Wo are dooply concerned about the amondment an it now stands and I hope you will understand the spirit in which wo are calling this mattor to your attention, Sincorely yours, Exocutivo Diroctor Regraded Unclassified 82 TO HOLDERS OF EP 60 "JAPAN'S WAR ECONOMY - 1943" A number of important corrections have been made in this report. Please destroy the original text but do not destroy the maps and charts attached to it: the maps and charts should be used with the present version. Regraded Unclassified 83 EP-60 CONFIDENTIAL Copy No. 152 BOARD OF ECONOMIC WARFARE Enemy Branch JAPAN'S WAR ECONOMY - 1943 CONFIDENTIAL March 1943 32-2242 Regraded Unclassified 84 Summary and Conclusions The position of Japan's'war economy may be summarized 86 follows: 1. During the past twelve years, Japan has continuously accumulated stockpiles of combat armament, Wastage of these supplies has been relatively small even since December 7, 1941. Thus, Japan has on hand the equipment to support offensive ac- tion on & large scale for a considerable period of time. Japan's capacity to produce war materials, however, is less than that of the chief belligerents - Britain, Russia, the United States, and Germany. 2. Japan now holds the raw materials required to expand its productive system, but lacks the shipping and processing capacity to exploit these resources fully, Japan is handicapped by (a) deprivation of former imports of processed materials, (b) certain technological limitations, and (c) the growing losses and attrition imposed by the war. These handicaps limit the rate at which Japan can increase its industrial processing capacity, including that required for turning out ships and combat armament. Thus, Japan's economic difficulties are not due to an inability to maintain current levels of production, but rather to the limitations Japan faces in its effort to achieve. .a large-scale expansion of production. Yet such a large-scale expansion is required if Japan is to retain its present relative position in the face of the growing power of the United Nations. 3. The ability of Japan to keep pace with the growing strength of the United Nations, depends mainly on the intensity of the military and naval interference which is exerted against Japan. The extent of such interference will determine whether Japan can (a) continue to build up armament reserves; and (b) proceed with the organization of basic industrial capacity in order to secure a large-soale expansion of production. To date the greatest single retarding factor in the latter respect has been the sinking of Japanese merchant shipping. Sinkings have exceeded launchings during the past six months. To meet this threat, Japan has already undertaken a program which will rapidly increase the tonnage under construction. In spite of this pro- gram, if the current rate of sinkings is maintained, Japan's shipping position will deteriorate throughout the remainder of 1943, but launchings will approximately equal sinkings by the end of the year. 4. Because of (a) the lack of sufficient industrial equip- mont, (b) the threat to Japanese shipping, (c) the expanding power Regraded Unclassified 85 Table of Contents of the United Nations, and (d) the possibility of the defect of Gormany, Japan has docidod to contor attention on the resources Page of the Inner Zono (Japan Propor, Koroa, Manchuria, North China and Formose) rather than on the resources of the Outer Zono I. TRANSPORTATION: (Control China and the southorn regions). Cortain dovolopments - notably of oil - are nocessarily boing carried out in the south, 1. Summary 1 But it 500ms cloar that Japan is putting osido the opportunity 2. Shipping 1,3 for Inrgo-seclo development of the nowly conquored aroas in 3. Land Transport 4,8 order to concontrato on intonsivo dovelopment in the Innor Zone, oven though this choice involvos an oconomic sccrifico. II. RAW MATERIALS AND BASIC INDUSTRIES The greater the intonsity of United Nations' notion in the 1. 011 8,14 For Enst and the wonker the position of Gormany, the groater 2. Stael 14,21 will be the trond toward (a) a stockpiling of stratogic materials 3. Other Raw Materials 22,27 from tho Outor Zono to strongthon the Innor Zono and (b) tho development of those industrial plants and those row matorials III. ELECTRIC POWER which will provide the highost possible nonsure of solf- sufficiency within tho Inner Zono. Loss of the Outor Zono 1. Surmary 28 would deprivo Japan of a major source of rur matorials; but if 2. Capacity 28 this loss wore postponed until 1944 or Intor, the stockpiling 3. Powor Available During 1943 28,31 program, combined with expansion of Innor Zono capacity, would 4. Pover Supply Aross 32 have ronched o stage adoqunto to cover sovprol years' requiro- 5. Prospective Incroases in 1943 32,33 monts. IV. CONSUMER GOODS PRODUCTION The grontost wookness of the Inner Zono lics in its con- 1) contrated industrial troos, both in Jopan Propor and Manchuris, 1, Food 35,40 2. Clothing 40,41 The industrial contors of Japan Propor, in particular, are highly inflammable, A program for the docontralization of 3. Fuel 41,42 4. Local Transportation 42 cortain stratogic industries; undor way for somo timo past and 5. Housing 42,43 now boing accolorated, will partially oliminato this wonkness. 6, Standard of Living and Industrial Rotontion of the principal arcas of the Innor Zono - and Efficiency 43 continued development of their resources - is indisponsable to 7. Black Markots 43,14 the Japenoso ver oconomy. 8. Conversion of Consumer Goods Industry to War Production 44 V. COMBAT ARMAMENT 1. Summary 45 2. Tochnical Efficioncy and its Effect on the Production of Combat Armanont 45,55 3. Aircraft Production in 1942 and 1943 55,58 4. Tanks and Trucks 58,61 5. Ordnance 62,63 VI. MANPOWER 65 1. Summary 2. Industrial Requirements 65,67 68 3. Military Requiroments 68 4. Labor Reserves 5. Industrial Expansion 68,69 6. Training Programs and Labor Mobilization 69,70 Regraded Unclassified 36 Table of Contonts (Cont'd) Pago VII. PROBLEMS OF WARTINS ECONOMIC ADMINISTRATION 1. Summary 71 2. Naturo of the Administrative Struggle 71,72 3. Packground of the Crisis 72,73 4. Administrative Differentiation: Outer Zone versus Innor Zono 73,74 5. Administrative Problems on the Home Front 74,79 Control Associations 74,76 Planning Bourd 76,77 Diroct Government Control of War Industries 77,79 The Japanose stoppod publishing data on most of the subjects treated in this row VIII. FACTORS AFFECTING JAPAN'S FUTURE ECONOMIC port soveral years ago, Japanoso periodicals, POLICIES such as the Oriontal Economist, have supplied somo matorials as late as 1940-1941. However, 1. Economic Factors Affocting Offonsive the bulk of the factual data was dorived from Policios 80,81 specialized studies propared by BEW analysts 2. Continental and Island Air Bason to over the past year. Consolidato Japan's Economic Position 82 D 3. The Prospective Increase in Japan'a Economic Potential during 1943 82 4. The Economic Position of Japan as Compared with Other Major Powers 52,84 The data on oil contained in this roport IX. THE CONCENTRATION OF JAPAN'S ECONOMIC POTENTIAL have boon furnished by the Potroloum Division. IN THE INTER ZONE 1, Processing Capacity 05,06 2. Iron and Stool 86,87 3. Coal 87 4. Other Economic Potontial 88 5. Stockpiling of Row Matorials from Innor Zono 89,91 I. APPENDIX (Charts) Administrative Organization of Japan's War- Timo Economy Production of Forrous Raw Matorials, Iron and Stool in Japan and Occupied /reas Japanose Requirements for, and Production of Notals Available to the Japanoso, by Producing Regions, 1943 Regraded Unclassified 87 I. TRANSPORTATION Summary Shipping is the most important limitation on Japan's program for economic expansion. It is the only aspect of Japan's economy which has as yet been significantly impaired by the United Nations. Japanese shipbuilding will expand throughout the current year, but if the present rate of sinkings of Japanese ships continues, the rates of new construction and sinkings will not balance until the end of 1943. Rail transport is also under strain in all parts of Japan's new empire. Additional economic expansion in Japan Proper will require that new rolling stock, replacements, and repairs be increased before the end of 1943, Japan's hope of building & continental rail line from Manchuria to Singapore is not likely to be realized this year due to Chinese interference; the rail lines connecting Indo-China, Thailand and Burna are going forward and will be completed unless halted by action of the United Nations. An in the case of all other belligerent countries, transpor- tation is a most important present and prospective economic weaknoss of Japan, Shipping Shipping, A Basic Weakness. Japan must nove by sea a major percentage of iron oro, coking coal, and bauxite for munitions out- put, over sixty percent of its petroleum and about seventy percent of the coal for power production. Japan must also nove troops, munitions, and supplies to the Greater East Asia sphore fighting fronts, largely by water. To meet the growing strain on shipping, Japan is (1) shifting coastwise cargo movements in Japan, Manchuria and China to rail, and extonding rail linos in Indo-China, Thailand and Burma (these lines are as yet incomplete); (2) increasing production of minerals in Japan Proper and in nearby areas of the mainland to replace supplies formorly obtained from the southern regions; (3) increasing the self-sufficiency of North China, Manchuris, and Koroa (which will not only lossen the depondency on supplios from Japan Proper, but will also reduce the volume of tonnago required from Southoast Asia); (4) building up heavy in- dustry on the Asiatic mainland to savo the shipping of iron ore and coal to Japan; (5) devoloping local self-sufficiency, sepecially with respect to foodstuffs and other civilian noods throughout the ontire Greater East Asia Sphore, including Japan; (6) adopting a program for rapid oxpansion of shipbuilding during the current year, of steel and wooden ships; (7) converting wooden craft to the carriage of basio com- moditios, and (8) such other measures as building up electric power lines which save shipmente of coal, using rafts to transport timbor, accelerating timber outting and charcoal building in Honshu to roduce waterborne novement, and drastic limiting of passenger car services to allow railways to earry more bulk in freight. Regraded Unclassified 88 -)- -2- Shipping Noods in 1943. Of the 4,920,000 gross tons In spite of those dévelopments present tonnago is quite available at the and of 1942, about 1,250,000 gross tons are inadequato for the full exploitation of the aroas under Japan's noodod to sorvico army and navy neods in the South Pacific and control. By the end of 1942 Japon TOS barely able to artisfy Southoantern Asia. This leaves 3,670,000 gross tons available minimum basic requiroments. for ossential non-military requirements. Japan's needs are estimated to be: It should bo notod, howover, that if the southern cross TO sovered from Japan 30 that Japanoso shipping is driven Southeast Acia, Philippines, N.E.I. book to the roletively short linos of communication betwoon Region 900,000 gross tons Jepon, Koroa, Manchuric and China, the present available ton- Japan Coastal Services 1,500,000 gross tons nago would be ontirely adequato providing it were not subjected Manchuria, Korea, and China 1,500,000 gross tons to hoovier losses. Total estimated requirements 3,900,000 gross tons The Shipping Position on January 1, 1943. On January 1, 1943, it is ustimeted that the total tonnago avoilable for Thus by the end of 1942 Japan could not fully met its military and commorcial transport vos about 5,000,000 gross nseds from the steamers then on hand and was forced to utilize tone, which the c. docreaso of somo 500,000 (TOSS tons from the wooden tonnage. It is estimated that about 600,000 gross tons amount oveilable on July 1, 1942. These figuros may bc broken of wooden ships, equivalent in carrying capacity to some 200,000 tono of steel vessels, were pressed into service. Some further down as follows: anounts have since been added, but the possibilities of finding additional amounts are now relatively small. Japan's Shipping Tonnicgo Position (gross tons) Shipping Position on July 1,1943. New construction of steel ships aims at 1,000,000 gross tons for the Japanese fiscal Tonnago ovailable Docomber 1, 1941 (vessols of year 1942/1943, but actual construction during 1943 is likely to 100 gross or over, including those under be only about 630,000 gross tons, To this figure should be added Ohinoso and Monchurian flags but excluding an increase of perhaps as much as 00,000 gross tons salvaged. fishing craft, bergos, ctc.) 6,700,000 Important additions of wooden tonnage should be made through the Now Construction to January 1, 1943 320,000 new construction program after the middle of the year, but totals Axis and Frunch tonnago available 250,000 to date have been small, An a rough estimate, Japan may add Alliod tonnago captured 250,000 about 300,000 gross tons to its shipping floot in the first half Vossols reised and repoired 60,000 of 1943 while suffering a loss of about 600,000 gross tons. The apparent gap can be covered in good part by the various expedients Total merchant morino bofore subtracting listed on page one, and as shipbuilding should increase rapidly losses 7,600,000 in the latter part of 1943 1t in possible that Japanese shipping will be little worse off at the end of the year than it is now. Vesscls sunk by Alliod action 1,600,000 Ordinary marino losses 70,000 In order to achieve this balance, Japan is supplementing Vessels scriously damaged in the wer 450,000 its output of steel vessels by an extensive program for the con- Vosscle loid up for ordinary ropeirs 400,000 struction of wooden vessels in all areas under Japanese control Vossols onptured which do not ndd to Japanese in which such construction is possible. Large timber resources shipping potontial (1.0. in casontial local of good quality are available for this purpose. Although little trado, otc.) 80,000 can be expected from this source in the next for months, by the Forries, flocting connories, etc., not suitable end of 1943 it appears probable that large numbers of new wooden for ordinary commorcial uso 80,000 vessele (most of then sailing vessels) will be operating along the Asiatio coast and in the coastal trade of Japan Proper, It Total lossos including vessols is impossible to make any close optimate as to the tonnage that unovailable for 180 2,600,000 can be turned out in this way but between 400,000 and 650,000 tons of new wooden construction appears probable. This would be Tonnago available January 1, 1943 for militory equivalent to 130,000-210,000 tons of steel vessels. and cesential commercial uso 4,920,000 Regraded Unclassified 89 -4- -5- The Plan for a Continental Rail Line. There is clear Land Transportation evidence that Japan has been thinking in terms of the possibility of developing a continental rail line extending from Manchuria Jocan Proper. Because of the mountainous character of to Singapore. Assuming the successful seizure and protection Japan, very few rivers can be used for trunsport; nor 1a there of sections of this overland route still in Chinese hands it a sufficient number of overland highways or trucks to make would be possible for Japan to complete, within one to two years, overland trucking of significance, except as feeders to rail the gape in a rail line extending from Manchuria in the north terminals. Electric and steam rail lines, therefore, carry to Singapore and Burma in the south. There would be only one virtually all of the overland passenger and freight in Japan. transshipping point on the line: at the Indo-Chine border where By far the most important single line extends from Tokyo by the standing-gaugo lines of China, Manchuria and Korea would way of Nagoya, Ocaka, and Kobe to Shimonoseki and thence by a join the mater-gauge railways of southeastern Asia. The four recently opened tunnel to the island of Kyushu through Moj1 gaps in the proposed system at present are (1) about 125-200 and Fukuoka to Nugasaki, If this line were crippled at any point miles of new track which are needed to connect Burma and It would seriously hamper Japan's war effort. Thailand; (2) completion of a bridge across the Mekong River; (3) the 300 mile section between Dong Dang, Indo-China, and Practically all of the lines in Japan Proper are narrow- Liuchou, China which is already partly graded; and (4) the gauge (316") which restricts both speed and tonnage, dismantled nections of the Hangchow-Changsha or Hankow-Chang- chow lines (in areas now under Chinese control), Completion Present Condition of Equipment. There has been a tendency of this system would offer two important advantages: to neglect rail repair and replacements in favor of war produc- tion since July 1937, This fact, coupled with the great in- (1) It would be possible to continue to provide in- crease in traffic due to war operations, has resulted in a portant supplies to far distant outposts (though in con- steady deterioration of equipment. The present rail facilities siderably reduced volume) even if the Japanese sea lanes of Japan are adoquate for minimum needs but cannot be expanded were dominated by the United Nations, except at is considerable cost to war production. At present Japan, like Cormany, must give priority to rail facilities if (2) It would provide B flexible system of land transport weaknesses, that are reaching a critical stage, are to be over- for servicing B, series of air bases extending down the Asiatic come, There has been an increase in the number of locomotives coast for the purpose of protocting sea borne traffic by land- and freight cars since 1937, as the attached tables indicate, based air power, but the current program for transforring more coastal shipping tonnago to railroads will demand a continued expansion of rail It does not appear probable that any of the Chinese section facilities through 1943. can be completed during 1943. Continental Rail Facilities Under Japanese Control, The New Lines in Southeast Asia. Jupan 1s in a better posi- rail lines of Korea, Manchuria and North China are the most in- tion, however, to complete within G. year a meter-gauge rail portant in the Japanese occupied areas. These areas, together system covering Indo-China, Thailand, Burma and Malaya which with Japan Proper, contain over 60 percent of the total rail can offer an alternative to sea transport in the area most transport under Japanese control. Rail lines in Korea and distant from Japan Proper. Manchuria, long under Japanese management, are the most effi- ciently operated of the continental rail lines in "Greater East Reports indicate that Japan 1s now constructing a line Asia". Hero again, however, (1) the emphasis on war production to complete the 125 to 200 mile gap between Burms and Thailand. at the exponse of maintenance and repair, (2) the heavy domands The 140-185 mile gap between Saigon and Pnon Penh had probably mado upon those linos under the stress of war, (3) the possible been closed by the end of 1942, with the exception of a bridge need for shifting rolling stock to China (due to the war and over the Mekong River itself, by laying light track over a good guarilla warfare), and (4) the considerable expansion of rail highway between the two cities. This would mean that supplies lines without a proportionate expansion of rolling stock have could be transferred to rail lines in nortbern Indo-China at combined to cruate a situation in which losses through fighting Haiphong for transport to Japaness troops in any conter in South- or bombing could quickly become serious despito the adoquate east Asia, The volume would not be large, possibly only 100,000 distribution of rail lines in the area, tons a month each way, but the advantages would be considerable, The transfer of vital minerals and foodstuffs from Burna und Thailand overland to Saigon and Haiphong greatly reduces the strain on shipping in the hasardous waters around the Malay Peninsula. Regraded Unclassified TABLE 1 Railroad Transportation (Tentative Estimates for 1943) Region Number of Gauge lhumber Number Number of Metric Miles Incomotives Freight Cars Fassenger Tonnage Cars Capacity (in millions) Japan 15,475 3'6" 6,000 110,000 16,000 170 4,235 (1937) 73,184 (1937) 11,209 (1937) 122 (1937) Korea 2,850 4'8}" 650 7,580 2,430 30 315 (1937) 3,444 (1937) 754 (1937) Formosa 2,225 Narrow 400 Manchuria 6,875 4'8" 2,850 39,200 3,250 72 Occupied China a/5,200 4'8'" 1,062 14,230 980 23 Indo-China 1,800 meter (main lines) 235 3,650 400 1.268 Theiland 2,075 meter 277 3,833 (1939)c/ 370 1.667 Malaya 1,068 meter 173 5,150 500 1.8 (long tons) Burma 2,058 neter .113 9,602 1,156 4 Philippines 850 (Gov't) Harrow 483 4,400 1.547 2,300 Manila Ry. only Netherlands East Indies 2,850 Standard 1,278 27,140 3,614 10.5 Lines and equipment under Japanese control. b Estimates of civilians goods only moved in North China. It is reported that Japan provided Thailand with 90 "now" locomotives and 300 freight cars. TABLE 2 Automotivo Transportation (Tentativo Estimatos) Number of Trucks Number of Buses Number of Passenger Rogion Miles of Auto Roads (Non-Hilitary) Cars Japan 5;390 (concrote) 107;500 (gravol) 50,000 29,800 106,000 460,000 (dirt) Koron 19,155 milos 3,500 2,500 2,250 '100 meadam 10;000 improved 1,242 1,368 1,390 Formosa 6;400 all year Manchuria 23,750 sonsonal uso 7,650 3,400 3,600 only Occupied China (no data) 3;450 Asphalt Indo-China 13,750 Gravol 4,866 2,000 18,045 1;800 Macadam 2,500 Gravel and 5,150 770 6,000 Thailand unimproved 5;800 Improved 12,800 Dirt and un- 9,841 2,224 32,873 Malaya improved 4;400 Main Burma 2,800 Rural 3,004 4,330 13,875 2;900 Improved 9,000 Unimproved 15,664 4,339 33,895 Philippinos Bocause of fuel shortage, number in actual use probably not over 25,000 of Figures to be supplied later. Regraded Unclassified 91 -8- -9- II. RAW MATERIAIS AND BASIC INDUSTRIES 3. Technical Problems. Of these, the most serious is in the manufacture of high-grade lubricants, Summary Crude Oil Production. Specific information on Japanese Generally speaking Japan's raw materials supplies far ex- cil-producing activities in the East Indies subsequent to the ceed the capacity of the shipping and manufacturing industries occupation is still lacking. Estimates by oil experts, however, to develop them, The supply of fibers, which is partially indicate that Japanese production in the East Indies has already deficient, is an exception to this statement. reached substantial amounts and should expand steadily in 1943. These estimates are based on the known potentialities of the East Steel production has been given a high priority for 1943 Indian oil fields, the extent of the demolition, and the drilling and will probably expand by about ten percent during the current equipment available to the Japanese. They show that crude oil year. Rolling mill capacity in the bottleneck in this industry. production in the East Indies may be expected to increase from 011 production will probably expand more rapidly this year not on annual raté of 39,500,000 barrels on November 1, 1942 to only because of the reopening of oil producing areas in the 60,000,000 barrels on July 1, 1943. The following tables, Netherlands Indies but also because of the expansion of synthetic giving a detailed summary of Japan's over-all position in oil plants in Japan and Manchuria, essential potroleum products for 1943, are based on the above rates of East Indian oil production. Insofar as shipping will permit, an increasing trend to- ward the stockpiling of strategic raw materials from South- TABLE 3 eastern Asia in Japan Proper may be expected, Japan's Estimated Oil Position in 1943 011 (In 1,000 barrels) Estimated production and consumption of essential petro- leum products by Japan during 1943 indicate a comfortable sur- Stocks on plus, The figures (comprising aviation gasoline, motor gasoline, Hand 1/1/43 fuel oils and lubricating oils) may be summarized ns follows: (Including New Supplies Total Consumption Stocks on coptured All sources Supplies (Total economy) Hand stocks) 1943 1943 1943 1/1/44 (Barrels) Product Total production High Octane 11,600 3,660 15,260 3,660 11,600 68,110,000 Gesoline Total consumption 50,660,000 Surplus 17,450,000 Motor Gesoline 6,000 21,020 27,020 5,800 21,220 Actual or prospective difficulties, listed below, considerably modify this fevorable picture. Total Gasoline 17,600 24,680 42,280 9,460 32,820 1. Transport. It is estimated that present tanker Fuel 011s 25,700 41,950 67,650 39,000 28,650 tonnage is barely able to handle the essential requirements indicated by the above consumption figure. The present rate of Lubricoting 011s 1,480 4,430 2,200 2,230 2,950 sinkings is also thought to be higher than the ostimated rate of new tanker construction and if continued will lead to a very critical situation during 1943, Total Products 46,250 68,110 114,360 50,660 63,700 Crude Oil 2. Storage. Extensive demolition of storage tanks in Equivalent 51,150 75,500 126,650 56,000 70,650 the East Indies area was effected. This factor might impose further limitations on the production figure given above, Regraded Unclassified 92 -10- -11- TABLE 4 Barrels Japan's Entimated 011 Production by Sources, 1943 Estimated East Indies production, 1943 54,700,000 (In 1,000 barrels) Natural fuel oil 12,036,000 Quantity to be refined 42,664,000 Jepan & Japan, Koron, Estimated 1943 refinery Product Formosa Kerafuto Monchuria Manchuria East Indies output in East Indies: Barrels (crudo) (crude) (shalo oil) (synthetic) (crude) Totals Pladjoe refinery 15,000,000 High Dotone Lutong refinery 7,200,000 Gasoline - - 360 Belikpapan refinery 3,500,000 400 2,900 3,600 Total 25,700,000 Motor Gesoline 520 - 1,200 6,300 13,000 21,020 East Indian crude oil to be 920 - 1,200 6,660 15,900 refined, 1943 42,664,000 Total Gesoline 24,680 To be refined in the N.R.I. 25,700,000 East Indian arude to be refined 16,964,000 Fuel 011n 1,150 550 1,750 5,500 33,000 41,950 in Japan Lubricating 011s 530 - 500 1,480 Refinery capacity in Japen 34,000,000 200 - Required for local production 7,000,000 Total Products 2,600 750 2,950 12,160 49,400 60,110 Available refinery capacity in Japan for imported crudes 27,000,000 Crude 011 Equivalent 2,850 900 3,500 East Indian crudo to be rofined 13,300 54,700 75,500 k 16,964,000 in Japan a Includes substitute products at follo ing equivalents (in barrels); coke Apparent excess refinery capacity in Japan during 1943 10,036,000 and gas (1,410,000); benzol (1,000,000); alcohol (500,000). Includes 250,000 barrols of substituto lubricating oils. The Pladjoe refinery is the crucial factor in the above Refining Copocity. The abovo production ostimatos assumo tabulation. Reports on the current status of this refinery are that Japan has sufficient refinery capacity to process the large conflicting. To meet the production quotas assigned (Tobles 3 anticipated East Indian output of crude potroloum. Prosent and 4), the Pladjoo refinery would have to have reached & pro- catimates indicate that this capacity is ovoilable and in opern- 1943 and a rate of 18,000,000 berrols by July 1943. By the cessing rate of some 12,000,000 barrols por year as of January tion with a considerable excess crpacity in Jopen not in uso, The ostimatos are os follows: latter date the Japaneso will have had some 15 months in which to completely rehobilitato the refinery. Denolition at Belikpepon end Lutong is reported to have boon completo, but these plants, process the above total in 1943. Under war conditions very which simple too, are now considered to be in operation at rates which will refining oquipment can suffice to process the fuel oils form the largest part of total consumption. Regraded Unclassified 33 -13- -12- TABLE 5 In fuel oils, Japan will be entirely dependent on East Indies production by March 1, 1943, except for the limited Japan's Estimated Consumption of 011 Products by Uses, 1943 amounts produced at home. For the supply of those bunker and (In 1,000 borrols) Dioscl oils, a large East Indian output of the scale here anticipated is essential. Morchant In gasoline, Japan is woll fortified by large stockpiles Product Navy Army Marine Civilian Total of motor and avintion gas accumulated bofore the war started, If necessary, production of high octane gasoline can be in- High Octano Gasolino 1,520 2,140 - - 3,660 creased by hydrogonation of part of her excess stocks of motor gosoline. The Pladjoe refinery, moreover, had a capacity of Motor Gosoline - 4,880 - 1,000 5,000 625,000 barrols por your of 100 octnno fuel, Capacity of this plant for 92 octano fuel, on which Japanese planes are reported Total Gasolino 1,520 6,940 - 1,000 9,460 to operate, would be rated at about 780,000 berrels a your. Fuel Oila 27,000 - 7,000 5,000 39,000 In high-grodo lubricuting oils, Japan's position is less strong. The stockpile hold at the outset of the war is not Lubricating 011s 870 470 300 560 2,200 sufficient to cover the noods of a protracted conflict. It 1a not cortain that Japan possesses the specialized knowlodge Totals 29,390 7,410 7,300 6,560 50,660 necded to mako the high-grado oils required for evintion and motorized equipment, although German tochnicians may have filled this gop. East Indian crudos are not vory adoptable to the moking of lubricants; in normal times, virtually no lubricating According to these estimatos, Japan would be expected to uso oils were made from these crudes. It would soem therefore that 50,660,000 barrels of gnsolines and oils in order to satisfy Japan will have to depend heavily on its hydrogenation equipment full requirements during 1943. to supply high-grade lubricents in the amounts required for a long wor, or else change to the use of inferior lubricants with The effectivo tonnago capacity of the Japanese tankor consequent inforior performances. The best clue to this potential floet during 1943 may bo roughly ostimated at 350,000 tons. wookness should be supplied by analyses of lubricant samples This ostimato allow for sinkings and damago, replacoments, and from captured enemy equipment. assignment of 12 tankors to the activo floots. On the basis of 12 voyages por year por ship, the offective carrying copacity Consumption and Transport. Assuming that production goals would be 4,200,000 tons, or approximately 30,000,000 barrols. were not in accordance with the above astimates, Japan would still be faced with a formidable transport problem. Large Tho basic transportation problem is opproximately ns amounts of orude oil, aggregating nearly 17,000,000 barrels in follows: 1943, must be carried from the East Indies to Japan. for ro- fining. In addition, considerable quantities of the gasolines 1. The movement of the ostimated 17,000,000 barrols of and fuel oils used by the Japanese navy, army and merchant marine crudo from the Indies to Japan for refining; must be shipped from Japan or the East Indies to the fighting fronts. Table 5 shows an estimated breakdown of consumption 2. Movoment of oil products from refining conters to by principal usos, various points of consumption in the Japon, Koron, Manchuria, North and Control China area; 3. Supply of floot units and fighting forces in the southwost Pocific and other outlying bases and military. aroas from the production conture in the East Indics; and 4. To fill other minor and local noods in the Occupied Arcas. Regraded Unclassified 94 -14- -15- It is now estimated that Japan(s existing tanker tonnage is just about able to meet these basic or essential require- coking coal and ferro-alloys must be obtained from sources ments, and not more. There had been carlier reports that the outside Japan proper, Cargo vessels were available, howover, tanker fleet vas not fully employed, suggesting that the move- in adequate volume for these shipments at the beginning of ments of oil were not cecurring on the scule required by the 1943. Rolling mill capacity is, therefore, taken as the above consumption estimatos. However, present indications are primary limiting factor in the following detailed ostimate of that the full tonnage is being used, and it is further thought basic capacity and output in the industry: that if tanker 105H08 continuo at the present rate Japan's oil consumption will be limited by a tanker deficiency in 1943. TABLE 6 Stool Estimate of Japan's Basic Stool Capacity and Output, 1943 Japan's Stool Position. During 1942, Japan's steel pro- Utilized Capacity duction reached an estimated rate of 8,750,000 ingot tons and (metric tons) 6,300,000 metric tons of open-hearth and electric furnace steel for finished products. This output is not 50 small as to pre- 1. Iron Ore 15,750,000 19,250,000 vent Japan from engaging in extensive military operations, but it in small enough to restrict over-all ability of the Japanese 2. Metallic Iron in Oro (av. 45-1/2 to produce vessels, munitions and other heavy equipment and to percent of Item 1) 7,073,000 8,760,000 expand production facilities, 3. 5 percent Loss in Concentrating 353,000 Production rates and capacities attained during 1942 may be estimated as follows: 4. Total Fe from Iron Ore 6,720,000 Production Capacity 5. Sponge Iron (For use in electric furnaces - see item 14) - 400,000 400,000 (metric tons) Pig Iron 6,160,000 8,269,000 6. Blast Furnace (In terms of pig Gross Stool Ingote 8,750,000 9,526,000 iron product) 6,320,000 Semi-Finished Steel, Total 6,300,000 6,300,000 7, Coke Charge in Blast Furnaces 6,320,000 11,715,000 Alloy Steols 1,200,000 Cast Iron 800,000 800,000 E, Blest Furneco Losses (2-1/2 percent) - 160,000 The primary limitation on Japan's steel output is pro- ceasing capacity. Particularly serious is the lack of rolling 9. Iron Content of Pic Iron Total 6,160,000 8,269,000 mill capacity, which holds the production of finished steel below the point at which it could be maintained by current open 10, Foundry Pic Iron (For iron cast- hearth and oloctric furnace capacity and by blost furnace ings--see item B below) - 1,000,000 capacity. The latter in the order named, are secondary bottle- necks which must be removed to pormit the further expansion 11. Pig Iron Available for Stoel Making 5,160,000 of the iron and stool industry 08 projected. Raw matorials of all ossential types are available to Japan in ample quantities 12, Scrap Supply to Upon Hearth for present noeds and in sufficiont amounts to pormit on increase Purnaces (40 percent mix) + 3,440,000 of 25 percent in iron and stool output. Manpower is adequato for existing neods and for a moderate expansion, although any 13, Total Fe in Open Hearth Furnace considerable plant expansion would probably have to overcomo n Charge 8,600,000 shortngo of skillod labor and tochnicians, Transportation ro- presents a potential wonkness, Largo amounts of iron oro, 14. Total Fe in Electric Furnace Charge (from item 5) 400,000 Regraded Unclassified 95 -16- -17- TABLE 6 (Cont'd) in the abovo tablo will be available to Japan. This addition will account for nowly-commissioned mills, for small but un- Utilized Capacity known capacity in Japanese Navy yards, and for the increased (metric tons) effectiveness brought about by strict rationalization of pro- duction, giving a total rolling-mill and steel-casting 15. Total Fe Charged to Steel Furnaces 9,000,000 capacity of about 7,000,000 netric tons, To supply its roll- ing mills and foundries operating at this rate, Japan would 16, Loss Melting Losses (Approx. 3 require an open-hearth and electric furnace capacity of percent) - 250,000 9,722,222 metrio tons of gross stoel ingots, a figure slightly above estimated ingot capacity in 1942, which is placed at 17. Gross Steel Ingots (Open-hearth 9,526,000 metric tons. By expanding all of the foregoing to and electric) 8,750,000 9,526,000 the point where present blast furnace capacity could be used, Japan could produce almost 12,000,000 tons of gross stool in- 18. Less Cropping Losses (20 percent) -1,750,000 gots and about 8,500,000 tons of steel for finished articles. The following table shows dotails of empacity and projected 19. Gross Open-hearth end Electric construction: Furnace for Finishing Stoel TABLE 7 Processea (Rolling Nill Steel 6,700,000) (Cast Steol 300,000) 7,000,000 Iron and Stool Furnaces and Primary Rolling Millo Summary of Copacities 20, Loss in Finishing (10 percent) - 700,000 21. Opon-Hearth and Eloctric Furnaco Totals as As scheduled An plannod Steel for Finished Products 6,300,000 6,300,000 of 1937 through 1941 to 1943-44 (motric tona per year) Recopitulation A. Total Stool (shects, platos, shapes, Blost Furnace Capacity (P1g Iron) 3,332,000 8,269,000 9,849,000 rods, castings, etc.) for Uso in Manufacturing Finished Articles 6,300,000 Steel Furnace Capacity (Ingota) 7,068,000 9,526,000 10,766,000 B. Total Cast Iron for Use in Finished Articles (from Itom 10 above, allowing 20 percont loss) + 800,000 800,000 Primary Rolling Capacity (Slabs, billets, C. Total Stool and Iron 7,100,000 blooms) 4,930,000 6,030,000 7,446,000 Coke Oven Capacity During 1943, rolling mill capacity will continue to be the (Coke) ---- 14,519,000 ---- principal limitation ori Japan's stool production. Schoduled construction calls-for the completion of an additional 1,400,000 tons of rolling mill capacity up to 1943-44. This Raw material supplics now under Japanese control are expansion will necessarily be attained at a slow rate and there more than adoquate to maintain production of 6,300,000 tona of ere dofinito indications that the construction of now rolling finished steol and 800,000 tons of cast iron. For the essential mill capacity has lagged behind other phases of the Japanese raw materials, Japan's position is estimated as follows: iron and stool expansion program. In 1943, perhaps an additional 700,000 tons of roiling mill capacity beyond the figuro shown Regraded Unclassified -19- 36 -10- 1, Iron Ore, Japan will utilize only about 7,100,000 tons of iron (metallic content) of the 3,760,000 available in the next twelve months, The latter figure could be increased still fur- Remarks and qualifications ther by more intensive exploitation of Philippine and Malayan iron ore reserves. Production can be expanded 2. Scrap. Most of the 3,440,000 tons required will be obtained from mill croppings and recovery if needed. Production is potentially far in excess of needs but 93 percent comes from the Philippines Supplies are potentially ample, but if production in the Celebes (more than 70 percent of total) were interrupted, the situation would be critical. Tungsten position assured indefinitely assuming continued access to Burma, and, by smuggling and currency manipulation, to Free China. Since the tungston supply is amplo, the molybdenum situation becomes unim- portant, (2,650,000), final handling of steel products (630,000), conquered areas and stockpiles (160,000). 3. Coking Coal. Total coke oven facilities under Japanese control would supply more than 14,500,000 tons of coke, of which an estimated 80 percent, Japan's Estimated Supply Position with Respect to Ferro-Alloys, 1943 Appraisal of Japanese position Stable Improving but not secure Improving but not secure Improving Strong or about 11,715,000 tons, would be suitable and available for pig iron production. This much coke would support en output of 12,400,000 metric tons of finished steel. 4. Limestone and 6leansing Agents. Adequate supplies (Reference is to the entire area now controlled by Japan) Estimated stocks on hand 1/1/44 291;500- 327,500 43;000- 68,000 6,500 18,800 potential 2,210 of ferro-manganese and ferro-silicon, and apparently of fluoraper are available. 5. Ferro-alloy Ores. Supplies and stockpiles are TABLE 8 sufficient to maintain a 20 percent alloy-steel ratio for all present and projected levels of Estimated Consumption 1943 70;000- 100,000 15;000- 30,000 10,000 6,000 1007 steel production. Details of Japan's position in this crucial field of the alloys are given in the following table: Estimated New Supplies 1943 91,500 43,000 potential 12,500 14,800 potential 150 Estimated stocks on hand 1/1/43 300,000 or less 30;000- 40,000 4,000 10,000 or moro 2,460 or less Metal Manganese (metric tons m) Chromium (metric tons Cr) Mickel (metric tons III) Tungston (metric tons 60% Wo3) Molybdenum (motric tons Mo) Regraded Unclassified -20- 97 -21- Since large amounts of iron ore, pie iron and coking Romarks and qualifications Othor forro-alloys can sub- stituté. All but about 16 m.t. will como from the Bawdwin Minos which are not secure from damage. Productivo capacity poten- tially ample and stocks on hand equal at least 4 years' supply. Tungsten coal, and virtually all the ferro-alloy ares, have to be brought to Japan Proper by sea routes, cocan transportation can substitute. is a critical factor in maintaining the levels of steel pro- duction already reached, If southern ores are to be fully utilized, estimated tonnagos to be carried for current levels of production are as given in the following tables. Cargo vessols currently available are believed more than adequate to handle these tonnages. Further substantial losses of merchant shipping, however, would make it necessary for Japan either to limit very strictly its other uses of shipping or to increase Appraisal of Japanese Position iron ore production in the Inner Zone and Central China. Insocuro, but unime portant Improving TABLE 9 Shipments of Iron Ore and Pig Iron to Japan (in motric tons) TABLE 8 (Continued) Japan's Estimated Forro-Alloys Supply Position, 1943 Estimated on hand From Ore Oro Concentratos Pig Iron stocks 1/1/44 16- 166 900 Malaya 1,400,000 Philippines 1,300,000 Yangtze Valley 600,000 100,000 Consumption North China 500,000 Estimated Manchuria 260,000 1,000,000 1943 600,000 100 150 Korea 2,000,000 Totals 4,060,000 2,000,000 1,700,000 , Shipments of Coking Coal for All Purposes Within the Empire Estimated New Supplios 1943 116- From To Motric Tona 266 400 North China Japan 4,500,000-5,000,000 Karafuto Japan 1,500,000-2,000,000 North China Manchuria and Korea 1,000,000 Estimated on hand In manu- 7,000,000-3,000,000 stocks 1/1/43 factures only At least 650 Recapitulation Commodity Tonnage Shiplonds (5,000 tons average) Iron ore and pig iron 7,760,000 1,552 .7,000,000-8,000,000 1,400-1,600 (motric tons Vanadium (Motric tons Coking cool Motal 108 Ferro-clloys 14,760,000-15,760,000 3,060-3,260 Cobalt Co) (A Regraded Unclassified -23- 98 -22- Other RAW Materials Estimates in the accompanying chart which pictures Japan's Inadequate supplics No known additional sources available Jute Cotton Wool, Wood pulp for staple fiber and rayon raw materials position are made with reference to the needs of Japan's war economy as represented by the industries of Japan, Korea and Manchuria. In connection with foodstuffs and fertilizers, only the noeds of Japan Proper are considered, Ferro-Alloys. The ease with which ferro-alloys can be substituted for one another tends. to make Japan's general ferro-alloy situation relatively secure, There are, however, Deficioncy to be ro- lieved by smiggling Mercury Antimony Platinum Diamonds at least three weak points apart from the general factor of shipping. Some 93 percent of the chromium production available to Japan is concentrated in the Philippines; a relatively small area in the Celebes produces over 60 percent of the nickel supply; and nearly all of Japan's cobalt must come from the Bawdwin Mine in Burma. In addition, while tungsten supplies are potentially far in excess of needs, and tungsten has been Summary of Japan's Supply Position with Respect to the Basic Baw Matorials Depondent offered to Germany by Japan, the two chief sources of supply, on adequate stocks Molybdornum Copper Asbortos Free China (by emuggling), and Burma, cannot be considered entirely secure. Non-Ferrous Motals, Sources of bauxite, alunite and aluminous shale are potentially sufficient to meet the needs of Japan's capacity for producing finished aluminum. All of Japan's bauxite, however, must be shipped over long distances; 2 TABLE 10 (at the beginning of 1943) options Adocuato Supplies but dopon- dont on shipping from the Outor Zone Menganose Nickel Chromium Cobalt Bauxite aone 60 percent of the total production is concentrated in the Load Zine Coal Potrolcum Sugar Salt Abaca Sinal Bintan-Singapore area. Production of magnesium in Japan and Manchuria is potentially far in excess of needs. Production of load and sino is potentially in excess of needa, but in both cases the shipping factor is important, and the slowness with which production at the Bawdwin Mine is ap- Surplus parently being restored will probably create a tight situation. within Occu- pied Aroas available for export Although stocks of copper are sufficient for several years, assum- Tungsten Tin Sugar Abaca Sisal Kapok Silk ing a continued production of new supplies at the estimated rate for 1943, eventual depletion of the stockpile is believed to be inevitable. Aluminum is, however, a possible substitute in nany important uses provided fabricating capacity can be expanded to take care of the resulting increase in requirements. Stocks of percury are very large, but proven production Adoquato within the Inner Zono available in Japanese Asia is innignificant. Japan is known Iron oro Vanadium Alunito, etc. Magnisium Silver Arsonic Fluorspar Graphito Vica Sulphur Nitrogen to be making strenuous efforts to prevent the depletion of stocks by the development of deposits of cinnabur in North Borneo, and by smuggling from Free China and blockage running from German Europe. Japan's position with respect to both antimony and platinum is uncertain. Unless antimony can be smuggled out of Free China, supplies appear to be inadequate. Commodity group Iron ore and forro- alloys Non-forrous motals Fucls Miscollanoous non=motallic minorals Matorials basic\to Chemical Industry Raw Fibers Regraded Unclassified -24- 39 -25- Inadequate supplies No known additional sources available Organic fortilizers Nitrates Phosphates Production of plotinum in Japeneso Anic in insignificant, and Japan is thereforo clmost totally dependent on smuggling and Potash on stocks of unknown sizo, The available production of tin is many times Japan'a requirements. It is believed that Japan in making efforts to run tin through the blockade to Germany in exchange for nercury, mchine tools, and other materials in which Japan in deficient. Deficiency to be ro- lioved by smiggling Requirements for silver are highly flexible. Japan can probably use as much CB can be conveniently had, but this notal in not essential. There in a substantial production within the home islands. Japan has been a regular exporter of orsenic in the past. TABLE 10 (Continued) Summary of Japan's Supply Position with Respect to the Basic Raw Materials Miscellaneous Non-Metallic Minerals. Japanese require- Dependent on adequato stocks Vegetable tanning materials nonts for fluorspor are flexible and Japan should have no difficulty in mooting them, Production of graphite, both amorphous and crystallino, is believed ample, Production of mica in sufficient only if the Korean deposits can be made to yield enough of the high grade nocessary for critical uses. (at the beginning of 1943) If not, Japan will bo dependent on smiggling for high grade mica. Production of asbostos is only about one-fourth of needs, Mequate but dopon- from the Outor Zono but Japan has stocks sufficient for sevdral years. It is denti on shipping bolioved that Japen faces n shortago of industrial dismonds un- Leather Lumber less they can be smugglod in, but in all except a fow critical usos ortificial abrosivos probably onn be substituted, Adoquate supplies Materials Bosic to the Chemical Industry. Although salt production in Japanese-controllod areas can probably be expanded to meet Japan's needs, it is possible that at the present timo Surplus within Occu- pied Areas for export A shortage of salt due to the shipping situntion may be a somo- available what limiting factor in the production of such basic chemicals Rice Toa Fats and Bristles Quinino na caustic goda and soda nsh. In addition, Japan facos the Oils Rubber nocossity of building stocks of anlt against the possibility of c drop in production because of unfavorable wonther condi- tions, Supplies of augor for the production of alcohol are potentially ample, but in view of the shipping situation, Japan is known to be ming efforts to uso domestically ovoilable storchos for alcohol production in ordor to allovioto the Adequato within the necessity for importing sugar, There in, however, o substantial Inner Zone Soybeans sugar surplus in somo of the occupiod regions, and somo of this Fish Whoat may bo available to Gormany if it can be run through the block- ade, Sulphur production in Japan Proper in adoquate. Production of nitrogen is probably adoqunto for military uses, but c. shortago of nitrogon for fortilizers has been reported, Supplios of cool for the manufacture of colco ovon by-products are suffi- Commodity ciont assuming adoquato shipping. Staple foodstuffs Fertilizors Miscellaneous Regraded Unclassified 100 -27- -26- reported. The shortage of fertilizers will probably not be Rav Fibers. In the past a large part of silk production critical unless Japan loses access to the surpluses of foods has been for export purposes. Production has been allowed to in the regions now under its control, but Japan may be faced docline somewhat since the outbroak. of the par, There is still with the necessity of choosing between allowing home production a surplus, however, some of which will be used to substitute of food to fall to a possibly dangerously low level, and using for other textile fibers in which Japan is short, and some of shipping space that could be more economically used in trans- which may be run through the blockade to Germany. The porting food itself, to transport fortilizers from the occupied Japenese situation with regard to cotton and mool is very regions. tight, possibly critically 50, Kapok will be mixed with these fibers, and will be made to substitute to some extent in padded Miscellaneous. Supplies of bristles potentially avail= clothos, but it is believed that Japan will have serious able to Japan from Manchuria and North China are about ten times difficulty in moeting even essential consumer needs in somo of the requirements. Some my find their way through the blockade the occupied territories. Consumption of kapok mill be increased to Germany. The supply of hides and leather is probably adequate many times because kapok can be substituted partially for cotton for minimum military and essential civilian needs. Stocks of and wool, but it is believed that there will still be a surplus vegetable tanning materials are sufficient for several years but available for Axis Europe. it is believed that new supplies are not sufficient to prevent the steady deterioration of the stockpile. Supplies of chrome With the loss of imports of high grade pulp wood from tanning materials are believed to be adequate assuming continued Scondinavia, the United States and Conada, Japan will face some access to chromium in the Philippines. difficulty in making enough satisfactory rayon and staple fibers from the 10m quality wood and reed pulps how available, Of Japan now controls most of the world's production of hard cordage fibers, abaca and signl, Japan will have amplo quinine and rubber, and at least some of the surplus of these supplies, beth for itself and for possible trade with Gormany, products finds its way to German Europe through the blockade as providing they can be shipped. Of juto and other fibers suit- payment for goods needed by Japan from Germany. able for bagging, Japan may face a shortage which may impode its ability to transport such products an grains and sugar. Staple Koodstuffs, Japon is nearly sclf-sufficient in most of the foodstuffs basic to its normal dict. Soyboons and whoat, in which Japan tends to be somewhat doficient, are available in Manchurin and North China. Japan has abnormally large stocks of rico on hand at the present timo in addition to potentially very substontial imports from occupied creas. Although crop yields in Japan Proper are declining at present = as o rosult of shortages in agricultural menpower and fertilizors, it is unlikely that Japan will allow any considerable doplotion of stocks, Of ton Japan has on exportable surplus which may be avoilable for trado with Germany. Japon also has a surplus of fats and oils which likovise are desperately neoded by Gormany. Fortilizors. Japan facos a continuing shortage of almost all important fortilizers, The amount of self-supply manures is expected to doeline because of the look of experienced man- power for mking compost. Of commercial organic fortilizors-- acyboan cake, other oil cakes, fish mato, pupao miste, and bone noal-tho only kind of which thore is a normal supply is soy- boan coke, and this is not bolioved to be susceptible of much oxpansion. Shorteges of all important chemical fortilizers, camoniun sulphato, colcium cynnimido, sodium nitrato, phosphoric acid fortilizers, and potash fortilizors have boon reportodly Regraded Unclassified 101 -20- -29- III. ELECTRIC POWER An estimated summary of the over-all position of the Summary electric power industry in Japan's Inner Zone (exclusive of North China) is given in the following tables: Japan's electric power output sooms adoquate to handle TABLE 11A the current lovel of production, although reserve capacity become critically low during the winter months. As levels of production are raised, however, shortages will develop Estimated Installed Generating Capacity in the Inner Zone in somo areas, especially during the winter. Stocks of coal at steam plants in the Tokyo-Osaka-Nagoya area have boon ex- January 1, 1943 coedingly low; operation of thoso plants "is critically de- pendent on in unrostricted transport of coal supplies. (In millions of kilowatts) Moderato expansion of electric power facilities, limited Hydro Steam Total to about 10 percent in 1943, can probably be achieved, In caso of nood, a considerable portion of stoam gonerating plants in China, the Philippines, and Southeastern Asia aggregating Japan Proper (including Xerafuto) 7.00 6.20 13.20 somo 1,500,000 kilowatts of installed capacity could be noved Northern Islands 0.30 0.23 0,53 Northeastern Honshu 0.30 0.07 0.37 to Jacan. Tokyo Power Supply Area 3.30 2.00 5.30 Capacity Osaka Power Supply Area 2,10 2.00 4.10 0.67 0.90 The total rated capacity installed in the Inner Zonel/ Southwestern Honshu 0,23 Shikoku Island 0.17 0,13 0.30 was approximatoly 17 million kilowatts as of January 1, 1943. Kyushu Island 0,60 1,10 1,70 Of this total, 9.3 million kilowatts wes installed in hydro- electric genoraling stations and 7.7 million kilowatts in stear Formosa (Taiwan) 0,33 0,07 0.40 olectric stations. Japan Propor contributed 13.2 million kilowatts, Koroa 2,0 aillion, Manchurin 1.4 million, and Korea (Chosen) 1.40 0,60 2.00 Formosa 0.4 million. Manchuria (Manchukuo) 0.55 0.85 1.40 Power Available During 19/3 9.28 7.72 17.00 The Innor Zone will produce a gross of 75 billion kilo- watt-hours of eloctric energy Buring 1943, unloss drought is serious and idospread, shipmonto of coal are interfored with, or important plants are dostroyed by norial attack. Over two-- thirds of this energy will be produced by hydro-clectric gonorating station. Practically all of the remainder will be produced by stoam oloctric stations. Actor allowing for transmission and distribution losses, a not of about 64 billion kilowatt-hours of cloctric energy will be available for utilization by the Japanoso war industrios und other consumers, Approximately 14 billion kilowatt-hours will be uso: by the chemical industry; 8 billion by the iron and steol industry; 6 billion by the non-forrous motals industrios; 7 bil- lion by the transportation and coal industries; 14 billion by other stretogic industrios; and the remaining 15 billion by other ossential civilian and governmentel usors. 17 North China, with approximately 200,000 kilowatts of installed capacity, is not included in this summary. Regraded Unclassified -31- 102 -30- TABLE 11C TABLE 11B Estimated Requirements for Electric Energy, 1943, Estimated Production of Electric Energy by Principal Classes of Consumers in the Japanese Empire and Manchuria in the Inner Zone during the year 1943 Electric Energy Requirements (In billions of kilowatt-hours) Class of Consumer (in billions of kilomatt-hours) Hydro Steam Total Chemical Industry 14 Japan Proper (including Karafuto) 38.15 17.69 55.84 Nitrogen fixation (plus calcium carbide Northern Islands 1,50 0.92 2.42 produced for acetylene and other purposes) 9.0 Northeastern Honshu 1.65 0.28 1.93 Other chemicals (caustic soda, chlorine, etc.) 5.0 Tokyo Power Supply Area 10.15 4.00 22,15 Osaka Power Supply Area 11.55 4.00 15.55 Iron and Steel Industry 8 Southwestern Honshu 1,15 3.02 4.17 (Mining iron ore, producing iron and steel, Shikoku Island 0.85 0.52 1.37 and fabricating heavy iron and steel products) Kyushu Island 3.30 4.95 8.25 6 Non-ferrous Metals Formosa (Taiwan) 1,80 0.21 2.01 Aluminum, including the production of alumina 4.5 Other metals; sinc, mugnesium, copper, etc. 1.5 Korea (Chosen) 8.40 2.40 10.80 3 Coal Manchuria (Manchukuo) 3.30 3.40 6.70 (Mining, transporting and loading coal) 51.65 23.70 75.35 Transportation (Principally for electrified railways) 4 Less 15 percent Transmission and Distribution Losses 64.00 14 Other Strategic Industries (Including paper and pulp, shipbuilding, ordnance, machine tools, aircraft, etc.) Other Essential Civilian and Governmental Uses 15 Total 64 Regraded Unclassified 103 -33- -32- for the facilities which are normally used in the production Power Supply Areas of electric power facilities, will be the principal factor limiting the expansion of Japan's electric power industry. In general, the hydroelectric stations are scattered in mountain regions throughout the entire area. In Japan Proper The production of eloctric energy in 1943 will be limited these stations are quite numerous; although most of them are by the amount of water which will be ovailable for the genora- relatively small, their total generating capacity is substantial. tion of hydromloctric energy, and by the amount of coal which In Formosa, Korea, and Manchuria, the hydroelectric stations are will be available for the operation of the storm electric usually large. stations. A total of approximately 20 million tons of cool will be required to operate the steam eloctric stations during The principal steam electric generating stations are con- 1943 at on average of 3,000 hours per kilowatt of copacity. centrated in Central Honshu Island on the water fronts of of this total, approximately 10 million tons will have to be Kawasaki, Amagasaki, and Nagoya, or located near the coal mines. shipped considerable distances to the Tokyo and Osako power Until recently. the steam electric stations at Kawasaki, supply areas. Anagasaki and Nagoya were used principally for the purpose of supplying electric energy during the winter months when there In addition to the power fecilities of Japan's inner zono, are shortages of water for the hydroelectric stations. However, there are 1,500,000 to 2,000,000 kilomtts of generating & number 08 large "base load" steam electric stations were copacity installed in thermal atotions of territorios occupied reported to have been installed in these areas during the past since 1936, A considerable proportion of this capacity could three years. The steam electric generating stations which are be noved from the Ynngtzo Valley and the southern regions to located near otal fields are usually "base load" stations. the Innor Zone. The Inner Zone is divided into B number of electric power supply areas, both by natural obstacles and by lack of uniformity in the frequency used. The Tokyo power supply area is the most important with approximately 30 percent of the total generating capacity. The Osaka-Nagoya power plant supply area is second with 24 percent; Korea is third with 12 percent; and Kyushu Island is fourth with 10 percent. The remaining generating capacity is distributed throughout the six other supply areas, each area containing generating capacity representing between 2 to 8 percent of the total capacity installed in the Japanese Empire and Manchuria. Prospective Increases During 1943 If rent materials and plant facilities were available, Japan doubtless could increase its generating capacity to the extent of about 10 percent a year, but whether in fact they will be available remains in doubt. The probability is that if expansion of generating equipment is undertaken, it will be only at a sucrifice of other war equipment. A 10 percent increase in electric power facilities during 1943 would require approximately 400,000 motric tons of steel ingota, 60,000 tons of iron, and 10,000 to 60,000 tons of conper, depending on the amount of aluminum and steel which the Japanese are able to substitute for copper. Compotition for scarce metale by the shipbuilders and other war industries, and also Regraded Unclassified 104 -35- -34- goods industries to war production that are in use in other IV, CONSUMER GOODS PRODUCTION belligerent countries, These include: (1) a heavy tax program and n system of Summary forced saving in order to out down consumer buying power; (2) the adoption of a gradually expending ration system; (3) Consumer goods rationing in Japan began five years ago, the stoppage of nonessential industries; (4) the passage of laws but deficiencies of supply are not, as yet, critical. Food strictly governing prices and providing severe penalties for stocks are adequate (but provide little variety) and in nome black market and similar operations; and (5) the creation of respects reserves are above normal. The carry-over of rice, a system of priorities governing the use of transportation, for example, is over twenty-five percent higher for the current electrical power, and other service industries. year than it was during 1941-42 and is nearly four times the carry-over of 1940-41. By American standards the normal In order to analyze the impact of wer economy on con- Japanese diet has never been "balanced", however, being deficient sumers' goods consumption, it is necessary to consider the in fats and proteins, This deficiency has been intensified chief consumer goods groups separately. during the past three years. Food The lack of cotton end wool has been partially offset by low quality staple fiber garments which provide neither warmth Food, representing the greatest single expenditure group nor durability. Leather shoes for civilian use are severely in Japan, TOB rationed first. Japan's ability to supply its rationed, but the masses of the Japanese are accusioned to population with food hinges primarily on supplies of rice and wooden Rgeto" and rice straw sandals, Hence, the rationing of fish, Wheat and other grains, sugar, and soybeans pro next in leather represents little or no hardship, Shortages of char- importance. coal and other household fuels have had a detrimental effect. on health, porticularly in the northern oreas. As in most Formers in Japan are required to sell rico, other cercels, worring countries, local transportation for nar workers is boens, green vegetables, and other products through govern- inadequate. The over-crowding of local busses and electric ment channols and at § fixed price. They can put nsido for lines and the frequent breakdowns in bus service are a signifi- themsolves only the amount of onch product which corresponds cont drain on the strongth of Jupenese labor, The offort of to the rations allowed to the city population. Prices poid by workers to moet this difficulty by noving into industrial the government are no low that in somo 00/108 the former cannot centers has caused acute housing shortoges in porticular cross. afford to transport his produce to tomi, All of these conditions have contributed te D significant Rice. Rico in the best single indux of Japan's food posi- decline in health. In spite of the government's effort to tion, Rico production in Japon and Koroa is bolow the anount curb thom, there has also been an extensive growth of "black required for domostic consumption under the present rationing markets" which tend to disrupt retion and price controls. system. The major factors in the doclino of rice production are (1) the roduction in the quantity of available fortilizors; Japan has not yot reached the limit beyond which additional (2) the divorsion of form labor into nor industry, and (3) conversion of consumer goods industries to me production connot unfavorable weather in several recent years. Japanese agricul- be nado, but 1s rapidly approaching that limit. The bulk of turo is adjusted to an intensive application of labor per unit the future expansion of per industry cannot come out of the of output. The mochanisation of agriculture would offset the conversion of present consumer goods industries to war produc- docroase in labor but such mochanization is impossible under tion but must be ottained through the exploitation of the notr present conditions, resources which Japan has ocquired, 1/ Other information, obtained from Japaneso prisoners ceptured The grodual conversion of consumer goods industrics to wer production bogan CB carly as 1931 and was shorply increased in rioo, According to this information, each former in forced in the Solomons, indicates different regulations applying to 1937. Betwoon the beginning of the nor with China in July 1937, to Doll to the government only a cortain quoto of his rico, and the attack on Poorl Harbor, Docember 7, 1941, Japen adopted fixed on on nerongo bosis. BEW Wookly Notos on Current prectically all of the drustic mossures for convorting consumer Economic Information, March 17, 1943. Regraded Unclassified 105 -36- -37- Government control over the rice. market has been TABLE 12 gradually tightened in recent years. Following a serious shortage of rice which occurred in Japan in the late fall of Supply of Rico in Japan Proper 1939 owing to heavy wartine consumption, the people were urped (In 1,000 metrio tons) to voluntarily reduce consumption, and the polishing of rice was reduced to 70 percent, In April 1940, the first local Carry-Over Production Imports rationing system wont into effect in Kochi, Shikoku. During Rice Year from during Inports from the late summer and fall of 1940 the mixture of wheat, barley, Nov, 1- previous previous from foreign buckwheat and even beans with rice was enforced by the local Dot, 31 year year colonies countries a Total officials in various areas, In April 1941, rice rationing MGS put into effect in Tokyo, Osaka, and Kobe, with allownoes 1934-35 2,403 7,581 1,904 11,888 ranging from 570 grams per day for extra-heavy workers down 1935-36 1,453 8,403 2,076 11,932 to 300 groms for persons over 61 years of age not ongaged in 1936-37 1,171 9,848 1,737 12,756 manual labor, 1937-38 1,099 9,699 2,233 13,031 1938-39 1,242 9,633 1,430 12,305 In the opinion of recent residents in Japan, the ration 1939-40 n 585 9,067 512 1,769 11,933 of rico to families with sovoral children is not sufficient 1940-41 585 8,921 1,170 2,047 12,723 and signs of undernourishment aro noticenble, Wealthy families 1941-42 1,682 8,043 1,755 1,609 13,089 are obtaining rico in the black. markot. 1942-43 2,194 9,067 731 1,204 13,016 One purpose of the strict rationing of rice is to in- cronso Japan's stockpilo, As a result of heavy imports from a The average imports for the first five years were about Southonstorn Asia, Japan now possesses over fiftoon million 29,248 metric tons annually, koku (brown rico - one koku equals 322.4 lbs.) which is nearly Some authorities believe that this crop anounted to double the normal carry-over. 8,482,000 metric tons. Some authorities believe that this crop amounted to not more The tables on the following pago indicato recent changes than 8,804,000 metric tons. "Official" and other reports in Japan's rice position. vary. from 9,169,000 to 9,871,000 metric tons, d After 1938 figures are estimates, Other Grains. Whoat, burloy and naked barloy are the principal subsidiary grains grown in Japan. Although for bolow rico in importance, they aro almost oqual to all of the boans, potatoos, fruits, end vegotables combined as a source of food for the people, Although whon't production rose in 1940, the pook your, to a total of noarly double the 1932 figure, two factors have tended to provent the civilion population from obtaining all the thoat they require, (1) the necessity of supplying Manchurio with substantial amounts of flour (somo flour is also shippod to Chine), and (2) the obnormally heavy domostic demand which has boon largoly due to insufficient rico supplios, and to higher than usual consump- tion by the armed forces. The distribution of the subsidinry grains in controllad by the government. All production in excess of the former's notual requirements must be sold to the government. These supplies ero distributed to the consuming areas on à monthly basis. A limitod number of citics have individual rationing Regraded Unclassified 106 -38- -39- TABLE 13 tickets for bread, but in Tokyo and aome of the large cities this system has not boon extended to the consumer, Throughout Rice Dessand in Japan Proper 1941, the octual distribution of flour was running far bohind the schedule allotment dates. Americons who roturned in (In 1,000 motric tons) August 1942, reparted that long broad queuos could bo soon out- sido of all bakerios. Carry-over at Fish. The fish supply deponds entirely on outaido Year Exports end of yeer Consumption Total factors, such as the ovailability of vossols, fuol,and labor and the lack of intorforence from oncry naval forces, The 1934-35 116 1,453 10,319 11,880 shortago of fish-reported by all obsorvers-is ottributed to 1935-36 80 1,171 10,680 11,931 shortage of oil, military domand for vesscle, and the govern- 1936-37 95 1,099 11,563 12,757 mont's prico policy (1.0. officially fixed prices were too 1937-38 85 1,242 11,703 13,030 low to induco fishormon to transport goods to towns). The 1938-39 111 594 11,600 12,305 government is urging the population to replace fish with 1939-40 73 585 11,275 11,933 potatocs and vegotables. 1940-41 73 1,682 10,968 12,723 1941-42 73 2,194 10,822 13,016 The retioning system for fish who introduced in Tokyo 1942-43 73 2,267 10,676 13,016 on February 5, 1942. At that time only about 100 to 200 metric tons of fresh fish por day were available, against a normal demand for 600 tons, Sales wore restricted to 30 monno After 1938, figures are estimates, por family every other day (1 mommo oquals 0.132 cuncos). In subsequent months supplies have increased to about 500 tons per day and daily purchases of 30 mommo por family have boen permitted since March 30, 1942. TABLE 14 Soyboans. Soyboans are at present scarco in Japon, due Estimated Imports of Rice into Japan to reduced output in Manchurin, lock of adoqunto transporta= by Country of Origin tion, hnd heavy domand of the arned forcus. Scybonns are boing rationed, but dotails of tho system are not available, (in 1,000 metric tons) Sugar. The sugar supply for the Empire is sufficient. But production in Fornces has boys reduced in favor of rice while the problem of transportation from Fornosa and the Country southern areas has caused the curtailment of consumption in 1940 1941 1942 1943 (Expected) Japan Proper. Sugar was the first foodstuff rationed on a national basis. Rationing was introduced in the six major Burma 468 497 cities on June 1, 1940 and WAS extended to the prefecturos In on 73 73 Thailand 278 July 1, The quota varios in the different localitios. 541 585 219 French Indo-China 468 Tokyo all porsons are allowed 0.6 kin (one kin equals 1,323 731 804 585 China 556 278 pounds) per month, In the country it is 0.4 kin. Special 146 146 allotments are granted to infonts and for special econsions. Total 1,770 In Juno 1942 the sugar ration was doubled from 0.6 kin 2,047 1,608 1,023 to 1,2 kin per month per person. About 600,000 tona of sugar wurd avoilable in the Philippinos at the timo of thoir cepture. There were also alightly loss than n million potential tons in the form of unhervostod sugar cane. Regraded Unclassified 107 -40- -41- Monts. The domostic consumption of monts was increasing The Japanese situation with regard to cotton and wool is prior to the wor, but ment in now very scarce, Transport critical. With the loss of imports of high-grade pulp wood difficulties aro said to have caused imports to docroase, and from Scandinavia, the United States and Cenada, Japan faces dif- a shortago of foods for onimals probably is another unfovorable ficulties in miking enough actisfactory rayon and staple fibers foctor. With the excoption of a small uppor class group, however, from the low quality wool and reed pulps now ovailable. Pro- meat constitutes a very minor item in the Japanose dist. In duction of silk has been allowed to decline; there is still a rural aross it in octon only on unusually important fostival surplus, however, come of which can be used to substitute for days, other textilo fibers of which Japan is short. ERES. Egg consumption per copito was ostimated to be Antioning of textile goods wont into effect on February 1, about 50 per annum. Most recent information indicatos that nn 1942. Coming under the restrictions was proctically all cloth- evorago of one °EE por Japancao houschold (about five porsons) ing of cotton, wool, silk, rayon and other fibers, including por wook 1s allowed. all kimonos, socks, stockings, hand-suits, underwear, sport clothos, neckties, socks, stockings, handkerchiefs, towels, Eggs thus constitute on insignificant item in the present blankets, soying threads and related items. Japaneso diot. Rationing is carried out under the point system, Ench Milk. Production and consumption of milk has increased person, including childron, receives a card entitling him during the past docado but consumption in the urban conters to purchase 100 pointe worth of clothing in cities, and 60 has now boon rationed. It is only available to small childron points in rural districts; each article has a specified point and invalida and through doctors' cortificatos. Roduced milk value. The ticket is to last for a year. Only 50 points production in Inid to a shortago of animal food. could be used to July 31, In January 1943, new regulations mere issued, reducing the available quota. The Ministry of Solt. A salt shortago has oxisted for 0 000 time in spito Commerce and Industry explained this nove by the fact that to of domostic production and imports from China and Manchuria. avoid maste, many people returned thoir ration cardo unused. The cottont of the shortage is ovidenced by the fact that table If this is true, the conservative spending on the part of salt W&B put under the rationing system on January 1, 1942. consumers may be attributed to the fact that ration cards were The ration 1a 200 grams por person por month, issued in excess of the supply of clothing now available for distribution. The change probably is intended morely to shrink Ton. The domostic output of toa avorages about fifty the ration down to the available supply, porcont moro then consumption, It socime probable that the corongo planted in ton will bo roducod to increaso the area Wearing apparel and clothing materials are soid to be available for more assential foods, inferior in quality, and not always possible to obtain, Other Itoms. Buttor, odible oils and fats are very Leather and rubber boots are also retioned. Cards have difficult to obtain in Japan in spito of the hugo potential been issued only to those to whom footwoor is essential for of supplics in the occupied countrics. Fruits and vegotables, their work, Boot repairs are difficult on account of o although oxtromoly scarco in big cities, are not rationed, shortage of solo leather. but are sold to first comors na long ca they last, Fuel Clothing An examination of the supply of textilo fibors points perted by most observers. The shortage of charcel is felt Shortages of charoool, coke, coal, wood and god are ro" to a scarcity of most of those materials from which clothing keonly in Japanese houscholds on it in the londing fuel for is mado. domatic uso, primerily for cocking, sccondarily for heating purposes. Regraded Unclassified 108 -1,2- -43- Regulations effective from April 1942, provided that a The building of new houses is severely restricted, The family of three, living in a house with a floor space of 20 government has undertaken to build low-cost houses in a number nate (360 square feet) should receive six bales of charcoal of cities, As every effort is being made to save raw materials, a year, or about one-half of moderate needs, (One bele of it in estimated that the type of house now constructed saves charcoal weighs about 25 pounds), Available reports suggest from 25 to 70 percent in matorials as compared with the older that the anount of charcoal made available to households during houses. the winter of 1942-43 WID only helf the already restricted amount supplied in 1941-42, There is a great demand for wood Standard of Living and Industrial Efficiency to help out the fuol supply, but it 1= very difficult to get, olthough it is not retioned. On the basis of all available information the conclusion may be drawn that while there are no indications of critical Gas has been rationed since October 1941. New rntioning food shortages at present, the amount of food available is not regulations mero issued for the five months beginning January 1, equal to the amount the Japanose people normally consume. 29/2: They were to allow c. household with a singlo member four There are some evidences of malnutrition, empocially among calorios; 10.5 calories when there are five membors to n children and poor people, particularly in cities. On the other houschold, Extra quotas wore to bo allowed for sick persons. hand special rations are given to heavy workers and extra-heavy workers. To conserve cloctricity for the munitions industries, a drivo was mado during the winter of 1941-42 to roduce privato Excossivo hours, the employment of young and inoxperienced consumption by socus of heavy surchargos on the monthly bill. personnel, and inadoquato dict have contributed to rising accident ratos, In the year 1939-40 a survoy mado by the Labor Arbitrary notion to reduce consumption of oloctric power in Bureau of the Wolfare Ministry of the accidents among 2,200,000 homos has also been takon in some instancos, workers in 8,000 factorios, disclosed that 590,000 or 27 porcont of the total wro moro or loss scriously injured and 749 word Local Transportation killod, This may be compared with the accident rato of 15.5 Busses and trucks are in a run-down condition, The fow percent in 1937 and of 21 percent in 1938-39. busses and trucks that aro oporating are crowded and overloaded. Detorioration in public hoalth in reflocted in the [TOW" Private ours, excopt for the uso of officials and the military, have disappocred, The unsatisfactory condition of motor ing number of tuborcular patients, Insofer as this is rolnted vchicles is attributed primerily to the necessity of substituting to tho dict, it probably in the rosult of the roduction in the consumption of protoin foods such 00 fish or soyboan, A other fuels for gosolino. The mijority of trucks, taxis and busses wro boing operated on charcool, wood, coal burnors, end report in 1937 statod that thore word 1,200,000 potionts in 1937 when the doath rato vos 120,000 a year. In 1938 there wro gamoline, with o cortain porcentage of alcohal and propone goo. 1,500,000 patients and 148,872 donths, e reto 50 percent higher Approximately 30 percent of the units oquippod with charcool, than in 1936, The scrious inronds of the disease in the wood, and coal burners are out of oporation as c result of the industrial field is indicated by the number of tuborcular workors shortago of fuol, sent home=92,000 in 1937, 110,000 in 1938, and 140,000 in 1939. Moro than helf of the tuborcular workers were botwoon the ages The inconvenience and the elomoss of transport to and from work in a drain on the strongth and moralo of Japenose of 15 and 23, The government's conscrn over houlth conditions lobor. is apparent from a recent broadcast stating that 80 percent of the budget of Yon 132,000,000 of the Wolfare Ministry for 1943- 44 will be dovoted to an anti-tuborculosis campaign. Housing Block Merkets As transportation by train, bus, street-car, and taxis become difficult, many Japehose who proviously lived in the suburbs tried to novo into Yokohama. This resulted in c scrious Notwithstanding the government's offorts to control the shortage of housing. distribution of daily neccosition, black markets aro wido- sprond in practically all commodities. Prices in the block markets are excrbitant, The black markets are obviously patron- 1zed extensively by the soll-to-do, but evon thoir standard of Regraded Unclassified 109 -1/- -45- living is lowered as shortages deprive them of many of their V. COMBAT ARMAMENT accustomed luxuries. Summary Conversion of Consumer Goods Industry to War Production Processing capacity constitutes the principal limitation Japan is rapidly approaching the limit beyond which on the production of combat armament. It should be noted, additional transfer of equipment and labor from consumer goods however, that stockpiles of combat armament, which have con- industries to war production will actually reduce the efficiency sistently been accumulated during the last twelve years, and of war production. the large quantities of machine tools that have been imported since 1935 help to compensate for technical limitations on the Non-essential industries have been out of production for mass production of war supplies. over two years and there are very few points in ossential consumer goods industries at which additional cuts can be applied Alloy steels will be produced in substantial amounts in without creating extremely severo shortages. 1943, but their quality, in many instances, is inferior to the best western products. This deficiency will prevent optimum utilization of the alloy steel output. Uneven quality of high- speed and other alloy steels will also affect the performance of cutting tools adversely and thus slow down production. Inexperience in designing and manufacturing the finer types of machine tools and bearings, as well as efficient jigo and fixtures, has been n. retarding influence in the general application of mass production to the armanonts industry. These limitations will chiefly affect aircraft and trucks and armored vehicles. The production of aircraft will probably not exceed 10,000 planes of all types during 1943. Approximately 60,000 trucks and armored vehicles will be produced during the current year but probably no more than 4,000 tanks. The pro- duction of the latest modol anti-aircraft and anti-tank guns will also be somewhat limited by technical difficulties. For other types of ordinance however, processing capacity does not constitute a serious bottleneck. The Technical Efficiency of Japanese Industry and its Effect on the Production of Conbat Arnament The tochnical officiency of Japaneso industry, measured by reduced unit costs and increased unit output per worker in- creased very considerably in the docade 1930-1940. The textile industries, the paper and coramic trades, the basic mining industrios, the production of steel, many branches of chemical manufacture, the metal and engineering trados, and a wide range of manufactures wore increasingly nodornized during this poriod. In mining, tochnical processos were refined, mechanical conveyors replaced hand labor, larger and more efficient equipment was substituted. In manufactures, there was a marked concentration of Regraded Unclassified 110 -46- -47- output in large and well-equipped planta at the expense of Alloy and Tool Steels, Shortages of alloy stools, traditional production in a multitudo of very small workshops, perticularly high speed steels, have undoubtedly proved a Of particular importance was the development of many kinda of serious hindrance to Japanese motal and machinory manufacturers. machine tools which not only fostered the use of machinery It in not that Jopan has lacked on alloy steel industry, but but mde possible significant progress in the standerization rather that this industry has developed relatively slowly: which 10 necessary for the adoption of mass production tochniques, TABLE 15 Increasing Belf-Sufficiency. In these years Japan took measurable strides toward industrial self-sufficiency. In Expension of Special Stocl Industry in Japan, 1926-1930 1932, Japan becamo B not exportor of steel. The range of (tons) manufactured products was stendily increased and their quality was rapidly improved. The heavy industries, which are basic Total Special Steel to industrial strongth, fully shared this progress. Japanose Year (crucible and electric furnace) Alloy Steel foundrios recched a lovel of development which onabled then to supply the lorgest and nost elaborate of iron and stool castings. 1926 10,000 The domostic stool industry bogan to produce a wider range of 1928 16,000 alloys. The anchinory and machino tool industries undertook 1932 69,740 20,000 the manufacture of moro complicated typos. Hoilors end prino 1933 139,561 49,000 movers of all kinds, espocially steam turbines, were manufactured 1934 208,790 56,000 in quantities adequate to meet virtually all home demands. 1935 241,649 66,000 Importe of boilor tubes were reduced, and Japanese technical 1936 316,475 76,000 skill increased to a point which made possible the design and monufacture, of power plants of the highest pressure and temperature. Industrial labor also became more skilled and Since 1936, many now electric furnaces have boen installed. the Higher Technical Schools graduated many now specialists Production in the Japanose special stool industry may be expected for Japan's growing industries. to reach 750,000 tons in 1943. Because of wor domands, it will consist almost entirely of alloy stools, By utilizing sone open Renaining Technical Weaknesses. To cotimate the signifi- hoarth furnace capacity for the same purpose, Japen will commend cance of recent technical progress in Japanese industry, it in e total probable production of 1,200,000 motric tons of alloy necessary, however, to 500 industry in proper perspectivo, By stoel during the coming year, Analyses of captured Japanese western standards, the Japanese position suffors from the feet armament material show that mild or carbon stool is sometimes that industrialization in Japen began within the past sixty used where American practice would dictate the use of alloy years. Although remarkable progress has boon mado from the low steel, It appears probable that, because of inferior quality, lovols of fiftoon years ago, Jepanese industry is not 28 yet part of the production cannot be used whore high performance obroast of western industry in mothods or efficiency. Produc- is vital, ing units in Japan's large-scale industries are smaller than those in the West, and are loss highly spocialized. As long as There is abundant evidence of the difficulty which the inports word available, Japan still roliod on foreign countrics Japenose have exporienced in loorning the tochniques necessary for high-quolity spocial stools and for the critical machino for the production of new alloy stools. "Domostic alloys lagged tools in procision production. Japan's motor industry was nover far bohind imported Gorman and other alloys in quality and there substantial; henco facilition for the manufacture of motorised are no good roosons to assumo that this deficiency Was mado up military equipment cre inadoquato, The trained labor supply since July 1941." (Dispotch from Ambossador Grow on exchange in insufficient in all fields in which production has beon M.S. "Gripsholm", August 18, 1942). "However, bear in mind that expanded. Rolying on the West, Japon has nover boon responsible every timo wo triud to domonstrato any mochinos in Japan, the for important tochnical innovations in industry. As a result, tools and antorial to be mechined wore of on inforior quality." Japan's war-tino oconomy suffors from definito deficioncios in (Lettor from lb. W. P. Lots, Landis Tool Company to Mr, Toll both the quantity and quality of tochnical equipment as indicated Borno, Exocutivo Diroctor, National Machino Tool Buildors' in the following discussion, Association, March 25, 1942). Regraded Unclassified -48- 111 -15- It is not that the techniques cannot be acquired but that several years met elapse before they are completely mastered, TABLE 16 An expansion in alloy steel production since 1936 of the dimensions indicated magnifies the difficulties involved, Mean- Japent Production and Import of Machine Tools, 1929-1938 while, with 80 small a total output of stool, the Japanese cannot afford to discard entirely batches of steel which do not measure (in unit values) up to specification, nor can they stop production until uniform- ity of composition in the various types of alloy and tool steel Production Importa= Exporta- Production is attained. As a result, poor grades of tool steel are often Value tion tion Demand as percent employed, Inferior tools directly affect the speed and hence Your Number (1000 Yon) (1000 Ten) (1000 Yen) (1000 Yen) of demand the quantity of armanent production. It is necessary either to reduce the speed of cutting in machining parts, or to 1929 464,252 5,586 interrupt production more often to replace tools. Whichever 1930 32,737 4,437 alternative is adopted, output suffers. 1931 114,756 3,943 3,070 220 6,793 58.05 1932 33,654 8,198 Another deficiency in Japanese metallurgical practice 1933 50,103 15,503 16,247 566 31,104 49.71 affecting armant production is the great lack of uniformity 1934 330,863 23,459 21,433 1,189 43,701 53.68 in carbon content of high-grade steels made in Japan. This makes 1935 72,425 30,176 18,296 1,941 46,531 64,85 it very difficult to obtain a uniformity in heat-troatment, 1936 36,503 18,865 4,907 50,461 and results in a varied degree of strength, hardness and 1937 50,000 5,798 machinability after the material is treated, Although this lack approx. of uniformity does not affect the accuracy of parts as machined, 1938 9,570 it takes 0 constant toll of cutting tools in the machining pro- cess when they encounter metal of greater strength and hardness than that for which they are designed, Machine Tools, In Japan units valued at less than $100 TABLE 17 are classified as mochine tools. Many of these obviously can- not be power-driven cutting and grinding mochinos that work Inpanese-produced Machine Tools on motal, Hence, many machines included in the following tabu- Intions do not figure in the mass production of arms, munitions, (in unit values) tanks, aircraft, motor vehicles, and other war equipment. In presenting value figures as an indication of the degree Dollars of self-sufficiency of the Japahese machine tool industry, thd Year Yen (Average annual exchange rates) following explicit reservations must be made, (1) The value of the average machine tool nado in Japan is considerably below that of the average imported machino tool. (2) The number of 1929 12 6, Japanese machines represented by a given monotary value in much 1930 135 68. greator than the number represented by Imported machino tools. 1931 34 17. (3) The majority of machino tools produced in Japan are of the 1932 238 71. standard, low production, and non-precision types, whereas the 1933 306 77. majority imported are of a critical typo, as far as their im- 1934 71 21, concerned, portance to the monufacturing industries of the country in 1935 415 124. Even on the quantitative side, there are further reserve- tions to be mdo, The percentage of Japanese solf-sufficiency in mohine tools was soid by Japaneso authorities to have dropped from 72 in 1936 to 50 in 1937, when demand jumpod to on index figure of 180 on the base, 1936 = 100, In 1938, on the samo base, Regraded Unclassified 112 -50- -51- demand is said to have risen even nore sharply to en index For comparison, the following table is useful: figure of 710, as Japan nttempted to swing ita armament in- dustries into msss production. Although no figures were issued for production in 1930, it appears probable that the Japanese TABLE 19 industry could supply only one-eight to one-quarter of the indicated demand. An further evidence of the dependence of Additions to the U.S. Machine Tool Inventory, 1932-1942 Japanese industry on imported machine tools, the results of 4 reliable investigation of 12 machinery factories made in 1937 Inventory may be cited. They show the number of homemade machine tools Year Production Exports increase in use as against foreign-made: 1932 $ 22,000,000 8 8,705,000 a 13,295,000 Home-Made Foreign-Made 1933 25,000,000 6,476,000 18,524,000 1934 50,000,000 16,056,000 33,944,600 819 768 1935 85,000,000 22,820,000 62,180,000 Lathes Drilling Machines 207 277 1936 133,000,000 34,047,000 98,953,000 Milling Machines 79 256 1937 195,000,000 52,136,000 142,864,000 Planors and Shapers 399 851 1938 145,000,000 83,269,000 61,731,000 Grinders, etc. 399 851 1939 200,000,000 101,247,000 98,753,000 1940 430,000,000 224,741,000 205,259,000 Total 1,631 2,347 1941 775,000,000 191,034,000 583,966,000 1942 1,400,000,000 (approx) The evidence of value figures 1a also useful in indicating roughly, on the quantitative side, the present Japanese position in machine tools as compared with, for example, the United States, In the following table, Japanese production and import figures The preceding tabulations show that in the period 1932-40, have been combined on the basis of average annual rate of exchange. the Japangse machine tool inventory increased about $236 illion Certain modifications have been made to conform to export of which 3112 million (or less) were Japanese production and 3125 million sere imported. By contrast, during this period, statistics from supplying countries: the United States machine tool inventory increased $735 million-- than three times as much, If estimates are added coyering TABLE 16 more 1941 and 1942, the Japanese increment probably did not exceed $80 million, (imports ceased), while the United States inventory of Additions to the Jepanese Machine Tool Inventory Japanese Japan, For 1943 a further Japanese expansion of some 20 percent expanded by about $1,000 million, or more than 22 times that Impo: to from United Statos, Total, Year production United Kingdom, and Germany rounded be estimated. Thus, if Japanese production reached, say, may 035 million in 1941 and $45 million in 1942, production this year This 1932 $ 2,300,000 $ 1,890,326 $ 4,100,000 1933 3,850,000 3,733,347 7,600,000 may roughly with the figure Y 200,000,000 got as be expected to run between $50 million and $60 million. the goal 1934 6,350,000 6,571,656 13,000,000 compares of the expansion program to be achieved in 1941, The weight of 1935 8,080,000 4,965,989 13,000,000 evidence, including repeated references from Japanese sources to 1936 12,150,000 6,090,999 15,000,000 the difficulties encountered by this program makes a two-year 1937 15,674,000 16,465,746 32,000,000 delay in achieving its objectivo a reasonable assumption. 1938 (apprax) 18,000,000 34,585,662 53,000,000 The Problems of Precision in Machine Tools. In sircraft 1939 (approx) (approx) and to a losser degree in tanks, guns, and automotivo 21,000,000 26,000,000 47,000,000 engines equipment, it is necessary that parts bc finished to a tolorance are 1940 (apprax) (upprax) 49,000,000 of not 0,001 inch. For cortain parts, the limitations efforts 25,000,000 24,000,000 much smallor, over The Japanese have usually failed in their limits. 1941 930,000 to produce machines that will operate within such close Regraded Unclassified 113 -52- -53- As has been indicated, Japanese tool makers, to a great extent, confined their product to a limited variety of sizes and types between a. carbon stool cutting tool and a tungston carbide of second-grade standard machine tools, such as are used in outting tool is the difference between fifty feet and 300 this country in gerages, jobbing shops or repair shops. They feet per minute. The Japanese have little exporience in the have always had trouble with gear-making, depending almost manufacture of these higher spood cutting tools. Although entirely upon the United States for gear cutters, hobs and imported machine tools were equipped with high speed outting broaches. Although in those fields there have been many tools, these outting tools are perishable and the Japanese had Japanese attempts to make durable outting tools capable of no opportunity to accumulate stocks. Thus, the rate of produc- producing satisfactory parts, those efforts met with little tion of their best power-driven machine tools will depend to & success. The failures were in notallurgy and in the geonetry large extent on their ability to attain production of effective of outting. Thus, one of the principal bottlenecks in the auto- cutting tools. mobile industry and in producing circraft engines occurs in the Anti-Friction Bearings. The importance of ball and roller number of gear-cutting machines available. bearing production was very belatedly recognized in Japan, with the result that reliance on foreign bearing products increased The present Japance supply of imported machines permite with the growth of home production in machinery, automobiles, of no substontial expansion of made production methods. More- and airplanes. In 1940-41 it was estimated that, as a result ovdr, the upkeep of machines in operation is notoriously loss of strenuous offorts by the army and navy, total Japanese officient in Japan than in wostorn countries. Under the nost anti-friction bearing production of all types (roller and ball) favorable circumstances, bofore the Japanese machine tool in- was about 55,000 per day. In addition to this, 5KF was furnish- dustry would be capable of replacing worn-out machines or ing Japan with approximately 10,000 pieces per day. Under equipping new plants without substantial loss in officioncy, present schedules in the Japanese automotive, airplane and a minimum of several yours would have to clapse. It will not bo machine tool industry, it has been estimated that 65-70,000 within the probable duration of the prosent mr, in the opinion units per day would be needed, inclusive of service replace- of many Amorican ongineers, ments, It would appear that this over-all quantitative requirement is boing not, The above estimates are, of neces- Mass Production Tochniques. Another critical bottleneck sity, approximations, but they point to an output probably that would exist in the Japanese automotive end aviation in- sufficient to cover the number of pieces necessary, not only dustries if major changes were made in the direction of mass for production purposes, but also for replacements. The production output, La the inability of the Japenese to make 11go, quality of the output, however, is a different matter. fixtures, and dies, and C lack of tool facilities for producing them expeditiously. Not only are tool-muking facilities linited, Anti-friction bearings fall roughly into two categories: but thore in a dearth of trained personnel that can design precision and ordinary bearings. The manufacture of even such equipment and work to the exacting clearances required. ordinary bearings of good quality is a complicated and diffi- If a woll-dosignod fixture requiring n minimum of time to trans= cult job. The manufactures of fine procision bearings, whose for the work in used, production can be maintained at a modnum, tolerances are on the order of two to eight ten-thousandthe but if this fixture or J1g in of poor design, the production of an inch, is an art which has been mastered by only a few copacity of the machino will be affected accordingly. firms in the world. It is particularly difficult to produce precision bearings in either very small or very large simos. It is also necessary to emphasizo the importance of Although SKF carried in stock in Japan from 1,800 to 2,000 porishable outting tools and hund machinos. Regardless of the types, the Japanese, in order to step up their over-all pro- high productivity of a power-driven anchine tool when proporly duction, decided to concentrate on popular sizes running up operated and equipped, such a machine will provo no more to 100 mm., but not including the small bearings required for officient than the outting tools with which it is provided. For such equipment BB magnetos, signal apparatus and the like. It in example, n. machine may be capable of vory high spoods and foods believed that any attempt on their part to make all the sizes resulting in rapid production, but 15 ,low-grade cutting tools required would roduce thoir over-all production below their or poorly hoot-treated tools instead of tungsten carbide tools estimated quantitative requirements. Aa late as October 1941, uro used, than the spoods and foods aus t be out to conform to the low-grado tooling. In torms of production, the difference Regraded Unclassified 114 -55- -54- the Japanese automobile industry was very hard pressed for lack shortcomings of industrial personnel. The increasing demands of industry have resulted in a sovere shortage of almost all of several special bearing types, then not even in production, kinds of trained labor, The Japanese are skillful artisans and under able supervision become officient industrial workors. The Japaneso were unsuccossful in their last minute Facilities for training now workors while maintaining full efforts to accumulate any reservo stocks of bearings. Although industrial production are limitod, however, and in the absence shipmonts from Swoden via Spain and Italy have undoubtodly run of a tradition of mass production the difficulties involved the blockade, those could supply only a fraction of the Jupancee are magnified, It takes longor to develop competent workers. noed for fino bearings. la of 1941, Japaneso stockpiles of There in an ospecial shortage of supervisors at the shop fore- bar stool for races soomed sufficient for two yours' require- man level, Moreover, the supervisory class as a whole in loan monts, but this stock covered only the popular on which efficient and less competent than are the workers. Japanese the Japanose manufacturing industry has concentrated, Much technical engineers are frequently highly trained, but more had to be secrificed to sike the smllor-sized bourings. specialized than those in the West and hence less versatile. Even in the same industry they cannot be shifted so easily Japanese stool for both roces end stool balls is inferior; from one branch of production to another. Foreign technicians it is interesting to noto that both the Japanose Army and Navy especially German and Swedish advisers who may be present in specified imported stool in those obtogorios. Another factor Japan, will find difficulty in duplicating their European which will militato against makeshift arrangements in that practice because Japan is relatively so such newer to modern results have been poor when domostic bhlls have boon used with industrial technique. imported races, or with races made from imported stool, This 18 because the imported stool is hardor than the domostic stool The strict casto system prevailing in Japanase indus- going into the ball, try constitutes another obstacle. The mechanic with more than average technical knowledge cannot be advanced to a Not only aro the Japaneso faced with the dual problem position of authority. The technical engineer is provented of mintaining simultanoously G quintitativo and divorsified from obtaining the practical experience required to qualify production, but they have yet to overcome scrious tochnical him for the position of supervising a factory. Management is obstacles impoding thoir production of fine procision bohrings. frequently uninformed on technical problems. There is thus a As early no 1940 they had begun to replace procision boorings wide gap between the technical and practical sides in the with ordinary boorings wherever this NCB possible, An on management of Japanese industries. This gap is an important examplo, in the mohino tool field, procision boarings in the reason for the inefficiency so often noted in the management goar baxes word roploced with ordinary boarings. Probably of Japanese industries, and in the present critical period its tochnicions from Cormany or Swoden aro assisting the Japanese effects are another limiting factor in the expansion of in thoir offorts to overcome those difficulties. Without armament production. additional oquipment, howover, it is hard to 500 how much pro- gross can be mdo, The following sections deal with the present position and future potential of the Japanese areasent industries in In the opinion of experienced bearing onginoors, Japan's view of limitations indicated in the preceding pages. ball and roller borring industry is for bohind the West in rcs- poot to copacity, tochnique, und precision machinory and on that Aircraft Production account constitutos a most sorious problem in the Japanese W.F conomy. This bottionock is further aggravated by lack of Analysis of data concerning the Zero type single seater incilition for production of stool bolls above ono-half inch fighters indicates that initial production was started in B. in sizo and topored as well DE cylindrical rollors. Japaneso- single plant late in 1940. The production rate appears to mado bell bearings as a general rulo have a lifetine only about have climbed by stages to a peak at the end of 1941 of about ono-third that of first class foreign products, 60 planes per month. At this point a second plant came into production but the initial producer appears to have begun a Industrial Personnel. The tochnological problems indicated process of converting ovur to & new mödel of the same type, above are vory sorious obstacles to the expansion of production The loss of production during this conversion procoss was in the Japenose armanent industrics, They are aggravated by the not Milly componsated for by the production of the added facility and the combined rate during the socond quartor Regraded Unclassified 115 -56- -57- was below that prevailing at the close of 1941. The third quarter, however, began to show the effects of the combined adaptations prodominato, This is not always or necessarily a effort and by the end of 1942 the Zero single seater fighters sign of weakness, however, for some of the results have boon decidedly efficient. were being produced at the rate of about 150 per month, with an additional 35 Zero planes of the float type, Organisationally, the Japanese have tondod to favor con- tralization of assembly within relatively few companies, but It is believed that the Japanese have had relatively dispersal of production of components and sub-assomblies among greater success in achieving fair production rates in single a great number of companios, At the same time, and probably engine fighters than in other types. Such evidence as there as part of the same general plan, there has boen A. relatively is at hand suggests that difficulty has been encountered in high dogree of standardisation of plane design, For instance, the production of multi-ongined bombers, and the apparent the famous Zero-type fighter is usod as a land-based fightor, reluctance of the Japanese in the field to risk bomber losses as a ship-borne fightor, and as a float-type fighter. to an extent comparable to their frequency free use of fighters tends to confirm the evidence on production. The present organisation of the aircraft industry in Japan is directly the result of government planning and direction. Output. Latest available information leads to the From early paternalism toward the industry, the government has following preliminary estimatos for the Japanese aircraft rapidly advanced to outright control. industry for 1943: In 1939, 14 companies, headed by Mitoubishi Heavy Indus- Fighters Other Operational Types Non-Operational Types Total tries and Nakajina Airplane Mfg. Co. were licensed by the govern- ment for the manufacture of aircraft, airframes, engines and 2,400 4,100 3,250 9750 components, In August 1939, the government granted the Kanega- fuchi Spinning Company permission to establish a fifteenth These estimates assume that the fighter plane production rate company - the Nippon Kokusai Koku Kogyo K.K. In addition to during 1943 will remain approximately at the level attained these private companies, the Japanese government assembles, late in 1942, and that some of the difficulties that appar- repairs, and produces components at a. number of Army and ently held down bomber production in 1942 have by now been Naval arsenals, overcome. In 1939 the Japanese Government enforced the National Development and Organization of the Industry Mobilisation Law adopted March 24, 1938, and assumed control of the aircraft industry. In December 1941, the Aircraft The Japanese aircraft industry is comparatively young. Mamufacture-Ordinance was revised, and in addition to govern- Lacking experience it has relied upon foreign technical ment control over the manufacture of aero-engines, airframes assistance for development, at first principally French and and propellers, the new plan included control over all marsi- British, and later American and Gorman. Lacking strong sup- facturers carrying on production of parts, porting and related industries, it has had to develop these concurrently. At present there are probably well in excess of 200 companies contributing significantly to Japanese aircraft Japanese aircraft and aircraft ongine design reveals the production, 209 companies are reported as regularly regis- heavy dependency upon foreign technical knowledge that has tered members of an industrial association formed in late characterized the growth of the industry. Imitations and 1942 of concerns producing aircraft and parts for the Army. At least 140 companies and 175 factories have been identified by intelligence sources as produ#ing planes or components for the Japanese arned forces. Regraded Unclassified 116 -58- -59- production of tanks above 16 tons soons doubtful, although While Japanese aircraft production is definitely experimental models are known to exist, Current fighting greater and nore advanced than was generally recognized is not of such a nature as to cause Japan much loss of tank before Pearl Harbor, continuing expansion will be possible strongth. Losses to dato in tanks, except possibly for those only if many difficulties are overcomo, No single, out- on transports which were sunk, have been negligible. The standing bottlenecks are known to oxist, Production limi- wastage imposed by large-scale and long continued land con- tations appear generally to be those arising from the flict, however, would place a heavy strain on Japan's motor problems involved in the development and expansion of mass vehicle industry. production in a highly technical industry without the sup- port of well-establishod industries in rolated and support- Production. In March 1941 an estimated 175,000 auto- ing fields: mobiles wore under license or in military service in the Japanese Empiro. However, not more than 75,000 to 100,000 of these Tanks and Trucks were in operation during 1941, owing to fuel shortage and other economic difficulties. Under those conditions, trucks outnumbered cars by perhaps three or four to one, Estimated Japan's automotivo industry, like its airplano in- motor vehicle production in Japan during recont years is dustry, is of comparatively recont dovelopments. Signifi- shown in the following table: cant progross in domostic output was not achieved until after 1937-38. By 1940 total production of motor vehicles TABLE 21 is ostimated to have reached 23,525 units, of which 23,450 were trucks, Included within this latter figure would be Motor Vehicle Production in Japan Japan's output of armored vehicles, Year Passenger Cars Trucks Total Cycle Care Based on estimated capacity, total production of 1932 675 675 --- trucks and arnored vohicles is not believed to have ox- 1933 191 1,617 1,808 --- cooded 50,000 units for 1942 or likely to exceed 60,000 1934 35 1,915 1,950 895 units in 1943. The number of armorod vehicles included 1935 30 1,780 1,800 5,000 within this total 1a not known. The Japanese army, how- 1936 460 2,848 3,308 6,423 evor, is thought to have 85 mechanized divisions, supported 1937 650 3,280 3,930 10,500 by 15 units of special tank brigado forces. Those divi- 1938 500 6,600 7,100 10,000 sions and tank brigade units would require 4,400 light and 1939 300 18,500 18,800 modium tanks and 7,300 motorcycles with side cars, in addi- 1940 75 tion to trucks and cars. 23,450 23,525 The combined requirements for tanks and other motor It may be expected that the rapid progress in automotive units are not excessive and are probably within the capacities production achieved by Japan up to 1940 has since continued, of the Japanese motor vehicle industry. It would appoar, how- although the volume of production is still relatively small. ever, that the Japanese army is not heavily mochanized in com- Large s tockpiling of accessories and spare parts, accomplished parison with the forces engaged in continental Europe, Quantity prior to the Anglo-American "freezing" regulations of July 1941, would help to counteract the difficulties net by the industry in being thrown solely upon its own resources after that dato. The following table summarizes the capacity and possible out- put of the industry in 1942-43, estimated on the basis of an uninterrupted flow of materials and parts to meet stoady production under wartime pressure. Regraded Unclassified 117 -61- -60- TABLE 22 Military Requirements. Noods of the Japenose cray for armored vohicles, indicated in Toble 23 are ostimated on the Estimated Output of Motor Vohicle Industry, 1942-1943 basis of 85 divisions. It is not known whother all 85 divisions are completely equipped with the vehiclos included in the table, Estimated TABLE 23 Companios Product Estimated Possible Production Capacity 1942 1943 Estimated Japanoso Requirements in Arnored Vohiclos Typo of Vohicle Number Noodod for 85 Divisions Nissan Jidosha Kaisha Standard, Trucks 25,000 15,000 17,500 Nissan Jidosha Kaisha Small Scout Cars 4,000 2,400 2,800 Tanks - 4 ton 1,020 Toyoda Jidosha Kogyo Standard trucks 25,000 15,000 17,500 Tonks - 8 ton 425 Tokyo Jidosha Kogyo Military trucks 500 gallon tank trucks 425 and tanks 8,000 4,800 5,600 Trucks - 2 ton 28,645 Mitsubishi Jukogyo Armored vehicles Automobilos 3,315 and tanks 6,000 3,600 4,200 Motorcyclos (with sido cars) 7,310 Kawasaki Jukogyo Heavy armored cars 2 whool carts (500 lbs. capacity) 70,890 and tanks 600 360 420 2 whool horse anbulances 14,180 Ishikawajina Dockyards Tractors, tanks and Radio trucks 425 Company trucks 5,400 3,240 3,780 Ikogai Company Armored cars and Spocial Tank Brigado tanks 5,000 3,000 3,500 Niigata Iron Works Military trucks Type of Tank Number Nooded for 15 Unite and tanks 2,000 1,200 1,400 Manchuria Motor Car Diesel ongine Light tenks - 8 tons 795 Company trucks 1,500 900 1,050 Modium tenks - 16 tons 1,410 Total 82,500a/b/ 49,500g/ 57,7504/ Rocapitulation (Tenks and Spocial Motor Units) To be considered 100 percent caracity. Special Tank Brigado Total A higher figure, arrived at through calculations based on known For 85 Divisions For 15 Unita supply of key machinery, is given in BEW report E0-81. March 25, 1943 Tonks - 4 ton 1,020 1,020 Based on 60 percent capacity oporation. Tanks - C ton 425 795 1,120 Based on 70 percent capacity operation. Tenks - Modium - 16 ton, 1,410 1,410 Rodio and Tank trucks 850 850 The above table doos not furnish 6. broakdown on Japan's production of armored vehicles, information on which 1a not avail- Honvy Motor Power Units 4,400 Motor cyclos (with sido cars) 7,300 able, Howover, it is believed that the automotive industry sup- Required Total 11,700 plice Japan's full output of these vehicles, loaving the arsenals to mount the guns and special equipment. Estimated production of 23,000 trucks in 1940 was probably sufficient to cover Japan's military requirements at that time. Regraded Unclassified 118 -62= -63= TABLE 24 Ordnance Tontativo Estimatos of Japanese Allocation of Carbon and Procedure for Making Estimates. Due to the secrecy Alloy Steels for 1943 with hich Japon proceeded with its rearmament program after (Metric Tons of Rolled and Forged Steel)g/ 1937 very little is known of the extent to which munition plants have been expanded and increased in number. There- Carbon Alloy fore, indirect mothods of estimating ordnance production capacity have to be employed. The mothod followed in drawing Total Stoel Production 5,400,000 1,350,000 up the estimates modo in the attached tables was, first, to ascortain how much carbon and alloy stool Japan can allot in Civilian uses 2,625,400 362,600 1943 for ordnanco end comunition after meeting all other osson- Power Installations end Construction 230,400 57,600 tirl minimum requirements. The tontotivo ostimates crrived Railroods 645,000 5,000 at by this method disclose that Japan has evailable roughly Machinory, machine tools, mining, 2,774,600 motric tons of carbon stool end 987,400 motric tons shipyord, plent, herbor and other of alloy stool for all ortogorius of militery end noval ordnence construction, public services, in 1943. Including the noods of vital industries, 53 percent agriculturo, etc. 1,750,000 300,000 of Japan's total rolling mill stool production is sllotted to militery purposes. (Table 24). Militery uses 2,774,600 987,400 of Noval ships and guns (308,000 S.D.T.) 202,182 191,675 It is tentatively estimated that in 1943 Japan will be Merchant ships (620,000 GRT) 423,502 3,530 able to incrocso its production of ordnence and ommunition by Planes (10,000 plus engine replacements) 3,300 57,670 at lonst 20 percent over 1942 end 162 percont over 1937. Tonks, trucks, tractors, troilers, (Table 25) general service care, motorcycles and spero parts 200,000 120,000 Allocated to Novy and shipping programs (other then ships) 433,175 246,649 Allocanted to Army end Air programs (othor then planos, tonks, trucks etc.) 1,512,441 367,576 à Rolling mill steel production is ostimated to be 70 percent of ingot stool production. b. In addition to this figure there is available upwords of 1,000,000 M.T. of cast iron for Fcivilion uses". The amount of steel available for militory purposes in 1943 counts to over 53 percent of Japan's total steol production. According to a report of the B.M.E.W. dated October 20, 1942 Germany allotted 60 percent of its steol production for military purposes. The United Statos, in the second quarter of 1943, cllotted 46 percont of its pro- duction for all militory purposos. The merchant ships construction pro- groms of oll throe nations are included in the nbovo ostimatos. di It in ostimated that 1,000,000 N.T. of carbon stool and 500,000 M.T. of alloy stool of the total horo allocated might bo allotted to guns, bomba and comunition. This allotment may be compared with the 5,600,000 M.T. the B.M.E.W. ostimatos Germony allocated for ordnance in 1942. Regraded Unclassified TABLE 25 Estimates of the Amount of Steel in Japan Available for Milita Purposes, 1937-1942 (Metric Tons of Rolling Mill Steel) : : Percentage : : : : : :allotted for all: : Amount :Percentage of : : : military and : : devoted to : increase in : : : : naval purposes : :expansion of ;armamont pro- : Total : and categories Amount consumed :armaments : duction each Year:Carbon Stool Alloy Steel : Production : of ordnance. of in China "ar d/ : : year : : : : : : 1937: 4,101,300 : 308,700 : 4,410,000 : 40.5 : 500,000 : 1,288,000 : - : : : : : : 1938: 4,221,000 : 469,000 : 4,690,000 : 47.2 : 700,000 : 1,512,000 : 17.4 : : : : : 1939: 4,410,000 : 490,000 : 4,900,000 : 48.6 : 700,000 : 1,680,000 : 11. : : : : : 1940: 4,515,000 735,000 : 5,250,000 : 45.5 : 430,000 : 1,960,000 : 16.6 : : : : : : 1941 4,648,000 : 952,000 : 5,600,000 : 43.6 : 200,000 : 2,240,000 14.2 -79- : : : : : 1942: 4,900,000 : 1,225,000 : 6,125,000 : 48.4 : 200,000 : 2,765,000 : 23.4 : : : : : Total allotted for military purposes from 1937 to January 1, 1943 (exclusive of losses in the China Var), in motric tons of rolling mill steel 11,445,000 a Includes morchant and naval ship construction. Rolling mill steel production is ostimated to be 70% of ingot stool production. After deducting basic noeds for civilian economy; railroads, mining, industry in general, electric powor facilities, etc. estámatod to bo an average of 2,800,000 motric tons of rolling mill stool a year. di Based on a statomnt made by Major-Goneral Sato, Chief of Military Affairs Soction of the War Ministry in a speech on March 10, 1942 as reported in the Japan Timos and Advortiser to the offect that the China Tar had consumed up to that time 20% of the steel allocated for military purposes. male labor. These transfers can be made as follows: tions,in others through the substitution of female labor for in some cases through a net reduction in the civilian occupa- this increase, transfers can be made from civilian occupations, It is estimated that during 1942 Japan will require an with increasing efficiency. three millions. VI. MANPOWER additional 615,000 persons for its war industries. To effect Industrial Requirements power recruitment, training, and allocation will be handled in the field for many years, and it may be assumed that man- been completely unified, official controls have been operating While administrative control of manpower has not yet but there will still remain female labor reserves of about cations, Japan's male labor supply will be about exhausted, comb-oute from civilian occupations. After these re-allo- and to enlarge its arned forces by about 495,000 through increase employment in war. industries by about 615,000, It is expected 'that in 1943 Japan will be able to Summary -65- 11 Regraded Unclassified -66- -67- 120 TABLE 26 Transfers of Manpower to War Industries, 1943 Female 37,450,000 25,253,000 12,197,000 32.6 6,800;000 121;000 193;000 1;883;000 1,800;000 400;000 425,000 475;000 100,000 1 Estimated Releases Estimated Increases Regraded Unclassified Industries Jan. - Dec., 1943 Jan, - Dec., 1943 (in thousands) (in thousands) Males Females Total Males Females Total 37,504,000 14,453,000 23,051,000 61.5 6,700;000 635;000 359;000 6;587;000 2,200;000 850;000 1,825;000 25;000 300,000 3,570,000 War Industries 1943 Metals, Machinery (Estimates) Male Shipbuilding, Ordnance 370 185 555 Chemicals 48 12 60 4,000;000 1;250;000 2,250;000 500;000 400,000 3,570,000 Total 418 197 Total 74,954,000 39,706,000 35,248,000 47.0 13,500;000 756;000 552;000 8;470;000 615 Mfg. & Bldg. Building 50 50 Ceramics 25 25 12 12 Clothing 5 20 Food & Drink 25 25 25 25 Lumber, Woodwork 55 5 60 Paper, Printing 65 10 75 Textiles 27 106 133 Other Mf'g. 13 12 25 265 153 418 7 Japanese Population and Labor Force 1930 and 1943 Female 32,059,850 21,356,847 10,703,003 33.4 6,397;042 45;546 41;046 1;430;430 1,464;195 78;979 352;348 697;116 82,701 113,600 I 25 Elect. & Gas. 7 1 8 22 TABLE Distribution by Industries and the Number in Armed Forces 100 (Japanese Census) 32,390,155 12,816,518 19,573,637 60.4 7,743,065 501;078 210;174 4;269;151 3;013;903 1;028;595 1,448;803 84;203 488,265 206,400 580,000 Total 38 45 1930 Male Agriculture 100 100 100 Commerce 380 380 80 80 Professional & Administrative 25 25 25 25 1;107;574 781;319 570,966 320,000 Other Civilian 64,450,005 34,173,365 30,276,640 47.0 14,140;107 546;624 251;220 50 200 Total 5;699;581 4,478,098 1,801;151 580,000 Occupations 150 Total 655 50 705 205 205 Grand Totals 920 203 1,123 425 440 865 Total Population Unoccupied In Labor Force or Army Percent in Labor Force Farming Marine Mining Industry Commerce Transport Public Service Domestic Miscellaneous Unemployed Armed Forces 121 -60- -69- Military Requirements alightly--between 10 and 20 percent--as compared with produc- tion of producers' goods which increased by more than 150 Far Department estimates for the numbers engaged in the percent. Anong the producers' goods that expanded most were those in the iron, steel and rachinery industries where the armed forces of Japan 86 of December 31, 1942, are as follows: index in 1940 stood at 341 percent of the level of 1931-1933. Army (including Army Air Corps) 2,750,000 The exhibit on Private Factory Employment (Chart I) Navy (including Naval Air Force) 325,000 shows the steep curve of increase in the war industries be- Total 3,075,000 tween the beginning of 1937 and the middle of 1939, Employ- mont in the machine trades increased over 100 percent; in According to estimates in the foregoing table, some tools and instruments, over 85 percent; in shipbuilding, 920,000 males can be released from civilian employment in metal work, vehicles, over 50 percent; in fortilizer, over 1943. Of these, some 425,000 will be needed to increase 40 percent. Whereas recruitment in the metal industries, the employment in war industries, thum leaving 495,000 for example, in 1933 had been at the rate of 5 to 6 percent available for the arred forces. The addition of this number a year, by 1938 it had reached nearly 30 percent a year; over to those already in the armed forces at the end of 1942, the same period of time the rate of recruitment in the machine gives a total of 3,570,000 for 1943. Estimates of casual= and tool 'manufacturing industries had jumped from 4-5 parcent ties for the past i'ive years have averaged 200,000 a year. to 45 percent; in shipbuilding and conveyance manufacture from Assuming that casualties for 1943 will be not from last 1-2 percent to 25 percent per year. year's conscripts, and that these, in turn, will be replaced up to about 300,000 by the annual male increment to the popu- During this period of sweeping industrial conversion, lation, the 495,000 new nales released from industry would rapid and critical adjustments had to be made, Serious short- represent a potential not increase to the Japanese armed ages of nanpower appeared, particularly in skilled labor and forces, technicians. The facilities of technical schools proved en- tirely inadequate to meet the demand. In 1938, 44,000 jobs Labor Reserves were offered to the 7,500 graduates from "A" Class Engineering Schools . The discrepancy in the engineering field between Males. Male labor is believed to be fully utilized. trained men and positions offored was evident as far back as Estimates of Japanese population and employment show that 1933; by 1937 the domand was already more than 4 times greater the labor force already contains in excess of 1,000,000 than the supply. male workers under 15 and over 65 years of age. Training Programs and Labor Mobilization Fomales. An employable reserve of about 3 million women was bolieved to oxist at the close of 19/2. Japan Since that time, however, Japan has taken stops to organ- may draw on about 110,000 from this roserve to replace izo manpower and to train and allocate it for naximum officiency males in the coming year. To replace those, in turn, there in war, The first step, after registration of all civilians in will be the annual increment of about 300,000 from the August 1938, was the passage of an Ordinance compelling the train- growth in population. Of those, nany will never ontor the ing of technicians and skilled workers. Under this Ordinance all labor market, A continuing reserve of about 3,000,000 important private industries were required to give 2 to 3 year women in 19.3 soons, therefore, to be likely, training courses following detailed government prescription and under close government supervision. In addition to these, govern- Industrial Expansion ment training schools were also set up to meet the need, Largo withdrawals for military service during and Soon thereafter, employment of all workers in war industries after 1937 coincided with a tremendous expansion in heavy was restricted and made dependent upon consent of the government industry. Botwaon 1931 and 1940 the general index of employment offices, Then followed, botween July 1939 and Septem- industrial production (all industries) increased 100 per- ber 1940, the National Civilian Conscription Act, making males cent, Production of consumers' goods incroased only between 15 and 50 in designated (war) industries subject to labor Regraded Unclassifie -70- -71- 122 assignment by the state; the Ordinance restricting the employment of young and juvenile workers (male 12-30, VII. PROBLEMS OF WARTIME ECONOMIC ADMINISTRATION fenales 12-20), rationing the supply by quotas and, giving preference to war industries; and the Ordinance to stop Summary labor turnover, which instituted a universal system of work- record passbooks as a means of forcing labor market stability. During the latter half of 19/2 & continuous series of Later, an industrial manpower directorate was created under readjustments in' economic administration reflected Japan's the Labor Service Readjustment Ordinance, enforced on January 10, efforts to meet the demand for greatly increased arms pro- 1942. Employment and dismissal of workers in key industries, duction. In January 1943 radioal proposals vesting much and assignment of training school graduates, were placed under greater powers in Premier Tojo wore submitted to the Diet control of the director of & National Employment Instruction in ordinance form. By February, while the ordinances were Institute established by this Ordinance, still being railroaded through the Diet, a specific program affecting the key industries from which greater production By now, Japan's training and apprenticeship program is required in the current stage of the war was being d'- has been in effect nearly four years. The first class of fectuated. graduates, trained in skills and technical knowledge, joined the active labor force in March 1942. This program should Five so-called "main" or "nucleus" industries--aircraft, provide an increasing number of the skilled workers which shipbuilding, iron and stool, coal mining, and the light effective prosecution of the war requires. setals--havo been given priority status with respect to materials, labor, capital, power, and transport facilities. In manpower organization, the early difficult adjustments Operational authority over these key industries is being have been made, Needed transfers have been effected from non- centered in the Cabinet under Tojo's immediate direction. essential to essential production; from agriculture to war in- This program of "planned production" thus involves a radical dustry. Administrative control of nanpower is still not unified, contralization of administrative controls previously divided since the National Employment Institute lacks control over (1) between the Cabinet Planning Board, the Ministries, and the military conscription, (2) agriculture and allied occupations, Industrial Control Associations, (3) government personnel, and (4) designated Welfare-Ministry occupations. Official controls operate in all spheres, however, Difficulties in administrative coordination which pre- and it may be assumed that manpower recruitment, training and vailed in 1942 will be largely remodied under this now system. allocation will be handled with increasing efficiency. Production in the key spheres of iron and steel, coal, ship- building and aircraft will thereby be accelerated in 1943, thus adding a further increment to Japan's economic potential. Nature of the Administrativo Struggle At the beginning of 1943 the Japanese were engaged in a radical overhaul of their system of economic administration, looking towards more centralized state control and operation of industry. Tojo himself, representing the Army, was seeking direct operational authority over the basic war industries, including iron and steel, coal, and chemicals. Resistance to this effort by the industrial leaders had created a minor, and probably temporary, crisis in wartine administration, Underlying this struggle W&B a crisis in war production, mainly arising from the encrmously increased tasks laid upon Japanese industry. The basic problem of vastly expanding shipping and ermanents production against relatively inflexi- ble limits of plant equipment, machine tools, and trained Regraded Unclassifie 123 -72- -73= personnel had passed into an emergency stage. These concrete Activities in the nowly occupied territories had to be difficulties in the production sphere were intensified by A guared into this domostic program. Only the barost minimum lack of effective centralization in the administration of of capital goods equipment could be allotted to the exploita- Japan's wartimo economy. Administrative powers word scat- tion of the southarn regions, Developmental projects had to tered through a half doson Cabinet Ministries, inadequately be strictly adapted to the immediate requirements of Japan's coordinated by the Cabinet Planning Board. A unified policy homo industry. Economic activity in the south was therefore was thus lacking at the top, within the Cabinet itself. mainly directed toward the rapid extraction of certain key Under such conditions it was impossible for the Cabinot to minorals and agricultural products in which Japan was dofi- give centralised diroction to a newly organized set of In- cient and for which equipment and labor power were largely dustrial Control Associations, which exercised semi-autonomous available on the spot, Machinery and tools were supplied powers within the field of industrial management and operation. to relatively few enterprises, among which the most vital were oil processing, extraction of a few of the key metals The program submitted to the Diet by Premier Tojo in (lead, zine, chrone and nickel), and possibly shipbuilding January 1943 was mainly designed to ovorcome this administra- at Hongkong and Singapore, tive disunity. Under the program, Tojo will be given author- ity to issue aconomic directives to any of the Ministrics and Administrative Differentiation: Outer Zona yo, Inner Zone to transfer administrative functions from one Ministry to another. Tojo will thereby be empowered to assign to B. single These factors sat the pattern for the najor changes in Ministry, probably the Ministry of Commerce and Industry, Japan's administrative structure which have occurred during contralized authority over the management of the key war in- the war. Careful limitation of offort was required in the dustries, To facilitate this transition, the industries so south, rapid expansion was nseded in the north. affocted will be directly taken over by the state, under powers conferred by the National Mobilimation law. Outor Zone. The military governments in the south have reticulously regulated the dogreeof exploitation per- An internal struggle of considerable proportions is mitted by the Japanese business interests and carefully occurring while the now system is being put into effect. Once limitod the flow of trained personnel into this area. the change is made, homover, it may be expected that a much Establishment of the Groater East Asia Ministry on November 1, more effective administration of wartime production will result. 1942 was essentially aimod at confirming the rigid control During 1943 this improved administrative system will materially over oconomic policy in the Outor Zono (mainly the southern assist Japan's efforts to increase production, thus adding B territorios) alroady boing exercised by the local military new increment to Japan's var potential. administrations. The Army was determined to prevent a flood of private investors and entreprenours from swooping over Background of the Crisis the southern regions. It was koonly aware that no compre- honsive long-torm development of the DOW southern conquesta The full scope and magnitude of the economic problems could be corritted while the issue of the war was still un- confronting Japan have emorged only during the past six months, decided, It. was intent on ono aim--subordination of exploi- The initial tasks of the war, primarily involving conquest of tative and developmental activities to the requirements of Southeast Asia and the Southwest Pacific archipolagoes, were war, successfully accomplished by utilisation of the stocks of finished munitions and the hipping tonnage accumulated during The local southern military administrations could not previous years. In the summer of 1942, with the beginning of of themsolvos assure the attainment of this aim. Authority the United Nations' countor offensives in the Solomons and over the broad lines of Ministerial policy in Tokyo had New Guinea, much groater oconomic tasks had to be faced. to be obtained. The Groator East Asia Ministry, vested with over-all administrative powers in occupied torritories On the homo front, industrial production had to be raised and dominated by the Army, was established in order to nail to new lovels. The output of basic industry, especially iron down this authority and nalco it socure. Jurisdiction of and steel, coal, alumimum and copper, had to be increased. this Ministry extended to Manchuria, Occupied China, South- Industrial processing capacity had to be rapidly expanded in cast Asia and the Southwost Pacific, 1,0., the territories conbat armament (notably aircraft) and shipbuilding. Regraded Unclassified -74- -75- 124 occupied since September 18, 1931. The old-line Ministrics were designated by the competent Minister and could be removed retained authority over the pro-1931 Japanese Empire (Japan if they acted against the "public interest", In most branches Proper, Korea, Formosa, Karafuto, and the Mandated Islands). of industry, however, private cartels had previously existed and the newly appointed presidents of the Control Associations The Innor Zone. The actual economic line of division, were drawn virtually in toto from the loading executives of it should be emphasized, diffore from this formal administra- these organizations. Each Control Association was placed tivo line of division. The essential Innor Zone, which Japan under the authority of a competent Minister of State; most must retain at all costs if its war economy is to function of the Associations were responsible to the Minister of Com- effectively, includes Japan Proper, Karafuto, Korea, Manchuris, merce and Industry, the Minister of Finance, the Minister of North China, and Formosa, Communications, or the Minister of Agriculture and Forestry, (See Chart in Appendix). Over-all production schedules, The central problem of wartins economic administration drafted by the Cabinst Planning Board, wore assigned to the did not lie in the southern territories. It lay rather in Control Association by the competent Minister. Each Asso- the Inner Zone and particularly on the home front in Japan ciation was then responsible within its field for control Proper, where the munitions industry is largely concentrated. of production, the supply of funds, material and labor re- Here the task of mising productive capacity to new levels quired, and the allocation of schedules among its member has proved complex, as indicated by a steady series of enterprises. administrative readjustments. The year 1942 was marked by the formation of Control Associations in all fields of This streamlining of economic administration had ob- economic activity and by the increased powers assigned to vious advantages It helped to simplify the problem of the Cabinet Planning Board, These dovices for unifying and scheduling production under emergency wartine requirements. centralizing the administration of war-time production were Cabinet Ministers or members of the Cabinot Planning Board, still inadequate, In January-February 19/3, as already in framing schedules and assigning quotas, were able to deal indicated, several basic industries were being subjected to with broad over-all fields of industry, headed by a small government control and operation, while Tojo was seeking Diet group of business executives in the Control Associations, approval for a set of unprecedented powers designed to can- Ultimate responsibility for production, once the schedules centrate full authority over wartine economic administration were fixed, was placed on the Control Associations. in his hands. A complex group of administrative problems lay behind this series of readjustments. On the other hand, in actual operation the system revealed important drawbacks. It represented a compromise Administrative Problems on the Home Front botween the Army and big business which toned down the former's demand for strict government control, The Control Japan's war economy is planned and administered not by Associations were organized essentially on lines proposed special agencies but by the Cabinot hoaded by General Hideki by the business monopolies (the Zaibatsu). They retained Toje. (See Chart). Over-all programs are initiated by the a large degree of autonomy in management. The various Cabinet Planning Board but are subject to Cabinet aporoval. Ministers holding oconomic portfolios, moreover, might Assignments of production schedules to the Control Associations be inclined to give greater weight to the views of the are made by the competent Ministers. In order to make clear Control Associations than to the demands of the Army. the difficulties which have arisen the roles played by these Under these conditions, it in difficult to 8.85055 the agencies must be examined in reverse order: (1) the Control extent to which a "business-as-usual" attitude may have Associations, (2) the Planning Board, and (3) the Ministries. prevailed in the Control Associations. The Control Associations. Since the autumn of 1941, the More significant was the lack of effective contraliza- greater part of Japanese industry has been marshaled into tion of administrative authority. The Planning Board drafted semi-official cartals, The ordinance empowering this program, the over-all production schedules, but these schodules had known as the Major Industrial Organizations Control Ordinance, to be approved. and formally assigned to the Control Associa- was approved on September 1, 19/1, By June 1942 Control Asso- tions by the Ministries. Three difforent Ministries (Commarce ciations had been formed for each key industry such as coal, and Industry, Communications, Agriculture and Forestry) were iron, machinery and chemicals. Presidents of these Associations Regraded Unclassified 125 -76- -77- involved in this process, while ordnance and naval ship-, The serious problem existing at the end of 1942 was first building were-handled by factories directly controlled by met by an attempt to strengthen the powers and coordinating in- the Army and Navy Ministries. The differing jurisdictions fluence of the Planning Board, A Committoe for the Increase of the Planning Board, the Ministries, and the Control and Strengthening of Emergency Production was set up within Associations created possibilities for delay and friction. the Cabinet in November. It was composed of representatives The semi-autonomous powers of the various Control Associations from each Ministry and its chairman was Ldeutonant-General permitted competition for raw materials and manpower which the Teichi Suruki, chief of the Planning Board, The Committee several different Ministries could not themselves control. was empowered to formulate and put into execution plans to increase emergency production of stratogic commodities, This These serious limitations on efficient administration program was to be achieved by adjusting and unifying the ad- of war production did not immediately become apparent. An ministrative duties of the various Ministries with respect to indication of the difficulties encountered was the fact that labor, matorials, transportation, vital consumption goods and in May 1942 the aluminum industry was subjected to full state the enterprises concerned with same, To facilitato application control. Details in this case are lacking but, judging from of the program, regional Deliberative Coordinating Councils later developments, the operational autonomy of the industry based upon local administrative areas and composed of mombers was abrogated in favor of direct administration by a government of the various district offices of each Ministry were established, department, presumably the Ministry of Commerce and Industry. The first neeting of the new Committee was hold in mid-December 1942, when plans wore discussed for improving the distribution Toward the end of 1942 B. more serious, and nuch more of matorials and onhancing productive capacity. By this time, general, crisis in the administration of the war economy however, it had alroady become apparent that the now Committee developed. By this time the necessity for a large-scale would not be able to met the demands of the situation. Much expansion of munitions production to meet the demands of a more radical moves, revealed at the Diet session in January, long war had become urgent. The weaknesses of the existing word already being prepared, Those moves had been foroshadowed system of economic administration had neamwhile become so pro- on November 20, when the aircraft industry was placed under nounced that drastic changes were seen to be necessary. At diroct administrative authority of the War Ministry. the outset the problem was tackled through the Cabinet Planning Board, Direct Government Control of Key Industrios. Important stops in the direction of full stato control of certain key Planning Board. The Cabinet Planning Board was, in effect, industries (in addition to aluminum and aircraft) were an- an instrumentality of the Army, designed since 1937 to function nounced at the end of January. The industries involved word as an economic general staff and industrial mobilization agency. iron and steel, coal and chomicals. In the latter case it But, though its powers had gradually increased, especially was stated that the Commorce and Industry Minister would con- through assumption of the authority to draft over-all production solidate "167 modium and small (chemical) enterprises into schedules, the Planning Board had never been able to set anide a cooperative and strong enterprise," and would "carry the ultimate control over the national economy exercised by on B. comprehensive management contored around a largo-scale the various Ministries. It considered bills drafted by the factory with superior facilities and techniques". These Ministries, prepared opinions on such bills, and could itsolf movos ovidently envisaged unrestricted government appointment draft-proposed legislation, but its actions were not binding of the exocutivos in the industrics concerned as woll as on the government. In all cases, its recommendations had wholesale invasion of the sphoro of management and operation. first to obtain Cabinet approval before being put into effect. Such EL program, applied to the great iren and stool and coal It had largely influenced the drafting of the National Mobili- industries, was far different from the caso provided by the sation Law in 1938, but in 1940-1941 its program for outright relatively small and compact aircraft industry. state control of industry had been set aside in favor of the Control Associations' system proposed by the Japan Federation To put this radical program into offect, Promior (and of Industry and the Japan Chambers of Commerce. In recent War Minister) Tojo evidently falt that UVUD groater adminis- years, its most important function has been the drafting of trative powers had to be placed in his hands. To this end, production schedules-which, however, were subject to approval two ordinances were framed and submitted to the Diot for and enforcement by the Ministries, approval. Regraded Unclassified 126 -78- -79- 1, The first ordinance has not been outlined in detail. 1. They will be brought under Tojo's supervision It is morely stated that it will give Tojo "a position one through his new ordinanco powers, stop above the other Ministors". This revolutionary don- stitutional innovation is apparently nocessitated by reason 2, A schedule of production increase will be worked of the economic directives ho will honceforth be empowered out by the Planning Board. to send to the various Ministors. 3, This schedule will no longer be tondored as "advice" 2. In rogard to the second ordinanco, it in stated: to the Ministry concerned. Instead, Tojo will be able to "The control of Japanese war production, which at present order the competant Ministry to carry out the program. 1d apportioned among the Ministries, will ba consolidated and put under the supervision of the Promior." To do this, 4. In offectuating the program, the competent Ministry the ordinance will ompower Tojo (1) to take ovor special will be empowered to co8pt materials, labor, capital, power, powers diroctly with rogard to labor, transport, materials, transport facilities, and living necessitios (for the factory power, and capital; and (2) to transfer Ministerial powers, or nine workers). 1.6., to order the Commarce and Industry Ministor, for example, to tako over powers hold by other Ministries. 5. The competent Ministry will assuno much more direct administrative control over the "nuclous" industrios. It Those draft ordinancos, along with the proposals to will be able to spooint new directors, expand the industry, take over key industries, have given rise to an internal consolidate member units, sto., as it 8003 fit. strugglo of considerable proportions. The ons-week post- ponement of the Diet session was apparently nado necessary Under Tojo's now powers, as expressed in this system of by the opposition which had developed to Prenier Tojo's "planned production" the centralization of authority ever 000- demands for increased economic powers. It scens unlikely nomic administration proviously lacking will be obtained. This that the opposition will be able to prevent approval and factor should materially increase efficiency of production during enforcement of the now program laid down by Tojo. The in- the coming year, especially after the immediate orisis over the ternal struggle thus precipitated may have the temporary readjustment has passed. effect of slowing down production rather than increasing it, especially as the issue runs no deop. The Army can in no sense bureaucratizo industry completely; it does not have the trained men to do such & vast job. It can only tako over supervisory and managorial authority, working through the Ministries and the Cabinet Planning Board, Such authority may be so extensive that the resentment of the business leaders will be reflected in the productive sphere. On the other hand, the Army ovidently thinks it can got improvement by forcing & much groater and more direct measure of stato control. to in provious instances it is likely that, onco a docision is reached, the businoss loaders will accept the situation and work with the Army effectively. By mid-Fobruary, even bofore the ordinances had gained Diet approval, the new program vas being put into offect. A group of five industries--the so-called "main" or "nucleus" industrios--had been set apart for special treatment. These were the aircraft, shipbuilding, iron and: stool, coal mining, and light netal industrios, For such industries (and for others expected to bo added to the list) a program of "planned elementa: production" is to be appliod, involving the following major Regraded Unclassified 127 -00- -01- VIII. FACTORS AFFECTING JAPAN'S FUTURE ECONOMIC POLICIES Virtually all of India's iron and steel are produced in the Tata Iron and Steel Works at Jambhedpur and in the Bengal Steel Corporation's plant at Burnpur, Japan in in the addet of a transition from a policy of expansion and conquest to a policy of consolidation and The principal mico deposits now available to the United defense. This shift is not due to a present weakness or to a Nations are at Hazaribagh just north of this district. The prospective decline in Japan's economic war potential, In only jute producing region and the world's largest jute mami-> fact, it in probable that Japan's capacity to produce combat facturing industry is nearby, northeast of Calcutta, The armament will expend throughout 1943. It is due rather to the principal iron ore deposits and the principal coal fields are fact that Japan's relativo position appears to be weakening immodiately south of this industrial triangle. From the point because of (1) the expanding power of the United Nations of view of Japan the processing capacities (particularly the (particularly in respect to naval construction in Japan as cop- stool and munitions plants) are more important than the raw pered to that of the United States), (2) to tho apparent materials. The obvious advantage of depriving the United weekening of the German position, and the possibility of a Nations of the only remaining important industrial base in defeat of Germany which would leave Japan alone against the Asia is also a significant consideration. world, Siberia. The immodiato economic inducoments to offonsivo action in Eastorn Siberia are rolatively unimportent. Honce, These future considerations are influencing current if action is taken in this area, it will probably be due to Japanese oconomic policy. On the one hand Japan in making proporations to hold on to areas presently possessed as long military rather than economic considerations. as possible; on the other hand, provision is being nado against On the other hand, it should be notod that the coonomia the possibility that these aroas cannot be hold. Japon 10, base for offorsive action against Siboria (in torms of stock= therefore, attompting to build the nost completo oconomier) piles, arsonals, stratogic rail lines and port facilities) is self-sufficiency possible within an inner sone of defense. the most powerful in any eron outsido of Japen Propor. It should also bo noted that Japan's present inports from Korea Economic Factors Affocting Offonsive Policios end Manchuria requiro over sixtoon clocrances a day from ports in these creas. Those ships carry less than ono-helf of a full This analysis should not be interpreted to moch that Japan cargo on their return voyage from Japan, thus making it possible lacks offonsive power at the present time, It neans rather that to ship non, munitions and supplies to Koren and Manchurie militery fectors have bocome relatively more importent and without increasing the need for now tomage. Honco, an n11-out oconomic factors loss important in the dotormination of Japan's offensive against Siboria would not interfere with Japan's offensivo policy now that the noodod raw materials are in oconomic program 88 scriously na the size of these operations Japanoso hands. would imply. China, Insofer as oconomic considerations do influence From an economic point of view the opposing considerations policy, however, it my be said that the strongest inducoment are that Japon's two groatest oconomic weaknesses are shipping to offensive action lies in an offort to defont China. China is and the groat Japanose industrie] conters, both of which are the key to the coonomic consolidation of Japan's position, if threatened in CADO of Action against Siborio. In considering not to its further expansion. The complete defect of China offensive action in this cron, Japan would thus neod to balance would roduce the oconomic drain which guorilla worfare and the the military advantages against the possible oconomic disadvent- maintenanco of n Inrgo activo army in China entrils. It would ages of submarino action against Japenose shipping and bonbord- also make possible c. much more offoctivo exploitation of the mont of Japaneso industries. The nnswer would depend upon the resources of China which Japen already possesses. repidity of Japan's occupation of the constal aron from which Russia must employ those tootics. India. The scoond most importent oconomic induccment to offonsivo action is in northocatorn India. The trianglo formed by Calcutta, Jamshodpur and Burnpur constitutos the industricl heart of India. Throe-fourths of all wer production including nearly all of the munitions planta are located hero. Regraded Unclassified 128 -82- -03- Continental and Island Air Bases to Consolidate Japan's Economic Position Japanese offensive during 1942, there has been a tendency to swing to the other extreme. Japan's basic economic capacities Under existing conditions there 10 a logical trend from are considerably smaller than those of any other mier sea power to land based air power as a basis for the consolidation belligerent power with the exception of China. Table 30 provides and defense of Japan's present empire. Such a system would be a basis for comparison in the three landing catogories of steel, made up of a network of air bases extending down the Asictic coal and electrical power. The great superiority in the basic Coast and dotting the islands of the Southwest Pacific, Ita economic strongth of the United Nations is not moaningful, complete development would require an inland rail transport however, until it is embodied in combat armanent and the system extending along the Asiatic coast from North China to capacity to transport it, A comparison between Japan and the Singapore arranged so as to give maximum support to such air bases, United States alone indicates how rapidly Japan will be out= It would also require a sufficient dovelopment of machine shops, distanced in these respects during the current year. It is esti- productive facilities and assembly plants to provide the equip- matod, for examplo, that the United States will construct over ment necessary for their mointenance, 19,000,000 deadweight tons of now shipping during 1943 whereas Japan will probably construct not moro than 650,000 gross tons To complete such a program would require a greater economic (approximately 1,000,000 deadweight tons). The total aircroft offort than Japan ann make in 1943. Many steps have boen and production in Japan during the current year will approximato can be undertakon, howover, which will yield immodiate advantance 9,000 planes of all types whoreas the United States will produce that make thom worthwhile. A program of this sort tends to approximately 100,000 planos, Similar differences are to be emphosize the importance of offensivo action in China in order to found in naval construction, tanks and trucks, and ordnance, consolidate Japan's continental position and to malco it possible to develop a gdnuino continental rail system from Manchuria to The following factors, however, largoly offset those Singaporo. adventages of the United Nations: The Prospoctive Increase in Japan's Economic (1) Four to fivo times as much oconomic potential in boing Potential During 1943 devoted to the European theatre os is boing devoted to the For Eastern theatre of action. Japon possesses raw materials in quantitics potentially sufficient to employ from two to three times the present volume (2) The shipping of the United Nations is insufficient to of Japaneso shipping and processing capacities, make available combat armament fully effective at those points where it is required. Bocause of limitations in these latter respects, howover, the actual overall incroase in Japanese productive capacity during 1943 vill be only 0 small fmaction of this potontial. docado, Hence, evon if Japan were forced to a much higher lovel (3) Japan has been stockpiling combat armanent for over a of var activity, a considerable period would elopse bofore It is ostimated, for exemple, that the stool and the power roliance would have to bo placed upon current production. output of Japan will increaso only by about 10 percent during the current year. Sinco most of this increase is dovoted to combat (4) Japan has achieved goographic positions both on the armomont, however, increases in the production of for matorial continent and in the island ordas of the matern Pacific -hich vill bo considerably greatur. The production of aircreft pro- system. The hocrt of this system and the essential elements of give moximum protection to the heart of the Japenese oconomic bably vill increase about 25 percent, tonks and trucks 16 por- cont, ordinances 22 percent, locomotives 10 percent and fraight Japen's war potential are concentrated in a northern Innor Zono, care 15 percent, embracing Japon Proper, Koroa, Manchuria, North China and Formosa. The Economic Position of Japan as Compared With Other Mcjor Ponors Prior to the attack of Poarl Harbor Japan's oconomic potential was under-ostimated, but because of the powerful Regraded Unclassified 129 -85- -84- TABLE 28 IX. THE CONCENTRATION OF JAPAN'S ECONOMIC POTENTIAL IN THE INNER ZONE Estimated Curront Annual Production in Throo Koy Industrics, in Unitod Statcs, United Kingdom, U.S.S.R., Japan, Axis Europe, 1943 Japan is concentrating on a long-term program designed to make the inner zone self-sufficient for wer purposes. There Electire Porte is a popular impression that the occupation of the rich rew Stool Ingota Coal (1,000,000 materials area in Southeast Asia led to a suspension of this Country (1000 motric tons) (1000 motric tons) kilomit hours) program. On the contrary, the raw materials in the inner zone have been exploited more intensively. The building of synthetic Japan 7,200 59,500 55,840 oil plants, the utilization of aluminum shale, end the extrac- tion of iron oro, for example, have all been promoted in order Japan, Korca, Manchuria end North China 9,000 103,000 75,350 to increase self-sufficioncy in this area. At the same time U.S.S.R. 14,000 90,000 22,500 the dovelopment of basic processing capacity alroady contered U.S.S.R. (Pro-1941) 20,500 171,000 58,500 here has been carried on as rapidly as possible. Axis Europe 40,000 611,000 135,000 As a result of these policios the continental oreas near United Kingdom 12,000 250,000 31,000 Unitod Statos 82,600 603,500 237,000 Japan (Korea, Manchuria, and North China) have become a very substantial part of Japan's total war oconomy, In the process= ing industrics important in nor (perticularly iron and stool), those arons have become 50 closely integrated with industry in o May now bo loss; last available figure is for 1938. Japan Proper as to constituto an indisponsable part of the whole, The following summary indicatos (1) the growing depondence of Japan Proper on the other parts of the inner sone and,. (2) the remarkable dogroo of solf-sufficiency which has now boon achieved within the innor zono, Processing Capacity Well over 90 percent of the processing capacity of the greater East Asia sphore is concontrated in the north. The con- contration of wor industry in the Innor Zono in almost complete. entirely in Japan Propor. A completo picture of tho industrial Heavy industry, moreover, is no longer contorod álmost plants in Manchuria and Koroa is not avnilable, but onough in known to indicate a substantial incronso in Japan's dependence on the continent's processing capacity during rocont yours. This dopondence in most marked in the iron and stocl industry. In other fields, such as the production of chomicals, the pro- coasing of bauxite and alum sheles, the output of ordnance, synthetic and shalo oil production, and assombly (and portial manufacture) of cirplanos, tanks and trucks, Japan's relinnce on the rost of the Inner Zone has also increased. measure of the Manchurian-Koreon-Pormcean contribution to the Figuros on cloctric power instellations offord a rough Innor Zono's processing capacity. Of total installed capacity of roughly 17,000,000 kilowatts, Japan Propor has 77.7 porcent, Regraded Unclassified 130 -06- -87- while Korea, Manchuria and Formosa together have 22.3 percent, Approximately 9,000,000 tons of pross steel ingota were (If these figures are noopeted as an index of processing capacity, produced in 1942. Steel fúrnaco capacity (open hearth and nearly one-quartor of the Inner Zone's processing now takes electric) is also somewhat larger than the 1942 output. Excess place outside Japen Proper.) In 1937 Korea, Manchuria and capacity in much less than in the case of blast furnace Formosa possessed considerably loss than 20 percent of the power capacity, however. Of the 9,000,000 tons of gross stool ingots, installations. Japan Proper supplied 00 percent, Manchuria 16.7 percent, end Korea 3.3 percent, Iron and Stool During 1943 rolling mill capacity will continue to be the As a rosult of the pressure to increase iron oro oxtraction min limitation on stool production. Some increase will be and to expand blest furnace capacity in the Innor Zono during attained, but at a slow rate. by the end of 1943 the present recont years, virtual independonce of outsido supplios has now annual rate of 6,300,000 tons of stool for finished products been assured. A summation of production ratos ronched by Japan's may possibly have reached a rate of 7,000,000 tons. or the iron and stool industry in 1942 may be expressed in c. serios of 6,300,000 tons output, Japan Propor supplied 00.4 percent, four figures: iron oro utilization (16,000,000 tons); pig iron Manchuria 16.1 percent, and Koron 3.5 percent. (This breakdown production (6,200,000 tons 2/); gross stool ingota (9,000,000 excludes on additional 600,000 tons of cost iron), tons);semi-finishod stool (6,300,000 tons 2/1. (Boo the chert of Production of Forrous Row Materials, Iron and Stool in the In summary, the processing capacity of the iron and steel Appondix), industry is concentrated almost 100 percent in the Inner Zone. Only iron oro, and that in small amounts, comes from the Outer The only possible Innor Zono shortago in this acrice would Zone, Under pressure the steel industry could disponse with be in the iron oro, of the 16,000,000 tona of crudo are utilized these southern ores and still maintain production at current at this rate, the Innor Zono would supply at lonst 13,000,000 or oven considerably increased rates. tons, It may woll have supplied an oven greater proportion. The amount tdll incroase this year. In caso Japen vero forced to In this industry, Japon Proper is honvily dependent on roly sololy on the iron oro resources of the Innor Zono, the the continental parts of the Inner Zone. Manchuric, Koroa end required cmounts could be produced, Moonwhile, imports of Control North Chino supply 93.5 percent of the Innor Zono's 1mon oro, China, Malayan or Philippino iron ore facilitate the transition 43.5 porcent of to pig iron, 20 percent of its gross stool to complete Innor Zono self-sufficioncy. Not lack of iron ore ingota, and 19.6 percent of its somi-finished stool, but lack of rolling mill capacity is the limiting factor in Jupen's stool qutput. Tho iron oro comos almost ontircly from the 2 Coal continent, Of the 13,000,000 tons of iron oro allottod to tho Innor Zono in 1942, Japan Propor supplied only 6.5 percent. The A third basic oconomic index is cool. The Innor Zono other 93.5 percent was produced by Koroa, Manchuria, and North supplies virtually the whole of the Greater East Asia sphere's China, output of conl-that is, roughly 100,000,000 tons out of a total of possibly 112,000,000 tons, Japon Proper supplice 52,1 por- An output of 6,200,000 tono of pig iron NOS cotimated for cent, the rest of the Innor Zone 41.4 percent, end the Outer 1942. (There was also an additional 400,000 tons of spongo iron). Zone only 6.5 percont. Blast furnaco capacity of the Innor Zono, however, has alroady boon developed to the point et hich it could ocsily roach pig In this connection, it should bc noted that Japan's total iron output of 6,000,000 tons, Manchurian-Koreon blast furnace consumption of coking cool is supplied by the Innor Zono. capacity is boing stoodily actonded, indicating that the continental Japen's dependence on the continental soctor of the Innor Zono regions of the Innor Zono aro boing modo the pig iron conter of is incroased by the fact that lergo amounts of coking coal are the empiro. The idlo blost furnnco empacity which non exists is dorived from North China, Also, moro then helf of the coko oven in Japen Proper. The Innor Zono supplied virtually all the pdg capacity is on the continent--Japen Proper supplying 45.8 percent, irón of the Gronter Enst Asia sphoro in 1942. or the 6,200,000 Manchurin 49.9 percent, and Koroa 4.3 percent. tons, Jopen Propor produced 56:5 porcent, Manchurin 30.6 percent, and Xoron 12.9 percent, Excluding an additional 400,000 tons of sponge iron Excluding an additional 800,000 tons of cost iron Regraded Unclassified 131 -09- -88- Stockpiling of Raw Materials from Outer Zone Othor Economic Potential Japan's dependence on the raw materials of the Outer Zone, as already indicated, does not extend to coal, iron Solt. Production of salt (basic for a number of important ore, salt, or rice. In the case of many other southern ran chemicals) is also largely concentrated in the Inner Zone, Out naterials, homever, an extreme measure of dependency has of an entimated 1943 consumption of 2,650,000 tons in Japan existed. All evidence points to a deliberate policy since Proper, the Inner Zone will contribute 85.7 percent, or this the latter half of 1942 to reduce this dependency - (1) by amount Japan Proper will supply 22.6 percent, and the rest of continuing the development of the Inner Zone, and (2) by the Inner Zone 64.1 percent. stockpiling from the south where Inner Zone deficiencies exist. In 1943, as the military position of Germany Foodstuffs, The Inner Zone has been traditionally self- deteriorates and as the pressure of United Nations' operations sufficient in foodstuffs. Although the food supply has grown increases on the periphery of the G.E.A. sphere, the Japanese tighter in the last for years, the basic situation has not been will intensify their efforts to fortify the Innor Zone in essentially eltered. In 1943, estimated on the basis of a poor theso respects, By the ond of 1943 they will already have Korean crop, the Inner Zone will supply 91.8 percent of Japan gone for in this direction. Proper's consumption of the food staple--rice, Of this amount, Japan Proper will supply 84.9 percent, leaving only 6.9 percent Progross in this effort can be neasured by ostimating the extant to which stockpiles accumulated in 1942-1943 to be supplied by Formosa and Korea. In a .normal year, Koroa would supply a greater amount. There is -also a large stockpile will carry the Innor Zono through 1945. A rough ostimate of this kind yiolds the following results: of rice in Japen Proper. Transport. Should Japan be forced to withdraw into the l. The supply of a number of raw materials has alroady been assured through 1945. This list includes manganeso, Inner Zone, its lines of communication would be greatly shortened. tungsten, molybdenum, vanadium, coppor, and neroury. Inner The shipping deficit be turned into a shipping surplus, although heavier attacks from nearer United Nations bases might Zone production of vanadium now covers requirements, while molybdonum is covered by Inner Zone production and G large make this result temporary. The Inner Zone, moreover, in stockpile. Imports of manganese, timgston, copper, and mercury provided with the bost lend transport facilities of the G.E.A. plus Inner Zone production, have Alroady assured a supply through sphere. It contains roughly 65 percent of the railway mileage and more than 75 percent of the rolling atock of the vhole 1945. sphere. 2. A second list would includo tin and rubber. Relatively small amounts of these commodities have to be brought in from TABLE 29 the south in 1943 to complete a stockpile adoquate to carry the Inner Zone through 1945. Concentration of Japan's Economic Potential in the Innor Zone 3. Two groups of row materials present special problems: Inner Zone Percent Percent of Total Supplied by Innet of G.E.A. Sphere amounts in 1943 to cover needs through 1945. Alun shales in Bauxito will probably not be imported in sufficient Zone Excluding Japan Proper Processing Capacity woll over 90 possibly 25 while the large Koroan and Manchurinn magnesito deposits can be the Innor Zone, however, represent A substituto for bauxito, Iron Ore well over 80 93.5 developed for the production of magnosium. Aluminum require- Pig Iron virtually 100 43.5 monts can be adequately net from those substitute materials, Gross Steel Ingota virtually 100 20.0 Semi-finished stool plus the stockpile of bauxite that will exist. virtually 100 19.6 Coal 93.5 41.4 Fibors (and analogous matorials) for clothing and other Coko Oven Capacity woll over 90 54.2 Salt 86.7 64.1 problem. There in an absolute shortago-in cotton, wool, hard and usos present a more complicated and somewhat noro difficult Rico 91.8 6.9 juto. Substitutes from the Outer Zono include kapok, cordago fibors, hides and loather, and rubbor. Substitutes from the Innor Zono include rayon, staple fibor, silk, hides Recapitulation of indioce presented above and leather, and furs, Although some difficulty is boing In percentages of total consumption by Jepen Proper Regraded Unclassified -91- 132 -90- In conclusion, it is cloar that the hert of Japen's experienced (indicated by the 25 percent cut in the 1943 clothing ration for Japan Propor), it may be enticipated that oconomic strongth lics in the north, Under the present end the considerable range of substitutes /ill meet the problem, prospective circumstances of the ver, the southern rogions form littlo moro then a ren matorial appendage to the Innor 4. This leaves a small group of seven rav motorials which Zono. They are repidly boing millid of their casily evailable apparently cennot be stockpiled from the south in 1943 on a scale end most cascntial supplics. Japen has boon in possession of adequnte to carry through 1945. The list includes oil, load, the southern cross long enough -- or will heve bocn by the and sinc, nickol, chromium, antimony and cobalt. By the end of of this yorr - to fortify its position in the north for c. 1943, hopover, et lonst ono your's stockpile of oil, antiminy prolonged stand, Only defect in the Innor Zone end the breek- and chromium, and close to one year's stockpilo of load, sino, ing of Japan's grip on Manchuric and Koroo, therefore, will offectively cripple the Japeneso wr oconomy, nickol and cobalt, -ill cxist. The oil problem deserves spocial montion. Intensivo development of synthotics, shalo oil cnd crudos is stcodily increasing the Innor Zono's production. 011 exports ostimato that about 18,000,000 barrols will bc produced in tho Inner Zono during 1943. Of this total, 10,500,000 barrols are from synthotic procossos, 4,000,000 from natural crudes, end 3,500,000 from shole, The regional broakdorn shors 44.8 percent from Japan Propor and 55.2 percent supplied by the rost of tho Innur Zono. In this field, also, the degree of depondeneo of Japan Propor on the rest of the Innor Zono is significant. Japan's 1943 consumption of potroloum products is estimated at 50,600,000 borrols, equivalent of 56,000,000 barrels of crudo oil, The cotimated 18,000,000 berrols of crudo oil produced in the Innor Zono accounts for necrly one-third of the total pon- sumption, and nourly ono-quarter the ostimated cnnual fuel oil requirements. Fithdrenal to the Innor Zono, hovover, would bring a 1-rge doclino in Japan's oil requirements. For 1943 the Japancao navy and norchant morino will consumo en ostimeted 36,690,000 berrols of potroloum products. This itom, in porticu- lrr, would bo considerably roduced if Japan nes forcod back into northern return. Under those conditions, Japen Hould possoss en ostimated 16,000,000 borrols of domostic production, plus the stocks on hand, As ostimated by the 011 Committo, the stockpilo of potroloum products vill total 61,920,000 berrols on Janu-ry 1, 1944. It is porhaps unlikely that the -holo of this amount -ould have boch transported to Japen by that timo, Novortholoss, it probable that the stockpilo within Japen Proper, plus the Innor Zono production, would then bo adoqunto to cover all noods for at loast e your, with novel and scrohant merino requirements at the present lovel, If Japan withdrows to the Inner Zono in 1944, the domands of the Navy and Morchent Marino for fuel oil my bo out by ono-half, Under there conditions, Japen's supply of putroloum products in cll ortogories would bo sufficient to Inst ct loast to yorrs. Regraded Unclassified 133 ADDRESS OFFICIAL COMMUNICATIONS TO THE BECRETARY OF STATE WASHINGTON, D.G. DEPARTMENT OF STATE WASHINGTON In reply refer to Eu July 28. 1943 My dear Mr. Secretary: I have received your letter of July 27, 1943, enclosing the text of a telegram concerning the provision of raw materials in the form of lend-lease, which you wish transmitted to Ambassador Winant and have been glad to send the telegram with Mr. Acheson's addition which you approved by telephone. Sincerely yours, w The Honorable Henry Morgenthau, Jr., FORVICTORY Secretary of the Treasury. BUY UNITED STATES BONDS - STAMPS Regraded Unclassified Photostats to Messrs 134 Paul of Bunstin 7/28/73 DEPARTMENT OF STATE OFFICE OF THE SECRETARY WASHINGTON July 28, 1943 Dear Mrs. Klotz: Pursuant to our conversation yesterday, I take pleasure in enclosing a paraphrase of a telegram which Secretary Hull sent to the American Consul General in Martinique today. With kind regards, Sincerely yours, John F. Stone, Office of the Secretary Mrs. Henrietta S. Klotz, Office of the Secretary of the Treasury, Washington, D. C. Regraded Unclassified 135 PARAPHRASE OF TELEGRAM SENT JULY 28, 1943 American Consul, Fort de France. We fully appreciate the progress which with your assistance Mr. Ball has made but Secretary Morgenthau is deeply interested and wants very much for Ball to examine the bank's books freely. Ball's messages indicate to us that it may be dif- ficult to make further progress through negotiations di- rect with the bank managers without Hoppenot's active support. He does not seem to understand this question's importance from the point of view of economic warfare. It is accordingly desired that you further endeavor to convince him that for us to get complete cooperation is in the best interest of the French as well as of our com- mon cause. You might add to him that such cooperation is offered normally without question and we accordingly believe we are all the more entitled to this cooperation in view of what we have done and will do in the future to help him in connection with his present and future economic problems. Regraded Unclassified 136 PARAPHRASE OF TELEGRAM SENT U. S. URGENT TO: AMEMBASSY, LONDON NO.: 4523 DATE: July 28, 1943, 2 p.m. FROM SECRETARY MORGENTHAU FOR THE AMBASSADOR: I am disappointed that I have not yet had reply from you to By cable no. 4206 of July 10. At your earliest convenience please personally see the Chancellor of the Exchequer and tell him that I would like a "Yes" or "No" answer to whether or not they will supply us during the coming year with between $200,000,000 and $300,000,000 of raw materials in the form of lend-lease in reverse. FROM THE SECRETARY OF STATE: The British Ambassy tells us that it expects an early reply which it seems to think will be favorable. I should like a report on the situation tomorrow and I agree that unless a favorable reply appears to be imminent, you should stress the importance of early action. It is not desired to prejudice a favorable reply by demanding an immediate one, as the manner of presentation is left to your discretion. HULL Regraded Unclassified OFFICE SECRETARY OF TREASURY NOT TO BE RE-TRANSMITTED 1943 JUL 29 PM 12 04 COPY NO. 13 BRITISH MOST SECRET TREASURY DEPARTMENT U.S. SECRET OPTEL No. 248 Information received up to 7 n.m., 28th July, 1943. 1. NAVAL On 27th morning our light forces engaged enemy trawlers and mine- sweepers northeast of CHERBOURG. 2 ships were left burning. Our forces sustained some damage and there were 7 killed and 34 wounded. On 27th/28th our light forces in the Channel were in action against E-boats. No details yet available. F.W. 200 aircraft attacked a south bound convoy from U.K. when west of LISBON 26th and followed up with 10 further at- tacks morning 27th. A 9,500 ton ship was sunk (101 survivors) and 2 other ships totalling about 15,000 tons have been damaged. 2. AIR OPERATIONS WESTERN FRONT. 27th. Coke ovens at ZEEBRUGGE and 4 airfields in Northern FRANCE, BELGIUM and HOLLAND were bombed. Fighters on escort duty, sweeps and patrols inflicted casualties 16, 3, 6. We lost 2 aircraft. 27th/28th. 840 aircraft despatched - HAMBURG 787 (17 missing); DUISBURG 3 (1 missing); Intruders 29; Seamining 6; anti-shipping 4; leaflets 11. Proliminary report HAMBURG - weather clear, fires still burning. Markers placed vary accurately, bombing concentrated and attack considered most effective. 2 enemy night fighters destroyed. 73 air crew personnel were saved in NORTH SEA by air-sen-rescue operations during the 48 hours ended 0615 A.M. 28th. SICILY. 25th. A Spitfire Squadron intercepted 30 escorted JU 52's near MESSINA. 21 JU 52's and 6 fighters were destroyed. 1 Spitfire lost. SARDINIA. 26th. Special Beaufighters sank a 1,500 ton enemy ship in convoy and Warhawks destroyed 7 onemy aircraft. 2 Beaufighters missing. CORRECTION OPTEL 246 - 100 corrupt groups; "Total of 693 tons were dropped on NAPLES in attacks covering B period of 24 hours. Railway centre arsenal and oil storage area were all hit. Continuous heavy attacks on communications and airfields in South ITALY and SICILY in which considerable damage caused and many enemy aircraft destroyed both on the ground and in the air. Regraded Unclassified 138 July 29, 1943 9:00 a.m. GROUP Present: Mr. Bell Mr. Paul Mr. Gaston Mr. Smith Mr. Haas Mr. Blough Mr. Bernstein Mr. Charles Bell Capt. Kades Mrs. McHugh H.M.JR: Paul, with McConnell coming down here Monday, I don't feel - I think O'Connell has felt he was his baby, so to speak, while he was up in General Aniline Dye, but now that he is coming down here to do an entirely different job, I want McConnell to feel he is directly responsible to me. Then if he wants legal advice, I think he ought to go to you. MR. PAUL: That is fine. H.M.JR: That is all right? MR. PAUL: Yes. The job he is doing has got some over- lapping with tax reserves, and so on. we will all have to work together on that end of it. H.M.JR: That is right, definitely. MR. PAUL: But so far as completely non-tax things, he will come to us for advice. H.M.JR: I mean, O'Connell has nursed him along-- MR. PAUL: They are very close friends by this time. Regraded Unclassified 139 - 2 - H.M.JR: I meant while he was doing General Aniline Dye. That doesn't mean he can't go to O'Connell, but I don't want O'Connell to feel he is responsible for him while he is here. MR. PAUL: I will see that that is straightened out. H.M.JR: In other words, let your shop help - I think it ought to start with you. MR. PAUL: It is very agreeable to me because McConnell and I get along as well as O'Connell and I. H.M.JR: Good. Then he and Kades, being next to each other, they will collaborate. Right? CAPT. KADES: Yes, sir. H.M.JR: Does that sound all right to everybody? I don't want to - this sounds all right, but I think I would like to sit down with you people and get a plan, what you are going to do and after we have a plan, let's submit it to everybody. (Indicating Mr. OConnell's memo of July 26) CAPT. KADES: Mr. Secretary, this isn't our plan. This is what McConnell said he thought he was supposed to do. H.M.JR: Now, I don't have to call him up on the phone or anything to tell him I expect him down here? Is that taken care of? MR. PAUL: I understand it is all settled that he will be here Monday. However, I will confirm it, and you won't have to call. I don't know what arrangements there are in Charlie Bell's office. H.M.JR: Between Charlie Bell and Kades, they will see he is made welcome. Herbert? Regraded Unclassified 140 - 3 - MR. GASTON: I haven't anything. I made some inquiry about that man whom you saw yesterday and didn't get 8. favorable impression. H.M.JR: We will forget him. MR. GASTON: I turned him down. H.M.JR: Good. What else? MR. GASTON: I think nothing else. MR. SMITH: What time, not before noon, would you like to look at this tax - what is going to happen on the tax thing? H.M.JR: What time not before noon? MR. SMITH: Yes. H.M.JR: A little depends - I am holding open for this general of the Tank Corps for two-thirty - I forget his name - from Fort Knox, who has just returned from Sicily. If they let me know, I am going to take him over to War Bonds at two-thirty. MR. SMITH: Could you just take & look at it after you come back from War Bonds? H.M.JR: Possibly. Incidentally, this thing with Elliott Roosevelt went so extremely well that I am going to take these people that are fresh back from the front over and I think that any of you - I will notify you if and when we go and anybody in the staff group that would like to go over are welcome. Elliott Roosevelt told me more - I got more information about the war from Elliott than I did from his father, be- cause he told me stuff I didn't know, as far as the war is concerned, I mean. And according to this Colonel Fitzgerald - this man that is back - he will tell us just how many tanks Regraded Unclassified 141 - 4 - we lost, how many tanks the Germans lost, and how well each tank did. It is very interesting. I think, if you wouldn't mind telling Ted Gamble - because I said he was going to talk off the record and I think there should be a Secret Service man at the door and make everybody show a pass that goes in. I don't want a reporter from Cissy Patterson showing up or something like that. And I don't want to have happen what happened without my permission, having a news photographer. I don't want that. MR. SMITH: All right. H.M.JR: But everybody has to show their pass when they go in - I mean that they are a Treasury employee. I don't want the Washington war Bond people because I don't think they have taken an oath. Do they take an oath? MR.C.BELL: They take an oath of office, yes, sir, every one of them. MR. BELL: If they are on the roles they do. MR. CHARLES BELL: Allegiance to the United States. H.M.JR: But they will have to have identification. What is the name of the chairman for the District? MR. BELL: John Reilly. H.M.JR: Would you have him there? MR. BELL: Yes, I would. H.M. JR: I only know, myself, I feel so distant from the war, and so remote, and then these people come in and tell you what happens and you get re-enlisted. This colonel said he would be glad to tell you which tanks are good because, "After all, you people are paying for them." I mean, there is 8 nice attitude. Regraded Unclassified 142 - 5 - Next week we will have the general in charge of the paratroops who landed in Sicily. He is going to come over and give & talk. He left town, but he will be back and he will come over. I know it is good for me. I think it is good for them. It brings the war home to them. I know the time I went down to one of these camps and I took Doctor Daniels around with me. When I made that survey at Camp Bragg, he said, "I have seen more of the war with you in half & day than I have in 8. year. I don't know what is going on; they never show me - never tell me." He said, I have really seen something today. Henry, for instance, in his regiment hadn't any idea - he has never seen the Second Division. He doesn't know who the corps people are. He has no idea - and they are attached to a division and they never have any contact with the division - have never seen them, don't know anything about them, and never have anything to do with them. He lives & life within his regiment. MR. BELL: Are these people going to travel around any, or just come to Washington? H.M.JR: Who? MR. BELL: The people you are now having. H.M.JR: These people are just here - they are from - I think they are right out of General Marshall's office - people he sent to observe. I am doing this through General Marshall. I am not planning to see people who travel, I am just trying to put some war spirit into these War Bond organizations. MR. BELL: I think where you need it is in the States. H.M.JR: Maybe somebody will get some ideas out of this. I am going to try it again this afternoon. what I am trying at the moment is to fire these organizations, you see. Take this fellow in New York, or Ohio - let them make a speech there - is that what you meant? Regraded Unclassified 143 - 6 - MR. BELL: Yes. I think - get a group together some place and let them talk to them. It would be very good just before the drive. There is where you want your fire. H.M.JR: With your people - the salesmen? MR. BELL: Yes. H.M.JR: It may come out of it. At least I started something, anyway. It is good for me. You were there? MR. SMITH: Yes. H.M.JR: Didn't he do a good job? MR. SMITH: Very good job. H.M.JR: He is a good speaker. MR. PAUL: That sort of a fish always swims. (Laughter) H.M.JR: Yes, but this boy is always good. He really is good. He did it in a nice way, too. MR. HAAS: I haven't anything. MR. BERNSTEIN: That telegram from Secretary Hull came last night and appears to be & very strong one. H.M.JR: It came here first. I was overwhelmed. Let's tell them. Hull sent a telegram down to Martinique for me which was B. pip, wasn't it? MR. BERNSTEIN: I thought it was. H.M.JR: Now, what else? MR. BERNSTEIN: I tried to get Mr. Feis and he wasn't in, but he is to call me back. Regraded Unclassified 144 - 7 - H.M.JR: To put more pressure on it? MR. BERNSTEIN: Yes, sir. H.M.JR: Now, I had dinner last night with Governor Lehman and those of you who were there Monday heard what he said - Paul reported it - I was shocked. Here is the situation. I want to see what you people think. MR. PAUL: Nobody else but I was there, so it is news to them. H.M.JR: Well, the point is, let's assume that Italy falls in our lap and they use eight million tons of coal a year and a large amount of cotton - I forget how much -- MR. PAUL: Ten million of coal. H.M.JR: He said eight last night. MR. PAUL: He was low. They corrected him at the meeting. H.M.JR: Ten million tons of coal. Now, nobody - get this, Dan - nobody in this Government has made any plans that when Italy surrenders, how they can start up and get the coal which Germany has been supplying them with, and everything else that goes with it - the question of credits, and so forth and so on. Now, what I was thinking of doing - Governor Lehman said there is some committee - which committee would that go toy MR. BERNSTEIN: There is a committee that handles all these problems. This is Acheson's committee. But in addi- tion to that, & group from Governor Lehman's office have come around the last three days to the Treasury for help in formulating & financial plan for the United Nations Relief Organization. Regraded Unclassified 145 - 8 - So far it has been astounding that the men that the Governor has sent have no notion whatever of where to start or what to do on their plans. H.M.JR: Who are those people? I don't think he knew they were over here. MR. BERNSTEIN: Yes, they have been over now for three days and Pehle's people, Mr. White's people, and Mr. Paul's people have been working with them. The men are Eugene Staley, Veach - McDougal, their General Counsel, came yester- day - Condliffe, and two or three youngsters. MR. PAUL: Governor Lehman pointed out another thing at this meeting. Not only is the condition as you describe it with reference to Italy as one country - the supply situation with respect to coal, cotton, and rayon is desperate as to Italy, but in addition, any supplies to Italy, however difficult they may be to procure from England or this country, must be fitted into B. worldstrategy because you will be into Greece before you know it, or Yugoslavia, or this other country across from Italy - Albania - and no coordi- nated plan - there is nothing being done. And furthermore, not only do they have no plans directly for Italy - no world supply strategy - but they don't know which organization is going to take charge of which country. They have no philosophy. The Budget man says-- H.M.JR: His name is Smith. (Laughter) MR. PAUL: No, Wayne Coy. Wayne Coy said-- H.M.JR: It is 8. hard name to remember, I know. (Laughter) MR. PAUL: He never communicates with you when you try to get hold of him. He said that his philosophy was that countries like Italy would be taken over by the Lehman organization - that Italy would have no government; whereas, a country like Belgium, where there is an established government, would be taken over by Lend-Lease. Regraded Unclassified 146 - 9 - Monday they were in the middle of the fight between Lend-Lease and Governor Lehman's organization, which I understand Lend-Lease lost. MR. GASTON: State is coordinating, isn't it? MR. PAUL: So the thing is - of course, the military has been so far ahead of any contemplated schedule that there is some excuse - but there is no excuse for not having covered 8 lot of these problems. H.M.JR: This is what I was thinking of doing, calling up Cordell and simply saying, "Look, Cordell, here we are on the verge of having Italy fall in our lap. What plans have been formulated to resume peacetime trade?" That is the language he understands. MR. PAUL: Incidentally, at the last minute, Tuesday of this week, the man that they had selected for Area Director became unavailable. H.M.JR: Welles was his name, and they have offered it to your ex-partner? MR. PAUL: McCollester. H.M.JR: Is he going? MR. PAUL: I don't know. H.M.JR: Let me just call up Hull. We had one - as a matter of fact, we haven't done badly this week. MR. BERNSTEIN: Very good, SO far. H.M.JR: He backed us up pretty well on my cable to Winant. MR. PAUL: Lehman has expressed himself quite frankly at this meeting. Regraded Unclassified 147 - 10 - H.M.JR: Because, you see, if they would say to me - give us - Bell and the rest of us - a chance - the way I look at this thing, Dan, the Central Bank of Italy used to be a good bank. It was well run. We could sit down with those fellows - I remember particularly the fellow they used to send to Paris, anyway - he was a very able person - and establish credits for these people. In a not very long time we could arrange credits for them to go ahead. MR. PAUL: we can cover that part of it, but the physical supply - where is that coming from? H.M.JR: Yes, but I mean, it should be joint with England and ourselves. I mean, the English Treasury and ourselves should be given the job of establishing credits. Mr. BERNSTEIN: They wouldn't be getting credits, Mr. Secretary. (The Secretary held a telephone conversation with Secretary Hull.) MR. PAUL: Now hell will break loose. (Laughter) H.M.JR: I will hear from Acheson, now. (Laughter) I have been having a good time this week. I have got the War Bond thing off my chest. Harry will be sore because he will say, "While I am here the boss won't give me any time. Just as soon as I leave town you begin to think about some of my problems. (Laughter) but the answer is, I have had a little time to think. MR. BERNSTEIN: I don't think he has realized how bad the situation has been. H.M.JR: Who - Harry? MR. BERNSTEIN: Yes, sir, on Lend-Lease and relief because they only came to us on Monday. Regraded Unclassified 148 - 11 - H.M.JR: Did you hear his comment that "I thought that you and the War Department were doing it"? MR. GASTON: Yes. H.M.JR: Do you think the old man really thinks that? MR. PAUL: Of course, the truth is that what little has been done has been done by his department and the War Department. H.M.JR: I had an amazing conversation with Acheson yesterday. Do you people like me to gossip with you & little bit? MR. GASTON: Yes. H.M.JR: Because I am thinking all the time. Acheson called me up to read me this cable to Winant on Lend-Lease in Reverse. I said, "How are you, Dean?" - because this is very indicative - and he said, "I am tired. You know, I am tired. And for the first time in my life I find myself blowing up. I get angry - I get cross at people." He said, "I am just worn out." The result is, he was charged with this thing and he isn't forceful enough. He is a nice fellow. He is an intelligent fellow; he is a sweet fellow and a decent person, but he just can't drive this thing through. Regraded Unclassified 149 - 12 - MR. GASTON: They had a lot of stuff focused on Dean at a time when it wasn't especially important, and now this stuff is all coming to a head. I think he has just got an immense amount of stuff that ought to be in other hands MR. BELL: I had breakfast yesterday morning with Floyd Blair, vice president of the National City Bank, and he mentioned this lack of planning, particularly in the coal field for Italy. I told him that I thought the Finletter Committee and Lehman were taking care of it. He said he didn't think so. Then the conversation got on to the Russian situation, and he said that he knows a man in this country who is & big coal dealer, handles the English coal and also the Russian coal. Apparently he has been very close to the Russians for & great many years and they trust him. Not long ago they sent for him and told him that by January 1 they would be in the market again to sell coal. H.M.JR: To Russia? MR. BELL: Yes. And he said, "Well, you have got me stumped." He said, Your mines are in the hands of Germany; how do you expect to be mining coal by January 1?" They said, "In thirty days we will have those mines." He thought they were crazy, but in thirty days they had the mines, and he said that they are going to be able to market coal by January 1. He said they wanted him to take charge of the sale of coal in this country. H.M.JR: In this country? MR. BELL: Yes. Now, that was sort of gossip over the breakfast table. It didn't impress me very much. But if that man has the connections that Floyd Blair says he has, he may be a good man to get in on this coal. MR. GASTON: Where are those coals? Regraded Unclassified 150 - 13 - MR. BELL: Some place around Orel. (The Secretary held a telephone conversation with Under Secretary Patterson.) H.M.JR: Two minutes - ten minutes, there is the situation. And if you told that to the world nobody would believe it. MR. GASTON: It isn't just the financial credits. It is a question of where the supplies are going to come from. H.M.JR: It is interesting - two minutes - ten minutes. MR. PAUL: Mr. Bernstein has a point here. MR. BERNSTEIN: Mr. Secretary, it is very much more the fact that they haven't the least notion of how much supplies, where the supplies are to come from and who is to pay for them - this side - than it is the Italians not having the money to pay, because presumably the Italians will get funds from Army expenditures once we are ready for trade, plus any exports from that area. There won't be any severe shortage of funds in Italy for paying for goods from this country, but no one has any notion of where the goods are coming from here and how much will be needed. H.M.JR: Well, no, it is broader than that, Bernstein. After all, let's say that you can do business with the Central Bank of Italy. Somebody should be charged with the responsibility of sitting down with those people and saying, "All right, between England and the United States we will work out arrangements whereby you can have so many credits, and 80 forth, and so on. MR. PAUL: If you have any conference like you sug- gested, it might very well be that that problem will be in the lap of the area director, whoever he may be. Regraded Unclassified 151 - 14 - MR. BERNSTEIN: There will be & Treasury man in charge of finance under him, and presumably he would carry it for the Treasury on the spot. H.M.JR: I am not worrying about the area director; I am worrying about - I would like to get the thing headed up so that Hull will say he will do it or we should do it or the Army should do it, or somebody does it. That is all. But let me ask you this, Bernstein: Am I right that this - that we are not issuing any more gold-seal money in North Africa? Is that right? MR. BERNSTEIN: That is right. H.M.JR: Now, Dan-- MR. BELL: Probably they are using it in Sicily. H.M.JR: But they are not using it there. Do we pay our troops in North Africa - how do we pay our troops today? MR. BELL: In francs. H.M.JR: And those francs we get from where? MR. BELL: Central Bank. H.M.JR: Of what? MR. BELL: Well, the Bank of Algiers if it is Algiers. H.M.JR: And that is the way they dispose of their dollars, is that right? MR. BELL: We give them dollars for those francs. They are piling up dollars in New York as a result of that. H.M.JR: To their credit? MR. BELL: Yes. That is the dollars they use to pay for Lend-Lease to the extent of twenty-five million. H.M.JR: What about this thing when I decided to go joint account with the English on buying - black-market Iranian money, wasn't it? Regraded Unclassified 152 - 15 - MR. BELL: Gold. H.M.JR: Yes, the gold. Now, somebody brought out the point that under the law you have to pay U.S. troops in dollars. I couldn't use that Iranian currency to pay our troops in-- MR. BELL: They are getting around that; they are paying the equivalent of dollars. MR. BERNSTEIN: At the official rate. H.M.JR: They pay at the official rate? MR. BELL: Yes. H.M.JR: Who makes the profit? MR. BERNSTEIN: The general fund of the Treasury will get it, won't they, Mr. Bell? MR. BELL: I don't think that has been quite decided. That is what General Carter would like to do, continue to pay the Army obligations at the official rate, and the difference will be the Treasury's profit. MR. PAUL: We had that problem up with respect to China. MR. BERNSTEIN: Last Saturday Major Patton from General Carter's office came around to say that the Army didn't care how we accounted for this exchange profit provided they were on the same position as the British Army. I spoke to Mr. Waley, who assured me that the British Treasury handles the exchange transaction and the exchange profit goes into the funds of the British Treasury. The Army buys the reals from the Treasury at the official rate of exchange. I then spoke to Major Patton, who was to send a cable back to the commanding general in Iran, and he said the Army would be satisfied with that arrangement. Regraded Unclassified 153 - 16 - H.M.JR: Say that again. MR. BERNSTEIN: The Army said it wanted to be in the same position as the British Army with respect to the British Treasury. I spoke to Sir David Waley, who said that in Britain the Treasury buys the reals for gold. It is now on joint account with us. They then resell the reals at the official rate to the British Army, and the British soldiers get paid at the official rate. The exchange profit from the gold sale goes into the British Treasury. I told Major Patton that that was the case in Britain, and he said the Army would be satisfied to have that done the same way here. H.M.JR: That takes care of that. George, supposing you put your boys right away to work on what was the peacetime import and export trade of Italy and some of those countries around the Mediterranean. Supposing you get whatever figures you have. MR. HAAS: You mean that and the Balkans if they are going in there? H.M.JR: Yes. There wouldn't be any other figures available, would there? Would we know what they got from Germany during the war? MR. BERNSTEIN: We have something, I think. H.M.JR: Who has those? MR. BERNSTEIN: I think we have 8 study already prepared for this purpose on Italy's economic and finan- cial position. We would be glad to show you that part of it if you wish, or all of it. There is a section on foreign trade of Italy. H.M.JR: You have it? MR. BERNSTEIN: Yes, sir. Regraded Unclassified 154 - 17 - H.M.JR: Let me see it. The sooner the better. You be thinking, Dan - all of you - if we do go to & meeting we ought to have some suggestions. O.K. Roy? MR. BLOUGH: I just want to report that that chart which you mentioned yesterday wasn't on the wall apparently was made, although it wasn't put on the wall. At least it is available. H.M.JR: Which one? MR. BLOUGH: The chart on the refundable tax with the allowances for spendings - I mean, for savings. H.M.JR: Where is it now? MR. BLOUGH: Mr. Banyas' office. MR. HAAS: You saw it, Fred. MR. SMITH: I remember now; Wes took that down when Mr. Baruch was here because it was so com licated. I have forgotten just why. He didn't want to go through it with Baruch. H.M.JR: When this meeting is over, I will go in there. MR. BLOUGH: It isn't in there. H.M.JR: You can get it down. You can go and get it; and then you and Paul and Smith and Lindow - let us go into it. Do you want to be there, George? MR. HAAS: It doesn't make any difference. There are some inconsistencies. As long as Wes is there it is O.K. H.M.JR: You be there, too. Regraded Unclassified 155 - 18 - MR. HAAS: All right. MR. BELL: The Department of Agriculture is working on 8 plan to-- H.M.JR: Why don't you get that organized now? (Mr. Blough left the conference.) MR. BELL: pay food subsidies through issuance and redemption of coupons, stamps, or currencies, It is practically currency that will circulate in the com- munity. H.M.JR: Who is going to do this? MR. BELL: The Department of Agriculture. H.M.JR: Did you know about it? CAPT. KADES: No. MR. BELL: That is the reason I am bringing it up. They have been working with the boys up in the Bureau of Accounts. The accounting end of it just came to my atten- tion this morning. I think that Kades ought to get on to it and sit in on those conferences. It is now in the formative stage. They are planning to submit 8. bill to Congress on it. There has already been one bill introduced. They are planning to report on that bill and make some suggested amendments, coming around to this plan. MR. GASTON: It cuts right across OPA authority, doesn't it? MR. BELL: I assume that it is part of the OPA program, probably the Jones program, for paying subsidies. I don't know enough about it to say how it will operate, but they want us to handle the accounting through our disbursing officer, and want the banks to handle coupons, Regraded Unclassified 156 - 19 - which is quite a problem from the manpower standpoint. CAPT. KADES: I didn't know the Department of Agricul- ture was working on it, but I knew about the bill. We sent it to George, and I have an adverse memorandum on it from George. MR. BELL: They are trying to amend the bill 80 that it will fit into their scheme. MR. HAAS: We are trying to absorb purchasing power, and this is creating more. CAPT. KADES: George says it contributes to inflation. MR. PAUL: Dick Gilbert has some other plan. MR. BELL: I want Kades to sit in on these conferences. H.M.JR: Will you do that? MR. BELL: Yes. H.M.JR: You (Kades) are appointed, just so you don't get bored. (Laughter) CAPT. KADES: There is no danger of that, Mr. Secretary MR. BELL: We ought to send the President the state- ment as to reduction in his salary, the withholding tax. (Letter to the President signed by the Secretary.) (Mr. Blough reentered the conference.) H.M.JR: What is all this? MR. BELL: That is just the file. That is just the file on the withholding. CAPT. KADES: When I saw Ezekiel I asked him specifi- cally about any such proposal because of the bill. He said they weren't working on that. Regraded Unclassified 157 - 20 - H.M.JR: How well do you know Mordecai? CAPT. KADES: Not very well, MR. PAUL: We know him very well. (Laughter) H.M.JR: The point - well-- (Laughter) MR. CHARLES BELL: If we get it revised-- H.M.JR: Is this Bell finished? MR. BELL: Yes. H.M.JR: Now the other Bell. MR. CHARLES BELL: If we get the last tax letter down today to the Government Printing Office they promised us August 15 as a delivery date. That is going to throw us a little behind in getting the letter and the forms out to the public, which you ought to know about. H.M.JR: They have to do it quicker than that. MR. CHARLES BELL: August 20 was the date. I know how you feel about it. I put them down to August 14 or 15 - ninety-five percent. It is a physical impossibility to get it out any sooner. H.M.JR: Why get it out-- MR. CHARLES BELL: They got it out already into four contracts throughout the country. They have had to make those plates, and they are not going into a new contract. H.M.JR: How far have they gone? MR. CHARLES BELL: They have only printed up 8. handful of the earlier letter. They haven't used any paper. There has been no paper wasted on it so far. H.M.JR: Will it cost more money to have it replated? Regraded Unclassified 158 - 21 - MR. CHARLES BELL: It isn't so much a matter of cost; it is & matter of minutes. H.M.JR: I would rather have a good letter late than a bad letter early. I hope this will teach them a lesson. MR. CHARLES BELL: This will give us a month before the filing period. H.M.JR: I say, I hope it will teach them a lesson. MR. SMITH: They originally hadn't planned to get any of this out until August 5. MR. CHARLES BELL: That is true. August & was not a proper date. The deadline was August 15. They were going to start making deliveries August 5. H.M.JR: Will you fix me an order to sign so this sort of thing won't happen again? MR. CHARLES BELL: I am going to fix that, yes, sir. H.M.JR: The last day Sullivan was here he got all excited because I said we would take a look at this thing, and Horne had been there two days. MR. CHARLES BELL: He is back this morning. H.M.JR: Is he here for good? MR. CHARLES BELL: No, sir, I don't think SO. H.M.JR: What is the use of having him come in and mess around for a day or two? MR. CHARLES BELL: I understand he cleared this letter for Norman Cann. H.M.JR: That is the same way they cleared - remember that other they cleared? Regraded Unclassified 159 - 22 - MR. SMITH: That wasn't the understanding we had. The thing was to clear through Schwarz and through me. Neither Schwarz nor I saw it. MR. CHARLES BELL: I thought you (Smith) and I would talk with Horne and have it out. H.M.JR: You can't have a man here two days a week. MR. BELL: That is all you can get him, I think. H.M.JR: I would rather not have him at all, He can't be so wonderful that in four days a month he can do & job on taxes. Charley, I would much rather not have a man at all; if he can't come here and be here steadily, I don't want him. We can get somebody. A man dropping in a couple of days a week to supervise the Internal Revenue publicity is no good as far as I can see. MR. GASTON: Guy Helvering has a vacant position over there - this man McGrew left - fifty-six hundred dollarsa year - and there is a spot for a good man. A good man is needed in that spot. Am I right, Fred? MR. SMITH: There is, yes. MR. CHARLES BELL: That man would ordinarily come under Fred Smith indirectly. H.M.JR: Directly, or indirectly? MR. CHARLES BELL: Indirectly. He comes up through Chick Schwarz. H.M.JR: Why not let's follow Gaston's suggestion and get 8. full-time man and put him in there? MR. GASTON: I think Guy has been kind of nursing that job; he wanted to make an appointment. I think it is too important; we need the man. We need a high-grade man in that stuff. Regraded Unclassified 160 - 23 - MR. CHARLES BELL: I think if we had the man we wouldn't need the order you speak of. I thought if we could associate this order with Public Relations work solely on items that deal with the population, we might be able to fix it. H.M.JR: Why not let's say we want to fill the position? MR. CHARLES BELL: We will go to work on that. H.M.JR: That man would come under Schwarz, would he? MR. CHARLES BELL: Normally, yes. He would come up through you (Smith). MR. SMITH: That is all right. H.M.JR: Do we want this fellow Horne unless Sullivan wants him around to write speeches for him? I don't want anybody around for two days a month messing around with B. thing as important as this. MR. CHARLES BELL: As Danny says, I think Horne came in pretty much on his own terms this time. He didn't want to come back. H.M.JR: Well, to hell with him. MR. BELL: He is helping Sullivan more than-- H.M.JR: Yes, but don't let him mess around. I wish you would find out whether he O.K.'d this letter. MR. CHARLES BELL: August 15 is more agreeable to you. than August 9? MR. SMITH: Yes, that gives us a little more leeway. H.M.JR: I want this thing buttoned up, and I think we will do it the way Geston suggested. (Letter to Lawrence Banyas regarding promotion signed by the Secretary.) Regraded Unclassified 161 - 24 - H.M.JR: Can I do that? MR. CHARLES BELL: Yes, sir. H.M.JR: Legally? MR. CHARLES BELL: Yes, sir. H.M.JR: Why didn't we do it before? MR. CHARLES BELL: I didn't get any orders. H.M.JR: Why didn't you push for Banyas' increase? He is under you, isn't he? MR. HAAS: It is le gally all right, but we had to put him in a different category. We now call him an economist. H.M.JR: But why don't you push for some of these boys, George? MR. HAAS: I have been pushing for him. Look at his record. I brought him over here, and brought him in at scratch. He is now, think, the highest priced man in the Government for that kind of work. MR. CHARLES BELL: We are kind of taking him away from graphing and making him an economist, but he is an economist. MR. HAAS: That is-- H.M.JR: Is he an economist? MR. CHARLES BELL: Yes, sir. H.M.JR: Is that his history? (Indicating paper.) MR. CHARLES BELL: No, sir, that is just the work paper. H.M.JR: He is an economist? Regraded Unclassified 162 - 25 - MR. CHARLES BELL: Yes, sir, graduate economist. MR. HAAS: As 8 matter of fact, I think we - I am giving so many promotions in that place I will have trouble with Taber in the Appropriations. H.M.JR: What? MR. HAAS: I mean, we have given so many promotions. You mentioned why don't we push - the record is excellent from our point of view, but I am afraid the Appropriations Committee may not think so. MR. CHARLES BELL: I think it is a normal record on both sides. I don't think anything has been done that couldn't be justified. H.M.JR: Who is chairman of the Treasury budget? MR. CHARLES BELL: Schoeneman. H.M.JR: Is this worrying him? MR. CHARLES BELL: No, sir. MR. BELL: Got an appointment down there for Mr. Smith this morning from Boston - the president of the New England-- H.M.JR: I have Gamble down for eleven. Where is Gamble? MR. BELL: I don't know. He will be here earlier if you would like to see him. He came down on the night train. I got Charley here to take a berth away from a Secret Service man. MR. GASTON: You took a berth away from a Secret Service man? (Laughter) MR. CHARLES BELL: We put him on a plane, though. He was happy about it. (Laughter) MR. BELL: We had to work fast. H.M.JR: All right. I want to meet Blough and those boys - give me until ten 'clock. Regraded Unclassified 163 - 26 - MR. BELL: He has to be in New York this afternoon, and we promised to get him on the one o'clock train. He really said at first he couldn't come. H.M.JR: Give him a workover so he will say yes when he comes in. MR. BELL: I didn't say a word to him about what you wanted to see him about. I just asked him if he would come to Washington. He said he would do anything the Treasury wanted him to do, which was a good start. H.M.JR: Why don't you give him 8. workover between now and eleven? Are you coming in with him at eleven? MR. BELL: If you want me to. H.M.JR: Is he your friend? MR. BELL: I know him quite well. He comes in every times he comes to Washington just to say hello. H.M.JR: I would like Gaston in on this, too. This is for chairman for Massachusetts. MR. GASTON: What time will that be? H.M.JR: Eleven. Why don't you (Bell), Gaston, and Gamble get together on this fellow between now and eleven to make it easy for me? MR. BELL: Yes. MR. GASTON: Yes. H.M.JR: O.K. Regraded Unclassified 164 JUL 29 1943 25 My dear Mr. President: Arrangements have been made to comply with the request in your letter of July 24, that future payments of your salary as President be made subject to applicable provisions of the Current Tax Payment Act of 1943 (Publie Low 68 - 78th Congress), approved June 9, 1943. Under the provisions of the above-centioned act and regulations issued pursuant thereto, you are entitled to an annual withholding exemption of $1,248, which leaves a balance of $73,752 subject to the withholding tax of 2) percent. The consuted tax amounts to $14,750.40 per anous which leaves a balance of $60,249.60 in your favor or a net monthly salary of $5,020.80. The withholding tax will be held in 8 special account by the Treasurer of the United States for subsequent payment to the Collector of Internal Revenue. A statement showing the method of computation is enclosed for your convenient reference. /sithfully yours, (Signed) H. Morgenthan, Jr. The President, The White House. the Copies were India starming Comp = LLC tak 7/28/43 Sent by sr 11:35 Regraded Unclassified 165 I. DISTRIBUTION OF THE PRESIDENT'S SALARY IN ACCORDANCE WITH HIS LETTER OF JULY 24, 1943 Monthly Annually President's salary ...... $6,250.00 $75,000.00 To be paid to the President 5,020.80 60,249.60 Withholding tax (see below) 1,229.20 14,750.40 Total 86,250.00 $75,000.00 II. COMPUTATION OF 20% WITHHOLDING TAX Gross salary $6,250.00 $75,000.00 Withholding exemption ... 104.00 1,248.00 Amount subject to 20% withholding tax ....... 6,146.00 73,752.00 20% withholding tax ..... $1,229.20 $14,750.40 Regraded Unclassified 166 THE WHITE HOUSE WASHINGTON July 24, 1943 Dear Mr. Secretary: In order to comply with applicable provisions of the Current Tax Payment Act of 1943 (Public Law 68- 78th Congress), approved June 9, 1943, I an enclosing a duly executed Employee's Withholding Exemption Certi- ficate for use in connection with deductions from my salary as President. I would thank you to handle future payments of my salary BO as to comply with the above-cited law. Very truly yours, Enclosure Honorable Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. Regraded Unclassified BM W-4 RY DEPARTMENT EMPLOYEE'S WITHHOLDING EXEMPTION CERTIFICATE U. EVENUE Service (Collection of Income Tax at Source on Wages) No (Print full name) Address The WITHOUSE Social (Print home address) Security No. L Cheel box in the line below which applies to you on the date this form is filled in: gried person living with husband or wife but claiming none of the personal exemption (i) ried person living with husband or wife but claiming half of the personal exemption (2) Ingle person (not head of a family) or married person not living with husband or wife (not head of a family). (3) tarried person living with husband or wife and claiming all of the personal exemption (spouse claiming none of the exemption) (4) ead of a family (a single person or married person not living with husband or wife who exercises family control and supports closely connected dependent relative(s) in one household) (5) II. Number of dependents receiving chief support from you who are either under 18 years of age or incapable of self support because mentally or physically defective I lare that the entries made herein are a true and complete statement as of the date indicated, pdf suant to the Internal Revents Code and the regulations issued under authority thereof. Date July 23 1943, 10-04590-1 (Signature) Ford Regraded Unclassified July 29, 1943 168 9:20 a.m. HMJr: Hello. Operator: Secretary Hull. Cordell Hull: Hello, Henry. HMJr: Good morning, Cordell. H: What's going on? HMJr: Well, first may I thank you for the excellent telegram you sent to your counsel in Martinique. H: Oh well, that was - you were entitled to anything --- HMJr: That was H: cooperation. HMJr: That was very helpful. Now, what I'm calling you up about - it's been brought to my attention that if we should be so fortunate as to have Italy drop in our lap H: Yeah. HMJr: there are no financial arrangements that have been thought through to permit her to resume her peace time trade. H: Well, I wondered - I supposed you people and the War Department had done that. HMJr: No. As near as I can find out, Cordell, it's all up in the air. H: Is it? HMJr: Yes. H: Well, there ought to be a conference right away. HMJr: And H: The fact is, it's possible for all that Balkan country to go into a state of anarchy or collapse or something, you know. Regraded Unclassified - 2 - 169 HMJr: Well, I think if you'll inquire, you'll find that the people have been sort of looking to the State Depart- ment and 1 can't find anything definite for any country. a: Well, 1 will call my fellows in here at once HMJr: Yeah. H: and I've got Sol Bloom coming in right at the moment HMJr: Yeah. H: but in the course of the next half an hour or SO I'll get them in here and then let you hear from us. HMJr: Fine, and if I can be any help, please call on me. H: Yes, sir. HMJr: And, hello? H: Now this - Henry? HMJr: Yeah. H: The particular point here relates not to the value of the lire and HMJr: Oh, no. I'm talking about - let's say that sometime within the next month Italy should fall in our laps H: Yeah. HMJr: and they want to buy I understand their normal purchases of coal are ten million tons a year H: Yeah. HMJr: and they need so much cotton - and they've been getting their coal from Germany. Well, they want coal - they want cotton. How are they going to get it and how are they going to establish their credits? H: Yeah. HMJr: Now the credit part would be where we might be of some help. Regraded Unclassified 170 - 3 - H: Yes, I see. HMJr: And jointly with the English. H: Yes, I see. HMJr: 1 haven't - nobody's asked me, and.... H: Well, we here, you know, are not in charge of exports - haven't been - the BEW, you know HMJr: Well, I think if you got into it and you care to have me sit at your side H: Yeah. HMJr: I'd be more than pleased to do 80. H: Well, I'm glad you brought it up and I'll take it up and see what about it. HMJr: Thank you. H: Yeah. HMJr: Thank you. H: Thank you. Regraded Unclassified July 29, 1943. 171 9:29 a.m. HMJr: Hello. Oberator: Mr. Patterson. HMJr: Hello. Robert Patterson: Hello, Henry. HMJr: Bob. P: Yeah. HMJr: Can I talk to you in confidence? P: You bet. HMJr: Is there somebody on your wire. P: Nope. HMJr: Good. I just called up Hull and said this to him that I was disturbed because I can't find that any- body has planned once Italy has fallen in our lap, to assist them with their peace time demand, such as coal and cotton, you see? P: Yeah. HMJr: On the financial front. P: Yeah. HMJr: Well, he's - his answer was, "Well, 1 thought that the Army and the Treasury had that in hand." So I said, "Well, speaking for the Treasury, nobody has discussed it with us and I know there is no plan." So he said, "Well, that's terrible." So he said, "I'll get my people together and...." P: The Army - the Army planned to this extent, Henry, they will do supplementary feeding and medical supplies HMJr: Yeah. P: but beyond that - that's the limit of ours. HMJr: But look, Bob old man, supposing these people need BO much coal - let's just use that as the example - see? Regraded Unclassified - 2 - 172 P: Yeah. HMJr: They have been getting from Germany and you people have got an army of occupation and there are no plans - that, I know - and then you have an anarchy on your hands - uh - do you know of any plan - anybody's plan beyond what you Just said? P: No. I don't know of any. HMJr: The P: I know that the Army is charged with the distribution of enough extra food HMJr: Yeah. P: to keep them on a - well not a fancy basis, but a subsistence basis and also medical supplies. That's as far as we go, I believe. HMJr: Well, out of - what do you do that out of - Army appropriations? P: Yeah, we've got the - yes, I think 80. HMJr: Yeah. - P: The distribution at any rate - our distribution officer is in charge with that duty and we've put in ship tonnage for it and we'll get that all right. HMJr: Well, if he calls a meeting, you certainly want to be there, don't you? P: Yeah. The food - they say they don't need a full ration - they've got cuite a lot of food. They need certain things HMJr: Yeah. P: and we'll distribute those. You're particularly concerned about coal, of course, and HMJr: No. I'm - let's say I don't care whether it's a week or a month or three months - sometime certainly within the next six months, they'll be - they won't be fighting. Hello? P: That's right. Regraded Unclassified - 3 - 173 HMJr: Now, they'll want to resume peace time trade. P: Yep. HMJr: They'll want to buy things. P: Yep. HMJr: And no - the point I make is nobody 1e charged with the responsibility to assist them to make or arrange for financial credits. P: Yeah. HMJr: That's what I'm talking about. P: Yeah. HMJr: Not to give them the stuff, but to help them buy the stuff and pay for it. P: Yeah. HMJr: Seet P: Yeah. Of course, there are plenty of people charged with the job of HMJr: That's it. P: getting coal. They may not have done any planning on it but I suppose that Lend-Lease and Board of Economic Warfare HMJr: Now, that's what Hull said. P: They would both be charging around in it, wouldn't they? HMJr: Who? Yeah. Well, Hull said, "Well, that's OEM, etc." Well, anyway, he's going to call a meeting and I know you well enough that I can say this to you and you're not going to tell anybody - I don't want you to repeat it, you see? P: No. HMJr: But I want you to be thinking about it. P: Yeah. Regraded Unclassified - 4 - 174 HMJr: I mean, I didn't want it known that I called you up and said I'd just talked with Hull, you see? P: No, I won't. HMJr: But I wanted you to be thinking about it. I think what will happen - he'll call a meeting either today or tomorrow. P: Yep. Yep. HMJr: All right. P: Thanks, Henry, I'll be posted on it. HMJr: You and I seem to hit it off pretty well. P: Yeah. I think our minds agree generally. HMJr: Okay. Thank you. P: Good bye. Regraded Unclassified 175 July 29, 1943 12:36 p.m. HMJr: Hello. Operator: Mr. Patterson. HMJr: Hello. Operator: Go ahead. Robert Patterson: Hello. HMJr: Hello. Henry. P: Henry? HMJr: Yes, Bob. P: This 18 Bob. On Italy and coal. HMJr: Yeah. P: General Boykin Wright has talked to me some time about it. HMJr: Yeah. P: He's in charge of our International Division. HMJr: Yeah. P: He says that the responsibility for coal for Italy along with other supplies like food HMJr: Yeah. P: and medical supplies HMJr: Yeah. P: had been agreed upon as & military responsibility. HMJr: I Bee. Pi That 18, it's lodged with him and HMJr: Pardon me? P: It is lodged with him. Regraded Unclassified 176 - 2 - HKJr: I see. P: There's only one complication in it. HKJr: Yeah. P! And that is that it has never been clearly settled yet what part the British are to take and what part we're to take. HKJr: I see. P: But 80 far 88 American agencies are concerned, the War Department is the responsible agency for the initial supply until something else 18 done and it's to be deemed "military supplies." HMJr: I see. P: Procured, transported and issued like rations. HMJr: I see. P: And no plan immediate for repayment - that would be 8 matter of - to be settled by reparations HMJr: I see. P: or something like that but it would be delivered to them without any arrangement for payment. The plan is at present to give them 250,000 tone a month which may be too small HMJr: Yeah. P: for the operation of necessary utilities and railroads HMJr: I see. P: but the Btitish were supposed to pick up some of that. HMJr: Yeah. P: The British are - they're having 8. meeting this afternoon of what they call the Combined Civil Affairs Sections. HMJr: Yeah. Regraded Unclassified 177 - 3 - P: That's an agency of the joint - of the combined Chiefs of Staff. It has British members and American members AMJr: I see. P: and McCloy presides at the meeting. HMJr: I see. P: I don't think the State Department has any plan because - natural enough, it wouldn't have if this 16 due to the military responsibility to be dis- charged by the War Department. HMJr: I see. P: Now, they - in view of the new political developments over there, I think they've got to accelerate HKJr: Yeah. P: their plans. They had directed their people - this was - oh - some weeks ago HMJr: Yeah. P: to be prepared on September 30th to make actual shipments of all this stuff HMJr: I see. P: including coal. HMJr: Yeah. P: That - I presume, in view of what has happened, this afternoon they'll probably direct that that be acceler- ated. HMJr: I see. P: The real loose end in the thing, though HMJr: Yeah. P: is the part to be played by the British. HMJr: I see. Well, I didn't get the General's name who is handling that. Regraded Unclassified - 4 - 178 P: Wright. HMJr: General - what's his first name? P: Boykin. HMJr: Boykin. P: Wright. HMJr: And he's in charge at this end. P: Yes. HMJr: I see. P: Yes, he's in charge of the American end of it and he's in command of the International Division here of the Army Service Forces. HMJr: Well, then there isn't much for me to worry about. P: I'm sure - I'm sure there isn't - although I'm glad you stirred it up. HMJr: Did I stir it up? P: Sure. HMJr: Well, P: You certainly did because I got h1m in and it was evident that there were some unbuttoned things so far as the British responsibility and the American responsibility was concerned. The British, of course, are not too well off on coal HMJr: Yeah. But now P: themselves and yet it's a much shorter haul and a much quicker trip if they can supply it from there. HMJr: Well, now one other thing - as long as you've gone this far - could you 88 your own idea or anyway you want to do it, Lehman doesn't know where he's at on this P: Yeah. HMJr: See? Regraded Unclassified 179 - 5 - P: Yeah. HMJr: He has no idea where he's at. P: Yeah. HMJr: Could he be informed directly? P: Yeah. HMJr: That would be fine. P: Yeah. I'll tell him. HMJr: Good. Well, I'm glad I called you. P: Well, I'm glad you did, too. HMJr: Thank you, 80 much. P: All right, Henry. Regraded Unclassified 180 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE July 29, 1943 TO Secretary Morgenthau FROM Charles Bell pall Norman Cann and Harold Graves feel strongly that they should be given about five minutes this afternoon to explain certain possible difficulties which may arise as a result of getting the redraft of letter out nine days later than was earlier contemplated. They do not wish to discuss the merits of the letter. I feel that in the absence of Mr. Helvering, since they will have to sign for him and acquiesce in the redraft, you might wish to grant them the time requested. I have explained this to Fred Smith, who indicated that he would like to be in on the interview if you grant it. 3 P.m. appt. arranged by Chas Bell Cann Graves Madmitten TREASURY DEPARTMENT 3:02 1943 JUL 29 PM 2 35 Smith Chas Beef SECRETARY OF TREASURY OFFECE aft. Regraded Unclassified 181 July 29, 1943 3:00 p.m. TAXES Present: Mr. Smith Mr. Gaston Mr. Graves Mr. Charles Bell Mr. Cann MR. CANN: Our problem is this, Mr. Secretary: As a substantial part of the program of helping the taxpayers get this declaration filed, as is customary we want our deputies to get out into the towns and counties and small places as they do, you know, in connection with the annual filing of returns. That takes time. Now, when we originally talked about the release date for the declaration form we talked about the 15th of August. When we got back to the shop, we got to discussing it and realized how difficult it was going to be for the taxpayers to get the form within that period of time, that is, thirty days - get them filled out, get our deputy collectors out to where they could render the assistance that they ought to render. We said the thing to do is to see if we wouldn't get the Printing Office to step this thing up 50 we could advance the date on which we would send out the forms. So we contacted the Printing Office, and they advised us that there would be forms out there so that we could make distribution on the 5th day of August. I called Sutherland on the phone and told him of the situa- tion - told him that it was our thought that to be helpful to the taxpayers we ought to advance this date of distri- bution as rapidly as we could, with which view he concurred. We then prepared our instructions - we have also been - to the Collectors to that effect. Regraded Unclassified 182 - 2 - Then we have had numerous requests from the tax services, from the trust companies, and other organiza- tions, which handle large numbers of returns for taxpayers, as to whether we couldn't release that form at an earlier date. So with that thought in mind we did consummate it. Now, we feel that entirely apart from the merits or demerits of the doggoned notice we would be doing a great deal more for the taxpayer, Mr. Secretary, if we could use that time in helping him, by this advance distri- bution, to accomplish through some other type of publicity the points that we were driving at here and the points which Fred has got in mind in his letter. We do believe that as between the two things that that period of time and the help our people could do is worth a great deal more to the taxpayers than this letter. That is the story. H.M.JR: That is part of the story. It so happens that Sullivan isn't here and Helvering isn't here, 50 I come in contact with you, see. When you are going to get out a letter like that that is so important, why don't you clear it with my office? MR. CANN: Mr. Secretary, the procedure agreed upon was this, as I understand it: I was called over to a meeting which was attended by Mr. Gaston, Mr. Sullivan, Mr. Smith, Mr. Horne, which meeting, as I understand it, was ordered by you, to work out a publicity campaign. I attended that meeting. H.M.JR: When was the date of that? MR. CANN: Some time last week. MR. SMITH: Week before last. H.M.JR: It wasn't la st week. MR. SMITH: Week before last. MR. CANN: So I was told -- Regraded Unclassified 183 - 3 - H.M.JR: Was this before or after I got excited about the form? MR. CANN: After. MR. SMITH: This was immediately after the form was accepted. We came in with the form, showed you what it was, and you said, "Get together on the publicity." MR. CANN: So I was told - or rather, we agreed as a result of that meeting more or less this way, that Mr. Horne would take charge of the publicity campaign attendant to this declaration. H.M.JR: Excuse me, was that your understanding? MR. SMITH: He was to coordinate, but it was to clear through Chick and me before anything went to the public. And the letter, if I am not anticipating, was specifically brought up, Norman, at that time. You said that a letter was being prepared, and I said that we had better see that, because that is the most important thing we have in the whole procedure. MR. CANN: All right. MR. SMITH: I wanted that to clear over my desk. MR. CANN: That may be so, Fred, but certainly whether that is so or not, I was told to clear everything with Horne. H.M.JR: By whom? MR. CANN: That was the understanding in the meeting. H.M.JR: Let me get Mr. Gaston in here. We will wait. Mr. Gaston entered the conference.) Herbert, they are using your name in vain, so I think you had better come in. What I am trying to find out is how this letter going to forty million people got by without coming to my office. He (Cann) is referring to a meeting-- Regraded Unclassified 184 - 4 - MR. CANN: I am referring to that meeting, Herbert, that we had in John's office at which you were present, Fred was present, I was present, John was present, and Bill Horne. I think that was the group. MR. GASTON: That is right. MR. CANN: At that time you stated and laid down the theme song for this, with which we all agreed, namely, that we would attempt to make the appeal, that this thing wasn't difficult but that it was an easy thing - relatively easy - and We all agreed. MR. GASTON: Wouldn't magnify the difficulties. MR. CANN: That is correct, and We agreed that in the coordinating of this thing Bill Horne was to be the man that would do the coordinating. MR. GASTON: I believe so, yes. MR. CANN: I was to clear with Bill Horne. My particular plea in that conference, you remember - the thing that I was keenly interested in was that the tech- nical material that would go into any publicity would be cleared with the Bureau. That was really my plea. MR. GASTON: That is right. I was left with the understanding that the responsibility would be in there, in John Sullivan's office, for any further clearance. That would be my impression. MR. CANN: So then we had a meeting that afternoon, at which time Fred and I and Bill Horne and representatives of the OWI were there. MR. GASTON: But this first meeting was just a pre- liminary discussion of timing, tactics, and the general character of the appeal. H.M.JR: Were you under the impression that if Bill Horne O.K.'d it that ended it? Regraded Unclassified 185 - 5 - MR. GASTON: I wouldn't have anything to do with that. We weren't discussing the final mechanics of the clearing of this thing. H.M.JR: That is the point he is making. MR. GASTON: The point that Norman is making, as I understand it, is that he would look to people over here in Sullivan's office; in other words, he would look to Horne to do any further clearance of the document that was necessary. H.M.JR: We had the same thing once before with Horne. Horne isn't here, Sullivan isn't here - how can you function? But I mean, if Horne said O.K. nobody else had to see it? Fred Smith didn't have to see it? MR. GASTON: That question wasn't even discussed. MR. CANN: Let me go a little bit further on that, Mr. Secretary, if I may. That afternoon - because Herbert, after he got through and we reached an agreement as to the type of publicity, and so forth, then it was adjourned and we had the afternoon meeting. In the afternoon meeting - OWI, Fred, Horne, and myself - again it was agreed that Horne would coordinate, but that it would go through Chick Schwarz, and then, I suppose, through the OWI. Now that, Mr. Secretary - of course, I think maybe they were thinking in terms of publicity that might go But out over the radio or possibly through the newspapers. in any event, that was the agreement reached that afternoon. So as far as the Bureau of Internal Revenue is concerned, we would have cleared everything through Horne in the absence of Sullivan or-- H.M.JR: He wasn't here. And you called up Roy Blough and said, "Roy, I have sent this over. It doesn't make any difference what you say; it is on the presses already." Regraded Unclassified 186 - 6 - MR. CANN: No, no. H.M.JR: I got that directly from Roy Blough. MR. CANN: May I clear that? H.M.JR: He talked with you directly. MR. CANN: That is correct. H.M.JR: You said, "It doesn't make any difference on Monday what you think; it is on the presses anyway." MR. CANN: No. H.M.JR: That is what he said, word for word. MR. CANN: May I make a complete statement on that? H.M.JR: Sure. MR. CANN: All right. Mr. Blough was not here that week. H.M.JR: That is right. MR. CANN: Mr. Shere was not here that week; Mr. Surrey was not here that week. Now, I had cleared with Horne. I wanted to clear with them, and would have cleared with any of those men if they had been here. H.M.JR: They weren't all three out at the same time. MR. CANN: Yes, I think they were. H.M.JR: I think Surrey was here, because he was working with-- MR. CANN: Surrey was out all last week, so far as I know, on 8 vacation. Isn't that right? Regraded Unclassified 187 - 7 - H.M.JR: I don't know. Let's say you cleared with Bill Horne. When did you clear with Bill Horne? MR. CANN: That was Saturday afternoon. MR. GRAVES: I think 80; I think it was Saturday afternoon. Horne came down and spent an hour going over this form with us and O.K.'d it. MR. SMITH: Incidentally, on your original preliminary report that you had there that had to clear with Horne and Schwarz, I got left out of that; but even so, Schwarz never saw that. MR. CANN: If we follow the routine of clearing, which we customarily do in the Bureau, Mr. Secretary, to the Treasury - we route it, and then it is rerouted where it is received to the people over here who it is going to. H.M.JR: Who is it to go to over here? You see, I have been doing Sullivan's work for the last two weeks. MR. CANN: My definite understanding was that I was to clear with Horne, and I naturally assumed that when I cleared that if there was anything else to be done over here it would be cleared from the Treasury man who received it. H.M.JR: I think that is a fair assumption that Horne should clear it. Well, he didn't; but let me get down - if this thing were a good thing - if I were satisfied, I wouldn't give a damn if it hadn't been cleared with anybody. There are two things. In the first place I am not satisfied. There are forty million things going out, and on this whole approach - anything going out of the Bureau on this thing - I haven't been satisfied. In the final analysis, no matter whose name is on it I have to face the public on this. I am not satisfied, and I want the thing - I brought down the best man I could get. I can't work with a man Regraded Unclassified 188 - 8 - who appears here for two days every other week. I never see the man. I don't even - I have shaken hands with Horne once in my life. He is not going to pass on things for me. Let's get this procedure thing first. What I want the Commissioner to do - and I want him to do it promptly - you have a fifty-six hundred dollar vacancy over there, see, and I want a man put in there who can do this kind of work and who will look to Schwarz to clear his things in the Treasury. I put Schwarz under Fred Smith, so that will take care of that. MR. CANN: I might say, Mr. Secretary, that for a long time - certainly since I have been over there, and I think Chick Schwarz will bear me out - we haven't cleared anything there except through Chick Schwarz. H.M.JR: That is the way I want it. MR. CANN: We never clear any publicity otherwise. MR. SMITH: You mean clear it through or distribute it through? We are talking about getting clearance on these things before they are distributed. MR. CANN: The Bureau of Internal Revenue for a long time - it doesn't make any press releases over there. They just don't do that. MR. SMITH: I don't know about that. MR. CANN: I do. They don't. H.M.JR: Then, that is easy. But this vacancy - I don't know how long - I want it filled. MR. CHARLES BELL: That is McGrew's vacancy. H.M.JR: As to procedure, Gaston and Smith or somebody can make recommendations. You people can make recommenda- tions and they will go to my Administrative Assistant for final approval, but I want somebody in there soon. Regraded Unclassified 189 - 9 - If Mr. Horne can only come down two days a week or every other week, he is no good to me. Nobody is any good to me on a two-day-a-week basis. MR. GASTON: There is this to be said about this particular document-- H.M.JR: I had the same thing happen once before. MR. GASTON: There wasn't any hard and fast arrange- ment made as to clearance of this document at the pre- liminary meeting at which I sat. I would suppose that-- MR. CANN: That is right. MR. GASTON: I would suppose that Mr. Cann, if Sullivan had tagged Horne with responsibility, would look to Horne to make the clearance. You have spoken about the procedure of press re- leases. Of course, this isn't a press release, 50 you would naturally expect a somewhat different arrangement in which John Sullivan's office would be the point of clearance, with which the Secretary wished them to clear. H.M.JR: It doesn't necessarily have to go through Sullivan's office. MR. CANN: I was going to ask you that question. H.M.JR: When he comes back, you (Bell) talk to him. This is a public relations matter, and I want you to draw a procedure for me. I want them to fill that vacancy over there with a top-notch person who will be working for the Bureau. Then when the thing is still in a fluid state - where it goes to the public - that person can clear directly with Schwarz. Now, Sullivan can make whatever arrangements he wants with Schwarz when he gets back. Schwarz is now under Smith, so that takes care of Smith. But the stuff should originate with the Bureau; and then if I don't Regraded Unclassified 190 - 10 - like it, it is up to them to get it to me before it is on the presses. But We had better formalize this thing in writing. Any question? MR. GASTON: The only thing I was going to say - the only thing very definite about this meeting was this, that Norman Cann requested, and it was agreed to, that nothing would be sent out from here without being cleared with the Bureau. H.M.JR: That is lend-lease in reverse. MR. CANN: I just wanted to be sure we had a chance to check the technical material. MR. SMITH: That has to be done; there is no question about that. H.M.JR: Now you get a first-class publicity man over in the Bureau. Get him just as soon as you can. He will be there, and the thing will be written so it is technically correct; it comes over here; it goes to Schwarz, and it is up to Schwarz to see who in my office - Sullivan is part of my office. But I don't want, frankly, another publicity bureau under Sullivan like Horne. It seems to me that the thing should be in the Bureau. Get the people; give them all the help you can. If we don't like it, we will say so - pass on the man - they can take the initiative of finding somebody. Go out and find somebody. If anybody in the room knows anybody make a recommendation. But let's get an able man or woman. Then we will give them all the help we can. I think one of the mistakes is sort of running 8. separate publicity bureau over here. MR. GASTON: The routine they follow with me as to releases that affect Customs or any of those people - they usually dig up B. story or I may suggest it to them. But they always submit it to me - Schwarz' office always submits it to me for my O.K. before they put it out. Regraded Unclassified 191 - 11 - H.M.JR: Norman says that it is the way it is always done. He will be for it. O.K., Harold? MR. GRAVES: Yes, sir. H.M.JR: The only question is Sullivan's relation- ship - where he comes in the picture. He will be back Monday? MR. CHARLES BELL: Yes, sir. H.M.JR: You can talk to him. I don't want to go over it a third time. I don't want a separate publicity bureau there. The setup at this end is all right if it can get to Schwarz. As to that, are you (Graves) all right? MR. GRAVES: That is right. H.M.JR: Are you (Cann) all right? MR. CANN: Yes. H.M.JR: We will put the thing in writing. As to this thing - I have listened to you - I am going to turn you down. MR. CANN: I am sorry. Would you like to say anything on that, Harold? MR. GRAVES: I would like to say that in my opinion it would be much better to allow these declarations with instructions to go out as planned on the 5th of August, to be followed by distribution of this material through whatever other means we can arrange, than to hold up the distribution of the forms to forty million people. H.M.JR: You mean hold up - can the thing go without this? (Indicating letter) Regraded Unclassified 192 - 12 - MR. SMITH: Not without the letter. MR. GRAVES: Yes, it can go. We had originally planned to send the declaration forms with instructions which are all in the make now, without this letter, which was a sort of afterthought. Now, if this letter is to be changed-- H.M.JR: It is, but let's say when it has been changed. MR. GRAVES: When it has been changed it will mean that instead of these tax blanks being ready to go to the taxpayers on the 5th of August, they wouldn't be ready until the 20th, and that is awfully close to the 15th of September when the blanks must be filed. I think it would be a gross mistake for us to delay the distribution of those forms to get in this letter here, which is not indispensable to an understanding of the form. H.M.JR: What do you think of that? MR. SMITH: I don't agree. MR. GASTON: You would distribute the forms without this letter - distribute the forms themselves, then follow it with the revised circular of instructions - to be distributed by other means? MR. CANN: Let's be sure we understand that. MR. SMITH: Here is the situation, though, Herbert, on that: This form will then go with instructions - just cold instructions - to forty-two million people, of whom only fifteen have any interest in it. So you are going to make twenty-eight million people sore when you only need to make fifteen million people sore, to begin with. Consequently, if you send a letter - a decent, friendly letter explaining right in the very first paragraph that Regraded Unclassified 193 - 13 - this only affects fifteen million of the forty-two million people who are going to get it; and if you make them feel pretty good when they get it right off the bat, then you are not in the position of trying through publicity and other devious means to tell them that we are nice people. Then the one direct way we have of reaching them - just kicking them in the teeth practically-- MR. GRAVES: I think that very much overstates the case. The instructions that are to go with the form contain a very simple statement at the very beginning as to who is required to file the declaration. MR. SMITH: That is right, but it is all so cold, so simple, and so unfriendly. That is the whole thing. MR. CANN: Mr. Secretary, one point on that is that for years, as you know, we have sent out our tax blanks about the 5th of January. We send nothing with the tax blanks. H.M.JR: But you haven't had things like OPA and a thousand other things to put the people in a state of irritation. Heretofore we have been the only thing that has irritated the people. MR. SMITH: You didn't have a bond drive before, either. H.M.JR: You had all kinds of things. Now the people - they have open wounds; they are sore; they are mad. You originally only intended to send these tax forms out on the 15th? MR. CANN: That is correct, Mr. Secretary, but like I said-- MR. GRAVES: That was because of the delay in printing. MR. CANN: When we found out we were to do it-- H.M.JR: Isn't there some way of getting this letter out quicker? Regraded Unclassified 194 - 14 - MR. CANN: As I understand it, your people checked over here on that. MR. BELL: Get this letter out? H.M.JR: Yes. MR. BELL: No, sir, we can cut that time to the 15th of August but not a day earlier. H.M.JR: They are not all going to be finished on the same day, are they? MR. BELL: Ninety-five percent will be finished on the 15th of August. H.M.JR: They won't begin to flow before that? MR. BELL: They won't give me those dates. H.M.JR: But they come off the press, I mean, as they - they don't all come off the press in twenty-four hours. MR. BELL: They will have two or three days before the 15th that they will start feeding this to the collectors' offices, yes, sir. H.M.JR: Won't it be more than that? I mean, this is such a simple thing. MR. CANN: We delivered this, Mr. Secretary, for the first proof nine days ago. H.M.JR: But I still say I have seen printing presses work and the stuff begins to come off. MR. BELL: Their date was the 20th. That is the date they want. But we clipped them five days this morning through the Public Printer. MR. GRAVES: But. the trouble is that the printing facilities being used by the Government Printing Office Regraded Unclassified 195 - 15 - also have to turn out these tax blanks and instructions in very large quantities. H.M.JR: I don't see why you can't begin to put them in the mail. This (indicating letter to taxpayers) goes with the form? MR. CANN: That was the idea; it would go with the form with the instructions. H.M.JR: Where are they put together? MR. CANN: Ten different locations. MR. GRAVES: They are mailed from the sixty-four collection districts. H.M.JR: I mean, where do they sort of put them in the envelopes? MR. CANN: In the collectors' offices. They come folded. H.M.JR: Then they stuff them in? MR. CANN: Right. H.M.JR: As they begin to come off the press they begin to be mailed. MR. CANN: They will be doing that. H.M.JR: I should think some of them would come off the press by the 20th. MR. CANN: Mr. Secretary, we ran into some difficulties with the Government Printing Office on our March 15 filing. You may have forgotten it. And to be honest with you, I know we have got to get the forms out and I wouldn't want to tell our collectors to-- H.M.JR: What is a person going to do with this once he gets this? Regraded Unclassified 196 - 16 - MR. CANN: The form? H.M.JR: Yes. MR. CANN: The instruction on it is a simple statement. As a matter of fact, we will freely admit to you we think that the simplified form looked pretty good, so I think they are not going to have any troubles with it. MR. GRAVES: Many people who receive the form and the instructions will begin to write letters to the collector asking questions, and it is going to-- H.M.JR: You most likely won't agree with the statement I am going to make now. We wouldn't have had the simplified form if we hadn't raised hell about it. MR. CANN: I think that is a correct statement. H.M.JR: Do you think it is? MR. CANN: I don't think it is. It is. H.M.JR: Thank you for that. That is something. MR. CANN: There is a long story about that. I am not going to bore you with it. Some day I am going to tell you about that, too. H.M.JR: You most likely think I am going to be a littl arbitrary, but I am going to say something and you might just as well know how I feel. I think that the Bureau has got to be "told" a little bit. Maybe that is all wrong, but that is the way I feel. The little contact I have had the last two weeks, unfortunately that is the way I have come out. And leaving Fred Smith out of the picture - this isn't Fred Smith - but the other people around me here - Sullivan is away - feel the same way. You don't know me very well. He (Graves) knows me. When I have something on my chest, I say it. MR. CANN: I like that, Mr. Secretary. Regraded Unclassified 197 - 17 - H.M.JR: I don't go around - Harold knows me very well. MR. CANN: The only thing that I could say to that, if it is referring back to the matter of the form-- H.M.JR: No, this is an accumulation. I have been asking questions the last two weeks, see? And at the end of two weeks with Sullivan away and the Commissioner away, that is where 1 end up. MR. CANN: Of course, Mr. Secretary, that probably - to some extent I might say that that is some reflection on me, and-- H.M.JR: I don't know where. I think it is the whole spirit over there. I think that there is - I mean, there is an isolation spirit over there. MR. CANN: No, you are as wrong in that, Mr. Secretary, as you can be. Now, look, let me just tell you; for seven years - you don't know it, but you have had me on one detail or another - in that said seven years I suppose I have had maybe five weeks away from the office. And I am not the only fellow over there. I don't think there is 8 division of the Government in Washington that has got the morale the Bureau of Internal Revenue has got, and it is forty and forty-five-year-old, and fifty-year-old people carrying the load. There isn't an outfit that has got the pride, and there isn't an outfit that is any more a part of the Treasury than the Bureau of Internal Revenue. I have heard that before, that there is a tendency on the part of some to say, "There is the Treasury at the end of Pennsylvania Avenue, but we are all by ourselves down here, and to hell with that." But that isn't so. That very definitely isn't so, and I think it is unfortu- nate that you feel that way, because the hours that some of our people have worked for you down there the last few weeks without regard to themselves and their health, the number of men here in the last - I suppose the last three or four months that have retired - and it is attributable directly to this extra burden that we have put on our folks. Regraded Unclassified 198 - 18 - I think what you say, unless you have some concrete instances, which there might be, on the other side to explain it, I really think that is unfortunate, because you have just got the best bunch of folks in the world down there. Their bond drive - their response to you on that is outstanding. H.M.JR: It is very good. MR. CANN: On your Community Chest drive they always lead the Treasury. On an overtime operation, we don't bother with compensatory leave down there. We don't have time to fool with it. I will admit I am, as you know, very biased about it - very proud of the Bureau. After all, twenty years - but as I say, I just simply feel that what you say is a reflection on me. H.M.JR: I don't know - I wasn't being personal. But that is the feeling I got. But I am from Missouri and my mind is always open. I haven't any prejudices, or anything like that, but I am certainly going to put myself closer to the Bureau for a while. MR. CANN: I wish you would. H.M.JR: Until I have satisfied myself one way or the other. I have been too removed - detached. Maybe it is my fault. MR. CANN: Can I ask you this? H.M.JR: You can ask me anything you want to. MR. CANN: What phase of the Bureau's work, or failure in the Bureau's work, would lead you to that conclusion? H.M.JR: I mean, I would have to name names. I don't want to name names. It is & succession of incidences. It may be my fault that I haven't - I have had too many people between myself and the Bureau. Regraded Unclassified 199 - 19 - MR. CANN: of course, as I say-- H.M.JR: Let's just see, and let's go along now, and I am going to ask you to do it my way, and I am asking you to get somebody to fill that vacancy over there, and that person can handle the public relations - deal with Schwarz. Let's see how we get along. I have got only one object in mind, and that is to make the path between the Treasury and the public smoother. That is what I am trying to do. When I see what has happened to OPA and OCD and those other organizations like that, it makes me sick. I don't want it to happen in the Treasury. MR. CANN: Wouldn't you agree with me, Mr. Secretary, that there has probably been less criticism on the part of the public directed to the Bureau of Internal Revenue than any organization in the Federal Government, and that more commendatory remarks have been written about it? H.M.JR: I couldn't say. MR. CANN: All I can say is from clippings - the only reference I can take is clippings. H.M.JR: I will say that I think that considering that you are the tax collector, that it is amazing how little criticism there is. I will say that. MR. CANN: We had an amusing letter the other day. H.M.JR: Amusing? MR. CANN: It was very critical of our circular to employers. H.M.JR: I don't know what you refer to. MR. CANN: You saw the circular we prepared for em- ployers. This letter was written by a gentleman in Jack- sonville to you personally. Regraded Unclassified 200 - 20 - H.M.JR: I didn't see the letter. MR. CANN: I know you didn't. It came over to us directly. He congratulated us on writing, but he said that it was the most terrible writing that had been written since the beginning of time. So we were rather proud of that employers' circular - employers generally have written us letters more or less commending us upon it, so we examined the paragraph in question and the paragraph in question was the law as Congress wrote it, word for word. (Laughter) Your last word on this, Mr. Secretary, is not to hold it up? H.M.JR: My last word is just what I told you over the telephone. I don't want that circular to go and I want-- MR. CANN: I understand that, but do you want us-- H.M.JR: I want the circular and the forms to go out together, please. MR. CANN: All right. Regraded Unclassified 201 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Secretary Morgenthmu July 29, 1943 TO FROM Ted R. Gamble As you know I have been conducting a series of meetings during the past 45 days with the Office of War Information, the War Advertising Council, the War Activities Committee and the Allied Newspaper Council, In each instance the request for cooperation in the Third War Loan has not only been granted but has been amplified as a result of discussions with each of these groups. We are working on an idea to spear-head this campaign so that an infectious atmosphere of enthusiasm and excitement will be generated throughout the nation. This idea revolves around an entertainment World Caravan. This Caravan will include 40 to 50 of the top motion picture personalities. It also will include representatives of the legitimate stage and will carry its own musical organization. In addition it is contemplated that we might use speakers selected from our leading Congress- men. The cities have already been selected for this operation and will include all of the large cities in the country, some 15 in all, A secondary tour will visit the next 20 cities in size. Listed among the personalities who have already made arrangements to join this tour are: James Cagney, Jean Arthur, Walter Pidgeon, Greer Garson, William Powell, Judy Garland, Hedy Lamar, Fred McMurray, Fred Astaire, Norma Shearer, Jeanette McDonald, Ray Milland, Edward 0, Robinson, Joan Regraded Unclassified 202 Page 2 Continued Ovawford, Marlene Deitrich, Orson Welles, Wallace Berry, Mickey Rooney, verotiy Lamour and Spencer Tracy. This is out a partial list, and we are informed by the Notion Picture Industry that the major studios will, if necessary, close down turing this tour in order to avail to us a complete roster of their people. We know from our experiences of last September that there is no single device that we can use to better advantage for the kind of campaign that we want to put over this September than an activity such as this. A3 a result of our conversations with O.W.T. and representatives of Networks we are convinced that a most 1 pressive launching ceremony c/ut be broadcast to the nation as a result of having this great pool of talent concentrated in one spot. I would like, therefore, to recommend to you that this Caravan be brought to Washington and that our Third war Loan be laurched here on the evening of Septe ber B, by the President of the United States. We would like for the President to officially launch the Thirt War Loan in a short message as the feature of this broadcast. In addition to giving us the kind of help which we feel is a vital need for "Kicking Off" this monumental job, we would at the same time be able to obtain invaluable newsreel shots and picture naterial for Tige throughout the Campaign. Regraded Unclassified 203 Page 3 Continued I would like to make it clear to you that I have discussed this program very carefully with all the groups involved and we are agreed that a program of substance, dignity and sincerity can effectively be wrought from such an occasion, As our whole Campaign will stem for this activity, we would like to know as soon as possible if the Commander-in-Chief can take part. Regraded Unclassified 204 July 29, 1943 I called Grace Tully today and told her that we would like to have the President launch the Third War Loan Drive on the night of September 8th. I told her that a great many of the movie people are going to be helping us, and we could get any ones he wanted to come over that evening, such as Greer Garson, Judy Garland, Hedy Lamar, Norma Shearer, Marlene Deitrich, Dorothy Lamour, etc. I suggested that perhaps he would like to either go on the air or else make a movietone. She said she would ask the President about it and then let me know. Regraded Unclassified 204 July 29, 1943 I called Grace Tully today and told her that we would like to have the President launch the Third War Loan Drive on the night of September 8th. I told her that a great many of the movie people are going to be helping us, and we could get any ones he wanted to come over that evening, such as Greer Garson, Judy Garland, Hedy Lamar, Norma Shearer, Marlene Deitrich, Dorothy Lamour, etc. I suggested that perhaps he would like to either go on the air or else make a movietone. She said she would ask the President about it and then let me know. Regraded Unclassified > 205 THE WHITE HOUSE WASHINGTON July 29, 1943 Dear Mrs. Klotz: Will you let us know about Dr. Welch, who is head of music at Princeton and "Consultant to Secretary Morgenthau" 88 reported in Seattle? He 1s to speak in Seattle - 1s it for War Bonds? Sincerely yours, Malima @ Thompson Secretary to Mrs. Roosevelt Mrs. Henrietta Klotz Office of the Secretary If Treasury Department Washington, D.C. Mrs. clotz phoned Miss Thompson 8/6 7/31/13 206 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE TO Secretary Morgenthau July 29, 1943 FROM Randolph Paul I asked Carl Shoup of Roy Blough's office to look at the hearings before the Ways and Means Committee to ascertain Vinson's attitude, and he has given me the attached har memorandum. Regraded Unclassified 207 July 28, 1943 TO: Mr. Paul FROM: Mr. Shoup In accordance with your suggestion I have looked through some of the hearings before the Ways and Means Committee a few years ago to ascertain the attitude of Fred M. Vinson, then a member of the Com- mittee. I get the general impression that Mr. Vinson kept closely in touch with technical developments, and to the business man who appeared before the Committee he must have seemed an acute, even sharp, questioner - - almost as a sort of "hatchet man" for the administra- tion, although in a courteous manner. Mr. Vinson was adept at taking to pieces anyone who came before the Committee with only & vague sense of injustice, without specific facts at hand for his own business, and without specific knowledge of the tax law. Nothing in the parts that I have reread suggest any lack of sympathy with what were then the administration's chief tax aims. This impression must be qualified, however, by the fact that I have not gone carefully through every section of the hearings. My: survey covered part of the 1936 hearings and part of the 1938 hearings. It checks, however, with an impression that I recall having obtained several years ago when I had occasion to follow the hearings fairly closely. ds Regraded Unclassified 208 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE 7/29/43 TO Mrs. McHugh. FROM The Secretary. such Last week I wrote Fred Vinson a letter asking why he didn't give us a ruling on salaries above $5,000 and he answered me, T believe, that he was weiting on two other departments. If ve don't get an answer by next Monday or Tuesday, I went to write Its ogain. Please see that Mrs. Klotz reminds me. Regraded Unclassified 209 TREASURY DEPARTMENT finished INTER OFFICE COMMUNICATION DATE TO Secretary Morgenthau July 29, 1943 FROM Randolph Paul I am sending herewith a memorandum by Joe O'Connell 0' regarding an employee of the Federal Government being at the same time employed by a private corporation. Rst - Regraded Unclassified 210 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE TO Mr. Paul July 28, 1943 FROM Mr. O'Connell There is no existing Federal law which precludes an employee of the Federal Government from being at the same time employed by & private corporation, or from accepting compensation from such a corporation for services performed for it. Of course, if the holding of the two positions involved a conflict of interest there would be very strong reasons of public policy for attempting to prevent it, but there is no statute which addresses itself expressly to such a problem. It is also obvious that if the private employ- ment resulted in an interference with the performance of the public duties there would be strong reasons for not continuing the man in the public employ. There is a general statute which provides that no Federal employee may accept compensation from any private source for services performed for the Federal Government. There are several Attorney General's Opinions construing this general statute from which it is reasonably clear that the private compensation must have been for the purpose of paying the man for the service performed for the Federal Government in order to come within the statute. There is no provision in the FDIC legislation which would result in a different rule. The only prohibition contained in that statute which touches at all on this sort of situation is one which prohibits a director in FDIC from being at the same time & director in any insured bank. We have been unable to find any provision in the mail-pay or other subsidy legislation which prohibits an air line company from paying director's fees to a man in Government service. In 80 far as the Treasury Department is concerned there is & Treasury regulation which prohibits any Treasury employee from engaging in any outside employment without the approval of the Secretary. It is my understanding that such approval has been given sparingly. spes Regraded Unclassified 211 JUL 29 1943 Dear Prentiss: I know you are busily engaged in waging the fight against inflation on many fronts. I also know that you have always favored the elimination of special privi- leges for any economic group. Consequently, I feel justified in calling to your attention the demoralizing effect on persons of modest means of the present policy of allowing hotels and res- taurants to serve rationed foods without requiring their patrons to surrender coupons. In the case of certain foods, such as meat, this policy discriminates in favor of the well-to-do who can afford to supplement their meat ration by eating out regularly. I have always understood that the point ration system was intended primarily to secure an equitable distribution among all classes of consumers, rich and poor alike, of those foods for which demand varies widely or which are available in such small quantities that an equal ration would be insignificant. In theory, the system is designed to achieve a rough measure of social justice. In practice, it is creating a privileged class of expensive hotels and restaurants which cater to a well-to-do clientele. I doubt if anyone will seriously dispute the fact that there are not enough hotels and restaurants to feed industrial and white collar workers at prices which they can afford to pay. Nor is there widespread acceptance of the curious view (which I have heard advanced in de- fense of existing OPA regulations) that eating food "off the ration" at fancy prices is & form of recreation which the Government should encourage. Surely, it does not improve the morale of a worker who has put in a full day's work in an office, at a store or By Memeenger Regraded Unclassified 212 - 2 - factory, or in a mine or quarry, under tense and diffi- cult circumstances, to know that if he wants roast beef he can get it without surrendering & coupon, by paying two or three dollars at a first-class hotel. It is common knowledge that choice cuts of meat can always be found on the tables of hotels and restaurants, even when the shelves of retail butchers are bare. This is perhaps the natural consequence of the OPA regulation allowing hotel supply houses which fabricate primal outs into roasts, steaks, and stews to charge 20% more than the zone price. Of course, it might also result from black market operations on the part of expensive hotels and restaurants trying to satisfy patrons to whom high prices are no obstacle. In any event, the present system of rationing hotels and restaurants according to the number of meals served, without regard to how much meat the customers may have consumed at home, may well discredit the ration system. I realize that any solution of this problem involves many administrative difficulties. But you and I know how many of the most constructive measures of this Admin- istration were originally condemned as administratively impracticable and proved, when tried out, to be very successful. It is true that in England hotel and restaurant customers need not give up coupons for meals. However, the British Ministry of Food strictly regulates the number and contents of courses of meals served, and limits not only the price charged for meals, but also their nature. Perhaps applying the point ration system to hotels and restaurants is not the sole solution. Perhaps the answer lies in reducing the proportion of the available civilian supply of meat allocated to hotels and restau- rants. Or, perhaps hotels and restaurants charging more than a specified price for portions of meat should be deprived of choice cuts altogether. Regraded Unclassified 213 - 3 - I do not want you to think that I am wedded to any particular solution, and I know that you must have con- sidered suggestions from many sources. I feel, however, that a re-examination at this time of this problem might result in some preferable alternative which would iron out inequities due to inequality of income. Yours sincerely, (Signed) H. Morgenthau, J₁ Secretary of the Treasury. Hon. Prentiss Brown, Administrator, Office of Price Administration, Washington, D. C. CLK:rgs 7/28/43 Regraded Unclassified 214 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE July 29, 1943 TO Secretary Morgenthau FROM Mr. E. M. Bernstein Subject: Exports of Coal and Cotton to Italy 1. At a meeting of the Coordinating Committee for Liberated Areas on July 27, General Hilldring informed the Committee, including Governor Lehman, that the Army was prepared to guarantee the supply of all import items for Italy for 8. period of six months. During this period, no civilian agency need be responsible for sending supplies to Italy. The Army arrangements will presumably follow the general pattern already worked out in North Africa. The Army will procure these goods with dollars in this country. Such goods as the Army sells in Italy (as distinguished from what it furnishes as relief, etc.) presumably would be sold against Italian lira currency or credit, which it could then use for the payment of troops or the procurement of supplies in Italy. Under this arrangement, the question of the payment of dollars by Italy need not arise. 2. When Governor Lehman assumes responsibility for this work, this mode of financing could, of course, be continued -- at least until more permanent arrangements are formulated. 3. In the case of coal, the Army has made it evident in North Africa that it considers coal to be primarily an Army supply problem. Coal is vital for successful railroad operation and for the maintenance of public utilities. In North Africa, only that small proportion of coal that is sold to industrial or other consumers is handled by civilian agencies which recover dollars from the French in these instances. In the case of Italy, coal 1s absolutely essential for the maintenance of the power plants which manufacture the electricity to operate the railroads and other industries throughout Italy which are of primary concern to the Army. Regraded Unclassified 215 - 2 - Even after the six-month period of Army supply, the Army presumably will continue to handle coal as it has continued to do in North Africa. The Army presumably would be paid for this coal by Italian lira currency or credit, which it would be free to expend in the area for pay of troops or local supplies. Should any part of the coal pro- gram ultimately be turned over to one of the civilian agencies, it can be financed as indicated in (4) below. 4. The case of cotton will be handled the same as other civilian supplies such as food, drugs, etc. After the six-month period of Army supply 18 over, civilian supplies for Italy will be handled by civilian agencies. In so far as these supplies may be required for out and out relief purposes, no charge will be effected. In so far as supplies are sold to the Italians, the civilian agencies would presumably re- ceive Italian lira currency or credits in exchange. OFRRO, which will be the main recipient of such lira currency or credit for such civilian supplies, may make such Italian credits available to OEW for the purchase of goods within Italy for export to the United States. OEW may be asked to settle for such credits at the official rate of exchange in dollars, thereby reimbursing OFRRO in the United States with American currency or credits. 5. Because imported goods sold in Italy can be paid for in lira currency and credits, the means are available for financing Italian purchases of imported goods ithout making special credit arrangements. Regraded Unclassified 216 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE July 29, 1943 TO Secretary Morgenthau FROM E. M. Bernstein Subject: Italian Foreign Trade Annual Volume of Merchandise Trade, 1937-1940 During the four years, 1937 to 1940, Italy's average annual exports amounted to 8,304 million lire ($432 million) and her average annual imports amounted to 11,839 million lire ($616 million). Although figures showing total exports and imports for the years after 1940 are not available, it 18 reported that Italy had an export surplus in 1941. This was probably due to & shortage of imports of raw materials and food-stuffs while at the same time Italy was increasing her exports to Germany. Distribution of Trade by Countries In 1938 the principal sources of Italian imports were Germany 26.7 percent, United States 11.9 percent, and United Kingdom 6.5 percent. Germany's share in this trade had been rising steadily since 1934. In 1938 the principal consumers of Italian exports were Germany 19.1 percent, Eritrea 12.6 percent, United States 7-5 percent, and United Kingdom 5.6 percent. Since 1934 Germany's share in Italian exports had been rising while that of the United Kingdom had been falling. Table I shows the value of Italian merchandise trade with ten principal colonial and foreign suppliers and markets for the years 1934 and 1938. Italy's trade with Germany increased in terms of reichsmarks from 547 million in 1938 to more than 2,000 million in 1941. Prices of imports and exports, however, increased by about one-third during the same period. Regraded Unclassified 217 - 2 - Principal Commodities Entering into Italian Trade In recent years Italy's most important imports have been coal and coke, and cotton, which in 1938 accounted for 15.6 percent and 7.5 percent of Italy's imports. Since the outbreak of war Italy has imported substantial amounts of coal and machinery from Germany. In 1938 Italy's chief exports were cotton cloth which accounted for 6.4 percent of her total exports, citrus fruits 5.2 percent, and dried fruits and nuts 4.9 percent. Since the war Italian exports to Germany (aside from labor) have consisted primarily of fruits, vegetables, rice, olive oil, wine, silk fabrics, synthetic fibres, and other manufactures. The Italians also provide the German war machine with those few raw materials which are available in their country - notably sulphur, pyrites, mercury, hemp, flax and raw silk. Table II shows the ten principal commodities entering into Italy's foreign trade in 1934 and 1938. Regraded Unclassified 218 TABLE I Italy's ten principal foreign suppliers and markets, 1934 and 1938 (Value in millions of lire) 1934 : 1938 : : Percent of : : = Percent of Country : Value : total value : Country : Value : total value A. Principal Suppliers : Germany 1,213 15.8 : Germany 3,016 26.7 UNITED STATES 957 12.5 : UNITED STATES 1,338 11.9 United Kingdom 707 9.2 : United Kingdom 728 6.5 France 437 5.7 : Switzerland 376 3.3 British India and Ceylon 353 4.6 : Poland and Danzig 320 2.8 Switzerland 293 3.8 : Argentina 274 2.4 Argentina 274 3.6 : British India and Ceylon 269 2.4 Australia 234 3.1 : France 254 2.3 Belgium-Laixembourg 229 3.0 : Czechoslovakia 254 2.3 U. S. S. R. 220 2.9 : Rumania 253 2.3 All other countries 2,758 35.8 : All other countries 4,191 37.1 : Total 7,675 100.0 : Total 11,273 100.0 : B. Principal Markets : Germany 833 15.9 : Germany 2,002 19.1 United Kingdom 529 10.1 : Eritrea 1,325 12.6 Switzerland 438 8.4 : UNITED STATES 782 7.5 UNITED STATES 388 7.4 : United Kingdom 587 5.6 France 353 6.7 : Libia 526 5.0 Argentina 218 4.2 : Switzerland 495 4.7 Libia 176 3.4 : Argentina 405 3.9 Yugoslavia 140 2.7 : France 328 3.1 Netherlands 134 2.6 : Ethiopia 295 2.8 Hungary 130 2.5 : Egypt 267 2.5 All other countries 1,886 36.1 : All other countries 3,485 33.2 : Total 5,225 100.0 : Total 10,497 100.0 : Italian dependency Treasur Department, Division of Monetary Rosearch July Regraded Unclassified 219 TABLE II Ten principal commodities entering into Italy's foreign trade, 1934 and 1938 (Value in millions of lire) 1934 1938 Percent of : : Percent of Commodity Value Commodity Value total value total value A. IMPORTS Coal and coke 857 : 11.2 : Coal and coke 1,758 : 15.6 Cotton, raw : 722 : 9.4 : Cotton, raw 828 : 7.4 Wool, in the grease, and washed, : : : Machinery, apparatus, and parts : 759 : 6.7 wool waste, and flocks 513 : 6.7 : Mineral oil, crude, and residues from: : Machinery, apparatus, and parts 371 : 4.8 : the distillation of 657 : 5.8 Lumber, common, rough, squared, or : : : Wool in the grease and washed, wool : : sawed 270 : 3.5 : waste, and flocks 420 : 3.7 Wheat 185 : 2.4 : Wood pulp 393 : 3.5 Fish (except shellfish, caviar, etc.) 178 : 2.3 : Copper and its alloys, in ingots and : : Oil seeds : 172 : 2.3 : scrap 327 : 2.9 Hides and skins, raw, except : : : Fish (except shellfish, caviar, etc. 244 : 2.2 furskins : 171 : 2.2 : Lumber, common, rough, squared or : : Mineral oils (except crude and : : : sawed : 236 : 2,1 residues from the distillation of) : 162 : 2.1 : Iron and steel scrap : 233 : 2.1 All other 4,074 : 53.1 : All other 5,418 : 48.0 : : : Total 7,675 : 100.0 : Total 11,273 100.0 : : -- : B. EXPORTS Artificial fibers 299 : 5.7 : Cotton cloth : 675 : 6.4 Citrus fruits : 279 : 5.3 : Citrus fruits : 540 : 5.2 Cotton cloth : 260 : 5.0 : Dried fruits and nuts : 511 : 4.9 Dried fruits and nuts 220 : 4.2 : Grapes and other fresh fruit, except : : Cotton yarns, except sewing thread 173 = 3.3 : citrus 370 : 3.5 Cheese 153 : 2.9 : Artificial fibers 364 : 3.5 Wines and vermuth : 146 : 2.8 : Machinery, apparatus, and parts 340 : 3.2 Hemp, flax, and other vegetable : : : Wool cloth 304 : 2.9 fibers, raw, except cotton 146 : 2.8 : Wines and vermuth 283 : 2.7 Machinery, apperatus and parts : 142 : 2.7 : Automobiles 264 : 2.5 Grapes and other fresh fruit, : : : Hemp, flax, and other vegetable : : except citrus : 129 : 2.5 : fibers, raw, except cotton 235 : 2.2 All other : 3,278 : 62.8 : All other 6,611 : 63.0 : : : : : Total : 5,225 : 100.0 : Total 10,497 100.0 : Treasury Tepartment, Division of Monetary Research July 29. 1943 Regraded Unclassified 220 Treasury Department Division of Monetary Research Date July 29, 1943 19 From: Mr. E. M. Bernstein To: Secretary Morgenthau I spoke to Mr. Feis and he was very sympathetic. He had seen Secretary Hull's cable and he appeared eager to help get cooperation for our man in Martinique. He is going to speak to the European division of the State Department and inform us whe ther there would be any objection to the Treasury's holding up some general licenses for the Martinique banks in order to induce them to cooperate with the Treasury in investigating col- laborationist financial dealings. 221 July 29, 1943 Memorandum of a Telephone Conversation with Mr. Feis July 29, 1943 In accordance with Secretary Morgenthau's instructions I called r. Feis and spoke to him of the Treasury's desire for the coopera- tion of the State Department in facilitating Mr. Ball's investigation of Martinique bank accounts and the inventory of the gold held in Martinique. Hr. Feis said he had seen the telegrams from Ball and the telegram Secretary Hull had dispatched at the suggestion of Secretary Morgenthau. I told Mr. Feis that the Secretary appreciated Mr. Hull's telegram. I then mentioned to Mr. Feis the importance the Treasury attaches to having Mr. Ball proceed with the investigation of the Martinique bank accounts. If pressure would induce a greater degree of coopera- tion from the Martinique authorities, the Treasury would like to exert some pressure in a manner that would be in harmony with the objectives of the State Department. As a concrete illustration, I told Mr. Feis the Treasury would not want to go so far as to deny licenses for the expenses of a ship now in Puerto Rico which is about to depart for Martinique with Lend-Lease food supplies. We know such action involves too great pressure. We do feel, however, that by denying general licenses to Martinique banks and by compelling them to act on a specific license basis, we could indicate to them the desirability of cooperation with the Treasury in investigating collaborationist financial dealings, without impeding the economic life of the people of Martinique. Mr. Feis told me it would be necessary for him to speak to the European division of the State Department, and that he would let me know their views. E. 11. Bernstein Regraded Unclassified 222 July 29, 1943. IM MEMORANDUM TO: Secretary Morgenthau FROM: Mr. Gaston DiLucia has told me something of the difficulties and handicaps he encountered 88 Financial Attache in Madrid, where his primary responsibility was to furnish information to O.S.S. Both Ambassador Hayes and Beaulac, the Counselor of the Embassy, resented his coming and threw. many difficulties in his path. They had not been adequately instructed 8.5 to the work he was to do. He had been authorized to direct the activities of a crew of twelve men already in Spain, all but one of whom were former American oil company representatives in Spain. The twelfth man was Joe DaFine, a former Narcotics Agent who had been sent over previously by O.S.S. DaFine gave him effective assistance; the others did not. He says that these oil company men told him frankly that they were not going to do anything to prejudice the interests of the American companies whom they had previously repre- sented. Also they were used by the special oil repre- sentative sent to Spain by the State Department to check on the use made of oil imports to make investigations for him. In these investigations they disclosed their identity in such a way as to make them useless as undercover agents. DiLucia found that the Embassy had been regularly and periodically reporting to the State Department that an invasion of Spain by Hitler was imminent. He made some investigations 8.5 to the disposition of German forces in France and became convinced that there was not the slightest prospect of 8. German invasion and he 80 reported to Washing- ton. Later the Embassy turned to predicting a Spanish in- vasion of Portugal and DiLucia was asked by the Army to check on this. He found that the state of the Spanish Army as to lack of transportation, equipment, armament, shoes and clothing was such that there was not the slightest possibility of a Spanish invasion of Portugal and he so re- ported. Again he tangled with the Embassy in endeavoring Regraded Unclassified 223 - 2 - to send B. cable stating that Franco was about to dismiss Serrano Suner. The Embassy told him that his prediction was absurd and that they had contacts through which they would learn of such events if they were about to occur and they knew that nothing of the kind was going to happen. This prediction was stricken out of a cable he had offered for transmission. He wrote the same information in a letter and put it in 8. pouch addressed to O.S.S. Suner was dismissed four days after he mailed the letter. The British resented and still resent American intelli- gence work on the continent and told DiLucia 80 quite plainly. There is & struggle for authority in the intelligence field between the Army, the Navy, the State Department and O.S.S. The F.B.I. gets into the picture occasionally through sending men over ostensibly to investigate particu- lar cases. However, Dyar in Bern seems to have gotten along all right. He is 8. very shrewd and diplomatic fellow with & good deal of foreign service experience. Nr Regraded Unclassified 224 BRITISH air commission 1785 MASSACHUSETTS AVENUE WASHINGTON, D. C. TELEPHONE HOBART 9000 PLEASE QUOTE INFERENCE NO With the compliments of British Air Commission who enclose Statement No. 95 -- Aircraft Despatched - for week ended July 20, 1943. The Honourable Henry Morgenthau, Jr. Secretary of the Treasury WASHINGTON, D. C. July 29, 1943. Regraded Unclassified MOST SECRET: 225 STATEMENT NO. 95 Aircraft Despatched from the United States Week Ended July 20, 1943 ASSEMBLY BY BY FLIGHT DELIVERED TYPE DESTINATION POINT SEA AIR FOR USE IN CANADA CONSOLIDATED Catalina IV U.K. U.K. 1 Coronada GR I U.K. U.K. 1 Liberator GR V Bahamas Nassau 6 Liberator GR V U.K. U.K. 7 Liberator GR V W. Africa W. Africa 5 BREWSTER Bermuda Bahamas Nassau 3 CURTISS Kittyhawk M.E. Port Sudan 19 Kittyhawk New Zealand Auckland 10 Seamew U.K. U.K. 3 DOUGLAS Dakota III U.K. U.K. 7 Dakota III M.E. M.E. 5 Dakota III India India 5 Dakota III S'Africa S'Africa 2 FAIRCHILD Fairchild PT 26 Algiers Algiers 10 GRUMMAN Martlet V U.K. U.K. 7 GLENN MARTIN Baltimore V M.E. M.E. 7 NORTH AMERICAN Harvard New Zealand Auckland 4 VULTEE India Karachi 10 Vengeance VEGA Canada Canada 3 (A) Ventura GR V Ventura GR V S'Africa S.Afrifa 1 - TOTAL 63 50 3 British Air Commission Movements Division (A) Including one exported week ended July 13. July 24, 1943. Regraded Unclassified 22L NOT TO BE RE-TRANSMITTED COPY NO. 13 BRITISH MOST SECRET U.S. SECRET OPTEL No. 249 Information received up to 7 a.m., 29th July, 1943. 1. NAVAL On 28th Beaufighters escorting ships of the Home Fleet north of SHETLANDS shot down two enemy aircraft. Aircraft from one of H.M. Aircraft Carriera shot down two more. H.M. Sloop on BISCAY patrol 28th sank 5 Spanish trawlers fishing in prohibited waters. The crews were sent back in a 6th trawler. Another 7,000 ton ship in the Southbound convoy off PORTUGAL has been damaged by air attack but is still with convoy. On 28th evening homeward convoy was ropeatedly attacked by 7 F.W. 200' 01'1 CAPE FINISTERRE. Two were shot down by escorting Liberators and one was damaged by two aircraft catapulted from ships in the con- voy. The pilots were rescued. No damage to ships in convoy. 2. AIR OPERATIONS WESTERN FRONT. 27th/28th. HAMBURG. 2,313 tons dropped including seven 8,000 lb. and 323 4,000 1b. H.E. and 1,209 tons of incondiaries. A good concentration of marker bombs was well maintained throughout the attack and crews had no difficulty in Identifying them. A/A fire intense at first but later seemed overwholmed. Searchlights numerous but ineffective. 28th. Out of 302 Fortresses sent out 32 dropped 107 tons on a fighter component factory at CASSEL. 28 dropped 62 tons on un aircraft assembly factory near MAGDEBURG and 17 bombed other objectives with fair to good results, 23 Fortresses missing. Medium, Light and Fighter Bombers attacked industrial objectives and airfields in the Low Countries and Northern France. Fighters des- troyed 9 enemy aircraft for the loss of one. 28th/29th. Aircraft despatched - HAMBURG 4; DUSSELDORF 4; Sea- mining 15; Leaflets 4; Intruders 8. Four enemy aircraft came in over ESSEX. ITALY. 27th. 62 escorted medium bombers attacked the airfield at SCALEA 110 miles southeast of NAPLES. 21 heavy bombers dropped 45 tons on CAPUA airfield and 18 others bombed railway and other objectives east of NAPLES. SICILY. 27th, 107 Light Bombers successfully attacked the port of MILAZZO. TREASURY DEPARTMENT 1943 JUL PM SECRETARY OF TREASURY OFFICE Regraded Unclassified THE WHITE HOUSE WASHINGTON July 30, 1943. AW HEN: The weather is hot and I am goin' off fishing. I decline to be serious " n even when you see gremlins which ain't there F. D. R. filk 228 July 30, 1943. My dear Dr. Wise: In connection with your letter of July 23, 1943 I know you will be interested to learn that earlier this month we advised the State Department that we were fully sympathetic to the proposal of the World Jewish Congress and the American Jewish Congress for the evacuation of Jewish refugees from Rumania. The Treasury is prepared to take the necessary action to implement this proposal. Sincerely, Secretary of the Treasury Dr. Stephen S. Wise 40 West 68th Street New York, New York AFL:bbk Retyped hkw 7-29-43 got ONE Regraded Unclassified 229 My dear Dr. Wise: In connection with your letter of July 23, 1943 I know you will be interested to learn that earlier this month we advised the State Department that we were fully sympathetic to the proposal of the World Jewish Congress and the American Jewish Congress for the evacuation of Jewish refugees from Rumania. The Treasury is prepared to take the necessary action to implement this proposal. In this field, as in others, actions speak louder than words. However, I do want you to know that we too are deeply concerned regarding the Jewish victims of Hitler and that we shall continue to do everything we can, consistent with our war effort, on their behalf. Sincerely, Secretary of the Treasury Dr. Stephen S. Wise, 40 West 68th Street, New York, New York. AFL:bbk - 7/29/43 Mrs. WAS BMT Regraded Unclassified 114 1 230 my AMERICAN JEWISH CONGRESS 330 WEST 42nd STREET NEW YORK CITY STEPHEN S. WISE, PRESIDENT CABLE ADDRESS 'CONGRESS' CARL SHERMAN, CHAIRMAN, EXECUTIVE COMMITTEE TELEPHONE LONGACRE 5-2600 NATHAN D. PERLMAN } VICE-PRESIDENTS LEO H. LOWITZ LOUIS LIPSKY, CHAIRMAN, GOVERNING COUNCIL M. MALDWIN FERTIG, CHAIRMAN, ADMINISTRATIVE COMMITTEE JACOB LEICHTMAN, TREASURER Dr. Wise's personal address to which replies should be sent is: 40 West 68th St., New York City. July 23 1943 The Hon. Secretary of the Treasury Washington D. C. Dear Secretary Morgenthaus At the White House yesterday I had the opportunity of discussing with the President a proposal which Dr. Goldmann of the World Jewish Congress and I had previously taken up with Secretary Welles. He stated at the time that the matter would, of course, have to be discussed with and con- sidered by the Treasury Department, and I believe that some officials of your Department have had the matter under consideration and that before this it may have come to your attention. I explained the proposal to the President and he was entirely sympathetic thereto and said that he would take it up with you either yesterday or today. I feel that you too will understand that nothing is more urgent than that any and all steps be taken to make possible the release of these Jewish victims of Hitler from that situation which means death unless somehow they be rescued. The officials in the Treasury Department will, of course, have explained to you that not one penny of the funds to be held in escrow in Switzerland will reach any representative of the Axis governments until after the war shall have ended, and it may be expected that HOME of the people with whom our friends in Europe are dealing will not even survive. I know how deeply sympathetic you will be to any undertaking which may save the lives of those otherwise doomed Jews, and I shall be very happy to learn either from you or the President that the arrangement thus proposed and which must, of course, have your sanction, has gained your support. I enclose a copy of the letter which I have just sent to the President. With most cordial greetings and hoping that Mrs. Morgenthau is much better after her illness, always Faithfully yours, PRESIDENT SSW:tw enc Regraded Unclassified Dr. Wise's personal address to which replies should be sent iss 40 West 68th Street, New York Cit July 23 1943 The President The White House Washington D. c. Dear Chiefs It gave no deep satisfaction to find while with you yesterday that out of the depth of your understanding sympathy with Hitler's victims you welcome the pro- posal which 10 now before the State and Treasury Departments to permit funds to be forwarded to Switzerland by Jewish organisations of our country. These funds are, of course, to be held in eserow by our Government representatives or such people as they say designate, and would not be handed over to officials who may survive of the satellite powers until after the war. These officials, with when the arrangements will be undertaken, will create such conditions within the Hitler territories as shall enable sany Jane in those countries to survive, to essape deportation and ultimately to como out of those countries, continued residence in which would mean torture and death. The whole arrangement is to provide especially for the saving of saay little children. So feel that these funds say make possible the salvation of thousands of otherwise doomed beings, especially in Roumenia, Slovakia and France, without, I repeat, not one pean J falling into the hands of enemy representatives for the duration. I an happier than I can say to think that this proposal, which deals in a feasible and concrete way with an unspeakable situation, commende itself to you, and that you will be good enough to discuss it with the Secretary of the Treasury, whose subordinates are dealing with the problem. I cannot make clear enough what it would seen to us, and indeed to all civlised people, If you case again, and for the last time, uttered & solemn warning to the representatives of the Bast regines in the Hitler conquered territories with respect to the orines consitted against civilians, especially Jews marked out, as you know, for slaughter as BO other people. Is not the recent annowncement of the Commission on the Orines in the Passist countries a suitable occasion for such varsing as is likely to have a deterrent effect, especiall , upon Masi officials within the satellite states? Faithfully yours, PRESIDENT SSWite Regraded Unclassified The New York Times. 232 JUL 30 1943 FORCE DISAVOWED there has been no Indication that any unified decision has been ob- tained by the two statesmen. BY PALESTINE JEWS It in also reported here by re- liable sources that Britain and America after due consultation with their Allies are on the verge But Jewish Agency Official of publishing a concrete statement Warns Against 'Deeds of concerning their proposed policy regarding the Middle East and Despair Before 'Injustice' Palestine, where the war has ended, any post-war application of the Atlantic Charter looms. POST-WAR ACTION URGED In light of these circumstances It La interesting that Mr. Shertok, who has been conferring with Brit- New Policy to Use Palestine fah officials here, states: "With a general retreat from the Idea of an in Solving Jewish Problem Arab federation as a political con- Is Advocated cept, problema of joint economic development are coming to the fore. Such development calls for initiative and coordination. The By C.L. SULZBERGER question of coheston must be solved By Cable to to New YORK TIMES, by the Arab States themselves, but CAIRO, Egypt, July 29-Moshe example and drive the Jews can Shertok, head of the political de- supply in no inconsiderable meas- partment of the Jewish agency in tire. But to make that contribu- Palestine, Issued & statement to- tion on & proper scale they must feel firmly established In Pal- day saying that while the Jews of estine." Palestine had no intention of foro- Tragic Experience Cited Ing the fasue of settling their fate Mr. Shertok and that now that In that disputed mandated terri- the war was moving toward a. con- tory during the war. "It would be clusion, problems of the post-war wrong to conaider the Jewa Inca- settlement were taking shape and pable of deeda of despair if driven "among these, the question of Eu- to extremes of exasperation by a ropean Jewry is one connected with decision to preserve in what la to the origina of the war and tragical- them a eruelly unjust policy." ly aggravated by its course. It La Mr. Shertok said: Idle to expect the remnants to feel "Rumors are current about al- mafe In Europe even after liquida- leged Jewish intentions to fight tion of the Nazi rule. out the Issue by force. Nothing is "The problem of Palestine per se farther from the thoughts of the also in on the post-war agenda. Jews than to try to force the issue The attempt to solve it by the at all so long as the war lasts- While Paper of 1938 under the provided no adverse commitments strains and stresses of that hapless are taken in the meantime or of period must be relegated to the ever leaving on their own Initiative limbo of the appeasement era. A: the path of political negotiations new solution la called for, conceived in exchange for direct action. In a spirit of comprehensive re- "At the same time, realism com- sponabilities and resting upon the pela the conclusion that It would leading United Nations. be wrong to consider the Jews In- "The new policy must aim at capable of deeds of despair If making the utmost of Palestine driven to extremes of exasperation for a solution of the Jewish prob- by a decision to persevare in what lem and paving the way for large- la to them & cruelly unjust policy." scale development of the Middle Conferences Held East "The subject ta one of major Mr. Shertok's statement follows International responsibility for the closely A series of meetings be- fate of Jewry and the future of tween Nuri as Said Pasha, Iraqu the Middle East. The hour calls Premier, and Nahas Pashs, Egyp- for a bold and far-aighted ap- tian Prime Minister, who, it is proach. The turning point created known, has been discussing possi- by the war offers B. unique chance bilities of formulating some joint in history which It would be tragic program to promote an Arab fed- to miss." eration after the war. Until now Regraded Unclassified 233 MEMORANDUM FOR THE SECRETARY. July 30, 1943. Mail Report The rut into which last week's mail fell was worn a little deeper this week. The gist of the fairly heavy receipts was that somebody had failed to receive 8 Bond, or had lost one, or couldn't understand why his tax deduction had been so unreasonably high. There were, of course, B. few constructive ideas about both taxes and Bonds, but most of the communications took such a negative turn that all of this week's excerpts concerning these two subjects fall under the heading "unfavorable". Reaction to the withholding tax continued to be almost entirely adverse, not only in our direct corre- spondence, but also in that referred by the White House. Most of the protests have come, however, from those in the lower income brackets who have no quarrel with the principle of the withholding tax, but with its impact on their own incomes. Some persons insisted that they are not subject to the tax, even though it has been de- ducted; others explained that the amounts withheld are incorrect; and others told of hardships that followed its collection. Now and then there was a demand that 1942 payments already made in full be refunded. Much of the Bond mail was connected with the organization of War Finance Committees in the various states -- especially cordial replies coming from those invited to accept places on the Committees. Each week brings several repetitions of the idea that noninfla- tionary salary increases can be made possible through the issuance of 8. special Bond not redeemable until maturity. Although news that Bonds are to be smaller in size has drawn very little comment, the change has been heartily approved by those who have spoken of it. Regraded Unclassified 234 - 2 - Memorandum for the Secretary. July 30, 1943. A few country banks pointed out the injustices done them when subscriptions to Treasury offerings are closed the same day they are opened. One irate writer said that he would buy no more Bonds until those that have been inscribed "P.O.D." are corrected to read, "payable on death to". Government wastefulness and practices of O.P.A. stand first among the reasons that have been advanced as to why sales to individuals will lag in the Third Bond Drive. The 48 Bonds submitted for redemption represented a slight increase over last week's count. On the other hand, complaints from personnel of the War Department decreased even further, and were limited nearly al- together to undelivered Bonds paid for during 1942. Opposition to the new pennies ran high this week, probably because of newspaper comment that the coins are here to stay for the duration. Several asked that they be dipped in acid or plugged before they are re- leased by the Mint. 2.2.7 orbruck 2.27 shush by Kay Peanon Regraded Unclassified 235 General Comments James Leong, San Francisco, California. I hope you would not think me rude to ask you to take considera- tion of the Mint problem, as I am only thirteen years of age. My father has been running a lunchroom in the Crocker First National Bank for & period of time. But since you have put out the new pennies, many people have tried, and succeeded, in putting these new steel pennies in the so-called "kitty". Since my father makes all his things himself, he loses 8. lot. About four or five do this constantly, and there is no other way of stopping this unless you, as Secretary of the Treasury, make some way of dis- tinguishing new pennies from dimes. I know this is 8. serious problem, but consider many of these restau- rants, cigar stores, etc., who are fooled every day. * If you have read this far, I would thank you very much and I would like very much for an answer. Beautiful Lily, Brooklyn, N.Y. PEACE Again it is my pleasure to be of assistance to Uncle Sam. Enclosed please find U. S. Money Order for $200.00. This is money I owed many years ago. I am unable to locate the party so am carrying out the teaching of Father Divine in giving the money where it will be used to good advantage. I consider my first duty at this present time is to help my country all I can. I thank you to acknowledge this to Rev. M. J. Divine. John I. Sloat, Cashier, Commercial and Savings Bank, Winchester, Va. In connection with the offering of 7/8 Treasury Certificates of Indebtedness, Series D - 1944, as of July 22, we beg to call your attention to the manifest unfairness in the limited time of the said offering, as far as country banks are concerned. Rarely does the mail from the Federal Reserve Bank reach this institution until noon, or later, and the purchase of Government Securities must be approved by the Board of Regraded Unclassified 235 General Comments James Leong, San Francisco, California. I hope you would not think me rude to ask you to take considera- tion of the Mint problem, B.S I am only thirteen years of age. My father has been running a lunchroom in the Crocker First National Bank for a period of time. But since you have put out the new pennies, many people have tried, and succeeded, in putting these new steel pennies in the so-called "kitty". Since my father makes all his things himself, he loses a lot. About four or five do this constantly, and there is no other way of stopping this unless you, 88 Secretary of the Treasury, make some way of dis- tinguishing new pennies from dimes. I know this is a serious problem, but consider many of these restau- rants, cigar stores, etc., who are fooled every day. ++ + If you have read this far, I would thank you very much and I would like very much for an answer. Beautiful Lily, Brooklyn, N.Y. PEACE Again it is my pleasure to be of assistance to Uncle Sam. Enclosed please find U. S. Money Order for $200.00. This is money I owed many years ago. I am unable to locate the party SO am carrying out the teaching of Father Divine in giving the money where it will be used to good advantage. I consider my first duty at this present time is to help my country all I can. I thank you to acknowledge this to Rev. M. J. Divine. John I. Sloat, Cashier, Commercial and Savings Bank, Winchester, Va. In connection with the offering of 7/8 Treasury Certificates of Indebtedness, Series D - 1944, as of July 22, we beg to call your attention to the manifest unfairness in the limited time of the said offering, as far as country banks are concerned. Rarely does the mail from the Federal Reserve Bank reach this institution until noon, or later, and the purchase of Government Securities must be approved by the Board of Regraded Unclassified 236 - 2 - Directors of the average country bank. Since you limit the offering to one day only, you therefore play directly into the hands of the city banks, and we small country fellows are left out in the cold. Our subscription for fifty thousand dollars of these Certificates is in the mail as of today; but announce- ment of the closing of the offering has just come to my desk, and we will be unable to secure the Certi- ficates subscribed for. The country banker is called upon to render, and is rendering a multitude of services for the Government -- most of which carry no remunera- tion -- and we feel that it is only fair and equitable that we have a chance to compete with the banks in the Federal Reserve cities who, for the most part, get the jump on us by one day in any offering which the Govern- ment may make to the banks, or to the public. W. L. Lahman, Cashier, The First National Bank, Still- water, Okla. We have supported our Government at all times in purchasing our share of its Bond issues, and had planned to subscribe for the above issue (7/8% one- year Bonds) in a substantial amount, but understand the subscription closed last night at midnight, the day of offering. We feel that we should be given the same consideration to subscribe as the banks in the large cities. We know that these banks get advance informa- tion. They have specialists watching the Bond markets, and they get their mail early in the day. We are fortunate to get ours by 2:00 p.m. One train 8 day is not conducive to early mail delivery. * # # We believe that closing these issues the day they are offered is unnecessary and unethical, and is unfair to the great bulk of country banks. *** Allan Schecter, Erwin Adelman, Dick Kahl, Paul Dunn, Detroit, Mich. Enclosed find check in the amount of $2.25. This money was raised when The Filthy Four Kobby Club had an Army and Navy Relief Show, which Regraded Unclassified 237 - 3 - was held in the garage of 2973 West Grand Avenue. Please give this money to the Army and Navy Relief. (Letter written in pencil and on paper which is appropriate to the name of the boys' club.) Flora Y. Hatcher, Washington, D. C. Some of us, as citizens, are very much disturbed at what impresses us as a slowness to devise sound methods of compulsory lending to assist in controlling inflation. We do not understand, Mr. Secretary, why you do not give leader- ship and initiative to such a program. The voluntary method, so far as helping control inflation is con- cerned, appears (even to a lay person) to be a failure. A required system of lending, devised on an income tax method allowing exemptions for those carrying special responsibilities, and for savings, such as insurance, etc., would greatly aid in controlling inflation. You would find the American people thoroughly in sympathy with such a plan. Certainly it is to be preferred to the unfair tax methods which place the real burden of taxation primarily on the middle income and low income groups. # # # W. S. Gilman, Winter Park, Fla. (Suggestion re new pennies.) Of course you do not remember me, but I shall never forget you for the reason that you treated me fairly when I was in trouble over my income tax. I am glad to say that I am better off now. So I thought I would offer a suggestion which would, I think, do some good, and make you other friends. Just forget it was not your own thought. I'll never brag about it. People with poor eyesight are bothered by these new pennies. Why not pay a compliment to our Chinese friends and save metal and trouble by punching holes in these pennies. The holes could be square, round, or S-shaped. There could be one hole in the one-cent piece, two in the two-cent piece, three in the three- cent piece, or any number of ways that you could decide. Regraded Unclassified 238 - 4 - Unfavorable Comments on Bonds Mrs. Milton H. Koch, Mt. Vernon, Iowa. In the last letter I had from my boy, Samuel Stuart Koch, U.S.N., on the ill-fated Atlanta, was written on November 7, and in it he told me he had bought a $50 Bond, and I would receive it in January, and not to write about it for awhile, but November 13 he went down with the Atlanta. Now how can I get track of the Bond? I figured it would be on record in your Department. Can you let me know about it sometime soon? I'll be expecting an answer soon. There should be a record somewhere of his Bond. A shipmate told me he knew Sam bought one, but he was killed so soon after, of course, I never got any more mail. Gertrude Schermeyer, Floral Park, Long Island, N.Y. On or about January 5, 1943, I reported to the Division of Loans and Currency, Chicago Branch, that I had destroyed 3 Bonds by fire. I furnished them with the numbers of two of the Bonds, but was unable to give them the number of the third, a $50 Bond purchased through a payroll deduction plan with the Metropolitan Life Insurance Company. I received a reply, dated April 23rd, from the Chicago Branch, stating I would be further advised about duplicate Bonds. To date, no reply has been received. It seems to me that when a person is investing their money in Government Bonds, there should be some way in which the owner may get duplicate Bonds without such 8. delay -- 6 months. # H. William Nolde, President, Nolde Brothers, Inc., (Bakery), Richmond, Va. In reply to your letter of July 19, please be advised that our auditor has been on his vacation and just returned. He had enough Government reports to make out to last thirty days. We will give you this information as soon as we can. We are buying Bonds every week, and doing everything We can to sell more. It is almost impossible to keep up the many reports we have to make out. Regraded Unclassified 239 - 5 - Unfavorable Comments on Taxation Joseph G. Engert, Real Estate Investments, Chicago, Ill. I have a constructive criticism of the method used to collect the 20% withholding tax. I am an employer and I dread the work required to deduct the necessary sums from each employee, making deposits monthly in stated banks, filing reports regularly, etc. As a tax-paying citizen, I regret the cost of hiring thousands of employees that will be necessary to properly credit each taxpayer each month with each deduction from his pay check. I believe I have & plan which will make all this work unnecessary, and I am submitting it to you for your consideration. Etc., etc. J. J. Myler, Secretary-Treasurer, Neisner Brothers, Inc., Rochester, N.Y. As you undoubtedly know, the brackets in the current tax payment Act of 1943 are worked out for the median of the wage bracket listed. As a result, employees in the lower half of the bracket are penalized, while those in the upper half are bene- fitted. We operate 8. chain of veriety stores in sixteen states. We have had many complaints of too much money being withheld from the first group of employees, but none from the second. The explanation that it will be adjusted next March does not satisfy our employees. They feel that more is being deducted than is necessary and they have less money for their personal needs. These employees are in the lower income groups, and we are inclined to agree with them. # The withholding tables in the law are unsatisfactory for the reasons given. The straight 20% method would throw 8. consider- ably greater amount of clerical work upon our present short and busy staffs. Therefore, we ask your permission to use the Wage Bracket Withholding Tables submitted herewith for our employees. Regraded Unclassified 240 - 6 - T. S. Pendergrass, Business Counselor, Oakdale, Calif. According to a report in the daily press the forms on which the taxpayers are to file an estimate for their 1943 tax will probably be available by the first of September. If this is the earliest date on which tax- payers may receive these forms, and the accounting firms are not able to render assistance to the taxpayers under this muddled up tax law, I can assure you that the pay-as-you-go program for 30,000,000 taxpayers will prove an absolute failure. It will not be possible for these forms to be filled in and filed in SO short a time, and under the law, each of these taxpayers who fails to get their declaration of estimate filed by the 15th of September will suffer the penalty prescribed in the Act. * # # Mrs. Farrar Burn, N.Y.C. We paid our income tax in full, afraid we should never have it again if we didn't, since we had saved for that. Now that we are making 50 much less than last year, and since they are taking out 20% of that, we are finding it tougher going than usual, even for us, quite toughened to doing without. What are the chances of getting half of our $730.64 back? We sent you a check on January 27, 1943, from the San Juan County Bank, Friday Harbor, Washington, through the Collector of Internal Revenue, Tacoma, Washington. Nowhere on your stamp, however, does it say "income tax in full" so how on earth can it be proven that it was the tax in full? + 4F Thomas C. Hennessey, East Lynn, Mass. On March 1, 1943, I paid an income tax of $192.06 to the Collector of Internal Revenue at Boston, Mass. This amount paid represented my taxes for the entire year of 1942. I paid this amount thinking that whatever part was forgiven, an equivalent amount would be refunded to me within a rea- sonable time. Several weeks ago I wrote to the Collector and there has been no reply. I later phoned their office Regraded Unclassified 241 - 7 - and was informed that there was nothing they could do in regard to a refund as they had no authority from Washington to do SO. I relied E. lot on this money to help pay the taxes on my home, and also to keep my regular purchases of U. S. Government Bonds continuing. This action of the Internal Revenue in withholding my money without my consent is very high-handed, and wholly unwarranted, and further serves to decrease con- siderably my war effort. It is hard to believe that your office condones such conduct. # # # Regraded Unclassified 242 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Chungking, China DATE: July 30, 1943, 1:39 p.m. NO.: 1337 The following information which WAB communicated to us by B reliable foreign source WAB originally received from A responsible Chinese who left Shanghai this year in June. 1, A8 a consequence of the very restricted market for United States dollar notes there 18 A large variance in rate. The Chinese mentioned above required ten days to dispose of 45,000 United States money, and the rate in that time had fallen from CRB 70 to 1 to 62 to 1. The rate fall to 51 to 1 after these sales and then rone back AA for AR 59 to 1, However, the rate has been as high AB 75 to 1. It appears that the Jananese Are not interested in United Staten dollar notes and the informant does not believe they take part in the buying and selling. Europeana handle some of the transactions, 2. CRB 5000 18 the fixed orice coiling for gold per ounce, but CRB 4800 M°8 the recent selling price (868 Embasay's 1149, July 10, paragraph 11). The informent is not AWAre that the JADANESS are owners of Fold, although at times they have old gold. 3. Altogether CRB 100 million has been sent to Chungking from Shanphai to nurchase United States dollar savings certificates for Chinese buyers, It is estimated by infor- mant; he himself remitted CHB 50 million for the purchase of certificates (telegram cited Above, perscreph 16). 4. CRB currency had increased in circulation by June 30, 1942, from An estimated 100 million at the be- Finning of the hostilities between Jenan and America to about 500 million. FADI WillB then recalled from circula- tion. Ry July 1, 1942 there WAR about CR3 two billion in circulation after CRB 1,500 million had been exchanged for fani three billion. The Japenese have used this favi to nurchase from Free Chine and the guerilla preas such articles Regraded Unclassified 243 & articles na cotton, teiwood, silk, 011, etc., in large amounta. The Central Reserve Bank, Shanghai will give merchants fani to purchase goods from these regions and pell them to the Jacanese. About faoi two billion 18 still in the Japanese hands the informant believes, 5, CRB 171.70 WAB the moet recent rate for favi drafts on Chungking, sold in Shanphei, About ON 1.50 for CRB 1 18 a lower rate which exists in Chungking because of the long transit time, About CAR 1 for ON 1.20 18 the Shanghai black market rate for feni because many persons expect the renudiation of the CRB currency eventually and therefore want fant on hend (telegram cited, paragraph 10) Since April 1, 1943, on which date Chow PU Hai Nanking Finance Minister admitted that TAB 400 million had been issued in total, the informent believes that the issuence of CRB our- rency has increased by approximately one billion per month. This would mean that by August 1, 1943 the total issue would be monroximately CRR nine billion. CN 8.80 to 9 for CRB 1 18 the present Chungking Peining rate. 6, Military yen has been withdrawn from circulation in All parts of occupied China excent Hong Kong and 18840 has been stonced. It hAB replaced Hong Kong currency since June 1943 At the rate of military yen 1 for Hong Kong 4, which 10 the forced conversion rate. out of the monthly 18840 of CRB, 100,000,000 le being used to recall military yen and the balance of ORB 600 million issued monthly 16 used for the maintenance of the Jananese Army stationed in the areas of occunied China where CRB currency 16 used, according to estimates. This area extends southward from Peng Puenwhei (Trom there northward to the border of Menchukuo 18 the FRB area) And CRF- 20,000,000 16 estimated PR the total daily cost of the Jaranese Army. 7. The monthly budget for Narking Regime at present 18 approximately CRB 100,000,000, An increase over the CN 25 million before Pear\ Harbor, This VP8 brought about for the most part by the large increase in the numbers of nupnet troops. The consolidated taxee contribute to this hut tax revenue 1A very limited. Recause official ship- mente by the JADANASE compri se the majority of the trade the customs revenue 1A Also amall. Squeeze in the collec- tion of revenue 18 rife. Please give Treasury a parachrase at Adler's request, ATCHESON Regraded Unclassified 244 NOT TO BE RE-TRANSMITTED COPY NO. 13 BRITISH MOST SECRET U.S. SECRET OPTAL N 0, 250 Information received up to 7 A.M., 30th July, 1943. 1. NAVAL One of H.M. Monitors was slightly damaged in an air attack at AUGUSTA on 23rd/24th. Two enemy aircraft were shot down. The Monitor had five fatal casualties. A tank landing craft was sunk by bombs off SYRACUSE on 27th. The Northbound convoy was again unsuccessfully attacked yesterday by 7 F.W. 200' in the Bay of BISCAY. 1 was destroyed by Beaufighters. Reference OPTEL No. 229, paragraph 1. SHIPPING CASUALTIES. For "One Norwegian ship sunk and one U.S. ship (still afloat) in convoy off mouth of ST. LAWRENCE" substitute "One U.S. ship and one Norwegian tanker sunk in convoy off mouth of AMAZON." 2. AIR OPERATIONS WESTERN FRONT. 29th. 250 Fortresses went out. 90 attacked shipbuilding yards and the naval dockyard at KIEL. Some cloud, poor visibility severe A/A end strong fighter opposition. 32 attacked HELIGOLAND and 54 bombed the Heinkel Fighter Assembly Factory at WARNEMONDE where weather was excellent and good results obtained against average A /A and slight fighter opposition. B Fortresses missing and 2 crashed into the sea. Escorted medium, light and fighter bombers attacked 3 airfields and a power station in Northern FRANCE. 29th/30th. 837 sircraft sent out - HAMBURG 782 (28 missing); DUSSELDORF 4; seamining 6; leaflets - Northern ITALY 9; leaflets - FRANCE 3; Intruders 33 (1 enemy aircraft destroyed). At HAMBURG weather was good and the attack is considered successful. The glow from fires still burning could be seen on arrival. Defences had been considerably strengthened. 8 enemy air- craft crossed the KENT Coast and 4 operated off shore. Beaufighters destroyed 1 M.E. 210. MEDITERPANEAN. 27th. Beaufighters sank 3 small craft and damaged 5 others in the ARGZAN and IONIAN SEAS. 29th. 410 Spitfires on enti-shipping patrols and sweeps scored 29, 1, 3 for the loss of 1. The 29 destroyed included 21 JU 52's. Regraded Unclassified 245 NEW YORK Herald Tribune July 31, 1943 Dear Mr. Secretary: When I wrote you a few days ago I intended to send you the most recent editorial on "Forced Savings" that has been published in the Herald Tribune. I can find no trace of any one on the staff believing in them and the record seems to show that the paper has al- ways been in favor of the voluntary procedure. Certainly that is the opinion of our executives. Sincerely yours, taken Rays Rid The Hon, Henry Morgenthau Jr. Regraded Unclassified 246 NEW YORK Herald Tribune So far as corporation are concerned, It is an accepted principle of war finance that they should not be permitted to enjoy a windfall as a result of a war boom. In pur- suance of that principir American corpora- tiens now pay 90 per cent of "heir war-time Friday, June 11, 1943 profits (in addition to a large proportion of their normal profits) to the government In The President on Forced Savings taxes. This is simple, it is logical and it is The President's sudden and offhand es- thoroughly just. Yet, for purely political pousal at his press conference this week of reasons the same principle has never been a fiscal program embracing forced savings adopted with reference to the taxation of was, to put It mildly, in questionable taste. Individuals, It has been urged by econo It was a needlessly gratuitous and uncalled- mists and editorial commentators from time for repudiation of his own Secretary of the to time (this newspaper has frequently Treasury, who, as Mr. Roosevelt and every pointed out the virtues of such a program), one else knows, is a staunch believer in vol- but Washington has invariably turned a untary war loans and who has steadify Im- Bahy eye upon the idea. The President has prove the machinery in recent months for frequently protested against doption of a putting that policy on a successful basis. sales tax because It would discriminate, in Moreover, the President, It seems to us, Is Its incidence, against those in the lower- on the wrong side of this Issue, Why this la Income brackets; but It does not seem to so is illustrated by colloquy that occurred have occurred to him that his proposal for here on Monday of this week when Secre- compulsory savings would place a wholly tary Morgenthau held a press conference disproportionate burden on those with Axe 1 to announce the new set-up of the war- Incomés, loan organization. One of the Interviewers The point has been reached in the financ- asked If it were true that the war-loan Ing of the war where this vital distinction officials and the Secretary of the Treasury between those with fixed incomes and those expected every ne to raise his war-bonds enjoying windfalls as a result of the war subscription to 25 per cent of his Income, boom should be recognized. If we are to W. Randolph Burgess, the new chairman of turn to compulsory savings, then such forced the War Finance Committee for New York loans should be exacted, M, the excess- State, said Dr at the government hoped to achieve that as an average, but could not profits tax 1a, in proportion to the increase expect every worker to reach 1: "That," of individual incomes over a pre-war base observed Mr. Morgenthau, "1s the advantage period. That would be a political compro- of the voluntary plan. A forced-savings plan mise with the principle of excess-profits would cut right across without making al- taxation, but it would be equally effective lowance for individual circumstances." as an anti-inflation weapon; for It is this This 15, of course, a vital distinction, par- war-time increase in individual incomes ticularly at this stage of the war effort when that constitutes the "inflation gap," which persons with fixed incomes are finding the is talked about so much but about which so strain of high taxes, the high cost of living little that is realistic has been done. and pay-roll savings subscriptions exceed- ingly heavy, while millions of war workers have nore money to spend than they ever had before. The allocation of 10 per cent of his salary for was bonds may mer a real hardship to a person in the former eate- gory, whereas three times that might be little, If any, burden to & person whose in- come has been doubled or quadrupled as a result of the war. Regraded Unclassified 247 TO: Memo Sir Ronald Campbell of the British Embassy has an appointment with Secretary of State Hull for 3:30 P.M., Monday, August 2, 1943, to hand Secretary Hull a communication on reverse lend lease with special relation to furnish- ing of raw materials to the United States. Monday 12:50 P.M. 7-31-43 Hull Mr. Gray of Mr. Hear' office. From: Ensign Westwater John Regraded Unclassified 248 ELEVENTH REPORT TO CONGRESS ON LEND-LEASE OPERATIONS For the Period Ended July 31, 1943 Regraded Unclassified ELEVENTH REPORT TO CONGRESS ON LEND-LEASE OPERATIONS For the Period Ended July 31, 1943 "The President from time to time, but not less frequently than once every ninety days, shall transmit to the Congress a report of operations under this Act except such information as he deems incompatible with the public interest to disclose." [From Section 5, subsection b of "An Act to Promote the Defense of the United States" (Public Law No. 11, 77th Congress, 1st Session).] Regraded I Inclassified. CONTENTS Chapter Page President's Letter of Transmittal 5 1. The Lend-Lease Program to Date 7 2. Lend-Lease in the Theaters of War 14 3. Lend-Lease and Food 26 Appendix I. Lend-Lease Act 34 II. Fourth Lend-Lease Appropriation Act 38 III. Amounts of Lend-Lease Aid Authorized 40 IV. Status of Nations 41 3 PRESIDENT'S LETTER OF TRANSMITTAL To THE CONGRESS OF THE UNITED STATES OF AMERICA: I am transmitting herewith to the Seventy-eighth Congress a report of operations under the Lend-Lease Act for the period ended July 31, 1943. In the month of July alone, lend-lease aid exceeded a billion dollars. Lend-lease supplies are hastening the day of final victory. Sicily has fallen. The fascist dictator has been thrown out of power. For the first time the United Nations forces occupy part of the homeland of the enemy. The subjugated peoples of Nazi Europe are now aware that the European fortress is not impregnable. The great offensives of the Soviet Army on the Eastern Front, the continued heroic struggle of the Chinese, and the British offensives in other areas, aided by lend-lease munitions and supplies, are having their repercussions both on and behind the battle lines. Our might and that of our allies is being felt in the Axis satellite nations of the Balkans and Middle Europe, and in Nazi Germany as well. From Hamburg on the North Sea to Ploesti in Rumania, the people know from first-hand experience with what crushing force the United Nations can strike. Except for the responsible fascist leaders, the people of the Axis need not fear unconditional surrender to the United Nations. I have said that we shall bring food for the starving and medicine for the sick in the areas liberated by the United Nations. We have done so, under lend-lease, in North Africa. We are doing so in Sicily. We shall continue to do so in other areas, as they are liberated, to prevent economic break- down and to aid the liberated peoples to produce and to help themselves. We shall provide these necessary civilian sup- plies in support of our military operations and as a matter of 5 simple humanity. The people of Axis-controlled areas may be assured that when they agree to unconditional surrender they will not be trading Axis despotism for ruin under the United Nations. The goal of the United Nations is to permit liberated peoples to create a free political life of their own choosing and to attain economic security. These are two of Chapter 1 the great objectives of the Atlantic Charter. But until the day of unconditional surrender, the United Nations will continue with the force of all their power to THE LEND-LEASE PROGRAM TO DATE hit the enemy. We are striking hard and ready to strike harder. Greatly increased United States forces and greatly increased lend-lease supplies are on the way to the battle The munitions, food and supplies which we send abroad fronts. The longer this war goes on, the stronger the United as lend-lease aid constitute a relatively small part of this Nations will become. country's total war costs-an estimated 12 percent. The lend- The United Nations are growing stronger because each of lease program is, however, of fundamental importance to the successful prosecution of the war by the United Nations. The them is contributing to the common struggle in full measure- other United Nations produce most of the munitions and whether in men, in weapons, or in materials. Each is con- other war supplies which they use, but lend-lease provides tributing in accordance with its ability and its resources. many weapons which they are not in a position to produce Everything that all of us have is dedicated to victory over themselves, food which augments their inadequate supply, the Axis powers. The Congress in passing and extending the and raw materials and industrial equipment which enable Lend-Lease Act made it plain that the United States wants them to expand their output of finished munitions and to meet essential civilian needs. no new war debts to jeopardize the coming peace. Victory and a secure peace are the only coin in which we can be Total Aid repaid. This report on lend-lease and reverse lend-lease activities From the passage of the Lend-Lease Act on March 11, 1941, to July 31, 1943, lend-lease aid-goods transferred and services should be both an assurance and a warning to our enemies. rendered-has totaled $13,973,339,000 (Table 1). Of this The power of the United Nations is great. The will of the amount, munitions were 50 percent, industrial products 21 United Nations is fixed. In this common war we fight as percent, and food and other agricultural products 14 percent. one man, for one victory-and we shall have it. The remaining 15 percent consisted of shipping, ship repairs, Franklin D. Roosevelt. and other services, and the construction of plant facilities in the United States for the production of lend-lease goods. (Filed August 25, 1943, with the Secretary of the Senate and the Chart 1 shows the amount of lend-lease aid for each month Clerk of the House of Representatives as provided in Section 5-b of through July 1943. In June of this year the monthly total the Lend-Lease Act.) reached the one billion dollar mark for the first time. 6 7 Regraded Unclassified TOTAL LEND-LEASE AID Lend-Lease Exports Transfer figures are inadequate to show where lend-lease Thousands of Dollars goods have been sent, as the name of the country to which goods are transferred does not always indicate to which of the war Cumulative areas they have gone. Lend-lease export figures give a better July June May Mar. 1941 1943 indication of the ultimate destination of the articles. These 1943 1943 through July 1943 are shown on a cumulative basis in Table 2 and by months in Table 3. They are also shown on a quarterly basis in Chart 2. Goods Transferred 1,018,026 954,009 715,699 11,901,972 Services Rendered 32,381 76,268 74,484 2,071,367 GOODS TRANSFERRED AND SERVICES RENDERED Total Lend-Lease Aid. 1,050,407 1,030,277 790,183 13,973,339 Million $ Monthly CUMULATIVE 1200 SINCE MARCH 1941 The above figures are exclusive of the value of goods consigned to United States commanding generals for subsequent transfer in the field to lend-lease countries. The total value of such (Millions of Dollars) consignments to July 31, 1943 was $250,481,000. 1000 Goods 11,902 Table 1 Services 2,071 SERVICES Total 13,973 800 Lend-lease exports of munitions in the past year were 600 equivalent to 15 percent of our munitions production in that period. We sent to our allies under lend-lease in the year 400 ended June 30, 1943, 17 out of every 100 bombers we pro- GOODS duced, 25 out of every 100 fighter planes, 22 out of every 100 200 light tanks, and 36 out of every 100 medium tanks. o Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jen Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mor Apr May Jun Jul Aug Sep Oct Nev Dec Redistribution of Materials 1941 1942 1943 Procurement of lend-lease materials is based on careful plan- Chart 1 ning which takes into account the needs of our allies in relation to the needs of our own armed forces and civilian population, The export figures, of course, do not include shipping, ship available shipping facilities, and other relevant factors. The repairs and other services rendered, or plant facilities con- exigencies of warfare frequently cause shifts in the needs for structed in the United States and, as explained in the foot- different articles, diversions of shipping from one route or from note to the tables, they do not include all goods transferred; one country to another and other unpredictable changes which they do, however, give a substantially complete picture of the require the redistribution of materials. distribution of lend-lease goods. In the case of munitions, which are procured and distributed The relative amounts of military articles, industrial mate- by the War and Navy Departments, such redistribution is con- rials and agricultural products exported under lend-lease during trolled by the Munitions Assignments Board, which deter- the period from July 1, 1941, to June 30, 1942, and during mines the use to which they can best be put in carrying out the the period from July 1, 1942, to June 30, 1943, are shown in world-wide strategy of the United Nations. For industrial Chart 3. 547192°-43-2 9 8 Regraded Unclassified materials and products, the Lend-Lease Administration early LEND-LEASE EXPORTS-CUMULATIVE-MARCH 1941 this year created a Materials Redistribution Committee to THROUGH JUNE 30, 1943 work with the lend-lease countries and with the Redistribution Division of the War Production Board in putting to immediate Millions of Dollars war use such articles as cannot be shipped within a reasonable time to the country for which they were ordered, or because of the changing strategy of the war, are no longer urgently required by that country. WHERE LEND-LEASE GOODS HAVE GONE United Kingdom U. S. S. R. U.S.S.R. Africa, Middle East and Medi- terranean Area China, India, Aus- tralia, and New Zealand VALUE OF EXPORTS BY QUARTERS Other Total Million $ Quarterly MUNITIONS 2500 Ordnance 192 70 133 103 52 550 MIDDLE AND FAR EAST Ammunition 374 246 218 163 53 1,054 AND OTHER Aircraft and Parts 507 522 2000 249 196 188 1,662 Tanks and Parts 369 183 204 127 43 926 Motor Vehicles and Parts 143 316 183 147 35 824 1500 Watercraft 125 56 17 12 17 227 U.S.S.R. Total 1,710 1,393 1,004 748 388 5,243 1000 UNITED KINGDOM INDUSTRIAL ITEMS 500 Machinery 260 188 73 78 10 609 Metals 425 302 110 131 16 984 Petroleum Products 310 15 43 62 5 435 o Other 223 130 72 65 36 526 I II III IV I H III IV I II III IV 1941 1942 1943 Total 1,218 635 298 336 67 2,554 AGRICULTURAL Chart 2 PRODUCTS Foods 1,213 373 57 30 27 1,700 Other Agricultural Products 317 43 4 19 2 385 Materials and supplies of all kinds are being redistributed, steel being one of the most important items. Last fall a sub- Total 1,530 416 61 49 29 2,085 stantial amount of steel destined for Great Britain was diverted TOTAL EXPORTS 4,458 2,444 1,363 1,133 484 9,882 to American armament production because it could not be moved on account of the shipping requirements of the North The above figures and those in Table 3 do not include (1) articles transferred to foreign African campaign. Also, approximately 250,000 tons of countries but used in the United States, such as trainer planes for the instruction of United finished and semifinished steel purchased for Russia are being Nations pilots; (2) some ships which leave the United States under their own power; (3) some goods consigned to United States commanding generals for subsequent transfer to lend- redistributed to other lend-lease countries and to American lease countries; (4) materials which have been transferred but not yet exported; (5) goods pur- chased outside the United States and sent directly to lend-lease countries; and (6) some other industry. This steel has been made available in part by the items of relatively small amount, The figures include the value of planes flight delivered which were not included in data increasing need for food in Russia, which has required the presented in previous Reports to Congress. use of the limited shipping space for that purpose rather than Table 2 10 11 Regraded Unclassified LEND-LEASE EXPORTS-MONTHLY for shipping the steel. Some of it consists of barbed wire, the need for which has been reduced as a result of the Soviet Millions of Dollars Army's shift from the defensive to the offensive along large portions of the fighting front. Another part is being re- turned to American industry because improvements in the United Kingdom U. S. S. R. U.S.S.R. Africa, Middle East and Medi- terranean Area China, India, Australia and New Zealand technique of manufacturing munitions have made obsolete certain types of shell steel which had been procured for Russia. Other Total KINDS OF GOODS EXPORTED UNDER LEND-LEASE 1941 1 1 Mar 1 1 4 6 JULY 1941 - JUNE 1942 JULY 1942 - JUNE 1943 Apr 9 5 1 1 16 May 26 6 1 2 35 Jun Foodstuffs, etc. Foodstuffs, etc. 30% 18% Jul 49 19 1 3 72 Munitions Aug 46 14 5 2 67 Munitions 56% 42% Sep 74 8 2 2 86 Oct 141 12 12 1 166 Nov 107 10 18 2 137 Industrial Dec 119 1 21 12 2 155 Items 26% 1942 Industrial Jan 105 15 24 19 13 176 Items Feb 79 55 27 21 12 194 28% Mar 150 97 25 45 12 329 Apr 144 164 45 55 16 424 305 May 143 70 37 47 8 Jun 209 110 35 36 13 403 Jul 173 103 66 59 21 422 Aug 152 150 58 56 18 434 Chart 3 Sep 213 102 71 67 18 471 Oct 222 126 98 83 29 558 Expansion of U.S. Plant Facilities Nov 199 191 95 56 16 557 Dec 208 167 111 98 21 605 In order to manufacture the munitions and supplies urgently 1943 needed by our allies, it has been necessary to expand production Jan 180 157 91 72 18 518 Feb 215 184 44 49 30 522 facilities in the United States and an important part of this Mar 311 202 105 67 69 754 expansion has been financed with lend-lease funds. There Apr 363 233 111 69 63 839 had been allotted as of June 30, 1943, $869,500,000 of lend-lease May 394 178 142 81 43 838 Jun 426 139 82 101 44 792 funds for this purpose, of which approximately $600,000,000 has been expended. In the postwar period these production TOTAL facilities will be a permanent part of our industrial capacity. EXPORTS 4,458 2,444 1,363 1,133 484 9,882 (See note to Table 2) Table 3 13 12 Regraded Unclassified however, include munitions consigned to the American com- manding generals in this area for transfer to the armed forces of lend-lease countries. The value of such goods consigned to June 30, 1943, amounted to $102,518,000 additional. Chapter 2 1941 1942 Jan-June 1943 Ordnance and Ammu- LEND-LEASE IN THE THEATERS OF WAR nition $33,267,000 $173,619,000 $144,163,000 Aircraft and Parts 2,022,000 114,283,000 133,002,000 Tanks and Parts 30,573,000 48,408,000 125,362,000 Motor Vehicles and As the United Nations move forward against the Axis with Parts 10,758,000 116,289,000 55,659,000 Watercraft 1,820,000 10,794,000 4,530,000 ever-growing strength, munitions, industrial materials and Industrial Items 14,683,000 194,138,000 88,702,000 food flow from the United States to those places from which Foodstuffs, etc 2,792,000 34,423,000 23,666,000 the most damaging blows can be struck at our enemies. Table TOTAL 95,915,000 691,954,000 575,084,000 4 shows the value of lend-lease goods that were sent to the main theaters of war in 1941, 1942, and in the first 6 months Table 5 of 1943. Military Aid 1941 1942 Jan-June 1943 Lend-lease aid to this area has been principally for use in two campaigns. The first, which was designed to expel the Axis Africa, Middle East, forces from North Africa, ended successfully on May 8, 1943, and Mediterranean Area $95,915,000 $691,954,000 $575,084,000 with the surrender in Tunisia. The second, which began on U.S.S.R 545,000 1,349,170,000 1,093,892,000 July 10, 1943, with the invasion of Sicily, will conclude only United Kingdom 572,620,000 1,997,328,000 1,887,951,000 with the unconditional surrender of Italy and Germany. China, India, Australia and New Zealand 52,218,000 640,711,000 440,010,000 Both of these operations have been in every sense a united Other Areas 19,605,000 198,969,000 265,531,000 military effort. The forces of many nations-the United Kingdom, Australia, India, New Zealand, South Africa, TOTAL 740,903,000 4,878,132,000 4,262,468,000 Poland, France, and the United States-participated in the North African campaign and lend-lease materials played their Table 4 part. The British Eighth and First Armies were partially equipped with lend-lease supplies, as were the soldiers com- AFRICA, MIDDLE EAST, AND MEDITERRANEAN AREA manded by General Giraud as well as the Fighting French Lend-lease shipments to Africa, the Middle East, and the who fought their way north from Lake Chad in the French Mediterranean Area through June 30, 1943, totalled $1,363,- Sudan. Equally vital to the campaign were the docks, naval 000,000. As shown by Table 5, nearly three-fourths of the facilities, supply bases, air ferry routes and repair bases shipments have consisted of munitions. This table does not, developed in the Middle East with the aid of lend-lease funds. 14 15 Regraded Unclassified Though British, Canadian and American troops have played the major roles in the opening phase of the second campaign, cial channels of distribution were disrupted and importations the invasion of Sicily, forces of other United Nations, equipped from the United Nations were essential. in part with lend-lease weapons, will play an increasingly Shipments of civilian goods to North Africa began in important role in the Mediterranean area. Greek forces have December 1942, when the British diverted a large convoy already participated-units of the Greek Navy helped to originally destined for Malta. Subsequently, it was agreed prepare the way for the invasion of Sicily and the Greek Air that the United States should supply approximately 30,000 Force has been bombing the island of Crete. tons of civilian goods a month in addition to petroleum prod- In accordance with our announced policy of supplying ucts and coal. The British agreed to provide 82,500 tons of weapons to the peoples of territories liberated from Axis coal per month and other products that might be available control, a French army of over 300,000 men recruited in North from the British Empire. and West Africa and supplied with lend-lease equipment will Arrangements were made with the French authorities to pay soon be added to the United Nations forces hammering at the the United States for the civilian goods, and it is expected Axis' European fortress. Several divisions have already been that payments will be equivalent to the cost of civilian equipped with new weapons and are now being trained in their supplies shipped plus ocean freight. The distribution of the use. French fliers have been brought to this country, where supplies was planned so as to minimize profiteering by local they will be trained in the use of American planes and furnished merchants, and to maintain retail prices at levels prevailing lend-lease planes with which to fight the Axis. on November 8, 1942. Shipments to South Africa have been primarily military To coordinate the economic activities of the United States equipment for the forces of the Union of South Africa, some and Britain, General Eisenhower created the North African of which have been fighting with the British Eighth Army. Economic Board, which is constituted with British and Approximately one-half of the military shipments consisted American representatives as follows: of planes for the South African air force. The remainder (1) The Import Division, principally staffed by repre- included guns, bombs and ammunition, and tanks and other sentatives of the Office of Lend-Lease Adminis- military vehicles. The nonmilitary shipments comprised tration, equipment and materials for South African war industries. (2) The Procurement and Development Division, staffed by representatives of the Office of Economic Warfare, Civilian Supplies for French North and West Africa (3) The Financial Control Division, principally staffed by representatives of the Treasury Department, When the American and British armies landed in North (4) The Coal Division, principally staffed by British Africa in November 1942, they found a country in which experts, and wheat, meat, and fabricated goods were in short supply. (5) The Relief and Welfare Division, principally staffed The Nazis had permitted imports of some of the goods nor- by representatives of the Office of Foreign Relief mally brought from the continent, such as cotton textiles for and Rehabilitation Operations. clothing, leather for shoes, fabricated goods, and certain The Lend-Lease Mission to North Africa, operating as the foods. With the landing of American and British troops, imports from Europe ceased abruptly. The regular commer- Import Division of the North African Economic Board, has supervised the distribution of most of the civilian goods. 16 547192° 17 Regraded Unclassified Lend-lease supplies, consisting principally of milk for children Negotiations for payment for these civilian supplies are now and some of the food and clothing for the inhabitants of being carried on with the French officials in Dakar and Algiers. Tunisian cities, have been distributed free of charge by the Office of Foreign Relief and Rehabilitation Operations, U.S.S.R. working as the Relief and Welfare Division of the North African Economic Board. Lend-lease shipments to the U.S. S. R. through June 30, Up to June 30, 1943, the United States had shipped to North 1943, totalled $2,444,000,000. Aid has been supplied to the Africa some 190,000 tons of civilian goods, valued at ap- U. S. S. R. under agreements known as protocols by which proximately $48,000,000. These have included such foods we have agreed to make available specified quantities of as flour, milk, sugar, wheat, and tea; seeds, soap, matches, weapons and supplies during specified periods of time. The cotton piece goods, clothing, spare parts for agricultural first protocol, signed October 1, 1941, covered the nine-month machinery and motor vehicles, and some materials to repair period to June 30, 1942. The second covered the period damaged utilities and buildings. We have already received from July 1, 1942, to June 30, 1943. The third protocol, from the French on account for these goods $25,000,000, and which will cover the period from July 1, 1943, to June 30, expect shortly to receive payment for the balance. 1944, is now under negotiation. Without waiting for this The policy of supplying civilian goods to these areas has protocol to be signed, we have continued to supply lend-lease produced favorable results. Vigorous efforts have been made aid. In July the tonnage of goods shipped to Russia was at a to bring about a fair and equitable distribution of supplies, high level and in August the volume is expected to be the thereby discouraging hoarding and black market activities. highest for any month since the program began. Critical metals, concealed from the Germans, have come out Table 6 shows lend-lease shipments to the U. S. S. R. by of hiding and been made available to the United Nations. categories through June, 1943. With the help of supplies from the United States and Great About 57 percent of the goods sent to the U. S. S. R. since Britain, North Africa is being gradually restored to a state the inception of the first protocol have been munitions such where it will be self-sufficient in food and also produce a sur- as airplanes, tanks and guns. We have sent more lend-lease plus for export. Negotiations are now under way between the North African Economic Board and the French authorities 1941 1942 Jan-June 1943 to supply a part of the food needs of our military forces sta- tioned there and in contiguous areas from North African Ordnance and Ammu- production. The volume of such supplies will depend upon nition $75,000 $213,918,000 $102,279,000 the size of the harvest and the requirements of the civilian Aircraft and Parts 300,641,000 220,577,000 Tanks and Parts 35,000 176,804,000 6,504,000 population. Motor Vehicles and Substantially the same course has been followed in French Parts 149,092,000 166,824,000 West Africa, which includes not only the strategic Dakar area Watercraft 11,020,000 44,886,000 Industrial Items 435,000 312,881,000 321,825,000 but is one of the most important edible oil producing regions Foodstuffs, etc 184,814,000 230,997,000 in the world. Almost 20,000 tons of civilian supplies have TOTAL 545,000 1,349,170,000 1,093,892,000 thus far been shipped to French West Africa. These have consisted principally of cotton piece goods and rice substitutes. Table 6 19 18 Regraded Unclassified planes there than to any other country. Large quantities of supplies for her transportation and communication systems 1941 1942 Jan-June 1943 have been sent to aid the movement of the weapons of war over vast distances to her armies at the front. We have Ordnance and Ammu- shipped to the Soviet Union more than 100,000 tons of rails nition $30,761,000 $250,400,000 $284,806,000 and accessories. Quantities of automatic block signal system Aircraft and Parts 13,330,000 267,762,000 225,719,000 Tanks and Parts 10,521,000 35,998,000 322,360,000 equipment for the U. S. S. R. are in production. We have Motor Vehicles and shipped more than 150,000 motor vehicles, over 600,000 miles Parts 14,558,000 61,950,000 66,946,000 of telephone wire and approximately 190,000 field telephones. Watercraft 6,003,000 45,906,000 73,011,000 Industrial Items 165,357,000 604,218,000 448,574,000 Shipments to the U. S.S. R. have also included thousands Foodstuffs, etc 332,090,000 731,094,000 466,535,000 of tons of raw materials and machinery to help replace the TOTAL 572,620,000 1,997,328,000 1,887,951,000 output of war plants in areas now occupied by the Nazis. Included in these shipments have been aluminum, copper, steel and large amounts of chemicals and explosives used in the Table 7 manufacture of ammunition and bombs. We have purchased a few existing plants in this country and shipped them to of the shipments to the United Kingdom have been sent for Russia with machinery for new ones as well. this purpose. About 34 percent of lend-lease exports to Great More than one-fourth of the tonnage of goods exported to Britain has consisted of foodstuffs. In Chapter 3 the British the U.S. S. R. has been food to maintain the fighting strength need for our food is discussed in more detail. of the Red Army. We have shipped more than 1,300,000 tons The tools, machinery, and raw materials we send to the of food, about one million under the second protocol alone. United Kingdom are needed in the operations of war plants; Elsewhere in this report the Soviet need for lend-lease food is the petroleum products are required by the R. A. F. and the described in more detail. British Navy, as well as to maintain her industries. The out- put of British war materials is tremendous and until the UNITED KINGDOM first quarter of 1942 was larger than the United States output. While a large proportion of this production is retained for Lend-lease exports to the United Kingdom through June 30, use by the United Kingdom forces, part is furnished to Russia 1943, totalled $4,458,000,000. In addition, shipments of muni- and part supplied to British Empire forces fighting the Axis tions and other goods to the United Kingdom that were pur- in the Mediterranean Area, India, and the Southwest Pacific. chased for cash in the same period totalled $1,450,000,000. Of The amounts shipped abroad are indispensable to the United the lend-lease exports to the United Kingdom 42 percent were Nations forces. shipped in the first six months of 1943, as shown by Table 7. To help get lend-lease supplies to the United Kingdom and The United Kingdom has received approximately 45 percent deliver the output of her war industries to United Nations of all lend-lease exports, but only 33 percent of lend-lease muni- forces fighting in other theaters, we have supplied approxi- tions. Lend-lease shipments of industrial materials to the mately $1,000,000,000 of shipping services and ship repairs to United Kingdom are designed to help keep her arsenals, plane the British. and tank factories, and shipyards in operation so that they may Shortly after Pearl Harbor it was agreed between the British supply the United Nations forces. Approximately 27 percent and ourselves that we would construct most of the merchant 21 20 Regraded Unclassified ships needed by the United Nations. As a result, the United Table 8, about 61 percent of these shipments were made in States undertook the greatest shipbuilding program ever at- 1941 and 1942, and 39 percent in the first six months of 1943. tempted by any nation. The size of our merchant fleet has increased 250 percent since Pearl Harbor and is growing at China and India the rate of five new ships every 24 hours. In 1942 we built 746 Approximately 70 percent of lend-lease shipments to China merchant ships; in the first seven months of 1943 we built and India have been munitions. Those shipped to India have 1,023. Production of ships is proceeding at such a pace that equipped the Indian Army with specialized instruments of war we have had difficulty in supplying adequately trained and which India's substantial armament industry is not able to skilled crews to operate them. produce. Those shipped to China have included airplanes, While our merchant fleet has been growing, that of Britain critical tools and materials to keep her airplanes flying, com- has been dwindling due to sinkings and to the fact that she munications equipment, and spare parts for trucks. Airplanes has not built many replacements but has instead relied on us lend-leased to China played their part in the June victory of for production of merchant ships. The British, therefore, have the Chinese Army on the Ichang front. a reserve of experienced seamen. To utilize the services of The amount of aid supplied to China has been restricted by these men, we will charter to the United Kingdom about 15 transportation difficulties. Since the closing of the Burma new ships a month for the next 10 months. These ships are Road, shipments have moved principally by air transporta- being chartered only for the duration of the war; title will tion. Constant efforts are being made to develop new supply remain with the United States Government, and the uses to routes. In the meantime, preparations are being made in which they may be put will be determined by the Combined collaboration with the British for the time when these routes Shipping Adjustment Board. are opened. New equipment made available by lend-lease has CHINA, INDIA, AUSTRALIA, AND NEW ZEALAND been issued to the Chinese troops who retreated into India after the fall of Burma, and they are being trained by United Total lend-lease exports to these areas from March 11, 1941, States Army officers in the use of this equipment. A program to June 30, 1943, have been $1,133,000,000. As shown by to train Chinese pilots, mechanics, and other technicians in India and in the United States was launched some time ago 1941 1942 Jan-June 1943 and is constantly expanding. Further, steps have been taken to make India a great supply Ordnance and Ammu- base for operations against the Japanese. Stockpiles of ma- nition $9,560,000 $165,106,000 $91,183,000 terial for China are being established there in increasing Aircraft and Parts 7,995,000 96,779,000 91,370,000 quantities as transportation facilities become available. Raw Tanks and Parts 1,934,000 100,264,000 24,296,000 Motor Vehicles and materials and machine tools are also being sent so that India's Parts 17,856,000 75,028,000 54,298,000 own production of munitions of war may be increased. Air- Watercraft 68,000 2,849,000 9,154,000 Industrial Items craft repair facilities are being equipped with lend-lease tools. 11,523,000 170,156,000 154,239,000 Foodstuffs, etc 3,282,000 30,529,000 15,470,000 Materials are also going to India to maintain and expand her port facilities and transportation and communications systems TOTAL 52,218,000 640,711,000 440,010,000 Table 8 23 22 so that munitions and essential supplies can be transported must be shipped to our forces in the Southwest Pacific. An quickly where they are needed, including strategic materials agreement has been reached with the governments of Australia for the United States. and New Zealand under which a large portion of the output of the canning and dehydrating plants equipped with lend- lease machinery will be allocated to the United Nations forces Australia and New Zealand in that theater of war. Approximately 61 percent of lend-lease shipments to Aus- tralia and New Zealand have been munitions, including air- planes, tanks, landing boats, guns, and ammunition. These items are being used by Australian and New Zealand forces fighting beside the Americans in New Guinea, the Solomons and other parts of the Southwest Pacific. They have played an important part in the recent victories in that area. While munitions have made up the largest proportion of lend-lease aid to Australia and New Zealand, shipments of other items have been extremely important. These two coun- tries are fast becoming tremendous supply bases for operations against the Japanese. Increasing emphasis is being placed upon the development of their natural resources, arsenals, and transportation systems. Thirty-five percent of the goods shipped to Australia and New Zealand from March 11, 1941, to June 30, 1943, has consisted of machinery, tools, and raw materials. Plans are also under way to expand food output in Australia and New Zealand, which have always produced exportable surpluses of grains, meats, and dairy products, so that these countries may supply an even greater share of the require- ments for the United Nations armed forces in the Southwest Pacific. Emphasis is being placed upon the production of vegetables. Thousands of additional acres have been planted in truck crops. Lend-lease agricultural machinery and seeds have been shipped to facilitate planting, cultivating, and harvesting. In addition, machinery for new canning and dehydrating plants is being lend-leased to both Australia and New Zealand so that these foods may be preserved for trans- portation to the fighting forces at the front. This program will of necessity benefit the civilian population of the United States by reducing the quantities of food that 25 24 which the United Kingdom gets as lend-lease aid from the United States represents less than 10 percent of her entire requirements but this percentage is extremely important as it constitutes the margin between having enough so that she Chapter 3 can fight effectively and not having enough to carry on. U.S.S.R. LEND-LEASE AND FOOD The Soviet Union's need for lend-lease food also is great. About 40 percent of her most fertile cropland has at one time Food is as essential to victory as are planes, tanks, guns, or ships. It is being shipped to our Allies for use by their armed AVERAGE MONTHLY VALUE OF FOOD EXPORTS forces and by their civilians working behind the lines. Lend- Million $ lease food is going principally to the United Kingdom and 100 OTHER the U.S. S. R., which together have received 93 percent of all lend-lease food shipments through June 30, 1943 (see Chart 4). Deliveries are limited principally by our own restricted sup- 75 U.S.S.R. plies and by the volume of available shipping space. So critical is the Soviet Union's need that in some instances 50 munitions available for shipment from American ports have been left behind to provide space in the ships for cargoes of UNITED food. Exports of food to North Africa have been decreasing, KINGDOM 25 but large amounts of seeds for planting have been sent in order to expand food production and diminish the necessity for further food shipments. o 1941 1942 1943 THE NEEDS OF OUR ALLIES United Kingdom Chart 4 For almost a century the United Kingdom has had to im- another been under Nazi control. The Nazis now occupy port a large portion of the food consumed by her population. or for the third consecutive growing season one of Russia's Prior to the war, she produced only 40 percent of her require- richest agricultural regions, the Ukraine. In the summer of ments. By plowing up and planting grasslands, parks, lawns, 1942, the Nazis also overran her second great agricultural golf courses and other areas, and by converting her agricul- region, the North Caucasus. The resulting shortages of food ture to a total war economy, she has increased production have been serious. Some Soviet factories could and did move to 70 percent. The other 30 percent of her needs must, how- to new locations behind the Urals, but land cannot be moved. ever, be imported. The greater part of this 30 percent con- Although the U. S. S. R. has made remarkable strides in tinues to come, as before the war, from British dominions developing new agricultural regions, she is not producing and colonies and from South American countries. The food nearly enough food to satisfy her minimum needs. 26 27 Regraded Unclassified represent a relatively small percentage of our total food supply. To meet Russia's needs, we have shipped hundreds of In 1942, they amounted to only 6 percent. In 1943, it is likely thousands of tons of wheat, flour, meats, sugar, fats, and oils. that we will ship approximately 10 percent. While these have been of material assistance to her war While lend-lease exports have taken as much as 30 percent effort, they have not been large enough to improve greatly of our supply of some foods, for many items in short supply the the diet of the civilian population. Russian rations limit proportion has been less than 5 percent. For example, from civilians to a woefully inadequate diet. Under rationing January through June of this year we shipped 45,400,000 even the most favored worker is allowed less than 2 pounds pounds of beef and 8,100,000 pounds of butter. While these of meat per month. No milk whatever is provided in the totals are large, they are unimportant in terms of total large population centers for any group except children under available supply. The beef was 1 percent of our supply for six years of age. Butter is seldom available. that period, an amount equivalent to two-tenths of an ounce Because of Russia's urgent need for food, the composition of per week for each person in the United States. The butter shipments has changed-foodstuffs during recent months have was only 0.7 percent of our production during that period, constituted a much higher percentage of total exports to the an amount equivalent to four one-hundredths of an ounce U. S. S. R. than a year ago. per week for each person in the United States. Table 9 and Chart 5 show the percentages of our total supply of foods French North and West Africa shipped to our Allies as lend-lease aid during the first six months of 1943, and the ounces per week per capita. French North and West Africa have required small amounts The domestic food situation must be viewed in the light of lend-lease food. When British and American troops landed of present conditions. Members of our armed forces are in North Africa, supplies of foods normally imported, such as eating more than they did as civilians. While the average milk, sugar and tea, were extremely scarce. Supplies of foods American civilian eats about 3½ pounds per day, the average such as wheat, dried fruits and mutton, of which North man in uniform cats about 5½ pounds. The resulting in- Africa normally produces exportable surpluses, were inade- creased consumption is equivalent to adding four to five quate. The Germans had taken away a large percentage of million persons to our population. Many Americans who the 1942 harvest. As a result, wheat stocks were an esti- are not in uniform are also eating more than they have ever mated 100,000 tons below the amount necessary to carry the eaten before. This increased consumption by many civilians population through the 1942-43 winter. is due in part to increased consumer income. It is also due Foods were shipped to North Africa to tide the civilians to the diversion of purchasing power to food from other over until the 1943 crop could be harvested. With the aid articles that can no longer be purchased. of more than 400,000 pounds of lend-lease seeds, large crops Exports of food have been relatively smaller during this war were planted and are already being harvested. Today the than in the comparable period of the first World War. In flow of food to French North Africa is diminishing. No 1915, the first full year of the last war, our food exports cereal products have been sent since the harvest in June. amounted to $978,000,000. In 1940, the first full year of this war, they were only $255,000,000. In 1916 and 1917, they LEND-LEASE AND THE U. S. FOOD SUPPLY amounted to $1,085,000,000 and $1,331,000,000, respectively. In 1941 and 1942 our exports of food were $530,000,000 and The current domestic food shortages have not been caused $993,000,000, respectively. In 1918 exports were $1,990,- to any appreciable extent by lend-lease shipments, which 29 28 LEND-LEASE FOOD EXPORTS IN RELATION TO SUPPLY AND U. S. POPULATION AMOUNT OF FOOD EXPORTED UNDER LEND-LEASE PER CAPITA OF U.S. POPULATION JANUARY-JUNE 1943 Exports in Percent Exports per U.S. of Supply Civilian (Ounces Ounces Per Week Per Copita per Week) 0 2 3 4 BEEF AND VEAL Year Jan-June Year Jan-June PORK 1942 1943 1942 1943 BUTTER CHEESE EGGS All Meats 5.0 7.7 2.8 4.7 CANNED FISH Beef and Veal 0.3 1.0 0.1 0.2 CANNED VEGETABLES Lamb and Mutton 0.4 15.6 0.01 0.4 Pork 9.7 12.2 2.7 4.1 CANNED FRUITS All Milk Products (Fluid Milk DRIED FRUITS Equivalent) 3.4 2.2 10.5 6.6 DRIED BEANS Dry Whole Milk 6.1 15.0 0.01 0.02 Dry Skim Milk 23.0 41.8 0.3 0.6 Condensed and Evapo- rated Milk 7.2 14.5 0.9 1.5 Butter 0.7 0.7 0.04 0.04 LEND-LEASE FOOD EXPORTS Cheese 23.1 7.9 0.8 0.2 Eggs 10.0 11.2 1.7 2.1 IN PER CENT OF SUPPLY Edible Fats and Oils 13.2 14.5 1.8 2.1 JANUARY JUNE 1943 Canned Fish 22.5 31.4 0.4 0.6 Canned Fruits and Juices 1.7 1.9 0.2 0.2 Per Cent Dried Fruits 15.7 20.1 0.5 0.7 o 20 40 60 80 100 Canned Vegetables 0.8 0.8 0.1 0.1 Dried Beans BEEF AND VEAL 5.0 13.0 0.3 0,8 Dried Peas 6.0 8.5 0.1 0.2 PORK Com and Com Products 0.2 0.2 1.4 1.1 BUTTER Wheat and Wheat Products 0.4 1.1 1.2 2.7 CHEESE EGGS CANNED FISH Table 9 CANNED VEGETABLES CANNED FRUITS 000,000, an amount somewhat greater than the estimated DRIED FRUITS value of exports this year. During the last war, however, DRIED BEANS cereals constituted a much larger proportion of food exports than during the present war. Production of foods in this country has increased substan- Chart 5 tially in the last twenty-five years. Consequently, the drain on our supply is less, in comparison with 1917 and 1918, than the creased to 20.0 percent in 1918 and 24.4 percent in 1919. In figures on value of exports would indicate. In 1917 we ex- contrast, our exports of food were equivalent to 5.5 percent ported 16.6 percent of our total food supply. The ratio in- of our total supply in 1941, 8.0 percent in 1942, and it is 31 30 Regraded Unclassified estimated that they will be equivalent to about 11 percent Administration has tentatively allocated food produced from of our 1943 supply. July 1, 1943, to June 30, 1944, in the following manner: All of the export figures for 1941, 1942, and 1943 include Percent direct purchase exports as well as lend-lease in order to show To the civilian population 75 the total drain on our food supply, and also to make the To the armed forces 13 figures comparable with those for the period of the first To the Lend-Lease Administration for ship- World War. None of the figures include food shipments to ment to our allies 10 our armed forces abroad. To U.S. territories and special needs 2 While these allocations mean that civilians will receive less THE OUTLOOK FOR THE FUTURE in the current year than they had in 1942-43, they will on the Allocation of our food supply among competing claimants average get as much food as was available annually in the years is made by the War Food Administration. The War Food 1935-39. Table 10 shows the amount of food recommended for allocation for civilian use in the year 1943-44 as a percent- RECOMMENDED ALLOCATION OF FOODS age of our average annual consumption from 1935 through 1939 FOR U.S. CIVILIANS IN 1943-1944 and as a percentage of 1942 consumption. In Percent of Average Consumption in 1942 and 1935-1939 The demands upon our food supplies are likely to increase. Our allies will continue to need lend-lease food until the end Recommend- Recommend- of hostilities. The needs of other parts of the world will be ed 1943-44 ed 1943-44 considerable after the war. The population of many areas allocation as allocation as Commodity liberated from Axis control will be in an undernourished, if percent of percent of 1942 1935-39 not starved, condition upon liberation. It will be some time consumption consumption after hostilities cease before European and Asiatic agricultural areas get back into normal production. All Meats 83.6 90.2 Beef 75.1 83.6 Veal 90.4 87.6 Lamb and Mutton 57.5 62.2 Pork 94.5 100.3 Eggs 102.2 110.6 Dairy Products: Butter 80.5 77.0 Cheese 60.6 70.6 Condensed Milk 79.4 101.4 Evaporated Milk 56.7 66.8 Dried Whole Milk 117.6 117.6 Dried Skim Milk 57.4 71.1 Canned Fruits and Juices 63.3 62.2 Canned Vegetables 79.7 104.2 Dried Beans 105.2 97.4 Dried Peas 138.4 104.9 Table 10 33 32 Regraded Unclassified (2) To sell, transfer title to, exchange, lease, lend, or otherwise dis- pose of, to any such government any defense article, but no defense APPENDICES article not manufactured or procured under paragraph (1) shall in any way be disposed of under this paragraph, except after consultation with the Chief of Staff of the Army or the Chief of Naval Operations of the Navy, or both. The value of defense articles disposed of in any way under authority of this paragraph, and procured from funds heretofore appropriated, shall not exceed $1,300,000,000. The value of such de- fense articles shall be determined by the head of the department or Appendix agency concerned or such other department, agency, or officer as shall be designated in the manner provided in the rules and regulations issued LEND-LEASE ACT hereunder. Defense articles procured from funds hereafter appropriated to any department or agency of the Government, other than from funds Further to promote the defense of the United States, and for other pur- authorized to be appropriated under this Act, shall not be disposed of poses Be it enacted by the Senate and House of Representatives of the United States of in any way under authority of this paragraph except to the extent hereafter authorized by the Congress in the Acts appropriating such America in Congress assembled, That this Act may be cited as An Act to funds or otherwise. Promote the Defense of the United States." (3) To test, inspect, prove, repair, outfit, recondition, or otherwise to place in good working order, to the extent to which funds are made Section 2. available therefor, or contracts are authorized from time to time by the As used in this Act- Congress or both, any defense article for any such government, or to (a) The term "defense article" means- procure any or all such services by private contract. (1) Any weapon, munition, aircraft, vessel, or boat; (4) To communicate to any such government any defense informa- (2) Any machinery, facility, tool, material, or supply necessary for tion, pertaining to any defense article furnished to such government the manufacture, production, processing, repair, servicing, or opera- under paragraph (2) of this subsection. tion of any article described in this subsection; (5) To release for export any defense article disposed of in any way (3) Any component material or part of or equipment for any article under this subsection to any such government. described in this subsection; (4) Any agricultural, industrial or other commodity or article for (b) The terms and conditions upon which any such foreign government receives any aid authorized under subsection (a) shall be those which the defense. President deems satisfactory, and the benefit to the United States may be Such term" defense article" includes any article described in this subsection payment or repayment in kind or property, or any other direct or indirect manufactured or procured pursuant to section 3, or to which the United benefit which the President deems satisfactory. States or any foreign government has or hereafter acquires title, possession, (c) After June 30, 1943, or after the passage of a concurrent resolution by or control. the two Houses before June 30, 1943, which declares that the powers con- (b) The term "defense information" means any plan, specification, ferred by or pursuant to subsection (a) are no longer necessary to promote design, prototype, or information pertaining to any defense article. the defense of the United States, neither the President nor the head of any department or agency shall exercise any of the powers conferred by or Section 3. pursuant to subsection (a); except that until July 1, 1946, any of such powers (a) Norwithstanding the provisions of any other law, the President may, may be exercised to the extent necessary to carry out a contract or agree- from time to time, when he deems it in the interest of national defense, ment with such a foreign government made before July 1, 1943, or before authorize the Secretary of War, the Secretary of the Navy, or the head of the passage of such concurrent resolution, whichever is the earlier. any other department or agency of the Government- (d) Nothing in this Act shall be construed to authorize or to permit the authorization of convoying vessels by naval vessels of the United States. (1) To manufacture in arsenals, factories, and shipyards under their (c) Nothing in this Act shall be construed to authorize or to permit the jurisdiction, or otherwise procure, to the extent to which funds are authorization of the entry of any American vessel into a combat area in made available therefor, or contracts are authorized from time to violation of section 3 of the Neutrality Act of 1939. time by the Congress, or both, any defense article for the government of any country whose defense the President deems vital to the defense of the United States. 35 34 Regraded Unclassified Section 4. Section 8. All contracts or agreements made for the disposition of any defense The Secretaries of War and of the Navy are hereby authorized to purchase article or defense information pursuant to section 3 shall contain a clause or otherwise acquire arms, ammunition, and implements of war produced by which the foreign government undertakes that it will not, without within the jurisdiction of any country to which section 3 is applicable, the consent of the President, transfer title to or possession of such defense whenever the President deems such purchase or acquisition to be necessary article or defense information by gift, sale, or otherwise, or permit its use in the interests of the defense of the United States. by anyone not an officer, employee, or agent of such foreign government. Section 9. Section 5. The President may, from time to time, promulgate such rules and regula- (a) The Secretary of War, the Secretary of the Navy, or the head of any tions as may be necessary and proper to carry out any of the provisions of other department or agency of the Government involved shall, when any this Act; and he may exercise any power or authority conferred on him by such defense article or defense information is exported, immediately inform this Act through such department, agency, or officer as he shall direct. the department or agency designated by the President to administer section 6 of the Act of July 2, 1940 (54 Stat. 714), of the quantities, character, Section 10. value, terms of disposition, and destination of the article and information Nothing in this Act shall be construed to change existing law relating so exported. to the use of the land and naval forces of the United States, except insofar (b) The President from time to time, but not less frequently than once as such use relates to the manufacture, procurement, and repair of defense every ninety days, shall transmit to the Congress a report of operations articles, the communication of information and other noncombatant under this Act except such information as he deems incompatible with the purposes enumerated in this Act. public interest to disclose. Reports provided for under this subsection shall be transmitted to the Secretary of the Senate or the Clerk of the House Section 11. of Representatives, as the case may be, if the Senate or the House of If any provision of this Act or the application of such provision to any Representatives, as the case may be, is not in session. circumstance shall be held invalid, the validity of the remainder of the Act and the applicability of such provision to other circumstances shall Section 6. not be affected thereby. (a) There is hereby authorized to be appropriated from time to time, out of any money in the Treasury not otherwise appropriated, such amounts at APPROVED, MARCH 11, 1941. may be necessary to carry out the provisions and accomplish the purposes of this Act. (b) All money and all property which is converted into money received On March 11, 1943, after affirmative votes of 407-6 in the House of under section 3 from any government shall, with the approval of the Direc- Representatives and 82-0 in the Senate, the President signed the act tor of the Budget, revert to the respective appropriation or appropriations extending the Lend-Lease Act for 1 year. out of which funds were expended with respect to the defense article or defense information for which such consideration is received, and shall be available for expenditure for the purpose for which such expended funds were appropriated by law, during the fiscal year in which such funds are received and the ensuing fiscal year; but in no event shall any funds so received be available for expenditure after June 30, 1946. Section 7. The Secretary of War, the Secretary of the Navy, and the head of the department or agency shall in all contracts or agreements for the disposition of any defense article or defense information fully protect the rights of all citizens of the United States who have patent rights in and to any such article or information which is hereby authorized to be disposed of and the payments collected for royalties on such patents shall be paid to the owner and holders of such patents. 37 36 Regraded Unclassified hereby continued and shall be available until June 30, 1944: Provided, That with the exception of the appropriation for Administrative expenses", not to exceed 20 per centum of any of such consolidated appropriations may be transferred by the President to any other of such consolidated appropri- ations, but no such appropriation shall be increased more than 30 per centum thereby: Provided further, That notwithstanding the foregoing pro- viso (1) balances, unobligated as of April 30, 1943, and balances subse- Appendix II quently released from obligation, of appropriations contained in the fore- going Acts for "Ordnance and ordnance stores, supplies, spare parts, and FOURTH LEND-LEASE APPROPRIATION ACT materials, including armor and ammunition and components thereof", may be transferred by the President to and consolidated with the appropriation Making supplemental appropriations to carry out the provisions of an Act to promote the provided above for Agricultural, industrial, and other commodities and defense of the United States, approved March 11, 1941, as amended, and for other purposes articles", and (2) balances, unobligated as of April 30, 1943, and balances subsequently released from obligation, of appropriations contained in the Be it enacted by the Senate and House of Representatives of the United States foregoing Acts for "Necessary services and expenses" may be transferred of America in Congress assembled, That there are hereby appropriated, out of by the President to and consolidated with any of the appropriations pro- any money in the Treasury not otherwise appropriated, to enable the vided above, except che appropriation for *Administrative expenses". President, through such departments or agencies of the Government as Section 2. he may designate, further to carry out the provisions of an Act to promote the defense of the United States, approved March 11, 1941, as amended, Any defense article, information, or service produced from funds appro- and for each and every purpose incident to or necessary therefor, the fol- priated by this Act or prior Acts appropriating funds to the President for the purpose of carrying out the provisions of said Act of March 11, lowing sums for the following respective purposes: (a) For the procurement, by manufacture or otherwise, of defense articles, 1941, as amended, shall be retained by or transferred to and for the use of information, and services, for the government of any country whose defense such department or agency of the United States as the President may the President deems vital to the defense of the United States, and the dis- determine, in lieu of being disposed of to a foreign government, whenever in the judgment of the President the defense of the United States will be position thereof, including all necessary expenses in connection therewith, best served thereby: Provided further, That none of the funds appropriated as follows: in this Act shall be used for the payment of any subsidy on agricultural Vessels, ships, boats, and other watercraft, including the hire or other temporary use thereof, and equipage, supplies, materials, spare parts, and products produced in the continental United States. accessories, $1,552,659,000. Section 3. Agricultural, industrial, and other commodities and articles, $4,452,- This Act may be cited as the "Defense Aid Supplemental Appropriation 623,000. Act, 1943". (b) For testing, inspecting, proving, repairing, outfitting, recondition- ing, or otherwise placing in good working order any defense articles for Approved June 14, 1943. the government of any country whose defense the President deems vital to the defense of the United States, including services and expenses in con- nection therewith, $259,348,000. (c) For administrative expenses, $8,999,000: Provided, That transfers may be made from this appropriation to the consolidated appropriation for "Necessary services and expenses" to the extent necessary to reimburse such appropriation for transfers made pursuant to the Urgent Deficiency Appropriation Act, 1943. (d) In all, $6,273,629,000, to be available until June 30, 1944. (c) Each of the foregoing appropriations shall be additional to, and consolidated with, the appropriations for the same purposes, contained in the same respective categories of appropriation in the Defense Aid Supple- mental Appropriation Act, 1941, the Defense Aid Supplemental Appropri- ation Act, 1942, and the Second Defense Aid Supplemental Appropriation Act, 1942, and the appropriations contained in the foregoing Acts, are 39 38 Regraded Unclassified Appendix III Appendix IV STATUS OF NATIONS AMOUNTS OF LEND-LEASE AID AUTHORIZED Lend-Lease Countries and United Nations The amount of lend-lease aid that may be provided under the various acts is summarized as follows: Declared Lend-Lease Reciprocal United Eligible for Lend-Lease Nations Lend-Lease Appropriations to the President Country Agreement Lend-Lease Agreement Declaration Aid Signed First Lend-Lease Appropriation $7,000,000,000 Signed Signed Second Lend-Lease Appropriation 5,985,000,000 Third Lend-Lease Appropriation (Fifth Supp. 1942) 5,425,000,000 Fourth Lend-Lease Appropriation 6,273,629,000 Argentina May 6, 1941 Australia Nov. 11, 1941 Feb. 23, 1942 Sept. 3, 1942 Jan. 1, 1942 Belgium June 13, 1941 June 16, 1942 Jan. 30, 1943 Jan. 1, 1942 Total 24,683,629,000 Bolívia May 6, 1941 Dec. 6, 1941 Apr. 27. 1943 Brazil May 6, 1941 Mar. 3, 1942 Feb. 6, 1943 Transfers Authorized From Other Appropriations Canada Nov. 11. 1941 Jan. 1, 1942 War Department-Third Supplemental, 1942 Chile May 6, 1941 Mar. 2, 1943 $2,000,000,000 4,000,000,000 China May 6, 1941 June 2, 1942 Jan. 1, 1942 War Department-Fourth Supplemental, 1942 11,250,000,000 Colombia May 6, 1941 Mar. 17, 1942 War Department-Fifth Supplemental, 1942 Costa Rica May 6, 1941 Jan. 16, 1942 Jan. 1, 1942 War Department-Sixth Supplemental, 1942 2,220,000,000 May 6, 1941 Nov. 7. 1941 Jan. 1, 1942 Cuba War Department-Military Appropriation Act, 1943 12,700,000,000 Czechoslovakia Jan. 5. 1942 July 11, 1942 Jan. 1, 1942 Navy Department-Second Supplemental, 1943 3,000,000,000 Dominican Rep. May 6, 1941 Aug. 2, 1941 Jan. 1, 1942 Departments other than War-Third Supplemental, 1942 800,000,000 Ecuador May 6, 1941 Apr. 6, 1942 Egypt Nov. 11, 1941 El Salvador May 6, 1941 Feb. 2, 1942 Jan. 1, 1942 Total 35,970,000,000 Ethiopia Dec. 7. 1942 Aug. 9, 1943 Oct. 9, 1942 Nora-In addition to the foregoing, Congress has with certain limitations authorized the Fighting France. Nov. 11, 1941 Sept. 3, 1942 leasing of ships of the Navy and merchant ships constructed with funds appropriated to the French North & Maritime Commission without any numerical limitation as to the dollar value or the number West Africa Nov. 13, 1942 of such ships which may be so leased. (See for example, Public Law 1, 78th Congress, approvs Greece Mar. 11, 1941 July 10. 1942 Jan. 1, 1942 February 19, 1943, and Public Law 11, 78th Congress, approved March 18, 1943.) Guatemala May 6, 1941 Nov. 16, 1942 Jan. I, 1942 Sept. 16, 1941 Jan. 1. 1942 Haiti May 6, 1941 May 6, 1941 Feb. 28, 1942 Jan. I, 1942 Honduras Iceland July 1, 1941 Nov. 21, 1941 India Nov. 11, 1941 Jan. 1, 1942 Iran Mar. 10, 1942 May 1, 1942 Jan. 16, 1943 Iraq Liberia Mar. 10, 1942 June 8, 1943 Jan. 1, 1942 Luxembourg May 6, 1941 Mar. 18, 1943 June 5, 1942 Mexico (OVER) 41 40 Regraded Unclassified Lend-Lease Countries and United Nations-Continued Declared Lend-Lease Reciprocal United Eligible for Lend-Lease Nations Country Agreement Lend-Lease Agreement Declaration Signed Aid Signed Signed Netherlands Aug. 21, 1941 July 8, 1942 June 14, 1943 Jan. 1, 1942 New Zealand Nov. 11, 1941 Feb. 23, 1942 Sept. 3, 1942 Jan. 1, 1942 Nicaragua May 6, 1941 Oct. 16, 1941 Jan. 1, 1942 Norway June 4, 1941 July 11, 1942 Jan. 1, 1942 Panama May 6, 1941 Jan. 1, 1942 Paraguay May 6, 1941 Sept. 20, 1941 Peru May 6, 1941 Mar. 11, 1942 Philippines June 10, 1942 Poland Aug. 28, 1941 July 1, 1942 Jan. 1, 1942 Saudi Arabia Feb. 18, 1943 South Africa Nov. 11, 1941 Jan. 1. 1942 Turkey Nov. 7, 1941 United King- dom Mar. 11, 1941 Feb. 23, 1942 Sept. 3, 1942 Jan. 1. 1942 United States Jan. 1. 1942 U.S.S. R Nov. 7. 1941 June 11, 1942 Jan. 1, 1942 Uruguay May 6, 1941 Jan. 13, 1942 Venezuela May 6, 1941 Mar. 18, 1942 Yugoslavia Nov. 11, 1941 July 24, 1942 Jan. 1, 1942 42 ... GOVERNMENT PRINTINE OFFICE. 1943 TREASURY DEPARTMENT 249 INTER OFFICE COMMUNICATION DATE JUL 31 TO Secretary Morgenthau FROM Randolph Paul We have just received cables from Ball in Martinique indicating: (1) That he is making & sample check on 15 boxes of the Martinique gold. (2) That he has examined the complete records of the Credit Martiniquais and discovered no suspected names or possible cloaking operations. (3) That he has been in the B.N.C.I. and while he has not been permitted to go over all the records, it appears that the bank is very small and does not have more than 70,000,000 French francs in deposits. This is only slightly more than $1,000,000 in total deposits (at 50-1 rate). He also has been told that the B.N.C.I. has no securities or accounts over 10,000 French francs for persons outside Martinique. (4) That sufficient Banque de la Martinique records have been examined "to feel sure that it holds no large sums." On the basis of the foregoing it would appear that Ball has made some progress but that, of course, we have not obtained everything we wanted. It is recommended that we advise Ball that as soon as he has completed the immediate assignment he is working on, he should come back to Washington temporarily for the purpose of making a report. At that time we can decide what further action should be taken. APPROVED: hrt Regraded Unclassified 250 P Y FROM: American Consulate General, Fort de France TO: Secretary of State, Washington DATE: July 28, 1943 NO. 228 CONFIDENTIAL You are informed that work on 15 boxes, picked at random has been begun. We will be finished Friday morn- ing, at the rate of 7 per day. Sufficient Banque de la Martinique records have been examined to feel sure that it holds no large sums. The foregoing is from Ball for the attention of Randolph Paul, Treasury Department. MALIGE Regraded Unclassified 251 COPY PARAPHRASE OF TEIEGRAM RECEIVED FROM: American Consulate, Fort de France, Martinique DATE: July 24, 1943, 11 a.m. No.1 215 This is an urgent message from Mr. Ball for Randolph Paul of the Treasury Department. Malige and I saw Hoppenot on July 23. He again refused after a long discussion to let us take inventory of gold. However, he will permit me to open a number of boxes at random as tests. If this is agreeable to you, suggest I do so and then return to Washington to discuss the situation. Physical problem of inventory is not as easy as anticipated. Any further pressure must come from Washington. In about .four weeks Martial of the Bank of France is expected here and it is possible that we could get him to press his bank for inventory, and the bank might in turn press the committee at Algiers to allow our men to watch the proceedings. From the viewpoint of security the storage place of gold appeared to be all right when I saw it yesterday. MALIGE Regraded Unclassified 252 COPY PARAPHRASE OF TELEGRAM RECEIVED FROM: American Consulate, Fort de France TO: Secretary of State, Washington DATE: July 23, 1943 NUMBER: 214 CONFIDENTIAL Ball sends the following for Randolph Paul, Treasury Department. You are informed that Garcin, Director Credit Martiniquais, was visited by Malige and me on July 22. Garcin was very cooperative and we were shown what I think were the complete records of all the bank's accounts with the dates on by which the accounts were opened and closed. It was stated/Garcin that almost all the accounts were local and since he knows the value of the assets of the depositors in the bank he would have known it if any of the local people had been acting as cloaks. The accounts numbered 5,000 and no suspected names appeared. Names were picked out by me here and there to ask about and each time the individual record of the account was shown to me. The rumor concerning Laval's funds started, according to him, because of the suspected interest in the bank on the part of Laval. Garcin raised the problem of the banks here being able to discount with American banks bills covering shipments to North Africa of sugar so that funds would be available for purchases in the United States before the arrival in North Africa of the merchandise. Garcin would like to know if the banks here would be allowed to do this if the sugar was paid for in dollars. MALIGE Regraded Unclassified 253 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Consulate, Fort de France TO: Secretary of State, Washington DATE: July 22, 1943 NUMBER: 210 CONFIDENTIAL Ball sends the following for Randolph Paul, Treasury Department. You are informed that Malige and I saw the Director of BNCI, Charles, on July 21. It was stated by Charles that there were no securities or accounts over 10,000 French francs for persons outside of Martinique. Professional secrecy was also used by him as a reason for not giving names. French law forbids omnibus or numbered accounts. The bank's financial statement for June 30, not published, and the total deposit record for the past year were examined by us. Thirty million French francs was the original capital provided by BNCI. The deposits ranged from a high of 79,000,000 French francs to 69,000,000 French francs as of the 30th of June. There were about 1500 individual accounts. This bank is the smallest of three and as other banks do not want it here its activities are watched closely. For two years rumors have been numerous here in a small circle concerning Laval's funds being deposited in this bank. The number of accounts and the size of the bank seems to negate this to some degree, but we shall continue the attempt to obtain more definite proof pro or con. It appears that Charles is more willing to cooperate probably due to the position held here by him. MALIGE CC - Messrs. Pehle, Luxford, DuBois, E.M. Bernstein, Taylor, Tomlinson, Schmidt, Fox. Regraded Unclassified 254 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE July 31, 1943 TO Secretary Morgenthau FROM Mr. White HDW 1. Stabilization Fund's Gold Transactions During the three months ending June 30, 1943, the Stabilization Fund sold approximately $199.0 million in gold to foreign countries principally to be earmarked for their accounts with the Federal Reserve Bank of New York. Sales by countries were as follows: Country Sales in millions of dollars Argentina 68.828 Bank of International Settlements .693 Bolivia 2.195 Brazil 36.908 Chile 3.570 Colombia 9.800 Cuba 10.000 Ecuador .140 Iran .500 Mexico 17.000 Portugal 9.975 Switzerland 8.978 Turkey 9.975 Uruguay 11.472 Vatican City .997 Venezuela 8.000 Total 199.031 Regraded Unclassified 255 Division of Monetary - 2 - Research In order to maintain its gold balance, the Stabil- ization Fund purchased $195.3 million in gold from the Treasury General Fund. As a result of the above transactions, there was a net decrease of $3.7 million in the Stabilization Fund's gold holdings to about $10.5 million as of June 30. 2. Treasury Gold Stock During the June quarter, the Treasury's gold stock decreased by $188.2 million to $22,387.5 million as of June 30. Known and estimated acquisitions were as follows: Millions of dollars Newly-mined domestic 4.0 Imports sold directly to mints and assay offices 2.1 Miscellaneous (coin and scrap) 1.0 Total 7.1 The Treasury sold $195.3 million to the Stabilization Fund, making a net decrease of $188.2 million. 3. Total Gold Holdings of the United States March 31, 1943 June 30, 1943 Treasury Gold Stock 22,575,729,894 22,387,522,107 Stabilization Fund Gold 14,182,611 10,500,529 Total 22,589,912,505 22,398,022,636 Regraded Unclassified 256 Division of Monetary - 3 - Research The decrease in the gold holdings of the Treasury and the Stabilization Fund during the June quarter was $191.9 million. Regraded Unclassified 257 TO: Adise, Chungking, China. FROMs Secretary of the Treasury. SECRET - Reference is made to your cable of TF 144 of July 29 and Treasury cable 967 of July 26, 1963. 1. You should subsit your resignation as from the day you receive this massage. 2. The British in Washington have been informed of the above. H ISFeah 7/31/43 Regraded Unclassified C 0 258 P Y PARAPHRASE OF TELEGRAM SENT TO: American Embassy, Chungking, China DATE: July 31, 1943, 5 p.m. NO. : 997 URGENT - SECRET Reference is made to your cable of TF 144 of July 29 and Treasury cable 967 of July 26, 1943. 1. You should submit your resignation as from the day you receive this message. 2. The British in Washington have been informed of the above. HULL (FL) Copy:bj:8-3-43 Regraded Unclassified 259 JUL 3 1 1943 TO: Adler, Chungking, China. FROM: Secretary of the Treasury. In connection with the U. Se Treasury certificates of indebtedness purchased by the Stabilisation Board which nature on August 1, 1943, please inform Dr. Kung that the Treasury would be pleased to ebtain his assurance that no private individual or institution shares in the income of the Beard since unless such assurance is forthoming it will be necessary to pay taxes on the income earned from these certificates of indebtedness. ISF:ah 7/31/43 Regraded Unclassified 260 TELEGRAHI SENT RNK July 31, 1943 This telegram must bE paraphrased before being 6 p.m. communicated to anyone other than a Governmental agency. (BR) AMERICAN EMBASSY CHUNGKING 998 FOR ADDER FROM THE SECRETARY OF THE TREASURY. In connection with the J. S. Treasury certificates of indebtedness purchased by the Stabilization Board which mature on August 1, 1943, please Inform Dr. Hung that the Treasury would be pleased to obtain his assurance that no private individual or institution chares in the income of the Board since unless such assurance is forthcoming it will be necessary to pay taxes on the income earned from these certificates of indebtedness. HULL (FL) FD:FL:JD. FE Regraded Unclassified 261 PARAPHRASE OF TELEGRAM SENT TO: AMERICAN EMBASSY, CHUNGKING. NO.1 1005 DATE: JULY 31, 1943, Midnight. FROM TREASURY FOR ADIER. In reply to formal request from Dr. Kung that $200 mil- lion be transferred from the credit of the Government of China on the books of the Treasury to be used for the purchase of gold, the following message has been transmitted to Dr. Kung through Ambassader Wei Tae-ming: "The Treasury agrees to the request of the Government of China transmitted to me by Ambassador Wei Tao-ming that $200 million be made available fromthe credit on the books of the Treasury in the name of the Government of the Republic of China for the purchase of gold. "In order to avoid unnecessary raising of funds by the United States Treasury, it is suggested that transfers from the credit of the Chinese Government for the purchase of gold be mde at such time and in such amounts as are allowed by existing facilities for the transportation to China of the equivalent amount of gold. Since it is intended that this gold will be sent to China for sale to the public, this procedure should not interfere with the program out- lined in your message of July 23, 1943. "On receipt of requests from the Government of China that a specific amount should be transferred from the credit of the Government of China on the books of the Treasury and be used for the purchase of gold, the necessary action will be taken to consumnate these requests. The details of the arrangement will be discussed with Dr. P.W.Kuo and Mr.Hsi Te-mou." HULL (FL) Regraded Unclassified NOT TO BE RE-TRANSMITTED OFFICE BRITISH MOST SECRET SECRETARY OF TREASURY U.S. SECRET 1943 AUG 2 AM 9 14 OPTEL 251 Following for J.S. MCREASURY DEPARTMENT Information received up to 7 Game 31 July. 1. NAVAL One of H.M. Submarines damaged a 2,000 ton North bound ship off the Albanian Coast and on 29 probably sank a North bound U-boat off the heel of Italy. A group of 3 U-boats was attacked by aircraft and an escort group in the Bay of Biscay yesterday. Supply U-boat 461 was sunk by a Sunderland and survivors picked up, supply U-boat 411 was sunk by gun fire after being damaged by aircraft and survivors were picked up. A very promising attack with depth charges was made on a 750 ton U-boat. U.S. aircraft also sank a U-boat off Recife yesterday. 2. MILITARY Russia, North of Orel the Russiansyesterday continued to make headway. German counter attacks South and Southeast of town were repulsed. 3. AIR OPERATIONS Western Front. 29/30. Hamburg. 2277 tons dropped including 8 8,000 lb, 310 4,000 lb. H.E. and 1201 tons of Incendiaries. Weather cloudless good visibility aport from some haze and smoke from previous fires. Attock well concentrated fresh fires started which merged into a conflagration covering large area, many heavy explosions reported. 4 enemy aircraft were shot down. 30th. In the morning 115 Fortresses dropped 242 tons at the Fieseler Aircraft component and assembly factories at Cassel. Fighters provided withdrawal support from the German Frontier. Weather conditions were excellent and bombing was good in spite of intense A/A and strong fighter opposition. Concurrently 38 escorted light and medium bombers attacked 4 airfields in the low countries with good effect. During the afternoon escorted Venturas and escorted Typhoon bombers successfully attacked Yninville power station and Poix Airfield. 25 Allied Aircraft missing including 11 Fortresses. 5 Enemy Aircraft reconneitred over Kent and Hampshire and 2 flew over Plymouth both being destroyed by Spitfires. 30/31st. Aircraft despatched. Remscheid 273 (15 missing) Seamining 8, Intruders 35, Anti ship,ing 8, Remscheid contains the Deutsche Edel Stahlwerke Steel Alloy Factory and a concentrated attack on the town was carried out in clear weather. Northern Italy. 29/30. 9 Lancasters of Bomber Command dropped Leaflets over 4 cities and Lended in North Africa as detailed. Southorn Italy. 28/29. Wollingtons dropped 24 tons on Naples Airfield and 38 tons on another South Zast of Naples. 2 Wellingtons missing. 29, 56 Fortressos attacked Viterbo Airfield and Marauders dropped 31 tons on Aquino Airfield. 1 Marsuder missin Sicily 28th, 83 Light Bombers attacked Regelbuto and Centuripo. Mediterraneon. 29th. Beaufighters attacked a convoy, a 7,000 ton ship was left sinking and a destroyer and Motor Torpedo boat set on fire. One Beaufightor was shot down. Regraded Unclassified NOT TO BE RE-TRANSMITTED COPY NO. 13 BRITISH MOST SECRET U.S. SECRET OPTEL No. 254 Following is supplementary resume of operational events covering the period 24th to 31st July, 1943. 1. NAVAL HOME WATERS. H.M. coastal forces have engaged enemy ships on 6 occa- aions. One E-boat was destroyed and a considerable number of amall naval units and merchantmen were damaged. Two of H.M. Canadian Destroyers took part in operations against Spanish trawlers fishing in prohibited area in BAY OF BISCAY. MEDITERRANEAN. Allied naval forces have continued to support and supply land forces in SICILY. H.M. Coastal Forces have bombarded TAORMINA and RIPOSTE. U.S. Destroyers and light craft are operating from PALERMO. H.M. end Allied submarines have sunk two 2,000 ton merchantmen and two schooners, torpedoed B. 7,000 ton merchantman, taken prisoners from an E-boat escaping from TRAPANI and damaged a 2,000 ton merchantman. SUBMARINE WARFARE. About 80 U-boats at ses In ATLANTIC and INDIAN Oceans. Chief activity off WEST AFRICA, BRAZIL, EASTERN U.S.A., CARIBBEAN and Eastern AFRICA. MEDITERRANEAN quiet. Week ending 25th, 7 ocean convoys arrived destinations without loss. SUMMARY OF ANTI-SUBMARINE ATTACKS IN JULY REPORTED UP TO NOON 28TH, Number of attacks by shore-based aircraft 100; by carrier-borne aircraft 6, by war- ships 43. Sunk and probably sunk - - by aircraft 20, by warships 10. Possibly sunk by sircraft 3, by warships 5. Probably damaged - by aircraft 9, by warships 3. Possibly damaged - by aircraft 6. SHIPPING CASUALTIES. From 24th to 30th inclusive six ships were ru- portad tarpedoed. One Dutch tanker sunk off CURACAO, one 0.5. tanker torpedoed in West Atlantic but reached PUERTO RICO, 2 British ships in South Atlentic, one British ship sunk in GULF OF ADEZI end one British ship (belated report) in the INDIAN OCEAN. In addition, 4 British ships in convoy were hit by mircraft off LISBON (2 sunk, 1 proceeding with convoy and 1 in tow), 1 British ship sunk by air- craft in SYRACUSE Harbour and one British ship bombed in northern waters but reached KOLA INLET. One British ship is reported overdue at BEIRA. ENEMY SHIPPING. Period 16th - 30th June 11 enemy chips totalling 21,719 tons were sunk or captured including 6 shipo totalling 18,597 tone in MEDITE RANEAN. TRADE. Imports in convoy into UNITED KINGDOM wook ending 24th - 1,361,000 tons including 650,000 oil. MILITARY ITALY. At least three German Divisions believed in IMLY, two south of NAPLES. No information yet of German military reaction to Italian political situntion other than in press tolograms. SICILY. Enemy while maintaining firm hold on their loft flank at CATANIA are letting line owing slowly back to TROINA Area and to North Coast. GERMAN DISPOSITIONS believed as follows - bulk 29th Panser Grenndior Division on North Coast, 15th Panser Division right contre, Gooring Division left centre, strong brigade group (which includes some 6 bettalions Parachutists operati: in ground role) on left. GENERAL. Thole of Southern and Western SICILY now in Allied hands. Obvious at early stage Gormans intended forming nain defensive position on line running from CATANIA northwestwards through TROINA to Coast. Axis reinforcements and supplies continue stendily through ports and over benches, Casuulties 8th Army to 27th (less airborne Division ) killed, wounded and missing - 6,139 including Canadians. 8th Army. No appreciable change on front though indications Cermans feeling affects of our air superiority. Fierce fighting occurred intersporsed with losses to enemy. United Kingdom forces engaged in consolidating gains, regrouping period of considerable patrol activity. German counter-sttacks repulsed with heavy DITTAINO River and at some points petrols crossed SIMETO River. Further northward and making local advances CATANIA Plain. Our forward positions are on line of fiorce and confused fighting in extremely difficult country. Enemy tenks used in counter-sttacks and places changed hande several timos be REY baing aded finally Unclassified secured 2 - 7th Amy. United States forces have swept all before them in advance through west of Island. They are now engaged in occupying that area and are also advancing eastwards. BURMA. Increased patrol activity north of BOTHIDAUNG. 3. AIR OPERATIONS WESTERN FRONT. Night, wook of record heavy attacks. 3,679 norties, 100 aircraft missing. 5 enemy fighters destroyed. 3 very heavy attacks on HAMPURG, rosulta outstandingly successful. Damage so severe and widesproad that it cannot yot be assessed, but known that damage to commercial and industrial targots is anormous, including Blohm Voas and Howaldtsyerke submarine building yards. A single vory successful attack on ESSEN when further severe damage caused to Krupps. In these raids our losses under 3% of bombers sent out, One somewhat lighter attack on REMSCHEID, details not yet known. Day. Throughout the week strong formations of U.S. Fortrosses carried out hanvy and widespread raids. Total of 1,242 aircraft despatched. 2 attacks on HAMBURG increasing damage elroady caused by R.A.F. 2 successful attacks on CASSEL causing damage to Fieseler Works and considerable damage to Spinnfessor Textile Fectory. Successful attack on nore-engine works at Oscherswoben near MAGDEBURG. Successful attack on HANOVER where large tyre factory was hit and severe damage to shipbuilding yards. Other diversionary attacks on WILHELMSHAVEN, BREMERHAVEN and WARNEMUNDE. R.A.F. attacked objectives in HOLLAND and provided large fighter escords and diversionary sweeps. D.S. Fortresses also carried out two heavy attacks on tar- gets in NORWAY. First on TRONDHEIM very successful, naval base damaged and sub- marine and cargo vessel sunk. Second on Aluminium Works at HEROYA most successful. In all these operations Allies lost 124 aircraft. ENEMY. About 49 unemy circraft crossed our coasts during the week. Seven wure destroyed. MEDITERRANE.N. Allied attacks concentrated on enemy communications end airfields in SICILY and SOUTHERN ITALY. One heavy attack on BOLOGNA Railway Centre. Spitfiros twice intercupted escorted formations of enemy transport air- craft, most of which were destroyed. One 1,500 ton ship tunk, one of 7,500 tons loft sinking. 2 Destroyers and M.P.B. set on fire and number of small craft des- troyed and damaged, In all these operations we lost 22 aircraft. RUSSIA. Russian Air Force was actively engaged in supporting thoir advance in ORIL Sector where there seons no doubt that they ere continuing to hold their own in the air. The German Air Force activity throughout RUSSIA seems to have been limited and it is possible that they may be having difficulty in recovering from heavy wastage incurred during intensive operations at the start of their KURSK offensive. 4. EXTRACTS FROM PHOTOGRAPHIC AND INTELLIGENCE REPORTS OF ALLIED AIR ATTACKS. COLOGNE. Accumulated devastmention now estimated at 60% of area on west bank of RHINE and over 80% of Control City area. The nain business and shopping centre has been ruined. Estimated over 63,000 house unito destroyed or uninhabitable HULS. 32 days after latest raid only one out of 5 chinneys of syntheti rubber plant was smoking and none of the cooling towers were working. RUHR. Branch fuctories of Versinigto Stahlwerko at GELSENKIRCHEN, BOCHUM and MULHEIM have all boon damaged, the Mulheim branch most severoly. HAMBURG. Although early photographs were spoilt by smoke and all parts of the city were not visible, 10 is clear that destruction is very great and industrial damage extremely heavy. HANOVER. 3 buildings of Continental Tyre Factory partly destroyed and others demnged. This is German priority one factory. ROME. Main railway station was unusable on 19th. Casuelties hoevy among Italian and German airmon at airfields. Barracks at SAN LORENZO used by Gor- mens na n. Headquerters was destroyed. Two districts without water owing to broken squeduct. Much confusion among crowds at Trastevere Station 20th. TURIN. Some fires still burning 3 days after attack 12th/13th oring to water shortage. About 45 industrial concerns suffored and heavy damage nt SNIA VISCO ortificial silk works. BOLOGNA. Severe damage to marshalling yards, reilway junction and permanent way. TRONDHEIM. Photographs 24th show fives burning and hunvy damage to docks quays and workshops. Flonting dock partly submerged, direct hit on one shipyard and several small craft sunk or capsized. HEROYA. Important damage to Magnosium, Aluminium end Nitrate works, 5. HOME SECURITY No killed, one seriously wounded. Regraded Unclassified