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PSF: Subject File: Administrative Assistants: Currie, LAuchlin 1939- May 1940
Box 115
PSF.
Currie
THE WHITE HOUSE
WASHINGTON
July 31, 1939.
FOR THE president:
Nathan Strew aon no this morning end made on urgent
plan that I acquaint you with the following information:
The Housing emenlments contain two dollar amounts; one
en authorization to service local housing bonds to the ex-
tint of 073 million, the other an authorization for the
USHA to borrow and loon cm additional $800 million. The
first authorization is vital; the second can onsily be sac-
rificed, onl the program financed through commercial banks.
ID feels thrib much of the opposition to the emendments mi at
he stinfi by consenting to a reduction or even elimination
of the loon authorization. He also feels that a fur-
the postponement b. the House of El consideration of the
Dousing winds not "our" wors n their chances of adoption.
Ho her ivolo them suggestions to Senator Wayner.
I might and, 011 my own behalf, that EL steady stepping
up of the USHA program, throughout 1940, and its extension
to any more ruvil and urban communities, would he highly
Socirable.
Iv nturn also to suggest that should the lending bill
in Carth lated or fail of passage, consideration
the 11 be given to 0 final attempt to continue the PWA pro-
grown on is great besis. This could take the form of a rider
to X ^in/1 deficioncy appropriation. Expenditures under
ti, criming will docline sharply in the second
qu to 0" 1940.
Although the business outlook is mildly encouraging
" the revinder of this year, we astimate that the net
Marl con telbution to buyin; power in the second quarter
of 1940 will run marrly $100 million R month under ourrent
1 will, in the nho no of the londing program or additional
THE Lousing. This will entril t. substantial offset to what-
W e expansion 0" private capital exp niitures me! occur at
t'st Mis.
Lauchlin Currio
PSF.
Currel
August 4, 1939
President sends to Bullitt for his information
and return THE COMMENT prepared by the following:
Feis, Morgenthau, Lauchlin Currie on memorandum
from a French Banker friend of Daladier which
President. Ambassador Bullitt had previously sent to the
See: Bullitt folder-Drawer 1-1939
PSF
Currie
COPY
August 29, 1939
112 ORANDUM FOR THE PRESIDENT
I hesitate to offer anything at this time
not directly concerned with the crisis but it is my
understanding that you will have to malce a decision
with reference to the Treasury September financing before
Saturday. I am, therefore, bringing to your attention
certain considerations relating thereto that may have
been overlooked. I am also raising certain basic
questions relating to the financing of the deficit for
the entire fiscal year.
I am having matorial on food reserves in.
case of war, worked up. You mentioned before you left
that you intended to take this matter up with me. I
an also interesting myself in the problem of potential
bottlenecks in the event of an expansion of
productive activity.
Lauchlin Currie
See:-Treasury folder-Drawer 1-1939
PSF Currie
THE WHITE HOUSE
WASHINGTON
September 7, 1939.
MEMORANDUM FOR THE PRESIDENT
Re: Sugar Prices and Speculation
Wholesale sugar prices have advanced in
New York from August 28 to September 6 by 32 per-
cent. Retail prices have been advancing also.
Definite information will be available this
afternoon. There is widespread consumer stocking
up and in many places local dealers' and jobbers'
supplies are exhausted.
In these circumstances you may wish to
give consideration to the advisability of increas-
ing immediately (or perhaps threatening to in-
crease) the domestic marketing allotment of cane
and beet sugar processors who have very heavy
stocks on hand which they cannot sell under the
present allotments. I understand that the
refiners of imported sugar have stocks on hand
not subject to marketing quota restrictions.
Landh Cinne
Lauchlin Currie
PSF: Administrative
Fil
THE WHITE HOUSE
WASHINGTON
September 13, 1939.
MEMORANDUM FOR THE PRESIDENT:
Prices and Inventory Speculation
I. Dangerous Elements in the Situation
Signs are multiplying that the stock market and commodity price
advances have resulted in heavy orders for inventory purposes.
Should this continue, trouble is ahead. At the middle of the year
the value of inventories was about at the mid-1937 level and was
near the 1929 level. The supply is so large that an increase of
only 10 percent amounts, in dollar terms, to a large absolute increase
of over $2 billion, or more than the total expended on residential
construction in any recent year. A substantial element in the upsurge
of productive activity in 1936-37 and the decline in 1938 was the
inventory boom and liquidation of those years. An inventory boom
receives its impetus from expectations of price advances and fears
of delayed deliveries of goods. It is not the level so much as the
anticipated movement of prices that is disturbing.
II. Possible Ways of Meeting the Danger
A. Psychological
1. Factual. Speech or statement outlining situation
with reference to large supplies and great unused
productive capacity. - Helpful.
2. Moral Suasion. Patriotic appeal through trade
associations, Business Advisory Council, etc. -
Relatively ineffective but probably politically
advisable.
3. Threats. Speech or statement stressing Government's
determination to prevent profiteering and hinting
at various methods of control. - Probably fairly
effective. The Wall Street Journal of September 12
says, "Question of higher steel prices for the
fourth quarter seems to hang in the balance at the
moment. On one hand, steel producers are definitely
for the President
-2-
in a sellers' market and many of them believe
that prices are below levels which insure a
fair profit under conditions likely to prevail.
On the other hand, there is understood to be
some fear that price rises at this time might
produce a political reaction."
B. Positive Action Under Existing Powers
1. Institute immediate hearings by TNEC in one or two
prominent cases where restrictive practices
have been an important factor in the advance.-
Very effective.
2. Institute proceedings under Anti-Trust Act.
3. Specific measures increasing availability and/or
production of agricultural goods.
4. Lower tariffs. - Not very effective.
5. Use of Government plants in isolated cases.
6. Licensing of exports under power to control foreign
exchanges. Can be used to prevent sudden bunch-
ing of orders for goods the production of which
is already near capacity.
7. Excess profits taxation may reduce incentive somewhat
to advance prices.
8. Government purchases. Orderly production may be
furthered by proper timing of orders.
9. Removal of potential bottlenecks
a. Railroads
b. Electric power
C. Skilled labor shortages
d. Specific manufacturing facilities and
material shortages
- Further Powers That May Become Necessary
A.
Institute Price Control Board with broad powers to pro-
hibit price advances not justifiable on various grounds
and not in public interest.
B.
Give Commodity Exchange Commission power to determine
margins and restrict speculation in commodities.
Memorandum for the President
-3-
IV - Action That Might Be Taken At This Time
A. If the current price movement continues for a few days more
a statement or speech indicating facts of situation and
determination to prevent inventory speculation might be
advisable and helpful.
B. TNEC and Justice.
C. Action with reference to bottlenecks.
D. Apprising the steel industry executives within the next
twenty-four hours of the Administration's strong disapproval
of an advance in steel prices at this time.
I should be glad to go into detail on any or all of these three
immediate approaches to the problem.
LandhinG
Lauchlin Currie
INDEXES OF PHYSICAL VOLUME OF PRODUCTION,
CONSUMPTION, AND INVENTORIES OF CONSUMER GOODS
PER CENT OF
BILLIONS OF
1929 CONSUMPTION
1929 DOLLARS
120
24
INVENTORIES
110
22
PRODUCTION
100
20
CONSUMPTION
90
18
80
16
70
14
1935
1936
1937
1938
1939
Platted HRG. + E.H.
PSF
THE WHITE HOUSE
WASHINGTON
-
September 19, 1939.
MEMORANDUM FOR THE PRESIDENT:
I am having a number of studies made on potential
bottlenecks (a) in the event of further marked recovery,
(b) in the event of war demands superimposed on recovery.
I have gone far enough to satisfy myself that the
situation may become critical in railroads, the electric
power industry, steel and various smaller fields. In
assessing, however, the seriousness of the probable
shortages and bottlenecks, examination of the material
in the War Department bearing on the probable war de-
mands for transportation, power and various types of
industrial products would be most helpful. Would you
care to authorize me, or an assistent delegated by me
and working with me, to examine for you this material?
I would then be in a position to relate both the prob-
able war and civilian demands to capacity in various
fields.
Landh Cord
Lauchlin Currie
(
UP
7:10C
nucl
THE WHITE HOUSE
WASHINGTON
12
September 28, 1939.
MEMORANDUM FOR THE PRESIDENT:
I know that you will be pleased to learn
that Secretary Morgenthau and Mr. Eccles have had
a long talk and, in the words of Mr. Eccles, have
a "complete and thorough understanding, that they
shall cooperate closely, that they have mutual
respect for each other's disinterestedness, and
acknowledge the perfect right of each to differ
as to methods".
Lauchlin Currie
PSF
October 10, 1939.
Letter to the President
From Doc O'Connor
Subject: U.S. BRANCHES OF BRITISH INSURANCE COMPANIES
Thinks it would be 8 good time for the Committee
on Banking and Insurance of the Senate to withdraw its
embargo on the U.S. Branches of British Insurance Companies
so far as F.H.A. and H.O.L.C. insurance is concerned.
Suggests a word to Senator Wagner might be helpful etc etc.
The President asks Lauchlin Currie to speak to him about the
above--memo of Oct 12th attached; also Curries memorandum of
reply of Nov 20, 1939.
For the above correspondence--See:Basil O'Connor folder-Drawer 2-1939
amice
Sele
THE WHITE HOUSE
WASHINGTON
October 12, 1939.
MEMORANDUM FOR THE PRESIDENT:
Re: Steel and Scrap Prices
Attached is a report on my conversation with
Mr. Stettinius. Mr. Taylor will discuss the matter
further with you on Monday. I am having the WPA
scrap iron suggestion looked into. I think this
is a case where unofficial publicity, attributed
to New Deal circles, indicating concern over steel
prices and that studies relating to the scrap situa-
tion were going forward, would serve a highly use-
ful purpose in strengthening Stettinius' and Taylor's
hands, assuming they can be won over.
Lauch are
Lauchlin Currie
THE WHITE HOUSE
WASHINGTON
October 12, 1939.
MEMORANDUM FOR THE PRESIDENT:
Re. Conversation with Edward Stettinius
I stated that you had seen many reports of an imminent advance
in finished steel prices, that you were concerned about it and that
you were anxious to cooperate in keeping down costs, particularly of
scrap. Mr. Stettinius indicated that (a) although no decision had
been reached they would like to get finished steel prices back to the
level prevailing before June 1938, (b) it was doubtful whether the
rest of the industry would follow the Corporation in retaining present
prices, and (c) in any case, the industry was "entitled" to a decent
profit after so many lean years.
I replied that it was my understanding that you were not so much
concerned with the "justice" of a given level of profits as you were
with the economic health of the nation; that you were being advised
by" the business research experts throughout the Government that a
recession was likely after the current inventory boom and that an ad-
vance in the prices of the hundreds of finished industrial goods con-
taining steel would seriously intensify a recession; that because of
the strategic position of the industry its actions were necessarily
invested with the public interest.
I also pointed out that should 8. recession after the turn of the
year happen to coincide with an advance in steel prices, it was inevit-
able that many people both within and outside the Administration would
read a cause and effect relationship into this, and that, finally, it
would serve the broader interests of both the industry and the economy
to lengthen deliveries on current orders to the first quarter at current
prices, thereby permitting a more sustained rate of production at an
economic rate and greater stability in employment.
He appeared considerably impressed by these arguments, stated
that he thought an embargo should be placed on scrap exports, and asked
if he might report the conversation to Myron Taylor. I said, "Yes".
He then said that Mr. Taylor would take the matter up with you when he
saw you on Monday.
Mr. Stettinius then turned to the matter of the War Resources
Board and the War Department. He said that the present situation in
the Department was appalling, that the morale of the Department was
Memorandum for the President
-2-
Re: Conversation with Edward Stettinius
suffering, ment ioned the remarks in Time's issue of October 9th, and
stated that he thought the situation should be cleared up by either one
or both men resigning. He continued that while he was satisfied your
action in dismissing the Board was no reflection in any way on the members
of the Board, nevertheless there was much misunderstanding and he, person-
ally, would be very gratified if you received his Report graciously and
expressed yourself as appreciative of the disinterestedness of the members
of the Board and the sacrifices they had made in carrying out their duties,
and that you hoped they would be available for advice to the War Department
from time to time as need arose.
Lauchle
Lauchlin Currie
PSF
currie
October 13, 1939.
Memo to the Secretary of the Treasury from the President
asking him to speak to him about the enclosed memorandum
from Lauchlin Currie to the President regarding purchases
of tungsten. Also memo from Ray Spear of the Bureau of
Supplies and Accounts in the Navy Department---RE-bids on
tungsten ore.
For memo-See Henry Morgenthau folder-Drawer 1-1939
Memo of Dec 14-1939
PSF
Currie
THE WHITE HOUSE
WASHINGTON
October 26, 1939.
MEMORANDUM FOR THE PRESIDENT:
Edward Noble consulted Ben, Leon and me last
evening on an ingenious proposal of Hook of American
Rolling Mills to the effect that the Department of
Commerce should go over with industry groups the
basis for a proposed price advance. I gave as my
personal opinion, which was concurred in by Ben and
Leon, that the Department of Commerce could not speak
for the Administration, and that it would be most
unfortunate if it let itself be manouvered into the
position of allowing industry groups to say that they
had the approval of the Department, or even that they
had "presented their case to Commerce." I suggested
that through the Business Advisory Council he might
arrange informal dinners or luncheons which would
enable steel men, for example, to gain some idea of
the personal attitudes of different advisers to the
Administration on price policies. Noble said he
thought that this was a good way out and that he
would take the matter up with you. We've had such
meetings before which, while helpful all around, were
never regarded as official.
Land are
Lauchlin Currie
your are night
100R
PSF
Currie
THE WHITE HOUSE
WASHINGTON
November 3, 1939.
mm
10 MORANDUM FOR THE PRESIDENT:
Re: Farm Security and the Budget,
I recall that last July you had it in mind to revive
the lending bill. Doubtless the war has brought about
some change in your plans. However, the Import-Export
Bank will need additional lending power and the RFC should
have additional lending power for railroad loans.
A case wight also be made out for a revival of the
Farm Security part of the program in a separate bill.
This called for $600 million loaning power, half of which
was ear-marked for tenant purchases of farms. The money
was to be secured from the RFC at the approximate cost
to the RFC, and would be outside the budget. Some of
the arguments that might be urged for the revival of this
proposal are as follows:
1. In a separate bill it would be purely a farm
measure and hence would secure a lot of support, particul-
arly next year.
2. In particular, it should secure the support of
those urging special measures for drought and flood
victims.
3. It would permit cancellation of the unexpended
portion of the Farm Security appropriation and hence
would improve the deficit picture both for the current
and next fiscal year.
4. Passage of this and the other two parts of the
program mentioned above would constitute a vindication
of the lending bill.
2 J
Lauchlin Currie
Currie
PSF
THE WHITE HOUSE
WASHINGTON
fillowed
pay
the
November 9, 1939
MEMORANDUM FOR THE PRESIDENT:
You are receiving a memorandum
from Chairman Eccles on Treasury
financing. Although it is a bit
irregular, I wrote it for him at his
urgent request. I hope you don't
mind. I had, in any case, meant to
submit the proposal myself, as I am
heartily in accord with what I have
written!
Land am
Lauchlin Currie
PF
Eurrie
gile
THE WHITE HOUSE
WASHINGTON
November 13, 1939.
MEMORANDUM FOR THE PRESIDENT:
Re. Railroad Equipment.
The recent burst of equipment buying is subsiding and
will leave the railroads with little net addition to cars
by the end of the year as compared with the beginning. I am
still exploring possibilities of stimulating orders for the
winter months.
In this connection I went to New York last Thursday and
had mutual friends arrange for "social" meetings success-
ively with Harry Sturgis, of the First National, who, I am
told, is the "Morgan man" in railroads, Hertz of Lehman
Brothers, Feiwell, a man close to Selíg of General American
Transportation (the most independent and aggressive railroad
equipment concern I've come across), and Floyd Odlum of Atlas.
I picked up some interesting ideas and reactions.
Sturgis, for example, thinks the time is ripe for a program
of regional consolidations thinks that the security hold-
ors and the managements "could be brought into line", and
that labor "could be bought off". Is most fearful of opposi-
tion of states and cities. Hertz was mainly interested in
a program whereby the RFC would guarantee equipment trust
certificates at a very low premium. Odlum, and Selig's
friend, thought that a private equipment financing (hire-
purchase) company with RFC backing was practicable and that
the same thing could be done with machine shop equipment.
He said he had financed the sale of generators on a hire-
purchase basis.
I was told that Whitney and Stanley were approached
and turned thumbs down on the railroad equipment section of
the lending bill. Otherwise there would have been a lot of
support for it. As it was, Selig came out for it, and sub-
sequently a lot of railroad men and equipment companies
have regretted it did not pass.
Land am
Lauchlin Currie
PSF
THE WHITE HOUSE
Currie
WASHINGTON
November 14, 1939.
MEMORANDUM FOR LAUCHLIN CURRIE:
For your information.
F.D.R.
NON
STATE DEPARTMENTO
department OF AGRICULTURE
WASHINGTON
RECEIVED A/A 33
13 THE 8 55 WHITE HOUSE
November 10, 1939.
The President,
The White House.
Dear Mr. President:
Attached hereto is a tabulation you requested recently showing
in round numbers the monthly actual expenditures by the AAA, FSCC, and
FSA, for January to September 1939 and estimated expenditures for the
balance of this fiscal year.
The total for November 1939 for these three agencies is expected
to be a little over 80 million dollars. By March 1940 we expect a peak
figure of over 160 million dollars; and by next June we expect it to be
down to 60 million dollars. The peak figure in March will be about 40
million dollars greater and a month earlier than the peak in the last
half of the 1939 fiscal year.
During the second quarter of 1940 expenditures will total approxi-
mately 260 million dollars compared with a total of nearly 460 million
dollars during the first quarter of 1940. There is thus relatively
little possibility of shifting expenditures scheduled for the second
quarter into the first quarter. Should business developments make it
desirable, we could try to shift perhaps about 20 percent of the FSCC
expenditures estimated for the second quarter into the first and about
15 percent of the AAA expenditures. In all, this shift might amount
to about 40 million dollars and would have the effect of shifting the
distribution for the six months of 1940 so that the peak would come
in February instead of in March.
Sincerely,
Hawallaa
Enclosure
Secretary
Monthly Expenditures by AAA, FSCC and FSA, January to September 1939,
and Estimated Expenditures through June 1940.
(million dollars)
AAA
FSCC
FSA
Total
1939
January
33
15
14
62
February
43
6
21
70
March
75
6
35
116
April
85
11
27
123
May
89
10
25
124
June
61
14
16
91
July
42
2
13
57
August
37
16
11
64
September
54
19
9
82
October
97
18
9
124
November
45
24
13
82
December
67
25
16
108
1940
January
91
31
21
143
February
102
26
25
163
March
115
14
33
162
April
74
19
26
119
May
40
21
19
80
June
26
23
15
64
file
THE WHITE HOUSE
WASHINGTON
November Exame 16, 1939.
MEMORANDUM FOR THE PRESIDENT:
PSF
Re: Business Developments
Curree
Having previously stressed my fears of an intermediate
setback it gives me pleasure to point out a few favorable
developments:
1. The prolonged Chrysler strike will operate to level
off the peak of automobile production and permit a higher
level of production in the winter months than would otherwise
have been the case.
2. It looks more and more as though we have headed off
an advance in steel and allied products prices.
3. The level of stock prices has remained low in rela-
tion to current earnings and the possibilities of a bad break
are thereby minimized.
4. New orders, while probably running below current
production, have held up better than was expected a month
back, and the backlog may sustain the present volume of
production into February. The longer the present level is
sustained the more time there is for heavier capital expendi-
tures to get underway.
5. The new Army, WPA, and agricultural estimates of
monthly expenditures indicate that the total Government cash
expenditures will be higher in the winter than currently,
and this should help to sustain consumption. I now estimate
average monthly cash expenditures in the first quarter at
$870 million, as contrasted with $767 million in the current
quarter. An even better comparison may result when the Navy
and Maritime Commission are heard from.
6. I still think we probably can't escape some setback
but it now looks as though it might not be so soon or so
severe as anticipated earlier.
Lauch Corrie
Lauchlin Currie
THE WHITE HOUSE
WASHINGTON
November 16, 1939.
Estimated Federal Net Contribution to Buying Power
Fiscal Year 1940
(Monthly averages - in millions of dollars)
Adjusted
Adjusted
Net contri-
cash outlays
cash receipts
bution
First quarter (actual)
791
499
292
Second quarter
767
499
268
Third quarter
870
550
320
Fourth quarter
310
571
239
Year
810
530
280
Comparison of Expenditures of Agricultural Adjustment
Program (November 1939-June 1940)
(In millions of dollars)
Estimates
Estimates
September
November
1939
1939
1939
November
125
69
December
92
92
1940
January
93
122
February
97
128
March
114
129
April
92
93
May
63
61
June
55
49
Total
731
743
PSF
file
1
Currie
THE WHITE HOUSE
WASHINGTON
November 22, 1939.
MEMORANDUM FOR THE PRESIDENT:
Re: Financing.
I assume that you are in touch
with the Treasury and that the announce-
ment of $500 million of new financing
was made with your approval. In view,
however, of your communication with Mr.
Eccles I just wanted to take the precau-
tion of making sure that you know that
the details of the new financing are
expected to be determined on Monday and
that the guessing is a 10-11 year bond
issue.
Lauchlin Currie
PSF
Carrie'
THE WHITE HOUSE
and
WASHINGTON
December 1, 1939.
MEMORANEUM FOR The PRESIDENT:
Re: Paul's Tax Memoranda
There appears to be some danger of personal
misunderstandings arising in connection with these
memos. Mr. Hanes is afraid that Secretary Morgenthau
will think that he arranged all this because of the
fact that Paul is his tax attorney, which has its
amusing aspects. Paul told him he had been brought
into the picture by Jerome Frank. Now Jerome is con-
cerned lest Secretary Morgenthau resent his interfer-
ence and said he would be very grateful if you would
let Secretary Morgenthau know that the matter arose
out of discussions of profiteering in connection with
price advances and that he suggested Paul as a good
man on this matter and that Paul was then brought in
at your request. I understand that the Secretary will
submit preliminary estimates to you on Monday on the
changes in revenues that might result from the various
proposals but will probably refrain from making any
recommendations.
Lauch time
Lauchlin Currie
PSF
numa
THE WHITE HOUSE
arrie
WASHINGTON
December 7, 1939.
MEMORANDUM FOR THE PRESIDENT:
Re: Forecasts of Business.
You may be interested in certain recent
forecasts of business activity for 1940.
The Treasury, in seeking to establish a
base for the estimates of revenue for the
fiscal year 1941, called in six leading private
business analysts. Their views- diverged widely
but a simple average came out at 110 in the
index of production for the year 1940 as a
whole. I suggested that the Treasury also
consult with business analysts within the Govern-
ment, which was done. Their guesses ranged
from 110 to 116, with the average at 113. Their
guesses on national income were closely grouped
around $75 billion as contrasted with between
$68 and $69 billion this year. They all looked
for a downturn in the first half from the current
128 to somewhere in the range of 100 to 110.
I do not think that averaging means much
in a matter of this sort, but it is important
in connection with the revenue estimates.
Lauchlin Currie
Currie PSF
THE WHITE HOUSE
WASHINGTON
quick TJB
December 11, 1939.
MEMORANDUM FOR THE PRESIDENT:
Re: Budget.
Some time ago I called to your attention the possibility of securing
a substantial amount of miscellaneous receipts through the repayment to
the Treasury of part of the RFC's unnecessarily large capital funds. I
have been exploring other possibilities of 8 similar nature that would
not require Congressional action. The results of this preliminary survey
are presented in the following table:
(In millions of dollars)
Tot.1 Capital
Funus
Reduction of Government-owned stock by FFC .250
760
Sale of stock in Federal Savings one Loan
Associations by Treasury to HOLC
40
Reduction of Government-owned stock in Home
Loan Banks.
75
175
Reduction of poio-in surplus ano capital
stock of Federal Lane Banks
200
513
Reduction of Government-owneri stock in banks
for cooperatives.
85
165
Reduction of surplus and capital stock of
Federal Intermediate Credit banks
50
119
700
this program were carried out in its entirety it WOLD affect the
national accounts in the following wayst
1. It would reduce the need for further increase in the public debt
by $700 million.
2. It. would reduce the budgetary deficit by $700 million.
3. It would increase budgetary receipts by $290 million.
4. It would decrease budgetary expenditures by $410 million.
Would you like m. to 212.0 cotalina and separate study 0.0 of
the above possibilities? If so, I should 11kc to obtain from the Treasury
the approisal of the boacts 0" OV recent corporation.: which was propared
in response to Senator Byr.'s recolution in. which is, I believe, last
completed.
The wine
Lauchlin Currie
PSF.
Currie
trings v
Sce Budget freder- Drawer 19 1940
December 14, 1939.
3 Memorandums from Lauchlin Currie to the President
1. Re-Revenue Estimates for Fiscal Year 1941
PSF
& Curre
December 18, 1939.
Memorandum for the President from Lauchlin Currie
Re-Repayment of Surplus Capital Funds in overnment Corporations
See:Budget Message folder-Drawer 2-1940
Copy
PSF f Currie
December 26, 1939.
Memorandum for Lauchlin Currie
To read and return for our files.
F.D.R.
Enclosure
Enc letter from Henry Morgenthau
Re-possibility of issuing additional bonds against the Panama Canal
under tht Act authorizing the issuance of Panama Canal bonds to re-
imburse the Treasury for costs of the Canal etc etc
See:H. Morgenthau folder-Dec 22, 1939 letter-Drawer 1-1939
PSF
THE WHITE HOUSE
Currie
WASHINGTON
December 29, 1939.
MEMORANDUM FOR THE PRESIDENT:
Re: Son Francisco Dock Strike.
I was told yesterday
(1) that the threatened tie-up on the
East Coast has been averted b. the signing
of a contract that provides for the continua-
tion of hiring halls.
(2) that Philip Murray has been "sounded
out" by certain West Coast employers on the
possibility of negotiating, after the settle-
ment of the San Francisco situation, & nation-
wide agreement providing for arbitration. The
steamship lines continue, however, to refuse
to submit to arbitration in San Francisco.
The CIO people continue to feel that
work would be resumed immediately if you would
have pressure brought to bear on the Government-
owned American President Lines to submit to
arbitration.
Lanch am
Lauchlin Currie
2
Jull
Plenn
PSF.
kill
AND
THE WHITE HOUSE
Curre
WASHINGTON
January 2, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: San Francisco Dock Strike.
I did not try to see Miss
Perkins as I was told today that
negotiations had just been initiated
and there are good hopes of a settle-
ment. I was told two factors played
a part in this: the recent signing
of & two-year East Coast agreement,
and the Landis Report.
I will keep in touch with the
situation and will see Miss Perkins
if it appears that negotistions are
in danger of breaking down.
Lauchlin Currie
PSF
currie
THE WHITE HOUSE
WASHINGTON
January 2, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Effect of Tax Revisions.
At the meeting last Friday, the statement that
tax revisions had impaired the productivity of the
tax base seemed to be questioned. However, in read-
ing through the Budget Analysis of Revenue Estimates,
prepared by the Treasury, I came across the following:
"The decrease in the estimated income-tax receipts in
fiscal year 1940 is explained not only by the virtual
repeal of the undistrituted-profits tax which decreased
dividend distributions, * It "- page A14.
"These decreases are attributable not only to the
higher lovel of incomes in calendar year 1937 as
contrasted with the estimated incomes in calendar year
1939 but also to legislative changes. Receipts in
fiscal year 1939 partly reflect collections in respect
of calendar year 1937 liabilities when the undistributed-
profits tax of the Revenue Act of 1936 was in force and
partly reflect the legislative changes made by the
Revenue Act of 1938 wherein the undistribuved-profits
tax was practically eliminated and the more liberal
treatment of capital gains and losses was enacted. The
changes made by the Revenue Act of 1938 are fully re-
flected in the fiscal year 1940 estimates" -- page A14.
Lauchlin Currie
PSF
awrie
THE WHITE HOUSE
WASHINGTON
January 5, 1940.
MEMORANDUM FOR THE PRESIDENT:
Personal
I was very distressed at the
use of my name in Lindley's column
today. I called him immediately
and he said he WGS just going on
"internal evidence". He promised
that he would not mention ne in any
connection in the future.
Land am
Lauchlin Currie
PSF
Currie.
Confidential Memorandum for the President-Jan 22, 1940
From Lauchlin Currie
Re-National Resources Planning Board
Message from Tom Corcoran, saying that Sam
Reyburn told him that the source of the real opposition
to the Planning Bd is the Army Engineers who have been
actively lobbying against the Bd.
Attached to above memo is one which the President
sent to the Sec of War-Jan 23, 1940 on the same subject.
See:Interior-Drawer 1-1940
PSP
THE WHITE HOUSE
WASHINGTON
Currie
January 24, 1940.
memoraneum FOR THE PRESIDENT:
I am atteching some comments on
Secretary Wallace's letter of December 29,
on the Commodity Credit Corporation, about
which you asked me to speak to you.
I an not suro what you had in mind
so that my comments may not bear on the
point that particularly interested you.
Land am
Leuchlin Currio
January 24, 1940.
Surancy of, and Reflections on, Secretary Wallace's Lett r of December 29.
on the Conmodity Credit Corporation.
1. The CCC as of December 31 owned 6,267,000 bales of cotton
(exclusive of 600,000 belos to be colivered to British Government) and
had loans on 3,823,000 belies of the 1938 crop. Total of approximately
10 million beles.
2. It is expected that e portion of the 3.8 million belos will be
withorsun. Loans were made at 9.5 per lb. Middling 7/3". Farmers with-
drew 760,000 beles up to Docember 31 nne trace estimates C.S much ogain
withdrawn in January.
3. Of the 6.3 million belos of owned cotton, CCC can sell 4.6
million belos of the 1937 crop at prices renging from 11.75$ (Middling
7/3") to 3.75€ (Low Middling 13/16"). This could be m:cc the effective
uppor sold. price limit. Department experts Co not expect that any will be
4. The remeinder of owned cotton (1.6 million belec of the 1934
crop) can be solá et approximately 15.56 por lb. end this minimum is
being raised monthly by carrying charges.
5. It is believed that the Gonestic carryover will be around
11 million below by June 30 0.5 contrasted with 13 million biles last
June. It in doubtful whether we can hope for much further reduction
of the carryover in the next fiscal year. The De artment is estimating
around 12 million belie production. Docentic consumption this year has
been running at 7.7 million bele rate, a record. Export declarations
at 6 million below may be controst d with 3.5 million belie last fiscal
year.
6. No significant n.w uses for cotton have been found no experts
are gloomy on the future of the cotton export market. The use of cotton
in road building T.I.S not successful. A comprehensive cotton stamp plan
is en oxcellent way of stimulating private employment :nd providing
relief but its possibilities in removing surplus cotton are negligible
(only 10 percent of the price of cotton goods good for rew cotton).
7. In the interests of ensuring :n orderly middet t. good case
can be node out for removing the rectrictions on the st. of owned
cotton. Ho ever, apart from occusional abnormal years, I on biroid
that v.e shall have to continue to hold off the mort the bulk of the
owned cotton. The real proble will probably be to avoid El stendy
increase in the Gov rumont's stocks.
8. The conclusion 18 the oft-repector one: fever people should
be engaged in cotton growing and the Gov must can only case, in various
wys, the painfulness of the necessary transition.
L.C.
THIS DOCUMENT IS THE BEST
AVAILABLE. EVERY TECHNICAL
EFFORT HAS BEEN TAKEN TO
INSURE LEGIBILITY.
Currie
PSF
THE WHITE HOUSE
WASHINGTON
January 29, 1940.
20.
Re: Low-cost Housing.
Followin our recent iscussion I have interested
IVC 15 in current developments in this field.
I think you will b int rested to learn that pre-
fatrication has ctually arrived. American Houses, Inc.,
with good : inancial backing, zole over 200 houses in the
first to wacks of January c.n. expects to build 5,000
this year. Accordin to President Teylor, "The house is
profebrient C except for Ch. finish such Le the finished
roof, finished storior, finished floors, finished intur-
for trin. Loc:1 labor i. used n: most- of our houses
are construct C clos C shop. Materials cr. purchased in
unitity CARD wholessle. The 1: it present boing
built comPortable four-room homes, tell heat.d, with good
both rooms, lumbing jobs, electric lights, hardwood floors,
cic., with Ciroproof exterior n. roof, which are boing.
20. :.: 1000 then $2300.00 with land. I mention this to
prov : : low cost home en t. bullt, % 1. t.ing
Huilt, ute: =, cherges: = is It 1- our opinion
that this country will have a housin program proportion-
it to too this n :: t.: unstion of ...truction
funds cottled." The 12 buil inc houses in Bel incre,
I .... to 0.0 1.0% at co.: of $1,900.
::. Trylor tello the one 0. the greatest obstacles
in ... is low-cost 1. (Ifficulty of
construction lo a. to rescomble P ice.
7% not 0,0 ortanity "or public curvice
t. ci:11: L. "Inancin company ay here and
sur authorite Ion to an up
IM n.t :10yd 0 lum in it.
1
Curri
2K
THE WHITE HOUSE
WASHINGTON
January 30, 1940.
PSF
Currie
MEMORANEUM FOR THE PRESIDENT:
Re: Business Conditions.
I am attaching what I consider to be the
most basic chart in interpreting business condi-
tions. The series of physical production and
consumption of consumers goods have not as yet
been published. They were worked up under my
general direction by one of my former assistants
who is now in Commerce, and are the most compre-
hensive and, I believe, reliable indices of
changes in production, consumption and inventories.
Should consumption flatten out in the current
quarter and production fall to the level of con-
sumption, this would mean, in terms of the FRB
index of production, a decline from 128 in December
to somewhere in the neighborhood of 110.
I shall send you in a few days some material
bearing on this lagging of consumption behind
production.
Landli
Lauchlin Currie
NO
2214
|
CODE* BOOK COMPANY, INC
NORWORD WASSACHUSETTS
INDEXES OF PHYSICAL VOLUME OF PRODUCTION, CONSUMPTION, AND INVENTORIES
OF CONSUMERS' GOODS FOR THE YEAR 1939
Percent of
Average 1929
Consumption
120
115
110
Consumption
105
100
95
Production
Billions of
1929 Dollars
24
23
Inventories
22
21
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
PSF
Memo to the President from L. Currie-Feb 1, 1940
Re:Housing project at Hyde Pk.
See:Hall Roosevelt-Drawer 3-1940
PSF.
insie
THE WHITE HOUSE
WASHINGTON
February 1, 1940
MEMORANDUM FOR THE PRESIDENT:
Re: Economic Comparisons, 1932 - 1939
The figures given you by Labor appear to be
all right except for cash farm income and W.P.A.,
etc., employment which I have corrected. I have
changed the basis of comparison from March, 1933,
either to December, 1932, or to the calendar year
1932. The comparisons are so good anyway we can
afford to be generous. I have also added a few
additional comparisons you might care to use.
On interest and dividends you might want to make
the point that the burden of debt has declined
while the income from ownership of property and
equities has greatly increased. The employment
figures greatly understate the degree of
recovery since they take no account of the
transition from part time to full time work.
Unless this can be brought out, I don't think
I would use the figures.
Lanch a
Lauchlin Currie
February 1, 1940.
COMPARISONS
Calendar year
Calendar year
Percentage
1932
1939
Change
National Income 1/.
$40,089,000,000
$68,500,000,000
+71
Dec., 1932
Dec., 1939
Wages and Salaries 2/
$ 2,403,000,000
$ 3,888,000,000
+62
Dec., 1932
Dec., 1939
Weekly Payrolls of Factory Workers
$ 80,384,000
$ 197,089,000
+145
Calendar year
Calondar year
1932
1939
Cash Farm Income 4
From sale of products.
$ 4,682,000,000
$ 7,712,000,000
From benefit payments.
-
807,000,000
$ 8,519,000,000
+82
Calendar year
Calendar year
1932
1939
Interest Received by Individuals 5/
$ 5,277,000,000
$ 4,828,000,000
-9
Dividends Received by Individuals 6/.
$ 2,745,000,000
$ 4,253,000,000
+55
Dec., 1932
Dec., 1939
Total Non-Agriculturel Employment I/.
27,245,000
34,940,000 10/+28
Calendar year
Calendar year
1932
1939
Exports
$ 1,611,000,000
$ 3,179,000,000
+97
Calendar year
Calendar year
1932
1939
FRB Index of Production 9%
64
105
+64
Sources:
1/2/5/6/8/ Dept. of Commerce.
1/ Dept. of Labor.
4/ Dept. of Agriculture.
9/ Board of Governors, Federal Reserve System.
10/ This figure does not include the 2,727,000 persons who had work on
WPA, NYA and CCC projects.
February 1, 1940.
COMPARISONS
Calondar year
Calondar year
Percentage
1932
1939
Change
National Income 1/
$40,089,000,000
$68,500,000,000
+71
Dec., 1932
Dec., 1939
Wages and Salaries 2/
$ 2,403,000,000
$ 3,888,000,000
+62
Dec., 1932
Dec., 1939
Weekly Payrolls of Factory Workers 3/
$ 30,384,000
$ 197,089,000
+145
Calendar year
Calondar year
1932
1939
Cash Farm Income 4/
From sale of products.
......
$ 4,682,000,000
$ 7,712,000,000
From benefit payments.
I
807,000,000
$ 8,519,000,000
+82
Calendar year
Colondar year
1932
1939
Interest Received by Individuals 5/
. .
$ 5,277,000,000
$ 4,828,000,000
-9
Dividends Received by Individuals 6/. $ 2,745,000,000 $ 4,253,000,000 +55
Dec., 1932
Dec., 1939
Total Non-Agriculturel Employment 1/.
27,245,000
34,940,000 10/+28
Calendar year
Calendar year
1932
1939
Exports 8/
$ 1,611,000,000
$ 3,179,000,000
+97
Calendar year
Calendar year
1932
1939
FRB Index of Production 9%
......
64
105
+64
Sources:
1/2/5/6/8/8/ Dept. of Commerce.
3/ 7/ Dept. of Labor.
w Dept. of Agriculture.
9/ Board of Governors, Federal Reserve System.
10/ This figure does not include the 2,727,000 persons who had work on
WPA, NYA and CCC projects.
PSF
THE WHITE HOUSE
Currie
WASHINGTON
February 5, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Harrison-Thomas-Larrabee Education Bill,
Mrs. Roosevelt asked me to bring
to your attention the fact that Dr.
Larrabee is telling the educational
people that he is holding no hearings
on this bill at your behest. Mrs.
Roosevelt feels that, inasmuch as there
were hearings in the Senate last
session end the bill was reported favor-
ably out of committee, the House should
at least hold hearings.
I shall be glad to proceed in this
matter if you wish.
Land and
Lauchlin Currie
4 so
FOR
fell
PSF.
THE WHITE HOUSE
Curre
WASHINGTON
February 6, 1940
MEMORANDUM FOR THE PRESIDENT:
Re: du Pont Earnings
You may not have noticed that du Pont earnings
in the 4th quarter, both with and without dividends
from General Motors, made an all time high. The
comparison with the highest quarter of 1929 is as
follows:
Best quarter 4th quarter
1929
1939
Profits incl. G.M. dividends
$25,240,000
$30,420,420
Profits excl. G.M. dividends
9,524,509
17,920,420
Lauchlin Currie
PSF.
Curric
THE WHITE HOUSE
WASHINGTON
February 3, 1940.
MEMORANDUM FOR TH PRESIDENT:
Re: Maritime Unemployment Compensation.
I an informed that the Social Security Board does
not want to administer the proposed national system of
maritime unemployment compensation. It has also been
extraordinarily reluctant to make definite recommendations
although it has had the problem under study for the past
two years.
I should like to suggest the Railroad Retirement
Board as the proper agency to prepare and administer the
program. It is the only agency in the Government that
is now administering a national unemployment compensation
program and hence has the proper facilities and experience,
it already ties into the maritime industry through the
shipping facilities and docks owned by railroads, and the
railroad brotherhoods have no objection to the Board's
taking on this additional function. Finally, I believe
that Murray Latimer has a sound approach to problems of
social insurance and is one of the ablest administrators
in the Government. I understand that Chairman Bruere of the
Maritime Labor Board favors assigning the job to the Rail-
road Retirement Board and may make & recommendation to you
to this effect in a few days.
Early action appears desirable as the kritime Union,
irked at the delays, is, I am told, considering sending
pickets to Washington. If you approve of the suggestion
above, I should be glad to communicate with Latimer and
have a definite plan for your consideration in a week
or two.
Lamie
Lauchlin Currie
PSF
THE WHITE HOUSE
WASHINGTON
February 9, 1940.
MEMORANEUM FOR THE PRESIDENT:
Re: Employment and Peyrolls in January,
In the absence of the Secretary of
Labor, Dr. Lubin suggested I communicate the
following preliminary figures to your
Employment declined 2.8 percent against a
calculated sensonal decline of 2 percent.
Payrolls declined 5.6 percent against a cel-
culated seasonal cecline of 4.9 percent.
I might add that the Federal Reserve
Board index for January declined eight points
to 120 ano is expected to fall to 110 in
February.
Leuchlin Currie
FSF.
Curree
THE WHITE HOUSE
WASHINGTON
February 10, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Education.
Subsequent to your authorization that I proceed
in the matter of suggesting the desirability of
initiating House hearings on the Harrison-Thomas-
Larrabee bill, Floyd Roeves suggested to mo that 1f
you did not feel the time was propitious for pushing
ahoad on the general education bill you night care to
consider, in line with your action on, health,
(a) providing simple schools in very poor noo-
tions that have no schools at all,
(b) providing, say, $20 million for education
of youth. This would greatly assist NYA program and
yet would be en education matter.
(c) provide snaller initial grant in general
bill (say $10-$20 million in place of $70 million),
together with $250,000 for Office of Education to
prepare for program.
I shall delay seeing Larrabee until I get your
reaction to these suggestions.
Lauchlin Currie
PSF.
THE WHITE HOUSE
Currie
WASHINGTON
February 12, 1940
MEMORANDUM FOR THE PRESIDENT:
Re: Some Ohio Statistics
I think you will be interested in learning
that while between June 30, 1933, and December 31,
1939, the Federal Government was expending over
$1 billion in Ohio on relief, public works and
highways, the local governments of Ohio were
reducing their debts and increasing their cash
by $300 million. The State Government has no
debt.
Would you like to have similar tables
prepared for other states?
Land a
Lauchlin Currie
b/w - very intra joal
FOR
February 12, 1940.
Federal A1d to State and Local Governments of Ohio (Exclusive of Loans)
June 30, 1933 to December 31, 1939
(In millions of dollars)
Highways
55.0
Social Security
71.2
Relief and work relief:
FERA.
193.5
CHA
57.9
VPA & NYA
568.0
Farm Security
20.5
Total relief
839.9
Public Works Grants.
61.4
Civ. Cons. Corps
50.6
Total
1,078.1
Source of data: Annual Reports of the Secretary of the Treasury.
Indebtedness of Local Governments in Ohio
(In millions of dollars)
December 31, 1932.
899
December 31, 1938.
716
-183
Source of data: Reports of the Ohio State Auditor.
Cash Holdings of State and Local Governments of Ohio in Banks
(In millions of dollars)
June 30, 1933
87
June 30, 1939
197
+110
Source of data: Annual Reports of Comptroller or Currency.
PSF
THE WHITE HOUSE
Currie
WASHINGTON
February 13, 1940.
12 ORANDUM FOR THE PRESIDENT:
Re: Para Security.
Some time ago you asked ne to speak to you about
a suggestion I made that another attempt might be made
to set Farm Security up on a self-financing basis.
An opportunity did not present itself and I an ventur-
ing to raise the question again.
The Lee bill provides for self-financing of the
Tenant Purchase portion of the program. It passed
the Senate last year and Jones thinks he can get it
by the House. The Farm Security people would like
to push ahead on a plan to put the financing of about
75 percent of the rural rehabilitation loans portion
of the program outside the Budget, if they had some,
assurance that this would not be contrary to your wishes.
Land Cin
Lauchlin Currie
OK with
PSF
Currie
THE WHITE HOUSE
WASHINGTON
February 13, 1940.
MEMORIN.UM FOR . FL
Re: The Capitalization 02 Your
Yielding Projects.
You have mie this not stip twice.
A bill has ben crafted -no comments on it
received from all interest workent
agencies. Noute you 11. in town/Type
and direct this material wit to 10st of
havingsa bill intro uced this ression or
would you rather lot the whol thin rive?
Hearings mirht at least -iv :0% patiel
to certain offset. t to
the gross delt.
Lane and
Currl
write
THE WHITE HOUSE
WASHINGTON
February 14, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Education.
I learned of a development this morning of
which I think you should be informed. The Executive
Committee of Legislative Commission of the National
Education Association, in secret session, has drawn
up a tentative statement extremely critical of
certain statements in your recent speech to the
Conference on Children in a Democracy and placing
"the responsibility for the failure of the Federal
Government to assume its fair share of financial
support for public education
squarely on the
shoulders of the President." A final draft is to
be prepared in the next three or four days and then,
on February 26, is to be presented to the Association
of School Administrators' meeting at St. Louis, the
most powerful group in the National Educational
Association, which represents one million members.
The same tentative draft contains the following
statement:
"If the President and leaders in the
Congress should desire to amena that bill
to make the authorization of the appropria-
tion apply to the fiscal year ending in
1942 rather than an earlier year, or to
revise the amounts of the authorization,
the Executive Committee of the Legislative
Commission will agree and believes that
friends of the bill throughout the Nation
will agree."
quite a point is made of the fact that the House
Committee on Education has not been convened during
the 76th Congress.
Lauchlin Currie
PSF
Memorandum from Lauchlin Currie & Marriner Eccles-March 4-1940
Re: REFUNDING DEBT--attached letter to Eccles from the President
of March 4, 1940 telling him of his decision to refund
$738 million of notes and explaining why; also attached is
memo from Currie of March 5, 1940 re President's decision.
See:Eccles-Gen corres-Drawer 2-1940 and D.W. Bell's memo to
Morgenthau-Feb 29, 1940----Morgenthau folder-Drawer 1-1940
For L. Currie's memo to the President of March 2, 1940
Re: Use of Portion of Stabilization Fund to Retire Debt
See: Marriner Eccles--Gen corres-Drawer 2-1940
PSF
Currie
THE WHITE HOUSE
WASHINGTON
March 5, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Business Prospects and General Policy Indicated,
The excess of production over consumption, which amounted to
goods worth some $380 million in December, is in rapid process of
correction. The Federal Reserve Board index of production is
expected to be in the neighborhood of 110 for February. Hence,
inventory accumulation has about ceased. New orders, however, are
running below current production so that a further decline is indi-
cated. I attach a few charts illustrating the movement in some of
the basic series.
The crucial question now is, of course, will inventory uida-
tion occur? This would drive the production index down relative to
consumption, and this, in turn, would have a tendency to pull down
consumption, capital expenditures and housing. The prospect of
holding the decline to a production figure of 105 depends largely
on the avoidence of inventory liquidation. The prospects for a
resumption of the upturn depend largely on the renewal of inventory
accumulation or on an increase in the net foreign balance of suffi-
cient magnitude to more than counteract the threatened decline in
business capital expenditures and net government spending.
Generally speaking, periods of rapidly increasing inventories
have been followed by periods of inventory decresses. An exception
was in 1933, but this may in part be attributable to the extra-
ordinarily low level of inventories before the 1933 inventory boom-
let got under way, and in part to the assurance against price declines
afforded by the N.R.A., and the gold buying policy. At the present
time inven ories in physical terms are back to the 1929 levels end
industrial raw material prices have been falling since December.
There is, of course, the possibility that some developments, such as
intensified warfare, may change the attitude toward prices and
toward inventories. In the absence of a spurt of new orders, how-
ever, the present level of new orders in relation to production
points to inventory liquidation and a further decline in production.
If the Allied war orders come though in the expected volume,
it is estimated that the net stimulus to domestic business arising
from all our foreign transactions except capital movements will
amount to nearly $2 billion in 1940 as contrasted with $800 million
in 1939. Hence, if inventory liquidation can be checked, and if
Memorandum for the
-2-
March 5, 1940.
President.
Re: Business Prospects and
General Policy Indicated.
housing end business capital expenditures can be maintained at the
mid-1939 levels, and if the net government expenditures do not fall
too much, we may hope for a renewed upward movement of business
activity.
You will note from the accompanying chart that the net contribu-
tion, on present indications, will fall sharply in the late spring
and summer months, due mainly to the anticipated sharp curtailment
in W.P.A. and agricultural benefits, two items which are believed to
be particularly closely related to consumption.
In the realm of policy, this appraisal of the business outlook
suggests the desirability of:
(a) an effort to maintain and increase private housing expendi-
tures. I am working on several possibilities in this field.
(b) stimulating exports in every way possible.
(c) resisting budgetary cuts and securing larger appropriations
for certain types of expenditures, both inside and outside the budget.
I will have certain suggestions to offer here.
(d) the use of a portion of the Stabilization Fund to retire
debt, which would be interpreted as a bullish factor vis-a-vis
commodity prices. This action would also greatly facilitate (c).
(e) getting out a good portion of agricultural benefit payments
for fiscal 1941 in the summer and fall. A renewed attempt might be
made to accelerate the placing of Army and Navy orders of certain
materials this spring.
Lauchlin Currie
CONSUMER EXPENDITURES AND TOTAL INCOME PAYMENTS,
EXCLUDING DIVIDENDS AND INTEREST
AVERAGE 1929 EXPENDITURES
PER CENT
MONTHLY
PER CENT
140
140
120
120
100
100
80
CONSUMER EXPENDITURES
80
60
60
INCOME PAYMENTS
40
40
20
20
0
o
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
INCOME PAYMENTS ADJUSTED so THAT THE TOTAL FOR THE ENTIRE PERIOD, 1929 - 1939,
IS EQUAL TO TOTAL CONSUMER EXPENDITURES DURING THE SAME PERIOD.
INDEXES OF PHYSICAL VOLUME OF PRODUCTION, CONSUMPTION,
AND INVENTORIES OF CONSUMER GOODS
AVERAGE 1929 CONSUMPTION-ADJUSTED FOR SEASONAL VARIATION
PER CENT
MONTHLY
140
PER CENT
140
120
120
100
PRODUCTION
100
CONSUMPTION
80
80
60
60
40
INVENTORIES
40
20
20
0
O
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
1939
1940
FEDERAL NET CONTRIBUTION TO BUYING POWER
AND INDEX OF INDUSTRIAL PRODUCTION
MILLIONS OF DOLLARS
INDEX
700
MONTHLY
1923-25 AV. = 100
140
600
120
SCALE
INDUSTRIAL PRODUCTION
500
100
400
80
300
60
200
NET CONTRIBUTION
40
SCALE
100
20
0
0
1932
1933
1934
1935
1936
1937
1938
1939
1940
PSF
were
THE WHITE HOUSE
WASHINGTON
March 6, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Stimulation of Rental Housing Construction.
1. Present Situation. For various reasons, which appear to arise
partly from legislative changes but are mainly administrative in nature,
rental housing operations (like Colonial Village) of the Federal Housing
Administration have virtually ceased. The great bulk of private building
today is for owner-occupancy. It does not meet the needs of a large
portion of the potential market. More than one-half of the urban popu-
lation lives in rented dwellings. Owner-occupancy construction levelled
off last summer ano has recently run below last year. There appears to
be an opportunity to expand total construction by providing additional
facilities for rental housing construction.
2. Theory Underlying Existing Legislation. Section 207 of the
National Housing Act assumes that there are plenty of people with capital
eager to build and manage housing projects provided they can secure
mortgage money. Through the insurance or mortgages adequate capital has
become available in this form. The real deficiency now, however, is in
borrowers. Conservative moneyed people do not relish operating proper-
ties particularly on & thin margin. Seculative builders either have
little equity capital or are not attracted by the modest long-term
returns from rental operations.
3. A Desirable Development. It would be an eminently desirable
development if the large coupon-clipping passive controllers of huge
aggregations 01 savings, such as insurance companies and savings banks,
could be induced to assume a more active investment and management role.
They could secure all the economies of large-scale building and planning,
and could provide the necessary incentive for building to be transformed
from a handicraft stage to a more typically American type of business.
They would be content with a modest return if it could be made sale.
All life insurance companies domiciled in New York may now invest
10 percent of their assets in the ownership of rental housing develop-
ments anywhere in the country. The Metropolitan Life has taken advant-
age of this in New York City and is giving a brilliant denonstration
of the possibilities of the economies inherent in Large-scale planning
and development.
4. How the Metropolitan Experience May be Generalized. In order
to induce other insurance companies to follow the Metropolitan's lead
and to provide an incentive for the enactment of enabling legislation
for savings banks and insurance companies domiciled elsewhere than in
New suggested: York, the following amendmont to one National Housing Act is
Jrandum for the President.
-2-
Re: Stimulation of Rental
march 6, 1940.
Housing Construction.
Under proper safeguards, provide for the insurance of a guaranteed
return on the total cost less deprecintion. This might take the form
of a guaranteed return of, say, 32 percent (including percent insur-
ance premium) on 80 percent of the investment. This would smount to
2.8 percent on the entire investment, or, deducting â percent insurance
premium, to a net figure of 2.3 percent to the investors. Conservative
investors then might make 6 percent or better on their investment, and
could not make less than 2.3 percent, which is the average yield on
long-term government bonds.
Under feasible safeguards relating to prudent investment ana manage-
ment, the Government should run little rick of loss. A cushion would be
provided by the economies of large-scale construction and by the insur-
ance fund. It would require a terrific decline in rents or occupancy
to reduce the total net yield below 2.3 percent on the investment.
Hence, with no charge on the budget and with little risk of eventual
loss, the Government could activate a large volume of construction of a
type that would facilitate the highly desirable transition of the incus-
try to a mass production basis.
5. General. This suggestion originated in the Foderal Housing
Administration and has the enthusiastic support of some of the best
technicians there. I. 1103 also received the enthusiastic support of
Andrew Eakin, who is constructing the big Metropolitan development.
Mr. MacDonald is acquainted with the suggestion out it has not been
brought to his attention recently. If the general idea muets with your
approval I should like to offer certain suggestions for your considera-
tion relating to drafting and sponsorship.
Land
Lauchlin Currie
PSF
THE WHITE HOUSE
Currie
WASHINGTON
March 2, 1940.
U: 10K THE
Personsi.
Som Connoian friends of mine have been
after the for come time to give on of:-the-recore
this to the dontrone branch of the Connoian
Institute 0: International Affairs. They would
pay ALL expenses ACK assure tae that no speaker
has ever been uoted. If you have no objection
- should like to fly up some weekend. I have
quite a few friends in the higher Civil Service
at Ostewa And I should be glad to attempt to
secure at the same time any background informa-
tion of in economic nature you might care to have.
Lanch and
Lauchlin Currie
ok the
bill
BF.
THE WHITE HOUSE
Curre
WASHINGTON
March 12, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Small Business Loan Legislation.
Jim Mead has accepted all the Federal
Reserve suggestions, so that the proposed
legislation now takes the form of amenoing
Section 13b of the Federal Reserve Act to
remove certain restrictions now in the Act
and place the Federal Reserve on a comparable
"competitive" basis with the RFC in the
making of industrial advances. It also
contains a provision eliminating the payment
of 2 percent interest on the sums advanced
to the Federal Reserve by the Treasury for
industrial loans out of an ear-marked gold
profit. This should probably be cleared
with the Treasury.
I don't think this bill would encounter
much opposition and, through enlisting the
cooperation of the Federal Reserve Board,
might accomplish some real good.
Lauch Cins
Lauchlin Currie
S. 3343
IN THE SENATE OF THE UNITED STATES
AMENDMENT
Intended to be proposed by Mr.
to t 0 bill (S.3343) to
amond section 13b of the Federal Reserve Act, as smended, viz:
On page 4, line 7, beginning with the words "upon request"
strike out through the word "agreement" in line 8 and insert in lieu
thereof the following: "upon request by the Board of Governors of
the Federal Reserve System, in such amounts and at such times as the
Board of Governors deems- necessary to enable the Federal Reserve
banks to make the loans, discounts, advances, commitments and pur-
chases authorized by this section, and upon execution by eac' Fed-
eral Reserve bank of an agreement".
BILL S. 3343
PROPOSED AMENDMENTS TO SECTION 13b OF THE FEDERAL RESERVE ACT
Section 13b of the Federal Reserve Act now authorizes
Federal Reserve banks to make loans direct to established commercial
and industrial enterprises for working capital purposes for periods
up to five years. It also authorizes the Federal Reserve banks to
grant commitments to or participate with financing institutions with
respect to any such loans. The limitations now contained in the Act
with respect to working capital, established businesses, and matur-
ities make it impossible for the Federal Reserve banks to grant credit
to many worthy enterprises, particularly where additional funds are
needed for expansion or improvement.
The proposed amendment would eliminate these limiting pro-
visions and permit Federal Reserve banks to extend credit to any
business enterprise, without restriction as to purpose, for such
periods as the circumstances in each case would warrant.
Under present law the Secretary of the Treasury is author-
ized to pay to the Federal Reserve banks up to $139,299,557, out of
the increment resulting from the reduction of the weight of the gold
dollar, for the purpose of enabling the Federal Reserve banks to make
industrial advances. This is the amount paid by the Federal Reserve
banks for stock in the Federal Deposit Insurance Corporation. The
Secretary of the Treasury has paid to the Federal Reserve banks approx-
imately $27,000,000 for this purpose. The law now requires the Federal
Reserve banks to pay the Government 2 per cent, if earned, on the amount
received from the Secretary of the Treasury. The proposed amendment
- 2 -
would direct the Secretary of the Treasury to pay to the Federal Reserve
banks when requested by the Board of Governors of the Federal Reserve
System, such portions of the sum of $139,299,557. not already paid to the
Federal Reserve banks, as the Board of Governors may deem necessary to
onable the Federal Reserve banks to make the loans, discounts, advances,
purchases and commitments therein authorized, would oliminate the provision
for the payment by the Reserve banks of 2 por cent, and would authorize
the Board of Governors to make such reallocation among the Federal Reserve
banks of funds roceived from the Socretary of the Treasury as it may find
necessary to moot existing noeds.
The amendmont also provides that whenover the Board of Governors
of the Federal Reservo System shall concludo that the amounts paid to the
Federal Reserve banks by the Soor tary of the Treasury are no longer needed
for operations under Soction 13b, the amount received from the Secretary
of the Treasury, plus income and loss exponses and losses, shall be paid to
and bocome the proporty of the United States.
The amendment eliminatos the requirement of the present law that
each Federal Roservo bank shall have an Industrial Advisory Committee to
pass on all loan applications.
Under the present Soction 13b each financing institution obtain-
ing & commitment from or participating with a Federal Reserve bank on any
loan must bear at loast 20 por centum of any loss that may be sustained.
The proposed amondment would modify this to provide that the financing
institution must boar at least 10 por contum of any loss that may be sus-
tained on such & loan.
MARCH 8, 19/0
hill
PSF
posts
THE WHITE HOUSE
WASHINGTON
March 13, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: National Labor Relations Board.
I suggested to Mr. Fahy the other day that
I would appreciate a short memorandum on the NLRB.
He sent me the attached, which contains a brief
summary of the record and a concise defense of the
Loard and of the Act as they now stand. It is
perhaps all familiar to you but as I have observed
that no Board member has been to see you recently
I thought I had better pass it along.
Fahy, of course, feels that certain of the
amendments proposed by Smith would be fatal to the
purposes and administration of the Act; that action
can be avoided in this session; ano that every day
so gained will be accompanied by an, ever-growing
acceptance of the Act and its administration.
Land a
Lauchlin Currie
7.
NATIONAL LABOR RELATIONS BOARD
Status of Work
In representation cases, that is, the cases in which the Board
determines the appropriate bargaining unit end either holds elections
or, on the basis of the record, certifies the representatives that
have been selected by the employees, the work of the Board is practical-
ly current. This is one of the two important branches of the work.
In unfair labor practice cuses, that is, cases in which after
hearings, etc., the Board issues orders against employers to prevent
and remedy violations of the statute, the great backlog of cuses which
accumulated during the period following the velidation of the Act by
the Supreme Court is constantly being cut down and it is estimated
that within six months at the outside, this second branch of the work
will also be current.
The tremendous volume of cases which came to the Board following
the validation of the statute April 12, 1937, when the Bourd's
organization was small, presented an almost unprecedented problem. With
the expansion of the staff of the Board undertaken to meet this problem,
with the diligent application of the whole staff, and with the leveling
off of the rute or inflow of cases, the status of the work of the
Board is now good and is continuing to improve.
Methods by which Cases Have Been Disposed of.
There have been brought to the Board 25,000 charges of unfair labor
practices and petitions for certification of representatives. The former
involve adversary proceedings against employers. More than three-
fourths of the cuses in this category have been disposed of. or
those disposed of, 91% were disposed of amicably or by dismissal or
by withdrewal of the charge by the party filing it with the Board,
without the necessity of the Board issuing a formal complaint against
the employer. Of the 9% of the cases, that is, those in which com-
plaints were issued, 4% were disposed of after issuance of complaint
but without the necessity of Board decision. So that in only about
5% of all the thousands of cases disposed of have Board decisions
against employers been rendered; and in a substantial number of these
also the complaints were dismissed in whole or in part by the Board in
its decision.
Litigation of the Board
Perhaps the most objective test of the caliber and correctness
of the Board's work is found in the court review of its decisions,
based on the records mode at the hearings on which the Board bases its
decisions and orders. The ultimate objective test is found in the
decisions of the Supreme Court, in which the unusually lurge number of
24 final decisions have been rendered over a period of about three years.
In 20 or these cases the Board's position wes sustained, in two not
sustained, and in two sustained in part end aut sustained in part.
Varied und difficult questions of constitutional law, statutory con-
struction, appropriateness of the remedies called for in Board orders,
questions of fact, etc., were involved in these 24 05800. The record
of the Board constitutes the best record ever made by any agency of the
- 2 -
Government judged by review of its work by the Supreme Court. In the
Circuit Courts of Appeals the percentage of approval hus not been as
high, but as Dean Garrison recently said to the Congressional Committee,
it has been "notable." There have been about 100 final contested
decisions of the courts passing on the Board's work since the Act was
sustained. This excludes more than 100 injunction suits, all of which
were finally decided favorably to the Board.
The Criticisms of the administration
of the Act
The actual analyses of the records and statistics of the Board
show that there has been no favoritism as between the A. F. of L. and
the C. +. 0. The record simply refutes any such claim. In cases in-
volving the appropriate bargaining unit, in which the conflict between
the A. F. of L. and the C. +. 0. before the Board has been keenest, the
Board's Globe doctrine, under which the employees in the smaller craft
unit are permitted to vote separately whether or not they desire to be
represented by the cruft or the larger unit, is favorable to the
A. F. of L. The other principal basis of attack by the A. F. of L. has
been that in & small number of cuses the Board has found it necessary to
set aside A. £. of L. contracts found to have been made in violation of
the statute, due to the interference, coercion and restraint of the
employer in violation or the statute. Unless the Board nad done BO in
these cases, the employees involved would not nave been permitted to
exercise the free choice in selecting representatives guaranteed by the
- 3 -
Act. These cases have been few in number. The same principle nas
been applied in both A. F. of L. end C. 1. 0. cases, although there
have been more cases in which the contract set aside was made with
an A. F. of L. organization than with a C. .. 0. affiliate.
Employers may not justly complaint of partiality against them
when it is remembered that the overwhelming bulk of the charges filed
against them have been disposed of amicably or in favor of the employer;
and in the small percentage of cases in which orders against employers
have necessarily been issued, ell such orders are subject to court
review before they are enforceable. of course it is true that in some
of these cases some of the employers who were the losing litigants may
have felt injustice had been done, but the record of the Board in the
large number of cases which have gone through the courts shows that
there has been no more than a normal human percentage of error. Judged
by comparison of the Board's record with the record even of the courts
themselves on review of their decisions by higher courts this is
incontestable. To illustrate, the Supreme Court has reversed Circuit
Courts of Appeals in Labor Bourd cases, and sustained the position of
the Board, much oftener than the reverse.
AS to the generalized criticism of the procedure of the Board, it
is believed that the Board has probably established 88 cureful and as
fair E. procedure as any agency has ever udopted. The procedure has
been consistently sustained by the courts. it would be interesting
to compare the analysis of the board procedure being made by the Attorney
General's Committee on Administrative Procedure with the analysis by
that Committee of the procedures of other independent agencies.
- 4 -
The criticisms of individual acts of a large staff carrying on
a very important work in an emotional and super-critical atmosphere,
such 68 those incidents disclosed by the Smith Committee, represent
no more than occasional human error on the part of some members of
the staff, occurring almost entirely when the staff W&S going through
a period of extraordinary expansion, was under great pressure, and was
necessarily less experienced than now. many of the incidents referred
to in the testimony before the Smith Committee in a critical manner
are shown to have been cleaned up entirely by the Board itself in the
ordinary process of improving its own personnel and administration, a
continuing process with any agency employing & large number of people,
particularly a new agency.
The press continually gives & completely distorted picture of the
"disclosures." To illustrate: On Thursday last the Herald-Tribune
(N. Y.) in an editorial said that the organization wes "infested with
spies." This is so absurd as to be simply incredible. There is no
spy or anything comparable to & spy in the whole organization. There
are two Special Examiners whose functions are known to the whole
organization and who do routine checking und co-ordination of the work
of the regional offices. More of this sort of thing is desirable to
bring to each office the benefit of the experience and knowledge of the
manner in which the work of all the offices is handled. The two
Special Examiners are the "spies" with which the organization is
"infested." On the same day en editorial in the Washington Post referred
- 5 -
to the "overwhelming" proof that trial examiners and Board attorneys
trying cases before trial examiners more or less combined their work
to the detriment of parties. The proof before the Smith Committee
was that in two instances this had occurred, but the proof also was
that in one of these instances the Board had found out about it and
set aside the whole hearing, and that in the other instance the case
had been abandoned and the complaint dismissed against the employer.
These are two instances out or thousands of hearings. There may pos-
sibly be other instances, but the statement of the Wesnington Post was
a rasn distortion. On the same day, ar. David Lawrence, with his
usuel intemperate language wherever the Board is concerned, claimed
that the investigation hes revealed the C. I. O. makes the policies of
the Board, etc. he cited no proof, and there is nothing in the record
before the Smith Committee that even approaches any proof of such wild
and irresponsible statements.
The Act and Its Administration are Accomplishing
Their Furposes in Accordance with the
Congressional Intents.
Dr. Lubin's testimony before the Committee snowed that there nas
been a general downward trend in strikes since the Supreme Court
sustained the Act, notwithstending the tremendous incresse in the
members 01' unions. The sit-down strike which grew up in the veriod of
resistance to the Act, DNS gradually fedea out and has become non-
existent since the Supreme Court sustained the Act. Stubalized labor
relations nave spread through B great increase in the number of con-
- 6 -
tracts between employers and unions. more then & million employees
have voted in Board elections for bergaining agencies. The day of the
labor spy and professional strikebreaker is practically over. Thousands
of employees have been reinstated to their positions after having been
discharged merely because they belonged to or were active in a union.
Harlan County has passed its notorious days, and although the
prosecutions of the Department of Justice were extremely important, the
fact is that it was the Labor bourd that first established in that
county, through court decisions, the new era of protection of the right
of self-organization. Industrial peace has reigned in big steel, en
industry in which previously some of the bloodiest episodes of our
industrial history grew out of the opposition to organized labor. One
could 80 on specifying indefinitely the improvement in labor relations
and the elimination or evils, the benefits to the individuals end
communities. These are overlooked. The board is currently preparing
for and will shortly conduct a great election in the automobile
industry in which approximately 150,000 employees will vote for bergain-
ing agencies. The election has been arren ed with the consent of the
employers and the employees. such things as these, going on as a
current part of the work, are the significant things.
The Future
The Act is being generally accepted, tha will pass the stage of
serious controversy if there is no retrest now from its fundamental
principles. The board organization nes naturally improved with
- 7 -
experience. Tue status 01' its work is constantly improving. The
wnole organization functions more smoothly end efficiently, and indeed
in en atmoschere far less controversiel among those with whom it daily
deals , than ever before. The emotional hangover of opposition and
criticism has no reti relation to the actual work or the Board from
day to day throughout the country.
- a -
PSF: admin. anto.
Currie folder
Zile
THE WHITE HOUSE
WASHINGTON
March 14, 1940.
MEMORANDUM FOR The PRESIDENT:
Re: Herbert Hoover and Apples.
I have just been told of an amusing
little slip with embarrassing historical
associations Mr. Hoover made when testi-
fying before the House Foreign Affairs
Committee on an appropriation for Polish
relief. He stated that shipments of food
would not deprive the American people
of "one apple". I am told that this
appeared only in the first newspaper
editions.
Lanch Ame
Lauchlin Currie
PSF
Curree
THE WHITE HOUSE
WASHINGTON
March 15, 1940.
ORANDUM FOR THE PRESIDENT:
Re: Farm Security
Sometime back you authorized me to canvass with Jesse Jones the possi-
of financing the rural rehabilitation loan portion of the Farm Security
outside the budget. I went over a proposal along these lines sub-
by Secretary Wallace with Mr. Jones yesterday. This proposal is that
Farm Security Administration should raise its money for ehabilitation
from the RFC, pledging its existing loans ($320 million) as collateral
the RFC. Mr. Jones said that if this were made discretionary rather
mandatory, permitting him to decide how much to loan and how much
ateral he would require, he would not only have no objections but he
favor the proposal. I have reason to believe that this suggested
would be acceptable to Agriculture.
The anoption of the proposal would -
1. Permit an expansion of the rural rehabilitation loan program. Of
proposed $123 million appropriation for Farm Security only $68 million
be available for loans, which would be a reduction of $35 million from
current year's program. Secretary wallace believes that $150 million of
are needed.
2. Permit a reduction in budgetary expenditures. If borrowing author-
from the RFC were secured, Farm Security believes that its budgetary
opriation could be reduced to $62 million, covering the cost of admin-
grants, migratory camps, etc. This would be a reduction of $60
3. Permit an expension of other programs without entailing a net in-
in the budget as submitted by you. There seems every likelihood
& determined drive will be made to earmark a portion of the work
ef appropriation for the food stamp program, since Congressmen are under
pressure to have cities and counties in their districts designated.
existing appropriations, however, the full quota of cities for all
year will be reached in about forty-five days. On the other hand,
opears undesirable to reduce money for WPA. The release of a portion
present bara security appropriation would permit a continued expan-
of the extremely popular food stamp program without reducing funds
relief.
The relief appropriation is to be introduced early next week. Mr.
is planning shortly to propose certain amendments to his Act and
that if the proposal under discussion is adopted, iv could go
with his amendments.
Lanch a
Lauchlin Currie
PSF
Currie
THE WHITE HOUSE
WASHINGTON
LCT with agree of
March 16, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Financing of Farm Mortgages,
Both Senator LaFollette and Department of Agriculture people have called
me about this. I have therefore checked into the matter. I also talked to
Daniel Bell and ascertained his objections.
The idea in brief is to convert the present undoubted moral obligation
in connection with Land Bank bonds to a legal obligation, secure the resul-
tant advantages of lower interest rates and pass this advantage along to the
farmers. It is proposed to reduce the rate charged farmers to 3 percent,
refund immediately at 2 percent land bank bonas held by the Federal Farm
Mortgage Corporation and refund the bonds held by the public as they become
callable up to 1946. The annual subsidy required coulo be somewhat less than
that currently being paid and by 1946 it is anticipated that no further sub-
sidy would be required.
Arguments for
1. Lower interest rates and possibility of longer terms of payment
for farmers with a lessened immediate charge on the budget.
2. Increased security of principal as a result of lower ennual charges.
Arguments against
1. Government will assume a large contingent liability.
2. Less reserves will be accumulated to meet eventual losses.
3. The Government will be committed to a subsidy for at least six years.
Discussion
The Government already has the moral obligation without the offsetting
acvantage 01 the low rate on guaranteed bonds. In effect we now guarantee
a substantial portion of urban mortgages. We are also in effect committed
to a continuing subsidy ES it is highly unlikely that Congress would force
a return to the contract rate of 5 percent on farm mortgages.
Less reserves would be accumulated but there is some question as to
whether existing borrowers should be assessed to make up the losses that will
arise from taking over many poor loans in the depths of the depression.
These eventual losses might more properly be charged against capital.
The proposal would. not interfere with the return of excess capital to
the Government since practically all of the proposed retirement of private
for the President
-:-
M>rch 16, 1940.
Financing of Farm Mortgages.
stock in the I'm banks vould tak. the form of c reduction in
outstanding lorns. The nasumption of legal guerantee would, in
dispose of the argument that D reduction in the Lane Banks' capital
make the sale of debentures more difficult.
The reduction in the rate to 3 reent in perhaps c. little excess-
A 32 percent rate might be more appropriate, at least until more
undin, is possible, ano this would reduce the subsity required.
rowers would still benefit through this rate being mode permanent,
ough the extension of maturities on farm loans, through the repayment
he privately-held capital stock, and through the reduction in the
on Land Bank Commissioners' loans which is now 4 percent. An audi-
point might be made that if interest rates remain low, as appears
D 35 percent rate to farm borrowers might eventually permit a
yment to the Treasury of part of the subsidy initially required.
LaFollette stated that he believed Auministration support for this
are would in turn result in increased Compression 1 support for the
administration of FCA.
Ransh a:
Lauchlin Currie
PSF
for
wine
THE WHITE HOUSE
WASHINGTON
March 23, 1940
MEMORANDUM FOR THE PRESIDENT:
Re: Federal Revenue Receipts
The reports on income tax collections
through March 20 indicate that receipts for the
month are likely to be between $660 million and
$670 million as compared with the independent
estimate of $650 million and the Budget estimate
of about $550 million.
For the current calendar year, the independ-
ent estimate of total receipts is about 8450 mil-
lion above the Budget estimates.
In terms of the debt and cash balance
figures, indications are that if the debt as of
June 30th is the same as in the budget message,
the cash balance would be $1.5 billion; if, on
the other hand, the cash balance is $1 billion,
then the debt would be $500 million less than
in the Budget. Actually, if no new cash is
raised in the open market, it appears probable
that the cash balance will be $1,250 million
and the debt $250 million less than shown in
the Budget, or about $43 billion.
Lauchlin Currie
PSF
Curre
THE WHITE HOUSE
WASHINGTON
March 23, 1940
MEMORANDUM FOR THE PRESIDENT:
Jerome asked me to call the attached
clipping to your notice. There does not
appear to be much point in Wagner holding
hearings on investment trusts if these
hearings are merely going to be a sounding
board for a general attack on the S.E.C.
Land are
Lauchlin Currie
Wall Street Journal
March 23, 1940
SEC'Inquiry Likely
Policiesand Operations
May Quizzed During
Customary Approach
This method of approach to an examination
Investment Trust Study
of a government agency's activities is not a new
one. It has been the custom of standing com-
mittees of Congress to require agencies seeking
broader powers to submit to questioning on uses
Senate Banking Group Bloc
which have been made of existing authority.
Considerable significance attached to the
Seeks Accounting Before
fact, that.Investment Banker Association repre-
sentatives swill confer, with some members on
was
the banking committee next week presumably
Granting More Authority
regarding complaints against SEC; "arm's
length" abargaining requirements [Con Sutility
security
Hearings Scheduled April 2
Earlier NR week the SECORD the Tex-
changed Astrongly worded Atatements non the
commission's policies on utility financing Withe
IBA in' addition calling York thomas public
BY ALFRED
examination of problems of and
(Staff STREET JOURNAL
corporate:Anancing This for the cur-
WASHINGTON Activities.of the Securities
rent demands for a congrestion Inquiry of the
and Exchange Commission appear.likely to be
SEC's operations. The charge vas made by
subjected) to a Congressional investigation dur-
Emmett R. Connely, president IBA, that
Ang the present Diseasion
the SEC exceeded its authorité putting into
Such an inquiry would use às a vehicle sched-
force the existing rule on arm length bargain-
uled public hearings the investment trust
ing on securities, The SEC countered with
regulation bill-legislation recently introduced
charges' that the bankers Morganization was
at the request of the SECiand giving the Com-
guilty of "obstructionism" / and government-
mission broad supervisory powers in the in-
balting #
vestment trust field,
Capitol-Hill Reactions
Members of the Senate banking and cur-
rency committee, it was learned yesterday, are
On Capitol Hill the news reports of the con-
preparing to demand that their group's hearings
troversy have been absorbed with considerable
on the trust bill be broadened into a thorough
Interest, Senator VMcCarran Dam, Nev,) has
examination into SEC policies and operations.
given notice ne Il.make a speech Sen-
The position of these senators is that the Com-
ate demanding can inquiry of the wholht'mess".
mission should be required to give an account-
Other membersteay that the SEO anould anot
ing before any further gregulatory authority is
only be willing but anxious to clear up charges
that it has overstepped its bounds.
grantedaby Gongress
means
It "expected :bbat Senator Townsend kdll
Townsend States Position
take the leadership in questioning the SEC
as Senator Townsend, ranking Republican
officials on some this their aconflicts with in-
member of Jbanking ;committee, has given
dividuals and Concerns subject to SEC regula-
notice that the will demand that SEC officials
tion.
be subjected thian examination gon- criticized
Meanwhile on Whe House side of the Capitol
policies. M sufficient number of other committee
where the SEC than (been subject to criticism
members have indicated (support for the Town-
off and on since last January Representative
send move) insure & generalestudy. of pcom-
Cox. (Dem:- Ga.) issued a twarning that the
mission policies:
SEC would,abe subject, of Shingsout". un-
My Chairman Wagner of the banking commit-
less its behavior, is improved
tee has fixed Adril2 for the opening of public
The SEC as now functioning : shapidly fall-
hearings on the investment trust regulation bill,
Ing to the low devel of, the NLRB difunless its
with SEC Commissioner Healy, scheduled to ap-
behavior is quickly improved, undergo the
pear as the first witness Other members of
kind of washing out that awaits he board. Its
the commission also swill be Arequeated to at-
high reputation under the chairmanship
tend, committee members
of Joe Kennedy willinot save Representa-
NE While the expected examination- into SEC
tive Cox
policies by banking committee members may
The leadership in the Benate has (expressed
not be as far-reaching as a separate special In-
the view that there will be no general inquiry
vestigation, it willimeverthelets give committee
of the SEC by & apecially appointed committee
members an opportunity to cross-examine com-
at this ression. Democratic loor Leader
mission officials -on past lactions and questions
Barkley said yesterday that he anticipated no
of policy, an opportunity of which several com-
developments: along this line,
mittee members will take full advantage.
PSF
THE WHITE HOUSE
Currie
WASHINGTON
March 23, 1940
MEMORANDUM FOR THE PRESIDENT:
Re: F.C.A. and the Budget
I have spent & great deal of time this week
on various proposals relating to the interest
rate on farm mortgages. I have come to the con-
clusion that if the Wheeler-LnFollette-Bankhead-
Jones bill were modified to provide for a 31 per-
cent instead of a 3 percent rate, with some pro-
vision for the later repayment of the resulting
small subsidy ($13 million next year) to the
Government, you could quite conservatively
support it. I believe that the sponsors would
so modify the bill to secure Administration
support, and that Secretary Wallace would be
glad to support the bill with these modifications.
Unless some such compromise as this is worked 0.1,
I fear that you will not only feen the unpopular
step of vetoing It five year extension of the
present arrangement (a bill to this effect has
already passed the Louse), but, in dddition, see
your veto over-ridden 00 in 1938 with resultrat
additional annual charge on the "budiret of 038
mil ion.
I: the suggestions meet 1th your proval.
and 15 you wis, I minili be the is clear the
metter with Secretary hollace. Hearings re
under way currently.
Land
Louchlin Currie
UK tdo
PSF
wrre
THE WHITE HOUSE
WASHINGTON
March 25, 1940.
MEMORANDUM FOR the PRESIDENT:
Re: Maritime Unemployment Insurance.
As a result of an intensive reworking of the statistical
material, Mr. Latimor comes out with an estimate of the cost of
providing a system with benefits comparable to state benefits
only half as high as the original Social Security Board estimates,
which latter the Social Security Board now admits to have been
at least 80 per cent too high. It still, however, amounts to
about 42 per cent of payrolls. Hence the difference between an
inadequate schedule of benefits and one that can get by is esti-
mated at only $1.5 million. Actual experience may, of course,
result in even lower costs.
All the people I consulted within the Administration feel
strongly that it would be most inadvisable to set up a system with
the low benefits the yiela of a 3 per cent tax is estimated to
cover. They recommend either trying to secure an advance from
the Maritime Commission's ship construction funds to insure the
financing of a provisional system or attempting to tap the rapidly
mounting Railroad Unemployment Insurance Fund.
You might care to consider calling in the railroad labor
members of your Committee of Six, George Harrison, Dave Robertson
and Bort Jewell, and put the proposition up to them. You might
hint at reducing the railroad unemployment payroll tax whose
yield has turned out to be far more than necessary to finance
benefits; you might hold out the prospect of working toward
unification of both regulation and social security for all of
transportation, so that what the railroad unions lost through
higher unemployment among the seamen they would gain in lower
costs for retirement benefits, since the everage age is far less
among the seamon ano other transportation workers. It is this
argument that weighs wit' Mr. Eddy, the railroad labor member of
the Reilroad Retirement Board.
I thought it best not to consult anybody on the Hill, as
you suggested, until I learn your wishes after considering the
possibilities outlined in the attached memorandum.
Lauchlin Currio
March 25, 1940.
MARITIME unemployment INSURANCE
Receipts From a Three Per Cent Pay Roll Tax
It is estimated that a three per cent pay roll tax on the deep-sea
maritime industry would yield about $2,900,000 a year. Assuming that
the cost of administration would not exceed $300,000 ten per cent of
the tax proceeds 7, an average of about $2,600,000 a year would be avail-
able for benefits.
Benefits Possible on Revenues From a Three Per Cent Tax
(a) A weekly benefit rate of one-half the weekly rate of pay,
including the value of subsistence, to a maximum of $10 per week, with
a minimum of $5 per week.
(b) A waiting period of one week et the beginning of each separate
spell of unemployment.
(c) Benefits payable on the basis of a fixed benefit year from
July 1 to the following June 30, with a propriate transitional provisions
for payments between January 1 and July 1, 1941;
(d) Benefits payable for a maximum of nine weeks in the benefit
year.
(e) To qualify for benefits individuals must have earned at least
$200 or the equivalent in terms of days of employment (probably ninety days'
employment) in the calendar year preceding the beginning of the benefit
year.
(f) Benefits withheld for three weeks from persons who leave work
voluntarily without good cause (failure to renew employment at the end
of & voyage would constitute a voluntary quit).
(g) A similar disqualification for failure to accept suitable work
available and offered to an applicant, unless he had good cause; in
accordance with the practice of the industry a maritime worker would be
deemed to have a good cause for rejecting two job offers when at the top
of the list, under the rotary hiring practice.
(h) A disquelification of five weeks in the event unemployment
resulted from porticipation in a strike.
(1) Maximum benefit payable in a year would be about $90 with the
average at $50.
Comparison With State Systems
An unemployment insurance system having such provisions would be
materially less fevorable to meritime workers than would be the pro-
visions of the typical State law. Even the least liberel State law
-2-
would be superior to the maritime system. The important benefit pro-
visions of an unemployment insurance system are those relating to the
weekly benefit rate, the maximum duration of benefits in the course of
a year, and the amount of earnings needed to qualify for benefits. The
typical State provides for & meximum weekly benefit of $15; there are
six States that pay a larger amount ($16 - $18). A three per cent
maritime plan would provide for a meximum weekly benefit of only $10.
Normally the States are paying benefits for a maximum of sixteen weeks
in the year. However, some States pay for twenty weeks or more and one
State for as many as twenty-six weeks. Even the least liberal State
provides for a maximum of twelve weeks. A three per cent maritime plan
would place the worker in a much inferior position in allowing benefits
for a maximum of only nine weeks in the year. The inadequacy of a
three per cent plan is further aggravated by the earnings qualification.
The typical State law requires as a condition of qualifying for benefits
that the unemployed worker should have earned a little over $100 on
wages in the year preceding the unemployment. Only eight States require
$200 or more in carnings in the preceding year. As compared with the State
systems the three per cent plan requirement of $200 in qualifying wages
is very rigid.
Undesirability of a Separate Three Per Cent System
Altmeyer, McNutt, Bruere, Bigge, Block and Latimer are unanimous in
stressing the undesirability of instituting a Federal system with the
above schedule of benefits. They feel that the seamen would view such
a system unfavorably and that it would offer a most unfortunate precedent
in the current struggle between those advocating more liberal benefits
in the State systems and those advocating pay roll tax reductions.
According to Mr. Letimer's calculations, benefits comparable to
those prevailing in a typical State system could be secured at a cost
equal to 42 per cent of pay rolls, or about $1,500,000 more than the
3 per cent tax would yield. Such benefits would range from $5 to $15
a week for & maximum period of sixteen weeks.
Possibilities of Securing Benefits Comparable to State Systems With a
3 Per Cent Pay Roll Tax and No Subsidies
A. Build up a func. that could carry the provisional "42 per cent"
system through a three or four year period with the thought that in this
period & national Federal re-insurance or equalization fund for all the
unemployment insurance systems will be created. This could be done by:
(1) Imposing a tax RS of July 1, 1940, sufficient to produce
in the last six months of 1940 revenues equivalent to a pay roll
levy of 3 per cont for one year (about $3,000,000), the regular
pay roll levy to begin as of January 1, 1941.
(2) Securing an advance from the construction funds of the
Maritime Commission of $3,000,000 with D. guarantee of repayment by
the Treasury if necessary.
-3-
(3) Beginning benefit payments January 1, 1941. This pro-
cedure may or may not involve a subsidy, depending on the unemploy-
ment experience and the arrangements made when and if the general
Federal equalization fund is established. It does not in any event
contemplate a permanent subsidy. It would probably be prudent to
provide by advances from the Treasury for the remote contingency of
a complete paralysis of American shipping.
B. (1). Another course favored by the conferees would be to morge
the railroad and maritime unemployment insurance systems into one trans-
portation unemployment insurance system, with some pooling of risks of
costs above 3 per cent. This would, of course, re uire the assent of the
railroad unions. Arguments advanced for this procedure are as follows:
(1) It would permit the psyment of the railrond unemployment
insurance benefits to seamen without requiring either a Federal
subsidy or a pay roll tox higher than 3 per cent.
(2) Annual railroad unemployment tax collections are about
four times more than annual benefits, the difference for this year
being estimated at around $45,000,000. It is indicated that on the
basis of the present Railroad Unemployment Insurance Act and account-
ing for taxes on an accrual basis the fund as of December 31, 1941,
will be about ten times the average annual 'payments during the
calender years 1940 and 1941. The figures on psyments, moreover,
assume that there will be an increase in benefits in 1941 of forty
per cent over 1940. Should this estimate not be realized (and it
appears to be quite a conservative one) the fund might well be
twelve or fourteen times the annual benefit payments. According to
the above estimate, the cost of the railroad benefits over and above
the three per cent tax levied on the deep-sea branch of the maritime
industry would be less than the interest which would accrue to the
railroad account on additional reserves to be accumulated in the
two years 1940 and 1941 under the present law.
(3) The Reilroad Unemployment Insurance System already covers
about 4,000 maritime workers in the employ of steamship lines owned
by railroads, and it would be undesirable to have such workers
receive benefits differing widely from other maritimo workers.
(4) It would be unwise for the Federal government to multiply
national unemployment insurance systems, administrations, and acts.
Conditions of employments and unemployment among workers in different
branches of the transportation industry are sufficiently similar to
warrant inclusion under one system, with discretionary powers to take
account of especial conditions with respect to employment. Unemploy-
ment in the shipping sno railrose industries are in port related in
that they may recult from shifts from water to rail transportation
and vice versa.
-4-
(5) The plan would provide a permanent, rather than a pro-
visional system of maritime unemployment insurance.
(6) The Federal government should aim at the integration of
social insurance, including old age and survivor insurance, unemploy-
ment insurance, workmen's compensation, and health insurance, for
transportation workers as a whole. This would not only contribute
to the unification of national transportation and to common regula-
tion of all branches of the transportation industry, but would also
equalize competitive costs among different branches of transportation
in so far as social insurance taxes are concerned.
B. (ii). A variation on this procedure would be to institute the
"42 per cent system" benefits rather than the same benefits as the rail-
road workers receive, with the provision of en "advance" or a limited
subsidy from the Railroad Unemployment Insurance Fund.
Coverage and Administration
The conferees are unanimous in recommen ing that regardless of the
scheme decided upon, it should be administered by the Railroad Retirement
Board. They also recommend that the coverage of the system should be
limited to intercoastal and other deep-sea portions of the industry, with
a provision for & 3 per cent payroll tax to be levied on other branches
of the industry now excluded from the Federal Unemployment Tax Act,
90 per cent of the proceeds of which to be made available to states if
and when their coverage is extended to such maritime employment.
PSF
Currie
THE WHITE HOUSE
WASHINGTON
March 27, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Jones Bill (FCA).
I have just learned from Dan Bell that at
the invitation of Marvin Jones he is going to
testify before the House Committee tomorrow
morning. In your letter of March 12 to Senator
Wheeler you stated, "I am surprised that re-
ports should have come to you that representa-
tives of the Treasury and the Budget Bureau
intended appearing before the House Committee
regarding this legislation. I am informed that
such reports are entirely incorrect." Would
you like me to:
(a) call Senators Wheeler, Bankhead and
LaFollette, informing them of Jones' invitation?
Or,
(b) suggest to Bell that he beg off appear-
ing? Or,
(c) tell Bell that we are working on a
compromise measure and see if I can line him
up on it or at least not say anything that
would be inconsistent with the compromise?
but
Land
Come
Drimi
Lauchlin Currie
3
MR.
PSF.
THE WHITE HOUSE
Currie
WASHINGTON
March 28, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Inquiry from Senator Pepper,
Senator Pepper would like to know
whether you have any objections to his
attempting to secure hearings before the
Senate Education and Labor Committee on
his bill to employ 3,000,000 persons.
He thinks that hearings before a
sympathetic committee on a fairly radical
proposal might help the relatively modest
WPA appropriation.
Lanch Circle
Lauchlin Currie
YSF
Currie
THE WHITE HOUSE
WASHINGTON
April 2, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Farm Mortgages and FCA.
In accordance with your suggestion, I discussed my
possible basis of compromise on the Wheeler-LaFollette-
Bankhead-Jones bill with Secretary Wallace. I also dis-
cussed it with Dan Bell, Harold Smith, Marriner Eccles and
Chester Davis. There appears to be general agreement that
if the bill is passed in the following form, there could
be little objection to it:
1. Continue the rate at 3/2 percent instead of the proposed
3 percent.
2. Guarantee land bank bonds and remove the present fully
tax-exempt feature.
3. Make the subsidy or "advance" equal to the difference
between 2½ percent and the cost of money to the land banks.
This would cover operating costs.
4. Combined capital funds and reserves of $940 million
would be available to meet losses.
5. Provide that loans made after 1946 bear a rate in rela-
tion to the cost of money to the land banks.
6. It would be desirable, but not essential, to abolish
the Federal Farm Mortgage Corporation.
The effect of these proposals would be to reduce the
subsidy from the present $38 million to $13 million in the
next fiscal year with the prospect that it will disappear
entirely by 1945.
Would you like a more detailed discussion of these
proposals or can I tell Secretary Wallace to go ahead and
work it out along these lines with the sponsors of the bill?
Lanch Grice
Lauchlin Currie
Grace:
Is this from Lauchlin
Currie?
P
yes
we
April 8, 1940.
COMMENTS ON THE APRIL REVISED ESTIMATES OF REVENUES
PSF
Fiscal year 1940.
awone
1. Income Taxes, Despite the revision upward of $193 million in the
estimate for the fiscal year 1940 it still appears a little low. The independ-
ent estimate is $207 million above the January figure.
2. Miscellaneous Internal Revenue. The Treasury revised estimates are
down $33 million from the January estimates. The downward revision occurred
largely in the alcoholic beverage taxes. On various grounds the revised esti-
mate appears to be too low. The unchanged estimate for estate taxes also
appears low. The independent estimate for this whole category is $4 million
higher than the January estimate, or $37 million higher than the April revision.
3. Employment taxes, There appears to be no good basis for revising the
January estimate.
4. Customs. This estimate has been revised upward by $57 million, or
20 percent. This revision allows for an average of $24 million a month for
the remaining three months of the year. Should customs receipts average
nearly $28 million a month (collections in March were $29 million), collections
for the year would amount to about $11 million above the new estimates.
5. Miscellaneous Receipts. The Treasury estimate is unchanged. The
independent estimate which on various grounds appears conservative is $17
million above the Budget estimate.
Summary. The Treasury estimate for total receipts is raised $218 million.
The independent estimate is $294 million over the January estimate, or $76
million above the April estimate.
Fiscal year 1941,
1. Income Taxes, The increase of $172 million in income taxes over the
January estimates represents a write-up for the last two quarters of the current
calendar year by approximately the amount indicated by the March returns.
Apparently the estimate for collections in the first six months of the calendar
year 1941 has not been revised. The Treasury is evidently estimating $1,407
million collections for the first six months of 1941 as contrasted with $1,352
million of collections in the first six months of the calendar year 1940. This
estimated increase of $55 million appears somewhat out of line with the Treasury
assumption that industrial activity will average 111 in the calendar year 1940
as contrasted with 105 in 1939. The independent estimate for income tax collec-
tions for the fiscal year as a whole is put at $250 million above the January
Budget estimate.
2. Miscellaneous Internal Revenue, The April estimate is revised down-
ward by $97 million from the January estimate. The bulk of this reduction occurs
in alcoholic beverages and tobacco taxes. In view of (a) the assumption of a
higher national income and (b) the secular growth factor, a downward revision
of this magnitude appears difficult to justify. The independent estimate is
$7 million below the Budget estimate, or $90 million above the April revision.
-2-
3. Employment Taxes. April estimates are $8 million above the Budget
estimates. The independent estimate is $19 million above the Budget estimate.
4. Customs. Although the customs receipts have been revised upward by
$27 million, the total still calls for a $40 million decrease from the esti-
mated receipts for the fiscal year 1940 and this estimate in turn, as we have
seen, appears conservative. The independent estimate is $42 million above the
April revision.
Summary, The Treasury's April estimate for total receipts is $110 million
higher than the Budget estimates. The independent estimate is $335 million
higher. For the two fiscal years combined the Treasury's April revision shows
an increase of $338 million over the Budget estimates. The independent estimate
is over $600 million higher than the Budget estimates.
General Observations,
1. Accuracy of the Estimates. Mr. Bell's letter calls attention to the
fact that the April revision constitutes an increase of only 3.8 percent over
the Budget estimates. This is a little misleading. Leaving aside the fact
that the January estimates themselves were $100 million higher than the esti-
mates the Treasury wished to publish in November, it can be pointed out that
the January estimates applied properly only to one-half year's collections,
since the first half year was already known. On a half-year's basis, the revis-
ion amounts almost to 10 percent. Moreover, as pointed out above, the revised
estimate still appears conservative. The revision in the estimate for income
taxes alone for the six months' period amounts to 18 percent. The estimate
for income tax collections for March alone was off 20 percent. Similarly, a
revision of only 1.8 percent in the estimates for the fiscal year 1941 is over
and above the $200 million more or less arbitrarily added in the January esti-
mates and, in any case, will probably have to be further revised upward.
2. Implications of April Revisions on Future Cash and Debt Positions.
On the basis of the Treasury's April revisions of revenue receipts, the Budget
Bureau's estimates of expenditures, and making what appear to be reasonable
assumptions with reference to sales of savings bonds, etc., I estimate the
Treasury cash balance on June 30 at $960 million. This assumes that no new
money will be raised. The debt would be $43,160 million. On the same assump-
tions the Treasury cash balance on December 31, 1940, will be $1,110 million
and the debt $44,150 million. In addition to the assumptions noted above these
estimates assume a $700 million return from government corporations.
On the basis of the independent estimates the Treasury cash balance on
December 31, 1940, will be $1,370 million and the debt $44,240 million.
Thus, on either basis no new open-market borrowing appears necessary, and
additional appropriations could be made for, say, WPA, without exceeding the
debt limit or drawing down cash balances unduly before the next session of
Congress.
3. Estimated Deficits as Affected by Revisions. The Treasury April revised
estimates of revenue would change the estimated deficit for fiscal 1940 to
$3,715 million and for fiscal 1941 to $2,066 million. The independent estimates
are $3,530 million and $1,850 million respectively.
THE WHITE HOUSE
WASHINGTON
-2-
Added April 22nd.
The Budget Bureau is currently estimating that
expenditures in fiscal 1940 will be down fifty million
from the January estimates. The independent estimate
1s one hundred and nine million lower than the January
estimates. Combining the independent estimate of
expenditures and receipts yields an estimate of the
deficit of 3.5 billion dollars or four hundred million
less than the Budget January estimate.
For the fiscal year 1941, the expenditures other
than WPA are likely to be one hundred million less than
in the Budget (assuming sixty-eight million Farm Security
loans financed through RFC) Assuming additional MPA
expenditures at four hundred and fifty million and
assuming the independent estimates of revenues of three
hundred and thirty five million higher than the Budget's,
the deficit would be about 2.2 billion dollars or
approximately the same A8 in the Budget.
For the two years the deficit would be but four
hundred millions lower then estimated in the Budget or
nearly the amount of the additional taxes recuested.
April 5, 1940
COMPARISON OF ESTIMATED receipts, FISCAL YEARS 1940 AND 1941
(In millions of dollars)
:
: Treasury
:
:
Change over
:Change,
: Budget 8 April
:Indepen-
:
Budget estimates
:independent
:estimates: estimates
:dent
:Treasury :Indepen-
:over Treasury
:
:
:estimates :revision :dent est. :revised ests.
Fiscal year 1940:
Income taxes... 1,959
2,152
2,166
+193
+207
+14
Misc.int.rev... 2,356
2,323
2,360
-33
+4
+37
Soc.Sec. taxes.
832
833
831
+1
-1
-2
Customs
283
340
351
+57
+68
+11
Misc. receipts.
274
274
291
0
+17
+17
Total receipts 5,704
5,922
5,998
+218
+294
+76
Fiscal year 1941:
Income taxes... 2,306
2,478
2,557
+172
+251
+79
Miscl.int.rev.. 2,482
2,385
2,475
-97
-7
+90
Soc. Sec. taxes 868
876
887
+8
+19
+11
Customs
273
300
342
+27
+69
+42
Misc. receipts.
221
221
225
0
+4
+4
Total receipts 6,151
6,261
6,486
+110
+335
+225
April 6, 1940
ESTIMATED DIRECT DEBT SUBJECT TO STATUTORY LIMITATION
(In dependent estimates: in millions of dollars)
Outstanding debt, December 31, 1939
41,980
Add for January-June 1940:
U. S. Savings bonds (maturity value)
890
Special issues to Social Security accounts, etc.
580
+1,470
Deduct for January-June 1940:
Retirement of Treasury bills
150
Retirement of matured debt, etc.
70
-220
Outstanding debt, June 30, 1940
43,230
Add for July-December 1940:
U. S. Savings bonds (maturity value)
470
Special issues to Social Security accounts, etc.
600
+1,070
Deduct for July-December 1940, retirement of matured debt, etc.
-60
Outstanding debt, December 31, 1940
44,240
April 6, 1940
ESTIMATED TREASURY CASH REQUIREMENTS, CALENDAR YEAR 1940
(Independent estimates: in millions of dollars)
Treasury cash balance, December 31, 1939
1,710
Add for January-June 1940:
Sales of U. S. Savings bonds
670
Social security funds (net receipts)
500
1,170
Total available funds
2,880
Deduct for January-June 1940:
Cash deficit
1,490
Retirement of Treasury bills
150
Retirement of matured debt, etc.
70
1,710
Treasury cash balance, June 30, 1940
1,170
Add net receipts of Gov't corporations
140
1,310
Add for July-December 1940:
Sales of U. S. Savings bonds
350
Social Security funds (net receipts)
540
Return of surplus funds of Gov't corporations
700
1,590,
Total available funds
2,900
Deduct for July-December 1940:
Cash deficit
1,320
Retirement of matured debt, etc.
60
Expenditures of Gov't corporations
150
1,530'
Treasury cash balance, December 31, 1940
1,370
Treasury cash balance including additional W.P.A.
expenditures of 75,000,000 in,June life and
$395,000,000 during July-December 1940:
Treasury cash balance, June 30, 1940
1,235
Treasury cash balance, December 31, 1940
900
1 Assumes sales of $150,000,000 of R. F. C. notes in May.
arree
THE WHITE HOUSE
WASHINGTON
April 9, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Capitalization of Revenue-yielding Assets of Government.
The Bill. As you know, a bill was drafted in the Treasury last spring
and circulated for comments among the interested agencies. I do not think
it necessary to go into the details of this bill except to raise two matters
of policy for your decision.
(a) Should the bill be drafted to read, "No bonds shall be
issued in anticipation of the earnings of self-liquidating facilities
unless and until the facilities are operating and have a proved earn-
ing power satisfactory to the Corporation, and then only in such an
amount as, in the judgment of the Secretary of the Treasury, may reason-
ably be expected to be paid, with interest thereon, out of such earnings",
or "No bonds shall be issued in anticipation of the earnings of self-
liquidating facilities in excess of an amount as may reasonably be
expected to be paid "? In their comments on the bill Secretaries
Wallace and Ickes favored the latter version.
(b) The bill as drafted provides for setting up a corporation
in the Treasury under the direction and control of the Secretary.
Subsequent to this, the Federal Loan Agency was established. Should
the Corporation be in the Treasury or under the Federal Loan Admin-
istration?
Comments from Agencies. The comments from affected agencies were
generally favorable. Reclamation wanted earnings from facilities that
now go into a revolving fund to be excluded, and TVA also asked to be exempted.
Previous Expenditures that could be Capitalized in the Fiscal Year 1941.
The Budget Bureau has prepared some tentative estimates and concluded that
generally it seems that about $750,000,000 would represent the amount of
self-liquidating projects that could now be capitalized by the Revenue
Finance Corporation, and on the basis of existing authorizations about as
much more could be added if we assume a long period of amortization and a
low interest rate. The chief items are attached.
Mr. Jones' Reaction. Mr. Jones, with whom you asked me to discuss
the proposal, was non-committal beyond suggesting that to bring up such
legislature at this time would look like an attempt to evade the debt limit.
He suggested that it might be possible for the RFC to "buy" the projects
from the Government but I told him I was sure the Departments concerned
would object to this.
Memorandum for the President.
-2-
April 9, 1940.
Re: Capitalization of Revenue-yielding
Assets of Government.
Conclusion. Possibly some Senators and Congressmen would like to sponsor
such a bill with the idea of calling attention to certain offsets to the
public debt.
Lauch Came
Lauchlin Currie
COPY
March 13, 1940
MR. CURRIE:
The question of evaluating self-liquidating public works
projects is one that should require a great deal of thought and
stucy. Due to the short time available to gather information,
some of the figures herein are necessarily approximations. The
periods of amortization are arbitrary, as are the interest rates.
(all figures in millions)
Panama Canal
Total cost of construction through 1939
$414
Interest at 3% (on the assumption that the
Government borrowed to finance construction). 129
$543
Total revenues through 1939
506
Less maintenance and operation
207
299
Amount necessary to be returned to the Treasury
in order that the Government realize 100% on
its capital investment
244
To amortize $244,000,000 at a 3% interest rate over thirty years
would require an annual payment of $12,400,000. Over a forty-year
period the annual cost would be $10,500,000. Net revenues have been
averaging about $13,000,000 a year. On the basis of these net
revenues and using an interest rate of 1%, the net investment in the
Canal could be returned in approximately twenty years. The assumption
is made of course that expenditures on the Canal for the purpose of
national defense would be paid by direct appropriations and not be
a charge against the Canal revenues.
Congress has authorized construction of a third set of locks
at an estimated total cost of $277,000,000. However, since the
purpose of these locks is primarily one of national defense, it seems
that their cost should be financed separately from that of the Canal
proper.
Reclamation Projects
Boulder Canyon project, to date
$117
All American Canal
26
Other Reclamation projects
380
Interest at 3%
100
$623
Net revenues to date
60
8563
-2-
To amortize $563,000,000 at a 3% interest rate over a period
of fifty years would require an annual payment of $21,900,000; over
sixty years would require $20,300,000 and over seventy-five years would
require $18,900,000. Net annual revenues are now nearly $10,000,000,
but these revenues are expected to show a definite increase in the
next few years, reaching a peak of $36,000,000 in 1963. This includes
revenues from projects authorized but not yet built. The present net
annual revenues from reclamation projects on a 1% basis would amortize
the total $563,000,000 outlay over a period of 75 years. Over a
shorter period, say 50 years, they would be sufficient to amortize an
investment of about $400,000,000 at a 1% rate.
During the next 3 years there will be an additional expenditure
of about $180,000,000 on reclamation projects now authorized by
Congress and under construction and in that same time the revenue
will increase only $1,000,000 so that only a very small portion of
these additional expenditures could be capitalized at this time. To
complete these self-liquidating projects now authorized by Congress
will require an expenditure over the next 10 years of approximately
$700,000,000, which includes the $180,000,000 referred to above.
Eventually it will be possible to capitalize the greater portion of
this amount although on the basis of earning power it may take a
little time to do it.
Bonneville Project
Interior Department (Power Distribution System),
estimate of total cost
$36
War Department, Corps of Engineers (Power Plant)
50
$86
The total of $86,000,000 can be amortized at $3,700,000 annually
for forty years. The Washington representative of the Bonneville
project states that in addition $3,000,000 a. year (net) will come
into the Treasury. In the current fiscal year revenues are expected
to be $1,000,000. In 1941 they are estimated at $2,200,000. The
actual amount expended on the Bonneville project to date is about
$25,000,000, all of which could be capitalized on the basis of present
revenue and the additional amounts could probably be capitalized as
construction progressed.
Fort Peck Power Plant
The total cost of the power plant is estimated at $6,000,000.
This amount could be amortized over a period of forty years at
$259,000 annually.
-3-
Denison Reservoir, Texas
This project is handled by the Army Engineers. The total cost
is estimated at $54,000,000 of which $15,200,000 would be allocated
to power on the basis of a 75,000 k.w. installation or $18,550,000
on the basis of a 125,000 k.w. installation. Plans call for
theoretical amortization over fifty years. On the basis of 75,000 k.w.
the annual cost would be $591,000; on the basis of 125,000 k.w., the
annual cost would be $721,000. This project is just being begun and
probably at the present time it would not be safe to include it among
the projects to be financed by the Revenue Finance Corporation.
Tennessee Valley Authority
The President has approved allocations for the four completed
dams (Wilson, Norris, Wheeler, and Pickwick Landing) as follows:
Amount
Percent
Flood control
22.3
29.7
Navigation
37.8
17.5
Power
67.2
52.8
Total
127.3
100.0
The T.V.A. does not attempt to make allocations between flood
control, navigation and power on a project until its completion.
The figures above relate to dams completed to date, but in addition
there have been expenditures on other dams, part of which will
eventually be allocated to power. In order to arrive at an approxi-
mation of the total cost of power installations to date, the
assumption is made that 50% of expenditures already made either have
been or will be allocated to power. On this basis the cost of power
development to June 30, 1939 is $110,000,000. This sum could be
amortized over forty years at $4,800,000 a year. Expenditures
allocable to power will total about $60,000,000 in the fiscal years
1940, 1941 and 1942. It is estimated that upon completion of all
projects the total allocated to power will be about $250,000,000.
It is stated in the T.V.A. annual report for 1938 that for the
three dams then completed (Norris, Wilson end Wheeler) the sale of
power would "cover all costs of operation, including depreciation
and 3% interest on the investment allocated to power and, in addition,
to return in thirty years the entire investment allocated to navigation
and flood control."
-4-
Generally, it seems that about $750,000,000 would represent
the amount of self-liquidating projects that could now be
capitalized by the Revenue Finance Corporation, and on the basis
of existing authorizations about as much more could be added if we
assume a long period of amortization and a low interest rate.
March 13, 1940.
file
THE WHITE HOUSE
WASHINGTON
April 11, 1940
MEMORANDUM FOR THE PRESIDENT:
Re: Results of lst Quarter's Operation of Old Age
Insurance
I think you will be interested in the following
unpublished figures:
Monthly benefit payments to the aged, wives, widows,
children end parents.
Jan.
$70,000
Feb.
210,000
Mar.
790,000
Total Number of Claims Received by Months
Old Age
Other
Amended
Original
Annuitants
Monthly
Lump-sum
Lump-sun
Jan.
21,300
5,600
700
Feb.
13,100
8,200
4,100
16,400
Mar.
10,700
10,700
6,600
4,500
Total
45,100
24,500
11,400
20,900
Total Number of Awards
Old Ago
Other
Amended
Original
Annuitants
Monthly
Lump-sum
Lump-sum
Jan.
9,600
1,500
---
---
Feb.
11,100
4,800
2,200
15,300
Mar.
9,400
7,800
4,800
5,400
Total
30,100
14,100
7,000
20,700
Land and
Lauchlin Currie
PSF.
Curine
THE WHITE HOUSE
WASHINGTON
April 17, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Maritime Unemployment Insurance Bill.
Mr. Latimer will have a bill drafted in a few
days and I should like to know how you would like
to have it handled.
Maritime unemployment insurance bills hitherto
introduced in the House of Representatives have been
referred to the Committee on Ways and Means. Quite
likely any new bill providing for a maritime unemploy-
ment insurance system would be similarly referred.
There apparently has been some feeling on the part
of the Chairman of the Committee on Merchant Marine
and Fisheries, Mr. Bland, that his committee should
at least participate in the consideration of such
measures. Congressman Frank H. Buck of California,
a member of the Committee on Ways and Means, is quite
interested in the matter of maritime unemployment
insurance and has indicated his willingness to be of
assistance in clearing with the Committee on Merchant
Marine and Fisheries. Congressman John W. McCornack
of Massachusetts, also a member of the Committee on
Ways and Means, will probably be helpful in connection
with the maritime unemployment insurance bill.
In the Senate a bill would probably be referred
to the Committee on Finance.
I should be glad to help in any way I can but
I think that whoever is to sponsor the bills should
be asked to work closely with Latimer.
Lauchlin Currie
PSF
Currie
THE WHITE HOUSE
WASHINGTON
April 17, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Yield Insurance on Large Rental Housing Developments
I had hoped for an opportunity to discuss this with
you. The idea in brief is to guarantee a 2-3/4 percent
return (less insurance premium of 1/4 of 1 percent) on 100
percent equity investment in rental housing developments.
A number of refinements and safeguards have been worked out
by the FHA technicians. Essentially, however, it provides
an incentive for the use of very timid insurance and savings
bank money in & neglected field.
The present status of the proposal is as follows:
Insurance companies' heads, A.F. of L. international
presidents, Stewart McDonald and Jesse Jones have all ex-
pressed themselves as in favor of the idea. McDonald,
however, believed that it would be unwise to attempt to
secure legislation this session on the ground that labor
would insist on a prevailing wage clause on this and also
on Title II work. After preliminary talks ith Dan Tracy
I arranged a meeting of Jesse Jones with Tracy, Bates of
the Bricklayers' and Coyne, President of the Building
Trades Department, A.F. of L. They urged the plan on
Jones and when I raised the question of a prevailing wage
clause, they suggested a bill be introduced not containing
it. Mr. Jones then said he thought we might have such a
bill introduced to ascertain the reaction and stimulate
discussion. The matter was left there but so far CE I
know, no bill is being pre ared.
I do not vent to push it any further until I receive
your reaction. I believe the scheme is sound economically
and will result in large-scale building at no cost to the
Government. Politically it would constitute one part of on
answer to those who complain that te do not provide any in-
centives to private capital to put idle savings to work.
Land Give
Lauchlin Currie
PSF
Currie
file
THE WHITE HOUSE
Personal
WASHINGTON
May 1, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: USHA.
I don't know whether you are going to get into
a discussion of any detailed amendments with Gore
and Monroney but if you do the following points might
be helpful:
According to Straus there is general agreement
(a) to cut the maturity of loans and annual contribu-
tions from sixty years to forty-five years,
(b) to cut the rate of interest,
(c) to add a new rural housing amendment,
(d) to limit the annual contribution to a maximum of
one-third of the total rent that would be paid on a
comparable private building, and
(e) to raise the loan authorization to $400 or $500
million.
He says that in addition there is strong pressure
to increase the local annual contribution to 20 percent
of the USHA contribution, and the local capital grant to
20 percent of the original development cost. The latter
proposal would greatly slow up the program and he hopes
that the capital contribution can be reduced to not
more than 10 percent of the original cost. In any case,
he urges most strongly that these proposed amendments
for local contributions be not made applicable to the
$150 million in loan authorizations still available, but
which cannot be used without new subsidy authorization.
This would permit him to push his program ahead rapidly
this summer and fall.
Land and
Lauchlin Currie
PSF.
File
curre
Personal
THE WHITE HOUSE
WASHINGTON
May 2, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: NLRB order to reinstate five striking seamen,
The facts are as follows:
On January 26, 1938, following an election, the Board certified the
National Maritime Union as the exclusive bargaining representative of the
unlicensed personnel of the ships of the Southern Steamship Company. The
company refused to bergain collectively with the union despite repeated
attempts on the part of the latter. Finally, on July 18, 1938, while the
ship was moored at the dock in Houston, Texas, thirteen unlicensed seamen
went on strike to compel the company to recognize the union. There were
nineteen unlicensed seamen in the crew and the officers of the ship, with
the assistance of those who did not participate in the strike, proceeded
with the loading of the cargo. The strikers made no effort to interfere
with the firing of the boilers or with the loading, but during the entire
period of the strike sat on the poop deck. The strike terminated in the
evening of the same day and the officers stated that the strike did not
delay the sailing and that the vessel was in no danger during the period
of strike.
When the ship docked in Philadelphia on July 25, five strikers were
discharged, whereupon six other seamen struck and at the time of the Board's
hearing were still on strike.
The Board went carefully into the question as to whether the original
strike constituted a violation of the Shipping Articles end.it decided
that it did not. It pointed out that "unlike an industrial plant, 8 ship
is not only a place of employment but also the living quarters of the crew"
and that "the strikers were not regarded as trespassers by the captain or
other officers of the ship". Consequently, it ordered the reinstatement
of the five discharged men.
The Maritime Labor Board believes that the NLRB's decision was eminently
sound and in line with the former's recommendation in its recent report to
the effect that "The navigation laws of the United States or any other laws
relating to seamen should not be so construed as to abrogate the right of
seamen to strike in domestic harbors".
While checking on the case above, I had occasion to look into another
recent decision of the NLRB involving maritime workers, which had verious
aspects I think might interest you. This was the order reinstating three
radio operators on trawlers.
.pject:
-2-
May 2, 1940.
NLRB order to reinstate
five striking seamen.
Subsequent to the employment of three radio operators who were members
of a CIO union, the crews, members of the Atlantic Fishermen's Union, AFofL,
refused to take the trawlers out unless the CIO men were discharged and
replaced by AFofL radio operators. The owners of the trawlers thereupon
discharged the CIO radio operators.
The majority of the Board held that the Act prohibits such discrimina-
tion for union activity without exception. This was admitted in the dissent-
ing opinion of Leiserson. However, he held that this was only an unfair labor
practice in a technical sense, and expressed himself as "unwilling to exer-
cise the discretionary power of reinstating with back pay". The majority
contended that this decision would virtually nullify the Act in any situation
where rival labor unions were involved. "It would mean that en employer
would be relieved of all obligation under the Act merely upon a showing of
pressure, and consequent probable loss from one of the rival organizations."
The majority expressed its accord with the language of the Circuit Court of
Appeals, the Ninth Circuit, in the Star Publishing Case: "the act prohibits
unfair labor practices in all cases. It permits no immunity because the
employer may think that the exigencies of the moment require infraction of
the statute."
Comment:
As an administrative policy, the Board has endeavored to keep out of
strikes arising from CIO- AFofL clashes where it appeared that the parent
organizations could settle the matter. This is the second case it entered
into where the parent organizations could not settle the matter satisfactorily.
The decision appears hard on the particular employers involved. How-
ever, through court enforcement of this order, a way is opened for the
avoidance of one of the most disturbing and unpopular types of strikes,
those arising from CIO-AFofL "jurisdictional" clashes. If the Board did not
penalize these particular employers, it would open the door to a whole
series of discriminations and clashes because of membership in & rival union.
Henceforth, employers will tend to avoid such hirings as will precipitate
such clashes. On the whole, therefore, I should say that the Board's decision
is a contribution to industrial peace, rather than otherwise.
Lauch Came
Lauchlin Currie
929-D
UNITED STATES OF AMERICA
BEFORE THE NATIONAL LABOR RELATIONS BOARD
In the Matter of
SOUTHERN STEANSHIP COMPANY
and
Caso No. C-1204
NATIONAL MARITIME UNION OF AMERICA
(Affiliated with the C.I.O.)
Mr. Joseph F. Castiello, for the Board.
Pres-L.
Adams, Childs, McKnig & Lukens, by Mr.
Randolph Y. Childs, and Mr. Edgar McKaig,
of Philadelphia, Pa., Mr. Joseph W. Hea .
derson, of Philadelphia, Pa., and Royaton &
Rayzor, by Mr. John Brown, of Houston, Texas,
for the respondent.
Mr. William L. Standard, by Mr. Max Lustig. of
Now York City, nnd Mandell & Combs, by
Mr. Arthur J. Nandoll, of Houston, Tax.,
for the Union.
Mr. Ray Johnson, of counsel to the Board.
DECISION
and
ORDER
Statement of the Case
Upon charges and amended charges duly filed by National Mari-
time Union of America, affiliated with the C.I.O., herein called the
Union, the National Labor Relations Board, heroin called the Board, by
the Regional Director for the Fourth Region (Philadelphia, Pennsylvania),
issued its complaint on November 23, 1938, against Southern Steamship
Company, Philadelphia, Pennsylvania, heroin called the respondent,
alleging that the respondent had engaged in and was engaging in unfair
labor practices affecting commerce, within the meaning of Section 8 (1),
(3), and (5) and Section 2 (6) and (7) of the National Labor Relations
Act, 49 Stat. 449, horein called the Act.
In respect to the unfair labor practices, the complaint alleged
in substance (1) that the unliconsed personnel employed in the deck,
engino, and stowards' department, except wireless and radio operators,
chief clectricians on electrically driven ships, and junior engineers who
hold licenses, on vessels operated out of Atlantic and Gulf ports by the
respondent, constituto FL unit appropriate for the purposes of collective
bargnining: (2) that on January 26, 1938, the Board cortified the Union
as the exclusive bargaining representative of all the employees in such
unit; (3) that in the months of January, February, March, April, and
August, 1938, and nt all times thereafter, the respondent refused to
bargain with the Union FLB the exclusive bargnining representativo of
employees in the appropriate unit; (4) that en July 18, 1938, AS & result
of the respondent's unfair laber practices, n strike occurred on the
929-D
respondent's ship, City of Fort Worth, while it was moored to the dock
at Houston, Texas; (5) that on July 25, 1938, the respondent terminated
the employment of and refused to reinstate Joseph G. Warren, John Pfuhl, Jr,,
Elmer J. Ferguson, Edward W, Smith, and John J. Tracey because they partici-
pated in said strike, joined the Union, and engaged in other concerted
activities with employees of the respondent for the purposes of collective
bargaining and other mutual aid and protection; (6) that on July 25, 1938,
as a result of said discharges, a strike occurred on the respondent's
ship, City of Fort Worth, while it was moored to the dock at Philadelphia,
Pennsylvania; and (7) that by the foregoing and by other acts the respon-
dont interfered with, restrained, and coerced its employees in the
exercise of the rights guaranteod in Section 7 of the Act.
On November 23, 1938, copies of the complaint and an accompany-
ing notice of hearing thoreon were duly served upon the respondent and
the Union, On.Novomber 30, 1938, the respondent filed with the Regional
Director a motion to extend the date of the hearing. On the saino day
the Regional Director donied the motion. On December 1, 1938, the
respondent filed an andwer to the complaint in which it admitted the
allogations concerning the nature and scopo of its business, the appro-
priateness of the above-describod unit, and the cortification of the
Union by the Board, but denied that it had ongagod in any unfair labor
practices. In its answer the respondent allogod, intor alia, that the
Board's cortification of tho Union was involid, that it had not refused
to bargain collectively with the Union prior to August 1938, that bocauso
of the acts of curtain union numbers in participating in a sit-down
strike on July 18, 1938, it WIS not thoresfter required to recognize the
Union as the exclusivo bargaining representative of the employees, and
that the employees named in the complaint word not discharged but were
refused roomployment boccuse they had wilfully disobeyed lawful commands
and engaged in a sit-down strike in violation of their shipping articles.
Pursuant to notice, a hearing was held on December 5, 6, 14, 21,
22, and 23, 1938, at Philar lphin, Pennsylvania, and on January 9, 1939,
at Houston, Texas, before William Scagle, the Trial Examiner duly
designated by the Board. The Board, the respondent, and the Union were
represented by counsel and participated in the hearing. Full opportunity
to be heard, to examine and cross-examine witnesses, and to introduce
evidence bearing on the issues was afforded all parties. At the close of
the entire case, counsel for the Board moved to amend the complaint to
conform to the proof. The motion was granted. On January 25, 1939, pur-
suant to permission granted at the hearing, the respondent filed with the
Trial Examiner: (1) a motion to dismiss the complaint; (2) a motion to
strike out certain tostimony; and (3) an objection to the motion that the
complaint be conformed to the proof and an exception to the ruling of
the Trial Examiner thereon. In his Intermediate Report the Trial
Examiner donied both motions and overruled the objection. During the
course of the houring the Trial Examiner ande several rulings on other
motions and on objections to the admission of evidence. The Board has
reviewed the rulings of the Trial Examiner and finds that no projudicial
errors were committed, The rulings are hereby affirmed.
On February 25, 1939, the Trial Examiner filod an Intermodiate
Report, copies of which were duly served upon all parties, finding that
the respondent had ongagod in and was engaging in unfair labor practices,
within the moaning of Soction 8 (1), (3), and (5) and Section 2 (6) and
(7) of the Act. No recomended that the respondent coano and desist
from its unfair labor proctices, upon application offor reinstatement to
six employees who went or, strike on July 25, 1939, offer roinstatement
with back pay to four of the five employees who he found had boon dis-
criminatorily discharged, and offer back pay to the fifth employee.
Thoreafter the respondent filod exceptions to the Intormolisto Report and
a brief. Pursuant to notic. duly served upon all partios, a hearing for
- 2 -
929-D
the purposes of oral argument was held before the Board in Washington,
D. C., on Fovember 2, 1939. The respondent and the Union were repre-
sented by counsel and participated in the argument.
The Board has considered the exceptions to the Intermodiate
Report and, except in so far as they are consistent with the findings of
fact, conclusions of law, and order set forth bolow, finds no merit in
them.
Upon the entire record in the case, the Board makes the
following:
Findings of Fact
I. The business of the respondent
The respondent, Southern Steamship Company, is a Delaware
corporation having its principal office in Philadelphia, Pennsylvania,
It owns and operates seven vessels having an aggrogato gross tonnage
of 18,382 and carrying freight between the ports of Philadelphia,
Pennsylvania, and Houston, Texas, South-baund cargo carried by the ships
is obtained from all of the States on the Eastern Seaboard and from the
State of Ohio, North-bound cargo is obtained from Arizona, Colorado,
Louisiana, New Moxico, Oklahoma, and Texas. During 1937 the respondent's
vossels carried 341,581 tons of freight representing revenue amounting
to $1,991,351.81.
We find that the respondent is engaged in trado, traffic, trans-
portation, and comerce among the soveral States and that the crews
employed on its ships are directly engaged in such trado, traffic, trans-
portation, and commerce.
II. The organization involved
National Maritimo Union of America is a labor organization
affiliated with the Committee for Industrial Organization. 1/ It ndmits
to its memborship the unlicensed personnel umployed in the dock, ungine,
and stewards' departments, except wiroloss and radio operators, chief
electricians on oloctrically driven ships, and junior onginours who
hold liconsos, on vessels operated out of the Atlantic and Gulf ports
by the respondent.
III. The unfair labor practices
A. The refusal to bargain
The complaint alleges that on or about January 26, 1938, end
at all times thereafter, the respondent refused to bargain collectively
with the Union as the exclusive representative of the employees in an
appropriate unit although the Board had certified the Union as such
representative. The respondent denies that the Union requested the
respondent to bargain collectively prior to August 18, 1938, and alleges
that "on and after August 23, 1938, it maintained its position that
pending a judicial determination of the validity of the olection and of
said certification" it was not required to recognize the Union, and that
by roason of the unlawful acts of the employees in conducting a sit-
Comm strike and refusing to obey orders, it was not thereafter required
to recognize the Union as the exclusive representative of the employees
in the appropriato unit,
On July 16, 1937, the Board issued a Docision and Direction of
Election in which it found, inter alia, that the unliconsed personnel
Now the Congross of Industrial Organizations.
Matter of Amorican Franco Line et al, (Southern Stoanship Company)
and International Scamon's Union of America, 3 N.L.R.B. 64.
- 3 -
929-D
employed in the deck, engine, and stewards' departments, except wireless
and radio operators, chief electricians on electrically driven ships, and
junior engineers who hold licenses, on the vessels operated out of Atlantic
and Gulf ports by the respondent, constitute an appropriate bargaining
unit. The complaint herein alleges that this unit is appropriate and the
respondent admits the allegation. lie find that the unlicensed personnel
employed in the deck, engine, and stewards' departments, except wircless
and radio operators, chief electricians on electrically driven ships, and
junior engineers who hold licenses, on the vessels operated out of
Atlantic and Gulf ports by the respondent, constitute a unit appropriate
for the purposes of collective bargaining and that said unit insures to
employees of the respondent the full benefit of their right to self-
organization and to collective bargaining and otherwise effectuates the
policios of the Act.
On January 26, 1938, following an eloction conducted pursuant
to the Direction of Elections, the Board certified the Union as the
oxclusive bargaining representative of all the employees in the appro-
priate unit and dismissed a potition filed by the respondent to vacate
the election on the ground that no represoniative of the rospondent was
pondtted to observe the balloting on ono of its vossols. The
respondent now contends that the cortification was invalid since the
Board's ruling on its potition was incorrect. The respondent stipulated
that the validity of the cortification depended, for the purposes of
the prosent proceeding, upon the corroctness of the Board's ruling that
in the absence of consont by the labor organizations involved, the
respondent was not entitled to have an observer at the polls. In dis-
cussing the potition of the respondent we said:
The Board has consistently hold that in the absonce
of consent by the labor organizations involved, company ropre-
sentatives should not be permitted to bo present ct clections
to dotormine collective bargaining representativos. The choice
of representatives by employees should be made froo from any
interforonco or cocrcion by employers. The presence of an
cmployer's representative at an cloction may prevent such a
froe choico, although no intorforenco or coercion is intended
by the employer. The Board has adopted moans of conducting
those eloctions wheroby the interests of all parties,
including the employer's, are adequatoly protocted.
Employers may not, ns a matter of right, uxcrcise any prorogativo in the
Hoard's administration of Scotion 9 of the Act. 3a, To are of the opinion
that the respondent was in no mannor projudiced by our refusal to pormit
it to participato in the conduct of the balloting and 1/0 affirm our
ruling citod above.
Wo find that on January 26, 1938, and at all timos thoroafter,
the Union was the duly dosignated reprosentative of a majority of tho
employees in the approprinto unit, and pursuant to Soction 9 (a) of the
Act, was on January 26, 1938, and at all times thoroafter has boon,
the exclusive representative of all the employees in such a unit for
the purposes of collectivo bargaining in respect to ratos of pay, wages,
hours of employment, and other conditions of employment.
3/ Matter of American France Lino ot al, (Southern Stoamship Company)
end Intornational Coamon's Union of America, 4 N.L.R.B. 1140.
30 Under our present election procodure, wo now pormit the employer to
dosignato non-suporvisory employees as obsorvers at the polling places
during an cloction for the purpose of challenging inoligible votors
and wrifying the tally.
The respondent docs not claim that the Union at any timo lost its
status as bargaining ruprosontativo or a majority of the employees
in the appropriate unit. Cf. N.L.E.D. V. Highland Park lienufacturing
Company, March 11, 1940 (C.O.A. 4) unf'g Untter of Highland Park
Manufacturing Company and Toxtilo Workors Organizing Comittee,
(Continued on noxt pago)
- 4 -
929-D
Shortly after the certification of January 26, 1938, E. J.
Cunningham, & union representative, requested L. A. Schreider, Jr., the
respondent's representative at Houston, to arrange for a collective bar-
gaining conference and to issue passos to the union shore delogates,
without which they could not board the rospondent's ships. Schroider
replied that ho did not have the authority to gmnt the requests, but
that ho would transmit them to the home office in Philadelphia. Schreider
also promised to communicato the respondent's answer to Cunningham. Neither
the Union nor Cunningham thereafter received a communication from Schrei-
der.
In late January or enrly Fobruary 1938, after the Board had
certified the Union, Paul Pulanzi, the Union's business agent at
Philadelphia, telephoned Charles F. Sherry, marine superintendent of
the rospondent, end requested a collective bargaining conforence.
Sherry replied that the matter was in the hands of the respondent's
attorney. About the middle of February 1938, Palazzi wrote Sherry but
received no reply. During the next month, Falazzi mnde two attempts
to ranch Sherry by telephone, but PLC told each time that Sherry ms
cut. On the last occasion Palazzi left his telephone number and ro-
quosted that Shorty call him. Sharry however did not respond to this
request. 5/ Palazzi then attempted to interview Sherry at the respon-
dont's docks in Philadelphia. A witchman asked Palazzi to identify
himself, and when Palazzi reverled his identity and the nature of his
business with Sherry, the wntchman refused to grant him permission to
enter Sherry's office.
On August 18, 1938, Palazzi sont Shorry & registered letter
requesting & collectivo barg-ining conforence. On August 23, 1938,
Sherry wrote Polazzi that until the validity of the Board's certifica-
tion was sottled by the Board and the courts the question of a collec-
tive bargnining agreement was premature. On cross-exsmination, Sherry
admitted that the respondent had takon this position from the time of
the cortification. The respondent admits that it refused to bargnin
with the Union after August 18, 1938. It is plain from the evidence,
however, that the respondent had refused to bargain with the Union at
all times subsequent to January 1938. 6/
4/ (Continued)
12 N.L.R.B. 1238; N.L.R.B. V. Remington Rnd, Inc.
(Contral Executive Council of Remington Rand Employees' Ass'ns,
intervener), 94 F. (21) 862 (C.C.A. 2), onf'g AS modified, Matter of
Romington Rend, Inc. and Remington Rand Joint Protoctivo Board of
the District Council Office Equipment Workers, 2 N.L.R.B. 626;
N.L.R.B. V. Bilos-Colamm Lumber Company, 96 F. (2d) 197 (C.C.A. 9)
onf'g batter of Biles-Culoman Lambor Company and Purcet Sound District
Council of Lumber and Symill Workers, 4 N.L.R.B. 679: N.L.R.B. V.
Louisville Refining Company, 102 F. (21) 678 (C.C.A. 6) onf'g as med.,
Mattor of Louisville Refining Company and International Association,
Oil Field, Gns Woll and Rofinery Torkors of America, 4 N.L.R.B. 844.
5/ The finlings abovo with respect to the Union's offorts to initiato
collectivo bargaining conforences with the respondent are based upon
the uncontradicted tostimeny of Palazzi. During the hearing counsel
for the respondent stated that Sherry muld be called upon to testify
that Pelazzi's letter to him of February 1938 was never received.
Proposed testimeny was not olicited, although Shorry ms called ne
8. "itnoss for the respondent.
The respondent contends that by reason of the unlawful conduct of
the strikors on July 18, 1938, any obligation on its part to
bargnin collectively with the Union thereafter WILE removed. To
find bolow, however, that the conduct of the strikers TITLS not
unlamful. Even resuming therefore that such conduct would relieve
the respondent of its obligation under the Act, its contention is
without morit.
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929-D
We find that on or about January 26, 1938, and at all times
thereafter, the respondent refused to bargain collectively with the
Union as the exclusive representative of the employees in the above-
described unit and that the respondent has thereby interfered with,
restrained, and coerced its employees in the exercise of the rights
guaranteed in Section 7 of the Act.
B. The strike
On July 17, 1938, 13 unlicensed seamen 1/ of the City of
Fort Worth, who were members of the Union, not at the union hall in
Houston, Texas, and decided to go on strike the following merning in
order to compel the respondout to recognizo the Union and to issue
passes to the shore delegates. At 8 a. m, on July 18, while the vussel
was moored to the dock the same son carried the strike into effect when
John J. Tracey, an oiler, failed to turn the steam "on deck" for the
purpose of loading the cargo. However, sufficiont stoam was maintained
to operate the fire alarms, the ice machine, the sanitary pumps, and
time line.
When Norry Pool, the first assistant ongineer, discovered
that there was not sufficient stoam to load the cargo, he asked Tracey
why he had not turned on the stoust, Tracoy replied that the crow was
striking for recognition of the Union and passos for the shore delogates
and that ho did not intend to turn on the steam. Pool thon stated that
ho would put the steam on doc't himself. Traccy answored, "Woll, if you
do, I will have to take the fireman out of the firoroon." Pool then
turned the stoam on, and Tracoy theroupon called out Aloxander A, Braun,
the firoman, who "throw the pumps."
Braun, whose watch was ended at that time, went off duty and
was replaced by Elmer J. Ferguson. Joseph A. Norton, the chief engineer,
came to the fireroom and attempted unsuccessfully to persuade Ferguson
end Tracey to perform their duties. After Forguson refused to tend the
fires, Laurence A. Robinson, the second assistant engineer tended the
fires himself and ordered Ferguson out of the fireroom. Tracey and
Ferguson thereupon joined the-other strikers who were sitting on the
poop deck, the general meeting place of the employees when not on duty.
There were 19 unlicensed seamen in the crew, and the officers
of the ship, with the assistance of those who did not participate in
the strike, proceeded with the loading of the cargo. The strikers made
no effort to intorfero with the firing of the boilers or with the loading
but during the entire périod of the strike sat on the poop deck, About
10:30 a. m., Captain Anthony 0. Rudan appealed to the non to return to
work and upon their réfusal told then that they were violating their
shipping articles under which they had agreed to make a round trip from
Philadelphia to Houston and return. Joseph 0, Warren, the spokosman
of the strikers, replied that they were striking for recognition of the
Union and passes for the shoro delogates and were justified in doing 80
sinco the Union had von an election conducted by the Board. Rudan then
ordered the strikors colloctively and individually to resumo their
stations, but the strikors refused to comply. Later in the morning
Rudan brought aboard a doputy United Statos Shipping Comissionor who
road the following excerpt from the shipping lawa to the strikors:
the said crew agross to conduct themsolves
in an orderly, faithful, honost, and sobor mannor, and to
7/ Joseph Cressavas, William Roows, John Pfuhl, Jr., Josoph 0. Warron,
Honry A. Lathan, William Godfroy Burns, John J. Tracoy, Edward B.
Hughos, Alexander A. Braun, Elmor J. Forguson, Gordon Neoloy,
Charles C. Holt, and Edward W. Smith.
8
Dosignated in the record as both "Pool" and "Paul,"
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be at all times diligent in their respective duties, and
to be obedient to the lawful cousands of the said naster
It should be noted that at no time were the striking employees ordered to
leave the ship. Indeed, without objection from the captain they were served
their midday neal by one of their own members, Smith, a messboy.
On the afternoon of the same day, J. N. Hayzor, the respondent's
attorney in Houston, called Sherry at Philadelphia and advised him that
if the respondent would agree to issue passes to the shore delegates, he
thought that the Union woul. release the ship. Sherry instructed Raysor
that he did not know whether the respondent would issue such passes and
that no agreement with the Und.on NBC to be made, After the conversation
with Sherry, Raysor attempted to reach the president of the respondent,
by telephone but was not successful. A few minutes later, however,
Raysor called A. J. Mandell, the union attorney in Houston, and without
mentioning his prior conversation with Sherry, pronised, if the Union
would rolease the ship, to sect with Mandoll during the following week in
an offort to negotiate an agreement. Ho also agreed to recoured to the
respondent that passes be issued to the shoro dologates. Raysor testi-
fiod that he did not apprise Mandoll of Shorry's instructions because he
intended to make a personal appeal to the prosident of the respondent.
Rolying upon Raysor's promiso, Nandoll advised the union loaders to
torminato the striko, The striko WRS accordingly torminated about 7 P. m.
and the ship sailed at about 9 P. m. the cumo day with tho crow intact.
The officers on board additted that the strike did not dolay the sailing
and that the vessel was in no dangor during the poriod of striko.
We find that the striko was procipitated and prolonged
primarily by reason of the respondent's unlawful refusal to bargain
colloctivoly with the Union. 10/
C. The discharges
During the roturn voyago to Philadolphia, it is concoded that
the mombors of the crow conducted themselvos in a computent mannor.
Captain Rudan testified that ho had no complaints to make. Socond
Assistant Engineer Robinson tostified that the strikers "woro a good
cruw on the roturn voyago, just as they always wore a good crow." Ho
further tostified that ho 1,000 to three of the strikors who word on his
watch during the roturn voyage (Forguson, Braun, and Hughos), and said
to thom, "Woll, boys, lot's forgot all about what happened; lot's string
along just as though nothing had happened." Ho concluded, "they wont
house just as though nothing had happoned." First Mato Holland testified
that ho folt that he had a safe crow whon he sailed from Houston on
July 18. 11/
Novertholoss, during the roturn voyago, the captain, at the
rocommendation of the ship's officers, decided not to re-ship Josoph 0,
Warron, John Pfuhl, Jr., John J. Tracoy, Elmer J. Forguson, and Edward
W. Smith, five of the crow who had pirticipated in the striko, The
2/ This excorpt was included in the shipping articles signed by tho
crew, which are considered in dotail bolow.
10/
See N.L.R.P. V. Romington Rand, Inc. (Contral Exccutivo Council of
Romington Rand Employees' Assn's, Intorvonor), 94 F. (2d) 862
(C.C.A. 2) onf'g as mod., Matter of Romington Rand, Inc. and
Romington Rand Joint Protoctive Board of the District Council Office
Equipmont Workurs, 2 N.L.R.B. 626; Black Linmond S. S. Corporation
V. N.L.R.B., 94 F. (2d) 875 (C.C.A. 2) onf'g Matter of Black Diemond
Steamship Corporation and Marino Engineers' Bonoficial Association,
Local No. 33, 3 N.L.A.B. 84.
11/
The only complaint that appoars on the record visa mado by Holland
who tostified that Smith, a mossboy, would say "Good morning kind of
half-hoartod liko."
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undon combers apparently anticipated the possibility that they might be
discharged when the ship reached Philadelphia and while at sea, they met
and docided to go on strike if any one of their number was discharged.
After the City of Fort Worth had docked at Philadelphia on
July 25, and Warren, Tracey, Pfuhl, Sudth, and Ferguson had signed off
the shipping articles, the respondent informed then that they would not
be engaged for the next voyage. Because of Perguson's participation in
the strike the respondent refused to pay him a bonus of $25 to which he
was entitled for having worked a full year for the respondent. All of
the strikers who had not been discharged, with but one exception, struck
in protest against the respondent's refusal to re-chip the above-named
men. 12/ At his own request, Joseph Crassavas, one of the strikers, was
later reinstated, The record does not show that any of the other strikers
have ovor requested reinstatement; at the time of the hearing this strike
was still in progress.
The have found that the strike of July 25 ims caused by the
discharge of Warron, Traccy, Pfuhl, Smith, and Forguson. Wo find below
that the respondent by discharging the five named employees ongagod in
an unfoir labor practice. We find therefore that the striko of July 25,
1938, was caused and prolongod by the respondont's unfoir labor procticus.
The respondent contonds (1) that the cuployment of the pursons
named in the complaint torminated when they signed off the shipping
articles on July 25, 1938, and that consequently they word not discharged;
(2) that their participation in the sit-down striko justified the rospon-
dont's refusal to ru-ship those mon; (3) that their violation of the
torms of the shipping articles justified the respondent in refusing to
re-ship thom; and (4) that the porsons refused re-shipuent muro thus
refused for good and sufficient cause unrelated to thoir union membership
and activity.
1. The shipping articles
Pursuant to statuto soûmen are required to sign shipping
articles at the beginning of each voyago and to sign off the articlos at
the conclusion of onch voyago. 13/ This requirement, however, does not
procludo the employer and his crow "from miturlly undortaking to assure
a crow the right to continuo as employees end to ro-sign if it dosires
after signing off articles at a voyago's ond." 14/ The record is plain
that the moro tormination of a voyago covered by shipping articles doos
not terminato the employee statum of the respondent's employees horo
involved without some furthor action by oithor the respondent or the
employees. Most of the socien involved in this procouding had worked
continuously on the City of Fort Worth for a considerable poriod of time,
boing employed in the purformance of odd jobs on the ship botwoon
voyages. 15/ In accordance with the respondent's custom, the sonaon
usually sign the now articlos for the noxt voyago at the time they sign
off the old. Loreowr, own in those instances in which the old and now
articles an not signed on the anno day, the soumon consider thomselvos
engaged for the next voyago unloss thoy are notifiod to the controry,
12/ This employee was Alexandor A. Brown.
13/ 46 U.S.C.A. 564, 574.
W Waterman Stoanship Corporation V. N.L.R.B., 60 S. Ct, 493, rov's
103 7, (2d) 157 (C.C.A. 5), and onf's Mattor of Wotorman Stormship
Corporation and National Khritimo Union of America, Engine Division,
Mobile Branch, Mobilo, Alabama, 7 L.L.R.D. 237.
15/
Thus Tracoy had boon employed continuously over a puriod of 16 months,
Forguson for a period of 1 your, Pfuhl over a poriod of 8 months,
Warron over a period of 6 works, and Smith over 1 poriod of 18 months.
Each round-trip voyago of the City of Fort Worth is schoduled to
take about 25 days.
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929-D
No find that the tenuro of employment of the respondent's
soamon is not tensinated by the mere expiration of shipping articles. 16/
No find, accordingly, that on July 25, 1938, the employment of the five
men named in the complaint did not automatically terminate, but that
they were discharged by the respondent on that day. 17/
2. The "sit-down" strike
In its answer to the complaint, the respondent alleges, intor
alia, that the employees named in the complaint "unlawfully took posses-
sion of said steamship and solicited, incited and stirred up other
members of the crew of said stearwhip to disobey and resist the lawful
orders of the master and other officers of said steamship and to refuse
to perform their proper duties on board said steamship." During the
hearing the respondent sought to show that the union mombors took
possession of the City of Fort Worth "or portions thereof" and
"explicitly engaged in a sit-down strike and were guilty of unlandul
acts and were trespassers." Accordingly the respondent argues that it
who justified in refusing to ro-ship the five securion must in the com-
plaint. The respondent's contention finds no support in the rocord,
Wo have found above that the strike 1.08 caused and prolonged
by reason of the respondent's unlawful refusal to bargain collectively
with the Union. The strike continued for 11 hours during which the
striking employees refused to wort: and sat dom on the poop deck, The
City of Fort Worth was moored to the dock at Houston during the entire
day and the refusal of the strikers to perform their duties in no männer
endangered the safety of the ship, 18/ Moreover, the strikers neither
unlawfully scized any portion of the ship nor despoiled any of the
respondent's property thereon, 19/ The striking employees nerely cat
on the poop dock, the usual place of monting and recreation for sembers
of the crew when off duty; the ship "remained fully in tha possession
16/
In N.L.R.B. V, Waterman Steamship Corporation, cit. super., the
Supremo Court, after reviewing ovidence in support of a cisilar
finding of the Board, stated that "maritive people generally" have
recognized that tenuro of employment does not torminate with the
expiration of shipping articlos. Soo also Nattor of South Atlantic
Steanship Company of Dulaware and National Maritino Union of America,
12 N.L.R.B. 1367; Matter of The Toxas Company, Marine Division and
National Maritimo Union, Fort Arthur Branch, 19 N.L.R.B., No. 89;
and Matter of Calmar Stoarwhip Corporation card National Maritive
Union of Amorica, ot al., 18 N.L.R.B., No. 1.
17/ Even were 1/8 to cesumo that the omployee status of those solumn did
in fact cease with the tornination of thair shipping articlos, it is
undonied that they wore refused roomployment. A discriminatory
refusal to employ is no loss a violation of the Act than is a dis-
criminatory dischargo. dec lister of Vaunboe Hillo, Inc. and United
Toxtilo Workers of America, 15 N.L.R.B. 37. The respondont's con-
tention is thns no dofonse, in any wont, to an alloged violation
of Section 8 (3) of the Act.
18/ Soo F.L.R.F. V. Black Dismond S, S, Corporation, 94 F. (2d) 875
(C.C.A. 2) unf'g Matter of Black Diamond Stormship Corporation and
Marine Engineers' Buneficial Association, Local No. 33, 3 N.L.R.B.
84, and Of. Room V. United Status, 95 F. (2d) 754 (C.C.A. 4) in
thich the Court found that the ship upon which a strike occurred
"was not in fact moored to the dook or at anchor in a safe herbor,
but was in such a position that the obodionce of the crow to the
orders of the naster was essential to her sofety."
19/ of, F.L.R.B. V. Fanstool Motallurgical Corporation, 306 U.S. 240,
off's. 98 F. (2d) 375 (C.C.A. 7), unf'g as mod., Inttor of Fanatool
Octollurgical Corporation and Amalgamated Association of Iron, Stool
and Tin Workurs of North Amorica, Local 661, 5 N.L.R.B. 930, and
Schooly & Frico Company V. N.L.R.B., 106 F. (2d) 876 (C.C.A. 3)
snf'g as mod., Matter of McNocly & Price Company and National Loathor
Workers Association, Local No. 30, of the C.I.O., 6 N.L.R.B. 800.
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929-D
of the respondent and its authorized officers" 20/ and the work of loading
the ship proceeded without delay. No attempt was made by the strikers
to interfero with the normal operations on shipboard, and as we have
noted, the vessel sailed on schedule at the conclusion of the strike on
the same day. At no time did the strikers clain to hold the ship in
defiance of the right of possession of the owner nor did their presence
on shipboard constitute a trespass. 21/ Unlike an industrial plant, a
ship is not only the place of employment but also the living quarters of
the crew, Consequently their nere presence on the ship, in the absence
of interference with its control by the respondent's officers could not
constitute a trespass, nor ore the strikers regarded as trespassers by
the captain or other officers of the ship. At no time were the strikers
ordered to leave the ship. 22/
The evidence affords no basis for finding that the conduct of
the union nembers during the strike projected them outside the framework
of protection afforded by the Act. We find that the respondent was not
warranted in discharging any of the union members solely because of
their collective activity in striking.
3. The alleged breach of contract
The respondent contends that the striking numbers of the crow,
by wilfully disobaying the lawful commands of the master and other
officers of the City of Fort Worth and by refusing to perform their
proper dutios on board this ship, breached thoir shipping articlos and
thereby afforded amplo and lawful cause for the discharges. Maritine
employees who sign shipping articles agroo:
to conduct themselves in an ordorly, faithful, honost and
sober mannor, and to bo at all times diligent in thoir
respective dutios, and to be obodiont to the lawful commands
of seid mastor
and of their superior officers, in
overything rolating to the vossel, and the storos and cargo
thoreof, whether on board, in boats, or on shore.
According to the respondent, by engaging in the striko and failing to
"turn to" at the command of the mistor, the union mombers broached their
shipping articles which constituted their contract of employment with
the respondent.
20/ OF. H.L.R.B. V. Stackpolo Carbon Company, 105 F. (2d) 167 (C.C.A. 3)
onf's as mod., Mattor of Stackpolo Carbon Company and Unitod Eloctrical
& Radio Workers of America, Local No. 502, 6 N.L.R.B. 171.
21/
Sce American Kenufacturing Co. V. H.L.R.B., 60 Sup. Ct. 612, aff'g
38 nod., 106 F. (2d) 61 (C.C.A. 3) onf'g as mod., Matter of Amorican
Manufacturing Company: Company Union of the American Hanufacturing
Company: the Collective Bergaining Comdittoo of the Brooklyn plant
of the American Manufacturing Company and Textilo Workers' Organizing
Committoo, C.I.O., 5 N.L.R.B. 443, in which the court stated:
No do not regard the action of those or other on-
ployees in standing cround the promises for & poriod of not
moro than two hours, while an attempt was being made to por-
suado the Company to fix a date for collectivo burgeining
with T.W.O.C., as in the naturo of a sit-down strike which
would pormit the tormination of the employee rolationship.
They certainly were not claiming to hold the premisos in
defiance of the right of possossion of the owner and TVO
rogard the case as no difforent from that of on ordinary
striko where work has cuased because of an unftir labor
practice.
22/
During oral orgument before the Board, counsel for the respondent
assorted that the conduct of the strikors in remaining on board who
considored loss scrious then if they had loft the vessel.
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929-D
The fact that the striking seamen refused to obey the respon-
dent's orders during the strike is not in dispute. The mere fact that
such refusal constituted a breach of contract, however, is immaterial
to the issues here involved. 23/ We recognize that an employer may law-
fully discharge his employees because of their failure to obey his orders
or thoir refusal to perform their duties, whether or not such failure
or refusal constitutes & breach of an express contract of employment.
The undertaking by employees that they will obey the orders of their
employer and perform their duties is necessarily implicit in every form
of hire and tenure of employment. Whenever employees during a labor
dispute cease work in order to striko, necessarily during the period
of the strike they neither oboy their employer's orders nor porform the
duties for which they wore hired, Nonetholess they remain employees
within the meaning of the Act 24/ and are entitled to the protection
afforded under the Act against discrimination by the employer. 25/
Wo have found that the strike horein was attributable to the
respondent's unlawful refusal to bargain colloctively with the Union and
that the conduct of the union members during the striko was in no manner
unlawful or otherides boyond the limits of permissible activity. No
therefore find untonable the respondent's contention that the dischargos
were lawful and justified bocause the strike in offect constituted a
breach of contract. 26/
23/ An agroement not to striko, when validly ontered into by a labor
organization as a result of collective bargaining, is, of courso,
binding upon the numbers of the labor organisation. Shipping
articles, however, are individual contracts and cannot lawfully
bo construcd under the Ast as requiring that onch scaman renounce
the right to solf-organization and collectivo bargaining or under
normal circumstancos refredn from striking in order to protoct such
right. Cf. Mattor of Aroade-Sunshino Company, Inc. and Laundry
Workers Cleanors & Dyors Union, 12 M.L.R.D. 259.
24/ Soction 2 (3) of the Act.
25/ Black Diamond S. S. Corporation V. N.L.R.B., 94 F. (2d) 375
(C.O.A. 2), onf'd Mattor of Black Diamond Steanship Corporation
and Marine Engineers Benoficial Association, Local No. 33,
3 N.L.R.E. 84.
26/ Cf. N.L.R.R. V. Sanda Manufacturing Company, 306 U.S. 332, whorein
the Court Cound that the repudiation by the employees of their agroo-
vont was not caused by any unfeir labor practices of the employur.
It should be noted morcover that the employees named in the
complaint wore not discharged forthrith upon thoir failure to
"turn to" but wure permitted to work for 7 days until the ship
docked in Philadolphia. Even assuming the v.lidity of the rospon-
dont's contention that the brotch of the shipping articles
afforded justification for the discharges, it may reasonably be
argued that the respondent, in continuing to avoil itsolf of the
employees' services for a period of 7 days after the allogod broach
of contract, waived such broach.
In the law of Whater and Sorwint, if the Master
has causo justifying the dischargo of the scrvent, and
novortholoss continuos, with knowledge of the facts, to
rucoive the bunofit of the sorvint's servicus, he caunot
aftorwards maleo c.so bronch ground for discharge
...
The employer has no right, whother he dosiros
it or not and whatever intontion he manifests, to continuo
employment and yot rotain the privilogo of assorting a
broach of condition. It 1s true that an employee may
consent to be retained on such terms, but his cloarly
manifosted assont is nocessary, for it cannot be prosuned
Williston on Contracts, Rov. Ed., Vol. 3, S. 725,
P. 2062,
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929-D
4. Defenses with respect to the
individual discharges
Although the defenses discussed above were the only defenses
assigned by the respondent in its answer for the discharges of the five
seanen named in the compla 1, during the hearing the respondent sought
to show that in addition there existed other causes for tue discharges.
a. John J. Tracoy and Elmer J, Ferguson
Tracey had been employed continuously by the respondent since
March 10, 1937, as an ciler, Ciroman, and viper. He was the engina-
civision delegate of the Union and had obtained the memberships of nine
mombers of the crew. Forguson, a fireman, had been employed continuously
by the respondent since July 1937. Although Ferguson held no office in
the Union, we have observed his activity at the beginning of the strike
on July 18.
The respondent's witnesses admitted that Tracey and Ferguson
were selected for discharge solely because of their acte during the
striko, Socond Assistant Engineer Rotinson tostified that Trucey had
"throatoned" hin when he told the oiler that he was going to put the
steam on deck himself. According to Robinson, Tracoy had replied, "You
had bottor not. You will be sorry." Robinson further tostified that
when he began to turn on the stoam, Traccy said, "Go alicad, you won't
have any aftor 8 o'clock," According to Treecy's testimony, he morely
asked Robinson, "Second are you going to light the fires?", and that
when Robinson answored in the affirmativo, be replied, "That's all I want
to khow."
Even accopting Roldnson's voraion of the incident TO do not
believe that Traccy's statements can be construed as throatoning, and it
in apparent from the testimony that they word not so construed by Robinson.
On cross-examination Robinson stated that ho rocommended Tracoy's dis-
charge because the latter Lud given him "back talk."
The ovidence is plain that both Traccy and Forguson were dis-
charged becauso of the loading parts they played in the striko, Chief
Engineer Norton tostifiod that he did not rocomsond Forguson's discharge
marcly because ho had disobeyed orders, "I would have overlooked that
had ho talion the firos until TO got straightoned out," Captain Hudan
tostified that ha discharged both those non upon Norton's complaint that
"they had boon on watch at the time of the comoncement of this what I
consider disobodionco, and if they had gono on witch at the timo, that
the rost of the non probably would have followed
Wo find that the respondent, by discharging Tracoy and Forguson,
discrimintted in rugard to their ldro and tonuro of employment, thoroby
discouraging membership in the Union and intorforing with, rostraining,
and coorcing its employees in the exorciso of the rights guarantood in
Suction 7 of the Act.
At the timo of thoir discharge Traccy and Forguson were carning
$85 and 375 a month, rospoctivuly, plus maintonance on shipboard, At the
time of the hearing neither had boen employed since his discharge.
b. John Pfuhl, Jr.
Pfuhl, on able souman, had bown continuously employed by the
r:spondent ainco November 24, 1937. H₃ joined the Union on Juno 30, 1938,
and participated in the striko of July 16.
At the hoaring the respondent sought to show that in addition to
having ongagod in the stri , Muhl had boon convicted of potit lareony
- 12 -
929-D
prior to his employment by the respondent and had been arrested for
larcery during his employment, and that his criminal record, taken in
conjunction with his inefficiency and negligence as an employee, war-
ronted his discharge.
Captain Ruden testified that Pfuhl lied served under three mates
and that all had complained that he was a slow worker. Piuhl admitted
that c. complaint had been nade concerning his work on his first voyage
in November 1937, but he testified that no complaint was made thereafter.
Since Pfuhl was re-shipped several timer despite his alleged slownoss, we
do not believe that this was a notivating factor in his discharge. 27/
There was testimony that on two occasions Pfuhl negligontly spilled paint
on the deck. He had been re-shipped, however, after he had spilled paint
on the first occasion, and the testimony shows that the second offense
uns not brought to the respondent's attention until after the respondent's
officers huo decided to discharge him. Moreover, on soveral occasions
other suamm had spilled paint and had not boon disciplined.
Finally, the respondent wges that prior to his employment,
Pfuhl had been convicted 01" octit larceny end that during his employment
no hrd boan arrested for a similar offenso. That Phil's criminal record
una not disturbing to the responsent and was not the cause of his dis-
charge is plain from the tostimony. The respondent did not find Pfuhl
an undesirable employee after his arrost since he THE permitted to con-
tinus in the respondent's employ and the officers of the ship apparently
hand no knowledge of his provious conviction at the tim they decided to
discharge him.
Captain Rudan's tostimony makes it abundantly clear that the
notivating factor in the respondent's Cocision to discharge Pfulil was his
participation in the strike. Prosumebly Pfuil's personal record did not
disqualify hin as an employee, according to the respondent, but did con-
stituto a bar to his union activity. "After boing laniont with Ma,"
Rudan explained, "ho had indulged in V.1a disobodience down there."
Tie find that the respondent, by discharging Phil, discriminated
in regard to his hire and tenuro of employment, thereby discouraging
membership in the Union and interforing vith, restraining, and coarcing
its employees in the exercise of the rights guarantood in Soction 7 of
the Act.
At the time of his discharge Pf:h1 vas earning 75 per month
plus mintonance on shipboard. Betwoon the dato of his discharge and
the date of the hearing, ho sucured to temporary jobs on mitlch he earned
a total of 0182.50, plus crintonenco on shipboard during one of these
periods of employment.
C. Joucph G. Terron
Parren, on able socman, had boon continuously employed by the
respondent for about 6 works prior to his discharge. Earron was the deck
delogato of the Union and the recognized leader of the strikers.
The respondent urgos 18 contributing factors in its selection
of Parten for dischargo, his intoxication on throo occasions during the
poriod of his employment, and his arrost for cursing. About a month prior
to his discharge Warron became intoxicated and was unable to work for 1
day. on the second occasion, Terron reported to work late.
third spnio occurred while he was off duty.
27,
Contennery Tard Co. V. Mational Labor Relations Doard, 107 F. (2d)
555 (C.C.A. 7) onf'g as modi, Matter of Mont Namily Card :- Company and
Roubon Litzonborgor, ot al., ? N.L.R.3. 536, wherein the Court stated,
"Although long service dous not nocessarily indicato efficiency, it
doos indicato that the employee's work is not considered no unsatis-
factory as to morit dischargo."
- 13
929-D
Te entertain no doubt that an employee's intoxication pro-
vides ample reason for his discharge. To believe, however, that the
respondent did not discharge larren for this reason, but rather that it
siczed upon his drinking proclivities to rid itself of an active union
officer. No have observed that the respondent did not ascribe Warron's
drunkenness as the reason for his discharge in its answer to the complaint.
Warren had been re-shipped after his arrest and after two instances of
intoxication. Lioreover, the evidence shows that beer is sold on board
the City of Fort Worth and that it is not uncommon for seamen to becoue
intoxicated.
We find that the respondent, by discharging Warren, discriminated
in regard to his hire and terms of employment, thereby discouraging
montership in the Union and interfering with, restraining, and coercing
its employees in the exercise of the rights guaruntoed in Section 7 of
the Act,
At the time of his discharge, Warren was carning 375 per month
plus maintanance or, shipboard, Warron did not appear at the hearing and
the rocord does not show the amount of lds carnings, 1." any, since his
discharge.
d, Edward W, Smith
Saith, the crew messboy, was the steward delegate of the Union.
At the time of his discharge, he had been umployed continuously by the
respondent for approximately 18 months. Kuhtroiber, the stoward, tosti-
fied that Smith W.S surly and did not do his work properly, that he
quarroled with the cook, and that the cook had requested that he be dis-
charged. Kuhtreiber admitted, however, that these facts wore reported
to the Captain about 3 months prior to Suith's discharge.
Smith was admittodly popular with the crow and was re-shipped
soveral times after the reports of his alleged shortcomings. Kuhtroiber
fruely admitted that he recomended that Smith be discharged because ho
winted "to put his hoad a little bit wiso," and that ho intonded at the
timo Smith TRAS dischargod to roemploy him within c short time. On cross-
examination Sherry admitted that Smith was discharged occause of his
participation in the striko.
No find that the respondent, by discharging Smith, discriminated
in regard to his hire and tenuro of employment, thereby discouraging
numborship in the Union and interforing with, rostraining, and cocrcing
its employees in the exerciso of the rights guarantood in Soction 7 of
the Act.
At the time of his discharge Smith was carning 352 por month,
plus maintonanco on board into ship. At the the of the honring, Smith
had otrned $36 sinco his dischArge on a trial run of a United Statos
cruisor.
IV. The offect of the unfair labor
proctices upon comorco
The activities of the respondent sct forth in Soction III A,
B, and C above, occurring in connection with its operations described
in Soction I above, have a close, intimato, and substantial rolation to
trado, troffic, and commerce among the soveral States, and tond to load
to labor disputos burdening and obstructing commorco and the froo flow
of commorco.
The Romody
Having found that the respondent has ongaged in cortain unfoir
labor |recticos, TFO shall order it to octso and dosist from such practicos
- 14 -
929-D
and take certain affirmative action designed to effectuate the policies of
the Act.
Having found that the respondent refused to bargain collectively
with the Union as the exclusive representative of its employees within an
appropriate unit, we shall order the respondent, upon request, to bargain
with the Union as such representative.
We have found that the respondent, by discharging John J. Tracey,
Elmer J. Ferguson, Joseph G. Marren, John Pfuhl, Jr., and Edward W. Smith,
discriminated against them in regard to their hire and tenure of employ-
ment. We shall therefore order the respondent to reinstate these employees
to their former or substantially equivalent positions without prejudice to
their seniority and other rights and privileges, end to make them whole
by payment to John J. Tracey, Klaer J. Ferguson, Joseph 0. Warren, and
Edward II, Smith, respectively, of a sun of money equal to the amount ho
would normally have earned as wages from July 25, 1938, the date of the
discrimination against him, to the date of the offer of reinstatement,
including the value of maintenance on shipboard calculated at the rate of
$2.35 per day, 28/ less his net earnings 24/ during such period. There
shall be added to the amount thus due to Perguson, the bonus of 825 to
which he was entitled on the day of his discharge by roason of his contin-
ued service with the respondent. The Trial Examiner did not recommend
the reinstatement of Pfuhl, because of his personal record. Wo shall not
follow the recommondation of the Trial Extudnor. The respondent has not
shown, and indood the rocord bolios the ruspondent's contention, that a
conviction for a disqualifies an employee for continued em-
ployment. The respondent, homever, shall not be required to give Pfuhl
back pay from February 25, 1939, the date of the Intermodiato Report, to
the dato of this Decision. The back pay awarded Pfuhl will be a sun of
monoy oqual to the amount which he would have normally carned from July 25,
1938, to February 25, 1939, and from the dato of this Docision to the date
of offer of roinstatomont, including the valuo of maintenanco on shipboard,
calculated at the rate of 2.35 por day, loss his not carnings during such
poriod.
Prior to the hoaring, one of the seven strikers who wont on,
strike on July 25, 1938, in protost against the discriminatory dischargos,
had been reinstated. Since this strike was caused by the respondent's
unfair labor practices, in order to effectuate the policies of the Act,
we shall order the respondent, upon application, and upon the first avail-
able sailing date after such application, to offer to the other six
employees who struck on July 25, 1938, reinstatement to their former or
28
The parties stipulated that the value of maintenance on shipboard
was $2.35 per day.
29
By "net earnings" is meant earnings less expenses, such as for trans-
portation, room, and board, incurred by an employee in connection
with obtaining work and working elsewhere than for the respondent,
which would not have been incurred but for the unlawful termination
of his employment and the consequent necessity of his seeking om-
ployment elsewhere. See Latter of Crossett Lumber Company and
United Brotherhood of Carponters and Joiners of America, Lumber
and Samill Workors Union, Local 2590, 8 N.L.R.B. 440. Monies received
for work performed upon Federal, State, county, municipal, or other
work-relief projects are not considered as earnings, but as provided
below in the Order, shall be deducted from the sun due the employee,
and the amount thereof shall be paid over to the appropriate fiscal
agency of the Foderal, State, county, municipal, or other govern-
ment or governments, which supplied the funds for said work-relief
projects.
- 15 -
929-D
substantially equivalent positions, without projudice to their seniority
and other rights and priviloges, dismissing if necessary any employees
since hired to replace then, 30/
We shall also order the respondent to make whole the said six
persons for any loss of pay they may suffer by reason of any refusal of
their application in accordance with the provision above, by payment to
each of them a sus of money equal to the amount which he normally would
have earned as wages, including the value of maintenance on shipboard,
calculated at the rate of 32.35 per day, during the period from the date
of any such refusal of ide application to the date of reinstatement, less
his net earnings during such period.
Upon the basis of the foregoing findings of fact and upon the
entire record in the case, the Board makes the following:
Conclusions of Law
1. National Maritino Union of America, affiliated with the
C.I.O., is a labor organization, within the meaning of Section 2 (5) of
the Act.
2. By discriminating in regard to the hire and tenure of employ-
ment of Joseph 0, Warren, John Pfuhl, Jr., Elmer J. Ferguson, Edward W.
Smith, and John J. Tracey, thereby discoura ing membership in the National
Earitime Union of America, affiliated with the C.I.O., the respondent has
engaged in and is engaging in unfair labor practices, within the meaning
of Section a (3) of the Act.
3. The unlicenso. personnel employed in the deck, engine, and
stewards' departments, except wireless and radio operators, chief elec-
tricians on electrically driven ships, and junior engineers who nold
licenses, on vessels operated out of Atlantic and Gulf ports by the
respondent, constitute a unit appropriate for the purposes of collective
bargaining, within the meaning of Section 9 (b) of the Act.
4. The National Maritine Union of America, affiliated with the
C.I.O., is and at all times since January 26, 1938, has been, the exclusivo
representative of employees in such unit, for the purposes of collectivo
bargaining within the meaning of Section 9 (a) of the Act.
5. By refusing on or about January 26, 1938, and at all times
thoreafter, to bargain collectively with the National Maritimo Union of
America, affiliated with the C.I.O., as the exclusive representative of
all its employees in such unit, the respondent has engaged in and is on-
paying in unfair labor practices, within the moaning of Soction 8 (5) of
the Act.
6. By interfering with, restraining, and coercing its employees
in tho exercise of the rights guarantood in Soction 7 of the Act, the
respondent has ungaged in and is ongaging in unfair labor practices, with-
in the noaning of Soction 8 (1) of the Act.
7. The aforessid unfair labor practices are unfair labor prac-
ticos affocting commres, within the moaning of Soction 2 (6) and (7) of
the Act.
ORDER
Upon the basis of the above findings of fact and conclusions of
law and pursuant to Suction 10 (c) of the National Labor Relations Act,
30,
See Black Diamond Stormhip Corporation V. F.L.R.B., 94 F, (2d) 875
(C.C.A. 2) onf's lattor of Black Diamond Stocyship Corporation and
Marine Beneficial Association, Local No. 33, 3 N.L.R.B. 84.
- ló -
929-D
the National Labor Relations Coard hereby orders that the respondent,
Southern Stomehly Company, Philadelphia, Peunsylvania, and its officers,
agents, successors, and costgns, shall:
1. Cause and donist from:
(n) Discouraging naiborship in National Heritime Union
of America, a/iiliated with the C.I.O., or any other Inbor organization
of its miloyes by discharging or refusing to reinstate any of its on-
ployees, 0," in any other manuer discrimin ting in regard to their hire
and tenure of employment or any terms or conditions of their employment;
(5) Refusing to bargain collectively with the National
Enritine Union of America, illiated vita the C.I.C., as the axclusive
representativo of the unlicensed porsonnel employed in the dock, engine,
and steveris' departments, accept viraless and radio operators, chief
electricians on electrically drivon ships, and junior engineers who hold
licensos, on vessels operated one of Atlantic and Onl." ports by the
respondent;
(0) In any other nanner interforing with, restraining, or
coorcing its employees in the exprcise of the right to solf-organisation,
to form, join, or assist labor organizations, to bargein collectively
through representatives of thair own choosing, and to engage in concorted
activities for the purpose of collective bargeining or other mutual mid
or protection, as guarantood in Section 7 of the National Labor Relations
Act.
2. Take the following affirmativo action which the Board finds
will effectuate the policios of the Act:
(a) Upon request, bergain collectively with the National
Maritino Union of Amorica, affiliated with the C.I.O., == the exclusive
reprosentative of the unlicensed personnel employed in the dook, ongino,
and stamards' departments, except wircless and radio operators, chief
cloctricians on electrically driven ships, and junior engineers 1/20 hold
licenses, on vessols operated out of Atlantic and Gulf corts by the
respondent, in respect to ratos of pry, years, hours of employment, and
other conditions of employment;
(b) Offor to Josuph 3. Marren, John Pfuhl, Jr., Elmor J.
Forguson, Edward TS. Sudth, and John J. Tracey 1.medi- to and full roin-
statement to thoir former or substantially oquivalent positions, without
projudice to their seniority end other rights and privilogos proviously
enjoyed by thom;
(c) Enlos whole Josoph G. Threen, Elser d. Forguson,
Edward N. Smith, and John J. Tracey for any loss of yy they may have
suffered by reason of the respondent's diverimination in regard to their
hire and tenure of employment, by payment to each of then of = sun of
monny equal to that which ho would normally have anrned as nages, including
thorein the value of mintonanco on shipborrd c:lculated at the rate of $2.35
por day, from July 25, 1938, to the date on which the respondant offors
him roinstatument (and adding thorato in the caso of Ilsuer J. Forguson
the bonus of 25 do him on the data of his discharge), loss his not
comings during cold period; provided, however, that to respondent
shall doduct from the amount thus due him, nonles received by his curing
scid period for work performed unon Fuderal, State, county, municipal,
or other work-rolior projects, and pay over the amount, 20 doductor, to
the corropriato fiscal agency of the Fodoral, State, county, municipal, or
other government or governments which su> lied the funda for and work-
rolief projects;
(d) Meko whole John 20thl, Jr., for my loss of pry he may
have suffired by risson of the respendent's discrimination in regard to
17 -
929-D
his hire and tenure of employment, by payment to him of & sum of money
equal to that which he would normally have earned as wages, including
therein the value of maintenence on shipboard calculated at the rate of
82.35 per day, from July 25, 1938, to February 25, 1939, and from the
date of this Decision to the date of offer of reinstatement, less his
net earnings during snid period; provided, however, that the respondent
shall deduct from the mount thus duo him, monies received by him during
such period for work performed upon Federal, State, county, mnicipal,
or other work-rolief projects, and pay over the amount, so deducted, to
the appropriato fiscal agency of the Federal, State, county, municipal,
or other government or governments which supplied the funds for said
work-relief projects:
(e) Upon application, and upon the first available snil-
ing date after such application, offer to William Reoves, Henry A. Lathan,
William Gedfroy Burns, Rivard B. Hughos, Gordon Neeley, and Charles C.
Holt, immediate and full reinstatement to their former or substantially
equivalent positions, without prejudice to their seniority or other
rights and privileges proviously enjoyed by them, dismissing, if necessary,
those who have been hirod to replace them;
(f) Miko whole William Recves, Henry A. Lathan, William
Godfroy Burns, Hilmrd B. Rughos, Gordon Noeley, and Charles C. Holt, for
any loss of pay they may suffer by reason of any refusal of thoir an-
plications for reinstrtement, ns provided in the section entitled "The
Remody," by payment to each of then a sur of money equal to that which
he would normally have earned 18 mgs, including thorein the value of
maintenance on shipboard calculated at the rate of $2.35 per day, from
the date of any such refusal of his application to the date of offer of
reinstritement, loss his net earnings during said period; provided, how-
ever, that the respondent shrll doduct from the amount thus due him,
monies received by him during said period for work performed upon Federal,
State, county, municipal, or other work-rolief projects, and pay over the
amount, BO deducted, to the appropriate fiscal regency of the Federal,
State, county, municipal, or other government or governments which sup-
plied the funds for said work-relief projects;
(E) Post immodintely notices to its auployees in conspic-
ucus places on its docks and on its vessuls, and maintain such notices
for n period of at lost sixty (60) consocutive days from the date of the
posting, stating: (1) that the respondent will not engage in the conduct
from which it is ordered to conse and desist in paragraphs 1 (a). (b), and
(c) of this Order: (2) that the respondent will take the affirmative action
required by paragraphs 2 (a), (b), (c), (d), (e), and (f) of this Order;
and (3) that the respondent's employees are free to become or remin neo-
bors of the National Maritime Union of America, affiliated with the C.I.O.
and that it will not discriminate against any employee because of member-
ship or activity in that organization;
(h) Notify the Regional Director for the Fourth Region in
writing within ton (10) days from the date of this Order what stope the
respondent has taken to comply herewith.
Signed at Washington, D. C., this 22nday of april 1940.
J. Warren Madden
Chairman
Edwin S. Smith
Member
To. M. Loiserson
Member
(SEAL)
NATIONAL LABOR RELATIONS BOARD
- 18 -
PSF
THE WHITE HOUSE
Currie
WASHINGTON
May 4, 1940.
MEMORANDUM FOR LAUCHLIN CURRIE:
Will you see Wagner and Meade
about this.
The general idea is
pretty good.
F.D.R.
THE WHITE HOUSE
WASHINGTON
May 3, 1940
MEMORANDUM FOR THE PRESIDENT:
Re: Finance Requirements of Small Business
A day or so before we discussed this
matter Jerome Frank renewed his proposal
and it appears to have aroused a good deal
of interest and approbation. It occurred
to me that with the addition of your idea
of diversification, it comes quite close
to your view. I am attaching & brief
summary of the plan, together with some
outside comment.
If you think you would like to adopt
this plan with certain modifications, you
might consider letting Senator Mead be one
of the sponsors. It might be advisable,
however, to have Wagner's name precede
Mead's, since Wagner is the Chairman of the
Committee and the "Mead Bill" has acquired
certain connotations.
Lanch Curne
Lauchlin Currie
REGIONAL INDUSTRIAL FINANCE COMPANY
1. A regional industrial finance company will be set up in each
federal reserve district.
2. Each such finance company will procure its capital primarily
(and perhaps entirely) through investment in its own common stock by private
persons who, through directors elected by them, would manage and control
the finance company.
3. However, if and to the extent that any such company, in order
to procure sufficient capital, needed governmental assistance, the government
would give such assistance solely by buying the preferred stock of such
finance company. The preferred stock would have a low rate of preferred
dividends. It would either have no voting power or, as a class, the power
to elect only one director. The preferred stock would be redeemable at the
option of the finance company.
Governmental assistance in this form, to the finance companies,
would avoid the criticism of the kind of governmental assistance heretofore
proposed. Such criticisms would be applicable if the government purchased
the bonds of any such finance companies. For, if the government owned the
bonds of such a finance company and if that company did not succeed, the
government would become the owner of the finance company and would thus
become, in effect, the owner of the securities of business enterprises in
which the finance company had invested; in that way the government would be
in control of numerous small and medium sized business enterprises.
4. The plan involves a recognition of a fundamental difference
between (1) funds required by medium and small sized business for working
capital and (2) funds for such enterprises to be used for plant expansion,
i.e., fixed capital. A small or medium sized business can obtain funds for
working capital without danger, by borrowing through the issuance of bonds
or notes. But funds for fixed capital ought not to be borrowed. Such funds
should be obtained, by any medium or small sized business, through the sale
of its stock. As Mr. Owen Young said in May 1939 before the TNEC, where
money is borrowed to buy machines and the like, to fill orders, the money
should not be borrowed "because you can't liquidate the cost of machines
out of orders." What such businesses need for such purposes is not lenders,
but partners. The reason is as follows: Fixed capital is, by its very nature,
not liquid, and & business slump may interfere with paying interest on the
bonds, or paying the principal when it comes due, thus precipitating benk-
ruptcy. What a small or medium sized business needs for purposes of capital
expansion (as distinguished from working capital) is, therefore, not loans
but money procured through the sale of its stock.
For that reason each of the regional finance companies would
have the primary purpose of buying the stocks* of small and medium sized
business corporations, the proceeds to be used for capital expansion.
*
Preferably common stocks. SEC experience shows that preferred stocks are,
generally, bad medicine for most investors. Many authorities on finance agree
with that attitude. That may seem to be inconsistent with the purchase of
preferred stocks of the finance companies by the government. The answer is
that the government is not in the same position as the ordinary investor; also,
it is trying to aid business rather than attempting to act as an investor.
-2-
5. As above noted, funds for working capital, needed by promis-
ing and deserving small business enterprises can appropriately be procured
by loans. It might be provided that the finance companies could make loans
for working capital of, say, not to exceed $20,000 each.
6. The self-interest of the owners of the common stocks of the
finance companies would go to insure the fact that investments of the finance
company would be made in small and medium businesses which showed a real
promise.
In other words, the finance companies would not be eleemosynary
institutions or rescue agencies.
7. The need for such companies is shown by the fact that an
issue of stock by a small or medium sized business, in the amount of
$100,000 to $1,000,000, cannot be distributed through investment bankers
to the public at less than about 20 per cent of the face amount of the stock
issue. That is no fault of the investment banker; his overhead on a small
issue makes such distribution highly expensive. But the cost to the issuing
business is prohibitive. Most of that cost has nothing whatsoever to do
with registration under the Securities Act since the additional cost, of
selling such a small stock issue resulting from registration amounts to
only 1/2 per cent to 1 per cent of the face amount of the issue.
The virtue of the proposed finance company operations is that the
finance company would not distribute to the public the securities of the
companies in which they invested but would hold them; therefore, the huge
cost of public distribution would be avoided.
8. If and to the extent that such regional finance companies do
not receive assistance from the federal government, there is no need for
legislation relating to their creation. It is to be noted, however, the
type of company engaging in such financing is included in the investment
trust bill now pending in Congress, so that any such company would be subject
to federal supervision of the same kind as other investment trusts, if the
investment trust bill becomes law.
9. Quite legitimately (and also to avoid opposition from invest-
ment bankers) each regional finance company should be authorized to assist
investment bankers by agreeing to take some unsold portion of small and
reasonably promising stock issues of local businesses. And it might also
employ underwriters to market the stocks of such businesses after those
stocks have been seasoned in the portfolio of the finance company.
10. The regionalization of such finance companies is of very
considerable importance because people in each locality are far more likely
to know of promising business enterprises in their regions than would
investors in some distant portion of the country. Our internal frontiers
bilities. can best be opened up by those acquainted with the regional business possi-
Attachments
1. Copies of editorial comments on Frank's recent speech
of April 25, 1940 on regional financing.
2. Telegram from Beardsley Ruml.
3. Excerpt from testimony of Owen D. Young before the
Temporary National Economic Committee.
4. Copy of Frank's recent speech on regional financing.
N. Y. Herald Tribune
April 27, 1940
Capital for Small Business
It is generally admitted that a gap exists in
the financial machinery of this country in so
far as the capital needs of the small business
enterprises are concerned. The cost of raising
equity capital, in particular, for such compa-
nies is all but prohibitive, a fact which places
concerns of this category at a distinct com-
petitive disadvantage with their larger rivals.
In the old days it used to be that well-to-do
individuals in the community financed the
smaller local enterprises. Today. however, such
individuals are apparently more inclined to
put their funds into nationally known securi-
ties listed on the big exchanges.
Numerous proposals have been put forward
to meet this need, with the two best known,
perhaps, the first and second Mead bills. The
first of these measures would have provided
government insurance for loans made by
banks to small business. The second measure
went beyond that and would have set up a
Federal industrial loan corporation within the
Federal Reserve system, to be financed by the
United States government. But Jerome Frank,
who outlined his ideas on this subject on
Thursday in a talk at Cleveland, has, It seems
to us, a much sounder approach. Mr. Frank
would set up regional "investment companies,"
and instead of lending money these institu-
tions would provide equity capital for small
enterprises by buying their securities. In
several respects Mr. Frank's proposal tends to
get away from what were substantial weak-
nesses in the Mead bill and in other proposals
of the same general character. There is, first,
the advantage that his "trusts" would provide
equity capital, which is what most companies
really need and should have. Again, while the
government would furnish capital, it would in-
vest only in the preferred shares of the insti-
tution. It would have "little or no control" of
the banks' affairs. The risk capital, repre-
sented by common stock, would be provided by
private investors. In the third place, he does
not envision an eleemosynary institution, but &
company which would quite frankly be run on
a profit-making basis. And, finally, the or-
ganizations would be manned by local persons,
on the theory that they would be the best
judges of local conditions.
As we say, there will always be difficulty in
inducing private investors to take risks if they
are to be deprived of the advantage of these
risks as they are in such an important degree
today. But to the extent that some new type
of facility is required to mobilize capital for
small business Mr. Frank seems to have offered
much the best formula that has been produced
402735
COPY
TELEGRAM
May 2, 1940
1:26 P.M.
JEROME FRANK
CHAIRMAN SECURITIES AND EXCHANGE COMMISSION
CONGRATULATIONS ON YOUR CLEVELAND SPEECH. I HAVE JUST
RETURNED FROM ATLANTA WHERE I HAVE BEEN VISITING ONE OF
OUR STORES, DAVISON PAXON COMPANY. I AM CONVINCED THAT
A REGIONAL INVESTMENT COMPANY SUCH AS YOU OUTLINE WOULD
BE A GREAT BENEFIT FOR THE SOUTH ATLANTIC STATES AND
WOULD CONTRIBUTE MATERIALLY TO THE ECONOMIC WELLBEING
AND STANDARD OF LIVING OF THE REGION. THIS THING WELL
DONE WOULD START MANY OTHER THINGS GOING. HOPE TO SEE
YOU SOON. BEST WISHES --
BEARDSLEY RUML
R. H. MACY AND co., INC.
TREASURER
Excerpt from Testimony of Mr. Owen Young
Before the T.N.E.C. on May 17, 1939.
Mr. Young. Well, I think I don't think you can deal
with it through loans, Senator.
The fact about it is
that there is all the difference in the world between loaning
a company something where it turns over its capital and can
pay it back and lending money to buy machinery or something
of that sort, and have it fixed capital where it can't pay
back.
(Senatu
The Chairman. But I understood you to tell me, in your
opinion, there is an opportunity for adventure capital.
Mr. Young. Yes; equity capital but not loan capital.
I am making that distinction in reference to your term "loan
capital."
The Chairman. It isn't altogether clear to me why it
was an economical and wise thing for General Electric to borrow
money to adventure in this field and why it would be unwise for
a small enterprise to borrow money for that purpose.
Mr. Young. Oh, it isn't unwise for the small company to
borrow. Please don't misunderstand me.
The Chairman. Then I didn't get your explanation.
Mr. Young. Suppose a small company has a block of orders
here and it needs to buy materials and pay wages in order to get
them out, but it has the orders and the buyers are here. There
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is no reason why they shouldn't borrow money to carry that and
pay it out of the proceeds of the sale.
The Chairman. Then it comes down to this, that a loan
which is on security in the business is a perfectly proper loan --
Mr. Young. NO; if you will pardon me just a minute. It is
quite a different matter to borrow money to buila machines to
fill those orders because you can't liquidate the cost of the
machines out of the orders and, therefore, you have an unlimited --
there is no way of paying them back; you can't turn the machine
over to the bank very well.
The Chairman. But if the machines were to produce a product
for which there was an insured sale in an expanding industry,
would not that product be a --
Mr. Young. (interposing). It would over 2. course of time.
The Chairman. But that, of course, is what the little
business enterpriser says he can't get and what he should get.
Mr. Young. Well, what I think, he may be mistaken himself.
I don't think he wants loans. He needs partners to put up
money with him. That is what he needs.
Mr. Frank. Isn't the difficulty, if he borrows against a
fixed plant and if for any reason there is a temporary recession
so he isn't able to earn enough to pay the interest on the loan,
he is going to be foreclosed?
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Mr. Young. Bankrupt
Mr. Frank. Therefore, what he ought to have is a flexible
condition where those who advance the money are his partners and
will take potluck with him in those periods of recession.
Mr. Young. Quite right.
Mr. Frank. Mr. Young, I gather you think, if new and
small and medium-sized enterprises are to be aided, that you
would prefer to see that aid, assuming Government weren't to do
it, come in the form of equity financing rather than dispropor-
tionately through loans.
Mr. Young. I don't think that loans will solve the
problem at all. I have had some experience in watching the
applications of the Federal Reserve bank in New York, where I,
am chairman of the board of directors, and the great number of
cases that apply there for loans, even on a 5-year term, are
cases which need permanent fixed capital, capital to be invested
in new machinery, perhaps in new improved machinery, in the
development of processes, which in the nature of things can't
be paid back.
Mr. Frank. And even if the loan were of long term, the
fixed charge through interest might put the small, growing
business in a precarious position if there came a temporary
- 4 -
recession and default, whereas equity financing would avoid
that embarrassment.
Mr. Young. It would avoid that embarrassment.
CAUTION - ADVANCE
FOR RELEASE UPON DELIVERY
"REGIONAL FINANCING"
ADDRESS
of
JEROME N. FRANK
Chairman, Securities and Exchange Commission
Before the
KIWANIS CLUB OF CLEVELAND
Cleveland, Ohio
12:30 P.M., Thursday, April 25, 1940
I find that no member of the SEC has visited Cleveland since former
Chairman Douglas was here in 1938, That is much too long a time. As it is
one of the leading financial and industrial centers of the nation, we are
very much interested in Cleveland and its problems. In fact, we have, as you
know, opened one of our few branch offices here within the past eighteen
months, under the direction of your distinguished former State Securities
Commissioner, Dan T. Moore.
Mr. Justice Douglas, when he was here, some two years ago, addressed the
Cleveland Chamber of Commerce's "Committee of the Banks and Investment Bankers
of Cleveland." I wonder if you recall what a resounding challenge it was to
the financial leaders of your city. He pointed out that the proportion of
the magnitude of your industry and wealth in the Fourth Federal Reserve
District far exceeds your geographic proportion of the nation, but that your
financial leaders were not obtaining their pro rata share of the nation's
financial business. He pointed to the concentration of financial business
in New York and showed that, although in the two years just preceding his
talk, the Cleveland Federal Reserve District had been the domicile of cor-
porations offering 12 per cent of bonds and stocks, dealers in the Cleveland
district had participated in only about 5 per cent of all issues and had ac-
tually managed the distribution of only a little over two and one-half per
cent of all issues.
In conclusion he said:
"Undoubtedly, then, there is a considerable supply of funds available
for long term investment and a large demand for long term funds originating
in the Fourth District. Much of this might be matched regionally, but now
goes to New York to be matched there. Suppose a part of these amounts were
handled locally to form the basis of a regional capital market. What would
that mean to you and to the Fourth Federal Reserve District?
"I hardly need to tell you that it would mean more business for the in-
vestment bankers of the District, for the trust and registrar departments
of your commercial banks, and for lawyers and auditors of the District;
for printers of the prospectuses, etc. It would, indirectly, mean more busi-
ness for your banks in the form of loans on new securities and wider op-
portunities for investment. All of this is an important aspect of the prob-
lem, no doubt. To me, however, there are other aspects of at least equal or
greater consequence, though they may seen somewhat intangible.
"First and foremost, I should expect simpler and more conservative
finance, where finance is brought closer to the locus of business and where in-
vestors are brought closer to finance and investment.
"Second, I should hope regional financing would produce better planned
financing, since under that system, there might be greater freedom from the
scramble in the capital market for the issues of temporarily popular industries.
"Third, I should hope that regional finance might be able to develop an
adequate organization for the supply of long term capital, particularly in
equity form, to enterprises of moderate size.
"Fourth, I should expect that a reduction in absentee financing would re-
sult in a reduction of absentee ownership and management, with all of the ad-
vantages which flow from keeping business at home for the home folks.
- 2 -
"Finally, I should expect that the development of regional capital mar-
kets would bring new capital and new brains into the investment banking in-
dustry and the financial management of local business. This is not meant as
a reflection on its present personnel. But regional capital markets of suf-
ficient stature should help retain and employ the best of its own sons at
home.
"The development of regional capital markets seems to me to be eminently
desirable but it will not come just by talking and writing. Regional capital
markets, even under the best of conditions, can grow up only if local bankers
and local businessmen want them. With local patronage, development of re-
gional capital markets is possible. Without it, it is impossible. The prob-
lem therefore at this stage is largely in your hands."
I understand from friends of mine in Cleveland, that Mr. Justice
Douglas' talk made a great impression here and, what is more important, that
at least some leaders in your community decided to do something about it. I
understand that, as a result of their activity, the pro rata share of the
Cleveland District's participation in stock and bond issues has substantially
increased.
I entirely agree with what Mr. Justice Douglas said about the importance
of regional finance --- and not only as to its importance but as to the fact
that the initiative in fostering it must, in the final analysis, rest with
the leaders in those regions. They have it in their power to give more sub-
stantial aid in promoting the promising small business enterprises in their
respective localities. And many small businesses need and deserve such aid.
When I say that I am not to be understood as being opposed to all big-
ness in business. I believe that there are some industries where bigness is
today almost indispensable. But to say that bigness is necessary and desir-
able in some industries is not, by any manner of means, to say' the same thing
of all industries. There are many areas of American life in which there is
no need for bigness. It is foolish, therefore, to make an antithesis between
big business and small business. Each has its legitimate place in the
American scheme of things.
Do you remember the First Grade Reader story of the little pig and the
big giraffe? The little pig said it was better to be small and the big gi-
raffe said, no, it was much better to be big. They argued all morning, but
neither could prove his point. Finally, as they walked along, still arguing,
they passed a high wall. Now, on the other side of the wall there was an
orchard, and both the little pig and the big giraff wanted to go inside and
eat the apples and the tender leaves. The little pig looked and looked, but
could find no entrance. But the giraffe had no trouble in reaching his long
neck over the wall and eating all the leaves he wanted. "You See," he said,
"it is much better to be big." Then they walked on until they came to
another orchard enclosed by a high wall. This time the giraffe found he
could not stretch his neck over the wall to eat the leaves. But the little
pig found, at the bottom of the wall, a hole which was just large enough for
him to squeeze through. Into the orchard he went and ate his fill of the ap-
ples. Then he returned to the giraffe and said, "It is really much better
to be small."
Bigness as such is not a virtue. Neither is littleness. To worship
either, as such, is a neurotic obsession. To fear either, as such, is a
neurotic phobia. The fear of size, as such, is silly. The worship of
- 3 -
littleness, as such, is equally silly. In some situations, bigness is more
desirable. And the situation in which it is better varies with technological
conditions. Bigness and littleness are relative terms. Life is not static
and no size-formula can be static. Moreover, there can be no perfection:
There is, usually, not a "best" but merely a "better." And, when bigness is
preferable, devices must be sought which will offset, if possible, its defects.
It will not do to show the defects of bigness, in any given context, without
asking whether littleness, in that same context, would not be worse. And when
it comes to reducing bigness, one must ask, "How much reduction is now desir-
able?" There is need for scepticism concerning the dogma that the biggest is
always the best. There is also need for scepticism as to the opposing dogma
that littleness is always the best. Both dogmas are equally fallacious. As
to any specific industry, the question is always pertinent: "What, at this
particular moment, is the most desirable size?"
It is, accordingly, folly for anyone to say either "I am for oig busi-
ness" or "I am for small business." It is wiser to say, "I am for both, each
in its proper sphere." The result of not recognizing the folly of any basic
antithesis between the two is that a false issue is presented and that, as a
consequence, many persons, who quite rationally defend the rights and needs
of big business in certain industries, pay altogether too little attention to
the rights and needs of small business. In many sectors of American life,
small and medium sized businesses will always be the backbone of American
business. They often receive insufficient consideration from financial lead-
ers and government.
Local industries and regional industries must thrive and prosper. It is
imperative that they, as well as the giant corporations, should have credit
and capital facilities. And, with Justice Douglas, I feel that, as a general
rule, the fountain head of capital and credit for most local and regional in-
dustries should, as far as possible, be in the locality or region where they
are located.
Now I know that you have heard a great deal of talk about how the SEC
interferes with small business, and you may wonder how I, as a member of what
is said to be such an obstructionist agency, can consistently express sympa-
thy with the needs of small and medium size business. The answer is a simple
one: By and large, the SEC has practically no effect on small business.
That it has is a popular misconception. The fact is that, out of the million
or more businesses in this country, the SEC has in its entire life come in
contact with probably no more than a few thousand. By and large, we affect
only those who want to sell their securities to the public.
Naturally, I think you here in this audience know that those are not
small businesses. They are medium sized businesses. As you know, issues
under $100,000 are exempt from the SEC requirements. And a one-hundred thou-
sand dollar issue is a small issue only from the standpoint of a b1g company.
From the standpoint of the very great majority of businesses in America, such
an issue is a big issue. I assume that most of you are representatives of
small and medium sized business and I am sure that few of your companies have
much more than $100,000 of stock or bonds outstanding in the hands of the
public.
- 4 -
But very likely there are many of you who have felt that your capital
credit facilities were not what they should be. You have felt that it is
uch too hard to obtain the money you need for the legitimate expansion
our business even when you have orders on the book which would justify
an expansion. That, at least, has been the problem of thousands of
businessmen all over the country. And there is no" possible question
it is a very serious problem, not only for the particular businessman,
for the country as a whole.
We have stories of retailers and small manufacturers who could not
n bank loans without pledging as collateral so much of their inventory
to conduct business became virtually impossible. We have stories of
businessmen who have had to 60 to the commercial loan companies or to
actors or even in some cases to actual usurers to obtain vitally
sary capital at interest rates 30 large as to be literally staggering.
e have other stories of businessmen whose crying need was for partners
vest equity capital and wito could find only creditors who piled the
ess debt so high that the shadow of bankruptcy was often visible around
orner. I am not to be understood as blaming all those who make such
for the harsh terms they may exact; for, frequently, the nature of
loans, by ordinary lenders, justifies such terms.
Chere are two distinct problems involved: The first has to do with
ively small loans for working capital. The second has to do with funds to be
for plant expansion. It is with the latter, because of my SEC experi-
that I a.b. primarily concerned.
As I have said on many occasions, I as in favor of seeing a great deal
equity money and a great deal less debt money go into business,
ally where funds are needed for plant expansion. There is very little
city in debt. Interest charges are fixed, regardless of economic con-
is, American business is a growing, changing, thing. But an excessive
of interest charges, on funds used for capital expansion, is a static
The two are, to my mind, often incompatible. Let me give you a word
e of what I mean. On the one hand you have a spirited horse (American
ss) - rarin' to go. Or. the other, you have a Luge stake in the
- representing debt created in the past. Tying the horse that wants
forward to the stake which holds him to the past, you have the stout
f fixed interest charges on the debt. On the other hand, to carry my
e further, if you release the horse and give him an able rider in the
f d. partner with equity money, Le will really go places.
t is significant that, for many years since the last world war, an
sing number of our giant industrial corporations in our prosperous
ing industries have issued few, if any, bonds, but instead, have done
financing largely through stock.
he following editorial in the Wall Street Journal, for February 5.
is apposite: "A news article in a recent issue of The Wall Street
1
recorded the fact that many corporations are now applying cash in
of immediate working capital requirements to the reduction of debt,
sent of preferred stock or reduction of arrearages in cumulative divi-
on senior issues. detter net earnings of the latter part of 1939 have
rated these processes and it is anticipated that good earnings of the
quarter will carry further this work of simplifying and improving
ital structures of a considerable number of corporations. Reduction
gafe or floating uebt obviously fortifies any unit of business
- 5 -
entertrise. both for the performance of its economic functions and for the
compensation of those who have committed their investment funds to the use
of its management. Retirement of preferred shares and reduction of accumu-
lated unpaid dividends are neasures of a somewhat different order but still
they help materially toward a stronger capital structure, one better adapted
to meet contingencies either of suddenly expanding operations and the
borrowing that may entail or of contracting business volume and resulting
smaller earnings.
"It was noted in the article referred to that these applications of
earned income will in many instances bring nearer the time when dividends on
common stock may be resumed or begun. That means more than merely the pe-
cuhiary benefit of common stockholders. A large corporation of which the
common shares are so remote from dividend possibilities as to be little more
than trading chips is far from an ideal set-up from any point of view,
whereas a corporation able to pay common dividends not only enlists the ac-
tive interest and support of all its security holders but also, under favor-
able general conditions, may obtain needed capital for expansion without in-
curring the Potential of fixed interest charges."
Once that would have been considered heresy; once it was thought that
it was always good business for B. corporation to issue an immense amount of
bonds at low interest rates to procure money which the corporation could
employ to earn a much larger rate of return for the stockholders. That kind
of margin trading was once considered invariably wise.
But many of those who manage many of our prospercus big companies no
longer adhere to that business doctrine. And, if it has proved unsound with
reference to many big businesses, surely it is even more unsound for a small
or medium sized business, which frequently has less capacity to stand up
under the impact of a business slump at a time when it has a large amount of
interest to pay or a large amount of debt principal to refinance. A:pro-
portionately large amount of bonded debt for big business, and even more for
small business, is a constricting thing. It produces lack of elasticity,
the inability to adjust to bad business weather.
Since much big business has found it wise and possible to avoid the con-
striction resulting from a large proportion of bonded debt, every effort
should be made to make the same possible for small business. And that means
that there must Le more equity financing of the small, promising business
enterprises.
A large proportion of financing by such enterprises through bonds in-
volves dangers to the investors in those bonds and to the owners of the.
stocks in those enterprises. The chief danger is that, if, because of a de-
fault in interest payments or the arrival of the maturity date, the bonds
come due in a period of recession, bankruptcy or reorganization is precipi-
tated; and bankruptcy or reorganization is, generally, harmful to all
investors.
More and more that fact is coming to Le recognized. In October 1938, a
committee consisting of some of our leading conservative bankers, insurance
company executives, and other business men, publicized such views in an 1m-
portant book called "Debts and Recovery." I earnestly recommend that you
read it."
.
You will find that theme expanded in a speech of mine, Too Much Inter-
est in Interest, which I made on September 22, 1938. See also my book,
Save America First (1938) PP. 385-386.
- 6 -
To avoid any possible misunderstanding, let me say, parenthetically,
that my preference for increased equity financing is personal and must not
and does not affect my conduct in helping to administer the statutes which
the SFC enforces. Under the Public Utilities Holding Company Act of 1935,
the question of lawful financing of gas and electric utilities companies does
come before us, frequently. But there we must make our decisions in accord-
ance with the standards set forth by Congress in that particular Act, and the
application of those standards does net authorize us to disapprove of bond
financing of such utility companies, if it conforms to those statutory stand-
ards. In other words, if the management of a utility company elects to issue
bonds, we have the power and duty to interfere with its judgment only to the
limited extent that its judgment flies in the face of these statutory stand-
ards; on a few occasions, we have been required to hold that a proposed
utility bond issue was excessive and violative of that Act; our position, in
such cases, was substantially the same as that of the Interstate Commerce
Commission which, under somewhat similar provisions of the Transportation Act
of 1920, has, not infrequently, over the past twenty years, refused railroad
companies permission to issue an excessive amount of bonds in violation of
the standards of that Act. But, except for cases, relating solely to bond
issues of utility companies within our jurisdiction under the 1935 Act, the
SEC has no power whatever to pass upon the amount of bonds a corporation may
issue. Accordingly, when I express a preference for increased equity financ-
ing I am merely stating my personal non-official attitude. That is, however,
an attitude based upon a study of a very large number of cases involving in-
solvent corporations which have gone into bankruptcy. For, under the Chandler
Act, the SEC makes advisory. reports to the courts in connection with reorgan-
izations of bankrupt corporations; and, in connection with such reports, we
learn much about the disastrous consequences of excessive bond financing.
I know the problem of equity financing for the prosperous small or
medium sized business is not simple of solution. But I believe the solution
must, in considerable part, be regional. And I believe that communities like
Cleveland, with its great financial, Industrial and human resources, can
solve it. I would like to relate to you one suggestion which I have made on
several occasions. It pertains to the establishment of something which, for
lack of a better name, might be called regional industrial capital institu-
tions.
You are probably thinking, at once, in terms of further government con-
trol over business. If that worries you, let me say that it also worries me.
If I felt that what I have proposed could not be worked out without giving
the government ownership or control - either direct or indirect of American
business, I would be opposed to it myself. The institutions which I propose
might require some financial support from the government. That would depend
upon how much support could be obtained in the community. Under no circum-
stance, would the government contribution be made in such a way that the
government might eventually take over any businesses which the institution
might have aided. But I am getting ahead of myself.
In short, I know from my experience on the SEC that there is no way in
which most small business enterprises can raise capital in amounts from
$50,000 up to even $1,000,000, unless they have some special connection with
an underwriter. Most individual underwriters are not equipped to handle
security issues of this size except at an excessive cost to the issuer. This
- 7 -
is not a criticism of the spirit or motives of the underwriter, but it is
a frank analysis of their capacities. Our figures show that for small issues
of common stock registered with the SEC, the underwriting charges alone run
to nearly 20 per cent of the issue. When the cost runs that high, even I,
with my predilection for equity financing, must acknowledge that debt financ-
ing is unavoidable, no matter how unfortunate that may be.
I do not deny that it costs the underwriter a great deal to market secu-
rities of little known enterprises and that his risks may be high. I am not,
thereforè, blaming him for charging a large price for his services.
But I feel that money which costs that much is too expensive for most small
American business. And for that matter, the underwriting charges for small
bond issues and small preferred stock issues are also so very much larger than
for big business that little and medium sized businesses are placed at a
terrific competitive handicap in their race for their proper share of the
nation's business.
So I have proposed the creation of these regional institutions. The
plan has not been worked out as to detail, but roughly it is as follows: In
each of the Federal Reserve Districts, a financial institution would be set
up, with the common stock owned by private persons in the district. In order
to stimulate private investment in the stock of these institutions, the gov-
ernment would invest in their preferred stocks, carefully safeguarded so as
to have little if any voting power. But, the privately owned common stock
would control the institution and elect the officers and directors. Each in-
stitution would, in turn, buy the stocks of deserving and growing local busi-
ness enterprises, in good financial condition, which needed money for capital
expansion. Generally speaking, the institutions would not make loans. They
would supply equity capital instead of debt.
In other words, each of those institutions would be a sort of speculative
finance company or investment trust. I want, to emphasize that I believe they
should not be eleemosynary institutions. They should be run for a profit.
We all know that there are hundreds of persons in every community who think
they ought to get capital for everything from making gasoline out of salt
water to operating a rocket service to Mars. But we also know that there are
plenty of good promising businesses which, with a little additional capital,
can prosper. And you business men in the community know those situations
better than anybody else. That is the principal reason why I believe so firm-
ly in localized control of the proposed financing companies. An investment
committee made up of local business men can judge better than anybody else
which are the deserving situations and which are not. They can also judge
the likelihood of success of a given venture in their particular community.
They can know, for example, that a giant market might succeed in one neighbor-
hood because of competitive conditions, while it would have very little chance
in another. Those are judgments that cannot, nearly as well, be made from a
distance.
Those regional finance companies, as I envision them, would not merely
themselves invest in the securities of prosperous small business enterprises,
deserving the opportunity to expand, but would also, in appropriate circum-
stances, participate with underwriters in the distribution of the securities
of such businesses.
- e -
Naturally, it would be too much to expect that all the investments of
the finance companies would succeed. Some, of course, would not. But I be-
lieve that, with a wise selection, most of them would. And I believe that,
from time to time, it would be often found that some expert management ad-
vice, such as could be supplied by the institution, would pull a business,
in which it had invested, into the black when it had gone into the red.
That at least has been the experience of private groups which, on their
own initiative, have attempted that kind of project on a small scale. Not
long ago, I was talking to a man in New York who does almost exactly what I
believe these institutions could do. He takes a stock interest in a small
business which appears promising at a price agreed upon as fair. He then
sends one of his own men out to study the business and give management ad-
vice for as long as may be necessary - a month or six months. He supplies
that management service at no charge. His only profit comes from an improve-
ment in the value of his stock through an improvement in the affairs of the
company. He tells me that, of course, he turns away a great many unworthy
applications; but he also has to turn away many very promising situations.
He is an enthusiastic supporter of the regional finance company idea. He says,
incidentally, that he has put none of his money into enterprises in New York
City -- all in small business on Long Island, New Jersey, Connecticut, etc.
As a matter of fact, the investment trust bill now before the Senate
makes provision for this type of company -- frankly speculative -- frankly
for special situations. I believe that finance companies of this nature will
aid materially in filling the gap, but I doubt whether such companies,
managed from New York, can get down into the local situations. By and large,
I think they will have to place their funds with companies a little larger
than those I have in mind. But size is no measure of potentiality. A small
business venture, in many industries, has relatively as much chance of suc-
cess as a large one. I would be worried about America if I did not believe
that. And I think it requires a knowledge of local conditions adequately to
know the prospects of the local industry.
There are two things I want to say about my proposal. First, I do not
regard it as a panacea; I am not a perfectionist and therefore do not believe
in panaceas. I merely regard it as a step in the direction of filling the
gap in our underwriting machinery which presently makes it too difficult for
small and medium sized companies to obtain capital. Second, I do not suggest
it as an alternative to, but rather as supplemental to, the plans sponsored
by Senator Mead of New York, which would provide governmentally aided credit
facilities for small business.
I want, once more, because it is so important, to stress the desirability
of regionalization. Greater regional autonomy is Important because, I repeat,
in many areas, local needs are best known to those in the locality. Regional-
ization, as to security issues for capital expansion, seems to me to be of
very considerable importance. For not only is there need, in general, for
assistance to the growing small business enterprise, but there is specific
need for stimulating business activities in the several regions of our country
where today there is too little such activity.
- 9 -
Now if I am correct in thinking that there are internal frontiers which
call for development, then it seems to me that it follows, that, insofar as
such internal frontiers are to be opened up through financial assistance to
business enterprise, it is necessary that there be localized or regional
finance companies for that purpose, so that the regional possibilities will
be studied by those who are interested in and sensitive to them. Centrali-
zation of all such financial institutions in any one city is likely to
foster insensitivity to local potentialities almost to the same extent as
now exists as the result of excessive centralization of investment banking
in New York. The urge for regional development must come from, and will re-
ceive its most intelligent encouragement in, the several regions.
What I have been discussing is, of course, part of the larger problem of
stimulating an increase of the flow of savings into capital expansion, in or-
der to add to employment and to our national prosperity. In connection with
that entire problem it is well worth considering whether some form of tax ex-
emption should not be given to those who make investments that augment capital
expansion which would not otherwise occur. That is a large topic and I can do
no more here than suggest it for consideration.
And while I am talking of tax laws it may be well to refer to another
pertinent problem: One deterrent to equity financing is to be found in pro-
visions of the income tax law which permit the deduction of bond interest (as
distinguished from dividends) from gross income in determining taxable net in-
come. There would seem to be a need for considering some revision of that
provision of the Revenue Act so as to stimulate equity financing: that is a
problem not too easo to solve and I shall not attempt to work out a solution
of it here.
I have said that the government could stimulate interest in the regional
industrial capital companies by subscribing to their preferred stocks. It is
by no means certain that such governmental participation will in all cases be
needed. There is no reason under the sun why a group of Cleveland men should
not get together and do the job themselves -- form a corporation to be known
as Cleveland Enterprises, Inc., or Cleveland Industries, Inc. If you did, I
believe it would succeed. I believe it would also increase the prosperity of
Cleveland and reveal again the private initiative that has made Cleveland the
great city that it is. And I would like it better if done entirely by private
funds than if with government participation. I am not urging it on you, be-
cause it is not my business to do that. But I would be happy to discuss the
idea with any of you to whom it appeals.
"In propertion as the structure of . govern-
ment gives force to public opinion, le is essen-
tial that public opinion should be enlightened"
GEORGE WASHINGTON
The United
Title Reg.
MONEY FOR JOBS
BY DAVID LAWRENCE
Perhaps the most significant bit of news relating
many New Deal laws have made it difficult for small
to the creation of more jobs for the unemployed came
businesses to make a profit. The payroll taxes, for
last week in the address which Jerome Frank. chair-
example, take a disproportionate toll out of the gross
man of the Securities and Exchange Commission,
income of small companies. Why should a business
made in Cleveland urging that equity capital be made
that loses $25,000 a year pay out of its capital an
available for small businesses in America.
additional $15,000 for payroll taxes?
Mr. Frank suggests that regional corporations be
established with or without government aid, but the
"UNDERWRITING
Any tax which is so wholly un-
control to be in private hands. He points to the diffi-
COSTS AND
related to capacity to pay and
culties which small businesses now have in getting
RISKS HIGH"
to profits as the payroll tax is a
new capital. It is refreshing to learn that this subject
vicious deterrent and should be
has not been side-tracked by the Administration. It
removed. There are other deterrents. Rigid and blan-
goes to the heart of our economic difficulties.
ket arrangements imposed by the Wage and Hour
For unless small businesses are able to get capital,
Law have unquestionably hurt small businesses.
all the trade and business of the United States will
We need, therefore, to re-examine the opportunity
drift into the hands of larger and larger units. The
of small businesses in America if the free enterprise
big companies already have adequate surpluses but
system is to be maintained. It is encouraging that Mr.
the small businesses which must keep alive the sys-
Frank has portrayed so candidly the plight of small
tem of free competition are handicapped.
businesses needing capital. He is to be commended for
Legislation designed to furnish credits to small
drawing attention to this weakness in our economic
businesses was opposed in the last session of Congress
structure. Excerpts from Mr. Frank's speech follow:
by commercial banks. The latter have steadfastly
"Since much big business has found it wise and
refused to permit commercial deposits to be used for
possible to avoid the constriction resulting from a
such purposes and have argued that short term credit
large proportion of bonded debt, every effort should
was ample and that long term financing should really
be made to make the same possible for small business.
be done through common stock instead of bonds.
And that means that there must be more equity fi-
nancing of the small, promising business enter-
EQUITY FINANCING Chairman Frank takes the same
prises.
PROBLEM IS
view. He believes it is a problem
"I know the problem of equity financing for the
NOT A NEW ONE
for equity financing and in ad-
prosperous small or medium-sized business is not
jacent columns we present ex-
simple of solution. But I believe the solution must, in
cerpts from his address. In passing it may be noted,
considerable part, be regional. I believe that com-
however, that this problem has been before us for
munities like Cleveland, with its great financial, in-
many years. As early as August 28, 1933 we said in
dustrial and human resources, can solve it. I would
an editorial in The United States News that a sys-
like to relate to you one suggestion. It pertains to
tem of regional credit corporations was a vital neces-
the establishment of something which, for lack of a
sity. We outlined at that time a plan for an inter-
better name, might be called Regional Industrial
mediate credit system for American business and
Capital Institutions.
while the essence of that proposal was the sale of
"You are probably thinking. at once, in terms of
long term debentures through regional corporations
further government control over business. If that
with the Reconstruction Finance Corporation ready to
worries you, let me say that it also worries me. If I
make a market for such debentures as it has done
felt that what I have proposed could not be worked
with Federal Housing Authority mortgage loans, the
out without giving the Government ownership or con-
plan suggested by Mr. Frank turns wholly on the use
trol-either direct or indirect-of American business,
of common stock with the RFC as an owner of junior
I would be opposed to it myself. The institutions
securities or preferred stocks.
which I propose might require some financial support
But we should not overlook the fact that equity
from the Government. That would depend upon how
capital is scarce even for small business because
much support could be obtained in the community.
States News
"I whelly disapprove of what you say but will
defend to the death your right to say n."
VOLTAIRE
U. a. Pai. Office
Jerome Frank, chairman of SEC, makes a significant suggestion that regional
industrial capital institutions be established with Government help but
private control-needs of small businesses for equity capital are stressed.
Under no circumstance would the government con-
serving and growing local business enterprises, in
tribution be made in such a way that the Government
good financial condition, which needed money for
might eventually take over any business which the
capital expansion. Generally speaking. the institutions
institution might have aided. But I am getting ahead
would not make loans. They would supply equity
of myself.
capital instead of debt.
"I know from my experience on the SEC that there
is no way in which most small business enterprises
"INVESTMENTS
"In other words, each of those
can raise capital in amounts from $50,000 up to even
WOULD NOT ALL
institutions would be a sort of
$1,000,000 unless they have some special connection
BE SUCCESSFUL"
speculative finance company or
with an underwriter. Most individual underwriters
investment trust. I want to em-
are not equipped to handle security issues of this
phasize that I believe they should not be eleemosy-
size, except at an excessive cost to the issuer. This is
nary institutions. They should be run for a profit.
not a criticism of the spirit or motives of the under-
We all know that there are hundreds of persons in
writer, but it is a frank analysis of their capacities.
every community who think they ought to get capital
Our figures show that for small issues of common
for everything from making gasoline out of salt water
stock registered with the SEC, the underwriting
to operating a rocket service to Mars. But we also
charges alone run to nearly 20 per cent of the issue.
know that there are plenty of good promising busi-
When the cost runs that high, even I, with my predi-
nesses which, with a little additional capital, can
lection for equity financing. must acknowledge that
prosper. And you business men in the community
debt financing is unavoidable, no matter how unfor-
know those situations better than anybody else. That
tunate that may be.
is the principal reason why I believe so firmly in
"I do not deny that it costs the underwriter a great
localized control of the proposed financing companies.
deal to market securities of little known enterprises
"An investment committee made up of local busi-
and that his risks may be high. I am not, therefore,
ness men can judge better than anybody else which
blaming him for charging a large price for his services.
are the deserving situations and which are not. They
"But I feel that money which costs that much is
can also judge the likelihood of success of a given
too expensive for most American business. And for
venture in their particular community. They can
that matter, the underwriting charges for small bond
know, for example, that a giant market might suc-
issues and small preferred stock issues are also so very
ceed in one neighborhood because of competitive con-
much larger than for big business that little and
ditions, while it would have very little chance in
medium sized businesses are placed at a terrific com-
another. Those are judgments that cannot, nearly as
petitive handicap in their race for their proper share
well, be made from a distance.
of the nation's business.
"Those regional finance companies, as I envision
them, would not merely themselves invest in the
PLAN
BASED
ON
"So I have proposed the cre-
securities of prosperous small business enterprises de-
PURCHASE OF
ation of these regional institu-
serving the opportunity to expand. but would also, in
COMMON STOCKS
tions. The plan has not been
appropriate circumstances, participate with under-
worked out as to detail, but
writers in the distribution of the securities of such
roughly it is as follows: in each of the Federal Re-
businesses.
serve districts a financial institution would be set up,
"Naturally, it would be too much to expect that all
with the common stock owned by private persons in
the investments of the finance companies would suc-
the district. In order to stimulate private investment
ceed. Some, of course, would not. But I believe that,
in the stock of these institutions, the Government
with a wise selection, most of them would. And I
would invest in their preferred stocks, carefully safe-
believe that, from time to time, it would be often
guarded so as to have little if any voting power.
found that some expert management advice, such as
But the privately owned common stock would control
could be supplied by the institution, would pull a
the institution and elect the officers and directors.
business in which it had invested into the black when
Each institution would in turn buy the stocks of de-
it had gone into the red."
PSF: Currie
THE WHITE HOUSE
WASHINGTON
May 11, 1940
ME OR/ANDUM FOR THE PRESIDENT:
Re: War in Relation to Fiscal Problems
I am listing briefly some fiscel problems that
you may want to consider in connection with the
intensification. of war and possibly increased
national defenge expenditures.
1. Taxition. I would remind you that we have
on hand & good excess profits plan prepared by
Rendolph Paul which could be quickly drafted.
2. Gold Profit.
3. Debt Limit. I have an informal opinion from
the A. G. that for the purpose of the statutory debt
limit, savings bonds are being currently carried
around $800 million too high.
4. Allied Resources. 4 study of ways and
means of mobilizing in this country Allied resources
in other countries?
5. Tex Collections. Suggestion of increasing
collections through more personnel.
Lauchlin Currie
(Title 50 - United States Code - War)
CHAPTER I - COUNCIL OF NATIONAL DEFENSE
Section 1. Creation, purpose, and composition of council. A oouncil
of National Defense is hereby established, for the coordination of indus-
tries and resources for the national security and welfare, to consist of
the Secretary of lar, the Secretary of the Havy, the Secretary of the
Interior, the Secretary of Agriculture, the Secretary of Commerce, and
the Secretary of Labor. (Aug. 29, 1916, 0. 418, par. 2, 39 Stat. 649).
Par. 2. Advisory commission. The council of National Defense shall
nominate to the President, and the President shall appoint, an advisory
commission, consisting of not more than seven persons, each of whom shall
have special knowledge of some industry, public utility, or the development
of some natural resource, or be otherwise specially qualified, in the
opinion of the council, for the performance of the duties hereinafter pro-
vided. The members of the advisory commission shall serve without compen-
sation, but shall be allowed actual expenses of travel and subsistence when
attending meetings of the commission or engaged in investigations pertaining
to its activities. The advisory commission shall hold such meetings as
shall be called by the council or be provided by the rules and regulations
adopted by the council for the conduct of its work. (Aug. 29, 1916, c. 418,
par. 2, 39 Stat. 649)..
Par. 3. Duties of council. It shall be the duty of the Council of
National Defense to supervise and direct investigations and make recommenda-
tions to the President and the heads of executive departments as to the
location of railroads with reference to the frontier of the United States
so as to render possible expeditious concentration of troops and supplies
to points of defense; the coordination of military, industrial, and com-
mercial purposes in the location of branch lines of railroad, the utiliza-
tion of waterways; the mobilisation of military and naval resources for
defense; the increase of domestic production of articles and materials
essential to the support of armies and of the people during the interruption
of foreign commerce; the development of seagning transportation; data as
to amounts, location, method and means of production, and availability of
military supplies, the giving of information to producers and manufacturers
as to the class of supplies needed by the military and other services of
the Government, the requirements relating thereto, and the creation of
relations which will render possible in time of need the immediate concen-
tration and utilisation of the resources of the Nation. (Aug. 29, 1916,
C. 418, par. 2, 39 Stat. 649, Nov. 9, 1921, C. 119, par. 3, 42 Stat. 212).
Par. 4. Rules and regulations, subordinate bodies and committees.
The council of National Defense shall adopt rules and regulations for the
conduct of its work, which rules and regulations shall be subject to the
approval of the President, and shall provide for the work of the advisory
commission to the end that the special knowledge of such commission may
be developed by suitable investigation, research, and inquiry and made
available in conference and report for the use of the council; and the
council may organize subordinate bodies for its assistance in special in-
vestigations, either by the employment of experts or by the creation of
2
committees of specially qualified persons to serve without compensation,
but to direct the investigations of experts so employed. (Aug. 29, 1916,
C. 418, par. 2, 39 Stat. 650).
Par. 5. Reports of activities and exp nditures. Reports shall be
submitted by all subordinate bodies and by the advisory commission to the
council, and from time to time the council shall report to the President
or to the heads of executive departments upon special inquiries or sub-
jeets appropriate thereto, and an annual report to the Congress shall be
submitted through the President, including as full a statement of the
activities of the council and the agencies subordinate to it as is con-
sistent with the public interest, including an itemized account of the
expenditures made by the council or authorised by it, in as full detail
as the public interest will permit: Provided, however, That when deemed
proper the President may authorise, in amounts stipulated by him, un-
vouchered expenditures and report the gross sums so authorised not
itemised. (Aug. 29, 1916, c. 418, par. 2, 59 Stat. 650).
PSF
THE WHITE HOUSE
Currie
WASHINGTON
May 17, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Maritime Unemployment Insurance and the Railroads,
After the railroad presidents refused to go along
with our proposal, those railroad labor executives whom
I had not seen got cold feet, since they were afraid
(they said) that the managements would tell the men their
leaders had sold them out in this instance. I accord-
ingly met with about twenty of them the other night and
got them to pass a formal motion to the effect that they
would not oppose the reciprocal borrowing feature provided
the preamble of the bill showed Congressional intent that
this was a temporary plan and that when experience accumu-
lates and permanent financing is decided upon an outstend-
ing obligations of the Maritime Fund would be paid off.
I did this without bargaining or making any commit-
ment. However, the unions and the AAR are at oods on
increasing the railroad unemployment insurance benefits.
The AAR is endeavoring to have its bill, which provides
for very little increase in benefits, sponsored by Lea,
who, of course, is Chairman of the Committee. The unions
feel that the Chairman should not sponsor the AAR's bill
in opposition to their own bill. They claim, moreover,
that Lea is holding up hearings on their bill. They have
appealed to me. I told them that it is doubtful whether
I can help them. However, I should be glad, if you wish,
to let Lea know that his sponsorship of the AAR bill will
not be permitted to be interpreted as Administrative
sponsorship.
I feel that I have established excellent relations
with railroad labor and if you think you could go this
far, it would help greatly to cement them.
Land win
Lauchlin Currie
PSF.
Currie
THE WHITE HOUSE
WASHINGTON
May 21, 1940.
MEMORANDUM FOR THE PRESIDENT:
Re: Rural Rehabilitation Loans and the R.F.C.
On February 13 you told me that a shift of the
rural rehabilitation loan program from the Budget to
R.F.C. was not contrary to your wishes, if it could
be arranged with Jesse Jones. An arrangement was
amicably worked out at my suggestion between Jones and
the F.S.A. I informed the Budget Bureau to this effect.
Yesterday morning Jones offered the amendment. He called
me last night and again this morning saying that the
Budget Bureau had objected to the amendment as being
contrary to your program. I have been unable to get in
touch with Smith. Jones says he will have to withdraw
his amendment unless the Budget Bureau's objections are
withdrawn.
Would you care to sign the attached note to the
Bureau clearing the matter and authorize me to tell
Jones to leave his amendment as offered?
Lanch Curne
Lauchlin Currie