Volume 46, November 21 – November 30, 1936

DIARY Book 46 November 21 - November 30, 1936 & - Book Page Argentina See also Book LII, page 145 HMJr cables FDR need for #45 million by end of month to be used by Argentine Government to redeem the total of & loan in this market; they will sell sterling in London and purchase dollars in New York; use of United States and English Stabilisation Funds will prevent any disturbance to exchange market 11/27/36 XLVI 260 Bewley discusses with HMJr, Taylor, and Lochhead question of publicity at press conference 11/30/36 280-282 - B - Bailie, Earl HMJr and Bailie discuss whether Arthur Sulzberger knows of Morgenthau news stories before they appear in print- 11/30/36 324-328 Buck, J. Lossing HMJr asks to return to United States for one month - 11/30/36 284 - C - China See HMJr-Chinese delegation conversations, Book LXXVIII, page 190 HMJr requests Buck (J. Lossing) to return to United States for one month - 11/30/36 284 - D - Debts, Foreign Amounts due under funding and moratorium agreements as of 12/15/36, prepared on 10/21/36 22 France: resolution introduced inviting resume' of negotiations with United States 11/27/36 274-276 a) Cochran discusses with HMJr - 11/30/36 285-290 1) Approach from "commercial side" touched upon Italy: indebtedness to United States - 11/20/36 17-21 Drought See Unemployment Relief - F - Financing, Government See also Book ILV 12/15/36 - Memorandum to Rentschler concerning existing United States Government issues, as well as suggestions to be used in December 15th financing - - 11/27/36, 261 Hass memorandum (preliminary) - 11/28/36 265-270 Caston memorendum - 11/28/36 271-273 - - P - - (Continued) Book Page Financing, Government (Continued) HMJr tells Burgess he is going to announce tentative decision to ask for $300 million new money at press conference this afternoon - 11/30/36 ILVI 310-316 Estimates discussed at conference; present: Bell, Upham, Haas, Taylor, et cetera - 11/30/36 339-352 Conference in HMJr's office; presents Gibson (President, Manufacturers' Trust Company, New York), Parks (principal bond expert, Manufacturers' Trust Company), and D. 1. Bell- 11/30/36 353-356 a) See Burgess' opinion of ability, Book XLVII, page 22 Conference in HMJr's office; present: Charles A. Miller (President, Savings Bank Trust Company, New York City, and a Trustee of the Savings Bank of Utica) and D. W. Bell - 11/30/36 360-362 a) Memorandum attached on New York State savings banks' investments in United States Government obligations, as of 11/28/36 363-372 Foreign Capital: Restriction of Inflow Discussuat luncheon: HMJr, Eccles, Ranson, Landis, Williams (Harvard), Taylor, Viner, Upham - 11/23/36 1-3 Conference: Treasury, Federal Reserve, and Securities and Exchange Commission - 11/23/36 98-113 a) Report of study. 114-123 France See Debts, Foreign If Stabilization - G - Gold See also Stabilization "Bob" Warren's article concerning possibilities of isolating and sterilizing gold discussed by HMJr with Bell, Viner, Williams (Harvard), Taylor, Haas, and Lochhead - 11/23/36.. 137-140 a) See article from The Annalist - 11/13/36 141 Great Britain See Stabilisation: England - H - - Holland See Stabilization: Notherlands - I - Italy See also Debts, Foreign . B Stabilization Ambassador Suvich calls on HMr - 11/20/36 40-42 a) Enlargement of Tripartite Agreement discussed - L - Book Page Leon, Rene Article on "Government's new anti-inflationary policy* - 11/23/36 ILVI 54-55 - P - Progress Reports HMJr tells McReynolds each Treasury activity should submit weekly report on all research studies: who are engaged in study and cost - 11/30/36 309 - 8 - Secret Service Division Wilson memorandum (supplemental to October 29) to Graves with reference to activities - 11/27/36 262-264 Silver Senator Pittman has approached Moore (State Department) - 11/30/37 293-295 a) HMJr tells Moore frankly he can't say what Treasury 18 going to do Stabilisation (arranged chronologically) (See Cochran resume September-December, 1936, Book XLIII) Auriol writes appreciation in longhand to HMJr 12-16 Market reaction discussed by HMJr with Burgess - 11/23/36 74-83, 128-136 HMJr-Harrison 'phone conversation concerning market reaction- 11/23/36 150-153 Sterling movements reported by Lochhead - 11/23/36 86-87 "Bob" Warren's article concerning possibilities of isolating and sterilizing gold discussed by HWr with Bell, Viner, Williams (Harvard), Taylor, Haas, and Lochhead - 11/23/36. 137-140 a) See article from The Annalist - 11/13/36 141 Dow-Jones and United Press comment 11/23/36 142-149 Cochran resume of reaction in Europe 154-164,180- 184,235-243, 256-259 Press release by United States Treasury of extension of Tripartite Agreement to Belgium, Netherlands, and Switzerland- 11/23/36 193-198 Conference on future policy; present: HMJr, Bell, Upham, Opper, Haas, Taylor, Williams (Harvard), Viner, White, Seltzer, and Lochhead - 11/24/36 199-214 a) General Fund could sell securities to market in order to reduce bank reserves on occasion of gold inflow (and vice versa) b) Stabilisation Fund could obtain Government obligations from Treasury in exchange for gold; sell to market to reduce bank reserves (and vioe versa) - 8 - (Continued) Book Page Stabilisation (Continued) Conference on future policy (Continued) e) Federal Reserve Banks could obtain Government obligations from Treasury in exchange for gold certificates and sell securities to the market in order to decrease bank reserved on occasion of gold inflow (and vice versa) d) Às initial operation, Federal Reserve Banks could increase reserve requirements to the limit now permitted by law, or could sell Governments HMJr thanks State Department and Cochran for ocoperation - 11/25/36 ILVI 244-245 Moody's Bond Survey of 11/23/36 discusses problem of handling gold exports and imports and their relation to the Stabilisation Fund 338 Argentina: See also Book ыі, page 145 HMJr cables FDR need for $45 million by end of month to be used by Argentine Government to redeem the total of a loan in this market; they will sell sterling in London and purchase dollars in New York; use of United States and English Stabilisation Funds will prevent any disturbance to exchange market - 11/27/36 260 Bewley discusses with HMJr, Taylor, and Lochhead question of publicity at press conference - 11/30/36 280-282 England: Embassy, London, reports British Treasury contemplates no similar arrangements with Scandinavian countries "which naturally pivot on London"; feels that, since issuance of decree compelling owners of international securities to deposit them with foreign exchange banks, in Germany, at least, there can be no devaluation until the securities have been taken over from their present owners 11/20/36 6-7 Resume of attitude toward extension of Tripartite Agreement- 10/30/36 - 11/18/36 52-53 France: Actual commique with regard to adherence of Holland, Switserland, and Belgium to the three-power monetary agreement, together with intentions of French Government - 11/28/36 297-304 HMJr and Cochran talk over possibilities of representatives of Treasuries of various foreign countries coming to United States to talk informally - - 11/22/36 56-57 a) Cochren says Baumgartner does not have confidence of Blue b) British consider Sweden their protege but HMJr is going to ignore this Italy: HMJr asks Lochhead whether October 13th statement was sent to Italy - - 11/20/36 4 a) Lochhead reports "yes" Enlargement of Tripartite Agreement disoussed by HMJr and Ambassador Suvich - - 11/20/36 40-42 - 8 - (Continued) Book Page Stabilization (Continued) Netherlands and Switzerland: Copies of telegraphic instructions to be sent to diplomatic representatives at Washington, London, and Paris, cabled to HMJr by Coohren ILVI 10-11,50-51 Cochran 'phones HMJr "everything 18 sewed up" and HMJr 80 informs Taylor - 11/21/36 43-47 a) HMJr asks Taylor to call Moore (State Department) that messages will be coming in tomorrow (11/22) from Holland and Switzerland; asks Legation to stand by b) HMJr will now draft cable for FDR (see page 47) c) Asks Taylor to notify British Embassy Documents dated November 21st, from Swiss Government and Dutch Government, discussed in HMJr's office; present: Viner, Lochhead, Taylor, Gaston, Haas, Opper, Upham, and White - 11/23/36 62-73 Switzerland's actual approval of tripartite monetary agreement 185-186 Sulsberger, Arthur HMJr and Earl Bailie discuss whether Sulsberger knows of Morgenthau news stories before they appear in print - 11/30/36 324-328 Switzerland See Stabilisation - U - Unemployment Relief Lonigan map showing states having highest per capita expenditures in September - - 11/20/36 23-25 Lonigan charte and tables showing present status of relief and welfare programs - 11/20/36 26-39 Conference: HMJr, Aubrey Williams, Ross (Finance Officer, Works Progress Administration), Bell, and McReynolds - 11/24/36 169-179 a) 250,000 drought farmers to be dropped from Works Progress Administration rolls, 125,000 of whom will need relief 1) Table showing approximate time limit of operations under present funds 2) Analysis of Works Progress Administration funds 3) Employment quotas and budgets for state Works Progress Administration programs Second conference: HMJr, Williams, Rose, Bell, and McReynolds- 11/25/36 215-217 a) Williams states Works Progress Administration plans for reducing expenditures - y - Book Page War Debts See Debts, Foreign Warren, Robert B. (Economist - Case, Pomeroy, and Company) See Gold Works Progress Administration See Unemployment Relief 1 # November 23, 1936 Following a meeting in the office of the Secretary of the Treasury, attended by, Chairman Eccles and members of his staff, and Chairman Landis and members of his staff, and Treasury representatives, the following had luncheon with the Secretary of the Treasury at one o'clock: Chairman Eccles of the Federal Reserve Board. Chairman Landis of the Security Exchange Commission. Governor Ransom of the Federal Reserve Board. Professor John H. Williams of Harvard Unitersity. Wayne C. Taylor, Assistant Secretary of the Treasury. Professor Jacob Viner of the University of Chicago. C. B. Upham, Assistant to the Secretary. There was a rather continuous but somewhat disjointed discussion of the problems involved in any regulation or control of the flow of foreign funds into the United States, particularly that which is brought in and used in stock market speculation. All seemed agreed that the problem is one which merits consideration and attention but no one claimed to know what the solution is. It was pointed out that it would be much more difficult to control the dealings in American securities abroad than to curb the use of foreign funds in our own markets. There was some discussion of the possibility of using the tax method for regulation of this kind, but doubts were generally expressed as to the practicability of carrying out effective measures. It was mentioned that since the passage of the Revenue Act of 1936, which granted certain leniencies to non-resident Regraded Uclassified 2 -2- 88 aliens, it appears that such individuals have some preference over American citizens in connection with the payment of taxes on stock market gains, Mr. Taylor was definitely of the opinion that the adminis- trative difficulties in taxing foreigners are 80 great as to make that method of approach almost futile. Discussion centered for a time around the situation which would result in case of a general European war. Dr. Viner was inclined to think that the situation might be handled as it was in 1914 by the stock exchange closing for B. short period. That did not meet with general favor. It was pointed out that probably foreign governments will appropriate American securities held by their Nationals and ex- change them in this country for war materials. It was agreed that this would raise important questions with respect to our neutrality. The Secretary told the group that he plans to announce his December 15th financing on December 7th. He further made known that he is going to refund on December 15th, the notes which mature next February. He also said that in this financing he is going to try the idea of giving no preferences in allotments to those who subscribe for $5,000 and less. There was some dis- cussion of the abuses which had developed in connection with these small allotments. It appears that there are very few for less than $5,000 and there is considerable evidence that the volume of $5,000 subscriptions comes in from banks and business Regraded Uclassified 3 -3- # houses who put in subscriptions in the names of a number of employees, the bonds allotted finding their way very shortly into the open market. Upm. 4 November 20, 1936 3:40 P.M. Operator: Mr. Lochhead. H.M.Jr: Archie? Lochhead: Yes, sir. H.M.Jr: Call up New York and ask them if the October 13 statement wasn't sent to Italy and if not why not. L: October 13. Right? H.M.Jr: Yes L: Right away. H.M.Jr: You know, they sent it out to about twelve or thirteen different governments. L: Right. They sent out to the Central Banks. H.M.Jr: To the Central Banks? L: I'll check right away. H.M.Jr: And why didn't they send it to the Central Bank of Italy? L: I'll check immediately. H.M.Jr: And - will you find out? L: Right, sir. H.M.Jr: And then let me know. L: Right, sir. H.M.Jr: Please. 5 November 20, 1936. 3:49 p.m. H.M.Jr: Hello. Operator: Mr. Lochhead. H.M.Jr: Yes Operator: Go ahead. H.M.Jr: Hello? Lochhead: Mr. Morgenthau, Lochhead speaking. H.M.Jr: Yes, Archie. L: The Federal Reserve Bank of New York sent them the notification of the October 13 release. H.M.Jr: They did? L: They sent it by mail. H.M.Jr: Oh L: They sent most of those banks by mail. H.M.Jr: Oh L: They're looking up to find out whether they have an acknowledgment from them. And for your informa- tion the Bank of Italy only has a nominal balance of about a thousand dollars; they never hear from them or practically have any correspondence with them. H.M.Jr: O.K. L: "ight, sir. . 6 LMS GRAY London Dated November 20, 1936 REC'd 3:37 p. m. Secretary of State, Washington. 551, November 20, 7 p. m. FOR TREASURY. In a conversation with British Treasury today Waley said that they were glad Everything had gone so WEll and that the arrangements for Monday were entirely satisfac- tory. ZE added that now that these reciprocal purchase arrangements had been concluded, hE assumed that that phase of Endeavor was for the time being terminated and that it was not our intention to make similar arrangements with the Scandinavian countries which naturally pivoted on London. In regard to the German situation, Waley said that Pinsent, British Financial Attache at Berlin, had recently pointed out that with the issuance of the decree compel= ling owners of international securities to deposit them with foreign Exchange banks, one could at least bE sure that Germany would not devalue until these securities had been taken over from their present owners. HOWEVER, Waley felt that devaluation would not be of any appreciable assistance 7 LMS 2-No. 551, November 20, 7 p. m., from London. assistance to Germany; it might simplify the system in that it would Eliminate the labor of fixing Export sub- sidies, Et cetera, but it would not under the German closed Economic system change matters appreciably. Waley in general agreed with a Foreign Office opinion, namely, that there was no desire on the part of Germany to change the direction of her Economic movement; that her present posi- tion was not 80 much forced on her by Economic and financial EVENTS as of her own making which, because of its military value, she in any Case would bE unwilling to change. BINGHAM GW:CSB 8 November 20, 1936 3:40 P.M. Operator: Mr. Lochhead. H.M.Jr: Archie? Lochhead: Yes, sir. H.M.Jr: Call up New York and ask them if the October 13 statement wasn't sent to Italy and if not why not. L: October 13. Right? 4.M.Jr: Yes L: Right away. H.M.Jr: You know, they sent it out to about twelve or thirteen different governments. L: Right. They sent out to the Central Banks. H.M.Jr: To the Central Banks? L: I'll check right away. H.M.Jr: And why didn't they send it to the Central Bank of Italy? L: I'll check immediately. H.M.Jr: And - will you find out? L: Right, sir. H.M.Jr: And then let me know. L: Right, sir. H.M.Jr: Please. 9 - 2 - 3:49 P.M. H.M.Jr: Hello. Operator: Mr. Lochhead. H.M.Jr: Yes Operator: Go ahead. H.M.Jr: Hello? Lochhead: Mr. Morgenthau, Lochhead speaking. H.M.Jr: Yes, Archie. L: The Federal Reserve Bank of New York sent them the notification of the October 13 release. H.M.Jr: They did? L: They sent it by mail. H.M.Jr: Oh L: They sent most of those banks by mail. H.M.Jr: Oh L: They're looking up to find out whether they have an acknowledgment from them. And, for your informa- tion, the Bank of Italy only has a nominal balance of about a thousand dollars; they never hear from them or practically have any correspondence with them. H.M.Jr: O.K. L: Right, sir. 10 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Legation, The Hague, Netherlands DATE: November 20, 1936, 5 p.m. NO.: 63 FROM COCHRAN. FOR THE SECRETARY OF THE TREASURY. In accordance with the schedule which I telegraphed to you from Brussels yesterday, this noon I was received by Trip and Beaufort at the Netherlands Bank at Amster- dam. I was accompanied by Trip to The Hague, where Premier Colija and Minister of Finance Oud received us at three p.m. The technical declaration in exactly the terms quoted in my telegram No. 1075 of November 4, 10 a.m., was signed and delivered to me by Oud and Trip. An official of the Ministry of Foreign Affairs was then called to Prime Minister Colijn's office, and Colijn instructed him to send telegraphic instructions immed- iately to the diplomatic representatives of the Nether- lands at Washington, London and Paris, to deliver the following message to the respective Foreign Offices not later than Sunday forenoon: "The Government of the Netherlands has cognizance of the declarations by which the Governments of France, of Great Britain and of the United States of America have seen fit to express their intentions with regard to their 11 - 2 - monetary policy and adheres to the general principles stated in their tripartite declaration of September 25". I made a request for a long distance telephone connection with you from the Legation at The Hague, and if the connection is received before my train leaves for Switzerland I shall endeavor to give you any information. I understand that the Dutch will not until Monday give publicity to their adherence to the tripartite agreement. The Dutch anticipate that the above-mentioned statement of adherence will meet your requirements and that in your declarations of Monday night or Tuesday morning you will therefore include the Netherlands. I gave the Dutch officials copies of your proposed declara- tions, as I did at Brussels. I am to telephone summary from Paris giving them any available texts of communiques of the British and French. If any communique is given to the press by the Dutch, it will not be long. I have fully informed Minister Emmet of the proceed- ings. EMMET. EA:LWW Regraded Uclassified 12 November 20, 1936. Monsieur Vincent Auriol, Ministere Des Finances, Paris, France. My dear Monsieur Auriol: I was very much pleased and encouraged by your very fine letter to me of October 5th and I must ask your pardon for not having acknowledged it sooner. It gave me great satisfaction to learn that the French Parliament had given its approval to the steps which you and your colleagues had planned so wisely. I appreciate very greatly your kind expression of the thanks of Mr. Blum, your colleagues and yourself for the part we were able to play in the satisfactory result. I am very much encouraged by the smooth course of events since our under- standing was reached and I share your hope that our nations may continue to work together effectively for better world relations in the economic sphere. Your personal expression of friendship touches me deeply and it is a. feeling which I reciprocate most fully. Sincerely, /5/ HENRY MORGENTHAU, JR. 13 November 13, 1936. MEMORANDUM TO: FROM: Mrs. Mr. Gaston Klotz RS The letter from Vincent Auriol to the Secretary is, I notice, entirely hand written, which was no doubt intended as a high compliment and a mark of Monsieur Auriol's sincere re- gard for the Secretary. If there has been no acknowledgment, I think there should be one. I am attaching a proposed draft of letter. Attachment. TRANSLATION Finance Ministry October 5, 1936. The Minister Dear Mr. Morgenthaus The French Parliament has enacted our proposal for the realignment of the frano. It is delighted with the agreement of the three great democracies, the United States, Great Britain and France. In turn, I congratulate myself on the adherence of almost all the nations of the world to our common declaration which puts a definite end to the monetary war and opens the road toward the "economio Peace" -- 80 essential to peace among nations. I was deeply moved, the other day, by hearing your voice on the telephone and by receiving your good wishes for France and for the success of our endeavor, wishes which Mr. Coohran had already trans- mitted to us in the course of his mission which he performed so splendidly. I do not know how to find words sufficiently expressive to convey to you the thanks of President Leon Blume and his Government, and of myself, for the energetic, enthusiastic and wholehearted collaboration which you have given us. I hope that this collaboration will continue in the work toward world sconomic peace which must be achieved if peace amont peoples is to be attained. Your eminent President, Mr. Roosevelt, has sounded the call for human prosperity and for international accord. We will not be far behind on this road. And, giving you this assurance, I beg you to accept, my dear Mr. Morgenthau, with my heartiest wishes for your great nation and for its President, the expression of my sincere friendship. (signed) Vincent Auriol 1 \ Ministere Ministère des. Finances. Cabinet du Ministre. mounees Morgenthan secretare d Hat au herer Washington MINISTERE DES FINANCES soctor 1937- LE MINISTRE Cher montieur morgenthan, Le Parlement français a rote' note project related a l'aligneword an franc. Je ist rejour de Pentente des Gois grands de in uratis des btat Unis, de la fraur Metapre, di h France. ye me flicite, a- m on but, de ladhesin purple artin to les nations du monde a note dislaration commune gui met un terme effectif c la green monitari et owne la Boie a la pains condition essentille dr b paix hum aire. Jaid' propride ment im, Paute join, en entend and vote romo an teliphone at my recuei re Uaut 100 new de reces pow note interprise l paula Garms an cours de sa missim magnifiquement Frances que In Cockran nous aract dya /3 me saurais tours de mor any expressif for ms transmethe ls nemer iments de m. 6 Pressure team Shom it de ray et is mills persones, for la collabration artent, of anthorisian u conficult free vas non any perpore Dr elle now xra martin we class loun de paix economying mond all fail country di mener a form fin, en me as la pair des have me. Note lluthe Resident, 14. Rooserch, a dame b agnal a L properite humanie of do la concern intending Now was pas en what sur a chemin. 62 can in 100 domant ssurance a on M 104 fine a apriv, lunk cher affective par whe passe national m and magenthou, are me voyo for Joy President, de Perfrem is de mes sentiments remite Vniver Auriol 16 Doir Mr Secretary. M.Auriol handed me this Gerare Merle Cochran Premier Secuttaire De l'Ambassabe Drs State-Hnia d'Amèrique today for Transmission to you. go WD Oct.6th BMS. B GAVINGS 2 Av. Gabriel, Paris. WASHI BUSINBONDS private 1936 ASK YOUR POSTMASTER The Honorable Henry Morgenthau, Jr., , Secretary of the Treasury, Washington, D. C. November 20, 1936. 17 INDEPTIONESS OF ITALY TO THE UNITED STATES I. CASH ADVANCES: Pre-armistice- $1,031,000,000.00 Post-armistice 617,034,050.90 1,648,034,050.90 Interest accrued and unpaid at w per annum to December 15, 1922 251,846,654.79 1,899,880,705.69 Interest accrued and unpaid at 3% per annum from December 15, 1922 to June 15, 1925 142,491,052.93 2,042,371,758.62 Less: Payments made on account of principal from December 15, 1922 to June 15, 1925 - - - $164,852.94 Interest at 3% allowed on principal payments to June 15, 1925 - 7,439.34 Payment made upon execution of funding agreement of November 14, 1925 199,466.34 1,371,758.62 Total indebtedness funded into bonds as of June 15, 1925 $2,042,000,000.00 Regraded Uclassified 18 INDEPTEDNESS OF ITALY TO THE UNITED STATES II. FUNDED INDEBTEDNESS: Principal amount of debt as funded- ----- $2,042,000,000.00 Less: Principal payments 37,100,000.00 Principal amount of bonds now held- ----- $2,004,900,000.00 Interest due and unpaid: Semiannual installments postponed under the moratorium agreement -- $2,506,125.00 Balancesof semiannual installments due June 15 and December 15, 1933, and installments due June 15, 1934 to June 15, 1936 ----- 6,718,041.74 Amount of interest in- cluded in moratorium annuities due December 15, 1933 to June 15, 1936 1,428,363.44 10,652,530.18 Total indebtedness June 15, 1936 $2,015,552,530.18 Regraded Uclassified 19 INDEBTEDNESS OF ITALY TO THE UNITED STATES III. TOTAL PAYMENTS RECEIVED: Principal Interest Total Payments made prior to June 15, 1925, (date as of which the debt was funded) $164,852.94 $57,598,852.62 $57,763,705.56 Payments made upon exe- cution of funding agreement 199,466.34 --- 199,466.34 Payments made under funding agreements- -- 37,100,000.00 5,766,708.26 42,866,708.26 Total $37,464,319.28 $63,365,560.88 $100,829,880.16 Regraded Uclassified 20 INDEBTEDNESS OF ITALY TO THE UNITED STATES IV. AMOUNTS DUE AND UNPAID UNDER FUNDING AND MORATORIUM AGREEMENTS: Funding Agreement Moratorium Agreement Date due Principal Interest Annuities Total June 15, 1933 1/ $12,300,000 $245,416.74 : December 15, 19331/ - 245,437.50 $896,155.88 June 15, 1934 12,600,000 1,245,437.50 896,155.88 December 15, 1934 1 1,245,437.50 896,155.88 June 15, 1935 13,000,000 1,245,437.50 896,155.88 December 15, 1935 : 1,245,437.50 896,155.88 June 15, 1936 13,500,000 1,245,437.50 896,155.88 TOTAL $51,400,000 $6,718,041.74 $5,376,935.28 $63,494,977.02 Partial payments made on account of interest due on these dates. 21 INDEBTEDNESS or ITALY TO THE UNITED STATES V. Payments received under funding agreement: Principal Interest Total June 15, 1926 $5,000,000 $ D $ 5,000,000 June 15, 1927 5,000,000 - 5,000,000 June 15, 1928 5,000,000 - 5,000,000 June 15, 1929 5,000,000 - 5,000,000 June 15, 1930 5,000,000 - 5,000,000 Dec. 15, 1930 - 1,260,625.00 1,260,625 June 15, 1931 12,100,000 1,260,625.00 13,360,625 Dec. 15, 1931) (a) June 15, 1932) Dec. 15, 1932 - 1,245,437.50 1,245,457.50 June 15, 1933 - (b) 1,000,020.76 1,000,020.76 Dec. 15, 1933 - (e) 1,000,000.00 1,000,000.00 Total: $37,100,000 $ 5,766,708.26 $42,866,708.26 (a) Amounts due postponed under moratorium agreement, principal $12,200,000; interest, $2,506,125. (b) Partial payment. (Received silver for this payment). (c) Token payment. November 20, 1936. 22 PAYMENTS DUE DECEMBER 15, 1936 The following statement shows the amounts due under the funding and more- torium agreements on December 15, 1936: Funding Agreements Moratorium Principal Interest Agreements Total Belgium. --- $4,158,000.00 $484,453.88 $4,642,453.88 Czechoslovakia $1,500,000 --- 182,812.78 1,682,812.78 Estonia 126,000 286,265.00 36,585.29 448,850.29 Finlend 67,000 145,285.00 19,030.50 231,315.50 France --- 19,261,432.50 3,046,879.72 22,308,312.22 Great Britain 32,000,000 75,950,000.00 9,720,765.05 117,670,765.05 Hungary 13,820 33,185.08 4,225.58 51,230.66 Italy --- 1,245,437.50 896,155.88 2,141,593.38 Latvia 52,500 119,609.00 15,274.26 187,383.26 Lithuania --- 107,783.67 13,683.26 121,466.93 Poland 1,520,000 3,582,810.00 456,229.71 5,559,039.71 Rumania --- --- 48,750.08 48,750.08 Yugoslavia --- --- --- --- TOTAL $35,279,325 ,104,889,807.75 $14,924,345.99 155,093,973.74 Accounts and Deposits October 21, 1936 23 HH TREASURY DEPARTMENT YA $ Ter INTER OFFICE COMMUNICATION DATE November 20, 1936 TO The Secretary FROM Miss Lonigan The attached map shows which States had highest per capita expendi- tures from WPA funds in September. There is no evidence of unemployment or other need to explain expendi- tures west of the Mississippi at a rate much higher than those in the South where rural overcrowding and poverty are extreme. The rate of expenditure in the Eastern and Midwestern States is far higher than that required in 1935 when unemployment WELS more severe. WORKS PROGRESS ADMINISTRATION in Average Work Relief Expenditures September 1036 E VT. MONTH N. BAK. MINN, OREO wis. : MICH A 5. DAR. WYO IDAHO E NEW NEW OF UTAM 12 IOWA ONIO COLD, MO IND. VA KAND. N.C. KY. TENN. ARIZ N.MER OKLA ARK. CAL TEXAS sc ALA DA MISS. FLA LA Per Capita Expenditures Over $1.50 $1.00 - 1.50 Under $1.00 U.S. Average $1.34 24 z - 193 Office of The Secretary of the Treasury Regraded Ucla - of - - - 25 FEDERAL EMERGENCY RELIEF ADMINISTRATION - WORKS PROGRESS ADMINISTRATION September 1936 Average Expenditures Per Inhabitant Expenditures Highest Per Inhabitant South Dakota $2.72 North Dakota 2.59 Montana 2.57 New York 2.24 Pennsylvania 1.96 Colorado 1.91 Massachusetts 1.79 Nevada 1.75 Ohio 1.70 New Jersey 1.58 California 1.53 Lowest Idaho .99 Nebraska .88 Kentucky .86 Louisiana .85 South Carolina .78 Maryland .75 Maine .74 Arkansas .73 Alabama .72 Mississippi .72 Tennessee .70 Delaware .69 Georgia .61 Vermont .58 Iowa .58 Texas .52 Virginia .49 North Carolina .36 United States Average $1.34 Source: WPA Checks Issued - Treasury Department 26 TREASURY DEPARTMENT 4a INTER OFFICE COMMUNICATION DATE November 20, 1936 TO The Secretary ah FROM Miss Lonigan Attached are four charts showing the present status of the relief and welfare programs. Expenditure of Federal funds by FERA-WPA was $60,000,000 higher in October 1936 than it was in October 1935. The FERA-WPA program is taking care of fewer families than a year ago. This reduction takes the form chiefly of a decline in relief for the most needy. The number employed on FERA-WPA works programs is higher by more then a million than the workers employed in October 1935. .****. In order to compare full relief and welfare expenditures this year with those of a year ago, it is necessary to include the relief grants to farmers made by the Resettlement Administration, and grants to the aged, the blind, and dependent children by the Social Security Board. These figures are shown in the third and fourth graphs. Expenditures of all relief and welfare agencies were $85,000,000 higher in September 1936 than in September a year ago. The combined relief programs were taking care of over half a million more families than a year ago. This is contrary to the conclusion reached by Mr. Hopkins on the trend of relief. ...... Employment supplied by Federal emergency employment programs other than WPA is still rising. Regraded Uclassified FEDERAL EMERGENCY RELIEF ADMINISTRATION - WORKS PROGRESS ADMINISTRATION Expenditures United States 27 All FERA-WPA Programs Works Programs Direct Relief Federal State and Total Funds Local Funds All Funds FERA WPA Total Total 1935 July $123,604,000 $36,942,000 $160,545,000 $66,427,000 - August $66,427,000 117,680,000 $160,545,000 36,092,000 153,772,000 49,589,000 September $5,975,000 55,564,000 106,188,000 147,797.000 31,870,000 138,058,000 27,959,000 October 16,960,000 44,919,000 120,979,000 35,241,000 121,098,000 156,220,000 23,181,000 November 35,696,000 124,478,000 58,877,000 31,800,000 156,278,000 120,524,000 11,016,000 December 61,068,000 167,266,000 72,084,000 39,641,000 206,907,000 95,210,000 3,053,000 136,955,000 140,008,000 69,952,000 1936 January 178,320,000* 49,200,000 227,520,000 - 167,920,000 February 168,924,000* 51,400,000* 167,920,000 220,324,000 59,600,000 - March 164,324,000 194,630,000* 49,800,000 164,324,000 244,430,000 56,000,000 - April 191,530,000 185,670,000* 44,700,000* 191,530,000 230,370,000 52,900,000 - May 176,102,000* 182,570,000 39,400,000 182,570,000 215,502,000 47,800,000 - June 170,804,000* 173,702,000 38,100,000* 173,702,000 208,904,000 41,800,000 - 169,104,000 169,104,000 39,800,000 July 163,806,000 35,500,000* 199,770,000 - August 158,362,000 162,870,000 162,870,000 34,800,000* 193,322,000 36,900,000 - September 165,324,000 157,422,000 157,422,000 35,900,000 - October 181,125,000 165,039,000 165,039,000 - 180,897,000 180,897,000 Source: FERA Obligations Incurred 1935 - 1936 - FERA FERA-WPA Checks Issued - Treasury Department State and Local Funds - FERA *Direct relief expenditures estimated by FERA. Reports on direct relief are incomplete in 14 or more States after November 1935. November 13, 1936Regraded Uclassified FEDERAL emergency HELIEF ADMINISTRATION - WORKS PROGRESS ADMINISTRATION Expenditures United States July Sept. Nov. Jan. Mar. May July Sept. Nov. Jan. Mar. May July Sept. Nov. Jan. Mar. May Dollars Dollars Dollars Millions Willions Willions F.E.R.A. - w.p.a. F.B.R.A. - W.P.A. F.E.R.A. - W.P.A. All Programs All Programs Works Programs Federal Funds Only 250 350 250 200 200 200 1936 - *37 1935 -'36 1930 -'379 1936 *379 150 150 150 1935 -'30 100 100 100 1935 -'36 50 50 so o 0 0 July Sept. Nov. Jan. Mar. May July Sept. Nov. Jan. Mar. May July Sept. Nov. Jan. Mar. May Source: F.B.B.A. Obligations Incurred-F.E.N.A. U.P.A. Checks Issued - Treasury Department Reports on Direct Relief are Incomplete in 14 or sore states after November, 1935. Olive of de Secretary of the Treasury 28 - of - - - = - 187 - 1 Regraded Uclassif FEDERAL EMERGENCY RELIEF ADMINISTRATION - WORKS PROGRESS ADMINISTRATION Number of Families or Workers Receiving Aid 6 United States All Works Programs ERA Programs FERA WPA Total Direct Relief 1935 July 4,459,000 1,929,000 70,000 1,999,000 3,063,000 August 4,495,000 1,411,000 253,000 1,664,000 3,286,000 September 4,381,000 889,000 456,000 1,345,000 3,342,000 October 4,502,000 645,000 777,000 1,422,000 3,289,000 November 5,958,000 346,000 2,484,000 2,830,000 3,260,000 December 5,349,000 60,000 2,740,000 2,800,000 2,563,000 1936 January 5,137,000* - 2,927,000 2,927,000 2,210,000* February 5,169,000* - 3,039,000 3,039,000 2,130,000* March 4,862,000 - 2,877,000 2,877,000 1,985,000* April 4,416,000 - 2,586,000 2,586,000 1,830,000* May 4,000,000 - 2,340,000 2,340,000 1,660,000* June 3,806,000* - 2,256,000 2,256,000 1,550,000* July 3,714,000 - 2,248,000 2,248,000 1,466,000* August 3,823,000 - 2,371,000 2,371,000 1,452,000* September - 2,477,000 2,477,000 October I 2,539,000 2,539,000 Source: Direct relief and FERA works programs - FERA WPA works programs - WPA *Figures for direct relief estimated by FERA. Reports on direct relief are incomplete in 14 or more States after November 1935. November 13, 19Regraded Uclassifie FEDERAL EMERGENCY RELIEF ADMINISTRATION - WORKS PROGRESS ADMINISTRATION Number of Families or Workers Receiving Aid United States July Dept. NOV. Jan. Mar. May July Sept. NOV. Jan. Mar. May July NOT. Janes Mar. MAZ Families Workers Funilies or Millions gillions Workers gillions F.E.R.A. - W.P.A. F.B.R.A. - W.P.A. B.R.A. Direct Relief 7 All Programs 7 Works Programs 7 6 6 6 5 5 8 1935 - 36' 4 4 4 1936 -'37 a 3 a 1930 -'37 3 2 a 1935 -'30 1935 -'36 1930 -137 1 1 1 o o o July Sept. Nov. Jan. Mar. May July Sept. Not. Jan. Mar. May July Sept. NOT. Jame Har. Say Source: Direct Relief - F.E.N.A. W.P.A. work Progress - V.P.A. Reports on Direct Relief are incomplete is 14 OF sore States after NOV. 1935. 30 Olien of the Secretary of the Treasury - of - - $ 197 # Regraded Uclassifie ALL WORK AND WELFARE PROGRAMS Number of Families or Workers Receiving Aid United States 31 All Total Emergency Employment Work and Welfare Relief and Welfare Excluding FERA-WPA Programs 1935 July 4,461,000 901,000 5,387,000 August 4,545,000 1,027,000 5,609,000 September 4,427,000 964,000 5,437,000 October 4,560,000 998,000 5,616,000 November 6,000,000 993,000 7,057,000 December 5,505,000 963,000 6,525,000 1936 January 5,316,000 933.000 6,296,000* February 5,624,000 938,000 6,605,000* March 5,418,000 892,000 6,357,000* April 5,129,000 1,041,000 6,231,000* May 4,740,000 1,135,000 5,955,000* June 4,609,000 1,194,000 5,906,000* July 4,615,000 1,213,000 5,954,000* August 4,881,000 1,188,000 6,216,000* September 4,965,000* 1,094,000 6,205,000* Source: Number of workers - U. S. Bureau of Labor Statistics and WPA Number of families aided - direct from the agency *Direct relief estimated. Relief and welfare includes all programs replacing FERA programs for 1933 - 1935 - FERA-WPA, Resettlement loans and grants, and Social Security programs. Emergency employment includes - PWA under the 1933 and 1935 Acts, Federal projects under the Regraded Uclassifie 1935 Act, 000. and RFC. ALL WORK AND WELFARE PROGRAMS Number of Families or Workers Receiving Aid United States July Sept. Not. Jan. Mar May July Sept. Nov Jan. Mar. MAY July Sept. Rox. Jan. Mar Max FAMILIES WORKERS FAMILIES or Willions or WORKERS Relief and Welfare Emergency Employment WORKERS Work and Welfare Willions Willions 7 All Programs 7 All Programs 7 ALL Programs Excluding F.B.R.A. - W.P.A. 1936 '37 o 6 6 1920 - '36 1936 - '37 a 6 5 1030 - '36 4 4 4 3 3 3 2 2 2 1936 - '37 1 1 1 1938 - '36 o 0 o July Sept. Nov. Jan. Mar. May July Sept. Nov. Jan. Mar. May July Sept. Nov. Jan. Mar. May Including F.E.B.A. - U.P.A., Resettlement Including P.N.A., Federal Projects (E.R.A.A.), Including Relief and Welfare, Energency Loss and Grants, and Social Security C.C.C., and R.F.C. Employment, and Governmental Construction Programs Boureet Rumber of Workers - U.S. Bureau of Labor Statistics and U.P.A. Number of Families Alded - direct from the agamcy 32 Office of de Secretary of the Treasury Divided of - - - I 187-2 Regraded Uclassifi ALL WORK AND WELFARE PROGRAMS Expenditures 33 United States All Emergency Employment Pay Rolls Agricultural Relief and Welfare Excluding WPA Payments 1935 July $160,558,000 $48,318,000 $30,878,000 August 154,843,000 53,765,000 46,940,000 September 138,935,000 51,890,000 63,766,000 October 157,729,000 53,719,000 65,738,000 November 158,343,000 52,864,000 62,500,000 December 211,821,000 49,331,000 62,537,000 1936 January 234,249,000* 47,856,000 3,637,000 February 236,483,000* 46,140,000 5,631,000 March 268,036,000* 46,581,000 24,248,000 April 262,499,000* 54,672,000 38,934,000 May 237,441,000* 61,324,000 53,582,000 June 228,020,000* 67,388,000 48,164,000 July 215,811,000* 68,150,000 18,173,000 August 214,113,000* 67,605,000 12,193,000 September 224,048,000* 64,803,000 Source: FERA - WPA Checks Issued - Treasury Department Emergency employment pay rolls - U. S. Bureau of Labor Statistics All others - direct from the agency *Direct relief estimated. Relief and welfare includes all programs replacing FERA program for 1933 - 1935 - FERA-WPA, Resettlement loans and grants, Social Security programs. All energency employment programs includes PWA under the 1933 and 1935 Acts, Federal projects Regraded Uclassifi the 1935 Act, oco, and ICPO. ALL WORK AND WELFARE PROGRAMS Expenditures United States July Best, Nov. Jan. Har, May July Dent. Nov. Jan. Mar. May July Dect. In. den. Nap- Sex DOLLARS DOLLARS DOLLARS Willions Relief and Welfare Millions Payrolls Millions Agricultural Payments All Programs Emergency Employment All Programs 350 aso Excluding F.B.R.A. - W.P.A. 880 200 1934 -'37 soo soe 1935 - '36 150 150 150 100 100 100 cum - '37 1938 - '30 so 80 - 1936 - '36 alsos - '37 o o o July Sept. Nov. Jan. Mar. May July Sept. Nov. Jan. Mar. May July Sept. Nov. Jan. Mar. May Including F.E.R.A. - U.P.A., Resettlement - Including P.W.A., Federal Projects (R.B.A.A.), Lesse and Greate, and Social Security c.c.c., and R.F.C. Prograss. Source: U.P.A. Checks Issued - Treasury Department Energency Employment Payrolls - 0. 1. Bureeu or Labor Statistics All others - direct from the agency. Other of the Secretary of the Treasury 34 - of - of - I - 187 - a Regraded Uclassifie SUPPLEMENTARY TABLES Relief Welfare Emergency Employment 35 35 5 # and - Regraded Uclassified RELIEF AND WELFARE PROGRAMS 36 Number of Families or Workers Receiving Aid United States Social Total Resettlement Security Total FERA WPA FERA-WPA Loans and Grants Programs Relief and Welfare 1935 July 4,389,000 70,000 4,459,000 1,000 I 4,461,000 August 4,242,000 253,000 4,495,000 51,000 - 4,545,000 September 3,925,000 456,000 4,381,000 46,000 - 4,427,000 October 3,725,000 777,000 4,502,000 58,000 - 4,560,000 November 3,474,000 2,484,000 5,958,000 43,000 - 6,000,000 December 2,609,000 2,740,000 5,349,000 156,000 - 5,505,000 1936 January 2,210,000 2,927,000 5,137,000 180,000 - 5,316,000 February 2,130,000* 3,039,000 5,169,000 180,000 275,000 5,624,000 March 1,985,000* 2,877,000 4,862,000 232,000 324,000 5,418,000 April 1,830,000 2,586,000 4,416,000 210,000 503,000 5,129,000 May 1,660,000* 2,340,000 4,000,000 177,000 563,000 4,740,000 June 1,550,000* 2,256,000 3,806,000* 159,000 644,000 4,609,000 July 1,466,000 2,248,000 3,714,000 91,000 809,000 4,615,000 August 1,452,000* 2,371,000 3,823,000 96,000 962,000 4,881,000* September 1,430,000* 2,477,000 3,907,000 81,000 978,000 4,965,000 October 2,539,000 1,094,000 November 1,174,000 Source: Number of workers - WPA Number of families aided - direct from the agency *Direct relief estimated. Regraded Uclassified November 13. 1936 ALL EMERGENCY EMPLOYMENT PROGRAMS - EXCLUDING FERA-WPA Number of Workers United States Works Program, Total Regular PWA Other PWA Emergency Governmental CCC 1935 Act Federal Projects 1933 Act RFC Employment Construction 1935 July 481,000 - 5,000 405,000 10,000 901,000 26,000 August 590,000 - 33,000 395,000 9,000 1,027,000 36,000 September 534,000 - 77,000 345,000 9,000 964,000 46,000 October 551,000 1,000 129,000 307,000 9,000 998,000 59.000 November 544,000 3,000 168,000 268,000 10,000 993,000 64,000 December 507,000 7,000 217,000 224,000 8,000 963,000 57,000 1936 January 479,000 21,000 249,000 177,000 8,000 933,000 47,000 February 454,000 35.000 299,000 141,000 8,000 938,000 44,000 March 356,000 61,000 326,000 142,000 8,000 892,000 48,000 April 391,000 108,000 376,000 157,000 10,000 1,041,000 60,000 May 408,000 144,000 401,000 172,000 11,000 1,135,000 80,000 June 383,000 169,000 453,000 180,000 9,000 1,194,000 102,000 July 404,000 181,000 452,000 167,000 10,000 1,213,000 126,000 August 384,000 184,000 452,000 159,000 9,000 1,188,000 147,000 September 321,000 176,000 440,000 147,000 10,000 1,094,000 145,000 Source: Number of workers - U. S. Bureau of Labor Statistics November 13. 1936 37 III Regraded Iclassifie RELIEF AND WELFARE PROGRAMS Expenditures 38 United States Federal Funds State and Local Funds Social Total Total Total Total Resettlement Security Federal ERA Social State and FERA-WPA Loans and Grants Grants Funds Relief Security Local Funds 1935 July $123,604,000 $13,000 - $123,617,000 $36,942,000 - $36,942,000 August 117,680,000 1,071,000 - 118,751,000 36,092,000 - 36,092,000 September 106,188,000 877,000 - 107,065,000 31,870,000 - 31,870,000 October 120,979,000 1,509,000 - 122,488,000 35,241,000 , November 35,241,000 124,473,000 2,065,000 I 126,543,000 31,800,000 - December 31,800,000 167,266,000 4,914,000 - 172,180,000 39,641,000 - 39,641,000 1936 January 178,320,000* 6,729,000 - 185,049,000 49,200,000 - 49,200,000* February 168,924,000* 11,611,000 $2,176,000 182,710,000 51,400,000* $2,373,000 March 194,630,000* 53,773,000* 18,387,000 2,504,000 215,520,000* 49,800,000* 2,716,000 52,516,000* April 185,670,000* 24,222,000 3,818,000 213,710,000* 44,700,000* 4,088,000 48,788,000* May 176,102,000* 12,969,000 4,338,000 193,410,000* 39,400,000 4,631,000 44,031,000* June 170,804,000* 8,730,000 4,385,000 183,919,000* 38,100,000 6,001,000 44,101,000* July 163,806,000 1,935,000 6,773,000 172,513,000 35,500,000 7,333,000 42,833,000 August 158,362,000 2,561,000 8,804,000 169,727,000 34,800,000 9,426,000 44,226,000* September 165,324,000 4,824,000 9,225,000 179,372,000 10,061,000 October 181,125,000 10,250,000 11,156,000 November 10,973.000 11,931,000 Source: FERA - WPA Checks Issued - Treasury Department All others - direct from the agency *Direct relief estimated by FERA. Division of Social Security Grants into Federal and non-Federal funds is estimated by the Treasury. Regraded Uclassifie ALL EMERGENCY EMPLOYMENT PROGRAMS - EXCLUDING FERA-WPA Pay Rolls United States Works Program, Total Regular PWA Other PWA Emergency Governmental CCC 1935 Act Federal Projects 1933 Act RFC Employment Construction 1935 July $22,071,000 - $277,000 $24,969,000 $1,002,000 $48,318,000 August 26,236,000 $1,890,000 - 1,216,000 25,293,000 1,020,000 53,765,000 September 24,405,000 2,695,000 - 3,755,000 22,772,000 958,000 51,890,000 24,831,000 $54,000 3,200,000 October 6,243,000 21,638,000 953,000 53,719,000 November 23,958,000 145,000 4,193,000 8,392,000 19,368,000 1,001,000 52,864,000 21,906,000 4,077,000 December 332,000 10,196,000 16,028,000 869,000 49,331,000 3,708,000 1936 January 21,427,000 974,000 11,180,000 13,425,000 850,000 47,856,000 20,484,000 1,579,000 3,991,000 February 12,529,000 10,642,000 905,000 46,140,000 March 17,252,000 2,864,000 14,432,000 3,619,000 11,117,000 916,000 46,581,000 April 18,058,000 6,097,000 16,564,000 3,675,000 12,819,000 1,134,000 54,672,000 May 18,610,000 8,748,000 19,161,000 5,205,000 13,843,000 962,000 61,324,000 17,948,000 10,866,000 22,658,000 6,243,000 June 14,975,000 942,000 67,388,000 8,631,000 July 18,418,000 11,727,000 22,700,000 14,242,000 1,064,000 68,150,000 12,425,000 August 17,846,000 12,386,000 22,795,000 13,530,000 1,048,000 67,605,000 13,000,000 September 16,371,000 12,122,000 22,585,000 12,639,000 1,085,000 64,803,000 12,659,000 Source: U. S. Bureau of Labor Statistics November 13, 1936 39 a Regraded Uclassifi 40 November 20, 1936 The Italian Ambassador, Mr. Fulvio Suvich, called on the Secretary this afternoon at 3:30. Mr. Taylor was also present. The following is stenographic transcript of the con- versation: Ambassador: I was with Count Volpi for some years and afterwards I turned to a diplomatic career, I am a call. Member of Parliament in Italy. This 1s just a courtesy HM,Jr: Do you care to talk about the financial condi- tions in your country? Ambassador: I should like to say that the newspapers here say that I am here with special tasks. I came here without any special instructions in these financial matters, The thing we like to have at the moment is a commercial agreement. Mr. Phillips 18 negotiating this in Rome -- the commercial treaty. (Explanation: The Ambassador was Under-Secretary of State in Italy. He discussed the commercial trade treaties with Phillips in Italy. They agreed that the first thing the Ambassador would take up was the commercial trade treaty, but Mr. Phillips is conducting these treaties in Italy.) I understand that in Rome they examined it with great- est interest and with the hope that it will bring a solu- tion of our relationships. I have a specific question to put to you because I received yesterday a telegram after I had asked for this interview. They heard that you wish to enlarge this tripartite and that you already informed other countries about your intention to extend, In Italy they know noth- ing about it and have asked me if I could get some infor- mation. HM,Jr: I will be glad to explain it to you. The way we have divided the responsibility here on purely financial matters, as between the United States and other Regraded Uclassified 41 -2- countries, 18 that the President has given me that authority, including the war debts, but when it comes to the commercial treaties or private debts, I do not interest myself. The State Department does. I do in Government debts and also in this question of sta- bilization of currencies. When it comes to trade treaties or debts between your citizens and ours, I do not interest myself. It 18 something which has developed since President Roosevelt has been in. On September 25, Great Britain, France and ourselves got out a joint statement. As I understand it, & notice went out from the Federal Reserve Bank in New York, our fiscal agent. They sent 8. copy of that to twelve or thirteen of the principal central banks in the world. I take it for granted that your Bank in Italy got one. Ambassador: I do not know. HM,Jr: I will make inquiries. (At this point, the Secretary asked Mr. Lochnead to bring in the various declarations.) In this statement of September 25, we welcomed the cooperation of other countries. So far, the only country that sent a statement was Belgium and they, through their Foreign Office, to the State Department sent this state- ment. We have not sought out any other countries, but they have sought us and without disclosing names, we are in the midet of discussions with other countries who have sought us and who want to get the understanding of ex- change of gold between Governments. The point we stress, which 18 new, 1s that whatever we do we wish to do between Treasuries and not between Central Banks. Ambassador: You wish to make agreements between Governments and Treasuries? (Note: The statements were brought in, at this point, by Mr. Lochhead, The Secretary read aloud the September 25th announcement, the statement which went out to the Central Banks, and the statement from the Belgians.) You see, we call them declarations and not treaties. We have signed nothing. It 18 purely a gentlemen's 42 -3- agreement. We do not have to go to Congress to get anything confirmed. It is all on a day-to-day basis. What we are hopeful of doing 16 through these under- standings between these countries we can gradually by adding one country after another steady the exchanges. That 1e about all we can do, We have taken it out of the hands of the speculators. There are no regulations about gold coming into the country; only about going out. If, for instance, the Panama Republic should say that they wish to have the privilege of taking gold from the United States, then we would say that before we will do that we would like to have the Government of Panama say to us they will give us that privilege of receiving gold when the dollar falls and in that way we can stabilize the dollar and the Panama "coin". I am just using that aa an example. Here we do busi- ness with the British Embassy. In Paris I have my own man who contacts the French. And if your Govern- ment is interested, we can do business with you. Ambassador: They wish to be informed of the general movement. HM,Jr: You can feel free to come in here without instructions from your Government. If I cannot answer your questions, I will say so, but feel that you can come in whenever you like. Don't feel that you have to have anything special in order to come in. Ambassador: I thank you very much. I think it is the best way. I prefer that I say directly what I have to ask, HM,Jr: Your people might have rumore of what we are trying to do with the other countries. Your man in Italy, Pennachio, knows Cochran. I understand he 18 a very capable man. That 18 the only contact we have had with the Bank of Italy -- through Pennachio. We have received information and given information. Ambassador: Now, I will not take any more of your time. 43 November 21, 1938 The Secretary ta lked to Cochran from his home today at about 9:45. Lochhead was present. Following 1s a stenographic report of Mr. Morgenthau's remarks to Cochran: "Hello, Cochran. You saw President Bachman this morning? You see, I am at home and I am repeating it. Yes. Good. Let me see if I understand this. I will repeat. You met Mr. Bachmann this morning and Mr. Myers, who 18 the Minister of Finance and who 18 also President of the Swiss Council. You submitted to him a proposed draft of a cable. Bachmann and you drew up the draft and you submitted it to Myers. I am just giving it roughly. You will confirm this in a cable? As I understand it, the draft has been submitted to the Foreign Office? Yes, and it's going to come through. When are they going to send it? You mean it 1s to be delivered before Sunday? Fine. I will. And I am going to tell them to tell both of those Legations that we expect something 80 that they won't be closed up. That's fine. That finishes it, doesn't it? You had no trouble? I think that's fine. And then they give it out for Monday morning's papers? 44 -2- That's all right. About noon Monday. Well, noon there 1s, of course five hours earlier here. What we will do -- you tell the French we will give it out (our statement) at four o'clock Monday after- noon and I am telling the British the same. That will be 9 o'clock Paris. Yes. That's right. Well, I am simply delighted. And I think you have done a grand job. I didn't get that. Yes. Yes. I wish you would. Well, if he has that, cable that. (To Mr. Lochnead: Have we got what the British are going to give out? Mr. Lochhead: No. The way they spoke, it was not going to be a formal statement.) Well, whatever you get from the French and British, send it along. Yes. Yes. All right. I will. I tell you what you had better do. Just to make sure that everything 18 all right, supposing you call me at 12:30, Washington time, tomorrow. That will be 5:30 your time. Call me at home. North 8898. That's right. How are you standing all this jumping around? Good. Well, we are making monetary history now. Fine. I know. 45 -3- Tell me, how worried are you on the political thing? I see, But would that affect the French? Yes. Fine. Now Cochran, can you file a cable still from Switzerland? No. To State. Because Mr. Moore reads every cable very carefully. I mean he likes to get them, Good. Now, when are the Swedes coming to see you? Good, Good. Well, I am simply delighted. Good-bye. **** Upon the completion of this telephone conversation, the Secretary called Mr. Taylor and said to him; "Good morning. I have Just heard from Cochran. I am at home. And everything 16 sewed up. I think it's pretty fine. Now, will you do two things for me, Will you call up Mr. Moore and tell them we have just heard and would he designate somebody to be at the State Department tomorrow who can be available BO that he can receive the messages. There will be messages coming in tomorrow from Holland and Switzerland. I wish that he would have whoever this person 1s that he designates call up the Swiss Legation and the Dutch and tell them that we expect messages to- morrow and that they are urgent, so that as soon as they come Mr. "X" will be at the State Department waiting to receive them; otherwise, the Swiss and Dutch may be out shooting quail or something like that and I think it's perfectly proper and if he would Bay that whoever Mr. Moore designates, Mr. "X", will be here; we have received word that there will be messages for the Treasury Depart- ment and we are very anxious to get them, or have Mr. "X" contact me direct. I am going out for a ride and I will be back here at noon and when I get back I will call you. I have Aronie here. I sent for him. Then I am going to draft a cable for the President which I will send. 46 I think that's about all. Oh, yes. will you notify the British. And have we got anything from the British which shows what they are going to say? You might be looking it up. You might ask Moore whether there is any change in that and tell him it is all set for the French, British and our- selves to give out the announcement at four o'clock, Washington time, Monday; nine o'clock, Paris and London. And that the Duton and Swiss are going to release it to their papers for Monday morning. But the various Foreign Offices will get these messages Sunday, 80 you contact Moore. And then the other thing. Marriner Eccles read a statement to me that he 18 releasing, notifying the public that there is a chance that they are doing something. He called me up at 8:30 this morning. He 1s going to do it today. So I will call up around noon. You will still be there? All right. Thank you. ***** The Secretary then dictated the message to the Presi- dent, which 18 attached hereto. Regraded Uclassified 47 November 21, 1936 MESSAGE FOR THE PRESIDENT: DELIGHTED TO BE ABLE TO INFORM YOU THAT THE PLAN WHICH I SUBMITTED TO YOU AND WHICH YOU APPROVED ON TUESDAY NOVEMBER SEVENTEENTH FOR THE UNITED STATES TO GIVE BELGIUM HOLLAND AND SWITZERLAND RECIPROCAL GOLD FACILITIES HAS BEEN SUCCESSFULLY CULMINATED STOP THESE COUNTRIES ARE GOING TO NOTIFY US ON SUNDAY OF THEIR ADHERENCE TO THE PRINCIPLES EXPRESSED IN THE TRIPARTITE DECLARATION OF SEPTEMBER TWENTY FIFTH STOP THIS DECLARATION ON THEIR PART WILL BE MADE PUBLIC BY THEM ON MONDAY MORNING STOP FRANCE MR CHAMBERLAIN AND YOUR SECRETARY OF THE TREASURY WILL MAKE A SIMULTANEOUS ANNOUNCEMENT MONDAY FOUR OCLOCK WASHINGTON TIME WELCOMING BELGIUM HOLLAND AND SWITZERLAND AND AT THE SAME TIME ANNOUNCING THAT WE HAVE EXTENDED TO THEM RECIPROCAL GOLD PRIVILEGES STOP BEST REGARDS MORGENTHAU Department of State BUI DIVISION I EA ENCLOSURE TO Letter drafted ADDRESSED TO TREASURY I PRINTING I . : = 1-1nat Transmetted by 48 state Department (see nov. 30, 1936.) Sir: I acknowledge the receipt of your note of Novem- ber 31, 1936, informing no of the Swiss Government's policy with respect to international monetary and economic relations. The Secretary of the Treasury associates himself with me in expressing this Government's appreciation of your communication and our gratification concerning this declaration. Accept, Sir, the renewed assurances of my highest consideration. R. Walton Moore Acting Secretary of State. The Honorable Maro Peter, Minister of Switzerland. (nov. 21, 1936) Regraded 49 November 30 1930 str: I acknowledge the receipt of your note of NOTES- ber n, 1936, informing me of the Notherland dovernment's policy with respect to international memotary and economic relations. The Secretary of the Treasury associates himself with ne in expressing this Government's appreciation of your communication and our gratification concerning this declare- tim. Accept, sir, the renewed assurances of my highest come sideration. R. Walton Moore Acting Secretary of state. The Honorable Baron ver Beougel neuglas, Change d'Affaires ad interin of the Bether's $51.5152/1199 A 2 capy origi- d II-37 Regraded Uclassified 50 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Switzerland Consulate General, Zurich, DATE: November 21, noon RUSH. FOR THE SECRETARY OF THE TREASURY FROM COCHRAN. President Bachmann and Pfenniger, his assistant, re- ceived me at the Zurich office of the Swiss National Bank early this morning. I gave them copies of such draft announcements as I had left with the Dutch and Belgian officials and explained to them our plans for further statements. A telegram to the Swiss Ministry of Foreign Affairs was then drafted, directing that Ministry to send tele- graphic instructions immediately to the Swiss diplomatic representatives at Washington, London and Paris to deliver- to the respective foreign offices not later than Sunday forenoon a message of adherence to the general principles of the tripartite monetary declaration of September 25th. In terms, this message is identical with the Dutch message which was cabled to you yesterday from The Hague, except that instead of beginning "The Government of the Nether- lands", it begins "the Government of Switzerland". Meyer, the President of the Swies Federal Council and also Chief of the Swies Federal Department of Finance and Customs, came to the bank at nine o'olock this morning and ordered the sending of the above mentioned instruction to 51 -2- to the Swiss Ministry of Foreign Affairs at Bern. We understand that the Swise will not give publicity to their adherence to the tripartite agreement until Monday. The Swiss anticipate that the above-mentioned statement of adherence will met with your requirements and that you will, through the proper channels therefore, include Switzerland in the list of countries to be announced Truesday morning as eligible for reciprocal gold dealings with the United States. Any available texts of French and British communiques will be telephoned to Bachman from Paris on Monday. Probably, the Swiss Government will give very little comment to the press accompanying its official declaration of adherence. This morning at 11 o'clock, I telephoned the substance of the above to Minister Wilson at Bern. I shall return to Paris by night train and shall see Baumgartner at eleven o'clock Sunday morning. EA:DJW November 21, 1936. 52 October 30, 1936 Mr. Mallet said to the Secretary, "Wo have got an answer for you, Mr. Secretary, to the question you put to the Chancellor, The Chancellor wishes to thank you for the further information regarding the present position and he says that when you make the announcement about any countries named acceding to the reciprocal arrangement about sales of gold, he would certainly consider making simultaneous declaration in London, but the wording of the declaration will require consideration in the light of the actual circumstances. "The Chancellor thinks he would be in position to say, if you 80 desire, that he welcomes the extension by the United States Treasury of their arrangements to the countries named, which is in harmony with the arrangements already made between United States and Great Britain and United States and France. The extension of this arrangement is also in harmony with the general basis of mutual cooperation which exists between British monetary authorities and the monetary authorities named in the United States announcement. Perhaps you may need an amplification of this and I will ask Mr. Bewley to emplify certain technical points." November 5, 1936 The Secretary gave to Mr. Mallett a copy of proposed statement by the Treasury which was intended to cover the release of gold for export to" France and England in addition to Holland, Switzerland and Belgium. (Superceding the announcement made by him on Jamary 31, 1934 and October 13, 1936, etc.) November 10, 1936 Mr. Bewley's meeting with Mr. Taylor while the Secretary was at Sea Island: "Mr. Bewley: Well, the first thing was that the Chancellor wants to tell Mr. Morgenthau that he had no suggestion to make on the new draft announcement which seems fully to meet the cass, If Mr. Morgenthau will tell Mr. Chamberlain when he is going to issue his announcement, Mr. Chamberlain will issue a statement at the same time in the terms which he has already told you. I think you have got more or less a draft of it. And Mr. Chamberlain is tell- ing the French Government the same thing." 53 -2- November 16, 1936 Cable to Cochran giving draft of proposed statement by Secretary Morgenthau. ("Supplementing the announcement made by him on October 13, 1936, etc.") November 18, 1936 Mallet's letter to the Secretary as follows: "My dear Mr. Secretary, In confirmation of my telephone message of this morning I am writing to tell you that we have had a telegram from the Chancellor of the Exchequer in which he asks us to inform you that he notes that your object in revising the draft agreement announcement is to adapt it to the case of Belgium. Provided that the new draft is satisfactory to the Belgian Government Mr. Chamberlain concurs in its terms. He also agrees to the procedure and time table suggested by you. Believe me, My dear Mr. Secretary, Very sincerely yours, (Signed) Victor Mallet." 54 to 11/22/26 Smight MONEY GOVERNMENT'S NEW ANTI-INFLATIONARY POLICY. *** Washington advices indicate that an imminent change is about to take place in Government's monetary policy. Fundamental B.S this change will probably prove to be, it is certain to impose no readjustments upon finance or industry but, on the contrary, by inject- ing into the situation an element of stability, will provide ample justification for greater confidence in the future. Government has recognized that there are inflationary forces in the making which, if permitted to gather momentum, would without doubt ultimately so alter our price structure as to enforce severe readjustments throughout the entire economy. Government realizes that a violent rise in the price level, like a violent drop, tends to set in motion 8. series of forces which, as they feed on one another, gain strength and velocity until, like the tornado, they sweep everything before them. That is precisely what Government wants to prevent and what it is in a very fair way of preventing. The difference between the American and the British money systems may seem to lie in the fact that while the Dollar is rigidly linked to gold, the Pound Sterling is not, yet if, owing to the recent tri-power pact, approximate stability is maintained in the Sterling-Dollar rate of exchango, then it may truly be said that the Pound, because it is linked to the Dollar, is in effect also linked to gold. Our stabilizing mechanisms also differ. America operates through a Fund which has actual money in it, while the British function through an Account which was started without a farthing. Whereas London pays for incoming gold with the cash proceeds of short Treasury bills which take out of the money market funds in amounts which exactly correspond to the cash paid for the gold, we, on the other hand, issue $35. additional currency for every ounce of yellow metal that enters our borders, and thus inflate the currency as fast as gold comes in. When, as and if alien gold is returned to points of origin, we shall be forced to deflate the currency in proportions equal to the out= flow of metal, Thus it will be seen that both the inflow and outflow of gold, by altering our reserves, unnecessarily disturb our financial and price structures and expose our economy to forces outside our jurisdiction, but over which we happily have a good measure of control the very moment they oross our borders. 55 2. In seeking the proper corrective, our approach via the security markets was patently erroneous; we could not, without placing ourselves in an nwkward position, pursue a tariff reduction policy on goods and, at the same time, erect tariffs against capital movements. To attempt so to act was incongruous, expecially in view of the fact that there was always available another method, the effectiveness of which was obvious. Apparently this very method is about to be adopted: The Treasury will very likely issue short bills (90-120 days) in amounts corresponding to the volume of incoming gold, and will keep ronewing them as long as the metal stays in America. The Treasury will thus be taking out of the monoy markets exactly as much money as it issues when it purchases incoming gold. When the metal flows out, the bills will be permitted to run out and will be paid at maturity. In the present and prospectivo state of the money markot these bills can be sold at not moro than 1% per annum, which means that if one billion of gold comes in, we would pay ten million dollars per annum premium for the privilege of con- trolling the situation, avoiding unnecessary disturbances to our financial and price structures, and undoubtedly saving the nation many timos that amount by noutralizing the inflationary and deflationary force of gold movements which originate outside our borders. The raising or lowering of reserve requirements, while a useful dovice, is not as effective as the procedure above described because it is, of itself, highly disturbing to the banking mechanism, whereas the complete neutralization of undesired gold imports ronders the money market imporvious to their influence without requiring suddon readjustments by the banking mechanism. This now orientation in the Treasury's monetary policy should not be construod as doflationary; it is meroly anti-inflationary and, as such, it is sound, conservative and Enr-sighted and will provo to be another stabilizing factor in both the national and international situations. RENE LEON November 23, 1936. 56 November 22, 1936 From his home, the Secretary called Cochran at 12:45. Following 1s transcript of Secretary's remarks to Cochran: What 18 new? They were not as smart as we were. We sent them a notice, but it was unnecessary because the Swiss and Dutch notes were delivered to the State Department at noon Saturday, We arranged and asked them to have some- body there Saturday and Sunday and at noon they walked in and handed it to Moore at the State Department. The Swiss in Paris are not on the job. We have both. I am sorry that it does not appear until Monday noon. I think I will wait until tomorrow now. I will give it out about 10 o'clock tomorrow morning. Supposing I say that you can tell them that we will give it out at the Treasury 10 o'clock tomorrow note. That 16 the note of Switzerland and Holland to us. We will not give out the tripartite one until 4 o'clock Monday night for Tuesday morning papers. Can you sound out Baumgarten before he takes his new position as to whether he would not like to come over to America for a week? My thought 18 I expect from now on to ask some of these countries to send somebody from their Treasuries Just to come over and give me information casu- ally. Has he not the confidence of Blum? Then he would not be Bo good. What about Professor Riszt? Well, I mean, if Baumgarten came he would not have the confidence of Blum. I have something in my mind 57 -2- which I do not want to say over the 'phone, but I may be able to talk to you about it in a day or two, What I want to find out 18 -- and I am not prepared to talk yet myself -- whether they are ready. If things quiet down there for a couple of weeks, I would like you to come over for a week. Butterworth sees the British Treasury, Waley, over there and Waley dropped a hint that they felt that Sweden was their baby, but I am just going to act as though I never heard it. It will have to come more officially than that and if it does, I do not know whether I will pay any attention to it. I do not think they control and own Sweden. This information is Just for you. I want to go after the Scandinavian countries. I am very anxious to. I will call you again Tuesday and let you know how it went on this side. EXPLANATION: In substance, the important thing that Cochran conveyed to the Secretary 1s the following: Blum, while he is getting a promotion, 1s being put out of his present position by political pressure due to the fact that his wife 18 a member of the 200 families that rule France. Cochran questions the advisability of Baumgarten's coming over here. In any event, there is no use taking up war debts with France until after they get their budget through in December. Regraded 58 MA. GRAY Paris Dated November 22, 1936 Rec'd 10:35 a.m. Secretary of State Washington RUST 1138, November 22, 1 p.m. SECTION ONE FOR THE SECRETARY OF THE TREASURY FROM COCHRAN. Baumzartner of the French Ministry of Finance came to my office at 11 o'clock this morning. I told hin of the results of my trip to Belgium, the Netherlands and Switzerland, Baumgartner telephoned the French Ministry for Foreign Affairs and learned that the Dutch declaration of adherence to the tripartite agreement had been received through the Dutch Legation in Paris. The French Ministry for Foreign Affairs is asking the Swiss Legation in Paris to watch for and Expedite a similar message. Since the Dutch and the 3wiss will not bE able to have their declarations published in their own countries until afternoon on Monday, the French will not have any statement in regard thereto appear in the French press until after noon on Monday. Baungartner submitted to ne the text of the communique which 59 1.. -2- 1138, November 22, 1 p.m., from Paris which the French plan to give to the press at 15 o'clock Monday night for publication Tuesday morning. HERE follows my English translation of the French communique "On the day after the Franco-Anglo-Anerican declaration of September 25th last the Belgian Government announced that it was according its adherence thereto. The Dutch Government and the Swiss Government have just now made known their decisions likewise to join in. The Governments of France, of the United States (END SECTION ONE) BULLITT KLP 60 GRAY MA Paris Dated November 22, 1936 Rec'd 10:50 a.m. Secretary of State Washington RUS 1138, November 22, 1 p.m. (SECTION TWO) of America and of Great Britain WELCOME the declarations by which the Governments of Belgium, Switzerland and the Netherlands thus Express their adherence to the principles stated in the tripartite declaration of September 25th. Following these adhesions provisions have been' made to Extend to these three countries the arrangements which assure Exchange relations between the markets of Paris, London and NEW York which were the subject of a communique dated October 12, and to Establish collaboration between the interested exchange Equalization or stabilization funds and institutions of issue. These provisions are the subject of the two following communiques of the American and British treasuries". (Then follow translations of the declaration which the American Treasury will make to supplement its Earlier declarations on gold, and of the declaration in 61 M.. -2- 1138, November. 22, 1 p.m., from Paris in regard to the addition of the new countries to the Department's list. Next will follow a translation of the British corrunique which has not yesterday been received by the French Ministry of Finance.) "La for as it is concerned the French Government has taken the necessary measures in order that the technical cooperation instituted between the French Exchange stabilization fund and the American and British equalization funds is Extended to the institutions of o issue stabilization funds of Belgiun, the Netherlands and Switzerland. The monetary authorities of these countries will from now on Enjoy the same facilities insofer as the delivery of gold against Exchange is concerned, and they assure analogous treatment to the French stabilization fund". (END MESSAGE) BULLITT KLP 62 November 23, 1936 9:20 A.M. Present: Mrs. Klotz Mr. Opper Mr. Upham. Mr. White. Mr. Haas Mr. Viner. Mr. Lochhead. Mr. Gaston. Mr. Taylor. H.M.Jr: I have here two documents from the Secretary of State dated November 21; one from the Swiss government, which reads as follows: "The government of Switzerland has cognizance of the declaration by which the governments of France, Great Britain, and the United States of America have seen fit to express their intentions with regard to monetary policy, and adheres to the general principles stated in the tripartite declaration of September 25." And then on the same date there is exactly the same thing from the Dutch. Now, we already received one from the Belgians on September 26, see? And then this comes over the ticker this morn- ing: "A dispatch from Bern says Switzerland's adhesion to the monetary convention between Great Britain, France, and the United States has been brought 8 step nearer today by a com- munication by the Swiss government to London, Paris, and Washington. This communication noti- fies the three governments that the Swiss Federal Council has taken cognizance of the declaration of September 25 concerning their intentions on monetary policy, adding that it approves the general principles contained in the convention. The Council adds that it is carrying on negotia- tions already announced which are aimed at bring- ing about cooperation with other States in adher- ence by Switzerland with the three-power gold movements." Then this one: "Holland Has Joined Tri-power Agreement. Amsterdam - The Dutch government 63 - 2 - today decided to join the monetary agreement recently framed by the governments of France, Great Britain, and the United States. (State- ment of Dutch government:) The Dutch government has knowledge of the statement of September 25 in which the governments of France, England, and the United States explain their intentions regard- ing monetary management, to which the Dutch govern- ment agrees. The Putch government - - for all the necessary technical cooperation with the monetary authorities of the countries mentioned above." Now, I - originally these statements were supposed to be given out Sunday night, but they weren't for - I don't know, they said in Holland and Switzerland the Monday morning papers weren't any good, so they wanted to do it for their Monday afternoon paper. I said that I would give out these things here which the State Department has given us this morning; but I'm beginning to think I'll change it, give it all at 4. o'clock. That's what I want your advice on (to Gaston). They've got this thing; if they - I don't want two press conferences today because my agreement with the French and the British is that I will do it at 4 o'clock. What do you think? Gaston: I don't see how we lose anything by waiting and I think - H.M.Jr: All right, then we'll wait. Then if you will make notes for this afternoon. In the first place, I want the January 31, 1934, a copy of that. I want that. I want whatever we do on September 25. Gaston: September 25 and October 13. H.M.Jr: Wait E. minute - and I want the Belgian thing. Gaston: les, yes. H.M.Jr: What they sent to us. And I want the October 13 declaration, including the little statement about - the one when we added a couple countries, you see? Caston: Yes. Regraded 64 - 3 - H.M.Jr: Now then, for this afternoon I think we ought to give out what the Swiss and the Belgians have sent us, you see. We did that in the case - I mean what the Swiss and the Dutch, officially - Gaston: Yes H.M.Jr: We did that in the case of Belgium. Gaston: Yes, yes, yes. H.M.Jr: What do you mean yes? Gaston: Yes, that's what I mean. I first thought we'd just have a release, but I think we might just as well give out that text and then have another release modifying it. Viner: Those are communications to the Secretary 'of State? H.M.Jr: No, but in the case of Belgium the Secretary of State asked to - they say it's a monetary matter so they asked me to release it. We'll release that at 4 o'clock. Please note that those go back to Mrs. Klotz. I'd like to have them back at noon, because I want to have everything. Gaston: Yes, I'll copy them and give them back. H.M.Jr: In addition to that, there is a new declaration of the President's, which is approved by the President, which is dated November 17, but is for release for tomorrow morning's papers, and in which he withdraws. Will you give him - Mrs. Klotz: I think we'll have to make a copy. You know, I can make photostats. H.M.Jr: I'd have it photostated. Now, in that thing we withdraw - Gaston: The January 31. 65 - 4 - H.M.Jr: - 134 and supplement the October 13, see? Gaston: Yes. H.M.Jr: Now, we want to have that. Lochhead: May I make one question on that? You say that was dated. It was approved; didn't have any date. I was wondering whether you should put on any date of November 17. In other words, that was done before we got those letters. I don't think you have to put the date on. H.M.Jr: But it should be dated, because the President can't sign it when he's on the Atlantic Ocean. Lochhead: No, but he could have approved of something that - H.M.Jr: Just a second. Lochhead: That date doesn't go on. H.M.Jr: I think it is dated, but the proclamation is for release for tomorrow morning's papers. Viner: What about this official bulletin? H.M.Jr: That's what we're talking about. Viner: No, but I meant it goes into that. What's the name of that register? Gaston: The Register. Upham: Does not. The other one did not. The other one was signed by the President several days in advance of its release, and you will find a disparity of dates. H.M.Jr: de can sign it for a week in advance, because he went away before. Geston: Doesn't seem to me the difference in dates makes any difference anyway, because the President's declaration clears the way for the admission of these nations, which occurred later. 66 - 5 - H.M.Jr: Now, I want to get you all - And then I think the thing, Herbert, you've got to do is draft this and then bring it in to me; that's why I'm doing this thing now. I have to acknowledge receipt publicly, welcoming Holland and Switzer- land. I've got to say something. Make 8 note of that, will you; that's important. Gaston: Yes, just what I was thinking. The mere fact that they send you this note - that doesn't con- clude things. You have to announce that they have been accepted into membership. Lochnead: You've made B form of that; I think it should be changed slightly. H.V.Jr: Just as soon 88 this is over I want to personally give it all to Gaston, and I thought you fellows could go in the other room, work it out, and then submit it to me. Huh? And then - I think we've got it all. You've got all the - I haven't over- looked anything, have I (to Lochhead) Lochhead: You haven't overlooked anything that I know of. I've checked pretty carefully. H.W.Jr: Now, there is only one thing, unless we've already done that. In talking about it, I say that I am giving out a statement here which is also being given out simultaneously in England and France. Now, this is that Holland, Switzerland, and Belgium have been given a reciprocal - we've got an agreement on reciprocal exchange of gold. But I want to word it so - I mean have it so - so that they haven't been admitted to the tri- partite agreement. I don't know just how to say that, you see. Jake? Viner: (Nods affirmatively) H.V.Jr: I mean they've got this privilege but still they're not a member. I've gone - I'd rather have that written out than to try - than to fumble it. Gaston: It seems to me it ought to be a formal release. H.M.Jr: Well, I don't want to fumble it 1f - we've got plenty of time. So I think we'll do - what I 67 - 6 - think we might as well do is get that thing cleared up, and if you fellows can go into the other room and let's have the thing done. Now, the only thing they need from you, Mrs. Klotz, is that - the President's of November 17, and so that - I think - Mrs. Klotz: We get quick service on photostating. H.N.Jr: Why don't you start it now, photostating, say, about a half dozen copies, and tell them to rush it. And then come back. (Mrs. Klotz goes out) H.M.Jr: Well, I had something else, but I think we better let that something else wait and get this thing lined up for me. What do you think, Herbert? Gaston: All right. H.M.Jr: And do it all at 4 o'clock, not do it piecemeal. Gaston: No. I think so, yes. Lochhead: Did Livesey send over those cables to you yester- day or did he just read them? I think that's the last we had - those cables. (Secretary hands Lochhead cables) H.M.Jr: I think the thing to do is to get it all fixed up. Now, does the Federal Reserve of New York begin talking today to these fellows, or do they only begin talking - Lochhead: After you announce it, they will start sending cables. They can't do much talking on the phone; they have to go by cable. They're working on that now. H.M.Jr: I hope - I got another meeting at 11:30 on Associated Gas. You fellows have got two hours. Can't you fellows - Gaston: Two hours? I should think SO. 68 - 7 - H.M.Jr: What? Gaston: I should think SO. I'll get it cleaned up in an hour, I should think. H.M.Jr: I mean so that it is written. Gaston: Yes, I think SO. H.M.Jr: You sit in, Clarence, will you? Opper: O.K. H.M.Jr: What have I overlooked? Anything? Wayne? Taylor: (Nods negatively) H.M.Jr: Have I overlooked anything? Haas: You're still going to keep that 12 o'clock meeting? H.M.Jr: No, I better change that, for another reason. Let me just think a minute. Now, what I was going to do - to make the Associated gas 11:45. Wouldn't 15 minutes be enough on it? Opper: I think so, yes, sir. H.M.Jr: What? Opper: I think SO. H.M.Jr: All right, Associated Gas - - Then at 12 o'clock let Landis come. And then at 12:30 Eccles. After all, a half hour, wouldn't that be time enough on - Heas: On the tax? H.M.Jr: Yes Haas: It will be if you just want to get the considera- tion started; in other words, what is the status. H.M.Jr: That's enough, I think. Heas: That's about all you should do. 69 - 8 - Opper: It occurs to me that it would only - would be better to have only 15 minutes with Landis on Associated Gas. H.M.Jr: Well, but - I mean I might want to take a breath of fresh air; I don't want to crowd myself. I mean if you people came in at 11:45 and I had Landis here at 12, and then someone - Eccles - I wouldn't take this thing up till 12:30. Then you be here (White and Haas). Haas: And the other boys in the Bureau that are working - there is one King. H.M.Jr: That's all right. But you tell Eccles I've postponed this until 12:30 (to Upham). Haas: What time is that? H.M.Jr: 12:30 - and Landis will be here too. What they are going to do at 12:30 is present the Treasury's tax figures - a study on foreign securities. See, Jake? Viner: All right. H.M.Jr: All right, if you will go to work on this thing now. Regraded Uclassified 70 OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE Department State EMBIMETON, 0.6. DEPARTMENT OF STATE WASHINGTON November 21, 1936. The Acting Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses for his information a copy of a note (No. 3775 of November 21, 1936) from the Netherland Legation in Washington, transmitting upon instruction of the Minister of Foreign Affairs of the Netherlands, the text of a declaration made by the Netherland Government with regard to adherence to the general principles stated in the tripartite declaration of September 25. Enclosure: From Netherland Legation, November 21, 1936. of 71 Washington, D.C. ROYAL NETHERLAND LEGATION November 21, 1936. No.3775. Sir:- Acting upon instructions of the Minister of Foreign Affairs of the Netherlands I have the honor to inform Your Excellency of the following declaration made by my Govern- ment: "The Government of the Netherlands has cognizanoe of the declarations by which the Governments of France, Great Britain and the United States have seen fit to express their intention with regard to their monstary policy and adheres to the general principles stated in their tripartite declaration of September 25, 1936." I avail myself of this opportunity to renew to you, Sir, the assurances of my highest consideration. B. W.S. C. van Breugel Douglas. Chargé d'Affaires a.i. of the Netherlands. The Honorable R. Walton Moore Acting Secretary of State ashinoton no Regraded Uclassified 72 Charge OFFICIAL COMMUNICATIONS TO THE SECRETARY OF STATE WASHINGTON, D.C. DEPARTMENT OF STATE WASHINGTON November 21, 1936. The Acting Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses for his information a copy of a note dated November 21, 1936, from the Swiss Lega- tion in Washington, transmitting, upon instruction: of the Swiss Government, the text of a declaration made by the Swiss Government with regard to adherence to the general principles stated in the tripartite declaration of September 25. Enclosure: From Swiss Legation, November 21, 1936. Regraded Uclassified If ATION DE SUISSE WASHINGTON, D.C. 73 cofy November n, 1936. Sir : I have the honor to inform you that I have been instructed by my Government to convey to you the following : # The Government of Switzerland has cognizance of the declarations by which the Governments of France, Great Britain and the United States of America have seen fit to express their intentions with regard to their monetary policy and adheres to the general principles stated in their tri- partite declaration of September 25." Accept, Sir, the assurances of my highest oon- sideration. (ay) MarePeter Minister of Switzerland. Honorable Walton Moore, Acting Secretary of State, Washington, Regraded Iclassifie 74 November 23, 1936 10:13 A.M. H.M.Jr: Hello. W.R. Burgess: Hello, sir. H.M.Jr: Hello, Burgess. B: Well, we've got - got a little flash on the opening here, and it looks as though it was just a little bit off, about a thirty-second or two off. H.M.Jr: Good. B: A little bit nervous. But I've talked to several of the dealers; they don't anticipate any con- siderable selling. They say there are no great offerings around. H.M.Jr: Un huh. B: Now, it's & little early to tell; it may slack off a little during the day, but - but it doesn't look like anything very vigorous. H.M.Jr: Yes. Well, what do you think - what do you think our program should be for today? B: Well, I think we ought to - ought to let it find its level if we can. H.M.Jr: Yes B: But if the selling gets - well, in the first place, we ought to see to it that the market is orderly, - H.M.Jr: Yes B: - and that there are bids in on every issue - H.M.Jr: Yes B: - at all times. H.M.Jr: Well, now - how would this be? Let's say that we - we - we take - oh, about two hundred thousand on every thirty-second down. That wouldn't be too big, would it? Regraded Uclassifie 75 - 2 -- B: No - something like that. But I wouldn't start until it had gone off - oh, two or three thirty- seconds from Saturday's bid. H.M.Jr: That's all right. B: Yes, yes. H.M.Jr: I mean I - I really - my reason for pressing Eccles so to do this was.to - was to have the market find its level. B: Exactly, yes. H.M.Jr: See? B: Yes. H.M.Jr: Let's keep in touch with each other today, and if there's any really sharp thing call me, will you? B: I will, yes. H.M.Jr: And then - you and Bell made up your mind yet? B: Well, I think reasonably well. I - I'm about prepared to see you - see you give up the preferred allotment altogether this time. H.M.Jr: But you haven't talked with Bell yet? B: Yes - well, I talked to him Saturday and a little bit this morning. H.M.Jr: But - B: We'll make a final recommendation to you by noon. H.M.Jr: O.K. B: Fine. H.M.Jr: Thank you. B: Good. Regraded Uclassifi 76 - 3 - 10:55 A.M. H.M.Jr: New York. Operator: All right. H.M.Jr: Hello. Operator: Mr. Burgess. H.M.Jr: Hello. B: Yes, sir. H.M.Jr: Hello, Burgess. B: It's just a little bit more off. H.M.Jr: Yes B: But there - there are bids in on everything; there's no volume of selling. They're from one to three thirty-seconds off from Saturday's close. H.M.Jr: Well, that's not bad. B: But things are doing very nicely, I think. H.M.Jr: Have you bought anything? B: No. H.M.Jr: Uh huh. B: I think not. Now, we've instructed one of the dealers, in case any issue doesn't have bids - H.M.Jr: Yes B: - to put in some bids, small bids, at two or three thirty-seconds under Saturday's market. H.M.Jr: That's all right. B: Under Saturday's bid price. H.M.Jr: That's all right. B: And we haven't heard from him of any executions. I Regraded Uclassified 77 - 4 - don't think he's made any. H.M.Jr: Fine. Now, I have Mr. Bell, Mr. Broughton, and Mr. Kilby. B: Well, that's a very important galaxy of gentlemen. H.M.Jr: And Mrs. Klotz. B: Yes. H.M.Jr: Now, they've come to the decision that, for once, for one issue we'll eliminate all preferences. B: O.K. by me. H.M.Jr: O.K. by you. B: Yes H.M.Jr: And - that's number one - and, number two, the people here have a preference for December 7. B: For December 7? H.M.Jr: Yes. B: Well, darn them. H.M.Jr: Yes. Well, you're quite - quite a ways away. B: (Laughs) Well, of course, one always has a preference for a weekend if he can - if he can do it easily. H.M.Jr: Yes, - well, we've gone English here. B: But you're going to discourage your boys that - that do your work for you. H.M.Jr: Well, it's a question of tightening it right. It - it's - you know, I get very temperamental before these - B: (Laughs) Regraded Uclassified 78 - 5 - H.M.Jr: I-I-I-I - - - just feel that I'd be - - that I'd be rushed a little bit too much on December 3. I'm serious about it. B: Yes H.M.Jr: I just couldn't quite get my house in order. B: Of course, I thought with this early announcement that there wouldn't be much difficulty about that. H.M.Jr: Well, I - - I just can't quite get ready for it, Burgess. B: Un huh, uh huh. H.M.Jr: I'd like to be here next week and sit back here and see a few people from New York and talk it over and get the feel of the thing. After all, you know, even if we - without asking for any new money, I mean, it's a billion one eighty-seven. B: Yes, but I think you wouldn't know any more with the extra two or three days. H.M.Jr: Well, maybe not, but I'd feel better about it. B: I really feel very badly about - about the - the kind of job that is done on these things - H.M.Jr: Yes B: - and I think it's very important to the reputa- tion of the Treasury - - H.M.Jr: Yes B: - that its business affairs should be handled properly, and I don't think this is being handled properly. H.M.Jr: Well, it's - B: I don't think it was last time. H.M.Jr: No. Well, of course, there's one way we could do it, but everybody doesn't - seems to be opposed to Regraded® Iclassified 79 - 6 - it, and that's make a register. B: Oh, these five thousand dollar things. H.M.Jr: No. That's out now. B: Yes. H.M.Jr: No, make everybody register for their bonds. No, I mean everybody. B: Well, I think that's a mess, because that hinders normal trading in them. H.M.Jr: Yes. Well, this is the way I - I mean, you know, I - I've got to do these things on my feelings. B: Yes H.M.Jr: And my feeling is that I want a full week, - B: Yes H.M.Jr: - to sit back here and do this thing calmly. The other way I'd be rushed. B: Yes, yes. Well - H.M.Jr: Now, if the Treasury people all here said, "No - they definitely prefer the seventh. B: Oh well, as far as abstract - abstract preference, I prefer the seventh; but there's a job to be done. There are all these subscriptions coming in, and - H.M.Jr: Yes B: - and - H.M.Jr: Well, it gives you, it gives you - B: - and going on here. H.M.Jr: Well, it gives you a full seven days. Regraded Uclassified 80 - 7 - B: Well, that's - that's not adequate. H.M.Jr: What? B: That's not adequate to do the job right. H.M.Jr: Yes. Well, I'm in entire sympathy with you that you want to do it right, but I also wanted to have it priced right. B: Yes, yes. Well, I agree to the pricing right, and it doesn't seem to me really that those two or three days would make a difference in being able to price it right. H.M.Jr: Yes. Well, I - I - I've talked it over here, Burgess, and I - I think unless there's some new reason - I think we'll make it the seventh. B: Well, sir, I'm - I'm sorry for that. I - I don't like it a bit. H.M.Jr: No. B: I think it's - I think it's crowding people too close. It isn't just a question of working nights and all that; they're glad to do that. But a man's judgment isn't as good when he's doing that and - and there's certain things you have to do in business hours: be checking up people and so on. H.M.Jr: Yes, yes. B: And these other banks just haven't been doing the Job as they should. H.M.Jr: Yes B: Now, what I'd like to see is a - H.M.Jr: Well, what about bringing down these various fiscal officers in advance - bringing them down here about the - the third, and let's have a talk to them? B: Well, I think there's merit in that - H.M.Jr: Well - well - 81 - 8 - B: - so that we standardize the - H.M.Jr: Yes B: - the method of dealing with these things a bit. H.M.Jr: Well, now, we'd have a - an Open Market Committee meeting on Wednesday, the second. B: Yes H.M.Jr: Now - and that doesn't ever last very long. B: Yes H.M.Jr: And why don't I tell Bell, who's sitting here, listening, that we ask these various fiscal officers to come in here on Wednesday, the second, and get - B: All right. H.M.Jr:. - and meet with you and Bell and Broughton and Kilby. B: Yes, yes. H.M.Jr: See? B: Yes. H.M.Jr: And - B: I'm for that. H.M.Jr: All right. Bell's making a note. B: Yes H.M.Jr: See? Let me ask him. (To Bell) What do you think, Bell? Huh? (Back to Burgess) All right, well let's do that. That's time - B: Well, I think that's very desirable. H.M.Jr: That's time enough, isn't it? B: And have an understanding just what we're going to 82 - 9 - in each district. H.M.Jr: Righto. B: And - and then we'll just have to cut our coats to fit our cloth, - H.M.Jr: That's right. B: - that's all. H.M.Jr: Let me ask you this. This afternoon at my four o'clock conference I'm going to announce the date; I said I would, you see? B: Yes H.M.Jr: Do you think I ought to say anything that we're going to start on December 2 to sell fifty million bills into March 15, or just do it and not say anything about it? B: Now, let me think about that. H.M.Jr: Well, we won't announce that till Wednesday, you see. B: Yes. That would normally be announced - H.M.Jr: Wednesday. B: - next Wednesday. E.M.Jr: This Wednesday. It'd be announced this Wednesday for next Monday, wouldn't it? B: Yes H.M.Jr: Well, then - B: Un - H.M.Jr: (Aside) - that there - it'll be on when? B: There's some merit in telling them in advance. H.M.Jr: Yes 83 - 10 - B: On the other hand, if this market were very weak - I don't think it would affect this market any. H.M.Jr: Well why not let's just - let it come out normally, which the boys here say would be - come out Thursday, this Thursday. B: That's all right. H.M.Jr: Because - B: Maybe that's better. H.M.Jr: Just sort of do it normally, then - B: Don't throw too many new things at them all at once. H.M.Jr: All right. B: Yes. H.M.Jr: Then it'd come out Thursday, be in Friday morning's papers - B: Yes H.M.Jr: - and that's notice to them that we're going to pick up some new money through bills. B: Yes, yes. H.M.Jr: What? B: I think that's all right. H.M.Jr: All right. B: Yes. H.M.Jr: Thank you. B: All right, sir. H.M.Jr: Goodbye. 84 LMS SPECIAL GRAY and GRAY Paris Dated November 23, 1936 Rec'd 2:55 p. m. Secretary of State, Washington. 1140, November 23, 5 P. m. FOR THE SECRETARY OF THE TREASURY FROM COCHRAN. This forenoon I telephoned to Baudewyns at Brussels, Trip at Amsterdam and Bachmann at Zurich the text of the French communique quoted in my November 22, 1 p. m., and confirmed a schedule for press releases. JOURNAL OFFICIAL of November 22 announces appointment of Baumgartner as general manager of the "Credit National". He will take office December 8. While no official announce- ment has yet been made the press reports that Rueff will succeed Baumgartner as Director of the General Movement of Funds. This is not yet confirmed. On Paris exchange market today dollars were offered. French franc was strong also against belga and Swiss franc, but weak against sterling and florin. Bourse bad. French rentes down about two francs and international securities similarly lower because of rumors about Russian and German difficulties. This LMS 2-No, 1140, November 23, 5 P. m., from Paris. This ovening's Paris press carries correct reports from Amstordam and Bern of the official adherence of the Dutch and Swiss Governments to the general principles of the tripartite agreement of September 25. BULLITT KLP 86 Monday, November 23, 1936 Sterling opened in the London market this morning at 4.89-1/16 and steadily improved in our market to 4.89-3/4 at about 1 P. M. Between 1 and 2 P. M. the market was distinctly nervous, with buyers for sterling in the market without any apparent offers to meet this demand. The buying apparently came in great part from stock exchange houses covering sales of stocks in this market by foreigners, but there was a good commercial demand, mainly from rubber, tin and silk importers. It was evident that unless sterling was supplied to the market there might be a sharp run-up in price, which would give rise to criticism as to the working of the Stabilization Funds under the tripartite pact. As the price which the British Stabilisation Fund, through the Bank of England, quotes us for gold each morning is their buying as well as selling price for gold, it 19 possible to use their buying price for gold as & means of obtaining sterling to be used to stabilize the market. After discussing this with the Secretary he immediately authorised the sale of sufficient sterling in order to hold the rates within control, which orders were transmitted to the Federal Reserve Bank. In between the time the decision was made and it was possible to reach the Federal Reserve Bank by phone, the rate had advanced to 4.90-3/4, at which price 35,000 pounds were sold, and another 30,000 pounds were sold at 4.90-3/8. The market immediately 87 -2- Monday, September 23, 1936 steadied and held between 4.90 and 4.90 1/4 for the rest of the after- noon and an additional 65,000 pounds were sold, bringing the total sales up to 130,000. In confirming this transaction to the Bank of England the Federal Reserve Bank was instructed to advise them that this act on our part had been taken in order to prevent a wide fluctuation in one day and that the Federal Reserve Bank was not to give the impression that sterling had been sold because we felt that the level prevailing at the time of sale was a satisfactory one to us.* *This transaction was discussed with Professor Viner and Assistant Secretary Taylor, who also approved of it. (A. Lochhead) Regraded Uclassified 88 November 23, 1936 10:13 A.M. H.M.Jr: Hello. W.R. Burgess: Hello, sir. H.M.Jr: Hello, Burgess. B: Well, we've got - got a little flash on the opening here, and it looks as though it was just a little bit off, about a thirty-second or two off. H.M.Jr: Good, B: A little bit nervous. But I've talked to several of the dealers; they don't anticipate any con- siderable selling. They say there are no great offerings around. H.M.Jr: Uh huh. B: Now, it's a little early to tell; it may slack off a little during the day, but - but it doesn't look like anything very vigorous. H.M.Jr: Yes. Well, what do you think - what do you think our program should be for today? B: Well, I think we ought to - ought to let it find its level if we can. H.M.Jr: Yes B: But if the selling gets - well, in the first place, we ought to see to it that the market is orderly, - H.M.Jr: Yes B: - and that there are bids in on every issue - H.M.Jr: Yes B: - at all times. H.M.Jr: Well, how - how would this be? Let's say that we - we - we take - oh, about two hundred thousand on every thirty-second down. That wouldn't be too big, would it? 89 - 2 - B: No - something like that. But I wouldn't start until it had gone off - oh, two or three thirty- seconds from Saturday's bid. H.M.Jr: That's all right. B: Yes, yes. H.M.Jr: I mean I - I really - my reason for pressing Eccles so to do this was to - was to have the market find its level. B: Exactly, yes. H.M.Jr: See? B: Yes. H.M.Jr: Let's keep in touch with each other today, and if there's any really sharp thing call me, will you? B: I will, yes, H.M.Jr: And then - you and Bell made up your mind yet? B: Well, I think reasonably well. I - I'm about prepared to see you - see you give up the preferred allotment altogether this time. H.M.Jr: But you haven't talked with Bell yet? B: Yes - well, I talked to him Saturday and a little bit this morning. H.M.Jr: But - B: We'll make a final recommendation to you by noon. H.M.Jr: O.K. B: Fine. H.M.Jr: Thank you. B: Good. 90 - 3 - 10:55 A.M. H.M.Jr: New York. Operator: All right. H.M.Jr: Hello. Operator: Mr. Burgess. H.M.Jr: Hello. B: Yes, sir. H.M.Jr: Hello, Burgess. B: It's just a little bit more off. H.M.Jr: Yes B: But there - there are bids in on everything; there's no volume of selling. They're from one to three thirty-seconds off from Saturday's close. H.M.Jr: Well, that's not bad. B: But things are doing very nicely, I think. H.M.Jr: Have you bought anything? B: No. H.M.Jr: Uh huh. B: I think not. Now, we've instructed one of the dealers, in case any issue doesn't have bids - H.M.Jr: Yes B: - to put in some bids, small bids, at two or three thirty-seconds under Saturday's market. H.M.Jr: That's all right. B: Under Saturday's bid price. H.M.Jr: That's all right. B: And we haven't heard from him of any executions. I 91 - 4 - don't think he's made any. H.M.Jr: Fine. Now, I have Mr. Bell, Mr. Broughton, and Mr. Kilby. B: Well, that's a very important galaxy of gentlemen. H.M.Jr: And Mrs. Klotz. B: Yes. H.M.Jr: Now, they've come to the decision that, for once, for one issue we'll eliminate all preferences. B: O.K. by me. H.M.Jr: O.K. by you. B: Yes H.M.Jr: And - that's number one - and, number two, the people here have a preference for December 7. B: For December 7? H.M.Jr: Yes. B: Well, darn them. H.M.Jr: Yes. Well, you're quite - quite a ways away. B: (Laughs) Well, of course, one always has a preference for a weekend if he can - if he can do it easily. E.M.Jr: Yes, - well, we've gone English here. B: But you're going to discourage your boys that - that do your work for you. H.M.Jr: Well, it's a question of tightening it right. It - it's - you know, I get very temperamental before these - B: (Laughs) 92 5 I I H.M.Jr: I - I - I - - I just feel that I'd be - - that I'd be rushed a little bit too much on December 3. I'm serious about it. B: Yes H.M.Jr: I just couldn't quite get my house in order. B: Of course, I thought with this early announcement that there wouldn't be much difficulty about that. H.M.Jr: Well, I - - I just can't quite get ready for it, Burgess. B: Uh huh, uh huh. H.M.Jr: I'd like to be here next week and sit back here and see a few people from New York and talk it over and get the feel of the thing. After all, you know, even if we - without asking for any new money, I mean, it's a billion one eighty-seven. B: Yes, but I think you wouldn't know any more with the extra two or three days. H.M.Jr: Well, maybe not, but I'd feel better about it. B: I really feel very badly about about the - the kind of job that is done on these things - H.M.Jr: Yes B: - and I think it's very important to the reputation of the Treasury - H.M.Jr: Yes B: - that its business affairs should be handled properly, and I don't think this is being handled properly. H.M.Jr: Well, it's - B: I don't think it was last time. H.M.Jr: No. Well, of course, there's one way we could do it, but everybody doesn't - seems to be opposed to 93 - 6 - it, and that's make a register. B: Oh, these five thousand dollar things. H.M.Jr: No. That's out now. B: Yes. H.M.Jr: No, make everybody register for their bonds. No, I mean everybody. B: Well, I think that's a mess, because that hinders normal trading in them. H.M.Jr: Yes. Well, this is the way I - I mean, you know, I - I've got to do these things on my feelings. B: Yes H.M.Jr: And my feeling is that I want a full week, - B: Yes H.M.Jr: - to sit back here and do this thing calmly. The other way I'd be rushed. B: Yes, yes. Well - H.M.Jr: Now, if the Treasury people all here said, "No - they definitely prefer the seventh. B: Oh well, as far as abstract - abstract preference, I prefer the seventh; but there's a job to be done. There are all these subscriptions coming in, and - H.M.Jr: Yes B: - and - H.M.Jr: Well, it gives you, it gives you - B: - and going on here. H.M.Jr: Well, it gives you a full seven days. 94 - 7 - B: Well, that's - that's not adequate. H.M.Jr: What? B: That's not adequate to do the job right. H.M.Jr: Yes. Well, I'm in entire sympathy with you that you want to do it right, but I also wanted to have it priced right. B: Yes, yes. Well, I agree to the pricing right, and it doesn't seem to me really that those two or three days would make a difference in being able to price it right. H.M.Jr: Yes. Well, I - - I - - I've talked it over here, Burgess, and I - I think unless there's some new reason - I think we'll make it the seventh. B: Well, sir, I'm - I'm sorry for that. I - I don't like it a bit. H.M.Jr: No. B: I think it's - I think it's crowding people too close. It isn't just a question of working nights and all that; they're glad to do that. But a man's judgment isn't as good when he's doing that and - and there's certain things you have to do in business hours: be checking up people and so on. H.M.Jr: Yes, yes. B: And these other banks just haven't been doing the job as they should. H.M.Jr: Yes B: Now, what I'd like to see is a - H.M.Jr: Well, what about bringing down these various fiscal officers in advance - bringing them down here about the - the third, and let's have 8 talk to them? B: Well, I think there's merit in that - H.M.Jr: Well - well - 95 - 8 - B: - so that we standardize the - H.M.Jr: Yes B: - the method of dealing with these things a bit. H.M.Jr: Well, now, we'd have a - an Open Market Committee meeting on Wednesday, the second. B: Yes H.M.Jr: Now - and that doesn't ever last very long. B: Yes H.M.Jr: And why don't I tell Bell, who's sitting here listening, that we ask these various fiscal officers to come in here on Wednesday, the second, and get - B: All right. H.M.Jr: - and meet with you and Bell and Broughton and Kilby. B: Yes, yes. H.M.Jr: See? B: Yes. H.M.Jr: And - B: I'm for that. H.M.Jr: All right. Bell's making a note. B: Yes H.M.Jr: See? Let me ask him. (To Bell) What do you think, Bell? Huh? (Back to Burgess) All right, well let's do that. That's time - B: Well, I think that's very desirable. H.M.Jr: That's time enough, isn't it? B: And have an understanding just what we're going to Regraded Uclassified 96 - 9 - in each district. H.M.Jr: Righto. B: And - and then we'll just have to cut our coats to fit our cloth, - H.M.Jr: That's right. B: - that's all. H.M.Jr: Let me ask you this. This afternoon at my four o'clock conference I'm going to announce the date; I said I would, you see? B: Yes H.M.Jr: Do you think I ought to say anything that we're going to start on December 2 to sell fifty million bills into March 15, or just do it and not say anything about it? B: Now, let me think about that. H.M.Jr: Well, we won't announce that till Wednesday, you see. B: Yes. That would normally be announced - H.M.Jr: Wednesday. B: - next Wednesday. H.M.Jr: This Wednesday. It'd be announced this Wednesday for next Monday, wouldn't it? B: Yes H.M.Jr: Well, then - B: Uh - H.M.Jr: (Aside) - that there - it'll be on when? B: There's some merit in telling them in advance. H.M.Jr: Yes 97 - 10 - B: On the other hand, if this market were very weak - I don't think it would affect this market any. H.M.Jr: Well why not let's just - let it come out normally, which the boys here say would be - come out Thursday, this Thursday. B: That's all right. H.M.Jr: Because - B: Maybe that's better. H.M.Jr: Just sort of do it normally, then - B: Don't throw too many new things at them all at once. H.M.Jr: All right. B: Yes. H.M.Jr: Then it'd come out Thursday, be in Friday morning's papers - B: Yes H.M.Jr: - and that's notice to them that we're going to pick up some new money through bills. B: Yes, yes. H.M.Jr: What? B: I think that's all right. H.M.Jr: All right. B: Yes. H.M.Jr: Thank you. B: All right, sir. H.M.Jr: Goodbye. 98 me November 23, 1936. 12:35 P.M. Present: Mr. Opper Mr. Upham Mr. Gaston Mr. Taylor Mr. Heas Dr. Lauchlin Currie Dr. Goldschmidt Dr. Paul P. Gourrich Mr. Walter Gardner Mr. James M. Landis Dr. E. A. Goldenweiser Mr. Allan Sproul Mr. Ronald Ransom Mr. Marriner Eccles Mr. Kent Mr. Zucker Mr. King Dr. Williams Dr. Viner H.W.Jr: May I say that we are having this meeting - in the first place, it is confidential, whatever we dis- cuss here. what we say here is confidential. In the second place, it is the result of the request of the President of Mr. Landis, Mr. Eccles, and myself that we study this question of foreign capital seeking investment in the United States. I asked our statistical and legal staff to make this study from two angles: one, from the question of the matter of the taxes which the foreign inves- tor has to pay at present; and also the second question, the possibility of American citizens seeking means of evasion by going abroad and investing their money abroad - I mean using, say, London or Paris as a base to operate and invest their money in the United States as a matter of tax evasion. Now, that's our angle of approach- ing this. I don't think we have any recommenda- tion. We just studied the situation as it is today. And George, are you ready to - Haas: We have a - it is rather an involved question. H.M.Jr: Well, you stand up and do your duty. Regraded Uclassified 98 - 2 - Haas: I think I'll let Dr. Zucker do it. He wrote this statement. H.M.Jr: All right, where's Dr. Zucker? Haas: Right here. Zucker: This is addressed to the Tax Aspects of Inter- national Security Transactions; first, from the viewpoint of the American taxation of foreigners under existing and previous legislation on capital gains and on income. (Reads entire statement entitled "Tax Aspects of International Security Transactions, " copy of which follows) Regraded Uclassified 100 I z International Security Transactions 102 Page 4. American taxation of foreigners under existing and previous legislation es capital guins and on income 1 1. The income tax provisions of the 1936 law affecting foreign individuals and corporations exampt them free taxation of capital going to which Americans are subject and fix a flat withholding tax es income reseived sensisting of dividends, etc 1 2. the tax on income is a withholding tax of 10 persent for individuals and 15 persent for corporations (dividents 20 percent), paid w the American naking the disbursement and applies only to foreigners who de not transact business in the United States 3 3. The capital going tax, although applying to Americans, has no application to a neuresident foreigner whose only business in the United States is the buying and selling of securities and commodities on an exchange 20. 4. This treatment is radically different from that of previous tax law which provided for taxation of capital gains and income substantially on the - basis as Americans 2 5. The change nade by the 1936 Act was due largely to the feeling that adequate collection of taxes from foreigners under the previous note had been adminis- tratively impossible 5 B. Americans may use the device of trading in American securities abroad in erder to ovado taxation 7 1. While the revenue note require that they file 8 return and my a tax upon such transactions, it is obvieusly much more difficult to discover such evasions 7 2. Tamation of Americans by foreign countries tends to ensurage such evasions since, in general Americans dealing in American securities abroad are not subject to my foreign texation # (2) Great Britzin . (b) France 8 (e) Ganada , (a) Notherlands , Regraded Uclassified 101 fax Aspects of 103 International Security Transactions A. American taxation of foreigners under existing and proviems legisle- tion on capital gains and on income. 1. The income tax previsions of the 1936 law effecting foreign individuals and corporations enempt then from texation of capital gains to which Americans are subject and fix a flat withholding tax on in- come received consisting of dividends, de. Decided innovations affecting the treatment of income for tax your posse have been incorporated into the Revenue Act of 1936. Under its provisions, neuresident aliens and foreign corporations having income in the United States, are treated under two categories: (1) These not engaged in trade 07 business in the United States and met having a office or phase of business therein, and (2) those engaged in trade or business within the United States. with respect to the nonresident alien falling into the first group, Section 211 (a) provides for a 10 percent to on interest, dividends, rents, reyalties, and other fixed income from sources within the United States, without the allowance of any deductions for expenses or the granting of credits for dependents or my amount for personal exemption. It is, in effect, a 10 persent tax en an income from the above-stated sources. From this it is clear that the negresident alien not engaged in trade or business in the United states 10 not subject to my tax whatsoever on profits arising from sale of securities. In other words, he is free from the capital gains tax. Correspendingly. the foreign corporation having income in the United states and not classified be Regraded Uclassified e 2 - 102 - engaged in trade or business within the United States, dockgnated under the law as a neuresident foreign corporation, is subject to a 15 persent tax a its ama income consisting of interest, rents, or such other find income. On dividends, the tax rate for the menrocident corporation is 10 percent. On espital gains 10 Le nothing. For the relatively small - of nearocident aliens and foreign corporations who classify under the statute in the second category, 1.0., those doing business in the United States. the tax prefisions in the 1938 law, Sections 211 (b) até 231 (b). are substantially sixilar to those in the prior tax laws. This type of nonresident alien is allowed a personal exemption of $1,000 and also, if a resident of either Mexico or Canada, the regular credit for dependents. The not income within the United States of a nearesident alien of this type after such credits is subject to the regular normal tax and surtex. For the resident foreign corporation,in., the foreign corporation doing business in the United States, the income which 18 caras here is subject to a flat tax of 22 percent. It is not subject no the undis- tributed prefits tax. Oppertunity to file returns in the - number as is allowed our on Nationals and demostic corporations, is given to this type of - resident alienmend resident foreign corporations. should those foreigners fail to have filed with the Collector a true and compute return of not income, the Commissioner is expowered to collect a tax on the basis of the (now income without allowance for business demotions and credite. It my be observed that foreign individuals and corporations doing Regraded Uclassified 103 - 3 - 105 business in the United States are subject to the capital guins tax a my profit arising from security transactions is the United States is like fashion as our em citizens or domestic corporations. 2. The tax on income is a withholding tax of 10 yor- comb for individuals and 15 percent for corpora- tiems (dividentall0 percent), paid w the American making the disbursement and applies only to for- eigners who do not transact business in the United States. To assure collection, 00 far as possible the 1936 Reverne Act and the prior note centain provisions which permit the employment of the mechanism of withhelding. better designated as "the payment of tax at source." This applies to neuresident aliens whether doing business in the United States or not but only to foreign corporations not # gaged in business in the United States, demoninated M neurosident foreign corporations. For the former, the withholding is on a 10 per- cent rate basis, constituting the entire tax presumably due on the nouresident alien's taxable income items. For the latter. withhelding is at the rate of 10 percent on dividends and 15 percent on all other taxable income amounts. In general, the withholding agent corresponds to the paying agent or whoever is responsible for turning over the income to the neurosides alien 02 to the neurosident foreign corporation) To make the withhold- ing affective, the statute provides for a penalty of $10,000 and possible imprisement is cases of wilful failure to arrenge for the payment of the 9az. Regraded Uclassifie 104 - 20. - 108 3. the capital gains test, although applying to Americane, Regraded Uclassif has me application to a foreigner where saly basiness in the United States is the buying ond selling of securities and commities on an emchange. Im pointing out the differenemin treatment accorded the institut citizen and the foreigner with respect to income taxation, 10 is signifi- cant to note that while profits from commity sales made w the neurest- dont alien not doing basiness in the United States and by the neurocident foreign corporation any not subject to the capital gains tax, the - ated percentage five-step system for taxing a proportion of the capital gains from security transastions does apply against the United States seller of securities. Time, in a seaso, there appears to be discrimina- tion in favor of the foreign investor in connection with cocurity deal- ings. This is partially offset, however, by the relatively high with- holding rates now applicable to the find income items of these - nonresident aliens and nonresident foreign corporations. It our be readily appreciated, in view of our tax law providing for a 10 persont tax on practically all income going out of the country to neuresident aliens. that in the - of - of them the amount thus withhold is decidedly is excess of what would be the tax liability determined w the application of the regular normal tax and surtex after be aller- shoe for personal credits and exemptions ml business deductions. 20. This treatment is redically different from that of provious tax 1am which provided for taxation of capital guine and income substantially on the - basis M Americans. Under the prier reverse nots, neurocident aliens and foreign - perations ware subject to tax upon their respective not incomes from cources within the United States at substantially the - rates 105 - 5 - 107 applicable in the 02006 of citizens or demostic corporations. tesh Regraded Uclassifie clien individuals and foreign corporations were required to file returns disclosing therein the - information with respect to gross income and deductions as was required of citizens and demestic corpora- tiems. whether or not such aliens were engaged in business in the United States. Thes, under prior laws they were which ject to the capital gains tax. The withholding rates were substantially less with all yoler note than under the 1936 Act. The rates under the 1934 Ast vere 4 percent for individuals and 13-3/4 persent for corporations. In general, in all prior acts the withholding rates paralleled the normal tax en our Nationals and the flat tax on demostic corporations. In view of the fast that for years prior to 1936 dividends were free from normal tax, no withholding was required in the case of dividends received by ma- resident aliens from demostic corporations. 5. The change made by the 1936 Ast was due largely to the feeling that adequate sellection of taxes from fereigners under the previous note had been etainis- tratively impossible. In the administration of the tax previsions, covering principally the tax on prefits w foreigners arising from security transactions, the Barona of Internal Revenue has consumered difficulties with the plan of permitting the income to nove first to the neuresident alien with m withholding and then requiring the filing of a return to GIVING the transactions. such difficultion vero: (1) Having M jurisdiction ever the person of the neuresident alien there existed m way to ⑉ pol the filing of a return, (2) the name for verifying the returns . e - 106 were uselly inalequite in view of the lack of book recerds in this 100 country covering the neuresident aliens' country market activities. and (3) assuming that in particular instrunce adoquate information was available from wideh prefit determination arising from occurity transactions could be nade, there ware not in this country in my definite place known to the Increase either property or bank accounts of the nohresident alien against which distruint could be nate. From time to time, efforts were nate is the Internal Reverne Bureau to fellow more intensively the transactions of the nonresident aliens through abstracting from brokers' regular information reports such data as were submitted dealing with security transactions where the indicated customer was a foreigner. This vas not very preductive of results in view of the only mothed of avoidance accomplished w seurecident aliens buying securi- ties in the name of a foreign basiner and the relutionce of such for- eign broker to disclose to the Baream the names of his clients. This reluctance is explainable w the existing foreign oustoms, and in - countries by regulations prohibiting the disalosing of the principals for when brokers schl comprities. In addition, frequent dealings in bearer certificates afforded 20 knowledge of the actual owers of the stocks oven to the foreign brokers themselves. While the extent of failure to report prefite free stock treas- actions w foreigners camet be determined with my degree of precision, it becomes apparent that such failure was substantial from the fees Regraded 107 - , 109 that, M per the Latest smilable information overlag the year 1005, only 10,920 returns were filed w neurosident aliens, reflecting as aggregate met income of approximately $30 million dellars and a tax liability of not guite $ million dollars. Instuded in nd tax returns - prefite from sales of real estate, stedm and bends in as - approximating $5-1/4 million dollars, which figure - capital asset sales hald less than two years as well as sales of capital assets hold more than two years. 90 better appreciate the picture time presented 10 is partinent to note that of the neurosident aliens who filed returns, may dad 90 because the 4 personts withhold- ing tax me in - of the true tax liability when determined w applying the regular normal tax and eurbax mates. These amrosident aliens, therefore, filed returns accompanied w claims for refund. 3. Americans may use the davies of trading in American commities abread in order to ends taxation. 1. While the reverue asts require that they file & return and reg a tax upon made trunsations, 18 is obviously - - difficult to discover with emailes. Another aspect of the mbject wearthy of consideration is. are there being arented under the United States tex eystem conditions yes taining to security transations which might metivate an American to contract his security transactions abread. to be more, the American is tamble in the United States a all income which he came in other countries. Newever, accounting that the capital gains - to encláved by certain Amriess to be too drustle to empaing in security Regraded Uclassified - I - 108 # transactions in the United States and reporting the prefits thereen, Regraded Uclassified they my attempt to orade the tax for which they are liable by having transactions consumnted abroad and failing to report them. New per- suasive the desire wight become can be gleaned by analysing what the withhelding rates, as well as ether taxes, are against neuresident aliens in some of the principal foreign countries. 2. Texation of Americans by foreign countries tends to sncourage such evasions since, in general, Americans dealing in American securities abroad are not subject to any foreign taxation. (a) Great Britain Nonresident aliens under British laws are subject to an income tax collected at the source at the rate of 23-3/4 percent upon all items of annual or recurring income such as dividends, interest, rents, royalties, and the like. Hence, & United States citizen owning British securities is taxed at 23-3/4 percent on dividends and interest from these securities. In addition, be is subject to & graduated surtax on amounts in excess of 2,000 pounds. With respect to capital gains Great Britain does not tax casual capital gains, such as, gains realized incident to transactions upon the securities exchanges. The American citizen, nonresident in Great Britain, but trading there, provided he trades through bonn fide brokers, is not subject to any capital gains tax, nor obvieusly is there any British withholding tax on income paid from the United States. (b) France Like Great Britain, France imposes & tax collected at the source on dividends and interest arising within its borders. The rates of tax may be 12, 15, or 24 persent, dependent en the type of securities. - 9 - 109 In general, the rates are higher for "bearer" shares than for "registered" shares, and higher when the life of the corporation is under ten years than when 10 is ever ten years. If an American citizen carries an transations in securities en the French Brune or other French Exchanges through a been fide commission agent, he is not tamble upon the resulting profits. If, however, wash American citizen has a "permanent establishment in Prance he is subject to a tax upon this class of profits at the rate of 12 persent. (c) Canada An American citizen, as a neuresident alien, is subject to 8 per- cent tax upon income in excess of $1,000 from seurces within Canada. Such tax is not withheld by deduction at the source. In addition, a special surtex of 5 percent which is deducted at the source is imposed upon certain items of dividends, interest, and reyalties. A further withholding tax of 12-1/2 percent is sperative against rentals and "industrial" reyalties coming from patents, oil leases. etc. If, however, the neuresident alien has income from sources other than those subject to this 12-1/2 percent withholding tax, the 8 percent tax applies to his aggregate income, and he is allowed to take a tax credit for the 12-1/2 percent tax previously withheld. (a) Netherlands An American citizen receiving dividends from a corporation dead- ciled in Holland mastains & tax which approximates 10 persont, suk tax being chargeable against the corporation upon distribution of the dividend. An American sitisen, whether executing ensual transactions in stocks and securities, or trading therein through a broker, is not subject to tax - the resulting profits. Regraded Uclassified 110 - 3 - B.M.Jr: Very good. Zucker: Thanks. H.M.Jr: Well, what is your pleasure, gentlemen? Rent: I may say, Mr. Secretary, that the particular changes in the act were probably - next to the surtex on undistributed corporate income, prob- ably the most discussed in the sessions of the committees up there in Congress of anything in the 1936 act; and the statement is correct in saying that the reasons for these changes were because of the administrative impossibility of getting any appreciable revenue out of the laws as they were then and the upsetting consequences of the attempts that have been made from time to time to enforce the capital gains provisions. In other words, they were felt to be theoretical sanctions only, which had little or no value in actual operation. H.W.Jr: How would this be? This is a pretty important subject and I don't think we can do it justice. If the Federal Reserve and the Securities Exchange were each given at least one copy of this, or as many copies as they want, and then each of you gentlemen would designate somebody from your staffs to meet with our staff and then they could sort of mull this thing over and when they were ready they could tell their respective chiefs that they are ready. Then we could have another meeting and they might bring in some kind of recommendation. How would that be? Recles: I think that would be fine. It's a complex subject and the - R.N.Jr: I mean I can't get it with just one reading. Accles: No. H.N.Jr: How does that strike you? Landis: I was wondering if, in addition to that, you might get both the Federal Reserve Board and us to consider the tax problem from our particular 111 - 4 - standpoints. Now, the administrative measures taken in order to collect a tax, of course, are not our business; but the effect of the absence of capital gains tax on the flow of European money in this country to buy American securities at a competitive advantage over our residents nere who buy exactly the same thing: that is a matter of our concern. You see? H.N.Jr: True. Well, all we had to do here was to simply present the picture as it is, with no recommenda- tions of any kind. We're very careful. Landis: Naturally. H.M.Jr: Now, I have been told repeatedly that American citizens have found a method of operating from abroad as a base in order to evade these taxes. I have been told the only reason - they've been going over to England and bought up defunct companies, corporations, and used those to operate as an English corporation in our stock market. There's all that sort of thing which we can't - which would come under your organi- zation more than ours. Landis: But - H.V.Jr: Well, as far as I'm concerned - I mean if the various staffs would explore this thing to the limit, and whenever they've got something we'd like them to come back and present it. But from this particular standpoint: that a man who operates abroad, whether American or alien, has a distinct advantage over the American citizen. Huh? And it must be quite a lure to go abroad and operate from there. Landis: of course, there are certain counterbalancing considerations that are present in many of these cases. But I quite agree with you that it is a situation that deserves exploration, and I think we, for example, have a few slants on the thing that we'd like to present from our side, and I think the Federal Reserve Board also is concerned. H.M.Jr: Well, do you want to do it now? Regraded Uclassified 112 - 5 - Landis: No, not now. Just whether or not those differ- ent slants will be considered. H.M.Jr: Well, I sincerely hope so, and I want to again repeat that we have been very careful to stay within our own backyard on this thing. I mean there is nothing in this where we have slopped over anybody's - Eccles: Well, I think, Mr. Secretary, that after all, your interest in this whole question of excess reserves and all ties in with your stabilization problem. It is a pretty difficult thing to say just where our own backyard may be in this. I think that we have such a community of interests here that, as far as I'm concerned I - I don't speak with the Board of any phase of the problem but that, even though we may be charged with certain responsibilities, they are very closely related to our own problems. H.M.Jr: We realize that. Well, isn't it agreeable to you two gentlemen? As I say, we'll turn this over to our staffs and when they get something let them knock on the door and - Eccles: I think that's an excellent plan. King: I might suggest this, Mr. Secretary: from read- ing that, I don't believe the other side of the picture is brought out 85 clearly as it might be. If we could furnish, along with this, some rather convenient material which goes into it much more fully than this, I think it might be helpful. Haas: Mr. King - he's Special Deputy over in Internal Revenue he'll be in at the discussions. H.M.Jr: King? Hass: Yes. H.M.Jr: Fine. King: For example, I believe Mr. Kent has an - I believe, the Columbia Law Review there, and there is quite an article on various phases. Regraded Uclassified 113 115 - 6 - Kent: Yes, I was just going to suggest - This is the June number of the Columbia Law Review for 1936; there is an article in there which is val- uable because it brings together a number of the devices, concrete devices, that are being used by various persons at the present time for the purpose of gaining tax advantages, and points out the difficulties to be encountered from a legal as well as other points of view in coping with those situations. It is a very illuminating article. Viner: I'd suggest that the State Department has an interest in this. As that was read over, I think I detected a treaty violation there, - H.M.Jr: Well, in the absence of Dr. Feis why not ask Mr. Livesey to sit in, or at least send them this abstract of the legislation? Viner: - because this "contiguous countries" violates our most favored nation obligations with respect to taxation. Kent: That arose out of a parliamentary situation. The State Department was fully informed of what was going on, and some disquietude was expressed, and there have been some protests from foreign countries; but the Committees themselves were aware of the situation. But they got into a parliamentary tangle and their choice was to risk a violation of a treaty or deny this treat- ment to Canada and Mexico, and they preferred to do the latter - preferred to do the former. H.M.Jr: Are there any other suggestions? Well then, I think it's up to - - Nov. 28, 193 ritten by Joseph S. Zucker, Division of Research and Statistics, assisted by Clarenos V. Opper and P. J. Mitchell of the Office of the General Counsel, and Eldon P. King and D. L. Siegrist of the Bureau of Internal Revenue, and George C. Hass, 90 Tax Aspects of 114 International Security Transactions Page 4. American taxation of foreigners under existing and previous legislation on capital gains and on income 1 1. The income tax provisions of the 1936 law affecting foreign individuals and corporations exempt them from taxation of capital gains to which Americans are subject and fix a flat withholding tax on income received consisting of dividends, etc 1 2. The tax on income is a withholding tax of 10 percent for individuals and 15 percent for corporations (dividends 10 percent), paid by the American making the disbursement and applies only to foreigners who do not transact business in the United States 3 3. The capital gains tax, although applying to Americans, has no application to a nonresident foreigner whose only business in the United States is the buying and selling of securities and commodities on an exchange 4 4. This treatment is radically different from that of previous tax law which provided for taxation of capital gains and income substantially on the same basis as Americans 4 5. The change made by the 1936 Act was due largely to the feeling that adequate collection of taxes from foreigners under the previous acts had been adminis- tratively impossible 5 B. Americans may use the device of trading in American securities abroad in order to evade taxation 7 1. While the revenue acts require that they file a return and pay & tax upon such transactions, it is obviously much more difficult to discover such evasions 7 2. Taxation of Americans by foreign countries tends to encourage such evasions since, in general Americans dealing in American securities abroad are not subject to any foreign taxation 8 (a) Great Britain 8 (b) France 8 (c) Canada 9 (d) Notherlands 9 115 # Tax Aspects of International Security Transactions A. American taxation of foreigners under existing and previous legiala- tion on capital gains and on income. 1. The income tax provisions of the 1936 law affecting foreign individuals and corporations exempt them from taxation of capital gains to which Americans are subject and fix a flat withholding tax on in- come received consisting of dividends, etc. Decided innovations affecting the treatment of income for tax pur- poses have been incorporated into the Revenue Act of 1936. Under its provisions, nonresident aliens and foreign corporations having income in the United States, are treated under two categories: (1) Those not engaged in trade or business in the United States and not having an office or place of business therein, and (2) those engaged in trade or business within the United States. With respect to the nonresident alien falling into the first group, Section 211 (a) provides for a 10 percent tax on interest, dividends, rents, royalties, and other fixed income from sources within the United States, without the allowance of any deductions for expenses or the granting of credits for dependents or any amount for personal exemption. It is, in effect, a 10 percent tax on gross income from the above-stated sources. From this it 1s clear that the nonresident alien not engaged in trade or business in the United States is not subject to any tax whatsoever on profits arising from sale of securities. In other words, he is free from the capital gains tax. Correspondingly, the foreign corporation having income in the United States and not classified as 116 - 2 - # one engaged in trade or business within the United States, designated under the law as a nonresident foreign corporation, is subject to a 15 percent tax on its gross income consisting of interest, rents, or such other fixed income. On dividends, the tax rate for the nonresident corporation is 10 percent. On capital gains it is nothing. For the relatively small group of nonresident aliens and foreign corporations who classify under the statute in the second category, i.e., those doing business in the United States, the tax provisions in the 1936 law, Sections 211 (b) and 231 (b), are substantially similar to those in the prior tax laws. This type of nonresident alien is allowed a personal exemption of $1,000 and also, if a resident of either Mexico or Canada, the regular credit for dependents. The net income within the United States of a nonresident alien of this type after such credits is subject to the regular normal tax and surtax. For the resident foreign corporation, 1.e., the foreign corporation doing business in the United States, the income which it earns here is subject to a flat tax of 22 percent. It 1s not subject to the undis- tributed profits tax. Opportunity to file returns in the same manner as is allowed our own Nationals and domestic corporations, is given to this type of non- resident alien and resident foreign corporation. Should these foreigners fail to have filed with the Collector a true and accurate return of net income, the Commissioner is empowered to collect a tax on the basis of the gross income without allowance for business deductions and credits. It may be observed that foreign individuals and corporations doing Regraded Uclassified - 117 # business in the United States are subject to the capital gains tax on any profit arising from security transactions in the United States in like fashion as our own citizens or domestic corporations. 2. The tax on income is 8. withholding tax of 10 per- cent for individuals and 15 percent for corpora- tions (dividends 10 percent). paid by the American making the disbursement and applies only to for- eigners who do not transact business in the United States. To assure collection, BO far as possible the 1936 Revenue Act and the prior acts contain provisions which permit the employment of the mechanism of withholding, better designated as "the payment of tax at source. This applies to nonresident aliens whether doing business in the United States or not but only to foreign corporations not en- gaged in business in the United States, denominated as nonresident foreign corporations. For the former, the withholding is on a 10 per- cent rate basis, constituting the entire tax presumably due on the nonresident alien's taxable income items. For the latter, withholding is at the rate of 10 percent on dividends and 15 percent on all other taxable income amounts. In general, the withholding agent corresponds to the paying agent br whoever 1s responsible for turning over the income to the nonresident alien or to the nonresident foreign corporation. To make the withhold- ing effective, the statute provides for a penalty of $10,000 and possible imprisonment in cases of wilful failure to arrange for the payment of the tax. Regraded Uclassified 118 4 3. The capital gains tax, although applying to Americans, has no application to a. nonresident foreigner whose only business in the United States is the buying and welling of securities and commodities on an exchange. In pointing out the differences in treatment accorded the American citizen and the foreigner with respect to income taxation, it is signifi- cant to note that while profits from security sales made by the nonresi- dent alien not doing business in the United States and by the nonresident foreign corporation are not subject to the capital gains tax, the gradu- ated percentage five-step system for taxing a proportion of the capital gains from security transactions does apply against the United States seller of securities. Thus, in a sense, there appears to be discrimina- tion in favor of the foreign investor in connection with security deal- ings. This is partially offset, however, by the relatively high with- holding rates now applicable to the fixed income items of these same nonresident aliens and nonresident foreign corporations. It can be readily appreciated, in view of our tax law providing for a 10 percent tax on practically all income going out of the country to nonresident aliens, that in the case of some of them the amount thus withheld is decidedly in excess of what would be the tax liability determined by the application of the regular normal tax and surtax after due allow- ance for personal credits and exemptions and business deductions. 4. This treatment is radically different from that of previous tax law which provided for taxation of capital gains and income substantially on the same basis as Americans. Under the prior revenue acts, nonresident aliens and foreign cor- porations were subject to tax upon their respective net incomes from sources within the United States at substantially the same rates Regraded Uclassifie - 5 - 119 # applicable in the cases of citisens or domestic corporations. Such alien individuals and foreign corporations were required to file returns disclosing therein the same information with respect to gross income and deductions as was required of citizens and domestic corpora- tions, whether or not such aliens were engaged in business in the United States. Thus, under prior laws they were subject to the capital gains tax. The withholding rates were substantially less under all prior acts than under the 1936 Act. The rates under the 1934 Act were 4 percent for individuals and 13-3/4 percent for corporations. In general, in all prior acts the withholding rates paralleled the normal tax on our Nationals and the flat tax on domestic corporations. In view of the fact that for years prior to 1936 dividends were free from normal tax, no withholding was required in the case of dividends received by non- resident aliens from domestic corporations. 5. The change made by the 1936 Act was due largely to the feeling that adequate collection of taxes from foreigners under the previous acts had been adminis- tratively impossible. In the administration of the tax provisions, covering principally the tax on profits by foreigners arising from security transactions, the Bureau of Internal Revenue has encountered difficulties with the plan of permitting the income to move first to the nonresident alien with no withholding and then requiring the filing of a return to cover the transactions. Such difficulties were: (1) Having no jurisdiction over the person of the nonresident alien there existed no way to com- pel the filing of & return, (2) the means for verifying the returns Regraded Iclassifie 120 - 6 - # were wholly inadequate in view of the lack of book records in this country covering the nonresident aliens' security market activities, and (3) assuming that in particular instances adequate information was available from which profit determination arising from security transactions could be made, there were not in this country in any definite place known to the Bureau either property or bank accounts of the nonresident alien against which distraint could be made. From time to time, efforts were made in the Internal Revenue Bureau to follow more intensively the transactions of the nonresident aliens through abstracting from brokers' regular information reports such data as were submitted dealing with security transactions where the indicated customer was a foreigner. This was not very productive of results in view of the easy method of avoidance accomplished by nonresident aliens buying securi- ties in the name of a foreign broker and the reluctance of such for- eign broker to disclose to the Bureau the names of his clients. This reluctance is explainable by the existing foreign customs, and in some countries by regulations prohibiting the disclosing of the principals for whom brokers sell securities. In addition, frequent dealings in bearer certificates afforded no knowledge of the actual owners of the stocks even to the foreign brokers themselves. While the extent of failure to report profits from stock trans actions by foreigners cannot be determined with any degree of precision, it becomes apparent that such failure was substantial from the fact 121 - 7 # that, as per the latest available information covering the year 1933, only 10,910 returns were filed by nonresident aliens, reflecting an aggregate net income of approximately $20 million dollars and & tax liability of not quite $3 million dollars. Included in such tax returns were profits from sales of real estate, stocks and bonds in an amount approximating $5-1/4 million dollars, which figure covers capital asset sales held less than two years as well as sales of capital assets held more than two years. To better appreciate the picture thus presented it 16 pertinent to note that of the nonresident aliens who filed returns, many did so because the 4 percent withhold- ing tax was in excess of the true tax liability when determined by applying the regular normal tax and surtax rates. These nonresident aliens, therefore, filed returns accompanied by claims for refund. B. Americans may use the device of trading in American securities abroad in order to evade taxation. 1. While the revenue acts require that they file & return and pay a tax upon such transactions, it is obviously much more difficult to discover such evasions. Another aspect of the subject worthy of consideration is, are there being created under the United States tax system conditions per- taining to security transactions which might motivate an American to conduct his security transactions abroad. To be sure, the American is taxable in the United States on all income which he earns in other countries. However, assuming that the capital gains tax is considered by certain Americans to be too drastic to warrant engaging in security Regraded Uclassifie - 8 - 122 $ transactions in the United States and reporting the profits thereon, they may attempt to evade the tax for which they are liable by having transactions consummated abroad and failing to report them. How per- suasive the desire might become can be gleaned by analyzing what the withholding rates, as well as other taxes, are against nonresident aliens in some of the principal foreign countries. 2. Taxation of Americans by foreign countries tends to encourage such evasions since, in general, Americans dealing in American securities abroad are not subject to any foreign taxation. (a) Great Britain Nonresident aliens under British laws are subject to an income tax collected at the source at the rate of 23-3/4 percent upon all items of annual or recurring income such as dividends, interest, rents, royalties, and the like. Hence, a United States citizen owning British securities is taxed at 23-3/4 percent on dividends and interest from these securities. In addition, he is subject to a graduated surtax on amounts in excess of 2,000 pounds. With respect to capital gains Great Britain does not tax casual capital gains, such as, gains realized incident to transactions upon the securities exchanges. The American citizen, nonresident in Great Britain, but trading there, provided he trades through bona fide brokers, is not subject to any capital gains tax, nor obviously is there any British withholding tax on income paid from the United States. (b) France Like Great Britain, France imposes a tax collected at the source on dividends and interest arising within its borders. The rates of tax may be 12, 18, or 24 percent, dependent on the type of securities. Regraded Uclassifie - 9 - 123 # In general, the rates are higher for "bearer" shares than for "registered" shares, and higher when the life of the corporation is under ten years than when it is over ten years. If an American citizen carries on transactions in securities on the French Bourse or other French Exchanges through a bona fide commission agent, he is not taxable upon the resulting profits. If, however, such American citizen has a "permanent establishment" in France he is subject to a. tax upon this class of profits at the rate of 12 percent. (c) Canada An American citizen, as & nonresident alien, is subject to 8 per- cent tax upon income in excess of $1,000 from sources within Canada. Such tax 1s not withheld by deduction at the source. In addition, a special surtax of 5 percent which is deducted at the source is imposed upon certain items of dividends, interest, and royalties. A further withholding tax of 12-1/2 percent is operative against rentals and "industrial" royalties coming from patents, oil leases, etc. If, however, the nonresident alien has income from sources other than those subject to this 12-1/2 percent withholding tax, the 8 percent tax applies to his aggregate income, and he is allowed to take a tax credit for the 12-1/2 percent tax previously withheld. (d) Netherlands An American citizen receiving dividends from a. corporation domi- ciled in Holland sustains a tax which approximates 10 percent, such tax being chargeable against the corporation upon distribution of the dividend. An American citizen, whether executing casual transactions in stocks and securities, or trading therein through a broker, is not subject to tax upon the resulting profits. Regraded Uclassifie 124 Fin November 24, 1936. 10:15 a.m. Gordon Rentschler: Hello Mr. Secretary. Hare are you ? H.M.Jr: Oh I'm fine and you? R: Oh fine thanks. H.M.Jr: Look I'd like to have a little talk with you at a time that is mutually convenient. R: Yes what would suit you - what time would suit you? H.M.Jr: Well here's the thing. I'm going up to the farm tomorrow afternoon. R: Yes. H.M.Jr: At Fishkill. And I'll be there till Sunday. R: Yes. H.M.Jr: You - I don't know - I mean are you going away over R: NO I'm going to be - I'll be here over the holiday. H.M.Jr: Well I mean would either - I could - Friday or Saturday R: Either Friday or Saturday would suit and I could come wherever you're going to be if - whatever is convenient to you. H.M.Jr: Well it might be as convenient there as it would be to - ah - come down to Washington. R: Yes. Just whatever suits your convenience H.M.Jr: Well - ah R: I'll be delighted to do. H.M.Jr: Well Here's - you could - supposing you look this up, you see? I mean I don't - you could either drive or take a train, you see? R: Yes. Regraded Uclassifie 125 - 2 - H.M.Jr: Whichever you preferred - - its about the same time. R: Why yes - ah... H.M.Jr: I mean you could have your Secretary look it up. R: Yes I'll motor - why don't I do this. Why don't I motor over to your - to the farm either on Friday or Saturday whichever suits you the better. H.M.Jr: Well I was going to suggest if you come up - say if you wanted to come up here Friday afternoon you could have supper with us and then go back. We could have supper at 7 o'clock and go back right after or you could - or - or Saturday - either one - I've made no dates. R: Well..... H.M.Jr: Which would R: it does make a particle. Saturday would be a little more convenient to me than Friday really. H.M.Jr: All right. Would you - would Saturday afternoon. R: Saturday afternoon? Fine. H.M.Jr: Well I mean would you - ah - would you rather come say at 4 o'clock and then spend a little time and then go back or would you rather come later? R: Well suppose I drop over about 4 o'clock Saturday afternoon. H.M.Jr: All right and then we can have a talk. R: Yes, fine that would suit me just right. H.M.Jr: Now I'll tell you the best way. You know there's this new East - they call it Eastern Motor Parkway, which is an extension of Bronx River? R: Yes. H.M.Jr: Now that's finished - hello. R: Yes. Regraded Uclassified 126 - 3 - H.M.Jr: And you get on that parkway and go to the end of it and then you come to what they call State Highway No. 52. Yes, I know that road. H.M.Jr: And you turn left. R: Yes. H.M.Jr: And you come to the Village - Wiccopee Village. R: Yes. H.M.Jr: And at the Wiccopee store you'd better inquire - we're about a mile from the Wiccopee store on a dirt road. R: Fine, well I'll come right to the village. I think I know exactly where it is. H:M.Jr: Well you go up on the new extension of Bronx River to route - State Highway 52 - R: Yes. H.M.Jr: Turn left to the little village of Wiccopee. R: Yes. H.M.Jr: And at the store you inquire. R: Fine and I'll motor up Saturday afternoon. H.M.Jr: And then we could have a little talk. I - - I'd like to go over the general situation as well as the bond market. R: Yes, very good. I'd rather do that than come down to Washington. H.M.Jr: Good. R: All right. It'll be very nice to see you. H.M.Jr: Say listen. R: Yes. Regraded Uclassifie 127 - 4 - H.M.Jr: What do you mean by buying our whole bill issue and not leaving any for anybody else? R: Well we wanted them this time. Do you mind letting us have them? H.M.Jr: (Laughter) No, I was very much amused. R: (Laughter) We'd rather have you give us a better rate though fellow. H.M.Jr: Well listen, you write the ticket. R: I know it. We write the ticket. H.M.Jr: All I do is to print them. R: Well you keep on printing them but let's try to get that rate up a bit. H.M.Jr: (Laughter) All right with me. R: All right, fine. H.M.Jr: All right. Saturday at 4 o'clock at my farm. R: All right, fine. H.M.Jr: Thank you. R: Bye-bye. H:M.Jr: Goodbye. Regraded Uclassified 128 November 23, 1936 3:05 P.M. H.M.Jr: Hello. Operator: Mr. Burgess. W.R. Burgess: Hello, sir. H.M.Jr: Yes B: Well, things are weakened a little bit. They - H.H.Jr: An ha. B: They're off about two to seven thirty-seconds. H.M.Jr: Yes. B: And we bought about a million and a quarter. H.M.Jr: Since when? B: Well, that's - I haven't had the report just at the close yet; - H.M.Jr: Uh huh. B: - most of it in the past two hours. H.M.Jr: I see. B: But the market maintained itself in pretty good condition. We bought up to two hundred and fifty thousand on some issues; on some of them, a good deal less than that. H.M.Jr: All right. B: I think it's been a pretty suc- cessful day. We've - we've got this market a little - a little down where it ought to be. H.M.Jr: Yes B: And everything's been orderly. H.M.Jr: Yes B: And it's been done without our spending much money. Regraded ! - 2 - H.M.Jr: I don't understand why the stock market's fell off so much. B: You saw 0. P. Van Sweringen's death, did you? H.M.Jr: What? B: Did you see about 0. P. Van Sweringen's death? H.M.Jr: No. B: He died about 12 o'clock. H.M.Jr: Would that put the market off? B: Well, I don't know. I haven't seen the individual stocks yet. H.M.Jr: Oh - two and a half points. B: I think that probably a larger effect was the French and - and London markets, - H.M.Jr: Yes B: - which were quite bad at the close. H.M.Jr: I wonder what was the matter with them. B: Oh, I think it's this Spanish war thing and the neutrality partly. H.M.Jr: Uh huh. B: uestion of the British blockade, you know. H.M.Jr: I see. All right. Thank you. B: But I don't think it means much. H.M.Jr: All right. - B: Yes. Right. H.M.Jr: Goodbye. Regraded Uclassifie 130 - 3 - 3:18 P.M. B: ran to two million, seven thirty-three thousand. H.M.Jr: Good! B: So we weren't just pikers, you know. H.M.Jr; Who said you're pikers? B: They - they closed at about the low; was about two to seven thirty-seconds off. H.M.Jr: Who's accusing you of being a piker? B: Well, you did a little while ago. H.M.Jr: Did I? B: Yes, sure, in one of your weak moments. (Laughs) H.M.Jr: (Laughs) In one of the weak moments of the market. B: That's right. Well, I - I still think my previous conclusions are right, that it did pretty well today. H.M.Jr: Oh, I think SO. B: Everything went all right, and everybody likes this statement, likes getting it out in the form of It's made a good taste in everybody's mouth. H.M.Jr: Well, I don't know who suggested that to Eccles, but it was a wonderful idea he had. B: (Laughs) I wonder where he got it. H.M.Jr: I haven't the slightest idea. B: I haven't any notion either. H.M.Jr: No - no - B: It's a good idea, though. H.M.Jr: Yes, good idea. Regraded Uclassifie - 4 - B: Yes H.M.Jr: Well, they get those once in a while. B: That's right, yes. II.M.Jr: All right. B: Yes. Goodbye. H.M.Jr: Goodbye. 132 November 23, 1936 3:38 P.M. Operator: Mr. Harrison has someone with him. He wants to know if he can call you back. H.M.Jr: Yes Operator: All right. H.M.Jr: Hello. Hello. Operator: Just a minute. George Harrison: Hello, Henry. H.M.Jr: Hello, George? H: Yes, sir. H.M.Jr: Have you got any explanation of what happened to the stock market today? It's off three and a third points. H: It's what? H.M.Jr: Off three and a third points. H: No, I haven't any at all. It was - H.M.Jr: Could you ask around or find out something? H: All right, I'll do that. I just had George Davidson in here for half an hour and he didn't even mention it as being anything of interest. I was asking him what was going on. H.M.Jr: Of course, you know, on account of it - I mean we had quite a flurry in sterling. H: Well, it's up a little. H.M.Jr: Oh yes; well, we had to step in. H: Yes. H.M.Jr: Would you check up? I'm going into a press conference at four and maybe a little after that you can let me know? Regraded Uclassified 133 - 2 - H: All right, I'll check. After that? H.M.Jr: After that. H: Yes, all right. H.M.Jr: I mean I - I just wondered what the gossip is, you know. H: Yes, well, there's - there's nothing - - it was pretty - it was quiet. H.M.Jr: Well - H: It must have been easy. H.M.Jr: There must have been - I imagine you'll find there was a lot of selling from Europe. H: Well, you know, I've argued all along, and these people wouldn't believe me - H.M.Jr: Yes H: - that a good part of this money from Europe was coming because they felt that, with all these excess reserves - H.M.Jr: Uh huh. H: - we couldn't stop the stock market from going up. H.M.Jr: Yes H: And therefore I've argued that if you sopped up the excess reserves that would be one way of stopping this money coming from Europe. H.M.Jr: Yes. H: If that were true I'd - I'd be glad if that is the explanation, frankly. H.M.Jr: You mean - - you mean since - they feel that the market won't go up so because we're going to stop it? Regraded Uclassifie 134 - 3 - H: Because we're going to sop up some of the excess reserves. H.M.Jr: Yes. H: That may be an explanation. I don't know. H.M.Jr: Well, if you would find out and then if - if you'll call me. H: I'll try and I'll locate it and see what I. can find out. H.M.Jr: You may not be able to find anything. H: I may not, but if I can without being too conspicuous, I will. H.M.Jr: And I thought the fact that the Board got out that statement was good. H: I thought it was, and I thought it was a good statement. H.M.Jr: And, as I said to Burgess, I don't know where they got the idea but it was an awfully good idea. H: (Laughs) H.M.Jr: Huh? H: As I told you the other day, you did a great job on that. H.M.Jr: Well, I just wanted to say that I thought it was the silliest thing, in front of twelve people, to try to bring up something that happened last July, and to try to bring it out that way. H: Oh, I thought the whole thing was the silliest thing. H.M.Jr: I thought it was the silliest thing. H: That was silly, and we wasted more time on that. H.M.Jr: And - Regraded Uclassified 135 - 4 - H: Then I think to bring up the question of a conversation between you and me - you and I never had any misunderstanding. H.M.Jr: No, and - and after all, when you talked to me three minutes before ten, I got - the impression that I got - the correct impression was that you hadn't been notified. H: Well, I hadn't until nine o'clock the night before. H.M.Jr: No. H: But I can - H.M.Jr: I know. Well - I mean what - at - what's that in the - and I heard Anderson said a telegram went to your night telegraph operator. H: Did. Got a telegram about six o'clock to the telegraph operator: "Please keep a senior officer at the bank." H.M.Jr: Well, it's over the dam. H: Yes H.M.Jr: I'm announcing this whole business at four, and - H: What whole business? H.M.Jr: Belgium and Holland and Switzerland. H: Oh, good. H.M.Jr: And that's - and London and Paris will announce simultaneously. H: I see. H.M.Jr: You - you got the thing. H: Yes. H.M.Jr: And I feel very, very happy because I think again it comes at - just at the time when Europe needs a little moral backing. 136 - 5 - H: (Laughing) Yes, it does. H.M.Jr: What? H: It certainly does. H.M.Jr: Yes. H: All right, Henry; well, I'll see what I can find out. H.M.Jr: Thank you. Regraded Uclassified 137 November 23, 1936 Mr. Bell, Mr. Viner, Dr. Williams, Mr. Taylor and Mr. Haas met with the Secretary at 4:45 this afternoon. Mr. Lochhead joined the group soon after the meeting started. Following is stenographic report of the conference: HM,Jr: What I want to do while you two gentlemen (Dr. Williams and Dr. Viner) are staying one more day -- you are staying, aren't you? Dr. Williams: I will stay if you want me to or I will go back to the Bank. HM,Jr: I think you will stay when you near this. You are here as a Harvard professor. I think when you near this, you willwant to stay. I have what I call "the germ" of an idea. I won't say anything more. I have talked it over with Bell; had a. couple of minutes with Viner. And the thing that kind of stirred me up on this was this article by Mr. Warren Case Pomeroy going back to the McMillan report and this thought of isolation and sterilization of gold and separating it from our domestic stock. Bell: Our monetary stock. Haas: Our banking system. HM,Jr: Monetary stock. Have you read that article? Dr. Williams: No. Dr. Viner: I have not read it yet. HM,Jr: I recommend it. I think it 18 more clearly put than by anybody else. Haas: It's "Bob" Warren. HM, Jr: He used to be down here. I can't put it as well as he can, but the thought 18 If there could be some way found of isolating and sterlizing gold 80 it did not mix into our domestic economy, I think -- all I think we have 18 the germ of an idea. I talked with Bell this morning and I don't know whether he has had time or not Regraded Uclassified 138 -2- to go into it. Have you had time, Dan? Mr. Bell: No, I haven't had time. HM, Jr: Could you do this, Dan? Could you take it on the very first thing in the morning with these people? Mr Bell: First time. Nine o'clock. HM,Jr: Jake, would you meet with Bell and these men in the Under-Secretary's office? Viner: I will be there at five minutes to nine. HM,Jr: I want Archie (Lochhead) in on this. I don't know whether we can do it or not, but if we can ... (Secretary sent for Lochhead and he came right in.) Viner: That's a legal question. HM,Jr: Archie, I want you to sit in on this thing. Then all this stuff that these fellows were talking about last week would all fall by the wayside. If there 18 a method of separating this gold ... Mr. Bell: It would help out on that situation. HM,Jr: It would help out in settling international balances. Dr. Williams: I have a couple of ideas on how it could be done, It could be done in the British method. HM,Jr: It isn't BO easy. Dan 18 too tired to- night, We are all tired at this hour. Don't you think it 16 important enough to sit in on? Dr. Williams: Oh, yes! HM, Jr: Dan says he is available at nine o'clock. I would like to keep it secret as a Treasury matter, be- cause if it leaks out that we are considering it at all it will be in all the papers. So if you (Dr. Williams) would sit in on this as a University man, I would ap- preciate it. Regraded Uclassi 139 -3- Dr. Williams: I'll certainly be here. HM,Jr: Because I don't know -- if we could do that it would certainly make Eccles' job easy, much easier. And George (Haas) I don't know whether you have had any- body examine this or not. Dr. Haas: Yes, we were talking about it today and talked about it previous to that. I think it can be done and I don't think it will need any changes in the law. HM,Jr; Have you anybody who has been working with you on this? Haas: Yes. Seltzer and White. HM,Jr: Will you bring them into the meeting tomorrow. Mr. Lochhead: My thought 1s you could always bring gold in and keep it in as free gold. Dr. Williams: How about excess reserves? HM,Jr: I don't want to start it tonight, but I just wanted to whet his appetite. Dr. Williams: I am all for staying! HM,Jr: If Dan is through at -- you and I said we would go into Relief at 10:30. Bell: It won't take very long for me to tell all I know about it. HM,Jr: Oliphant would come in handy at certain stages of it. If you decide this 16 the only way of operating, then you have to find out from Oliphant's office if you can do it. Do you want Opper? Dr. Viner: Opper or Bernstein. Mr. Lochhead: He's in my office now. HM,Jr: Will you tell him to sit in on the conference tomorrow morning at nine o'clock. 140 -4- Mr. Lochnead: Yes, sir; I will. Dr. Williams: That's grand! We will be here at nine o'clock tomorrow. HM, Jr: But, as I say, if we could start this while you two men are here Dr. Viner: I think technically it is not difficult. One question 18 what are the powers under the law of manipulation and handling? Dr. Williams: I think it involves borrowing opera- tions. If you have authority to borrow ... HM,Jr: I recommendto all of you that you read Warren's article in the Analysist. Regraded Uclassifie November 762 AMMALIST 13,1988 Friday, November 13, 1936 THE ANNALIST 667 "Gentlemen's Agreement" Embodies Basic Tenets remarks this reping elli Yelf M signature and - under the topica: (1) A. for Of the MacMillan Report unly a IM firitsab. The Royal Cirn- (ual interpreviation of the One minimily called the times Agreement at Sept. an. apprintal in 1920, rendezed and (to supplemental amount in By ROBERT B. WARREN as report - June, 1081. Da abalywis of A description of the Ideological Case, Pomerry & Co la priblem and the anjution proposed which in recent years las product are may appoarte failly Use 18ay - world-wide monitary searrity: (3) A accounting that M. specifically name in determine Gen of the quantity five years Mm. summary of Use Produce nil the both our - and that of England, the of name) to secure certain alcial likjee If time parmitted I about do you Liber Regal Commission of 1001. which al- "monthing" la . detail of teráinical open- big. of giving you a comprehes sampted to find . retional solution of and wanting in dramalic - me- Management 13. Macipulation vive simmary of the MacMillan report. this time) time valor But 1 would - logether with a. description of bow ter AN you - 1 - - speaking are phanize that time whole M greater than The minimum may be stated - - applicable è 5 5 or la the subject of elabilization. but the - of the parta, word what I have persione. The argument. in lever of Lbs present. British montary Fue nather attempting all objective descrip- alid CHEMIS if terminal operation gold standard with that » could - be Line Torbida, for if 1 ENTE - Use of contemporary humaniary púlicy. am implications of the highest - the opposing argument extraise amount half of you would in cillag the Markillaz report M a date lary signaficance, which save tem Was Identifical the good standare laxe bond to listen and the other hall mel. of la Weoling and the Brush ungely If not over- comid - be manipulated. and legal would lake my and for its minis practice At the number completely turma- Under tale agreement, . - tapier and be le short, what - side end tel " N° at that The - ut you used example of that Identify, previding erable end prospectively expending called management, the alhar side valied would read the report for himself The a pattern to which other eystema appear group of nations smier lette . informary manipulation and with the gold stand- main Idea of my wis lonight is is pripar to be graduality conforming. Wish theme relationship which: and adveraise could ser some - M your Interest in that report to much . three topics - NO intraduction. T than 1. that the international the Idea of management, they talked at degree that you will read IL temper - DIE UM agreement into lla place value of their expective are the quartion of who would manage the First of all, il 54 ate of the great - - signaticant equate la the nots- - matter of multual foucern. Ruyal Raporta. In my Demary atreem of mestary Owers and 1. Adopte gold as the international liner the was the musid has untilla(ed - a ranhe with police of exchange, incertainly between these two ideal- Report. which WM Lie permissions 3 Privides - mischanism M act -- the ngins It maintained in firm the aun- tary Dinie for . Benomi, the Agreement Meeta There Hendlie Name Mance of the - standard. but quality (if this e. nurvent trand of numbery developrements The so-railed agreement of Sept. 25 de procisce Islame mine and NETT stabilization or equalization mad both Name and shroad cannet le puper reporte from Me theory is ariuality the - - while inimal one - familiar with done not constitute . de part. a oddress . - the Order Chat of Chane - of the plat-war world was the cititente of that report Think be primed of Vegal lender citire or Inis aver you registed Be Geotimen's international manitary intervoures 1 would the appearance net - . rule into goid Agreement, you will - da implications Apart from the familiar and Use administration Paril not M the machan- turney, Commonly Unis was termed Be - . are light wãrd you have mul (bat threachere expressions of hope For - une of as mergency. BGL the interne managest goin standard, sebsity " was report. Understand I 4m not suring number Le international trade, Limity recognized agency tar handling a. hybrid being belier a gold stamlard you le socipt the premise on with the is met . specific - of each of the gold for the seltiment of International not & managed standard, but mataling normittee hand He conclusione, not the three major partise balances, shinigh management and mough guid to I am mornly emphasizing L. u. provided the French The net offers may or pay - bring the two lossipe uuo internatest Use fact that Unse premises and with international recomment for into Immediate right signiture That and ultimalety name sonflict, all- --- the tes, statement of the neg which, number - - - - of accountary importance tn - the missing as the pervid of war- cally prevailing mustary of our finality diallion) by the vary groups on that there is order where there was die- taxe ir currency starchy which followed time MM that ins which that government depended unler . digier of International comity the meturalité dade, Bept. 21, whether by reasing DE by initiative : n. privided the Britten international share there - and suspicins, when England canceled the estating reser are being followed 1 may in Dep system with a timeder tax. - this and . bute and an complet then of la name) Le gold land tail in this univery and namiers. system, which had tem Issand tur etability and tranquillity where there When I use the word snamily, I wish spinly - the trace, is now state to open FM only unrentainly and Imalon. D it Sallent Fratores of Martillier Repart If Le be understood The - so - the ADAY M wyll. - net all that roald be toged, II. --- expted ruise and procipies of interne Bus although is is my advice that with 1. Our own Treasury. while bed Unit- all that sould - expected clonal currency were shen- at you mail this report for homit I - Us gold exports to metral - - a The wide and fining vennot refrain from drawing your stics Full gold stacifierd. would - Proud - The Mentagy of Number Name ve the exchange disementing - con is As Miled features The - position after the - de AL this stages, - - nigress to my they were to grattical - eiers more use utfers two opoviow: requetion, - - bank - Une world. servid point-a What review of the w . - fundemental mai- 1. That The acio MMI of . goid name with Use gouther seciption of the Wel- Identify of may. From the nacified as The reality - tert party that as today . 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Primision University mailer tall Analotir. and - fiest Lnd over the money supply Fullowing - equipally - the - points a unet but comprehensaire memount of to Time Primary and to of the interest nie un time advistment" Reg. a - - England - application in China in the well-known The primary Bda M I - - alore that control to be guided By rensider Prence, / Receiver polated est. - Chinge that - has in the une narrative at Marm. Ptin three error of the domestic money retirer than by lie income of gold expirts - ta the entiry the general 1. to . world aireinated by the 4a. 1.1. Ar - - provide che Salid of the elecyde gaid stanitani trime at national a end importa. upon with International - in - month relegated the legal leiver IMB familiar form of the paid standant was Gold Most Be Delarbed a n alter - definite prom of Line bei la the tackground: mi tisch 1914 the maintaintly applicable M - . - operated (or a I in . world which faced the allorgic latter de has decidenty to Be New there was only - das Live - restaming figre of inter way List bills conditions mild - in general, MI Professor gin- 1 date my that Che great national intermier of reducing - - the - be interpresed 1 met. Clohd - - completely detached majority of this have never standard or living immensurably, some administrations M M a plents the adversion - is may line interprest - und gold M a. medium of - hire of UM gold was - sod impossible Life mone used - M se sitiety (M) advister of Du a In . Issue of States. tary system Union #: were detacted charge. Commertible MP community dellar knowler ques whetder that debt. le the maritage of the the import would expend and ISA repart I which be - Important - what (egal-tester generally repliced war a of depression, - national EXP. the missiary - and an will the the summary of - gold coinage, and M invertment money fall exposant was and is dominated by the (Am University ARE Exper. debiter constality, and would I to either vitable or and - - NEW - Line - of - into - Give wenting - M become - - claims with n - and - Hight - eyelem code which # - management TM seald and and the Internet rate - He addition - therefore, - fund delacted - D - - INSURER exts They inimal - - the - - 4d - - Sections white own from the menry eyelem, was empt maine for - - hear, be - D - with siregibenet Professor Customer (will Bri - Missetary Pulley inhale set extrate gild spinly la with This IM Kiewell that - the whole 18a agreement - me. NVB @ - - - uses N/M - a quantity - of international teleahos, with the - Name for w/ IMM - - - of I'm - - - - - delitity will Lessil 101 - - 4 powersi and The - M lar Up will Milm - / - the - - - will # - la the hamily at - M MMM IM pressure reasity. - Contract - Page en Regraded Uclassified 141 THE ANNALIST November 13,1936 Regraded Uclassified Tenet of the MacMillan Report Continued from Page Cycle, and the stability of the price lovel fliet between two divers -cannot be attained except by the com- money, both supported by with the domestic ecot my, which stant exercise of knowledge, judgment in their own fields, Im the committee believed be stand and authority, by individuals placed to very largely regulated hugh control a position of unchallengeable Independ- menta. Second, the system of the quantity of mon This marked ence with great resources and every DO loap in the dark; Its 01 technical device at their dispouttion. ble to every one who & radical attempt to econcile the two (Italica supplied) trouble to road it, and its theories of money Ated above, Under stion to date, although bri the MacMillan Hort, the pound would The history of five years shown the to- out auccess. be, domestics purely a token of ex- fluence of the MacMillan Report on Brit- So far I have attempte change, the Quantity of pounds and the ish monetary policy. Britain has 6 man- jective reporter. Now X Interest me being determined by voll- aged currency, detached from gold do- comments: Llon, emernally, the pound would be a mestically, attached to gold Internation- 1. Stabilisation, unless gold Jurrency maintaining a stated rela- ally, in the scuse that international bai- mere pegging operation tion to other gold currencies. The Mac- ances are settled to gold, and the rela- from fundamental equilibo Millan Report did not contemplate de- tion of the pound to other currencies la group of funds may peg valuation, and It recommended that the controlled through the mechanisms of but they cannot of the gold fund be created in and operated by the gold market, fundamental Internation the Bank of England. Events brought. devaluation, placed the fund in the Brit- A Permanent Monetary System They may even, for a t lab Treasury-but the theory of the I have given this somewhat extensive aggravate disequilibrium. account of the British system for two again from the report: 7 Equalization Fund and its function were gold reserve today in, the described in the report almost a year reasons: before the fund was created. 1. The basis of that system has been able a country to meet di elaborately explained. ternational balance of 2 Meaning of Control the appropriate measure 2. The present British system has been The committee was fully aware that to bring It again to equil in operation long enough for us to nee the mere control of the exchange rate 2. Second, let me repe Its form rather distinctly. stated by the report to was far simpler than the control of an In no other country has there been any economy through the management of currency management: comparable statement of the principles the domestic money supply. It was fully erclse of knowledge, juć guiding Its monetary policy, and in no aware that the operation of a. managed thority, by individuals P other country can the guiding principles tion of unchallengeable currency placed upon the central bank be ao clearly deduced from the actual Unless those qualities I far heavier responsibilities and more ex- record. Nevertheless, It cannot but be country adopting 8 me acting requirements than had been im- apparent that the thesea of the MacMil- has merely exchanged posed by the gold standard. They knew lan Report are influencing monetary gold" for some new that mere Inconvertibility did not con- policy here and in France. "debbil." stitute a managed currency. They were These principles represented no emer- The agreement of Bej not sponsoring & soft money scheme as gency Improvisation, no scheme of funny & number of isolated 03 an easy way out of a hard situation: money concocted by cockeyed brain- Into & relatively homos nor 8. trick device by which they could trusters. The machinery will DO doubt be tional monetary system est their cake and have It. I will quote modified to detail, but to my opinion It speak, the introductory from their report: will peraist, as former standards have book to be written from The monetary system of this country persisted, until the course of buman experience passes into must be a managed system. It la not events, an economic earthquake displaces greater mistake can be advisable, or Indeed practicable to regard it, as it has displaced Its predecessors. suppose that it is an Inc our monetary system as a.o. automatic system, grinding out. the right result by A Landmark ha Monetary History mality, except to mippo the operation of natural forces sided by sente a return to somet In conclusion let me tie together my & few maxime of general application und three themes. Although limited in coope, the past. A period of to some well-worn rules of thumb. The the agreement of Sept. 25, 1956, la a stary anarchy has close major objectives of a sound monetary landmark in monetary history. It la an has not returned to 1 pollcy-for example the maintenance of parity of the foreign exchanges without effort to give international unity to B&- standard. As Secret unnecessary disturbance to domestic tional currency systems which are at- said, It has created a . business, the avoidance of the Credit tempting to reconcile the enclect con- standard. The ANNALIST 668 THE ANNALIST Friday, November 13. 1936 Triparte Agreement a Retreat From the Gold Standard I by international surrency miller time we have to ented matilization with fixed gold partlier, 1 billing Toward Managed Money - that prediction had - substantialed " the ed - Macker the prespects fur it in Che - no lary of Ute Transacy - Cel. 18. 1 tare en highly martain. As things this July . latter - that service - enty By WALTER E. SPAHK* and et present, I believe this examing, - et the assistrary of (La prediction king with English Prident and when Professor al Economics New Twis University but - - 1 - to know other natima may move in alther of two direc- - who Line Initer - libely 5 provide vu restricted in nature That value and - such terms and - - (1) Toward stabilization with Une the Bennetary Comb M off of this quite - se . maning regarding - M - may doem - adminis- weight of the gold unite Dani by law, - what or may expect - the portion of . guid manderd due nut am - la the public Informat, any - (3) unread # mang i le be widnly INSURANCE visas of les relating a the maintence The - Initer of apos e-ailed managed currency aye- Ws all know Dest when our country la of partly to the centrery recents. Came We have the latter system now: July € - - part - a grea Maniard Date mumber of gold standing This "setwithalanding" classe ted it " - at present tri # dollars in an BRADE at gold is tised by 1. is - within the that would appear to make Usia - or the farm which may be considered perma- Received, if re-eineled, will make . dre- --- for esample, at $35 per ouner low effective, despite the fact that it matic REMITE in the munistary area. alimal amL New, according to this and plan, the otherwise certificate with the part of the AN Important en was the original change Institution Unknown selling price of - - of gold in to be law which terminates, on Jan. 30, 1957, in Ubr gold contrat of the dollar Tn - on . day-to-day basts. It began with . - the where would all for Ne Just above we - knowled remains to the powers of the President to change price for gold, int the opening of . be - The government - not tndi- price of & per fine - phus a me within Units Use weight or our gold market, the prior of gold to - - called the destination of this pation - quarter per cand landling charge, which gold dullar. a may be that this activin termined in the april marker and may- monetary matters the President's contrass "until further notice." of the law - mently 4 - of had with mg defending la demand This M - mis- stance the plan advicated by the Om- early to the affect that Just what may - the maining of this draffing, and that EL was not designed to mittine for the Nation. be proposed to give this country a dollar twenty-four-bour currency program? The equale the other part of the law. On 1. Experts in Consultation: The admin- of stable purchasing power, That - triparte Internalismal declaration on our- the uther - this nection may have intration bas again been to conference tico was interpreted to that the rency, an Sept. 15, in notable - - the the specific purpose of with the experts theory on gold President proposed to lead this batine for two things TX) It - nothing tan- enshing the President to Fix the price of was followed in changing Use guid ON lant. It is understand that they par Into - managed currency or emmodity gible about currency atabilisation, and and - be - nt and without any - substantially the following opinions: dellar acbeme se (2) # la a rare collection of vagaries and atrictions - No This provision of (%) B " poin inrvicable that anned- undered by a great majority the rep- plous platitudes, I think une caruld study the law can prove EN be excessingly eig- Ky prima will rise to refect devaluation stable monetary Whether that document on accorday and not atthant If offers edch distanct possi- If is probable, indeed, that this advances Use and his advisers still have know what Be montary policy of the billities for monetary that will be too processing Due substy. Code mileration abould be give. Unter to Use plan in mind, we de not know. The Umited States La - la tax be The docu- - attend sorutime 4t carefully locreasing the goid contrist. There may monetary plans of the Democratic plat- ment is . of affable nuthings. be no other way to prevent a ruther Polliwing this allegatly momentaux Signe of . Managed Currency siarming increase in the - of living form apparmilly cas mean anything) trut agreement, the - twenty-four-hour Six mach for where - are DOW in R is probable, however, that - price if the business to taken literally, M. management plan we our Secretary of what direction de - - to be licaded indexes my log DD the advance, and would translate itamit inter a community that would give the opportunity for rais- the Treasury has less given 148. In DOB: Os the have of exidence anlar One can anly wender as the gold nations 400 nertion with the Accountment of the -400 there is sittle anough of that-er nomic balance whether the crafters understand and Erigarte agreement. Chanceller of the - for Desuled toward a gold standant The President is without automity - mail what they mud. The - Pres- reles the gold content abree - vinta Excheguer Charaberiain must England, and international stabilisation, of we can campaign was notable in the fact although be la empossed to - il to 10 expects to return to - goid standard A. be - toward . managed currenty centa that this plank was not discussed. For de Mark Ewo years the postic - Semix - days later our Secretary of - - of - mirt under which inter- 1 Mountary Maves: B might - - in the dark as la what the prement Treasury skidded - off of that part of national stability of words cal euicide for any President le rale the guvernment proposes to a with our - our International guid standard which Tecome . matter of retions gold content in unler la atop aireming prios, and few Presidente wwuld ward - thought www had attained Naw where and armal Be far " ( die nay wywhen. Why n has done or the power las des a. Likense, II - - see we And where la international state - there 5a not - - of to level to to Inecpedient la - the do this onlainly - net class. Science pm- - that this givernment inside dollar price for gold fremally asíl am - - Chank Our prement Me no - - - hash to . pás manitard. & ciality at frequent intervate, - to - . plan - - - - begrond - Class ADMS Atmodeed The - beend, I - Own - . - constry a la segurd. - Lhe (mr Benume 1 A la going. - - - - - - Trans sthe sand, dat: - - - the al- Insur that the administration THE save any have to my about his Intent mine DEL that - may - insulad a (a) The - at . ire - in and - plan which is - not démos market would provide convertiality in Willingly or unwillingty. be revealed to managed 1 FINO so avidence that anytowly could buy gold with paper is - to revent le the of - prem Interview that be Chinks be has which that - BY - being dollars, Isst that the market Itadif, by this - Tablet de are an international goid stand- headed in that directors and should meting the price. would be establishing I/We are not only in the case - - and for he is quited - mytng that - that - the cus, the I this interna- the proper value of gold daily. The gre. - -- are is currency limit - error would be in a position tar pro- will do with France was Great Donal currency will be only vent relide. owing to ID huga holdings, here Smill - large proportion el umr - - B. Mata . mirage, and SEX pould impervise operations and - - understand the mainre 1 Use path -- would be streping back to II in well to receil that the any state prevent any - have traveled Una the - - - - nas gild No also pointed inmite of tas President of 1945- (n) A free goid market in the United - - - at present out that or wf any time a appeared that States, with quotations persibling Usur pointed toward 4. - dollar 4m London, must - and of a For the audience It lie not consumery to Use effective and bring put as acheres: that the Democratic pintform change stabilization in that . - - EMI - MADA taken in the Date . Um Treasury would fail can be interpreted to mean the - goid denonimate as between pourd and of - Exy tais and elber comilità to at Unity Le appropriate active." dollar would the be wishiel thing: and that the Secretary of the - posters and incorba. But If - sue What did ha made By Chell' When la Treasury, - Oct 12. actually and MA (e) Price elability in dellare wald be Mill - with any ressonable som- maintained the dellar price of gold the effication at . disadvan- late ench . above rather than DM dellar prior of - not Due prohable developments which lags' And what - this "appropriste For some time monthly Ries would fluctatte - - - I examine the position action Approved the possibility of have attempted to ward the people of (4) There would the exist the 15 with we find curselves now, and the manging Use price of gold Le to be the this country that there WEA . movement currency Dat the Democratic plactions - events which - to screentive device - what is to be - font to place - ou . managed paper - - name - what - may exped 4. Replication: The great important corrected. The Secretary also sald that currency ayalem, and that this adminis- of the turogoing la tan for carn- - the of which of 2009, will - purchase and - price of grid trailes might slip esch . plan um - med. The government, by operating le and - to - to astermine the may and Check sould be the people Inform they rule be individual . - gaid market, cruid control the programile The international statilization - under sixe have without bit- M a what if nas all about. The - dollar prina for 1 B would thus community dragther the control over if I the of the dollar" Pre- - by de Serviary or the Transury credit and general financial caditina What of . Comment minably Be - A/F - that the price can assily a definite and cal- a muld simpat automativality day by of - may - by - be - cultated any - - as la will day, - any depreciation of Exeraign The - all. etem - - stated - As wells R.D.m. Minute of the OM - - by namery - but - The offect would la to Insti- Internet() - - will - as tute - the eyesem M is new in - - note) - internationally Adj of January, parently - by - other person, that vague in Brisin, to will the establish- No medical many soft the SML and I Owner MP9 small - aggrements groups - - ne . managed - NAMEL We ment of . researed currency, Chick la . good - for ista - al evt trying - - . - - (4) Legislation would - required in - - - - the Secretary of the if 15ml is shall be - le - time mustry. There are - - time put the supported eyestment used operation. Transury to Ces a - - enviloped I TOTAL to the no sind I - - - advertise of A - and Benten, il to . prospect for and Win- that - - - of - gold lan and not of the future. - % libert, The winding of - - - Firmis selvere that saw President, - - Imger - final - would be " - - - that way - - - Eyess Jan. this of the Date - M M - time - that - - wills advenpt la definits - has - reched, - la H. - - our sive - - - - . actions 4 - - the - I - as HILL to Oct. 18. 1006, ne were - I - the to sell - - to majuritely - mine the - medical internationality theoge - to change - - - M page - - the - - fill - and dan so, LAST - - - - the whiley Baun - - I E - - of an address America below - les Blue visa That I of - - I horrier of Radimgton M for - M - status Chapter - Un - New - - - ! 1 ME lue . with you - - 131 The asilarity Regra Uclassified 142 DOW JONES - November 23, 1936. NOV 23 1936 ADD DUTCH JOIN TRI-PARTITE PACT 10.15 WASHN- THE NETHERLANDS WILL ASSUME THE SAME STATUS AS BELGIUM WHICH ALSO HAS ALIGNED ITSELF WITH THE UNITED STATES GREAT BRITAIN AND FRANCE UNDER THE SEPTEMBER AGREEMENT BUT NOT UNDER THE OCTOBER 13 EXCHANGE ARRANGEMENT -0- 11:05 ADD DUTCH JOIN TRI-PARTITE AGREEMENT WASHN- A STATEMENT FROM THE U S TREASURY RECOGNIZING THE ADHERENCE OF THE NETHERLANDS TO THE INTERNATIONAL MONETARY AGREEMENT OF SEPT 26 PROBABLY WILL BE MADE PUBLIC THIS AFTERNOON- OFFICIALS SAID THEY WERE -HIGHLY GRATIFIED- AT A DECLARATION BY THE DUTCH GOVERNMENT OF ITS ADHERENCE TO THE PRINCIPLES LAID DOWN IN THE TRI-PARTITE AGREEMENT OF SEPT 26 NOV 23 1936 -0- Regraded Uclassifie 11.34 NOV 23 1936 DUTCH MAY NOT BE ADMITTED TO FULL PARTNERSHIP UNDER OCT 13 EXCHANGE AGREEMENT WASHN- ALTHO THE DUTCH GOVERNMENT HAS STATED ITS ADHERENCE TO THE TRI-PARTITE ANNOUNCEMENT OF MONETARY PRINCIPLES MADE ON SEPT 25 THE NETHERLANDS MAY NOT BE ADMITTED TO FUL PARTNERSHIP UNDER THE OCTOBER 13 EXCHANGE AGREEMENT BETWEEN THE US GREAT BRITAIN AND FRANCE INSTEAD OF BEING INCLUDED AS A MEMBER OF THE OCT 13 EXCHANGE CLEARING SYSTEM HOLLAND PROBABLY WILL MAKE SEPARATE BUT MUTUALLY ACCEPTABLE EXCHANGE ARRANGEMENTS WITH EACH OF THE THREE POWERS IN THE OCT 13 COMPACT- FOLLOW- ING OUT OF THIS SYSTEM WOULD LEAVE THE UNITED STATES GREAT BRITAIN AND FRANCE AS THE SOLE PARTNERS IN THE OCT 13 AGREEMENT WITH SATELLITE NATIONS ARRANGED AROUND THESE THREE UNDER THE OCT 13 AGREEMENT THE U S AND THE OTHER TWO POWERS AGREED TO REDEEM EACH OTHER-S CURRENCY THROUGH THEIR EXCHANGE STABILIZ -ATION FUND AT MUTUALLY AGREED UPON GOLD PRICES -0- UNITED PRESS - November 23, 1936. 144 Plenan Holland WCNS35 FORMAL NOTIFICATION THAT THE NETHERLANDS HAS JOINED THE BRITISH- FRENCH-AMERICAN MONETARY ACCORD IS EXPECTED BY TREASURY OFFICIALS TODAY. HOLLAND IS KNOWN TO HAVE BEEN CLOSELY WATCHING OPERATIONS OF THE CURRENCY AGREEMENT SINCE IT WAS REACHED IN SEPTEMBER IN CONJUNCTION WITH DEVALUATION OF THE FRENCH FRANC. REPORTS THAT THE NETHERLANDS HAD OFFICIALLY JOINED THE ACCORD WERE REGARDED AS PROBABLY AUTHENTIC. TREASURY OFFICIALS EXPECT TO RECEIVE FORMAL NOTIFICATION OF THE ACTION DURING THE DAY. 11/23--R1022A Regraded Uclassified 145 light) Monetary agreement WCNS139 SECRETARY MORGENTHAU ANNOUNCED TONIGHT THAT THREE MORE COUNTRIES BELGIUM, HOLLAND AND SWITZERLAND-HAVE JOINED THE U. s, GREAT BRITAIN AND FRANCE IN THEIR INTERNATIONAL MONETARY AGREEMENT. HE DESCRIBED IT AS ANOTHER STEP TOWARD WORLD MONEY STABILIZATION. BEGINNING TOMORROW, THE U. S. WILL SELL GOLD OR EARMARK IT FOR ANY OF THESE COUNTRIES OR THEIR DESIGNATED FISCAL AGENTS. THEY AGREE TO SEEL OR EARMARK GOLD FOR THIS NATION. THE FEDERAL GOVERNMENT BANK OF NEW YORK WILL ACT AS FISCAL AGENT FOR THE U. S. THE NEW LINEUP NECESSITATED A SLIGHT CHANGE FROM THE "NEW GOLD STANDARD* MORGENTHAU ANNOUNCED OCT. 13, IN EXTENDING THE MECHANISM OF EXCHANGES TO FISCAL AGENTS. THIS WAS DUE TO THE FACT THAT BELGIUM HAS NO STABILIZATION FUND. EACH OF THE OTHER FIVE PARTIES TO THE AGREEMENT HAVE SUCH FUNDS. PRIVATE INDIVIDUALS AND INSTITUTIONS STILL ARE BARRED FROM OBTAIN- ING GOLD FOR USE EITHER IN THE U. S. OR ABROAD. MORGENTHAU SAID THE NEW AGREEMENT WILL PERMIT OTHER COUNTRIES TO ENTER THE "INTERNATIONAL MONETARY EQUILIBRIUM ARRANGEMENTS" WITHOUT MAKING ANY CHANGES NECESSARY. HE REFUSED TO PREDICT WHAT COUNTRIES MIGHT JOIN OR WHEN. 11/23--E815P Regraded Uclassified BERNE - DOW JONES - November 23, 1936. 146 1/8.45 9336 8% ЛОМ REUTERS DISPATCH FROM BERNE SAYS SWITZER- LAND-S ADHESION TO THE MONETARY CONVENTION BET- WEEN GREAT BRITAIN FRANCE AND THE UNITED STATES HAS BEEN BROUGHT A STEP NEARER TODAY BY A COMMUNICATION BY THE SWISS GOVERNMENT TO LONDON PARIS AND WASHINGTON - THIS COMMUNI- CATION NOTIFIES THE THREE GOVERNMENTS THAT THE SWISS FEDERAL COUNCIL HAS TAKEN COGNIZAN- CE OF THEIR DECLARATION OF SEPT 25 CONCERNING THEIR INTENTIONS ON MONETARY POLICY AND ADDING THAT IT APPROVES IN GENERAL THE PRINCIPLES CONTAINED IN THE CONVENTION - THE COUNCIL ADDS THAT IT IS CARRYING ON NEGOTIATIONS ALREADY ANNOUNCED WHICH ARE AIMED AT BRINGING ABOUT IN COOPERATION WITH THE OTHER STATES ADHERENCE BY SWITZERLAND TO THE THREE-POWER CONVENTION ON GOLD MOVEMENTS A - - LONDON - UNITED PRESS - November 23, 1936. 147 Holland Joins agreement WCNS19 LONDON.--THE EXCHANGE TELEGRAPH REPORTED FROM AMSTERDAM TODAY THAT THE NETHERLANDS HAD JOINED THE BRITESH-FRENCH-AMERICAN MONETARY AGREEMENT. 11/23--B931A AMSTERDAM DOW JONES - November 23, 1956. 148 9.35 DUTCH JOIN TRI-PARTITE AGREEMENT AMSTERDAM- THE NETHERLANDS HAS JOINED THE TRI-PARTITE AGREEMENT- THE GOVERNMENT DECLARED THAT IN JOINING THE AGREEMENT PREPARA- TION WAS BEING MADE FOR ESTABLISHING TECHNICAL COOPERATION- NO MENTION WAS MADE OF ANY INTEN- NOV 23 1936 TION OF STABILIZING -0- 9:57 ADD DUTCH JOIN TRI-PARTITE AGREEMENT AMSTERDAM- THE GOLD AGREEMENT IS WITH GREAT BRITAIN FRANCE THE UNITED STATES AND SWITZERLAND NOV 23 1936 -0- 149 THE HAGUE - UNITED PRESS - November 23, 1938. WCNS45 THE HAGUE.--IT WAS OFFICIALLY ANNOUNCED TODAY THAT HOLLAND AGREES TO THE PRINCIPLE OF MONETARY COOPERATION WITH THE UNITED STATES, GREAT BRITAIN, AND FRANCE. 11/23--21054A Regraded 150 November 23, 1936. 4:47 p.m. Operator: Governor Harrison. H.M.Jr: Hello. 0: Go ahead. H.M.Jr: Hello George. H: Hello, Henry? H.M.Jr: Yes. H: Now the best that I can find in a short while H.M.Jr: Yes. H: is that there is nothing that you can specifically blame this on but both London and Paris were quite weak to-day H.M.Jr: Yes. H: due I suppose in no small part to the British difficulities with Spain and perhaps the new fears about war. H.M.Jr: Yes. H: That is usually translated over here. H.M.Jr: Yes. H: Whenever there's the war talk and whenever those markets are weak because of war. H.M.Jr: Yes. H: That may have started it. Also I did find, from one source, the report that there was considerable foreign selling to-day. H.M.Jr: I see. H: Now whether that was due to their own fears about war is for the same reason that made London and Paris weak. H.M.Jr: Yes. - 2 - 151 H: Or whether it was due in some part to the threat of a reduction of excess reserves I have no way of knowing. H.M.Jr: Yes. H: Still further than that there was - that might have accounted for the extra heavier selling in the last hour or two H.M.Jr: Yes. H: was the death of Van Swerigin H.M.Jr: .....which occurred around noon. I think the report came eut about noon H:M.Jr: Yes. H: .....which made many of the railroad issues of his stock weak. H.M.Jr: I see. H: And that already found an easy market. H.M.Jr: Yes. H: So that may have accentuated it. H.M.Jr: I see. H: But I think probably & combination of all those factors. H.M.Jr: I see. H: And I don't think there is anything myself to be concerned about. Furthermore, it was about time there was a shake-out. H.M.Jr: Yes. H: When you get enough reason to give them the opportunity to have a shake-out they usually get it. H.M.Jr: Weren't you pleased to see us step in on sterling and steady it? 152 - 3 - H: Oh yes, I think its the thing to do, you know. Oh yes. H.M.Jr: Well I - - my Press Conference lasted 35 minutes. I hope its all right. H: Well I hope its all right too and I'll be very interested in the papers now. H.M.Jr: The trouble is with these boys - you've got to go over, and over and over it. Several of them, of course, are damn smart and get it but the rest of them - its just spinach to them. H: Yes. H.M.Jr: And.... H: Weak spinach too. H.M.Jr: Yes - yes. Well - H: Its awfully hard to handle that sort of thing. H.M.Jr: Where - where - where the - you see you get down there reporters who only cover the financial dis- trict. H: Yes. H.M.Jr: We get general news reporters who just don't know anything about this thing. H: Do you get those? I suppose you do. H.M.Jr: Oh yes, I mean people for just general information H: Yes. H.M.Jr: ......and its all Greek to them. H: Yes. H.M.Jr: But I mean we only have really two or three trained men on a little detail - like the Wall Street Journal - they know it - they get it.... HE Yes. - 4 - 153 H.M.Jr: but the other boys don't. H: Well I - H.M.Jr: I - I - they - they all help each other out though. H: Yes, I think they do as a matter of fact. They get down in the Press Room and help one another. H.M.Jr: Yes, well thanks George. H: All right, Henry. Is that well now is that another - as close as I can et now. H.M.Jr: Oh I H: I'll try to get more tomorrow if you want H.M.Jr: Well - H: but I think its better for me not to nose in too hard. H.M.Jr: Oh I imagine by tomorrow. Let's leave it this way - if you get anything that's really significant give me a ring. H: All right, I shall. H.M.Jr: Thank you. H: All right. Regraded Uclassified 154 November 24, 1936. 9:15 a.m. Operator: Go ahead. H.M.Jr: Hello. Cochran: Hello. H.M.Jr: Good morning. C: Good morning Mr. Morgenthau. H.M.Jr: Well everything went all right on this side. C: Good - well it did over here too. H.M.Jr: I see. C: The releases appeared in proper form in the French papers this morning and in the London papers. H.M.Jr: They did. C: Then the Financial Times, which I have before me, has a two column head-line, "Six Power Monetary Accord". H.M.Jr: I see. C: And in the Financial News the observation was made that this was a natural step and they didn't see why Holland hadn't made it before. H.M.Jr: I see. C: That the smaller countries had quite a bit to gain from such facilities. H.M.Jr: Ah-ha. C: And there has not been a great amount of wires from the United States yet. H.M.Jr: There has not what? C: There - there was a fair amount of cables from the United States. H.M.Jr: Yes. Regraded Uclassifie 155 - 2 - C: But most of it, of course, was available locally H.M.Jr: Yes. C: in these communiques. Of course they published in full your communique. H.M.Jr: They did. C: Which I had given them. H.M.Jr: Yes. C: The British communique was very good. H.M.Jr: I see. C: It was along the lines of that which I transmitted some days ago H.M.Jr: Yes. C: .....but amplified some more. H.M.Jr: Well the American papers didn't carry that and they didn't carry the French. C: They didn't carry it. H.M.Jr: No. I guess yesterday was too late most likely for them to get it. C: I see. H.M.Jr: The papers carried it but they didn't play it up as much as they did the first time we made an agreement. C: Well no no - they didn't in Paris. H.M.Jr: Oh. C: But one French paper, the Argonne Press, says, "That the technical collaboration extended to a more center to limit the fluctuation and at the same time it facilitates the National Trade Relations which the world recovery is now giving rise to". Regraded Uclassified - 3 - 156 H.M.Jr: Yes. C: But I mean there - there's not much discussion or comments so far. H.M.Jr: Well now I don't understand yesterday why they sold so many of our stocks, see? None of our papers have got a correct explanation, see? Hello. C: Yes. H.M.Jr: You know we get a report every night of where the selling comes from, see? Hello. C: Yes. H.M.Jr: And confidentially the selling yesterday of American stocks came from the Netherlands and Switzerland. C: The selling of American stocks? H.M.Jr: Of stocks came from the Netherlands and Switzerland. C: Yes. H.M.Jr: And not from Great Britain. C: I see. H.M.Jr: Now - ah - I don't understand it - hello. C: Yes. H.M.Jr: Have you any explanation? C: No. When I was up in the Netherlands and was talking to Trippabout this arrangement ....... H.M.Jr: Yes. C: ......he said, "well it interests me right now just because I've been selling some dollars - (corrected himself to) - ah buying some dollars". H.M.Jr: I see. C: And I said, "well you'd like to convert those to gold". H.M.Jr: Yes. Regraded Uclassified C: He said, "I've already at London". H.M.Jr: Yes. C: (Still quoting Tripp) "But would prefer to buy directly in the States". H.M.Jr: I see. C: And I asked him about American securities. H.M.Jr: Yes. C: He said that people had been holding onto American securities and had not been capital invested on the American market. He said that H.M.Jr: Now look while I'm waiting. I - - is Mr. Bullitt around anywhere? C: No - I'm at the house, you see, now? H.M.Jr: Oh you're at the house. C: Yes. H.M.Jr: All right well some other time I'll say - I'll speak to him. I just wanted to say hello to him - that's all. C: Yes. No I'm at the house now. H.M.Jr: All right. C: And may I explain - oh this morning the franc opened better here. H.M.Jr: It did. C: It was pretty weak yesterday because of so many rumors of broken international relations ******** H.M.Jr: Yes. C: Germany and Russia and because of 8 submarine scare and so on. H.M.Jr: Yes. Regraded-Uclassified - 5 - 158 C: But to-day it's considerably stronger both against the dollar and sterling. H.M.Jr: Good. C: And I talked to Governor R ygg for two hours this morning H.M.Jr: Yes. C: of the Bank of Sweden H.M.Jr: Yes. C: and he explained to me that on October 24th H.M.Jr: Yes. C: four of the Scandinavian Central Bank Governors at Basle each week. H.M.Jr: Hello. C: Hello. H.M.Jr: Go ahead. I didn't get that. C: Had one of their periodic meetings at Oslo. H.M.Jr: Who met? C: The Central the Governors of the Central Banks. H.M.Jr: But what countries? C: Sweden, Norway, Denmark and Finland. H.M.Jr: Yes. C: They met at the Norwegian capital. H.M.Jr: Yes. C: On October 24th. H.M.Jr: Where did they meet? C: At Oslo. H.M.Jr: Oh yes. Regraded Uclassified - 6 - 159 C: That's the capital of Norway. H.M.Jr: Yes, I know that. C: Yes (laughs) all right. H.M.Jr: (Laughs) C: Met there at one of there periodic meetings. H.M.Jr: Yes. C: Usually meet once a year H.M.Jr: Yes. C: and they discussed the stabilization and devaluation of France, of course, and the statement of October 13th. H.M.Jr: Yes. C: And the others delegated Roueff, the man who was here this morning, to look into the matter and to report to them up at Helsingfors where they are journeying and 0;0: Three minutes. H.M.Jr: Go ahead. C: Hello. H.M.Jr: You'd better repeat. C: To report back to them H.M.Jr: Yes. C: at Helsingfors, Finland H.M.Jr: Yes. C: on December 12th. H.M.Jr: I see. C: On that date they're having the 125th anniversary ..... H.M.Jr: Yes. Regraded Uclassified - 8 - 160 C: of the founding of the Bank of Finland H.M.Jr: Oh yes. C: and so they're all going to be there but not under the guise of a meeting of themselves but not to attend the affair. H.M.Jr: I see. C: And I explained to him the different statements which were being made to-day H.M.Jr: Yes. C: and he said that, of course, they had been interested in getting gold but he said they were already getting gold in London. H.M.Jr: Right. C: And I said, "but just on the open market though". H.M.Jr: Yes. C: And he said, "No, the Bank of England will get us gold no matter whether there is any on the market or not". H.M.Jr: I see. C: You see they're really getting facilities without any arrangements. H.M.Jr: I know. C: And.... H.M.Jr: Well that's not very nice. It's not very gentlemanly, is it? C: Well it's just a point I'm making that they're doing that to those - certainly to those sterling bloc countries. H.M.Jr: Yes. Regraded Uclassified 161 - 9 - C: And I said, "You ought to get into this like the Netherlands do - the gold". H.M.Jr: Yes. C: And he said - well he said that he wouldn't say anything yet as to a decision but that he thought the four countries would probably have to stand together. H.M.Jr: Yes. C: And support Scandinavia. H.M.Jr: Yes. C: And his bank and the Finish Bank are state-owned. H.M.Jr: Yes. C: State-owned they're all in stocks so I think the arrangement of the declaration would be satisfactory there. H.M.Jr: Yes. C: There might be a little difficulty with Norway which is a privately owned bank H.M.Jr: Ah-ha. C: But the big trouble comes with Denmark where they have exchange control. H.M.Jr: I see. C: So then Denmark probably couldn't be eligible at all. H.M.Jr: Ah-ha. C: So whether any of the others would come in would then be a question. But he said not to consider anything settled H.M.Jr: Yes. C: He will report to them on the 12th of December. H.M.Jr: Yes. Regraded Uclassified 162 - 10 - C: And I said, "well could you take action sooner if you decide". H.M.Jr: Yes. C: He said, "No there won't be any action taken until early in the year. H.M.Jr: Yes. C: They're all busy with their budgets. H.M.Jr: I sees H:M.Jr: Well you're sending me a cable on that. C: I'll send - I'll confirm it by cable this afternoon. H.M.Jr: Good. Well this would be a good time, if you wanted to take a week off right now. C: Oh no. H.M.Jr: What? C: What's that? H.M.Jr: Do you want to take any time off right now? C: But not unless it's for you because the point is this. I talked to Baumgartner yesterday H.M.Jr: Yes. C: when I was talking about the arrangements and I said, "when is going to be quiet time in - in France"? And I said, "Now or in January"? H.M.Jr: Yes. C: And he said, "The difficulty, 1f any, will come here the last week in the year - that's when their budget would probably be ". H.M.Jr: Ah-ha. Regraded Uclassified - 11 - 163 C: And I said, "Well I'm thinking of getting away - probably - I'm not sure". I said, "Would you recommend now or in January?" H.M.Jr: Yes. C: And he said, "Well it's safer now than January". H.M.Jr: Yes. C: Outside of that I didn't mention any more H.M.Jr: I meant if you wanted to take a week's vacation right now. I think you need the - supposing I tell you so that you won't have to charge it up to your leave. Just supposing I order you somewhere? C: Oh no there's no use in that - I'd rather stay here and be on the job than take a vacation now. H.M.Jr: I see, C: My only point was did you mention about my coming home. H.M.Jr: Yes, well that can wait. We'll see. But I mean I think you ought to come back and recharge your batteries and get a little American air. C: Now my point is that's entirely up to you to decide whether you want me to come. H.M.Jr: Well you look up the steamers and see what sails early in January. C: Yes. H.M.Jr: And you might even make a reservation, you see? C: Yes. H.M.Jr: Not so many steamers sail now. Hello C: Hello. H.M.Jr: I say you might make a reservation early in January. C: I see. Then you'd rather put it off till then? H.M.Jr: Yes - until the French Regraded Uclassifie 164 - 12 - C: I can get one easily whenever you say in the wintertime. H.M.Jr: All right. Well then let's just keep it in abeyance. C: Yes. H.M.Jr: The other thing - how worried are you right now on the Spanish thing? C: It doesn't look very good but I still don't think any international troubles are coming. H.M.Jr: Do you feel fairly stronglyabout? C: Well I shouldn't be too strong when - when - with so much going on. H.M.Jr: Yes. C: But I still think nothing is going to happen. I still think Franco won't be foolish enough to hurt any British ships. H.M.Jr: Ah-ha. C: Or French either. H.M.Jr: All right. C: Now that's my honest feeling. H.M.Jr: Well fine - I'm very much pleased and now we can all take a deep breath for a couple of days. C: All right - fine - I'll wire this in this afternoon then. H.M.Jr: All right. C: About Scandinavia. H.M.Jr: Thank you. C: Goodbye. H.M.Jr: Goodbye. Regraded Uclassified 165 November 24, 1936. 10:15 a.m. Gordon Rentschler: Hello Mr. Secretary. How are you? H.M.Jr: Oh I'm fine and you? R: Oh fine thanks. H.M.Jr: Look I'd like to have a little talk with you at a time that's mutually convenient. R: Yes what would suit you - what time would suit you? H.M.Jr: Well here's the thing. I'm going up to the farm tomorrow afternoon. R: Yes. H.M.Jr: At Fishkill. And I'll be there till Sunday. R: Yes. H.M.Jr: You - I don't know - I mean are you going away over R: No I'm going to be - I'll be here over the holiday. H.M.Jr: Well I mean would either - I could - Friday or Saturday R: Either Friday or Saturday would suit and I could come wherever you're going to be if - whatever is convenient to you. H.M.Jr: Well it might be as convenient there as it would be to - ah - come down to Washington. R: Yes. Just whatever suits your convenience H.M.Jr: Well - ah R: I'll be delighted to do. H.M.Jr: Well here's - you could - supposing you look this up, you see? I mean I don't - you could either drive or take a train, you see? R: Yes. 166 - 2 - H.M.Jr: Whichever you preferred - it's about the same time. R: Why yes - ah... H.M.Jr: I mean you could have your secretary look it up. R: Yes I'll motor - why don't I do this? Why don't I motor over to your - to the farm either on Friday or Saturday whichever suits you the better. H.M.Jr: Well I was going to suggest if you come up - say if you wanted to come up here Friday a fternoon you could have supper with us and then go back. We could have supper at 7 o'clock and go back right after or you could - or - or Saturday - either one - I've made no dates. R: Well..... H.M.Jr: Which would R: it does make a particle. Saturday would be a little more convenient to me than Friday r eally. H.M.Jr: All right. Would you - would Saturday a fternoon. R: Saturday afternoon? Fine. H.M.Jr: Well I mean would you - ah - would you rather come say at 4 o'clock and then spend a little time and then go back or would you rather come later? R: Well suppose I drop over about 4 o'clock Saturday afternoon. H.M.Jr: All right and then we can have a talk. R: Yes, fine that would suit me just right. H.M.Jr: Now I'll tell you the best way. You know there's this new East - they call it Eastern Motor Parkway, which is an extension of Bronx River? R: Yes. H.M.Jr: Now that's finished - hello. R: Yes. 167 - 3 - H.M.Jr: And you get on that parkway and go to the end of it and then you come to what they call State Highway No. 52. Yes, I know that road. H.M.Jr: And you turn left. R: Yes. H.M.Jr: And you come to the Village - Wiccopee Village. R: Yes. H.M.Jr: And at the Wiccopee store you'd better inquire - we're about a mile from the Wiccopee store on a dirt road. R: Fine, well I'll come right to the village. I think I know exactly where it is. H.M.Jr: Well you go up on the new extension of Bronx River to route - State Highway 52 - R: Yes. H.M.Jr: Turn left to the little village of Wiccopee. R: Yes. H.M.Jr: And at the store you inquire. R: Fine and I'll motor up Saturday afternoon. H.M.Jr: And then we could have a little talk. I - I'd like to go over the general situation as well as the bond market. R: Yes, very good. I'd rather do that than come down to Washington. H.M.Jr: Good. R: All right. It'll be very nice to see you. H.M.Jr: Say listen. R: Yes. 168 - 4 - H.M.Jr: What do you mean by buying our whole bill issue and not leaving any for anybody else? R: Well we wanted them this time. Do you mind letting us have them? H.M.Jr: (Laughter) No, I was very much amused. R: (Laughter) We'd rather have you give us a better rate though fellow. H.M.Jr: Well listen, you write the ticket. R: I know it. We write the ticket. H.M.Jr: All I do is to print them. R: Well you keep on printing them but let's try to get that rate up a bit. H.M.Jr: (Laughter) All right with me. R: All right, fine. H.M.Jr: All right. Saturday at 4 o'clock at my farm. R: All right, fine. H.M.Jr: Thank you. R: Bye-bye. H.M.Jr: Goodbye. 169 11g Memorandum of a Conference of Secretary Morgenthau with Aubrey Williams, Acting Administrator of W. P. A., and Mr. Roes, his Chief Finance Officer, Mr. Bell and Mr. McReynolds in the Secretary's Office at 10:30 a.m., November 24, 1936. The Secretary stated that in a conference with the President and Mr. Hopkins on November 15th, Mr. Hopkins stated that 250,000 drought farmers would be dropped from the rolls and 125,000 of them would need relief. Mr. Williams stated that 250,000 drought farmers are to be dropped, but that the relief cases will be individually studied and he did not know exactly how many would have to be furnished relief. Mr. Bell stated that the Tugwell organization had already been furnished $12,000,000 from the amount previously reserved for them to take care of those cases. Secretary talking: It was also stated that prior to December 15, 25,000 employees are to be dropped - consisting of administrative employees, foremen and supervisors who were not taken from relief rolls. Mr. Williams: Yes. The Secretary: In starting December 16th, you will save $25,000,000 a month through these changes? Mr. Williams: The full effect of that saving will not be felt until about the middle of January. Uclas 170 - 2 - # The Secretary: Mr. Hopkins stated that & new formula is to be established to be effective January 1st, reducing the cost per man per month to $50, and that the formula would be ready in 24 hours. Mr. Williams: We have worked out arrangements and will start January let. The Secretary: You will tell us what the formula 1s? Mr. Williams: Yes. The Secretary: It was stated that 85% of the unemployed is in a hundred cities. Mr. Williams: That is right. The Secretary: There was an agreement between the President and Mr. Hopkins that the only Federal payment after January let would be wages and that would be $50 per month per man; the material costs of any project to be taken care of by the locality. Mr. Williams: We had a meeting here of state directors and & plan was worked out for a money quota as well as a man quota to be given to the states which I think is one of the things you wanted. That quota was fixed at $126,000,000 for the state projects not including the costs of administration. This does not include the Federal agencies. The quota, including W.P.A. administration, is $136,000,000. The Secretary: One of the reasons I asked you to come here is that I feel you are in an impossible position. I was dumb- founded when I heard Harry was away. I was going to point out to him 171 III - 3 - that the earliest he can expect new money is February lst. I wondered whether you people realized that. What arrangement can you make so that your money will last until February lst? Mr. Williams: We have estimated that we can go into January with approximately $75,000,000. That $75,000,000 would carry us through the month of January on the basis of an expenditure of $136,000,000 over-all for W.P.A. Based upon that, Mr. Hopkins is telling each state that this is all the money they can have and they will have to employ as many men as they can. The Secretary: Let me ask you this: Have you got the $136,000,000? Mr. Williams: No. - - - - After some discussion of the details of the availability of funds, and the possible shifting of cushions now provided for operating convenience, the Secretary asked Mr. Williams to have his Finance Section restate their financial picture and come back the following day for another conference. The Secretary also asked Mr. Williams to bring with him copy of the letter signed by Mr. Hopkins establishing both money and man quotas in the states and showing amount allotted to each state. 172 WORKS PROGRESS ADMINISTRATION HE WALKER-JOHNSON BUILDING 1734 NEW YORK AVENUE NW. HARRY L. HOPKINS WASHINGTON, D.C. ADMINISTRATOR November 24, 1936 To: Honorable Henry Morgenthau, Jr. Secretary of the Treasury From: Emerson Ross ER Attached are copies of the statements left with Mr. Bell which I am sending to you for your files, at your request. 22 173 Approximate Time Limit of Operations Under Present Tends Agriculture Agricultural Commonics February 1 Animal Industry February 1 Geological Survey February 1 Extenology and Plant Quarantine February 15 Forest Service March 15 Illeno Economics My 1 Compres Consue Buream March 1 Interior National Park Service 1 1 Office ef Education June 1 Department of laber Labor Statistics Jumery 15 Department of Navy Bureau of Tards and Deeks Junuary 10 Treasury Internal Revenue February 1 Public Health Service Junuary 15 Department Carps of Engineers June 30 Quartermaster Corps March 1 Resettlement Administration Land Utilization February 1 Regraded Uclassified 174 III Nevember n - ANALYSIS of ". P. & (Allecation figures based $ Barces of the Salget report as of Invonter 10, 1996 - - baced a Conniecience of Accounts and Expecite Statement as of October si, 1995.) SUNNARY (Line References Used Marein Refer to Detailed Statement Attached) Alleentions to was through November 20, 1936 (Line 3) 1,093,544,965 Encumbered to October 31, 1926 (Line 6) 720.977.194 Unebligated Allecations (Line 7) 343,466,001 Funds net Available for Imediate Insurance (Line 19) 99,000,000 Net Balance Available for - brazes w RPA (Line 10) (As of October n. 1936) 264,466,681 Requirements for November (Line 20) 160,000,000 Requirements for December (Line 21) 160,000,000 Total Requirements to Decem- ber a. 1936 (Line 24) 310,000,000 Total Tends Receverable (Lane 24) 26,000,000 The Requirements to December as (Line 25) 200,000.000 Additional Allocations Required (Line 28) $0,523,119 Twice Available in the Act (Line 22 67,627,996 as Insts of above was will @ into Jamery without up funds for advance enountraze M required w Treasury Regulation 20. 1. approved w the President. Consequently is order to pay the chligations insurred in it will be accessary (1) to - all proviously ostablished advence a (a) to - the peels (8) to whenet working balances is wa district allotment accounts. This name that shortly after howy 1. projects will start shotting date due to lack of funds is appropriations where needed and in- obility to purchase materials. and that combine between Juniary 10 and - the yourse will protably - to a class. Regraded Uclassified 175 Page 1 I. (1) Allocations Reserved (Nov. no) $1,187,948,104 (8) Less Allocations to nea (3) Not Allocations to upa $1,000,544,000 (4) Recumbrance through cet. $1 764,148,065 (5) Less NYA Insurances 14,070,019 (6) Set UPA (7) Unobligated Alleentions - UPA II. Funds Allecated Available to Irrevesable aint (8) Total Allecated 42,000,000 (9) Rasumbrances through cot. a $17,000,000 (10) Estimated Insurancess Nov.1-30 6,000,000 (11) Total $5,000,000 (12) Balance Harmarked and Net Available $19,000,000 III. Funds Not Available Due to Treasury Accounting and Procurement Systems (Dae to segregation of funds into numerous Appropriation Accounts and approximately 5,000 Allotment Accounts and advance - brance of payrolls and material requisitions) (13) In Washington Peols for inter- appropriation transfers. (Nee- 0 30,000,000 essary to expedite trass- term between appropriations as requested by States - other- wise serious delays would be occasioned pending completion of transfers by Treasury Mar- rents). (14) Insurbrances is Transit w tween upa District Offices and Treasury State Accounts Office. 58,000,000 (15) working Belance is District Allotment Assounts. 50,000,000 ($20,000 in sock of 5,000 assomate - There being 10 appropriation accounts in with of ⑉ districts) (16) Total (17) Total of Unsbligated Alloss- tiese use Available (10) Net evailable Balance - was MMM 176 Page 2. IV. (10) Net Available Inlance M- warded free section III 264,466,861 (so) Notimated Incombrances Mr. 1-50 w $160,000,000 (21) Nationated Inscriments Des. 1-m w 180,000,000 (22) Total Requirements Oct. $310,000,000 n through Dec. n Reseverable from (23) 1935 Act Funds 15,000,000 (24) Federal Project Funds 10,000,000 $5,000,000 (25) Net Requirements 205,000,000 (26) Additional Alleentions Required to Operate to December an 20,533,119 V. (27) Funds Appropriated 1,435,000,000 Allocated (20) Ye wa 1,093,544,865 (29) 20 nea 33,501,200 (so) Other $50,326.990 (m) Total Alleentions 1,367,373,004 (as) Balance Available for Allocation (83) Balance 47,080,767 w Extimates based n reduction in employment n 400,000 verbers w January first (Line 22 and me). w Pigures secured from have of the Budget. (11/20/86) Regraded Iclassifie 177 SAMPLE OF LETTERS SENT TO STATE AIRINISTRATORS NOVEMBER 21, 1936 REGARDING EMPLOYMENT QUOTAS AND BUDGETS FOR STATE TPA PROGRAMS EXCLUSIVE OF FEDERAL PROJECTS I-VI, NYA, AND FEDERAL AGENCIES. CONFIDENTIAL Mr. Bankson T. Holcomb, Administrator State Works Progress Administration Water and West Streets Wilmington, Delaware Dear Mr. Holcomb: I am writing you at this time so that you may begin immediately to make the necessary adjustments in the program of the Works Progress Administration which are called for in the immediate future. In order to plan operations, it is necessary to asume that in January the Congress will make an appropriation to finance the Works Progress Administration until July 1, 1937.' The amount which the Congress will appropriate cannot, of course, be forecast, but it is clear that B. further substantial reduction in the expenditures of the Works Progress Administration will be necessary and can be made in the light of improving economic conditions. Consequently, it is necessary to restrict expendi- tures to a sum sufficient to cover the wage bill plus a smaller allowance for materials and other expenditures than has heretofore been available. The current review as to need, together with the re- duction of drought employment, will reduce total employment on Federal agency programs, State WPA projects, and Federal WPA projects. On state projects, excluding Federal arts and other Federal agency programs, you should plan to keep a maximum of persons at work throughout January, February and into March. After the first part of March, further reductions are to be anticipated in the number employed. The sum of will be released to you for encumbrances in January to employ not more than the above persons on your state projects. In making the necessary adjustments to this set of conditions, two primary obligations on your part must be kept constantly in mind. First, the relief situation must be met. In this connection, let me re-emphasize that it is highly important that your employment quota be equitably apportioned to the districts strictly on the basis of relative need for 178 - 2 $ employment. Second, the whole future of the WPA requires that the integrity of the projects must not be sacrificed. The program cannot be carried on with projects of doubtful value or those which are overloaded with labor, in order to reduce man-year costs. Projects must be executed with reasonable effi- ciency and at unit costs which are not excessive. This means, therefore, that immediate action must be taken to enter into negotiations with the state government, cities and other political subdivisions to secure from these sponsors a larger share of the total cost of the program, particularly in the form of materials and other non-labor costs. I firmly believe that this can and should be done, in view of the improved financial condition of municipalities and state govern- ments and the very extensive benefits end public improvements which they derive from UPA projects. To mrke the situation perfectly clear, I should like to repeat that we are going to have less Federal funds available than ever before and that the release of funds for your state projects for the month of January will be restricted to $ . In the meantime, we are facing a. difficult financial situation, pending the next session of Congress. Consequently, we shall not be able to release the full amount of funds which were contained in the November budget, and releases for December will be smaller than in recent months. This means that reduc- tions in employment resulting from the review must begin at once. Also, I should like to call your attention to the wire of November 18, sent to your Director of Finance and Statistics, to the effect that it is imperative that advance encumbrances be held to actual requirements; that a concerted drive be made to liquidate unnecessary encusbrances; and that material requirements be held to an absolute minimum. I realize that these adjustments give you a difficult assignment, but the most important job facing the Works Progress Administration is to make these necessary adjustments and at the same time to protect the workers who depend on the VPA, and to insure the integrity of the whole program of the Works Progress Administration. Sincerely yours, Harry L. Hopkins Administrator 179 Employment Quotas and Buigets.for. State. PA Programs, Inclusive of Federal Projects I-VI, NYA, and Federal Agencies Employment- January State Quota Budget Alabama 29,500 $ 1,160,000 Arizona 8,000 490,000 Arkansas 28,400 990,000 California 100,000 6,600,000 Colorado 24,500 1,460,000 Connecticut 17,300 1,240,000 Delaware 1,800 100,000 District of Columbia 5,400 330,000 Florida 24,400 1,030,000 Georgia 33,100 1,260,000 Idaho 7,000 410,000 Illinois 160,000 9,470,000 Indiana 64,600 3,930,000 Iowa 25,700 1,390,000 Kansas 41,500 1,800,000 Kentucky 50,000 1,720,000 Louisiana 32,500 1,420,000 Maine 7,700 440,000 Maryland 12,800 750,000 Massachusetts 90,000 6,300,000 Michigan 67,000 4,070,000 Minnesota 44,500 2,979,000 Mississippi 23,700 850,000 Missouri 85,000 4,210,000 Montana 9,500 540,000 Nebraska 18,700 1,030,000 Nevada 1,600 90,000 New Hempshire 7,700 450,000 New Jersey 70,000 5,060,000 New Mexico 8,500 420,000 New York State 90,000 5,910,000 New York City 172,000 14,570,000 North Carolina 27,500 940,000 North Dakota 19,800 900,000 Ohio 138,000 9,050,000 Oklahoma 50,000 1,750,000 Oregon 14,600 1,000,000 Pennsylvania 225,000 15,300,000 Rnode Island 11,700 690,000 South Carolina 23,200 920,000 South Dakota 21,900 950,000 Tennessee 31,500 1,140,000 Texas 75,000 2,820,000 Utah 8,500 520,000 Vermont 3,900 190,000 Virginia 23,000 860,000 Washington 30,000 1,990,000 West Virginia 40,000 1,930,000 Wisconsin 50,000 2,980,000 Wyoming 2,800 170,000 Total 2,168,800 $126,560,000 Regraded Uclassified AM 180 LMS GRAY Paris Dated November 24, 1936 Rec'd 2:41 p. m. Secretary of State, Washington. 1142, November 24, 5 P. m. FOR THE SECRETARY OF THE TREASURY FROM COCHRAN. Your statements to the press of Tuesday evening and the communiques of the French and British Treasuries have been carried in full in the French and British financial press today and in part or in summary in other French and British papers. FINANCIAL TIMES London carries a two- column headline "Six Power Monetary Accord". FINANCIAL NEWS remarks that the adherence of Switzerland and the Netherlands to the tripartite agreement was & natural step. AGENCE ECONOMIQUE ET FINANCIERE Baris considers that the Swiss and Dutch decisions affirm and extend the technical collaboration of the important exchange markets with the view to limiting fluctuations and thereby facil- itating the international commercial trade which the world business receovery is setting in motion. Paris exchange market understood that weakening of dollar on New York market Tuesday night resulted from foreign sales of American dollars and securities. While the Regraded Uclassified 181 LMS 2-No. 1142, November 24, 5 p. m., from Paris. the franc opened strong this morning in Paris, it has subsequently weakened against both the dollar and sterling, with the Bank of France now giving pounds at the rate heretofore held of 105.15 I am confidentially advised that the rise in the dollar rate here has resulted prin- cipally from the purchasing of dollars by Lazard for official Russian account. French rentes have made slight gains. International securities fairly well bid. Reference my 1140, November 23, 5 p. m., today's Journal Officiel confirms that Rueff is to succeed Baum- gartner (END SECTION ONE) BULLITT WSB NY1 182 PARAPHRASE OF SECTIONS TWO, THREE AND FOUR OF telegram No. 1142 of November 24, 1936, from Paris. I had a visit in Paris this forenoon from Governor Ivar Rooth of the Sveriges Riksbank (the Swedish Central Bank). Governor Rooth had been in London for a few days, and is going to Basel from Paris. He said that on 0c- tober 24 and 25 one of the periodic meetings of the Scandinavian Central Bank Governors had been held at Oslo, which was attended by the Governors from the Central Bank of Sweden, Norway, Denmark and Finland. At that time the central banks had discussed the American declaration of October 12 and the tripartite monetary agreement. When they had their meeting they were not ready to take any action, but they desire to obtain further information regarding the technical working of the reciprocal arrangements on gold. Therefore Governor Rooth, who twice a year visits the important European financial centers, was asked to investigate the matter for the Scandinavian group of banks. I pointed out to Governor Rooth the various declara- tions in this morning's London and Paris papers, and gave him the full background of them, with the exception of certain confidential information, regarding Belgium in particular. I was told by Governor Rooth that the four Scandinavian central banks are pledged one to the other not 183 - 2 - not to depreciate their respective ourrencies further with- out giving due notice to the others; they consult one another constantly, and their aim is to maintain common policies. On December 12 there will be celebrated at Helsingfors the 125th anniversary of the founding of the Bank of Finland. The ceremony will be attended by the central bank Governors mentioned above, who will take advantage of the occasion to have a. confidential meeting. At that meeting Governor Rooth will report his findings regarding the tripartite agreement and technical arrangements subsequent thereto. I was told by Gar ernor Rooth that he would let me know after December 14, and most likely before December 25, of the conclusions that may be reached at Helsingfors; he does not expect that any definite action in the premises will be taken by any one of the central banks before the first of the year, because throughout December the respective state budgets will keep most of them very busy. As for the possibility of adherence by any one of the Scandinavian countries, Governor Rooth did not appear to be very optimistic. He said that they usually all stand together, and that there would be cause for unhappiness if two or three of them might adhere to the tripartite deo- laration and the other one or two might not be eligible thereto. It would appear impossible for Denmark to pledge herself 184 - 3 - herself to give gold since that country has exchange control. Norway furthermore has no exchange equalization or stabiliza- tion fund and the central bank of Norway is a private corpora- tion. The Governments of Sweden and Finland own the stock of their respective central banks, and the Governments guarantee the acts of those banks. However, I should add that Governor Rooth is a firm exponent of central banks retaining what independence has been acquired by them. On several occasions during the past year Governor Rooth has informed me of his interest in carrying a certain part of his reserves in dollars, provided he had the facility for converting them into gold at his desire; however, he frankly stated that present circumstances do not make it urgent that such facilities be afforded him. The Bank of England, he informed me confidentially, 18 very accommodating in carrying out such gold operations as he may need. In other words, the Bank of England will sell gold for his account or buy for the account of the Riksbank such gold as the latter may order, even though at the time the quantities stipulated are not procurable on the London open market. Thus the Bank of England has been willing to yield gold to the central bank of Seden even though the two countries did not have an arrangement such as has now been consummated in the tripartite agreement, and with Belgium, the Netherlands and Switzerland. END MESSAGE. EA:LWW BULLITT.