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Volume 49, December 20 – December 31, 1936
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Volume 49, December 20 – December 31, 1936
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 49
December 20 - December 31, 1936
- A -
Book Page
Agriculture
See Commodity Credit Corporation
If Resettlement Administration
American Distilling Company
Conference between Graves and representatives of Company -
12/21/36
XLIX
181-183
Appointments and Resignations
Blair, John L. (President, New Process Company), considers
position with Treasury - - 12/28/36
302
Money, James - recommended by Guffey (Senator, Pennsylvania)
as Collector of Internal Revenue for Scranton district -
12/21/36
184-185
- B -
Blair, John L. (President, New Process Company)
See Appointments and Resignations
Budget
Message discussed by HMJr and FDR - 12/28/36
266-268
a) HMJr thinks Bell's proposed message has too many
figures
b) Parts of Eccles' memorandum considered
(See pages 269-292)
c) FDR finally asks HMJr to "fix it up"
d) HMJr, Bell, Edy, Gaston, and Upham work on message
1) They call on FDR and read HMJr's proposed
message
- C -
Commodity Credit Corporation
HMJr, Wallace, Tolley (Agriculture), Jesse Jones, Oliphant,
Bell, and McReynolds consider emergency legislation for
Wallace to control situation if, next Fall, there is big
crop and depressed prices, so that commodity loans can
be made - 12/31/36
373-377
a) HMJr discusses proposed meeting with O'Connor -
12/29/36
314
Coty's, Incorporated
Grover Whalen (a director) discusses tax case with HMJr -
12/21/36
201-203
(a) I I
Eccles, Marriner
See Budget
Regraded Uclassified
F
Book
Page
Financing, Government
Open Market Committee meets to discuss: 12/21/36
XLIX
106-114
1) Partnership of Open Market Committee and Treasury
in purchase of bonds to maintain 8 steady market
2) Contemplated action to sterilize future acquisitions
of gold
- G -
Gold
Sterilization of future acquisitions:
a) Discussion by Open Market Committee - 12/21/36
106-114
b) HMJr's public announcement - 12/21/36
115
1) Preliminary drafts
177-180
2) HMJr discusses with Captain Forster at
White House - 12/21/36, 3:40 P.M
199
c) Ticker comment on announcement
116
d) Statement for release Tuesday, 12/22/36, by Cochran
in Peris
117-118
e) Continuation of discussion of operations
(see Book XLVITI, pages 287-303) by Upham, Lochhead,
Opper, Gaston, Oliphant, Bell, Taylor, White, end
Hass, in HMJr's office - 12/21/36
119-151,158-
176,186-193
1) HMJr asks if all agree to:
a) Gold to be handled by Chase National Bank
and Guaranty Trust Company
b) Domestic gold to be handled through
General Fund
c) Gold that Stabilization Fund buys to be
handled as now
f) Press conference - 12/21/36
204-220
(Press release No. 9 - 20, page 221)
g) Taylor explains new procedure to Treasury attaches
and representatives of certain Legations - 12/22/36.
225-229
h) Eccles and HMJr discuss newspaper comment - 12/22/36.
231-232
1) Market reaction discussed with Burgess and Madison -
12/22/36
233-236
j) Memorandum of instructions to D. W. Bell, concerning -
12/23/36
242
k) Estimated receipts of gold by the Mints and Assay
Offices, monthly, 1934 to date - 12/24/36
243
1) Gold clause in 1928 series of Federal Reserve notes
is reviewed by Eccles for HMJr - 12/29/36
340
m) Bell asks HMJr what to do with $328.8 million of gold
on hend; HMJr recommends leaving it inactive in General
Fund - no more to go into Federal Reserve System -
12/28/36
304-305
n) Paul Mallon story discussed by HMJr, Fecles, and Upham
at luncheon - 12/29/36
331-338
1) HMJr-Mallon 'phone conversation on pages 312-313
Regraded Uclassified
- G - (Continued)
Book Page
Government Bond Market
HMJr discusses with Burgess - 12/21/36
XLIX 152-154
Memorandum: "Why is the Government bond market unsettled?"
12/24/36
245-261
Guffey, Joseph (Senator, Pennsylvania)
See Appointments and Resignations
- L -
LaGuardia, Fiorello (Mayor, New York City)
See North Beach Airport
- M -
Money, James
See Appointments and Resignations
- N -
North Beach Airport
HMJr discusses with LaGuardia - 12/28/36
262-265
- 0 -
Open Market Committee
See Financing, Government
- R -
Resettlement Administration
HMJr discusses, with FDR, question of not transferring
Resettlement Administration to Agriculture Department -
12/22/36
238
See Unemployment Relief for discussion of additional funds
needed from 2/1/37 to 6/30/37
306-311,
321-330
- S -
Social Security Act
HMJr asks Haas, on 12/23/36, for comprehensive analysis
to be ready 1/11/37
239
Regraded Uclassified
- S - (Continued)
Book Page
Speeches by HMr
At meeting of Federation of Brotherhoods of Temples
and Synagogues of Baltimore at Auditorium Theatre -
12/20/36:
a) See Book XLVII, pages 358-364: consults
Rabbi Steinberg
b) Actual speech
XLIX
1-11
c) Reading copy
13-36
d) Brief account of lives of the great men mentioned
in speech
37-41
e) Rabbi Steinberg's drafts
42-78
g) Geston's draft
79-105
Movietone for New Year's greeting - 12/23/36
240-241
Stabilization
(See Cochran resume September-December, 1936, Book XLIII)
Translation of official communique issued at close of
recent meeting of Governors of National Banks of Balkan
Entente, concerning "monetary accord which binds France,
Great Britain, and United States" - 12/22/36
222-224
Statement issued by Great Britain on the occasion of the
adherence of the Governments of Belgium, Netherlands,
and Switzerland to the principles stated in Tripartite
Declaration of 9/25/36
342-343
New Year cables to Netherlands, Switzerland, France,
England, and Belgium
361-372
Sugar
See Wallace memorandum on wheat and sugar - 12/30/36
358-360
- U -
Unemployment Relief
Conference with FDR concerning additional funds for Works
Progress Administration and Resettlement Administration
from 2/1/37 to 6/30/37; present: FDR, HMJr, Wallace,
Ickes, Hopkins, Tugwell, and Bell - 12/29/36
306-311
a) Further discussion in HMJr's office
321-330
Lonigan conference with Hopkins reported to HMJr - 12/30/36.
351-352
Conference with FDR; present: HMJr, Wallace, and Bell -
12/30/36 (Bell memorandum)
353-355
a) Wallace memorandum to FDR with respect to wheat and
sugar - - 12/30/36.
358-360
Lonigan tables showing unexpended balances 10/31/36, 11/30/36,
and 12/22/36; also funds available for use of Works Progress
Administration as of 12/10/36 included in unexpended
balances
378-382
Regraded Uclassified
- If -
Book Page
Wallace, Henry A. (Secretary of Agriculture)
Article on America's creditor position, prepared for
"London Telegraph," sent to HMJr for review -
12/28/36
XLIX 293-300
Memorandum to FDR on wheat and sugar - 12/30/36
358-360
Whalen, Grover
See Coty's, Incorporated
Wheat
HMJr asks Division of Research and Statistics for
memorandum on situation - 12/28/36
301,303
See Wallace memorandum on wheat and sugar - 12/30/36
358-360
Works Progress Administration
See Unemployment Relief for discussion of additional funds
from 2/1/37 to 6/30/37
306-311,
321-330
Regraded Uclassified
1
Address of Henry Morgenthau, Jr. before e.
meeting of the Federation of Brotherhoods of
the Temples and Synagogues of Baltimore at
the Auditorium Theatre, Baltimore, Sunday
December 20, 1936.
It is a strange characteristic of human nature
that men tend to appreciate least those things which
are closest to them. Just as familiarity with a
landscape is likely to blind us to its beauty, so
we are prone to be least understanding of those great
spiritual values of which we speak constantly, by
which ostensibly we live and to which avowedly we
give our highest devotion. It is not that we are
not sincere about our ideals; it is rather that we
have allowed ourselves in such cases to be dulled by
our familiarity.
Our understanding of our own American democracy
seems to me to be a perfect case in point. Here we
are, all of us, people either born or reared in the
American tradition. The signs of democratic govern-
ment and its outward manifestations surround us on
all sides. Its spirit moves through the very air
which we breathe. And yet I venture to say, but
few of us have taken the trouble to ask what this
democracy which we know so well really is in essence,
or what its ultimate objectives are.
Regraded Uclassified
2
- 2 -
Now, as never before, is it necessary for us to
shake ourselves from our placid acceptance and to re-
discover the soul of the society of which we are a
part. This need for a reawakoning is especially acute
at the present moment. For democracy today is under
violent and persistent attack. All through the nine-
teenth century, up to the end of the World lar, most
of us assumed serenely that democracy had won a
permanent place among the societies of men, that
lands which were democratic would remain so forever,
that lands which still had not evolved so enlightenod
a system of living would eventually but inevitably
attain it. And yet in 1936, there are any number of
lands which have rejected democracy without having
tried it, or which have experimented with it and then
pronounced it wanting. And even in countries possessed
of EL long sustained democratic tradition, thore are
those who insist that ours is not the best pattern for
social living. We who love the American tradition
are under a moral obligation to understand it more
clearly if W6 aro to be able to preserve it ugainst
the challenge from without and from within.
Regraded Uclassified
3
- 3 -
Upon all who love freedom there is imposed the
duty of a redadication to it. This duty is 05-
pecially present for members of minorities, religious
and cultural groups. For it is my firm conviction
that the welfare and the liberties of all minorities,
whether they be minorities of color, minorities of
faith, or minorities of culture, can be preserved
only by preserving the domocratic system.
The essence of domocracy, it seums to mo, can
be stated in one sentence. Democracy is that method
of organizing society which proceeds from the assump-
tion of the equality of all human beings and which
takes for its goal the providing to each individual
of an opportunity to attain to the fullnoss of life.
It is the human personality, each human personality,
which in a democracy is the end and purpose of the
machinory of government. For in the Amorican
system, the state is not an end in itsolf. It is an
instrument by which the ideal equalities of mon are
preserved and through which they seek collectively
to mako available to each other, lifo, liborty and the
pursuit of happiness.
Regraded Uclassified
- 4 -
It is no accident then, that democracy alone
of all systems of government insists upon civil
libertics for the individual. For unloss each
person enjoys freedom of speech, press, and con-
science, he cannot attain to the fullness of life,
and it ás a full life for the individual to which
democracy is dedicated. It is no accidont eithor
that domocracy had historically pionecred in state-
maintained institutions for popular education. A
Government which is devoted to onhancing the life of
the individual must endeavor to make available to
him those cultural riches which will enable him to
reach his full human stature. It is no accident
that our own democracy in recent years has moved
forward in the effort to guarantee economic security
to its citizens. For without the spiritual nase
which only oconomic safety can accord to the individ-
unl, the individual is provented from realizing his
best potentialities. This is democracy in a nutsholl,
a pattern of living which preserves basic liberty for
all of us and which, fixing the individual as its
goal, seeks to enable him to find his own solf-
fulfillment wherever his hoart and conscience dictato.
Regraded Uclassified
5
- 5 -
In the light of this description it is not hard
to see why WC owe to democracy the full measure of
our dovotion. An enlightened self-interest, as well
as tho highost ideals of human living, would domand
that we give our intelligence and our strength to that
system of government which prosorvos basic human rights
for all of us and which strives to make available
opportunities for a complete life to ench of us,
The domocratic system is the one system which is
able to maintain and safoguard the rights and the
libertios of the individual evon in timo of soverest
stress. Amorica has but recently gone through a trial
of fire and starvation during which our democratic
system wns strained as rarely bofore in its caroor.
Our government met the crisis, not by restricting
liberty, but by onlarging it. Froodom of spooch, pross
and conscience continuod to be tho rule in Amorica. It
is n rulo that even horo is occasionally violnted, but
the conscience of Amorica and tho tempor of Amoricans
is making progress in conquoring intolorance. We have
continued to oncourago minority groups to maintain their
special religious and cultural interests. This is the
proof of domocracy. In the worst crisis of modorn
timos, it and it alone, has proserved individual
and group froodom.
Regraded Uclassified
6
- 6 -
But more than that, out of this crisis has
come a great good. We have learned that political
freedom is not enough without economic security.
We have discovered that prejudice against minority
groups is intensified during periods of economic
constriction. We have set our hand to making
impossible in the future what has happened in the
past, an economic collapse. We have, therefore,
in effect, set out to enlarge the liberties of the
individual and to protect still further the rights
of minority groups.
I have spoken of the protection of the rights
of minority groups under American democracy. To be
sure, there is one factor which all of us must bear in
mind. Underlying the rights of minority groups are
certain basic obligations. It goes without saying
that it is expected of members of minorities as of
all Americans that they shall give their primary
political and social loyalties to the American
community, that they shall participate in the
Regraded Uclassified
7
- 7 -
cultural life of our people. When I speak of
minorities, I do not envisage self-contained
vacuum sealed groups that feel that they have no
share in our common destiny. But granted this
basic community's interest in political and social,
life and in cultural enterprises, each minority
has a full right under our way of living to pursue
the additional religious or cultural objectives to
which it is devoted.
Thus far I have examined with you but one side
of the case. I have spoken of what democracy does
for the individual and the group. But the rela-
tionship is by no means one-sided. The process
which I have described is not in one direction.
It is rather reciprocal. Because democracy gives
mbundantly, it receives richly. It has always
seemed to me that only a democracy can enlist the
loyalty and love of human beings. Only in lands
like America where the individual knows that it is
his government which has made it possible for him
to be free in mind and action, only under systems
such as ours where each minority group knows that
Regraded Uclassified
8
8 I I
the state is a friend and servant of itself, only
under such circumstances does the government win
from its citizens a long sustained gratitude and
devotion.
America is thus repaid by its own citizens
for its devotion to their liberties. And there
are other compensations as rich, as deep and as
full of meaning. Centuries ago the great law-
giver, Moses, insisted that it was not by bread
alone that man lives. We, too, as Americans are
interested in more than material things. If we
love our country truly, we want more than political
stability for its government, economic security for
its citizens and personal liberties for each other
as individuals. We want America to be the seat of
a rich and variegated culture. We should like
America to produce great music, art, and literature.
We should like our civilization to take its place
with those which all through history have sustained
rich spiritual traditions and have transmitted them
enlarged to generations to come. We who are con-
cerned with American cultural life know that democ-
racy is its friend. Only in a society in which
Regraded Uclassified
9
- 9 -
the individual is free can he express his individual
personality in creative contributions to our common
culture. But, it is here empecially that minority
groups have their special place. American tolerance
is no sterile and unproductive attitude. From each
group to which our society gives freedom, come gifts
to our total life.
America has been no mere melting pot, reducing
all to an average. It has been more truly a fertile
fiold upon which the precious seeds of many cultures
have been sown to grow sturdily, to blossom and bear fruit.
Those who came, often to excape restriction and even
persecution, have brought treasures with them.
We are richer for having shared in the aspirations
and the beautios of many religions; our literature has
boon invigorated by contributions that trace inheritance
to many old-world treasuries of learning; our character
has been moulded by the centurios of experience of a
score of other lands. Men from many lands have had the
opportunity to embroider upon the texture of our basic
Anglo-Saxon civilization and to give additional color
and variety to its design.
To, too, the American Jows, have our contribution
which we are making together with kindred groups.
Through us there moves into the common treasury of
American life the song and the art, the belief and
Regraded Uclassified
10
- 10 -
the morality, the poetry and the literature of
our four thousand year old tradition. It is no
little thing that we bring to America, the atti-
tudos of an Amos, the dream of an Isaiah, the
gentle humanity of a Hillel, the philosophy of a
Maimonides. Centuries ago an epigram was struck
off which has been preserved to us both in the
new Testament and in the Talmud. That epigram
had it, "As one measures out to others, so it
shall be measured to him." America grants freedom,
and in return to its altars, individuals and groups
alike carry the most precious expressions of their
spirits.
As I 800 it, there are two conclusions to be
drawn for us as American Jows from this discussion.
The first of these is so obvious as to be E truism;
namely, our duty to American democracy. I am not
saying to you that we should be loyal to American
ideals mercly because we are Jews. There are ten
thousand reasons for love and devotion to America
and its democratic tradition which have nothing to
do specifically with the fact that WC are Jews. But
Regraded Uclassified
11
- 11 -
lot no one make any mistake. It is only in a
democracy that we and other minority groups can
confidently expect the privilege of pursuing freely
our special group ideals.
And the second conclusion is this: we serve
America best not by abandoning our Jewish tradition
but by maintaining it. For if my reasoning is
valid, America realizes its purpose to the full
when the individual avails himself of his liberties
in order to find solf-fulfillment. What is more,
each minority group through its unique contributions
serves to enrich the whole of American life. There
are a host of reasons why a Jew should seek to pre-
serve Judaism, but when all the reasons have been
enumerated not the least among them is this, that
through loyalty to Judaism, the Jew can best serve
himself, his group, America and all mankind.
Regraded Uclassified
12
JOINT
BROTHERHOOD
MEETING
eð
AUDITORIUM THEATRE
DECEMBER 20, 1936
8:15 P. M.
PROGRAM
HARRY KAIRYS, Presiding
Music
UNDER DIRECTION HUGO WEISGAL
BEETHOVEN:
-
-
-
Hymn to Night
MENDELSSOHN;
+
-
-
For Ever Blessed
MOUSSORGSKY:
-
,
-
"Prayer" from Boris Godounov
Presenting the Speaker
JUDGE ELI FRANK
Address
"Religion in Citizenship"
HON. HENRY MORGENTHAU, Jt.
SECRETARY OF THE TREASURY OF THE UNITED STATES
Music
VAGNER:
-
,
"Sailors' Chorus" from Flying Dutchman
OVY: -
-
,
Hallelujah - Psalm 150
THIS MEETING IS SPONSORED
JOINTLY BY THE BROTHERHOODS
OF THE FOLLOWING SYNAGOGUES:
Agudas Achim
Baltimore Hebrew
Beth Tfiloh
Beth Yehudah
Chizuk Amuno
Chofetz Chaim
Har Sinai
Har Zion
Lubawitz Nusach Ari
Moses Montefiore
Oheb Shalom
Ohr Knesseth Israel
Petach Tikvoh
Shaarei Tfiloh
Shaarei Zion
Shearith Israel
13
DEMOCRACY AND MINORITIES
It is a strange characteristic of human nature
that men tend to appreciate least those things which
are closest to them. Just as familiarity with a
landscape 18 likely to blind us to its beauty, 80
we are prone to be least understanding of those great
spiritual values of which we speak constantly, by
which ostensibly we live and to which avowedly we
give our highest devotion. It is not that we are
not sincere about our ideals; it 1s rather that we
have allowed ourselves in such cases to be dulled
by our familiarity.
Regraded Uclassif
14
-2-
Our understanding of our own American democracy
seems to me to be a perfect case in point. Here we
are, all of us, people either born or reared in the
American tradition. The signs of democratic govern-
ment and its outward manifestations surround us on
all sides. Its spirit moves through the very air
which we breathe. And yet I venture to say, but
few of us have taken the trouble to ask what this
democracy which we know 80 well really 18 in essence,
or what its ultimate objectives are.
Regraded Uclassi
15
-3-
Now, as never before, is it necessary for us
to shake ourselves from our placid acceptance and
to rediscover the soul of the society of which we
are a part. This need for a reawakening 18 es-
pecially acute at the present moment. For democ-
racy today is under violent and persistent attack.
All through the nineteenth century, up to the end
of the World War, most of us assumed serenely that
democracy had won a permanent place among the
societies of men, that lands which were democratic
would remain 80 forever, that lands which still had
not evolved so enlightened a system of living would
eventually but inevitably attain it.
16
-4-
And yet in 1936, there are any number of lands
which have rejected democracy without having tried
it, or which have experimented with it and then
pronounced it wanting. And even in countries
possessed of a long sustained democratic tradition,
there are those who insist that ours 18 not the
best pattern for social living. We who love the
American tradition are under a moral obligation
to understand it more clearly if we are to be able
to preserve it against the challenge from without
and from within.
17
-5-
Upon all who love freedom there is imposed
the duty of a rededication to it. This duty is
especially present for members of minorities,
religious and cultural groups. For it is my
firm conviction that the welfare and the liberties
of all minorities, whether they be minorities of
color, minorities of faith, or minorities of
culture, can be preserved only by preserving the
democratic system.
Regraded Uclassified
18
-6-
Pause
The essence of democracy, it seems to me, can
be stated in one sentence. Democracy is that
method of organizing society which proceeds from
the assumption of the equality of all human beings
and which takes for its goal the providing to each
individual of an opportunity to attain to the
fullness of life. It 1s the human personality,
each human personality, which in a democracy is
/
the end and purpose of the machinery of government.
/
For in the American system, the state 18 not an end
in itself. It 1s an instrument by which the ideal
equalities of men are preserved and through which
they seek collectively to make available to each
other, life, liberty and the pursuit of happiness.
Regraded Uclassified
19
-7-
It is no accident then, that democracy alone
of all systems of government insists upon civil
liberties for the individual. For unless each
person enjoys freedom of speech, press, and
conscience, he cannot attain to the fullness of
life, and it 18 a full life for the individual to
which democracy is dedicated. It is no accident
either that democracy had historically pioneered
in state-maintained institutions for popular
education. A government which 18 devoted to
enhancing the life of the individual must endeavor
to make available to him those cultural riches
which will enable him to reach his full human
stature.
Regraded Uclassified
20
-8-
It 18 no accident that our own democracy in
recent years has moved forward in the effort to
guarantee economic security to its citizens. For
without the spiritual ease which only economic
safety can accord to the individual, the individual
1s prevented from realizing his best potentialities.
This is democracy in a nutshell, a pattern of living
which preserves basic liberty for all of us and
which, fixing the individual as its goal, seeks
to enable him to find his own self-fulfillment
wherever his heart and conscience dictate.
Regraded Uclassified
21
-9-
In the light of this description it is not
hard to see why we owe to democracy the full
measure of our devotion. An enlightened
self-interest, as well as the highest ideals of
human living, would demand that we give our
intelligence and our strength to that system
of government which preserves basic human rights
for all of us and which strives to make available
opportunities for a complete life to each of us.
Regraded Uclassified
23
-11-
We have continued to encourage minority
groups to maintain their special religious and
cultural interests. This 18 the proof of
democracy. In the worst crisis of modern
times, it and it alone, has preserved individual
and group freedom.
24
-12-
But more than that, out of this crisis has
come a great good. We have learned that political
freedom is not enough without economic security.
We have discovered that prejudice against minority
groups is intensified during periods of economic
constriction. We have set our hand to making
impossible in the future what has happened in the
past, an economic collapse. We have, therefore,
in effect, set out to enlarge the liberties of the
individual and to protect still further the rights
of minority groups.
Regraded Uclassified
25
-13-
I have spoken of the protection of the rights
of minority groups under American democracy. To
be sure, there is one factor which all of us must
bear in mind. Underlying the rights of minority
groups are certain basic obligations. It goes
without saying that it is expected of members of
minorities as of all Americans that they shall
give their primary political and social loyalties
to the American community, that they shall participate
in the cultural life of our people.
Regraded Uclassified
26
-14-
When I speak of minorities, I do not envisage
self-contained vacuum sealed groups that feel that
they have no share in our common destiny. But
granted this basic community's interest in political
and social life and in cultural enterprises, each
minority has a full right under our way of living
to pursue the additional religious or cultural
objectives to which it is devoted.
27
-15-
Thus far I have examined with you but one
side of the case. I have spoken of what democracy
does for the individual and the group. But the
relationship is by no means one-sided. The
process which I have described 18 not in one
direction. It is rather reciprocal. Because
democracy gives abundantly, it receives richly.
It has always seemed to me that only a democracy
can enlist the loyalty and love of human beings.
Regraded Uclassified
28
-16-
Only in lands like America where the
individual knows that it is his government which
has made it possible for him to be free in mind
and action, only under systems such as ours
where each minority group knows that the state
is a friend and servant of itself, only under
such circumstances does the government win from
its citizens a long sustained gratitude and
devotion.
Regraded Uclassified
29
-17-
America 1s thus repaid by its own citizens
for its devotion to their liberties. And there
are other compensations as rich, as deep and as
full of meaning. Centuries ago the great law-giver,
Moses, insisted that it was not by bread alone that
man lives. We, too, as Americans are interested
/
in more than material things. If we love our
country truly, we want more than political stability
for its government, economic security for its
citizens and personal liberties for each other
as individuals. We want America to be the seat
of a rich and variegated culture.
Regraded Uclassified
30
-18-
We should like America to produce great music,
art and literature. We should like our civilization
to take its place with those which all through
history have sustained rich spiritual traditions
and have transmitted them enlarged to generations
to come. We who are concerned with American cultural
life know that democracy 18 its friend. Only in a
society in which the individual is free can he express
his individual personality in creative contributions
to our common culture. But, it 18 here especially
that minority groups have their special place.
American tolerance 1s no sterile and unproductive
attitude. From each group to which our society
gives freedom, come gifts to our total life.
Regraded Uclassifie
31
-19-
America has been no mere melting pot, reducing
all to an average. It has been more truly a
fertile field upon which the precious seeds of
many cultures have been sown to grow sturdily, to
blossom and bear fruit. Those who came, often
to escape restriction and even persecution, have
brought treasures with them.
Regraded Uclassified
32
-20-
We are richer for having shared in the
aspirations and the beauties of many religions;
our literature has been invigorated by contributions
that trace inheritance to many old-world treasuries
of learning; our character has been moulded by the
centuries of experience of a score of other lands.
Men from many lands have had the opportunity to
embroider upon the texture of our basic Anglo-Saxon
civilization and to give additional color and
variety to its design.
Regraded Uclassified
33
-21-
We, too, the American Jews, have our
contribution which we are making together with
kindred groups. Through us there moves into
the common treasury of American life the song
and the art, the belief and the morality, the
poetry and the literature of our four thousand
year old tradition. It is no little thing that
we bring to America, the attitudes of an Amos,
the dream of an Isaiah, the gentle humanity of
a Hillel, the philosophy of a Maimonides.
Regraded Uclassified
34
-22-
Centuries ago an epigram was struck off
which has been preserved to us both in the new
Testament and in the Talmud. That epigram had
it, "As one measures out to others, 80 it shall
be measured to him." America grants freedom,
and in return to its altars, individuals and
groups alike carry the most precious expressions
of their spirits.
Regraded Iclassified
35
-25-
Pause
As I see it, there are two conclusions to be
drawn for us as American Jews from this discussion.
The first of these 18 80 obvious as to be a truism;
namely, our duty to American democracy. I am not
saying to you that we should be loyal to American
ideals merely because we are Jews. There are ten
thousand reasons for love and devotion to America
and its democratic tradition which have nothing to
do specifically with the fact that we are Jews.
But let no one make any mistake. It is only in
a democracy that we and other minority groups can
confidently expect the privilege of pursuing freely
our special group ideals.
36
-24-
Pause
And the second conclusion 1s this: we serve
America best not by abandoning our Jewish tradition
but by maintaining it. For if my reasoning 18
valid, America realizes its purpose to the full
when the individual avails himself of his liberties
in order to find self-fulfillment. What is more,
each minority group through its unique contributions
serves to enrich the whole of American life. There
are a host of reasons why a Jew should seek to
preserve Judaism, but when all the reasons have
been enumerated not the least among them 1s this,
that through loyalty to Judaism, the Jew can best
serve himself, his group, America and all mankind.
o0o-o0o
37
Augustine (ô - gue'- tin) : one of the four great fathere of
the Latin Church. His father was still a pagan at the time of his
son's birth; his mother, Monica, was not only a christian but a
woman of great piety. For a time the son seemed impressed by his
mother's teaching - but he gradually turned to the interests of
the world. His father, noticing his early promise, destined him
for the brilliant and lucrative career of a rhetorician, but
Augustine passed from one field to another - unable to find
satisfaction anywhere. In the summer of 386 he definitely felt
that a voice spoke to him "Put ye on the Lord Jesus Christ and
make not provision for the flesh to fulfil the lusts thereof."
In the late summer of 386 his conversion took place and on the
Easter following, having been rejoined by his mother - he was
baptised and admitted to the Catholic Church. His great talents
were turned to the service thereof and he became priest, assistant
bishop and bishop; for thirty-four years he preached and wrote -
his "Confessions" and "The City of God" being his best known works.
Thomas Aquinas (a - kwi - nas): born in Italy in the province
of Naples in 1227. Re was educated at the University of Naples -
and went from there - at the age of seventeen - to enter one of the
convents of the great Catholic Order of Dominicane (known as Order
of Preachers, O.P.). Because of his taciturnity and stolidity he
was student-named "great dumb ox of Sicily," but in 1257 he received
his Doctor's degree from the Sorbonne. His lifetime was spent as
student lecturer in theology and writer in the interest of his
38
- 2 -
Dominican friars always refusing the proffered tributes of high
honor which more and more frequently were offered him. He was
made a Saint in the Catholic Church in 1323 and was declared to
be one of the outstanding "Learned Doctors of the Church." Hie
great book, known 88 the "Summa," is the summary of knowledge
in relation to religion.
Dante (dan-ta) : born in Florence, Italy in 1265 and regarded,
by the Italians, as the creator of their poetical language and
father of their poetry. In 1301 - while on A mission to the Pope,
in which he sought to have excesses of Charles VIII in Florence
checked, he was exiled. From that time on - as he wandered from
place to place in northern Italy little is known of his life.
Although the decree of exile was lifted in 1318 he did not return
to Florence: in 1320 we read of him in Ravenna and & year later -
just after his return from an embassy to Venice he died. His
great work is "The Divine Comedy" which narrates his dream journey
through Hell, Purgatory and then Heaven; he describes the com-
panionship of Virgil 8.8 he journeye through Hell and Purgatory
but the beloved Beatrice is his imaginery companion through the
happy spheres of Heaven.
Amos: in the Bible, an Israelitish prophet of the 8th century
B.C. He was born near Bethlehem and when he reached maturity. -
became & shopherd. Though himself & Judahite, he had been
prophesying in the northern kingdom, when his activity was brought
Regraded Uclassified
- 3 -
39
to an abrupt close by the head priest of the royal sanctuary at
Amazrah, who bade him escape to the land of Judah and get his
living there. This he refused to do saying "No prophet am I:
no prophet's son am I; a shepherd am I. and one who tends
sycamore - figs, Yawheh said to me "Go, prophesy against my
people Israel's The Biblical book of Amos is characterized by
great symbolic vision and biographical narrative. He was the
first to picture God of Israel as judge with primal demand for
justice in economic, international relations.
Isaiah (1-za-ah) the greatest, and both in life and in death
the most influential of the Old Testament prophets. The two great
political events (the Syro - Israelitish invasion under Abaz, and
the great Assyrian invasion of Sennacherib) called forth the
spiritual and oratorical faculties of this great prophet and
quickened his insight into the future. He lived at Jerusalem, and,
at one time, exercised great influence at court - where he would
even venture to address a King unbidden and utter the most un-
pleasant truths unassailed and in the plainest fashion. Presumably,
therefore, his social rank was far above that of both Amos and Micah.
The high degree of rhetorical skill displayed in his discourses
implies a long course of literary discipline, not improbably in the
school of some older prophet.
Hillel (hil'- #1) & Jewish Rabbi, of Babylonian origin, who
lived at Jerusalem in the time of King Herod. Because of his great
learning and his rare qualities he was numbered among the recognized
40
- 4 -
leaders of the Pharisaic Scribes. The epithet "ha-zaken" (the elder)
proves him to have been a member of the Sanhedrin, & position he held
for nearly forty years. He was especially noted because he gave a
definite form to the Jewish traditional learning: he laid down seven
rules for the interpretation of the Scriptures, and the ordering of
the traditional doctrines into a whole - effected some two-hundred
years after Hillel's death - was probably likewise due to his
instigation. He has lived in the memory of posterity as the great
teacher who taught and practived the virtues of charity, humanity
and true piety,
Maimonides (mi - mon'- i - dēz) : the common name of
Rabbie Moses Ben Maimon who lived from 1135 to 1204. His life falls
into three epochs, which may be typified by the towns in which they
were passed, namely, Cordova, For and Cairo. He was born in Cordova
and his early years were passed in this town which had then just
passed the zenith of its glory. His father trained him in the branches
of Hebrew and Jewish scholarship; after Cordova was conquered in 1148
the position of the orthodox Spanish Jews became intolerable and after
ten years of hardships, wanderings and escapes, Maimonides decided to
take his family out of the country. Be settled in Fez. The ten years
spent there were devoted to the stimulation of religious feeling on
the part of his brethren. In 1165 he left for Egypt; Cordova had
given him great learning; Fez had given him humanity: and now in Cairo -
he was given prominence at court and in the Jewish community and soon
became the centre of almost world-wide influence over Jewry through
his monumental writings and dominating personality.
41
- 5 -
He died in Cairo in 1204 - amid universal sorrow and veneration and
to this day he is considered the great exponent of reason in faith
and toleration in theology.
Regraded Uclassified
42
Attached is the first speech written by
Dr. Steinburg on Democracy and Minorities., pre-
pared in connection with the speech the Secretary
plans to give in Baltimore, December 20, 1936.
Finst Wraft
43
150
I
It is a curious anomaly of human character that we
tend to understand least those things which are closest to us.
Our very familiarity with landscapes is likely to obscure to
our eyes the real meaning for us. I feel that this kind of
blindness has a fundamental significance. A blindness which
springs from over familiarity plagues among other things our
understanding of our own democracy. Here we are, all of us,
people either born or raised in the American democratic
tradition. The signs of democratic government, its outward
manifestations, are around us on all sides, and while only a
few of us have taken the trouble to ask what democracy is in
essence and what its ultimate objectives are, a ruller under-
standing is necess ry for all of us at the present time than
ever befor in this modern world for democracy today is under-
going an acute and persistent change.
All through the nineteenth century, up to the outbreak
of the World War, the feeling generally among most of us W.S
that democracy had won its permanent place as an ideal system
of government among all enlightened people. And yet in 1936,
there are any number of lands which have experimented with
democracy and rejected it. Those of us who love the spirit
of America most have come to understand more articulately what
Regraded Iclassified
44
that spirit implies for we are going to be able to preserve
it against the challenge which comes from other systems of
living. This deeper understanding of democracy is a pre-
requisite for all of us as American citizens. It is of es-
pecial interest for us who are Jews, members of a minority
religious and cultural group, for it is my firm conviction
that the welfare of all minority groups whether they be minor-
ities of color, minorities of theology, or minorities of culture,
that the welfare of such groups is best served by democracy.
Indeed, it 1s only democracy which preserves to the
individuals or groups of individuals, freedom of self-determin-
ation, so surely then as each erson can expect intelligent
and social freedom only in a democracy, so surely are the
interests and interests of all minority groups associated with
self-preservation. And it is no accident that democracy alone
of all the systems of government allows freedom to the individ-
uals, and to the minority groups, such as ourselves, for under-
stand, this is the essence of democracy.
If one must epitomize, democracy is in one phrase, a
system of society which takes for its goal the fullness of life
to each individual. It is each human personality which has an
ultimate goal of democracy. That is why democracy is closely
associated with civil liberties, for unless the individual
enjoys freedom of speech, press, and conscience, a full life
is impossible to him, and it is his full life to which democracy
is dedicated.
- 2 -
40
That is why democracies have historically been
associated with states supporting popular education, for if a
society devot S itself to educating the individual, it must
endeavor to make vailable to t at individual those cultural
treasures which will enable it to ttain its high stature and
that is why our own democracy has moved ahead and accorded
a high measure of economic security to its citizenry for with-
out the social nd mental ease which can come from economic
security, the individual is prevented from realizing hims If
to the fullest.
The attainment of a greater measure of economic
security is of course of great importance but if prejudice is
against all minority groups, it tends to create intensity and
as a result of economic restrictions it does not reach the
attainment of social security with its effect upon group relations
which leads me to assert that the welfare of minority groups is
inextricably associated with democracy.
The issue is deeper and larger. However, if the
purpose of a democratic system be the individual and if that
individual wish S to associate himself with other individuals
in minority, religious or cultural associations, then democracy
by its very theory must and does sanction such associations.
What that means is not hard to understand. It means that every
person who has an individual belief or interest or ideal, or
any groups which have any belief or interest or ideal are
- 3 -
Regraded Iclassified
46
46
securing its right to this individual in a democr cy. And now
contrast this with the predominating theories of other anti-
democratic societies. In some lands of the world, the official
theory of the state is that the whole of society has pointed
toward the state as the ultimate objective. Every individual,
every movement, must ultimately serve the state and anything
which diverts either energy or attention from the interest of
the state is regarded as illigitimat. In such a government there
can be no freedom of speech, press, conscience, or self-deter-
mination. Nor can there be in such a society free associations
of minorities for religious and cultural purposes, for each
such association is regarded as a diversion of attention from
the state. It is no accident that it is just in such societies
that religious and cultural bodies have found themselves
repressed and it is no accident either that in democracies
such as ours, the individuals and groups alike have been
allowed rights and privileges to the full st.
And even in the past six years when American went
through a trial of fire and starvation and when our democratic
system was strained as rarely before in its career, none of
us W 2 asked to sacrifice any part of his ideals, convictions,
or his personal liberties.
At the very time, when in non-democratic lands, under
the pressure of economic tension, individuals were compelled
to surrender their personal freedom and groups were and still
- 4 -
Regraded Jclassified
47
+7
are persecuted because of religious or cultural objectives,
in this land where the economic strain was as fierce, the
rights and the opportunities and the freedom of no one, in-
dividuals or groups, have been touched.
But the process does not merely work in one way.
what democracy does for the individual or minority groups, by
its very character individuals and minority groups alike re-
pay democratic societies for the opportunities hich they have
enjoyed. It seems to me that only a democracy can really en-
list the loyalties and loves of people. It may be possible
for skilled orators to speak against backgrounds which have
been carefully prearranged to whip th masses into clamorous
assent but no human beings once they are restored to society
can continue to give devotion to a governmental system which
deprives them of all busic freedom, and in America where the
individual has always been free to speak his mind critically
on governmental affairs, in America where each minority group
has been encouraged in his own special field, from all of them
have come a full measure of devotion and concentration to that
American life which has como to 11 of us.
Because America has created liberty, it has won love
and loyalty from all but the return to democratic systems
is not merely a matter of devotion. It is not alone that a
democracy must by is very character be better or more reasonably
- 5 -
Regraded Uclassified
48
loved. A democracy must ultimately also be richer culturally
for only in a society in which the individual is given a large
measure of freedom can the individual himself impress his
individual personality in cultural creativity. Wh t is more,
each minority group encouraged in maintaining its own set of
values in return, makes its contributions to the totality of
America's spiritual life.
Through the Roman Catholic traditions, there speaks
to the soul of America, an Augustine, a Thomas Aquinas, and &
Dante, and the life of each American is the richer because of
it.
The heritage of the American Indian, the colorful
vivacity of Latin traditions, the patient depth of Scandinavian
cultures, each of those has been added to our basic Anglo-
Saxon civilization and woven together into & unified pattern
of infinite richness and variety.
From every minority religious and cultural group
gifts are offered, contributions are brought to the common fund
of American spiritual life, and as for us, as Jews, we too,
we feel are offering our contribution to that America which
accords us group freedom together with our kindred groups.
From us there moves into the common treasury of American life,
the message of faith and the ideals of the great prophets of old,
the wisdom of Jewish sages of the Middle Ages, the song and ark,
the belief and the morality of our four thousand year old
traditions.
- 6 -
Regraded Uclassified
49
As I see it, there are two conclusions which follow
for us as Jews. The first of these conclusions is an obvious
one. It evolves upon us as American Jews to give American
democracy, love, loyalty, and devotion. I do not wish to be
misunderstood. I, as a Jew, am not S ying to you, as Jews,
that it is because we are Jews, that we should be loyal to
American democracy. That loyalty we owe on historical and
ideal grounds without regard t our Jewishness. But let no
one make any mistake. It is only under a democracy that we
and members of other minority groups can have any expectation
of a free pursuit of our special ideals.
And the second conclusion is briefly this. That we
serve America best by maintaining our contact with our tradi-
tions for 1f my contention hus been a valid one, America
realizes its purposes if the individual avails himself to
the fullest of his freedom. wh t is more, each minority
group through its unique heritage can serve to enrich the
totality of American life. Again, I want to emphasize that
one ought to have Jewish loyalties. There are a host of
reasons but when all reasons are enumerated, not the least,
is the adherence on the part of Jew to Judaism. If this is
so, they serve America best.
- 7 -
Regraded Uclassified
50
First Wraft
It is a curious anomaly of human character that we
tend to understand least those things which are closest to us.
Our very familiarity with landscapes is likely to obscure to
our eyes the real meaning for us. I feel that this kind of
blindness has a fundamental significance. A blindness which
springs from over familiarity plagues among other things our
understanding of our own democracy. Here we are, all of us,
people either born or raised in the American democratic
tradition. The signs of democratic government, its outward
manifestations, are around us on all sides, and while only a
few of us have taken the trouble to ask what democracy is in
essence and what its ultimate objectives are, a fuller under-
standing is necessary for all of us at the present time than
ever before in this modern world for democracy today is under-
going an acute and persistent change.
All through the nineteenth century, up to the outbreak
of the World War, the feeling generally among most of us was
that democracy had won its permanent place as an ideal system
of government among all enlightened people. And yet in 1936,
there are any number of lands which have experimented with
democracy and rejected 1t. Those of us who love the spirit
of America most have come to understand more articulately what
Regraded Uclassified
51
that spirit implies for we are going to be able to preserve
it against the challenge which comes from other systems of
living. This deeper understanding of democracy is a pre-
requisite for all of us as American citizens. It is of es-
pecial interest for us who are Jews, members of a minority
religious and cultural group, for it is my firm conviction
that the welfare of all minority groups whether they be minor-
ities of color, minorities of theology, or minorities of culture,
that the welfare of such groups is best served by democracy.
Indeed, it is only democracy which preserves to the
individuals or groups of individuals, freedom of self-determin-
ation, so surely then as each person can expect intelligent
and social freedom only in a democracy, so surely are the
interests and interests of all minority groups associated with
self-preservation. And it is no accident that democracy alone
of all the systems of government allows freedom to the individ-
uals, and to the minority groups, such as ourselves, for under-
stand, this is the essence of democracy.
If one must epitomize, democracy is in one phrase, a
system of society which takes for its goal the fullness of life
to each individual. It is each human personality which has an
ultimat goal of democracy. That is why democracy is closely
associated with civil liberties, for unless the individual
enjoys freedom of speech, press, and conscience, a full life
is impossible to him, and it is his full life to which democracy
is dedicated.
- 2 -
Regraded Uclassified
52
That is why democracies have historically been
associated with states supporting popular education, for if a
society devotes itself to educating the individual, it must
endeavor to make available to that individual those cultural
treasures which will enable it to attain its high stature and
that is why our own democracy has moved ahead and accorded
a high measure of economic security to its citizenry for with-
out the social and mental ease which can come from economic
security, the individual is prevented from realizing himself
to the fullest.
The attainment of a greater measure of economic
security is of course of great importance but if prejudice 1s
against all minority groups, it tends to create intensity and
as a result of economic restrictions it does not reach the
attainment of social security with its effect upon group relations
which leads me to assert that the welfare of minority groups is
inextricably associated with democracy.
The issue is deeper and larger. However, if the
purpose of a democratic system be the individual and if that
individual wishes to associate himself with other individuals
in minority, religious or cultural associations, then democracy
by its very theory must and does sanction such associations.
What that means is not hard to understand. It means that every
person who has an individual belief or interest or ideal, or
any groups which have any belief or interest or ideal are
- 3 -
Regraded Uclassified
53
securing its right to this individual in a democracy. And now
contrast this with the predominating theories of other anti-
democratic societies. In some lands of the world, the official
theory of the state is that the whole of society has pointed
toward the state as the ultimate objective. Every individual,
every movement, must ultimately serve the state and anything
which diverts either energy or attention from the interest of
the state 1s regarded as illigitimat. In such a government there
can be no freedom of speech, press, conscience, or self-deter-
mination. Nor can there be in such a society free associations
of minorities for religious and cultural purposes, for each
such association is regarded as a diversion of attention from
the state. It is no accident that it is just in such societies
that religious and cultural bodies have found themselves
repressed and it is no accident either that in democracies
such as ours, the individuals and groups alike have been
allowed rights and privileges to the fullest.
And even in the past six years when American went
through a trial of fire and starvation and when our democratic
system was strained as rarely before in its career, none of
us was asked to sacrifice any part of his ideals, convictions,
or his personal liberties.
At the very time, when in non-democratic lands, under
the pressure of economic tension, individuals were compelled
to surrender their personal freedom and groups were and still
- 4 -
Regraded Uclassified
54
are persecuted because of religious or cultural objectives,
in this land where the economic strain was as fierce, the
rights and the opportunities and the freedom of no one, in-
dividuals or groups, have been touched.
But the process does not merely work in one way.
What democracy does for the individual or minority groups, by
its very character individuals and minority groups alike re-
pay democratic societies for the opportunities which they have
enjoyed. It seems to me that only a democracy can really en-
list the loyalties and loves of people. It may be possible
for skilled orators to speak against backgrounds which have
been carefully prearranged to whip the masses into clamorous
assent but no human beings once they are restored to society
can continue to give devotion to a governmental system which
deprives them of all basic freedom, and in America where the
individual has always been free to speak his mind critically
on governmental affairs, in America where each minority group
has been encouraged in his own special field, from all of them
have come a full measure of devotion and concentration to that
American life which has come to all of us.
Because America has created liberty, it has won love
and loyalty from all but the return to democratic systems
is not merely a matter of devotion. It is not alone that a
democracy must by is very character be better or more reasonably
- 5 -
Regraded Uclassified
loved. A democracy must ultimately also be richer culturally
for only in a society in which the individual is given a large
measure of freedom can the individual himself impress his
individual personality in cultural creativity. What is more,
each minority group encouraged in maintaining its own set of
values in return, makes its contributions to the totality of
America's spiritual life.
Through the Roman Catholic traditions, there speaks
to the soul of America, an Augustine, a Thomas Aquinas, and a
Dante, and the life of each American is the richer because of
it.
The heritage of the American Indian, the colorful
vivacity of Latin traditions, the patient depth of Scandinavian
cultures, each of those has been added to our basic Anglo-
Saxon civilization and woven together into a unified pattern
of infinite richness and variety.
From every minority religious and cultural group
gifts are offered, contributions are brought to the common fund
of American spiritual life, and as for us, as Jews, we too,
we feel are offering our contribution to that America which
accords us group freedom together with our kindred groups.
From us there moves into the common treasury of American life,
the message of faith and the ideals of the great prophets of old,
the wisdom of Jewish sages of the Middle Ages, the song and ark,
the belief and the morality of our four thousand year old
traditions.
- 6 -
Regraded Uclassif
56
As I see it, there are two conclusions which follow
for us as Jews. The first of these conclusions is an obvious
one. It evolves upon us as American Jews to give American
democracy, love, loyalty, and devotion. I do not wish to be
misunderstood. I, as a Jew, am not saying to you, as Jews,
that it is because we are Jews, that we should be loyal to
American democracy. That loyalty we owe on historical and
ideal grounds without regard t our Jewishness. But let no
one make any mistake. It is only under a democracy that we
and members of other minority groups can have any expectation
of a free pursuit of our special ideals.
And the second conclusion is briefly this. That we
serve America best by maintaining our contact with our tradi-
tions for if my contention has been a valid one, America
realizes its purposes if the individual avails himself to
the fullest of his freedom. What is more, each minority
group through its unique heritage can serve to enrich the
totality of American life. Again, I want to emphasize that
one ought to have Jewish loyalties. There are a host of
reasons but when all reasons are enumerated, not the least,
is the adherence on the part of Jews to Judaism. If this is
so, they serve America best.
- 7
Regraded Uclassified
Sewnd Draft
57
DEMOCRACY AND MINORITIES.
strange characteristic nature
It is a curious anemaly of human character that men
tend to appreciate least those things which are closest to them.
Just as familiarity with a landscape is likely to blind us to
its beauty, so we are prone to be least understanding of those
great spiritual values of which we speak constantly, by which
ostensibly we live and to which avowedly we give our highest
devotion. It is not that we are not sincere about our ideals
it is rather that we have allowed ourselves in such cases to be
dulled by our familiarity.
Our understanding of our own American democracy seems
to me to be a perfect case in point. Here we are, all of us,
people either born or reared in the American tradition. Th
signs of democratic government and its outward manifestations
surround us on all sides. Its spirit moves through the very air
which we breathe. And yet I venture to say, but few of us have
taken the trouble to ask what this democracy which we know so well
really is in essence, or what its ultimate objectives are.
Now, as never before, is it necessary for us to shake
ourselves from our placid acceptance and to rediscover the soul
of the society of which we are a part. This need for a reawaken-
ing is especially acute at the present moment. For democracy
today is under violent and persistent attack. All through the
nineteenth century, up through the completion of the World War,
Regraded Uclassified
58
most of us assumed serenely that democracy had won a permanent
place among the societies of men, that lands which were democratic
would remain so forever, that lands which still had not evolved
so enlightened a system of living would eventually but inevitably
QR2
attain it. And yet in 1936, there in any number of 1 nds which
have rejected democracy without having tried it, or which have
experimented with it and then pronounced it wanting. And even
in countries possessed of a long sustained democratic tradition,
there are those who insist that ours is not the best pattern
for social living. We who love the American tradition are under
clearly
a moral obligation to understand it more articulately if we are
to be able to preserve it against the challenge from without
and from within.
Upon all who love freedom there is imposed the duty of
a rededication to it. This duty is especially present for
members of minorities, religious and cultural groups. For it
is my firm conviction that the welfare and the liberties of
all minorities, whether they be minorities of color, minorities
of theological belief, or minorities of culture, can be
preserved only by preserving the democratic system.
The
essence
it Reams
a
If one must epitomize the whole of democracy in one
mo,
can he states in one sentence
phrase, the following, it 00000 to mey tells the story. Democracy
is that method of organizing society which proceeds from the
assumption of the equality of all human beings and which takes
for its goal the providing to each individual of an opportunity
to attain to the fullness of life. It is the human personality,
e ch human personality, which in a democracy is the end and
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Regraded Uclassified
59
purpose of the machinery of government. For in the American
system, the state is not an end in itself. It 18 an instrument
by which the ideal equalities of men are preserved and through
which they seek collectively to make available to each other,
life, liberty, and the pursuit of happiness.
It is no accident then, that democracy alone of all
systems of government insists upon civil liberties for the
individual. For unless each person enjoys freedom of speech,
press, and conscience, he cannot attain to the fullness of life,
and it is a full life for the individual to which democracy is
dedicated. It is no accident either that democracy had historically
pioneered in state-maintained institutions for popular education.
For H government which is devoted to enhancing the life of the
individual must endeavor to make available to him those cultural
riches which will enable him to reach his full human stature.
It is no accident that our own democracy in recent years has
moved forward in the effort to guarantee economic security to
its citizenry. S For without the spiritual ease which only
economic safety can accord to the individual, the individual
is prevented from realizing his best potentialities. This
is democracy in a nutshall, a pattern of living which
protects basic liberty to all of us and which, fixing the
individual as its goal, seeks to enable him to find his own
self fulfillment wherever his heart and conscience dictate.
In the light of this description it is not hard to
our
see why we owe to democracy the last full measure of devotion.
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60
asswell as
An enlightened self interest, let -lone the highest ideals of
human living, would demand the we give our intelligence and
our strength to that system of government which preserves
basic human rights for all of us and which strives to make
a complete
available opportunities for the largest life to each of us.
ne, who are Jews, members of 8 minority religious
and cultural group and those of our non-Jewish fellow Americans
who are also members of minority groups, for us there is an
additional reason for maximum loyalty to democracy. For
understand, it is only under a system of living such as ours
that the minority group, no less than the individual, can enjoy
the largest liberty. The encouragement of minority associations
is an integral part of the democratic pattern. It flows naturally
from its very character. Since the goal of democracy is the
individual, the individual is merely exercising his personal
right when he enters into a minority religious or cultural
association. What that means is not hard to understand, It means
that any group of people who maintain non-conforming beliefs or
ideals has the right to engage in group activities for the
perpetuation of these ideals. Perhaps we shall understnnd the
more clearly what I am trying to say if we consider for a moment
the theories upon which certain anti-democratic societies operate.
In some lands the official theory of the state has it thaT the
goal of the social process is not the individual but the state
itself. Once the state has been set up as the ultimate objective
of all human effort there can be no guarantee of liberties for
- 4
Regraded Uclassified
( The democrater system is the one
ystem which is able to maintain and
approved The rights and The litates
of the individual america even has in time of reverest
stress. me have ^ hit recently since
through a treat of fire and
61
the individuals. Each person can logically enjoy freedom of
speech, press, conscience, or self-determination only to the
extent to which this freedom 5 rves the interests of the state.
What is more, under such a government, minoritie logically have
no place. For each minority association, each loyalty aside
from hat to the state, must be regarded as a diversion of
energy and attention from the state itself. As such, it
must, by the momentum of the theory, come to be regarded as &
disloyalty.
The touchstone b which we can judge the two theories
is the experience of the past six years. In every non-democratic
land the individual has been denied personal liberty. In addition,
minority churches and minority cultures have been repressed and
persecuted. / America, too, went through its trial of fire and
starvation during which our democratic system was strained as
r rely before in its career, But to no one was here denied
freedom of speech, press, and conscience. No individual was
asked to surrender any part of his liberty in thought or
expression. And every minority group W S encouraged to maintain
its special religious or cultural inter sts. This is the proof
of democracy. In the worst crisis of modern times, it and it
alone, has preserved individual and group freedom.
But mine that
Nay, more, out of this crisis has come a great good,
We have learned that political freedom is not enough without
economic security. We have discovered that prejudice against
minority groups is intensified during D riods of economic
constriction. We have set our hand to making impossible in
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62
the future what has happened in the past, an economic collapse.
We have, threfore, in effect, set out to enlarge the liberties
of the individual and to protect still further the rights of
minority groups.
I have spoken at some Lengh of the rights of minority
groups under American democracy. To be sure, thee is one factor
which all of us must bear in mind. Underlying the rights of
minority groups are certain basic obligations. It goes without
saying that it is expected of members of minorities as of all
Americans th t they shall give their primary political and social
community
loyalties to the American seene, that they shall participate in
the cultural life of our people. When I speak of minorities, I
do not envisage self-contained vacuum sealed groups this feel
that they have no share in our common destiny. But granted this
basic community's interest in political and social life and in
cultural enterprises, each minority has a full right under our
The
way of living to pursue any additional religious or cultural
objectives to which it is devoted.
Thus far I have ex mined with you but one side of the
case. I have spoken of wh t democr cy does for the individual
and the group. But the relationship is by no means onesided.
The process which I have described is not in one direction.
It is rather reciprocal. Becuase democracy gives abundantly,
it receives richly. It has always seemed to me th t only a
democracy can enlist the loyalty and love of human beings.
It may be possible for a skilled orator who speaks against
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63
carefully prearranged stage settings, who plays with the passions
and frustrations of an unhappy people to whip these people into
a frenzied loyalty to himself and into a cl morous assent to
unreasonable doctrines. When the frenzy is over and when sanity
is restored, when these misguided masses discover th t they have
been deprived of all liberty, can it be expected that they will
still be devoted to either the individual or the system which
has enslaved them and which keeps them in bondage by brute
oppression. Only in lands like America where the individual
knows that it is his government which has made it possible
for him to be free in mind and action, only under systems such
as ours where each minority group knows that the state is a
friend and servant of itself, only under such circumstances,
does the government win from its citizens a long sustained
reasonable gratitude and devotion.
this
America then is repaid by its own citizens for its
are other
devotion to their liberties, And there is another compensa-
tiongas rich, as deep full & and as ^ meaningfulk. Centuries ago the
great law-giver, Moses, insisted the it was not by bread alone
that man lives. material We, too, as Americans are interested in more
than lysical things. If we love our country truly, we want
more than political stability for its government, economic
security for its citizens and personal liberties for each
other as individuals. We want merica to be the seat of a
rich and varieg ted culture, We should like America to produce
great music, art, and literature. We should like our civilization
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Regraded Uclassified
with
64
to take its place along side of those which all through history
have sustained rich spiritual traditions and have transmitted
them enlarged to generations to come. We who are concerned
with American cultural life know that democracy is its friend.
Only in a society in which the individual is free can he express
in creative certifus to Mr common culture
his individual personality in culturel creativity. But, it is
here especially that minority groups have their special place.
American tolerance is no sterile nd unproductive attitude, From
each group to which our society gives freedom, come gifts to our
total life.
From the Roman Catholic tradition, for example, there
come to us the reasoning of an Augustine or Thomas Aequinas,
the accents of a Dante, the solemn chants of medieval cathedrals.
The life of each Americ n is the richer because of it.
The heritage of the American Indian, the colorful
tradition of Latin groups, the patient depth of Scandinavian
cultures, each of these had had the opportunity to embroider
upon the texture of our basic Anglo Saxon civiliza ion and to
give additional color and variety to its design.
We, too, the American Jew; have our contribution which
we are making together with kindred groups. Through us there
moves into the common treasury of American life the song and
the art, the belief and the morality, the poetry and the
literature of our four thousand year old tradition. It is
no little thing that we bring to America, the attitudes of
an Amos, the dream of an Isaiah, the gentle humanity of &
Hillel, the philosophy of a Maimonides. Centuries ago
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65
both
an epigram was struck off which has been preserved to us in the
new Testament, the sacred text of the Christian, and in the Tal-
mud, the storehouse of Jewish learning. That epigr m had it,
"As one measures out to in reture others, so 1t shall be measured to him."
America grants freedom, and to its altars, individuals and
groups alike carry the most precious expressions of their spirits.
As I see it, there are two conclusions to be drawn for
us as American Jews from edat this discussion. The first of these
is so obvious as to be a truism; namely, our duty to American
democracy. I do not wish to be misunderstood I am not saying
to you that we should be loyal to American ideals just because
we are Jews. There are ten thousand reasons for love and
andits tradition
devotion to America which have nothing to do specifically with
to lact are Jews.
our Jewishness But let no one make any mistake. It is only
in a democracy that we and other minority groups can confidently
expect the privilege of pursuing freely our special group
ideals.
And the second conclusion is this: we serve America
best not by abandoning our Jewish tradition but by maintaining
it. For if my reasoning 1S valid, America realizes its purposes
to the full when the individual avails himself of his liberties
in order to find self-fulfillment. What is more, each minority
group through its unique contributions serves to enrich the whole
totality of American life. There are a host of reasons why &
Jew should seek to preserve Judaism but when all the reasons
have been enumerated, not the lesst among them is this, that
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66
through loyalty. to Judaism, the Jew can best serve himself,
his group, America and all mankind.
- 10 -
67
Attached is copy of the second speech written
by Dr. Steinburg, prepared in connection with the
Secretary's address in Baltimore, December 20, 1936.
Regraded Jolassifie
68
RELIGION IN THE MODERN WORLD
Somewhere in the Bible there is a phrase which has stayed
with me ever since I first came upon it some years ago. The
ancient psalmist speaks of his epoch as 8 time when the
foundations are being torn down. Had he been living today,
he could not have more accurately characterized our own age,
For ours is a time when foundations are torn down. In our
day as rarely before in history traditional beliefs, values
and institutions are being challenged. Conflicting theories
and doctrines wrestle confusedly with each other in every
area of human interest. The very social structure which
seemed built for all times creaks under the strain of economic
crisis and is buffeted by the winds of new strange doctrines.
It is natural in a time like this when all else seems * so
uncertain that men shall turn for guidance and inspiration to
the great religions which deal with the eternal and the
unchangeable.
There is no question in my mind that religion has a
unique service to perform at the present time for the distracted,
bewildered sons of men. It is then with a sense of special
Regraded Uclassified
69
-2-
privilege that I join in your deliberations this evening,
that I add my voice to yours who seek to preserve and to
vitalize religious faith at a time when it is most needed.
I recognize, of course, that I am neither theologician nor
moralist but a layman, that I am much less at home in
religious discussion than I am in budgets. I shall say
what I am about to say with some trepidation. No one, I
hope, will take my utterance as an authoritative expression
of religious theory. But I do know that religion means
certain things to me as a human being, things which it seems
to me are indispensable for the happiness of the individual,
and I should add, indispensable also if mankind is to over-
come the problems which face it, and if society is to evolve
through these labor pains into a newer, larger life. It is of
what religion means to me that I would speak to you this
evening.
At this very moment when I stress the indispensability of
religion for the modern man, religion itself is also under attack.
It too is involved in the chaotic flux of the 20th Century.
Regraded Uclassified
&
70
With all else in modern life it is being challenged. My
assertion then of the need for the religious spirit is not one
that springs, I protest, from blindness. I too am aware of
the opinions of those who hold that the day of faith is over.
I too have read the ominous prophecy contrained in Matthew
Arnold's "Dover Beach."
"The sea of faith was once too at the full and
round earth's shore
Lay like the folds of a bright girdle furl'd
But now I only hear
Its melancholy, long, withdrawing roar,
Retreating to the breath
of the night wind, down to the vast edges drear
And naked shingles of the world."
Despite these ugly forebodings, it still seems to me that
religion offers to man a satisfaction of certain basic human
wants, the stimulation of certain inevitably human ideals,
that so long as man is man he will feel these wants and aspire
toward these ideals. In other words, so long as man is man
he will have his religion.
But turning from religion as an and abstraction to its
concrete manifestations, what has it to offer to us in the
modern world.
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71
I should say, first and foremost, a faith in the meaning
of life. There are, it has always seemed to me, ultimately
only two philosophies. One has it that the whole of this
strange universe in which we live is but a "tale told by an
idiot, full of sound and fury, signifying nothing." The
other position, the religious, position has it that behind
the world and moving through it is infinite Intelligence,
Will and Design. Man cannot tell himself that the first
theory of life, the theory of universal chance, is the true
one without destroying the sense of the significance of life
generally and of the individual particularly. But he who
believes that there is more than brute chance at work in the
flow of events, he knows by virtue of that belief that the
whole panorama of the universe, that the whole drama of man-
kind, that all these represent the working-out of a great
cosmic pattern. He knows further that his own life,
infinitesimal though it be, has somehow its place in the
entirety; that without his personality and his efforts a
thread will be missing from the tapestry of God. To feel that
Regraded Uclassified
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72
one's life is meaningful, that human history is meaningful,
these are conditions for serenity. It is such inner peace
which represents the first contribution of religion to
modern man.
But this feeling of meaningfulness has vast implications
for conduct. A man cannot tell himself that mankind is the
product of chaos, that all human ideals - the love of good-
ness, the appreciation of beauty, the search for the truth -
that all these alike are accidental by-products of an ac-
cidental machine without affecting his attitude toward the
human scene. No one can get himself much excited about that
which in his eyes has no meaning. There is precious little
logic to self-negation and self-sacrifice on behalf of man-
kind once mankind and its ideals are regarded as purely the
product of chance, created by chance and doomed to be
destroyed by chance. But he who knows that there is meaning
in life, for him life takes on earnestness, for him there
is reason to lay his own life aside for that which has larger
meaning than his own personal existence. All through the ages
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-6-
73
men have insisted that religion is necessary not alone for the
individual but also for society. It is not hard to under-
stand why. For faith is the one great impetus to socially-
centered conduct.
And there is a third value to religion. There is a
third hunger of the human soul to which religion ministers.
All of us want beauty and poetry in life, all of us desire
the richest and the highest emotional experiences. And to
each human being religion brings its offerings of beauty.
Its rituals do more than express in outward manifestation
inner theologies and moralities. They are in addition a
poetry of life. The symbols of religion, its external
expressions, all these are rhyme and rhythm in the midst of
an existence which would otherwise be dreary prose. Dif-
ferent individuals will react differently to different rituals,
and each of us will tend to be best attuned to those symbols
and religious forms in which he has been reared. The
Catholic will tend to respond most directly to the rituals
of his church. The Protestant will feel most intensely the
Regraded Uclassified
-7-
74
forms of his. We Jews will respond most positively to the
symbols of our religious life - the Scroll of the Law, the
ram's horn of the New Year Day, the eight-branched candlestick
of the Festival of Rededication. But to Catholic, Protestant
and Jew XX respectively, his religion brings warmth and color,
a fuller emotional life, a richer set of aesthetic experiences.
All of these considerations impel me to believe that
religion has an unchanging place in the hearts of men. But
there is ano her function which religion fulfils, one which
from the point of view of the relations of man to man is the
most important of all. And that is the ethical attitude which
all the historical religions of the western world alike seek
to inculcate. From what I know of these religions, there
seems to me to be one moral assumption which all of them make
together, and that is that each human being is of infinite
moral worth. It is this which Scripture seems to imply when
it holds that man was created by God breathing His spirit
into the dust. From the point of view of religious teaching
Regraded Uclassified
-8-
75
then, each human being has within himself a spark of the
divine. He is therefore sacred, precious and of incalculable
significance. This postulate leads at once to vast moral
implications. For if each human being be sacred, then his life
must be secure against violence, his being is too precious to
be used as a tool; it is rather an end in itself. Any form
of exploitation or oppression is a denial of his true dignity.
Nay, more, if each human being be a sanctuary of the divine,
then the flame which burns within him must be given an op-
portunity to show forth its light. He must be free in thought
and action. There must be accorded to him the opportunity to
develop his inner potentialities to the full. The providing
of the basic economic conditions which allow for a higher
spiritual life, access to the great treasures of culture,
these belong to each human being by right because he is more
than so much physical stuff, because there is a spark of the
divine within him. It is inevitable then with this assumption
of the infinite worth of the individual that religion stand,
as it has historically, ever vigilant against violence and
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76
exploitation, ever sympathetic to the enlarging of the op-
portunities for every human being to live a fuller spiritual
life.
And this leads me naturally to a field in which I am
much more at home, that of the problems of social organization.
It has always seemed to me that here religion and democracy
join hands. For what is democracy if it be not the attempt to
work out in practice this very principle of religion. If
one must epitomize democracy, the following is its character-
ization. It is that method of organization society which
proceeds from the assumption of the equality of all human
beings and which takes for its goal the providing to each
individual of an opportunity to attain his maximum stature.
It is the human personality, each human personality which in
a democracy is the goal of the machinery of government. For
in the American system the state is not an end in itself.
It is rather an instrument by which men seek to preserve
their ideal equalities and through which they strive
collectively to make available to texts each other the op-
portunity for personal self-fulfilment. It is no accident
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-10-
77
then that democracy insists upon civil liberties for the
individual. It is no accident that democracy has pioneered in
state-maintained institutions for popular education. It is
no accident that our own democracy in recent years has striven
to afford greater economic security to its citizenry. All
these alike are instruments by which democracy fulfils its
purpose -- basic rights to all alike, the meximum
opportunity for the largest life to each. And in fulfiling
this function, democracy is realizing the social morality
of religion.
I wish you then God-speed from the bottom of my heart and
every success in your collective efforts. I do this first
because I am a member of the same religious group as you,
because your tradition is mine, because we cherish the same
sanctities, because we hold together not alone Jewish theology
and morality, but also the four thousand year old culture of
the Jewish group. But I wish you God-speed and success not
alone because of our common Jewishness, but also because all
religions uniformly are making their contribution to the
Regraded Uclassified
-11-
78
enrichment of life. We, the members of the Jewish group, are
working hand in hand with the religious communions of our
non-Jewish fellow Americans. First, to give each human
being a feeling of the meaningfulness of his existence.
Second, to give momentum and drive to socially-centered living.
Third, to enrich each other's lives with the poetry of
ritual and symbol. And last of all, to teach each other to
reverence each other's personalities and to make available one
for the other the largest spiritual opportunities.
In all religious work there is that which makes for
good citizenship. But in this matter of respect for the
human personality those who maintain the cause of religion
are doing not alone the sacred labors of religious morality
but also the sacred labors of democracy. For political
democracy is religious social idealism expressed through the
machinery of government. He who builds religion then fortifies
the spirit which has maddre made democracy, which preserves it
in these troubled days, and which will cause it to live
purified and strengthened for untold generations yet unborn.
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79
Attached is Gaston's draft of speech for the Secretary
to be delivered in Baltimore, December 20,1936
Sr.
80
Mr. Chairman, Judge Frank, Men of the Brotherhoods of
Baltimore and Honored Guests:
I am touched by the cordiality of your reception
here tonight and the generous words which your eminent
and beloved fellow-citizen, Judge Frank, has spoken to
you in my behalf. It is not a mere formal expression of
courtesy when I say that I welcomed the opportunity
afforded by the invitation which Mr. Kairys extended to
me and that I am happy to be with you.
I don't ordinarily enjoy public speaking, and if
I did, I would have had little opportunity in the last
three years to gratify any desire of that kind I might have
had. My work has kept me very closely at my desk; it has
demanded that I conserve my time and it has consumed about
all the energy that I had at my command.
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81
- 2 -
I have missed opportunities for friendly contacts
with groups of people. I have missed particularly oppor-
tunities to meet with and to talk with men of my own faith.
It is a happy augury to be able to speak particu-
larly to the Jewish community of Baltimore as the guest of
the associated Brotherhoods of the Temples and the
Synagogues. In every approach to civic problems, to social
problems, to National problems, we need the accent on the
word "brotherhood."
It seems to me that out of the confusion of religions
in the world we are getting a certain amount of clarifica-
tion of essential ideals on which all can agree. Among the
first of those common concepts is that of the brotherhood
and interdependence of all men and their mutual responsi-
bility for and to each other. It is a concept that is as
old as our faith. It is a light for the pathway of humanity
that our people have always carried.
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82
- 3 -
We shall not need to fear the force or weight
of any criticism if each of us humbly does his part to
keep that light shining. In a world torn as this one is
still torn by every form of dissension and by every storm
of doctrine that would destroy that ideal, we need to do
that much. We must do it.
The ideal of brotherhood doesn't need new state-
ment. It needs only practice and interpretation. The
times are always new. Social and economic changes go on
rapidly. We are in the midst of changes that seem to us
as epochal and as revolutionary as any that have ever
occurred in the world. Our energy and our inventiveness
create new social problems much faster than we can solve
them. They create new problems for government.
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83
- 4 -
But 80 gradual and so imperceptible are most
changes that we are a long time in recognizing that we
have a new situation and that it requires new treatment.
Problems of social organization and problems of govern-
ment have become old before we realize that they are
difficulties that we must face and conquer to save our-
selves from destruction.
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84
- 5 -
As methods of living and methods of producing
change, 80 government has to change. It has to meet new
needs. We shall be helped to make wise changes by a
common-sense view of the business of government. The
business of government is to manage common affairs that
can't be managed by us individually. The extent of these
common concerns grows as people widely a eparated
geographically become more and more dependent on each other.
Their extent grows as people gather in great cities and
great industrial areas where old habits of community living
and community r esponsibility are lost and the doctrine
"every man for himself" becomes the rule of life. It is B.
bad doctrine, but one which grows out of circumstances --
new circumstances that require a restatement of the old and
wiser doctrine of social responsibility-- the doctrine of
human brotherhood.
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85
- 6 -
We hear many peevish protests about a new
paternalistic attitude on the part of government. I
don't myself believe in a paternalistic government. I
don't think we have ever had one or will have one. But
I do believe in a fraternalistic government, a government
which is a democratic association of free men and in which
all citizens recognize their dependence on and their
responsibility to their brothers.
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86
- 7 -
The fact is that the extreme expression of
liberty of action represented by the words "every man
for himself" has never worked well in the world. It is
one of the glories of humanity that it has never been the
prevailing rule of human conduct. There is no successful
self-made man. There is no self-made man. None of us
gathers wealth or honor by his own efforts alone. Good
is that which benefits the family, the community, the
Nation; evil is that which injures them.
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87
- 8 -
There was a time when the helpfulness of
neighbors was the one palliative of social distress.
We still can't get along well without good neighbors,
but we are long past the point where the helpfulness of
those who live next door r a few miles away can deal
effectively with all social distress. And we have found
in the last few years that voluntary associations, however
wide in their scope, are not adequate to meet all relief
needs.
But when I speak of the doctrine of human brother-
hood as the only right approach to the problems of govern-
ment and the problems of life I am not thinking merely of
feeding the hungry and finding work for the unemployed.
Those are responsibilities we can not shirk, but we have
many others.
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88
- 9 -
It is not a new thing for governments to lay down
rules of business conduct. They have always done it, and
as business has become more complicated the rules have
become more numerous. But that is true also of following
any occupation. The rules and technique of industry --
rules not made by government but the evolution of the
industry itself -- are also far more complicated. The
essential thing to ask about any rule of government is
whether it is necessary, whether it serves a useful end,
and whether it is just.
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89
- 10 -
We may even have to revise our ideas of what is
just. If we had certain governmental rules of conduct --
of business conduct -- which seemed to us fair and to
grant approximately equal opportunity to all and under
those rules we found that all the property of the country
and control over all its resources were steadily being
gathered into the hands of a very few, who had almost
complete economic control over all their fellows, would we
not revise our idea that those rules were just? Would
we have patience with the argument that these were natural
laws and could not be changed?
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90
- 11 -
It is folly to say that questions such as these
are not the concern o f government. Of course they are.
The primary and the eternal concern of government is to
safeguard the opportunities and the welfare of all its
citizens. That is not being paternalistic. That is
fulfilling the purpose without which government would
have no reason for existing.
But we shall need more than the intention to
safeguard the interests of all our people in order to do
it effectively. We must learn how to do it.
Regraded Uclassified
91
- 12 -
Merely to agree on the direction in which we want
to travel will not take us there. We must explore the way.
It is a path across a trackless wilderness such as some
of our forefathers have taken in the past. We have stars
to indicate our course, but we have no map of the terrain.
Ww don't know what lies beyond the forest and over the
hills, for no man has traveled this way before. This is
but a manner of saying that we must feel and grope and
spy out our way toward better social controls and better
methods of government suited to the times in which we
shall live.
Regraded Uclassified
92
- 13 -
We have problems of the protection of the producer
and the protection of the consumer. We have problems of
unemployment caused by changes in methods of production
or shifts of industry from place to place or by unbalanced
production. We have problems of maintaining the steady
flow of production, of utilizing without disastrous breaks
the labor and resources that are available to bring us all
the necessaries and comforts of life that we need. We
have problems of want and problems of curbing the economic
power wielded by great concentrations of wealth. We have
the eternal problem that we have never solved, the problem
of preventing the senseless and profane waste of human
lives in recurring wars.
93
- 14 -
We are not going to find the right answer to any
of these problems by any cheap and easy ready-made
solutions. They are problems of method and practice,
not of abstract philosophy. The solutions of them are in
the future, not in the past. But I am convinced that many
minds will make more progress with them than one mind or
a few minds. That is to say that I believe democracy has
a better chance of finding the right answers than any form
of dictatorship. I am encouraged in that belief not only
by reading the history of governments but by looking at
the condition of the world today.
Regraded Uclassified
94
- 15 -
There is a cynical saying that we learn from
history only that history teaches us nothing. It is
not a true Jaying. We do progress. We do build on the
trials and errors of the past. And one clear light shines
from history. It shows us not only that the doctrine
of human brotherhood is the only sure foundation on which
good government can be based, but also that democracy
is the only method by which we can make progress toward
our goal.
Regraded Uclassified
95
- 16 -
I have spoken in a broad way of the problems of
government, but the problems themselves are not 80
important as the method we employ in dealing with them.
To meet the same or similar problems other methods than
the method of democracy have been tried and they have
not worked. They have created evils greater than those
they sought to overcome. Benevolent dictatorships have
a way of turning themselves sooner or later into the
most oppressive tyrannies. Even if this were not so,
there is a fundamental evil in all dictatorships, no
matter how well-intentioned. It lies in their denial of
the sacred and essential right of the individual to freedom
of action and freedom of expression through which alone
is the cultural and moral growth of humanity possible.
Regraded Uclassified
96
- 17 -
I think none of us are sufficiently conscious of
the great boon that our American democratic tradition
is to us. We do not value it highly enough and we do
not sufficiently hold it securely in mind as the foundation
upon which all our attitude toward political and social
problems must be based.
Upon all who love freedom there is imposed the duty
of a rededication to it. This duty is especially important
for members of minorities, religious and cultural groups.
For it is my firm conviction that the welfare and the
liberties of all minorities, whether they be minorities
of color, minorities of theological belief or minorities
of culture, can be preserved only by preserving the
democratic system.
Regraded Uclassified
97
- 18 -
The essence of democracy, it seems to me, might
be stated in one sentence. Democracy is that method of
organizing society which proceeds from the assumption of
the equality of all human beings and which takes for its
goal the providing to each individual of an opportunity
to attain to the fullness of life. It is the human
personality, each human personality, which in a democracy
is the end and purpose of the machinery of government.
For in the American system the state is not an end in
itself. It is an instrument by which the ideal equalities
of men are preserved and through which they seek collectively
to make available to each other life, liberty and the
pursuit of happiness.
Regraded Uclassified
98
- 19 -
It is no accident, then, that democracy alone of
all systems of government insists upon civil liberties
for the individual. For unless each person enjoys
freedom of conscience and expression he cannot attain to
the fullness of life, and it is a full life for the
individual to which democracy is dedicated. It is no
accident either that democracy has historically pioneered
in state-maintained institutions for popular education.
For a government which is devoted to enhancing the life
of the individual must endeavor to make available to him
those cultural riches which will enable him to reach his
full human stature.
39
- 20 -
It is no accident that our own democracy in
recent years has moved forward in the effort to guarantee
economic security to its citizens. For without the
spiritual ease which only economic safety can afford to
the individual, the individual is prevented from attaining
his best potentialities. This is democracy in a nutshell,
a pattern of living which protects basic liberty to all
of us and which, fixing the individual as its goal, seeks
to enable him to find his own self-fulfillment wherever
his heart and conscience dictate.
Regraded Uclassified
100
- 21 -
In the light of this definition it is not hard
to see why we owe to democracy the full measure of our
devotion. An enlightened self-interest as well as the
highest ideals of human living, would demand that we
give our intelligence and our strength to that system
of government which preserves basic human rights for all
of us and which strives to make available opportunities
for the largest life to each of us.
101
- 22 -
I have spoken of what democracy does for the
individual and the group. But the relationship is by
no means one-sided. The process which I have described
is not in one direction. It is rather reciprocal.
Because democracy gives abundantly, it receives richly.
In 8. land where the individual knows that it is his
government that has made it possible for him to be free
in mind and action, where each group knows that the state
is its friend and servant, the government wins from its
citizens a reasoned and sustained gratitude and devotion.
Regraded Uclassifica
102
- 23 -
America thus is repaid by its own citizens for
its devotion to their liberties. And there are other
compensations as rich, as deep and as meaningful.
Centuries ago the great law-giver Moses insisted that it
was not by bread alone that man lives. We, too, as
Americans, are interested in more than physical things.
If we love our country truly, we want more than political
stability for its government, economic security for its
citizens and personal liberties for each other as individuals.
We want America to be the home of a rich and variegated
culture. We should like America to produce great music,
art and literature. We should like to have it lead the
way to better patterns of living. We should like our
civilization to take its place with those which all through
history have sustained rich spiritual traditions and have
transmitted them enlarged to later generations.
103
- 24 -
We who are concerned with American cultural life
know that democracy is its friend. Only in a society in
which the individual is free can he express his individual
personality in cultural creativity. It is here especially
that minority groups -- racial groups, religious and
cultural groups -- have their place. American tolerance
is no sterile and unproductive attitude. From each
group to which our society gives freedom come gifts to
our total life.
From the Roman Catholic tradition, for example,
there come to us the reasoning of an Augustine or Thomas
Aquinas, the accents of a Dante, the solemn chants of
medieval cathedrals. The life of each American is the
richer because of them.
104
- 25 -
The heritage of the American Indian, the colorful
tradition of Latin groups, the patient depth of
Scandinavian cultures -- each of these has had the oppor-
tunity to embroider upon the texture of our basic Anglo-
Saxon civilization and to give additional color and
variety to its design.
105
- 26 -
We, too, the American Jews, have our contribution
which we are making together with kindred groups. Through
us there moves 1 nto the common treasury of American life
the song and the art, the belief and the morality, the
poetry and the literature of our four-thousand-year-old
tradition. It is no little thing that we bring to America
the attitudes of an Amos, the dream of an Isaiah, the
gentle humanity of a Hillel, the philosophy of a Maimonides.
Centuries ago an epigram was struck off which has
been preserved to us in the New Testament, the sacred text
of the Christian, and in the Talmud, the storehouse of
Jewish learning. It reads: "As one measures out to others,
so shall it be measured to him."
America grants freedom, and to its altars individuals
and groups alike carry the most precious expressions of
their spirits.
--000--
106
December 21, 1936.
The Executive Committee of the Open Market Committee of the
Pederal Reserve system met with the Secretary at 11 o'clock.
Those present were:
Secretary Morgenthau,
Marriner S. Eccles, Chairman of the Board of Governors of the
Federal Reserve System,
Josooh A. Broderick, Member of the Board of Governors,
M.S. Szymczak, Member of the Board of Governors,
E.A. Goldenweiser, Director of Div ision of Research and
Statistics, Federal Reserve Board,
Deorge Harrison, President, Federal Reserve Bank of New York,
M.J. Fleming, President, Federal Reserve Bank of Cleveland,
% Randolph Burgess, Vice President, Federal Reserve Bank of
New York,
sayne 0. Taylor, Assistant Secretary of the Treasury,
D.W. Bell, Assistant to the Secretary.
C.B. Upham, Assistant to the Secretary.
The Secretary wanted to discuss two matters with the committee:
(1) the partnership of the Treasury and the Open Market Committee in
the surchase of bonds to maintain a steady market; (2) contemplated
action to sterilize future acquisitions of gold.
Mr. Morgenthau referred to the partnership arrangement which had
been entered into by him and the Open Market Committee with respect to
surchase of Government securities in the market. The arrangement as
originally agreed upon was that the Treasury would do the daily buying
and, and 1. at the end of the day Mr. Burgess did not want to participate
the Treasury would take all purchases, but if Mr. Burgess did wish to
participate for the committee the ourchases would be divided half and
107
-2-
half. He added that soon after the December 15th issue the Open
Market Committee decided to discontinue the arrangement and while
there was no inconvenience to the Treasury in taking all purchases
at that time, there might be some difficulty on a day when the market
was bad and substantial purchases were necessary if the partnership
cooporation were not effective.
Mr. Morgenthau and Mr. Burgess agreed that if it were necessary
some day to purchase up to $50 million there would not be much time
for telephonic consultation.
Mr. Eccles said that they had been discussing the matter somewhat
and he would like to have Mr. Burgess give his opinion of a satisfactory
manner in which to operate the partnership and at the same time give
protection to both parties.
Mr. Szymozak interjected the remark that the Open Market Committee
must operate "under the law".
Mr. Burgess said that for he two organizations to operate in the
market at all they must act in agreement. The responsibility of the
Open Market Committee is that of bank of issue and is accordingly
for the money market which now is the same thing as the Government bond
market. They must see that there is not a disorderly market. It is
their responsibility to buy to support the market whenever there is an
indication of disorder. When market conditions are really bad they
ought to be prepared to make all the necessary purchases or to take
them on a 50-50 basis, or, if the Treasury prefers, to step aside
entirely.
The Treasury problems are two, Mr. Burgess said. (1) maintenance
of an orderly market, in their case restricted to the Government
108
-3-
market and (2) the investment of various funds. These investments
are made properly even when the market 1s not disorderly and at B.
time when there is no excuse for the bank of issue being in the market.
The only question is to determine whether purchases made are for
investment or to maintain an orderly market.
Mr. Morgenthau and Mr. Burgess agreed that so far there has been
no disagreement between them on that. If there is a discussion and
difficulties arise and the New York bank must go to the Open Market
Committee for direction, it will cause delay in the split-second
decisions that are necessary.
Mr. Eccles said that he could see the Secretary's position and
understands that he wants to know the support that he could reasonably
expect.
Mr. Morgenthau said that he must have smooth operating machinery
In times of emergency when quick action is necessary.
Mr. Eccles said that the machinery 1s running smoothly because
the New York bank has been authorized by the committee to purchase up
to 50 million.
Mr. Morgenthau said that 50 million was not enough, He indicated
that after the Federal Reserve had dropped out of the partnership
agreement during the days when investment purchases were being made
he had suggested that the Treasury take all purchases last Friday and
Saturday and carry the entire burden until this meeting and this dis-
cussion had taken place. He said that never before had he felt that he
was the Secretary of the Treasury and Mr. Burgess was the Federal
Reserve Bank and it leaves the Secretary with a feeling that he is not
free. Heretofore, the Open Market Committee has not counted. Whenever
-4-
109
it has been necessary to support the market on bad days, such as the
President's GreenBay speech, the Treasury has acted.
Mr. Burgess said that formerly the Reserve Bank was free to
buy notes only and Mr. Harrison indicated that they have different
authority now.
Mr. Morgenthau said that the Treasury has carried the bond market
for three years as evidenced by the constant character of the Reserve
Bank portfolio. If we are to go on, Mr. Morgenthau said, he wanted
to feel comfortable -- with no straining of relationship between
big and Mr. Burgess. He said that if the Federal Reserve really
wanted to go along and enjoy their bond account he would like it but
that he wanted bad weather friends as well as good. Otherwise, he will
carry the bond market alone. Frankly, he said, 1f the market 1s bad,
will you stick with me or will you get cold feet in theevent, for
instance, that we have to buy a couple of hundred?
Mr. Taylor interposed to say that it seemed to him the Federal
Reserve did not want to exhaust their buying power on ordinary trust
fund purchases.
Mr. Harrison made the point that if they did they would be
competing with the Treasury and pushing prices up,
Mr. Eccles said that the old Open Market Committee had had its
hands tied because each bank could determine its own participation. The
new committee has ultimate power. The Executive Committee has been
viven certain powers for interim purposes. It can increase bond hold-
ings up to $600 million from the present mark of below $400 million.
It is also authorized to decrease the portfolio by $250 million. Mr.
Burgess, as manager, can exchange up to $50 million and his authority
Regraded Uclassified
110
-5-
could be increased at any time by the committee. Mr. Burgess had
regarded $50 million as sufficient without consultation.
Mr. Eccles said his understanding was that whenever Mr. Morgenthau
and Mr. Burgess agreed that the market needed support Mr. Burgess
had authority to participate up to $50 million.
Mr. Morgenthau asked 1f he was correct in his understanding
that the decision as to whether the market needed support is between
Mr. Durgess and himself, or whether it would be necessary for Mr.
Burgess to discuss the matter with Mr. Eccles or others. In other
words, will Mr. Burgess be given authority to say which days he will
participate and which days he will not?
Mr. Eccles agreed that he would.
Mr. Harrison said that the only difficulty would come when
Mr. Morgenthau thought the bond market needed support and Mr. Burgess
did not and in that case Mr. Burgess would have to get in touch with
the committee.
Mr. Morgenthau replied that that would not be necessary because
he would take care of the whole thing if that happened.
Mr. Burgess indicated that when he was acting for the Treasury
he could sometimes buy on his own judgment and have his action
approved afterward.
Mr. Morgenthau then asked Mr. Eccles if it was necessary for
Mr. Burgess to consult with him and Mr. Eccles replied that the only
time it would be necessary to consult with him would be when there
was a disagreement between Mr. Burgess and Mr. Morgenthau.
111
-6-
Mr. Morgenthau then referred to the second matter up for dia-
cussion. For a month, he said, we have been talking about gold as it
affects the system. We have felt that we ought to do something to
remove gold as an influence on excess reserves so that the system
could take action irrespective of that influence, The two staffs have
cooperated in consideration of the matter. The only objective which
the Treasury has is to remove the influence of gold on excess reserves.
The Board and the Treasury finally agreed on a method and the President
has agreed. It is proposed to move at once to sterilize all gold that
the Treasury buys for a period as long as all three deem wise. Turning
to Mr. Eccles, he said, 1s that a correct statement?
Mr. Eccles replied that that is "about it". Gold imports have
been an increasing worry to the reserve system and to the banking
system as a whole, as well as the Treasury. The responsibility of
the Federal Reserve System becomes increasingly difficult as long as
rold goes into excess reserves. To exhaust their unused powers would
not be effective if more gold imports flow into excess reserves. The
system ould have to go to Congress for more powers either to increase
reserve requirements further or to sell their debentures in the market.
There is real objection to the use of either of these devices. The
expense of higher reserve requirements would mean that the burden
on member banks might be such as to drive some of them out of the
system. The Treasury proposal is, Mr. Eccles said, to prevent gold
from entering the banking system at all. Treasury operations and
those of the Stabilization Fund have been responsible for bringing gold
in. The price has been pegged at $35. and that is why gold comes. The
only objection which the Reserve System could have had to the proposal
Regraded-Uclassifie
112
-7-
might have been as to its discretionary nature, but since the Treasury
agrees to take all gold and sterilize it and to permit all outgoing
gold to flow from the sterilized gold, the reserve system is satisfied.
It freezes the present banking picture. If the time comes when the
Federal Reserve system feels that it should not be operated automatically
or that the Treasury feels that it ought not be continued, action will
be taken only after discussion and accord between the system and the
Treasury, SQ that there will be no conflict in the operations. Under
those conditions Mr. Eccles thinks that because the present gold move-
ment is extraordinary and not normal it is better for the Treasury to
do as proposed than for the system to meet the problem in some other
way which would involve legislation, discussion, delay and expense.
Mr. Saymczak asked if operations were to begin at once and
Nr. Eccles said as soon as the mechanics could be arranged.
Mr. Morgenthau said he planned to announce it this afternoon,
effective Wednesday or Thursday.
Mr. Ecoles said the sooner it is done the stronger their position
will be, because the longer action is delayed the more gold will flow
into excess reserves.
Mr. Eccles said that 1f the operation is automatic and continuous
the Federal Reserve system will be left in a better position to deal
with this problem 1f the Treasury acts immediately.
Mr. Szymczak stated his understanding that it will be in no way
related to credit control which seemed to receive generalassent.
Mr. Harrison asked if operation would be automatic both ways,
in and out, and Mr. Morgenthau said yes.
Mr. Harrison said that it is clear something has to be done. He
Regraded Uclassifie
113
-8-
had thought we might wait until January but the question of timing
10 one to which he has not given much thought. One consideration 1s
important and that is the effect on the minds of our partners in the
old arrangement abroad.
Mr. Morgenthau said Mr. Taylor was going to meet the representa-
tives of the five countries at 5 o'clock and explain it to them.
Mr. Harrison continued that in the past gold movements have been
price level corrections. He hopes that the foreigners will not be
Iven the impression that this is a permanent American policy -- that
we are letting gold come into a mouse trap and not effect our price
level.
Nr. Eccles said that this is what other countries are doing and
it is B part of the managed currency mechanism.
Mr. Harrison said that if there is no implication that our price
level won't go higher, he would like to have that said.
Mr. Morgenthau said that the foreigners gave us no explanation
of what they did internally and cited the action of the British last
week in retiring a part of their fiduciary issue.
Mr. Burgess said that he regarded the action as 8. great advantage
and that it was a pretty good setup safeguarded well. He agreed with
the point Mr. Harrison made and said that the time may come when the
old accumulation may be a political target and ought to be permanently
absorbed into the banking system but that this method of dealing with
it in the meantime 1s satisfactory.
Mr. Harrison said that he thought it the best plan of any of
those which he had been able to think of. Federal Reserve bank deben-
tures would be too costly, he thought.
Regraded Uclassified
114
-9-
Mr. Burgess commented on the timing of the announcement and
said that he was surprised it was coming so soon. If it is done before
roserve requirements are raised it may be more difficult to raise them.
Moreover, he wondered if the foreigners ought to know about it before
it is done.
Mr. Morgenthau said that he looked at it as an internal problem.
Mr. Burgess said he thought that he and the Secretary would be
operating in the market together tomorrow. He and Mr. Harrison
thought that the action would be bearish on the Government bonds.
Mr. Eccles expressed the view that since the prospect of inflation
would be reduced he thought it would be favorable to the long term
bond market.
Mr. Coldenweiser agreed that while the impact on the market for
a day or two might be fairly heavy, the long term effect would be
good.
C.B. Upham.
Uclassifie
THE SECRETARY OF THE TREASURY
WASHINGTON
The Secretary of the Treasury, after conferring
with the Board of Governors of tne Federal Reserve
System, announces that ne proposes, whenever it is
deemed advisable and in the public interest to do so,
to take appropriate action with respect to net additional
acquisitions or releases of golu by the Treasury
Department.
This will be accomplished by the sale of additional
public debt obligations, the proceeds of which will be
used for the purchase of gold, and by the urchase or
redemption of outstanding obligations in the case of
movements in the reverse direction.
Hany Maywhen
APPROVED: transfer
The White House
December 21, 1936
Regraded Uclassified
lislyn ora
116
VCN5124
THE FEDERAL GOVERNMENT TONIGHT MOVED TO RESTRICT EXCESS RESERV-
IP or FEDERAL RESERVE BANKS.
SECRETARY MORGENTHAU, AFTER A CONSULTATION WITH PRESIDENT ROOSEVELT,
AMNOUNCED THAT GOLD COMING INTO THIS COUNTRY FROM ABROAD AND NEWLY
MINED DOMESTIC GOLD PURCHASED BY THE GOVERNMENT WOULD BE SET ASIDE AS
INACTIVE.
in NEW JUND, CREATED TO PURCHASE THIS GOLD, WILL BE FINANCED BY
-ALK OF TREASURY NOTES EACH WEEK.
UNDER THE OLD ARRANGEMENT FOREIGNERS, WISHING TO PURCHASE AMERICAN
PRODUCTS, EXCHANGED THEIR GOLD FOR U. S. DOLLARS, THE FEDERAL RESERVE
SYSTEM PURCHASED THE GOLD FROM OTHER BANKS AND TURNED THE METAL OVER
TO THE TREASURY, RECEIVING GOLD CERTIFICATES IN PAYMENT. THESE CERTIFI-
CATES, REPRESENTING PAYMENT OF $35 FOR EVERY OUNCE OF GOLD INVOLVED,
AUTOMATICALLY BECAME A PART OF THE RESERVE SYSTEM'S EXCESS RESERVES.
FISCAL AUTHORITIES SAID $8 WORTH OF CREDIT CAN BE EXTENDED FOR EVERY
21 OF THESE RESERVES. IN THE FUTURE THE GOLD WILL BE PURCHASED
THROUGH THE SALE OF TREASURY NOTES AND THESE NOTES WILL NOT BECOME
A PART OF THE EXCESS RESERVE STRUCTURE.
THE TREASURY'S MOVE WILL NOT HAVE THE EFFECT OF FREEZING CREDIT
POTENTIALITIES AT THE $24,000,000,000 MARK OF TODAY. IT WILL,
HOWEVER, REDUCE THE AMOUNT OF ADDITIONAL EXCESS RESERVES PILED ON TOP
OF THE PRESENT TOTAL BY THE AMOUNT THAT IT WOULD HAVE BEEN SWELLED BY
CONTINUED PURCHASES OF GOLD UNDER THE SYSTEM SCRAPPED TODAY BY THE
GOVERNMENT.
SENATOR ELMER THOMAS, LEADING MONETARY EXPERT ON CAPITOL
HILL, SAID THE MOVE WAS A "WISE" ONE.
"IT OBVIOUSLY IS INTENDED TO SAFEGUARD THE COUNTRY FROM ANOTHER
UNCONTROLLED AND DANGEROUS CREDIT BOOM AND A WILD STOCK MARKET WHICH
AIDED IN BRINGING ABOUT THE COLLAPSE OF 1929," THOMAS TOLD THE UNITED
PRESS.
12/21--E810P.
Regraded Uclassified
117
CABLE FOR COCHRAN
00
December 21, 1956.
The following statement was unde this afternoon for release in
morning newspapers Tussday, December 22, 1936:
"The Secretary of the Treasury, after conferring with the
Board of Governors of the Federal Reserve System, announces that
he proposes, whenever it is deemed advisable and in the
public interest to do so, to take appropriate action with
respect to net additional acquisitions or releases of gold
by the Treasury Department.
"This will be accomplished by the sale of additional public
debt obligations, the proceeds of which will be used for the
purchase of gold, and by the purchase or redemption of outstanding
obligations in the case of movements in the reverse direction."
This decision was taken after careful consideration and consultation
with the Governors of the Federal Reserve Board and was approved by the
President. This information, and necessary background, was also given
to the Financial Attaches of the British, French, Belgian, Holland
and Swise Governments here this afternoon for transmittal to their
respective Treasuries. This action will not affect in any way the
mechanics of the movement of gold to or from the United States and
other countries.
It is contemplated that this mechanism will commone to function
within the next day or two and will apply to all new gold acquisitions
both imported and domestic. These acquisitions will be shown on the
Regraded Uclassified
118
+
67
Cable for Cochran.
daily statement of the Treasury as inactive gold in the General Fund.
This method of handling gold will continue in effect until sircumstances
indicate that a change in policy or method is desirable. In meeting
with foreign Treasury attaches it was emphasized that this move was
domestic but that we desired to inform Treasuries of cooperating
countries so that they might fully understand background and technical
aspects of mcve.
Regraded Uclassifie
119
$
December 21, 1936.
9:10 A.M.
Present:
Mrs. Klotz
Mr. Upham
Mr. Lochhead
Mr. Opper
Mr. Gaston
ir. Oliphant
Mr. Bell
Mr. Taylor
Mr. White
Mr. Halls
1.1.Jr:
"It seems to me that the main objective should be
to construct the accounts in such a way that gold
operations of the sterilized type shall appear in
the accounts in a manner easily to be distinguished
from gold operations of the traditional sort, and
that the Stabilization Fund operations shall be
confined to transactions which clearly affect either
foreign exchange values or the domestic monetary
situation. For this reason I would have the follow-
ing classes of gold transactions, and those only,
pass through the Stabilization accounts:
"1. Purchases of foreign gold and sales
of gold to abroad, whether or not these
operations are sterilized.
"2. Purchases of domestic gold, if
these purchases are sterilized, i.e.
if no gola certificates are issued
to pay for them.
"If the Treasury should in the near future at any
time depart from its new policy of sterilizing
gold movements, whether domestic or foreign, under
the recommendation I here make, domestic gold
transactions would not affect the Stabilization
accounts.
"It seems to me that by carrying some of the
domestic gold transactions through the Stabili-
zation accounts the prestige of the Stabilization
Fund is increased and also the logic of its
Regraded Uclassified
120
- 2 -
operations made clear. It seems to me,
moreover, by excluding from the Stabilization
account non-sterilized domestic gold transac-
tions a contact is kept between the Stabiliza-
tion Fund operations and the general Treasury
operations so intimate that any proposal to
take the Stabilization Fund out of the Treasury
would at once appear to raise all sorts of admin-
istrative difficulties.
- This is Viner -
"An additional, though admittedly minor, advan-
tage of the proposal I make nere would be that
the 1/4 of 1 per cent profit which would sccrue
to the Stabilization Fund from its gold trans-
actions would result only from transactions
involving an Influence on the foreign exchange
value of the dollar or transections involving
a deliberate domestic credit control operation,
and so having some relationship to the purposes
and functions of the Stabilization Fund.
"It seems clear to me, however, that no operating
or economic difference is involved in any of the
proposals which are under consideration, and that
the sole significance attached to the issue, aside
from bookkeeping convenience, is one of meking the
accounts reflect as clearly as possible the mone-
tary nature of the various types of gold transac-
tions. Under my proposal only new types of gold
transactions pass through the Stabilization Fund,
and if we should revert to non-sterilized trans-
actions they will appear in the Treasury accounts
in the same manner 85 they did before the adoption
of the new policy. The change in the accounting,
therefore, will be limited to transactions in
which there is Elso E change in the operation."
Dan, for God's sake tell me what he means.
Bell:
I don't know.
ILM.Jr:
It's too much for me. I don't get it.
Lochhead:
Well, he says foreign gold and newly mined gold
should pass through the Stabilization Fund to the
extent it is sterilized, but if neither is ster-
Regraded Uclassified
121
- - 3 -
ilized, 1f a particular shipment of either
foreign golu or newly mined gold is not ster-
ilized, then it oughtn't to go through the
Stabilization Fund.
Gaston:
You're dealing with net movements anyway, so
that any isolated shipments would be out, I
should think.
H.M.Jr:
I think his suggestion is absolutely nuts.
Gaston:
I con't think there's anything in it at all.
H.M.Jr:
Well, let Bell read it for a minute.
(Bell reads memorandum)
H.M.Jr:
Now are you ready?
Bell:
AS I get it, he recommends that all foreign
transactions in gold, whether sales or purchases,
whether sterilized or not, would go through the
Stabilization Fund, and that all domestic trans-
actions, only sterilized, would go through the
Stabilization Fund; the transactions that are not
sterilized would go through the General Fund.
Taylor:
Which for the present means that all transactions
would go through.
H.M.Jr:
Just too complicated. I'm sorry he isn't here.
I mean I can't see any merits in that thing.
Bell:
Well, his proposal in effect is just what's been
advanced as one of the propositions.
H.M.Jr:
No, isn't it entirely new?
Bell:
Only so far as domestic - and as I understand,
you intend to sterilize gold, so if you do his
proposition in effect is just the one proposition
that's been advanced by Mr. White and Mr. Oliphant.
H.M.Jr:
Well, state it again. I don't think I understand.
What does Viner say?
Bell:
Well, Viner says that all foreign transactions
Uclassified
122
- 4 -
in gold will come through the Stabilization
Fund, whether sterilized or not, or whether
purchases or sales. Get that?
E.I.Jr:
Yes
Bell:
That all domestic transactions will go through
the Stabilization Fund, only if sterilized, and -
H.H.Jr:
I see.
Bell:
- and if they are not sterilized they will go
through the General Fund. But, as the proposition
before says sterilize all gold, whether domestic
or foreign, then it boils down to being the same
proposition that we have been talking about.
White:
May I give nis justification for that position,
Mr. Secretary?
B.2.Jr:
Yes, go shead.
White:
He feels ne wants to give a logical defense of
that transaction, even though it may not affect
anything you may do in the near future. But in
the case you may be asked ES to why you are doing
this -
U.X.Jr:
Yes
White:
- you will have this defense. So far as the
foreign gold is concerned, whether you are going
to sterilize it or not, it definitely has an
effect, E possible effect, on exchange rates,
and therefore logically ought to be handled
through the Stabilization Fund. With regard
to the domestic gold, however, ne would say
there may be some doubt as to whether or not
that properly should be handled through the
Stabilization Fund, but there can be no doubt,
or certainly much less doubt, that gold which is
to be sterilized has some effect on credit, and
therefore ought to be handled through the Stabili-
zation Fund.
That leaves only one element of which some ques-
tion may raise, namely, gold which is not going to
Regraded Jclassified
123
- 5 -
be sterilized and which is produced at home,
and ne said with regard to that there appears
to be no logical justification for handling
that in the Stabilization Fund and therefore it
ought to be nandled the same as at present, even
though you don't contemplate any such transaction
in the near future.
E.M.Jr:
George, before my press conference I want you to
come in about a quarter of four and I want the
figures of now they've been running. I'd go
back and show me how they've been running on an
annual basis three years back; that is, gold that
comes in, foreign gold net, you see, on an annual,
and domestic gold; then give it to me on a monthly
basis for this year, domestic and foreign. will
you?
llaas:
Yes, sir.
E.M.Jr:
See, I mean just have those figures. Go back
three years ano then start the first of the year
and give it to me monthly, domestic and foreign,
separately, see? Then B combined figure.
Heas:
You're planning on announcing it jublicly?
Jr:
Four o'clock this afternoon.
Well, let me put it this way. I've changed my -
I understand none of you agree.
White:
on yes, we do. There's five of us agree.
naas:
I've got some comment. Haven't heard from me
for three days.
H.M.Jr:
Go shead then.
Haas:
I am somewhat familier with the discussion from
what Harry just told me. Originally it was all
understood that the gold could be handled right
through the General Fund, but it was decided to
channelize it through the Stabilization Fund.
Now, if you take and also consider that the
gold, whether coming from abroad or coming from
Regraded Uclassified
124
Do
- 6 -
domestic sources, has the same effect on the
banking -
S.M.Jr:
Has the what?
liaas:
- nas the same effect on the domestic banking
structure, increasing excess reserves - now if
you take a piece of it, the foreign, and leave
the other standing out, the immediate Question
would be "Why did you do that? Why go through
this coannelizing process for Exhibit A? How
easily it could all have been handled right
through the General Fund." And I think it would
make a very - for instance, up on the Hill when
you are asking for renewal of it - "Here's the
functions." "You don't need that Exhibit A. The
domestic gold -
....Jr:
Your - what conclusions do you have?
Heas:
The conclusion is I'd put it all in the Stabiliza-
tion Fund.
Dell:
But your Stabilization Fund is operating in the
foreign field and not in the domestic, and the
Ceneral Fund can't operate in the foreign field.
Haas:
well, I'm, say, a Senator, and I'll say, "Yes,
you are, but you don't need it even to operate
in the foreign field."
Bell:
You mean the General Fund?
Haas:
I mean the Stabilisation for that purpose.
laylor:
The General Fund can do that.
Bell:
But it isn't; well, maybe it could, I don't know.
Haas:
We faced that problem. I remember the Secretary
said, "I want to channelize it through," and that
was the thinking at that time.
Bell:
The General Fund could operate in the foreign
field if you confine it to gold, but it can't
operate in sterling and francs like the Stabili-
zation Fund is doing.
125
- 7 -
Taylor:
1.8 far A8 gold, it could.
Bell:
As far ¿S 8011, it could.
a.2.Jr:
Let's put it this way: let's give everybody
who's got something new to contribute over the
weekend - who's got any new thoughts on this
thing? See? Herbert, Bell said you were quite
vile on Saturday.
Bell:
Vile for Gaston.
Caston:
Well, in the first place, I don't think the
problem is of any great importance one way or
the other. But what I said the other day was
that it would be difficult for you to make an
explanation of your action in handling the
domestic transactions through the Stabilization
Fund. I asked what answer you could make if you
were asked why you put it through the Stabilization
Fund, and I said that the candid answer would have
to be - either would have to be (a) that you did
it in order to show an additional profit for the
Stabilization fund; but if you decided not to take
that profit on the domestic operations through the
Stabilization Fund, that throws that reason out,
and then the only other reason that I see left
is that you did it in order to increase the pres-
tige of the Stabilization Fund, not for any prac-
tical reason, but just to make it appear that the
Stabilization Fund was important in that field.
AS & matter of practical operation, you are Just
going through some unnecessary bookkeeping.
naas:
I don't think - I think there's an answer to that.
a.M.Jr:
well, give it.
Haas:
The answer is that all gold, whether it comes from
Europe or from our domestic mines - you are trying
to work out a system whereby you would neutralize
its effect on the excess reserves. In its position,
coming out of the mines or coming from Europe - from
that angle - from insulating the domestic economy,
as it was called, or the domestic banking situation,
the effect of the gold is the same whether it comes
126
#51
- 8 -
from the mines over here or from Europe. I
remember when Stewart and Warren and Sprague
were down and Warren went back to try to write
a statement -
H.M.Jr:
where's that statement?
Hass:
I gave it to - I gave it to Gaston.
H.M.Jr:
Well, Gaston -
Gaston:
I've got it somewhere. I've got it.
H.M.Jr:
Well, you better send for it, because that will
be the next thing to -
Gaston:
I didn't think that Warren's statement needed to
be considered.
White:
I'm sorry that Viner wasn't there when Warren
asked that specific question.
Haas:
It illustrates one point.
H.L.Jr:
Anyway, don't lose this argument, because you are
answering Herbert.
HEAS:
Anen ne was confronted with the words "import and
export" he said, "You can't use those words. You
have to use 'influx and efflux. " He talked about
the gold coming in and he used those words rather
then "imports and exports" of gold. I'm just
giving this to illustrate the way his mind was
running on it.
H.M.Jr:
well, let me tell you now I've been talking about
this thing. Certainly no one is more interested
in the Treasury. Now, we're talking here in this
room and I think that - and the way I - I feel that
we are possibly permitting ourselves to be influenced -
to be a little bit too Treasury-minded end give this
thing to the Stabilization Fund. I mean the handling
of the domestic gold - thinking too much about the
Stabilization Fund and the future of the Treasury.
Now, the way I understand the mechanics of this
thing - got it, I mean, from Bell - the foreign
127
- 9 -
gold that the Stabilization Fund buys, which is
the least of the gold which comes in from abroad -
after you reach the 200 million dollar point, you
then take, say, 5 million dollars of it, turn it
over to the General Fund and it is then the decision
for the General Fund whether they are going to take
5 million dollars and go to the Federal Reserve
System and deposit 5 million dollars worth of gold
certificates or whether they are going to the open
market and buy 5 million dollars worth of gold.
Now, the gold that comes in from abroad, which is
the bulk of the gold, and imported by private banks -
that is brought to the mint and again the decision -
they nave to be reimbursed by the General Fund and
the decision is again the General Fund's whether
they will go to the Federal Reserve and deposit
5 million dollars worth of gold backs or go to
the open market.
Now what we are taking now leaving gold that
comes in through the private banks - but now say
that we'll take that and route that through the
Stabilization Fund. Then the Stabilization Fund
in turn will go back to the General Fund and get
its money.
Now on the domestic gold - the domestic gold
now is handled and it gets paid through the General
Fund, who gets its gold backs - gives its gold backs
and gets its шопеу in that way.
Now ES to the complexity of this thing - all of this
money, whether it is all cleared through the Stabili-
zation Fund, it would go to the Stabilization Fund
and then back again from the General Fund, and the
Stabilization Fund would have to be reimbursed by
the General Fund anyway, and the decision where the
General Fund gets its money from is purely a
General Fund decision.
Now, the way the set-up is now all he does is
decide, "Instead of going to the Federal Reserve
and depositing gold backs, I'm going to go to the
open market and finance money." And toat's this
whole thing that we are discussing.
128
- 10 -
Now, the thing that I am fearful of - as I say,
what I am saying is absolutely triple secret, and
I don't want ever anything to leak out of here.
Up to Friday the thing that I was thinking about
was that by clearing this - all of this thing
through the Stabilization Fund, we were stepping
shead, and that the possibility of the Federal
Reserve encroaching on our prerogatives or the
possibility of the Federal Reserve taking the
Stabilization Fund away from us, or some of the
other things it Was in denger of.
Now, the tuing that I 80 fearful of, and the
thing that I told Bell this morning - that I have
never uone since I've been here - I have never
done - you can call it a "fast one," I've never
been tricky, I've never exceeded my authority.
Now, per example: The Federal Reserve begins to
worry about this expansion. They're going to have
this and that. Immediately they get a bad reaction.
They immediately get - Eccles is building up a
resistance against himself which is unnecessary.
Why? Because ne doesn't know how to handle Ais
own problem, and therefore ne is talking in terms
taat frighten people. Why are we having this -
all this Government bond selling in the last couple
days? People are frightened at what Eccles said up
in Boston, because they realized that he and the
Board don't know where they are going.
Now, the thing that I don't want is to make a move
which doesn't on the surface make sense. Now, to
do this thing, which finally I understand - I didn't
understand because it hadn't come up before, but
we'd only been talking in terms of foreign gold
and not domestic, so it nad never been explained
to me before this morning. If I route this thing -
we'll just use - we'll use the example, the gold
that the Guaranty Trust brings in - into the
Stabilization Fund, and from the Stabilization
Fund into the General Fund, and then the General
Fund goes to the open market. People will say,
"Why is Morgentuau doing this?" Now, they won't
argue, "Is what he is doing right?" I think that
most of the people will say what we are doing is
good sound economics. But this - back-tracking
on myself and looking at it through this extra
129
78
- 11 -
thing, the fact that it is difficult to under-
stand and difficult to explain, people will ssy,
"There is something that - there's a trick, there's
B trick." See? And when Docles wakes up to what
I've done and when Mr. Gardner explains to him
what I've done, he's going to begin to kick like
L steer, because he - he doesn't - he's agreed to
this now for reasons I don't understand any more
than - well, I can understand way he didn't want
1t, but I can't understand why ne's agreed to it
efter all the arguments he gave against it.
But I'm fearful that people will say, "There's B
trick." Now we've got - the Treasury's got the
confidence of the people. They believe In me per-
sonally. If we handle this thing through the
General Fund and the General Fund goes to the
market, I can explain it: "Sr. Bell carries in
his General Fund the item 'Sterilized Gold.'
We'll show now much gold is sterilized. There's
no mystery about it." And I'm not - there will
be another group that say that when I handle
domestic gold through the Stabilization rund -
there will be some people say I'm exceeding my
authority - I'm Joing something which is unnec-
cessary, I mean.
inc while I did all this arguing the other day,
I'm just - I'm just - I like - I mean at this
stage of recovery it isn't necessary to do it.
How, I've argued the other way, but I've had time
to think about it and I've had time to really
have this thing explained to me. And now - I
mean we'd be going through a complete extra
motion in order to give something to the Stabili-
zation Fund, which is unnecessary.
How, the other argument which Bell had, which is a
very gooù one. You fellows say there is the fear
that the Stabilization Fund will be taken away
from us. Well, no one is ever going to argue about
taking the General Fund away from the Treasury. I
mean they're never going to do that. And if the
domestic gold is handled the way it is now, not any
change, and no one is ever going to take away that,
then - and let's say the Federal Reserve can say,
"We can do that." Then the other argument is, "How
130
II
- 12 -
can you do it? How are you going to handle
domestic gold?"
Now, I can explain this thing. I can take this
thing now and explain it so that my boy can
understand it, so that any high school graduate
can - I can't explain the other thing.
Oliphant:
Well, under your thought there, the three types
of gold: the gold which we buy direct, the gold
we get through Chase Bank, end then the domestic
gold - now, what about the gold that you bought
direct?
d.M.Jr:
How do you mean?
Oliphant:
The gold that heretofore has been bought through
the Stabilization Fund in London.
B.d.Jr:
What I'd do is very simple. I'd do all three just
the way we are doing it now. I wouldn't change a
bit.
Oliphant:
Well, you understand, do you, that the General
Fund nas plenty of authority to buy gold abroad
and buy sterling with which to pay for gold
abroad. Then I raise the question why do you
justify -
H.M.Jr:
I don't know that it has that. My thought is
that I wouldn't change anything.
Oliphant:
Well, does the public know about the way the
Stabilization Fund has been buying gold?
G.M.Jr:
They will know it; on Thursday we transfer 50
million dollars from the Stabilization to the
General.
Oliohant:
Then you will have to explain why you are handling
your direct purchases one way and the - your Chase
Bank gold -
H.M.Jr:
Well, it is very simple. The purchases of gold by
the Stabilization Fund are for only one purpose,
and that is to stabilize the currency.
131
811
- 13 -
Oliphant:
Of course, Chase gold has exactly the same effect.
d.M.Jr:
Not entirely, not entirely.
Oliphant:
You mean that gold movements don't?
H.M.Jr:
No, because certainly there is - there must be
some of it in exchange for goods and services.
Taylor:
Same thing.
Olignant:
There's no difference.
Taylor:
No difference between domestic gold, gold that
comes in through the Chase, or gold that is pur-
chased by the Stabilization Fund.
R.M.Jr:
Well, I'll put it the other way around. You argue
why we should change what we are doing now.
Oliphant:
Well, I'm going to clear up that one point, that
there is the authority to do it through the
General Fund.
H.J.Jr:
Through what Act?
Oliphant:
That is that old Act of 1867, remember, enscting
the Reserve Act.
B.N.Jr:
Oh, you mean to go back on what we had in the R.F.C.?
Oliphant:
Now it is in the Gola Act of 1934. The Secretary
of the Treasury is authorized to purchase gold at
nome or abroad. It was put back in again.
H.M.Jr:
Well, let's say why should we change the three
methods of purchasing gold? Why should we change
from the way we are doing it now?
Oliphant:
May I before I answer that clear up one other
point? The document - I want to be sure we are
thinking about the same thing as far as Eccles
is concerned - the document that we discussed
with Locles did have the purchase of this foreign
golu through the Stabilization Fund. Do you recall
that?
E.M.Jr:
what document?
132
#
- 14 -
Oliphant:
We had nim over here one day and gave him a
one page document.
Bell:
The document that had the transaction "X buys
gold."
H.M.Jr:
Oh.
Hoes:
I think ne asked did that include domestic,
and I think if you look up the record WE said
yes, and the title "Acquisitions" -
H.W.Jr:
But that is unimportant, what we told Bccles.
I mean what we are trying to do is make up our
own mind.
Oliphant:
I'm getting at this question of whether or not
it is tricky. I'm addressing myself to whether
or not there is anything tricky about it.
H.N.Jr:
Yes
Oliphant:
In the first place, I think that's very important,
the whole thing that is laid out there.
S.A.Jr:
Somebody get that sheet.
Gaston:
Eccles' question was addressed to whether you were
going to sterilize domestic gold or not. It wasn't
directed to the ,uestion of how you were going to
do it, but were you going to sterilize domestic
gold also. That's what he wanted to know.
H.V.Jr:
well, go shead, Herman.
Oliphant:
I think you will find we discussed it with him.
E.M.Jr:
Well, let's say we did. Then what?
Oliphant:
Then the other thing that you referred to, that
this was a possible stretch of power. That ought
to be perfectly clear. It is no stretch of your
power, because the Stabilization Fund specifically
authorizes you to buy gold - I mean the Act.
H.M.Jr:
Well, what does the Act say?
133
- 15 -
Oligiant:
That you are authorized to buy gold.
H.M.Jr:
Where?
Olignant:
"For the purpose of stabilizing the exchange
value of the dollar, the Secretary of the
Treasury, with the roval of the President,
directly or through such agencies as ne may
designate, is authorized, for the account of
the fund established in this section, to deal
in gold and foreign exchange and such other
instruments of credit and securities as he
may deem necessary to carry out the purpose of
this section."
Now, it says "deal in gold and foreign exchange" -
to "deal in gold" SO as to include both purchase
and sale of gold.
H.M.Jr:
All right.
Oliphant:
Wow, notice all I am addressing myself to is the
question mether or Lot there is any trick in it
1f you decide you want to put it all through there.
....Jr:
Well, the trick is in this, Herman. You are taking -
let's confine ourselves to the domestic gola - you
are taking the domestic gold and running it through
the Stabilization Fund, where now it is being hought
every single day and nos been bought for many decades
through the mint to the General Fund. And when that -
I take it - I don't know just where they branch off,
but somebody's got to pay for that gold that comes
into the Denver mint, doesn't it? What, Dan?
Bell:
Yes, the Denver mint pays for it by E check on
the Treasury of the United States.
E.M.Jr:
Now, if we ran it through the Stabilization Fund,
where would you begin to by-pass?
Bell:
It might be paid for at the same place, but the
Denver mint would draw & check on the Stabilization
Fund instead.
H.M.Jr:
Instead - instead. What? (to Oliphant)
Oliphant:
(Nods affirmatively)
134
#
16 I I
B.V.Jr:
And then the Stabilization Fund, buying all gold,
would have to go back to the General Fund to get
reimbursed. Is that right?
Bell:
When it turns the gold over to the General Fund,
it would be reimbursed. That's right.
(Sheet entitled "Sterilizing
Future Acquisitions of Gold"
is handed to Secretary)
H.M.Jr:
Now, which is it? "A. The Fund would buy all
imported gold. B. To pay for this gold it would
use funds obtained from the General Fund of the
Treasury in exchange for its gold transferred to
the Treasury. C. The Treasury would obtain such
funds by increasing the amount of Treasury bills
sold to the market."
Yes, you see at that time we weren't talking about
it.
Hass:
Yes, we were.
H.M.Jr:
Well, it isn't here, George.
Heas:
I know it isn't here and - but it's my mistake,
and -
White:
That was - I'll try to explain why -
H.M.Jr:
I beg your pardon, but -
White:
The very next sentence -
H.M.Jr:
Snow me there is anything in there.
White:
I'm sorry. I - I didn't -
H.M.Jr:
Show it to me. That's the whole point that Bell
made, that this thing is -
White:
But let me call your attention to the fact that
sheet was brought in here to make -
H.M.Jr:
Now listen, please tell me where it says about
buying domestic gold.
135
- 17 -
White:
It does in the title - "Sterilizing Future
Acquisitions of Gold - and the Question of
buying domestic gold came up in the discussion.
It was not used 88 an illustration here -
H.W.Jr:
No
White:
- because -
H.M.Jr:
Now listen, White - now, this is terribly important.
White:
I think so, and that's why I want to -
H.M.Jr:
When this thing WES written, we were not talking
about sterilizing domestic gold.
White:
May I have two minutes end illustrate that point?
Haas:
You're right on that, but -
Bell:
That's the reason, I think -
H.M.Jr:
That's why I didn't understand that thing.
Bell:
That's the reason, I think, the Secretary was &
little confused on Friday when we were talking
about domestic. When we first started discussing
this with Professor Williams and Professor Viner,
we confined our discussion to imported gold and
we talked about the Stabilization Fund handling
imported gold, and we came into this room and
agreed upon policy with respect to imported gold.
Then, when we got into the discussion with the
Federal Reserve people, the question, ES I recall,
Nas asked, "Do you intend to handle or take care
of domestic gold?" and not, I don't think, with
respect to the channel which it goes through.
But they were asking about the policy because the
domestic gold has the same effect on bank reserves
as imported gold. I don't think anybody cared
so much about the mechanics.
White:
May I say just B few words, Mr. Secretary, on that?
Everything that Mr. Bell says is quite so, with
one difference. In the other room the question was
136
- 18 -
raised by Viner and others - one other - of why
not take care of domestic gold at the same time.
Several of us thought it would be 2 good idea,
and in the title -
Bell:
But what was the answer to that ,uestion?
White:
I'm coming to that. I want to make the whole
issue clear. And in the title to this, it was
specifically not - not sterilizing future
imports - but we changed "imports" to "acquisi-
tions" to include domestic gold. Now, when it
came to a Question of illustrating this, there
was some difference of opinion which illustra-
tion we should take. It was decided to use one
illustration, namely, that of Chase Bank or some
other bank importing gold.
That was as the sheet came here. During the dis-
cussion and after the discussion, Viner raised
the point why not Include domestic acquisitions
as well - I mean the domestic newly mined gold
as well as imported gold. Recles says, "Yes,
exactly; that's a good idea." And he did very
definitely. He approved of it and so did Golden-
weiser. He said, "Yes, by all means; not only
domestic gold, but silver ought to be handled the
same way.
d.M.Jr:
but the point that I make is the point - Friday,
way I was confused and everybody else in this
room was confused, because We had never worked
out B thing Like that for me snowing the ways we
could handle domestic gold.
White:
That's true.
Bell:
I don't think White has quite answered the question
as to why not include domestic gold which was asked
in the other room. The answer to that question
was that it was not within our terms of reference.
d.l.Jr:
Not within our terms of - ?
Bell:
Of reference. We were specifically authorized and
directed to consider imported gold. He said that
this plan that we outlined was flexible enough to
137
- 19 -
include comestic gold, but your directions to
us were that we should consider the plan to
take care of imported gold.
Jr:
But I still think - I mean WE - We got here - we
all got mixed up on Friday when you tried to
explain this thing.
Now I - I just - I think that one of the - I just
feel this way - let's put it this way. This
morning I feel that running this all through the
Stabilization Fund - I'll put it - I've got another
reason why I don't - I'd be overreaching. I mean
I'm going too fast, that I subject myself to
criticism that I'm grabbing. I wonder if we don't
accomplish just as much if we do the thing - now,
the thing that I have told Accles five times, and
God I was sincere about it - WES that I had only
one thing in mina on this thing, and that was to
remove the Treasury from the control of the excess
reserves. And ne kept telling me that he didn't
want us to dominate excess reserves through our
sterilizing gold, and I went over, end over it
again, and I said, "Recles, I can't get it in
here. That is Just wast I am not wanting to do.
I want to remove the Treasury from the position
that me are the gold lock on your emergency brake,
and your emergency brake is the excess reserves.
All I've got in mind is I want to remove the
Treasury from that position, so that you can fune-
tion." And I said, "That's all I get."
And ne changed. de kept saying all the time,
"Well, we went you to say taat from now on the
Federal Reserve is in control of domestic economy,"
and he no longer says that. He's withdrawn nis
position. Now he's changed. He no longer tells
me that. That isn't the condition; he doesn't
make any conditions. Now I say to him, "I want
to do one thing. I want to take gold and sterilize
it so that it doesn't dominate your excess reserves
situation, and that's all I want to do."
Now, as to the Stabilization, I just wonder if -
the whole thing, very simple - if we take two kinds
of gold, the gold that the private banks and the
domestic gold, and run that through the Stabilization
138
#
- 20 -
Fund, which is unnecessary to accomplish what
I want - am I not moving a little bit too fast
and don't I start a barrage of criticism, which
is entirely unnecessary at the time, against the
Tressury and against me personally? Now, that's
the whole thing. And can I maybe accomplish
what I want the next three months, six months,
a year from now? I mean I can make this announce-
ment tonight of what I am doing.
And incidentally, you've heard the latest thing -
Mr. What's-His-Name - Eccles' man, publicity man -
Geston:
Thurston. Elliot Thurston.
H.N.Jr:
- came over to see Mr. Gaston and told Mr. Gaston
that ne'd like to suggest to Gaston - just that
ne'd like to suggest that Mr. Eccles should be
permitted to come to my press conference. So
Gaston said it W&S a swell idea, he wondered where
he got it.
Olipnant:
You having invited him before.
H.M.Jr:
Yes, yes,
Lochnead:
Very strongly you invited him.
3.1.Jr:
Right in front of the President.
Bell:
Yes.
I.I.Jr:
When we were at the White House.
Bell:
Said that he suggests for him to come over to your
press conference st four o'clock Monday afternoon.
You said, "Don't answer right away, think it over
over the weekend. But you can come in."
White:
Mr. Secretary, may I attempt to answer? I think
you've got several strong premises, namely: You
don't want to appear to be overreaching; you don't
want to appear to acquire anybody's powers that
possibly belong elsewhere; you don't want to appear
to be going too fast. Those are all strong arguments.
139
- 21 -
H.2.Jr:
Excuse me - can you hold it? They are not argu-
ments, they are intuitions. They are not arguments
and there is no -
White:
And I think the strongest support of those intu-
itions is the fact that you have them - I mean the
mere fact that they arise in your mind and possibly
in several of the other men's minds, is strong
supporting evidence that possibly they will erise
in other people's minds irrespective of the merits
of them.
But I think that before a final decision is made -
I think we better examine each of those three and
see now much basis they have. That doesn't alter
the fact that that intuition may arise and that
doesn't alter the fact that you may make your
decision on the basis of the fact that that
thought has srisen. Possibly that will overweigh
any reasoned interpretation. Nevertheless, I
think we ought to go through the reasoned inter-
pretation to see how much basis there is for that.
With regard to the overreaching, this power, this
scquisition of domestic gola is something that
has got nothing to 10 at all with the Federal
Reserve Board. It is an inter-Treasury operation.
You are handling the gold one way; you have decided
to nandle it another way. The only sense in
which it is - and I think that is what you had in
mind - that it may be said it is an overreaching,
is that you are attempting to increase the prestige
of the Stabilization Fund.
Now, when It is put that way, I think you are
quite right, but I'm not sure that that is the
way I would put it, and I don't think that is the
way some of the rest of us would put it. It is
not a question of enhancing the prestige of the
Stabilization Fund; it is B question of enhancing
rather the significance or the importance -
M.M.Jr:
Hello (on phone - has conversation)
Go ahead.
White:
This will take 8 couple of minutes. I went to
get the thought through. It enhances, not the
140
- 22 -
prestige of the Stabilization Fund - that very
way of putting it seems to involve a grasping,
a reaching, an attempt to slip something over;
but it is rather an sttempt, as I say, to em-
phasize a new Treasury function - a new Govern-
ment function, not a Treasury, because we agreed
Saturday, whether - now sincerely it is hard to
say; it is hard to divorce oneself from one's
complete nistory - but we felt that whether the
Stabilization Fund were in the Board or in the
Treasury, our conclusion would have been the
same, because the new function is one which has
been introduced by the Stabilization Fund - by
the Gold Reserve Act of 1934, something new which
the Government is going to do; namely, it is going
to buy and sell gold, it is going to engage in
operations to stabilize the exchange value of the
dollar. And, as Oliphant put it, we merely use
2 short-cut term and when 26 say Stabilization Fund
we describe this whole new philosophy with regard
to monetary control and monetary credit.
On the question of domestic BC, uisitions or gold,
I think Viner Answered It very, very well. I asked
him to put It down in writing, but I guess he
forgot. The answer, which I can describe but not
very well, is, if one were asked, "Why do you have
the Stabilisation Fund handle domestic gold?" - it
is this: that all gold has a definite effect on the
domestic credit situation, which in turn relates
to the exchange value of the dollar and the whole
monetary mechanism; the decision has been made that
there shall be some act of handling that incoming
gold, wherever it comes in, in such manner as to
either sterilize it or not, as the decision is
made. Never mind who makes it, whether it is made
by both people or by one, but as the decision is
made to sterilize it or not, the act of steriliza-
tion will take place. Aná that whole new concept
is B function of the powers granted under the
Gold Reserve Act. That the simplest way to handle
this thing is to tie it all up and route it through
the Stabilization Fund, to use Wayne Taylor's
expression. It all comes into the Stabilization
Fund, all gold now, because of the new function
which is granted the Government through the Gold
141
- 23 -
Reserve Act. Somebody takes a look at it - the
Secretary of the Treasury or the Board of
Governors takes a look at it and decides this
gold will be sterilized, or all gold will be
sterilized at this time. Next time they may
decide that only part of this gold shall be
sterilized; at snother time, that none of it
shall be sterilized. But all is routed -
H.Y.Jr:
May I interrupt you a moment? But it doesn't
stay in the Stabilization Fund.
White:
That is not the important thing, for this reason:
the General Fund is to be regarded merely as a
warehouse, Mr. Secretary.
6.M.Jr:
But it isn't that; it isn't that. There is
where you're wrong.
Oliphant:
Turn it around. Let's say gold starts to move
out.
White:
Well, it is a warehouse in this sense, that -
H.d.Jr:
But you're wrong.
White:
But it is a warehouse in its -
H.N.Jr:
The warehouse is the General Fund.
White:
That's exactly what I said.
H.M.Jr:
I thought you said Stabilization Fund.
White:
No, the General Fund.
Olionant:
I think it is an accident. I think you will see
that that is an accident if you will envisage an
outflow of gold, a big outflow of gold; that is,
two billions of gold, that can flow out.
B.M.Jr:
Herman, I'll give you your chance.
White:
Well, I'm through. I say the General Fund is the
warehouse.
142
- 24 -
H.M.Jr:
Now White, let me just say this. I think I am
thinking clearly. What we are all thinking
about and in complete agreement is that the
Treasury should be the warehouse of the gold.
White:
True. The warehouse. I want to emphasize that
word.
H.M.Jr:
Now, we all agree that we should Handle the gold,
and that when the decision should be made whether
golú should go out or whether we should build up
excess reserves through putting gold in, again
it is a Treasury decision.
White:
All right.
H.L.Jr:
Now, there is no disagreement on that, and we will
have the sterilization of gold. That is the big
thing. Now, there will be no criticism, generally
speaking, when the Treasury makes this move, see?
The thing that I am afraid of is that there will
be criticism of the mechanics. Now, when they
begin to examine how we do this thing - smart
boys, Wall Street Journal, some of those boys -
they begin to examine things and they may begin to
criticize this thing on account of the mechanical
method that we have, where they won't criticize
it if we do this thing on the whole.
Now, way spoil this thing? I'm the Secretary of
the Treasury. The Treasury all belongs to me.
Whether it goes to this bureau or that buresu
is - it doesn't make any difference; I'm the
boss of both of them.
White:
I taink you've got 2 strong point with that, and -
B.M.Jr:
Now, just 8 second - and the thing that I am
fearful of this morning - Now, everybody - nobody
is more jealous of our prerogatives than I am, but
this is E11 bureau and in one of his capacities he
(Bell) is a bureau, and what we are talking about
is the back-and-forth between these bureaus. Now,
I know I'm arguing against myself Friday, but I
didn't understand this thing.
White:
That's quite all right.
143
- 25 -
H.M.Jr:
But what I am fearful - then I'll stop and
somebody else can argue this thing - somebody
take & pin and stick 8 hole in one of the cogs.
They'll say, "You've stuck in an extra wheel
that you don't have to have," and they pick
on that cog and lose sight of the whole policy
because one extra tree has been planted.
Now, maybe I am overemphasizing this thing. I
can explain this thing on the Hill, off the Mill,
any place, as 8 policy, because I know it is sound,
But the thing that I am fearful of is that I am
sticking in an extra cog and I wonder if it is
worth while.
White:
Well, the mere point that others may have fears
is the strongest point in it, because what you
are dealing with is the public and the public
will react, not on any cereful reasoning, but on
hunches or feelings or superficial examin tions,
and there is that sttitude therefore that must
back the point that you are raising, and you may
come out with that.
But there is one other point that I'd like to
raise. You say it is not E matter of very great
importance whether it is one way or the other. I
think that is understating the case. I don't think
it is vital, but I don't think it is E matter of
little importance. And for this reason, Mr.
Secretary: that you are introducing - by your
sterilization or gold you are doing something
which the Government - the Treasury, rather, has
never done consciously. It is something new;
you are stepping in and you are saying, "Ye are
DOW going to exercise some control. We are going
to assist the Board (if you like) in the exercise
of some control over the credit mechanism." And
the answer is that you wouldn't have possibly
thought in those terms et Bll, I don't think,
unless the whole episode of 1934, the creation
of the Stabilisation Fund and everything else,
WBS raised.
Therefore, your act now bears E very close
relationship to the Cold Reserve Act; more than
that, it bears & very close relationship to the
whole changing concept of banking control, which
- 26 -
is epitomized by the creation of the Stabilization
Fund,
Therefore, to bring it home now, if you use all
the powers granted in the Gold Reserve Act and
relate them through the Stabilization Fund, trans-
fer them through, I think it serves to emphasize
in the minds of the public and the world in
general that this part of the larger monetary
policy which is going forward. And that reason
is much simpler, I think, then the terms in which
you put it. You merely are transferring gold
through the Stabilization Fund. I don't think
it is even necessary to go to any technical
explanation. It's gold; that's what you're
nondling. You are handling it through the Stabili-
zation Fund. You are sterilizing gold through the
Stabilization Fund. Now, if that argument isn't
worth much, then I hold that your fears ought to
be the guiding factor. I'm through.
H.M.Jr:
I can argue on your side. I don't know that we
even have to say how we are sterilizing.
Taylor:
I don't think we do have to say it.
Gaston:
I'd like to make just E word or two of comment on
what Harry White said. He says it is not merely
8 matter of the prestige of the Stabilization Fund,
it is something deeper and more important than
that. And as he explains it, I get that ne is
speaking not merely about the prestige of the
Stabilisation Fund, but about the permanent status
of the Stabilization Fund, and it seems to me that
what is being proposed here is an enlargement of
the functions and the status of the Stabilization
Fund over what they had heretofore and what appears
to be contemplated in the law. You are proposing
to erect the Stabilization Fund into a monetary
control authority. Now, so far as there are mone-
tary control functions in the Treasury Department,
they do not belong to the Stabilization Fund. It
Isn't contemplated, as I see it, in the Gold Reserve
Act that they shall repose in the Stabilization
Fund.
The monetary control authorities, so far as they
145
22 , I
exist in the Treasury Department, are the func-
tions and the authority of the Secretary of the
Treasury, and not of the Stabilization Fund.
So for as I cansee, the reasons for re-creating
this new status and this new prestige for the
Stabilization Fund - I don't think they are very
valid. You are attempting to enlarge the monetary
authority of the Stabilization Fund to concentrate
pretty largely the monetery powers of the Treasury
in the Stabilization Fund.
And it seems to me that if anyone should sevence
very seriously, and if their arguments should be
taken very seriously, this idea of the creation
of E monetary authority separate from the Treasury
Department, such LS Mr. Venderlig proposed, why,
this rocess of trying to Isolate all monetary
functions in the Stabilization Fun. would be en
excellent preparation for that situation.
But actually here you are setting up a fiction
when you try to say that the Stabilization Fund
is going to exercise this power 01" sterilization
of gold. The Stabilization Funo nas no such
powers. It can't sterilize gold. The gold has
got to be sterilized by the General Fund of the
Treasury Department. The Stabilization Fune, as
I see it, is L fund, 2 sum of money, and in agency
through which the Secretory of the Treasury can
carry on certain types of transactions which he
Gld not have other appropriations to carry on, and
for which ne needed certain enlarged authority,
which WAS given to nim through the Stabilization
Fund in the Gold Reserve Act. It is 21 trading
agency and not a monetery control authority.
Let me - may I ask you a question, Herbert. After
B11, when this thing is through you've got to front
for ce on this thing, don't you?
Gaston:
10 an extent, yes, sir.
1.2.Jr:
You see, I nate - I have never done these things
in 8 nurry before, not until I felt that my own
crowd W&S pretty well agreed that I'm right. And
146
- 28 -
I don't feel that yet, and if necessary I'd
rather postpone it 24 hours, see, than to have
the people feel, Oliphant and White and every-
body, that I'm not doing - that they are not
with 16. I mean I don't - I mean I'd rather
delay the thing 24 hours than to have the thing -
what I am getting at is this - and I am perfectly
willing, because nobody knows about it; I can
delay the thing until Tuesday or Wednesday, if
necessary. But you know - I mean the first thing -
the first part, we've got this question of ster-
ilizing gold, which is in itself a big thing to
explain. How important do you feel the mechanical
way of handling this thing is - I mean is a part
of explaining it.
Caston:
I think the mechanical way of honsling it does
not need to enter into the explanation it all.
This preliminary rough craft doesn't mention the
Stabilization Fund at all. I don't think it is
desirable to mention the Stabilization Fund at
all. I don't think this is important. I think
it is important that when we announce we are
going to do it, we be definitely sure of now we
are going to do it.
I think that this whole question - well, it is
either important or unimportant. I don't think
it is important. And if it is not important, then
I should say go along in the present way of doing
things, because you are just putting yourself to
an unnecessary amount of bookkeeping. That's the
point if it is unimportent. If it is important,
then it is important for these reasons that Harry
White nas advanced, and I don't think they are valid
reasons.
lleas:
Then Herbert is way back at the beginning of this:
not to do it through the Stabilization Fund at all.
Gaston:
Do it just exactly as it is being done now. The
ordinary routine gold that comes in in the normal
way through the banks I think should be handled
through the General Fund. The Stabilization Fund
engages in certain types of special transactions
abroad and should go on doing it just as it is
147
- 29 -
doing it now. So far as the thing of sterilizing
gold is concerned, it has to be done ultimately
by the General Fund and I - way go through the
bookkeeping "nocus-pocus" of making the Stabili-
sation Fund appear to be doing something which
it is not actually doing.
Fell:
is & matter or fact, your first transaction will
be in the General Fund, because Archie will have
to get, say, 50 million dollars the very day that
this thing starts to function, and that will be in
the General Fund.
Disphant:
I'd like to ask you, Mr. Secretory, now you'd
feel about this situation if there was no gold
at all in the Stabilization Fund and there #8S B
two billion dollar - no gold at all und two
billion Collars.
H.M.Jr:
Xon, don't ESK me trick questions, don't ask me
trick questions.
Olignant:
I don't want you to answer. I'll use that 85 a
text and talk about it. If you started out with
two billion dollars of buying power this morning -
Hell:
Credit instead of gold.
Oliphant:
- credit, I think the whole picture would look
different, and I bring that up because I want to
see what this thing looks like over a longer
period of time. It is more or less an accident
that we start this morning with E limited buying
power in the Stabilization Fund. And with one
swing of gold in the other direction, with a
billion dollars of gold moving out, we might very
well say, "Well, that will be Stabilization Fund
gold." And then it seems to me you do see the
Stabilization Fund, in that view of it, as the
normal, natural place through which this stuff
will pass.
H.M.Jr:
Well - oh, go ahead; I thought you had reached
B period.
Oliphant:
It seems to me, in terms of your own thinking,
long term thinking, about the Stabilization Fund,
148
- 30 -
too much importance should not be attached to
the more or less accidental circumstances
that at the moment there is E relatively slight
buying power in the Stabilization Fund.
B.M.Jr:
Doesn't influence me at all; doesn't influence
me at all, Herman. I mean it doesn't influence
me at all.
Oliphant:
And that's the reason - it is because of that
that we talk of "hocus-pocus."
H.M.Jr:
Let me go around El minute. I don't want to be
rushed. Wno wants more time? Now, we've got an
Open Market Committee at 11, when we are supposed
to explain this thing. Now, I'd just as leave
take that time and use that to throw it into their
thinking, but I think this is a Treasury matter
and I'd nate to have the Open Market Committee
of the Federal neserve Board into this thing.
Heas:
May I say something? - try to clear this thing?
H.M.Jr:
You've got to talk awful fast, though. Go ahead,
George.
Hots:
The whole thing we are in a debate here about is
a matter of - in substance, just about Treasury
accounts. That's all it amounts to. The essen-
tial thing that you are going to do is you're
going to sterilize gold, and you might make an
announcement and not indicate your mechanics at
all. You can say, "Well, that's up to Bell;
there's several ways of doing it," and then get
the press reaction. If there is no resction, as
you anticipate, then go shead and do it any way
you want; you are free. But you at least have
taken care of the doubt you nave had. You see,
you haven't moved when you were in doubt. I'm
fearful of that; I don't think you should do that.
But that may be one way of handling it. Then 1f
you think your press is :ll right, you can do any
way you want.
H.M.Jr:
What do you think (to Olipnant)?
149
- 31 -
Olighant:
I don't want any more time on it. I'll tell you
way. I think that - unlike Gaston, I think it is
of tremendous importance - the difference in the
future development of the country. I think that
the values involved, though, are so subtle that
it all depends on what your intuitive Judgment
is, and I don't think we'd advance it any by
further consideration.
H.M.Jr:
But I don't want - I've been a little bit more
aggressive than usual; you listen more pr tiently.
But unfortunately I'm fighting time. The reason
that I argued against myself was that I only had
it explained to me walking down this morning,
because we never had really - there was 8 blind
spot, and the blind spot was that in this thing
you fellows went along in your discussion but
you didn't carry me along on how you are going to
hundle domestic gold and I only got it this morning.
You had those discussions in the other room, but
you diun't carry me along.
But, as I say, I can snove the 11 o'clock meeting
until 2:30. I don't want to move on this unless
you - I'm perfectly willing to say to my own crowd,
"Let's do it as is, then wait until we get the
extension of the Stabilisation. After we've got
the extension of the Stabilization Fund, then maybe
let's transfer this thing, or even any time."
Olipnant:
Well, don't you want 24 hours more for yourself?
B.V.Jr:
No, I'm satisfied; personally I'm satisfied. I'm
satisfied. If we can do this thing, then subse-
quently we want to transfer the whole thing into
the Fund, why, it's all right.
White:
Providing you don't specify now you are going to
do it so that you will appear to be changing
later.
H.W.Jr:
I won't specify.
Taylor:
Say we'll handle it - part of it through the
Stabilization Fund and part of it through the
General Fund.
150
32 , I
laston:
I've got a sample release if you'd like to look
at it. (Hanus sheet to Secretary)
H.M.Jr:
"By authority of the President and after consulta-
tion with the Board of Governors of the Federal
Reserve system, the Secretary of the Treasury
announces nis intention, beginning on this day
(Tuesday, December 22, 1936) and until further
notice, to take such action with respect to net
additional sequisitions or releases of gold by
the Treesury Department ES will offset approxi-
mately any increases or decreases of the reserves
of the member banks of the Federal Reserve System,
which would otherwise be the consequence of such
goll transactions.
"Net acquisitions of gold will be offset by the
sale of Treasury bills in en approximately equal
amount. Conversely, any net outflow of gold will
be compensated by the redemption of bills or
other Treasury obligations.
"The purpose of these operations is to protect
the exchange value of tue dollar and safeguard
the requirements of internal prosperity by
preventing disturbance of the monetary and
credit system through gold transactions. The
gold influx or recent months has created bank
reserves in excess of current needs, and it is
believed that their further increase would not
contribute to the national welfare. On the
other hand, it is believed to be desirable to
provide additional means for neutralizing any
ossible 111 effects of any future outflow of
gold in considerable emounts."
I'd say it sounds about 90 percent all ignt.
I think if you fellows would all adjourn and
weigh each word in there - There's only one
thing. "By authority of the President and after
consultation with the Board of Governors" - that's
all right, I think - and nothing is said there how
to handle it.
What we can do is this. I'm seeing this man - I've
got an 11 o'clock meeting which I want Taylor and
151
- 33 -
you two (Bell and Upham) to attend. Now,
right after it, if you fellows would like to
meet and discuss the thing, I'm free.
Oliphant:
That will be about 11:15?
n.d.Jr:
Oh no, about 12 o'clock.
Oliphant:
on, that's an nour meeting. I'll be ready about
12 o'clock.
n.2.Jr:
We'll meet again and then we can once more take
one more look at the thing and if everybody -
just wait a minute - the thing that I value more
than - out of the eight or ten people, if one or
two says no, but after all we're divided about
five and five. And then we've got this legal and
economic - those people, and I want to make per-
fectly sure that they are happy; and if they are
not happy, we'll wait one day, we'll wait two
days, and let you work on it. But I'm not going
to move on this thing until you people tell me
you are satisfied, see? And let's look et it again
at 12 o'clock. Now, if you're not satisfied, we
can postpone it for a week from today. It's too
important, and if you're not perfectly satisfied
I'll postpone it a week from today.
152
December 21, 1936.
10:56 a.m.
H.M.Jr:
Hello
Operator: Dr. Burgess.
H.M.Jr:
Hello
B:
Hello sir.
H.M.Jr:
What's going on?
B:
Well the market's a little better to-day.
F.M.Jr:
A little better.
B:
The - about the same as yesterday's close.
P.M.Jr:
Ah-ha.
B:
And no great activity. The tone is a little better.
H.M.Jr:
Well I thought to-day. I want to try something out -
that I'd only buy the 21,
B:
Only buy the 2-1/2.
H.M.Jr:
Nothing else.
B:
There a little out of line with the other bonds.
H.M.Jr:
Higher or lower?
B:
They're higher. You see - we - we held them a
little while the rest of the market went down.
If you take your list there - they yield on last
night's closing 241.
H.M.Jr:
Yes.
B:
Now your '49 -52's which is a year earlier maturity
and a high coupon for tax purposes yield 240
H.M.Jr:
Oh.
B:
....On a tax exempt basis the new ones yield 285.
The '49-'52 yield 295.
H.M.Jr:
I see.
- 2 -
153
B:
So that they're - it isn't very much out of line.
H.M.Jr:
Ah-ha.
B:
But it's a little - a little high in relation to
the bond.
H.M.Jr:
Ah-ha. Well I'll tell you what you do. Do it -
just keep the orders in there - let's say from now
and call me at about 10 minutes past 12.
B:
12:10.
H.M.Jr:
And let me know how it works.
Pull out all the
orders excepting the 2-1/2.
B:
Pull out all but 2-1/2.
H.M.Jr:
No I mean I want to leave orders in for the 21.
B
Yes all but - have orders in for 2-1/2.
H.M.Jr:
And let's just try that and see what
B:
Now what we've been doing - what we did yesterday
H.M.Jr:
Yes.
B:
Let me tell you that.
H.M.Jr:
Yes.
B:
We - we bought some 2-1/2's and had orders in for
them
H.M.Jr:
Yes.
B:
.....on a scale-down.
H.M.Jr:
Yes.
B:
And then we had some small orders for the other
stuff. There are about six different issues.
Only about 50 million at a thirty-second - just so
there'd be bids in, you see?
H.M.Jr:
Well I'd just like to - I'd like to test out the
market for an hour.
B:
All right. I don't think, as a matter of fact,
you'll do anything at all.
- 3 -
154
H.M.Jr:
Well I'd like to test it out.
B:
Yes, all right.
H.M.Jr:
And supposing you call me back at 10 minutes past 12. .
B:
All right.
H.M.Jr:
And let's just see what, if anything, happens.
B:
Very good.
H.M.Jr:
Thank you.
B:
All right.
Regraded Uclassifier
155
December 21, 1936.
10:56 a.m.
H.M.Jr:
Hello
Operator:
Dr. Burgess.
H.M.Jr:
Hello
B:
Hello sir.
H.M.Jr:
What's going on?
B:
Well the market's a little better to-day.
H.M.Jr:
A little better.
B:
The - about the same as yesterday's close.
H.M.Jr:
Ah-ha.
B:
And no great activity. The tone is a little better.
H.M.Jr:
Well I thought to-day. I want to try something out -
that I'd only buy the 2₫.
B:
Only buy the 2-1/2.
H.M.Jr:
Nothing else.
B:
They're a little out of line with the other bonds.
H.M.Jr:
Higher or lower?
B:
They're higher. You see - we - we held them a
little while the rest of the market went down.
If you take your list there - they yield on last
night's closing 241.
H.M.Jr:
Yes.
B:
Now your '49-52's which is a year earlier maturity
and a high coupon for tax purposes yield 240....
H.M.Jr:
Oh.
B:
....on a tax exempt basis the new ones yield 285.
The '49-'52 yield 295.
H.M.Jr:
I see.
156
- 2 -
B:
So that they're - it isn't very much out of line.
H.V.Jr:
Ah-ha.
B:
But it's a little - a little high in relation to
the bond.
R.N.Jr:
Ah-ha. Well I'll tell you what you do. Do it -
just keep the orders in there - let's say from now
and call me at about 10 minutes past 12.
B:
12:10.
H.W.Jr:
And let me know now it works. Pull out all the
orders excepting the 2-1/2.
B:
Pull out all but 2-1/2.
H.M.Jr:
No I mean I want to leave orders in for the 21.
B:
Yes all but - have orders in for 2-1/2,
H.M.Jr:
And let's just try that and see what
B:
Now what we've been doing - what we did yesterday
a.M.Jr:
Yes.
B:
Let me tell you that.
1.1.Jr:
Yes.
B:
We - we bought some 2-1/2's and had orders in for
them
H.M.Jr:
Yes.
B:
....on 8 scale-down.
H.M.Jr:
Yes.
B:
And then we had some small orders for the other stuff.
There are about six different issues. Only about 50
million at E thirty-second - just so there'd be bids
in, you see?
H.M.Jr:
Well I'd just like to - I'd like to test out the
market for an hour.
5:
All right. I don't think, as a matter of fact,
you'll do anything at all.
157
- 3 -
H.M.Jr:
Well I'd like to test it out.
B:
Yes, all right.
H.M.Jr:
And supposing you call me back at 10 minutes past 12.
B:
All right.
H.M.Jr:
And let's just see what, if anything, happens.
B:
Very good.
H.M.Jr:
Thank you.
B:
All right.
158
M
December 21, 1936
12:20 P.M.
Present:
Mrs Klotz
Mr. Upham
Mr. Lochhead
Mr. Taylor
Mr. Opper
Mr. Gaston
Mr. Oliphant
Mr. White
Mr. Haas
Mr. Bell
1.M.Jr:
Now, after this other conference, does anybody
feel we shouldn't go ahead on the lines we were
talking: handle the gold by the Chase Bank, the
Guaranty Trust, and the domestic through the
General Fund, the gold that the Stabilization
Fund buys we handle just the same BS it is now.
They will all turn the gold into the General Fund
and get paid for it. The General Fund will go
to the open market. Nothing will be said as to
how we handle it; we'll ride along, and after a
couple weeks we'll meet and talk it over again.
Now, let's take it easy. Det's go around.
Oliphant:
(Nods affirmatively)
Gaston:
Check.
Opper:
Nothing to add.
White:
All right.
daas:
No public statement - that is the decision?
H.M.Jr:
Public statement, but no explanation ES to the
machinery.
Taylor:
Except as it appears in the daily Treasury state-
ment.
H.M.Jr:
That's all. There will be no explanation as to
what fund.
White:
How will you answer the question, if it is put to
you directly, as it may well be in the press
159
- 2 -
conference, 8S to how you expect to handle that?
a.M.Jr:
I'll tell them that is purely a Treasury matter.
"And, as a matter of fact, we are going to give
you boys much more information than we have given
you before, because for the first time we are going
to show on the Treasury statement now much of this
gola" - don't like the word "sterilized" -
Bell:
Inactive. We've used "inactive" for want of a
better term.
H.M.Jr:
- "how much of the gold is inactive." But I'll
give no explanation. I mean they're used to that
by now. The thing that we're talking about would
be Greek to anybody else, because nobody knows
of all this we've been talking about. They don't
know what happens to the gold, how it is handled,
whether it goes through the Stabilization Fund
or it doesn't. I mean I won't give any explana-
tion. and Eccles doesn't know the discussion
that's been going on, so there won't be any mis-
information.
Hass:
D.K.
E.M.Jr:
What?
Haas:
It's O.K. with me, I say.
Lochhead:
I agree.
U.M.Jr:
I'm sorry - Wayne?
Taylor:
It's all right.
Upnam:
It's all right.
H.M.Jr:
Daniel W. Bell?
Bell:
It's all right with me. I'm just still a little
fearful about White's question. You say Eccles
hasn't been in on this, but supposing they call
upon Eccles to explain as to how this will operate
and he will go into a great deal of detail.
Upham:
Explain it the wrong way.
160
10s
- 3 -
Bell:
And he'll bring the Stabilization Fund -
H.M.Jr:
At a quarter of four I'll tell Eccles that, 6.8
to anything about how this is handled, I'll
handle it; the question as to the philosophy
of domestic reserves and domestic credit, that's
his baby.
Olipmant:
That's right, emphasize the philosophy.
H.M.Jr:
I see every reason why - I mean these people, I
respect their thought. After looking at this
thing for another two or three weeks, I may
decide - after all, I've been on their side up
to this morning and there are a lot of things
that I am not sure about at all.
But the thing that - now, the thing that -
Harrison's reaction and Burgess' reaction was
the Government bond market will sell off very
snarply tomorrow - and the other thing - which
was E. new one to me, which I don't think I
agree to; I mean I think Government bonds should
go up over & period of e week and stocks should
go off.
Another thing - always interesting to get 8
central banker's resction - Harrison says the
Europeans might object because the gold coming
over here should have the influence of putting
our prices up, and by sterilizing this we aren't
letting the gold from the Europeans do what the
Europeans are sending it for.
I said, "Is that what they're sending it for?"
deas:
Sounds like gold standard.
M.M.Jr:
Now, let's see this statement.
Gaston:
I have two drafts here, and in both drafts we
deliberately avoided giving any endorsement by
the Treasury Department to the idea that the
creation of additional bank reserves was neces-
sarily 8 dengerous thing.
161
106
- 4 -
1.1.Jr:
All right.
"By authority of the President and after con-
sultation with the Board of Governors of the
Federal Reserve System, the Secretary of the
Treasury announces that he will from time to
time take appropriate action with respect to
net additional acquisitions or releases of gold
by the Treasury Department to offset approxima tely
increases or decreases of the reserves of the
Member Banks of the Federal Reserve System which
would otherwise be the consequence of such gold
transactions." - Is that the way you say it?
Gaston:
We are offsetting the effect on the reserves.
S.M.Jr:
"To this end, acquisition of golu will be paid
for from the proceeds of the periodic sale of
public debt obligations of the Treasury; and,
correspondingly, reverse movements of gold will
be compensated by the purchase or redemption of
Treasury obligations.
"Ine purpose of these operations is to protect
the exchange value of the dollar and to safeguard
the uirements of internal prosperity by pre-
venting disturbance of the monetary and credit
system through gold movements. The gold influx
of recent months has contributed to the creation
of bank reserves in excess of current needs.
The present 1s, therefore, believed to be an
appropriate time to provide additional means
for neutralizing any possible 111 effects of
any future outflow of gold in considerable
amounts. If
Now, where is this different from Draft 2?
Gaston:
It is quite different. We approach it from B.
totally different angle.
H.M.Jr:
"By authority of the President and after con-
sultation with the Board of Governors" - I love
that word "consultation;" I didn't know that's
what it was called, but it's all right.
"By authority of the President and after
162
III
- 5 -
consultation with the Board of Governors of
the Federal Reserve System, the Secretary of
the Treasury announces his intention to sugment
the supply of free gold in the monetary stock
held by the Treasury Department."
"Free gold" - is that what you call it?
Gaston:
It will be free golu if we pay for it.
dell:
but it will be e dead asset.
Deston:
All free gold is a dead asset.
Bell:
Until used.
Caston:
Until used, yes.
L.M.Jr:
"This will be accomplished by the sale from
time to time or additional public debt obliga-
tions, the proceeds of which will be used to
defray the cost of additional acquisitions of
foreign and domestic gold.
"The purpose of these operations will be two-
fold: first, to protect the exchange value of the
dollar; second, to provide additional means for
safeguarding the domestic economy from any pos-
sible shock which might be the consequence of anyabrupt
outward movement of gold in considerable quantity.
"The gold influx of recent months has contributed
to the creation of bank reserves in excess of
current needs and it is therefore believed that
the effect of additional acquisitions on bank
reserves may be neutralized from time to time
without ill effects on the monetary and credit
system."
Have you seen these, Bell?
Bell:
I saw the one on this side in its rough form.
I like that one better.
HM. Jr:
Which, the first one?
Bell:
(Noûs affirmatively)
163
- 6 -
Gaston:
The second one goes further to the side of not
conceding any injurious effect of increasing the
bank reserves by laying the whole emphasis on
the purpose to accumulate this stock of free
gold with the object of preventing any shock
caused by gold shipments.
Oliphant:
I think that is very wise, for the Secretary not
to commit himself to that general viewpoint.
a.1.Jr:
Well now, let me read again.
"By authority of the President and after consul-
tation with the Board of Governors of the Federal
Reserve System, the Secretary of the Treasury
announces that he will from time to time take
appropriate action with respect to net additional
acquisitions or releases of gold by the Treasury
Department to offset approximately increases or
decreases of the reserves of the Member Banks of
the Federal Reserve bystem which would otherwise
be the conse, uence of such gold transsctions."
I think that gives 8 false impression. I mean it
looks as though I was doing it just to offset the
exact amount of the increase in the thing.
"To this end, acquisition of gold will be paid
for from the proceeus of the periodic sale of
public debt obligations of the Treasury; and,
correspondingly, reverse movements of gold will
be compensated by the purchase or redemption of
Treasury obligations.'
well, that middle sentence is all right, isn't
it? - this "acquisition of gold will be paid for
from the proceeds of the periodic sale of public
debt obligations of the Treasury; and, correspond-
ingly" and so forth. That's just a straight
statement. There's no argument about that.
"The purpose of these operations is to protect the
exchange value of the dollar and to safeguard the
requirements of internal prosperity by preventing
disturbance of the monetary and credit system
through golo movements."
Taylor:
- "unusual gold movements" -
164
105
- 7 -
A.V.Jr:
We'll-put that in.
"The gold influx of recent months has contributed
to the creation of bank reserves in excess of
current needs. The present is, therefore, be-
lieved to be an appropriate time to provide
additional means for neutralizing any possible
ill effects of any future outflow of gold in
considerable amounts."
"Provide additional means" - what other means
have We got?
Geston:
Well, the means that we have now is the gold
..eld by the Stabilization Fund.
L.V.Jr:
How many people have read these things? How
many people have studied them? Who hasn't?
(White and Opper signify
they naven't)
Joham:
I haven't seen the second one. I've seen the
first one.
E.M.Jr:
It seems to me that "A" covers more ground.
Bliphant:
Well, I think this is an underlying question of
policy that we ougnt to have your views on.
E.M.Jr:
Well, I don't get it. I'm running downhill awful
fast.
Oliphant:
Well, there's E school of people around town that
are very nervous and scared about this whole thing,
increase of excess reserves. Now, until our steff
can savise us competently and we know that that is
a bad thing - who knows, maybe it's a good thing -
it seems to me - well, you ought to make up your
mind whether you commit yourself on it and join
that group who are alarmed.
-.M.Jr:
If you are asking for that, I'm not ready to commit
myself.
Oliphant:
That is the purpose of that second statement, the
one you have in your right hand, to put it on the
other basis, namely, that you are doing this because
165
110
- 8 -
this is a good time to accumulate against any
possible shock.
Milte:
Mr. Secretary, that is, I think, an important
statement of your policy and I don't know
whether - I know as far as I'm concerned I'd
like a chance to examine it, if there's no nurry.
H.2.Jr:
On which?
White:
Some of us haven't examined either one.
H.M.Jr:
You haven't seen them?
White:
No. What I want to say -
H.M.Jr:
Well, you can come in at three o'clock again.
White:
Only need 15 minutes.
H.M.Jr:
Let me say this. This is my position. George
Haas said that he will at the proper time come in
with a study of the excess reserves. He hasn't
done it yet - can't do it until they tell him
where the thing is distributed. And at that time
I'd like to sit down with you fellows and talk
about it. And until then my mind is absolutely
wide open. But I certainly - if all of the people
in this room haven't seen it, I'll take another
crack at it at three o'clock.
Haas:
May I take a minute right now, so you -
H.S.Jr:
But I mean please let everybody in the room look
at it and then come in again.
lisas:
There's one thing, Mr. Secretary. We've been
spending our time nere talking about mechanics,
and so forth, but the much broader and more fun-
damental consideration behind all this is this:
that if the market, the people in the market,
consider this move by you a move of tightening
up in any way your easy money policy move, that
you are taking the leadership now - the Reserve
took it in August or July, now even the Treasury -
there's so much talk around and if you should hit
& psychology just right - And it disturbed me
166
- 9 -
El bit when Harrison said the effect on the
bond market - and this man Warren, when he
gets this thing, what he'll say. Now, if
that is going to be the effect, if I were in
your place I'd rather do nothing about it than
have a thing like that happen.
H.U.Jr:
Now wait a minute, George. I don't know who
wrote this thing, but they are trying to put
too much in this thing. That's why I can't
assimilate it in five minutes. I think that
the thing should be confined - may I see those
statements? I mean you are trying to evolve a
policy, and I can't evolve 8 policy.
I think this thing - I think we should simply
say that - I mean whatever the technical
language is - that we are simply taking steps -
I use the word "sterilize" for a better word -
taking steps to sterilize the inflow and outflow
of gold so that it will no longer continue to
be a direct influence on the excess reserves.
And that's all.
Now, when it comes to the other thing, that's
when Eccles steps in. That's all I'm trying to
do; all the rest of this stuff I think is abso-
lutely superfluous. I don't think this is the
place. I'm going to say all we are doing is to
sterilize gold when it comes in and goes out, so
we remove it as an influence on the excess
reserves.
Oliphant:
Well now, putting it that way, I must point out
that the public will take it that the Secretary
is scared, worried about the size of excess
reserves,
H.M.Jr:
Oh no, I can say this verbally without any
statement. But this thing - I don't know who
wrote this thing - they are -
Gaston:
That's all the first statement says. Of course,
your first statement is going a great deal further
than the second statement, and I just wonder whether
you want to say that you are absolutely going to
167
- 10 -
offset the gold movements, that you are promising
to do that.
S.M.Jr:
I can't - I mean my God we've waited for this thing
and then you give me five minutes before to do 8
thing. I mean I'll do this thing verbally. When
we all get down to this - and everybody wants to
put words in my mouth - and I'll say it verbally.
I suppose I've got to have a formal thing signed
by the President. What's the technical way of
doing this thing? What's the technical language
and all, without trying to put any policy in?
Bell:
Well, of course, if you zre going to handle it
all through the General Fund, you really don't
have to shrounce anything.
J.M.Jr:
But I've got to send something over for the
President to sign.
Bell:
I don't know that the President has to sign
anything. He'll know the policy you've adopted,
but all you are doing is building up the General
Fund balance, and you do that through borrowing
in the market. Now, it is true that part of that
balance is going to become 8 dead asset through
this sterilized gold. Now, so long as you stick
to bills and certificates of indebtedness, the
President does not have to approve the public
debt transaction. The minute you 60 over to
notes or bonds to take money out of the market,
then he Joes have to approve it. But this is
such a far-reaching policy, naturally, you want
to have nis approval.
B.d.Jr:
But way do I have to say anything - "By
authority of the President and after consults-
tion with the Board of Governors of the Federal
Reserve System, the Secretary of the Treasury
announces that he will from time to time take
appropriate action with respect to net additional
sequisitions or releases of gold by the Treasury
Department.'
White:
Period, exclamation point, end - absolutely.
Doesn't commit you to any policy, doesn't imply
168
- 11 -
that you feel the excess reserves -
Haas:
Mr. Secretary, if you'd like to -
H.M.Jr:
I don't know who did this - I don't know who
did this, but why drag in -
Caston:
Well, that is stating less than you stated a
minute ago.
White:
We were never given that Question to decide,
whether you shall take action with regard to the
excess reserves. We only were given considera-
tion of the question if and when you wanted it,
would this be the method.
A.M.Jr:
Now, I say - I'll go over it and underline this.
"By authority of the President and after consulta-
tion with the Board of Governors of the Federal
Reserve System, the Secretary of the Treasury
announces that he will from time to time take
appropriate action with respect to net additional
acquisitions or releases of gold by the Treasury
Department." Period. And all the rest is out -
just that much.
Geston:
The question then is what does appropriate
action mean, what are you going to do?
d.4.Jr:
I'll explain it, but in writing that's all.
Gaston:
That first sentence just says that you will
sterilize gold imports and exports.
H.M.Jr:
That's what I'm going to do.
Gaston:
That's what that sentence says. AS you corrected
it, I don't know.
White:
That sentence says he will take appropriate action.
That means that if the appropriate action at one
time demands one course of action and at another
time a different one - and he's not committing
himself to any. And we have not had an opportunity
to examine or pass upon whether this is the
appropriate time to sterilize gold. You specifi-
cally eliminated that from our consideration, and
169
- 12 -
for that reason I feel strongly inclined to
'end the statement where you ended it.
H.M.Jr:
White refreshes my mind what I said, the problem
that I gave you fellows: what was the best way of
doing this.
Oliphant:
Not whether WE should or not.
White:
That's right.
Oliphant:
Remember, we have never discussed as to whether
or not it should -
H.N.Jr:
And this "from time to time" makes it a 24 hour
basis and this doesn't mean this is forever -
Gaston:
- nor automatic.
H.M.Jr:
Don't worry, Eccles will - I think this is plenty.
Heas:
There is another consideration; just take a minute.
So important - I don't like to take time on it, but
it's this: Remember when Stewart was down he said
the ideal instrument should be something you can
try and pull back, where you don't tie yourself at
all.
Bell:
In other words, test it.
llaas:
Yes, test it. And that is in line with this. I'm
thinking out loud. Might you not do this thing and
say nothing publicly? And 1f somebody says to you,
"Does this thing have any effect on your easy
money policy or affect your bonds?" - and then If
it does have E hardening of the interest rates,
then you stop and -
E.2.Jr:
But my dear George, what I say here in this first
sentence: "By authority of the President and after
consultation with the Board of Governors of the
Federal Reserve System, the Secretary of the
Treasury announces that he will from time to time
take appropriate action with respect to net addi-
tional acquisitions or releases of gold by the
Treasury Department."
170
- 13 -
Haas:
That leaves you wide open. I mean that leaves
you wide open to do anything you want.
m.d.Jr:
Well, is that in accord with what you just said?
deas:
No, I'd just say that by even making a public
statement you give it an importance that you
wouldn't give it if you didn't make E public
statement.
H.d.Jr:
Well, you have to make 8 statement.
Olipment:
Well, assuming you have to make a statement,
the language that you just said last has to
be projected against a background. Now, what
is that background? Several weeks of discussion -
too much excess reserves, runaway situation, etc.
If you just say what you said, it is going to be
right against that background, and you join that
group unless you hang on something else also: that
this is B good time to accumulate gold to take
care of any future outflow.
1.2.Jr:
I'll sey that verbally. When you put this: "By
authority of the President - Henry Morgenthau, Jr.,
Secretary of the Treasury" - But the beauty of
this thing is I come in here, just the way I said,
to these people and I make a statement which is
about a hundred words: Gentlemen, after a month's
consideration, in consultation with the Federal
Reserve Board, the Treasury has come to the deci-
sion that all gold coming in the United States and
going out - for the time, that we'll sterilize it."
Period. Then Mr. Eccles takes the ball and he
makes nis long talk.
Now, the chances are that what you a re worrying
about - nine chances out of ten it won't come up.
Then Mr. Eccles takes it and says how he thinks
this and that and the credit and all the rest of
that. I say, "All we are trying to do is to
remove ourselves from & position where we are
dominating the situation. We are simply removing
ourselves from the picture." Now then, Eccles
will say, "We may or may not; we don't know."
And the interesting thing is - some of you dropped
the nint - this: that they don't even know.
171
- 14 -
I think it's all right. I mean I don't think
this is the time to get worried about it. But
the rest of this stuff here - I mean I've got
to say something and certainly that thing there -
that little sentence doesn't tie me any place.
White:
Supposing E reporter asks you, "Why do you
select this particular time to make your announce-
ment, Mr. Secretary?" I'd like to hear your
answer.
H.H.Jr:
My answer to that statement is this: that we
wanted to move once we had made up our mind what
was the best machinery to handle this gold that
is coming in, and as far as - after carefully
studying the whole field we have decided this is
the best machinery, and we thought once we made
up our mind the quicker we acted, the quicker
WE would be able to remove this gold 85 an influ-
ence on the domestic situation.
Oliphant:
May I be El newspaper reporter?
H.S.Jr:
Yes
Oliphant:
Well, on - "Then on that statement I take it
that you are uneasy a bout this increase in excess
reserves.
M.H.Jr:
"That's something you'll have to ask Mr. Eccles.
That's Mr. Eccles' field. That's his responsibility."
Meas:
And ne says, "Yes, it's Quite a show you're putting
on this afternoon, to have the Treasury and the
Federal Reserve Board,' and people will say there
must be something behind the scenes on this.
Gaston:
That isn't the first question they'll ask. If
that statement is made, they'll say, "What do
you mean, Mr. Secretary? What action will you
take?"
H.M.Jr:
Well, I'm not going to let myself be frightened.
I'm not - I've done this thing for a month. I've
absorbed this thing; I understand what I'm doing.
I'm willing to make that much statement. I'm
willing to think on my feet as I go along.
172
- 15 -
I thought I'd have Accles - I want him here when
de talks so I can interrupt him. I want to know
what he says.
And I don't think that this is nearly ES important
as El lot of other things that I've got. I'm ready
to go shead and take responsibility. But I don't
feel that in any way - I mean you can sit here for
the next ten hours and say things which may happen
and which may not.
But I'm not - the thing - the main thing that I
ESK everybody in the room is, "Am I tying the
President's or my hands?" That's the main thing.
(lignant:
I'd enswer that no.
H.H.Jr:
Well, that's all I ask you, because that I will
not do. If I am tying his hands or my hands so
that I can't get out of this thing and reverse
myself tomorrow morning, at noon if I want to,
then -
does:
I think you can make that clear at the press
conference like you do your other -
....Jr:
"What do you mean from time to time?" The answer
is that we are still on E 24-hour basis.
Taylor:
You've got snother nice place as far as your
cooperation between your Board and the Treasury
goes, because you can refer back to the Board
having mode certain announcement in auvance of
the December financing; you are tsking this action
so as to leave the decks entirely clear for the
Board, whatever action the Board may need to take
about the domestic situation, as unaffected by
these gold imports.
Exes:
I think you are going too deep.
6.K.Jr:
I personally - I mean I very definitely had a
reason for having Locles over here. Maybe I'm
a sucker; haven't been so far. I think it is
smart. I'm dumfounded that he came. I think it
173
91 I I
118
is very smart. Now anything that Lccles says
that in any way is embarrassing to the President
or the Treasury - while he is sitting over there
I can't interrupt him, but I can here.
And if this thing is too sharp E move, if
insuvertently we ourselves are putting on El mess,
we can change it. The President said, "You snow,
Marriner, the thing is maybe we'll want to put
100 million in over and above what we've got nere.
The time may come when we want to shoot 100 million
into the System.
And let me ask you fellows this. I think that -
I mean this is 8 good time - We are all - we
have this - the present excess reserves are drop-
ping, aren't they, on account of money going out?
White:
Before >nristmas, always.
Haus:
Christmas circulation.
8,2,Jr:
And I'd much rather do it when the thing is going
down rather than when the thing is going up.
White:
Because you've got the Christmas excuse in case -
M.H.Jr:
Yes, yes. And another thing is we have had two
or three days of a bad bond market, so the bond
market technically ought to be in a good position.
It's like all of these things; I suppose this has
been going on here now for a month, and I am per-
sonally not afraid of it. The only thing, as I
sey, is I'd be terribly frightened if anybody
neld up ais hand and you permitted yourself to
be put in a corner. Now let's go back.
Ecoles tried his best to put me in & corner and
tried nis best to be able to say that after we
did this thing we were establishing, or through
doing it we were establisning a policy that from
now on the Federal Reserve Board would run domestic
economy. de's not going to say that this afternoon
and he's not going - dien't say it here. Now just
look at the ground we've traveled. I tell you if
174
119
- 17 -
this thing didn't work tomorrow noon - I can
turn somersaults. Huh?
001phent:
I think everybody in the country, including the
people who think that we haven't gone far enough
even in the easy money policy, would agree that
it is worth while and sound to get ready for a
possible outflow of gold. Now, if you put it
on that ground, it seems to me you would be on B
non-controversial basis, wouldn't be joining the
Landis-Eccles crowd.
J...Jr:
Well, Herman, fortunately it happens to be what
I really believe. I've come through this depression;
I've seen all this tains, and I - I'm not - we've
seen so little prosperity that I want to be prepared
for the rainy day, and the way to be prepared for
the rainy day is to accumulate gold. That's what
interests me. That's what you tell these people.
I think we're all right.
Jliphant:
We are 11' you are sticking on that ground.
M.M.Jr:
well, you fellows will have to trust me again.
have I got your confidence, Jrs. Klotz?
irs flotz: Yes, sir.
A.W.Jr:
Thank you. - We'll just do this.
Gaston:
If you don't mind, in that case we'd better have
nothing written, because that just says nothing
and you'll have to explain it verbally, and it
would be better to explain the whole thing ver-
bally. But as you did explain it verbally you go
beyond what we say.
H.W.Jr:
No, I disagree with you. I want something written.
I want to sign it and I want the President to
initial it, and that's what I want - I mean if
that's technically correct. But I'm certainly
not going to do this thing without signing it and
having the President approve.
White:
The very fact that there is that possibility that
you may go eyoná it in your oral statement makes
175
- 18 -
it important that that written statement be
made.
Bell:
I'd have the President's approval on the
policy, certainly.
D.S.Jr:
Well, will you see - I want you personally to
go over it and I'll be back here at three, and
if it's all right, I'll sign it and send it
over there. I'm certainly not going to take
this step without something in writing formally
for the approval of Franklin D. Roosevelt.
Bell:
I'd like to know if Clarence feels that the
President should approve it.
Opper:
The only point is if you wanted to be in a
position to move in the direction of the
Stabilization Fund without going back to the
President, then se have a letter here which
would accomplish that at this time.
H.J.Jr:
No, listen, Clarence, anything that I do on an
important thing like this, I only do it with the
President's approval.
Opper:
Well, for this it seems to me that only the
President's approval is what you want. Just B
general statement of policy.
A.M.Jr:
Inst's what I want, and if Bell, who has to do
it, has to be responsible for the handling of this
thing, I want nim to make sure that that is tech-
nically correct. He may want something else. But
I want to sign it and I want to send it over there
and let him O.K. it. And I don't want to go on
any beyond the actual technical explanation.
Gaston:
Well, you want more than that sentence. You do
want to explain -
H.M.Jr:
No, no - only if Bell wants to add something.
Really it's up to Bell. And after Bell has
written it let him fight it out with the lawyers
and let them say whether it is legal. I mean
I'd like for Bell to look at it and see whether
176
- 19 -
he needs anything else in it. After he's done
it let him give it to Mr. Oliphant personally,
and I'd like you all back here at three o'clock.
Regraded Uclassified
Draft "A"
177
By authority of the President and after consultation with the Board
of Governors of the Federal Reserve System, the Secretary of the Treasury
announces that he will from time to time take appropriate action with
respect to net additional acquisitions or releases of gold by the
Treasury Department to offset approximately increases or decreases of the
reserves of the Member Banke of the Federal Reserve System which would
otherwise be the consequence of such gold transactions.
To this end, acquisition of gold will be paid for from the proceeds
of the periodic sale of public debt obligations of the Treasury; and,
correspondingly, reverse movements of gold will be compensated by the
purchase or redemption of Treasury obligations.
The purpose of these operations is to protect the exchange value
of the dollar and to safeguard the requirements of internal prosperity
by preventing disturbance of the monetary and credit system through gold
movements. The gold influx of recent months has contributed to the
creation of bank reserves in excess of current needs. The present is,
therefore, believed to be an appropriate time to provide additional means
for neutralizing any possible ill effects of any future outflow of gold in
considerable amounts.
178
Draft "B"
Draft #
By authority of the President and after consultation with the
Board of Governors of the Federal Reserve System, the Secretary of the
Treasury announces his intention to augment the supply of free gold in
the monetary stook hold by the Treasury Department.
This will be accomplished by the sale from time to time of
additional public debt obligations, the proceeds of which will be used
to defray the cost of additional soquisitions of foreign and domestic
gold.
The purpose of these operations will be two-fold: first, to
protect the exchange value of the dollar; second, to provide additional
means for safeguarding the domestic economy from any possible shook
which right be the consequence of anYabrupt outward movement of gold
in considerable quantity.
The gold influx of recent months has contributed to the creation
of bank resorves in excess of current needs and it is therefore believed
that the effect of additional acquisitions on bank reserves may be
neutralized from time to time without ill effects on the monetary and
credit system.
179
$
The Secretary of the Treasury, after consultati conferring, fith the Board of
whenever it is
Governors of the Federal (Reserve System, announces that he proproses,
essual advisable and in Dr. fublic interest to do so, to take movements
X
appropriate action From to neutralize the effect of gold importe
the
on excess reserves of the banking system.
This will be accomplished by the sale of additional public debt
obligations, the proveeds of which will be used for the purchase of gold,
and by the purchase or redemption of outsanding obligations in the case of
outsure - movements, in The reverse direction.
The purpose of these operations will be to protect the exchange
undue disturbance X of the monatury and creat system.
value of the dol and to safeguard the domestic economy by preventing
Approved:
180
Deart # r
By authority of the President and after consultation with the Board
of Governors of the Federal Reserve System, the Secretary of the Treasury
announces that he will from time to time take appropriate action with
respect to net additional acquisitions or releases of gold by the
Treasury Department to offset approximately increases or decreases of the
reserves of the Member Banks of the Federal Reserve System which would
otherwise be the consequence of such gold transactions.
To this end, acquisition of gold will be paid for from the proceeds
of the periodic sale of public debt obligations of the Treasury; and,
correspondingly, reverse movements of gold will be compensated by the
purchase or redemption of Treasury obligations.
The purpose of these operations is to protect the exchange value
of the dollar and to safeguard the requirements of internal prosperity
by preventing disturbance of the monetary and credit system through gold
movements. The gold influx of recent months has contributed to the
creation of bank reserves in excess of current needs. The present is,
therefore, believed to be an appropriate time to provide additional means
for neutralizing any possible ill effects of any future outflow of gold in
considerable amounts.
aptuoved!
181
OFFICE
OF
TREASURY DEPARTMENT
WASHINGTON
THE
SECRETARY
December 21, 1936.
MEMORANDUM OF CONFERENCE WITH
REPRESENTATIVES OF THE AMERICAN DISTILLING COMPANY,
MONDAY MORNING, DECEMBER 21, AT 9:30.
Present: Mr. Graves, and Messrs.
Buck, Brown, and Seymour,
representing the American
Distilling Company.
Mr. Buck introduced himself as President of the Western Division
of the American Distilling Company which, like the American Distilling
Company, is a subsidiary of the American Commercial Alcohol Company.
Mr. Brown is president of the American Distilling Company, and
Mr. Seymour 1a an attorney employed by the company.
Mr. Buck stated that the object of his visit was to find out the
facts regarding a pending claim against the American Distilling Company
for rectification taxes.
I advised Mr. Buck and his associates that although I had some
knowledge of the case, I was not prepared to speak of it in detail, and
that they should address their inquiry to the Commissioner of Internal
Revenue, with whom, Mr. Back stated, they had en engagement at 2:30
this afternoon.
Mr. Buck and his associates stated that they had been unable to get
the information which they desired from the Buresu of Internal Revenue,
I expressed my surprise at this statement inesmuch, as I said, as I knew
that there had been repeated and extended conferences between Commissioner
Helvering and Deputy Commissioner Berkshire and representatives of the
company with regard to this matter. I advised Mr. Buck and his associates
that the matter was still pending before the Commissioner of Internal
Revenue, that there was nothing before this office which required atten-
tion, and that if they desired to have any further discussion of the
case or secure any information with respect to it, they should address
themselves to the Commissioner of Internal Revenue and not to this office.
Mr. Buck agreed that this was proper, but said that after they had
had their conference with the officials of the Bureau of Internal Revenue,
182
-2-
it seemed likely that they would want to confer with Secretary Morgenthau,
or his personal representatives, about the matter. To this I responded
that I was sure that the Secretary would not disturb any finding made by
the Commissioner of Internal Revenue in this or any similar case unless
evidence were presented to him by the taxpayer that the Commissioner's
finding was arbitrary or unfair, or that the taxpayer had not been accorded
just treatment by the Commissioner.
The attached letter of introduction was left with me by Mr. Buck, with
the request that I hand it to the Secretary.
After the conclusion of this conference, I received a telephone call
from Senator Johnson's secretary, who advised me that she had been requested
by the Senator to say that Mr. Buck was his personal friend and a man known
to the Senator for many years, and one whose statements could be relief
upon.
GRAVES.
183
Pacific National Bank
141
of San Francisco
December 12, 1936.
OFFICE OF THE PRESIDENT
My dear Mr. Secretary:
This letter will serve to intro-
duce Mr. W. E. Buck, President of the American
Distilling Company, who, I understand has an
appointment with you.
Mr. Buck is one of the leading
citizens of San Francisco, a Director of the
San Francisco Bank and of the Anglo California
National Bank. He is also a valued client of
our institution. We feel sure that you can rely
on any statements Mr. Buck may make and it ie
our pleasure to commend him to you.
Yours very sincerely,
H. R. Gaither
President
The Honorable Henry Morgenthau, Jr.,
The Secretary of the Treasury,
Washington, D. C.
Regraded Uclassified
184
Senator Guffey
December 21, 1936.
12:25 p.m.
H.M.Jr:
Hello
Jos. F.
Guffey:
Henry?
H.M.Jr:
Hello Joe?
G:
How are you this morning?
H.M.Jr:
Oh, I'm all right unless you knock me on the
head or something like that.
G:
Have you plenty of cash in the Treasury?
H.M.Jr:
Oh we've got lots. What can we do for Pennsylvania?
G:
Nothing I just want to know if we have to raise any
more this session. (Laughter)
H.M.Jr:
Pardon me?
G:
I was just wondering if we'd have to raise any
more this session.
F.M.Jr:
Well if you let me write the ticket you won't except
for the unemployed.
G:
That's what I agree with you on that too. Henry,
what I called you about was this. Joking aside
the - our Collector of Internal Revenue from the
Scranton District has resigned. We sent a recommen-
dation up there for James Money to succeed him. I
wish you'd hurry that through for us.
H.M.Jr:
I think I signed it.
G:
All right, that's fine.
H.M.Jr:
I know I signed it.
G:
All right, thank you very much. I should have waited
a couple of days,
H.M.Jr:
No - I - I signed it over the week-end. How are
you otherwise.
G:
First rate. How are you?
H.M.Jr:
Oh I'm fine.
185
- 2 -
G:
I suppose you noticed what we did in Pennsylvania.
H.M.Jr:
I noticed. I noticed. You did a marvelous job.
G:
Well we're going to keep it there too.
H.M.Jr: Fine. I was wondering, Joe. Well I - - I signed
that Saturday.
G:
All right. Thank you very much.
H.M.Jr:
Thank you, Joe.
G:
Goodbye.
Regraded Uclassifie
186
126
December 21, 1936
3:00 P.N.
Present:
Mrs Klotz
Mr. Upham
Mr. Lochhead
Mr. Taylor
Mr. Opper
Mr. Gaston
Mr. Oliphant
Mr. White
Mr. Haas
Mr. Bell
6.M.Jr:
"The Secretary of the Treasury, after conferring
with the Board of Governors of the Federal Reserve
System, ennounces that he proposes, whenever it
is deemed advisable and in the public interest to
do so, to take appropriate action to neutralize
the effect of gold movements on the reserves of
the banking system.
"This will be accomplished by the sale of addi-
tional public debt obligations, the proceeds of
which will be used for the purchase of gold, and
by the purchase or redemption of outstanding
obligations in the case of movements in the
reverse direction."
Bell:
Now, that's a complete statement in itself.
H.M.Jr:
"The Secretary of the Treasury, after conferring
with the Board of Governors of the Federal
Reserve System, announces" - well, where is this
thing "by direction of the President"?
Bell:
Well, you don't need "by direction of the Presi-
dent,' but he approves that.
Gaston:
We left it out because we thought it was giving
too much weight to it and making it too -
H.M.Jr:
"The Secretary of the Treasury, after conferring
with the Doard of Governors of the Federal
Reserve System, announces that he proposes,
whenever it is deemed advisable and in the public
187
121
- 2 -
interest to do so, to take appropriate action
to neutralize the effect of gold movements on
the reserves of the banking system."
Well, that's the reason why we're doing it, huh?
"This will be accomplished by the sale of addi-
tional public debt obligations, the proceeds of
which will be used for the purchase of gold, and by
the purchase or redemption of outstanding obliga-
tions in the case of movements in the reverse
direction.'
Now, does this satisfy you (to Bell)
Bell:
Yes, sir. That doesn't say, remember, that you
are going to do it tomorrow; you are just going
to do it when occasion demands it.
H.M.Jr:
But we are going to announce -
Bell:
Well now, there is some feeling in this group
that you ought to postpone the announcement
another day to think about it.
H.M.Jr:
Who says that?
Hello? (on phone - has conversation)
Where were we?
Bell:
I had just stated that there were some in the
group who felt that you should postpone it. I
tnink Mr. Oliphant -
H.M.Jr:
Who does? Raise their hands.
(Haas and White raise hands)
H.M.Jr:
Why?
White:
Well, it's -
Haas:
Go ahead, Harry.
White:
If there is going to be definite promise of action
188
128
- 3 -
taken with regard to the incoming gold, there
is an implication there that this action is
being taken by virtue of the fact that the
excess reserve situation is considered such
that some action is necessary at this time,
and it is felt by some of us that if you were
not - you did not wish to take a position at all
with regard to excess reserves and you would not
take a position. Therefore, we didn't see why
such position should be taken through this back
door, because that inference will be drawn by
financial writers and others, even though you
may not wish to give it that slant when you
make your statement.
In other words, why are you doing it at this time?
What has happened that has called forth such action
now?
If you want to make the statement in your left
hand, that's perfectly all right - without taking
immediate action, postponing such action for
several days or a week or month, or until such
time as -
H.M.Jr:
George?
daas:
I've been at home for three days, and the more
I think about it I feel that we get here in a
group and work so hard on the problem that we
might get our bearings with the outside setting
a little disturbed, and I think that if - I first
of all would like to have you lay off it for a
day or two days to think it over.
1.d.Jr:
You fellows make me tired.
Hass:
I know it's -
H.X.Jr:
I know, but George, good God, I can't help it
if you it home for three days.
Heas:
I think it was a good thing. I think it would
help out if some of the others would. I'll
just express myself, Mr. Secretary, and I'm
not infallible by any means.
189
- 4 -
E.N.Jr:
Neither am I, but you've had a month on this
thing.
Hhas:
It isn't the mechanism; that's all O.K., that's
correct, Mr. Secretary, It's the question of
the effect it might have at this time, particularly
when you announce this thing and give it a number
one importance - is what disturbs me on the whole
thing. I frankly would feel better if you thought
about it of day or two before you did it.
(11phant:
Well, Bccies can make speeches and talk and the
wise people around the country will draw their
own conclusions. But your connection with the
President is such - and your connection with
monetary matters - that anything you do or say
will reflect the Administration's position on
monetary policy, And since that action comes
against the background of a month's agitation
about excess reserves getting out of hand and
all that sort of thing, the implication will be
that that is your opinion.
S.S.Jr:
Well now, I think what I can do here is - what
you try to tell me is that I shoulen't tie this
action in with the excess reserves. Now, I cut
it out of the other statement and I don't want it.
But I think I cansay this: "The Secretary of
the Treasury, after conferring with the Board of
Governors of the Federal Reserve System, announces
that ne proposes, whenever it is deemed auvisable
and in the public interest to do so" - now, from
there on - "to do so, to take appropriate action
with respect to net additional acquisitions" -
How, can't we put this in here and get it right
this way? - "to do so, to take appropriate action
with respect to net additional acquisitions or
releases of gold by the Treasury Department."
Ollphant:
Well, I must point out to you that the whole dis-
cussion of it has only been in terms of the effect
upon the excess reserves and that, as a pert of
the President's general free money policy - and I
don't just think there is any way of phrasing it
to escape the implication that this is the first
step in your complete reversal of the President's
monetary policy.
Regraded Uclassified
190
- 5 -
A.M.Jr:
Well, Herman, you have also, if I may say so, had
a month to -
Oliphant:
Excuse me - this was submitted strictly on the
ground of what would be the best way, but not
whether or not we should do it.
H.d.Jr:
Well, what's the use of - I'll do it, see? I
mean there's no use. I'll come - I'll do it - I'll
take responsibility. Now, we were over this and
I'm not going to at 3:15 have some people say,
"Because we didn't - " - then why do you say it
now? I mean if this is something - why do you say
it at all if you've just been asked on the legal
side? I mean is it fair to me to say it at 3:15,
45 minutes before my press conference, if this is
something you've been feeling right along? Now,
what I am trying to say and what I em going to say
is - and postponing it 24 hours won't help it.
I mean on Friday it was 5 to 4, on Saturday it was
the same thing, and nere it is Monday and it's the
same thing. I can't get you fellows to agree, so
I've got to - I saw the President on Thursday or
Friday, whenever it was, and he agreed.
Bell:
I think, Mr. Secretary, the uestion you asked
about "time to time" - that that parase "whenever
it is deemed advisable and in the public interest"
is the same thing as "from time to time."
R.M.Jr:
Isn't that synonomous - "whenever it is deemed
acvisable"?
Unston:
Yes - "whenever it is deemed advisable."
H.N.Jr:
All right. "The Secretary of the Treasury, after
conferring with the Board of Governors of the
Federal Reserve System, announces that he proposes,
whenever it is deemed advisable and in the public
interest to do so, to take appropriate action with
respect to net additional acquisitions or releases
of gold by the Treasury Department.
"This will be accomplished" - and so forth.
(Reporter leaves to write up
statement in final form, returns,
and hands statement to Secretary)
Regraded Uclassifie
191
- 6 -
H.M.Jr:
Now let's read this again.
"The Secretary of the Treasury, after conferring
with the Board of Governors of the Federal Reserve
System, announces that he proposes, whenever it is
deemed advisable and in the public interest to do
so, to take appropriate action with respect to net
additional acquisitions or releases of gold by the
Treasury Department.
"This will be accomplished by the sale of addi-
tional public debt obligations, the proceeds of
which will be used for the purchase of gold, and
by the purchase or redemption of outstanding
obligations in the case of movements in the
reverse direction."
Now, does that satisfy you technically (to Bell)?
Bell:
well, I don't think it is E question of satisfying
me technically in this statement. I'm not satis-
fied with that first paragraph. You say "take
appropriate action with respect to gold" - now,
what have you been doing in the last year with
respect to gold? Have you been taking inappropriste
action?
white:
No, masn't been taking any action.
Bell:
I don't agree to that. He's been taking action
that puts the gold into the System, very definite
action.
Upham:
It's the fault of the English, I think.
H.A.Jr:
What would you say? Now, wait a minute.
Upham:
Can't you say "neutralize the effect" without
saying anything about bank reserves?
d.M.Jr:
Does it sound all right legally?
Oliphant:
I think that language is good enough - is all right,
because that goes into the hands of laymen and
newspapermen and they will know what it means.
I think it is rather a strange construction to say
Regraded Uclassified
192
I32
- 7 -
that hitherto you've been taking inappropriate
action.
H.M.Jr:
George?
Haes:
I think that statement is all right, if you're
going to make one. I think we could stay at it
for - well -
E.V.Jr:
White?
White:
I think the statement is all right. I still think,
however, that the criticism that we have not brought
this to your attention, which of course is quite
justified, should not stand in the way of the
reconsideration of the problem, because it's not
too late to postpone it if you see fit.
H.M.Jr:
All true, but nobody's raised anything yet, -
White:
True.
H.L.Jp:
- which makes me think what I am trying to do
and which - I understand what I'm trying to do.
Meas:
I'd feel better if you were alone and not with
Locles.
Bell:
That bothers me too.
M.M.Jr:
Well, now would you feel if I was alone and
Eccles was alone?
Haas:
Well, he's still going to be alone after he leaves
you.
H.M.Jr:
Well, as I said this morning, I wish we were
all together, but I do think there is danger, after
having said we'd do it - I think it puts me in the
position of being "wiggly-wabbly." Herbert Gaston
says this may stimulate a big inflow of gold; that
is something which nobody can foresee. Somebody
says bonds will go off tomorrow.
Haas:
They might go up, you can't tell.
Lochhead:
The bill offering today was about double prices
Regraded Uclassifie
193
I33
- 8 -
of last week. That's your bills; your short
term bills went today at an average of .085;
last week it was.039. And the long terms,
.226, against last week .117. But I'm simply
saying that the market was anticipating an
increase in the Federal Reserve requirements
and they are anticipating something being done
in gold. It's all anticipated.
A.M.Jr:
I'll tell you something. Every paper's got
this thing, and the longer we don't do something
the more uncertainty there is. All I can say is
I've been in much more critical situations than
this many, many times, and - Herman, you know me;
I have no doubts, see? My instincts are all right
on this, Herman.
Oliphant:
Well, I'm perfectly satisfied as long as you make
it clear that you haven't joined the hue and cry
and that the President hasn't joined the hue and
cry.
H.M.Jr:
Well, Herman, that contribution that you have
made will be uppermost in my mind.
Regraded Uclassifie
194
134
FORM FINALLY ADOPTED
The Secretary of the Treasury, after conferring
with the Board of wovernors of the Federal Reserve
System, announces that ne proposes, whenever it is
deemed advisable and in the public interest to do
so, to take appropriate action with respect to net
additional acquisitions or releases of gold by the
Treasury Department.
This will be accomplished by the sale of additional
public debt obligations, the proceeds of which will be
used for the purchase of gold, and by the purchase or
redemption of outstanding obligations in the case of
movements in the reverse direction.
APPROVED:
The White House
December , 1936
195
December 21, 1936.
The Secretary of the Treasury, after conferring
with the Board of Governors of he Federal Reserve System,
announces that he proposes, whenever it is deemed advisable
and in the ublic interest to do so, to take appropriate
action to neutralize the effect of gold movements on the
reserves of the banking system.
This will be accomplished by the sale of additional
public debt obligations, the proceeds of which W 111 be
used for the purchase of gold, and by the purchase or
redemption of outstanding obligations in the case of
movements in the reverse direction.
APPROVED:
Regraded Uclassified
196
#
December 21, 1936.
By authority of the President and after consultation with
the Board of Governors of the Federal Reserve System, the Secretary
of the Treasury announces that he will from time to time take
appropriate action with respect to net additional acquisitions
or releases of gold by the Treasury Department.
APPROVED:
197
December 21, 1986.
The Secretary of the Treasury, after conferring
with the Board of Governors of t he Federal Reserve System,
announces that he proposes, whenever it is deemed advisable
and in the public interest to do so, to take appropriate
action to neutralize the effect of gold movements on the
reserves of the banking system.
This will be accomplished by the sale of additional
public debt obligations, the proceeds of which w 111 be
used for the purchase of gold, and by the purchase or
redemption of outstanding obligations in the case of
movements in the reverse direction.
APPROVED:
198
December 21, 1936.
The Secretary of the Treasury, after conferring
with the Board of Governors of t he Federal Reserve System,
announces that he proposes, whenever it is deemed advisable
and in the public interest to do so, to take appropriate
action to neutralize the effect of gold movements on the
reserves of the banking system.
This will be accomplished by the sale of additional
public debt obligations, the proceeds of which W 111 be
used for the purchase of gold, and by the purchase or
redemption of outstanding obligations in the case of
movements in the reverse direction.
APPROVED:
199
(Captain Forster
at the White House)
December 21, 1936.
3:40 p.m.
Forster:
What he wanted was that the formal announcement
should have nothing in it about his approval.
He said of course there was no objection if
anybody asked you to tell them that he had
approved.
H.M.Jr:
But in the release.
F:
In the release - ah you needn't say
H.M.Jr:
You're quite right - the release is being cut now.
F:
Ah-ha.
H.M.Jr:
And there's nothing on it about the President's
approval.
F:
Ah-ha.
H.M.Jr:
But - hello.
F:
Yes.
H.M.Jr:
But if the newspapermen say did I confer with the
President does he approve I can say, "Yes" - is
that right?
F:
Yes, that's right.
H.M.Jr:
Well he's perfectly right and that was the procedure
I was following.
F:
Well I told him I was sure that was what you intended.
H.M.Jr:
And as a matter of fact this is purely a record as
between the White House and myself.
F:
Ah-ha.
H.M.Jr:
So that I thought this was such an important matter
that I shouldn't do it without the President's formal
approval
F:
Ah-ha.
H.M.Jr:
but the release will not carry his approval
- 2 -
200
F:
Ah-ha.
H.M.Jr:
,.....but just to repeat that I can say to the
newspapermen, if I'm asked,
....
F:
Ah-ha.
H.M.Jr:
I did confer with the President and it met
with his approval.
F:
Yes sir.
H.M.Jr:
Well we're in complete agreement.
F:
That's right.
H.M.Jr:
Thank you.
F:
Thank you sir.
201
December 21, 1936.
5:03 p.m.
Operator:
Go ahead.
H.M.Jr:
Hello.
Hello
H.M.Jr:
Henry - this Grover Whalen?
Whalen:
Yes.
H.M.Jr:
Henry Morgenthau, Jr.
W:
Oh how are you?
H.M.Jr:
I'm fine.
W:
I didn't want to bother you. Henry Gerard
and I wanted to come in and see you for a
moment tomorrow. We are going to be in
Washington.
E.M.Jr:
Well my trouble is - are (laughs) I'm in
terrible shape tomorrow and I wondered if it
was something we could do over the phone.
Wr.
Well it's - it's about a case that both of us
are interested in in connection with an action
taken by the Department that was, we feel,
a great crisis on a company that we're both
interested in and we have to - an offer of
compromise down there for two years and they
were - it was recommended and finally we got 2....
H.M.Jr:
Is that that Commercial Alcohol?
W:
No - no - this is Cote's - Cote.
H.M.Jr:
Oh - perfume?
W:
Yes, and this just simply wipes out the company
pretty much as a result of the action of the
Department and
H.M.Jr:
Well now Grover would you be representing them?
W:
Oh I'm a director.
H.M.Jr:
Oh.
Regraded Ucla
- 2 -
202
W:
I - I represent the French interests on the Board.
H.M.Jr: Oh.
W:
And have been and Gerard
H.M.Jr: I've - I've met Madame Cote and I can't hand her much.
#:
(Laughter) Well I - I agree with you on that too but
they've - they've had an unfortunate time in this
country while- since he died.
B.M.Jr: Yes.
W:
And of course this thing is a - is a net profit of
about $900,000
S.M.Jr: Listen..
N:
And this action has wiped it out to about $200,000.
H.M.Jr: Would you - have you seen Guy Helvering?
No - I - I haven't.
H.M.Jr: Would - would you mind seeing him first?
W:
I'll be very glad to.
T.M.Jr: I tell you what I'll do. I'll make an appointment
for you to see him.
W:
Will you do that?
H.M.Jr: Yes, because I'm very much in a jam tomorrow.
#:
All right.
H.M.Jr: And when you come down you just call up his office
and you'll find you have an appointment to see him.
W:
Well that's fine. I - I know that the administration
doesn't want to harm a company to the extent that
this is going to be harmed by this action.
H.M.Jr: Well if you - if you find - I mean if you don't get
satisfaction from Guy Helvering you can always see
me but what I'd like you to do is to see him first.
Regraded Ucla
203
- 3 -
W:
All right. Thanks a thousand times, Henry.
H.M.Jr: And if you'll call up you'll find you have an
appointment with him.
W:
I'm very grateful.
H.M.Jr: And as long as you don't send Madam Cote down it's
all right.
W:
(Laughter) All right, thank you very much.
H.M.Jr: O.K.
W:
Bye-bye, Henry.
H.M.Jr: Good-bye.
Regraded Ucla
204
REPORT ON SECRETARY MORGENTHAU'S
PRESS CONFERENCE, December 21, 1936:
H. M. Jr.:
If you'll bear with me, I'll read this very
short statement and I think you'll under-
stand just why Chairman Eccles is here.
(Reads release 9-20) I might say that during
the past month Chairman Eccles and I and our
statistical staffs have been in constant
conference over this very important subject
and we finally did come to an agreement as
to what the present course of action should
be. We consulted with the President and he's
approved the action which the Treasury has
taken. Now I'd be very glad to answer ques-
tions as far as the Treasury's action is
concerned, and Chairman Eccles is here, at
my invitation, to explain the position of his
Board.
Q.
Isn't there a prohibition against this in the
Gold Reserve Act? I've forgotten, but doesn't
it say you can't deal in government securities,
or is this an open market operation?
A.
This is an open market operation on the part
of the Treasury.
Q.
On the part of the Treasury?
A.
All this means that as we-from now on-any
Regraded Uclassified
205
gold that we buy will be put into an in-
active fund and will show up in the daily
statement as the exact amount of inactive
gold, and instead of going to the Federal
Reserve System, as we have to now, and secur-
ing the necessary funds there to pay for this
gold, why, in the future we'll borrow whatever
additional amount is necessary in the open
market. That's what I was trying to say.
&
Will those bills be quarterly or current?
A.
No, they will be additional bills. I mean,
if we buy $50,000,000 worth of gold we'll
borrow an additional $50,000,000 worth of
bonds.
Q.
They will be weekly?
A.
They will be weekly.
Q.
It isn't going to be daily?
A.
It isn't going to be daily. It will be weekly,
and we will try to make it as uniform as pos-
sible. We will try to, if we're borrowing
$100,000,000 worth of bills now we'll continue
that $100,000,000 or start a new series so as
not to be in and out too often; we'll try to
make it as even as possible.
Q.
When you buy the bills back, through what channel
will you buy them back-directly or through the
fund?
+
206
A.
Most likely they will run off rather than buy
back.
Q.
That's true, but you mentioned the possibility.
A.
We might have to, but the chances are If
$50,000,000 worth of gold left the country,
the chances are we'd just let $50,000,000 worth
of bills run off.
&
Do I understand, Mr. Secretary, that this is
strictly a Treasury operation, exclusive of the
stabilization fund.
A.
This is a Treasury operation, exclusive of the
stabilization fund. I mean, the stabilization
fund is part of the Treasury.
The only thing I'm not clear on is whether it
would be correct to say the Treasury is under-
taking this or the stabilization fund.
A.
The correct thing to say would be the Treasury
is undertaking this.
9.
I was going to ask, sir, if you acquire gold
from the stabilization fund, it will actually be
a purchase by the Treasury of gold from the fund.
A.
If you don't mind, I'm not going to break that
cown, for the time being, but from the standpoint
of the public, the public will know, which they
don't now, every day through the daily statement
the exact amount of gold that we purchase.
207
#
Q.
And it will be known as inactive gold?
A.
It will be known as inactive gold, or some term,
if Danny Bell can think of a better one,
2.
That's effective today?
A.
Well, it will take a couple of days to set up
this machinery.
Q.
Will you want to comment on what the publication
of this information-what will be the result of
that?
A.
I think Chairman Eccles will talk on that; I'd
rather let him explain that.
Q.
Doesn't this bring your stabilization fund opera-
tion about the same as the British?
A.
It isn't particularly comparable.
;
They sold $65,000,000 of gold to get bills the
other day, so they can do the same thing you're
trying to do.
A.
Well, if you don't mind, I'm not going to get in
that. It isn't exactly the same, it's different,
because our funds are set up differently-our
fund is set up with two billion dollars gold and
their fund was set up with nothing. They borrowed
money to set up their fund and we started with
two billion dollars worth of gold-that's the
big difference.
208
&
Mr. Secretary, you will borrow directly and
Treasury operation bills will not be sold as
they are over there, out of the fund?
A.
This will be a Treasury operation. As far as
the public knows the bills will not be ear-
marked; it's just we borrow that additional amount
of money against the gold we have bought and put
it in the inactive fund.
&
What maturity will these bills have, Mr. Secre-
tary?
A.
It depends on the market-maybe ninety days,
120 days, just where it appears to fit in best;
it may be nine months.
;
Will you have an issue of say $50,000,000 in
order to have funds on hand to purchase the gold?
A.
We might draw on the general fund for the first
$50,000,000 and there might be a lapse there of
two or three days; there might be a lapse of a
week; we can't quite make the two things dove-
tail; the first fifty million, if it just didn't
happen to come the right day we would draw on the
general fund for that amount, and we would sell
$50,000,000 the first day available.
Mr. Eccles: And replace it in the general fund.
Q.
The sale of bills might come first?
H. M. Jr.:
It might possibly. We're going to have this big
gold wave coming and we want to build up the
209
general fund by $50,000,000 and we may add the
$50,000,000 a few days before; there will be a
difference of two or three days before or after.
Is that right, Danny?
Mr. Bell:
Yes, Sir.
Mr. Eccles: It will come before or after.
H.
K.
Jr.: Before or after; I just want to say this: Under
the usual Treasury policy we have pursued since
we've been here, note when I say, "//henever it be
deemed advisable, in the public interest," this
policy which we are putting into effect will be a
continuous one up to the time that the Federal
Reserve Board and the Treasury should consider it
wise to discontinue this action.
?
You will not discriminate between individual ship-
ments of gold?
A.
That's the point, but you men who have followed
the Treasury know that up to now we never have
said we are taking this action and this is final;
it's action which will continue until we decide
it's unwise; in other words, as you say, we
won't handle one shipment one way and one the
other, and I also pointed out that this also
includes domestic.
4.
Is this a part of your study of capital movements?
A.
No, the report on capital movements is still in the
study stage.
Regraded
Uclassit
-7-
210
Q.
Would you care to review a few developments
of the last three weeks or 50 that led up to
this decision?
A.
No, I think that it's a very important matter
and something that Mr. Eccles, his board, his
staff and people associated with me and my
staff-that we have studied this thing in and out
and looked at it in every possible way and in-
vited economists in here to look at the thing,
and after very careful study by both organiza-
tions, this is the result; now I'd like to have
Chairman Eccles take it over.
Can I ask the Chairman if he'll explain to us
what effect this will have on the previous effect
that gold had both on bank reserves and bank de-
posits? Will it do anything necessarily to pre-
vent the increase of bank deposits?
r. Eccles: Let me make a statement covering the situation
and it may answer some of the questions that you
naturally would have. The Federal Reserve have
certain powers to deal with excess reserves-
increase of the reserve requirements of the member
banks, and also, of course, the sale of government
securities which it sells in the open market. The
power to deal with excess reserves from those two
sources amounts to approximately four billion
&
211
14g
dollars. In other words, the Reserve System
today, by using the power it has to increase
reserve requirements by the additional fifty
per cent, having already increased last year
by fifty per cent, and selling the securities
which it has, amounting to $2,430,000,000-
given a total power to absorb excess reserves
of four billion dollars, approximately. The
amount of the excess reserves at the present
time (well, that isn't so important)-the
maximum amount of the excess reserves shortly
after the new year when the currency circula-
tion decreases, due to the large holiday busi-
ness, will likely reach from two billion three
to two and one-half billion of excess reserves.
So that the Reserve System has adequate power
and authority to deal with the maximum of
excess reserves that are now in the System,
without asking at this time for additional
powers to deal with the problem. The Treasury's
proposed action means that further gold im-
ports and newly-mined gold will no longer be-
come excess reserves or increase the reserves
of the member banks. It means that gold im-
ports, newly-mined gold and gold exports can
be undertaken without having any repercussion
Regraded Uclassified
212
upon the domestic credit situation. This reduces
the problems of the Reserve Board in this matter.
I think that covers in a general way - -:
ls it true, sir, that imports of gold, although
they will no longer increase the excess reserves,
will continue to increase the bank deposits?
Mr. Eccles: That's right. It's impossible, of course, to keep
them out of the bank deposit structure. However,
that means that the effect is a dollar for a dollar.
To the extent that they become excess reserves it
means a possible expansion of from six to eight times
the amount that comes in.
This shouldn't be construed as a move away from easy
money or anything like that, should it, sir?
Mr. Eccles: No, it shouldn't in any way because there are adequate
powers in the Reserve System to simply deal with the
excess reserves and there's adequate excess reserves in
the System to influence the money market. I want to say
this, too, that--I'm going to anticipate a question--I've
jotted it down here so it wouldn't be misunderstood.
I should say, to anticipate the question which I suppose
should be in your minds as to what bearing this action
might have on an indicated purpose of the reserve
authorities to reconsider the problem of excess reserves
early in the new year, I'd like to noint out there's
not necessarily any bearing other than the fact
-10-
213
15I
that we will now be in a better position to
know what volume of excess reserves we'll have
to deal with in the future-whether at that
time or at a later period. Of course, what
the decision might be, I can not undertake
to predict, since it would depend upon the
factors which we can not judge with finality
this early. Nor could I, of course, under-
take to speak for the other members of the
Board whose views I could not attempt to fore-
cast.
Q.
Well, sir, could you tell us if there's a
meeting of the open market committee defi-
nitely set down for any date in the future?
A.
No, not a definite date. The open market is
subject to call of the full committeeand the
law requires it must meet at least four times
a year. That's a minimum that it must meet;
it can meet as often as it is called. The
executive committee is, of course, a smaller
committee and it meets as often as deemed
advisable and necessary in the interim be-
tween the meetings of the full committee.
Q.
Do you feel that this solves the capital
imports problem?
-11-
214
Mr. Eccles: I think this has nothing necessarily to do
with the capital imports problem. It deals
with the effects of that problem, but, of
course, it in no way deals with the causes of
the problem.
Q.
Does that mean study is still being given to
the causes?
R. Eccles: I think the Secretary answered that,-that
study is being given.
W.
This will be some cost upon the government?
Vr. Eccles: Yes.
Q.
The interest rate has already reached the vanish-
ing point, but it will cost, nevertheless.
Γ. Eccles: Yes, there will be some cost.
&
I was wondering if this won't cause the interest
rate to go up a little in the market for bills?
r. Eccles: Of course, that's anticipating a tremendous flood
of gold.
Q.
Do you think that the import peak has about been
reached?
Mr. Eccles: Well, I wouldn't want to express an opinion as to
that.
H. M. Jr.: I don't think anybody can answer that.
Q.
How much gold has come in since 1933, approxi-
mately? Since the Gold Act of January 30, 1934?
Regraded Uclassified
-1.2-
215
H. M. Jr.:
I've got it here, but-.
Q.
Net by years; do you have it there?
A.
Well I've got it-1934 it was $1,133,912; and
1935, $1,739,001; and for the 11 months of 1936
$1,059,419.
Q.
That's net inflow each year, isn't it?
A.
That's net.
:-
Mr. Secretary, can you add the amount of newly-
mined gold to that? Would that be a factor?
A.
We've got the newly-mined gold-we've got it on
here. I haven't got a total but I can give you
the way it has been running. The secondary gold
runs about a million and a million and a quarter
a month.
Q.
That's dollars?
A.
Dollars--a million to a million and a quarter
dollars per month, and the domestic gold, newly-
mined, has been running between twelve and thir-
teen million a month.
Q.
Is secondary gold going to De handled this way
also?
A.
Everything.
Q.
It's the fear of the acceptance of this gold
for credit expansion, speculation and all that
business that causes this action.
-13-
216
lir. Eccles: Well, the gold that comes in adds to the
deposits and adds to the excess reserves of
the member banks and it's got to be dealt
with either in this manner or by the Re-
serve System. The Reserve System would pre-
fer to have it not enter the banking picture
at all, so that there's no impact upon the
domestic credit picture of gold imports or
exports; it makes for a much more stable
domestic credit control. So long as it
isn't subject to the impact of huge foreign
imports of gold or exports of gold, and so far
as we have already in the System such an
abundance of reserves, there's an adequate amount
to take care of all possible domestic credit
in addition. And as I stated the powers that
the System have are such that they can now
deal with the excess reserve problem with the
Treasury dealing with this other aspect of it.
Q.
Mr. Eccles, was this problem anticipated when
the easy money policy was inaugurated by the
Administration?
Mr. Eccles: Well, the easy money policy has been in existence
since about 1930, as I recall; there has been an
easy money policy and the Reserve System started
to buy bonds, I think, in 1930.
-14-
217
Q.
That's true, but it was pepped up a little
bit in 1933, wasn't it?
A.
Well, the Reserve System bought about six
hundred million during--up until August, I
think, of 1933-they bought a few hundred
million, but most of the bills bought by the
Reserve System was prior to the coming in of
the present Administration-at least three-
fourths of them were; they have only bought
about one-fourth of their present holdings
since that time and that was in the first
half of 1933.
Q.
Mr. Secretary, as regards the technical status
of this gold, by making it inactive, it won't
be necessary to issue certificates against it,
but technically they could be issued against it.
5. N. Jr.:
Dan, do you want to answer it?
Mr. Bell:
Not so long as it's inactive. It wouldn't be
inactive if we issued certificates against it.
Q.
It's not frozen by Congress or anything.
H. M. Jr.:
This administrative action taken does that.
Q.
And it could be rescinded tomorrow?
r. Bell:
That's right.
Q.
You haven't been expecting easing of the reserves
problem then?
r. Eccles: How do you mean?
218
15 I I
Q.
You have enough power and enough facilities
to deal with the excess reserve problem; you
have one asking the Treasury what the effect
of this is to get the Treasury to get the
gold imports off of your shoulders.
Vr. Eccles: It isn't a request of the Treasury, but it's a
question of our both recognizing the movement of
the capital and gold to this country and it simply
is a problem that we are both interested in. We
are interested in increasing excess reserves on the
one hand and the Treasury is interested in it from a
standpoint, I would imagine that they have got to
buy it and it means selling-certainly it means
selling something to be able to buy it. This is
merely a matter of buying it. Now for the Re-
serve System to meet the excess reserve problem
which they must do at some time, they don't want to
use up all of the powers that they have without
looking as to where they might get additional powers
or what additional powers they may ask for. Now
this meets the problem so that we're not in a
position now where we feel we'll have to ask Con-
gress at this time for further powers to increase
bank reserve requirements.
Q.
On that point, sir, (this is 8 little bit outside
of this conference) but do you think there's any
-16-
219
IN
need for any authority to, in some way, get at the
volume of deposits as distinct from the volume of
bank credit, that you should be authorized in some
way or other to endeavor to influence the volume
of bank deposits.
Vr. Recles: I don't just get the significance of your question.
Well, I'll leave it go.
3.
Jr.: May I just say this-as Mr. Eccles is my guest,
if you're all finished on this question why I'd
like-everybody is satisfied?
Mr. Eccles: I'm satisfied if they are.
I'd like to ask one more question: What are you
going to do about all the gold you already have?
3.
Jr.:
For the time being, nothing.
Is it "as is?"
A.
As is.
These will be discount bills won't they, Vr.
Secretary?
A.
Yes.
2.
I'd like to ask one more question, Mr. Chairman.
In your speech in Boston you suggested a tax on
capital coming in-that and other new investments;
are you still - -
Mr. Eccles: I don't think that that's a part of this problem
at all today; that speech speaks for itself; it
was merely an expression of the problem and matters
-17-
220
158
that can't be considered immediately. That is,
as to the type of tax or whether the tax would
be practical, I didn't express an opinion.
Q.
All of this and the interview is for morning
paper release?
H. M. Jr.: That's right.
221
159
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Press Service
Tuesday, December 22, 1936.
No. 9 - 20
12/21/36
The Secretary of the Treasury, after conferring with the Board of Governors
of the Federal Reserve System, announces that he proposes, whenever it is
deemed advisable and in the public interest to do so, to take appropriate action
with respect to net additional acquisitions or releases of gold by the Treasury
Department.
This will be accomplished by the sale of additional public debt obligations,
the proceeds of which will be uced for the purchase of gold, and by the purchase
or redemption of outstanding obligations in the case of movements in the reverse
direction.
see Letter you. of 18, Transmittal 1937
222
from state Dept.
No. 653.
Belgrade, December 22, 1938.
Subject:
Comminique of the Governors of the
National Banks of the Balkan Entente
States.
The Honorable
The Secretary of State,
Washington.
Sir:
As a matter of record and as of possible inter-
est to the Department, I have the honor to transmit
herewith a translation of the official comminiqué
issued at the close of a recent meeting of the Gover-
nors of the National Banks of the Balkan Intente.
The meeting was held at Athens.
Respectfully yours,
Charles 9. Wilson
Enclosure:
Communiqué, Translation of.
A true CODY of
File No. 851
09R:HSB
the B origin
mille
Regraded Uclassified
223
Enclosure to Despatch No. 662 of December 22, 1936, from
the American Legation in Relgrade - entitled:
Communica of the Governore of the National
Banks of the Balkan Intente States.
(Translation)
Source:
AVALA, December 21,1936.
-
The Governors and their collaborators have examined
all the questions included in the agenda in an stace-
phere of complete mutual confidence. The four Governors
are happy to state that they are in perfect accord in 80
far as concerns the questions affecting the scope of ao-
tivity of the National Banks.
Considering that the monetary accord which binds
France, Great Britain and the United States, and to which
other countries have adhered, represents in all actuality
8. step toward the amelioration of the international none-
tary situation, and regretting that they cannot at this
time adhere to this accord, the four Governors express
their hope that the currencies of the principle powere
may be definitely stabilised in the near future so that
other countries, and empecially the States of the Balkan
Entente, may likewise associate themselves in this work
of rehabilitating the ourrencies of the world. The four
Governors have noted the difficulties which confront
their national economic systems by reason of the low
prices obtainable for the principal products of expor-
tation and, in consequence, by reason of the valorization
of gold.
They have noted that to the monetary alignment, to
which many countries have already adhered, must follow
measures for relaxation (of soonomic restrictions) and
for a progressive return to free trade. They recognise
the need, and notably for those countries which have
Regraded-Uclassified egradedy
224
/
- 7 -
already joined the monetary alignment, of prégressive-
1y abandoning the system of clearings, or, at least, of
modifying its structure.
They consider desirable that the question of
foreign debse be regulated in accordance with the re-
vision of the gold clause.
Special sections will be created in each of the
four National Banks which will be charged with the ex-
amination of the economic and financial situation in
the countries of the Balkan Entente and especially with
the study of the possibilities of ameliorating and
developing the economic relations already existing be-
tween the four countries.
The four Governors have examined the problems 10-
lating to their common notivities within the framework
of the Bank for International Payments. In this respect
it would appear desirable that the Balkan Entents be
represented in the Administration Council of this In-
ternational Bank.
-----
Regraded Uclassified
TREASURY DEPARTMENT
225
INTER OFFICE COMMUNICATION
DATE December 22, 1936
To
The Secretary
FROM
Mr. Taylor
After going over the notes of the meeting yesterday afternoon with
the Treasury Attaches and Representatives sent by the Legations which did
not have Treasury Attaches available, I think it is probably better to
present the report in the form of a memorandum, as we encountered some
!!fficulty with accents, etc.
I opened the meeting by explaining the fact that the Secretary of
the Treasury wished to convey through Diplomatic channels to the Treasuries
of the countries cooperating in the monetary arrangements the information
concerning action which had been decided on by the United States Government
and to give the representatives here in Washington an opportunity to ask
any questions which might be of interest in transmitting the information
to their respective Governments. I emphasized the fact that the action
was entirely domestic in character but that we wished to answer any questions
which might serve as background.
I gave each of the foreign representatives et copy of the press release
and then Lochhead and I answered the various questions which were asked.
The questions mostly concerned how the gold acquisitions would be handled
in our daily Treasury Statements, and how the acquisitions would be financed.
In order to explain these points it WHS necessary to describe in some detail
the manner in which gold acquisitions had been handled in the past and to
compare our practice to that of certain other countries. I did 80 in
rather general terms and also described the method of selling Bills in the
- 2 -
226
market and the amount of latitude possible in letting Bills run off,
or acquiring outstanding Government obligations in case the gold
movements were outward.
I also indicated that in case conditions changed, in consultation
with the Federal Reserve authorities, we might change either the
policy itself or the method so that gold might again flow into the
Federal Reserve system, if such action appeared desirable.
As soon as the foreign representatives understood the mechanism
and the fact that it was entirely a domestic problem, they expressed
their appreciation and departed.
Those present at the meeting were:
Mr. Bewley - British Embassy
Baron van Breugel Douglas, Netherlands Legation
Mr. Jules Henry - French Embassy
Mr. Edouard Feer - Swiss Legation
Mr. Hellaert, - Belgian Embassy
Mr. Livesey - State Department.
well.
DEPARTMENT OF STATE
227
OFFICE OF THE ECONOMIC ADVISER
Mr. Wayne Taylor.
December 22, 1936.
My dear Mr. Taylor:
In Department's 543 to Cochran I in-
serted the words "or other representatives"
which appear on page two, line two.
Those at the meeting reading from your
right hand around the table were: Baron van
Breugel Douglas, Netherland Counselor of
Legation; Mr. Eduard Feer, Swiss Counselor of
Legation; Mr. T. K. Bewley, British Treasury
Attache; a Belgian whose name I do not know
(not Prince de Ligne nor Mr. Walravens);
(Livesey, Lochhead); Jules Henry, Counselor
of the French Embassy.
Sincerely yours,
There
228
TELEGRAM SENT
LMS
GRAY
December 21, 1936
8 P. m.
AMEMBASSY,
PARIS, (FRANCE).
543.
FOR COCHRAN FROM TREASURY.
The following statement was made this afternoon for
release in morning newspapers Tuesday, December 22, 1936:
"The Secretary of the Treasury, after conferring
with the Board of Governors of the Federal Reserve
System, announces that he proposes, whenever it is
deemed advisable and in the public interest to do 30,
to take appropriate action with respect to net addi-
tional acquisitions or releases of gold by the
Treasury Department.
"This will be accomplished by the sale of addi-
tional public debt obligations, the proceeds of which
will be used for the purchase of gold, and by the
purchase or redemption of outstanding obligations in
the case of movements in the reverse direction."
This decision was taken after careful consideration
and consultation with the Governors of the Federal Reserve
Board and was approved by the President. This information,
and
Uclassified
229
LMS 2-No. 543 to Amembassy, Paris.
and necessary background, was also given to the Financial
Attaches or other representatives of the British, French,
Belgian, Holland and Swiss Governments here this afternoon
for transmittal to their respective Treasuries. This ac-
tion will not affect in any way the mechanics of the move-
ment of gold to or from the United States and other coun-
tries.
It is contemplated that this mechanism will commence
to function within the next day or two and will apply to all
new gold acquisitions both imported and domestic. These
acquisitions will be shown on the daily statement of the
Treasury as inactive gold in the General Fund. This
method of handling gold will continue in effect until cir-
cumstances indicate that a change in policy or method is
desirable. In meeting with foreign Treasury attaches it
was emphasized that this move was domestic but that we
desired to inform Treasuries of cooperating countries go
that they might fully understand background and technical
aspects of move.
MOORE, ACTING
(FL)
EA:FL
Regraded Uclassified
DOW JONES - December 22, 1936.
230
December 22, 1936.
(D.J. 11:45 a.m.)
Holland to be permitted to convert dollar balances
into gold.
Washn. - Dollar balances which the Dutch Exchange
Control may have acquired in its stabilization activities
can be converted into gold in this country if the Dutah
control d wishes to do 80, officials said.
(DJ 11:53 A.M., 12/22/36)
Add Holland
The situation they pointed out 1s covered by Secy.
Morgenthau's statement of Nov. 23 in which he declared that
"Arrangements have been made by the U.S. for gold transactions
on 8 reciprocal basis - between the U.S. and the Netherlands.
Whether any dollar balances have been actually converted
into gold for the Dutch control could not be learned at once
but since the Treas. 's gold stock has shown no net decrease,
there was considerable doubt whether any gold has been
withdrawn for for. act. through Dec. 19.
Whether the new mechanism announced this morning for
neutralizing gold movements would be utilized to offset the
effect of an earmarking for Dutch account in the immediate
future was doubtful. Since the volume of excess reserves
might decide to let any gold withdrawal for Dutch account
and bank deposits is considered to be large, the authorities
have a full effect on the bkg. structure without taking any
neutralizing step.
morning Treas. to either act or refrain from acting on gold exports.
The has discretion under the announcement made this
Regraded Uclassified
231
December 22, 1936.
9:26 a.m.
Eccles:
Good morning Henry.
M.M.Jr:
Good morning. I thought we got an awfully good press.
as
Well I saw the Post this morning. I haven't seen any
of the other papers.
B.M.Jr:
I've seen the Wall Street Journal, the Tribune and
the Journal of Commerce. The New York Times and I
think the Wall Street Journal have the best stories.
:
Well they usually do. They understand the subject
better than most of them.
H.M.7r:
But I'm awfully pleased the way they handled it.
a
Well I'm - I'm glad you are.
R.M.In:
Yes, I thought it went very well.
E:
I - ah -
H.M.7r:
Let's see now how the bond market opens.
B:
It's a difficult subject to handle.
11.1.Jr:
Yes, it went very well I thought.
is
The - I've got a - a partnership arrangement satis-
factory so we could both have a
- the bond
market ought to be taken care of.
H.M.Jr:
Well nothing will happen this morning. I mean I don't
look for any trouble.
I:
Well I - I feel this way about it, sir. The real
investors in bonds are going to interpret it as
favorable at least after they get thinking about it a
day or two.
H.M.Jr:
Oh I think so.
E:
And this - this means that - this means that six million
buying securities are going to be protected.
N.M.Jr:
I think so.
- 2 -
232
E:
How did you like the show last night?
H.M.Jr:
Pretty well. You sound as though you were still
in bed.
E:
No - no (laughs) I'm not in bed.
H.M.Jr:
All right.
Well I just wanted to say I - - I thought
we got a swell press. That's all.
E:
All right sir.
H.M.Jr:
Goodbye.
E:
Goodbye.
233
December 22, 1936.
9:46 a.m.
Operator:
Go ahead.
8.M.J.:
Hello.
Burgess:
Hello sir.
H.M.Jr:
Where are you?
5:
Well I'm at home with a cold.
H.W.Jr:
Oh I'm sorry. Well who is going to carry on in your
place in New York?
B:
Ah Madison - Madison will be there. I've just been
talking with him.
IL.M.Jr:
Have you given him some orders?
Yep - yep - I - I told him to put in a little heavier
orders than we had in Saturday.
9.V.Jr:
Yes,
-
Ah - now we'll - we'll have someting in on the note
and on the bonds we operate 50-50 with you, is that
all right?
S.B.Jr:
That's all right.
O.K.
\.W.Jr:
Now - ah - ah - well just as soon as it opens I'll
talk to Madison.
All right.
B.C.Jr:
Is he going to handle it to-day?
He'll handle it.
S.M.Tr:
Ah - which broker did you give it to?
B:
Ah - we're working through the First Boston on bonds
and through the Discount on notes.
I.N.Jr:
I see.
- 2 -
234
B:
Now we'll take care of the notes ourselves.
H.M.Jr:
Ah-ha.
B:
Ah - now I'll keep in touch with it right along.
H.M.Jr:
I liked the publicity on it, didn't you?
B:
I thought - I haven't seen many of the papers but I
thought it was pretty good .
H.M.Jr:
Times had the good story.
B:
Yes.
H.M.Jr:
Yes.
B:
I think it's all right.
What the market will do
I just don't know.
H.M.Jr:
You've got a bad cold?
B:
No - not very bad but it's down my bronchial tubes
a little. I'm going to stay home unless it gets bad.
If it gets bad down there, I'll go down.
H.M.Jr:
All right Burgess.
B:
And in the meantime I'll keep in touch with it
A.M.Jr:
All right.
B:
so you'll know I'm on the job.
H.M.Jr:
Sorry you're not well.
B:
And Madison will talk with you.
H.M.Jr:
O.K.
Goodbye.
B:
All right sir.
Regraded Uclassified
235
December 22, 1936.
12:40 p.m.
H.M.Jr:
How is the market going?
ing
Madison:
Well it's - it is - it is hold/all right and as
far as I can find out the undertone is fair.
H.M.Jr:
Fair.
M:
The - the dealers have not been thrusting much
stuff on the market
H.M.Jr:
Yes.
M:
and although - they - they have some which
they would like to sell.
H.M.Jr:
Yes.
M:
But there hasn't been any desperate selling of
any kind.
H.M.Jr:
No.
V:
It's so quiet it makes me a little suspicious and
I wouldn't be surprised to see it sag off a little
in the usual way somewhere between one and two
o'clock when the out of town stuff comes in more
freely.
R.M.Jr:
What are you suspicious of?
M:
Yes.
U.M.Jr:
What are you suspicious of?
M:
Well lots of days at that time we get some out of
town selling.
H.M.Jr:
I see.
%:
From the west and that which has - which has an
effect sometimes on the market. We don't always get
but I'm always thankful when that time is by when the
days are not so good.
H.M.Jr:
All right.
M:
I bought about two million each of bonds and notes
which isn't bad. I'm holding up fairly good amounts
Regraded Uclassified
- 2 -
236
for a back-a-way.
H.M.Jr:
All right.
M:
And I don't think the undertone is bad just now.
H.M.Jr: Thank you.
M:
Yes.
H.M.Jr: Goodbye.
Regraded Uclassified
237
TREASURY DEPARTMENT
160
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Press Service
Tuesday, December 22, 1936.
No. 3 - 20
12/21/36
The Secretary of the Treasury, after conferring with the Board of Governors
of the Federal Recerve System, announces that he proposes, whenever it is
deemed advicable and in the public interest to do so, to take appropriate action
with respect to net additional acquisitions or releases of gold by the Treasury
Department.
This will be accomplished by the sale of additional public debt obligations,
the proceeds of which will be used for the purchase of gold, and by the purchase
or redemption of outstanding obligations in the case of movements in the reverse
direction.
--oCo--
I n active
238
161
December 22d
I asked the President 1f it was too late for me to discuss
with him the question of not transferring Resettlement to
agriculture. He said it was not too late. I told him that I
thought it was a mistake as once it got into Agriculture it would
be very difficult to transfer certain bureaus in Resettlement,
such as satellite cities to some other department. Furthermore,
way not wait until the report came in on how to handle the share
croppers. I also told him that I understood that their accounts
were in very bad shape, nothing dishonest but just sloppy and that
It. would be much easier for us to investigate Resettlement if it
WS8 kept as an independent agency. He said that an Executive
Order had been drawn up for its transfer to agriculture and to
tell Bell to hold it up and he would discuss it with us on Monday.
I Was surprised to find that he was willing to discuss it with me
65 I had taken it for granted that when he saw Wallace and Tugwell
yesterday that he had come to an agreement with them.
I said to him next, "Franklin, you certainly got yourself
out on the end of a lim when, at last Friday's Press Conference,
you announced that you would need not to exceed 500 million dollars
for relief for the balance of this fiscal year". He looked at me
and said, "Why, did I ask for too much?" and I said, "No, you did
not ask for enough" and he said, "Henry tells me that all we need
is 650 million dollars"and I said, "No, he says that Aubrey Williams
says that we need 900 million dollars. My own opinion is that we
need about 700 million dollars." I said, "The only way I know
that you can get yourself out of this situation is by transferring
the 200 odd million dollars, still left in Ickes' revolving fund,
to Hopkins." His reply was, "That is a new suggestion for me"and
I could tell that he liked it.
at his 4 o'clock Press Conference the President was asked
the question again about the 500 million dollars and I have no
coubt that he had Steve Early plant the question and the President
poon-poohed the idea and he said that he never said anything about
the 500 million dollars. It certainly did not take him long to
climb back onto safe ground. He suid next Monday he would discuss
the question of relief money but would not talk about it until I
got back.
I found the President in a very good humor but since he is
back I have not found him decisive. He seems to make up his
Ind very slowly and gives me the impression that he does not
know just what he wants to do it on a lot of these important
groblems as relief, etc.
Regraded Uclassified
239
TREASURY DEPARTMENT
EX
INTER OFFICE COMMUNICATION
DATE December 23, 1936
TO
Secretary Morgenthau
FROM
Mr. Haas 90AK
This morning over the telephone you requested that I have
prepared 8 comprehensive analysis of the Social Security Act indicating
the states which have passed supplementary legislation in accordance
with the provisions of the Act, etcetera. You further requested that
the report include how the various titles of the Act now affect
Treasury operations, and the manner in which it may affect them in the
future, and to which consideration should be given now.
1
You stated you would like this report by January 11, 1936.
Regraded
Uclassified
240
I want to wish each and everyone of you a
very happy New Year. Looking back over the last
three years I feel that all of us have much to be
thankful for. I sincerely hope that America will
continue to move forward in 1937.
made
monetive, morel Tone Du
Regraded Uclassified
241
164
Let me wish a happy New Year to all of you who hear my voice and top
the people of the Nation. I think t at X a people we are better off today
than we were a year ago and it is my hope for America that we shall continue to
advance by learning how to work together more effectively.
Iment to wish each and
everyone of you a very happy
new year. Looking back
of over the last three
years Ifell feel that to
he thank ful for. I
all of us have sunch
Dui any hope that we will to
g america will continue
more forward in 1937.
Regraded Uclas sified
242
December 28, 1936
TO MR. BELL:
Beginning December 23, 1936, and until the receipt
of further instructions from the Secretary of the Treasury,
you are authorised and directed to take such steps as may
be necessary to have all gold offered to and purchased by
the Mints and Assay Offices for account of the Bulliem
Fund, held in the General Fund of the Treasury as insctive
and free from any limbility whatsoever. You are also
authorised and directed to naice no further deposits in the
Gold Certificate Fund, Board of Governors, Federal Reserve
System, on account of any gold now held in the General Fund
of the Treasury unless otherwise instructed by me.
In order that I may be in a position to determine
the manner in which the working balance in the General Fund
of the Treasury used in purchasing such gold is to be 10-
imbursed from time to time, you are authorised and directed
to report to no daily the total amount of gold hold pursuant
to these instructions.
mh.
DWP
Regraded Uclassified
243
Estimated receipts of gold by the mints and assay offices
(Monthly, 1934 to date)
(In willions of dollars)
:
I
Secondary
New
:
:
1
Domestic
Total
:
1934 - January
5.7
5.7
February
.7
9.3
10.0
March
33.1
12.4
45.5
April
13.3
7.8
21.1
May
7.2
8.3
15.5
June
5.5
7.7
13.2
July
9.8
8.6
18.4
August
6.8
7.7
14.5
September
4.1
10.2
14.3
October
5.1
11.3
16.4
November
7.7
9.5
17.2
December
4,7
9.7
14.4
Total
95.7
108.2
203.9
1935 - January
5.2
8.6
13.8
February
4.1
8.8
12.9
March
3.9
7.4
11.3
April
3.8
8.7
12.5
May
3.6
9.4
13.0
June
3.3
9.6
12.9
July
4.5
10.4
14.9
August
2.6
11.1
13.7
September
2.8
10.3
13.1
October
2.6
12.2
14.8
November
2.4
12.4
14.8
December
1,7
11,2
12,9
Total
41.8
107.7
149.5
1936 - January
2.3
11.5
13.8
February
1.4
8.8
10.2
March
1.8
10.9
12.7
April
1.9
10.2
12.1
May
1.8
11.0
12.8
June
1.4
12.7
14.1
July
1.7
13.3
15.0
August
1.6
13.2
14.8
September
1.2
12.8
14.0
October
1.4
13.4
14.8
November
1.3
13.0
14.3
December
.5
8.2 2/
8.7
Total
18.3
140.8
159.1
Total - January 1934
155.8
356.7
512.5
to date
Treasury Department, Division of Research and Statistics
December 24, 1936
1/ Through December 12.
2/ Through December 18.
Source: Weekly press release of the Treasury Department. Estimates
based on six working days to the week. Monthly totals unrevised.
Regraded
Uclassified
244
December 23, 1936.
11:10 a.m.
Hello Mr. Secretary.
H.M.Jr:
Yes Mr. Alexander.
Captain
Alexander: I had two things - first I wanted to call you up
to wish you and your family a Merry Christmas.
H.M.Jr:
Thank you, the same to you.
A:
Thank you. Another thing - our conversation of
several weeks ago. I wondered 1f you wanted to
take that matter up the week after Christmas.
H.M.Jr:
Well I'd say - I - no because the President will
be on the budget and all that stuff. I'd - I'd
say let that thing ride now until some time after
the 4th of January.
A:
Well then I'll just simply sit tight here until
I hear from you.
H.M.Jr:
No, if you do that (laughs) you keep after me.
A:
(Laughs) I'll keep after you.
H.M.Jr:
Yes.
A:
(Laughs) All right then you don't want me to say
anything more about it until after the 4th of
January.
H.M.Jr:
Well not as far as I'm concerned because I just
can't handle it.
A:
Yes, well I wondered if there was anything that
needed to be taken up with the President.
H.M.Jr:
Well he's never mentioned it.
A:
He hasn't.
H.M.Jr:
He 's not worrying about it.
A:
And he'll certainly take it up with you.
H.M.Jr:
I think so.
A:
All right, Mr. Secretary. I hope you have a good time.
H.M.Jr:
Thank you.
A:
Thank you.
7n Dan Bell
245
dential
to be returned to A.m.J
December 24. 1936
WHY IS THE GOVERNMENT BOND MARKET UNSETTLED?
This memorandum is concerned primarily with the present
attitude of the Government bond-buying community and the present
trend of Government bond prices. Despite a definite unsettlement
in opinion and a consequent softening in these prices, there has
not yet been any material decline. Indeed, prior to the recent
unsettlement, Government bonds had risen sharply to new highs.
Between the National elections on November 3. the long term 2 7/8s
had risen from 102 20/32 to a. high of 104 19/32 on November 19.
Thereafter they were steady around that level until the terms of
the recent new Government financing were announced. Since then,
they declined to 103 20/32 on December 19 (approximately one point
off from their highs) and are now 103 25/32.
246
- 2 -
1. Current talk in Washington accompanied by continuous
newspaper articles, to the effect that reserve requirements are
going to be raised after the first of the year is disturbing to the
holders and buyers of Government bonds. They recall that when the
reserve requirements were raised 50% last August, Government bonds
declined and remained soft for a few weeks before they rose th the
prices they had enjoyed before the announcement of the increase in
reserve requirements. Bondholders now reason that a. similar decline
in Government bonds may follow another increase in reserve require-
ments, particularly M it is well known that a. certain number of
banks, even in New York City, would be compelled to sell some of
their holdings of either Government bonds or acceptances in order
to avoid rediscounting if reserves were to be raised 33 1/3% next
month.* Increased rediscounts would almost certainly be accompanied
by higher short-term money rates. What would appear to be a nominal
change, say 1/2 of 1%, in such rates, would be reflected in a sub-
stantial deoline in quoted prices of the longer term Government
securities, Take, for example, the new 13-17 year 2 1/2= now selling
*Following the announcement of the Treasury's intention to "sterilize" gold imports in
the future, the Government bond market was somewhat firmer. This was perhaps due to the
belief that this "sterilization" measure might obviate the necessity of raising reserve
at 100 30/32, If a rise of 1/2% say from 1 1/2% to 2% in the rate
for one-year money were to take place and be followed, as in all
probability it would, by & similar rise in the long term money rate,
requirements for the present.
the Government 2 1/2m, now selling at a 2.45 basis, might 6° to a
2.95 basis, in which case they would decline from 100/30/32 to
95 16/32. or 8. drop of over 5 1/4 points.
Regraded Uclassified
247
- 3 .
2. Recent intimations from Washington that the Adminis-
tration is concerned about a possible "hot money" menace and would
like to curtail the flow of foreign investment funds to this market
are likewise & disturbing influence. Among the devices which it
has been suggested may be used to check & further flow of foreign
funds and to induce repatriation of such funds already invested here,
is a substantial increase in the present withholding rates applicable
to foreigners, of 10% on dividends and 15% on interest. It has been
rumored several times that the Administration would not be averse to
raising these rates to approximately 23%, which is said to be the
withholding rate applied by the British Government to their own
nationals. If this were done, it would mean that & British holder
of American income-bearing securities would have nearly half (46%)
of his income withheld at the source, the result of which would be
to bring strong pressure on such British holders to dispose of any
American security yielding 6% or less. Were any such liquidating
movement to start, it would be bound to affect adversely the prices
of high-grade bonds and preferred stocks in this market. This develop-
ment would not be favorable to the investment market generally,
including the market for Government bonds. The influence of foreign
buying and selling on our securities markets is seldem appreciated
by those who do not have the opportunity day-by-day to watch the
effect of such orders placed on the New York Stock and Curb Exchanges.
Regraded Uclassified
248
- 4
It is true that the total amount of such foreign buying and selling
is not large relative to the total trading done on a givenday, but
it frequently starts the market out of a. period of dullness in one
direction or another and once such direction of movement is given
domestic buying or selling tends frequently to follow it.
The whole talk about "hot money" is especially disturbing
to financial opinion because it is not generally believed that there
exists any threat to our economic or financial structure from this
source, In this connection there is attached hereto, as of possible
interest, a. recent summary and analysis of the information made
available on this subject by both the United States Department of
Commerce and by the Treasury.
3. The general impression at present emanating from
Washington that responsible Government officials are concerned
about the possibilities of a boom, and are considering measures
to prevent its developing, is also an important factor causing
softness of Government bonds. The financial community realizes
that, in the past, when the Federal budget has, except for war
influences, been in balance, the only really effective means of
preventing & boom has been to make money rates firmer; and they
know, of course, that any permanent hardening of money rates would
mark the top of the Government bond market.
4. The last and most important factor causing softness
in the Government bond market (and a factor which is perhaps
composite because resulting from & combination of several of the
249
- 5 -
factors above mentioned) 10 a belief growing in the minds of the
financial community that the downward trend of interest rates, and
henoe the upward trend of high grade bond prices has, or is soon
to, come to an end. Such & change is the normal result of business
recovery as prices and inventories rise. Along with such recovery
and rising prices comes normally a demand for additional bank loans
and new capital issues to take care of increasing business volumes.
It is significant that, since January 23, 1935, "all other leans"
of reporting member banks have increased $1,036,000,000, of which
$818,000,000 occurred during 1936. New capital, as distinguished
from refunding, issues have not yet been appreciable, but there are
strong indications that such issues are in early prospect. If the
present recovery were a "normal" one, 1.0., if our currency had not
been sharply devalued, and if the Federal budget had not been thrown
largely out of balance, investors in long term bonds would not be
unduly disturbed because the transition from low to dearer money
rates would then be slow. Today, however, they realize that the
transition could be accelerated sharply by action on the part of
Government authorities to make money dearer in order to "control"
the coming boom. This fear hangs over a Government bond market which,
despite, the recent unsettlement, is still at levels never before
reached in this country's history. In some quarters where this fear
is acute, there is even talk about as impending "collapse" of the
bond market.
250
- 6 -
5. Those who entertain these fears of "collapse" point
to the faot that not only is the demand for loans, both long and
short, increasing, but also the supply of new capital to finance
further business expansion has been and will continue to be seriously
affected by certain Government measures recently adopted. They point
to the fact that the principal source of supply of new capital in
this country since the World War has been the corporation surpluses,
and that these surpluses have been severely depleted by the tax law
of 1936. They point also to the impairment of another source of
new capital in this country, namely the savings of rioh people,
through the heavily graduated income taxes and surtaxes. They point
also to the leasening of the impulse for saving by those of moderate
incomes, whose savings in the aggrogate were e. substantial source of
new capital, by the Social Security measures which, under the present
law, in effect, divert the workers' savings from banking institutions
to a huge Government capital fund that can only be invested in Govern-
ment securities. They point also to the diminution in the incentive
generally to save, which has come about from a. deoline in the
effective rate of savings banks' interest from 45 to 2 or 2 1/2%
These points have recently been well elaborated by Dr. Lionel Edie
in his address before the Forum on Investment Problems at the
Twenty-Fifth Annual Commention of the Investment Bankers Association,
at Augusta, on December 6 last.
251
- 7
The whole address is worthy of study, but the pith of it is contained
in the passage attached hereto as "Exhibit 8".
6. In conclusion, it is probably fair to eay that the
chief cause of softness in the Government bond market 10 a feeling,
somewhat vague and undefined as yet, that interest rates will probably
not dauline any further, and that they may firm up rather sharply.
Until the last month or two it had been generally believed that,
even though the decline in money rates might be near its end, there
was little likelihood of any noticeable increase in rates and that
there would instead be a long period, say, a year or so, when rates
would be approximately what they are now. Recently, however, largely
as a. result of Mr. Ecoles' recent public comments in Washington,
opinion is veering to the point of view that the operation of normal
economic foroes may be distorted by positive aots of Government,
and that, as a consequence, the change from very easy money to
"normal rates" will 001M considerably sooner and be considerably
sharper than had been anticipated. The money market and the bond
market are "sensitive plants". Atmosphere often affects them more
powerfully than actual happenings.
252
- 8 -
One other factor tending toward unsettlement in Govern-
mont bond prices is the fact that the recent financing was not
suited to the taste of Government bond buyers at the time it was
offered. The market would have taken engerly an issue of
$1,500,000,000 very long term bonds, say 25 to 30 year maturity,
with a 2 3/256 coupon. It is true that the 13-17 year 2 1/2a and
the 5-year 1 1/48 were fairly priced and successfuly sold, but
this was due more to the faot that bond buyers had no chance to
express their preference for long terms, than it was to any
enthusiasm of these buyers for what they bought. It is not with-
out significance that the current softness in the Government bond
market dates, roughly, from the announcement of the terms of the
recent offering.
Regraded Uclassi
253
EXHIBIT "A"
Docember 1. 1930.
In view of discussions now current in tho pross and elsewhere
about "hot money" and the possible dangors to America from n. sudden
withdrawal by foreigners, say in the event of n European war, of their
holdings of Amorican socuritios, it is intorosting to consider the
prosont amount and distribution of such foruign investments in America.
The Intost authoritativo studies on this subject are the Department of
Commorce's Special Circular No. 417 dated Juno 5, 1936. and the report
just released by the United Statos Treasury Dopartment, Division of
Research and Statistics, entitled "Statistics of Capital Novements
between the United States and Foroign Countries and of Purchases and
Sales of Foroign Exchange in the United States, January 1935 through
Soptember 1936."
Combining those two sources of information, and making reason-
able adjustments for the advance in stock and bond prices between
January 1 and September 30, 1936, the present amount and distribution
of all foreign capital in the United States, as of September 30, 1936,
would uppear to be ns follows:
Latin
411
Grand
Europe
Canada
Amorica
Others
Total
Short Torm Funds
(Millions of Dollars)
Bank Doposits & U.S.Gov'ts.
748.7
164.3
193.1
184.6
1,290.7
Other Banking Liabilitios
109.6
6.11
7.5
45.4
168.9
Brokerage Balances
29.7
3.7
2.2
1.0
36.6
Total Short Term Funds
888.0
174.4
202.8
231.0
1,496.2
Foreign-Owned Domostic
2,579.8
620.3
43.2
445.6
3,688.9
Socurities
"Permanent" Invostments
"Direct" Investments
700.0
322.0
5.0
18.0
1,045.0
"Othor" Invostments
761.0
161.0
8.0
109.0
1,039.0
TOTAL CAPITAL
-
4,928.8 1,277.7
250.0
803.6
7,269.1
Regraded Uclassified
254
- 2 -
Although the grand total of $7,269,100,000 would appour at
first glance to be G formidable figure, it is not 80 formidable whon tho
broakdown is studiod. In the first place, the item "Total Short Torm
Funds - 11,496,200,000" (of which only $888,000.000 is Europoan-owned)
is probably not n great doal more than is nocossary to enablo the world
to carry on its ordinary businoss transactions with Amorica, ospocially
in nn ovont such as a war in which Europo was involved whon they would
be nooding to buy more than ever from us. In any caso, the total of
short-term funds owned by forcigners - $1,496,200,000 - is substantially
loss than our surplus bank resorvos at the moment, aggregating
$2,200,000,000. And as any war troubles are likoly to be confined to
Europo, it 18 probably fairer to compare with the Intter figuro only
the Europoan short-torm funds, aggregating $888,000,000.
Turning now to the itom of "Permanont Invostmonts", thoso
reprosent, according to the Department of Commerco, such items as:
1. Socurities and proporties administored through
personal or corporato trusts for foreign account.
2. Not oquity of foreign insurance companies in
United States branches and affiliates, i.o, the
excess of admitted assets over total liabilitios
to policy holders and to other oreditors.
3. Estimated foreign holdings of urban and agrioul-
tural mortgages and real estate.
4. Net equity of foreigners in all American corpora-
tions, exclusive of financial institutions, in
which foreign corporations or other foreign
sharoholders have the controlling voice in manage-
ment 0.8 a result of their stock ownership
(valuations based on balance sheet data). The
corporations referred to are mostly /merican
subsidiarios of foreign corporations.
255
- 3 -
It sooms rathor cloar that the aggregate of thoso "Permanont
Investments", namely $2,084,000,000 could not or would not bo disturbed
to any approciable dogroo in tho ovent of a European war.
To are loft, thorefore, with n balance consisting of foreign-
owned domostic socurities (bonds, proferred stocks and common stocks)
of $3,688,900,000. This itom can be brokon down approximatoly as
follows:
Lotin
All
Grand
Europo
Canada
Amorica
Others
Total
(Millions of Dollars)
Common stocks hold
12/31/35, increased
by 19.7% to compen-
anto for incroase in
mkt. vnlue to 9/30/30
1,525.0
488.4
22.7
375.8
2,411.9
Bonds hold 12/31/35
516.0
49.0
8.0
34.0
607.0
Pfd.Stocks hold 12/31/35
240.0
66.0
3.0
20.0
329.0
Est. markot value of
all socurities purchased
during 9 months ondod
9/30/36
298.8
16.9
9.5
15.8
341.0
TOTAL -
2,579.8
620.3
43.2
445.6
3,688.9
Tho grand total of the above socurity holdings - 83,688,900,000 -
is, of course, substantial in itsolf, but it should bo considered in
rolation to tho total market valuo of common stocks, bonds and proforred
stocks outstanding in the im rican markot. This total is difficult to
ostimato, but, in ordor to orr on tho sido of consorvatism, let us take
the market valuo only of tho common stooks listod on tho Now York Stock
Exchange. As of Octobor 1, 1936, this figuro is ostimated to have been
$55,000,000,000, of which the forogoing total of 03,688,900.000 of foreign-
owned socuritios is only 6.7% and tho total of $2,579,800,000 owned by
Europoans is only 4.7%
Regraded Uclassified
256
- 4 -
It might be addod that our exporience during the past ten years
shows rathor conclusively that foreign holdings of American sccuritios
han been far loss subject to panicky anlo during tho many disturbing
happonings of the past docado than have boon /morican holdings of the
same socurities.
Let us assume, how vur, that, in the event of a European WE.r,
Europoan governments would mobilizu tho Amorican socurity holdings of
thoir nationals and attempt to roalizo upon them promptly. Assuming that
they were able to sequestor all such holdings, roughly $2,500,000,000,
would thoro bo any serious danger to Amorican markots?
The experience of tho last World War indicatos that only a part
of thoso securities, togothor with somo of the bank balancos, would be
convorted into dollars as soon as hostilitics broko out, and that the
romaindor would bo sold only ns and whon thoy were noodod to pay for war
purchnses mado in this country. It is not unroasonable to assumo that a
banking syndicato in Now York could bo formed with little difficulty to
"mobilizo" the ontiro $2,500,000,000, at prices which, boing affocted by
the war soaro, would deubtloss be considerably bolow thoir intrinsic worth.
But, finally, has not the World Var and its aftermath provod to
Europoan security holders gonorally that the safost place to have thoir
monoy in the ovent of n Europoan way is in the United Statos? And might
not the outbroak of another war, instoad of causing rapid and substantial
withdrawnls by Europoans from this markot, woll rosult in thoir incroasing
thoir holdings hero, 80 long as thoir respective govornmonts would permit
thom to buy the dollars required for the purpose?
Regraded Uclass
257
- 5 -
This momorandum leaves out of considoration ontiroly tho
possible dangers to the foreign countries thomsolvos, particularly to
England, Franco, Switzorland and Holland, of continued purchasos of
Amorican socurities by thoir nationals. It may well bo that those
purchasos would load ovontually to substantial woakoning of storling,
tho two francs, and the guildor. If so, it would appear that any
moasuros to control tho flow of foreign funds into Amorica should bost
bo takon by the foroign countrics themsolvos.
The conclusion to be drawn from tho above analysis, so far
ns the United States is concerned, is that foreign investments in
America at tho prosent timo aro not, nor are thoy likoly to be, any
sorious dangor to our financial or oconomic position.
258
EXHIBIT "B"
Extract from Dr. Lionel Edie's address
"Supply of money is not the 1120 thing as supply of capital,
and that is a distimction that seems to have been pretty generally
forgetten in banking ciroles when We are discussing this very basie
and fundamental problem of the outlook for money rates. When -
are looking at the supply of money today we have to realise that the
supply of excess reserves is going to be limited and restricted, that
there is going to be a maximum point fixed upon it, and after that that
step has been taken we must expect a different condition in the money
market purely from the side of money. But that will not tell us any-
thing about the supply of capital. Let - suggest to you a. few things
that are taking place on the side of the supply of capital. You will
then, I think, readily see that this distinction is well taken.
The Supply of Capital
The principal source of the supply of capital in this country
since the War has been corporation surpluses. The amount of national
savings in good years, coming out of corporation surpluses, has ranged
between one and two billion dollars per annum. It has been the most
lucrative single source of new national capital. The new tax on
undistributed income of corporations has almost completely deatroyed
this source of capital. The supply of capital has been dried up at
the source by this now form of taxation. And so we have looming aboad
of us a fundamental change in the sources from which we derive MY
capital to take care of the progress, the growth, and the medermisation
of the espitalistic system in this country.
Regraded Uclassified
259
- 2 -
A second source of new capital in this country has been
the savings by people of considerable means, Rich people have done
a large propertion of the individual saving of the country. The
surtaxes and graduated income taxes in all forms have greatly
curtailed this source of capital. I would say that this source of
capital has been out in half as the result of the steeply graduated
taxes in this country in the last few years.
Another source of saving has been the saving of the masses
of the people - the little fellows. Where the individual contribu-
tion is very small, when you multiply it by millions and tens of
millions you have a large total sum. By introducing social security
we have made it unnecessary for the little fellow to save. Voluntary
saving on his part Le out, and I think we must expect to ⑉ it
diminish in the future. In place of it we have a form of forced
saving by making a deduction from the payroll of the little fellow,
and if W de not make the deduction direct, we have too employer make
the contribution, but the contribution which the employer makes,
is, in effect, also a form of forced saving, because if the employer
did not make the contribution to the government in behalf of his
employee, he would be paying the money direct to the employee in the
form of & wage increase. The forced saving is in lieu of what other-
wise would be a. wage increase to the mass of the people on the payrolls
of this country. New, what becomes of this capital aequired through
feroed saving? It is sterilized in a government fund. It goos into
& form of government security which has nothing to do with the productive
sapital requirements of the future. So that here again - have &
Regraded
260
- 3 -
change in the nature of the supply of capital, the supply of saving
of the country.
There is one final consideration on the side of supply of
empital. In years gone by, if you followed the rate of imcrease of
deposits in savings banks, you found that that increase was dictated
very largely by the rate of interest. The savings deposits would 6°
up 456 in a given year, and that 45 merely meant that the interest on
the deposits was being left in the bank. It was a reinvestment of
the interest income derived from savings. That is true not only of
savings banks, it is true of a great many individuals. They receive
income from bonds, or from stocks, and they turn around and reinvest
that in further capital. That has been a primary source of the supply
of capital in this country. Well, you have out that supply of capital
down by about one-third merely by the fast that you have reduced the
interest rate by about one-third. When a man receives, instead of a.
456 or 4 1/2% coupon, a 2 1/2% to a 3 1/4% coupon, his ability to
reinvest is thereby curtailed.
In all these ways we have been drying up the well. No have
been outting off the source of supply of new capital, and if we were
obligud in the next twelve months to find four billion dollars of new
capital to put into corporate bonds, I think - might crack the bond
market considerably. You could not find that supply of capital readily
available because through these various changes in taxes and is our
financial structure you have fundamentally attered the nature of the
supply factor. And you will note that you have made this alteration,
you have surtailed the future supply of capital in this country,
Regraded Jclassified
261
4. -
regardless of what happens on the side of money supply. You could
run your excess reserve up to any figure, and it would not consti-
tute for the savings of capital that have in the history of this
country always been the great fountain from which - have derived
resources in order to promote progress, in order to apply the
results of invention and science, and in order to build up the
ompitalistic system. We face a. condition in which the supply of
capital itself may be greatly ourtailed in the future.
The Demand for Capital
Now, we face that condition on the side of supply of capital
at the same time that - may face a very great possible increase in
the demand for capital. During the past three or four years we have
had a condition that was M near to complete stagnation of demand for
capital as the world has over seen. People were aFraid to borrow,
they were unwilling to borrow, they lacked the confidence necessary to
persuade them to borrow. That is not a normal situation. It 10 not
a permanent situation, and one of these days it is going to change.
When you talk about a. change on the side of demand for capital,
I want to just say a word about the difference between a demand change
and a supply change. The supply change is likely to come very, very
slowly. A demand change can come over night, and come like a
whirlwind. #
262
December 28, 1936
11:24 A.M.
Operator:
LaGuardia. Go ahead.
H.M.Jr:
Hello.
Fiorello
LaGuardia: Hello, Mr. Secretary, good morning, how are you?
H.M.Jr:
How are you, Mr. Mayor?
L:
Fine. Bay, Mr. Secretary, I - I'm terribly
crowded here; we're short of police officers and
I'm afraid we'll have to take those men away from
you for a short time until we can catch up with
some of the conditions we have.
H.M.Jr:
I see. How Long will that be?
L:
I don't know. I nope it won't be long because I'm
a little disturbed about the thing. Around the
Holidays, you know, we got - I guess some out-of-town
crooks, and they've been pretty busy and - and we're
drawing from every place we possibly can.
d.M.Jr:
Well, I - I - your cooperation so far -
3
I know - but I -
R.M.Jr:
- has been fine.
L:
- I want you to know. And as soon as we can get
some of them back to you, we will.
H.M.Jr:
That's all right.
L:
Fine.
H.M.Jr:
Now, while I got you on the wire I want to talk to
you about one of your hobbies.
L:
What's that?
E.M.Jr:
That North Beach airport.
L:
Good.
263
- 2 -
4
E.M.Jr:
Listen, if you want a fellow to land there, how
the hell is he going to get from the airport into
a boat? Have you ever - the docks - there is no
dock there.
L:
Oh well, we're going to build, and -
H.M.Jr:
There's no dock there, you know.
3
Yes. And you know - you know that hill that's
there? I'm - I'm going to buy that hill -
H.M.Jr:
Yes
3
- and we're going to dump that in the water.
H.M.Jr:
Yes
L:
And then we're going to make a regular basin
there for boats to land.
1.M.Jr:
Well, I went down that - sort of slide, and it's
all slime.
L:
Yes.
H.W.Jr:
And it's
- it's almost impossible to get
from the airport into E boat.
D:
Oh, really?
H.M.Jr:
Sure.
6:
Well - well, shallow water?
H.M.Jr:
Yes. And then there's that slide there which is
all full of slime, you see.
i:
Yes. I'll - I'll send you a copy of our plans,
H.M.Jr:
And another thing, if you want to land - if you,
for instance, do the way I did, go from a launch
from North Beach, the only place on the East River
where there's a place where a small launch can land -
L:
Yes
h.M.Jr:
- is at this river house.
Regraded Uclassified
264
- 3 -
L:
Well, how - ah -
H.M.Jr:
Didn't you have -
L:
- how deep - what draught did your launch have
over there?
H.M.Jr:
Well, I - I used - we had to use - we had to use
a Chris-craft; we couldn't get a Coast Guard
cutter in there.
L:5
Not a cutter, no.
H.M.Jr:
Well, I mean a 75-footer.
L:
Well, of course -
H.M.Jr:
We - we couldn't even get a 75-footer in there.
3
Now, Moses is building a boat basin right there.
H.M.Jr:
Th, I didn't know that.
L:
Yes, and -
H.M.Jr:
But then, supposing you get in a boat and you want
to land anywhere on - on the east side of Manhattan, -
L:
Yes
H.M.Jr:
- where are you going to land?
5
On Manhattan?
H.M.Jr:
Yes
L:
All over the place.
H.M.Jr:
Oh -
L:
Oh, 32d Street, 22d Street, Wall Street.
H.M.Jr:
No no no, north of 59th.
L:
North of 59th -
Regraded Uclassified
265
- 4 -
H.V.Jr:
Or north of - of fifty- well, anywhere north of
42d.
L:
That's north - up on East Manhattan, that's all
mostly private property.
H.M.Jr:
I mean there - there's no - I mean you - couldn't
you fix up your place where your fire boat ties up
there at 86th Street or 96th Street?
L:
Yes. Yes, we can fix that - we can fix a place
there.
H.M.Jr:
No, I don't mean for me but I meant for anybody.
L:
Yes, I understand perfectly.
H.M.Jr:
I mean you take it from 42d Street north on Manhattan,
there's no place for a small boat to tie up, -
b:
I'm glad you called my attention to it. I'll get -
I'll get ahold of MacKenzie right away.
H.M.Jr:
- except River House.
L:
Tell me, now is your work getting on at Floyd
Bennett? Are they building?
H.M.Jr:
Yes
L:
They are?
H.M.Jr:
Yes
3
That's good.
H.M.Jr:
As far as I know they are. I mean I understand that
it's under way; I hadn't heard -
L:
Well, if - any time you see your bald-headed
colleague in the Post Office Department, tell him
we got an airport there, will you?
H.M.Jr:
(Laughs)
L:
(Laughs)
H.M.Jr:
All right, Mayor.
G
All right, Morgenthau, thanks.
H.M.Jr:
Goodbye.
Regraded Uclassified
266
December 28, 1936
I went to the White House at 2 o'clock with Bell and
Edy. The President left word he wanted to see me alone.
Spent 45 minutes with him, He had a bad cold and his
mind seemed fuzzy.
He said, "Have you seen this budget message of Bell's?"
and I said, "yes. He said, "Ia it not terrible?" and I
replied that it had too many figures in it.
The President then read me parts of a 16-page memorandum
that Mr. Eccles had given him. The parts in Eccles' docu-
ment that the President wanted to use were (1) that if we
attempted to balance the budget we would put this country
into another tailspin and (2) that our fiscal policy should
be to depend upon increased revenues as the national income
increased, but no mention is made anywhere in Eccles' docu-
ment of trying to economize and spend less. Naturally I
felt as though the pins had been knocked out from under me.
From what Bell had told me earlier in the day, I gathered
that the President had discussed with Bell parts of Eccles'
philosophy without revealing the source.
After much conversation, he tossed Ball's message
and Eccles' message at me and said, "I feel too low and
my mind 18 not functioning to try and concentrate on the
budget message." He said, "You take it and see if you
cannot do something with it." I said to the President,
"You are giving me an extremely difficult task." He sald,
"I know I an," and I said to myself, This 18 one of the
most important challenges to your intellectual ability
because the President has absorbed Eccles' philosophy and
you have the job of dynamiting Eccles' stuff out of the
President's brain and if you fail you will find that Eccles
will become the President's fiscal adviser.
I cannot say that I lost any sleep over it, but on
the other hand I did feel the tremendous seriousness of
the situation.
Sunday morning at 9:40 at the Treasury, Bell, Edy,
Gaston and Uphem met with me and we worked for about three
hours together. I let Upham read out loud Eccles' state-
ment and our audience was just dumbfounded. It 16 a swell
campaign document, but as & part of the budget message it
is too terrible for words.
Regraded Uclassified
267
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166
I then felt, after much discussion, that I personally
would have to dictate B. message and I asked the crowd not
to interrupt me and tried to perfect words as I wanted to
get down in black and white 8 statement to show the Pres-
ident in the afternoon to see if I could lay before him
thoughts which he would accept. I had & big argument with
Bell who wanted to put in the figure for relief and I told
him it was absolutely the wrong psychology to use on the
President. Bell gave me figures to use in this message
which were entirely new and were so much better than any-
toing that he had shown us before that I was overjoyed at
the improved picture for 1937.
We called on the President and showed him first my
message and I could tell right away that he liked it. He
also was dumbfounded at the improved figures and teased
Bell and told nim that he thought that Bell had been hold-
ine out on US. He said that he, the President, had not
been able to sleep nighte worrying about the budget and
that I nad been tearing my air out because we would not
make the figures meet and now suddenly Bell came along
snowing favorable balance for 1937 exclusive of relief.
When the President came to the item of relief he turned
to me and said, "The Vice President advises me to leave
this figure lank." I said to him, "Talking B.S. a fiscal
officer, I very much hope that you will put in a figure
even if It 18 $2,000,000,000 because if you leave it blank
It will frighten people and hurt our future financing."
I said, "Only you can decide as between the Vice President's
political advice and my fiscal advice." He then turned
to page 9 (in the second message) and at the bottom it shows
the gross deficit for 1936 at $3,234,000,000 and the esti-
mated gross deficit for 1937 at $1,099,000,000. He sub-
tracted one from the other and got the figure of $2,135,000,000
and then wrote out & statement in his own handwriting along
these lines: that if Congress voted monies for relief and
wanted to keep the 1937 deficit below the 1938 deficit, they
could not vote more tnan $2,135,000,000. I then said,
"Hr. President, if you leave it that way, all the unfriendly
newspapers will say that you recommend $2,135,000,000."
Quick as a flash, he said, You are right and he added the
thought: that of course he did not think we needed any such
figure.
From my standpoint, his statement on relief is perfect.
This, of course, was my biggest worry and I think it was
Regraded Uclassified
268
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nis also and I think we have found a very happy solution.
The only other important suggestion made that afternoon
W8S made by the President in regard to AAA. His thought
W&B in case we should lose the AAA case, he wondered why
we could not do what we did in New York State where the
Legislature voted a 1% income, tax retroactive for one year.
He trought we could apply this same principle to the AAA
through having & bill passed applying the same schedule of
taxation on the food processors so tnat those companies
who have refused to pay the tax would be made to pay the
tax while those companies who have paid would be exempt from
this law. I think the President has a real idea and if the
lawyers will approve it, it certainly would make things much
easler and simpler all around, The President said that we
ought to get in touch with Wallace and Davis because they
are working on & bill to save the AAA through making it a
State organization and having the Federal Government give
Federal grants to the States. I think that the President's
suggestion 16 ever 80 much better.
Regraded Uclassified
269
1. Case for Administration needs aggressive presentation; opposition
proposes return to unbalanced economy of 20's when 23% of
national income went to 1% of the people (Brookings Institu-
tion studies). and 200 corporations, including 106 industrials
and 52 public utilities, each with assets over $90,000,000,
had combined assets in 1930 of $81,074,000,000; this equals
roughly 22% of the country's total wealth and is 49% of all
non-banking corporate wealth, while 300,000 smaller companies
owned the remaining half (The Modern Corporation and Private
Property, Berle and Means); these individual and corporate
beneficiaries of unbalanced economy, through Liberty League,
National Association of Manufacturers, etc., are most violent
foes of Administration.
2. This Administration inherited, not only chaotic conditions, prostrate
business and banking, but & national debt of 20 billions:
taxes which should have been applied to curtailing this debt
were reduced 4 times in the 20's; also the preceding Admini-
stration left B. deficit of nearly 1 billion in '32 and over 3
billions in '33, and by letting deflation run far on its course,
vastly added to cost of turning the tide back to recovery.
3. Restoration underway; country about half way back to 1929 levels;
national income, which fell from over BO billions in 1929 to
less than 40 billions in '32, was up to 50 billions for 1934
and running close to 60 billions at present rate of business
activity.
4. Budget is balancing; restoration of national income, out of which
alone come taxes to balance budget, has resulted in increase
of tax collections estimated for current fiscal year to be
$2,400,000,000 above '33; consequently, government spending
needs decline; H.O.L.C., F.C.A. and R.F.C. collecting more
than putting out.
5. Taxes to balance budget will come, not out of present income, but
future surpluses from restored national income, on basis of
capacity to pay; not out of "little fellow"; fixed income
groups do not suffer, better off with smaller, assured in-
terest than artificial rates which national economy unable
to sustain, with danger of loeses of principle as well as
interest; government must deflect surpluses, which caused
stock market, real estate, etc., inflation of 20's, to pay
off debt and, when deflationary tendencies develop, to spend-
ing stream.
270
2
6.
Premature budget balance by wrong method of alashing expenditures
before private enterprise takes up unsuployment slack, 18
proposed by opposition; this would net back recovery.
threaten new deflation, reverse successful processes set in
motion by Administration; this implies & static economy and
perpetuation of unbalance.
7.
Coat of recovery small; Administration expended about 8 billions
(as of November, 1935); deducting Treasury balances, value
of assets in R.F.C., etc., and gold increment, net debt in-
crease is about 3 billions; this contrasts with gain of 10
to 20 billions in national income; increase of 20 billions
in listed stocks, 75 billions in listed bonds, and incalculable
gain in values of real estate, urban and rural, and other as-
seta; government bonds, some selling down to 83 in '33, now
at premium, under lower interest rates: hence cost of car-
rying debt greatly reduced.
B. Debt burden einggerated; in last war country incurred deficit of 9
billions in one year, 13 billions the next; war-incurred debt
of $26,000,000,000 paid down by 10 billions in 20's despite 4
tax reductions; at same time some 10 billions squandered on
foreign bonds and fully 100 billions added to capital wealth;
entire national debt of 30 billions is about 4 months of nor-
mal (1929) national income; gross increase of 8 billions under
this Administration is about one month's normal national in-
come; net increase of 3 billions is less than 2 weeks of normal
national income: 8. country cannot impoverish itself by bor-
rowing from and paying interest to itself; bulk of debt in-
curred at behest of and to save banks, insurance companies and
private credit structure; critics did not object to unbalancing
budget in war or to save private credit structure in 30's;
objections illogical against also protecting citizens from
ravages of economic forces; Macauley's"History of England"
exposes false analogy between individual's debt and nation's
debt, and blindness of alarmists who nee debt growing but
fail to 088 that national wealth and income grow faster;
serious thing is not debt, but loss of $40,000,000,000 an-
mally of national income.
9.
Administration program succeeding; going off gold, revaluing dollar,
necessary expedients to restore equitable debtor-creditor re-
lationships; debt burden further adjusted by H.O.L.C., P.C.A.,
etc., in funding debts over longer periode at lower rates;
271
170
- 3 -
A.A.A., a temporary expeditent, has restored parity (non-
existent in 20's) between agriculture and tariff-protected
industry; farm income which declined to nearly 4 billions
in 1932 estimated to be back to 7 billions for 1935;
S.E.C., banking acts of '33 and '35, etc., provide safe-
guards against return to evils of 20's, and will contribute
to attainment of goal of abundance.
10. Administration's objectives are being realized for under-privi-
leged; goal of abundance still far off; to halt now and re-
verse policy or revert to reaction of opposition would in-
vite new deflation, perpetuate evila which developed infla-
tionary bubbles in 20's and resultant collapse; reaction now
may doom Democracy, including the Constitution, and lead to
Fascism or Socialism; problem now is production and distribu-
tion of real wealth to maximum capacity of machine age, plus
technological advances; this envisions dynamic, not static,
economy, and orderly, stabilized progress, with government as
compensatory medium, through monetary credit and taxing
powers; Republican opposition proposes return to unbalance of
20's, with concentrated power and wealth at top, poverty or
penury for masses, including small industrialists and busi-
ness men; wealth distributors would divide up existing in-
adequate wealth which would be to distribute poverty; Town-
sendites, etc., would distribute worthless paper money,
neither creating nor distributing real wealth. Administra-
tion policies and objectives, based on sound economics, mean
salvation of profit-motive, individualistic society, under
Democratic institutions and traditions.
272
III
The political tide is running against the Administration.
The people and many of their representatives in Congress are con-
fused by the multitudinous actions launched against the enemy of
depression, and by the clamor of the opposition which commanda
most of the press. The Administration threw into action a great
army, launching an offensive on all sectors. The public has had
its eyes fixed only on the many segments of the battle line--upon
individuals in the line-Johnson, Richberg, Tugwell, Ickes, Hop-
kins, etc.--and has been bewildered by individual actions and often
conflicts of action. There has undoubtedly been waste motion,
cross-purposes. The public gaze has been upon the individual
clashes.
Above all, the public has failed to 006 what a tremendous
victory has been won along the battlefront as & whole, how mich
lost ground has been recaptured, how far back on the road to re-
covery the nation has been brought. The opposition now filling
the press with vituperation can be made to look ridiculous; it
can be completely routed and annihilated by an aggressive campaign,
stating the cold, hard unanswerable facts of the case. At the
moment that campaign is not being made effectively. It should be
made forcefully without more delay.
Since it is the habit of our people, if not all peoples,
to vote against rather than for, the campaign should be pitched
against the dangers of a return of reaction which would usher in
another era of collapee and disaster even though it might be
273
DI
- 2 -
temporarily preceded by another period of unbalanced prosperity
such as we had in the 20's, when 23 percent of the national in-
come went to less than one percent of the people, with affluance
at the top but wretchedness among great masses at the bottom of
the population pyramid. Assuming that Governor Landon symbolizes
what the opposition will stand for, it appears that the major at-
tack will be against spending, 1.0., in favor of balancing the bud-
get by drastic reductions of governmental expenditures. It can
be demonstrated beyond all successful contradiction that this would
be the path back to reaction and new deflation, with a return of
misery for the great masses of our people and ultimate destruction
of our democratic form of government. For the opposition offers
nothing but a return to policies which brought us to the edge of
revolution, to an unprecedented economic prostration. The poli-
cies offered by the opposition have been tried and failed so 00m-
pletely that only blind men, incapable of learning from experience,
would have the effrontery to propose now a resumption of such
policies.
This Administration came into office inheriting the most
demoralised, most chaotic conditions in the peace time history of
America. It may be doubted whether Lincoln faced & country more
shattered and panic-ridden. When this Administration took office
it inherited & national debt of more than 20 billions, accumulated
not only because of the mistaken tax policies pursued under Re-
Regraded Uclassified
274
III
- 3 -
publican Administrations in the 20'm, when taxes were reduced
four times though they should have been maintained in order to
pay off the war-incurred debt, but also because the Hoover Ad-
ministration by failing to intervene soon enough and on a broad
enough scale, by letting the deflation run far on its course--
with untold misery to all our people and losses in the national
income estimated in excess of 150 billions-added a deficit of
a billion dollars in one year and more than three billion dollars
the next to the burden. The cost to the present Administration
in stopping the deflation and turning the tide was vastly increased
over what would have been the case had the Hoover Administration not
permitted deflation to go to such disastrous extremes. In view of
the magnificent accomplishment so far achieved of stopping the ruin
and bringing the country far back on the road to recovery. it would
be absurd for the Administration to be on the defensive, It should
be justly proud of the achievement, and prepared for a smashing of-
fensive.
We have come fully half way back to the levels of 1929
measured by the national income, yet we have & long way to go yet.
To turn back now, to revert to the opposition policies which were
tried and which failed disastrously, would be & fatal mistake. To
slash the budget in capitulation to critics, would be not only to
confess error where there has been none, not merely to admit that
Uclassified
275
III
- 4 -
the critice are right (and they are proved wrong on their own
record), but most of all and worst of all it would be political-
ly and economically wrong. It would net back the recovery. per-
haps fatally.
Budget is Balancing
The essential, ignored but incontrovertible fact in
that the budget is being balanced right now; it is being
balanced in the only way that it can be balanced without in-
viting another deflation and another disaster that might end in
real revolution and the end of the democratic system, the end of
the Constitution, the end of American liberties and traditions.
The danger today is not from the meagre handful of Reds in this
country, but from the blind reactionaries whose policies all but
brought us to public revolt and would, if reinstituted, jeopardize
the very things of which they prate but are too blind and greedy to
understand how to protect.
The budget is being balanced now, in the only way that
it can rightly be balanced, by increasing national income, out of
which alone can come the revenues with which to effect a balance.
That national income, which sank from more than 80 billions in 1929
to less than 40 billions in the last year of the Hoover regime, is
nearly halfway back to 1929 levels. As a direct result, our tax
revenues are rising correspondingly. They are close to $2,500,000,000
more now than .they were in the last year of Mr. Hoover.
Regraded Uclassified
276
175
- 5 -
It should be remembered that taxes to pay off the
national debt will not be collected out of a static national
income, especially when that income has been more than cut in
half as happened in the last days of the Hoover Administration.
Taxes to pay off the debt will be collected out of a dynamic,
restored and (as should be the case under orderly economic pro-
gress) steadily expanding national income. That 1e why the cry
that the present or later generations cannot endure the tax bur-
den is foolishly unrealistic, No generation which is impoverished
can bear taxation, but a nation with a restored and expanding
national income can, without any hardship whatever, endure taxes
that would be crushing to an impoverished nation. Nor will the
taxes come out of the "little fellow," as Liberty Leaguers and
other misled and misleading calamity howlers are so fond of say-
ing. The taxes will come out of the income surpluses piled up
in "good times" by corporations and individuals and will be col-
lected on the equitable basis of ability to pay. Not only will
this tend to deflect these surpluses from the speculative chan-
nels (to say nothing of worthless foreign bonds) into which
billions were poured in the 20's, but, when deflationary tendencies
develop, the Government can temporarily suspend paying off more of
its debt and divert the funds into the spending stream and into the
Regraded Uclassified
277
170
- 6 -
hands of the under-privileged who will buy food, clothing and other
goods and thus bring about creation of new real wealth. That, very
simply stated, 1s the economic process, not under a static but under
a dynamic, expanding economy of which people like Liberty Leaguers
seem to be unaware.
With recovery underway and tax collections correspondingly
increasing, the great credit agencies, such as the R.F.C., the H.OL.C.
and the F.C.A., are accordingly enabled to collect more than they are
spending. In other words, the pressures for expenditure are steadily
diminishing while revenues are increasing. Three years ago, under the
supposed balance-the-budget policies of the Hoover Administration,
charted lines would show the line of government expenditures steadily
rising, that of government revenues as steadily pointing downward - the
two lines moving further and further away from each other - the unbalance
of the budget inevitably growing greater and greater. Today. the
charted lines have been turned. That of expenditure is going down as
fast as recovery proceeds. Tust of revenue has turned upward. Bar-
ring a reversal of policies, a return to deflationary measures, the
lines are bound to cross. The rate at which these lines will con-
verge depends, first, on the rapidity with which private enterprise
takes over the load of employing the unemployed and thus relieves the
government of its inescapable duty to provide for the unemployed in
the meantime. A premature effort to balance the budget by the wrong
Regraded
278
#
- 7 -
method of forcing reduced expenditures, ahead of the time when private
business is prepared to substitute its own expenditures, would impede
recovery and invite another onset of deflation. It would be to confess
that the steps already taken, which have been eminently successful,
which are producing a balancing budget, have been wrong when, as proved
by the facts, they have been absolutely right. Secondly, the rate at
which the lines converge depends upon the steady upward progress of
the national income, which was up to about 50 billions in 1934 - a gain
of fully ten billions over the last year of the Hoover regime - and is
running close to 60 billions at the present rate of business activity.
To attempt now to force B. premature budget balance would slow up this
process ruinously. It would imply a static condition of the country,
whereas, as the Brookings Institute has emphasized in the final volume
of its exhaustive study of the depression and of present day economic
conditions (Income and Economic Progress, page 83):
"If we are to achieve the goal of satisfactory
standards of living for everyone, the first requirement
is to increase progressively the total amount of the in-
come divided. Only as the aggregate national income in-
creases from 80 billions, will the goal of a high standard
of living for everyone be attained.
"The distribution of income from year to year is of
primary significance not for its momentary effects upon
the well-being of the masses, but for its possible cum-
lative effects in promoting a fuller utilization of our
productive facilities and 8. consequent progressive in-
crease in the aggregate income to be available for dis-
tribution. We are not interested in maintaining a static
279
- 8 -
situation in which the total income, even if equally dis-
tributed, would be altogether inadequate; we are in-
terested rather in producing a dynamic situation in which
increasing quantities of newly created goods and services
would become available for everyone."
Realization of New Deal Objectives
This is the real vision which the New Deal has held out;
it 1B sound economics, supported by the best economic thought in
this nation and abroad - not by the reactionaries and the hirelings of
banks but by independent, forward-looking economists as represented
in the detached and disinterested Brookings group. This implies
neither socialism, state capitalism, fasciam nor comminism; neither
regimentation, nor restriction; it is the way to malce the capitalistic
eystem produce and distribute to its full capacity, under our Constitu-
tion, our traditional liberties and freedom of initiative. It will
save our democratic institutions from the extremists, the "Reds" on
one side and the blind reactionaries on the other. It is the answer
to the wealth-distributors and Townsendites. To distribute the
eristing static wealth of the country would be to distributepoverty.
To distribute pieces of paper marked $200 a month, whether as an old
age pension or for whatever purpose, would be to distribute worth-
less paper. The problem is to create such an abundance of real wealth -
houses, clothing, food, all the things people need and want and use -
which 1a the only real wealth, of which pieces of paper called money
Regraded
Uclassified
280
179
- 9 -
are but the symbol - that the attainable goal of a high standard of
living for everyone will be reached, as it can be under an orderly
economic progress now underway. This is the real motivation of the
New Deal and has been from the inception. It means the fruition of
its aspirations for the forgotten man and the under-privileged.
Costs of Recovery Relatively Ingignificant
The Administration's expenditures so far are a. bagatelle
when compared with the results, Not only has the national income
been increased by nearly 20 billions, not only are tax revenues up
by some $2,500,000,000 over three years ago, when the Hoover Admini-
stration went out, but the value of listed securities on the exchanges
is up by 20 billions, the value of listed bonds is up by 7½ billions;
the values of all real estate, urban and rural, are up, of bank and in-
surance company assets, of all other real assets; incidentally govern-
ment bonds which sold down, for some issues, as low 88 83 three years
ago, now are at & premium and under lower interest rates. Contrasted
with the billions upon billions of increased values is the rise of
some 8 billions in the public debt; this is & gross figure which 1a
far less if allowance is made for the Treasury's cash balances, the
assets owned by the Government in such agencies as the R.F.C., and
the increment from revaluation of the dollar. Deducting those items,
the rise in the debt is around 3 billions, an insignificant sum by
comparison with the restoration.
Regraded Uclassified
281
180
- 10 -
Debt Burden Grossly Distorted
The size of the debt has been grossly distorted and magni-
fied by ignorant or irresponsible alarmists, such as the Warburgs and
Douglases. They are like the "shallow politicians" whom Lord Macauley
describes in his History of England, who continually cried out that
Great Britain was being ruined by her public debt, and were only
silenced when the growing wealth of the British people 50 dwarfed
the debt that their needless alarms were exposed as baseless. The
Douglases and Warburgs, the Hoovers and Knoxes and Landons today are
like the "shallow politicians" who, as Macauley said, saw only that
the debt grew but not that the national wealth grew much faster.
It 1e overlooked, also, that this country piled up a deficit
of $9,000,000,000 in one year and $13,000,000,000 in another year of
the last war, that the war-incurred debt mounted to 26 billions,
mainly in two years, yet during the 20's we paid off ten billions of
that debt despite the wrong policy of reducing taxes four times in
the same period, and despite the fact that our people squandered some
ten billions in foreign securities. At the same time we had such
large surpluses that we were able to add vastly to our national wealth
in the form of new capital equipment of all sorts - homes, apartments,
hotels, factories, power plants, etc., aggregating fully $100,000,000,000.
If we did all that in the 20's, why can't we do it again, and, in fact,
282
181
- 11 -
do far better? With the restoration now underway, with the recovery
of & national income not merely of 1929 but of the magnitudes en-
visioned by the Brookings report, it will be possible to pay off the
present debt with a rapidity greatly exceeding that of the 20's.
The alarmists also overlook the fact that our entire national,
gross debt of some 30 billions amounts to but little more than four
months of our normal national income on the basis of 1929. The gross
increase in the national debt of some 8 billions since this Admini-
stration took office is but little more than one month's normal national
income at 1929 levels, and the net increase in the debt since this
Administration took office amounte to much less than two weeks of the
normal national income. Can it be seriously contended that & Govern-
ment should not spend B. month's normal income, just as an individual
would, in order to recover from a critical illness? However, the
often used analogy between an individual going into debt and a nation
incurring debt is false. In the first place, an individual ordinar-
ily can not expect his income, out of which he must pay his debts, to
expand, whereas a progressive nation like ours can count upon its
national income growing steadily larger. But, beyond that, how can
a nation, which 1s all of the people, become financially embarrassed
by borrowing from itself and paying interest to itself?
283
102
- 12 -
It should be remembered, also, that the budget was un-
balanced in large part, not to relieve the unemployed, or the dia-
trees of the farm and home owners, but to save the banks, the in-
surance companies, the railroads and the private credit structure
all along the line. Is not the Government as much under obligation to
unbalance its budget in order to come to the rescue of its citizens
who are out of work and destitute through no fault of their own, as
to unbalance the budget in order to save the private credit structure?
It is altogether illogical and unreasonable for those who
approved and, in fact, solicited government funds in order to sup-
port the credit structure to draw the line against support of the
unemployed until such time as private enterprise is able to provide
employment. No one objected in the last war to unbalancing the bud-
get to the tune of $9,000,000,000 in one year and $13,000,000.000
the next in order to protect our citigens against B foreign foe. By
what logic can it be held that the same citizens should not be pro-
tected likewise against the equally deadly ravages of depression?
A favorite theme of the objectors is that people with
fixed incomes suffer because of taxes and lower interest rates.
But this view completely overlooks the fact that taxes will be col-
lected out of surpluses, according to ability to pay, and that owners
of fixed incomes are infinitely better off with assured incomes even
at lower interest rates than with inflated and excessive interest
returns which the national economy cannot support and which vanish,
along with principle in a collapse and deflation aggravated, if
not directly induced by excessive interest rates.
Regraded Uclassified
284
183
- 13 -
An Economy of Abundance
The Administration has declared for an abundance economy;
the restriction policy in ДЛА is a temporary expedient to overcome
the effects of war-induced over-expansion and to overcome the of-
fects of the industrial high tariff policies fostered by the Re-
publican Administrations, notably including Mr. Hoover, in the 20's
the effects of which were to lose foreign markets for agricultural
output and to accentuate domestic unbalance between agriculture and
industry 80 much that throughout the 20's agriculture was suffering
acutely amidst supposed prosperity. That more equitable balance has
already been largely restored; the Administration's various steps to
halt the deflation and restore the general price level to B. point of
reasonable justice between debtor and creditor - the departure from
gold, revaluation, etc., - have all combined to lay the foundations
for a stable, orderly progress ahead to the goal of abundance; the
S.E.C., the Banking Acts of 1933 and particularly of 1935 provide the
instrumentalities for 60 controlling stock market and credit condi-
tions as to make for more stabilized progress, freedom from the specu-
lative excesses of the 20's and avoidance of the extremes of deflation
and inflation.
A reversal of policy now, in the budget, would strike at the
foundations which have been laid and the progress already realized
285
- 14 -
towards the achievement of an economy of abundance; it will be
greeted by the opposition as 8. confession of error; it will place
the Administration on the defensive, and imply that the Douglases,
the Warburgs, the Aldriches, the Liberty Leagus, the Chamber of Com-
merce, the National Association of Manufacturers, the Republicans -
Hoover, Knox, Landon - the crowd that has always been and always will
be against this Administration - are right. This is the crowd that
wants power rather than recovery - the crowd that for 12 years was
in power, that tried the very policies which ended in the greatest
smash in our economic history; the crowd that willed this Administra-
tion a debt of 20 billions and a demoralized, prostrate country;
yet they now have the sublime audacity to propose that we go back
to the very policies which wrecked the country. They have been
proved false prophets on their own record. To capitulate to their
views now would be unthinkable, when this Administration's policies
are now being amply vindicated by the unanswerable test of improve-
ment reflected in every index of business, industrial, economic and
financial activity. The record itself is not only a vindication but
a refutation of the policy to which the opposition bids the nation to
return. Far from retreating or retracting the time is opportune to
throw the record back into the teeth of these critics; to take an 06-
gressive stand, and to restate aggressively the objectives of this
Administration which are in fact being achieved.
286
185
- 15 -
Premature Budget Balance Unsound
The budget not only is being balanced through the processes
set in motion by this Administration, as evidenced by the diminished
pressures and increasing revenues, but will be balanced as fast as
private industry steps in and takes up the slack of employment;
private capital is getting in; as & result, profits are increasing,
and instead of being in the red to the tune of billions as they were
in the last days of Hoover, American business men are out of the red
as proved by income tax returns, by the drop in bankruptcies (which
numbered more than 25,000 for the first 9 months of 1932, with
losses aggregating more than three-quarters of a billion dollars,
when Hoover says recovery was underway); not only are profits in-
creasing, but unemployment is diminishing, even though still exces-
sive; the national income is accordingly rising and with its tax col-
lections, but only as this process continues is it possible to balance
the budget; in other words, as fast as private enterprise takes over
the load just 80 fast will government spending slack off, and to force
reduction in government spending faster than private enterprise picks
up the load would only halt the process if not reverse it and pre-
cipitate another deflation.
The wrong method of balancing the budget is all that the
opposition offers; & reversion to the Hoover-Douglas-Liberty League
theory of budget-balancing would not only jeopardize recovery, but
287
188
- 16 -
implies a static and A scarcity economy for the nation as & whole -
abundance for the rich, poverty for the masses, as was the fact
during the miscalled prosperous 20's. The Brookings' studies, among
others, graphically emphasize the major defects in our economic
system in the 20's - for which the opposition offers no remedy what-
ever, so that a reversion would not merely perpetuate the defects but
lead to another collapse. The opposition professes to fear inflation
yet it brought on the worst inflation of etock market, real estate
and other prices in our history; it offers nothing now to correct
the very defects in the system which produced the evil results. AB
set forth in the studies referred to, one all-important factor of the
20's was that for the first time in our history capital accumulated
faster than it could be profitably employed in production.
For 150 years we had an expanding frontier; great waves of
immigration and a fairly high birth rate gave us & domestic market
that grew 80 rapidly that as fast as capital accumulated it could be
put profitably into new production; simultaneously, until our high
tariff policy killed it off, we had a foreign market. By the 20's,
as Andre Siegfried has said, America came of age; we had no more
frontier; for the first time in our history the tide of immigration
turned the other way; our mountainous tariffs cost us our foreign
markets, and for the first time in our history capital accumulated mich
faster than it could be put into productive enterprise; at the same
Regraded Uclassified
288
107
- 17 -
time, as Berle and Means have set forth, we witnessed rapid changes
in corporate organization, with the growth of a great number of in-
dustrial giants, which accumulated vast profite which they did not
pass along either in the form of higher wages, dividends or, as would
have been best of all, lower prices; an incidental effect was the
shrinkage in the volume of commercial paper to the point where the
commercial banks could no longer exist on that once fundamental type
of loan; but the worst effect was that these capital accumilations or
savings spilled over into stock, real estate and other speculation--
nothing was done then by Republican Administrations to halt the process;
the Coolidge-Mellon procedure was to encourage the stock market orgy
and Hoover did nothing to abate it until the crash came; nor is any-
thing offered now by the Hoovers, Landons, Knoxes, etc., to safeguard
the nation against a recurrence of the calamity; on the contrary their
whole policy would expose the nation to the same evils. The facts of
the situation are thus set forth by Brookings (Income and Economic
Progress, page 156) :
"As to income distribution and its results, we found in
the second division of our study the proceeds of the nation's
efforts going in disporportionate and increasing measure to a
small percentage of the population--in 1929 as much as 23 per
cent of the national income to 1 per cant of the people. We
found the unsatiefied wants--needs according to any good 80-
cial standard--of the 92 percent of all families who are now
below the level of $5000 annual income sufficient to absorb
the product of all our unused capacity under present condi-
tions of productivity and still demand much more from such un-
explored potentialities as might thereafter be opened up. To
Regraded Uclassified
289
100
- 18 -
found the incomes of the rich going in large proportion to
savings and these savings strongly augmented by others in-
pounded at the source by corporations through the practice
of accumulating corporate surplus. These savings, after
providing for such increase of capital goods as could be
profitably employed, we found spilling over into less
fruitful or positively harmful uses, ranging from foreign
loans (bad as well as good) to the artificial bidding up
of prices of domestic properties, notably corporate securi-
ties.
"Thus, we began to discern the answer to our question
whether the basic defect in our economic eystem, not dia-
covered in the technical processes of productions, is to be
found in the way in which we conduct the distribution of
income. The answer 1a affirmative; this is the place at which
we do find basic maladjustment."
Correcting Basic Defect
The Administration's expenditures have had the effect of
helping to correct this basic maladjustment, To cite the Brookings
further (page 87)
"Inadequate buying power among the masses of the people
appears to be fundamentally responsible for the persistent
failure to call forth our productive powers. It has been
shown, also that the standards of living desired for the
American people as a whole can be attained only if we can
somehow greatly increase the national output of goods and
services. Our problem is to determine whether the flow of
the income stream to the various groups in society can be
BO modified as to expand progressively the effective demand
for goods and thus evoke an ever greater volume of produc-
tion-which would mean a steadily augmenting aggregate in-
come to be divided."
It has been by restoring buying power, by putting money
into the bottom of the spending stream, that the present progress of
recovery has been achieved. & reversal of policy now, therefore,
Regraded
290
- 19 -
would as indicated be disastrous from every standpoint, political
and economic.
Relief Funds
As a suggestion: Congress might be requested to furnish
a certain sum for relief, to be used only as and if private enter-
prise fails to take over the employment load; the fund, instead of
being administered from Washington by men whose experience has been
that of case workers in the social field should be handled in de-
centralized form by those experienced in handling funds; resentment
can be abated by doing away with the provision that persons must de-
clare themselves pauperized in order to get on relief rolls and be
eligible for work. Incidentally, a balanced budget will not employ
people - as Hoover amply proved. Employment results only when busi-
ness receives orders for goods, and orders for goods in turn only
result from people having money with which to buy, and this, further,
is the only process which keeps up and adds to the national income
out of which come the taxes which balance the budget, In order
words, the Administration's infiltration of buying power into the
spending stream gets at the fundamental cause of the trouble.
Housing Program
As an immediate measure which would have & stimulative ef-
fect, perhaps offsetting possible business recession in the Spring,
the housing program, designed to accomplish the largest volume of
Regraded Uclassified
291
190
- 20 -
construction in the shortest possible time, through the stimulation
of private capital, has been agreed upon by the several interested
agencies and officials.
Goal of Real Wealth Abundance
This Administration, dedicated to an abundance economy,
to the interests of the underprivileged, has not only prepared the
way for a lasting recovery, and provided through the stock market
and banking controls & means of combatting both inflation and de-
flation, but is in & position to offer explicit proposals for
achieving the degree of abundance represented by & steadily rising
national income based upon real wealth, not based on paper money,
but based on calling forth full productivity of our economic machine,
plus the technological benefits in innumerable fields. To cite the
final Brookings report once more (page 158):
"The accumulated knowledge re silting from modern
scientific and technical discoveries is 80 great that
were it rapidly and continuously applied to the 10-
provement of productive processes, we could have a rate
of industrial advancement, and attain a level of produc-
tion in the not distant future, that would dwarf any-
thing that has been known in the past."
This goal ie in sight under the Administration's declared
policies, and demonstrable results go far - though the goal is still
far ahead; it is not in sight under & reversion to the blind greed, un-
balanced economy and budget-balancing methods of the opposition - to
292
191-
- 21 -
yield to those methods now could be the greatest possible tragedy.
The goal is attainable by keeping the cost of capital down,
interest rates low - as has been the Administration's policy; forcing
the distribution of surplus and profits when they fail to flow into
real wealth production, but spill over into speculation; keeping
this flow directed into the spending stream through taxing sur-
plus in times of prosperity and thus reducing debt incurred in
periods of deflation.
The Government must be the compensatory medium in main-
taining the flow and balance and at the same time preventing ex-
ceases either in the direction of inflation or deflation.
The budget is the key to the whole policy and program.
Regraded Uclassified
see Dr white's 293
memo of gan't 192- 1937
DEPARTMENT OF AGRICULTURE
STATE DEPARTMENT )
WASHINGTON
December 88, 1936
The Honorable
The Secretary of the Treasury
Dest Henry:
I have been asked to prenare for the "Landon
Telegraph" B. 700 word article on America's creditor
position. Of course, agriculture's interest in a prob-
lem of this scrt i because of the likelihood of con-
tinustion of foreign purchasing nover at a fair orice
for the product of some 30 to 50 million acres of ferm
lano. But the Treasury and the State Departments are,
of course, even more interested in this problem than
agriculture. I would not want any article which I
might send out to cause any emberrassment to either the
State or the Treasury Department.
Using figures outained from the Desartment of
Commree, I have ritten over the week-end the statement
which I an wending you herewith. It occurs to me that
if this ver: Published in the "London Telegraph" over my
name, the impression would not be in any way official
or formal whereas if it came from anyone connected with
either the State or the Treasury Departments, much sign
nificance might be read into the statement which you 2
would not care to have read into it. The "London Tele-
graph" people would like to know whether they can gets
this statement by Wednesday of this week. If you think
it should not go or that it should De nodified. I rould
be elnd to have your opinion.
Sincerely yours
Hawallaw
Secretary
Enclosure
294
#
THE CREDITOR POSITION OF THE UNITED STATES
By
Henry A. Wallace
The American farmer has had an increasing interest in the post-
war creditor Dosition of the United States because it seened to have a
bearing on whether or no there would be E. foreign demand at a satis-
factory price for the product of some 50 million acres of crop land. Be-
fore the World War, the outside world had invested in the United States
sufficient money so that the United States was sending roughly 250 mil-
lion dollars more in interest and dividends out of the country than was
coming in. In addition tourist payments and immigrant remittances amount-
ea to core than 300 million dollars annually. Thus it was before the war
thos we had to sell the outside world at least 500 million dollars more
annually of goods than we bought from the world or there would be the
necessity of ex orting gold from the United States or borrowing still
more foreign capital.
Yes, previous to the World War the United States was a struggling
debtor nation, growing very rapidly, it is true, but still finding it dif-
ficult to hold down sufficiently on imports and expand sufficiently on
exports to take care of her debtor position, enable the tourists to travel
and make It possible for immigrants to send money ORCK nome to the folls
in the old country. It is not surprising that this situation caused most
of the people of the United States to become strongly in favor of high
tariffs.
Today all this has been changed and the outside world owes us more
than 26,000 million dollars. Offsetting this, foreigners have investments
in the United States amounting to more than 6,000 million. dollars. Of the
Regraded Uclassified
295
-2-
20,000 million dollars apparent net international creditor position
of the United States nearly 13,000 million dollars is represented by
governmental debts owed to our government and now in default. Of the
nearly 5,000 million dollars of foreign securities held by private Amer-
ican citizens not quite 2,000 million dollars are in default. Some of
the defaulted securities owed our private citizens will doubtless pay
out out it would seem that there will be a loss of at least 1,000 million
Dollars and probably more.
Taking into account the total defaults, governmental and private,
of nearly 15,000 million dollars, and the amount of foreign investments
in the United States, it appears that the net creditor osition of the
United States at the present time is probably not in excess of 6,000
million dollars. But perhaps the least controversial and most realis-
tic way to state the situation is to say that the United States in
the year 1936 has received about 360 million dollars more in interest
and dividends from the cutside world than she has paid out to the out-
side world. This is just about half as much as was paid net annually
on interest and dividend account to the United States during the last
half of the decade of the twenties. Each year since 1930 the net cre-
ditor position of the United States has lessened. Very superficially
stated, this is because of the fact that the obligations of the outside
world to the United States are often not good while obligations of the
United States to the outside world are usually good. But back of this
uperficial appearance which has caused much misunderstanding and hard
feeling are the profound movements of world readjustment.
296
-3-
During the time in which the United States has been a creditor
nation, the outside world has tried to adjust itself to the situation
to five ways:
1. By accepting less goods from the United States and shipping
rore goods to her. In some cases these efforts to revent importation
of roods from the United States have taken the form of rigid monetary
controls and exchange quotas.
2. By encouragin American tourists to spend more money in for-
eign lands.
S. By sni ming gold and silver to the United States.
4. By defaulting on obligati ons to the United States.
5. By borrowing money from the citizens of the United States.
These five forces have had widely varying importance during
the period since 1920. During the early twenties when the United States
exported vastly more than it imported, the situation was taken care of
by the outside world sending us a total of more than 1,000 million dol-
lars of gold and borrowing from us more than 2,000 million dollars capital
net. During the late twenties our exports exceedeñ our imports by less
than one-half P.S much BS was the case in the early twenties, and imports
of cold were comparatively slight. To bring about & balance in payments,
however, it was necessary during this period to send a total of about
6,000 million dollars of capital to foreign countries in excess of that
which they sent to us. In the early thirties the extraordinary depres-
sion in the United States temmorarily reversed the forces making for ud-
justment. Slightly more gold was shipped out of the United States than
was brought in an.. the outside world sent slightly more long term capital
297
into the United States than we sent out (It must be recognized, lowever,
that several hundred million dollars of short term capital moved out of
the United States during the early thirties, probably in anticipation
of the golà revaluation).
Beginning in 1934 the two dominating forces in the balance of
international payments of the United States have been, first, the impor-
tation each year of from 1,000 million to 2,000 million dollars of gold
and silver. and, second, the investment by foreigners in securities and
dort term capital obligations of amounts ranging from 380 million dollars
annually in 1934 to 1,500 million dollars in 1935. Precise figures are not
vailable for 1936 but it is evident that for this year they will amount
to more than 1,000 million dollars. It would seem that in 1934, 1935 and
1936, the United States has exchanged pieces of paper giving evidence
of indebtedness or partial ownership in her fundamental industries for
inture masses of gold and silver. Taking all the facts into account, this
exchange was probably the best thing they could have done for the wel-
Tare of the United States and the world under the circumstances. The
long time aspects of this situation are another croblem.
As we contemplate the five forces of adjustment to the oost-war
creditor position of the United States at the beginning of the year 1937,
me find the situation beiefly somewhat ns follows with respect to each
of them:
1. In 1936, exports and imports of the United States almost ex-
actly balanced. Exports were down because of the drought and imports
were up because of the beginnings of real prosperity. Secretary Hull's
policies in the direction of increasing imports are taking effect slowly;
298
-5-
nevertheless, it is probable after B. year or two of ordinary wea-
ther that the value of United States exports will again exceed the
value of her imports very materially. The productive capacity of
the farmers and the factory workers of the United States is 80 great
that under ordinary condit they can supply food and goods for
many more people than those who live within the boundaries of her
OWN country. However, AS long as American tariffs are exceedingly
with, it is li ely that many foreign nations will feel called on
to continue rather rigid monetary exchange controls or commodity
out
muota restrictions so LS to keep/as much as possible imports from
the United States. These extraordinary efforts to prevent American
goods from moving in international trade have not nade for adjust-
ment, however, because they have tended to bring into use the American
countervailing duty in a manner to cut down ex orts from nations which,
in effect, by their policy discriminate against the United States.
Quota restrictions and monetary exchange control policies, while hav-
inc their origin in the necessity for using forces to meet the cre-
ditor position of the United States, have not brought about much, if
any. net gain to the countries employing the devices.
2. In 1936 American tourists spent about two-thirds &S much
in foreign lands as they diá in the average year in the last half
of the twenties. Now that the former gold bloc currencies are more
nearly on a parity with the American dollar, it is likely that these
tourist expenditures will greatly increase in case there is no war.
As it is, it does not seem likely that there will be much increase.
Regraded
299
-6-
198
3. Gold and silver shipments to the United States must
locarently be relied on for some little time SS the leading device
to enable the outside world to live with a creditor nation which
insists on exporting more than it imports. With increased gold and
rilver mining going on all over the world, it is quite possible that
there will be sufficient gold and silver to make possible this type
of adjustment as long as the United States is willing. If this is
true, it would seem that after A time the people of the United States
would find it necessary to think through to the realities of exporting
indefinitely the labor and natural resources of this continent in ex-
change for nothing more tangible than shining metal. Some day the ques-
tion will be asked as to what it all means in the long run for the stan-
card of living of the American people,
4. It is not advisable to discuss the nu stion of defaults.
5. Neither does it seem advisable to discuss a renewed loan-
ing policy by the United States st a time when defaults are being dis-
cussed. Why should sensible American investors loan money in those
countries whose nationals are now so busily sending money for invest-
ment to the United States?
In conclusion it may be said that revaluation of golá and the
silver policy of the United States make it possible for us for a number
of years to avoid facing in all their starkness the ultimate adjust-
ments which must be made. This is all right, - and sound politically
and economically - provided our people are gradually educated as to what
is going on and as to what must be done to raise their standard of living
in the long run. This rapidly gets into the field of domestic policy
300
-7-
in the United States and I do not have time to discuss that at
this time. Suffice it to say that the agricultural production pol-
icy will of necessity be guided in considerable measure by the chang-
ing factors in the creditor position of the United States.
Regraded Uclassified
301
December 28th - 12:40
Called up Wallace and drew his attention to the
fact that wheat was selling at $1.43 and I asked him what he
thought of placing an embargo on export of all wheat until
the new crop came in, in order to keep the domestic price of
wheat from rising.
I asked Miss Michener, in Haas' shop, to prepare
for me a memorandum as to how much wheat we have in the
country and how much has left the country. Wallace did not
have the information.
Regraded Jolassified
302
201
December 28, 1936
Mr. Blair is going to make a test and see whether
his company can go on without him and then he will let the
Secretary know whether he can accept a position with the
Treasury.
JOHN L. BLAIR
PRESIDENT
PROCESS COMPANY
MREN. PENNSYLVANIA
Regraded Uclassified
303
TREASURY DEPARTMENT
202-
INTER OFFICE COMMUNICATION
DATE December 28, 1936
TO
Secretary Morgenthau
FROM
Miss Michener alue
At 12:45 o'clock today you telephoned and asked that I send
you a memorandum on the wheat situation, covering supplies available for
this crop year, exports and imports so far during this year, etcetera.
You asked that I have this memorandum in your office by 9:15
o'clock tomorrow morning.
304
203
December 28, 1936
At 9:15 this morning, Mr. Bell handed the attached
memorandum to the Secretary and asked him what to do with
this $328,000,000 of gold. Mr. Morgenthau's recommendation
was that it should be left just as is -- inactive in the
General Fund. He said he did not want another dollar of
that gold to go into the Federal Reserve System.
Regraded Uclassified
305
20+
Gold in General Fund
(Desember 24.1936)
be working balance:
Free gold
$72.07
For national bank nates
100,8
4,72.8M
increment resulting from reduction of dollar:
For loons to industry
$112.2M
For Philippine Currency
23.9
For melting losses
4/9
141.0
313.8
active (Under Treasury policy announced 12/22/36
15.0
# 328.8M
28,1936
wB
Regraded Uclassified
306
DEC 20,936
CONFERENCE WITH THE PRESIDENT REGARDING ADDITIONAL FUNDS NEEDED TO
OPERATE THE WPA AND RESETTLEMENT PROGRAMS FROM FEBRUARY 1 TO
JUNE 30, 1937.
Those present besides the President were Secretary of the Treas-
ury, Secretary of Agriculture, Secretary of the Interior, Mr. Hopkins,
Mr. Tugwell, and Mr. Bell.
The President started the conference by saying that he wanted
considered the question of how much money would be required to operate
the WPA and Resettlement program for the five months period ending
June 30, 1937. He said it was necessary to arrive at this figure at
this time because he thought it essential to include it in the 1937
Budget figures which would go to Congress on Thursday or Friday of
next week and the Relief Message would probably follow in a day or
80 thereafter.
The President then said he would like to discuss the question
as to whether he could transfer $200,000,000 of the revolving fund
under Mr. Ickes supervision to Mr. Hopkins, and if that could not be
done whether he could approve projects of the character which WPA
carries on and permit Mr. Tokes to finance those projects out of the
revolving fund. I told the President that it was clear that he had
no authority to transfer any money out of this revolving fund to Mr.
Hopkins without legislation.
Mr. Hopkins told him that he had given the matter consideration
and had come to the definite conclusion that his plan of approving
WPA type of projects to be carried on and financed by Mr. Ickes was
not feasible because WPA had no projects of the type which could be
legally financed out of the revolving fund. He called attention to
Regraded Uclassifie
307
206
- 2 -
the provision in the appropriation act making the revolving fund
available, such as the 45% grant provision which could not apply
practically to the WPA program. is it seemed to be fairly olear
that no part of the $200,000,000 could be used unless legislation
were secured, Mr. Tokes left the conference.
Next question to be discussed, the President pointed out was
the requirements for Mr. Hopkins and Mr. Tugwell for the period
February 1 to June 30, 1937. The President said that we should
ask for enough money so that Mr. Hopkins could obligate funds in
June which would not be expended until July. He did not want to
be caught in the same position as last year when the appropriation
and
for the fiscal year 1937 was delayed,/the WPA was about to run out
of money early in June.
Mr. Hopkins said that it seemed to him that some policy would
have to be established regarding PRA and WPA programs. That the
PWA program at the present time was not taking, generally speaking,
people from the relief rolls. The President then asked why couldn't
the projects be approved on the basis that the Federal Government
would pay only for the labor which is definitely taken from the re-
lief rolls. Mr. Hopkins thought this was not feasible, that he did
not think we could got cooperation from contractors. It has been
the general policy of contractors to hire relief labor for the first
week or 80 then later drop them from their rolls and pick up their
regular workers. He said that he could use for the five months under
discussion s. total of approximately $900,000,000 to meet the program
which is now being carried on, but he realized that the general policy
Ucl
308
2017
- 3 -
of the Government had to be changed with respect to relief expendi-
tures, and that he was prepared to recommend to the President 80 far
as the regular WPA program is concerned, an appropriation of $655,000,000.
There 18 attached a statement showing how he arrived at this total.
In addition to the amounts shown on this statement it would be neces-
sary to provide an additional amount of $4,000,000 a month to meet the
Treasury Administrative Expenses of the accounting, disbursing and
procuring activities, and $9,000,000 a month to meet the expenditures
of other Departments carrying out projects approved by the WPA, making
a total of $65,000,000 or a grand total for a NPA program of $720,000,000.
The President then turned to Mr. Tugwell and asked him what the
Resettlement program would be for these five months. Be said it would
require a total of $25,000,000 for direct grants, $33,000,000 for loans,
$17,000,000 to finance the housing and resettlement projects under
Resettlement Administration and $60,000,000 for new seed loans. If
all of these items are approved it will require 8, deficiency appro-
priation of $855,000,000.
The President then said he didn't feel that there was a meeting
of minds on this problem, and asked the group to go into the Cabinet
room and discuss it for fifteen minutes, and then come back with a
recommendation.
After a few minutes discussion in the Cabinet room the group
decided that nothing could be done in the time allotted, so it was
agreed that we should meet in the office of the Secretary of the
Treasury at 4 p.m. to see if we could agree upon & recommendation to
the President.
Regraded Uclass
#
309
COST
INCLUDING
YOUTH
TOTAL
NUMBER
ADMINISTRATION
ADMINISTRATION
COST
February 2,200,000
145.2
6.5
151,700
(66)
March
2,150,000
139.5
6.5
146,000
(65)
April
2,000,000
128
6.5
134,500
(64)
May
1,800,000
113.5
6.5
120,000
(63)
June
1,600,000
99
4
103,000
(62)
625,200
30.0
655,200
RECEIVED
JAN 1 2 1937
310
BGI - TEN
was - we
may
and
8
of
Robert of
families
- have
I
Reyends here
I I
Public
lequid have
Reyall have
Public
leyell less
4,309,000
$ 123,604,000
-
70,000
$ 160,000
4,69,000
-
1,000
$ 13,000
.
-
$ 123,617,000
4,242,000
111,705,000
253,000
5,813,000
4,475,000
-
51,000
1,071.000
-
-
3,925,000
69,255,000
45,000
14,960,000
4,361,000
106,18,000
4,500
577.000
-
-
3,725,000
85,284,000
777,600
35,696,600
4,502,000
120,979,000
50,000
1,909.00
-
-
3,474,000
63,410,000
2,404,000
64,068,000
5,950,000
124,475,000
43,000
2,065,000
-
-
2,609,000
30,311,000
2,740,000
136,955,000
5,349,000
167,299,600
156,000
4,984,000
-
-
5,505,000
2,250,000
10,400,000
2,377,000
167,320,000
5,137,000
178,320,000
180,000
6,729,000
-
-
5,316.00
ruszy
2,130,000
4,600,000
3,039,000
164,324.000
5,169,000
168,924,000
180,000
11,611,000
275.000
a 2,176,000
5,604,000
123,720,800
1,985,000
3,200,000
2,577,000
191,530,000
4,862,000
194,670,000
232,000
18,507,000
324.000
2,504,000
5,418,000
285,520,000
1,330,000
3,100,000
2,586,000
182,570,000
4,405,000
185,670,000
210,000
24,222,000
503,000
3,818,000
5,129,000
$3,710.000
1,660,000
2,400,000
2,340,000
173,702,000
4,000,000
176,102,000
177,000
12,969,000
563,000
4,378,000
4,740,000
179,420.000
1,550,000
1,700,000
2,256,000
169,104,000
3,806,000
170.804,000
199,000
8,730,000
544,000
4,305,000
4,609,000
193,919,000
1,470,000
936,000
2,248,000
162,870,000
3,718,000
163,806,000
90,000
1,935,000
809,000
4,773,000
4,623,000
172,513,000
1,450,000
340,000
2,372,000
157,422,000
3,821,000
158,363,000
96,000
2,961,000
962,000
8,804,000
4,873,000
149,727.000
tesber
1,403,000
205,000
2,477,000
144,077,000
3,880,000
165,324,000
108,000
4,034,000
979.000
9,225,600
4,966,000
179,374,000
1,380,000
228,000
2,575,000
120,097,000
3,955,000
181,125,000
142,000
5,444,000
1.108,000
10,295,000
5,304,000
156,864,000
Regraded Uclassified
FROM REN
311
IMPLIMENT -
CALED TOMALS
Varies Program,
an
THE 1935
They Commental
Intel
Other Tyleral Projects
PVs. 1999 NO
RPC
have
2010 Sept at Salfage
food Md
Number of
I 7
Raber of
of
Rober of
liaber of
being
Rabe of
of
m mile
I
feell in
Par Bolls
Workers
Your Vells
Norkaes
They Valle
Police
April -
Tag Valle
Reviewers
her Mile
Refurn
You Ralls
or Torkare
Penta
1
481,000
122,071,000
#
-
5,000
277,000
805,00W
$34,969,000
10,000
$1,002,000
26,000
$1,890,000
927,000
850,200,000
5,388,000
$173,825,000
$204,703.000
390,000
26,736,000
-
-
33,000
1.216,000
395,000
25,293,000
9,000
1,020,000
36,000
2,605,000
1,063,000
56,460,000
5,609,000
175,711,000
223,152,000
534,000
24,405,000
-
-
77,000
3,795,000
345,000
22,772,000
9,000
958,000
45,000
3,200,000
1,010,000
95,090,000
$,437,000
162,155,000
23,921.00
551,000
24,831,000
1,000
$54,000
129,000
5,243,000
307,000
21,638,000
9,000
953,000
9,000
4,193,000
1,057,000
57,912,000
5,617,000
150,400,000
544,000
23,958,000
3,000
145,000
158,000
8,392,000
268,000
19,368,000
1 ,000
1,001,000
54,000
4,077,000
1,057,000
56,941,000
7,057.000
153,884,000
507,000
21,906,000
7,000
332,000
217,000
10,196,000
224.000
16,028,000
8,000
669,000
57,000
3,700,000
1,020,000
53,039,000
6,525,000
225,19,000
187,755,000
479,000
21,427,000
21,000
974,000
269,000
11,180,000
177,000
13,425,000
8,000
850,000
47,000
3,991,000
90,000
51,847,000
6,296,000
36,896,000
240,533,000
454,000
20,484,000
35,000
1,579,000
239,000
12,529,000
141,000
10,642,000
5,000
905,000
44,000
3,619,000
962,000
49,799.000
6,605,000
732,499,000
738,100,000
356,000
17,252,000
61,000
2,864,000
325,000
14,132,000
142,000
11,117,000
8,000
916,000
43,000
3,675,000
940,000
50,256,000
6,357,000
295,770,000
150,024,000
391,000
18,098,000
108,000
6,097,000
376,000
16,561,000
157,000
12,819,000
10,000
1,134,000
(0,000
5,205,000
1,101,000
59,877,000
6,231,000
273,957.000
312,501,000
208,000
18,610,000
144,000
8,748.000
403,000
19,161,000
172,000
13,843,000
11,000
962,000
80,000
6,243,000
1,25,000
67,567,000
5,955,000
260,977,000
314,959.000
383,000
17,348,000
169,000
10,866,000
453,000
22,651,000
150,000
14,975,000
9,000
942,000
102,000
8,631,000
1,296,000
72,009.000
5,900,000
259,930,000
300,102,000
404.000
18,413,000
181,000
11,727,000
452,000
22,700,000
167,000
14,242,000
10,000
1,004,000
126,000
12,425,000
1,939,000
00,575,000
5.958.000
253,088,000
271,351,000
304,000
17,846,000
184,000
12,36,000
452,000
22,795.000
199,000
13,530,000
9,000
1,048,000
M7,000
13,000,000
1,335,000
80,605,000
5,714,000
250,332.000
262,503,000
256,836,000
365,653,000
321,000
16,371,000
176,000
12,122,000
440,000
22,575,000
147,000
12,639,000
10,000
1,005,000
145,000
12,699,000
1,39,000
77,862.000
6,305,000
404,000
17,663,000
160,000
11,351,000
438,000
21,700,000
136,000
12,206,000
9,000
1,000,000
165,000
15,000,000
1,313,000
79,005,000
6,517,000
275,869,000
297,701,000
"hial Work and Welfare includes Resettlement, Social Becurity, and Margency Employment Programs.
Regraded Uclassified
312
December 28, 1936
5:15 P.M.
H.M.Jr:
As I told the boys here today - I told them off
the record I wish you were here, because ES far
as I know I've never done 8 thing like this
before when a reporter isn't nere.
Paul
Mallon:
An-ha.
H.M.Jr:
But the only time you've been to my press confer-
ence in two years was when Eccles comes.
M:
(Laughs) Well, it was that day of that gold thing
I happened to drop in.
H.S.Jr:
Yes, well it was just one of those coincidences.
M:
Ah-ha.
H.M.Jr:
And if - if you want to come in tomorrow I - I'd
be more than glad to see you and have 8 neart-to-neart
talk.
M:
You bet your life, now.
H.M.Jr:
Because really I - I - I've known you slightly and I
don't think you want to be willfully malicious.
M:
Oh, I'm - I'm - I'm not malicious at all.
H.M.Jr:
But a thing like this story about Oliphant certainly
is harmful to nim and to me -
M:
Well -
H.M.Jr:
- because he's one of my closest advisers and it -
it shakes confidence in the Treasury and -
M:
Well, I - I don't know about that. Of course, dif-
ferences of opinion arise every day, I guess, between
men and their advisers.
H.M.Jr:
Well, when - when - but when a man like Oliphant and
myself have been together for four years, we're apt
to stick as long as we're both here. And -
Regraded Uclassified
313
- 2 -
M:
Well, of course, I wouldn't - you know I'm too
good a newspaperman, even as bad as I am, to go
on that without some very good basis of informa-
tion.
H.M.Jr:
Well, I don't know where you got it, but whoever
gave it to you gave you a bum steer.
M:
Ah-ha.
H.M.Jr:
I - I don't think you got it around the Treasury.
M:
Well, that's quite possible. I'm always glad to
be corrected. Any time that will be convenient for
you tomorrow, I'll be glad to drop in.
H.M.Jr:
Are - are you around by 10:30?
M:
Sure.
H.M.Jr:
Do you want to come in at 10:30?
M:
Bet your life, yes.
H.M.Jr:
I'll be glad to see you.
M:
O.K.
H.M.Jr:
Thank you.
M:
Goodbye.
314
December 29, 1936
9:57 A.M.
J.F.T.
O'Connor:
Hello?
H.M.Jr:
Hello, Jeffty?
0:
Yes, how are you?
H.M.Jr:
I'm pretty well for an ola man. How are you?
0:
Pretty good.
H.M.Jr:
Where are you?
0:
Just got back. I'm at my desk.
H.M.Jr:
Jeffty, Henry Wallace wanted to know - he said
the President suggested that we have a meeting
on Commodity Credit.
0:
Yes
H.M.Jr:
Is that something that ought to be done this week?
0:
Well, I think - what is today? I've sort of lost my -
H.M.Jr:
Well, Tuesday, the 29th of December.
0:
Tuesday, huh? Well, I think we could do it later
in the week if you're going to be here. If not,
we can do it Monday or Tuesday.
H.M.Jr:
No, I'm going to be here.
0:
All right, then we'll have a meeting right soon.
H.M.Jr:
You want to get in touch with Henry or -
0:
I'll call him; yes, I will. I had - I've just this
minute gotten to the office from the train -
H.M.Jr:
Oh yes
0:
- and I've been talking cotton a good deal of the
time while I was south.
H.M.Jr:
Ah-ha.
315
- 2 -
0:
And I want to go to school here with my cotton
boys for a couple of days and then I'll give you -
I'll give him a ring and you a ring.
H.M.Jr:
Fine.
0:
How you getting along otherwise?
H.M.Jr:
Very well. I'm very much pleased the way the bond
market - the Government bond market's been acting
the last couple days.
0:
Still going up, are they?
H.M.Jr:
Well, of course, there for a week or ten days they
were - the tone of it wasn't good.
0:
I see.
H.M.Jr:
But now we've got a really good tone again and -
0:
I haven't been keeping track of it, Henry.
H.M.Jr:
- and - well, it was for a while - I don't know - it
was a little thick, but it's all right again, and -
But everything - I - I mean I - I - - golly, I think
we all got every reason to face the New Year with
the greatest of complacence and comfort.
0:
Well, I - - I agree heartily with that.
H.M.Jr:
Yes - when you think what we've gone through the last
three years.
0:
Oh my God yes,
H.M.Jr:
Yes.
0:
Well, I'm very happy about it all and I'll see you
soon, Henry.
H.M.Jr:
O.K.
0:
Thanks.
316
December 29, 1936
4:37 P.M.
Operator: Both lines are busy. Will you wait?
C. B.
Baldwin:
Hello?
Operator: No, sir, both lines are busy. Will you wait?
B:
Ring 600 for me, please.
Operator: All right.
RA Operator: Administrator's office.
B:
Miss Welch.
RA 0:
Just a moment please.
Miss Welch: Yes.
B:
Hello?
Miss W:
Yes.
B:
Miss Welch.
Miss W:
Yes, Mr. Baldwin.
B:
"ould you see if Mr. Bartlett's in his office please.
Miss W:
Sure, just a minute.
-
-
No, he isn't.
B:
Would you transfer me to - I'm over in Treasury -
would you transfer me to Mr. Fowless' office
please.
Miss W:
All right, sure thing. Just a minute.
(Pause)
Mr. Tugwell's in. Do you know that?
B:
Hello?
Miss W:
I say Mr. Tugwell's here.
B:
Yep. Thanks.
317
- 2 -
Miss W:
Just a minute, I'll transfer you.
Operator, will you put this on 427, please.
RA 0:
Yes mam.
Miss W:
Thank you.
RA 0:
Surely.
X:
Mr. Fowless' office.
B:
Mr. Fowless there?
X:
He's not in the office right now.
B:
This is Mr. Baldwin. Do you know where he is?
X:
Mr. Baldwin?
B:
Yes
X:
Why, he just stepped out, but I'll have him call
you in - in just a minute.
B:
Well, will you have him call me at Secretary
Morgenthau's office in Treasury.
X:
At whose office in the Treasury?
B:
Secretary Morgenthau's office.
X:
All right, I certainly will.
B:
Thank you.
X:
Certainly.
Regraded Uclassified
318
December 29, 1936
5:39 P.M.
Operator: Mr. Baldwin.
C.B.
Baldwin:
Hello?
Operator:
Go ahead.
Fowless:
Hello.
B:
Jack?
F:
Yes, Mr. Baldwin.
B:
Can you get me the encumbered balances on land
purchase funds, but - encumbered but not expended?
F:
Encumbered but not expended?
B:
Yes
F:
The unliquidated encumbrances.
B:
Unliquidated encumbrances.
F:
Yes, sir.
B:
Now, how long will it take you to get it? I'm with
Secretary Morgenthau now and he wants the information
right away.
F:
I'll go right upstairs, Mr. Baldwin, and get it
just as fast as I can.
B:
All right. Thank you.
F:
Call you back?
B:
Yep.
F:
All right, sir.
B:
Thank you.
319
-2-
5:50 P.M.
Operator: Go ahead.
B:
Hello, Jack.
F:
Yes, Mr. Baldwin?
B:
Yep.
F:
The best I can give you is November 30. Everybody's
gone up in
Section.
B:
Yes.
F:
So I - I'd have to give you those of November 30.
B:
Yes.
F:
And that figure is twenty-nine million, four hundred
and forty thousand.
B:
That includes all land?
F:
That includes all the funds - nine eight, nine seven,
five five one five.
B:
well, that's - that's twenty-nine million, four
hundred thousand.
F:
Four hundred and forty thousand, three hundred and
eighty-one dollars and thirty-eight cents.
B:
Yes. Now, Jack, can you get & - a Treasury state-
ment or our statement there before you -
F:
Yes
B:
- of our unin- of our unliquidated - no, of our
unencumbered balances.
F:
I have that right here. That's one million, four
hundred and eighty-five thousand.
B:
No, I mean from all - from all sources.
F:
Oh, you mean of everything?
B:
Yep.
320
- 3 -
F:
All funds?
B:
Yep.
F:
That'll take me a little time to dig out, Mr. Baldwin,
but I'll get it for you.
B:
Will you call me back?
F:
Yes, sir.
B:
All right, thank you.
Regraded Uclassified
321
December 29, 1936
Following the meeting with the President, as
recorded by Mr. Bell in the preceding memorandum, Secre-
tary Wallace, Mr. Hopkins, Mr. Bell and Mr. Baldwin from
Resettlement came to the Secretary's office at 4 p.m.
to try to reach an agreement on the requirements of
1937. relief funds for WPA and RA from February 1 to June 30,
HM,Jr: If we send an appropriation estimate
of $850,000,000, as suggested at the White House confer-
ence, to Congress, we will spend in 1937 $2,900,000,000,
which 1s $200,000,000 more than we actually spent in 1936.
What 1s the figure we spent up to June 30,1936
for the 12 months previous, for relief?
Mr. Bell: $2,777,000,000.
HM,Jr: That is out of pocket? Out of the
Treasury?
Mr. Bell: That is gone. That is FERA and
Resettlement and PWA. Add crop loans to this, this will
give you $3,000,000,000 you will spend in 1937. Resettle-
ment spent $138,000,000 in 1936. They expect to spend
in 1937 $228,000,000, hich 16 $90,000,000 more than they
spent in 1936.
Mr. Baldwin: That is because our land money
will run over into 1937, about $55,000,000. That 18
all obligated now.
Mr. Bell: Can we save any of this $55,000,0007
Mr. Baldwin: $25,000,000 of that is for grants
to drought people. Our grants for December will be
$5,000,000. Loans for December will be $5,000,000 to
$6,000,000. In January our grants will run to $7,000,000.
HM,Jr: Harry Hopkins allocated $10,000,000 to
you for that purpose.
Mr. Baldwin: No. From February 1 to June 30
322
-2-
our forecast is that we will spend $25,000,000 on grants
and $33,000,000 on loans. We will spend for construction
$17,000,000 in order to clean up projects.
HM,Jr: Of the $143,000,000 which you had obli-
gated but unspent on December 22, how much of that 1s for
land?
Mr. Baldwin: My rough estimate 18 $30,000,000.
(Note: Mr. Baldwin, however, was not sure of his figures
and telephoned to his office for accurate information.
Immediately following this page are the records of two
telephone conversations which Mr. Baldwin had with his
office.)
Regraded Uclassified
323
December 29, 1936
4:37 P.M.
Operator:
Both lines are busy. Will you wait?
C. B.
Baldwin:
Hello?
Operator:
No, sir, both lines are busy. Will you wait?
B:
Ring 600 for me, please.
Operator:
All right.
RA Operator: Administrator's office.
B:
Miss Welch.
RA 0:
Just a moment please.
Miss Welch: Yes.
B:
Hello?
Miss W:
Yes.
B:
Miss Welch.
Miss W:
Yes, Mr. Baldwin.
B:
Would you see if Mr. Bartlett's in his office please.
Miss W:
Sure, just a minute.
-
1,
No, he isn't.
B:
would you transfer me to - I'm over in Treasury -
would you transfer me to Mr. Foulis' office
please.
Miss W:
All right, sure thing. Just a minute.
(Pause)
Mr. Tugwell's in. Do you know that?
B:
Hello?
Miss W:
I say Mr. Tugwell's here.
B:
Yep. Thanks.
324
- 2 -
Miss W:
Just a minute, I'll transfer you.
Operator, will you put this on 427, please.
RA 0:
Yes mam.
Miss W:
Thank you.
RA 0:
Surely.
X:
Mr. Foulis' office.
B:
Mr. Foulis there?
X:
He's not in the office right now.
B:
This is Mr. Baldwin. Do you know where he is?
X:
Mr. Baldwin?
B:
Yes
X:
Why, ne just stepped out, but I'll have him call
you in - in just a minute.
B:
Well, will you have him call me at Secretary
Morgenthau's office in Treasury.
X:
At whose office in the Treasury?
B:
Secretary Morgenthau's office.
X:
All right, I certainly will.
B:
Thank you.
X:
Certainly.
Regraded Uclassified
325
215
December 29, 1936
5:39 P.M.
Operator: Mr. Baldwin.
C. B.
Baldwin:
Hello?
Operator:
Go ahead.
Foulis: :
Hello.
B:
Jack?
F:
Yes, Mr. Baldwin.
B:
Can you get me the encumbered balances on land
purchase funds, but - encumbered but not expended?
F:
Encumbered but not expended?
B:
Yes
F:
The unliquidated encumbrances.
B:
Unliquidated encumbrances.
F:
Yes, sir.
B:
Now, how long will it take you to get it? I'm with
Secretary Morgenthau now and he wants the information
right away.
F:
I'll go right upstairs, Mr. Baldwin, and get it
just as fast as I can.
B:
All right. Thank you.
F:
Call you back?
B:
Yep.
F:
All right, sir.
B:
Thank you.
326
- 2 -
5:50 P.M.
Operator: Go ahead.
D:
Hello, Jack.
F:
Yes, Mr. Baldwin?
B:
Yep.
F:
The best I can give you is November 30. Everybody's
gone up in
Section.
B:
Yes.
F:
So I - - I'd have to give you those of November 30.
B:
les.
F:
And that figure is twenty-nine million, four hundred
and forty thousand.
B:
That includes all land?
F:
That includes all the funds - nine eight, nine seven,
five five one five.
B:
Well, that's - that's twenty-nine million, four
hundred thousand.
F:
Four hundred and forty thousand, three hundred and
eighty-one dollars and thirty-eight cents.
B:
Yes. Now, Jack, can you get a - a Treasury state-
ment or our statement there before you -
F:
Yes
B:
- of our unin- of our unliquidated - no, of our
unencumbered balances.
F:
I have that right here. That's one million, four
hundred and eighty-five thousand.
B:
No, I mean from all - from all sources.
F:
Oh, you mean of everything?
B:
Yep.
327
- 3 -
III
F:
All funds?
B:
Yep.
F:
That'll take me a little time to dig out, Mr. Baldwin,
but I'll get it for you.
B:
Will you call me back?
F:
Yes, sir.
B:
All right, thank you.
Regraded Uclassified
328
-3-
contract if you take this money.
Secretary Wallace: You will be welching on 8
unemployed?
HM,Jr: Is it not more important to take care of the
Secretary Wallace: You will be taking a lot of heat.
HM,Jr: Well, I an just thinking about it.
Mr. Hopkins: In round figures, you will need for
Resettlement for the next five months $75,000,000, not
counting land utilization. Including $15,000,000 for
land utilization you will need $90,000,000.
HM,Jr: If it were not for the drought you would
not need this money.
Mr. Hopkins: How 1s the $100,000,000 allocated to
Resettlement?
Mr. Baldwin: $30,000,000 of it 16 loans and grants;
$30,000,000 to $35,000,000 on construction projects. Our
present loans and grante funds will last us until about
February 15.
HM,Jr: Could you dictate & statement showing your
final figures, what you need, etc., how much you have left,
etc.?
Mr. Baldwin: I will. I will send it over as soon
8.8 I get back to my office.
HM,Jr: I have down $655,000,000 for Hopkins;
$75,000,000 for Resettlement; $50,000,000 for Seed Loans;
$20,000,000 for Administrative Expenses for the Treasury,
and other Federal projects $45,000,000, making a total of
$845,000,000.
We could sit here until tomorrow morning. The
figure 18 $845,000,000. The President said originally
that the outside figure would be $2,136,000. From that
you deduct $1,425,000,000 and you need a balance of
$711,000,000. He has to do one of two things. It 18 up
329
to the President either to stop some of this work or he
has to amalgamate something or say that he did not mean
what he said when he sald $2,136,000,000.
Secretary Wallace: The seed loans cannot be taken
out of the $845,000,000. If the President comes out with
a statement that he needs more, what will happen?
HM,Jr: The whole question 18, 8.8 I have said on
the Hill, what is tne confidence in the Government credit?
You can't describe it. The President has the confidence
now and, therefore, he can get money cheaper. Up to now,
every time, his statements on expenditures have been less
and his statements on revenue have been under-estimated.
I do not say that if he spent $500,000,000 more that it
would break the credit of the Government, but I do say it
will do more to snake the confidence of the people, especi-
ally since expenditures for the regular Departments will be
higher and the emergency expenditures will be higher for the
fiscal year 1937 than they were in 1936. I would not want
to be accountable for what would happen from an inflation-
ary standpoint if all three of these things took place this
year. I have fought up to the last ditch on principle,
but once he gets the money I have never told Harry how to
spend it. Dan and I could do this if we had our way, but
you would have to stop some of these things.
On December 22 we still had unspent $3,000,000,000.
In face of that, to completely wreck this thing 1s an aw-
fully serious decision.
Harry Hopkins: The cross-workings of our position
18 right at this point. We have asked Congress for
$7,000,000,000 to $8,000,000,000 for emergency expenditures.
Now we find ourselves with sums of money. We have to admit
that they were not for emergency expenditures because we
didn't use them, and we have to leave that money sitting
there and ask for more money for emergency expenditures. I
don't think the President can get that $200,000,000.
Secretary Wallace: How did the President arrive at
the $2,136,000,000?
Mr. Bell: In the 1937 Budget the President showed
an estimated deficit of $1,098,000,000, whereas the deficit
330
⑉5⑉
for the fiscal year 1936 was estimated at $3,234,000,000.
He said in his Budget message that Congress could appropri-
ate for recovery and relief and he could expend as much as
$2,136,000,000 on this account in addition to the amount
already contained in the Budget for this year and still
have a deficit of no more than that estimated for the fiscal
year 1936. He told Congress in his Budget message he did
not contemplate that the recovery and relief requirements
for the fiscal year 1937, provided that industry took a
sufficient number of people off the relief rolls, would
exceed the sum of $2,136,000,000. It has already appro-
priated $1,425,000,000. It can, therefore, appropriate
an additional sum of $711,000,000 and still remain within
the $2,136,000,000.
HM,Jr: Exclusive of bills, in the last three years
I have sold $24,000,000,000 worth of securities. About
half was refunded. It can be done if the President wanta
to do it. I will call up McIntyre and say that Just as
soon BB the President 18 ready, we know what the require-
ments are.
(At this point the Secretary telephoned to Mr. Mc-
Intyre for an appointment with the President. Secretary
Wallace left the meeting.)
HM,Jr: Any time the President is ready, we can give
the facts but not the answer.
Harry Hopkins: If Resettlement money 16 there and
unobligated, I am telling you that if Resettlement got
$50,000,000 with what they have in their front pocket, they
can swing this thing. They are always fudging on their
figures.
Mr. Bell: I go along with you on the $750,000,000
accompanied by two other suggestions: that PWA be liquidated
and Resettlement be liquidated except for direct relief and
seed loans and get no more than $50,000,000 total and the
transfer of the $200,000,000.
HM,Jr: (To Mr. Bell) Harry Hopkins, you and I have
faced this thing about six times together.
331
December 29, 1936
8
Chairman Eccles came for luncheon with Secretary
Morgenthau at one o'clock. Mr. Upham also was present.
Preliminary discussion had to do with two recent
dispatches by the columnist, Paul Mallon, one crediting
the invention of the Gold Sterilization Plan to the
Federal Reserve Board Staff, and the other announcing a
rift between Secretary Morgenthau and his General Counsel,
Mr. Oliphant and predicting the imminent resignation of the
latter. Mr. Morgenthau told Mr. Eccles that he had told
his press conference yesterday that there was no truth to
the story about Mr. Oliphant, that he had told Mr. Mallon
the same thing, and that Mr. Mallon had been in this morning
for three-quarters of an hour, the discussion being confined
to the Oliphant story, with the Secretary refusing to discuss
the story about gold sterilization, it being his position
that any comment on that should come from the Reserve Board.
Mr. Eccles handed to the Secretary 8. letter attached
to which was a copy of a letter which had been written by
Mr. Eccles' Assistant, Elliott Thurston, to Mr. Mallon.
Mr. Thurston told Mr. Mallon in no uncertain language that
his dispatch was grossly erroneous and calculated to do
mischief.
Mr. Rccles also presented to Secretary Morgenthau a
letter reviewing the status of the proposal for the replace-
ment of the 1928 series of Federal Reserve notes which bear
the "gold" clause. This letter was referred to Mr. Upham
332
- 2 -
for whatever action should be taken.
Mr. Morgenthau asked Mr. Eccles when he would have a
memorandum showing how excess reserves are now distributed
among the banks of the country. Mr. Eccles replied that they
have such tabulations as of November but plan to compile a
later one sometime in January probably asking for the informa-
tion sometime after the tenth and having it ready by the end
of January. This will enable them to get a reflection of
conditions after the December 15th financing and after the
return flow of currency which always follows the holidays.
He plans to call 8 meeting of the full membership of the
Open Market Committee about the end of January or the first
of February also.
Commenting on the possibility of raising reserve
requirements further in February, Mr. Eccles stated that
he had an open mind on the subject but is of the opinion
that it may prove to be unnecessary or in any event that a
25% increase might be sufficient, in view of the gold
sterilization action taken by the Treasury.
Mr. Eccles asked about the budget message and stated
that he has been seeking a conference with the President to
give him ideas with respect thereto. He has some charts
showing the increase of $5,000,000,000 in bank deposits
since 1933 and the relative money supplies then and now.
It is his contention that the money supply now in existence
in this country, with 1929 velocity, will support a national
income of $90,000,000,000. He feels very strongly that new
Regraded Uclassified
333
- 3 -
relief money for the rest of the present fiscal year should
not exceed the 500 million figure. He is convinced that
there must be an immediate end to deficit financing. All
new expenditures, including relief, from this time on should
be paid for by taxing, not by borrowing. If a program such
as this is not adopted, Mr. Eccles wants to make it clear
to the President that he will accept none of the responsibility
for controlling credit conditions and preventing a runaway
inflation.
Mr. Morgenthau said that he was inclined to feel much
the sameway about it and that Mr. Eccles had his blessing in
expressing those views to the President but, he also told
him that when it came down to 8 practical matter of doing it
there were always difficulties. He told him that it did no
good to assume a "Lewis Douglas" attitude with the President.
He related that he had been called to the White House this
morning without notice and had found a number of persons
there none of whom seemed to know why the meeting was called.
When the group entered the President's room, the President
asked Secretary Morgenthau what the meeting W&S about and
why they were there and Secretary Morgenthau replied that
he didn't have the faintest idea. It then turned out that
the matter up for discussion was relief and whether additional
money for relief during the present fiscal year should be
held down to $500 million or permitted to go up to 750 million
or more. Upon Mr. Eccles comment that the President had been
reported in the press as favoring the 500 million figure,
Regraded
Uclassified
334
- 4 -
Secretary Morgenthau replied that at his last press conference
the President had denied ever having made such a statement.
Mr. Morgenthau added that no newspaper in the country had
carried this denial, a fact which he 1s at a loss to understand.
Mr. Morgenthau said that at the close of the White House
conference on relief, the President had told the rest of the
group to go into an adjoining room and decide in the next
fifteen minutes whether the relief appropriation should be
confined to 500 million. The Secretary told the President
that it was perfectly impossible for them to do that--that
the decision in any event must be the President's. Secretary
Morgenthau told Mr. Eccles that he can't be a "fall Euy" any
longer--that he cannot make decisions which he is not in a
position to enforce. Mr. Eccles assured Secretary Morgenthau
that there would be no request for action or advice from the
Treasury on the matter of excess reserve before the end of
January.
Upm+
Regraded Uclassified
335
BOARD OF GOVERNORS
8 NEASAS 723 J
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
o
December 29, 1936.
OFFICE or THE CHAIRMAN
.....
Dear Henry:
The Paul Mallon article, to which the en-
closed letter refers, doubtless was brought to your
attention by Mr. Gaston as it was to mine by Mr.
Thurston. I deeply regret that Mr. Mallon should so
grossly misrepresent the facts. After discussing the
matter with Mr. Thurston, it was decided that it
would be better for him rather than for me to take
this matter up directly as he knows Mr. Mallon per-
sonally.
It occurred to me that you might be in-
terested in seeing the copy of the letter enclosed
which has gone forward to Mr. Mallon. This ex-
presses fully the sentiments both of the Board and
of myself.
Sincerely MSCenlu yours,
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
enclosure
337
Mr. Penl Mallon - (2)
I would not presume to take you to the woodshed in
this matter but for the fact that quite seriously it has caused
the Chairman end all members of the Board as well as of the
staff a great deal of heartache, The imputation, naturally, is
that something was being put over on the Treasury. Aside from
the fact that this is manifestly a reflection on the integrity
and good faith of the Reserve officials and staff, the really
important point is that it tends to poison the atmosphere and
to destroy the very essential spirit of full and frank coopera-
tion which exists between the Treasury and the Reserve System.
I am sure you will agree that it is not in the public interest
to have anything occur, particularly & gross misrepresentation
of the facts, which would disrupt that very necessary coopera-
tion. I do not need to emphasize to you how intolerable the
situation would be from the standpoint of the public interest if
these two agencies of government, each possessing broad powers
affecting credit and monetary conditions, were to attempt to
operate separately, without consultation and in an stmosphere of
suspicion or rivalry--in short, if they were to attempt to func-
tion without the fullest and frankest cooperative spirit. I can
assure you, as I know any informed person either here or at the
Treasury can, that that kind of cooperation does exist. It is
very distressing, to say the least, to have you broadcast an essay
that makes it appear that this Board end its staff are not acting
in good feith or in conformity with e. proper spirit of cooperation.
I am not venturing to suggest that it is possible
now to correct this erroneous impression, but it certainly would
be much appreciated if you would give us a chance to Iay the
facts before you in the future before giving circulation to de-
finitely harmful impressions which are, as in this case, exactly
contrary to the facts. In the prevailing spirit also of sweetness
and light that appears to have descended upon the country temporarily,
I trust that you will forgive me for bluntly bringing this matter to
your notice. It could not properly go unchallenged. I know that
you are very busy, but if you would go to the tro:ble of phoning,
even if you cannot get around here once in a while in person, you
could et least check up où the fulry tales that are sometimes our-
veyed to trusting columnists like yourself, as I know from gainful
experience.
Please consider this confidential and off the record.
I shall not attempt to temper what I have said by any gratuitous
338
Mr. Paul Mallon - (3)
flattery, but I will add that the attention given here to your
cockeyed article and the grief that it has caused are not al-
together unflattering. Now, if it were an article by
,
!
you can fill in the names, --I would not trouble to explain the
facts.
Faithfully,
(Signed) Elliott Thurston
ET:b
Regraded Uclassified
Mrs. Klotz:
Mr. Upham said you wanted this.
He 18 retaining original for a couple
of days.
nmc
BOARD OF GOVERNORS
FEDERAL RESERVE SYSTEM
1-1
Son. Benry Morgenthes, Jr.,
Secretary of the Treasury,
Washington, D. C.
Dear Mr. Morgenthau:
For your convenience, the following is a brief review of the
situation regarding the replacement of the 1928 series Federal reserve
notes which bear the "gold" clause. I should like to be advised as
soon as practicable as to the action taken by your Department on this
matter BO that the Federal reserve banks may be informed:
At your request, I discussed with the Governors of the reserve
banks on October 24, 1935, your suggestion that the banks discontinus
issuing new 1928 series Federal reserve notes which bear the words "ro-
desmable in gold". The Governors were willing to cooperate but felt
the initiative should be taken by you because (1) Section 16 of the
Federal Reserve Act provides that Federal reserve notes "shall be in
form and tenor as directed by the Secretary of the Treasury" and (2)
the need for substituting 1934 series notes arose from action by the
Government. The Governors also felt that the replacement of the unia-
sued 1928 notes, which had cost in excess of $1,500,000, should be et
the expense of the Treasury and I 50 advised you.
On December 13, 1935, you expressed the vice that the issuance
of new 1928 notes should be discontinued 8.5 soon as sufficient 1934
notes were available. You stated that you proposed to instruct the
Bureau of Engraving and Printing to cease delivery of the 1928 notes
on the assumption that, for the present, the Federal reserve agents would
not issue 1928 notes when 1954 notes were available but that before tak-
ing this action you felt you should receive the approval of the reserve
banks. You also stated that if the contemplated procedure were followed
you would submit to Congress the question of an appropriation to defray
the cost of replacing the 1928 notes.
On December 20 I advised you that the Governors were in accord
with the proposed procedure with the understanding that, if Congress
at the next session of Congress did not authorize the Treasury to re-
place the unissued 1928 notes, the question whether the banks should N-
sume issuing these notes would be given consideration promptly after
Congress adjourned. I also advised you that it WEB understood that
acquiescence in the program would not prejudice the right of the TO-
serve banks to resume issuing 1928 notes in case you were not author-
Land to replace them. On January 5, 1936, Mr. Coolidge wrote as that
Regraded Uclassified
Ben. Benry Morgenthmi, Jr., -2,
be bad noted the conditions referred to above and that be bad instructed
the Bureau of Engraving and Printing to cease delivery of 1928 notes.
The reserve banks were requested by the Board to make no further issues
of new 1928 notes and orders were placed by the banks for 1954 notes
to meet normal requirements.
When the program for printing notes during the fiscal year 1937
was taken up in April 1936 the Board was advised that, while your De-
partment was entirely willing to replace the 1928 notes, it had been
decided that it would not be advisable to seek an appropriation at that
time and that the Department would look into the matter again at the next
session of Congress and attempt then to obtain the necessary appropriation.
The reserve banks were advised accordingly.
Mileuiu Very truly yours,
M. S. Eccles,
Chairmen.
Regraded Uclassified
Ree letter 1937.
state
dated of gans,
No. 411
His Britannic Majesty's
Ambassador presents his compliments to
the Acting Secretary of State and has
the honour to enclose three copies of
the statement issued by His Majesty's
Government in the United Kingdom on the
occasion of the adherence of the
Governments of Belgium, the Netherlands
and Switserland to the principles stated
in the Tripartite Declaration of
September 25th last.
BRITISH EMBASSY
WASHINGTON, D.C.
December 29th, 1986.
343
[This statement appeared in the U.K. press on the
morning of 24th November, 1936]
PRESS NOTICE.
For morning papers only.
Not to be published on the Club
tapes, or by broadcast, or in any other
way before the morning of Tuesday, the
24th November.
His Majesty's Government have noted with
pleasure the Declarations of the Governments of the
Netherlands and Switzerland which were issued yesterday,
expressing their adherence to the principles stated in
the Tripartite Declaration of September 25th; the
Belgian Government declared their adherence to those
principles on September 26th.
His Majesty's Government are informed that
the United States Treasury are extending to Belgium,
the Netherlands and Switzerland the arrangements for
technical co-operation in exchange matters which were
referred to in the statement published on October 13th.
His Majesty's Government welcome this step, which is in
harmony with the arrangements already made between the
United States and this country and between the United
States and France. The extension of this arrangement
is also in harmony with the general basis of mutual
co-operation which exists between the British monetary
authorities and the Belgian, Netherlands and Swise
monetary authorities.
344
December 30, 1936
10:37 A.M.
H.M.Jr:
Give me Mr. North, please, over at the Post Office.
Operator:
All right.
H.M.Jr:
Please.
-
-
Hello?
Operator:
Mr. North is with the Postmaster General.
H.M.Jr:
Oh. Well, all right. Now, let - let - let me
have Mr. Oliphant, please.
Operator:
All right.
X:
Mr. Oliphant.
H.M.Jr:
(Aside: My - I think the idea is that we're going
to do just this - the type)
Operator:
Mr. Oliphant.
H.M.Jr:
Hello, Herman?
Oliphant:
Yes
H.M.Jr:
You've got a boy working on this question of
illustrating catalogs of -
Oliphant:
Yes
H.M.Jr:
- of postage stamps.
0:
That's right.
H.M.Jr:
And Mr. Clark is down here from Scott and Company.
0:
Yes
H.M.Jr:
Now, am I correct in my thought that we were just
going to illustrate this Government publication and
do nothing else?
0:
That's right.
H.M.Jr:
Is that right?
0:
That's right.
345
- 2 -
H.M.Jr:
And - and - and that's as far as we're going to go
this year.
0:
Yes
H.M.Jr:
What?
0:
Would him? you like over here for some of us to talk to
H.M.Jr:
Yes, who - who could he see?
0:
Well, he can see Mr. Bernard. I have my staff
meeting on now, but Mr. Bernard can step out and
see him.
H.M.Jr:
Well, I tell you - when he's through I'll let -
I'll send him down to your room. What time will
your staff meeting be over?
0:
Just started. It'll be - it'll take about an hour.
H.M.Jr:
Wait, I'll ask nim.
0:
dello.
H.M.Jr:
Yes, he can wait. Why not say Bernard will see him
at 12?
0:
Fine, I'll see him at 12. I'll see him at 12.
H.M.Jr:
Would you see him?
0:
Yes, 12 o'clock.
H.M.Jr:
Well, that will be - that will be grand.
0:
All right.
H.M.Jr:
I'll tell him at 12 o'clock.
0:
Thank you, sir.
346
- 3 -
10:45 A.M.
H.M.Jr:
Hello?
Roy North: Hello, Mr. Secretary.
H.M.Jr:
North?
N:
Yes, sir.
H.M.Jr:
Morgenthau.
N:
Yes, sir.
H.M.Jr:
I have Mr. Clark here with me -
N:
Yes
H.M.Jr:
- of Scott's.
N:
Yes, sir.
H.M.Jr:
is there any question about this catalog, the
Government catalog, being illustrated?
N:
No. As - merely as a matter of precaution, Mr.
Morgenthau, the bill has been proposed for new
legislation, you know -
H.M.Jr:
Yes
N:
- authorizing it, so that there'd be no doubt.
H.M.Jr:
Well, but I mean - but this thing that's coming
out now, the one you get out every two years.
Isn't that going to be illustrated?
N:
That's right, but to clear any doubt about its
propriety -
H.M.Jr:
Oh
N:
- permission, we're including that in the new
legislation.
H.M.Jr:
I see. In other words, you're going to legitimatize
347
- 4 -
what we're doing.
N:
Yes
H.M.Jr:
But you're going right ahead with it.
N:
We're going right ahead with it.
H.M.Jr:
O.K.
N:
And I think, Mr. Secretary - by the way, we are
taking up with you folks over there, your counsel
and so forth, the proposition of further liberal-
ization.
H.M.Jr:
I see.
N:
And that was in accord probably with the confer-
ences previously had -
H.M.Jr:
Right
N:
- on the subject.
H.M.Jr:
O.K.
N:
All right, fine, Mr. Morgenthau.
H.M.Jr:
Thank you.
Regraded Uclassified
348
December 30, 1936
11:38 A.M.
Robert H.
Jackson:
Hello?
H.M.Jr:
Bob?
J:
Yes
H.M.Jr:
Henry Morgenthau.
J:
Yes
H.M.Jr:
I'm calling you up on a personal matter, see?
J:
Yes
H.M.Jr:
I've just written a letter to your boss on this
Malone case, see?
J:
Yes
H.M.Jr:
I'd like to send it over to you before I sign it
and have you take a look at it, if it's - unless
you say no, - on a purely personal basis.
J:
Well, I'm - I'm willing to do that, surely.
H.M.Jr:
What?
J:
Yes, I'm willing to do that.
H.M.Jr:
Now, if after you've read it, you feel free to
make any technical comments, better call me back.
I'd appreciate it, see?
J:
Yes. All right.
H.M.Jr:
And you could also tell me whether you think it
would be helpful in the present situation in
dealing with the U. S. Attorney at Chicago.
J:
Yes
H.M.Jr:
Now, you - you don't - you're perfectly willing
to let me send it over on a personal basis?
J:
Oh yes, certainly, surely.
349
- 2 -
H.M.Jr:
Would you mind - I mean would it - if I sent it
over by messenger through Irey or would you
rather have me send it some other way?
J:
I don't care. Either way will be all right.
H.M.Jr:
Either way?
J:
Either way will be all right.
H.M.Jr:
Well then, if it's just the same - because then
you could do it by word of mouth, you see -
J:
Yes
H.M.Jr:
- Irey can bring it and you can tell nim by word
of mouth, "Now, just tell the Secretary to leave
this out or add this," you see, without doing
anything in writing.
J:
Uh-huh.
H.M.Jr:
See?
J.
That'll be fine.
H.M.Jr:
When - - when could you see Ike - when could you see
Irey?
J:
Well, I think I could - I can see him any time
that he can get over here.
H.M.Jr:
Well, I can get him - and what time would you
like to have him come?
J:
If he's - if he can't be here within & few minutes,
better make it about 2:30, I guess.
H.M.Jr:
I'll say 2:30.
J:
All right, fine.
H.M.Jr:
Thank you.
J:
Fine.
H.M.Jr:
He'll be over there at 2:30 and then you tell him
by word of mouth if you've got any suggestions.
350
- 3 -
J:
Yes
H.M.Jr:
Because this thing has got me very much worried.
J:
Yes. Well, we'll - we'll see that it doesn't
anything go wrong about it anyway.
H.M.Jr:
Thank you.
J:
All right.
H.M.Jr:
Goodbye.
J:
Goodbye.
Regraded Uclassified
351
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 30, 1936
TO
The Secretary
FROM
Mise Lonigan
I had & delightful talk with Mr. Hopkins. He thought that the table
was excellent. It showed that something over five million families were
dependent on Federal aid and that the number would remain at five million
or over.
We were both in complete agreement that Federal expenditures on relief
and welfare would show a downturn for only one year and would then rise
again, and continue to rise. We both agreed that the expenditure on
welfare would soon reach four or five billions and that the public would
have so much money in its pockets over the next few years that it would
organize no effective opposition to large spending.
We both agreed that the demands for money for the aged would increase,
that local boards would never decide that John Smith should have e. pension
and Jim Jones should not. Therefore, eligibility would grow more end more
liberal. We both agreed that the inevitable increase in local non-
contributory pensions would underwine the whole contributory system of old-
age pensions, and the accumulation of reserve funds.
We were also agreed that administering officials were becoming
impatient of distinguishing between one family that needed an $18.03 budget,
and another that needed $16.90. They were going to decide that they both
needed $20.00, and with each year they were going to think of reasons why
they needed $25.00 and then $30.00.
We were both agreed that it made very little difference in what form
the benefits were given, whether they were called relief, work, or pensions.
The same tendencies would draw more and more people on government dependence,
and at increasingly higher benefits.
We were both agreed that the "means test" is permanently out, that
labor will not long tolerate investigation of the resources of low income
families as a condition of government aid.
There was only one difference in our point of view which I did not
mention. I believe that if we follow through according to the welfare
philosophy We will end in the most destructive inflation this country has
ever seen, and that after the subsequent deflation the condition of the
poor in this country will be much worse than it has ever been before.
352
Tue Secretary - 12/30/36 - 2
I believe that we are following the example of Germany and England,
after their welfare policies have been proved definitely unsound. I
believe that it is the "welfare policy" of meeting low income with creation
of more credit money that has brought Europe to its present low estate.
The war was only the last straw.
The fatel defect of the welfare philosophy is that it increases
consumption while hamstringing production and self-liquidating employment.
It is, therefore, almost pure inflation, increasing money payments of all
types while true wealth is declining.
The only reason the bad effects do not show in England is because
London had BO much fat left over from five centuries of profits in over-
seas trade with undeveloped countries. The effects do show in England, if
one looks at Wales or the northern textile valleys.
It is usually assumed that there are only two social philosophies,
the Chamber of Commerce philosophy of the nobility of suffering for the
other fellow, and the welfare philosophy of redistribution of "wealth."
There is a third philosophy. It involves substitution of the idea
of increasing true national wealth for the idea of money wealth, and
substitution of the idea of self-help for the idea of benefit payments.
This program in the welfare field would mean development of all
possible programs that would enable the poor to help themselves, ranging
from employment services, through abundant food, decent housing, cooperative
organization, encouragement of new industries and the like. It would menn
discouragement of all programs of helping the poor through Inrge money
payments, which can never be anything but inflation and diminishing
employment. It would mean that all government expenditures for the needy
would be used as capital, as stated in the President's mesuage on relief
in January 1935.
This program of emphasis on real wealth and self-support is already
vigorously supported by the Administration in the Treasury Department,
the Farm Credit Administration, the Securities Exchange Commission, TVA,
CCC, Rural Electrification, and many other programs. It is more important
to introduce this concept into employment, wage, ená welfare policy than
anywhere else. Unless it is introduced into the welfare and employment
programs it will mullify all the good that can be accomplished by all
other Federal programs out together.
353
BA
CONFERENCE WITH THE PRESIDENT ON RELIEF, DECEMBER 30, 1936.
Those present besides the President were the Secretary of the
Treasury, the Secretary of Agriculture, and Mr. Bell.
The President asked the group what was accomplished by the meet-
ing yesterday between the Secretaries of Treasury and Agriculture,
Mr. Hopkins and Mr. Bell after they loft the President's office. He
was told that nothing was done at the immediate conference but that the
group met again at 4 o'clock in the office of the Secretary of the
Treasury. Very little was accomplished at that conference except to
re-hash about the same material that was gone over at the President's con-
ference in the morning.
I explained to the President that the figures that had been pre-
sented by Mr. Hopkins and Mr. Wallace were about as follows:
I Works Progress Administration Projects-
(a) To run the WPA program for the period Feb. 1
to June 30, 1937, including administrative
expenses and also including an amount suf-
ficient to care for the land utilization
program of the Resettlement Administration.. $655,000,000
(b) To cover administrative and other expenses
of the Treasury for its accounting, dis-
bursing and procurement activities and
other departmental expenses at the rate of
$4,000,000 per month
20,000,000
(c)
To provide for Federal projects carried on
by various departments and independent
agencies of the Government at the rate of
about $9,000,000 per month
45,000,000
Total, Works Progress Administration
projects, including administrative expenses. $720,000,000
354
+
II Resettlement projects-
(a) Direct grants to farm families at the rate
of $5,000,000 per month
$25,000,000
(b) Loans for rehabilitation purposes at an
average rate of $6,500,000 per month
.....
33,000,000
(c) To continue construction amounting to about
$3,000,000 on suburban projects and continue
to carry out the rehabilitation program
amounting to about $14,000,000 for the
five months' period
17,000,000
Total, Resettlement program for
five months
75,000,000
Total for Works Progress Administration
and Resettlement programs
$795,000,000
If we add crop loans, $50,000,000, the total would then be $845,000,000
I then pointed out to the President that if he should ask for additional
appropriation of $750,000,000 to $800,000,000 I did not feel that we should
put in the 1937 Budget an estimated expenditure out of this appropriation
of more than $650,000,000, leaving a carry-over of about $145,000,000 into
the fiscal year 1938. This would show the 1937 estimated expenditures
for account of recovery and relief at $2,816,000,000, or $40,000,000 more
than the actual expenditures on this account for 1936.
The President then asked the question as to whether or not we could not
send up an estimate for WPA and Resettlement programs of approximately
$650,000,000 and write into the appropriation bill language which would
authorize the WPA and Resettlement to incur obligations of not to exceed
$145,000,000 which could be liquidated out of any money appropriated for
relief and recovery purposes for the fiscal year 1938. I told him that
that could be done and on that basis he might be able to get by with 8.
much smaller appropriation than now seemed possible.
355
-3-
The Secretary of the Treasury then told the President that while
Mr. Hopkins was estimating that he could finance his program for the
period of five months ending June 30, 1937, with about $655,000,000,
he did not personally feel that that could be done and that in order
to accomplish this it would be necessary to drastically reduce the
number of people carried on WPA rolls much faster than we could afford
at this time. The President thought this was right and it would be
necessary before we are through with this matter to frankly face the
situation.
The President agreed to again consider the matter at the end of
the week.
DWB
Hinistro de Havienda
de for Incion
Buenos Airea, Diclambre 30 Ae 1936
Distinguide Sefier Secretario:
He recibido In carta de V.E. de fe-
cha 14 do Octubre y he side informado particular-
mente por el Señer C. Alonso Irigoyen as la ann-
hle acorida que V.E. le ha deparado.
Al agradocer sinceremento e. V.E.por
S'll atención, salúdole con mi mayor consideración.
mont
Sefior Secretario del Tesoro del
Gobierno de los Estados Unidos de America
Mr. Henry Morgenthroi jr.
WASHINGTON
357
TRANSLATION
Minister
of the Nation
Buenos Aires, December 30, 1936.
Distinguished Mr. Secretary:
I have received your letter dated October 14 and have been
particularly informed by Mr. C. Alonso Irigoyen of the amiable
reception given to him by Your Excellency.
Thanking your Excellency sincerely for your attention, I
greet you most respectfully.
(Signature illegible)
Mr. Secretary of the Treasury
of the United States of America
G.m. Orting
?
Mr. Henry Morgenthau, Jr.
WASHINGTON
(On envelope-
Department of the Treasury
of the Argentine Nation)
Translated by Dr. Schwarz, Mint Bureau
Regraded Uclassified
358
DEPARTMENT OF AGRICULTURE
CARD 1 »
WASHINGTON
Hmr
December 30, 1936 information
The President
The White House
Dear Mr. President:
Following up our conversation at Cabinet meeting yesterday,
I would like to make further comment to you with respect to both
wheat and sugar. At the moment there is no occasion for unusual
alarm about bread prices. The average retail price of bread in
November in the leading cities in the United States, according
to the Bureau of Labor Statistics, was 8.2 cents a pound. This
compares with 8.1 cents in June of this year, 8.6 cents in December
of 1935, 8.3 in December of 1934, 7.2 in December of 1932 end 9.4 in
December of 1927.
The recent rise in the price of wheat and certain other in-
gredients will probably result in the next month or two in en in-
crease in bread prices of about .4 of B. cent a pound which would
mean that bread would be about 8.6 cents or the same as it was in
December of 1935. Flour in the middle of December of this year of
both the Hard Winter and the Spring Wheat grades was lower in price
than in December of last year. Since the first week of December,
however, there has been an advance of 10 to 15 centa 8 bushel in
the price of wheat and this has not yet had an opportunity to re-
flect itself in either flour or bread prices. At the moment, how-
ever, taking into account this lag, there seems little likelihood
of present wheat prices resulting in bread prices any higher than
they were in December of 1935. You must remember that e year ago
there was a processing tax on wheat which, when added to the price
of wheat prevailing at that time, gave a price very little different
from the present price.
I am having our Bureau of Agricultural Economics cooperate
wi the Commodity Exchange Administration to are to what extent
present wheat prices in the United States are out of line with the
fair assessment of supply and demand conditions in the United States
and in the world. I hope to have the result of this study in your
hands within the next week.
359
-2-
With regard to sugar, I am confident that if we have an
excise tax of one cent e pound, we can by regulation of quotes keep
the price from rising to the consumer. As a matter of fact, however,
it might be ell right to let the price rise to the consumer by as
quota
much 88 .1 or possibly even .2 of 8 cent a pound because of the fact
that sugar prices are now so reasonable. We have the mechanism,
however, to impose a substantial excise tax on sugar wi thout in-
creasing the price to the consumer. The problem is not the problem
of the consumer but e. problem of how much of 8. handout the government
by its policy wants to give to the sugar processors. I certainly do
not believe in punitive measures with respect to them, but neither
do I believe in 8 policy which gives them 8 far greater return than
they had during the decade of the twenties.
It seems to me that you now have B. splendid opportunity, if
you will take hold of it firmly, to inaugurate a sugar policy which
will do justice to all of the parties interested, including Cube,
the beet farmers, the children and other laborers in the beet fields,
the processors and the United States Treasury. It is possible to
enrich the United States Treasury by a net of some 30 to 90 million
dollars, depending on the amount of the excise tex and on whether
you think it advisable for our policy to result in a return to the
processors of 9 or 10 percent or whether you think our policy should
result in a return to them of 6 or 8 percent.
If you yourself will give the word to Secretary Morgenthau to
go into this matter of an excise tax on sugar sympathetically with
our people and if you will have a heart to heart talk with Senator
O'Mahoney, I em convinced that we can, if we stand fast, insugurate
B. sugar policy which will be just for all concerned and one of which
we can be proud in future years. I honestly believe a policy of this
sort in the long run will prove to be to the best advantage of the
processors and the growers as well as to all the other interests at
stake. Would you like further information on this ject?
Respectfully yours,
Secretary.
360
DEPARTMENT OF AGRICULTURE
STATE )
WASHINGTON, D.C.
December 30, 1936
Hon. Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Dear Henry:
In line with our conversation at the White House
this morning, I will be glad if you will designate someone
from your Department to whom Mr. J. B. Hutson, Assistant
Administrator of the Agricultural Adjustment Administration,
can talk about the sugar situation.
Sincerely yours,
Hawallan Haw allaw
Secretary
1921 e WILL 02
the
ICE
361
COPY
Stabilization
CABLEGRAM
DECEMBER 30, 1936.
P J OUD
THE MINISTER OF FINANCE
THE HAGUE NETHERLANDS
I WISH TO EXTEND TO YOU MY SINCERE GOOD WISHES
FOR THE NEW YEAR TO WHICH I DESIRE TO ADD MY HOPE THAT
THE MONETARY UNDERSTANDING SO HAPPILY ARRIVED AT BETWEEN
OUR COUNTRIES WILL CONTINUE TO BE HELPFUL TO ALL THE
NATIONS PARTICIPATING
HENRY MORGENTHAU JR
SECRETARY OF THE TREASURY
HEG/mah
Similar cablegram sent to the following:
Dr. Albert Meyer,
Neville Chamberlain,
The Minister of Finance,
Chancellor of the Exchequer,
Bern, Switzerland.
London, England.
Vincent Auriol,
Henry de Man,
Minister of Finance,
The Minister of Finance,
Paris, France.
Brussels, Belgium.
362
COPY
Stabilization
CABLEGRAM
DECEMBER 30, 1936.
MR EDUARDO SUAREZ
THE MINISTER OF FINANCE
MEXICO D F
I WISH TO EXTEND TO YOU MY SINCERE GOOD WISHES FOR THE
NEW YEAR AND AT THE SAME TIME TO EXPRESS THE DESIRE THAT
OUR RELATIONS WILL CONTINUE TO BE ON A BASIS OF CORDIAL
HELPFULNESS TO BOTH OUR COUNTRIES
HENRY MORGENTHAU JR
SECRETARY OF THE TREASURY
(Similar cablegram sent to the following:)
Honorable Charles A. Dunning,
The Minister of Finance,
Ottawa, Ontario, Canada.
Dr. H. H. Kung,
Minister of Finance,
Peiping, China.
HOLIDAY
36
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Postal Telegraph
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HENRY MORGENTHAU JUNIOR
SECRETARY OF THE TREASURY WASHINGTON
GREATLY APPRECIATE YOUR GOOD WISHES WHICH I WARMLY RECIPROCATE I TOO
SINCERELY HOPE THAT MONETARY UNDERSTANDING WILL CONTINUE TO BE OF
GENERAL BENEFIT
NEVILLE CHAMBERLAIN.
6H.C.
FAST
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HENRY MORGENTHAU JR
1956 DEC 31 PM 12 40
SECRETARY OF THE TREASURY WASHINGTON
GREATLY THANKFUL FOR YOUR GOOD WISHES FOR THE NEW YEAR I OFFER YOU ON
MY PART MY BEST WISHES AND I AGREE WITH ALL MY HEART WITH THE HOPE EXPRESSED
BY YOU THAT THE MONETARY UNDERSTANDING WILL CONTRIBUTE TO THE AMELIORATION
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HENRY MORGENTHAU JR
I WISH TO HEARTILY RECIPROCATE THE SINCERE GOOD WISHES EXPRESSED IN
YOUR TELEGRAM AND AM LOOKING FORWARD PERSONALLY TO THE NEW YEAR IN
THE HOPE THAT AMONG ITS BLESSINGS MAY BE A CONTINUOUS. development OF
THE PRESENT CORDIAL RELATIONS BELIEVING AS I DO THAT WE CAN IN THIS
WAY CONTRIBUTE GREATLY TO THE WELL BEING OF THE CITIZENS OF BOTH OUR
COUNTRIES
CHAS A DUNNING..112P
Treasury Department
1936 DEC 31 AM 9 37
telegraph OFFICE
WN M 40 MEX GOVT
MEXICO CITY 30/2250
CNRY MORGENTHAU
SECRETARY OF TREASURY
YOUR KIND MESSAGE RECEIVED TODAY RENEWS MY SINCERE WISHES OF SERVING
BOTH COUNTRIES THROUGH OUR PERSONAL RELATIONS BY MEANS OF AN OPPORTUNE
Will DEC 21
AND LOYAL COOPERATION STOP I AM SENDING TO YOU MY BEST WISHES AND
AUGURIES FOR THE NEXT YEAR
EDUARDO SUAREZ SECRETARY OF TREASURY OF THE
MEXICAN GOVT.
938A
Regraded Uclassified
Treasury Department
1937 JAN 5 PM 1 26
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3 WN X 44
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MENRY MORGENTHAU JR
BECRETARY OF THE TREASURY
I BEG TO THANK YOU FOR YOUR GOOD WISHES WHICH I GLADLY RECIPROCATE
NOP1NG THAT PRESENT MONETARY UNDERSTANDING WILL PROVE A STEP TOWARDS
COMPLETE STABILIZATION AND FINAL RESTORATION INTERNATIONAL TRADE
HENRY DE MAN MINISTER OF FINANCE
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1936 DEC 31 PM 4 14
TELEGRAPH
5WNBU 48
BERNE 1150 A DEC 3136 31
LC MR HENRY MORGENTHAU JR
Senn OFFICE
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SECRETARY OF THE TREASURY WASHNDC
I
CORDIALLY CHANGE YOUR GOOD WISHES FOR THE NEW YEAR AND JOIN IN YOUR
HOPE THAT THE MONETARY UNDERSTANDING BETWEEN OUR COUNTRIES MAY BE
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:RETARY OF THE TREASURY
HINGTON 2201-71
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373
Memorandum of Conference in the Secretary's Office
at 9:30 a. m., Thursday, December 31, 1936.
Present: Secretary Morgenthau
Secretary Wallace
Mr. Tolley of Agriculture
Mr. Jones of R. F. C.
Mr. Oliphant
Mr. Bell
Mr. McReynolds
Secretary Morgenthau: Tell us what you want in this emergency legislation.
Secretary Wallace: What we would like to have would be a set-up geared in
with 3 A activities so that next Fall if we have a big crop and the
prices are depressed, we can make commodity loans.
Mr. Jones: That means extending the life of Commodity Credit Corporation.
Secretary Morgenthau: When does that expire?
Mr. Jones: April 1st.
Secretary Morgenthau: The President said at Cabinet meeting that the
legislation we need between now and the 1st of February, that would go
to the Banking and Currency Committee, he wanted consolidated in one
bill.
Mr. Bell: Às I get the picture from the President's request for a
paragraph in his message, all he wanted in this bill was the renewal
of legislation that will expire before February lst.
Secretary Morgenthau: The things he mentioned to go in the bill were
just the things that expire before the 1st of February, but the
374
243'
- 2 -
Commodity Credit Corporation and Export-Import Bank items are so
closely related to R. F. C. that the question has been raised as
to their inclusion. Will there be any controversy about Commodity
Credit and Export-Import Bank?
Mr. Jones: I do not think so. I think the additional items should
be called to the President's attention and that they should be put
into the same bill.
Secretary Morgenthau: I think the message and the bill should be the
same.
Mr. Jones: My thought is that we can do it better with less discussion
on the Hill if we include them all in the same bill.
Secretary Morgenthau: I take it that you are asking for one year's
extension.
Mr. Jones: I thought the President would determine that.
Secretary Morgenthau: Would you make the Commodity Credit Corporation
and the Export-Import Bank expire on the same date with R. P. C.?
Mr. Jones: I don't see why not.
Mr. Tolley: If you have the extension for only one year, Commodity
Credit would expire in the middle of our loaning operations next year.
Mr. Jones: It is my thought that the President should be authorized
to extend the life of these organizations for an additional year and
then that R. F. C. would probably fade out of the picture, but that
Commodity Credit should be in a position to carry on.
Secretary Morgenthau: If there are to be any differences between you
375
244
- 3 -
on the Commodity Credit item, we should leave it out of this bill.
Mr. Jones: I do not think there will be any controversy. The Electric
Farm and Home Authority also expires February let. It is in the
R. F. C. and I think would go to the Currency and Banking Committee.
I would like to talk to Morris Cooke about that.
Secretary Morgenthau: What do you want to do about Commodity Credit?
Secretary Wallace explained the reasons why he believed Commodity
Credit was necessary as an adjunct to price control in farm commodities.
Mr. Jones: Do you want Commodity Credit transferred to the Department
of Agriculture?
Secretary Wallace: I am not necessarily talking with that point in view.
I am suggesting that we continue to have a close cooperation, which we
have always had.
Mr. Tolley: I propose that Commodity Credit be set up as & government
corporation independent of R. F. C.
Mr. Jones: It is independent now.
Mr. Tolley: If the R. 7. C. should go out of business, where would the
Commodity Credit be headed up in the event it was to continue?
Mr. Jones: The President should say that. Frankly, I should say it is
in fair shape now, but speaking from the Government's standpoint, I
think you need & check on the Agriculture groups. The more checks you
can have the better. I do not care where you get it from.
Mr. Oliphant: In a year from now you may have had & big yield on the
farms and the indefiniteness of the continuation of Commodity Credit
376
- 4 -
may affect your market.
Mr. Jones: I think the thing to do now is to slip Commodity Credit in
with R. P. C. continuation.
Secretary Morgenthau: I think the President was under the distinct
impression when talking to Mr. Bell and me that we would include in
this bill only the things that would expire February lst. Mr. Bell
has an appointment with the President at 12 - why not have him ask
the President then what he wishes.
Mr. Bell: I am going to give him a list of the items to be included in
the bill.
Mr. Jones: I want to give the President the benefit of my judgment
directly. I would rather do it that way. My thought is to malce the
extension for one year with authority of the President to extend them
for another year. I am going to suggest to the President that we do
it that way. That will take care of the things you are talking about.
Secretary Wallace: That seems satisfactory to me.
Secretary Morgenthau: Mr. Bell, when you see the President say to him
for me that if there is to be any argument on these things, I do not
think they should be included in the first bill. I would not want to
sit here and be responsible if the Stabilization Fund was not extended
before the lst of February, merely because of controversy on account
of the other items in the bill.
Mr. Jones: I think the other items will strengthen the bill rather than
weaken it.
377
- 5 -
716
Secretary Morgenthaus Do you wat to designate somebody that will
cooperate with Mr. Oliphant in the preparation of the bill?
Mr. Jones: We have our bill pretty near ready. We will have it in a
little while. Is Mr. Oliphant going to draw the whole bill?
Secretary Morgenthaus I think Mr. Oliphant should draw the entire bill
working with Mr. Bell.
Regraded Uclassified
378
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 31, 1936
TO
Mrs. Klots
el
FROM
Miss Lonigan
Attached are the tables that you asked for yesterday afternoon.
379
248
Unexpended Balances October 31, 1936, November 30, 1936, and
December 22, 1936, and Funds Available for Use of WPA as
of December 10, 1936 Included in Unexpended Balances
Unexpended
Oct. 31, 1936
Nov. 30, 1936
Dec. 22, 1936
In millions
Funds appropriated and
allocated for recovery
and relief
FERA
$13.9
$13.5
$12.9
WPA
448.1
461.1
323.9
Resettlement
140.5
150.1
143.5
PWA
1,024.2
974.2
942.9
CCC
19.2
17.5
16.5
AAA
116.4
114.4
112.9
Other
843.8
796.7
755.7
Unallocated
304.2
93.5
101.3
Total
$2,910.3
$2,621.0
$2,409.6
Soil Conservation
and Domestic
Allotment Act
432.2
422.4
410.3
CCC - 1937
155.5
133.2
109.0
Social Security
128.2
113.5
110,6
$3,626.2
$3,290.1
$3,039.5
380
EXPENDITURES THE FUELDS
IMPRODUCT EMPLOYMENT EXCLUDING na
GRAND TOTALS
Works Program,
000
Per 1935 sor
Regular Covernmental
Total
Other Federal Projects
PEA 1933 Act
IFC
Construction
Energency Employment
Total Work and Delfere*
Grand Total
Take of
Number of
Including
Number of
Number of
Number of
Fumber of
Fumber of
limber of
families
Apricultural
workers
hy Bolls
workers
Pay Holls
workers
Pay Rolls
workers
Pay Rolls
workers
by Rolls
workers
Pay Bolls
workers
by Bolie
or Warkers
Funda
Pundo
481,000
$22,071,000
-
-
5,000
$277,000
405,000
$24,969,000
10,000
$1,002,000
26,000
$1,890,000
927,000
$50,208,000
5,308,000
$173,825,000
$204,703,000
known
590,000
26,236,000
-
-
33,000
1,216,000
395,000
25,293,000
9,000
1,020,000
36,000
2,695,000
1,063,000
56,460.000
5,609,000
175,211,000
222,151,000
Restember
534,000
24,405,000
-
-
77,000
3,755,000
345,000
22,772,000
9,000
958,000
46,000
3,200,000
1,010,000
55,090,000
5,437,000
162,155,000
225,921,000
Detober
551,000
24,831,000
1,000
54,000
129,000
6,243,000
307,000
21,638,000
9,000
953,000
59,000
4,193,000
1,057,000
57,912,000
5,613,000
180,400,000
246,138,000
involve
544,000
23,958,000
3,000
145,000
168,000
8,392,000
268,000
19,368,000
10,000
1,001,000
64,000
1,057,000
56,941.000
7,057,000
183,484,000
245,954,000
humber
507,000
21,906,000
7,000
332,000
217,000
10,196,000
224,000
16,028,000
8,000
869,000
57,000
3,708,000
1,020,000
53,039,000
6,525,000
225,219,000
000'96L'LAC
974,000
249,000
11,180,000
177,000
13,425,000
8,000
950,000
47,000
3,991,000
960,000
51,847,000
6,296,000
236,896,000
240,533,000
479.000
21,427,000
21,000
454,000
20,484,000
35,000
1,579,000
299,000
12,529,000
141,000
10,642,000
8,000
905,000
44,000
3,619,000
962,000
49.759.000
6,605,000
232,469,000
298,100.000
356,000
17,252,000
61,000
2,864,000
326,000
14,432,000
142,000
11,117,000
8,000
916,000
48,000
3,675,000
940,000
50,256,000
6,357,000
265,776,000
290,024,000
59,877,000
6,231,000
273,587,000
312,523,000
391,000
18,058,000
108,000
6,097,000
376,000
16,564,000
157,000
12,819,000
10,000
1,134,000
60,000
5,205,000
1,101,000
408,000
18,610,000
144,000
8,748,000
401,000
19,161,000
172,000
13,843,000
11,000
962,000
80,000
6,243,000
1,215,000
67,567,000
5,955,000
260,977,000
314,959,000
180,000
14,975,000
9,000
942,000
102,000
8,631,000
1,296,000
76,019,000
5,906,000
259,938,000
308,102,000
383,000
17,948,000
169,000
10,866,000
453,000
22,658,000
404,000
18,418,000
181,000
11,727,000
452,000
22,700,000
167,000
14,242,000
10,000
1,064,000
126,000
12,425,000
1,339,000
80.575,000
5,958,000
253,088,000
271,261,000
452,000
22,795,000
159,000
13,530,000
9,000
1,048,000
147,000
13,000,000
1,335,000
80,605,000
6,214,000
250,332,000
262,525,000
stat
384,000
17,846,000
184,000
12,386,000
6,205,000
256,838,000
265,653,000
176,000
12,122,000
440,000
22,505,000
147,000
12,639,000
10,000
1,085,000
145,000
12,659,000
1,239,000
77,442,000
Bytesber
321,000
16,371,000
21,786,000
138,000
12,206,000
9,000
1,000,000
165,000
15,000,000
1,313,000
79,005,000
6,517,000
275,869,000
297,701,000
October
404,000
17,663,000
160,000
11,351,000
438,000
Total Work end Welfare includes FERL-IPA, Resettlement, Social Security, end Energency Imployment Programs.
Regraded Uclassified
Regraded Uclassified
381
EXPENDITURES THE FEDERAL FUNDS
RELIEF AND WELFARE
FIRA
WPA
Number of
FERE-WPA
Number of
Resettlement Lonns and Grants
Number of
Social Security Grante
Families
Expenditures
Workers
Number of
Number of
Total Belief 1 Welfare
Expenditures
Families
Expenditures
Families
Number of
Expenditures
Families
Expenditures
Families
1935
July
4,309,000
$ 123,604,000
70,000
a 162,000
August
4,459,000
-
4,242,000
111,705,000
1,000
253,000
I 13,000
5,813,000
-
-
September
4,495,000
4,461,000
-
51,000
a 123,617,000
3,925,000
89,228,000
456,000
1,071,000
-
16,960,000
-
4,361,000
106,188,000
4,545,000
118,751,000
October
46,000
3,725,000
85,284,000
877,000
-
777,000
35,696,000
-
4,502,000
120,979,000
58,000
4,427,000
107,065,000
Revember
3,474,000
1,509,000
-
63,410,000
2,484,000
-
61,068,000
5,958,000
124,478,000
4,560,000
122,458,000
December
43,000
2,609,000
2,065,000
-
30,311,000
2,740,000
-
136,955,000
6,000,000
5,349,000
167,266,000
156,000
126,543,000
4,914,000
-
-
5,505,000
172,180,000
1936
January
2,210,000
10,400,000
2,927,000
167,920,000
5,137,000
178,320,000
180,000
6,729,000
-
-
February
5,316,000
2,130,000
4,600,000
3,039,000
185,049,000
164,324,000
5,169,000
168,924,000
180,000
11,611,000
275,000
# 2,176,000
March
5,624,000
182,710,000
1,985,000
3,100,000
2,877.000
191,530,000
4,862,000
194,630,000
232,000
18,387,000
324.000
2,504,000
5,418,000
215,520,000
April
1,830,000
3,100,000
2,586,000
182,570,000
4,416,000
185,670,000
210,000
24,222,000
503,000
3,818,000
5,129,000
23,710,000
May
1,660,000
2,400,000
2,340,000
173,702,000
4,000,000
176,102,000
177,000
12,969,000
563,000
4,338,000
4,740,000
193,410,000
June
1,550,000
1,700,000
2,256,000
169,104,000
3,806,000
170,804,000
159,000
8,730,000
644,000
4,385,000
4,609,000
183,919,000
July
1,470,000
936,000
2,248,000
162,870,000
3,718,000
163,806,000
91,000
1,935,000
809,000
6,773,000
4,619,000
172,513,000
August
1,450,000
940,000
2,371,000
157,422,000
3,821,000
158,363,000
96,000
2,561,000
962,000
8,804,000
4,879,000
169,727,000
September
1,403,000
285,000
2,477,000
165,039,000
3,880,000
165,324,000
108,000
4,824,000
979,000
9,228,000
4,966,000
179,376,000
October
1,980,000
228,000
2,575,000
180,897,000
3,955,000
181,125,000
142,000
5,444,000
1,108,000
10,295,000
5,204,000
196,864,000
382
Expenditures from State and Local Funds
State and Local Funds
XRA
Social
Total
UPA
THE
Grand
Belief
Security
= Total
1935
July
36,942,000
-
36,942,000
August
36,092,000
-
36,092,000
September
31,870,000
-
31,870,000
October
35,241,000
-
35,241,000
November
31,800,000
-
31,800,000
December
39,641,000
-
39,641,000
1936
January
49,200,000
-
49,200,000
February
51,400,000
2,373.000
53.773,000
March
49,800,000
2,716,000
52,516,000
April
44,700,000
4,088,000
48,788,000
May
39,400,000
4,631,000
44,031,000
June
38,100,000
6,001,000
44,101,000
July
35,800,000
7,333,000
43,133,000
August
34,600,000
9,426,000
44,026,000
September
34,600,000
10,064,000
44,664,000
October
34,200,000
11,223,000
45,423,000
1/ No direct information. Estimates can be computed.
Regraded Uclassified
383
3-76
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE December 81, 1936.
To
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
FROM
L. W. Knoke
BANK OF FRANCE.
I called Mr. Cariguel at 10:50 today to wish him a Happy
New Year. He seemed somewhat pessimistic. Things did not look any
too well on their side, he said. The frane continued on the offered
side day after day but there was nothing that he could do against it
as far as the technical side was concerned since there were factors
over which he had no control. Cariguel then referred to the accumula-
tion of dollar balances in their account with us and explained that he
had every reason to believe that those balances would soon be drawn
down again, the market being what it is. Bearing in mind the weak
tendency of the franc, which would compel him before long to liquidate
his dollar holdings is support of the franc, and the cost to him of
converting his balances into gold in the meantime, he had decided not
to take gold from us. He continued that he had not gone out of his
way to purchase dollars but had taken them in when they were freely
offered.
We discussed the present weakness of the belga and Cariguel
expressed the opinion that this weakness was due to two reasons:
(1) Because the Belgians seemed to be paying off
a loan which they had had outstanding in
Holland, and
(2) Because (at least he suspected this) a French railroad
company, controlled by Rothschild, was going out of
Belgium.
Cariguel inquired about our stock market and I replied that
384
MISS. 172 60% 5-36
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATEDecember 31, 1956.
To CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
FROM
L. W. Knoke
BANK OF FRANCE.
- 2 -
on balance Europe was still buying although the tempo seemed to have
slowed up a little of late. He thought that we would do something
about it but I replied that I knew no more than what the newspapers
carried.
LWK:KMC
385
MISC 1.1 60M Fale
FEDERAL RESERVE BANK
No
OF NEW YORK
OFFICE CORRESPONDENCE
DATEDecember xi, 1956.
TO CORFIDI TTTAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
FROM
L. 1. Knoke
BANK OF ENGLAND.
I salled Mr. Bolton at 10:50 today to wish him a Happy
New Year. In discussing the various currencies, Bolton expressed
the thought that the strength of the guilder was due to enormous
amounts of Dutch money repatriated. Between $150,000,000 and
$200,000,000, he thought, had gone back from London, New York, Paris
and also from gold hoarded within Holland, and more was coming. This
repatriation would be swelled up further, though possibly at a some-
what slower tempo, from favorable trade balance resulting from very
active trading with Holland's East Indian possessions. As far as
Switserland was concerned, he thought, the repatriation was finished,
the total amount done reaching probably $250,000,000. If more money
went into Switzerland in the future, he thought it would be fresh money.
=Ga
LWK:ENC