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Volume 57, March 1 – March 4, 1937
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Volume 57, March 1 – March 4, 1937
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 57
March 1 - March 4, 1937
Regraded Uclassified
- A - -
Book Page
Agriculture - Crop Insurance
Wallace request for $100 million discussed at group
meeting - 3/1/37
LVII
4
Appointments and Resignations
Commissioner of Internal Revenue presents recommendations
for Internal Revenue Agent in Charge, Newark, New Jersey:
Thornton, Reuben 0.; Shotwell, Raymond; Kelly, Joseph F.;
and Morgan, John J
23
Bates, Earl A. - - See also Book LVI, page 86
HMJr consults Gerner about granting Senator Nye's request
for thirty-day appointment; Garner approves - 3/3/37
234
a) Senator Nye notified - - 3/3/37
260
- B - -
Bates, Earl A.
See Appointments and Resignations
- E -
Export-Import Bank
HMJr asks Taylor for memorandum concerning loan to Italy
for cotton spinners on nine-months' credit - 3/1/37
9
a) HMJr does not understand how this loan can be
made when he is told under the Johnson Act loan
cannot be made to French railways
b) Taylor and Bell explain that Export-Import Bank,
as well as all other wholly owned or controlled
governmental organizations, is exempt from
Johnson Act
- F -
Foreign Loans
See Export-Import Bank
France
See Stabilization
Loan - see Export-Import Bank
- H -
Harvard-Yale-Princeton Conference on Public Affairs
at Harvard University, 2/27/37
For speech by HMJr, see Book LVI, page 360
Haas describes to 9:30 group excellent impression that
HMJr made - 3/1/37
11
Regraded Uclassifie
- H - (Continued)
Book Page
Housing
HMJr tells Senstor Wagner (New York) he would like to
discuss - 3/1/37,
LVII
42
Meeting in re Wagner bill at HMJr's home; present:
Gaston, Opper, McReynolds, Barton, Dunning, Lindow,
and Keyserling (secretary to Senator Wagner) -
3/1/37, 8:30 P.M
62
a) Actual bill
103
b) Digest of bill
104
c) Comparison of estimated room costa under Treasury
plan: Williamsburg and Techwood projects;
estimated monthly room charges for each project
under Treasury, Public Works Administration, and
Wagner bill amortization schedules
111
d) Net cost to Federal Government of $1 billion
low-rent housing program financed entirely by
Federal loans
113
e) Rent per room and income groups reached by private
enterprise and public housing
122
HMJr discusses bill with FDR - 3/2/37
124
a) FDR's formula: in six or seven years $1 billion
worth of "slum clearance" (FDR used this phrase
rather than "low-cost housing") and does not want it
to cost more than $35 million 8 year
1) HMJr says this is impossible
b) FDR asks that it be worked out; says the English have
done it
c) HMJr tells FDR that what Wagner bill proposes is
financially impossible; that under it we would be
doing what Hoover accused us of doing, namely,
setting up a double set of books
Conference et White House; present: FDR, HMJr, Ickes, Wegner,
Fahey, McDonald, Frederick Delano, Bell, and three members
of Wegner staff - 3/2/37
135
a) HMJr asks Ickes to meet him prior to conference
to go over figures
140
b) Bell asked to survey programs laid down in 1938
budget to see whether any savings could be effected
to be used for financing provisions of housing bill
- I -
Income Tax Returns - Simplification of
Discussed at group meeting - 3/4/37
294
Italy
Loan - see Export-Import Bank
- J -
Book Page
Japan
Araki, New York representative of Bank of Japan, calls
on Sproul (Federal Reserve Bank), enumerating certain
points concerning Japan's intention to export certain
amounts of gold - 3/2/37
LVII 211
Johnson Act
See Export-Import Bank
- K -
Kelly, Joseph F.
See Appointments and Resignations
- M -
Mint, Bureau of
Silver Depository: HMJr tells Woodring, FDR has decided
on West Point (Site No. 5) - 3/1/37
44
a) Woodring tells HMJr his technical advisers
oppose Site No. 5
Morgan, John J.
See Appointments and Resignations
- 0 -
Open Market Committee
Discussion of general business conditions - 3/3/37
262
- R -
Railroad Administration
Bell reports on winding up of affairs - 3/1/37
2
a) Executive Order signed by FDR transfers personnel
files to Civil Service Commission, traffic and
rate files to Interstate Commerce Commission,
Minnesota fire claims files to General Accounting
Office; financial records, et cetera, remain in
Treasury
b) Bell suggests Collins as Assistant to Director
General to sign current mail, et cetera
Railroad Retirement Act
See also Book LVI, page 175, for resume' 2/24/37-4/21/37
HMJr asks Magill and Bell to prepare for FDR 8 resume of
the technical aspects and also a letter for HMJr to
transmit, giving details of conference with Latimer - -
3/1/37
5
a) Resume and letter presented to FDR - 3/2/37
131
1) FDR reads only first sheet and then tells
HMJr to get Altmeyer, Latimer, Magill, and
Bell "and thrash it out"
Regraded Uclassified
- R - (Continued)
Book Page
Railroad Retirement Act (Continued)
Magill memorandum to HMJr, reporting telephone conversation
with Latimer concerning Dow-Jones ticker report of
agreement between railroads and employees on retirement
plan - 3/1/37
LVII
41
New York Times article states "pact provides cut in rail
wage tax; pension quota would be reduced from 3.5% to
2.5%; would save $18,600,000"
125
HMJr talks to Altmeyer - 3/2/37
143
Conference in HMJr's office; present: Magill, Oliphent,
Bell, Gaston, Latimer, and Altmeyer - - 3/2/37
151
a) Newspaper stories of tentative agreement discussed
1) All agree this is "coercing publicity";
new article suggested "in view of the
newspaper publicity *****
b) Exchange of correspondence between Chairman Latimer
of Railroad Retirement Board and Chairman Winent of
Social Security Board, 2/9/37 and 2/10/37
189,191
Memorandum from Latimer giving background of Act, course
of negotiations, cost, et cetera - 3/3/37
248
a) Discussed at group meeting - - 3/4/37
287
Russia
See Stabilization: France 3/3/37
233
- S -
Shotwell, Raymond
See Appointments and Resignations
Silver Depository
See Mint, Bureau of
Stabilization (arranged chronologically)
France:
Ambassador Bonnet, Jules Henry, and Livesey (State Department)
call on HMJr - 3/1/37
49
a) France wishes to remain wholly in accord with the
monetary understanding and faithful to the trade
agreement of Hull
American Embassy (Paris) reports that Blum has told &
reliable newspaper correspondent to publish 8 statement
to the effect that French Government has decided against
exchange control - 3/2/37
194
Regraded Uclassified
- 8 - (Continued)
Book Page
Stabilization: France (Continued)
Mallet brings message from Chamberlain to HMJr - 3/2/37
LVII
196
a) "His Majesty's Government has urged French Government
to take speedily most vigorous action to restore
confidence; in their reply, French Ministers stated
they were firmly refusing to impose exchange control
and that measures under consideration include free
movement of gold, & pause in increase of expenditure,
use of & more elastic technique by French equalization
fund to defeat speculation, limitation of rise in
prices, and reduction of customs teriffs and abolition
or limitation of quote restrictions"
1) Actual message
207
a) HMJr shows to FDR and says that he (HMJr)
thinks obvious thing for French to do is
to devalue extra 8% - 3/3/37
233
b) HMJr has been thinking for some time but
has not wanted to propose to FDR 88 yet
that best solution of French problem
would be to ask Soviet Russia to join
Tripartite Agreement; large holdings of
Russian gold might make just the sufficient
difference to tide French over present crisis
c) HMJr transmits copy of message to Hull -
3/3/37
231
Cochren reports on visit of Professor Rist - 3/2/37
212
a) France must choose from liberal policies of United
States, Great Britain, et cetera, or closed economies
of Italy, Germany, et cetera
b) when Rist, as Chairman of Committee of Trade Policy,
called on Blum, he found Premier sympathetic with
arguments in favor of more centralized trade policies
c) Rist regrets that Blum Government financial policy
does not inspire confidence of the people
d) Rist admits disapproval of both Governor of Bank of
France and Minister of Finance
e) If any loan is issued for France, it should be issued
on the market in Peris
f) Strongly advises that Bonnet send communication to
Blum, setting forth impressions he has gained in
United States
HMJr discusses Chamberlain message with Feis, Haas, and
Lochhead - 3/3/37
281
a) Chamberlain thinks France cannot last more than one
week - Cochran says two weeks; HMJr anxious to figure
out what United States can do; HMJr's idea of inviting
Russian participation to Tripartite Agreement discussed;
Feis wonders whether Japan could not serve in place of
Russia; Italy also suggested
Regraded Uclassified
- S - (Continued)
Book Page
Stabilization: France (Continued)
"Le Petit Parisien" article, stating that Washington
correspondent has cabled that HMJr gave Bonnet
"unequivocal assurance" of support, discussed with
(1) FDR, (2) Hull, (3) Jules Henry, Counselor of
French Embassy, and (4) at press conference - 3/4/37
LVII
312,317
a) Denoyer's article in "Le Petit Parisien"
331
Feis 'phones that Ambassador Bonnet "is wholly amazed
at article in Petit Parisien" - 3/4/37
334,338
HMJr reports incident to Cochran - 3/4/37
341,347
HMr explains to Mallet - 3/4/37
352
American Embassy (Paris) quotes Reuter cablegram in
London Times stating that Bonnet has informed reporters
he intends to open war debt discussions with Government
of United States - 3/4/37
363
American Embassy (London) reports on new measures under
consideration by French Government - 3/4/37
364
Sugar
See also Book LVI, pages 349,351
New York Times article in which "FDR completely throws down
Henry Wallace" - 3/4/37
300
E-1 I I
Thornton, Reuben 0.
See Appointments and Resignations
- U -
U.S.S.R.
See Stabilization: France - 3/3/37
233
Regraded Uclassified
1
GROUP MEETING
March 1, 1937
9:30 A.M.
Present:
Mrs Klotz
Mr. McReynolds
Mr. Bell
Mr. Lochhead
Miss Roche
Mr. Taylor
Mr. Haas
Mr. Gaston
Mr. Magill
Mr. Oliphant
H.M.Jr:
Speaking for myself, I had a swell time.
Gaston:
Fine.
Roche:
Good.
Gaston:
I wanted to report for Mr. Upham. He called me up
yesterday afternoon. His mother is quite ill
and he's gone to Iowa.
H.M.Jr:
Oh, I'm sorry.
Mac?
McR:
I think we'll be ready any time today on that.
H.M.Jr:
Well, I'll let you know a little later.
McR:
All right.
H.M.Jr:
I read everything you gave me. If you don't mind
my saying so, it wasn't very satisfactory. You
(Oliphant) tell Clarence, will you, that I want to
see him at eleven and actually go over this bill;
will you? I mean I've got to understand it. And
I'm not going to mention who did the analysis, but
it wasn't done - Mac didn't do it - but it just
wasn't satisfactory.
Oliphant:
You want to see him at eleven?
H.M.Jr:
Yes. You too, Mac, at eleven. I just want to sit
down and read the bill paragraph by paragraph.
Well, I'm not going to show this to Upham - I mean
Opper. What I'd like for him to have on it is lots
of space so that it says what it does and I can
write underneath it, as I go along, what I think it
should do.
Regraded Uclassified
2
- 2 -
Oliphant:
Do you want him to have that summary before eleven?
H.M.Jr:
Not - try to, but if he can't
Do you want to
phone him?
(Oliphant goes out to phone)
Well, you might 88 well have the other man here
at eleven, Mac. I mean I didn't get what I wanted.
I read everything.
McR:
Barton?
H.M.Jr:
Barton, yes. I mean you gave me the only thing I
got anything out of. But when it gets to the tech-
nical things
So you and Barton and Opper at
eleven.
McR:
O.K.
H.M.Jr:
Anything else, Mac?
McR:
No.
H.M.Jr:
Dan?
Bell:
Some time ago I talked to you about winding up the
Railroad Administration.
H.M.Jr:
Uh-huh.
Bell:
Well, it is practically completed. We had an Execu-
tive Order, which the President approved, transferring
the files pertaining to personnel to the Civil Service
Commission, the traffic and rates files to the Inter-
state Commerce Commission, and the Minnesota Fire
Claims files to the General Accounting Office; and
all the rest comes to the Treasury. We have taken
over all the financial records and the assets, and it
will be operated, I suppose, out of my office upstairs.
The personnel
H.M.Jr:
Those six or seven fellows?
Bell:
Yes. The three main men and one stenographer have
gone to Internal Revenue.
H.M.Jr:
Good.
Regraded Uclassified
3
- 3 -
Bell:
One stenographer to the Bureau of the Budget.
H.M.Jr:
Yes
Bell:
And one file clerk I'm keeping upstairs to run
back and forth to Annex One. Mr. Oliphant's office
thought it would be well not to have any other
Executive Order at this time abolishing the office
of Director General. We would carry right on and
handle work right upstairs. Now, it might be neces-
sary for you to designate someone as Assistant to
the Director General in order to sign current mail,
routine stuff.
H.M.Jr:
Whom would you suggest?
Bell:
Well, I think maybe Collins might be a good man.
H.M.Jr:
Sold.
Bell:
I'll submit to you the necessary papers. There
will be a few checks to sign from time to time for
claims, and as soon as we wind up the accounts of
the Disbursing Officer
H.M.Jr:
Does it mean I still have my railway pass?
Bell:
I think
H.M.Jr:
Just like for the last three years?
Bell:
Yes, I assume you can. You're still Director General,
Roche:
I thought you always flew.
Bell:
You're still Director General.
H.M.Jr:
Well Dan, it's two weeks since we gave any memorandum
to the President.
Bell:
Yes, I've worked on that.
H.M.Jr:
You're not ready for it today?
Bell:
No.
H.M.Jr:
Did you see according to the newspapers that Wallace
asked how much, a hundred million dollars for
crop insurance? Then I saw Ickes made a statement
Regraded Uclassified
4
- 4 -
about ten million dollars administrative expenses
wasn't enough.
Bell:
Yes, he said that wasn't enough. Hasn't very much
happened on the Hill other than what the President
sent up.
H.M.Jr:
But he doesn't - the fact that I see it may cost a
hundred million dollars
Bell:
I assume he knew that when he sent the report.
H.M.Jr:
Well, let's...
Bell:
We'll put it in there.
H.M.Jr:
What's happened since from two weeks ago today.
Then, you and Magill did a swell job and got nowhere.
I mean I'd like to know what that was.
Magill:
So would I.
H.M.Jr:
I think the thing to do, if you men - I wish that you
two men would prepare a memorandum and transmit it,
where this railway thing stands and how much we're
short-changed. If you'll write me a joint memorandum,
I'll send it over.
Magill:
Well, the Treasury is short-changed anyhow a hundred
forty million.
H.M.Jr:
How much?
Magill:
One hundred forty million.
H.M.Jr:
Well, whatever it is.
Magill:
And we may very well be short-changed eight hundred
forty. Isn't that right?
Bell:
Right.
H.M.Jr:
Well, will you men prepare a memorandum?
Magill:
Sure, I'll be delighted.
5
- 5 -
H.M.Jr:
What?
Magill:
I'll be delighted.
H.M.Jr:
No, seriously.
Bell:
It's a little uncertain. Altmeyer said Friday that
he would try to be sure if you could control Latimer.
H.M.Jr:
Well
Bell:
What after happened
H.M.Jr:
The way the thing happened, I'd like to have prepared
a memorandum for the President, and I think we
oughtn't to wait more than 24 hours. Does that rush
you too much?
Magill:
Not at all.
H.M.Jr:
No, let's get it today.
Bell:
All right.
H.M.Jr:
You prepare it; I'll send it over. It's things like
that - I mean the fact that he sits there - he can't -
it is impossible for him to analyze it. Just the same
way I'd like to bring to his attention the maximum
cost of crop insurance.
Bell:
Well, as I understand, the statement that Latimer
made was rather general, emphasizing that the union
and the railroad heads and Latimer hadn't come to an
agreement, but said nothing about our understanding
with Mr. Latimer that he would submit a memorandum
of the entire program to the Treasury before a final
agreement was entered into.
H.M.Jr:
Well, I'd just state it - I mean in kind of a gossipy
way. You could make it two things. You could give
me a technical document, and then draft a letter for
the President, say, "This is what happened, as we
understand it, last week, and this was the under-
standing we had with Mr. Latimer."
Magill:
I don't think that Latimer can tell the President
anything about the details, because the history of it
is that Latimer talked to me and Oliphant for a very
Regraded Uclassified
6
- 6 -
long time and we could get nothing out of him as
to the details of the thing at all; it was a lot
of smoke. And it was only after I got after him
specifically the following day and said, "How about
140 million?" that we began to get down to brass
tacks.
H.M.Jr:
Well, if I may suggest it - I mean after four years
in Washington I'd suggest two kinds of memoranda:
-he technical situation, what it is; then a kind of
letter for me to transmit, saying what happened in
this office for the President's information. See?
We've done that before. I mean when the President
has it, he's always told us where we stand. What?
Bell:
That's right.
H.M.Jr:
He's either said he will or won't, see?
Magill:
(Nods yes)
H.M.Jr:
He might perfectly well say, "How did I know that
meeting took place in Treasury? Why didn't you
tell me that Latimer was over there and said so and
so, that you were having trouble with Latimer?"
Magill:
Well, we didn't have any trouble with him. We
understood Latimer was to give us a document which
would run to fifteen, twenty pages, I suppose, giving
us the details, which have never been submitted to
the Treasury at any time, and he expressed surprise
that he should be asked to give us a memorandum show-
ing the actuarial calculations for insurance on the
plan.
H.M.Jr:
Well, is there any doubt in your mind as to the
advantage of sending it over to the President?
Magill:
No, not the slightest. I think that's what we
should do by all means.
H.M.Jr:
Dan?
Bell:
No, but I assume certainly that the President did
know that there was such an understanding, because
on Thursday, when I heard this was going on, I called
McIntyre and told him the matter had not been cleared
Regraded Uclassified
7
7 1 I
with the Treasury, and he said, "Hold the phone."
Apparently he went and talked with the President.
At any rate, he came back and said that "the President
doesn't want to see Latimer until it is cleared with
the Treasury."
H.M.Jr:
But he did see him.
Bell:
But he did see him, yes.
H.M.Jr:
That's why I want to send a memorandum. I don't
know whether the President has done something.
We'll simply put in the memorandum, "Here are the
facts, Mr. President. There's 140 million dollars
at stake. Mr. Latimer said he would clear it with
us and we'd like to suggest that you inform Mr.
Latimer that he does clear it with the Treasury,
before he commits you, see?"
Bell:
I think that's right.
H.M.Jr:
Huh?
Magill:
(Nods yes)
Oliphant:
I got the very distinct impression that he was putting
it up to us in the form
H.M.Jr:
Who's "he"?
Oliphant:
Latimer.
that they were trying to get the
railroads and the unions to agree and we had to put
up this money in order to get that agreement. That
is about as bad a form as I think it could come to
us.
Magill:
He won't say that flat.
Oliphant:
No, he won't say it flat.
H.M.Jr:
Frankly, I'm not familiar - if the memorandum does
nothing else, it will bring me up-to-date. If it
does nothing else, it will bring me up-to-date. But
certainly at the speed the President is moving, it
is impossible for him to know about it all, and
McIntyre doesn't know what it's all about. Huh?
Regraded Uclassified
8
to I I
Magill:
Well, no one would know what it was all about unless
you began to delve into it. You'd never get it out
of Latimer unless you knew what questions to ask,
because Latimer isn't going to tell you.
H.M.Jr:
Well, if you fellows would do that today and get that
for me - a letter of transmittal telling the President
what happened, what we'd like; then a technical memor-
andum explaining what the - how we see the difficulties
there are. O.K., gentlemen?
Oliphant:
I think it's going to be a hard thing to head off.
H.M.Jr:
Hello (On phone) (Short conversation with Senator
Wagner)
He's going to let me know this afternoon. He's got
an appointment pending. Says he'll just tell the
people he wants to come to my house.
Bell:
(Hands Secretary a paper) Just wanted you to read
that. Don't have to do it now.
H.M.Jr:
Well, we've got to talk about that, nuh?
Bell:
Yes.
H.M.Jr:
And while we're on that, if these Governors come
down, I think you and I will have to do some homework
for the President on that thing beforehand. I'd like
to work - just you and Harry and I - I mean so we'll
have some stuff for the President.
Bell:
All right.
H.M.Jr:
Huh?
Bell:
You mean in cases where they're coming.
H.M.Jr:
No, but he can't refuse to see them. Tell you
what I'll do
(on White House phone) Mr. Hopkins, please. Good
morning. - - Yes. - - Thank you.
Any other thing, Dan?
Regraded Uclassified
9
- 9 -
Bell:
That's all.
H.M.Jr:
Say, you haven't spent any money in two days.
Bell:
Picking up a little now.
Roche:
Trade's good.
Bell:
Trade's good.
H.M.Jr:
You're all right then?
Bell:
I'm all right.
H.M.Jr:
Archie?
Lochhead:
Market's very quiet.
H.M.Jr:
Miss Roche?
Roche:
Nothing special, sir.
H.M.Jr:
Wayne, a couple of weeks ago I asked you to do a
job for me and I've had no report. It was in con-
nection with the Export-Import Bank making a loan
to Italy - cotton spinners, nine months' credit -
and I asked you to find out how many other things
like that were going on. Remember?
Taylor:
I thought I did report back on that.
H.M.Jr:
No, you simply said that you were doing it. I mean
I never got anything. When could I have it?
Taylor:
I can get that for you fairly quickly.
H.M.Jr:
Can you do it before you leave?
Taylor:
Uh-huh.
H.M.Jp:
What?
Taylor:
Uh-huh.
H.M.Jr:
Because frankly I can't understand how the President
can say that a loan to the French railways does not
come within the spirit - I'm saying it very
Regraded Uclassified
10
- 10 -
confidentially - of the Johnson Act, but at the
same time we loan money to French spinners - I mean
Italian spinners. I mean it seems the spirit of the
Johnson Act is sort of flighty.
Bell:
Well, the Export-Import Bank is exempt from the
Johnson Act, is it not. Isn't that right, Wayne?
Taylor:
(Nods yes)
Bell:
That's the difference.
H.M.Jr:
Well, what about the Chase and the National City?
Bell:
Well, they're under the Johnson Act.
Oliphant:
Export-Import is expressly exempt from the Johnson
Act.
Taylor:
Or any other wholly-owned governmental corporation -
controlled.
H.M.Jr:
Well, I - I know of that loan. I'd like to know
any other loans they have made to countries who owe
us money. And I don't know that Bill Myers or
R.F.C. - that makes the whole thing, doesn't it?
Taylor:
They haven't done any new ones.
H.M.Jr:
Well, would you mind? Because I just - I think
there's such a thing as consistency, huh?
Taylor:
It is rare.
H.M.Jr:
What?
Taylor:
There is such a thing, but it is very rare.
H.M.Jr:
Well, you were there at Cabinet when the President
lectured to Cabinet on the spirit of the Johnson
Act. You can use the phone if you haven't, just
call up the R.F.C. and then - what is it, Import-
Export or Export-Import?
Taylor:
Export-Import.
H.M.Jr:
Export-Import. Bill Myers, I'm sure, hasn't.
Regraded Uclassified
11
- 11 -
Taylor:
No, I know he hasn't.
H.M.Jr:
Do you think before you leave you could?
Taylor:
Uh-huh.
H.M.Jr:
I've had that a couple weeks on my mind here.
Have you got anything?
Taylor:
Have official replies from the British and the
Swiss.
H.M.Jr:
British you have?
Taylor:
Yes.
H.M.Jr:
British, Swiss, French
Taylor:
French, Belgians, and Netherlands still to be heard
from. But they've cabled.
H.M.Jr:
Well, that's all right. That's on that earmarking
amongst club members - exchange locker room. All
right, what else?
Taylor:
That's all.
H.M.Jr:
George?
Haas:
I have nothing except that I wish this group could
have heard the Secretary of the Treasury in the
capacity of a Harvard professor on Saturday, and
also have witnessed Mr. Carruthers as he left the
room. Should I tell a little bit about that?
H.M.Jr:
Sure.
Haas:
At the meeting there was a group of students from
Yale, Harvard, and Princeton - select students, I
take it - and members of the faculty from the three
universities, including John Williams from Harvard
and Harris from Harvard and a man named Gilbert from
Harvard who was on the faculty there, and Rogers
from Yale and Carruthers from Lehigh, and Riefler
from Princeton. Kemmerer I don't believe was there.
Leffingwell, of J. P. Morgan, was there. A man from
the Bank of England was there, a man in charge of
Regraded Uclassified
12
- 12 -
the economic division of the Bank of England.
The Secretary opened the discussion - their student
chairman presided - the Secretary opened the discus-
sion by pointing out what the ob jectives of the
Administration's monetary policy are and then went
down and told each step, outlined each step and how
it fitted into a whole. Discussion immediately broke
on
H.M.Jr:
Excuse me. Hello (On phone) Hello, Harry (Hopkins).
How are you? Harry, if the President is going to
see these six Governors, I'm suggesting that you,
Dan and I get together and do a little memorandum
for him. - - No, no. - - Well, I know he
hasn't, but I mean
-
-
What?
-
,
Well,
I thought that - I mean I'm volunterring my ervices
because - but I just want to say that Bell and I will
be glad to volunteer because - for obvious reasons.
I mean the thing is going and they've got to have a
story. - - Well, we've been running those figures
here, you see: the cost of states and
I
-
Yes.
- - Well, I know it's going to be - 1t gets into a
cat-and-dog fight, and I could sit back and do nothing,
but Bell and I are willing to be helpful. - - Thank
you.
All right, Georgie.
Haas:
After the Secretary completed his summary, questions
were asked. oh, they ranged all the way from the
24-hour policy to the bond market to why the price
is fixed at $35, and why gold was embargoed. And it
was a very lively discussion all the way through.
Mr. Carruthers insisted that we should have stayed
on the gold standard. Then, in order to have an
understanding of just what he was talking about,
he was questioned what he meant by the gold standard.
The boys took him on at one stage of the thing. And
ne says, "Well, you could be on gold standard and
use these controls." Well, one of the boys from
Princeton said that he'd been taught that the gold
standard meant this, that, and so on, and by defini-
tion, if he had these controls he would no longer be on
Regraded Uclassified
13
- 13 -
the gold standard. well, he had Mr. Carruthers
reeling, and when some of the professors saw him
on the ground
Gaston:
they jumped on him.
Haas:
The Secretary gave him the first push, then the
boy got encouraged. And then, in order to catch
himself, he came back and asked the Secretary a
question; I forgot what it was, Oh, the 24 hours.
And the Secretary demolished him on that. After
the Secretary made a rather long statement, why,
Mr. Leffingwell supported him completely - the
Secretary's statements - from the business point of
view, whether there would be confidence or there
wouldn't be confidence.
Well, it went on for three hours in the morning -
very lively discussion. Then somebody, a man named
Harris, questioned the bond market, and the Secretary
straightened him out on that.
Then the final - after the day was over - there was
six hours of discussion. At the end each of the
student chairmen of the five round tables gave a
report in the suditorium of the conclusions reached.
And the chairman of the Secretary's round table -
either he got at the front sheet of the Secretary's
paper or he read what the objectives were, and he
said those were the conclusions of the conference.
H.M.Jr:
He took the first page and a half
Haas:
That's right.
H.M.Jr:
as the conclusions.
Haas:
It was a marvelous performance the Secretary did
up there. He's too modest to talk about it, but it
really was & marvelous performance. I haven't seen
anything like it. And there seemed to be a unanimous
agreement after the discussion as to the Administra-
tion's program. The only one that didn't agree was
Carruthers, and he was so groggy he just didn't know
where he was located at the end. He was completely
confused. It was brought out very definitely that
he didn't understand his monetary theory.
Regraded Uclassified
14
- 14 -
H.M.Jr:
You must tell them, though, what happened one minute
before the thing broke up.
Haas:
In the afternoon?
H.M.J.:
Yes.
Haas:
I wasn't there.
H.M.J.:
Well, one minute of five they got all these resolu-
tions together. Carruthers piped up and said, "I
can't go along with that. There's nothing in there
about silver,'
DO I said, "Well, you don't expect to settle the
silver question in one minute, do you?" He said,
"No, but I got my opinion on silver. "Well," I
said, "why weren't you fair in saying it before?"
Then this fellow Harris - none of us pulled our
punches - said, "If you've got anything on silver,
why didn't you say so this morning? The Secretary
gave you every opportunity. Why bring it up at
one minute of five?"
Hass:
He was completely demolished.
H.M.Jr:
One minute to five he says he wants to start talking
about silver, so they - all day long we were looking
for silver.
And the interesting thing that surprised me was that
James Harvey Rogers - he gave us all his worries that
he had a year and B. half ago - all of them proved
futile. "I can't see anything to worry about now
other than the study of additional controls." He
said, "Every worry I had a year and a half ago has
disappeared." He said, "I was wrong." Now, that
Oliphant:
from Rogers is something.
Gaston:
Was there any transcript of this?
H.M.Jr:
Not a thing.
Gaston:
That's too bad.
Regraded Uclassified
15
- 15 -
H.M.Jr:
I gave to Leffingwell - he begged me to release
the thing that the boys helped on. I'm going to
let the President see it at noon. He said for three
years he hoped and they tried themselves to do what
I did that morning, but were unable to, and that it
was the best presentation of the Government monetary
policy anybody had given.
No, I think it would have slowed everybody up if
they had recorded it. I wouldn't have liked it.
Gaston:
But I tell you what you might do. Why can't
Leffingwell write a magazine article from the
background of this conference?
H.M.Jr:
I've got the statement. If the President will let
it go out it can be given as a radio talk: "A View
of Three Years' Monetary Policy; Where We Stand."
Take about fifteen minutes. We could arrange it,
huh?
Gaston:
(Nods yes)
Haas:
The Secretary, in outlining his steps - monetary
steps that have been taken, indicated how they
all synthesized together, and he said "with one
exception" right at the start, so he gave everybody
a lead to ask about silver or whatever they had on
their mind.
H.M.Jr:
Whatever that one exception was. We decided we
wouldn't name it. We gave everybody one exception.
Magill:
Nobody asked you what the one exception was?
H.M.Jr:
We said "with one exception."
Magill:
Didn't you run up a red flag?
H.M.Jr:
We had two pages on silver. We spent two nights
at home on it. And after we had two pages on
silver, we left the whole thing out and just said
"with one exception."
Roche:
And nobody asked? As I was saying, there were no
women present - - curiosity.
Regraded Uclassified
16
- 16 -
H.M.Jr:
Well, thanks, George.
Magill:
How do I get to see your statement?
H.M.Jr:
Well, we'll take it over at noon. And I gather
George held up his end.
Haas:
Well, I'll take two minutes to tell about the
other session on Revenues, Receipts, and Expen-
ditures, Friday afternoon. They started the dis-
cussion by criticizing the income tax because it
was variable and had a series of figures showing
the yield. So the student chairman asked me if
I would start the discussion and I did, and I
found out very quickly that, other than Kent and
I - we were on one side and the rest were on the
other side. So it was just round-and-round, nobody
giving us any help. But we were throwing spikes
into their machinery.
For instance, I think Lutz prepared these tables
on the incomes before we got to the undistributed
profits tax. Well, they just pointed to the yield,
and I pointed out that as a statistical situation
it wasn't sound because there was such wide variation
in the income tax rates during the period. I don't
want to go into it.
And then the undistributed profits tax. By the way,
George O'May was one of the guests too. But he
didn't question the estimates.
Oliphant:
Didn't mention his visit to Washington?
Heas:
Huh?
Oliphant:
Didn't mention his visit to Washington?
Haas:
No, no.
Well, it was perfectly obvious that the instruction
which had been given these boys, not only with regard
to the undistributed profits tax but some of the other
taxes, was of a low order as compared with the way
the boys handled themselves in the monetary discussion.
They were all smart boys, but they were just deficient
in their understanding of it.
Regraded Uclassified
17
- 17 -
They wanted to arrive at a conclusion. So at the
final session I was interested to know what the
conclusion was. I thought - from the way the dis-
cussion went I didn't know how it was going to be.
The chairman finally said this was the conclusion:
that there was some question of the economic effects
of forcing this distribution out. I pointed out it
wouldn't necessarily have to force it if the corpora-
tion wanted to keep it. But he said that the distri-
bution may have some adverse economic effects, and
it was a general feeling that it shouldn't be a
graduated tax, it should be a flat tax. Now, you
can't reconcile those two statements. The economic
effects would be more severe with a flat tax.
But any way, that was a conclusion. It was just too
much to cover in that length of time. Then in the
afternoon on Saturday the student chairman was rather
hard put. He wanted to discuss revenue, receipts,
and expenditures, and the budget, and whether it
should be balanced, and so on. Well, finally I
went in there, and they wanted to balance it at one
figure, and the function I performed there was to
raise questions about everything they attempted to
do. So the time went on. °0 they got near the
close of the session and the student was wondering,
"What conclusion can we reach about this balancing?"
The only thing they could get together on at the
close of the session was that they felt it was
highly desirable to retire the debt during periods
of prosperity. Be asked me if it was all right, and
I said yes, I'd vote for that.
But we nad a very good time.
H.M.Jr:
The students, I thought, showed up better than the
professors. I know I brought Bob over from Deerfield
and he said, "Gee, dad, you come to Harvard to study
economics under Harris and you take it for granted
ne's good. He just didn't know what he W&S talking
about." I mean that was a prep school boy. This
man kept saying all the time, "What's the Government
going to do to keep the bond market from going down?"
Said it about five times.
Heas:
Every time he writes a book, it's about as big as
"Gone with the Wind." About that size.
Regraded Uclassified
18
- 18 - -
Oliphant:
And as much wind?
Heas:
That's right.
Should I mention Berle's address?
H.M.Jr:
Berle - Adolph Berle, Junior, is the most brilliant
guy, and oh, what an orator that man is. He's like
an actor. Here's a fellow that listens to these
five chairmen and then he gets up and makes an ad-
dress - the flow of the English language, the delivery.
I mean it was like listening to a finished - well,
I'd have to say English actor - on the American stage.
I've never heard that man before.
Gaston:
What was this on? On your conference on monetary
policy?
H.M.Jr:
He had the job, after five student chairmen got
through, to summarize what they said. He was the
last speaker of the day.
Gaston:
On the general
H.M.Jr:
On the general role of governments and the national
situation, I mean. But - well, you people (Oliphant
and Magill) know him.
Oliphant:
We listened to that for five years.
H.M.Jr:
Am I overstating it?
Magill:
You're stating it with complete accuracy as far as
you've stated it.
Oliphant:
You've stated your impression of hearing him the
first time.
H.M.Jr:
Well, I've never heard - I've never heard a man -
of course, if you take down what he says, I guess
you could break it down. But from a standpoint
of delivery and the performance of mental gymnastics,
I've never heard his equal. Now, I really haven't,
from the standpoint of mental gymnastics. And never
hesitates a minute. The words just came out like -
as if he was reading from a document.
Oliphant:
(Laugh heartily)
Magill:
Regraded Uclassified
19
- 19 -
Mrs Klotz:
They know him.
H.M.Jr:
Do you know anybody who can do it like that?
Magill:
No, I don't think I do.
H.M.Jr:
He got a terrific hand of applause.
Haas:
He mentioned something about the Constitution that
might interest the legal people. In connection with
discussing the role of the government in economic
affairs, he mentioned that the Constitution - the
question of the Constitution wasn't raised at this
stage. He said we don't want an amendment to the
Constitution, but what we want is to get back to the
old Constitution that we thought we had. And he got
a big hand. Then he said parenthetically that the
way to do that, the simple, efficient way to do that,
might be to get some judges that really interpreted
it correctly, or something of that sort.
H.M.Jr:
Well, he certainly bowled me over. Thanks, George,
for your kind words.
Mr. Gaston?
Gaston:
I haven't anything. I suppose there will be something
published on this, won't there? These conclusions, etc.
H.M.Jr:
I don't think - I'll talk to you after I see the
President about it.
Roswell?
Magill:
I have some memoranda from various sources on the
subject of this flow of foreign gold - one from
Burgess and one from Gourrich; and a letter from
someone who says he represents the Amsterdam Stock
Exchange, who would like to come in and see us.
H.M.Jr:
Well, frankly, I'm going to put foreign capital on
ice for 24 hours while I do housing. I mean I've
got to prepare myself for that meeting tomorrow.
Magill:
The trouble with our associates at S.E.C. - at least
Gourrich is completely - apparently completely mis-
understands the present proposals. What he has to
Regraded Uclassified
20
- 20 -
say is very interesting, but it isn't on the point.
H.M.Jr:
Well, supposing you men carry it on. And Haas, those
of you who have been in on it - I mean anybody who's
been on it keep it moving. I wouldn't stop it. But
as far as I'm concerned, for today and tomorrow I
want to concentrate on tnis housing. I haven't got
it yet.
Magill:
I'm seeing Bryan of the Federal Reserve Board this
noon. We'll keep it simmering.
H.M.Jr:
Swell. Anything else?
Magill:
Last night I sat next to E fair-minded, educated
lady, and she talked about the income tax return,
how complicated it is to make it out.
H.M.Jr:
Have you talked to Gaston about your idea of having
the slip sent out to people asking them to submit
suggestions as to how they think the Government
could make it simpler, something like that?
Magill:
I spoke to him the other day.
H.M.Jr:
I think it may be a good idea - I mean how we can
simplify it.
Magill:
I was working on my own return yesterday, and I
don't need to tell you it is an impossible job.
H.M.Jr:
You're telling me?
Magill:
It's an impossible job even for somebody who under-
stands all the ins-and-outs. But to comply with
that return - you can't do it. Now, maybe that is
the way it should be, but that's the way it is.
H.M.Jr:
I wondered why you looked so fatigued this morning.
Magill:
That's why it is.
Oliphant:
One suggestion that I made is that it ought to be
printed in English. That would be a big help.
Magill:
That would be a big help.
Regraded Uclassified
21
- 21 -
H.M.Jr:
Let's think about this thing and...
Haas:
Of course you'd want to have your suggestions a
little further along before you...
H.M.Jr:
Well, if Roswell Magill can't make out his own
income tax
Magill:
Well, I can make one out and I have done so for
some years, but it is not according to the instruc-
tions that they ask you to follow. And you
practically - I think that it would be impossible
to follow the instructions.
H.M.Jr:
You don't mean to tell me you cut corners.
Magill:
Dear, dear.
H.M.Jr:
Huh? Well, Herman, I'll let you stay.
Regraded Uclassified
22
Lunch!
PRESIDENT ROOSEVELT CHOSE STUFFED CRABS FOR LUNCH TODAY FROM 20
MENUS SUBMITTED TO HIM BY MRS. ROOSEVELT IN THE COURSE OF THE "WHITE
HOUSE LUNCH AND BREAKFAST REORGANIZATION," THE FIRST LADY REVEALED
TODAY.
HIS REVOLT AGAINST LACK OF VARIETY IN HIS MEALS RESULTED NOT ONLY
FROM AN EXCESS OF LIVER AND STRING BEANS, BUT ALSO FROM BEING SERVED
THE SAME SALT FISH FOR SEVERAL DAYS IN SUCCESSION, MRS. ROOSEVELT SAID.
"ANY MAN WHO EATS ALMOST EXCLUSIVELY IN ONE PLACE IS LIKELY TO GET
TIRED OF BOTH THE FOOD AND THE COOKING," MRS. ROOSEVELT SAID. "HE IS
BETTER OFF HERE, BECAUSE THERE IS MORE THAN ONE COOK. IT'S LARGELY A
QUESTION OF VARIETY."
3/1--CS1235P
Regraded Uclassified
23
TREASURY DEPARTMENT
WASHINGTON
OFFICE OF
MISSIONER OF INTERNAL REVENUE
March 1, 1937.
ADDRESS REALT TO
- INTERNAL GEVENAE
AMD HEFER TO
MR. SECRETARY:
On February 6, 1937, I submitted 8. memorandum to Commissioner
Helvering showing the names of four internal revenue agents in the
Newark Division whom I could recommend for promotion to the position
of Internal Revenue Agent in Charge. They were: Reuben 0. Thornton;
Raymond Shotwell: Joseph F. Kelly: and John J. Morgan. As directed
by Commissioner Helvering, further detailed reporte as to the
service and ability of the four agents are submitted herewith.
In my opinion the reports show that Reuben O. Thornton is the
outstanding agent in the Newark Division in experience, administra-
tive and technical ability, and thoroughly capable of performing
the duties of Agent in Charge. Commissioner Helvering 18 of the
same opinion.
In this connection I believe you should be informed as to the
following:
On February 18, 1937, Mr. Baradel informed this office that
agents of the Newark Division were "about ready to start in-
vestigation of Mayor Frank Hague and his attorney, John Milton".
However, there is no reason to believe that the investigation
cannot be as thoroughly and as efficiently carried on under the
supervision of Mr. Thornton, as under Mr. Baradel and it is not at
all certain that the investigation will disclose additional tax
liability.
Although it is not believed further investigation of Agent
Thornton will disclose anything other than that shown by the at-
tached report, Mr. Irey will be directed to submit & further report
if you 60 desire.
Chan
Acting Commissioner.
Regraded Uclassified.
24
February 19, 1937.
Mr. Commissioner:
In accordance with your instructions, I submit the
following report on Internal Revenue Agent Reuben O.
Thornton, Newark Division:
Before going into the history of Agent Thornton's
service, I will briefly state his present status. Agent
Thornton is 50 years old. His present grade and salary are
CAF-12, $4800 per annum and his present duties are those of
group chief supervising work of 83 examining officers with
poste of duty outside of Newark. His efficiency rating as
of April 30, 1936 was 92, which ia excellent. He was Second
Assistant to the Agent in Charge of the Newark Division to
to February 1, 1936, at which time that position was eliminated
in rearranging the personnel of the Division.
On August 14, 1935, the Internal Revenue Agent in
Charge recommended Agent Thornton for promotion to Grade
CAF-13, $5600. The recommendation was disapproved at that
time solely because it was inconsistent with the established
policy that Second Assistante to the Agent in Charge be
classified in Grade CAF-12 and the First Assistant in Grade
CAF-13. However, he was granted an increase in salary with-
in the grade to $4800. The recommendation indicated he
was considered equally capable as the First Assistant to
the Agent in Charge.
Agent Thoraton entered the Internal Revenue Service
from the Civil Service Register on August 19, 1919 as a
resident auditor. He had previously served in the U. S.
Army from April 1918 to August 1919.
Prior to entering the army, his experience was as
follows:
Clerk
-
Auditor's Office Southern
Railway, Columbia, S. C.
2 years
Bookkeeper
Commercial Bank,
and
Chester, South Carolina
6 years
Cashier
Auditor
Bankers Trust Company,
1 year
Atlanta, Georgia
Auditor
Farmers Exchange Bank
Sylvania, Georgia
1 year
25
Mr. Commissioner,
- 2 -
After entering the Revenue Service in August 1919, as
a resident auditor, he was promoted in 1921 to Section Unit
Auditor in charge of a group of 11 auditors. In 1922, he
was again promoted to the position of Reviewer, and was
subsequently made a special auditor in the Natural Resources
Division. On August 4, 1924, he was transferred to the
Special Adjustment Section. On June 13, 1925, he was trans-
ferred to the Atlanta, Georgia Division as an internal
revenue agent, $3,000 per annum. On December 31, 1926,
his salary was increased to $3100 per annum and on July 1,
1928, to $3300 per annum. On November 16, 1928, he was
transferred to the Newark Division as a Senior Reviewer
and on February 19, 1929, he was advanced to CAF-11, $3800
per annum. On April 1, 1931, be was again advanced in
grade and salary to CAF-12, $4600. In 1932. his position
was advanced to that of "Chief Reviewer" and in 1934, he
was designated as Second Assistant to the Agent in Charge.
Newark Division.
The following are remarks 88 to his ability made by his
various supervisory officers:
January 1, 1921
"Shows exceptional ability in handling Unit and training
new auditors. Quantity and Quality of production excellent.
Knowledge of law and procedure very good." Signed -
F. R. Clute, Head of Division.
January 1, 1922
"A capable, conscientious Section Unit Auditor. Has
ability to handle auditors with tact. Has an excellent know-
ledge of law and procedure. Is studious and interested
in his work." Signed - John G. Remey, Chief of Section.
October 31, 1925
"This officer transferred from the Internal Revenue Bureau
June 13, 1925 and has shown aplitude for field work - is
improving with experience and will no doubt develop into &
good examining officer." Signed J. A. Baugh, Assistant to
the Agent in Charge.
April 30, 1926
"This officer possesses ability as an examining officer,
16 improving in his work and will no doubt develop into a.
splendid agent." Signed. J. A. Baugh, Agent in Charge
26
Mr. Commissioner
- 3 -
October 31, 1926
"This officer possesses ability to make complicated
investigations and is improving as an investigative officer.
He has produced a very good record during the period and
has investigated difficult cases. His work has been very
satisfectory." Signed J. A. Baugh, Internal Revenue Agent
in Charge.
September 30, 1927
"This officer is a good accountant and willing worker
with a good production record ... Has rendered a valuable
service to the Division." J. A. Baugh - Revenue Agent in
Charge.
September 30, 1928
"This officer is an excellent accountant and auditor;
a conscientious worker and cooperates in every way. He 18
capable of handling the most difficult examinations. He
has a pleasing and convincing personality and is a very
valuable officer." Signed Wm. Brusse, Internal Revenue Agent
in Charge.
October 23, 1928
"He has one of the best production records in the
Division. His work is of the highest order. This officer
has a splendid record and his work is uniformily of the best."
signed - Vm. Brusse, Internal Revenue Agent in Charge.
September 30, 1929
"This agent is 8. splendid accountant and has a fine
knowledge of law and procedure. He is capable of handling
the most difficult cases and is a very valuable officer."
Signed - M. Brusse, Internal Revenue Agent in Charge.
September 30, 1929
"This agent was transferred to this Division November
16, 1928, and for the entire time has been acting as "Senior
Reviewer". He is of & very pleasing personality, well versed
in accounting and income tax law end works well with others.
Ee has devoted many hours of his own time to the work of
the division during the past year mainly because of his
interest in his work." Signed- J. P. Jenson, Internal Revenue
Agent in Charge.
Regraded Uclassified
27
Mr. Commissioner,
- 4. -
April 30, 1930
"The agent is acting as Senior Reviewer. He ie
thoroughly familiar with accounting and income tax law and
has gained the confidence of the men with whom be comes in
daily contact. He is one of the outstanding agents in
the division His work is on a. par with that of Agents
Morgan and Levy and far superior to that of the other
agents classified in Grade CAF-12." Signed J. P. Jenson,
Internal Revenue Agent in Charge.
April 30, 1932
"The agent is one of the outstanding agents in the
division, and he is thoroughly reliable and well equipped
for his duties as supervisor of the Review Section of the
office and exercising general supervision of the assign-
ments of the division." Signed, John J. Morgan, Acting
Internal Revenue Agent in Charge.
April 30, 1933
"Mr. Thornton's services have been highly satisfactory.
Through his pronounced technical ability and willingness to
extend a. helping hand he has been of inestimable service
in training some of the weaker officers. # Signed - R. T. Miles
Internal Revenue Agent in Charge.
April 30, 1934
"During the year under review this officer was designated
Second Assistant to the Agent in Charge. His services have
been highly aatisfactory and I express my indebtedness for
the service which he has rendered to the Division and to me.
He is very much underpaid." Signed R. T. Miles - Internal
Revenue Agent in Charge,
April 30, 1935
"This agent is Second Assistant to the Agent in Charge
and in addition to duties of such position, supervises
assigning of income tax returns *** also supervises the
work of these agents." Signed - J. R. Baradel, Internal
Revenue Agent in Charge.
August 14, 1935
"I heartily agree with the comments made by Mr. Miles
(April 30, 1934) and inasmuch as the industry and efficiency I
displayed by Mr. Thornton are of outstanding character.
think $8600) 1a highly merited and should be granted." Signed -
that the salary increase herein recommended (CAF-13,
J. R. Baradel - Internal Revenue Agent in Charge.
Regraded Uclassified
28
Mr. Commissioner,
- 5 -
April 30, 1936
"As "Group Chief" this agent supervises the income tax
examining officers with posts of duty outside of Newark,
New Jersey (including East Orange and Bloomfield), assigning
the work and being responsible for the correct and expeditious
handling of the cases assigned. Until February 1, 1936,
Agent Thornton held the position of 2nd Assistant Agent in
Charge; such position was vacated on that date. Mr. Thorn-
ton has supervision over the work of 83 examining officers."
Signed - - J. R. Baradel - Internal Revenue Agent in Charge.
In addition to the foregoing,I do not hesitate to state
that in my opinion, Agent Thornton is the outstanding agent
in the Newark Division.
The file does not disclose any political endorsements
of Agent Thornton.
Chas J.Pussell
Deputy Commissioner.
Regraded Uclassified
29
February 19, 1937.
MR. COMMISSIONER:
In accordance with your instructions I submit the following report on
Internal Revenue Agent Raymond Shotwell of the Nowark Division.
Agent Shotwell is 48 years old. He 18 at present Chief Reviewer in
the Newark Division, grade CAF 12, $4600. Hie efficiency rating of April
30, 1936, was 94. He entered the service of the Bureau of Internal Revenue
B.S clerk May 10, 1919, by transfer from the War Department where he had been
employed since January 2, 1917, as & clerk. On February 1, 1921, his status
was changed from clerk to that of Assistant Auditor $2250 per annum. However,
he had been performing the duties of Assistant Auditor and Section Unit
Auditor since October 1920, through an error in his Civil Service status,
On July 1, 1921, his salary was increased to $2500 per annum. On May 9, 1922,
he was designated junior unit suditor in the Consolidated Returns Subdivision.
On March 1. 1923, his salary was increased to $3000 per annum. On August 15,
1923, he was promoted to the position of senior unit suditor. On February
16, 1924, his salary was increased to $3600 per annum and on June 16, 1925,
he was promoted to junior reviewer. On October 24, 1925, he was transferred
to the New York Division as a revenue agent engaged upon field investigations.
On January 11, 1926, he was transferred to the Brooklyn Division. His
salary was increased to $3700 on July 1, 1928. On November 1, 1928, his
duties were changed to field conferee and on March 1, 1929, he was promoted
to reviewer, grade CAF 11 - $3800. On October 16, 1929, his salary was
again increased to $4000 per annum. On July 3. 1930, in accordance with the
amendatory Classification Act his salary was increased to $4200 per annum.
On November 1, 1930, he was transferred from the Brooklyn Division to the
Newark Division and again assigned to field investigations. On January 1,
1932, he was promoted to the position of squad leader, supervising the work
of 34 agents. Shortly thereafter his duties were changed to those of
chief reviewer for the reason "his ability is more pronounced along technical
lines than along administrative lines". On April 1, 1934, his grade and
salary were advanced from CAF 11 - $4200 to GAF 12 - $4600, in accordance
with the classification for the position of Chief Reviewer.
The following comments are by his supervisory officers!
July 1, 1921. "Has developed well in the technical work."
(Signed) S. Alexander, Head of Division.
January 1, 1923. "He 1s the most able auditor in the section and has
good administrative ability".
(Signed) W. L. Heap, Chief of Section.
January 1. 1924. "The ability of this senior unit auditor is greatly
above the average of others performing similar
duties in the division."
(Signed) V. L. Heap. Chief of Section.
Regraded Oclassified
+
30
November 30, 1926.
"While this agent's production record is
below the average of other agents in the same
classification grade, he is very thorough in
his work".
(Signed) R. T. Miles, Supervising Internal
Revenue Agent.
September 30, 1927. "Above the average in both quality and quantity".
(Signed) C. M. Justice, Internal Revenue
Agent in Charge.
September 30, 1928. "Above the average in both quantity and quality".
(Signed) J. R. Baradel, Internal Revenue
Agent in Charge.
September 30, 1929. "Much above average in both quantity and quality.
Employee is capable of handling any cases
presented for review".
(Signed) J. R. Baradel, Internal Revenue
Agent in Charge.
February 16, 1929. "He is thoroughly familiar with his work but
production to date appears considerably below
average".
(Signed) J. P. Jenson, Internal Revenue
Agent in Charge.
April 30, 1931. "The production of the agent is well above the average
within his classification grade. His judgment and
knowledge of the work is also oustanding, and he
has demonstrated the fact that he is one of the
better agents attached to this division".
(Signed) J. P. Jenson, Internal Revenue
Agent in Charge.
April 30, 1932. "The agent is outstanding both as to quantity and
quality of his work".
(Signed) John J. Morgan, Acting Internal
Revenue Agent in Charge.
April 36, 1933. "However, his ability 10 more pronounced along technical
lines than along administrative lines and it is an-
ticipated that he will during the ensuing year be
transferred to the position of Chief Reviewer".
(Signed) R. T. Miles, Internal Revenue
Agent in Charge.
April 30, 1934. "Agent Shotwell's rating as a chief reviewer is con-
siderably higher than it was during the period when
Regraded Uclassified
-3-
31
he acted as the squad leader. This is due to the fact that he is
& much better technical agent than he is an administrative agent".
(Signed) R. T. Miles, Internal Revenue
Agent in Charge.
Deputy Commissioner.
32
February 25, 1937.
Mr. Commissioner:
In accordance with your instructions, I submit the following
report on Internal Revenue Agent John J. Morgan, Newark Division:
Before going into the history of Agent Morgan's service, I
will briefly state his present status. Agent Morgan will be 40
years old on June 23, 1937. His present grade and salary are
CAF-13, $5600 per annum. He acts as principal assistant to the
Internal Revenue Agent in Charge of the Newark Division and in
the absence of the Agent in Charge assumes the responsibilities
and duties of that officer.
Agent Morgan entered the Internal Revenue Service as an
Inspector on August 1, 1922 at $1800 per annum in the Philadelphia
Division, on September 11, 1922 was transferred to the Huntington
Division, and on May 1, 1929 to the Newark Division.
Mr. Morgan is not a veteran.
Prior to entering the Internal Revenue Service, his experience
was as follows:
Accountant - Eddystone Rifle Plant,
Eddystone, Pa.
4 years
Compiled all fiscal statements,
including P&L and Balance Sheets.
Accountant - Hale and Kilburn Corporation,
Philadelphia, Pa,
1 year
Preparation of all statements.
Cost Clerk - Edw. H. Vare,
Philadelphia, Pa.
1 year
Cost records on construction work.
Accountant - American Railway Express Co.,
Philadelphia, Pa.
4 years
Working on statistics for dis-
tribution of express receipts
to railroads under I.C.C.
33
- 2 -
Mr. Commissioner.
After entering the Revenue Service in August of 1922 as an
Inspector, Mr. Morgan was assigned to the Philadelphia Division
at $1800 per annum. On September 11, 1922 he was transferred to
the Huntington Division. Effective March 1, 1923 he was promoted
to $2000 per annum and on March 1, 1924 WS.S designated as Internal
Revenue Agent and promoted to $2500 per annum. He was again pro-
moted, on July 1, 1924 to $3000 per annum. On February 25, 1925
he was designated as conferee and on October 1, 1925 promoted to
$3300 per annum. On January 1, 1927 he was promoted to $3500 per
annum and again on October 1, 1927 was advanced in grade and salary
to CAF-11 at $3800 per annum. On July 1, 1928 he was given another
advance in grade and salary - CAF-12, $4600 per annum, and on April
1, 1931 promoted to Grade CAF-13 at $5600 per annum.
The following are remarks as to his ability made by his various
supervisory officers:
January 12, 1923
"This officer is a. newly appointed inspector but is worth
more money * * ⑉". Signed - E. J. Rodgers, Internal Revenue Agent
in Charge.
January 2, 1924
"This officer is very capable and efficient. He can investigate
any class of case. This officer is very loyal to the Service and
gives his best cooperation to this office". Signed - Harry V. Bitting,
Internal Revenue Agent in Charge.
October 31, 1925
"He is a first-class accountant and income tax officer, possesses
an agreeable personality and is highly efficient." Efficiency rating,
95. Signed - Harry V. Bitting, Internal Revenue Agent in Charge.
October 30, 1929
"This agent was transferred to this division effective May 1,
1929. He is at present acting as assistant to the Agent in Charge
in addition to his duties &8 representative of the Special Advisory
Committee." Signed - J. P. Jenson, Internal Revenue Agent in Charge.
Regraded Uclassified
34
- 3 -
Mr. Commissioner.
April 30, 1933
"I am glad of the opportunity afforded herein of express-
ing my appreciation of the very capable assistance and loyalty
which he has extended to me during my incumbency of the position
of Agent in Charge of the Newark Division." Signed - - R. T. Miles,
Internal Revenue Agent in Charge.
April 30, 1935
Internal Revenue Agent in Charge J. R. Baradel accords
Mr. Morgan an efficiency rating of 93 as his principal assistant.
April 30, 1936
Mr. Baradel gives Mr. Morgan an efficiency rating of 96.
Mr. V. L. Highland, Republican National Committeeman for
West Virginia, endorsed Mr. Morgan for Agent in Charge at
Huntington on March 17, 1928, and in this connection Commissioner
Blair stated "at the present time we are trying out the man who
was Mr. Bitting's assistant and who has practically run the office
for the last two years". (He is referring to the present Internal
Revenue Agent in Charge Leslie R. Miles.)
Under date of April 18, 1923, Senator George Wharton Pepper
wrote in behalf of Mr. Morgan.
Chan J.Rassell
Deputy Commissioner.
Regraded Uclassified
35
February 25, 1937
Mr. Commissioner:
In accordance with your instructions, I submit the
following report on Internal Revenue Agent Joseph F. Kelly,
Newark Division:
Before going into the history of Agent Kelly's service
I will briefly indicate his present status. Agent Kelly is
45 years old and will reach his 46th birthday on March 31,
1937. His present grade and salary are CAF 12 at $4800 per
annum, and his present duties are those of the highest type
of field examining agent. His efficiency rating as of April
30, 1936, was 90 which is "Excellent", and he has been
assigned as an Acting Conferee during the past year. He
apparently handles the most difficult and involved examina-
tions in the Newark Division.
Agent Kelly is a veteran of the World War, having served
in the Supply Corps from July 1918 to August 1919. He
entered the Internal Revenue Service from the civil service
register as an Internal Revenue Inspector effective August 1,
1920.
Prior to entering the navy, his experience was as follows:
Bookkeeper
New England Telephone
and
Company
(1809 to
Storekeeper
1912)
3 years
Deputy Collector
Fall River Customs
and
House
(1912 to
Inspector
1917)
5 years
Yeoman U.S.N.R. - January 1917 to
12 years
July 1918
Ensign U.S.N.R. - July 1918 to
1 year
Supply Corps
August 1919
After entering the Revenue Service in August, 1920, as
an Internal Revenue Inspector and completing the 45-day
training course, Mr. Kelly was assigned to the Buffalo Division
at a salary of $1800 per annum. Effective July 1, 1921, he
36
-2-
Mr. Commissioner.
was promoted at $2000 per annum; on May 16, 1922, he was
promoted to the position of Internal Revenue Agent and as-
signed to act as aquad leader, with compensation at $2250;
and March 1, 1923, he was promoted to $2500. Under date of
January 21, 1924, Agent Kelly tendered his resignation from
the position of agent at $2500 per annum in order to accept
a position outside of the service, which was accepted
effective at the close of business February 9, 1924.
Under date of June 17, 1924, Mr. Kelly applied for
reinstatement and he was reinstated as an agent at $2700
in the Huntington Division, reporting August 22, 1924, and
where he served as a. field examining officer.
Effective January 1, 1926, Agent Kelly was promoted
to $2900 and on January 1, 1927, to $3000. On October 1,
1927, he was allocated to Grade CAF 9 without change in
salary. but on January 1, 1928, was promoted to $3200; on
July 1, 1928, was promoted to $3400; on February 16, 1929,
to $3600; on October 16, 1929, to $3700; and on March 16,
1930, was promoted to Grade CAF 11 at $3800. Effective April
1, 1931, Agent Kelly was placed in Grade CAF 12 at $4600 per
annum, which is his present grade and compensation.
The following are remarks as to his ability made by his
various supervisory officers:
November 16, 1921
"This officer is doing as good work as any officer in
the field. He is reliable and energetic. **** Signed
C. W. Herrick. Internal Revenue Agent in Charge.
December 1, 1922
"Officer proved quite efficient as a squad leader and
is very capable and industrious. Has excellent knowledge of
law and regulations and he is capable of meeting all account-
ing problems successfully." Signed R. A. Conway, Internal
Revenue Agent in Charge.
January 12, 1923
"Officer proved quite efficient as a aquad leader and is
very capable and industrious. **** Signed R. A. Conway.
Internal Revenue Agent in Charge.
Regraded Uclassified
37
-3-
Mr. Commissioner.
January 8, 1924
"Diligent with ability above average. ****** He also
has the ability to impart this knowledge to the examining
officers engaged on individual, partnership and fiduciary
examinatio ns. Mr. Kelly is also the reviewing officer
of all protests, appeals or letters submitted by taxpayers
relative to individuals, partnerships and fiduciaries
Signed W. P. Mays, Internal Revenue Agent in Charge.
February 9, 1924
Agent Kelly resigned at the close of business this date.
August 22, 1924
Reinstated as agent in Huntington Division.
October 31, 1925
"Reinstated in this division August 22, 1924. Qualified
to handle all classes of income and excess profits cases.
**** Signed Harry V. Bitting, Internal Revenue Agent in Charge.
April 30, 1926
Accorded efficiency rating for period of 94, which is
"Excellent" but no comments made by supervisory officer.
October 31, 1926
Accorded rating for period of 94.25. "Agent Kelly is
assigned all classes of cases. He is thoroughly competent
and very valuable as a utility officer". Signed Harry V.
Bitting, Internal Revenue Agent in Charge.
September 30, 1928
Accorded a rating of 89 by new internal revenue agent
in charge, Mr. Leslie R. Miles, who recommends that Agent
Kelly be promoted to Grade CAF 11.
Regraded Uclassified
38
-4-
Mr. Commissioner.
September 30, 1929
"This officer's production record does not reflect his
actual value to the service. He should properly be classified
in Grade 11". He is accorded rating for the period of 90 by
Leslie R. Miles, Internal Revenue Agent in Charge.
April 30, 1930
Agent Kelly is given a rating of 92. "A highly com-
petent officer, especially valugble as he is qualified to
handle all classes of cases. If Signed Leslie R. Miles, Internal
Revenue Agent in Charge.
January 26, 1931
He is recommended for Grade 12 because of transfer of
cases previously examined by Travel Audit. by Leslie R. Miles,
Internal Revenue Agent in Charge.
April 30, 1932
"A very efficient officer". Signed Leslie R. Miles,
Internal Revenue Agent in Charge.
January 1, 1933
Transferred to Newark Division.
April 30, 1933
"The work which this officer has performed since being
attached to the Newark Division leads to the thought that what
was Huntington's loss was Newark's gain." Signed R. T. Miles,
Internal Revenue Agent in Charge.
April 30, 1934
"Agent Kelly receives the highest efficiency rating among
the examining officers of this division. He is an exceptionally
highly qualified officer." Signed R. T. Miles, Internal Revenue
Agent in Charge.
April 30, 1935
Is accorded a rating of 89.35 without comment by J. R.
Baradel.
Regraded Uclassified
39
-5-
Mr. Commissioner.
April 30, 1936
Is accorded an efficiency rating of 90 and has acted as
Conferee since January 8, 1936.
Signed J. R. Baradel,
Internal Revenue Agent in Charge.
Supplementing the foregoing it appears that Agent Kelly
is an outstanding examining officer and excellent conferee in
the Newark Division.
The file does not disclose any political endorsements
for Agent Kelly.
Chas.
Deputy Commissioner.
Regraded Uclassified
40
February 6, 1937
Mr. Commissioner:
After a careful survey of the personnel of the Newark
Division, I find there are only four employees in the
Division which I could conscientiously recommend for the
position of Internal Revenue Agent in Charge, and who,
in my opinion, would receive the approval of the Secretary.
They are:
Raymond Shotwell
Rueben O. Thornton -
Joseph F. Kelly
John J. Morgan.
With respect to Morgan, in 1923, Senator Pepper recommended
that he be transferred from the Huntington Division to the
Philadelphia Division or that vicinity. In 1928, V. L. Highland,
of Republican National Committee, recommended him for the position
of Internal Revenue Agent in Charge of the Huntington Division.
You are familiar with the Intelligence Unit report on
Agent Hogan which eliminates him from consideration.
The age and record of Agent Downey also eliminates him
from consideration.
Chas J.Presell
Deputy Commissioner.
41
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 1, 1937.
To
The Secretary
FROM
Mr. Magill
After 8. good deal of difficulty, I succeeded in telk-
ing to Mr. Latimer over the phone at 5 o'clock today. I informed
Mr. Latimer of the substance of the report on the Dow-Jones ticker
relative to the tentative agreement between the railroads and the
employees on the retirement plan. Mr. Latimer said that reporters
had been after them and that he had told them all that no definite
agreement had been reached and that Administration approval had not
yet been received. He then told me that in the conference with the
President on Friday, the President did not in any way commit him-
self to the approval of the tentative plan. The President merely
wanted to know in general what was going on but did not inquire
into or wish to learn about the details of the proposed legislation.
Mr. Latimer said that he told the President that he had discussed
the tentative agreement with us but that the Treasury had given
no final word respecting it.
Mr. Latimer thinke that the report was given out by
some of the railroad executives and not by the brotherhoods. He
said that Mr. George Harrison, of the brotherhoods, expressed surprise
that the report had gone out. Mr. Latimer said that E. memorandum
of the tentative agreement was being sent to 149 railroad presidents
preperatory to securing their approval of it in advance, before the
legislation is introduced. Needless to say, this is not a perfect
situation R.S. far as we are concerned since we will have much greater
difficulty in securing changes in the legislation in the direction
of increased payments either by the carriers or by the employees.
Rm
Regraded Uclassified
42
March 1, 1937.
9:45 a.m.
H.M.Jr:
Bob, I'm spending most of the day studying your
Housing bill.
Senator
Wagner:
Yes.
H.M.Jr:
I wondered if by any chance you were free tonight.
W:
I - by God I did make a dinner engagement, Henry
H.M.Jr:
Wouldn't she let you off?
W:
If there is any way I can get out of it I'll let
you know.
H.M.Jr:
Well now my wife is going to some women's dinner
so I'm home alone.
W:
Yes.
H.M.Jr:
And I've asked nobody except yourself and if you
could come I - I'd like to possibly ask one or
two others but submit the names first to you.
W:
Yes.
H.M.Jr:
See?
W:
Yes. Well can I call you up this afternoon, Henry,
and see 1f I can get out of it - I made that about
a week ago. It isn't a very important one but you
know how people are sometimes
H.M.Jr:
As I understand it we're meeting with the President
at 11 tomorrow.
W:
Yes.
H.M.Jr:
And if you and I could sit down quietly, it would
help me.
W:
Yes. All right.
H.M.Jr:
See?
W:
Yes.
Regraded I Iclassified
43
- 2 -
H.M.Jr:
And - well let me ask - you might be thinking - how
would you feel about having Ellenbogen there?
W:
Ellen - all right.
H.M.Jr:
What?
W:
He's all right.
H.M.Jr:
All right?
W:
Yes.
H.M.Jr:
Now do you want Steagall or not?
W:
But Steagall is all right except he don't know a
damn thing about my bill.
H.M.Jr:
Why not just you, Ellenbogen and myself.
W:
Yes.
H.M.Jr:
What?
W:
Yes, that will be all right.
H.M.Jr:
Is that all right?
W:
Yes, but will you let me see if I can get out of
this thing, Henry?
H.M.Jr:
Sure and I'll do nothing till I hear from you.
W:
All right, fine, Henry.
H.M.Jr:
But it would - I mean it would be very helpful
to me if we could have a couple of hours' talk.
W:
Yes. All right, Henry, I'll see if I can't get
out of that thing.
H.M.Jr:
Well that - that's awfully nice.
W:
All right.
H.M.Jr:
Thank you.
W:
Goodbye.
Regraded Uclassified
44
March 1, 1937.
2:35 p.m.
H.M.Jr:
Hello
Woodring: Yes.
H.M.Jr:
Harry?
W:
Yes, Henry.
H.M.Jr:
How are you?
W:
All right.
H.M.Jr:
Harry, beginning last July - wait a minute I've got
my letter here - 21st of July I've been corresponding
with the War Department about a place to put our
silver vault?
W:
Yes.
H.M.Jr:
And, frankly, I've never been able to get the
President to say where he wanted it up till to-day.
W:
Ah-ha.
H.M.Jr:
And to-day I showed him the plans and he said that
as far as he was concerned it was perfectly agreeable
if we could get together with you to put it at
West Point.
W:
Ah-ha.
H.M.Jr:
Now originally you submitted us eight different
sites
W:
Ah-ha.
H.M.Jr:
and site No. 5 was the one that we 'd like to
have.
W:
No. 5.
H.M.Jr:
Yes.
W:
Ah-ha.
H.M.Jr:
Now - ah
Regraded Uclassified
45
- 2 -
W:
How many sites at West Point?
H.M.Jr:
You submitted eight different sites.
W:
Eight different sites.
H.M.Jr:
Yes.
W:
Yes.
H.M.Jr:
Now - ah - at site No. 5 is the one which is
furthest from the academy
W:
Yes.
H.M.Jr:
and way back up there in the hills
W:
Ah-ha.
R.M.Jr:
.....and, frankly, I'd like awfully to get
together and get started.
W:
Ah-ha.
H.M.Jr:
And - ah - the Navy has offered me a place down
at Philadelphia but I should think, from a stand-
point of national defense, it wouldn't be nearly
as good.
W:
Ah-ha. I wouldn't know. Ah - if you want - you
tell me what you want done and we'll start at it.
H.M.Jr:
I'll tell you what I'd like done.
W:
All right.
H.M.Jr:
I'd like to have site No. 5 at West Point as I
wrote you last July
W:
Ah-ha.
H.M.Jr:
and if we could have that why we'd go ahead
merrily.
W:
All right, let me go into it - say tomorrow morning
H.M.Jr:
O.K.
W:
....and - and see what I can do on it and get in
touch with you.
Regraded Uclassified
46
3 I I
H.M.Jr:
Right. May I say in passing, I don't think it
did the Army any harm - our putting the gold in
Kentucky there.
W:
No (laughs) - no I don't think so.
H.M.Jr:
Well I think you got a lot of publicity on it
W:
Yes.
H.M.Jr:
that's very good publicity.
W:
I think so.
H.M.Jr:
I mean it showed up what kind of a unit you had
W:
Yes.
H.M.Jr:
......
the efficiency of the Army and all that.
W:
Well I see no reason. I - - I'm not familiar
with the correspondence on it but I'll look into
it and I'll get in touch with you tomorrow about it.
H.M.Jr:
That would be very kind.
W:
All right.
H.M.Jr:
Thank you.
W:
Goodbye.
47
March 1, 1937.
3:10 p.m.
H.M.Jr:
Hello
George
Harrison:
Hello, Henry?
H.M.Jr:
Hello - George?
H:
Yes, hello Henry, how are you?
H.M.Jr:
I understand you're somewhere but nowhere.
H:
What's that?
H.M.Jr:
I understand you're in Washington but that you
won't tell anybody where.
H:
Well I've been on the go ever since I got here.
I came in this morning.
H.M.Jr:
That's all right, I'll take your word for it.
H:
And I called you
H.M.Jr:
Yes.
H:
....and this is the first chance I've had to call
you back. I just want to report to you I'm back
in civilization again.
H.M.Jr:
Are you?
H:
When - when is our meeting, Henry.
H.M.Jr:
Wednesday.
H:
Wednesday morning?
H.M.Jr:
Yes.
H:
First rate, I'll be here.
H.M.Jr:
Did you kill any more quail than my Assistant
Secretary?
E:
Oh we killed about twice as many as Wayne' spotted.
H.M.Jr:
And how much does that make four?
Regraded
Uclassifie
48
- 2 -
H:
And I'm the only one that's gotten in - well I'm
the second one to get in touch with you here.
H.M.Jr:
Oh really?
H:
I've gotten the biggest one that's ever been caught
down there so tell him that for me?
H.M.Jr:
Caught?
H:
What?
H.M.Jr:
Caught? The biggest one that's been caught?
H:
Caught, yes you run after them and catch him by
the tailfeathers.
H.M.Jr:
(Laughs heartily) With a - with with sugar or
salt.
H:
Salt - a little salt.
Laughter by both.
H.M.Jr:
Well George I'm fine and everything seems fine and
if you're going to be down here Wednesday it's swell.
H:
I think I'll probably go back tonight but I'll come
down again tomorrow night.
H.M.Jr:
Good. I'll be glad to see you and - and I think
everything looks all right.
H:
First rate, well I think so too from what I hear.
H.M.Jr:
Yes.
H:
Fine.
H.M.Jr:
Be glad to see you, George.
H:
All right, I'll be there.
Regraded Uclassified
49
March 1, 1937
4:45 p.m.
PRESENT:
Ambassador Bonnet
Mr. Jules Henry
Dr. Livesey
Secretary Morgenthau
The Ambassador: Monsieur Blum and Monsieur Auriol
asked me to tell you how much they like your policy and
how happy they are for our friendly relations. I am very
happy to speak with you about the financial policy and about
the financial questions. The French financial situation 18
evidently difficult, but we have in France a recovery. The
receipts of railways are increased and the business taxes
are 8180 increased and the index of our industrial position
18 also better. We are like many other countries. Our
budget is not balanced and, therefore, the Treasury must
give important sums to the budget. I know that it will be
possible for the Treasury to furnish these important sums
to the budget during the next six months. When I was
Minister of Finance, in 1933, at that time the budget had
to borrow 20,000,000,000 francs in six months.
HM,Jr: What year was that?
The Ambassador: In 1933. Evidently it is not the
same times as now, but the Treasury has no more important
effort today than it had at that period.
Mr. Henry: It is not a more important effort at this
time than at that time.
HM,Jr: I do not know whether the Ambassador wants
me to interrupt, but I do not want him to think that my
silence means that I agree.
The Ambassador: I believe that the task now 18 more
difficult than my task was in 1933. I believe that it is
not impossible to accomplish this task. I think that the
Regraded Uclassified
50
-8-
important question for us is the question of definitive
stabilization of moneys, because while the moneys are
fluctuating it is very difficult for our Treasury to
find the sums that are necessary for us, Monsieur Auriol's
borrowings are difficult but not impossible and, therefore,
the French Government is convinced that it would be very
important if you could arrive at the definite stabilization
of our moneys and the questions of the Treasury and the
budget that are now very difficult would be more easy to
solve if you could arrive at the definite stabilization of
our moneys.
HM,Jr: When you talk of definitive stabilization
do you mean that they stabilize at the present rate or de-
value further?
The Ambassador: It 16 not a question of new stabiliza-
tion for the French Government.
Tme Ambassador: Speaking in French and interpreted,
as follows; by Dr. Livesey:
There is no question of further devaluation.
HM,Jr: What the Ambassador is talking about is fixing
the present price of the franc definitely.
Dr. Livesey: He does not mean that the franc should
be stabilized at today's value, but it should not fluctuate.
HM,Jr: I still do not understand.
HM,Jr: (To the Ambassador) Under your law of October 1
you could devalue another 8%.
The Ambassador: Yes.
HM.Jr: (To Mr. Henry) When he 18 talking about
definite stabilization is he talking about the present value
of the franc or possible stabilization at a further devaluation?
Mr. Henry: (Interpreting into French the Secretary's
question and interpreting the Ambassador's answer into English)
He means when he says stabilization he has in view that
Regraded Uclassified
51
-3-
the franc can be reduced within the limits of the law.
The Ambassador: I understand that it 18 not a
question of a new devaluation beyond the limit fixed by
the stabilization law of October first.
Mr. Henry: When he says devaluation he does not
mean further devaluation than the October law provides.
The Ambassador: The law of devaluation provides
the extreme limit of 22 francs 50 centimes for a dollar.
It 1s this limit that we cannot pass.
HM,Jr: I understand.
The Ambassador: Speaking in French and interpreted,
8.6 follows, by Dr. Livesey:
If they take another limit they would have to go
before Parliament.
Mr. Henry: The Ambassador has a message to give
you from Monsieur Auriol saying how much he appreciates
your cooperation of last September,
HM,Jr: I never had the pleasure of meeting Monsieur
Auriol, but I hope some day that I will.
Iwould like to say this to the Ambassador: I am
not a trained diplomat and I consider, and can only say
60 in my own office, that the situation is very critical.
I do not know how frank he wants to be.
The Ambassador: Completely.
HM,Jr: The situation is SQ serious that either it
18 necessary to be very frank or we cannot help each other.
The Ambassador: Speaking in French and interpreted
by Mr. Henry:
The Ambassador agrees with you.
Regraded Uclassified
52
-4-
HM,Jr: While I realize very well the economic
recovery which France has made since devaluation, I am
also conscious of the fact that your unfavorable balance
of trade has been constantly growing worse due to your
increased imports. It 16 not for me to say what France
can do or cannot do internally, and even if I knew, which
I do not, I would not attempt to give any advice. I have
been constantly getting more depressed about the French
situation and the information that I receive 18 available
to everybody.
(At this point the Secretary called to the attention
of the Ambassador the Wall Street Journal article of today.
The olipping is attached.)
I think it is of tremendous importance that the
Tripartite Agreement continue and we want to do everything
possible, but I Just do not know what 16 going to happen
during the rest of this month on account of the large
quantities of gold leaving France. I think both the
President and I have demonstrated our real friendship for
France and we want to do everything we can and still live
up to our own laws.
From the information which I receive I know that
there has been an exchange of letters between Monsieur Blum
and Mr. Baldwin within the last two weeks on the monetary
situation, but of course I want to say again that I can
only say in my own office how I feel about the French
situation. I do not say this anywhere else and if the
Ambassador at any time has any suggestions and thinks that
we can be helpful, always remembering our American laws,
I would be more than glad to discuss it with him.
The quick rising of your prices offset the benefit
of devaluation, BO you have not received the full benefits
of your devaluation.
I wish I could be more cheerful and do not like to
be 80 pessimistic the first time that the Ambassador calls
on me, but the situation 18 80 serious that I feel the
quicker we get down to business, the better. I wish I
could say that everything was lovely, but the Ambassador
16 an experienced man and I do not want to waste his time
by saying pretty words.
Regraded Uclassified
53
-5-
The Ambassador: Speaking in French and interpreted,
8.6 follows, by Mr. Henry:
He thanks you very much for your frankness.
HM,Jr: The situation 18 too serious to be otherwise.
The Ambassador: I tried to examine the situation
very frankly and during this question of the law of stabiliza-
tion I spoke as Representative in the French Parliament and
at that time, in September, I indicated all the difficulties
that the French Government would have. Therefore, I am
without illusion because myself I explained from the tribune
st the French Parliament four months ago all the difficulties
that were coming.
The Ambassador: Speaking in French and interpreted,
as follows, by Dr. Livesey:
That was the reason he believes it is well not to
exaggerate at the present time. The French Treasury has
three months, until June, before they have an increase of
revenue in the Treasury.
The Ambassador: During the first months of the year
the direct taxes do not come in; they come only in the
second part of the year and it is one of the reasons for
the difficulties of our Treasury now. But there are also
other reasons for our difficulties, but I think that if
the French Treasury can arrive at the month of July without
too many difficulties, I think the situation could be estab-
lished.
HM,Jr: When does your Exposition start?
The Ambassador: In May.
The Ambassador: Speaking in French and interpreted,
88 follows, by Dr. Livesey:
The policy they wish to follow is wholly in conformity
with the Tripartite Agreement,
The Ambassador: We want to avoid control of the exchange.
Regraded Uclassified
54
-6-
The Ambassador: Speaking in French and interpreted,
as follows, by Dr. Livesey:
They want to remain wholly in accord with the monetary
understanding and to remain faithful to the Trade Agreement
with Mr. Hull.
HM,Jr: That is our wish too.
The Ambassador: I thank you very much for your friendly
reception and if I have projects to submit to you I would like
to come to see you.
HM,Jr: We will always be glad to see you.
Regraded Uclassified
WALL STREET JOURNAL
MARCH 1, 1987
55
French Popular Front Government
Takes Moderate Attitude Towards
Capital-Recovery Before Reform
BY CHARLES R. HARGEOVE
and sharpen the antagonism between capital and
Staff Correspondent of Tue WALL STREET JOURNAL
labor.
PARIS-A policy of moderation, calling for
It is clear that the "pause" Le to be one of
national recovery before extension of economic
indefinite duration and in all probability will
and social "reforms," has been adopted by
last until after the elaborate Paris Exposition
Premier Leon Blum and his Popular Front
la closed. It in equally clear that several months
cabinet.
must clapse before national recovery can de-
The decision was forced upon the wateran
velop to a point where capital may begin to
Socialist leader, who has found that his left-
loosen up. But, in the meantime, the Treasury
wing coalition's program has definitely blocked
altuation must remain difficult, and the govern-
the business upswing.
ment will be forced to rely on temporary expe-
dients.
Friday's debate and subsequent action of the
Deputies in voting confidence In the cabinet, ap-
There La as yet no Indication as to what the
parently proves that the Blum government in
Treasury expedients will be. On the one hand,
unshaken in the Chamber and still backed by
there are influences urging restrictive, coercive
millions of industrial and farm workers.
measures against capital. The leader of the
French Labor Federation now openly demands
At the same time, the Premier is still strug-
such strong action on the part of the Popular
gling with what can best be described as a.
Please turn to Page 9, Column 4
sit-down strike of capitalists. On the basis of
tactice revealed, M. Blum does not propose to
war on the capitalists but rather continues to
rely 00 their eventual assistance. The chief hope
of the Premier in based on the possibility of de-
veloping economic recovery and the desire of
the French monled groups to share in the
profits of any business upswing.
Real Purpose of 'Pause'
Thus, the real purpose of Premier Blum's an-
nounced "pause" or breathing spell in economic
and social "reforms" is to enable the govern-
ment to undertake a program designed to over-
come obstacles to recovery. For example, the
cabinet in undertaking the most strenuous plans
to surmount the dangerous price situation,
which has skied the cost of living and is & defi-
nite peril to the financial structure. Meanwhile,
there is every indication that new and costly
social reforms will be postponed, They could
only result in accentuating the existing deep
distrust in the financial and monetary situation,
Regraded Uclassified
French Cabinet Policies
(Continued from First Page)
Front government. On the other hand, there
are even stronger influences favoring abandon-
ment of nil remaining restrictions on gold,
money and the capital markets,
Harmonize With External Polley
It is argued that the latter course would
harmonise with Premier Blum's external policy
and pave the way for closer French, British
and American cooperation in all fields. M.
Blum's repeated condemnation of the existence
of practical anarchy in France is especially sig-
nificant. He is determined, apparently, to fol-
low the road of economic and dinancial liberal-
Ism and leading members of his cabinet, for ex-
ample Finance Minister Aurio), are entirely with
him in this determination.
The Finance Ministry's actual strict limits-
tion on all expenditures, including even public
works, further reflects the government's trend
toward moderation In its dealings with capital.
All told, any attempt to terminate the capital-
ista boycott by violent measures appears ex-
citided from the realm of possibilities.
May Seek Funds Abroad
In the event the French atabilization fund
becomes in need of new resources, they will
probably be sought abroad or clae by further
utilization of the Bank of France's gold hold-
ings, If the Treasury again runs dry, numerous
courses are open. The stabilization fund's idle
franc balances may be used, if direct borrow-
Inga from the Bank are not made. However,
If new foreign credits or loans become avail-
able neither of the above-mentioned expedients
would be necessary.
The idea of currency stabilization does not
now appear either practicable or advisable, un-
leas attempted in conjunction with a large
Anglo-American stabilization loan. However,
& recent statement by Finance Minister Auriol
in the Chamber, suggesta that he still con-
templates a domestic, pational defense loan.
Domestic national or local loans, with tax
privileges or gold or sterling guarantees. have
also been suggested as among the possible
courses of action.
Immediate Problem of Financing
However, the Immediate problem is essential-
by one of financing during the next two or three
months on the assumption of & business boom
with the opening of the new exposition and
the subsequent tourist influx. If the Popular
Front government can aucceed in halting the
current dangerous price stampede, $ business
boom cannot be excluded from the possibilities.
What la evident at the moment La that the
Popular Front experiment must be continued,
It is Impossible to consider Its collapse without
bringing with It the gravest peril to internal
order and external safety. The appreciation of
the realities of this situation Is the factor which
neutralized the recent bitter attacks on the
Blum cabinet in the Chamber of Deputies.
Blum continues serene as ever. despite *
turmoll of attack and criticiam, because he
knows that even his enemies appreciate that
France dare not swap borses.
Regraded Uclassified
56
RB
GRAY
Paris
Dated March 1, 1937
Rec'd 5:12 P. m.
Secretary of State
Vashington.
288, March 1, 5 p. m. (section ONE).
FROM COCHRAN.
There was a fairly steady demand for foreign exchange
today but Bank of France is stated to have lost little
sterling. There appears to be some private offering 01
sterling against francs as weakness of sterling against
dollar becomes evident. Soviet Government reported to
be buyer of sterling today. Rentes dropped two francs
due in part to disappointment to see some local French
elections yesterday go to the Left. Understand that one
Paris-Lmerican bank which has been having certain difficu
in getting paper rediscounted at Bank of France has
notified its customers that hereafter paper for redis-
count must be deposited forty-eight hours with the bank,
awaiting decision from the Bank of France as to the
acceptability of the transactions. French hotels are
complaining of increase in operating costs and may have
to
Regraded Uclassified
57
RB
-2-1/288, March 1, 5 P. m. from
Paris (SECTION ONE)
to raise rates before tourist season unless relief is
obtained.
Parker Willis cables AGENCE ECONOMIQUE that in
connection with early presence in Washington of Ambassadors
Bullitt and Bonnet and several important Britishers,
general economic negotiations between the three countries
are expected. Some of the questions which Willis says
are considered certain to be studied at Washington are:
(one) improvement of the tripartite monetary agreement
with the view to bringing about some correction to the
run of gold which is going one way. (Two) Problem
created by the investment of foreign capital in the
United States. (Three). Correction of the situation
which results from the trade agreements. (Four) Eventual
modification of the Johnson law to permit placing foreign
loans in the United States.
The reporter added that certain circles desire a
study undertaken seeking a basis for settlement of war
debts.
WILSON
SMS:ITL
Regraded Uclassified
PARAPHRASE
58
SECTION TWO. No 288 from Paris, March 1, 1937
At four o'clock this afternoon Under Governor
Fournier of the Bank of France called representatives
in Paris of Anglo-Saxon banks to his office for 8. meeting.
An oral summary of this session was just given me by one
of the American bankers who was there. This banker said
that the present French exchange situation was outlined by
Fournier, Fournier said that the Bank was not going to
inaugurate any exchange regulations or restrictions, but
that it should be understood liberty did not mean license.
He expressed the hope that there would be cooperation by
the foreign banks with the Bank of France toward avoiding
transactions which under the present circumstances would be
deemed undesirable. Three such situations were outlined
by Fournier:
First - Speculation against the French currency
through French people or concerns which wanted foreign
exchange or foreign currency when the actual need therefor
could not be shown. Fournier asked that the banks dis-
courage such transactions, as well as purchase by French
individuals or concerns of foreign securities.
Second - Fournier asked that the bankers place ob-
stacles in the way of foreign companies which might want to
move money out of France when such a transaction was not
required by the legitimate business of those firms. He
said that his Bank does not want importations into other
Regraded Uclassified
59
a I I
countries to be financed on the market in France.
Third - Fournier discussed credit policy; he said
that in a period of economic revival such as is now being
experienced, it was the desire of the central Bank to avoid
higher interest rates and at the same time to provide credit
to those who were in actual need of credit. However, they
wanted to check exaggerated and speculative demands. In
particular he mentioned transactions which had developed
at Havre, Lille and Roubaix in coffee, cotton and wool.
Fournier said that his Bank does not want long-term finan-
cing to be used for bringing in goods that will be needed
in the distant future. In this connection he cited an
instance where certain Havre firms were buying cotton for
two years ahead. Further, 30 percent of the activity in
coffee and cotton at Havre, he said, emanated with people
having no business therein except as speculators. In
addition he requested Banks to keep a watch over commercial
paper where cotton importers are drawing on the spinner and
seeking repeated renewals of the paper without making
deliveries to correspond therewith.
I was told by my contact tha t Fournier did not at
all criticize the foreign banks. However, the foreign
bank representatives who attended the meeting thought that
the meeting was significant of the exchange situation pre-
vailing in France. It was felt generally that while the
Regraded Uclassified
60
- 3 -
French Government does not want to impose exchange control;
the authorities had decided that unless the present trend
is corrected they may actually bring it about. Fournier
was making an appeal for the bankers themselves to do as
much as possible to avoid this.
I questioned my contact as to whether the Bank of France
had in any way sounded out the foreign banks as to their
willingness to help the Treasury in its present need for
funds; he said there had been no mention of it. Even if
such fund deposits as are at present in English and American
banks in France were turned over to the French Treasury,
they would be so small as to amount to not as much as
two billion francs, and therefore the Treasury would not
be helped much thereby.
END OF MESSAGE.
WILSON.
EA:LWW
Regraded Uclassified
61
March 1, 1937.
5:35 p.m.
Operator:
I have his Secretary.
H.M.Jr:
Thank you.
0:
Go ahead.
H.M.Jr:
Hello
Bankhead's
Secretary:
How are you Mr. Secretary?
H.M.Jr:
How do you do. The Speaker called up and told me
he was coming - stopping by at 9:30 tomorrow morning.
B.S:
Yes.
H.M.Jr:
Since then I've gotten word the President wants me
at the White House at 9:15.
B.S:
Yes sir, well that will
H.M.Jr:
Well now I don't know - pardon me?
B:S:
I say you'll have to go with the big boss there.
H.M.Jr:
Well (laughs) I don't know but I wondered if the
Speaker could let it go to Wednesday or whether
he'd like me to come up or what would you suggest.
B.S:
Would you like to talk to him Mr. Secretary?
H.M.Jr:
If it doesn't bother him, yes.
B.S:
I'll tell you what - you could get him at the
Mayflower - District 3000.
H.M.Jr:
Well I mean - do you think I better bother him?
B.S:
Why it will be perfectly all right, yes sir.
H.M.Jr:
Is he there now?
B.S:
Yes sir, he's there now.
H.M.Jr:
Well I'll call him.
Regraded Uclassified
62
MEETING IN RE WAGNER HOUSING BILL
March 1, 1937
AT 2201 R STREET
8:30 P.M.
Present:
Mr. Gaston
Mr. Opper
Mr. McReynolds
Mr. Leon H. Keyserling (Sec. to Senator Wagner)
Ar. LeRoy Barton
Mr. Dunning
Mr. Lindow
Keyserling: This is just an analysis section by section.
The first section is just a general declaration of
policy.
The second section contains - the second section
includes the definitions. The only one that is
of any particular importance has to do with trying
to set a standard for keeping the projects down to
families of low income.
There are really two standards in the bill dealing
with that subject. One is administrative and
binding upon the housing authority, and the other
is financial in that, no matter what good standard
you have, you could hardly get down to families of
low income if you didn't have the right financial
set-up.
The administrative standard is simply that no
family shall be available for entry into 8 project
if its income is more than five times the rental
charged. That means that once the rental is charged,
the family could not have an income of more than
five times that. That figure is based upon the
general studies of the Department of Labor and other
groups as to about what part of a low income family's
income could be devoted to rentals.
I'll go through it section by section and that will
bring me to the question of the substitute a little
later.
H.M.Jr:
You've got it written down, though.
Keyserling: Yes.
Regraded Uclassified
6
- 2 -
H.M.Jr:
Fine. Something that I can give the President?
Keyserling: Yes.
The third section sets up a United States Housing
Authority of three members. We had thought that
there were only really two agencies of the United
States Government that were doing either real low
cost housing or anything like that. I think
Resettlement ought to be put aside at once, because
it deals only with rural and suburban questions, and
I don't think it is low rent housing anyway; I think
it's very high cost housing. The Public Works
Authority is the other one. So that if this body
were set up as B separate agency, you would have
two: the Public works Housing Division and this
Authority. So that if it were desired to have
only one, there would be one of two alternatives:
either to put this agency in the Public "orks
Housing Authority, or to provide for the transfer
of Public Housing Authority to this agency. The
bill BS now drawn gives the President discretion
to transfer the projects of the Public Works Housing
Division to this authority.
(Gaston comes in)
H.M.Jr:
Have you met Mr. Keyserling? Mr. Gaston.
Gaston:
How do you do?
-
-
Keyserling: And with those two alternatives in mind, the bill
as now drawn picks the second of them. That is,
it sets up the second, a separate authority, and
authorizes the President to transfer these projects.
The only consideration - I don't know, Mr. Secretary,
whether you just wanted a summary of the bill
H.M.Jr:
If you will just keep on the way you're going
Keyserling: The considerations that
E.M.Jr:
You are doing just what I'd like to have you do.
Keyserling: It was thought best at the beginning not to handicap
this new agency with all the mistakes that may have
Regraded Uclassified
64
- 3 -
been made by some of the housing agencies in the
past, particularly since this sets up such a very
different series of financial arrangements and an
administrative set-up by which it would be simpler
to transfer these projects to this agency than to
set up this agency with all the personnel and all
of the problems of the Public works Housing Division.
Those were the considerations.
Sections Six, Seven, and Eight deal with routine
provisions giving certain powers to the Authority
just as a body. There is nothing substantial in
them.
Opper:
I just - Section Five comes in there - that tax
exemption.
Keyserling: Section Five provides that all the properties and
assets of the Authority shall be exempt from all
Federal and state taxes. The section which provides
that all the property and assets of the United
States Housing Authority shall be exempt from all
Federal and local taxation is a rather standard
provision. However, there is coupled with it the
reciprocal provision that any bonds issued by
local housing authorities to raise money for
housing purposes would be exempted from all Federal
taxation. The theory in back of that was that that
would be one relatively cheap way of extending aid
to the local authorities for low rent housing pro-
jects.
At the meeting this afternoon there was suggested
an alternative: that instead of exempting the bonds
of the local authorities from all Federal taxation,
to exempt them only from those forms of taxation
that the bonds of the Federal Authority are exempted
from; that is, taxes except surtaxes, state income,
and inheritance taxes. The third alternative sug-
gested was that they should not be exempt from
taxation at all, and it was just left at that point
for submission to you.
H.M.Jr:
I see. Well, that's Section Five. I mean I'm
going to let you run through the whole thing, 1f
you don't mind.
Regraded Uclassified
65
- 4 -
Keyserling: Section Nine
I've said that Sections Six, Seven
and #ight are merely routine provisions for the
administration of the Authority. They don't raise
any problems.
Section Nine, which is really the center of the
whole bill, is the section dealing with the loans
and grants to local authorities for housing pro-
jects constructed and administered by the local
authorities and not by the Federal Authority.
The first part of that, which deals with grants,
provides - it has been provided in the past that
the grants may be up to one hundred percent of
the project - it provides that the grants must be
repaid in full and that the interest rate on the
grants shall not in any case be less than the cost
of money to the Federal Government, as determined
by the obligations of the Treasury having a term
of ten years or more.
Several:
The loans!
H.M.Jr:
Don't all jump on the poor man at the same time,
although I think he can take care of himself.
Do it again, if you don't mind. They scared me.
Remember, he's our guest.
Keyserling: Well, anyhow, the provision is that the loans,
which shall be repayable in full, must bear at
least what is called in the bill the going Federal
rate of interest, and the going Federal rate of
interest is definedin the bill as the interest
on the most recently issued obligations of the
Federal Government having a term of ten years or
more.
H.M.Jr:
Let me - I haven't got that right yet. The United
States Housing Authority lends a million dollars to
the New York Authority. Now, the New York Authority
pays them whatever - the interest rate is whatever
the last rate I sold - the last bond I sold was a
17-year 25 percent bond.
Keyserling: Then the interest rate would have to be fixed at
at least 22 percent.
Regraded Uclassified
66
in I I
H.M.Jr:
AS a minimum?
Keyserling: Yes, but it could be higher.
H.M.Jr:
How high?
Keyserling: There is no maximum rate set.
H.M.Jr:
I see. Not less than 24.
Keyserling: It was suggested at the meeting that that provision
should be changed to provide that the interest rate
should be the same as the interest rate upon these
particular bonds; that is, the money raised by the
Federal Government for this particular purpose.
H.M.Jr:
If it was three percent
Keyserling:
then the interest rate should be at least three
percent. If that provision were made, it would be
entirely in accord with the financial provisions
of the bill generally, because the intent is to
set the bonds off very clearly from the annual con-
tributions or grants and to provide that the bonds
shall be retired in full over a period of years at
a fixed rate of interest not less than the cost of
money to the Government.
H.M.Jr:
I see.
Keyserling: The bonds are also secured by the projects. And
it is also provided that the outstanding loans
shall not be more than the cost of the project
less loans by other parties, so that it wouldn't
be possible for other parties to have loans senior
to the loans of the Authority. The effort is to
put the bonds on a straight financial basis, without
mixing them with the grants.
Then the bill secondly provides grants to low rent
housing projects.
H.M.Jr:
To what?
Keyserling: Grants. In addition to the bonds it provides grants.
Regraded Uclassified
67
- 6 -
These grants represent quite a departure in policy
from the grants that have been made in the past to
low rent housing projects by the P.W.A. and the
other agencies of the Federal Government. The
departure, in the first place, is that there shall
be no capital grants whatsoever; that is, a grant
of 45 percent of the cost of the project immediately.
It was felt that capital grants encouraged very large
building costs, and secondly that when the capital
grant was made the Federal Government practically
lost control of the money or of any check upon the
projects, and therefore could not in any way control
the availability of the projects for people of low
incomes.
H.M.Jr:
Just let me interrupt you for a moment. I thought
that Mr. Ickes did all his own building.
Keyserling: He has been doing his building, but now he is trying
to decentralize his program.
H.M.Jr:
But I mean the 53 projects. He did that himself.
Keyserling: He did that himself.
H.M.Jr:
So - I mean the fact that he gave grants wouldn't
influence - you couldn't - 1f he gave himself a
grant, so to speak - I mean you can't charge that
up as the reason why the costs are high, can you?
I mean the way he's done the 53.
Keyserling: Well, as I understand it, Mr. Secretary, slthough
he has done the projects himself, he has kept an
accounting which sets up a certain amount for grants
and a certain amount for loans. I believe that the
original rate of interest charged on the loans was
three percent. That is the accounting system which
was set up.
H.M.Jr:
But isn't it - as I understand it, the net result
is that he takes a million dollar project, builds
it, and then immediately writes off 45 percent, and
on the balance of 55 percent he charges three percent
for the 59 years. Isn't that the way he runs it?
Keyserling: Yes.
Regraded Uclassified
68
- 7 -
H.M.Jr:
Haven't I got that right?
Keyserling: Yes.
1.2.Jr:
I didn't want to get mixed up. I'm sorry - I'd
much rather let you run through this bill first.
Meyserling: I think it may be - it is probably - it seems to
me that that is quite true, that you might not
have that problem there. However, if you set the
thing up on a decentralized basis, as Mr. Ickes
now proposes, with the local authorities controlling
the projects, you would have much less control with
an original capital grant than with the yearly sub-
sidy item provided under this bill.
H.M.Jr:
I don't know how these people feel, but I feel that
is a move in the wrong direction. I feel if the
Government is going to put up all the money or part
of the money, I think we can build with less money
than the local communities and there is less chance
of graft.
But I'd like, if you don't mind, to finish an
analysis of this bill.
Keyserling: Well, the form of annual subsidy which is set up
is modeled very much after the system that is still
being used in England. In other words, at the
beginning of the project 2. contract is entered into
for fixed and uniform contributions over a period
of years. There are standards in the bill that
provide that if at any time the projects are not
available for families of low income, the annual
contributions may be stopped, or if any of the
other standards set up in the bill are deviated
from.
The size of the annual contribution is measured by
the cost of the money to the Federal Government
at the time the grant is made, plus one percent.
That is, if the loan was made at 2 à percent, which
is about the Federal going rate of interest now,
the annual contribution, as a maximum, could be
25 percent plus one percent, or 32 percent per
year.
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That annual contribution may be measured, I think,
in three ways. It may be measured in terms of
its effect upon rentals; it may be measured in
comparison with the grants that have been made
in the past to housing projects; and it may be
measured in terms of its total cost to the
Federal Government over a period of years.
If it is measured in terms of its effect upon ren-
tals, it gets a rental that may be illustrated in
this way. If you have a $4,000 family dwelling,
which is a thousand dollars per room for four rooms,
let's say, for a family of five or six people, which
is a fairly low building estimate, the amount of money
required to amortize that loan over E period of sixty
years at 32 percent interest 8.S an average would be
about $40. Another $40 approximately would be required
for maintenance, operation, repairs, vacancies, and
the like. That would give an annual cost of $80 on
the project per room; these $40 figures were per
room.
H.M.Jr:
Per room per year.
Keyserling: Yes; which would be a cost of about $320 on the
project per year. If there were no subsidy, that
$320 would be covered by rentals and would make the
project available for a family with an income, say,
of seventeen or eighteen hundred dollars a year,
figuring that the family income must be at least
five times the rental.
Under this bill the maximum annual subsidy would
be approximately 32 percent of that development
cost, which would be about $140. Deducting that
$140 from the $320, you would get a net of $180,
which would be about $3.80 per room per month, which
would bring it within an income group of approximately
a thousand dollars a year, which is about the group
that you want to reach.
You can get different results on these annual sub-
sidies by taking different assumptions as to the
capital cost of the house, different assumptions
as to the amount of Federal money at 2á percent and
the amount of private money at, say, 42 percent that
goes into the project. But when you work it out for
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the different possibilities, you find that you
can fairly say that you can get a normal rental
ranging between, say, three and 8 half dollars
and five and a half dollars, which brings it
within income groups of eight or nine hundred at
the lower level and twelve or thirteen hundred
dollars a year at the upper level.
If that is contrasted with the grants and loans
authorized under the present housing programs, you
find that it brings the rental down, ranging from
one and a half to two and a half dollars per room
per month lower, depending upon the particular set
of circumstances.
R.M.Jr:
Now, is that the whole bill?
Keyserling: There are some other provisions.
H.M.Jr:
Well, let me just ask some of our boys - who wants
to contribute anything before I start in? Now, you
(Opper) didn't say anything about your question of
eminent domain.
Opper:
Well, that is in here (referring to paper in his
hand), Mr. Secretary, and I haven't got a very good
draft of this thing.
H.M.Jr:
What's this?
Opper:
This is the copy from which that one was made. It's
all marked up. The statement is, however, that the
bill in no way removes the obstacles confronting
other agencies in attempting to exercise eminent
domain under other statutes. In other words, as
far as the development of the law of eminent domain
by the Federal Government is concerned, if we were
to stop where we are now, you would have to say that
you have no right of eminent domain for housing pur-
poses, even though the Federal Government itself is
going to do the construction.
H.M.Jr:
You mean it hasn't overcome that?
Opper:
It hasn't overcome that Louisville case, which never
went to the Supreme Court, but which didn't go
through because the Solicitor General apparently
decided it wasn't a good case to decide the issue on.
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H.M.Jr:
Now, this memorandum which you prepared for me to
the President - are you all in agreement as to what
it says?
Opper:
We are all in agreement as to the statements.
H.M.Jr:
Purposes of the bill.
Opper:
What the bill says. As to the comments, I think
we....
H.M.Jr:
But as to what the bill says?
Opper:
That's right.
H.M.Jr:
Have you got a clean copy?
McR:
Give him your original.
Opper:
There is the original copy.
H.M.Jr:
What's this which is attached?
Opper:
Those are tables from which you can work out the
various room rents under certain assumed facts.
H.M.Jr:
I see. Well, you fellows have been busy. Now,
who wants to explain that?
Opper:
Well, I - it's Mr. Keyserling's table, but I'll
try.
Now, the first assumptions were two different ones
for the cost of the project. This one was a cost
of $1333 per room capital cost, which Mr. Keyserling
got from the latest report of the Federal Housing
Administration as to the minimum average cost of
private projects which they've insured - mortgages.
H.M.Jr:
Oh, I see. That's Federal Housing?
Opper:
Federal Housing, that's right.
Now, this ($1000) is a very low estimate, is that
right?
Keyserling: Yes, that is a very low estimate of cost.
Opper:
That's the thousand dollars per room - capital cost
Regraded Uclassified
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11 I I
per room. That comes under this (indicating on
chart).
Now, supposing you took the 81333. Now, in the
actual experience of the private enterprise, the
rent per room was $13.82 and the group income
$3317.
S.M.Jr:
I see.
Opper:
But there is nothing over here (under $1000 heading)
because there is nothing of comparable experience.
Now, under the thousand dollar capital cost, if it
were possible, which Mr. Keyserling doesn't think
for private enterprise is possible, the rent would
be $10.37 a room and you would reach an income group
as low as $2489 a year.
Now, these are various assumptions under the Wagner
Act, falling into three categories. In the first
place, you assume that you pay no local taxes and
no amount to the community in lieu of local taxes.
H.M.Jr:
That's under the Wagner Bill?
Opper:
That's right. And these things are set up on two
hypotheses. First, that all the capital is furnished
by the Federal Government, none from private funds.
Then, assuming that the subsidy is 32 percent - that
is, the maximum - the rent could be $2.34 a room, and
you would hit an income group of $562 a year.
Now, over here, you see, but assuming the cost of
$1333, you would get a cost per room of $3.12 and
an income group of $749 a year.
Now, assuming that the subsidy is only 21 percent -
and that is based on this possibility: Mr. Keyserling
suggests that there may be private capital willing to
come in and make the first mortgage on these projects,
so to speak; that is, to lend money to the local
housing authority on the basis of, you see, partly
tax-exempt bonds and a higher interest rate.
H.M.Jr:
I thought he (Keyserling) said that there would be
no obligation
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Opper:
I remember that, but I think what he meant was that
the total
Keyserling: What I meant to say, Mr. Secretary, was that the
Federal Government could not loan upon the projects
for an amount greater than the difference between
the outside loans and the total cost. In other
words, if these outside loans were sixty percent,
then the Federal Government could loan only forty
and not a hundred, in order to protect its own
interests.
Opper:
Now, assuming that there is some private capital,
Mr. Keyserling, at - of course, you'll have to
pay higher interest for private capital, so in
your
Keyserling: But on the other hand you get a billion and a half
of total money into these projects instead of a
billion.
Opper:
Well, with a limitation of ten million dollars a
year on the amount of grant that the Federal Govern-
ment can contribute under the bill, in order to
spread it over that whole program, you couldn't give
more than 21 percent of that billion and B half by
way of subsidy. So he's assumed the possibility of
that by the inclusion of this figure of 83.34 rent
per room per month and an $802 income group; and
under $1333 it would be $4.45 per room and $1068
as the income group.
Now, here he assumes a half of the capital contri-
buted by private sources, and there the assumption
is that four and a half - you see, the underlying
assumptions are the same in this percent and
this - that is, that some private capital will come
in. But here he is assuming a project which is
entirely financed by the Government and here he is
assuming a project half of the financing of which
is private, on a 4a percent, 30-year basis; in other
words, half of the length of time of the Federal
loan and a higher interest rate. And on that basis
you get these figures.
Then, if you pay half the local taxes - this was
no local taxes - half the local taxes, this same
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breakdown here gives you these figures. And
paying all local taxes, the same breakdown gives
you these figures. There is some more on the
next page.
(Barton and Dunning come in)
H.M.Jr:
Well, let me just get this through my head.
As Iget it, Mr. Ickes had 130 odd million dollars
which he was authorized to spend for low cost
housing, and he was limited by law to a 45 percent
grant. Now, have you (Lindau) got your figures
here from there?
Lindau:
I can go on, yes.
H.M.Jr:
I mean I just want to ask did Mr. -ckes give you
the figures?
Lindau:
No, not those figures.
H.M.Jr:
Well now, taking the 45 percent grant and taking
three percent for the money, and how many years'
amortization?
Lindau:
59.
H.M.Jr:
Does Mr. Ickes take 59?
Lindau:
He's authorized to go to 60, but he's taking 59.
H.M.Jr:
I thought he took less.
Lindau:
59 years.
H.M.Jr:
What's the best that he can do per room?
Keyserling: At the bottom of that table are the figures on
what he could do with that.
Opper:
Up to the present he pays something, but nothing
like full - his figures, I mean, are based on making
some contributions.
Keyserling: That is what he could do even if he made no contri-
bution.
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H.M.Jr:
This says: "Public Housing Under P.W.A. Formula of
45% Capital Grant, Balance 3% 60 years. Paying no
taxes, $4.60." That's on a thousand dollar capital
expenditure.
Keyserling: The average is about two thousand.
Barton:
Where you have actual figures - on Williamsburg,
it's $8.84, and on Techwood it's $6.33.
H.M.Jr:
Has anybody figured how much more you'd have to grant
to get it down to six dollars? I mean would he have
to go 50 percent, 55 percent - how much more?
Keyserling: I have a table showing that, Mr. Secretary.
H.M.Jr;
How much further would Mr. Ickes have to go? Because,
in the family here, I understand that when he got
ready to turn over - that when he began to talk about
turning over Williamsburg to the New York people,
they simply refused flatly to pay more than six dollars.
Have you heard that?
Keyserling: Yes, they can't pay more.
H.M.Jr:
Well, what's going to happen to the difference?
Keyserling: Some way would have to be worked out to enable him
to get his rentals down lower.
H.M.Jr:
Do you know now they have crossed that bridge?
But I am correct in my information that the New
York City crowd has just refused, haven't they,
to pay more than six dollars. And are our figures
of $8.84 - they about right?
Lindau:
They are close to the figures we have heard before.
They are our own estimate.
H.M.Jr:
I mean how much more than 45 percent would he have
to go, for instance, to get that $3.84 down to
six dollars.
Keyserling: I can show that on this table, Mr. Secretary. Here
is a table where you have hypothetical locations.
This is a small city in the South or West; assume
a capital total of $800 to $1200. A medium city,
Regraded Uclassified
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$1000 to $1500; a large city, $1200 to $1800;
and a very large city, $1400 to $2100. These
figures are a little lower than the P.W.A.
figures. This is your table of operating
expenses. Now, here are the rentals that could
be obtained with three percent interest and a
45 percent grant. That was the Secretary Ickes
set-up.
Now, in a very large city like New York, with a
$2100 cost per room, you would get a rental of
$9.27; with a total cost of $1400 per room you
would get a rental of $7.76.
Now, here is the Williamsburg project - fell right
in between there.
H.M.Jr:
Our figures are what?
Barton:
$8.84.
Keyserling: That would mean an income group of not less than
$2000, which is not at all a low income group.
H.M.Jr:
But how much more would he have to write off?
Keep it at three percent interest.
Keyserling: If it were kept at three percent
H.M.Jr:
How much would it have to be - 50 or 60 percent?
Barton:
Be somewhat over 60, I should say.
Keyserling: If the interest were kept at three percent and if
he made a capital grant of, say, 90 percent of capital
cost, and kept the interest at three percent, he could
still not get down to low enough rentals.
H.M.Jr:
Well, that isn't according to our figures, is it?
Barton:
We figured it under the Wagner Bill; with full
amortization, hundred percent capital cost, it
would be $5.96.
H.M.Jr:
I see.
Barton:
That's on the Williamsburg project. That's practically
six.
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H.M.Jr:
Is that figuring taxes or no taxes?
Barton:
No taxes.
H.M.Jr:
And interest at how much?
Barton:
Three percent.
Lindau:
Well, that's the loss you're writing off.
Barton:
That's right, that's the loss. So that you got -
it's pretty hard to figure
Lindau:
If you will pardon me just a minute - we figured
that under the plan of the Wagner Bill, if we
adopted that plan for Williamsburg, the rent would
nave to be $4.98 a room - that is, recovering abso-
lutely nothing - and that the monthly room subsidy
would be $5.94.
H.M.Jr:
I see.
Lindau:
Now, to answer your Question about how much he would
have to grant in order to get the rent down to six
dollars. The only way that that question can be
answered is to assume some construction cost, because
the range on his projects is 50 great that an average
is misleading. Now, in sixteen of his projects he
has computed estimated rent figures for the row house
parts, and the rent ranges from six dollars and
something - from $6.91 to $11.15. The average is at
$8.85. You can see that this $6.91 one - he wouldn't
have to make much more of a grant than he is already
making, whereas with the $11.15 one he'd probably
have to make a hundred percent grant.
a.M.Jr:
Well, I just want to leave that a minute. Let's
just take the Wagner Bill the way it is and let's
say, for argument's sake - I want to figure this
thing - everything a maximum; that is, let's say
that the first year they do put out 200 million,
and the next year it would be 250, and the third
year 250, and the fourth year 300. Well, let's say
that it would be possible to do that and, to make
the matter easy, that it all goes into this one
type of housing. No demonstrating. Let's say it
all goes into the one type, and all of it to be
turned over to local housing authorities. I mean
Regraded Uclassified
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17 I 1
let's just, to make my problem a little bit easier -
I mean we're not going to spend any 25 million dollars
for demonstration purposes.
On that basis, if it were possible to spend a billion
dollars for housing in four years, that would mean
one - let me have your pad a minute. Now let me
just figure this thing. These would be bonds sold -
well, we'll say 1937, 200 million; 1938, 250; 1939,
250; 1940, 300. Does that check with your bill?
Keyserling: I have a table that sets it all out. It might be
helpful to you.
H.M.Jr:
1940, 300 million?
Keyserling: Yes.
H.M.Jr:
That makes a billion. All right.
Keyserling: That (table) sets out a billion dollar program in
four years.
H.M.Jr:
Oh, grand, that's just what I wanted. Now, fiscal
year '38-139 You take it.
Keyserling: These are the family dwelling units at $4000 per unit.
H.M.Jr:
Is this fifty thousand families?
Keyserling: Fifty thousand families.
H.M.Jr:
I see.
Keyserling: And that would be the cost - $4000 a unit. Now,
these are tables on the annual contributions each
year, on three different assumptions: 3% percent,
3 percent, and 2%.
McR:
Your first column is what you are talking about.
H.M.Jr:
21.
Keyserling: Plus one.
Then your annual contributions over the four year
period: none the first year, 7 million the second,
152, and 242, coming to a total of 47 million dollars.
In subsequent years, to carry along that program,
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your contributions would be 35 million dollars
a year, which is just 3½ percent of a billion
dollars.
H.M.Jr:
Oh, I see.
Keyserling: That would be your annual contribution.
McR:
In 56 years, at 35 million a year - first four
years would aggregate 52 million
H.M.Jr:
Wait a minute, the first four years is 47 million.
Keyserling: That is with your maximum contribution, 3½ percent.
H.M.Jr:
Then 56 years, to run at 35 million dollars a year.
Has anybody multiplied that - 35 times how many
years?
MeR:
56 years.
-
-
That would be two billion, 60
million.
H.M.Jr:
How much?
McR:
Two billion, 60 million.
H.M.Jr:
Now wait a second - two billion and 60 million.
Now, that's the contribution. But how about
retiring the billion dollars worth of bonds?
McR:
That would take them all out.
H.M.Jr:
Oh, that plan
Lindau:
Take them all out and pay the interest too.
Gaston:
One percent for sixty years will retire your hundred
percent of the principal.
H.M.Jr:
I see.
McR:
That would be your total cost.
H.M.Jr:
Well, this program is really on a 32 percent
Opper:
That is making a couple of assumptions - that they
would pay out; but the program, as I understand it
from Mr. Keyserling, is designed to do that.
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H.M.Jr:
Well, let me put it another way. Again I'm
figuring the maximum. We borrow a billion dollars.
Then we've got to go to Congress for another
billion. Got to ask Congress for two billion
dollars to retire a billion. I mean the Federal
Treasury would be out two billion dollars.
opper:
Over sixty years.
H.M.Jr:
Over sixty years. Is that right?
Keyserling: Yes.
Caston:
What it amounts to is that we borrow or somebody
else borrows a billion dollars and we endorse that
note, and we meet the full carrying charges on that
year by year; so it really amounts to a grant of
the entire construction cost.
R.M.Jr:
Yes, Well, we've come to that conclusion. But if
you raised a billion dollars and didn't attempt any
of this interest or anything else like that, through
direct appropriation, through taxes - you're only
going to build a billion dollars worth of houses and
you've got to raise two billion dollars to retire that
one billion. So that if you raise it through your
general tax levy, you'd only have to raise a billion
dollars; this way you've got to raise two billion.
McR:
If you raised the billion now
Opper:
The balance is interest, because you borrow the
money and make an amortization of it over a sixty
year period. It would cost you the two - you'd
spend as much in interest as your capital.
E.M.Jr:
Well, let me just put it another way. I mean I'm
trying to get this thing, and you tell me if any-
thing I have - I make is unfair. Let's say we decide
we want to build a billion dollars worth of low cost
houses and we raise it through general tax levy,
and - all right, at the end of four years we got a
billion dollars worth of low cost housing. As I
understand it, in order to let these people have
this at six dollars, even though you pay no interest -
no taxes to the community, in order to do that and
keep it the six dollars, as landlord you wouldn't
Regraded Uclassified
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collect anything, because the six dollars that
you collect has to go to maintenance. Is that
a fair statement?
Keyserling: That is approximately what it would be.
H.M.Jr:
Well, let me put it again; I want to get this thing.
If we spent & billion dollars in four years, and
let's say for example we raised it through general
tax levy, so we have no interest charges to meet -
and then to run these houses for sixty years, the
best that we could expect is that the rent we collect
will just keep those houses running. What? Is that
correct?
Keyserling: That is absolutely correct, Mr. Secretary. The only
additional consideration is whether in some cases
you might not have to add something to that to bring
your rentals down low enough.
McR:
In some cases you could collect a little more.
Keyserling: Yes, in some cases you could collect a little more.
That statement is predicated on an average, going
up and down.
M.M.Jr:
You mean to say even if you built the houses and
gave them to the community, paid no taxes and paid
no interest because you're going to raise the
money through general tax levy, that those houses
couldn't be run at six dollars?
Keyserling: Yes, they could be run at six dollars easily. The
only question I raised was that if you wanted to
get your rentals down to $3.50 or $4.00, it would
create a different problem.
H.M.Jr:
Well, let me ask this. What I am trying to do is -
I mean for the moment I want to look at it BS
Secretary of the Treasury, because I've got to raise
the money. When you put it - "Well, it just costs
ten million dollars a year," it doesn't look so bad,
but this way - hasn't any other country done it so
that it gets its capital back?
Keyserling: Under the English system, Mr. Secretary, the average
contribution per family since 1919 has been about
$100 per family.
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H.M.Jr:
Per year?
Keyserling: Per year. Now, $100 per family per year on a cost
of $4000 - of a $4000 house, would be about 2 /
percent, which would be just equivalent to the
2 / percent average supposed under this bill.
H.M.Jr:
Well, personally - I mean if we are going to do
this thing I'd much rather, from my standpoint,
face the thing that we are going to build so many
million dollars worth of houses a year and give
them to the community, and figure that it is going
to cost so much. I mean it is going to cost the tax-
payers so much at the beginning, and - because this
bond without a guarantee is worthless. Because as
I - I'm not a lawyer, but as I put this thing up to
Opper, nobody can bind Congress for more than one
year. You can't bind any future Congresses. And
if the Congress didn't vote this subsidy, if they
got tired of this - they would have to vote the
money, though, to pay
Opper:
to pay the interest.
McR:
Retire the bond.
H.M.Jr:
Retire the bond.
McR:
That's right.
Opper:
of course, when these things take the form of a
contract, which they may, then you may say there is
an actual legal claim for the subsidy; just what
the strength of that would be is something else
again. At any rate, whether Congress could be
bound to pay the subsidy - they'd have to pay it.
McR:
They'd either pay up or pay some of it through
the nose, one or the other.
H.M.Jr:
Let me ask these construction engineers here - has
everybody explored these construction costs?
Barton:
Yes, that's been pretty well analyzed. This figure
we show here of $1200 a room is a very good average
figure.
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H.M.Jr:
Where's that, Techwood?
McR:
That's their own analysis.
Lindau:
It's right at the top.
McR:
Here, take the original one.
Barton:
We've got it down to $1200 against $2200 for Williams-
burg.
H.M.Jr:
My god, they paid enough for that land there, didn't
they?
Keyserling: Terrific.
H.M.Jr:
What?
Keyserling: Terrific.
Barton:
They paid too much for that type of housing.
Opper:
If you try to do slum clearance and housing at the
same time, you get stuck.
H.M.Jr:
And the person that says you can't is Nathan Strauss.
He's convinced me that you can't do the same thing -
you've either got to talk slum clearance or low cost
housing. The two things are separate problems. What?
Keyserling: Yes.
H.M.Jr:
Well, let's go around the table and see. How would
you do it, Clarence?
Opper:
Well, that's a large order.
H.M.Jr:
Well, go ahead. You used to be up there, weren't
you, with New York City Housing. Weren't you the
counsel? You (Keyserling) know that, don't you?
Keyserling: Yes.
H.M.Jr:
We're trying to get friends around here for housing.
There's no enemies; we're trying to get friends.
Opper:
Well, I think the suggestion that if this is going
to be an outright contribution it would cost less
Regraded Uclassified.
84
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money and be a more direct approach if it could be
made a contribution in cash at the beginning - one
difficulty, Mr. Secretary
H.M.Jr:
Just a second before you start; I need a drink,
after seeing those figures.
Opper:
And ne's about to listen to me.
H.M.Jr:
Helen, if you will bring in something now.
I didn't know it was as bad as that.
Opper:
Well, I'm willing to take it for the benefit of the
rest of you.
Mr. Keyserling suggested one problem there, and that
is if you make an annual contribution, you will al-
ways have something that you can withdraw in case
the operation by the local authority doesn't conform
to the Federal standard; you'll just cut off your
annual grant.
H.M.Jr:
May I answer that? McReynolds gave me an idea last
week. He thought that thing could be overcome by
leasing this thing to the authority and that way
you keep a string. McReynolds said, "You make a
lease. The United States Housing Authority leases
this building to the New York State Authority for
a dollar a year."
Opper:
For a dollar a year.
H.M.Jr:
So you can overcome that. I don't know where Mac
got that. So in that way you can keep the strings.
Opper:
There are other ways too. But I wanted to make
sure you had in mind Mr. Keyserling's point about
that annual subsidy. The second thing, of course,
is the question whether as much as two hundred
million dollars a year for four years - an average
of 250 million dollars for four years could possibly
be raised by current taxes and set aside for that
particular purpose. And one objection there, I take
it, is that the opposition to a housing program of
this size would bear directly on that question.
Regraded Uclassified.
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Now, the answer to that, of course, is that if
that is the true approach, if the taxpayers are
going to bear it over a sixty year period, it
might well be they should be advised of all the
results at the very beginning. But I am inclined
to agree with you that the result is just about
right, that the subsidy has to take the form of
a complete grant of the cost of the project.
H.M.Jr:
Well, as you go into this thing, do you think the
Government should do the building or lend the money
to local authorities and let them do it?
Opper:
The result of what little chance I've had to discuss
the thing with people who are supposed to be author-
ities on the housing question indicates - well, the
concensus on that point seems to be that the local
authorities have a better ability to gauge the needs
of the community and the type of development required.
That is the concensus of opinion.
Parton:
I think it is generally understood that we've got to,
instead of the subsidy, cover the whole item.
H.M.Jr:
Pardon me?
Barton:
We'll have to consider that the subsidy covers the
whole.
H.M.Jr:
The whole business?
Barton:
Yes. Hundred percent subsidy.
H.M.Jr:
Well, which would you rather do? Rather have us
give them a hundred percent subsidy and write it
off right at the beginning?
Barton:
That would be cheaper. There's one thing I'd like
to point out. I don't think you can give them
more than a hundred million dollars worth of housing
in a year.
H.M.Jr:
Well, Mr. Ickes - it's taken him how many years to
build 130 million?
Lindau:
Well, ne started this program about three years ago.
H.M.Jr:
And there is only one finished.
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Dunning:
About three and a half years ago.
Barton:
I think that's a top figure too.
H.M.Jr:
Why, Mr. Barton?
Barton:
There are not many skilled laborers available,
not much machinery available.
H.M.Jr:
Well now, I don't want to - do you (Dunning)
think that's right?
Dunning:
Yes. You might come up to a higher level the
second year. The first year, I don't think you
could possibly build more.
H.M.Jr:
Well, let me just question a minute. Let's take
structural steel, for instance; can you get struc-
tural steel?
Barton:
Yes, I don't think there is any trouble at the
present time.
H.M.Jr:
There isn't. I see. Well, how about mechanics?
Barton:
Well, there's a scarcity.
H.M.Jr:
All over?
Barton:
Very generally.
Dunning:
I wouldn't say it is general, but any considerable
increasè in building - it will be quite acute for
skilled labor.
H.M.Jr:
What? Nine million unemployed and there's going to
be a shortage?
Dunning:
There's nothing in the warehouses any more - shortage
of material.
H.M.Jr:
Well, if - I'm trying to get this. Once I get it,
it sticks. By taking it by general tax levy, it
just costs half as much, doesn't it?
Gaston:
Well, not as long as you have public debt outstanding -
not as long as you have public debt outstanding anyway,
Regraded Uclassified
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26 I I
because what you take from taxes to pay this just
reduces the amount by which you can reduce your
outstanding public debt; so long as you have any
public debt outstanding, you are paying that amount
of interest.
Opper:
But you are figuring it over a sixty year period.
Caston:
It may be that by the end of sixty years you may
not have any debt outstanding. But there are
provisions in here by which the Treasury takes
the obligations of the housing authorities and
sells its own obligations, which it could redeem,
so that you could cut off your subsidy when the
construction cost had been amortized.
H.M.Jr:
Well, Herbert, that thing - it cuts both ways, I
mean. Let's say we raise another hundred million
dollars worth of taxes for this purpose; we can't
say that that means we wouldn't retire another
hundred million dollars worth of debt.
Gaston:
If you raised It especially for this purpose?
H.M.Jr:
Yes.
Gaston:
WELL, I doubt the ability to levy taxes and raise
them for this particular purpose.
R.M.Jr:
Well, I've had an idea which I've never told. I
wouldn't want to quote it or repeat it. But the
President has told us so often that he's got this
idea of five hundred million dollars a year for
public works. I just wondered what the debt
duties amount to and whether those could be ear-
marked for public works.
Gaston:
Not new debt duties; not added debt duties, but the
existing debt duties.
H.M.Jr:
The existing debt duties. I mean does anyone know
what we estimate a year for taxes from debt duties.
Lindau:
I can't recall the figure because the estimate was
changed.
H.M.Jr:
Got any idea?
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Lindau:
I was going to guess about 125 million.
Gaston:
Budget would show it, wouldn't it?
H.M.Jr:
What would you (Dunning) think - by your exper-
ience, what would you think that they could build
in the way of low cost housing per year? I mean
getting started. What would be the least? I mean
in dollars.
Dunning:
Well, we could possibly handle, I should think, a
hundred, hundred fifty million the first year.
H.S.Jr:
If Procurement nad to do it?
Barton:
I think if you got out 25 the first year you'd be
doing very well, because it takes a great deal of
planning; and your site situation is always going
to be a difficult problem - very indefinite as to
when you can get started.
Dunning:
we could certainly turn out 8 much larger program
in housing in dollar value than we can in these
small individual public buildings, because there
would be a great deal more application.
H.M.Jr:
What do we turn out a year?
Barton:
Well, somewhere around 60 million a year.
Dunning:
I thought last year on the programs we got up a
little higher.
Barton:
It runs, I'd say, about 60 million.
H.M.Jr:
You (Lindau) sat in all last year on this thing.
Have you got anything to throw in?
Lindau:
Me?
H.M.Jr:
Yes.
Lindau:
Well, I think that Mr. Opper's statement about the
general concensus being that the local authorities
could better handle these projects is true. But
I'm inclined to agree that an original capital
contribution is more desirable than spreading this
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28 I I
thing over a number of years. For one thing,
you know right off the bat what you are paying,
and under this plan and spreading it over 60
years I think it is very problematical that you
are going to be able to collect any of the rent
anything like you expect in the last of those
years. Sixty years is E long time and buildings
will be outmoded and obsolete, even though physi-
cally they may be in fair condition, so that the
actual results over a sixty year period are
likely to be far worse than we would anticipate
in the beginning, especially if you consider that
you start off with maintenance costs which are
optimistically figured and which I think would
not be the average over a full sixty years' period;
and if you boosted those maintenance costs in order
to provide a cushion for your troubles in the last
of the years, you'd get the rents up higher than
you'd probably want them. The trouble in most of
these calculations is we start out with a definite
goal and we are willing to shave our figures in
order to get to that goal and it is not realistic.
I think you have much better control if you put
out all the money in the beginning.
H.M.Jr:
How do you mean, lend out?
Lindeu:
I mean that you contract for expenditures for a
subsidy spread over sixty years and you are likely
to go to much greater extremes in the amount of
money which you will put out, because the cost to
you is SO much smaller put on a sixty year amorti-
zation basis than it is if you put the money out all
at one time.
McR:
You mean the cost in these years?
Lindau:
No, I mean it costs - you start out and you say,
"We're going to have to spend ten million dollars
in subsidy and we're going to increase that subsidy
each year by ten million dollars." Well, ten million
dollars doesn't sound large. But talk about spending
a billion dollars and either having to raise it
through tax levies or borrowing it directly, and it
is a different story, I think. This shifting from
having an authority borrow the money, and then we
pay back the service and all, is something which is
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likely to be misleading.
Oaston:
I think the main criticism of this bill is that
it is misleading. It emphatically is 8 construc-
tion subsidy. The Government is paying the
interest and service on this - on its own loan -
and I think it would be better to put it frankly
on that basis. I don't think there is any question
that to make the pants and vest meet you've got to
have a Federal subsidy of large dimensions, but this
is in essence a capital construction subsidy rather
than 8 maintenance subsidy.
H.M.Jr:
of a hundred percent.
Gaston:
Yes, and I think it would be better to recognize -
If you are going to do it that way, it would be better
to do it frankly. We could have used this device
and made it appear that through the whole depression
we have had no deficits whatever by a process of
inter-corporation loans and meeting the carrying
charges. In other words, it seems to me it will be
quickly recognized that this is an effort to do
something and to make it appear that you are doing
something else. Now, I'm all for the objects which
this bill sets out, but I don't like the manner in
which you're doing it.
Meyserling: I think I can answer most of those questions. I
don't think that this is a capital subsidy at all,
and I'd like to approach it first from the point of
view of the experience of this Government in the
last four years with its low rent housing.
All of the subsidies to low rent housing by the
Public Works Administration have been based upon
the cost of building the project. That has been
the first source of its difficulties, because in a
housing project, since the rentals must cover both
the building cost and the maintenance cost, any
subsidy which is based upon the building cost
alone, whether it is fixed too high or fixed too
low, will not bear a relationship to the rentals
that you are trying to maintain. That is why the
figures have gone so far askew. They started off
with the idea of a 45 percent grant and 8 three
percent interest loan upon the building cost, not
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taking account of the fact that rentals are not
determined by building cost but determined by the
annual cost of retiring your building loan plus
the annual cost of maintaining the project. Their
figures went so far wrong that they got rentals of
eight or nine dollars a room. Then when an effort
was made to remedy that
H.M.Jr:
May I interrupt you a minute? Did Mr. Ickes ever
say he'd rent it for less than that?
Keyserling: I don't - I'm not even trying to intimate, Mr.
Secretary
S.M.Jr:
I'm just asking. Did they? Three years ago they
were talking of six dollars rental.
Keyserling: That I could not say.
Then a decision was made to make a 45 percent grant
and to lend the rest of the money at less than three
percent. In the Walsh-Healey bill of last year, the
authorization - the George-Healey bill of last year,
the authorization was given to loan 45 percent and
to fix the interest rates on the balance at whatever
rate was deemed desirable. Under that, I understand,
the Department of Public Works asked for permission
to reduce their interest rate to one percent. I be-
lieve they got authorization to reduce it to zero,
but I understand that the Department decided that
they would pull it down to about one percent. The
figures show that with a 45 percent grant and a loan
for the balance at one percent or at zero, you get
rentals of about seven dollars a room, which is
still far above the low income groups.
So that all the figures, whether they are the Treasury
figures, Mr. Secretary, or the Department of the
Interior figures, or the studies of other people,
show that in effect you have to have what amounts to
a hundred percent capital cost subsidy to get down
to low rentals.
H.M.Jr:
Yes, well we
Keyserling: Yes, everyone is in agreement.
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H.M.Jr:
Yes, but I've never heard anybody say so publicly.
I mean I've never heard anybody admit that publicly.
Keyserling: Now to go on with the theory of this bill and the
reason for the annual contributions. It is based
on the idea that figuring your contributions to
low rent housing on the capital cost is fundamentally
wrong, because what one is trying to do is reduce the
rentals and not reduce the cost to the authority of
building the project; and that the sound way of deter-
mining your subsidy - whether you want it to be a
high subsidy or low subsidy, that is a different
matter - is to figure out what the annual cost of
the project would be and what would have to be
covered by rentals if there were no subsidy, and
then determine how much is necessary to get your
rentals down to your low income group.
If you do that, you may find that you have to give
such a big subsidy that you don't want to have to go
into it at all, or you may find that you can manage it,
But at least you will actually know what you are doing,
H.M.Jr:
But when it all comes around, it comes back to this:
that in order to reach these levels that this income
group can pay, you've got to build a house and give
the whole house to some authority to run. That's
what it amounts to.
Keyserling: It comes about to that. That's what it amounts to.
H.M.Jr:
What?
Keyserling: That's what it amounts to.
H.M.Jr:
But I mean I've never heard anybody say so publicly.
And that is on a basis if you pay no taxes of any
kind.
McR:
Another factor that you are overlooking here is that
as far as this bill is concerned there is authority
there to spread by private capital coming in the
cost to something still higher, as shown by those
tables, so that
H.M.Jr:
I don't follow you, Mac.
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McR:
Well, if private capital comes in...
H.M.Jr:
Yes
McR:
your annual subsidy goes up.
H.M.Jr:
Why?
McR:
Because your subsidy is based on the cost of the
project and not on the amount the Government loans.
So you will find in those same tables
H.M.Jr:
It might go up to a billion and a half?
MeR:
It would go up to a billion and a half and your
subsidy would go up.
Gaston:
But they propose to put an over-all limit on what
you can grant in any one year - what you can con-
tract to grant.
Keyserling: Ten million a year.
Gaston:
Ten million a year, yes.
H.M.Jr:
Well listen, two billion dollars is enough, without
going into private capital, because the only reason
I think this private capital would go in on this
basis is they'd be getting a totally tax exempt
security, and I'd be opposed to that.
Gaston:
And it would cost you more money.
H.M.Jr:
Oh sure. I mean the fellow would be able - all the
rich money people would put their money into this
thing in order to get a totally tax exempt security.
Opper:
The bill is set up that way.
H.M.Jr:
I mean you'd get Rockefeller and all those fellows
putting their money in in order to get a totally
tax exempt security.
Lindau:
Another thing - that is another subsidy.
H.M.Jr:
Of course it is.
Gaston:
It would practically be 8 Government-guaranteed
security in effect.
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Opper:
Here are the figures for the private capital.
Take half of it from private sources and it
raises the room rent.
Keyserling: Mr. Secretary, the only point I was trying to make
was that this 33 percent subsidy per year, assuming
that it does amount to a complete capital subsidy
of the cost of the project, is not more than is
admittedly necessary to get down to the low rent
groups, so that the size of the subsidy as set forth
in this bill is not too high.
The next question is whether the annual contributions
are 8 better or a worse way of paying it than a
capital grant. I was just trying to make the pre-
liminary point that this group is in agreement that
the subsidy is not too high; that is, if you say
that your 32 percent annual contributions amounts
to an annual contribution sufficient to retire
the whole loan with interest, and if you say that
that is what you need to get down to a five or six
dollar rental, then that is the justification for
the size of the subsidy.
H.M.Jr:
Well, let's just forget money for a minute. Let's
take the social aspects of this thing. Now, what
is talked about that? Where do people live today
who have incomes of $1200?
Keyserling: A lot of them live in sub-standard houses.
Gaston:
That means old, rickety, rotten buildings, without
plumbing, and insanitary, congested, etc.
Opper:
The kind of buildings they are trying to shut up
in New York and finding SO much trouble with, b ecause
they can't find any place to move the people.
Gaston:
The point was made that they have full occupancy -
that is, they only have a two percent vacancy -
in Cleveland now, but if the laws were enforced, the
building laws, the sanitary code was enforced in
Cleveland, they would have a tremendous building
shortage; in other words, that their low income
group are almost wholly housed in buildings that
violate the fire laws or violate sanitary laws or
violate safety laws or something else. And I think
Regraded Uclassified
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that is pretty characteristic.
Dunning:
True in New York.
Gaston:
Yes.
H.M.Jr:
It is unfortunate that here we are launched on a
130 odd - how much is it that Mr. Ickes has?
Lindau:
130 odd. ne has 136.86. He loaned 10.4 millions,
but he's contracted to loan 10.960 million.
H.M.Jr:
Well, let's just talk about the Federal - 53
Federal projects. "nd I say it is unfortunate
that we haven't - only one is finished and you
haven't got any experience. I mean whatever
mistakes that the Federal Government has made,
we haven't had time to learn what those mistakes
are. I mean because only one is finished.
Opper:
You know a lot of mistakes already.
H.M.Jr:
What?
Opper:
You know a lot of the mistakes now.
H.M.Jr:
Yes, but they won't show up until they are finished
and rented. Does anybody, for instance, know whether
Techwood is rented?
Lindau:
It is rented, I think, 94 percent.
Dunning:
92 percent.
H.M.Jr:
What do they really get for the rentals?
Keyserling: $6.75.
H.M.Jr:
Didn't they have a project down there for colored
people too?
Dunning:
University project.
Keyserling: They are figuring a rental of $6.13 on that.
Barton:
That's not low cost housing; for that type of pro-
ject it isn't.
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McR:
No, that's high for that type of project.
Keyserling: It's very high, because that means an annual income
of $1300 or $1400 B year, which won't get into your
lower half of your population, much less the lower
third or fourth.
Gaston:
Mr. Keyserling makes a point about the value of
this annual grant thing that I think is quite valid
as against the plan of simply giving the money for
the buildings - that it can be differently distri-
buted; that is, that it can be more here and less
there, according as the need is to equalize rents.
While the effect on the Federal budget would be just
the same as 1f you were giving the money outright,
yet on the particular project the effect would be
different, because on one project where their costs
are low you wouldn't give so much, and on another
one where their costs are high you'd give more. So
you could spread the money to better advantage
through this annual grant system.
2.1.Jr:
Through, Herbert? Go shead, Opper.
Opper:
I was going to ask why you can't do the same thing
with your capital grants, because it's a contract,
Herbert.
Gaston:
That's quite true, except that your maximum limit
on your capital grant is the construction cost of the
project.
H.M.Jr:
It all washes out, though, in sixty years.
Gaston:
In some cases this grant would amount to more than
the construction cost of the project; in other
cases you'd be giving less.
H.M.Jr:
Of course, I think the thing you've got to recognize
if you go into this is that people have to live in
it and they can't expect to live within ten minutes
of work. They've got to be willing to ride on the
subway or street car for 45 minutes or an hour. I
mean if you've got to go in - you've got to go in
non-congested areas to get your best dollar per
square foot.
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Gaston:
What you're really bucking here is the proposition
of high land values in cities - the so-called
unearned increment; that's the thing you're up
against.
H.M.Jr:
This thing may revolve - you may have to ecognize
that 1f these people are going to live and work -
I mean you may have to move them to places where
factory conditions and housing conditions can be
created so that people can live decently. I mean
maybe they'll have to go to the South for climatic
conditions and everything else there which is more
favorable. I mean after all, that's what's happened
with all the textiles, hasn't it? I mean they're
moving south where people can get better working
conditions and better living conditions and save
some of their income. It is pretty hard to produce
this sort of thing in New York City.
Gaston:
I suppose this bill is open enough so that you
could build housing in industrial suburbs.
Keyserling: Oh certainly, in large industrial suburbs - build
anywhere.
Gaston:
Yes.
H.M.Jr:
Mac, how much are we spending on public roads? Do
you know? Was it 400 million a year?
McR:
I couldn't tell you. I should say it was at least
that much.
Opper:
400 million dollars by the Federal Government?
McR:
I think SO.
Keyserling: This bill, Mr. Secretary, only calls for an expen-
diture of 35 million dollars a year at most on the
basis of the present program set forth.
H.M.Jr:
You can't sell it to me on that basis, Mr.
Keyserling. No, you've got to recognize that
this is a two billion dollar expenditure over
sixty years, and that's what it amounts to.
When you do it that way, how can you divide sixty
into two billion and
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37 1 I
Qaston:
There is an assumption that you cut your program
off at the end of four years.
H.M.Jr:
I'd be absolutely opposed to selling a guaranteed
Federal bond on this thing. I mean I think it
would just shoot our credit to
Gaston:
There would be no point in it. There's a provision
in the bill whereby you could take the obligations
of the authority and just sell a straight Federal
bond.
H.M.Jr:
Just increase our Federal debt. But to sell a guar-
anteed bond on this thing - it would just shoot the
Government credit to hell.'
Gaston:
There wouldn't be any sense to that. But the bill
provides that you can take the authority's obliga-
tions and then sell a straight Federal bond for the
money.
H.M.Jr:
You take a guaranteed bond of the land banks; they
loan sixty percent on the value of the land, and
you've got your land. Fahey's crowd, was it - how
much did they loan up to?
Opper:
H.O.L.C., 75 percent.
Dunning:
80 percent.
Lindau:
He's talking about F.H.A. I don't know what the
limitation was.
Opper:
I think it was 75. They haven't been lending now
for about six months.
Barton:
A billion dollars would take care of about two
hundred thousand families.
Aeyserling: About 250,000 at four thousand dollars per family.
Barton:
Four thousand per family is probably a little low.
But that's not taking care of the entire problem
by any means. That's a very small part of it.
H.M.Jr:
Has anybody estimated how many families there are?
Opper:
Have you (Keyserling) got any figures on that?
Uclassified
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- 38 -
Keyserling: You mean determined by your income groups? There
are about seven million families with incomes of
less than a thousand a year.
Opper:
But that's not - that's not necessarily urban
families.
Keyserling: No, that includes urban and rural, Probably
three-fourths of them are urban.
Gaston:
Three-fourths are urban, you think?
Keyserling: I should think SO.
H.M.Jr:
This comes back to the President's original idea,
which Tugwell muffed so, and that is this thing of
satellite cities - going out fifteen, twenty miles,
buying farm land, then building these things out
there.
Opper:
That was the original conception of the housing
development in 1929.
Gaston:
Of course, you could build satellite cities under
this bill. It would depend on the judgment of the
housing authority.
Opper:
Well, you couldn't do anything about your industry,
Herbert. Part of that job is to bring your indus-
tries into the right places.
Gaston:
On, your housing authority has got plenty of power
under the bill to deal with industry.
H.M.Jr:
Of course, the point that I make is this: I mean
where I think that we have a perfectly sound
basis - I don't know whether it's 200 million or
400 million a year for roads; well, we've gone
drunk over building these roads. Now we've done
this thing for three or four years. We've spent
all this money on dams, spent all this money on
reclamation. Let's ease up on these things. And
rivers and harbors, and deepening the Mississippi
and all that stuff. It is just because those
people have more votes on the Hill. And I don't
see why some of that stuff can't be stopped and
put into this thing.
Regraded Uclassified
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- 39 -
After all, when you figure building a Bonnerville
Dam or when you figure building a reclamation
thing, or if you deepen the Hudson to Albany, you
don't expect to get that back. You don't charge
anybody when you put up all these levies on the
Mississippi that the Army engineers build. You
don't even figure you're going to get that back.
Opper:
Going to cost us more money when they get those
claims in for that Atchafalaya Basin.
H.V.Jr:
But you take your four billion eight. The best
estimates I can make on that is that we'll get
five percent of that. Do you know that? Do you
know that it is as low as that? If we get five
percent back, it's lucky, although the President
intimated at one time we'd get half of that back.
If we do that, I don't see why - but stop some
of the other stuff.
Gaston:
You think there are certain social values in what
you can do.
G.M.Jr:
I'm sold on it that way. What's our expenditures
this year - seven or eight billion, was it?
Gaston:
Around eight billion.
H.M.Jr:
Well, out of that certainly we can start something
that costs a hundred million dollars and put that
directly into this thing. I mean out of all these
expenditures - and these Army engineers; my heavens,
all the money that they've had now, and all that
stuff. Certainly out of eight billion dollars we
ought to be able to find a hundred million dollars
for real low cost housing.
Haven't you (McReynolds) got any of Bartelt's
books that shows the statutory allotments for
relief appropriations for roads?
McR:
Those monthly books that he quarterly gives you
a bound copy of.
H.M.Jr:
If we could say to the President on this, "Look,
you say you've got to pool five hundred million
101
- 40 -
dollars worth of this for public works. Let's
just put that pool over - let's slow up on this
other. If you want to do low cost housing, take
it out of nere.
Opper:
The thing on the road question is that I think it
is supposed to be the type of enterprise that uses
the most labor per dollar spent, and I don't think
that is true of housing. It doesn't come in nearly
as high for labor cost.
Dunning:
Although a larger number of skilled labor and
medium-skilled. Roads will go into the common
labor.
8.M.Jr:
But the only way - the more I think of it, the only
way you can think of this thing is of the social
needs, and the fact that this group of Americans
have been overlooked the last four years. Now I
think it is time we do something. I mean that's
why we are - I'm interested. I mean the only way
you can sell this is not on & financial basis. You
can't sell it to me on that. You've got to sell it
to me on the basis of social needs. If it takes a
hundred percent, all right. But as to the social
needs and the fact we've spent all this money - my
god, we've given Tugwell 70 million dollars, and the
best estimate of Procurement - we figured 50 million
of it was "goodbye." I mean out of 70 million dollars
to Tugwell, 50 million of it is just gone.
Keyserling: Well, I just didn't think it was necessary to present
the social side of it here.
B.M.Jr:
I mean Tugwell's average cost, $11,000 per family
in the country. I mean the more I think of it, I
think the only way you can sell this thing is by
social needs. And a hundred percent grant - build
the thing, lease it to the community a dollar a
year, and let's face the thing and do it. On a
straight social basis - that's the way I'd present
it. I mean that would be my approach. Now, you
can't fight with me over that, can you?
Keyserling: I certainly think that it's got to be looked at
from the social vie point.
102
41 I I
H.M.Jr:
I mean if I'm willing as the Secretary of the
Treasury to take that viewpoint, you certainly
can't say there is any difference between Senator
Wagner and myself - if I am willing to say I recog-
nize that need and think it is more important than
a lot of other thingswe are doing. I don't see
how else you can sell this, do you?
Dunning:
I think that eliminates one of the hazards of this
scheme, and that is the sixty year amortization.
H.M.Jr:
But this bill from the financing standpoint - I
couldn't take it that way. I can fight for it on
the social basis.
Mac, first thing in the morning get hold of Danny
Bell, will you, and get this thing and let's see
what the various public works things are that are
lined up. Dan's got that all at his fingertips.
Will you?
McR:
All right, I will. Of course we've got stuff in
my office that shows it, but I can't remember it.
H.M.Jr:
But let's take a look at it first thing in the
morning and let's just see. I don't think we can
do any more tonight, and I know I'm - now I've got
this. I'm very much obliged to you. I hope we
haven't played you (Keyserling) out.
McR:
I've been giving him a pretty tough ride. He's
been going hard since 2:30.
Regraded Uclassified
103
75TH CONGRESS
1ST SESSION
S. 1685
IN THE SENATE OF THE UNITED STATES
FEBRUARY 24, 1937
Mr. WAGNER introduced the following bill; which was read twice and referred
to the Committee on Education and Labor
A BILL
To provide financial assistance to the States and political sub-
divisions thereof for the elimination of unsafe and insanitary
housing conditions, for the provision of decent, safe, and
sanitary dwellings for families of low income, and for the
reduction of unemployment and the stimulation of business
activity, to create a United States Housing Authority, and
for other purposes.
1
Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3
FINDINGS AND POLICY
4
SECTION 1. There exist in urban and rural communi-
5 ties throughout the United States slums, blighted areas, or
6 unsafe, insanitary, or overcrowded dwellings, or a combina-
7 tion of these conditions, accompanied and aggravated by an
Regraded Uclassified
2
3
1 acute shortage of decent, safe, and sanitary dwellings within
1 income, or to prevent the widespread, prolonged, and recur-
2 the financial reach of families of low income.
2 ring unemployment resulting from the persistence of such
3
These conditions are inimical to the general welfare of
3 obstacles, and the several States and their political subdivi-
4 the Nation by (a) encouraging the spread of disease and
4 sions have been and now are unable adequately to aid in
5 lowering the level of health, morale, and vitality of large
5 remedying this condition without financial assistance. The
6 portions of the American people; (b) increasing the hazards
6 legislatures of many of the States have expressly declared the
7 of fires, accidents, and natural calamities; (e) subjecting the
7 néed for assistance along the lines set forth in this Act in
8 moral standards of the young to bad influences; (d) increas-
8 order to remedy the aforesaid conditions.
9 ing the violation of the criminal laws of the United States
9
It is hereby declared to be the policy of the United
10 and of the several States; (e) impairing industrial and agri-
10 States to promote the general welfare of the Nation by em-
11 cultural productive efficiency; (f) lowering the standards of
11 ploying its funds and credit, as provided in this Act, to assist
12 living of large portions of the American people; (g) neces-
12 the several States and their political subdivisions to alleviate
13 sitating n vast and extraordinary expenditure of public funds,
13 present and recurring unemployment and to remedy the
14 Federal, State, and local, for crime prevention, punishment
14 unsafe and insanitary housing conditions and the acute short-
15 and correction, fire prevention, public-health service, and
15 age of decent, safe, and sanitary dwellings for families of low
16 relief.
16 income that are injurious to the health, safety, and morals
17
The failure to remedy the acute dwelling shortage has
17 of the citizens of the Nation.
18 also produced stagnation of business activity in the con-
18
DEFINITIONS
19 struction, durable goods, and allied industries, thus impeding
19
SEC. 2. When used in this Act-
20 business activity throughout the Nation and resulting in
20
(1) The term "low rent housing" means decent, safe,
21 widespread, prolonged, and recurring unemployment with its
21 and sanitary dwellings within the financial reach of families
22 injurious effects upon the general welfare of the Nation.
22 of low income, and developed and administered to promote
23
Private industry alone has been and now is unable to
23 servicenbility, efficiency, economy, and stability: and em-
24 overcome the obstacles in the way of relieving the shortage
24 braces all necessary or desirable appurtenances thereto, in-
25 of decent, safe, and sanitary dwellings for families of low
25 cluding administrative, educational, recreational, commercial,
Regraded Uclas sified
4
in
1 and other lands, buildings, and facilities. The dwellings in
1 struction, and equipment, in connection with a low-rent-
2 low-rent housing as defined in this Act shall be available
2 housing or slum-clearance project, but not beyond the point
a solely for families whose net income at the time of admis-
8 of physical completion. Construction activity in connection
4 sion does not exceed five tiraes the rental (including the
4 with a low-rent-housing project may be confined to the re-
5 value or cost to them of heat, light, water, and cooking fuel)
5 construction, remodeling, or repair of existing buildings.
6 of the dwellings to be furnished such families, except that in
6 The development of a low-rent-housing project may include
7 the case of families with three or more minor dependents,
7 slum clearance. The development of a slum-clearance proj-
8 such ratio shall not exceed six to one.
8 ect may be confined to demolition and removal.
9
(2) The term "families of low income" means families
9
(6) The term "administration" means any or all under-
10 who cannot afford to pay enough to cause private enter-
10 takings necessary for management, operation, maintenance,
11 prise in their locality or metropolitan area to build an ade-
11 and financing, in connection with a low-rent-honsing or
12 quate supply of decent, safe, and sanitary dwellings for
12 slum-clearance project, subsequent to physical completion.
13 their use,
13
(7) The term "demonstration project" means any
14
(3) The term "slum" means any area where dwellings
14 project owned or administered by the Authority, whether
15 predominate which, by reason of dilapidation, overcrowding,
15 or not developed pursuant to section 11.
16 faulty arrangement or design, lack of ventilation, light or
16
(8) The term "acquisition cost" means the aequisition
17 sanitation facilities, or any combination of these factors, are
17 cost to the Authority or to n housing agency, as the case
18 detrimental to safety, health, or morals.
18 may be.
19
(4) The term "slum clearance" means the demolition
19
(9) The term "going Federal rate of interest" means,
20 and removal of buildings from any slum area, and may
20 at any time, the annual rate of interest specified in the then
21 embrace the adaptation of such area to public purposes,
21 most recently issued bonds of the Federal Government having
22 including parks or other recreational or community facilities.
23
22 a term of ten years or more.
(5) The term "development" means any or all under-
23
(10) The term "public housing agency" means any
24 takings necessary for planning, financing (including payment
24 State, county, municipality, or other governmental entity
25 of carrying charges), land acquisition, demolition, con-
25 or public body (excluding the Authority), which is author-
6
7
1 ized to engage in the development or administration of low
1
(15) The term "Authority" means the United States
2 rent housing or slum clearance.
2 Housing Authority created by section 3 of this Act.
3
(11) The term "consumers" housing society" means
3
UNITED STATES HOUSING AUTHORITY
4 any association, cooperative, or corporate body organized
4
SEC. 3. (a) There is hereby created n. body corporate
5 solely to promote and administer low-rent housing, whose
5 of perpetual duration to be known ns the United States
6 members are persons of low income in need of such housing,
6 Housing Authority, which shall be an agency and instru-
7 whose officers and directors are the freely chosen representa-
7 mentality of the United States.
8 tives of such members, which is operated without possibil-
8
(b) The management of the Authority shall be vested
9 ity of direct or indirect financial profit, and which submits
9 in a board of directors (hereinafter referred to as the board)
10 its records to the inspection of the Authority to the extent
10 composed of three members appointed by the President, by
11 necessary to earry out the provisions of this Act.
11 and with the advice and consent of the Senate, and removable
12
(12) The term "limited-profit housing agency" means
12 by the President upon notice and hearing for neglect of duty
13 any association, cooperative, limited-dividend corporation,
13 or malfeasance in office, but for no other canse. One of the
14 or other corporate body organized to develop or administer
14 three original members shall serve for a term of one year,
15 low-rent-housing projects, whose dividend rates, if any, capi-
15 one for a term of three years, and one for a term of five years,
1G tal structure, interest payments, and rental charges are
16 but their successors shall be appointed for terms of five years
17 regulated or limited by law or subject to the supervision
17 each, except that any individual chosen to fill a vacancy
18 and control of the Authority and which submits its records
18 shall be appointed only for the unexpired term of the
19 to the inspection of the Authority to the extent necessary
19 member whom he shall succeed. The President shall desig-
20 to carry out the provisions of this Act.
20 nate one member to serve as chairman and executive officer
21
(13) The term "housing agency" means any public
21 of the board, in charge of the routine administration of the
22 housing agency, consumers' housing society, or limited-profit
22 Authority.
23 housing agency.
23
(c) A vacancy in the board shall not impair the right
24
(14) The term "State" includes the States of the
24 of the remaining members to exercise all the powers of the
25 Union, the District of Columbia and the Territories, de-
25 board, and two members of the board shall at all times
26 pendencies and possessions of the United States.
26 constitute a quorum.
8
9
1
SEC. 4. (n) Each member of the board shall receive n.
1 agency concerned may utilize such officers, employees, equip-
2 salary of $10,000 a year, shall be eligible for reappointment,
2 ment, and information of any agency of the Federal, State,
3 and shall not engage in any other business, vocation, or em-
3 or local governments as it finds helpful in the performance
4 ployment. No officer or employee of the Authority shall
4 of its duties. In connection with the utilization of such
5 participate in any manner in the deliberation upon or the
5 services, the Authority may make reasonable payments for
6 determination of any question affecting his personal interests
6 necessary traveling and other expenses.
7 or the interests of any corporation, partnership, or association
7
(d) The President may at any time in his discretion
8 in which he is directly or indirectly interested.
8 transfer to the Authority any right, interest, or title held
9
(b) The Authority is authorized, without regard for
9 by any department or agency of the Federal Government
10 the civil-service laws or the Classification Act of 1923, as
10 in any housing or slum clearance projects, including all
11 amended, to employ such officers, attorneys, and experts
11 assets, contracts, records, libraries, research materials and
12 and hire such skilled and unskilled labor as may be necessary
12 other property held in connection with such projects, and
13 for the proper performance of its duties under this Act, and
13 any unexpended balance of funds allocated to such depart-
14 subject to such laws to appoint and fix the compensation of
14 ment or agency for such projects; and the Authority may
15 such other employees as may be necessary for such purposes:
15 continue any or all activities undertaken in connection with
16 Provided, That insofar as such other employees are drawn
16 such projects, subject to the provisions of this Act.
17 from any department or agency of the Government where
17
Skc. 5. (a) The principal office of the Authority shall
18 they have been engaged in work connected with housing or
18 be in the District of Columbia, but it may establish branch
19 slum clearance, they shall be included within the civil service
19 offices or agencies in any State, and it may meet and exercise
20 upon certification by the Authority (within ninety days of
20 any of its powers at any place within the United States.
21 their employment) to the Civil Service Commission and upon
21 The Anthority may, by one or more of its officers or em-
22 passing a noncompetitive examination given by such
22 ployees or by such agents or agencies as it may designate,
23 Commission.
23 conduct hearings or negotiations at any place.
24
(e) The Authority may accept and utilize such volun-
24
(b) The Authority shall sue and be sued in its own
25 tary and uncompensated services and with the consent of the
25 name, and all suits shall be brought in the Federal courts
10
11
1 except where the Authority consents specifically to a differ-
1 facilities and services as it may from time to time find neces-
2 ent forum. Attorneys appointed by the Authority may, at
2 sary for the proper administration of this Act. The Au-
3 the direction of the Authority, appear for and represent the
3 thority shall determine and prescribe the manner in which
4 Authority in any case in court.
4 its obligations and expenses shall be incurred, allowed, and
5
(c) The Authority shall have an official seal, which
5 paid, and the manner in which accounts shall be audited.
6 shall be judicially noticed.
6 Vouchers approved by the Authority for expenditures of
7
(d) The Authority shall be granted the free use of the
7 its funds shall be final and conclusive upon all officers of
8 mails in the same manner as the executive departments of
8 the Government: except that all financial transactions of the
9 the Government.
9 Authority shall be examined by the General Accounting
10
(e) The Authority, including but not limited to its
10 Office at such times and in such manner as the Comptroller
11 franchise, capital, reserves, surplus, loans, income, assets,
11 General of the United States may by regulation prescribe.
12 and property of any kind, shall be exempt from all taxation
12 Such examination shall be for the sole purpose of making &
13 now or hereafter imposed by the United States or by any
13 report to the Congress and to the Authority of expenditures
14 State, county, municipality, or local taxing authority. Obli-
14 in violation of law, together with such recommendations
15 gations issued by public housing agencies in connection with
15 thereon as the Comptroller General deems advisable.
16 low-rent-housing and slum-clearance projects, and the in-
16
(b) The provisions of section 3709 of the Revised
17 come derived by such agencies from such projects, shall be
17 Statutes (U. S. C., title 41, sec. 5) shall apply to all con-
18 exempt from all taxation now or hereafter imposed by the
18 tracts of the Authority for services and to all of its purchases
19 United States.
19 of supplies except when the aggregate amount involved is
20
SEO. 6. (a) The Authority may make such expend-
20 less than $300.
21 itures for the acquisition and maintenance of adequate
21
(c) The nse of funds made available for the purposes of
22 administrative agencies, offices, vehicles, furnishings, equip-
22 this Act shall be subject to the provisions of section 2 of
23 ment, supplies, and books, for attendance at meetings, for
23 title 3 of the Treasury and Post Office Appropriation Act
24 instruction, for traveling expenses, and for such other
24 for the fiscal year 1934 (47 Stat. 1489), and to make
Regraded Uclassi ed
12
13
1 such provisions effective every contract or agreement of any
1 ASSISTANCE TO LOCAL LOW-RENT-HOUSING AND SLUM-
2 kind pursuant to this Act shall contain a provision identical
2
CLEARANCE PROJECTS
3 to the one preseribed in section 3 of title 3 of such Act.
3
Sec. 9. (a) The Authority may make grants and loans
4
SEC. 7. (a) The Authority may engage in research,
4 to public-housing agencies to assist the development, ac-
5 studies, surveys, experimentation, and experimental construe-
5 quisition, or administration of low-rent-bonsing projects by
6 tion, and may publish and disseminate information pertinent
6 such agencies.
7 to the various aspects of housing.
7
(b) The grant for any such project shall be paid in
8
(b) In January of each year the Authority shall make
8 the form of fixed and uniform annual contributions, over a
9 an annual report to Congress of its operations, including
9 fixed period not exceeding sixty years. The Authority shall
10 loans and grants made or contracted for, low-rent-housing
10 embody the provisions for such grant in a contract of grant
11 and slum-clearance projects undertaken, and the assets and
11 guaranteeing such fixed and uniform annual contributions
12 liabilities of the Authority. Such report shall include oper-
12 over such fixed period. Such annual contributions as are
13 ating statements of all projects under the jurisdiction of or
13 contracted for shall be strictly limited to the amounts and
14 receiving the assistance of the Authority, including sum-
14 period necessary, in the determination of the Authority, to
15 maries of the incomes of occupants, sizes of families, rentals,
15 assure the low rent character of the housing project involved:
16 and other related information.
16 Provided, That the fixed contribution payable annually
17
Swc. 8. (a) The Authority may from time to time make,
17 under any such contract of grant shall not exceed a sum
18 amend, and rescind such rules, regulations, and definitions as
18 equal to the annual yield at the going Federal rate of
19 may be necessary to earry out the provisions of this Act.
19 interest (at the time such contract of grant is made) plus
20
(b) In the exercise of its discretion pursuant to this
20 1 per centum upon the development or acquisition cost
21 Act and pursuant to the standards, definitions and considera-
21 of such project.
22 tions of policy set forth herein, the findings of the Authority,
22
(c) All payments of annual contributions pursuant
23 if reasonably substantiated, shall be conclusive,
23 to this section shall be made out of any funds available to
24 the Authority when such payments are due, except that
Regraded
14
15
1 its capital and its funds obtained through the issuance of
1 able by the Authority. The total of such loans outstanding
2 obligations pursuant to section 20 (including repayments
3 for any such project shall not exceed the development or
3 or other realizations of the principal of loans made out of
3 aequisition cost of such project, less the total amounts out-
4 such capital and funds) shall not be available for the pay-
4 standing on loans made by third parties, senior to the loans
5 ment of such annual contributions.
5 of the Authority, and secured by such project or payable
6
(d) In any one fiscal year the Authority shall not enter
6 from the revenues thereof.
7 into contracts of grant which provide for annual contributions
7
SEO. 10. The Authority may make loans to limited-
8 aggregating more than $10,000,000 per year exclusive of
8 profit housing agencies to assist the development or acquisi-
9 any annual contributions payable under contracts of grant
9 tion of low-rent-housing projects: Provided, That not more
10 made by it in prior fiscal years: Provided, That if the con-
10 than $25,000,000 shall be 80 loaned in any one fiscal year.
11 tracts of grant entered into in any one fiscal year provide
11 Such loans shall bear interest at such rate not less than
12 for annual contributions aggregating less than the authorized
12 the going Federal rate at the time the loan is made, be se-
13 $10,000,000, the unutilized balance of such authorization
13 cured in such manner, and be repaid within such period,
14 may be carried over ns an authorization for any subsequent
14 not exceeding sixty years, as may be deemed advisable by
15 fiscal year. The faith of the United States is solemnly
15 the Authority. The total of such loans outstanding for any
16 pledged to the payment of all annual contributions con-
16 such project shall not exceed 85 per centum of the develop-
17 tracted for pursuant to this section, and there is hereby
17 ment or acquisition cost of such project, less the total amounts
18 authorized to be appropriated in each fiscal year, out of any
18 outstanding on loans made by third parties, senior to the
19 money in the Treasury not otherwise appropriated, the
19 loans of the Authority, and secured by such project or pay-
20 21 amounts necessary to provide for such payments.
20 able from the revenues thereof.
(e) The loans for any low-rent-housing project pur-
21
DEMONSTRATION PROJECTS
22 suant to this section shall bear interest at such rate not less
22
SEC. 11. (a) The Authority may develop and admin-
23 than the going Federal rate at the time the loan is made,
23 ister low-rent-housing and slum-clearance demonstration
24 25 be secured in such manner, and be repaid within such
24 projects in order to demonstrate to localities the benefits
period, not exceeding sixty years, as may be deemed advis-
25 to be derived therefrom. No such projects shall be com-
Regraded
Uclassified
16
17
1 menced in any locality without the consent of B governing
2 body having jurisdiction over such locality: Provided, That
1 society. The lessee of any project, pursuant to this para-
3 not more than one demonstration project shall be commenced
2 graph, shall assume and pay all management, operation,
3 and maintenance costs, together with payments, if any, in
4 hereafter in any one locality and that the total estimated
4 lieu of taxes, and shall pay to the Authority such annual
5 development cost of all such projects commenced in any
5 sums as the Authority shall determine are consistent with
6 one fiscal year shall not exceed $25,000,000.
6 maintaining the low-rent character of such project. The
7
(b) As soon as practicable the Authority shall sell its
7 provisions of section 321 of the Act of June 30, 1932
8 demonstration projects or divest itself of their management
9 through leases. Quelim 7 prinding for loss
8 (U. S. C., Supp. VIII, title 40, sec. 303 (b) shall not
9 apply to any lease pursuant to this Act. Firm about punerm
10
(e) The Authority may sell a low-rent-housing demon-
tm lisses
10
(e) In the administration of any low-rent-honsing
11 stration project only to a public housing agency. Any such
11 demonstration project peuding sale or lease, the Authority
12 sale shall be for a consideration, in whatever form may be
12 shall fix the rentals at the amounts necessary to pay all man-
13 entisfactory to the Authority, equal at least to the amount
13 agement, operation, and maintenance costs, together with
14 which the Authority determines to be the fair value of the
14 payments, if any, in lieu of taxes, plus such additional
15 project for housing purposes, less such allowance for depre-
15 amounts as the Authority shall determine are consistent with
16 eintion ns the Authority shall fix. Such project shall then
16 maintaining the low-rent character of such project.
17 become eligible for a grant and loans pursuant to section 9.
17
GENERAL POWERS OF THE AUTHORITY
18 Any obligation of the purchaser accepted by the Authority
18
SEC. 12. (a) In connection with the development or
19 na part of the consideration for the sale of such project shall
19 administration of any low-rent-honsing or slum-clearance
20 be deemed a loan pursuant to section 9.
21
20 project, the Authority may acquire real or personal property
(d) The Authority may lease any low-rent-housing
22 demonstration project in whole or in part to a public housing
21 or any interest therein by purchase, eminent domain, gift,
23 agency or a consumers' housing society: Provided, That
22 devise, lease, or otherwise. In the acquisition of any land
24 the tenant eligibility for a project leased to a consumers
23 or site the provisions of section 355 of the Revised Statutes,
25 housing society shall not be limited to the members of such
24 as amended, shall not apply, but the Authority may avail
25 itself of the services of the Attorney General acting in accord
S. 1685-2
Regraded Uclassified
18
19
1 with his powers under such section to procure information
1 end subdivision thereof of its civil and criminal jurisdiction
2. relating to the state of title. The Attorney General shall,
2 in and over such property, or impair the civil rights under
3 upon the application of the Authority, institute condemnation
3 the State or local law of the inhabitants on such property;
4 proceedings in its name. The practice and procedure govern-
4 and, insofar as any such jurisdiction may have been taken
5 ing such proceedings by the United States shall be followed,
5 away or any such rights impaired by reason of the acquisition
6 and the Authority shall likewise be entitled to proceed in
6 of any property transferred to the Authority pursuant to
7 accordance with the provisions of an Act of Congress
7 section 4 (d), such jurisdiction and such rights are hereby
8. approved February 26, 1931 (46 Stat. 1421), and an Act
8 fully restored.
9 of Congress approved March 1, 1929 (45 Stat. 1415). The
9
(d) The Authority may enter into agreements to pay
10 Authority may enter into agreements to reimburse any State
10 annual sums in lieu of taxes to any State or political sub-
11 or political subdivision thereof, or any housing agency, for
11 division thereof with respect to any real property owned by
12 expenses incurred in the acquisition, by condemnation or
12 the Authority. The amount so paid for any year upon any
13 otherwise, of property to be conveyed to the Authority for
13 such property shall not exceed the taxes that would be paid
14 the development of a low-rent-housing or slum-clearance
14 to the State or subdivision, as the case may be, upon such
15 project.
15 property if it were not exempt from taxation thereby.
16
(b) The Authority may foreclose on any property or
16
(e) The Authority may procure insurance against any
17 commence any action to protect or enforce any right conferred
17 loss in connection with its property and other assets (includ-
18 upon it by any law, contract, or other agreement. The
18 ing mortgages), in such amounts, and from such insurers,
19 Authority may bid for and purchase at any foreclosure by any
19 as it deems desirable.
20 party or at any other sale, or otherwise acquire, and may
20
(f) The Anthority may dedicate land for parks, play-
21 administer, any low-rent-housing project which it previously
21 grounds, and other recreational facilities, for sewers, for the
22 owned or in connection with which it has made IL loan or
22 opening or widening of streets, for incidental improvements,
23 grant pursuant to section 9 or a loan pursuant to section 10,
23 or for any other public purpose, and may grant licenses
24
(e) The acquisition by the Authority of any real propr
24 and easements upon such terms as it doems reasonable.
25 eny pursuant to this Act shall not deprive any State or politi-
Regraded Uclassifie
20
21
1
(g) The Authority may sell or exchange at public or
1
STANDARDS
2 private sale, or lease, any real property (except low-rent-
2
SEC. 14. In making any loan or contract of grant for
3 housing projects, the disposition of which is governed else-
3 the development, acquisition, or administration of a project
4 where in this Act) or personal property, and sell or exchange
4 pursuant to section 9, or any loan for the development or
5 any securities or obligations, upon such terms as it may fix.
5 aequisition of B. project purseant to section 10, and in under-
6 To facilitate the sale of such securities or obligations any
6 taking any demonstration project pursuant to section 11,
7 other securities or obligations retained by the Authority may
7 the Authority shall be guided by these considerations:
8 be subordinated to those sold. The Authority may borrow
8
(1) In the case of a low-rent-housing project, that there
9 on the security of any real or personal property owned by
9 exists in the locality or metropolitan area concerned n. short-
10 it, or on the security of the revenues to be derived there-
10 age of decent, safe, and sanitary dwellings within the finan-
11 from, and may lise the proceeds of such loans for the purposes
11 cial reach of families of low income, which is not being
12 of this Act.
12 remedied adequately by private enterprise;
13
Sec. 13. Subject to the specific limitations or standards
13
(2) In the case of a slum-clearance project, or a low-
14 in this Act governing the terms of sales, rentals, leases,
14 rent-housing project which includes slum clearance, that sub-
15 loans, contracts of grant, or agreements, the Authority
15 stantially all of the dispossessed inhabitants will be provided
16 may, whenever it deems it necessary or desirable in the
16 for by the development of sufficient low-rent housing, within
18 17 fulfillment of the purposes of this Act, consent to the
17 their financial reach, either upon the site to be cleared or
20 21 19 modification, ment amount of of any annual with installment contribution, respect of to principal rate or of any interest, or other interest, term, time security, of of pay- any
18 in some other suitable locality, unless the clearance of the
19 area will not make it impracticable for the inhabitants
20 thereof to secure equivalent dwellings elsewhere at no higher
22 in contract or agreement of any kind to which the Authority
21 cost to them or better dwellings elsewhere within their
23 this a party or which has been transferred to it to
22 financial reach:
24 Act, Any rule of law contrary to this provision pursuant shall be
23
(3) That the project conforms to a general program
deemed imapplicable.
24 formulated by the Authority to distribute the benefits of
25 this Act as widely as practicable throughout the United
Regraded Iclassified
22
23
1 States, consistent with the needs of the several States and
1 private industry from the competition that would exist either
2 their political subdivisions;
2 if other than families of low-income were accepted as tenants
3
(4) That the form of assistance to the project is an
3 in such projects or if such projects were withdrawn from the
4 appropriate means of carrying out the purposes of this Act
4 financial reach of such families, it is hereby provided that-
5 in the particular case, and that the amount of financial
5
(1) When a loan is made pursuant to section 9 or
6 assistance to be afforded such project by the Authority
6 section 10, the Authority may retain the right, in the event
7 will not be in excess of the amount necessary for such
7 of a substantial breach of the covenant (which shall be em-
8 purposes;
8 bodied in the loan agreement) to maintain the low-rent
9
(5) That the site on which the project is or shall be
9 character of the housing project involved or in the event
10 developed has been selected primarily for its present and
10 of the acquisition of such project by a third party in any
11 continued suitability for its intended use; that its location
11 manner including a bona-fide foreclosure under a mortgage
12 and planning are consistent with a logical development of
12 or other lien held by a third party. to increase the interest
13 land uses in the locality or metropolitan area concerned; and
13 payable thereafter on the balance of said loan then held
14 that it lms been or will be acquired for a reasonable price;
14 by the Authority to a rate not in excess of the going Federal
15
(6) The assistance, if any (in the form of partial finano-
15 rate (at the time of such breach) plus 2 per centum per
16 ing, annual contributions, land in whole or in part, community
16 annum or to declare the unpaid principal on said loan due
17 facilities or services, partial or complete remission of taxes),
17 forthwith.
18 given to the project by the State or political subdivision in
18
(2) When a contract of grant is made pursuant to see-
19 which it is located;
19 tion 9, the Authority shall retain the right, in the event
20
(7) That the advice has been sought, where available,
20 of a substantial breach of the covenant (which shall be
21 of such planning commission or board (created under charter,
21 embodied in such contract of grant) to maintain the low-
22 statute, or ordinance) as may exist in the locality of the
22 rent character of the housing project involved, to reduce
23 project.
23 or terminate the annual contributions payable under such
24
Sec. 15. In order to insure that the low-rent character
24 contract of grant. In the event of the acquisition of such
25 of housing projects will be preserved, and thus to protect
25 project by a third party in any manner including a bona-
Regraded
Uclassified
24
25
1 fide foreclosure under a mortgage or other lien held by a
1 buildings and public works" (U. S. C., Supp., 1934 edition,
2 third party, such annual contributions shall terminate.
2 title 40, sec. 270 (a) to (d), inclusive), shall apply to
3
(3) When a lease of n low-rent-housing project is made
3 contracts in connection with the development or administra-
4 pursuant to section 11, the Authority shall retain the right
4 tion of low-rent-housing or slum-clearance demonstration
5 to terminate such lease in the event of a substantial breach
5 projects and the furnishing of materials and labor for
6 of the covenant (which shall be embodied in such lease) to
6 such projects: Provided, That suits shall be brought in
7 maintain the low-rent character of such housing project.
7 the name of the Authority and that the Authority shall
8
(4) The Authority may also insert in any contract of
8 itself perform the duties prescribed by section 3 (n) of the
9 loan or grant, lease, mortgage, or any other agreement or
9 Act of August 30, 1935, and section 3 of the Act of August
10 instrument made pursuant to this Act, such other covenants,
10 24, 1935.
11 conditions, or provisions as it may deem necessary in order
11
(2) Any contract for a loan, grant, sale, or lease pur-
12 to insure the low-rent character of the housing project
12 suant to this Act shall contain a provision requiring that
13 involved.
13 the wages prevailing in the locality, as determined or adopted
14
SEC. 16. In order to protect labor standards-
14 (subsequent to a determination under applicable State or
15
(1) The provisions of the Act of August 30, 1935,
15 local law) by the Authority, shall be paid to all laborers
16 entitled "An Act to amend the Act approved March 3, 1931,
16 and mechanics employed in the development or adminis-
17 relating to the rate of wages for laborers and mechanics
17 tration of the low-rent-housing or slum-elearance project
18 employed by contractors and subcontractors on public build-
18 involved; and the Authority may require certification as to
19 ings" (49 Stat. 1011), and of the Act of August 24, 1935,
19 compliance with the provisions of this paragraph prior to
20 entitled "An Act requiring contracts for the construction,
20 making any payment under such contract.
21 alteration, and repair of any public building or public work
21
(3) The Act entitled "An Act limiting the hours of
23 22 of the United States to be accompanied by a performance
22 daily services of laborers and mechanics employed upon work
bond protecting the United States and by an additional bond
23 done for the United States, or for any Territory, or for the
24 25 for the protection of persons furnishing material and labor
24 District of Columbia, and for other purposes", as amended
for the construction, alteration, and repair for the said public
25 (37 Stat. 137), shall apply to contracts of the Authority
Regraded Uclassified
26
27
1 for work in connection with the development and adminis-
1
FINANCIAL PROVISIONS
2 tration of low-rent-housing or slum-clearance demonstration
2
SEO. 17. The Authority shall have 24 capital stock of
3 projects.
3 $1,000,000, which shall be subscribed by the United States
4
(4) The benefits of the Act entitled "An Act to pro-
4 and paid by the Secretary of the Treasury out of any avail-
5 vide compensation for employees of the United States suf-
5 able funds. Receipt for such payment shall be issued to the
6 foring injuries while in the performance of their duties, and
6 Secretary of the Treasury by the Authority and shall evi-
7 for other purposes" (39 Stat. 742), shall extend to officers
7 dence the stock ownership of the United States of America.
8 and employees of the Authority.
8
SEC. 18. There is hereby authorized to be appropriated,
9
(5) The provisions of sections 1 and 2 of the Act of
9 out of any money in the Treasury not otherwise appro-
10 June 13, 1934 (U. S. C., title 40, sec. 276 (b) and (c)).
10 priated, the sum of $51,000,000 for the fiscal year ending
11 shall apply to any low-rent-housing or slum-clearance proj-
11 June 30, 1938, of which $1,000,000 shall be available to
12 ect financed in whole or in part with funds made available
12 pay the subscription to the capital stock of the Authority.
13 pursuant to this Aet.
13 Such sum, and all receipts and assets of the Authority, shall
14
(6) Any contractor engaged on any project financed
14 be available for the purposes of this Act until expended.
15 in whole or in part with funds made available pursuant to
15
SEC. 19. (n) Any funds available under any Act of
16 this Act shall report monthly, and shall cause all subcon-
16 Congress for allocation for housing or slum clearance may,
17 Unictors to report in like manner (within five days after the
17 in the discretion of the President, be allocated to the Author-
18 close of each calendar month, on forms to be furnished by
18 ity for the purposes of this Act.
19 the United States Department of Labor), as to the number
19
(b) Any unallocated funds how in the Imnds of the
20 of persons on their respective pay rolls, the aggregate
20 Federal Emergency Administration of Public Works, or
21 amount of such pay rolls, the total man-hours worked, and
21 hereafter received by it, which are derived from the sale of
22 itemized expenditures for materials. Any such contractor
22 securities acquired pursuant to Title 2 of the National
23 shall furnish to the Department of Labor the names and
23 Industrial Recovery Act or the Emergency Relief Appro-
24 addresses of all subcontractors on the work at the earliest
24 printion Aet of 1935, may, in the discretion of the President,
25 date practicable.
25 be allocated to the Authority for the purposes of this Act.
Regraded Uclassified
28
29
1
SEC. 20. (a) The Authority is authorized to issue obli-
1 upon demand when due, payments shall be made to the holder
2 gations, in the form of notes, bonds, or otherwise, which
2 by the Secretary of the Treasury with money hereby author-
3 it may sell to obtain funds for the purposes of this Act.
3 ized to be appropriated for such purpose out of any money
4 The Authority may issue such obligations in an amount
4 in the Treasury not otherwise approprinted. To the extent
5 not to exceed $200,000,000 on or after July 1, 1937, an
5 of such payment the Secretary of the Treasury shall succeed
6 additional amount not to exceed $250,000,000 on or after
6 to all the rights of the holder.
7 July 1, 1938, an additional amount not to exceed $250,-
7
(d) Such obligations shall be lawful investments and
8 000,000 on or after July 1, 1939, and an additional amount
8 may be accepted ns security for all fiduciary, trust, and public
9 not to exceed $300,000,000 on or after July 1, 1940.
9 funds the investment or deposit of which shall be under the
10
Such obligations shall be in such forms and denomina-
10 authority or control of the United States or any officer or
11 tions, mature within such periods not exceeding sixty years
11 agency thereof. The Secretary of the Treasury is likewise
12 from date of issue, bear such rates of interest not exceeding
12 authorized to purchase any such obligations, and for such
13 4 per centum per annum, be subject to such terms and
13 purchases he may use as a public-debt transaction the pro-
14 conditions, and be issued in such manner and sold at such
14 ceeds from the sale of any securities hereafter issued under
15 prices as may be prescribed by the Authority, with the
15 the Second Liberty Bond Act, as amended, and the purposes
16 approval of the Secretary of the Treasury.
16 for which securities may be issued under such Act, as
17
(b) Such obligations shall be exempt, both as to
17 amended, are extended to include any such purchases. The
18 principal and interest, from all taxation (exeept surtaxes.
18 Secretary of the Treasury may at any time sell any of the
19 estate, inheritance, and gift taxes) now or hereafter imposed
19 obligations acquired by him pursuant to this section, and all
20 by the United States or by any State, county, municipality.
20 redemptions, purchases, and sales by him of such obligations
21 or local taxing authority.
21 shall be treated as public-debt transactions of the United
22
(c) Such obligations shall be fully and unconditionally
22 States:
23 guaranteed upon their face by the United States as to the
23
(e) Such obligations may be marketed for the Author-
24 payment of both interest and principal, and, in the event that
24 ity at its request by the Secretary of the Treasury, utilizing
25 the Authority shall be unable to make any such payment
Regraded Uclassified
30
31
1 all the facilities of the Treasury Department now authorized
I
Seb. 23. Any person who, with intent to defrand the
2 by law for the marketing of obligations of the United States.
2 Authority or to deceive any director, officer, or employee
3
SEC. 21. (a) Any money of the Authority not other-
3 thereof or any officer or employee of the United States, makes
4 wise employed may be deposited, subject to check, with the
4 any false entry in any book of the Authority or makes any
5 Treasurer of the United States or in any Federal Reserve
5 false report or statement to or for the Authority shall, upon
6 bank, or may be invested in obligations of the United States
6 conviction thereof, be fined not more than $1,000 or im-
7 or used in the purchase or retirement or redemption of any
7 prisoned for not more than one year, or both.
8 obligations issued by the Authority.
8
SEC. 24. Any person who shall receive any compensa-
9
(b) The Federal Reserve banks are authorized and
9 tion, rebate, or reward, or shall enter into any conspiracy,
10 directed to net ns depositories, custodians, and fiscal agents
10 collusion, or agreement, express or implied, with intent to
11 for the Authority in the general exercise of its powers, and
11 defraud the Authority or with intent unlawfully to defeat
12 the Authority may reimburse any such bank for its services
13 its purposes, shall, upon conviction thereof, be fined not more
13 in such manner as may be agreed upon.
13 than $1,000 or imprisoned for not more than one year, or
14
(c) The Authority may be employed as a financial
14 both.
15 agent of the Government. When designated by the Secretary
15
SEC. 25. Any person who induces or influences the
16 of the Treasury, and subject to such regulations as be may
16 Authority to purchase or acquire any property or to enter
17 prescribe, the Authority shall be a depository of public
17 into any contract and willfully fails to disclose any interest,
18 money, except receipts from customs.
18 legal or equitable, which he has in such property or in the
19
PENALTIES
19 property to which such contract relates, or any special bene-
20
Sec. 22. All general penal statutes relating to the lareeny,
20 fit which he expects to receive ns a result of such contract,
21 embezzlement, or conversion or to the improper handling,
21 shall, upon conviction thereof, be fined not more than $1,000
22 retention. use, or disposal of public moneys or property of
22 or imprisoned for not more than one year, or both.
21 the United States shall apply to the moneys and property
23
SEC. 26. No individual, association, partnership, or cor-
24 of the Authority and to moneys and properties of the United
24 poration shall use the words "United States Housing Author-
25 States entrusted to the Authority.
25 ity", or any combination of these four words, ns the name,
Regraded Uclassified
32
1 or part thereof, under which he or it shall do business. Any
2 such use shall constitute a misdemeanor and shall be pun-
3 ishable by a fine not exceeding $1,000. No (III DX
4
SEC. 27. Wherever the application of the provisions of
5 this Act conflicts with the application of the provisions of
6 Public, Numbered 837, approved June 29, 1936 (49 Stat.
7 2025), Public, Numbered 845, approved June 29, 1936
8 (49 Stat. 2035), or any other Act of the United States
9 dealing with housing or slum clearance, or any Executive
sult
10 order, regulation or other order thereunder, the provisions
11 of this Act shall prevail.
(f
12
SEC. 28. Notwithstanding any other evidences of the
13 intention of Congress, it is hereby declared to be the con-
JUB A
- of indian wall Thiversing of
14 trolling intent of Congress that if any provision of this Act,
282
- TO/1 - Invisitions live
- Them Loss time to
Ani to and TO) Spirt
ed and fine de
to mindins TA) TWO DM - mul
to PUBLIC - - number
world alamy as this
accountant make rd
unter M as
zur -
15 or the application thereof to any person or circumstances, is
- - AL Sum Cuedit
misl has -
16 held invalid, the remainder of this Act, or the application of
17 such provision to persons or circumstances other than those
18 as to which it is held invalid, shall not be affected thereby.
19
SEO. 29. This Act may be cited as the "United States
20 Housing Act of 1937.'
Hade
Regraded Uclassified
TOTH CONGRESS
1ST SESSION
S. T685
A
BILL
To provide financial assistance to the States
and political subdivisions thereof for the
elimination of unsafe and insanitary hous-
ing conditions, for the provision of decent,
safe, and sanitary dwellings for families of
low income, and for the reduction of unem-
ployment and the stimulation of business
activity, to create a United States Housing
Authority, and for other purposes.
By Mr. WAGNER
FEBRUARY 24, 1937
Read twice and referred to the Committee on
Education and Labor
Regraded Uclassified
104
DIGEST OF WAGNER HOUSING BILL - S. 1685
SECTION ONE contains a general declaration of policy.
SECTION TWO contains definitions. The most important definition
is one which limits occupants of housing projects to families whose incomes
do not exceed five times the rental to be charged. This sets a standard
designed to keep the projects available only for families of low income.
Department of Labor statistics show that on an average a low income
family can afford to pay between one-fifth and one-fourth of its income
for rental.
More important than this administrative standard are the subsidy
provisions in the bill, which are the final determinants of whether from
the financial point of view the projects can be made available for
families of low income. These subsidy provisions will be discussed in
connection with Section 9.
SECTION THREE creates a United States Housing Authority of three
members. The only other agency of the Federal Government which is deal-
ing with low-rent housing problems is the Public Works Administration,
and thus a choice lies between making the new agency a part of the Public
Works Housing Division or of transferring the housing division to the new
Authority. The bill authorizes such transfer, and it is submitted that this
would be the better way of getting the program off to a fresh start unen-
Regraded Jolassified
105
- 2 -
cumbered by the mistakes of prior agencies.
SECTIONS FOUR and FIVE deal with routine matters of administration.
SECTION FIVE also raises the question of the extent to which the bonds
issued by local housing authorities should be exempt from Federal taxation.
It is submitted that partial tax exemption, putting these bonds on a par with
the bonds issued by the U. S. Housing Authority, would be a relatively cheap
way of providing assistance to local projects and would tend to induce a
larger inflow of local money.
SECTIONS SIX, SEVEN and EIGHT deal with routine administrative matters.
SECTION NINE, which is the heart of the bill, deals with grants and
loans to local public housing agencies,
All loans are to be repayable in full to the Federal Government, plus
at least the going Federal rate of interest upon bonds having a term of ten
years or more at the time such loans are made.
The grants or subsidies for low-rent housing projects are to be in the
form of fixed and uniform annual contributions, modeled upon the English
system. No such annual contribution is to be more than a sum equal to the
annual yield at the going Federal rate of interest plus 1% upon the develop-
ment cost of the project.
The bill specifically sets forth that the grants shall be payable
out of congressional appropriations, and not out of the moneys available
for loans, nor out of realizations on the principal of loans. Furthermore,
the new contracts for annual contributions are limited to $10,000,000 in
Regraded Iclassified
106
- 3 -
any one fiscal year, and the faith of the United States is pledged to their
payment.
Attached is a table (Exhibit One) showing the rentals obtainable
and the income groups reached under this form and amount of subsidy, con-
trasted with the rentals and income groups reached under existing facilities
of the Federal Government, Present facilities cannot reach low income groups;
and this plan will.
It is submitted that the form and amount of subsidy provided under
this bill, in addition to its capacity to reach low income groups, will
tend to produce much lower building costs than the capital grants provided
by the Public Works Administration, and in addition will provide a much
more effective annual check, both upon financial operations and upon the
character of tenants accepted in housing projects.
SECTION TEN provides loans to limited dividend companies for housing.
Such loans are not to exceed 85% of the development cost, are to bear a rate
of interest equivalent to at least the going Federal rate, and are not to
aggregate more than $25,000,000 per year.
SECTION ELEVEN facilitates the rapid transfer of existing Federal
housing projects to local authorities, and in addition authorizes a limited
number of demonstration projects in areas where local authorities are not
properly constituted to do low-rent housing. A limitation of $25,000,000
per year is placed upon the total volume of new demonstration projects,
thus holding them to one-tenth per cent of the total program.
107
4-
SECTION TTELVE confers upon the Authority such powers in connection
with the acquisition and disposition of property as would ordinarily be
conferred upon. n business corporation, and confers also the right of
eminent domain. However, the bill in no way removes obstacles confronting
other agencios in attompting to exercise eminont domain under other statutes.
SECTION THIRTEEN confors power to modify contracts by mutual consent.
SECTIONS FOURTEEN and FIFTEEN set forth dofinito legislativo standards,
designed to protect the financial position of the Authority as a londing
agency, and also to insure the perpetual low ront character of the projects.
It also sots forth, as a considoration in extending aid, though not as a
mandatory provision, the amount and character of local contributions toward
housing projects.
SECTION SIXTEEN sots forth basic labor standards, comparable to
those incorporated in analogous Foderal statutos.
SECTIONS SEVENTEEN and EIGHTEEN provide a capital stock of $1,000,000
for the Authority, and on additional appropriation of $50,000,000 to cover
administration expenses and annual subsidies during the first four years of
the program.
SECTION NINETEEN authorizes the Prosident in his discretion to assign to
the Authority unallocated funds of any Governmental agency ongaged in housing,
Regraded Uclassified
108
-5-
and the funds of the Federal Emergency Adm istration of Public Works.
SECTION TWENTY authorizos the Authority to issuo bonds ever a four-
year period, 17, an amount of $1,000,000,000. to be used as loans for low-ront
housing and slum-clearance projects. The bonds are guarantoed as tc principal
& interest by the U.S. and are tax exempt except as tc Fodoral surtaxos and
cstato inhoritance and gift taxos.
The attached table (Exhibit two) shows the cost of the total program
to the Fodoral Government during the first four years, and the average annual
cost thoroafter, first upon the basis cf a $1,000,000,000 program covered
entirely by Fodoral loans, and socced upon the basis of a $1,500,000,000
program covered two-thirds by Fodoral lonns and :ne-third by the private
wrchase of the bonds of local authoritics.
SECTION TWENTY-ONE providos that any money of the Authority not other-
viso employed may be invosted in obligations of the United Statos or
used in the purchase cr retiroment or rodomption of any obligations issued
by the Authority.
SECTIONS TTENTY-TWO, TWENTY-THREE, ttenty-four, TWENTY-FIVE and
TTENTY-SIX are ponal provisions.
SECTIONS TTENTY-SEVEN and TTENTY-EIGHT cover conflicts botwoon this
Act and other Acts and contain the standard soparability provisions.
SECTION TTENTY-NINE contains the titlo of the Act.
109
RENT PER ROOM AND INCOME GROUPS REACHED
BY PRIVATE ENTERPRISE AND
PUBLIC HOUSING
Cost Per Room $1000
Cost Per Room $1335
(Operating Exp. 2.61)
(Operating Exp.
3.48
(Taxes
2.00)
(Taxes
2.67
4.61
6.15
Rent
Income
Rent
Income
per
Group
per
Group
Room
Reached
Room
Reached
Private Enterprise
Actual experience of the 43 low-rent
housing projects of F. H. A.
$13.82
$3317
Private Enterprise
Assuming it is possible to build
for cost of $1000 per room
$10.37
$2489
Public Housing Under Wagner-Steagall
Bill Paying no local taxes
Capital from U.S.H.A. @ 2/2 60 yrs.
Subsidy 31/202
2.34
562
3.12
749
3.34
802
4.45
1069
Capital
Private sources 43 30 yrs.
U.S.H.A. 2½ 60 yrs.
Subsidy 31
3.80
912
5.07
1217
4.80
1152
6.40
1537
Public Housing Under Wagner-Steagall Bill
Paying Half local taxes
Capital from U.S.H.A. 2/2 60 yrs.
Subsidy 3½
3.34
802
4.45
1068
2
4.34
1042
5.78
1388
Capital
private sources 4% 30 yrs.
too
U.S.H.A. @ 60 yrs.
Subsidy 3/5
4.80
1152
6.40
1536
5.80
1392
7.73
1856
Public Housing Under Wagner-Steagall Bill
Paying full local taxes
Capital from U.S.H.A. @ 21 60 yrs.
Subsidy 3½
4.34
1042
5.79
1390
5.34
1282
7.12
1710
Regraded Uclassified
110
-2-
Cost Por Rccm $1000
Ccst Por Rccm $1333
(Oporating Exp. 2,61) (Oporating Exp. 3,49)
(Taxos
2.00) (Taxes
2.67)
4.61
6.15
Ront
Inccmo
Rent
Income
Por
Group
Per
Group
Room
Roached
Room
Reached
Capital private scurcos 4/2 30 yrs.
U.S.H.A. @ 23 60 yrs
Subsidy 34
5.30
1392
7.73
1355
25
6.80
1632
9.06
2175
Public Housing Under P.W.A. Formula cf
45% Cap. Grant, Balanco 3% 60 yrs.
Paying no taxes
4,60
1104
6,13
1471
Paying 2 1 taxes
5.60
1344
7.46
1791
Paying full taxos
6.60
1534
3.79
2111
Income groups served is based on normal family of 2 cr 3 children using 4 rooms
and paying 20% cf income for rent.
Regraded Uclassified
111
COMPARISON OF ESTIMATED ROOM COSTS UNDKR TREASURY PLAN, WILLIAMSBURG AND TECHWOOD PROJECTS;
AND ESTIMATED MONTHLY ROOM CHARGES FOR EACH PROJECT UNDER TREASURY, PVLA AND WAGNER BILL AMORTIZATION SCHEDULES
THEASURY
WILLIAMSBURG
TECHWOOD
DESCRIPTION
1. Type of Structure
3-story apartments 4-story apartments 3-story apart-
ments and 2-
story Row Houses
2. Average Land Cost per Square Foot
1.00
3.93
.66
ESTIMATED CAPITAL COST PER ROOM
3. Land
180.00
742.35
271.84
4. Construction
930.00
1,353.72
749.59
5. Administration and Overhead including
architectural and engineering service
56.00
53.17
95.68
6. Interest during construction
15.00
(1)
(1)
7. Contingencies
19.00
54,47
.00
8. TOTAL
1,200.00
2,203.72
11"4"I"I
ESTIMATED MONTHLY ROOM CHARGES UNDER
TREASURY AMORTIZATION SCHEDULE
9. Interest on Land Costs 6 3% (5)
.45
1.86
.68
10, Amortization in 40 years e 3% Interest,
on Capital Cost excluding land (2)
3.68
5,27
3,06
11. Taxes or Service Charges
(5)
,00
.36
12. Operation and Maintenance
3.50
4.75
4.27
13. Loss of Rental and Vacancies e 10% (4)
.85
1,32
.93
14. TOTAL
8.48
13.18
9.29
ESTIMATED MONTHLY ROOM CHARGES UNDER P.W.A.
AMORTIZATION SCHEDULE
15. Amortization in 59 years 0 3% Interest,
on 55% of Total Capital Cost
2.00
3.67
1.86
16. Taxes or Service Charges
(5)
.00
.36
17. Operation and Maintenance
3.50
4.73
4.27
18. Vacancies 6 6%
.29
.44
.34
19, TOTAL
5.79
8.84
6.63
ESTIMATED MONTHLY ROOM CHARGES UNDER WAGNER BILL
(Assuming annual grant equals annual charge for
interest and amortization on 100% Capital Loan)
20. Taxes or Service Charges
(3)
,00
,36
21. Operation and Maintenance
3.50
4.73
4.27
22, Vacancies G 5%
.18
.25
.24
23. TOTAL
3,68
4.98
4.87
ESTIMATED MONTHLY ROOM SUBSIDY
24. Under Treasury Plan
,00
,00
,00
25. Under P.W.A. Plan (Amortization in 59 years
6 3% interest on 45% of Total Capital Cost)
1.64
3.00
1.52
26. Under Wagner Bill (Amortization in 60 years
6 20% interest on 100% of Total Capital cost)
3,24
5,94
3.01
(1) Not available,
(2) Forty years is considered to be the maximum period advisable for amortization because of the effects
of obsclescence and outmoding regardless of physical depreciation.
(3) No taxes are included in Treasury Plan because of the extreme variation of rates, and the libelihood
that tax exemption or nominal service charges will be accorded projects in many cities.
(4) Sound judgment diotates the use of 10% 18 a factor covering vacancies and loss of rental, because of
the uncertain income of the tenancy. It also provides & cushion against unforeseen contingencies,
(5) If land cost were amortized in 40 yrs. 6 3%, land charges would increase 20/, 82#, and 30£ respectively.
NOTE: The figures shown for Techwood and Milliamsburg are estimates derived from confidential data
submitted to the Bureau of the Budget; the cost and expense figures shown are estimates for
dwelling rooms after adjusting for amounts applicable to dormitories and non-living units, as
explained in the accompanying memorandum,
5-1-37
Regraded Uclassi ed
BASIS OF THE TREASURY PL
112
1. Type of Structure: Multi-family apartment buildings consisting generally of
thirty family units of an everage size of four roems (three rooms, kitchen
and bath) per unit. Buildings to be fireproof up to but not including the
roof; to have & part basement for heating plant, laundry and storage space;
and to be equipped with the usual plumbing, lighting, cooking and refrigerator
fixtures.
Gross floor area per room
-
180 aq. ft.
Gross cubie contents per room - 2150 cu. ft.
2. Average Land Cost: The cost of $1.00 per sq. ft. 1a assumed to include roads,
sidewalks, utilities and landscaping.
3. Land: The land coverage is 33-1/3% equivalent to 180 square feet per room.
4. Construction: The cost of construction including builders' fee is equivalent
to approximately 43.25d per cubic foot.
5. Administration and Overhead, etc. includes architects' and engineers' fees for
surveys, drawings and specifications, field supervision and administration.
6. Interest during Construction: This item covers the interest on the capital
expenditures during the period of design and construction.
7. Contingencies: Approximately 2% of the estimated construction cost.
e. Total: The total cost assumes a complete building ready for operation and
occupancy.
9. Interest on Land Cost: It is assumed that the land will be held for public
use and that amortization of this item is not desirable.
10. Amortization, etc.: Although it is probable that the physical structure
would last many years beyond the 40-year period, it is believed that changes
in mechanical equipment, mode of living, and developments in transportation
and neighborhood changes in this span of years do not justify the considera-
tion of et longer period.
11. Taxes or Service Charges: The general policy of tax exemption being estab-
lished for low rental housing in the larger cities and the wide variation in
the tax rate in the small communities makes it difficult to establish an ac-
curste figure for this item.
12. Operation and Maintenance: This item includes cost of heat, water, lighting,
janitor service, repairs and maintenance, and rent administration.
13. Loss of Rental and Vacancies: This item is obvious. Although the number of
Vacancies would probably be low, it 1a believed that the loss of rental would
be somewhat higher than normal. The amount of 10% will probably allow some
cushion for unexpected increases in operating expenses.
14. Total: This item represents the minimum rental required to equal the carry-
ing It is subject to change on account of the addition of taxes,
increase charges. in future operating costs, or decrease by reason of submidy or write-off.
Regraded Uclassified 3-1-37
113
NET COST TO FEDERAL GOVERNMENT OF $1,000,000,000 LOW RENT
HOUSING PROGRAM FINANCED ENTIRELY BY FEDERAL LOANS
(All loans would be repayable in full plus at least
going federal rate of interest)
Fiscal
Family
Total
Annual Contributions Through Federal
year
Dwelling Units
Capital
Appropriations (each contribution
Constructed
Loans (at
beginning in first year subsequent
$4,000 per
to construction)
family unit
3% of
3% of
22% of
capital
capital
cap ital
cost
cost
cost
1938
50,000
$200,000,000
----
----
----
1939
62,500
250,000,000
$7,000,000
$6,000,000
$5,000,000
1940
62,500
250,000,000
15,750,000
13,500,000
11,250,000
1941
75,000
300,000,000
24,500,000
21,000,000
17,500,000
Total
contribu-
tions for
first four
$47,250,000
$40,500,000
$33,750,000
years of
program
Contribu-
tions per
year after
$35,000,000
$30,000,000
$5,000,000
1941 for
each
$1,000,000,000
of housing
56yrs = 2,060,001,000 2,107,000,000 47,
113
Regraded Uclass
j'wagnee Homen, Bill
114
SECTION ONE contains a general declaration of policy.
SECTION TWO contains definitions. The most important definition
is one which limits occupants of housing projects to families whose incomes
do not exceed five times the rental to be charged. This sets a standard
designed to keep the projects available only for families of low income,
Department of Labor statistics show that on an average a low income
family can afford to pay between one-fifth and one-fourth of its incose
for rental.
More importent than this administrative standard are the subsidy
provisions in the bill, which are the final determinants of whether from
the financial point of view the projects can be made available for
families of low income. These subsidy provisions will be discussed
in connection with Section 9.
SECTION THREE creates a United States Housing Authority of three
members. The only other agency of the Federal Government which is deal-
ing with low-rent housing problems is the Public Works Administration,
and thus time a choice liss between making the new agency 4 part of the
Public Works Housing Division or of transferring the housing division
to the new Authority. The bill authorized such transfer, and it is submitted
that this would be the better way of getting the program off to a fresh start unen-
Regraded Uclassified
cumbered by the mistakes of prior agencies.
115
SECTIONS FOUR and FIVE deal with routine matters of administration.
SECTION FIVE also raises the question of the extent to which the bonds
issued by local housing authorities should be exempt from Federal taxetion.
It is submitted that partial tax exemption, putting these bonds on 8. par
with the bonds issued by the Federal us. Housing Administration, authority would be a
relatively cheap way of providing assistance to local projects and would tend
to induce a larger inflow of local money.
SECTIONS SIX, SEVEN end EIGHT deal with routine administrative matters.
SECTION NINE, which is the heart of the bill, deals with grants and
loans to local public housing agencies.
All loans are to be repayable in full to the Federal Government, plus
at least the going Federal rate of interest upon bonds having a term of ten
years or more at the time such loans are made.
The grants or subsidies for low-rent housing projects are to be in the
form of fixed and uniform annual contributions, modeled upon the English system,
No such annual contribution is to be more than & sun equal to the annual yield
at the going Federal rate of interest plus 18 upon the development cost of
the project.
The bill specifically sets forth that the grants shall be payable
out of congressional appropriations, and not out of the moneys available
Regraded Uclassified
- B -
116
for loans, nor out of realizations on the principal of loans. Furthersore,
the new contracts for annual contributions are limited to $10,000,000 in
\
any one fiscal year, and the faith of the United States is pledged to their
payment.
Attached is a table (Exhibit One) showing the rentals obtainable
add the income groups reached under this form and amount of subsidy, con-
trasted with the rentals and income groups reached under existing facilities
of the Federal Government. Present facilities cannot reach low income
groups; and this plan will.
It is submitted that the form and amount of subsidy provided under
this bill, in addition to its capacity to reach low income groups, will
tend to produce much lower building costs the the capital grants provided
by the Public Works Administration, and in addition will provide a much
more effective annual check, both upon financial operations and upon the
character of tenants accepted in housing projects.
SECTION TEN provides loans to limited dividend companies for housing.
Such loane are not to exceed 85% of the development cost, are to bear a rate
of interest equivalent to at least the going Federal rate, and are not to
aggregate more than $25,000,000 per year.
SECTION ELEVEN facilitates the rapid transfer of existing Federal housing
projects to local authorities, and in addition authorizes a limited number
of demonstration projects in areas where local authorities are not properly
Regraded Uclassified
117
- 3a -
constituted to do low-rent housing. A limitation of $25,000,000 per
year is placed upon the total volume of new demonstration projects, thus
holding then to one-tenth per cent of the total program.
Regraded Uclassified
- 4 -
118
SECTION TWELVE confers upon the Authority such powers in connection
with the acquisition and disposition of property as would ordinarily be
conferred upon a business corporation, and confers also the right of
eminent domain. However, the bill in no way removes obstacles confronting
other agencies in attempting to exercise eminent domain under other statutes.
SECTION THIRTEEN confers power to modify contracts by mutual consent.
SECTIONS FOURTEEN and FIFTEEN set forth definite legialative standards,
designed to protect the financial position of the Authority as a lending
agency, end also tocinsure the perpetual low rent character of the projects.
It also sets forth, as 8. consideration in extending aid, thoughtnot as a
mandatory provision, the amount and character of local contributions toward
housing projects.
SECTION SIXTEEN sets forth basic labor standards, comparable to
those incorporated in analogous Federal statutes.
SECTIONS SEVENTEEN and EIGHTEEN provide & capital stock of $1,000,000
for the Authority, and an additional appropriation of $50,000,000 to cover
administration expenses and annual subsidies during the first four years of
the program.
SECTION MINETEZ authorizes the President in his discretion to assign to
the Authority mallocated funds of any Governmental agency engaged in housing,
Regraded Uclassified
-B-
and the funds of the Federal Testinity Administration of Public Verion.
119
STRETION TWENTY authorises the Authority to Issue bonds over a four-
year period, in an movet of $1,000,000,000, to be used an loans for low-rent
housing and slum-clearance projects. The bonds are guaranteed as to principal
& interest by the U. S. and are tax exempt except as to Federal surtayse and
estate inheritance and sift taxes.
The attached table (Subibit too) shows the cost of the total program
to the Federal Government during the first four years, and the average annual
cost thereafter, first upon the basis of a $1,000,000,000 program covered
entirely by Federal loans, and second upon the basis of a $1,500,000,000
program covered two-thirds by Federal loans and one-third by the private
purchase of the bonds of local authorities.
SEOTION TWENTY-ONE provides that any money of the Authority not other-
wise employed may be invested in obligations of the United States or
used in the purchase or retirement or redemption of any obligations issued
by the Authority.
SECTIONS TWINTY-INO, TWENTY-THREN, TWENTY-FOUR, TWENTY-FIVE and
TWENTY-SIX are penal provisions.
SECTIONS and TWEETT-NIGHT cover conflicts between this
Act and other Acts and contain the standard separability provisions.
SECTION TWHETT-NINE contains the title of the mt.
Regraded Uclassified
120
RENT PRR ROOM AND INCOME GROUPS REACHED
BY PRIVATE ENTERPRISE AND
PUBLIC HOUSIN
Cost Per Room $1000
Cost Per Room $1833
(Operating Exp. 2.61)
(Operating thip. 3.48)
(Taxes
2.00)
(Taxes
2.67)
4.61
6.15
Rent
Income
Rent
Insome
per
Group
per
Group
Private Enterprise
Room
Reached
Room
Reached
Actual experience of the 43 low-rent
housing projects of F. H. so
$13.82
$33.17
trivate Enterorise
Assuming it 10 possible to build for
cost of $1000 per room
$10.37
$2489
ublic Housing Under Nagner-Stengall
Bill Paying no local taxes
Capital from U. s. He A. 6 21 60 yrs.
2.34
Subsidy 31
563
3.12
7.49
21
3.34
802
4.45
1069
Capital à Private sources sb 30 yrs.
t U.S.H.A. at 60 yrs.
Subsidy 3}
3.80
912
5.07
1317
2½
4.80
1152
6.40
1537
ublic Housing Under Wagner-Stengall Bill
Paying Half local taxes
Capital from U.S.H.A. 6 21 60 yrs.
Subsidy 33
3.34
802
4.45
1068
21
4.34
1042
5.78
1388
Capital à private sources st 30 yrs.
+ U.S.H.A. e st 60 yrs.
Subsidy 3)
4.80
1152
6.40
1636
31
5.80
1392
7.75
1856
welle Housing Under Tagner-Stengall Bill
Paying full local taxes
Capital from U.S.H.A. e at 60 yrs.
Subsidy 31
4.34
1042
5.79
1390
31
5.34
1262
7.12
1710
Regraded Uclassified
- a -
121
Cost Per Room $1000
Dost Per Room $1333
(Operating Rep. 2.61)
(Operating Rup. 3.48)
(Taxes
2.00)
(Taxes
2.67)
4.61
6.15
Rent
Income
Rent
Income
Per
Group
Per
Group
Room
Reached
Room
Reached
Capital private sources 43 30 yrs.
U.S.H.A. e 21 60 yrs.
Subsidy 3)
5.80
1392
7.73
1855
2₫
6.80
1632
9.06
2175
Public Housing Under P.W.A. Formula of
45% Cap. Grant. Balance 3% so yrs.
Paying no taxes
4.60
1104
6.13
1471
Paying è taxes
5.60
1344
7.46
1791
Paying full taxes
6.60
1584
8.79
2111
Income groups served is based on normal family of 2 OF 3 children using 4 rooms
and paying 20% of income for rent.
Regraded Uclassified
122
RENT PER ROOM AND INCOME GROUPS REACHED
BY PRIVATE ENTERPRISE AND
PUBLIC HOUSING
Cost Per Room $1000
Cost Per Room $1333
(Operating Exp. 2.61)
(Operating Exp. 3.48)
(Taxes
2.00)
(Taxes
2.67)
4.61
6.15
Rent
Income
Rent
Income
per
Group
per
Group
rivate Enterprise
Room
Reached
Room
Reached
Actual experience of the 43 low-rent
housing projects of F. H. A.
$13.82
$33.17
rivate Enterprise
Assuming it is possible to build for
cost of $1000 per room
$10.37
$2489
ublic Housing Under Wagner-Steagall
Bill Paying no local taxes
Capital from U. S. H. A. @ 21 60 yrs.
2.34
Subsidy 31
562
3.12
7.49
2/2
3.34
802
4.45
1069
Capital
Private sources 43 30 yrs.
NP
U.S.H.A. 21 60 yrs.
Subsidy 31/2
3.80
912
5.07
1217
21
4.80
1152
6.40
1537
ablic Housing Under Wagner-Steagall Bill
Paying Half local taxes
Capital from U.S.H.A. @ 21 60 yrs.
Subsidy 3th
3.34
802
4.45
1068
21
4.34
1042
5.78
1388
Capital private sources 41 30 yrs.
à U.S.H.A. e 21 60 yrs.
Subsidy 3½
4.80
1152
6.40
1536
2
5.80
1392
7.73
1856
blic Housing Under Wagner-Steagall Bill
Paying full local taxes
'apital from U.S.H.A. . 21 60 yrs.
Subsidy 34
4.34
1042
5.79
1390
21
5.34
1282
7.12
1710
Regraded Uclassified
- 2 -
123
Cost Per Room $1000
Cost Per Room $1333
(Operating Exp. 2.61)
(Operating Exp. 3.48)
(Taxes
2.00)
(Taxes
2.67)
4.61
6.15
Rent
Income
Rent
Income
Per
Group
Per
Group
Room
Reached
Room
Reached
Capital private sources 41 30 yrs.
U.S.H.A. . 21 60 yrs.
Subsidy 31
5.80
1392
7.73
1855
2%
6.80
1632
9.06
2175
Public Housing Under P.W.A. Formula of
45% Cap. Grant, Balance 3% 60 yrs.
Paying no taxes
4.60
1104
6.13
1471
Paying } taxes
5.60
1344
7.46
1791
Paying full taxes
6.60
1584
8.79
2111
Income groups served is based on normal family of 2 or 3 children using 4 rooms
and paying 20% of income for rent.
Regraded Uclassified
124
March 2, 1937
I spoke to the President this morning about the
Wagner Housing Bill.
This is the President's formula: in six or seven
years he wants us to build a $1,000,000,000 worth of
"slum clearance". He used this phrase rather than low
cost housing and he does not want it to cost more than
$35,000,000 a year. I said, Mr. President, this is
impossible. 'Well,' he said, 'see if you can't work it
out. How have the English done it?'
He was terribly serious about the matter when I
showed him that what the Wagner Bill proposed was finan-
cially impossible. I told him that if we did what was
suggested in the Wagner Bill we would be simply doing
what Hoover accused us of doing, namely: setting up a
double set of books. Furthermore, that under the Wagner
Bill the proposed guaranteed bonds would not be worth the
paper they were written on.
Regraded Uclassified
125
PACT PROVIDES CUT
Chall where possible, the conts of
existing pension systems would be
absorbed to the sottootions that
IN RAIL WAGE TAX
would be made under the agree
ment.
The agreement would exempt the
managements from liabilities under
Title A of the Social Security Law,
which calls for the payment of old-
Tentative Agreement With
age peusions.
It 16 understood that the re
Unions Would Reduce Pension
mainder of the provisions of the
agreement would follow those of
Quota From 35% to 25%
the existing In.w. This provides that
annuities shall be the sum of the
amounts determined by multiplying
the total number of years of serv-
WOULD SAVE $18,600,000
Ice, not exceeding thirty years, by
the stated percentages. No part of
any monthly compensation to ex-
cass of $300 Le reongnized in com-
Plan, to Bills
puling anpuities under the present
law.
in Congress If Ratified, Would
Other Provisions of Law
Return $15,000,000 for 1936
Other provisions of the present
law require that annuities be paid
to employes, without regard to the
period of service and whether ren-
A reduction la the Initial payroll
dered before or after the enactment
Iss to be paid by the callroads un-
of law, who either at enactment OF
der the existing railway pension law
thereafter shall be sixty-five years
from 3.5 per cegt to 25 per cent 18
of age or older; to employes who
either at enactment or thereafter
contemplated In a tentative agree-
shall be fifty years of age or more
ment between the managements
and who shall have completed
and labor received by railroad offi-
thirty years service, annuities in
cials here yesterday. If enacted
these cases to be reduced by one-
fifteanth for each year the employe
into law, the Agreement would add
may be less than sisty-five years of
more than $15,000,000 retroactively
age al the time of the first pay-
to the aggregate net Income of the
ment; and employes who, either be.
fallroads last year, increasing 11.
fore or after the enactment, shall
from about $160,000,000 to more
have had thirty years service and
who shall after enactment be No-
than $175,000,000.
tired on account of mental or phys.
The present law, which is being
leal disability, the annuity then not
contested by the managements in
being subject to the one-fifteenth
the courts, provides for payroll con-
deduction.
Bills for the enactment of the
tributions by the managements
proposed agreement are to be Intro-
amounting to 2 per cent on the first
duced into Congress, If It le adopt-
$50 of monthly wages, 1.5 per cent
ed. The agreement bas to be ap-
on the next $100 and 1 per cent on
proved by majority vote of the Aa-
amounts In excess of $150. Delue-
sociation of American Railroads and
by the unions. The managemento
tion of these percentages began on
are expected to consider the plan
March 1, 1936, under the terms of
at a meeting in Chicago do March 9
the existing law. The differences
Nearly all the railroads allowed
between the amounts would be re
in their 1936 accounts for liabilities
funded to the companies, under the
under the railway pension law. It
proposed agreement.
la estimated the annual savings un-
Saving of $15,000,000
der the proposal would be about
$740,000 for the Atchison, Topeka &
On an annual basis the saving to
Santa Fe, $715,000 for the Balti-
Um managements under the agree-
more & Ohio, $414,000 for the Chei-
ment would be about $18,600,000.
speake & Ohio. $1,880,000 for the
The rate of 2.5 per cent to be paid
Pennsylvania, $800,000 for the Union
by the managements, under the
Pacific, $449,000 for the Missousi
agreement, would be applied also to
Pacific, $1,570,000 for the New York
contributions by employee. The
Central and $943,000 for the South-
payments by both managements
STA Pacific.
and employes would be increased by
II. as would be expected, payrolls
one-quarter of 1 per cant every
were increased in conformity with
three years until a maximum of 0.5
the present rising trend of traffic.
per cent was reached.
the assings from the agreement Le
If pensions new peid voluntarily
the inspagements would be propos-
by the refiroads are larger than the
tionally increased.
amounts which would accrue under
the agreement, the larger amounts
would be baid. But It in arovided
Regraded Uclassified
126
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 1, 1937
MEMORANDUM OF THE DAY'S ACTIVI-
TIES FOR MARCH 1.
TO
Mr. Morgenthau
FROM
Mr. Magill
1.
Taxation of non-resident aliens.
I have a memorandum from Doctor Gourrich in which he objects
strenuously to & tax on the transfer of securities to and from non-
resident alians at a rate of 3 percent, on the grounds of discrimi-
nation and the likelihood that the securities business will be driven
abroad. He does not address himself at any length to the question
of 8. tax at a lower rate 88 S. means of preventing the inflow of
foreign funds, or to the other suggestion that B. stock transfer tax
on transfers to and from aliens be imposed at a rate equivalent to
that imposed on transfers between citizens, but with 8. power in the
President to increase the rate under designated circumstances.
I have also a memorandum from Mr. Burgess, the last paragraph
of which is 88 follows:
"The more one studies this problem the more he is
impressed with the desirability of international coopera-
tion in dealing with it. Action on this point might be
considered 88 implementing the tri-partite agreement on
currencies. It seems clear also that the investment
markets are likely to be a crucial point in the problems
of credit control which all the important nations are
likely to face in succeeding months. There is much to
be said for making this topic & subject of informal
exploratory consultations."
Mr. Bryan of the Research Staff of the Federal Reserve Board,
has been giving further study to the possibilities of & tex on capi-
tal gains realized by non-resident aliens. He thinks such a tax
can be worked out in B. much simpler form than the plans hitherto
suggested. He will discuss his plans further with Mr. Kent and Mr.
Green of the SEC. What he works out may be useful in the future
even though we do not plan to do anything with it this year.
2.
Carriers Taxing Act.
At your suggestion, Mr. Gaston called Mr. Early at 3 P.M.,
this afternoon, to advise him of the information carried on the tick-
er regarding the proposed railroad retirement plan. Mr. Gaston told
Mr. Early that the Treasury had not approved the legislation and,
indeed, would not receive detailed information regarding it for sev-
eral days.
Regraded Uclassified
- 2 -
127
Carriers Taxing Act
Continued
I finally succeeded in reaching Mr. Latimer about 5 P.M.
The substance of my conversation with him appears in the attached
memorandum.
United States Chamber of Commerce.
3. Representatives of the Chamber have asked me to speak at
their annual meeting on April 27th. Is it worthwhile from the
Treasury's point of view for me to do so? If not, I shall decline
the invitation.
Rm
Enclosure.
Regraded Uclassified
128
RB
GRAY
London
Dated March 1, 1937
Rec'd 3:45 p. m.
Secretary of State
Mashington.
105, March 1, 6 P. m.
FOR TREASURY FROM butterworth.
London press reports substance of Mr. Landis' remarks
in Boston to which the TIMES replies as follows: "recent
advices from the United States regarding the influx of
foreign capital into America indicate that the United
States Treasury is finding the framing of regulations
ddsigned to check the movement a matter of considerable
difficulty. The concern felt by the President and some
of his advisers over 'hot money' is thought by some of
those well acquainted with the subject to be needlessly
exaggerated. Apparently Washington fears the possibility
of conditions arising similar to those which existed in
Great Britain in 1931 when heavy withdrawals of foreign
owned capital rapidly exhausted this country's gold stocks.
But the United States as the holder of about one half of
the world's gold stocks is in 8. position where she could
face with equanimity any drain likely to be made by foreign
holders
Regraded Uclassified
129
RB
-2-#105, March 1, 6 p. m. from
London
holders of American balances and securities upon her. At
the conference of representatives of the United States
Treasury and the Banks it has been reported that three
courses of action designed to check the 'hot money' movement
have been discussed--namely, a tax on foreigners' capital
gains, 8 heavier tax on foreign income derived from American
securities and a special tax on transfers. It is known
that the application of either of the first two bristles
with difficulties and therefore the thirdpossibility because
of its simplicity, is considered to be more likely--that
is, if the Washington Administration is determined to adopt
restrictive measures of some kind. At the present stage
any forecast of the kind must be a matter of conjecture
but were the transfer tax adopted it would hardly affect
securities already in the names of foreign owners. En any
case its adoption would in the opinion of the market have
no material effect upon the volume of international $ tock
market trading.
Meanwhile it is of interest to refer to certain unfore-
seen developments that have followed the various regulations
of a penal or restrictive nature that have been imposed upon
Wall Street by the Roosevelt Administration. For some time
past the volume of dealings in London in American securities
has been
Regraded Uclassified
130
RB
-3-105, March 1, 6 P. m. from
London
has been steadily growing. Excluding shares such as
International Nickel, Brazilian Traction and Canadian
Facific, which, while dealt in in the American market,
are not those of American companies and in which the
European interest largely predominates, there is a host
of shares of companies of United States domicile some of
which are mere names to the average British nvestor in
which business is now-a-days transacted freely. Experienced
members of the market estimate that more than fifty per
cent of the business done today in the American market is
on behalf of American investors. Even the not incon-
siderable business which is done here on continental--
more particularly Amsterdam--acount is believed to emanate
largely from New York. The main consideration which has
diverted the business from Vall Street has been the desire
of American operators to escape the capital appreciation
tax. a
ATHERTON
CSB
Regraded Uclassified
131
March 2, 1937
I gave the President the attached letter in regard
to the Railroad Retirement allowances. He only read the
first sheet and he said, "I know all about it. Get hold
of Altmeyer and Latimer and Magill and Bell and see if
cannot thrash it out in your office and then report back
to me.' He made me take back the attached letters and
would not keep them.
Regraded Uclassified
132
THE SECRETARY OF THE TREASURY
WASHINGTON
March 1, 1937
My dear Mr. President:
I am sending you a very brief memorandum outlining
the tentative agreement which representatives of the railroads
and of their employees have reached, without first consulting
with the Treasury or the Bureau of the Budget.
Mr. Magill, Mr. Bell and I are very much disturbed,
because if the agreement becomes law, the Treasury may find
itself between $700,000,000 and $800,000,000 out of pooket.
In view of the seriousness of this situation may I
suggest that you call a conference at which Mr. Latimer,
Mr. Magill, Mr. Bell and myself may be present so that we may
take up the whole question of the future policy in regard to
railroad retirement allowances.
Faithfully,
The President,
Maputhan
The White House.
Regraded Uclassified
133
THE SECRETARY OF THE TREASURY
WASHINGTON
March 1, 1937
Confidential
MEMORANDUM FOR THE PRESIDENT:
Mr. Murray Latimer, Chairman of the Railroad Retirement Board,
called to see Mr. Magill and Mr. Bell Thursday afternoon, February 25th.
He told them that he had an appointment with you for the following
morning at which he expected to inform you of the tentative agreement
between representatives of the railroads and of the railroad brother-
hoods for a new system of railroad retirement allowances. He said he
did not expect to go into the details of the agreement with you but
merely to advise you that an agreement had been reached.
Mr. Latimer stated that since the tentative agreement had just
been reached, he could not submit to the Treasury a detailed statement
of the actuarial computations of the allowances which would become
payable. He promised to submit a memorandum showing these details to
enable the Treasury to determine whether the proposed taxing provisions
are adequate to meet the demands upon the Treasury under the proposed
new Railroad Retirement Act. Until the Treasury has this information,
we can not, of course, advise you whether the tentative agreement would,
in fact, necessitate payments out of the general funds beyond the re-
ceipts from the proposed taxing act.
Mr. Latimer did, however, advise us that the agreement contemplated
that the railroads should not be required to pay over to the Treasury
the amounts which they have collected from their employees prior to
January 1,1937 under the present Carriers Taxing Act, nor the amounts
Regraded Uclassified
134
Memorandum for the President 3/1/37 - 2
which are due from the carriers themselves prior to January 1,1937,
under the same Act. The total amount shown in the Budget for 1937
and due under the Carriers Taxing Act is $134,600,000. Moreover, the
tentative agreement provides for total taxes of 5 percent of the railroad
payrolls for the next three years, whereas the existing rate of tax totals
7 percent. The proposed tax would not reach 7 percent until January 1,1949.
Mr. Latimer finally stated that his calculations showed that the present
worth of the proposed retirement allowances would exceed the present worth
of the proposed taxes by at least $700,000,000, and that it was expected
that this excess would have to be met out of the general funds of the
Treasury. He contemplates, in fact, that the amount will be made up out
of an estimated excess of collections of Social Security taxes (to which
the railroad and their employees will not be subjected) over the benefits
to be paid under that Act. In other words, the tentative agreement con-
templates that other employees subject to the Social Security taxes shall
make up this $700,000,000 difference between the benefits which the rail-
road employees wish to receive and the taxes which the carriers and their
employees wish to pay.
mach / at 1937
4.30 P.M.
Regraded Uclassified
135
OFFICE OF
TREASURY DEPARTMENT
WASHINGTON
THE SECRETARY
March 2, 1937
CONFERENCE AT THE WHITE HOUSE, TUESDAY, MARCH 2,
1937, ON THE WAGNER HOUSING BILL
-o0o-
Those present besides the President were the Secretary of
the Treasury, Secretary Ickes, Senator Wagner, Mr. Fahey, Mr. McDonald,
Mr. Frederick Delano, Mr. Bell and three people from Senator Wagner's
office.
The President started the discussion by saying that he had
not been over the Wagner Housing Bill, and had not discussed its
financial provisions other than with the Secretary of the Treasury
earlier in the day, but that he was quite satisfied in his own mind
that this Administration must embark upon a program which would spend,
over a period of from four to six years, the total sum of one billion
dollars for low-cost housing. He thought that the estimate of
$200,000,000 for 1938 was too high, but that probably after the pro-
gram was started more than that sum might be spent in later years.
He said that the Secretary of the Treasury had raised the question
as to where the organization to handle the new housing program would
be located. The President's answer to this question was that it might
very well be independent until the reorganization bill was approved,
after which it should go to the Public Works Department, or the hous-
Regraded Uclassified
136
- 2 -
ing organization could still operate independently but contract
with the Public Works Department for the construction of the pro-
jects. He also said that there were experts on housing throughout
the Government service, such as those in the Public Works Adminis-
tration, the Treasury, Federal Housing, etc., who should be used
on any program adopted.
The President then said that he had no time to go into the
details of the bill but he wanted to suggest that the group go into
the cabinet room and there discuss in detail its financing provisions
and try to work out a way in which the program could be soundly
financed. He announced that Senator Wagner would preside over this
meeting. The group then proceeded to the cabinet room.
Senator Wagner started the discussion by saying that he under-
stood that the only feature of the bill to be discussed in this con-
ference was the one of finance and that he would like to hear from
the Secretary of the Treasury on that matter.
The Secretary discussed the financial features of the bill,
saying that as he understood it, the proposal provided that the
Government would eventually contribute one billion dollars of Govern-
ment funds to construct these housing projects and give them to the
community. This being the case he did not see how the United States
Government could possibly approve a proposition that would permit
the issuance of obligations guaranteed as to both principal and
interest by the Government. If these obligations are issued in this
Regraded Uclassified
137
- 3 -
manner they would not, of course, be added to the public debt of the
United States, yet in view of the flimsy security behind them they
are issued almost solely on the credit of the United States Government.
This might have the effect of throwing some doubt on all of the other
guaranteed bonds outstanding. The Secretary produced a statement to
show that the United States Government would appropriate a sum of
approximately $35,000,000 a year for a period of sixty years, which
would represent interest at 21/2% on the outstanding obligations and
amortization of 1%. a total of 3½. The total cost to the Government
over the sixty-year period would be approximately two billion dollars.
Senator Wagner then said that he was not so particular about
the financing provisions except that he realized that it would be
difficult to get an appropriation through Congress each year in the
sum of $200,000,000 or $250,000,000 which would be required under his
bill. He frankly admitted that this means of financing was decided
upon in order to facilitate its passage through Congress.
The Secretary then said that he did not believe any agency of
the Government could spend $200,000,000 a year on low-cost housing,
and pointed to the fact that Mr. Ickes' organization had had one
hundred and fifty million dollars over the past three years for a
housing program, all of which is not yet spent. He admitted that
many projects were tied up in litigation and thought that might also
be the case in this program. Secretary Ickes was rather reluctant to
agree that $200,000,000 could not be spent annually for this program.
Regraded Uclassified
138
- 4 -
A general discussion then took place, one of Senator Wagner's
assistants attempting to explain just how a project would be financed
under his proposed bill. After the discussion was over I did not
feel that any one had a clear picture of just how the provisions of
this bill would operate.
The Secretary then said that what was worrying him was as to
how far the United States Government could go in increasing its ex-
penditure program. We are now spending at the rate of about 7½ billion
dollars a year and he feels that this ought to be the limit. He also
expressed a feeling that any funds to be expended on housing which
are in the nature of subsidies, should come directly from the Treasury
and be a part of the general budget picture. He thought it might be
possible to out down some other program within the 71/2 billion dollar
limitation and provide the funds necessary to finance the provisions
of the Wagner Housing Bill.
Mr. Delano then spoke up and said that we have been spending,
during the past three years, a great deal of money on good roads
throughout the country, some of which was under emergency appropriation
acts and required no contribution from the States, while the regular
annual programs were on a fifty-fifty basis. He wondered why it would
not be possible to out down on the annual road program as we seem to
advance quite far in this direction, and provide for some low-cost
housing for the city people, letting the rural people, 80 far as good
roads are concerned, go over for a period of four or five years. He
Regraded Uclassified
139
- 5 -
intimated in his talk that we might even consider putting the
housing bill on the same basis as the road bill, having the States
contribute 50% of the cost, the funds to be apportioned to the
States in approximately the same manner as the good roads funds.
The conference then broke up with the understanding that I
would survey the programs laid down in the 1938 budget to see whether
or not any of them could be reduced, the aggregate savings from which
could be used to finance the provisions of the housing bill.
DWB
Regraded Uclassified
March 2, 1937.
140
10:10 a.m.
H.M.Jr:
Hello
Secretary
Ickes
Hello Henry, how are you?
H.M.Jr:
Harold, I was just over to see the President
......
I:
Yes.
H.M.Jr:
on the financial aspects of this Wagner Bill.
I:
Yes.
H.M.Jr:
I think you and I are going to be called over there
at 11 to meet with Wagner.
I:
Yes.
H.M.Jr:
I'd like very much if you could meet me in the
Cabinet Room at a quarter of 11 and I'd like to
go over our figures and tell you just what I told
the President.
I:
Menry, I asked yesterday to have an analysis of
that bill made for me.
H.M.Jr:
Yes.
I:
I wish you'd wait until I know something about it.
H.M.Jr:
Well here's
I:
I couldn't this morning anyhow.
H.M.Jr:
Well you - you would if the President went and
called you at 11.
I:
What?
H.M.Jr:
If he sent you for 11 to meet with Wagner and
himself.
I:
Oh well if the President sends for me, of course, I'd
drop everything.
H.M.Jr:
Well I mean I understand he's sending for both of us
I:
Oh I see.
Regraded Uclassified
- 2 -
141
H.M.Jr:
......at 11 and I just wanted a few minutes with you
before.
I:
Oh, well I'll try to do that then - let me
H.M.Jr:
Now I've got - hello
I:
Yes.
H.M.Jr:
I've had a summary made here in 8 hours with
Keyserling
....
I:
Yes.
H.M.Jr:
Wagner's Secretary.
I:
Yes.
H.M.Jr:
And it was made - he's approved of our summary.
I:
Yes.
H.M.Jr:
Now if you want to, I'll send it over by Special
Messenger to you.
I:
I wish you would.
H.M.Jr:
Ah - - it took our boys 8 hours to do it.
I:
Yes.
H.M.Jr:
But Keyserling you know who he is - Wagner's
Secretary
I:
Oh yes, yes, I know.
H.M.Jr:
He - he dictated this thing.
I:
Yes.
H.M.Jr:
And he - I mean there's no argument about what's in
it.
I:
Well all right.
H.M.Jr:
Supposing I send it over to you quickly.
Regraded Uclassified
- 3 -
142
I:
All right, send it right over.
H.M.Jr:
And do you want to meet with me for a few minutes
before
I:
I'll try my best to. I've got some people in there
now by appointment if I can get through in time.
H.M.Jr:
Well I - - will you let me know?
I:
Yes, I'll let you know.
H.M.Jr:
O.K.
I:
All right.
Regraded I Uclassified
143
March 2, 1937.
10:20 a.m.
Hello.
H.M.Jr:
Mr. Altmeyer.
Yes.
H.M.Jr:
Henry Morgenthau, Jr.
A:
Yes, how are you?
H.M.Jr:
I'm all right. Mr. Altmeyer, I've just seen the
President about this railroad retirement thing, see?
A:
Yes.
H.M.Jr:
And he asked me to get in touch with you and
Mr. Latimer and ask you whether you could come
over to the Treasury and sit down with Magill,
Bell and myself.
A:
Sure, be glad to.
H.M.Jr:
And see if we can't thrash this thing out and
then report back to him.
A:
All right. I understand that Latimer is sick to-day.
H.M.Jr:
Yes.
A:
I'll call his house to see if he will be able to get
up this afternoon or di - would you rather - would
you be willing to wait till tomorrow?
H.M.Jr:
Well - ah - if a man's sick I will but I've got a
tough day tomorrow and I'm free this afternoon.
A:
All right, I'll call him out at his house to see
how bad off he is.
H.M.Jr:
Well the that would be best for me would be 3:15.
A:
3:15.
H.M.Jr:
Could you let me know in the next ten minutes?
A:
I'll let you know right away.
Regraded Uclassified
144
- 2 -
H.M.Jr:
And then I wanted to give you this - I don't know
whether you saw the story in the Wall Street Journal
or not.
A:
No.
H.M.Jr:
Well it's on the left hand front column and I'm
fearful of the effect this story will have, see?
A:
Ah-ha.
H.M.Jr:
And what I'd like to do if it was agreeable to you
two gentlemen would be, if you decided to come - let
us know that you were coming to the Treasury, see?
A:
Yes.
H.M.Jr:
But I wouldn't do that unless it was agreeable to you
and Latimer.
A:
Yes.
H.M.Jr: . See?
A:
I'll get ahold of Latimer right away and call you
back.
H.M.Jr:
Because I mean I'm terri - ask somebody to get you
the Wall Street Journal - - front page, first column
on the left hand side.
A:
All right.
H.M.Jr:
All right, thank you.
Regraded Uclassified
145
March 2, 1937.
10:29 a.m.
Operator:
Go ahead
H.M.Jr:
Hello - hello
Altmeyer:
Hello.
H.M.Jr:
Yes.
A:
I just talked with Latimer.
H.M.Jr:
Yes.
A:
He's in bed but he says that if - if you consider
it important to meet to-day he'll come down and
be there at 3:15.
H.M.Jr:
Well do you mind - well what's the matter with
him?
A:
Well he's got a heavy cold. He talked in a
muffled tone but he says he thinks he can make
it and he hopes he won't infect the rest of the
people.
H.M.Jr:
Well (aside - Latimer)
A:
Hello
H.M.Jr:
Well I was just thinking - what do you think.
I don't - I don't want to be responsible for a
man getting pneumonia.
Oh I don't think it's as bad as that. He said he -
it was a heavy cold and he thought if he stayed in
bed to-day he might be able to shake it off but 1f
you think it's important I'm sure that he'll - he
would want to come down. In fact I have already
arranged for him to come down at 3:15.
H.M.Jr:
Well you see the report that Bell gives me that
as far as the Treasury is concerned it means it
would involve seven or eight hundred million dollars.
A:
Well eventually it might run up to - as I recall -
around 600 million as the - depends upon how he
estimated - it may be 300 million and it may be
600 million.
Regraded Uclassified
146
- 2 -
H.M.Jr:
Well - I - - I - I - - after all I don't know Latimer
A:
Yes.
H.M.Jr:
and the feeling that we have here is that they're
holding out on us.
A:
Ah-ha.
H.M.Jr:
But we haven't got the facts and we can't get the
facts.
A:
Well all I - - all we know about it over here is bat
Latimer submitted a memorandum to the Board and,
from a Social Security standpoint, we think it's
a sound proposition but we didn't go into the fiscal
end of it at all.
H.M.Jr:
Yes.
A:
And Danny mentioned about the rate of interest and
that sort of thing none of that did we consider.
H.M.Jr:
Yes.
A:
And I think it is important that the whole thing be
thrashed out
H.M.Jr:
Well Social Security - if you're going to start remitting
one percent to special groups where are we going to
end?
A:
What - what did you say?
H.M.Jr:
If you're going to give back rebates of one percent.
A:
Well there's no rebate we - e made it clear in our
memorandum in reply to Latimer's that they'd have to
consider themselves an integral part of the Social
Security program.
H.M.Jr:
Yes.
A:
Now that is they couldn't in one branch ask to have
the protection of the Social Security system and in
the next breath ask to have a separate set-up.
Regraded Uclassified
147
- 3 -
H.M.Jr:
Well that - that's the point.
A:
Yes.
H.M.Jr:
I really think it is terribly important from
both your standpoint and ours and Bell and Magill
are very much exercised over it.
A:
Ah-ha.
H.M.Jr:
So if he's well enough let's have it.
A:
All right.
H.M.Jr:
Now what about letting the people know you're
coming?
A:
That's O.K. anyway you want to announce it.
H.M.Jr:
That's all right?
A:
Yes.
H.M.Jr:
Well thank you very much.
A:
All right.
H.M.Jr:
Thank you.
A:
Goodbye.
Regraded Uclassified
148
March 2, 1937.
2:53 p.m.
H.M.Jr:
Hello
Hello
H.M.Jr:
Woodring?
woodring
Yes.
H.M.Jr:
Henry Morgenthau.
W:
Say, I've - I've gone over all that correspondence
H.M.Jr:
Yes.
W:
.....and I find that all of our technical advisers
overchere are against letting you have that No. 5.
It's right at the north gate and we have plans for
expansion of our own housing facilities.
H.M.Jr:
Ah-ha.
W:
And they - they have - I think you turned down
all but No. 5 and No. 8 at one time and they have
agreed on No. 8 which is on the railroad and the
waterfront.
H.M.Jr:
Well - ah - ah I remember there was something
the matter with the footings there, weren't there?
W:
No, the thing was that I think I - you had some
$600,000 appropriated and you claimed that the
highway - roads - that you would have to have an
overpass would cost $70,000 which would run your
bill up to $670.
H.M.Jr:
Yes.
W:
Well now the highway thing I think can be eliminated
through our channels because we're building some
new roads right down to the approach.
H.M.Jr:
Well who is - who has it in charge for you?
W:
What is it?
H.M.Jr:
Who could Admiral Peoples talk to over there?
Regraded Uclassified
- 2 -
149
W:
Well I think he'd better talk to me and to General
Craig.
H.M.Jr:
Talk to you direct?
W:
Yes.
H.M.Jr:
I'll - I'll have him ask for an appointment to
see you.
W:
Allright.
H.M.Jr:
How's that?
W:
And I'll tell you. This - ah - when you started
out we would never have given you or let you inspect
the No. 5 site only on the impression that it was
200 by - 250 X 300 feet.
H.M.Jr:
Yes.
W:
Now they say they need ten acres and, of course,
out at Fort Knox our ten acres - its developed
into 112 acres because you find, which I imagine
will be true up there, that you have to have housing
for your men and your employees and all. On this
No. 8 site, Henry
H.M.Jr:
Yes.
W:
if you - if you - you can have all the acreage
you want
H.M.Jr:
Yes.
W:
And plenty of room for housing and its on a highway.
H.M.Jr:
Yes.
W:
A bi-pass to a highway that wouldn't interfere with
any traffic.
H.M.Jr:
O.K.
W:
I think it will work out all right.
H.M.Jr:
Well I'll tell my boys to get in touch with you
direct.
Regraded Uclassified
150
- 3 -
W:
All right.
H.M.Jr:
And...
W:
We'll - we'll try and work it out I think satisfactory
to you.
H.M.Jr:
Well thanks very much.
W:
Goodbye.
H.M.Jr : Thank you.
Regraded Uclassified
151
MEETING ON RAILROAD RETIREMENT
March 2, 1937
3:10 P.M.
Present:
Mr. Magill
Mr. Oliphant
Mr. Bell
Mr. Gaston
Mr. Murray Latimer
Mr. Arthur J. Altmeyer
H.M.Jr:
If you (Magill) will tell your tale of woe....
Magill:
Well, we were disturbed by this announcement coming
out as it did on the ticker yesterday to the effect
that there had been this tentative agreement between
the railroads and the employees respecting railroad
retirement allowances. Did you (Latimer) see the
announcement?
Latimer:
This morning?
Magill:
Well, the same came out this morning - the same thing.
H.M.Jr:
I draw Mr. Altmeyer's attention to the story in the
Wall Street Journal.
Magill:
Yes. Similar story in the Times.
It was stated, I think, more or less as an accom-
plished fact that the railroad executives were being
called in on March 9th to agree to this proposed
plan, which provided for lower taxes upon the em-
ployees and the carriers, so that consequently the
railroads would be able to show an increase in their
earnings during 1936, since they had included on their
books charges for these protective payments under the
present tax, which payments would not now have to be
made.
Well, our difficulty about it came in this fashion.
About the first of February, it was agreed that the
Carriers Taxing Act, carrying the provision for a
total tax of seven percent on the payrolls, should
be extended for a period of at least a year. The
Act would normally have expired on February 28th.
When we went up before the Committee, Mr. Latimer
Regraded Uclassified
152
- 2 -
informed the Committee that the carriers and the
railroad employees were then engaged in negotiations
under his general supervision looking toward an
agreement upon a new retirement scheme.
There were two points, as I understood it from that,
as matters stood at that time. First, that this
agreement contemplated the payment to the Treasury
of the amounts which were due under the existing
Carriers Taxing Act and which we were trying to
get extended - those amounts totaled about 135
millions of dollars - and the dismissal of the
injunction suit which the railroads had brought,
and which tie-up prevented our collecting under the
tax for the time being. And then, secondly, that the
retiring allowances which were being negotiated
would be of such an amount that the tax would carry
the allowances. And it was contemplated, &S I under-
stood it - as I read the history of the thing, the
reason why the Carriers Taxing Act had been given an
expiration date of February 28, 1937, was because no
one felt sure of exactly how much money would be
required to carry the allowance. Mr. Eastman, I
believe, testified - Mr. Latimer testified that the
necessary amount would be somewhere between seven
and something over ten percent of the payrolls.
So the rate of tax was fixed in the Act at seven
percent.
Well then, on the basis of this assurance from Mr.
Latimer and our request - the President's request
that the Act be extended, the Ways and Means Committee
went ahead, and the Senate went ahead - the House and
Senate went ahead and extended the Act and the Presi-
dent signed it on February 27th, I believe.
H.M.Jr:
Well, I think - if you don't mind, I think you're
a little modest; I think the Treasury carried the
entire ball on getting it extended.
Magill:
Well, we did; we did.
H.M.Jr:
We carried the entire responsibility in getting it,
as I say.
Magill:
Well then, at about this time - I hadn't heard any-
thing further of these negotiations, so I called up
Regraded Uclassified
153
- 3 -
Mr. Latimer to ascertain how the negotiations were
coming along, and particularly asked you (Latimer)
about this 140 million or 135 million; and then
discovered for the first time, to my considerable
alarm, that the railroads and the employees had
just decided that they wouldn't pay this 140 million
to the Treasury which is due under the law that is
now on the books, and that furthermore this retirement
plan had been devised with a lower rate of tax than
that at present in existence, only rising to the
present rate of tax in 1949; and further that in
any event the allowances to be made would exceed
by nearly a hundred percent, as I understand it,
the taxes to be paid. That is, as I understood
your calculations, that the present value of the
taxes which are to be collected were - well, to put
it the other way, the present value of the allowances
to be paid exceed the present value of the tax to
be collected by something like 700 million.
Latimer:
Oh no, no.
Wagill:
I think the way you put it, that if the railroad
employees had stayed under the Social Security Act,
they would have paid 800 million in present worth
and would have received 2 billion and a half in
present worth.
Latimer:
Yes
Magill:
And that the idea of the new Act was to preserve
that as a differential.
Latimer:
No, not that same one.
Magill:
Of course, there again, you see, we are in trouble,
because we have never seen any of the actuarial com-
putations under the thing at all. We haven't the
remotest idea whether the tax will carry the allowance,
or whether we'll have something left over, or whether
we'll be in the hole. We know we'll lose 135 million -
or rather, a hundred million, about. We don't know
how much more we'll lose.
And what bothers us about the whole situation is that
we are obviously put on the spot. Here we've got a
taxing act which we've put through; it's on the books.
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Now the railroads come out with - or somebody
comes out with great gusto and announces a new
plan which is a gift to the railroads of a hun-
dred million. And presumably we are going to
be chasing down to Congress presently with a
completely different taxing act and saying, "Well,
boys, what we asked you to do a month ago - just
erase that. We were misinformed, and we really
don't want to tax them that much. You just tax
them a little less and the - everybody will be
happier and the Treasury will pay the difference."
Latimer:
When I made the statement which I did in the House
Ways and Means Committee, that the taxes were to
be seven percent and were to begin on March first,
and the injunction suit was to be dismissed, I was
merely stating what had been the agreement arrived
at by a sub-committee.
Now, there happen to be three different groups:
the railroad labor organizations as a whole, the
carriers as a whole, and they appointed sub-committees -
I mean a committee, consisting of presidents on each
side. And then that committee appointed a technical
sub-committee, which sub-committee I've been working
with.
All the figures supplied by us
of course,
our function was a purely technical one, We were
instructed by the presidents, on the basis of the
actuarial calculations, to submit to them the cost
of any particular plan they put up to us. And
up until the last stages, nothing at all had been
said about any different - about any tax less than
seven, although some conversations had evolved around,
not whether the tax was to be less than seven but
whether it was to be more. And the sub-committee
had spent most of its time trying to cut out benefits
in order to get it to the point where a tax of
seven percent would furnish support.
And it was only when the presidents' committee -
that is, when the sub-committee reported back to
the presidents themselves - there were six railroad
presidents - the presidents and the carriers' committee,
they were the gentlemen who got out their chisels.
Regraded Uclassified
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5 - I
And if I remember correctly, I called you (Magill)
because you were attempting to preserve the seven
percent tax rate. One of the main reasons that I
called you was to attempt to get you to bolster us
up in trying to keep 8 seven percent tax rate.
H.M.Jr:
Pardon me - you mean you called Magill?
Latimer:
Yes.
Magill:
I don't - I don't remember that.
Latimer:
Well, I didn't tell you what I wanted, but... I
don't know whether you wanted to collect any more
tax than that or not, but we were - we think now
that the benefits have been scaled to a low point.
Altmeyer:
You mean the benefits or the tax?
Latimer:
No, the benefits.
H.M.Jr:
May I just make this comment? But is it a fair
criticism that possibly you weren't sufficiently
frank with us? You - with us?
Latimer:
Well, maybe I wasn't, but I didn't know what atti-
tude you were going to take on it. And what I called
up Mr. Magill for was to tell him that it was agreed
I would give a memorandum which would set forth
completely as I knew how the whole situation.
H.M.Jr:
Well, you've never worked with us, or we with you,
but I can tell you this, that you can call up the
Treasury any time and we'll always tell you where
we stand.
Magill:
I think you (Latimer) are wrong on your chronology.
You remember you came over here and talked to
Oliphant and myself one afternoon, and I'm not
sure precisely what the date of that was but I
think it was Wednesday afternoon last week; and
you discussed with us two or three other problems,
but not - there did not come up in that conversation,
I am sure, anything with respect to the effective
date of this tax.
Latimer:
No, it didn't.
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lagill:
What came up in that conversation was two or three
questions: the question of charging part of these
retirement allowances against the general funds
of the Treasury or against the reserve account
under the Social Security Act; the question of
whether or not the administration of the tax ought
to be under the same board which is to pay the
benefits; and then, further, the question of the
rate of interest to be allowed on the tax payments.
Latimer:
Yes, that's right.
Magill:
I should have asked you at that time about the tax,
but I didn't, and I didn't know - I simply assumed
that since you had made the statement before the
Ways and Means Committee, and of course we proceeded
on that theory, that the tax would continue in effect
at this rate. I assumed it was going to continue in
effect. But the next day I got worried about it
and I called you up to ask what had happened to the
135 million, and then learned that it had gone out
the window somewhere in the meantime.
Latimer:
Well, of course, we weren't - we were in this position.
We had been instructed to make - to tell the conferees
what these things would cost. They had gotten final
scale benefits which, as best we could calculate, cost
something under seven percent - 6 7/8, or something
like that. Then they asked us to calculate the cost
beginning March 1, 1936, or beginning January 1, 1937.
Beginning March 1, 1936, the cost of the Act - it
approximately was 1.5 percent less beginning January
1, 1937. I admit that perhaps I should have told you,
but there was no intent at all to try to conceal it.
AS a matter of fact, I never thought of it. I had
thought of your whole - that you would have a month
in which to do this, and assuming that before any-
thing would come up - I never anticipated the pressure
that would be put on. I never thought that, sitting
in conference last Friday, there would be this effort
to make the President - make out the President had
committed the Administration, which he hasn't done.
So that I took it for granted that you'd have a month
to make the study of the thing. Now, that's all from
me.
H.M.Jr:
Well, haven't I heard, Ros, that the thing you are
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particularly fearful of at this stage is that
these letters are going out to 150-odd railroad
people?
Wagill:
Yes, what bothered us is that these railroad fellows
are going to meet on March 9th and I assume agree -
they are going to get the understanding, as you said,
that this has at least the Administration blessing,
whether it has Administration approval in so many
words or not.
But suppose that not a word was said about the
Administration, that this was simply dressed up as
a private agreement, which I think is not realistic
at all. But suppose not B. word was said about the
Administration. The 149 railroads, or whatever it
is, and employees come down then with an accomplished
fact - "This is an agreement which we have now
entered into. This is what we want."
Oliphant:
"And which you knew about and didn't say anything."
Magill:
"And which you, Uncle Sam, knew about" - as I under-
stand from my conversation with you (Latimer).
Oliphant:
"Which you, Uncle Sam, knew about and didn't say
anything."
Magill:
Now, suppose the Treasury goes to the Ways and
Means Committee, as it has to, with some form of
taxing act on this matter, and we say, "Well, we
ask you now to repeal this Act which is now on the
books and which we have budgeted at 135 million."
"Well, what's that going to cost the United States?"
"Well, that's going to cost us a hundred million" etc.
Well then, suppose the Ways and Means Committee asks
us and we say, We think that this tax ought to S tay
on the books just the way it is now. That's why we
came to you in February, because we thought so."
Well then, look where we land with respect to the
railroads and the railroad employees. In other words,
it is obvious, if you look at it from my eyes, that
we are clearly being high-pressured here. Now, who's
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doing it doesn't concern me so much as the fact
that it's being done. The net result is that,
whichever horn of the dilemma We take, whether we
agree with the railroads, with this railroad agree-
ment, or whether we disagree with it - in either case
we are put in a very unpleasant position, And the
reason we are put in the position is because we didn't
know a darn thing about it until it was virtually an
accomplished fact, that's all.
Bell:
Did the President approve this program the other day
at the conference?
Letimer:
The President wasn't even told about the details of
the program.
H.M.Jr:
I spoke to him about this this morning, and the
President gave me distinctly to understand that
he is not committed in any way.
Latimer:
1 mean he couldn't possibly have been, because he
very definitely wanted to steer away from it.
U.M.Jr:
And he suggested this meeting, and that we then
give him a memorandum, if we could come to an
agreement, as to what policy we recommend to him
that the Administration follow. That's the purpose
of this meeting.
Altmeyer:
I knew nothing about the details either.
Latimer:
Well, the details weren't settled until late Thursday
night before they went over to the President, and
one reason why - I think I'm derelict in not having
told something in general, but the situation changed
so from day to day that I didn't know what precisely
to tell you as to what they were having in mind,
because the next day I'd have to come back and say there
was something else.
H.M.Jr:
Well, Mr. Latimer, could you at this time make a
statement to us which we might or might not subscribe
to, or which we might say is the policy and that we
are all in agreement, and then send it over to the
President?
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Latimer:
Well, I think you need more time, Mr. Secretary.
E.M.Jr:
Yes, but - but this thing has gone out. I asked
Mr. Altmeyer if he would object to asking you to
say - tell the newspapers we were having this
meeting, just to show that we had our doubts.
Unquestionably after this meeting they will ask
us. I'd like to say something, if just to
I think if the Administration doesn't follow what
these railroad people want, we are in a very tough
spot, and I think
Latimer:
I'd like to say this about it
H.M.Jr:
I mean how would you sum up? Can you sum up for
me what is the situation? First, what is the situa-
tion today as far as you're concerned?
Latimer:
Well, the situation as far as we're concerned is
that we've done the technical part of the negotia-
tions, without attempting to influence considerably
one way or another what was wanted by the negotia-
tors, and that I intended to put up to you the
sum total of the negotiations which had been resched.
Oliphant:
May I ask
Letimer:
And to make some recommendation about it. Now, as
I said, we hadn't anticipated that there would be
such pressure on this, and I thought there would be
an opportunity for the Government to decide on this
matter of policy. Since it has not now, I think
that this statement might be reiterated which I made
to Mr. Pelley and Mr. Harrison the other day. I
said that I was sure they understood that the
Treasury and other agencies were involved in this
matter and that the whole thing would be submitted
to the Treasury and the Treasury might have some
suggestions. I asked them, "If those suggestions
might involve more or less taxes and certain other
changes in legislation - I don't know what else they
might suggest about it - will that in any way upset
your agreement?" I said, "Will you make it clear
that these agreements between the principals - that
these agreements are sub ject to that?" They said
they would.
Regraded Uclassified
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H.M.Jr:
Do I understand that you are a party to these
agreements?
Latimer:
I said I was just telling them that the agreements
which they - made it clear that they understood
that neither the President nor anybody else from
the Government had committed themselves to go along;
that it would be specifically subject to review by
the Treasury and that the Treasury would have any
number of suggestions to make about it.
H.M.Jr:
Well, if you don't mind, the point that I get is
that these people, the railway owners and the railway
unions, came to an agreement on this thing and you
left them with the impression that they could submit
it to their members and then come back and that, while
the Treasury might object, the Railway Retirement
Board would look on it favorably.
Latimer:
No, sir.
H.M.Jr:
Huh?
Latimer:
We said that this was committed subject to the
Government, and that whatever - 85 far as technical
matters, Railway Retirement Board was satisfied, but
they understood that we hadn't any power to commit
the President.
H.M.Jr:
Yes, but the Railway Retirement Board is satisfied
with it?
Latimer:
I think we can say that we are satisfied.
Altmeyer:
Are you satisfied with the agreement in its present
form, with the two and a half instead of the three
and a half rate?
Latimer:
Those taxes will support the benefits given in this
other matter, yes, I say we are satisfied; we are
satisfied technically because we believe that the
taxes, revenue, and outgo will be in balance. But
we aren't satisfied with the substantive provisions
of it. But there is nothing - we have no right to
step into the negotiations and tell them they must
do so and SO. Even though we don't like it, it is
not for us to
161
- 11 -
Altmeyer:
well, what about the 1936 taxes? Satisfied about
that, too, that they shall be forgiven?
Latimer:
Well, the taxes that are here now, beginning on
January 1, 1937, are sufficient for the outgo.
Bell:
At all times, right from the beginning?
Latimer:
Oh yes. I say with this adjustment
Bell:
You mean between the Old Age Reserve Account
Lotimer:
With this adjustment: It will be sufficient at all
times if you grant us that three percent interest.
You haven't granted us the three percent interest
yet, but it is clearly understood that if the fund
doesn't earn three percent - that is another matter;
they know also that that is another matter, which
is something over which the conferees - something
on which we have asked advice, over which we can't
commit the Government.
H.M.Jr:
Well, may I ask Mr. Altmeyer a matter of policy?
I mean frankly I'm learning as I'm going along,
because I just haven't had time to give it the
preparation that I give to these things, because
things have been happening so fast the last couple
days, We've had this housing matter, you know.
The thing - talking here - I think I can express my
point - the thing that worries us the most, and I
worried if it didn't worry you (Magill), is that at
this stage, where we are just beginning, one month,
two months under way, if we begin to give special
groups special treatment - that's the thing that
worries us.
Altmeyer:
Of course, when the Social Security Act was enacted,
the railroads were under it and it was in balance
with the railroads under it. And then a week or
two weeks afterwards the railroads went out. So
that really you could say that it threw the Social
Security balance off. Is that right, Mr. Latimer?
Latimer:
Yes, but I think there is a more fundamental ques-
tion that the Secretary is raising about that: as to
whether in any event there ought to be any special
Regraded Uclassified
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fund, no matter what kind of treatment is given.
Altmeyer:
Now, getting the railroads back in, so to speak,
puts the Social Security Act back to where it was
when it was originally enacted, as far as the
self-sustaining features are concerned. Now, what
we are concerned about is that any change made now
shall be in accordance with fundamental principles
that can be applied to any industry affected with
a national interest.
H.M.Jr:
Now - well, we - (to Magill) can I say that
Magill:
Oh sure.
H.M.Jr:
that we are in complete accord?
Magill:
Complete accord.
H.M.Jr;
We are not for the moment worrying about whether
it is 47 million dollars or 57 or 157. What we
are worrying about is, I think - if I'm going too
fast, tell me - is that here's the first thing that
comes up and the railroads - 1f the railroads can
do this thing, why, then the coal miners can do it
and the automobile manufacturers can do it, and so
forth and so on, and what's going to happen to
your (Altmeyer) organization.
Latimer:
An attempt has been made to guard against that very
thing in an exchange of letters.
Altmeyer:
We exchanged letters trying to safeguard the thing
for the long time future, and I have just filed
with you this exchange. Now, that's the only thing.
Bell:
Well, how can you safeguard this? Just say it isn't
& precedent; how can you safeguard it against a thing
of that kind if another group wanted to bring pressure
to bear?
Latimer:
If you've got pressure - sufficient pressure, you can't.
Altmeyer:
Now this, Mr. Secretary, was in answer to a letter
that the Railroad Retirement Board brought up.
Latimer:
At the direction of the President. We talked President to the
Uclassified
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about this. He said, "Get the views of the
Social Security Board on the matter." That's
how the letters came to be written.
Altmeyer:
And those were our views.
Latimer:
These, by the way, are reported in my memorandum
to you (Magill).
Magill:
Oh, that I'm going to get tomorrow.
Latimer:
Yes.
Altmeyer:
So we know nothing about the details of this at
all. The first I knew about any of the details
was when I read over the bill this morning that
I sent for from Latimer's office. Of course, I
read this Wall Street Journal article, and then I
ran down the bills.
Latimer:
You have the agreement here.
Magill:
Yes, I've got the agreement.
H.M.Jr:
Yes, but this correspondence has never been here
before.
Magill:
No.
Latimer:
The President, in his letter to both sides, committed
himself to a separate - committed himself to a
special railroad retirement act, or some form of
special treatment for the railroads. I don't think
it was a special retirement act.
Altmeyer:
All that I understand he committed himself to - re-
member I made the statement of what our position
was, that we felt the Social Security Act, if it
was to be social, should give the protection to
industry generally, including the railroad industry,
and that if the railroad industry had an undue pro-
portion of the aged, they should have the protection
of the whole system nevertheless; that if they wanted
to receive higher benefits but under the Social
Security Act, those higher benefits should be super-
imposed upon the benefits under the Social Security
Act and should be fully self-sustaining. And we
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felt that that was a sound principle for the
railroad industry or any other industry.
Latimer:
Well, that particular principle has been adhered
to here.
Altmeyer:
And I think that is the only thing the President
committed himself to.
Latimer:
Well, the President didn't commit himself to
whether there would or would not be a legislative
scheme in addition to the Social Security Act,
and the carriers themselves understood the
President's scheme to give them authority to
arrive at an agreement, and understood that if
they did arrive at an agreement, or private agree-
ment, that the President's letter had bound him to
ask for an exemption of railroads entirely from
Social Security. That is what they understood.
Altmeyer:
What was that?
Latimer:
I said that the carriers understood the letter to
mean that if they and their employees arrived at a
private agreement about a retirement insurance
system, the President would ask for exemption of
the railroads from the Social Security Act without
any legislation at all.
Oliphant:
Even though it was going to cost more money?
Latimer:
Well, irrespective of cost, if the railroads and
employees. agree on a retirement system, the
President would go along with them going out of
the Social Security Act entirely, even though that
agreement was not a legislative agreement but a
private agreement.
H.M.Jr:
Is there anything in writing between the President
and railroads and railroad unions?
Latimer:
Yes, I have that.
H.M.Jr:
Have We got that?
Latimer:
That was published in the press.
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Magill:
No, not here.
H.M.Jr:
Have you (Altmeyer) got it?
Altmeyer:
No.
H.M.Jr:
I think an important thing like this, involving
hundreds of millions of dollars - it does, seem
that the Social Security and Treasury should be
kept informed. Doesn't that look like a reasonable
request?
Bell:
I can't help but believe that the Social Security
set-up was in balance when the railroad employees
were under it. Now that they go out, by reason of
the fact that they go out, that throws the Social
Security Act out of balance; they have more revenue
than they need. There ought to be a reduction in
taxes for those that - other classes of employees
taxed, and that thrown over into the railroad tax.
I can't arrive at any other conclusion.
Latimer:
I don't seem to have brought a copy of that letter
with me.
Well, do you think the reverse ought to be true,
Mr. Bell?
Bell:
Well, I think that if you are taxing the other
classes of employees to pay higher benefits to the
railroad
Latimer:
No, no, we weren't doing that. All you were taxing
Bell:
That's the effect of it.
Latimer:
No; no, sir.
H.M.Jr:
That's the way it looks to us. Why should other
employees pay a higher rate in order that the
railroad people get special treatment.
Latimer:
They aren't doing it.
H.M.Jr:
That's the way it looks to the Treasury.
Latimer:
What they are doing
Let's suppose that the
Regraded Uclassified
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railroads were under the Social Security Act and
the tax is a little higher: than otherwise it would
be, if the railroads were not there; now, if the
railroads made an agreement on the side with their
employees to make benefits supplemental to the
Social Security Act, the railroads would get all
the benefits which have been contemplated under this
exchange of correspondence here, and they would of
course under that reciprocal cheme have to pay for
the full amount of benefits. They'd have to pay for
the full amount of the supplemental benefits, pre-
cisely as they are doing here. That is, what is
paid for by the other employees is only the extra
part up to the level of the Social Security benefits.
The difference between the total amount paid under
Social Security and that other Railroad Retirement
Act is paid in full by the railroads and employees.
A.M.Jr:
Just as I say, I'm starting from zero, but I - I've
got - I want somebody to tell me why the railroads
shouldn't be under Social Security.
Altmeyer:
Well, as I understood it, they were to be brought
under Social Security, but since they wanted higher
benefits they would have to finance those higher
benefits on & completely self-sustaining basis.
They would get the advantage of the basic Social
Security program by reason of the fact that they
happen to have 8 disproportionate number of the
aged, but that is - that isn't the same 8.5 saying
that the rest of industry - that is what we mean
by social security: that industry generally will
take care of the aged workers; that we don't under-
take to bring about an exact balance between separate
industries or between separate establishments within
industries.
H.M.Jr:
Well, you don't know an awful lot more about this
than
Altmeyer:
I don't know anything about the details of this.
H.M.Jr:
Well, you should, certainly. Just take it for
granted that the poor Treasury is always dumb. But
I mean at least you've got to administrate this thing,
know something about it.
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Altmeyer:
I think of course from the practical tandpoint the
important thing is to maintain it at the seven
percent. I don't think you ever would get more than
seven percent out of the railroad industry. I mean
once we gave up a year and a half ago and accepted
a seven percent rate, I think me were licked.
H.M.J.:
Right.
Altmeyer:
Then as far as getting more than seven percent
H.M.Jr:
Well, this theory of leaving out the Pennsylvania
Railroad crowd because they pay their workers more
just hasn't happened.
Altmeyer:
Well, it SO happens, as I understood, that the
seven percent rate and giving them the advantage
of the over-all protection of the Social Security
Act would put their system in balance for all time.
Latimer:
It would do a little more than that, because after
we've gotten those, then they'd take out some more
benefits.
H.M.Jr:
But this isn't what is happening today in this agree-
ment which they've sent out to their members. It
would pay the workers now much, six percent?
Magill:
No, five.
Latimer:
Five going up to seven percent, which is equivalent to
6.60 percent of the payroll.
H.M.Jr:
Well, could I say this? Could I say this? I mean
I want to be as fair
(Gaston comes in)
Mr. Latimer, Mr. Gaston.
Can I say this? - that we simply haven't had time to
study this matter, and it certainly - I don't know
whether you (Altmeyer) want to say something to the
effect that as far as the Social Security and the
Treasury is concerned, that we still haven't got all
the facts.
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Altmeyer:
Yes, I think we should make it clear that the
Administration is not underwriting any specific
agreement.
H.M.Jr:
Now, if you (Latimer) want to include yourself
in that - I mean I hate to wash dirty linen of
the Administration in public; I'd like to seem
as nearly unanimous as possible.
Latimer:
Well, I made - I thought I made it clear Saturday
morning. If you notice, the Wall Street Journal
yesterday called me up and I said there had been
nothing written on the benefits and that there had
been no agreement.
Altmeyer:
Are these bills broadcast now?
Latimer:
No.
Altmeyer:
Well, how did the Wall Street Journal
Bell:
Talks all the way through about a bill.
Latimer:
Pardon?
Bell:
The article, I say, referred to a bill.
H.M.Jr:
Well, how would you put it if Mr. Gaston - what can
Mr. Gaston say for me?
Altmeyer:
There's no question that we know nothing about the
details of any specific proposals and can't underwrite
any specific proposal.
H.M.Jr:
Of course.
Latimer:
I was wondering if somebody shouldn't communicate
directly to persons who are responsible for both
sides of the negotiations and have it made clear
that when these meetings were in progress there
were a great many details, and the whole principle,
if you want to go that far
Magill:
It's more than details. It's a five percent or a
seven percent rate for the next twelve years, among
other things.
Regraded Uclassified
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- 19 -
Bell:
And a hundred million dollars.
Magill:
And a hundred million dollars due now.
Bell:
In '37.
H.M.Jr:
Well, I thought Mr. Altmeyer would come in and
say, of course, he knew all about this thing and
the Treasury, of course, Was just asleep at the
switch, seeing it was a railroad matter, but I
find - and I think I might say you're in the same
boat we are.
Altmeyer:
We know nothing about the details. In fact, I
didn't know the details had been agreed upon the
day that
Latimer:
It was only on Saturday a fternoon that I saw this
stuff.
H.M.Jr:
Yes, but this stuff is - I mean I've been around
town long enough; this is a matter of public rela-
tions and that's why I've asked Mr. Gaston to come.
You fellows have seen fit to give it out to the
newspapers and they begin to work up this thing,
and the more time they have the more backing they
get, and they get all the railroad men all excited
and then the Treasury is just a bunch of double-
crossers and we've locked this thing. And I -
frankly, I'm sick and tired of this and I'm not
going to stand for it. I'm just not going to have
people in that position - that we are the people
who take the money out of the mouths of the
railroad men. I'm not going to stand for that
sort of thing and have them all say, "If it wasn't
for that god damn Treasury we wouldn't have to
pay five percent."
Oliphant:
Isn't it fair to say that, beginning Saturday,
as far as the negotiators know, all those documents
were in the possession of the Federal Government?
As far as the outside, they can't distinguish between
the Treasury and Railroad Retirement. As I under-
stand, you (Latimer) had all these documents.
Latimer:
Well, I gave Mr. Magill 8 copy of the agreement the
first day I had it.
Regraded Uclassified
170
- 20 -
Magill:
I got it - Bell and I got it together Thursday
afternoon.
Bell:
Friday evening - no, Thursday evening.
Magill:
Thursday evening.
Gaston:
It came to you, Mr. Latimer, as the Chairman of
the Railroad Retirement Board?
Latimer:
Yes.
Gaston:
You still occupy that, do you?
Latimer:
Yes.
Gaston:
And what shall we say? How does it come - through
noticing the paper stories or through Mr. Latimer
having brought it to the attention of the Treasury?
H.M.Jr:
How about it, Ros?
Magill:
Well
Bell:
I'd like to see it put on the railroads that they
are the ones - that they are trying to work this up.
Magill:
I think that's really where it belongs.
Bell:
Now the Government is just beginning to S tudy it.
H.M.Jr:
Well, the first it's come to our attention was yes-
terday on the Dow-Jones ticker.
Gaston:
And you got in touch with Mr. Latimer, who would
naturally be expected to know what's going on.
H.M.Jr:
No, I got in touch with the President of the United
States and the President suggested we have this
meeting here this afternoon.
Gaston:
Shall we admit to them that we have some of these
documents prepared, an outline of the plan?
Magill:
No, the whole story is this. Let me tell it to you
this way. As far as this part is concerned, I called
Regraded Iclassified
171
- 21 -
Mr. Latimer Thursday and inquired what had hap-
pened, because I had previously understood that
the Treasury was to be protected, that the Carriers
Taxing Act which the President had signed on Saturday
was to be in effect at that rate from March 1, 1936;
and we have in the budget 135 million dollars from
that source for the current year which I had under-
stood we were going to get under the agreement.
Now, Mr. Latimer said no, we weren't to get this,
that the railroad executives had decided they didn't
want to pay it after all, and so they had agreed
with the employees that they shouldn't.
Gaston:
That is a new Act that's just signed.
(1.M.Jr:
Extension.
Gaston:
Extension of it.
Latimer:
As they've now got it, it isn't even that.
Magill:
I may say parenthetically there is a nice question
there that you (Oliphant) may appreciate. If they
go repealing this old Act, putting in a new Act,
I would like to bet a nickel that it will not be
effective from January 1, 1937. Will you join me
in another nickel?
Oliphant:
I'll bet a dollar on it at least.
Magill:
I don't have any doubt it will be effective as of
the date it is passed.
Bell:
And not retroactive?
Magill:
No.
Bell:
It's an excise tax.
Magill:
Well, very doubtful.
Bell:
It could be made that.
Magill:
Well, anyway, Thursday afternoon Mr. Bell and I had
a conference with Mr. Latimer and our specific under-
standing was that we'd get a memorandum which would
outline the details of this proposal, including the
Regraded Uclassified
172
- 22 -
actuarial computations, 50 that we could make our
own study of it to see how we were going to come
out on the thing. And we have discussed this
afternoon about one or two of the questions of
policy; there are actually six involved in which
we are interested and which we wanted to go into.
And it was understood that everybody would be
informed and that there was no commitment by any-
body, that it was still in the tentative stage.
Well, there was a conference with the President
Friday morning between railroads and the employees
and Mr. Latimer, I guess it was.
Latimer:
And Mr. Altmeyer.
Magill:
And Mr. Altmeyer. And the next thing We know about
it is this ticker report, which certainly gives
the impression that it is an accomplished fact
that it has Governmental endorsement.
Now, we still don't have - we still have no memor-
andum of the details of the plan, so we still are
entirely unable to calculate now we would come out
under it.
H.M.Jr:
And you might add: and the Social Security Board
is in the same boat. Right?
Altmeyer:
Yes. Now, of course, I think
Magill:
Of course, one funny angle, if you want just a little
amusement out of it, is that the President has this
conference on Friday with respect to this new plan
and then on Saturday signs the extension of the
taxing act at the seven percent rate.
Caston:
That's the old rate?
Vagill:
Yes. And SO under the existing law we are entitled
to this 135 million, whatever it is.
H.M.Jr:
But they are damn careful not to get out the publicity
until after the President has signed it. Any signi-
ficance in that? They wait until afterwards.
Magill:
I don't know.
173
- 23 -
Gaston:
After that conference - we are not in a position
to say anything as to any commitment at that
conference that the President had on Friday.
Magill:
Except the fact is he didn't commit himself.
H.M.Jr:
There were no commitments. Mr. Latimer said there
were no commitments made.
Altmeyer:
Yes, there was a basic commitment made. No question
about it.
Bell:
That's what I'm afraid of, These railroad people
went out - away from the conference with the idea
that they had gotten something out of the President,
and so it's not what you're going to say now but
what you're going to say after the railroads and
the labor crowd have spoken to the newspapers.
H.M.Jr:
Well, somebody spoke yesterday.
Bell:
No, I mean if Gaston gives something out today,
they will interview Mr. Pelley and the unions and
they will take issue with you on your facts. Unless
you're pretty sure of what you're giving out today,
then you'll have to worry about what they're going
to say.
H.M.Jr:
Well, before Herbert Gaston gives out anything, he's
going to go over to see Steve Early and talk it
over with nim first.
Oliphant:
I think Mr. Altmeyer is discussing the heart of the
thing. What was the commitment?
Altmeyer:
Here is what I consider to be the basic commitment.
I am sure that Pelley and Harrison went away with
the understanding that the President was committed
to a plan for extending the protection of the old
age benefit provisions of the Social Security Act
to the railroad industry, with the understanding,
however, that any higher benefits that the railroad
industry desired to pay would be financed completely
out of additional taxes than those provided in the
Social Security Act. Now, he isn't committed to any
particular way of bringing that about, but he is
committed to that basic proposition.
Regraded
174
- 24 -
Latimer:
Yes; well, that's true. But he was committed to
that before he started negotiations.
Altmeyer:
Well, maybe so, I don't know sbout that. But I do
know that that - I got that as a result of the
conference.
Latimer:
Well, that's true; that's nothing but what has been
admitted all the time.
Altmeyer:
Now, we're talking about publicity. If that is
true, isn't the way to handle the publicity to indi-
cate that the Government does look with favor upon a
plan to extend the basic protection of the Social
Security Act to the railroad industry, with the under-
standing that higher benefits will be financed out
of additional taxes, but the Government at this time
has not had submitted to It the details of 8 plan
to bring that about. Or put it the other way around:
the Government is not at this time prepared to under-
write any particular plan.
d.M.Jr:
Well, if you don't mind, I'd put it a little differ-
ently. I would simply say that we met and that we
find that we have not yet got all the details of the
plan, and that we will have to have several more
meetings; and that after we understand at lesst what
the three agencies are working for we are going to
make a report to the President as to how we look at
it among ourselves, because the President - before
we did anything, before we came to any conclusion,
he wanted us to report back.
Altmeyer:
I think we've got to be careful in any statement we
make that we aren't putting the President in the
position of repudiating a commitment on a basic
proposition. Otherwise, they'll get excited and
they'll say, "Well, we understood this, and now
H.M.Jr:
Well then, all right, supposing we Just simply say
this. Just leave it that for the first time the
Treasury is getting the plan.
Altmeyer:
Well, I'm perfectly willing to have Social Security
included in that.
H.M.Jr:
Well then, Social Security. Or just put it that we
Regraded
175
- 25 -
are going into this problem and we'll have to have
several more meetings.
Altmeyer:
That's the most cautious way to handle it.
H.M.Jr:
We'll just say we're going into this thing, we'll
have to have several more meetings, and then expect
to report back to the President.
Oliphant:
That is, 1f you're going to
H.M.Jr:
Simply study this thing.
Oliphant:
if you're going to avoid this saying that it
hadn't been laid before you.
H.M.Jr:
Well, we've got to say the thing.
Oliphant:
Well, my point is if you say that Mr. Pelley and
the railroads will say it was officially laid before
the Government - laid before the person handling it
officially for the President, before it was public.
S.M.Jr:
All right, simply say that the three agencies are
studying this thing, will have to have several
meetings, and when we come to an understanding on
the thing we'll report to the President. How's that?
Altmeyer:
I think that is certainly cautious enough.
Magill:
I think in speaking of it, it might be a desirable
thing to speak of it as a proposal of the railroads
and their employees.
Gaston:
I was going to suggest this: that Mr. Altmeyer and
Mr. Latimer came here to discuss with the Secretary
today the proposals of the railroads and the railroad
unions for revision of the law so far as they under-
stand them; and there was some preliminary discussion;
we haven't yet full information as to their - the
proposals which they would advance, and there will
be further discussion of them.
Latimer:
Well, it is important to look on these whole agree-
ments now as being in the nature of tentative
agreements.
Magill:
Yes.
Regraded Uclassified
- 26 -
176
Gaston:
Yes, the tentative understanding or the tentative
proposals. And the railroad unions
Latimer:
go along with the present litigation. I know
at leave five large railroads are saying, "We take
the position, and have to take it, that we hold
the present legislation is unconstitutional and
we think we can defeat the whole legislation in the
Supreme Court, and we're going ahead and continue
our fight against it to throw the whole thing out."
bell:
Is that a club that they hold over the Administration
to agree with these proposals?
Latimer:
It is a fairly sizeable club.
Altmeyer:
Couldn't you send a telegram to Harrison and Pelley
asking them to make it clear that it would - in these
discussions next week that this particular plan
does not have the Administration's blessing?
Entimer:
Of course, having done that,
Altmeyer:
I mean as a matter of record wouldn't it be a good
idea to get it in the form of a telegram to them, so
they are on notice? Ask them to make it clear to
the conference that that is the case. I mean it
would come much more gracefully from them than for
us to say something.
Latimer:
You think we ought to do that?
Altmeyer:
Well, don't you think so?
I think SO too. That would accomplish my whole pur-
pose. The thing we are worried about is the notice
being out to the conference that the Government has
agreed to this. Put now 1f Mr. Latimer sends out a
telegram like that, that would be perfect.
The other thing I was going to suggest is if you
would be willing to meet at a time agreeable - some
time with Mr. Magill and then go over this. I
won't sit in at the next one, but I think you ought
to have another meeting tomorrow.
Oliphant:
What should that telegram say?
Regraded Iclassified
177
- 27 -
Magill:
Better be about Thursday, see? If we get your
memorandum tomorrow morning and go over it, then
Bell and I ought to have a chance to look at it.
H.H.Jr:
Make it Thursday.
Lotimer:
Well, I'm not going into great actuarial details,
because that would require from now until next week.
I am merely saying that it is based on the material
BS collected over a period of ten years.
Altmeyer:
Of course, we have been talking some costs and so
on, but I think there's other things we have to
consider before we underwrite the thing.
H.M.Jp:
Well, I allowed an hour and if you don't mind -
maybe if you want to adjourn just scross the
next room, if you want to go any further today.
Altmeyer:
No, I just wanted to mention that this
H.M.Jr:
Well, Magill said six or seven things and we only
went into one of them. I just would be curious
what sort of telegram you'd send to them, but if
you don't mind, I'd like to be excused; I mean if
you
Latimer:
I thought we'd say something like this: "Newspaper
reports indicating Administration commitment to
tentative agreement seem misleading. Important to
make clear to your principals that Administration
not committed beyond (1) Continued maintenance
separate Railroad Retirement Act; (2) Extension
of provisions of Social Security Act to railroads."
H.M.Jr:
Do you think that covers it, Magill? Danny?
Bell:
I can't swallow that. There's something wrong with
the basic idea, that's all. I just can't see a
committee in Congress providing this money out of
the Social Security Act when the employees and the
employers of the railroads don't contribute anything
to the tax in the way of taxes to the fund.
H.M.Jr:
Well now, look, would you mind working it out with
these people?
178.
28 # 1
Latimer:
I'll cut out Number Two.
Bell:
It isn't necessary to put Two in. I'd cut it out.
Latimer:
Well, the President has gone along, but
Altmeyer:
I really think that is over the dam now. From the
standpoint of public relations with the railroad
people, with labor and the executives, you might
just as well face it now as later, because they're
going to come back at you and call you names if you
back up on Number Two.
Latimer:
I think we can persuade you.
Magill:
Well, I wonder if you have to say in your telegram
what the Administration is committed to anyway. I
think that is not the most desirable thing.
Latimer:
Well, I think it is important not to sound like the
Administration is backing up completely.
Custon:
Something like: "In view of newspaper statements,
I think it advisable to avoid advising your members
that the Administration is fully committed to details
of any plan."
Bell:
The whole proposal.
Latimer:
I think it is other things rather than real details.
Oliphant:
It is much more than details.
H.M.Jr:
Why don't you go into Magill's room?
(Group retires to Mr.
Magill's office, without
Secretary)
Oliphant:
I've got a basic difficulty here, Ros, and that
is this thing: this bright red apple having been
dangled in the morning papers before the rank and
file, that the damage has been done, and I - did
you get what I said there?
Magill:
No.
Oliphant:
I say this: in terms of the reality as to whether
or not we do have to consider this, this bright red
Regraded Uclassified
179
- 29 -
apple having been dangled in front of the rank
and file of the employees in this morning's
papers
Magill:
Not to mention the railroad stockholders.
Latimer:
That's the worst part of it.
Bell:
Their earnings have gone up.
Oliphant:
And I still say I think the important publicity
is what you're going to say when Pelley and the
unions come back at you. That's what we ought
to be thinking about, because until we see the
end of the road, we better not start down it.
Altmeyer:
Are you (Latimer) sure that less than seven
percent is going to handle it? I think from a
practical standpoint what the Government ought to
try to do is save the seven percent; never get
any more, but
Latimer:
Well, see, at 7.13 the total - and it will cover it
all right if they don't change it, but there's some
points in there where my feeling is that the strong
pressure is going to generally
Bell:
That makes it all the more important why we should
get seven percent.
Latimer:
I agree with you you ought to get seven percent, but
we can't - of course, we can't predicate the cost
on something that Congress is going to do ten years
from now,
Altmeyer:
But now is the time to do the bangaining, not after
We are going on it, and with a year and a half gone.
And you remember Harrison mentioned at the President's
conference - he said, "We told you at that time, Mr.
President, that if we needed more taxes to support these
benefits, we'd go along with increased taxes, or we'd
even reduce the balance."
Latimer:
I'll say this for Harrison. Harrison did try his
best to keep the taxes at the seven percent level.
Bell:
Who's Harrison?
180
30 I I
Latimer:
He's the railroad man, the labor man. He was in
favor of it; never in favor of cutting taxes under
seven percent. Reason was they wanted more bene-
fits. But the railroads put it over on them the
last few days. I don't remember what day it was,
but I think until last Thursday we had not supplied
a single cost figure other than one based on seven
percent - that is, on one less than seven percent;
and some on E basis of making it nine and beginning
after March 1, 1936.
Oliphant:
Well, I'd like, Ros, to think - well, just to follow
through a little bit in terms of not merely the
present publicity but what the Secretary will be
in a position of saying or having to say or having
to deny or having to take back after the Brotherhoods
and the Executives have had their say. Will they be
in a position to say that it is wrong, that this
agreement was reached, it was laid before the man
handling it for the President, laid before the
Treasury, and it was not public until after that
was done? For instance, I'd like to know were they
advised of your (Latimer) conferences with us? I
don't want the Secretary to say
Altmeyer:
The last word that we got in the President's office
was there would be no publicity on it.
Latimer:
They asked for it.
Gaston:
The last word was that there would be no publicity?
Altmeyer:
That's right.
Oliphant:
I'd like to clear up the fact whether or not the
conferees were advised of your conferences with us.
Latimer:
Not the conferees as & whole. But I did, as I say,
before take Harrison and Pelley aside and say that
the Treasury
Oliphant:
That you'd laid it before
Latimer:
would have to be brought in to review this whole
thing at some stage. I told him as a matter of fact
that at the stage where it got before the Committee on
Ways and Means and the Finance Committee, they would
send it down to you, and therefore they could expect
181
- 31 -
that some changes would be made at your suggestion.
I thought that was
Magill:
Well, did they have the idea whenever they broke up
their negotiations that the Treasury had seen this
plan and approved?
Latimer:
No.
Oliphant:
I don't mean the details.
Latimer:
As far as they knew, the Treasury has not seen it.
Megill:
Didn't know anything about it?
Oliphant:
That is, they don't know of your conferences with us?
Latimer:
Well yes, Harrison and Pelley do, because it was
stated before the President and it was stated to
them in private that you hadn't committed your-
selves; but whether - you see, I'm not a part of
the general conference and most of the conference
was going on between the main committees. I was
not present, so I can't vouch for what was said
when I wasn't there.
Magill:
But at any rate, there was nothing said to Pelley
or Harrison which would give either of them to under-
stand that we had gone over this and approved it.
Latimer:
No, quite to the contrary.
Altmeyer:
Well, I don't understand, I mentioned to you (Latimer)
on the way out - I said, "is this going to go over
to the Bureau of the Budget and the Treasury?" and you
said, "Of course, it will have to clear that way."
Now, my understanding was that you were going to send
it over.
Latimer:
Well, I didn't tell them that I was, because I knew
that as far as they were concerned
Altmeyer:
I still can't understand why it was to be handled
with private individuals introducing bills into
Congress and then to come that way back here to
the Administration and then the President to write
a letter underwriting the bill. It seems to me...
Latimer:
That was nis own proposal.
182
32 I I
Altmeyer:
I know, but I can't understand why it would be
handled that way, because it was bound to - there
was bound to be something handed up here that
would put you on the spot.
Latimer:
Well, that's the way - they asked him what he
wanted to do and that's the way he said he wanted
to handle it.
Oliphant:
In their comeback on this, would they be in a
position to say they were relying on you (Latimer)
to clear this with the Treasury and the Budget
Bureau?
Latimer:
(Nods no)
Bell:
What worries me about it is that - what you (Latimer)
say, that the President told them to go ahead and
submit these bills, didn't he, to the Committees,
then he would write letters to the Committees, and
he didn't want to send any bill up with a message.
Latimer:
That's right.
Bell:
But they were to - somebody, I don't know whether
they or Mr. Latimer, were to send bills to the
Chairmen of the Committees in Congress.
Latimer:
No, we weren't.
Bell:
Well, I don't know. I got word that it was to go
to Congress, then the President was to write a
letter to the Chairmen of the proper Committees
endorsing whatever program they laid down. That
is what worries me.
Gaston:
That is, your understanding was it would go up not
as a reilroad conference proposal but it would go
up as sort of an Administration proposal.
Bell:
No, I don't know who that was stated that. I just
thought that Mr. Latimer - I didn't know whether
he was to handle the bills to the Chairmen of the
two Committees or whether the railroad people were
to do that. But I got the impression that the
President said the bills could go directly to the
Committees and that he would write a letter after
183
- 33 -
they were introduced. Is that
Altmeyer:
That's right.
Gaston:
Well, of course, if they were to go to a Committee,
they would have to come from some government depart-
ment.
Latimer:
No, they were to be introduced by Congressman Crosser
in the House.
Bell:
I see:
Latimer:
I don't think they mentioned who it was in the Senate,
did they?
Bell:
See, they just hand these bills informally to some
Congressman or Senator and they introduce them.
Gaston:
The Brotherhood?
Bell:
Well, I didn't get who was to do it; that wasn't
clear.
Magill:
What did they propose to do? I don't know that we
can - did they propose to introduce a new taxing
act and a new railroad retirement?
Latimer:
Yes, in that agreement.
Magill:
I don't think it says.
Latimer:
It doesn't? Well, they have. Have you (Altmeyer)
got that?
(Altmeyer hands Latimer
requested papers)
It's really a new bill, I should say.
Bell:
What does this new bill propose to do, combine both
the benefits and the tax in one bill or separate
bills?
Latimer:
Separate bills.
...."that it shall be amended to include
"
Magill:
Regraded Uclassified
184
- 34 -
Latimer:
I haven't read this myself.
Caston:
I told these newspapermen out here that you gentlemen
had been here with the Secretary in order to learn
what you knew of these tentative proposals of the
conference of railroads and Brotherhoods, because
it was a matter of such great importance from the
tax and budget standpoint that the Treasury wanted
to get the latest information. And they wanted to
know what Mr. Altmeyer was - why Mr. Altmeyer was
here. Well, I said that this railroad matter is &
matter so closely allied to the matters under the
jurisdiction of the Social Security Board that
naturally Mr. Altmeyer's advice would be sought.
I don't think there is anything dangerous in any
of that.
Altmeyer:
No.
Magill:
Well, your (Gaston) statement pretty well covers
the situation.
Gaston:
They also asked me specifically whether this new
plan was to bring the railroad employees in under
the general provisions of the Social Security Act,
and I told them I didn't know. Or they asked me,
rather, whether they would be brought in, and I
said that I could with good conscience answer them
that I didn't know, and that I also didn't know what
the outcome of the President's general reorganization
plan would be if it went through - it might affect
the situation.
Latimer:
Even if that second thing were put in (referring to
proposed telegram), it would raise so much - take
from now until doomsday to answer all the questions
about it.
Bell:
What have you got there?
Latimer:
"Reports in today's press intimating complete Admin-
istration commitment to tentative agreement are dis-
turbing to those involved. Stop. Urge that it be
made clear that commitment thus fer made relates only And
to special railroad retirement legislation
I don't know what to do about that Two.
Gaston:
I should not attempt to be explicit about what the
185
- 35 -
commitment is at all. That sort of advice will
have to come from the White House.
Latimer:
Well, how would you put it?
Magill:
would you say something of this kind, that "In view
of newspaper publicity regarding tentative agreement
between carriers and their employees, request that
you make it clear to your respective organizations
=
Gaston:
"I think it important that it should be made
clear to your respective organizations
"
Magill:
"that the
"
- what I am going to say is that
the "blank" is still subject to examination and
approval by the Treasury and the Social Security
Board, or something of that sort.
Latimer:
Well, that is - that would be very much more upsetting
than this. I mean they will
Altmeyer:
Well, could you say this: that you think it important
to make clear that there has been no commitment - or
whatever word you want to use - concerning any specific
proposal? That's the fact, isn't it? You don't have
to say what there has been commitment to. You can
merely say there's been no commitment to any specific
proposal or to the
Bell:
to the proposal in its entirety, or something
like that. Could you say to the proposal in its
entirety?
Altmeyer:
And leave the implication that part of it has been
agreed to?
Gaston:
I think that's about the way to say it: that there
has not been a commitment to any specific proposals.
What do you (Magill) think?
Magill:
Well, that's what I'd like to say. The only question
I'm raising is Mr. Latimer's question of what the
effect is going to be.
Bell:
Why couldn't you make it singular - "specific
proposal" - which would take in the whole thing?
"no commitment by Administration
"
Latimer:
Regraded
186
- 36 -
Altweyer:
What I'm not clear about is just what was going to
happen after the conference with the President. What
were they to go to their principals about?
Latimer:
Well, they wanted to know how far, assuming that
they could - as I understand it, they had discussed
at some length whether they should take the plan
that they agreed upon among themselves and go back
to the railroads and labor organizations and after
that was done then come to the President and say,
"We'd like to get this" and see what he said after
that, or whether - and then they said, "No, we don't
want to do that, because we don't even know whether
the President wants any of this or not. Will he -
does he even favor the general idea of it?" They
said, "We'd like to get some commitment out of nim
on that - that he does favor it - the maintenance
of a special rule in the system. And we can go back
to our principals and say that he does favor that."
Now, that's why they went to the President. Of
course, it is obvious that they wanted a lot more.
Altmeyer:
How long was this pledge of secrecy to last - until
up to the time that they met with their principals?
Latimer:
I understood it was to last until they
Remember
he said that as soon as they had a meeting with
the principals - that after they notified each
other that they were in agreement, he wanted a
report from them. I would say it was to last up
until that time.
Altmeyer:
Well, I think probably sending a telegram like that
would - if they weren't supposed to even discuss
the conference with the President, I think perhaps
they ought to be reminded of that fact, reminded
that it was to be kept confidential.
Latimer:
Don't know what good that would do. They'll all
swear they don't know a thing about it.
Caston:
The further we get, I think any telegram sent ought
to be approved over at the White House by McIntyre
or Early.
Bell:
Yes, I'm inclined to agree. The more we discuss it
the more I'm convinced that
187
- 37 -
Gaston:
The point is we don't know how far the President
feels that he is committed on this thing.
Bell:
Well, the President did say to the Secretary that
he isn't committed. But just the statement you
make, that these people couldn't go to their
principals and discuss this matter until they found
out how the President stood on it, convinces me
that they have gone away with the understanding
that the President is pretty well committed to it.
Latimer:
Well, how could they go away with such an impression
when the President didn't know anything about
Bell:
Well, Mr. Latimer, when I - I don't know, when you
deal with the President a couple years And I
think you have to find out how he deals with people.
Now, he doesn't go into the details, but I think
that there are times when he does give a definite
impression of approving matters, and I think a
stranger might very well go out of that room plenty
of times and think that they have the full approval
of the President. I've seen it happen many a time.
Latimer:
Yes, I know; after it's been put up to him
Now,
I started to go into some of the details of the thing
and the President didn't want to listen to details.
He didn't want to go into it. But he gave me the
very impression that he didn't want to commit himself
because he didn't want to hear the details.
Gaston:
Well, obviously I should think that the President
didn't want to take a verbal statement of the
details and give an approval on that statement. He
might say, "I'm in accord with certain general ideas
on this thing, but before it got down to signing
on the dotted line he wanted to see in black and
white just what he's underwriting.
Latimer:
Well, that's perfectly true, but he didn't want
any of that on Friday.
Altmeyer:
He's not committed to any specific proposal, I'm sure,
and I'm sure they don't have that opinion either.
Latimer:
I think this publicity is an attempt to drive it
home.
Regraded Uclassified
188
- 38 -
Bell:
That's probably right.
Gaston:
No question about it. It's coercing publicity.
Altmeyer:
I said - didn't you (Latimer) hear me say there
ought to be conferences on this? And then we started
talking about something else. I knew darn well that
there was going to be a gap between the general
commitment of the President to the idea and the
specific proposal that they were talking about send-
ing up to the Hill. I was confident that there would
be a gap there.
Latimer:
Well, here's what we have: "In view of premature
newspaper publicity regarding tentative agreement
between carriers and
ft
Altmeyer:
Don't put "premature." Just "In view of the news-
paper publicity." "Premature" indicates there is
something coming along.
Magill:
O.K., that "premature" is mine; take it out.
Caston:
I'd say that was premature; go ahead.
Latimer:
"In view of newspaper publicity regarding tentative
agreement between carriers and their employees, think
it should be made clear to your respective principals
that there has been no commitment by Administration
regarding specific proposals."
Gaston:
I would say O.K. when it has White House approval.
Bell:
How do you feel about it, Mr. Latimer?
Latimer:
Well, I think it would - after they get this, they'11
have me on the long distance wondering what the hell
this means.
Gaston:
Well, that ought to be pretty easy to explain, I
should think. There was a discussion of general
principles over there and an agreement that there
would be no publicity. Out comes in the newspapers
a detailed plan with the implication that the Admin-
istration has agreed to all this and that the rail-
roads are going to save a great many million dollars
this year in taxes.
COPY
189
RAILROAD RETIREMENT BOARD
Washington
Murray W. Latimer
Feb. 9, 1937
Chairman
The Honorable John G. Winent, Chairman
Social Security Board
Washington, D. C.
Dear Mr. Winants
On December 28, 1936, the President addressed a letter to representa-
tives of the railroad managements and railway labor organizations uring
upon them "the desirability of 8. conference to consider the retire-
sent problem and attempt to find a satisfactory solution." He suggested
that the conference formulate joint recommendations for the benefit of
Congress.
In accordance with this suggestion, a series of conferences has been
held in Washington. At the direction of the President, this Board has
placed its information and technical facilities at the disposal of the
conference and has made estimates of the cost of various retirement plans
which have been under discussion by the conferees.
The calculation of costs has raised a question having to do with the
general policy underlying the formulation of social security measures!
shall & railread retirement system be regarded as an independent plan having
no relation to other similar neasures instituted by the Federal Government
or shall it be regarded as a combination of the general old age benefit
system with & structure of additional benefits and financial support super-
imposed thereon.
The practical bearing of the question on the problem under dis-
cussion can be made clear by & recital of certain facts.
At the moment of its enactment, the old age benefit system created
by the Social Security Act embraced reilway employment. Certain taxes
were levied which, it was estimated, would reimburse the government for
the expenditures made under the old age benefit system.
A few weeks later Congress enacted legislation which excluded en-
ployment on railroads and closely allied organisations from the definition
Social Security Act which levied taxes on wages received and paid in cor-
of employment of the old age benefit system and of Title VIII of the
responding employments. As & result of that action, according to calcula=
- 2 -
198
tions made by our actuarial staff, benefits payable under Title II were
reduced by an amount greater than the reduction of texes under Title VIII.
We have made various measurements of the benefits end taxes under
Titles II end VIII. Calculations my be made in terms of present values
or of annual amounts of differentials between total benefits and the 80-
called "earned" portion. For present employes, these differentials,
assuming retirement atage 65, have B present value, 0.8 of today, of the
order of $650,000,000 and an aggregate, without allowance for time of
payment, of upwerds of two billions. For an average retirement ege of
67% the present value of the differential will be about $350,000,000
and the actual gross excess will exceed one billion. These differentials
exist generally in the early years of operation of the old age benefit
system; but they are offset by later increased financial provision.
By reason of the relatively advanced ages of railroad employes
GB compared with those employments covered by the old age benefit system,
both for present employes and now entrants, the differentials for railroad
employment would be to a large degree permanent.
The question therefore, in more specific form, is this: in the
calculation of costs must we regard the reilroad retirement system O.B.
an entity in itself, or can the costs be regarded as having been provided
for if the financial provision in the retirement act is such that the
government books are in the same state of belance for the combination
of old age benefit and railroad retirement systems as they would be were
railroad employment embraced in the former system.
If, in your judgment, the second of these alternatives constitutes
the proper policy, we raise the further question as to whether you would
favor the edoption of 8 formula by which the differentials would be
actually placed in a reilroad retirement account currently or whether the
government, on a showing 6.5 to the existance of balance between expenditure
and financial support, taking both systems into account, should merely under-
write the payment of benefits, leaving to later determinetion, in the light
of subsequent developments, the specific form and method of providing
financial recognition of the differentials. The financial provision
contemplated for the reilroad retirement system will, taking no account
of financial recognition of the differentiale, support the proposed
system, including expenses of administration, during the next generation.
Since the recommendations of the conference will undoubtedly be re-
ferred to you for scrutiny 85 to conformity with general social security
policy, I suggest that it would be appropriate for you to make known your
views to the conferees in order that they may be governed thereby.
Yours very truly,
MURRAY W. LATINER
Copies tor
J. J. Pelley, President
American Association of Railroads,
Mr. George K. Harrison, Chairman
Reilway Labor Executives' Association
Regraded Uclassified
COPY
WAS
189
191
February 10, 1937
Mr. Murray W. Latimer,
Chairman,
Railroad Retirement Board,
Washington, D. c.
Dear Mr. Latimer:
This will acknowledge your letter of February 9 asking for the
opinion of this Board as to certain matters of general social security
policy. Since similar questions are likely to be raised from time to
time in other connections & statement of the general principles on
which our answers are based is appropriate.
We regard the old age benefit system created by the Social
Security Act as the necessary basis of all programs for old age security
within the range of its inttial coverage. We have not and do not favor
exclusion from coverage based on any action in the field undertaken
voluntarily by a single employer or & group of employers, although we
believe voluntary benefits provided to supplement the old age benefit
payments are worthy of encouragement.
Under certain circumstances, - believe a federal system created
by legislation apart from the general old age benefit system would be
warranted. To be justified the following conditions should be present:
1. The industry should be one affected by & national public
interest, and one to which normally federal legislation and regulation
apply;
2. The old age retirement system should provide larger aggregate
benefits than those of the general old age benefit system and no indi-
vidual employee should be worse off by reason of being covered by the
special system rather than by the general old age benefit system;
3. The machinery for administration of the system should be
BO organized as to operate with narimum effectiveness in conformity with
policies adopted by Congress for administrative management.
4. The creation of a separate system should in no way adversely
affect the financial support of the general old age benefit program.
Regraded Uclassified
-2-
Mr. Murray 1. Letimer - 2/10/37
192.
A special railroad retirement system created by Congress
would, of course, meet the first of these conditions. We understand
from your letter that the proposed railroad retirement system meets
the second condition. The application of the third principle will
be dependent upon congressional policies now in the process of formu-
Intion.
The fourth principle furnishes the enswer to the first of your
specific questions; provision of ad old age retirement system for any
specific group is to be regarded as composed of the general old age
benefit system, with its correlative financial support, with super-
imposed structure of benefits and a corresponding means of providing
for them. In other words, the creation of the special system should
not affect the balance between income nd outgo which would exist
without it. Creation of a separate reflroad retirement system has
not, of course, adversely effected this balance, but in other cases
this would not be true and it is important to establish 3. precedent
here BO that the acceptance of the principle may be assured.
ÀB to the second question: it seems to us unwise to formulate
at this time any rule for the purpose of including currently in the
railroad fund the differentials referred to by you. It sppears more
appropriate for the government to agree to underwrite the benefits
on a showing by you of the existence of the general balance. This
view is based on several considerations. First, the Social Security
Act is still in a developmental stage; doubtless changes will from
time to time be found desirable. Changes affecting the old age
benefit system will produce corresponding changes in the differential,
and eny measurements now made would require revision. Second, changes
in conditions asy require modification of reserve policy and the
government should, in this respect, be left free to work out that
problem without unnecessary restriction. Third, current financial
recognition of the differential is not needed to support the benefits
for many years; and, the ssurance of old ge security for the employees
affected is in no way diminished by leaving the government free to
determine its financial policy in this respect 68 conditions may
from time to time indicate.
In accordance with your suggestion I all sending a copy of
this letter to Mr. J. J. Pelley, President, American Association of
Railroads, and Mr. George M. Harrison, Chairman, Railway Labor
Executives' Association.
Sincerely,
Chairman
jap*
-3-
Mr. Murray W. Latimer - 2/10/37
193
Copies to:
Mr. J. J. Pelley, President
Association of American Railroads.
Mr. George M. Harrison, Chairman,
Railway Labor Executives' Association.
Regraded
Uclassified
194
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, paris, France
DATE: March 2, 1937, 1 p.m.
NO.: 292
CONFIDENTIAL.
A reliable newspaper correspondent has told me that
he had just seen Blum and that the latter authorized him
to publish a statement to the effect that a decision
against exchange control had been made by the French Gov-
ernment. According to my informant, Blum said that
the financial and monetary difficulties of the Govern-
ment would be solved by exchange control and the majority
would receive it with satisfaction, but there was one
controlling reason for deciding against it - i.e., it
would run counter to the declaration of policy under the
Tripartite Agreement, and that the United States and England
would look upon it with disfavor. Therefore the French
Government would not institute exchange control, and for
this reason only.
In addition Blum told my informant that the question
of the modification of existing tariffs and quotas was
being studied by Professor Rist. He said the study would
be submitted to Parliament for appropriate action as soon
B.B it is completed.
The above account throws light upon an inspired
statement published in the AGENCE ECONOMIQUE ET FINANCIERE
Regraded Uclassified
195
- 8 &
this morning to the effect that the French Government
intended to stand by the monetary and economic policy
set out in the Tripartite Agreement, and that the French
Government did not intend to make a change in this respect.
WILSON.
EA:LWW
03V13033
DECEIAED
REPAM
TRA SSSS
TASHING STUDENT
AV. in 13 solid
W et with
,
AND - ti - and
136
March 2, 1937
Mr. Mallet came in to see the Secretary today at
4:30. Mr. Lochhead was also present,
The following is stenographic report of their
meeting:
Mr. Mallet: I am afraid our poor friend Trentham
is still laid up with the flu. He asked me to bring
this message down to you that he just got this afternoon
from the Chancellor of the Exchequer. (Copy is attached.)
HM,Jr: Let me read this out loud.
"Please thank Mr. Morgenthau for his
message and assure him that I fully
share his desire that we should con-
tinue to keep in closest touch about
the French situation.
As stated in Chancellor of the Ex-
chequer's message to Mr. Morgenthau
February 10th His Majesty's Government
urged the French Government to take
speedily most vigorous action to restore
confidence. French Ministers in their
reply stated that the French Government
were firmly refusing to impose exchange
control and that measures which they had
under consideration included free move-
ment of gold, a pause in increase of ex-
penditure, use of a more elastic tech-
nique by French equalisation fund to
defeat speculation, limitation of rise
in prices and reduction of customs
tariffs and abolition or limitation of
quota restrictions."
I want to ask you (to Mr. Lochhead) a question I
have meant to ask you before. When the French devalued
the last time, did they seize all the gold or didn't they?
Mr. Lochhead: They technically declared that they
were going to take it over, but they never got it.
197
-2-
HM,Jr: They have never taken it?
Mr. Lochhead: No. They have taken no actual
physical steps. They said gold should be turned in,
but they never put up any restrictions or exacted any
penalties.
HM,Jr: They never went through with it?
Mr. Lochhead: That's right. They never went
through with it. They modified it after they said
they had to turn over all the gold. Then they said,
Turn over the gold and we will give you certificates
for which you will get bonds and they paid a premium
on that, but even that has not drawn out much gold.
HM,Jr: But they never went out and took the gold.
Mr. Lochhead; No; never went out and seized the
the gold.
Mr. Mallet: Didn't they put a penalty on gold
being brought back by the French?
Mr. Lochnead: The idea was to turn the gold in,
get a certificate on which you could get a premium, but
nobody has paid any attention to it. Just like collect-
ing taxes -- nobody paid any attention to it.
HM,Jr: (Resuming reading.)
"His Majesty's Government regard (1) a
free gold market combined with (2) B. more
elastic technique in employment of French
equalisation fund as of special importance.
As regards (1) foreign exchange should be
in our view treated on the same footing as
gold, and capital should be free to return
to France without penalty or hindrance."
Mr. Lochhead: In other words, the French should be
able to bring back exchange they have abroad without pay-
ing a penalty on 1t.
198
-3-
HM,Jr: (resuming reading.)
"As regards (2) it was explained that
our experience suggests that 80 long as
rate of franc 16 rigidly pegged specu-
lators for & fall can operate at small
expense in hope of making a profit with-
out incurring a loss. His Majesty's
Government stated that they would be
quite willing for their part if it were
desired by French Government and should
United States Government concur to state
that it was with full concurrence of His
Majesty's Government that French Govern-
ment intended in present circumstances to
make use of liberty given by existing
French law to very value of franc from
time to time."
HM,Jr: When he talks about varying the value of
the franc, he means
Mr. Lochhead: They paid at the middle rate and
keep it at the middle rate with the right to devalue
HM,Jr: He says something later on about the 8%.
(Resuming reading)
"I had expected to receive a further
communication from French Government at
the beginning of last week and was wait-
ing for this before sending a message to
Mr. Morgenthau. But I now learn that
French Government postponed any decision
until after debate in chamber on Friday
last and that I cannot expect any further
communication for a day or two."
"His Majesty's Government agree with
the UnitedStates Government that 8. further
depreciation of the franc by not more than
eight per cent would in present circum-
stances not be open to objection but as
explained above they consider that in
199
-4-
"order to restore confidence free movement
of gold at its full value should be per-
mitted and that the franc should then be
allowed to vary within limite fixed by
French monetary law. They would be very
glad to learn if the United States Govern-
ment agree in this view."
HM,Jr: I just can't answer that today.
Mr. Mallet: No; quite.
HM,Jr: (Resuming reading)
"Generally speaking His Majesty's Gov-
ernment feel that situation depends on
internal measures to be taken by the
French Government who have already been
informed that His Majesty's Government
in the United Kingdom have no statutory
power even if they were willing to take
part in a modified pooling of stabiliza-
tion fund resources as seemed at one time
to be suggested."
I can say that that has never been suggested to us --
that we pool our resources.
Mr. Mallet: I suppose the French must have suggested
that.
HM,Jr: To the British, but it was never suggested
to me.
That's a new one. Am I right (to Lochhead)
Mr. Lochhead: Absolutely.
HM,Jr: They have made other suggestions, but not
that.
(Resuming Reading)
"But I would like Mr. Morgenthau to
know that in my personal opinion there
now remains little hope of avoiding a
breakdown of monetary agreement due to
200
-5-
"exhaustion, perhaps in the course of
this week, of recent London credit.
I agree with Mr. Morgenthau in think-
1ng that there is nothing which the
United States Government and His
Majesty's Government can do to help
the situation though of course I should
be glad to consider any suggestion of
action which might be taken in concert
to prevent breakdown."
HM,Jr: Well, I will Just have to digest this. I
appreciate this very much and appreciate the importance.
All I may say is that Mr. Chamberlain is even more pessi-
mistic than I am. I gave the French Government two weeks.
Mr. Mallet: To exhaust that fund?
HM,Jr: I gave them two weeks.
Mr. Mallet: And he is giving them this week.
HM,Jr: We gave them two. Not to be too harsh, I
told Mr. Bonnet yesterday the month of March. I didn't
want to be too harsh.
Mr. Mallet: Yes. Did Mr. Bonnet have anything to
suggest?
HM,Jr: Nothing! He brought, as far as I am con-
cerned, nothing. Nothing. Of course, the only think
that this does not answer (and I don't know that there 18
any answer) and that is, I suppose -- if the French this
week, or next week, or the week after, should collapse,
just how your Government and ours would handle the situa-
tion. I don't know and I don't suppose either of us
knows. And that was the question that I asked your
Ambassador to ask Mr. Chamberlain and I suppose, pending
the actual breakdown, I suppose we don't know how to face
the situation.
Mr. Mallet: Depends on how the breakdown occurs.
wouldn't it? If the French should, as a last resort,
suddenly try to impose restrictions of some sort
201
-6-
HM,Jr: Well, of course, you know what happened
the last time -- actually it was from Thursday noon to
Friday midnight that we put that agreement through.
Mr. Mallet: Yes.
HM,Jr: People with experience with them before
do say they never do anything until they are on the
brink of the precipice.
Mr. Mallet: It looks like that now, because they
have kept the Chancellor waiting for four or five days.
Mr Lochhead: I imagine they would notify us as
parties of the agreement if they took another step, but
I also imagine they would notify you on Friday if they
were not able to operate on the next day.
Mr. Mallet: Wait until the last moment.
Mr. Lochhead: Yes; wait until the last moment, and
I imagine they will carry out the letter of the agreement
by notifying us or consulting with us, but I am afraid it
will be too late. We will have to have very quick action
between the British and ourselves.
HM,Jr: Let's say that Mr. Chamberlain is right.
Let's say it is this week. I can't -- I can just -- I
en in complete accord with him that it is an internal
French matter that the French can only cure themselves.
I am in accord with that.
Mr. Mallet: Yes.
HM,Jr: I am in complete accord with Mr. Chamberlain
that this is an internal French matter and certainly there
is nothing that I can say that we could do from this side
to help them in their present dilemma. Where I differed
from Mr. Chamberlain, I was giving them two weeks.
Mr. Hallet: Uh-nuh.
HM,Jr: Now as to this question of free gold movement,
I would like to think about that. I realize he is asking
me a direct question. I could not just
202
-7-
Mr. Mallet: No. No.
HM,Jr: But the important things are (1) he says,
and I have said in my message, that we are both in agree-
ment that if the French want to devalue another 8 percent ...
Mr. Mallet: You have said that already, of course.
HM,Jr: We are in agreement on that.
Mr. Mallet: It. would not do any harm to tell him
again.
HM,Jr: No. I am thinking out loud. Now this
other thing -- the question of free gold movement; frankly
I have been sort of thinking in the other direction -- that
the French should more nearly follow our pattern and they
should 80 through with the thing and seize the gold. It's
all right to say that, if you wish to; that I have been
thinking more or less in the opposite way and if I had to
prescribe, I want Mr. Chamberlain to get this. (To Mr.
Lochhead: Is that all right? Mr. Lochhead: Yes. HM,Jr;
I thought you were shaking your head because you disagreed
with me. Mr. Lochhead: No.)
HM,Jr: I was thinking this way more that the French
should have done what we did; that is, seize all the gold.
Mr. Mallet: Yes.
HM,Jr: And then permit gold to move freely 8.6 be-
tween Governments, just the way we do now. You,see?
Mr. Mallet: Yes.
HM,Jr: But whether it's too late for them to carry
out that program now, I don't know.
Mr. Mallet: Yes. On that point you reflect more --
you have been thinking in the other way, but you are still
considering the question of his suggestion of free gold.
HM,Jr: Inasmuch as he raises the point to my mind.
But I had been running in the opposite direction.
203
-8-
Mr. Mallet: Yes; quite.
HM,Jr: Why didn't the French go through with the
program and seize all gold?
Mr. Mallet: Yes.
HM.Jr: You see?
Mr. Mallet: In September last.
HM,Jr: Yes, when they made the declaration
Hr. Mallet: Would that not have run counter to the
idea at the time of freeing trade barriers?
HM,Jr: No. That was purely internal.
Mr. Mallet: Yes, internal.
HM,Jr: But I don't think at this particular stage
that it's very important. I think it's too late. But
my mind has been running in the opposite way. I have
kept saying to myself, Why don't the French go through
with this thing and take all the gold just the way we did?
Mr. Mallet: Yes. What was the question that you
said that you had mentioned to the Ambassador and that
this does not answer?
HM,Jr: Oh! The only question I mentioned to the
Ambassador (and there may be no answer) -- What can the
British Government and the United States Government do
in case of 8. financial breakdown in France?
Mr. Lochhead: In other words, we have a Tripartite
agreement to which two others have been added. If France
drops out, will we drop it all or will we salvage the rest
of the countries?
HM,Jr: I asked that and there 1s no answer to that
question.
Mr. Mallet: It certainly is a question they must
be thinking of and there is no harm in putting it over
to them.
204
-9-
HM,Jr: And you might say, as a matter of air own
interest, I think it is a very important question.
Mr. Mallet: Yes; quite.
HM,Jr: Here are three members of the Tripartite
Agreement. France drops out. What are we going to
do? Go ahead and try to carry on anyway or that question
I put to the Ambassador and asked him to put to Mr. Chamber-
lain.
Mr. Mallet: I don't remember exactly how he phrased
it.
HM,Jr: But there 18 no reference in Mr. Chamberlain's
message to me and if Mr. Chamberlain 16 right (and I hope
he is not), we will have to move awfully fast.
Mr. Mallet: Yes. Anybhow I can put this question.
HM,Jr: And even if I had not said it before, I say
it now. Here we have a Tripartite Agreement. I don't
know what you call it when two people belong to it.
Mr. Mallet: Bilsteral.
HM,Jr: And you might say this to Mr. Chamberlain:
that it will be our desire to do everything possible to
cooperate with the remaining members to keep stable ex-
changes. That we will do everything possible.
Mr. Mallet: I All sure he willbe glad to hear that.
HM,Jr: To get down to the realistic, it will get
down to the stage of what your Government and ours can
and will do.
Mr. Mallet: Yes; quite.
HM,Jr: Holland, Belgium and Switzerland can't help
an awful lot.
Mr. Mallet: No.
205
-10-
HM,Jr: It will get down, in the final analysis
Mr. Mallet: They will expect a lead from us.
HM,Jr: Yes. They will expect us to do something
and I want to say to him that I will do everything that
I can to help.
Mr. Mallet: Yes.
HM,Jr: And I think you might say in the next few
days that anything I get I will immediately transmit to
him.
Mr. Mallet: Yes.
HM,Jr: And I would appreciate receiving the same
sort of treatment from Mr. Chamberlain.
Mr. Mallet: Yes.
HM,Jr: It is not very pleasant, 1s it?
Mr. Mallet: No. It is really tragic -- the work
you have put into 1t.
HM,Jr: For your information, Mr. Bonnet came in
here yesterday and started to give me what we call "a pep
talk" and I said -- I listened for 15 minntes, and I said,
"Well, Mr. Bonnet, I am no diplomat. I know what the
conditions are in your country and wouldn't you really
like to be frank with me?" And he completely changed.
Completely! He went on to say that he made & speech
four months ago that all this would happen.
Mr. Mallet: He did. At the time of the first
devaluation.
HM,Jr: He did. I just said, "Don't you went to
be completely frank?"
Then he completely changed.
Mr. Mallet: Yes. He had no concrete suggestions?
HM,Jr: Nothing. Absolutely nothing. And I t old
206
-11-
him -- not to be too harsh -- that I gave him a month --
the month of March.
Mr. Mallet: How did he react to that?
HM,Jr: He was very serious.
Mr. Mallet: Pessimistic?
HM,Jr: No. He did not say anything. I said,
'I give you the month of March. Of course, we talked
about the French fair. 'If you could only hang on until
that.' He said something about tax payments. Said if
they could get by the next tax receipts
Mr. Mallet: This is supposed to be their bad season,
isn't it?
HM,Jr: Yes. If they could get by this thing
....
Mr. Mallet: If they could get by March, I suppose
they would have a chance.
HM,Jr: Well, thank you very much and please thank
Mr. Chamberlain very much and I think we have simply got
to work just as closely as we can together.
Mr. Mallet: Yes, we have.
HM,Jr: My regards to the Ambassador.
Regraded Uclassified
3-2-37.
207
MESSAGE FROM THE CHANCELLOR OF THE EXCHEQUER
TO THE SECRETARY OF THE UNITED STATES TREASURY.
Please thank Mr. Morgenthau for his
message and assure him that I fully share his
desire that we should continue to keep in closest
touch about the French situation.
As stated in Chancellor of the Exchequer's
message to Mr. Morgenthau February 10th His Majesty's
Government urged the French Government to take speedy
most vigorous action to restore confidence. French
Ministers in their reply stated that the French
Government were firmly refusing to impose exchange
control and that measures which they had under con-
sideration included free movement of gold, a pause in
increase of expenditure, use of a more elastic tech-
nique by French equalisation fund to defeat speculation,
limitation of rise in prices and reduction of customs
tariffs and abolition or limitation of quota re-
strictions.
His Majesty's Government regard (1) a free
gold market combined with (2) a more elastic technique
in employment of French equalisation fund as of special
importance. AB regards (1) foreign exchange should be
in our view treated on the Bame footing as gold, and
capital should be free to return to France without
penalty or hindrance. AB regards (2) it was
explained that our experience suggests that 80 long
as/
Regraded Uclassified
208
as rate of franc is rigidly pegged speculators for a
fall can operate at small expense in hope of making a
profit without incurring a loss. His Majesty's
Government stated that they would be quite willing
for their part if it were desired by French Government
and should United States Government concur to state
that it was with full concurrence of His Majesty's
Government that French Government intended in present
circumstances to make use of liberty given by existing
French law to vary value of franc from time to time.
I had expected to receive 8 further
communication from French Government at the beginning
of last week and was waiting for this before sending
a message to Mr. Morgenthau. But I now learn that
French Government postponed any decision until after
debate in chamber on Friday last and that I cannot
expect any further communication for B. day or two.
His Majesty's Government agree with the
United States Government that a further depreciation of
the franc by not more than eight per cent would in
present circumstances not be open to objection but 88
explained above they consider that in order to restore
confidence free movement of gold at its full value
should be permitted and that the franc should then be
allowed to vary within limits fixed by French monetary
law. They would be very glad to learn if the United
States Government agree in this view.
Generally speaking His Majesty's Government
feel that situation depends on internal measures to
be taken by the French Government who have already been
informed/
Regraded Uclassified
209
informed that His Majesty's Government in the
United Kingdom have no statutory power even if they
were willing to take part in a modified pooling of
stabilisation fund resources as seemed at one time
to be suggested. But I would like Mr. Morgenthau
to know that in my personal opinion there now
remains little hope of avoiding a breakdown of
monetary agreement due to exhaustion, perhaps in the
course of this week, of recent London credit.
I
agree with Mr. Morgenthau in thinking that there is
nothing which the United States Government and His
Majesty's Government can do to help the situation
though of course I should be glad to consider any
suggestion of action which might be taken in concert
to prevent breakdown.
Regraded Uclassified
sub
210
Copy of cable from Mr. 4c Comas, Stockholm March 2, 1957
To BANKERS TRUST COMPANY, N.Y.
ENGLISH CONDITIONS GOOD NO LET DOWN EXPECTED CERTAINLY WITHIN NEXT
YEAR OR SO. NO DISCUSSIONS DOLLAR RATE WHICH STEMS ACCEPTED ALTHOUGH SOME
FEELING DOLLAR STILL SOMEWHAT UNDERVALUED. CONDITIONS HOLLAND VERY SOUND
AND STFADILY IMPROVING. THEY FEEL THEIR DEFLATION REDUCED COSTS 15% THEREFORE
DISCOUNT 20 25% SUPFICIENT ADJUSTMENT ESPECIALLY DEVALUATION EFFECTED DURING
WORLD PRICE RISE. DENMARK PROSPEROUS INTERNALLY BUT STILL LIVING SOMEWHAT
BEYOND ITS MEANS INTERNATIONALLY ULTIMATELY MUST FIND NEW MARKETS ITS
AGRICULTURAL PRODUCE OR REDUCE ITS STANDARD LIVING. THIS COUNTRY VERY
PROSPEROUS CONSTANTLY GAINING GOLD AND DEVISEN. ANXIETY ABOUT PROSPECTS
INCREASED PRICES HENCE DISCUSSION RAISING VALUE KRONER. DENIED THERE WILL
BE ANY CHANGE AT LEAST NEAR FUTURE. STRONGLY UNDER INFLUENCE BRITISH
PROPAGANDA ABOUT MANAGED CURRENCY BUT DUBIOUS THAT A LEFT GOVERNMENT WOULD
DELIBERATELY START DEFLATION by RAISING VALUE CURRENCY. ALL COUNTRIES
CONSCIOUS. GERMAN PROBLEM BUT ALTHOUGH NO SOLUTION DISCERNIBLE UNANIMOUSLY
DO NOT EXPECT CONDITIONS TO FORCE CRISIS FOR CONSIDERABLE TIME AND WAR NOT
PORESEEN NEAR FUTURE ABOVE ARE OBSERVATIONS AND NOT NECESSARILY MY OWN
CONCLUSIONS.
MCCOMAS
-
1000
E
Regraded Uclassified
COPY
FEDERAL RESERVE BANK
OF NEW YORK
211
FICE CORRESPONDENCE
DATE March 2, 1937.
FILES
SUBJECT:
Allan Sproul
Mr. Araki, local representative of the Bank of Japan, called
this afternoon. He said he had just had a cable from his head office
concerning his government's intention to export certain amounts of
gold and, specifically, to ship gold to this country. He said there
were four points in the message:
1. The Japanese Government is going to export some
gold to replenish its foreign funds and to en-
able it to continue support of the yen, when
necessary.
2. The amount which it has presently been decided
to export is 13,955 kilograms which, at 235
per fine ounce, he estimated would amount to
about $17,288,000.
3. It is thought that this gold will be shipped in
three approximately equal lots, the first ship-
ment to arrive at San Francisco on March 24th
on a Japanese boat.
4. This is gold which the government turned over to
the Bank of Japan, at the time when Japan last
went off the gold standard.
Mr. Araki said he did not know whether the gold would be
consigned to the Yokohama Specie Bank at San Francisco, or whether
the Bank of Japan would handle it and, perhaps, consign it to the
Federal Reserve Bank of San Francisco. He said there is now.some
talk about having the government's exchange business handled by and
through the Bank of Japan, rather than through the Yokohama Specie
Bank. I suggested that 1f the Bank of Japan expects to handle gold
shipments with the Federal Reserve Banks, he should consult with us
about the details.
Mr. Araki also explained that this move on the part of his
Regraded Uclassified
211- A
UOMAN
FEDERAL RESERVE BANK
OF NEW YORK
FICE CORRESPONDENCE
DATE March 2, 1937.
SUBJECT:
FILES
Allan Sproul
- 2 -
government represents taking the middle course with respect to support
of the yen. The previous government, he said, had instituted import
control which, by itself, might lead into something like the German
system and be one extreme method of handling the situation. At the
other extreme, there would be no control and free shipment of gold.
The present government, he said, has decided to retain some measure
of import control for the present and also to ship some gold, which
represents the middle course.
Mr. Araki said his government does not yet wish to make pub-
lic the details of its prospective gold shipments, but that it would
be appropriate for us to advise the Treasury at Washington if in our
judgment this seemed desirable. I told him we would do so.
AS:R
11/13/11
TRUNKERT
1990
1
Regraded
212
M
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: March 2, 1937, 5 p.m.
NO.: 293 FROM COCHRAN.
RUSH.
Strictly confidential and urgent.
This afternoon I was visited at the Embassy by
Professor Rist.
I questioned Professor Rist as to the significance
of the inspired article in today's issue of AGENCE ECONOMIC
ET FINANCIERE to the effect that the French Government in-
tended to adhere to the monetary and economic policies set
out in last September's Tripartite Agreement, and most par-
ticularly, that part of the undertaking toward lightening
quota and exchange control. I was told by Professor Rist
that until I showed the article to him he had not seen it.
He expressed the opinion that the purpose thereof might be
to combat the rumors current recently to the effect that
exchange control might be undertaken by France.
During the conversation Professor Rist insisted that
the Government must make the choice, somewhat as Reynaud
pointed out in the debate on Friday night, between follow-
ing the liberal policies of such countries as Great Britain
and the United States, or the closed economies of such
countries as Italy and Germany. Blum, he said, was per-
sonally very proud of his progress and success
END SECTION ONE.
EA:LWW
WILSON.
Regraded Uclassified
213
PARAPHRASE OF SECTION TWO OF TELEGRAM NO. 293 of
March 2, 1937, from PARIS.
success in his foreign policy and in the improvement of
relations with many of the most important nations. Blum's
natural and personal choice, he said, would certainly be
to follow the liberal course, and to to deverything possible
to keep the Tripartite Agreement intact. However, Rist
said that little progress had been made in removing trade
barriers, and considerable pressure is being exerted
in favor of exchange control, particularly by Governor
Labeyrie.
Rist called on Blum last week in his capacity as
Chairman of the Committee of Trade Policy. Rist told me
that he found the Premier was very sympathetic with his
arguments in favor of a trade policy which is more central-
ized. Rist said Blum gave him his approval for presenting
the same arguments to the Minister of Agriculture. In
Rist's conversations with these two officials he made the
point that it was to the advantage of France to liberalize
trade - both from an economic and a political standpoint.
It was essential from the internal viewpoint to stop French
prices from rising above the international price level;
facilitation of importe would be a most effective means.
Re advised Blum that from a political viewpoint he should
let his Senate and Chamber realize the progress made by
France in her international relations. He should also
emphasize the catastrophe which would come if France now
Uclassified
214
- 2 -
resorted to measures made famous by Germany, and thereby
failed on her tripartite agreement.
Rist remarked in the course of the conversation that
the Government and particularly the Ministers of Economics
and Commerce had suffered a severe blow a few days ago
when the Senate did not pass the bill giving the Govern-
ment renewed authority to make tariff
END SECTION TWO.
WILSON.
RECEIAED
EA:LWW
Team = STATE
INtered
/ / 2 /
215
PARAPHRASE OF SECTIONS THREE TO SIX, INCLUSIVE
of telegram No. 293 of March 2, 1937, from the American
Embassy, Paris.
changes. It is possible that this measure may be passed
in its original or a modified form, but for the present
the Government could not feel free to make any drastic
quota and tariff policy change. According to Rist, the
Minister of Agriculture stated that complaint was already
being made by agricultural interests that adequate protec-
tion was not being given to them. Rist said he replied
that the farmere themselves ought to know that they are
being benefitted if they get agricultural machinery in more
cheaply, and that for the duty on wood to be less is to
everybody's advantage because a general rise in costs,
particularly in the building industry, would result from
a rise in the price of wood.
Rist is going to continue to try to bring about a
more liberal trade policy in France, but he is not too
sanguine about favorable results at an early date. He is
of the definite opinion that the press communique of today
should not be taken as an indication of an immediate and
great change in the trade policy of France. The Blum
Government is as strongly political as it ever was, accord-
ing to Rist. He greatly regrets that from a financial
standpoint it does not inspire the confidence of the people.
He does not believe that it would be wise to try to
overthrow the present Government for political reasons.
Should
Regraded
216
2 I I
Should this happen, wide social repercussions might result.
The best thing to do, he said, is to work toward a change
of policy within the present Government's framework.
I asked Rist what measures should be taken in the
circumstances. In his opinion, he said, the most essential
point was for Blum to let it be known that there will not
be a continued rise in Government expenditures and in French
prices. So long as fear on either of these points is felt
by the French people, they will not have confidence in
the financial and monetary situation of the country.
It would, Rist admitted, take a lot of courage for Blum to
take and announce a decision radically cutting expenditures
and also adopt the measures necessary to stop the rise in
prices, but he feels that if Blum took such steps, he would
be sustained.
With regard to the lesser technical measures, I had
been told by Rist before I visited the United States, that
it was wrong to penalize gold and exchange holding, as well
as the inspection of bank accounts instituted to search
out those liable to punishment under the October 1 monetary
law. In Rist's opinion, it would not be sufficient to change
these practices only, although it would still be very de-
sirable, he said. He is not convinced that in the present
circumstances the stability of the franc would be guaranteed
by
Jclassified
217
- 3 -
by "stabilization" at the present rate or at the lowest
level permitted by the October 1 monetary law.
In the greatest confidence Rist admitted to me that
he disapproves of both the Governor of the Bank of France
and the Minister of Finance. He does not think it would
be sufficient to remove Governor Labeyrie alone, since
the ability of Auriol himself 1s doubted by the public.
Rist, however, said he understands Blum's friendship for and
loyalty to the Minister of Finance, and supposed he would
be reluctant to make changes.
During the conversation mention was made of the rumor
that in the present crisis Rist might accept a position
with the Government. He said that are although he had
heard some gossip about the Bank of France, the governor-
ship had not been offered to him - that to accept this post
would mean B. heavy pecuniary loss for him and he had no
desire to do that no matter how much people might flatter
him by considering him for that post. He told me that he
knew Baudouin (omission) on several occasions with regard
to taking the governorship.
However, the professor insists that no matter how
competent a new governor for the Bank of France might be,
unless a more competent person were made Minister of Finance
the new governor would have no chance to correct French
financial policy. According to Rist, Auriol feels that
he
Regraded Uclassified
218
- 4 -
he has been abused and that his problems are not under-
stood by the other ministers.
Professor Rist has the same impression of the present
governor of the Bank of France that I have obtained through
direct contact and through the reactions of friends of
mine - i.e., as an individual he is charming but he is
entirely incompetent in monetary matters, his economic
theories are extremely radical, and he is disposed to play
politics and destroy the morale of his own career personnel
rather than undertake a study of the Bank's major problems.
I asked the Professor what help from the outside
could be given France. His prompt reply was that if any
issued for
loan could be/granked France, it should be issued on the
market in Paris. He said there should be no loan until
the situation is sufficiently good to attract French cap-
ital. The last British credit, he insisted, had merely
been a bridge to help france leave the country, and he
believed it would have been better to have let france be-
come scarce and perhaps a reflux of capital would have
been started, rather than contract a loan abroad.
Rist does not think it would be sufficient to offer
advice on technical measures to either the Bank or to the
Ministry of Finance. Blum alone under the present cir-
cumstances must make the major decision such which is
needed. The best method of approach to him, he believes,
is
Regraded Jclassified
219
- 5 -
is from the viewpoint of foreign policy. In other words,
he said the undertaking of France under the Tripartite
Agreement should be stressed, and the importance to France
of the good relations which have been built up through
contact with the great democracies of the world. It is
of the greatest importance, he said, to cut down Government
expenditure, and to stop a price rise. Liberalization of
French trade is advocated by Rist as the best measure to
bring about the second point.
With a smile Rist remarked that some time ago there
was a rumor current that he might be sent as ambassador
to the United States, but that actually he had not been
offered this post - which he would have considered the
highest honor that his country could possibly have bestowed
upon him. Several times before Bonnet went to Washington,
Rist had talks with him. I have mentioned in earlier reports
the great confidence which Bonnet has in Rist, and his
tendency to accept Rist's advice on matters of an economic
and monetary nature.
Rist told me he believe that should Bonnet send a commun-
ication to Blum,a short time after he had been bexes in the
United States, in which he set forth the impressi ons he had
gained in the United States, it might have considerable weight
with the Prime Minister. In Rist's opinion if such a commun-
ication recommended policies along the lines suggested
Regraded Uclassified
220
- 6 -
in this telegram, it would indeed be quite fortunate.
END MESSAGE.
WILSON.
DECEIAED
TEG: $ RAM
EA:LWW
THIMTHA230
Visa 42 ets he saw
calous - Birth
Regraded Uclassified
Copy- not rent % n.y
file-
221
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: March 2, 1937, 5 p.m.
NO.: 293 FROM COCHRAW.
RUSH.
Strictly confidential and urgent.
This afternoon I was visited at the Embassy by
Professor Rist.
I questioned Professor Rist as to the significance
of the inspired article in today's issue of AGENCE ECONOMIC
IT FINANCIERE to the effect that the French Government in-
tended to adhere to the monetary and economic policies set
out in last September's Tripartite Agreement, and most par-
ticularly, that part of the undertaking toward lightening
quota and exchange control. I was told by Professor Rist
that until I showed the article to him he had not seen it.
He expressed the opinion that the purpose thereof might be
to combat the rumore current recently to the effect that
exchange control might be undertaken by France.
During the conversation Professor Rist insisted that
the Government must make the choice, somewhat as Reynaud
pointed 03V13038 out in the debate on Friday night, between follow-
ing policies of such countries as Great Britain
and ted IStates, or the closed economies of such
off la THO
country and Germany. Blum, he said, was per-
sonally very proud of his progress and success
END SECTION ONE.
EA:LWW
WILSON.
Regraded-Uclassified
222
PARAPHRASE OF SECTION TWO OF TELEGRAM NO. 293 of
March 2, 1937, from PARIS.
success in his foreign policy and in the improvement of
relations with many of the most important nations. Blum's
natural and personal choice, he said, would certainly be
to follow the liberal course, and to to deverything possible
to keep the Tripartite Agreement intact. However, Rist
said that little progress had been made in removing trade
barriers, and considerable pressure is being exerted
in favor of exchange control, particularly by Governor
Labeyrie.
Rist called on Blum last week in his capacity as
Chairman of the Committee of Trade Policy. Rist told me
that he found the Premier was very sympathetic with his
arguments in favor of a trade policy which is more central-
ized. Rist said Blum gave him his approval for presenting
the same arguments to the Minister of Agriculture. In
Rist's conversations with these two officials he made the
point that it was to the advantage of France to liberalize
trade - both from an economic and a political standpoint.
It was essential from the internal viewpoint to stop French
prices from rising above the international price level;
facilitation of imports would be a most effective means.
He advised Blum that from a political viewpoint he should
let his Senate and Chamber realize the progress made by
France in her international relations. He should also
emphasize the catastrophe which would come if France now
Regraded Uclassified
223
- 2 -
resorted to measures made famous by Germany, and thereby
failed on her tripartite agreement.
Rist remarked in the course of the conversation that
the Government and particularly the Ministers of Economics
and Commerce had suffered & severe blow a few days ago
when the Senate did not pass the bill giving the Govern-
ment renewed authority to make tariff
END SECTION TWO.
WILSON.
EA:LWW
TEG: S ЯАМ
ТИЗМТЯА930 THE
ANIZON a of I
174121398 on la sollo
224
PARAPHRASE OF SECTIONS THREE TO BIX, INCLUSIVE
of telegram No. 293 of March 2, 1937, from the American
Debassy, Paris.
changes. It is possible that this measure may be passed
in its original or n modified form, but for the present
the Government could not feel free to make any drastic
quota and tariff policy change. According to Rist, the
Minister of Agriculture stated that complaint was already
being made by agricultural interests that adequate protec-
tion was not being given to them. Rist said be replied
that the farmers themselves ought to know that they are
being benefitted if they get agricultural machinery in more
cheaply, and that for the duty on wood to be less 1s to
everybody's advantage because a general rise in costs,
particularly in the building industry, would result from
a rise in the price of wood.
Riet is going to continue to try to bring about &
more liberal trade policy in France, but he is not too
sanguine about favorable results at an early date. He is
of the definite opinion that the press communique of today
should not be taken as an indication of an immediate and
great change in the trade policy of France. The Blum
Government is - strongly political as it ever was, accord-
10g to Rist. He greatly regrete that from a financial
standpoint it does not inspire the confidence of the people.
He does not believe that it would be wise to try to
overthrow the present Government for political reasons.
Should
Regraded Uclassified
225
- 2 -
should this happen, wide social repercussions might result.
The best thing to do, he said, 18 to work toward B. change
of policy within the present Government's framework.
I asked Rist what measures should be taken in the
circumstances. In his opinion, be said, the most essential
point was for Blum to let it be known that there will not
be & continued rise in Government expenditures and in French
prices. So long as fear on either of these points is felt
by the French people, they will not have confidence in
the financial and monetary situation of the country.
It would, Rist admitted, take & lot of courage for Blum to
take and announce 8 decision radioally outting expenditures
and also adopt the measures necessary to stop the rise in
prices, but he feels that if Blum took such steps, he would
be austained.
with regard to the lesser technical measures, I had
been told by Rist before I visited the United States, that
it was wrong to penalize gold and exchange holding, 18 well
1.6 the inspection of bank accounts instituted to searen
out those liable to punishment under the October 1 monetary
law. In Rist's opinion, it would not be sufficient to change
these practices only, although it would still be very de-
sirable, he said. He 10 not convinced that in the present
circumstances the stability of the franc would be guaranteed
by
Regraded Uclassified
226
- 3 -
by "stabilization" at the present rate OF at the lowest
level permitted by the October 1 monetary law.
In the grestest confidence Rist admitted to me that
be disapproves of both the Governor of the Bank of France
and the Minister of Finance. He does not think it would
be sufficient to remove Governor Labeyrie alone, since
the ability of Auriol himself 1 = doubted by the public.
nist, however, said he understands Blum's friendship for and
loyalty to the Minister of Finance, and supposed he would
be reluctant to make changes.
During the conversation mention was made of the rumor
that in the present orisis Rist might accept a position
with the Government. He said that ERS although he had
heard some gossip about the Bank of France, the governor-
ship and not been offered to him - that to accept this post
would mean a heavy pecuniary loss for him and he had no
desire to do that no matter how much people might flatter
him by considering him for that post. He told me that he
knew Baudouin (omission) on several consions with regard
to taking the governorship.
However, the professor insista that no matter how
competent a new governor for the Bank of France wight be,
unless a more competent person were made Minister of Finance
the new governor would have no chance to correct French
financial policy. According to Rist, Auriol feels that
he
Regraded Uclassified
227
- 4 -
he has been abused and that his problems are not under-
stood by the other ministers.
Professor Rist has the same impression of the present
governor of the Bank of France that I have obtained through
direct contact and through the reactions of friends of
wine - 1.0., as an individual he is charming but he is
entirely incompetent in monetary matters, his economic
theories are extremely radical, and he 1s disposed to play
politics and destroy the morale of his own career personnel
rather than undertake a study of the Bank's major problems.
I asked the Professor what help from the outside
could be given France. His prompt reply who that if any
issued for
loan could be/granked France, it should be issued on the
market in Paris. He said there should be no loan until
the situation 10 sufficiently good to attract French cap-
ital. The last British credit, he insisted, had merely
been a bridge to help france leave the country, end he
believed it would have been better to have let francs be-
come scarce and perhaps a reflux of capital would have
been started, rather than contract a loan abroad.
Rist does not think it would be sufficient to offer
advice on technical measures to either the Bank or to the
Ministry of Finance. Blum alone under the present cir-
cumstances must make the major decision such which is
needed. The best method of approach to his, he believes,
is
Regraded Uclassified
228
- 5 -
is from the viewpoint of foreign policy. In other words,
be said the undertaking of Trance under the Tripartite
Agreement should be stressed, and the importance to France
of the good relations which have been built up through
contact with the great democracies of the world. It is
of the greatest importance, he said, to out down Government
expenditure, and to stop a price rise. Liberalization of
French trade 1a advocated by Riet as the best measure to
bring about the second point.
with a smile Rist remarked that some time ago there
was & rumor current that he might be sent as ambassador
to the United states, but that actually he had not been
offered this post - which he would have considered the
Aighest honor that his country could possibly have bestowed
upon him. Several times before Bonnet went to Washington,
Rist had talks -ith him. I have mentioned in earlier reports
the great confidence which Bonnet has in Rist, and his
tendency to accept Rist's advice on matters of an economic
and monetary nature.
Rist told me he believe that should Bonnet send 8. comun-
ication to Blum,a short time after he had been neess in the
United States, in which he set forth the impress ons be had
gained in the United States, it might have considerable weight
with the Prime Minister. In Rist's opinion if such a commun
ication recommended policies along the lines suggested
Regraded Uclassified
229
- 6 -
in this telegram, it would indeed be quite fortunate.
END MESSAGE.
WILSON.
BECEIAED
TEE: S e ЯАМ
KA:LWW TREMTRATO YMU2AJRT
- - al Insured
sh la salto
Iclassified
230
M
MED
GRAY
PARIS
Dated March 2, 1937
Received 7:20 p.m.
Secretary of State
Washington
297, March 2, 8 p.m.
FROM COCHRAN.
Paris stock market was heavy today and exchange
trading was more adverse to the franc than yesterday.
Rentes declined. A general spirit of pessimism was
evident. Press and market analysis of Friday night's
parliamentary debate has failed to show how the
Government will overcome its financial difficulties
and has stressed the threat of social disorders in-
timated in Blum's speech. Bankers say sale of rentes
is not of speculative character but is general,
coming from the provinces as well as Paris, and
represents n lack of confidence on the part of in-
vesting clientele. While French press and politicians
obviously expect some action favorable to France to
come from the reported and expected conference in
Washington, bankers are not so (*) of outside
help for the country.
WILSON
SMS:NPL
(*) Apparent omission
Regraded Uclassified
231
March 3, 1937
My dear Cordell:
I an inclosing herewith extra con-
fidential memorandum which was given to
me yesterday afternoon at 4:30 by Mr. Mallet
of the British Embassy. This is the same
memorandum of which M gave you a brief re-
view over the telephone at about 5:15.
In view of the very confidential
information contained in this memorandum
I would appreciate it if you would keep
it in your desk for the next ten days.
Very sincerely,
Honorable Cordell Hull,
Secretary of State.
Regraded Uclassified
232
March 3, 1937
My dear Cordell:
I an inclosing herewith extra con-
fidential memorandum which was given to
me yesterday afternoon at 4:30 by Mr. Mallet
of the British Embassy. This is the same
memorandum of which I gave you a brief re-
view over the telephone at about 5115.
In view of the very confidential
information contained in this memorandum
I would appreciate it if you would keep
it in your desk for the next ten days.
Very sincerely,
Honorable Cordell Hull,
Secretary of State.
Regraded Uclassified
233
March 3, 1937
I called on the President last evening at 5:30
o'clock and let him read the cable which I had just re-
ceived from Neville Chamberlain. The President had no
suggestion. I said, The obvious thing for the French
to do is to devalue the other eight percent. Do you
think I should suggest it to them?" The President said,
I think it would be all right to make the suggestion pro-
vided you could be sure that they would not disclose the
fact that the suggestion came from the United States."
I told the President that I discussed this at length last
week with Cochran and that Cochran had begged me not to
make this suggestion. I told the President that I am
afraid if we did make it and it went wrong, the French
might blame us.
(I still think that the only way they can save
themselves from immediate financial collapse is if they
promptly devalue the extra eight percent.)
*****
There is one way to solve this French problem
which has been going through my head for two or three
days, but I have not been willing to propose it yet to
the President and that is that we should ask Soviet
Aussia to join the Tripartite agreement. With their
large holdings of gold it might make just the sufficient
difference to tide the French across the present crisis.
Regraded
234
March 3, 1937.
9:02 a.m.
V-P
Garner:
Good morning, Henry.
S.M.Jr:
How are you?
G:
I'm all right.
H.W.Jr:
An - I want 8 little advice.
G:
All right.
H.M.Jr:
Senator Nye of North Dakota has been calling me
up once a day for about a week to - there's some
fellow from his own home town and he wants us to
get a job for him. He used to work in the Treasury
and he had a $1200. job and they laid him off when
we laid off a lot of other people.
G:
Yes.
H.M.Jr:
Now ne's been calling me and calling me.
G:
What's that, Henry, I didn't get this.
H.M.Jr:
He's been calling me about once a day for a week,
see?
G:
Yes.
H.M.Jr:
This boy - he's got him out at his house and he
can't get rid of him unless he gets him a job.
G:
les.
H.M.Jr:
Now what I was going to ask you - I mean would you
give it to Nye. He's putting it on a personal
basis.
G:
Goddamit he sin't worthy of nothing but $1200.
is little enough to get rid of any damn Senator
for thirty days even.
H.M.Jr:
Well your advice is you'd give it to him?
G:
Yes, temporarily that's what I'd do.
H.M.Jr:
Oh do it for thirty days?
235
-2-
G:
Yes tell him by gosh you've tried for thirty days
to get him off his hands but you can't agree to
keep anybody like that.
H.M.Jr:
I get you.
G:
Yes.
H.M.Jr:
I'll do just that.
G:
All right.
H.M.Jr:
How's Mrs. Garner?
G:
Why she's getting better, thank you, Henry. She's
going to get up a little while to-day.
H.M.Jr:
Good.
G:
Thank you very much.
H.M.Jr:
Thank you.
G:
Goodbye.
Regraded Uclassified
236
March 3, 1937.
9:18 a.m.
H.M.Jr:
Hello.
Cochran: Hello
H.M.Jr:
Hello Cochran
C:
Hello Mr. Morgenthau.
H.M.Jr:
How are you?
C:
All right thank you.
H.M.Jr:
Anything new?
C:
No. You have my program of last night in regard
to the Professor, did you?
H.M.Jr:
No I haven't got it yet.
C:
Oh I'm sorry because I sent you rather an interest-
ing one giving a long conversation with me.
H.M.Jr:
Your conversation with who?
Rist -
Professor Rist
H.M.Jr:
Oh - well they just handed it to me this minute.
I'll have to read it and then if I've got any
questions I'll talk to you later. They just gave
it to me this minute.
C:
I see. Do you want me to hold on or
H.M.Jr:
Ah - well let me just - yes I think SO. Just a
second will you please.
C:
All right.
(Short pause)
H.M.Jr:
Hello
C:
Hello
H.M.Jr:
Well I read it very hastily
C:
Yes.
237
- 2 -
H.M.Jr:
....and I just came to the end about Bonnet.
C:
Yes.
H.M.Jr:
Well Bonnet called on me Monday
C:
Yes.
H.M.Jr:
and when he left he certainly had no delusions
. as to how I felt.
C :
I see.
H.M.Jr:
Hello
C:
Yes
H.M.Jr:
And he must have gotten off a cable right after that.
C:
Yes.
H.M.Jr:
Ah - but that was Monday afternoon.
C:
And you see the Prime Minister came out at the
luncheon for the British Ambassador saying that they
intended to adhere to the tri-partite agreement.
H.M.Jr:
Yes.
C:
But here I still don't see what they're doing to
maintain that adherence.
H.M.Jr: Yes.
C:
That's still the problem.
H.M.Jr:
Yes, well I just wanted to talk to you and I didn't
know whether there was anything new or not. We
can't understand this quiet except it's a calm before
the storm.
C:
I mean it's a little quiet now following Sunday.
H.M.Jr:
Yes.
238
- 3 -
C:
Although yesterday they lost quite a spot of sterling.
H.M.Jr:
Yes.
C:
They're - they're playing up an item in the press
to-day - a report from
saying that for
the last four days there's been no gold imported
from France.
S.M.Jr:
Yes.
C:
The first time for some period. The situation is
simply that they're sending sterling instead of gold.
H.M.Jr:
Yes, well when are they going to stop kidding themselves?
C:
I don't know. That's - that's what everyone prays for.
H.M.Jr:
Yes.
C:
I mean until they take some definite measure they
can't calm the people who are buying foreign exchange.
H.M.Jr:
Ah-ha.
C:
And everyone's afraid that they're going to wait
until they're just in desperate circumstances.
H.M.Jr:
Yes.
C:
And the Radical Socialists in the government are not
ready to break with them yet.
H.M.Jr:
Yes. Two things I wish you'd do for me -
K.M.Jr:
Hello
C:
Hello
H.M.Jr:
Two things I wish you'd do for me.
C:
Yes.
H.M.Jr:
When do their big tax payments come in? I - Bonnet
mentioned it and I didn't get it quite straight.
239
- 4 -
C:
The ones they have to make or the ones due them?
H.M.Jr:
The ones that they have to receive.
C:
That they have to receive.
H.M.Jr:
Yes, I'd like to know when that date is and how much
it will be about. How much they expect, you see?
C:
Well there's no special big item except they hope
for the taxes to pay in better beginning in May.
R.M.Jr:
Well yes but - yes but he kept referring to some
date.
C:
I don't - I'll check up and - and put it in my wire
here
H.M.Jr:
All right.
C:
....any big special that's due. I don't know anything
special that's due them.
H.M.Jr:
All right. Now one other thing.
C:
Yes.
H.M.Jr:
Mrs. Morrison Shafroth.
S-h-a-f-r-o-t-h
C:
Yes.
H.M.Jr:
She sailed on the Paris. She's a great friend of
Mrs. Morgenthau's.
C:
Yes.
H.M.Jr:
And her husband is the Chief Counsel for Internal
Revenue.
C:
Oh yes yes.
H.M.Jr:
Now I wish you'd tell Waite that when she gets there
He'd offer to do anything that he can and I'd appreciate
anything that you can do.
in I I
<40
C:
Oh I'll be delighted to, yes.
H.M.Jr:
Her - her daughter is in Paris. She's going to stay
there for - she just - Mrs. Shafroth is just going to
be in Paris a week I think and then come right back.
C:
I see.
H.M.Jr:
And you might ask Wait if he'd find out when the boat
train comes in from Paris if he'll go down to the station
and meet her see.
0:
All right, I'll be glad to go down too.
H.M.Jr:
And see if there's anything that you can do. She's
very nice and she's a great friend of Mrs. Morgenthau.
C:
Fine, well we'll both do everything we can.
H.M.Jr:
All right, thank you very much. She's only going to be
there - she's trying to find some place that her
daughter can stay for two or three months in Paris.
C:
I see.
H.M.Jr:
Yes.
C:
And is that all?
E.M.Jr:
That's all.
C:
Well here to-day the market opened a little cuiet.
R.M.Jr:
Yes.
C:
But it usually stirs up after lunch.
R.M.Jr:
I see.
C:
I had a talk with de Castellane this morning.
B.M.Jr:
Yes.
C:
You know the bankers
H.M.Jr:
I know him. I know who he is.
Regraded Uclassified
241
9 1 1
C:
Yes, well I'll put it in a cablegram.
H.M.Jr:
All right.
C:
Its not very exciting.
H.M.Jr:
All right - ah - all I - hello
C:
Hello
H.M.Jr:
Ah - I just want to tell you this - ah - you know
your estimate that you gave me of the time factor -
hello
C:
Yes.
H.M.Jr:
You know you gave me a time factor?
C:
Yes.
H.M.Jr:
Well - ah - certain friends of ours just cut what -
the number of weeks that you've put it they've just
cut it in half.
C:
Is that so?
H.M.Jr:
Yes.
C:
Well this man this morning that I was just talking
about
H.M.Jr:
Yes.
Cochran:
said that some of his friends put it between
two and three weeks
H.M.Jr:
No, well
C:
....and some say longer.
H.M.Jr:
Well these friends of ours say this week.
C:
Is that SO.
H.M.Jr:
Yes, so you better be extra on your toes.
242
- 7 -
C:
Ah - there's just one thing - ah - could I go to
Basel this week-end; there's a bank meeting there
on Sunday.
H.M.Jr:
Well let's see. When would you have to leave Paris?
C:
Make arrangements right to the end as I have before.
H.M.Jr:
When would you leave Paris?
C:
I'd leave here Saturday night at 10 o'clock.
B.M.Jr:
That's all right and look
C:
And I'd plan to get back on Tuesday morning.
H.M.Jr:
Well leave word at the Embassy so if I called the
Embassy they'd know where I could reach you on the
telephone.
C:
All right and when - once before I came back - I was
just there on Sunday and took the Sunday night train
H.M.Jr:
Yes.
C:
so I could always do that if it were urgent.
B.M.Jr:
All right.
C:
All right. There's one thing.
H.M.Jr:
Yes.
C:
Do you think I ought to call up call up Houeff and
just go over and see what's going on.
H.M.Jr:
No.
C:
You think I should stay away.
R.M.Jr:
I - I think SO. Yes, I'd stay away. There's nothing
we could do.
C:
I said they were going to get in touch with me.
243
- 8 -
H.M.Jr:
Well you're not the only person they're not getting
in touch with.
C:
Is that so?
H.M.Jr:
Yes, they're bigger people than (laughs) relatively
in position than you across the channel that they
haven't gotten in touch with either.
C:
Well - well let's sit tight then.
H.M.Jr:
Do you understand what I mean?
C:
Surely - surely.
H.M.Jr:
Yes.
C:
Then I shall just sit quiet unless they call.
H.M.Jr:
O.K.
C:
Fine.
H.M.Jr:
Thank you.
C:
All right, sir.
H.M.Jr:
Goodbye.
C:
Goodbye.
Regraded Uclassified
-
FEDERAL RESERVE BANK
244
OF NEW VORK
FICE CORRESPONDENCE
DATE March 3, 1937.
COMPIDENTIAL FILES
SUBJECT TELEPHONE CONVERRATION WITH
L. w. Knoke
BANK OF FRANCE
Mr. Cariguel called no at 11:38 with reference to shipments
of gold to New York by pareel post; he stated that these shipments
vare going forward on a considerable scale and he would like to know
what could be done to stop it. There were three shipments coming
through Paris today, he said, one by Mocatta & Goldsmid of
52,500,000 franes, mostly consigned to the Banque Belge in New York,
smother one of 34,500,000 france by Samuel Montagu & Co., consigned
to J. P. Morgan & Co. There was also a small shipment on the way
consigned to Chase Bank. All these represented gold sent from London
to Paris with instructions that the gold be forwarded to New York by
sail. I replied that our attitude in the matter vas made clear about
ten days ago when Montagu consigned a shipment by percel post to us
and 10 flatly refused to handle it. I added that I had also, some
weeks ago, discussed this matter with the Treasury in Washington and
had been given to understand that they would take it up with the
Postmaster General and let se know whether anything could be done.
Cariguel continued that he had checked into the matter and found that
since November 11, 1936, the total of gold shipped through the mail
amounted to 684,000,000 franes, some of it from Switzerland and some
from London. These shipments of course completely upset the gold
points; in addition they were's gross abuse of government services" and
also of arrangements which the shipping companies had with the govern-
amts.
I asked Cariguel, firstly whether it vas not true that the
Regraded Uclassified
240
FEDERAL RESERVE BANK
OF NEW YORK
245
ICE CORRESPONDENCE
DATE March s, 1987.
CONFIDENTIAL FILES
SUBJECT, TELEPHONE CONVERSATION WITH
L. W. Knoke
BANK OF FRANCE.
- 2 -
insurance companies had refused to cover the risk on shipments through
the mail. He replied that was true after a fashion, but there were
still available a number of open policies which had not as yet been
canceled and besides some continental insurance companies were willing
to do the business. He was, however, looking into this angle of the
matter. Secondly, I asked whether the French themselves could not
stop these shipments as we here had done long ago on shipments from
this country. Cariguel replied that this was very difficult because
France was probably bound by international agreement. Nevertheless,
he was drafting 1 long letter to the Ministry of Finance, saking them
to take steps. Since any such action, however, would, at best, be a
slow affair, Cariguel wondered whether we would think it possible to
talk to the banks in New York to whom the gold was consigned and to
suggest to them that they refuse to take part in this traffic. He felt,
he continued, that if we talked to Morgan and the Chase Bank, or, for
that matter, to the Banque Belge too, they would be perfectly willing to
cooperate. I replied that there was no doubt in my mind as to that but
that I could not help remembering our experience in 1933, when we Bilg-
gested to the banks that they refrain from making shipments from here of
gold coin. Every one of the banks loyally and wholeheartedly cooperated,
with the unfortunate result, however, that some outsiders, less serupu-
lous, stepped in and handled, with profit to them selves, the business that the
banks had refused. If we talked to any banks at all, it seemed to no,
we would have to speak to all of them, as otherwise, a situation might
develop in which the Chase, for instance, advises Mocatte 02 Hongu
Regraded Uclassified
246
FEDERAL RESERVE BANK
OF NEW YORK
FICE CORRESPONDENCE
DATE March 3, 1937.
CONFIDENTIAL FILES
SUBJECT
TELEPHONE CONVERSATION WITH
L. W. Knoke
BANK OF FRANCE
- $ -
that they won't receive such shipments, end the latter thereupon ap-
proaches the Guaranty which, not knowing of the Chase's refusal,
might be willing to act. However, this was & question which I would
have to discuss with Mr. Harrison, who would not be back until tomorrow,
and probably also with the Treasury. I would think this matter over
carefully and let him know what steps we had decided upon. Cariguel
in turn promised that he would advise no as to the effect of his letter
to the Ministry of Finance.
I then inquired about market conditions and Cariguel stated
that they had had a pretty heavy day yesterday and rather a bad one
today, although not quite as heavy as yesterday. Their gold losses
yesterday amounted to £1,500,000, on Friday to £2,000,000 and on last
Thursday to £1,500,000. I inquired how long that could continue and
Cariguel replied that he had asked for instructions. Be inquired
whether Europe was still investing money in Wall Street and I told him
that after Europe, for 8 number of days, had shown no interest in our
securities, indications this morning were to the effect that they had
resumed their purchases, probably as a result of yesterday's successful
negotiations between the steel industry and the unions.
LNK:KMC
Regraded Uclassified
247
March 3, 1937
Excerpt from Mr. Magill's memo to the Secretary,
"MEMORANDUM ON DAY'S ACTIVITIES MARCH THIRD":
2. Flow of foreign capital
At your suggestion I went over the situation
with Mr. Riefler. I suggested that Mr. Riefler endeavor
to make it clear to foreign governments that we were not
primarily interested in securing additional taxes from
non-resident aliens and that we felt the flow of nervous
foreign capital to this country was a major problem for
the foreign countries involved, quite as much as it is
a problem for us. Mr. Riefler felt that he could do a
good deal by informal conversations with the foreign
fiscal officers.
Regraded Uclassified
248
Nick
COPY
from
ON RAILROAD SITUATION
1. The Background of the Present Act
In hearings before Senate and House Committees on the present
Railroad Retirement and Carrier Taxing Acts, the statement was made
by Mr. Eastman and by the undersigned that the cost of the benefits
would De, expressed as a level percentage of the payroll. approxi-
mately 10 percent. Vr. Zustman's statement was based on data sup-
plied by the Bailroad Retirement Board,
The legislation was sponsored by the standard railway labor
organizations. A committee of the Railway Labor Executives' Asso-
ciation was active in drafting the bill and securing its ensctment.
The chairman of the committee had no previous experience with
similar legislation. While cost data were presented, as indicated
Boove, to the Committees on Interstate Commerce in both House and
Senate, no particular attention seems to have been paid to them,
aptarently on the theory that revenue raising was outside the juris-
diction of the committees considering the benefit parts of the legis-
lation. The import of the cost testimony was not grasped by the
sponsore of the legislation and the tax bill as introduced provided
for A levy of 6 percent of payroll. This was the initial rate pro-
vided in the first Railroad Retirement Act, out the Bailroad Retire-
ment Board was dven authority to change the rate if and when it
because necessary; it would, beyond question, have been necessary had
that Act operated as enacted.
The figures presented snowing the costs to be 10 percent of the
payroll were disputed. As a compromise, e levy of 7 percent was
agreed upon for a period of one year. A Railroad Retirement Investion-
tion Commission was created with the duty, among others, of ascertain-
the coats. The labor organizations agreed to abide by the findings of
fact: if the benefits cost more than the revenue which was provided
either they would attempt to secure more revenue, DI, if that was not
possible, they would not onnose e reduction in benefit costs.
The Investigation Com ission W&B unable to make any findings.
Shortly after the Commission expired. some 134 Class I railroads. the
Pullman Company and two express companies (later some 16 employees
and 200 other railroads and other carriers intervened) filed A. bill
of complaint in the Supreme Court of the District of Columbia (now
colled the United States District Court) alleging that the Railroad
Regraded Uclassified
24a
- 2 -
Retirement and Carrier Taxing Acts were inseparable parts of a
single legislative scheme; that that scheme was essentially the
BACE L.B the Railroad Retirement Act of 1934; and that since that
AC: 154 been held unconstitutional, the two new Acts taken, as
they tust necessarily be, together, must also be invalid. The
plaintiffs prayed for relief in the form of injunctions against
collection of taxes and information, and against certification of
annuities to the Treasury.
After an extended hearing. the Court, on June 30, 1936, handed
down 00 opinion in which the two Acts were found to be inseparable
parts of a single legislative scheme which W&S substantially identical
to the first Enilroad Retirement Act. The Court refused, however,
to enjoin certification of annuities presumably on the ground, not
erpressed directly in the opinion, that the plaintiff would not be
harmed by the payment of annuities to employees who had retired from
their service. The Commissioner of Internal Revenue, however, was en-
joined from collection of taxes from the plaintiffs or from taking any
tte's looking to that end; and the Railroad Retirement Board was en-
Joined from compelling the laintiffs to comple and furnish informa-
tion AZ their own expense. The right of the Board to examine the
ylaintiffs' records at its own expense was expressly upheld.
The members of the Retirement Board discussed the advisobility of
Myin annuities, without corresponding revenue, with officials of the
Treasury and Justice Departments, the Secretary of Inbor, members of
:.. Social Security Board, and the President. There was general agree-
dent taxi the unnuities must DE paid. On July 13, 1936, following
in: certification, the first annuities were paid by the Treasury.
Attitude of Railroads Toward Retirement Legislation as Conditioned
E Voluntary Pension Plans
Although substantially all the major railronds of the country
Joinec in the liti ation contesting the constitutionality of the re-
legislation, a considerable number did not oppose the legis-
in principle, and, amarently. 60:30 important interests favored
The acterminin factor in carrier attitude related to the main-
and types of voluntary pension systems. The Pennsylvania, for
ARE a relatively liberal pension system: in 1935 pension ex-
Moultures were 4.7 percent of the phyrol. Actuarial valuations made
= the Pennsylvania indicate, I have been told, that the actual costs
reserve basis are running as are as 8 or 9 percent of the payroll.
in PAILTONG Retirement Act benefits are, for the most part, individually
lie or tien those of the Pennsylvania voluntary plan and are payable in
request of all employment. whereas the Pennsylvania benefits are payable
R1; to employees who remain in service until retirement nce, The
Regraded Uclassified
- 3 -
256
Pennsylvania voluntary plan, however, is supported entirely by the
company. whereas half the cost of the Railroad Retirement Act is
borne by employees, It may be cheaper for the Pennsylvania to pay
for half of the more liberal plan than for all the coet of its own
plan; it unquestionably would be true if the costs of the more
liberal plan were based on an age group younger than that of Penn-
sylvania employees. The saving to the Pennsylvania under the present
Railroad Retirement Act and Carrier Tax Act would probably be not
less than $10,000,000 a year.
The New York Central also maintains A voluntary pension olan.
While the individual benefits are about as large as those of the
Pennsylvania, the rules concerning eligibility are much more strict.
The Pennsylvania carries to retirement age many employees who are
unable to continue in service because of disability and ives them
pensions at retirement age, The New York Central retires consider-
able numbers of men at age seventy without any pension because of
breaks in service. The strike of 1922 has resulted in forfeiture of
pensions by large numbers of men on the New York Central. The Penn-
sylvania plan has no continuous service requirement and interruptions
in service on account of strikes or other reasons do not result in
loss of pensions. Consequently, the cost of the New York Central
plan has been much less than of the Pennsylvania, running in terms
of current disbursements to only about 2.5 percent of the payroll
in 1935. On a reserve basis costs would probably not be less than
5 percent of the payroll. The maintenance of a Covernment plan
would deprive the New York Central of its ability to use a pension
system as a weapon against strikes and in similar ways. While there
can be little doubt that the New York Central would save through the
operation of a Railroad Petirement Act, the economy would be much
less than in the case of the Pennsylvania and, taken in conjunction
with the other uses to which the plan has been put, serves to explain
the opposition thus far to the Railroad Retirement Act on the part of
the New York Central.
There are still other railroads which maintain no pension eys-
tems at all, such as the Southern Railroad. It seems doubtful whether
the costs of a Railroad Retirement Act represent new costs to these
roads since most of them have large numbers of men at advanced ages
in their service whose efficiency, relative to the pay which they re-
ceive, is low. But, nevertheless, most of theseroads have apparently
been hostile to the Retirement Act. These three examples represent
perhaps the range of practice with respect to voluntary pension systems
and give fairly typical examples of the attitude of carriers toward
the Retirement Act so far as cost aspects are concerned.
Regraded Uclassified
251
4 -
3. Relation of Titles II and VIII of Social Security Act to Voluntary
Pension Plans
Nost railroad managements which have maintained pension systems
the realized and been frank to state that the effective operation of
transportation service was thereby facilitated. If there were no
Bailroad Retirement Act, the railroads would, of course, be subject
to Titles II and VIII of the Social Security Act; during the last few
months reilroads have begun to study the effect which these titlen
would have on their voluntary plans. The monthly benefits under
Title II of the Social Security Act do not, of course, begin until
1942 and will not for some years permit any material reduction in
the benefits payable in the voluntary plans. Taking the payments
which would be necessary under the private plans and the taxes pay-
nole under Title VIII, many railroad managements have not been able
to see that their position is bettered 88 compared with a legialative
railroad retirement scheme, provided there was involved no more than
what they regard as a reasonable cost, (The relief afforded to the
railroads by the Security Act would have been materially different
nac the liabilities under the voluntary plans been funded and if cur-
rent charges were being made in respect to accruing liabilities.)
The injection of the Social Security Act into the picture, therefore,
has had a material influence in changing the attitude of the rail-
roads toward a railroad retirement system, and has made them more
willing to attempt to work out a system which would be mutually satis-
inctory to themselves and to their employees.
4. The Negotiations
Late in November the Railroad Retirement Board submitted to the
President some of these facts and suggested that he address a com-
munication to representatives of both railroad managements and labor
organizations, urging "the desirability of a conference between
representatives of the railroads and railroad employees to consider
the retirement problem and attempt to find a satisfactory solution."
This suggestion was adopted by the President and n letter embodying
it was sent out by the President on December 28, 1936.
Almost immediately thereafter, committees were appointed by the
Association of American Railroads and by the Railway Labor Executives'
Association who were authorized to work out a mutually agreeable plan
ous was were without authority to bind their principals. The conferees
were, nowever, to recommend the adoption of a plan and a procedure for
its establishment and maintenance. The conferees understood that any
plan agreed upon between them would be subject to review by govern-
mental agencies involved and would, of course, receive the MIM scrutiny
by congressional committees and be referred by them to each agencies as
would be the case with any other legislation.
Regraded Uclassified
252
in I ,
In his letters, the President had stated that: "The Railroad
Retirement Board has collected a sealth of information bearing on
the problems which would be considered by such a conference and has
in its possession all the relevant records compiled by the Federal
Coordinator of Transportation. Its technical facilities can doubt-
less 08 of much value to such a conference and I an, therefore, re-
questing the Board to offer assistance in arranging for a conference,
to sale its information available and to render whatever aid it can
to the conferees." The conferees, therefore, asked that the Retire-
ment Board's actuarial staff make valuations of various plans which
were under consideration.
The representatives of the carriers were anxious that any system
adopted be such that (1) the costs would not exceed 7 percent of the
payroll; and (2) the burden of the present pension rolls would be ab-
sorbed by the new system. The labor organization representatives
were insistent that (1) the individual benefits of any new scheme be
not less than those of the present Railroad Retirement Act; (2) full
benefits De available at the option of the employee at the beginning
of are 65; (3) individual benefits be no less in any case and materi-
ally larger in most cases than those under the Social Security Act;
and (4) the quatem be operated by the Government.
Under the present Bailroad Retirement Act. while no compulsory
are of retirement is prescribed, the provisions were 80 arranged to
put considerable pressure on employees to retire nt age 65 and the
carriers are free to impose compulsory retirement restrictions. The
ftures on the cost of the present Act, referred to nt the daning
of this memorandum. were based on an assumed rate of retirement which
#52 substantially equivalent to a uniform compulsory retirement age
of 65. Subsequent studies have cast doubt on this assumption. If
the assumption were true. it would mean the in ediate retirement of
4 percent or more of railrond employees including perhaps a majority
of officials, as well 3.5 Teat numbers of others holding important
piete. While many older employees could be retired at no loss, or
perhaps B. gain to the service, the retirement of all could DE accom-
oliened, if at all, only over 56 period of years. The majority of the
rellroads (in terms of employers) have regularly retired all employees
0/74 attainment of Age 70. Assuming that practice to DE continued,
$ 1000 later analyses point to the conclusion that an average BCO of
retirement of 67% for employees retiring after 65, would be conserva-
tive. If this assumption were used, the cost of the present Retirement
Act would be about 8.- rather than 10 percent of the payroll.
Early in the negotiations it became apparent that the reconcilia-
tion of the opposing views of the carriers and labor organizations
would be accomplished only by making conditions of retirement such that
Regraded Uclassified
258
- 6 -
ployees in good health would continue in service materially after
age 65. The first Railroad Retirement Act was motivated largely by
8. desire on the part of railroad employees to force older men out of
service, both in order to give advancement all along the line and to
afford employment for considerable numbers who were wholly or par-
tially unemployed. In the light of subsequent events, this desire
to remove all employees over age 65 appears to have been a temporary
phase in the situation. The marked rise in railroad traffic reyenuse
has resulted in many advancements and promotions, has afforded full
time employment for most employees who were working part time, and has
resulted in the re-absorption in active employment of substantially
all those on reserve lists. Most railroads have been employing new
employees this year for the first time since 1929. There HERE to
exist 8 considerable opposition on the part of employees to the ar-
bitrary rules forcing retirement at age 70. The average compensation
of employees who attain old age in railroad service has been, for the
past year, about $150 per month. The average annuity has been about
$65 per month, and may when final settlements are made, average $70
or $7.00 per month. While these are, as annuities 80, rather liberal,
there are numbers of railroad employees in good health, who would
prefer to continue at work rather than suffer the reduction in income.
In the assence of any compulsion, such employees would, of course,
remin in service. A number of the railroads which have never enforced
compulsory retirement at 466 70. also appear to be opposed to 60 doing.
It was finally agreed by the conferees that the Bailroad Retirement
system itself should contain no provision looking toward compulsory re-
: The carriers on their part further agreed to abolish the
present compulsory age for retirement and to retire employees after
ace 65 only for disability and incompetence. These agreements will
LATE, of course, B. very vital bearing OR retirement ages and on cost.
Under those present voluntary pension systems which provide for
optional retirement at 65 and compulsory retirement at age 70, the
average age at retirement has been about 69 years. The average age
Lt retirement among non-disabled employees where there has been no
compulsor, retirement are has been between 70% and 71 years. It has
ares thought conservative, therefore, in calculating the costs of a
Nan having such retirement provisions, to use an avera age of re-
tirement nmong healthy employees of 70 years. This means an average
VE of retirement for those retiring when over age 65 of approximately
"- care, or an average age of retirement of All employees of about
years. These assumptions, if true, would involve an increase in
2'w rate of retirement which has existed under voluntary plans of, at
vs 65 and over, 50 to 75 percent.
Regraded
254
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Three other changes having the effect of reducing costs as com-
pared with the present Railroad Retirement Act were agreed upon as
between the conferees.
1. Under the present Act, full benefits are payable to any em-
ployee retired by A carrier because of disability. Disability may
be of a relatively minor character or it may be applicable only to
the specific occupation in which the employee was engaged. It is
now agreed that in the event of retirement before age 65, annuities
will be paid only to employees who are permanently end totally die-
abled for any gainful employment. Under the present Act, disability
annuities cease only upon the re-entry of the annuitant into railroad
service. There is no provision for periodical proof of continuing
disability. Under the new arrangement, continuation of the annuity
18 to be based upon continuance of the disability and the annuity
ceases upon the recovery of the annuitant or his entry into any gain-
ful employment.
2. At present, any person who is an employee on or after the
date of enactment receives credit for all of his service prior to the
enactment date, no matter what the length of his subsequent employ-
ment. It is now agreed that persons not in an employment relation
on the date of enactment who subsequently re-enter service will re-
celve no credit for prior service. Employees who sever their con-
nections with the railroad industry before reaching retirement age
also forfeit prior service credits.
3. Annuities are now payable to employees who retire from rail-
road service, irrespective of any employment elsewhere. Should the
agreement be adopted annuities will not be payable in periods in
which the annuitant is engaged in regular gainful employment.
Another development which has had a bearing on cost is the rise
in the payroll due to increased employment. The 10 percent figure
Was based on & payroll for all railroads of $2,000,000,000. The
average payroll during the last ten years has been $2,350,000,000.
aná the payroll has been as low as $2,000,000,000 in only three years
since 1916. At the present time the payroll is running at
$2,200,000,000 annually, and railroad managements are estimating 8.
10 to 15 percent increase during the current year. It seems reason-
able to estimate the payroll for the future at $2,200,000,000. Under
the Railroad Retirement Act, the accrued liability is substantially
fixed in terms of dollars, The level percentage of payroll method
contemplates not a complete amortization of the linbility, but, as
in the Social Security Act old age benefits system, interest is paid
Regraded Uclassified
255
- 8 -
% Cire linoility, Since the liability is fixed the interest will
be fixed, and becomes smaller as the payroll increases. The
ries 2: the payroll estimate from $2,000,000,000 to $2,200,000,000
results in a reduction in cost of approximately 1/4 of 1 percent of
the carroll.
In addition to the civin em in the plan which nave just been
enumerated, there was another which would probably have an important
vifect in limiting costs. Under the present Act, employees are given
the option of electing a joint and survivor annuity at the time of
application for their own annuity. The Act contains no limito-
tign X the amount of annuity which the employee may elect to receive
nimelf (LE against the amount payable to the spouse. The Board has
ittemated by administrative regulation to limit the adverse selection
m:100 could earily arise in B. provision of this sort, but it in doubt-
fil whether such selection could be eliminated entirely. It is now
e,reeu that the election to take or not to take a joint and survivor
anity must be made at least five years prior to retirement and will
not De available to employees retiring by reason of disability. The
options are limited to three and in no event may an incividual elect
to have his wife receive more than he himself does. It is believed
that the nes provision will substantially eliminate any adverse
selection.
One change was agreed upon which, if accepted, will increase
cants slightly. The present Act attempts to provide annuities for
nil persons in employment or having an employment relation to e
carrier. The term "employment relation," however, is defined so as
is require not only those employees to hold rights under acreements,
out requires also that such persons be ready and willing to serve,
wich means that B 6000 many bona fide employees are left out of
the scheme because of permanent and total disability. This result
MES not intended and it is now agreed that such persons are entitled
to benefits of the Act. Their inclusion adds about 7/100 of 1 per-
cent to the payroll costs.
5. Costs
The actuarial staff of the Board has calculated that the cost of
providing benefits of the Railroad Retirement Act modified as outlined
nove would be, including expenses of edministration, 6.79 percent of
the taxable payroll. (In both Retirement Acts and in the proposed
>lan, compensation in excess of $300 to an individual in any one month
is disregarded.) This procedure is based on the payment of interest
at the rate of 3 percent per annus on an unfunded initial liability.
Regraded Uclassified
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256
As indicated above, those carriers which maintain pension eys-
tens have felt that they ought not to be compelled to carry the costs
of pensions under such systems and in addition pay a. share of the an-
nuities for the large number of old employees on roads without systems,
who would in all probability be retired immediately. Calculations have
been made by our actuarial staff as to the liabilities for employees
65 and over and for those on pension rolis, road by road, as of
Jamary 1, 1932. 1 On that date the Pennsylvania Pailroad, for example,
would have had e liability for benefits calculated according to the
Retirement Act to employees 65 and over (all of EUCA employees being
under age 70) of 11.46 percent of the payroll. On the Milwaukee there
WES a liability of over 27 percent for employees between 65 and 69, and
a liability of 14 percent for employees 70 and over, A total of over
41a percent. The liability expressed as a percentage of payroll for
Pennsylvania pensioners was 31. percent as compared with less than 1
percent on the Milwaukee. Unless the new system provides for taking
over the Pennsylvania pensioners, the Pennsylvania would not only have
to pay all the cost of such pensions but would in addition help to
carry the burden of the old Milwaukee emoloyees. Taking all the roads
having pension systems together, the liabilities for active employees
would be relatively only 60 percent of the liabilities for those roads
having no pension plane. By adding in the pensioners, these inequali-
ties would, taking the groups as a woole, be approximately offset.
There would, of course, still remain considerable differences in any
CO. parison involving individual railronds. The carriers themselves.
nowever, appear to be satisfied as a ,roup to have the pensioners
taken over, and will apparently not raise individual questions. The
cost of the present pension rolls would be .32 percent of the payroll.
This represents the interest on the accrued liability with respect to
these rolls since their assumption, by the system, would have the
effect of merely adding to the accrued linbility. The total cost of
the plan, including the provision for present pensioners. would there-
fore run to 7.11 percent of the payroll.
The committee representing the reilrond managements 538 willing
to agree to A charge on the payroll, for the support of a retire ent
system, of 7 percent, of which employees would pay for one half. They
Title VIII of the Social Security Act difficulty might be experienced
felt, however, that because of the low initial ta. rates under
la porsundin, all the carriers to (29 alon, for the plan. Since they
wish to naice certain of the permanency of the plan once it is in-
@warated, they wish to secure a definite written CO -itment from all
inscarriers binding them not to institute any liti_stion. The belief
This date WAR used because of the fact tist it WILS the only date for
wich age and service records were available on a large number of
individual roads.
Regraded Uclassified
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25
was expressed that if initial taxes were fixed at 5 percent, rising
by 1/2 percent each three years to 7 percent in 1949, the desired
result could be achieved. Such a tax plan would yield the -
revenue, taking interest into account, as would & level 6.60 percent
of the payroll.
The suggestion had been made that a Railroad Retirement Act might
DE regarded as composed essentially of two parts, the first part con-
sisting of the benefits equal to those which would be paid to milroad
employees under Title II and the taxes which would be paid by them and
their employers under Title VIII of the Social Security Act, and the
second part, a level of benefits with taxes sufficient to provide those
benefits. This would mean that in calculating the cost of a. Railroad
Retirement Act, benefits equal to those under Title II of the Social
Security Act would be regarded as provided by the taxes under Title VIII.
Under the Social Security Act, railroad employees will receive
much more in benefits than the taxes which are payable by them and their
employers. The total differential will probably run in excess of one
billion dollars, having a present value of from 350 to 500 million dol-
lars, This disparity between benefits and taxes is in general true as
respects present employees in any industry. It is particularly trus
with respect to railroads, however, because of the relatively advanced
200 of railroad employees. The ultimate level of taxes under Title VIII
is misner than the level which would be required for new entrants into
the industry so that the deficit in respect of present employees is off-
cet DU the overcharge for new entrants. There will be some overcharge
in t... railroad industry. out it is smaller than for other industries
because of the fact that the average age of entry into railroad service
is aignet than it is in other industries. So far as we are aware, the
resired Industry maintains higher minimum ages for major types of en-
aloyment than any other industry. For example, employees will not be
(ived for train and engine service at ages under 28. We have made a
Resider of measurements for railroad employees as respects the disparity
benefits and taxes and have arrived at the general conclusion
that the value of the disparity or "differential" is equivalent to a
1.001 0.50 percent of the ayroll. Measurements of course are subject
to considerable margin of error since in the final analysis the dif-
forential ought not to be based on costs within the railroad industry
vione, out assumes the finality also of the present tax rates in
Bile VIII 3.6 accurate indexes of total costs. Making allowance for
inistance of differential, the cost of the Railroad Retirement Act is
1.68 mercent of the payroll, which is slightly less than the taxes at
- .0 step rate already mentioned.
Regraded Uclassified
258
- 11 -
There are appended hereto contes of a letter from the Railrond
Retirement Board to the Social Security Board, and a letter from the
Social Security Board to the Railroad Retirement Board, bota bearing
on the matter of the differential.
The preceding discussion me implied the creation of o separate
railroad retirement fund (or at least no mingling into the old age re-
serve account of taxes paid by reilronds and their employees). The
same result could be achieved if the Carrier Taxing Act carried, not
all the taxes to be levied on the incustry, but only that part in ex-
cess of those in Title VIII. These excess taxes would pay for the
benefits under the Railroad Retirement Act in excess of those which
would otherwise be payable under Title II. It would then be reason-
able for the Railroad Retirement Act to call for appropriations to
the Old Age Reserve Account of such amounts us are required, on a re-
serve basis, to meet the payments under the Railroad Retirement Act.
The Fun of the two appropriations - the one for Title II and the other
for Railroad Retirement - would then equal the total taxes collected
under Title VIII and the Carrier Tax Act, less administrative expenses.
This procedure would meet the specifications laid down by the Social
Security Board.
The taxes under the present Carrier Taxing Act began on March 1,
1936, although, of course, because of the injunction, the amount of
taxes collected thereunder has been negligible. Both parties to the
negotiations have agreed that, if possible, the taxes under the new
arrangement should begin on January 1, 1937; the labor organizations
were reluctant to agree either to the January 1, 1937 date or to the
step rate arrangement. But they felt that the most important considera-
tion was the achievement of a plan which would not De further tied up
in the courts. At the final meetings it was definitely indicated that
there would be no agreement and that the litigation would be pressed
unless the lower taxes were adopted. It was understood that the Govern-
ment had not consented to the arrangement, but failure to consent would,
of course, abrogate the agreement and, for an indefinite period, put
the Government back into the position of paying out annuities with no
revenue.
In making calculations on the above basis, the costs are in respect
of a system beginning on January 1, 1937, with allowance for payments
made or due for 1936. Total administrative expenses to February 28,
from the date of beginning operations were $1,500,000 and annuity pay-
ments made to the same date were $1,600,000. Payments are now being
made to 3,600 individuals and a total of 9,250 employees have notified
the Board of retirement. Many of these were retired during part of
1936 and when settlements are made they will receive annuities there-
for. Te estimate that the total payments for anmities in 1936 when
final settlaments are mde, and for administrative expenses, will not
Uclassified
259
- 12 -
exceed $7,500,000. An account has been taken of that amount in cal-
culating costs. If taxes were collected back to March 1 at the 3),
percent rate, the cost figures which are included herein could be
reduced by about 0.17 percent of payroll since the receipt of such
revenue has not been contemplated.
260
March 3, 1937
HM, Jr. telephoned to Senator Nye and told him he would
give Bates a thirty-day appointment.
Regraded
Uclassified
2
March 4
Mr. Bates went to work in the Disbursing Office
this morning. Mr. Allen had a job that would run
for 45 days, salary $1,440.
G. Callaway
R
yet
262
MEETING WITH EXECUTIVE COMMITTEE OF
March 3, 1937.
FEDERAL RESERVE OPEN MARKET COMMITTEE
11:00 a.m.
Present:
Mr. Lochhead
Mr. Harris
Mr. Haas
Mr. Bell
Mr. Harrison
Mr. Burgess
Mr. Goldenweiser
Mr. Chester Davis
Mr. Szymczak
Mr. Piser
Mr. Sinclair
Mr. Eccles
H.M.Jr:
Burgess, was the statement in the paper correct
that the dealers got quite a lot of our bills
Monday?
Burgess:
They got seventeen million of the longer bills
against our maturity of about sixteen. They got
about twelve million of the shorter bills. Didn't
get 80 many.
H.M.Jr:
Have they sold them all?
Burgess:
They have sold all the longer ones, and they won't
have any trouble with the short ones.
H.M.Jr:
Well, isn't that rather unusual - for dealers to buy
bille?
Burgess:
Oh ! No. They regularly take some.
H.M.Jr:
Do they?
Burgess:
Yes, they always bid.
H.M.Jr:
How much did the System have?
Burgess:
We had sixteen million maturity which we replaced
with the longer ones.
H.M.Jr:
Yes.
(Mr. Eccles comes in.)
H.M.Jr:
What is the tone of the Government bond market?
Regraded Uclassified
263
- 2 -
Burgess:
Well, it 18 extremely quiet - very little trading -
and it has been & little soft. I think that 18
partly the new issue, the expectation of the announce-
ment of the new issue, and the fact that they are
talking about it and discussing it. I think it 18
partly a general expectation that over a period
money rates will be a little firmer. So it is a
little soft, particularly the notes. The bonds
have been B. little soft the last few days.
H.M.Jr:
Have they at all been disturbed by a thing like the
Wagner Housing Bill? Has it disturbed them at all?
Burgess:
Never heard it mentioned.
H.M.Jr:
Railroad retirement?
Burgess:
No 1 No !
Eccles:
Haven't got that analysis of the Wagner Bill.
H.M.Jr:
Well, the Wall Street Journal today carried it, I
don't know where they got it, but they got it all
right.
Burgess:
No, the market 1s counting on you to retire at
least a billion and a half of the Federal debt
during the coming year.
H.M.Jr:
Well, they better not be too sure. How much?
Burgess:
A billion and 8. half. That's about right, isn't it?
Harrison:
I was wondering why you (H.M.Jr.) let that go past.
Burgess:
And what about the retirement?
H.M.Jr:
Well, after what they did to Treasury yesterday, I
don't know how you (Bell) feel, but I feel as if I
had been dragged through a keyhole.
Well Burgess I haven't talked to anybody this week eo
I am relying entirely on you. What does it look like?
What 18 best?
Burgess:
It looks like putting out some more of the 2½'s 49-53
at a premium which ought to be determined the last day.
H.M.Jr:
Saturday?
Burgees:
Yes. Now they are quoted at 101 10-11. They have
been & little bit weak. They have gone off from 1011
which they were a few days ago. But on that basis you
could - if you were doing it today, you could sell
Regraded
264
- 3 -
them at B. half point premium, or you could do the
equivalent - giving them interest until April 15th
if you wanted to.
Eccles:
Well, half a point premium would - let's see, that
would give them & profit on these bonds.
Burgess:
Well the interest
Eccles:
About 25/32nde wouldn't it?
Burgess:
Well, you would have to deduct from that the 8/32nds
interest from March 15th to April 15th, a quarter of
a point interest.
H.M.Jr:
We've got it here if you want to see it.
Burgess:
I mean last night 8/32nds - if he offers them at
24/32nds with the extra month's interest, why there
is three quarters of a point. Without the extra
month's interest there is Just 16/32nds.
Eccles:
What are the rights selling for?
Burgess:
101 bid price. That 18 awful low. The rates are up
as high as 101 5 and 6. We sold quite a number last
week at 101 5 and 6.
H.M.Jr:
Sort of pleased with yourself! Maybe that's why they
are down.
Burgess:
No, we stopped selling as soon as they started going
down.
H.M.Jr:
How much have you got left?
Burgess:
Thirty-five million. We have been anticipating it BO
we have a distribution of our replacement rather than
taking it all at once.
Eccles:
We have over fifty million of those 21's don't we?
Burgess:
Nearly fifty million - forty-six or-seven, I have
forgotten the exact figure.
Bell;
How much notes you got left, you say?
Burgess:
About thirty-five million.
Eccles:
We can exchange them though now. We had just decided
not to. We are not prohibited from exchanging.
Regraded Uclassified
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265
H.M.Jr:
What do you mean, Marriner?
Eccles:
See, we have been selling and buying. Now we have
exchange direct with the Treasury.
Szymczak:
Since the Banking Act of 1935. We finally got the
opinion that we can do it. Some question about it.
Burgess:
We decided that that close association would not be
illegal.
H.M.Jr:
Or contaminating!
Burgess:
No.
Eccles:
So we won't have to sell any more.
H.M.Jr:
All right with me.
Bell:
Are we supposed to know about that?
Eccles:
You can forget it if you want to.
H.M.Jr:
Have you got a legal opinion from John W. Davis
on that?
Eccles:
Well, somebody better than Davis. Well, we got it
from Logan in New York and also Wyatt and Dreibelbis.
We got the opinion of the Counsel of the Board and
the opinion of the Counsel of the New York Federal
Reserve Bank, Bo
Szymozak:
That makes it good.
Burgess:
Otherwise George Harrison will go to Jail.
H.M.Jr:
Well, it really doesn't concern us, does it?
Harrison:
It might interest you.
H.M.Jr:
Well, its a purely academic matter.
Eccles:
Wouldn't it be & good thing, at whatever price these
are offered, that the holders of these notes wouldn't
necessarily get any speculative profit as a result of
it? If you want to discount these rights B. little in
the future
Burgess:
They are going to make it just as close as we can
get by with in order to make the rights a lit tle less
valuable.
H.M.Jr:
The conversion?
- 5 -
266
Burgess:
Yes, I think you want it fairly close.
H.M.Jr:
No, I don't; for once, I am just going to add about a
quarter of a point to this one because, in this room,
this may be one of their week-ends. So I may Just
make this a little extra sweet. I am very nervous
about this week-end. That 18 very confidential.
But it may be one of these week-ends and a quarter
of 8 point - if you figure - somebody take a pencil -
at five hundred million dollars for seventeen years
how much 18 it? What is it, B. quarter of a point?
Harris:
One million, two hundred fifty thousand on five
hundred million.
Bell:
It 18 only for once; it 1en't for seventeen years.
Only be for one time.
H.M.Jr:
Only for one year?
Burgess:
Yes, it 1s only once, that's all.
H.M.Jr:
That's right. It 1s only one year. Figure for one
year. What would it be for one year?
Burgese:
That's a million and a quarter dollars, that's all.
H.M.Jr:
Well I may want to.
Burgess:
You can gamble with that.
H.M.Jr.
Well, insurance. I mean I'll know Saturday, I'll
know more, but the way I feel right now I may just
want to add a quarter of a point. What?
Burgess:
That's all right. I don't know your situation.
H.M.Jr:
Well, I don't want to talk about it but you will have
to take my word for it. I mean I've got to play
hunches around here, and I may be wrong, but if 8.
five hundred million dollar conversion didn't go,
then a million and a quarter would look terribly cheap.
Burgess:
Of course this 18 very much easier than your usual
operations because the holders of the notes have al-
most got to convert in order to realize any profit at
all.
H.M.Jr:
But I mean we've done this before. I mean this 1s -
I think I did that once before. We sweetened it a.
little when I was nervous.
Burgess:
We have done it usually.
H.M.Jr:
What? We usually
Regraded Iclassified
9 # I
267
Burgess:
We usually
H.M.Jr:
No.
Burgess:
have made it pretty sweet.
H.M.Jr:
But Marriner, I don't want to - it isn't worth the
risk.
Eccles:
If you are going out for new money I can't imagine
much of a risk with the small amount, and it is
only a conversion. The only thought I was think-
ing of was the speculation in these rights right
along.
H.M.Jr:
That is something else, isn't it?
Eccles:
Except that the sweeter this 18, the greater the
speculation in the future. I mean they have in the
past always been given pretty good premiums. It's
been pretty sweet and it's made the rights on these
notes pretty valuable. There's been a great deal
of speculation in them. If they took a loss once on
them or they didn't get any profit as a result of
buying them, which they have been getting, 8 lot of
them, why, they might discontinue the speculation.
That's the only thought I had in mind.
H.M.Jr:
I know, but we got a lot of satisfied customers,
and the fact that they have made - the reason that
they are satisfied is that they have pretty con-
sistently made money. That's about the only way I
know we can keep them satisfied, and I think that
the thing somebody suggested a week ago, the possi-
bility that we might announce in June that on con-
version we'd only make 75% allotments or something
like that - I'd rather do it that way than cut the
thing off too close and take the risk. I mean
based on last night's closing if we offered it at
101 and just cut off the 3% interest, there would
be 8/32nds. If we added the quarter per cent for
one month, 16/32nde, or half a point.
Eccles:
If you offered them at 101
H.M.Jr:
At 101 and paid them double interest. It would be a
half of 8. point profit.
Ecoles:
Well that wouldn't be much.
H.M.Jr:
The way it looks today we better offer it at 1001
or 101. Then we could always figure if we are a
little nervous - if I am still a little nervous on
Saturday, I mean
Regraded Uclassified
268
- 7 -
Haas:
It's the other way around. You'd offer them at par
eight if you wanted to sweeten.
H.M.Jr:
Yes, but I mean the way - last night we figured
that if we commenced to offer this new bond at 101,
it will be 16/32nds.
Lochhead:
But that 18 a quarter less than the market 18 ex-
pecting.
Ecoles:
Yes, that's all right.
Burgess:
That's all right.
Ecclee:
You mean 101 premium.
Burgess:
And then you'd give them in addition the 8/32nds
interest.
Eccles:
Then you got about half a point profit.
Lochhead:
And they are expecting three-quarters.
Eccles:
Well, the rights are selling at more than that.
They'd take a loss on their rights. That's all right.
H.M.Jr:
We are figuring on giving them 16/32nds profit, a
half point.
Eccles:
That's all right. I think you got to give them that.
What I was thinking was giving them a point profit -
I mean usually they get a point profit.
H.M.Jr:
No, no, I am thinking in terms of half a point profit,
then if I am still nervous on Saturday we will give
them three-quarters.
Eccles:
Oh : well, that's all right. I agree with that.
H.M.Jr:
Then if I am nervous we give them an extra - we make
it three-quarters.
Eccles:
Well, that's all right; we're both starting at the
same place.
Harrison:
You will know though before you have to fix the price
whether this 16 going to be one of those week-ends.
H.M.Jr:
Sure, we'll know, Burgess loves to call up about 12
o'clock Saturday.
Burgess:
I usually work 'til twelve on Saturday.
- B -
269
H.M.Jr:
AB a matter of fact, you made me - you recommended
that we cut off a year on the maturity at five
minutes of twelve the last time. It was a 49-54
and you got nervous and made it 49-53.
Burgess:
Glad we did.
Eccles:
You take the bonds; it seems to me the long term
bonds have held up unusually well when you consider
it. Since we announced this increase in reserve re-
quirements, they have been Just about as steady as -
much more than we had any reason to expect.
Burgese:
One thing I do want to call attention to. It 1s the
same thing I called attention to last week, and that
18 that the spread between the Treasury's and the
corporates shown on the second chart is nearly a
quarter of a point larger than it was. That 18, the
corporates have been weak and the new issues have
been weak. I Just heard yesterday of 8. new issue
that they had been talking about getting out at three
and a quarter; they got to get it out at three and
a half now. The new issue market has been weak; a
lot of these issues that have come out have gone off
two and three points and the market has been sloppy.
And the indexes are off a point or two, indexes of
corporate bonds. So that if you think of the relation-
ship between Governments and the corporate market as
one of the technical situations, the technical position
of the Governments, it seems to me, with the corporate
market - it seems to me 18 less favorable than it was
two or three months ago.
On the other hand, the technical situation as to the
dealers in their market position 18 very good. The
dealers are holding a very small amount of Governments.
H.M.Jr:
What had you been running through your mind on how we'd
price this?
Burgess:
About the same 8.8 you.
R.M.Jr:
About the same?
Burgess:
Yes, if you do it flat without paying them any interest
par and a half; it 18 worth Just the same. It 18 worth
half a point.
H.M.Jr:
I mean figuring it would be from half to three-quarters
of a point profit. What?
Burgess:
That's all right.
H.M.Jr:
Yes.
- 9 -
-70
Burgess:
That would give them 18/32nds on it today at par
and & half without any interest.
H.M.Jr:
We thought we'd announce tomorrow at the regular
press conference at 10:30 what the piece of paper
was going to be, and that gives them a couple days
to adjust themselves. Without pricing it; just say
it le going to be the 49-53 at two and one-half.
Burgess:
Are you committed to that? I don't know that it is
any mis take.
H.M.Jr:
I told them I'd let them know Thursday.
Ecoles:
Well, what else would you
H.M.Jr:
I mean I'm not committed. Only I am committed to
say - I told the boys I'd let them know Thursday.
Burgess:
I think they will assume that you will give it to
them at par for par.
Lochhead:
If you told them you were going to give them a long
term bond, would that cover it?
H.M.Jr:
How are they going to interpret it?
Burgess:
I am afraid that If you announce tomorrow that you
are going to give them some more of 2½'s at 49-53
they will assume that you are going to offer par
for par exchange and then the rights would go right
up.
Haas:
You can say the price is still to be determined.
Burgese:
Then the rights would be with a point, you see,
that way. You see, you haven't offered an exchange
with a premium on it for a number of years; I don't
know as you ever did. Some of your predecessors did
sometime ago and the market
H.M.Jr:
Well, I could just tell them I'm sorry, but I haven't
been able to make up my mind.
Szymczak:
(Nods Yes)
Eccles:
Tell them you'll give them a long-term bond; you could
Harrison:
They would still have that same assumption though un-
less he indicated that the price was to be determined.
Eccles:
If you are going to say that then announce the 1ssue
but say the price is going to be determined which
would prepare them for the premium. That may be well.
- 10 -
271
H.M.Jr:
Well, if Burgess - I haven't made up my mind and
I am not going to make up my mind until the market
closes Saturday. The worst would happen -- that
I was worried and the thing might go down a little
bit.
Burgess:
I think in some ways that would be better. Then
you still leave yourself free.
Ecles:
That 18, not announce the issue?
Burgess:
Yes.
Eccles:
Would you say a long-term issue or say nothing
about it?
Burgess:
I'd be inclined to say nothing.
Harrison:
You could Bay bonds.
Eccles:
That's what I meant. Give them a bond. Huh?
Burgess:
Be no great harm in that, I think. Give them a
bond in replacement; just what bond, just what
price, you haven't yet determined.
Harrison:
That would indicate less nervousness than if you
announced the issue but said you hadn't yet deter-
mined the price. Just say, "I am going to give
you a bond, but what bond, at what price, I am not
sure of yet".
Burgese:
That will bring your note market back a little and
I don't think it will hurt the bond market.
H.M.Jr:
All right Dan, what do you think?
Bell:
Well, if you say & bond I am just wondering what
they'll be looking for in the way of R. premium on
that bond.
Burgess:
And they wouldn't assume it 1s the same bond necessarily
Bell:
But they'll assume that at least a point premium
will be on that bond if they go back to our previous
experience. They might even assume that it would be
8-12/32nds above one point. In which case your righte
would go up any way.
Burgess:
I think the market thinks two things Dan - I've
been talking with a good many people the last two
days. There are two guesses. They say they doubt
if you will do notes because the note market has
272
- 11 -
been BO weak. They don't think that would be wise.
They are saying in bonds, not two but three possi-
bilities. One 1e about & ten year two and a quarter.
They don't think that is quite 80 good as a longer
bond, because the intermediate market has been a
little unsettled and that would be dropping your
coupon. They say in a longer bond there are two
possibilities. One 18 to put out some more of the
23's 49-53, and the other 18 to put out another
21 of a year longer maturity. And if you say you
are going to put out a bond they will want to know
which of the three it is BO they are still 8
little on the fence, which is all right. I think
more of them expect some more of the 49-53's than
anything else because that seems a very logical
thing to do, but there are a number that expect
something different.
Eccles:
Let's see, rights are selling today at about what?
Burgess:
About 29/32nds. No, 101.
Eccles:
Does that take into account the interest?
Burgess:
The interest is 8/32nds off that BO that is three-
quarters of a point premium.
Encles:
Yes, three-quartere of a point. Wait 8. minute,
what is it now? 11/32nds; 10 or 11/32nds?
Harris:
Eleven.
Burgess:
Yes, that's 21/32nds premium.
Eccles:
Well, there would be no use in giving more than
21/32nds. I mean if you gave them three-quarters
of a point you'd be giving them
Harrison:
You'd be giving them more
Eccles:
Yes, three-quarters; you'd really be giving them
more than the rights are selling for today.
Harrison:
And he wouldn't do that unless he
Bell:
Not much more. About on the line.
Ecoles:
And that would be a premium of about half a point
wouldn't it?
Burgess:
Yes, making no allowance for interest; three-quarters
if you allowed interest.
H.M.Jr:
Also, that keeps them from sharp-shooting at that 21,
- 12 -
273
Burgess:
That's right.
H.M.Jr:
What?
Burgess:
That's just the point.
H.M.Jr:
That keeps them from sharp-shooting at the 21. They
might just drive that 21 down. Huh!
Eccles:
Well, it gets you committed; which 18 -- nothing to
be gained by it.
H.M.Jr:
The 2½'s are up to 101-11. I think that that would
be the best thing; simply say it 18 going to be 8
bond; which bond and what price hasn't been deter-
mined and won't be until the market closes. What's
the matter with that?
Harrison:
As long as you are committed to say something, I
think that 18 the least harmful thing.
H.M.Jr:
Then whatever level it would seek. But I am afraid
the 2½'s - they'll just put their riflee on that.
Bell:
Couldn't you say that all indications now point to
a bond?
Haas:
That looke as if you are worried a little more than
you are.
H.M.Jr:
Well, I mean to say that by noon Saturday we'll
know - that 1s 5 o'clock in Europe - they're not
going to do anything there.
Feeling all right? (To Goldenweiser)
Golden-
weiser:
Yes, thanks. I'm fine.
H.M.Jr:
Well, has the Federal Reserve got any contribution
or kick or suggestion?
Szymczak:
No.
Sinclair:
Not a thing more, Mr. Secretary.
H.M.Jr:
Marriner.
Eccles:
I've had my say.
H.M.Jr:
Dr. Goldenweiser?
Golden-
weiser:
No, Sir, I haven't anything to say.
Regraded Uclassified
- 13 -
274
Davis:
Nothing.
H.M.Jr:
Anybody here?
Harrison:
I have nothing more to add, Mr. Secretary.
H.M.Jr:
Bell.
Bell:
No, Sir.
H.M.Jr:
George.
Haas:
No.
H.M.Jr:
Archie.
Lochhead:
Nothing.
H.M.Jr:
Harris.
Harris:
Nothing.
H.M.Jr:
Well, while we are together a minute, Marriner,
do you want to say anything at all about the
general price situation?
Eccles:
Well, there 18 quite B. bit to be said but I don't -
do you want me to?
H.M.Jr:
Well, I just - we are here and you fellows come down
and I just wondered 1f there is anything that your
people say or anything that you want to say. I mean
I am getting used to these round tables since I've
been up to Harvard.
Golden-
weiser:
That went pretty well, don't you think, Mr. Secretary?
H.M.Jr:
I thought BO.
Eccles:
I was talking to Dr. Goldenweiser yesterday after I
had lunch with you and he gave me something more
specific than the general discussion. He said there
was quite a crowd of Economists there, with Professors
Rogers and Neeley, Crowders and Riefler, and that a
lot of them shot some pretty pointed questions at you
and you handled them very well, he said.
H.M.Jr:
He missed the morning session.
Golden-
weiser:
Yes, but I heard an account of it.
H.M.Jr:
It went pretty well. I know it was fun for me.
Professors. They didn't give the students a chance.
The only thing we suffered from there was too many
Regraded
- 14 -
273
Golden-
weiser:
Especially one particular one did too much talking
in there.
H.M.Jr:
No, I mean 16 there anything that you want to say
now, anything you think we ought to
Eccles:
Well, I think the thing that we have got - at
least it concerns me - we haven't had a chance to
discuss it over in the Board because most of them -
half of our members have been away. And, of course,
this matter of increasing reserve requirements and
other action - we have Just got through with it, but
the situation at the present time with reference to
these rapid increases in prices that we are getting,
which I term a price inflation as distinguished from
a monetary inflation - I mean it 1s an increase in
prices not caused primarily as a result of & monetary
situation but due to an unusual demand for certain
raw materials and a shortage in productive capacity
unable to meet the extreme demand, either due to lack
of factory capacity or a lack of supply of skilled
labor.
Now I have in mind three or four things. There is
steel, the most outstanding; copper; lumber. All
of those three items have been withdrawn from the
market as to quoting future prices. They will take
no ordere for future deliveries. They are operating
to capacity. We hear of steel at 85%. Well it
really - 85% is 100%. The 15% that isn't included
is a lot of old capacity that just 1sn't ready and
couldn't be operated anyway.
I was telling the Secretary yesterday that I was up
to the Homestead Mill a couple of weeks ago and spent
half a day with the United States Steel people going
all through that'mill, and they were operating twenty-
four hours a day, and they said that the whole steel
industry was operating on that basis. Now they had
some capacity there that hadn't operated for twenty
or thirty years; that was one of the old Carnegie
Mills that was built in 1883.
Now you take in the lumber situation, and it is - we
have practically a capacity operation, and they have
withdrawn from the market. Prices advanced $2.00 8.
thousand here just two weeks ago.
And I was talking to Mr. Hunt, the head of the
Aluminum Company. He saye that they are operating
twenty-four hours a day, to absolute capacity, at
the present time.
Regraded Uclassified
- 15 -
276
Now that situation 1e due to forward buying,
anticipation of strikes, buying in anticipation
of further rises. The very fact that they have
withdrawn prices only stimulates greater demand.
It 16 going to throw our whole economy out of bal-
ance if it continues.
Agriculture - you will find that their farm imple-
ments are getting increasingly expensive, that
their materials that they have to buy for their
buildings and their fenoing, and steel and lumber
products, copper products, etc., are rapidly in-
creasing.
It will, of course, "tend to cause a further acute
shortage of housing or a building - construction of
housing at prices that are altogether too costly.
We've got a shortage of skilled help in the build-
ing trades in a great many parts of this country.
Now that type of an inflation cannot or should not
be controlled by restricting credit, as long as you
have got a lot of unemployed people. To restrict
credit, in time, of course, would break these prices,
because it would reduce the demand to a point where
the existing capacity could take care of the demand.
It seems to me the way to stop a price inflation such
as is developing now, of course, 18 to increase
production and thus absorb idle men. Now, you can't
increase production rapidly when it is a question
of requiring an addition to plant facilities. Where
it 18 a question of shortage of skilled labor, you
can either work more than forty hours a week those
that you have, certainly not reduce skilled labor from
forty-eight to forty-four, or forty-four to forty,
and thus reduce the shortage of skilled help until you
can meet the situation by training the unskilled help
and the semi-skilled help.
It seeme to me that the most effective way to do this
would be possibly to drop the tariff on certain items.
Lumber has a $3.00 tariff; Canadian lumber can come
in. Copper has 8. 4-cent tax. I don't know just what
the tariff is on steel; but it would be an excellent
time to - maybe we could get some of that Chilean
copper; I don't know whether they've got B. surplus or
whether the European demand for war purposes is such
that we couldn't divert any this way. I don't know
enough about this situation, but anyway, if it were
possible to take eome foreign goods and tend to hold
down these prices at this time, giving them dollar
exchange to buy some of our cotton or to apply against
their debts, instead of foreign capital coming in here,
we'd be far better off and help balance our situation.
Regraded Uclassified
- 16 -
277
Haas:
or course, the lead on most of these prices was
abroad rather than here - copper, tin, lead, all
those things. In other words, you've got the
market higher over there than over here.
Ecoles:
I knew that was true of copper.
Sinclair:
That would saturate our demand over here, wouldn't it?
Enclee:
Well, you could - the threat of reduced tariff on this
would, I am pretty sure, help the lumber situation.
H.M.Jr:
Copper situation - it is a world cartel which they've
got pretty well controlled. It 18, I think, a situa-
tion peculiar to itself. I know a little bit about
1t.
Burgess:
But you are more apt to get full production if you
reduce your tariff on copper 80 they can send it in.
Eccles:
I am not so sure on copper that they are anxious to
hold these prices. It seems to me what a lot of
these fellows are saying - "Well, we operated for
years here, took a loss" - and they are trying to
make it fast. Well, of course, in the effort to
do that they are going to expand the steel productive
facilities, they will build new lumber mills, open new
copper mines. In fact, Phelps-Dodge now are working on
one in Arizona. I talked to Lucas last week, who 18
the President of Phelps-Dodge, and they are opening
one down in Arizona at the present time.
H.M.Jr;
Reopening or a new one?
Ecoles:
Opening a new one, developing a new one. You develop
our facilities for production to meet what would be 8.
normal requirement, plus an effort to make up a huge
backlog because of 8. depression condition, and then
after a period of time you have made up this backlong,
you have got caught up on the thing, and you have
productive facilities all out of relationship to what
the current requirement 18, and, of course, your elump
is accentuated then.
Golden-
weiser:
Particularly undesirable to develop a capacity to
meet armament demands.
Eccles:
Yes. Well it's, I think, a pretty serious situation
and it's a type of inflation that we can't control by
a restrictive credit policy.
Haae:
You can accentuate it, particularly in the construc-
tion field.
Regraded Uclassified
- 17 -
278
Eccles:
Yes.
H.M.Jr:
Well, I just wanted to hear.
Well now you're going back tonight, are you, Burgess?
Burgess:
Going this afternoon. At your disposal.
H.M.Jr:
George, where are you going to be this week-end?
Harrison:
Anywhere you say.
H.M.Jr:
Anywhere near a telephone?
Harrison:
Oh! yes, I expect to be in New York.
H.M.Jr:
Oh! you will be?
Harrison:
Yes, unless you want me here.
H.M.Jr:
No, no, I just wanted to know if you were going
back to South Carolina.
Harrison:
No - unfortunately.
H.M.Jr:
Having got the biggest turkey
Harrison:
yes, there are none left.
H.M.Jr:
Well, all right. I have nothing else, have you?
Harrison:
I think what the Chairman says cannot be over-
emphasized because if we hope to attack the remain-
ing unemployment problem, our best field 18 in the
building field and the price rises that are going on
now are going to hit the building industry harder
than anything else. If there 18 some way by which
we can keep the prices of those raw materials that
go into building down, why, of course, it 18 to the
benefit of our whole general economy right now.
Tariff would be one way, I think; might not be wholly
effective in every line, but it would be effective in
some lines.
Eccles:
It is important too that wages and houre - these
industries at the present time don't hesitate to in-
crease wages because they increase prices twice as
much as they increase wages, and they use the wage
increase a.8 an excuse for 8. far greater price
increase.
Harrison:
There is no doubt though, Mr. Chairman, that some
of the demand for raw materials 1s due to building
279
- 18 -
up of inventories, anticipating higher prices either
through strikes or increased wages.
Eccles:
That's right.
Harrison:
Those two things and
Eccles:
And reduced hours.
Harrison:
and reduced hours. Now I've been
talking to some of the banks in New York and I
find that a large part of the increase in their 80-
called commercial loans are to finance the building
up of inventories, frankly. Now while we couldn't
attack it by any general program of credit policy,
it may well be that in some fielde we could dis-
courage bankers from financing the building up of in-
ventories. You couldn't do it uniformly and it would
be unfair to certain banks to get them to cooperate
by not advancing funds to build up inventories, when
other banks would be glad to take on the business.
Eccles:
I think the thing that would possibly be the most
effective - I think worth considering - 1e that the
Board may make a statement in its Bulletin with
reference to this whole situation: a public under-
standing of the problem with reference to this price
inflation and the question of the effect of reducing
hours in skilled fields, and adding to the further
increasing prices, the question of speculative buying
to accumulate inventories; and something critical
should be said about these business concerns which
withdraw from the market - now that 16 just another
way of getting prices up farther; the very fact that
they withdraw prices, you see.
Burgess:
It's pretty hard to get around it though, because a
business concern that is building an inventory now
18 probably pretty smart. They are going to make
money out of it. We would, if we were doing 1t,
probably.
Davis:
I don't think that a general sermon along that line
would be convincing or have any good effect.
Haae:
When you take the textile industry; it 18 already
well filled up, as best I can analyze it.
H.M.Jr:
Well, thanks, gentlemen for coming.
280
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE March 3, 1937
To
Secretary Morgenthau
FROM M. A. Harris
The 3% Treasury notes due 4/15/37 were quoted at the close last night 101
bid, 101 2/32 asked. This is a premium of about 21/32nds in excess of
a zero yield to maturity.
3% TN 4/15/37 IN EXCHANGE FOR 2 1/2a 1949/53 AT A PRICE
Current Bid
Offered Price
Value of one
Price difference
Price of 22ª
in exchange for
Price
month interest
plus one
1949/53
3% TN 4/15/37
Difference
on 35\TN 4/15/37
month's interest
101 8/32
100 24/32
16/32
8/32
24/32
101 8/32
101
8/32
8/32
16/32
OTHER POSSIBILITIES
Estimated
Probable
Suggested Coupon
Maturity
Market Basis
Premium
1-1/2% (5-yr. Note)
3/15/42
1.38
18/32nds
2-1/2% (13-yr. Bond)
3/15/50
2.41
1 point
2-1/2% (14-yr. Bond)
3/15/51
2.44
23/32nds
Note: Since the meeting last Wednesday, the government security market has
drifted lower each day except on last Thursday when the announcement as to
the March 15th financing resulted in higher prices. Last night's (Tuesday)
closing bid prices as compared to closing bid prices a week ago showed 4 losses to
of 2 to 8/32nds for Treasury bonds, 2 and 3/32nds for short notes and
9/32nds for long notes.
281
March 3, 1937
12 noon
Dr. Feis
Mr. Haas
Mr. Lochhead
HM,Jr: I got what the President calls one of his
brainstorms. Yesterday afternoon we got a message from
Chamberlain, photostat copy of which I sent to Mr. Hull,
In which he says that the French cannot last more than
this week. Chamberlain does not know any more than I do.
de says a week and Cochran says two weeks. Knowing how
those things hang on, let's say that they last until the
end of March.
I hate to sit here and not do anything. If you
have not read Auger in the New York Times today, do SO.
The fact remains that if the French should collapse, it
certainly is going to bring things to is head in Europe.
I am very, very pessimistic.
I have been wracking my brain as to what we cup
do.
I think that we can greatly strengthen the Tri-
partite Agreement if we invited Russia to join us. They
are the second biggest producer of gold and they have a
great deal of gold. Russia has everything to gain and
nothing to lose. Complete collapse of France means
that they might expect an attack on either their eastern
or western front.
Feis: The situation is as acute in Germany as
it is France from an economic point of view. Because
of their powers of control it cannot have the same con-
sequences.
HM,Jr: It is like a fight between two drunken
men -- which one will die of exhaustion first. I am
Just passing this on to you to think about. It really
has not crystallized itself in my mind as yet.
28c
-2-
Feis: Chamberlain put down at the end of the
message to you, which you received yesterday, that this
situation requires internal action by France. I do not
think bringing Russia into this would help the internal
situation of France. I think that they would have to
again devalue the franc. That gives them enough money
to meet their bills because that is the problem. Then
if they could create a situation from which they can
borrow from their own people and use that borrowing to
lay P. more permanent foundation, they can without too
fundamental a change create 8. situation where they can
borrow from their own people. They might have to bring
about a change in the Bank of France and also in the
Cabinet. I hope that all of that can be achieved with-
out political disorder in France; that Blum would be
able to work it out. Perhaps somewhere along the line
the British and American Governments could help.
HM,Jr: Puleston told me, about a month ago, and that
is where I got the idea, that when you stop to consider,
Russia and we have the same common enemies.
I just want to give this to you as a thought. Russia
has a great deal of gold. They have 8. great deal of
platinum.
Feis: From purely a financial standpoint, I think
inelead of doing the job, it might make the French situs-
tion worse.
HM,Jr: I have not talked to the President about
this. It has not even crystallized in my mind. I want
you all to think about it. I do not know whether this
thing is any good, but I am just looking for an idea.
Feis: There may be an opportunity for the President
to say something dealing with the political aspects -- for
the President to say something that would help Blum.
HM,Jr: I cannot see what the President can Bay to
help France.
Feis: The crisis Democratic Governments have to go
through -- how much social improvement and reform can be
brought.
283
-3-
HM,Jr: I was thinking this afternoon, all I can
Bay in this room, leaving out the monetary thing, the
thing that is hurting France is the political thing.
They know where Roosevelt stands. But if Russia comes
along and saye, 1We are going to join this thing because
we are not going to let anybody wipe France off the map.
We have & lot of business relations with France and we
have R. great deal of gold. -- the very thing you wanted
Roosevelt to say -- I think the Russians should say.
Feis: There are two possible ways that France,
over a period of time, can become master of its circum-
stances:
1. Decided move toward State control.
2. A very limited move toward reassur-
ing private capital.
Whoever is in power in France 16 going to have to
make that choice. I would say that to make your one
move now -- the association of Russia -- would not help
the situation in France.
HM,Jr: Before the Russians could come into the
Tripartite Agreement she would. have to subscribe to our
methods of dealing.
Feis: It would almost force Blum to take the opposite
route. The opportunity of building both the unity and the
confidence which may enable Blum to carry through can be
much helped by the President and Chamberlain.
HM,Jr: The President will get that the minute Bullitt
arrives. That is the only appeal that Bullitt has.
Feis: I think this steel settlement 1s going to boost
the President's position throughout the world.
At this point, Dr. Feis left and Magill came in to
discuss some matters with HM, Jr. About ten minutes later
Feis returned and said, "What about Japan? Could she not
serve in place of the country you talked about at the meeting?
HM, Jr. then replied, "Why not Italy?" It was agreed that
further thought would be given the various suggestions.
MESSAGE FROM THE CHANCELLOR OF THE EXCHEQUER
TO THE SECRETARY OF THE UNIT D STATES THRASURY.
Please thank Mr. Morgenthau for his
message and assure him that I fully share his
desire that we should continue to keep in closest
touch about the French situation.
As stated in Chancellor of the Exchequer's
message to Mr. Morgenthau February 10th His Majesty's
Government urged the French Government to take speedy
most vigorous action to restore confidence. French
Ministers in their reply stated that the French
Government were firmly refusing to impose exchange
control and that measures which they had under con-
sideration included free movement of gold, 8 pause in
increase of expenditure, use of a more elastic tech-
nique by French equalisation fund to defeat speculation,
limitation of rise in prices and reduction of customs
tariffs and abolition or limitation of quota re-
strictions.
His Majesty's Government regard (1) a free
gold market combined with (2) a more elastic technique
in employment of French equalisation fund as of special
importance. As regards (1) foreign exchange should be
in our view treated on the same footing as gold, and
capital should be free to return to France without
penalty or hindrance. Ae regards (2) it was
explained that our experience suggests that 80 long
86/
Regraded Uclassified
as rate of franc is rigidly pegged speculators for a
fall can operate at small expense in hope of making a
profit without incurring a loss. His Majesty's
Government stated that they would be quite willing
for their part if it were desired by French Government
and should United States Government concur to state
that it was with full concurrence of His Majesty's
Government that French Government intended in present
circumstances to make use of liberty given by existing
French law to vary value of franc from time to time.
I had expected to receive 8 further
communication from French Government at the beginning
of last week and was waiting for this before sending
8 message to Mr. Morgenthau. But I now learn that
French Government postponed any decision until after
debate in chamber on Friday last and that I cannot
expect any further communication for a day or two.
His Majesty's Government agree with the
United States Government that a further depreciation of
the franc by not more than eight per cent would in
present circumstances not be open to objection but 88
explained above they consider that in order to restore
confidence free movement of gold at its full value
should be permitted and that the franc should then be
allowed to vary within limits fixed by French monetary
law. They would be very glad to learn if the United
States Government agree in this view.
Generally speaking His Majesty's Government
feel that situation depends on internal measures to
be taken by the French Government who have already been
informed/
Regraded Uclassified
informed that His Majesty's Government in the
United Kingdom have no statutory power even if they
were willing to take part in a modified pooling of
stabilisation fund resources as seemed at one time
to be suggested. But I would like Mr. Morgenthau
to know that in my personal opinion there now
remains little hope of avoiding a eakdown of
monetary agreement due to exhaustion, perhaps in the
course of this week, of recent London credit.
I
agree with Mr. Morgenthau in thinking that there is
nothing which the United States Government and His
Majesty's Government can do to help the situation
though of course I should be glad to consider any
suggestion of action which might be taken in concert
to prevent breakdown.
Regraded Uclassified
287
GROUP MEETING
March 4, 1937
9:30 A.M.
Present:
Mr. Magill
Mr. Gaston
Mr. Taylor
Miss Roche
Mr. Lochhead
Miss Chauncey
Mr. Oliphant
Gaston:
I have a telegram from Cy Upham yesterday saying his
mother was to be operated on today.
H.M.Jr:
Where's Herman Oliphant?
(Oliphant comes in)
Mr. Sabath sends a letter which arrived here at
4:30 and he wants an answer by eleven (hands letter
to Oliphant). I'd like for him to jump in the
Potomac.
Magill:
Also at 4:30 yesterday afternoon, we received this
material from Mr. Latimer. I gave one copy to Mr.
Bell for study in his office. We have two, I
presume the other one had better go to Mr. Haas and
Mr. Reagh. Most of the stuff is a - well, we could
call it either background or apology, I should say -
ten pages history and ten more pages of figures.
H.M.Jr:
Well, did the telegram every go?
Magill:
He WES to call me back. He didn't call me the day
before yesterday, so I called him up yesterday and
asked him about it. He said he'd call me back.
Never has called me back.
Ouston:
McIntyre said over the telephone that he thought
they might handle it by telephone - that the White
House might handle it by telephone to the railroad
people.
Magill:
Latimer said that he knew that Mr. McIntyre had
called Mr. Pelley and Mr. Harrison, but he didn't
know what he had said to them or anything about it.
H.M.Jr:
(On phone) Get Mr. Latimer, Railroad Retirement
Board, please.
Yesterday afternoon I happened to hear Steve Early
Regraded
288
- 2 -
say he'd played golf with Mr. Pelley. Maybe it
was all settled.
Taylor:
He does practically every afternoon.
H.M.Jr:
Does he? Well, it's pretty important as far as the
Treasury is concerned - 140 million dollars.
Magill:
The other thing that I have in mind is a long dis-
tance business. Who could we get that could make
a study of the various forms which are used in
Internal Revenue, particularly these income tax
forms, who would have some ideas?
H.M.Jr:
Now wait a minute, along what line? How to pay or
not to pay income tax?
Mngill:
Neither one.
H.M.Jr:
They give you a book up in New York, published by
Simon & Schuster, on that.
Mogill:
Don't buy it. Itwon't do you any good.
No, to get that material organized in some sort
of form so that the man making out the return can
understand what he is doing, and then also that the
instructions be put in some sort of form that they
can be understood. That form
H.M.Jr:
I'm a little low, Roswell, this morning; I mean
don't expect any...
What would you suggest?
Mogill:
Well, it looks to me like one of those things could
be passed to George Haas, but
H.W.Jr:
Well, why George?
Bees:
Thanks.
Oliphant:
I'd like to make a suggestion.
Nogill:
Well, it's partly - the reason, if I may answer - the
reason to pass it to George is that a lot of the
complexity of that return is chargeable to his pre-
decessor; I don't think it's chargeable to him. But
every time somebody on that staff had a bright idea,
twelve new questions went on the income tax return.
Regraded Uclassified
289
- 3 -
H.M.Jr:
Well, if it's partly legal and partly S tatistical,
I would suggest that we have a committee and that
they be detached to work on that exclusively, if
it is that important; and I would say that Mr.
Oliphant put a man on it, Mr. Haas put a man on it,
that you (Magill) get somebody, hire somebody if
necessary, especially, and ask Mr. Helvering to
put a representative on it.
Magill:
I would like to see somebody on it - just as a
chance shot - the kind of person who would work
for the International Business Machines Company,
somebody who knows about forms as forms.
H.M.Jr:
(On phone) Hello, how are you? (To Mr. Latimer;
record of conversation follows:)
Regraded I Iclassified
290
March 4, 1937.
9:37 a.m.
H.M.Jr:
How are you?
Latimer:
All right, thank you.
H.M.Jr:
Mr. Latimer, what, if anything, has been done about
letting your railroad people and the railroad unions
know about the government's position in regard to
this Social Security tax?
L:
Well I - night before last, after I left you, I carried
over to Mr. McIntyre a draft of a telegram which had
been agreed upon and he said he would handle it and I
better - I tried all day yesterday to find out precisely
what he did and just five minutes ago I tried to get him
this morning to find out and I'm not (coughs) - haven't
been able to find out yet whether he did anything or
not.
H.M.Jr:
Well, I think it's terribly important.
L:
I had - I understood that Mr. Gaston had called over
there but hadn't found out very much. Mr. - I talked
to Magill. He was under the impression that some
telegrams were going out but I still haven't been
able to find out whether they actually went out or
not.
H.M.Jr:
Well I mean why should they go from the White House?
D:
Well, it was decided that the - Mr. Gaston said that
they should have White House clearance and we should
take what they wanted to do. Mr. McIntyre thought
they shouldn't go from anywhere else 50 I left it in
his hands.
1.M.Jr:
Well.
L:
Now if that should be reconsidered why
H.M.Jr:
No I think they should go. I - I - I think it leaves
us in a very embarrassing position.
L:
Well they may have gone but I haven't been able to
find out yet....
H.M.Jr:
Ah-ha,
291
- 2 -
L:
.....as to whether they are. As I say, I'm supposed
to get hold of Mr. McIntyre in 15 minutes. That's
the last word that I had.
H.M.Jr:
Thank you.
L:
And I was going to call back immediately I found out.
H.M.Jr:
Thank you.
L:
All right, sir.
H.M.Jr:
Goodbye.
Regraded Uclassified
292
- 4 -
H.M.Jr:
(To Operator) Will you tell McIntyre's office that
I'd like to talk to him before he sees the President.
I consider it very important. And I'll take it on
this wire.
Operator:
All right.
Gaston:
Did he say it was left in my hands?
Oliphant:
No, he said over at the White House.
Gaston:
Yes.
H.M.Jr:
Let me just read you two things. United Press: "In
Paris government bonds opened two points higher today
on the basis of stock market reports that Secretary
of Treasury Henry Morgenthau, Junior, had assured
Georges Bonnet, new French ambassador to Washington,
that the United States was willing to nelp France
out of its present financial difficulties. Other
issues followed the bonds upward. The Washington
correspondent of the Petit Parisien cabled that
Morgenthau gave Bonnet unequivocal assurance of
support.'
Luckily, I had Mrs. Klotz here and Dr. Livesey,
and we wrote up the minutes of what happened, of
what I said to Bonnet. Then Livesey came back
yesterday morning and he and Mrs. Klotz wrote up
together the minutes. I mean I wanted to make
absolutely sure - I mean because his French was -
nis English was so broken that anything that he
didn't get - Livesey, who speaks French, could sup-
plement what they might or might not have said.
So I've got a written document.
Oliphant:
What did the other one say?
1.1.Jr:
Well, of course, what I said was just about as
different as that the moon is shining now.
The other one said: "There were rumors of impending
action to permit the franc to slip to the minimum
rate under the tri-power accord, 43 milligrams of
gold, compared with the present 47 milligrams. This
would put the dollar above 23 francs. The Cabinet
is scheduled to meet at 10 A.M. tomorrow, two hours
293
- 5 -
before the opening of the Bourse. Financial
Minister Vincent Auriol, who was 111 and unable
to attend the last meeting, will be present.
Many observers felt that important financial
decisions will be made at tomorrow's meeting."
They are getting the German habit of doing
week-ends, aren't they?
Incidentally, stick this in your vest pocket (to
Taylor) - nobody see it. And our friend is
coming back at 4:30 tonight. You'll understand
after you've read it. But don't leave it out of
your own pocket, will you please?
I've read this - had it dictated over the phone
to Cordell and when he gets down to his office
I'm just going to throw - I'm going to throw Mr.
Bonnet down just about as not as I can. But I
would suggest, Herbert, that you may go out and
suggest that the correspondent of the Petit
Parisien be here at 10:30.
Caston:
Uh-huh.
H.M.Jr:
Why don't you Just do that now, will you? That
he be here at 10:30. See?
Gaston:
Yes.
E.M.Jr:
Also Havas. I mean I can't - I even thought I
might have Bonnet here.
Taylor:
May be a better correspondent than that of the
Petit Parisien.
H.M.Jr:
What would you think of having Bonnet here?
Taylor:
No, you can't.
H.M.Jr:
Well, I'm just going to say that the Petit Parisien -
I'm going to say the correspondent of the Petit
Parisien is nuts.
Oliphant:
That's good French.
H.M.Jr:
What?
234
- 6 -
Oliphant:
That's good French.
H.M.Jr:
I guess the French of nuts would be "noits" - give
it the French pronunciation. I can bite nails or
Bonnet this morning - either one.
Roswell?
Magill:
That's all.
H.M.Jr:
Well, I'm trying to get this fellow.
Heas:
There is a committee in the American Economic
Association - joint committee of the American
Economic Association and the American Statistical
Association, on these forms that Ros is talking
about.
H.S.Jr:
What I'm getting at is that I suggest a committee -
you (Magill) want International Business Machines;
hire somebody particularly for this and form a
committee, have somebody from Oliphant, somebody
from your place, and somebody from Haas' office.
Detach them; I consider it that important; and
we'll let them work on that exclusively. How's
that?
Magill:
Good.
H.M.Jr:
You hire anybody that you want. How's that?
Oliphant:
I'd like to suggest that income tax forms suffer
from an excess of lawyers, an excess of economists,
an excess of statisticians. What it needs is some-
body who can write English, and I would suggest
Gaston on that committee.
H.M.Jr:
I thought you were going to say Dorothy Thompson.
Oliphant:
No.
Haas:
He means Oliver Wendell Holmes.
8.M.Jr:
I'll make you a good suggestion. Just put your
hands on Georgie's shoulders. I suggest George
O'May on that committee, and I'm serious.
Regraded Iclassified
295
- 7 -
Oliphant:
Well, he's an accountant, but it suffers from
too many accountants and technicians.
Lochhead:
That economist Pegler who's been writing income
tax
H.M.Jr:
And I refer you to Pegler's column this morning.
Magill:
Yes, that's a nice column this morning.
H.M.Jr:
Just read it. Seymour Weiss went out fishing with
Jim Farley, and Mr. Pegler just devotes his column
to it.
Taylor:
I think he ends on a splendid note, too.
H.M.Jr:
What was that? I forget.
Taylor:
de says the atmosphere has changed; they don't say
which way, but your nose knows.
H.M.Jr:
Well, does that take care of you (Magill)?
Magill:
That clears me.
H.M.Jr:
I say you can hire some fellow, whether it's
Dorothy Thompson or - what's-his-name, that Professor
up at English
Magill:
Mark Sullivan?
H.M.Jr:
....up at Yale.
Gaston:
William Lyons Phelps.
Magill:
Gene Tunney I think you're thinking of. He's a
Professor at Yale.
H.M.Jr:
William Lyons Phelps.
Gaston:
I can tell you - Franklin P. Adams is the best man
I know. He's out of a job now.
H.M.Jr:
Gaston hasn't got anybody unless he hires someone.
I want somebody hired on this to work on this
exclusively.
Regraded
Uclassified
286
- 8 -
Oliphant:
Well, I'm dead serious that the most important
thing about it is to get somebody to explain it
in English.
H.M.Jr:
Well, the committee is now composed of a representa-
tive from Mr. Magill's office, a representative of
Mr. Oliphant's office, a representative of Mr.
Gaston's office, and a representative of Mr. Haas'
office.
Do you (Lochhead) happen to know what the cross
rate is?
Lochhead:
I think we better keep the cross rate out of this.
H.M.Jr:
Hello (On phone - Has conversation with the
President, transcribed separately)
Oliphant:
My turn.
H.M.Jr:
Just one second. Now, are you (Magill) satisfied?
Magill:
(Nods yes)
H.M.Jr:
On this committee - see, I want a report of progress
from this committee twice a week, Wednesdays and
Saturdays. I'd like a report every Wednesday and
Saturday. I consider it of greatest importance and
I want them completely detached and to devote their
time exclusively to that.
And tell Mr. McReynolds particularly about this
thing, so that he watches this thing and puts a
finger in.
Now, you've started something end we'll go through
with it. All right?
Oliphant:
Well, the taxpayers will rise up and call you blessed.
Magill:
What you need now is somebody to work for the committee.
H.M.Jr:
And afterwards - I don't want to do it until after the
15th of March, but right after the 15th of March
we'll announce that such a committee has been formed
and they are devoting themselves exclusively to that.
But don't do it until after the 15th of March.
Regraded
297
- 9 -
Haas:
There is an existing committee, but inactive,
over in the Bureau.
H.M.Jr:
But by god this is going to be active, and I
want a report twice a week.
Magill:
I know there was a committee of this kind in
1933 when I camedown here. There's always been
a committee. And that was the year they made
the return worse.
H.M.Jr:
Are you going to get somebody to put on it?
Magill:
I'm certainly going to try?
H.M.Jr:
Going to?
Magill:
Yes, I will.
H.M.Jr:
It's your committee now.
Magill:
I see that.
A.M.Jr:
This is what I said to the Ambassador. It's
interesting to read what you said again. (Reporter
instructed not to take reading of conference with
Bonnet)
I
1
I
That's the whole thing.
Isn't that interesting? What? It's important to
have it, isn't it?
Oliphant:
(Nods yes)
A.M.Jr:
Now, that's that, and we have really done something
this morning. It is a historic occasion.
All right.
Oliphant:
What we had on the matter that Manning was working
on - we wanted to get certain material from the
Federal Trade Commission. We made an informal
approach. The General Counsel asked for a formal
request. I suggest that whenever you happen to be
talking to the President you might mention an oral
word from him would be - whenever it is convenient.
I don't think you want to sign it.
H.M.Jr:
Monday at lunch with the President (to Miss Chauncey).
Uclassified
238
- 10 -
Magill:
By the way, did you notice the Federal Trade Com-
mission's suggestion that the tobacco taxes be
revised?
A.V.Jr:
What kind of taxes?
Magill:
Tobacco texes. Everybody wants to play in our
back yard.
H.M.Jr:
(on phone) Hello? (10 Cordell Hull) Did you
read that little memo I dictated?
Hull:
Yes.
H.M.Jr:
About their saying that my conversation with Bonnet -
that I said I'd give them unequivocal assurance.
Now, I've got 8 press conference at 10:30 and what
I WBS thinking of doing, if you approved, was simply
to say that the French newspaper, see, Petit
Parisien, was completely misinformed - that I made
no such tatement or any statement approaching such
nature. See? But if you don't think - I mean I
I
- Please. - - No, I'm afraid it wouldn't.
After all, this is a trick, you see, and they're
trying to bolster their thing up, and then if this
thing smashes Saturday or Sunday they're going to
blame me; they're going to say, well, I should have
denied this thing, and the stocks went up and people
lost. - - Oh, I'm not - - Pardon me? - -
I think that's a very good suggestion. - - I think
that's a very good suggestion. Thank you.
- -
He says to call Bonnet. (To Operator) Get Mr. Henry,
the Counsel of the French Embassy, please.
He said to call - suggested I call Bonnet. At first
he thought that I should simply say there was nothing
new - that nothing new has developed the last couple
days. But I can't see that.
Yes, Dr. Oliphant.
Oliphant:
Otherwise I have nothing on my mind.
H.M.Jr:
If you will stay a minute afterward, I want to see
you, Herbert. You're expecting two gentlemen to
299
- 11 -
lunch today?
Gaston:
Yes, sir.
H.M.Jr:
Right.
Haas:
I have nothing.
H.M.Jr:
When are you going to have that thing ready?
Haas:
This morning. I'll give it to Herbert this morning.
H.M.Jr:
All right. I'd like Mr. Oliphant to see that all
the statements in it are - I mean as to laws and
all that - are correct.
Oliphant:
The Harvard thing?
H.M.Jr:
Yes.
Oliphant:
I've done that.
H.M.Jr:
And I'd like for Mr. Taylor to read it before it
goes out this morning, and also Mr. Lochhead.
Gaston:
You want to see it....
H.M.Jr:
And I'll see it this afternoon. But I'd like Mr.
Taylor and Mr. Lochhead to see it.
Oliphant:
I haven't seen it typed. I merely worked on that
whole document.
Haas:
Yes. Well, I'll give it to - I can give it to
Herbert and he can clear it all around - I mean
the final.
H.M.Jr:
Would you? See that it gets around this morning.
Why don't you give it to Gaston? It's up to him
to see that these various people get it.
Did you (Gaston) talk to Yale and Princeton?
Gaston:
Yes.
H.M.Jr:
Did the boys like it?
Gaston:
Yes, they're delighted to get it.
-
Uclassified.
30L
12 I I
Heas:
And, as I take it, you want a minimum amount of
change.
H.M.Jr:
Any changes I want underlined. I mean the thing
clicked. It's like all of these things - I mean the
thing clicked up there. It was subjected to the
acid test and went over all right - and some pretty
bright people present. Now, any changes - I'd like
them underlined. But the point is it is supposed
to be the paper which I read up there, so I'd like
a minimum of changes.
Heas:
O.K., we'll have one clean copy and one with the
changes marked.
H.M.Jp:
Anything else, Herbert? George?
Haas:
I have nothing else.
1.1.Jr:
Wayne?
Taylor:
Cuba didn't come in.
H.M.Jr:
Listen, I wanted to ask your advice. In yesterday's
Times there was a story - you look it up - in which
the President completely threw down Henry Wallace
on the sugar business. And what I'd like to write
is - I'd like to take the article and blue-pencil -
just "Wrong" - run a great big long pencil mark.
Then I'd like to say: "Dear Henry: When you enlighten
the President, would you mind simultaneously enlight-
ening me."
Taylor:
on, you shouldn't - trouble enough on that.
H.M.Jr:
You wouldn't?
Taylor:
No.
Ollphant:
That is, he didn't wait for our clearance, did he?
H.M.Jr:
Oh no. I want to tell - I don't want Miss Roche
under the impression I had anything to do with it.
They brought it up and the President turned and
said that - in the first place, before Cabinet
Wallace wanted me to believe that he had nothing
to do with the fact that the thing was going to go
30₫
- 13 -
up, that it was entirely the President. And at
Cabinet the President said, "Well, we've had a
year to study this thing." "Well," I said, "I
haven't had a year." "Well," he said, "it's going
to go up now. If you want to do anything, you've
got to think fast." I said, "All right, Mr.
President, just count the Treasury out entirely.
We're out of it, have nothing to do with it one
way or the other."
Then Ickes spoke up. He said, "I've never seen
it, and Puerto Rico is involved." The President
said, "Oh, don't worry about Puerto Rico. It's
all right."
I just went you to know. I don't want to sit in
on any conference; I don't want anybody in the
Treasury to sit in on any conference. I don't
want anything to do with it; I don't want to
have anything to do with it. The only thing -
if you (Miss Chauncey) will tell Mr. Bell I would
like a memoranium on it to show simply from the
revenue basis how much the Treasury gains or
loses, 1f the bill passes in its present form;
that's all. But I don't want anything to do with
it one way or the other.
But I can't understand. Now, you take for example
that housing thing. Now, the President wants this
housing thing and I had forty minutes - as tough
a forty minutes alone with him as I have ever nad,
just on the straight financing. I went Low cost
housing, and I had forty minutes alone with him -
very, very tough going. But at his press conference
ne doesn't throw me down; he simply says, "There's
a dozen ways of financing it. Maybe this isn't the
way. The Secretary of the Treasury is going to study
this thing." Well, that's fair; I can't complain
on that, can I, Herbert?
Gaston:
No.
H.M.Jr:
I mean as a matter of fact he's never thrown me down
ever since I've been here; that's why I can't under-
stand why he threw Wallace down.
Hello? (On phone. Conversation with Mr. Henry of
French Embassy, record follows:)
March 4, 1937
302
10:08 a.m.
H.M.Jr:
I have my regular Press Conference at 10:30
Jules
Henry:
Yes.
H.M.Jr:
....and I have to say something about it.
H:
Yes.
H.M.Jr:
Now this is what I had in mind.
H:
Yes.
H.M.Jr:
That I would simply say that the Petit Parisien
must be wrong
H:
Yes.
H.M.Jr:
..because when Mr. Bonnet called on me - ah - no
question of support was raised by either him or me.
H:
No.
H.M.Jr:
Now do you think that's all right?
H:
Yes, because what he said was that the United States
was waiting to answer France in the
within
the legal limits of what you could do - so you said.
H.M.Jr:
Yes.
H:
But you did not. Excuse me, won't you -
H.M.Jr:
Well, what's the ...
H:
Will you mind repeating again what - exactly what the
Petit Parisien correspondent said.
H.M.Jr:
Yes. This is the statement. It says, "Government
bonds ...
H:
Yes, I understand the first part, it was simply the...
H.M.Jr:
"Washington correspondent of the Petit Parisien cabled
that Morgenthau gave Bonnet unequivocal assurance of
support."
.
303
- 2 -
H:
Un - ah - yes, unlimited assurance.
H.M.Jr:
Unequivocal.
H:
Unequivocal, yes. Oh yes, as to what they
H.M.Jr:
Simply what I intend - what I was proposing to
say is...
H:
Yes.
H.M.Jr:
...
in twenty minutes was
....
H:
Yes.
H.M.Jr:
....that the Petit Parisien must have - did
misinform
....
H:
Yes.
H.M.Jr:
....or drawn on his imagination
....
H:
Yes.
H.M.Jr:
.because no such conversation ever took place
between Mr. Bonnet and myself.
H:
Yes.
H.M.Jr:
See?
H:
Yes.
H.M.Jr:
And I said - I'm going to say I'm sure that if they
will see Mr. Bonnet he will make the same statement.
H:
Yes, all right, sir.
H.M.Jr:
I mean I was going to blame - put the entire blame
on the Petit Parisien.
H:
Yes, well I will send your messenger as soon as he
comes in, sir.
H.M.Jr:
Now can you see any objection to that?
- 3 -
304
H:
Well, we got wind of the conversation -
H.M.Jr:
Yes.
H:
- which was that, as I recall, you - I think that I
recall that all you said - that you explained to the
Ambassador that you had thought you might have to -
the French situation - obviate a serious way. And
M. Bonnet said that the situation was not so desperate
and you pointed - and you thought then M. Bonnet said
that he was willing to cooperate with you and you
offered him that youwere willing to cooperate within
the limits of the tripartite agreement, so you said.
H.M.Jr:
And within the laws of the United States.
H:
Yes, within the laws of the United States, yes.
H.M.Jr:
Well, I don't want to go into those details.
H:
No, of course not - of course not. The Petit
Parisien is much too strong.
H.M.Jr:
It - is - pardon me?
H:
I mean the correspondent of the Petit Parisien - I
agree with you - had no business to wire such 8 thing
at all.
H.M.Jr:
Had no business.
B:
What I mean - it seems to me, of course
I don't know where he got that.
H.M.Jr:
Well, I'm going to put it entirely on the Petit
Parisien.
H:
Yes. They asked me - as long as you are asking me -
perhaps if you would put it a little more mildly.
Perhaps, if you wish to -
H.M.Jr:
A little more mildly?
H:
Yes, perhaps.
H.M.Jr:
Yes.
H:
Because you see it is rather difficult for me.
The Ambassador is not in now. He is making some
official calls on -
H.M.Jr:
I see.
305
- 4 -
H:
And he will not be in for half an hour or so.
H.M.Jr:
Well
H:
But I will report to him and of course I am sure
you are free to give any statement you want.
H.M.Jr:
Well, I'll put it as mildly as I can and still
H:
And still make it clear, yes.
H.M.Jr:
Yes, all right. And tell the Ambassador
H:
I will - I will - no doubt about it.
H.M.Jr:
I'm sorry it happened, but I -
H:
Why of course, so am I.
H.M.Jr:
I just can't let it pass.
H:
Yes. Thank you so much.
H.M.Jr:
Goodbye.
Uclassified
- 14 -
306
Gaston:
Say something like this: that the correspondent of
the Petit Parisien is under a complete misappre-
hension; he's apparently drawn some completely
wrong inferences from the information given him.
That is, 1f you were to say directly that he WES
misinformed, then somebody must have misinformed
him.
H.M.Jr:
I got it: that the correspondent of the Petit
Parisien must have drawn heavily on his imagina-
tion.
Oliphant:
Why not say just as Gaston says? Say he is under
a complete misapprehension.
H.M.Jr:
Write it up in a - on a piece of paper.
Taylor:
That the conversation that the Ambassador had with
you was along very general lines.
H.M.Jr:
Hello (On White House phone, to Mr. McIntyre).
You know, when the President of the United States
gets on and I expect McIntyre, it just takes my
breath away. I had no - I called about ten minutes -
I called about twenty minutes of ten and said, "Please
tell Colonel McIntyre before he sees the President
I'd like to talk to him."
McIntyre:
Oh, I see.
H.M.Jp:
And then, when the President of the United States
got on, I had to think awful fast. Now, this fellow
Latimer, since the night before last, is - I don't
know whether he's stalling us or what, but I think
the President - I think he put the President in a
very embarrassing position, and I think that some-
thing should go out to the railroads so that they
don't all stack up on us, see?
McIntyre:
I'll tell you what I did. I called George Harrison
and I told him that ... (remainder undistinguishable)
H.M.Jr:
Yes, well did you do that?
McIntyre:
Yes, yes.
H.M.Jr:
Good, good. Did you tell that to Pelley too?
307
- 15 -
I think you better call Pelley.
McIntyre:
Well, he - I don't think he has
H.M.Jr:
And some time I want to talk to you about Latimer.
But would you mind calling Pelley yourself?
McIntyre:
No, I'd be glad to.
H.M.Jr:
I'll appreciate it. And would you call me back later
and let me know?
McIntyre:
Yes.
H.M.Jr:
And later in the day if you don't call me, if you
don't mind, I'll call you back. But I think it
may put the President in a very difficult position.
I'd feel much happier if you'd call Pelley.
McIntyre:
I'll be glad to.
H.M.Jr:
Thank you.
McIntyre:
Right.
H.M.Jr:
That is, I want to protect the President.
McIntyre:
All right.
H.M.Jr:
Thank you.
(Conversation finished)
H.M.Jr:
Well now, I'm sorry, but we've got fairly important
things this morning. Well now, this is all in the
office. What McIntyre said - he's upset because he
said he happened to have been handling this thing
for the President and
This is all deep stuff,
White House stuff, but he says he's kind of sore
that Pelley - Steve Early handled part of it with
Pelley, and he says Steve didn't know anything about
it.
Chauncey:
Pardon me - Mr. Latimer.
H.M.Jr:
So what I would do, Herbert - think about it.
Hello? (On phone to Latimer; record of conversation
follows)
Regraded Uclassified
308
March 4, 1937
10:21 a.m.
Latimer:
Talked to George Harrison. He's expected to talk
to Mr. Felley and no wires have been sent out.
M.M.Jr:
An ha. Well, I got Mr. McIntyre myself and I also
spoke to the President and it seems that Mr. McIntyre's
been handling this for the President and he thought
if they did it by word of mouth that they could pro-
tect the President's interest in that way
L:
Yes.
H.M.Jr:
....and Mr. McIntyre assured me he - he first thought
that you'd talked to Mr. Pelley.
L:
No sir, I have not.
H.M.Jr:
Well he's going to talk to them. And I think if
Mr. McIntyre talks both to Mr. Pelley and Mr.
Harrison - why then I think the President's interest
will be protected.
L:
You're - you're satisfied then all right.
H.M.Jr:
I'm satisfied
L:
Yes.
E.N.Jr:
because the only thing I want is the President's
interests protected and I think they will be under
these circumstances.
L:
Yes. I've - I've sent over B memorandum to Mr. Bell
and to Mr. Magill on this whole situation.
H.M.Jr:
All right, thank you very much.
L:
Yes sir.
A.M.Jr:
Thank you.
- 16 -
300
Oliphant:
I'd like to say that the pressure will come from
the rank and file of labor, and this news apparently
will not come to them.
H.M.Jr:
Well, isn't Harrison representing labor?
Magill:
He's supposed to be, yes.
H.M.Jr:
Well, he's been already talked to.
Oliphant:
He has been?
H.M.Jr:
He doesn't play golf with
Oliphant:
He'll make it public.
He'll tell it to the rank
and file.
E.M.Jr:
I don't know, but Mr. McIntyre has spoken to Mr.
George Harrison, who represents the railway and
labor unions, doesn't he?
Roche:
(Nods yes)
H.M.Jr:
And the point is that this thing - this thing is
rather peculiar.
Gaston:
Uh-huh.
H.M.Jr:
And as I say - well, you people all know what I'm
talking about; I don't have to elaborate.
But the big thing this morning is Mr. Magill's
committee on income tax forms, so that you could -
that a person who has gone to high school can make
out his own income tax.
Magill:
Even the eighth grade.
B.M.Jr:
All right.
March 4, 1937.
9:37 a.m.
310
R.M.Jr:
How are you?
Intimer:
All right, thank you.
H.N.Jr:
Mr. Latimer, what, if anything, has been done bout
letting your railroad people and the railroad unions
know about the government's position in regard to
this Social Security tax?
L:
Well I - night before last, after I left you I carried
over to Mr. McIntyre a draft of a telegram which had
been agreed upon and he said he would handle it and I
better - I tried all day yesterday to find out precisely
what he did and just five minutes ago I tried to get him
this morning to find out and I'm not (coughs) haven't
been able to find out yet whether he did anything or
not.
F.V.Jr:
Well I think its terribly important.
D:
I had - I understood that Mr. Gaston had called over
there but hadn't found out very much. Mr. - I talked
to Magill. He was under the impression that some
telegrams were going out but I still haven't been able
to find out whether they actually went out or not.
E.M.Jr:
Well I mean why should they go from the White House?
L:
Well it was decided that the - Mr. Gaston said that
they should have White House clearance and we should
take what they wanted to do. Mr. McIntyre thought
they shouldn't go from anywhere else so I left it in
his hands.
P.M.Jr:
Well.
L:
Now if that should be reconsidered why
R.W.Jr:
No I think they should go. I - I - I think it leaves
us in a very embarrassing position.
L;
Well they may have gone but I haven't been able to
find out yet
H.M.Jr:
Ah-ha.
311
- 2 -
L:
as to whether they are. As I say I'm supposed
to get hold of Mr. McIntyre in 15 minutes. That's the
last word that I had.
H.M.Jr:
Thank you.
L:
And I was going to call back immediately I Bund out.
H.M.Jr:
Thank you.
L:
All right, sir.
H.M.Jr:
Goodbye.
Regraded Uclassified
312
March 4, 1937
The Secretary spoke to the President over the
telephone this morning at about 9:40 and read him the
following United Press ticker bulletin:
"Paris -- Government bonds (rentes)
opened two points higher today on the
basis of stock market reports that
Secretary Morgenthau had assured Georges
Bonnet, new French Ambassador to Wash-
ington, that the United States was will-
ing to help France out of its present
financial difficulties.
Other issues followed the bonds upward.
The Washington correspondent of the
Petit Parisien cabled that Morgenthau
gave Bonnet "unequivocal assurance" of
support.
The Secretary then called Secretary Hull and
told him that at his press conference at 10:30 he
would have the representative of the Petit Parisien
come in and say he had made no such statement or any
statement even approaching the press reports. "After
all," he said, "this is a trick, you see, and they
are trying to bolster their thing up. Then if this
thing smashes Sunday or Monday, they will blame me.
They will say I should have denied this thing."
The Secretary said that Mr. Hull made the ex-
cellent suggestion that he, Hil, Jr., call Bonnet and
say that nothing new has developed in the last couple
of days.
The Secretary then tried to reach Ambassador
Bonnet, but he was not available. He spoke to
Mr. Jules Henry, Counselor of the Embassy, and the
following is a record of their conversation:
Regraded Uclassified
313
March 4, 1937
10:08 a.m.
H.M.Jr:
I have my regular Press Conference at 10:30....
Jules
Henry:
Yes.
H.M.Jr:
....and I have to say something about it.
H:
Yes.
H.M.Jr:
Now this is what I had in mind.
H:
Yes.
H.M.Jr:
That I would simply say that the Petit Parisien
must be wrong
H:
Yes.
H.M.Jr:
...because when Mr. Bonnet called on me - ah - no
question of support was raised by either him or me.
E:
No.
H.M.Jr:
Now do you think that's all right?
H:
Yes because what he said was that the United States
was waiting to answer France in the
within
the legal limits of what you could do - so you said.
H.M.Jr:
Yes.
H:
But you did not. Excuse me, won't you -
H.M.Jr:
Well, what's the ...
H:
Will you mind repeating again what - exactly what the
Petit Parisiene correspondent said.
H.M.Jr:
Yes. This is the statement. It says, 'Government
bonds ...
H:
Yes, I understand the first part, it was simply the
H.M.Jr:
'Washington correspondent of the Petit Parisiene cabled
that Morgenthau gave Bonnet unequivocal assurance of sup-
port.'
- 2 -
314
H:
Un - ah - yes unlimited assurance.
H.M.Jr:
Unequivocal.
H:
Unequivocal, yes. Oh, yes, as to what they
H.M.Jr:
Simply what I intend - what I was proposing to
say is .....
H:
Yes.
H.M.Jr:
...
in twenty minutes was
....
H:
Yes.
H.M.Jr:
....that the Petit Parisiene must have - did
misinform
....
H:
Yes.
H.M.Jr:
....or drawn on his imagination
....
H:
Yes.
H.M.Jr:
because no such conversation ever took place
between Mr. Bonnet and myself.
H:
Yes.
H.M.Jr:
See?
H:
Yes.
H.M.Jr:
And I said - I'm going to say I'm sure that if they
will see Mr. Bonnet he will make the same statement.
H:
Yes, all right, sir.
H.M.Jr:
I mean I was going to blame - put the entire blame
on the Petit Parisiene.
H:
Yes, well I will send your messenger as soon as he
comes in, sir.
H.M.Jr:
Now can you see any objection to that?
Regraded
- 3 -
315
H:
Well, we got wind of the conversation -
H.M.Jr:
Yes.
H:
- which was that, as I recall, you - I think that I
recall that all you said - that you explained to the
Ambassador that you had thought you might have to -
the French situation - obviate a serious way. And
M. Bonnet said that the situation was not so desperate
and you pointed - and you thought then M. Bonnet said
that he was willing to cooperate with you and you
offered him that you were willing to cooperate within
the limits of the tripartite agreement, so you said.
H.M.Jr:
And within the laws of the United States.
H:
Yes, within the laws of the United States, yes.
H.M.Jr:
Well, I don't want to go into those details.
H:
No, of course not - of course not. The Petit Parisiene is
much too strong.
H.M.Jr:
It - is - pardon me?
H:
I mean the correspondent of the Petit Parisiene - I
agree with you - had no business to wire such a thing at all
H.M.Jr:
Had no business.
H:
What I mean - it seems to me, of course
I don't know where he got that.
H.M.Jr:
Well, I'm going to put it entirely on the Petit Parisiene.
H:
Yes. They asked me - as long as you are asking me -
perhaps if you would put it a little more mildly. Perhaps,
if you wish to -
H.M.Jr:
A little more mildly?
E:
Yes, perhaps.
H.M.Jr:
Yes.
H:
The Ambassador is not in now. He is making some offi-
Because you see it is rather difficult for me.
cial calls on -
H.M.Jr:
I see.
- 4 -
316
H:
And he will not be in for half an hour or so.
H.M.Jr:
Well
H:
But I will report to him and of course I am sure
you are free to give any statement you want.
H.M.Jr:
Well, I'll put it as midly as I can and still
....
E.
And still make it clear, yes.
H.M.Jr:
Yes, all right. And tell the Ambassador
....
H:
I will - I will - no doubt about it.
H.M.Jr:
I'm sorry it happened, but I -
H:
Why of course so am I.
H.M.Jr:
I just can't let it pass.
H:
Yes. Thank you so much.
H.M.Jr:
Goodbye.
317
REPORT ON SECRETARY MORGENTHAU'S PRESS
CONFERENCE, MARCH 4, 1937:
H.M.JR.:
First as to our own business. Hello, Felix; haven't
seen you in a long time -- sell you a little cotton?
(Felix Belair)
Q.
Got some?
A.
No. On Monday we'll offer the April holders of the
note the right to exchange into & bond. Period.
Paragraph.
Q.
No maturity?
A.
You'll have to wait until about 12:30 Saturday to get
the rest for Monday morning release. Now I'd like to
do something a little bit different than I've done it
before, and that is this: Both ticker services that
we get here have carried a supposed interview emanating
from the correspondent in Washington of the Petit
Parisien -- I understand he's here. I asked him to be
here and if he cared to, possibly he'd like to say what
he did say in his dispatch and that would make it easier
for me.
MR. DENOYER: Here I am.
MR. GASTON:
That's Mr. Denoyer, Mr. Secretary.
H.M.JR.:
Would you like me to read what the United Press carried?
- 2 -
318
Newspapermen: Yes.
H.M.JR.:
I'd like to make it as easy for you as I can, and at
the same time make it as easy for the American press
as possible and let them know what the facts are.
MR. DENOYER: Naturally.
H.M.JR.:
This is what came from the United Press: "Paris --
Government bonds (rentes) opened two points higher
today on the basis of stock market reports that
Secretary Morgenthau had assured Georges Bonnet, new
French ambassador to Washington, that the United States
was willing to help France out of its present financial
difficulties. Other issues followed the bonds upward.
The Washington correspondent of the Petit Parisien
cabled that Morgenthau gave Bonnet 'unequivocal assur-
ance' of support." This is sort of unusual, but I
want to be courteous and still it's very important,
and I understand from what you said to Mr. Gaston that
you didn't write any such thing.
MR. DENOYER: Not in this form.
H.M.JR.:
So, if you don't mind, this is your press conference
for the moment -- you can say anything you want to.
MR. DENOYER:
May I say that it 1sn't for quotation but for back-
ground, because I don't have the experience that you
have, Mr. Secretary.
319
- 3 -
R. LINZ:
No, oh no.
(sespapermen
If you don't want to listen, you can leave. I guess if
chorus:
the rest of us want it, we can have it; if you don't
want it, all right. Wait a minute that's your baby.
10. LINZ:
If the rest of them want it, I don't mind.
2.
That's right if the man wants to explain -
S.M.JR.:
I guess you want to live up to the rules. I want to
say, in the first place, this gentleman is a foreigner,
and we want to be extremely courteous to him. The
easiest thing for me to do is to make a flat denial.
I don't want to do that, BO I've asked him here to give
him the opportunity, and if he says he wants to do it
for background, I think we ought to go along with him.
After all, he belongs to your guild.
MR.
DENOYER: Mr. Secretary, I appreciate very much your courtesy.
H.M.JR.:
You say it any way you want to - because this is
terribly important, and if you want to do it for back-
ground, I'm aire the other correspondents will be will-
ing.
R.
DENOYER: I feel that if it's not for direct quotation, I can
give you much more and for background I can give my
colleagues much more information on how that cable of
mine was written.
32C
- 4 -
H.M.JR.:
And, after all, I can say for you you have your
home office to consider and you don't want to throw
down your editor, but it's terribly important 80 if
you want to explain it for background ---
MR. DENOYER: I have just been back from France and I am taking up
threads as I have left them about three months ago,
and I have, since I've been here, not had any occasion
yet to write anything at all about the financial situa-
tion. And it seemed to me of interest to take up, in
view of the interest that the French public has in its
own situation, to have an occasion to tell about the
reaction here to the French situation. I'm going to
read you (I don't think that I can do any better) a
rough translation of the cable I sent yesterday. I
sent this cable yesterday, early in the afternoon,
before having seen even the French Ambassador, Mr.
Bonnet, before having seen anybody at the embassy, and,
therefore, what's contained there is not at all from
any embassy source -- I'm volunteering that because I
realize what embarrassment that may put you, Mr. Secre-
tary. If you believe that the French Ambassador has
reported a conversation that he has had with you, he
has not -- that is positive, and checking on the cable
hours may very clearly show that. This cable was sent
321
- 5 -
before I saw the French Ambassador, Mr. Bonnet. I
saw him only when I went to the press conference at
the embassy last night and this Was sent out before.
H.M.JR.:
As a matter of record, Mr. Bonnet was here Monday
afternoon.
MR. DENOYER:
I didn't even know the date and you will see that I
know so little about the exact time that you have
seen him.
H.M.JR.:
He was here Monday.
Q.
That's all right -- on the record?
H.M.JR.:
Yes.
MR. DENOYER:
It was a courtesy visit such as every ambassador coming
in the new country makes. Was it not?
H.M.JR.:
You finish, if you don't mind.
MR. DENOYER: What I said is this: (Translation of cable to Petit
Parisien in French) "The American authorities again
follow carefully the financial and monetary situation
of France. The policy of the three great democracies
(may I interrupt here to say that if this vague formula
is vague here, it will present something a little more
definite in France). The common policy of these three
great democracies - the policy of the three great
democracies inaugurated by the tripartite agreement
of September last (the translation is a vain word -
322
- 6 -
it would be a little stronger to say it is a substantial
reality). They have and they are disposed to do all they
can (they, the authorities) they are disposed to do all
they -- the authorities can to help France in her
present difficulties. Mr. Morgenthau, the minister of
finance of the United States, has given such an unequivo-
cal assurance to Mr. Georges Bonnet, our new ambassador,
in the courtesy visit that Mr. Bonnet made to him at the
beginning of the week. But but what can the American
Government do (note of interrogation)? Its good will
is limited by laws which reduce considerably its possi-
bilities of action. (By this I had in mind that certain
people in France have been looking towards the United
States for credits, as you are well aware, and this is,
I believe, something that is not possible in view of the
Johnson law. Now, for our public, I thought it was a
good thing to remind them that whatever the good will
of the American authorities in such a circumstance, the
good will that has been demonstrated at the time of the
tripartite agreement, whatever it is, it is considerably
limited by the laws of the United States.) The news
cabled from Paris to the Wall Street Journal according
to which Mr. Charles Rist would be called by the French
323
- 7 -
Cabinet to give his advice to the French Government has
produced a good impression. Mr. Rist is known here as
one of the first economists in the world and has the
sympathy and the confidence of all American circles."
This is the text of my cable.
H.M.JR.:
Have you got an extra copy?
MR. DENOYER:
No, I have none, but I could have one made or you could
have one made here.
H.M.JR.:
Well, I think you realize that this is of terrific
importance -- I'm talking absolutely off the record.
I'll give you something on the record, don't worry,
Clarence (Linz). And I don't want to say anything
that is going to unnecessarily upset things, but, on
the other hand, I can't let a statement like that
stand, you see. This is one of the most (not for
ourselves but for your country) one of the most diffi-
cult things, so excuse me for one minute -- I don't
want to do anything unnecessarily.
(Newamen wait while the Secretary confers with Mr. Gaston)
H.M.JR.:
Now, this is on the record. What I'd like to say is
this: That the interpretation as carried by the United
Press of the dispatch of the Washington correspondent
of the Petit Parisien of the conversations that took
324
- 8 -
place between Mr. Bonnet and myself is entirely
erroneous.
MR. KLEIN: You mean the United Press interpretation of that
dispatch is erroneous?
H.M.JR.:
No, no, as carried by the United Press. Read it
back, Miss Chauncey. (Miss Chauncey reads "That
the interpretation
erroneous," as above.)
MR. KLEIN: I still feel the phraseology might lead to the im-
pression that the United Press interpretation is
erroneous.
MR. GASTON: The interpretation in France, as reported by the
United Press.
H.M.JR.:
Read it again, Miss Chauncey. (Miss Chauncey reads
statement again) Let's say "The interpretation
reported by the United Press." We want to say re-
ported by the United Press of the dispatch of the
Washington correspondent. Read it once more through,
please. (Miss Chauncey reads.) "The interpretation
as reported by the United Press of the dispatch of
the Washington correspondent of the Petit Parisien
of the conversations that took place between Ambassador
Bonnet and myself is entirely erroneous."
H.M.JR.:
Do you have any objection?
MR. DENOYER: No, Mr. Secretary.
325
- 9 -
H.M.JR.:
That doesn't make it embarrassing to you?
MR. DENOYER: I don't think so.
H.M.JR.:
Do you think it will make it embarrassing to the
ambassador?
MR.
DENOYER: I'll explain it to him as I did to you, but I
don't think it does.
H.M.JR.:
Miss Chauncey, read it. (Miss Chauncey reads
statement.)
MR. DENOYER: It's satisfactory to me, although I could not
speak for the ambassador -- I don't see how he
could object to that.
H.M.JR.:
As 8. matter of fact, here's a stenographic report
of my conversation, of what took place between
Bonnet and myself. For you people's information,
Mrs. Klotz was here and Dr. Livesey and the two
of them dictated this thing - this is a verbatim
report: it's written by Dr. Livesey and Mrs. Klotz --
there can't be any question of what was said--they
were both present at the conference.
MR.
DENOYER: I don't see how there could be any objection on the
part of Mr. Bonnet; I don't know what you said or
Mr. Bonnet said.
H.M.JR.:
But I know what I said and Dr. Livesey and Mrs. Klots
were in the room and went out and wrote this for me
326
- 10 -
and this is a verbatim report. It was a perfectly
friendly, amicable conversation.
Q.
Don't both dispatches say, in effect, that you ex-
pressed to the ambassador your interest in the
French problems and we're all interested?
A.
We're all interested, and, as I said, President
Roosevelt and myself have demonstrated over the
past two years our friendship and interest in the
French Republic and will continue to do BO.
Q.
Well, are the dispatches at variance with that?
A.
Oh, yes -- "unequivocal assurance" of support.
Q.
Mr. Secretary, isn't that what you gave them in
the stabilization agreement -- unequivocal --
isn't that what we were told?
A.
Gentlemen, take my word for this.
MR.
KINTNER:
I'm not questioning your word, but I can't under-
stand why this should be important.
A.
Well, time will tell. You have never seen me more
serious, have you?
MR. KINTNER:
No, that's what I can't understand.
A.
Well, you'll just have to take it on faith.
à
Mr. Secretary, if we can leave that for the time
being, there's another United Press story that the
franc is going to drop.
327
- 11 -
A.
I have no comment, but, as far as you are concerned,
your professional standing and everything - are you
entirely satisfied?
MR. DENOYER: Certainly, Mr. Secretary.
A.
Have I treated you courteously?
MR. DENOYER: Yes, and I want to express publicly my appreciation.
I have not doubted it before, but this is another
evidence.
Q.
Mr. Secretary, there's also a report from Paris that
the French Government is ready to stabilize the
franc at 112 to the pound.
A.
Well, I have no comment.
Q.
Mr. Secretary, from London we have a story that a
lot of syndicates are investing for Americans in
securities abroad and in that way American investors
are managing to evade capital gains and other taxes;
any thought being given as to how that might be
corrected?
A.
At this particular time I have nothing. That's in-
cluded in the study that the three organizations
are conducting. We're perfectly aware of that -
how shall I put it?
Q.
Tax avoidance.
- 12 -
328
A.
No, it hasn't been substantiated -- that rumor that
that is taking place -- but to date it hasn't been
substantiated. That's a matter which particularly
comes under SEC and, up to date, has not been sub-
stantiated -- dealing in stocks outside the United
States, running of pools and that sort of thing.
&
This is a capital gains and loss tax.
A.
No, this is an operation of New York stocks outside
the jurisdiction of the SEC -- it's particularly
their problem -- they're studying it.
Q.
Mr. Secretary, may I say I got a call-back on that
and this is where they were doing it to escape
income taxes -- it wasn't a pool operation.
A.
All I can say is we have heard about it and that's
one of the things we're studying. We still have
nothing we have no facts.
Q.
How near are you ready with the whole report?
A.
No nearer.
&
How do you feel about the railroad retirement tax?
A.
Oh, I'm not ready to talk on that. Mr. Latimer
only sent us his report this morning and we haven't
had a chance to read it yet -- it just came in this
morning. But Herbert Gaston talked to you boys
about it, didn't he?
Q.
Yes.
329
- 13 -
A.
There's nothing to add. Latimer's report just
came this morning.
Q.
Mr. Secretary, do you intend to let us see the
transcript of your conversations with Mr. Bonnet?
A.
Do you want to bet on it?
Q.
I was just asking the question.
A.
I just wanted to know if you wanted to make a
little side bet before I give you an answer?
Q.
I'll make a bet if you will produce the evidence.
I mean, it leaves us a little bit in doubt.
A.
No, I just mentioned the fact that I had this
thing to show you gentlemen that when I went
into such great detail that I wasn't just relying
on my memory as to what I did or didn't say. I
was very meticulous in seeing that the conversa-
tion was written down.
Q.
Everybody reading this story will say what did
they say? "What did the doodle-buy say?"
MR. GASTON:
I think that general statement you made covers
the situation.
H.M.JR.:
My general statement is that Mr. Bonnet came to
exchange respects: that we had a very pleasant
exchange of views, and I assured him that the
330
- 14 -
interest of the United States Government in the
welfare of France had been demonstrated during
the past two years and that we would continue to
do everything that we could and still live within
and up to the spirit of our existing laws.
MR. DENOYER:
Which is just what I said.
A.
Which is quite different than what they inter-
preted what you said -- it's quite different.
Q.
Thank you, Mr. Secretary.
ooOoo
Regraded Uclassified
331
Petit Parisien
American authorities are again carefully watching the French
financial and monetary situation. As the policy of the three great
democracies inaugurated by the tripartite agreement of last
September was not merely a matter of empty words for them, they are
inclined to do all they can to help France in its present difficulties.
Morgenthau, American Secretary of the Treasury, gave an unequivocal
assurance on this point to Georges Bonnet, our new ambassador, in the
courtesy visit which the latter paid at the beginning of the week.
But what can the American Government do? Its good will is limited
by laws which considerably reduce its possibilities of action. The
news cabled from Paris to the Wall Street Journal according to which
Charles Rist will be called on by the cabinet to give his advice to
the French Government has produced an excellent impression. Rist
is known here as one of the leading economists in the world. He is
surrounded by unanimous sympathy and confidence in American circles.
denoyer
Translated by Addler, Division of Research and Statistics.
Jclassified
WESTERN UNION
PRESS MESSAGE
NEWCOMB CARLTON
14. WILLEVER
CHAIRMAN OF THE SOARD
negt
march 3
( Charge French Cable Co)
Press
Petitsien Paris (Via French Cable)
autorites americaines I suivent de nouveau soigeeusement
situation financiere et monetaire de France stop la politique
des trois grandee democratica inauguree par accord trigartite de
septembre dernier netant pas un vain need mot pour elles to
elles sont disposses a faire tout leur possible pour aider france
dans 808 difficultee actualles stop morgenthau ministre des
finances americain en - n. donne une assurance non equivoque
a georges bonnet notre nouvel ambassadeur dans la visite de
courtoisie que celuicl lui a faite au dabut de semaine stop
mais que peut faire gouvernement americain interrogation 8a
bonne volonte est limitee par declois qui
redulsent coneiderablement ses possibilites daction alinea
la nouvelle cablee de paris au wall street journal evivant laquelle
charle rist serait a pele par cabinet a donner
see consells 3111 gouvernement francais & produit ici une excellente
impression stop rist est connu ici comme un den premiors
Doonomister du monde stop 11 eat entoure dune condience ot dune
sympathie et dune conflance unanimes dans milicax americaine
denoyer
Regraded
333
March 4, 1937.
10:21 a.m.
Latimer:
Talked to George Harrison. He's expected to talk
to Mr. Pelley and no wires have been sent out.
H.V.Jr :
Ah ha. Well I got Mr. McIntyre myself and I also
spoke to the President and it seems that Mr. McIntyre's
been handling this for the President and he thought if
they did it by word of mouth that they could protect
the President's interest in that way
L:
Yes.
H.N.Jr:
and Mr. McIntyre assured me he - he first thought
that you'd talked to Mr. Pelly.
L:
No sir, I have not.
H.U.Jr:
Well he's going to talk to them. And I think if
Mr. McIntyre talks both to Mr. Pelley and
Mr. Harrison why then I think the President's interest
will be protected.
L:
You're - you're satisfied then all right.
R.M.Jr:
I'm satisfied
7.:
Yes.
H.M.Jr:
because the only think I want is the President's
interests protected and I think they will be under
these circumstances.
L:
Yes. I've - I've sent over a memorandum to Mr. Bell
and to Mr. Magill on this whole situation.
H.M.Jr:
All right, thank you very much.
L:
Yes sir.
H.M.Jr:
Thank you.
334
March 4, 1937
At 11:55, Dr. Feis telephoned the following
message:
"Mr. Henry, of the French Embassy, whom I know
very well, Just telephoned me this message from the
Ambassador, asking me to pass it on to Mr. Morgenthau:
'That the Ambassador is wholly amazed at the
telegram in the Petit Parisien; that he had not seen
the correspondent of the Petit Perisien, who is Mr.
Denoyer, except at the press conference yesterday after-
noon which was subsequent to the despatch of the message,
and at the press conference there was no reference made
whatsoever of his talk with Mr. Morgenthau. Mr. McDermott,
in charge of Press Relations for the State Department, was
present at the press conference and confirmed that fact.
The Ambassador is very much disturbed by what
has taken place. He telephoned to Denoyer to tell him
60 and Denoyer more or less admitted that it was a story
that he more or less made up because he knew that the
Ambassador had talked with Mr. Morgenthau.
'That Mr. Bonnet wants to assure Mr. Morgenthau
that he realizes that all conversations with the Secre-
tary of the Treasury are completely confidential and he
discusses them with nooody. He, therefore, hopes that
this episode will in no way interfere with their relations.
Regraded Uclassified
335
March 4, 1937.
12:14 p.m.
H.M.Jr:
Hello
Operator:
Mr. Henry. Go ahead.
H.M.Jr:
Hello Mr. Henry.
H:
Oh good morning, sir, Secretary.
H.M.Jr:
I'm calling you rather than the Ambassador because
I thought you might understand me better, you see?
H:
Yes.
H.M.Jr:
I thought if you have not already done so I suggest
that you send for the correspondent of the Petit
Parisien
H:
He's coming to-day, yes.
H.M.Jr:
.....and let him tell you just what happened in
my Press Conference, you see?
H:
I see.
H.M.Jr;
Because I had him here, you see?
H:
Well did you receive the message I gave the
chauffeur?
H.M.Jr:
I just have it here.
never
H:
Because the Ambassador/ saw Mr. Denoyer
till
yesterday and he did not mention the
your conversation at all.
H.M.Jr:
Well Mr. Denoyer said that here.
H:
What?
H.M.Jr:
He said so here publicly.
H:
Who said SO?
H.M.Jr:
The representative of the Petit Parisien said he
had never discussed with the Ambassador....
- 2 -
336
H:
Oh, did he say that?
H.M.Jr:
Oh, yes.
H:
Well then why did he invent that telegraph?
H.M.Jr:
He did - he read us the telegram.
H:
Yes, of course, he did - he did but we could - the
Ambassador is going to tell him that he has no busi-
ness to wire to Paris on such important matters which
is very
H.M.Jr:
Well his telegram didn't say. He read us the telegram
here and gave me a copy of it.
E:
I see.
H.M.Jr:
And in his telegram he did not say what the paper
printed. His telegram was all right.
H:
Oh, I see. Then it was in Paris that it was - ah
....
H.M.Jr:
It was in Paris and this gentleman is - was all right -
that's what I'm calling up for.
H:
Oh, I see.
H.M.Jr:
And he very - he gave us a copy of the original
telegram and he said nothing in the telegram mich I
could take any objection to.
H:
In other words, the putting on was - met with your
approval after your conversation with the Ambassador.
H.M.Jr:
Entirely.
E:
But it was transformed in Paris.
H.M.Jr:
It was different in Paris.
H:
Oh, I will send that to the Ambassador right away.
H.M.Jr:
And tell him that this man -
- 3 -
337
H:
At the same time Mr. Secretary as long as you're
on the telephone I can give you full assurance on
the part of the Ambassador that he'll never discuss with
anybody the terms of his conversation with you.
H.M.Jr:
Well, I'm sure he didn't.
H:
Because you know particularly well - we realize as
well as you do the importance of confidence between
you two.
H.M.Jr:
Well
H:
And you may be assured that M. Bonnet never said one
word which you yourself would not have heard.
H.M.Jr:
Well I'm as sure that he hasn't and
H:
We are going to check up in Paris to see what happened
there.
H.M.Jr:
Well whatever happened happened in Paris.
H:
All right, thank you so much, Mr. Secretary.
338
March 4, 1937.
12:17 p.m.
B.M.Jr:
Hello
Operator: Dr. Feis. Go ahead.
5.M.Jr:
Herbert.
Pais:
Good morning.
E.M.J.:
Good morning. I just read your memorandum and I
just called Mr. Henry back.
y:
Yes.
H.M.Jr:
I want to tell you what took place at my Press
Conference. It was rather unique. I had this
representative of the Petit Parisien here
7:
Yes.
H.V.Jr:
and to our American correspondents he read
the copy of this cable - he² had a copy of the cable
and in that cable he said nothing to which I could
take any objection.
F:
I see.
H.W.Jr:
Whatever done was done on the other side.
F:
That's mighty interesting.
S.M.Jr:
And we made = photostat of his cable.
P:
Would you send us a copy?
H.M.Jr:
Ah - yes.
F:
I - I think it will amuse everyone very much.
H.M.Jr:
I will have - see that you get a copy.
P:
Thanks.
H.V.Jr:
And I called up Mr. Henry to tell him that I wanted
assure him that what this man had said that we took
no - ah - and all I'd have said was had parapirased/ had
to objection to it and his cable was all right. Of
what course he had in his cable, namely, that we'd met,
a very friendly discussion and that we assured
Mr. Bonnet that America had proved its friendship
339
- 2 -
for France in the past and would continue to do so
in the future always remembering that we had to
live up to both the letter and the spirit of the
law. Hello
F:
Yes I'm listening.
H.M.Jr:
And that's what they took.
F:
I see.
H.N.Jr:
And that was what I told Bonnet.
F:
Of course.
H.M.Jr:
But as far as Bonnet is concerned he's all right
and as far as the representative of the Petit
Parisien he's all right.
F:
Good.
H.M.Jr:
And whatever took place, took place on the other
side. I told that to Henry.
F:
Good.
H.M.Jr:
And he was, of course, tremendously pleased.
F:
Good.
H.M.Jr:
So that was that.
T:
Fine.
H.M.Jr:
Now I asked Mr. Mallet to come here at 4:30 to give
him a further answer on his cable.
F:
Yes.
H.M.Jr:
And if you could be here I'd like it.
F:
I'd like to be there.
R.M.Jr:
Right.
F:
Right. I've been thinking. You got me steamed
up yesterday morning.
H.M.Jr:
Good. I wanted to.
Regraded Uclassified
34c
- 3 -
F:
And in a couple of days I may have some formal
idea.
H.M.Jr: All right.
F:
Right.
H.M.Jr:
Thank you.
F:
Thank you, Henry.
Regraded Jclassified
March 4, 1937.
341
12:32 p.m.
H.M.Jr:
Cochran.
H. Merle
Cochran:
Hello Mr. Morgenthau, yes.
H.M.Jr:
I'm factual. not on the diplomatic channel so I'll just be
C:
I - I don't hear you.
H.M.Jr:
I'm not on the what they - on the secret channel
.....
C:
I understand.
H.M.Jr'
...,and I wanted to tell you that this morning a
dispatch was cabled here which was supposed to run
in the Petit Parisien
C:
Yes.
H.M.Jr:
....in which I was supposed to have said to Bonnet
that we'd give them unlimited support.
C:
Yes.
H.M.Jr:
Well I had the Washington correspondent in from
the Petit Parisien
C:
Yes.
H.M.Jr:
....and he showed me a copy - original copy of
his cable
....
C:
Yes.
H.M.Jr:
....and in that cable he said no such thing himself
C:
I see.
H.M.Jr:
....and whatever misunderstanding took place, took
place in Paris and not here in Washington
C:
I see.
H.M.Jr:
....and I wanted to make that plain.
C:
I see.
342
- 2 -
H.M.Jr:
And 1 talked twice to the French Embassy here and I
had in the Paris correspondent of the Petit Parisiene
and he showed me his cable and his cable contained
no statement that I offered the French unlimited
support.
C:
Well the - the - have you seen my cable yet reporting
the - the - the story which the Petit Parisiene carried?
H.M.Jr:
No.
C:
I sent that at 1 P.M.
H.M.Jr:
Well we'll get it most likely tomorrow.
C:
Well it ought to be in before that.
H.M.Jr:
Yes.
C:
Because the Petit Parisiene story wasn't as broad
as you indicate.
H.M.Jr:
Well that's the way the United Press carried it.
C:
Oh, no - no - no. It just has this: "The American
authorities are once more following closely the
financial and monetary situation of France. The
policy of the three great democracies inaugurated
by the tri-partite agreement of last September is not
an empty word to them as they are prepared to do their
utmost to assist France in its present difficulties."
H.M.Jr:
Ah-ha.
C:
"M. Morgenthau, American Minister of Finance, gave a
definite assurance of this to M. Georges Bonnet,
upon nis visit of courtesy at the beginning of the
week but what can the American government do? Its
good will is limited by law which considerably
reduced its possibility of action." Now that's the
main part of the story.
H.M.Jr:
Well 1 had a Press Conference and we went into it very
carefully and the French representative read publicly
his cable here, see?
C:
Yes sir.
- 3 -
343
H.M.Jr:
To the American correspondents.
C:
Yes.
H.M.Jr:
So I guess it will all be straightened out.
C:
Yes, well have you had the other cable I sent this
morning? I sent one at 12 noon giving you very
definite figures
H.M.Jr:
No.
C:
...on the Treasury situation of this country
H.M.Jr:
No.
C:
...that there's not going to be anything in payments -
H.M.Jr:
Any what?
C:
Any big receipts.
H.M.Jr:
Ah-ha.
C:
You asked that question yesterday.
H.M.Jr:
No, that will all
C:
Yes, I was just down seeing the
this is a
half holiday, you see
H.M.Jr:
Yes.
C:
and so the market closed at noon at Paris.
H.M.Jr:
Yes, I know that.
C:
The - the pressure was very heavy here
H.M.Jr:
Yes.
C:
...continued at London this afternoon.
H.M.Jr:
Yes, we know that.
C:
I just came from our particular friend at the bank
H.M.Jr:
Yes.
- 4 -
344
C:
.....you see?
H.M.Jr:
Yes.
C:
And they're all manners of rumors here - you may have
seen them in the Press.
H.M.Jr:
Yes, we have.
C:
And can't concede any of them yet - not a one.
The information - the - the - the idea which we had
about the time limit is conservative, if anything.
H.M.Jr:
Ah-ha.
C:
I see and I'm fixing up a cablegram which we'll get
out in just a little while now.
H.M.Jr:
Well thank you Cochran.
C:
Yes, that's about all now.
H.M.Jr:
Goodbye.
C:
Good night.
345
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: March 4, 1937, noon.
NO.: 302 FROM COCHRAN.
The French Treasury's situation as of the thirty-
first of December, 1936, shows assets of about 18 billion
francs, and about 47 billions in liabilities. The Treasury's
assets include (a) about 9 billion francs in items which
theoretically are repayable at short notice such as:
about 353 millions to French shipping companies; 5 billions
for armament; 2 billions for railways; and 735 millions
to Algeria. (b) Also included are items totaling about
7 billions which are repayable at long term, such as:
1200 millions in loans to foreign governments; 2 billions
to French banks; 3 billions to railways.
It is very unfortunate for the Treasury, but no one -
so far 88 I am aware - expects substantial repayment under
either of these headings at an early date. The debtors
it is well known are having a hard time to provide for their
own current needs. The railways for instance can only
borrow with difficulty if at all according to an admission
which Minister Auriol made before Parliament recently.
A total of at least 40,000,000,000 francs would be
a conservative estimate of treasury requirements over and
above the revenue during the present year. Within the
next few months the more urgent need will probably arise.
The
346
- 2 -
The Treasury on the first of April must reimburse maturing IX
loans of about 3,000,000,000 francs - this is for bonds,
5 1/2 percents, 1917 to 1937, amount $2,000,000;and for
Treasury bonds 4 1/2 percents, 1934, 3 to 10 years, amount
2,922,000,000 francs. According to recent statements by
officials revenue from taxation is satisfactory but it will
almost certainly fall short of requirements by a substan-
tial amount notwithstanding the seasonal increase of tax
revenue in the late spring.
It may be recalled, as of further interest, that about
370 billion francs is the present public debt total. The
debt of the Departments and Communes in addition totals
40 billions, with 110 billions for the railways.
END MESSAGE.
WILSON.
EA:LWW
347
GRAY
U
Paris
Dated March 4, 1937
Rec'd 12:05 p.m.
Secretary of State
Washington
303, March 4, 1 p.n.
FROM CO CHRAN.
Under the caption "Attitude of the United States
toward Trance" LE PETIT PARISIAN today carried an item
from its Washington correspondent dated Mar ch 3 of which
following is translation.
"The American authorities are once more following
closely the financial and monetary situation of France.
The policy of the three great democracies inaugurated by
the tripartite agreement of last September is not an
empty word to them and they are prepared to do their ut-
most to assist France in its present difficulties.
"Monsieur Morganthau, American Minister of Finance,
gave a definite assurance of this to Monsieur Georges
Bonnet our now Ambassador upon his visit of courtesy at
the beginning of the week. But what can the American
Government do? Its good will is limited by laws which
considerably reduces its possibilities of action.
"The news cabled to the WALL STREET JOURI'AL from
Paris according to which Monsicur Charles Rist would be
called (END SECTION ONE.
WILSON
CSB
348
PARAPHRASE OF SECTIONS TWO AND THREE OF NO. 303
of March 4, 1937, from Paris.
upon by the Cabinet to give his advice to the French
Government made an excellent impression in Paris. Here
Professor Rist is known as one of the world's leading
economists. In American circles he enjoys unanimous
sympathy and confidence.
In Paris we have a banking half holiday today.
Unofficial exchange trading during the morning made very
heavy demand for sterling with Bank of France yielding.
Also very heavy demand for dollars. There was a rise
in French rentes of around 2 francs. Strong French shares.
Many rumors on market of which I mention the following
as being the most general:
(1) There will be definite stabilization of the
French franc over the week-end at the rate of between
105.15 and 107 to the pound.
(2) The French will lift gold restrictions. Those
who have not yet complied with present gold regulations
will be absolved from the penalties of the regulations.
(3) The Government has again consulted Baudoin as
to a successor for the post of Governor of the Bank of
France, and the most likely candidates are now considered
to be Baudoin himself and Quesnay.
(4) There is no money in the French Treasury.
(5) Various experts have been consulted by Blum,
and he himself may take charge of the finances of the
country
349
- 2 -
country without definitely dropping his present Minister
of Finance.
(6) Some more important advisory post will be given
to Professor Rist.
DECTIVED
At 3:45 this afternoon I have an appointment at the
Bank of France to see how much of the above rumors can
be confirmed. I will cable again this evening after my
interview.
END OF MESSAGE.
WILSON.
EA:LWW
FEDERAL ASSERVE BANK
35c
OF NEW YORK
OFFICE CORRESPONDENCE
DATE March 4, 1927.
CONFIDENTIAL FILES
Surject TELEPHONE CONVERSATION WITH
be W. Knoke
BANK OF BEGLAND.
Mr. Bolton called no at 11:48 today. He sentioned that
they had had rather a heavy day today, with a big covement of money
leaving Paris end a consequent increased demand for dollars and
guilders. So far, he said, they had sold $6,000,000. I mentioned
that we had done a quarter of a million pounds and were still buy-
ing at 4.88 9/16 but might redues the price gradually if pressure
became too heavy. Bolton thought that was I good plan.
I mentioned Cariguel's call of yesterday with regard to
shipments of gold through the mails and Bolton stated that the
underwriters were going to put the insurance rate up from 9 pence
to 5 shillings. This increase applied, of course, to Lloyds only;
continental insurance companies, however, night follow because of
what he salled " fairish risk."
Bolton then referred to our recent conversation and to
dealing with the question of 8 24 hours notice.
our cablegram of February 11./ They had been in touch with the
Treasury, he said, and could quite definitely say that the Treasury's
feelings were the same as theirs. They had given his the following
verbal message for use
" are satisfied with the working of the present in-
formal arrangement and would prefer not to enter into
questions of exect interpretation since we anticipate
no practical difficulties and would in any case rely
upon being able to arrive at 8 fair and emicable under-
standing with the Federal Reserve on any points that any
arise."
SC 1.2 60M 8-36
FEDERAL RESERVE BANK
351
OF NEW YORK
OFFICE CORRESPONDENCE
DATE March 4, 1937.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
o
L. N. Knoke
ROM
- 2 -
/ /
BANK OF ENGLAND.
San
03V1
The most important thing, he continued, was that he and I knew ex-
actly where we stood. As far as they were concerned they would
now bury this matter.
LWK:KMC
352
March 4, 1937
4:30 p.m.
Present:
Mr. Mallet
Mr. Teylor
Dr. Feis
HM,Jr: Two things. In the first place, I thought
I would explain to you. I don't know whether the papera
may have something about what I W&5 supposed to have said
to Mr. Bonnet when he was here.
Mr. Mallet: In today's paper?
HM,Jr: What happened was the Washington correspondent
of the Petit Parisien sent a cable over which I saw today
she which was B. perfectly straightforward cable which simply
said we met and talked and made friendly gestures to each
other. Then comes 8. United Press despatch in which it
said that I had given "unequivocal assurances of financial
assistance", Well, I had said no such thing and the cor-
respondent was here and he had his cable -- no such language.
Mr. Mallet; That WAS published in France? or did
it appear in the papers here?
HM,Jr: According to a telephone conversation which
I had with Paris, it WAB no published in France that way.
But the United Press says it WAS. I spoke to Mr. Cochran
in Paris. He said it did not read that way, but based on
the so-called Morgenthau statement they ran the rentes up
two points. All that I told Mr. Bonnet -- I made very
pleasant gestures and told him, of course we would continue
to assist France as long 86 we could do BO both within the
letter and the spirit of our law.
Mr. Nallet: Yes.
HM.Jr: Which is quite different from "unequivocal
assurances of financial assistance" and I really would
like you to tell your people that somebody, somewhere,
somehow, has very definitely tried to twist what I said
353
-2-
and dian't say. I wouldnot be stupid enough to say it.
the paper here?
Mr. Mallet: No; quite. But. did this appear in
HM,Jr: Well, it was on the United Press ticker
service and it came out that way and then I had EL press
conference end let the French correspondent personally
read to the American correspondents what he had written,
and it was quite different,
As a matter of fact, 1f you care to have a copy of
his despatch it would not take very long to give you a
copy. Would you like to have it? They have laid 60
much importance on it, I will give you 8 copy of what
the French correspondent did say.
Mr. Mallet: I think it would be useful to have on
record.
HM,Jr: That's what I wanted it for. So much for
that!
The other thing, the question which Mr. Chamberlain
raises, as to whether we are in favor of free gold or not,
I personally don't -- I mean, it makes very little differ-
ence what I do think at this particular time. We wouldn't
tell the French, in any event, whether we believed in it
or not. See?
Mr. Mallet' You wouldn't tell the French you are not
in favor? What I think Mr. Chamberlain 18 saying is that
we should tell the French jointly.
HM,Jr: Our pattern 1s different. What we followed
here was to take all the gold privately held andit worked
here. Whether that would work in Frace, I don't know and
ven if I was in sympathy with that, at this particular
time I would not write out E formula.
Mr. Mallet: No.
HM,Jr: For the French. You see?
Mr. Mallet: Yes; quite.
HM,Jr: Is that clear?
354
-5-
Mr. Mallet: Yes; quite.
HM,Jr: I don't lay any stress on it in any event.
Mr. Mallet: Does that mean that you would rather
that we didn't tell them either?
HM,Jr: No.
Mr. Mallet: You don't mind if we tell them that
if our Treasury sort of hankers after that -- I don't know
in the least what they want to do.
HM,Jr: The only thing we can join you in is we are
both in complete accord that if the French ask us may they
devalue a further 8% within the Tripartite Agreement, both
Governments are in accord. I don't want to go any further
than that.
Mr. Mallet: Yes; quite.
HM,Jr: And the other matter -- after all, they have
passed laws and under these laws they are supposed to take
all of this gold.
Mr. Mallet: Yes.
HM,Jr: Nor can we tell them that they shouldn't.
See what I mean?
Mr. Mallet: Yes.
HM,Jr: Under their decrees.
Mr. Mallet:: Under their decree they are supposed to
take it all.
HM,Jr: Yes. And you and I BAY they shouldn't.
Mr. Mallet: I suppose what it would be really would
be a criticism of what the Treasury W&S suggesting, as much
as to say you were fools to do it before
...
HM,Jr: I don't want to suggest to Mr. Chamberlain
what he should or should not do, but I would not want to
join him in it.
355
-3-
Mr. Mallet: I telegraphed him what you were think-
ing last time and we have had nothing further from London.
had a chance to show this cable to the President. He
HM,Jr: No. I left it sort of open and frankly I
also feels that if we were going to make any suggestions
that the pattern that we followed has been successful for
us, but to suggest to a country that she should cancel a
decree and reverse herself -- we don't want to do that.
Mr. Mallet: Yes.
HM,Jr: You see?
Mr. Mallet: Yes; quite.
HM,Jr: Because if the French came to us and said,
'What should me do?", we would say, 'Well, carry out your
decree and take all the gold.' That is, if they asked us.
Mr. Mallet: Yes. Yes.
HM,Jr: So on that point, as I say, I don't agree
with Mr. Chamberlain, but I don't lay any stress on it.
Before I 80 any further, do you want to add anything,
Herbert?
Dr. Feis: No, sir.
HM,Jr: All right ED far?
Dr. Feis: I wholly agree.
HM,Jr: Wayne?
Mr. Taylor: All right.
HM,Jr: Please, either of you.
Dr. Feis: I wholly agree, without reservation.
HM,Jr: You might say that the combined Administra-
tion feels this way about the matter!
Now, the only other thing -- your people know it
as well as we do -- you did $6,000,000 today (the Bank
356
-4-
of England it's did) and we one and one-quarter million Sterling,
£0 about the same. In francs. And we had & bad day.
Mr. Mallet: They came in from France?
HM,Jr: No. We had to buy 1÷ million Sterling and
you people had to buy $6,000,000 dollars. It Just BO
happened that they are about the seme. But both the Bank
of England and ourselves had a bad day. That's no news,
but it looks -- the signale look 8.8 though this W&E going
to be the week-end.
Mr. Hallet: The storm signals.
HM,Jr: Yes, I would certainly say the storm signals
are going up today. I wanted to tell you that and I do
hope that Mr. Chamberlain will leave hie week-end address.
Mr. Mallet: Yes, I hope BO. They leave the Treasury
unstaffed over the week-end.
HM,Jr: No, I am serious about that. You can put
it BE politely as you want, but don't miss the point, that
somebody who can make & decision be available.
Hr. Mallet: I should have no doubt there would be
someone.
HM,Jr: Now, Dr. Feis.
Dr. Feis: This thought occurs to me. Suppose --
just mentioning it, if you see anything in it that you
might want to include in the communication. Suppose
circumstances drove the French into some form of control
irrespective of whether they want to do it or not. Then
I think the important point, certainly from the Depart-
ment's point of view, will be that that control by limited
to capital and gold movements and is not turned into an
exchange control dealing with trade movements.
HM,Jr. That's B. lovely wish.
Dr. Feis: Well, I don't think it is st all an
impracticable wish because, 8.8 I understand the French
ectives, they would not have any wish to interfere
357
-5-
with ordinary trade operations.
HM,Jr: No.
Dr. Feis: I think that's fairly clear. Their
mission seems to be running the other way -- their desire
to bring down prices.
HM,Jr: What have you got in your mind?
Dr. Feis: I would have in the back of my mind, al-
though it may be premature to discuss 1t, that if the
day should come when the French say 'We feel that we have
got to impose certain control over the movementof foreign
exchanges, that either before that time we should have
indicated to them or st that time promptly indicate to
them that what I have just expressed
HM,Jr: Now, Herbert. Talking here -- in the first
place, I don't know whether you know, or not, but last
week I SAW the Ambassador himself and asked him would he
please send a message to Mr. Chamberlain whether there was
anything he or I could do together. That's number one.
Number two: when Mr. Mallet was here, & couple of days
ago, I reminded him that I had not received an answer.
If you don't mind my saying it, I don't want to go any
further than that.
Mr. Mallet: I expect we will get on answer.
Dr. Fels: No, I did not think you would want to
include that in this communication.
HM,Jr: And the other point is, I have been meticu-
lous not to discuss anything but money from this chair.
I have been very meticulous.
Dr. Feis: Then I can tell you this: the reason I
feel -- when I was in Paris, last May, I carried (and then
what was in mind was the first French crisis) I carried
instructions from Mr. Hull which I then gave -- B.B a matter
of fact, to Bonnet, who was then Acting Minister of Com-
merce, covering Just the ground I have summarized to you
now. Now we can do it again.
358
-6-
HM,Jr: You can do it with Bonnet,
Dr. Feis: You can do It with Bonnet or in Parts.
HM,Jr; You can do it any way you want, but I think
after you think it over I think you will think that I very
definitely should not.
Dr. Feis: I agree it does not fit in this communica-
tion.
HM,Jr: It does not fit and I hope Hallet will not
do anything at this time. I think the reason Mr. Hull
18 more than satisfied 18 that I am DO very careful -- I
never talk or send anything except straight financing.
Dr. Feis: All right.
HM,Jr: This particular session should not include
that. If Mr. Hull wants to send for the British Ambassa-
dor or the French Ambassador and send that kind of a
message, or through our Ambassadors, that's something
different.
Mr. Taylor: It's part of the monetary picture.
HM,Jr: Now, listen. Do you mind? This 16 one
time I am very definite. I don't want to mix
Dr. Feis: I think it's something Mr. Hull and you
would want to talk over.
HM,Jr: That's All right. If he wants to send for
the British Ambassador and send a message jointly, I would
be delighted to come over, but where I am acting as Secre-
tery of the Treasury
Dr. Feis: I began by saying you would not want to
include it in this message.
HM,Jr: I would be delighted to come over and see
the Secretary and send a joint message, but I again reiter-
ate that I have been meticulous about my messages. They
have all been straight finance.
359
-7-
Taylor: We are completely in agreement. It does
not have anything to do with this particular message, but
when a fellow has $15.00. You are deciding what he does
with the $15.00. It's pretty hard to say which is mone-
tary and which one 18 trade because you can't separate
them.
HM,Jr: That's all right. But this isn't the time
or the place. But I think we will all have to be on
deck for the next couple of days. This thing here 16
another United Press statement which came in at 2:12. You
might like to read that.
Wonder what time the President of France has been
going to bed recently?
Thursday
March 4, 1937
350
4:35 p. m.
HMJr:
Hello
Treas.
Operator:
Mr. Knoke, sir.
HMJr:
Hello
L. W.
Knoke
Yes, Mr. Secretary.
HMJr:
Hello, Knoke -
K:
Yes, sir
HMJr:
How are things going?
K:
Well, we've bought so far a total of a million two
hundred and sixty-five thousand pounds -
HMJr:
Yes
K:
The market was five sixteenths -
HMJr:
Yes
K:
- offered; then we bid five sixteenths and couldn't
get any more. Now we are bidding three eighths for
small amounts as, I think they got twenty-five thousand
pounds,
HMJr:
I see.
K:
My thought was that we would try at the close to bid
it up a little.
HMJr:
I see.
and
K:
We are still,/even at this level of three eighths, but
we can convert it to gold at thirty-four seventy-five
and a half.
HMJr:
I see.
K:
Which still, I think we should do it. We should buy
sterling at this level.
HMJr:
Well, that's all right.
very
K:
It's been a/heavy day.
361
-2-
HMJr:
Yes
K:
Things look very gloomy. I spoke to the Bank of
England around noon time; I just dictated my
memorandum -
HMJr:
Yes
K:
They said at that time they had done six million
dollars and that was an enormous amount for the
dollars as well as for guilders as a result of a
flight of capital from France.
HMJr:
They did six million dollars and we did a million
and a quarter?
K:
Yes, that is about the same -
HMJr:
Yes
K:
As a matter of fact it's remarkably alike.
HMJr:
Yes
M
But, they - I think they are quite gloomy
-
they are very definitely expecting something to
happen over the week-end.
HMJr:
Well, that's nice. All right.
K:
All right, sir.
HMJr:
Goodbye.
K:
Good day.
362
PARAPHRASE OF TELEGRAM RECEIVED
NO.: 305
FROM: American Embassy, Paris
DATE: March 4, 1937, 6 p.m.
I refer to the final sentence of my No. 303, 1 p.m.,
today. It was not possible for the friend I saw at the
Bank of France this afternoon to confirm the rumors which
I listed in my message. None of the Governor's assistants,
not even the Under Governor, are being kept informed as to
the Governor's current conversations with Blum and Auriol,
my friend informed me. I was informed by my contact that
not many would refutsthe reports, however, (a) that the
stabilization fund is in bad shape, (b) that the Treasury
is empty, and (c) that Labeyrie must go.
There was a terrific demand for sterling here this
morning and the demand continued this afternoon on the
London market. The Bank of France has gained approxi-
mately 100 million france of gold from Spain since
February 24. Some of this came since my telegram of
February 26, which contained figures on the funds hold-
ings. The final installment of the London sterling
credit has been going quickly. I was told in the
strictest confidence that if the pace of the last three
days is kept up, the exercise of the fund cannot last
for another week without drawing on the bank against
France
363
France for gold. Thus, at the Bank of France, although
the technical men do not know what the higher authorities
have in mind, they realize that it is only a matter of
days before there will be a real crisis. I have just
found out that there will be a special meeting of the
Council of Ministers tomorrow. Baumgartner, incidentally,
is being mentioned now as a possibility for the position
of Under Governor of the Bank of France.
The following Reuter cablegram from Washington
appeared in the LONDON TIMES today:
"The new French Ambassador in Washington, Monsieur
Bonnet, today informed reporters that he intended to
open war debt discussions with the Government of the
United States. He also said that there were other
'equally important' questions in the economic field to
be discussed."
The February 26 statement of the Bank of France
showed no change in gold holdings and no change in
advances to the Treasury. END OF MESSAGE.
WILSON
EA:EB
384
PARAPHRASE OF TELEGRAM RECEIVED
NO. 115
FROM: American Embassy, London
DATE: March 4, B p.m.
FOR TREASURY FROM BUTTERWORTH.
I learn the following, under conditions of strict-
est confidence, from sources which have proven in the
past unusually reliable:
1. That measures are Kew being formulated by the
French authorities, the French fund having been reduced
to a nominal figure by the constant drain of a milliard
to a milliard and a half per week.
2. It is thought that the measures will be
announced as soon as possible and will include the fol-
lowing:
(a) Further drawing on the Bank of France to
increase the gold resources of the French fund.
(b) Some curtailment of expenditure and reduction
in credits.
(e) Ketablishment of an agent for the gold market
in the sense that Bank of France will buy gold at the
market value.
(a) Eliminating penal neasures on French funds
abroad.
The use of more flaxibility in the operations of
the
Regraded Uclassified
365
+
the French fund. In practice this may mean a further
depreciation in the value of the franc towards its legal
limit over a period of time.
There is also being discussed the desirability of
announcing a franc loan at the same time, with interest
payable either in france, dollare or sterling, or the
frane equivalent of either dollars or sterling. Before
any such action is taken the British and American Govern-
ments will be consulted. The idea, apparently, is to
convince the Frenchmen with the effect of the determina-
tion of the Government to keep the present level by
giving him some security against the possibility of its
failure to do BO.
BINGHAM
EA:EB
3G6
388
EXCERPT FROM 9:30 MEETING OF MARCH 4, 1937 - Phone Conversation
with the President.
H.M.Jr:
Hello (on phone) Hello, Mac? - - Oh. - -
Why, we just - the news is that Mr. Bonnet is quoted
as saying, from the French papers, that I guaranteed
the French unequivocal assurance of our support
F.D.R.:
Yes.
H.M.Jr:
....in the Petit Parisien.
F.D.R.:
Yes.
H.M.Jr:
And I thought that at 10:30 I would say - not call
down Mr. Bonnet but call down the Petit Parisien,
see?
And the other thing, they have called a meeting of
the French Cabinet to discuss the further devaluation
of eight percent, see?
And the thing - I didn't ask for you, you know, I
asked for McIntyre. What I wanted to say to
McIntyre was
I
-
Well, I'd just as leave
say it to you, sir, but I asked for McIntyre -
you might tell him - that we sent Latimer over there
the night before last - if you will remember, I
spoke to you about it - with the idea of getting a
telegram out explaining that the Government had not
committed themselves
F.D.R.:
Yes
H.M.Jr:
....to this thing.
F.D.R.:
Yes
H.M.Jr:
And I'd like McIntyre to release it if you approve
of it.
F.D.R.:
Well, I'll give it to Mac.
(McIntyre takes phone)
H.M.Jr:
Hello? - - Yes, Mac. You know, I asked for you,
I didn't ask for the boss. It's on this telegram
that Latimer wants to get out. - - Yes, I'm
always glad to talk to the President, but this time
I wanted you. - - Thanks. (Conversation finished)
Now, is that frank enough - "I'm always glad enough
367
37c
- 2 -
to talk to the President, but this time I wanted
you"?
Roche:
That's good.
H.M.Jr:
I had to do some awful fast thinking. I'm a little
wheezy.
Oliphant:
Fast working.
H.M.Jr:
Whew! Luckily, I had that thing in front of me.
Magill:
Just as well off.
Gaston:
Of course, you could have asked what he was going
to have for lunch.
H.M.Jr:
Please give me a good mark for mental gymnastics.
Roche:
That was the quickest thing I ever saw.
H.M.Jr:
My headache's gone. I'm a little faint. I mean you
don't get - I was prepared for McIntyre. Whew! Boy!
Magill:
About two seconds it took, didn't it?
H.M.Jr:
What?
Magill:
To shift from Latimer to Bonnet.
H.M.Jr:
Well, I mean I couldn't - I think I did right by
our Nell, but I think that McIntyre must
have known what was coming and put the President
on.
Haas:
Well, maybe he was already in there and the girl
said you wanted to see him before he talked to the
President and so ne took it in there.
H.M.Jr:
No, I think he said, "Let me talk to Henry and
find out what's happened today." See, that's what
happened.
How would I have felt if I hadn't thought so fast?
But at least get this thing anyway - I've got
another department in mind - when I start something,
I see you boys through.
Uclassified
371
- 3 -
368
Magill:
You certainly do.
Gaston:
Just one thing - that Latimer didn't go on to
send any telegram.
Lochhead:
Oh well, we can put it this way - the telegram
that Mr. Latimer wanted to send.
H.M.Jr:
What?
Lochhead:
I say you can say the telegram Mr. Latimer wanted
to send.
H.M.Jr:
I didn't dare make a record of it.
Iclassified