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    "title": "Volume 57, March 1 – March 4, 1937",
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    "ocrText": "DIARY\nBook 57\nMarch 1 - March 4, 1937\nRegraded Uclassified\n- A - -\nBook Page\nAgriculture - Crop Insurance\nWallace request for $100 million discussed at group\nmeeting - 3/1/37\nLVII\n4\nAppointments and Resignations\nCommissioner of Internal Revenue presents recommendations\nfor Internal Revenue Agent in Charge, Newark, New Jersey:\nThornton, Reuben 0.; Shotwell, Raymond; Kelly, Joseph F.;\nand Morgan, John J\n23\nBates, Earl A. - - See also Book LVI, page 86\nHMJr consults Gerner about granting Senator Nye's request\nfor thirty-day appointment; Garner approves - 3/3/37\n234\na) Senator Nye notified - - 3/3/37\n260\n- B - -\nBates, Earl A.\nSee Appointments and Resignations\n- E -\nExport-Import Bank\nHMJr asks Taylor for memorandum concerning loan to Italy\nfor cotton spinners on nine-months' credit - 3/1/37\n9\na) HMJr does not understand how this loan can be\nmade when he is told under the Johnson Act loan\ncannot be made to French railways\nb) Taylor and Bell explain that Export-Import Bank,\nas well as all other wholly owned or controlled\ngovernmental organizations, is exempt from\nJohnson Act\n- F -\nForeign Loans\nSee Export-Import Bank\nFrance\nSee Stabilization\nLoan - see Export-Import Bank\n- H -\nHarvard-Yale-Princeton Conference on Public Affairs\nat Harvard University, 2/27/37\nFor speech by HMJr, see Book LVI, page 360\nHaas describes to 9:30 group excellent impression that\nHMJr made - 3/1/37\n11\nRegraded Uclassifie\n- H - (Continued)\nBook Page\nHousing\nHMJr tells Senstor Wagner (New York) he would like to\ndiscuss - 3/1/37,\nLVII\n42\nMeeting in re Wagner bill at HMJr's home; present:\nGaston, Opper, McReynolds, Barton, Dunning, Lindow,\nand Keyserling (secretary to Senator Wagner) -\n3/1/37, 8:30 P.M\n62\na) Actual bill\n103\nb) Digest of bill\n104\nc) Comparison of estimated room costa under Treasury\nplan: Williamsburg and Techwood projects;\nestimated monthly room charges for each project\nunder Treasury, Public Works Administration, and\nWagner bill amortization schedules\n111\nd) Net cost to Federal Government of $1 billion\nlow-rent housing program financed entirely by\nFederal loans\n113\ne) Rent per room and income groups reached by private\nenterprise and public housing\n122\nHMJr discusses bill with FDR - 3/2/37\n124\na) FDR's formula: in six or seven years $1 billion\nworth of \"slum clearance\" (FDR used this phrase\nrather than \"low-cost housing\") and does not want it\nto cost more than $35 million 8 year\n1) HMJr says this is impossible\nb) FDR asks that it be worked out; says the English have\ndone it\nc) HMJr tells FDR that what Wagner bill proposes is\nfinancially impossible; that under it we would be\ndoing what Hoover accused us of doing, namely,\nsetting up a double set of books\nConference et White House; present: FDR, HMJr, Ickes, Wegner,\nFahey, McDonald, Frederick Delano, Bell, and three members\nof Wegner staff - 3/2/37\n135\na) HMJr asks Ickes to meet him prior to conference\nto go over figures\n140\nb) Bell asked to survey programs laid down in 1938\nbudget to see whether any savings could be effected\nto be used for financing provisions of housing bill\n- I -\nIncome Tax Returns - Simplification of\nDiscussed at group meeting - 3/4/37\n294\nItaly\nLoan - see Export-Import Bank\n- J -\nBook Page\nJapan\nAraki, New York representative of Bank of Japan, calls\non Sproul (Federal Reserve Bank), enumerating certain\npoints concerning Japan's intention to export certain\namounts of gold - 3/2/37\nLVII 211\nJohnson Act\nSee Export-Import Bank\n- K -\nKelly, Joseph F.\nSee Appointments and Resignations\n- M -\nMint, Bureau of\nSilver Depository: HMJr tells Woodring, FDR has decided\non West Point (Site No. 5) - 3/1/37\n44\na) Woodring tells HMJr his technical advisers\noppose Site No. 5\nMorgan, John J.\nSee Appointments and Resignations\n- 0 -\nOpen Market Committee\nDiscussion of general business conditions - 3/3/37\n262\n- R -\nRailroad Administration\nBell reports on winding up of affairs - 3/1/37\n2\na) Executive Order signed by FDR transfers personnel\nfiles to Civil Service Commission, traffic and\nrate files to Interstate Commerce Commission,\nMinnesota fire claims files to General Accounting\nOffice; financial records, et cetera, remain in\nTreasury\nb) Bell suggests Collins as Assistant to Director\nGeneral to sign current mail, et cetera\nRailroad Retirement Act\nSee also Book LVI, page 175, for resume' 2/24/37-4/21/37\nHMJr asks Magill and Bell to prepare for FDR 8 resume of\nthe technical aspects and also a letter for HMJr to\ntransmit, giving details of conference with Latimer - -\n3/1/37\n5\na) Resume and letter presented to FDR - 3/2/37\n131\n1) FDR reads only first sheet and then tells\nHMJr to get Altmeyer, Latimer, Magill, and\nBell \"and thrash it out\"\nRegraded Uclassified\n- R - (Continued)\nBook Page\nRailroad Retirement Act (Continued)\nMagill memorandum to HMJr, reporting telephone conversation\nwith Latimer concerning Dow-Jones ticker report of\nagreement between railroads and employees on retirement\nplan - 3/1/37\nLVII\n41\nNew York Times article states \"pact provides cut in rail\nwage tax; pension quota would be reduced from 3.5% to\n2.5%; would save $18,600,000\"\n125\nHMJr talks to Altmeyer - 3/2/37\n143\nConference in HMJr's office; present: Magill, Oliphent,\nBell, Gaston, Latimer, and Altmeyer - - 3/2/37\n151\na) Newspaper stories of tentative agreement discussed\n1) All agree this is \"coercing publicity\";\nnew article suggested \"in view of the\nnewspaper publicity *****\nb) Exchange of correspondence between Chairman Latimer\nof Railroad Retirement Board and Chairman Winent of\nSocial Security Board, 2/9/37 and 2/10/37\n189,191\nMemorandum from Latimer giving background of Act, course\nof negotiations, cost, et cetera - 3/3/37\n248\na) Discussed at group meeting - - 3/4/37\n287\nRussia\nSee Stabilization: France 3/3/37\n233\n- S -\nShotwell, Raymond\nSee Appointments and Resignations\nSilver Depository\nSee Mint, Bureau of\nStabilization (arranged chronologically)\nFrance:\nAmbassador Bonnet, Jules Henry, and Livesey (State Department)\ncall on HMJr - 3/1/37\n49\na) France wishes to remain wholly in accord with the\nmonetary understanding and faithful to the trade\nagreement of Hull\nAmerican Embassy (Paris) reports that Blum has told &\nreliable newspaper correspondent to publish 8 statement\nto the effect that French Government has decided against\nexchange control - 3/2/37\n194\nRegraded Uclassified\n- 8 - (Continued)\nBook Page\nStabilization: France (Continued)\nMallet brings message from Chamberlain to HMJr - 3/2/37\nLVII\n196\na) \"His Majesty's Government has urged French Government\nto take speedily most vigorous action to restore\nconfidence; in their reply, French Ministers stated\nthey were firmly refusing to impose exchange control\nand that measures under consideration include free\nmovement of gold, & pause in increase of expenditure,\nuse of & more elastic technique by French equalization\nfund to defeat speculation, limitation of rise in\nprices, and reduction of customs teriffs and abolition\nor limitation of quote restrictions\"\n1) Actual message\n207\na) HMJr shows to FDR and says that he (HMJr)\nthinks obvious thing for French to do is\nto devalue extra 8% - 3/3/37\n233\nb) HMJr has been thinking for some time but\nhas not wanted to propose to FDR 88 yet\nthat best solution of French problem\nwould be to ask Soviet Russia to join\nTripartite Agreement; large holdings of\nRussian gold might make just the sufficient\ndifference to tide French over present crisis\nc) HMJr transmits copy of message to Hull -\n3/3/37\n231\nCochren reports on visit of Professor Rist - 3/2/37\n212\na) France must choose from liberal policies of United\nStates, Great Britain, et cetera, or closed economies\nof Italy, Germany, et cetera\nb) when Rist, as Chairman of Committee of Trade Policy,\ncalled on Blum, he found Premier sympathetic with\narguments in favor of more centralized trade policies\nc) Rist regrets that Blum Government financial policy\ndoes not inspire confidence of the people\nd) Rist admits disapproval of both Governor of Bank of\nFrance and Minister of Finance\ne) If any loan is issued for France, it should be issued\non the market in Peris\nf) Strongly advises that Bonnet send communication to\nBlum, setting forth impressions he has gained in\nUnited States\nHMJr discusses Chamberlain message with Feis, Haas, and\nLochhead - 3/3/37\n281\na) Chamberlain thinks France cannot last more than one\nweek - Cochran says two weeks; HMJr anxious to figure\nout what United States can do; HMJr's idea of inviting\nRussian participation to Tripartite Agreement discussed;\nFeis wonders whether Japan could not serve in place of\nRussia; Italy also suggested\nRegraded Uclassified\n- S - (Continued)\nBook Page\nStabilization: France (Continued)\n\"Le Petit Parisien\" article, stating that Washington\ncorrespondent has cabled that HMJr gave Bonnet\n\"unequivocal assurance\" of support, discussed with\n(1) FDR, (2) Hull, (3) Jules Henry, Counselor of\nFrench Embassy, and (4) at press conference - 3/4/37\nLVII\n312,317\na) Denoyer's article in \"Le Petit Parisien\"\n331\nFeis 'phones that Ambassador Bonnet \"is wholly amazed\nat article in Petit Parisien\" - 3/4/37\n334,338\nHMJr reports incident to Cochran - 3/4/37\n341,347\nHMr explains to Mallet - 3/4/37\n352\nAmerican Embassy (Paris) quotes Reuter cablegram in\nLondon Times stating that Bonnet has informed reporters\nhe intends to open war debt discussions with Government\nof United States - 3/4/37\n363\nAmerican Embassy (London) reports on new measures under\nconsideration by French Government - 3/4/37\n364\nSugar\nSee also Book LVI, pages 349,351\nNew York Times article in which \"FDR completely throws down\nHenry Wallace\" - 3/4/37\n300\nE-1 I I\nThornton, Reuben 0.\nSee Appointments and Resignations\n- U -\nU.S.S.R.\nSee Stabilization: France - 3/3/37\n233\nRegraded Uclassified\n1\nGROUP MEETING\nMarch 1, 1937\n9:30 A.M.\nPresent:\nMrs Klotz\nMr. McReynolds\nMr. Bell\nMr. Lochhead\nMiss Roche\nMr. Taylor\nMr. Haas\nMr. Gaston\nMr. Magill\nMr. Oliphant\nH.M.Jr:\nSpeaking for myself, I had a swell time.\nGaston:\nFine.\nRoche:\nGood.\nGaston:\nI wanted to report for Mr. Upham. He called me up\nyesterday afternoon. His mother is quite ill\nand he's gone to Iowa.\nH.M.Jr:\nOh, I'm sorry.\nMac?\nMcR:\nI think we'll be ready any time today on that.\nH.M.Jr:\nWell, I'll let you know a little later.\nMcR:\nAll right.\nH.M.Jr:\nI read everything you gave me. If you don't mind\nmy saying so, it wasn't very satisfactory. You\n(Oliphant) tell Clarence, will you, that I want to\nsee him at eleven and actually go over this bill;\nwill you? I mean I've got to understand it. And\nI'm not going to mention who did the analysis, but\nit wasn't done - Mac didn't do it - but it just\nwasn't satisfactory.\nOliphant:\nYou want to see him at eleven?\nH.M.Jr:\nYes. You too, Mac, at eleven. I just want to sit\ndown and read the bill paragraph by paragraph.\nWell, I'm not going to show this to Upham - I mean\nOpper. What I'd like for him to have on it is lots\nof space so that it says what it does and I can\nwrite underneath it, as I go along, what I think it\nshould do.\nRegraded Uclassified\n2\n- 2 -\nOliphant:\nDo you want him to have that summary before eleven?\nH.M.Jr:\nNot - try to, but if he can't\nDo you want to\nphone him?\n(Oliphant goes out to phone)\nWell, you might 88 well have the other man here\nat eleven, Mac. I mean I didn't get what I wanted.\nI read everything.\nMcR:\nBarton?\nH.M.Jr:\nBarton, yes. I mean you gave me the only thing I\ngot anything out of. But when it gets to the tech-\nnical things\nSo you and Barton and Opper at\neleven.\nMcR:\nO.K.\nH.M.Jr:\nAnything else, Mac?\nMcR:\nNo.\nH.M.Jr:\nDan?\nBell:\nSome time ago I talked to you about winding up the\nRailroad Administration.\nH.M.Jr:\nUh-huh.\nBell:\nWell, it is practically completed. We had an Execu-\ntive Order, which the President approved, transferring\nthe files pertaining to personnel to the Civil Service\nCommission, the traffic and rates files to the Inter-\nstate Commerce Commission, and the Minnesota Fire\nClaims files to the General Accounting Office; and\nall the rest comes to the Treasury. We have taken\nover all the financial records and the assets, and it\nwill be operated, I suppose, out of my office upstairs.\nThe personnel\nH.M.Jr:\nThose six or seven fellows?\nBell:\nYes. The three main men and one stenographer have\ngone to Internal Revenue.\nH.M.Jr:\nGood.\nRegraded Uclassified\n3\n- 3 -\nBell:\nOne stenographer to the Bureau of the Budget.\nH.M.Jr:\nYes\nBell:\nAnd one file clerk I'm keeping upstairs to run\nback and forth to Annex One. Mr. Oliphant's office\nthought it would be well not to have any other\nExecutive Order at this time abolishing the office\nof Director General. We would carry right on and\nhandle work right upstairs. Now, it might be neces-\nsary for you to designate someone as Assistant to\nthe Director General in order to sign current mail,\nroutine stuff.\nH.M.Jr:\nWhom would you suggest?\nBell:\nWell, I think maybe Collins might be a good man.\nH.M.Jr:\nSold.\nBell:\nI'll submit to you the necessary papers. There\nwill be a few checks to sign from time to time for\nclaims, and as soon as we wind up the accounts of\nthe Disbursing Officer\nH.M.Jr:\nDoes it mean I still have my railway pass?\nBell:\nI think\nH.M.Jr:\nJust like for the last three years?\nBell:\nYes, I assume you can. You're still Director General,\nRoche:\nI thought you always flew.\nBell:\nYou're still Director General.\nH.M.Jr:\nWell Dan, it's two weeks since we gave any memorandum\nto the President.\nBell:\nYes, I've worked on that.\nH.M.Jr:\nYou're not ready for it today?\nBell:\nNo.\nH.M.Jr:\nDid you see according to the newspapers that Wallace\nasked how much, a hundred million dollars for\ncrop insurance? Then I saw Ickes made a statement\nRegraded Uclassified\n4\n- 4 -\nabout ten million dollars administrative expenses\nwasn't enough.\nBell:\nYes, he said that wasn't enough. Hasn't very much\nhappened on the Hill other than what the President\nsent up.\nH.M.Jr:\nBut he doesn't - the fact that I see it may cost a\nhundred million dollars\nBell:\nI assume he knew that when he sent the report.\nH.M.Jr:\nWell, let's...\nBell:\nWe'll put it in there.\nH.M.Jr:\nWhat's happened since from two weeks ago today.\nThen, you and Magill did a swell job and got nowhere.\nI mean I'd like to know what that was.\nMagill:\nSo would I.\nH.M.Jr:\nI think the thing to do, if you men - I wish that you\ntwo men would prepare a memorandum and transmit it,\nwhere this railway thing stands and how much we're\nshort-changed. If you'll write me a joint memorandum,\nI'll send it over.\nMagill:\nWell, the Treasury is short-changed anyhow a hundred\nforty million.\nH.M.Jr:\nHow much?\nMagill:\nOne hundred forty million.\nH.M.Jr:\nWell, whatever it is.\nMagill:\nAnd we may very well be short-changed eight hundred\nforty. Isn't that right?\nBell:\nRight.\nH.M.Jr:\nWell, will you men prepare a memorandum?\nMagill:\nSure, I'll be delighted.\n5\n- 5 -\nH.M.Jr:\nWhat?\nMagill:\nI'll be delighted.\nH.M.Jr:\nNo, seriously.\nBell:\nIt's a little uncertain. Altmeyer said Friday that\nhe would try to be sure if you could control Latimer.\nH.M.Jr:\nWell\nBell:\nWhat after happened\nH.M.Jr:\nThe way the thing happened, I'd like to have prepared\na memorandum for the President, and I think we\noughtn't to wait more than 24 hours. Does that rush\nyou too much?\nMagill:\nNot at all.\nH.M.Jr:\nNo, let's get it today.\nBell:\nAll right.\nH.M.Jr:\nYou prepare it; I'll send it over. It's things like\nthat - I mean the fact that he sits there - he can't -\nit is impossible for him to analyze it. Just the same\nway I'd like to bring to his attention the maximum\ncost of crop insurance.\nBell:\nWell, as I understand, the statement that Latimer\nmade was rather general, emphasizing that the union\nand the railroad heads and Latimer hadn't come to an\nagreement, but said nothing about our understanding\nwith Mr. Latimer that he would submit a memorandum\nof the entire program to the Treasury before a final\nagreement was entered into.\nH.M.Jr:\nWell, I'd just state it - I mean in kind of a gossipy\nway. You could make it two things. You could give\nme a technical document, and then draft a letter for\nthe President, say, \"This is what happened, as we\nunderstand it, last week, and this was the under-\nstanding we had with Mr. Latimer.\"\nMagill:\nI don't think that Latimer can tell the President\nanything about the details, because the history of it\nis that Latimer talked to me and Oliphant for a very\nRegraded Uclassified\n6\n- 6 -\nlong time and we could get nothing out of him as\nto the details of the thing at all; it was a lot\nof smoke. And it was only after I got after him\nspecifically the following day and said, \"How about\n140 million?\" that we began to get down to brass\ntacks.\nH.M.Jr:\nWell, if I may suggest it - I mean after four years\nin Washington I'd suggest two kinds of memoranda:\n-he technical situation, what it is; then a kind of\nletter for me to transmit, saying what happened in\nthis office for the President's information. See?\nWe've done that before. I mean when the President\nhas it, he's always told us where we stand. What?\nBell:\nThat's right.\nH.M.Jr:\nHe's either said he will or won't, see?\nMagill:\n(Nods yes)\nH.M.Jr:\nHe might perfectly well say, \"How did I know that\nmeeting took place in Treasury? Why didn't you\ntell me that Latimer was over there and said so and\nso, that you were having trouble with Latimer?\"\nMagill:\nWell, we didn't have any trouble with him. We\nunderstood Latimer was to give us a document which\nwould run to fifteen, twenty pages, I suppose, giving\nus the details, which have never been submitted to\nthe Treasury at any time, and he expressed surprise\nthat he should be asked to give us a memorandum show-\ning the actuarial calculations for insurance on the\nplan.\nH.M.Jr:\nWell, is there any doubt in your mind as to the\nadvantage of sending it over to the President?\nMagill:\nNo, not the slightest. I think that's what we\nshould do by all means.\nH.M.Jr:\nDan?\nBell:\nNo, but I assume certainly that the President did\nknow that there was such an understanding, because\non Thursday, when I heard this was going on, I called\nMcIntyre and told him the matter had not been cleared\nRegraded Uclassified\n7\n7 1 I\nwith the Treasury, and he said, \"Hold the phone.\"\nApparently he went and talked with the President.\nAt any rate, he came back and said that \"the President\ndoesn't want to see Latimer until it is cleared with\nthe Treasury.\"\nH.M.Jr:\nBut he did see him.\nBell:\nBut he did see him, yes.\nH.M.Jr:\nThat's why I want to send a memorandum. I don't\nknow whether the President has done something.\nWe'll simply put in the memorandum, \"Here are the\nfacts, Mr. President. There's 140 million dollars\nat stake. Mr. Latimer said he would clear it with\nus and we'd like to suggest that you inform Mr.\nLatimer that he does clear it with the Treasury,\nbefore he commits you, see?\"\nBell:\nI think that's right.\nH.M.Jr:\nHuh?\nMagill:\n(Nods yes)\nOliphant:\nI got the very distinct impression that he was putting\nit up to us in the form\nH.M.Jr:\nWho's \"he\"?\nOliphant:\nLatimer.\nthat they were trying to get the\nrailroads and the unions to agree and we had to put\nup this money in order to get that agreement. That\nis about as bad a form as I think it could come to\nus.\nMagill:\nHe won't say that flat.\nOliphant:\nNo, he won't say it flat.\nH.M.Jr:\nFrankly, I'm not familiar - if the memorandum does\nnothing else, it will bring me up-to-date. If it\ndoes nothing else, it will bring me up-to-date. But\ncertainly at the speed the President is moving, it\nis impossible for him to know about it all, and\nMcIntyre doesn't know what it's all about. Huh?\nRegraded Uclassified\n8\nto I I\nMagill:\nWell, no one would know what it was all about unless\nyou began to delve into it. You'd never get it out\nof Latimer unless you knew what questions to ask,\nbecause Latimer isn't going to tell you.\nH.M.Jr:\nWell, if you fellows would do that today and get that\nfor me - a letter of transmittal telling the President\nwhat happened, what we'd like; then a technical memor-\nandum explaining what the - how we see the difficulties\nthere are. O.K., gentlemen?\nOliphant:\nI think it's going to be a hard thing to head off.\nH.M.Jr:\nHello (On phone) (Short conversation with Senator\nWagner)\nHe's going to let me know this afternoon. He's got\nan appointment pending. Says he'll just tell the\npeople he wants to come to my house.\nBell:\n(Hands Secretary a paper) Just wanted you to read\nthat. Don't have to do it now.\nH.M.Jr:\nWell, we've got to talk about that, nuh?\nBell:\nYes.\nH.M.Jr:\nAnd while we're on that, if these Governors come\ndown, I think you and I will have to do some homework\nfor the President on that thing beforehand. I'd like\nto work - just you and Harry and I - I mean so we'll\nhave some stuff for the President.\nBell:\nAll right.\nH.M.Jr:\nHuh?\nBell:\nYou mean in cases where they're coming.\nH.M.Jr:\nNo, but he can't refuse to see them. Tell you\nwhat I'll do\n(on White House phone) Mr. Hopkins, please. Good\nmorning. - - Yes. - - Thank you.\nAny other thing, Dan?\nRegraded Uclassified\n9\n- 9 -\nBell:\nThat's all.\nH.M.Jr:\nSay, you haven't spent any money in two days.\nBell:\nPicking up a little now.\nRoche:\nTrade's good.\nBell:\nTrade's good.\nH.M.Jr:\nYou're all right then?\nBell:\nI'm all right.\nH.M.Jr:\nArchie?\nLochhead:\nMarket's very quiet.\nH.M.Jr:\nMiss Roche?\nRoche:\nNothing special, sir.\nH.M.Jr:\nWayne, a couple of weeks ago I asked you to do a\njob for me and I've had no report. It was in con-\nnection with the Export-Import Bank making a loan\nto Italy - cotton spinners, nine months' credit -\nand I asked you to find out how many other things\nlike that were going on. Remember?\nTaylor:\nI thought I did report back on that.\nH.M.Jr:\nNo, you simply said that you were doing it. I mean\nI never got anything. When could I have it?\nTaylor:\nI can get that for you fairly quickly.\nH.M.Jr:\nCan you do it before you leave?\nTaylor:\nUh-huh.\nH.M.Jp:\nWhat?\nTaylor:\nUh-huh.\nH.M.Jr:\nBecause frankly I can't understand how the President\ncan say that a loan to the French railways does not\ncome within the spirit - I'm saying it very\nRegraded Uclassified\n10\n- 10 -\nconfidentially - of the Johnson Act, but at the\nsame time we loan money to French spinners - I mean\nItalian spinners. I mean it seems the spirit of the\nJohnson Act is sort of flighty.\nBell:\nWell, the Export-Import Bank is exempt from the\nJohnson Act, is it not. Isn't that right, Wayne?\nTaylor:\n(Nods yes)\nBell:\nThat's the difference.\nH.M.Jr:\nWell, what about the Chase and the National City?\nBell:\nWell, they're under the Johnson Act.\nOliphant:\nExport-Import is expressly exempt from the Johnson\nAct.\nTaylor:\nOr any other wholly-owned governmental corporation -\ncontrolled.\nH.M.Jr:\nWell, I - I know of that loan. I'd like to know\nany other loans they have made to countries who owe\nus money. And I don't know that Bill Myers or\nR.F.C. - that makes the whole thing, doesn't it?\nTaylor:\nThey haven't done any new ones.\nH.M.Jr:\nWell, would you mind? Because I just - I think\nthere's such a thing as consistency, huh?\nTaylor:\nIt is rare.\nH.M.Jr:\nWhat?\nTaylor:\nThere is such a thing, but it is very rare.\nH.M.Jr:\nWell, you were there at Cabinet when the President\nlectured to Cabinet on the spirit of the Johnson\nAct. You can use the phone if you haven't, just\ncall up the R.F.C. and then - what is it, Import-\nExport or Export-Import?\nTaylor:\nExport-Import.\nH.M.Jr:\nExport-Import. Bill Myers, I'm sure, hasn't.\nRegraded Uclassified\n11\n- 11 -\nTaylor:\nNo, I know he hasn't.\nH.M.Jr:\nDo you think before you leave you could?\nTaylor:\nUh-huh.\nH.M.Jr:\nI've had that a couple weeks on my mind here.\nHave you got anything?\nTaylor:\nHave official replies from the British and the\nSwiss.\nH.M.Jr:\nBritish you have?\nTaylor:\nYes.\nH.M.Jr:\nBritish, Swiss, French\nTaylor:\nFrench, Belgians, and Netherlands still to be heard\nfrom. But they've cabled.\nH.M.Jr:\nWell, that's all right. That's on that earmarking\namongst club members - exchange locker room. All\nright, what else?\nTaylor:\nThat's all.\nH.M.Jr:\nGeorge?\nHaas:\nI have nothing except that I wish this group could\nhave heard the Secretary of the Treasury in the\ncapacity of a Harvard professor on Saturday, and\nalso have witnessed Mr. Carruthers as he left the\nroom. Should I tell a little bit about that?\nH.M.Jr:\nSure.\nHaas:\nAt the meeting there was a group of students from\nYale, Harvard, and Princeton - select students, I\ntake it - and members of the faculty from the three\nuniversities, including John Williams from Harvard\nand Harris from Harvard and a man named Gilbert from\nHarvard who was on the faculty there, and Rogers\nfrom Yale and Carruthers from Lehigh, and Riefler\nfrom Princeton. Kemmerer I don't believe was there.\nLeffingwell, of J. P. Morgan, was there. A man from\nthe Bank of England was there, a man in charge of\nRegraded Uclassified\n12\n- 12 -\nthe economic division of the Bank of England.\nThe Secretary opened the discussion - their student\nchairman presided - the Secretary opened the discus-\nsion by pointing out what the ob jectives of the\nAdministration's monetary policy are and then went\ndown and told each step, outlined each step and how\nit fitted into a whole. Discussion immediately broke\non\nH.M.Jr:\nExcuse me. Hello (On phone) Hello, Harry (Hopkins).\nHow are you? Harry, if the President is going to\nsee these six Governors, I'm suggesting that you,\nDan and I get together and do a little memorandum\nfor him. - - No, no. - - Well, I know he\nhasn't, but I mean\n-\n-\nWhat?\n-\n,\nWell,\nI thought that - I mean I'm volunterring my ervices\nbecause - but I just want to say that Bell and I will\nbe glad to volunteer because - for obvious reasons.\nI mean the thing is going and they've got to have a\nstory. - - Well, we've been running those figures\nhere, you see: the cost of states and\nI\n-\nYes.\n- - Well, I know it's going to be - 1t gets into a\ncat-and-dog fight, and I could sit back and do nothing,\nbut Bell and I are willing to be helpful. - - Thank\nyou.\nAll right, Georgie.\nHaas:\nAfter the Secretary completed his summary, questions\nwere asked. oh, they ranged all the way from the\n24-hour policy to the bond market to why the price\nis fixed at $35, and why gold was embargoed. And it\nwas a very lively discussion all the way through.\nMr. Carruthers insisted that we should have stayed\non the gold standard. Then, in order to have an\nunderstanding of just what he was talking about,\nhe was questioned what he meant by the gold standard.\nThe boys took him on at one stage of the thing. And\nne says, \"Well, you could be on gold standard and\nuse these controls.\" Well, one of the boys from\nPrinceton said that he'd been taught that the gold\nstandard meant this, that, and so on, and by defini-\ntion, if he had these controls he would no longer be on\nRegraded Uclassified\n13\n- 13 -\nthe gold standard. well, he had Mr. Carruthers\nreeling, and when some of the professors saw him\non the ground\nGaston:\nthey jumped on him.\nHaas:\nThe Secretary gave him the first push, then the\nboy got encouraged. And then, in order to catch\nhimself, he came back and asked the Secretary a\nquestion; I forgot what it was, Oh, the 24 hours.\nAnd the Secretary demolished him on that. After\nthe Secretary made a rather long statement, why,\nMr. Leffingwell supported him completely - the\nSecretary's statements - from the business point of\nview, whether there would be confidence or there\nwouldn't be confidence.\nWell, it went on for three hours in the morning -\nvery lively discussion. Then somebody, a man named\nHarris, questioned the bond market, and the Secretary\nstraightened him out on that.\nThen the final - after the day was over - there was\nsix hours of discussion. At the end each of the\nstudent chairmen of the five round tables gave a\nreport in the suditorium of the conclusions reached.\nAnd the chairman of the Secretary's round table -\neither he got at the front sheet of the Secretary's\npaper or he read what the objectives were, and he\nsaid those were the conclusions of the conference.\nH.M.Jr:\nHe took the first page and a half\nHaas:\nThat's right.\nH.M.Jr:\nas the conclusions.\nHaas:\nIt was a marvelous performance the Secretary did\nup there. He's too modest to talk about it, but it\nreally was & marvelous performance. I haven't seen\nanything like it. And there seemed to be a unanimous\nagreement after the discussion as to the Administra-\ntion's program. The only one that didn't agree was\nCarruthers, and he was so groggy he just didn't know\nwhere he was located at the end. He was completely\nconfused. It was brought out very definitely that\nhe didn't understand his monetary theory.\nRegraded Uclassified\n14\n- 14 -\nH.M.Jr:\nYou must tell them, though, what happened one minute\nbefore the thing broke up.\nHaas:\nIn the afternoon?\nH.M.J.:\nYes.\nHaas:\nI wasn't there.\nH.M.J.:\nWell, one minute of five they got all these resolu-\ntions together. Carruthers piped up and said, \"I\ncan't go along with that. There's nothing in there\nabout silver,'\nDO I said, \"Well, you don't expect to settle the\nsilver question in one minute, do you?\" He said,\n\"No, but I got my opinion on silver. \"Well,\" I\nsaid, \"why weren't you fair in saying it before?\"\nThen this fellow Harris - none of us pulled our\npunches - said, \"If you've got anything on silver,\nwhy didn't you say so this morning? The Secretary\ngave you every opportunity. Why bring it up at\none minute of five?\"\nHass:\nHe was completely demolished.\nH.M.Jr:\nOne minute to five he says he wants to start talking\nabout silver, so they - all day long we were looking\nfor silver.\nAnd the interesting thing that surprised me was that\nJames Harvey Rogers - he gave us all his worries that\nhe had a year and B. half ago - all of them proved\nfutile. \"I can't see anything to worry about now\nother than the study of additional controls.\" He\nsaid, \"Every worry I had a year and a half ago has\ndisappeared.\" He said, \"I was wrong.\" Now, that\nOliphant:\nfrom Rogers is something.\nGaston:\nWas there any transcript of this?\nH.M.Jr:\nNot a thing.\nGaston:\nThat's too bad.\nRegraded Uclassified\n15\n- 15 -\nH.M.Jr:\nI gave to Leffingwell - he begged me to release\nthe thing that the boys helped on. I'm going to\nlet the President see it at noon. He said for three\nyears he hoped and they tried themselves to do what\nI did that morning, but were unable to, and that it\nwas the best presentation of the Government monetary\npolicy anybody had given.\nNo, I think it would have slowed everybody up if\nthey had recorded it. I wouldn't have liked it.\nGaston:\nBut I tell you what you might do. Why can't\nLeffingwell write a magazine article from the\nbackground of this conference?\nH.M.Jr:\nI've got the statement. If the President will let\nit go out it can be given as a radio talk: \"A View\nof Three Years' Monetary Policy; Where We Stand.\"\nTake about fifteen minutes. We could arrange it,\nhuh?\nGaston:\n(Nods yes)\nHaas:\nThe Secretary, in outlining his steps - monetary\nsteps that have been taken, indicated how they\nall synthesized together, and he said \"with one\nexception\" right at the start, so he gave everybody\na lead to ask about silver or whatever they had on\ntheir mind.\nH.M.Jr:\nWhatever that one exception was. We decided we\nwouldn't name it. We gave everybody one exception.\nMagill:\nNobody asked you what the one exception was?\nH.M.Jr:\nWe said \"with one exception.\"\nMagill:\nDidn't you run up a red flag?\nH.M.Jr:\nWe had two pages on silver. We spent two nights\nat home on it. And after we had two pages on\nsilver, we left the whole thing out and just said\n\"with one exception.\"\nRoche:\nAnd nobody asked? As I was saying, there were no\nwomen present - - curiosity.\nRegraded Uclassified\n16\n- 16 -\nH.M.Jr:\nWell, thanks, George.\nMagill:\nHow do I get to see your statement?\nH.M.Jr:\nWell, we'll take it over at noon. And I gather\nGeorge held up his end.\nHaas:\nWell, I'll take two minutes to tell about the\nother session on Revenues, Receipts, and Expen-\nditures, Friday afternoon. They started the dis-\ncussion by criticizing the income tax because it\nwas variable and had a series of figures showing\nthe yield. So the student chairman asked me if\nI would start the discussion and I did, and I\nfound out very quickly that, other than Kent and\nI - we were on one side and the rest were on the\nother side. So it was just round-and-round, nobody\ngiving us any help. But we were throwing spikes\ninto their machinery.\nFor instance, I think Lutz prepared these tables\non the incomes before we got to the undistributed\nprofits tax. Well, they just pointed to the yield,\nand I pointed out that as a statistical situation\nit wasn't sound because there was such wide variation\nin the income tax rates during the period. I don't\nwant to go into it.\nAnd then the undistributed profits tax. By the way,\nGeorge O'May was one of the guests too. But he\ndidn't question the estimates.\nOliphant:\nDidn't mention his visit to Washington?\nHeas:\nHuh?\nOliphant:\nDidn't mention his visit to Washington?\nHaas:\nNo, no.\nWell, it was perfectly obvious that the instruction\nwhich had been given these boys, not only with regard\nto the undistributed profits tax but some of the other\ntaxes, was of a low order as compared with the way\nthe boys handled themselves in the monetary discussion.\nThey were all smart boys, but they were just deficient\nin their understanding of it.\nRegraded Uclassified\n17\n- 17 -\nThey wanted to arrive at a conclusion. So at the\nfinal session I was interested to know what the\nconclusion was. I thought - from the way the dis-\ncussion went I didn't know how it was going to be.\nThe chairman finally said this was the conclusion:\nthat there was some question of the economic effects\nof forcing this distribution out. I pointed out it\nwouldn't necessarily have to force it if the corpora-\ntion wanted to keep it. But he said that the distri-\nbution may have some adverse economic effects, and\nit was a general feeling that it shouldn't be a\ngraduated tax, it should be a flat tax. Now, you\ncan't reconcile those two statements. The economic\neffects would be more severe with a flat tax.\nBut any way, that was a conclusion. It was just too\nmuch to cover in that length of time. Then in the\nafternoon on Saturday the student chairman was rather\nhard put. He wanted to discuss revenue, receipts,\nand expenditures, and the budget, and whether it\nshould be balanced, and so on. Well, finally I\nwent in there, and they wanted to balance it at one\nfigure, and the function I performed there was to\nraise questions about everything they attempted to\ndo. So the time went on. °0 they got near the\nclose of the session and the student was wondering,\n\"What conclusion can we reach about this balancing?\"\nThe only thing they could get together on at the\nclose of the session was that they felt it was\nhighly desirable to retire the debt during periods\nof prosperity. Be asked me if it was all right, and\nI said yes, I'd vote for that.\nBut we nad a very good time.\nH.M.Jr:\nThe students, I thought, showed up better than the\nprofessors. I know I brought Bob over from Deerfield\nand he said, \"Gee, dad, you come to Harvard to study\neconomics under Harris and you take it for granted\nne's good. He just didn't know what he W&S talking\nabout.\" I mean that was a prep school boy. This\nman kept saying all the time, \"What's the Government\ngoing to do to keep the bond market from going down?\"\nSaid it about five times.\nHeas:\nEvery time he writes a book, it's about as big as\n\"Gone with the Wind.\" About that size.\nRegraded Uclassified\n18\n- 18 - -\nOliphant:\nAnd as much wind?\nHeas:\nThat's right.\nShould I mention Berle's address?\nH.M.Jr:\nBerle - Adolph Berle, Junior, is the most brilliant\nguy, and oh, what an orator that man is. He's like\nan actor. Here's a fellow that listens to these\nfive chairmen and then he gets up and makes an ad-\ndress - the flow of the English language, the delivery.\nI mean it was like listening to a finished - well,\nI'd have to say English actor - on the American stage.\nI've never heard that man before.\nGaston:\nWhat was this on? On your conference on monetary\npolicy?\nH.M.Jr:\nHe had the job, after five student chairmen got\nthrough, to summarize what they said. He was the\nlast speaker of the day.\nGaston:\nOn the general\nH.M.Jr:\nOn the general role of governments and the national\nsituation, I mean. But - well, you people (Oliphant\nand Magill) know him.\nOliphant:\nWe listened to that for five years.\nH.M.Jr:\nAm I overstating it?\nMagill:\nYou're stating it with complete accuracy as far as\nyou've stated it.\nOliphant:\nYou've stated your impression of hearing him the\nfirst time.\nH.M.Jr:\nWell, I've never heard - I've never heard a man -\nof course, if you take down what he says, I guess\nyou could break it down. But from a standpoint\nof delivery and the performance of mental gymnastics,\nI've never heard his equal. Now, I really haven't,\nfrom the standpoint of mental gymnastics. And never\nhesitates a minute. The words just came out like -\nas if he was reading from a document.\nOliphant:\n(Laugh heartily)\nMagill:\nRegraded Uclassified\n19\n- 19 -\nMrs Klotz:\nThey know him.\nH.M.Jr:\nDo you know anybody who can do it like that?\nMagill:\nNo, I don't think I do.\nH.M.Jr:\nHe got a terrific hand of applause.\nHaas:\nHe mentioned something about the Constitution that\nmight interest the legal people. In connection with\ndiscussing the role of the government in economic\naffairs, he mentioned that the Constitution - the\nquestion of the Constitution wasn't raised at this\nstage. He said we don't want an amendment to the\nConstitution, but what we want is to get back to the\nold Constitution that we thought we had. And he got\na big hand. Then he said parenthetically that the\nway to do that, the simple, efficient way to do that,\nmight be to get some judges that really interpreted\nit correctly, or something of that sort.\nH.M.Jr:\nWell, he certainly bowled me over. Thanks, George,\nfor your kind words.\nMr. Gaston?\nGaston:\nI haven't anything. I suppose there will be something\npublished on this, won't there? These conclusions, etc.\nH.M.Jr:\nI don't think - I'll talk to you after I see the\nPresident about it.\nRoswell?\nMagill:\nI have some memoranda from various sources on the\nsubject of this flow of foreign gold - one from\nBurgess and one from Gourrich; and a letter from\nsomeone who says he represents the Amsterdam Stock\nExchange, who would like to come in and see us.\nH.M.Jr:\nWell, frankly, I'm going to put foreign capital on\nice for 24 hours while I do housing. I mean I've\ngot to prepare myself for that meeting tomorrow.\nMagill:\nThe trouble with our associates at S.E.C. - at least\nGourrich is completely - apparently completely mis-\nunderstands the present proposals. What he has to\nRegraded Uclassified\n20\n- 20 -\nsay is very interesting, but it isn't on the point.\nH.M.Jr:\nWell, supposing you men carry it on. And Haas, those\nof you who have been in on it - I mean anybody who's\nbeen on it keep it moving. I wouldn't stop it. But\nas far as I'm concerned, for today and tomorrow I\nwant to concentrate on tnis housing. I haven't got\nit yet.\nMagill:\nI'm seeing Bryan of the Federal Reserve Board this\nnoon. We'll keep it simmering.\nH.M.Jr:\nSwell. Anything else?\nMagill:\nLast night I sat next to E fair-minded, educated\nlady, and she talked about the income tax return,\nhow complicated it is to make it out.\nH.M.Jr:\nHave you talked to Gaston about your idea of having\nthe slip sent out to people asking them to submit\nsuggestions as to how they think the Government\ncould make it simpler, something like that?\nMagill:\nI spoke to him the other day.\nH.M.Jr:\nI think it may be a good idea - I mean how we can\nsimplify it.\nMagill:\nI was working on my own return yesterday, and I\ndon't need to tell you it is an impossible job.\nH.M.Jr:\nYou're telling me?\nMagill:\nIt's an impossible job even for somebody who under-\nstands all the ins-and-outs. But to comply with\nthat return - you can't do it. Now, maybe that is\nthe way it should be, but that's the way it is.\nH.M.Jr:\nI wondered why you looked so fatigued this morning.\nMagill:\nThat's why it is.\nOliphant:\nOne suggestion that I made is that it ought to be\nprinted in English. That would be a big help.\nMagill:\nThat would be a big help.\nRegraded Uclassified\n21\n- 21 -\nH.M.Jr:\nLet's think about this thing and...\nHaas:\nOf course you'd want to have your suggestions a\nlittle further along before you...\nH.M.Jr:\nWell, if Roswell Magill can't make out his own\nincome tax\nMagill:\nWell, I can make one out and I have done so for\nsome years, but it is not according to the instruc-\ntions that they ask you to follow. And you\npractically - I think that it would be impossible\nto follow the instructions.\nH.M.Jr:\nYou don't mean to tell me you cut corners.\nMagill:\nDear, dear.\nH.M.Jr:\nHuh? Well, Herman, I'll let you stay.\nRegraded Uclassified\n22\nLunch!\nPRESIDENT ROOSEVELT CHOSE STUFFED CRABS FOR LUNCH TODAY FROM 20\nMENUS SUBMITTED TO HIM BY MRS. ROOSEVELT IN THE COURSE OF THE \"WHITE\nHOUSE LUNCH AND BREAKFAST REORGANIZATION,\" THE FIRST LADY REVEALED\nTODAY.\nHIS REVOLT AGAINST LACK OF VARIETY IN HIS MEALS RESULTED NOT ONLY\nFROM AN EXCESS OF LIVER AND STRING BEANS, BUT ALSO FROM BEING SERVED\nTHE SAME SALT FISH FOR SEVERAL DAYS IN SUCCESSION, MRS. ROOSEVELT SAID.\n\"ANY MAN WHO EATS ALMOST EXCLUSIVELY IN ONE PLACE IS LIKELY TO GET\nTIRED OF BOTH THE FOOD AND THE COOKING,\" MRS. ROOSEVELT SAID. \"HE IS\nBETTER OFF HERE, BECAUSE THERE IS MORE THAN ONE COOK. IT'S LARGELY A\nQUESTION OF VARIETY.\"\n3/1--CS1235P\nRegraded Uclassified\n23\nTREASURY DEPARTMENT\nWASHINGTON\nOFFICE OF\nMISSIONER OF INTERNAL REVENUE\nMarch 1, 1937.\nADDRESS REALT TO\n- INTERNAL GEVENAE\nAMD HEFER TO\nMR. SECRETARY:\nOn February 6, 1937, I submitted 8. memorandum to Commissioner\nHelvering showing the names of four internal revenue agents in the\nNewark Division whom I could recommend for promotion to the position\nof Internal Revenue Agent in Charge. They were: Reuben 0. Thornton;\nRaymond Shotwell: Joseph F. Kelly: and John J. Morgan. As directed\nby Commissioner Helvering, further detailed reporte as to the\nservice and ability of the four agents are submitted herewith.\nIn my opinion the reports show that Reuben O. Thornton is the\noutstanding agent in the Newark Division in experience, administra-\ntive and technical ability, and thoroughly capable of performing\nthe duties of Agent in Charge. Commissioner Helvering 18 of the\nsame opinion.\nIn this connection I believe you should be informed as to the\nfollowing:\nOn February 18, 1937, Mr. Baradel informed this office that\nagents of the Newark Division were \"about ready to start in-\nvestigation of Mayor Frank Hague and his attorney, John Milton\".\nHowever, there is no reason to believe that the investigation\ncannot be as thoroughly and as efficiently carried on under the\nsupervision of Mr. Thornton, as under Mr. Baradel and it is not at\nall certain that the investigation will disclose additional tax\nliability.\nAlthough it is not believed further investigation of Agent\nThornton will disclose anything other than that shown by the at-\ntached report, Mr. Irey will be directed to submit & further report\nif you 60 desire.\nChan\nActing Commissioner.\nRegraded Uclassified.\n24\nFebruary 19, 1937.\nMr. Commissioner:\nIn accordance with your instructions, I submit the\nfollowing report on Internal Revenue Agent Reuben O.\nThornton, Newark Division:\nBefore going into the history of Agent Thornton's\nservice, I will briefly state his present status. Agent\nThornton is 50 years old. His present grade and salary are\nCAF-12, $4800 per annum and his present duties are those of\ngroup chief supervising work of 83 examining officers with\nposte of duty outside of Newark. His efficiency rating as\nof April 30, 1936 was 92, which ia excellent. He was Second\nAssistant to the Agent in Charge of the Newark Division to\nto February 1, 1936, at which time that position was eliminated\nin rearranging the personnel of the Division.\nOn August 14, 1935, the Internal Revenue Agent in\nCharge recommended Agent Thornton for promotion to Grade\nCAF-13, $5600. The recommendation was disapproved at that\ntime solely because it was inconsistent with the established\npolicy that Second Assistante to the Agent in Charge be\nclassified in Grade CAF-12 and the First Assistant in Grade\nCAF-13. However, he was granted an increase in salary with-\nin the grade to $4800. The recommendation indicated he\nwas considered equally capable as the First Assistant to\nthe Agent in Charge.\nAgent Thoraton entered the Internal Revenue Service\nfrom the Civil Service Register on August 19, 1919 as a\nresident auditor. He had previously served in the U. S.\nArmy from April 1918 to August 1919.\nPrior to entering the army, his experience was as\nfollows:\nClerk\n-\nAuditor's Office Southern\nRailway, Columbia, S. C.\n2 years\nBookkeeper\nCommercial Bank,\nand\nChester, South Carolina\n6 years\nCashier\nAuditor\nBankers Trust Company,\n1 year\nAtlanta, Georgia\nAuditor\nFarmers Exchange Bank\nSylvania, Georgia\n1 year\n25\nMr. Commissioner,\n- 2 -\nAfter entering the Revenue Service in August 1919, as\na resident auditor, he was promoted in 1921 to Section Unit\nAuditor in charge of a group of 11 auditors. In 1922, he\nwas again promoted to the position of Reviewer, and was\nsubsequently made a special auditor in the Natural Resources\nDivision. On August 4, 1924, he was transferred to the\nSpecial Adjustment Section. On June 13, 1925, he was trans-\nferred to the Atlanta, Georgia Division as an internal\nrevenue agent, $3,000 per annum. On December 31, 1926,\nhis salary was increased to $3100 per annum and on July 1,\n1928, to $3300 per annum. On November 16, 1928, he was\ntransferred to the Newark Division as a Senior Reviewer\nand on February 19, 1929, he was advanced to CAF-11, $3800\nper annum. On April 1, 1931, be was again advanced in\ngrade and salary to CAF-12, $4600. In 1932. his position\nwas advanced to that of \"Chief Reviewer\" and in 1934, he\nwas designated as Second Assistant to the Agent in Charge.\nNewark Division.\nThe following are remarks 88 to his ability made by his\nvarious supervisory officers:\nJanuary 1, 1921\n\"Shows exceptional ability in handling Unit and training\nnew auditors. Quantity and Quality of production excellent.\nKnowledge of law and procedure very good.\" Signed -\nF. R. Clute, Head of Division.\nJanuary 1, 1922\n\"A capable, conscientious Section Unit Auditor. Has\nability to handle auditors with tact. Has an excellent know-\nledge of law and procedure. Is studious and interested\nin his work.\" Signed - John G. Remey, Chief of Section.\nOctober 31, 1925\n\"This officer transferred from the Internal Revenue Bureau\nJune 13, 1925 and has shown aplitude for field work - is\nimproving with experience and will no doubt develop into &\ngood examining officer.\" Signed J. A. Baugh, Assistant to\nthe Agent in Charge.\nApril 30, 1926\n\"This officer possesses ability as an examining officer,\n16 improving in his work and will no doubt develop into a.\nsplendid agent.\" Signed. J. A. Baugh, Agent in Charge\n26\nMr. Commissioner\n- 3 -\nOctober 31, 1926\n\"This officer possesses ability to make complicated\ninvestigations and is improving as an investigative officer.\nHe has produced a very good record during the period and\nhas investigated difficult cases. His work has been very\nsatisfectory.\" Signed J. A. Baugh, Internal Revenue Agent\nin Charge.\nSeptember 30, 1927\n\"This officer is a good accountant and willing worker\nwith a good production record ... Has rendered a valuable\nservice to the Division.\" J. A. Baugh - Revenue Agent in\nCharge.\nSeptember 30, 1928\n\"This officer is an excellent accountant and auditor;\na conscientious worker and cooperates in every way. He 18\ncapable of handling the most difficult examinations. He\nhas a pleasing and convincing personality and is a very\nvaluable officer.\" Signed Wm. Brusse, Internal Revenue Agent\nin Charge.\nOctober 23, 1928\n\"He has one of the best production records in the\nDivision. His work is of the highest order. This officer\nhas a splendid record and his work is uniformily of the best.\"\nsigned - Vm. Brusse, Internal Revenue Agent in Charge.\nSeptember 30, 1929\n\"This agent is 8. splendid accountant and has a fine\nknowledge of law and procedure. He is capable of handling\nthe most difficult cases and is a very valuable officer.\"\nSigned - M. Brusse, Internal Revenue Agent in Charge.\nSeptember 30, 1929\n\"This agent was transferred to this Division November\n16, 1928, and for the entire time has been acting as \"Senior\nReviewer\". He is of & very pleasing personality, well versed\nin accounting and income tax law end works well with others.\nEe has devoted many hours of his own time to the work of\nthe division during the past year mainly because of his\ninterest in his work.\" Signed- J. P. Jenson, Internal Revenue\nAgent in Charge.\nRegraded Uclassified\n27\nMr. Commissioner,\n- 4. -\nApril 30, 1930\n\"The agent is acting as Senior Reviewer. He ie\nthoroughly familiar with accounting and income tax law and\nhas gained the confidence of the men with whom be comes in\ndaily contact. He is one of the outstanding agents in\nthe division His work is on a. par with that of Agents\nMorgan and Levy and far superior to that of the other\nagents classified in Grade CAF-12.\" Signed J. P. Jenson,\nInternal Revenue Agent in Charge.\nApril 30, 1932\n\"The agent is one of the outstanding agents in the\ndivision, and he is thoroughly reliable and well equipped\nfor his duties as supervisor of the Review Section of the\noffice and exercising general supervision of the assign-\nments of the division.\" Signed, John J. Morgan, Acting\nInternal Revenue Agent in Charge.\nApril 30, 1933\n\"Mr. Thornton's services have been highly satisfactory.\nThrough his pronounced technical ability and willingness to\nextend a. helping hand he has been of inestimable service\nin training some of the weaker officers. # Signed - R. T. Miles\nInternal Revenue Agent in Charge.\nApril 30, 1934\n\"During the year under review this officer was designated\nSecond Assistant to the Agent in Charge. His services have\nbeen highly aatisfactory and I express my indebtedness for\nthe service which he has rendered to the Division and to me.\nHe is very much underpaid.\" Signed R. T. Miles - Internal\nRevenue Agent in Charge,\nApril 30, 1935\n\"This agent is Second Assistant to the Agent in Charge\nand in addition to duties of such position, supervises\nassigning of income tax returns *** also supervises the\nwork of these agents.\" Signed - J. R. Baradel, Internal\nRevenue Agent in Charge.\nAugust 14, 1935\n\"I heartily agree with the comments made by Mr. Miles\n(April 30, 1934) and inasmuch as the industry and efficiency I\ndisplayed by Mr. Thornton are of outstanding character.\nthink $8600) 1a highly merited and should be granted.\" Signed -\nthat the salary increase herein recommended (CAF-13,\nJ. R. Baradel - Internal Revenue Agent in Charge.\nRegraded Uclassified\n28\nMr. Commissioner,\n- 5 -\nApril 30, 1936\n\"As \"Group Chief\" this agent supervises the income tax\nexamining officers with posts of duty outside of Newark,\nNew Jersey (including East Orange and Bloomfield), assigning\nthe work and being responsible for the correct and expeditious\nhandling of the cases assigned. Until February 1, 1936,\nAgent Thornton held the position of 2nd Assistant Agent in\nCharge; such position was vacated on that date. Mr. Thorn-\nton has supervision over the work of 83 examining officers.\"\nSigned - - J. R. Baradel - Internal Revenue Agent in Charge.\nIn addition to the foregoing,I do not hesitate to state\nthat in my opinion, Agent Thornton is the outstanding agent\nin the Newark Division.\nThe file does not disclose any political endorsements\nof Agent Thornton.\nChas J.Pussell\nDeputy Commissioner.\nRegraded Uclassified\n29\nFebruary 19, 1937.\nMR. COMMISSIONER:\nIn accordance with your instructions I submit the following report on\nInternal Revenue Agent Raymond Shotwell of the Nowark Division.\nAgent Shotwell is 48 years old. He 18 at present Chief Reviewer in\nthe Newark Division, grade CAF 12, $4600. Hie efficiency rating of April\n30, 1936, was 94. He entered the service of the Bureau of Internal Revenue\nB.S clerk May 10, 1919, by transfer from the War Department where he had been\nemployed since January 2, 1917, as & clerk. On February 1, 1921, his status\nwas changed from clerk to that of Assistant Auditor $2250 per annum. However,\nhe had been performing the duties of Assistant Auditor and Section Unit\nAuditor since October 1920, through an error in his Civil Service status,\nOn July 1, 1921, his salary was increased to $2500 per annum. On May 9, 1922,\nhe was designated junior unit suditor in the Consolidated Returns Subdivision.\nOn March 1. 1923, his salary was increased to $3000 per annum. On August 15,\n1923, he was promoted to the position of senior unit suditor. On February\n16, 1924, his salary was increased to $3600 per annum and on June 16, 1925,\nhe was promoted to junior reviewer. On October 24, 1925, he was transferred\nto the New York Division as a revenue agent engaged upon field investigations.\nOn January 11, 1926, he was transferred to the Brooklyn Division. His\nsalary was increased to $3700 on July 1, 1928. On November 1, 1928, his\nduties were changed to field conferee and on March 1, 1929, he was promoted\nto reviewer, grade CAF 11 - $3800. On October 16, 1929, his salary was\nagain increased to $4000 per annum. On July 3. 1930, in accordance with the\namendatory Classification Act his salary was increased to $4200 per annum.\nOn November 1, 1930, he was transferred from the Brooklyn Division to the\nNewark Division and again assigned to field investigations. On January 1,\n1932, he was promoted to the position of squad leader, supervising the work\nof 34 agents. Shortly thereafter his duties were changed to those of\nchief reviewer for the reason \"his ability is more pronounced along technical\nlines than along administrative lines\". On April 1, 1934, his grade and\nsalary were advanced from CAF 11 - $4200 to GAF 12 - $4600, in accordance\nwith the classification for the position of Chief Reviewer.\nThe following comments are by his supervisory officers!\nJuly 1, 1921. \"Has developed well in the technical work.\"\n(Signed) S. Alexander, Head of Division.\nJanuary 1, 1923. \"He 1s the most able auditor in the section and has\ngood administrative ability\".\n(Signed) W. L. Heap, Chief of Section.\nJanuary 1. 1924. \"The ability of this senior unit auditor is greatly\nabove the average of others performing similar\nduties in the division.\"\n(Signed) V. L. Heap. Chief of Section.\nRegraded Oclassified\n+\n30\nNovember 30, 1926.\n\"While this agent's production record is\nbelow the average of other agents in the same\nclassification grade, he is very thorough in\nhis work\".\n(Signed) R. T. Miles, Supervising Internal\nRevenue Agent.\nSeptember 30, 1927. \"Above the average in both quality and quantity\".\n(Signed) C. M. Justice, Internal Revenue\nAgent in Charge.\nSeptember 30, 1928. \"Above the average in both quantity and quality\".\n(Signed) J. R. Baradel, Internal Revenue\nAgent in Charge.\nSeptember 30, 1929. \"Much above average in both quantity and quality.\nEmployee is capable of handling any cases\npresented for review\".\n(Signed) J. R. Baradel, Internal Revenue\nAgent in Charge.\nFebruary 16, 1929. \"He is thoroughly familiar with his work but\nproduction to date appears considerably below\naverage\".\n(Signed) J. P. Jenson, Internal Revenue\nAgent in Charge.\nApril 30, 1931. \"The production of the agent is well above the average\nwithin his classification grade. His judgment and\nknowledge of the work is also oustanding, and he\nhas demonstrated the fact that he is one of the\nbetter agents attached to this division\".\n(Signed) J. P. Jenson, Internal Revenue\nAgent in Charge.\nApril 30, 1932. \"The agent is outstanding both as to quantity and\nquality of his work\".\n(Signed) John J. Morgan, Acting Internal\nRevenue Agent in Charge.\nApril 36, 1933. \"However, his ability 10 more pronounced along technical\nlines than along administrative lines and it is an-\nticipated that he will during the ensuing year be\ntransferred to the position of Chief Reviewer\".\n(Signed) R. T. Miles, Internal Revenue\nAgent in Charge.\nApril 30, 1934. \"Agent Shotwell's rating as a chief reviewer is con-\nsiderably higher than it was during the period when\nRegraded Uclassified\n-3-\n31\nhe acted as the squad leader. This is due to the fact that he is\n& much better technical agent than he is an administrative agent\".\n(Signed) R. T. Miles, Internal Revenue\nAgent in Charge.\nDeputy Commissioner.\n32\nFebruary 25, 1937.\nMr. Commissioner:\nIn accordance with your instructions, I submit the following\nreport on Internal Revenue Agent John J. Morgan, Newark Division:\nBefore going into the history of Agent Morgan's service, I\nwill briefly state his present status. Agent Morgan will be 40\nyears old on June 23, 1937. His present grade and salary are\nCAF-13, $5600 per annum. He acts as principal assistant to the\nInternal Revenue Agent in Charge of the Newark Division and in\nthe absence of the Agent in Charge assumes the responsibilities\nand duties of that officer.\nAgent Morgan entered the Internal Revenue Service as an\nInspector on August 1, 1922 at $1800 per annum in the Philadelphia\nDivision, on September 11, 1922 was transferred to the Huntington\nDivision, and on May 1, 1929 to the Newark Division.\nMr. Morgan is not a veteran.\nPrior to entering the Internal Revenue Service, his experience\nwas as follows:\nAccountant - Eddystone Rifle Plant,\nEddystone, Pa.\n4 years\nCompiled all fiscal statements,\nincluding P&L and Balance Sheets.\nAccountant - Hale and Kilburn Corporation,\nPhiladelphia, Pa,\n1 year\nPreparation of all statements.\nCost Clerk - Edw. H. Vare,\nPhiladelphia, Pa.\n1 year\nCost records on construction work.\nAccountant - American Railway Express Co.,\nPhiladelphia, Pa.\n4 years\nWorking on statistics for dis-\ntribution of express receipts\nto railroads under I.C.C.\n33\n- 2 -\nMr. Commissioner.\nAfter entering the Revenue Service in August of 1922 as an\nInspector, Mr. Morgan was assigned to the Philadelphia Division\nat $1800 per annum. On September 11, 1922 he was transferred to\nthe Huntington Division. Effective March 1, 1923 he was promoted\nto $2000 per annum and on March 1, 1924 WS.S designated as Internal\nRevenue Agent and promoted to $2500 per annum. He was again pro-\nmoted, on July 1, 1924 to $3000 per annum. On February 25, 1925\nhe was designated as conferee and on October 1, 1925 promoted to\n$3300 per annum. On January 1, 1927 he was promoted to $3500 per\nannum and again on October 1, 1927 was advanced in grade and salary\nto CAF-11 at $3800 per annum. On July 1, 1928 he was given another\nadvance in grade and salary - CAF-12, $4600 per annum, and on April\n1, 1931 promoted to Grade CAF-13 at $5600 per annum.\nThe following are remarks as to his ability made by his various\nsupervisory officers:\nJanuary 12, 1923\n\"This officer is a. newly appointed inspector but is worth\nmore money * * ⑉\". Signed - E. J. Rodgers, Internal Revenue Agent\nin Charge.\nJanuary 2, 1924\n\"This officer is very capable and efficient. He can investigate\nany class of case. This officer is very loyal to the Service and\ngives his best cooperation to this office\". Signed - Harry V. Bitting,\nInternal Revenue Agent in Charge.\nOctober 31, 1925\n\"He is a first-class accountant and income tax officer, possesses\nan agreeable personality and is highly efficient.\" Efficiency rating,\n95. Signed - Harry V. Bitting, Internal Revenue Agent in Charge.\nOctober 30, 1929\n\"This agent was transferred to this division effective May 1,\n1929. He is at present acting as assistant to the Agent in Charge\nin addition to his duties &8 representative of the Special Advisory\nCommittee.\" Signed - J. P. Jenson, Internal Revenue Agent in Charge.\nRegraded Uclassified\n34\n- 3 -\nMr. Commissioner.\nApril 30, 1933\n\"I am glad of the opportunity afforded herein of express-\ning my appreciation of the very capable assistance and loyalty\nwhich he has extended to me during my incumbency of the position\nof Agent in Charge of the Newark Division.\" Signed - - R. T. Miles,\nInternal Revenue Agent in Charge.\nApril 30, 1935\nInternal Revenue Agent in Charge J. R. Baradel accords\nMr. Morgan an efficiency rating of 93 as his principal assistant.\nApril 30, 1936\nMr. Baradel gives Mr. Morgan an efficiency rating of 96.\nMr. V. L. Highland, Republican National Committeeman for\nWest Virginia, endorsed Mr. Morgan for Agent in Charge at\nHuntington on March 17, 1928, and in this connection Commissioner\nBlair stated \"at the present time we are trying out the man who\nwas Mr. Bitting's assistant and who has practically run the office\nfor the last two years\". (He is referring to the present Internal\nRevenue Agent in Charge Leslie R. Miles.)\nUnder date of April 18, 1923, Senator George Wharton Pepper\nwrote in behalf of Mr. Morgan.\nChan J.Rassell\nDeputy Commissioner.\nRegraded Uclassified\n35\nFebruary 25, 1937\nMr. Commissioner:\nIn accordance with your instructions, I submit the\nfollowing report on Internal Revenue Agent Joseph F. Kelly,\nNewark Division:\nBefore going into the history of Agent Kelly's service\nI will briefly indicate his present status. Agent Kelly is\n45 years old and will reach his 46th birthday on March 31,\n1937. His present grade and salary are CAF 12 at $4800 per\nannum, and his present duties are those of the highest type\nof field examining agent. His efficiency rating as of April\n30, 1936, was 90 which is \"Excellent\", and he has been\nassigned as an Acting Conferee during the past year. He\napparently handles the most difficult and involved examina-\ntions in the Newark Division.\nAgent Kelly is a veteran of the World War, having served\nin the Supply Corps from July 1918 to August 1919. He\nentered the Internal Revenue Service from the civil service\nregister as an Internal Revenue Inspector effective August 1,\n1920.\nPrior to entering the navy, his experience was as follows:\nBookkeeper\nNew England Telephone\nand\nCompany\n(1809 to\nStorekeeper\n1912)\n3 years\nDeputy Collector\nFall River Customs\nand\nHouse\n(1912 to\nInspector\n1917)\n5 years\nYeoman U.S.N.R. - January 1917 to\n12 years\nJuly 1918\nEnsign U.S.N.R. - July 1918 to\n1 year\nSupply Corps\nAugust 1919\nAfter entering the Revenue Service in August, 1920, as\nan Internal Revenue Inspector and completing the 45-day\ntraining course, Mr. Kelly was assigned to the Buffalo Division\nat a salary of $1800 per annum. Effective July 1, 1921, he\n36\n-2-\nMr. Commissioner.\nwas promoted at $2000 per annum; on May 16, 1922, he was\npromoted to the position of Internal Revenue Agent and as-\nsigned to act as aquad leader, with compensation at $2250;\nand March 1, 1923, he was promoted to $2500. Under date of\nJanuary 21, 1924, Agent Kelly tendered his resignation from\nthe position of agent at $2500 per annum in order to accept\na position outside of the service, which was accepted\neffective at the close of business February 9, 1924.\nUnder date of June 17, 1924, Mr. Kelly applied for\nreinstatement and he was reinstated as an agent at $2700\nin the Huntington Division, reporting August 22, 1924, and\nwhere he served as a. field examining officer.\nEffective January 1, 1926, Agent Kelly was promoted\nto $2900 and on January 1, 1927, to $3000. On October 1,\n1927, he was allocated to Grade CAF 9 without change in\nsalary. but on January 1, 1928, was promoted to $3200; on\nJuly 1, 1928, was promoted to $3400; on February 16, 1929,\nto $3600; on October 16, 1929, to $3700; and on March 16,\n1930, was promoted to Grade CAF 11 at $3800. Effective April\n1, 1931, Agent Kelly was placed in Grade CAF 12 at $4600 per\nannum, which is his present grade and compensation.\nThe following are remarks as to his ability made by his\nvarious supervisory officers:\nNovember 16, 1921\n\"This officer is doing as good work as any officer in\nthe field. He is reliable and energetic. **** Signed\nC. W. Herrick. Internal Revenue Agent in Charge.\nDecember 1, 1922\n\"Officer proved quite efficient as a squad leader and\nis very capable and industrious. Has excellent knowledge of\nlaw and regulations and he is capable of meeting all account-\ning problems successfully.\" Signed R. A. Conway, Internal\nRevenue Agent in Charge.\nJanuary 12, 1923\n\"Officer proved quite efficient as a aquad leader and is\nvery capable and industrious. **** Signed R. A. Conway.\nInternal Revenue Agent in Charge.\nRegraded Uclassified\n37\n-3-\nMr. Commissioner.\nJanuary 8, 1924\n\"Diligent with ability above average. ****** He also\nhas the ability to impart this knowledge to the examining\nofficers engaged on individual, partnership and fiduciary\nexaminatio ns. Mr. Kelly is also the reviewing officer\nof all protests, appeals or letters submitted by taxpayers\nrelative to individuals, partnerships and fiduciaries\nSigned W. P. Mays, Internal Revenue Agent in Charge.\nFebruary 9, 1924\nAgent Kelly resigned at the close of business this date.\nAugust 22, 1924\nReinstated as agent in Huntington Division.\nOctober 31, 1925\n\"Reinstated in this division August 22, 1924. Qualified\nto handle all classes of income and excess profits cases.\n**** Signed Harry V. Bitting, Internal Revenue Agent in Charge.\nApril 30, 1926\nAccorded efficiency rating for period of 94, which is\n\"Excellent\" but no comments made by supervisory officer.\nOctober 31, 1926\nAccorded rating for period of 94.25. \"Agent Kelly is\nassigned all classes of cases. He is thoroughly competent\nand very valuable as a utility officer\". Signed Harry V.\nBitting, Internal Revenue Agent in Charge.\nSeptember 30, 1928\nAccorded a rating of 89 by new internal revenue agent\nin charge, Mr. Leslie R. Miles, who recommends that Agent\nKelly be promoted to Grade CAF 11.\nRegraded Uclassified\n38\n-4-\nMr. Commissioner.\nSeptember 30, 1929\n\"This officer's production record does not reflect his\nactual value to the service. He should properly be classified\nin Grade 11\". He is accorded rating for the period of 90 by\nLeslie R. Miles, Internal Revenue Agent in Charge.\nApril 30, 1930\nAgent Kelly is given a rating of 92. \"A highly com-\npetent officer, especially valugble as he is qualified to\nhandle all classes of cases. If Signed Leslie R. Miles, Internal\nRevenue Agent in Charge.\nJanuary 26, 1931\nHe is recommended for Grade 12 because of transfer of\ncases previously examined by Travel Audit. by Leslie R. Miles,\nInternal Revenue Agent in Charge.\nApril 30, 1932\n\"A very efficient officer\". Signed Leslie R. Miles,\nInternal Revenue Agent in Charge.\nJanuary 1, 1933\nTransferred to Newark Division.\nApril 30, 1933\n\"The work which this officer has performed since being\nattached to the Newark Division leads to the thought that what\nwas Huntington's loss was Newark's gain.\" Signed R. T. Miles,\nInternal Revenue Agent in Charge.\nApril 30, 1934\n\"Agent Kelly receives the highest efficiency rating among\nthe examining officers of this division. He is an exceptionally\nhighly qualified officer.\" Signed R. T. Miles, Internal Revenue\nAgent in Charge.\nApril 30, 1935\nIs accorded a rating of 89.35 without comment by J. R.\nBaradel.\nRegraded Uclassified\n39\n-5-\nMr. Commissioner.\nApril 30, 1936\nIs accorded an efficiency rating of 90 and has acted as\nConferee since January 8, 1936.\nSigned J. R. Baradel,\nInternal Revenue Agent in Charge.\nSupplementing the foregoing it appears that Agent Kelly\nis an outstanding examining officer and excellent conferee in\nthe Newark Division.\nThe file does not disclose any political endorsements\nfor Agent Kelly.\nChas.\nDeputy Commissioner.\nRegraded Uclassified\n40\nFebruary 6, 1937\nMr. Commissioner:\nAfter a careful survey of the personnel of the Newark\nDivision, I find there are only four employees in the\nDivision which I could conscientiously recommend for the\nposition of Internal Revenue Agent in Charge, and who,\nin my opinion, would receive the approval of the Secretary.\nThey are:\nRaymond Shotwell\nRueben O. Thornton -\nJoseph F. Kelly\nJohn J. Morgan.\nWith respect to Morgan, in 1923, Senator Pepper recommended\nthat he be transferred from the Huntington Division to the\nPhiladelphia Division or that vicinity. In 1928, V. L. Highland,\nof Republican National Committee, recommended him for the position\nof Internal Revenue Agent in Charge of the Huntington Division.\nYou are familiar with the Intelligence Unit report on\nAgent Hogan which eliminates him from consideration.\nThe age and record of Agent Downey also eliminates him\nfrom consideration.\nChas J.Presell\nDeputy Commissioner.\n41\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE March 1, 1937.\nTo\nThe Secretary\nFROM\nMr. Magill\nAfter 8. good deal of difficulty, I succeeded in telk-\ning to Mr. Latimer over the phone at 5 o'clock today. I informed\nMr. Latimer of the substance of the report on the Dow-Jones ticker\nrelative to the tentative agreement between the railroads and the\nemployees on the retirement plan. Mr. Latimer said that reporters\nhad been after them and that he had told them all that no definite\nagreement had been reached and that Administration approval had not\nyet been received. He then told me that in the conference with the\nPresident on Friday, the President did not in any way commit him-\nself to the approval of the tentative plan. The President merely\nwanted to know in general what was going on but did not inquire\ninto or wish to learn about the details of the proposed legislation.\nMr. Latimer said that he told the President that he had discussed\nthe tentative agreement with us but that the Treasury had given\nno final word respecting it.\nMr. Latimer thinke that the report was given out by\nsome of the railroad executives and not by the brotherhoods. He\nsaid that Mr. George Harrison, of the brotherhoods, expressed surprise\nthat the report had gone out. Mr. Latimer said that E. memorandum\nof the tentative agreement was being sent to 149 railroad presidents\npreperatory to securing their approval of it in advance, before the\nlegislation is introduced. Needless to say, this is not a perfect\nsituation R.S. far as we are concerned since we will have much greater\ndifficulty in securing changes in the legislation in the direction\nof increased payments either by the carriers or by the employees.\nRm\nRegraded Uclassified\n42\nMarch 1, 1937.\n9:45 a.m.\nH.M.Jr:\nBob, I'm spending most of the day studying your\nHousing bill.\nSenator\nWagner:\nYes.\nH.M.Jr:\nI wondered if by any chance you were free tonight.\nW:\nI - by God I did make a dinner engagement, Henry\nH.M.Jr:\nWouldn't she let you off?\nW:\nIf there is any way I can get out of it I'll let\nyou know.\nH.M.Jr:\nWell now my wife is going to some women's dinner\nso I'm home alone.\nW:\nYes.\nH.M.Jr:\nAnd I've asked nobody except yourself and if you\ncould come I - I'd like to possibly ask one or\ntwo others but submit the names first to you.\nW:\nYes.\nH.M.Jr:\nSee?\nW:\nYes. Well can I call you up this afternoon, Henry,\nand see 1f I can get out of it - I made that about\na week ago. It isn't a very important one but you\nknow how people are sometimes\nH.M.Jr:\nAs I understand it we're meeting with the President\nat 11 tomorrow.\nW:\nYes.\nH.M.Jr:\nAnd if you and I could sit down quietly, it would\nhelp me.\nW:\nYes. All right.\nH.M.Jr:\nSee?\nW:\nYes.\nRegraded I Iclassified\n43\n- 2 -\nH.M.Jr:\nAnd - well let me ask - you might be thinking - how\nwould you feel about having Ellenbogen there?\nW:\nEllen - all right.\nH.M.Jr:\nWhat?\nW:\nHe's all right.\nH.M.Jr:\nAll right?\nW:\nYes.\nH.M.Jr:\nNow do you want Steagall or not?\nW:\nBut Steagall is all right except he don't know a\ndamn thing about my bill.\nH.M.Jr:\nWhy not just you, Ellenbogen and myself.\nW:\nYes.\nH.M.Jr:\nWhat?\nW:\nYes, that will be all right.\nH.M.Jr:\nIs that all right?\nW:\nYes, but will you let me see if I can get out of\nthis thing, Henry?\nH.M.Jr:\nSure and I'll do nothing till I hear from you.\nW:\nAll right, fine, Henry.\nH.M.Jr:\nBut it would - I mean it would be very helpful\nto me if we could have a couple of hours' talk.\nW:\nYes. All right, Henry, I'll see if I can't get\nout of that thing.\nH.M.Jr:\nWell that - that's awfully nice.\nW:\nAll right.\nH.M.Jr:\nThank you.\nW:\nGoodbye.\nRegraded Uclassified\n44\nMarch 1, 1937.\n2:35 p.m.\nH.M.Jr:\nHello\nWoodring: Yes.\nH.M.Jr:\nHarry?\nW:\nYes, Henry.\nH.M.Jr:\nHow are you?\nW:\nAll right.\nH.M.Jr:\nHarry, beginning last July - wait a minute I've got\nmy letter here - 21st of July I've been corresponding\nwith the War Department about a place to put our\nsilver vault?\nW:\nYes.\nH.M.Jr:\nAnd, frankly, I've never been able to get the\nPresident to say where he wanted it up till to-day.\nW:\nAh-ha.\nH.M.Jr:\nAnd to-day I showed him the plans and he said that\nas far as he was concerned it was perfectly agreeable\nif we could get together with you to put it at\nWest Point.\nW:\nAh-ha.\nH.M.Jr:\nNow originally you submitted us eight different\nsites\nW:\nAh-ha.\nH.M.Jr:\nand site No. 5 was the one that we 'd like to\nhave.\nW:\nNo. 5.\nH.M.Jr:\nYes.\nW:\nAh-ha.\nH.M.Jr:\nNow - ah\nRegraded Uclassified\n45\n- 2 -\nW:\nHow many sites at West Point?\nH.M.Jr:\nYou submitted eight different sites.\nW:\nEight different sites.\nH.M.Jr:\nYes.\nW:\nYes.\nH.M.Jr:\nNow - ah - at site No. 5 is the one which is\nfurthest from the academy\nW:\nYes.\nH.M.Jr:\nand way back up there in the hills\nW:\nAh-ha.\nR.M.Jr:\n.....and, frankly, I'd like awfully to get\ntogether and get started.\nW:\nAh-ha.\nH.M.Jr:\nAnd - ah - the Navy has offered me a place down\nat Philadelphia but I should think, from a stand-\npoint of national defense, it wouldn't be nearly\nas good.\nW:\nAh-ha. I wouldn't know. Ah - if you want - you\ntell me what you want done and we'll start at it.\nH.M.Jr:\nI'll tell you what I'd like done.\nW:\nAll right.\nH.M.Jr:\nI'd like to have site No. 5 at West Point as I\nwrote you last July\nW:\nAh-ha.\nH.M.Jr:\nand if we could have that why we'd go ahead\nmerrily.\nW:\nAll right, let me go into it - say tomorrow morning\nH.M.Jr:\nO.K.\nW:\n....and - and see what I can do on it and get in\ntouch with you.\nRegraded Uclassified\n46\n3 I I\nH.M.Jr:\nRight. May I say in passing, I don't think it\ndid the Army any harm - our putting the gold in\nKentucky there.\nW:\nNo (laughs) - no I don't think so.\nH.M.Jr:\nWell I think you got a lot of publicity on it\nW:\nYes.\nH.M.Jr:\nthat's very good publicity.\nW:\nI think so.\nH.M.Jr:\nI mean it showed up what kind of a unit you had\nW:\nYes.\nH.M.Jr:\n......\nthe efficiency of the Army and all that.\nW:\nWell I see no reason. I - - I'm not familiar\nwith the correspondence on it but I'll look into\nit and I'll get in touch with you tomorrow about it.\nH.M.Jr:\nThat would be very kind.\nW:\nAll right.\nH.M.Jr:\nThank you.\nW:\nGoodbye.\n47\nMarch 1, 1937.\n3:10 p.m.\nH.M.Jr:\nHello\nGeorge\nHarrison:\nHello, Henry?\nH.M.Jr:\nHello - George?\nH:\nYes, hello Henry, how are you?\nH.M.Jr:\nI understand you're somewhere but nowhere.\nH:\nWhat's that?\nH.M.Jr:\nI understand you're in Washington but that you\nwon't tell anybody where.\nH:\nWell I've been on the go ever since I got here.\nI came in this morning.\nH.M.Jr:\nThat's all right, I'll take your word for it.\nH:\nAnd I called you\nH.M.Jr:\nYes.\nH:\n....and this is the first chance I've had to call\nyou back. I just want to report to you I'm back\nin civilization again.\nH.M.Jr:\nAre you?\nH:\nWhen - when is our meeting, Henry.\nH.M.Jr:\nWednesday.\nH:\nWednesday morning?\nH.M.Jr:\nYes.\nH:\nFirst rate, I'll be here.\nH.M.Jr:\nDid you kill any more quail than my Assistant\nSecretary?\nE:\nOh we killed about twice as many as Wayne' spotted.\nH.M.Jr:\nAnd how much does that make four?\nRegraded\nUclassifie\n48\n- 2 -\nH:\nAnd I'm the only one that's gotten in - well I'm\nthe second one to get in touch with you here.\nH.M.Jr:\nOh really?\nH:\nI've gotten the biggest one that's ever been caught\ndown there so tell him that for me?\nH.M.Jr:\nCaught?\nH:\nWhat?\nH.M.Jr:\nCaught? The biggest one that's been caught?\nH:\nCaught, yes you run after them and catch him by\nthe tailfeathers.\nH.M.Jr:\n(Laughs heartily) With a - with with sugar or\nsalt.\nH:\nSalt - a little salt.\nLaughter by both.\nH.M.Jr:\nWell George I'm fine and everything seems fine and\nif you're going to be down here Wednesday it's swell.\nH:\nI think I'll probably go back tonight but I'll come\ndown again tomorrow night.\nH.M.Jr:\nGood. I'll be glad to see you and - and I think\neverything looks all right.\nH:\nFirst rate, well I think so too from what I hear.\nH.M.Jr:\nYes.\nH:\nFine.\nH.M.Jr:\nBe glad to see you, George.\nH:\nAll right, I'll be there.\nRegraded Uclassified\n49\nMarch 1, 1937\n4:45 p.m.\nPRESENT:\nAmbassador Bonnet\nMr. Jules Henry\nDr. Livesey\nSecretary Morgenthau\nThe Ambassador: Monsieur Blum and Monsieur Auriol\nasked me to tell you how much they like your policy and\nhow happy they are for our friendly relations. I am very\nhappy to speak with you about the financial policy and about\nthe financial questions. The French financial situation 18\nevidently difficult, but we have in France a recovery. The\nreceipts of railways are increased and the business taxes\nare 8180 increased and the index of our industrial position\n18 also better. We are like many other countries. Our\nbudget is not balanced and, therefore, the Treasury must\ngive important sums to the budget. I know that it will be\npossible for the Treasury to furnish these important sums\nto the budget during the next six months. When I was\nMinister of Finance, in 1933, at that time the budget had\nto borrow 20,000,000,000 francs in six months.\nHM,Jr: What year was that?\nThe Ambassador: In 1933. Evidently it is not the\nsame times as now, but the Treasury has no more important\neffort today than it had at that period.\nMr. Henry: It is not a more important effort at this\ntime than at that time.\nHM,Jr: I do not know whether the Ambassador wants\nme to interrupt, but I do not want him to think that my\nsilence means that I agree.\nThe Ambassador: I believe that the task now 18 more\ndifficult than my task was in 1933. I believe that it is\nnot impossible to accomplish this task. I think that the\nRegraded Uclassified\n50\n-8-\nimportant question for us is the question of definitive\nstabilization of moneys, because while the moneys are\nfluctuating it is very difficult for our Treasury to\nfind the sums that are necessary for us, Monsieur Auriol's\nborrowings are difficult but not impossible and, therefore,\nthe French Government is convinced that it would be very\nimportant if you could arrive at the definite stabilization\nof our moneys and the questions of the Treasury and the\nbudget that are now very difficult would be more easy to\nsolve if you could arrive at the definite stabilization of\nour moneys.\nHM,Jr: When you talk of definitive stabilization\ndo you mean that they stabilize at the present rate or de-\nvalue further?\nThe Ambassador: It 16 not a question of new stabiliza-\ntion for the French Government.\nTme Ambassador: Speaking in French and interpreted,\nas follows; by Dr. Livesey:\nThere is no question of further devaluation.\nHM,Jr: What the Ambassador is talking about is fixing\nthe present price of the franc definitely.\nDr. Livesey: He does not mean that the franc should\nbe stabilized at today's value, but it should not fluctuate.\nHM,Jr: I still do not understand.\nHM,Jr: (To the Ambassador) Under your law of October 1\nyou could devalue another 8%.\nThe Ambassador: Yes.\nHM.Jr: (To Mr. Henry) When he 18 talking about\ndefinite stabilization is he talking about the present value\nof the franc or possible stabilization at a further devaluation?\nMr. Henry: (Interpreting into French the Secretary's\nquestion and interpreting the Ambassador's answer into English)\nHe means when he says stabilization he has in view that\nRegraded Uclassified\n51\n-3-\nthe franc can be reduced within the limits of the law.\nThe Ambassador: I understand that it 18 not a\nquestion of a new devaluation beyond the limit fixed by\nthe stabilization law of October first.\nMr. Henry: When he says devaluation he does not\nmean further devaluation than the October law provides.\nThe Ambassador: The law of devaluation provides\nthe extreme limit of 22 francs 50 centimes for a dollar.\nIt 1s this limit that we cannot pass.\nHM,Jr: I understand.\nThe Ambassador: Speaking in French and interpreted,\n8.6 follows, by Dr. Livesey:\nIf they take another limit they would have to go\nbefore Parliament.\nMr. Henry: The Ambassador has a message to give\nyou from Monsieur Auriol saying how much he appreciates\nyour cooperation of last September,\nHM,Jr: I never had the pleasure of meeting Monsieur\nAuriol, but I hope some day that I will.\nIwould like to say this to the Ambassador: I am\nnot a trained diplomat and I consider, and can only say\n60 in my own office, that the situation is very critical.\nI do not know how frank he wants to be.\nThe Ambassador: Completely.\nHM,Jr: The situation is SQ serious that either it\n18 necessary to be very frank or we cannot help each other.\nThe Ambassador: Speaking in French and interpreted\nby Mr. Henry:\nThe Ambassador agrees with you.\nRegraded Uclassified\n52\n-4-\nHM,Jr: While I realize very well the economic\nrecovery which France has made since devaluation, I am\nalso conscious of the fact that your unfavorable balance\nof trade has been constantly growing worse due to your\nincreased imports. It 16 not for me to say what France\ncan do or cannot do internally, and even if I knew, which\nI do not, I would not attempt to give any advice. I have\nbeen constantly getting more depressed about the French\nsituation and the information that I receive 18 available\nto everybody.\n(At this point the Secretary called to the attention\nof the Ambassador the Wall Street Journal article of today.\nThe olipping is attached.)\nI think it is of tremendous importance that the\nTripartite Agreement continue and we want to do everything\npossible, but I Just do not know what 16 going to happen\nduring the rest of this month on account of the large\nquantities of gold leaving France. I think both the\nPresident and I have demonstrated our real friendship for\nFrance and we want to do everything we can and still live\nup to our own laws.\nFrom the information which I receive I know that\nthere has been an exchange of letters between Monsieur Blum\nand Mr. Baldwin within the last two weeks on the monetary\nsituation, but of course I want to say again that I can\nonly say in my own office how I feel about the French\nsituation. I do not say this anywhere else and if the\nAmbassador at any time has any suggestions and thinks that\nwe can be helpful, always remembering our American laws,\nI would be more than glad to discuss it with him.\nThe quick rising of your prices offset the benefit\nof devaluation, BO you have not received the full benefits\nof your devaluation.\nI wish I could be more cheerful and do not like to\nbe 80 pessimistic the first time that the Ambassador calls\non me, but the situation 18 80 serious that I feel the\nquicker we get down to business, the better. I wish I\ncould say that everything was lovely, but the Ambassador\n16 an experienced man and I do not want to waste his time\nby saying pretty words.\nRegraded Uclassified\n53\n-5-\nThe Ambassador: Speaking in French and interpreted,\n8.6 follows, by Mr. Henry:\nHe thanks you very much for your frankness.\nHM,Jr: The situation 18 too serious to be otherwise.\nThe Ambassador: I tried to examine the situation\nvery frankly and during this question of the law of stabiliza-\ntion I spoke as Representative in the French Parliament and\nat that time, in September, I indicated all the difficulties\nthat the French Government would have. Therefore, I am\nwithout illusion because myself I explained from the tribune\nst the French Parliament four months ago all the difficulties\nthat were coming.\nThe Ambassador: Speaking in French and interpreted,\nas follows, by Dr. Livesey:\nThat was the reason he believes it is well not to\nexaggerate at the present time. The French Treasury has\nthree months, until June, before they have an increase of\nrevenue in the Treasury.\nThe Ambassador: During the first months of the year\nthe direct taxes do not come in; they come only in the\nsecond part of the year and it is one of the reasons for\nthe difficulties of our Treasury now. But there are also\nother reasons for our difficulties, but I think that if\nthe French Treasury can arrive at the month of July without\ntoo many difficulties, I think the situation could be estab-\nlished.\nHM,Jr: When does your Exposition start?\nThe Ambassador: In May.\nThe Ambassador: Speaking in French and interpreted,\n88 follows, by Dr. Livesey:\nThe policy they wish to follow is wholly in conformity\nwith the Tripartite Agreement,\nThe Ambassador: We want to avoid control of the exchange.\nRegraded Uclassified\n54\n-6-\nThe Ambassador: Speaking in French and interpreted,\nas follows, by Dr. Livesey:\nThey want to remain wholly in accord with the monetary\nunderstanding and to remain faithful to the Trade Agreement\nwith Mr. Hull.\nHM,Jr: That is our wish too.\nThe Ambassador: I thank you very much for your friendly\nreception and if I have projects to submit to you I would like\nto come to see you.\nHM,Jr: We will always be glad to see you.\nRegraded Uclassified\nWALL STREET JOURNAL\nMARCH 1, 1987\n55\nFrench Popular Front Government\nTakes Moderate Attitude Towards\nCapital-Recovery Before Reform\nBY CHARLES R. HARGEOVE\nand sharpen the antagonism between capital and\nStaff Correspondent of Tue WALL STREET JOURNAL\nlabor.\nPARIS-A policy of moderation, calling for\nIt is clear that the \"pause\" Le to be one of\nnational recovery before extension of economic\nindefinite duration and in all probability will\nand social \"reforms,\" has been adopted by\nlast until after the elaborate Paris Exposition\nPremier Leon Blum and his Popular Front\nla closed. It in equally clear that several months\ncabinet.\nmust clapse before national recovery can de-\nThe decision was forced upon the wateran\nvelop to a point where capital may begin to\nSocialist leader, who has found that his left-\nloosen up. But, in the meantime, the Treasury\nwing coalition's program has definitely blocked\naltuation must remain difficult, and the govern-\nthe business upswing.\nment will be forced to rely on temporary expe-\ndients.\nFriday's debate and subsequent action of the\nDeputies in voting confidence In the cabinet, ap-\nThere La as yet no Indication as to what the\nparently proves that the Blum government in\nTreasury expedients will be. On the one hand,\nunshaken in the Chamber and still backed by\nthere are influences urging restrictive, coercive\nmillions of industrial and farm workers.\nmeasures against capital. The leader of the\nFrench Labor Federation now openly demands\nAt the same time, the Premier is still strug-\nsuch strong action on the part of the Popular\ngling with what can best be described as a.\nPlease turn to Page 9, Column 4\nsit-down strike of capitalists. On the basis of\ntactice revealed, M. Blum does not propose to\nwar on the capitalists but rather continues to\nrely 00 their eventual assistance. The chief hope\nof the Premier in based on the possibility of de-\nveloping economic recovery and the desire of\nthe French monled groups to share in the\nprofits of any business upswing.\nReal Purpose of 'Pause'\nThus, the real purpose of Premier Blum's an-\nnounced \"pause\" or breathing spell in economic\nand social \"reforms\" is to enable the govern-\nment to undertake a program designed to over-\ncome obstacles to recovery. For example, the\ncabinet in undertaking the most strenuous plans\nto surmount the dangerous price situation,\nwhich has skied the cost of living and is & defi-\nnite peril to the financial structure. Meanwhile,\nthere is every indication that new and costly\nsocial reforms will be postponed, They could\nonly result in accentuating the existing deep\ndistrust in the financial and monetary situation,\nRegraded Uclassified\nFrench Cabinet Policies\n(Continued from First Page)\nFront government. On the other hand, there\nare even stronger influences favoring abandon-\nment of nil remaining restrictions on gold,\nmoney and the capital markets,\nHarmonize With External Polley\nIt is argued that the latter course would\nharmonise with Premier Blum's external policy\nand pave the way for closer French, British\nand American cooperation in all fields. M.\nBlum's repeated condemnation of the existence\nof practical anarchy in France is especially sig-\nnificant. He is determined, apparently, to fol-\nlow the road of economic and dinancial liberal-\nIsm and leading members of his cabinet, for ex-\nample Finance Minister Aurio), are entirely with\nhim in this determination.\nThe Finance Ministry's actual strict limits-\ntion on all expenditures, including even public\nworks, further reflects the government's trend\ntoward moderation In its dealings with capital.\nAll told, any attempt to terminate the capital-\nista boycott by violent measures appears ex-\ncitided from the realm of possibilities.\nMay Seek Funds Abroad\nIn the event the French atabilization fund\nbecomes in need of new resources, they will\nprobably be sought abroad or clae by further\nutilization of the Bank of France's gold hold-\nings, If the Treasury again runs dry, numerous\ncourses are open. The stabilization fund's idle\nfranc balances may be used, if direct borrow-\nInga from the Bank are not made. However,\nIf new foreign credits or loans become avail-\nable neither of the above-mentioned expedients\nwould be necessary.\nThe idea of currency stabilization does not\nnow appear either practicable or advisable, un-\nleas attempted in conjunction with a large\nAnglo-American stabilization loan. However,\n& recent statement by Finance Minister Auriol\nin the Chamber, suggesta that he still con-\ntemplates a domestic, pational defense loan.\nDomestic national or local loans, with tax\nprivileges or gold or sterling guarantees. have\nalso been suggested as among the possible\ncourses of action.\nImmediate Problem of Financing\nHowever, the Immediate problem is essential-\nby one of financing during the next two or three\nmonths on the assumption of & business boom\nwith the opening of the new exposition and\nthe subsequent tourist influx. If the Popular\nFront government can aucceed in halting the\ncurrent dangerous price stampede, $ business\nboom cannot be excluded from the possibilities.\nWhat la evident at the moment La that the\nPopular Front experiment must be continued,\nIt is Impossible to consider Its collapse without\nbringing with It the gravest peril to internal\norder and external safety. The appreciation of\nthe realities of this situation Is the factor which\nneutralized the recent bitter attacks on the\nBlum cabinet in the Chamber of Deputies.\nBlum continues serene as ever. despite *\nturmoll of attack and criticiam, because he\nknows that even his enemies appreciate that\nFrance dare not swap borses.\nRegraded Uclassified\n56\nRB\nGRAY\nParis\nDated March 1, 1937\nRec'd 5:12 P. m.\nSecretary of State\nVashington.\n288, March 1, 5 p. m. (section ONE).\nFROM COCHRAN.\nThere was a fairly steady demand for foreign exchange\ntoday but Bank of France is stated to have lost little\nsterling. There appears to be some private offering 01\nsterling against francs as weakness of sterling against\ndollar becomes evident. Soviet Government reported to\nbe buyer of sterling today. Rentes dropped two francs\ndue in part to disappointment to see some local French\nelections yesterday go to the Left. Understand that one\nParis-Lmerican bank which has been having certain difficu\nin getting paper rediscounted at Bank of France has\nnotified its customers that hereafter paper for redis-\ncount must be deposited forty-eight hours with the bank,\nawaiting decision from the Bank of France as to the\nacceptability of the transactions. French hotels are\ncomplaining of increase in operating costs and may have\nto\nRegraded Uclassified\n57\nRB\n-2-1/288, March 1, 5 P. m. from\nParis (SECTION ONE)\nto raise rates before tourist season unless relief is\nobtained.\nParker Willis cables AGENCE ECONOMIQUE that in\nconnection with early presence in Washington of Ambassadors\nBullitt and Bonnet and several important Britishers,\ngeneral economic negotiations between the three countries\nare expected. Some of the questions which Willis says\nare considered certain to be studied at Washington are:\n(one) improvement of the tripartite monetary agreement\nwith the view to bringing about some correction to the\nrun of gold which is going one way. (Two) Problem\ncreated by the investment of foreign capital in the\nUnited States. (Three). Correction of the situation\nwhich results from the trade agreements. (Four) Eventual\nmodification of the Johnson law to permit placing foreign\nloans in the United States.\nThe reporter added that certain circles desire a\nstudy undertaken seeking a basis for settlement of war\ndebts.\nWILSON\nSMS:ITL\nRegraded Uclassified\nPARAPHRASE\n58\nSECTION TWO. No 288 from Paris, March 1, 1937\nAt four o'clock this afternoon Under Governor\nFournier of the Bank of France called representatives\nin Paris of Anglo-Saxon banks to his office for 8. meeting.\nAn oral summary of this session was just given me by one\nof the American bankers who was there. This banker said\nthat the present French exchange situation was outlined by\nFournier, Fournier said that the Bank was not going to\ninaugurate any exchange regulations or restrictions, but\nthat it should be understood liberty did not mean license.\nHe expressed the hope that there would be cooperation by\nthe foreign banks with the Bank of France toward avoiding\ntransactions which under the present circumstances would be\ndeemed undesirable. Three such situations were outlined\nby Fournier:\nFirst - Speculation against the French currency\nthrough French people or concerns which wanted foreign\nexchange or foreign currency when the actual need therefor\ncould not be shown. Fournier asked that the banks dis-\ncourage such transactions, as well as purchase by French\nindividuals or concerns of foreign securities.\nSecond - Fournier asked that the bankers place ob-\nstacles in the way of foreign companies which might want to\nmove money out of France when such a transaction was not\nrequired by the legitimate business of those firms. He\nsaid that his Bank does not want importations into other\nRegraded Uclassified\n59\na I I\ncountries to be financed on the market in France.\nThird - Fournier discussed credit policy; he said\nthat in a period of economic revival such as is now being\nexperienced, it was the desire of the central Bank to avoid\nhigher interest rates and at the same time to provide credit\nto those who were in actual need of credit. However, they\nwanted to check exaggerated and speculative demands. In\nparticular he mentioned transactions which had developed\nat Havre, Lille and Roubaix in coffee, cotton and wool.\nFournier said that his Bank does not want long-term finan-\ncing to be used for bringing in goods that will be needed\nin the distant future. In this connection he cited an\ninstance where certain Havre firms were buying cotton for\ntwo years ahead. Further, 30 percent of the activity in\ncoffee and cotton at Havre, he said, emanated with people\nhaving no business therein except as speculators. In\naddition he requested Banks to keep a watch over commercial\npaper where cotton importers are drawing on the spinner and\nseeking repeated renewals of the paper without making\ndeliveries to correspond therewith.\nI was told by my contact tha t Fournier did not at\nall criticize the foreign banks. However, the foreign\nbank representatives who attended the meeting thought that\nthe meeting was significant of the exchange situation pre-\nvailing in France. It was felt generally that while the\nRegraded Uclassified\n60\n- 3 -\nFrench Government does not want to impose exchange control;\nthe authorities had decided that unless the present trend\nis corrected they may actually bring it about. Fournier\nwas making an appeal for the bankers themselves to do as\nmuch as possible to avoid this.\nI questioned my contact as to whether the Bank of France\nhad in any way sounded out the foreign banks as to their\nwillingness to help the Treasury in its present need for\nfunds; he said there had been no mention of it. Even if\nsuch fund deposits as are at present in English and American\nbanks in France were turned over to the French Treasury,\nthey would be so small as to amount to not as much as\ntwo billion francs, and therefore the Treasury would not\nbe helped much thereby.\nEND OF MESSAGE.\nWILSON.\nEA:LWW\nRegraded Uclassified\n61\nMarch 1, 1937.\n5:35 p.m.\nOperator:\nI have his Secretary.\nH.M.Jr:\nThank you.\n0:\nGo ahead.\nH.M.Jr:\nHello\nBankhead's\nSecretary:\nHow are you Mr. Secretary?\nH.M.Jr:\nHow do you do. The Speaker called up and told me\nhe was coming - stopping by at 9:30 tomorrow morning.\nB.S:\nYes.\nH.M.Jr:\nSince then I've gotten word the President wants me\nat the White House at 9:15.\nB.S:\nYes sir, well that will\nH.M.Jr:\nWell now I don't know - pardon me?\nB:S:\nI say you'll have to go with the big boss there.\nH.M.Jr:\nWell (laughs) I don't know but I wondered if the\nSpeaker could let it go to Wednesday or whether\nhe'd like me to come up or what would you suggest.\nB.S:\nWould you like to talk to him Mr. Secretary?\nH.M.Jr:\nIf it doesn't bother him, yes.\nB.S:\nI'll tell you what - you could get him at the\nMayflower - District 3000.\nH.M.Jr:\nWell I mean - do you think I better bother him?\nB.S:\nWhy it will be perfectly all right, yes sir.\nH.M.Jr:\nIs he there now?\nB.S:\nYes sir, he's there now.\nH.M.Jr:\nWell I'll call him.\nRegraded Uclassified\n62\nMEETING IN RE WAGNER HOUSING BILL\nMarch 1, 1937\nAT 2201 R STREET\n8:30 P.M.\nPresent:\nMr. Gaston\nMr. Opper\nMr. McReynolds\nMr. Leon H. Keyserling (Sec. to Senator Wagner)\nAr. LeRoy Barton\nMr. Dunning\nMr. Lindow\nKeyserling: This is just an analysis section by section.\nThe first section is just a general declaration of\npolicy.\nThe second section contains - the second section\nincludes the definitions. The only one that is\nof any particular importance has to do with trying\nto set a standard for keeping the projects down to\nfamilies of low income.\nThere are really two standards in the bill dealing\nwith that subject. One is administrative and\nbinding upon the housing authority, and the other\nis financial in that, no matter what good standard\nyou have, you could hardly get down to families of\nlow income if you didn't have the right financial\nset-up.\nThe administrative standard is simply that no\nfamily shall be available for entry into 8 project\nif its income is more than five times the rental\ncharged. That means that once the rental is charged,\nthe family could not have an income of more than\nfive times that. That figure is based upon the\ngeneral studies of the Department of Labor and other\ngroups as to about what part of a low income family's\nincome could be devoted to rentals.\nI'll go through it section by section and that will\nbring me to the question of the substitute a little\nlater.\nH.M.Jr:\nYou've got it written down, though.\nKeyserling: Yes.\nRegraded Uclassified\n6\n- 2 -\nH.M.Jr:\nFine. Something that I can give the President?\nKeyserling: Yes.\nThe third section sets up a United States Housing\nAuthority of three members. We had thought that\nthere were only really two agencies of the United\nStates Government that were doing either real low\ncost housing or anything like that. I think\nResettlement ought to be put aside at once, because\nit deals only with rural and suburban questions, and\nI don't think it is low rent housing anyway; I think\nit's very high cost housing. The Public Works\nAuthority is the other one. So that if this body\nwere set up as B separate agency, you would have\ntwo: the Public works Housing Division and this\nAuthority. So that if it were desired to have\nonly one, there would be one of two alternatives:\neither to put this agency in the Public \"orks\nHousing Authority, or to provide for the transfer\nof Public Housing Authority to this agency. The\nbill BS now drawn gives the President discretion\nto transfer the projects of the Public Works Housing\nDivision to this authority.\n(Gaston comes in)\nH.M.Jr:\nHave you met Mr. Keyserling? Mr. Gaston.\nGaston:\nHow do you do?\n-\n-\nKeyserling: And with those two alternatives in mind, the bill\nas now drawn picks the second of them. That is,\nit sets up the second, a separate authority, and\nauthorizes the President to transfer these projects.\nThe only consideration - I don't know, Mr. Secretary,\nwhether you just wanted a summary of the bill\nH.M.Jr:\nIf you will just keep on the way you're going\nKeyserling: The considerations that\nE.M.Jr:\nYou are doing just what I'd like to have you do.\nKeyserling: It was thought best at the beginning not to handicap\nthis new agency with all the mistakes that may have\nRegraded Uclassified\n64\n- 3 -\nbeen made by some of the housing agencies in the\npast, particularly since this sets up such a very\ndifferent series of financial arrangements and an\nadministrative set-up by which it would be simpler\nto transfer these projects to this agency than to\nset up this agency with all the personnel and all\nof the problems of the Public works Housing Division.\nThose were the considerations.\nSections Six, Seven, and Eight deal with routine\nprovisions giving certain powers to the Authority\njust as a body. There is nothing substantial in\nthem.\nOpper:\nI just - Section Five comes in there - that tax\nexemption.\nKeyserling: Section Five provides that all the properties and\nassets of the Authority shall be exempt from all\nFederal and state taxes. The section which provides\nthat all the property and assets of the United\nStates Housing Authority shall be exempt from all\nFederal and local taxation is a rather standard\nprovision. However, there is coupled with it the\nreciprocal provision that any bonds issued by\nlocal housing authorities to raise money for\nhousing purposes would be exempted from all Federal\ntaxation. The theory in back of that was that that\nwould be one relatively cheap way of extending aid\nto the local authorities for low rent housing pro-\njects.\nAt the meeting this afternoon there was suggested\nan alternative: that instead of exempting the bonds\nof the local authorities from all Federal taxation,\nto exempt them only from those forms of taxation\nthat the bonds of the Federal Authority are exempted\nfrom; that is, taxes except surtaxes, state income,\nand inheritance taxes. The third alternative sug-\ngested was that they should not be exempt from\ntaxation at all, and it was just left at that point\nfor submission to you.\nH.M.Jr:\nI see. Well, that's Section Five. I mean I'm\ngoing to let you run through the whole thing, 1f\nyou don't mind.\nRegraded Uclassified\n65\n- 4 -\nKeyserling: Section Nine\nI've said that Sections Six, Seven\nand #ight are merely routine provisions for the\nadministration of the Authority. They don't raise\nany problems.\nSection Nine, which is really the center of the\nwhole bill, is the section dealing with the loans\nand grants to local authorities for housing pro-\njects constructed and administered by the local\nauthorities and not by the Federal Authority.\nThe first part of that, which deals with grants,\nprovides - it has been provided in the past that\nthe grants may be up to one hundred percent of\nthe project - it provides that the grants must be\nrepaid in full and that the interest rate on the\ngrants shall not in any case be less than the cost\nof money to the Federal Government, as determined\nby the obligations of the Treasury having a term\nof ten years or more.\nSeveral:\nThe loans!\nH.M.Jr:\nDon't all jump on the poor man at the same time,\nalthough I think he can take care of himself.\nDo it again, if you don't mind. They scared me.\nRemember, he's our guest.\nKeyserling: Well, anyhow, the provision is that the loans,\nwhich shall be repayable in full, must bear at\nleast what is called in the bill the going Federal\nrate of interest, and the going Federal rate of\ninterest is definedin the bill as the interest\non the most recently issued obligations of the\nFederal Government having a term of ten years or\nmore.\nH.M.Jr:\nLet me - I haven't got that right yet. The United\nStates Housing Authority lends a million dollars to\nthe New York Authority. Now, the New York Authority\npays them whatever - the interest rate is whatever\nthe last rate I sold - the last bond I sold was a\n17-year 25 percent bond.\nKeyserling: Then the interest rate would have to be fixed at\nat least 22 percent.\nRegraded Uclassified\n66\nin I I\nH.M.Jr:\nAS a minimum?\nKeyserling: Yes, but it could be higher.\nH.M.Jr:\nHow high?\nKeyserling: There is no maximum rate set.\nH.M.Jr:\nI see. Not less than 24.\nKeyserling: It was suggested at the meeting that that provision\nshould be changed to provide that the interest rate\nshould be the same as the interest rate upon these\nparticular bonds; that is, the money raised by the\nFederal Government for this particular purpose.\nH.M.Jr:\nIf it was three percent\nKeyserling:\nthen the interest rate should be at least three\npercent. If that provision were made, it would be\nentirely in accord with the financial provisions\nof the bill generally, because the intent is to\nset the bonds off very clearly from the annual con-\ntributions or grants and to provide that the bonds\nshall be retired in full over a period of years at\na fixed rate of interest not less than the cost of\nmoney to the Government.\nH.M.Jr:\nI see.\nKeyserling: The bonds are also secured by the projects. And\nit is also provided that the outstanding loans\nshall not be more than the cost of the project\nless loans by other parties, so that it wouldn't\nbe possible for other parties to have loans senior\nto the loans of the Authority. The effort is to\nput the bonds on a straight financial basis, without\nmixing them with the grants.\nThen the bill secondly provides grants to low rent\nhousing projects.\nH.M.Jr:\nTo what?\nKeyserling: Grants. In addition to the bonds it provides grants.\nRegraded Uclassified\n67\n- 6 -\nThese grants represent quite a departure in policy\nfrom the grants that have been made in the past to\nlow rent housing projects by the P.W.A. and the\nother agencies of the Federal Government. The\ndeparture, in the first place, is that there shall\nbe no capital grants whatsoever; that is, a grant\nof 45 percent of the cost of the project immediately.\nIt was felt that capital grants encouraged very large\nbuilding costs, and secondly that when the capital\ngrant was made the Federal Government practically\nlost control of the money or of any check upon the\nprojects, and therefore could not in any way control\nthe availability of the projects for people of low\nincomes.\nH.M.Jr:\nJust let me interrupt you for a moment. I thought\nthat Mr. Ickes did all his own building.\nKeyserling: He has been doing his building, but now he is trying\nto decentralize his program.\nH.M.Jr:\nBut I mean the 53 projects. He did that himself.\nKeyserling: He did that himself.\nH.M.Jr:\nSo - I mean the fact that he gave grants wouldn't\ninfluence - you couldn't - 1f he gave himself a\ngrant, so to speak - I mean you can't charge that\nup as the reason why the costs are high, can you?\nI mean the way he's done the 53.\nKeyserling: Well, as I understand it, Mr. Secretary, slthough\nhe has done the projects himself, he has kept an\naccounting which sets up a certain amount for grants\nand a certain amount for loans. I believe that the\noriginal rate of interest charged on the loans was\nthree percent. That is the accounting system which\nwas set up.\nH.M.Jr:\nBut isn't it - as I understand it, the net result\nis that he takes a million dollar project, builds\nit, and then immediately writes off 45 percent, and\non the balance of 55 percent he charges three percent\nfor the 59 years. Isn't that the way he runs it?\nKeyserling: Yes.\nRegraded Uclassified\n68\n- 7 -\nH.M.Jr:\nHaven't I got that right?\nKeyserling: Yes.\n1.2.Jr:\nI didn't want to get mixed up. I'm sorry - I'd\nmuch rather let you run through this bill first.\nMeyserling: I think it may be - it is probably - it seems to\nme that that is quite true, that you might not\nhave that problem there. However, if you set the\nthing up on a decentralized basis, as Mr. Ickes\nnow proposes, with the local authorities controlling\nthe projects, you would have much less control with\nan original capital grant than with the yearly sub-\nsidy item provided under this bill.\nH.M.Jr:\nI don't know how these people feel, but I feel that\nis a move in the wrong direction. I feel if the\nGovernment is going to put up all the money or part\nof the money, I think we can build with less money\nthan the local communities and there is less chance\nof graft.\nBut I'd like, if you don't mind, to finish an\nanalysis of this bill.\nKeyserling: Well, the form of annual subsidy which is set up\nis modeled very much after the system that is still\nbeing used in England. In other words, at the\nbeginning of the project 2. contract is entered into\nfor fixed and uniform contributions over a period\nof years. There are standards in the bill that\nprovide that if at any time the projects are not\navailable for families of low income, the annual\ncontributions may be stopped, or if any of the\nother standards set up in the bill are deviated\nfrom.\nThe size of the annual contribution is measured by\nthe cost of the money to the Federal Government\nat the time the grant is made, plus one percent.\nThat is, if the loan was made at 2 à percent, which\nis about the Federal going rate of interest now,\nthe annual contribution, as a maximum, could be\n25 percent plus one percent, or 32 percent per\nyear.\nRegraded Uclassified\n69\n8 I I\nThat annual contribution may be measured, I think,\nin three ways. It may be measured in terms of\nits effect upon rentals; it may be measured in\ncomparison with the grants that have been made\nin the past to housing projects; and it may be\nmeasured in terms of its total cost to the\nFederal Government over a period of years.\nIf it is measured in terms of its effect upon ren-\ntals, it gets a rental that may be illustrated in\nthis way. If you have a $4,000 family dwelling,\nwhich is a thousand dollars per room for four rooms,\nlet's say, for a family of five or six people, which\nis a fairly low building estimate, the amount of money\nrequired to amortize that loan over E period of sixty\nyears at 32 percent interest 8.S an average would be\nabout $40. Another $40 approximately would be required\nfor maintenance, operation, repairs, vacancies, and\nthe like. That would give an annual cost of $80 on\nthe project per room; these $40 figures were per\nroom.\nH.M.Jr:\nPer room per year.\nKeyserling: Yes; which would be a cost of about $320 on the\nproject per year. If there were no subsidy, that\n$320 would be covered by rentals and would make the\nproject available for a family with an income, say,\nof seventeen or eighteen hundred dollars a year,\nfiguring that the family income must be at least\nfive times the rental.\nUnder this bill the maximum annual subsidy would\nbe approximately 32 percent of that development\ncost, which would be about $140. Deducting that\n$140 from the $320, you would get a net of $180,\nwhich would be about $3.80 per room per month, which\nwould bring it within an income group of approximately\na thousand dollars a year, which is about the group\nthat you want to reach.\nYou can get different results on these annual sub-\nsidies by taking different assumptions as to the\ncapital cost of the house, different assumptions\nas to the amount of Federal money at 2á percent and\nthe amount of private money at, say, 42 percent that\ngoes into the project. But when you work it out for\nRegraded Uclassified\n70\n- 9 -\nthe different possibilities, you find that you\ncan fairly say that you can get a normal rental\nranging between, say, three and 8 half dollars\nand five and a half dollars, which brings it\nwithin income groups of eight or nine hundred at\nthe lower level and twelve or thirteen hundred\ndollars a year at the upper level.\nIf that is contrasted with the grants and loans\nauthorized under the present housing programs, you\nfind that it brings the rental down, ranging from\none and a half to two and a half dollars per room\nper month lower, depending upon the particular set\nof circumstances.\nR.M.Jr:\nNow, is that the whole bill?\nKeyserling: There are some other provisions.\nH.M.Jr:\nWell, let me just ask some of our boys - who wants\nto contribute anything before I start in? Now, you\n(Opper) didn't say anything about your question of\neminent domain.\nOpper:\nWell, that is in here (referring to paper in his\nhand), Mr. Secretary, and I haven't got a very good\ndraft of this thing.\nH.M.Jr:\nWhat's this?\nOpper:\nThis is the copy from which that one was made. It's\nall marked up. The statement is, however, that the\nbill in no way removes the obstacles confronting\nother agencies in attempting to exercise eminent\ndomain under other statutes. In other words, as\nfar as the development of the law of eminent domain\nby the Federal Government is concerned, if we were\nto stop where we are now, you would have to say that\nyou have no right of eminent domain for housing pur-\nposes, even though the Federal Government itself is\ngoing to do the construction.\nH.M.Jr:\nYou mean it hasn't overcome that?\nOpper:\nIt hasn't overcome that Louisville case, which never\nwent to the Supreme Court, but which didn't go\nthrough because the Solicitor General apparently\ndecided it wasn't a good case to decide the issue on.\nRegraded Uclassified\n'71\n- 10 -\nH.M.Jr:\nNow, this memorandum which you prepared for me to\nthe President - are you all in agreement as to what\nit says?\nOpper:\nWe are all in agreement as to the statements.\nH.M.Jr:\nPurposes of the bill.\nOpper:\nWhat the bill says. As to the comments, I think\nwe....\nH.M.Jr:\nBut as to what the bill says?\nOpper:\nThat's right.\nH.M.Jr:\nHave you got a clean copy?\nMcR:\nGive him your original.\nOpper:\nThere is the original copy.\nH.M.Jr:\nWhat's this which is attached?\nOpper:\nThose are tables from which you can work out the\nvarious room rents under certain assumed facts.\nH.M.Jr:\nI see. Well, you fellows have been busy. Now,\nwho wants to explain that?\nOpper:\nWell, I - it's Mr. Keyserling's table, but I'll\ntry.\nNow, the first assumptions were two different ones\nfor the cost of the project. This one was a cost\nof $1333 per room capital cost, which Mr. Keyserling\ngot from the latest report of the Federal Housing\nAdministration as to the minimum average cost of\nprivate projects which they've insured - mortgages.\nH.M.Jr:\nOh, I see. That's Federal Housing?\nOpper:\nFederal Housing, that's right.\nNow, this ($1000) is a very low estimate, is that\nright?\nKeyserling: Yes, that is a very low estimate of cost.\nOpper:\nThat's the thousand dollars per room - capital cost\nRegraded Uclassified\n72\n11 I I\nper room. That comes under this (indicating on\nchart).\nNow, supposing you took the 81333. Now, in the\nactual experience of the private enterprise, the\nrent per room was $13.82 and the group income\n$3317.\nS.M.Jr:\nI see.\nOpper:\nBut there is nothing over here (under $1000 heading)\nbecause there is nothing of comparable experience.\nNow, under the thousand dollar capital cost, if it\nwere possible, which Mr. Keyserling doesn't think\nfor private enterprise is possible, the rent would\nbe $10.37 a room and you would reach an income group\nas low as $2489 a year.\nNow, these are various assumptions under the Wagner\nAct, falling into three categories. In the first\nplace, you assume that you pay no local taxes and\nno amount to the community in lieu of local taxes.\nH.M.Jr:\nThat's under the Wagner Bill?\nOpper:\nThat's right. And these things are set up on two\nhypotheses. First, that all the capital is furnished\nby the Federal Government, none from private funds.\nThen, assuming that the subsidy is 32 percent - that\nis, the maximum - the rent could be $2.34 a room, and\nyou would hit an income group of $562 a year.\nNow, over here, you see, but assuming the cost of\n$1333, you would get a cost per room of $3.12 and\nan income group of $749 a year.\nNow, assuming that the subsidy is only 21 percent -\nand that is based on this possibility: Mr. Keyserling\nsuggests that there may be private capital willing to\ncome in and make the first mortgage on these projects,\nso to speak; that is, to lend money to the local\nhousing authority on the basis of, you see, partly\ntax-exempt bonds and a higher interest rate.\nH.M.Jr:\nI thought he (Keyserling) said that there would be\nno obligation\nRegraded Uclassified\n73\n- 12 -\nOpper:\nI remember that, but I think what he meant was that\nthe total\nKeyserling: What I meant to say, Mr. Secretary, was that the\nFederal Government could not loan upon the projects\nfor an amount greater than the difference between\nthe outside loans and the total cost. In other\nwords, if these outside loans were sixty percent,\nthen the Federal Government could loan only forty\nand not a hundred, in order to protect its own\ninterests.\nOpper:\nNow, assuming that there is some private capital,\nMr. Keyserling, at - of course, you'll have to\npay higher interest for private capital, so in\nyour\nKeyserling: But on the other hand you get a billion and a half\nof total money into these projects instead of a\nbillion.\nOpper:\nWell, with a limitation of ten million dollars a\nyear on the amount of grant that the Federal Govern-\nment can contribute under the bill, in order to\nspread it over that whole program, you couldn't give\nmore than 21 percent of that billion and B half by\nway of subsidy. So he's assumed the possibility of\nthat by the inclusion of this figure of 83.34 rent\nper room per month and an $802 income group; and\nunder $1333 it would be $4.45 per room and $1068\nas the income group.\nNow, here he assumes a half of the capital contri-\nbuted by private sources, and there the assumption\nis that four and a half - you see, the underlying\nassumptions are the same in this percent and\nthis - that is, that some private capital will come\nin. But here he is assuming a project which is\nentirely financed by the Government and here he is\nassuming a project half of the financing of which\nis private, on a 4a percent, 30-year basis; in other\nwords, half of the length of time of the Federal\nloan and a higher interest rate. And on that basis\nyou get these figures.\nThen, if you pay half the local taxes - this was\nno local taxes - half the local taxes, this same\nRegraded Uclassified\n74\n- 13 -\nbreakdown here gives you these figures. And\npaying all local taxes, the same breakdown gives\nyou these figures. There is some more on the\nnext page.\n(Barton and Dunning come in)\nH.M.Jr:\nWell, let me just get this through my head.\nAs Iget it, Mr. Ickes had 130 odd million dollars\nwhich he was authorized to spend for low cost\nhousing, and he was limited by law to a 45 percent\ngrant. Now, have you (Lindau) got your figures\nhere from there?\nLindau:\nI can go on, yes.\nH.M.Jr:\nI mean I just want to ask did Mr. -ckes give you\nthe figures?\nLindau:\nNo, not those figures.\nH.M.Jr:\nWell now, taking the 45 percent grant and taking\nthree percent for the money, and how many years'\namortization?\nLindau:\n59.\nH.M.Jr:\nDoes Mr. Ickes take 59?\nLindau:\nHe's authorized to go to 60, but he's taking 59.\nH.M.Jr:\nI thought he took less.\nLindau:\n59 years.\nH.M.Jr:\nWhat's the best that he can do per room?\nKeyserling: At the bottom of that table are the figures on\nwhat he could do with that.\nOpper:\nUp to the present he pays something, but nothing\nlike full - his figures, I mean, are based on making\nsome contributions.\nKeyserling: That is what he could do even if he made no contri-\nbution.\nRegraded Uclassified\n75\n- 14 -\nH.M.Jr:\nThis says: \"Public Housing Under P.W.A. Formula of\n45% Capital Grant, Balance 3% 60 years. Paying no\ntaxes, $4.60.\" That's on a thousand dollar capital\nexpenditure.\nKeyserling: The average is about two thousand.\nBarton:\nWhere you have actual figures - on Williamsburg,\nit's $8.84, and on Techwood it's $6.33.\nH.M.Jr:\nHas anybody figured how much more you'd have to grant\nto get it down to six dollars? I mean would he have\nto go 50 percent, 55 percent - how much more?\nKeyserling: I have a table showing that, Mr. Secretary.\nH.M.Jr;\nHow much further would Mr. Ickes have to go? Because,\nin the family here, I understand that when he got\nready to turn over - that when he began to talk about\nturning over Williamsburg to the New York people,\nthey simply refused flatly to pay more than six dollars.\nHave you heard that?\nKeyserling: Yes, they can't pay more.\nH.M.Jr:\nWell, what's going to happen to the difference?\nKeyserling: Some way would have to be worked out to enable him\nto get his rentals down lower.\nH.M.Jr:\nDo you know now they have crossed that bridge?\nBut I am correct in my information that the New\nYork City crowd has just refused, haven't they,\nto pay more than six dollars. And are our figures\nof $8.84 - they about right?\nLindau:\nThey are close to the figures we have heard before.\nThey are our own estimate.\nH.M.Jr:\nI mean how much more than 45 percent would he have\nto go, for instance, to get that $3.84 down to\nsix dollars.\nKeyserling: I can show that on this table, Mr. Secretary. Here\nis a table where you have hypothetical locations.\nThis is a small city in the South or West; assume\na capital total of $800 to $1200. A medium city,\nRegraded Uclassified\n76\n- 15 -\n$1000 to $1500; a large city, $1200 to $1800;\nand a very large city, $1400 to $2100. These\nfigures are a little lower than the P.W.A.\nfigures. This is your table of operating\nexpenses. Now, here are the rentals that could\nbe obtained with three percent interest and a\n45 percent grant. That was the Secretary Ickes\nset-up.\nNow, in a very large city like New York, with a\n$2100 cost per room, you would get a rental of\n$9.27; with a total cost of $1400 per room you\nwould get a rental of $7.76.\nNow, here is the Williamsburg project - fell right\nin between there.\nH.M.Jr:\nOur figures are what?\nBarton:\n$8.84.\nKeyserling: That would mean an income group of not less than\n$2000, which is not at all a low income group.\nH.M.Jr:\nBut how much more would he have to write off?\nKeep it at three percent interest.\nKeyserling: If it were kept at three percent\nH.M.Jr:\nHow much would it have to be - 50 or 60 percent?\nBarton:\nBe somewhat over 60, I should say.\nKeyserling: If the interest were kept at three percent and if\nhe made a capital grant of, say, 90 percent of capital\ncost, and kept the interest at three percent, he could\nstill not get down to low enough rentals.\nH.M.Jr:\nWell, that isn't according to our figures, is it?\nBarton:\nWe figured it under the Wagner Bill; with full\namortization, hundred percent capital cost, it\nwould be $5.96.\nH.M.Jr:\nI see.\nBarton:\nThat's on the Williamsburg project. That's practically\nsix.\nRegraded Uclassified\n77\n- 16 -\nH.M.Jr:\nIs that figuring taxes or no taxes?\nBarton:\nNo taxes.\nH.M.Jr:\nAnd interest at how much?\nBarton:\nThree percent.\nLindau:\nWell, that's the loss you're writing off.\nBarton:\nThat's right, that's the loss. So that you got -\nit's pretty hard to figure\nLindau:\nIf you will pardon me just a minute - we figured\nthat under the plan of the Wagner Bill, if we\nadopted that plan for Williamsburg, the rent would\nnave to be $4.98 a room - that is, recovering abso-\nlutely nothing - and that the monthly room subsidy\nwould be $5.94.\nH.M.Jr:\nI see.\nLindau:\nNow, to answer your Question about how much he would\nhave to grant in order to get the rent down to six\ndollars. The only way that that question can be\nanswered is to assume some construction cost, because\nthe range on his projects is 50 great that an average\nis misleading. Now, in sixteen of his projects he\nhas computed estimated rent figures for the row house\nparts, and the rent ranges from six dollars and\nsomething - from $6.91 to $11.15. The average is at\n$8.85. You can see that this $6.91 one - he wouldn't\nhave to make much more of a grant than he is already\nmaking, whereas with the $11.15 one he'd probably\nhave to make a hundred percent grant.\na.M.Jr:\nWell, I just want to leave that a minute. Let's\njust take the Wagner Bill the way it is and let's\nsay, for argument's sake - I want to figure this\nthing - everything a maximum; that is, let's say\nthat the first year they do put out 200 million,\nand the next year it would be 250, and the third\nyear 250, and the fourth year 300. Well, let's say\nthat it would be possible to do that and, to make\nthe matter easy, that it all goes into this one\ntype of housing. No demonstrating. Let's say it\nall goes into the one type, and all of it to be\nturned over to local housing authorities. I mean\nRegraded Uclassified\n78\n17 I 1\nlet's just, to make my problem a little bit easier -\nI mean we're not going to spend any 25 million dollars\nfor demonstration purposes.\nOn that basis, if it were possible to spend a billion\ndollars for housing in four years, that would mean\none - let me have your pad a minute. Now let me\njust figure this thing. These would be bonds sold -\nwell, we'll say 1937, 200 million; 1938, 250; 1939,\n250; 1940, 300. Does that check with your bill?\nKeyserling: I have a table that sets it all out. It might be\nhelpful to you.\nH.M.Jr:\n1940, 300 million?\nKeyserling: Yes.\nH.M.Jr:\nThat makes a billion. All right.\nKeyserling: That (table) sets out a billion dollar program in\nfour years.\nH.M.Jr:\nOh, grand, that's just what I wanted. Now, fiscal\nyear '38-139 You take it.\nKeyserling: These are the family dwelling units at $4000 per unit.\nH.M.Jr:\nIs this fifty thousand families?\nKeyserling: Fifty thousand families.\nH.M.Jr:\nI see.\nKeyserling: And that would be the cost - $4000 a unit. Now,\nthese are tables on the annual contributions each\nyear, on three different assumptions: 3% percent,\n3 percent, and 2%.\nMcR:\nYour first column is what you are talking about.\nH.M.Jr:\n21.\nKeyserling: Plus one.\nThen your annual contributions over the four year\nperiod: none the first year, 7 million the second,\n152, and 242, coming to a total of 47 million dollars.\nIn subsequent years, to carry along that program,\nRegraded Uclassified\n79\n- 18 -\nyour contributions would be 35 million dollars\na year, which is just 3½ percent of a billion\ndollars.\nH.M.Jr:\nOh, I see.\nKeyserling: That would be your annual contribution.\nMcR:\nIn 56 years, at 35 million a year - first four\nyears would aggregate 52 million\nH.M.Jr:\nWait a minute, the first four years is 47 million.\nKeyserling: That is with your maximum contribution, 3½ percent.\nH.M.Jr:\nThen 56 years, to run at 35 million dollars a year.\nHas anybody multiplied that - 35 times how many\nyears?\nMeR:\n56 years.\n-\n-\nThat would be two billion, 60\nmillion.\nH.M.Jr:\nHow much?\nMcR:\nTwo billion, 60 million.\nH.M.Jr:\nNow wait a second - two billion and 60 million.\nNow, that's the contribution. But how about\nretiring the billion dollars worth of bonds?\nMcR:\nThat would take them all out.\nH.M.Jr:\nOh, that plan\nLindau:\nTake them all out and pay the interest too.\nGaston:\nOne percent for sixty years will retire your hundred\npercent of the principal.\nH.M.Jr:\nI see.\nMcR:\nThat would be your total cost.\nH.M.Jr:\nWell, this program is really on a 32 percent\nOpper:\nThat is making a couple of assumptions - that they\nwould pay out; but the program, as I understand it\nfrom Mr. Keyserling, is designed to do that.\nRegraded Uclassified\n80\n- 19 -\nH.M.Jr:\nWell, let me put it another way. Again I'm\nfiguring the maximum. We borrow a billion dollars.\nThen we've got to go to Congress for another\nbillion. Got to ask Congress for two billion\ndollars to retire a billion. I mean the Federal\nTreasury would be out two billion dollars.\nopper:\nOver sixty years.\nH.M.Jr:\nOver sixty years. Is that right?\nKeyserling: Yes.\nCaston:\nWhat it amounts to is that we borrow or somebody\nelse borrows a billion dollars and we endorse that\nnote, and we meet the full carrying charges on that\nyear by year; so it really amounts to a grant of\nthe entire construction cost.\nR.M.Jr:\nYes, Well, we've come to that conclusion. But if\nyou raised a billion dollars and didn't attempt any\nof this interest or anything else like that, through\ndirect appropriation, through taxes - you're only\ngoing to build a billion dollars worth of houses and\nyou've got to raise two billion dollars to retire that\none billion. So that if you raise it through your\ngeneral tax levy, you'd only have to raise a billion\ndollars; this way you've got to raise two billion.\nMcR:\nIf you raised the billion now\nOpper:\nThe balance is interest, because you borrow the\nmoney and make an amortization of it over a sixty\nyear period. It would cost you the two - you'd\nspend as much in interest as your capital.\nE.M.Jr:\nWell, let me just put it another way. I mean I'm\ntrying to get this thing, and you tell me if any-\nthing I have - I make is unfair. Let's say we decide\nwe want to build a billion dollars worth of low cost\nhouses and we raise it through general tax levy,\nand - all right, at the end of four years we got a\nbillion dollars worth of low cost housing. As I\nunderstand it, in order to let these people have\nthis at six dollars, even though you pay no interest -\nno taxes to the community, in order to do that and\nkeep it the six dollars, as landlord you wouldn't\nRegraded Uclassified\n81\n- 20 -\ncollect anything, because the six dollars that\nyou collect has to go to maintenance. Is that\na fair statement?\nKeyserling: That is approximately what it would be.\nH.M.Jr:\nWell, let me put it again; I want to get this thing.\nIf we spent & billion dollars in four years, and\nlet's say for example we raised it through general\ntax levy, so we have no interest charges to meet -\nand then to run these houses for sixty years, the\nbest that we could expect is that the rent we collect\nwill just keep those houses running. What? Is that\ncorrect?\nKeyserling: That is absolutely correct, Mr. Secretary. The only\nadditional consideration is whether in some cases\nyou might not have to add something to that to bring\nyour rentals down low enough.\nMcR:\nIn some cases you could collect a little more.\nKeyserling: Yes, in some cases you could collect a little more.\nThat statement is predicated on an average, going\nup and down.\nM.M.Jr:\nYou mean to say even if you built the houses and\ngave them to the community, paid no taxes and paid\nno interest because you're going to raise the\nmoney through general tax levy, that those houses\ncouldn't be run at six dollars?\nKeyserling: Yes, they could be run at six dollars easily. The\nonly question I raised was that if you wanted to\nget your rentals down to $3.50 or $4.00, it would\ncreate a different problem.\nH.M.Jr:\nWell, let me ask this. What I am trying to do is -\nI mean for the moment I want to look at it BS\nSecretary of the Treasury, because I've got to raise\nthe money. When you put it - \"Well, it just costs\nten million dollars a year,\" it doesn't look so bad,\nbut this way - hasn't any other country done it so\nthat it gets its capital back?\nKeyserling: Under the English system, Mr. Secretary, the average\ncontribution per family since 1919 has been about\n$100 per family.\nRegraded Uclassified\n82\n- 21 -\nH.M.Jr:\nPer year?\nKeyserling: Per year. Now, $100 per family per year on a cost\nof $4000 - of a $4000 house, would be about 2 /\npercent, which would be just equivalent to the\n2 / percent average supposed under this bill.\nH.M.Jr:\nWell, personally - I mean if we are going to do\nthis thing I'd much rather, from my standpoint,\nface the thing that we are going to build so many\nmillion dollars worth of houses a year and give\nthem to the community, and figure that it is going\nto cost so much. I mean it is going to cost the tax-\npayers so much at the beginning, and - because this\nbond without a guarantee is worthless. Because as\nI - I'm not a lawyer, but as I put this thing up to\nOpper, nobody can bind Congress for more than one\nyear. You can't bind any future Congresses. And\nif the Congress didn't vote this subsidy, if they\ngot tired of this - they would have to vote the\nmoney, though, to pay\nOpper:\nto pay the interest.\nMcR:\nRetire the bond.\nH.M.Jr:\nRetire the bond.\nMcR:\nThat's right.\nOpper:\nof course, when these things take the form of a\ncontract, which they may, then you may say there is\nan actual legal claim for the subsidy; just what\nthe strength of that would be is something else\nagain. At any rate, whether Congress could be\nbound to pay the subsidy - they'd have to pay it.\nMcR:\nThey'd either pay up or pay some of it through\nthe nose, one or the other.\nH.M.Jr:\nLet me ask these construction engineers here - has\neverybody explored these construction costs?\nBarton:\nYes, that's been pretty well analyzed. This figure\nwe show here of $1200 a room is a very good average\nfigure.\nRegraded Uclassified\n83\n- 22 -\nH.M.Jr:\nWhere's that, Techwood?\nMcR:\nThat's their own analysis.\nLindau:\nIt's right at the top.\nMcR:\nHere, take the original one.\nBarton:\nWe've got it down to $1200 against $2200 for Williams-\nburg.\nH.M.Jr:\nMy god, they paid enough for that land there, didn't\nthey?\nKeyserling: Terrific.\nH.M.Jr:\nWhat?\nKeyserling: Terrific.\nBarton:\nThey paid too much for that type of housing.\nOpper:\nIf you try to do slum clearance and housing at the\nsame time, you get stuck.\nH.M.Jr:\nAnd the person that says you can't is Nathan Strauss.\nHe's convinced me that you can't do the same thing -\nyou've either got to talk slum clearance or low cost\nhousing. The two things are separate problems. What?\nKeyserling: Yes.\nH.M.Jr:\nWell, let's go around the table and see. How would\nyou do it, Clarence?\nOpper:\nWell, that's a large order.\nH.M.Jr:\nWell, go ahead. You used to be up there, weren't\nyou, with New York City Housing. Weren't you the\ncounsel? You (Keyserling) know that, don't you?\nKeyserling: Yes.\nH.M.Jr:\nWe're trying to get friends around here for housing.\nThere's no enemies; we're trying to get friends.\nOpper:\nWell, I think the suggestion that if this is going\nto be an outright contribution it would cost less\nRegraded Uclassified.\n84\n- 23 -\nmoney and be a more direct approach if it could be\nmade a contribution in cash at the beginning - one\ndifficulty, Mr. Secretary\nH.M.Jr:\nJust a second before you start; I need a drink,\nafter seeing those figures.\nOpper:\nAnd ne's about to listen to me.\nH.M.Jr:\nHelen, if you will bring in something now.\nI didn't know it was as bad as that.\nOpper:\nWell, I'm willing to take it for the benefit of the\nrest of you.\nMr. Keyserling suggested one problem there, and that\nis if you make an annual contribution, you will al-\nways have something that you can withdraw in case\nthe operation by the local authority doesn't conform\nto the Federal standard; you'll just cut off your\nannual grant.\nH.M.Jr:\nMay I answer that? McReynolds gave me an idea last\nweek. He thought that thing could be overcome by\nleasing this thing to the authority and that way\nyou keep a string. McReynolds said, \"You make a\nlease. The United States Housing Authority leases\nthis building to the New York State Authority for\na dollar a year.\"\nOpper:\nFor a dollar a year.\nH.M.Jr:\nSo you can overcome that. I don't know where Mac\ngot that. So in that way you can keep the strings.\nOpper:\nThere are other ways too. But I wanted to make\nsure you had in mind Mr. Keyserling's point about\nthat annual subsidy. The second thing, of course,\nis the question whether as much as two hundred\nmillion dollars a year for four years - an average\nof 250 million dollars for four years could possibly\nbe raised by current taxes and set aside for that\nparticular purpose. And one objection there, I take\nit, is that the opposition to a housing program of\nthis size would bear directly on that question.\nRegraded Uclassified.\n85\n- 24 -\nNow, the answer to that, of course, is that if\nthat is the true approach, if the taxpayers are\ngoing to bear it over a sixty year period, it\nmight well be they should be advised of all the\nresults at the very beginning. But I am inclined\nto agree with you that the result is just about\nright, that the subsidy has to take the form of\na complete grant of the cost of the project.\nH.M.Jr:\nWell, as you go into this thing, do you think the\nGovernment should do the building or lend the money\nto local authorities and let them do it?\nOpper:\nThe result of what little chance I've had to discuss\nthe thing with people who are supposed to be author-\nities on the housing question indicates - well, the\nconcensus on that point seems to be that the local\nauthorities have a better ability to gauge the needs\nof the community and the type of development required.\nThat is the concensus of opinion.\nParton:\nI think it is generally understood that we've got to,\ninstead of the subsidy, cover the whole item.\nH.M.Jr:\nPardon me?\nBarton:\nWe'll have to consider that the subsidy covers the\nwhole.\nH.M.Jr:\nThe whole business?\nBarton:\nYes. Hundred percent subsidy.\nH.M.Jr:\nWell, which would you rather do? Rather have us\ngive them a hundred percent subsidy and write it\noff right at the beginning?\nBarton:\nThat would be cheaper. There's one thing I'd like\nto point out. I don't think you can give them\nmore than a hundred million dollars worth of housing\nin a year.\nH.M.Jr:\nWell, Mr. Ickes - it's taken him how many years to\nbuild 130 million?\nLindau:\nWell, ne started this program about three years ago.\nH.M.Jr:\nAnd there is only one finished.\nRegraded Uclassified\n86\n- 25 -\nDunning:\nAbout three and a half years ago.\nBarton:\nI think that's a top figure too.\nH.M.Jr:\nWhy, Mr. Barton?\nBarton:\nThere are not many skilled laborers available,\nnot much machinery available.\nH.M.Jr:\nWell now, I don't want to - do you (Dunning)\nthink that's right?\nDunning:\nYes. You might come up to a higher level the\nsecond year. The first year, I don't think you\ncould possibly build more.\nH.M.Jr:\nWell, let me just question a minute. Let's take\nstructural steel, for instance; can you get struc-\ntural steel?\nBarton:\nYes, I don't think there is any trouble at the\npresent time.\nH.M.Jr:\nThere isn't. I see. Well, how about mechanics?\nBarton:\nWell, there's a scarcity.\nH.M.Jr:\nAll over?\nBarton:\nVery generally.\nDunning:\nI wouldn't say it is general, but any considerable\nincreasè in building - it will be quite acute for\nskilled labor.\nH.M.Jr:\nWhat? Nine million unemployed and there's going to\nbe a shortage?\nDunning:\nThere's nothing in the warehouses any more - shortage\nof material.\nH.M.Jr:\nWell, if - I'm trying to get this. Once I get it,\nit sticks. By taking it by general tax levy, it\njust costs half as much, doesn't it?\nGaston:\nWell, not as long as you have public debt outstanding -\nnot as long as you have public debt outstanding anyway,\nRegraded Uclassified\n87\n26 I I\nbecause what you take from taxes to pay this just\nreduces the amount by which you can reduce your\noutstanding public debt; so long as you have any\npublic debt outstanding, you are paying that amount\nof interest.\nOpper:\nBut you are figuring it over a sixty year period.\nCaston:\nIt may be that by the end of sixty years you may\nnot have any debt outstanding. But there are\nprovisions in here by which the Treasury takes\nthe obligations of the housing authorities and\nsells its own obligations, which it could redeem,\nso that you could cut off your subsidy when the\nconstruction cost had been amortized.\nH.M.Jr:\nWell, Herbert, that thing - it cuts both ways, I\nmean. Let's say we raise another hundred million\ndollars worth of taxes for this purpose; we can't\nsay that that means we wouldn't retire another\nhundred million dollars worth of debt.\nGaston:\nIf you raised It especially for this purpose?\nH.M.Jr:\nYes.\nGaston:\nWELL, I doubt the ability to levy taxes and raise\nthem for this particular purpose.\nR.M.Jr:\nWell, I've had an idea which I've never told. I\nwouldn't want to quote it or repeat it. But the\nPresident has told us so often that he's got this\nidea of five hundred million dollars a year for\npublic works. I just wondered what the debt\nduties amount to and whether those could be ear-\nmarked for public works.\nGaston:\nNot new debt duties; not added debt duties, but the\nexisting debt duties.\nH.M.Jr:\nThe existing debt duties. I mean does anyone know\nwhat we estimate a year for taxes from debt duties.\nLindau:\nI can't recall the figure because the estimate was\nchanged.\nH.M.Jr:\nGot any idea?\nRegraded Uclassified\n80\n- 27 -\nLindau:\nI was going to guess about 125 million.\nGaston:\nBudget would show it, wouldn't it?\nH.M.Jr:\nWhat would you (Dunning) think - by your exper-\nience, what would you think that they could build\nin the way of low cost housing per year? I mean\ngetting started. What would be the least? I mean\nin dollars.\nDunning:\nWell, we could possibly handle, I should think, a\nhundred, hundred fifty million the first year.\nH.S.Jr:\nIf Procurement nad to do it?\nBarton:\nI think if you got out 25 the first year you'd be\ndoing very well, because it takes a great deal of\nplanning; and your site situation is always going\nto be a difficult problem - very indefinite as to\nwhen you can get started.\nDunning:\nwe could certainly turn out 8 much larger program\nin housing in dollar value than we can in these\nsmall individual public buildings, because there\nwould be a great deal more application.\nH.M.Jr:\nWhat do we turn out a year?\nBarton:\nWell, somewhere around 60 million a year.\nDunning:\nI thought last year on the programs we got up a\nlittle higher.\nBarton:\nIt runs, I'd say, about 60 million.\nH.M.Jr:\nYou (Lindau) sat in all last year on this thing.\nHave you got anything to throw in?\nLindau:\nMe?\nH.M.Jr:\nYes.\nLindau:\nWell, I think that Mr. Opper's statement about the\ngeneral concensus being that the local authorities\ncould better handle these projects is true. But\nI'm inclined to agree that an original capital\ncontribution is more desirable than spreading this\nRegraded Uclassified\n89\n28 I I\nthing over a number of years. For one thing,\nyou know right off the bat what you are paying,\nand under this plan and spreading it over 60\nyears I think it is very problematical that you\nare going to be able to collect any of the rent\nanything like you expect in the last of those\nyears. Sixty years is E long time and buildings\nwill be outmoded and obsolete, even though physi-\ncally they may be in fair condition, so that the\nactual results over a sixty year period are\nlikely to be far worse than we would anticipate\nin the beginning, especially if you consider that\nyou start off with maintenance costs which are\noptimistically figured and which I think would\nnot be the average over a full sixty years' period;\nand if you boosted those maintenance costs in order\nto provide a cushion for your troubles in the last\nof the years, you'd get the rents up higher than\nyou'd probably want them. The trouble in most of\nthese calculations is we start out with a definite\ngoal and we are willing to shave our figures in\norder to get to that goal and it is not realistic.\nI think you have much better control if you put\nout all the money in the beginning.\nH.M.Jr:\nHow do you mean, lend out?\nLindeu:\nI mean that you contract for expenditures for a\nsubsidy spread over sixty years and you are likely\nto go to much greater extremes in the amount of\nmoney which you will put out, because the cost to\nyou is SO much smaller put on a sixty year amorti-\nzation basis than it is if you put the money out all\nat one time.\nMcR:\nYou mean the cost in these years?\nLindau:\nNo, I mean it costs - you start out and you say,\n\"We're going to have to spend ten million dollars\nin subsidy and we're going to increase that subsidy\neach year by ten million dollars.\" Well, ten million\ndollars doesn't sound large. But talk about spending\na billion dollars and either having to raise it\nthrough tax levies or borrowing it directly, and it\nis a different story, I think. This shifting from\nhaving an authority borrow the money, and then we\npay back the service and all, is something which is\nRegraded Uclassified\n90\n- 29 -\nlikely to be misleading.\nOaston:\nI think the main criticism of this bill is that\nit is misleading. It emphatically is 8 construc-\ntion subsidy. The Government is paying the\ninterest and service on this - on its own loan -\nand I think it would be better to put it frankly\non that basis. I don't think there is any question\nthat to make the pants and vest meet you've got to\nhave a Federal subsidy of large dimensions, but this\nis in essence a capital construction subsidy rather\nthan 8 maintenance subsidy.\nH.M.Jr:\nof a hundred percent.\nGaston:\nYes, and I think it would be better to recognize -\nIf you are going to do it that way, it would be better\nto do it frankly. We could have used this device\nand made it appear that through the whole depression\nwe have had no deficits whatever by a process of\ninter-corporation loans and meeting the carrying\ncharges. In other words, it seems to me it will be\nquickly recognized that this is an effort to do\nsomething and to make it appear that you are doing\nsomething else. Now, I'm all for the objects which\nthis bill sets out, but I don't like the manner in\nwhich you're doing it.\nMeyserling: I think I can answer most of those questions. I\ndon't think that this is a capital subsidy at all,\nand I'd like to approach it first from the point of\nview of the experience of this Government in the\nlast four years with its low rent housing.\nAll of the subsidies to low rent housing by the\nPublic Works Administration have been based upon\nthe cost of building the project. That has been\nthe first source of its difficulties, because in a\nhousing project, since the rentals must cover both\nthe building cost and the maintenance cost, any\nsubsidy which is based upon the building cost\nalone, whether it is fixed too high or fixed too\nlow, will not bear a relationship to the rentals\nthat you are trying to maintain. That is why the\nfigures have gone so far askew. They started off\nwith the idea of a 45 percent grant and 8 three\npercent interest loan upon the building cost, not\nRegraded\n91\n- 30 -\ntaking account of the fact that rentals are not\ndetermined by building cost but determined by the\nannual cost of retiring your building loan plus\nthe annual cost of maintaining the project. Their\nfigures went so far wrong that they got rentals of\neight or nine dollars a room. Then when an effort\nwas made to remedy that\nH.M.Jr:\nMay I interrupt you a minute? Did Mr. Ickes ever\nsay he'd rent it for less than that?\nKeyserling: I don't - I'm not even trying to intimate, Mr.\nSecretary\nS.M.Jr:\nI'm just asking. Did they? Three years ago they\nwere talking of six dollars rental.\nKeyserling: That I could not say.\nThen a decision was made to make a 45 percent grant\nand to lend the rest of the money at less than three\npercent. In the Walsh-Healey bill of last year, the\nauthorization - the George-Healey bill of last year,\nthe authorization was given to loan 45 percent and\nto fix the interest rates on the balance at whatever\nrate was deemed desirable. Under that, I understand,\nthe Department of Public Works asked for permission\nto reduce their interest rate to one percent. I be-\nlieve they got authorization to reduce it to zero,\nbut I understand that the Department decided that\nthey would pull it down to about one percent. The\nfigures show that with a 45 percent grant and a loan\nfor the balance at one percent or at zero, you get\nrentals of about seven dollars a room, which is\nstill far above the low income groups.\nSo that all the figures, whether they are the Treasury\nfigures, Mr. Secretary, or the Department of the\nInterior figures, or the studies of other people,\nshow that in effect you have to have what amounts to\na hundred percent capital cost subsidy to get down\nto low rentals.\nH.M.Jr:\nYes, well we\nKeyserling: Yes, everyone is in agreement.\nRegraded Uclassified\n92\n- 31 -\nH.M.Jr:\nYes, but I've never heard anybody say so publicly.\nI mean I've never heard anybody admit that publicly.\nKeyserling: Now to go on with the theory of this bill and the\nreason for the annual contributions. It is based\non the idea that figuring your contributions to\nlow rent housing on the capital cost is fundamentally\nwrong, because what one is trying to do is reduce the\nrentals and not reduce the cost to the authority of\nbuilding the project; and that the sound way of deter-\nmining your subsidy - whether you want it to be a\nhigh subsidy or low subsidy, that is a different\nmatter - is to figure out what the annual cost of\nthe project would be and what would have to be\ncovered by rentals if there were no subsidy, and\nthen determine how much is necessary to get your\nrentals down to your low income group.\nIf you do that, you may find that you have to give\nsuch a big subsidy that you don't want to have to go\ninto it at all, or you may find that you can manage it,\nBut at least you will actually know what you are doing,\nH.M.Jr:\nBut when it all comes around, it comes back to this:\nthat in order to reach these levels that this income\ngroup can pay, you've got to build a house and give\nthe whole house to some authority to run. That's\nwhat it amounts to.\nKeyserling: It comes about to that. That's what it amounts to.\nH.M.Jr:\nWhat?\nKeyserling: That's what it amounts to.\nH.M.Jr:\nBut I mean I've never heard anybody say so publicly.\nAnd that is on a basis if you pay no taxes of any\nkind.\nMcR:\nAnother factor that you are overlooking here is that\nas far as this bill is concerned there is authority\nthere to spread by private capital coming in the\ncost to something still higher, as shown by those\ntables, so that\nH.M.Jr:\nI don't follow you, Mac.\nRegraded Uclassified\n93\n- 32 -\nMcR:\nWell, if private capital comes in...\nH.M.Jr:\nYes\nMcR:\nyour annual subsidy goes up.\nH.M.Jr:\nWhy?\nMcR:\nBecause your subsidy is based on the cost of the\nproject and not on the amount the Government loans.\nSo you will find in those same tables\nH.M.Jr:\nIt might go up to a billion and a half?\nMeR:\nIt would go up to a billion and a half and your\nsubsidy would go up.\nGaston:\nBut they propose to put an over-all limit on what\nyou can grant in any one year - what you can con-\ntract to grant.\nKeyserling: Ten million a year.\nGaston:\nTen million a year, yes.\nH.M.Jr:\nWell listen, two billion dollars is enough, without\ngoing into private capital, because the only reason\nI think this private capital would go in on this\nbasis is they'd be getting a totally tax exempt\nsecurity, and I'd be opposed to that.\nGaston:\nAnd it would cost you more money.\nH.M.Jr:\nOh sure. I mean the fellow would be able - all the\nrich money people would put their money into this\nthing in order to get a totally tax exempt security.\nOpper:\nThe bill is set up that way.\nH.M.Jr:\nI mean you'd get Rockefeller and all those fellows\nputting their money in in order to get a totally\ntax exempt security.\nLindau:\nAnother thing - that is another subsidy.\nH.M.Jr:\nOf course it is.\nGaston:\nIt would practically be 8 Government-guaranteed\nsecurity in effect.\nRegraded Uclassified\n94\n- 33 -\nOpper:\nHere are the figures for the private capital.\nTake half of it from private sources and it\nraises the room rent.\nKeyserling: Mr. Secretary, the only point I was trying to make\nwas that this 33 percent subsidy per year, assuming\nthat it does amount to a complete capital subsidy\nof the cost of the project, is not more than is\nadmittedly necessary to get down to the low rent\ngroups, so that the size of the subsidy as set forth\nin this bill is not too high.\nThe next question is whether the annual contributions\nare 8 better or a worse way of paying it than a\ncapital grant. I was just trying to make the pre-\nliminary point that this group is in agreement that\nthe subsidy is not too high; that is, if you say\nthat your 32 percent annual contributions amounts\nto an annual contribution sufficient to retire\nthe whole loan with interest, and if you say that\nthat is what you need to get down to a five or six\ndollar rental, then that is the justification for\nthe size of the subsidy.\nH.M.Jr:\nWell, let's just forget money for a minute. Let's\ntake the social aspects of this thing. Now, what\nis talked about that? Where do people live today\nwho have incomes of $1200?\nKeyserling: A lot of them live in sub-standard houses.\nGaston:\nThat means old, rickety, rotten buildings, without\nplumbing, and insanitary, congested, etc.\nOpper:\nThe kind of buildings they are trying to shut up\nin New York and finding SO much trouble with, b ecause\nthey can't find any place to move the people.\nGaston:\nThe point was made that they have full occupancy -\nthat is, they only have a two percent vacancy -\nin Cleveland now, but if the laws were enforced, the\nbuilding laws, the sanitary code was enforced in\nCleveland, they would have a tremendous building\nshortage; in other words, that their low income\ngroup are almost wholly housed in buildings that\nviolate the fire laws or violate sanitary laws or\nviolate safety laws or something else. And I think\nRegraded Uclassified\n95\n- 34 -\nthat is pretty characteristic.\nDunning:\nTrue in New York.\nGaston:\nYes.\nH.M.Jr:\nIt is unfortunate that here we are launched on a\n130 odd - how much is it that Mr. Ickes has?\nLindau:\n130 odd. ne has 136.86. He loaned 10.4 millions,\nbut he's contracted to loan 10.960 million.\nH.M.Jr:\nWell, let's just talk about the Federal - 53\nFederal projects. \"nd I say it is unfortunate\nthat we haven't - only one is finished and you\nhaven't got any experience. I mean whatever\nmistakes that the Federal Government has made,\nwe haven't had time to learn what those mistakes\nare. I mean because only one is finished.\nOpper:\nYou know a lot of mistakes already.\nH.M.Jr:\nWhat?\nOpper:\nYou know a lot of the mistakes now.\nH.M.Jr:\nYes, but they won't show up until they are finished\nand rented. Does anybody, for instance, know whether\nTechwood is rented?\nLindau:\nIt is rented, I think, 94 percent.\nDunning:\n92 percent.\nH.M.Jr:\nWhat do they really get for the rentals?\nKeyserling: $6.75.\nH.M.Jr:\nDidn't they have a project down there for colored\npeople too?\nDunning:\nUniversity project.\nKeyserling: They are figuring a rental of $6.13 on that.\nBarton:\nThat's not low cost housing; for that type of pro-\nject it isn't.\nRegraded Uclassified\n86\n- 35 -\nMcR:\nNo, that's high for that type of project.\nKeyserling: It's very high, because that means an annual income\nof $1300 or $1400 B year, which won't get into your\nlower half of your population, much less the lower\nthird or fourth.\nGaston:\nMr. Keyserling makes a point about the value of\nthis annual grant thing that I think is quite valid\nas against the plan of simply giving the money for\nthe buildings - that it can be differently distri-\nbuted; that is, that it can be more here and less\nthere, according as the need is to equalize rents.\nWhile the effect on the Federal budget would be just\nthe same as 1f you were giving the money outright,\nyet on the particular project the effect would be\ndifferent, because on one project where their costs\nare low you wouldn't give so much, and on another\none where their costs are high you'd give more. So\nyou could spread the money to better advantage\nthrough this annual grant system.\n2.1.Jr:\nThrough, Herbert? Go shead, Opper.\nOpper:\nI was going to ask why you can't do the same thing\nwith your capital grants, because it's a contract,\nHerbert.\nGaston:\nThat's quite true, except that your maximum limit\non your capital grant is the construction cost of the\nproject.\nH.M.Jr:\nIt all washes out, though, in sixty years.\nGaston:\nIn some cases this grant would amount to more than\nthe construction cost of the project; in other\ncases you'd be giving less.\nH.M.Jr:\nOf course, I think the thing you've got to recognize\nif you go into this is that people have to live in\nit and they can't expect to live within ten minutes\nof work. They've got to be willing to ride on the\nsubway or street car for 45 minutes or an hour. I\nmean if you've got to go in - you've got to go in\nnon-congested areas to get your best dollar per\nsquare foot.\nRegraded\n97\n- 36 -\nGaston:\nWhat you're really bucking here is the proposition\nof high land values in cities - the so-called\nunearned increment; that's the thing you're up\nagainst.\nH.M.Jr:\nThis thing may revolve - you may have to ecognize\nthat 1f these people are going to live and work -\nI mean you may have to move them to places where\nfactory conditions and housing conditions can be\ncreated so that people can live decently. I mean\nmaybe they'll have to go to the South for climatic\nconditions and everything else there which is more\nfavorable. I mean after all, that's what's happened\nwith all the textiles, hasn't it? I mean they're\nmoving south where people can get better working\nconditions and better living conditions and save\nsome of their income. It is pretty hard to produce\nthis sort of thing in New York City.\nGaston:\nI suppose this bill is open enough so that you\ncould build housing in industrial suburbs.\nKeyserling: Oh certainly, in large industrial suburbs - build\nanywhere.\nGaston:\nYes.\nH.M.Jr:\nMac, how much are we spending on public roads? Do\nyou know? Was it 400 million a year?\nMcR:\nI couldn't tell you. I should say it was at least\nthat much.\nOpper:\n400 million dollars by the Federal Government?\nMcR:\nI think SO.\nKeyserling: This bill, Mr. Secretary, only calls for an expen-\nditure of 35 million dollars a year at most on the\nbasis of the present program set forth.\nH.M.Jr:\nYou can't sell it to me on that basis, Mr.\nKeyserling. No, you've got to recognize that\nthis is a two billion dollar expenditure over\nsixty years, and that's what it amounts to.\nWhen you do it that way, how can you divide sixty\ninto two billion and\nRegraded Uclassified\n98\n37 1 I\nQaston:\nThere is an assumption that you cut your program\noff at the end of four years.\nH.M.Jr:\nI'd be absolutely opposed to selling a guaranteed\nFederal bond on this thing. I mean I think it\nwould just shoot our credit to\nGaston:\nThere would be no point in it. There's a provision\nin the bill whereby you could take the obligations\nof the authority and just sell a straight Federal\nbond.\nH.M.Jr:\nJust increase our Federal debt. But to sell a guar-\nanteed bond on this thing - it would just shoot the\nGovernment credit to hell.'\nGaston:\nThere wouldn't be any sense to that. But the bill\nprovides that you can take the authority's obliga-\ntions and then sell a straight Federal bond for the\nmoney.\nH.M.Jr:\nYou take a guaranteed bond of the land banks; they\nloan sixty percent on the value of the land, and\nyou've got your land. Fahey's crowd, was it - how\nmuch did they loan up to?\nOpper:\nH.O.L.C., 75 percent.\nDunning:\n80 percent.\nLindau:\nHe's talking about F.H.A. I don't know what the\nlimitation was.\nOpper:\nI think it was 75. They haven't been lending now\nfor about six months.\nBarton:\nA billion dollars would take care of about two\nhundred thousand families.\nAeyserling: About 250,000 at four thousand dollars per family.\nBarton:\nFour thousand per family is probably a little low.\nBut that's not taking care of the entire problem\nby any means. That's a very small part of it.\nH.M.Jr:\nHas anybody estimated how many families there are?\nOpper:\nHave you (Keyserling) got any figures on that?\nUclassified\n99\n- 38 -\nKeyserling: You mean determined by your income groups? There\nare about seven million families with incomes of\nless than a thousand a year.\nOpper:\nBut that's not - that's not necessarily urban\nfamilies.\nKeyserling: No, that includes urban and rural, Probably\nthree-fourths of them are urban.\nGaston:\nThree-fourths are urban, you think?\nKeyserling: I should think SO.\nH.M.Jr:\nThis comes back to the President's original idea,\nwhich Tugwell muffed so, and that is this thing of\nsatellite cities - going out fifteen, twenty miles,\nbuying farm land, then building these things out\nthere.\nOpper:\nThat was the original conception of the housing\ndevelopment in 1929.\nGaston:\nOf course, you could build satellite cities under\nthis bill. It would depend on the judgment of the\nhousing authority.\nOpper:\nWell, you couldn't do anything about your industry,\nHerbert. Part of that job is to bring your indus-\ntries into the right places.\nGaston:\nOn, your housing authority has got plenty of power\nunder the bill to deal with industry.\nH.M.Jr:\nOf course, the point that I make is this: I mean\nwhere I think that we have a perfectly sound\nbasis - I don't know whether it's 200 million or\n400 million a year for roads; well, we've gone\ndrunk over building these roads. Now we've done\nthis thing for three or four years. We've spent\nall this money on dams, spent all this money on\nreclamation. Let's ease up on these things. And\nrivers and harbors, and deepening the Mississippi\nand all that stuff. It is just because those\npeople have more votes on the Hill. And I don't\nsee why some of that stuff can't be stopped and\nput into this thing.\nRegraded Uclassified\n100\n- 39 -\nAfter all, when you figure building a Bonnerville\nDam or when you figure building a reclamation\nthing, or if you deepen the Hudson to Albany, you\ndon't expect to get that back. You don't charge\nanybody when you put up all these levies on the\nMississippi that the Army engineers build. You\ndon't even figure you're going to get that back.\nOpper:\nGoing to cost us more money when they get those\nclaims in for that Atchafalaya Basin.\nH.V.Jr:\nBut you take your four billion eight. The best\nestimates I can make on that is that we'll get\nfive percent of that. Do you know that? Do you\nknow that it is as low as that? If we get five\npercent back, it's lucky, although the President\nintimated at one time we'd get half of that back.\nIf we do that, I don't see why - but stop some\nof the other stuff.\nGaston:\nYou think there are certain social values in what\nyou can do.\nG.M.Jr:\nI'm sold on it that way. What's our expenditures\nthis year - seven or eight billion, was it?\nGaston:\nAround eight billion.\nH.M.Jr:\nWell, out of that certainly we can start something\nthat costs a hundred million dollars and put that\ndirectly into this thing. I mean out of all these\nexpenditures - and these Army engineers; my heavens,\nall the money that they've had now, and all that\nstuff. Certainly out of eight billion dollars we\nought to be able to find a hundred million dollars\nfor real low cost housing.\nHaven't you (McReynolds) got any of Bartelt's\nbooks that shows the statutory allotments for\nrelief appropriations for roads?\nMcR:\nThose monthly books that he quarterly gives you\na bound copy of.\nH.M.Jr:\nIf we could say to the President on this, \"Look,\nyou say you've got to pool five hundred million\n101\n- 40 -\ndollars worth of this for public works. Let's\njust put that pool over - let's slow up on this\nother. If you want to do low cost housing, take\nit out of nere.\nOpper:\nThe thing on the road question is that I think it\nis supposed to be the type of enterprise that uses\nthe most labor per dollar spent, and I don't think\nthat is true of housing. It doesn't come in nearly\nas high for labor cost.\nDunning:\nAlthough a larger number of skilled labor and\nmedium-skilled. Roads will go into the common\nlabor.\n8.M.Jr:\nBut the only way - the more I think of it, the only\nway you can think of this thing is of the social\nneeds, and the fact that this group of Americans\nhave been overlooked the last four years. Now I\nthink it is time we do something. I mean that's\nwhy we are - I'm interested. I mean the only way\nyou can sell this is not on & financial basis. You\ncan't sell it to me on that. You've got to sell it\nto me on the basis of social needs. If it takes a\nhundred percent, all right. But as to the social\nneeds and the fact we've spent all this money - my\ngod, we've given Tugwell 70 million dollars, and the\nbest estimate of Procurement - we figured 50 million\nof it was \"goodbye.\" I mean out of 70 million dollars\nto Tugwell, 50 million of it is just gone.\nKeyserling: Well, I just didn't think it was necessary to present\nthe social side of it here.\nB.M.Jr:\nI mean Tugwell's average cost, $11,000 per family\nin the country. I mean the more I think of it, I\nthink the only way you can sell this thing is by\nsocial needs. And a hundred percent grant - build\nthe thing, lease it to the community a dollar a\nyear, and let's face the thing and do it. On a\nstraight social basis - that's the way I'd present\nit. I mean that would be my approach. Now, you\ncan't fight with me over that, can you?\nKeyserling: I certainly think that it's got to be looked at\nfrom the social vie point.\n102\n41 I I\nH.M.Jr:\nI mean if I'm willing as the Secretary of the\nTreasury to take that viewpoint, you certainly\ncan't say there is any difference between Senator\nWagner and myself - if I am willing to say I recog-\nnize that need and think it is more important than\na lot of other thingswe are doing. I don't see\nhow else you can sell this, do you?\nDunning:\nI think that eliminates one of the hazards of this\nscheme, and that is the sixty year amortization.\nH.M.Jr:\nBut this bill from the financing standpoint - I\ncouldn't take it that way. I can fight for it on\nthe social basis.\nMac, first thing in the morning get hold of Danny\nBell, will you, and get this thing and let's see\nwhat the various public works things are that are\nlined up. Dan's got that all at his fingertips.\nWill you?\nMcR:\nAll right, I will. Of course we've got stuff in\nmy office that shows it, but I can't remember it.\nH.M.Jr:\nBut let's take a look at it first thing in the\nmorning and let's just see. I don't think we can\ndo any more tonight, and I know I'm - now I've got\nthis. I'm very much obliged to you. I hope we\nhaven't played you (Keyserling) out.\nMcR:\nI've been giving him a pretty tough ride. He's\nbeen going hard since 2:30.\nRegraded Uclassified\n103\n75TH CONGRESS\n1ST SESSION\nS. 1685\nIN THE SENATE OF THE UNITED STATES\nFEBRUARY 24, 1937\nMr. WAGNER introduced the following bill; which was read twice and referred\nto the Committee on Education and Labor\nA BILL\nTo provide financial assistance to the States and political sub-\ndivisions thereof for the elimination of unsafe and insanitary\nhousing conditions, for the provision of decent, safe, and\nsanitary dwellings for families of low income, and for the\nreduction of unemployment and the stimulation of business\nactivity, to create a United States Housing Authority, and\nfor other purposes.\n1\nBe it enacted by the Senate and House of Representa-\n2 tives of the United States of America in Congress assembled,\n3\nFINDINGS AND POLICY\n4\nSECTION 1. There exist in urban and rural communi-\n5 ties throughout the United States slums, blighted areas, or\n6 unsafe, insanitary, or overcrowded dwellings, or a combina-\n7 tion of these conditions, accompanied and aggravated by an\nRegraded Uclassified\n2\n3\n1 acute shortage of decent, safe, and sanitary dwellings within\n1 income, or to prevent the widespread, prolonged, and recur-\n2 the financial reach of families of low income.\n2 ring unemployment resulting from the persistence of such\n3\nThese conditions are inimical to the general welfare of\n3 obstacles, and the several States and their political subdivi-\n4 the Nation by (a) encouraging the spread of disease and\n4 sions have been and now are unable adequately to aid in\n5 lowering the level of health, morale, and vitality of large\n5 remedying this condition without financial assistance. The\n6 portions of the American people; (b) increasing the hazards\n6 legislatures of many of the States have expressly declared the\n7 of fires, accidents, and natural calamities; (e) subjecting the\n7 néed for assistance along the lines set forth in this Act in\n8 moral standards of the young to bad influences; (d) increas-\n8 order to remedy the aforesaid conditions.\n9 ing the violation of the criminal laws of the United States\n9\nIt is hereby declared to be the policy of the United\n10 and of the several States; (e) impairing industrial and agri-\n10 States to promote the general welfare of the Nation by em-\n11 cultural productive efficiency; (f) lowering the standards of\n11 ploying its funds and credit, as provided in this Act, to assist\n12 living of large portions of the American people; (g) neces-\n12 the several States and their political subdivisions to alleviate\n13 sitating n vast and extraordinary expenditure of public funds,\n13 present and recurring unemployment and to remedy the\n14 Federal, State, and local, for crime prevention, punishment\n14 unsafe and insanitary housing conditions and the acute short-\n15 and correction, fire prevention, public-health service, and\n15 age of decent, safe, and sanitary dwellings for families of low\n16 relief.\n16 income that are injurious to the health, safety, and morals\n17\nThe failure to remedy the acute dwelling shortage has\n17 of the citizens of the Nation.\n18 also produced stagnation of business activity in the con-\n18\nDEFINITIONS\n19 struction, durable goods, and allied industries, thus impeding\n19\nSEC. 2. When used in this Act-\n20 business activity throughout the Nation and resulting in\n20\n(1) The term \"low rent housing\" means decent, safe,\n21 widespread, prolonged, and recurring unemployment with its\n21 and sanitary dwellings within the financial reach of families\n22 injurious effects upon the general welfare of the Nation.\n22 of low income, and developed and administered to promote\n23\nPrivate industry alone has been and now is unable to\n23 servicenbility, efficiency, economy, and stability: and em-\n24 overcome the obstacles in the way of relieving the shortage\n24 braces all necessary or desirable appurtenances thereto, in-\n25 of decent, safe, and sanitary dwellings for families of low\n25 cluding administrative, educational, recreational, commercial,\nRegraded Uclas sified\n4\nin\n1 and other lands, buildings, and facilities. The dwellings in\n1 struction, and equipment, in connection with a low-rent-\n2 low-rent housing as defined in this Act shall be available\n2 housing or slum-clearance project, but not beyond the point\na solely for families whose net income at the time of admis-\n8 of physical completion. Construction activity in connection\n4 sion does not exceed five tiraes the rental (including the\n4 with a low-rent-housing project may be confined to the re-\n5 value or cost to them of heat, light, water, and cooking fuel)\n5 construction, remodeling, or repair of existing buildings.\n6 of the dwellings to be furnished such families, except that in\n6 The development of a low-rent-housing project may include\n7 the case of families with three or more minor dependents,\n7 slum clearance. The development of a slum-clearance proj-\n8 such ratio shall not exceed six to one.\n8 ect may be confined to demolition and removal.\n9\n(2) The term \"families of low income\" means families\n9\n(6) The term \"administration\" means any or all under-\n10 who cannot afford to pay enough to cause private enter-\n10 takings necessary for management, operation, maintenance,\n11 prise in their locality or metropolitan area to build an ade-\n11 and financing, in connection with a low-rent-honsing or\n12 quate supply of decent, safe, and sanitary dwellings for\n12 slum-clearance project, subsequent to physical completion.\n13 their use,\n13\n(7) The term \"demonstration project\" means any\n14\n(3) The term \"slum\" means any area where dwellings\n14 project owned or administered by the Authority, whether\n15 predominate which, by reason of dilapidation, overcrowding,\n15 or not developed pursuant to section 11.\n16 faulty arrangement or design, lack of ventilation, light or\n16\n(8) The term \"acquisition cost\" means the aequisition\n17 sanitation facilities, or any combination of these factors, are\n17 cost to the Authority or to n housing agency, as the case\n18 detrimental to safety, health, or morals.\n18 may be.\n19\n(4) The term \"slum clearance\" means the demolition\n19\n(9) The term \"going Federal rate of interest\" means,\n20 and removal of buildings from any slum area, and may\n20 at any time, the annual rate of interest specified in the then\n21 embrace the adaptation of such area to public purposes,\n21 most recently issued bonds of the Federal Government having\n22 including parks or other recreational or community facilities.\n23\n22 a term of ten years or more.\n(5) The term \"development\" means any or all under-\n23\n(10) The term \"public housing agency\" means any\n24 takings necessary for planning, financing (including payment\n24 State, county, municipality, or other governmental entity\n25 of carrying charges), land acquisition, demolition, con-\n25 or public body (excluding the Authority), which is author-\n6\n7\n1 ized to engage in the development or administration of low\n1\n(15) The term \"Authority\" means the United States\n2 rent housing or slum clearance.\n2 Housing Authority created by section 3 of this Act.\n3\n(11) The term \"consumers\" housing society\" means\n3\nUNITED STATES HOUSING AUTHORITY\n4 any association, cooperative, or corporate body organized\n4\nSEC. 3. (a) There is hereby created n. body corporate\n5 solely to promote and administer low-rent housing, whose\n5 of perpetual duration to be known ns the United States\n6 members are persons of low income in need of such housing,\n6 Housing Authority, which shall be an agency and instru-\n7 whose officers and directors are the freely chosen representa-\n7 mentality of the United States.\n8 tives of such members, which is operated without possibil-\n8\n(b) The management of the Authority shall be vested\n9 ity of direct or indirect financial profit, and which submits\n9 in a board of directors (hereinafter referred to as the board)\n10 its records to the inspection of the Authority to the extent\n10 composed of three members appointed by the President, by\n11 necessary to earry out the provisions of this Act.\n11 and with the advice and consent of the Senate, and removable\n12\n(12) The term \"limited-profit housing agency\" means\n12 by the President upon notice and hearing for neglect of duty\n13 any association, cooperative, limited-dividend corporation,\n13 or malfeasance in office, but for no other canse. One of the\n14 or other corporate body organized to develop or administer\n14 three original members shall serve for a term of one year,\n15 low-rent-housing projects, whose dividend rates, if any, capi-\n15 one for a term of three years, and one for a term of five years,\n1G tal structure, interest payments, and rental charges are\n16 but their successors shall be appointed for terms of five years\n17 regulated or limited by law or subject to the supervision\n17 each, except that any individual chosen to fill a vacancy\n18 and control of the Authority and which submits its records\n18 shall be appointed only for the unexpired term of the\n19 to the inspection of the Authority to the extent necessary\n19 member whom he shall succeed. The President shall desig-\n20 to carry out the provisions of this Act.\n20 nate one member to serve as chairman and executive officer\n21\n(13) The term \"housing agency\" means any public\n21 of the board, in charge of the routine administration of the\n22 housing agency, consumers' housing society, or limited-profit\n22 Authority.\n23 housing agency.\n23\n(c) A vacancy in the board shall not impair the right\n24\n(14) The term \"State\" includes the States of the\n24 of the remaining members to exercise all the powers of the\n25 Union, the District of Columbia and the Territories, de-\n25 board, and two members of the board shall at all times\n26 pendencies and possessions of the United States.\n26 constitute a quorum.\n8\n9\n1\nSEC. 4. (n) Each member of the board shall receive n.\n1 agency concerned may utilize such officers, employees, equip-\n2 salary of $10,000 a year, shall be eligible for reappointment,\n2 ment, and information of any agency of the Federal, State,\n3 and shall not engage in any other business, vocation, or em-\n3 or local governments as it finds helpful in the performance\n4 ployment. No officer or employee of the Authority shall\n4 of its duties. In connection with the utilization of such\n5 participate in any manner in the deliberation upon or the\n5 services, the Authority may make reasonable payments for\n6 determination of any question affecting his personal interests\n6 necessary traveling and other expenses.\n7 or the interests of any corporation, partnership, or association\n7\n(d) The President may at any time in his discretion\n8 in which he is directly or indirectly interested.\n8 transfer to the Authority any right, interest, or title held\n9\n(b) The Authority is authorized, without regard for\n9 by any department or agency of the Federal Government\n10 the civil-service laws or the Classification Act of 1923, as\n10 in any housing or slum clearance projects, including all\n11 amended, to employ such officers, attorneys, and experts\n11 assets, contracts, records, libraries, research materials and\n12 and hire such skilled and unskilled labor as may be necessary\n12 other property held in connection with such projects, and\n13 for the proper performance of its duties under this Act, and\n13 any unexpended balance of funds allocated to such depart-\n14 subject to such laws to appoint and fix the compensation of\n14 ment or agency for such projects; and the Authority may\n15 such other employees as may be necessary for such purposes:\n15 continue any or all activities undertaken in connection with\n16 Provided, That insofar as such other employees are drawn\n16 such projects, subject to the provisions of this Act.\n17 from any department or agency of the Government where\n17\nSkc. 5. (a) The principal office of the Authority shall\n18 they have been engaged in work connected with housing or\n18 be in the District of Columbia, but it may establish branch\n19 slum clearance, they shall be included within the civil service\n19 offices or agencies in any State, and it may meet and exercise\n20 upon certification by the Authority (within ninety days of\n20 any of its powers at any place within the United States.\n21 their employment) to the Civil Service Commission and upon\n21 The Anthority may, by one or more of its officers or em-\n22 passing a noncompetitive examination given by such\n22 ployees or by such agents or agencies as it may designate,\n23 Commission.\n23 conduct hearings or negotiations at any place.\n24\n(e) The Authority may accept and utilize such volun-\n24\n(b) The Authority shall sue and be sued in its own\n25 tary and uncompensated services and with the consent of the\n25 name, and all suits shall be brought in the Federal courts\n10\n11\n1 except where the Authority consents specifically to a differ-\n1 facilities and services as it may from time to time find neces-\n2 ent forum. Attorneys appointed by the Authority may, at\n2 sary for the proper administration of this Act. The Au-\n3 the direction of the Authority, appear for and represent the\n3 thority shall determine and prescribe the manner in which\n4 Authority in any case in court.\n4 its obligations and expenses shall be incurred, allowed, and\n5\n(c) The Authority shall have an official seal, which\n5 paid, and the manner in which accounts shall be audited.\n6 shall be judicially noticed.\n6 Vouchers approved by the Authority for expenditures of\n7\n(d) The Authority shall be granted the free use of the\n7 its funds shall be final and conclusive upon all officers of\n8 mails in the same manner as the executive departments of\n8 the Government: except that all financial transactions of the\n9 the Government.\n9 Authority shall be examined by the General Accounting\n10\n(e) The Authority, including but not limited to its\n10 Office at such times and in such manner as the Comptroller\n11 franchise, capital, reserves, surplus, loans, income, assets,\n11 General of the United States may by regulation prescribe.\n12 and property of any kind, shall be exempt from all taxation\n12 Such examination shall be for the sole purpose of making &\n13 now or hereafter imposed by the United States or by any\n13 report to the Congress and to the Authority of expenditures\n14 State, county, municipality, or local taxing authority. Obli-\n14 in violation of law, together with such recommendations\n15 gations issued by public housing agencies in connection with\n15 thereon as the Comptroller General deems advisable.\n16 low-rent-housing and slum-clearance projects, and the in-\n16\n(b) The provisions of section 3709 of the Revised\n17 come derived by such agencies from such projects, shall be\n17 Statutes (U. S. C., title 41, sec. 5) shall apply to all con-\n18 exempt from all taxation now or hereafter imposed by the\n18 tracts of the Authority for services and to all of its purchases\n19 United States.\n19 of supplies except when the aggregate amount involved is\n20\nSEO. 6. (a) The Authority may make such expend-\n20 less than $300.\n21 itures for the acquisition and maintenance of adequate\n21\n(c) The nse of funds made available for the purposes of\n22 administrative agencies, offices, vehicles, furnishings, equip-\n22 this Act shall be subject to the provisions of section 2 of\n23 ment, supplies, and books, for attendance at meetings, for\n23 title 3 of the Treasury and Post Office Appropriation Act\n24 instruction, for traveling expenses, and for such other\n24 for the fiscal year 1934 (47 Stat. 1489), and to make\nRegraded Uclassi ed\n12\n13\n1 such provisions effective every contract or agreement of any\n1 ASSISTANCE TO LOCAL LOW-RENT-HOUSING AND SLUM-\n2 kind pursuant to this Act shall contain a provision identical\n2\nCLEARANCE PROJECTS\n3 to the one preseribed in section 3 of title 3 of such Act.\n3\nSec. 9. (a) The Authority may make grants and loans\n4\nSEC. 7. (a) The Authority may engage in research,\n4 to public-housing agencies to assist the development, ac-\n5 studies, surveys, experimentation, and experimental construe-\n5 quisition, or administration of low-rent-bonsing projects by\n6 tion, and may publish and disseminate information pertinent\n6 such agencies.\n7 to the various aspects of housing.\n7\n(b) The grant for any such project shall be paid in\n8\n(b) In January of each year the Authority shall make\n8 the form of fixed and uniform annual contributions, over a\n9 an annual report to Congress of its operations, including\n9 fixed period not exceeding sixty years. The Authority shall\n10 loans and grants made or contracted for, low-rent-housing\n10 embody the provisions for such grant in a contract of grant\n11 and slum-clearance projects undertaken, and the assets and\n11 guaranteeing such fixed and uniform annual contributions\n12 liabilities of the Authority. Such report shall include oper-\n12 over such fixed period. Such annual contributions as are\n13 ating statements of all projects under the jurisdiction of or\n13 contracted for shall be strictly limited to the amounts and\n14 receiving the assistance of the Authority, including sum-\n14 period necessary, in the determination of the Authority, to\n15 maries of the incomes of occupants, sizes of families, rentals,\n15 assure the low rent character of the housing project involved:\n16 and other related information.\n16 Provided, That the fixed contribution payable annually\n17\nSwc. 8. (a) The Authority may from time to time make,\n17 under any such contract of grant shall not exceed a sum\n18 amend, and rescind such rules, regulations, and definitions as\n18 equal to the annual yield at the going Federal rate of\n19 may be necessary to earry out the provisions of this Act.\n19 interest (at the time such contract of grant is made) plus\n20\n(b) In the exercise of its discretion pursuant to this\n20 1 per centum upon the development or acquisition cost\n21 Act and pursuant to the standards, definitions and considera-\n21 of such project.\n22 tions of policy set forth herein, the findings of the Authority,\n22\n(c) All payments of annual contributions pursuant\n23 if reasonably substantiated, shall be conclusive,\n23 to this section shall be made out of any funds available to\n24 the Authority when such payments are due, except that\nRegraded\n14\n15\n1 its capital and its funds obtained through the issuance of\n1 able by the Authority. The total of such loans outstanding\n2 obligations pursuant to section 20 (including repayments\n3 for any such project shall not exceed the development or\n3 or other realizations of the principal of loans made out of\n3 aequisition cost of such project, less the total amounts out-\n4 such capital and funds) shall not be available for the pay-\n4 standing on loans made by third parties, senior to the loans\n5 ment of such annual contributions.\n5 of the Authority, and secured by such project or payable\n6\n(d) In any one fiscal year the Authority shall not enter\n6 from the revenues thereof.\n7 into contracts of grant which provide for annual contributions\n7\nSEO. 10. The Authority may make loans to limited-\n8 aggregating more than $10,000,000 per year exclusive of\n8 profit housing agencies to assist the development or acquisi-\n9 any annual contributions payable under contracts of grant\n9 tion of low-rent-housing projects: Provided, That not more\n10 made by it in prior fiscal years: Provided, That if the con-\n10 than $25,000,000 shall be 80 loaned in any one fiscal year.\n11 tracts of grant entered into in any one fiscal year provide\n11 Such loans shall bear interest at such rate not less than\n12 for annual contributions aggregating less than the authorized\n12 the going Federal rate at the time the loan is made, be se-\n13 $10,000,000, the unutilized balance of such authorization\n13 cured in such manner, and be repaid within such period,\n14 may be carried over ns an authorization for any subsequent\n14 not exceeding sixty years, as may be deemed advisable by\n15 fiscal year. The faith of the United States is solemnly\n15 the Authority. The total of such loans outstanding for any\n16 pledged to the payment of all annual contributions con-\n16 such project shall not exceed 85 per centum of the develop-\n17 tracted for pursuant to this section, and there is hereby\n17 ment or acquisition cost of such project, less the total amounts\n18 authorized to be appropriated in each fiscal year, out of any\n18 outstanding on loans made by third parties, senior to the\n19 money in the Treasury not otherwise appropriated, the\n19 loans of the Authority, and secured by such project or pay-\n20 21 amounts necessary to provide for such payments.\n20 able from the revenues thereof.\n(e) The loans for any low-rent-housing project pur-\n21\nDEMONSTRATION PROJECTS\n22 suant to this section shall bear interest at such rate not less\n22\nSEC. 11. (a) The Authority may develop and admin-\n23 than the going Federal rate at the time the loan is made,\n23 ister low-rent-housing and slum-clearance demonstration\n24 25 be secured in such manner, and be repaid within such\n24 projects in order to demonstrate to localities the benefits\nperiod, not exceeding sixty years, as may be deemed advis-\n25 to be derived therefrom. No such projects shall be com-\nRegraded\nUclassified\n16\n17\n1 menced in any locality without the consent of B governing\n2 body having jurisdiction over such locality: Provided, That\n1 society. The lessee of any project, pursuant to this para-\n3 not more than one demonstration project shall be commenced\n2 graph, shall assume and pay all management, operation,\n3 and maintenance costs, together with payments, if any, in\n4 hereafter in any one locality and that the total estimated\n4 lieu of taxes, and shall pay to the Authority such annual\n5 development cost of all such projects commenced in any\n5 sums as the Authority shall determine are consistent with\n6 one fiscal year shall not exceed $25,000,000.\n6 maintaining the low-rent character of such project. The\n7\n(b) As soon as practicable the Authority shall sell its\n7 provisions of section 321 of the Act of June 30, 1932\n8 demonstration projects or divest itself of their management\n9 through leases. Quelim 7 prinding for loss\n8 (U. S. C., Supp. VIII, title 40, sec. 303 (b) shall not\n9 apply to any lease pursuant to this Act. Firm about punerm\n10\n(e) The Authority may sell a low-rent-housing demon-\ntm lisses\n10\n(e) In the administration of any low-rent-honsing\n11 stration project only to a public housing agency. Any such\n11 demonstration project peuding sale or lease, the Authority\n12 sale shall be for a consideration, in whatever form may be\n12 shall fix the rentals at the amounts necessary to pay all man-\n13 entisfactory to the Authority, equal at least to the amount\n13 agement, operation, and maintenance costs, together with\n14 which the Authority determines to be the fair value of the\n14 payments, if any, in lieu of taxes, plus such additional\n15 project for housing purposes, less such allowance for depre-\n15 amounts as the Authority shall determine are consistent with\n16 eintion ns the Authority shall fix. Such project shall then\n16 maintaining the low-rent character of such project.\n17 become eligible for a grant and loans pursuant to section 9.\n17\nGENERAL POWERS OF THE AUTHORITY\n18 Any obligation of the purchaser accepted by the Authority\n18\nSEC. 12. (a) In connection with the development or\n19 na part of the consideration for the sale of such project shall\n19 administration of any low-rent-honsing or slum-clearance\n20 be deemed a loan pursuant to section 9.\n21\n20 project, the Authority may acquire real or personal property\n(d) The Authority may lease any low-rent-housing\n22 demonstration project in whole or in part to a public housing\n21 or any interest therein by purchase, eminent domain, gift,\n23 agency or a consumers' housing society: Provided, That\n22 devise, lease, or otherwise. In the acquisition of any land\n24 the tenant eligibility for a project leased to a consumers\n23 or site the provisions of section 355 of the Revised Statutes,\n25 housing society shall not be limited to the members of such\n24 as amended, shall not apply, but the Authority may avail\n25 itself of the services of the Attorney General acting in accord\nS. 1685-2\nRegraded Uclassified\n18\n19\n1 with his powers under such section to procure information\n1 end subdivision thereof of its civil and criminal jurisdiction\n2. relating to the state of title. The Attorney General shall,\n2 in and over such property, or impair the civil rights under\n3 upon the application of the Authority, institute condemnation\n3 the State or local law of the inhabitants on such property;\n4 proceedings in its name. The practice and procedure govern-\n4 and, insofar as any such jurisdiction may have been taken\n5 ing such proceedings by the United States shall be followed,\n5 away or any such rights impaired by reason of the acquisition\n6 and the Authority shall likewise be entitled to proceed in\n6 of any property transferred to the Authority pursuant to\n7 accordance with the provisions of an Act of Congress\n7 section 4 (d), such jurisdiction and such rights are hereby\n8. approved February 26, 1931 (46 Stat. 1421), and an Act\n8 fully restored.\n9 of Congress approved March 1, 1929 (45 Stat. 1415). The\n9\n(d) The Authority may enter into agreements to pay\n10 Authority may enter into agreements to reimburse any State\n10 annual sums in lieu of taxes to any State or political sub-\n11 or political subdivision thereof, or any housing agency, for\n11 division thereof with respect to any real property owned by\n12 expenses incurred in the acquisition, by condemnation or\n12 the Authority. The amount so paid for any year upon any\n13 otherwise, of property to be conveyed to the Authority for\n13 such property shall not exceed the taxes that would be paid\n14 the development of a low-rent-housing or slum-clearance\n14 to the State or subdivision, as the case may be, upon such\n15 project.\n15 property if it were not exempt from taxation thereby.\n16\n(b) The Authority may foreclose on any property or\n16\n(e) The Authority may procure insurance against any\n17 commence any action to protect or enforce any right conferred\n17 loss in connection with its property and other assets (includ-\n18 upon it by any law, contract, or other agreement. The\n18 ing mortgages), in such amounts, and from such insurers,\n19 Authority may bid for and purchase at any foreclosure by any\n19 as it deems desirable.\n20 party or at any other sale, or otherwise acquire, and may\n20\n(f) The Anthority may dedicate land for parks, play-\n21 administer, any low-rent-housing project which it previously\n21 grounds, and other recreational facilities, for sewers, for the\n22 owned or in connection with which it has made IL loan or\n22 opening or widening of streets, for incidental improvements,\n23 grant pursuant to section 9 or a loan pursuant to section 10,\n23 or for any other public purpose, and may grant licenses\n24\n(e) The acquisition by the Authority of any real propr\n24 and easements upon such terms as it doems reasonable.\n25 eny pursuant to this Act shall not deprive any State or politi-\nRegraded Uclassifie\n20\n21\n1\n(g) The Authority may sell or exchange at public or\n1\nSTANDARDS\n2 private sale, or lease, any real property (except low-rent-\n2\nSEC. 14. In making any loan or contract of grant for\n3 housing projects, the disposition of which is governed else-\n3 the development, acquisition, or administration of a project\n4 where in this Act) or personal property, and sell or exchange\n4 pursuant to section 9, or any loan for the development or\n5 any securities or obligations, upon such terms as it may fix.\n5 aequisition of B. project purseant to section 10, and in under-\n6 To facilitate the sale of such securities or obligations any\n6 taking any demonstration project pursuant to section 11,\n7 other securities or obligations retained by the Authority may\n7 the Authority shall be guided by these considerations:\n8 be subordinated to those sold. The Authority may borrow\n8\n(1) In the case of a low-rent-housing project, that there\n9 on the security of any real or personal property owned by\n9 exists in the locality or metropolitan area concerned n. short-\n10 it, or on the security of the revenues to be derived there-\n10 age of decent, safe, and sanitary dwellings within the finan-\n11 from, and may lise the proceeds of such loans for the purposes\n11 cial reach of families of low income, which is not being\n12 of this Act.\n12 remedied adequately by private enterprise;\n13\nSec. 13. Subject to the specific limitations or standards\n13\n(2) In the case of a slum-clearance project, or a low-\n14 in this Act governing the terms of sales, rentals, leases,\n14 rent-housing project which includes slum clearance, that sub-\n15 loans, contracts of grant, or agreements, the Authority\n15 stantially all of the dispossessed inhabitants will be provided\n16 may, whenever it deems it necessary or desirable in the\n16 for by the development of sufficient low-rent housing, within\n18 17 fulfillment of the purposes of this Act, consent to the\n17 their financial reach, either upon the site to be cleared or\n20 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\n18 in some other suitable locality, unless the clearance of the\n19 area will not make it impracticable for the inhabitants\n20 thereof to secure equivalent dwellings elsewhere at no higher\n22 in contract or agreement of any kind to which the Authority\n21 cost to them or better dwellings elsewhere within their\n23 this a party or which has been transferred to it to\n22 financial reach:\n24 Act, Any rule of law contrary to this provision pursuant shall be\n23\n(3) That the project conforms to a general program\ndeemed imapplicable.\n24 formulated by the Authority to distribute the benefits of\n25 this Act as widely as practicable throughout the United\nRegraded Iclassified\n22\n23\n1 States, consistent with the needs of the several States and\n1 private industry from the competition that would exist either\n2 their political subdivisions;\n2 if other than families of low-income were accepted as tenants\n3\n(4) That the form of assistance to the project is an\n3 in such projects or if such projects were withdrawn from the\n4 appropriate means of carrying out the purposes of this Act\n4 financial reach of such families, it is hereby provided that-\n5 in the particular case, and that the amount of financial\n5\n(1) When a loan is made pursuant to section 9 or\n6 assistance to be afforded such project by the Authority\n6 section 10, the Authority may retain the right, in the event\n7 will not be in excess of the amount necessary for such\n7 of a substantial breach of the covenant (which shall be em-\n8 purposes;\n8 bodied in the loan agreement) to maintain the low-rent\n9\n(5) That the site on which the project is or shall be\n9 character of the housing project involved or in the event\n10 developed has been selected primarily for its present and\n10 of the acquisition of such project by a third party in any\n11 continued suitability for its intended use; that its location\n11 manner including a bona-fide foreclosure under a mortgage\n12 and planning are consistent with a logical development of\n12 or other lien held by a third party. to increase the interest\n13 land uses in the locality or metropolitan area concerned; and\n13 payable thereafter on the balance of said loan then held\n14 that it lms been or will be acquired for a reasonable price;\n14 by the Authority to a rate not in excess of the going Federal\n15\n(6) The assistance, if any (in the form of partial finano-\n15 rate (at the time of such breach) plus 2 per centum per\n16 ing, annual contributions, land in whole or in part, community\n16 annum or to declare the unpaid principal on said loan due\n17 facilities or services, partial or complete remission of taxes),\n17 forthwith.\n18 given to the project by the State or political subdivision in\n18\n(2) When a contract of grant is made pursuant to see-\n19 which it is located;\n19 tion 9, the Authority shall retain the right, in the event\n20\n(7) That the advice has been sought, where available,\n20 of a substantial breach of the covenant (which shall be\n21 of such planning commission or board (created under charter,\n21 embodied in such contract of grant) to maintain the low-\n22 statute, or ordinance) as may exist in the locality of the\n22 rent character of the housing project involved, to reduce\n23 project.\n23 or terminate the annual contributions payable under such\n24\nSec. 15. In order to insure that the low-rent character\n24 contract of grant. In the event of the acquisition of such\n25 of housing projects will be preserved, and thus to protect\n25 project by a third party in any manner including a bona-\nRegraded\nUclassified\n24\n25\n1 fide foreclosure under a mortgage or other lien held by a\n1 buildings and public works\" (U. S. C., Supp., 1934 edition,\n2 third party, such annual contributions shall terminate.\n2 title 40, sec. 270 (a) to (d), inclusive), shall apply to\n3\n(3) When a lease of n low-rent-housing project is made\n3 contracts in connection with the development or administra-\n4 pursuant to section 11, the Authority shall retain the right\n4 tion of low-rent-housing or slum-clearance demonstration\n5 to terminate such lease in the event of a substantial breach\n5 projects and the furnishing of materials and labor for\n6 of the covenant (which shall be embodied in such lease) to\n6 such projects: Provided, That suits shall be brought in\n7 maintain the low-rent character of such housing project.\n7 the name of the Authority and that the Authority shall\n8\n(4) The Authority may also insert in any contract of\n8 itself perform the duties prescribed by section 3 (n) of the\n9 loan or grant, lease, mortgage, or any other agreement or\n9 Act of August 30, 1935, and section 3 of the Act of August\n10 instrument made pursuant to this Act, such other covenants,\n10 24, 1935.\n11 conditions, or provisions as it may deem necessary in order\n11\n(2) Any contract for a loan, grant, sale, or lease pur-\n12 to insure the low-rent character of the housing project\n12 suant to this Act shall contain a provision requiring that\n13 involved.\n13 the wages prevailing in the locality, as determined or adopted\n14\nSEC. 16. In order to protect labor standards-\n14 (subsequent to a determination under applicable State or\n15\n(1) The provisions of the Act of August 30, 1935,\n15 local law) by the Authority, shall be paid to all laborers\n16 entitled \"An Act to amend the Act approved March 3, 1931,\n16 and mechanics employed in the development or adminis-\n17 relating to the rate of wages for laborers and mechanics\n17 tration of the low-rent-housing or slum-elearance project\n18 employed by contractors and subcontractors on public build-\n18 involved; and the Authority may require certification as to\n19 ings\" (49 Stat. 1011), and of the Act of August 24, 1935,\n19 compliance with the provisions of this paragraph prior to\n20 entitled \"An Act requiring contracts for the construction,\n20 making any payment under such contract.\n21 alteration, and repair of any public building or public work\n21\n(3) The Act entitled \"An Act limiting the hours of\n23 22 of the United States to be accompanied by a performance\n22 daily services of laborers and mechanics employed upon work\nbond protecting the United States and by an additional bond\n23 done for the United States, or for any Territory, or for the\n24 25 for the protection of persons furnishing material and labor\n24 District of Columbia, and for other purposes\", as amended\nfor the construction, alteration, and repair for the said public\n25 (37 Stat. 137), shall apply to contracts of the Authority\nRegraded Uclassified\n26\n27\n1 for work in connection with the development and adminis-\n1\nFINANCIAL PROVISIONS\n2 tration of low-rent-housing or slum-clearance demonstration\n2\nSEO. 17. The Authority shall have 24 capital stock of\n3 projects.\n3 $1,000,000, which shall be subscribed by the United States\n4\n(4) The benefits of the Act entitled \"An Act to pro-\n4 and paid by the Secretary of the Treasury out of any avail-\n5 vide compensation for employees of the United States suf-\n5 able funds. Receipt for such payment shall be issued to the\n6 foring injuries while in the performance of their duties, and\n6 Secretary of the Treasury by the Authority and shall evi-\n7 for other purposes\" (39 Stat. 742), shall extend to officers\n7 dence the stock ownership of the United States of America.\n8 and employees of the Authority.\n8\nSEC. 18. There is hereby authorized to be appropriated,\n9\n(5) The provisions of sections 1 and 2 of the Act of\n9 out of any money in the Treasury not otherwise appro-\n10 June 13, 1934 (U. S. C., title 40, sec. 276 (b) and (c)).\n10 priated, the sum of $51,000,000 for the fiscal year ending\n11 shall apply to any low-rent-housing or slum-clearance proj-\n11 June 30, 1938, of which $1,000,000 shall be available to\n12 ect financed in whole or in part with funds made available\n12 pay the subscription to the capital stock of the Authority.\n13 pursuant to this Aet.\n13 Such sum, and all receipts and assets of the Authority, shall\n14\n(6) Any contractor engaged on any project financed\n14 be available for the purposes of this Act until expended.\n15 in whole or in part with funds made available pursuant to\n15\nSEC. 19. (n) Any funds available under any Act of\n16 this Act shall report monthly, and shall cause all subcon-\n16 Congress for allocation for housing or slum clearance may,\n17 Unictors to report in like manner (within five days after the\n17 in the discretion of the President, be allocated to the Author-\n18 close of each calendar month, on forms to be furnished by\n18 ity for the purposes of this Act.\n19 the United States Department of Labor), as to the number\n19\n(b) Any unallocated funds how in the Imnds of the\n20 of persons on their respective pay rolls, the aggregate\n20 Federal Emergency Administration of Public Works, or\n21 amount of such pay rolls, the total man-hours worked, and\n21 hereafter received by it, which are derived from the sale of\n22 itemized expenditures for materials. Any such contractor\n22 securities acquired pursuant to Title 2 of the National\n23 shall furnish to the Department of Labor the names and\n23 Industrial Recovery Act or the Emergency Relief Appro-\n24 addresses of all subcontractors on the work at the earliest\n24 printion Aet of 1935, may, in the discretion of the President,\n25 date practicable.\n25 be allocated to the Authority for the purposes of this Act.\nRegraded Uclassified\n28\n29\n1\nSEC. 20. (a) The Authority is authorized to issue obli-\n1 upon demand when due, payments shall be made to the holder\n2 gations, in the form of notes, bonds, or otherwise, which\n2 by the Secretary of the Treasury with money hereby author-\n3 it may sell to obtain funds for the purposes of this Act.\n3 ized to be appropriated for such purpose out of any money\n4 The Authority may issue such obligations in an amount\n4 in the Treasury not otherwise approprinted. To the extent\n5 not to exceed $200,000,000 on or after July 1, 1937, an\n5 of such payment the Secretary of the Treasury shall succeed\n6 additional amount not to exceed $250,000,000 on or after\n6 to all the rights of the holder.\n7 July 1, 1938, an additional amount not to exceed $250,-\n7\n(d) Such obligations shall be lawful investments and\n8 000,000 on or after July 1, 1939, and an additional amount\n8 may be accepted ns security for all fiduciary, trust, and public\n9 not to exceed $300,000,000 on or after July 1, 1940.\n9 funds the investment or deposit of which shall be under the\n10\nSuch obligations shall be in such forms and denomina-\n10 authority or control of the United States or any officer or\n11 tions, mature within such periods not exceeding sixty years\n11 agency thereof. The Secretary of the Treasury is likewise\n12 from date of issue, bear such rates of interest not exceeding\n12 authorized to purchase any such obligations, and for such\n13 4 per centum per annum, be subject to such terms and\n13 purchases he may use as a public-debt transaction the pro-\n14 conditions, and be issued in such manner and sold at such\n14 ceeds from the sale of any securities hereafter issued under\n15 prices as may be prescribed by the Authority, with the\n15 the Second Liberty Bond Act, as amended, and the purposes\n16 approval of the Secretary of the Treasury.\n16 for which securities may be issued under such Act, as\n17\n(b) Such obligations shall be exempt, both as to\n17 amended, are extended to include any such purchases. The\n18 principal and interest, from all taxation (exeept surtaxes.\n18 Secretary of the Treasury may at any time sell any of the\n19 estate, inheritance, and gift taxes) now or hereafter imposed\n19 obligations acquired by him pursuant to this section, and all\n20 by the United States or by any State, county, municipality.\n20 redemptions, purchases, and sales by him of such obligations\n21 or local taxing authority.\n21 shall be treated as public-debt transactions of the United\n22\n(c) Such obligations shall be fully and unconditionally\n22 States:\n23 guaranteed upon their face by the United States as to the\n23\n(e) Such obligations may be marketed for the Author-\n24 payment of both interest and principal, and, in the event that\n24 ity at its request by the Secretary of the Treasury, utilizing\n25 the Authority shall be unable to make any such payment\nRegraded Uclassified\n30\n31\n1 all the facilities of the Treasury Department now authorized\nI\nSeb. 23. Any person who, with intent to defrand the\n2 by law for the marketing of obligations of the United States.\n2 Authority or to deceive any director, officer, or employee\n3\nSEC. 21. (a) Any money of the Authority not other-\n3 thereof or any officer or employee of the United States, makes\n4 wise employed may be deposited, subject to check, with the\n4 any false entry in any book of the Authority or makes any\n5 Treasurer of the United States or in any Federal Reserve\n5 false report or statement to or for the Authority shall, upon\n6 bank, or may be invested in obligations of the United States\n6 conviction thereof, be fined not more than $1,000 or im-\n7 or used in the purchase or retirement or redemption of any\n7 prisoned for not more than one year, or both.\n8 obligations issued by the Authority.\n8\nSEC. 24. Any person who shall receive any compensa-\n9\n(b) The Federal Reserve banks are authorized and\n9 tion, rebate, or reward, or shall enter into any conspiracy,\n10 directed to net ns depositories, custodians, and fiscal agents\n10 collusion, or agreement, express or implied, with intent to\n11 for the Authority in the general exercise of its powers, and\n11 defraud the Authority or with intent unlawfully to defeat\n12 the Authority may reimburse any such bank for its services\n13 its purposes, shall, upon conviction thereof, be fined not more\n13 in such manner as may be agreed upon.\n13 than $1,000 or imprisoned for not more than one year, or\n14\n(c) The Authority may be employed as a financial\n14 both.\n15 agent of the Government. When designated by the Secretary\n15\nSEC. 25. Any person who induces or influences the\n16 of the Treasury, and subject to such regulations as be may\n16 Authority to purchase or acquire any property or to enter\n17 prescribe, the Authority shall be a depository of public\n17 into any contract and willfully fails to disclose any interest,\n18 money, except receipts from customs.\n18 legal or equitable, which he has in such property or in the\n19\nPENALTIES\n19 property to which such contract relates, or any special bene-\n20\nSec. 22. All general penal statutes relating to the lareeny,\n20 fit which he expects to receive ns a result of such contract,\n21 embezzlement, or conversion or to the improper handling,\n21 shall, upon conviction thereof, be fined not more than $1,000\n22 retention. use, or disposal of public moneys or property of\n22 or imprisoned for not more than one year, or both.\n21 the United States shall apply to the moneys and property\n23\nSEC. 26. No individual, association, partnership, or cor-\n24 of the Authority and to moneys and properties of the United\n24 poration shall use the words \"United States Housing Author-\n25 States entrusted to the Authority.\n25 ity\", or any combination of these four words, ns the name,\nRegraded Uclassified\n32\n1 or part thereof, under which he or it shall do business. Any\n2 such use shall constitute a misdemeanor and shall be pun-\n3 ishable by a fine not exceeding $1,000. No (III DX\n4\nSEC. 27. Wherever the application of the provisions of\n5 this Act conflicts with the application of the provisions of\n6 Public, Numbered 837, approved June 29, 1936 (49 Stat.\n7 2025), Public, Numbered 845, approved June 29, 1936\n8 (49 Stat. 2035), or any other Act of the United States\n9 dealing with housing or slum clearance, or any Executive\nsult\n10 order, regulation or other order thereunder, the provisions\n11 of this Act shall prevail.\n(f\n12\nSEC. 28. Notwithstanding any other evidences of the\n13 intention of Congress, it is hereby declared to be the con-\nJUB A\n- of indian wall Thiversing of\n14 trolling intent of Congress that if any provision of this Act,\n282\n- TO/1 - Invisitions live\n- Them Loss time to\nAni to and TO) Spirt\ned and fine de\nto mindins TA) TWO DM - mul\nto PUBLIC - - number\nworld alamy as this\naccountant make rd\nunter M as\nzur -\n15 or the application thereof to any person or circumstances, is\n- - AL Sum Cuedit\nmisl has -\n16 held invalid, the remainder of this Act, or the application of\n17 such provision to persons or circumstances other than those\n18 as to which it is held invalid, shall not be affected thereby.\n19\nSEO. 29. This Act may be cited as the \"United States\n20 Housing Act of 1937.'\nHade\nRegraded Uclassified\nTOTH CONGRESS\n1ST SESSION\nS. T685\nA\nBILL\nTo provide financial assistance to the States\nand political subdivisions thereof for the\nelimination of unsafe and insanitary hous-\ning conditions, for the provision of decent,\nsafe, and sanitary dwellings for families of\nlow income, and for the reduction of unem-\nployment and the stimulation of business\nactivity, to create a United States Housing\nAuthority, and for other purposes.\nBy Mr. WAGNER\nFEBRUARY 24, 1937\nRead twice and referred to the Committee on\nEducation and Labor\nRegraded Uclassified\n104\nDIGEST OF WAGNER HOUSING BILL - S. 1685\nSECTION ONE contains a general declaration of policy.\nSECTION TWO contains definitions. The most important definition\nis one which limits occupants of housing projects to families whose incomes\ndo not exceed five times the rental to be charged. This sets a standard\ndesigned to keep the projects available only for families of low income.\nDepartment of Labor statistics show that on an average a low income\nfamily can afford to pay between one-fifth and one-fourth of its income\nfor rental.\nMore important than this administrative standard are the subsidy\nprovisions in the bill, which are the final determinants of whether from\nthe financial point of view the projects can be made available for\nfamilies of low income. These subsidy provisions will be discussed in\nconnection with Section 9.\nSECTION THREE creates a United States Housing Authority of three\nmembers. The only other agency of the Federal Government which is deal-\ning with low-rent housing problems is the Public Works Administration,\nand thus a choice lies between making the new agency a part of the Public\nWorks Housing Division or of transferring the housing division to the new\nAuthority. The bill authorizes such transfer, and it is submitted that this\nwould be the better way of getting the program off to a fresh start unen-\nRegraded Jolassified\n105\n- 2 -\ncumbered by the mistakes of prior agencies.\nSECTIONS FOUR and FIVE deal with routine matters of administration.\nSECTION FIVE also raises the question of the extent to which the bonds\nissued by local housing authorities should be exempt from Federal taxation.\nIt is submitted that partial tax exemption, putting these bonds on a par with\nthe bonds issued by the U. S. Housing Authority, would be a relatively cheap\nway of providing assistance to local projects and would tend to induce a\nlarger inflow of local money.\nSECTIONS SIX, SEVEN and EIGHT deal with routine administrative matters.\nSECTION NINE, which is the heart of the bill, deals with grants and\nloans to local public housing agencies,\nAll loans are to be repayable in full to the Federal Government, plus\nat least the going Federal rate of interest upon bonds having a term of ten\nyears or more at the time such loans are made.\nThe grants or subsidies for low-rent housing projects are to be in the\nform of fixed and uniform annual contributions, modeled upon the English\nsystem. No such annual contribution is to be more than a sum equal to the\nannual yield at the going Federal rate of interest plus 1% upon the develop-\nment cost of the project.\nThe bill specifically sets forth that the grants shall be payable\nout of congressional appropriations, and not out of the moneys available\nfor loans, nor out of realizations on the principal of loans. Furthermore,\nthe new contracts for annual contributions are limited to $10,000,000 in\nRegraded Iclassified\n106\n- 3 -\nany one fiscal year, and the faith of the United States is pledged to their\npayment.\nAttached is a table (Exhibit One) showing the rentals obtainable\nand the income groups reached under this form and amount of subsidy, con-\ntrasted with the rentals and income groups reached under existing facilities\nof the Federal Government, Present facilities cannot reach low income groups;\nand this plan will.\nIt is submitted that the form and amount of subsidy provided under\nthis bill, in addition to its capacity to reach low income groups, will\ntend to produce much lower building costs than the capital grants provided\nby the Public Works Administration, and in addition will provide a much\nmore effective annual check, both upon financial operations and upon the\ncharacter of tenants accepted in housing projects.\nSECTION TEN provides loans to limited dividend companies for housing.\nSuch loans are not to exceed 85% of the development cost, are to bear a rate\nof interest equivalent to at least the going Federal rate, and are not to\naggregate more than $25,000,000 per year.\nSECTION ELEVEN facilitates the rapid transfer of existing Federal\nhousing projects to local authorities, and in addition authorizes a limited\nnumber of demonstration projects in areas where local authorities are not\nproperly constituted to do low-rent housing. A limitation of $25,000,000\nper year is placed upon the total volume of new demonstration projects,\nthus holding them to one-tenth per cent of the total program.\n107\n4-\nSECTION TTELVE confers upon the Authority such powers in connection\nwith the acquisition and disposition of property as would ordinarily be\nconferred upon. n business corporation, and confers also the right of\neminent domain. However, the bill in no way removes obstacles confronting\nother agencios in attompting to exercise eminont domain under other statutes.\nSECTION THIRTEEN confors power to modify contracts by mutual consent.\nSECTIONS FOURTEEN and FIFTEEN set forth dofinito legislativo standards,\ndesigned to protect the financial position of the Authority as a londing\nagency, and also to insure the perpetual low ront character of the projects.\nIt also sots forth, as a considoration in extending aid, though not as a\nmandatory provision, the amount and character of local contributions toward\nhousing projects.\nSECTION SIXTEEN sots forth basic labor standards, comparable to\nthose incorporated in analogous Foderal statutos.\nSECTIONS SEVENTEEN and EIGHTEEN provide a capital stock of $1,000,000\nfor the Authority, and on additional appropriation of $50,000,000 to cover\nadministration expenses and annual subsidies during the first four years of\nthe program.\nSECTION NINETEEN authorizes the Prosident in his discretion to assign to\nthe Authority unallocated funds of any Governmental agency ongaged in housing,\nRegraded Uclassified\n108\n-5-\nand the funds of the Federal Emergency Adm istration of Public Works.\nSECTION TWENTY authorizos the Authority to issuo bonds ever a four-\nyear period, 17, an amount of $1,000,000,000. to be used as loans for low-ront\nhousing and slum-clearance projects. The bonds are guarantoed as tc principal\n& interest by the U.S. and are tax exempt except as tc Fodoral surtaxos and\ncstato inhoritance and gift taxos.\nThe attached table (Exhibit two) shows the cost of the total program\nto the Fodoral Government during the first four years, and the average annual\ncost thoroafter, first upon the basis cf a $1,000,000,000 program covered\nentirely by Fodoral loans, and socced upon the basis of a $1,500,000,000\nprogram covered two-thirds by Fodoral lonns and :ne-third by the private\nwrchase of the bonds of local authoritics.\nSECTION TWENTY-ONE providos that any money of the Authority not other-\nviso employed may be invosted in obligations of the United Statos or\nused in the purchase cr retiroment or rodomption of any obligations issued\nby the Authority.\nSECTIONS TTENTY-TWO, TWENTY-THREE, ttenty-four, TWENTY-FIVE and\nTTENTY-SIX are ponal provisions.\nSECTIONS TTENTY-SEVEN and TTENTY-EIGHT cover conflicts botwoon this\nAct and other Acts and contain the standard soparability provisions.\nSECTION TTENTY-NINE contains the titlo of the Act.\n109\nRENT PER ROOM AND INCOME GROUPS REACHED\nBY PRIVATE ENTERPRISE AND\nPUBLIC HOUSING\nCost Per Room $1000\nCost Per Room $1335\n(Operating Exp. 2.61)\n(Operating Exp.\n3.48\n(Taxes\n2.00)\n(Taxes\n2.67\n4.61\n6.15\nRent\nIncome\nRent\nIncome\nper\nGroup\nper\nGroup\nRoom\nReached\nRoom\nReached\nPrivate Enterprise\nActual experience of the 43 low-rent\nhousing projects of F. H. A.\n$13.82\n$3317\nPrivate Enterprise\nAssuming it is possible to build\nfor cost of $1000 per room\n$10.37\n$2489\nPublic Housing Under Wagner-Steagall\nBill Paying no local taxes\nCapital from U.S.H.A. @ 2/2 60 yrs.\nSubsidy 31/202\n2.34\n562\n3.12\n749\n3.34\n802\n4.45\n1069\nCapital\nPrivate sources 43 30 yrs.\nU.S.H.A. 2½ 60 yrs.\nSubsidy 31\n3.80\n912\n5.07\n1217\n4.80\n1152\n6.40\n1537\nPublic Housing Under Wagner-Steagall Bill\nPaying Half local taxes\nCapital from U.S.H.A. 2/2 60 yrs.\nSubsidy 3½\n3.34\n802\n4.45\n1068\n2\n4.34\n1042\n5.78\n1388\nCapital\nprivate sources 4% 30 yrs.\ntoo\nU.S.H.A. @ 60 yrs.\nSubsidy 3/5\n4.80\n1152\n6.40\n1536\n5.80\n1392\n7.73\n1856\nPublic Housing Under Wagner-Steagall Bill\nPaying full local taxes\nCapital from U.S.H.A. @ 21 60 yrs.\nSubsidy 3½\n4.34\n1042\n5.79\n1390\n5.34\n1282\n7.12\n1710\nRegraded Uclassified\n110\n-2-\nCost Por Rccm $1000\nCcst Por Rccm $1333\n(Oporating Exp. 2,61) (Oporating Exp. 3,49)\n(Taxos\n2.00) (Taxes\n2.67)\n4.61\n6.15\nRont\nInccmo\nRent\nIncome\nPor\nGroup\nPer\nGroup\nRoom\nRoached\nRoom\nReached\nCapital private scurcos 4/2 30 yrs.\nU.S.H.A. @ 23 60 yrs\nSubsidy 34\n5.30\n1392\n7.73\n1355\n25\n6.80\n1632\n9.06\n2175\nPublic Housing Under P.W.A. Formula cf\n45% Cap. Grant, Balanco 3% 60 yrs.\nPaying no taxes\n4,60\n1104\n6,13\n1471\nPaying 2 1 taxes\n5.60\n1344\n7.46\n1791\nPaying full taxos\n6.60\n1534\n3.79\n2111\nIncome groups served is based on normal family of 2 cr 3 children using 4 rooms\nand paying 20% cf income for rent.\nRegraded Uclassified\n111\nCOMPARISON OF ESTIMATED ROOM COSTS UNDKR TREASURY PLAN, WILLIAMSBURG AND TECHWOOD PROJECTS;\nAND ESTIMATED MONTHLY ROOM CHARGES FOR EACH PROJECT UNDER TREASURY, PVLA AND WAGNER BILL AMORTIZATION SCHEDULES\nTHEASURY\nWILLIAMSBURG\nTECHWOOD\nDESCRIPTION\n1. Type of Structure\n3-story apartments 4-story apartments 3-story apart-\nments and 2-\nstory Row Houses\n2. Average Land Cost per Square Foot\n1.00\n3.93\n.66\nESTIMATED CAPITAL COST PER ROOM\n3. Land\n180.00\n742.35\n271.84\n4. Construction\n930.00\n1,353.72\n749.59\n5. Administration and Overhead including\narchitectural and engineering service\n56.00\n53.17\n95.68\n6. Interest during construction\n15.00\n(1)\n(1)\n7. Contingencies\n19.00\n54,47\n.00\n8. TOTAL\n1,200.00\n2,203.72\n11\"4\"I\"I\nESTIMATED MONTHLY ROOM CHARGES UNDER\nTREASURY AMORTIZATION SCHEDULE\n9. Interest on Land Costs 6 3% (5)\n.45\n1.86\n.68\n10, Amortization in 40 years e 3% Interest,\non Capital Cost excluding land (2)\n3.68\n5,27\n3,06\n11. Taxes or Service Charges\n(5)\n,00\n.36\n12. Operation and Maintenance\n3.50\n4.75\n4.27\n13. Loss of Rental and Vacancies e 10% (4)\n.85\n1,32\n.93\n14. TOTAL\n8.48\n13.18\n9.29\nESTIMATED MONTHLY ROOM CHARGES UNDER P.W.A.\nAMORTIZATION SCHEDULE\n15. Amortization in 59 years 0 3% Interest,\non 55% of Total Capital Cost\n2.00\n3.67\n1.86\n16. Taxes or Service Charges\n(5)\n.00\n.36\n17. Operation and Maintenance\n3.50\n4.73\n4.27\n18. Vacancies 6 6%\n.29\n.44\n.34\n19, TOTAL\n5.79\n8.84\n6.63\nESTIMATED MONTHLY ROOM CHARGES UNDER WAGNER BILL\n(Assuming annual grant equals annual charge for\ninterest and amortization on 100% Capital Loan)\n20. Taxes or Service Charges\n(3)\n,00\n,36\n21. Operation and Maintenance\n3.50\n4.73\n4.27\n22, Vacancies G 5%\n.18\n.25\n.24\n23. TOTAL\n3,68\n4.98\n4.87\nESTIMATED MONTHLY ROOM SUBSIDY\n24. Under Treasury Plan\n,00\n,00\n,00\n25. Under P.W.A. Plan (Amortization in 59 years\n6 3% interest on 45% of Total Capital Cost)\n1.64\n3.00\n1.52\n26. Under Wagner Bill (Amortization in 60 years\n6 20% interest on 100% of Total Capital cost)\n3,24\n5,94\n3.01\n(1) Not available,\n(2) Forty years is considered to be the maximum period advisable for amortization because of the effects\nof obsclescence and outmoding regardless of physical depreciation.\n(3) No taxes are included in Treasury Plan because of the extreme variation of rates, and the libelihood\nthat tax exemption or nominal service charges will be accorded projects in many cities.\n(4) Sound judgment diotates the use of 10% 18 a factor covering vacancies and loss of rental, because of\nthe uncertain income of the tenancy. It also provides & cushion against unforeseen contingencies,\n(5) If land cost were amortized in 40 yrs. 6 3%, land charges would increase 20/, 82#, and 30£ respectively.\nNOTE: The figures shown for Techwood and Milliamsburg are estimates derived from confidential data\nsubmitted to the Bureau of the Budget; the cost and expense figures shown are estimates for\ndwelling rooms after adjusting for amounts applicable to dormitories and non-living units, as\nexplained in the accompanying memorandum,\n5-1-37\nRegraded Uclassi ed\nBASIS OF THE TREASURY PL\n112\n1. Type of Structure: Multi-family apartment buildings consisting generally of\nthirty family units of an everage size of four roems (three rooms, kitchen\nand bath) per unit. Buildings to be fireproof up to but not including the\nroof; to have & part basement for heating plant, laundry and storage space;\nand to be equipped with the usual plumbing, lighting, cooking and refrigerator\nfixtures.\nGross floor area per room\n-\n180 aq. ft.\nGross cubie contents per room - 2150 cu. ft.\n2. Average Land Cost: The cost of $1.00 per sq. ft. 1a assumed to include roads,\nsidewalks, utilities and landscaping.\n3. Land: The land coverage is 33-1/3% equivalent to 180 square feet per room.\n4. Construction: The cost of construction including builders' fee is equivalent\nto approximately 43.25d per cubic foot.\n5. Administration and Overhead, etc. includes architects' and engineers' fees for\nsurveys, drawings and specifications, field supervision and administration.\n6. Interest during Construction: This item covers the interest on the capital\nexpenditures during the period of design and construction.\n7. Contingencies: Approximately 2% of the estimated construction cost.\ne. Total: The total cost assumes a complete building ready for operation and\noccupancy.\n9. Interest on Land Cost: It is assumed that the land will be held for public\nuse and that amortization of this item is not desirable.\n10. Amortization, etc.: Although it is probable that the physical structure\nwould last many years beyond the 40-year period, it is believed that changes\nin mechanical equipment, mode of living, and developments in transportation\nand neighborhood changes in this span of years do not justify the considera-\ntion of et longer period.\n11. Taxes or Service Charges: The general policy of tax exemption being estab-\nlished for low rental housing in the larger cities and the wide variation in\nthe tax rate in the small communities makes it difficult to establish an ac-\ncurste figure for this item.\n12. Operation and Maintenance: This item includes cost of heat, water, lighting,\njanitor service, repairs and maintenance, and rent administration.\n13. Loss of Rental and Vacancies: This item is obvious. Although the number of\nVacancies would probably be low, it 1a believed that the loss of rental would\nbe somewhat higher than normal. The amount of 10% will probably allow some\ncushion for unexpected increases in operating expenses.\n14. Total: This item represents the minimum rental required to equal the carry-\ning It is subject to change on account of the addition of taxes,\nincrease charges. in future operating costs, or decrease by reason of submidy or write-off.\nRegraded Uclassified 3-1-37\n113\nNET COST TO FEDERAL GOVERNMENT OF $1,000,000,000 LOW RENT\nHOUSING PROGRAM FINANCED ENTIRELY BY FEDERAL LOANS\n(All loans would be repayable in full plus at least\ngoing federal rate of interest)\nFiscal\nFamily\nTotal\nAnnual Contributions Through Federal\nyear\nDwelling Units\nCapital\nAppropriations (each contribution\nConstructed\nLoans (at\nbeginning in first year subsequent\n$4,000 per\nto construction)\nfamily unit\n3% of\n3% of\n22% of\ncapital\ncapital\ncap ital\ncost\ncost\ncost\n1938\n50,000\n$200,000,000\n----\n----\n----\n1939\n62,500\n250,000,000\n$7,000,000\n$6,000,000\n$5,000,000\n1940\n62,500\n250,000,000\n15,750,000\n13,500,000\n11,250,000\n1941\n75,000\n300,000,000\n24,500,000\n21,000,000\n17,500,000\nTotal\ncontribu-\ntions for\nfirst four\n$47,250,000\n$40,500,000\n$33,750,000\nyears of\nprogram\nContribu-\ntions per\nyear after\n$35,000,000\n$30,000,000\n$5,000,000\n1941 for\neach\n$1,000,000,000\nof housing\n56yrs = 2,060,001,000 2,107,000,000 47,\n113\nRegraded Uclass\nj'wagnee Homen, Bill\n114\nSECTION ONE contains a general declaration of policy.\nSECTION TWO contains definitions. The most important definition\nis one which limits occupants of housing projects to families whose incomes\ndo not exceed five times the rental to be charged. This sets a standard\ndesigned to keep the projects available only for families of low income,\nDepartment of Labor statistics show that on an average a low income\nfamily can afford to pay between one-fifth and one-fourth of its incose\nfor rental.\nMore importent than this administrative standard are the subsidy\nprovisions in the bill, which are the final determinants of whether from\nthe financial point of view the projects can be made available for\nfamilies of low income. These subsidy provisions will be discussed\nin connection with Section 9.\nSECTION THREE creates a United States Housing Authority of three\nmembers. The only other agency of the Federal Government which is deal-\ning with low-rent housing problems is the Public Works Administration,\nand thus time a choice liss between making the new agency 4 part of the\nPublic Works Housing Division or of transferring the housing division\nto the new Authority. The bill authorized such transfer, and it is submitted\nthat this would be the better way of getting the program off to a fresh start unen-\nRegraded Uclassified\ncumbered by the mistakes of prior agencies.\n115\nSECTIONS FOUR and FIVE deal with routine matters of administration.\nSECTION FIVE also raises the question of the extent to which the bonds\nissued by local housing authorities should be exempt from Federal taxetion.\nIt is submitted that partial tax exemption, putting these bonds on 8. par\nwith the bonds issued by the Federal us. Housing Administration, authority would be a\nrelatively cheap way of providing assistance to local projects and would tend\nto induce a larger inflow of local money.\nSECTIONS SIX, SEVEN end EIGHT deal with routine administrative matters.\nSECTION NINE, which is the heart of the bill, deals with grants and\nloans to local public housing agencies.\nAll loans are to be repayable in full to the Federal Government, plus\nat least the going Federal rate of interest upon bonds having a term of ten\nyears or more at the time such loans are made.\nThe grants or subsidies for low-rent housing projects are to be in the\nform of fixed and uniform annual contributions, modeled upon the English system,\nNo such annual contribution is to be more than & sun equal to the annual yield\nat the going Federal rate of interest plus 18 upon the development cost of\nthe project.\nThe bill specifically sets forth that the grants shall be payable\nout of congressional appropriations, and not out of the moneys available\nRegraded Uclassified\n- B -\n116\nfor loans, nor out of realizations on the principal of loans. Furthersore,\nthe new contracts for annual contributions are limited to $10,000,000 in\n\\\nany one fiscal year, and the faith of the United States is pledged to their\npayment.\nAttached is a table (Exhibit One) showing the rentals obtainable\nadd the income groups reached under this form and amount of subsidy, con-\ntrasted with the rentals and income groups reached under existing facilities\nof the Federal Government. Present facilities cannot reach low income\ngroups; and this plan will.\nIt is submitted that the form and amount of subsidy provided under\nthis bill, in addition to its capacity to reach low income groups, will\ntend to produce much lower building costs the the capital grants provided\nby the Public Works Administration, and in addition will provide a much\nmore effective annual check, both upon financial operations and upon the\ncharacter of tenants accepted in housing projects.\nSECTION TEN provides loans to limited dividend companies for housing.\nSuch loane are not to exceed 85% of the development cost, are to bear a rate\nof interest equivalent to at least the going Federal rate, and are not to\naggregate more than $25,000,000 per year.\nSECTION ELEVEN facilitates the rapid transfer of existing Federal housing\nprojects to local authorities, and in addition authorizes a limited number\nof demonstration projects in areas where local authorities are not properly\nRegraded Uclassified\n117\n- 3a -\nconstituted to do low-rent housing. A limitation of $25,000,000 per\nyear is placed upon the total volume of new demonstration projects, thus\nholding then to one-tenth per cent of the total program.\nRegraded Uclassified\n- 4 -\n118\nSECTION TWELVE confers upon the Authority such powers in connection\nwith the acquisition and disposition of property as would ordinarily be\nconferred upon a business corporation, and confers also the right of\neminent domain. However, the bill in no way removes obstacles confronting\nother agencies in attempting to exercise eminent domain under other statutes.\nSECTION THIRTEEN confers power to modify contracts by mutual consent.\nSECTIONS FOURTEEN and FIFTEEN set forth definite legialative standards,\ndesigned to protect the financial position of the Authority as a lending\nagency, end also tocinsure the perpetual low rent character of the projects.\nIt also sets forth, as 8. consideration in extending aid, thoughtnot as a\nmandatory provision, the amount and character of local contributions toward\nhousing projects.\nSECTION SIXTEEN sets forth basic labor standards, comparable to\nthose incorporated in analogous Federal statutes.\nSECTIONS SEVENTEEN and EIGHTEEN provide & capital stock of $1,000,000\nfor the Authority, and an additional appropriation of $50,000,000 to cover\nadministration expenses and annual subsidies during the first four years of\nthe program.\nSECTION MINETEZ authorizes the President in his discretion to assign to\nthe Authority mallocated funds of any Governmental agency engaged in housing,\nRegraded Uclassified\n-B-\nand the funds of the Federal Testinity Administration of Public Verion.\n119\nSTRETION TWENTY authorises the Authority to Issue bonds over a four-\nyear period, in an movet of $1,000,000,000, to be used an loans for low-rent\nhousing and slum-clearance projects. The bonds are guaranteed as to principal\n& interest by the U. S. and are tax exempt except as to Federal surtayse and\nestate inheritance and sift taxes.\nThe attached table (Subibit too) shows the cost of the total program\nto the Federal Government during the first four years, and the average annual\ncost thereafter, first upon the basis of a $1,000,000,000 program covered\nentirely by Federal loans, and second upon the basis of a $1,500,000,000\nprogram covered two-thirds by Federal loans and one-third by the private\npurchase of the bonds of local authorities.\nSEOTION TWENTY-ONE provides that any money of the Authority not other-\nwise employed may be invested in obligations of the United States or\nused in the purchase or retirement or redemption of any obligations issued\nby the Authority.\nSECTIONS TWINTY-INO, TWENTY-THREN, TWENTY-FOUR, TWENTY-FIVE and\nTWENTY-SIX are penal provisions.\nSECTIONS and TWEETT-NIGHT cover conflicts between this\nAct and other Acts and contain the standard separability provisions.\nSECTION TWHETT-NINE contains the title of the mt.\nRegraded Uclassified\n120\nRENT PRR ROOM AND INCOME GROUPS REACHED\nBY PRIVATE ENTERPRISE AND\nPUBLIC HOUSIN\nCost Per Room $1000\nCost Per Room $1833\n(Operating Exp. 2.61)\n(Operating thip. 3.48)\n(Taxes\n2.00)\n(Taxes\n2.67)\n4.61\n6.15\nRent\nIncome\nRent\nInsome\nper\nGroup\nper\nGroup\nPrivate Enterprise\nRoom\nReached\nRoom\nReached\nActual experience of the 43 low-rent\nhousing projects of F. H. so\n$13.82\n$33.17\ntrivate Enterorise\nAssuming it 10 possible to build for\ncost of $1000 per room\n$10.37\n$2489\nublic Housing Under Nagner-Stengall\nBill Paying no local taxes\nCapital from U. s. He A. 6 21 60 yrs.\n2.34\nSubsidy 31\n563\n3.12\n7.49\n21\n3.34\n802\n4.45\n1069\nCapital à Private sources sb 30 yrs.\nt U.S.H.A. at 60 yrs.\nSubsidy 3}\n3.80\n912\n5.07\n1317\n2½\n4.80\n1152\n6.40\n1537\nublic Housing Under Wagner-Stengall Bill\nPaying Half local taxes\nCapital from U.S.H.A. 6 21 60 yrs.\nSubsidy 33\n3.34\n802\n4.45\n1068\n21\n4.34\n1042\n5.78\n1388\nCapital à private sources st 30 yrs.\n+ U.S.H.A. e st 60 yrs.\nSubsidy 3)\n4.80\n1152\n6.40\n1636\n31\n5.80\n1392\n7.75\n1856\nwelle Housing Under Tagner-Stengall Bill\nPaying full local taxes\nCapital from U.S.H.A. e at 60 yrs.\nSubsidy 31\n4.34\n1042\n5.79\n1390\n31\n5.34\n1262\n7.12\n1710\nRegraded Uclassified\n- a -\n121\nCost Per Room $1000\nDost Per Room $1333\n(Operating Rep. 2.61)\n(Operating Rup. 3.48)\n(Taxes\n2.00)\n(Taxes\n2.67)\n4.61\n6.15\nRent\nIncome\nRent\nIncome\nPer\nGroup\nPer\nGroup\nRoom\nReached\nRoom\nReached\nCapital private sources 43 30 yrs.\nU.S.H.A. e 21 60 yrs.\nSubsidy 3)\n5.80\n1392\n7.73\n1855\n2₫\n6.80\n1632\n9.06\n2175\nPublic Housing Under P.W.A. Formula of\n45% Cap. Grant. Balance 3% so yrs.\nPaying no taxes\n4.60\n1104\n6.13\n1471\nPaying è taxes\n5.60\n1344\n7.46\n1791\nPaying full taxes\n6.60\n1584\n8.79\n2111\nIncome groups served is based on normal family of 2 OF 3 children using 4 rooms\nand paying 20% of income for rent.\nRegraded Uclassified\n122\nRENT PER ROOM AND INCOME GROUPS REACHED\nBY PRIVATE ENTERPRISE AND\nPUBLIC HOUSING\nCost Per Room $1000\nCost Per Room $1333\n(Operating Exp. 2.61)\n(Operating Exp. 3.48)\n(Taxes\n2.00)\n(Taxes\n2.67)\n4.61\n6.15\nRent\nIncome\nRent\nIncome\nper\nGroup\nper\nGroup\nrivate Enterprise\nRoom\nReached\nRoom\nReached\nActual experience of the 43 low-rent\nhousing projects of F. H. A.\n$13.82\n$33.17\nrivate Enterprise\nAssuming it is possible to build for\ncost of $1000 per room\n$10.37\n$2489\nublic Housing Under Wagner-Steagall\nBill Paying no local taxes\nCapital from U. S. H. A. @ 21 60 yrs.\n2.34\nSubsidy 31\n562\n3.12\n7.49\n2/2\n3.34\n802\n4.45\n1069\nCapital\nPrivate sources 43 30 yrs.\nNP\nU.S.H.A. 21 60 yrs.\nSubsidy 31/2\n3.80\n912\n5.07\n1217\n21\n4.80\n1152\n6.40\n1537\nablic Housing Under Wagner-Steagall Bill\nPaying Half local taxes\nCapital from U.S.H.A. @ 21 60 yrs.\nSubsidy 3th\n3.34\n802\n4.45\n1068\n21\n4.34\n1042\n5.78\n1388\nCapital private sources 41 30 yrs.\nà U.S.H.A. e 21 60 yrs.\nSubsidy 3½\n4.80\n1152\n6.40\n1536\n2\n5.80\n1392\n7.73\n1856\nblic Housing Under Wagner-Steagall Bill\nPaying full local taxes\n'apital from U.S.H.A. . 21 60 yrs.\nSubsidy 34\n4.34\n1042\n5.79\n1390\n21\n5.34\n1282\n7.12\n1710\nRegraded Uclassified\n- 2 -\n123\nCost Per Room $1000\nCost Per Room $1333\n(Operating Exp. 2.61)\n(Operating Exp. 3.48)\n(Taxes\n2.00)\n(Taxes\n2.67)\n4.61\n6.15\nRent\nIncome\nRent\nIncome\nPer\nGroup\nPer\nGroup\nRoom\nReached\nRoom\nReached\nCapital private sources 41 30 yrs.\nU.S.H.A. . 21 60 yrs.\nSubsidy 31\n5.80\n1392\n7.73\n1855\n2%\n6.80\n1632\n9.06\n2175\nPublic Housing Under P.W.A. Formula of\n45% Cap. Grant, Balance 3% 60 yrs.\nPaying no taxes\n4.60\n1104\n6.13\n1471\nPaying } taxes\n5.60\n1344\n7.46\n1791\nPaying full taxes\n6.60\n1584\n8.79\n2111\nIncome groups served is based on normal family of 2 or 3 children using 4 rooms\nand paying 20% of income for rent.\nRegraded Uclassified\n124\nMarch 2, 1937\nI spoke to the President this morning about the\nWagner Housing Bill.\nThis is the President's formula: in six or seven\nyears he wants us to build a $1,000,000,000 worth of\n\"slum clearance\". He used this phrase rather than low\ncost housing and he does not want it to cost more than\n$35,000,000 a year. I said, Mr. President, this is\nimpossible. 'Well,' he said, 'see if you can't work it\nout. How have the English done it?'\nHe was terribly serious about the matter when I\nshowed him that what the Wagner Bill proposed was finan-\ncially impossible. I told him that if we did what was\nsuggested in the Wagner Bill we would be simply doing\nwhat Hoover accused us of doing, namely: setting up a\ndouble set of books. Furthermore, that under the Wagner\nBill the proposed guaranteed bonds would not be worth the\npaper they were written on.\nRegraded Uclassified\n125\nPACT PROVIDES CUT\nChall where possible, the conts of\nexisting pension systems would be\nabsorbed to the sottootions that\nIN RAIL WAGE TAX\nwould be made under the agree\nment.\nThe agreement would exempt the\nmanagements from liabilities under\nTitle A of the Social Security Law,\nwhich calls for the payment of old-\nTentative Agreement With\nage peusions.\nIt 16 understood that the re\nUnions Would Reduce Pension\nmainder of the provisions of the\nagreement would follow those of\nQuota From 35% to 25%\nthe existing In.w. This provides that\nannuities shall be the sum of the\namounts determined by multiplying\nthe total number of years of serv-\nWOULD SAVE $18,600,000\nIce, not exceeding thirty years, by\nthe stated percentages. No part of\nany monthly compensation to ex-\ncass of $300 Le reongnized in com-\nPlan, to Bills\npuling anpuities under the present\nlaw.\nin Congress If Ratified, Would\nOther Provisions of Law\nReturn $15,000,000 for 1936\nOther provisions of the present\nlaw require that annuities be paid\nto employes, without regard to the\nperiod of service and whether ren-\nA reduction la the Initial payroll\ndered before or after the enactment\nIss to be paid by the callroads un-\nof law, who either at enactment OF\nder the existing railway pension law\nthereafter shall be sixty-five years\nfrom 3.5 per cegt to 25 per cent 18\nof age or older; to employes who\neither at enactment or thereafter\ncontemplated In a tentative agree-\nshall be fifty years of age or more\nment between the managements\nand who shall have completed\nand labor received by railroad offi-\nthirty years service, annuities in\ncials here yesterday. If enacted\nthese cases to be reduced by one-\nfifteanth for each year the employe\ninto law, the Agreement would add\nmay be less than sisty-five years of\nmore than $15,000,000 retroactively\nage al the time of the first pay-\nto the aggregate net Income of the\nment; and employes who, either be.\nfallroads last year, increasing 11.\nfore or after the enactment, shall\nfrom about $160,000,000 to more\nhave had thirty years service and\nwho shall after enactment be No-\nthan $175,000,000.\ntired on account of mental or phys.\nThe present law, which is being\nleal disability, the annuity then not\ncontested by the managements in\nbeing subject to the one-fifteenth\nthe courts, provides for payroll con-\ndeduction.\nBills for the enactment of the\ntributions by the managements\nproposed agreement are to be Intro-\namounting to 2 per cent on the first\nduced into Congress, If It le adopt-\n$50 of monthly wages, 1.5 per cent\ned. The agreement bas to be ap-\non the next $100 and 1 per cent on\nproved by majority vote of the Aa-\namounts In excess of $150. Delue-\nsociation of American Railroads and\nby the unions. The managemento\ntion of these percentages began on\nare expected to consider the plan\nMarch 1, 1936, under the terms of\nat a meeting in Chicago do March 9\nthe existing law. The differences\nNearly all the railroads allowed\nbetween the amounts would be re\nin their 1936 accounts for liabilities\nfunded to the companies, under the\nunder the railway pension law. It\nproposed agreement.\nla estimated the annual savings un-\nSaving of $15,000,000\nder the proposal would be about\n$740,000 for the Atchison, Topeka &\nOn an annual basis the saving to\nSanta Fe, $715,000 for the Balti-\nUm managements under the agree-\nmore & Ohio, $414,000 for the Chei-\nment would be about $18,600,000.\nspeake & Ohio. $1,880,000 for the\nThe rate of 2.5 per cent to be paid\nPennsylvania, $800,000 for the Union\nby the managements, under the\nPacific, $449,000 for the Missousi\nagreement, would be applied also to\nPacific, $1,570,000 for the New York\ncontributions by employee. The\nCentral and $943,000 for the South-\npayments by both managements\nSTA Pacific.\nand employes would be increased by\nII. as would be expected, payrolls\none-quarter of 1 per cant every\nwere increased in conformity with\nthree years until a maximum of 0.5\nthe present rising trend of traffic.\nper cent was reached.\nthe assings from the agreement Le\nIf pensions new peid voluntarily\nthe inspagements would be propos-\nby the refiroads are larger than the\ntionally increased.\namounts which would accrue under\nthe agreement, the larger amounts\nwould be baid. But It in arovided\nRegraded Uclassified\n126\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE March 1, 1937\nMEMORANDUM OF THE DAY'S ACTIVI-\nTIES FOR MARCH 1.\nTO\nMr. Morgenthau\nFROM\nMr. Magill\n1.\nTaxation of non-resident aliens.\nI have a memorandum from Doctor Gourrich in which he objects\nstrenuously to & tax on the transfer of securities to and from non-\nresident alians at a rate of 3 percent, on the grounds of discrimi-\nnation and the likelihood that the securities business will be driven\nabroad. He does not address himself at any length to the question\nof 8. tax at a lower rate 88 S. means of preventing the inflow of\nforeign funds, or to the other suggestion that B. stock transfer tax\non transfers to and from aliens be imposed at a rate equivalent to\nthat imposed on transfers between citizens, but with 8. power in the\nPresident to increase the rate under designated circumstances.\nI have also a memorandum from Mr. Burgess, the last paragraph\nof which is 88 follows:\n\"The more one studies this problem the more he is\nimpressed with the desirability of international coopera-\ntion in dealing with it. Action on this point might be\nconsidered 88 implementing the tri-partite agreement on\ncurrencies. It seems clear also that the investment\nmarkets are likely to be a crucial point in the problems\nof credit control which all the important nations are\nlikely to face in succeeding months. There is much to\nbe said for making this topic & subject of informal\nexploratory consultations.\"\nMr. Bryan of the Research Staff of the Federal Reserve Board,\nhas been giving further study to the possibilities of & tex on capi-\ntal gains realized by non-resident aliens. He thinks such a tax\ncan be worked out in B. much simpler form than the plans hitherto\nsuggested. He will discuss his plans further with Mr. Kent and Mr.\nGreen of the SEC. What he works out may be useful in the future\neven though we do not plan to do anything with it this year.\n2.\nCarriers Taxing Act.\nAt your suggestion, Mr. Gaston called Mr. Early at 3 P.M.,\nthis afternoon, to advise him of the information carried on the tick-\ner regarding the proposed railroad retirement plan. Mr. Gaston told\nMr. Early that the Treasury had not approved the legislation and,\nindeed, would not receive detailed information regarding it for sev-\neral days.\nRegraded Uclassified\n- 2 -\n127\nCarriers Taxing Act\nContinued\nI finally succeeded in reaching Mr. Latimer about 5 P.M.\nThe substance of my conversation with him appears in the attached\nmemorandum.\nUnited States Chamber of Commerce.\n3. Representatives of the Chamber have asked me to speak at\ntheir annual meeting on April 27th. Is it worthwhile from the\nTreasury's point of view for me to do so? If not, I shall decline\nthe invitation.\nRm\nEnclosure.\nRegraded Uclassified\n128\nRB\nGRAY\nLondon\nDated March 1, 1937\nRec'd 3:45 p. m.\nSecretary of State\nMashington.\n105, March 1, 6 P. m.\nFOR TREASURY FROM butterworth.\nLondon press reports substance of Mr. Landis' remarks\nin Boston to which the TIMES replies as follows: \"recent\nadvices from the United States regarding the influx of\nforeign capital into America indicate that the United\nStates Treasury is finding the framing of regulations\nddsigned to check the movement a matter of considerable\ndifficulty. The concern felt by the President and some\nof his advisers over 'hot money' is thought by some of\nthose well acquainted with the subject to be needlessly\nexaggerated. Apparently Washington fears the possibility\nof conditions arising similar to those which existed in\nGreat Britain in 1931 when heavy withdrawals of foreign\nowned capital rapidly exhausted this country's gold stocks.\nBut the United States as the holder of about one half of\nthe world's gold stocks is in 8. position where she could\nface with equanimity any drain likely to be made by foreign\nholders\nRegraded Uclassified\n129\nRB\n-2-#105, March 1, 6 p. m. from\nLondon\nholders of American balances and securities upon her. At\nthe conference of representatives of the United States\nTreasury and the Banks it has been reported that three\ncourses of action designed to check the 'hot money' movement\nhave been discussed--namely, a tax on foreigners' capital\ngains, 8 heavier tax on foreign income derived from American\nsecurities and a special tax on transfers. It is known\nthat the application of either of the first two bristles\nwith difficulties and therefore the thirdpossibility because\nof its simplicity, is considered to be more likely--that\nis, if the Washington Administration is determined to adopt\nrestrictive measures of some kind. At the present stage\nany forecast of the kind must be a matter of conjecture\nbut were the transfer tax adopted it would hardly affect\nsecurities already in the names of foreign owners. En any\ncase its adoption would in the opinion of the market have\nno material effect upon the volume of international $ tock\nmarket trading.\nMeanwhile it is of interest to refer to certain unfore-\nseen developments that have followed the various regulations\nof a penal or restrictive nature that have been imposed upon\nWall Street by the Roosevelt Administration. For some time\npast the volume of dealings in London in American securities\nhas been\nRegraded Uclassified\n130\nRB\n-3-105, March 1, 6 P. m. from\nLondon\nhas been steadily growing. Excluding shares such as\nInternational Nickel, Brazilian Traction and Canadian\nFacific, which, while dealt in in the American market,\nare not those of American companies and in which the\nEuropean interest largely predominates, there is a host\nof shares of companies of United States domicile some of\nwhich are mere names to the average British nvestor in\nwhich business is now-a-days transacted freely. Experienced\nmembers of the market estimate that more than fifty per\ncent of the business done today in the American market is\non behalf of American investors. Even the not incon-\nsiderable business which is done here on continental--\nmore particularly Amsterdam--acount is believed to emanate\nlargely from New York. The main consideration which has\ndiverted the business from Vall Street has been the desire\nof American operators to escape the capital appreciation\ntax. a\nATHERTON\nCSB\nRegraded Uclassified\n131\nMarch 2, 1937\nI gave the President the attached letter in regard\nto the Railroad Retirement allowances. He only read the\nfirst sheet and he said, \"I know all about it. Get hold\nof Altmeyer and Latimer and Magill and Bell and see if\ncannot thrash it out in your office and then report back\nto me.' He made me take back the attached letters and\nwould not keep them.\nRegraded Uclassified\n132\nTHE SECRETARY OF THE TREASURY\nWASHINGTON\nMarch 1, 1937\nMy dear Mr. President:\nI am sending you a very brief memorandum outlining\nthe tentative agreement which representatives of the railroads\nand of their employees have reached, without first consulting\nwith the Treasury or the Bureau of the Budget.\nMr. Magill, Mr. Bell and I are very much disturbed,\nbecause if the agreement becomes law, the Treasury may find\nitself between $700,000,000 and $800,000,000 out of pooket.\nIn view of the seriousness of this situation may I\nsuggest that you call a conference at which Mr. Latimer,\nMr. Magill, Mr. Bell and myself may be present so that we may\ntake up the whole question of the future policy in regard to\nrailroad retirement allowances.\nFaithfully,\nThe President,\nMaputhan\nThe White House.\nRegraded Uclassified\n133\nTHE SECRETARY OF THE TREASURY\nWASHINGTON\nMarch 1, 1937\nConfidential\nMEMORANDUM FOR THE PRESIDENT:\nMr. Murray Latimer, Chairman of the Railroad Retirement Board,\ncalled to see Mr. Magill and Mr. Bell Thursday afternoon, February 25th.\nHe told them that he had an appointment with you for the following\nmorning at which he expected to inform you of the tentative agreement\nbetween representatives of the railroads and of the railroad brother-\nhoods for a new system of railroad retirement allowances. He said he\ndid not expect to go into the details of the agreement with you but\nmerely to advise you that an agreement had been reached.\nMr. Latimer stated that since the tentative agreement had just\nbeen reached, he could not submit to the Treasury a detailed statement\nof the actuarial computations of the allowances which would become\npayable. He promised to submit a memorandum showing these details to\nenable the Treasury to determine whether the proposed taxing provisions\nare adequate to meet the demands upon the Treasury under the proposed\nnew Railroad Retirement Act. Until the Treasury has this information,\nwe can not, of course, advise you whether the tentative agreement would,\nin fact, necessitate payments out of the general funds beyond the re-\nceipts from the proposed taxing act.\nMr. Latimer did, however, advise us that the agreement contemplated\nthat the railroads should not be required to pay over to the Treasury\nthe amounts which they have collected from their employees prior to\nJanuary 1,1937 under the present Carriers Taxing Act, nor the amounts\nRegraded Uclassified\n134\nMemorandum for the President 3/1/37 - 2\nwhich are due from the carriers themselves prior to January 1,1937,\nunder the same Act. The total amount shown in the Budget for 1937\nand due under the Carriers Taxing Act is $134,600,000. Moreover, the\ntentative agreement provides for total taxes of 5 percent of the railroad\npayrolls for the next three years, whereas the existing rate of tax totals\n7 percent. The proposed tax would not reach 7 percent until January 1,1949.\nMr. Latimer finally stated that his calculations showed that the present\nworth of the proposed retirement allowances would exceed the present worth\nof the proposed taxes by at least $700,000,000, and that it was expected\nthat this excess would have to be met out of the general funds of the\nTreasury. He contemplates, in fact, that the amount will be made up out\nof an estimated excess of collections of Social Security taxes (to which\nthe railroad and their employees will not be subjected) over the benefits\nto be paid under that Act. In other words, the tentative agreement con-\ntemplates that other employees subject to the Social Security taxes shall\nmake up this $700,000,000 difference between the benefits which the rail-\nroad employees wish to receive and the taxes which the carriers and their\nemployees wish to pay.\nmach / at 1937\n4.30 P.M.\nRegraded Uclassified\n135\nOFFICE OF\nTREASURY DEPARTMENT\nWASHINGTON\nTHE SECRETARY\nMarch 2, 1937\nCONFERENCE AT THE WHITE HOUSE, TUESDAY, MARCH 2,\n1937, ON THE WAGNER HOUSING BILL\n-o0o-\nThose present besides the President were the Secretary of\nthe Treasury, Secretary Ickes, Senator Wagner, Mr. Fahey, Mr. McDonald,\nMr. Frederick Delano, Mr. Bell and three people from Senator Wagner's\noffice.\nThe President started the discussion by saying that he had\nnot been over the Wagner Housing Bill, and had not discussed its\nfinancial provisions other than with the Secretary of the Treasury\nearlier in the day, but that he was quite satisfied in his own mind\nthat this Administration must embark upon a program which would spend,\nover a period of from four to six years, the total sum of one billion\ndollars for low-cost housing. He thought that the estimate of\n$200,000,000 for 1938 was too high, but that probably after the pro-\ngram was started more than that sum might be spent in later years.\nHe said that the Secretary of the Treasury had raised the question\nas to where the organization to handle the new housing program would\nbe located. The President's answer to this question was that it might\nvery well be independent until the reorganization bill was approved,\nafter which it should go to the Public Works Department, or the hous-\nRegraded Uclassified\n136\n- 2 -\ning organization could still operate independently but contract\nwith the Public Works Department for the construction of the pro-\njects. He also said that there were experts on housing throughout\nthe Government service, such as those in the Public Works Adminis-\ntration, the Treasury, Federal Housing, etc., who should be used\non any program adopted.\nThe President then said that he had no time to go into the\ndetails of the bill but he wanted to suggest that the group go into\nthe cabinet room and there discuss in detail its financing provisions\nand try to work out a way in which the program could be soundly\nfinanced. He announced that Senator Wagner would preside over this\nmeeting. The group then proceeded to the cabinet room.\nSenator Wagner started the discussion by saying that he under-\nstood that the only feature of the bill to be discussed in this con-\nference was the one of finance and that he would like to hear from\nthe Secretary of the Treasury on that matter.\nThe Secretary discussed the financial features of the bill,\nsaying that as he understood it, the proposal provided that the\nGovernment would eventually contribute one billion dollars of Govern-\nment funds to construct these housing projects and give them to the\ncommunity. This being the case he did not see how the United States\nGovernment could possibly approve a proposition that would permit\nthe issuance of obligations guaranteed as to both principal and\ninterest by the Government. If these obligations are issued in this\nRegraded Uclassified\n137\n- 3 -\nmanner they would not, of course, be added to the public debt of the\nUnited States, yet in view of the flimsy security behind them they\nare issued almost solely on the credit of the United States Government.\nThis might have the effect of throwing some doubt on all of the other\nguaranteed bonds outstanding. The Secretary produced a statement to\nshow that the United States Government would appropriate a sum of\napproximately $35,000,000 a year for a period of sixty years, which\nwould represent interest at 21/2% on the outstanding obligations and\namortization of 1%. a total of 3½. The total cost to the Government\nover the sixty-year period would be approximately two billion dollars.\nSenator Wagner then said that he was not so particular about\nthe financing provisions except that he realized that it would be\ndifficult to get an appropriation through Congress each year in the\nsum of $200,000,000 or $250,000,000 which would be required under his\nbill. He frankly admitted that this means of financing was decided\nupon in order to facilitate its passage through Congress.\nThe Secretary then said that he did not believe any agency of\nthe Government could spend $200,000,000 a year on low-cost housing,\nand pointed to the fact that Mr. Ickes' organization had had one\nhundred and fifty million dollars over the past three years for a\nhousing program, all of which is not yet spent. He admitted that\nmany projects were tied up in litigation and thought that might also\nbe the case in this program. Secretary Ickes was rather reluctant to\nagree that $200,000,000 could not be spent annually for this program.\nRegraded Uclassified\n138\n- 4 -\nA general discussion then took place, one of Senator Wagner's\nassistants attempting to explain just how a project would be financed\nunder his proposed bill. After the discussion was over I did not\nfeel that any one had a clear picture of just how the provisions of\nthis bill would operate.\nThe Secretary then said that what was worrying him was as to\nhow far the United States Government could go in increasing its ex-\npenditure program. We are now spending at the rate of about 7½ billion\ndollars a year and he feels that this ought to be the limit. He also\nexpressed a feeling that any funds to be expended on housing which\nare in the nature of subsidies, should come directly from the Treasury\nand be a part of the general budget picture. He thought it might be\npossible to out down some other program within the 71/2 billion dollar\nlimitation and provide the funds necessary to finance the provisions\nof the Wagner Housing Bill.\nMr. Delano then spoke up and said that we have been spending,\nduring the past three years, a great deal of money on good roads\nthroughout the country, some of which was under emergency appropriation\nacts and required no contribution from the States, while the regular\nannual programs were on a fifty-fifty basis. He wondered why it would\nnot be possible to out down on the annual road program as we seem to\nadvance quite far in this direction, and provide for some low-cost\nhousing for the city people, letting the rural people, 80 far as good\nroads are concerned, go over for a period of four or five years. He\nRegraded Uclassified\n139\n- 5 -\nintimated in his talk that we might even consider putting the\nhousing bill on the same basis as the road bill, having the States\ncontribute 50% of the cost, the funds to be apportioned to the\nStates in approximately the same manner as the good roads funds.\nThe conference then broke up with the understanding that I\nwould survey the programs laid down in the 1938 budget to see whether\nor not any of them could be reduced, the aggregate savings from which\ncould be used to finance the provisions of the housing bill.\nDWB\nRegraded Uclassified\nMarch 2, 1937.\n140\n10:10 a.m.\nH.M.Jr:\nHello\nSecretary\nIckes\nHello Henry, how are you?\nH.M.Jr:\nHarold, I was just over to see the President\n......\nI:\nYes.\nH.M.Jr:\non the financial aspects of this Wagner Bill.\nI:\nYes.\nH.M.Jr:\nI think you and I are going to be called over there\nat 11 to meet with Wagner.\nI:\nYes.\nH.M.Jr:\nI'd like very much if you could meet me in the\nCabinet Room at a quarter of 11 and I'd like to\ngo over our figures and tell you just what I told\nthe President.\nI:\nMenry, I asked yesterday to have an analysis of\nthat bill made for me.\nH.M.Jr:\nYes.\nI:\nI wish you'd wait until I know something about it.\nH.M.Jr:\nWell here's\nI:\nI couldn't this morning anyhow.\nH.M.Jr:\nWell you - you would if the President went and\ncalled you at 11.\nI:\nWhat?\nH.M.Jr:\nIf he sent you for 11 to meet with Wagner and\nhimself.\nI:\nOh well if the President sends for me, of course, I'd\ndrop everything.\nH.M.Jr:\nWell I mean I understand he's sending for both of us\nI:\nOh I see.\nRegraded Uclassified\n- 2 -\n141\nH.M.Jr:\n......at 11 and I just wanted a few minutes with you\nbefore.\nI:\nOh, well I'll try to do that then - let me\nH.M.Jr:\nNow I've got - hello\nI:\nYes.\nH.M.Jr:\nI've had a summary made here in 8 hours with\nKeyserling\n....\nI:\nYes.\nH.M.Jr:\nWagner's Secretary.\nI:\nYes.\nH.M.Jr:\nAnd it was made - he's approved of our summary.\nI:\nYes.\nH.M.Jr:\nNow if you want to, I'll send it over by Special\nMessenger to you.\nI:\nI wish you would.\nH.M.Jr:\nAh - - it took our boys 8 hours to do it.\nI:\nYes.\nH.M.Jr:\nBut Keyserling you know who he is - Wagner's\nSecretary\nI:\nOh yes, yes, I know.\nH.M.Jr:\nHe - he dictated this thing.\nI:\nYes.\nH.M.Jr:\nAnd he - I mean there's no argument about what's in\nit.\nI:\nWell all right.\nH.M.Jr:\nSupposing I send it over to you quickly.\nRegraded Uclassified\n- 3 -\n142\nI:\nAll right, send it right over.\nH.M.Jr:\nAnd do you want to meet with me for a few minutes\nbefore\nI:\nI'll try my best to. I've got some people in there\nnow by appointment if I can get through in time.\nH.M.Jr:\nWell I - - will you let me know?\nI:\nYes, I'll let you know.\nH.M.Jr:\nO.K.\nI:\nAll right.\nRegraded I Uclassified\n143\nMarch 2, 1937.\n10:20 a.m.\nHello.\nH.M.Jr:\nMr. Altmeyer.\nYes.\nH.M.Jr:\nHenry Morgenthau, Jr.\nA:\nYes, how are you?\nH.M.Jr:\nI'm all right. Mr. Altmeyer, I've just seen the\nPresident about this railroad retirement thing, see?\nA:\nYes.\nH.M.Jr:\nAnd he asked me to get in touch with you and\nMr. Latimer and ask you whether you could come\nover to the Treasury and sit down with Magill,\nBell and myself.\nA:\nSure, be glad to.\nH.M.Jr:\nAnd see if we can't thrash this thing out and\nthen report back to him.\nA:\nAll right. I understand that Latimer is sick to-day.\nH.M.Jr:\nYes.\nA:\nI'll call his house to see if he will be able to get\nup this afternoon or di - would you rather - would\nyou be willing to wait till tomorrow?\nH.M.Jr:\nWell - ah - if a man's sick I will but I've got a\ntough day tomorrow and I'm free this afternoon.\nA:\nAll right, I'll call him out at his house to see\nhow bad off he is.\nH.M.Jr:\nWell the that would be best for me would be 3:15.\nA:\n3:15.\nH.M.Jr:\nCould you let me know in the next ten minutes?\nA:\nI'll let you know right away.\nRegraded Uclassified\n144\n- 2 -\nH.M.Jr:\nAnd then I wanted to give you this - I don't know\nwhether you saw the story in the Wall Street Journal\nor not.\nA:\nNo.\nH.M.Jr:\nWell it's on the left hand front column and I'm\nfearful of the effect this story will have, see?\nA:\nAh-ha.\nH.M.Jr:\nAnd what I'd like to do if it was agreeable to you\ntwo gentlemen would be, if you decided to come - let\nus know that you were coming to the Treasury, see?\nA:\nYes.\nH.M.Jr:\nBut I wouldn't do that unless it was agreeable to you\nand Latimer.\nA:\nYes.\nH.M.Jr: . See?\nA:\nI'll get ahold of Latimer right away and call you\nback.\nH.M.Jr:\nBecause I mean I'm terri - ask somebody to get you\nthe Wall Street Journal - - front page, first column\non the left hand side.\nA:\nAll right.\nH.M.Jr:\nAll right, thank you.\nRegraded Uclassified\n145\nMarch 2, 1937.\n10:29 a.m.\nOperator:\nGo ahead\nH.M.Jr:\nHello - hello\nAltmeyer:\nHello.\nH.M.Jr:\nYes.\nA:\nI just talked with Latimer.\nH.M.Jr:\nYes.\nA:\nHe's in bed but he says that if - if you consider\nit important to meet to-day he'll come down and\nbe there at 3:15.\nH.M.Jr:\nWell do you mind - well what's the matter with\nhim?\nA:\nWell he's got a heavy cold. He talked in a\nmuffled tone but he says he thinks he can make\nit and he hopes he won't infect the rest of the\npeople.\nH.M.Jr:\nWell (aside - Latimer)\nA:\nHello\nH.M.Jr:\nWell I was just thinking - what do you think.\nI don't - I don't want to be responsible for a\nman getting pneumonia.\nOh I don't think it's as bad as that. He said he -\nit was a heavy cold and he thought if he stayed in\nbed to-day he might be able to shake it off but 1f\nyou think it's important I'm sure that he'll - he\nwould want to come down. In fact I have already\narranged for him to come down at 3:15.\nH.M.Jr:\nWell you see the report that Bell gives me that\nas far as the Treasury is concerned it means it\nwould involve seven or eight hundred million dollars.\nA:\nWell eventually it might run up to - as I recall -\naround 600 million as the - depends upon how he\nestimated - it may be 300 million and it may be\n600 million.\nRegraded Uclassified\n146\n- 2 -\nH.M.Jr:\nWell - I - - I - I - - after all I don't know Latimer\nA:\nYes.\nH.M.Jr:\nand the feeling that we have here is that they're\nholding out on us.\nA:\nAh-ha.\nH.M.Jr:\nBut we haven't got the facts and we can't get the\nfacts.\nA:\nWell all I - - all we know about it over here is bat\nLatimer submitted a memorandum to the Board and,\nfrom a Social Security standpoint, we think it's\na sound proposition but we didn't go into the fiscal\nend of it at all.\nH.M.Jr:\nYes.\nA:\nAnd Danny mentioned about the rate of interest and\nthat sort of thing none of that did we consider.\nH.M.Jr:\nYes.\nA:\nAnd I think it is important that the whole thing be\nthrashed out\nH.M.Jr:\nWell Social Security - if you're going to start remitting\none percent to special groups where are we going to\nend?\nA:\nWhat - what did you say?\nH.M.Jr:\nIf you're going to give back rebates of one percent.\nA:\nWell there's no rebate we - e made it clear in our\nmemorandum in reply to Latimer's that they'd have to\nconsider themselves an integral part of the Social\nSecurity program.\nH.M.Jr:\nYes.\nA:\nNow that is they couldn't in one branch ask to have\nthe protection of the Social Security system and in\nthe next breath ask to have a separate set-up.\nRegraded Uclassified\n147\n- 3 -\nH.M.Jr:\nWell that - that's the point.\nA:\nYes.\nH.M.Jr:\nI really think it is terribly important from\nboth your standpoint and ours and Bell and Magill\nare very much exercised over it.\nA:\nAh-ha.\nH.M.Jr:\nSo if he's well enough let's have it.\nA:\nAll right.\nH.M.Jr:\nNow what about letting the people know you're\ncoming?\nA:\nThat's O.K. anyway you want to announce it.\nH.M.Jr:\nThat's all right?\nA:\nYes.\nH.M.Jr:\nWell thank you very much.\nA:\nAll right.\nH.M.Jr:\nThank you.\nA:\nGoodbye.\nRegraded Uclassified\n148\nMarch 2, 1937.\n2:53 p.m.\nH.M.Jr:\nHello\nHello\nH.M.Jr:\nWoodring?\nwoodring\nYes.\nH.M.Jr:\nHenry Morgenthau.\nW:\nSay, I've - I've gone over all that correspondence\nH.M.Jr:\nYes.\nW:\n.....and I find that all of our technical advisers\noverchere are against letting you have that No. 5.\nIt's right at the north gate and we have plans for\nexpansion of our own housing facilities.\nH.M.Jr:\nAh-ha.\nW:\nAnd they - they have - I think you turned down\nall but No. 5 and No. 8 at one time and they have\nagreed on No. 8 which is on the railroad and the\nwaterfront.\nH.M.Jr:\nWell - ah - ah I remember there was something\nthe matter with the footings there, weren't there?\nW:\nNo, the thing was that I think I - you had some\n$600,000 appropriated and you claimed that the\nhighway - roads - that you would have to have an\noverpass would cost $70,000 which would run your\nbill up to $670.\nH.M.Jr:\nYes.\nW:\nWell now the highway thing I think can be eliminated\nthrough our channels because we're building some\nnew roads right down to the approach.\nH.M.Jr:\nWell who is - who has it in charge for you?\nW:\nWhat is it?\nH.M.Jr:\nWho could Admiral Peoples talk to over there?\nRegraded Uclassified\n- 2 -\n149\nW:\nWell I think he'd better talk to me and to General\nCraig.\nH.M.Jr:\nTalk to you direct?\nW:\nYes.\nH.M.Jr:\nI'll - I'll have him ask for an appointment to\nsee you.\nW:\nAllright.\nH.M.Jr:\nHow's that?\nW:\nAnd I'll tell you. This - ah - when you started\nout we would never have given you or let you inspect\nthe No. 5 site only on the impression that it was\n200 by - 250 X 300 feet.\nH.M.Jr:\nYes.\nW:\nNow they say they need ten acres and, of course,\nout at Fort Knox our ten acres - its developed\ninto 112 acres because you find, which I imagine\nwill be true up there, that you have to have housing\nfor your men and your employees and all. On this\nNo. 8 site, Henry\nH.M.Jr:\nYes.\nW:\nif you - if you - you can have all the acreage\nyou want\nH.M.Jr:\nYes.\nW:\nAnd plenty of room for housing and its on a highway.\nH.M.Jr:\nYes.\nW:\nA bi-pass to a highway that wouldn't interfere with\nany traffic.\nH.M.Jr:\nO.K.\nW:\nI think it will work out all right.\nH.M.Jr:\nWell I'll tell my boys to get in touch with you\ndirect.\nRegraded Uclassified\n150\n- 3 -\nW:\nAll right.\nH.M.Jr:\nAnd...\nW:\nWe'll - we'll try and work it out I think satisfactory\nto you.\nH.M.Jr:\nWell thanks very much.\nW:\nGoodbye.\nH.M.Jr : Thank you.\nRegraded Uclassified\n151\nMEETING ON RAILROAD RETIREMENT\nMarch 2, 1937\n3:10 P.M.\nPresent:\nMr. Magill\nMr. Oliphant\nMr. Bell\nMr. Gaston\nMr. Murray Latimer\nMr. Arthur J. Altmeyer\nH.M.Jr:\nIf you (Magill) will tell your tale of woe....\nMagill:\nWell, we were disturbed by this announcement coming\nout as it did on the ticker yesterday to the effect\nthat there had been this tentative agreement between\nthe railroads and the employees respecting railroad\nretirement allowances. Did you (Latimer) see the\nannouncement?\nLatimer:\nThis morning?\nMagill:\nWell, the same came out this morning - the same thing.\nH.M.Jr:\nI draw Mr. Altmeyer's attention to the story in the\nWall Street Journal.\nMagill:\nYes. Similar story in the Times.\nIt was stated, I think, more or less as an accom-\nplished fact that the railroad executives were being\ncalled in on March 9th to agree to this proposed\nplan, which provided for lower taxes upon the em-\nployees and the carriers, so that consequently the\nrailroads would be able to show an increase in their\nearnings during 1936, since they had included on their\nbooks charges for these protective payments under the\npresent tax, which payments would not now have to be\nmade.\nWell, our difficulty about it came in this fashion.\nAbout the first of February, it was agreed that the\nCarriers Taxing Act, carrying the provision for a\ntotal tax of seven percent on the payrolls, should\nbe extended for a period of at least a year. The\nAct would normally have expired on February 28th.\nWhen we went up before the Committee, Mr. Latimer\nRegraded Uclassified\n152\n- 2 -\ninformed the Committee that the carriers and the\nrailroad employees were then engaged in negotiations\nunder his general supervision looking toward an\nagreement upon a new retirement scheme.\nThere were two points, as I understood it from that,\nas matters stood at that time. First, that this\nagreement contemplated the payment to the Treasury\nof the amounts which were due under the existing\nCarriers Taxing Act and which we were trying to\nget extended - those amounts totaled about 135\nmillions of dollars - and the dismissal of the\ninjunction suit which the railroads had brought,\nand which tie-up prevented our collecting under the\ntax for the time being. And then, secondly, that the\nretiring allowances which were being negotiated\nwould be of such an amount that the tax would carry\nthe allowances. And it was contemplated, &S I under-\nstood it - as I read the history of the thing, the\nreason why the Carriers Taxing Act had been given an\nexpiration date of February 28, 1937, was because no\none felt sure of exactly how much money would be\nrequired to carry the allowance. Mr. Eastman, I\nbelieve, testified - Mr. Latimer testified that the\nnecessary amount would be somewhere between seven\nand something over ten percent of the payrolls.\nSo the rate of tax was fixed in the Act at seven\npercent.\nWell then, on the basis of this assurance from Mr.\nLatimer and our request - the President's request\nthat the Act be extended, the Ways and Means Committee\nwent ahead, and the Senate went ahead - the House and\nSenate went ahead and extended the Act and the Presi-\ndent signed it on February 27th, I believe.\nH.M.Jr:\nWell, I think - if you don't mind, I think you're\na little modest; I think the Treasury carried the\nentire ball on getting it extended.\nMagill:\nWell, we did; we did.\nH.M.Jr:\nWe carried the entire responsibility in getting it,\nas I say.\nMagill:\nWell then, at about this time - I hadn't heard any-\nthing further of these negotiations, so I called up\nRegraded Uclassified\n153\n- 3 -\nMr. Latimer to ascertain how the negotiations were\ncoming along, and particularly asked you (Latimer)\nabout this 140 million or 135 million; and then\ndiscovered for the first time, to my considerable\nalarm, that the railroads and the employees had\njust decided that they wouldn't pay this 140 million\nto the Treasury which is due under the law that is\nnow on the books, and that furthermore this retirement\nplan had been devised with a lower rate of tax than\nthat at present in existence, only rising to the\npresent rate of tax in 1949; and further that in\nany event the allowances to be made would exceed\nby nearly a hundred percent, as I understand it,\nthe taxes to be paid. That is, as I understood\nyour calculations, that the present value of the\ntaxes which are to be collected were - well, to put\nit the other way, the present value of the allowances\nto be paid exceed the present value of the tax to\nbe collected by something like 700 million.\nLatimer:\nOh no, no.\nWagill:\nI think the way you put it, that if the railroad\nemployees had stayed under the Social Security Act,\nthey would have paid 800 million in present worth\nand would have received 2 billion and a half in\npresent worth.\nLatimer:\nYes\nMagill:\nAnd that the idea of the new Act was to preserve\nthat as a differential.\nLatimer:\nNo, not that same one.\nMagill:\nOf course, there again, you see, we are in trouble,\nbecause we have never seen any of the actuarial com-\nputations under the thing at all. We haven't the\nremotest idea whether the tax will carry the allowance,\nor whether we'll have something left over, or whether\nwe'll be in the hole. We know we'll lose 135 million -\nor rather, a hundred million, about. We don't know\nhow much more we'll lose.\nAnd what bothers us about the whole situation is that\nwe are obviously put on the spot. Here we've got a\ntaxing act which we've put through; it's on the books.\nRegraded Uclassified\n154\n- 4 -\nNow the railroads come out with - or somebody\ncomes out with great gusto and announces a new\nplan which is a gift to the railroads of a hun-\ndred million. And presumably we are going to\nbe chasing down to Congress presently with a\ncompletely different taxing act and saying, \"Well,\nboys, what we asked you to do a month ago - just\nerase that. We were misinformed, and we really\ndon't want to tax them that much. You just tax\nthem a little less and the - everybody will be\nhappier and the Treasury will pay the difference.\"\nLatimer:\nWhen I made the statement which I did in the House\nWays and Means Committee, that the taxes were to\nbe seven percent and were to begin on March first,\nand the injunction suit was to be dismissed, I was\nmerely stating what had been the agreement arrived\nat by a sub-committee.\nNow, there happen to be three different groups:\nthe railroad labor organizations as a whole, the\ncarriers as a whole, and they appointed sub-committees -\nI mean a committee, consisting of presidents on each\nside. And then that committee appointed a technical\nsub-committee, which sub-committee I've been working\nwith.\nAll the figures supplied by us\nof course,\nour function was a purely technical one, We were\ninstructed by the presidents, on the basis of the\nactuarial calculations, to submit to them the cost\nof any particular plan they put up to us. And\nup until the last stages, nothing at all had been\nsaid about any different - about any tax less than\nseven, although some conversations had evolved around,\nnot whether the tax was to be less than seven but\nwhether it was to be more. And the sub-committee\nhad spent most of its time trying to cut out benefits\nin order to get it to the point where a tax of\nseven percent would furnish support.\nAnd it was only when the presidents' committee -\nthat is, when the sub-committee reported back to\nthe presidents themselves - there were six railroad\npresidents - the presidents and the carriers' committee,\nthey were the gentlemen who got out their chisels.\nRegraded Uclassified\n155\n5 - I\nAnd if I remember correctly, I called you (Magill)\nbecause you were attempting to preserve the seven\npercent tax rate. One of the main reasons that I\ncalled you was to attempt to get you to bolster us\nup in trying to keep 8 seven percent tax rate.\nH.M.Jr:\nPardon me - you mean you called Magill?\nLatimer:\nYes.\nMagill:\nI don't - I don't remember that.\nLatimer:\nWell, I didn't tell you what I wanted, but... I\ndon't know whether you wanted to collect any more\ntax than that or not, but we were - we think now\nthat the benefits have been scaled to a low point.\nAltmeyer:\nYou mean the benefits or the tax?\nLatimer:\nNo, the benefits.\nH.M.Jr:\nMay I just make this comment? But is it a fair\ncriticism that possibly you weren't sufficiently\nfrank with us? You - with us?\nLatimer:\nWell, maybe I wasn't, but I didn't know what atti-\ntude you were going to take on it. And what I called\nup Mr. Magill for was to tell him that it was agreed\nI would give a memorandum which would set forth\ncompletely as I knew how the whole situation.\nH.M.Jr:\nWell, you've never worked with us, or we with you,\nbut I can tell you this, that you can call up the\nTreasury any time and we'll always tell you where\nwe stand.\nMagill:\nI think you (Latimer) are wrong on your chronology.\nYou remember you came over here and talked to\nOliphant and myself one afternoon, and I'm not\nsure precisely what the date of that was but I\nthink it was Wednesday afternoon last week; and\nyou discussed with us two or three other problems,\nbut not - there did not come up in that conversation,\nI am sure, anything with respect to the effective\ndate of this tax.\nLatimer:\nNo, it didn't.\nRegraded Uclassified\n156\n- 6 -\nlagill:\nWhat came up in that conversation was two or three\nquestions: the question of charging part of these\nretirement allowances against the general funds\nof the Treasury or against the reserve account\nunder the Social Security Act; the question of\nwhether or not the administration of the tax ought\nto be under the same board which is to pay the\nbenefits; and then, further, the question of the\nrate of interest to be allowed on the tax payments.\nLatimer:\nYes, that's right.\nMagill:\nI should have asked you at that time about the tax,\nbut I didn't, and I didn't know - I simply assumed\nthat since you had made the statement before the\nWays and Means Committee, and of course we proceeded\non that theory, that the tax would continue in effect\nat this rate. I assumed it was going to continue in\neffect. But the next day I got worried about it\nand I called you up to ask what had happened to the\n135 million, and then learned that it had gone out\nthe window somewhere in the meantime.\nLatimer:\nWell, of course, we weren't - we were in this position.\nWe had been instructed to make - to tell the conferees\nwhat these things would cost. They had gotten final\nscale benefits which, as best we could calculate, cost\nsomething under seven percent - 6 7/8, or something\nlike that. Then they asked us to calculate the cost\nbeginning March 1, 1936, or beginning January 1, 1937.\nBeginning March 1, 1936, the cost of the Act - it\napproximately was 1.5 percent less beginning January\n1, 1937. I admit that perhaps I should have told you,\nbut there was no intent at all to try to conceal it.\nAS a matter of fact, I never thought of it. I had\nthought of your whole - that you would have a month\nin which to do this, and assuming that before any-\nthing would come up - I never anticipated the pressure\nthat would be put on. I never thought that, sitting\nin conference last Friday, there would be this effort\nto make the President - make out the President had\ncommitted the Administration, which he hasn't done.\nSo that I took it for granted that you'd have a month\nto make the study of the thing. Now, that's all from\nme.\nH.M.Jr:\nWell, haven't I heard, Ros, that the thing you are\nRegraded Uclassified\n157\n- 7 -\nparticularly fearful of at this stage is that\nthese letters are going out to 150-odd railroad\npeople?\nWagill:\nYes, what bothered us is that these railroad fellows\nare going to meet on March 9th and I assume agree -\nthey are going to get the understanding, as you said,\nthat this has at least the Administration blessing,\nwhether it has Administration approval in so many\nwords or not.\nBut suppose that not a word was said about the\nAdministration, that this was simply dressed up as\na private agreement, which I think is not realistic\nat all. But suppose not B. word was said about the\nAdministration. The 149 railroads, or whatever it\nis, and employees come down then with an accomplished\nfact - \"This is an agreement which we have now\nentered into. This is what we want.\"\nOliphant:\n\"And which you knew about and didn't say anything.\"\nMagill:\n\"And which you, Uncle Sam, knew about\" - as I under-\nstand from my conversation with you (Latimer).\nOliphant:\n\"Which you, Uncle Sam, knew about and didn't say\nanything.\"\nMagill:\nNow, suppose the Treasury goes to the Ways and\nMeans Committee, as it has to, with some form of\ntaxing act on this matter, and we say, \"Well, we\nask you now to repeal this Act which is now on the\nbooks and which we have budgeted at 135 million.\"\n\"Well, what's that going to cost the United States?\"\n\"Well, that's going to cost us a hundred million\" etc.\nWell then, suppose the Ways and Means Committee asks\nus and we say, We think that this tax ought to S tay\non the books just the way it is now. That's why we\ncame to you in February, because we thought so.\"\nWell then, look where we land with respect to the\nrailroads and the railroad employees. In other words,\nit is obvious, if you look at it from my eyes, that\nwe are clearly being high-pressured here. Now, who's\nRegraded Uclassified\n158\n- 8 -\ndoing it doesn't concern me so much as the fact\nthat it's being done. The net result is that,\nwhichever horn of the dilemma We take, whether we\nagree with the railroads, with this railroad agree-\nment, or whether we disagree with it - in either case\nwe are put in a very unpleasant position, And the\nreason we are put in the position is because we didn't\nknow a darn thing about it until it was virtually an\naccomplished fact, that's all.\nBell:\nDid the President approve this program the other day\nat the conference?\nLetimer:\nThe President wasn't even told about the details of\nthe program.\nH.M.Jr:\nI spoke to him about this this morning, and the\nPresident gave me distinctly to understand that\nhe is not committed in any way.\nLatimer:\n1 mean he couldn't possibly have been, because he\nvery definitely wanted to steer away from it.\nU.M.Jr:\nAnd he suggested this meeting, and that we then\ngive him a memorandum, if we could come to an\nagreement, as to what policy we recommend to him\nthat the Administration follow. That's the purpose\nof this meeting.\nAltmeyer:\nI knew nothing about the details either.\nLatimer:\nWell, the details weren't settled until late Thursday\nnight before they went over to the President, and\none reason why - I think I'm derelict in not having\ntold something in general, but the situation changed\nso from day to day that I didn't know what precisely\nto tell you as to what they were having in mind,\nbecause the next day I'd have to come back and say there\nwas something else.\nH.M.Jr:\nWell, Mr. Latimer, could you at this time make a\nstatement to us which we might or might not subscribe\nto, or which we might say is the policy and that we\nare all in agreement, and then send it over to the\nPresident?\nRegraded Uclassified\n159\n- 9 -\nLatimer:\nWell, I think you need more time, Mr. Secretary.\nE.M.Jr:\nYes, but - but this thing has gone out. I asked\nMr. Altmeyer if he would object to asking you to\nsay - tell the newspapers we were having this\nmeeting, just to show that we had our doubts.\nUnquestionably after this meeting they will ask\nus. I'd like to say something, if just to\nI think if the Administration doesn't follow what\nthese railroad people want, we are in a very tough\nspot, and I think\nLatimer:\nI'd like to say this about it\nH.M.Jr:\nI mean how would you sum up? Can you sum up for\nme what is the situation? First, what is the situa-\ntion today as far as you're concerned?\nLatimer:\nWell, the situation as far as we're concerned is\nthat we've done the technical part of the negotia-\ntions, without attempting to influence considerably\none way or another what was wanted by the negotia-\ntors, and that I intended to put up to you the\nsum total of the negotiations which had been resched.\nOliphant:\nMay I ask\nLetimer:\nAnd to make some recommendation about it. Now, as\nI said, we hadn't anticipated that there would be\nsuch pressure on this, and I thought there would be\nan opportunity for the Government to decide on this\nmatter of policy. Since it has not now, I think\nthat this statement might be reiterated which I made\nto Mr. Pelley and Mr. Harrison the other day. I\nsaid that I was sure they understood that the\nTreasury and other agencies were involved in this\nmatter and that the whole thing would be submitted\nto the Treasury and the Treasury might have some\nsuggestions. I asked them, \"If those suggestions\nmight involve more or less taxes and certain other\nchanges in legislation - I don't know what else they\nmight suggest about it - will that in any way upset\nyour agreement?\" I said, \"Will you make it clear\nthat these agreements between the principals - that\nthese agreements are sub ject to that?\" They said\nthey would.\nRegraded Uclassified\n160\n- 10 -\nH.M.Jr:\nDo I understand that you are a party to these\nagreements?\nLatimer:\nI said I was just telling them that the agreements\nwhich they - made it clear that they understood\nthat neither the President nor anybody else from\nthe Government had committed themselves to go along;\nthat it would be specifically subject to review by\nthe Treasury and that the Treasury would have any\nnumber of suggestions to make about it.\nH.M.Jr:\nWell, if you don't mind, the point that I get is\nthat these people, the railway owners and the railway\nunions, came to an agreement on this thing and you\nleft them with the impression that they could submit\nit to their members and then come back and that, while\nthe Treasury might object, the Railway Retirement\nBoard would look on it favorably.\nLatimer:\nNo, sir.\nH.M.Jr:\nHuh?\nLatimer:\nWe said that this was committed subject to the\nGovernment, and that whatever - 85 far as technical\nmatters, Railway Retirement Board was satisfied, but\nthey understood that we hadn't any power to commit\nthe President.\nH.M.Jr:\nYes, but the Railway Retirement Board is satisfied\nwith it?\nLatimer:\nI think we can say that we are satisfied.\nAltmeyer:\nAre you satisfied with the agreement in its present\nform, with the two and a half instead of the three\nand a half rate?\nLatimer:\nThose taxes will support the benefits given in this\nother matter, yes, I say we are satisfied; we are\nsatisfied technically because we believe that the\ntaxes, revenue, and outgo will be in balance. But\nwe aren't satisfied with the substantive provisions\nof it. But there is nothing - we have no right to\nstep into the negotiations and tell them they must\ndo so and SO. Even though we don't like it, it is\nnot for us to\n161\n- 11 -\nAltmeyer:\nwell, what about the 1936 taxes? Satisfied about\nthat, too, that they shall be forgiven?\nLatimer:\nWell, the taxes that are here now, beginning on\nJanuary 1, 1937, are sufficient for the outgo.\nBell:\nAt all times, right from the beginning?\nLatimer:\nOh yes. I say with this adjustment\nBell:\nYou mean between the Old Age Reserve Account\nLotimer:\nWith this adjustment: It will be sufficient at all\ntimes if you grant us that three percent interest.\nYou haven't granted us the three percent interest\nyet, but it is clearly understood that if the fund\ndoesn't earn three percent - that is another matter;\nthey know also that that is another matter, which\nis something over which the conferees - something\non which we have asked advice, over which we can't\ncommit the Government.\nH.M.Jr:\nWell, may I ask Mr. Altmeyer a matter of policy?\nI mean frankly I'm learning as I'm going along,\nbecause I just haven't had time to give it the\npreparation that I give to these things, because\nthings have been happening so fast the last couple\ndays, We've had this housing matter, you know.\nThe thing - talking here - I think I can express my\npoint - the thing that worries us the most, and I\nworried if it didn't worry you (Magill), is that at\nthis stage, where we are just beginning, one month,\ntwo months under way, if we begin to give special\ngroups special treatment - that's the thing that\nworries us.\nAltmeyer:\nOf course, when the Social Security Act was enacted,\nthe railroads were under it and it was in balance\nwith the railroads under it. And then a week or\ntwo weeks afterwards the railroads went out. So\nthat really you could say that it threw the Social\nSecurity balance off. Is that right, Mr. Latimer?\nLatimer:\nYes, but I think there is a more fundamental ques-\ntion that the Secretary is raising about that: as to\nwhether in any event there ought to be any special\nRegraded Uclassified\n162\n- 12 -\nfund, no matter what kind of treatment is given.\nAltmeyer:\nNow, getting the railroads back in, so to speak,\nputs the Social Security Act back to where it was\nwhen it was originally enacted, as far as the\nself-sustaining features are concerned. Now, what\nwe are concerned about is that any change made now\nshall be in accordance with fundamental principles\nthat can be applied to any industry affected with\na national interest.\nH.M.Jr:\nNow - well, we - (to Magill) can I say that\nMagill:\nOh sure.\nH.M.Jr:\nthat we are in complete accord?\nMagill:\nComplete accord.\nH.M.Jr;\nWe are not for the moment worrying about whether\nit is 47 million dollars or 57 or 157. What we\nare worrying about is, I think - if I'm going too\nfast, tell me - is that here's the first thing that\ncomes up and the railroads - 1f the railroads can\ndo this thing, why, then the coal miners can do it\nand the automobile manufacturers can do it, and so\nforth and so on, and what's going to happen to\nyour (Altmeyer) organization.\nLatimer:\nAn attempt has been made to guard against that very\nthing in an exchange of letters.\nAltmeyer:\nWe exchanged letters trying to safeguard the thing\nfor the long time future, and I have just filed\nwith you this exchange. Now, that's the only thing.\nBell:\nWell, how can you safeguard this? Just say it isn't\n& precedent; how can you safeguard it against a thing\nof that kind if another group wanted to bring pressure\nto bear?\nLatimer:\nIf you've got pressure - sufficient pressure, you can't.\nAltmeyer:\nNow this, Mr. Secretary, was in answer to a letter\nthat the Railroad Retirement Board brought up.\nLatimer:\nAt the direction of the President. We talked President to the\nUclassified\n163\n- 13 -\nabout this. He said, \"Get the views of the\nSocial Security Board on the matter.\" That's\nhow the letters came to be written.\nAltmeyer:\nAnd those were our views.\nLatimer:\nThese, by the way, are reported in my memorandum\nto you (Magill).\nMagill:\nOh, that I'm going to get tomorrow.\nLatimer:\nYes.\nAltmeyer:\nSo we know nothing about the details of this at\nall. The first I knew about any of the details\nwas when I read over the bill this morning that\nI sent for from Latimer's office. Of course, I\nread this Wall Street Journal article, and then I\nran down the bills.\nLatimer:\nYou have the agreement here.\nMagill:\nYes, I've got the agreement.\nH.M.Jr:\nYes, but this correspondence has never been here\nbefore.\nMagill:\nNo.\nLatimer:\nThe President, in his letter to both sides, committed\nhimself to a separate - committed himself to a\nspecial railroad retirement act, or some form of\nspecial treatment for the railroads. I don't think\nit was a special retirement act.\nAltmeyer:\nAll that I understand he committed himself to - re-\nmember I made the statement of what our position\nwas, that we felt the Social Security Act, if it\nwas to be social, should give the protection to\nindustry generally, including the railroad industry,\nand that if the railroad industry had an undue pro-\nportion of the aged, they should have the protection\nof the whole system nevertheless; that if they wanted\nto receive higher benefits but under the Social\nSecurity Act, those higher benefits should be super-\nimposed upon the benefits under the Social Security\nAct and should be fully self-sustaining. And we\nRegraded\n164\n- 14 -\nfelt that that was a sound principle for the\nrailroad industry or any other industry.\nLatimer:\nWell, that particular principle has been adhered\nto here.\nAltmeyer:\nAnd I think that is the only thing the President\ncommitted himself to.\nLatimer:\nWell, the President didn't commit himself to\nwhether there would or would not be a legislative\nscheme in addition to the Social Security Act,\nand the carriers themselves understood the\nPresident's scheme to give them authority to\narrive at an agreement, and understood that if\nthey did arrive at an agreement, or private agree-\nment, that the President's letter had bound him to\nask for an exemption of railroads entirely from\nSocial Security. That is what they understood.\nAltmeyer:\nWhat was that?\nLatimer:\nI said that the carriers understood the letter to\nmean that if they and their employees arrived at a\nprivate agreement about a retirement insurance\nsystem, the President would ask for exemption of\nthe railroads from the Social Security Act without\nany legislation at all.\nOliphant:\nEven though it was going to cost more money?\nLatimer:\nWell, irrespective of cost, if the railroads and\nemployees. agree on a retirement system, the\nPresident would go along with them going out of\nthe Social Security Act entirely, even though that\nagreement was not a legislative agreement but a\nprivate agreement.\nH.M.Jr:\nIs there anything in writing between the President\nand railroads and railroad unions?\nLatimer:\nYes, I have that.\nH.M.Jr:\nHave We got that?\nLatimer:\nThat was published in the press.\nRegraded\n165\n- 15 -\nMagill:\nNo, not here.\nH.M.Jr:\nHave you (Altmeyer) got it?\nAltmeyer:\nNo.\nH.M.Jr:\nI think an important thing like this, involving\nhundreds of millions of dollars - it does, seem\nthat the Social Security and Treasury should be\nkept informed. Doesn't that look like a reasonable\nrequest?\nBell:\nI can't help but believe that the Social Security\nset-up was in balance when the railroad employees\nwere under it. Now that they go out, by reason of\nthe fact that they go out, that throws the Social\nSecurity Act out of balance; they have more revenue\nthan they need. There ought to be a reduction in\ntaxes for those that - other classes of employees\ntaxed, and that thrown over into the railroad tax.\nI can't arrive at any other conclusion.\nLatimer:\nI don't seem to have brought a copy of that letter\nwith me.\nWell, do you think the reverse ought to be true,\nMr. Bell?\nBell:\nWell, I think that if you are taxing the other\nclasses of employees to pay higher benefits to the\nrailroad\nLatimer:\nNo, no, we weren't doing that. All you were taxing\nBell:\nThat's the effect of it.\nLatimer:\nNo; no, sir.\nH.M.Jr:\nThat's the way it looks to us. Why should other\nemployees pay a higher rate in order that the\nrailroad people get special treatment.\nLatimer:\nThey aren't doing it.\nH.M.Jr:\nThat's the way it looks to the Treasury.\nLatimer:\nWhat they are doing\nLet's suppose that the\nRegraded Uclassified\n166\n- 16 -\nrailroads were under the Social Security Act and\nthe tax is a little higher: than otherwise it would\nbe, if the railroads were not there; now, if the\nrailroads made an agreement on the side with their\nemployees to make benefits supplemental to the\nSocial Security Act, the railroads would get all\nthe benefits which have been contemplated under this\nexchange of correspondence here, and they would of\ncourse under that reciprocal cheme have to pay for\nthe full amount of benefits. They'd have to pay for\nthe full amount of the supplemental benefits, pre-\ncisely as they are doing here. That is, what is\npaid for by the other employees is only the extra\npart up to the level of the Social Security benefits.\nThe difference between the total amount paid under\nSocial Security and that other Railroad Retirement\nAct is paid in full by the railroads and employees.\nA.M.Jr:\nJust as I say, I'm starting from zero, but I - I've\ngot - I want somebody to tell me why the railroads\nshouldn't be under Social Security.\nAltmeyer:\nWell, as I understood it, they were to be brought\nunder Social Security, but since they wanted higher\nbenefits they would have to finance those higher\nbenefits on & completely self-sustaining basis.\nThey would get the advantage of the basic Social\nSecurity program by reason of the fact that they\nhappen to have 8 disproportionate number of the\naged, but that is - that isn't the same 8.5 saying\nthat the rest of industry - that is what we mean\nby social security: that industry generally will\ntake care of the aged workers; that we don't under-\ntake to bring about an exact balance between separate\nindustries or between separate establishments within\nindustries.\nH.M.Jr:\nWell, you don't know an awful lot more about this\nthan\nAltmeyer:\nI don't know anything about the details of this.\nH.M.Jr:\nWell, you should, certainly. Just take it for\ngranted that the poor Treasury is always dumb. But\nI mean at least you've got to administrate this thing,\nknow something about it.\nRegraded Uclassified\n167\n- 17 -\nAltmeyer:\nI think of course from the practical tandpoint the\nimportant thing is to maintain it at the seven\npercent. I don't think you ever would get more than\nseven percent out of the railroad industry. I mean\nonce we gave up a year and a half ago and accepted\na seven percent rate, I think me were licked.\nH.M.J.:\nRight.\nAltmeyer:\nThen as far as getting more than seven percent\nH.M.Jr:\nWell, this theory of leaving out the Pennsylvania\nRailroad crowd because they pay their workers more\njust hasn't happened.\nAltmeyer:\nWell, it SO happens, as I understood, that the\nseven percent rate and giving them the advantage\nof the over-all protection of the Social Security\nAct would put their system in balance for all time.\nLatimer:\nIt would do a little more than that, because after\nwe've gotten those, then they'd take out some more\nbenefits.\nH.M.Jr:\nBut this isn't what is happening today in this agree-\nment which they've sent out to their members. It\nwould pay the workers now much, six percent?\nMagill:\nNo, five.\nLatimer:\nFive going up to seven percent, which is equivalent to\n6.60 percent of the payroll.\nH.M.Jr:\nWell, could I say this? Could I say this? I mean\nI want to be as fair\n(Gaston comes in)\nMr. Latimer, Mr. Gaston.\nCan I say this? - that we simply haven't had time to\nstudy this matter, and it certainly - I don't know\nwhether you (Altmeyer) want to say something to the\neffect that as far as the Social Security and the\nTreasury is concerned, that we still haven't got all\nthe facts.\nRegraded Uclassified\n168\n- 18 -\nAltmeyer:\nYes, I think we should make it clear that the\nAdministration is not underwriting any specific\nagreement.\nH.M.Jr:\nNow, if you (Latimer) want to include yourself\nin that - I mean I hate to wash dirty linen of\nthe Administration in public; I'd like to seem\nas nearly unanimous as possible.\nLatimer:\nWell, I made - I thought I made it clear Saturday\nmorning. If you notice, the Wall Street Journal\nyesterday called me up and I said there had been\nnothing written on the benefits and that there had\nbeen no agreement.\nAltmeyer:\nAre these bills broadcast now?\nLatimer:\nNo.\nAltmeyer:\nWell, how did the Wall Street Journal\nBell:\nTalks all the way through about a bill.\nLatimer:\nPardon?\nBell:\nThe article, I say, referred to a bill.\nH.M.Jr:\nWell, how would you put it if Mr. Gaston - what can\nMr. Gaston say for me?\nAltmeyer:\nThere's no question that we know nothing about the\ndetails of any specific proposals and can't underwrite\nany specific proposal.\nH.M.Jr:\nOf course.\nLatimer:\nI was wondering if somebody shouldn't communicate\ndirectly to persons who are responsible for both\nsides of the negotiations and have it made clear\nthat when these meetings were in progress there\nwere a great many details, and the whole principle,\nif you want to go that far\nMagill:\nIt's more than details. It's a five percent or a\nseven percent rate for the next twelve years, among\nother things.\nRegraded Uclassified\n189\n- 19 -\nBell:\nAnd a hundred million dollars.\nMagill:\nAnd a hundred million dollars due now.\nBell:\nIn '37.\nH.M.Jr:\nWell, I thought Mr. Altmeyer would come in and\nsay, of course, he knew all about this thing and\nthe Treasury, of course, Was just asleep at the\nswitch, seeing it was a railroad matter, but I\nfind - and I think I might say you're in the same\nboat we are.\nAltmeyer:\nWe know nothing about the details. In fact, I\ndidn't know the details had been agreed upon the\nday that\nLatimer:\nIt was only on Saturday a fternoon that I saw this\nstuff.\nH.M.Jr:\nYes, but this stuff is - I mean I've been around\ntown long enough; this is a matter of public rela-\ntions and that's why I've asked Mr. Gaston to come.\nYou fellows have seen fit to give it out to the\nnewspapers and they begin to work up this thing,\nand the more time they have the more backing they\nget, and they get all the railroad men all excited\nand then the Treasury is just a bunch of double-\ncrossers and we've locked this thing. And I -\nfrankly, I'm sick and tired of this and I'm not\ngoing to stand for it. I'm just not going to have\npeople in that position - that we are the people\nwho take the money out of the mouths of the\nrailroad men. I'm not going to stand for that\nsort of thing and have them all say, \"If it wasn't\nfor that god damn Treasury we wouldn't have to\npay five percent.\"\nOliphant:\nIsn't it fair to say that, beginning Saturday,\nas far as the negotiators know, all those documents\nwere in the possession of the Federal Government?\nAs far as the outside, they can't distinguish between\nthe Treasury and Railroad Retirement. As I under-\nstand, you (Latimer) had all these documents.\nLatimer:\nWell, I gave Mr. Magill 8 copy of the agreement the\nfirst day I had it.\nRegraded Uclassified\n170\n- 20 -\nMagill:\nI got it - Bell and I got it together Thursday\nafternoon.\nBell:\nFriday evening - no, Thursday evening.\nMagill:\nThursday evening.\nGaston:\nIt came to you, Mr. Latimer, as the Chairman of\nthe Railroad Retirement Board?\nLatimer:\nYes.\nGaston:\nYou still occupy that, do you?\nLatimer:\nYes.\nGaston:\nAnd what shall we say? How does it come - through\nnoticing the paper stories or through Mr. Latimer\nhaving brought it to the attention of the Treasury?\nH.M.Jr:\nHow about it, Ros?\nMagill:\nWell\nBell:\nI'd like to see it put on the railroads that they\nare the ones - that they are trying to work this up.\nMagill:\nI think that's really where it belongs.\nBell:\nNow the Government is just beginning to S tudy it.\nH.M.Jr:\nWell, the first it's come to our attention was yes-\nterday on the Dow-Jones ticker.\nGaston:\nAnd you got in touch with Mr. Latimer, who would\nnaturally be expected to know what's going on.\nH.M.Jr:\nNo, I got in touch with the President of the United\nStates and the President suggested we have this\nmeeting here this afternoon.\nGaston:\nShall we admit to them that we have some of these\ndocuments prepared, an outline of the plan?\nMagill:\nNo, the whole story is this. Let me tell it to you\nthis way. As far as this part is concerned, I called\nRegraded Iclassified\n171\n- 21 -\nMr. Latimer Thursday and inquired what had hap-\npened, because I had previously understood that\nthe Treasury was to be protected, that the Carriers\nTaxing Act which the President had signed on Saturday\nwas to be in effect at that rate from March 1, 1936;\nand we have in the budget 135 million dollars from\nthat source for the current year which I had under-\nstood we were going to get under the agreement.\nNow, Mr. Latimer said no, we weren't to get this,\nthat the railroad executives had decided they didn't\nwant to pay it after all, and so they had agreed\nwith the employees that they shouldn't.\nGaston:\nThat is a new Act that's just signed.\n(1.M.Jr:\nExtension.\nGaston:\nExtension of it.\nLatimer:\nAs they've now got it, it isn't even that.\nMagill:\nI may say parenthetically there is a nice question\nthere that you (Oliphant) may appreciate. If they\ngo repealing this old Act, putting in a new Act,\nI would like to bet a nickel that it will not be\neffective from January 1, 1937. Will you join me\nin another nickel?\nOliphant:\nI'll bet a dollar on it at least.\nMagill:\nI don't have any doubt it will be effective as of\nthe date it is passed.\nBell:\nAnd not retroactive?\nMagill:\nNo.\nBell:\nIt's an excise tax.\nMagill:\nWell, very doubtful.\nBell:\nIt could be made that.\nMagill:\nWell, anyway, Thursday afternoon Mr. Bell and I had\na conference with Mr. Latimer and our specific under-\nstanding was that we'd get a memorandum which would\noutline the details of this proposal, including the\nRegraded Uclassified\n172\n- 22 -\nactuarial computations, 50 that we could make our\nown study of it to see how we were going to come\nout on the thing. And we have discussed this\nafternoon about one or two of the questions of\npolicy; there are actually six involved in which\nwe are interested and which we wanted to go into.\nAnd it was understood that everybody would be\ninformed and that there was no commitment by any-\nbody, that it was still in the tentative stage.\nWell, there was a conference with the President\nFriday morning between railroads and the employees\nand Mr. Latimer, I guess it was.\nLatimer:\nAnd Mr. Altmeyer.\nMagill:\nAnd Mr. Altmeyer. And the next thing We know about\nit is this ticker report, which certainly gives\nthe impression that it is an accomplished fact\nthat it has Governmental endorsement.\nNow, we still don't have - we still have no memor-\nandum of the details of the plan, so we still are\nentirely unable to calculate now we would come out\nunder it.\nH.M.Jr:\nAnd you might add: and the Social Security Board\nis in the same boat. Right?\nAltmeyer:\nYes. Now, of course, I think\nMagill:\nOf course, one funny angle, if you want just a little\namusement out of it, is that the President has this\nconference on Friday with respect to this new plan\nand then on Saturday signs the extension of the\ntaxing act at the seven percent rate.\nCaston:\nThat's the old rate?\nVagill:\nYes. And SO under the existing law we are entitled\nto this 135 million, whatever it is.\nH.M.Jr:\nBut they are damn careful not to get out the publicity\nuntil after the President has signed it. Any signi-\nficance in that? They wait until afterwards.\nMagill:\nI don't know.\n173\n- 23 -\nGaston:\nAfter that conference - we are not in a position\nto say anything as to any commitment at that\nconference that the President had on Friday.\nMagill:\nExcept the fact is he didn't commit himself.\nH.M.Jr:\nThere were no commitments. Mr. Latimer said there\nwere no commitments made.\nAltmeyer:\nYes, there was a basic commitment made. No question\nabout it.\nBell:\nThat's what I'm afraid of, These railroad people\nwent out - away from the conference with the idea\nthat they had gotten something out of the President,\nand so it's not what you're going to say now but\nwhat you're going to say after the railroads and\nthe labor crowd have spoken to the newspapers.\nH.M.Jr:\nWell, somebody spoke yesterday.\nBell:\nNo, I mean if Gaston gives something out today,\nthey will interview Mr. Pelley and the unions and\nthey will take issue with you on your facts. Unless\nyou're pretty sure of what you're giving out today,\nthen you'll have to worry about what they're going\nto say.\nH.M.Jr:\nWell, before Herbert Gaston gives out anything, he's\ngoing to go over to see Steve Early and talk it\nover with nim first.\nOliphant:\nI think Mr. Altmeyer is discussing the heart of the\nthing. What was the commitment?\nAltmeyer:\nHere is what I consider to be the basic commitment.\nI am sure that Pelley and Harrison went away with\nthe understanding that the President was committed\nto a plan for extending the protection of the old\nage benefit provisions of the Social Security Act\nto the railroad industry, with the understanding,\nhowever, that any higher benefits that the railroad\nindustry desired to pay would be financed completely\nout of additional taxes than those provided in the\nSocial Security Act. Now, he isn't committed to any\nparticular way of bringing that about, but he is\ncommitted to that basic proposition.\nRegraded\n174\n- 24 -\nLatimer:\nYes; well, that's true. But he was committed to\nthat before he started negotiations.\nAltmeyer:\nWell, maybe so, I don't know sbout that. But I do\nknow that that - I got that as a result of the\nconference.\nLatimer:\nWell, that's true; that's nothing but what has been\nadmitted all the time.\nAltmeyer:\nNow, we're talking about publicity. If that is\ntrue, isn't the way to handle the publicity to indi-\ncate that the Government does look with favor upon a\nplan to extend the basic protection of the Social\nSecurity Act to the railroad industry, with the under-\nstanding that higher benefits will be financed out\nof additional taxes, but the Government at this time\nhas not had submitted to It the details of 8 plan\nto bring that about. Or put it the other way around:\nthe Government is not at this time prepared to under-\nwrite any particular plan.\nd.M.Jr:\nWell, if you don't mind, I'd put it a little differ-\nently. I would simply say that we met and that we\nfind that we have not yet got all the details of the\nplan, and that we will have to have several more\nmeetings; and that after we understand at lesst what\nthe three agencies are working for we are going to\nmake a report to the President as to how we look at\nit among ourselves, because the President - before\nwe did anything, before we came to any conclusion,\nhe wanted us to report back.\nAltmeyer:\nI think we've got to be careful in any statement we\nmake that we aren't putting the President in the\nposition of repudiating a commitment on a basic\nproposition. Otherwise, they'll get excited and\nthey'll say, \"Well, we understood this, and now\nH.M.Jr:\nWell then, all right, supposing we Just simply say\nthis. Just leave it that for the first time the\nTreasury is getting the plan.\nAltmeyer:\nWell, I'm perfectly willing to have Social Security\nincluded in that.\nH.M.Jr:\nWell then, Social Security. Or just put it that we\nRegraded\n175\n- 25 -\nare going into this problem and we'll have to have\nseveral more meetings.\nAltmeyer:\nThat's the most cautious way to handle it.\nH.M.Jr:\nWe'll just say we're going into this thing, we'll\nhave to have several more meetings, and then expect\nto report back to the President.\nOliphant:\nThat is, 1f you're going to\nH.M.Jr:\nSimply study this thing.\nOliphant:\nif you're going to avoid this saying that it\nhadn't been laid before you.\nH.M.Jr:\nWell, we've got to say the thing.\nOliphant:\nWell, my point is if you say that Mr. Pelley and\nthe railroads will say it was officially laid before\nthe Government - laid before the person handling it\nofficially for the President, before it was public.\nS.M.Jr:\nAll right, simply say that the three agencies are\nstudying this thing, will have to have several\nmeetings, and when we come to an understanding on\nthe thing we'll report to the President. How's that?\nAltmeyer:\nI think that is certainly cautious enough.\nMagill:\nI think in speaking of it, it might be a desirable\nthing to speak of it as a proposal of the railroads\nand their employees.\nGaston:\nI was going to suggest this: that Mr. Altmeyer and\nMr. Latimer came here to discuss with the Secretary\ntoday the proposals of the railroads and the railroad\nunions for revision of the law so far as they under-\nstand them; and there was some preliminary discussion;\nwe haven't yet full information as to their - the\nproposals which they would advance, and there will\nbe further discussion of them.\nLatimer:\nWell, it is important to look on these whole agree-\nments now as being in the nature of tentative\nagreements.\nMagill:\nYes.\nRegraded Uclassified\n- 26 -\n176\nGaston:\nYes, the tentative understanding or the tentative\nproposals. And the railroad unions\nLatimer:\ngo along with the present litigation. I know\nat leave five large railroads are saying, \"We take\nthe position, and have to take it, that we hold\nthe present legislation is unconstitutional and\nwe think we can defeat the whole legislation in the\nSupreme Court, and we're going ahead and continue\nour fight against it to throw the whole thing out.\"\nbell:\nIs that a club that they hold over the Administration\nto agree with these proposals?\nLatimer:\nIt is a fairly sizeable club.\nAltmeyer:\nCouldn't you send a telegram to Harrison and Pelley\nasking them to make it clear that it would - in these\ndiscussions next week that this particular plan\ndoes not have the Administration's blessing?\nEntimer:\nOf course, having done that,\nAltmeyer:\nI mean as a matter of record wouldn't it be a good\nidea to get it in the form of a telegram to them, so\nthey are on notice? Ask them to make it clear to\nthe conference that that is the case. I mean it\nwould come much more gracefully from them than for\nus to say something.\nLatimer:\nYou think we ought to do that?\nAltmeyer:\nWell, don't you think so?\nI think SO too. That would accomplish my whole pur-\npose. The thing we are worried about is the notice\nbeing out to the conference that the Government has\nagreed to this. Put now 1f Mr. Latimer sends out a\ntelegram like that, that would be perfect.\nThe other thing I was going to suggest is if you\nwould be willing to meet at a time agreeable - some\ntime with Mr. Magill and then go over this. I\nwon't sit in at the next one, but I think you ought\nto have another meeting tomorrow.\nOliphant:\nWhat should that telegram say?\nRegraded Iclassified\n177\n- 27 -\nMagill:\nBetter be about Thursday, see? If we get your\nmemorandum tomorrow morning and go over it, then\nBell and I ought to have a chance to look at it.\nH.H.Jr:\nMake it Thursday.\nLotimer:\nWell, I'm not going into great actuarial details,\nbecause that would require from now until next week.\nI am merely saying that it is based on the material\nBS collected over a period of ten years.\nAltmeyer:\nOf course, we have been talking some costs and so\non, but I think there's other things we have to\nconsider before we underwrite the thing.\nH.M.Jp:\nWell, I allowed an hour and if you don't mind -\nmaybe if you want to adjourn just scross the\nnext room, if you want to go any further today.\nAltmeyer:\nNo, I just wanted to mention that this\nH.M.Jr:\nWell, Magill said six or seven things and we only\nwent into one of them. I just would be curious\nwhat sort of telegram you'd send to them, but if\nyou don't mind, I'd like to be excused; I mean if\nyou\nLatimer:\nI thought we'd say something like this: \"Newspaper\nreports indicating Administration commitment to\ntentative agreement seem misleading. Important to\nmake clear to your principals that Administration\nnot committed beyond (1) Continued maintenance\nseparate Railroad Retirement Act; (2) Extension\nof provisions of Social Security Act to railroads.\"\nH.M.Jr:\nDo you think that covers it, Magill? Danny?\nBell:\nI can't swallow that. There's something wrong with\nthe basic idea, that's all. I just can't see a\ncommittee in Congress providing this money out of\nthe Social Security Act when the employees and the\nemployers of the railroads don't contribute anything\nto the tax in the way of taxes to the fund.\nH.M.Jr:\nWell now, look, would you mind working it out with\nthese people?\n178.\n28 # 1\nLatimer:\nI'll cut out Number Two.\nBell:\nIt isn't necessary to put Two in. I'd cut it out.\nLatimer:\nWell, the President has gone along, but\nAltmeyer:\nI really think that is over the dam now. From the\nstandpoint of public relations with the railroad\npeople, with labor and the executives, you might\njust as well face it now as later, because they're\ngoing to come back at you and call you names if you\nback up on Number Two.\nLatimer:\nI think we can persuade you.\nMagill:\nWell, I wonder if you have to say in your telegram\nwhat the Administration is committed to anyway. I\nthink that is not the most desirable thing.\nLatimer:\nWell, I think it is important not to sound like the\nAdministration is backing up completely.\nCuston:\nSomething like: \"In view of newspaper statements,\nI think it advisable to avoid advising your members\nthat the Administration is fully committed to details\nof any plan.\"\nBell:\nThe whole proposal.\nLatimer:\nI think it is other things rather than real details.\nOliphant:\nIt is much more than details.\nH.M.Jr:\nWhy don't you go into Magill's room?\n(Group retires to Mr.\nMagill's office, without\nSecretary)\nOliphant:\nI've got a basic difficulty here, Ros, and that\nis this thing: this bright red apple having been\ndangled in the morning papers before the rank and\nfile, that the damage has been done, and I - did\nyou get what I said there?\nMagill:\nNo.\nOliphant:\nI say this: in terms of the reality as to whether\nor not we do have to consider this, this bright red\nRegraded Uclassified\n179\n- 29 -\napple having been dangled in front of the rank\nand file of the employees in this morning's\npapers\nMagill:\nNot to mention the railroad stockholders.\nLatimer:\nThat's the worst part of it.\nBell:\nTheir earnings have gone up.\nOliphant:\nAnd I still say I think the important publicity\nis what you're going to say when Pelley and the\nunions come back at you. That's what we ought\nto be thinking about, because until we see the\nend of the road, we better not start down it.\nAltmeyer:\nAre you (Latimer) sure that less than seven\npercent is going to handle it? I think from a\npractical standpoint what the Government ought to\ntry to do is save the seven percent; never get\nany more, but\nLatimer:\nWell, see, at 7.13 the total - and it will cover it\nall right if they don't change it, but there's some\npoints in there where my feeling is that the strong\npressure is going to generally\nBell:\nThat makes it all the more important why we should\nget seven percent.\nLatimer:\nI agree with you you ought to get seven percent, but\nwe can't - of course, we can't predicate the cost\non something that Congress is going to do ten years\nfrom now,\nAltmeyer:\nBut now is the time to do the bangaining, not after\nWe are going on it, and with a year and a half gone.\nAnd you remember Harrison mentioned at the President's\nconference - he said, \"We told you at that time, Mr.\nPresident, that if we needed more taxes to support these\nbenefits, we'd go along with increased taxes, or we'd\neven reduce the balance.\"\nLatimer:\nI'll say this for Harrison. Harrison did try his\nbest to keep the taxes at the seven percent level.\nBell:\nWho's Harrison?\n180\n30 I I\nLatimer:\nHe's the railroad man, the labor man. He was in\nfavor of it; never in favor of cutting taxes under\nseven percent. Reason was they wanted more bene-\nfits. But the railroads put it over on them the\nlast few days. I don't remember what day it was,\nbut I think until last Thursday we had not supplied\na single cost figure other than one based on seven\npercent - that is, on one less than seven percent;\nand some on E basis of making it nine and beginning\nafter March 1, 1936.\nOliphant:\nWell, I'd like, Ros, to think - well, just to follow\nthrough a little bit in terms of not merely the\npresent publicity but what the Secretary will be\nin a position of saying or having to say or having\nto deny or having to take back after the Brotherhoods\nand the Executives have had their say. Will they be\nin a position to say that it is wrong, that this\nagreement was reached, it was laid before the man\nhandling it for the President, laid before the\nTreasury, and it was not public until after that\nwas done? For instance, I'd like to know were they\nadvised of your (Latimer) conferences with us? I\ndon't want the Secretary to say\nAltmeyer:\nThe last word that we got in the President's office\nwas there would be no publicity on it.\nLatimer:\nThey asked for it.\nGaston:\nThe last word was that there would be no publicity?\nAltmeyer:\nThat's right.\nOliphant:\nI'd like to clear up the fact whether or not the\nconferees were advised of your conferences with us.\nLatimer:\nNot the conferees as & whole. But I did, as I say,\nbefore take Harrison and Pelley aside and say that\nthe Treasury\nOliphant:\nThat you'd laid it before\nLatimer:\nwould have to be brought in to review this whole\nthing at some stage. I told him as a matter of fact\nthat at the stage where it got before the Committee on\nWays and Means and the Finance Committee, they would\nsend it down to you, and therefore they could expect\n181\n- 31 -\nthat some changes would be made at your suggestion.\nI thought that was\nMagill:\nWell, did they have the idea whenever they broke up\ntheir negotiations that the Treasury had seen this\nplan and approved?\nLatimer:\nNo.\nOliphant:\nI don't mean the details.\nLatimer:\nAs far as they knew, the Treasury has not seen it.\nMegill:\nDidn't know anything about it?\nOliphant:\nThat is, they don't know of your conferences with us?\nLatimer:\nWell yes, Harrison and Pelley do, because it was\nstated before the President and it was stated to\nthem in private that you hadn't committed your-\nselves; but whether - you see, I'm not a part of\nthe general conference and most of the conference\nwas going on between the main committees. I was\nnot present, so I can't vouch for what was said\nwhen I wasn't there.\nMagill:\nBut at any rate, there was nothing said to Pelley\nor Harrison which would give either of them to under-\nstand that we had gone over this and approved it.\nLatimer:\nNo, quite to the contrary.\nAltmeyer:\nWell, I don't understand, I mentioned to you (Latimer)\non the way out - I said, \"is this going to go over\nto the Bureau of the Budget and the Treasury?\" and you\nsaid, \"Of course, it will have to clear that way.\"\nNow, my understanding was that you were going to send\nit over.\nLatimer:\nWell, I didn't tell them that I was, because I knew\nthat as far as they were concerned\nAltmeyer:\nI still can't understand why it was to be handled\nwith private individuals introducing bills into\nCongress and then to come that way back here to\nthe Administration and then the President to write\na letter underwriting the bill. It seems to me...\nLatimer:\nThat was nis own proposal.\n182\n32 I I\nAltmeyer:\nI know, but I can't understand why it would be\nhandled that way, because it was bound to - there\nwas bound to be something handed up here that\nwould put you on the spot.\nLatimer:\nWell, that's the way - they asked him what he\nwanted to do and that's the way he said he wanted\nto handle it.\nOliphant:\nIn their comeback on this, would they be in a\nposition to say they were relying on you (Latimer)\nto clear this with the Treasury and the Budget\nBureau?\nLatimer:\n(Nods no)\nBell:\nWhat worries me about it is that - what you (Latimer)\nsay, that the President told them to go ahead and\nsubmit these bills, didn't he, to the Committees,\nthen he would write letters to the Committees, and\nhe didn't want to send any bill up with a message.\nLatimer:\nThat's right.\nBell:\nBut they were to - somebody, I don't know whether\nthey or Mr. Latimer, were to send bills to the\nChairmen of the Committees in Congress.\nLatimer:\nNo, we weren't.\nBell:\nWell, I don't know. I got word that it was to go\nto Congress, then the President was to write a\nletter to the Chairmen of the proper Committees\nendorsing whatever program they laid down. That\nis what worries me.\nGaston:\nThat is, your understanding was it would go up not\nas a reilroad conference proposal but it would go\nup as sort of an Administration proposal.\nBell:\nNo, I don't know who that was stated that. I just\nthought that Mr. Latimer - I didn't know whether\nhe was to handle the bills to the Chairmen of the\ntwo Committees or whether the railroad people were\nto do that. But I got the impression that the\nPresident said the bills could go directly to the\nCommittees and that he would write a letter after\n183\n- 33 -\nthey were introduced. Is that\nAltmeyer:\nThat's right.\nGaston:\nWell, of course, if they were to go to a Committee,\nthey would have to come from some government depart-\nment.\nLatimer:\nNo, they were to be introduced by Congressman Crosser\nin the House.\nBell:\nI see:\nLatimer:\nI don't think they mentioned who it was in the Senate,\ndid they?\nBell:\nSee, they just hand these bills informally to some\nCongressman or Senator and they introduce them.\nGaston:\nThe Brotherhood?\nBell:\nWell, I didn't get who was to do it; that wasn't\nclear.\nMagill:\nWhat did they propose to do? I don't know that we\ncan - did they propose to introduce a new taxing\nact and a new railroad retirement?\nLatimer:\nYes, in that agreement.\nMagill:\nI don't think it says.\nLatimer:\nIt doesn't? Well, they have. Have you (Altmeyer)\ngot that?\n(Altmeyer hands Latimer\nrequested papers)\nIt's really a new bill, I should say.\nBell:\nWhat does this new bill propose to do, combine both\nthe benefits and the tax in one bill or separate\nbills?\nLatimer:\nSeparate bills.\n....\"that it shall be amended to include\n\"\nMagill:\nRegraded Uclassified\n184\n- 34 -\nLatimer:\nI haven't read this myself.\nCaston:\nI told these newspapermen out here that you gentlemen\nhad been here with the Secretary in order to learn\nwhat you knew of these tentative proposals of the\nconference of railroads and Brotherhoods, because\nit was a matter of such great importance from the\ntax and budget standpoint that the Treasury wanted\nto get the latest information. And they wanted to\nknow what Mr. Altmeyer was - why Mr. Altmeyer was\nhere. Well, I said that this railroad matter is &\nmatter so closely allied to the matters under the\njurisdiction of the Social Security Board that\nnaturally Mr. Altmeyer's advice would be sought.\nI don't think there is anything dangerous in any\nof that.\nAltmeyer:\nNo.\nMagill:\nWell, your (Gaston) statement pretty well covers\nthe situation.\nGaston:\nThey also asked me specifically whether this new\nplan was to bring the railroad employees in under\nthe general provisions of the Social Security Act,\nand I told them I didn't know. Or they asked me,\nrather, whether they would be brought in, and I\nsaid that I could with good conscience answer them\nthat I didn't know, and that I also didn't know what\nthe outcome of the President's general reorganization\nplan would be if it went through - it might affect\nthe situation.\nLatimer:\nEven if that second thing were put in (referring to\nproposed telegram), it would raise so much - take\nfrom now until doomsday to answer all the questions\nabout it.\nBell:\nWhat have you got there?\nLatimer:\n\"Reports in today's press intimating complete Admin-\nistration commitment to tentative agreement are dis-\nturbing to those involved. Stop. Urge that it be\nmade clear that commitment thus fer made relates only And\nto special railroad retirement legislation\nI don't know what to do about that Two.\nGaston:\nI should not attempt to be explicit about what the\n185\n- 35 -\ncommitment is at all. That sort of advice will\nhave to come from the White House.\nLatimer:\nWell, how would you put it?\nMagill:\nwould you say something of this kind, that \"In view\nof newspaper publicity regarding tentative agreement\nbetween carriers and their employees, request that\nyou make it clear to your respective organizations\n=\nGaston:\n\"I think it important that it should be made\nclear to your respective organizations\n\"\nMagill:\n\"that the\n\"\n- what I am going to say is that\nthe \"blank\" is still subject to examination and\napproval by the Treasury and the Social Security\nBoard, or something of that sort.\nLatimer:\nWell, that is - that would be very much more upsetting\nthan this. I mean they will\nAltmeyer:\nWell, could you say this: that you think it important\nto make clear that there has been no commitment - or\nwhatever word you want to use - concerning any specific\nproposal? That's the fact, isn't it? You don't have\nto say what there has been commitment to. You can\nmerely say there's been no commitment to any specific\nproposal or to the\nBell:\nto the proposal in its entirety, or something\nlike that. Could you say to the proposal in its\nentirety?\nAltmeyer:\nAnd leave the implication that part of it has been\nagreed to?\nGaston:\nI think that's about the way to say it: that there\nhas not been a commitment to any specific proposals.\nWhat do you (Magill) think?\nMagill:\nWell, that's what I'd like to say. The only question\nI'm raising is Mr. Latimer's question of what the\neffect is going to be.\nBell:\nWhy couldn't you make it singular - \"specific\nproposal\" - which would take in the whole thing?\n\"no commitment by Administration\n\"\nLatimer:\nRegraded\n186\n- 36 -\nAltweyer:\nWhat I'm not clear about is just what was going to\nhappen after the conference with the President. What\nwere they to go to their principals about?\nLatimer:\nWell, they wanted to know how far, assuming that\nthey could - as I understand it, they had discussed\nat some length whether they should take the plan\nthat they agreed upon among themselves and go back\nto the railroads and labor organizations and after\nthat was done then come to the President and say,\n\"We'd like to get this\" and see what he said after\nthat, or whether - and then they said, \"No, we don't\nwant to do that, because we don't even know whether\nthe President wants any of this or not. Will he -\ndoes he even favor the general idea of it?\" They\nsaid, \"We'd like to get some commitment out of nim\non that - that he does favor it - the maintenance\nof a special rule in the system. And we can go back\nto our principals and say that he does favor that.\"\nNow, that's why they went to the President. Of\ncourse, it is obvious that they wanted a lot more.\nAltmeyer:\nHow long was this pledge of secrecy to last - until\nup to the time that they met with their principals?\nLatimer:\nI understood it was to last until they\nRemember\nhe said that as soon as they had a meeting with\nthe principals - that after they notified each\nother that they were in agreement, he wanted a\nreport from them. I would say it was to last up\nuntil that time.\nAltmeyer:\nWell, I think probably sending a telegram like that\nwould - if they weren't supposed to even discuss\nthe conference with the President, I think perhaps\nthey ought to be reminded of that fact, reminded\nthat it was to be kept confidential.\nLatimer:\nDon't know what good that would do. They'll all\nswear they don't know a thing about it.\nCaston:\nThe further we get, I think any telegram sent ought\nto be approved over at the White House by McIntyre\nor Early.\nBell:\nYes, I'm inclined to agree. The more we discuss it\nthe more I'm convinced that\n187\n- 37 -\nGaston:\nThe point is we don't know how far the President\nfeels that he is committed on this thing.\nBell:\nWell, the President did say to the Secretary that\nhe isn't committed. But just the statement you\nmake, that these people couldn't go to their\nprincipals and discuss this matter until they found\nout how the President stood on it, convinces me\nthat they have gone away with the understanding\nthat the President is pretty well committed to it.\nLatimer:\nWell, how could they go away with such an impression\nwhen the President didn't know anything about\nBell:\nWell, Mr. Latimer, when I - I don't know, when you\ndeal with the President a couple years And I\nthink you have to find out how he deals with people.\nNow, he doesn't go into the details, but I think\nthat there are times when he does give a definite\nimpression of approving matters, and I think a\nstranger might very well go out of that room plenty\nof times and think that they have the full approval\nof the President. I've seen it happen many a time.\nLatimer:\nYes, I know; after it's been put up to him\nNow,\nI started to go into some of the details of the thing\nand the President didn't want to listen to details.\nHe didn't want to go into it. But he gave me the\nvery impression that he didn't want to commit himself\nbecause he didn't want to hear the details.\nGaston:\nWell, obviously I should think that the President\ndidn't want to take a verbal statement of the\ndetails and give an approval on that statement. He\nmight say, \"I'm in accord with certain general ideas\non this thing, but before it got down to signing\non the dotted line he wanted to see in black and\nwhite just what he's underwriting.\nLatimer:\nWell, that's perfectly true, but he didn't want\nany of that on Friday.\nAltmeyer:\nHe's not committed to any specific proposal, I'm sure,\nand I'm sure they don't have that opinion either.\nLatimer:\nI think this publicity is an attempt to drive it\nhome.\nRegraded Uclassified\n188\n- 38 -\nBell:\nThat's probably right.\nGaston:\nNo question about it. It's coercing publicity.\nAltmeyer:\nI said - didn't you (Latimer) hear me say there\nought to be conferences on this? And then we started\ntalking about something else. I knew darn well that\nthere was going to be a gap between the general\ncommitment of the President to the idea and the\nspecific proposal that they were talking about send-\ning up to the Hill. I was confident that there would\nbe a gap there.\nLatimer:\nWell, here's what we have: \"In view of premature\nnewspaper publicity regarding tentative agreement\nbetween carriers and\nft\nAltmeyer:\nDon't put \"premature.\" Just \"In view of the news-\npaper publicity.\" \"Premature\" indicates there is\nsomething coming along.\nMagill:\nO.K., that \"premature\" is mine; take it out.\nCaston:\nI'd say that was premature; go ahead.\nLatimer:\n\"In view of newspaper publicity regarding tentative\nagreement between carriers and their employees, think\nit should be made clear to your respective principals\nthat there has been no commitment by Administration\nregarding specific proposals.\"\nGaston:\nI would say O.K. when it has White House approval.\nBell:\nHow do you feel about it, Mr. Latimer?\nLatimer:\nWell, I think it would - after they get this, they'11\nhave me on the long distance wondering what the hell\nthis means.\nGaston:\nWell, that ought to be pretty easy to explain, I\nshould think. There was a discussion of general\nprinciples over there and an agreement that there\nwould be no publicity. Out comes in the newspapers\na detailed plan with the implication that the Admin-\nistration has agreed to all this and that the rail-\nroads are going to save a great many million dollars\nthis year in taxes.\nCOPY\n189\nRAILROAD RETIREMENT BOARD\nWashington\nMurray W. Latimer\nFeb. 9, 1937\nChairman\nThe Honorable John G. Winent, Chairman\nSocial Security Board\nWashington, D. C.\nDear Mr. Winants\nOn December 28, 1936, the President addressed a letter to representa-\ntives of the railroad managements and railway labor organizations uring\nupon them \"the desirability of 8. conference to consider the retire-\nsent problem and attempt to find a satisfactory solution.\" He suggested\nthat the conference formulate joint recommendations for the benefit of\nCongress.\nIn accordance with this suggestion, a series of conferences has been\nheld in Washington. At the direction of the President, this Board has\nplaced its information and technical facilities at the disposal of the\nconference and has made estimates of the cost of various retirement plans\nwhich have been under discussion by the conferees.\nThe calculation of costs has raised a question having to do with the\ngeneral policy underlying the formulation of social security measures!\nshall & railread retirement system be regarded as an independent plan having\nno relation to other similar neasures instituted by the Federal Government\nor shall it be regarded as a combination of the general old age benefit\nsystem with & structure of additional benefits and financial support super-\nimposed thereon.\nThe practical bearing of the question on the problem under dis-\ncussion can be made clear by & recital of certain facts.\nAt the moment of its enactment, the old age benefit system created\nby the Social Security Act embraced reilway employment. Certain taxes\nwere levied which, it was estimated, would reimburse the government for\nthe expenditures made under the old age benefit system.\nA few weeks later Congress enacted legislation which excluded en-\nployment on railroads and closely allied organisations from the definition\nSocial Security Act which levied taxes on wages received and paid in cor-\nof employment of the old age benefit system and of Title VIII of the\nresponding employments. As & result of that action, according to calcula=\n- 2 -\n198\ntions made by our actuarial staff, benefits payable under Title II were\nreduced by an amount greater than the reduction of texes under Title VIII.\nWe have made various measurements of the benefits end taxes under\nTitles II end VIII. Calculations my be made in terms of present values\nor of annual amounts of differentials between total benefits and the 80-\ncalled \"earned\" portion. For present employes, these differentials,\nassuming retirement atage 65, have B present value, 0.8 of today, of the\norder of $650,000,000 and an aggregate, without allowance for time of\npayment, of upwerds of two billions. For an average retirement ege of\n67% the present value of the differential will be about $350,000,000\nand the actual gross excess will exceed one billion. These differentials\nexist generally in the early years of operation of the old age benefit\nsystem; but they are offset by later increased financial provision.\nBy reason of the relatively advanced ages of railroad employes\nGB compared with those employments covered by the old age benefit system,\nboth for present employes and now entrants, the differentials for railroad\nemployment would be to a large degree permanent.\nThe question therefore, in more specific form, is this: in the\ncalculation of costs must we regard the reilroad retirement system O.B.\nan entity in itself, or can the costs be regarded as having been provided\nfor if the financial provision in the retirement act is such that the\ngovernment books are in the same state of belance for the combination\nof old age benefit and railroad retirement systems as they would be were\nrailroad employment embraced in the former system.\nIf, in your judgment, the second of these alternatives constitutes\nthe proper policy, we raise the further question as to whether you would\nfavor the edoption of 8 formula by which the differentials would be\nactually placed in a reilroad retirement account currently or whether the\ngovernment, on a showing 6.5 to the existance of balance between expenditure\nand financial support, taking both systems into account, should merely under-\nwrite the payment of benefits, leaving to later determinetion, in the light\nof subsequent developments, the specific form and method of providing\nfinancial recognition of the differentials. The financial provision\ncontemplated for the reilroad retirement system will, taking no account\nof financial recognition of the differentiale, support the proposed\nsystem, including expenses of administration, during the next generation.\nSince the recommendations of the conference will undoubtedly be re-\nferred to you for scrutiny 85 to conformity with general social security\npolicy, I suggest that it would be appropriate for you to make known your\nviews to the conferees in order that they may be governed thereby.\nYours very truly,\nMURRAY W. LATINER\nCopies tor\nJ. J. Pelley, President\nAmerican Association of Railroads,\nMr. George K. Harrison, Chairman\nReilway Labor Executives' Association\nRegraded Uclassified\nCOPY\nWAS\n189\n191\nFebruary 10, 1937\nMr. Murray W. Latimer,\nChairman,\nRailroad Retirement Board,\nWashington, D. c.\nDear Mr. Latimer:\nThis will acknowledge your letter of February 9 asking for the\nopinion of this Board as to certain matters of general social security\npolicy. Since similar questions are likely to be raised from time to\ntime in other connections & statement of the general principles on\nwhich our answers are based is appropriate.\nWe regard the old age benefit system created by the Social\nSecurity Act as the necessary basis of all programs for old age security\nwithin the range of its inttial coverage. We have not and do not favor\nexclusion from coverage based on any action in the field undertaken\nvoluntarily by a single employer or & group of employers, although we\nbelieve voluntary benefits provided to supplement the old age benefit\npayments are worthy of encouragement.\nUnder certain circumstances, - believe a federal system created\nby legislation apart from the general old age benefit system would be\nwarranted. To be justified the following conditions should be present:\n1. The industry should be one affected by & national public\ninterest, and one to which normally federal legislation and regulation\napply;\n2. The old age retirement system should provide larger aggregate\nbenefits than those of the general old age benefit system and no indi-\nvidual employee should be worse off by reason of being covered by the\nspecial system rather than by the general old age benefit system;\n3. The machinery for administration of the system should be\nBO organized as to operate with narimum effectiveness in conformity with\npolicies adopted by Congress for administrative management.\n4. The creation of a separate system should in no way adversely\naffect the financial support of the general old age benefit program.\nRegraded Uclassified\n-2-\nMr. Murray 1. Letimer - 2/10/37\n192.\nA special railroad retirement system created by Congress\nwould, of course, meet the first of these conditions. We understand\nfrom your letter that the proposed railroad retirement system meets\nthe second condition. The application of the third principle will\nbe dependent upon congressional policies now in the process of formu-\nIntion.\nThe fourth principle furnishes the enswer to the first of your\nspecific questions; provision of ad old age retirement system for any\nspecific group is to be regarded as composed of the general old age\nbenefit system, with its correlative financial support, with super-\nimposed structure of benefits and a corresponding means of providing\nfor them. In other words, the creation of the special system should\nnot affect the balance between income nd outgo which would exist\nwithout it. Creation of a separate reflroad retirement system has\nnot, of course, adversely effected this balance, but in other cases\nthis would not be true and it is important to establish 3. precedent\nhere BO that the acceptance of the principle may be assured.\nÀB to the second question: it seems to us unwise to formulate\nat this time any rule for the purpose of including currently in the\nrailroad fund the differentials referred to by you. It sppears more\nappropriate for the government to agree to underwrite the benefits\non a showing by you of the existence of the general balance. This\nview is based on several considerations. First, the Social Security\nAct is still in a developmental stage; doubtless changes will from\ntime to time be found desirable. Changes affecting the old age\nbenefit system will produce corresponding changes in the differential,\nand eny measurements now made would require revision. Second, changes\nin conditions asy require modification of reserve policy and the\ngovernment should, in this respect, be left free to work out that\nproblem without unnecessary restriction. Third, current financial\nrecognition of the differential is not needed to support the benefits\nfor many years; and, the ssurance of old ge security for the employees\naffected is in no way diminished by leaving the government free to\ndetermine its financial policy in this respect 68 conditions may\nfrom time to time indicate.\nIn accordance with your suggestion I all sending a copy of\nthis letter to Mr. J. J. Pelley, President, American Association of\nRailroads, and Mr. George M. Harrison, Chairman, Railway Labor\nExecutives' Association.\nSincerely,\nChairman\njap*\n-3-\nMr. Murray W. Latimer - 2/10/37\n193\nCopies to:\nMr. J. J. Pelley, President\nAssociation of American Railroads.\nMr. George M. Harrison, Chairman,\nRailway Labor Executives' Association.\nRegraded\nUclassified\n194\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, paris, France\nDATE: March 2, 1937, 1 p.m.\nNO.: 292\nCONFIDENTIAL.\nA reliable newspaper correspondent has told me that\nhe had just seen Blum and that the latter authorized him\nto publish a statement to the effect that a decision\nagainst exchange control had been made by the French Gov-\nernment. According to my informant, Blum said that\nthe financial and monetary difficulties of the Govern-\nment would be solved by exchange control and the majority\nwould receive it with satisfaction, but there was one\ncontrolling reason for deciding against it - i.e., it\nwould run counter to the declaration of policy under the\nTripartite Agreement, and that the United States and England\nwould look upon it with disfavor. Therefore the French\nGovernment would not institute exchange control, and for\nthis reason only.\nIn addition Blum told my informant that the question\nof the modification of existing tariffs and quotas was\nbeing studied by Professor Rist. He said the study would\nbe submitted to Parliament for appropriate action as soon\nB.B it is completed.\nThe above account throws light upon an inspired\nstatement published in the AGENCE ECONOMIQUE ET FINANCIERE\nRegraded Uclassified\n195\n- 8 &\nthis morning to the effect that the French Government\nintended to stand by the monetary and economic policy\nset out in the Tripartite Agreement, and that the French\nGovernment did not intend to make a change in this respect.\nWILSON.\nEA:LWW\n03V13033\nDECEIAED\nREPAM\nTRA SSSS\nTASHING STUDENT\nAV. in 13 solid\nW et with\n,\nAND - ti - and\n136\nMarch 2, 1937\nMr. Mallet came in to see the Secretary today at\n4:30. Mr. Lochhead was also present,\nThe following is stenographic report of their\nmeeting:\nMr. Mallet: I am afraid our poor friend Trentham\nis still laid up with the flu. He asked me to bring\nthis message down to you that he just got this afternoon\nfrom the Chancellor of the Exchequer. (Copy is attached.)\nHM,Jr: Let me read this out loud.\n\"Please thank Mr. Morgenthau for his\nmessage and assure him that I fully\nshare his desire that we should con-\ntinue to keep in closest touch about\nthe French situation.\nAs stated in Chancellor of the Ex-\nchequer's message to Mr. Morgenthau\nFebruary 10th His Majesty's Government\nurged the French Government to take\nspeedily most vigorous action to restore\nconfidence. French Ministers in their\nreply stated that the French Government\nwere firmly refusing to impose exchange\ncontrol and that measures which they had\nunder consideration included free move-\nment of gold, a pause in increase of ex-\npenditure, use of a more elastic tech-\nnique by French equalisation fund to\ndefeat speculation, limitation of rise\nin prices and reduction of customs\ntariffs and abolition or limitation of\nquota restrictions.\"\nI want to ask you (to Mr. Lochhead) a question I\nhave meant to ask you before. When the French devalued\nthe last time, did they seize all the gold or didn't they?\nMr. Lochhead: They technically declared that they\nwere going to take it over, but they never got it.\n197\n-2-\nHM,Jr: They have never taken it?\nMr. Lochhead: No. They have taken no actual\nphysical steps. They said gold should be turned in,\nbut they never put up any restrictions or exacted any\npenalties.\nHM,Jr: They never went through with it?\nMr. Lochhead: That's right. They never went\nthrough with it. They modified it after they said\nthey had to turn over all the gold. Then they said,\nTurn over the gold and we will give you certificates\nfor which you will get bonds and they paid a premium\non that, but even that has not drawn out much gold.\nHM,Jr: But they never went out and took the gold.\nMr. Lochhead; No; never went out and seized the\nthe gold.\nMr. Mallet: Didn't they put a penalty on gold\nbeing brought back by the French?\nMr. Lochnead: The idea was to turn the gold in,\nget a certificate on which you could get a premium, but\nnobody has paid any attention to it. Just like collect-\ning taxes -- nobody paid any attention to it.\nHM,Jr: (Resuming reading.)\n\"His Majesty's Government regard (1) a\nfree gold market combined with (2) B. more\nelastic technique in employment of French\nequalisation fund as of special importance.\nAs regards (1) foreign exchange should be\nin our view treated on the same footing as\ngold, and capital should be free to return\nto France without penalty or hindrance.\"\nMr. Lochhead: In other words, the French should be\nable to bring back exchange they have abroad without pay-\ning a penalty on 1t.\n198\n-3-\nHM,Jr: (resuming reading.)\n\"As regards (2) it was explained that\nour experience suggests that 80 long as\nrate of franc 16 rigidly pegged specu-\nlators for & fall can operate at small\nexpense in hope of making a profit with-\nout incurring a loss. His Majesty's\nGovernment stated that they would be\nquite willing for their part if it were\ndesired by French Government and should\nUnited States Government concur to state\nthat it was with full concurrence of His\nMajesty's Government that French Govern-\nment intended in present circumstances to\nmake use of liberty given by existing\nFrench law to very value of franc from\ntime to time.\"\nHM,Jr: When he talks about varying the value of\nthe franc, he means\nMr. Lochhead: They paid at the middle rate and\nkeep it at the middle rate with the right to devalue\nHM,Jr: He says something later on about the 8%.\n(Resuming reading)\n\"I had expected to receive a further\ncommunication from French Government at\nthe beginning of last week and was wait-\ning for this before sending a message to\nMr. Morgenthau. But I now learn that\nFrench Government postponed any decision\nuntil after debate in chamber on Friday\nlast and that I cannot expect any further\ncommunication for a day or two.\"\n\"His Majesty's Government agree with\nthe UnitedStates Government that 8. further\ndepreciation of the franc by not more than\neight per cent would in present circum-\nstances not be open to objection but as\nexplained above they consider that in\n199\n-4-\n\"order to restore confidence free movement\nof gold at its full value should be per-\nmitted and that the franc should then be\nallowed to vary within limite fixed by\nFrench monetary law. They would be very\nglad to learn if the United States Govern-\nment agree in this view.\"\nHM,Jr: I just can't answer that today.\nMr. Mallet: No; quite.\nHM,Jr: (Resuming reading)\n\"Generally speaking His Majesty's Gov-\nernment feel that situation depends on\ninternal measures to be taken by the\nFrench Government who have already been\ninformed that His Majesty's Government\nin the United Kingdom have no statutory\npower even if they were willing to take\npart in a modified pooling of stabiliza-\ntion fund resources as seemed at one time\nto be suggested.\"\nI can say that that has never been suggested to us --\nthat we pool our resources.\nMr. Mallet: I suppose the French must have suggested\nthat.\nHM,Jr: To the British, but it was never suggested\nto me.\nThat's a new one. Am I right (to Lochhead)\nMr. Lochhead: Absolutely.\nHM,Jr: They have made other suggestions, but not\nthat.\n(Resuming Reading)\n\"But I would like Mr. Morgenthau to\nknow that in my personal opinion there\nnow remains little hope of avoiding a\nbreakdown of monetary agreement due to\n200\n-5-\n\"exhaustion, perhaps in the course of\nthis week, of recent London credit.\nI agree with Mr. Morgenthau in think-\n1ng that there is nothing which the\nUnited States Government and His\nMajesty's Government can do to help\nthe situation though of course I should\nbe glad to consider any suggestion of\naction which might be taken in concert\nto prevent breakdown.\"\nHM,Jr: Well, I will Just have to digest this. I\nappreciate this very much and appreciate the importance.\nAll I may say is that Mr. Chamberlain is even more pessi-\nmistic than I am. I gave the French Government two weeks.\nMr. Mallet: To exhaust that fund?\nHM,Jr: I gave them two weeks.\nMr. Mallet: And he is giving them this week.\nHM,Jr: We gave them two. Not to be too harsh, I\ntold Mr. Bonnet yesterday the month of March. I didn't\nwant to be too harsh.\nMr. Mallet: Yes. Did Mr. Bonnet have anything to\nsuggest?\nHM,Jr: Nothing! He brought, as far as I am con-\ncerned, nothing. Nothing. Of course, the only think\nthat this does not answer (and I don't know that there 18\nany answer) and that is, I suppose -- if the French this\nweek, or next week, or the week after, should collapse,\njust how your Government and ours would handle the situa-\ntion. I don't know and I don't suppose either of us\nknows. And that was the question that I asked your\nAmbassador to ask Mr. Chamberlain and I suppose, pending\nthe actual breakdown, I suppose we don't know how to face\nthe situation.\nMr. Mallet: Depends on how the breakdown occurs.\nwouldn't it? If the French should, as a last resort,\nsuddenly try to impose restrictions of some sort\n201\n-6-\nHM,Jr: Well, of course, you know what happened\nthe last time -- actually it was from Thursday noon to\nFriday midnight that we put that agreement through.\nMr. Mallet: Yes.\nHM,Jr: People with experience with them before\ndo say they never do anything until they are on the\nbrink of the precipice.\nMr. Mallet: It looks like that now, because they\nhave kept the Chancellor waiting for four or five days.\nMr Lochhead: I imagine they would notify us as\nparties of the agreement if they took another step, but\nI also imagine they would notify you on Friday if they\nwere not able to operate on the next day.\nMr. Mallet: Wait until the last moment.\nMr. Lochhead: Yes; wait until the last moment, and\nI imagine they will carry out the letter of the agreement\nby notifying us or consulting with us, but I am afraid it\nwill be too late. We will have to have very quick action\nbetween the British and ourselves.\nHM,Jr: Let's say that Mr. Chamberlain is right.\nLet's say it is this week. I can't -- I can just -- I\nen in complete accord with him that it is an internal\nFrench matter that the French can only cure themselves.\nI am in accord with that.\nMr. Mallet: Yes.\nHM,Jr: I am in complete accord with Mr. Chamberlain\nthat this is an internal French matter and certainly there\nis nothing that I can say that we could do from this side\nto help them in their present dilemma. Where I differed\nfrom Mr. Chamberlain, I was giving them two weeks.\nMr. Hallet: Uh-nuh.\nHM,Jr: Now as to this question of free gold movement,\nI would like to think about that. I realize he is asking\nme a direct question. I could not just\n202\n-7-\nMr. Mallet: No. No.\nHM,Jr: But the important things are (1) he says,\nand I have said in my message, that we are both in agree-\nment that if the French want to devalue another 8 percent ...\nMr. Mallet: You have said that already, of course.\nHM,Jr: We are in agreement on that.\nMr. Mallet: It. would not do any harm to tell him\nagain.\nHM,Jr: No. I am thinking out loud. Now this\nother thing -- the question of free gold movement; frankly\nI have been sort of thinking in the other direction -- that\nthe French should more nearly follow our pattern and they\nshould 80 through with the thing and seize the gold. It's\nall right to say that, if you wish to; that I have been\nthinking more or less in the opposite way and if I had to\nprescribe, I want Mr. Chamberlain to get this. (To Mr.\nLochhead: Is that all right? Mr. Lochhead: Yes. HM,Jr;\nI thought you were shaking your head because you disagreed\nwith me. Mr. Lochhead: No.)\nHM,Jr: I was thinking this way more that the French\nshould have done what we did; that is, seize all the gold.\nMr. Mallet: Yes.\nHM,Jr: And then permit gold to move freely 8.6 be-\ntween Governments, just the way we do now. You,see?\nMr. Mallet: Yes.\nHM,Jr: But whether it's too late for them to carry\nout that program now, I don't know.\nMr. Mallet: Yes. On that point you reflect more --\nyou have been thinking in the other way, but you are still\nconsidering the question of his suggestion of free gold.\nHM,Jr: Inasmuch as he raises the point to my mind.\nBut I had been running in the opposite direction.\n203\n-8-\nMr. Mallet: Yes; quite.\nHM,Jr: Why didn't the French go through with the\nprogram and seize all gold?\nMr. Mallet: Yes.\nHM.Jr: You see?\nMr. Mallet: In September last.\nHM,Jr: Yes, when they made the declaration\nHr. Mallet: Would that not have run counter to the\nidea at the time of freeing trade barriers?\nHM,Jr: No. That was purely internal.\nMr. Mallet: Yes, internal.\nHM,Jr: But I don't think at this particular stage\nthat it's very important. I think it's too late. But\nmy mind has been running in the opposite way. I have\nkept saying to myself, Why don't the French go through\nwith this thing and take all the gold just the way we did?\nMr. Mallet: Yes. What was the question that you\nsaid that you had mentioned to the Ambassador and that\nthis does not answer?\nHM,Jr: Oh! The only question I mentioned to the\nAmbassador (and there may be no answer) -- What can the\nBritish Government and the United States Government do\nin case of 8. financial breakdown in France?\nMr. Lochhead: In other words, we have a Tripartite\nagreement to which two others have been added. If France\ndrops out, will we drop it all or will we salvage the rest\nof the countries?\nHM,Jr: I asked that and there 1s no answer to that\nquestion.\nMr. Mallet: It certainly is a question they must\nbe thinking of and there is no harm in putting it over\nto them.\n204\n-9-\nHM,Jr: And you might say, as a matter of air own\ninterest, I think it is a very important question.\nMr. Mallet: Yes; quite.\nHM,Jr: Here are three members of the Tripartite\nAgreement. France drops out. What are we going to\ndo? Go ahead and try to carry on anyway or that question\nI put to the Ambassador and asked him to put to Mr. Chamber-\nlain.\nMr. Mallet: I don't remember exactly how he phrased\nit.\nHM,Jr: But there 18 no reference in Mr. Chamberlain's\nmessage to me and if Mr. Chamberlain 16 right (and I hope\nhe is not), we will have to move awfully fast.\nMr. Mallet: Yes. Anybhow I can put this question.\nHM,Jr: And even if I had not said it before, I say\nit now. Here we have a Tripartite Agreement. I don't\nknow what you call it when two people belong to it.\nMr. Mallet: Bilsteral.\nHM,Jr: And you might say this to Mr. Chamberlain:\nthat it will be our desire to do everything possible to\ncooperate with the remaining members to keep stable ex-\nchanges. That we will do everything possible.\nMr. Mallet: I All sure he willbe glad to hear that.\nHM,Jr: To get down to the realistic, it will get\ndown to the stage of what your Government and ours can\nand will do.\nMr. Mallet: Yes; quite.\nHM,Jr: Holland, Belgium and Switzerland can't help\nan awful lot.\nMr. Mallet: No.\n205\n-10-\nHM,Jr: It will get down, in the final analysis\nMr. Mallet: They will expect a lead from us.\nHM,Jr: Yes. They will expect us to do something\nand I want to say to him that I will do everything that\nI can to help.\nMr. Mallet: Yes.\nHM,Jr: And I think you might say in the next few\ndays that anything I get I will immediately transmit to\nhim.\nMr. Mallet: Yes.\nHM,Jr: And I would appreciate receiving the same\nsort of treatment from Mr. Chamberlain.\nMr. Mallet: Yes.\nHM,Jr: It is not very pleasant, 1s it?\nMr. Mallet: No. It is really tragic -- the work\nyou have put into 1t.\nHM,Jr: For your information, Mr. Bonnet came in\nhere yesterday and started to give me what we call \"a pep\ntalk\" and I said -- I listened for 15 minntes, and I said,\n\"Well, Mr. Bonnet, I am no diplomat. I know what the\nconditions are in your country and wouldn't you really\nlike to be frank with me?\" And he completely changed.\nCompletely! He went on to say that he made & speech\nfour months ago that all this would happen.\nMr. Mallet: He did. At the time of the first\ndevaluation.\nHM,Jr: He did. I just said, \"Don't you went to\nbe completely frank?\"\nThen he completely changed.\nMr. Mallet: Yes. He had no concrete suggestions?\nHM,Jr: Nothing. Absolutely nothing. And I t old\n206\n-11-\nhim -- not to be too harsh -- that I gave him a month --\nthe month of March.\nMr. Mallet: How did he react to that?\nHM,Jr: He was very serious.\nMr. Mallet: Pessimistic?\nHM,Jr: No. He did not say anything. I said,\n'I give you the month of March. Of course, we talked\nabout the French fair. 'If you could only hang on until\nthat.' He said something about tax payments. Said if\nthey could get by the next tax receipts\nMr. Mallet: This is supposed to be their bad season,\nisn't it?\nHM,Jr: Yes. If they could get by this thing\n....\nMr. Mallet: If they could get by March, I suppose\nthey would have a chance.\nHM,Jr: Well, thank you very much and please thank\nMr. Chamberlain very much and I think we have simply got\nto work just as closely as we can together.\nMr. Mallet: Yes, we have.\nHM,Jr: My regards to the Ambassador.\nRegraded Uclassified\n3-2-37.\n207\nMESSAGE FROM THE CHANCELLOR OF THE EXCHEQUER\nTO THE SECRETARY OF THE UNITED STATES TREASURY.\nPlease thank Mr. Morgenthau for his\nmessage and assure him that I fully share his\ndesire that we should continue to keep in closest\ntouch about the French situation.\nAs stated in Chancellor of the Exchequer's\nmessage to Mr. Morgenthau February 10th His Majesty's\nGovernment urged the French Government to take speedy\nmost vigorous action to restore confidence. French\nMinisters in their reply stated that the French\nGovernment were firmly refusing to impose exchange\ncontrol and that measures which they had under con-\nsideration included free movement of gold, a pause in\nincrease of expenditure, use of a more elastic tech-\nnique by French equalisation fund to defeat speculation,\nlimitation of rise in prices and reduction of customs\ntariffs and abolition or limitation of quota re-\nstrictions.\nHis Majesty's Government regard (1) a free\ngold market combined with (2) a more elastic technique\nin employment of French equalisation fund as of special\nimportance. AB regards (1) foreign exchange should be\nin our view treated on the Bame footing as gold, and\ncapital should be free to return to France without\npenalty or hindrance. AB regards (2) it was\nexplained that our experience suggests that 80 long\nas/\nRegraded Uclassified\n208\nas rate of franc is rigidly pegged speculators for a\nfall can operate at small expense in hope of making a\nprofit without incurring a loss. His Majesty's\nGovernment stated that they would be quite willing\nfor their part if it were desired by French Government\nand should United States Government concur to state\nthat it was with full concurrence of His Majesty's\nGovernment that French Government intended in present\ncircumstances to make use of liberty given by existing\nFrench law to vary value of franc from time to time.\nI had expected to receive 8 further\ncommunication from French Government at the beginning\nof last week and was waiting for this before sending\na message to Mr. Morgenthau. But I now learn that\nFrench Government postponed any decision until after\ndebate in chamber on Friday last and that I cannot\nexpect any further communication for B. day or two.\nHis Majesty's Government agree with the\nUnited States Government that a further depreciation of\nthe franc by not more than eight per cent would in\npresent circumstances not be open to objection but 88\nexplained above they consider that in order to restore\nconfidence free movement of gold at its full value\nshould be permitted and that the franc should then be\nallowed to vary within limits fixed by French monetary\nlaw. They would be very glad to learn if the United\nStates Government agree in this view.\nGenerally speaking His Majesty's Government\nfeel that situation depends on internal measures to\nbe taken by the French Government who have already been\ninformed/\nRegraded Uclassified\n209\ninformed that His Majesty's Government in the\nUnited Kingdom have no statutory power even if they\nwere willing to take part in a modified pooling of\nstabilisation fund resources as seemed at one time\nto be suggested. But I would like Mr. Morgenthau\nto know that in my personal opinion there now\nremains little hope of avoiding a breakdown of\nmonetary agreement due to exhaustion, perhaps in the\ncourse of this week, of recent London credit.\nI\nagree with Mr. Morgenthau in thinking that there is\nnothing which the United States Government and His\nMajesty's Government can do to help the situation\nthough of course I should be glad to consider any\nsuggestion of action which might be taken in concert\nto prevent breakdown.\nRegraded Uclassified\nsub\n210\nCopy of cable from Mr. 4c Comas, Stockholm March 2, 1957\nTo BANKERS TRUST COMPANY, N.Y.\nENGLISH CONDITIONS GOOD NO LET DOWN EXPECTED CERTAINLY WITHIN NEXT\nYEAR OR SO. NO DISCUSSIONS DOLLAR RATE WHICH STEMS ACCEPTED ALTHOUGH SOME\nFEELING DOLLAR STILL SOMEWHAT UNDERVALUED. CONDITIONS HOLLAND VERY SOUND\nAND STFADILY IMPROVING. THEY FEEL THEIR DEFLATION REDUCED COSTS 15% THEREFORE\nDISCOUNT 20 25% SUPFICIENT ADJUSTMENT ESPECIALLY DEVALUATION EFFECTED DURING\nWORLD PRICE RISE. DENMARK PROSPEROUS INTERNALLY BUT STILL LIVING SOMEWHAT\nBEYOND ITS MEANS INTERNATIONALLY ULTIMATELY MUST FIND NEW MARKETS ITS\nAGRICULTURAL PRODUCE OR REDUCE ITS STANDARD LIVING. THIS COUNTRY VERY\nPROSPEROUS CONSTANTLY GAINING GOLD AND DEVISEN. ANXIETY ABOUT PROSPECTS\nINCREASED PRICES HENCE DISCUSSION RAISING VALUE KRONER. DENIED THERE WILL\nBE ANY CHANGE AT LEAST NEAR FUTURE. STRONGLY UNDER INFLUENCE BRITISH\nPROPAGANDA ABOUT MANAGED CURRENCY BUT DUBIOUS THAT A LEFT GOVERNMENT WOULD\nDELIBERATELY START DEFLATION by RAISING VALUE CURRENCY. ALL COUNTRIES\nCONSCIOUS. GERMAN PROBLEM BUT ALTHOUGH NO SOLUTION DISCERNIBLE UNANIMOUSLY\nDO NOT EXPECT CONDITIONS TO FORCE CRISIS FOR CONSIDERABLE TIME AND WAR NOT\nPORESEEN NEAR FUTURE ABOVE ARE OBSERVATIONS AND NOT NECESSARILY MY OWN\nCONCLUSIONS.\nMCCOMAS\n-\n1000\nE\nRegraded Uclassified\nCOPY\nFEDERAL RESERVE BANK\nOF NEW YORK\n211\nFICE CORRESPONDENCE\nDATE March 2, 1937.\nFILES\nSUBJECT:\nAllan Sproul\nMr. Araki, local representative of the Bank of Japan, called\nthis afternoon. He said he had just had a cable from his head office\nconcerning his government's intention to export certain amounts of\ngold and, specifically, to ship gold to this country. He said there\nwere four points in the message:\n1. The Japanese Government is going to export some\ngold to replenish its foreign funds and to en-\nable it to continue support of the yen, when\nnecessary.\n2. The amount which it has presently been decided\nto export is 13,955 kilograms which, at 235\nper fine ounce, he estimated would amount to\nabout $17,288,000.\n3. It is thought that this gold will be shipped in\nthree approximately equal lots, the first ship-\nment to arrive at San Francisco on March 24th\non a Japanese boat.\n4. This is gold which the government turned over to\nthe Bank of Japan, at the time when Japan last\nwent off the gold standard.\nMr. Araki said he did not know whether the gold would be\nconsigned to the Yokohama Specie Bank at San Francisco, or whether\nthe Bank of Japan would handle it and, perhaps, consign it to the\nFederal Reserve Bank of San Francisco. He said there is now.some\ntalk about having the government's exchange business handled by and\nthrough the Bank of Japan, rather than through the Yokohama Specie\nBank. I suggested that 1f the Bank of Japan expects to handle gold\nshipments with the Federal Reserve Banks, he should consult with us\nabout the details.\nMr. Araki also explained that this move on the part of his\nRegraded Uclassified\n211- A\nUOMAN\nFEDERAL RESERVE BANK\nOF NEW YORK\nFICE CORRESPONDENCE\nDATE March 2, 1937.\nSUBJECT:\nFILES\nAllan Sproul\n- 2 -\ngovernment represents taking the middle course with respect to support\nof the yen. The previous government, he said, had instituted import\ncontrol which, by itself, might lead into something like the German\nsystem and be one extreme method of handling the situation. At the\nother extreme, there would be no control and free shipment of gold.\nThe present government, he said, has decided to retain some measure\nof import control for the present and also to ship some gold, which\nrepresents the middle course.\nMr. Araki said his government does not yet wish to make pub-\nlic the details of its prospective gold shipments, but that it would\nbe appropriate for us to advise the Treasury at Washington if in our\njudgment this seemed desirable. I told him we would do so.\nAS:R\n11/13/11\nTRUNKERT\n1990\n1\nRegraded\n212\nM\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Paris, France\nDATE: March 2, 1937, 5 p.m.\nNO.: 293 FROM COCHRAN.\nRUSH.\nStrictly confidential and urgent.\nThis afternoon I was visited at the Embassy by\nProfessor Rist.\nI questioned Professor Rist as to the significance\nof the inspired article in today's issue of AGENCE ECONOMIC\nET FINANCIERE to the effect that the French Government in-\ntended to adhere to the monetary and economic policies set\nout in last September's Tripartite Agreement, and most par-\nticularly, that part of the undertaking toward lightening\nquota and exchange control. I was told by Professor Rist\nthat until I showed the article to him he had not seen it.\nHe expressed the opinion that the purpose thereof might be\nto combat the rumors current recently to the effect that\nexchange control might be undertaken by France.\nDuring the conversation Professor Rist insisted that\nthe Government must make the choice, somewhat as Reynaud\npointed out in the debate on Friday night, between follow-\ning the liberal policies of such countries as Great Britain\nand the United States, or the closed economies of such\ncountries as Italy and Germany. Blum, he said, was per-\nsonally very proud of his progress and success\nEND SECTION ONE.\nEA:LWW\nWILSON.\nRegraded Uclassified\n213\nPARAPHRASE OF SECTION TWO OF TELEGRAM NO. 293 of\nMarch 2, 1937, from PARIS.\nsuccess in his foreign policy and in the improvement of\nrelations with many of the most important nations. Blum's\nnatural and personal choice, he said, would certainly be\nto follow the liberal course, and to to deverything possible\nto keep the Tripartite Agreement intact. However, Rist\nsaid that little progress had been made in removing trade\nbarriers, and considerable pressure is being exerted\nin favor of exchange control, particularly by Governor\nLabeyrie.\nRist called on Blum last week in his capacity as\nChairman of the Committee of Trade Policy. Rist told me\nthat he found the Premier was very sympathetic with his\narguments in favor of a trade policy which is more central-\nized. Rist said Blum gave him his approval for presenting\nthe same arguments to the Minister of Agriculture. In\nRist's conversations with these two officials he made the\npoint that it was to the advantage of France to liberalize\ntrade - both from an economic and a political standpoint.\nIt was essential from the internal viewpoint to stop French\nprices from rising above the international price level;\nfacilitation of importe would be a most effective means.\nRe advised Blum that from a political viewpoint he should\nlet his Senate and Chamber realize the progress made by\nFrance in her international relations. He should also\nemphasize the catastrophe which would come if France now\nUclassified\n214\n- 2 -\nresorted to measures made famous by Germany, and thereby\nfailed on her tripartite agreement.\nRist remarked in the course of the conversation that\nthe Government and particularly the Ministers of Economics\nand Commerce had suffered a severe blow a few days ago\nwhen the Senate did not pass the bill giving the Govern-\nment renewed authority to make tariff\nEND SECTION TWO.\nWILSON.\nRECEIAED\nEA:LWW\nTeam = STATE\nINtered\n/ / 2 /\n215\nPARAPHRASE OF SECTIONS THREE TO SIX, INCLUSIVE\nof telegram No. 293 of March 2, 1937, from the American\nEmbassy, Paris.\nchanges. It is possible that this measure may be passed\nin its original or a modified form, but for the present\nthe Government could not feel free to make any drastic\nquota and tariff policy change. According to Rist, the\nMinister of Agriculture stated that complaint was already\nbeing made by agricultural interests that adequate protec-\ntion was not being given to them. Rist said he replied\nthat the farmere themselves ought to know that they are\nbeing benefitted if they get agricultural machinery in more\ncheaply, and that for the duty on wood to be less is to\neverybody's advantage because a general rise in costs,\nparticularly in the building industry, would result from\na rise in the price of wood.\nRist is going to continue to try to bring about a\nmore liberal trade policy in France, but he is not too\nsanguine about favorable results at an early date. He is\nof the definite opinion that the press communique of today\nshould not be taken as an indication of an immediate and\ngreat change in the trade policy of France. The Blum\nGovernment is as strongly political as it ever was, accord-\ning to Rist. He greatly regrets that from a financial\nstandpoint it does not inspire the confidence of the people.\nHe does not believe that it would be wise to try to\noverthrow the present Government for political reasons.\nShould\nRegraded\n216\n2 I I\nShould this happen, wide social repercussions might result.\nThe best thing to do, he said, is to work toward a change\nof policy within the present Government's framework.\nI asked Rist what measures should be taken in the\ncircumstances. In his opinion, he said, the most essential\npoint was for Blum to let it be known that there will not\nbe a continued rise in Government expenditures and in French\nprices. So long as fear on either of these points is felt\nby the French people, they will not have confidence in\nthe financial and monetary situation of the country.\nIt would, Rist admitted, take a lot of courage for Blum to\ntake and announce a decision radically cutting expenditures\nand also adopt the measures necessary to stop the rise in\nprices, but he feels that if Blum took such steps, he would\nbe sustained.\nWith regard to the lesser technical measures, I had\nbeen told by Rist before I visited the United States, that\nit was wrong to penalize gold and exchange holding, as well\nas the inspection of bank accounts instituted to search\nout those liable to punishment under the October 1 monetary\nlaw. In Rist's opinion, it would not be sufficient to change\nthese practices only, although it would still be very de-\nsirable, he said. He is not convinced that in the present\ncircumstances the stability of the franc would be guaranteed\nby\nJclassified\n217\n- 3 -\nby \"stabilization\" at the present rate or at the lowest\nlevel permitted by the October 1 monetary law.\nIn the greatest confidence Rist admitted to me that\nhe disapproves of both the Governor of the Bank of France\nand the Minister of Finance. He does not think it would\nbe sufficient to remove Governor Labeyrie alone, since\nthe ability of Auriol himself 1s doubted by the public.\nRist, however, said he understands Blum's friendship for and\nloyalty to the Minister of Finance, and supposed he would\nbe reluctant to make changes.\nDuring the conversation mention was made of the rumor\nthat in the present crisis Rist might accept a position\nwith the Government. He said that are although he had\nheard some gossip about the Bank of France, the governor-\nship had not been offered to him - that to accept this post\nwould mean B. heavy pecuniary loss for him and he had no\ndesire to do that no matter how much people might flatter\nhim by considering him for that post. He told me that he\nknew Baudouin (omission) on several occasions with regard\nto taking the governorship.\nHowever, the professor insists that no matter how\ncompetent a new governor for the Bank of France might be,\nunless a more competent person were made Minister of Finance\nthe new governor would have no chance to correct French\nfinancial policy. According to Rist, Auriol feels that\nhe\nRegraded Uclassified\n218\n- 4 -\nhe has been abused and that his problems are not under-\nstood by the other ministers.\nProfessor Rist has the same impression of the present\ngovernor of the Bank of France that I have obtained through\ndirect contact and through the reactions of friends of\nmine - i.e., as an individual he is charming but he is\nentirely incompetent in monetary matters, his economic\ntheories are extremely radical, and he is disposed to play\npolitics and destroy the morale of his own career personnel\nrather than undertake a study of the Bank's major problems.\nI asked the Professor what help from the outside\ncould be given France. His prompt reply was that if any\nissued for\nloan could be/granked France, it should be issued on the\nmarket in Paris. He said there should be no loan until\nthe situation is sufficiently good to attract French cap-\nital. The last British credit, he insisted, had merely\nbeen a bridge to help france leave the country, and he\nbelieved it would have been better to have let france be-\ncome scarce and perhaps a reflux of capital would have\nbeen started, rather than contract a loan abroad.\nRist does not think it would be sufficient to offer\nadvice on technical measures to either the Bank or to the\nMinistry of Finance. Blum alone under the present cir-\ncumstances must make the major decision such which is\nneeded. The best method of approach to him, he believes,\nis\nRegraded Jclassified\n219\n- 5 -\nis from the viewpoint of foreign policy. In other words,\nhe said the undertaking of France under the Tripartite\nAgreement should be stressed, and the importance to France\nof the good relations which have been built up through\ncontact with the great democracies of the world. It is\nof the greatest importance, he said, to cut down Government\nexpenditure, and to stop a price rise. Liberalization of\nFrench trade is advocated by Rist as the best measure to\nbring about the second point.\nWith a smile Rist remarked that some time ago there\nwas a rumor current that he might be sent as ambassador\nto the United States, but that actually he had not been\noffered this post - which he would have considered the\nhighest honor that his country could possibly have bestowed\nupon him. Several times before Bonnet went to Washington,\nRist had talks with him. I have mentioned in earlier reports\nthe great confidence which Bonnet has in Rist, and his\ntendency to accept Rist's advice on matters of an economic\nand monetary nature.\nRist told me he believe that should Bonnet send a commun-\nication to Blum,a short time after he had been bexes in the\nUnited States, in which he set forth the impressi ons he had\ngained in the United States, it might have considerable weight\nwith the Prime Minister. In Rist's opinion if such a commun-\nication recommended policies along the lines suggested\nRegraded Uclassified\n220\n- 6 -\nin this telegram, it would indeed be quite fortunate.\nEND MESSAGE.\nWILSON.\nDECEIAED\nTEG: $ RAM\nEA:LWW\nTHIMTHA230\nVisa 42 ets he saw\ncalous - Birth\nRegraded Uclassified\nCopy- not rent % n.y\nfile-\n221\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Paris, France\nDATE: March 2, 1937, 5 p.m.\nNO.: 293 FROM COCHRAW.\nRUSH.\nStrictly confidential and urgent.\nThis afternoon I was visited at the Embassy by\nProfessor Rist.\nI questioned Professor Rist as to the significance\nof the inspired article in today's issue of AGENCE ECONOMIC\nIT FINANCIERE to the effect that the French Government in-\ntended to adhere to the monetary and economic policies set\nout in last September's Tripartite Agreement, and most par-\nticularly, that part of the undertaking toward lightening\nquota and exchange control. I was told by Professor Rist\nthat until I showed the article to him he had not seen it.\nHe expressed the opinion that the purpose thereof might be\nto combat the rumore current recently to the effect that\nexchange control might be undertaken by France.\nDuring the conversation Professor Rist insisted that\nthe Government must make the choice, somewhat as Reynaud\npointed 03V13038 out in the debate on Friday night, between follow-\ning policies of such countries as Great Britain\nand ted IStates, or the closed economies of such\noff la THO\ncountry and Germany. Blum, he said, was per-\nsonally very proud of his progress and success\nEND SECTION ONE.\nEA:LWW\nWILSON.\nRegraded-Uclassified\n222\nPARAPHRASE OF SECTION TWO OF TELEGRAM NO. 293 of\nMarch 2, 1937, from PARIS.\nsuccess in his foreign policy and in the improvement of\nrelations with many of the most important nations. Blum's\nnatural and personal choice, he said, would certainly be\nto follow the liberal course, and to to deverything possible\nto keep the Tripartite Agreement intact. However, Rist\nsaid that little progress had been made in removing trade\nbarriers, and considerable pressure is being exerted\nin favor of exchange control, particularly by Governor\nLabeyrie.\nRist called on Blum last week in his capacity as\nChairman of the Committee of Trade Policy. Rist told me\nthat he found the Premier was very sympathetic with his\narguments in favor of a trade policy which is more central-\nized. Rist said Blum gave him his approval for presenting\nthe same arguments to the Minister of Agriculture. In\nRist's conversations with these two officials he made the\npoint that it was to the advantage of France to liberalize\ntrade - both from an economic and a political standpoint.\nIt was essential from the internal viewpoint to stop French\nprices from rising above the international price level;\nfacilitation of imports would be a most effective means.\nHe advised Blum that from a political viewpoint he should\nlet his Senate and Chamber realize the progress made by\nFrance in her international relations. He should also\nemphasize the catastrophe which would come if France now\nRegraded Uclassified\n223\n- 2 -\nresorted to measures made famous by Germany, and thereby\nfailed on her tripartite agreement.\nRist remarked in the course of the conversation that\nthe Government and particularly the Ministers of Economics\nand Commerce had suffered & severe blow a few days ago\nwhen the Senate did not pass the bill giving the Govern-\nment renewed authority to make tariff\nEND SECTION TWO.\nWILSON.\nEA:LWW\nTEG: S ЯАМ\nТИЗМТЯА930 THE\nANIZON a of I\n174121398 on la sollo\n224\nPARAPHRASE OF SECTIONS THREE TO BIX, INCLUSIVE\nof telegram No. 293 of March 2, 1937, from the American\nDebassy, Paris.\nchanges. It is possible that this measure may be passed\nin its original or n modified form, but for the present\nthe Government could not feel free to make any drastic\nquota and tariff policy change. According to Rist, the\nMinister of Agriculture stated that complaint was already\nbeing made by agricultural interests that adequate protec-\ntion was not being given to them. Rist said be replied\nthat the farmers themselves ought to know that they are\nbeing benefitted if they get agricultural machinery in more\ncheaply, and that for the duty on wood to be less 1s to\neverybody's advantage because a general rise in costs,\nparticularly in the building industry, would result from\na rise in the price of wood.\nRiet is going to continue to try to bring about &\nmore liberal trade policy in France, but he is not too\nsanguine about favorable results at an early date. He is\nof the definite opinion that the press communique of today\nshould not be taken as an indication of an immediate and\ngreat change in the trade policy of France. The Blum\nGovernment is - strongly political as it ever was, accord-\n10g to Rist. He greatly regrete that from a financial\nstandpoint it does not inspire the confidence of the people.\nHe does not believe that it would be wise to try to\noverthrow the present Government for political reasons.\nShould\nRegraded Uclassified\n225\n- 2 -\nshould this happen, wide social repercussions might result.\nThe best thing to do, he said, 18 to work toward B. change\nof policy within the present Government's framework.\nI asked Rist what measures should be taken in the\ncircumstances. In his opinion, be said, the most essential\npoint was for Blum to let it be known that there will not\nbe & continued rise in Government expenditures and in French\nprices. So long as fear on either of these points is felt\nby the French people, they will not have confidence in\nthe financial and monetary situation of the country.\nIt would, Rist admitted, take & lot of courage for Blum to\ntake and announce 8 decision radioally outting expenditures\nand also adopt the measures necessary to stop the rise in\nprices, but he feels that if Blum took such steps, he would\nbe austained.\nwith regard to the lesser technical measures, I had\nbeen told by Rist before I visited the United States, that\nit was wrong to penalize gold and exchange holding, 18 well\n1.6 the inspection of bank accounts instituted to searen\nout those liable to punishment under the October 1 monetary\nlaw. In Rist's opinion, it would not be sufficient to change\nthese practices only, although it would still be very de-\nsirable, he said. He 10 not convinced that in the present\ncircumstances the stability of the franc would be guaranteed\nby\nRegraded Uclassified\n226\n- 3 -\nby \"stabilization\" at the present rate OF at the lowest\nlevel permitted by the October 1 monetary law.\nIn the grestest confidence Rist admitted to me that\nbe disapproves of both the Governor of the Bank of France\nand the Minister of Finance. He does not think it would\nbe sufficient to remove Governor Labeyrie alone, since\nthe ability of Auriol himself 1 = doubted by the public.\nnist, however, said he understands Blum's friendship for and\nloyalty to the Minister of Finance, and supposed he would\nbe reluctant to make changes.\nDuring the conversation mention was made of the rumor\nthat in the present orisis Rist might accept a position\nwith the Government. He said that ERS although he had\nheard some gossip about the Bank of France, the governor-\nship and not been offered to him - that to accept this post\nwould mean a heavy pecuniary loss for him and he had no\ndesire to do that no matter how much people might flatter\nhim by considering him for that post. He told me that he\nknew Baudouin (omission) on several consions with regard\nto taking the governorship.\nHowever, the professor insista that no matter how\ncompetent a new governor for the Bank of France wight be,\nunless a more competent person were made Minister of Finance\nthe new governor would have no chance to correct French\nfinancial policy. According to Rist, Auriol feels that\nhe\nRegraded Uclassified\n227\n- 4 -\nhe has been abused and that his problems are not under-\nstood by the other ministers.\nProfessor Rist has the same impression of the present\ngovernor of the Bank of France that I have obtained through\ndirect contact and through the reactions of friends of\nwine - 1.0., as an individual he is charming but he is\nentirely incompetent in monetary matters, his economic\ntheories are extremely radical, and he 1s disposed to play\npolitics and destroy the morale of his own career personnel\nrather than undertake a study of the Bank's major problems.\nI asked the Professor what help from the outside\ncould be given France. His prompt reply who that if any\nissued for\nloan could be/granked France, it should be issued on the\nmarket in Paris. He said there should be no loan until\nthe situation 10 sufficiently good to attract French cap-\nital. The last British credit, he insisted, had merely\nbeen a bridge to help france leave the country, end he\nbelieved it would have been better to have let francs be-\ncome scarce and perhaps a reflux of capital would have\nbeen started, rather than contract a loan abroad.\nRist does not think it would be sufficient to offer\nadvice on technical measures to either the Bank or to the\nMinistry of Finance. Blum alone under the present cir-\ncumstances must make the major decision such which is\nneeded. The best method of approach to his, he believes,\nis\nRegraded Uclassified\n228\n- 5 -\nis from the viewpoint of foreign policy. In other words,\nbe said the undertaking of Trance under the Tripartite\nAgreement should be stressed, and the importance to France\nof the good relations which have been built up through\ncontact with the great democracies of the world. It is\nof the greatest importance, he said, to out down Government\nexpenditure, and to stop a price rise. Liberalization of\nFrench trade 1a advocated by Riet as the best measure to\nbring about the second point.\nwith a smile Rist remarked that some time ago there\nwas & rumor current that he might be sent as ambassador\nto the United states, but that actually he had not been\noffered this post - which he would have considered the\nAighest honor that his country could possibly have bestowed\nupon him. Several times before Bonnet went to Washington,\nRist had talks -ith him. I have mentioned in earlier reports\nthe great confidence which Bonnet has in Rist, and his\ntendency to accept Rist's advice on matters of an economic\nand monetary nature.\nRist told me he believe that should Bonnet send 8. comun-\nication to Blum,a short time after he had been neess in the\nUnited States, in which he set forth the impress ons be had\ngained in the United States, it might have considerable weight\nwith the Prime Minister. In Rist's opinion if such a commun\nication recommended policies along the lines suggested\nRegraded Uclassified\n229\n- 6 -\nin this telegram, it would indeed be quite fortunate.\nEND MESSAGE.\nWILSON.\nBECEIAED\nTEE: S e ЯАМ\nKA:LWW TREMTRATO YMU2AJRT\n- - al Insured\nsh la salto\nIclassified\n230\nM\nMED\nGRAY\nPARIS\nDated March 2, 1937\nReceived 7:20 p.m.\nSecretary of State\nWashington\n297, March 2, 8 p.m.\nFROM COCHRAN.\nParis stock market was heavy today and exchange\ntrading was more adverse to the franc than yesterday.\nRentes declined. A general spirit of pessimism was\nevident. Press and market analysis of Friday night's\nparliamentary debate has failed to show how the\nGovernment will overcome its financial difficulties\nand has stressed the threat of social disorders in-\ntimated in Blum's speech. Bankers say sale of rentes\nis not of speculative character but is general,\ncoming from the provinces as well as Paris, and\nrepresents n lack of confidence on the part of in-\nvesting clientele. While French press and politicians\nobviously expect some action favorable to France to\ncome from the reported and expected conference in\nWashington, bankers are not so (*) of outside\nhelp for the country.\nWILSON\nSMS:NPL\n(*) Apparent omission\nRegraded Uclassified\n231\nMarch 3, 1937\nMy dear Cordell:\nI an inclosing herewith extra con-\nfidential memorandum which was given to\nme yesterday afternoon at 4:30 by Mr. Mallet\nof the British Embassy. This is the same\nmemorandum of which M gave you a brief re-\nview over the telephone at about 5:15.\nIn view of the very confidential\ninformation contained in this memorandum\nI would appreciate it if you would keep\nit in your desk for the next ten days.\nVery sincerely,\nHonorable Cordell Hull,\nSecretary of State.\nRegraded Uclassified\n232\nMarch 3, 1937\nMy dear Cordell:\nI an inclosing herewith extra con-\nfidential memorandum which was given to\nme yesterday afternoon at 4:30 by Mr. Mallet\nof the British Embassy. This is the same\nmemorandum of which I gave you a brief re-\nview over the telephone at about 5115.\nIn view of the very confidential\ninformation contained in this memorandum\nI would appreciate it if you would keep\nit in your desk for the next ten days.\nVery sincerely,\nHonorable Cordell Hull,\nSecretary of State.\nRegraded Uclassified\n233\nMarch 3, 1937\nI called on the President last evening at 5:30\no'clock and let him read the cable which I had just re-\nceived from Neville Chamberlain. The President had no\nsuggestion. I said, The obvious thing for the French\nto do is to devalue the other eight percent. Do you\nthink I should suggest it to them?\" The President said,\nI think it would be all right to make the suggestion pro-\nvided you could be sure that they would not disclose the\nfact that the suggestion came from the United States.\"\nI told the President that I discussed this at length last\nweek with Cochran and that Cochran had begged me not to\nmake this suggestion. I told the President that I am\nafraid if we did make it and it went wrong, the French\nmight blame us.\n(I still think that the only way they can save\nthemselves from immediate financial collapse is if they\npromptly devalue the extra eight percent.)\n*****\nThere is one way to solve this French problem\nwhich has been going through my head for two or three\ndays, but I have not been willing to propose it yet to\nthe President and that is that we should ask Soviet\nAussia to join the Tripartite agreement. With their\nlarge holdings of gold it might make just the sufficient\ndifference to tide the French across the present crisis.\nRegraded\n234\nMarch 3, 1937.\n9:02 a.m.\nV-P\nGarner:\nGood morning, Henry.\nS.M.Jr:\nHow are you?\nG:\nI'm all right.\nH.W.Jr:\nAn - I want 8 little advice.\nG:\nAll right.\nH.M.Jr:\nSenator Nye of North Dakota has been calling me\nup once a day for about a week to - there's some\nfellow from his own home town and he wants us to\nget a job for him. He used to work in the Treasury\nand he had a $1200. job and they laid him off when\nwe laid off a lot of other people.\nG:\nYes.\nH.M.Jr:\nNow ne's been calling me and calling me.\nG:\nWhat's that, Henry, I didn't get this.\nH.M.Jr:\nHe's been calling me about once a day for a week,\nsee?\nG:\nYes.\nH.M.Jr:\nThis boy - he's got him out at his house and he\ncan't get rid of him unless he gets him a job.\nG:\nles.\nH.M.Jr:\nNow what I was going to ask you - I mean would you\ngive it to Nye. He's putting it on a personal\nbasis.\nG:\nGoddamit he sin't worthy of nothing but $1200.\nis little enough to get rid of any damn Senator\nfor thirty days even.\nH.M.Jr:\nWell your advice is you'd give it to him?\nG:\nYes, temporarily that's what I'd do.\nH.M.Jr:\nOh do it for thirty days?\n235\n-2-\nG:\nYes tell him by gosh you've tried for thirty days\nto get him off his hands but you can't agree to\nkeep anybody like that.\nH.M.Jr:\nI get you.\nG:\nYes.\nH.M.Jr:\nI'll do just that.\nG:\nAll right.\nH.M.Jr:\nHow's Mrs. Garner?\nG:\nWhy she's getting better, thank you, Henry. She's\ngoing to get up a little while to-day.\nH.M.Jr:\nGood.\nG:\nThank you very much.\nH.M.Jr:\nThank you.\nG:\nGoodbye.\nRegraded Uclassified\n236\nMarch 3, 1937.\n9:18 a.m.\nH.M.Jr:\nHello.\nCochran: Hello\nH.M.Jr:\nHello Cochran\nC:\nHello Mr. Morgenthau.\nH.M.Jr:\nHow are you?\nC:\nAll right thank you.\nH.M.Jr:\nAnything new?\nC:\nNo. You have my program of last night in regard\nto the Professor, did you?\nH.M.Jr:\nNo I haven't got it yet.\nC:\nOh I'm sorry because I sent you rather an interest-\ning one giving a long conversation with me.\nH.M.Jr:\nYour conversation with who?\nRist -\nProfessor Rist\nH.M.Jr:\nOh - well they just handed it to me this minute.\nI'll have to read it and then if I've got any\nquestions I'll talk to you later. They just gave\nit to me this minute.\nC:\nI see. Do you want me to hold on or\nH.M.Jr:\nAh - well let me just - yes I think SO. Just a\nsecond will you please.\nC:\nAll right.\n(Short pause)\nH.M.Jr:\nHello\nC:\nHello\nH.M.Jr:\nWell I read it very hastily\nC:\nYes.\n237\n- 2 -\nH.M.Jr:\n....and I just came to the end about Bonnet.\nC:\nYes.\nH.M.Jr:\nWell Bonnet called on me Monday\nC:\nYes.\nH.M.Jr:\nand when he left he certainly had no delusions\n. as to how I felt.\nC :\nI see.\nH.M.Jr:\nHello\nC:\nYes\nH.M.Jr:\nAnd he must have gotten off a cable right after that.\nC:\nYes.\nH.M.Jr:\nAh - but that was Monday afternoon.\nC:\nAnd you see the Prime Minister came out at the\nluncheon for the British Ambassador saying that they\nintended to adhere to the tri-partite agreement.\nH.M.Jr:\nYes.\nC:\nBut here I still don't see what they're doing to\nmaintain that adherence.\nH.M.Jr: Yes.\nC:\nThat's still the problem.\nH.M.Jr:\nYes, well I just wanted to talk to you and I didn't\nknow whether there was anything new or not. We\ncan't understand this quiet except it's a calm before\nthe storm.\nC:\nI mean it's a little quiet now following Sunday.\nH.M.Jr:\nYes.\n238\n- 3 -\nC:\nAlthough yesterday they lost quite a spot of sterling.\nH.M.Jr:\nYes.\nC:\nThey're - they're playing up an item in the press\nto-day - a report from\nsaying that for\nthe last four days there's been no gold imported\nfrom France.\nS.M.Jr:\nYes.\nC:\nThe first time for some period. The situation is\nsimply that they're sending sterling instead of gold.\nH.M.Jr:\nYes, well when are they going to stop kidding themselves?\nC:\nI don't know. That's - that's what everyone prays for.\nH.M.Jr:\nYes.\nC:\nI mean until they take some definite measure they\ncan't calm the people who are buying foreign exchange.\nH.M.Jr:\nAh-ha.\nC:\nAnd everyone's afraid that they're going to wait\nuntil they're just in desperate circumstances.\nH.M.Jr:\nYes.\nC:\nAnd the Radical Socialists in the government are not\nready to break with them yet.\nH.M.Jr:\nYes. Two things I wish you'd do for me -\nK.M.Jr:\nHello\nC:\nHello\nH.M.Jr:\nTwo things I wish you'd do for me.\nC:\nYes.\nH.M.Jr:\nWhen do their big tax payments come in? I - Bonnet\nmentioned it and I didn't get it quite straight.\n239\n- 4 -\nC:\nThe ones they have to make or the ones due them?\nH.M.Jr:\nThe ones that they have to receive.\nC:\nThat they have to receive.\nH.M.Jr:\nYes, I'd like to know when that date is and how much\nit will be about. How much they expect, you see?\nC:\nWell there's no special big item except they hope\nfor the taxes to pay in better beginning in May.\nR.M.Jr:\nWell yes but - yes but he kept referring to some\ndate.\nC:\nI don't - I'll check up and - and put it in my wire\nhere\nH.M.Jr:\nAll right.\nC:\n....any big special that's due. I don't know anything\nspecial that's due them.\nH.M.Jr:\nAll right. Now one other thing.\nC:\nYes.\nH.M.Jr:\nMrs. Morrison Shafroth.\nS-h-a-f-r-o-t-h\nC:\nYes.\nH.M.Jr:\nShe sailed on the Paris. She's a great friend of\nMrs. Morgenthau's.\nC:\nYes.\nH.M.Jr:\nAnd her husband is the Chief Counsel for Internal\nRevenue.\nC:\nOh yes yes.\nH.M.Jr:\nNow I wish you'd tell Waite that when she gets there\nHe'd offer to do anything that he can and I'd appreciate\nanything that you can do.\nin I I\n<40\nC:\nOh I'll be delighted to, yes.\nH.M.Jr:\nHer - her daughter is in Paris. She's going to stay\nthere for - she just - Mrs. Shafroth is just going to\nbe in Paris a week I think and then come right back.\nC:\nI see.\nH.M.Jr:\nAnd you might ask Wait if he'd find out when the boat\ntrain comes in from Paris if he'll go down to the station\nand meet her see.\n0:\nAll right, I'll be glad to go down too.\nH.M.Jr:\nAnd see if there's anything that you can do. She's\nvery nice and she's a great friend of Mrs. Morgenthau.\nC:\nFine, well we'll both do everything we can.\nH.M.Jr:\nAll right, thank you very much. She's only going to be\nthere - she's trying to find some place that her\ndaughter can stay for two or three months in Paris.\nC:\nI see.\nH.M.Jr:\nYes.\nC:\nAnd is that all?\nE.M.Jr:\nThat's all.\nC:\nWell here to-day the market opened a little cuiet.\nR.M.Jr:\nYes.\nC:\nBut it usually stirs up after lunch.\nR.M.Jr:\nI see.\nC:\nI had a talk with de Castellane this morning.\nB.M.Jr:\nYes.\nC:\nYou know the bankers\nH.M.Jr:\nI know him. I know who he is.\nRegraded Uclassified\n241\n9 1 1\nC:\nYes, well I'll put it in a cablegram.\nH.M.Jr:\nAll right.\nC:\nIts not very exciting.\nH.M.Jr:\nAll right - ah - all I - hello\nC:\nHello\nH.M.Jr:\nAh - I just want to tell you this - ah - you know\nyour estimate that you gave me of the time factor -\nhello\nC:\nYes.\nH.M.Jr:\nYou know you gave me a time factor?\nC:\nYes.\nH.M.Jr:\nWell - ah - certain friends of ours just cut what -\nthe number of weeks that you've put it they've just\ncut it in half.\nC:\nIs that so?\nH.M.Jr:\nYes.\nC:\nWell this man this morning that I was just talking\nabout\nH.M.Jr:\nYes.\nCochran:\nsaid that some of his friends put it between\ntwo and three weeks\nH.M.Jr:\nNo, well\nC:\n....and some say longer.\nH.M.Jr:\nWell these friends of ours say this week.\nC:\nIs that SO.\nH.M.Jr:\nYes, so you better be extra on your toes.\n242\n- 7 -\nC:\nAh - there's just one thing - ah - could I go to\nBasel this week-end; there's a bank meeting there\non Sunday.\nH.M.Jr:\nWell let's see. When would you have to leave Paris?\nC:\nMake arrangements right to the end as I have before.\nH.M.Jr:\nWhen would you leave Paris?\nC:\nI'd leave here Saturday night at 10 o'clock.\nB.M.Jr:\nThat's all right and look\nC:\nAnd I'd plan to get back on Tuesday morning.\nH.M.Jr:\nWell leave word at the Embassy so if I called the\nEmbassy they'd know where I could reach you on the\ntelephone.\nC:\nAll right and when - once before I came back - I was\njust there on Sunday and took the Sunday night train\nH.M.Jr:\nYes.\nC:\nso I could always do that if it were urgent.\nB.M.Jr:\nAll right.\nC:\nAll right. There's one thing.\nH.M.Jr:\nYes.\nC:\nDo you think I ought to call up call up Houeff and\njust go over and see what's going on.\nH.M.Jr:\nNo.\nC:\nYou think I should stay away.\nR.M.Jr:\nI - I think SO. Yes, I'd stay away. There's nothing\nwe could do.\nC:\nI said they were going to get in touch with me.\n243\n- 8 -\nH.M.Jr:\nWell you're not the only person they're not getting\nin touch with.\nC:\nIs that so?\nH.M.Jr:\nYes, they're bigger people than (laughs) relatively\nin position than you across the channel that they\nhaven't gotten in touch with either.\nC:\nWell - well let's sit tight then.\nH.M.Jr:\nDo you understand what I mean?\nC:\nSurely - surely.\nH.M.Jr:\nYes.\nC:\nThen I shall just sit quiet unless they call.\nH.M.Jr:\nO.K.\nC:\nFine.\nH.M.Jr:\nThank you.\nC:\nAll right, sir.\nH.M.Jr:\nGoodbye.\nC:\nGoodbye.\nRegraded Uclassified\n-\nFEDERAL RESERVE BANK\n244\nOF NEW VORK\nFICE CORRESPONDENCE\nDATE March 3, 1937.\nCOMPIDENTIAL FILES\nSUBJECT TELEPHONE CONVERRATION WITH\nL. w. Knoke\nBANK OF FRANCE\nMr. Cariguel called no at 11:38 with reference to shipments\nof gold to New York by pareel post; he stated that these shipments\nvare going forward on a considerable scale and he would like to know\nwhat could be done to stop it. There were three shipments coming\nthrough Paris today, he said, one by Mocatta & Goldsmid of\n52,500,000 franes, mostly consigned to the Banque Belge in New York,\nsmother one of 34,500,000 france by Samuel Montagu & Co., consigned\nto J. P. Morgan & Co. There was also a small shipment on the way\nconsigned to Chase Bank. All these represented gold sent from London\nto Paris with instructions that the gold be forwarded to New York by\nsail. I replied that our attitude in the matter vas made clear about\nten days ago when Montagu consigned a shipment by percel post to us\nand 10 flatly refused to handle it. I added that I had also, some\nweeks ago, discussed this matter with the Treasury in Washington and\nhad been given to understand that they would take it up with the\nPostmaster General and let se know whether anything could be done.\nCariguel continued that he had checked into the matter and found that\nsince November 11, 1936, the total of gold shipped through the mail\namounted to 684,000,000 franes, some of it from Switzerland and some\nfrom London. These shipments of course completely upset the gold\npoints; in addition they were's gross abuse of government services\" and\nalso of arrangements which the shipping companies had with the govern-\namts.\nI asked Cariguel, firstly whether it vas not true that the\nRegraded Uclassified\n240\nFEDERAL RESERVE BANK\nOF NEW YORK\n245\nICE CORRESPONDENCE\nDATE March s, 1987.\nCONFIDENTIAL FILES\nSUBJECT, TELEPHONE CONVERSATION WITH\nL. W. Knoke\nBANK OF FRANCE.\n- 2 -\ninsurance companies had refused to cover the risk on shipments through\nthe mail. He replied that was true after a fashion, but there were\nstill available a number of open policies which had not as yet been\ncanceled and besides some continental insurance companies were willing\nto do the business. He was, however, looking into this angle of the\nmatter. Secondly, I asked whether the French themselves could not\nstop these shipments as we here had done long ago on shipments from\nthis country. Cariguel replied that this was very difficult because\nFrance was probably bound by international agreement. Nevertheless,\nhe was drafting 1 long letter to the Ministry of Finance, saking them\nto take steps. Since any such action, however, would, at best, be a\nslow affair, Cariguel wondered whether we would think it possible to\ntalk to the banks in New York to whom the gold was consigned and to\nsuggest to them that they refuse to take part in this traffic. He felt,\nhe continued, that if we talked to Morgan and the Chase Bank, or, for\nthat matter, to the Banque Belge too, they would be perfectly willing to\ncooperate. I replied that there was no doubt in my mind as to that but\nthat I could not help remembering our experience in 1933, when we Bilg-\ngested to the banks that they refrain from making shipments from here of\ngold coin. Every one of the banks loyally and wholeheartedly cooperated,\nwith the unfortunate result, however, that some outsiders, less serupu-\nlous, stepped in and handled, with profit to them selves, the business that the\nbanks had refused. If we talked to any banks at all, it seemed to no,\nwe would have to speak to all of them, as otherwise, a situation might\ndevelop in which the Chase, for instance, advises Mocatte 02 Hongu\nRegraded Uclassified\n246\nFEDERAL RESERVE BANK\nOF NEW YORK\nFICE CORRESPONDENCE\nDATE March 3, 1937.\nCONFIDENTIAL FILES\nSUBJECT\nTELEPHONE CONVERSATION WITH\nL. W. Knoke\nBANK OF FRANCE\n- $ -\nthat they won't receive such shipments, end the latter thereupon ap-\nproaches the Guaranty which, not knowing of the Chase's refusal,\nmight be willing to act. However, this was & question which I would\nhave to discuss with Mr. Harrison, who would not be back until tomorrow,\nand probably also with the Treasury. I would think this matter over\ncarefully and let him know what steps we had decided upon. Cariguel\nin turn promised that he would advise no as to the effect of his letter\nto the Ministry of Finance.\nI then inquired about market conditions and Cariguel stated\nthat they had had a pretty heavy day yesterday and rather a bad one\ntoday, although not quite as heavy as yesterday. Their gold losses\nyesterday amounted to £1,500,000, on Friday to £2,000,000 and on last\nThursday to £1,500,000. I inquired how long that could continue and\nCariguel replied that he had asked for instructions. Be inquired\nwhether Europe was still investing money in Wall Street and I told him\nthat after Europe, for 8 number of days, had shown no interest in our\nsecurities, indications this morning were to the effect that they had\nresumed their purchases, probably as a result of yesterday's successful\nnegotiations between the steel industry and the unions.\nLNK:KMC\nRegraded Uclassified\n247\nMarch 3, 1937\nExcerpt from Mr. Magill's memo to the Secretary,\n\"MEMORANDUM ON DAY'S ACTIVITIES MARCH THIRD\":\n2. Flow of foreign capital\nAt your suggestion I went over the situation\nwith Mr. Riefler. I suggested that Mr. Riefler endeavor\nto make it clear to foreign governments that we were not\nprimarily interested in securing additional taxes from\nnon-resident aliens and that we felt the flow of nervous\nforeign capital to this country was a major problem for\nthe foreign countries involved, quite as much as it is\na problem for us. Mr. Riefler felt that he could do a\ngood deal by informal conversations with the foreign\nfiscal officers.\nRegraded Uclassified\n248\nNick\nCOPY\nfrom\nON RAILROAD SITUATION\n1. The Background of the Present Act\nIn hearings before Senate and House Committees on the present\nRailroad Retirement and Carrier Taxing Acts, the statement was made\nby Mr. Eastman and by the undersigned that the cost of the benefits\nwould De, expressed as a level percentage of the payroll. approxi-\nmately 10 percent. Vr. Zustman's statement was based on data sup-\nplied by the Bailroad Retirement Board,\nThe legislation was sponsored by the standard railway labor\norganizations. A committee of the Railway Labor Executives' Asso-\nciation was active in drafting the bill and securing its ensctment.\nThe chairman of the committee had no previous experience with\nsimilar legislation. While cost data were presented, as indicated\nBoove, to the Committees on Interstate Commerce in both House and\nSenate, no particular attention seems to have been paid to them,\naptarently on the theory that revenue raising was outside the juris-\ndiction of the committees considering the benefit parts of the legis-\nlation. The import of the cost testimony was not grasped by the\nsponsore of the legislation and the tax bill as introduced provided\nfor A levy of 6 percent of payroll. This was the initial rate pro-\nvided in the first Railroad Retirement Act, out the Bailroad Retire-\nment Board was dven authority to change the rate if and when it\nbecause necessary; it would, beyond question, have been necessary had\nthat Act operated as enacted.\nThe figures presented snowing the costs to be 10 percent of the\npayroll were disputed. As a compromise, e levy of 7 percent was\nagreed upon for a period of one year. A Railroad Retirement Investion-\ntion Commission was created with the duty, among others, of ascertain-\nthe coats. The labor organizations agreed to abide by the findings of\nfact: if the benefits cost more than the revenue which was provided\neither they would attempt to secure more revenue, DI, if that was not\npossible, they would not onnose e reduction in benefit costs.\nThe Investigation Com ission W&B unable to make any findings.\nShortly after the Commission expired. some 134 Class I railroads. the\nPullman Company and two express companies (later some 16 employees\nand 200 other railroads and other carriers intervened) filed A. bill\nof complaint in the Supreme Court of the District of Columbia (now\ncolled the United States District Court) alleging that the Railroad\nRegraded Uclassified\n24a\n- 2 -\nRetirement and Carrier Taxing Acts were inseparable parts of a\nsingle legislative scheme; that that scheme was essentially the\nBACE L.B the Railroad Retirement Act of 1934; and that since that\nAC: 154 been held unconstitutional, the two new Acts taken, as\nthey tust necessarily be, together, must also be invalid. The\nplaintiffs prayed for relief in the form of injunctions against\ncollection of taxes and information, and against certification of\nannuities to the Treasury.\nAfter an extended hearing. the Court, on June 30, 1936, handed\ndown 00 opinion in which the two Acts were found to be inseparable\nparts of a single legislative scheme which W&S substantially identical\nto the first Enilroad Retirement Act. The Court refused, however,\nto enjoin certification of annuities presumably on the ground, not\nerpressed directly in the opinion, that the plaintiff would not be\nharmed by the payment of annuities to employees who had retired from\ntheir service. The Commissioner of Internal Revenue, however, was en-\njoined from collection of taxes from the plaintiffs or from taking any\ntte's looking to that end; and the Railroad Retirement Board was en-\nJoined from compelling the laintiffs to comple and furnish informa-\ntion AZ their own expense. The right of the Board to examine the\nylaintiffs' records at its own expense was expressly upheld.\nThe members of the Retirement Board discussed the advisobility of\nMyin annuities, without corresponding revenue, with officials of the\nTreasury and Justice Departments, the Secretary of Inbor, members of\n:.. Social Security Board, and the President. There was general agree-\ndent taxi the unnuities must DE paid. On July 13, 1936, following\nin: certification, the first annuities were paid by the Treasury.\nAttitude of Railroads Toward Retirement Legislation as Conditioned\nE Voluntary Pension Plans\nAlthough substantially all the major railronds of the country\nJoinec in the liti ation contesting the constitutionality of the re-\nlegislation, a considerable number did not oppose the legis-\nin principle, and, amarently. 60:30 important interests favored\nThe acterminin factor in carrier attitude related to the main-\nand types of voluntary pension systems. The Pennsylvania, for\nARE a relatively liberal pension system: in 1935 pension ex-\nMoultures were 4.7 percent of the phyrol. Actuarial valuations made\n= the Pennsylvania indicate, I have been told, that the actual costs\nreserve basis are running as are as 8 or 9 percent of the payroll.\nin PAILTONG Retirement Act benefits are, for the most part, individually\nlie or tien those of the Pennsylvania voluntary plan and are payable in\nrequest of all employment. whereas the Pennsylvania benefits are payable\nR1; to employees who remain in service until retirement nce, The\nRegraded Uclassified\n- 3 -\n256\nPennsylvania voluntary plan, however, is supported entirely by the\ncompany. whereas half the cost of the Railroad Retirement Act is\nborne by employees, It may be cheaper for the Pennsylvania to pay\nfor half of the more liberal plan than for all the coet of its own\nplan; it unquestionably would be true if the costs of the more\nliberal plan were based on an age group younger than that of Penn-\nsylvania employees. The saving to the Pennsylvania under the present\nRailroad Retirement Act and Carrier Tax Act would probably be not\nless than $10,000,000 a year.\nThe New York Central also maintains A voluntary pension olan.\nWhile the individual benefits are about as large as those of the\nPennsylvania, the rules concerning eligibility are much more strict.\nThe Pennsylvania carries to retirement age many employees who are\nunable to continue in service because of disability and ives them\npensions at retirement age, The New York Central retires consider-\nable numbers of men at age seventy without any pension because of\nbreaks in service. The strike of 1922 has resulted in forfeiture of\npensions by large numbers of men on the New York Central. The Penn-\nsylvania plan has no continuous service requirement and interruptions\nin service on account of strikes or other reasons do not result in\nloss of pensions. Consequently, the cost of the New York Central\nplan has been much less than of the Pennsylvania, running in terms\nof current disbursements to only about 2.5 percent of the payroll\nin 1935. On a reserve basis costs would probably not be less than\n5 percent of the payroll. The maintenance of a Covernment plan\nwould deprive the New York Central of its ability to use a pension\nsystem as a weapon against strikes and in similar ways. While there\ncan be little doubt that the New York Central would save through the\noperation of a Railroad Petirement Act, the economy would be much\nless than in the case of the Pennsylvania and, taken in conjunction\nwith the other uses to which the plan has been put, serves to explain\nthe opposition thus far to the Railroad Retirement Act on the part of\nthe New York Central.\nThere are still other railroads which maintain no pension eys-\ntems at all, such as the Southern Railroad. It seems doubtful whether\nthe costs of a Railroad Retirement Act represent new costs to these\nroads since most of them have large numbers of men at advanced ages\nin their service whose efficiency, relative to the pay which they re-\nceive, is low. But, nevertheless, most of theseroads have apparently\nbeen hostile to the Retirement Act. These three examples represent\nperhaps the range of practice with respect to voluntary pension systems\nand give fairly typical examples of the attitude of carriers toward\nthe Retirement Act so far as cost aspects are concerned.\nRegraded Uclassified\n251\n4 -\n3. Relation of Titles II and VIII of Social Security Act to Voluntary\nPension Plans\nNost railroad managements which have maintained pension systems\nthe realized and been frank to state that the effective operation of\ntransportation service was thereby facilitated. If there were no\nBailroad Retirement Act, the railroads would, of course, be subject\nto Titles II and VIII of the Social Security Act; during the last few\nmonths reilroads have begun to study the effect which these titlen\nwould have on their voluntary plans. The monthly benefits under\nTitle II of the Social Security Act do not, of course, begin until\n1942 and will not for some years permit any material reduction in\nthe benefits payable in the voluntary plans. Taking the payments\nwhich would be necessary under the private plans and the taxes pay-\nnole under Title VIII, many railroad managements have not been able\nto see that their position is bettered 88 compared with a legialative\nrailroad retirement scheme, provided there was involved no more than\nwhat they regard as a reasonable cost, (The relief afforded to the\nrailroads by the Security Act would have been materially different\nnac the liabilities under the voluntary plans been funded and if cur-\nrent charges were being made in respect to accruing liabilities.)\nThe injection of the Social Security Act into the picture, therefore,\nhas had a material influence in changing the attitude of the rail-\nroads toward a railroad retirement system, and has made them more\nwilling to attempt to work out a system which would be mutually satis-\ninctory to themselves and to their employees.\n4. The Negotiations\nLate in November the Railroad Retirement Board submitted to the\nPresident some of these facts and suggested that he address a com-\nmunication to representatives of both railroad managements and labor\norganizations, urging \"the desirability of a conference between\nrepresentatives of the railroads and railroad employees to consider\nthe retirement problem and attempt to find a satisfactory solution.\"\nThis suggestion was adopted by the President and n letter embodying\nit was sent out by the President on December 28, 1936.\nAlmost immediately thereafter, committees were appointed by the\nAssociation of American Railroads and by the Railway Labor Executives'\nAssociation who were authorized to work out a mutually agreeable plan\nous was were without authority to bind their principals. The conferees\nwere, nowever, to recommend the adoption of a plan and a procedure for\nits establishment and maintenance. The conferees understood that any\nplan agreed upon between them would be subject to review by govern-\nmental agencies involved and would, of course, receive the MIM scrutiny\nby congressional committees and be referred by them to each agencies as\nwould be the case with any other legislation.\nRegraded Uclassified\n252\nin I ,\nIn his letters, the President had stated that: \"The Railroad\nRetirement Board has collected a sealth of information bearing on\nthe problems which would be considered by such a conference and has\nin its possession all the relevant records compiled by the Federal\nCoordinator of Transportation. Its technical facilities can doubt-\nless 08 of much value to such a conference and I an, therefore, re-\nquesting the Board to offer assistance in arranging for a conference,\nto sale its information available and to render whatever aid it can\nto the conferees.\" The conferees, therefore, asked that the Retire-\nment Board's actuarial staff make valuations of various plans which\nwere under consideration.\nThe representatives of the carriers were anxious that any system\nadopted be such that (1) the costs would not exceed 7 percent of the\npayroll; and (2) the burden of the present pension rolls would be ab-\nsorbed by the new system. The labor organization representatives\nwere insistent that (1) the individual benefits of any new scheme be\nnot less than those of the present Railroad Retirement Act; (2) full\nbenefits De available at the option of the employee at the beginning\nof are 65; (3) individual benefits be no less in any case and materi-\nally larger in most cases than those under the Social Security Act;\nand (4) the quatem be operated by the Government.\nUnder the present Bailroad Retirement Act. while no compulsory\nare of retirement is prescribed, the provisions were 80 arranged to\nput considerable pressure on employees to retire nt age 65 and the\ncarriers are free to impose compulsory retirement restrictions. The\nftures on the cost of the present Act, referred to nt the daning\nof this memorandum. were based on an assumed rate of retirement which\n#52 substantially equivalent to a uniform compulsory retirement age\nof 65. Subsequent studies have cast doubt on this assumption. If\nthe assumption were true. it would mean the in ediate retirement of\n4 percent or more of railrond employees including perhaps a majority\nof officials, as well 3.5 Teat numbers of others holding important\npiete. While many older employees could be retired at no loss, or\nperhaps B. gain to the service, the retirement of all could DE accom-\noliened, if at all, only over 56 period of years. The majority of the\nrellroads (in terms of employers) have regularly retired all employees\n0/74 attainment of Age 70. Assuming that practice to DE continued,\n$ 1000 later analyses point to the conclusion that an average BCO of\nretirement of 67% for employees retiring after 65, would be conserva-\ntive. If this assumption were used, the cost of the present Retirement\nAct would be about 8.- rather than 10 percent of the payroll.\nEarly in the negotiations it became apparent that the reconcilia-\ntion of the opposing views of the carriers and labor organizations\nwould be accomplished only by making conditions of retirement such that\nRegraded Uclassified\n258\n- 6 -\nployees in good health would continue in service materially after\nage 65. The first Railroad Retirement Act was motivated largely by\n8. desire on the part of railroad employees to force older men out of\nservice, both in order to give advancement all along the line and to\nafford employment for considerable numbers who were wholly or par-\ntially unemployed. In the light of subsequent events, this desire\nto remove all employees over age 65 appears to have been a temporary\nphase in the situation. The marked rise in railroad traffic reyenuse\nhas resulted in many advancements and promotions, has afforded full\ntime employment for most employees who were working part time, and has\nresulted in the re-absorption in active employment of substantially\nall those on reserve lists. Most railroads have been employing new\nemployees this year for the first time since 1929. There HERE to\nexist 8 considerable opposition on the part of employees to the ar-\nbitrary rules forcing retirement at age 70. The average compensation\nof employees who attain old age in railroad service has been, for the\npast year, about $150 per month. The average annuity has been about\n$65 per month, and may when final settlements are made, average $70\nor $7.00 per month. While these are, as annuities 80, rather liberal,\nthere are numbers of railroad employees in good health, who would\nprefer to continue at work rather than suffer the reduction in income.\nIn the assence of any compulsion, such employees would, of course,\nremin in service. A number of the railroads which have never enforced\ncompulsory retirement at 466 70. also appear to be opposed to 60 doing.\nIt was finally agreed by the conferees that the Bailroad Retirement\nsystem itself should contain no provision looking toward compulsory re-\n: The carriers on their part further agreed to abolish the\npresent compulsory age for retirement and to retire employees after\nace 65 only for disability and incompetence. These agreements will\nLATE, of course, B. very vital bearing OR retirement ages and on cost.\nUnder those present voluntary pension systems which provide for\noptional retirement at 65 and compulsory retirement at age 70, the\naverage age at retirement has been about 69 years. The average age\nLt retirement among non-disabled employees where there has been no\ncompulsor, retirement are has been between 70% and 71 years. It has\nares thought conservative, therefore, in calculating the costs of a\nNan having such retirement provisions, to use an avera age of re-\ntirement nmong healthy employees of 70 years. This means an average\nVE of retirement for those retiring when over age 65 of approximately\n\"- care, or an average age of retirement of All employees of about\nyears. These assumptions, if true, would involve an increase in\n2'w rate of retirement which has existed under voluntary plans of, at\nvs 65 and over, 50 to 75 percent.\nRegraded\n254\n- 7 -\nThree other changes having the effect of reducing costs as com-\npared with the present Railroad Retirement Act were agreed upon as\nbetween the conferees.\n1. Under the present Act, full benefits are payable to any em-\nployee retired by A carrier because of disability. Disability may\nbe of a relatively minor character or it may be applicable only to\nthe specific occupation in which the employee was engaged. It is\nnow agreed that in the event of retirement before age 65, annuities\nwill be paid only to employees who are permanently end totally die-\nabled for any gainful employment. Under the present Act, disability\nannuities cease only upon the re-entry of the annuitant into railroad\nservice. There is no provision for periodical proof of continuing\ndisability. Under the new arrangement, continuation of the annuity\n18 to be based upon continuance of the disability and the annuity\nceases upon the recovery of the annuitant or his entry into any gain-\nful employment.\n2. At present, any person who is an employee on or after the\ndate of enactment receives credit for all of his service prior to the\nenactment date, no matter what the length of his subsequent employ-\nment. It is now agreed that persons not in an employment relation\non the date of enactment who subsequently re-enter service will re-\ncelve no credit for prior service. Employees who sever their con-\nnections with the railroad industry before reaching retirement age\nalso forfeit prior service credits.\n3. Annuities are now payable to employees who retire from rail-\nroad service, irrespective of any employment elsewhere. Should the\nagreement be adopted annuities will not be payable in periods in\nwhich the annuitant is engaged in regular gainful employment.\nAnother development which has had a bearing on cost is the rise\nin the payroll due to increased employment. The 10 percent figure\nWas based on & payroll for all railroads of $2,000,000,000. The\naverage payroll during the last ten years has been $2,350,000,000.\naná the payroll has been as low as $2,000,000,000 in only three years\nsince 1916. At the present time the payroll is running at\n$2,200,000,000 annually, and railroad managements are estimating 8.\n10 to 15 percent increase during the current year. It seems reason-\nable to estimate the payroll for the future at $2,200,000,000. Under\nthe Railroad Retirement Act, the accrued liability is substantially\nfixed in terms of dollars, The level percentage of payroll method\ncontemplates not a complete amortization of the linbility, but, as\nin the Social Security Act old age benefits system, interest is paid\nRegraded Uclassified\n255\n- 8 -\n% Cire linoility, Since the liability is fixed the interest will\nbe fixed, and becomes smaller as the payroll increases. The\nries 2: the payroll estimate from $2,000,000,000 to $2,200,000,000\nresults in a reduction in cost of approximately 1/4 of 1 percent of\nthe carroll.\nIn addition to the civin em in the plan which nave just been\nenumerated, there was another which would probably have an important\nvifect in limiting costs. Under the present Act, employees are given\nthe option of electing a joint and survivor annuity at the time of\napplication for their own annuity. The Act contains no limito-\ntign X the amount of annuity which the employee may elect to receive\nnimelf (LE against the amount payable to the spouse. The Board has\nittemated by administrative regulation to limit the adverse selection\nm:100 could earily arise in B. provision of this sort, but it in doubt-\nfil whether such selection could be eliminated entirely. It is now\ne,reeu that the election to take or not to take a joint and survivor\nanity must be made at least five years prior to retirement and will\nnot De available to employees retiring by reason of disability. The\noptions are limited to three and in no event may an incividual elect\nto have his wife receive more than he himself does. It is believed\nthat the nes provision will substantially eliminate any adverse\nselection.\nOne change was agreed upon which, if accepted, will increase\ncants slightly. The present Act attempts to provide annuities for\nnil persons in employment or having an employment relation to e\ncarrier. The term \"employment relation,\" however, is defined so as\nis require not only those employees to hold rights under acreements,\nout requires also that such persons be ready and willing to serve,\nwich means that B 6000 many bona fide employees are left out of\nthe scheme because of permanent and total disability. This result\nMES not intended and it is now agreed that such persons are entitled\nto benefits of the Act. Their inclusion adds about 7/100 of 1 per-\ncent to the payroll costs.\n5. Costs\nThe actuarial staff of the Board has calculated that the cost of\nproviding benefits of the Railroad Retirement Act modified as outlined\nnove would be, including expenses of edministration, 6.79 percent of\nthe taxable payroll. (In both Retirement Acts and in the proposed\n>lan, compensation in excess of $300 to an individual in any one month\nis disregarded.) This procedure is based on the payment of interest\nat the rate of 3 percent per annus on an unfunded initial liability.\nRegraded Uclassified\n- 3 -\n256\nAs indicated above, those carriers which maintain pension eys-\ntens have felt that they ought not to be compelled to carry the costs\nof pensions under such systems and in addition pay a. share of the an-\nnuities for the large number of old employees on roads without systems,\nwho would in all probability be retired immediately. Calculations have\nbeen made by our actuarial staff as to the liabilities for employees\n65 and over and for those on pension rolis, road by road, as of\nJamary 1, 1932. 1 On that date the Pennsylvania Pailroad, for example,\nwould have had e liability for benefits calculated according to the\nRetirement Act to employees 65 and over (all of EUCA employees being\nunder age 70) of 11.46 percent of the payroll. On the Milwaukee there\nWES a liability of over 27 percent for employees between 65 and 69, and\na liability of 14 percent for employees 70 and over, A total of over\n41a percent. The liability expressed as a percentage of payroll for\nPennsylvania pensioners was 31. percent as compared with less than 1\npercent on the Milwaukee. Unless the new system provides for taking\nover the Pennsylvania pensioners, the Pennsylvania would not only have\nto pay all the cost of such pensions but would in addition help to\ncarry the burden of the old Milwaukee emoloyees. Taking all the roads\nhaving pension systems together, the liabilities for active employees\nwould be relatively only 60 percent of the liabilities for those roads\nhaving no pension plane. By adding in the pensioners, these inequali-\nties would, taking the groups as a woole, be approximately offset.\nThere would, of course, still remain considerable differences in any\nCO. parison involving individual railronds. The carriers themselves.\nnowever, appear to be satisfied as a ,roup to have the pensioners\ntaken over, and will apparently not raise individual questions. The\ncost of the present pension rolls would be .32 percent of the payroll.\nThis represents the interest on the accrued liability with respect to\nthese rolls since their assumption, by the system, would have the\neffect of merely adding to the accrued linbility. The total cost of\nthe plan, including the provision for present pensioners. would there-\nfore run to 7.11 percent of the payroll.\nThe committee representing the reilrond managements 538 willing\nto agree to A charge on the payroll, for the support of a retire ent\nsystem, of 7 percent, of which employees would pay for one half. They\nTitle VIII of the Social Security Act difficulty might be experienced\nfelt, however, that because of the low initial ta. rates under\nla porsundin, all the carriers to (29 alon, for the plan. Since they\nwish to naice certain of the permanency of the plan once it is in-\n@warated, they wish to secure a definite written CO -itment from all\ninscarriers binding them not to institute any liti_stion. The belief\nThis date WAR used because of the fact tist it WILS the only date for\nwich age and service records were available on a large number of\nindividual roads.\nRegraded Uclassified\n- 10 -\n25\nwas expressed that if initial taxes were fixed at 5 percent, rising\nby 1/2 percent each three years to 7 percent in 1949, the desired\nresult could be achieved. Such a tax plan would yield the -\nrevenue, taking interest into account, as would & level 6.60 percent\nof the payroll.\nThe suggestion had been made that a Railroad Retirement Act might\nDE regarded as composed essentially of two parts, the first part con-\nsisting of the benefits equal to those which would be paid to milroad\nemployees under Title II and the taxes which would be paid by them and\ntheir employers under Title VIII of the Social Security Act, and the\nsecond part, a level of benefits with taxes sufficient to provide those\nbenefits. This would mean that in calculating the cost of a. Railroad\nRetirement Act, benefits equal to those under Title II of the Social\nSecurity Act would be regarded as provided by the taxes under Title VIII.\nUnder the Social Security Act, railroad employees will receive\nmuch more in benefits than the taxes which are payable by them and their\nemployers. The total differential will probably run in excess of one\nbillion dollars, having a present value of from 350 to 500 million dol-\nlars, This disparity between benefits and taxes is in general true as\nrespects present employees in any industry. It is particularly trus\nwith respect to railroads, however, because of the relatively advanced\n200 of railroad employees. The ultimate level of taxes under Title VIII\nis misner than the level which would be required for new entrants into\nthe industry so that the deficit in respect of present employees is off-\ncet DU the overcharge for new entrants. There will be some overcharge\nin t... railroad industry. out it is smaller than for other industries\nbecause of the fact that the average age of entry into railroad service\nis aignet than it is in other industries. So far as we are aware, the\nresired Industry maintains higher minimum ages for major types of en-\naloyment than any other industry. For example, employees will not be\n(ived for train and engine service at ages under 28. We have made a\nResider of measurements for railroad employees as respects the disparity\nbenefits and taxes and have arrived at the general conclusion\nthat the value of the disparity or \"differential\" is equivalent to a\n1.001 0.50 percent of the ayroll. Measurements of course are subject\nto considerable margin of error since in the final analysis the dif-\nforential ought not to be based on costs within the railroad industry\nvione, out assumes the finality also of the present tax rates in\nBile VIII 3.6 accurate indexes of total costs. Making allowance for\ninistance of differential, the cost of the Railroad Retirement Act is\n1.68 mercent of the payroll, which is slightly less than the taxes at\n- .0 step rate already mentioned.\nRegraded Uclassified\n258\n- 11 -\nThere are appended hereto contes of a letter from the Railrond\nRetirement Board to the Social Security Board, and a letter from the\nSocial Security Board to the Railroad Retirement Board, bota bearing\non the matter of the differential.\nThe preceding discussion me implied the creation of o separate\nrailroad retirement fund (or at least no mingling into the old age re-\nserve account of taxes paid by reilronds and their employees). The\nsame result could be achieved if the Carrier Taxing Act carried, not\nall the taxes to be levied on the incustry, but only that part in ex-\ncess of those in Title VIII. These excess taxes would pay for the\nbenefits under the Railroad Retirement Act in excess of those which\nwould otherwise be payable under Title II. It would then be reason-\nable for the Railroad Retirement Act to call for appropriations to\nthe Old Age Reserve Account of such amounts us are required, on a re-\nserve basis, to meet the payments under the Railroad Retirement Act.\nThe Fun of the two appropriations - the one for Title II and the other\nfor Railroad Retirement - would then equal the total taxes collected\nunder Title VIII and the Carrier Tax Act, less administrative expenses.\nThis procedure would meet the specifications laid down by the Social\nSecurity Board.\nThe taxes under the present Carrier Taxing Act began on March 1,\n1936, although, of course, because of the injunction, the amount of\ntaxes collected thereunder has been negligible. Both parties to the\nnegotiations have agreed that, if possible, the taxes under the new\narrangement should begin on January 1, 1937; the labor organizations\nwere reluctant to agree either to the January 1, 1937 date or to the\nstep rate arrangement. But they felt that the most important considera-\ntion was the achievement of a plan which would not De further tied up\nin the courts. At the final meetings it was definitely indicated that\nthere would be no agreement and that the litigation would be pressed\nunless the lower taxes were adopted. It was understood that the Govern-\nment had not consented to the arrangement, but failure to consent would,\nof course, abrogate the agreement and, for an indefinite period, put\nthe Government back into the position of paying out annuities with no\nrevenue.\nIn making calculations on the above basis, the costs are in respect\nof a system beginning on January 1, 1937, with allowance for payments\nmade or due for 1936. Total administrative expenses to February 28,\nfrom the date of beginning operations were $1,500,000 and annuity pay-\nments made to the same date were $1,600,000. Payments are now being\nmade to 3,600 individuals and a total of 9,250 employees have notified\nthe Board of retirement. Many of these were retired during part of\n1936 and when settlements are made they will receive annuities there-\nfor. Te estimate that the total payments for anmities in 1936 when\nfinal settlaments are mde, and for administrative expenses, will not\nUclassified\n259\n- 12 -\nexceed $7,500,000. An account has been taken of that amount in cal-\nculating costs. If taxes were collected back to March 1 at the 3),\npercent rate, the cost figures which are included herein could be\nreduced by about 0.17 percent of payroll since the receipt of such\nrevenue has not been contemplated.\n260\nMarch 3, 1937\nHM, Jr. telephoned to Senator Nye and told him he would\ngive Bates a thirty-day appointment.\nRegraded\nUclassified\n2\nMarch 4\nMr. Bates went to work in the Disbursing Office\nthis morning. Mr. Allen had a job that would run\nfor 45 days, salary $1,440.\nG. Callaway\nR\nyet\n262\nMEETING WITH EXECUTIVE COMMITTEE OF\nMarch 3, 1937.\nFEDERAL RESERVE OPEN MARKET COMMITTEE\n11:00 a.m.\nPresent:\nMr. Lochhead\nMr. Harris\nMr. Haas\nMr. Bell\nMr. Harrison\nMr. Burgess\nMr. Goldenweiser\nMr. Chester Davis\nMr. Szymczak\nMr. Piser\nMr. Sinclair\nMr. Eccles\nH.M.Jr:\nBurgess, was the statement in the paper correct\nthat the dealers got quite a lot of our bills\nMonday?\nBurgess:\nThey got seventeen million of the longer bills\nagainst our maturity of about sixteen. They got\nabout twelve million of the shorter bills. Didn't\nget 80 many.\nH.M.Jr:\nHave they sold them all?\nBurgess:\nThey have sold all the longer ones, and they won't\nhave any trouble with the short ones.\nH.M.Jr:\nWell, isn't that rather unusual - for dealers to buy\nbille?\nBurgess:\nOh ! No. They regularly take some.\nH.M.Jr:\nDo they?\nBurgess:\nYes, they always bid.\nH.M.Jr:\nHow much did the System have?\nBurgess:\nWe had sixteen million maturity which we replaced\nwith the longer ones.\nH.M.Jr:\nYes.\n(Mr. Eccles comes in.)\nH.M.Jr:\nWhat is the tone of the Government bond market?\nRegraded Uclassified\n263\n- 2 -\nBurgess:\nWell, it 18 extremely quiet - very little trading -\nand it has been & little soft. I think that 18\npartly the new issue, the expectation of the announce-\nment of the new issue, and the fact that they are\ntalking about it and discussing it. I think it 18\npartly a general expectation that over a period\nmoney rates will be a little firmer. So it is a\nlittle soft, particularly the notes. The bonds\nhave been B. little soft the last few days.\nH.M.Jr:\nHave they at all been disturbed by a thing like the\nWagner Housing Bill? Has it disturbed them at all?\nBurgess:\nNever heard it mentioned.\nH.M.Jr:\nRailroad retirement?\nBurgess:\nNo 1 No !\nEccles:\nHaven't got that analysis of the Wagner Bill.\nH.M.Jr:\nWell, the Wall Street Journal today carried it, I\ndon't know where they got it, but they got it all\nright.\nBurgess:\nNo, the market 1s counting on you to retire at\nleast a billion and a half of the Federal debt\nduring the coming year.\nH.M.Jr:\nWell, they better not be too sure. How much?\nBurgess:\nA billion and 8. half. That's about right, isn't it?\nHarrison:\nI was wondering why you (H.M.Jr.) let that go past.\nBurgess:\nAnd what about the retirement?\nH.M.Jr:\nWell, after what they did to Treasury yesterday, I\ndon't know how you (Bell) feel, but I feel as if I\nhad been dragged through a keyhole.\nWell Burgess I haven't talked to anybody this week eo\nI am relying entirely on you. What does it look like?\nWhat 18 best?\nBurgess:\nIt looks like putting out some more of the 2½'s 49-53\nat a premium which ought to be determined the last day.\nH.M.Jr:\nSaturday?\nBurgees:\nYes. Now they are quoted at 101 10-11. They have\nbeen & little bit weak. They have gone off from 1011\nwhich they were a few days ago. But on that basis you\ncould - if you were doing it today, you could sell\nRegraded\n264\n- 3 -\nthem at B. half point premium, or you could do the\nequivalent - giving them interest until April 15th\nif you wanted to.\nEccles:\nWell, half a point premium would - let's see, that\nwould give them & profit on these bonds.\nBurgess:\nWell the interest\nEccles:\nAbout 25/32nde wouldn't it?\nBurgess:\nWell, you would have to deduct from that the 8/32nds\ninterest from March 15th to April 15th, a quarter of\na point interest.\nH.M.Jr:\nWe've got it here if you want to see it.\nBurgess:\nI mean last night 8/32nds - if he offers them at\n24/32nds with the extra month's interest, why there\nis three quarters of a point. Without the extra\nmonth's interest there is Just 16/32nds.\nEccles:\nWhat are the rights selling for?\nBurgess:\n101 bid price. That 18 awful low. The rates are up\nas high as 101 5 and 6. We sold quite a number last\nweek at 101 5 and 6.\nH.M.Jr:\nSort of pleased with yourself! Maybe that's why they\nare down.\nBurgess:\nNo, we stopped selling as soon as they started going\ndown.\nH.M.Jr:\nHow much have you got left?\nBurgess:\nThirty-five million. We have been anticipating it BO\nwe have a distribution of our replacement rather than\ntaking it all at once.\nEccles:\nWe have over fifty million of those 21's don't we?\nBurgess:\nNearly fifty million - forty-six or-seven, I have\nforgotten the exact figure.\nBell;\nHow much notes you got left, you say?\nBurgess:\nAbout thirty-five million.\nEccles:\nWe can exchange them though now. We had just decided\nnot to. We are not prohibited from exchanging.\nRegraded Uclassified\n- 4 -\n265\nH.M.Jr:\nWhat do you mean, Marriner?\nEccles:\nSee, we have been selling and buying. Now we have\nexchange direct with the Treasury.\nSzymczak:\nSince the Banking Act of 1935. We finally got the\nopinion that we can do it. Some question about it.\nBurgess:\nWe decided that that close association would not be\nillegal.\nH.M.Jr:\nOr contaminating!\nBurgess:\nNo.\nEccles:\nSo we won't have to sell any more.\nH.M.Jr:\nAll right with me.\nBell:\nAre we supposed to know about that?\nEccles:\nYou can forget it if you want to.\nH.M.Jr:\nHave you got a legal opinion from John W. Davis\non that?\nEccles:\nWell, somebody better than Davis. Well, we got it\nfrom Logan in New York and also Wyatt and Dreibelbis.\nWe got the opinion of the Counsel of the Board and\nthe opinion of the Counsel of the New York Federal\nReserve Bank, Bo\nSzymozak:\nThat makes it good.\nBurgess:\nOtherwise George Harrison will go to Jail.\nH.M.Jr:\nWell, it really doesn't concern us, does it?\nHarrison:\nIt might interest you.\nH.M.Jr:\nWell, its a purely academic matter.\nEccles:\nWouldn't it be & good thing, at whatever price these\nare offered, that the holders of these notes wouldn't\nnecessarily get any speculative profit as a result of\nit? If you want to discount these rights B. little in\nthe future\nBurgess:\nThey are going to make it just as close as we can\nget by with in order to make the rights a lit tle less\nvaluable.\nH.M.Jr:\nThe conversion?\n- 5 -\n266\nBurgess:\nYes, I think you want it fairly close.\nH.M.Jr:\nNo, I don't; for once, I am just going to add about a\nquarter of a point to this one because, in this room,\nthis may be one of their week-ends. So I may Just\nmake this a little extra sweet. I am very nervous\nabout this week-end. That 18 very confidential.\nBut it may be one of these week-ends and a quarter\nof 8 point - if you figure - somebody take a pencil -\nat five hundred million dollars for seventeen years\nhow much 18 it? What is it, B. quarter of a point?\nHarris:\nOne million, two hundred fifty thousand on five\nhundred million.\nBell:\nIt 18 only for once; it 1en't for seventeen years.\nOnly be for one time.\nH.M.Jr:\nOnly for one year?\nBurgess:\nYes, it 1s only once, that's all.\nH.M.Jr:\nThat's right. It 1s only one year. Figure for one\nyear. What would it be for one year?\nBurgese:\nThat's a million and a quarter dollars, that's all.\nH.M.Jr:\nWell I may want to.\nBurgess:\nYou can gamble with that.\nH.M.Jr.\nWell, insurance. I mean I'll know Saturday, I'll\nknow more, but the way I feel right now I may just\nwant to add a quarter of a point. What?\nBurgess:\nThat's all right. I don't know your situation.\nH.M.Jr:\nWell, I don't want to talk about it but you will have\nto take my word for it. I mean I've got to play\nhunches around here, and I may be wrong, but if 8.\nfive hundred million dollar conversion didn't go,\nthen a million and a quarter would look terribly cheap.\nBurgess:\nOf course this 18 very much easier than your usual\noperations because the holders of the notes have al-\nmost got to convert in order to realize any profit at\nall.\nH.M.Jr:\nBut I mean we've done this before. I mean this 1s -\nI think I did that once before. We sweetened it a.\nlittle when I was nervous.\nBurgess:\nWe have done it usually.\nH.M.Jr:\nWhat? We usually\nRegraded Iclassified\n9 # I\n267\nBurgess:\nWe usually\nH.M.Jr:\nNo.\nBurgess:\nhave made it pretty sweet.\nH.M.Jr:\nBut Marriner, I don't want to - it isn't worth the\nrisk.\nEccles:\nIf you are going out for new money I can't imagine\nmuch of a risk with the small amount, and it is\nonly a conversion. The only thought I was think-\ning of was the speculation in these rights right\nalong.\nH.M.Jr:\nThat is something else, isn't it?\nEccles:\nExcept that the sweeter this 18, the greater the\nspeculation in the future. I mean they have in the\npast always been given pretty good premiums. It's\nbeen pretty sweet and it's made the rights on these\nnotes pretty valuable. There's been a great deal\nof speculation in them. If they took a loss once on\nthem or they didn't get any profit as a result of\nbuying them, which they have been getting, 8 lot of\nthem, why, they might discontinue the speculation.\nThat's the only thought I had in mind.\nH.M.Jr:\nI know, but we got a lot of satisfied customers,\nand the fact that they have made - the reason that\nthey are satisfied is that they have pretty con-\nsistently made money. That's about the only way I\nknow we can keep them satisfied, and I think that\nthe thing somebody suggested a week ago, the possi-\nbility that we might announce in June that on con-\nversion we'd only make 75% allotments or something\nlike that - I'd rather do it that way than cut the\nthing off too close and take the risk. I mean\nbased on last night's closing if we offered it at\n101 and just cut off the 3% interest, there would\nbe 8/32nds. If we added the quarter per cent for\none month, 16/32nde, or half a point.\nEccles:\nIf you offered them at 101\nH.M.Jr:\nAt 101 and paid them double interest. It would be a\nhalf of 8. point profit.\nEcoles:\nWell that wouldn't be much.\nH.M.Jr:\nThe way it looks today we better offer it at 1001\nor 101. Then we could always figure if we are a\nlittle nervous - if I am still a little nervous on\nSaturday, I mean\nRegraded Uclassified\n268\n- 7 -\nHaas:\nIt's the other way around. You'd offer them at par\neight if you wanted to sweeten.\nH.M.Jr:\nYes, but I mean the way - last night we figured\nthat if we commenced to offer this new bond at 101,\nit will be 16/32nds.\nLochhead:\nBut that 18 a quarter less than the market 18 ex-\npecting.\nEcoles:\nYes, that's all right.\nBurgess:\nThat's all right.\nEcclee:\nYou mean 101 premium.\nBurgess:\nAnd then you'd give them in addition the 8/32nds\ninterest.\nEccles:\nThen you got about half a point profit.\nLochhead:\nAnd they are expecting three-quarters.\nEccles:\nWell, the rights are selling at more than that.\nThey'd take a loss on their rights. That's all right.\nH.M.Jr:\nWe are figuring on giving them 16/32nds profit, a\nhalf point.\nEccles:\nThat's all right. I think you got to give them that.\nWhat I was thinking was giving them a point profit -\nI mean usually they get a point profit.\nH.M.Jr:\nNo, no, I am thinking in terms of half a point profit,\nthen if I am still nervous on Saturday we will give\nthem three-quarters.\nEccles:\nOh : well, that's all right. I agree with that.\nH.M.Jr:\nThen if I am nervous we give them an extra - we make\nit three-quarters.\nEccles:\nWell, that's all right; we're both starting at the\nsame place.\nHarrison:\nYou will know though before you have to fix the price\nwhether this 16 going to be one of those week-ends.\nH.M.Jr:\nSure, we'll know, Burgess loves to call up about 12\no'clock Saturday.\nBurgess:\nI usually work 'til twelve on Saturday.\n- B -\n269\nH.M.Jr:\nAB a matter of fact, you made me - you recommended\nthat we cut off a year on the maturity at five\nminutes of twelve the last time. It was a 49-54\nand you got nervous and made it 49-53.\nBurgess:\nGlad we did.\nEccles:\nYou take the bonds; it seems to me the long term\nbonds have held up unusually well when you consider\nit. Since we announced this increase in reserve re-\nquirements, they have been Just about as steady as -\nmuch more than we had any reason to expect.\nBurgese:\nOne thing I do want to call attention to. It 1s the\nsame thing I called attention to last week, and that\n18 that the spread between the Treasury's and the\ncorporates shown on the second chart is nearly a\nquarter of a point larger than it was. That 18, the\ncorporates have been weak and the new issues have\nbeen weak. I Just heard yesterday of 8. new issue\nthat they had been talking about getting out at three\nand a quarter; they got to get it out at three and\na half now. The new issue market has been weak; a\nlot of these issues that have come out have gone off\ntwo and three points and the market has been sloppy.\nAnd the indexes are off a point or two, indexes of\ncorporate bonds. So that if you think of the relation-\nship between Governments and the corporate market as\none of the technical situations, the technical position\nof the Governments, it seems to me, with the corporate\nmarket - it seems to me 18 less favorable than it was\ntwo or three months ago.\nOn the other hand, the technical situation as to the\ndealers in their market position 18 very good. The\ndealers are holding a very small amount of Governments.\nH.M.Jr:\nWhat had you been running through your mind on how we'd\nprice this?\nBurgess:\nAbout the same 8.8 you.\nR.M.Jr:\nAbout the same?\nBurgess:\nYes, if you do it flat without paying them any interest\npar and a half; it 18 worth Just the same. It 18 worth\nhalf a point.\nH.M.Jr:\nI mean figuring it would be from half to three-quarters\nof a point profit. What?\nBurgess:\nThat's all right.\nH.M.Jr:\nYes.\n- 9 -\n-70\nBurgess:\nThat would give them 18/32nds on it today at par\nand & half without any interest.\nH.M.Jr:\nWe thought we'd announce tomorrow at the regular\npress conference at 10:30 what the piece of paper\nwas going to be, and that gives them a couple days\nto adjust themselves. Without pricing it; just say\nit le going to be the 49-53 at two and one-half.\nBurgess:\nAre you committed to that? I don't know that it is\nany mis take.\nH.M.Jr:\nI told them I'd let them know Thursday.\nEcoles:\nWell, what else would you\nH.M.Jr:\nI mean I'm not committed. Only I am committed to\nsay - I told the boys I'd let them know Thursday.\nBurgess:\nI think they will assume that you will give it to\nthem at par for par.\nLochhead:\nIf you told them you were going to give them a long\nterm bond, would that cover it?\nH.M.Jr:\nHow are they going to interpret it?\nBurgess:\nI am afraid that If you announce tomorrow that you\nare going to give them some more of 2½'s at 49-53\nthey will assume that you are going to offer par\nfor par exchange and then the rights would go right\nup.\nHaas:\nYou can say the price is still to be determined.\nBurgese:\nThen the rights would be with a point, you see,\nthat way. You see, you haven't offered an exchange\nwith a premium on it for a number of years; I don't\nknow as you ever did. Some of your predecessors did\nsometime ago and the market\nH.M.Jr:\nWell, I could just tell them I'm sorry, but I haven't\nbeen able to make up my mind.\nSzymczak:\n(Nods Yes)\nEccles:\nTell them you'll give them a long-term bond; you could\nHarrison:\nThey would still have that same assumption though un-\nless he indicated that the price was to be determined.\nEccles:\nIf you are going to say that then announce the 1ssue\nbut say the price is going to be determined which\nwould prepare them for the premium. That may be well.\n- 10 -\n271\nH.M.Jr:\nWell, if Burgess - I haven't made up my mind and\nI am not going to make up my mind until the market\ncloses Saturday. The worst would happen -- that\nI was worried and the thing might go down a little\nbit.\nBurgess:\nI think in some ways that would be better. Then\nyou still leave yourself free.\nEcles:\nThat 18, not announce the issue?\nBurgess:\nYes.\nEccles:\nWould you say a long-term issue or say nothing\nabout it?\nBurgess:\nI'd be inclined to say nothing.\nHarrison:\nYou could Bay bonds.\nEccles:\nThat's what I meant. Give them a bond. Huh?\nBurgess:\nBe no great harm in that, I think. Give them a\nbond in replacement; just what bond, just what\nprice, you haven't yet determined.\nHarrison:\nThat would indicate less nervousness than if you\nannounced the issue but said you hadn't yet deter-\nmined the price. Just say, \"I am going to give\nyou a bond, but what bond, at what price, I am not\nsure of yet\".\nBurgese:\nThat will bring your note market back a little and\nI don't think it will hurt the bond market.\nH.M.Jr:\nAll right Dan, what do you think?\nBell:\nWell, if you say & bond I am just wondering what\nthey'll be looking for in the way of R. premium on\nthat bond.\nBurgess:\nAnd they wouldn't assume it 1s the same bond necessarily\nBell:\nBut they'll assume that at least a point premium\nwill be on that bond if they go back to our previous\nexperience. They might even assume that it would be\n8-12/32nds above one point. In which case your righte\nwould go up any way.\nBurgess:\nI think the market thinks two things Dan - I've\nbeen talking with a good many people the last two\ndays. There are two guesses. They say they doubt\nif you will do notes because the note market has\n272\n- 11 -\nbeen BO weak. They don't think that would be wise.\nThey are saying in bonds, not two but three possi-\nbilities. One 1e about & ten year two and a quarter.\nThey don't think that is quite 80 good as a longer\nbond, because the intermediate market has been a\nlittle unsettled and that would be dropping your\ncoupon. They say in a longer bond there are two\npossibilities. One 18 to put out some more of the\n23's 49-53, and the other 18 to put out another\n21 of a year longer maturity. And if you say you\nare going to put out a bond they will want to know\nwhich of the three it is BO they are still 8\nlittle on the fence, which is all right. I think\nmore of them expect some more of the 49-53's than\nanything else because that seems a very logical\nthing to do, but there are a number that expect\nsomething different.\nEccles:\nLet's see, rights are selling today at about what?\nBurgess:\nAbout 29/32nds. No, 101.\nEccles:\nDoes that take into account the interest?\nBurgess:\nThe interest is 8/32nds off that BO that is three-\nquarters of a point premium.\nEncles:\nYes, three-quartere of a point. Wait 8. minute,\nwhat is it now? 11/32nds; 10 or 11/32nds?\nHarris:\nEleven.\nBurgess:\nYes, that's 21/32nds premium.\nEccles:\nWell, there would be no use in giving more than\n21/32nds. I mean if you gave them three-quarters\nof a point you'd be giving them\nHarrison:\nYou'd be giving them more\nEccles:\nYes, three-quarters; you'd really be giving them\nmore than the rights are selling for today.\nHarrison:\nAnd he wouldn't do that unless he\nBell:\nNot much more. About on the line.\nEcoles:\nAnd that would be a premium of about half a point\nwouldn't it?\nBurgess:\nYes, making no allowance for interest; three-quarters\nif you allowed interest.\nH.M.Jr:\nAlso, that keeps them from sharp-shooting at that 21,\n- 12 -\n273\nBurgess:\nThat's right.\nH.M.Jr:\nWhat?\nBurgess:\nThat's just the point.\nH.M.Jr:\nThat keeps them from sharp-shooting at the 21. They\nmight just drive that 21 down. Huh!\nEccles:\nWell, it gets you committed; which 18 -- nothing to\nbe gained by it.\nH.M.Jr:\nThe 2½'s are up to 101-11. I think that that would\nbe the best thing; simply say it 18 going to be 8\nbond; which bond and what price hasn't been deter-\nmined and won't be until the market closes. What's\nthe matter with that?\nHarrison:\nAs long as you are committed to say something, I\nthink that 18 the least harmful thing.\nH.M.Jr:\nThen whatever level it would seek. But I am afraid\nthe 2½'s - they'll just put their riflee on that.\nBell:\nCouldn't you say that all indications now point to\na bond?\nHaas:\nThat looke as if you are worried a little more than\nyou are.\nH.M.Jr:\nWell, I mean to say that by noon Saturday we'll\nknow - that 1s 5 o'clock in Europe - they're not\ngoing to do anything there.\nFeeling all right? (To Goldenweiser)\nGolden-\nweiser:\nYes, thanks. I'm fine.\nH.M.Jr:\nWell, has the Federal Reserve got any contribution\nor kick or suggestion?\nSzymczak:\nNo.\nSinclair:\nNot a thing more, Mr. Secretary.\nH.M.Jr:\nMarriner.\nEccles:\nI've had my say.\nH.M.Jr:\nDr. Goldenweiser?\nGolden-\nweiser:\nNo, Sir, I haven't anything to say.\nRegraded Uclassified\n- 13 -\n274\nDavis:\nNothing.\nH.M.Jr:\nAnybody here?\nHarrison:\nI have nothing more to add, Mr. Secretary.\nH.M.Jr:\nBell.\nBell:\nNo, Sir.\nH.M.Jr:\nGeorge.\nHaas:\nNo.\nH.M.Jr:\nArchie.\nLochhead:\nNothing.\nH.M.Jr:\nHarris.\nHarris:\nNothing.\nH.M.Jr:\nWell, while we are together a minute, Marriner,\ndo you want to say anything at all about the\ngeneral price situation?\nEccles:\nWell, there 18 quite B. bit to be said but I don't -\ndo you want me to?\nH.M.Jr:\nWell, I just - we are here and you fellows come down\nand I just wondered 1f there is anything that your\npeople say or anything that you want to say. I mean\nI am getting used to these round tables since I've\nbeen up to Harvard.\nGolden-\nweiser:\nThat went pretty well, don't you think, Mr. Secretary?\nH.M.Jr:\nI thought BO.\nEccles:\nI was talking to Dr. Goldenweiser yesterday after I\nhad lunch with you and he gave me something more\nspecific than the general discussion. He said there\nwas quite a crowd of Economists there, with Professors\nRogers and Neeley, Crowders and Riefler, and that a\nlot of them shot some pretty pointed questions at you\nand you handled them very well, he said.\nH.M.Jr:\nHe missed the morning session.\nGolden-\nweiser:\nYes, but I heard an account of it.\nH.M.Jr:\nIt went pretty well. I know it was fun for me.\nProfessors. They didn't give the students a chance.\nThe only thing we suffered from there was too many\nRegraded\n- 14 -\n273\nGolden-\nweiser:\nEspecially one particular one did too much talking\nin there.\nH.M.Jr:\nNo, I mean 16 there anything that you want to say\nnow, anything you think we ought to\nEccles:\nWell, I think the thing that we have got - at\nleast it concerns me - we haven't had a chance to\ndiscuss it over in the Board because most of them -\nhalf of our members have been away. And, of course,\nthis matter of increasing reserve requirements and\nother action - we have Just got through with it, but\nthe situation at the present time with reference to\nthese rapid increases in prices that we are getting,\nwhich I term a price inflation as distinguished from\na monetary inflation - I mean it 1s an increase in\nprices not caused primarily as a result of & monetary\nsituation but due to an unusual demand for certain\nraw materials and a shortage in productive capacity\nunable to meet the extreme demand, either due to lack\nof factory capacity or a lack of supply of skilled\nlabor.\nNow I have in mind three or four things. There is\nsteel, the most outstanding; copper; lumber. All\nof those three items have been withdrawn from the\nmarket as to quoting future prices. They will take\nno ordere for future deliveries. They are operating\nto capacity. We hear of steel at 85%. Well it\nreally - 85% is 100%. The 15% that isn't included\nis a lot of old capacity that just 1sn't ready and\ncouldn't be operated anyway.\nI was telling the Secretary yesterday that I was up\nto the Homestead Mill a couple of weeks ago and spent\nhalf a day with the United States Steel people going\nall through that'mill, and they were operating twenty-\nfour hours a day, and they said that the whole steel\nindustry was operating on that basis. Now they had\nsome capacity there that hadn't operated for twenty\nor thirty years; that was one of the old Carnegie\nMills that was built in 1883.\nNow you take in the lumber situation, and it is - we\nhave practically a capacity operation, and they have\nwithdrawn from the market. Prices advanced $2.00 8.\nthousand here just two weeks ago.\nAnd I was talking to Mr. Hunt, the head of the\nAluminum Company. He saye that they are operating\ntwenty-four hours a day, to absolute capacity, at\nthe present time.\nRegraded Uclassified\n- 15 -\n276\nNow that situation 1e due to forward buying,\nanticipation of strikes, buying in anticipation\nof further rises. The very fact that they have\nwithdrawn prices only stimulates greater demand.\nIt 16 going to throw our whole economy out of bal-\nance if it continues.\nAgriculture - you will find that their farm imple-\nments are getting increasingly expensive, that\ntheir materials that they have to buy for their\nbuildings and their fenoing, and steel and lumber\nproducts, copper products, etc., are rapidly in-\ncreasing.\nIt will, of course, \"tend to cause a further acute\nshortage of housing or a building - construction of\nhousing at prices that are altogether too costly.\nWe've got a shortage of skilled help in the build-\ning trades in a great many parts of this country.\nNow that type of an inflation cannot or should not\nbe controlled by restricting credit, as long as you\nhave got a lot of unemployed people. To restrict\ncredit, in time, of course, would break these prices,\nbecause it would reduce the demand to a point where\nthe existing capacity could take care of the demand.\nIt seems to me the way to stop a price inflation such\nas is developing now, of course, 18 to increase\nproduction and thus absorb idle men. Now, you can't\nincrease production rapidly when it is a question\nof requiring an addition to plant facilities. Where\nit 18 a question of shortage of skilled labor, you\ncan either work more than forty hours a week those\nthat you have, certainly not reduce skilled labor from\nforty-eight to forty-four, or forty-four to forty,\nand thus reduce the shortage of skilled help until you\ncan meet the situation by training the unskilled help\nand the semi-skilled help.\nIt seeme to me that the most effective way to do this\nwould be possibly to drop the tariff on certain items.\nLumber has a $3.00 tariff; Canadian lumber can come\nin. Copper has 8. 4-cent tax. I don't know just what\nthe tariff is on steel; but it would be an excellent\ntime to - maybe we could get some of that Chilean\ncopper; I don't know whether they've got B. surplus or\nwhether the European demand for war purposes is such\nthat we couldn't divert any this way. I don't know\nenough about this situation, but anyway, if it were\npossible to take eome foreign goods and tend to hold\ndown these prices at this time, giving them dollar\nexchange to buy some of our cotton or to apply against\ntheir debts, instead of foreign capital coming in here,\nwe'd be far better off and help balance our situation.\nRegraded Uclassified\n- 16 -\n277\nHaas:\nor course, the lead on most of these prices was\nabroad rather than here - copper, tin, lead, all\nthose things. In other words, you've got the\nmarket higher over there than over here.\nEcoles:\nI knew that was true of copper.\nSinclair:\nThat would saturate our demand over here, wouldn't it?\nEnclee:\nWell, you could - the threat of reduced tariff on this\nwould, I am pretty sure, help the lumber situation.\nH.M.Jr:\nCopper situation - it is a world cartel which they've\ngot pretty well controlled. It 18, I think, a situa-\ntion peculiar to itself. I know a little bit about\n1t.\nBurgess:\nBut you are more apt to get full production if you\nreduce your tariff on copper 80 they can send it in.\nEccles:\nI am not so sure on copper that they are anxious to\nhold these prices. It seems to me what a lot of\nthese fellows are saying - \"Well, we operated for\nyears here, took a loss\" - and they are trying to\nmake it fast. Well, of course, in the effort to\ndo that they are going to expand the steel productive\nfacilities, they will build new lumber mills, open new\ncopper mines. In fact, Phelps-Dodge now are working on\none in Arizona. I talked to Lucas last week, who 18\nthe President of Phelps-Dodge, and they are opening\none down in Arizona at the present time.\nH.M.Jr;\nReopening or a new one?\nEcoles:\nOpening a new one, developing a new one. You develop\nour facilities for production to meet what would be 8.\nnormal requirement, plus an effort to make up a huge\nbacklog because of 8. depression condition, and then\nafter a period of time you have made up this backlong,\nyou have got caught up on the thing, and you have\nproductive facilities all out of relationship to what\nthe current requirement 18, and, of course, your elump\nis accentuated then.\nGolden-\nweiser:\nParticularly undesirable to develop a capacity to\nmeet armament demands.\nEccles:\nYes. Well it's, I think, a pretty serious situation\nand it's a type of inflation that we can't control by\na restrictive credit policy.\nHaae:\nYou can accentuate it, particularly in the construc-\ntion field.\nRegraded Uclassified\n- 17 -\n278\nEccles:\nYes.\nH.M.Jr:\nWell, I just wanted to hear.\nWell now you're going back tonight, are you, Burgess?\nBurgess:\nGoing this afternoon. At your disposal.\nH.M.Jr:\nGeorge, where are you going to be this week-end?\nHarrison:\nAnywhere you say.\nH.M.Jr:\nAnywhere near a telephone?\nHarrison:\nOh! yes, I expect to be in New York.\nH.M.Jr:\nOh! you will be?\nHarrison:\nYes, unless you want me here.\nH.M.Jr:\nNo, no, I just wanted to know if you were going\nback to South Carolina.\nHarrison:\nNo - unfortunately.\nH.M.Jr:\nHaving got the biggest turkey\nHarrison:\nyes, there are none left.\nH.M.Jr:\nWell, all right. I have nothing else, have you?\nHarrison:\nI think what the Chairman says cannot be over-\nemphasized because if we hope to attack the remain-\ning unemployment problem, our best field 18 in the\nbuilding field and the price rises that are going on\nnow are going to hit the building industry harder\nthan anything else. If there 18 some way by which\nwe can keep the prices of those raw materials that\ngo into building down, why, of course, it 18 to the\nbenefit of our whole general economy right now.\nTariff would be one way, I think; might not be wholly\neffective in every line, but it would be effective in\nsome lines.\nEccles:\nIt is important too that wages and houre - these\nindustries at the present time don't hesitate to in-\ncrease wages because they increase prices twice as\nmuch as they increase wages, and they use the wage\nincrease a.8 an excuse for 8. far greater price\nincrease.\nHarrison:\nThere is no doubt though, Mr. Chairman, that some\nof the demand for raw materials 1s due to building\n279\n- 18 -\nup of inventories, anticipating higher prices either\nthrough strikes or increased wages.\nEccles:\nThat's right.\nHarrison:\nThose two things and\nEccles:\nAnd reduced hours.\nHarrison:\nand reduced hours. Now I've been\ntalking to some of the banks in New York and I\nfind that a large part of the increase in their 80-\ncalled commercial loans are to finance the building\nup of inventories, frankly. Now while we couldn't\nattack it by any general program of credit policy,\nit may well be that in some fielde we could dis-\ncourage bankers from financing the building up of in-\nventories. You couldn't do it uniformly and it would\nbe unfair to certain banks to get them to cooperate\nby not advancing funds to build up inventories, when\nother banks would be glad to take on the business.\nEccles:\nI think the thing that would possibly be the most\neffective - I think worth considering - 1e that the\nBoard may make a statement in its Bulletin with\nreference to this whole situation: a public under-\nstanding of the problem with reference to this price\ninflation and the question of the effect of reducing\nhours in skilled fields, and adding to the further\nincreasing prices, the question of speculative buying\nto accumulate inventories; and something critical\nshould be said about these business concerns which\nwithdraw from the market - now that 16 just another\nway of getting prices up farther; the very fact that\nthey withdraw prices, you see.\nBurgess:\nIt's pretty hard to get around it though, because a\nbusiness concern that is building an inventory now\n18 probably pretty smart. They are going to make\nmoney out of it. We would, if we were doing 1t,\nprobably.\nDavis:\nI don't think that a general sermon along that line\nwould be convincing or have any good effect.\nHaae:\nWhen you take the textile industry; it 18 already\nwell filled up, as best I can analyze it.\nH.M.Jr:\nWell, thanks, gentlemen for coming.\n280\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE March 3, 1937\nTo\nSecretary Morgenthau\nFROM M. A. Harris\nThe 3% Treasury notes due 4/15/37 were quoted at the close last night 101\nbid, 101 2/32 asked. This is a premium of about 21/32nds in excess of\na zero yield to maturity.\n3% TN 4/15/37 IN EXCHANGE FOR 2 1/2a 1949/53 AT A PRICE\nCurrent Bid\nOffered Price\nValue of one\nPrice difference\nPrice of 22ª\nin exchange for\nPrice\nmonth interest\nplus one\n1949/53\n3% TN 4/15/37\nDifference\non 35\\TN 4/15/37\nmonth's interest\n101 8/32\n100 24/32\n16/32\n8/32\n24/32\n101 8/32\n101\n8/32\n8/32\n16/32\nOTHER POSSIBILITIES\nEstimated\nProbable\nSuggested Coupon\nMaturity\nMarket Basis\nPremium\n1-1/2% (5-yr. Note)\n3/15/42\n1.38\n18/32nds\n2-1/2% (13-yr. Bond)\n3/15/50\n2.41\n1 point\n2-1/2% (14-yr. Bond)\n3/15/51\n2.44\n23/32nds\nNote: Since the meeting last Wednesday, the government security market has\ndrifted lower each day except on last Thursday when the announcement as to\nthe March 15th financing resulted in higher prices. Last night's (Tuesday)\nclosing bid prices as compared to closing bid prices a week ago showed 4 losses to\nof 2 to 8/32nds for Treasury bonds, 2 and 3/32nds for short notes and\n9/32nds for long notes.\n281\nMarch 3, 1937\n12 noon\nDr. Feis\nMr. Haas\nMr. Lochhead\nHM,Jr: I got what the President calls one of his\nbrainstorms. Yesterday afternoon we got a message from\nChamberlain, photostat copy of which I sent to Mr. Hull,\nIn which he says that the French cannot last more than\nthis week. Chamberlain does not know any more than I do.\nde says a week and Cochran says two weeks. Knowing how\nthose things hang on, let's say that they last until the\nend of March.\nI hate to sit here and not do anything. If you\nhave not read Auger in the New York Times today, do SO.\nThe fact remains that if the French should collapse, it\ncertainly is going to bring things to is head in Europe.\nI am very, very pessimistic.\nI have been wracking my brain as to what we cup\ndo.\nI think that we can greatly strengthen the Tri-\npartite Agreement if we invited Russia to join us. They\nare the second biggest producer of gold and they have a\ngreat deal of gold. Russia has everything to gain and\nnothing to lose. Complete collapse of France means\nthat they might expect an attack on either their eastern\nor western front.\nFeis: The situation is as acute in Germany as\nit is France from an economic point of view. Because\nof their powers of control it cannot have the same con-\nsequences.\nHM,Jr: It is like a fight between two drunken\nmen -- which one will die of exhaustion first. I am\nJust passing this on to you to think about. It really\nhas not crystallized itself in my mind as yet.\n28c\n-2-\nFeis: Chamberlain put down at the end of the\nmessage to you, which you received yesterday, that this\nsituation requires internal action by France. I do not\nthink bringing Russia into this would help the internal\nsituation of France. I think that they would have to\nagain devalue the franc. That gives them enough money\nto meet their bills because that is the problem. Then\nif they could create a situation from which they can\nborrow from their own people and use that borrowing to\nlay P. more permanent foundation, they can without too\nfundamental a change create 8. situation where they can\nborrow from their own people. They might have to bring\nabout a change in the Bank of France and also in the\nCabinet. I hope that all of that can be achieved with-\nout political disorder in France; that Blum would be\nable to work it out. Perhaps somewhere along the line\nthe British and American Governments could help.\nHM,Jr: Puleston told me, about a month ago, and that\nis where I got the idea, that when you stop to consider,\nRussia and we have the same common enemies.\nI just want to give this to you as a thought. Russia\nhas a great deal of gold. They have 8. great deal of\nplatinum.\nFeis: From purely a financial standpoint, I think\ninelead of doing the job, it might make the French situs-\ntion worse.\nHM,Jr: I have not talked to the President about\nthis. It has not even crystallized in my mind. I want\nyou all to think about it. I do not know whether this\nthing is any good, but I am just looking for an idea.\nFeis: There may be an opportunity for the President\nto say something dealing with the political aspects -- for\nthe President to say something that would help Blum.\nHM,Jr: I cannot see what the President can Bay to\nhelp France.\nFeis: The crisis Democratic Governments have to go\nthrough -- how much social improvement and reform can be\nbrought.\n283\n-3-\nHM,Jr: I was thinking this afternoon, all I can\nBay in this room, leaving out the monetary thing, the\nthing that is hurting France is the political thing.\nThey know where Roosevelt stands. But if Russia comes\nalong and saye, 1We are going to join this thing because\nwe are not going to let anybody wipe France off the map.\nWe have & lot of business relations with France and we\nhave R. great deal of gold. -- the very thing you wanted\nRoosevelt to say -- I think the Russians should say.\nFeis: There are two possible ways that France,\nover a period of time, can become master of its circum-\nstances:\n1. Decided move toward State control.\n2. A very limited move toward reassur-\ning private capital.\nWhoever is in power in France 16 going to have to\nmake that choice. I would say that to make your one\nmove now -- the association of Russia -- would not help\nthe situation in France.\nHM,Jr: Before the Russians could come into the\nTripartite Agreement she would. have to subscribe to our\nmethods of dealing.\nFeis: It would almost force Blum to take the opposite\nroute. The opportunity of building both the unity and the\nconfidence which may enable Blum to carry through can be\nmuch helped by the President and Chamberlain.\nHM,Jr: The President will get that the minute Bullitt\narrives. That is the only appeal that Bullitt has.\nFeis: I think this steel settlement 1s going to boost\nthe President's position throughout the world.\nAt this point, Dr. Feis left and Magill came in to\ndiscuss some matters with HM, Jr. About ten minutes later\nFeis returned and said, \"What about Japan? Could she not\nserve in place of the country you talked about at the meeting?\nHM, Jr. then replied, \"Why not Italy?\" It was agreed that\nfurther thought would be given the various suggestions.\nMESSAGE FROM THE CHANCELLOR OF THE EXCHEQUER\nTO THE SECRETARY OF THE UNIT D STATES THRASURY.\nPlease thank Mr. Morgenthau for his\nmessage and assure him that I fully share his\ndesire that we should continue to keep in closest\ntouch about the French situation.\nAs stated in Chancellor of the Exchequer's\nmessage to Mr. Morgenthau February 10th His Majesty's\nGovernment urged the French Government to take speedy\nmost vigorous action to restore confidence. French\nMinisters in their reply stated that the French\nGovernment were firmly refusing to impose exchange\ncontrol and that measures which they had under con-\nsideration included free movement of gold, 8 pause in\nincrease of expenditure, use of a more elastic tech-\nnique by French equalisation fund to defeat speculation,\nlimitation of rise in prices and reduction of customs\ntariffs and abolition or limitation of quota re-\nstrictions.\nHis Majesty's Government regard (1) a free\ngold market combined with (2) a more elastic technique\nin employment of French equalisation fund as of special\nimportance. As regards (1) foreign exchange should be\nin our view treated on the same footing as gold, and\ncapital should be free to return to France without\npenalty or hindrance. Ae regards (2) it was\nexplained that our experience suggests that 80 long\n86/\nRegraded Uclassified\nas rate of franc is rigidly pegged speculators for a\nfall can operate at small expense in hope of making a\nprofit without incurring a loss. His Majesty's\nGovernment stated that they would be quite willing\nfor their part if it were desired by French Government\nand should United States Government concur to state\nthat it was with full concurrence of His Majesty's\nGovernment that French Government intended in present\ncircumstances to make use of liberty given by existing\nFrench law to vary value of franc from time to time.\nI had expected to receive 8 further\ncommunication from French Government at the beginning\nof last week and was waiting for this before sending\n8 message to Mr. Morgenthau. But I now learn that\nFrench Government postponed any decision until after\ndebate in chamber on Friday last and that I cannot\nexpect any further communication for a day or two.\nHis Majesty's Government agree with the\nUnited States Government that a further depreciation of\nthe franc by not more than eight per cent would in\npresent circumstances not be open to objection but 88\nexplained above they consider that in order to restore\nconfidence free movement of gold at its full value\nshould be permitted and that the franc should then be\nallowed to vary within limits fixed by French monetary\nlaw. They would be very glad to learn if the United\nStates Government agree in this view.\nGenerally speaking His Majesty's Government\nfeel that situation depends on internal measures to\nbe taken by the French Government who have already been\ninformed/\nRegraded Uclassified\ninformed that His Majesty's Government in the\nUnited Kingdom have no statutory power even if they\nwere willing to take part in a modified pooling of\nstabilisation fund resources as seemed at one time\nto be suggested. But I would like Mr. Morgenthau\nto know that in my personal opinion there now\nremains little hope of avoiding a eakdown of\nmonetary agreement due to exhaustion, perhaps in the\ncourse of this week, of recent London credit.\nI\nagree with Mr. Morgenthau in thinking that there is\nnothing which the United States Government and His\nMajesty's Government can do to help the situation\nthough of course I should be glad to consider any\nsuggestion of action which might be taken in concert\nto prevent breakdown.\nRegraded Uclassified\n287\nGROUP MEETING\nMarch 4, 1937\n9:30 A.M.\nPresent:\nMr. Magill\nMr. Gaston\nMr. Taylor\nMiss Roche\nMr. Lochhead\nMiss Chauncey\nMr. Oliphant\nGaston:\nI have a telegram from Cy Upham yesterday saying his\nmother was to be operated on today.\nH.M.Jr:\nWhere's Herman Oliphant?\n(Oliphant comes in)\nMr. Sabath sends a letter which arrived here at\n4:30 and he wants an answer by eleven (hands letter\nto Oliphant). I'd like for him to jump in the\nPotomac.\nMagill:\nAlso at 4:30 yesterday afternoon, we received this\nmaterial from Mr. Latimer. I gave one copy to Mr.\nBell for study in his office. We have two, I\npresume the other one had better go to Mr. Haas and\nMr. Reagh. Most of the stuff is a - well, we could\ncall it either background or apology, I should say -\nten pages history and ten more pages of figures.\nH.M.Jr:\nWell, did the telegram every go?\nMagill:\nHe WES to call me back. He didn't call me the day\nbefore yesterday, so I called him up yesterday and\nasked him about it. He said he'd call me back.\nNever has called me back.\nOuston:\nMcIntyre said over the telephone that he thought\nthey might handle it by telephone - that the White\nHouse might handle it by telephone to the railroad\npeople.\nMagill:\nLatimer said that he knew that Mr. McIntyre had\ncalled Mr. Pelley and Mr. Harrison, but he didn't\nknow what he had said to them or anything about it.\nH.M.Jr:\n(On phone) Get Mr. Latimer, Railroad Retirement\nBoard, please.\nYesterday afternoon I happened to hear Steve Early\nRegraded\n288\n- 2 -\nsay he'd played golf with Mr. Pelley. Maybe it\nwas all settled.\nTaylor:\nHe does practically every afternoon.\nH.M.Jr:\nDoes he? Well, it's pretty important as far as the\nTreasury is concerned - 140 million dollars.\nMagill:\nThe other thing that I have in mind is a long dis-\ntance business. Who could we get that could make\na study of the various forms which are used in\nInternal Revenue, particularly these income tax\nforms, who would have some ideas?\nH.M.Jr:\nNow wait a minute, along what line? How to pay or\nnot to pay income tax?\nMngill:\nNeither one.\nH.M.Jr:\nThey give you a book up in New York, published by\nSimon & Schuster, on that.\nMogill:\nDon't buy it. Itwon't do you any good.\nNo, to get that material organized in some sort\nof form so that the man making out the return can\nunderstand what he is doing, and then also that the\ninstructions be put in some sort of form that they\ncan be understood. That form\nH.M.Jr:\nI'm a little low, Roswell, this morning; I mean\ndon't expect any...\nWhat would you suggest?\nMogill:\nWell, it looks to me like one of those things could\nbe passed to George Haas, but\nH.W.Jr:\nWell, why George?\nBees:\nThanks.\nOliphant:\nI'd like to make a suggestion.\nNogill:\nWell, it's partly - the reason, if I may answer - the\nreason to pass it to George is that a lot of the\ncomplexity of that return is chargeable to his pre-\ndecessor; I don't think it's chargeable to him. But\nevery time somebody on that staff had a bright idea,\ntwelve new questions went on the income tax return.\nRegraded Uclassified\n289\n- 3 -\nH.M.Jr:\nWell, if it's partly legal and partly S tatistical,\nI would suggest that we have a committee and that\nthey be detached to work on that exclusively, if\nit is that important; and I would say that Mr.\nOliphant put a man on it, Mr. Haas put a man on it,\nthat you (Magill) get somebody, hire somebody if\nnecessary, especially, and ask Mr. Helvering to\nput a representative on it.\nMagill:\nI would like to see somebody on it - just as a\nchance shot - the kind of person who would work\nfor the International Business Machines Company,\nsomebody who knows about forms as forms.\nH.M.Jr:\n(On phone) Hello, how are you? (To Mr. Latimer;\nrecord of conversation follows:)\nRegraded I Iclassified\n290\nMarch 4, 1937.\n9:37 a.m.\nH.M.Jr:\nHow are you?\nLatimer:\nAll right, thank you.\nH.M.Jr:\nMr. Latimer, what, if anything, has been done about\nletting your railroad people and the railroad unions\nknow about the government's position in regard to\nthis Social Security tax?\nL:\nWell I - night before last, after I left you, I carried\nover to Mr. McIntyre a draft of a telegram which had\nbeen agreed upon and he said he would handle it and I\nbetter - I tried all day yesterday to find out precisely\nwhat he did and just five minutes ago I tried to get him\nthis morning to find out and I'm not (coughs) - haven't\nbeen able to find out yet whether he did anything or\nnot.\nH.M.Jr:\nWell, I think it's terribly important.\nL:\nI had - I understood that Mr. Gaston had called over\nthere but hadn't found out very much. Mr. - I talked\nto Magill. He was under the impression that some\ntelegrams were going out but I still haven't been\nable to find out whether they actually went out or\nnot.\nH.M.Jr:\nWell I mean why should they go from the White House?\nD:\nWell, it was decided that the - Mr. Gaston said that\nthey should have White House clearance and we should\ntake what they wanted to do. Mr. McIntyre thought\nthey shouldn't go from anywhere else 50 I left it in\nhis hands.\n1.M.Jr:\nWell.\nL:\nNow if that should be reconsidered why\nH.M.Jr:\nNo I think they should go. I - I - I think it leaves\nus in a very embarrassing position.\nL:\nWell they may have gone but I haven't been able to\nfind out yet....\nH.M.Jr:\nAh-ha,\n291\n- 2 -\nL:\n.....as to whether they are. As I say, I'm supposed\nto get hold of Mr. McIntyre in 15 minutes. That's\nthe last word that I had.\nH.M.Jr:\nThank you.\nL:\nAnd I was going to call back immediately I found out.\nH.M.Jr:\nThank you.\nL:\nAll right, sir.\nH.M.Jr:\nGoodbye.\nRegraded Uclassified\n292\n- 4 -\nH.M.Jr:\n(To Operator) Will you tell McIntyre's office that\nI'd like to talk to him before he sees the President.\nI consider it very important. And I'll take it on\nthis wire.\nOperator:\nAll right.\nGaston:\nDid he say it was left in my hands?\nOliphant:\nNo, he said over at the White House.\nGaston:\nYes.\nH.M.Jr:\nLet me just read you two things. United Press: \"In\nParis government bonds opened two points higher today\non the basis of stock market reports that Secretary\nof Treasury Henry Morgenthau, Junior, had assured\nGeorges Bonnet, new French ambassador to Washington,\nthat the United States was willing to nelp France\nout of its present financial difficulties. Other\nissues followed the bonds upward. The Washington\ncorrespondent of the Petit Parisien cabled that\nMorgenthau gave Bonnet unequivocal assurance of\nsupport.'\nLuckily, I had Mrs. Klotz here and Dr. Livesey,\nand we wrote up the minutes of what happened, of\nwhat I said to Bonnet. Then Livesey came back\nyesterday morning and he and Mrs. Klotz wrote up\ntogether the minutes. I mean I wanted to make\nabsolutely sure - I mean because his French was -\nnis English was so broken that anything that he\ndidn't get - Livesey, who speaks French, could sup-\nplement what they might or might not have said.\nSo I've got a written document.\nOliphant:\nWhat did the other one say?\n1.1.Jr:\nWell, of course, what I said was just about as\ndifferent as that the moon is shining now.\nThe other one said: \"There were rumors of impending\naction to permit the franc to slip to the minimum\nrate under the tri-power accord, 43 milligrams of\ngold, compared with the present 47 milligrams. This\nwould put the dollar above 23 francs. The Cabinet\nis scheduled to meet at 10 A.M. tomorrow, two hours\n293\n- 5 -\nbefore the opening of the Bourse. Financial\nMinister Vincent Auriol, who was 111 and unable\nto attend the last meeting, will be present.\nMany observers felt that important financial\ndecisions will be made at tomorrow's meeting.\"\nThey are getting the German habit of doing\nweek-ends, aren't they?\nIncidentally, stick this in your vest pocket (to\nTaylor) - nobody see it. And our friend is\ncoming back at 4:30 tonight. You'll understand\nafter you've read it. But don't leave it out of\nyour own pocket, will you please?\nI've read this - had it dictated over the phone\nto Cordell and when he gets down to his office\nI'm just going to throw - I'm going to throw Mr.\nBonnet down just about as not as I can. But I\nwould suggest, Herbert, that you may go out and\nsuggest that the correspondent of the Petit\nParisien be here at 10:30.\nCaston:\nUh-huh.\nH.M.Jr:\nWhy don't you Just do that now, will you? That\nhe be here at 10:30. See?\nGaston:\nYes.\nE.M.Jr:\nAlso Havas. I mean I can't - I even thought I\nmight have Bonnet here.\nTaylor:\nMay be a better correspondent than that of the\nPetit Parisien.\nH.M.Jr:\nWhat would you think of having Bonnet here?\nTaylor:\nNo, you can't.\nH.M.Jr:\nWell, I'm just going to say that the Petit Parisien -\nI'm going to say the correspondent of the Petit\nParisien is nuts.\nOliphant:\nThat's good French.\nH.M.Jr:\nWhat?\n234\n- 6 -\nOliphant:\nThat's good French.\nH.M.Jr:\nI guess the French of nuts would be \"noits\" - give\nit the French pronunciation. I can bite nails or\nBonnet this morning - either one.\nRoswell?\nMagill:\nThat's all.\nH.M.Jr:\nWell, I'm trying to get this fellow.\nHeas:\nThere is a committee in the American Economic\nAssociation - joint committee of the American\nEconomic Association and the American Statistical\nAssociation, on these forms that Ros is talking\nabout.\nH.S.Jr:\nWhat I'm getting at is that I suggest a committee -\nyou (Magill) want International Business Machines;\nhire somebody particularly for this and form a\ncommittee, have somebody from Oliphant, somebody\nfrom your place, and somebody from Haas' office.\nDetach them; I consider it that important; and\nwe'll let them work on that exclusively. How's\nthat?\nMagill:\nGood.\nH.M.Jr:\nYou hire anybody that you want. How's that?\nOliphant:\nI'd like to suggest that income tax forms suffer\nfrom an excess of lawyers, an excess of economists,\nan excess of statisticians. What it needs is some-\nbody who can write English, and I would suggest\nGaston on that committee.\nH.M.Jr:\nI thought you were going to say Dorothy Thompson.\nOliphant:\nNo.\nHaas:\nHe means Oliver Wendell Holmes.\n8.M.Jr:\nI'll make you a good suggestion. Just put your\nhands on Georgie's shoulders. I suggest George\nO'May on that committee, and I'm serious.\nRegraded Iclassified\n295\n- 7 -\nOliphant:\nWell, he's an accountant, but it suffers from\ntoo many accountants and technicians.\nLochhead:\nThat economist Pegler who's been writing income\ntax\nH.M.Jr:\nAnd I refer you to Pegler's column this morning.\nMagill:\nYes, that's a nice column this morning.\nH.M.Jr:\nJust read it. Seymour Weiss went out fishing with\nJim Farley, and Mr. Pegler just devotes his column\nto it.\nTaylor:\nI think he ends on a splendid note, too.\nH.M.Jr:\nWhat was that? I forget.\nTaylor:\nde says the atmosphere has changed; they don't say\nwhich way, but your nose knows.\nH.M.Jr:\nWell, does that take care of you (Magill)?\nMagill:\nThat clears me.\nH.M.Jr:\nI say you can hire some fellow, whether it's\nDorothy Thompson or - what's-his-name, that Professor\nup at English\nMagill:\nMark Sullivan?\nH.M.Jr:\n....up at Yale.\nGaston:\nWilliam Lyons Phelps.\nMagill:\nGene Tunney I think you're thinking of. He's a\nProfessor at Yale.\nH.M.Jr:\nWilliam Lyons Phelps.\nGaston:\nI can tell you - Franklin P. Adams is the best man\nI know. He's out of a job now.\nH.M.Jr:\nGaston hasn't got anybody unless he hires someone.\nI want somebody hired on this to work on this\nexclusively.\nRegraded\nUclassified\n286\n- 8 -\nOliphant:\nWell, I'm dead serious that the most important\nthing about it is to get somebody to explain it\nin English.\nH.M.Jr:\nWell, the committee is now composed of a representa-\ntive from Mr. Magill's office, a representative of\nMr. Oliphant's office, a representative of Mr.\nGaston's office, and a representative of Mr. Haas'\noffice.\nDo you (Lochhead) happen to know what the cross\nrate is?\nLochhead:\nI think we better keep the cross rate out of this.\nH.M.Jr:\nHello (On phone - Has conversation with the\nPresident, transcribed separately)\nOliphant:\nMy turn.\nH.M.Jr:\nJust one second. Now, are you (Magill) satisfied?\nMagill:\n(Nods yes)\nH.M.Jr:\nOn this committee - see, I want a report of progress\nfrom this committee twice a week, Wednesdays and\nSaturdays. I'd like a report every Wednesday and\nSaturday. I consider it of greatest importance and\nI want them completely detached and to devote their\ntime exclusively to that.\nAnd tell Mr. McReynolds particularly about this\nthing, so that he watches this thing and puts a\nfinger in.\nNow, you've started something end we'll go through\nwith it. All right?\nOliphant:\nWell, the taxpayers will rise up and call you blessed.\nMagill:\nWhat you need now is somebody to work for the committee.\nH.M.Jr:\nAnd afterwards - I don't want to do it until after the\n15th of March, but right after the 15th of March\nwe'll announce that such a committee has been formed\nand they are devoting themselves exclusively to that.\nBut don't do it until after the 15th of March.\nRegraded\n297\n- 9 -\nHaas:\nThere is an existing committee, but inactive,\nover in the Bureau.\nH.M.Jr:\nBut by god this is going to be active, and I\nwant a report twice a week.\nMagill:\nI know there was a committee of this kind in\n1933 when I camedown here. There's always been\na committee. And that was the year they made\nthe return worse.\nH.M.Jr:\nAre you going to get somebody to put on it?\nMagill:\nI'm certainly going to try?\nH.M.Jr:\nGoing to?\nMagill:\nYes, I will.\nH.M.Jr:\nIt's your committee now.\nMagill:\nI see that.\nA.M.Jr:\nThis is what I said to the Ambassador. It's\ninteresting to read what you said again. (Reporter\ninstructed not to take reading of conference with\nBonnet)\nI\n1\nI\nThat's the whole thing.\nIsn't that interesting? What? It's important to\nhave it, isn't it?\nOliphant:\n(Nods yes)\nA.M.Jr:\nNow, that's that, and we have really done something\nthis morning. It is a historic occasion.\nAll right.\nOliphant:\nWhat we had on the matter that Manning was working\non - we wanted to get certain material from the\nFederal Trade Commission. We made an informal\napproach. The General Counsel asked for a formal\nrequest. I suggest that whenever you happen to be\ntalking to the President you might mention an oral\nword from him would be - whenever it is convenient.\nI don't think you want to sign it.\nH.M.Jr:\nMonday at lunch with the President (to Miss Chauncey).\nUclassified\n238\n- 10 -\nMagill:\nBy the way, did you notice the Federal Trade Com-\nmission's suggestion that the tobacco taxes be\nrevised?\nA.V.Jr:\nWhat kind of taxes?\nMagill:\nTobacco texes. Everybody wants to play in our\nback yard.\nH.M.Jr:\n(on phone) Hello? (10 Cordell Hull) Did you\nread that little memo I dictated?\nHull:\nYes.\nH.M.Jr:\nAbout their saying that my conversation with Bonnet -\nthat I said I'd give them unequivocal assurance.\nNow, I've got 8 press conference at 10:30 and what\nI WBS thinking of doing, if you approved, was simply\nto say that the French newspaper, see, Petit\nParisien, was completely misinformed - that I made\nno such tatement or any statement approaching such\nnature. See? But if you don't think - I mean I\nI\n- Please. - - No, I'm afraid it wouldn't.\nAfter all, this is a trick, you see, and they're\ntrying to bolster their thing up, and then if this\nthing smashes Saturday or Sunday they're going to\nblame me; they're going to say, well, I should have\ndenied this thing, and the stocks went up and people\nlost. - - Oh, I'm not - - Pardon me? - -\nI think that's a very good suggestion. - - I think\nthat's a very good suggestion. Thank you.\n- -\nHe says to call Bonnet. (To Operator) Get Mr. Henry,\nthe Counsel of the French Embassy, please.\nHe said to call - suggested I call Bonnet. At first\nhe thought that I should simply say there was nothing\nnew - that nothing new has developed the last couple\ndays. But I can't see that.\nYes, Dr. Oliphant.\nOliphant:\nOtherwise I have nothing on my mind.\nH.M.Jr:\nIf you will stay a minute afterward, I want to see\nyou, Herbert. You're expecting two gentlemen to\n299\n- 11 -\nlunch today?\nGaston:\nYes, sir.\nH.M.Jr:\nRight.\nHaas:\nI have nothing.\nH.M.Jr:\nWhen are you going to have that thing ready?\nHaas:\nThis morning. I'll give it to Herbert this morning.\nH.M.Jr:\nAll right. I'd like Mr. Oliphant to see that all\nthe statements in it are - I mean as to laws and\nall that - are correct.\nOliphant:\nThe Harvard thing?\nH.M.Jr:\nYes.\nOliphant:\nI've done that.\nH.M.Jr:\nAnd I'd like for Mr. Taylor to read it before it\ngoes out this morning, and also Mr. Lochhead.\nGaston:\nYou want to see it....\nH.M.Jr:\nAnd I'll see it this afternoon. But I'd like Mr.\nTaylor and Mr. Lochhead to see it.\nOliphant:\nI haven't seen it typed. I merely worked on that\nwhole document.\nHaas:\nYes. Well, I'll give it to - I can give it to\nHerbert and he can clear it all around - I mean\nthe final.\nH.M.Jr:\nWould you? See that it gets around this morning.\nWhy don't you give it to Gaston? It's up to him\nto see that these various people get it.\nDid you (Gaston) talk to Yale and Princeton?\nGaston:\nYes.\nH.M.Jr:\nDid the boys like it?\nGaston:\nYes, they're delighted to get it.\n-\nUclassified.\n30L\n12 I I\nHeas:\nAnd, as I take it, you want a minimum amount of\nchange.\nH.M.Jr:\nAny changes I want underlined. I mean the thing\nclicked. It's like all of these things - I mean the\nthing clicked up there. It was subjected to the\nacid test and went over all right - and some pretty\nbright people present. Now, any changes - I'd like\nthem underlined. But the point is it is supposed\nto be the paper which I read up there, so I'd like\na minimum of changes.\nHeas:\nO.K., we'll have one clean copy and one with the\nchanges marked.\nH.M.Jp:\nAnything else, Herbert? George?\nHaas:\nI have nothing else.\n1.1.Jr:\nWayne?\nTaylor:\nCuba didn't come in.\nH.M.Jr:\nListen, I wanted to ask your advice. In yesterday's\nTimes there was a story - you look it up - in which\nthe President completely threw down Henry Wallace\non the sugar business. And what I'd like to write\nis - I'd like to take the article and blue-pencil -\njust \"Wrong\" - run a great big long pencil mark.\nThen I'd like to say: \"Dear Henry: When you enlighten\nthe President, would you mind simultaneously enlight-\nening me.\"\nTaylor:\non, you shouldn't - trouble enough on that.\nH.M.Jr:\nYou wouldn't?\nTaylor:\nNo.\nOllphant:\nThat is, he didn't wait for our clearance, did he?\nH.M.Jr:\nOh no. I want to tell - I don't want Miss Roche\nunder the impression I had anything to do with it.\nThey brought it up and the President turned and\nsaid that - in the first place, before Cabinet\nWallace wanted me to believe that he had nothing\nto do with the fact that the thing was going to go\n30₫\n- 13 -\nup, that it was entirely the President. And at\nCabinet the President said, \"Well, we've had a\nyear to study this thing.\" \"Well,\" I said, \"I\nhaven't had a year.\" \"Well,\" he said, \"it's going\nto go up now. If you want to do anything, you've\ngot to think fast.\" I said, \"All right, Mr.\nPresident, just count the Treasury out entirely.\nWe're out of it, have nothing to do with it one\nway or the other.\"\nThen Ickes spoke up. He said, \"I've never seen\nit, and Puerto Rico is involved.\" The President\nsaid, \"Oh, don't worry about Puerto Rico. It's\nall right.\"\nI just went you to know. I don't want to sit in\non any conference; I don't want anybody in the\nTreasury to sit in on any conference. I don't\nwant anything to do with it; I don't want to\nhave anything to do with it. The only thing -\nif you (Miss Chauncey) will tell Mr. Bell I would\nlike a memoranium on it to show simply from the\nrevenue basis how much the Treasury gains or\nloses, 1f the bill passes in its present form;\nthat's all. But I don't want anything to do with\nit one way or the other.\nBut I can't understand. Now, you take for example\nthat housing thing. Now, the President wants this\nhousing thing and I had forty minutes - as tough\na forty minutes alone with him as I have ever nad,\njust on the straight financing. I went Low cost\nhousing, and I had forty minutes alone with him -\nvery, very tough going. But at his press conference\nne doesn't throw me down; he simply says, \"There's\na dozen ways of financing it. Maybe this isn't the\nway. The Secretary of the Treasury is going to study\nthis thing.\" Well, that's fair; I can't complain\non that, can I, Herbert?\nGaston:\nNo.\nH.M.Jr:\nI mean as a matter of fact he's never thrown me down\never since I've been here; that's why I can't under-\nstand why he threw Wallace down.\nHello? (On phone. Conversation with Mr. Henry of\nFrench Embassy, record follows:)\nMarch 4, 1937\n302\n10:08 a.m.\nH.M.Jr:\nI have my regular Press Conference at 10:30\nJules\nHenry:\nYes.\nH.M.Jr:\n....and I have to say something about it.\nH:\nYes.\nH.M.Jr:\nNow this is what I had in mind.\nH:\nYes.\nH.M.Jr:\nThat I would simply say that the Petit Parisien\nmust be wrong\nH:\nYes.\nH.M.Jr:\n..because when Mr. Bonnet called on me - ah - no\nquestion of support was raised by either him or me.\nH:\nNo.\nH.M.Jr:\nNow do you think that's all right?\nH:\nYes, because what he said was that the United States\nwas waiting to answer France in the\nwithin\nthe legal limits of what you could do - so you said.\nH.M.Jr:\nYes.\nH:\nBut you did not. Excuse me, won't you -\nH.M.Jr:\nWell, what's the ...\nH:\nWill you mind repeating again what - exactly what the\nPetit Parisien correspondent said.\nH.M.Jr:\nYes. This is the statement. It says, \"Government\nbonds ...\nH:\nYes, I understand the first part, it was simply the...\nH.M.Jr:\n\"Washington correspondent of the Petit Parisien cabled\nthat Morgenthau gave Bonnet unequivocal assurance of\nsupport.\"\n.\n303\n- 2 -\nH:\nUn - ah - yes, unlimited assurance.\nH.M.Jr:\nUnequivocal.\nH:\nUnequivocal, yes. Oh yes, as to what they\nH.M.Jr:\nSimply what I intend - what I was proposing to\nsay is...\nH:\nYes.\nH.M.Jr:\n...\nin twenty minutes was\n....\nH:\nYes.\nH.M.Jr:\n....that the Petit Parisien must have - did\nmisinform\n....\nH:\nYes.\nH.M.Jr:\n....or drawn on his imagination\n....\nH:\nYes.\nH.M.Jr:\n.because no such conversation ever took place\nbetween Mr. Bonnet and myself.\nH:\nYes.\nH.M.Jr:\nSee?\nH:\nYes.\nH.M.Jr:\nAnd I said - I'm going to say I'm sure that if they\nwill see Mr. Bonnet he will make the same statement.\nH:\nYes, all right, sir.\nH.M.Jr:\nI mean I was going to blame - put the entire blame\non the Petit Parisien.\nH:\nYes, well I will send your messenger as soon as he\ncomes in, sir.\nH.M.Jr:\nNow can you see any objection to that?\n- 3 -\n304\nH:\nWell, we got wind of the conversation -\nH.M.Jr:\nYes.\nH:\n- which was that, as I recall, you - I think that I\nrecall that all you said - that you explained to the\nAmbassador that you had thought you might have to -\nthe French situation - obviate a serious way. And\nM. Bonnet said that the situation was not so desperate\nand you pointed - and you thought then M. Bonnet said\nthat he was willing to cooperate with you and you\noffered him that youwere willing to cooperate within\nthe limits of the tripartite agreement, so you said.\nH.M.Jr:\nAnd within the laws of the United States.\nH:\nYes, within the laws of the United States, yes.\nH.M.Jr:\nWell, I don't want to go into those details.\nH:\nNo, of course not - of course not. The Petit\nParisien is much too strong.\nH.M.Jr:\nIt - is - pardon me?\nH:\nI mean the correspondent of the Petit Parisien - I\nagree with you - had no business to wire such 8 thing\nat all.\nH.M.Jr:\nHad no business.\nB:\nWhat I mean - it seems to me, of course\nI don't know where he got that.\nH.M.Jr:\nWell, I'm going to put it entirely on the Petit\nParisien.\nH:\nYes. They asked me - as long as you are asking me -\nperhaps if you would put it a little more mildly.\nPerhaps, if you wish to -\nH.M.Jr:\nA little more mildly?\nH:\nYes, perhaps.\nH.M.Jr:\nYes.\nH:\nBecause you see it is rather difficult for me.\nThe Ambassador is not in now. He is making some\nofficial calls on -\nH.M.Jr:\nI see.\n305\n- 4 -\nH:\nAnd he will not be in for half an hour or so.\nH.M.Jr:\nWell\nH:\nBut I will report to him and of course I am sure\nyou are free to give any statement you want.\nH.M.Jr:\nWell, I'll put it as mildly as I can and still\nH:\nAnd still make it clear, yes.\nH.M.Jr:\nYes, all right. And tell the Ambassador\nH:\nI will - I will - no doubt about it.\nH.M.Jr:\nI'm sorry it happened, but I -\nH:\nWhy of course, so am I.\nH.M.Jr:\nI just can't let it pass.\nH:\nYes. Thank you so much.\nH.M.Jr:\nGoodbye.\nUclassified\n- 14 -\n306\nGaston:\nSay something like this: that the correspondent of\nthe Petit Parisien is under a complete misappre-\nhension; he's apparently drawn some completely\nwrong inferences from the information given him.\nThat is, 1f you were to say directly that he WES\nmisinformed, then somebody must have misinformed\nhim.\nH.M.Jr:\nI got it: that the correspondent of the Petit\nParisien must have drawn heavily on his imagina-\ntion.\nOliphant:\nWhy not say just as Gaston says? Say he is under\na complete misapprehension.\nH.M.Jr:\nWrite it up in a - on a piece of paper.\nTaylor:\nThat the conversation that the Ambassador had with\nyou was along very general lines.\nH.M.Jr:\nHello (On White House phone, to Mr. McIntyre).\nYou know, when the President of the United States\ngets on and I expect McIntyre, it just takes my\nbreath away. I had no - I called about ten minutes -\nI called about twenty minutes of ten and said, \"Please\ntell Colonel McIntyre before he sees the President\nI'd like to talk to him.\"\nMcIntyre:\nOh, I see.\nH.M.Jp:\nAnd then, when the President of the United States\ngot on, I had to think awful fast. Now, this fellow\nLatimer, since the night before last, is - I don't\nknow whether he's stalling us or what, but I think\nthe President - I think he put the President in a\nvery embarrassing position, and I think that some-\nthing should go out to the railroads so that they\ndon't all stack up on us, see?\nMcIntyre:\nI'll tell you what I did. I called George Harrison\nand I told him that ... (remainder undistinguishable)\nH.M.Jr:\nYes, well did you do that?\nMcIntyre:\nYes, yes.\nH.M.Jr:\nGood, good. Did you tell that to Pelley too?\n307\n- 15 -\nI think you better call Pelley.\nMcIntyre:\nWell, he - I don't think he has\nH.M.Jr:\nAnd some time I want to talk to you about Latimer.\nBut would you mind calling Pelley yourself?\nMcIntyre:\nNo, I'd be glad to.\nH.M.Jr:\nI'll appreciate it. And would you call me back later\nand let me know?\nMcIntyre:\nYes.\nH.M.Jr:\nAnd later in the day if you don't call me, if you\ndon't mind, I'll call you back. But I think it\nmay put the President in a very difficult position.\nI'd feel much happier if you'd call Pelley.\nMcIntyre:\nI'll be glad to.\nH.M.Jr:\nThank you.\nMcIntyre:\nRight.\nH.M.Jr:\nThat is, I want to protect the President.\nMcIntyre:\nAll right.\nH.M.Jr:\nThank you.\n(Conversation finished)\nH.M.Jr:\nWell now, I'm sorry, but we've got fairly important\nthings this morning. Well now, this is all in the\noffice. What McIntyre said - he's upset because he\nsaid he happened to have been handling this thing\nfor the President and\nThis is all deep stuff,\nWhite House stuff, but he says he's kind of sore\nthat Pelley - Steve Early handled part of it with\nPelley, and he says Steve didn't know anything about\nit.\nChauncey:\nPardon me - Mr. Latimer.\nH.M.Jr:\nSo what I would do, Herbert - think about it.\nHello? (On phone to Latimer; record of conversation\nfollows)\nRegraded Uclassified\n308\nMarch 4, 1937\n10:21 a.m.\nLatimer:\nTalked to George Harrison. He's expected to talk\nto Mr. Felley and no wires have been sent out.\nM.M.Jr:\nAn ha. Well, I got Mr. McIntyre myself and I also\nspoke to the President and it seems that Mr. McIntyre's\nbeen handling this for the President and he thought\nif they did it by word of mouth that they could pro-\ntect the President's interest in that way\nL:\nYes.\nH.M.Jr:\n....and Mr. McIntyre assured me he - he first thought\nthat you'd talked to Mr. Pelley.\nL:\nNo sir, I have not.\nH.M.Jr:\nWell he's going to talk to them. And I think if\nMr. McIntyre talks both to Mr. Pelley and Mr.\nHarrison - why then I think the President's interest\nwill be protected.\nL:\nYou're - you're satisfied then all right.\nH.M.Jr:\nI'm satisfied\nL:\nYes.\nE.N.Jr:\nbecause the only thing I want is the President's\ninterests protected and I think they will be under\nthese circumstances.\nL:\nYes. I've - I've sent over B memorandum to Mr. Bell\nand to Mr. Magill on this whole situation.\nH.M.Jr:\nAll right, thank you very much.\nL:\nYes sir.\nA.M.Jr:\nThank you.\n- 16 -\n300\nOliphant:\nI'd like to say that the pressure will come from\nthe rank and file of labor, and this news apparently\nwill not come to them.\nH.M.Jr:\nWell, isn't Harrison representing labor?\nMagill:\nHe's supposed to be, yes.\nH.M.Jr:\nWell, he's been already talked to.\nOliphant:\nHe has been?\nH.M.Jr:\nHe doesn't play golf with\nOliphant:\nHe'll make it public.\nHe'll tell it to the rank\nand file.\nE.M.Jr:\nI don't know, but Mr. McIntyre has spoken to Mr.\nGeorge Harrison, who represents the railway and\nlabor unions, doesn't he?\nRoche:\n(Nods yes)\nH.M.Jr:\nAnd the point is that this thing - this thing is\nrather peculiar.\nGaston:\nUh-huh.\nH.M.Jr:\nAnd as I say - well, you people all know what I'm\ntalking about; I don't have to elaborate.\nBut the big thing this morning is Mr. Magill's\ncommittee on income tax forms, so that you could -\nthat a person who has gone to high school can make\nout his own income tax.\nMagill:\nEven the eighth grade.\nB.M.Jr:\nAll right.\nMarch 4, 1937.\n9:37 a.m.\n310\nR.M.Jr:\nHow are you?\nIntimer:\nAll right, thank you.\nH.N.Jr:\nMr. Latimer, what, if anything, has been done bout\nletting your railroad people and the railroad unions\nknow about the government's position in regard to\nthis Social Security tax?\nL:\nWell I - night before last, after I left you I carried\nover to Mr. McIntyre a draft of a telegram which had\nbeen agreed upon and he said he would handle it and I\nbetter - I tried all day yesterday to find out precisely\nwhat he did and just five minutes ago I tried to get him\nthis morning to find out and I'm not (coughs) haven't\nbeen able to find out yet whether he did anything or\nnot.\nF.V.Jr:\nWell I think its terribly important.\nD:\nI had - I understood that Mr. Gaston had called over\nthere but hadn't found out very much. Mr. - I talked\nto Magill. He was under the impression that some\ntelegrams were going out but I still haven't been able\nto find out whether they actually went out or not.\nE.M.Jr:\nWell I mean why should they go from the White House?\nL:\nWell it was decided that the - Mr. Gaston said that\nthey should have White House clearance and we should\ntake what they wanted to do. Mr. McIntyre thought\nthey shouldn't go from anywhere else so I left it in\nhis hands.\nP.M.Jr:\nWell.\nL:\nNow if that should be reconsidered why\nR.W.Jr:\nNo I think they should go. I - I - I think it leaves\nus in a very embarrassing position.\nL;\nWell they may have gone but I haven't been able to\nfind out yet\nH.M.Jr:\nAh-ha.\n311\n- 2 -\nL:\nas to whether they are. As I say I'm supposed\nto get hold of Mr. McIntyre in 15 minutes. That's the\nlast word that I had.\nH.M.Jr:\nThank you.\nL:\nAnd I was going to call back immediately I Bund out.\nH.M.Jr:\nThank you.\nL:\nAll right, sir.\nH.M.Jr:\nGoodbye.\nRegraded Uclassified\n312\nMarch 4, 1937\nThe Secretary spoke to the President over the\ntelephone this morning at about 9:40 and read him the\nfollowing United Press ticker bulletin:\n\"Paris -- Government bonds (rentes)\nopened two points higher today on the\nbasis of stock market reports that\nSecretary Morgenthau had assured Georges\nBonnet, new French Ambassador to Wash-\nington, that the United States was will-\ning to help France out of its present\nfinancial difficulties.\nOther issues followed the bonds upward.\nThe Washington correspondent of the\nPetit Parisien cabled that Morgenthau\ngave Bonnet \"unequivocal assurance\" of\nsupport.\nThe Secretary then called Secretary Hull and\ntold him that at his press conference at 10:30 he\nwould have the representative of the Petit Parisien\ncome in and say he had made no such statement or any\nstatement even approaching the press reports. \"After\nall,\" he said, \"this is a trick, you see, and they\nare trying to bolster their thing up. Then if this\nthing smashes Sunday or Monday, they will blame me.\nThey will say I should have denied this thing.\"\nThe Secretary said that Mr. Hull made the ex-\ncellent suggestion that he, Hil, Jr., call Bonnet and\nsay that nothing new has developed in the last couple\nof days.\nThe Secretary then tried to reach Ambassador\nBonnet, but he was not available. He spoke to\nMr. Jules Henry, Counselor of the Embassy, and the\nfollowing is a record of their conversation:\nRegraded Uclassified\n313\nMarch 4, 1937\n10:08 a.m.\nH.M.Jr:\nI have my regular Press Conference at 10:30....\nJules\nHenry:\nYes.\nH.M.Jr:\n....and I have to say something about it.\nH:\nYes.\nH.M.Jr:\nNow this is what I had in mind.\nH:\nYes.\nH.M.Jr:\nThat I would simply say that the Petit Parisien\nmust be wrong\nH:\nYes.\nH.M.Jr:\n...because when Mr. Bonnet called on me - ah - no\nquestion of support was raised by either him or me.\nE:\nNo.\nH.M.Jr:\nNow do you think that's all right?\nH:\nYes because what he said was that the United States\nwas waiting to answer France in the\nwithin\nthe legal limits of what you could do - so you said.\nH.M.Jr:\nYes.\nH:\nBut you did not. Excuse me, won't you -\nH.M.Jr:\nWell, what's the ...\nH:\nWill you mind repeating again what - exactly what the\nPetit Parisiene correspondent said.\nH.M.Jr:\nYes. This is the statement. It says, 'Government\nbonds ...\nH:\nYes, I understand the first part, it was simply the\nH.M.Jr:\n'Washington correspondent of the Petit Parisiene cabled\nthat Morgenthau gave Bonnet unequivocal assurance of sup-\nport.'\n- 2 -\n314\nH:\nUn - ah - yes unlimited assurance.\nH.M.Jr:\nUnequivocal.\nH:\nUnequivocal, yes. Oh, yes, as to what they\nH.M.Jr:\nSimply what I intend - what I was proposing to\nsay is .....\nH:\nYes.\nH.M.Jr:\n...\nin twenty minutes was\n....\nH:\nYes.\nH.M.Jr:\n....that the Petit Parisiene must have - did\nmisinform\n....\nH:\nYes.\nH.M.Jr:\n....or drawn on his imagination\n....\nH:\nYes.\nH.M.Jr:\nbecause no such conversation ever took place\nbetween Mr. Bonnet and myself.\nH:\nYes.\nH.M.Jr:\nSee?\nH:\nYes.\nH.M.Jr:\nAnd I said - I'm going to say I'm sure that if they\nwill see Mr. Bonnet he will make the same statement.\nH:\nYes, all right, sir.\nH.M.Jr:\nI mean I was going to blame - put the entire blame\non the Petit Parisiene.\nH:\nYes, well I will send your messenger as soon as he\ncomes in, sir.\nH.M.Jr:\nNow can you see any objection to that?\nRegraded\n- 3 -\n315\nH:\nWell, we got wind of the conversation -\nH.M.Jr:\nYes.\nH:\n- which was that, as I recall, you - I think that I\nrecall that all you said - that you explained to the\nAmbassador that you had thought you might have to -\nthe French situation - obviate a serious way. And\nM. Bonnet said that the situation was not so desperate\nand you pointed - and you thought then M. Bonnet said\nthat he was willing to cooperate with you and you\noffered him that you were willing to cooperate within\nthe limits of the tripartite agreement, so you said.\nH.M.Jr:\nAnd within the laws of the United States.\nH:\nYes, within the laws of the United States, yes.\nH.M.Jr:\nWell, I don't want to go into those details.\nH:\nNo, of course not - of course not. The Petit Parisiene is\nmuch too strong.\nH.M.Jr:\nIt - is - pardon me?\nH:\nI mean the correspondent of the Petit Parisiene - I\nagree with you - had no business to wire such a thing at all\nH.M.Jr:\nHad no business.\nH:\nWhat I mean - it seems to me, of course\nI don't know where he got that.\nH.M.Jr:\nWell, I'm going to put it entirely on the Petit Parisiene.\nH:\nYes. They asked me - as long as you are asking me -\nperhaps if you would put it a little more mildly. Perhaps,\nif you wish to -\nH.M.Jr:\nA little more mildly?\nE:\nYes, perhaps.\nH.M.Jr:\nYes.\nH:\nThe Ambassador is not in now. He is making some offi-\nBecause you see it is rather difficult for me.\ncial calls on -\nH.M.Jr:\nI see.\n- 4 -\n316\nH:\nAnd he will not be in for half an hour or so.\nH.M.Jr:\nWell\nH:\nBut I will report to him and of course I am sure\nyou are free to give any statement you want.\nH.M.Jr:\nWell, I'll put it as midly as I can and still\n....\nE.\nAnd still make it clear, yes.\nH.M.Jr:\nYes, all right. And tell the Ambassador\n....\nH:\nI will - I will - no doubt about it.\nH.M.Jr:\nI'm sorry it happened, but I -\nH:\nWhy of course so am I.\nH.M.Jr:\nI just can't let it pass.\nH:\nYes. Thank you so much.\nH.M.Jr:\nGoodbye.\n317\nREPORT ON SECRETARY MORGENTHAU'S PRESS\nCONFERENCE, MARCH 4, 1937:\nH.M.JR.:\nFirst as to our own business. Hello, Felix; haven't\nseen you in a long time -- sell you a little cotton?\n(Felix Belair)\nQ.\nGot some?\nA.\nNo. On Monday we'll offer the April holders of the\nnote the right to exchange into & bond. Period.\nParagraph.\nQ.\nNo maturity?\nA.\nYou'll have to wait until about 12:30 Saturday to get\nthe rest for Monday morning release. Now I'd like to\ndo something a little bit different than I've done it\nbefore, and that is this: Both ticker services that\nwe get here have carried a supposed interview emanating\nfrom the correspondent in Washington of the Petit\nParisien -- I understand he's here. I asked him to be\nhere and if he cared to, possibly he'd like to say what\nhe did say in his dispatch and that would make it easier\nfor me.\nMR. DENOYER: Here I am.\nMR. GASTON:\nThat's Mr. Denoyer, Mr. Secretary.\nH.M.JR.:\nWould you like me to read what the United Press carried?\n- 2 -\n318\nNewspapermen: Yes.\nH.M.JR.:\nI'd like to make it as easy for you as I can, and at\nthe same time make it as easy for the American press\nas possible and let them know what the facts are.\nMR. DENOYER: Naturally.\nH.M.JR.:\nThis is what came from the United Press: \"Paris --\nGovernment bonds (rentes) opened two points higher\ntoday on the basis of stock market reports that\nSecretary Morgenthau had assured Georges Bonnet, new\nFrench ambassador to Washington, that the United States\nwas willing to help France out of its present financial\ndifficulties. Other issues followed the bonds upward.\nThe Washington correspondent of the Petit Parisien\ncabled that Morgenthau gave Bonnet 'unequivocal assur-\nance' of support.\" This is sort of unusual, but I\nwant to be courteous and still it's very important,\nand I understand from what you said to Mr. Gaston that\nyou didn't write any such thing.\nMR. DENOYER: Not in this form.\nH.M.JR.:\nSo, if you don't mind, this is your press conference\nfor the moment -- you can say anything you want to.\nMR. DENOYER:\nMay I say that it 1sn't for quotation but for back-\nground, because I don't have the experience that you\nhave, Mr. Secretary.\n319\n- 3 -\nR. LINZ:\nNo, oh no.\n(sespapermen\nIf you don't want to listen, you can leave. I guess if\nchorus:\nthe rest of us want it, we can have it; if you don't\nwant it, all right. Wait a minute that's your baby.\n10. LINZ:\nIf the rest of them want it, I don't mind.\n2.\nThat's right if the man wants to explain -\nS.M.JR.:\nI guess you want to live up to the rules. I want to\nsay, in the first place, this gentleman is a foreigner,\nand we want to be extremely courteous to him. The\neasiest thing for me to do is to make a flat denial.\nI don't want to do that, BO I've asked him here to give\nhim the opportunity, and if he says he wants to do it\nfor background, I think we ought to go along with him.\nAfter all, he belongs to your guild.\nMR.\nDENOYER: Mr. Secretary, I appreciate very much your courtesy.\nH.M.JR.:\nYou say it any way you want to - because this is\nterribly important, and if you want to do it for back-\nground, I'm aire the other correspondents will be will-\ning.\nR.\nDENOYER: I feel that if it's not for direct quotation, I can\ngive you much more and for background I can give my\ncolleagues much more information on how that cable of\nmine was written.\n32C\n- 4 -\nH.M.JR.:\nAnd, after all, I can say for you you have your\nhome office to consider and you don't want to throw\ndown your editor, but it's terribly important 80 if\nyou want to explain it for background ---\nMR. DENOYER: I have just been back from France and I am taking up\nthreads as I have left them about three months ago,\nand I have, since I've been here, not had any occasion\nyet to write anything at all about the financial situa-\ntion. And it seemed to me of interest to take up, in\nview of the interest that the French public has in its\nown situation, to have an occasion to tell about the\nreaction here to the French situation. I'm going to\nread you (I don't think that I can do any better) a\nrough translation of the cable I sent yesterday. I\nsent this cable yesterday, early in the afternoon,\nbefore having seen even the French Ambassador, Mr.\nBonnet, before having seen anybody at the embassy, and,\ntherefore, what's contained there is not at all from\nany embassy source -- I'm volunteering that because I\nrealize what embarrassment that may put you, Mr. Secre-\ntary. If you believe that the French Ambassador has\nreported a conversation that he has had with you, he\nhas not -- that is positive, and checking on the cable\nhours may very clearly show that. This cable was sent\n321\n- 5 -\nbefore I saw the French Ambassador, Mr. Bonnet. I\nsaw him only when I went to the press conference at\nthe embassy last night and this Was sent out before.\nH.M.JR.:\nAs a matter of record, Mr. Bonnet was here Monday\nafternoon.\nMR. DENOYER:\nI didn't even know the date and you will see that I\nknow so little about the exact time that you have\nseen him.\nH.M.JR.:\nHe was here Monday.\nQ.\nThat's all right -- on the record?\nH.M.JR.:\nYes.\nMR. DENOYER:\nIt was a courtesy visit such as every ambassador coming\nin the new country makes. Was it not?\nH.M.JR.:\nYou finish, if you don't mind.\nMR. DENOYER: What I said is this: (Translation of cable to Petit\nParisien in French) \"The American authorities again\nfollow carefully the financial and monetary situation\nof France. The policy of the three great democracies\n(may I interrupt here to say that if this vague formula\nis vague here, it will present something a little more\ndefinite in France). The common policy of these three\ngreat democracies - the policy of the three great\ndemocracies inaugurated by the tripartite agreement\nof September last (the translation is a vain word -\n322\n- 6 -\nit would be a little stronger to say it is a substantial\nreality). They have and they are disposed to do all they\ncan (they, the authorities) they are disposed to do all\nthey -- the authorities can to help France in her\npresent difficulties. Mr. Morgenthau, the minister of\nfinance of the United States, has given such an unequivo-\ncal assurance to Mr. Georges Bonnet, our new ambassador,\nin the courtesy visit that Mr. Bonnet made to him at the\nbeginning of the week. But but what can the American\nGovernment do (note of interrogation)? Its good will\nis limited by laws which reduce considerably its possi-\nbilities of action. (By this I had in mind that certain\npeople in France have been looking towards the United\nStates for credits, as you are well aware, and this is,\nI believe, something that is not possible in view of the\nJohnson law. Now, for our public, I thought it was a\ngood thing to remind them that whatever the good will\nof the American authorities in such a circumstance, the\ngood will that has been demonstrated at the time of the\ntripartite agreement, whatever it is, it is considerably\nlimited by the laws of the United States.) The news\ncabled from Paris to the Wall Street Journal according\nto which Mr. Charles Rist would be called by the French\n323\n- 7 -\nCabinet to give his advice to the French Government has\nproduced a good impression. Mr. Rist is known here as\none of the first economists in the world and has the\nsympathy and the confidence of all American circles.\"\nThis is the text of my cable.\nH.M.JR.:\nHave you got an extra copy?\nMR. DENOYER:\nNo, I have none, but I could have one made or you could\nhave one made here.\nH.M.JR.:\nWell, I think you realize that this is of terrific\nimportance -- I'm talking absolutely off the record.\nI'll give you something on the record, don't worry,\nClarence (Linz). And I don't want to say anything\nthat is going to unnecessarily upset things, but, on\nthe other hand, I can't let a statement like that\nstand, you see. This is one of the most (not for\nourselves but for your country) one of the most diffi-\ncult things, so excuse me for one minute -- I don't\nwant to do anything unnecessarily.\n(Newamen wait while the Secretary confers with Mr. Gaston)\nH.M.JR.:\nNow, this is on the record. What I'd like to say is\nthis: That the interpretation as carried by the United\nPress of the dispatch of the Washington correspondent\nof the Petit Parisien of the conversations that took\n324\n- 8 -\nplace between Mr. Bonnet and myself is entirely\nerroneous.\nMR. KLEIN: You mean the United Press interpretation of that\ndispatch is erroneous?\nH.M.JR.:\nNo, no, as carried by the United Press. Read it\nback, Miss Chauncey. (Miss Chauncey reads \"That\nthe interpretation\nerroneous,\" as above.)\nMR. KLEIN: I still feel the phraseology might lead to the im-\npression that the United Press interpretation is\nerroneous.\nMR. GASTON: The interpretation in France, as reported by the\nUnited Press.\nH.M.JR.:\nRead it again, Miss Chauncey. (Miss Chauncey reads\nstatement again) Let's say \"The interpretation\nreported by the United Press.\" We want to say re-\nported by the United Press of the dispatch of the\nWashington correspondent. Read it once more through,\nplease. (Miss Chauncey reads.) \"The interpretation\nas reported by the United Press of the dispatch of\nthe Washington correspondent of the Petit Parisien\nof the conversations that took place between Ambassador\nBonnet and myself is entirely erroneous.\"\nH.M.JR.:\nDo you have any objection?\nMR. DENOYER: No, Mr. Secretary.\n325\n- 9 -\nH.M.JR.:\nThat doesn't make it embarrassing to you?\nMR. DENOYER: I don't think so.\nH.M.JR.:\nDo you think it will make it embarrassing to the\nambassador?\nMR.\nDENOYER: I'll explain it to him as I did to you, but I\ndon't think it does.\nH.M.JR.:\nMiss Chauncey, read it. (Miss Chauncey reads\nstatement.)\nMR. DENOYER: It's satisfactory to me, although I could not\nspeak for the ambassador -- I don't see how he\ncould object to that.\nH.M.JR.:\nAs 8. matter of fact, here's a stenographic report\nof my conversation, of what took place between\nBonnet and myself. For you people's information,\nMrs. Klotz was here and Dr. Livesey and the two\nof them dictated this thing - this is a verbatim\nreport: it's written by Dr. Livesey and Mrs. Klotz --\nthere can't be any question of what was said--they\nwere both present at the conference.\nMR.\nDENOYER: I don't see how there could be any objection on the\npart of Mr. Bonnet; I don't know what you said or\nMr. Bonnet said.\nH.M.JR.:\nBut I know what I said and Dr. Livesey and Mrs. Klots\nwere in the room and went out and wrote this for me\n326\n- 10 -\nand this is a verbatim report. It was a perfectly\nfriendly, amicable conversation.\nQ.\nDon't both dispatches say, in effect, that you ex-\npressed to the ambassador your interest in the\nFrench problems and we're all interested?\nA.\nWe're all interested, and, as I said, President\nRoosevelt and myself have demonstrated over the\npast two years our friendship and interest in the\nFrench Republic and will continue to do BO.\nQ.\nWell, are the dispatches at variance with that?\nA.\nOh, yes -- \"unequivocal assurance\" of support.\nQ.\nMr. Secretary, isn't that what you gave them in\nthe stabilization agreement -- unequivocal --\nisn't that what we were told?\nA.\nGentlemen, take my word for this.\nMR.\nKINTNER:\nI'm not questioning your word, but I can't under-\nstand why this should be important.\nA.\nWell, time will tell. You have never seen me more\nserious, have you?\nMR. KINTNER:\nNo, that's what I can't understand.\nA.\nWell, you'll just have to take it on faith.\nà\nMr. Secretary, if we can leave that for the time\nbeing, there's another United Press story that the\nfranc is going to drop.\n327\n- 11 -\nA.\nI have no comment, but, as far as you are concerned,\nyour professional standing and everything - are you\nentirely satisfied?\nMR. DENOYER: Certainly, Mr. Secretary.\nA.\nHave I treated you courteously?\nMR. DENOYER: Yes, and I want to express publicly my appreciation.\nI have not doubted it before, but this is another\nevidence.\nQ.\nMr. Secretary, there's also a report from Paris that\nthe French Government is ready to stabilize the\nfranc at 112 to the pound.\nA.\nWell, I have no comment.\nQ.\nMr. Secretary, from London we have a story that a\nlot of syndicates are investing for Americans in\nsecurities abroad and in that way American investors\nare managing to evade capital gains and other taxes;\nany thought being given as to how that might be\ncorrected?\nA.\nAt this particular time I have nothing. That's in-\ncluded in the study that the three organizations\nare conducting. We're perfectly aware of that -\nhow shall I put it?\nQ.\nTax avoidance.\n- 12 -\n328\nA.\nNo, it hasn't been substantiated -- that rumor that\nthat is taking place -- but to date it hasn't been\nsubstantiated. That's a matter which particularly\ncomes under SEC and, up to date, has not been sub-\nstantiated -- dealing in stocks outside the United\nStates, running of pools and that sort of thing.\n&\nThis is a capital gains and loss tax.\nA.\nNo, this is an operation of New York stocks outside\nthe jurisdiction of the SEC -- it's particularly\ntheir problem -- they're studying it.\nQ.\nMr. Secretary, may I say I got a call-back on that\nand this is where they were doing it to escape\nincome taxes -- it wasn't a pool operation.\nA.\nAll I can say is we have heard about it and that's\none of the things we're studying. We still have\nnothing we have no facts.\nQ.\nHow near are you ready with the whole report?\nA.\nNo nearer.\n&\nHow do you feel about the railroad retirement tax?\nA.\nOh, I'm not ready to talk on that. Mr. Latimer\nonly sent us his report this morning and we haven't\nhad a chance to read it yet -- it just came in this\nmorning. But Herbert Gaston talked to you boys\nabout it, didn't he?\nQ.\nYes.\n329\n- 13 -\nA.\nThere's nothing to add. Latimer's report just\ncame this morning.\nQ.\nMr. Secretary, do you intend to let us see the\ntranscript of your conversations with Mr. Bonnet?\nA.\nDo you want to bet on it?\nQ.\nI was just asking the question.\nA.\nI just wanted to know if you wanted to make a\nlittle side bet before I give you an answer?\nQ.\nI'll make a bet if you will produce the evidence.\nI mean, it leaves us a little bit in doubt.\nA.\nNo, I just mentioned the fact that I had this\nthing to show you gentlemen that when I went\ninto such great detail that I wasn't just relying\non my memory as to what I did or didn't say. I\nwas very meticulous in seeing that the conversa-\ntion was written down.\nQ.\nEverybody reading this story will say what did\nthey say? \"What did the doodle-buy say?\"\nMR. GASTON:\nI think that general statement you made covers\nthe situation.\nH.M.JR.:\nMy general statement is that Mr. Bonnet came to\nexchange respects: that we had a very pleasant\nexchange of views, and I assured him that the\n330\n- 14 -\ninterest of the United States Government in the\nwelfare of France had been demonstrated during\nthe past two years and that we would continue to\ndo everything that we could and still live within\nand up to the spirit of our existing laws.\nMR. DENOYER:\nWhich is just what I said.\nA.\nWhich is quite different than what they inter-\npreted what you said -- it's quite different.\nQ.\nThank you, Mr. Secretary.\nooOoo\nRegraded Uclassified\n331\nPetit Parisien\nAmerican authorities are again carefully watching the French\nfinancial and monetary situation. As the policy of the three great\ndemocracies inaugurated by the tripartite agreement of last\nSeptember was not merely a matter of empty words for them, they are\ninclined to do all they can to help France in its present difficulties.\nMorgenthau, American Secretary of the Treasury, gave an unequivocal\nassurance on this point to Georges Bonnet, our new ambassador, in the\ncourtesy visit which the latter paid at the beginning of the week.\nBut what can the American Government do? Its good will is limited\nby laws which considerably reduce its possibilities of action. The\nnews cabled from Paris to the Wall Street Journal according to which\nCharles Rist will be called on by the cabinet to give his advice to\nthe French Government has produced an excellent impression. Rist\nis known here as one of the leading economists in the world. He is\nsurrounded by unanimous sympathy and confidence in American circles.\ndenoyer\nTranslated by Addler, Division of Research and Statistics.\nJclassified\nWESTERN UNION\nPRESS MESSAGE\nNEWCOMB CARLTON\n14. WILLEVER\nCHAIRMAN OF THE SOARD\nnegt\nmarch 3\n( Charge French Cable Co)\nPress\nPetitsien Paris (Via French Cable)\nautorites americaines I suivent de nouveau soigeeusement\nsituation financiere et monetaire de France stop la politique\ndes trois grandee democratica inauguree par accord trigartite de\nseptembre dernier netant pas un vain need mot pour elles to\nelles sont disposses a faire tout leur possible pour aider france\ndans 808 difficultee actualles stop morgenthau ministre des\nfinances americain en - n. donne une assurance non equivoque\na georges bonnet notre nouvel ambassadeur dans la visite de\ncourtoisie que celuicl lui a faite au dabut de semaine stop\nmais que peut faire gouvernement americain interrogation 8a\nbonne volonte est limitee par declois qui\nredulsent coneiderablement ses possibilites daction alinea\nla nouvelle cablee de paris au wall street journal evivant laquelle\ncharle rist serait a pele par cabinet a donner\nsee consells 3111 gouvernement francais & produit ici une excellente\nimpression stop rist est connu ici comme un den premiors\nDoonomister du monde stop 11 eat entoure dune condience ot dune\nsympathie et dune conflance unanimes dans milicax americaine\ndenoyer\nRegraded\n333\nMarch 4, 1937.\n10:21 a.m.\nLatimer:\nTalked to George Harrison. He's expected to talk\nto Mr. Pelley and no wires have been sent out.\nH.V.Jr :\nAh ha. Well I got Mr. McIntyre myself and I also\nspoke to the President and it seems that Mr. McIntyre's\nbeen handling this for the President and he thought if\nthey did it by word of mouth that they could protect\nthe President's interest in that way\nL:\nYes.\nH.N.Jr:\nand Mr. McIntyre assured me he - he first thought\nthat you'd talked to Mr. Pelly.\nL:\nNo sir, I have not.\nH.U.Jr:\nWell he's going to talk to them. And I think if\nMr. McIntyre talks both to Mr. Pelley and\nMr. Harrison why then I think the President's interest\nwill be protected.\nL:\nYou're - you're satisfied then all right.\nR.M.Jr:\nI'm satisfied\n7.:\nYes.\nH.M.Jr:\nbecause the only think I want is the President's\ninterests protected and I think they will be under\nthese circumstances.\nL:\nYes. I've - I've sent over a memorandum to Mr. Bell\nand to Mr. Magill on this whole situation.\nH.M.Jr:\nAll right, thank you very much.\nL:\nYes sir.\nH.M.Jr:\nThank you.\n334\nMarch 4, 1937\nAt 11:55, Dr. Feis telephoned the following\nmessage:\n\"Mr. Henry, of the French Embassy, whom I know\nvery well, Just telephoned me this message from the\nAmbassador, asking me to pass it on to Mr. Morgenthau:\n'That the Ambassador is wholly amazed at the\ntelegram in the Petit Parisien; that he had not seen\nthe correspondent of the Petit Perisien, who is Mr.\nDenoyer, except at the press conference yesterday after-\nnoon which was subsequent to the despatch of the message,\nand at the press conference there was no reference made\nwhatsoever of his talk with Mr. Morgenthau. Mr. McDermott,\nin charge of Press Relations for the State Department, was\npresent at the press conference and confirmed that fact.\nThe Ambassador is very much disturbed by what\nhas taken place. He telephoned to Denoyer to tell him\n60 and Denoyer more or less admitted that it was a story\nthat he more or less made up because he knew that the\nAmbassador had talked with Mr. Morgenthau.\n'That Mr. Bonnet wants to assure Mr. Morgenthau\nthat he realizes that all conversations with the Secre-\ntary of the Treasury are completely confidential and he\ndiscusses them with nooody. He, therefore, hopes that\nthis episode will in no way interfere with their relations.\nRegraded Uclassified\n335\nMarch 4, 1937.\n12:14 p.m.\nH.M.Jr:\nHello\nOperator:\nMr. Henry. Go ahead.\nH.M.Jr:\nHello Mr. Henry.\nH:\nOh good morning, sir, Secretary.\nH.M.Jr:\nI'm calling you rather than the Ambassador because\nI thought you might understand me better, you see?\nH:\nYes.\nH.M.Jr:\nI thought if you have not already done so I suggest\nthat you send for the correspondent of the Petit\nParisien\nH:\nHe's coming to-day, yes.\nH.M.Jr:\n.....and let him tell you just what happened in\nmy Press Conference, you see?\nH:\nI see.\nH.M.Jr;\nBecause I had him here, you see?\nH:\nWell did you receive the message I gave the\nchauffeur?\nH.M.Jr:\nI just have it here.\nnever\nH:\nBecause the Ambassador/ saw Mr. Denoyer\ntill\nyesterday and he did not mention the\nyour conversation at all.\nH.M.Jr:\nWell Mr. Denoyer said that here.\nH:\nWhat?\nH.M.Jr:\nHe said so here publicly.\nH:\nWho said SO?\nH.M.Jr:\nThe representative of the Petit Parisien said he\nhad never discussed with the Ambassador....\n- 2 -\n336\nH:\nOh, did he say that?\nH.M.Jr:\nOh, yes.\nH:\nWell then why did he invent that telegraph?\nH.M.Jr:\nHe did - he read us the telegram.\nH:\nYes, of course, he did - he did but we could - the\nAmbassador is going to tell him that he has no busi-\nness to wire to Paris on such important matters which\nis very\nH.M.Jr:\nWell his telegram didn't say. He read us the telegram\nhere and gave me a copy of it.\nE:\nI see.\nH.M.Jr:\nAnd in his telegram he did not say what the paper\nprinted. His telegram was all right.\nH:\nOh, I see. Then it was in Paris that it was - ah\n....\nH.M.Jr:\nIt was in Paris and this gentleman is - was all right -\nthat's what I'm calling up for.\nH:\nOh, I see.\nH.M.Jr:\nAnd he very - he gave us a copy of the original\ntelegram and he said nothing in the telegram mich I\ncould take any objection to.\nH:\nIn other words, the putting on was - met with your\napproval after your conversation with the Ambassador.\nH.M.Jr:\nEntirely.\nE:\nBut it was transformed in Paris.\nH.M.Jr:\nIt was different in Paris.\nH:\nOh, I will send that to the Ambassador right away.\nH.M.Jr:\nAnd tell him that this man -\n- 3 -\n337\nH:\nAt the same time Mr. Secretary as long as you're\non the telephone I can give you full assurance on\nthe part of the Ambassador that he'll never discuss with\nanybody the terms of his conversation with you.\nH.M.Jr:\nWell, I'm sure he didn't.\nH:\nBecause you know particularly well - we realize as\nwell as you do the importance of confidence between\nyou two.\nH.M.Jr:\nWell\nH:\nAnd you may be assured that M. Bonnet never said one\nword which you yourself would not have heard.\nH.M.Jr:\nWell I'm as sure that he hasn't and\nH:\nWe are going to check up in Paris to see what happened\nthere.\nH.M.Jr:\nWell whatever happened happened in Paris.\nH:\nAll right, thank you so much, Mr. Secretary.\n338\nMarch 4, 1937.\n12:17 p.m.\nB.M.Jr:\nHello\nOperator: Dr. Feis. Go ahead.\n5.M.Jr:\nHerbert.\nPais:\nGood morning.\nE.M.J.:\nGood morning. I just read your memorandum and I\njust called Mr. Henry back.\ny:\nYes.\nH.M.Jr:\nI want to tell you what took place at my Press\nConference. It was rather unique. I had this\nrepresentative of the Petit Parisien here\n7:\nYes.\nH.V.Jr:\nand to our American correspondents he read\nthe copy of this cable - he² had a copy of the cable\nand in that cable he said nothing to which I could\ntake any objection.\nF:\nI see.\nH.W.Jr:\nWhatever done was done on the other side.\nF:\nThat's mighty interesting.\nS.M.Jr:\nAnd we made = photostat of his cable.\nP:\nWould you send us a copy?\nH.M.Jr:\nAh - yes.\nF:\nI - I think it will amuse everyone very much.\nH.M.Jr:\nI will have - see that you get a copy.\nP:\nThanks.\nH.V.Jr:\nAnd I called up Mr. Henry to tell him that I wanted\nassure him that what this man had said that we took\nno - ah - and all I'd have said was had parapirased/ had\nto objection to it and his cable was all right. Of\nwhat course he had in his cable, namely, that we'd met,\na very friendly discussion and that we assured\nMr. Bonnet that America had proved its friendship\n339\n- 2 -\nfor France in the past and would continue to do so\nin the future always remembering that we had to\nlive up to both the letter and the spirit of the\nlaw. Hello\nF:\nYes I'm listening.\nH.M.Jr:\nAnd that's what they took.\nF:\nI see.\nH.N.Jr:\nAnd that was what I told Bonnet.\nF:\nOf course.\nH.M.Jr:\nBut as far as Bonnet is concerned he's all right\nand as far as the representative of the Petit\nParisien he's all right.\nF:\nGood.\nH.M.Jr:\nAnd whatever took place, took place on the other\nside. I told that to Henry.\nF:\nGood.\nH.M.Jr:\nAnd he was, of course, tremendously pleased.\nF:\nGood.\nH.M.Jr:\nSo that was that.\nT:\nFine.\nH.M.Jr:\nNow I asked Mr. Mallet to come here at 4:30 to give\nhim a further answer on his cable.\nF:\nYes.\nH.M.Jr:\nAnd if you could be here I'd like it.\nF:\nI'd like to be there.\nR.M.Jr:\nRight.\nF:\nRight. I've been thinking. You got me steamed\nup yesterday morning.\nH.M.Jr:\nGood. I wanted to.\nRegraded Uclassified\n34c\n- 3 -\nF:\nAnd in a couple of days I may have some formal\nidea.\nH.M.Jr: All right.\nF:\nRight.\nH.M.Jr:\nThank you.\nF:\nThank you, Henry.\nRegraded Jclassified\nMarch 4, 1937.\n341\n12:32 p.m.\nH.M.Jr:\nCochran.\nH. Merle\nCochran:\nHello Mr. Morgenthau, yes.\nH.M.Jr:\nI'm factual. not on the diplomatic channel so I'll just be\nC:\nI - I don't hear you.\nH.M.Jr:\nI'm not on the what they - on the secret channel\n.....\nC:\nI understand.\nH.M.Jr'\n...,and I wanted to tell you that this morning a\ndispatch was cabled here which was supposed to run\nin the Petit Parisien\nC:\nYes.\nH.M.Jr:\n....in which I was supposed to have said to Bonnet\nthat we'd give them unlimited support.\nC:\nYes.\nH.M.Jr:\nWell I had the Washington correspondent in from\nthe Petit Parisien\nC:\nYes.\nH.M.Jr:\n....and he showed me a copy - original copy of\nhis cable\n....\nC:\nYes.\nH.M.Jr:\n....and in that cable he said no such thing himself\nC:\nI see.\nH.M.Jr:\n....and whatever misunderstanding took place, took\nplace in Paris and not here in Washington\nC:\nI see.\nH.M.Jr:\n....and I wanted to make that plain.\nC:\nI see.\n342\n- 2 -\nH.M.Jr:\nAnd 1 talked twice to the French Embassy here and I\nhad in the Paris correspondent of the Petit Parisiene\nand he showed me his cable and his cable contained\nno statement that I offered the French unlimited\nsupport.\nC:\nWell the - the - have you seen my cable yet reporting\nthe - the - the story which the Petit Parisiene carried?\nH.M.Jr:\nNo.\nC:\nI sent that at 1 P.M.\nH.M.Jr:\nWell we'll get it most likely tomorrow.\nC:\nWell it ought to be in before that.\nH.M.Jr:\nYes.\nC:\nBecause the Petit Parisiene story wasn't as broad\nas you indicate.\nH.M.Jr:\nWell that's the way the United Press carried it.\nC:\nOh, no - no - no. It just has this: \"The American\nauthorities are once more following closely the\nfinancial and monetary situation of France. The\npolicy of the three great democracies inaugurated\nby the tri-partite agreement of last September is not\nan empty word to them as they are prepared to do their\nutmost to assist France in its present difficulties.\"\nH.M.Jr:\nAh-ha.\nC:\n\"M. Morgenthau, American Minister of Finance, gave a\ndefinite assurance of this to M. Georges Bonnet,\nupon nis visit of courtesy at the beginning of the\nweek but what can the American government do? Its\ngood will is limited by law which considerably\nreduced its possibility of action.\" Now that's the\nmain part of the story.\nH.M.Jr:\nWell 1 had a Press Conference and we went into it very\ncarefully and the French representative read publicly\nhis cable here, see?\nC:\nYes sir.\n- 3 -\n343\nH.M.Jr:\nTo the American correspondents.\nC:\nYes.\nH.M.Jr:\nSo I guess it will all be straightened out.\nC:\nYes, well have you had the other cable I sent this\nmorning? I sent one at 12 noon giving you very\ndefinite figures\nH.M.Jr:\nNo.\nC:\n...on the Treasury situation of this country\nH.M.Jr:\nNo.\nC:\n...that there's not going to be anything in payments -\nH.M.Jr:\nAny what?\nC:\nAny big receipts.\nH.M.Jr:\nAh-ha.\nC:\nYou asked that question yesterday.\nH.M.Jr:\nNo, that will all\nC:\nYes, I was just down seeing the\nthis is a\nhalf holiday, you see\nH.M.Jr:\nYes.\nC:\nand so the market closed at noon at Paris.\nH.M.Jr:\nYes, I know that.\nC:\nThe - the pressure was very heavy here\nH.M.Jr:\nYes.\nC:\n...continued at London this afternoon.\nH.M.Jr:\nYes, we know that.\nC:\nI just came from our particular friend at the bank\nH.M.Jr:\nYes.\n- 4 -\n344\nC:\n.....you see?\nH.M.Jr:\nYes.\nC:\nAnd they're all manners of rumors here - you may have\nseen them in the Press.\nH.M.Jr:\nYes, we have.\nC:\nAnd can't concede any of them yet - not a one.\nThe information - the - the - the idea which we had\nabout the time limit is conservative, if anything.\nH.M.Jr:\nAh-ha.\nC:\nI see and I'm fixing up a cablegram which we'll get\nout in just a little while now.\nH.M.Jr:\nWell thank you Cochran.\nC:\nYes, that's about all now.\nH.M.Jr:\nGoodbye.\nC:\nGood night.\n345\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Paris, France\nDATE: March 4, 1937, noon.\nNO.: 302 FROM COCHRAN.\nThe French Treasury's situation as of the thirty-\nfirst of December, 1936, shows assets of about 18 billion\nfrancs, and about 47 billions in liabilities. The Treasury's\nassets include (a) about 9 billion francs in items which\ntheoretically are repayable at short notice such as:\nabout 353 millions to French shipping companies; 5 billions\nfor armament; 2 billions for railways; and 735 millions\nto Algeria. (b) Also included are items totaling about\n7 billions which are repayable at long term, such as:\n1200 millions in loans to foreign governments; 2 billions\nto French banks; 3 billions to railways.\nIt is very unfortunate for the Treasury, but no one -\nso far 88 I am aware - expects substantial repayment under\neither of these headings at an early date. The debtors\nit is well known are having a hard time to provide for their\nown current needs. The railways for instance can only\nborrow with difficulty if at all according to an admission\nwhich Minister Auriol made before Parliament recently.\nA total of at least 40,000,000,000 francs would be\na conservative estimate of treasury requirements over and\nabove the revenue during the present year. Within the\nnext few months the more urgent need will probably arise.\nThe\n346\n- 2 -\nThe Treasury on the first of April must reimburse maturing IX\nloans of about 3,000,000,000 francs - this is for bonds,\n5 1/2 percents, 1917 to 1937, amount $2,000,000;and for\nTreasury bonds 4 1/2 percents, 1934, 3 to 10 years, amount\n2,922,000,000 francs. According to recent statements by\nofficials revenue from taxation is satisfactory but it will\nalmost certainly fall short of requirements by a substan-\ntial amount notwithstanding the seasonal increase of tax\nrevenue in the late spring.\nIt may be recalled, as of further interest, that about\n370 billion francs is the present public debt total. The\ndebt of the Departments and Communes in addition totals\n40 billions, with 110 billions for the railways.\nEND MESSAGE.\nWILSON.\nEA:LWW\n347\nGRAY\nU\nParis\nDated March 4, 1937\nRec'd 12:05 p.m.\nSecretary of State\nWashington\n303, March 4, 1 p.n.\nFROM CO CHRAN.\nUnder the caption \"Attitude of the United States\ntoward Trance\" LE PETIT PARISIAN today carried an item\nfrom its Washington correspondent dated Mar ch 3 of which\nfollowing is translation.\n\"The American authorities are once more following\nclosely the financial and monetary situation of France.\nThe policy of the three great democracies inaugurated by\nthe tripartite agreement of last September is not an\nempty word to them and they are prepared to do their ut-\nmost to assist France in its present difficulties.\n\"Monsieur Morganthau, American Minister of Finance,\ngave a definite assurance of this to Monsieur Georges\nBonnet our now Ambassador upon his visit of courtesy at\nthe beginning of the week. But what can the American\nGovernment do? Its good will is limited by laws which\nconsiderably reduces its possibilities of action.\n\"The news cabled to the WALL STREET JOURI'AL from\nParis according to which Monsicur Charles Rist would be\ncalled (END SECTION ONE.\nWILSON\nCSB\n348\nPARAPHRASE OF SECTIONS TWO AND THREE OF NO. 303\nof March 4, 1937, from Paris.\nupon by the Cabinet to give his advice to the French\nGovernment made an excellent impression in Paris. Here\nProfessor Rist is known as one of the world's leading\neconomists. In American circles he enjoys unanimous\nsympathy and confidence.\nIn Paris we have a banking half holiday today.\nUnofficial exchange trading during the morning made very\nheavy demand for sterling with Bank of France yielding.\nAlso very heavy demand for dollars. There was a rise\nin French rentes of around 2 francs. Strong French shares.\nMany rumors on market of which I mention the following\nas being the most general:\n(1) There will be definite stabilization of the\nFrench franc over the week-end at the rate of between\n105.15 and 107 to the pound.\n(2) The French will lift gold restrictions. Those\nwho have not yet complied with present gold regulations\nwill be absolved from the penalties of the regulations.\n(3) The Government has again consulted Baudoin as\nto a successor for the post of Governor of the Bank of\nFrance, and the most likely candidates are now considered\nto be Baudoin himself and Quesnay.\n(4) There is no money in the French Treasury.\n(5) Various experts have been consulted by Blum,\nand he himself may take charge of the finances of the\ncountry\n349\n- 2 -\ncountry without definitely dropping his present Minister\nof Finance.\n(6) Some more important advisory post will be given\nto Professor Rist.\nDECTIVED\nAt 3:45 this afternoon I have an appointment at the\nBank of France to see how much of the above rumors can\nbe confirmed. I will cable again this evening after my\ninterview.\nEND OF MESSAGE.\nWILSON.\nEA:LWW\nFEDERAL ASSERVE BANK\n35c\nOF NEW YORK\nOFFICE CORRESPONDENCE\nDATE March 4, 1927.\nCONFIDENTIAL FILES\nSurject TELEPHONE CONVERSATION WITH\nbe W. Knoke\nBANK OF BEGLAND.\nMr. Bolton called no at 11:48 today. He sentioned that\nthey had had rather a heavy day today, with a big covement of money\nleaving Paris end a consequent increased demand for dollars and\nguilders. So far, he said, they had sold $6,000,000. I mentioned\nthat we had done a quarter of a million pounds and were still buy-\ning at 4.88 9/16 but might redues the price gradually if pressure\nbecame too heavy. Bolton thought that was I good plan.\nI mentioned Cariguel's call of yesterday with regard to\nshipments of gold through the mails and Bolton stated that the\nunderwriters were going to put the insurance rate up from 9 pence\nto 5 shillings. This increase applied, of course, to Lloyds only;\ncontinental insurance companies, however, night follow because of\nwhat he salled \" fairish risk.\"\nBolton then referred to our recent conversation and to\ndealing with the question of 8 24 hours notice.\nour cablegram of February 11./ They had been in touch with the\nTreasury, he said, and could quite definitely say that the Treasury's\nfeelings were the same as theirs. They had given his the following\nverbal message for use\n\" are satisfied with the working of the present in-\nformal arrangement and would prefer not to enter into\nquestions of exect interpretation since we anticipate\nno practical difficulties and would in any case rely\nupon being able to arrive at 8 fair and emicable under-\nstanding with the Federal Reserve on any points that any\narise.\"\nSC 1.2 60M 8-36\nFEDERAL RESERVE BANK\n351\nOF NEW YORK\nOFFICE CORRESPONDENCE\nDATE March 4, 1937.\nCONFIDENTIAL FILES\nSUBJECT: TELEPHONE CONVERSATION WITH\no\nL. N. Knoke\nROM\n- 2 -\n/ /\nBANK OF ENGLAND.\nSan\n03V1\nThe most important thing, he continued, was that he and I knew ex-\nactly where we stood. As far as they were concerned they would\nnow bury this matter.\nLWK:KMC\n352\nMarch 4, 1937\n4:30 p.m.\nPresent:\nMr. Mallet\nMr. Teylor\nDr. Feis\nHM,Jr: Two things. In the first place, I thought\nI would explain to you. I don't know whether the papera\nmay have something about what I W&5 supposed to have said\nto Mr. Bonnet when he was here.\nMr. Mallet: In today's paper?\nHM,Jr: What happened was the Washington correspondent\nof the Petit Parisien sent a cable over which I saw today\nshe which was B. perfectly straightforward cable which simply\nsaid we met and talked and made friendly gestures to each\nother. Then comes 8. United Press despatch in which it\nsaid that I had given \"unequivocal assurances of financial\nassistance\", Well, I had said no such thing and the cor-\nrespondent was here and he had his cable -- no such language.\nMr. Mallet; That WAS published in France? or did\nit appear in the papers here?\nHM,Jr: According to a telephone conversation which\nI had with Paris, it WAB no published in France that way.\nBut the United Press says it WAS. I spoke to Mr. Cochran\nin Paris. He said it did not read that way, but based on\nthe so-called Morgenthau statement they ran the rentes up\ntwo points. All that I told Mr. Bonnet -- I made very\npleasant gestures and told him, of course we would continue\nto assist France as long 86 we could do BO both within the\nletter and the spirit of our law.\nMr. Nallet: Yes.\nHM.Jr: Which is quite different from \"unequivocal\nassurances of financial assistance\" and I really would\nlike you to tell your people that somebody, somewhere,\nsomehow, has very definitely tried to twist what I said\n353\n-2-\nand dian't say. I wouldnot be stupid enough to say it.\nthe paper here?\nMr. Mallet: No; quite. But. did this appear in\nHM,Jr: Well, it was on the United Press ticker\nservice and it came out that way and then I had EL press\nconference end let the French correspondent personally\nread to the American correspondents what he had written,\nand it was quite different,\nAs a matter of fact, 1f you care to have a copy of\nhis despatch it would not take very long to give you a\ncopy. Would you like to have it? They have laid 60\nmuch importance on it, I will give you 8 copy of what\nthe French correspondent did say.\nMr. Mallet: I think it would be useful to have on\nrecord.\nHM,Jr: That's what I wanted it for. So much for\nthat!\nThe other thing, the question which Mr. Chamberlain\nraises, as to whether we are in favor of free gold or not,\nI personally don't -- I mean, it makes very little differ-\nence what I do think at this particular time. We wouldn't\ntell the French, in any event, whether we believed in it\nor not. See?\nMr. Mallet' You wouldn't tell the French you are not\nin favor? What I think Mr. Chamberlain 18 saying is that\nwe should tell the French jointly.\nHM,Jr: Our pattern 1s different. What we followed\nhere was to take all the gold privately held andit worked\nhere. Whether that would work in Frace, I don't know and\nven if I was in sympathy with that, at this particular\ntime I would not write out E formula.\nMr. Mallet: No.\nHM,Jr: For the French. You see?\nMr. Mallet: Yes; quite.\nHM,Jr: Is that clear?\n354\n-5-\nMr. Mallet: Yes; quite.\nHM,Jr: I don't lay any stress on it in any event.\nMr. Mallet: Does that mean that you would rather\nthat we didn't tell them either?\nHM,Jr: No.\nMr. Mallet: You don't mind if we tell them that\nif our Treasury sort of hankers after that -- I don't know\nin the least what they want to do.\nHM,Jr: The only thing we can join you in is we are\nboth in complete accord that if the French ask us may they\ndevalue a further 8% within the Tripartite Agreement, both\nGovernments are in accord. I don't want to go any further\nthan that.\nMr. Mallet: Yes; quite.\nHM,Jr: And the other matter -- after all, they have\npassed laws and under these laws they are supposed to take\nall of this gold.\nMr. Mallet: Yes.\nHM,Jr: Nor can we tell them that they shouldn't.\nSee what I mean?\nMr. Mallet: Yes.\nHM,Jr: Under their decrees.\nMr. Mallet:: Under their decree they are supposed to\ntake it all.\nHM,Jr: Yes. And you and I BAY they shouldn't.\nMr. Mallet: I suppose what it would be really would\nbe a criticism of what the Treasury W&S suggesting, as much\nas to say you were fools to do it before\n...\nHM,Jr: I don't want to suggest to Mr. Chamberlain\nwhat he should or should not do, but I would not want to\njoin him in it.\n355\n-3-\nMr. Mallet: I telegraphed him what you were think-\ning last time and we have had nothing further from London.\nhad a chance to show this cable to the President. He\nHM,Jr: No. I left it sort of open and frankly I\nalso feels that if we were going to make any suggestions\nthat the pattern that we followed has been successful for\nus, but to suggest to a country that she should cancel a\ndecree and reverse herself -- we don't want to do that.\nMr. Mallet: Yes.\nHM,Jr: You see?\nMr. Mallet: Yes; quite.\nHM,Jr: Because if the French came to us and said,\n'What should me do?\", we would say, 'Well, carry out your\ndecree and take all the gold.' That is, if they asked us.\nMr. Mallet: Yes. Yes.\nHM,Jr: So on that point, as I say, I don't agree\nwith Mr. Chamberlain, but I don't lay any stress on it.\nBefore I 80 any further, do you want to add anything,\nHerbert?\nDr. Feis: No, sir.\nHM,Jr: All right ED far?\nDr. Feis: I wholly agree.\nHM,Jr: Wayne?\nMr. Taylor: All right.\nHM,Jr: Please, either of you.\nDr. Feis: I wholly agree, without reservation.\nHM,Jr: You might say that the combined Administra-\ntion feels this way about the matter!\nNow, the only other thing -- your people know it\nas well as we do -- you did $6,000,000 today (the Bank\n356\n-4-\nof England it's did) and we one and one-quarter million Sterling,\n£0 about the same. In francs. And we had & bad day.\nMr. Mallet: They came in from France?\nHM,Jr: No. We had to buy 1÷ million Sterling and\nyou people had to buy $6,000,000 dollars. It Just BO\nhappened that they are about the seme. But both the Bank\nof England and ourselves had a bad day. That's no news,\nbut it looks -- the signale look 8.8 though this W&E going\nto be the week-end.\nMr. Hallet: The storm signals.\nHM,Jr: Yes, I would certainly say the storm signals\nare going up today. I wanted to tell you that and I do\nhope that Mr. Chamberlain will leave hie week-end address.\nMr. Mallet: Yes, I hope BO. They leave the Treasury\nunstaffed over the week-end.\nHM,Jr: No, I am serious about that. You can put\nit BE politely as you want, but don't miss the point, that\nsomebody who can make & decision be available.\nHr. Mallet: I should have no doubt there would be\nsomeone.\nHM,Jr: Now, Dr. Feis.\nDr. Feis: This thought occurs to me. Suppose --\njust mentioning it, if you see anything in it that you\nmight want to include in the communication. Suppose\ncircumstances drove the French into some form of control\nirrespective of whether they want to do it or not. Then\nI think the important point, certainly from the Depart-\nment's point of view, will be that that control by limited\nto capital and gold movements and is not turned into an\nexchange control dealing with trade movements.\nHM,Jr. That's B. lovely wish.\nDr. Feis: Well, I don't think it is st all an\nimpracticable wish because, 8.8 I understand the French\nectives, they would not have any wish to interfere\n357\n-5-\nwith ordinary trade operations.\nHM,Jr: No.\nDr. Feis: I think that's fairly clear. Their\nmission seems to be running the other way -- their desire\nto bring down prices.\nHM,Jr: What have you got in your mind?\nDr. Feis: I would have in the back of my mind, al-\nthough it may be premature to discuss 1t, that if the\nday should come when the French say 'We feel that we have\ngot to impose certain control over the movementof foreign\nexchanges, that either before that time we should have\nindicated to them or st that time promptly indicate to\nthem that what I have just expressed\nHM,Jr: Now, Herbert. Talking here -- in the first\nplace, I don't know whether you know, or not, but last\nweek I SAW the Ambassador himself and asked him would he\nplease send a message to Mr. Chamberlain whether there was\nanything he or I could do together. That's number one.\nNumber two: when Mr. Mallet was here, & couple of days\nago, I reminded him that I had not received an answer.\nIf you don't mind my saying it, I don't want to go any\nfurther than that.\nMr. Mallet: I expect we will get on answer.\nDr. Fels: No, I did not think you would want to\ninclude that in this communication.\nHM,Jr: And the other point is, I have been meticu-\nlous not to discuss anything but money from this chair.\nI have been very meticulous.\nDr. Feis: Then I can tell you this: the reason I\nfeel -- when I was in Paris, last May, I carried (and then\nwhat was in mind was the first French crisis) I carried\ninstructions from Mr. Hull which I then gave -- B.B a matter\nof fact, to Bonnet, who was then Acting Minister of Com-\nmerce, covering Just the ground I have summarized to you\nnow. Now we can do it again.\n358\n-6-\nHM,Jr: You can do it with Bonnet,\nDr. Feis: You can do It with Bonnet or in Parts.\nHM,Jr; You can do it any way you want, but I think\nafter you think it over I think you will think that I very\ndefinitely should not.\nDr. Feis: I agree it does not fit in this communica-\ntion.\nHM,Jr: It does not fit and I hope Hallet will not\ndo anything at this time. I think the reason Mr. Hull\n18 more than satisfied 18 that I am DO very careful -- I\nnever talk or send anything except straight financing.\nDr. Feis: All right.\nHM,Jr: This particular session should not include\nthat. If Mr. Hull wants to send for the British Ambassa-\ndor or the French Ambassador and send that kind of a\nmessage, or through our Ambassadors, that's something\ndifferent.\nMr. Taylor: It's part of the monetary picture.\nHM,Jr: Now, listen. Do you mind? This 16 one\ntime I am very definite. I don't want to mix\nDr. Feis: I think it's something Mr. Hull and you\nwould want to talk over.\nHM,Jr: That's All right. If he wants to send for\nthe British Ambassador and send a message jointly, I would\nbe delighted to come over, but where I am acting as Secre-\ntery of the Treasury\nDr. Feis: I began by saying you would not want to\ninclude it in this message.\nHM,Jr: I would be delighted to come over and see\nthe Secretary and send a joint message, but I again reiter-\nate that I have been meticulous about my messages. They\nhave all been straight finance.\n359\n-7-\nTaylor: We are completely in agreement. It does\nnot have anything to do with this particular message, but\nwhen a fellow has $15.00. You are deciding what he does\nwith the $15.00. It's pretty hard to say which is mone-\ntary and which one 18 trade because you can't separate\nthem.\nHM,Jr: That's all right. But this isn't the time\nor the place. But I think we will all have to be on\ndeck for the next couple of days. This thing here 16\nanother United Press statement which came in at 2:12. You\nmight like to read that.\nWonder what time the President of France has been\ngoing to bed recently?\nThursday\nMarch 4, 1937\n350\n4:35 p. m.\nHMJr:\nHello\nTreas.\nOperator:\nMr. Knoke, sir.\nHMJr:\nHello\nL. W.\nKnoke\nYes, Mr. Secretary.\nHMJr:\nHello, Knoke -\nK:\nYes, sir\nHMJr:\nHow are things going?\nK:\nWell, we've bought so far a total of a million two\nhundred and sixty-five thousand pounds -\nHMJr:\nYes\nK:\nThe market was five sixteenths -\nHMJr:\nYes\nK:\n- offered; then we bid five sixteenths and couldn't\nget any more. Now we are bidding three eighths for\nsmall amounts as, I think they got twenty-five thousand\npounds,\nHMJr:\nI see.\nK:\nMy thought was that we would try at the close to bid\nit up a little.\nHMJr:\nI see.\nand\nK:\nWe are still,/even at this level of three eighths, but\nwe can convert it to gold at thirty-four seventy-five\nand a half.\nHMJr:\nI see.\nK:\nWhich still, I think we should do it. We should buy\nsterling at this level.\nHMJr:\nWell, that's all right.\nvery\nK:\nIt's been a/heavy day.\n361\n-2-\nHMJr:\nYes\nK:\nThings look very gloomy. I spoke to the Bank of\nEngland around noon time; I just dictated my\nmemorandum -\nHMJr:\nYes\nK:\nThey said at that time they had done six million\ndollars and that was an enormous amount for the\ndollars as well as for guilders as a result of a\nflight of capital from France.\nHMJr:\nThey did six million dollars and we did a million\nand a quarter?\nK:\nYes, that is about the same -\nHMJr:\nYes\nK:\nAs a matter of fact it's remarkably alike.\nHMJr:\nYes\nM\nBut, they - I think they are quite gloomy\n-\nthey are very definitely expecting something to\nhappen over the week-end.\nHMJr:\nWell, that's nice. All right.\nK:\nAll right, sir.\nHMJr:\nGoodbye.\nK:\nGood day.\n362\nPARAPHRASE OF TELEGRAM RECEIVED\nNO.: 305\nFROM: American Embassy, Paris\nDATE: March 4, 1937, 6 p.m.\nI refer to the final sentence of my No. 303, 1 p.m.,\ntoday. It was not possible for the friend I saw at the\nBank of France this afternoon to confirm the rumors which\nI listed in my message. None of the Governor's assistants,\nnot even the Under Governor, are being kept informed as to\nthe Governor's current conversations with Blum and Auriol,\nmy friend informed me. I was informed by my contact that\nnot many would refutsthe reports, however, (a) that the\nstabilization fund is in bad shape, (b) that the Treasury\nis empty, and (c) that Labeyrie must go.\nThere was a terrific demand for sterling here this\nmorning and the demand continued this afternoon on the\nLondon market. The Bank of France has gained approxi-\nmately 100 million france of gold from Spain since\nFebruary 24. Some of this came since my telegram of\nFebruary 26, which contained figures on the funds hold-\nings. The final installment of the London sterling\ncredit has been going quickly. I was told in the\nstrictest confidence that if the pace of the last three\ndays is kept up, the exercise of the fund cannot last\nfor another week without drawing on the bank against\nFrance\n363\nFrance for gold. Thus, at the Bank of France, although\nthe technical men do not know what the higher authorities\nhave in mind, they realize that it is only a matter of\ndays before there will be a real crisis. I have just\nfound out that there will be a special meeting of the\nCouncil of Ministers tomorrow. Baumgartner, incidentally,\nis being mentioned now as a possibility for the position\nof Under Governor of the Bank of France.\nThe following Reuter cablegram from Washington\nappeared in the LONDON TIMES today:\n\"The new French Ambassador in Washington, Monsieur\nBonnet, today informed reporters that he intended to\nopen war debt discussions with the Government of the\nUnited States. He also said that there were other\n'equally important' questions in the economic field to\nbe discussed.\"\nThe February 26 statement of the Bank of France\nshowed no change in gold holdings and no change in\nadvances to the Treasury. END OF MESSAGE.\nWILSON\nEA:EB\n384\nPARAPHRASE OF TELEGRAM RECEIVED\nNO. 115\nFROM: American Embassy, London\nDATE: March 4, B p.m.\nFOR TREASURY FROM BUTTERWORTH.\nI learn the following, under conditions of strict-\nest confidence, from sources which have proven in the\npast unusually reliable:\n1. That measures are Kew being formulated by the\nFrench authorities, the French fund having been reduced\nto a nominal figure by the constant drain of a milliard\nto a milliard and a half per week.\n2. It is thought that the measures will be\nannounced as soon as possible and will include the fol-\nlowing:\n(a) Further drawing on the Bank of France to\nincrease the gold resources of the French fund.\n(b) Some curtailment of expenditure and reduction\nin credits.\n(e) Ketablishment of an agent for the gold market\nin the sense that Bank of France will buy gold at the\nmarket value.\n(a) Eliminating penal neasures on French funds\nabroad.\nThe use of more flaxibility in the operations of\nthe\nRegraded Uclassified\n365\n+\nthe French fund. In practice this may mean a further\ndepreciation in the value of the franc towards its legal\nlimit over a period of time.\nThere is also being discussed the desirability of\nannouncing a franc loan at the same time, with interest\npayable either in france, dollare or sterling, or the\nfrane equivalent of either dollars or sterling. Before\nany such action is taken the British and American Govern-\nments will be consulted. The idea, apparently, is to\nconvince the Frenchmen with the effect of the determina-\ntion of the Government to keep the present level by\ngiving him some security against the possibility of its\nfailure to do BO.\nBINGHAM\nEA:EB\n3G6\n388\nEXCERPT FROM 9:30 MEETING OF MARCH 4, 1937 - Phone Conversation\nwith the President.\nH.M.Jr:\nHello (on phone) Hello, Mac? - - Oh. - -\nWhy, we just - the news is that Mr. Bonnet is quoted\nas saying, from the French papers, that I guaranteed\nthe French unequivocal assurance of our support\nF.D.R.:\nYes.\nH.M.Jr:\n....in the Petit Parisien.\nF.D.R.:\nYes.\nH.M.Jr:\nAnd I thought that at 10:30 I would say - not call\ndown Mr. Bonnet but call down the Petit Parisien,\nsee?\nAnd the other thing, they have called a meeting of\nthe French Cabinet to discuss the further devaluation\nof eight percent, see?\nAnd the thing - I didn't ask for you, you know, I\nasked for McIntyre. What I wanted to say to\nMcIntyre was\nI\n-\nWell, I'd just as leave\nsay it to you, sir, but I asked for McIntyre -\nyou might tell him - that we sent Latimer over there\nthe night before last - if you will remember, I\nspoke to you about it - with the idea of getting a\ntelegram out explaining that the Government had not\ncommitted themselves\nF.D.R.:\nYes\nH.M.Jr:\n....to this thing.\nF.D.R.:\nYes\nH.M.Jr:\nAnd I'd like McIntyre to release it if you approve\nof it.\nF.D.R.:\nWell, I'll give it to Mac.\n(McIntyre takes phone)\nH.M.Jr:\nHello? - - Yes, Mac. You know, I asked for you,\nI didn't ask for the boss. It's on this telegram\nthat Latimer wants to get out. - - Yes, I'm\nalways glad to talk to the President, but this time\nI wanted you. - - Thanks. (Conversation finished)\nNow, is that frank enough - \"I'm always glad enough\n367\n37c\n- 2 -\nto talk to the President, but this time I wanted\nyou\"?\nRoche:\nThat's good.\nH.M.Jr:\nI had to do some awful fast thinking. I'm a little\nwheezy.\nOliphant:\nFast working.\nH.M.Jr:\nWhew! Luckily, I had that thing in front of me.\nMagill:\nJust as well off.\nGaston:\nOf course, you could have asked what he was going\nto have for lunch.\nH.M.Jr:\nPlease give me a good mark for mental gymnastics.\nRoche:\nThat was the quickest thing I ever saw.\nH.M.Jr:\nMy headache's gone. I'm a little faint. I mean you\ndon't get - I was prepared for McIntyre. Whew! Boy!\nMagill:\nAbout two seconds it took, didn't it?\nH.M.Jr:\nWhat?\nMagill:\nTo shift from Latimer to Bonnet.\nH.M.Jr:\nWell, I mean I couldn't - I think I did right by\nour Nell, but I think that McIntyre must\nhave known what was coming and put the President\non.\nHaas:\nWell, maybe he was already in there and the girl\nsaid you wanted to see him before he talked to the\nPresident and so ne took it in there.\nH.M.Jr:\nNo, I think he said, \"Let me talk to Henry and\nfind out what's happened today.\" See, that's what\nhappened.\nHow would I have felt if I hadn't thought so fast?\nBut at least get this thing anyway - I've got\nanother department in mind - when I start something,\nI see you boys through.\nUclassified\n371\n- 3 -\n368\nMagill:\nYou certainly do.\nGaston:\nJust one thing - that Latimer didn't go on to\nsend any telegram.\nLochhead:\nOh well, we can put it this way - the telegram\nthat Mr. Latimer wanted to send.\nH.M.Jr:\nWhat?\nLochhead:\nI say you can say the telegram Mr. Latimer wanted\nto send.\nH.M.Jr:\nI didn't dare make a record of it.\nIclassified"
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