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Brief Analysis of H. R. 6240, Farm Tenancy Bill
4/13/07
TITLE I.
1. Authorizes Secretary of Agriculture to make loans for
the acquisition of farms in such amounts, as may be
certified by County Committees, as may be necessary
to acquire the property, subject to approval of the
Secretary of Agriculture. All loans to be secured by
a first mortgage or deed of trust on the farm.
2. Loans are to be repaid in installments within an agreed
period of not more than 30 years. Interest to be 3%
Borrower to pay taxes and assessments on the farm and
for insurance on farm buildings.
3. Authorizes the appropriation of $50,000,000, "for each
of the fiscal years ending prior to July 1, 1942".
TITLE II. (Rehabilitation Loans.)
1. Authorizes the Secretary of Agriculture to make loans
for purchase of livestock, farm equipment, supplies,
and other farm needs, and for refinancing indebtedness,
and for family subsistence. Loans to bear 3% interest
and have maturities not in excess of 5 years, and to
be repayable in installments.
2. Loans to be secured by chattel mortgages, liens on crops,
and assignmente of proceeds from sales of agricultural
products, or by any one or more of these.
3. Authorizes appropriations of $75,000,000, each, for
fiscal years ending June 30. 1938 and June 30, 1939.
4. In addition to 3, authorizes the appropriation for the
fiscal year ending June 30, 1938, the balances of funds
available to the Secretary of Agriculture for loans and
relief to farmers under Executive Order No. 7530, Dec. 31,
1936, as amended by Executive Order No. 7557. Feb. 19,
1937, which are unexpended on June 30, 1937.
5. Authorizes the President to allot, out of appropriations
hereafter made for relief or work relief for any fiscal
year ending prior to July 1, 1939, such sums as he dater-
mines to be necessary to carry out the provisions of
Title II.
Regraded Uclassified
206
- 2 -
TITLE III.
1. Authorizes and directs the Secretary of Agriculture to
develop a program of land conservation and land utiliza-
tion.
2. To effectuate such & program, the Secretary is authorized
to acquire submarginal land and land not primarily suitable
for cultivation; to protect, improve, develop, and admin-
ister lands acquired, or to sell, exchange, lease, or
otherwise dispose them, with or without a consideration,
to public authorities and agencies for public purposes.
Also, to cooperate with Federal, State, Territorial, and
other public agencies in developing plans for a program
of land conservation and utilization.
3. As soon as practicable after the end of each calendar
year the Secretary of Agriculture shall pay to the county
in which any land is hold under this Title III 25% of the
net revenues from such land.
4. Authorises appropriation of $10,000,000 for fiscal year
ending June 30, 1938, and $20,000,000 for each of the
three fiscal years thereafter, for carrying out the pro-
visions of Title III.
TITLE IV, (Farm Security Administration.)
1. Directs establishment in the Department of Agriculture
of a Farm Security Administration to carry out purposes
of Act.
2. Resettlement Projects: Authorises the Secretary of Agri-
culture to continue to perform functions invested in him
by Executive Order No. 7530. Dec. 31, 1936, 8.8 amended
by E. 0. No. 7557, Feb. 19, 1937, and Act of June 29,
1936 (49 Stat., 2035), as shall be necessary only for
completion and administration of those resettlement proj-
ects, rural rehabilitation projects for resettlement
purposes, and land development and land utilization proj-
ects, for which funds have been allotted by the President.
The balances of funds available to the Secretary for such
purposes, unexpended June 30, 1937, are authorized to be
appropriated to carry out said purposes.
3. Authorizes administrative expenses "within the limit of
appropriations made therefor."
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207
75TH CONGRESS
1ST SESSION
H. R. 6240
IN THE HOUSE OF REPRESENTATIVES
April 8, 1937
Mr. JONES introduced the following bill; which was referred to the Com-
mittee on Agriculture and ordered to be printed
A BILL
To encourage and promote the ownership of farm homes and
to make the possession of such homes more secure, to pro-
vide for the general welfare of the United States, to provide
additional credit facilities for agricultural development, and
for other purposes.
1
Be it enacted by the Senate and House of Representa-
2 tives of the United States of America in Congress assembled,
3 That this Act may be cited as the "Farm Security Act of
4 1937".
5
TITLE I
6
POWER OF SECRETARY
7
SECTION 1. (a) The Secretary of Agriculture (herein-
8 after referred to as the "Secretary") is authorized to make
9 loans in the United States and in the Territories of Alaska
Regraded Uclassified
TOS
2
1 and Hawaii to persons eligible to receive the benefits of this
2 title to enable such persons to acquire farms.
3
(b) Only farm tenants, farm laborers, sharecroppers,
4 and other individuals who obtain, or who recently obtained,
5 the major portion of their income from farming operations
6 shall be eligible to receive the benefits of this title. In
7 making available the benefits of this title, the Secretary shall
8 give preference to persons who are married, or who have
9 dependent families, or, wherever practicable, to persons who
10 are able to make an initial down payment, or who are owners
11 of livestock and farm implements necessary successfully to
12 carry on farming operations. No person shall be eligible
13 who is not a citizen of the United States.
14
(c) No loan shall be made for the acquisition of any
15 farm unless it is of such size as the Secretary determines to
16 be sufficient to constitute an efficient farm-management unit
17 and to enable a diligent farm family to carry on successful
18 farming of a type which the Secretary deems can be suc-
19 cessfully carried on in the locality in which the farm is
20 situated.
21
COUNTY COMMITTEES AND LOANS
22
SEC. 2. (a) The County Committee established under
23 section 42 shall-
24
(1) Receive applications of persons desiring to
25
finance the acquisition of farms in the county by means
26
of a loan from the Secretary under this title.
Regraded Uclassified
3
1
(2) Examine and appraise farms in the county
2
with respect to which an application for a loan is made.
3
(b) If the committee finds that an applicant is eligible
4 to receive the benefits of this title, that by reason of his
5 character, ability, and experience he is likely successfully
6 to carry out undertakings required of him under a loan
7 which may be made under this title, and that the farm with
8 respect to which the application is made is of such character
9 that there is a reasonable likelihood that the making of a loan
10 with respect thereto will carry out the purposes of this title,
11 it shall 80 certify to the Secretary. The committee shall
12 also certify to the Secretary the amount which the committee
13 finds is the reasonable value of the farm.
14
(e) No certification under this section shall be made
15 with respect to any farm in which any member of the com-
16 mittee has any property interest, direct or indirect.
17
(d) No loan shall be made to any person or with
18 respect to any farm unless certification as required under
19 this section has been made with respect to such person
20 and such farm by the committee.
21
TERMS OF LOANS
22
SEC. 3. (a) Loans made under this title shall be in
23 such amount (not in excess of the amount certified by the
24 County Committee to be the value of the farm) as may be
25 necessary to enable the borrower to acquire the farm and
Regraded
Uclassified
4
1 shall be secured by a first mortgage or deed of trust on the
2 farm.
3
(b) The instruments under which the loan is made and
4 security given therefor shall-
5
(1) Provide for the repayment of the loan within
6
an agreed period of not more than thirty years from the
7
making of the loan.
8
(2) Provide for the payment of interest on the
9
unpaid balance of the loan at the rate of 3 per centum
10
per annum.
11
(3) Provide for the repayment of the unpaid bal-
12
ance of the loan, together with interest thereon, in
13
installments in accordance with amortization schedules
14
prescribed by the Secretary.
15
(4) Be in such form and contain such covenants
16
as the Secretary shall prescribe to secure the payment
17
of the unpaid balance of the loan, together with interest
18
thereon, to protect the security, and to assure that the
19
farm will be maintained in repair, and waste and ex-
20
haustion of the farm prevented.
21
(5) Provide that the borrower shall pay taxes and
22
assessments on the farm to the proper taxing authorities,
23
and insure and pay for insurance on farm buildings.
24
(6) Provide that upon the borrower's assigning,
25
selling, or otherwise transferring the farm, or any interest
Regraded Uclassifie
5
1
therein, without the consent of the Secretary, or upon
2
involuntary transfer or sale, the Secretary may declare
3
the amount unpaid immediately due and payable.
4
(c) No instrument provided for in this section shall
5 prohibit the prepayment of any sum due under it.
6
EQUITABLE DISTRIBUTION OF LOANS
7
SEC. 4. In making loans under this title, the amount
8 which is devoted to such purpose during any fiscal year shall
9 be distributed equitably among the several States and Terri-
10 tories on the basis of farm population and the prevalence of
11 tenancy, as determined by the Secretary.
12
APPROPRIATION
13
SEC. 5. To carry out the provisions of this title, there
14 is authorized to be appropriated for each of the fiscal years
15 ending prior to July 1, 1942, the sum of $50,000,000.
16
TITLE II-REHABILITATION LOANS
17
BORROWERS AND TERMS
18
SEC. 21. (a) The Secretary shall have power to make
19 loans to eligible individuals for the purchase of livestock,
20 farm equipment, supplies, and for other farm needs, and
21 for the refinancing of indebtedness, and for family subsistence.
22
(b) Loans made under this section shall bear interest
23 at a rate not in excess of 3 per centum per annum, and shall
24 have maturities not in excess of five years. Such loans shall
25 be payable in such installments as the Secretary may pro-
Regraded Uclassifie
6
1. vide in the loan agreement. All loans made under this title
2 shall be secured by a chattel mortgage, a lien on crops, and
3 an assignment of proceeds from the sale of agricultural prod-
4 ucts, or by any one or more of the foregoing.
5
(c) Only farm owners, farm tenants, farm laborers,
6 sharecroppers, and other individuals who obtain, or who
T recently obtained, the major portion of their income from
8 farming operations, and who cannot obtain credit on reason-
9 able terms from any federally incorporated lending institu-
10 tion, shall be eligible for loans under this section.
11
DEBT ADJ USTMENT
12
SEC. 22. The Secretary shall have power to assist in
13 the voluntary adjustment of indebtedness between farm
14 debtors and their creditors and may cooperate with and
15 pay the whole or part of the expenses of State, Territorial,
16 and local agencies and committees engaged in such debt
17 adjustment. He is also authorized to continue and carry
18 out undertakings with respect to farm debt adjustment un-
19 completed at the time when appropriations for the purpose
20 of this section are first available. Services furnished by the
21 Secretary under this section shall be without charge to the
22 debtor or creditor.
23
APPROPRIATION
24
SEC. 23. (a) To carry out the provisions of this title,
25 there is authorized to be appropriated, for the fiscal years
Regraded Uclassified
7
1 ending June 30, 1938, and June 30, 1939, a sum not ex-
2 ceeding $75,000,000 for each of such fiscal years.
3
(b) In addition to the authorization contained in sub-
4 section (a) for the fiscal year ending June 30, 1938,
5 the balances of funds available to the Secretary for loans
6 and relief to farmers, pursuant to Executive Order Numbered
7 7530 of December 31, 1936, as amended by Executive Order
8 Numbered 7557 of February 19, 1937, which are unex-
9 pended on June 30, 1937, are authorized to be appropriated
10 to carry out the provisions of this title.
11
(c) The President is authorized to allot to the Secre-
12 tary, out of appropriations hereafter made for relief or work
13 relief for any fiscal year ending prior to July 1, 1939, such
14 sums as he determines to be necessary to carry out the pro-
15 visions of this title and to enable the Secretary to carry
16 out such other forms of rehabilitation of individuals eligible
17 under this title to receive loans as may be authorized by
18 law and designated in the Executive order directing the
19 allotment.
20
TITLE III-RETIREMENT OF SUBMARGINAL
21
LAND
22
PROGRAM
23
SEC. 31. The Secretary is authorized and directed to
24 develop a program of land conservation and land utilization,
25 including the retirement of lands which are submarginal or
8
1 not primarily suitable for cultivation, in order thereby to
2 correct maladjustments in land use, and thus assist in con-
3 trolling soil erosion, preserving natural resources, mitigating
4 floods, preventing impairment of dams and reservoirs, con-
5 serving surface and subsurface moisture, protecting the
6 watersheds of navigable streams, and protecting the public
7 lands, health, safety, and welfare.
8
POWERS UNDER LAND PROGRAM
9
SEC. 32. To effectuate the program provided for in sec-
10 tion 31, the Secretary is authorized-
11
(a) To acquire by purchase, gift, or devise, or by trans-
12 fer from any agency of the United States or from any State,
13 Territory, or political subdivision, submarginal land and land
14 not primarily suitable for cultivation, and interests in and
15 options on such land. Such property may be acquired sub-
16 ject to any reservations, outstanding estates, interests, ease-
17 ments, or other encumbrances which the Secretary deter-
18 mines will not interfere with the utilization of such property
19 for the purposes of this title.
20
(b) To protect, improve, develop, and administer any
21 property 80 acquired and to construct such structures thereon
22 as may be necessary to adapt it to its most beneficial use.
23
(c) To sell, exchange, lease, or otherwise dispose of,
24 with or without a consideration, any property so acquired,
25 under such terms and conditions as he deems will best ac-
Regraded Uclassifie
9
1 complish the purposes of this title, but any sale, exchange,
2 or grant shall be made only to public authorities and agéncies
3 and only on condition that the property is used for public
4 purposes. The Secretary may recommend to the President
5 other Federal, State, or Territorial agencies to administer
6 such property, together with the conditions of use and
7 administration which will best serve the purposes of a land-
8 conservation and land-ntilization program, and the President
9 is authorized to transfer such property to such agencies.
10
(d) With respect to any land, or any interest therein,
11 acquired by, or transferred to the Secretary for the purposes
12 of this title, to make dedications or grants, in his discretion,
13 for any public purpose, and to grant licenses and easements
14 upon such terms as he deems reasonable.
15
(e) To cooperate with Federal, State, Territorial, and
16 other public agencies in developing plans for a program of
17 land conservation and land utilization, to conduct surveys
18 and in vestigations relating to conditions and factors affecting,
19 and the methods of accomplishing most effectively, the pur-
20 poses of this title, and to disseminate information concerning
21 these activities.
22
(f) To make such rules and regulations as he deems
23 necessary to prevent trespasses and otherwise regulate the
24 use and occupancy of property acquired by, or transferred to,
25 the Secretary for the purposes of this title, in order to con-
Regraded Uclassified
10
1 serve and utilize it or advance the purposes of this title.
2 Any violation of such rules and regulations shall be punished
3 as prescribed in section 5388 of the Revised Statutes, as
4 amended (U. S. C., 1934 ed., title 18, sec. 104).
5
PAYMENTS TO COUNTIES
6
SEC. 33. As soon as practicable after the end of each
7 calendar year, the Secretary shall pay to the county in which
8 any land is held by the Secretary under this title, 25 per
9 centum of the net revenues received by the Secretary from
10 the use of the land during such year. In case the land is
11 situated in more than one county, the amount to be paid
12 shall be divided equitably among the respective counties.
13 Payments to counties under this section shall be made on
14 the condition that they are used for school or road purposes,
15 or both. This section shall not be construed to apply to
16 amounts received from the sale of land.
17
APPROPRIATION
18
SEC. 34. To carry out the provisions of this title,
19 there is authorized to be appropriated the sum of $10,000,000
20 for the fiscal year ending June 30, 1938, and $20,000,000
21 for each of the three fiscal years thereafter.
22
TITLE IV-GENERAL PROVISIONS
23
FARM SECURITY ADMINISTRATION
24
SEC. 41. (a) The Secretary shall establish in the De-
25 partment of Agriculture a Farm Security Administration
Regraded Uclassified
11
1 to assist him in the exercise of the powers and duties con-
2 ferred by this Act.
3
(b) For the purposes of this Act, the Secretary shall
4 have power to-
5
(1) Appoint (without regard to the civil-service
6
laws and regulations) and fix the compensation of such
7
officers and employees as may be necessary. No per-
8
son shall be appointed or transferred under this Act
9
to any position in an office in a State or Territory the
10
operations of which are confined to such State or Ter-
11
ritory or a portion thereof, or in a regional office outside
12
the District of Columbia the operations of which extend
13
to more than one, or portions of more than one, State
14
or Territory, unless such person has been an actual and
15
bona-fide resident of the State or Territory, or region,
16
as the case may be, in which such office is located, for
17
a period of not less than one year next preceding the
18
appointment or transfer to such position (disregarding
19
periods of residence outside such State or Territory, or
20
region, as the case may be, while in the Federal Gov-
21
ernment service) If the operations of the office are
22
confined to a portion of a single State or Territory, the
23
Secretary in making appointments or transfers to such
24
office shall appoint or transfer only persons who are
25
residents of such portion of the State or Territory.
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12
1
(2) Accept and utilize voluntary and uncompen-
2
sated services, and, with the consent of the agency con-
3
cerned, utilize the officers, employees, equipment, and
4
information of any agency of the Federal Government,
5
or of any State, Territory, or political subdivision.
6
(3) Within the limits of appropriations made
7
therefor, make necessary expenditures for personal serv-
8
ices and rent at the seat of government and elsewhere;
9
contract stenographic reporting services; purchase and
10
exchange of supplies and equipment, law books, books
11
of reference, directories, periodicals, newspapers, and
12
press clippings; travel and subsistence expenses, includ-
13
ing the expense of attendance at meetings and confer-
14
ences; purchase, operation, and maintenance, at the
15
seat of government and elsewhere, of motor-propelled
16
passenger-carrying and other vehieles; printing and
17
binding; and for such other facilities and services as
18
he may from time to time find necessary for the proper
19
administration of this Act.
20
(4) Make contracts for services and purchases
21
of supplies without regard to the provisions of section
22
3709 of the Revised Statutes (U.S.O., 1934 ed., title
23
41, sec. 5) when the aggregate amount involved is less
24
than $300
Unde
Regraded Uclassifie
13
1
(5) Make payments prior to audit and settlement
2 bus by the General Accounting Office.
3 biae (6) Acquire land and interests therein without
4
regard to section 355 of the Revised Statutes, as
5
amended (relating to restrictions on the acquisition of
6
land by the United States)
7
(7) Compromise claims and obligations arising
8
under, and adjust and modify the terms of mortgages,
9
leases, contracts, and agreements entered into pursuant
10
to, this Act, as circumstances may require,
11
(8) Pursue to final collection, in any court, State
12
or Federal, all claims arising under this Act, or under
13
any mortgage, lease, contract, or agreement entered into
14
pursuant to this Act.
15
(9) Make such rules and regulations as he deems
16
necessary to carry out this Act.
17
RESETTLEMENT PROJECTS
18
SEC. 43. The Secretary is authorized to continue to
19 perform such of the functions vested in him pursuant to
20 Executive Order Numbered 7530 of December 31, 1936, as
21 amended by Executive Order Numbered 7557 of February
22 19, 1937, and pursuant to Public Act Numbered 845, ap-
23 proved June 29, 1936 (49 Stat. 2035) as shall be necessary
24 only for the completion and administration of those resettle-
25 ment projects, rural rehabilitation projects for resettlement
Regraded
14
1 purposes, and land development and land utilization projects,
2 for which funds have been allotted by the President, and the
3 balances of funds available to the Secretary for said purposes
4 which are unexpended on June 30, 1937, are authorized to
5 be appropriated to carry out said purposes.
6
GENERAL PROVISIONS APPLICABLE TO SALE
7
SEC. 44. The sale or other disposition of any real prop-
8 erty acquired by the Secretary pursuant to the provisions
9 of this Act, or any interest therein, shall be subject to the
10 reservation by the Secretary on behalf of the United States
11 of not less than an undivided half of the interest of the
12 United States in all coal, oil, gas, and other minerals in or
13 under such property.
14
SURVEYS AND RESEARCH
15
SEC. 45. The Secretary is authorized to conduct sur-
16 veys, investigations, and research relating to the conditions
17 and factors affecting, and the methods of accomplishing most
18 effectively, the purposes of this Act, and may publish and
19 disseminate information pertinent to the various aspects of
20 his activities.
21
VARIABLE PAYMENTS
22
SEO. 46. The Secretary may provide for the payment
23 of any obligation or indebtedness to him under this Act
24 under a system of variable payments under which a surplus
25 above the required payment will be collected in periods of
Regraded Uclassifie
15
1 above-normal production or prices and employed to reduce
2 payments below the required payment in periods of sub-
3 normal production or prices.
4
SET-OFF
5
SEC. 47. No set-off shall be made against any payment
6 to be made by the Secretary to any person under the pro-
7 visions of this Act, by reason of any indebtedness of such
8 person to the United States, and no debt due to the Secre-
9 tary under the provisions of this Act shall be set off against
10 any payments owing by the United States, unless the Secre-
11 tary shall find that such set-off will not adversely affect
12 the objectives of this Act.
13
BID AT FORECLOSURE
14
SEC. 48. The Secretary is authorized and empowered
15 to bid for and purchase at any foreclosure or other sale, or
16 otherwise to acquire property pledged or mortgaged to se-
17 cure any loan or other indebtedness owing under this Act;
18 to accept title to any property so purchased or acquired in the
19 name of the United States; to operate or lease such property
20 for such period as may be deemed necessary or advisable to
21 protect the investment therein; and to sell or otherwise
22 dispose of such property so purchased or acquired upon such
23 terms and for such considerations as the Secretary shall deter-
24 mine to be reasonable, but subject to the reservation of
25 mineral rights provided for in section 44.
Regraded Uclass fied
16
1 FEES AND COMMISSIONS PROHIBITED
2
SEC. 49. No officer, attorney, or employee of the United
3 States shall, directly or indirectly, be the beneficiary of or
4 receive any fee, commission, gift, or other consideration
5 for or in connection with any transaction or business of the
6 United States under this Act other than such salary, fee,
7 or other compensation as he may receive from the United
8 States. Any person violating the provisions of this section
9 shall, upon conviction thereof, be punished by a fine of not
10 more than $1,000 or imprisonment for not more than one
11
year,
or
both.
Hiw
Textre
12
EXTENSION TO TERRITORIES ST
13
SEC. 50. The provisions of this Act shall extend to the
14 Territories of Alaska and Hawaii.
15
SEPARABILITY
16 of SEC. 51. If any provision of this Act, or the application
17 thereof to any person or circumstances, is held invalid, the
18 remainder of the Act, and the application of such provisions
19 to other persons or circumstances, shall not be affected
20 thereby. Y/M Society due 18
To No has IS
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14 lobining auign
Regraded Uclassified
TOTE CONGRESS
Lev Summon
H. R. 6240
A BILL
To encourage and promote the ownership of
Car
farm homes and to make the possession of
such homes more secure, to provide for the
general welfare of the United States, to pro-
vide additional credit facilities for agricul-
bei
tural development, and for other purposes.
By Mr. JONES
APRIL 8, 1987
Referred to the Committee on Agriculture and ordered
to be printed
Canef
Regraded Uclassified
4-13-57 April 13, 1937
208
my dear Mr. President:
Mr. Watson states in his letter to you dated March 27. 1937,
upon which you have acked my comment, that the Board of the United
States Thember of Commerce is prepared to recommend to its annual
meeting that the plan of corporate taxation outlined in your not-
cage to Congress et March 3. 1936, be substituted for the plan now
enhedied in the Revenue not of 1936. the Chamber has apparently
had a complete change of heart, cince it vigerously opposed all
forms of undistributed profite taxation before the congressional
counitiess in 1936. Its Committee on Federal Finance stated to the
Senate Consittee on Finance: "The proposal is utterly imprestical,
unverkable, and uncount."
The chief differences between the present system of corporate
taxation and that which you outlined are twofolds (1) A normal tax
upon corporate net incomes has been retained at comewhat lewer rates
renging from 8 persent to 15 percent; and (2) the capital stock tax,
at & substantially reduced rate, and the excess-profits tax have
been retained. Mr. Watern preposes the repeal of these three taxes,
plus the embstitution of the rates of undistributed profits tax
209
The President
- 2 -
embodied in the House Bill for the rates new in the law. As Me
memeranden shows, these changes would be highly beneficial to or
perations distributing more than forty persent of their incomes.
Your neesage to the Gengrees gave two principal reasons for
the adoption of a corporate undistributed prefite tax: (2) The
avoidance of individual curtaxes or their equivalent by wealthy
steckholders under the prior system; and (2) the inequitable die-
tribution of the tax lead as between unincorporated and incorpe-
rated businesses. It is significant that the Board of the Chamber
now seess villing to endorse the principle of undistributed profits
texation and to accept both of your objectives. Your message did
not, of course, recommend any specific rate structure, but the
Board now appears to approve the rates incorporated in the House
Mll. Changes in the existing rate structure. when made. should
be carried out, net with a view solely to a large-seale reduction
in corporation taxes, but to the advancement of that equitable
distribution of the tax burden which vas one of the two principal
grounds for your message last year.
The Treasury Department has not altered its viewier the basic
servinces of the suggestions you nade to the Congress in your tax
meseage of a year age, Eswaver. the wisdem of asking the dengress
at this time to undertake a third substantial reorgenization of
corporate Name in as many years 10 the first insure-tax
210
the President
- 3 -
returns under the Revenue set of 1936 vere made only a few vasits
age. There has been no time for the tabulation, elassification,
and appraisal of the effects, possible weaknesses, and needed or
desirable alterations, If any, of the existing 1aw. the force of
these considerations is very strongly on the side of deferring
substantial alterations until the practical effects of the opera-
tion of the law are fully known.
I an attaching a draft of a latter to Mr. Thomas J. Watson
which embedies a brief expression of this view.
Faithfully,
The President,
The White House.
Attachment
4/13/37
211
My dear Mr. Watsome
I an gratified to know that the Beard of the United
States Cheaker of Commerce is prepared to recomend to its
annual meeting that the plan of corporate taxation, which
I outlined in my zeconge to the Congress on March 3. 1936,
should be endersed.
I - advised that the Treasury is now actively study-
ing the first income-tax returns under the 1936 law. Until
the results of this study become available, I believe that
the existing law should be permitted to stand unchanged.
We enght to defer consideration of substantial alteration
until we have determined the practical results of its oper-
ation.
Very sincerely yours,
Mr. Themas s. Watern,
270 Breadway,
Bew York, New Yerk.
4/13/37
Regraded Uclassified
212
COPY
4/5/37
MR. MAGILL
MRS. FORBUSH
Will you be 80 good as to prepare the memorandum which the
President requests, and route it back to the Secretary through
this office in order that - may keep our records straight?
Thank you,
/m/ G.E. Forbush
213
COPY
THE WHITE HOUSE
Washington
April 5, 1937
MEMORANDUM FOR SECRETARY MORGANTHAU:
Give me a memorandum on
this.
F.D.R.
Regraded Uclassified
214
THOS. J. WATSON
270 BROADWAY
NEW YORK
March Twenty-seventh
1937
The Honorable Franklin D. Roosevelt,
President of the United States,
White House,
Washington, D. C.
Dear Mr. President:
As you know, I have been putting forth every
effort to bring about cooperation between the United States
Chamber of Commerce and the Administration.
At the Board Meeting of the Chamber last
week, realizing that I had not been making very much head-
way in discussing various matters in open session, I had a
private conversation with Mr. Harper Sibley, Mr. Silas Strawn
and Mr. Eliot Wadsworth, with the result that certain changes
were made in the program for the Annual Meeting of the Chamber
to be held in April.
The Program Committee had already voted to have
Professor Moley debate the Supreme Court proposition with Mr.
Landis, but this part of the program vas cancelled and it vas
then agreed that the Chamber would emphasize two things: First,
that the Annual Meeting would be devoted largely to a discussion
of the Tenant Farm Program, with the understanding that the Board
would recommend that the Chamber back your Tenant Farm Program;
second, they want to emphasize a change in the present tax on
undistributed profite of corporations. It was understood that
the Board will recommend that your tax program, which VM proposed
by you in 1936, be substituted for the plan which vas agreed upon
and put through by the House and the Senate as the Revenue Act of
1936. The reason for wanting to substitute your tax plan for the
present law is because any fair-minded analyst cannot help but
agree that your plan is the most equitable and that it will bring
in the most revenue from corporations withholding dividends and,
at the same time, your plan will permit corporations to retain
reasonable amounts of their earnings for the development of their
businesses.
-2-
The President
215
The outstanding difference between the present
law and your plan, as you will note from the attached schedule,
18, as stated above, that your plan imposes higher taxes on
corporations that are withholding dividends to avoid surtaxes
that would be payable by their stockholders, and that it does
not penalize corporations that retain reasonable portions for
development purposes.
Your plan, as compared with the Revenue Act of 1936,
1s 80 much more equitable to every one concerned, that I believe
action should be taken before Congress adjourns to substitute
your plan for the law now in effect.
After my conference with Messrs. Sibley, Strawn
and Wadsworth, I did not attend the afternoon meeting, but Mr.
Sibley brought up these matters and vas supported by Messrs.
Strawn and Wadsworth. I am enclosing copies of letters which
I received from Mr. Sibley and Mr. Wadsworth on the subject.
I believe the Annual Meeting of the Chamber will
mark the beginning of helpful cooperation between the United
States Chamber of Commerce and the Administration, and I am
giving you the above information in confidence because I believe
it is important for the industrial, financial people and the
Government to all work together.
With kindest personal regards, I am
Sincerely ImWaton yours,
Thomas J. Watson/P
216
COMPARISON OF PERCENTAGES OF TOTAL FEDERAL TAXES
TO TOTAL ADJUSTED NET INCOME BEFORE FEDERAL TAXES
(Corporations With Adjusted Net Incomes of Over $50,000.)
When Dividends
Under
Paid Equal %
Revenue
President
Revenue
of Income before
Aot
Roosevelt
Act
Federal Taxes
of 1935 (a)
Tax Plan
of 1936 (a)
so
16.372%
42.500%
33.144%
10%.
16.372%
37.500%
30.444%
20%.
16.372%
32.500%
27.744%
30%
16.372%
27.500%
25.044%
40%
16.372%
22.500%
22.662%
50%.
16.372%
17.500%
20.462%
60%
16.372%
13.125%
18.739%
70%
16.372%
9.375%
17.175%
80%
16.372%
6.000%
16.191%
90%
16.372%
2.857%
15.904% (b)
100%.
16.372%
0.000%
15.904% (b)
(a) Capital Stock Taxes computed on declared value figure equivalent
to 120% of minimum figure required to avoid Excess Profits
Taxes.
(b) Some amount of dividend oredit in excess -- can be used in sub-
sequent years.
Above figures applicable for calendar year 1937 and subsequent
years, computed on $1,000,000.
Key: - To determine the approximate amount of total Federal Taxes on
any amount of adjusted net income in excess of $50,000:
Refer to above table, locate line showing percentage of dividends
paid, then apply effective percentages to such amount of income.
Example - Corporation with not income of $10,000,000. before Federal Taxes:
Paying Dividends of
Under
50%
60,1
Revenue Aot of 1935,
$1,637,200.
16.372%
$1,637,200. 16.372,
Roosevelt Plan,
$1,750,000.
17.500%
$1,312,500.
13.125%
Revenue Act of 1936,
$2,046,200.
20.462%
$1,873,900.
18.739%
Effective percentages under Revenue Acts of 1935 and 1936 vary slightly
on account of variation in rate of normal income taxes appli-
cable on portion of income below $40,000.
217
BOSTON CHAMBER OF COMMERCE
President's Office
March 23, 1937
Thomas J. Watson, Esquire,
270 Broadway
New York, N. Y.
Dear Tom:
Just a line to report that after some discussion
in the Directors meeting about a joint debate on the Court,
the idea was dropped. Silas and I valiantly supported the
views you expressed. The subject of agriculture was sub-
stituted.
Sincerely yours,
(Signed) Ell.
(Eliot Wadsworth)
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218
COPY
CHAMBER OF COMMERCE OF THE UNITED STATES
WASHINGTON
Harper Sibley
President.
March 19, 1937.
Mr. Thomas J. Watson, President,
International Business Machines Corporation,
270 Broadway,
New York, N. Y.
Dear Tom:
Following your suggestion we eliminated the
Supreme Court as one of the matters to be discussed at
the annual meeting, and we brought up the tax on corporate
surpluses as a major item for discussion. We also decided
to put on farm tenancy as one of the major items.
Following your further suggestion, I hope you
will go with me to see the President, if possible, in con-
nection with these matters whereby we are definitely in
support of his program.
Looking forward to being at your dinner shortly,
believe me,
Sincerely yours,
(signed) Harper Sibley
President.
ES/483
Regraded Uclassified
-COPY-
219
EMBASSY OF THE UNITED STATES OF AMERICA
Office of the Treasury Attache
Customs
2 Avenue Gabriel
Paris, France
April 13, 1937.
MEMORANDUM FOR THE SECRETARY:
Subject: Marcotics confidential Europe
We have all been quite busy here due to a rush of narcotic business
which rather piled up on us for several days. While we were busy
"chaperoning" Kessler (the member of the Katz-Blinde gang whom Nicholson
notified us was on the way from China) from Stolpce at the Polish frontier
to Vienna, then to Paris, Brumer personally escorting him and the national
police of the various countries concerned cooperating very well at every
turn, we commenced to get good information on the NORMANDIE with regard
to her impending sailing. It also turned out that Kessler was sailing
on this vessel. All in all, there were five suspicious movements in con-
nection with the MORMANDIE: namely (1) Kessler; (2) Meyersohn, whom we
had been observing in Paris, who appeared at Havre at the last moment
and dashed up the gangplank without having bought & ticket; (3) the
jazz orchestra player Goldman with 20 kilos of heroin; (4) the sailor,
name unknown, supposed to have 20 kilos of opium; and (5) the suspicious
beggage mentioned in the telegram to the Bureau. Since the NORMANDIE
has been at New York for two days now and we have received no report
of any seizures, I assume nothing was found. However, I hope that
through observing Kessler after he lands, New York can uncover the local
connections of the Katz-Blinds international geng. Also, whom Meyersohn
hooks up with in New York; and the business connections of Goldman, the
orchestra player.
In connection with the Kessler affair, we had our first demonstration
of how to make use of all facilities available in covering an operation
spread all over Europe. For instance: Brumer was sent to Stolpce to
personally convoy Kessler wherever he went. Be followed him to Vienna,
observed him there, then followed him to Paris. While Kessler W&6 en
route to Paris, Blinds, whom we were watching at Vienna, suddenly started
for Paris also. To cover him, we had to take one of the Vienna office
force, Poglies, a big Austrian, to follow him to Paris. (When Blinds
got es fer AB the French frontier, the French police refused him entrance
and turned him back to the Swiss police, who took him to Zurich and put
him in jail for investigation, where he still 1s. We were sorry to see
this happen, as we hoped to observe Blinds and Kessler together at their
business meetings in Paris. It would appear that the French authorities,
whom we had gotten all "steamed up" about the matter, through over-
sealousness turned Blinds back instead of letting him pass through.) We
Regraded Uclassified
220
&
then got word from Nicholson that be suspected that a compatriot of Kessler's
was aboard the PRESIDENT WILSON (Dollar Line) due in Europe through Suez
immediately. We figured the narcotics might be aboard the WILSON. To
cover this angle, we called on the Consuls at Naples, Genoa, and Marseilles,
to cover the passenger list and bonded or other suspicious baggage. (The
Consuls responded very well.) It then developed that Kessler was leaving
on the NORMANDIE, so we sent Beers to Havre to properly see him off, in-
cluding sitting in with the Vice-Consul at the passport inspection, unob-
trusively. Then we found that a Vice-Consul, Mr. Fuqua, from Paris W&B
going on the NORMANDIE, 80 we lined him up to observe Kessler en route.
All in all, the above was good training for our narcotic unit. Scharff
directed operations and did very well, with a little coaching at the
proper times about angles he had not had experience in as yet. Scharff
is an excellent man and is living up to your expectations fully. It is
too bad he is not a permanent member of our European force.
I noted with interest the agreement between Treasury and State with
regard to handling narcotic matters in the future. This will improve
matters considerably. I also noted Mr. Bullitt's willing endeavor to
help. He is now back here and I have an appointment to see him. His
attitude is of the greatest help to us here.
We are getting along very well with the French Surete. They are
loosening up all the time and are now & real help to us.
Scharff has proved very good at getting informers. He has dug up
several promising ones. We have talked with several others whom we have
had to later weed out. Beers has also proved to have a knack with in-
formers.
Mr. Wait is on sick leave until the end of the month.
Regards to all.
Respectfully,
THOMPSON.
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221
MEETING RE RAILROAD RETIREMENT
April 13, 1937
11:00 A.M.
Present:
Mr. Magill
Mr. Bell
Mr. J. J. Pelley
Mr. George Harrison
Senator Pat Harrison
Congressman Robert Doughton
Mr. Murray Latimer
Mr. Arthur J. Altmeyer
Sen. Harr.: Well, what have you got for us this morning - glad
tidings or good news, or more trouble?
H.M.Jr:
Well, I don't know about glad tidings, but we've
got a report from the actuaries.
Sen. Harr.: Was Latimer there?
Magill:
No.
Sen. Harr.: Oh, their actuary was Glenn, wasn't it?
Magill:
Yes
Sen. Harr.: I see.
Magill:
Want me to read it?
H.M.Jr:
I think read it out loud.
Magill:
This is a report by these four actuaries that we had
locked up in the jury room to reach an agreement on
this thing the other day.
"In accordance with your informal request an actuarial
conference was held on April 8, 1937, to discuss the
adequacy of the tax rates contained in the proposed
Railroad Retirement Bill.
"Those attending the conference were Mr. George B.
Buck, Consulting Pension Fund Actuary, New York, and
Chairman of the Federal Board of Actuaries of the
Civil Service Retirement and Disability Fund, Mr.
Joseph Glenn, Actuary of the Railroad Retirement
Board, Mr. W. R. Williamson, Actuary for the Social
Security Board, Mr. R. R. Reagh, Government Actuary,
Treasury Department, and Mr. Maurice S. Brown, Actuary,
Treasury Department. The conclusions reached at this
conference are summarized as follows:
222
- 2 -
(1) It was unanimously agreed that the tax rates
of the proposed bill are inadequate.
"(2) Mr. Williamson made a motion that the tax
rates in the proposed bill should be changed
to rates beginning at 5 percent for the first
three years and going up 1 percent instead of
one-half percent each triennial period to a
maximum of 9 percent beginning January 1, 1949.
Mr. Buck, Mr. Williamson and Mr. Reagh voted
"yes" to this motion, Mr. Glenn alone voting in
the negative. (Mr. Brown, serving in 8 capacity
of technical assistant, did not vote.)
1(3) Mr. Glenn suggested a flat rate of 7 percent
for some fixed period of years, leaving the
matter of adjustment, if necessary, to E future
Congress. Mr. Glenn admitted, however, that a
uniform tax rate of 7 percent would very prob-
ably prove to be inadequate on a permanent
basis. Subsequently Mr. Glenn stated that he
favored the continuation of the present tax act
(Public No. 400, 74th Congress, Second Session)
except as amendments are necessary to change the
scope of the coverage, thereby requiring an
annual reconsideration of the adequacy of the
rate. He believes that in no case should the
fixed period exceed ten years and preferably
that it should not exceed five years. He feels
that a period of at least five years will elapse
before sufficient experience has been accumulated
to warrant the establishment of a definite rate
for a longer period.
"(4) It was unanimously agreed that the bill should
carry a provision requiring periodical valuations
of the contingent liabilities created by the act
in respect to new entrants, existing members and
pensioners, with a report to Congress and the
public setting forth the amount of such liabili-
ties as well as the level percentage of payroll
required to pay the benefits. It was further
agreed that in order to assure the railroads,
the employees and the public of technical repre-
sentation, the actuarial valuations should be
made subject to the supervision of a board of
actuaries, one of whom might be designated by
the railroads, one by the railroad employees,
and the third by the Secretary of the Treasury.
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223
- 3 -
"Mr. Henry Moir, Chairman of the Finance Com-
mittee of the United States Life Insurance Company
and a member of the Federal Board of Actuaries,
was unable to attend the meeting; however, he did
confer with Mr. Williamson and Mr. Reagh on April
9, and expressed himself as being in favor of the
5 to 9 percent scale of tax rates which was agreed
to by all except Mr. Glenn. Mr. Moir's views are
set forth in B letter to Mr. Magill dated April 9.
In this letter Mr. Moir makes the suggestion that
'in the early years employees pay the full amount
of 5 percent and that the additional charges running
up to 9 percent ultimately be paid solely by the
employers, thus equalizing in a manner the benefits
and putting the extra costs on those who get the
most of the extra benefits, namely the present
employees.' In a footnote to the letter, Mr. Moir
makes an alternative suggestion that 'this might be
made 45 percent at first, rising to 9 percent on a
50-50 principle.
"
Respectfully submitted,
George B. Buck
Joseph B. Glenn
W. R. Williamson
R. R. Reagh
11
Mr. Buck was not present when the report was con-
cluded, but it was read to him over the telephone
and he authorized that his name be signed to it.
Sen. Harr.: Were these rates suggested on the basis that they
are pretty generally agreed to, of 67 fraction percent
as the retirement age?
(Altmeyer comes in)
Magill:
Well, I have a letter from them on that subject.
I don't know that the Secretary knows this, but Mr.
Harrison and Mr. Pelley sent a letter which was
presented to the actuaries, asking them to specify
the assumptions which they used. I have their answer,
which is to the effect that they used the same assump-
tions and the same tabulations, etc., which were used
by the Railroad Retirement Board.
Regraded Uclassified
224
- 4 -
Sen. Harr.: That was 67 plus, wasn't it?
Magill:
Right, yes.
Harrison:
Let me understand Number One in that letter of
April 10 that you just read, signed by four
actuaries. "It was unanimously agreed that the
tax rates of the proposed bill are inadequate."
What is your understanding of that statement?
Is that based on the tax rates without considera-
tion for the loading under Social Security, or
does that include the loading under Social Security?
Magill:
It is my understanding they took that into account;
that, taking all the factors into account, it is
their view that for the plan to carry itself the
rate should be five to nine in the way they have
stated, or Mr. Glenn thinks a level seven.
Doughton:
Think it should be five to seven, or seven flat?
Magill:
Mr. Glenn has suggested it should be a level rate
of seven; that is, starting now at seven and con-
tinuing at seven, with this provision for read just-
ment at some period of three years, five years,
what you will. The others, the three others who
attended the conference, and Mr. Moir, who is the
third member of this Government board of actuaries,
all felt that the rate should run from five to nine;
that is, increasing - starting at five for the first
three years, then increasing one percent and running
at six for the next three years, and so on, until
they reach nine in 1949.
Doughton:
Wasn't it a kind of understanding, or sentiment
expressed here at our meeting the other day last
week, that we go along for three years and then have
a survey of the whole situation? Having accumulated
all the facts, they could make an adjustment then in
the light of experience up to that time.
Magill:
That's right. I think we all agree that a provision
of the kind they mention here in Paragraph 4 ought to
go in; that is, a provision for periodical adjustment
of the rates.
Now, the actuaries' idea, as I understand it, is that
Regraded Uclassified
225
- 5 -
the rates to go into the bill ought to be rates of
such a character that, in the light of your exper-
ience now, they indicate that the plan would be
self-supporting. If it proves in the future that
more money is coming in than is necessary, rates
should be adjusted downward. If it proves that the
money coming in is less than we need, the rates
should be adjusted that way.
Doughton:
These three-year periods here with the raise in
the rates don't mean, then, to interfere with or
stop the three-year adjustment.
Magill:
That's right.
Doughton:
But it is just the best calculation they can make
now.
Magill:
That's exactly it.
Harrison:
You don't know to what extent the rates are inade-
quate? Was it just slight or was it of great impor-
tance?
Magill:
Well, I don't know. I didn't attend their meeting
either. All I have is this report. In accordance
with our discussion here the other day, we put them
in a conference room together and they worked at it
on Thursday afternoon, Thursday evening.
Harrison:
The reason I asked that question is that I have a
statement here from Mr. Glenn and this is a distinct
surprise to me - that he had signed his name to another
statement that the tax yield would be inadequate. I
just wonder how often he changes his mind.
H.M.Jr:
I'd like to ask why does Mr. Glenn do a thing like
that?
Latimer:
Mr. Glenn, I'm - let me explain in behalf of Mr.
Glenn.
H.M.Jr:
I mean this Railroad Board is all the time springing
surprises on the Treasury. I mean who are you working
for anyway?
Latimer:
We're working for the Government of the United States.
226
- 6 -
H.M.Jr:
Well, I just wonder sometimes who you are working
for. What right does Mr. Glenn have to send some-
thing like that and not advise us?
Latimer:
You have a copy of it.
H.M.Jr:
Of Mr. Glenn's letter?
Magill:
I don't know what it is.
Harrison:
This is the final statement that we received from
the Retirement Board.
Latimer:
And the actuaries.
Harrison:
On the cost.
Magill:
Was this before or after the meeting?
Harrison:
Before.
Magill:
Well then, all that stuff went into the meeting.
We sent in everything we had.
Harrison:
Now, when we got through with our agreement with
the railroads, I asked the Retirement Board actuary
to give me a statement of the cost of providing
the benefits, the last final word on the cost of
providing the benefits, and that was just before
this conference was held. And I got the statement;
it might have been prepared still earlier than that.
Now, here's the statement that I received from Mr.
Glenn. It starts out in 1937, runs up to 1975; shows
the income, shows the outgo, And in 1975, under the
present schedule of taxes we propose, there will be a
surplus of 592 million, 275 thousand dollars, after
all the benefits are paid up to 1975. And I have it
here for each year commencing 1937.
Sen. Harr.: When was that letter....
Harrison: This was prepared and forwarded to me just before
the conference of the actuaries.
Sen. Harr.: I don't see anything improper in that. But they
refigured it, I suppose.
Regraded Uclassified
227
- 7 -
H.M.Jr:
Well, when I made that statement I thought that
the letter you had was given after this meeting.
Harrison:
No, before.
H.M.Jr:
Well then, I withdraw my statement. I thought it
was given after. That is what I couldn't understand.
Harrison:
I don't understand the difference in Glenn's two
statements.
Magill:
Well, all - as I say, as far as this summary is con-
cerned, I am in exactly the same position you are,
because, as I think we all did, I wanted to be
scrupulously fair about this thing and I didn't attend
their meeting at all. I went around once in the course
of the afternoon to see how they were coming along and
found they were at about an agreement, and this is,
as you can see - they have all signed this thing and
that's all I know about it.
Latimer:
There is no difference in Mr. Glenn's position in
that memorandum and what he's taken here. If you
look at that particular statement there - 1975 -
probably around the year 2000 the reserve is going
down, you will notice.
Harrison:
Well, this runs to 1975 and I understood that after
that it would go down.
Latimer:
Yes. Now, Mr. Glenn, of course, does not believe
that the five to nine percent rates are necessary.
He says on a seven percent flat rate that reserve
would not go down. So Mr. Glenn's two statements
are in accord. Of course, on the basis of that
same statement, if you had a five to nine percent
rate, you would have a couple billion reserve by
1975.
Sen. Harr.: You'd have a how much?
Latimer:
Couple billion.
H.M.Jr:
Couple billion surplus.
Latimer:
That would be the accumulated excess of income over
outgo.
Regraded Uclassified
228
- 8 -
Sen. Harr.: Well, I don't understand that, Latimer.
Magill:
I don't either.
Sen. Harr.: Now, this figure is based on a five going up
to seven. Latimer, this statement here that Mr.
Harrison has read is based starting at five percent,
going up one-half percent triennially to 1949; then
it shows how much?
Harrison: $592,275,000.
Sen. Harr.: On this basis of seven percent flat, you'say it
won't be as much or be more?
Latimer:
It will be more, but you won't go down; you come to
a level point where it won't go down. But on the
five to nine you have a still higher reserve.
Harrison:
As I understand it, 1975 was as far in the future,
with any degree of certainty, that any actuary could
forecast the needs of a plan like this, because of
the variable assumptions underlying the calculation
of the cost. And they made the figures up for me
to 1975, and it shows a surplus of 592 million by
then.
Now, I agree, and I think anyone that knows anything
about our railroad problem will agree, that the under-
lying assumptions on which you make the figures are so
variable, changeable, that you just cannot plan it
beyond 1975.
Magill:
Of course, I don't get that letter, because we have
had these various computations from the Retirement
Board and, as I say, it is my - the actuaries have
written me that they use the Railroad Retirement Board
assumptions in arriving at this conclusion.
Now, I know that it is true, from some of the state-
ments that we have had from the Retirement Board,
that along about 1955 or 1962, along in that period,
the fund would show & red figure.
H.M.Jr:
May I interrupt a minute?
Harrison:
1955 - my figures show a surplus of $916,485,000.
H.M.Jr:
May I ask....
Regraded Uclassified
229
- 9 -
Magill:
As we have had so many statements, I don't know which
is which.
H.M.Jr:
Do I understand the Railroad Retirement Board did
furnish Social Security and Treasury with a copy of
this letter?
Latimer:
Yes, we sent that to Mr. Magill; he has that, I
believe.
Magill:
I think we got it. Of course, I don't know what
letter Mr. Harrison has. But I gave the actuaries
everything that we had received.
Harrison:
I think I got that two or three days before, and
we transmitted a copy of it with a letter that we
submitted to the actuaries - that is, to the Secre-
tary of the Treasury. We transmitted a copy.
Latimer:
If you remember, in that first memorandum we said
complete recalculations were going on, and those
are the complete recalculations (handing paper to
Magill).
Magill:
Of course, you appreciate I can't speak to this.
H.M.Jr:
Well, may I not say something, please, because we
don't - the other day, when this whole thing comes
down to a matter of rates we couldn't agree on the
actuaries, so I made the suggestion that - or some-
body made the suggestion we get these actuaries
together, and I said I'd be satisfied, didn't I?
Doughton:
You made the suggestion yourself. That was your
suggestion.
H.M.Jr:
And I said I'd be satisfied with what this group has
agreed on. And I haven't changed my position and I
am perfectly willing to take either one of these.
They make two suggestions and I'll take either one.
Doughton:
I'd like to ask this question.
H.M.Jr:
See? Now, we said we'd get these fellows together
and get the report, and I'll take either. They make
two suggestions. They make one suggestion and Glenn
makes another. Now, I'll take either one, with the
Regraded Uclassified
230
- 10 -
understanding that at the end of three years it be
reviewed. Now, I stand just where I stood the
other night.
Doughton:
The question I wanted to ask was if this motion
carried here in Number Two of the summary, made
by Mr. Williamson, concurred in by all but Mr.
Glenn, who didn't vote - if it is agreeable to
all parties that the legislation proceed on that
basis, that gives us a chance to readjust at the
end of three years.
Harrison:
You mean start out at five percent for the first
three years and then study it.
Doughton:
Unless experience accumulated up to that time would
demonstrate some other rate was necessary. That is,
as I understand, kind of a tentative suggestion.
If it was permanent, there would be no use for the
readjustment, but that's a tentative suggestion, the
best they can give now.
Harrison:
Start out at five percent for three years from the
first of January, '37.
H.M.Jr:
Yes.
Magill:
Their suggestion is to write in in the same law and
in the same way as the proposed plan, except you get
a maximum of nine instead of the proposed maximum of
seven, and write in this provision for an adjustment
of rates periodically to see whether or not they are
too high or too low.
Harrison:
Well now, since you are going to have the examina-
tion of the question within three years and we both
agree that if it does disclose that it needs to be
revised, we will agree to B revision, why not start
out with the proposed tax rates as we have them in
the bill and then only - and make the revision on
that base.
Magill:
Well, isn't it better policy - as I understood it,
we all agreed to get these actuaries in and see if
we can get an agreement out of them. Now, all the
actuaries agree that the proposed rates are inade-
quate, and they have proposed two alternatives.
Well, as long as we are writing the bill now, why
Regraded Uclassified
231
- 11 -
not write the bill in the form which they regard
as adequate?
Harrison: There is just this to that. We had an agreement
with the railroads that took the tax up to 8 maximum
of seven. This raises the maximum two points beyond
seven. Now, you can see what you're doing to our
agreement.
Doughton:
As I understand, Mr. Harrison, they did agree at the -
the other day that at the end of a three-year period
they would agree to whatever rates are necessary.
Harrison:
Yes, I subscribe to that. I subscribe to that. At
the end of the three-year period, have it adjusted
to whatever is necessary. That's the way I under-
stood it, and that was agreeable to Mr. Pelley.
H.M.Jr:
May I ask, is that agreeable? Just what is your
position now in the light of this report?
Pelley:
I don't know that I have any position at all, Mr.
Secretary. I would like to get straight on Mr.
Glenn's position, because he is the actuary that
we have relied upon throughout our negotiations,
and I'd like to get clear as to whether or not he
is changing his position.
Magill:
This is his last word.
Sen. Harr.: Well, I don't see, John, where he's changed his
opinion except this: As I understood Mr. Latimer,
all of them had some doubt about after 1962 under
the present proposal, starting out at five, going
up one percent, etc., up 'til 1912. Now, Glenn
subscribes to the proposition that 1f you make a
flat rate of seven percent he doesn't think there
would be any deficit. Isn't that right?
Latimer:
No. No, he wants it revalued at certain periods.
He's unwilling to say - he thinks it will be at
least five years before you will have sufficient
experience to establish the definite rate. That's
his position.
But I'd like to say this about Mr. Glenn. Of course,
in the statements which have been issued there by Mr.
Regraded Uclassified
232
- 12 -
Glenn, he has said that, taking this plan by
itself without going into anything else, the
level cost is 7.11 percent, so that he hasn't
changed his position on that at all. In fact,
this seven percent here is a little lower, taking
it by itself, than what he has previously said.
Magill:
As I get it, ne says that seven percent is probably
inadequate.
Latimer:
Yes.
Magill:
But he says, "Let's make it a flat seven."
Harrison:
Well, that's the reason I asked the question if,
in the statement that the tax rates were inadequate,
they took into consideration the loading under
Social Security, because the loading is in the
figure 7.11.
Latimer:
I think the general position of the actuaries was
that it couldn't be taken into account; therefore,
it was out.
Altmeyer:
My understanding is that instead of there being a
differential which would favor the railroad retire-
ment system, there is a differential that would favor
the Social Security system, if they all stayed together;
that the actuaries agree now that
Latimer:
Glenn doesn't agree to that.
Altmeyer:
My understanding is that the actuaries agreed that
this differential existed only about the first 15
years and after that it turned the other way.....
Latimer:
Glenn doesn't agree to that.
Altmeyer:
...and that the mistake made was that these figures
were not run out far enough and it was assumed there
was a permanent differential when it now appears,
running the figures out further, because of a higher
wage level there is a differential the other way.
Sen. Harr.: Well now, let me ask the Secretary of the Treasury -
if one of these propositions should be agreed upon,
then that removes the proposition that was debated
233
- 13 -
at first as to the amount of taxes that is due
the Government under the present law, which is
estimated to be about a hundred and some odd
millions of dollars, and that the Act start from
January 1st this year....
H.M.Jr:
That's right.
Sen. Harr.
....as in the proposition. And under the agreement,
as I understand, there would be paid in immediately
to the Treasury, as of April 1st, about 30 millions
of dollars. Is that right?
H.M.Jr:
I don't know about the 30 million.
Sen. Harr.: Well, I understood it was 30 million.
Bell:
It was about 55 million, I think Mr. Pelley said.
Harrison:
For the six months.
Pelley:
For the six months.
Latimer:
First quarter, 271.
H.M.Jr:
But without - leaving out that last statement about
how much is paid in, for the other part your statement
of the facts is as I understand it.
Sen. Harr.: I just wanted to get that clear.
Doughton:
Now, it is agreed that we'll start at five percent.
That is what the railroads and the Brotherhoods seem
to think will be adequate. The actuaries seem to be
against them, think it may not be adequate. Now, it
is agreed further that if it is not adequate they are
willing to go up to what is adequate - 6, 7, 8 or 9.
Pelley:
Go up with the taxes or come down on the benefits.
Harrison:
That's Pelley's position. It is not my position. My
position is: go up with the taxes.
Pelley:
We'll settle that later.
Doughton:
Let's fight that out three years from now.
234
- 14 -
Sen. Harr.: Well, of course, the motion here that all voted for
except Mr. Glenn - five percent for three years -
well, that's a little different from the agreement.
The agreement that they made was five percent for
the first year, increase to five and a quarter the
second, five and a half the third.
Pelley:
Five for three years and then....
Magill:
This is the same as their agreement.
Sen. Harr.: I thought it went up a quarter.
Harrison:
It goes up a quarter percent each three years for
twelve years.
Doughton:
It looks to me like you've got something you could
start on and get away from these conferences; we've
had enough.
H.M.Jr:
It seems to me we've come about nine-tenths of the
way.
Doughton:
Well, all you want is the Treasury to be protected.
Sen. Harr.: I don't know - if you're going to do it, we've got
the thing laid in our lap three years from now and
the actuaries are going to be called in, but we don't
know whether we'll be here.
Doughton:
Get a lot of experience in three years.
Pelley:
None of us know whether we'll be here.
H.M.Jr:
Just one thing, Senator Harrison, you didn't mention.
That is, if this goes through on the - whatever you
call it - on the Number Two plan
Bell:
Five to nine.
H.M.Jr:
...five to nine - I mean it would be necessary for
us to send up in the last deficiency bill a request
for 40 million.
Bell:
Something like that.
Harrison:
Enough to finance it for the balance of the fiscal
year.
235
- 15 -
Bell:
'38, yes.
Harrison:
138 fiscal year.
Sen. Harr.: Don't you get right away some 40 million or something
like that?
H.M.Jr:
Well, the important thing is to take over their 200
million dollar fund.
Bell:
We have 46 million dollars already appropriated to
take care of '37 and '38 under the present bill.
Pelley:
How much of that has been spent, Mr. Bell?
Bell:
About six million spent to date.
Latimer:
Six million?
Bell:
I think it's six million.
Pelley:
About a million.
Latimer:
About a million and a half.
Bell:
I may be wrong on that.
Magill:
I should think as long as you are contemplating an
agreement that will undoubtedly go on indefinitely,
you ought to write it in the same way - same general
form that the plan contemplated; that you are setting
it up on a permanent basis, five percent for three
years, six percent for three years, seven percent
for three years, etc. Social Security is written
that way, isn't it?
Altmeyer:
(Nods yes)
Magill:
So you can see what - you've got this provision for
adjustments. If the rates prove to be too high,
all right, let's change it - or 1f they prove to be
too low. But I think for the same reason you were
talking about a minute ago, it is well to put the
thing on a permanent basis if you can, so as to avoid
as much as you can of this discussion as to what the
rates ought to be three years from now, when we may
not yet know. You see, Glenn says here, as far as
236
96 I 1
that is concerned, that you won't know for five
years whether the thing is self-supporting or
not. Now, it seems to me that the proposal, this
Number Two proposal, is entirely fair to everybody,
because it means that the agreement starts off on
exactly the basis that the Brotherhoods and the
railroads have agreed.
Sen. Harr.: You don't have to take it back to them for any
change?
Magill:
Now, you step it up to a higher rate than that which
was ultimately contemplated, but if that proves to
be improper from your experience, why, you put in
machinery for making the change.
Sen. Harr.: Well, writing the law is what I'm getting at now.
I want to know your idea as to how the provisions
should read. Are you going to write it and say that
for the first three years the rates should be five
percent and that after that time the Congress must
fix the other rates?
Magill:
No, I'd write it as a permanent plan - five percent
for the first three years, six percent for the next
three years, seven percent for the next three, etc.,
up to this maximum of nine which is going to be
reached.
Sen. Harr.: Well, if you fix it that way, then the Brotherhoods
and the railroads have got to take it back to their
respective principals, because it is a change in
their agreement. Am I right?
Pelley:
You are.
Sen. Harr.: That's why I was asking the question.
Pelley:
It seems to me now, since you folks have gotten away
from the position that you had from the beginning,
that we ought to pay in this money that's accrued
under the old law, we ought to be able to carry out
apparently what Mr. Doughton has in his mind. This
agreement - just go on with the agreement, write it
into the law; if you want to make some provision that
at the end of five years have a look at it and see if
it is adequate, and if not then some adjustment will
237
17 I 1
be made, that's all right.
H.M.Jr:
Three years.
Pelley:
Three - well, that's all right. That will tell us
a good many things. Three years from now we'll
know something about where we're going a little more
definitely than we do now. I think, to be perfectly
frank with you, that our people would not agree now -
not commit themselves to paying nine percent at any
time. I don't know whether the men want to do that
or not; that's 42 percent of their pay. And Mr.
Latimer says that it will build up a reserve of a
couple of billion dollars. Now, we're rather poor
and the men are none too rich and I don't know if
you want to set up a reserve of that kind.
Sen. Harr.: Well, without committing yourself as put up to the
reilroads, do you think that they would rather have
a five percent for three years and then step it up
half a percent and get nine percent in twelve years,
or whether they'd rather have a flat seven percent
proposition?
Pelley:
I think they'd rather have the five percent, Senator,
because they are all in more or less financial diffi-
culties - not all of them; some of them are all right.
Their business is getting better. This five percent
idea, I think, was what made it possible to sell it
to them. They got started on the lower basis. And
as I pointed out here the other day, we're really
starting on a 23 percent basis while all other indus-
tries are getting started at a one percent basis, and
it's a pretty good load for them.
Magill:
Of course, you've got a big selling point to them
on this five to nine, for instance. You're relieving
the fifteen railroads, or whatever it is, of this
200 million dollar liability which they are now under,
and which, as I understand it, is costing 36 million
dollars a year
Bell:
Which is more than 11 percent.
Magill:
when they get out of that - which is more than
the 1 ± percent. And further, they are relieved of
the potential liability for whatever might be found
Regraded Uclassified
238
- 18 -
to be due under this present law; and the way the
Supreme Court is going now, I think they will uphold
the present law. So I think as far 8.5 your railroads
are concerned, they're getting an awful good break.
Pelley:
Well, as a matter of fact, as compared with the pre-
sent, they're stepping up their pension bill from
some 36 million to a minimum of 55 million, and to
a maximum of something like 75, and that is the con-
dition that confronts them, and it takes that many
millions of dollars to pay the bill.
Bell:
But for the present you are better off under your
proposed scheme than you would be if you came in under
the Social Security Act.
Pelley:
Well, I don't know; I haven't considered that.
Magill:
As long as the railroads agreed to the five to seven
proposition, I don't see how they can fail to agree
to this, since you have this provision for an adjust-
ment of the rates either way. Now, you were arguing
with us the other day that the Treasury would be pro-
tected if we had B provision for adjusting the rates
up. Now, by the same token you will be protected
if you have a provision for adjusting the rates down.
It will work both ways. It seems to me the sensible
thing to do is to start the program on a basis which
your actuaries agree is sound. Now, if you find that
experience shows that they took too much into account,
or didn't take enough, why, all right, let's change it.
But as I understood, we were all in pretty general
agreement the other day to put it up to these actuar-
ies and see what they had to say, and if they could
arrive at an agreement, to go forward on that basis.
Now, as the Secretary said, we are willing to go
ahead with that arrangement. We'll take either one
of these things.
Doughton:
Looks like both the Treasury and the railroads are
protected, provided they carry out the spirit of
this agreement.
Magill:
That's right.
Sen. Harr.: In writing the law I've gotten Mr. Magill's viewpoint
that it ought to be written starting out at five and
step it up to nine, and that is written into the law
Regraded
239
- 19 -
with a provision that in three years these reports
come in and that such adjustments be made as are
shown to be necessary at that time. Now, would that
be satisfactory or would you rather have the law be
written just as the agreement makes it, of stepping
it up to seven percent?
Pelley:
I'd rather have it as the agreement is written,
Senator, and I think everybody is fully protected.
If we've got the agreement, why not go ahead and
carry it out? Just as George Harrison said and our
people are willing - now, to go back to them with
another proposition that lifts it up to nine - I
think we'd have difficulty getting them to make
a commitment now that they are going to pay nine
several years from now.
Sen. Harr. Is this provision of three years going to be written -
about what would be the wording of it?
Magill:
Well, I - I haven't got it in front of me. I think
Kent has got a draft of such a provision. What we
had in mind was a provision for reports as to the
sufficiency of the fund remaining unexpended to meet
the estimated liabilities.
Bell:
with a recommendation.
Magill:
With a recommendation.
Harrison:
Well, we couldn't agree to anything like that. That
ties the two together. The whole theory underlying it
is to keep the two separated.
Magill:
That's got to be taken into consideration.
Harrison:
Have two reports. Have a report of the benefits under
the benefit law, and a report of the liabilities under
the - of the income under the tax law.
Magill:
All right.
Harrison:
And with that we can follow along. Because some
individual employee or stockholder, or some railroad
that has not subscribed, may attack this in the courts,
and we don't want to tie them together because we feel
then we wouldn't have & chance to sustain the two.
240
- 20 -
Magill:
of course, we're just as anxious as you are to put
it on a basis to sustain it; we'll do everything we
can to sustain it.
Harrison:
Aside from that, I don't see anything wrong in the
proposition. In fact, we have a section in the pro-
posed bills now calling for a report.
Doughton:
If we put the rates in there from five to nine, with
a proviso that it not go to the nine unless necessary -
it might not be necessary that the rate go that high,
if experience demonstrates that five or six would be
sufficient. If that proviso is put in that it shouldn't
go above what is necessary to support it - if that is
kept in good faith and it means anything, it looks to
me like you are amply protected, and let's get this
thing started.
Pelley:
You see, the difficulty we have, Mr. Doughton - it is
most important that all the roads agree to this. If
I were handling George Harrison's job, I wouldn't
enter into any kind of agreement with the railroads
that didn't bring them all in, because I think he's
got a right to ask that they all come in; he's making
a deal for all of his men on all of these railroads.
Well, some of the railroads have no pension plan; some
of them pay nothing - the Milwaukee and others -
several of them pay nothing. I think it would be
impossible to get them committed to 42 percent of
their payroll.
Doughton:
With a proviso that they wouldn't have to pay it
if experience demonstrated it wasn't necessary?
Pelley:
Yes, I think it would be very difficult to get them
to do it. They have, though, for the sake of an
agreement, come in on the basis of ultimately 3a -
7 percent in twelve years.
Now, I say they have all come in. as a matter of
fact, no one voted "no" on the proposition; there
were a couple of them not voting. I think they will
not contest the law if it is passed. I think they
go right along. But to get them to come in on a
nine percent basis I believe would be almost impos-
sible - to get a unanimous assent, and that is what
he wants and that is what I think he has a right to
have.
241
- 21 -
Bell:
Well, may I ask, what are you going to do at the
end of three years if you find out that the rate
to which you agreed is not sufficient?
Pelley:
Well, we'd have to make a new agreement.
Bell:
Then, I suppose, they are free to attack the Act.
Pelley:
Beg pardon?
Bell:
Are they free to attack the Act?
Pelley:
Well, if there is a substantial change, more than
anybody could stand, I presume they would feel that
they had a right to do that.
Bell:
Then this agreement really isn't much good except
for the first three years, is it?
Pelley:
Well,...
Sen. Harr.: Unless they got the confirmation of the railroads.
Bell:
Unless they got the rates they want.
Pelley:
Well, of course, what I have said is that if it is
seen that the fund is not sufficient, then the same
people will have to make another agreement, increase
the tax or reduce the benefits, one or the other.
H.M.Jr:
But you made a statement that not all the railroads
have agreed to this.
Pelley:
Well, there's nobody objected to it, Mr. Secretary.
In the vote that was taken on the proposition, there
was nobody - - not any road voted "no."
H.M.Jr:
Well, how did they vote on it?
Pelley:
A part of the agreement is that the railroads will
not contest this.
H.M.Jr:
Have they all agreed to that?
Pelley:
Nobody said they would one or two not voting.
H.M.Jr:
One or two might start a suit tomorrow.
242
- 22 -
Pelley:
They might, but I think the chances are very remote.
One of them, the one that I thought might, has said
to me on the side that they'd go right along; they
wouldn't give their assent to it because they have
no pension plan at all, but they'll ride along with
the group.
H.M.Jr:
I mean you're - being very frank, it isn't you....
Pelley:
I'm telling you just exactly
H.M.Jr:
You really can't give an ironclad guarantee on the
suit.
Pelley:
Well, I can on all but one or two railroads, and I
don't think they're going to take on the cost, Mr.
Secretary.
H.M.Jr:
Pardon me?
Pelley:
I don't think those one or two would want to take
on the expense of fighting a law suit about it or
contesting the validity of the law. There won't be
any trouble about it.
H.M.Jr:
Well, I'll just say to Senator Harrison I can only
restate my position - where we were. We asked for
this report and we got it and I'm willing to abide
by it.
Latimer:
Well, are those two things mutually exclusive? You
say you'll take Mr. Glenn's suggestion and you will
take what the other actuaries consider the equivalent
of Mr. Glenn's suggestion on a step-up basis.
H.M.Jr:
What do you mean?
Latimer:
Well, the Number Two is equivalent to an 8.22 rate
starting immediately. Glenn's flat seven - I don't
know what equivalent step-up you'd have to have to
start at five and get the equivalent of what Mr.
Glenn's flat seven is.
Pelley:
Probably won't be nine.
Latimer:
No, wouldn't be nine.
Regraded Uclassified
243
- 23 -
H.M.Jr:
Now, there are just the two - start five going to
nine, or flat seven.
Bell:
Would you (Latimer) reduce it to some point where
you'd get
Latimer:
What I am saying is, the Secretary has said that
he's agreeable to Mr. Glenn's suggestion of seven
percent.
H.M.Jr:
A flat seven.
Latimer:
Yes, a flat seven. Well, the equivalent of Number
Two is 8.22. Now, you were saying that as far as
you are concerned you'll take either seven or 8,22.
H.M.Jr:
No, you can't
Bell:
Às an average.
H.M.Jr:
No, you can't say that. I'm saying just in the exact
language; I'm not trying to rewrite or interpret
anything. I'll take it just as it is written there.
Doughton:
Without committing yourself (Pelley) for the railroads,
would your view of it be that they prefer the starting
at five and going to nine or starting now at seven?
Not committing yourself - but of the two.
Pelley:
Well, I couldn't say what their view would be on that.
I don't know what they'd say about that, Mr. Doughton.
I think they'd be pretty slow to get above seven.
Some railroads probably would say - I'd take the
seven now and that's all, if I had to settle it one
way or the other.
H.M.Jr:
You'd do what, Mr. Pelley?
Pelley:
I think probably some of them would take the seven.
I think I would if I were running a railroad - prob-
ably start at the seven rate rather than to go up to
nine ultimately. This nine - this suggestion here,
as Mr. Latimer says, is going to build up a tremen-
dous reserve.
Harrison:
Would that be to put it at seven percent and study
it at the end of three years, or would that be 8. flat
permanent rate?
244
- 24 -
Pelley:
I have no idea of what they'd do about it; just
trying to answer Mr. Doughton, really giving my
own personal view.
Doughton:
If you - in other words, if seven should not be
enough, you'd fight to go down on the benefits
rather than to go up above seven.
Pelley:
That's right.
Sen. Harr.: Well, do you gentlemen want to confer with your
respective interests?
Harrison:
I want to get the record straight here on one
question, if I may, because of the great impor-
tance to these men I represent. I'm not in the
habit of picking their pockets myself, and don't
want it to be done 1f I know it's going on.
Tell me about this Social Security loading. Now,
where do we stand on that? Let me have the two
versions.
Magill:
Good!
Harrison:
I'd like to know the two positions on that.
Altmeyer:
We stand on the letter we wrote to Railroad Retire-
ment. The effect of the letter we wrote to Mr.
Latimer, in response to his letter, is that the
railroads and the men should contribute to Social
Security rather than Social Security contribute to
the railroads.
Harrison:
It is just the opposite to what we had been under-
standing heretofore.
Altmeyer:
Yes, but our letter is clear there. Our letter says
that the fourth principle furnishes the answer to
the first of your specific questions. "Provision
of an old-age retirement system for any specific
group is to be regarded as composed of the general
old-age benefit system with this correlative finan-
cial support, with a superimposed structure of
benefits and a corresponding means of providing for
them." In other words, the creation of the special
system should not affect the balance between income
and outgo which would exist without it. Now, if the
Regraded Jclassified
245
- 25 -
differential is the other way, lifting out the
railroad industry from Social Security does ad-
versely affect the Social Security system rather
than help it.
Harrison:
What is the position of the Retirement Board as
of today on that?
Latimer:
Well, I'm basing mine on the studies made by
Williamson, that between now and 1970 the taking
out of the railroad employees does affect favorably
Social Security. Of course, what - the difference
there is we have taken into account a period
Altmeyer:
You didn't mean Williamson. You meant Glenn.
Latimer:
No, Williamson.
Harrison:
What is the authority for your (Altmeyer) statement?
Altmeyer:
My authority is that Williamson tells me that this
differential ceases to exist in 15 years
Harrison:
(Laughs)
Altmeyer:
...and that the differential starts moving the other
way at the end of 15 years.
Harrison:
What does Williamson tell you (Latimer)?
Latimer:
He told me it started moving the other way in 1974.
Maybe he's made some new calculations.
Harrison:
There is a differential until 1974 in favor of the
railroad men?
Latimer:
Yes.
Altmeyer:
Well, it may mean that the differential starts moving
the other way in 15 years, but does not completely
disappear until 1974.
Harrison:
But the ultimate result is that the differential is
exactly the opposite from what we had understood
previously.
H.M.Jr:
Well now, g entlemen, I don't want to hurry this thing,
but I don't know whether the railroad owners and
workers want to have a chance to think this over.
Regraded Uclassifie
246
- 26 -
I think as far as I'm concerned - I think I've
made a cleancut statement, and if anybody wants
to ask the Treasury where we stand at this time
I'll repeat it if necessary, but I think I've
made my position clear. I'd like to ask Senator
Harrison and Mr. Doughton whether they want to
ask me anything more.
Sen. Harr.: I think I understand your position. You say that
either one of these alternative plans will be satis-
factory to the Treasury.
H.M.Jr:
As far as the Treasury - I can only speak for the
Treasury, but I want to say - I have not shown this
to the President, didn't want to bother him, but his
position has been right along that he'd asked these
gentlemen to get an agreement and if the Treasury
was satisfied with the rates, he was satisfied; and
that's what the President has said, that he left it
to me on the rates. Now, we'll take either one of
these things, and as long as the President, if the
Treasury is satisfied, has said he'd agree likewise,
that's our position now; and it's good tomorrow and
it's good a week from tomorrow.
Sen. Harr.: This (letter of April 10 from actuaries) been given
to the press?
H.M.Jr:
No, we didn't want to do it unless you people wanted
us to do it.
Doughton:
Oh, see.
Sen. Harr.: I want to keep this copy myself.
H.M.Jr:
Would you like us to give it to the press?
Sen. Harr.: I don't care myself; it's up to these gentlemen.
Doughton: I don't think there's any use giving it to the press.
They'd find something in it to criticize.
Sen. Harr.: The press will get it; they - hell, they get every-
thing. So I don't see - anybody see any objection
to giving it to the press?
Doughton:
I think it won't benefit; it won't do any good.
Regraded
247
- 27 -
H.M.Jr:
It won't leak out from here; I can assure you that.
Doughton:
If you give that to the press, without any sign of
an agreement, the press will try to stick us, like
they always do. We're just up against this situation,
gentlemen, right now. Unless we can get an agreement,
the only thing our Committee can do is to go forward
with what the Committee deems is wisest to do, or do
nothing. It looks like it's going to be left to our
Committee right now - left to our Committee as to
what we do, or do nothing.
H.M.Jr:
Well, may I ask one question - two questions? One
question I'd like to ask Mr. Pelley. Have you
anything - I mean any complaint or anything about
the reasonableness of my position, in view of the
report I have received from the actuaries?
Pelley:
Oh, I haven't any quarrel at all with anything you
have done at any time, Mr. Secretary.
H.M.Jr:
But I mean - anything you'd like to ask me to clear
up my position?
Pelley:
No, I don't think so. I can't quite get straight
on this Glenn position. You see the position that
we're in. We met to try to make an agreement, and
we were told that we might use the Retirement Board
and their actuaries, and we did that, and so far as
I was concerned I relied absolutely on what they had
to say about it, so far as the tax was concerned.
And we get this agreement which we understand is
actuarially sound and have said SO. And what I am
not quite clear on is whether the people who told
us it was actuarially sound are now saying it was not.
I'm not quite clear on that.
H.M.Jr:
Well, I don't know how Mr. Altmeyer - but I can only
talk for the Treasury and I just have to repeat. We
went through what we said we would, that we'd get these
fellows in a room and tell them what to do; they did it;
now I'll take either one.
Now I just want, before we break up, to ask Mr.
Harrison if he wants to ask me...
Harrison:
No, I have no questions to ask. I do want to make
Regraded Uclassified
248
- 28 -
this statement, though: that we proceeded on the
figures furnished us by Mr. Glenn and now it is a
distinct surprise to me, as I read the letter, that
he makes the statement that the proposed tax rates
are inadequate. And then, when we agreed to take
over the present pensioners, the two hundred million,
it was only with the understanding that there was a
loading that we were entitled to of .54 of one percent
of the payroll. We never agreed to pay any part of
this out of our pockets, but we were willing to let
part of that be used to pay that - 32 hundredths of
the 54. Now 1f there isn't any loading, you can see
that we're going to have to put up half of .32 or
.16 to carry this load of two hundred million.
H.M.Jr:
But, if you don't mind, this isn't between you and
the Treasury.
Harrison:
None whatever. I think your position, based on the
advice you have there, is exactly what my attitude
would be if I was in your position.
H.M.Jr:
Well, all I can say is any time.... We're through,
we've done our part, the rest is up to the gentlemen
on the Hill. If they want to meet again, why, we're
available.
Pelley:
Mr. Morgenthau, I understand, or am I to understand,
that you are agreeable to Number Three; that is, you'd
be willing to start on a flat seven percent basis?
H.M.Jr:
With the understanding that at the end of three years
the matter would be reviewed.
Harrison:
I think that is advisable, irrespective of what rate.
H.M.Jr:
I'll take either one.
Pelley:
Was there an answer to this letter we sent over?
Magill:
I think there is, yes. I know there is. Do you want
that?
Pelley:
I'd be glad to have it.
Magill:
I'm not sure I have it here; yes, I do. That's simply
a letter of transmittal for your (H.M.Jr) signature.
Regraded
249
- 29 -
H.M.Jr:
I'd like to have a chance to read this. It's too
important to just sign. Suppose we get it over to
you late this afternoon.
Pelley:
All right, any time.
Sen. Harr.: Magill, I wish you'd send up to me - and I expect
Chairman Doughton wants the same thing - this tenta-
tive draft that you say Kent has, that covers the
provisions with r eference to three years.
Magill:
All right.
Sen. Harr.: Because I think it's going to be rather difficult.
Magill:
It is hard to draw; no question about that. I don't
know how quick I can get it up to you.
Sen. Harr.: Well, what's the best thing on this newspaper
business? They'll begin to talk, want to ask
questions. All we can say to them, as I under-
stand, is that we discussed this thing fully again,
that the actuaries who were appointed have made
a report and there is no definite conclusion to be
reached between the Congressional representatives
and the Treasury and the railroads and the Brother-
hoods. Is that about right?
Doughton:
We're studying their report.
Sen. Harr.: We're studying the report and undoubtedly there will
be more conferences.
H.M.Jr:
Anything you say is all right. You notice I haven't
done any talking.
250
April 10, 1937.
Dear Mr. Secretary:
In accordance with your informal request an actuarial con-
ference was held on April 8, 1937, to discuss the adequacy of
the tax rates contained in the proposed Railroad Retirement Bill.
Those attending the conference were Mr. George B. Buck,
Consulting Pension Fund Actuary, New York, and Chairman of the
Federal Board of Actuaries of the Civil Service Retirement and
Disability Fund, Mr. Joseph Glenn, Actuary of the Railrond Retire-
ment Board, Mr. 1. P. Williamson, Actuary for the Social Security
Board, Mr. P. R. Reagh, Government Actuary, Treasury Department.
and Mr. Maurice S. Brown, Actuary, Treasury Department. The con-
clusions reached at this conference are sumarized as follows:
(1) It was unanimously agreed that the tax rates of the
proposed bill are inadequate.
(2) Mr. Williamson made a motion that the tax rates in the
proposed bill should be changed to rates beginning at
5 percent for the first three years and going up 1 per-
cent instead of one-half percent each triannual period
to a maximum of 9 percent beginning January 1, 1949.
Mr. Buck, Mr. Williamson and Mr. Reach voted "yes" to
this motion, Mr. Glenn alone voting in the negative.
(Mr. Brown. serving in a capacity of technical agois-
tant, did not vote.)
(3) Mr. Glenn suggested a flat rate of 7 percent for some
fixed period of years, leaving the matter of adjustment,
if necessary, to a. future Congress. Mr. Glenn admitted.
however, that a uniform tax rate of 7 percent would very
probably prove to be inadequate on a permanent basie.
Subsequently Mr. Glenn stated that he favored the con-
tinuation of the present tax act (Public No. 400, 74th
Congress, Second Session) except as amendments are
251
The Honorable Secretary of the Treasury - - 2
necessary to change the scope of the coverage, thereby
requiring an annual reconsideration of the adequacy of
the rate. He believes that in no case should the fixed
period exceed ten years and preferably that it should
not exceed five years. He feels that a period of at
least five years will elapse before sufficient experi-
ence has been accumulated to warrant the establishment
of a definite rate for a longer period.
(4) It was unanimously agreed that the bill should carry a
provision requiring periodical valuations of the contin-
gent liabilities created by the act in respect to new
entrants, existing members and pensioners, with a report
to Congress and the public setting forth the amount of
such liabilities as well as the level percentage of pay-
roll required to pay the benefits. It was further agreed
that in order to assure the railroads, the employees and
the public of technical representation, the actuarial valu-
ations should be made subject to the supervision of a board
of actuaries, one of whom might be designated by the rail-
roads, one by the railroad employees, and the third by the
Secretary of the Treasury.
Mr. Henry Moir, Chairman of the Finance Committee of the United
States Life Insurance Company and a member of the Federal Board of
Actuaries, was unable to attend the meeting; however, be did confer
with Mr. Williamson and Mr. Reagh on April 9, and expressed himself
as being in favor of the 5 to 9 percent scale of tax rates which was
agreed to by all except Mr. Glenn. Mr. Moir's views are set forth
in a letter to Mr. Magill dated April 9. In this letter Mr. Moir
makes the suggestion that "in the early years employees pay the full
amount of 5 percent and that the additional charges running up to 9
percent ultimately be paid solely by the employers, thus equalising
in 8. manner the benefits and putting the extra costs on those who get
the most of the extra benefits, namely the present employees." In a
footnote to the letter, Mr. Moir makes an alternative suggestion that
*this might be made 41 percent at first, rising to 9 percent on a 50-50
principle."
Respectfully submitted,
gu p.163
Georg B. Buck
The Honorable,
Joseph B. bleem
The Secretary of the Treasury.
Washington, D. c.
R.R.Reegh
Regraded Uclassified
252
Treasury Department
1937 APR I2 AM II 01
telegraph OFFICE
24w M 13
NEW YORK NY 1042A APR 12 1937
R R REAGH
GOVERNMENT AGENCY
HAVE REVIEWED LETTER SIGNED BY ACTUARIES AND AUTHORIZE THE AFFIXATION
OF MY SIGNATURE
Q B BUCK
1102A
253
April 13, 1937
Excerpt from Mr. Magill's memorandum to the
Secretary entitled, "Memorandum of the Day's Activities
for April 15th":
1. Railroad Retirement Legislation:
After our general conference this morning I instructed
Mr. Kent to examine the latest drafts of the tax bill and
to make sure that the provision for periodical reports was
properly drawn. The Legislative Section has already been
at work on the bill and we hope to give Chairman Doughton
a complete draft tomorrow morning. Mr. Reagh will confer
with Mr. Kent to give him the requisite actuarial informa-
tion.
Senator Harrison called about 2:00 PM to get our reaction
to a revision of the rate schedule to 5% percent to begin with
increasing in the course of twelve years to a permanent rate
of 73 percent. He stated that he would support these rates
and that he believes the railroads will go along with him too.
After reporting the conversation to you I tried to give him
your reply but he had left his office with the word that he
would call me in the morning. I reported the situation to
Mr. Doughton and told him that I would keep in touch with any
new developments.
Regraded Uclassified
254
This may be elaborated upon.
If so, of course, this may be
destroyed.
Regraded Uclassified
255
April 13, 1937
I told the President at 1:20 today what we did on the
Railroad Retirement thing; that we had the report and
that we would take either plan suggested by the actuaries.
Regraded Uclassified
256
Read
# A 16434*
4/13
March 31, 1937.
A BILL
To levy an excise tax upon carriers and certain other
employers and an income tax upon their employees, and for
other purposes.
Be it enacted by the Senate and House of Representatives
of the United States of America in Congress Assembled.
DEFINITIONS
Section 1. That as used in this Act - -
(a) The term "employer" means any express company,
sleeping-car company, or carrier by railroad, subject to Part I
of the Interstate Commerce Act, and any company which may be
directly or indirectly owned or controlled thereby or under
common control therewith, and which operates any equipment or
facilities or performs any service (other than trucking service)
in connection with the transportation of passengers or property
by railroad, or the receipt, delivery, elevation, transfer in
transit, refrigeration or icing, storage, or handling of
property transported by railroad, and any receiver, trustee,
or other individual or body, judicial or otherwise, when in
the possession of the property or operating all or any part of
the business of any such "employer": Provided, however, That the term
257
*A 16434-2
"employer" shall not include any street, interurban, or suburban
electric railway, unless such railway is operating as & part of a
general steam-railroad system of transportation, but shall not exclude
any part of the general steam-railroad system of transportation now
or hereafter operated by anyother motive power. The Interstate Com-
merce Commission is hereby authorized and directed upon request of
the Commissioner of Internal Revenue or upon complaint of any party
interested to determine after hearing whether any line operated by
electric power falls within the terms of this proviso. The term
"employer" shall also include railroad associations, traffic associa-
tions, tariff bureaus, demurrage bureaus, weighing and inspection
bureaus, collection agencies and other associations, bureaus, agencies
or organizations controlled and maintained wholly or principally by
two or more employers as hereinbefore defined and engaged in the
performance of services in connection with or incidental to rail-
road transportation; and railway labor organizations of employees,
national in scope, which have been or may be organized in accordance
with the provisions of the Railway Labor Act, as amended, includ-
ing their state and national legislative and general committees.
(b) The term "employee" means any person in the service
of one or more employers for compensation.
(c) The term "employee representative" means any officer
or official representative of an organization of employees other
than a labor organization included in the term "employer" as
defined in Section 1(a), who before or after the enactment hereof
was in the service of an employer as defined in Section (a) and who
is duly authorized and designated to represent employees in accordance
with tho Railway Labor Act, as amendod, and any person who is regularly
assigned to or regularly employed by such officer or official reprosonta-
tivo in connection with the dutios of his office.
Regraded Uclassified
258
*A 16434-3
(a) A person is in the service of an employer wherever his
service is rendered if he is subject to the continuing authority of
the employer to supervise and direct the manner of rendition of his
service, which service he renders for compensation: Provided, however,
That a person shall be deemed to be in the service of an employer not
conducting the principal part of its business in the United States,
Alaska, Hawaii or the District of Columbia only when he is rendering
service to it in the United States, Alaska, Hawaii or the District of Columbia.
(e) The term "compensation" means any form of money
remuneration earned by & person for services rendered as an employee
to one or more employers, including wages paid for time lost as an employee,
but wages paid for time lost shall be deemed earned in the month in which
such time is lost. Compensation which is earned during the period for
which the Commissioner of Internal Revenue shall require a return of
taxes hereunder to be made and which is payable during the calendar
month following such period shall be deemed to have been paid during such
period only.
INCOME TAX ON EMPLOYEES
Soc. 2. (a) In addition to other taxes, there shall be levied,
collected, and paid upon the income of every employee a tax equal to the
following percentages of the compensation of such employee not in excess
of $300 per month, earned by him after December 31, 1936:
1. With respect to componsation earned during
the calendar years 1937, 1938, and 1939, the rate
shall bo 25 por centum;
2. with respect to compensation earned during
the calendar years 1940, 1941, and 1942, the rate
shall be 2 3/4 per centum;
3. With respect to componsation earned during
the calendar years 1943. 1944, and 1945, the rate
shall be 3 por centum;
259
A 16434-4
1+. with respect to compensation earned during
the calendar years 1946, 1947, and 1948, the rate
shall be 32 per centum;
5. With respect to compensation earned after
December 31, 1948, the rate shall be 3% per centum.
(b) The tax imposed by this section shall be collected by the
employer of the taxpayer by deducting the amount of the tax from the
compensation of the employee as and when paid. Every employer required
BO to deduct the tax is hereby made liable for the payment of such tax
and shall not be liable to any person for the amount of any such payment.
(e) If more or less than the correct amount of tax imposed by
this section is paid with respect to any compensation payment, then, under
regulations made under this Act by the Commissioner of Internal Revenuo,
with the approval of the Secrotary of the Treasury, proper adjustments,
with respect both to the tax and the amount to be deducted, shall be made,
without interest, in connection with subsequent compensation payments
to the same employee by the same employer.
EXCISE TAX ON EMPLOYERS
Soo. 3. (a) In addition to other taxes, every employer shall
pay an excise tax, with respect to having individuals in his employ, equal
to the fellowing percentages of the compensation not in excess of $300 por
month paid by him to any employee for services rondered to him after
Docomber 31, 1930:
1. with respect to componsation paid to employees
for services rendered during the calondar years 1937,
1938, and 1939, the rate shall be 2% per centum;
28
260
A 16434-5
2. With respect to compensation paid to employees
for services rendered during the calender years 1940,
1941. and 1942, the rate shall be 2 3/4 per centum;
3. With respect to compensation paid to employees
for services rendered during the calendar years 1943.
1944, and 1945, the rate shall be 3 per centum;
4. With respect to compensation paid to employees
for services rendered during the calendar years 1946,'
1947, and 1948, the rate shall be 3½ per centum;
5. With respect to compensation paid to employees
for services rendered after December 31, 1948, the rate
shall be 32 per centum.
(b) If more or less than the correct amount of the tax
imposed by this section is paid with respect to any compensation pay-
ment, then, under regulations made by the Commissioner of Internal
Revenue, with the approval of the Secretary of the Treasury, proper
adjustments with respect to the tax shall be made, without interest,
in connection with subsequent excise-tax payments made by the same
empleyer.
REFUNDS AND DEFICIENCIES
Sec. 4. If more or less than the correct amount of the tax
imposed by Section 2(a) or 3(a) of this Act is paid or deducted with
respect to any compensation payment and the overpayment or underpay-
ment of the tax cannot be adjusted under Section 2(c) or 3(b), the
amount of the overpayment shall be refunded, or the amount of the under-
yment shall be collected in such manner and at such times (subject
to the statute of limitations preperly applicable thereto) as may be
261
A 16434-6
prescribed by regulations under this Act as made by the Commissioner
of Internal Revenue, with the approval of the Secretary of the Treasury.
INCOME TAX ON EMPLOYEE REPRESENTATIVES
Sec. 5. In addition to other taxes, there shall be levied,
collected, and paid upon the income of each employee representative a
tax equal to the following percentages of the compensation of such
employee representative not in excess of $300 per month, earned by him
after December 31, 1936:
1. With respect to compensation earned during
the calendar years 1937, 1938, and 1939, the rate
shall be 5 per centum;
2. With respect to compensation earned during
the calendar years 1940, 1941, and 1942, the rate
shall be 5% per centum;
3. With respect to compensation earned during
the calendar years 1943, 1944, and 1945, the rate
shall be 6 per centum;
4. With respect to compensation earned during
the calendar years 1946, 1947, and 1948, the rate
shall be 6½ per centum;
5. With respect to compensation earned after
December 31, 1948, the rate shall be 7 per centum.
The compensation of an employee representative for the purpose
of ascertaining the tax thereen shall be determined in the same manner
and with the same effect as if the employee organization by which such
employee representative is empleyed were an employer as defined in
Section 1 (a) of this Act.
262
A 16434-6
prescribed by regulations under this Act as made by the Commissioner
of Internal Revenue, with the approval of the Secretary of the Treasury.
INCOME TAX ON EMPLOYEE REPRESENTATIVES
Sec. 5. In addition to other taxes, there shall be levied,
collected, and paid upon the income of each employee representative a
tax equal to the following percentages of the compensation of such
employee representative not in excess of $300 per month, earned by him
after December 31, 1936;
1. With respect to compensation earned during
the calendar years 1937, 1938, and 1939, the rate
shall be 5 per centum;
2. With respect to compensation earned during
the calendar years 1940, 1941, and 1942, the rate
shall be 5% por centum;
3. With respect to compensation earned during
the calendar years 1943, 1944, and 1945, the rate
shall be 6 per centum;
4. With respect to compensation earned during
the calendar years 1946, 1947, and 1948, the rate
shall be 61 per centum;
5. With respect to compensation earned after
December 31, 1948, the rate shall be 7 per centum.
The compensation of an employee representative for the purpose
of ascertaining the tax thereen shall be determined in the same manner
and with the same effect as if the employee organization by which such
employee representative is employed were an employer as defined in
Section 1 (a) of this Act.
263 2
A 16434-7
DEDUCTIBILITY FROM INCOME TAX
Sec. 6. For the purposes of the income tax imposed by Title I
of the Revenue Act of 1934 or by any Act of Congress in substitution
therefor, the taxes imposed by Sections 2 and 5 of this Act shall not
be allowed as a deduction to the taxpayer in computing his net income.
COLLECTION AND PAYMENT OF TAXES
. Sec. 7. (a) The taxes imposed by this Act shall be collected
by the Commissioner of Internal Revenue and shall be paid into the
Treasury of the United States, as internal-revenue collections.
(b) The taxes imposed by this Act shall be collected and paid
quarterly or at such other times and in such manner and under such
conditions not inconsistent with this Act as may be prescribed by the
Commissioner of Internal Revenue with the approval of the Secretary of
the Treasury. If a tax imposed by this Act is not paid when due, there
shall be added as part of the tax (except in the case of adjustments
made in accordance with the provisions of this Act) interest at the
rate of 6 per centum per annum from the date the tax became due until paid,
(c) All provisions of law, including penalties, applicable
with respect to any tax imposed by Section 600 or Section 800 of the
Revenue Act of 1926, and the provisions of Section 607 of the Revenue
Act of 1934, in BO far as applicable and not inconsistent with the
provisions of this Act, shall be applicable with respect to the taxes
imposed by this Act.
(d) In the payment of any tax under this Act, a fractional
part of a cent shall be disregarded unless it amounts to one-half cent
or more, in which case it shall be increased to one cent.
Regraded Uclassified
264 21
A 16434-8
COURT JURISDICTION
Sec. 8. The several District Courte of the United States and
the District Court of the United States for the District of Columbia,
respectively, shall have jurisdiction to entertain an application by
the Commissioner of Internal Revenue to compel an employee or other
person residing within the jurisdiction of the court or an employer
subject to service of process within its jurisdiction, to comply with
any obligations imposed on such employee, other person, or employer
under the provisions of this Act. The jurisdiction herein specifically
conforred upon such Federal courts shall not be hold oxclusive of any
jurisdiction otherwise possessed by such courts to entortain actions
at law or suits in oquity in aid of the enforcement of rights or
obligations arising under the provisions of this Act.
SOCIAL SECURITY ACT
Soc. 9. The term "employment," as defined in subsection
(b) of Soction 811 of Title VIII of the Social Security Act,
shall not include service performed in the employ of an employer
as dofined in Soction 1(a) of this Act or service performed for nn
organization of employees by nn employee representative who is
subject to the tax imposed by Soction 5 of this Act.
SEPARABILITY
Soc. 10. If any provision of this Act, or the application
thoreof to any person or circumstances, is held invalid, the remainder
of the Act, and the application of such provision to other persons or
circunstances shall not be nffected thoreby.
265
A 16434-9
REPEAL OF PRIOR TAX ACT
Sec. 11. The provisions of this Act are in substitution
for the provisions of the Act of August 29, 1935, entitled "An Act
to levy an excise tax upon carriers and an income tax upon their
employees, and for other purposes," which is hereby repealed. All
monies payable under the Tax Act which is repealed by this Act and
not heretofore paid shall cease to be payable and all proceedings pend-
ing for the recovery of any such monies shall be terminated. All sums
paid into the Treasury of the United States as and for taxes under the
Tax Act which is repealed by this Act shall be refunded, except five-
sevenths of the sums so paid as and for taxes with respect to compensa-
tion earned after December 31, 1936, and the sums not required to be
refunded shall be retained in the Treasury of the United States and
credited on taxes due and payable under this Act. All sums deducted
by employers from the compensation of employees as and for taxes
under the Tax Act which is repealed by this Act shall be refunded to
such employees, except five-sevenths of the sums so deducted as and
for taxes in respect of compensation earned after December 31, 1936,
and the sums not required to be refunded shall be paid into the Treasury
of the United States and thereupon shall be credited on taxes due and
payable under this Act.
SHORT TITLE
Sec. 12. This Act may be cited as the "Carriers Taxing Act
of 1937."
266 Recd
16435
4/13
April 6, 1937
A BILL
To amend an Act entitled "An Act to establish a
retirement system for employees of carriers subject
to the Interstate Commerce Act, and for other pur-
poses," approved August 29, 1935.
Be it enacted by the Sonate and House of Representativos
of the United States of America in Congress assemblod:
PART I
That the Act of August 29, 1935, entitled "An Act to
establish a retirement system for employees of carriers subject
to the Interstate Commorce Act, and for other purposes," bo, and
it is hereby, amended to read as follows:
DEFINITIONS
Sec. 1. For the purpose of this Act -
(a) The term "omployer" means any expross company,
sleeping-car company, or carrier by railroad, subject to Part I of
the Interst te Commerce Act, and any company which may be directly
or indirectly owned or controlled thereby or under common control
therewith, and which operates any equipment or facilities or performs
any service (other than trucking service) in connection with the
transportation of passengers or property by railroad, or the receipt,
delivery, elevation, transfer in transit, refrigeration or icing,
storage or handling of property transported by railroad, and any
receiver, trustee, or other individual or body, judicial or otherwise,
when in the possession of the property or operating all or any part
of the business of any such "employer": Provided, howover, That the torm
*16435-2
267
"employer" shall not include any street, interurban, or suburban
electric railway, unless such railway is operating as B. part of
a general steam-railroad system of transportation, but shall not
exclude any part of the general steam-railroad system of trans-
portation now or hereafter operated by any other motive power.
The Interstate Commerce Commission is hereby authorized and directed
upon request of the Board or upon complaint of any party interested
to determine after hearing whether any line operated by electric
power falls within the terms of this proviso. The term "employer"
shall also include railroad associations, traffic associations,
tariff bureaus, demurrage bureaus, weighing and inspection bureaus,
collection agencies and other associations, bureaus, agencies or
organizations controlled and maintained wholly or principally by
two or more employers as hereinbefore defined and engaged in the
performance of services in connection with or incidental to railroad
transportation; and railway labor organizations of employees, national
in scope, which have been or may bo organized in accordance with the pro-
visions of the Railway Labor Act, as amended, including their state and
national legislative and general committees.
(b) The term "employee" means any person in the service of
one or more employers for compensation and any porson who is in the em-
ployment relation to one or more employers. The term "employee" shall
also include any officer or official representative of an organization
of employees other than a labor organization included in the term "em-
ployer" as defined in Section 1(a), who before or after the eractment
date was in the service of an employer as defined in Section 1(a) and
who is duly authorized and designated to represent employees in accord-
ance with the Railway Labor Act, as amended, and any person who is
regularly assigned to or regularly employed by such officer or official
representative in connection with the duties of his office, and such
employees are hereinafter sometimes called "employee representatives."
268
A* 16435-3
(c) A persen is in the service of an employer wherever his service
is rondered if ho is subject to the continuing authority of the employer to
supervise and direct the manner of rondition of his service, which service he
renders fer componsation: Provided, however, That a person shall be deemed to
be in the service of an employer not conducting the principal part of its
business in the United States only when he is rendering service to it in the
United States.
(a) A porson is in the employmont relation to an employer if he
is on furlough, subject to call for service within or outside the United States
and ready and willing to serve, or on leave of absence, or absent on account of
sickness or disability: all in accordance with the established rules and prac-
tices in effect on the employer: Provided, however, That a person shall not
be deemed to have been on the chactment date in the employment relation to an
employer not conducting the principal part of its business in the United States
unless during the last payrell period in which he rendered service to it prior
to the enactment date, he rendered service to it only in the United States:
And Provided, further, That a person shall not be deemed to have been, on the
date he become eligible to receive an annuity under this Act, in the employ-
ment rolation to an employer not conducting the principal part of its
business in the United States unless during the last payrell period in which
he rendered service to it prior to that date, be rendered service to it only in
the United States.
(o) The term "United States," when used in a geagraphical sense,
means the States, Alaska, Hawaii, and the District of Columbia.
(f) The term "years of service" shall monn the number of years a person
as as employee shall have rendered service to one or mere employers for compensa-
tion or received wages for time 10st, computed in accordance with the provisions
of Section 3 (b): Provided, however, That where service prior to the enactment
Regraded Uclassified
269
A 16435-4
date may be included in the computation of years of service as provided in
sub-division 1 of Section 3(b), it may be included na to service rendered to
An employer subject to this Act on the enactment date, irrespective of whother
at the time such service was rendored the employer was an employer AB defined
in Section 1(a). Twelve calendar months, consecutive or otherwise, in each
of which an employee has rendered such service or received such wages for
time lost shall constitute a year of service. An ultimate fraction of six
months or more shall be taken as one year. An ultimate fraction of less than
six months shall be taken at its actual value.
(g) The term "annuity" means a monthly sum which 1g payable on
the first day of each calendar month for the accrual during the preceding
calendar month.
(h) The term "compensation" means any form of money remuneration
earned by a person for services rendered ns nn employee to one or more employer:
including wages paid for timo lost as an employee but wages paid for time lost
shall be deemod earned in the month in which such time is lost.
(1) The term "Board" neans the Railroad Retirement Board.
(j) The tern "cnactment date" neans the 29th day of August, 1935.
ANNUITIES
Sec. 2(a) The following-doscribed persons, if they shall have
been employees on or after the enactment date, shall be eligible for anmitios
aftor they shall have ceasod to ongage in regular employment for hire and relinquishod
all rights to roturn to employer service, irrespective of when they shall have
relinquished such rights, except that the requirement of relinquishment of rights
to return to employer service shall not apply to the persons nentioned in sub-
division 3 of this subsection prior to attaining age 651
Regraded Uclassified
270
A 16435-5
1, Persons who on or after the enactment date shall be
sixty-five years of age or over.
2. Persons who on or after the enactment date shall be
sixty years of age or over and either have completed thirty
years of service or have become totally and permanently
disabled for regular employment for hire, but the annuity
of such a person shall be reduced at the rate of one-
fifteenth for each year or monthly fraction thereof that he
is under age sixty-five when his annuity begins to accrue,
3. Persons who on or after the enactment date are totally
and permanently disabled for regular employment for hire
and shall have completed thirty years of service. Such satis-
factory proof of the permanent total disability and of
the continuance of such disability until age sixty-five
shall be made from time to time as may be prescribed by
the Board. If the person fails to comply with the re-
quirements prescribed by the Board as to proof of the
disability or the continuance of the disability until
age sixty-five, his right to an annuity under this sub-
division by reason of such disability shall, except for
good cause shown to the Board, cease, but without pre-
judice to his rights under subdivision 1 or 2 of this
subsection. If, prior to attaining age sixty-five, such
a person recovers and is no longer disabled for regular
employment for hire, his annuity shall cease upon the last
day of the month in which he so recovers and if after such
recovery the person 1e granted an annuity under subdivision
1 or 2 of this subsection, the amount of such anmity shall
Uclassifie
271
A 16435-6
be reduced on an actuarial basis to be determined by the
Board 50 as to compensate for the annuity previously re-
ceived under this subdivision.
(b) An annuity shall begin to accrue as of a date to be
specified in a written application to be signed by the person entitled
thereto, and approved by the Board, which date shall not be more than
sixty days before the filing of the application.
COMPUTATION OF ANNUITIES
Sec. 3 (a) The annuity shall be computed by multiplying &
personts "yearsof service" by the following percentagesof his
"monthly compensation": 2 per centum of the first $50; 12 per centum
of the next $100; and 1 per centum of the next $150.
(b) The "years of service" of a person shall be determined
as follows;
(1) In the case of a person who was an employee on the
enactment date and on the date he became eligible to receive
an annuity under this Act, and also in the case of a. person
who was an employee on the enactment date, but prior to the
date he, became eligible to receive an annuity under this
Act had ceased active service for an employer because of a
permanent physical or mental disability, the years of
service shall include all his service subsequent to
December 31, 1936, and if the total number of such years is
less than thirty, then the years of service shall also
include his service prior to January 1, 1937, but not so B.S
to make his total years of service exceed thirty:
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A 16435-7
Provided, however, That if on the ennctment date any such
person was not an employee of nn employer conducting the
principal part of its business in the United States and
rendered service to anemplyer on or after January 1, 1937,
his "years of service" shall include no greater proportion
of his service prior to January 1, 1937, than his total
compensation (including compensation in any month in excess
of $300) for services on or after January 1, 1937, rendered
anywhere to an employer conducting the principal part of
its business in the United States or rendered in the United
States to any other employer as defined in Section 1 (a)
tears to his total compensation (including compensation
in any month in excess of $300) for services rendered to
an employer on or after January 1, 1937, both in and out-
side the United States.
(2) In all other cases, the years of service shall include
only the service subsequent to December 31, 1936.
(3) Where the years of service include only part of the
service prior to January 1, 1937, the part included shall
be taken in reverse order beginning with the last calendar
month of such service.
(4) In no case, shall the years of service include any ser-
vide rendered after June 30, 1937, by a person who is sixty-
five years of age or ever.
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273
A 16435-8
(c) The "monthly compensation" shall be the average compensation earned
by an employee in calendar months included in his "years of service," except
(1) that with respect to service prior to January 1, 1937, the monthly compensa-
tion shall be the average compensation earned by an employee in calendar menths
included in his years of service in the years 1924-1931, and (2) that where
service in the period 1924-1931 is insufficient to constitute a fair and equit-
able basis for determining the monthly compensation for service prior to January
1, 1937, the Beard may determine the monthly compensation for sush service in such
manner as in its judgment shall be just and equitable. If the employee earned
compensation after June 30, 1937, and after the last day of the month in which
he attained age sixty-five, such compensation shall be disregarded if the
result of taking such compensation into account would be to diminish his
annuity. In computing the monthly compensation, no part of any month's compensa-
tion in excess of $300 shall be recognized.
(d) The annuity of a person who shall have been an employee representative
shall be determined in the same manner and with the same effect as if the employee
organization by which he shall have been employed were an employer as defined in
Section 1 (a) of this Act.
(e) If the person was an employee when he attained age sixty-five
and has completed twenty years of service, the minimum annuity payable to
him shall be $40 per month: Provided, however, that if the monthly compensation
en which his annuity is based is less than $50, his annuity shall be 80
percent of such monthly compensation, except that if such 80 percent is less
than $20, the annuity shall be $20 or the same amount as the monthly
cempensation, whichever is less, In no case shall the value of the annuity
to less than the value of the additional old-age benefit he would recoive
under Title II of the Social Security Act if his service as an employee after
December 31, 1936, were included in the term "employment" 88 defined therein.
Regraded Uclassified
274
A 16435-9
(f) An annuity shall not be paid with respect to any
calendar month during which an annuitant engaged in regular
employment for hire.
(g) Annuity payments due a person but not yet paid at
death shall be paid to a surviving spouse if such spouse is entitled
to an annuity under an election made pursuant to the provisions of
Section 4 of this Act; otherwise, they shall be paid to the same
person or persons who may be entitled to receive any death benefit
that may be payable under the provisions of Section 5 of this Act.
(h) No annuity shall accrue with respect to the calendar
month in which an ennuitant dies,
(1) After an annuity has begun to accrue, it shall not
be subject to recomputation on account of service rendered there-
after to an employer, except as provided in subdivision 3 of Section
2(a).
(j) If an annuity is less than $2.50, it may, in the dis-
cretion of the Board, be paid quarterly or in a lump sum equal to its
commuted value as determined by the Board.
JOINT AND SURVIVOR ANNUITY
Sec. 4. A person whose annuity shall not have begun te
accrue may elect prior to January 1, 1938, or at least five years before
the date on which his annuity begins to accrue, or upon furnishing proof
of health satisfactory to the Board, to have the value of his annuity
apply to the payment of a reduced annuity to him during life and an
annuity after his death to his spouse during life equal to, or
seventy-five per centum of, or fifty per centum of, such reduced
275
A 16435-10
annuity. The amounts of the two annuities shall be such that their
combined actuarial value as determined by the Board shall be the same
as the actuarial value of the single life annuity to which the person
would otherwise be entitled. Such election shall be irrevocable, except
that it shall become inoperative, if the person or the spouse dies
before the annuity begins to accrue or if the person's marriage is
dissolved or if the person is granted an annuity under sub-division
(3) of Section 2 (a): Provided, however, that the person may, if his
marriage is dissolved before the date his annuity begins to accrue,
or if his annuity under sub-division (3) of Section 2 (a) ceases because
of failure to make the required proof of disability, make a new
election under the conditions stated in the first sentence of this
subsection. The annuity of a spouse under this subsection shall begin
to accrue on the first day of the calendar month in which the death
of the person occurs.
DEATH BENEFITS
Sec. 5. The following benefits shall be paid with respect to
the deaths of persons who were employees after December 31, 1936:
(a) If the deceased should not be survived by & vidov or widower
who is entitled to an annuity under an election made pursuant
to the provisions of Section 4 of this Act, there shall be paid
to such person or persons as the doceased may have dosignated
by a writing filed with the Board prior to his death, or
if there be no dosignation, to the legal roprosontative of
Regraded Uclassified
276
16435-11
the deceased, the amount, if any, by which four per centum of the Ag-
gregate compensation earned by the deceased after December 31, 1936,
exceeds the sum of the total of the annuity payments actually made
to the deceased plus the total of the annuity payments due the deceased
but not yet paid at death. If the person or persons designated to re-
ceive the death benefit do not survive the deceased, the death benefit
shall be paid to the legal representative of the deceased.
(b) If the deceased should bo survived by a widow or idovor
entitled to an annuity under an election made pursuant to the pro-
visions of Section 4, there shall, on the death of the widow or widower,
be paid to such person or persons as the deceased may have designated by
a writing filed with the Board prier to his death, or if there be no desig-
nation, to the legal representative of the deceased, the amount, if any, by
which four per centum of the aggregate compensation earned by the de-
ceased after December 31, 1936, exceeds the sum of the total of the
annuity payments actually made to the decensed plus the total of the
annuity payments actually made to the widow or vidower under an election
made pursuant to the provisions of Section 4 of this Act and under
the provisions of Section 3(g) of this Act plus the total of the an-
nuity payments due the widow or widower but not yet paid at death. If
the person or persons designated to receive the death benefit do not
survive the widow or widower, the death benefit shall be paid to the
legal representative of the deceased.
In computing the aggregate compensation for the purpose of
this section, no part of any month's earnings in excess of $300 shall
be recognized.
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277
A 16435-12
PENSIONS TO PERSONS ON PENSION OR GRATUITY ROLLS OF EMPLOYERS
Sec. 6. Beginning July 1, 1937, each person then on the
pension or gratuity roll of an employer by reason of his employment,
who was on such roll on March 1, 1937, and vras not, prior to July 1,
1937, eligible for an annuity under this Act based in whole or in part
on service rendered prior to January 1, 1937, shall be paid on July 1,
1937, and on the first day of each calendar month thereafter during
his life in substitution for the pension or gratuity from his employer,
a pension equal inamount to the pension or gratuity granted to him by the
employer without diminution by roason of a genoral reductionor roadjustmont
made subsequent to January 1, 1931, and applicable to pensioners of the
employer: Provided, however, That no pension payable under this section
shall exceed $120 monthly and that no pension shall be paid with respect
to any calendar month during which & pensioner engages in regular
employment for hiret And Provided further, That no person on the pension or
gratuity roll of an employer not conducting the principal part of its
business in the United States shall be paid a pension under this section
unless, in the judgment of the Board, he was, on March 1, 1937, carried
on the pension or gratuity roll as a United States pensioner. No person
shall be entitled to receive both a pension under this section and an
annuity under Section 2 of this Act,
Sec. 7- Nothing in this Act shall be taken as restricting
or discouraging payment by employers to retired employees of pensions or
gratuities in addition to the annuities or pensions paid to such employees
under this Act, nor shall the Act be taken as terminating any trust hereto-
fore created for the payment of such pensions or gratuities.
Regraded
278
A 16435-13
CONCLUSIVENESS OF RETURNS OF COMPENSATION AND OF
FAILURE TO MAKE RETURNS OF COMPENSATION
Sec. 8 (a) Returns of compensation required by the Board to
be filed with it shall be under eath and shall be conclusive as to the
amount of compensation earned by a person during a particular calendar month
and the fact that no return was made of the compensation claimed to be
earned by a person during a particular calendar month shall be taken as
conclusive that no compensation was earned by that person during that month,
unless the error in the amount of compensation returned, in the one case, or
in the failure to make return of the compensation, in the other case, is
called to the attention of the Board within four years after the last date
on which return of the compensation was required to be made.
(b) The Board shall adopt such rules and regulations in
connection with its requirement of returns of compensation as, in its
judgment, may be necessary and proper to prevent the application of sub-
section (a) of this section from defenting the purpose of this Act.
RECOVERY OF ERRONEOUS PAYMENTS
Sec. 9. There shall be no recevery of payments of annuities,
death benefits or pensions from any person who, in the judgment of the Board,
is without fault and where, in the judgment of the Board, such recovery
would defeat the purpose of the benefits otherwise authorized or would be
against equity and good conscience. No disbursing officer shall be held
liable for any amount paid by him to any person where the recovery of such
amount is waived under this section.
RETIREMENT BOARD
PERSONNEL
Sec. 10 (a) There is hereby established as an independent agency
Regraded Uclassified
279
A16435-14*
in the executive branch of the Government a Railroad Retirement Board, to be
composed of three members appointed by the President, by and with the advice
and consent of the Senate. Each member shall hold office for a term of five
years, except that any member appointed to fill a vacancy occurring prior to
the expiration of the term for which his predecessor was appointed shall be ap-
pointed for the remainder of the term and the terms of office of the members first
taking office after the date of enactment of this Act shall expire, as designated
by the President, one at the end of two years, ono at the end of three years, and
one at the end of four years, after tho date of enactment of this Act. One
member shall be appointed from recommendations made by representatives of the
empleyees and one member shall be appointed from recommendations made by repre-
sentatives of carriers by railroad subject to this Act, in both cases as the
President shall direct, so as to provide representation on the Board satisfactory
to the largest number, respectively, of employees and carriers concerned. One
member, who shall be the chairman of the Board, shall be appointed initially
for a term of two years without recommendation by either carriers or employees
and shall not be in the employment of or be pecuniarily or otherwise interested
in any employer or organization of employees. Vacancies in the Beard shall
not impair the powers nor affect the duties of the Board or of the remaining
members of the Board of when a majority of those in office shall constitute &
quorum for the transaction of business. Each of said members shall receive a
salary of $10,000 per year, together with necessary traveling expenses and
subsistence expenses, or per diem allowance in lieu thereof, while away from the
principal office of the Board on dutios required by this Act.
DUTIES
(b) 1. The Beard shall have and exercise all the duties and
pawers necessary to administer this Act. The Board shall take
such steps as may be necessary to enforce this Act and make
Regraded Uclassified
280
A 16435-15*
awards and certify payments. Decisions by the Board upon issues of law and
fact relating to applications forannuities or death benefits shall not be
subject to roview by ary other administrative or accounting officer, agent
or omployee of the United States.
2. The Board shall from time to time certify to the Secretary of
the Treasury tho name and address of each porson ontitled to rocoive a
payment under this Act, the amount of such payment, and the time at which
it should be mado, and the Secretary of the Treasury through the Division of
Disbursoments of the Trensury Dopartment, and prior to mudit by the Goneral
Accounting Office, shall make payment in accordance with the certification
by the Board.
3. The Board shall establish and promulgate rules and regulations
to provide for the adjustment of all controversial matters arising in the
administration of this Act, with power as a Board or through any member or
designated subordinate thoreof, to requiro and compel the attendance of
witnesses, administer oaths, take tostimony, and make all nocessary invosti-
gations in any matter involving annuities or other payments and shall main-
tain such offices, provide such equipment, furnishings, supplies, services,
and facilitios, and employ such persons and provido for thoir compensation
and expenses as may be nocossary for the propor discharge of its functions.
The Board shall have power to employ, without regard to the provisions of
the civil-service laws, such employees, attorneys and special exports as
may be necessary for the proper discharge of its duties and, without regard
to the provisions of the Classification Act of 1923, as amended, to provide
for thoir componsation and exponsos. Employees of the Board who shall not
have boon appointed in accordance with the provisions of the civil-service laws
and the Classification Act of 1923, as nmendod, may acquire a competitivo civil
service status if they shall have beon in the employ of the Board for at lonst
one year and shall have passed a non-compotitivo emmination given by the Board,
the nature of which shall be dotermined by the Board subjoct to the approval of tho
Civil Service Commission. All rules, regulations or decisions of the Board shall
require the approval of at least two membors except as provided in subdivision 4 of
this subsection and they shall bo entered upon the records of the Board, which
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281
A 16435-16
shall be a public rocord. Notice of a ducision of the Board, or of an
employee thereof, shall be communicated to the applicant in writing
within thirty days after such decision shall have been made. The Board
shall gather, keep, compile, and publish in convenient form such records
and data as may be necessary to assure proper administration of the
Act. The Board shall have power to require all employers and employees
and any officer, board, commission, or other agency of the United States
to furnish such information and records as shall be necessary for the
administration of this Act. The several district courts of the United
States and the District Court of the United States for the District
of Columbia shall have jurisdiction upon suit by the Board to compel
obedience to any order of the Board issued oursuant to this section.
The orders, writs and processes of the District Court of the United
States for the District of Columbia in such suits may run and be
served anywhere in the United Statos. The Board shall mako an annual
report to the President of the United States to be submitted to
Congress. Witnesses summoned before the Board shall be paid the same
fees and mileage that are paid witnesses in the courts of the United
States.
4. The Board is authorized to delegate to any of its em
ployees the power to make docisions on applications for annuities or
death benefits in accordance with rules and regulations proscribed by
the Board: Provided, however, That any person aggrieved by a decision
80 made shall have the right to appeal to the Board.
COURT JURISDICTION
Sec. 11. The several district courts of the United States
and the District Court of the United States for the District of Columbia,
respectively, shall have jurisdiction to entertain an application and to
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282
A 16435-17
grant appropriate relief on an application by an employee or other person
aggrieved in or to the district court of any district wherein the Board
may have established an office, to compel the Board to set aside an action or
decision claimed to be in viclation of a legal right of the applicant, or to
take action, or to make a decision necessary for the enforcement of a logal
right of the applicant. The decision of the Board upon any application for
annuity, pension, or death benefit shall not be subject to review by any court
unloss suit is commenced within one year after the decision has been entered
upen the records of the Board and communicated to the applicant, and in any such
suit, the findings of the Beard as to facts, unless contrary to the weight of
the evidence, shall be binding upon the court. The jurisdiction herein
specifically conferred upon the Federal courts shall not be held exclusive of
any jurisdiction otherwise pessessed by such courts to entertain actions at
law er suits in equity in aid of the enforcement of rights or obligations arising
under the previsions of this Act.
EXEMPTION
Sec. 12. No annuity or pension payment shall be assignable or be
subject to any tax or to garnishment, attachment, or ether legal process under
any circumstances whatsoever, nor shall the payment thereof be anticipated,
PENALTIES
Sec. 13. Any efficer or agent of an employer, as the word
"employer" is hereinbefore defined, or any employee acting in his own
behalf, or any person whether or not of the character hereinbefore de-
fined, who shall willfully fail or refuse to make any report or furnish
any information required by the Board in the administration of this
283
16435-18
Act, or who shall knowingly make or cause to be made any false or fraudulent
statement or report in response to any report or statement required to be
made for the purpose of this Act, or who shall knowingly make or aid in
making any false or fraudulent statement or claim for the purpose of
causing an award or payment under this Act, shall be punished by a fine of
not less than $100 nor more than $10,000 or by imprisonment not exceeding
one year.
SEPARABILITY
Sec. 14. If any provision of this Act, or the application
thereof to any person or circumstances, is held invalid, the remainder
of the Act or application of such provision to other persons or circumstances
shall not be affected thereby.
RAILROAD RETIREMENT ACCOUNT
Sec. 15. (a) There 1s hereby created an Account in the
Treasury of the United States to be known as the "Railroad Retirement Account".
There is hereby appropriated to the Account for each fiscal year, beginning
with the fiscal year ending June 30, 1937, as an annual premium an amount
sufficient, with a reasonable margin for contingencies, to provide for the
payment of all annuities, pensions and death benefits in accordance with
the provisions of this Act. Such amount shall be based on such tables of
mortality as the Railroad Retirement Board shall from time to time adopt,
and on an interest rate of 3 per centum per annum compounded annually.
The Railroad Retirement Board shall submit annually to the Bureau of the
Budget an estimate of the appropriation to be made to the Account.
Regraded Uclassified
284
# A 16435-19
(b) At the request and direction of the Board, it shall be
the duty of the Secretary of the Treasury to invest such portion of
the amounts credited to the Account as, in the judgment of the Board,
is not immediately required for the payment of annuities, pensions and
doath bonefits in accordance with the provisions of this Act in
interest-boaring obligations of the United States or in obligations
guaranteed. as to both principal and interest by the United States.
For such purpose such obligations may be acquired on original issue at
par or by purchase of outstanding obligations at the market price. The
purposes for which obligations of the United States may be issued under
the Second Liberty Bond Act, as amonded, are hereby extended to authorize
the issuance at par of special obligations exclusively to the Account.
Such special obligations shall bear interest at the rate of 3 per centum
per annum. Obligations other than such special obligations may be
acquired for the Account only on such terms as to provide an investment
yield of not less than 3 per centum per annum. It shall be the duty
of the Secretary of the Treasury to sell and dispose of obligations in
the Account if it shall be in the intorest of the Account so to do.
Any obligations acquired by the Account, except special obligations issued
exclusively to the Account, may be sold at the market price. Special
obligations issued exclusively to the Account shall, at the request of
the Board, be redeemed at par plus accrued interest. The Board shall
include in its annual report the status of the Account. All anounts
credited to the Account shall be available for the payment of all annuities,
pensions and death benefits in accordance with the provisions of this
Act.
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285
# A 16435-20
APPROPRIATION FOR ADMINISTRATIVE EXPENSES
Sec. 16. There is hereby authorized to be appropriated from
time to time such sums as may be necessary to provide for the expenses of
the Board in administering the provisions of this Act.
SOCIAL SECURITY ACT
Sec. 17. The term "employment," as defined in subsection (b)
of Section 210 of Title II of the Social Security Act, shall not include
service performed by an employee of an employer as defined in Section 1 (a)
of this Act or service performed for an organization of employees by a
representative who is an employee within the meaning of Section 1 (b) of this
Act.
Sec. 18. It shall not be unlawful for carriers by railroad
subject to this Act to furnish free transportation to persons receiving
annuities or pensions under this Act in the same manner as such transporta-
tion is furnished to employees in their service.
SHORT TITLE
Sec. 19. This Act may be cited as the "Railroad Retirement
Act of 1935".
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286
À 16435-21
PART II
The claims of persons who, prior to the passage of this
amendatory Act, shall have relinquished all rights to return to employer
service and become eligible for annuities and the claims of the spouses
and dependent noxt of kin of such persons shall be adjudicated by the Board
in the same manner and with the same effect as if this amendatory Act
had not been passed, except that (1) the annuity of a person who would
not have qualified for an annuity except by virtue of the provisions of
this amendatory Act may not begin prior to the date of passage of this
Act and (2) no reduction shall be made in any annuity certified after
the passage of this amendatory Act because of continuance in service
after age seventy or after age sixty-five without filing with the Board
an agreement to continue in employment and (3) service rendered prior
to the day on which the Railroad Retirement Act of 1935 was enacted
to an employer which was subject to that Act on the day it was enacted
shall be included in the service period in connection with any annuity
certified in whole or in part by the Board after the passage of this
amendatory Act, irrespective of whether at the time such service was
rendered the employer was an employer as defined in Section (a) of that
Act. The present memborship of the Railroad Retirement Board and their
terms of office shall be unaffected by the provisions of this Act.
Regraded Uclassified
#287
287
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: April 13, 1937, noon.
NO.: 478
FROM COCHRAN.
This morning I returned from Basel, where yesterday
the meeting of the BIS directors was held. Decision was
reached by the Board to recommend to shareholders payment
on the old gold franc basis of the customary 6% dividend
for fiscal year 1936-1937. The Board further decided to
abolish the rule which has heretofore required that 40%
of BIS shares which were originally subscribed to by
American banking group be retained in the United States;
these shares may all be sold to purchasers outside of
the United States, if it is desired to do so, but the
voting rights are retained by the original subscribing
banks. Weldon is being sent by the First National Bank of
New York to represent this group at the annual meeting on
May 3 of the directors. Trip was reelected by the Direc-
tors as the Dutch member of the Board for three more years.
Governor Rooth of the Swedish Reichsbank was also elected
for three years. Governor Rooth had previously served one
term on the Board which ended in March 1933.
When I visited Basel in March Beyen was 111. He
inquired yesterday about my January visit to the United
States, and in particular, about the likelihood of Ameri-
can
Regraded Uclassified
288
- 2 -
can participation in the BIS, and about our gold rules.
He told me that one of his technical assistants had been
grumbling because of a recent cablegram ...
END SECTION ONE.
BULLITT.
/ / and a 4 / by
s -
DECEIVED
EA:LWW
Regraded Uclassified
289
PARAPHRASE OF SECTION TWO, TELEGRAM NO. 478 of April 13,
1937, from Paris.
received through the Federal Reserve Bank of New York re-
questing full information as to ownership of a possible
deposit of gold to be made in New York by the BIS. The
remark was made that it was not in accordance with the
spirit of professional banking secrecy to disclose the
identity of the owners of gold deposits by the BIS. I
called to Beyen's attention the arrangements which have been
made so far between the countries enjoying the privileges
of the Tripartite Agreement, and suggested that the BIS
be entirely frank when explaining details of any trans-
action, and refrain from posing hypothetical questions to
the Federal Reserve Bank of New York. Ae for London, Beyen
admitted that it had also shown a tendency lately to with-
hold gold buying privileges from certain prospective pur-
chasers, saying guardedly that "the available supply"
would determine whether they could fill the orders.
At the May meeting nothing will be done by the BIS
towards seeking unofficial American participation, and no
amendment to the statutes will be suggested with the idea of
interesting official American participation. It is possible
that some time during the year Beyen will visit our country
just to get acquainted, as he has never been in the United
States. He may at that time consider the question of
engaging
Regraded Uclassified
290
- 2 -
engaging a young economist from the United States. As long
as we were not officially represented on the Board, I told
him, we were not disposed to name anyone officially.
END SECTION TWO.
BULLITT.
RECEIVED
TEG: SI Я9А
THEMTHAS30 YRUZA38T
(signal aft to with
ml at IMPRESA -
EA:LWW
Regraded Uclassified
291
PARAPHRASE OF SECTION THREE OF NO. 478 of APRIL 13,
1937, from PARIS.
It is my sincere hope that Beyen may visit both Washington
and New York, since it is desirable that the resident
head of the BIS have a better personal understanding of
the American situation in view of the fact that there is
no American on its staff.
On Sunday and Monday the two topics principally dis-
cussed at Basel (and at Badenweiler on Sunday, where
Schacht entertained the BIS officials and their wives)
were the American gold scare, and Van Zeeland's commission
by France and Great Britain to investigate the possibil-
ities of lowering barriers to trade.
The nervousness of the past week, President Trip
said, due to the gold rumor, had shown that the gold bloc's
breaking up had not in itself made the monetary situation
of the world anything like safe. The idea of frequent
resort to alteration of the gold content of a currency
for adjustment to economic situations is opposed by Trip.
He expressed the hope that if the United States eventually
changes the gold buying price, it may be done in such a manner
as to give a very definite impression of being final.
It is Trip's own idea that international agreement on
production of gold would be better than having individual
countries take separate action to adjust the gold value of
their respective currencies. Should a new price for buying
gold
Regraded Uclassified
292
- 2 -
gold be established, Trip (and many others with whom I
spoke) stressed the importance of consultation between the
countries already grouped together, and of widening a call
for consulations to include other important monetary
powers.
END SECTION THREE.
BULLITT.
03V13038
TSSI ST 89A
YRUSATMT
any to 1210
est d Issue UNA
EA:LWW
Regraded Uclassified
293
PARAPHRASE OF SECTIONS FOUR TO TWELVE, INCLUSIVE
OF TELEGRAM NO. 478 of Apr il 13, 1937.
More gold was coming into the Netherlands than was de-
sirable, Trip said, but since September 25, the Government
had been successful in restricting the price rise to
approximately 1 1/2 percent. Trip remains definitely
pessimistic about the French situation. He feels that
the franc will continue to weaken and no solid financial
and monetary conditions can be achieved while power is
held by the present Government as now constituted and
supported by the Communists.
The Swiss National Bank President, Bachmann, insisted
that Switzerland had fixed a definite price for gold, and
they would be reluctant to change it. President Bachmann
expressed a view similar to that of Trip, that countries
should avoid frequent alteration of the gold price to meet
economic conditions. Governor Norman, he said, had talked
with him earlier in the day, and the Governor insisted that
a
too high/price for gold was being paid by Switzerland and
the United States.
President Bachmann told me that during the past few
days he had sold gold in the United States against dollars,
and he was entirely satisfied with the technical operations
with the American authorities. He expressed the view that
the gold scare emphasized that so long as a "day to day"
policy is followed, bankers who engage in gold arbitrage
ordinarily
Regraded Uclassified
2S4
- 2 -
ordinarily, in troubled times will not have sufficient con-
fidence as to receiving the legal price for gold current at
the date shipments are to be made from abroad. He said he
would like to see some guarantee given shippers, BO that
if the official gold price changed during transit time, the
shippers would suffer no loss.
It seemed to me that Schacht was in better spirite.
He told me personally that lately he thought there had been
some improvement in the world outlook. German export trade,
in particular the heavy industries, was continually better,
he was happy to tell me. He said he was going to visit
Brussels, where today and tomorrow he would see Belgian
officials, including Premier van Zeeland. Van Zeeland stands
in very well with the Germans, according to Schacht. He
thought Van Zeeland's selection by the British and French
authorities to begin investigation of trade barriers was
a move in the right direction which should be received with
welcome. Schacht expressed sincere hope that in the
studies and plans to be undertaken there would be no ten-
dency to differentiate between democracies and dictatorships.
Economics and politics should not be mixed, in his opinion;
he thought the opposite policy was responsible for many of
the failures of the League of Nations. He said he hoped
that it would be possible for the United States and Great
Britain to reach a reciprocal trade agreement, as this should
be
Regraded Uclassified
285
- 3 -
be helpful toward general expansion of international trade.
The recent speech by Secretary Hull on trade and peace was
warmly indorsed by Schacht. Dieckhoff, he believed, would
do much to improve relations between Germany and America.
Schacht insisted to me (as he has previously) that
criticism of the German Government and its policies by for-
eigners, official or private, will not change the situation
but will only make more difficult the problem of inter-
national relations. He did not think it would be possible
for a country which is sharply critical of the governmental
institutions of other nations to be considered an entirely
neutral and disinterested leader should an attempt toward
convoking a world disarmament conference be made. On the
fourth of May Schacht will come to Paris for the German
Exposition Building dedication.
I spoke with Sir Otto Niemeyer, who visited the United
States in January and February. He is not disposed to agree
with some of his banker friends of New York, who expressed
the opinion that the present Administration would not strive
for a balanced budget, but would continue to run up a tremen-
dous deficit. The American outlook is hopeful, in his
opinion. But he thinks that even if we have to take some
risks, the most reasonable solution of our gold problem 18
to start lending abroad.
I
Regraded Uclassified
296
- 4 -
I had a talk with Governor Norman, and asked him
whether the move to have Van Zeeland investigate trade
barriers was merely an election help, or whether it was
a serious affair. He said that he hoped there might be
serious results from such an investigation. He knows
that our country is interested in procuring a trade agree-
ment with Great Britain, and confidentially he expressed
considerable concern over the trade policies of Great
Britain. However, until after the Empire Conference in
May, no one can tell just what British policy will be.
I gained the very definite impression from talks with
Governor Norman and other British representatives and various
officials at Basel, that the (omission) situati on is less
clearly seen by the Britishers themselves than has been
the case previously. Armaments is the principal cause of
the uncertainty. Niemeyer particularly stressed the point
that expenditures for armaments have barely begun, so no
one can even imagine what will be the whole effect of the
program. The export trade of Great Britain undoubtedly
is of concern to the British. They realize that during the
rearmament process it may shrink further, with rising prices
and increased domestic consumption of raw materials. The
suggestion was made to Governor Norman by one of my friends
that the best way for Great Britain to recover its export
trade would be to follow the policies through which
England
Regraded Uclassified
297
- 5 -
England achieved success in selling abroad - i.e., by having
few trade restrictions, active international lending, and
a stable currency. The reply of Norman was that the polit-
ical aspects of the situation had not been considered by
my friend.
Norman told me, with regard to the American gold
rumor, that he was pleased this "trial balloon" had been
put out, as he thought it had led to some serious thinking
and public discussion which had really been beneficial.
The American gold price should be changed, in his opinion,
as the law of supply and demand was one law of nature over
which the United States could not legislate successfully.
Governor Norman expressed annoyance over the publica-
tion through a series of articles in the REVUE DES DEUX
MONDES of memoirs of former Governor Moreau of the Bank
of France dealing with confidential negotiati ons with the
Bank of England in particular, and with other central banks.
The resident BIS officer, Marcel Van Zeeland, and the
Belgian directors, were elated over the outstanding If
victory of the Belgian Prime Minister (Marcel's brother
Paul) in the election on Sunday. They look now for even
greater success in domestic and foreign affairs on the
part of the Belgian Government.
I
Regraded Uclassified
2S8
- 6 -
I was approached by Nathan of the Italian delegation
on the subject of war debts. He said he thought that
Italy might be able to pay something to us out of the pro-
ceeds of dollar securities which the Government had requi-
sitioned. Nathan said he would like to see some money
raised in our country for Ethiopian development. The
Spanish situation was a sensitive one for the Italian offic-
ials, particularly the recent bad luck of Italian troops
in the Army of Franco. At Basel the prevailing impression
was that Termany was inclined to withdraw as cautiously
and as quickly as possible from the Spanish situation, leav-
ing the Italians the whole field. It seemed that the Germans
were convinced there was no real issue associated with Nazi
doctrines at stake in Spain, and that this was only one more
civil war not different from earlier conflicts in Spain
which the Spaniards themselves should handle. The Italians,
incidentally, have become annoyed to see BO many ablebodied
Spaniards living or visiting in Rome, and at the readiness
of the Spanish nationalists to leave the serious fighting to
their Italian friends. Furthermore, it is said that Germany
learned an impressive lesson in Spain, namely that a country
can be badly demolished by aeroplanes, trucks, and tanks,
but such weapons of offense cannot capture and hold a country.
Germany is inclined to be more pacific, taking into consider-
ation this and other factors - in particularly the small
navy
Regraded Uclassified
299
- 7 -
navy which they have, and the high cost of increasing
armaments due to the rise in imported raw materials.
There was one story current to the effect that Schacht,
in recently accepting the presidency of the Reichsbank
for a further year, had imposed definite conditions,
particularly along the lines of working toward freer
trade, and retrenching in military expenditures.
The French general manager, Quesnay, thought that the
French franc should be allowed to fluctuate between 110
and 112 to the pound. This would afford little chance for
speculation in the forward franc, and at the same time
France would have the benefit of the cheapest monetary
unit possible under the legislation of October 1, and
capital repatriation would be encouraged.
Quesnay and the other officials while at Basel were
not yet familiar with the interview given to the FINANCIAL
NEWS of London by Auriol, Minister of Finance, in which
he indicated that the franc would be allowed to find its
normal level within the limits prescribed by the legisla-
tion of October. In this interview he also said he favored
early stabilization of the three important currencies,
and he sought further international agreements to avoid
tax evasion. I will mail a full report of this interview.
Quesnay told me a story about the mission of Van
Zeeland, which in most part agreed with information which
two
Regraded Uclassified
300
- 8 -
two other BIS officers furnished me. Van Zeeland had sought
for the benefit of Belgium and his own election cause,
incidentally, to get a very definite declaration respecting
Belgium's neutrality from Great Britain. An alternative
was sought when, in spite of the King's visit, that dec-
laration could not be obtained. The Tripartite Agreement,
it was recalled, favored moves toward lowering of barriers
to trade. At the subsequent meeting of the League of
Nations last autumn, a recommendation had been made that
trade barriers be investigated, and the naming of Van
Zeeland therefor had been mentioned. This suggestion was
therefore revived, and France and Great Britain appr oved
it, even though 80 much publicity made Baldwin somewhat
unhappy. Quesnay anticipates no startling or early results
from this move, although he thinks it is in the right
direction. The Belgian monetary expoert formerly with
the Austrian National Bank, Frere, passed through Basel
on his way from Italy a few days ago. Frere had been on
from the Prime Minister
holiday in Italy when he received a telegram/to come to
Brussels at once - on the same day that the Van Zeeland
proposition was made public. I am informed that Frere was
entirely unaware of the Van Zeeland plans until he was called
to Brussels, although in the press the impression is given
that he was studying the plans for the past two months.
The
Regraded Uclassified
301
- 9 -
The Swedish BIS economist, Jacobsson, is definitely
convinced that it is essential that the American gold price
be lowered. The process of sterilization of gold will
prove more costly than effective, in his opinion. Jacob-
380n was in agreement with Norman and several others of
my friends that since the question has once arisen as to
the possibility that the gold price of the United States
will be changed, there will now be an increased purchase
of dollars by foreigners, and above all, an accelerated
shipment of gold, with particular activity by the Soviets.
The BIS economist estimates that between $250,000,000
and $300,000,000 worth of gold is the current year's
production for the Soviets.
Jacobsson thinks that our problem regarding the influx
of gold would not even be solved if sterling and the franc
should decline below the parities envisaged by the Tri-
partite arrangement of last Fall. He thinks, in other words,
that it will be incumbent upon us to change our price for
gold to perhaps around $30 an ounce, and then permit a
readjustment of other ourrencies accordingly. He said in
particular he would like to see the old sterling dollar rela-
tionship of 4.85 pegged, even though we could not achieve
definite legal stabilization.
As for the question of revaluing the Swedish crown,
upwards, this is by no means dead, according to Jacobsson.
The
Regraded Uclassified
302
- 10 -
The desirability of consultation with foreign countries
by the United States in any revaluation move was stressed
by Jacobsson. He again commended the spirit in which the
original tripartite arrangement was brought about. In his
opinion the changing of the American gold buying price would
be a new and important step toward solving the monetary
problems of the world.
Jacobeson expressed hope that the inquiry by Van Zee-
land may lead to a more general reduction of barriers to
trade. Van Zeeland, he believes, or his representative,
should draw up a definite plan of action in the trade field
and submit it to the various powers, rather than solicit
the opinions of the different countries and then try to
work out a plan on which they all could act.
The BIS economist said he appreciates the importance of
an understanding between Great Britain and the United States
on trade matters. But he does not believe we should be
too insigtent upon demanding that the Government which Neville
Chamberlain will soon head should discard the policy of
Imperial Preference which his father so strongly fostered.
In Jacobsson's view, we should respect the British idea on
this just as European countries must now come to respect the
American feeling on the war debt situation, as revealed in
by France
the official attitude toward the recent move, and press comment
in America on this move.
END MESSAGE.
EA:LWW
BULLITT.
Regraded Uclassified
303
April 13, 1937.
12:31 p.m.
Operator:
Hello
H.M.Jr:
Hello
0:
Governor Harrison.
H.M.Jr:
Hello
Harrison:
Hello - Henry?
H.M.Jr:
Hello - George?
H:
Yes sir.
H.M.Jr:
Ah - you want to talk to me?
H:
Well I just called you - ah - as long as Burgess
is absent
H.M.Jr:
Yes.
H:
I thought I'd let you know what was going on
here - you probably get it anyway.
H.M.Jr:
Well we get it - ah - I don't know whether you've
been doing anything in bonds or not.
H:
No we haven't - only because - all everybody
thought we oughtn't to - even the dealer fellows
said that it was so absolutely quiet
H.M.Jr:
Yes.
H:
and inactive
H.M.Jr:
Yes.
H:
that if we began to buy it would establish
really fourth levels downward rather than to - ah -
keep out they thought would be better and just leave
it inactive.
H.M.Jr:
Well that's all right.
Regraded Uclassified
304
- 2 -
H:
And it went off on the average about 4/32d's
H.M.Jr:
Yes.
H:
and then improved to two or 3/32d's so that
the last that I saw was about two under last night
H.M.Jr:
Well that's not bad.
H:
but with no transactions at all and we thought
that we couldn't say it was disorderly in any respect
and - - ah -
H.M.Jr:
Couldn't say it was disorderly.
H:
What?
H.M.Jr:
Do you say orderly?
H:
I say we could not say it was disorderly.
H.M.Jr:
That's right.
H:
And we do have bids, of course, in - ah - under on
the board in case anything should happen there
H.M.Jr:
Yes.
H:
but we haven't bought anything the last that
I heard.
H.M.Jr:
O.K.
H:
I think it's very quiet and - ah - I - I think a
little disappointment that the President's statement
is to be put off until next week.
H.M.Jr:
Yes - well
H:
Because I think that might count for what little he's
in arrears.
H.M.Jr:
Well we - we just - it's impossible to have it ready.
H:
Yes, well I gathered there was some
Regraded Uclassified
305
- 3 -
H.M.Jr:
I mean it normally takes two months to do that
H:
Yes.
H.M.Jr:
and I had to ask them to give us another two
or three days. We just can't - I mean we can't afford
to make a mistake.
H:
No you're quite right.
H.M.Jr:
And the whole thing is - is, if anybody should ask you,
is simply a Question of getting the statistics.
H:
I see.
H.M.Jr:
Yes.
H:
Well I assumed it was that.
H.M.Jr:
It normally takes us two months and we've got two weeks
to do it in.
H:
Yes. Well there's - there's nothing in the market here to
be at all upset or concerned about, I think.
H.M.Jr:
Well that's good. Well, thank you.
H:
All right.
H.M.Jr:
Thank you.
H:
Goodbye.
H.M.Jr:
Goodbye.
Regraded Uclassified
306
MEMORANDUM
April 13, 1937
No
To:
Secretary Morgenthau
From: Dr. Burgess
Treasury bond market opened slightly lower and quiet
but quotations tended to rise with a fair amount of
activity in the afternoon. Treasury bonds closed at
their highs of the day, with the long maturities 4/32 to
9/32 better than yesterday and with the remainder of the
list unchanged to 8/32 better. Guaranteed bonds were firm
and rather active, the F.F.M.C. bonds showing gains of
2/32 to 5/32 and the H.O.L.C. bonds gains of 3/32 to 7/32.
The turnover of government bonds on the board totaled
$1,432,000 against $317,000 yesterday. The note market
was firm all day and some buying was reported. The
1939 - 1941 issues closed generally 2/32 to 4/32 up from
yesterday; other maturities were unchanged to 1/32 better.
Domestic bonds, both high and second grade, were
moderately firmer today as some buying interest appeared,
and both groups were up fractionally at the close. Con-
vertibles were strong.
Foreign bonds were quiet and mostly unchanged in price.
Italians made fractional gains and Danish bonds were mixed,
No purchases today for Treasury.
Regraded Uclassified
to
307
April 13, 1937
For the Secretary:
Governor Schaller: Governor Schaller and the Reserve bank people think that
the government bond situation has settled down and that the banks are much less
jittery than they have been. A good bit of the selling that the Chicago and
Illinois banka did for over the tax date of April Birst has been reversed and
Chicago banks have been buying some. The country banks in the district are
almost entirely out of the G vernment bond market --- neither selling nor buying,
and as long as the quotations stay about where they are, they will be satisfied.
If the market goes up much, there will be some selling, it is thought.
Schaller and Young were over in etroit last week visiting the banks there, and
find them disposed to be satisfied if the Government bond market does not go
off again decidedly. The banks report & gradual increase in commercial loans.
They are very much worried about the strike situation. and jittery about other
things than Government bonds. It is said here that New York is blaming Michigan
banks for the first selling wave of Governments. The industrial situation is
regarded there as much more acute than the bond market. Schaller and the
reserve bank people are inclined to think that there should be no attempt at
pushing the market up nor of pegging it, but maintain it about where it is if
not too expensive, letting it alide off to a three per cent yield gradually.
Commercial loans throughout the district are picking up some; much of the
district depends upon crops and the coming agricultutal season will tell
how things will develop in this region. Chicago is more or less in between the
Wall Street attitude of New York and the farmer attitude of the reserve bank
cities farther West. Chicage bank feels pretty much out of touch with the
Reserve Board, maintaining they have no direct contact since removed from the
Regraded Uclassified
308
open market committee. Apparently their ohly information as to pubchases for
System account are from the newspapers, except for weekly summaries.
Walter J. Cummings: Says that Governments must be pushed back up to par --
that the Treasury cannot stand by and see bonds it has just issued go below par.
Suggests the Federal Reserve cancel the May 1 increase in reserves, and buy
heavily in the market. Thinks easy money still highly essential. Country banks
quiet because they expect the Federal Reserve to do this. Wonders what the
Treasury is going to do about June financing and what it is going to do about
incoming gold. More inclined to ask questions than to talk. Some others here
say that heavy overinvestment in long term Governments is reason he takes
attitude that quotations must be raised. If they want up much, could expect to see
Continental seel, it is said.
John Hogan: This vice president of the Continental wants two things --- cheap
money continuance 80 far as reflected in high prices for Government bonds, and
higher yields on almost everything else. He seems to share the Wall Street
idea that interest levels and prices must get to their natural levels, but,
probably with Walter Cummings in mind, also talks in favor of supporting the
Government market. Says the market for commercial paper is going dead.
Not too helpful.
Mr. Abbott: This bond man for the Continental thinks that the March first and
May first reserve éncreases flanking the March 15 tax date a pretty heavy dose.
Thinks Reserve System might do well to cancel the May 1 increase. Thinks it
essential that the Governments all be pushed back above par. Says the Reserve
System would not put increase in effect now if the choise remained. Says the
Regraded Uclassified
309
excess reserves that are left after May 1, while in excess of & half billion,
and so greater than in 1929 should not be compared to 1929 balances, because
city banks now use the reserve system for wire transfers where they used to use the r
correspondents, and therefore it is only natural that they will maintain
working balances with the reserve banks in excess of their reserve requirements.
Thinks the financial community was misled the early part of the year by two
matters. The New York banks were letting their Treasury bills run off to get
in funds for country bank withdrawals and other needs, and thus the Treasury bill
rate went up artificially, but was thought by many to be rising in response to
natural causes. The other matter was the flotation on March 11 by the
bankers for the Recourch Philadelphia Electric of $130,000,000 3 1/2's at 102 1/2.
They did not go very well at that price, and bankers saw in this recognition of
higher yields having arrived. They were wrong, in Abbott's opinion --- the
offering did not go well because it was badly timed. The Ecoles statement of
March 16 also did harm. It was correct and it Was courageous, but badly timed.
Mr. Abbott thinks & balanced budget coupled with open market purchases to the
extent of B. quarter of a billion would put everything all right. Very much
interested in what financing the Treasury is going to do.
XXXXXXXXX
General Dawes: Came out of a conference for B. few minutes chat, which aside
from facetiousness, was to the effect that the Treasury W&S well run, and that
we were now pursuing the proper course, neither letting the market go to "ell
nor trying to restore it to par. keep it up along those lines.
Regraded Uclassified
310
Ned Bpown: Was tied up when I went in but said he wanted to talk to me so
I asked him to the reserve bank for lunch along with the officers of the bank.
He has sold no bonds and does not need to because he has a properly constructed
bond account and because he has built up reserves and amortized his accounts.
He does not think the Treasury and Federal Reserve can keep the bonds where
they are, thinks they will go lower naturally, thinks a three per cent yield is
inevitable, and would let the bonds slide off gradually to their natural
level. To do otherwise is no only to attempt to support the whole Government
market, but the market for other bonds as well, and perhaps the whole capital
and money market. Thinks it more important to be thinking about keeping down
the spiral of prices and wages than to be thinking about the price of
Government bonds. He doubts that the banks will sell in quantities any more,
but thinks they will attempt to unload on rises in the market, if it rises.
Thinks Government should take vigorous action in strikes, etc. Wonders what
is going to be done about gold coming in.
A variety of opinion, based partly on inherent attitudes and partly on
personal interest. No unaminity, but generally steer a middle course,
don't let bonds goo too far either way.
Have to catch a train. May say more about Chicago later.
Upm
Regraded Uclassified
311
RB
PLAIN
London
Dated April 13, 1937
Rec'd 3:35 P. m.
Secretary of State
We shington.
RUSE,
232, April 13, 8 P. m.
TREASURY FROM BUTTERWORTH.
In the House of Commons this afternoon the Chancellor
of the Exchequer as asked to allay public anxiety by
giving an assurance that the British Government had no
intention of taking action to check the rise in commodities
by raising the price of sterling in terms of gold in view
of the inflationary effect it would have. Mr. Chamberlain
replied: "It is not at present part of the policy of the
Government to maintain a fixed price for gold in terms
of sterling. The price of gold is one of the factors to
be taken into account in determining monetary policy from
time to time. The Government are fully alive to the
undesirability of interf ring with the flow of business
towards recovery." Asked whether the maintenance of cheap
money remained a fundamental objective of the Government's
policy the Chancellor of the Exchequer referred to an
answer
Regraded Uclassified
312
RB
-2-#212, April 13, B P. m. from -
London
answer given yesterday which is noteworthy for its
evasiveness: "Cheap money is not an object in itself,
but & means adopted for securing the improvement of trade
activity and employment. I am satisfied that the policy
actually followed has given a maximum stimulus to economic
recovery in the United Kingdom and the Empire with a
minimum *1 undesirable repercussion; I cannot make any
statement na to the future since the measures to be taken
at any time will depend on the course of events".
The Chancellor was also asked whether he was
satisfied with the working of the tripartite currency
agreement between the United States, France and Great
Britain and whether this agreement precluded any alteration
of the gold value of its currency by the governments of any
of these countries without prior consultation with the other
parties to it. Chamberlain replied that the answer to the
first part of the question was in the affirmative; dealing
with the second part he said: "The purpose of the agreement
is to maintain the greatest possible equilibrium in 8.
system of international exchange, to avoid to the fullest
extent any disturbance of that system bymonetary action on
the part of any of the governments concerned. There is
no expressed reference to the gold value of the several
currencies".
Regraded Uclassified
313
RB
-3-#212, April 13, 8 P. m. from
London
currencies",
Asked if he was contemplating any negotiations with
the United States and France for an economic agreement
covering a wider field and of a more permanent nature,
he replied: "I am not contemplating it at the present
time". Questioned further by the leader of the liberal
oppos: that since it was said when the currency
agreement was entered into that the Government then
contemplated an economic agreement of a wider character
between America, France and Britain when will the Govern-
ment cease to contemplate such an agreement by acting?
Chamberlain replied: "What I said 13 not at all incon-
sistent with that. We did say at the time the agreement
was made we hoped it might be followed by further measures
with 8 view to lowering the restrictions in the way of
international trade. The question I am asked now is
whether I contemplate entering into negotiations and to
that I reply in the negative". Asked "how can the
Chancellor of the Exchequer expect that his hopes will be
fulfilled if he is not prepared to do anything about it?"
Chamberlain replied: "I do not say I am not prepared. I
am not contemplating it. It depends upon when eircumstances
are
Regraded Uclassified
314
-4- #212, April 13, 8p. m. from
RB
London
are favorable."
The market took all the gold at fixing and absorbed
fairly large offerings after fixing and in general showed
signs of "settling down". Arrangements have now been
completed for making Russian gold good delivery in London.
BINGHAM
BECEINED
KLP
VSS: :- I SSA
143MTRA930 YRUBAINT
the 1:190
and of -
Regraded Uclassified
315
April 14, 1937.
10:35 a.m.
H.M.Jr:
Hello
Operator:
Governor Harrison.
Harrison:
Hello
H.M.Jr:
Golly, George, I didn't know you'd run up a bond
market so fast on us.
H:
Gosh, how do you like it?
H.M.Jr:
Terrible.
H:
Well, I told Matty (evidently meaning Madison) just
a little while ago to - ah - with these dealers
scrambling around to get some to let them have
some bonds
H.M.Jr:
Ah-ha.
H:
......and I haven't yet heard whether he has done
so or not.
H.M.Jr:
Ah-ha.
H:
And one reason I'm anxious to do it - I wanted to
get your reaction
I
......
H.M.Jr:
Yes
H:
is this: You see we showed an increase last
week in our account of 29 million.
H.M.Jr:
Yes.
H:
A lot of people thought that was pretty heavy.
H.M.Jr:
Yes.
H:
Now this week we haven't bought a thing
.....
H.M.Jr:
Yes.
H:
....since April 8th
H.M.Jr:
Yes.
Regraded Uclassified
316
- 2 -
H:
....and we sold something in the meantime
H.M.Jr:
Yes.
H:
.....but April 8th was Thursday
H.M.Jr:
Yes.
H:
but we did buy 13 million last Wednesday and
were delivered the next day in this statement week.
H.M.Jr:
I see.
H:
So that with what was bought on Wednesday and Thurs-
day
H.M.Jr:
Yes
H:
......would show an increase of 31 million dollars
more than last week.
H.M.Jr:
Gosh.
H:
And I think that's bad.
H.M.Jr:
Oh it's just - the world will think you the most
reckless people they ever knew.
H:
No, but I think it's bad to show more of an increase
H.M.Jr:
Oh.
H:
.....than last week and I think as long as the market
has been so on its dwn ever since last Thursday
H.M.Jr:
Yes.
H:
that we don't want to give the impression that
it's been artificial
H.M.Jr:
Ah-ha.
H:
then we can get away with it.
H.M.Jr:
Yes.
H:
So that if we can sell something to-day I'm very glad
of the opportunity to do it.
H.M.Jr:
Good. Did you find out who bought the five million
last Saturday?
Regraded Uclassified
317
- 3 -
H:
Ah - it was a New York City bank.
H.M.Jr:
New York - New York City bank.
H:
A big New York City bank.
H.M.Jr:
Well, that must have been the Central, wasn't?
H:
And I didn't find out which one it was.
H.M.Jr:
But it was a bank - that's all that - that's good
enough.
H:
And the buying yesterday - ah - was largely for .the
New York City banks.
H.M.Jr:
Well I'm just interested in what kind of buying it
is - whether it's banks, insurance companies or where
they are - that's all I want to know.
H:
Yes - well it was - it was New York City banks yesterday.
H.M.Jr:
Good.
H:
Largely.
H.M.Jr:
All right, George.
H:
Now - now the thing has run up here to - ah - 1/8th
of a quarter of a point better
H.M.Jr:
Yes.
H:
....than yesterday's close already.
H.M.Jr:
Yes.
H:
Now you don't see any objection to our letting some of
these go rather than to have this run this way.
H.M.Jr:
No - no that's all right.
H:
Because I think there's every advantage in it.
H.M.Jr:
As long as you just sell on the bulges, it's all right.
H:
Yes, well that's the only time we're doing it. The only
other day we did it was on April 10th when we had that
very rapid rise and we had an opportunity - it was on
Regraded Uclassified
318
- 4 -
Saturday - we had the opportunity to let four million
seven go to a dealer who had to fill an order - that's
that one I was telling you about.
H.M.Jr:
Well now tell your man there he could sell some of
our bills and we'll keep the money and - until the
market goes down again - we've given him an order to
sell 10-1/2 million of - of notes maturing - the
September notes - see - and he's only sold a million
of them, see?
H:
Yes.
H.M.Jr:
I'd like to sell a million or two of those to-day if
we could, see, and then we'll keep the money and wait
until we need it.
H:
Yes - September notes?
H.M.Jr:
Yes.
H:
Out of what account is that, Henry?
H.M.Jr:
Postal Savings.
H:
Yes.
H.M.Jr:
I want to
------
H:
That - that - that order is in, is it not?
H.M.Jr:
That's in - been in for about a week.
H:
Yes.
H.M.Jr:
No - it's been in since Monday.
H:
Yes.
H.M.Jr:
But to - to sell those and buy 2-7/8's - well if he's
got a good chance let him sell some of those and we'll -
we'll hold the cash and you can keep it there as a
nest egg and when the market goes down again
H:
Yes.
H.M.Jr:
when somebody - when the Federal Reserve makes
a speech.
H:
(Laughs) (This line completely lost as Harrison
croaks like a large frog - simply can't make out a
word he says)
Regraded Uclassified
319
- 5 -
H.M.Jr:
Well, talk to Madison about that, will you?
H:
Yes I will - I'll talk to him right away.
H.M.Jr:
Well I'm glad it's behaving the way it is.
H:
Well I - - I agree with you though - I don't think you
want to see it run up too fast.
H.M.Jr:
That's all right.
H:
I think all the talk in the papers this morning" about
the orders on economy is probably what helped it.
H.M.Jr:
That's right.
H:
I was afraid that might work the other way. (Laughs)
H.M.Jr:
No it's all right.
H:
But it's working all right.
H.M.Jr:
All right, George.
H:
All right, sir.
H.M.Jr:
Goodbye.
Regraded Uclassified
320
April 14, 1937.
11:43 a.m.
H.M.Jr:
Hello
Operator:
Governor Harrison
H.M.Jr:
Hello
0:
Go ahead
H.M.Jr:
Hello - hello.
Harrison:
Yes Henry.
H.M.Jr:
George, do you know what your people have been doing
this morning in bonds? Have you heard? I - I don't
know what they're doing.
H:
Well I - I - I
H.M.Jr:
I mean the volume - whether they sold - or how much
or anything.
H:
Oh well we - we disposed of four million of the
2-3/4's 51-54 to - at a point - ah - nine points above
last night's close
H.M.Jr:
Yes.
H:
.....and that's all we've done.
H.M.Jr:
You've done four million.
H:
Yes.
H.M.Jr:
At nine points above last night's close.
H:
Yes.
H.M.Jr:
Well that's all I wanted to know.
H:
Ah - last night - yesterday afternoon on Treasury
bills we did some things you might be interested in.
H.M.Jr:
Yes.
H:
Of the 39 million of Treasury bills bid for in New
York on Monday
H.M.Jr:
Yes.
Regraded Uclassified
321
- 2 -
H:
30 million were awarded to dealers.
H.M.dr:
Yes.
H:
Now of that 30 million we took five million against
our maturity
H.M.Jr:
Yes.
H:
and also an additional 16 million
H.M.Jr:
Yes.
H:
of the nine months bill
H.M.Jr:
Yes.
H:
....against shorter bills on
H.M.Jr:
Yes.
H:
We do that because there's apparently no demand for the
new nine months bill by either banks or others
H.M.Jr:
Yes.
H:
....and it enabled us to clean out the dealers of the
bills that were sticking and give them the shorter bills
that they could move.
H.M.Jr:
Ah-ha.
H:
So that that bill market thing is much better. Last
night the - ah - all the dealers together had only
20 millions of bills and some of that is a fixed
investment in bills by the Discount Corporation which
they use as collateral for loans.
H.M.Jr:
I see.
H:
So that we really cleaned up the bill thing pretty well
by taking over the nine months bill. I mention that
because for some same reason - two or three weeks ago -
you know -
H.M.Jr:
Yes.
H:
- There wasn't much difference on the rates between
the short and the long bill.
H.M.Jr:
Yes.
Regraded Uclassified
322
- 3 -
H:
But apparently - an - the dealers have been talking
to me lately and - ah - from all the facts that I
can gather the nine months bill doesn't move very
well and the short bills are moving easily and at
prices.
H.M.Jr:
They are doing what?
H:
They are moving very easily and at higher and higher
prices.
H.M.Jr:
I see. Well, we're thinking of announcing - ah -
for Monday that we're going to start - ah - - selling
another 50 million into September.
H:
Well I think that that's important to do whether you
do it this week or the next week - I don't know.
H.M.Jr:
Well -
H:
I should think it would be all right this week.
H.M.Jr:
You do. Well I mean - it would be for next Monday.
H:
Yes. That's what I mean.
H.M.Jr:
Yes, you think it would be all right.
H:
I think the only thing they don't like is the nine
months bill and I really believe that if this thing
continues now
H.M.Jr:
-
Yes.
H:
and it might continue after this increased
reserve requirements becomes effective
H.M.Jr:
Yes.
H:
....you might have to give another study to the ques-
tion of the nine months bill, Henry.
H.M.Jr:
But - ah - not this week.
H:
Well - they they - they're not going well.
H.M.Jr:
They're not.
Regraded
Uclassified
323
- 4 -
H:
No, they're not at all and, for instance, I just got
a pencil memorandum that came in last night and it
only confirmed what Mills, of the Discount Corporation,
told me on Monday that they just couldn't get buyers
for the nine months bills. As to why they don't know
and I asked him why. He said, well they want short
bills and I said, "Well hell just two weeks ago they
gave the rates pretty near the same on both of them."
I said, "How can we guess you fellows?" He said,
"Well, that was true," he said, "but suddenly something
had turned and they want the short bill - not the long
one."
H.M.Jr:
Well do you think there's any reason why we can't offer
on Monday 50 million of nine and 50 million into Septem-
ber?
H:
I think you'll have some trouble with your nine as I
see it to-day but I
H.M.Jr:
Well do you - do you think it's a mistake to do it?
H:
I think you run - I'd like to go into this a little
more because I haven't talked to dealers myself this
morning - let me talk to Sproul who did
H.M.Jr:
Yes.
H:
....and then I'll call you back.
H.M.Jr:
Could you call me back
H:
Yes.
H.M.Jr:
by - before 12:30.
H:
Yes, I'll do that right away.
H.M.Jr:
Please.
H:
All right, sir.
H.M.Jr:
Well, of course, we've got to make up our mind to-day.
H:
Yes, I know and I - it's funny I was just talking to
Eccles about it when you called me now.
H.M.Jr:
Ah-ha.
Regraded Uclassified
324
- 5 -
H:
Giving him the story on the bill market.
H.M.Jr:
Ah-ha.
H:
But I'll - I'll look into it again and see what these
dealer fellows said this morning and see if I've got
anything new on it and then I'll call you back. Cer-
September. tainly if you do any additional ones they should be in
H.M.Jr:
You mean - well - you mean over and above the 50?
H:
Yes.
H.M.Jr:
Yes, but.....
H:
And - ah - if you did only 50 and put it all in Septem-
ber I think it would go best.
H.M.Jr:
Well we need more money; that's the point.
H:
Yes.
H.M.Jr:
I mean if this thing won't go we'll have to get out a
regular issue.
8:
Yes, well let me - let me call you back, Henry.
H.M.Jr:
Because I mean (laughs) I'm not going to let New York
run this market - I mean these dealers - I mean four
or five dealers will run the whole government - I'm
not going to let them do it.
H:
Well I don't think that's quite the way to put it
because what those fellows are doing - they'll - they'll
buy anything they can sell - they're - they're traders.
H.M.Jr:
Well -
H:
And if they can sell the bills they'll - they'll buy
them.
H.M.Jr:
Well the rate - the nine months bill ought to sell.
We haven't - we don't try to control the rate they
bid for them.
Regraded Uclassified
325
- 6 -
H:
Well, of course, you know I - I made a speech to
you once, when we were discussing this question of
the nine months bill and reducing the total a ggre-
gate of bills, advocating reducing it beginning by
reducing it to six months
H.M.Jr:
Yes.
H:
and the reason that I gave them, and I still feel
is true, that when you get a more normal money market
where excess reserves are down around - getting around
to zero again some day - the nine months bill won't be
a popular bill; it never has been; it doesn't work
in England and they had to stop it and the market usage
on short money - short funds - temporary funds has
always been a ninety day bill. And then we went
through a period of very exceptional times of huge
excess reserves and they would buy anything and your
nine months bill went very well. Now you're getting
back to that - we'll call it the pre-war time - when
you haven't got that same pressure to buy anything and
they're becoming more discriminating and, therefore,
they want to do what's the usual thing, banking easy
and putting surplus funds in ninety day stuff. I don't
think it's unusual and I don't think it's anything to
be wondered at. It's a thing I really believe that
you'll have to study all over again in the light of
new conditions.
H.M.Jr:
Well now, do you suppose between now and 12:30 you can
find out something and let me know?
H:
(Laughs) Well I'll do my best. I've got a better
chance if I don't talk too long to you now.
H.M.Jr:
Well that suits me.
H:
(Laughs) All right.
H.M.Jr:
All right.
H!
Goodbye,
Regraded Uclassified
326
MEETING RE OPEN MARKET OPERATIONS
April 14, 1937
12:00 Noon
Present:
Mr. Taylor
Mr. Bell
Mr. Haas
Mr. Eccles
Mr. Goldenweiser
H.M.Jr:
I'm not going to tell him (Governor Harrison) not to
sell. He tells me a few minutes ago we can't sell
any more nine months stuff. I think it's just...
Eccles:
He told me that. I said, "Well, hell, George, last
week they didn't want any short term stuff; all they
wanted was long term. Now this week they want the
opposite." I said, "I can't understand the thing."
H.M.Jr:
Well, I'm not running this thing, but they do so much
swapping and switching and this business and that
business, and they fixed it now so we can't sell a
nine months. So I said, "You're telling me that the
five New York dealers tell you to tell me I can't
sell a nine months?" "That's what it amounts to."
Now, if we're going to sit here and let five dealers
tell us how to run this thing, all right, but it's
just It's all right; it was all right up to six
weeks now. But if I'm - Mills and the Discount can
call up George Harrison and say it can't be done, and
that answers it,
Eccles:
I don't understand
H.M.Jr:
Why the hell, if the market goes up an eighth on the
statement we're going to cut expenses, should George
Harrison immediately dump a bunch of bonds? What are
they trying to do?
Eccles:
I suppose he didn't want the market to go up too fast.
H.M.Jr:
Well, for Christ's sake
Bell:
Ought to work both ways.
H.M.Jr:
...1t's gone down five or six points.
Uclassified
327
- 2 -
Taylor:
Why in Christ's name should five million in bonds
make the difference of showing a change of policy
in the Federal Reserve Board?
Ecoles:
It won't make any difference, because the statement
won't show it.
Taylor:
Except that they are sellers in the market.
Eccles:
No, the statement comes out today and the statement
today will show an increase of about 30 million over
last week. Now, they can't reduce - they can't show
on the statement any reduction from statement date to
statement date. Between statement dates, of course,
they have always shown shifting, but they can show no
reduction. Now, the statement last week showed an
increase of 29 million; this week it will show an
increase of 60 some odd million, so that there will
be no decrease at all. Next week the statement can't
show less than it does this week.
Taylor:
But the dealers know.
H.M.Jr:
There are five dealers in New York running the whole
Government bond market right now, and it's not being
done by the Federal Reserve or the Open Market.
Eccles:
Well, of course, the market, as I understand, is
pretty strong this morning. He said there was -
I talked to George and he said there was really a
dearth or scarcity of bonds.
(Secretary has conversation with Governor
Transcript of conversation follows this page)
Harrison, recorded on dictaphone at 12:05)
H.M.Jr:
What does it look like, Dan? If we start getting the
extra fifty now and raised 300 million for six weeks -
I mean when would that end?
Bell:
That would be beginning the 21st.
H.M.Jr:
Of what?
Bell:
This month.
H.M.Jr:
No.
Bell:
Yes.
Regraded Uclassified
328
April 14, 1937.
12:05 p.m.
H.M.Jr:
Hello
Operator: Governor Harrison calling.
HM Jr:
Thank you
0:
Go ahead
Harrison: Hello
H.M.Jr:
Hello
H:
Well Henry I've just made a quick conference with
the men here in the bank; I haven't gone outside at
all.
H.M.Jr:
Yes.
H:
And they say that the facts remain, as I told you,
that the nine months is - ah - is sticky.
There is some damand for the shorter bills.
H.M.Jr: Yes.
H:
Madison's guess is that the nine months bills - ah -
this next week might go for around 70 to 75 - at
least higher than last time
H.M.Jr:
Yes.
how
H:
But, of course, I don't know exactly/ pressing your
needs are and how much or how rapidly you need the
funds but my suggestion would be if you could afford
it I'd go only 50 millions this week and I'd make
them the September bills.
H.M.Jr'
No, I won't do that.
H:
And - well then the - ah - ah - ah - the six months
bills - I mean the nine months bills will go but
they'll probably go at a little higher price because
they've become unpopular. A lot of banks have been
talking about it and they - apparently what's happen-
ing is this - that they are preferring to go into your
shorter notes or some of your notes - at 1-1/4 we'll
say.
H.M.Jr: Yes.
- 2 -
329
H:
Then to take a nine months bill at 70.
H.M.Jr:
Well I've - I've adjusted myself, since last November
with the Federal reserve Reserve so they could get ready and
do this increasedArequirements. I let my balances
go down from a billion to around five - six hundred
million. I'm through adjusting myself to the Federal
Reserve; I'm going to run the Treasury the way I
always ran it.
H:
Yes? Well I'm not asking you to adjust yourself
to the Federal Reserve.
H.M.Jr,
No, well I'm not going to .
H:
Well I'm not suggesting that.
H.M.Jr:
No, but I mean this suggestion that I - I should not
take a hundred million next week when we need it.
H:
No, now wait a minute - ah - you asked me a few minutes
ago to call you back as to what my advice was.
H.M.Jr:
Yes.
H:
And I said, without knowing what your requirements were,
I think the best thing would be 50
H.M.Jr:
Yes.
H:
.....but if you need more then I say you'll
have to pay probably around 75 for your nine months
bills.
H.M.Jr: Well -
H:
Now that's just a guess - we may be all wrong.
H.M.Jr:
Yes.
H:
But I'm not - I'm not - I'm not urging you - ah - not
to do - raise the money that you need at all. I don't
know that.
H.M.Jr:
Well we need it.
Regraded Uclassified
330
- 3 -
H:
"ell then if you need it then I think that your
mine months bill will - will go but it will go
at a little higher price than it did this last
week.
H.M.Jr:
Yes, well the main thing is that it goes.
H:
Yes.
H.M.Jr:
Ah - for the time being - I mean the rate thing
is out of my hand - I can't control and never
H:
You wouldn't consider a six months bill there.
H.M.Jr: Well I don't think - I don't - we'd have to take
three or four days or a week to think it over
H:
Ah-ha.
H.M.Jr:
and before we'd make a move like that I'd ask
Eccles to bring down the Open Market Committee.
H:
Yes. Well I really think that that would be a good
thing to do pretty soon anyway.
H.M.Jr:
Well I'm perfectly willing to talk about it but between
now and 5 o'clock we've got to get our wires out
H:
Yes.
H.M.Jr:
and the first that I knew that these nine months
were stickywas when I talked to you about twenty
minutes ago. I mean I didn't know that they were
sticky - to-day is Wednesday - I didn't know anything
about it
H:
Yes.
H.M.Jr:
and I'm not going to change my policy in an
hour. I mean I want to give it careful consideration
and if we're going to have trouble with bills maybe
I'd come out with a regular issue.
H:
Yes, but we don't have to do that.
H.M.Jr:
Well I mean I'm (laughs) I'm - I'm - from now on I'm
going to take the money I need and I'm going to go back
and be comfortable. I'm not going to be worring about
week to week whether I can raise 50 million or a hundred
million dollars. I mean I should have let the balances
Regraded Uclassified
331
- 4 -
go down; I did it to help out and I'm not going to
do it again.
H:
Yes.
H.M.Jr:
I mean from now on I'm going to
H:
Well don't - don't misunderstand me now I'm not asking
you to do anything; you asked me what I thought about it.
H.M.Jr:
I know but I mean I made a mistake and I realize it
now. I mean I always had enough money so I didn't
have to finance for three months and I'm going to
put the Treasury back in that position so that we're
money easy.
H:
Yes.
H.M.Jr:
And it's the first time I've ever gotten myself where -
so that I've got to move and move - ah - due to the
conditions in New York and I'm going to get myself out
of that position.
H:
Ah-ha.
H.M.Jr:
And
H:
Well I think - you - you can tell them that you -
that you'll probably have to pay more.
H.M.Jr:
Well that's - I'll - I'll pay whatever I have to.
H:
Yes.
H.M.Jr:
And if it's 75 it's 75.
H:
But I do - I do think it's worth a review again
sometime.
H.M.Jr:
I think we ought to - I'm going to ask Eccles f he'll
get his crowd together next Tuesday or Wednesday.
H:
Yes, I think that would be a good idea just stating
the new set of circumstances when you've got May one
out of the way.
Regraded Uclassified
332
- 5 -
H.M.Jr:
All right, George.
H:
All right, Henry.
H.M.Jr: Thank you.
H:
All right.
Regraded Uclassified
333
- 3 -
H.M.Jr:
Oh, you mean starting.
Bell:
Yes.
Eccles:
Yes, run six weeks.
Bell:
That would run it to the end of May.
H.M.Jr:
Would you clean up in May?
Bell:
Yes, we'd clean up in May.
H.M.Jr:
You want to count?
Bell:
Well, you got two the 21st and the 28th in April, and
four in May.
H.M.Jr:
And we'd be out....
Eccles:
Yes, before the first of June. That would be your
September three hundred maturing.
H.M.Jr:
I mean do you think on anhour's notice that I should
Eccles:
I wouldn't change it. George talked to me just before
I came over here, in fact just before you talked to
him, and he said that the long term bills were not
moving. I said, "What in the name of God ?" I
said, "Last week it was the short that wouldn't move."
"Now," I said, "this week they want the short and they
don't want the long." I said, "They've got excess
reserves of nearly 8. billion and a half, and with the
increased reserves going into effect, they'll have
between seven and eight hundred million of excess
reserves." I said, "Now, your bond market is strong,
your note market is strong, and the long term bill
market is weak, just because they've got - they're
issuing long term bills." I'll be damned; I can't
understand it.
Bell:
Did the System unload a lot of bills?
Eccles:
No, they bought bills. What they did - you see, they
had five million of their bills maturing, so they took
five million to replace those. The dealers took
thirty million bills and they took that five million.
And then they let some short bills, because they were
Regraded Uclassified
334
- 4 -
in demand - they had some of last week's short
bills, see, and they were in strong demand, so
they switched; they exchanged some of those short
bills for the nine months bills that were put out,
so as to clear the market of the nine months bills,
because they wanted the short bills and we'd just as
soon have the long bills. We took, I think, about
15 million of the long bills.
Taylor:
Did you pay them a profit on it?
Eccles:
Well, I don't know, Wayne. It would be very small
if it was; it would be just a - the fraction, of
course. That damn bill prevented us from taking
them direct and we've got to take them through the
dealers. But I'm sure we wouldn't pay more than
just a fraction to what we usually pay on any of
those transactions.
Bell:
You bought them at the market price.
Eccles:
Well, but the market on them was at about the offer-
ing price. I don't think they'd gone off. They were
just holding them. The dealers, you see, had the
bills and they were holding the bills at what they
had bought them for; they weren't selling them at a
discount. Now the dealers are pretty well cleaned up
of bills.
H.M.Jr:
Oh sure, they always take care of them down there.
I mean they're more interested in taking care of the
dealers than in taking care of us. Any time the
dealers have got a little load, all they've got to
do is call up Harrison and he'll take off what they've
got. They always know they can go dump them. But
when it comes to helping out... I mean those five
concerns, they've just - when things are bad they
just can dictate and write the ticket.
Haas:
It seems to me that - and I thought this was the way
they were going to operate, take this open market
operation - I may be wrong on this, but it seems to
me that they have no effect in improving this market
at all unless they increase excess reserves. Using
the open market operations, buying and selling, just
to peg, I think, rather than strengthening might
weaken the situation. And if their objective was to
put some more excess reserves in - I thought that
335
- 5 -
was it, and you wanted to change the underlying
situation.
Rocles:
There were two reasons, George. One was the psy-
chology of the thing - that out through the banks,
a lot of banks, little fellows that simply just
figured there wasn't any market, and they were
subjected to the propaganda of these dealers and
fellows that were left to run the market. So that
the psychology of the announcement that the Reserve
System was going to do that without question tended
to have an influence.
Haas:
I think that was good. But then, you watch it operate
and see it operate. For instance, your objective was
to increase 300 or 500 million excess reserves. See
8. day when the market - the bottom just drops out, and
you buy some bonds; and then, when the market stiffens
up a little, they sell. The psychology that would
create is terrific.
Eccles:
Of course, you don't want a market to go up too fast
so that others start selling. I mean you don't - for
instance, if the market goes up a half or three
quarters of a point here and there are practically
no offerings, there of course is a danger of & lot
of others who have got a profit in the bonds starting
to sell. You don't want them to break it either.
H.M.Jr:
But what's-his-name won't give them a chance. Let
me ask you what is your position today. How much
have you increased your portfolio? Do you know?
Eccles:
Yes, about yesterday it was around 69 million.
H.M.Jr:
Net?
Eccles:
Yes.
Haas:
I would have sworn before the thing was started that
if that's the way it was to be done, it wouldn't have
any effect at all.
Eccles:
Of course, it has had an effect, George, because your
market today is more than a point above where it was
and it's strong. There's more buyers. The market is
Regraded
336
- 6 -
very orderly, and the selling is practically dried
up. Now, you take - before we acted there was just
selling all over the lot, with no takers. The whole
market WAS just in a state of hysteria almost. Now,
today the psychology has completely changed, and
there's more bids in the market for securities by
far than there are sellers. They are just practically -
selling has dried up, has completely dried up. So
that the market is in an excellent condition at the
moment so far as confidence in Government bonds.
It's entirely changed, and it is extremely orderly.
And I think it would be bad if it went up too fast,
because it would just mean a reaction again, and you
don't want that. I'd sooner see the market work up
slowly back and forth, but on the upside right along,
than to see it go up and then get the darn thing
started down again.
H.M.Jr:
No argument about that.
Eccles:
It's in good shape at the present time. Don't you
think it is, Wayne?
Taylor:
Well, I don't get this play of selling out bonds at
this point, frankly. I mean if there is a demand
for bonds, why, let's find out.
Eccles:
Now, as I understand - I talked to Harrison; he
called me up before he did you - the first I knew
of what had been done. He said that the market had
gone up in this particular issue more than half a
point above last night's close, and last night's
close was - I don't know - seven or eight thirty-
seconds above the opening; so that it was about a
three quarters of a point rise:
H.M.Jr:
From what, from yesterday?
Eccles:
Yes, from yesterday's opening - about three quarters
of a point up. And that this particular issue - that
there were just no bonds in the market, that they
couldn't find any.
H.M.Jr:
Now, what I - - what these boys are getting at is this.
Let's say that the market for the next ten days con-
tinues to rise. Are you going to let these New York
fellows sell off the 69 million and get it right
back to the position of the portfolio, where it was
before, or do you want another couple hundred million
337
- 7 -
in there? That's what we're interested in. We're
not - I've told George Harrison . - I'm on record.
He told me he sold five million when the market
went up on Saturday. I have no objections to that
if there is a real shortage, a technical shortage
in the market. It's all right - I mean for him to
supply & few to take care of it.
But the whole argument and the thing that Ithought
we were all arguing was - the reason that you were
talking to us about putting more gold back was that
we felt that five hundred million dollars wasn't
enough of excess reserves, and that you wanted a
couple hundred million more.
Eccles:
That's right.
H.M.Jr:
Now, the way he's going, knowing that he's opposed
to what we're doing, we feel here if he gets the
opportunity he'll sell the 69 million and get right
back to where he was before.
Golden.:
No, that is not permitted.
Eccles:
He's not permitted to do that,
H.M.Jr:
How much can he sell?
Eccles:
He can't sell any. For instance, when this statement
will be out today - now, he can't reduce that amount
at all.
H.M.Jr:
You mean if it shows 69 million....
Eccles:
That's right, he can't reduce it. In other words,
we freeze it each week.
Golden.:
Can't reduce from one statement to the next.
H.M.Jr:
Well, that's what we're thinking about here, aren't
we?
Taylor:
Well, partly.
H.M.Jr:
Well, say your (Taylor) piece. Say what you said to
me.
Taylor:
Well, I think that this selling when it goes up a
half point is just God damn foolish. When it dropped
338
- 8 -
over a point in one day, that was supposed to be
an orderly market.
Eccles:
No, it wasn't orderly.
Taylor:
Well, it was what we were talking in terms of.
Eccles:
Of course, when they went down on Thursday they
bought about 30 million on the way down.
Taylor:
Fine, add to your portfolio.
Eccles:
Now, on the way up I'm not for selling except where
you get & condition that an order can't be filled.
Taylor:
Well look, Marriner, let it go and they'll switch
to another bond. That's just exactly what you want.
Eccles:
Your idea is that no matter how strong, how fast a
particular issue - - how fast the bond market goes up,
that you ought to go up even if it reacts again.
Taylor:
I mean this business of an individual issue - they
always even out. If one of them goes out of line,
switch to another year.
Haas:
That's how the whole list goes up, Marriner.
Eccles:
of course, I don't want to reduce the portfolio at
all, and as a matter of fact I would like to see the
portfolio, if the market shows any weakness at all,
increased; that was the intent of the open market
operation.
Now, when May first comes, then I think it's going to
be a lot easier to decide where we are, because every-
body will know then what their position is. Today
the banks up there don't know how much balances
they're going to lose, and when that is settled then
I think we can sit down and determine whether or not
we need more reserves in the picture, whether or not
the situation is such as to warrant a satisfactory
basis of financing. That's all I ask for, and if
at that time the situation isn't sufficientlyeasy
to carry out whatever Government financing is neces-
sary, then either the Reserve System should increase
339
- 9 -
its portfolio or the Treasury should - an arrange-
ment should be made where they may deposit some
gold in the System. Now, all I ask for is that
we get over to the May first period, and then we
can - our judgment will be much more accurate.
H.M.Jr:
Well, this is, as I say, in the room here, and we
want you to know - I mean the shock I got this
morning was the idea of George telling me that I
couldn't sell any nine months bills. That's prac-
tically what he told me.
Now, I want to ask you, is it agreeable to you that
we go ahead and offer 50 million nine months and 50
million into September on Monday?
Eccles:
Yes, I don't see that you can do anything else. I
don't think that - I am certainly not in a position
to say to you that you should adopt some other program
at this stage. I think it would be a mistake to shift
from your usual program of a turnover of a nine months
bill, except in relationship to a whole program.
H.M.Jr:
Now, will you bring your boys, the Executive Committee,
down next Tuesday and let's talk about it?
Eccles:
All right. Let's see, Tuesday?
H.M.Jr:
Is that all right?
Eccles:
That will be several days before the offering the
following week.
Bell:
Wednesday.
H.M.Jr:
When do you send the wires out, Wednesday night?
Bell:
Yes.
Eccles:
So what you'd do today is offer
H.M.Jr:
...for Monday.
Eccles:
Next Tuesday, if you came and met, then we'd have
for the
Bell:
For the 28th - in payment for the 28th; your bids
have come in on the 26th.
340
- 10 -
H.M.Jr:
As Wayne says, if you've got a pistol at your head
and decide
Eccles:
Well, Tuesday - make it Monday if you want.
H.M.Jr:
No, by Tuesday we'll have the result of Monday's,
and by Tuesday we'll have the President's budget
message.
Eccles:
When do you want, Tuesday morning or afternoon?
H.M.Jr:
Well, would you went to meet in the morning and
come over here at, say, three o'clock Tuesday
afternoon?
Eccles:
You mean you want us to meet with you at three?
H.M.Jr:
If you would.
Eccles:
All right, that'll be fine.
H.M.Jr:
That will be after the close of the market and
that will be after the budget message is out.
We'll have a day's experience, the whole picture;
the budget message will be out. And if you do a
little work on it, George - maybe Dr. Goldenweiser
do a little work - you (Bell) might have something.
We'll take a look at it.
But I'm not going to have New York tell me that in
one hour I've got to stop this thing. I'm not going
to stand for it. I mean I'm perfectly willing to
sit down and talk things over and think it through.
But to suddenly say I can't - and then he changed and
said I can sell it at three quarters.
Eccles:
I say why in the hell can't....
H.M.Jr:
Supposing we paid one percent.
Eccles:
One percent is too high.
H.M.Jr:
No, but I just say at a price in order to go.
Eccles:
Don't worry about not being able to sell it. All they
want is a little higher price.
H.M.Jr:
de never told me....
341
- 11 -
Eccles:
No, but that's what it is; I know it. What they
want is .75. What they want is three quarters,
and I don't think there is the slightest question
but what they'll sell a nine months bill at three
quarters. I've contended that I thought three
quarters was a little too high, that it ought to
be around .65.
Taylor:
Well, they'll sell them to you at .65.
Eccles:
That's what I figure that they ought to be. But
the question of one issue - it isn't very important.
But I do feel that...
H.M.Jr:
Well, you can't tell. After all, these fellows
aren't going to bid either; they'll have the
President's budget message on Monday.
Eccles:
When will his message go up, Monday or Tuesday?
H.M.Jr:
I think, if we are lucky, Monday noon.
Bell:
Uh-huh.
H.M.Jr:
Is that right?
Bell:
Monday, 12 o'clock, it ought to go. Now, these
bids have to be in by 2 o'clock Monday.
H.M.Jr:
That's all right.
Eccles:
Well, if his message goes up in the morning, it will
still maybe have an influence on the bidding.
H.M.Jr:
One week - I don't want to be on a week-to-week basis.
I mean if I have to, supposing it's three quarters of
a percent for one time. That isn't going to kill us.
I mean I wouldn't want to - I'd hate to do it perma-
nently.
But I mean it would be good all around to have you all
down.
Eccles:
If we can mark time to May first, then we can sit
down and program the thing, because we'll know and
every bank will know exactly where it is. Today
342
- 12 -
they - naturally there is a certain amount of
guessing on it.
Golden.:
It looks as though excess reserves were going to
be rather larger than we expected anyway, because
currency isn't going out as much.
H.M.Jr:
What do you think it will be?
Golden.:
Might be 750 million.
Eccles:
In the meantime, there's no capital market.
Taylor:
Marriner, this appearing on two sides of that market
at the present time - I mean it's not called for.
In the first place, you've got to get strength in
your Government market before you're going to have
strength enough in your corporate market so they can
resume refunding.
Eccles:
That's right. The Government market is out of line
now with the corporate market.
Taylor:
And you've got to get over the shell-shock that the
market had. The only way you can get it over with
is to have a reasonably strong Government market
for a little while here.
Eccles:
Well, you've got - the market is waiting for the
President's message too.
Taylor:
Well, it's anticipating that it's going to be a good
message.
Eccles:
His statement yesterday was the thing that helped
to influence the market this morning. His attitude
in telling everybody to cut expenses was reflected
on that thing immediately.
Haas:
Of course, you can neutralize it all, though, if they
sell.
343
MEMORANDUM
April 14, 1937
To:
Secretary Morgenthau
From: Dr. Burgess
Treasury bonds showed opening gains of up to 1/4 of 8.
point, and aside from a brief reaction in the middle of the
forenoon the market tended higher most of the day on size-
able volume. Treasury bonds closed approximately at their
highs, generally 1/8 to 3/8ths above yesterday. Gains in
the guaranteed list ranged somewhat smaller. Board turnover
of Treasury and guaranteed bonds was $3,847,000 compared with
$1,432,000 yesterday. The note market was firm all day and
closing quotations showed gains of from 1/32 to 8/32.
Domestic bonds were higher and quite active at the open-
ing, prices advancing further during the forenoon. At the
close the market was slightly off from its highs. Gains in
second grade bonds averaged about 1 point; high grade bonds
were up on the day about 1/2 point.
Foreign bonds were quiet and steady. Japanese issues
showed fractional losses; Polish bonds were fractionally
better.
Sold today $3,000,000 3 1/4% Treasury notes due
September 15 for account of the Postal Savings System.
344
April 14, 1937.
12:44 p.m.
H.M.Jr:
How are you?
Alfred A.
Cohn:
Fine, thank you, and you?
H.M.Jr:
I'm pretty well. I wondered if you could do something
for me - ah - personally - hello
C:
Yes indeed.
H.M.Jr:
Ah - I'm thinking confidentially of taking my family
to Hawaii the end of July and staying there for the
month of August. Now I notice that one week they
sail from Los Angeles - another week they sail from
San Francisco - the Matson Line.
C:
Yes.
H.M.Jr:
Do you know the people on the Matson Lines?
C:
Yes very well.
H.M.Jr:
You do. Well I wonder if you could talk to them
and tell them confidentially it's for me - hello
C:
Yes.
H.M.Jr:
And that I'd like to have reservations for the end
of July for - to go to Hawaii, stay there a month
and then come back, you see?
C:
Well you'd want to go on the Lurline, wouldn't you?
H.M.Jr:
Well isn't that the Matson Line?
C:
Yes, they have the Lurline and the Malola that run
to Honolulu.
H.M.Jr:
Yes.
C:
The Lurline is the better ship of the two
H.M.Jr:
Well I don't know just when
C:
and that sails from here.
345
- 2 -
H.M.Jr: Pardon me?
C:
And that sails from here.
H.M.Jr: Yes well I've got the thing in front of me. She goes -
the Loline goes July 23d.
C:
Yes.
H.M.Jr:
That would be just about when we want to go.
C:
Ah-ha.
H.M.Jr: And - ah - ah - - let's see - July 23d - is that the best
boat ?
C:
That is by far the best.
H.M.Jr:
Well now let's see - if we went on July 23d and the Lureline
leaves - ah - there August 28th that would be just about
right - leaving Honolulu on August 28th.
C:
Yes.
H.M.Jr:
You see? That would be just about right.
C:
That would be just right.
H.M.Jr:
Leaving, say, on the 23d from Los Angeles - does she
go up to San Francisco then or not?
C:
No I think that sails direct from here.
H.M.Jr:
Ah-ha - well you could look it up.
C:
Yes but I'm sure of that.
H.M.Jr:
Yes that would - and then leaving - ah - ah - Honolulu
on the 24th - on the 28th.
C:
Yes.
H.M.Jr:
The Loline - is that the best boat?
346
- 3 -
C:
Oh it's (fade out for about two lines)
H.M.Jr:
So I suppose we'd need three cabins - hello
C:
Yes.
H.M.Jr:
Now would you - could you find out for me and tell
them I - I don't want - I want to keep it a secret
because I don't know yet whether I can go or not, see?
Would you mind handling it for me?
C:
My dear, what sort of an accommodation would you want?
H.M.Jr:
Well I want the best they've got.
C:
Yes.
H.M.Jr:
I mean I'm going personally - I mean I'm - - the government's
not paying it - I'm paying it.
C:
Yes.
H.M.Jr:
So I'd like whatever they've got.
C:
Well I'll tell you - I'll get on that right away because
I know they're pretty well booked up all summer.
H.M.Jr:
Ah-ha.
C:
And I'll let you know .
H.M.Jr:
Ah - you send me a letter air mail.
C:
I'll do that. I'll let you know sometime to-day.
H.M.Jr:
What do you do - well I'll leave it to you and if you'd
send me a letter air mail - I mean
C:
What is it? Is it your wife and
H.M.Jr:
My wife - ah - I have two boys - my daughter - she most
likely will have a companion, you see?
C:
I see. Well it's just your family then.
347
- 4 -
H.M.Jr: It's - oh yes, just my family.
C:
Ah-ha. Then you'd want accommodations for yourself
and wife and two boys and a girl and a companion for
the girl.
H.M.Jr:
That's right.
C:
Well I think we can fix that up.
H.M.Jr: And, as I say, I don't know - well you talk to them
and see what they've got and then if they'd mark be
accommodations on a - - on a map of the steamer, you see....
C:
Yes.
H.M.Jr:
.......and - ah - - send it to me.
C:
Yes, I'll get that for you, Mr. Secretary.
H.M.Jr:
Well then we'd sail from Los Angeles?
C:
Yes.
H.M.Jr:
I'd appreciate it.
C:
I'll get after it right away.
H.M.Jr:
How is everything else?
C:
Oh fine, thank you, we're doing a terrific business
out here.
H.M.Jr:
Good. I knew you wouldn't mind doing it for me.
C:
Oh not at all. It's a pleasure to do it.
H.M.Jr:
Thank you.
C:
All right, goodbye.
April 14, 1937
For the Secretary:
I spent the morning with the President of the Federal Reserve Bank
here in Minneapolis, He has seven or eight officers who spend a good deal
of their time travelling throughout the district calling on the member banks,
They all came in and discussed for an hour the information and the impressions
they get on these recent trips. The President and the First Vice President and I
had an extended luncheon conversation. In the afternoon I spent more than an
hour with Wakefield of the First National Bank, The rest of the afternoon was
spent with the President and the Pecretary of the Minnesota Independent
Bankers Assoication, country bankers who happened in the Reserve Bank, The
Secretary is the man whom Leo Crowley bold me to be sure to 800 out here.
Tomorrow I am going with one of the Reserve Bank officers on an authmobile trip
to visit ten or twelve country benkers West of Minneapolis.
There appears to be very little apprehension among the bankers, large or
small in this district, about the market for Government bonds. There has been
very little panic selling. There has been some smart selling beginning back in
December. There has been nome selling to get reserves for the May increase,
There would be some buying if the yield got to three per cent. One or two
are fairly fearful of real difficulties ahead and see the possibilities of
a bank panic. but are far from jittery about it. They have felt all along
thr ughout the district and have talked it that Governments were too high and that
they would have to come down. They are surprised that it did not come sooner.
They do not Bee in the bond market any indication that the credit of the
Government is failing, but most of them do feel that the point has just about been
reached where there must be a reversal of Government spending. They are pretty
uniformly of the opinion that it is easential that the budget be balanced and that
Government deficits be ended.
2
349
There 10 very great dissatisfaction with the Supreme Court proposal, it
being reported to me that almost no one, bankers or others, favors the action
proposed by the President. There is the greatest dissabisfaction and criticism
of WPA and relief generally, mush more so than when I was here two or three years
ago. No one fails to talk about the laughable projects, the loafing that is done
on NPA, how difficult it is to get people off, how they are coming to depend on
the Government for better wages than they ever had and better than many working
men are getting. While it is admitted that relief is always difficult of
administration and isolated examples of abuse can be gl en, even some of the
enthusiastic New Dealers say that the situation is diagraceful.
It is said that soil conservation is doing some good out in the Western part
of the district, but that in Minnesota especialit and to some estent in South
Dakoya, it is & joke, and openly joked about by the farmers themselves, The
farmers, for instance who have always been good farmers and rotated alfalfa for
the good of the soil, get no benefits, but the farmers who have not done no, the
poor farmers, are getting paid now for putting in alfalfa as they should have
done long ago, In some communities the farmers are getting more than they
expected and in some less. Where they get more thay talk about Santa Claus, and
where they get less, they complain about Santa Claus. There is very little
belief in efforts in aid of tenant farmers or work by Resettlement. A farmer of the
best nort has to work hard to break even 101 alone make any money. Tet the
Resettlement comes in and gives the very worst sort of farmer machinery, animls,
and seed, with which he is usually unable to even make & living. There are not 80
many to defend the Government as two years ago, even the beneficiaries being
ungrateful or convinced that the Government policy is disastrous. Ben DuBois,
the Sauk Centre independent banker and postmaster pute up the defense that there
would have been revolution if the Government had not acted, and that people cannot
be allowed to starve. There is a very widespreed feeling that the President has
done a great deal of harm with too free talk about the abundant life and better
Regraded Uclassified
3
350
things for everybody, and that he has gotten the poeple in the frame of mind that
these things are theirs by right and that they must and can have them and that
the Government will pay for them, Even those who agree that the President has
done great things and that his objective was all right are now of the opinion
that there must be a movement in the other direction. They feel this very
strongly apparently.
The bankers to whom I talk seem convinced, as they did in Chicago, that the
price of gold is too high, that the stimulated new production is causing an upset
in the plans of Professor Warren, even if they had worked otherwise. There is
much talk about us getting all the gold and others abandoning it. Some man from
the Bank of E ngland has been all through here preaching a lower price for gold
and indicating that all Europe is for it. It is difficult to make them believe
that there will not be & reduction in the price. They regard it B.S. inevitable,
whether Washington yet knows that it must come or not.
There is very much praise of both the Treasury and the Federal Reserve System
for the way the financing and credit control has been handled to date. The
country bankers seem impressed and disturbed by the increase in the mumber of
statements and conflicting statements that come out of Washington. They would
like to see fewer of them, and get the impression that all Washington is
jittery and that no one knows quite what to do or quite what he is doing. By
statements they mean reported quotations dna attributed statements by Treasury
officials and Reserve offecials, Some suggest that there be no such things as
press conferences or press statements. At the same time they praise very highly
the March 16 statement of Eccles, agree with it, says it took courage to come
out with it at that time, that it should have been done sooner, and that they
hope it has an effect. Many of the banks have written their bonds down to
levels lower than those now prevailing in the market, and would not worry to
see them lower. Even those that have not been BO conservative seen willing to
carry their to maturity, and not seal in panic even on lower quotations,
Regraded Iclassified
351
The federal reserve bank in this district is losing some members, and very
few of the banks which are not members are remitting at par. That seems to be A very
live issue at the present time, The banks are very much opposed to the postal
savings system, and would like to see the Government permit the System to accept
no more deposite. Oa the other hand, they are very favorable to the United States
Savings Bonds, and would like to see the $10,0000 yearly limit raised. They feel
that a bond with a such & yield but which cannot be sold or transferred and 80
for which there are no markets and no quotations is a very good one for the
investor and for the Government.
Minnesota 1s pretty radical politically and sort of overshadows the Federal
Government in local thinking just now. There is very great resentment over the
Roosevelt alliance with the peamit politicians of the Farmer Lahor party. The
recent excesses of the Peoples Lobby and its condonement by Governor Benson are
arousing great indignation. Governor enson seems to have very harsh ideas
about taxation to get the money for his program, and it 16 said many industries
are leaving the state, There is not so much complaint about the burden of Federal
taxesas such, but the combination of Federal state and local is causing & lot
of complaint. Evidences are cited of suppressed business and individual
initiative, and the shortage of income taxes in March is attributed by some to
overtaxation.
There is considerable interest in the activities of Congressman Patman, and
I am questioned about the chances of his proposal to buy the reserve banks. Tue
bankers are for the most part in favor of an independent central banking system.
No one out here seems to feel that the Treasury should be concerned at all that
a March 15 bond issued over par is now selling below. There sooms to be no feeling
at all that the Government owes any duty to support the market or keep that issue
from sliding off. They take the attitude that there sould have been no looking
ahead on March 15 to the series of events that caused the slump, that the risk and
responsibility was the buyers just as in the case of any other buyer, that there
Regraded Uclassified
5
352
is no analogy to the flotations of securities by investment syndicates, and
that the bonds should be allowed to seek their natural level. There is some
feeling that there should be no investment funds in the Treasury and that their
existence has kept the market level higher than it should have been maintained,
The almost universal view out here is that we are sure to have a three per cent yield
and the Treasury and the Reserve System might as well recognize it, and not try
to prevent it, At the same time there seems no resentment about sliding bond
prices, and no panic. The wonder is that they did not slide earlier and have not
slid lower.
There is some amusement in Minneapolis over the fact that on the day
Governments slid two points below par, the Comptroller of the Currency made a
speech in this city stating that Governments could not go below par, and stating
futher that the reserve banks are required by law always to lend par on them.
Both statements are of course incorrect.
I am repeatedly asked where the Treasury gets its economic advice, and if
Professor Warren is still a Treasury adviser.
After being in the feeld visiting e ountry banks tomorrow, I shall do some
more Minneapolis and St. Paul visiting Friday. Mr. Peyton has a group of men
from Twin City banks who regularly visit country banks coming in for lunch Friday.
Upm
BECEINED
voet DI 89A
- -
panel visit n47 to visa
Regraded Uclassified
353
April 14,1937
This is Bell's #1 draft of the Budget Message.
Regraded Uclassified
aprial37
Dhaft I
Wid P.354
In ay budget message of last January I stated that I
planned to transmit at a later date an estimate of appropria-
tion for work relief during the fiscal year 1938. In con-
nection with the trensmission today of this estimate it is
important to review the budget situation for the fiscal years
ending June 30, 1937 and June 30, 1938, in the light of the
March 1937 tax returns and the actual expenditures for the
first nine months of the present fiscal year.
Fiscal Year 1937
Receipts- The estimates of revenue for the fiscal year
1937 were necessarily based to a large extent on the Revenue
Act of 1936. This Act made material revisions in the tax
structure because of which there was DO adequate experience
which could be used as a satisfactory guide in formulating the
estimate of income taxes. The analysis of returns received
is March 1937 indicates that income taxes will produce
Regraded Uclassified
355
+
$2,105,700,000 in 1937, or $267,200,000 less than the estimate
for that year in the 1938 Budget.
Based on collections for the first nine months of this
fiscal year it is now estimated that other revenues will amount
to $3,100,800,000, or $354,500,000 less than the estimate, which
reduction is due in large part to pending litigation.
The net reduction in revenue estimate for the fiscal year
1937 will therefore amount to $621,700,000.
Excenditures- In view of this reduction in revenue it
became apparent that every effort should be made to offset this
loss as far as possible by a reduction in expenditures. To
this end I addressed & letter to the heads of various Government
activities directing them to make a careful examination of their
expenditure requirements for the last three months of the present
fiscal year with a view to making substantial savings by eliminat-
ing or deferring all expenditures not absolutely necessary during
Regraded Uclassified
356
this period. Information thus far available indicates that
expenditures for the year, exclusive of statutory debt retire-
ment, can probably be reduced $280,000,000 below the estimate
contained in the 1938 Budget.
Deficit- The amount of the net deficit for the fiscal
year is estimated at $2,588,252,300, an increase of $340,123,526
over the estimate contained in the 1938 Budget.
Fiscal Year 1938
Receipts- For the fiscal year 1938 it is now estimated
that there will be receipts of $6,874,200,000, or $419,400,000
less than was anticipated last January. Of this loss $410,000,000
represents a reduction in the estimate of income taxes.
Expenditures- In advance of the enactment of the 1938
appropriation bills it has been impossible to make any material
revision of the estimates of expenditures for that fiscal year,
other than those for statutory debt retirement, and for recovery
and relief.
Regraded Uclassified
357
In my message of today on the latter subject I as recom-
mending an appropriation of $1,000,000,000 to provide for the
continuation of the work relief program from July 1, 1937, to
March 1, 1938. Prior to this latter date I propose to review
the unemployment situation to determine the additional amount
required to carry the work relief program for the last four
months of the fiscal year. My present opinion is that the
additional amount required for this purpose for the belance of
the year will not exceed $500,000,000.
Deficit- While the revised estimates of receipts and
expenditures for the fiscal year 1938 as here presented
indicate an estimated net surplus of $67,215,000, the probable
expenditure of an additional amount of $500,000,000 for recovery
and relief would result in a net deficit of $432,785,000, unless
other costemplated expenditures are reduced or additional
revenue is provided.
Regraded
358
Debt Retirement
In the revised tables of expenditures, providion has been
made for the expenditure of only $100,000,000 in each of the
fiscal years 1937 and 1938 for statutory debt retirement. Às
long as expenditures exceed receipts by more than the amount
for debt retirement, the expenditure of funds for this purpose
has no effect on the total public debt. For the fiscal year
1939, however, ve should provide for & completely balanced
budget, including provisions to meet the statutory debt retire-
ment liabilities accruing in that year. It should be possible,
moreover, to begin in that year the reduction of the debt retire-
ment liabilities that have accrued during the preceding three
years.
359
Future Fiscal Policy
I wish to emphasize here what I said in January with
respect to our future policys
"Expenditures must be planned with a view to
the national needs; and no expansion of Government
activities should be authorised unless the necessity
for such expansion has been definitely determined
and funds are available to defray the cost. In
other words, if new legislation imposes any sub-
stantial increase in expenditures either in the
expansion of existing or the creation of new activities,
it becomes a matter of sound policy simultaneously to
provide new revenue sufficient to meet the additional
cost."
Bills being pressed for enactment during the present Congress
would commit the Government to early expenditures of more than
$5,000,000,000. About $3,000,000,000 of these authorizations
are for the construction of additional public works, even though
there are existing authorisations of almost $2,000,000,000 for
this purpose. In the Budget for the past three years I have
set up a program for general public works and I have announced
that I propose to keep such a program within the limit of
$500,000,000 & year. An annual program of this sise should meet
Regraded Uclassified
360
+
all normal needs for highways, flood control, rivers and harbors,
reclamation, Federal buildings, and other public works.
I recognise the need for the development of a program for
flood prevention and control but it should be realised that it
would be impracticable for the Federal treasury to finance such
immediate expenditures as are contemplated by the majority of
the flood control bills nov pending in Congress.
Bills involving additional authorisations of more than
$500,000,000 for highways have been introduced despite the fact
that expenditures for this
Regraded
361
+
purpose during the last four years have exceeded one billion
dollars and that there are existing outhorisations for expendi-
450
tures during the next two years of nearly $500,000,000.
Another sajor class of pending authorizations is that pro-
viding grants and aids to States or to certain groups classes of citi-
without any thought of increasing the revenues therefor
sens. Principal among these bills is one providing for educational
n
aid to States for the This bill commits
the Government to enter 4. new field of expenditure heretofore
reserved exclusively to the States, at & cost of $100,000,000 for
the first year and an annually increasing cost until within a
few years $300,000,000 will be paid to the States each year for
this purpose. There is no companion bill increasing the revenues
of the Government in the name amount.
Bills to aid agriculture are pending in Congress which would
add $390,000,000 150 to the 1938 expenditures of the Federal Government
despite the fact that the Government will spend in 1938 for the
362
benefit of the farmer more than $600,000,000, aside from the
benefits he derives from the construction of additional highways.
Buserous bills have been introduced for the purpose of
providing additional compensation to veterans and their dependents.
In the fiscal years 1936 and 1937 expenditures of nearly $3,500,000,000
very ande for payment of adjustedcompensetion and other benefits to
voterans.
The maintenanco of a sound fiscal policy requires the cereful
pleaning of authorisations as well as approprialions. It is
impossible to maintain the propor balance between revenues and
expenditures unless there 10 a control end restraint exergised
w the Legislature with respect to authorizations of approprie-
Mons. It is & matter of concern to all of us who are working
for a balanced budget that organisations, associations, and other
groups persist in their efforts to bring about increases in the
Government expenditures. These pressure groups pay little
attention to the fast that the budget, as submitted, represents
Regraded Uclassified
383
a coordinated fiscal progrem and that material departures there-
from destroy the whole purpose of the progres. If we are to
avoid a continuation of deficits, Congress must resist these
importunities or provide the necessary revenues to meet the in-
creasing costs.
(AA out
It has become apparent that there is an immediate need for
a careful survey by the Congress of the present tax structure
with a view to preventing loss of revenue through such loop-
holes as my now exist as well as simplifying the present tax
laws. The Congress should also give careful consideration to
new or additional taxes necessary to meet any deficiencies in the
revenue-producing power of the present levies. This study should
be undertaken sufficiently in advance of the presentation of mest
year's budget, say November, in order that revenue measures may
be considered in commestion with the appropriations to be provided
for the fissel year 1939.
Regraded Uclassified
draft
Theres day P.M.
by Bell
white House 364
In my budget massage of last January I stated that I
planed to transmit at a later date as estimate of appropria-
tion for work relief during the fiscal year 1938. In 001>>
nection with the transmission today of this estimate it is
important to review the budget situation for the fiscal years
ending June 30, 1937, and June 30, 1938, in the light of the
March 1937 tax returns and the actual expanditures for the
first nine months of the present fiscal year.
Resiste- The estimates of revenue for the fiscal
year 1937 varo necessarily based to a large extent on the
Revenue Ast of 1936. This Act made material revisions in
the tax structure and for this reason there was - adequate
experience which could be used as a satisfactory guide in for-
misting the estimate of income taxes. The analysis of returns
reselved in Hereh 1937 indicates that income taxes will produte
365
-2-
$2,105,700,000 in 1937, or $267,200,000 less than the estimate
for that year in the 1938 Budget.
Based on collections for the first nine months of this
fiscal year it is now estimated that other revenues will amount
to $3,100,800,000, or $354,500,000 less than the estimate, which
reduction is due in large part to pending litigation.
The reduction in revenue estimates for the fiscal year
1937 will therefore amount to $621,700,000.
Proenditures- In view of the reduction in revenue it
became apparent that every effort should be made to offset this
loss as far as possible by a reduction in expenditures. To
this end I addressed a letter to the heads of various Govern-
sent activities directing them to make a careful examination
of their expenditure requirements for the last three months of
the present fiscal year with a view to making substantial
savings by eliminating or deferring all expenditures not
Regraded Uclassified
366
-3-
absolutely necessary during this period. Information thus
far available indicates that expenditures for the year, exclusive-
of statutory debt retirement, can probably be reduced $280,000,000
below the estimate contained in the 1938 Budget.
Deficit- The amount of the net deficit for the fiscal
year is therefore estimated at $2,588,252,300, an increase of
$340,123,526 over the estimate contained in the 1938 Budget.
Fiscal Year 1938
Receipts- For the fiscal year 1938 it is now estimated
that there will be receipts of $6,874,200,000, or $419,400,000
less than was anticipated last January. Of this loss
$410,000,000 represents a reduction in the estimate of income
taxes.
Excenditures- Pending the enactment of the 1938 ap-
propriation bills it has been impossible to nake any material
revision of the estimates of expenditures for that fincel year,
other them those for statutory debt retirement and for recovery
and relief.
Regraded Uclassified
367
In my message of today on the latter subject I as recom-
mending an appropriation of $1,000,000,000 to provide for the
contimuation of the work relief program from July 1, 1937, to
March 1, 1938. Prior to this latter date I propose to review
the unemployment situation to determine the additional amount
required to carry the work relief program for the last four
months of the fiscal year. My present opinion is that the
additional amount required for this purpose for the balance
of the year will not exceed $500,000,000.
Deficite- While the revised estimates of receipts and
expenditures for the fiscal year 1938 as here presented in-
dicate an estimated net surplus of $67,215,000, the probable
expenditure of an additional amount of $500,000,000 for recovery
and relief would result in a net deficit of $432,785,000. I
propose to use every means at my command to eliminate this
deficit. I expect to accomplish this by taking definite
368
action at the beginning of the next fiscal year to withheld
from apportienment for expenditure a substantial persentage
of the funds available for that year and to increase the
receipts of the treasury through the liquidation of assets of
certain of the energency agencies.
Debt Retirement
In the revised tables of expenditures, provision has been
made for the expenditure of only $100,000,000 in each of the
fiscal years 1937 and 1938 for statutory debt retirement.
These amounts are included to cover payment of Treasury bonds
and Treasury notes presented for redemption in cash during
these years. As long as expenditures exceed receipts by more
then the amount for debt retirement, the expenditure of funds
for this purpose has no effect on the total public debt. For
the fissel year 1939, however, W should provide for a completely
balanced budget, including provisions to meet the statutery debt
retirement lisbilities accruing in that year. It should be
Regraded Uclassified
369
possible, mereever, to begin in that year the reduction of the
debt retirement liabilities that have secrued during the pro-
eeding three years.
Public Debt
Regraded
370
+
I wish to emphasise here what I said last January with
respect to our future fiscal policy:
"Expenditures must be planned with a view to
the national needs; and no expansion of Government
activities should be authorised unless the necessity
for such expansion has been definitely determined
and funds are available to defray the cost. In
other words, if new legislation imposes any sub-
stantial increase in expenditures oither in the
expansion of existing or the creation of new ac-
tivities, it becomes a matter of sound policy
simultaneously to provide new revenue sufficient
to meet the additional cost."
Control of Legislative Authorizations- Bills being pressed
for enactment during the present Congress would commit the Govern-
ment to early expenditures of more than $5,000,000,000. About
$3,000,000,000 of these authorizations are for the construction
of additional public works, evon though there are existing
,
authorisations of almost $2,000,000,000 for this purpose. In the
Budget for the past three years I have set up e program for general
public works and have announced that I propose to keep such a pro-
grea within the limit of $500,000,000 & year. An annual program
of this sise should meet normal needs for highway, flood
Regraded
371
control, rivers and harbors, reclamation, Federal buildings,
and other public works.
I recognise the need for flood prevention and control
but it should be realised that to finance such large immediate
expenditures as are contemplated by the majority of the flood
control bills now pending in Congress would impose an unjusti-
fishle burden upon the Federal Treasury.
Bills involving additional authorisations of more than
$500,000,000 for highways have been introduced despite the
fact that expenditures for this purpose during the last four
years have exceeded one billion dollars and that there are
existing authorisations for expenditures during the next two
years of nearly $450,000,000.
Another major class of pending authorisations is that
providing grazte and aids to States or to certain groups of
citizens without any thought of increasing the revenues therefor.
372
Principal among these bills is one providing for grants to
States for educational purposes. This bill would commit
the Government to a new field of expenditure heretofore 00-
eupied exclusively by the States, at a cost of $100,000,000
for the first year and increasing annually to $300,000,000.
Bills to aid agriculture are pending in Congress which
would add $200,000,000 to the 1938 expenditures of the Federal
Government despite the fact that the Government will spend
in 1938 for the benefit of the farmer more than $600,000,000,
asido from the benefits he derives from the construction of
highways.
Numerous bills have been introduced for the purpose of
providing additional compensation to veterans and their
dependents. In the fiscal years 1936 and 1937 total a
ponditures of nearly $3,500,000,000 were made for payment of
adjusted compensation and other benefits to veterans.
Regraded
Iclassified
373
-10-
The maintenance of a sound fiscal policy requires the
careful planning of authorisations as well as appropriations.
It is impossible to maintain the proper balance between revenues
and expenditures unless restraint is exercised by the Legisla-
ture with respect to authorizations of appropriations. It
is a matter of concern to all of us who are working for &
balanced budget that organisations, associations, and other
groups exert the strongest pressure to bring about increases
in Government expenditures. These pressure groups pay little
attention to the fact that the budget, as submitted, represents
a coordinated fiscal program and that material departures
therefrem destroy the whole purpose of the program. If we
are to avoid a continuation of deficits, Congress must resist
these importunities or provide the necessary revenues to meet
the increasing costs.
Regraded
Uclassified
-11-
374
Tax Study- It has become apparent that there is an in-
mediate need for a careful survey by the Congress of the
present tax structure with a view to preventing loss of
revenue through such loopholes as may now exist as well as
simplifying the present tax laws. The Congress should also
give careful consideration to new or additional taxes neces-
sary to meet any deficiencies in the revenue-producing power
of the present levies. This study should be undertaken
sufficiently in advance of the presentation of next year's
budget, say November, in order that revenue neasures may
be considered in connection with the appropriations to be
provided for the fiscal year 1939.
Treasury Department
D
sion of Research and Statistics
Date April 14
1937
To:
Secretary Morgenthau
From: Mr. Haas MA
Regraded Uclassified
DISTRIBUTION or PROGRAL
21 Piscal Tears on basis of daily Treasury statements
(In millions of dollars)
:
:
1937
:
1938
I
:
1933
1934
1936
July I
:
April 1
L
1935
I
:
to
Total
Budget
to
Notimate
I
1
I
Mary 31
June 30
:
last. Conservation work
,
-
:
331.9
435.5
486.3
282,6
85.2
368.0
330.0
-
:
:
Public highways
I
178.2
267.9
317.4
243.9
294,7
71,2
365.9
269.9
I
I
Public buildings
#
105.9
78.7
58.1
67.9
58.4
26.0
64.4
52.1
1
Rivers and harbors
I
118.4
#
150.8
203.0
223.7
164.9
46.0
230.9
178.3
I
-
1
Reclamation projects
1
25.2
24.7
40.9
49.8
39.0
26.7
67.7
57.6
I
,
Civil Works Atm.
1
-
I
605.1
11.3
-7
.2
,3
-5
-
:
:
Public Works A/m.
4
-
156.2
:
224.9
94.4
215.7
57.3
306.0
:
214.0
I
Works Progress Adm.
:
-
I
-
-
1,263.7
1,468.1
431.9
1,900.0 ₫
1,500.0
:
Agricultural payments
:
-
I
290.2
523.6
545.6
361.4
121.7
483.1
I
498.9
:
Resettlement Ma. (including
E
1
subsistence homesteads)
- :
2.4
5.4
138.0
136.1
16.8
152.9
30.9
1
:
1
Tennessee Valley Authority
:
-
I
11.0
36.1
48.8
31.6
16.4
46.0
49.0
1
Federal Mor. Ral. Adm.
I
37-9
707.3
1,821.0
495.6
10.9
-1
11.0
-
:
Social Security Act -
:
:
:
Grants to States
:
-
3
-
-
:
27.8
122.2
31.5
153.7
272.2
:
:
Commodity Credit Corporation
I
-
:
164.3
a 60.1
:
129.7
A
76.4
I 48.6
$ 125.0
& 30.0
:
:
Other
I
34.8
27.6
118.6
A 14.0
2.2
6,6
6,5
.
5.0
Sub-total
#
500.4
I
3,018.3
1.
4,035.7
1
3,801.9
t
3,134.8
921.1
4,055.9
2
3,434.9
Departmental
1
497.5
339.1
354.6
437.8
376.0
160.7
558.7
:
563.0
:
1
Postal deficiency
117.4
52.0
64.0
56.0
32.6
17.7
50.3
30.8
1
I
:
Social Security Act -
:
1
:
:
il
:
01d Age Reserve Account
I
1
-
1
-
:
-
135,0
90.0
225.0
540.0
-
:
I
1
:
National defense:
:
:
:
377.6
393.5
Army
:
318.3
205.3
212.2
373.0
269.3
108.3
E
Bary
I
349.6
274.4
321.4
391.4
358.1
152,2
510.3
1
587.3
:
:
I
Teterane' pensions and benefits
:
763.2
506.5
555.6
576.0
433.0
155.8
588.8
567.5
Veterans' Adm.
44J. Bar. Otf. Fund
: 100.0
50.0
50.0
1,773.5
56.0
507.5
563.5
-
:
1
Debt' chargest
:
461.6
359.9
573.6
403.2
79.2
325.3
404.5
401.5
Retirements
Interest
#
689.4
756.6
820.9
749.4
595.7
239.3
835.0
560.0
:
70,3
1
62.7
45.2
44,2
33.4
14.8
48.2
52.9
Refunds of receipts
E
:
«2
47.6
46.0
60,6
46.9
23.0
69.9
I
24.0
Federal Land banks
t
a
1
44.0
75.7
37.4
20,7
4.7
25.4
-
Home loan system
1
I
192.2
1
-
I
-
:
15.0
14.5
13.1
1,9
15.0
16.0
Federal Housing Adm.
:
1
1,121.4
:
584.6
A
141.9
238.7
A
334.0
A 91.0
425.0
a 150.0
Reconstruction Finance Corp.
:
Public Works - Recovery
:
:
:
-
I
123.6
260.0
327.1
228.5
35.8
264.3
48.7
and Relief
110.0
532.3
64.8
52.5
40.7
272.7
113.4
267,9
Other
:
4,642.5
4,066.8
a
3,340.1
: 5,077.9
I
2,386.2
2,038.7
4,424.9
a
4,223.1
Bub-total
:
:
:
5,142.9
I
7,105.1
I 7.375.8
:
8,879.8
1
5,521.0
2,959.8
5,480.8
-
7,658.0
GRAND TOTAL
Recoverables
:
943.0
I
1,620.0
2
217.0
I
94.0
347.0
A 79.2
425.2
I 122.2
5,907.0
:
7,780.2
NOT
#
4,199.9
:
5,485.1
I
7,138.8
-
5,973.8
-
5,866.0
3,039.0
a Brones credits, defact.
V Includes @GOM from supplemental items.
2/ Includes $500M from supplemental item.
Includes 81,500M for Tarks Progress not included in the
ACCOUNTS AND IMPORTS
April 13, 1937
Regraded Uclas
376
April 14, 1937.
12:05 p.m.
H.M.Jr:
Hello
Operator:
Governor Harrison calling.
H.M.Jr:
Thank you.
0:
Go ahead.
Harrison:
Hello
H.M.Jr:
Hello
H:
Well Henry I've just made a quick conference with
the men here in the bank; I haven't gone outside at
all.
H.M.Jr:
Yes.
H:
And they say that the facts remain, as I told you,
that the nine months is - ah - is sticky. There is
some demand for the shorter bills.
H.M.Jr:
Yes.
H:
Madison's guess is that the nine months bills - ah -
this next week might go for around 70 to 75 - at
least higher than last time
H.M.Jr:
Yes.
H:
But, of course, I don't know exactly how pressing
your needs are and how much or how rapidly you need
the funds, but my suggestion would be if you could
afford it I'd go only 50 millions this week and I'd
make them the September bills.
H.M.Jr:
No, I won't do that.
H:
And - well then, the - ah - an - ah - the six months
bills - I mean the nine months bills will go but
they'll probably go at a little higher price because
they've become unpopular. A lot of banks have been
talking about it and they - apparently, what's happen-
ing is this - that they are preferring to go into your
shorter notes or some of your notes - at 1-1/4 we'll
say.
H.M.Jr:
Yes.
Regraded Uclassified
377
- 2 -
H:
Then to take a nine months bill at 70.
H.M.Jr:
Well I've - I've ad justed myself, since last November
with the Federal Reserve so they could get ready and
do this increased reserve requirements. I let my bal-
ances go down from a billion to around five - six
hundred million. I'm through ad justing myself to the
Federal Reserve; I'm going to run the Treasury the way
I always ran it.
H:
Yes? Well I'm not asking you to adjust yourself to
the Federal Reserve.
H.M.Jr:
No, well I'm not going to.
H:
Well I'm not suggesting that.
H.M.Jr:
No, but I mean this suggestion that I - I should not
take a nundred million next week when we need it.
H:
No, now weit B minute - ah - you asked me E few minutes
ago to call you back as to what my advice was.
H.M.Jr:
Yes.
H:
And I said, without knowing what your requirements were,
I think the best thing would be 50
H.M.Jr:
Yes.
H:
.....but if you need more then I say you'll have to
pay probably around 75 for your nine months bills.
H.M.Jr:
Well -
H:
Now that's just a guess - we may be all wrong.
H.M.Jr::
Yes
H:
But I'm not - I'm not - - I'm not urging you - ah - not
to do - raise the money that you need at all. I don't
know that.
H.M.Jr:
Well we need it.
Uclassified
- 3 -
378
H:
Well then if you need it then I think that your
nine months bill will - will go but it will go
at a little higher price than it did this last
week.
H.M.Jr:
Yes, well the main thing is that it goes.
H:
Yes.
H.M.Jr:
Ah - for the time being - I mean the rate thing is
out of my hand - I can't control and never
H:
You wouldn't consider & six months bill there.
H.M.Jr:
Well I don't think - I don't - we'd have to take
three or four days or 2 week to think it over
H:
Ah-ha.
H.M.Jr:
and before we'd make a move like that I'd ask
Eccles to bring down the Open Market Committee.
H:
Yes. Well I really think that that would be a good
thing to do pretty soon anyway.
H.M.Jr:
Well I'm perfectly willing to talk about it but be-
tween now and 5 o'clock we've got to get our wires out
H:
Yes.
H.M.Jr:
....and the first that I knew that these nine months
were sticky was when I talked to you about twenty
minutes ago. I mean I didn't know that they were
sticky - to-day is Wednesday - I didn't know anything
about it
H:
Yes.
H.M.Jr:
and I'm not going to change my policy in an
hour. I mean I want to give it careful consideration
and if we're going to have trouble with bills maybe
I'd come out with 8 regular issue.
H:
Yes, but we don't have to do that.
H.M.Jr:
Well I mean I'm (laughs) I'm - I'm - from now on I'm
going to take the money I need and I'm going to go back
and be comfortable. I'm not going to be worrying about
week to week whether I can raise 50 million or a hundred
million dollars. I mean I never should have let the
379
- 4 -
balances go down; I did it to help out and I'm not
going to do it again.
H:
Yes.
H.M.Jr:
I mean from now on I'm going to
H:
Well don't - don't misunderstand me; now I'm not ask-
ing you to do anything; you asked me what I thought
about it.
H.M.Jr:
I know but I mean I made a mistake and I realize it
now. I mean I always had enough money so I didn't
have to finance for three months and I'm going to
put the Treasury back in that position so that we're
money easy.
H:
Yes.
H.M.Jr:
And it's the first time I've ever gotten myself where -
so that I've got to move and move - ah - due to the
conditions in New York and I'm going to get myself out
of that position.
H:
Ah-ha.
H.M.Jr:
And
H:
Well I think you - you can tell them that you -
that you'll probably have to pay more.
H.M.Jr:
Well that's - I'll - I'll pay whatever I have to.
H:
Yes.
H.M.Jr:
And if it's 75 it's 75.
H:
But I do - I do think it's worth a review again
sometime.
H.M.Jr:
I think we ought to - I'm going to ask Eccles if he'll
get his crowd together next Tuesday or Wednesday.
H:
Yes, I think that would be a good idea just stating
the new set of circumstances when you've got May one
out of the way.
Regraded Uclassified
380
- 5 -
H.M.Jr:
All right, George.
H:
All right, Henry.
H.M.Jr:
Thank you.
H:
All right.
381
JR
GRAY
Paris
Dated April 14, 1937
Rec'd 3:18 p.m.
Secretary of State,
Washington.
482. April 14, 6 p.m.
FROM COCHRAN.
Paris exchange market somewhat nervous yesterday
and again today. French control yielded a fair amount
of sterling and belgas yesterday and a smaller quantity
today. Rentes and French shares weak while interpationals
are sought. Paris-American bankers have not resumed
gold arbitrage operations with New York. Rumors of labor
and social troubles for opening of Paris Exposition cause
uneasiness. Disappointment also evident over expensive
terms of new loan which City of Paris opens April 15.
The city of Paris loan is a lottery issue for
900,000,000 francs. Proceeds of the loan are to be devoted
to public works to the deficits of the 1935 and 1936 budgets
(a total of 437,000,000 francs) and to the reimbursement
of short term notes issue in 1935 and 1936 to provide for
the unemployment fund. Loan will be priced at 910 francs
for each 1000 franc bond nominal value, interest rate (END
SECTION ONE).
BULLITT
HPD
Regraded Uclassified
382
RB
GRAY
Paris
Dated April 14, 1937
Rec'd 4:05 p. m.
Secretary of State
Washington.
482, April 14, 6 P. m. (SECTION TWO)
will be 5% and the bonds will be exempt from the tax on
securities, the lottery tax and the 10% reduction ordained
by the decree law of 1935. The loan will be reimbursed
in 1987 at the latest. Referring to the notice given
abroad to project attributed to the French General
Confederation of Labor envisaging 2. "forced" loan through
nationalization of credit to finance public works French
Financial Press Association points out that such proposals
should not be taken too seriously as they would never be
accepted by Parliament and that the Government would
collapse if it favored such a plan. In this respect
AGENCE ECONOMIQUE recalls the recent assurance of the
Minister of Finance that there is no question of issuing
any other loan than the recent national defense issues
and that the Treasury will cover its requirements up to
the end of the year through short term borrowing.
AGENCE
Regraded Uclassified
383
RB
-2-#482, April 14, 6 p. m. from
Paris (SECTION TWO.)
ACENCE ECONOMIQUE carries a telegram from its New
York correspondent to the effect that the reduction since
Saturday of approximately $11,000,000 gold ear marked in
the United States for the account of foreign central banks
was due to fear of a reduction in the gold price.
French press giving much attention to Chamberlain's
remarks on British monetary policy and especially to
Schacht's visit to Brussels. My Italian friends hope
press will not try to attach too much importance to the
event if they learn that Governor Azzolini of the Bank
of Italy will visit Schacht in Berlin this week. Azzolini
is taking his wife who was not with him at Basel to various
cities in Germany which country she had never seen but I
am not aware- of any international significance to the trip
to Berlin, (END MESSAGE)
<00 VRUBAT
BULLITT
- - -
SMS
384
RB
GRAY
Paris
Dated April 15, 1937
Rec'd 5:10 p. m,
Secretary of State
Washington.
484, April 15, 5 P. m.
FROM COCHRAN.
French control yielded a fair amount of sterling at
110.05 but franc strengthened slightly to 110.01 in late
trading. Rentes and French shares improved slightly after
uncertain opening. Money was fairly easy for mid month
settlement at 43 as compared with 5% per cent fortnight ago
Forward franc discount widened.
Bank of France statement as of April 9 showed increase
of 3½ billion francs in Treasury deposits and decline of
two billion 431 million francs in current creditor deposits.
this alteration resulting from payment for new issue of
national defense bonds from bank deposits. Reimbursement
of a foreign credit permitted reduction by 62 million francs
of advances to Treasury under articles one and two. Coverage
54.96 versus 55.23 following increase in deposits.
AGENCE ECONOMIQUE today printed following in reference
to its item on possibility of forced loan mentioned my 482
April 14, 6 P. m.: (END SECTION ONE)
BULLITT
Regraded Uclassified
385
RB
GRAY
Paris
Dated April 15, 1937
Rec'd 5:19 p. m.
Secretary of State
Washington,
484, April 15, 5 P. m. (SECTION T70).
"We brought to the attention of the Minister of
Finance the articles in the English press indicating that
the Government might be led under pressure of syndical
organizations to issue a forced loan of ten billions to
finance a program of extensive works. Certain of
these newspapers have even published the probable conditions
of this issuance. M Vincent Auriol kindly gave to us on
this subject the following declaration:
1I wish first of all to repeat that it is advisable
to finish once for all and at the earliest possible moment
with a series of disturbances and misunderstandings, better
yet with unfounded rumors. All citizens, organizations,
or groups, whatever they may be, have every right in a
country of liberty to set forth ideas, formulate programs,
draft propositions and to submit them for public discussion
and even for study by the Government. As for the Government
its duty
386
LS 2-#484, April 15, 5 P. m., from Paris, Sec. 2.
Its duty, after study of the situation, propositions, and
above all object and possibilities, is to establish a pre-
cise program of action and, this program once established,
to hold to it, That is what we did on March 5 following
the declarations we made during the discussion itself of
the budget. In examining the possibilities of the finan-
cial market we said that there would be this year but one
long term loan -- that of the National Defense. I can only
expressly confirm this declaration, There can therefore
be no question of a loan of ten billions and, a fortiori,
of any forced loan whatsocver. If propositions of this
order were made in Parliament we would give the reasons
for our position and our attitude. For the time being I
ask that these declarations be taken into consideration
and that nothing further be added thereto.
END OF MESSAGE.
BULLITT
EMB:EDA
387
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE April 14, 1937
TO
Secretary Morganthau
FROM
Mr. Magill
Re: Railroad Retirement Legislation.
Senator Harrison called this morning regarding his proposition
to alter the rate schedule to an initial rate of 5½ percent of the
payrolls, increasing in three years to 6 percent and then 1/2 percent
additional every three years until the final rate of 7½ percent is
reached in 1949. This rate schedule would be the equivalent of a
flat rate of 8. little over 7 percent.
I told the Senator that I talked to you and that your position
was that the matter was now out of the Treasury's hands and up to
the Congressional leaders. The Treasury is willing to accept either
of the two sets of rates proposed by the actuaries in their letter.
The Senator said he understood our position and thought we were
right but he believed that his proposed schedule of rates would be
more acceptable to the railroads than the flat 7 percent. He said
he would call Mr. Doughton and make the proposal to him.
The Senator asked me to give him, as soon as possible, the
provision for a periodical report on the rates. I said we had drafted
the provision and would let him have it this morning.
Rm
Regraded
I
Iclassified
388
14A
DEPUTY GOVERNOR'S MEMORANDUM
April 14, 1937
TO:
Governor Myers
FROM:
Mr. Hill HAA
SUBJECT: Government aid to agriculture, fiscal years 1934-1937
In accordance with your request, I have assembled such in-
formation as is readily available relative to the amount of Govern-
ment aid to agriculture during the fiscal years 1934-1937. The
data are given in the attached table.
It isimpossible in the time available to make a careful
analysis of the figures going to make up the individual items. For
example, under the heading of "Other Expenditures" for the Farm
Credit Administration, you will note that the items shown are some-
what less than the amount actually spent for administrative expenses.
This is because a part of the administrative expenses, particularly
during the earlier years, were paid from crop loan and funds other
than general appropriations for administrative purposes. It follows
that the figures shown should be increased and the figures given as
to emergency crop. feed and drought loans should be correspondingly
reduced. It is also probable that the latter figures contain as-
ditional items which should be classified elsewhere. Similar in-
accuracies undoubtedly obtain in connection with the data given
for other agencies with whose operations I an not familiar.
It is my opinion, however, that inaccuracies of the type
referred to above are not sufficiently serious to influence any
general conclusions to be drawn from the data as presented.
Attachment
L937
1936
(To 3-31-37)
Subsidies
MA Progrem
$ 361.1
$ 542.6
$ 743.0
a 290.3
$1,937.0
Resettlement - grants, ada., other
127.7
64.1
0,1
-
191,9
Federal Surplus Commodities Corporation
2.8
8.2
76.6
40,1
127.7
FIBA-Loans and Relief in Stricken Agric.,Arens
(Transfer to FERA, Grants to States) 1934 & 1935
-
-
90,6
90,6
181.1
Department of Agriculture, Ralief
0.3
2,9
80.5
-
83.7
Interest Reduction - FLB borrowers
24.9
29.1
12.5
7.0
73,5
Total
$516.8
$ 646,9
1,003.3
3 427.9
$2,594.9
Loans (not)
yea - Margency Crop, Food & Drouth Loans
5,1
29.8
99.4
81.6
17.1
Resettlement - Loans
8.4
73.8
1.6
-
83.8
-
78.6
-
to States for Rural Rehabilitation
-
78,6
Commodity Credit Corporation
76.5
129.7
60.1
164.3
157.4
Roral Electrification
5.2
0.7
.
-
5.9
Total
# 68,0
$ 174.4
$ 119,5
$ 82.7
$
308,6
Capital Subscriptions
Paid-In Surplust Federal land banks
23.3
32,6
33.6
40,9
130.3
Federal intermadiate credit banks
-
-
16.0
25.0
40.0
Capital Stock:
-
1
-
200.0
200,0
Federal Farm Mortgnge Corp.
Production Credit Corporations
-
1
15,0
105.0
120,0
Banks for Cooperatives
-
20.0
15.0
110.0
145.0
Regional Agric. Credit Corps.
13.0
19,5
-
5,7
26.8
Total
$ 10.3
$ 33.0
# 78.6
$ 486.6
$ 608,5
Other Expenditures
Department of Agriculture
125.8
101.9
77.9
71.3
376.9
Para Credit Administration
4,4
6.0
2.3
2,4
15,1
Total
$130.2
$ 107.9
$ 80,2
$ 73.7
$ 392.0
I
Data furnished by Buresu of Budget, basis of Daily Statement U.S.Treasury except PERA items which are from the report of
Incoss of credits, deduct,
The President's Committee on Crop Insurance (p.29). The FERA item of $181.1 under "Subsidies" WELS arbitrarily divided
between fiscal years 1934 and 1935; the item of $78.6 MSA arbitrarily included under fiscal year 1935.
2
Includes cotten loan operations,
3
Loans and collections were reported as follows by the agencies indicated for the calendar years Repayments 1933-1936:
Loans Made
Balance
Turn Credit Administration
Crop and Feed Loans
$ 169.3
$ 102.9 b
$ 66.4
Drouth Belief Loans
72,0
11.6
60.4
Regional Agric. Credit Corporations
292.4
267.1
25,3
Commodity Credit Corp. (to March 31, 1937)
609,0
451,5
157.5
Does not include collections on loans made prior to 1933
Exclusive of renewals.
Other than AAA Program, Roada and "Loans and Relief".
Regraded Uclassified
390
TREASURY DEPARTMENT
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON
Ny
April 14, 1937
Memorandum for the Secretary of the Treasury:
The personnel transferred from the Federal Emergency Relief
Administration to the Treasury Department in August 1935 totalled 703
employees, consisting of 29 Purchasing Agents, 119 supervisory employees
and 555 employees in lower ratings. Of the 29 Purchasing Agents who
became State Procurement Officers, five have since been separated from
the Treasury Department as unsatisfactory. Nineteen appointments of
State Procurement Officers were made by the Treasury Department in those
cases where the incumbents under the Federal Emergency Relief Adminis-
tration were not recommended for appointment.
While the personnel in the State Procurement Offices was neces-
serily increased to meet the work loads imposed, during the past four
months reductions in the force have amounted to 1,247 employees aggre-
gating $1,673,536 per annum.
The total purchases of supplies, equipment and materials made
by the Branch of Supply, Procurement Division and its State Procurement
Offices upon requisitions submitted by the Works Progress Administration
to carry out projects approved by them have amounted to:
From August, 1935
From July 1, 1936
Total
to June 30, 1936
to March 31, 1937
Purchases
$244,974,275
$199,438,487.
$444,412,762
Number
Requisitions
768,532
644,698
1,413,230
Number Pur-
chase Orders
985,181
865,680
1,850,861
The Act appropriating Work Relief funds requires purchases over
$300 in value to be made under Section 3709, Revised Statutes, after ad-
vertising for competitive bids. Awards and contracts are made with the
lowest responsible bidder and are later reviewed by the General Account-
ing Office.
Director of Progurement
11/16
- Nume: - - - - MUB L - -
- - - UTIMS - & - a
391
I
Feb is 1937
Jatel 40%
Regraded Uclassified
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Document data
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"ocrText": "The Suretangos\nFor-yaurinformation\nDwB\nBrief Analysis of H. R. 6240, Farm Tenancy Bill\n4/13/07\nTITLE I.\n1. Authorizes Secretary of Agriculture to make loans for\nthe acquisition of farms in such amounts, as may be\ncertified by County Committees, as may be necessary\nto acquire the property, subject to approval of the\nSecretary of Agriculture. All loans to be secured by\na first mortgage or deed of trust on the farm.\n2. Loans are to be repaid in installments within an agreed\nperiod of not more than 30 years. Interest to be 3%\nBorrower to pay taxes and assessments on the farm and\nfor insurance on farm buildings.\n3. Authorizes the appropriation of $50,000,000, \"for each\nof the fiscal years ending prior to July 1, 1942\".\nTITLE II. (Rehabilitation Loans.)\n1. Authorizes the Secretary of Agriculture to make loans\nfor purchase of livestock, farm equipment, supplies,\nand other farm needs, and for refinancing indebtedness,\nand for family subsistence. Loans to bear 3% interest\nand have maturities not in excess of 5 years, and to\nbe repayable in installments.\n2. Loans to be secured by chattel mortgages, liens on crops,\nand assignmente of proceeds from sales of agricultural\nproducts, or by any one or more of these.\n3. Authorizes appropriations of $75,000,000, each, for\nfiscal years ending June 30. 1938 and June 30, 1939.\n4. In addition to 3, authorizes the appropriation for the\nfiscal year ending June 30, 1938, the balances of funds\navailable to the Secretary of Agriculture for loans and\nrelief to farmers under Executive Order No. 7530, Dec. 31,\n1936, as amended by Executive Order No. 7557. Feb. 19,\n1937, which are unexpended on June 30, 1937.\n5. Authorizes the President to allot, out of appropriations\nhereafter made for relief or work relief for any fiscal\nyear ending prior to July 1, 1939, such sums as he dater-\nmines to be necessary to carry out the provisions of\nTitle II.\nRegraded Uclassified\n206\n- 2 -\nTITLE III.\n1. Authorizes and directs the Secretary of Agriculture to\ndevelop a program of land conservation and land utiliza-\ntion.\n2. To effectuate such & program, the Secretary is authorized\nto acquire submarginal land and land not primarily suitable\nfor cultivation; to protect, improve, develop, and admin-\nister lands acquired, or to sell, exchange, lease, or\notherwise dispose them, with or without a consideration,\nto public authorities and agencies for public purposes.\nAlso, to cooperate with Federal, State, Territorial, and\nother public agencies in developing plans for a program\nof land conservation and utilization.\n3. As soon as practicable after the end of each calendar\nyear the Secretary of Agriculture shall pay to the county\nin which any land is hold under this Title III 25% of the\nnet revenues from such land.\n4. Authorises appropriation of $10,000,000 for fiscal year\nending June 30, 1938, and $20,000,000 for each of the\nthree fiscal years thereafter, for carrying out the pro-\nvisions of Title III.\nTITLE IV, (Farm Security Administration.)\n1. Directs establishment in the Department of Agriculture\nof a Farm Security Administration to carry out purposes\nof Act.\n2. Resettlement Projects: Authorises the Secretary of Agri-\nculture to continue to perform functions invested in him\nby Executive Order No. 7530. Dec. 31, 1936, 8.8 amended\nby E. 0. No. 7557, Feb. 19, 1937, and Act of June 29,\n1936 (49 Stat., 2035), as shall be necessary only for\ncompletion and administration of those resettlement proj-\nects, rural rehabilitation projects for resettlement\npurposes, and land development and land utilization proj-\nects, for which funds have been allotted by the President.\nThe balances of funds available to the Secretary for such\npurposes, unexpended June 30, 1937, are authorized to be\nappropriated to carry out said purposes.\n3. Authorizes administrative expenses \"within the limit of\nappropriations made therefor.\"\nRegraded Uclassified\n207\n75TH CONGRESS\n1ST SESSION\nH. R. 6240\nIN THE HOUSE OF REPRESENTATIVES\nApril 8, 1937\nMr. JONES introduced the following bill; which was referred to the Com-\nmittee on Agriculture and ordered to be printed\nA BILL\nTo encourage and promote the ownership of farm homes and\nto make the possession of such homes more secure, to pro-\nvide for the general welfare of the United States, to provide\nadditional credit facilities for agricultural development, 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 That this Act may be cited as the \"Farm Security Act of\n4 1937\".\n5\nTITLE I\n6\nPOWER OF SECRETARY\n7\nSECTION 1. (a) The Secretary of Agriculture (herein-\n8 after referred to as the \"Secretary\") is authorized to make\n9 loans in the United States and in the Territories of Alaska\nRegraded Uclassified\nTOS\n2\n1 and Hawaii to persons eligible to receive the benefits of this\n2 title to enable such persons to acquire farms.\n3\n(b) Only farm tenants, farm laborers, sharecroppers,\n4 and other individuals who obtain, or who recently obtained,\n5 the major portion of their income from farming operations\n6 shall be eligible to receive the benefits of this title. In\n7 making available the benefits of this title, the Secretary shall\n8 give preference to persons who are married, or who have\n9 dependent families, or, wherever practicable, to persons who\n10 are able to make an initial down payment, or who are owners\n11 of livestock and farm implements necessary successfully to\n12 carry on farming operations. No person shall be eligible\n13 who is not a citizen of the United States.\n14\n(c) No loan shall be made for the acquisition of any\n15 farm unless it is of such size as the Secretary determines to\n16 be sufficient to constitute an efficient farm-management unit\n17 and to enable a diligent farm family to carry on successful\n18 farming of a type which the Secretary deems can be suc-\n19 cessfully carried on in the locality in which the farm is\n20 situated.\n21\nCOUNTY COMMITTEES AND LOANS\n22\nSEC. 2. (a) The County Committee established under\n23 section 42 shall-\n24\n(1) Receive applications of persons desiring to\n25\nfinance the acquisition of farms in the county by means\n26\nof a loan from the Secretary under this title.\nRegraded Uclassified\n3\n1\n(2) Examine and appraise farms in the county\n2\nwith respect to which an application for a loan is made.\n3\n(b) If the committee finds that an applicant is eligible\n4 to receive the benefits of this title, that by reason of his\n5 character, ability, and experience he is likely successfully\n6 to carry out undertakings required of him under a loan\n7 which may be made under this title, and that the farm with\n8 respect to which the application is made is of such character\n9 that there is a reasonable likelihood that the making of a loan\n10 with respect thereto will carry out the purposes of this title,\n11 it shall 80 certify to the Secretary. The committee shall\n12 also certify to the Secretary the amount which the committee\n13 finds is the reasonable value of the farm.\n14\n(e) No certification under this section shall be made\n15 with respect to any farm in which any member of the com-\n16 mittee has any property interest, direct or indirect.\n17\n(d) No loan shall be made to any person or with\n18 respect to any farm unless certification as required under\n19 this section has been made with respect to such person\n20 and such farm by the committee.\n21\nTERMS OF LOANS\n22\nSEC. 3. (a) Loans made under this title shall be in\n23 such amount (not in excess of the amount certified by the\n24 County Committee to be the value of the farm) as may be\n25 necessary to enable the borrower to acquire the farm and\nRegraded\nUclassified\n4\n1 shall be secured by a first mortgage or deed of trust on the\n2 farm.\n3\n(b) The instruments under which the loan is made and\n4 security given therefor shall-\n5\n(1) Provide for the repayment of the loan within\n6\nan agreed period of not more than thirty years from the\n7\nmaking of the loan.\n8\n(2) Provide for the payment of interest on the\n9\nunpaid balance of the loan at the rate of 3 per centum\n10\nper annum.\n11\n(3) Provide for the repayment of the unpaid bal-\n12\nance of the loan, together with interest thereon, in\n13\ninstallments in accordance with amortization schedules\n14\nprescribed by the Secretary.\n15\n(4) Be in such form and contain such covenants\n16\nas the Secretary shall prescribe to secure the payment\n17\nof the unpaid balance of the loan, together with interest\n18\nthereon, to protect the security, and to assure that the\n19\nfarm will be maintained in repair, and waste and ex-\n20\nhaustion of the farm prevented.\n21\n(5) Provide that the borrower shall pay taxes and\n22\nassessments on the farm to the proper taxing authorities,\n23\nand insure and pay for insurance on farm buildings.\n24\n(6) Provide that upon the borrower's assigning,\n25\nselling, or otherwise transferring the farm, or any interest\nRegraded Uclassifie\n5\n1\ntherein, without the consent of the Secretary, or upon\n2\ninvoluntary transfer or sale, the Secretary may declare\n3\nthe amount unpaid immediately due and payable.\n4\n(c) No instrument provided for in this section shall\n5 prohibit the prepayment of any sum due under it.\n6\nEQUITABLE DISTRIBUTION OF LOANS\n7\nSEC. 4. In making loans under this title, the amount\n8 which is devoted to such purpose during any fiscal year shall\n9 be distributed equitably among the several States and Terri-\n10 tories on the basis of farm population and the prevalence of\n11 tenancy, as determined by the Secretary.\n12\nAPPROPRIATION\n13\nSEC. 5. To carry out the provisions of this title, there\n14 is authorized to be appropriated for each of the fiscal years\n15 ending prior to July 1, 1942, the sum of $50,000,000.\n16\nTITLE II-REHABILITATION LOANS\n17\nBORROWERS AND TERMS\n18\nSEC. 21. (a) The Secretary shall have power to make\n19 loans to eligible individuals for the purchase of livestock,\n20 farm equipment, supplies, and for other farm needs, and\n21 for the refinancing of indebtedness, and for family subsistence.\n22\n(b) Loans made under this section shall bear interest\n23 at a rate not in excess of 3 per centum per annum, and shall\n24 have maturities not in excess of five years. Such loans shall\n25 be payable in such installments as the Secretary may pro-\nRegraded Uclassifie\n6\n1. vide in the loan agreement. All loans made under this title\n2 shall be secured by a chattel mortgage, a lien on crops, and\n3 an assignment of proceeds from the sale of agricultural prod-\n4 ucts, or by any one or more of the foregoing.\n5\n(c) Only farm owners, farm tenants, farm laborers,\n6 sharecroppers, and other individuals who obtain, or who\nT recently obtained, the major portion of their income from\n8 farming operations, and who cannot obtain credit on reason-\n9 able terms from any federally incorporated lending institu-\n10 tion, shall be eligible for loans under this section.\n11\nDEBT ADJ USTMENT\n12\nSEC. 22. The Secretary shall have power to assist in\n13 the voluntary adjustment of indebtedness between farm\n14 debtors and their creditors and may cooperate with and\n15 pay the whole or part of the expenses of State, Territorial,\n16 and local agencies and committees engaged in such debt\n17 adjustment. He is also authorized to continue and carry\n18 out undertakings with respect to farm debt adjustment un-\n19 completed at the time when appropriations for the purpose\n20 of this section are first available. Services furnished by the\n21 Secretary under this section shall be without charge to the\n22 debtor or creditor.\n23\nAPPROPRIATION\n24\nSEC. 23. (a) To carry out the provisions of this title,\n25 there is authorized to be appropriated, for the fiscal years\nRegraded Uclassified\n7\n1 ending June 30, 1938, and June 30, 1939, a sum not ex-\n2 ceeding $75,000,000 for each of such fiscal years.\n3\n(b) In addition to the authorization contained in sub-\n4 section (a) for the fiscal year ending June 30, 1938,\n5 the balances of funds available to the Secretary for loans\n6 and relief to farmers, pursuant to Executive Order Numbered\n7 7530 of December 31, 1936, as amended by Executive Order\n8 Numbered 7557 of February 19, 1937, which are unex-\n9 pended on June 30, 1937, are authorized to be appropriated\n10 to carry out the provisions of this title.\n11\n(c) The President is authorized to allot to the Secre-\n12 tary, out of appropriations hereafter made for relief or work\n13 relief for any fiscal year ending prior to July 1, 1939, such\n14 sums as he determines to be necessary to carry out the pro-\n15 visions of this title and to enable the Secretary to carry\n16 out such other forms of rehabilitation of individuals eligible\n17 under this title to receive loans as may be authorized by\n18 law and designated in the Executive order directing the\n19 allotment.\n20\nTITLE III-RETIREMENT OF SUBMARGINAL\n21\nLAND\n22\nPROGRAM\n23\nSEC. 31. The Secretary is authorized and directed to\n24 develop a program of land conservation and land utilization,\n25 including the retirement of lands which are submarginal or\n8\n1 not primarily suitable for cultivation, in order thereby to\n2 correct maladjustments in land use, and thus assist in con-\n3 trolling soil erosion, preserving natural resources, mitigating\n4 floods, preventing impairment of dams and reservoirs, con-\n5 serving surface and subsurface moisture, protecting the\n6 watersheds of navigable streams, and protecting the public\n7 lands, health, safety, and welfare.\n8\nPOWERS UNDER LAND PROGRAM\n9\nSEC. 32. To effectuate the program provided for in sec-\n10 tion 31, the Secretary is authorized-\n11\n(a) To acquire by purchase, gift, or devise, or by trans-\n12 fer from any agency of the United States or from any State,\n13 Territory, or political subdivision, submarginal land and land\n14 not primarily suitable for cultivation, and interests in and\n15 options on such land. Such property may be acquired sub-\n16 ject to any reservations, outstanding estates, interests, ease-\n17 ments, or other encumbrances which the Secretary deter-\n18 mines will not interfere with the utilization of such property\n19 for the purposes of this title.\n20\n(b) To protect, improve, develop, and administer any\n21 property 80 acquired and to construct such structures thereon\n22 as may be necessary to adapt it to its most beneficial use.\n23\n(c) To sell, exchange, lease, or otherwise dispose of,\n24 with or without a consideration, any property so acquired,\n25 under such terms and conditions as he deems will best ac-\nRegraded Uclassifie\n9\n1 complish the purposes of this title, but any sale, exchange,\n2 or grant shall be made only to public authorities and agéncies\n3 and only on condition that the property is used for public\n4 purposes. The Secretary may recommend to the President\n5 other Federal, State, or Territorial agencies to administer\n6 such property, together with the conditions of use and\n7 administration which will best serve the purposes of a land-\n8 conservation and land-ntilization program, and the President\n9 is authorized to transfer such property to such agencies.\n10\n(d) With respect to any land, or any interest therein,\n11 acquired by, or transferred to the Secretary for the purposes\n12 of this title, to make dedications or grants, in his discretion,\n13 for any public purpose, and to grant licenses and easements\n14 upon such terms as he deems reasonable.\n15\n(e) To cooperate with Federal, State, Territorial, and\n16 other public agencies in developing plans for a program of\n17 land conservation and land utilization, to conduct surveys\n18 and in vestigations relating to conditions and factors affecting,\n19 and the methods of accomplishing most effectively, the pur-\n20 poses of this title, and to disseminate information concerning\n21 these activities.\n22\n(f) To make such rules and regulations as he deems\n23 necessary to prevent trespasses and otherwise regulate the\n24 use and occupancy of property acquired by, or transferred to,\n25 the Secretary for the purposes of this title, in order to con-\nRegraded Uclassified\n10\n1 serve and utilize it or advance the purposes of this title.\n2 Any violation of such rules and regulations shall be punished\n3 as prescribed in section 5388 of the Revised Statutes, as\n4 amended (U. S. C., 1934 ed., title 18, sec. 104).\n5\nPAYMENTS TO COUNTIES\n6\nSEC. 33. As soon as practicable after the end of each\n7 calendar year, the Secretary shall pay to the county in which\n8 any land is held by the Secretary under this title, 25 per\n9 centum of the net revenues received by the Secretary from\n10 the use of the land during such year. In case the land is\n11 situated in more than one county, the amount to be paid\n12 shall be divided equitably among the respective counties.\n13 Payments to counties under this section shall be made on\n14 the condition that they are used for school or road purposes,\n15 or both. This section shall not be construed to apply to\n16 amounts received from the sale of land.\n17\nAPPROPRIATION\n18\nSEC. 34. To carry out the provisions of this title,\n19 there is authorized to be appropriated the sum of $10,000,000\n20 for the fiscal year ending June 30, 1938, and $20,000,000\n21 for each of the three fiscal years thereafter.\n22\nTITLE IV-GENERAL PROVISIONS\n23\nFARM SECURITY ADMINISTRATION\n24\nSEC. 41. (a) The Secretary shall establish in the De-\n25 partment of Agriculture a Farm Security Administration\nRegraded Uclassified\n11\n1 to assist him in the exercise of the powers and duties con-\n2 ferred by this Act.\n3\n(b) For the purposes of this Act, the Secretary shall\n4 have power to-\n5\n(1) Appoint (without regard to the civil-service\n6\nlaws and regulations) and fix the compensation of such\n7\nofficers and employees as may be necessary. No per-\n8\nson shall be appointed or transferred under this Act\n9\nto any position in an office in a State or Territory the\n10\noperations of which are confined to such State or Ter-\n11\nritory or a portion thereof, or in a regional office outside\n12\nthe District of Columbia the operations of which extend\n13\nto more than one, or portions of more than one, State\n14\nor Territory, unless such person has been an actual and\n15\nbona-fide resident of the State or Territory, or region,\n16\nas the case may be, in which such office is located, for\n17\na period of not less than one year next preceding the\n18\nappointment or transfer to such position (disregarding\n19\nperiods of residence outside such State or Territory, or\n20\nregion, as the case may be, while in the Federal Gov-\n21\nernment service) If the operations of the office are\n22\nconfined to a portion of a single State or Territory, the\n23\nSecretary in making appointments or transfers to such\n24\noffice shall appoint or transfer only persons who are\n25\nresidents of such portion of the State or Territory.\nRegraded Uclassifie\n12\n1\n(2) Accept and utilize voluntary and uncompen-\n2\nsated services, and, with the consent of the agency con-\n3\ncerned, utilize the officers, employees, equipment, and\n4\ninformation of any agency of the Federal Government,\n5\nor of any State, Territory, or political subdivision.\n6\n(3) Within the limits of appropriations made\n7\ntherefor, make necessary expenditures for personal serv-\n8\nices and rent at the seat of government and elsewhere;\n9\ncontract stenographic reporting services; purchase and\n10\nexchange of supplies and equipment, law books, books\n11\nof reference, directories, periodicals, newspapers, and\n12\npress clippings; travel and subsistence expenses, includ-\n13\ning the expense of attendance at meetings and confer-\n14\nences; purchase, operation, and maintenance, at the\n15\nseat of government and elsewhere, of motor-propelled\n16\npassenger-carrying and other vehieles; printing and\n17\nbinding; and for such other facilities and services as\n18\nhe may from time to time find necessary for the proper\n19\nadministration of this Act.\n20\n(4) Make contracts for services and purchases\n21\nof supplies without regard to the provisions of section\n22\n3709 of the Revised Statutes (U.S.O., 1934 ed., title\n23\n41, sec. 5) when the aggregate amount involved is less\n24\nthan $300\nUnde\nRegraded Uclassifie\n13\n1\n(5) Make payments prior to audit and settlement\n2 bus by the General Accounting Office.\n3 biae (6) Acquire land and interests therein without\n4\nregard to section 355 of the Revised Statutes, as\n5\namended (relating to restrictions on the acquisition of\n6\nland by the United States)\n7\n(7) Compromise claims and obligations arising\n8\nunder, and adjust and modify the terms of mortgages,\n9\nleases, contracts, and agreements entered into pursuant\n10\nto, this Act, as circumstances may require,\n11\n(8) Pursue to final collection, in any court, State\n12\nor Federal, all claims arising under this Act, or under\n13\nany mortgage, lease, contract, or agreement entered into\n14\npursuant to this Act.\n15\n(9) Make such rules and regulations as he deems\n16\nnecessary to carry out this Act.\n17\nRESETTLEMENT PROJECTS\n18\nSEC. 43. The Secretary is authorized to continue to\n19 perform such of the functions vested in him pursuant to\n20 Executive Order Numbered 7530 of December 31, 1936, as\n21 amended by Executive Order Numbered 7557 of February\n22 19, 1937, and pursuant to Public Act Numbered 845, ap-\n23 proved June 29, 1936 (49 Stat. 2035) as shall be necessary\n24 only for the completion and administration of those resettle-\n25 ment projects, rural rehabilitation projects for resettlement\nRegraded\n14\n1 purposes, and land development and land utilization projects,\n2 for which funds have been allotted by the President, and the\n3 balances of funds available to the Secretary for said purposes\n4 which are unexpended on June 30, 1937, are authorized to\n5 be appropriated to carry out said purposes.\n6\nGENERAL PROVISIONS APPLICABLE TO SALE\n7\nSEC. 44. The sale or other disposition of any real prop-\n8 erty acquired by the Secretary pursuant to the provisions\n9 of this Act, or any interest therein, shall be subject to the\n10 reservation by the Secretary on behalf of the United States\n11 of not less than an undivided half of the interest of the\n12 United States in all coal, oil, gas, and other minerals in or\n13 under such property.\n14\nSURVEYS AND RESEARCH\n15\nSEC. 45. The Secretary is authorized to conduct sur-\n16 veys, investigations, and research relating to the conditions\n17 and factors affecting, and the methods of accomplishing most\n18 effectively, the purposes of this Act, and may publish and\n19 disseminate information pertinent to the various aspects of\n20 his activities.\n21\nVARIABLE PAYMENTS\n22\nSEO. 46. The Secretary may provide for the payment\n23 of any obligation or indebtedness to him under this Act\n24 under a system of variable payments under which a surplus\n25 above the required payment will be collected in periods of\nRegraded Uclassifie\n15\n1 above-normal production or prices and employed to reduce\n2 payments below the required payment in periods of sub-\n3 normal production or prices.\n4\nSET-OFF\n5\nSEC. 47. No set-off shall be made against any payment\n6 to be made by the Secretary to any person under the pro-\n7 visions of this Act, by reason of any indebtedness of such\n8 person to the United States, and no debt due to the Secre-\n9 tary under the provisions of this Act shall be set off against\n10 any payments owing by the United States, unless the Secre-\n11 tary shall find that such set-off will not adversely affect\n12 the objectives of this Act.\n13\nBID AT FORECLOSURE\n14\nSEC. 48. The Secretary is authorized and empowered\n15 to bid for and purchase at any foreclosure or other sale, or\n16 otherwise to acquire property pledged or mortgaged to se-\n17 cure any loan or other indebtedness owing under this Act;\n18 to accept title to any property so purchased or acquired in the\n19 name of the United States; to operate or lease such property\n20 for such period as may be deemed necessary or advisable to\n21 protect the investment therein; and to sell or otherwise\n22 dispose of such property so purchased or acquired upon such\n23 terms and for such considerations as the Secretary shall deter-\n24 mine to be reasonable, but subject to the reservation of\n25 mineral rights provided for in section 44.\nRegraded Uclass fied\n16\n1 FEES AND COMMISSIONS PROHIBITED\n2\nSEC. 49. No officer, attorney, or employee of the United\n3 States shall, directly or indirectly, be the beneficiary of or\n4 receive any fee, commission, gift, or other consideration\n5 for or in connection with any transaction or business of the\n6 United States under this Act other than such salary, fee,\n7 or other compensation as he may receive from the United\n8 States. Any person violating the provisions of this section\n9 shall, upon conviction thereof, be punished by a fine of not\n10 more than $1,000 or imprisonment for not more than one\n11\nyear,\nor\nboth.\nHiw\nTextre\n12\nEXTENSION TO TERRITORIES ST\n13\nSEC. 50. The provisions of this Act shall extend to the\n14 Territories of Alaska and Hawaii.\n15\nSEPARABILITY\n16 of SEC. 51. If any provision of this Act, or the application\n17 thereof to any person or circumstances, is held invalid, the\n18 remainder of the Act, and the application of such provisions\n19 to other persons or circumstances, shall not be affected\n20 thereby. Y/M Society due 18\nTo No has IS\nstreet in N\nUnite down bas surred 12\nto\nmain\nMC\n14 lobining auign\nRegraded Uclassified\nTOTE CONGRESS\nLev Summon\nH. R. 6240\nA BILL\nTo encourage and promote the ownership of\nCar\nfarm homes and to make the possession of\nsuch homes more secure, to provide for the\ngeneral welfare of the United States, to pro-\nvide additional credit facilities for agricul-\nbei\ntural development, and for other purposes.\nBy Mr. JONES\nAPRIL 8, 1987\nReferred to the Committee on Agriculture and ordered\nto be printed\nCanef\nRegraded Uclassified\n4-13-57 April 13, 1937\n208\nmy dear Mr. President:\nMr. Watson states in his letter to you dated March 27. 1937,\nupon which you have acked my comment, that the Board of the United\nStates Thember of Commerce is prepared to recommend to its annual\nmeeting that the plan of corporate taxation outlined in your not-\ncage to Congress et March 3. 1936, be substituted for the plan now\nenhedied in the Revenue not of 1936. the Chamber has apparently\nhad a complete change of heart, cince it vigerously opposed all\nforms of undistributed profite taxation before the congressional\ncounitiess in 1936. Its Committee on Federal Finance stated to the\nSenate Consittee on Finance: \"The proposal is utterly imprestical,\nunverkable, and uncount.\"\nThe chief differences between the present system of corporate\ntaxation and that which you outlined are twofolds (1) A normal tax\nupon corporate net incomes has been retained at comewhat lewer rates\nrenging from 8 persent to 15 percent; and (2) the capital stock tax,\nat & substantially reduced rate, and the excess-profits tax have\nbeen retained. Mr. Watern preposes the repeal of these three taxes,\nplus the embstitution of the rates of undistributed profits tax\n209\nThe President\n- 2 -\nembodied in the House Bill for the rates new in the law. As Me\nmemeranden shows, these changes would be highly beneficial to or\nperations distributing more than forty persent of their incomes.\nYour neesage to the Gengrees gave two principal reasons for\nthe adoption of a corporate undistributed prefite tax: (2) The\navoidance of individual curtaxes or their equivalent by wealthy\nsteckholders under the prior system; and (2) the inequitable die-\ntribution of the tax lead as between unincorporated and incorpe-\nrated businesses. It is significant that the Board of the Chamber\nnow seess villing to endorse the principle of undistributed profits\ntexation and to accept both of your objectives. Your message did\nnot, of course, recommend any specific rate structure, but the\nBoard now appears to approve the rates incorporated in the House\nMll. Changes in the existing rate structure. when made. should\nbe carried out, net with a view solely to a large-seale reduction\nin corporation taxes, but to the advancement of that equitable\ndistribution of the tax burden which vas one of the two principal\ngrounds for your message last year.\nThe Treasury Department has not altered its viewier the basic\nservinces of the suggestions you nade to the Congress in your tax\nmeseage of a year age, Eswaver. the wisdem of asking the dengress\nat this time to undertake a third substantial reorgenization of\ncorporate Name in as many years 10 the first insure-tax\n210\nthe President\n- 3 -\nreturns under the Revenue set of 1936 vere made only a few vasits\nage. There has been no time for the tabulation, elassification,\nand appraisal of the effects, possible weaknesses, and needed or\ndesirable alterations, If any, of the existing 1aw. the force of\nthese considerations is very strongly on the side of deferring\nsubstantial alterations until the practical effects of the opera-\ntion of the law are fully known.\nI an attaching a draft of a latter to Mr. Thomas J. Watson\nwhich embedies a brief expression of this view.\nFaithfully,\nThe President,\nThe White House.\nAttachment\n4/13/37\n211\nMy dear Mr. Watsome\nI an gratified to know that the Beard of the United\nStates Cheaker of Commerce is prepared to recomend to its\nannual meeting that the plan of corporate taxation, which\nI outlined in my zeconge to the Congress on March 3. 1936,\nshould be endersed.\nI - advised that the Treasury is now actively study-\ning the first income-tax returns under the 1936 law. Until\nthe results of this study become available, I believe that\nthe existing law should be permitted to stand unchanged.\nWe enght to defer consideration of substantial alteration\nuntil we have determined the practical results of its oper-\nation.\nVery sincerely yours,\nMr. Themas s. Watern,\n270 Breadway,\nBew York, New Yerk.\n4/13/37\nRegraded Uclassified\n212\nCOPY\n4/5/37\nMR. MAGILL\nMRS. FORBUSH\nWill you be 80 good as to prepare the memorandum which the\nPresident requests, and route it back to the Secretary through\nthis office in order that - may keep our records straight?\nThank you,\n/m/ G.E. Forbush\n213\nCOPY\nTHE WHITE HOUSE\nWashington\nApril 5, 1937\nMEMORANDUM FOR SECRETARY MORGANTHAU:\nGive me a memorandum on\nthis.\nF.D.R.\nRegraded Uclassified\n214\nTHOS. J. WATSON\n270 BROADWAY\nNEW YORK\nMarch Twenty-seventh\n1937\nThe Honorable Franklin D. Roosevelt,\nPresident of the United States,\nWhite House,\nWashington, D. C.\nDear Mr. President:\nAs you know, I have been putting forth every\neffort to bring about cooperation between the United States\nChamber of Commerce and the Administration.\nAt the Board Meeting of the Chamber last\nweek, realizing that I had not been making very much head-\nway in discussing various matters in open session, I had a\nprivate conversation with Mr. Harper Sibley, Mr. Silas Strawn\nand Mr. Eliot Wadsworth, with the result that certain changes\nwere made in the program for the Annual Meeting of the Chamber\nto be held in April.\nThe Program Committee had already voted to have\nProfessor Moley debate the Supreme Court proposition with Mr.\nLandis, but this part of the program vas cancelled and it vas\nthen agreed that the Chamber would emphasize two things: First,\nthat the Annual Meeting would be devoted largely to a discussion\nof the Tenant Farm Program, with the understanding that the Board\nwould recommend that the Chamber back your Tenant Farm Program;\nsecond, they want to emphasize a change in the present tax on\nundistributed profite of corporations. It was understood that\nthe Board will recommend that your tax program, which VM proposed\nby you in 1936, be substituted for the plan which vas agreed upon\nand put through by the House and the Senate as the Revenue Act of\n1936. The reason for wanting to substitute your tax plan for the\npresent law is because any fair-minded analyst cannot help but\nagree that your plan is the most equitable and that it will bring\nin the most revenue from corporations withholding dividends and,\nat the same time, your plan will permit corporations to retain\nreasonable amounts of their earnings for the development of their\nbusinesses.\n-2-\nThe President\n215\nThe outstanding difference between the present\nlaw and your plan, as you will note from the attached schedule,\n18, as stated above, that your plan imposes higher taxes on\ncorporations that are withholding dividends to avoid surtaxes\nthat would be payable by their stockholders, and that it does\nnot penalize corporations that retain reasonable portions for\ndevelopment purposes.\nYour plan, as compared with the Revenue Act of 1936,\n1s 80 much more equitable to every one concerned, that I believe\naction should be taken before Congress adjourns to substitute\nyour plan for the law now in effect.\nAfter my conference with Messrs. Sibley, Strawn\nand Wadsworth, I did not attend the afternoon meeting, but Mr.\nSibley brought up these matters and vas supported by Messrs.\nStrawn and Wadsworth. I am enclosing copies of letters which\nI received from Mr. Sibley and Mr. Wadsworth on the subject.\nI believe the Annual Meeting of the Chamber will\nmark the beginning of helpful cooperation between the United\nStates Chamber of Commerce and the Administration, and I am\ngiving you the above information in confidence because I believe\nit is important for the industrial, financial people and the\nGovernment to all work together.\nWith kindest personal regards, I am\nSincerely ImWaton yours,\nThomas J. Watson/P\n216\nCOMPARISON OF PERCENTAGES OF TOTAL FEDERAL TAXES\nTO TOTAL ADJUSTED NET INCOME BEFORE FEDERAL TAXES\n(Corporations With Adjusted Net Incomes of Over $50,000.)\nWhen Dividends\nUnder\nPaid Equal %\nRevenue\nPresident\nRevenue\nof Income before\nAot\nRoosevelt\nAct\nFederal Taxes\nof 1935 (a)\nTax Plan\nof 1936 (a)\nso\n16.372%\n42.500%\n33.144%\n10%.\n16.372%\n37.500%\n30.444%\n20%.\n16.372%\n32.500%\n27.744%\n30%\n16.372%\n27.500%\n25.044%\n40%\n16.372%\n22.500%\n22.662%\n50%.\n16.372%\n17.500%\n20.462%\n60%\n16.372%\n13.125%\n18.739%\n70%\n16.372%\n9.375%\n17.175%\n80%\n16.372%\n6.000%\n16.191%\n90%\n16.372%\n2.857%\n15.904% (b)\n100%.\n16.372%\n0.000%\n15.904% (b)\n(a) Capital Stock Taxes computed on declared value figure equivalent\nto 120% of minimum figure required to avoid Excess Profits\nTaxes.\n(b) Some amount of dividend oredit in excess -- can be used in sub-\nsequent years.\nAbove figures applicable for calendar year 1937 and subsequent\nyears, computed on $1,000,000.\nKey: - To determine the approximate amount of total Federal Taxes on\nany amount of adjusted net income in excess of $50,000:\nRefer to above table, locate line showing percentage of dividends\npaid, then apply effective percentages to such amount of income.\nExample - Corporation with not income of $10,000,000. before Federal Taxes:\nPaying Dividends of\nUnder\n50%\n60,1\nRevenue Aot of 1935,\n$1,637,200.\n16.372%\n$1,637,200. 16.372,\nRoosevelt Plan,\n$1,750,000.\n17.500%\n$1,312,500.\n13.125%\nRevenue Act of 1936,\n$2,046,200.\n20.462%\n$1,873,900.\n18.739%\nEffective percentages under Revenue Acts of 1935 and 1936 vary slightly\non account of variation in rate of normal income taxes appli-\ncable on portion of income below $40,000.\n217\nBOSTON CHAMBER OF COMMERCE\nPresident's Office\nMarch 23, 1937\nThomas J. Watson, Esquire,\n270 Broadway\nNew York, N. Y.\nDear Tom:\nJust a line to report that after some discussion\nin the Directors meeting about a joint debate on the Court,\nthe idea was dropped. Silas and I valiantly supported the\nviews you expressed. The subject of agriculture was sub-\nstituted.\nSincerely yours,\n(Signed) Ell.\n(Eliot Wadsworth)\nRegraded Uclassified\n218\nCOPY\nCHAMBER OF COMMERCE OF THE UNITED STATES\nWASHINGTON\nHarper Sibley\nPresident.\nMarch 19, 1937.\nMr. Thomas J. Watson, President,\nInternational Business Machines Corporation,\n270 Broadway,\nNew York, N. Y.\nDear Tom:\nFollowing your suggestion we eliminated the\nSupreme Court as one of the matters to be discussed at\nthe annual meeting, and we brought up the tax on corporate\nsurpluses as a major item for discussion. We also decided\nto put on farm tenancy as one of the major items.\nFollowing your further suggestion, I hope you\nwill go with me to see the President, if possible, in con-\nnection with these matters whereby we are definitely in\nsupport of his program.\nLooking forward to being at your dinner shortly,\nbelieve me,\nSincerely yours,\n(signed) Harper Sibley\nPresident.\nES/483\nRegraded Uclassified\n-COPY-\n219\nEMBASSY OF THE UNITED STATES OF AMERICA\nOffice of the Treasury Attache\nCustoms\n2 Avenue Gabriel\nParis, France\nApril 13, 1937.\nMEMORANDUM FOR THE SECRETARY:\nSubject: Marcotics confidential Europe\nWe have all been quite busy here due to a rush of narcotic business\nwhich rather piled up on us for several days. While we were busy\n\"chaperoning\" Kessler (the member of the Katz-Blinde gang whom Nicholson\nnotified us was on the way from China) from Stolpce at the Polish frontier\nto Vienna, then to Paris, Brumer personally escorting him and the national\npolice of the various countries concerned cooperating very well at every\nturn, we commenced to get good information on the NORMANDIE with regard\nto her impending sailing. It also turned out that Kessler was sailing\non this vessel. All in all, there were five suspicious movements in con-\nnection with the MORMANDIE: namely (1) Kessler; (2) Meyersohn, whom we\nhad been observing in Paris, who appeared at Havre at the last moment\nand dashed up the gangplank without having bought & ticket; (3) the\njazz orchestra player Goldman with 20 kilos of heroin; (4) the sailor,\nname unknown, supposed to have 20 kilos of opium; and (5) the suspicious\nbeggage mentioned in the telegram to the Bureau. Since the NORMANDIE\nhas been at New York for two days now and we have received no report\nof any seizures, I assume nothing was found. However, I hope that\nthrough observing Kessler after he lands, New York can uncover the local\nconnections of the Katz-Blinds international geng. Also, whom Meyersohn\nhooks up with in New York; and the business connections of Goldman, the\norchestra player.\nIn connection with the Kessler affair, we had our first demonstration\nof how to make use of all facilities available in covering an operation\nspread all over Europe. For instance: Brumer was sent to Stolpce to\npersonally convoy Kessler wherever he went. Be followed him to Vienna,\nobserved him there, then followed him to Paris. While Kessler W&6 en\nroute to Paris, Blinds, whom we were watching at Vienna, suddenly started\nfor Paris also. To cover him, we had to take one of the Vienna office\nforce, Poglies, a big Austrian, to follow him to Paris. (When Blinds\ngot es fer AB the French frontier, the French police refused him entrance\nand turned him back to the Swiss police, who took him to Zurich and put\nhim in jail for investigation, where he still 1s. We were sorry to see\nthis happen, as we hoped to observe Blinds and Kessler together at their\nbusiness meetings in Paris. It would appear that the French authorities,\nwhom we had gotten all \"steamed up\" about the matter, through over-\nsealousness turned Blinds back instead of letting him pass through.) We\nRegraded Uclassified\n220\n&\nthen got word from Nicholson that be suspected that a compatriot of Kessler's\nwas aboard the PRESIDENT WILSON (Dollar Line) due in Europe through Suez\nimmediately. We figured the narcotics might be aboard the WILSON. To\ncover this angle, we called on the Consuls at Naples, Genoa, and Marseilles,\nto cover the passenger list and bonded or other suspicious baggage. (The\nConsuls responded very well.) It then developed that Kessler was leaving\non the NORMANDIE, so we sent Beers to Havre to properly see him off, in-\ncluding sitting in with the Vice-Consul at the passport inspection, unob-\ntrusively. Then we found that a Vice-Consul, Mr. Fuqua, from Paris W&B\ngoing on the NORMANDIE, 80 we lined him up to observe Kessler en route.\nAll in all, the above was good training for our narcotic unit. Scharff\ndirected operations and did very well, with a little coaching at the\nproper times about angles he had not had experience in as yet. Scharff\nis an excellent man and is living up to your expectations fully. It is\ntoo bad he is not a permanent member of our European force.\nI noted with interest the agreement between Treasury and State with\nregard to handling narcotic matters in the future. This will improve\nmatters considerably. I also noted Mr. Bullitt's willing endeavor to\nhelp. He is now back here and I have an appointment to see him. His\nattitude is of the greatest help to us here.\nWe are getting along very well with the French Surete. They are\nloosening up all the time and are now & real help to us.\nScharff has proved very good at getting informers. He has dug up\nseveral promising ones. We have talked with several others whom we have\nhad to later weed out. Beers has also proved to have a knack with in-\nformers.\nMr. Wait is on sick leave until the end of the month.\nRegards to all.\nRespectfully,\nTHOMPSON.\nRegraded Uclassified\n221\nMEETING RE RAILROAD RETIREMENT\nApril 13, 1937\n11:00 A.M.\nPresent:\nMr. Magill\nMr. Bell\nMr. J. J. Pelley\nMr. George Harrison\nSenator Pat Harrison\nCongressman Robert Doughton\nMr. Murray Latimer\nMr. Arthur J. Altmeyer\nSen. Harr.: Well, what have you got for us this morning - glad\ntidings or good news, or more trouble?\nH.M.Jr:\nWell, I don't know about glad tidings, but we've\ngot a report from the actuaries.\nSen. Harr.: Was Latimer there?\nMagill:\nNo.\nSen. Harr.: Oh, their actuary was Glenn, wasn't it?\nMagill:\nYes\nSen. Harr.: I see.\nMagill:\nWant me to read it?\nH.M.Jr:\nI think read it out loud.\nMagill:\nThis is a report by these four actuaries that we had\nlocked up in the jury room to reach an agreement on\nthis thing the other day.\n\"In accordance with your informal request an actuarial\nconference was held on April 8, 1937, to discuss the\nadequacy of the tax rates contained in the proposed\nRailroad Retirement Bill.\n\"Those attending the conference were Mr. George B.\nBuck, Consulting Pension Fund Actuary, New York, and\nChairman of the Federal Board of Actuaries of the\nCivil Service Retirement and Disability Fund, Mr.\nJoseph Glenn, Actuary of the Railroad Retirement\nBoard, Mr. W. R. Williamson, Actuary for the Social\nSecurity Board, Mr. R. R. Reagh, Government Actuary,\nTreasury Department, and Mr. Maurice S. Brown, Actuary,\nTreasury Department. The conclusions reached at this\nconference are summarized as follows:\n222\n- 2 -\n(1) It was unanimously agreed that the tax rates\nof the proposed bill are inadequate.\n\"(2) Mr. Williamson made a motion that the tax\nrates in the proposed bill should be changed\nto rates beginning at 5 percent for the first\nthree years and going up 1 percent instead of\none-half percent each triennial period to a\nmaximum of 9 percent beginning January 1, 1949.\nMr. Buck, Mr. Williamson and Mr. Reagh voted\n\"yes\" to this motion, Mr. Glenn alone voting in\nthe negative. (Mr. Brown, serving in 8 capacity\nof technical assistant, did not vote.)\n1(3) Mr. Glenn suggested a flat rate of 7 percent\nfor some fixed period of years, leaving the\nmatter of adjustment, if necessary, to E future\nCongress. Mr. Glenn admitted, however, that a\nuniform tax rate of 7 percent would very prob-\nably prove to be inadequate on a permanent\nbasis. Subsequently Mr. Glenn stated that he\nfavored the continuation of the present tax act\n(Public No. 400, 74th Congress, Second Session)\nexcept as amendments are necessary to change the\nscope of the coverage, thereby requiring an\nannual reconsideration of the adequacy of the\nrate. He believes that in no case should the\nfixed period exceed ten years and preferably\nthat it should not exceed five years. He feels\nthat a period of at least five years will elapse\nbefore sufficient experience has been accumulated\nto warrant the establishment of a definite rate\nfor a longer period.\n\"(4) It was unanimously agreed that the bill should\ncarry a provision requiring periodical valuations\nof the contingent liabilities created by the act\nin respect to new entrants, existing members and\npensioners, with a report to Congress and the\npublic setting forth the amount of such liabili-\nties as well as the level percentage of payroll\nrequired to pay the benefits. It was further\nagreed that in order to assure the railroads,\nthe employees and the public of technical repre-\nsentation, the actuarial valuations should be\nmade subject to the supervision of a board of\nactuaries, one of whom might be designated by\nthe railroads, one by the railroad employees,\nand the third by the Secretary of the Treasury.\nRegraded Uclassified\n223\n- 3 -\n\"Mr. Henry Moir, Chairman of the Finance Com-\nmittee of the United States Life Insurance Company\nand a member of the Federal Board of Actuaries,\nwas unable to attend the meeting; however, he did\nconfer with Mr. Williamson and Mr. Reagh on April\n9, and expressed himself as being in favor of the\n5 to 9 percent scale of tax rates which was agreed\nto by all except Mr. Glenn. Mr. Moir's views are\nset forth in B letter to Mr. Magill dated April 9.\nIn this letter Mr. Moir makes the suggestion that\n'in the early years employees pay the full amount\nof 5 percent and that the additional charges running\nup to 9 percent ultimately be paid solely by the\nemployers, thus equalizing in a manner the benefits\nand putting the extra costs on those who get the\nmost of the extra benefits, namely the present\nemployees.' In a footnote to the letter, Mr. Moir\nmakes an alternative suggestion that 'this might be\nmade 45 percent at first, rising to 9 percent on a\n50-50 principle.\n\"\nRespectfully submitted,\nGeorge B. Buck\nJoseph B. Glenn\nW. R. Williamson\nR. R. Reagh\n11\nMr. Buck was not present when the report was con-\ncluded, but it was read to him over the telephone\nand he authorized that his name be signed to it.\nSen. Harr.: Were these rates suggested on the basis that they\nare pretty generally agreed to, of 67 fraction percent\nas the retirement age?\n(Altmeyer comes in)\nMagill:\nWell, I have a letter from them on that subject.\nI don't know that the Secretary knows this, but Mr.\nHarrison and Mr. Pelley sent a letter which was\npresented to the actuaries, asking them to specify\nthe assumptions which they used. I have their answer,\nwhich is to the effect that they used the same assump-\ntions and the same tabulations, etc., which were used\nby the Railroad Retirement Board.\nRegraded Uclassified\n224\n- 4 -\nSen. Harr.: That was 67 plus, wasn't it?\nMagill:\nRight, yes.\nHarrison:\nLet me understand Number One in that letter of\nApril 10 that you just read, signed by four\nactuaries. \"It was unanimously agreed that the\ntax rates of the proposed bill are inadequate.\"\nWhat is your understanding of that statement?\nIs that based on the tax rates without considera-\ntion for the loading under Social Security, or\ndoes that include the loading under Social Security?\nMagill:\nIt is my understanding they took that into account;\nthat, taking all the factors into account, it is\ntheir view that for the plan to carry itself the\nrate should be five to nine in the way they have\nstated, or Mr. Glenn thinks a level seven.\nDoughton:\nThink it should be five to seven, or seven flat?\nMagill:\nMr. Glenn has suggested it should be a level rate\nof seven; that is, starting now at seven and con-\ntinuing at seven, with this provision for read just-\nment at some period of three years, five years,\nwhat you will. The others, the three others who\nattended the conference, and Mr. Moir, who is the\nthird member of this Government board of actuaries,\nall felt that the rate should run from five to nine;\nthat is, increasing - starting at five for the first\nthree years, then increasing one percent and running\nat six for the next three years, and so on, until\nthey reach nine in 1949.\nDoughton:\nWasn't it a kind of understanding, or sentiment\nexpressed here at our meeting the other day last\nweek, that we go along for three years and then have\na survey of the whole situation? Having accumulated\nall the facts, they could make an adjustment then in\nthe light of experience up to that time.\nMagill:\nThat's right. I think we all agree that a provision\nof the kind they mention here in Paragraph 4 ought to\ngo in; that is, a provision for periodical adjustment\nof the rates.\nNow, the actuaries' idea, as I understand it, is that\nRegraded Uclassified\n225\n- 5 -\nthe rates to go into the bill ought to be rates of\nsuch a character that, in the light of your exper-\nience now, they indicate that the plan would be\nself-supporting. If it proves in the future that\nmore money is coming in than is necessary, rates\nshould be adjusted downward. If it proves that the\nmoney coming in is less than we need, the rates\nshould be adjusted that way.\nDoughton:\nThese three-year periods here with the raise in\nthe rates don't mean, then, to interfere with or\nstop the three-year adjustment.\nMagill:\nThat's right.\nDoughton:\nBut it is just the best calculation they can make\nnow.\nMagill:\nThat's exactly it.\nHarrison:\nYou don't know to what extent the rates are inade-\nquate? Was it just slight or was it of great impor-\ntance?\nMagill:\nWell, I don't know. I didn't attend their meeting\neither. All I have is this report. In accordance\nwith our discussion here the other day, we put them\nin a conference room together and they worked at it\non Thursday afternoon, Thursday evening.\nHarrison:\nThe reason I asked that question is that I have a\nstatement here from Mr. Glenn and this is a distinct\nsurprise to me - that he had signed his name to another\nstatement that the tax yield would be inadequate. I\njust wonder how often he changes his mind.\nH.M.Jr:\nI'd like to ask why does Mr. Glenn do a thing like\nthat?\nLatimer:\nMr. Glenn, I'm - let me explain in behalf of Mr.\nGlenn.\nH.M.Jr:\nI mean this Railroad Board is all the time springing\nsurprises on the Treasury. I mean who are you working\nfor anyway?\nLatimer:\nWe're working for the Government of the United States.\n226\n- 6 -\nH.M.Jr:\nWell, I just wonder sometimes who you are working\nfor. What right does Mr. Glenn have to send some-\nthing like that and not advise us?\nLatimer:\nYou have a copy of it.\nH.M.Jr:\nOf Mr. Glenn's letter?\nMagill:\nI don't know what it is.\nHarrison:\nThis is the final statement that we received from\nthe Retirement Board.\nLatimer:\nAnd the actuaries.\nHarrison:\nOn the cost.\nMagill:\nWas this before or after the meeting?\nHarrison:\nBefore.\nMagill:\nWell then, all that stuff went into the meeting.\nWe sent in everything we had.\nHarrison:\nNow, when we got through with our agreement with\nthe railroads, I asked the Retirement Board actuary\nto give me a statement of the cost of providing\nthe benefits, the last final word on the cost of\nproviding the benefits, and that was just before\nthis conference was held. And I got the statement;\nit might have been prepared still earlier than that.\nNow, here's the statement that I received from Mr.\nGlenn. It starts out in 1937, runs up to 1975; shows\nthe income, shows the outgo, And in 1975, under the\npresent schedule of taxes we propose, there will be a\nsurplus of 592 million, 275 thousand dollars, after\nall the benefits are paid up to 1975. And I have it\nhere for each year commencing 1937.\nSen. Harr.: When was that letter....\nHarrison: This was prepared and forwarded to me just before\nthe conference of the actuaries.\nSen. Harr.: I don't see anything improper in that. But they\nrefigured it, I suppose.\nRegraded Uclassified\n227\n- 7 -\nH.M.Jr:\nWell, when I made that statement I thought that\nthe letter you had was given after this meeting.\nHarrison:\nNo, before.\nH.M.Jr:\nWell then, I withdraw my statement. I thought it\nwas given after. That is what I couldn't understand.\nHarrison:\nI don't understand the difference in Glenn's two\nstatements.\nMagill:\nWell, all - as I say, as far as this summary is con-\ncerned, I am in exactly the same position you are,\nbecause, as I think we all did, I wanted to be\nscrupulously fair about this thing and I didn't attend\ntheir meeting at all. I went around once in the course\nof the afternoon to see how they were coming along and\nfound they were at about an agreement, and this is,\nas you can see - they have all signed this thing and\nthat's all I know about it.\nLatimer:\nThere is no difference in Mr. Glenn's position in\nthat memorandum and what he's taken here. If you\nlook at that particular statement there - 1975 -\nprobably around the year 2000 the reserve is going\ndown, you will notice.\nHarrison:\nWell, this runs to 1975 and I understood that after\nthat it would go down.\nLatimer:\nYes. Now, Mr. Glenn, of course, does not believe\nthat the five to nine percent rates are necessary.\nHe says on a seven percent flat rate that reserve\nwould not go down. So Mr. Glenn's two statements\nare in accord. Of course, on the basis of that\nsame statement, if you had a five to nine percent\nrate, you would have a couple billion reserve by\n1975.\nSen. Harr.: You'd have a how much?\nLatimer:\nCouple billion.\nH.M.Jr:\nCouple billion surplus.\nLatimer:\nThat would be the accumulated excess of income over\noutgo.\nRegraded Uclassified\n228\n- 8 -\nSen. Harr.: Well, I don't understand that, Latimer.\nMagill:\nI don't either.\nSen. Harr.: Now, this figure is based on a five going up\nto seven. Latimer, this statement here that Mr.\nHarrison has read is based starting at five percent,\ngoing up one-half percent triennially to 1949; then\nit shows how much?\nHarrison: $592,275,000.\nSen. Harr.: On this basis of seven percent flat, you'say it\nwon't be as much or be more?\nLatimer:\nIt will be more, but you won't go down; you come to\na level point where it won't go down. But on the\nfive to nine you have a still higher reserve.\nHarrison:\nAs I understand it, 1975 was as far in the future,\nwith any degree of certainty, that any actuary could\nforecast the needs of a plan like this, because of\nthe variable assumptions underlying the calculation\nof the cost. And they made the figures up for me\nto 1975, and it shows a surplus of 592 million by\nthen.\nNow, I agree, and I think anyone that knows anything\nabout our railroad problem will agree, that the under-\nlying assumptions on which you make the figures are so\nvariable, changeable, that you just cannot plan it\nbeyond 1975.\nMagill:\nOf course, I don't get that letter, because we have\nhad these various computations from the Retirement\nBoard and, as I say, it is my - the actuaries have\nwritten me that they use the Railroad Retirement Board\nassumptions in arriving at this conclusion.\nNow, I know that it is true, from some of the state-\nments that we have had from the Retirement Board,\nthat along about 1955 or 1962, along in that period,\nthe fund would show & red figure.\nH.M.Jr:\nMay I interrupt a minute?\nHarrison:\n1955 - my figures show a surplus of $916,485,000.\nH.M.Jr:\nMay I ask....\nRegraded Uclassified\n229\n- 9 -\nMagill:\nAs we have had so many statements, I don't know which\nis which.\nH.M.Jr:\nDo I understand the Railroad Retirement Board did\nfurnish Social Security and Treasury with a copy of\nthis letter?\nLatimer:\nYes, we sent that to Mr. Magill; he has that, I\nbelieve.\nMagill:\nI think we got it. Of course, I don't know what\nletter Mr. Harrison has. But I gave the actuaries\neverything that we had received.\nHarrison:\nI think I got that two or three days before, and\nwe transmitted a copy of it with a letter that we\nsubmitted to the actuaries - that is, to the Secre-\ntary of the Treasury. We transmitted a copy.\nLatimer:\nIf you remember, in that first memorandum we said\ncomplete recalculations were going on, and those\nare the complete recalculations (handing paper to\nMagill).\nMagill:\nOf course, you appreciate I can't speak to this.\nH.M.Jr:\nWell, may I not say something, please, because we\ndon't - the other day, when this whole thing comes\ndown to a matter of rates we couldn't agree on the\nactuaries, so I made the suggestion that - or some-\nbody made the suggestion we get these actuaries\ntogether, and I said I'd be satisfied, didn't I?\nDoughton:\nYou made the suggestion yourself. That was your\nsuggestion.\nH.M.Jr:\nAnd I said I'd be satisfied with what this group has\nagreed on. And I haven't changed my position and I\nam perfectly willing to take either one of these.\nThey make two suggestions and I'll take either one.\nDoughton:\nI'd like to ask this question.\nH.M.Jr:\nSee? Now, we said we'd get these fellows together\nand get the report, and I'll take either. They make\ntwo suggestions. They make one suggestion and Glenn\nmakes another. Now, I'll take either one, with the\nRegraded Uclassified\n230\n- 10 -\nunderstanding that at the end of three years it be\nreviewed. Now, I stand just where I stood the\nother night.\nDoughton:\nThe question I wanted to ask was if this motion\ncarried here in Number Two of the summary, made\nby Mr. Williamson, concurred in by all but Mr.\nGlenn, who didn't vote - if it is agreeable to\nall parties that the legislation proceed on that\nbasis, that gives us a chance to readjust at the\nend of three years.\nHarrison:\nYou mean start out at five percent for the first\nthree years and then study it.\nDoughton:\nUnless experience accumulated up to that time would\ndemonstrate some other rate was necessary. That is,\nas I understand, kind of a tentative suggestion.\nIf it was permanent, there would be no use for the\nreadjustment, but that's a tentative suggestion, the\nbest they can give now.\nHarrison:\nStart out at five percent for three years from the\nfirst of January, '37.\nH.M.Jr:\nYes.\nMagill:\nTheir suggestion is to write in in the same law and\nin the same way as the proposed plan, except you get\na maximum of nine instead of the proposed maximum of\nseven, and write in this provision for an adjustment\nof rates periodically to see whether or not they are\ntoo high or too low.\nHarrison:\nWell now, since you are going to have the examina-\ntion of the question within three years and we both\nagree that if it does disclose that it needs to be\nrevised, we will agree to B revision, why not start\nout with the proposed tax rates as we have them in\nthe bill and then only - and make the revision on\nthat base.\nMagill:\nWell, isn't it better policy - as I understood it,\nwe all agreed to get these actuaries in and see if\nwe can get an agreement out of them. Now, all the\nactuaries agree that the proposed rates are inade-\nquate, and they have proposed two alternatives.\nWell, as long as we are writing the bill now, why\nRegraded Uclassified\n231\n- 11 -\nnot write the bill in the form which they regard\nas adequate?\nHarrison: There is just this to that. We had an agreement\nwith the railroads that took the tax up to 8 maximum\nof seven. This raises the maximum two points beyond\nseven. Now, you can see what you're doing to our\nagreement.\nDoughton:\nAs I understand, Mr. Harrison, they did agree at the -\nthe other day that at the end of a three-year period\nthey would agree to whatever rates are necessary.\nHarrison:\nYes, I subscribe to that. I subscribe to that. At\nthe end of the three-year period, have it adjusted\nto whatever is necessary. That's the way I under-\nstood it, and that was agreeable to Mr. Pelley.\nH.M.Jr:\nMay I ask, is that agreeable? Just what is your\nposition now in the light of this report?\nPelley:\nI don't know that I have any position at all, Mr.\nSecretary. I would like to get straight on Mr.\nGlenn's position, because he is the actuary that\nwe have relied upon throughout our negotiations,\nand I'd like to get clear as to whether or not he\nis changing his position.\nMagill:\nThis is his last word.\nSen. Harr.: Well, I don't see, John, where he's changed his\nopinion except this: As I understood Mr. Latimer,\nall of them had some doubt about after 1962 under\nthe present proposal, starting out at five, going\nup one percent, etc., up 'til 1912. Now, Glenn\nsubscribes to the proposition that 1f you make a\nflat rate of seven percent he doesn't think there\nwould be any deficit. Isn't that right?\nLatimer:\nNo. No, he wants it revalued at certain periods.\nHe's unwilling to say - he thinks it will be at\nleast five years before you will have sufficient\nexperience to establish the definite rate. That's\nhis position.\nBut I'd like to say this about Mr. Glenn. Of course,\nin the statements which have been issued there by Mr.\nRegraded Uclassified\n232\n- 12 -\nGlenn, he has said that, taking this plan by\nitself without going into anything else, the\nlevel cost is 7.11 percent, so that he hasn't\nchanged his position on that at all. In fact,\nthis seven percent here is a little lower, taking\nit by itself, than what he has previously said.\nMagill:\nAs I get it, ne says that seven percent is probably\ninadequate.\nLatimer:\nYes.\nMagill:\nBut he says, \"Let's make it a flat seven.\"\nHarrison:\nWell, that's the reason I asked the question if,\nin the statement that the tax rates were inadequate,\nthey took into consideration the loading under\nSocial Security, because the loading is in the\nfigure 7.11.\nLatimer:\nI think the general position of the actuaries was\nthat it couldn't be taken into account; therefore,\nit was out.\nAltmeyer:\nMy understanding is that instead of there being a\ndifferential which would favor the railroad retire-\nment system, there is a differential that would favor\nthe Social Security system, if they all stayed together;\nthat the actuaries agree now that\nLatimer:\nGlenn doesn't agree to that.\nAltmeyer:\nMy understanding is that the actuaries agreed that\nthis differential existed only about the first 15\nyears and after that it turned the other way.....\nLatimer:\nGlenn doesn't agree to that.\nAltmeyer:\n...and that the mistake made was that these figures\nwere not run out far enough and it was assumed there\nwas a permanent differential when it now appears,\nrunning the figures out further, because of a higher\nwage level there is a differential the other way.\nSen. Harr.: Well now, let me ask the Secretary of the Treasury -\nif one of these propositions should be agreed upon,\nthen that removes the proposition that was debated\n233\n- 13 -\nat first as to the amount of taxes that is due\nthe Government under the present law, which is\nestimated to be about a hundred and some odd\nmillions of dollars, and that the Act start from\nJanuary 1st this year....\nH.M.Jr:\nThat's right.\nSen. Harr.\n....as in the proposition. And under the agreement,\nas I understand, there would be paid in immediately\nto the Treasury, as of April 1st, about 30 millions\nof dollars. Is that right?\nH.M.Jr:\nI don't know about the 30 million.\nSen. Harr.: Well, I understood it was 30 million.\nBell:\nIt was about 55 million, I think Mr. Pelley said.\nHarrison:\nFor the six months.\nPelley:\nFor the six months.\nLatimer:\nFirst quarter, 271.\nH.M.Jr:\nBut without - leaving out that last statement about\nhow much is paid in, for the other part your statement\nof the facts is as I understand it.\nSen. Harr.: I just wanted to get that clear.\nDoughton:\nNow, it is agreed that we'll start at five percent.\nThat is what the railroads and the Brotherhoods seem\nto think will be adequate. The actuaries seem to be\nagainst them, think it may not be adequate. Now, it\nis agreed further that if it is not adequate they are\nwilling to go up to what is adequate - 6, 7, 8 or 9.\nPelley:\nGo up with the taxes or come down on the benefits.\nHarrison:\nThat's Pelley's position. It is not my position. My\nposition is: go up with the taxes.\nPelley:\nWe'll settle that later.\nDoughton:\nLet's fight that out three years from now.\n234\n- 14 -\nSen. Harr.: Well, of course, the motion here that all voted for\nexcept Mr. Glenn - five percent for three years -\nwell, that's a little different from the agreement.\nThe agreement that they made was five percent for\nthe first year, increase to five and a quarter the\nsecond, five and a half the third.\nPelley:\nFive for three years and then....\nMagill:\nThis is the same as their agreement.\nSen. Harr.: I thought it went up a quarter.\nHarrison:\nIt goes up a quarter percent each three years for\ntwelve years.\nDoughton:\nIt looks to me like you've got something you could\nstart on and get away from these conferences; we've\nhad enough.\nH.M.Jr:\nIt seems to me we've come about nine-tenths of the\nway.\nDoughton:\nWell, all you want is the Treasury to be protected.\nSen. Harr.: I don't know - if you're going to do it, we've got\nthe thing laid in our lap three years from now and\nthe actuaries are going to be called in, but we don't\nknow whether we'll be here.\nDoughton:\nGet a lot of experience in three years.\nPelley:\nNone of us know whether we'll be here.\nH.M.Jr:\nJust one thing, Senator Harrison, you didn't mention.\nThat is, if this goes through on the - whatever you\ncall it - on the Number Two plan\nBell:\nFive to nine.\nH.M.Jr:\n...five to nine - I mean it would be necessary for\nus to send up in the last deficiency bill a request\nfor 40 million.\nBell:\nSomething like that.\nHarrison:\nEnough to finance it for the balance of the fiscal\nyear.\n235\n- 15 -\nBell:\n'38, yes.\nHarrison:\n138 fiscal year.\nSen. Harr.: Don't you get right away some 40 million or something\nlike that?\nH.M.Jr:\nWell, the important thing is to take over their 200\nmillion dollar fund.\nBell:\nWe have 46 million dollars already appropriated to\ntake care of '37 and '38 under the present bill.\nPelley:\nHow much of that has been spent, Mr. Bell?\nBell:\nAbout six million spent to date.\nLatimer:\nSix million?\nBell:\nI think it's six million.\nPelley:\nAbout a million.\nLatimer:\nAbout a million and a half.\nBell:\nI may be wrong on that.\nMagill:\nI should think as long as you are contemplating an\nagreement that will undoubtedly go on indefinitely,\nyou ought to write it in the same way - same general\nform that the plan contemplated; that you are setting\nit up on a permanent basis, five percent for three\nyears, six percent for three years, seven percent\nfor three years, etc. Social Security is written\nthat way, isn't it?\nAltmeyer:\n(Nods yes)\nMagill:\nSo you can see what - you've got this provision for\nadjustments. If the rates prove to be too high,\nall right, let's change it - or 1f they prove to be\ntoo low. But I think for the same reason you were\ntalking about a minute ago, it is well to put the\nthing on a permanent basis if you can, so as to avoid\nas much as you can of this discussion as to what the\nrates ought to be three years from now, when we may\nnot yet know. You see, Glenn says here, as far as\n236\n96 I 1\nthat is concerned, that you won't know for five\nyears whether the thing is self-supporting or\nnot. Now, it seems to me that the proposal, this\nNumber Two proposal, is entirely fair to everybody,\nbecause it means that the agreement starts off on\nexactly the basis that the Brotherhoods and the\nrailroads have agreed.\nSen. Harr.: You don't have to take it back to them for any\nchange?\nMagill:\nNow, you step it up to a higher rate than that which\nwas ultimately contemplated, but if that proves to\nbe improper from your experience, why, you put in\nmachinery for making the change.\nSen. Harr.: Well, writing the law is what I'm getting at now.\nI want to know your idea as to how the provisions\nshould read. Are you going to write it and say that\nfor the first three years the rates should be five\npercent and that after that time the Congress must\nfix the other rates?\nMagill:\nNo, I'd write it as a permanent plan - five percent\nfor the first three years, six percent for the next\nthree years, seven percent for the next three, etc.,\nup to this maximum of nine which is going to be\nreached.\nSen. Harr.: Well, if you fix it that way, then the Brotherhoods\nand the railroads have got to take it back to their\nrespective principals, because it is a change in\ntheir agreement. Am I right?\nPelley:\nYou are.\nSen. Harr.: That's why I was asking the question.\nPelley:\nIt seems to me now, since you folks have gotten away\nfrom the position that you had from the beginning,\nthat we ought to pay in this money that's accrued\nunder the old law, we ought to be able to carry out\napparently what Mr. Doughton has in his mind. This\nagreement - just go on with the agreement, write it\ninto the law; if you want to make some provision that\nat the end of five years have a look at it and see if\nit is adequate, and if not then some adjustment will\n237\n17 I 1\nbe made, that's all right.\nH.M.Jr:\nThree years.\nPelley:\nThree - well, that's all right. That will tell us\na good many things. Three years from now we'll\nknow something about where we're going a little more\ndefinitely than we do now. I think, to be perfectly\nfrank with you, that our people would not agree now -\nnot commit themselves to paying nine percent at any\ntime. I don't know whether the men want to do that\nor not; that's 42 percent of their pay. And Mr.\nLatimer says that it will build up a reserve of a\ncouple of billion dollars. Now, we're rather poor\nand the men are none too rich and I don't know if\nyou want to set up a reserve of that kind.\nSen. Harr.: Well, without committing yourself as put up to the\nreilroads, do you think that they would rather have\na five percent for three years and then step it up\nhalf a percent and get nine percent in twelve years,\nor whether they'd rather have a flat seven percent\nproposition?\nPelley:\nI think they'd rather have the five percent, Senator,\nbecause they are all in more or less financial diffi-\nculties - not all of them; some of them are all right.\nTheir business is getting better. This five percent\nidea, I think, was what made it possible to sell it\nto them. They got started on the lower basis. And\nas I pointed out here the other day, we're really\nstarting on a 23 percent basis while all other indus-\ntries are getting started at a one percent basis, and\nit's a pretty good load for them.\nMagill:\nOf course, you've got a big selling point to them\non this five to nine, for instance. You're relieving\nthe fifteen railroads, or whatever it is, of this\n200 million dollar liability which they are now under,\nand which, as I understand it, is costing 36 million\ndollars a year\nBell:\nWhich is more than 11 percent.\nMagill:\nwhen they get out of that - which is more than\nthe 1 ± percent. And further, they are relieved of\nthe potential liability for whatever might be found\nRegraded Uclassified\n238\n- 18 -\nto be due under this present law; and the way the\nSupreme Court is going now, I think they will uphold\nthe present law. So I think as far 8.5 your railroads\nare concerned, they're getting an awful good break.\nPelley:\nWell, as a matter of fact, as compared with the pre-\nsent, they're stepping up their pension bill from\nsome 36 million to a minimum of 55 million, and to\na maximum of something like 75, and that is the con-\ndition that confronts them, and it takes that many\nmillions of dollars to pay the bill.\nBell:\nBut for the present you are better off under your\nproposed scheme than you would be if you came in under\nthe Social Security Act.\nPelley:\nWell, I don't know; I haven't considered that.\nMagill:\nAs long as the railroads agreed to the five to seven\nproposition, I don't see how they can fail to agree\nto this, since you have this provision for an adjust-\nment of the rates either way. Now, you were arguing\nwith us the other day that the Treasury would be pro-\ntected if we had B provision for adjusting the rates\nup. Now, by the same token you will be protected\nif you have a provision for adjusting the rates down.\nIt will work both ways. It seems to me the sensible\nthing to do is to start the program on a basis which\nyour actuaries agree is sound. Now, if you find that\nexperience shows that they took too much into account,\nor didn't take enough, why, all right, let's change it.\nBut as I understood, we were all in pretty general\nagreement the other day to put it up to these actuar-\nies and see what they had to say, and if they could\narrive at an agreement, to go forward on that basis.\nNow, as the Secretary said, we are willing to go\nahead with that arrangement. We'll take either one\nof these things.\nDoughton:\nLooks like both the Treasury and the railroads are\nprotected, provided they carry out the spirit of\nthis agreement.\nMagill:\nThat's right.\nSen. Harr.: In writing the law I've gotten Mr. Magill's viewpoint\nthat it ought to be written starting out at five and\nstep it up to nine, and that is written into the law\nRegraded\n239\n- 19 -\nwith a provision that in three years these reports\ncome in and that such adjustments be made as are\nshown to be necessary at that time. Now, would that\nbe satisfactory or would you rather have the law be\nwritten just as the agreement makes it, of stepping\nit up to seven percent?\nPelley:\nI'd rather have it as the agreement is written,\nSenator, and I think everybody is fully protected.\nIf we've got the agreement, why not go ahead and\ncarry it out? Just as George Harrison said and our\npeople are willing - now, to go back to them with\nanother proposition that lifts it up to nine - I\nthink we'd have difficulty getting them to make\na commitment now that they are going to pay nine\nseveral years from now.\nSen. Harr. Is this provision of three years going to be written -\nabout what would be the wording of it?\nMagill:\nWell, I - I haven't got it in front of me. I think\nKent has got a draft of such a provision. What we\nhad in mind was a provision for reports as to the\nsufficiency of the fund remaining unexpended to meet\nthe estimated liabilities.\nBell:\nwith a recommendation.\nMagill:\nWith a recommendation.\nHarrison:\nWell, we couldn't agree to anything like that. That\nties the two together. The whole theory underlying it\nis to keep the two separated.\nMagill:\nThat's got to be taken into consideration.\nHarrison:\nHave two reports. Have a report of the benefits under\nthe benefit law, and a report of the liabilities under\nthe - of the income under the tax law.\nMagill:\nAll right.\nHarrison:\nAnd with that we can follow along. Because some\nindividual employee or stockholder, or some railroad\nthat has not subscribed, may attack this in the courts,\nand we don't want to tie them together because we feel\nthen we wouldn't have & chance to sustain the two.\n240\n- 20 -\nMagill:\nof course, we're just as anxious as you are to put\nit on a basis to sustain it; we'll do everything we\ncan to sustain it.\nHarrison:\nAside from that, I don't see anything wrong in the\nproposition. In fact, we have a section in the pro-\nposed bills now calling for a report.\nDoughton:\nIf we put the rates in there from five to nine, with\na proviso that it not go to the nine unless necessary -\nit might not be necessary that the rate go that high,\nif experience demonstrates that five or six would be\nsufficient. If that proviso is put in that it shouldn't\ngo above what is necessary to support it - if that is\nkept in good faith and it means anything, it looks to\nme like you are amply protected, and let's get this\nthing started.\nPelley:\nYou see, the difficulty we have, Mr. Doughton - it is\nmost important that all the roads agree to this. If\nI were handling George Harrison's job, I wouldn't\nenter into any kind of agreement with the railroads\nthat didn't bring them all in, because I think he's\ngot a right to ask that they all come in; he's making\na deal for all of his men on all of these railroads.\nWell, some of the railroads have no pension plan; some\nof them pay nothing - the Milwaukee and others -\nseveral of them pay nothing. I think it would be\nimpossible to get them committed to 42 percent of\ntheir payroll.\nDoughton:\nWith a proviso that they wouldn't have to pay it\nif experience demonstrated it wasn't necessary?\nPelley:\nYes, I think it would be very difficult to get them\nto do it. They have, though, for the sake of an\nagreement, come in on the basis of ultimately 3a -\n7 percent in twelve years.\nNow, I say they have all come in. as a matter of\nfact, no one voted \"no\" on the proposition; there\nwere a couple of them not voting. I think they will\nnot contest the law if it is passed. I think they\ngo right along. But to get them to come in on a\nnine percent basis I believe would be almost impos-\nsible - to get a unanimous assent, and that is what\nhe wants and that is what I think he has a right to\nhave.\n241\n- 21 -\nBell:\nWell, may I ask, what are you going to do at the\nend of three years if you find out that the rate\nto which you agreed is not sufficient?\nPelley:\nWell, we'd have to make a new agreement.\nBell:\nThen, I suppose, they are free to attack the Act.\nPelley:\nBeg pardon?\nBell:\nAre they free to attack the Act?\nPelley:\nWell, if there is a substantial change, more than\nanybody could stand, I presume they would feel that\nthey had a right to do that.\nBell:\nThen this agreement really isn't much good except\nfor the first three years, is it?\nPelley:\nWell,...\nSen. Harr.: Unless they got the confirmation of the railroads.\nBell:\nUnless they got the rates they want.\nPelley:\nWell, of course, what I have said is that if it is\nseen that the fund is not sufficient, then the same\npeople will have to make another agreement, increase\nthe tax or reduce the benefits, one or the other.\nH.M.Jr:\nBut you made a statement that not all the railroads\nhave agreed to this.\nPelley:\nWell, there's nobody objected to it, Mr. Secretary.\nIn the vote that was taken on the proposition, there\nwas nobody - - not any road voted \"no.\"\nH.M.Jr:\nWell, how did they vote on it?\nPelley:\nA part of the agreement is that the railroads will\nnot contest this.\nH.M.Jr:\nHave they all agreed to that?\nPelley:\nNobody said they would one or two not voting.\nH.M.Jr:\nOne or two might start a suit tomorrow.\n242\n- 22 -\nPelley:\nThey might, but I think the chances are very remote.\nOne of them, the one that I thought might, has said\nto me on the side that they'd go right along; they\nwouldn't give their assent to it because they have\nno pension plan at all, but they'll ride along with\nthe group.\nH.M.Jr:\nI mean you're - being very frank, it isn't you....\nPelley:\nI'm telling you just exactly\nH.M.Jr:\nYou really can't give an ironclad guarantee on the\nsuit.\nPelley:\nWell, I can on all but one or two railroads, and I\ndon't think they're going to take on the cost, Mr.\nSecretary.\nH.M.Jr:\nPardon me?\nPelley:\nI don't think those one or two would want to take\non the expense of fighting a law suit about it or\ncontesting the validity of the law. There won't be\nany trouble about it.\nH.M.Jr:\nWell, I'll just say to Senator Harrison I can only\nrestate my position - where we were. We asked for\nthis report and we got it and I'm willing to abide\nby it.\nLatimer:\nWell, are those two things mutually exclusive? You\nsay you'll take Mr. Glenn's suggestion and you will\ntake what the other actuaries consider the equivalent\nof Mr. Glenn's suggestion on a step-up basis.\nH.M.Jr:\nWhat do you mean?\nLatimer:\nWell, the Number Two is equivalent to an 8.22 rate\nstarting immediately. Glenn's flat seven - I don't\nknow what equivalent step-up you'd have to have to\nstart at five and get the equivalent of what Mr.\nGlenn's flat seven is.\nPelley:\nProbably won't be nine.\nLatimer:\nNo, wouldn't be nine.\nRegraded Uclassified\n243\n- 23 -\nH.M.Jr:\nNow, there are just the two - start five going to\nnine, or flat seven.\nBell:\nWould you (Latimer) reduce it to some point where\nyou'd get\nLatimer:\nWhat I am saying is, the Secretary has said that\nhe's agreeable to Mr. Glenn's suggestion of seven\npercent.\nH.M.Jr:\nA flat seven.\nLatimer:\nYes, a flat seven. Well, the equivalent of Number\nTwo is 8.22. Now, you were saying that as far as\nyou are concerned you'll take either seven or 8,22.\nH.M.Jr:\nNo, you can't\nBell:\nÀs an average.\nH.M.Jr:\nNo, you can't say that. I'm saying just in the exact\nlanguage; I'm not trying to rewrite or interpret\nanything. I'll take it just as it is written there.\nDoughton:\nWithout committing yourself (Pelley) for the railroads,\nwould your view of it be that they prefer the starting\nat five and going to nine or starting now at seven?\nNot committing yourself - but of the two.\nPelley:\nWell, I couldn't say what their view would be on that.\nI don't know what they'd say about that, Mr. Doughton.\nI think they'd be pretty slow to get above seven.\nSome railroads probably would say - I'd take the\nseven now and that's all, if I had to settle it one\nway or the other.\nH.M.Jr:\nYou'd do what, Mr. Pelley?\nPelley:\nI think probably some of them would take the seven.\nI think I would if I were running a railroad - prob-\nably start at the seven rate rather than to go up to\nnine ultimately. This nine - this suggestion here,\nas Mr. Latimer says, is going to build up a tremen-\ndous reserve.\nHarrison:\nWould that be to put it at seven percent and study\nit at the end of three years, or would that be 8. flat\npermanent rate?\n244\n- 24 -\nPelley:\nI have no idea of what they'd do about it; just\ntrying to answer Mr. Doughton, really giving my\nown personal view.\nDoughton:\nIf you - in other words, if seven should not be\nenough, you'd fight to go down on the benefits\nrather than to go up above seven.\nPelley:\nThat's right.\nSen. Harr.: Well, do you gentlemen want to confer with your\nrespective interests?\nHarrison:\nI want to get the record straight here on one\nquestion, if I may, because of the great impor-\ntance to these men I represent. I'm not in the\nhabit of picking their pockets myself, and don't\nwant it to be done 1f I know it's going on.\nTell me about this Social Security loading. Now,\nwhere do we stand on that? Let me have the two\nversions.\nMagill:\nGood!\nHarrison:\nI'd like to know the two positions on that.\nAltmeyer:\nWe stand on the letter we wrote to Railroad Retire-\nment. The effect of the letter we wrote to Mr.\nLatimer, in response to his letter, is that the\nrailroads and the men should contribute to Social\nSecurity rather than Social Security contribute to\nthe railroads.\nHarrison:\nIt is just the opposite to what we had been under-\nstanding heretofore.\nAltmeyer:\nYes, but our letter is clear there. Our letter says\nthat the fourth principle furnishes the answer to\nthe first of your specific questions. \"Provision\nof an old-age retirement system for any specific\ngroup is to be regarded as composed of the general\nold-age benefit system with this correlative finan-\ncial support, with a superimposed structure of\nbenefits and a corresponding means of providing for\nthem.\" In other words, the creation of the special\nsystem should not affect the balance between income\nand outgo which would exist without it. Now, if the\nRegraded Jclassified\n245\n- 25 -\ndifferential is the other way, lifting out the\nrailroad industry from Social Security does ad-\nversely affect the Social Security system rather\nthan help it.\nHarrison:\nWhat is the position of the Retirement Board as\nof today on that?\nLatimer:\nWell, I'm basing mine on the studies made by\nWilliamson, that between now and 1970 the taking\nout of the railroad employees does affect favorably\nSocial Security. Of course, what - the difference\nthere is we have taken into account a period\nAltmeyer:\nYou didn't mean Williamson. You meant Glenn.\nLatimer:\nNo, Williamson.\nHarrison:\nWhat is the authority for your (Altmeyer) statement?\nAltmeyer:\nMy authority is that Williamson tells me that this\ndifferential ceases to exist in 15 years\nHarrison:\n(Laughs)\nAltmeyer:\n...and that the differential starts moving the other\nway at the end of 15 years.\nHarrison:\nWhat does Williamson tell you (Latimer)?\nLatimer:\nHe told me it started moving the other way in 1974.\nMaybe he's made some new calculations.\nHarrison:\nThere is a differential until 1974 in favor of the\nrailroad men?\nLatimer:\nYes.\nAltmeyer:\nWell, it may mean that the differential starts moving\nthe other way in 15 years, but does not completely\ndisappear until 1974.\nHarrison:\nBut the ultimate result is that the differential is\nexactly the opposite from what we had understood\npreviously.\nH.M.Jr:\nWell now, g entlemen, I don't want to hurry this thing,\nbut I don't know whether the railroad owners and\nworkers want to have a chance to think this over.\nRegraded Uclassifie\n246\n- 26 -\nI think as far as I'm concerned - I think I've\nmade a cleancut statement, and if anybody wants\nto ask the Treasury where we stand at this time\nI'll repeat it if necessary, but I think I've\nmade my position clear. I'd like to ask Senator\nHarrison and Mr. Doughton whether they want to\nask me anything more.\nSen. Harr.: I think I understand your position. You say that\neither one of these alternative plans will be satis-\nfactory to the Treasury.\nH.M.Jr:\nAs far as the Treasury - I can only speak for the\nTreasury, but I want to say - I have not shown this\nto the President, didn't want to bother him, but his\nposition has been right along that he'd asked these\ngentlemen to get an agreement and if the Treasury\nwas satisfied with the rates, he was satisfied; and\nthat's what the President has said, that he left it\nto me on the rates. Now, we'll take either one of\nthese things, and as long as the President, if the\nTreasury is satisfied, has said he'd agree likewise,\nthat's our position now; and it's good tomorrow and\nit's good a week from tomorrow.\nSen. Harr.: This (letter of April 10 from actuaries) been given\nto the press?\nH.M.Jr:\nNo, we didn't want to do it unless you people wanted\nus to do it.\nDoughton:\nOh, see.\nSen. Harr.: I want to keep this copy myself.\nH.M.Jr:\nWould you like us to give it to the press?\nSen. Harr.: I don't care myself; it's up to these gentlemen.\nDoughton: I don't think there's any use giving it to the press.\nThey'd find something in it to criticize.\nSen. Harr.: The press will get it; they - hell, they get every-\nthing. So I don't see - anybody see any objection\nto giving it to the press?\nDoughton:\nI think it won't benefit; it won't do any good.\nRegraded\n247\n- 27 -\nH.M.Jr:\nIt won't leak out from here; I can assure you that.\nDoughton:\nIf you give that to the press, without any sign of\nan agreement, the press will try to stick us, like\nthey always do. We're just up against this situation,\ngentlemen, right now. Unless we can get an agreement,\nthe only thing our Committee can do is to go forward\nwith what the Committee deems is wisest to do, or do\nnothing. It looks like it's going to be left to our\nCommittee right now - left to our Committee as to\nwhat we do, or do nothing.\nH.M.Jr:\nWell, may I ask one question - two questions? One\nquestion I'd like to ask Mr. Pelley. Have you\nanything - I mean any complaint or anything about\nthe reasonableness of my position, in view of the\nreport I have received from the actuaries?\nPelley:\nOh, I haven't any quarrel at all with anything you\nhave done at any time, Mr. Secretary.\nH.M.Jr:\nBut I mean - anything you'd like to ask me to clear\nup my position?\nPelley:\nNo, I don't think so. I can't quite get straight\non this Glenn position. You see the position that\nwe're in. We met to try to make an agreement, and\nwe were told that we might use the Retirement Board\nand their actuaries, and we did that, and so far as\nI was concerned I relied absolutely on what they had\nto say about it, so far as the tax was concerned.\nAnd we get this agreement which we understand is\nactuarially sound and have said SO. And what I am\nnot quite clear on is whether the people who told\nus it was actuarially sound are now saying it was not.\nI'm not quite clear on that.\nH.M.Jr:\nWell, I don't know how Mr. Altmeyer - but I can only\ntalk for the Treasury and I just have to repeat. We\nwent through what we said we would, that we'd get these\nfellows in a room and tell them what to do; they did it;\nnow I'll take either one.\nNow I just want, before we break up, to ask Mr.\nHarrison if he wants to ask me...\nHarrison:\nNo, I have no questions to ask. I do want to make\nRegraded Uclassified\n248\n- 28 -\nthis statement, though: that we proceeded on the\nfigures furnished us by Mr. Glenn and now it is a\ndistinct surprise to me, as I read the letter, that\nhe makes the statement that the proposed tax rates\nare inadequate. And then, when we agreed to take\nover the present pensioners, the two hundred million,\nit was only with the understanding that there was a\nloading that we were entitled to of .54 of one percent\nof the payroll. We never agreed to pay any part of\nthis out of our pockets, but we were willing to let\npart of that be used to pay that - 32 hundredths of\nthe 54. Now 1f there isn't any loading, you can see\nthat we're going to have to put up half of .32 or\n.16 to carry this load of two hundred million.\nH.M.Jr:\nBut, if you don't mind, this isn't between you and\nthe Treasury.\nHarrison:\nNone whatever. I think your position, based on the\nadvice you have there, is exactly what my attitude\nwould be if I was in your position.\nH.M.Jr:\nWell, all I can say is any time.... We're through,\nwe've done our part, the rest is up to the gentlemen\non the Hill. If they want to meet again, why, we're\navailable.\nPelley:\nMr. Morgenthau, I understand, or am I to understand,\nthat you are agreeable to Number Three; that is, you'd\nbe willing to start on a flat seven percent basis?\nH.M.Jr:\nWith the understanding that at the end of three years\nthe matter would be reviewed.\nHarrison:\nI think that is advisable, irrespective of what rate.\nH.M.Jr:\nI'll take either one.\nPelley:\nWas there an answer to this letter we sent over?\nMagill:\nI think there is, yes. I know there is. Do you want\nthat?\nPelley:\nI'd be glad to have it.\nMagill:\nI'm not sure I have it here; yes, I do. That's simply\na letter of transmittal for your (H.M.Jr) signature.\nRegraded\n249\n- 29 -\nH.M.Jr:\nI'd like to have a chance to read this. It's too\nimportant to just sign. Suppose we get it over to\nyou late this afternoon.\nPelley:\nAll right, any time.\nSen. Harr.: Magill, I wish you'd send up to me - and I expect\nChairman Doughton wants the same thing - this tenta-\ntive draft that you say Kent has, that covers the\nprovisions with r eference to three years.\nMagill:\nAll right.\nSen. Harr.: Because I think it's going to be rather difficult.\nMagill:\nIt is hard to draw; no question about that. I don't\nknow how quick I can get it up to you.\nSen. Harr.: Well, what's the best thing on this newspaper\nbusiness? They'll begin to talk, want to ask\nquestions. All we can say to them, as I under-\nstand, is that we discussed this thing fully again,\nthat the actuaries who were appointed have made\na report and there is no definite conclusion to be\nreached between the Congressional representatives\nand the Treasury and the railroads and the Brother-\nhoods. Is that about right?\nDoughton:\nWe're studying their report.\nSen. Harr.: We're studying the report and undoubtedly there will\nbe more conferences.\nH.M.Jr:\nAnything you say is all right. You notice I haven't\ndone any talking.\n250\nApril 10, 1937.\nDear Mr. Secretary:\nIn accordance with your informal request an actuarial con-\nference was held on April 8, 1937, to discuss the adequacy of\nthe tax rates contained in the proposed Railroad Retirement Bill.\nThose attending the conference were Mr. George B. Buck,\nConsulting Pension Fund Actuary, New York, and Chairman of the\nFederal Board of Actuaries of the Civil Service Retirement and\nDisability Fund, Mr. Joseph Glenn, Actuary of the Railrond Retire-\nment Board, Mr. 1. P. Williamson, Actuary for the Social Security\nBoard, Mr. P. R. Reagh, Government Actuary, Treasury Department.\nand Mr. Maurice S. Brown, Actuary, Treasury Department. The con-\nclusions reached at this conference are sumarized as follows:\n(1) It was unanimously agreed that the tax rates of the\nproposed bill are inadequate.\n(2) Mr. Williamson made a motion that the tax rates in the\nproposed bill should be changed to rates beginning at\n5 percent for the first three years and going up 1 per-\ncent instead of one-half percent each triannual period\nto a maximum of 9 percent beginning January 1, 1949.\nMr. Buck, Mr. Williamson and Mr. Reach voted \"yes\" to\nthis motion, Mr. Glenn alone voting in the negative.\n(Mr. Brown. serving in a capacity of technical agois-\ntant, did not vote.)\n(3) Mr. Glenn suggested a flat rate of 7 percent for some\nfixed period of years, leaving the matter of adjustment,\nif necessary, to a. future Congress. Mr. Glenn admitted.\nhowever, that a uniform tax rate of 7 percent would very\nprobably prove to be inadequate on a permanent basie.\nSubsequently Mr. Glenn stated that he favored the con-\ntinuation of the present tax act (Public No. 400, 74th\nCongress, Second Session) except as amendments are\n251\nThe Honorable Secretary of the Treasury - - 2\nnecessary to change the scope of the coverage, thereby\nrequiring an annual reconsideration of the adequacy of\nthe rate. He believes that in no case should the fixed\nperiod exceed ten years and preferably that it should\nnot exceed five years. He feels that a period of at\nleast five years will elapse before sufficient experi-\nence has been accumulated to warrant the establishment\nof a definite rate for a longer period.\n(4) It was unanimously agreed that the bill should carry a\nprovision requiring periodical valuations of the contin-\ngent liabilities created by the act in respect to new\nentrants, existing members and pensioners, with a report\nto Congress and the public setting forth the amount of\nsuch liabilities as well as the level percentage of pay-\nroll required to pay the benefits. It was further agreed\nthat in order to assure the railroads, the employees and\nthe public of technical representation, the actuarial valu-\nations should be made subject to the supervision of a board\nof actuaries, one of whom might be designated by the rail-\nroads, one by the railroad employees, and the third by the\nSecretary of the Treasury.\nMr. Henry Moir, Chairman of the Finance Committee of the United\nStates Life Insurance Company and a member of the Federal Board of\nActuaries, was unable to attend the meeting; however, be did confer\nwith Mr. Williamson and Mr. Reagh on April 9, and expressed himself\nas being in favor of the 5 to 9 percent scale of tax rates which was\nagreed to by all except Mr. Glenn. Mr. Moir's views are set forth\nin a letter to Mr. Magill dated April 9. In this letter Mr. Moir\nmakes the suggestion that \"in the early years employees pay the full\namount of 5 percent and that the additional charges running up to 9\npercent ultimately be paid solely by the employers, thus equalising\nin 8. manner the benefits and putting the extra costs on those who get\nthe most of the extra benefits, namely the present employees.\" In a\nfootnote to the letter, Mr. Moir makes an alternative suggestion that\n*this might be made 41 percent at first, rising to 9 percent on a 50-50\nprinciple.\"\nRespectfully submitted,\ngu p.163\nGeorg B. Buck\nThe Honorable,\nJoseph B. bleem\nThe Secretary of the Treasury.\nWashington, D. c.\nR.R.Reegh\nRegraded Uclassified\n252\nTreasury Department\n1937 APR I2 AM II 01\ntelegraph OFFICE\n24w M 13\nNEW YORK NY 1042A APR 12 1937\nR R REAGH\nGOVERNMENT AGENCY\nHAVE REVIEWED LETTER SIGNED BY ACTUARIES AND AUTHORIZE THE AFFIXATION\nOF MY SIGNATURE\nQ B BUCK\n1102A\n253\nApril 13, 1937\nExcerpt from Mr. Magill's memorandum to the\nSecretary entitled, \"Memorandum of the Day's Activities\nfor April 15th\":\n1. Railroad Retirement Legislation:\nAfter our general conference this morning I instructed\nMr. Kent to examine the latest drafts of the tax bill and\nto make sure that the provision for periodical reports was\nproperly drawn. The Legislative Section has already been\nat work on the bill and we hope to give Chairman Doughton\na complete draft tomorrow morning. Mr. Reagh will confer\nwith Mr. Kent to give him the requisite actuarial informa-\ntion.\nSenator Harrison called about 2:00 PM to get our reaction\nto a revision of the rate schedule to 5% percent to begin with\nincreasing in the course of twelve years to a permanent rate\nof 73 percent. He stated that he would support these rates\nand that he believes the railroads will go along with him too.\nAfter reporting the conversation to you I tried to give him\nyour reply but he had left his office with the word that he\nwould call me in the morning. I reported the situation to\nMr. Doughton and told him that I would keep in touch with any\nnew developments.\nRegraded Uclassified\n254\nThis may be elaborated upon.\nIf so, of course, this may be\ndestroyed.\nRegraded Uclassified\n255\nApril 13, 1937\nI told the President at 1:20 today what we did on the\nRailroad Retirement thing; that we had the report and\nthat we would take either plan suggested by the actuaries.\nRegraded Uclassified\n256\nRead\n# A 16434*\n4/13\nMarch 31, 1937.\nA BILL\nTo levy an excise tax upon carriers and certain other\nemployers and an income tax upon their employees, and for\nother purposes.\nBe it enacted by the Senate and House of Representatives\nof the United States of America in Congress Assembled.\nDEFINITIONS\nSection 1. That as used in this Act - -\n(a) The term \"employer\" means any express company,\nsleeping-car company, or carrier by railroad, subject to Part I\nof the Interstate Commerce Act, and any company which may be\ndirectly or indirectly owned or controlled thereby or under\ncommon control therewith, and which operates any equipment or\nfacilities or performs any service (other than trucking service)\nin connection with the transportation of passengers or property\nby railroad, or the receipt, delivery, elevation, transfer in\ntransit, refrigeration or icing, storage, or handling of\nproperty transported by railroad, and any receiver, trustee,\nor other individual or body, judicial or otherwise, when in\nthe possession of the property or operating all or any part of\nthe business of any such \"employer\": Provided, however, That the term\n257\n*A 16434-2\n\"employer\" shall not include any street, interurban, or suburban\nelectric railway, unless such railway is operating as & part of a\ngeneral steam-railroad system of transportation, but shall not exclude\nany part of the general steam-railroad system of transportation now\nor hereafter operated by anyother motive power. The Interstate Com-\nmerce Commission is hereby authorized and directed upon request of\nthe Commissioner of Internal Revenue or upon complaint of any party\ninterested to determine after hearing whether any line operated by\nelectric power falls within the terms of this proviso. The term\n\"employer\" shall also include railroad associations, traffic associa-\ntions, tariff bureaus, demurrage bureaus, weighing and inspection\nbureaus, collection agencies and other associations, bureaus, agencies\nor organizations controlled and maintained wholly or principally by\ntwo or more employers as hereinbefore defined and engaged in the\nperformance of services in connection with or incidental to rail-\nroad transportation; and railway labor organizations of employees,\nnational in scope, which have been or may be organized in accordance\nwith the provisions of the Railway Labor Act, as amended, includ-\ning their state and national legislative and general committees.\n(b) The term \"employee\" means any person in the service\nof one or more employers for compensation.\n(c) The term \"employee representative\" means any officer\nor official representative of an organization of employees other\nthan a labor organization included in the term \"employer\" as\ndefined in Section 1(a), who before or after the enactment hereof\nwas in the service of an employer as defined in Section (a) and who\nis duly authorized and designated to represent employees in accordance\nwith tho Railway Labor Act, as amendod, and any person who is regularly\nassigned to or regularly employed by such officer or official reprosonta-\ntivo in connection with the dutios of his office.\nRegraded Uclassified\n258\n*A 16434-3\n(a) A person is in the service of an employer wherever his\nservice is rendered if he is subject to the continuing authority of\nthe employer to supervise and direct the manner of rendition of his\nservice, which service he renders for compensation: Provided, however,\nThat a person shall be deemed to be in the service of an employer not\nconducting the principal part of its business in the United States,\nAlaska, Hawaii or the District of Columbia only when he is rendering\nservice to it in the United States, Alaska, Hawaii or the District of Columbia.\n(e) The term \"compensation\" means any form of money\nremuneration earned by & person for services rendered as an employee\nto one or more employers, including wages paid for time lost as an employee,\nbut wages paid for time lost shall be deemed earned in the month in which\nsuch time is lost. Compensation which is earned during the period for\nwhich the Commissioner of Internal Revenue shall require a return of\ntaxes hereunder to be made and which is payable during the calendar\nmonth following such period shall be deemed to have been paid during such\nperiod only.\nINCOME TAX ON EMPLOYEES\nSoc. 2. (a) In addition to other taxes, there shall be levied,\ncollected, and paid upon the income of every employee a tax equal to the\nfollowing percentages of the compensation of such employee not in excess\nof $300 per month, earned by him after December 31, 1936:\n1. With respect to componsation earned during\nthe calendar years 1937, 1938, and 1939, the rate\nshall bo 25 por centum;\n2. with respect to compensation earned during\nthe calendar years 1940, 1941, and 1942, the rate\nshall be 2 3/4 per centum;\n3. With respect to componsation earned during\nthe calendar years 1943. 1944, and 1945, the rate\nshall be 3 por centum;\n259\nA 16434-4\n1+. with respect to compensation earned during\nthe calendar years 1946, 1947, and 1948, the rate\nshall be 32 per centum;\n5. With respect to compensation earned after\nDecember 31, 1948, the rate shall be 3% per centum.\n(b) The tax imposed by this section shall be collected by the\nemployer of the taxpayer by deducting the amount of the tax from the\ncompensation of the employee as and when paid. Every employer required\nBO to deduct the tax is hereby made liable for the payment of such tax\nand shall not be liable to any person for the amount of any such payment.\n(e) If more or less than the correct amount of tax imposed by\nthis section is paid with respect to any compensation payment, then, under\nregulations made under this Act by the Commissioner of Internal Revenuo,\nwith the approval of the Secrotary of the Treasury, proper adjustments,\nwith respect both to the tax and the amount to be deducted, shall be made,\nwithout interest, in connection with subsequent compensation payments\nto the same employee by the same employer.\nEXCISE TAX ON EMPLOYERS\nSoo. 3. (a) In addition to other taxes, every employer shall\npay an excise tax, with respect to having individuals in his employ, equal\nto the fellowing percentages of the compensation not in excess of $300 por\nmonth paid by him to any employee for services rondered to him after\nDocomber 31, 1930:\n1. with respect to componsation paid to employees\nfor services rendered during the calondar years 1937,\n1938, and 1939, the rate shall be 2% per centum;\n28\n260\nA 16434-5\n2. With respect to compensation paid to employees\nfor services rendered during the calender years 1940,\n1941. and 1942, the rate shall be 2 3/4 per centum;\n3. With respect to compensation paid to employees\nfor services rendered during the calendar years 1943.\n1944, and 1945, the rate shall be 3 per centum;\n4. With respect to compensation paid to employees\nfor services rendered during the calendar years 1946,'\n1947, and 1948, the rate shall be 3½ per centum;\n5. With respect to compensation paid to employees\nfor services rendered after December 31, 1948, the rate\nshall be 32 per centum.\n(b) If more or less than the correct amount of the tax\nimposed by this section is paid with respect to any compensation pay-\nment, then, under regulations made by the Commissioner of Internal\nRevenue, with the approval of the Secretary of the Treasury, proper\nadjustments with respect to the tax shall be made, without interest,\nin connection with subsequent excise-tax payments made by the same\nempleyer.\nREFUNDS AND DEFICIENCIES\nSec. 4. If more or less than the correct amount of the tax\nimposed by Section 2(a) or 3(a) of this Act is paid or deducted with\nrespect to any compensation payment and the overpayment or underpay-\nment of the tax cannot be adjusted under Section 2(c) or 3(b), the\namount of the overpayment shall be refunded, or the amount of the under-\nyment shall be collected in such manner and at such times (subject\nto the statute of limitations preperly applicable thereto) as may be\n261\nA 16434-6\nprescribed by regulations under this Act as made by the Commissioner\nof Internal Revenue, with the approval of the Secretary of the Treasury.\nINCOME TAX ON EMPLOYEE REPRESENTATIVES\nSec. 5. In addition to other taxes, there shall be levied,\ncollected, and paid upon the income of each employee representative a\ntax equal to the following percentages of the compensation of such\nemployee representative not in excess of $300 per month, earned by him\nafter December 31, 1936:\n1. With respect to compensation earned during\nthe calendar years 1937, 1938, and 1939, the rate\nshall be 5 per centum;\n2. With respect to compensation earned during\nthe calendar years 1940, 1941, and 1942, the rate\nshall be 5% per centum;\n3. With respect to compensation earned during\nthe calendar years 1943, 1944, and 1945, the rate\nshall be 6 per centum;\n4. With respect to compensation earned during\nthe calendar years 1946, 1947, and 1948, the rate\nshall be 6½ per centum;\n5. With respect to compensation earned after\nDecember 31, 1948, the rate shall be 7 per centum.\nThe compensation of an employee representative for the purpose\nof ascertaining the tax thereen shall be determined in the same manner\nand with the same effect as if the employee organization by which such\nemployee representative is empleyed were an employer as defined in\nSection 1 (a) of this Act.\n262\nA 16434-6\nprescribed by regulations under this Act as made by the Commissioner\nof Internal Revenue, with the approval of the Secretary of the Treasury.\nINCOME TAX ON EMPLOYEE REPRESENTATIVES\nSec. 5. In addition to other taxes, there shall be levied,\ncollected, and paid upon the income of each employee representative a\ntax equal to the following percentages of the compensation of such\nemployee representative not in excess of $300 per month, earned by him\nafter December 31, 1936;\n1. With respect to compensation earned during\nthe calendar years 1937, 1938, and 1939, the rate\nshall be 5 per centum;\n2. With respect to compensation earned during\nthe calendar years 1940, 1941, and 1942, the rate\nshall be 5% por centum;\n3. With respect to compensation earned during\nthe calendar years 1943, 1944, and 1945, the rate\nshall be 6 per centum;\n4. With respect to compensation earned during\nthe calendar years 1946, 1947, and 1948, the rate\nshall be 61 per centum;\n5. With respect to compensation earned after\nDecember 31, 1948, the rate shall be 7 per centum.\nThe compensation of an employee representative for the purpose\nof ascertaining the tax thereen shall be determined in the same manner\nand with the same effect as if the employee organization by which such\nemployee representative is employed were an employer as defined in\nSection 1 (a) of this Act.\n263 2\nA 16434-7\nDEDUCTIBILITY FROM INCOME TAX\nSec. 6. For the purposes of the income tax imposed by Title I\nof the Revenue Act of 1934 or by any Act of Congress in substitution\ntherefor, the taxes imposed by Sections 2 and 5 of this Act shall not\nbe allowed as a deduction to the taxpayer in computing his net income.\nCOLLECTION AND PAYMENT OF TAXES\n. Sec. 7. (a) The taxes imposed by this Act shall be collected\nby the Commissioner of Internal Revenue and shall be paid into the\nTreasury of the United States, as internal-revenue collections.\n(b) The taxes imposed by this Act shall be collected and paid\nquarterly or at such other times and in such manner and under such\nconditions not inconsistent with this Act as may be prescribed by the\nCommissioner of Internal Revenue with the approval of the Secretary of\nthe Treasury. If a tax imposed by this Act is not paid when due, there\nshall be added as part of the tax (except in the case of adjustments\nmade in accordance with the provisions of this Act) interest at the\nrate of 6 per centum per annum from the date the tax became due until paid,\n(c) All provisions of law, including penalties, applicable\nwith respect to any tax imposed by Section 600 or Section 800 of the\nRevenue Act of 1926, and the provisions of Section 607 of the Revenue\nAct of 1934, in BO far as applicable and not inconsistent with the\nprovisions of this Act, shall be applicable with respect to the taxes\nimposed by this Act.\n(d) In the payment of any tax under this Act, a fractional\npart of a cent shall be disregarded unless it amounts to one-half cent\nor more, in which case it shall be increased to one cent.\nRegraded Uclassified\n264 21\nA 16434-8\nCOURT JURISDICTION\nSec. 8. The several District Courte of the United States and\nthe District Court of the United States for the District of Columbia,\nrespectively, shall have jurisdiction to entertain an application by\nthe Commissioner of Internal Revenue to compel an employee or other\nperson residing within the jurisdiction of the court or an employer\nsubject to service of process within its jurisdiction, to comply with\nany obligations imposed on such employee, other person, or employer\nunder the provisions of this Act. The jurisdiction herein specifically\nconforred upon such Federal courts shall not be hold oxclusive of any\njurisdiction otherwise possessed by such courts to entortain actions\nat law or suits in oquity in aid of the enforcement of rights or\nobligations arising under the provisions of this Act.\nSOCIAL SECURITY ACT\nSoc. 9. The term \"employment,\" as defined in subsection\n(b) of Soction 811 of Title VIII of the Social Security Act,\nshall not include service performed in the employ of an employer\nas dofined in Soction 1(a) of this Act or service performed for nn\norganization of employees by nn employee representative who is\nsubject to the tax imposed by Soction 5 of this Act.\nSEPARABILITY\nSoc. 10. If any provision of this Act, or the application\nthoreof to any person or circumstances, is held invalid, the remainder\nof the Act, and the application of such provision to other persons or\ncircunstances shall not be nffected thoreby.\n265\nA 16434-9\nREPEAL OF PRIOR TAX ACT\nSec. 11. The provisions of this Act are in substitution\nfor the provisions of the Act of August 29, 1935, entitled \"An Act\nto levy an excise tax upon carriers and an income tax upon their\nemployees, and for other purposes,\" which is hereby repealed. All\nmonies payable under the Tax Act which is repealed by this Act and\nnot heretofore paid shall cease to be payable and all proceedings pend-\ning for the recovery of any such monies shall be terminated. All sums\npaid into the Treasury of the United States as and for taxes under the\nTax Act which is repealed by this Act shall be refunded, except five-\nsevenths of the sums so paid as and for taxes with respect to compensa-\ntion earned after December 31, 1936, and the sums not required to be\nrefunded shall be retained in the Treasury of the United States and\ncredited on taxes due and payable under this Act. All sums deducted\nby employers from the compensation of employees as and for taxes\nunder the Tax Act which is repealed by this Act shall be refunded to\nsuch employees, except five-sevenths of the sums so deducted as and\nfor taxes in respect of compensation earned after December 31, 1936,\nand the sums not required to be refunded shall be paid into the Treasury\nof the United States and thereupon shall be credited on taxes due and\npayable under this Act.\nSHORT TITLE\nSec. 12. This Act may be cited as the \"Carriers Taxing Act\nof 1937.\"\n266 Recd\n16435\n4/13\nApril 6, 1937\nA BILL\nTo amend an Act entitled \"An Act to establish a\nretirement system for employees of carriers subject\nto the Interstate Commerce Act, and for other pur-\nposes,\" approved August 29, 1935.\nBe it enacted by the Sonate and House of Representativos\nof the United States of America in Congress assemblod:\nPART I\nThat the Act of August 29, 1935, entitled \"An Act to\nestablish a retirement system for employees of carriers subject\nto the Interstate Commorce Act, and for other purposes,\" bo, and\nit is hereby, amended to read as follows:\nDEFINITIONS\nSec. 1. For the purpose of this Act -\n(a) The term \"omployer\" means any expross company,\nsleeping-car company, or carrier by railroad, subject to Part I of\nthe Interst te Commerce Act, and any company which may be directly\nor indirectly owned or controlled thereby or under common control\ntherewith, and which operates any equipment or facilities or performs\nany service (other than trucking service) in connection with the\ntransportation of passengers or property by railroad, or the receipt,\ndelivery, elevation, transfer in transit, refrigeration or icing,\nstorage or handling of property transported by railroad, and any\nreceiver, trustee, or other individual or body, judicial or otherwise,\nwhen in the possession of the property or operating all or any part\nof the business of any such \"employer\": Provided, howover, That the torm\n*16435-2\n267\n\"employer\" shall not include any street, interurban, or suburban\nelectric railway, unless such railway is operating as B. part of\na general steam-railroad system of transportation, but shall not\nexclude any part of the general steam-railroad system of trans-\nportation now or hereafter operated by any other motive power.\nThe Interstate Commerce Commission is hereby authorized and directed\nupon request of the Board or upon complaint of any party interested\nto determine after hearing whether any line operated by electric\npower falls within the terms of this proviso. The term \"employer\"\nshall also include railroad associations, traffic associations,\ntariff bureaus, demurrage bureaus, weighing and inspection bureaus,\ncollection agencies and other associations, bureaus, agencies or\norganizations controlled and maintained wholly or principally by\ntwo or more employers as hereinbefore defined and engaged in the\nperformance of services in connection with or incidental to railroad\ntransportation; and railway labor organizations of employees, national\nin scope, which have been or may bo organized in accordance with the pro-\nvisions of the Railway Labor Act, as amended, including their state and\nnational legislative and general committees.\n(b) The term \"employee\" means any person in the service of\none or more employers for compensation and any porson who is in the em-\nployment relation to one or more employers. The term \"employee\" shall\nalso include any officer or official representative of an organization\nof employees other than a labor organization included in the term \"em-\nployer\" as defined in Section 1(a), who before or after the eractment\ndate was in the service of an employer as defined in Section 1(a) and\nwho is duly authorized and designated to represent employees in accord-\nance with the Railway Labor Act, as amended, and any person who is\nregularly assigned to or regularly employed by such officer or official\nrepresentative in connection with the duties of his office, and such\nemployees are hereinafter sometimes called \"employee representatives.\"\n268\nA* 16435-3\n(c) A persen is in the service of an employer wherever his service\nis rondered if ho is subject to the continuing authority of the employer to\nsupervise and direct the manner of rondition of his service, which service he\nrenders fer componsation: Provided, however, That a person shall be deemed to\nbe in the service of an employer not conducting the principal part of its\nbusiness in the United States only when he is rendering service to it in the\nUnited States.\n(a) A porson is in the employmont relation to an employer if he\nis on furlough, subject to call for service within or outside the United States\nand ready and willing to serve, or on leave of absence, or absent on account of\nsickness or disability: all in accordance with the established rules and prac-\ntices in effect on the employer: Provided, however, That a person shall not\nbe deemed to have been on the chactment date in the employment relation to an\nemployer not conducting the principal part of its business in the United States\nunless during the last payrell period in which he rendered service to it prior\nto the enactment date, he rendered service to it only in the United States:\nAnd Provided, further, That a person shall not be deemed to have been, on the\ndate he become eligible to receive an annuity under this Act, in the employ-\nment rolation to an employer not conducting the principal part of its\nbusiness in the United States unless during the last payrell period in which\nhe rendered service to it prior to that date, be rendered service to it only in\nthe United States.\n(o) The term \"United States,\" when used in a geagraphical sense,\nmeans the States, Alaska, Hawaii, and the District of Columbia.\n(f) The term \"years of service\" shall monn the number of years a person\nas as employee shall have rendered service to one or mere employers for compensa-\ntion or received wages for time 10st, computed in accordance with the provisions\nof Section 3 (b): Provided, however, That where service prior to the enactment\nRegraded Uclassified\n269\nA 16435-4\ndate may be included in the computation of years of service as provided in\nsub-division 1 of Section 3(b), it may be included na to service rendered to\nAn employer subject to this Act on the enactment date, irrespective of whother\nat the time such service was rendored the employer was an employer AB defined\nin Section 1(a). Twelve calendar months, consecutive or otherwise, in each\nof which an employee has rendered such service or received such wages for\ntime lost shall constitute a year of service. An ultimate fraction of six\nmonths or more shall be taken as one year. An ultimate fraction of less than\nsix months shall be taken at its actual value.\n(g) The term \"annuity\" means a monthly sum which 1g payable on\nthe first day of each calendar month for the accrual during the preceding\ncalendar month.\n(h) The term \"compensation\" means any form of money remuneration\nearned by a person for services rendered ns nn employee to one or more employer:\nincluding wages paid for timo lost as an employee but wages paid for time lost\nshall be deemod earned in the month in which such time is lost.\n(1) The term \"Board\" neans the Railroad Retirement Board.\n(j) The tern \"cnactment date\" neans the 29th day of August, 1935.\nANNUITIES\nSec. 2(a) The following-doscribed persons, if they shall have\nbeen employees on or after the enactment date, shall be eligible for anmitios\naftor they shall have ceasod to ongage in regular employment for hire and relinquishod\nall rights to roturn to employer service, irrespective of when they shall have\nrelinquished such rights, except that the requirement of relinquishment of rights\nto return to employer service shall not apply to the persons nentioned in sub-\ndivision 3 of this subsection prior to attaining age 651\nRegraded Uclassified\n270\nA 16435-5\n1, Persons who on or after the enactment date shall be\nsixty-five years of age or over.\n2. Persons who on or after the enactment date shall be\nsixty years of age or over and either have completed thirty\nyears of service or have become totally and permanently\ndisabled for regular employment for hire, but the annuity\nof such a person shall be reduced at the rate of one-\nfifteenth for each year or monthly fraction thereof that he\nis under age sixty-five when his annuity begins to accrue,\n3. Persons who on or after the enactment date are totally\nand permanently disabled for regular employment for hire\nand shall have completed thirty years of service. Such satis-\nfactory proof of the permanent total disability and of\nthe continuance of such disability until age sixty-five\nshall be made from time to time as may be prescribed by\nthe Board. If the person fails to comply with the re-\nquirements prescribed by the Board as to proof of the\ndisability or the continuance of the disability until\nage sixty-five, his right to an annuity under this sub-\ndivision by reason of such disability shall, except for\ngood cause shown to the Board, cease, but without pre-\njudice to his rights under subdivision 1 or 2 of this\nsubsection. If, prior to attaining age sixty-five, such\na person recovers and is no longer disabled for regular\nemployment for hire, his annuity shall cease upon the last\nday of the month in which he so recovers and if after such\nrecovery the person 1e granted an annuity under subdivision\n1 or 2 of this subsection, the amount of such anmity shall\nUclassifie\n271\nA 16435-6\nbe reduced on an actuarial basis to be determined by the\nBoard 50 as to compensate for the annuity previously re-\nceived under this subdivision.\n(b) An annuity shall begin to accrue as of a date to be\nspecified in a written application to be signed by the person entitled\nthereto, and approved by the Board, which date shall not be more than\nsixty days before the filing of the application.\nCOMPUTATION OF ANNUITIES\nSec. 3 (a) The annuity shall be computed by multiplying &\npersonts \"yearsof service\" by the following percentagesof his\n\"monthly compensation\": 2 per centum of the first $50; 12 per centum\nof the next $100; and 1 per centum of the next $150.\n(b) The \"years of service\" of a person shall be determined\nas follows;\n(1) In the case of a person who was an employee on the\nenactment date and on the date he became eligible to receive\nan annuity under this Act, and also in the case of a. person\nwho was an employee on the enactment date, but prior to the\ndate he, became eligible to receive an annuity under this\nAct had ceased active service for an employer because of a\npermanent physical or mental disability, the years of\nservice shall include all his service subsequent to\nDecember 31, 1936, and if the total number of such years is\nless than thirty, then the years of service shall also\ninclude his service prior to January 1, 1937, but not so B.S\nto make his total years of service exceed thirty:\nRegraded Oclassified\n272\nA 16435-7\nProvided, however, That if on the ennctment date any such\nperson was not an employee of nn employer conducting the\nprincipal part of its business in the United States and\nrendered service to anemplyer on or after January 1, 1937,\nhis \"years of service\" shall include no greater proportion\nof his service prior to January 1, 1937, than his total\ncompensation (including compensation in any month in excess\nof $300) for services on or after January 1, 1937, rendered\nanywhere to an employer conducting the principal part of\nits business in the United States or rendered in the United\nStates to any other employer as defined in Section 1 (a)\ntears to his total compensation (including compensation\nin any month in excess of $300) for services rendered to\nan employer on or after January 1, 1937, both in and out-\nside the United States.\n(2) In all other cases, the years of service shall include\nonly the service subsequent to December 31, 1936.\n(3) Where the years of service include only part of the\nservice prior to January 1, 1937, the part included shall\nbe taken in reverse order beginning with the last calendar\nmonth of such service.\n(4) In no case, shall the years of service include any ser-\nvide rendered after June 30, 1937, by a person who is sixty-\nfive years of age or ever.\nRegraded Uclassified\n273\nA 16435-8\n(c) The \"monthly compensation\" shall be the average compensation earned\nby an employee in calendar months included in his \"years of service,\" except\n(1) that with respect to service prior to January 1, 1937, the monthly compensa-\ntion shall be the average compensation earned by an employee in calendar menths\nincluded in his years of service in the years 1924-1931, and (2) that where\nservice in the period 1924-1931 is insufficient to constitute a fair and equit-\nable basis for determining the monthly compensation for service prior to January\n1, 1937, the Beard may determine the monthly compensation for sush service in such\nmanner as in its judgment shall be just and equitable. If the employee earned\ncompensation after June 30, 1937, and after the last day of the month in which\nhe attained age sixty-five, such compensation shall be disregarded if the\nresult of taking such compensation into account would be to diminish his\nannuity. In computing the monthly compensation, no part of any month's compensa-\ntion in excess of $300 shall be recognized.\n(d) The annuity of a person who shall have been an employee representative\nshall be determined in the same manner and with the same effect as if the employee\norganization by which he shall have been employed were an employer as defined in\nSection 1 (a) of this Act.\n(e) If the person was an employee when he attained age sixty-five\nand has completed twenty years of service, the minimum annuity payable to\nhim shall be $40 per month: Provided, however, that if the monthly compensation\nen which his annuity is based is less than $50, his annuity shall be 80\npercent of such monthly compensation, except that if such 80 percent is less\nthan $20, the annuity shall be $20 or the same amount as the monthly\ncempensation, whichever is less, In no case shall the value of the annuity\nto less than the value of the additional old-age benefit he would recoive\nunder Title II of the Social Security Act if his service as an employee after\nDecember 31, 1936, were included in the term \"employment\" 88 defined therein.\nRegraded Uclassified\n274\nA 16435-9\n(f) An annuity shall not be paid with respect to any\ncalendar month during which an annuitant engaged in regular\nemployment for hire.\n(g) Annuity payments due a person but not yet paid at\ndeath shall be paid to a surviving spouse if such spouse is entitled\nto an annuity under an election made pursuant to the provisions of\nSection 4 of this Act; otherwise, they shall be paid to the same\nperson or persons who may be entitled to receive any death benefit\nthat may be payable under the provisions of Section 5 of this Act.\n(h) No annuity shall accrue with respect to the calendar\nmonth in which an ennuitant dies,\n(1) After an annuity has begun to accrue, it shall not\nbe subject to recomputation on account of service rendered there-\nafter to an employer, except as provided in subdivision 3 of Section\n2(a).\n(j) If an annuity is less than $2.50, it may, in the dis-\ncretion of the Board, be paid quarterly or in a lump sum equal to its\ncommuted value as determined by the Board.\nJOINT AND SURVIVOR ANNUITY\nSec. 4. A person whose annuity shall not have begun te\naccrue may elect prior to January 1, 1938, or at least five years before\nthe date on which his annuity begins to accrue, or upon furnishing proof\nof health satisfactory to the Board, to have the value of his annuity\napply to the payment of a reduced annuity to him during life and an\nannuity after his death to his spouse during life equal to, or\nseventy-five per centum of, or fifty per centum of, such reduced\n275\nA 16435-10\nannuity. The amounts of the two annuities shall be such that their\ncombined actuarial value as determined by the Board shall be the same\nas the actuarial value of the single life annuity to which the person\nwould otherwise be entitled. Such election shall be irrevocable, except\nthat it shall become inoperative, if the person or the spouse dies\nbefore the annuity begins to accrue or if the person's marriage is\ndissolved or if the person is granted an annuity under sub-division\n(3) of Section 2 (a): Provided, however, that the person may, if his\nmarriage is dissolved before the date his annuity begins to accrue,\nor if his annuity under sub-division (3) of Section 2 (a) ceases because\nof failure to make the required proof of disability, make a new\nelection under the conditions stated in the first sentence of this\nsubsection. The annuity of a spouse under this subsection shall begin\nto accrue on the first day of the calendar month in which the death\nof the person occurs.\nDEATH BENEFITS\nSec. 5. The following benefits shall be paid with respect to\nthe deaths of persons who were employees after December 31, 1936:\n(a) If the deceased should not be survived by & vidov or widower\nwho is entitled to an annuity under an election made pursuant\nto the provisions of Section 4 of this Act, there shall be paid\nto such person or persons as the doceased may have dosignated\nby a writing filed with the Board prior to his death, or\nif there be no dosignation, to the legal roprosontative of\nRegraded Uclassified\n276\n16435-11\nthe deceased, the amount, if any, by which four per centum of the Ag-\ngregate compensation earned by the deceased after December 31, 1936,\nexceeds the sum of the total of the annuity payments actually made\nto the deceased plus the total of the annuity payments due the deceased\nbut not yet paid at death. If the person or persons designated to re-\nceive the death benefit do not survive the deceased, the death benefit\nshall be paid to the legal representative of the deceased.\n(b) If the deceased should bo survived by a widow or idovor\nentitled to an annuity under an election made pursuant to the pro-\nvisions of Section 4, there shall, on the death of the widow or widower,\nbe paid to such person or persons as the deceased may have designated by\na writing filed with the Board prier to his death, or if there be no desig-\nnation, to the legal representative of the deceased, the amount, if any, by\nwhich four per centum of the aggregate compensation earned by the de-\nceased after December 31, 1936, exceeds the sum of the total of the\nannuity payments actually made to the decensed plus the total of the\nannuity payments actually made to the widow or vidower under an election\nmade pursuant to the provisions of Section 4 of this Act and under\nthe provisions of Section 3(g) of this Act plus the total of the an-\nnuity payments due the widow or widower but not yet paid at death. If\nthe person or persons designated to receive the death benefit do not\nsurvive the widow or widower, the death benefit shall be paid to the\nlegal representative of the deceased.\nIn computing the aggregate compensation for the purpose of\nthis section, no part of any month's earnings in excess of $300 shall\nbe recognized.\nRegraded Uclassified\n277\nA 16435-12\nPENSIONS TO PERSONS ON PENSION OR GRATUITY ROLLS OF EMPLOYERS\nSec. 6. Beginning July 1, 1937, each person then on the\npension or gratuity roll of an employer by reason of his employment,\nwho was on such roll on March 1, 1937, and vras not, prior to July 1,\n1937, eligible for an annuity under this Act based in whole or in part\non service rendered prior to January 1, 1937, shall be paid on July 1,\n1937, and on the first day of each calendar month thereafter during\nhis life in substitution for the pension or gratuity from his employer,\na pension equal inamount to the pension or gratuity granted to him by the\nemployer without diminution by roason of a genoral reductionor roadjustmont\nmade subsequent to January 1, 1931, and applicable to pensioners of the\nemployer: Provided, however, That no pension payable under this section\nshall exceed $120 monthly and that no pension shall be paid with respect\nto any calendar month during which & pensioner engages in regular\nemployment for hiret And Provided further, That no person on the pension or\ngratuity roll of an employer not conducting the principal part of its\nbusiness in the United States shall be paid a pension under this section\nunless, in the judgment of the Board, he was, on March 1, 1937, carried\non the pension or gratuity roll as a United States pensioner. No person\nshall be entitled to receive both a pension under this section and an\nannuity under Section 2 of this Act,\nSec. 7- Nothing in this Act shall be taken as restricting\nor discouraging payment by employers to retired employees of pensions or\ngratuities in addition to the annuities or pensions paid to such employees\nunder this Act, nor shall the Act be taken as terminating any trust hereto-\nfore created for the payment of such pensions or gratuities.\nRegraded\n278\nA 16435-13\nCONCLUSIVENESS OF RETURNS OF COMPENSATION AND OF\nFAILURE TO MAKE RETURNS OF COMPENSATION\nSec. 8 (a) Returns of compensation required by the Board to\nbe filed with it shall be under eath and shall be conclusive as to the\namount of compensation earned by a person during a particular calendar month\nand the fact that no return was made of the compensation claimed to be\nearned by a person during a particular calendar month shall be taken as\nconclusive that no compensation was earned by that person during that month,\nunless the error in the amount of compensation returned, in the one case, or\nin the failure to make return of the compensation, in the other case, is\ncalled to the attention of the Board within four years after the last date\non which return of the compensation was required to be made.\n(b) The Board shall adopt such rules and regulations in\nconnection with its requirement of returns of compensation as, in its\njudgment, may be necessary and proper to prevent the application of sub-\nsection (a) of this section from defenting the purpose of this Act.\nRECOVERY OF ERRONEOUS PAYMENTS\nSec. 9. There shall be no recevery of payments of annuities,\ndeath benefits or pensions from any person who, in the judgment of the Board,\nis without fault and where, in the judgment of the Board, such recovery\nwould defeat the purpose of the benefits otherwise authorized or would be\nagainst equity and good conscience. No disbursing officer shall be held\nliable for any amount paid by him to any person where the recovery of such\namount is waived under this section.\nRETIREMENT BOARD\nPERSONNEL\nSec. 10 (a) There is hereby established as an independent agency\nRegraded Uclassified\n279\nA16435-14*\nin the executive branch of the Government a Railroad Retirement Board, to be\ncomposed of three members appointed by the President, by and with the advice\nand consent of the Senate. Each member shall hold office for a term of five\nyears, except that any member appointed to fill a vacancy occurring prior to\nthe expiration of the term for which his predecessor was appointed shall be ap-\npointed for the remainder of the term and the terms of office of the members first\ntaking office after the date of enactment of this Act shall expire, as designated\nby the President, one at the end of two years, ono at the end of three years, and\none at the end of four years, after tho date of enactment of this Act. One\nmember shall be appointed from recommendations made by representatives of the\nempleyees and one member shall be appointed from recommendations made by repre-\nsentatives of carriers by railroad subject to this Act, in both cases as the\nPresident shall direct, so as to provide representation on the Board satisfactory\nto the largest number, respectively, of employees and carriers concerned. One\nmember, who shall be the chairman of the Board, shall be appointed initially\nfor a term of two years without recommendation by either carriers or employees\nand shall not be in the employment of or be pecuniarily or otherwise interested\nin any employer or organization of employees. Vacancies in the Beard shall\nnot impair the powers nor affect the duties of the Board or of the remaining\nmembers of the Board of when a majority of those in office shall constitute &\nquorum for the transaction of business. Each of said members shall receive a\nsalary of $10,000 per year, together with necessary traveling expenses and\nsubsistence expenses, or per diem allowance in lieu thereof, while away from the\nprincipal office of the Board on dutios required by this Act.\nDUTIES\n(b) 1. The Beard shall have and exercise all the duties and\npawers necessary to administer this Act. The Board shall take\nsuch steps as may be necessary to enforce this Act and make\nRegraded Uclassified\n280\nA 16435-15*\nawards and certify payments. Decisions by the Board upon issues of law and\nfact relating to applications forannuities or death benefits shall not be\nsubject to roview by ary other administrative or accounting officer, agent\nor omployee of the United States.\n2. The Board shall from time to time certify to the Secretary of\nthe Treasury tho name and address of each porson ontitled to rocoive a\npayment under this Act, the amount of such payment, and the time at which\nit should be mado, and the Secretary of the Treasury through the Division of\nDisbursoments of the Trensury Dopartment, and prior to mudit by the Goneral\nAccounting Office, shall make payment in accordance with the certification\nby the Board.\n3. The Board shall establish and promulgate rules and regulations\nto provide for the adjustment of all controversial matters arising in the\nadministration of this Act, with power as a Board or through any member or\ndesignated subordinate thoreof, to requiro and compel the attendance of\nwitnesses, administer oaths, take tostimony, and make all nocessary invosti-\ngations in any matter involving annuities or other payments and shall main-\ntain such offices, provide such equipment, furnishings, supplies, services,\nand facilitios, and employ such persons and provido for thoir compensation\nand expenses as may be nocossary for the propor discharge of its functions.\nThe Board shall have power to employ, without regard to the provisions of\nthe civil-service laws, such employees, attorneys and special exports as\nmay be necessary for the proper discharge of its duties and, without regard\nto the provisions of the Classification Act of 1923, as amended, to provide\nfor thoir componsation and exponsos. Employees of the Board who shall not\nhave boon appointed in accordance with the provisions of the civil-service laws\nand the Classification Act of 1923, as nmendod, may acquire a competitivo civil\nservice status if they shall have beon in the employ of the Board for at lonst\none year and shall have passed a non-compotitivo emmination given by the Board,\nthe nature of which shall be dotermined by the Board subjoct to the approval of tho\nCivil Service Commission. All rules, regulations or decisions of the Board shall\nrequire the approval of at least two membors except as provided in subdivision 4 of\nthis subsection and they shall bo entered upon the records of the Board, which\nRegraded Uclassified\n281\nA 16435-16\nshall be a public rocord. Notice of a ducision of the Board, or of an\nemployee thereof, shall be communicated to the applicant in writing\nwithin thirty days after such decision shall have been made. The Board\nshall gather, keep, compile, and publish in convenient form such records\nand data as may be necessary to assure proper administration of the\nAct. The Board shall have power to require all employers and employees\nand any officer, board, commission, or other agency of the United States\nto furnish such information and records as shall be necessary for the\nadministration of this Act. The several district courts of the United\nStates and the District Court of the United States for the District\nof Columbia shall have jurisdiction upon suit by the Board to compel\nobedience to any order of the Board issued oursuant to this section.\nThe orders, writs and processes of the District Court of the United\nStates for the District of Columbia in such suits may run and be\nserved anywhere in the United Statos. The Board shall mako an annual\nreport to the President of the United States to be submitted to\nCongress. Witnesses summoned before the Board shall be paid the same\nfees and mileage that are paid witnesses in the courts of the United\nStates.\n4. The Board is authorized to delegate to any of its em\nployees the power to make docisions on applications for annuities or\ndeath benefits in accordance with rules and regulations proscribed by\nthe Board: Provided, however, That any person aggrieved by a decision\n80 made shall have the right to appeal to the Board.\nCOURT JURISDICTION\nSec. 11. The several district courts of the United States\nand the District Court of the United States for the District of Columbia,\nrespectively, shall have jurisdiction to entertain an application and to\nRegraded Uclassified\n282\nA 16435-17\ngrant appropriate relief on an application by an employee or other person\naggrieved in or to the district court of any district wherein the Board\nmay have established an office, to compel the Board to set aside an action or\ndecision claimed to be in viclation of a legal right of the applicant, or to\ntake action, or to make a decision necessary for the enforcement of a logal\nright of the applicant. The decision of the Board upon any application for\nannuity, pension, or death benefit shall not be subject to review by any court\nunloss suit is commenced within one year after the decision has been entered\nupen the records of the Board and communicated to the applicant, and in any such\nsuit, the findings of the Beard as to facts, unless contrary to the weight of\nthe evidence, shall be binding upon the court. The jurisdiction herein\nspecifically conferred upon the Federal courts shall not be held exclusive of\nany jurisdiction otherwise pessessed by such courts to entertain actions at\nlaw er suits in equity in aid of the enforcement of rights or obligations arising\nunder the previsions of this Act.\nEXEMPTION\nSec. 12. No annuity or pension payment shall be assignable or be\nsubject to any tax or to garnishment, attachment, or ether legal process under\nany circumstances whatsoever, nor shall the payment thereof be anticipated,\nPENALTIES\nSec. 13. Any efficer or agent of an employer, as the word\n\"employer\" is hereinbefore defined, or any employee acting in his own\nbehalf, or any person whether or not of the character hereinbefore de-\nfined, who shall willfully fail or refuse to make any report or furnish\nany information required by the Board in the administration of this\n283\n16435-18\nAct, or who shall knowingly make or cause to be made any false or fraudulent\nstatement or report in response to any report or statement required to be\nmade for the purpose of this Act, or who shall knowingly make or aid in\nmaking any false or fraudulent statement or claim for the purpose of\ncausing an award or payment under this Act, shall be punished by a fine of\nnot less than $100 nor more than $10,000 or by imprisonment not exceeding\none year.\nSEPARABILITY\nSec. 14. If any provision of this Act, or the application\nthereof to any person or circumstances, is held invalid, the remainder\nof the Act or application of such provision to other persons or circumstances\nshall not be affected thereby.\nRAILROAD RETIREMENT ACCOUNT\nSec. 15. (a) There 1s hereby created an Account in the\nTreasury of the United States to be known as the \"Railroad Retirement Account\".\nThere is hereby appropriated to the Account for each fiscal year, beginning\nwith the fiscal year ending June 30, 1937, as an annual premium an amount\nsufficient, with a reasonable margin for contingencies, to provide for the\npayment of all annuities, pensions and death benefits in accordance with\nthe provisions of this Act. Such amount shall be based on such tables of\nmortality as the Railroad Retirement Board shall from time to time adopt,\nand on an interest rate of 3 per centum per annum compounded annually.\nThe Railroad Retirement Board shall submit annually to the Bureau of the\nBudget an estimate of the appropriation to be made to the Account.\nRegraded Uclassified\n284\n# A 16435-19\n(b) At the request and direction of the Board, it shall be\nthe duty of the Secretary of the Treasury to invest such portion of\nthe amounts credited to the Account as, in the judgment of the Board,\nis not immediately required for the payment of annuities, pensions and\ndoath bonefits in accordance with the provisions of this Act in\ninterest-boaring obligations of the United States or in obligations\nguaranteed. as to both principal and interest by the United States.\nFor such purpose such obligations may be acquired on original issue at\npar or by purchase of outstanding obligations at the market price. The\npurposes for which obligations of the United States may be issued under\nthe Second Liberty Bond Act, as amonded, are hereby extended to authorize\nthe issuance at par of special obligations exclusively to the Account.\nSuch special obligations shall bear interest at the rate of 3 per centum\nper annum. Obligations other than such special obligations may be\nacquired for the Account only on such terms as to provide an investment\nyield of not less than 3 per centum per annum. It shall be the duty\nof the Secretary of the Treasury to sell and dispose of obligations in\nthe Account if it shall be in the intorest of the Account so to do.\nAny obligations acquired by the Account, except special obligations issued\nexclusively to the Account, may be sold at the market price. Special\nobligations issued exclusively to the Account shall, at the request of\nthe Board, be redeemed at par plus accrued interest. The Board shall\ninclude in its annual report the status of the Account. All anounts\ncredited to the Account shall be available for the payment of all annuities,\npensions and death benefits in accordance with the provisions of this\nAct.\nRegraded Uclassified\n285\n# A 16435-20\nAPPROPRIATION FOR ADMINISTRATIVE EXPENSES\nSec. 16. There is hereby authorized to be appropriated from\ntime to time such sums as may be necessary to provide for the expenses of\nthe Board in administering the provisions of this Act.\nSOCIAL SECURITY ACT\nSec. 17. The term \"employment,\" as defined in subsection (b)\nof Section 210 of Title II of the Social Security Act, shall not include\nservice performed by an employee of an employer as defined in Section 1 (a)\nof this Act or service performed for an organization of employees by a\nrepresentative who is an employee within the meaning of Section 1 (b) of this\nAct.\nSec. 18. It shall not be unlawful for carriers by railroad\nsubject to this Act to furnish free transportation to persons receiving\nannuities or pensions under this Act in the same manner as such transporta-\ntion is furnished to employees in their service.\nSHORT TITLE\nSec. 19. This Act may be cited as the \"Railroad Retirement\nAct of 1935\".\nRegraded Uclassified\n286\nÀ 16435-21\nPART II\nThe claims of persons who, prior to the passage of this\namendatory Act, shall have relinquished all rights to return to employer\nservice and become eligible for annuities and the claims of the spouses\nand dependent noxt of kin of such persons shall be adjudicated by the Board\nin the same manner and with the same effect as if this amendatory Act\nhad not been passed, except that (1) the annuity of a person who would\nnot have qualified for an annuity except by virtue of the provisions of\nthis amendatory Act may not begin prior to the date of passage of this\nAct and (2) no reduction shall be made in any annuity certified after\nthe passage of this amendatory Act because of continuance in service\nafter age seventy or after age sixty-five without filing with the Board\nan agreement to continue in employment and (3) service rendered prior\nto the day on which the Railroad Retirement Act of 1935 was enacted\nto an employer which was subject to that Act on the day it was enacted\nshall be included in the service period in connection with any annuity\ncertified in whole or in part by the Board after the passage of this\namendatory Act, irrespective of whether at the time such service was\nrendered the employer was an employer as defined in Section (a) of that\nAct. The present memborship of the Railroad Retirement Board and their\nterms of office shall be unaffected by the provisions of this Act.\nRegraded Uclassified\n#287\n287\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Paris, France\nDATE: April 13, 1937, noon.\nNO.: 478\nFROM COCHRAN.\nThis morning I returned from Basel, where yesterday\nthe meeting of the BIS directors was held. Decision was\nreached by the Board to recommend to shareholders payment\non the old gold franc basis of the customary 6% dividend\nfor fiscal year 1936-1937. The Board further decided to\nabolish the rule which has heretofore required that 40%\nof BIS shares which were originally subscribed to by\nAmerican banking group be retained in the United States;\nthese shares may all be sold to purchasers outside of\nthe United States, if it is desired to do so, but the\nvoting rights are retained by the original subscribing\nbanks. Weldon is being sent by the First National Bank of\nNew York to represent this group at the annual meeting on\nMay 3 of the directors. Trip was reelected by the Direc-\ntors as the Dutch member of the Board for three more years.\nGovernor Rooth of the Swedish Reichsbank was also elected\nfor three years. Governor Rooth had previously served one\nterm on the Board which ended in March 1933.\nWhen I visited Basel in March Beyen was 111. He\ninquired yesterday about my January visit to the United\nStates, and in particular, about the likelihood of Ameri-\ncan\nRegraded Uclassified\n288\n- 2 -\ncan participation in the BIS, and about our gold rules.\nHe told me that one of his technical assistants had been\ngrumbling because of a recent cablegram ...\nEND SECTION ONE.\nBULLITT.\n/ / and a 4 / by\ns -\nDECEIVED\nEA:LWW\nRegraded Uclassified\n289\nPARAPHRASE OF SECTION TWO, TELEGRAM NO. 478 of April 13,\n1937, from Paris.\nreceived through the Federal Reserve Bank of New York re-\nquesting full information as to ownership of a possible\ndeposit of gold to be made in New York by the BIS. The\nremark was made that it was not in accordance with the\nspirit of professional banking secrecy to disclose the\nidentity of the owners of gold deposits by the BIS. I\ncalled to Beyen's attention the arrangements which have been\nmade so far between the countries enjoying the privileges\nof the Tripartite Agreement, and suggested that the BIS\nbe entirely frank when explaining details of any trans-\naction, and refrain from posing hypothetical questions to\nthe Federal Reserve Bank of New York. Ae for London, Beyen\nadmitted that it had also shown a tendency lately to with-\nhold gold buying privileges from certain prospective pur-\nchasers, saying guardedly that \"the available supply\"\nwould determine whether they could fill the orders.\nAt the May meeting nothing will be done by the BIS\ntowards seeking unofficial American participation, and no\namendment to the statutes will be suggested with the idea of\ninteresting official American participation. It is possible\nthat some time during the year Beyen will visit our country\njust to get acquainted, as he has never been in the United\nStates. He may at that time consider the question of\nengaging\nRegraded Uclassified\n290\n- 2 -\nengaging a young economist from the United States. As long\nas we were not officially represented on the Board, I told\nhim, we were not disposed to name anyone officially.\nEND SECTION TWO.\nBULLITT.\nRECEIVED\nTEG: SI Я9А\nTHEMTHAS30 YRUZA38T\n(signal aft to with\nml at IMPRESA -\nEA:LWW\nRegraded Uclassified\n291\nPARAPHRASE OF SECTION THREE OF NO. 478 of APRIL 13,\n1937, from PARIS.\nIt is my sincere hope that Beyen may visit both Washington\nand New York, since it is desirable that the resident\nhead of the BIS have a better personal understanding of\nthe American situation in view of the fact that there is\nno American on its staff.\nOn Sunday and Monday the two topics principally dis-\ncussed at Basel (and at Badenweiler on Sunday, where\nSchacht entertained the BIS officials and their wives)\nwere the American gold scare, and Van Zeeland's commission\nby France and Great Britain to investigate the possibil-\nities of lowering barriers to trade.\nThe nervousness of the past week, President Trip\nsaid, due to the gold rumor, had shown that the gold bloc's\nbreaking up had not in itself made the monetary situation\nof the world anything like safe. The idea of frequent\nresort to alteration of the gold content of a currency\nfor adjustment to economic situations is opposed by Trip.\nHe expressed the hope that if the United States eventually\nchanges the gold buying price, it may be done in such a manner\nas to give a very definite impression of being final.\nIt is Trip's own idea that international agreement on\nproduction of gold would be better than having individual\ncountries take separate action to adjust the gold value of\ntheir respective currencies. Should a new price for buying\ngold\nRegraded Uclassified\n292\n- 2 -\ngold be established, Trip (and many others with whom I\nspoke) stressed the importance of consultation between the\ncountries already grouped together, and of widening a call\nfor consulations to include other important monetary\npowers.\nEND SECTION THREE.\nBULLITT.\n03V13038\nTSSI ST 89A\nYRUSATMT\nany to 1210\nest d Issue UNA\nEA:LWW\nRegraded Uclassified\n293\nPARAPHRASE OF SECTIONS FOUR TO TWELVE, INCLUSIVE\nOF TELEGRAM NO. 478 of Apr il 13, 1937.\nMore gold was coming into the Netherlands than was de-\nsirable, Trip said, but since September 25, the Government\nhad been successful in restricting the price rise to\napproximately 1 1/2 percent. Trip remains definitely\npessimistic about the French situation. He feels that\nthe franc will continue to weaken and no solid financial\nand monetary conditions can be achieved while power is\nheld by the present Government as now constituted and\nsupported by the Communists.\nThe Swiss National Bank President, Bachmann, insisted\nthat Switzerland had fixed a definite price for gold, and\nthey would be reluctant to change it. President Bachmann\nexpressed a view similar to that of Trip, that countries\nshould avoid frequent alteration of the gold price to meet\neconomic conditions. Governor Norman, he said, had talked\nwith him earlier in the day, and the Governor insisted that\na\ntoo high/price for gold was being paid by Switzerland and\nthe United States.\nPresident Bachmann told me that during the past few\ndays he had sold gold in the United States against dollars,\nand he was entirely satisfied with the technical operations\nwith the American authorities. He expressed the view that\nthe gold scare emphasized that so long as a \"day to day\"\npolicy is followed, bankers who engage in gold arbitrage\nordinarily\nRegraded Uclassified\n2S4\n- 2 -\nordinarily, in troubled times will not have sufficient con-\nfidence as to receiving the legal price for gold current at\nthe date shipments are to be made from abroad. He said he\nwould like to see some guarantee given shippers, BO that\nif the official gold price changed during transit time, the\nshippers would suffer no loss.\nIt seemed to me that Schacht was in better spirite.\nHe told me personally that lately he thought there had been\nsome improvement in the world outlook. German export trade,\nin particular the heavy industries, was continually better,\nhe was happy to tell me. He said he was going to visit\nBrussels, where today and tomorrow he would see Belgian\nofficials, including Premier van Zeeland. Van Zeeland stands\nin very well with the Germans, according to Schacht. He\nthought Van Zeeland's selection by the British and French\nauthorities to begin investigation of trade barriers was\na move in the right direction which should be received with\nwelcome. Schacht expressed sincere hope that in the\nstudies and plans to be undertaken there would be no ten-\ndency to differentiate between democracies and dictatorships.\nEconomics and politics should not be mixed, in his opinion;\nhe thought the opposite policy was responsible for many of\nthe failures of the League of Nations. He said he hoped\nthat it would be possible for the United States and Great\nBritain to reach a reciprocal trade agreement, as this should\nbe\nRegraded Uclassified\n285\n- 3 -\nbe helpful toward general expansion of international trade.\nThe recent speech by Secretary Hull on trade and peace was\nwarmly indorsed by Schacht. Dieckhoff, he believed, would\ndo much to improve relations between Germany and America.\nSchacht insisted to me (as he has previously) that\ncriticism of the German Government and its policies by for-\neigners, official or private, will not change the situation\nbut will only make more difficult the problem of inter-\nnational relations. He did not think it would be possible\nfor a country which is sharply critical of the governmental\ninstitutions of other nations to be considered an entirely\nneutral and disinterested leader should an attempt toward\nconvoking a world disarmament conference be made. On the\nfourth of May Schacht will come to Paris for the German\nExposition Building dedication.\nI spoke with Sir Otto Niemeyer, who visited the United\nStates in January and February. He is not disposed to agree\nwith some of his banker friends of New York, who expressed\nthe opinion that the present Administration would not strive\nfor a balanced budget, but would continue to run up a tremen-\ndous deficit. The American outlook is hopeful, in his\nopinion. But he thinks that even if we have to take some\nrisks, the most reasonable solution of our gold problem 18\nto start lending abroad.\nI\nRegraded Uclassified\n296\n- 4 -\nI had a talk with Governor Norman, and asked him\nwhether the move to have Van Zeeland investigate trade\nbarriers was merely an election help, or whether it was\na serious affair. He said that he hoped there might be\nserious results from such an investigation. He knows\nthat our country is interested in procuring a trade agree-\nment with Great Britain, and confidentially he expressed\nconsiderable concern over the trade policies of Great\nBritain. However, until after the Empire Conference in\nMay, no one can tell just what British policy will be.\nI gained the very definite impression from talks with\nGovernor Norman and other British representatives and various\nofficials at Basel, that the (omission) situati on is less\nclearly seen by the Britishers themselves than has been\nthe case previously. Armaments is the principal cause of\nthe uncertainty. Niemeyer particularly stressed the point\nthat expenditures for armaments have barely begun, so no\none can even imagine what will be the whole effect of the\nprogram. The export trade of Great Britain undoubtedly\nis of concern to the British. They realize that during the\nrearmament process it may shrink further, with rising prices\nand increased domestic consumption of raw materials. The\nsuggestion was made to Governor Norman by one of my friends\nthat the best way for Great Britain to recover its export\ntrade would be to follow the policies through which\nEngland\nRegraded Uclassified\n297\n- 5 -\nEngland achieved success in selling abroad - i.e., by having\nfew trade restrictions, active international lending, and\na stable currency. The reply of Norman was that the polit-\nical aspects of the situation had not been considered by\nmy friend.\nNorman told me, with regard to the American gold\nrumor, that he was pleased this \"trial balloon\" had been\nput out, as he thought it had led to some serious thinking\nand public discussion which had really been beneficial.\nThe American gold price should be changed, in his opinion,\nas the law of supply and demand was one law of nature over\nwhich the United States could not legislate successfully.\nGovernor Norman expressed annoyance over the publica-\ntion through a series of articles in the REVUE DES DEUX\nMONDES of memoirs of former Governor Moreau of the Bank\nof France dealing with confidential negotiati ons with the\nBank of England in particular, and with other central banks.\nThe resident BIS officer, Marcel Van Zeeland, and the\nBelgian directors, were elated over the outstanding If\nvictory of the Belgian Prime Minister (Marcel's brother\nPaul) in the election on Sunday. They look now for even\ngreater success in domestic and foreign affairs on the\npart of the Belgian Government.\nI\nRegraded Uclassified\n2S8\n- 6 -\nI was approached by Nathan of the Italian delegation\non the subject of war debts. He said he thought that\nItaly might be able to pay something to us out of the pro-\nceeds of dollar securities which the Government had requi-\nsitioned. Nathan said he would like to see some money\nraised in our country for Ethiopian development. The\nSpanish situation was a sensitive one for the Italian offic-\nials, particularly the recent bad luck of Italian troops\nin the Army of Franco. At Basel the prevailing impression\nwas that Termany was inclined to withdraw as cautiously\nand as quickly as possible from the Spanish situation, leav-\ning the Italians the whole field. It seemed that the Germans\nwere convinced there was no real issue associated with Nazi\ndoctrines at stake in Spain, and that this was only one more\ncivil war not different from earlier conflicts in Spain\nwhich the Spaniards themselves should handle. The Italians,\nincidentally, have become annoyed to see BO many ablebodied\nSpaniards living or visiting in Rome, and at the readiness\nof the Spanish nationalists to leave the serious fighting to\ntheir Italian friends. Furthermore, it is said that Germany\nlearned an impressive lesson in Spain, namely that a country\ncan be badly demolished by aeroplanes, trucks, and tanks,\nbut such weapons of offense cannot capture and hold a country.\nGermany is inclined to be more pacific, taking into consider-\nation this and other factors - in particularly the small\nnavy\nRegraded Uclassified\n299\n- 7 -\nnavy which they have, and the high cost of increasing\narmaments due to the rise in imported raw materials.\nThere was one story current to the effect that Schacht,\nin recently accepting the presidency of the Reichsbank\nfor a further year, had imposed definite conditions,\nparticularly along the lines of working toward freer\ntrade, and retrenching in military expenditures.\nThe French general manager, Quesnay, thought that the\nFrench franc should be allowed to fluctuate between 110\nand 112 to the pound. This would afford little chance for\nspeculation in the forward franc, and at the same time\nFrance would have the benefit of the cheapest monetary\nunit possible under the legislation of October 1, and\ncapital repatriation would be encouraged.\nQuesnay and the other officials while at Basel were\nnot yet familiar with the interview given to the FINANCIAL\nNEWS of London by Auriol, Minister of Finance, in which\nhe indicated that the franc would be allowed to find its\nnormal level within the limits prescribed by the legisla-\ntion of October. In this interview he also said he favored\nearly stabilization of the three important currencies,\nand he sought further international agreements to avoid\ntax evasion. I will mail a full report of this interview.\nQuesnay told me a story about the mission of Van\nZeeland, which in most part agreed with information which\ntwo\nRegraded Uclassified\n300\n- 8 -\ntwo other BIS officers furnished me. Van Zeeland had sought\nfor the benefit of Belgium and his own election cause,\nincidentally, to get a very definite declaration respecting\nBelgium's neutrality from Great Britain. An alternative\nwas sought when, in spite of the King's visit, that dec-\nlaration could not be obtained. The Tripartite Agreement,\nit was recalled, favored moves toward lowering of barriers\nto trade. At the subsequent meeting of the League of\nNations last autumn, a recommendation had been made that\ntrade barriers be investigated, and the naming of Van\nZeeland therefor had been mentioned. This suggestion was\ntherefore revived, and France and Great Britain appr oved\nit, even though 80 much publicity made Baldwin somewhat\nunhappy. Quesnay anticipates no startling or early results\nfrom this move, although he thinks it is in the right\ndirection. The Belgian monetary expoert formerly with\nthe Austrian National Bank, Frere, passed through Basel\non his way from Italy a few days ago. Frere had been on\nfrom the Prime Minister\nholiday in Italy when he received a telegram/to come to\nBrussels at once - on the same day that the Van Zeeland\nproposition was made public. I am informed that Frere was\nentirely unaware of the Van Zeeland plans until he was called\nto Brussels, although in the press the impression is given\nthat he was studying the plans for the past two months.\nThe\nRegraded Uclassified\n301\n- 9 -\nThe Swedish BIS economist, Jacobsson, is definitely\nconvinced that it is essential that the American gold price\nbe lowered. The process of sterilization of gold will\nprove more costly than effective, in his opinion. Jacob-\n380n was in agreement with Norman and several others of\nmy friends that since the question has once arisen as to\nthe possibility that the gold price of the United States\nwill be changed, there will now be an increased purchase\nof dollars by foreigners, and above all, an accelerated\nshipment of gold, with particular activity by the Soviets.\nThe BIS economist estimates that between $250,000,000\nand $300,000,000 worth of gold is the current year's\nproduction for the Soviets.\nJacobsson thinks that our problem regarding the influx\nof gold would not even be solved if sterling and the franc\nshould decline below the parities envisaged by the Tri-\npartite arrangement of last Fall. He thinks, in other words,\nthat it will be incumbent upon us to change our price for\ngold to perhaps around $30 an ounce, and then permit a\nreadjustment of other ourrencies accordingly. He said in\nparticular he would like to see the old sterling dollar rela-\ntionship of 4.85 pegged, even though we could not achieve\ndefinite legal stabilization.\nAs for the question of revaluing the Swedish crown,\nupwards, this is by no means dead, according to Jacobsson.\nThe\nRegraded Uclassified\n302\n- 10 -\nThe desirability of consultation with foreign countries\nby the United States in any revaluation move was stressed\nby Jacobsson. He again commended the spirit in which the\noriginal tripartite arrangement was brought about. In his\nopinion the changing of the American gold buying price would\nbe a new and important step toward solving the monetary\nproblems of the world.\nJacobeson expressed hope that the inquiry by Van Zee-\nland may lead to a more general reduction of barriers to\ntrade. Van Zeeland, he believes, or his representative,\nshould draw up a definite plan of action in the trade field\nand submit it to the various powers, rather than solicit\nthe opinions of the different countries and then try to\nwork out a plan on which they all could act.\nThe BIS economist said he appreciates the importance of\nan understanding between Great Britain and the United States\non trade matters. But he does not believe we should be\ntoo insigtent upon demanding that the Government which Neville\nChamberlain will soon head should discard the policy of\nImperial Preference which his father so strongly fostered.\nIn Jacobsson's view, we should respect the British idea on\nthis just as European countries must now come to respect the\nAmerican feeling on the war debt situation, as revealed in\nby France\nthe official attitude toward the recent move, and press comment\nin America on this move.\nEND MESSAGE.\nEA:LWW\nBULLITT.\nRegraded Uclassified\n303\nApril 13, 1937.\n12:31 p.m.\nOperator:\nHello\nH.M.Jr:\nHello\n0:\nGovernor Harrison.\nH.M.Jr:\nHello\nHarrison:\nHello - Henry?\nH.M.Jr:\nHello - George?\nH:\nYes sir.\nH.M.Jr:\nAh - you want to talk to me?\nH:\nWell I just called you - ah - as long as Burgess\nis absent\nH.M.Jr:\nYes.\nH:\nI thought I'd let you know what was going on\nhere - you probably get it anyway.\nH.M.Jr:\nWell we get it - ah - I don't know whether you've\nbeen doing anything in bonds or not.\nH:\nNo we haven't - only because - all everybody\nthought we oughtn't to - even the dealer fellows\nsaid that it was so absolutely quiet\nH.M.Jr:\nYes.\nH:\nand inactive\nH.M.Jr:\nYes.\nH:\nthat if we began to buy it would establish\nreally fourth levels downward rather than to - ah -\nkeep out they thought would be better and just leave\nit inactive.\nH.M.Jr:\nWell that's all right.\nRegraded Uclassified\n304\n- 2 -\nH:\nAnd it went off on the average about 4/32d's\nH.M.Jr:\nYes.\nH:\nand then improved to two or 3/32d's so that\nthe last that I saw was about two under last night\nH.M.Jr:\nWell that's not bad.\nH:\nbut with no transactions at all and we thought\nthat we couldn't say it was disorderly in any respect\nand - - ah -\nH.M.Jr:\nCouldn't say it was disorderly.\nH:\nWhat?\nH.M.Jr:\nDo you say orderly?\nH:\nI say we could not say it was disorderly.\nH.M.Jr:\nThat's right.\nH:\nAnd we do have bids, of course, in - ah - under on\nthe board in case anything should happen there\nH.M.Jr:\nYes.\nH:\nbut we haven't bought anything the last that\nI heard.\nH.M.Jr:\nO.K.\nH:\nI think it's very quiet and - ah - I - I think a\nlittle disappointment that the President's statement\nis to be put off until next week.\nH.M.Jr:\nYes - well\nH:\nBecause I think that might count for what little he's\nin arrears.\nH.M.Jr:\nWell we - we just - it's impossible to have it ready.\nH:\nYes, well I gathered there was some\nRegraded Uclassified\n305\n- 3 -\nH.M.Jr:\nI mean it normally takes two months to do that\nH:\nYes.\nH.M.Jr:\nand I had to ask them to give us another two\nor three days. We just can't - I mean we can't afford\nto make a mistake.\nH:\nNo you're quite right.\nH.M.Jr:\nAnd the whole thing is - is, if anybody should ask you,\nis simply a Question of getting the statistics.\nH:\nI see.\nH.M.Jr:\nYes.\nH:\nWell I assumed it was that.\nH.M.Jr:\nIt normally takes us two months and we've got two weeks\nto do it in.\nH:\nYes. Well there's - there's nothing in the market here to\nbe at all upset or concerned about, I think.\nH.M.Jr:\nWell that's good. Well, thank you.\nH:\nAll right.\nH.M.Jr:\nThank you.\nH:\nGoodbye.\nH.M.Jr:\nGoodbye.\nRegraded Uclassified\n306\nMEMORANDUM\nApril 13, 1937\nNo\nTo:\nSecretary Morgenthau\nFrom: Dr. Burgess\nTreasury bond market opened slightly lower and quiet\nbut quotations tended to rise with a fair amount of\nactivity in the afternoon. Treasury bonds closed at\ntheir highs of the day, with the long maturities 4/32 to\n9/32 better than yesterday and with the remainder of the\nlist unchanged to 8/32 better. Guaranteed bonds were firm\nand rather active, the F.F.M.C. bonds showing gains of\n2/32 to 5/32 and the H.O.L.C. bonds gains of 3/32 to 7/32.\nThe turnover of government bonds on the board totaled\n$1,432,000 against $317,000 yesterday. The note market\nwas firm all day and some buying was reported. The\n1939 - 1941 issues closed generally 2/32 to 4/32 up from\nyesterday; other maturities were unchanged to 1/32 better.\nDomestic bonds, both high and second grade, were\nmoderately firmer today as some buying interest appeared,\nand both groups were up fractionally at the close. Con-\nvertibles were strong.\nForeign bonds were quiet and mostly unchanged in price.\nItalians made fractional gains and Danish bonds were mixed,\nNo purchases today for Treasury.\nRegraded Uclassified\nto\n307\nApril 13, 1937\nFor the Secretary:\nGovernor Schaller: Governor Schaller and the Reserve bank people think that\nthe government bond situation has settled down and that the banks are much less\njittery than they have been. A good bit of the selling that the Chicago and\nIllinois banka did for over the tax date of April Birst has been reversed and\nChicago banks have been buying some. The country banks in the district are\nalmost entirely out of the G vernment bond market --- neither selling nor buying,\nand as long as the quotations stay about where they are, they will be satisfied.\nIf the market goes up much, there will be some selling, it is thought.\nSchaller and Young were over in etroit last week visiting the banks there, and\nfind them disposed to be satisfied if the Government bond market does not go\noff again decidedly. The banks report & gradual increase in commercial loans.\nThey are very much worried about the strike situation. and jittery about other\nthings than Government bonds. It is said here that New York is blaming Michigan\nbanks for the first selling wave of Governments. The industrial situation is\nregarded there as much more acute than the bond market. Schaller and the\nreserve bank people are inclined to think that there should be no attempt at\npushing the market up nor of pegging it, but maintain it about where it is if\nnot too expensive, letting it alide off to a three per cent yield gradually.\nCommercial loans throughout the district are picking up some; much of the\ndistrict depends upon crops and the coming agricultutal season will tell\nhow things will develop in this region. Chicago is more or less in between the\nWall Street attitude of New York and the farmer attitude of the reserve bank\ncities farther West. Chicage bank feels pretty much out of touch with the\nReserve Board, maintaining they have no direct contact since removed from the\nRegraded Uclassified\n308\nopen market committee. Apparently their ohly information as to pubchases for\nSystem account are from the newspapers, except for weekly summaries.\nWalter J. Cummings: Says that Governments must be pushed back up to par --\nthat the Treasury cannot stand by and see bonds it has just issued go below par.\nSuggests the Federal Reserve cancel the May 1 increase in reserves, and buy\nheavily in the market. Thinks easy money still highly essential. Country banks\nquiet because they expect the Federal Reserve to do this. Wonders what the\nTreasury is going to do about June financing and what it is going to do about\nincoming gold. More inclined to ask questions than to talk. Some others here\nsay that heavy overinvestment in long term Governments is reason he takes\nattitude that quotations must be raised. If they want up much, could expect to see\nContinental seel, it is said.\nJohn Hogan: This vice president of the Continental wants two things --- cheap\nmoney continuance 80 far as reflected in high prices for Government bonds, and\nhigher yields on almost everything else. He seems to share the Wall Street\nidea that interest levels and prices must get to their natural levels, but,\nprobably with Walter Cummings in mind, also talks in favor of supporting the\nGovernment market. Says the market for commercial paper is going dead.\nNot too helpful.\nMr. Abbott: This bond man for the Continental thinks that the March first and\nMay first reserve éncreases flanking the March 15 tax date a pretty heavy dose.\nThinks Reserve System might do well to cancel the May 1 increase. Thinks it\nessential that the Governments all be pushed back above par. Says the Reserve\nSystem would not put increase in effect now if the choise remained. Says the\nRegraded Uclassified\n309\nexcess reserves that are left after May 1, while in excess of & half billion,\nand so greater than in 1929 should not be compared to 1929 balances, because\ncity banks now use the reserve system for wire transfers where they used to use the r\ncorrespondents, and therefore it is only natural that they will maintain\nworking balances with the reserve banks in excess of their reserve requirements.\nThinks the financial community was misled the early part of the year by two\nmatters. The New York banks were letting their Treasury bills run off to get\nin funds for country bank withdrawals and other needs, and thus the Treasury bill\nrate went up artificially, but was thought by many to be rising in response to\nnatural causes. The other matter was the flotation on March 11 by the\nbankers for the Recourch Philadelphia Electric of $130,000,000 3 1/2's at 102 1/2.\nThey did not go very well at that price, and bankers saw in this recognition of\nhigher yields having arrived. They were wrong, in Abbott's opinion --- the\noffering did not go well because it was badly timed. The Ecoles statement of\nMarch 16 also did harm. It was correct and it Was courageous, but badly timed.\nMr. Abbott thinks & balanced budget coupled with open market purchases to the\nextent of B. quarter of a billion would put everything all right. Very much\ninterested in what financing the Treasury is going to do.\nXXXXXXXXX\nGeneral Dawes: Came out of a conference for B. few minutes chat, which aside\nfrom facetiousness, was to the effect that the Treasury W&S well run, and that\nwe were now pursuing the proper course, neither letting the market go to \"ell\nnor trying to restore it to par. keep it up along those lines.\nRegraded Uclassified\n310\nNed Bpown: Was tied up when I went in but said he wanted to talk to me so\nI asked him to the reserve bank for lunch along with the officers of the bank.\nHe has sold no bonds and does not need to because he has a properly constructed\nbond account and because he has built up reserves and amortized his accounts.\nHe does not think the Treasury and Federal Reserve can keep the bonds where\nthey are, thinks they will go lower naturally, thinks a three per cent yield is\ninevitable, and would let the bonds slide off gradually to their natural\nlevel. To do otherwise is no only to attempt to support the whole Government\nmarket, but the market for other bonds as well, and perhaps the whole capital\nand money market. Thinks it more important to be thinking about keeping down\nthe spiral of prices and wages than to be thinking about the price of\nGovernment bonds. He doubts that the banks will sell in quantities any more,\nbut thinks they will attempt to unload on rises in the market, if it rises.\nThinks Government should take vigorous action in strikes, etc. Wonders what\nis going to be done about gold coming in.\nA variety of opinion, based partly on inherent attitudes and partly on\npersonal interest. No unaminity, but generally steer a middle course,\ndon't let bonds goo too far either way.\nHave to catch a train. May say more about Chicago later.\nUpm\nRegraded Uclassified\n311\nRB\nPLAIN\nLondon\nDated April 13, 1937\nRec'd 3:35 P. m.\nSecretary of State\nWe shington.\nRUSE,\n232, April 13, 8 P. m.\nTREASURY FROM BUTTERWORTH.\nIn the House of Commons this afternoon the Chancellor\nof the Exchequer as asked to allay public anxiety by\ngiving an assurance that the British Government had no\nintention of taking action to check the rise in commodities\nby raising the price of sterling in terms of gold in view\nof the inflationary effect it would have. Mr. Chamberlain\nreplied: \"It is not at present part of the policy of the\nGovernment to maintain a fixed price for gold in terms\nof sterling. The price of gold is one of the factors to\nbe taken into account in determining monetary policy from\ntime to time. The Government are fully alive to the\nundesirability of interf ring with the flow of business\ntowards recovery.\" Asked whether the maintenance of cheap\nmoney remained a fundamental objective of the Government's\npolicy the Chancellor of the Exchequer referred to an\nanswer\nRegraded Uclassified\n312\nRB\n-2-#212, April 13, B P. m. from -\nLondon\nanswer given yesterday which is noteworthy for its\nevasiveness: \"Cheap money is not an object in itself,\nbut & means adopted for securing the improvement of trade\nactivity and employment. I am satisfied that the policy\nactually followed has given a maximum stimulus to economic\nrecovery in the United Kingdom and the Empire with a\nminimum *1 undesirable repercussion; I cannot make any\nstatement na to the future since the measures to be taken\nat any time will depend on the course of events\".\nThe Chancellor was also asked whether he was\nsatisfied with the working of the tripartite currency\nagreement between the United States, France and Great\nBritain and whether this agreement precluded any alteration\nof the gold value of its currency by the governments of any\nof these countries without prior consultation with the other\nparties to it. Chamberlain replied that the answer to the\nfirst part of the question was in the affirmative; dealing\nwith the second part he said: \"The purpose of the agreement\nis to maintain the greatest possible equilibrium in 8.\nsystem of international exchange, to avoid to the fullest\nextent any disturbance of that system bymonetary action on\nthe part of any of the governments concerned. There is\nno expressed reference to the gold value of the several\ncurrencies\".\nRegraded Uclassified\n313\nRB\n-3-#212, April 13, 8 P. m. from\nLondon\ncurrencies\",\nAsked if he was contemplating any negotiations with\nthe United States and France for an economic agreement\ncovering a wider field and of a more permanent nature,\nhe replied: \"I am not contemplating it at the present\ntime\". Questioned further by the leader of the liberal\noppos: that since it was said when the currency\nagreement was entered into that the Government then\ncontemplated an economic agreement of a wider character\nbetween America, France and Britain when will the Govern-\nment cease to contemplate such an agreement by acting?\nChamberlain replied: \"What I said 13 not at all incon-\nsistent with that. We did say at the time the agreement\nwas made we hoped it might be followed by further measures\nwith 8 view to lowering the restrictions in the way of\ninternational trade. The question I am asked now is\nwhether I contemplate entering into negotiations and to\nthat I reply in the negative\". Asked \"how can the\nChancellor of the Exchequer expect that his hopes will be\nfulfilled if he is not prepared to do anything about it?\"\nChamberlain replied: \"I do not say I am not prepared. I\nam not contemplating it. It depends upon when eircumstances\nare\nRegraded Uclassified\n314\n-4- #212, April 13, 8p. m. from\nRB\nLondon\nare favorable.\"\nThe market took all the gold at fixing and absorbed\nfairly large offerings after fixing and in general showed\nsigns of \"settling down\". Arrangements have now been\ncompleted for making Russian gold good delivery in London.\nBINGHAM\nBECEINED\nKLP\nVSS: :- I SSA\n143MTRA930 YRUBAINT\nthe 1:190\nand of -\nRegraded Uclassified\n315\nApril 14, 1937.\n10:35 a.m.\nH.M.Jr:\nHello\nOperator:\nGovernor Harrison.\nHarrison:\nHello\nH.M.Jr:\nGolly, George, I didn't know you'd run up a bond\nmarket so fast on us.\nH:\nGosh, how do you like it?\nH.M.Jr:\nTerrible.\nH:\nWell, I told Matty (evidently meaning Madison) just\na little while ago to - ah - with these dealers\nscrambling around to get some to let them have\nsome bonds\nH.M.Jr:\nAh-ha.\nH:\n......and I haven't yet heard whether he has done\nso or not.\nH.M.Jr:\nAh-ha.\nH:\nAnd one reason I'm anxious to do it - I wanted to\nget your reaction\nI\n......\nH.M.Jr:\nYes\nH:\nis this: You see we showed an increase last\nweek in our account of 29 million.\nH.M.Jr:\nYes.\nH:\nA lot of people thought that was pretty heavy.\nH.M.Jr:\nYes.\nH:\nNow this week we haven't bought a thing\n.....\nH.M.Jr:\nYes.\nH:\n....since April 8th\nH.M.Jr:\nYes.\nRegraded Uclassified\n316\n- 2 -\nH:\n....and we sold something in the meantime\nH.M.Jr:\nYes.\nH:\n.....but April 8th was Thursday\nH.M.Jr:\nYes.\nH:\nbut we did buy 13 million last Wednesday and\nwere delivered the next day in this statement week.\nH.M.Jr:\nI see.\nH:\nSo that with what was bought on Wednesday and Thurs-\nday\nH.M.Jr:\nYes\nH:\n......would show an increase of 31 million dollars\nmore than last week.\nH.M.Jr:\nGosh.\nH:\nAnd I think that's bad.\nH.M.Jr:\nOh it's just - the world will think you the most\nreckless people they ever knew.\nH:\nNo, but I think it's bad to show more of an increase\nH.M.Jr:\nOh.\nH:\n.....than last week and I think as long as the market\nhas been so on its dwn ever since last Thursday\nH.M.Jr:\nYes.\nH:\nthat we don't want to give the impression that\nit's been artificial\nH.M.Jr:\nAh-ha.\nH:\nthen we can get away with it.\nH.M.Jr:\nYes.\nH:\nSo that if we can sell something to-day I'm very glad\nof the opportunity to do it.\nH.M.Jr:\nGood. Did you find out who bought the five million\nlast Saturday?\nRegraded Uclassified\n317\n- 3 -\nH:\nAh - it was a New York City bank.\nH.M.Jr:\nNew York - New York City bank.\nH:\nA big New York City bank.\nH.M.Jr:\nWell, that must have been the Central, wasn't?\nH:\nAnd I didn't find out which one it was.\nH.M.Jr:\nBut it was a bank - that's all that - that's good\nenough.\nH:\nAnd the buying yesterday - ah - was largely for .the\nNew York City banks.\nH.M.Jr:\nWell I'm just interested in what kind of buying it\nis - whether it's banks, insurance companies or where\nthey are - that's all I want to know.\nH:\nYes - well it was - it was New York City banks yesterday.\nH.M.Jr:\nGood.\nH:\nLargely.\nH.M.Jr:\nAll right, George.\nH:\nNow - now the thing has run up here to - ah - 1/8th\nof a quarter of a point better\nH.M.Jr:\nYes.\nH:\n....than yesterday's close already.\nH.M.Jr:\nYes.\nH:\nNow you don't see any objection to our letting some of\nthese go rather than to have this run this way.\nH.M.Jr:\nNo - no that's all right.\nH:\nBecause I think there's every advantage in it.\nH.M.Jr:\nAs long as you just sell on the bulges, it's all right.\nH:\nYes, well that's the only time we're doing it. The only\nother day we did it was on April 10th when we had that\nvery rapid rise and we had an opportunity - it was on\nRegraded Uclassified\n318\n- 4 -\nSaturday - we had the opportunity to let four million\nseven go to a dealer who had to fill an order - that's\nthat one I was telling you about.\nH.M.Jr:\nWell now tell your man there he could sell some of\nour bills and we'll keep the money and - until the\nmarket goes down again - we've given him an order to\nsell 10-1/2 million of - of notes maturing - the\nSeptember notes - see - and he's only sold a million\nof them, see?\nH:\nYes.\nH.M.Jr:\nI'd like to sell a million or two of those to-day if\nwe could, see, and then we'll keep the money and wait\nuntil we need it.\nH:\nYes - September notes?\nH.M.Jr:\nYes.\nH:\nOut of what account is that, Henry?\nH.M.Jr:\nPostal Savings.\nH:\nYes.\nH.M.Jr:\nI want to\n------\nH:\nThat - that - that order is in, is it not?\nH.M.Jr:\nThat's in - been in for about a week.\nH:\nYes.\nH.M.Jr:\nNo - it's been in since Monday.\nH:\nYes.\nH.M.Jr:\nBut to - to sell those and buy 2-7/8's - well if he's\ngot a good chance let him sell some of those and we'll -\nwe'll hold the cash and you can keep it there as a\nnest egg and when the market goes down again\nH:\nYes.\nH.M.Jr:\nwhen somebody - when the Federal Reserve makes\na speech.\nH:\n(Laughs) (This line completely lost as Harrison\ncroaks like a large frog - simply can't make out a\nword he says)\nRegraded Uclassified\n319\n- 5 -\nH.M.Jr:\nWell, talk to Madison about that, will you?\nH:\nYes I will - I'll talk to him right away.\nH.M.Jr:\nWell I'm glad it's behaving the way it is.\nH:\nWell I - - I agree with you though - I don't think you\nwant to see it run up too fast.\nH.M.Jr:\nThat's all right.\nH:\nI think all the talk in the papers this morning\" about\nthe orders on economy is probably what helped it.\nH.M.Jr:\nThat's right.\nH:\nI was afraid that might work the other way. (Laughs)\nH.M.Jr:\nNo it's all right.\nH:\nBut it's working all right.\nH.M.Jr:\nAll right, George.\nH:\nAll right, sir.\nH.M.Jr:\nGoodbye.\nRegraded Uclassified\n320\nApril 14, 1937.\n11:43 a.m.\nH.M.Jr:\nHello\nOperator:\nGovernor Harrison\nH.M.Jr:\nHello\n0:\nGo ahead\nH.M.Jr:\nHello - hello.\nHarrison:\nYes Henry.\nH.M.Jr:\nGeorge, do you know what your people have been doing\nthis morning in bonds? Have you heard? I - I don't\nknow what they're doing.\nH:\nWell I - I - I\nH.M.Jr:\nI mean the volume - whether they sold - or how much\nor anything.\nH:\nOh well we - we disposed of four million of the\n2-3/4's 51-54 to - at a point - ah - nine points above\nlast night's close\nH.M.Jr:\nYes.\nH:\n.....and that's all we've done.\nH.M.Jr:\nYou've done four million.\nH:\nYes.\nH.M.Jr:\nAt nine points above last night's close.\nH:\nYes.\nH.M.Jr:\nWell that's all I wanted to know.\nH:\nAh - last night - yesterday afternoon on Treasury\nbills we did some things you might be interested in.\nH.M.Jr:\nYes.\nH:\nOf the 39 million of Treasury bills bid for in New\nYork on Monday\nH.M.Jr:\nYes.\nRegraded Uclassified\n321\n- 2 -\nH:\n30 million were awarded to dealers.\nH.M.dr:\nYes.\nH:\nNow of that 30 million we took five million against\nour maturity\nH.M.Jr:\nYes.\nH:\nand also an additional 16 million\nH.M.Jr:\nYes.\nH:\nof the nine months bill\nH.M.Jr:\nYes.\nH:\n....against shorter bills on\nH.M.Jr:\nYes.\nH:\nWe do that because there's apparently no demand for the\nnew nine months bill by either banks or others\nH.M.Jr:\nYes.\nH:\n....and it enabled us to clean out the dealers of the\nbills that were sticking and give them the shorter bills\nthat they could move.\nH.M.Jr:\nAh-ha.\nH:\nSo that that bill market thing is much better. Last\nnight the - ah - all the dealers together had only\n20 millions of bills and some of that is a fixed\ninvestment in bills by the Discount Corporation which\nthey use as collateral for loans.\nH.M.Jr:\nI see.\nH:\nSo that we really cleaned up the bill thing pretty well\nby taking over the nine months bill. I mention that\nbecause for some same reason - two or three weeks ago -\nyou know -\nH.M.Jr:\nYes.\nH:\n- There wasn't much difference on the rates between\nthe short and the long bill.\nH.M.Jr:\nYes.\nRegraded Uclassified\n322\n- 3 -\nH:\nBut apparently - an - the dealers have been talking\nto me lately and - ah - from all the facts that I\ncan gather the nine months bill doesn't move very\nwell and the short bills are moving easily and at\nprices.\nH.M.Jr:\nThey are doing what?\nH:\nThey are moving very easily and at higher and higher\nprices.\nH.M.Jr:\nI see. Well, we're thinking of announcing - ah -\nfor Monday that we're going to start - ah - - selling\nanother 50 million into September.\nH:\nWell I think that that's important to do whether you\ndo it this week or the next week - I don't know.\nH.M.Jr:\nWell -\nH:\nI should think it would be all right this week.\nH.M.Jr:\nYou do. Well I mean - it would be for next Monday.\nH:\nYes. That's what I mean.\nH.M.Jr:\nYes, you think it would be all right.\nH:\nI think the only thing they don't like is the nine\nmonths bill and I really believe that if this thing\ncontinues now\nH.M.Jr:\n-\nYes.\nH:\nand it might continue after this increased\nreserve requirements becomes effective\nH.M.Jr:\nYes.\nH:\n....you might have to give another study to the ques-\ntion of the nine months bill, Henry.\nH.M.Jr:\nBut - ah - not this week.\nH:\nWell - they they - they're not going well.\nH.M.Jr:\nThey're not.\nRegraded\nUclassified\n323\n- 4 -\nH:\nNo, they're not at all and, for instance, I just got\na pencil memorandum that came in last night and it\nonly confirmed what Mills, of the Discount Corporation,\ntold me on Monday that they just couldn't get buyers\nfor the nine months bills. As to why they don't know\nand I asked him why. He said, well they want short\nbills and I said, \"Well hell just two weeks ago they\ngave the rates pretty near the same on both of them.\"\nI said, \"How can we guess you fellows?\" He said,\n\"Well, that was true,\" he said, \"but suddenly something\nhad turned and they want the short bill - not the long\none.\"\nH.M.Jr:\nWell do you think there's any reason why we can't offer\non Monday 50 million of nine and 50 million into Septem-\nber?\nH:\nI think you'll have some trouble with your nine as I\nsee it to-day but I\nH.M.Jr:\nWell do you - do you think it's a mistake to do it?\nH:\nI think you run - I'd like to go into this a little\nmore because I haven't talked to dealers myself this\nmorning - let me talk to Sproul who did\nH.M.Jr:\nYes.\nH:\n....and then I'll call you back.\nH.M.Jr:\nCould you call me back\nH:\nYes.\nH.M.Jr:\nby - before 12:30.\nH:\nYes, I'll do that right away.\nH.M.Jr:\nPlease.\nH:\nAll right, sir.\nH.M.Jr:\nWell, of course, we've got to make up our mind to-day.\nH:\nYes, I know and I - it's funny I was just talking to\nEccles about it when you called me now.\nH.M.Jr:\nAh-ha.\nRegraded Uclassified\n324\n- 5 -\nH:\nGiving him the story on the bill market.\nH.M.Jr:\nAh-ha.\nH:\nBut I'll - I'll look into it again and see what these\ndealer fellows said this morning and see if I've got\nanything new on it and then I'll call you back. Cer-\nSeptember. tainly if you do any additional ones they should be in\nH.M.Jr:\nYou mean - well - you mean over and above the 50?\nH:\nYes.\nH.M.Jr:\nYes, but.....\nH:\nAnd - ah - if you did only 50 and put it all in Septem-\nber I think it would go best.\nH.M.Jr:\nWell we need more money; that's the point.\nH:\nYes.\nH.M.Jr:\nI mean if this thing won't go we'll have to get out a\nregular issue.\n8:\nYes, well let me - let me call you back, Henry.\nH.M.Jr:\nBecause I mean (laughs) I'm not going to let New York\nrun this market - I mean these dealers - I mean four\nor five dealers will run the whole government - I'm\nnot going to let them do it.\nH:\nWell I don't think that's quite the way to put it\nbecause what those fellows are doing - they'll - they'll\nbuy anything they can sell - they're - they're traders.\nH.M.Jr:\nWell -\nH:\nAnd if they can sell the bills they'll - they'll buy\nthem.\nH.M.Jr:\nWell the rate - the nine months bill ought to sell.\nWe haven't - we don't try to control the rate they\nbid for them.\nRegraded Uclassified\n325\n- 6 -\nH:\nWell, of course, you know I - I made a speech to\nyou once, when we were discussing this question of\nthe nine months bill and reducing the total a ggre-\ngate of bills, advocating reducing it beginning by\nreducing it to six months\nH.M.Jr:\nYes.\nH:\nand the reason that I gave them, and I still feel\nis true, that when you get a more normal money market\nwhere excess reserves are down around - getting around\nto zero again some day - the nine months bill won't be\na popular bill; it never has been; it doesn't work\nin England and they had to stop it and the market usage\non short money - short funds - temporary funds has\nalways been a ninety day bill. And then we went\nthrough a period of very exceptional times of huge\nexcess reserves and they would buy anything and your\nnine months bill went very well. Now you're getting\nback to that - we'll call it the pre-war time - when\nyou haven't got that same pressure to buy anything and\nthey're becoming more discriminating and, therefore,\nthey want to do what's the usual thing, banking easy\nand putting surplus funds in ninety day stuff. I don't\nthink it's unusual and I don't think it's anything to\nbe wondered at. It's a thing I really believe that\nyou'll have to study all over again in the light of\nnew conditions.\nH.M.Jr:\nWell now, do you suppose between now and 12:30 you can\nfind out something and let me know?\nH:\n(Laughs) Well I'll do my best. I've got a better\nchance if I don't talk too long to you now.\nH.M.Jr:\nWell that suits me.\nH:\n(Laughs) All right.\nH.M.Jr:\nAll right.\nH!\nGoodbye,\nRegraded Uclassified\n326\nMEETING RE OPEN MARKET OPERATIONS\nApril 14, 1937\n12:00 Noon\nPresent:\nMr. Taylor\nMr. Bell\nMr. Haas\nMr. Eccles\nMr. Goldenweiser\nH.M.Jr:\nI'm not going to tell him (Governor Harrison) not to\nsell. He tells me a few minutes ago we can't sell\nany more nine months stuff. I think it's just...\nEccles:\nHe told me that. I said, \"Well, hell, George, last\nweek they didn't want any short term stuff; all they\nwanted was long term. Now this week they want the\nopposite.\" I said, \"I can't understand the thing.\"\nH.M.Jr:\nWell, I'm not running this thing, but they do so much\nswapping and switching and this business and that\nbusiness, and they fixed it now so we can't sell a\nnine months. So I said, \"You're telling me that the\nfive New York dealers tell you to tell me I can't\nsell a nine months?\" \"That's what it amounts to.\"\nNow, if we're going to sit here and let five dealers\ntell us how to run this thing, all right, but it's\njust It's all right; it was all right up to six\nweeks now. But if I'm - Mills and the Discount can\ncall up George Harrison and say it can't be done, and\nthat answers it,\nEccles:\nI don't understand\nH.M.Jr:\nWhy the hell, if the market goes up an eighth on the\nstatement we're going to cut expenses, should George\nHarrison immediately dump a bunch of bonds? What are\nthey trying to do?\nEccles:\nI suppose he didn't want the market to go up too fast.\nH.M.Jr:\nWell, for Christ's sake\nBell:\nOught to work both ways.\nH.M.Jr:\n...1t's gone down five or six points.\nUclassified\n327\n- 2 -\nTaylor:\nWhy in Christ's name should five million in bonds\nmake the difference of showing a change of policy\nin the Federal Reserve Board?\nEcoles:\nIt won't make any difference, because the statement\nwon't show it.\nTaylor:\nExcept that they are sellers in the market.\nEccles:\nNo, the statement comes out today and the statement\ntoday will show an increase of about 30 million over\nlast week. Now, they can't reduce - they can't show\non the statement any reduction from statement date to\nstatement date. Between statement dates, of course,\nthey have always shown shifting, but they can show no\nreduction. Now, the statement last week showed an\nincrease of 29 million; this week it will show an\nincrease of 60 some odd million, so that there will\nbe no decrease at all. Next week the statement can't\nshow less than it does this week.\nTaylor:\nBut the dealers know.\nH.M.Jr:\nThere are five dealers in New York running the whole\nGovernment bond market right now, and it's not being\ndone by the Federal Reserve or the Open Market.\nEccles:\nWell, of course, the market, as I understand, is\npretty strong this morning. He said there was -\nI talked to George and he said there was really a\ndearth or scarcity of bonds.\n(Secretary has conversation with Governor\nTranscript of conversation follows this page)\nHarrison, recorded on dictaphone at 12:05)\nH.M.Jr:\nWhat does it look like, Dan? If we start getting the\nextra fifty now and raised 300 million for six weeks -\nI mean when would that end?\nBell:\nThat would be beginning the 21st.\nH.M.Jr:\nOf what?\nBell:\nThis month.\nH.M.Jr:\nNo.\nBell:\nYes.\nRegraded Uclassified\n328\nApril 14, 1937.\n12:05 p.m.\nH.M.Jr:\nHello\nOperator: Governor Harrison calling.\nHM Jr:\nThank you\n0:\nGo ahead\nHarrison: Hello\nH.M.Jr:\nHello\nH:\nWell Henry I've just made a quick conference with\nthe men here in the bank; I haven't gone outside at\nall.\nH.M.Jr:\nYes.\nH:\nAnd they say that the facts remain, as I told you,\nthat the nine months is - ah - is sticky.\nThere is some damand for the shorter bills.\nH.M.Jr: Yes.\nH:\nMadison's guess is that the nine months bills - ah -\nthis next week might go for around 70 to 75 - at\nleast higher than last time\nH.M.Jr:\nYes.\nhow\nH:\nBut, of course, I don't know exactly/ pressing your\nneeds are and how much or how rapidly you need the\nfunds but my suggestion would be if you could afford\nit I'd go only 50 millions this week and I'd make\nthem the September bills.\nH.M.Jr'\nNo, I won't do that.\nH:\nAnd - well then the - ah - ah - ah - the six months\nbills - I mean the nine months bills will go but\nthey'll probably go at a little higher price because\nthey've become unpopular. A lot of banks have been\ntalking about it and they - apparently what's happen-\ning is this - that they are preferring to go into your\nshorter notes or some of your notes - at 1-1/4 we'll\nsay.\nH.M.Jr: Yes.\n- 2 -\n329\nH:\nThen to take a nine months bill at 70.\nH.M.Jr:\nWell I've - I've adjusted myself, since last November\nwith the Federal reserve Reserve so they could get ready and\ndo this increasedArequirements. I let my balances\ngo down from a billion to around five - six hundred\nmillion. I'm through adjusting myself to the Federal\nReserve; I'm going to run the Treasury the way I\nalways ran it.\nH:\nYes? Well I'm not asking you to adjust yourself\nto the Federal Reserve.\nH.M.Jr,\nNo, well I'm not going to .\nH:\nWell I'm not suggesting that.\nH.M.Jr:\nNo, but I mean this suggestion that I - I should not\ntake a hundred million next week when we need it.\nH:\nNo, now wait a minute - ah - you asked me a few minutes\nago to call you back as to what my advice was.\nH.M.Jr:\nYes.\nH:\nAnd I said, without knowing what your requirements were,\nI think the best thing would be 50\nH.M.Jr:\nYes.\nH:\n.....but if you need more then I say you'll\nhave to pay probably around 75 for your nine months\nbills.\nH.M.Jr: Well -\nH:\nNow that's just a guess - we may be all wrong.\nH.M.Jr:\nYes.\nH:\nBut I'm not - I'm not - I'm not urging you - ah - not\nto do - raise the money that you need at all. I don't\nknow that.\nH.M.Jr:\nWell we need it.\nRegraded Uclassified\n330\n- 3 -\nH:\n\"ell then if you need it then I think that your\nmine months bill will - will go but it will go\nat a little higher price than it did this last\nweek.\nH.M.Jr:\nYes, well the main thing is that it goes.\nH:\nYes.\nH.M.Jr:\nAh - for the time being - I mean the rate thing\nis out of my hand - I can't control and never\nH:\nYou wouldn't consider a six months bill there.\nH.M.Jr: Well I don't think - I don't - we'd have to take\nthree or four days or a week to think it over\nH:\nAh-ha.\nH.M.Jr:\nand before we'd make a move like that I'd ask\nEccles to bring down the Open Market Committee.\nH:\nYes. Well I really think that that would be a good\nthing to do pretty soon anyway.\nH.M.Jr:\nWell I'm perfectly willing to talk about it but between\nnow and 5 o'clock we've got to get our wires out\nH:\nYes.\nH.M.Jr:\nand the first that I knew that these nine months\nwere stickywas when I talked to you about twenty\nminutes ago. I mean I didn't know that they were\nsticky - to-day is Wednesday - I didn't know anything\nabout it\nH:\nYes.\nH.M.Jr:\nand I'm not going to change my policy in an\nhour. I mean I want to give it careful consideration\nand if we're going to have trouble with bills maybe\nI'd come out with a regular issue.\nH:\nYes, but we don't have to do that.\nH.M.Jr:\nWell I mean I'm (laughs) I'm - I'm - from now on I'm\ngoing to take the money I need and I'm going to go back\nand be comfortable. I'm not going to be worring about\nweek to week whether I can raise 50 million or a hundred\nmillion dollars. I mean I should have let the balances\nRegraded Uclassified\n331\n- 4 -\ngo down; I did it to help out and I'm not going to\ndo it again.\nH:\nYes.\nH.M.Jr:\nI mean from now on I'm going to\nH:\nWell don't - don't misunderstand me now I'm not asking\nyou to do anything; you asked me what I thought about it.\nH.M.Jr:\nI know but I mean I made a mistake and I realize it\nnow. I mean I always had enough money so I didn't\nhave to finance for three months and I'm going to\nput the Treasury back in that position so that we're\nmoney easy.\nH:\nYes.\nH.M.Jr:\nAnd it's the first time I've ever gotten myself where -\nso that I've got to move and move - ah - due to the\nconditions in New York and I'm going to get myself out\nof that position.\nH:\nAh-ha.\nH.M.Jr:\nAnd\nH:\nWell I think - you - you can tell them that you -\nthat you'll probably have to pay more.\nH.M.Jr:\nWell that's - I'll - I'll pay whatever I have to.\nH:\nYes.\nH.M.Jr:\nAnd if it's 75 it's 75.\nH:\nBut I do - I do think it's worth a review again\nsometime.\nH.M.Jr:\nI think we ought to - I'm going to ask Eccles f he'll\nget his crowd together next Tuesday or Wednesday.\nH:\nYes, I think that would be a good idea just stating\nthe new set of circumstances when you've got May one\nout of the way.\nRegraded Uclassified\n332\n- 5 -\nH.M.Jr:\nAll right, George.\nH:\nAll right, Henry.\nH.M.Jr: Thank you.\nH:\nAll right.\nRegraded Uclassified\n333\n- 3 -\nH.M.Jr:\nOh, you mean starting.\nBell:\nYes.\nEccles:\nYes, run six weeks.\nBell:\nThat would run it to the end of May.\nH.M.Jr:\nWould you clean up in May?\nBell:\nYes, we'd clean up in May.\nH.M.Jr:\nYou want to count?\nBell:\nWell, you got two the 21st and the 28th in April, and\nfour in May.\nH.M.Jr:\nAnd we'd be out....\nEccles:\nYes, before the first of June. That would be your\nSeptember three hundred maturing.\nH.M.Jr:\nI mean do you think on anhour's notice that I should\nEccles:\nI wouldn't change it. George talked to me just before\nI came over here, in fact just before you talked to\nhim, and he said that the long term bills were not\nmoving. I said, \"What in the name of God ?\" I\nsaid, \"Last week it was the short that wouldn't move.\"\n\"Now,\" I said, \"this week they want the short and they\ndon't want the long.\" I said, \"They've got excess\nreserves of nearly 8. billion and a half, and with the\nincreased reserves going into effect, they'll have\nbetween seven and eight hundred million of excess\nreserves.\" I said, \"Now, your bond market is strong,\nyour note market is strong, and the long term bill\nmarket is weak, just because they've got - they're\nissuing long term bills.\" I'll be damned; I can't\nunderstand it.\nBell:\nDid the System unload a lot of bills?\nEccles:\nNo, they bought bills. What they did - you see, they\nhad five million of their bills maturing, so they took\nfive million to replace those. The dealers took\nthirty million bills and they took that five million.\nAnd then they let some short bills, because they were\nRegraded Uclassified\n334\n- 4 -\nin demand - they had some of last week's short\nbills, see, and they were in strong demand, so\nthey switched; they exchanged some of those short\nbills for the nine months bills that were put out,\nso as to clear the market of the nine months bills,\nbecause they wanted the short bills and we'd just as\nsoon have the long bills. We took, I think, about\n15 million of the long bills.\nTaylor:\nDid you pay them a profit on it?\nEccles:\nWell, I don't know, Wayne. It would be very small\nif it was; it would be just a - the fraction, of\ncourse. That damn bill prevented us from taking\nthem direct and we've got to take them through the\ndealers. But I'm sure we wouldn't pay more than\njust a fraction to what we usually pay on any of\nthose transactions.\nBell:\nYou bought them at the market price.\nEccles:\nWell, but the market on them was at about the offer-\ning price. I don't think they'd gone off. They were\njust holding them. The dealers, you see, had the\nbills and they were holding the bills at what they\nhad bought them for; they weren't selling them at a\ndiscount. Now the dealers are pretty well cleaned up\nof bills.\nH.M.Jr:\nOh sure, they always take care of them down there.\nI mean they're more interested in taking care of the\ndealers than in taking care of us. Any time the\ndealers have got a little load, all they've got to\ndo is call up Harrison and he'll take off what they've\ngot. They always know they can go dump them. But\nwhen it comes to helping out... I mean those five\nconcerns, they've just - when things are bad they\njust can dictate and write the ticket.\nHaas:\nIt seems to me that - and I thought this was the way\nthey were going to operate, take this open market\noperation - I may be wrong on this, but it seems to\nme that they have no effect in improving this market\nat all unless they increase excess reserves. Using\nthe open market operations, buying and selling, just\nto peg, I think, rather than strengthening might\nweaken the situation. And if their objective was to\nput some more excess reserves in - I thought that\n335\n- 5 -\nwas it, and you wanted to change the underlying\nsituation.\nRocles:\nThere were two reasons, George. One was the psy-\nchology of the thing - that out through the banks,\na lot of banks, little fellows that simply just\nfigured there wasn't any market, and they were\nsubjected to the propaganda of these dealers and\nfellows that were left to run the market. So that\nthe psychology of the announcement that the Reserve\nSystem was going to do that without question tended\nto have an influence.\nHaas:\nI think that was good. But then, you watch it operate\nand see it operate. For instance, your objective was\nto increase 300 or 500 million excess reserves. See\n8. day when the market - the bottom just drops out, and\nyou buy some bonds; and then, when the market stiffens\nup a little, they sell. The psychology that would\ncreate is terrific.\nEccles:\nOf course, you don't want a market to go up too fast\nso that others start selling. I mean you don't - for\ninstance, if the market goes up a half or three\nquarters of a point here and there are practically\nno offerings, there of course is a danger of & lot\nof others who have got a profit in the bonds starting\nto sell. You don't want them to break it either.\nH.M.Jr:\nBut what's-his-name won't give them a chance. Let\nme ask you what is your position today. How much\nhave you increased your portfolio? Do you know?\nEccles:\nYes, about yesterday it was around 69 million.\nH.M.Jr:\nNet?\nEccles:\nYes.\nHaas:\nI would have sworn before the thing was started that\nif that's the way it was to be done, it wouldn't have\nany effect at all.\nEccles:\nOf course, it has had an effect, George, because your\nmarket today is more than a point above where it was\nand it's strong. There's more buyers. The market is\nRegraded\n336\n- 6 -\nvery orderly, and the selling is practically dried\nup. Now, you take - before we acted there was just\nselling all over the lot, with no takers. The whole\nmarket WAS just in a state of hysteria almost. Now,\ntoday the psychology has completely changed, and\nthere's more bids in the market for securities by\nfar than there are sellers. They are just practically -\nselling has dried up, has completely dried up. So\nthat the market is in an excellent condition at the\nmoment so far as confidence in Government bonds.\nIt's entirely changed, and it is extremely orderly.\nAnd I think it would be bad if it went up too fast,\nbecause it would just mean a reaction again, and you\ndon't want that. I'd sooner see the market work up\nslowly back and forth, but on the upside right along,\nthan to see it go up and then get the darn thing\nstarted down again.\nH.M.Jr:\nNo argument about that.\nEccles:\nIt's in good shape at the present time. Don't you\nthink it is, Wayne?\nTaylor:\nWell, I don't get this play of selling out bonds at\nthis point, frankly. I mean if there is a demand\nfor bonds, why, let's find out.\nEccles:\nNow, as I understand - I talked to Harrison; he\ncalled me up before he did you - the first I knew\nof what had been done. He said that the market had\ngone up in this particular issue more than half a\npoint above last night's close, and last night's\nclose was - I don't know - seven or eight thirty-\nseconds above the opening; so that it was about a\nthree quarters of a point rise:\nH.M.Jr:\nFrom what, from yesterday?\nEccles:\nYes, from yesterday's opening - about three quarters\nof a point up. And that this particular issue - that\nthere were just no bonds in the market, that they\ncouldn't find any.\nH.M.Jr:\nNow, what I - - what these boys are getting at is this.\nLet's say that the market for the next ten days con-\ntinues to rise. Are you going to let these New York\nfellows sell off the 69 million and get it right\nback to the position of the portfolio, where it was\nbefore, or do you want another couple hundred million\n337\n- 7 -\nin there? That's what we're interested in. We're\nnot - I've told George Harrison . - I'm on record.\nHe told me he sold five million when the market\nwent up on Saturday. I have no objections to that\nif there is a real shortage, a technical shortage\nin the market. It's all right - I mean for him to\nsupply & few to take care of it.\nBut the whole argument and the thing that Ithought\nwe were all arguing was - the reason that you were\ntalking to us about putting more gold back was that\nwe felt that five hundred million dollars wasn't\nenough of excess reserves, and that you wanted a\ncouple hundred million more.\nEccles:\nThat's right.\nH.M.Jr:\nNow, the way he's going, knowing that he's opposed\nto what we're doing, we feel here if he gets the\nopportunity he'll sell the 69 million and get right\nback to where he was before.\nGolden.:\nNo, that is not permitted.\nEccles:\nHe's not permitted to do that,\nH.M.Jr:\nHow much can he sell?\nEccles:\nHe can't sell any. For instance, when this statement\nwill be out today - now, he can't reduce that amount\nat all.\nH.M.Jr:\nYou mean if it shows 69 million....\nEccles:\nThat's right, he can't reduce it. In other words,\nwe freeze it each week.\nGolden.:\nCan't reduce from one statement to the next.\nH.M.Jr:\nWell, that's what we're thinking about here, aren't\nwe?\nTaylor:\nWell, partly.\nH.M.Jr:\nWell, say your (Taylor) piece. Say what you said to\nme.\nTaylor:\nWell, I think that this selling when it goes up a\nhalf point is just God damn foolish. When it dropped\n338\n- 8 -\nover a point in one day, that was supposed to be\nan orderly market.\nEccles:\nNo, it wasn't orderly.\nTaylor:\nWell, it was what we were talking in terms of.\nEccles:\nOf course, when they went down on Thursday they\nbought about 30 million on the way down.\nTaylor:\nFine, add to your portfolio.\nEccles:\nNow, on the way up I'm not for selling except where\nyou get & condition that an order can't be filled.\nTaylor:\nWell look, Marriner, let it go and they'll switch\nto another bond. That's just exactly what you want.\nEccles:\nYour idea is that no matter how strong, how fast a\nparticular issue - - how fast the bond market goes up,\nthat you ought to go up even if it reacts again.\nTaylor:\nI mean this business of an individual issue - they\nalways even out. If one of them goes out of line,\nswitch to another year.\nHaas:\nThat's how the whole list goes up, Marriner.\nEccles:\nof course, I don't want to reduce the portfolio at\nall, and as a matter of fact I would like to see the\nportfolio, if the market shows any weakness at all,\nincreased; that was the intent of the open market\noperation.\nNow, when May first comes, then I think it's going to\nbe a lot easier to decide where we are, because every-\nbody will know then what their position is. Today\nthe banks up there don't know how much balances\nthey're going to lose, and when that is settled then\nI think we can sit down and determine whether or not\nwe need more reserves in the picture, whether or not\nthe situation is such as to warrant a satisfactory\nbasis of financing. That's all I ask for, and if\nat that time the situation isn't sufficientlyeasy\nto carry out whatever Government financing is neces-\nsary, then either the Reserve System should increase\n339\n- 9 -\nits portfolio or the Treasury should - an arrange-\nment should be made where they may deposit some\ngold in the System. Now, all I ask for is that\nwe get over to the May first period, and then we\ncan - our judgment will be much more accurate.\nH.M.Jr:\nWell, this is, as I say, in the room here, and we\nwant you to know - I mean the shock I got this\nmorning was the idea of George telling me that I\ncouldn't sell any nine months bills. That's prac-\ntically what he told me.\nNow, I want to ask you, is it agreeable to you that\nwe go ahead and offer 50 million nine months and 50\nmillion into September on Monday?\nEccles:\nYes, I don't see that you can do anything else. I\ndon't think that - I am certainly not in a position\nto say to you that you should adopt some other program\nat this stage. I think it would be a mistake to shift\nfrom your usual program of a turnover of a nine months\nbill, except in relationship to a whole program.\nH.M.Jr:\nNow, will you bring your boys, the Executive Committee,\ndown next Tuesday and let's talk about it?\nEccles:\nAll right. Let's see, Tuesday?\nH.M.Jr:\nIs that all right?\nEccles:\nThat will be several days before the offering the\nfollowing week.\nBell:\nWednesday.\nH.M.Jr:\nWhen do you send the wires out, Wednesday night?\nBell:\nYes.\nEccles:\nSo what you'd do today is offer\nH.M.Jr:\n...for Monday.\nEccles:\nNext Tuesday, if you came and met, then we'd have\nfor the\nBell:\nFor the 28th - in payment for the 28th; your bids\nhave come in on the 26th.\n340\n- 10 -\nH.M.Jr:\nAs Wayne says, if you've got a pistol at your head\nand decide\nEccles:\nWell, Tuesday - make it Monday if you want.\nH.M.Jr:\nNo, by Tuesday we'll have the result of Monday's,\nand by Tuesday we'll have the President's budget\nmessage.\nEccles:\nWhen do you want, Tuesday morning or afternoon?\nH.M.Jr:\nWell, would you went to meet in the morning and\ncome over here at, say, three o'clock Tuesday\nafternoon?\nEccles:\nYou mean you want us to meet with you at three?\nH.M.Jr:\nIf you would.\nEccles:\nAll right, that'll be fine.\nH.M.Jr:\nThat will be after the close of the market and\nthat will be after the budget message is out.\nWe'll have a day's experience, the whole picture;\nthe budget message will be out. And if you do a\nlittle work on it, George - maybe Dr. Goldenweiser\ndo a little work - you (Bell) might have something.\nWe'll take a look at it.\nBut I'm not going to have New York tell me that in\none hour I've got to stop this thing. I'm not going\nto stand for it. I mean I'm perfectly willing to\nsit down and talk things over and think it through.\nBut to suddenly say I can't - and then he changed and\nsaid I can sell it at three quarters.\nEccles:\nI say why in the hell can't....\nH.M.Jr:\nSupposing we paid one percent.\nEccles:\nOne percent is too high.\nH.M.Jr:\nNo, but I just say at a price in order to go.\nEccles:\nDon't worry about not being able to sell it. All they\nwant is a little higher price.\nH.M.Jr:\nde never told me....\n341\n- 11 -\nEccles:\nNo, but that's what it is; I know it. What they\nwant is .75. What they want is three quarters,\nand I don't think there is the slightest question\nbut what they'll sell a nine months bill at three\nquarters. I've contended that I thought three\nquarters was a little too high, that it ought to\nbe around .65.\nTaylor:\nWell, they'll sell them to you at .65.\nEccles:\nThat's what I figure that they ought to be. But\nthe question of one issue - it isn't very important.\nBut I do feel that...\nH.M.Jr:\nWell, you can't tell. After all, these fellows\naren't going to bid either; they'll have the\nPresident's budget message on Monday.\nEccles:\nWhen will his message go up, Monday or Tuesday?\nH.M.Jr:\nI think, if we are lucky, Monday noon.\nBell:\nUh-huh.\nH.M.Jr:\nIs that right?\nBell:\nMonday, 12 o'clock, it ought to go. Now, these\nbids have to be in by 2 o'clock Monday.\nH.M.Jr:\nThat's all right.\nEccles:\nWell, if his message goes up in the morning, it will\nstill maybe have an influence on the bidding.\nH.M.Jr:\nOne week - I don't want to be on a week-to-week basis.\nI mean if I have to, supposing it's three quarters of\na percent for one time. That isn't going to kill us.\nI mean I wouldn't want to - I'd hate to do it perma-\nnently.\nBut I mean it would be good all around to have you all\ndown.\nEccles:\nIf we can mark time to May first, then we can sit\ndown and program the thing, because we'll know and\nevery bank will know exactly where it is. Today\n342\n- 12 -\nthey - naturally there is a certain amount of\nguessing on it.\nGolden.:\nIt looks as though excess reserves were going to\nbe rather larger than we expected anyway, because\ncurrency isn't going out as much.\nH.M.Jr:\nWhat do you think it will be?\nGolden.:\nMight be 750 million.\nEccles:\nIn the meantime, there's no capital market.\nTaylor:\nMarriner, this appearing on two sides of that market\nat the present time - I mean it's not called for.\nIn the first place, you've got to get strength in\nyour Government market before you're going to have\nstrength enough in your corporate market so they can\nresume refunding.\nEccles:\nThat's right. The Government market is out of line\nnow with the corporate market.\nTaylor:\nAnd you've got to get over the shell-shock that the\nmarket had. The only way you can get it over with\nis to have a reasonably strong Government market\nfor a little while here.\nEccles:\nWell, you've got - the market is waiting for the\nPresident's message too.\nTaylor:\nWell, it's anticipating that it's going to be a good\nmessage.\nEccles:\nHis statement yesterday was the thing that helped\nto influence the market this morning. His attitude\nin telling everybody to cut expenses was reflected\non that thing immediately.\nHaas:\nOf course, you can neutralize it all, though, if they\nsell.\n343\nMEMORANDUM\nApril 14, 1937\nTo:\nSecretary Morgenthau\nFrom: Dr. Burgess\nTreasury bonds showed opening gains of up to 1/4 of 8.\npoint, and aside from a brief reaction in the middle of the\nforenoon the market tended higher most of the day on size-\nable volume. Treasury bonds closed approximately at their\nhighs, generally 1/8 to 3/8ths above yesterday. Gains in\nthe guaranteed list ranged somewhat smaller. Board turnover\nof Treasury and guaranteed bonds was $3,847,000 compared with\n$1,432,000 yesterday. The note market was firm all day and\nclosing quotations showed gains of from 1/32 to 8/32.\nDomestic bonds were higher and quite active at the open-\ning, prices advancing further during the forenoon. At the\nclose the market was slightly off from its highs. Gains in\nsecond grade bonds averaged about 1 point; high grade bonds\nwere up on the day about 1/2 point.\nForeign bonds were quiet and steady. Japanese issues\nshowed fractional losses; Polish bonds were fractionally\nbetter.\nSold today $3,000,000 3 1/4% Treasury notes due\nSeptember 15 for account of the Postal Savings System.\n344\nApril 14, 1937.\n12:44 p.m.\nH.M.Jr:\nHow are you?\nAlfred A.\nCohn:\nFine, thank you, and you?\nH.M.Jr:\nI'm pretty well. I wondered if you could do something\nfor me - ah - personally - hello\nC:\nYes indeed.\nH.M.Jr:\nAh - I'm thinking confidentially of taking my family\nto Hawaii the end of July and staying there for the\nmonth of August. Now I notice that one week they\nsail from Los Angeles - another week they sail from\nSan Francisco - the Matson Line.\nC:\nYes.\nH.M.Jr:\nDo you know the people on the Matson Lines?\nC:\nYes very well.\nH.M.Jr:\nYou do. Well I wonder if you could talk to them\nand tell them confidentially it's for me - hello\nC:\nYes.\nH.M.Jr:\nAnd that I'd like to have reservations for the end\nof July for - to go to Hawaii, stay there a month\nand then come back, you see?\nC:\nWell you'd want to go on the Lurline, wouldn't you?\nH.M.Jr:\nWell isn't that the Matson Line?\nC:\nYes, they have the Lurline and the Malola that run\nto Honolulu.\nH.M.Jr:\nYes.\nC:\nThe Lurline is the better ship of the two\nH.M.Jr:\nWell I don't know just when\nC:\nand that sails from here.\n345\n- 2 -\nH.M.Jr: Pardon me?\nC:\nAnd that sails from here.\nH.M.Jr: Yes well I've got the thing in front of me. She goes -\nthe Loline goes July 23d.\nC:\nYes.\nH.M.Jr:\nThat would be just about when we want to go.\nC:\nAh-ha.\nH.M.Jr: And - ah - ah - - let's see - July 23d - is that the best\nboat ?\nC:\nThat is by far the best.\nH.M.Jr:\nWell now let's see - if we went on July 23d and the Lureline\nleaves - ah - there August 28th that would be just about\nright - leaving Honolulu on August 28th.\nC:\nYes.\nH.M.Jr:\nYou see? That would be just about right.\nC:\nThat would be just right.\nH.M.Jr:\nLeaving, say, on the 23d from Los Angeles - does she\ngo up to San Francisco then or not?\nC:\nNo I think that sails direct from here.\nH.M.Jr:\nAh-ha - well you could look it up.\nC:\nYes but I'm sure of that.\nH.M.Jr:\nYes that would - and then leaving - ah - ah - Honolulu\non the 24th - on the 28th.\nC:\nYes.\nH.M.Jr:\nThe Loline - is that the best boat?\n346\n- 3 -\nC:\nOh it's (fade out for about two lines)\nH.M.Jr:\nSo I suppose we'd need three cabins - hello\nC:\nYes.\nH.M.Jr:\nNow would you - could you find out for me and tell\nthem I - I don't want - I want to keep it a secret\nbecause I don't know yet whether I can go or not, see?\nWould you mind handling it for me?\nC:\nMy dear, what sort of an accommodation would you want?\nH.M.Jr:\nWell I want the best they've got.\nC:\nYes.\nH.M.Jr:\nI mean I'm going personally - I mean I'm - - the government's\nnot paying it - I'm paying it.\nC:\nYes.\nH.M.Jr:\nSo I'd like whatever they've got.\nC:\nWell I'll tell you - I'll get on that right away because\nI know they're pretty well booked up all summer.\nH.M.Jr:\nAh-ha.\nC:\nAnd I'll let you know .\nH.M.Jr:\nAh - you send me a letter air mail.\nC:\nI'll do that. I'll let you know sometime to-day.\nH.M.Jr:\nWhat do you do - well I'll leave it to you and if you'd\nsend me a letter air mail - I mean\nC:\nWhat is it? Is it your wife and\nH.M.Jr:\nMy wife - ah - I have two boys - my daughter - she most\nlikely will have a companion, you see?\nC:\nI see. Well it's just your family then.\n347\n- 4 -\nH.M.Jr: It's - oh yes, just my family.\nC:\nAh-ha. Then you'd want accommodations for yourself\nand wife and two boys and a girl and a companion for\nthe girl.\nH.M.Jr:\nThat's right.\nC:\nWell I think we can fix that up.\nH.M.Jr: And, as I say, I don't know - well you talk to them\nand see what they've got and then if they'd mark be\naccommodations on a - - on a map of the steamer, you see....\nC:\nYes.\nH.M.Jr:\n.......and - ah - - send it to me.\nC:\nYes, I'll get that for you, Mr. Secretary.\nH.M.Jr:\nWell then we'd sail from Los Angeles?\nC:\nYes.\nH.M.Jr:\nI'd appreciate it.\nC:\nI'll get after it right away.\nH.M.Jr:\nHow is everything else?\nC:\nOh fine, thank you, we're doing a terrific business\nout here.\nH.M.Jr:\nGood. I knew you wouldn't mind doing it for me.\nC:\nOh not at all. It's a pleasure to do it.\nH.M.Jr:\nThank you.\nC:\nAll right, goodbye.\nApril 14, 1937\nFor the Secretary:\nI spent the morning with the President of the Federal Reserve Bank\nhere in Minneapolis, He has seven or eight officers who spend a good deal\nof their time travelling throughout the district calling on the member banks,\nThey all came in and discussed for an hour the information and the impressions\nthey get on these recent trips. The President and the First Vice President and I\nhad an extended luncheon conversation. In the afternoon I spent more than an\nhour with Wakefield of the First National Bank, The rest of the afternoon was\nspent with the President and the Pecretary of the Minnesota Independent\nBankers Assoication, country bankers who happened in the Reserve Bank, The\nSecretary is the man whom Leo Crowley bold me to be sure to 800 out here.\nTomorrow I am going with one of the Reserve Bank officers on an authmobile trip\nto visit ten or twelve country benkers West of Minneapolis.\nThere appears to be very little apprehension among the bankers, large or\nsmall in this district, about the market for Government bonds. There has been\nvery little panic selling. There has been some smart selling beginning back in\nDecember. There has been nome selling to get reserves for the May increase,\nThere would be some buying if the yield got to three per cent. One or two\nare fairly fearful of real difficulties ahead and see the possibilities of\na bank panic. but are far from jittery about it. They have felt all along\nthr ughout the district and have talked it that Governments were too high and that\nthey would have to come down. They are surprised that it did not come sooner.\nThey do not Bee in the bond market any indication that the credit of the\nGovernment is failing, but most of them do feel that the point has just about been\nreached where there must be a reversal of Government spending. They are pretty\nuniformly of the opinion that it is easential that the budget be balanced and that\nGovernment deficits be ended.\n2\n349\nThere 10 very great dissatisfaction with the Supreme Court proposal, it\nbeing reported to me that almost no one, bankers or others, favors the action\nproposed by the President. There is the greatest dissabisfaction and criticism\nof WPA and relief generally, mush more so than when I was here two or three years\nago. No one fails to talk about the laughable projects, the loafing that is done\non NPA, how difficult it is to get people off, how they are coming to depend on\nthe Government for better wages than they ever had and better than many working\nmen are getting. While it is admitted that relief is always difficult of\nadministration and isolated examples of abuse can be gl en, even some of the\nenthusiastic New Dealers say that the situation is diagraceful.\nIt is said that soil conservation is doing some good out in the Western part\nof the district, but that in Minnesota especialit and to some estent in South\nDakoya, it is & joke, and openly joked about by the farmers themselves, The\nfarmers, for instance who have always been good farmers and rotated alfalfa for\nthe good of the soil, get no benefits, but the farmers who have not done no, the\npoor farmers, are getting paid now for putting in alfalfa as they should have\ndone long ago, In some communities the farmers are getting more than they\nexpected and in some less. Where they get more thay talk about Santa Claus, and\nwhere they get less, they complain about Santa Claus. There is very little\nbelief in efforts in aid of tenant farmers or work by Resettlement. A farmer of the\nbest nort has to work hard to break even 101 alone make any money. Tet the\nResettlement comes in and gives the very worst sort of farmer machinery, animls,\nand seed, with which he is usually unable to even make & living. There are not 80\nmany to defend the Government as two years ago, even the beneficiaries being\nungrateful or convinced that the Government policy is disastrous. Ben DuBois,\nthe Sauk Centre independent banker and postmaster pute up the defense that there\nwould have been revolution if the Government had not acted, and that people cannot\nbe allowed to starve. There is a very widespreed feeling that the President has\ndone a great deal of harm with too free talk about the abundant life and better\nRegraded Uclassified\n3\n350\nthings for everybody, and that he has gotten the poeple in the frame of mind that\nthese things are theirs by right and that they must and can have them and that\nthe Government will pay for them, Even those who agree that the President has\ndone great things and that his objective was all right are now of the opinion\nthat there must be a movement in the other direction. They feel this very\nstrongly apparently.\nThe bankers to whom I talk seem convinced, as they did in Chicago, that the\nprice of gold is too high, that the stimulated new production is causing an upset\nin the plans of Professor Warren, even if they had worked otherwise. There is\nmuch talk about us getting all the gold and others abandoning it. Some man from\nthe Bank of E ngland has been all through here preaching a lower price for gold\nand indicating that all Europe is for it. It is difficult to make them believe\nthat there will not be & reduction in the price. They regard it B.S. inevitable,\nwhether Washington yet knows that it must come or not.\nThere is very much praise of both the Treasury and the Federal Reserve System\nfor the way the financing and credit control has been handled to date. The\ncountry bankers seem impressed and disturbed by the increase in the mumber of\nstatements and conflicting statements that come out of Washington. They would\nlike to see fewer of them, and get the impression that all Washington is\njittery and that no one knows quite what to do or quite what he is doing. By\nstatements they mean reported quotations dna attributed statements by Treasury\nofficials and Reserve offecials, Some suggest that there be no such things as\npress conferences or press statements. At the same time they praise very highly\nthe March 16 statement of Eccles, agree with it, says it took courage to come\nout with it at that time, that it should have been done sooner, and that they\nhope it has an effect. Many of the banks have written their bonds down to\nlevels lower than those now prevailing in the market, and would not worry to\nsee them lower. Even those that have not been BO conservative seen willing to\ncarry their to maturity, and not seal in panic even on lower quotations,\nRegraded Iclassified\n351\nThe federal reserve bank in this district is losing some members, and very\nfew of the banks which are not members are remitting at par. That seems to be A very\nlive issue at the present time, The banks are very much opposed to the postal\nsavings system, and would like to see the Government permit the System to accept\nno more deposite. Oa the other hand, they are very favorable to the United States\nSavings Bonds, and would like to see the $10,0000 yearly limit raised. They feel\nthat a bond with a such & yield but which cannot be sold or transferred and 80\nfor which there are no markets and no quotations is a very good one for the\ninvestor and for the Government.\nMinnesota 1s pretty radical politically and sort of overshadows the Federal\nGovernment in local thinking just now. There is very great resentment over the\nRoosevelt alliance with the peamit politicians of the Farmer Lahor party. The\nrecent excesses of the Peoples Lobby and its condonement by Governor Benson are\narousing great indignation. Governor enson seems to have very harsh ideas\nabout taxation to get the money for his program, and it 16 said many industries\nare leaving the state, There is not so much complaint about the burden of Federal\ntaxesas such, but the combination of Federal state and local is causing & lot\nof complaint. Evidences are cited of suppressed business and individual\ninitiative, and the shortage of income taxes in March is attributed by some to\novertaxation.\nThere is considerable interest in the activities of Congressman Patman, and\nI am questioned about the chances of his proposal to buy the reserve banks. Tue\nbankers are for the most part in favor of an independent central banking system.\nNo one out here seems to feel that the Treasury should be concerned at all that\na March 15 bond issued over par is now selling below. There sooms to be no feeling\nat all that the Government owes any duty to support the market or keep that issue\nfrom sliding off. They take the attitude that there sould have been no looking\nahead on March 15 to the series of events that caused the slump, that the risk and\nresponsibility was the buyers just as in the case of any other buyer, that there\nRegraded Uclassified\n5\n352\nis no analogy to the flotations of securities by investment syndicates, and\nthat the bonds should be allowed to seek their natural level. There is some\nfeeling that there should be no investment funds in the Treasury and that their\nexistence has kept the market level higher than it should have been maintained,\nThe almost universal view out here is that we are sure to have a three per cent yield\nand the Treasury and the Reserve System might as well recognize it, and not try\nto prevent it, At the same time there seems no resentment about sliding bond\nprices, and no panic. The wonder is that they did not slide earlier and have not\nslid lower.\nThere is some amusement in Minneapolis over the fact that on the day\nGovernments slid two points below par, the Comptroller of the Currency made a\nspeech in this city stating that Governments could not go below par, and stating\nfuther that the reserve banks are required by law always to lend par on them.\nBoth statements are of course incorrect.\nI am repeatedly asked where the Treasury gets its economic advice, and if\nProfessor Warren is still a Treasury adviser.\nAfter being in the feeld visiting e ountry banks tomorrow, I shall do some\nmore Minneapolis and St. Paul visiting Friday. Mr. Peyton has a group of men\nfrom Twin City banks who regularly visit country banks coming in for lunch Friday.\nUpm\nBECEINED\nvoet DI 89A\n- -\npanel visit n47 to visa\nRegraded Uclassified\n353\nApril 14,1937\nThis is Bell's #1 draft of the Budget Message.\nRegraded Uclassified\naprial37\nDhaft I\nWid P.354\nIn ay budget message of last January I stated that I\nplanned to transmit at a later date an estimate of appropria-\ntion for work relief during the fiscal year 1938. In con-\nnection with the trensmission today of this estimate it is\nimportant to review the budget situation for the fiscal years\nending June 30, 1937 and June 30, 1938, in the light of the\nMarch 1937 tax returns and the actual expenditures for the\nfirst nine months of the present fiscal year.\nFiscal Year 1937\nReceipts- The estimates of revenue for the fiscal year\n1937 were necessarily based to a large extent on the Revenue\nAct of 1936. This Act made material revisions in the tax\nstructure because of which there was DO adequate experience\nwhich could be used as a satisfactory guide in formulating the\nestimate of income taxes. The analysis of returns received\nis March 1937 indicates that income taxes will produce\nRegraded Uclassified\n355\n+\n$2,105,700,000 in 1937, or $267,200,000 less than the estimate\nfor that year in the 1938 Budget.\nBased on collections for the first nine months of this\nfiscal year it is now estimated that other revenues will amount\nto $3,100,800,000, or $354,500,000 less than the estimate, which\nreduction is due in large part to pending litigation.\nThe net reduction in revenue estimate for the fiscal year\n1937 will therefore amount to $621,700,000.\nExcenditures- In view of this reduction in revenue it\nbecame apparent that every effort should be made to offset this\nloss as far as possible by a reduction in expenditures. To\nthis end I addressed & letter to the heads of various Government\nactivities directing them to make a careful examination of their\nexpenditure requirements for the last three months of the present\nfiscal year with a view to making substantial savings by eliminat-\ning or deferring all expenditures not absolutely necessary during\nRegraded Uclassified\n356\nthis period. Information thus far available indicates that\nexpenditures for the year, exclusive of statutory debt retire-\nment, can probably be reduced $280,000,000 below the estimate\ncontained in the 1938 Budget.\nDeficit- The amount of the net deficit for the fiscal\nyear is estimated at $2,588,252,300, an increase of $340,123,526\nover the estimate contained in the 1938 Budget.\nFiscal Year 1938\nReceipts- For the fiscal year 1938 it is now estimated\nthat there will be receipts of $6,874,200,000, or $419,400,000\nless than was anticipated last January. Of this loss $410,000,000\nrepresents a reduction in the estimate of income taxes.\nExpenditures- In advance of the enactment of the 1938\nappropriation bills it has been impossible to make any material\nrevision of the estimates of expenditures for that fiscal year,\nother than those for statutory debt retirement, and for recovery\nand relief.\nRegraded Uclassified\n357\nIn my message of today on the latter subject I as recom-\nmending an appropriation of $1,000,000,000 to provide for the\ncontinuation of the work relief program from July 1, 1937, to\nMarch 1, 1938. Prior to this latter date I propose to review\nthe unemployment situation to determine the additional amount\nrequired to carry the work relief program for the last four\nmonths of the fiscal year. My present opinion is that the\nadditional amount required for this purpose for the belance of\nthe year will not exceed $500,000,000.\nDeficit- While the revised estimates of receipts and\nexpenditures for the fiscal year 1938 as here presented\nindicate an estimated net surplus of $67,215,000, the probable\nexpenditure of an additional amount of $500,000,000 for recovery\nand relief would result in a net deficit of $432,785,000, unless\nother costemplated expenditures are reduced or additional\nrevenue is provided.\nRegraded\n358\nDebt Retirement\nIn the revised tables of expenditures, providion has been\nmade for the expenditure of only $100,000,000 in each of the\nfiscal years 1937 and 1938 for statutory debt retirement. Às\nlong as expenditures exceed receipts by more than the amount\nfor debt retirement, the expenditure of funds for this purpose\nhas no effect on the total public debt. For the fiscal year\n1939, however, ve should provide for & completely balanced\nbudget, including provisions to meet the statutory debt retire-\nment liabilities accruing in that year. It should be possible,\nmoreover, to begin in that year the reduction of the debt retire-\nment liabilities that have accrued during the preceding three\nyears.\n359\nFuture Fiscal Policy\nI wish to emphasize here what I said in January with\nrespect to our future policys\n\"Expenditures must be planned with a view to\nthe national needs; and no expansion of Government\nactivities should be authorised unless the necessity\nfor such expansion has been definitely determined\nand funds are available to defray the cost. In\nother words, if new legislation imposes any sub-\nstantial increase in expenditures either in the\nexpansion of existing or the creation of new activities,\nit becomes a matter of sound policy simultaneously to\nprovide new revenue sufficient to meet the additional\ncost.\"\nBills being pressed for enactment during the present Congress\nwould commit the Government to early expenditures of more than\n$5,000,000,000. About $3,000,000,000 of these authorizations\nare for the construction of additional public works, even though\nthere are existing authorisations of almost $2,000,000,000 for\nthis purpose. In the Budget for the past three years I have\nset up a program for general public works and I have announced\nthat I propose to keep such a program within the limit of\n$500,000,000 & year. An annual program of this sise should meet\nRegraded Uclassified\n360\n+\nall normal needs for highways, flood control, rivers and harbors,\nreclamation, Federal buildings, and other public works.\nI recognise the need for the development of a program for\nflood prevention and control but it should be realised that it\nwould be impracticable for the Federal treasury to finance such\nimmediate expenditures as are contemplated by the majority of\nthe flood control bills nov pending in Congress.\nBills involving additional authorisations of more than\n$500,000,000 for highways have been introduced despite the fact\nthat expenditures for this\nRegraded\n361\n+\npurpose during the last four years have exceeded one billion\ndollars and that there are existing outhorisations for expendi-\n450\ntures during the next two years of nearly $500,000,000.\nAnother sajor class of pending authorizations is that pro-\nviding grants and aids to States or to certain groups classes of citi-\nwithout any thought of increasing the revenues therefor\nsens. Principal among these bills is one providing for educational\nn\naid to States for the This bill commits\nthe Government to enter 4. new field of expenditure heretofore\nreserved exclusively to the States, at & cost of $100,000,000 for\nthe first year and an annually increasing cost until within a\nfew years $300,000,000 will be paid to the States each year for\nthis purpose. There is no companion bill increasing the revenues\nof the Government in the name amount.\nBills to aid agriculture are pending in Congress which would\nadd $390,000,000 150 to the 1938 expenditures of the Federal Government\ndespite the fact that the Government will spend in 1938 for the\n362\nbenefit of the farmer more than $600,000,000, aside from the\nbenefits he derives from the construction of additional highways.\nBuserous bills have been introduced for the purpose of\nproviding additional compensation to veterans and their dependents.\nIn the fiscal years 1936 and 1937 expenditures of nearly $3,500,000,000\nvery ande for payment of adjustedcompensetion and other benefits to\nvoterans.\nThe maintenanco of a sound fiscal policy requires the cereful\npleaning of authorisations as well as approprialions. It is\nimpossible to maintain the propor balance between revenues and\nexpenditures unless there 10 a control end restraint exergised\nw the Legislature with respect to authorizations of approprie-\nMons. It is & matter of concern to all of us who are working\nfor a balanced budget that organisations, associations, and other\ngroups persist in their efforts to bring about increases in the\nGovernment expenditures. These pressure groups pay little\nattention to the fast that the budget, as submitted, represents\nRegraded Uclassified\n383\na coordinated fiscal progrem and that material departures there-\nfrom destroy the whole purpose of the progres. If we are to\navoid a continuation of deficits, Congress must resist these\nimportunities or provide the necessary revenues to meet the in-\ncreasing costs.\n(AA out\nIt has become apparent that there is an immediate need for\na careful survey by the Congress of the present tax structure\nwith a view to preventing loss of revenue through such loop-\nholes as my now exist as well as simplifying the present tax\nlaws. The Congress should also give careful consideration to\nnew or additional taxes necessary to meet any deficiencies in the\nrevenue-producing power of the present levies. This study should\nbe undertaken sufficiently in advance of the presentation of mest\nyear's budget, say November, in order that revenue measures may\nbe considered in commestion with the appropriations to be provided\nfor the fissel year 1939.\nRegraded Uclassified\ndraft\nTheres day P.M.\nby Bell\nwhite House 364\nIn my budget massage of last January I stated that I\nplaned to transmit at a later date as estimate of appropria-\ntion for work relief during the fiscal year 1938. In 001>>\nnection with the transmission today of this estimate it is\nimportant to review the budget situation for the fiscal years\nending June 30, 1937, and June 30, 1938, in the light of the\nMarch 1937 tax returns and the actual expanditures for the\nfirst nine months of the present fiscal year.\nResiste- The estimates of revenue for the fiscal\nyear 1937 varo necessarily based to a large extent on the\nRevenue Ast of 1936. This Act made material revisions in\nthe tax structure and for this reason there was - adequate\nexperience which could be used as a satisfactory guide in for-\nmisting the estimate of income taxes. The analysis of returns\nreselved in Hereh 1937 indicates that income taxes will produte\n365\n-2-\n$2,105,700,000 in 1937, or $267,200,000 less than the estimate\nfor that year in the 1938 Budget.\nBased on collections for the first nine months of this\nfiscal year it is now estimated that other revenues will amount\nto $3,100,800,000, or $354,500,000 less than the estimate, which\nreduction is due in large part to pending litigation.\nThe reduction in revenue estimates for the fiscal year\n1937 will therefore amount to $621,700,000.\nProenditures- In view of the reduction in revenue it\nbecame apparent that every effort should be made to offset this\nloss as far as possible by a reduction in expenditures. To\nthis end I addressed a letter to the heads of various Govern-\nsent activities directing them to make a careful examination\nof their expenditure requirements for the last three months of\nthe present fiscal year with a view to making substantial\nsavings by eliminating or deferring all expenditures not\nRegraded Uclassified\n366\n-3-\nabsolutely necessary during this period. Information thus\nfar available indicates that expenditures for the year, exclusive-\nof statutory debt retirement, can probably be reduced $280,000,000\nbelow the estimate contained in the 1938 Budget.\nDeficit- The amount of the net deficit for the fiscal\nyear is therefore estimated at $2,588,252,300, an increase of\n$340,123,526 over the estimate contained in the 1938 Budget.\nFiscal Year 1938\nReceipts- For the fiscal year 1938 it is now estimated\nthat there will be receipts of $6,874,200,000, or $419,400,000\nless than was anticipated last January. Of this loss\n$410,000,000 represents a reduction in the estimate of income\ntaxes.\nExcenditures- Pending the enactment of the 1938 ap-\npropriation bills it has been impossible to nake any material\nrevision of the estimates of expenditures for that fincel year,\nother them those for statutory debt retirement and for recovery\nand relief.\nRegraded Uclassified\n367\nIn my message of today on the latter subject I as recom-\nmending an appropriation of $1,000,000,000 to provide for the\ncontimuation of the work relief program from July 1, 1937, to\nMarch 1, 1938. Prior to this latter date I propose to review\nthe unemployment situation to determine the additional amount\nrequired to carry the work relief program for the last four\nmonths of the fiscal year. My present opinion is that the\nadditional amount required for this purpose for the balance\nof the year will not exceed $500,000,000.\nDeficite- While the revised estimates of receipts and\nexpenditures for the fiscal year 1938 as here presented in-\ndicate an estimated net surplus of $67,215,000, the probable\nexpenditure of an additional amount of $500,000,000 for recovery\nand relief would result in a net deficit of $432,785,000. I\npropose to use every means at my command to eliminate this\ndeficit. I expect to accomplish this by taking definite\n368\naction at the beginning of the next fiscal year to withheld\nfrom apportienment for expenditure a substantial persentage\nof the funds available for that year and to increase the\nreceipts of the treasury through the liquidation of assets of\ncertain of the energency agencies.\nDebt Retirement\nIn the revised tables of expenditures, provision has been\nmade for the expenditure of only $100,000,000 in each of the\nfiscal years 1937 and 1938 for statutory debt retirement.\nThese amounts are included to cover payment of Treasury bonds\nand Treasury notes presented for redemption in cash during\nthese years. As long as expenditures exceed receipts by more\nthen the amount for debt retirement, the expenditure of funds\nfor this purpose has no effect on the total public debt. For\nthe fissel year 1939, however, W should provide for a completely\nbalanced budget, including provisions to meet the statutery debt\nretirement lisbilities accruing in that year. It should be\nRegraded Uclassified\n369\npossible, mereever, to begin in that year the reduction of the\ndebt retirement liabilities that have secrued during the pro-\needing three years.\nPublic Debt\nRegraded\n370\n+\nI wish to emphasise here what I said last January with\nrespect to our future fiscal policy:\n\"Expenditures must be planned with a view to\nthe national needs; and no expansion of Government\nactivities should be authorised unless the necessity\nfor such expansion has been definitely determined\nand funds are available to defray the cost. In\nother words, if new legislation imposes any sub-\nstantial increase in expenditures oither in the\nexpansion of existing or the creation of new ac-\ntivities, it becomes a matter of sound policy\nsimultaneously to provide new revenue sufficient\nto meet the additional cost.\"\nControl of Legislative Authorizations- Bills being pressed\nfor enactment during the present Congress would commit the Govern-\nment to early expenditures of more than $5,000,000,000. About\n$3,000,000,000 of these authorizations are for the construction\nof additional public works, evon though there are existing\n,\nauthorisations of almost $2,000,000,000 for this purpose. In the\nBudget for the past three years I have set up e program for general\npublic works and have announced that I propose to keep such a pro-\ngrea within the limit of $500,000,000 & year. An annual program\nof this sise should meet normal needs for highway, flood\nRegraded\n371\ncontrol, rivers and harbors, reclamation, Federal buildings,\nand other public works.\nI recognise the need for flood prevention and control\nbut it should be realised that to finance such large immediate\nexpenditures as are contemplated by the majority of the flood\ncontrol bills now pending in Congress would impose an unjusti-\nfishle burden upon the Federal Treasury.\nBills involving additional authorisations of more than\n$500,000,000 for highways have been introduced despite the\nfact that expenditures for this purpose during the last four\nyears have exceeded one billion dollars and that there are\nexisting authorisations for expenditures during the next two\nyears of nearly $450,000,000.\nAnother major class of pending authorisations is that\nproviding grazte and aids to States or to certain groups of\ncitizens without any thought of increasing the revenues therefor.\n372\nPrincipal among these bills is one providing for grants to\nStates for educational purposes. This bill would commit\nthe Government to a new field of expenditure heretofore 00-\neupied exclusively by the States, at a cost of $100,000,000\nfor the first year and increasing annually to $300,000,000.\nBills to aid agriculture are pending in Congress which\nwould add $200,000,000 to the 1938 expenditures of the Federal\nGovernment despite the fact that the Government will spend\nin 1938 for the benefit of the farmer more than $600,000,000,\nasido from the benefits he derives from the construction of\nhighways.\nNumerous bills have been introduced for the purpose of\nproviding additional compensation to veterans and their\ndependents. In the fiscal years 1936 and 1937 total a\nponditures of nearly $3,500,000,000 were made for payment of\nadjusted compensation and other benefits to veterans.\nRegraded\nIclassified\n373\n-10-\nThe maintenance of a sound fiscal policy requires the\ncareful planning of authorisations as well as appropriations.\nIt is impossible to maintain the proper balance between revenues\nand expenditures unless restraint is exercised by the Legisla-\nture with respect to authorizations of appropriations. It\nis a matter of concern to all of us who are working for &\nbalanced budget that organisations, associations, and other\ngroups exert the strongest pressure to bring about increases\nin Government expenditures. These pressure groups pay little\nattention to the fact that the budget, as submitted, represents\na coordinated fiscal program and that material departures\ntherefrem destroy the whole purpose of the program. If we\nare to avoid a continuation of deficits, Congress must resist\nthese importunities or provide the necessary revenues to meet\nthe increasing costs.\nRegraded\nUclassified\n-11-\n374\nTax Study- It has become apparent that there is an in-\nmediate need for a careful survey by the Congress of the\npresent tax structure with a view to preventing loss of\nrevenue through such loopholes as may now exist as well as\nsimplifying the present tax laws. The Congress should also\ngive careful consideration to new or additional taxes neces-\nsary to meet any deficiencies in the revenue-producing power\nof the present levies. This study should be undertaken\nsufficiently in advance of the presentation of next year's\nbudget, say November, in order that revenue neasures may\nbe considered in connection with the appropriations to be\nprovided for the fiscal year 1939.\nTreasury Department\nD\nsion of Research and Statistics\nDate April 14\n1937\nTo:\nSecretary Morgenthau\nFrom: Mr. Haas MA\nRegraded Uclassified\nDISTRIBUTION or PROGRAL\n21 Piscal Tears on basis of daily Treasury statements\n(In millions of dollars)\n:\n:\n1937\n:\n1938\nI\n:\n1933\n1934\n1936\nJuly I\n:\nApril 1\nL\n1935\nI\n:\nto\nTotal\nBudget\nto\nNotimate\nI\n1\nI\nMary 31\nJune 30\n:\nlast. Conservation work\n,\n-\n:\n331.9\n435.5\n486.3\n282,6\n85.2\n368.0\n330.0\n-\n:\n:\nPublic highways\nI\n178.2\n267.9\n317.4\n243.9\n294,7\n71,2\n365.9\n269.9\nI\nI\nPublic buildings\n#\n105.9\n78.7\n58.1\n67.9\n58.4\n26.0\n64.4\n52.1\n1\nRivers and harbors\nI\n118.4\n#\n150.8\n203.0\n223.7\n164.9\n46.0\n230.9\n178.3\nI\n-\n1\nReclamation projects\n1\n25.2\n24.7\n40.9\n49.8\n39.0\n26.7\n67.7\n57.6\nI\n,\nCivil Works Atm.\n1\n-\nI\n605.1\n11.3\n-7\n.2\n,3\n-5\n-\n:\n:\nPublic Works A/m.\n4\n-\n156.2\n:\n224.9\n94.4\n215.7\n57.3\n306.0\n:\n214.0\nI\nWorks Progress Adm.\n:\n-\nI\n-\n-\n1,263.7\n1,468.1\n431.9\n1,900.0 ₫\n1,500.0\n:\nAgricultural payments\n:\n-\nI\n290.2\n523.6\n545.6\n361.4\n121.7\n483.1\nI\n498.9\n:\nResettlement Ma. (including\nE\n1\nsubsistence homesteads)\n- :\n2.4\n5.4\n138.0\n136.1\n16.8\n152.9\n30.9\n1\n:\n1\nTennessee Valley Authority\n:\n-\nI\n11.0\n36.1\n48.8\n31.6\n16.4\n46.0\n49.0\n1\nFederal Mor. Ral. Adm.\nI\n37-9\n707.3\n1,821.0\n495.6\n10.9\n-1\n11.0\n-\n:\nSocial Security Act -\n:\n:\n:\nGrants to States\n:\n-\n3\n-\n-\n:\n27.8\n122.2\n31.5\n153.7\n272.2\n:\n:\nCommodity Credit Corporation\nI\n-\n:\n164.3\na 60.1\n:\n129.7\nA\n76.4\nI 48.6\n$ 125.0\n& 30.0\n:\n:\nOther\nI\n34.8\n27.6\n118.6\nA 14.0\n2.2\n6,6\n6,5\n.\n5.0\nSub-total\n#\n500.4\nI\n3,018.3\n1.\n4,035.7\n1\n3,801.9\nt\n3,134.8\n921.1\n4,055.9\n2\n3,434.9\nDepartmental\n1\n497.5\n339.1\n354.6\n437.8\n376.0\n160.7\n558.7\n:\n563.0\n:\n1\nPostal deficiency\n117.4\n52.0\n64.0\n56.0\n32.6\n17.7\n50.3\n30.8\n1\nI\n:\nSocial Security Act -\n:\n1\n:\n:\nil\n:\n01d Age Reserve Account\nI\n1\n-\n1\n-\n:\n-\n135,0\n90.0\n225.0\n540.0\n-\n:\nI\n1\n:\nNational defense:\n:\n:\n:\n377.6\n393.5\nArmy\n:\n318.3\n205.3\n212.2\n373.0\n269.3\n108.3\nE\nBary\nI\n349.6\n274.4\n321.4\n391.4\n358.1\n152,2\n510.3\n1\n587.3\n:\n:\nI\nTeterane' pensions and benefits\n:\n763.2\n506.5\n555.6\n576.0\n433.0\n155.8\n588.8\n567.5\nVeterans' Adm.\n44J. Bar. Otf. Fund\n: 100.0\n50.0\n50.0\n1,773.5\n56.0\n507.5\n563.5\n-\n:\n1\nDebt' chargest\n:\n461.6\n359.9\n573.6\n403.2\n79.2\n325.3\n404.5\n401.5\nRetirements\nInterest\n#\n689.4\n756.6\n820.9\n749.4\n595.7\n239.3\n835.0\n560.0\n:\n70,3\n1\n62.7\n45.2\n44,2\n33.4\n14.8\n48.2\n52.9\nRefunds of receipts\nE\n:\n«2\n47.6\n46.0\n60,6\n46.9\n23.0\n69.9\nI\n24.0\nFederal Land banks\nt\na\n1\n44.0\n75.7\n37.4\n20,7\n4.7\n25.4\n-\nHome loan system\n1\nI\n192.2\n1\n-\nI\n-\n:\n15.0\n14.5\n13.1\n1,9\n15.0\n16.0\nFederal Housing Adm.\n:\n1\n1,121.4\n:\n584.6\nA\n141.9\n238.7\nA\n334.0\nA 91.0\n425.0\na 150.0\nReconstruction Finance Corp.\n:\nPublic Works - Recovery\n:\n:\n:\n-\nI\n123.6\n260.0\n327.1\n228.5\n35.8\n264.3\n48.7\nand Relief\n110.0\n532.3\n64.8\n52.5\n40.7\n272.7\n113.4\n267,9\nOther\n:\n4,642.5\n4,066.8\na\n3,340.1\n: 5,077.9\nI\n2,386.2\n2,038.7\n4,424.9\na\n4,223.1\nBub-total\n:\n:\n:\n5,142.9\nI\n7,105.1\nI 7.375.8\n:\n8,879.8\n1\n5,521.0\n2,959.8\n5,480.8\n-\n7,658.0\nGRAND TOTAL\nRecoverables\n:\n943.0\nI\n1,620.0\n2\n217.0\nI\n94.0\n347.0\nA 79.2\n425.2\nI 122.2\n5,907.0\n:\n7,780.2\nNOT\n#\n4,199.9\n:\n5,485.1\nI\n7,138.8\n-\n5,973.8\n-\n5,866.0\n3,039.0\na Brones credits, defact.\nV Includes @GOM from supplemental items.\n2/ Includes $500M from supplemental item.\nIncludes 81,500M for Tarks Progress not included in the\nACCOUNTS AND IMPORTS\nApril 13, 1937\nRegraded Uclas\n376\nApril 14, 1937.\n12:05 p.m.\nH.M.Jr:\nHello\nOperator:\nGovernor Harrison calling.\nH.M.Jr:\nThank you.\n0:\nGo ahead.\nHarrison:\nHello\nH.M.Jr:\nHello\nH:\nWell Henry I've just made a quick conference with\nthe men here in the bank; I haven't gone outside at\nall.\nH.M.Jr:\nYes.\nH:\nAnd they say that the facts remain, as I told you,\nthat the nine months is - ah - is sticky. There is\nsome demand for the shorter bills.\nH.M.Jr:\nYes.\nH:\nMadison's guess is that the nine months bills - ah -\nthis next week might go for around 70 to 75 - at\nleast higher than last time\nH.M.Jr:\nYes.\nH:\nBut, of course, I don't know exactly how pressing\nyour needs are and how much or how rapidly you need\nthe funds, but my suggestion would be if you could\nafford it I'd go only 50 millions this week and I'd\nmake them the September bills.\nH.M.Jr:\nNo, I won't do that.\nH:\nAnd - well then, the - ah - an - ah - the six months\nbills - I mean the nine months bills will go but\nthey'll probably go at a little higher price because\nthey've become unpopular. A lot of banks have been\ntalking about it and they - apparently, what's happen-\ning is this - that they are preferring to go into your\nshorter notes or some of your notes - at 1-1/4 we'll\nsay.\nH.M.Jr:\nYes.\nRegraded Uclassified\n377\n- 2 -\nH:\nThen to take a nine months bill at 70.\nH.M.Jr:\nWell I've - I've ad justed myself, since last November\nwith the Federal Reserve so they could get ready and\ndo this increased reserve requirements. I let my bal-\nances go down from a billion to around five - six\nhundred million. I'm through ad justing myself to the\nFederal Reserve; I'm going to run the Treasury the way\nI always ran it.\nH:\nYes? Well I'm not asking you to adjust yourself to\nthe Federal Reserve.\nH.M.Jr:\nNo, well I'm not going to.\nH:\nWell I'm not suggesting that.\nH.M.Jr:\nNo, but I mean this suggestion that I - I should not\ntake a nundred million next week when we need it.\nH:\nNo, now weit B minute - ah - you asked me E few minutes\nago to call you back as to what my advice was.\nH.M.Jr:\nYes.\nH:\nAnd I said, without knowing what your requirements were,\nI think the best thing would be 50\nH.M.Jr:\nYes.\nH:\n.....but if you need more then I say you'll have to\npay probably around 75 for your nine months bills.\nH.M.Jr:\nWell -\nH:\nNow that's just a guess - we may be all wrong.\nH.M.Jr::\nYes\nH:\nBut I'm not - I'm not - - I'm not urging you - ah - not\nto do - raise the money that you need at all. I don't\nknow that.\nH.M.Jr:\nWell we need it.\nUclassified\n- 3 -\n378\nH:\nWell then if you need it then I think that your\nnine months bill will - will go but it will go\nat a little higher price than it did this last\nweek.\nH.M.Jr:\nYes, well the main thing is that it goes.\nH:\nYes.\nH.M.Jr:\nAh - for the time being - I mean the rate thing is\nout of my hand - I can't control and never\nH:\nYou wouldn't consider & six months bill there.\nH.M.Jr:\nWell I don't think - I don't - we'd have to take\nthree or four days or 2 week to think it over\nH:\nAh-ha.\nH.M.Jr:\nand before we'd make a move like that I'd ask\nEccles to bring down the Open Market Committee.\nH:\nYes. Well I really think that that would be a good\nthing to do pretty soon anyway.\nH.M.Jr:\nWell I'm perfectly willing to talk about it but be-\ntween now and 5 o'clock we've got to get our wires out\nH:\nYes.\nH.M.Jr:\n....and the first that I knew that these nine months\nwere sticky was when I talked to you about twenty\nminutes ago. I mean I didn't know that they were\nsticky - to-day is Wednesday - I didn't know anything\nabout it\nH:\nYes.\nH.M.Jr:\nand I'm not going to change my policy in an\nhour. I mean I want to give it careful consideration\nand if we're going to have trouble with bills maybe\nI'd come out with 8 regular issue.\nH:\nYes, but we don't have to do that.\nH.M.Jr:\nWell I mean I'm (laughs) I'm - I'm - from now on I'm\ngoing to take the money I need and I'm going to go back\nand be comfortable. I'm not going to be worrying about\nweek to week whether I can raise 50 million or a hundred\nmillion dollars. I mean I never should have let the\n379\n- 4 -\nbalances go down; I did it to help out and I'm not\ngoing to do it again.\nH:\nYes.\nH.M.Jr:\nI mean from now on I'm going to\nH:\nWell don't - don't misunderstand me; now I'm not ask-\ning you to do anything; you asked me what I thought\nabout it.\nH.M.Jr:\nI know but I mean I made a mistake and I realize it\nnow. I mean I always had enough money so I didn't\nhave to finance for three months and I'm going to\nput the Treasury back in that position so that we're\nmoney easy.\nH:\nYes.\nH.M.Jr:\nAnd it's the first time I've ever gotten myself where -\nso that I've got to move and move - ah - due to the\nconditions in New York and I'm going to get myself out\nof that position.\nH:\nAh-ha.\nH.M.Jr:\nAnd\nH:\nWell I think you - you can tell them that you -\nthat you'll probably have to pay more.\nH.M.Jr:\nWell that's - I'll - I'll pay whatever I have to.\nH:\nYes.\nH.M.Jr:\nAnd if it's 75 it's 75.\nH:\nBut I do - I do think it's worth a review again\nsometime.\nH.M.Jr:\nI think we ought to - I'm going to ask Eccles if he'll\nget his crowd together next Tuesday or Wednesday.\nH:\nYes, I think that would be a good idea just stating\nthe new set of circumstances when you've got May one\nout of the way.\nRegraded Uclassified\n380\n- 5 -\nH.M.Jr:\nAll right, George.\nH:\nAll right, Henry.\nH.M.Jr:\nThank you.\nH:\nAll right.\n381\nJR\nGRAY\nParis\nDated April 14, 1937\nRec'd 3:18 p.m.\nSecretary of State,\nWashington.\n482. April 14, 6 p.m.\nFROM COCHRAN.\nParis exchange market somewhat nervous yesterday\nand again today. French control yielded a fair amount\nof sterling and belgas yesterday and a smaller quantity\ntoday. Rentes and French shares weak while interpationals\nare sought. Paris-American bankers have not resumed\ngold arbitrage operations with New York. Rumors of labor\nand social troubles for opening of Paris Exposition cause\nuneasiness. Disappointment also evident over expensive\nterms of new loan which City of Paris opens April 15.\nThe city of Paris loan is a lottery issue for\n900,000,000 francs. Proceeds of the loan are to be devoted\nto public works to the deficits of the 1935 and 1936 budgets\n(a total of 437,000,000 francs) and to the reimbursement\nof short term notes issue in 1935 and 1936 to provide for\nthe unemployment fund. Loan will be priced at 910 francs\nfor each 1000 franc bond nominal value, interest rate (END\nSECTION ONE).\nBULLITT\nHPD\nRegraded Uclassified\n382\nRB\nGRAY\nParis\nDated April 14, 1937\nRec'd 4:05 p. m.\nSecretary of State\nWashington.\n482, April 14, 6 P. m. (SECTION TWO)\nwill be 5% and the bonds will be exempt from the tax on\nsecurities, the lottery tax and the 10% reduction ordained\nby the decree law of 1935. The loan will be reimbursed\nin 1987 at the latest. Referring to the notice given\nabroad to project attributed to the French General\nConfederation of Labor envisaging 2. \"forced\" loan through\nnationalization of credit to finance public works French\nFinancial Press Association points out that such proposals\nshould not be taken too seriously as they would never be\naccepted by Parliament and that the Government would\ncollapse if it favored such a plan. In this respect\nAGENCE ECONOMIQUE recalls the recent assurance of the\nMinister of Finance that there is no question of issuing\nany other loan than the recent national defense issues\nand that the Treasury will cover its requirements up to\nthe end of the year through short term borrowing.\nAGENCE\nRegraded Uclassified\n383\nRB\n-2-#482, April 14, 6 p. m. from\nParis (SECTION TWO.)\nACENCE ECONOMIQUE carries a telegram from its New\nYork correspondent to the effect that the reduction since\nSaturday of approximately $11,000,000 gold ear marked in\nthe United States for the account of foreign central banks\nwas due to fear of a reduction in the gold price.\nFrench press giving much attention to Chamberlain's\nremarks on British monetary policy and especially to\nSchacht's visit to Brussels. My Italian friends hope\npress will not try to attach too much importance to the\nevent if they learn that Governor Azzolini of the Bank\nof Italy will visit Schacht in Berlin this week. Azzolini\nis taking his wife who was not with him at Basel to various\ncities in Germany which country she had never seen but I\nam not aware- of any international significance to the trip\nto Berlin, (END MESSAGE)\n<00 VRUBAT\nBULLITT\n- - -\nSMS\n384\nRB\nGRAY\nParis\nDated April 15, 1937\nRec'd 5:10 p. m,\nSecretary of State\nWashington.\n484, April 15, 5 P. m.\nFROM COCHRAN.\nFrench control yielded a fair amount of sterling at\n110.05 but franc strengthened slightly to 110.01 in late\ntrading. Rentes and French shares improved slightly after\nuncertain opening. Money was fairly easy for mid month\nsettlement at 43 as compared with 5% per cent fortnight ago\nForward franc discount widened.\nBank of France statement as of April 9 showed increase\nof 3½ billion francs in Treasury deposits and decline of\ntwo billion 431 million francs in current creditor deposits.\nthis alteration resulting from payment for new issue of\nnational defense bonds from bank deposits. Reimbursement\nof a foreign credit permitted reduction by 62 million francs\nof advances to Treasury under articles one and two. Coverage\n54.96 versus 55.23 following increase in deposits.\nAGENCE ECONOMIQUE today printed following in reference\nto its item on possibility of forced loan mentioned my 482\nApril 14, 6 P. m.: (END SECTION ONE)\nBULLITT\nRegraded Uclassified\n385\nRB\nGRAY\nParis\nDated April 15, 1937\nRec'd 5:19 p. m.\nSecretary of State\nWashington,\n484, April 15, 5 P. m. (SECTION T70).\n\"We brought to the attention of the Minister of\nFinance the articles in the English press indicating that\nthe Government might be led under pressure of syndical\norganizations to issue a forced loan of ten billions to\nfinance a program of extensive works. Certain of\nthese newspapers have even published the probable conditions\nof this issuance. M Vincent Auriol kindly gave to us on\nthis subject the following declaration:\n1I wish first of all to repeat that it is advisable\nto finish once for all and at the earliest possible moment\nwith a series of disturbances and misunderstandings, better\nyet with unfounded rumors. All citizens, organizations,\nor groups, whatever they may be, have every right in a\ncountry of liberty to set forth ideas, formulate programs,\ndraft propositions and to submit them for public discussion\nand even for study by the Government. As for the Government\nits duty\n386\nLS 2-#484, April 15, 5 P. m., from Paris, Sec. 2.\nIts duty, after study of the situation, propositions, and\nabove all object and possibilities, is to establish a pre-\ncise program of action and, this program once established,\nto hold to it, That is what we did on March 5 following\nthe declarations we made during the discussion itself of\nthe budget. In examining the possibilities of the finan-\ncial market we said that there would be this year but one\nlong term loan -- that of the National Defense. I can only\nexpressly confirm this declaration, There can therefore\nbe no question of a loan of ten billions and, a fortiori,\nof any forced loan whatsocver. If propositions of this\norder were made in Parliament we would give the reasons\nfor our position and our attitude. For the time being I\nask that these declarations be taken into consideration\nand that nothing further be added thereto.\nEND OF MESSAGE.\nBULLITT\nEMB:EDA\n387\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE April 14, 1937\nTO\nSecretary Morganthau\nFROM\nMr. Magill\nRe: Railroad Retirement Legislation.\nSenator Harrison called this morning regarding his proposition\nto alter the rate schedule to an initial rate of 5½ percent of the\npayrolls, increasing in three years to 6 percent and then 1/2 percent\nadditional every three years until the final rate of 7½ percent is\nreached in 1949. This rate schedule would be the equivalent of a\nflat rate of 8. little over 7 percent.\nI told the Senator that I talked to you and that your position\nwas that the matter was now out of the Treasury's hands and up to\nthe Congressional leaders. The Treasury is willing to accept either\nof the two sets of rates proposed by the actuaries in their letter.\nThe Senator said he understood our position and thought we were\nright but he believed that his proposed schedule of rates would be\nmore acceptable to the railroads than the flat 7 percent. He said\nhe would call Mr. Doughton and make the proposal to him.\nThe Senator asked me to give him, as soon as possible, the\nprovision for a periodical report on the rates. I said we had drafted\nthe provision and would let him have it this morning.\nRm\nRegraded\nI\nIclassified\n388\n14A\nDEPUTY GOVERNOR'S MEMORANDUM\nApril 14, 1937\nTO:\nGovernor Myers\nFROM:\nMr. Hill HAA\nSUBJECT: Government aid to agriculture, fiscal years 1934-1937\nIn accordance with your request, I have assembled such in-\nformation as is readily available relative to the amount of Govern-\nment aid to agriculture during the fiscal years 1934-1937. The\ndata are given in the attached table.\nIt isimpossible in the time available to make a careful\nanalysis of the figures going to make up the individual items. For\nexample, under the heading of \"Other Expenditures\" for the Farm\nCredit Administration, you will note that the items shown are some-\nwhat less than the amount actually spent for administrative expenses.\nThis is because a part of the administrative expenses, particularly\nduring the earlier years, were paid from crop loan and funds other\nthan general appropriations for administrative purposes. It follows\nthat the figures shown should be increased and the figures given as\nto emergency crop. feed and drought loans should be correspondingly\nreduced. It is also probable that the latter figures contain as-\nditional items which should be classified elsewhere. Similar in-\naccuracies undoubtedly obtain in connection with the data given\nfor other agencies with whose operations I an not familiar.\nIt is my opinion, however, that inaccuracies of the type\nreferred to above are not sufficiently serious to influence any\ngeneral conclusions to be drawn from the data as presented.\nAttachment\nL937\n1936\n(To 3-31-37)\nSubsidies\nMA Progrem\n$ 361.1\n$ 542.6\n$ 743.0\na 290.3\n$1,937.0\nResettlement - grants, ada., other\n127.7\n64.1\n0,1\n-\n191,9\nFederal Surplus Commodities Corporation\n2.8\n8.2\n76.6\n40,1\n127.7\nFIBA-Loans and Relief in Stricken Agric.,Arens\n(Transfer to FERA, Grants to States) 1934 & 1935\n-\n-\n90,6\n90,6\n181.1\nDepartment of Agriculture, Ralief\n0.3\n2,9\n80.5\n-\n83.7\nInterest Reduction - FLB borrowers\n24.9\n29.1\n12.5\n7.0\n73,5\nTotal\n$516.8\n$ 646,9\n1,003.3\n3 427.9\n$2,594.9\nLoans (not)\nyea - Margency Crop, Food & Drouth Loans\n5,1\n29.8\n99.4\n81.6\n17.1\nResettlement - Loans\n8.4\n73.8\n1.6\n-\n83.8\n-\n78.6\n-\nto States for Rural Rehabilitation\n-\n78,6\nCommodity Credit Corporation\n76.5\n129.7\n60.1\n164.3\n157.4\nRoral Electrification\n5.2\n0.7\n.\n-\n5.9\nTotal\n# 68,0\n$ 174.4\n$ 119,5\n$ 82.7\n$\n308,6\nCapital Subscriptions\nPaid-In Surplust Federal land banks\n23.3\n32,6\n33.6\n40,9\n130.3\nFederal intermadiate credit banks\n-\n-\n16.0\n25.0\n40.0\nCapital Stock:\n-\n1\n-\n200.0\n200,0\nFederal Farm Mortgnge Corp.\nProduction Credit Corporations\n-\n1\n15,0\n105.0\n120,0\nBanks for Cooperatives\n-\n20.0\n15.0\n110.0\n145.0\nRegional Agric. Credit Corps.\n13.0\n19,5\n-\n5,7\n26.8\nTotal\n$ 10.3\n$ 33.0\n# 78.6\n$ 486.6\n$ 608,5\nOther Expenditures\nDepartment of Agriculture\n125.8\n101.9\n77.9\n71.3\n376.9\nPara Credit Administration\n4,4\n6.0\n2.3\n2,4\n15,1\nTotal\n$130.2\n$ 107.9\n$ 80,2\n$ 73.7\n$ 392.0\nI\nData furnished by Buresu of Budget, basis of Daily Statement U.S.Treasury except PERA items which are from the report of\nIncoss of credits, deduct,\nThe President's Committee on Crop Insurance (p.29). The FERA item of $181.1 under \"Subsidies\" WELS arbitrarily divided\nbetween fiscal years 1934 and 1935; the item of $78.6 MSA arbitrarily included under fiscal year 1935.\n2\nIncludes cotten loan operations,\n3\nLoans and collections were reported as follows by the agencies indicated for the calendar years Repayments 1933-1936:\nLoans Made\nBalance\nTurn Credit Administration\nCrop and Feed Loans\n$ 169.3\n$ 102.9 b\n$ 66.4\nDrouth Belief Loans\n72,0\n11.6\n60.4\nRegional Agric. Credit Corporations\n292.4\n267.1\n25,3\nCommodity Credit Corp. (to March 31, 1937)\n609,0\n451,5\n157.5\nDoes not include collections on loans made prior to 1933\nExclusive of renewals.\nOther than AAA Program, Roada and \"Loans and Relief\".\nRegraded Uclassified\n390\nTREASURY DEPARTMENT\nPROCUREMENT DIVISION\nOFFICE OF THE DIRECTOR\nWASHINGTON\nNy\nApril 14, 1937\nMemorandum for the Secretary of the Treasury:\nThe personnel transferred from the Federal Emergency Relief\nAdministration to the Treasury Department in August 1935 totalled 703\nemployees, consisting of 29 Purchasing Agents, 119 supervisory employees\nand 555 employees in lower ratings. Of the 29 Purchasing Agents who\nbecame State Procurement Officers, five have since been separated from\nthe Treasury Department as unsatisfactory. Nineteen appointments of\nState Procurement Officers were made by the Treasury Department in those\ncases where the incumbents under the Federal Emergency Relief Adminis-\ntration were not recommended for appointment.\nWhile the personnel in the State Procurement Offices was neces-\nserily increased to meet the work loads imposed, during the past four\nmonths reductions in the force have amounted to 1,247 employees aggre-\ngating $1,673,536 per annum.\nThe total purchases of supplies, equipment and materials made\nby the Branch of Supply, Procurement Division and its State Procurement\nOffices upon requisitions submitted by the Works Progress Administration\nto carry out projects approved by them have amounted to:\nFrom August, 1935\nFrom July 1, 1936\nTotal\nto June 30, 1936\nto March 31, 1937\nPurchases\n$244,974,275\n$199,438,487.\n$444,412,762\nNumber\nRequisitions\n768,532\n644,698\n1,413,230\nNumber Pur-\nchase Orders\n985,181\n865,680\n1,850,861\nThe Act appropriating Work Relief funds requires purchases over\n$300 in value to be made under Section 3709, Revised Statutes, after ad-\nvertising for competitive bids. Awards and contracts are made with the\nlowest responsible bidder and are later reviewed by the General Account-\ning Office.\nDirector of Progurement\n11/16\n- Nume: - - - - MUB L - -\n- - - UTIMS - & - a\n391\nI\nFeb is 1937\nJatel 40%\nRegraded Uclassified"
}