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191
April 27th, 1936.
Tol The Secretary
From: Mr. McReynolds
I called on the Comptroller General this morning at
eleven o'clock, at his invitation, to discuss the Treasury's
proposal to designate depositary banks as fiscal agents of the
Treasury to sell Baby Bonds. General McCarl stated that he was
in entire agreement with the opinion written by the Treasury's
General Counsel on this question, with the understanding that
any fees allowed the banks would be on the transaction basis
rather than the denomination of the bonds disposed of. In
other words, he pointed out what we already recognized, that is,
we would not be in 8. position to pay commissions for the sale
of these bonds, although it is entirely proper to allow a fee in
lieu of expenses of the fiscal agents, incurred in connection with
the sales.
After disposing of this matter the Comptroller inquired
particularly about your health. Hie inquiry was made in 8 rather
unique way. He said be had had reports that you had been 111,
that he felt very solicitous for your health and hoped you would
not permanently impair it by over-work, but that be would be very
much more worried if you had not actually been 111. His
explanation of this attitude was that he felt the results of your
advice to the President had been lacking in recent weeks, and that
If you were not actually physically incapacitated the fact that
wuch advice had not been given and heeded was an indication that
the President was accepting advice from less reliable sources.
The General said he would like to have an opportunity some-
time to tell your in how high esteem he held your administration of
the Treasury Department. He asked DO to tell you for him that be
considered your administration of this Department the outstanding
accomplishment of the present Administration; that to his opinion
the administrative and financing Jobs of this Department had been
handled with a maximum of skill and effectiveness; and that he
felt the most unfortunate thing that could possibly happen to the
President would be to fail to follow your advice on general policy
matters.
mar
Regraded Uclassified
TREASURY DEPARTMENT
192
INTER OFFICE COMMUNICATION
DATE
4-27-37
TO
Secretary Morgenthau
FROM
Herman Oliphant
The following is a chronological memorandum of telephone conversations
and correspondence between yourself or members of your staff and Senator
Bulkley in connection with the proceedings taken against C. E. Moore,
Collector of Internal Revenue at Cleveland.
On September 12, 1935, you wrote to Mr. Moore informing him that you
had arrived at B. decision; that he should sever his connection with the
Treasury Department unless he and all members of his immediate family im-
mediately give up all associations with the companies concerned, including
their financial interest, and unless he forthwith made satisfactory arrange-
ments to pay into the Treasury the full amount of all such monies received
by him or any members of his immediate family of such companies.
On September 19, 1935, Mr. Moore replied, but his answer was not
responsive.
On September 24, 1935, Acting Secretary Coolidge Baw the President
and Charles West and the President informed him that he felt that the men
should give up the money they had made.
On September 27, 1935, Acting Secretary Coolidge saw Senator Bulkley
and the Senator informed him that he had no fault to find with your conclusions
as to what was right and fair and that he would try to work it out with Mr.
Moore.
On October 1, 1935, Acting Secretary Coolidge wrote to Mr. Moore, in-
forming him that his reply was not satisfactory end that he would hold it
for your action upon your return from Europe.
On November 19, 1935, a letter WES prepared and approved by you to
Mr. Moore. This was shown to Senator Bulkley who, in 8 huff, picked up his
hat and started to leave. I was present when this happened and suggested
to the Senator that he dictate his own letter 68 to what his understending
of the agreement with the Secretary was. Charles West was also present at
this conference and the letter as dictated was agreed upon by all present
except that part of it which provides that restitution should be made only
from date of notice.
On November 20, 1935, you dictated a letter to Moore demending that
Regraded Uclassified
193
- 2 -
the munies received by him be turned over to the Treasury. This letter
was identical as the letter dictated by Senator Bulkley except that it
/temanded the return of all the monies so received. On the same date
you called Senator Bulkley and told him that this was your decision and
Senator Bulkley replied to you, suggesting that the letter be sent to
him and he would see that it reached Moore and if there was any trouble
getting the money from Moore he would telephone you.
On November 25, 1935, Moore replied to your letter, offering to
comply with your request contained in your letter of November 20, pro-
viding e. general regulation was promulgated concerning similar actions of
other persons in the same position, and that the regulation should have a
retro-active effect.
On November 29, 1935, you wrote Moore to the effect that the matter
of a general regulation could not be considered in connection with his
cese but would be taken up in due course on its own merit. A further
request was made for a reply to the letter of November 20.
On December 3, 1935, you spoke to Senator Bulkley over the telephone
and told him that you could not go along with Moore's request concerning
the general regulation contained in his letter of November 25, because
you could not allow Moore to stipulate conditions in connection with the
administration of the Treasury Department.
On December 6, 1935, Senator Bulkley wrote you and informed you that
he had "secured the consent of all concerned to the following set-up;
without further insistence upon B general regulation, Moore will divest
himself of all profits by returning them to the company and the company
will accept them only with the condition that they be turned over to
public charity as fast as received." He further states in this letter:
"I can assure you if you will give me your approval of the settlement
herein suggested, the letters from Moore and the company, which would be
necessary to consummate it, will be worded in a friendly and respectful
manner."
On December 13, 1935, you called Senator Bulkley and told him that you
had decided to accept the offer made in his letter of December 6, 1935, and
Senator Bulkley in replying said that he was glad the matter was all set
and stated that he would arrange to have Moore write a letter which would
be pleasing to the Secretary.
On December 17, 1935, at 8. conference of yourself, Senator Bulkley
and myself, Senator Bulkley delivered Moore's letter dated September 16,
I realized from this transaction when and as I as able to do 30." At this
1935, stating that he proposed "to return to the company such profits as
time, you expressed to Senator Bulkley your doubt as to the sufficiency of
Regraded Uclassified
194
- 3 -
this assurance and I advised you that the legal effect of this language
was eun obligation to pay within 8 time which would be reasonable under
the circumstances, Senstor Bulkley agreed with this interpretation and
you also expressed yourself 8.5 being satisfied with it. It was then
agreed that the syndicate was to write you a letter designating either
the Cleveland Community Chest or the American Red Cross as the ultimate
recipient of the profits. You stated that you would require the same
arrangement with Pollack and Harper and would thereafter submit to
Senator Bulkley your proposed publicity statement.
On December 20, 1935, Mr. Gardner Abbot, President of the Famous
Brands Ohio, Inc., wrote you, stating that he would pay to the Cleveland
Community Fund any monies returned by Collector Moore and any other
Treasury employees involved.
On January 2, 1936, you wrote Collector Moore, in which you informed
him that you took his letter of December 16, 1935, to be an understanding
on his part, and his family, to dispose forthwith of all interest in
Famous Brands Ohio, Inc., and to turn over to it all dividends, payments,
and profits. A copy of the letter addressed to Famous Brands Ohio, Inc.
was enclosed with this letter.
On January 7, 1936, Collector Moore acknowledged your letter of
January 2 and gave assurance that he would comply with the demands outlined
in his letter of December 16, 1935.
On January 13, 1936, Senator Bulkley called you and discussed with you
the proposed press release which had been shown to him by Mr. Gaston. The
Senator said that while the release was inoffensive, he would have preferred
having the details omitted therefrom. After some discussion, he said he
was satisfied with it and would accept your judgment.
Herman Oliphant.
Regraded Uclassified
195
CONFIDENTIAL:
Trip of the President to Biloxi, Gulfport, Miss.,
New Orleans, La., Galveston, College Station,
and Fort Worth, Texas, to Washington, D. C,
April 28-May 13, 1937.
WEDNESDAY, April 28.
Lv. Washington (Southern Ry.)
1:00 a.m.
Ar. Atlonta, Ga
9:30 pam. cT.
Lv. Atlanta (A. and W. P. R.R.)
9:40 p.m.
THURSDAY, April 29.
Ar. Montgomery, Ala
2:40 a.m.
Lv. Montgomery (L. and N. R.R.)
2:50 a.m.
Ar. Biloxi, Miss
9:00 B.M.
Motor to Gulfport (about 12 miles);
entrain for New Orleans.
While party is motoring, train equip-
ment will be moved to Gulfport.
Lv. Gulfport
10:30 a.m.
Ar. New Orleans, La
12:30 p.m.
4:00 p.m. the President and his
immediate party go aboard USS
POTOMAC.
MONDAY, May 10.
Lv. Galveston, Texas (Southern Pac. R.R.) 10:00 s.m.
11:40 a.m.
Ar. Houston
11:50 s.m.
Lv. Houston
Ar. College Station
2:00 p.m.
Visit A. and M. College.
Lv. College Station
3:30 p.m.
Ar. Fort Worth
9:00 p.m.
TUESDAY, May 11.
Lv. Fort Worth (M. K. and T. R.R.)
6:15 p.m.
and Frisco.
WEDNESDAY, May 12.
11:55 a.m.
Ar. St. Louis, Mo
Lv. St. Louis (Pennsylvania R.R.)
12:05 p.m.
THURSDAY, May 13.
Ar. Washington, D. C
10:15 a.m.
Regraded Uclassified
Senator Pat Harrison
and
Commissioner George E. Allen
will accompany the President to
Gulfport, Mississippi.
195-A
A
Telegraph Representatives:
Mr. C. S. Linkins
Western Union.
Mr. A.E. Arnold.
Western Union.
186
Members of the party:
THE PRESIDENT.
Hon. M. H. McIntyre,
Ass't. Secretary to the President.
Captain Paul Bastedo, U. 8. N.
Col. E. d. Watson, U. S. A.
Dr. Ross T. McIntire,
Mr. H. M. Kannee.
Mr. E. W. Smithers.
Mr. W, J. Hopkins.
Mr. Geo. A. Fox.
Mr. Chas. K, Clounch.
Secret Service Agents.
Mr. Herbert G. Theurer,
Post Office Inspector.
Newspaper men:
Mr. Walter Trohan,
Chicago Tribune.
Mr. Geo. E. Durno,
International News Service.
Mr. D. Herold Oliver,
Associeted Press.
Mr. Richard L, Harkness,
United Press.
Mr. Philip Pearl,
Universal Service.
Mr. Robert P. Post,
New York Times.
Mr. John C. O'Brien,
New York Hereld Tribune.
Mr. Claude A. Mahoney,
Wall Street Journal.
Miss Doris Fleeson,
New York Daily News.
Picture men:
Mr. George Skadding,
Associated Press Service.
Mr. Jos. Jamieson,
Times Wide World.
Mr. James Lyons,
Universal Newsreel.
Mr. James Buchenan,
Paramount News.
Mr. John S. Thompson,
Acme Newspictures, Inc.,
Mr. F. I. Thompson,
International News Photos.
Telegraph Representatives:
Mr. C. S. Linkins
Western Union.
Mr. A. E. Arnold,
Western Union.
Mr. G. M. Lawrence, D.P.A.,
Southern Railway,
In charge of Transportation.
Regraded Uclassified
197
KLP
GRAY
London
Dated April 28, 1937.
Rec'd. 10 a.m,
Secretary of State,
Washington.
RUSH
249, April 28, 2 p.m.
FOR TREASURY FROM BUTTER !Opth
The Chancellor of the Exchequer made in the House of
Commons last night a reassuring statement in an attempt to
remove misapprehension about the scope and incidence of the
national contribution tax. While he claimed that his
proposals had been exaggerated and their possible effects
greatly magnified he indicated that he would be prepared to
consider carefully the advice he had invited from leaders
and organizations representative of trade and industry and
that he was willing to accept modifications of what were in
effect tentative proposals intended to be no more than an
outline. In particular he stated that he would not insist
upon the datum line for circulation of profits being the
average of the years 1933, 1934 and 1935 and that he was
prepared to vary the rate of interest which is to be the
basis
Regraded Uclassified
- 2 -
198
#249 from London - April 28, 2 p.m.
basis of the capital standard,
Chamberlain emphasized that he regarded the tax as
mild and moderate and reiterated that it was expected to
yield only two million pounds during the current fiscal
year and not more than twenty-five million pounds next year
which could not be regarded by industry as an intolerable
burden.
This announcement has not the desired effect of
restoring a measure of confidence but the position will
remain uncertain until the finance bill is considered
in the House of Commons some time after the Coronation,
Despite the possibility of coal and transport strike the
London stock exchange opened firm. However, no decided
advance in prices is expected for the reason that
advantage will be taken of any strengthening of the market
to liquidate tenuous positions.
Mr. Chamberlain's statement has interesting political
aspects and in this connection the comments of the liberal
MANCHESTER GUARDIAN are pertinent and representative. Its
political correspondent takes the view that "if this was not
Mr. Chamberlain in retreat and for the first time in his
political life, at least it was Mr. Chamberlain more
chastened than one has ever seen". On the other hand, its
parliamontary correspondent describing the scene in the House
of Commons states "on the whole the impression was given
that
Regraded Uclassified
199
- 3 -
#249 from London - April 28, 2 p.m.
that the Chancellor is playing a very difficult hand very
skillfully. He has to finance the rearmament program and
he has to satisfy labor that profiteering will be made
unprofitable and he has to satisfy industry that profits
will not be made impossible. It is an awkward troika to
drive."
BINGHAM
CSB
-ear 8,99A
-
Regraded Uclassified
Alkoo
200
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: April 28, 1937, noon
NO.: 542
FROM COCHRAN.
There are four principal causes of the present
uneasiness on the exchange security and commodity markets
in Europe; 1.e., the American gold scare, the French
situation, remarks by President Roosevelt on commodity
prices, taxation by Great Britain and borrowing for
rearmament.
With reference to the American gold scare, in my
telegram of April 2, 4 p.m, I reported that the rumor
was current in banking circles that there might be a
reduction in the net price paid for gold by the Federal
Reserve Banks acting for the Treasury. The scare became
widespread when later it was made public that New York
banks had instructed their European branches to abstain
from arbitrage gola dealings for the above reason.. Fewer
dollars became available on European markets with the
cessation of gold arbitrage, which caused a weakening of
European currencies, particularly the French. Washington's
repeated denials that no change in gold policy is contem-
plated has not been entirely successful in allaying fears
that something to change the American gold price may yet
be done.
The rumors were partly intensified by the remarks of
201
PARAPHRASE OF SECTIONS TWO TO FIVE INCLUSIVE OF NO. 542
of April 28, 1937, from Paris.
-2-
of Professor Sprague at the American Club in Paris, as
I reported in telegram No. 465 dated April 8, 4 p.m.
The London FINANCIAL NEWS and certain other financial
papers have been prone to attribute the commencement
of the rumor to statements alleged to have been made
by Sprague to bankers on his visit to London. It is
likely that Sprague will be present at Basel when the
central bankers meet this week for their annual gathering
and the FINANCIAL NEWS warns against Sprague's opinions
on the gold question being taken there as official.
Various writers contend that under war time and
subsequent legislation the Secretary of the Treasury and
the President have authority to alter the price paid for
gold shipped from abroad without requiring further legis-
lation and some insist that the statements issued from
Washington have not closed the door definitely to a change
in the gold price. I have not seen any official denial
of this from the American side.
Several reasons are given for increasing the prob-
ability of some American action being taken to change the
price of gold: (1) Washington experts have been unable
to find a means for checking the inflow of foreign capital
into the country; (2) sterilization of gold has apparently
been ineffective toward this end; (3) the Treasury has
had an additional burden imposed upon it in having to
issue paper to pay for sterilized gold just at a time when
Regraded Uclassified
202
- 3 -
to support the government bond carrying Federal agencies
have had to intervene on the open market; (4) due to some
apprehension that tax returns will fall below estimates,
the American budget will have to be revised.
The factors cited in the preceding paragraph have con-
tributed to the persistence of the rumors concerning a
change in the American price for gold, even though many
observers have been convinced that this would not be done
for several reasons - recovery has not gone sufficiently
far in the United States to relieve unemployment ex-
tensively, prices have not yet risen to the scale originally
envisaged by the Government, and a reduction of the gold
price would most likely cause a collapse of the New York
stock market as well as of world commodity prices.
These rumors may of course be due to some speculative in-
stigation.
The effectiveness of the remarks which President
Roosevelt made upon commodity markets, metals in par-
ticular, has caused a profound influence; in Europe it
had not been generally believed that United States re-
covery had gone far enough to warrant checking commodity
prices. It has been realized nevertheless by banking
and market circles that the situation had become danger-
ously top-heavy, with intense speculation in materials and
much overstocking. Johannesburg was quick to begin selling
when the gold scare started. A sharp dumping of other
commodities was begun due to the position taken by the
Uclassifi
203
+ I I
President.
South African gold shares, it should be remembered,
constitute one of the most generally traded group of
securities in Europe, The repercussions were widespread
when selling thereof began. A recession in other metal
and raw commodity prices quickly followed. It would be
remembered that European investors hold American shares
extensively, in addition to the securities and supplies
of metals involved. When the gold scare and commodity
depression developed, they disposed of important blocks
of these. Since the rejuvenation of the Supreme Court
was suggested and since labor difficulties with resort
to sit down strikes had grown, European investors had
already begun to believe that political and social
affairs had not been going so well in the United States.
There is evident a disappointment that the progress of
recent years made in economic recovery has not been more
sound and that world conditions are still 80 unstable
that a quick and unexpected upset therein can take place.
As for Great Britain. The strength of many securities
and commodities is due to world rearmament at
the present time; but great uneasiness in British trade
circles and a decline in British gilt edge securities haw
been caused by the fact that the new British budget will
involve
Regraded Uclassified
204
- 5 -
involve heavy taxing of industry, and enormous borrowing
will be required. Sterling has 80 many currencies tied
to it that naturally there is concern lest there will be
a disturbing effect throughout the world because of a
program of expenditure in England that might cause a weaken-
ing of the currency.
I have currently portrayed in my telegrams the vul-
nerability of the French situation because of the Blum
Government's failure to inspire sufficient confidence for
dehoarding of capital and repatriation of it. Following
the change of policy in the first ten days of March, the
outlook was somewhat brighter. But the French have not
yet overcome important difficulties. If there is no
important crisis, the French stabilization fund, with
the funds it has retained and repatriated, can maintain
effective control for some time. The funds obtained through
the recent loan with its exceptional guarantees will not
last the Government beyond June, if they dexam are not
exhausted before then. A loan of 900,000,000 france is
already asked for by the City of Paris. According to B.
preliminary announcement of yesterday, the pensions office
will shortly float an issue for as much of two billion two
hundred and twenty-eight million francs as can be obtained
on one year bonds at four percent. The proceeds of the new
issue of the City of Paris will be taken by the Treasury as
soon as they are received. Such funds, it is anticipated,
along
Regraded Uclassified
205
- 6 -
along with any other funds borrowed by other bodies, will be
applied to rearmament and public works destined to relieve
unemployment, and to quiet the labor element of the Left.
END SECTIONS TWO TO FIVE INCLUSIVE.
BULLITT.
D3V13038
/ / and & e : s /
/
EA:LWW
Regraded
Uclassifi
206
Section Six
Through pressing for a new loan of 10,000,000,000 francs
for public works, this faction has been seriously embar-
rassing the Government and has otherwise upset confidence
through nationalization of credit, suggesting forced levies,
etc.
While the Government is expected to come successfully
through the debate on general policies which has been
postponed from Friday until May 7 and while the questioning
of Vincent Auriol today and tomorrow by the Finance Com-
mittees of the Chamber and Senate may not lead to any dis-
closures that will prove too embarrassing, there will un-
doubtedly remain the impression that the Government must
resort to various and devious means to keep itself supplied
with funds. When the announcement was made early in March
of the French change in policy, I obtained the views
thereon of the main central bankers of Europe at the
March meeting of the B.I.S. You will recall that these
bankers were practically unanimous in believing that the
Blum Government could not sufficiently overcome the diffi-
culties which it faced to guarantee the stability of the
franc. There is a general feer that it may be necessary
for the franc to be devalued further with the franc now
depreciated to the lowest limit permitted by the monetary
law of October first, with the stabilization fund losing
over the past three weeks rather than gaining foreign
exchange, with the Government applying the social,
particularly the forty hour, legislation in a manner which
207
-3-
burdens industry and trade excessively at this period of
recovery, with prices rising 80 importantly that French
export trade is seriously hampered, with labor persistent
in its demands, and with the Treasury faced with constant
and recurring financial difficulties. In turn this gives
rise to conjecture as to whether the tripartite agreement
could survive having the frano lowered. Should the franc
drop further, would it necessitate a out in the pound
sterling which might lead to all kinds of currency upsets?
The disappointment of the world over the failure of
trade barriers to be lowered following the tripartite
monetary agreement of last autumn may be added to the
by most observers
factors enumerated hereinabove. It is admitted/that the
United States is about the only country to have made some
progress in the desired line through its reciprocal trade
arrangements. The achievement of better trade relations
is the manifest desire of the Oslo countries. However,
considering the British imperial preference policy,
France's uncertain financial and social outlook, German
autarchy and its political phases, et cetera, there is
much skepticism as to whether Van Zeeland may be able to
find any common ground on which important trading countries
can now advance.
Cariguel and I talked about the American gold policy
this morning. Cariguel does not believe that we anticipate
any change in our gold price at this time. However, he
realizes
Regraded Uclassified
208
-:-
realizes the cost that may be imposed upon our Treasury
if the present tendency of gold to flow to the United
States may continue or be increased as the Soviets dump
their holdings and as others may be inclined to hasten
to sell their gold to the United States market lest there
be a subsequent change in the price of gold. He feels
that our Treasury would be seriously handicapped by the
sterilization of gold. With a deficit in the budget,
the Treasury must borrow from the market at increased
rates. Member banks of the Federal Reserve system have
billions of idle money deposited with the Federal Reserve
banks as legal reserves, while the Treasury is borrowing
dollars from the market. Cariguel is aware that under
our legislation gold cannot be sold without a license.
He believes that conditions are changing BO rapidly
throughout the world that governments must keep up
with them in modifying their policies. In view of the
present circumstances he conceives and suggests entirely
unofficially and only with the spirit of helpfulness the
the Treasury sell its gold to member banks,
idea that/instead of borrowing funds from the market to
pay for the gold which it sterilizes.
Cariguel's idea would be for the Treasury to make an
arran ement with two, three or more of the important
private banks such as National City, Morgan, and Chase
to sell them gold at thirty-five dollars an ounce. There
would
Regraded Uclassified
209
would be no need for handling gold other than perhaps to
change the label on it so that the Treasury could logically
eliminate any handling charges; it would be held with the
Federal Reserve Bank of the district concerned. The gold
could not be disposed of except by resale to the Treasury
and could not be sold to individuals. A provision would
be made in the agreement either for the repurchase by
the Treasury of the gold at a specified time or preferably
would provide that the Treasury could call back the gold
when it might have need of it. The bank, on the other hand
would have the privilege of selling the gold to the
Treasury whenever its internal situation made this desirable.
However, it would be stipulated that the price at which
the gold was to be repurchased would be exactly the same
price as that originally paid for it.
I have been strictly confidentially informed that when
the French Bank was flooded with gold in 1931-32, it made
such an arrangement as that above pictured with the
Caisse des Depots and with the Credit Lyonnais. Therefore
these organizations actually developed gold bullion accounts
with the French Bank. The Bank of France bought back the
gold when the market turned.
The following are two merits of the above plan:
(1) the fact that the Treasury would be willing to undertake
to redeem the gold from the Bank at the price which the Bank
had
210
-5-
had purchased it would constitute a very strong assurance
to the market and the world in general that no change
was probable in the Government's gold price; (2) that
there would be available to. the Treasury the several
billion dollars of member bank reserve funds against
which it could swap gold without any interest or handling
charges, knowing that it could get the metal back when it
wanted it.
END OF MESSAGE
RECEIVED is
/ / FJS /
/ / /
EA:DJW
Regraded Uclassified
211
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE
April 28, 1937.
CONFIDENTIAL FILES
SUBJECT TELEPHONE CONVERSATION WITH
o
D. J. Cameron
BANK OF ENGLAND
ROM
Mr. Sproul telephoned Mr. Siepmann of the Bank of England
at about 12:50 p.m. today and inquired how things were going.
Mr. Siepmann said the London markets had been very much upset by
cables received from this side, since the opening, repeating rumors
that several London houses would have to be helped over the next
settlement date to the extent of twenty million pounds, (the next
fortnightly settlement is May 6, but I understand arrangements must
be made on May 3 to carry accounts over to the following settlement).
He also said there have been rumors for two days running to the effect
that the United States would impose a five dollar per ounce import
tax on all gold imports without any advance notice, and that action
would be taken shortly. Mr. Siepmann said that the rumors about
their market had been denied but that, at present, anything one said
had little effect as the public is confused and frightened. He also
said the rumors might gain some substance if there were a few more
bad days as conditions in the street are not too good. Mr. Sproul
stated that we had also denied rumors on this side, about changes
in the price of gold or similar actions, but that the rumors still
persist.
Mr. Sproul then inquired about Paris, and Mr. Siepmann said
there was little new in the French situation. Their political and
fiscal difficulties are still pressing he said, but the postponement
of the general Parliamentary debate for another week (from Friday)
has had a somewhat quieting effect. He said that the French got in
Regraded Uclassified
212
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE April 28, 1937.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
D. J. Cameron
BANK OF ENGLAND
FROM
-2-
a little sterling today and that they needed it badly.
Reverting to the situation in the London market, Mr.
Siepmann remarked that if dollars should be wanted, due to the
gold rumors, he would be pleased to see us jump in and take some
sterling. Mr. Sproul suggested that the shoe is on the other foot
at the moment, and asked if it wouldn't be appropriate for the Bank
of England to assume some of the "white man's burden" and buy some
gold. Mr. Siepmann replied that they had bought gold yesterday and
today in the amount of about ten million dollars. He also said
they do not give us any gold against our order at $34.77 per ounce
unless it becomes absolutely necessary. Mr. Sproul said that ster-
ling was, at present, quite strong at $4.94 5/16. Mr. Seipmann
gave his opinion that sterling would go on toward $5.00 during the
next month or SO.
67411378
- cases
-
V \
Regraded Uclassified
TREASURY DEPARTMENT
213
INTER OFFICE COMMUNICATION
DATE April 28, 1937
TO
The Secretary
FROM
Mr. Taylor
George Harrison called shortly after two o'clock, after having
tried to reach you, and told us that the New York Federal Reserve Bank
had received a cable from the U.S.S.R. State Bank indicating their desire
to open an account. George told me that he would answer them along the
lines of looking with favor on meeting this request but stating that
there were certain formalities which must be complied with before positive
X affirmative action could be taken. He also said that in order to
expedite matters he would forward immediately the necessary papers from
this end in which the method of handling the account, the privileges of
the owner of the account, etc., were outlined. He was quite curious as
to what we had in mind with the Russians and stated that before any final
action was taken that it would be useful to know just what we had in mind
as it would then enable them to handle the account properly. I said
something along the lines of cooperating in the gold field and he appeared
alarmed that they might be taken into the Tri-partite agreement. I did
not do anything further to appease his curiosity but he appeared somewhat
shocked.
new.
Regraded Uclassified
,
TREASURY DEPARTMENT
214
INTER OFFICE COMMUNICATION
DATE April 27, 1937
To
Secretary Morgenthau
FROM
Mr. Taylor
Savings Bonds (sales by post offices) .$1,146,673.55..Total..$725,502,672.17
Savings Bonds (deposited Fed.Res.Bks) 126,543.75..Total. 53,954,062.50
$1,273,217.30
Regraded Uclassified
MG
AM
PLAIN
London
Dated April 28, 1937.
Rec'd 2:20 p.m.
Secretary of State,
Washington.
Rush 250, April 28, 7 p.m.
FOR TREASURY FROM BUTTER ORTH.
The trend of the London Stock Exchange reported in
my telegram of this forenoon was decidedly reversed in the
afternoon, the initial downward impetus is said to have come
from heavy sales from Paris of oil and gold mining shares
due to the approaching end of a paris Stock Exchange settle-
ment account. Prices fell away quickly as each series of
sales uncovered a new strata of vulnerable positions neces-
sitating further sales. As was the case on Monday there has
been considerable selling of American stocks by British
holders who are either in need of immediate cash or fear
that "the rot will spread across the Atlantic."
Rumors have also played a not inconsiderable part in
creating a panicky mental atmosphere. As mentioned yester-
day there is a recurrence of the rumor that some action may
be taken in the United States to affect the price of gold and
such is the state of nerves that even those who do not
credit
Regraded Uclassified
216
MG
Page 2,
#250 from London
credit such rumors will not act in the face ot them and
therefore at times today it was virtually impossible to
deal in gold mining shares. It is also rumored that at
least one of the unit fixed trusts is in difficulties
and that many stock exchange firms are shaky. As far as
can be ascertained it seems to be the case that definitely
three or four firms are in difficulties. It is also said
that if the present situation continues the stock exchange
may have to be closed for a few days; at the moment such
a suggestion seems entirely premature but the next few
days may be difficult inasmuch as selling must be concluded
by Friday for the account which terminates on May 6.
I had a word with the British Treasury which frankly
admits that they were surprised by today's events and
are "now waiting to see how the cat jumps".
BINGHAM
CSB
Q3V13038
TEGY is RCA
TROMINATED
140ml - VRUZABRT CHO -
Regraded Uclassified
217
April 28, 1937
9:30 group meeting;
Present: Mr. Magill
Mr. Oliphant
Mr. Taylor
Mr. Gaston
Mr. Gibbons
Miss Roche
Mr. Lochhead
Mr. Gibbons: Mr. Wolfe is all completed.
HM,Jr: What do I do with it? Fire the present Collector
and refer it to the U. S. District Attorney? Did Landy pay
Wolfe the money?
Mr. Gibbons: Oh, yes. We have cancellation checks and
Wolfe put nine-tenths of it in his personal account and de-
posited a few of them in the Committee's account.
HM,Jr: What do I do now?
Mr. Gibbons: Of course, that's a presidential appointment
and I guess you have to talk to the President.
HM,Jr: Mac, draw up a recommendation for me to recommend
to the President the dismissal of Landy and then take the
necessary steps to turn over the rest of the stuff to the
Department of Justice.
Taylor, whatever happened to the letter to Elmer Thomas?
Mr. Taylor: Harry White is working on it.
HM,Jr: You got anything, Mac?
Mr. McReynolds: Mrs. Klotz said you want to change the
form of letterhead we use -- didn't want -- there are two
letterheads used by the Secretary, one used by you in your
own personal office, Secretary of the Treasury; nobody else
uses that. The other is Office of the Secretary for all
mail that is prepared for your signature or signature of
Acting Secretary, but that same letterhead, Office of the
Regraded Uclassified
218
-2-
Secretary is used on all letters that I sign, Herbert
signs, George Haas signs, prepared throughout the Bureaus.
HM,Jr: What's the matter with Just having Treasury
Department?
Mr. McReynolds: We can.
HM,Jr: or having Treasury Department and, in your case,
up in the corner Administrative Assistant?
Mr. McReynolds: I have no objection either way.
HM,Jr: Why should George Haas sign letters on Office of
the Secretary?
Mr. McReynolds: Well, because George
HM,Jr: If you don't mind, it's entirely my own idea, I
would like to have it. No objection to having Treasury
Department and up in the corner, Mr. McReynolds, Adminis-
trative Assistant to the Secretary.
Mr. McReynolds: I have no objections.
HM,Jr: Or Mr. Gaston, Treasury Department, and up in
the corner, Assistant to the Secretary. But I don't want
any more letters Office of the Secretary or Secretary of
the Treasury except that go out under my signature.
Mr. McReynolds: Or Acting Secretary.
HM,Jr: The Acting Secretary would be under the Under-
Secretary or Assistant Secretary -- go out on his stationery.
Oliphant has it on as Office of General Counsel. He's got
it -- Office of the General Counsel.
Mr. McReynolds: I want to settle this. It's all settled
but one thing. You say nothing but your signature. The
greatbulkof mail prepared for your signature, which is signed
by either Taylor or Magill not as Undersecretary or Assistant
Secretary but 8.8 Acting Secretary, that ought to be on Secre-
tary's paper. Nobody knows, half the time, whether you are
to sign it or the other
HM,Jr: All right, we will make one exception. When it's
Acting Secretary of the Treasury, that person will use Office
Regraded Uclassified
219
-3-
of the Secretary.
Mr. McReynolds: And no more.
HM,Jr: And no more.
Mr. McReynolds: Settled!
HM,Jr: It's just a matter of
Mr. McReynolds: No objections to it.
HM,Jr: I think it's a very reasonable request. Everybody
else has his own stationery, but when the person signing 1s
Acting Secretary then he can use
Mr. McReynolds: Office of the Secretary.
HM,Jr: Then I think he would use my own stationery.
Mr. McReynolds: No. You mean eliminate Office of the
Secretary entirely? You have got now Secretary of the
Treasury and Office of the Secretary with special seal which
is used in your office only. Bulk of paper prepared for
Secretary's signature 1s prepared in the Bureaus. They have
none of that paper and should not have, but Office of the
Secretary they should have.
HM,Jr: If a man is signing a letter for my signature as
Acting Secretary, he can use Secretary of the Treasury's paper.
Let's have only one kind, Secretary of the Treasury, and then
the different people
Mr. McReynolds: Cut out Office of the Secretary entirely.
Mr. Oliphant: There has been some abuse of your signature
by forgers.
HM,Jr: Let's have only one kind of paper.
Mr. McReynolds: From now on we will use only one letter-
head for Secretary of the Treasury and we will limit that.
HM,Jr: (To Mrs. Klotz) You sign private secretary, acting
for me, you use that paper. But there are hundreds of letters
going out on Office of the Secretary. It's an Act of God that
something serious has not happened. One man told me once he
never had a visiting card because, he said, I never want to
220
-4-
have the chance of somebody stealing it and using it. It's
just a precaution, a hunch, with me. Mrs. Klotz can have
Office of the Secretary. She will use it at her discretion
and anybody signing as Acting Secretary will write it on
Office of the Secretary. Let's leave it that way. Any
other correspondence, anybody can have his own stationery
or
Mr. McReynolds: Or just Treasury Department.
HM,Jr: Does anybody see that it's unreasonable?
Mr. Gaston: I have no special stationery. I think Treas-
ury Department is sufficient.
HM,Jr: You (Lochhead) never write any letters.
Mr. Lochhead: I only talk.
HM,Jr: Miss Roche?
Miss Roche: We have regular Assistant Secretary letterhead.
HM,Jr: Gibbons?
Mr. Gibbons: Treasury Department and I sign Assistant
Secretary.
This is not just a whim. You never come in and spring
something Just out of the air.
HM,Jr: Anything else important like that?
Miss Roche: I have a memorandum on the 40hour week for
additional nurses for re-submission to the Budget Bureau to
take care of that situation.
HM,Jr: How many hours do they work?
Miss Roche: Fifty-six and some seventy-two; the average
is fifty-six. We want 148 more nurses.
HM,Jr: You go AB far as you can and if you can't get any-
where, let me know.
Mr. McReynolds: I insisted on referring it to the Budget
Regraded
Uclassified
221
-5-
and Budget turned it down.
HM,Jr: Let's try once more and if between now and Friday
noon you are not successful, let me know. Report at 9:30
Friday and if you can't do it, let me know and I will talk to
Bell at that time.
Miss Roche: Thank you, Sir.
HM,Jr: Would you between now and 2:30, Miss Roche, and Mac
and Berlew go over to this thing at the old Post Office and
let Berlew take a look at it. I thought I could do it today --
the dispensary.
Mrs. Klotz: It isn't fir for animals.
Mr. McReynolds: If you are going to call anybody, I would
call Ickes.
HM,Jr: Is 2:30 a good time?
Miss Roche: I think so. People go in around the noon
hour and it's horrible; just horrible.
(At this point, HM,Jr talked to Mr. Ickes and asked him to
lend someone. Mr. Ickes suggested Demarey and HM, Jr said that
anybody Ickes suggested would be O. K. HM,Jr. explained that
this was the first time he had appealed to Ickes on space.
HM,Jr: We will go over there at 2:30 tomorrow.
MacReynolds: Do you still want to go?
HM,Jr: Sure! Who is Demarey?
Mr. McReynolds: Demarey 18 Assistant Director of the Park
Service.
HM,Jr: I asked Ickes and let's go over. I thought Harold
might say he would go himself, but we will go over anyway. The
next time -- if it does not work this time, we will take a flock
of newspaper men with us.
Mr. Gibbons: Nothing else.
HM,Jr: We were on again with Bulkley this morning.
Regraded Uclassified
222
-6-
Mr. Gibbons: On Moore? What's the status? They have
never done anything.
HM,Jr: Never turned over a nickel.
Mr. Gibbons: Over a year now, isn't it?
Mr. Oliphant: Never turned over anything and has been taking
more.
Mr. Gibbons: How about the Customs men?
HM,Jr: All the same, but we are concentrating on Moore.
They took three more checks afterwards.
Mr. McReynolds: And didn't even turn them in.
Mr. Gibbons: Incidentally, the young man came in from John
Garner's that you told Kieley to send down to me. He is not
related to Garner. I talked to Garner.
HM,Jr: I did, too. I didn't tell Kieley to send him to
you. I didn't say anything. He's a faker.
Mr. Gibbons: I think the boy 1s a little bit crazy. He's
coming in to see me again and I am going to have Joe Murphy
get his application, He has made one out. To see where he
lives.
HM,Jr: All right.
Mr. Gibbons: But he has letters from the whole North Car-
olina delegation, showing that you can get letters from any
Senator or Congressman.
HM,Jr: Have you broke the news to Jim about
.....
Mr. Gibbons: about those fellows? Oh, I told him they
will be lucky if they are not indicted.
HM,Jr: What do you mean! I thought you were turning it
over to the Department of Justice.
Mr. Gibbons: I told Jim that they are not only out as far
as we are concerned, but they are luck if they are not indicted.
That's not our field. That's up to the Department of Justice.
But he knows that. He has known that for two weeks.
223
-7-
Mr. Gaston: I am willing to write an insurance policy
they won't be indicted.
HM,Jr: Why should we not send the President a summary of
Joe Wolfe?
Mr. Gibbons: Yes. As I say, it's an appointive position.
HM,Jr: The President asked me why don't I send him a
history of what Joe Wolfe has done.
Mr. McReynolds: That's what started this. He said he
wanted Joe Wolfe put back in.
HM,Jr: Why don't we turn it all over to the President and
let the President refer it to the Department of Justice?
Mr. Gibbons: Do you want to turn the whole file over to
him or prepare a resume?
HM,Jr: This 1s the information it is based on and then
it is up to the President to make what disposition he wants
of it. Why should I send it to the Department of Justice.
The President asked me how about Joe Wolfe? Now I am asking
him and I say, fire the Collector and here's the facts about
Joe Wolfe.
Mr. Gibbons: I don't say you should, but I suggest it be
referred to Department of Justice.
HM,Jr: It will be. Word came from the President that we
should make this appointment and I am turning it back and show-
ing why we can't make it end that we should fire the Collector
of Customs and it goes to the President and the President will,
of course, turn it over to the Department of Justice for prose-
cution.
Mr. Gibbons: You have a letter from Molly Dewson protesting
the displacement of some woman to make B. place for Landy. I
told her we did not make that kind of political choice in mak-
ing a woman a pawn.
HM,Jr: Anything else, Herbert?
Mr. Gaston: No.
Mr. Taylor: Nothing.
224
-8-
HM,Jr: You look tough today. What nails have you been
chewing?
Mr. Taylor: Just listening.
HM,Jr: I see.
Mr. Oliphant: According to the newspapers, the House and
Senate agreed on the Neutrality Bill, but we never heard from
the State Department about the questions we raised.
Mr. Taylor: I thought you did.
Mr. Oliphant: No; they never responded to that letter.
HM,Jr: What happened?
Mr. Taylor: The last I got was that it was being given
very active consideration, but they didn't have the answer
to it.
HM,Jr: Would you mind writing a letter, for my signature,
something like this: My dear Mr. Hull: Would you mind doing
me the courtesy of giving me an answer to such and such a letter?
I will sign it tomorrow morning and shoot it over. Please.
Mr. Taylor: Yes,
HM,Jr: You might also include about the English note some-
thing like this: Possibly you would like to tell the English
that there will be no answer from the Treasury Department, but
if any answer is made it will come from the State Department.
Mr. Taylor: They have already been told that. The British
have already been told that.
HM,Jr: But let's put it in writing. Let's tell Hull we
are going to do it, Think it over. You have until tomorrow
morning.
Herbert, incidentally, I asked you to get the article in
the New Republic -- the one Mr. Hull 18 sputtering about. I
got this week's -- something about the Federal Reserve and the
Treasury.
Mr. Gaston: I will get that today. Yes, that's right; you
did ask me to get it.
225
-9-
HM,Jr: Hull was sputtering about some article in New
Republic, but this fellow evidently wrote something a couple
of weeks ago that annoyed Mr. Hull. I guess he has never
heard of a paper called The Masses.
You all right, Herman (Oliphant)?
Mr. Oliphant: Yes. Mr. Alley was in to see me yesterday.
He's representing the Independent Cooper Fabricators.
Mr. Magill: Which Alley?
HM Jr: Has he got an office in New York.
Mr. Oliphant: General Cable Company. He was in on the
copper tax and pointed out there 18 very great controversy in
copper.
HM,Jr: Do you mind getting the name of this Alley to Irey?
Because there 18 another Alley that I am interested in. Send
him a little memo that this man was in and what he represents.
Mr. Oliphant: Yes, sir.
HM,Jr: In the office I have to tell you B terribly funny
story. Senator Ashurst comes in and says: I want to get
this thing straight, He said, I went in to see the President
four the four-cent tariff -- this 18 very much in the room --
on copper and he says, When I left, the President said -- oh,
it was the other one, Hayden; Carl Hayden -- the President
said, I just want you to know there 18 nothing doing; Just
forget about it. We are going to extend all these miscellane-
ous taxes. Just forget about it, Carl. So he says, As I went
out of the office, you and Bell went in. Well, next day,
Congressman so-and-so was down to 800 the President about this
copper thing and the President said, Well, I don't know. Mor-
genthau and Bell have been kind of protesting about this tax
on copper. Now, Carl says, I want to know which statement
is right. So I said, Senator, you are not asking me to repeat
& conversation between the President, Mr. Bell and myself, are
you? Oh, no! no! no! So he said, I wouldn't think of doing
that, but I Just wondered which statement was correct. So I
said, Well, I will tell you, Senator. I will tell you this:
I told the President if you want these taxes extended, the
only way to do it 18 en masse; not separate them. I said,
If there is any change or idea of dropping it, I will give
you my word I will let you know. Yesterday he came in and
226
-10-
I warn you, unless you want to have another White House-Pat
Harrison incident, be terribly careful not to make any com-
mitments, What our instructions were, were if we could do
it without a rumpus, was to drop it. Those were our instruc-
tions. And I would take it that a rumpus being in the offing,
we will not drop it.
Mr. Taylor: I gather that the Independents would welcome
that.
HM,Jr: So I just had better watch my p's and q'e and think
we had better get re-instructed,
Mr. Oliphant: The man who 18 very much interested is John
McCarthy because of his interest in the monopoly price situa-
tion.
HM,Jr: The other man is General Hugh Johnson. He's per-
fectly open about it. He's here to get the four cents dropped.
He's retained by American Smelting.
Mr. Oliphant: They have lots of foreign properties.
HM,Jr: I am not going to get in on it. But certainly
between the Hill and the Treasury, our word 18 the most 1m-
portant thing. If there are going to be any monkey-shines
about it, I don't want to have anything to do with it.
Mr. Oliphant: Alley would bear watching because he said
Johnson had seen me and I immediately had him come over with
Johnson, He said he had not seen me, but Hugh Johnson had
written a letter to Doughton quoting me and I asked to see
that letter.
HM,Jr: It's one of these things. We had better keep out,
all of us.
Mr. Oliphant: He told my man Johnson in Customs that he
had seen me and I approved it.
HM,Jr: Carl Hayden goes in one day and he gets one im-
pression and the next day two congressmen go in and the Pres-
ident says Morgenthau and Bell want this thing dropped. We
never mentioned it. Never discussed it. Only thing was,
a couple of months ago we were told if we could drop it without
any fuss, let it drop, but if there was any fuss, not to do
anything with it.
227
-11-
Mr. Oliphant: He once asked if it could be done with
trade agreements and we found it could not.
The only thing worse would be to get into the sugarthing.
Most terribly funny thing -- at Cabinet, Henry Wallace, talk-
ing about sugar: Now the State Department doesn't like it;
War and Navy don't like it; Interior does not like it, etc.
finally, I don't know how many other Departments he mentioned,
but finally Henry said, I have not had a chance to talk with
the Treasury about. The President said, The Treasury has no
objections. I Just howled! Now, I said, Wait a minute. Do
I understand this is money coming in or money going out,
"Money coming in." All right. He was BQ fed up that he said,
Treasury has no objections. He was a scream!
Mr. Magill: I went over to the State Department this morn-
1ng to talk to Secretary Hull about Canadian tax treaty. The
Secretary is in very much of a dilemma about it because in con-
nection with British trade agreements, his argument with Great
Britain is we don't give preferences to anybody else; we put
everybody on the same basis. On the other hand, he also has
to have the good will of Canada . What he really wants to
know from us was whether or not we would be willing to offer
to the nations of the world similar concessions on the same
basis; that 18, 5% withholding rate for other non-resident
aliens if those countries will give our nationals 8 5% rate
and if the countries will also agree to give us all this in-
formation and help us enforce our taxes, which Canada agrees
to do. I reminded him of Mr. Ecoles and Jim Landis on the
subject of the flow of foreign gold and the desire to increase
the holding rate rather than reduce it, and that's about where
it was left. Apparently, the chances are that if we offered
such an arrangement to other countries there would be very
few would want to accept it. I think very likely the Nether-
lands would.
HM,Jr: You haven't made up your mind?
Mr. Magill: No. I want to think about it & couple of days.
It seems to me that as far as I can see at the moment, it is
purely the State Department's problem. They are in B. dilemma.
They got themselves in it. All right, get out. We are per-
fectly contented.
HM,Jr: Well, I will see you all tomorrow.
Regraded Uclassified
228
April 28, 1937.
11:08 a.m.
H.M.Jr:
Hello
Operator: Mr. Sultzberger
H.M.Jr:
Hello
S:
Hello Henry.
H.M.Jr:
How are you?
S:
I'm fine. How is yourself?
H.M.Jr:
I'm very well.
S:
Good.
H.M.Jr:
I got great pleasure in reading your leading editorial
to-day.
S:
Well I'm very glad you did because it certainly is
very deserved.
H.M.Jr:
And I thought I'd call up and say, "Thank you".
S:
Well that's very nice of you. I'm anxious to see you.
We got in just a week ago.
H.M.Jr: Yes.
S:
And I've been pretty well snowed under since then as
you can imagine.
H.M.Jr:
I should think so.
S :
But I'm gradually poking my head out. Are you going
to be up this way at all?
H.M.Jr:
Well we're going to be at the farm next week - all
week.
S:
Ah-ha.
H.M.Jr:
Ah - if you have any inclination to run up there
some evening I'd love to have you.
1.
- 2 -
229
S:
Well that might be lots of - very nice to do.
H.M.Jr: Ah -
S:
Ah - you're going up over the week-end.
H.M.Jr: Yes we're going to go up - be up there Saturday and
I'm going to stay there a full week.
S:
I see. Well I'll talk with Ephie about that.
H.M.Jr:
Supposing you do and if you - if you could - would
care to come up with Ephigeme and spending an evening
and night with us we'd love it.
S:
All right, well that's fine because I'd very much like
to talk with you.
H.M.Jr: Fine. I - I hear that you and Roger don't agree on
Palestine.
S:
No I don't think we do. I must say that it drove me
very far afield but I don't know that Roger was so very
much taken in by it.
H.M.Jr:
Ah-ha.
S:
But I certainly wasn't.
H.M.Jr:
Well -
S:
I had a long talk with your father about it the other
day.
H.M.Jr:
Did you?
S:
Yes.
H.M.Jr:
I didn't know that.
S:
He was in for luncheon.
H.M.Jr:
Well - ah - our number up there is Beacon 211.
S:
Right.
H.M.Jr:
And if - if you - ah - can - will you give me a
ring?
Regraded Uclassified
&
230
- 3 -
H.M.Jr: And we'll see if we can arrange it.
S:
Fine.
H.M.Jr:
All right, Arthur.
S:
All right, Henry, many thanks for the call. Give
my love to Ellie.
H.M.Jr:
Thank you.
S:
Goodbye.
Regraded Jclassified
231
April 28, 1937.
11:11 a.m.
Outside
Operator: Hello - hello
H.M.Jr: Yes.
0.0:
Secretary Morgan?
H.M.Jr;
Yes.
0;
Hello Dr. Anderson. Oh she must have disconnected.
0.0;
Hello - ah - put your
(long pause)
H.M.Jr:
Hello
0:
Dr. Anderson's on the line. He says he can talk to
Mrs. Klotz.
H.M.Jr:
He can.
0:
Yes. It isn't necessary to talk to you.
H.M.Jr:
Allright.
Klotz:
Hello
0:
Go ahead
K:
Hello
Dr.
Andersoh: Hello - Mr. Morgenthau's - Secretary Morgenthau's
Secretary?
K:
Yes.
A:
This is Dr. B M. Anderson of the Chase National Bank
in New York.
K:
Yes Dr. Anderson.
A:
I'm going with Mr. Aldrich to Europe on the Breman
sailing - sailing late Thursday night, May 4th
K:
Yes.
232
- 2 -
A:
And I want to have a talk with Secretary Morgenthau
and also with Secretary Hull before I go.
K:
I see.
A:
Now Secretary Hull gives me either Thursday afternoon
or Monday afternoon.
K:
Of next week?
A.
Monday of next week or Thursday of this week - - tomorrow
or Monday.
K:
I see.
A.
And could you arrange for me to see Secretary Morgenthau
either on Monday or on tomorrow?
K:
Well I - - I'll have to call you back Dr. Anderson. Look
up my schedule and see what appointments I have for
tomorrow and for Monday
A:
Yes.
K:
and I'll let you know.
A:
Now then will you be good enough to use our private
wire in the Washington Loan and Trust?
K:
Washington Loan and Trust.
A:
If you call them.
K:
Yes.
A:
...
.they will put you through to me.
K:
Oh I - I - - I'll call you directly. I don't mind.
A:
Will you also switch me back to Mr. McBride in
Secretary Hull's office?
K:
I'll be glad to give you the operator.
A:
Thank you.
0;
Hello
A:
Hello.
233
- 3 -
K:
Dr. Anderson wants to talk to you.
0:
All right.
234
April 28, 1937
3:15 P. m.
Present:
Mrs. Klotz
Mr. Oliphant
Mr. McReynolds
Mr. Manning
Mr. Helvering
HM,Jr: Mac, have you got the letters -- the exchange
of letters between Moore and myself? Have you got those?
Mr. McReynolds: Isn't that in that file of yours?
(Mr. McReynolds examined the file.) Here's a letter from
Moore of January 7: "I have your letter of the 2nd inst.
and assure you that I will comply with the terms of my
letter to you of December 18, 1935," and the one to Moore,
of January 2nd, is here and the one from Moore of December
16th, and one to Moore of October 1.
Mr. Manning: And the letter from Abbott to the Secre-
tary of December 20th.
Mr. McReynolds: One from Moore of September 19th and
one to Moore of September 12th. There are four letters
from and to Moore.
HM,Jr: What I want is, can I have the last letter that
I wrote to Moore? What's the date of it?
Mr. Manning: January 2, I would say, 1936. "I have
your letter of December 16, 1935, in reply to mine of No-
vember 29, which I take to be an undertaking on your part
and in behalf of your family to dispose forthwith of all
interest in Famous Brands Ohio, Inc., and to turn over to
it all dividends, payments and profits which are the result
of your respective connections with that company or its
predecessor syndicate. Upon that assumption, I have written
to Famous Brands Ohio, Inc., a letter, copy of which I enclose."
Here's an answer to this, on January 7, saying ne will under-
take to comply.
HM,Jr: Where is the one of the 16th?
235
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Mr. McReynolds: And there 18 another letter from you
to him and another from him to you.
HM,Jr: All right. December 16th 18 the cut-off line.
When was that subsequent order issued to Treasury officials
telling them they could not deal in stocks?
Mr. Oliphant: February 15, 1936.
HM,Jr: What does it say? Roughly, what did it say?
Mr. Oliphant: "No officer or employee of the Department
shall directly or indirectly have any interest -- I am skip-
ping -- in any business, the whole or any substantial part
of which consists of the production, sale or distribution
commercially of distilled spirits, wine or fermented malt
liquor.'
HM,Jr: Anything about his family?
Mr. Oliphant: "directly or indirectly".
HM,Jr: You see, what I am doing, I spoke to Oliphant
last night. We have been through this Bulkley business.
I don't want to get into an argument with him, but when I
call his attention to Moore's letter "when and as I am able
to do 80", then immediately Bulkley will say he has not been
able to do 80. If I can get it away from that and say that
after February 15th this boy continued to accept it, then he
has broken the rule of February 15th and everything else is
overboard.
Mr. Manning; of course, that means new charges, Mr. Sec-
retary.
HM,Jr: True. But I think I am on much safer ground,
because Bulkley will argue, all right.
Mr. Manning: Mr. Secretary, pardon me, he agreed to 8
"reasonable time".
Mr. McReynolds: And I have a record that none of the
three made any effort whatever for a full year, although they
sold the stock.
HM,Jr: I am Just asking. I am wondering which 16 the
236
-3-
better case to put it on.
Mr. McReynolds: They got additional dividends and they
sold their stock and got money for it and they did not turn
any of that in. All of that happened after they agreed to
make restitution. I think that's the strongest case.
HM,Jr: Dr. Wells is Mrs. Moore's father, isn't he?
Mr. McReynolds: Yes.
HM,Jr: And he received dividends April 30th, June 29th,
September 28th and November 30th -- all subsequent to Febru-
ary 15th.
Mr. McReynolds: Checks were turned over to her and de-
posited in her account.
HM,Jr: So subsequent to the order of February 15th,
his wife accepted four checks, 80 even if everything else --
that's the point I am trying to get. So let me Just review
this thing.
We asked him to do this. He said he would "within B.
reasonable time". A reasonable time 16 from December --
use January, 1936 -- to now is certainly a reasonable time.
He did not comply with that and on top of that they took
four dividend checks which were deposited in his wife's ao-
count, all subsequent to February 15th.
Now, what I say 18 anybody that does that after all that
we have gone through, if he can't give an explanation this 18
what I am going to say. Then when the President returns I
am going to ask him to dismiss him. This 18 the way I will
put it.
To refresh my memory, Just what did Bulkley say he would
do in helping me?
Mr. Oliphant: This 18 what he said: On December 6,1935
Senator Bulkley wrote you that he had secured the consent of
all concerned to the following set-up: (I have that letter
here) "Without further insistence upon & general regulation,
Moore will divest himself of all profits by returning them
to the Companym and the Company will accept them only with
the condition that they be turned over to public charity as
fast as received."
237
He further states in his letter; "I can assure you that
if you will give me your approval of the settlement herein
suggested the letters from Moore and the Company, which would
be necessary to consummate it, will be worded in & friendly
and respectful manner."
Then, when you got that letter, you asked him to come
down to see you on December 13, 1935. That was by telephone.
You called Senator Bulkley and told him that you had decided
to accept the offer made in his letter of December 6th. Sen-
ator Bulkley, in replying, said he was glad the matter was all
set and told you he would be glad to have Moore write B. letter
which would be pleasing to the Secretary.
HM,Jr: Ien't the thing for me to do to take the attitude:
I am sure, Senator, you will be just as much shocked as I am
to find out that the Collector never has made any effort to
do this? I am sure you will be Just as shocked. I can
start that way, You and I did everything we could to get
this fellow to do it. Not only has he let you down and he
has let me down. What can I do under the circumstances?'
That's the way I am going to approach it. 'I am sure you
will be Just as shocked as I am that this man has let you
down and let me down and let his country down.
Mr. Oliphant: Has let you down in your dealings with me.
HM,Jr: Yes.
Mr. McReynolds: The strength of any argument he might
have that he was not able to make restitution falls when you
find him accepting additional checks and not turning them
over eve, although they all got $72,000 additional after this
thing came up.
(Mr. Helvering came in at this point.)
HM,Jr: Guy, I am just going to school on your Collector
Moore. And Senator Bulkley 18 coming in. And this is what
we have found. In going over the correspondence I find that
he wrote me -- an interchange of letters in December 1935 and
January 1936 -- that he would give us back this money. Now
he has not given us back any of the money. Senator Bulkley
wrote me letters saying he would assist me to see that this
thing was carried out. On February 15th you got out an order
(in 1936) telling them that nobody working for you could do
238
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this. Notwithstanding that, Moore's wife transferred her
stock to her father, after February 15th
Mr. Oliphant
who was living in the house with her
HM,Jr: This fellow, Dr. Wells, receives four checks from
this company, which he endorses to Mrs. Moore and deposits in
her account after your February 15th letter.
What I thought I would do, when Bulkley comes in, I will
say, 'Now, Senator, I am sure you are going to be just as
much shocked as I am that Collector Moore has let you down
in your dealings with me, because he not only did not live
up to the agreement, but he subsequently -- subsequently his
wife accepted four dividend checks from Famous Brands Company.
What are you going to do about 1t?'
Mr. Helvering: As I understood, he agreed to talk to
Moore for the purpose of getting this thing adjusted. I did
not know -- but as I recall, wasn't he to pay that into some
organization?
Mr. McReynolds: Pay into Famous Brands. And we had them
check last February, after Famous Brands had been dissolved --
last December; a year later not one cent, by any of the three
of them, was turned into Famous Brands during that time, but
instead of that, they accepted three additional dividend
checks, all of them, which they did not even turn in.
HM,Jr: Now 1sn't that the right way to approach it? The
reason I want you here, Guy, first, I am taking the responsi-
bility, but on reading the law when it comes to suepending 8.
man or taking any action, you have to do it. You take the
action and recommend to me if he is diemissed by the President,
but in looking up the law the original action, I think, you
have to take. The thing has to clear from you to me to the
President, but you have to act. I am seeing him, but I don't
want to go all through the thing and then they try to have
Bulkley play you against me or vice versa, but I think the
whole thing, when you get down to a summary, you have to recom-
mend to me that he be dismissed.
Mr. Helvering: I did not know that I had authority to
suspend a Presidential appointee.
HM,Jr: You do if you charge him with fraud and you recom-
mend to me that he be suspended.
239
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Mr. Helvering: In order not to get into & hole, Senator
Bulkley saw me at the inception of this and wanted to talk
to me about it and I told him that I was going to recommend
that Moore had to get rid of all that stock, etc., etc.,
and that we were going to severely reprimand him. I told
him that would be my recommendation. Now you went further
than that and Bulkley knows about that. My recommendation
that came over was after we had the talk with Mr. Opper and
I Just want you to read this, BO you will understand this
was all before we had the hearings and when it first came up.
HM,Jr: This is September 11, 1935. "Recommendations
have heretofore been made to you for the separation from
the service of Bert C. Brown, Secret Service; C. W. Pollock,
Customs; and E. W. Barber, Customs. In these recommenda-
tions I agree.
"In the cases of William G. Harper, Secret Service, and
C. E. Moore, Collector of Internal Revenue, it would seem
that & dismissal from the service would result in punishment
disproportionate to the offense charged for the following
reason: ****
"I recommend that these employees be required to dispose
of any and all interest they may hold either directly or in-
directly in Famous Brands, Inc., and that they be severely
reprimanded for their indiscretion."
That's all right.
Mr. Helvering: I did not want Bulkley to turn to me and
say, 'You never agreed to this'.
HM,Jr: I am glad tohave it. Then I write this letter
and Bulkley writes me saying that he will see that this fel-
low carries this out -- that he dispose of his stock -- which
he has not done. That's breach number one. Breach number
two: you issue the order of February 15th, the new order which
Bulkley saw and approved.
Mr. Oliphant: No record of that. He recommended that
we get one out.
HM,Jr: As I remember, he saw the order of February 15th.
Well, anyway, let's wash up everything and just let's get
what happened after February 15th. If I take nothing, if
240
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everything else is off, we can start from the time that
Moore says to me in 8. letter that he will dispose of his
stock, his interest, and that he will give the money back.
Then from there on we are together.
Mr. Helvering: We were together after the meeting
over here.
HM,Jr: He does not do that. That's breach number one.
Well, he might argue that he said he would doit when he has
time, All right. Well, throw that out, but, on February
15th, you send 8. strict letter and subsequent to that his
wife receives his dividends. She goes through a phony trans-
action of giving this stock to her father and then he receives
four dividend checks, which the fellow redeposits in ....
Mr. Helvering: He just endorses and gives them to Mrs.
Moore.
HM,Jr: Sure. The kind of fellow that will do that is
he any good to catch an income tax evader? I will tell you
how I feel, Guy, on this thing. I am in this particular
state and frame of mind that I am not going to argue very
much with anybody these days. This fellow, in my opinion,
16 not fit to be a Collector of Internal Revenue. The
President asked me to first talk to Bulkley. I an going
to be very calm and say that these are the facts. I am
simply going to say, 'Unless, Senator, there is something
that I don't know, I am simply going to tell the President
when he comes back that this man, if he does not resign be-
tween now and the 15th of May, I am going to recommend -- I
may say that Mr. Helvering and I recommend that the President
discharge him.' All right?
Mr. Helvering: Yes.
HM,Jr: If Mr. Moore does not resign before the President
returns, Mr. Helvering and I will recommend to the President
that the President discharge him. Tell me if you have any
doubts.
Mr. Helvering: I Just don't see where I get into 8
Presidential appointee.
HM,Jr: You have to recommend it, under the law.
Mr. Helvering: I suspend them; yes. I always send
241
-8-
over recommendations on suspensions.
HM,Jr: Maybe my language is not correctly legal.
Mr. Helvering: What I would like for you to say 18, here
is a man who had a fair agreement, both with the Commissioner
and you. He has not done it and neither of us think he should
stay in the service,
HM,Jr: I will put it another way: in view of these facts,
if these facts are correct, what do you recommend to me to do
to Moore?
Mr. Helvering: I would join in a recommendation -- I would
say that he has not carried out the agreement he absolutely made
and the fellow who would not carry out his agreement with the
Government he is working for, I don't think ought to be in office.
HM,Jr: That's the way you feel?
Mr. Helvering: Yes.
HM,Jr: Technically, as to who 16 to tell him, I am not
going to argue with you. If it 18 up to me to recommend his
dismissal, I will. But, under the circumstances, let's say
it's your obligation to say whether he's to be suspended or not.
In view of this thing, what would you do?
Mr. Helvering: I would recommend dismissal because he has
not carried out his agreement.
HM,Jr: You will recommend dismissal unless something new
16 disclosed?
Mr. Helvering: Yes. This fellow, by subterfuge, tried
to avoid doing what he decided to do.
HM,Jr: When you suspend, what happens?
Mr. Helvering: The cause of suspension 18 further investi-
gation.
Mr. Oliphant: In case of suspension of a collector, under
the power conferred in this section, The Commissioner shall as
soon thereafter as practicable report the case to thePresident
through the Secretary for such action as he may deem proper.
242
-9-
HM,Jr: The first step 16 suspension?
Mr. Helvering: Yes.
HM,Jr: That has to come from you?
Mr. Helvering: Yes.
HM,Jr: What I say to you now, in this room, in view of
what we have here, do you feel that the case 1s sufficiently
serious that the man should be suspended?
Mr. Helvering: Yes, sir. I don't think there is any
question about that.
HM,Jr: All right. Then should we give this fellow a
chance or should we Just go ahead and recommend his suspension?
Mr. Helvering: Well, we have had subsequent investigation
and found all these new facts. The purpose of suspension is
to investigate the matter further.
HM,Jr: What do you think I should say to Bulkley, because
I don't want to trade with him. Should I tell him we are go-
ing to suspend him?
Mr. Helvering: Of course, that will Just continue the
fight -- the argument -- because the purpose of suspension is
to have a hearing, an investigation on it.
HM,Jr: Well, in view of that, what would you say?
Mr. Helvering: I don't know, but what we had better say,
straight out, what you said & while ago,
HM,Jr: That was my feeling. We would simply say this
man has not kept faith with you, with the Commissioner or with
me or his country. Now, unless there 18 something which we
don't know about, on the return of the President I am going to
recommend to the President that the President dismiss him ...
Mr. Oliphant: ..unless he resigns.
HM,Jr: ... unless he resigns. But the deadline 18 the
10th of May, BO we will make it before the President comes
back. If I don't have his resignation before the President
returns, then on the President's return I am going to recommend
his dismissal.
243
-10-
Mr. Oliphant: Of course, you may not need to say that
at all when you say, 'He has let you down in your dealings
with me'.
HM,Jr: I vill bet you one dollar to a quarter that he
doesn't.
Mr. Helvering: I think Bulkley will fight to keep him in.
Mr. Manning: He was ready to quit towards the end of
this. Bulkley was ready to throw up his sponge, as indicated
in his telephone conversation with you.
Mr. Oliphant: He indicated he was through. I would give
him plenty of chance this morning. He got pretty tired of
Moore.
HM,Jr: How many people ought to be here with Bulkley?
Mac, were you in on those conferences with me?
Mr. McReynolds: I was in once when Bulkley was here.
I think it would be better if just you and Helvering and Oliphant
were here.
HM,Jr: I think 80.
Mr. McReynolds: He doesn't want the whole staff.
HM,Jr: I am not going to take any notes? Don't you think
80?
Mr. Helvering: Yes.
HM,Jr: Are you and I together?
Mr. Helvering: Absolutely.
HM,Jr: Am I being fair?
Mr. Helvering: I think you are giving this fellow every
opportunity to do what he can.
HM,Jr: As a matter of fact, I don't know when I have given
him as much opportunity.
Mr. Oliphant: Why don't you and the Commissioner see him?
And then call me in if you need me.
244
-11-
MM,Jr: I think that would be better.
Mr. Oliphant: A better chance for Bulkley to come through
with just you and the Commission than with any of the rest of
us here.
HM,Jr: I have all the letters here? Where 16 the order of
February 15th?
Mr. Oliphant: I think the other important thing is Bulkley's
letter to you where he makes the proposal to you which you de-
cide toaccept.
Mr. Helvering: That's the proposal where he says he will
pay it to charitable institutions.
Mr. Oliphant: Yes.
o0o-o0o
245
April 28, 1937
Present: Mr. Oliphant
Mr. Helvering
Mr. McReynolds
HM,Jr: Mr. Helvering and I 82% Senator Bulkley, pre-
sented the facts to him, told him that we were sure that
he would be Just as much shocked as we were and he said,
But Moore has assured me that he has given money to charity!
So I said, I don't know anything about that, but we have a
statement from Mr. Abbott that he has not given any money
to the Famous Brands company, which was part of the agree-
ment suggested by the Senator. The Senator said that he
had no recollection of that; that he inquired of Moore if
he was paying back the money and Moore assured him he had
given a portion of the amount to charity. I read Senator
Bulkley his own letter in which he stated that the money
should be given back to Famous Brands and he said that that
had entirely slipped his memory. I then went over the
various letters showing him that Moore had agreed to give
it back to Famous Brands and the statement from Famous
Brands that they had not received any of this money.
Then went into the second phase: that after our in-
structions of February 15, 1936, that Mrs. Moore's father
received four checks, three of which were deposited to her
account, which was in violation of our orders of February
15th. Senator Bulkley said that this phase of the trans-
action was Just unbelievable to him.
I then started twice to say to him what I would do if
there was not some kind of an explanation and Senator
Bulkley begged me not to say what I would do until he had
a chance to inquire. Inasmuch as his whole attitude was
that of a man who was stunned by the information, I saw no
reason to change my attitude, which was, namely: that I
also was shocked and I said, two or three times, "Senator,
Moore has let you down."
During the course of the conversation, Mr. Helvering
backed me up.
The Senator asked Mr. Helvering if he had examined
the 1936 returns of either Mr. or Mrs. Moore and he said
he had not and the Senator suggested that he do Bo; that
246
-2-
there might be some explanation in the returns. Mr. Helver-
ing said he would, but he did not think he would find anything
because the checks had been deposited to the account of Mrs.
Moore. I suggested he also examine the 1934 and 1935 returns
for both Mr. and Mrs. Moore and Mrs. Moore's father, Helver-
ing said "It is notning but a wash sale."
I then asked the Senator if he would give me some answer
within a reasonable time, emphasizing the word "reasonable"
and he assured me he would.
He gave me the impression of sincerity and that he really
seemed quite stunned and upset over the second phase.
Note: After the Secretary dictated the above statement,
the following general discussion took place:
Mr. Helvering: The only thought 1e, you will be away
over next week. That runs us up to May 10th.
HM,Jr: Well, if he calls up, do you want to see him?
Mr. Helvering: No.
HM,Jr: I will talk to him when I get back Monday a week.
And if I see him Monday week that 18 still before the Presi-
dent gets back. He won't call me anyhow.
Mr. McReynolds: I hate to let the other cases go in-
definitely, but I am still of the opinion that .....
HM,Jr: I don't think, Mac, I would move on the other
thing because I can't fire a Secret Service man without
firing Moore.
Mr. McReynolds: No, I don't think BO,
HM,Jr: As long as he takes such & quiet attitude about
it, I can take the same. Now, if he fights me, I told him
8. couple of times -- I said, I can't go into this thing again.
Bulkley said, well, he had given the thing much more time than
it deserved. I said, 'I just can't go into it again.' There
may be some explanation, but I can't imagine what possible ex-
planation there may be. And I am not going to get excited
about it the way I did last time. And if he argues with me
247
-3-
I don't know what he can say. The man did not return the
money to the Company as they agreed to, and then the wife
subsequently -- now, they may try to say that the father
really owed the daughter.
Mr. Helvering: The daughter owed the father, and as &
result she transferred this stook to her father to pay that
indebtedness and he further claims that endorsing dividends
to her 16 further advancement to her after she had paid it
back. The father's statement in the report was that when
ne endorsed checks over to her it was further advancement
to her, as he had been making before.
HM,Jr: He helped her buy the house. He would have to
show some record that she bought the house and he advanced
the money. Why not beat the gun and send someone out there
and ask them to show evidence that he advanced money to her.
How much money does she still owe him?
Mr. Helvering: He states he advanced, one time, $3,000;
another, $1,000; and another, $450.00, and he took this
stock for those advancements and then when the investigator
asked him why he endorsed the dividends, he stated it was
further advancement along the same lines.
HM,Jr: Why not have Irey telephone and have someone on
the spot quick and make the father produce the evidence that
he loaned this money to the daughter?
Mr. Oliphant: or, better still, find out what disposi-
tion the daughter made of the money -- whether or not it was
for the house. That might be a matter of public record.
Mr. Helvering: My reaction was that if the Senator found
out that this was true, he wasn't going to have muchmore
patience.
HM,Jr: I am sorry, Guy, I don't agree with you. But
will you take & suggestion from me? You go back to your
office and you have Irey get a man to Cleveland Just as fast
as he can and make the father and the wife show evidence,
first, of purchase of the house and what money the father
did advance to her, whether in check or cash, through the
whole transaction, because you will find they will try to
build a case there. And get a man out there as fast 88 you
can.
248
Mr. Helvering: You are convinced that Bulkley is going
stay with him anyhow?
HM,Jr: Absolutely!
Mr. Helvering: That was my impression before we went
into this meeting.
HM,Jr: He's quiet now because he thinks he's licked,
but if he thinks he has a peg to hang it on he will get
very determined about it. But if you don't mind, go
back and get Irey to send somebody immediately and go into
the transaction of the purchase of the house and the question
of the affidavits to show that the father loaned the daughter
the money. In whose name is the title to the house?
Mr. Oliphant: Yes; I would like him to start there.
Stay away from the father. Find out who owns the house.
Who owns the mortgage. And then in the process of investi-
gating their returns, go to the bank and get a list of her
payments against the purchase of the house, before you go
to him.
HM,Jr: But go back to the date of the purchase of the
house and see who bought it. I think we could go to the
bank and see all of her checks and all of her father's checks
and his checks.
Mr. Oliphant:
...
if their income tax returns are under
investigation.
HM,Jr: I would go back as far as necessary. Take my
word for it: if he can get something to prove he did lend
the money, he will begin to fight, but if he thinks he is
licked, he will continue to act as he did.
Mr. Oliphant: And it will make a lot of difference if
they find that this Federal agent is in the bank.
HM,Jr: And I would take it up just 8.8 soon as you get
back to your office.
Mr. Helvering: I will.
HM,Jr: It would be amusing if we found that Moore bought
the house and paid for it!
000-000
OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
249
WASHINGTON, Dic.
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
FE 794.00/118
April 28, 1937
The Secretary of State presents his compliments to
the Honorable the Secretary of the Treasury and referring
to a communication dated March 12, 1937, and to subsequent
communications to the Secretary of the Treasury in regard
to recent statements made in the Japanese Diet by the
Japanese Minister for Foreign Affairs encloses for the
information of the Secretary of the Treasury a copy of
despatch No. 2340 of April 1, 1937, from the American
Ambassador at Tokyo which contains information in regard
to the same subject.
Enclosure:
From Embassy Tokyo No. 2340,
April 1, 1937.
or
My
Department of State
BUREAU
FE
DIVISION
ENCLOSURE
TO
Letter drafted
ADDRESSED TO
Treasury
U.S. GOVERNMENT PRINTING OFFICE
1-1088
envoir
18
of BESIG
250
No. 2340.
Tokyo, April 10 1937
SUBJECT: FOREIGN POLICIES OF MR. MAOTAKE GATO, MINISTER
FOR FORSIGN AFFAIRS.
The Honorable
The Secretary of State,
Washington.
Sir:
with reference to the Embassy's despatek No. 2318,
dated March 20, 1937, and to the Embassy's telegram No.
95, March 24, 2 Pello, in regard to the foreign policies
of Mr. Nootake Date, recently appointed Minister for
Foreign Affairs in the Heyashi Cabines, I have the
1/
honer to enclose herewith a elipping from the JAPAN
ADVERTISER of March se, 1937, containing the inter-
pellations and replies which formed the besis of the
telegram under reforence. The Mubesay has been unable
to obtain the stenegraphic recerd of the interpellations
- 2 -
257
and Mr. Beto's replies thereto because the inter-
polletions were made at a session of the Budget
Committee of the Lower House and stenographie
records of such committee sessions are not publi-
shed. The Embessy, however, has compared the LITO-
TISER translation (apparently made from the Doned
report of the interpellations) with the Jepanese
version as published in several of the vernagular
newspapers, end has found that the ADVERTISER translation
conveys the sense of the Japanese version of the inter-
pollations and the replies Pensonably correctly. There
being no authoritative Japanese text, the Embassy
has been unable to prepare en axast translation.
A large part of the interpollations were son-
cerned with the question of Sino-Japanese relations.
In reply to the various interpellations Mr. Date in-
diented that the policy of the present Cabinet in this
regard cime at economic and cultural cooperation before
political negotiations are undertakem. Mr. Sate added
that this policy is gradually being understood by china
and that it need not be feared that China will take
advantage of this policy to injure Japan. In reply
to an interpelletion concerning the Debinet's inten-
tions touching negotiations regarding North, Central
and South chima, Dr. Sate said that as there are special
and peoulier circumstances in North Chine, special
accoures are required in dealing with that region, and
that 10 the circumstances naturally differ in Central
ml
Regraded Uclassified
252
- 3 -
and South China, it will be necessary to take different
steps in regard to those regions (Embersy's translation).
Mr. Rate also said that it is the desire of Japan so give
off much aid as possible in connection with China's five-
year economic plen, and that the industrialization of
China is an important concern of Japan. He also said
that the Foreign Office would welcome capital invest-
ments in North China, and that he would discuss the
amount of such investments and the industries in which
the money would be invested with the Finance Ministry.
unstioned in regard to the so-called "special trade"
in North chine, Mr. Date seld that the matter is being
carefully considered, as it has importent bearing on
Japanese trade with chine. Later, in reply to another
interpelletion, Mr. Date said that the "special trade"
is 8 matter that conserns the Best Hopel régime and is
not one that should be taken up with Japan, although
Japan will give attention to it in connection with the
problem of Chinsee tariff. The Demoi states that life
Herinouchi, the Vice-Ninister for Foreign Affairs,
explained the so-called "special trade" in detail, but
Mr. Horinouchi's explanation was not published in any
of the newspapers. Questioned in regard to the attitude
of the Government toward the last Hopel Automouses régime
and the Hopei-Chahar administration, Mr. Sate said that
those administrations into existence from pesulisF
eircumatance obtaining in North China, and therefore
they
- 4 -
253
they do not constitute 6 subject for discussion with
Japen, although they might be discussed with China when
Sine-Japanese negotiations are resumed in the rusure.
ucstioned is regard to his former statement to the
effect that it was his intention if possible to renew
diplomatic negotiations with China on 6 basis of equality,
Mr. Sate said that he meens that Japan should doal with
China with patience only is following the normal course
of international negotistions. Be added that he believed
that intelligent Chinese were reflecting on the funds-
mental causes of the Manchurian Incident, and that Japan
should race Chine with firm senfidence in its own posi-
tion.
In connection with the discussion of Sine-Japanese
relations, Mr. Sate at one point stated that there appeared
to be sche apprehension that he was reviving the so-eslled
"Shidebare diplonesy", but stated that this was not the
0586 and that he would not hesitate to take 6. positive
step if necessary (Embassy translation).
In regard to Soviet-Jupaness relations Mr. Date said
that the Government considers the border question as the
nost urgent issue at the moment; this being the case
Japan is negotiating with Soviet mussie on the question,
but the Foreign Office does not intend immediately to
conclude a non-sggression past with the Seviet Union.
An interpellator referred to the discussion in Japan
in regard to the question of the revival of the Angle-
Japanese Alliance and Mr. Date replied that there was
also
Regraded Jclassified
234
also opinion is Great Britein fevoring this revival,
but that while Great Britain is a nember of the Lengue
of Nations it would be difficult for that country se
conclude an alliance with Japan. Be added that he
wished to Feserve his opinion as to the attitude which
Japan should take on the question.
In reply to as interpellation on relations with
the United States, Mr. Date said that the question of
Japanese immigration into the United States is now
being discussed in the United States and that the Japa-
nese Government would endoavor to obtain a settle-
ment advantageous to Japam.
Later the interpollators questioned the Premier and
the Var Minister in regard to their views on life Date's
speech of March 11, in which Mr. Sate had denied that
a "crisis" existed except in the minds of the people,
and that It could be averted at any time that Japan no
desired. The Premier replied that he had had objections
to the phraseology used by the Fereign Minister but that
he had requested Mr. Date's explanations, and had even-
tually decided that his speech should stand as given.
The Minister for car, General Sugiyama, said that there
were parts of UT. Date's speech which he could not under-
stand but when he later questioned him regarding the
points in question be had learned that M. Sate's views
were the same as kis. These replice indicated to the
satisfuction of the public that some working agreement
had been reached between the Minister for Foreign Affeirs
and the military element in the Cobines, and that therefore
Mr.
255
- 6 .
Mr. Sate would probably remain in office during the
life of the Heyashi Cabinet.
It will be observed that, in outlining his more
concrete policies vis-n-vis other countries, Mr. Date
indiented his intention of following the general policies
of consiliation and penseful negotiation to which he had
given expression in his earlier speeches. It is somewhet
of 5 disappointment, however, to find a sessoned diplo-
natio officer such as Er. Date willing to bring up again
such contentious subjects as the exclusion clause or the
American Immigration Act of 1926, and to hear him denying
the Japanese connection with the Nest Hopel Autonomous
régime and the Hopel-Chshar administration. Moreover,
his assertion that the smuggling in North China is the
concern only of the East Hopei régime and is not 6 sub-
jest for discussion with Japan, will not schence his
reputation in these countries whose trade is suffering
from the suuggling and which had hoped that under the
administration of Mr. Sate the Foreign office would ene
deaver to take stops to eliminate the Japanese connection
with the souggling. Newever, it may be assumed with
reasonable safety that the replies so the interpella-
tions in regard to North China did not represent the
opinions of Mr. Date but were indicative of the opinions
of the military and were foreed on Mr. Date.
is would be interesting to learn more of the policies
and opinions of Mr. Date, but the Lover House of the Diet
has now been dissolved and the House of years suspended,
and
Regraded
256
- 7 -
:
and consequently there will be no more interpollations
and replies until the Net meets again, probably in May
or June. In the meantime, the only index to Mr. Dato's
policies will derive from his diplomatie netivities.
Respectfully yours,
Joseph G. Grow.
Enclosure: Clipping from the JAPAN ADVERTISER,
March 26, 1937.
710.
ENDST
Copy to Subassy, Peiping.
.
. Messow.
A true copy of
the signed origi-
nal. r
Inclosure No.1, to despatch
50.2540, dated April 1, 1937.
from the Embassy at Tokyo,
257
The Japan Advertiser.
Tokyo, Wednesday, March 24, 1927.
Dr. Se,ko Ota. Seiyukai, began the
Doors) ways that Poreign Vice Min-
interpellation by asking about the
Litter Kmauke Herinouch give an ex-
adumetion of Japanese living in Man-
planetion of the 40-called special trade,
charle and was told by the Foreign
comprising goods entering China
Minister that they are aducated "In
through East Hopel with payment of
accordance with the wishes aet forth
duties much smaller than those levied
in the Imperial Rescript on Educa-
by the Chinese Maritime Customs but
Non. with minalderation given to local
le gives no details,
conditions" He then Inquired about
Mr. General Sund, Minselto, amer-
the Japanese vermanic mission to
tained from the Communications Min-
China,
ister that the Hirota Cabinet's plan for
"Because of the desirability of bet-
State management of the electric pe-
wer Industry is being No examined
ler sequaintance among influmal
and that something will be presented
businessenen of the two countries and
le the Diet in the next ression. No
deuper understanding by them of con-
decision has yes been reached an the
ditions in each other's countries. 1
basic policy for the system, to be en-
think the mission has been alignificant,"
forent shortly, of requiring Govern-
the Foreign Minider replied. "I be-
ment permission for electric power
Have it La necessary for members of
rates, but the reles in Tokyo will be
the mission to observe with prudence
fowered to some extent. The Minister
the actual conditions in China The
asked to be escused from comment-
policy toward China of the present
ing no the reported movement for
Cabinet, siming of economic and cul-
marging the live major pwwer mm:
titral co-operation befor) political ne-
panies.
getiations, La gradually being under-
Mr. Sumi asked what the Premier
stood by China, and there need be
thought of the reference made to the
no feur, I think. that advantage will
Soviet Union of 4 model by an untile-
be taken of this by that country."
used official under him in advocating
reorganization of the economic system
Would Divide Consideration
"The promotion of omtain enter-
"I think their North China, Contral
prises INSURE be accelerated to BOTH
China and Sorth China should be con-
extent from the standpoint of perfec-
sidered segurately," the Foreign Min-
Lon of national defense." Premier Ha-
later responded. "My in-called mooth-
yashi said, "and that is where control
ening of the ground seama to be INS-
necessary, Citation of the
pected of meaning revivel of the Shi-
Soviet Union as an example, however
dehara diplomecy. What 1 have in
does not conform with conditions in
mind is the present situation"
our country. E am of the opinion that
Dr. Ota asked If Japan cannot help in
estrome control, as advocated by
China's Ive-year industrial program
come, will never da for us.
and inguired about the possibility of
The interpellator assailed bureau-
compliance by the Yokohama Specie
cracy and expressed a desire for cres-
Bank with the Chinese request for nur-
tion of 9 commission composed of offi-
render of Its silver holdings in China.
clais and civilians to study control of
"It is the desire of our country, of
the electric power Industry. The Com-
course, la give as much aid as pussible
munications Minister indicated that he
in connection with China's five-year
approved of the idea. and at this point
the committee received for longh.
sconomie plan," replied the Foreign
Minister, "As the Finance Minister has
In Die afternoon, Mr. Kaju Neka-
flated. the question of dispussi of silver
min. Seiyakai. reisevt the question of
is left to the discretion of the Yoko-
Japanele flabing in Alaskan waters
hama Spacie Bank"
"As long - It Le dons outside Inc.
Dr. Ota mid that in connection with
ritorial waters." responded the Min-
Sinn-Japanese economie co-aperation
later of Agriculture and Forestry. "I
there must be discussion of China's
- no abjection. We must however,
tariffs
also enmalder International relations"
"The industrialization of China is no-
Mr. Nakamura urged special educa-
turally an important matter for this
tional facilities for fuller development
country." the Foreign Minister told
of individual calents, objected to the
him. "To menurage exports to Chine
prisent emphasis on the Chinese clas-
of machinery and other Japanese goods,
sice in the schools and advorsted more
reforms of the Export Guarantee Law
private Institutions of learning.
should be evaldered. As there is vx-
Mr. Taira Tatsukown, Seiyukai, aug-
persed to be extensive demand for
gested that the scrapping of old ships
material in connections with railway
under the law for encouragement of
construction and other enterprists, I
the construction of better vewels be
think the will question must else be
suspended because of the shortage of
considered, and endeavor will be made
bottoms and will told that such is the
in that direction."
Government's intention Iron the next
The interpellator advorted . positive
Rosal year. The Communications Min-
policy in Numb Ching and pointed to
Letim also said that consideration is
the connection between investments
being given to abelition of the mastric>
there and the exchange control regula-
tione on the purchase of foreign ships
lians.
Mr. Kirubu Ognschi. Belyuksi, called
Investments Desired
sitention to the increasing floancial
"The Foreign Ministry would wel-
wantments of the Government out-
come cepital investments in North
side the budget, such as the expital
China, and I wish to discuss with the
Investment in the Imperial Fuel De-
Finance Minutry authorities the pas-
velopment Company, and feared that
sible amount that can be Invested end
Day will hurden the nation for many
the most suitable Industries," stated the
5
Minister. "Though Japan is not direct-
Mare Revenue Expected
by concerned with the so-called special
"I think revenue will increase with
trade there, the matter a being care-
fully cunsidered, for it has all Important
the development of enterprise. Pre-
mier Hayashi replied. Tand that power
hearing on Japanese trade with China"
to aborb bonds will likewise increase
Regraded Uclassified
I shall evply after consulting the FL
"I am lokk that there is opiniun in
admitted the and for and . a
nation Minister."
Britain Invorable for revival of the
to realize administrative refurns but
Mr Oguelsi advocated that the shrin-
Anglo-Japana alliance. but - ling
valied attenting a the possibility of
- bureau of the Home Office lay Drive
as Dritain in @ member of the League
an worline opening of the next regular
active De the training of private and
of Nations a would be quile a pm-
und mid that no devision has
provide lariter administration for
blem the " to conclude an alli-
lasen reached. He said he had no in-
shrines
ance with Japan similar to that of the
tention of withing up a connities to
Asked what be thought about paint-
past, I wish to reserve my optation
alidy the faill for revision of the Com-
me sculpture. music and other art
regarding what attitude we should
mercial Code while the Diet M not
forms, the Premier said he believed
take no the Matter."
sitting and refused to any whather he
that "art must be the true manifesta-
He also saked la be excused trom
plans to form a. now inititical party or
Don of the Japanege spirit." He re-
speaking about the Japanese-Nother-
name party men as Education and
petied recent thefts of and hasards
lands trade negotiations, calling them
Overass Ministers.
to national treasures and promised
a delicate matter.
Asked About prolongation of the exc-
greater vigilance
After A brief receips for dinner, the
rent session. which normally should
Commerce and Industry Minister Go-
lession was resumed with further
end tomorrow, the Promier pointed sign
do stated that taxi fares and other
question of Mr. Sato regarding the
that prolangation is a prerogative of
automobile problems are being studled,
China question
the Throne and that every circumages-
The tax on poline with be increased
Be-examination Needed
tion a required in deciding where to
during the next eight years, but the
"The <isms and principles that have
appeal for it
increase scheduled for the coming flo-
Been applied in relations with China
Mr. Yoshiharu Yotani, Tohokai,
cal year will be the last for at least
to the past and the conditions that
charged that Mr. Sato's diplomacy re-
three years
have been inalsted on have continuity,"
presents a reversium to the Shídehara
Mr. Fumjiro Tchinomiya, Minserto,
Mr. Salu stated. "It goes without say-
diplomacy and asked the War Minister
doclared that full understanding of the
ing that there is ceed to re-examine
LE Mr. Sate's views on the current situs-
characteristics of the Chinese is neces-
these principles and conditions with
tion are altored by him.
sary before Japan can frame its ha-
the lapse of time,"
Vague Points Clarified
tional policy.
Mr. Chuks Ikemki, Second Lobby,
"When 1 heard Mr. Sate speak in
When I said that we should deal
usked about the East Hopei and Hopel-
the Diet on March 11." General Sugi-
with China with patienes," Foreign
Chabar regimes,
yama replied. "I thought bis speech
Minister Sato told him. "I meant that
"Those regimes came into existence
left something to be dostred. By that
We should do an only in following the
under special eircumstances," the Min-
I mean that I found something in It
normal course of international rela-
later replied. "and the there la no
that I could not understand. Subm-
lians [ think that among the Chinese
thought on Japan's part of what to do
quently I questioned him regarding the
there are Intelligent persons who are
about them. They will be diseased
points I could not understand and
reflecting deeply on the causes of the
as a metter of course iss the diplo-
learned that his view was the same as
Manchurian Incident, Japan should
matic negotiations to be resumed with
mine."
Tice China, 1 believe, with deep con-
China. 1 de not think that my
Premier Heyashi had the name to say.
in its awn position."
Diet speeches will affect the North
"As E stated in this committee some
Hopel Trade Mentioned
China regimes, As for the five-Min-
time ago," the Foreign Minister can-
The pherequisite for a Sino-Japanase
later coimeil, the reports alleging to
tributed. "I did not amend my spevch.
entense, in Mr. Tehinomiya's opinion, is
give my intentions are not accurate, I
Nor did I explain the speech after its
DON operation with China in suppressing
consider the notter one for-the Cabi-
delivery. What I did Was to clarify
the so-called special trade in North
net as a while to a decide, not three
the meaning of what I said in the
China. which at the same time would
Ministers or Ave Ministers. According
speech. My first speech in the Diet
to circumstances, however, there may
still stunds"
contribute to better understanding of
Japan's attitude smong foreign Powers,
be meeting from lime to time of
Mr. Yutani was not satisfled.
"I am entirely in accord with the
three Ministers or five Ministers."
"I explained those points In my
interpellator's views on Sino-Japaneme
"The army authorities," the War
speech of March il about which the
Minister stated. "are concurred about
Premier and the War Minister and
ovonamic co-operation," said Mr. Sate,
matters relative to military administra-
double and did so to their entire satis-
Trut economic co-operation must be
considered in conjuction with political
tion In North China. At no time have
faction." Mr. Sato added.
co-operation As for the special trade
they Interfered with foreign policy,
Mr. Yutani turned to the Premior,
who told him:
In North China, is la - matter that
and 14 is their intention to maimate
inncerns the East Hopei regime and
the same attitude in the future."
"As for the Foreign Minister's first
speech, I had objections to the phrase-
not one that should be taken up with
The Navy Minister expressed agree-
ology at the time it was made, 1 later
Jupen. Japan will give attention to 11,
ment with this datement.
asked his explanation and decided that
however, in conjunction with the piv-
Floance Minister Toyotero Yuji said
his speech should stand."
bleen of Chinese tariffs. Improve-
that at the moment he is not con-
The War Minister astreed with this
ment of economic ralations between
aidering credits for China but that a
Mr. Yutani Instited that the Pro-
Japan and China is the prerequisite for
will be necessary to consider them if
mier's remark about the situation be-
untablishment of credit, I have con-
Sino-Japanese enterprises are under-
Ing such that il might explode at .
sulted the Ministries concerned regard-
line details Investment in China of
ikm Be denied that the exchange
touch cannot be recumeiled with Mr.
the profits of Japanese enterprises in
control law is causing difficulties.
Sato's specch, which live glid embodied
China is worth consideration."
wur Maintain Yes
a defentiat policy,
"What I wish," he continued, "Is to
"As I said in my replies to questions
Mr. Kaju Nakumure asked a number
of questions about foreign relations to
maintain the value of the yen in terms
sbout the speech of March LY in the
which the Foreign Minister replied as
foreign currency. For this, it is De-
House of Peers and this committee.'
follows:
ressary to promote exports shipping
Mr. Sato stated. 1 want to have a
and Beheries. 1 mean to da every-
considered in the light of my supple-
The Government considers the (So-
thing postible to prevent the fall of
mentary speeches Mr. Vutani
viei-Manchukuo! border question the
must urgent issue of the moment With
the yen in terms of foreign currencies,
seeme to have come to the conclusion
that aditude, Japan la negotiating
though there may be a temporary in-
that I regretied my supplementary
with the Soviet Union, and the For-
croado in indebledness."
speech. 1 am sure that that in his own
eigo Office has no intention of con-
The Home Minister said he could
conclusion. As for the reaction to my
not say whether the Government will
speech abroad. I have said that a was
cluding immediately è non-aggrewich
Dard,
introduce e labor union faill in the past
generally favorable. or inture, I with
not antisfied wilh that
The imalgration question is debat-
lession without studying the matter,
ed. las the United States, 100, and We
Mr. Tomindo leu, Kokumin Domel,
WOR Mr. Yutam will voicing
faction, the committee adjusted late
shall try to obtain . actionment ad-
skell if the Government will call an
- The Premier
nights
ventageous to un.
MEMORANDUM
259
April 28, 1937
To:
Secretary Morgenthau
From: Dr. Burgess
Treasury bond market was quiet today with a fairly good
tone. Prices showed little variation during the day but
most issues closed higher than yesterday: the long bonds
were unchanged to 4/32 better, with the exception of the
3-1/8s of 1949/52 off 2/32; the remainder of the list was
generally unchanged to 2/32 better. At the close quotations
were at their best levels for the day. Treasury bond turn-
over on the board was $901,000. H.O.L.C.'s were up 4/32 to
5/32; F.F.M.C.'s were up 1/32 to 9/32.
Treasury note market quiet with a firmer tendency. The
1-3/8s of 1941 closed up 3/32 and the new 1-1/4s up 4/32;
remainder of the middle and long maturities were up 1/32 to
2/32.
Domestic bonds were dull and prices generally tended to
be easier. In the second grade group, utilities were off
fractionally to 1 point; industrials and rails were mixed.
On the high grade market recent refunding rail issues were
off small fractions; industrials and seasoned issues gen-
erally were steady.
Foreigns were mostly steady and quiet, with few price changes.
Purchased for Treasury today $1,000,000 miscellaneous
Treasury bonds for account Government Life Insurance Fund.
Regraded
Uclassified
260
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE April 28, 1937.
TO
The Secretary
FROM
Mr. Taylor
During the next few days I am going to give you various thoughts
that have occurred to me in connection with several of our problems, with
a view to your having them before you during your "reading period" next week.
Testerday after lunch I had a long talk with Marriner Ecoles on
the questions of financing, gold, etc. In connection with the financing,
I reverted to one of our earlier discussions in which I had asked him to
give some thought to the idea of the gross amount of Bills which the
banking system could properly handle, the proper maturities, the maximum
amount which should mature on quarterly dates, etc. He welcomed this
discussion and is having his men do some work on it. I likewise talked
to Larry Seltzer about the problem this morning and he is investigating
the subject.
What I have particularly in mind is that given a debt structure
of 35 billion dollars, estimated annual receipts of approximately 7 billion
dollars, and estimated quarterly receipts from income taxes of say 700
million dollars we can probably think in terms of not only a larger total
amount of Bills, but also in terms of larger amounts falling due on the
quarterly dates. With higher general receipts as a new factor and the
Social Security taxes also present, it is my impression that we can think
in terms of, say 3 billion Bills, without running the risk of having too
261
- 2 -
large a floating debt, or putting it another way, we can compare
our position to that of an industrial concern which has expanded
its business and therefore its cash receipts to an extent that
where as in an earlier period current indebtedness of $1,000,000
would have been unsound, today current indebtedness of twice that
amount would be entirely conservative.
WD.
Regraded Uclassified
MEMORANDUM
262
April 29, 1937
To:
Secretary Morgenthau
From: Dr. Burgess
Treasury bond prices rose today in quiet trading. Quotations
on the board advanced steadily and closed at the highs of the
day, with the long maturities 10/32 to 15/32 up from yesterday
and the rest of the list generally 3/32 to 11/32 up. Treasury
.bond turnover on the board was $905,000, about the same as
yesterday. In the guaranteed group the H.O.L.C.'s were 5/32 to
16/32 better than yesterday and the F.F.M.C.'s were 9/32 to
13/32 better. There was a little activity in Treasury notes and
the market was firm. Closing quotations on notes were at the
highs of the day with the 1937 to 1941 maturities generally
3/52 to 4/32 better than yesterday. The 1 3/8s of 1941 and the
new 1 1/4s were up 5/32 and 7/32 respectively. The rest of the
list was unchanged to 1/32 better.
Domestic bonds were fairly active in the first two hours
and prices firmed fractionally. Prices eased off slightly in
dull trading during the rest of the day and at the close both
high and second grade bonds were small fractions up from
yesterday.
Foreigns were generally steady and quiet. Brazilian Govern-
ment bonds were weak on unfavorable cable advices, and the 6฿8
were off more than 2 points.
Purchased today $479,000 2-7/82 Treasury bonds of 1955-60
for account Government Life Insurance Fund.
TREASURY DEPARTMENT
263
INTER OFFICE COMMUNICATION
DATE April 29, 1937
TO
The Secretary
FROM
Mr. Taylor
Our luncheon with Oumansky involved a very general discussion of
capitalism, business cycles, the orthodox Bolshevik approach, emphasizing
B. fully employed population and their ability to avoid the cycles prevalent
in the capitalistic world, etc. He advanced the information that the Soviet
ml economic staff had come to the conclusion that no fundamental changes
had been made in the capitalistic system and that therefore another depression
would appear in the not too distant future, probably between 1939 and 1941,
and that owing to the severity of the last one, that the capitalistic world
would not be in very good position to meet the next one, He went into this
situation at some length and emphasized the fact that economic disasters
of this character inevitably led to political disasters and that political
and economic disasters often produced wars; that his country was far from
fatalistic about the situation and that it was in the spirit of cooperating
with other nations, who had equally peaceful motives, that he felt that the
message which he had conveyed to you should be interpreted.
He also discussed at some length the great market for certain types
of American products in his country, in particular mass production machinery,
that if the desire on both sides were present, a great deal of business
could be done between the two countries, but that, naturally, there were
only three methods of payment - goods, gold and credits. He then asked the
Regraded Uclassified
264
. 2 -
direct question as to whether the United States wished to increase its
business with the Soviets, to which I replied that I assumed that we did.
He referred again to the significance and possible historical
importance of the message which he had delivered to you as a great
potential force for world economic stability and peace,
The only other direct question which he asked was a hypothetical
one, as to the effect of the lowering the price of gold on our agricultural
products which we exported. I replied that I thought that the question
answered itself and that the question of the gold price was being debated
in the newspapers - on the one hand by professional economists and on
the other hand by others who might have a rather direct speculative
interest.
On the whole, Oumansky was very expansive and was apparently
going out of his way to give us the Soviet program,as he covered
practically everything in the known world, including national defense - which
he said was in excellent shape. As you might gather, Archie and I did
not have too much opportunity to interrupt and confined our remarks pretty
much to questions and comments on the similarity of the problems, no matter
what system you happen to operate under, and the fact that a great many
changes had been made in various control mechanisms which might materially
alter the standard cyclical pattern, but that we were more or less in
the position of having designed en automobile which had not been
tested at full speed and that it would be difficult to say that any of
the particular controls would be completely effective until they had been
given a more complete test.
265
- 3 -
I touched briefly on some of the lessons which we thought
we had learned as a result of the postwer period, both in domestic
connented
and foreign financing. I touched briefly on the slight alteration
in the pattern for foreign financing which was appearing through
the instrumentalities of organizations like the Export-Import
Bank and the British Overseas Credit, etc. This reference to the
Export-Import Bank caused him to say that his country was barred
by the Johnson Act, but that of course he felt that their situation
was entirely different from the countries which had defaulted on
their war obligations. I said that this was a question with which
he was entirely familiar and that it would be useless for us to
touch on it at this time but that it would be extremely desirable to
clear up the misunderstanding which existed.
As we left he referred to the possibility of additional con-
versations with you. I assumed this to mean that he is awaiting
further instructions from his Government following the opening of the
account with the Federal.
The description I have given above covers what I consider the
most important questions and statements which he raised. There was a.
certain amount of additional conversation which I can give you if you
would care to have it, but I de not think that any of it was particularly
significant.
werl
266
April 29, 1937.
9:12 8. m.
H.M.Jr: Hello.
Operator: Chairman Eccles - go ahead.
H.M.Jr: Hello.
Marriner
Eccles:
Hello.
H.M.Jr: Marriner.
E:
Ah - good morning.
H.M.Jr: How are you?
E:
Fine this morning.
H.M.Jr: Two things. First place unless you know some good
reason why we shouldn't we're going to go ahead with
our nine months stuff next week.
E:
No I don't know of any good reason. I think I would
advise sticking to it for another week and see how
it goes after the increase goes into effect.
H.M.Jr: All right - that's that. Now the other thing - I
don't know whether Taylor's had a chance to tell you
but the Fed in New York got a cable from the Russian
State Bank asking - that they'd like to make a deposit,
see?
E:
I talked to George Harrison last night
H.M.Jr: Yes.
E:
.....
and he's sending down this morning a copy of
the cable and a copy of his suggested reply.
H.M.Jr:
Right.
E:
And I'm going to get the Board to approve of it
this morning.
H.M.Jr: Fine. And then would you mind sort of just taking
a little personal interest in it because - ah - ah
I gather from Wayne that we may go up against a little
resistance in New York, see?
E:
Yes.
267
- 2 -
H.M.Jr: See?
E:
Well - ah - well I'll follow it through then. I
didn't get that from George. The cable that he read
to me over the 'phone was in substance - ah - ah -
right along the line of the memorandum
H.M.Jr: Yes.
E:
.....
that he sent down which you saw, of course,
about a week ago.
H.M.Jr: Yes.
E:
Ah - and I told him that if he'd send the cable down
we would send him up a copy - a statement to the effect
that we had advised the Treasury, see?
H.M.Jr: Yes.
E:
That we would approve of an application
H.M.Jr: Yes.
E:
......
when it was submitted by the Federal Reserve
Bank of New York.
H.M.Jr: Yes.
E:
So that I'll - - I'll check - ah - I'll check
H.M.Jr:
Well I - - I just - maybe I'm a little over-suspicious
but - ah - I don't want anything on this because I've
given my word, see?
E:
Yes.
H.M.Jr:
And I'm anxious that it go through in a perfectly
orderly manner. That's all that I wanted.
E:
Yes.
H.M.Jr:
And if there's any questions raised I'd appreciate
it if you'd let either Wayne or me know.
E:
Well all right, I'll
......
268
- 3 -
H.M.Jr: Now there may - maybe I'm all wrong and maybe it will
go through in a perfectly normal manner.
E:
Well I think it will if the - if the Central Bank of
Russia, of course, will submit the statement in the
usual - make the usual application
H.M.Jr: Well that
....
E:
.....
and I, of course, I assume they will because
Wayne - Wayne told me that he had talked to them
and they - they raised no objection to the require-
ment as covered by the Harrison memorandum.
H.M.Jr: Well that's all to the good and if - and if nothing
else came out of this if we got the Russian Bank to
make their first public statement I'd consider that
a great accomplishment.
E:
So would I - I'd like to see it.
H.M.Jr:
Sure - so would the rest of the world.
E:
Well we'll know whether they will or not pretty soon.
H.M.Jr:
Well I - - in - in - you - you - you see I asked - we -
we've given you what's in the back of our minds.
E:
Yes.
H.M.Jr:
We haven't told it to George.
E:
Yes.
H.M.Jr:
And he's just dying of curiosity.
E:
I see. (Laughs)
H.M.Jr:
See?
E:
I see.
H.M.Jr:
And we simply say this is what we like and we
haven't given any reasons.
E:
Ah-ha.
269
- 4 -
H.M.Jr: And he wants reasons and we haven't given him any.
E:
I see.
H.M.Jr: So ah - if you just give it a little - just kind
of watch it, see?
E:
Well I - I
.......
H.M.Jr: It may go through perfectly all right and then again
it may not.
E:
Well I - - I - - that's right. Well I'll watch it and -
and ah - George hasn't replied - hasn't sent the
cable he read it to me on the 'phone
H.M.Jr: Yes.
E:
..... and and I didn't particularly like well
the - the the I asked him to submit it.....
H.M.Jr: Yes.
E:
.....
and told him
H.M.Jr: Yes.
E:
..... that the cable. ah should be worded in two
ways - at least the last part one was it would
indicate that he knew the Board of Governors would
approve of it and the other was that he didn't know
anything about any previous discussion of this thing,
see?
H.M.Jr: Yes.
E:
And I felt that the cable - that a cable should more
or less indicate that he was somewhat familiar with
some previous discussion.
H.M.Jr:
Well why not?
E:
What is it?
H.M.Jr: Why not? He - he
270
- 5 -
E:
Well I think that - I - well he said that he would
be perfectly willing to do that
H.M.Jr: Yes.
E:
.....
ah - if he could get something from the Board,
see? .....
H.M.Jr: I see.
E:
.... to the effect that he could indicate that.
H.M.Jr: I get you.
E:
You see? So I told him if he'd send it down this
morning that I would get it cleared and I'll - by
noon and he could send his cable off I thought along
the line that would indicate - at least that he wasn't
entirely unfamiliar with the fact that the matter had
been discussed.
H.M.Jr:
Ah-ha.
E:
See?
H.M.Jr: Fine.
E:
So that's where it stands now.
H.M.Jr:
Thank you very much.
E:
All right, goodbye.
Regraded Iclassified
271
April 29, 1937
9:30 group meeting.
Present: Mr. Magill
Mr. Oliphant
Mr. Taylor
Mr. Gaston
Mr. Haas
Mr. Gibbons
Mr. Lochhead
Mr. McReynolds
Mrs. Klotz
HM,Jr: Did anybody tell you (Haas) what Lionel Edie
wanted?
Mr. Haas: Yes. Seltzer told me that he came in and
my secretary told me that he called me yesterday morning,
I guess. Did you see him?
HM,Jr: No. Are you strong enough to digest Dr. Anderson,
of Chase?
Mr. Lochhead: Did you read Edie's speech?
HM,Jr: No.
Mr. Lochhead: We are going to lower the price of gold.
That's all there is to it. He made & speech at the Chamber
of Commerce.
HM,Jr: Herbert (Gaston) I was kind of thinking I would
talk either for record or for background today. I have
satisfied myself what this selling in the market 1s and all
that. It's definitely in England. I have spent hours and
lots of money on it and I am thoroughly satisfied what it 18.
I wanted to either ask some newspaper to make an independent
investigation, giving a pretty broad hint of what they would
find, or give it to these boys for background.
Mr. Gaston: I think BO. I think you could talk for
background to them.
HM,Jr: What do you think, George (Haas)?
Mr. Haas: I think it's very dangerous to slip out infor-
mation which you think 18 the cause. I think there is a
Regraded Uclassified
272
-2-
rather fundamental situation which has a result of stock
market decline. For one thing, the first quarter earnings
statements definitely do not show the increase which was
expected in terms of volume of production. I have a state-
ment here on that. You also had previously the anticipated
expansion due to further price rise, all washed out, It's
just adjustment taking place.
HM,Jr: I don't agree with you at all.
Mr. Haas: I would like to have a chance to talk to you
about it,
HM,Jr: It's another pepper situation in London and
there 18 a desperate situation on it. I have spent an
awfully lot of time on 13.
Mr. Haas: I don't say that's not there, but all these
other reasons are there.
HM,Jr: True. But there is an acute situation in London
right now.
Mr. Haas: That may be, and that's one of the factors in
it, but you may have a domestic situation which would lead
to stock market decline.
HM,Jr: But not a four or five point drop.
Mr. Haas: I don't think that's 60 important.
HM,Jr: I don't see where you get this earning stuff any-
way unless you have & list of how many corporations have you
got quarterly earnings, first quarter, for?
Mr. Haas: We have Standard Statistics index of 161 or
something like that,
HM,Jr: They follow 700 or 800 corporations. What 18
it for the first quarter. Standard Statistics 18 a good
index.
Mr. Haas: Those are not all in yet,
HM,Jr: How many are in?
Mr. Haas: I don't know how many of that group are in,
but they have an index which has 161 corporations in it --
273
-3-
identical corporations. That's in, I think.
HM,Jr: Do you know?
Mr. Haas: I haven't had a chance to talk to Daggit, but
in a statement he sent out to the house I assumed they were
identical corporations that he was carrying from one quarter
to the next.
(At this point, HM,Jr. tel ephoned Mr. Daggit to come to
his office.)
HM,Jr: I would like to know about Standard Statistics.
If that's true, than that's B new one for me. Let's pass
it until he comes.
Mr. Haas: I have a statement here which I think you
should take time out to read on the whole business of prices
and stock market.
HM.Jr: Let me read it. I have time to do it before
10:30.
Mr. Haas: The summary 1s not as good as the rest of it.
It's difficult to summarize.
HM,Jr: If you stop behind I would like to talk to you
about it, because I still think I am right. My only inter-
est in it is I don't want it to go 80 far that it will hurt
business. There 18 no indication that business is slowing
up. All you need to do 18 look at Sears-Roebuck sales.
Simply tremendous!
Mr. Haas: I wish you would give me 8. chance to talk to
you about it. I have discussed it rather thoroughly with
Daggit.
HM,Jr: Is it all in here?
Mr. Haas: Practically.
Mr. McReynolds: Nothing.
Mr. Lochhead: Bond market 1s opening up quite well.
Stock market -- nothing developing on that, but bond market
looks right good.
(Mr. Daggit came in at this point.)
Regraded Uclassified
274
-4-
HM,Jr: (to Mr. Daggit) Have you got figures from Standard
Statistics as to first quarter earnings?
Mr. Daggit: We have them -- preliminary. Do you want
me to get it?
HM,Jr: Get it and be back at 10 o'clock. Have you got
any other figures on first quarter earnings?
Mr. Daggit: I don't believe we have. I will see.
HM,Jr: See what you have. Anything that Dow-Jones or
anybody -- and can you be back at 10 o'clock or as near that
as possible?
Mr. Daggit: Yes. I will do that.
Mr. Gibbons: Strike called -- sit-down strike -- at the
Parke-Davis plant up in Detroit. May be serious. They have
over $1,000,000 worth of narcotics in there and the plant
served notice that they are no longer in charge. Yesterday's
paper reported that the narcotic agent they threw out was
going to prosecute them. of course the local United States
District Attorney probably gave that out, but it looks as
though the situation is serious. Here's $1,000,000 worth
of narcotics and these people serve notice on us that they
are no longer in control and these fellows get in and right
in the room where there 1s $1,000,000 worth of narcotice.
HM.Jr: If you are sure of that, do Just what Waesche did.
A plant asked for guards, but he sent a couple of extra in-
spectors Just to be sure they would be on the ground. All
you have to do 16 send & couple of narcotic agents to 800
that the stuff 18 not stolen.
Mr. Gibbons: They would not let them in; turned the hose
on them.
Mr. Gaston: Harold Graves has some pretty full informa-
tion on that and he has a recommendation that he wants to go
over with you.
HM,Jr: Is he ready?
Mr. Gaston: I taink Bo?
Mr. McReynolds: He told me about it and I told him to
take it through Guy Helvering.
Regraded Uclassified
275
-5-
HM,Jr: But that might take too long. There 18 nothing
on my desk. Let's designate somebody.
Mr. Gibbons: It's a serious thing that might develop.
HM,Jr: Let's have somebody to handle these things. I
can't handle it myself. Waesche mentioned it and he's handling
it in 8. very sensible manner,
Mr. McReynolds: Waesche talked to me about this and Gibbons
had the same thing up in Boston.
Mr. Oliphant: Mac handled the Boston situation beautifully.
Mr. McReynolds: I can do it.
HM,Jr: Will you do it?
Mr. McReynolds: I will.
HM,Jr: And if you need something, walk in and tell me.
Mr. McReynolds: I think we will have to, with respect to
both alcohol and narcotics, because there you have a situation....
HM,Jr: Let's understand each other. If there is something,
you walk in; otherwise, if I don't hear from it, you are handling
it.
Mr. McReynolds: If we get to a point where I can't get
agreement to keep out of bounds, I am coming in.
HM,Jr: You just walk in. But I don't want it to come
through Helvering and Harold Graves has a memorandum and some-
body else. The strike thing is something that has to be handled
on the split second and if you can't get an agreement, walk in.
Mr. McReynolds: O. K. We will do it that way.
HM,Jr: Satisfactory to you (Gibbons)?
Mr. Gibbons: O. k. Did you get fixed up last night?
HM,Jr: Mrs. Roosevelt, as I expected, knew nothing about
what Hall Roosevelt was talking about. After he got over
there he got very excited all over again and she very definitely
did not want to use a Government plane. Hall Roosevelt was all
Regraded Uclassified
276
-6-
cock-eyed. He insisted that a plane was leaving New York
at 9 o'clock and that Mrs. Roosevelt could leave Baltimore
at 10:30 and catch that plane. I said, I don't agree with
what you Bay. That can't be done. Because New York and
Baltimore are practically the same distance from Cleveland
and a plane leaving New York at 9, Mrs. Roosevelt can't catch
it leaving Baltimore at 10:30. So we were all arguing back
and forth and he was all mixed up, I got hold of Burke and
told him to get ready; told him to get gassed up and be ready
to go to Baltimore to meet Mrs. Roosevelt and I would let him
know. Between the time -- this was all through supper -- I
kept saying to Hall, What are the facts? And he said, I
won't know until 8:30. And he did not even know what plane
she was taking. He was all mixed up. 80 I told Burke to
find out what time the plane left, etc., etc., -- this was
all through supper -- and I said to be ready. Then he found
that she was planning to take the plane that left Newark at
11 and get to Cleveland at 2. So Hall finally said he was
satisfied that conditions were such that she could fly and he
80 recommended. As long 8.8 he took that attitude and knowing
that Mrs. Roosevelt said the President was opposed to her using
a Government plane and it was B. tremendous responsibility to
put her on a plane at 11 o'clock at night and send her to
Cleveland -- terrific responsibility -- BO I said, Now, Hall,
what do you want us to do? And he said, She can go on this
plane. It was a plane of the Pennsylvania Air Lines; they
have not had an accident in three years; never a single pas-
senger injured; regular plane; regular pilot; knew she was
going; said it was all right. I said to Burke it would be
8. great experience for us to see if we could get out in half
an hour and we were ready. That was his attitude. But Hall
Roosevelt 18 just crazy.
And he wanted us to come down here
in the river and bring her up. Nice evening! But to take
Mrs. Roosevelt from Baltimore at night and fly her to Cleveland--
I did not want to do it. But Burke handled himself extremely
well, the way he always does.
Mr. Gaston: John Mitchell said he would bring those clip-
pings in today -- the New Republic things.
Mr. Gibbons: Won't anything break in the papers about the
St. Paul situation?
HM,Jr: It can only break if there is a leak in the Treasury.
Mr, McReynolds: It has not gone any place except from me
to Elmer Irey.
Regraded Uclassified
277
-7-
HM,Jr: A8 a matter of fact, I was thinking if the stuff
18 ready, why bother the President while he is on vacation?
Have it ready and I will send it over and I would give it to
Forster and simply say, 'You use your Judgment. If you want
to send it down to the President, all right, but there 18 no
hurry.'
Mr. McReynolds: After you sign it, I will take it over.
HM,Jr: I will sign it and you hand it to Forster.
Mr. Gibbons: I understand you are not interested in selling
any tables at the dinner you are going to address Sunday night.
HM,Jr: Can you hold that & minute? Who sent a bill up
having to do with antiques coming in to New York?
Mr. Gibbons: It's the General Omnibus Bill.
Mr. Oliphant: That's our general Customs Bill. We went
over the whole line of legislation.
HM.Jr: Remember, I reserved the right to Bay that I did
not remember. Was it in that?
Mr. Oliphant: Yes.
HM.Jr: Because somebody called up Mrs. Klotz -- he was the
head antiquer -- and wanted to see me and I said, Why should I
800 him. And there was a. big article in the New York Times
that Steve Gibbons said that 75% of antiques that came in are
fake.
Gaston: Who is the antique expert we can refer the New York
Sun to?
HM,Jr: Steve Gibbons and Herman Oliphant. You know,
sooner or later these things always come to the surface. All
that Herbert Gaston wants to know 18 who to refer the antique
editor of the New York Sun to, You got it now, Herbert?
Mr. Gaston: I have got it now.
HM,Jr: What about tables for Sunday night dinner?
Mr. Gaston: Bernie Kilgore called me and said that Hoguet
had called him up and said & man who had represented himself to
278
-8-
be your secretary had gone to Hoguet and tried to sell him &
ticket to a dinner Sunday night at which you were going to
speak and when Hoguet said he could not be in New York that
night he urged him to take a table on behalf of the firm; said
it would please the Secretary very much. 80 I told him the
Secretary never encouraged anybody to sell tickets to any sort
of a dinner,
HM,Jr: Have you been able to run it down?
Mr. Gaston: Hugh McQuillan 1s working on it.
HM,Jr: Do you (Gibbons) know of any dinner the Democrate
are giving?
Mr. Gibbons: They are giving 8 dinner and Gene Buck 18 to
preside and Herbert Hoover is going to attend. It's not for
the Jews; it's for the Catholic Guild Actors.
HM,Jr: Who said anything about the Jews? Why bring that
up?
Mr. Gibbons: This big dinner 1s for the Catholic Guild
actors and Hoover is one of the speakers.
HM,Jr: When did he join your church. He must be begining
to think of running again in 1940.
Mr. Gaston: I have another letter where you are in fine
company; wanting some testimonialsSix prominent ex-Navy men
have been invited to write testimonials for the publication
Our Navy and the six people are Walter Winchell, Phil Baker,
Jack Benny, Paul Whiteman and Freeman E. Gosden, 80 you see
you rate with Amos and Andy.
HM,Jr: Swell! I am coming up! That's the best thing
that has happened since they pulled off that publicity stuff
with Mae West.
I think you (Gaston) let me down when you did not let me
kiss Jean Harlow when she was down here.
Mr. Gaston: I did not have a chance. I don't get in on
this testimonial stuff.
HM,Jr: Did you know L. W. Robert, Jr., was Chairman of
the Axton Tobacco Company?
279
-9-
Mr. Magill: Chanler Tobacco Co., which owns all the stock.
HM,Jr: So the head of the Reynolds Tobacco Co. takes it
perfectly for granted that we are going to knock the tax on
cigarette.
Mr. Haas: On the cheap cigarettes.
HM,Jr: He BeeB the handwriting on the wall, but it's the
wrong wall.
HM, Jr: Mac, I will go directly from Procurement to the
2:30 appointment. I am Just doing this because I take it
for granted they asked you to do it and you fell down.
Mr. McReynolds: I haven't any jurisdiction over space.
HM,Jr: Did they ask you about it?
Mr. McReynolds: Oh, yes! We have been on Interior's neck
for & month. I will see that we have Mies Roche and Demaray
there at 2:30.
HM,Jr: Let's make it at 2:15, but I'm relying on you.
Mr. McReynolds: I will have Miss Roche and Demaray there
at 2:15.
Mr. Taylor: I would like to tell you about a scene at the
Washington Hotel with Mrs. Garner there. Some friends of mine
who were staying at the Washington -- it has to do with this
boy you are having trouble with -- coming into their room and
the fellow 16 out in the corridor with one foot in the door, saying
'But Mrs. Garner, my future depends on it.'
She said, "But
you misrepresented to the Treasury." This goes on for fifteen
minutes and then the house detective and somebody comes along
and leads him away. Apparently something wrong with him.
HM,Jr: On which side of Mrs. Garner's door were you?
Mr. Taylor: I wasn't there. It was a friend of mine. I
am Just a reliable reporter. One of my scoute reported this.
HM,Jr: This 1s the best meeting we have had for along time.
Mr. Taylor: Like some British news?
HM.Jr: Sure.
Regraded Uclassified
280
-10-
Mr. Taylor: Mr. Bingham and Mr. Davis are having a
series of very polite conversations at the minute on the
other side with Mr. Chamberlin, the Chancellor, and pending
the outcome of those conversations we won't have any news
that means anything.
HM,Jr: Are we still being humorous?
Mr. Taylor: No.
HM,Jr: Who told you this?
Mr. Taylor: Feis.
HM,Jr: What are they discussing?
Mr. Taylor: The world -- with specific relation to our
relations with the British?
HM,Jr: Our relations?
Mr. Taylor: United States.
HM,Jr: But not Treasury?
Mr. Taylor: No.
HM,Jr: May I make a little prophecy? Out of that three-
cornered conference will come no news.
Mr. Taylor: I am not betting against you.
HM,Jr: That was all in the Hearst paper and Jack Garner
went clear up to the ceiling and, believe me, Mr. Hull had a
very unpleasant situation at Cabinet and he said, pounding the
table, "I want to know what are those fellows talking about.
If it has anything to do with debt settlement or lending money,
I want to know."
Mr. Taylor: I gathered that they don't know here.
HM,Jr: This was at 2:30 and I was at Mr. Garner's office
that morning. It's all right. The President assured him that
they were not talking about anything that anybody could not know
about. I told you last night about the dinner that took place
Regraded
Uclassified
281
-11-
last night in Paris?
Mr. Taylor: Yes.
Mr. Oliphant: Nothing, except I located the report we
were looking for. Harold gave it to Alexander.
HM,Jr: How come?
Mr. Oliphant: I don't know. You probably sent it to
Mac and Mac automatically sent it to Harold.
HM,Jr: How come? It don't sound like Harold.
Mr. McReynolds: I haven't talked to him about it.
HM,Jr: You and Harold come in here together at 10:15. It
doesn't sound like Harold.
(To Mrs. Klotz) It wasn't in our stuff?
Mrs. Klotz: It never was. We never had the thing in our
office. I am quite positive.
HM,Jr: The point 1s it went from Mac to Harold. You say
you never had it?
Mrs. Klotz: Never had it. I was anxious to look at it
and that's why I remember BO definitely that we never had it.
Mr. Oliphant: Harold will know where he got 1t.
Mr. McReynolds: I have no recollection.
HM,Jr: Well, find out. If Mrs. Klotz says we did not
have it, we did not have it.
Mr. Lochhead: About two years ago we had a big book. We
kept it in our safe because there was no room to hold it.
HM,Jr: It's interesting, but it won't shake the foundations
of the world.
Mr. Oliphant: No. "God's still in the Heaven and all's
right with the world."
HM,Jr. (To Magill): Are we going to have a meeting at 3:307
Regraded Uclassified
282
-12-
Mr. Magill: Right! I have been after them already this
morning on the investigation they are making in the field, which
does not seem to be going very well. Unfortunately, Guy Helver-
ing is having some teeth out.
HM,Jr: Won't he be here?
Mr. Magill: He said he would try to be.
HM,Jr: If he is not, I don't want the meeting unless he's
here. Just 80 you know my plans, we are going up to New York
tomorrow afternoon and I will be back here Monday a week. I
will be at the Farm. We are going up on the 3 o'clock train,
Standard Time.
All right, George, let's you and I see Daggit.
000-000
Regraded
Uclassified
283
yellowley
L CHICAGO--E. C. YELLOWLEY, CHIEF OF THE ALCOHOL TAX UNIT, AND HIS CHI
ASSISTANT, LEVI 2. BAKER, TODAY WERE ORDERED CITED FOR CONTEMPT OF
COURT BECAUSE OF CONVERSATIONS YELLOWLEY IS ALLEGED TO HAVE HAD
WITH A FEDERAL GRAND JURY FOREMAN.
4/29--R1150A.
QADD YELLOWLEY, CHICAGO
FEDERAL JUDGE JAMES H. WILKERSON ORDERED ASSISTANT U.S. DISTRICT
ATTORNEY DANIEL GLASSER TO DRAW UP THE CITATION AND ORDERED YELLOWLEY
TO FILE HIS ANSWER MAY 6. HEARING DATE WAS SET AT MAY 10.
WILKERSON ORDERED CHARGES AGAINST THE ALCOHOL INVESTIGATOR AFTER
RECEIPT OF A REPORT BY SIDNEY S. ECKSTROM, FOREMAN OF A GRAND JURY
UNDERSTOOD TO HAVE INVESTIGATED ENFORCEMENT OF LIQUOR LAWS.
ECKSTROM REPORTED THAT ON THE NIGHT OF APRIL 21 HE RECEIVED A TELE-
PHONE CALL ASKING HIM TO COME TO A LOOP HOTEL. HE MET YELLOWLEY
THERE, HE SAID, AND TALKED WITH HIM TWO HOURS AND A HALF.
HE SAID, HOWEVER, THAT THE ALCOHOL CHIEF MADE NO ATTEMPT TO
INFLUENCE HIM AND THE REPORT OF THE JURY WAS N 0 T CHANGED.
4/29--R1153A
284
April 29, 1937.
11:05 a.m.
H.M.Jr:
Hello
0:
Mr. Krock.
H.M.Jr:
Hello
Arthur
Krock:
Yes sir.
H.M.Jr:
Arthur.
K:
Yes.
H.M.Jr:
Henry talking. I've got an idea which may or may
not appeal to you. Ah - I was just reading Ferdinand'
Coons' story out of London on "Stocks Fall in London".
K:
Yes.
H.M.Jr:
And about their commodity troubles and all that and,
of course, it's the only intelligent story which is
in any paper to-day on the situation.
K:
I thought it was very good.
H.M.Jr:
Now - what - I - I don't think the other people
caught onto is - "What is the situation here", see?
Ah - what about our banks and our commodity loans
and our loans against stocks, see?
K:
Yes.
H.M.Jr:
Now the people get angry when the President keeps
warning them all the time - but he has and I think
if you'd have somebody write a story or you can
write it yourself - due to these warnings and due to -
if you don't mind my saying so - our constantly warning
the people - ah - you'll find, on investigation that
our banks have not made commodity loans, our brokerage
houses are all in good shape and we can take this
sort of thing in the - in our stride.
K:
Very good point.
H.M.Jr:
Now no one has pointed that out.
285
- 2 -
K:
Very good point.
H.M.Jr:
And it might have a quieting effect.
K:
It probably would and I shall - I'll put it in the
works at once.
H.M.Jr:
Do you get it?
K:
Yes I think I have it.
H.M.Jr: What?
K:
I'm sure I have it.
H.M.Jr:
And nobody's handled it that way.
K:
No, I real- - I - I'll put it in the works right
away.
H.M.Jr:
Thank you.
K:
Thank you.
286
*pril 29, 1937.
2:47 p.m.
H.M.Jr:
Hello
0:
Congressman Doughton is in the building but they don't
know exactly where; they'll try to reach him.
H.M.Jr:
All right, leave word I called.
0:
All right.
H.M.Jr:
And let me talk to - ah - to - ah - Mr. Oliphant.
0:
Right. Go ahead.
Oliphant:
Hello
H.M.Jr:
Herman
0:
Yes.
H.M.Jr:
Not to hold you up - you couldn't clear what you have
on your mind over the 'phone?
0:
Well I think I could.
H.M.Jr:
Try it.
0:
"h - I think from the stand- - from our standpoint
that that Chicago thing is pretty serious.
H.M.Jr:
Yes.
0:
He didn't know how it might turn out but there's been
no technical violation under the law because what
happened is our official representative there - ah -
makes a secret contact through a third person to
meet the Foreman of the Grand Jury in a hotel room;
H.M.Jr:
Yes.
0:
not in his office and not at the man's house
H.M.Jr:
Yes.
0:
to discuss something or that he tried to get from
him something that the Foreman wouldn't give him in the
Grand Jury room.
H.M.Jr:
Yes.
287
- 2 -
0:
And I don't know . - ah - looks to me like an apology
is going to be called for.
H.M.Jr:
Well by God I'm not going (laughs) to make it.
0:
What?
H.M.Jr:
I won't make it. I'll tell you what my reaction was
when Graves was in here.
0:
Ah-ha.
H.M.Jr:
Ah - he wanted - he suggested my calling up the
Attorney General to call it off. I said, "No."
I said, "If this man has done it or hasn't done it
make him go through with it," see?
0:
Ah-ha.
H.M.Jr:
I'm not going to call up the Attorney General.
0:
Well I think this action of Yellowley's is unbelievably
stupid.
H.M.Jr:
Well all I would suggest, in sending somebody out
there, would be to - ah - just so he isn't left cold,
that's all.
0:
Yes.
H.M.Jr:
But make him take his medicine.
0:
Yes - yes.
H.M.Jr:
What do you think?
0:
Well I - ah - that's the way I'd like to do it. I'd
like to - I'm sending a very good man - Mr. Forrest
who's had a lot of experience in the court room -
Assistant District Attorney in Baltimore - I want to
go over it carefully with him before he goes
H.M.Jr:
Yes.
0:
.....and fortunately now a date has been set
H.M.Jr:
Good.
288
- 3 -
0:
and the hearing doesn't come off until the 10th.
H.M.Jr:
Yes.
0:
But I'd like for him to go out now in the meantime and
look the situation over and find a little more about
what actually happened and then - ah -
H.M.Jr:
Well I - I feel this way - without knowing the law
that if - I wasn't going - without - going to call
up the Attorney General and ask him to excuse him
from something which he - - which may or may not been
wrong.
0:
Oh quite the contrary - if you were calling the Attorney
General at all you'd be calling him to apologize.
H.M.Jr:
Well I'm not going to apologize; I'm through apologizing.
0:
Well I know what . you know what I mean. The thing -
the thing is on the reverse.
H.M.Jr:
Well then if it isn't until the 10th, let your man
go out, get the first hand attention, confer - if
you can't make up your mind I'd be glad to talk to
you about it from the farm.
O:
Fine.
H.M.Jr:
Now does that leave your mind
0:
Perfect.
H.M.Jr:
Thank you very much.
Regraded
289
April 29, 1937
HM, Jr called in Sloan and Bryan and said he wanted
a pep up the sale of baby bonds between now and July 1.
He suggested advertising in the newspapers. He
asked the boys to prepare a plan suggesting what news-
papers to advertise in without getting into trouble
for advertising in some papers and not in others. He
told them he did not want any criticism because of it
and wanted them to work out a plan in such a way that
they will be able to give a good excuse for omitting
certain papers.
Regraded Uclassified
290
May 7, 1937
Mr. Teylor
Division of Savings Bonds (Mr. Sloan & Mr. Bryen)
Subject: Report of Conferences.
We have had extended joint conferences during the last
several days with several representatives of both of our ad-
vertising agencies, and have thoroughly cenvessed the methods
and possibilities of immediately and materially increasing the
sale of United States Sevings Bonds.
In these discussions we have placed the following
requirements:
(a) Special campaign and expense limited to present
fiscal year, ending June 30, 1937.
(b) Quote of increased sales from these special
activities to be not less than $100,000,000.
(c) Maximum newspaper and redio publicity.
(d) Protection against criticisms from competitive
media.
The time element eliminates all madia except radio end
newspaper.
RADIO
Ne recommend talks over local radio by postmasters. Usually
time 1a cheerfully allotted to postmasters and 88 we will be using,
perhaps, extensive newspaper space, the radio stations controlled
by newspapers will be all the more likely to cooperate. No recom-
zend 8 dialog form of redio presentation.
NEWSPAPER ADVERTISING
In order to approximate en increased sale of $100,000,000 or
more within the next several months extraordinary effort is re-
quired. Our greatest relience is on newspaper publicity. To
-&-
secure the maximum publicity and eliminate all possible criticism
from competitive media, re are recommending nothing short of paid
advertising in every English language deily newspeper in the United
States. This will cost for the program we are outlining between
$215,000 and $265,000 depending upon the insertions in emaller
papers. Our recommendation 18 for a 300-line advertisement (61x7)
to run three times in the emaller dailies which number approxi-
mately 1,809.
Candidly, we do not expect this size advertisement in these
leaser dailies to assist greatly in the seles, but we are count-
ing on the sustaining publicity. Ne expect our selling job to be
accomplised by 700-line copy in all of the leading deilies. This
copy to appear six times in each of these papers.
The division of cost is -- for the metropoliten deilins
approximately 150 papers) six insertions each,
$190,928.40
For the lesser dailies (1,809 papers) three
insertions each
72,474.00
Total
$263,401.40
PUBLICITY
No recommend decentralizing our publicity, end, if practical,
permitting the postmaster to place the advertising in their respec-
tive local papers. He would furnish to postmasters c minimum of
three releases per week during this campaign, and there would be
no question but re would receive tremendous publicity.
NEW ISSUE
In our several conferences, everyone ettending was unanimous
in the belief that, if the "Investment Bonds" which you have out-
lined would be offered as B limited issue at this time, several
hundreds of millions of dollars could be very quickly placed
through the advertising compaign shove suggested for Sevings Bonds.
Every suggestion you have mede with reference to these bonds has
been enthusisstically endorsed with the exception of the invest-
ment bonds being sold in the lower brackets. We feel that, in
order to stay away from confusion and natual competition with
Sevings Bonds, $1,000 should be the minimum denomination of the
investment bonds, and that the meximum purchase in any calendar
year should be $25,000. We 880 no difficulty in effectively com-
bining our advertising of Sevings Bonda with "Investment Bonde".
Regraded
291
-8-
CONTESTS
Be are all agreed that a contest offering awards or additional
compensation to letter-carriers would sell a great volume of
Sevings Bonds within a very limited period. Likewise, contests
with the public at large could be plenned.
But we are agreed that the time at our disposal to launch
any contest is insufficient. Nevertheless, we will present to
you in the near future the details of these suggested contests.
JWB:gc (mtr)
Regraded Uclassified
HH
292
T
Prepared by Mr. Daggit
Division of Research and Statistics
IN:
DATE April 29, 1937
TO
Secretary Morgenthau
FROM
Mr. Hans YOR
Subject: The Business and Price Situation
Summary
Business activity during April, as indicated by weekly data, has main-
tained the high level of March, and shows some rising tendency. It still re-
mains a few points lower than the December peak, when allowance is made for
seasonal trends, though actual production is higher than in December.
Certain elements of weakness in the business outlook have appeared. A
decline in first quarter corporate earnings in relation to output may indicate
& slowing up in business. The downturn in commodity prices during the past few
wooks tends to remove any speculative basis for the recent business expansion,
and to that extent may have an unfavorable reaction on business activity. A
decline in stock prices to the lowest levels since last September also may
affect business unfavorably, since the stock market influences business senti-
ment. A sharp falling off in new business in the textile industry may indicate
a greater than seasonal decline in textile activity during the summer.
On the other hand, the level of business activity during the coming months
will be supported by the improvement in factory payrolls, by 8. continued strong
rotail demand for automobiles, by an increasing demand for railroad equipment,
by well-sustained activity in the steel industry, and by the more peaceful
labor situation. Any setback in industrial activity during 1937 seems likely
to be temporary, in view of the fact that no characteristics of an important
top in business activity have yet appeared; that agriculture has yet to con-
tribute its normal share to business prosperity; and that a revival of build-
ing activity has yet to play its part in business recovery.
The docline in security prices during March and April was apparently
initiated by previous weakness in bond prices, and was later influenced by
declining commodity prices, unfavorable earnings statements, and increased
foreign selling. No extended decline appears in prospect, however, in view
of the favorable long-term business outlook, the lack of any large specula-
tive interest (aside from foreign holdings), and the fact that present prices
already discount a considerable setback in business activity. The fact that
the bond market is beginning to show evidence of increased buying interest
appears favorable for stook prices.
The recent decline in commodity prices, brought on largely by weakness
in foreign markets, may be prolonged by further liquidation, by increasing
production in response to high prioe levels, by the possibility of a halt
in the rearmament race, and by any tendency toward & recession in business.
The longer term outlook appears in favor of a rising trond.
. 2 -
293
The Business Situation
Business activity during April (seasonally adjusted) has maintained
the high level of March, but remains somewhat below the peak established
last December. The weekly indexes of the Department of Commerce show a
gradual upward tendency during the month. Steel production has risen
slightly to a new high level, after holding for six weeks within a. narrow
range. Automobile production has expanded sharply in recent weeks, after
previously being depressed because of strikes, and both electric power
production and petroleum production have increased. These have been partly
counteracted by E. large decline in bituminous ooal production. The recent
trond of business activity on a weekly basis, in comparison with previous
monthly figures, is shown in Chart 1.
For the month of March, industrial production (seasonally adjusted)
increased its gains over the previous two months, but did not reach the
high level established in December. A comparison of the March figures
with the December figures, by industries, is shown in Table 1, attached.
The Federal Reserve Board index of production for March, estimated at
118, compares with 116 in February, 114 in January, and 121 last December.
The average for the year 1929 was 119.
A greater than seasonal gain was recorded in a. number of important
business series. The production of cotton goods during March reached the
highest level on record, 779,000 bales of ootton being consumed, as com-
pared with the previous high of 696,000 bales in June 1933. Steel ingot
production reached & volume exceeded only during the early months of
1929. Lumber production expanded more than seasonally, as did the output
of bituminous coal, and the volume of freight car loadings. Electric
power production remained unchanged, when 8 decline was normally to be
expected. Automobile production, held baok by strikes, showed no in-
croase during March.
In terms of actual production, not adjusted for seasonal variation,
the March index of production was substantially higher than last December,
averaging 122 as compared with a December figure of 114. This has been
reflected in increased employment and payrolls, and the position of fac-
tory workers has shown a noticeable improvement. The increase in payrolls
has been greater than the increase in employment, while living coste have
gone up but slightly. Thus a definite betterment in real wages has
occurred. As compared with an average for the period 1923-25, represented
by 100, real factory wages during March stood at 117.1. In comparison,
the average for the year 1929 was 110.9. Comparative figures for the paet
four months are shown in the table below.
(1923-25 . 100)
March February January December
FRB Industrial Production
3,
118
116
114
121
1
FRB Employment
3/100.8
99.7
98.8
98.6
BLS Payrolls
3/101.2
96.8
90.6
95.1
NICE Cost of Living
86.4
85.7
85.4
84.7
2 Real Wages
3 117.1
111.8
106.1
112.3
1
Adjusted for seasonal variation
3
Proliminary.
2
Payrolls divided by cost of living.
- 8 -
294
The Business Outlook
Certain elements of weakness in the business outlook have recently
appeared. Of important significance is a decline in corporate earnings
in the face of increased industrial production. The earnings of 161 cor-
porations (industrial, rail, and utility) during the first quarter of
this year, according to a preliminary estimate of Standard Statistics,
show a reduction of 25.5 percent from the earnings during the last quar-
ter of 1936. Yet industrial production in this period showed a rise of
3.5 percent. The estimated corporation earnings for this quarter were
only 1.6 percent above the earnings during the third quarter of 1936,
whereas industrial production was 10.4 percent higher. A slight upward
revision will be made in the preliminary earnings estimate on the basis
of recent corporation reports, which will not change our conclusions.
While 8. slight reduction in earnings could have been expected on
the basis of seasonal factors, and on E. reduction in inter-corporate
dividends as compared with the December quarter, a decline of this
extent during a. period when output was increasing apparently indicates
B. tendency for production to run ahead of consumer demand, since corpo-
rations have evidently been unable to pass on all of their recently in-
creased labor and material costs to consumers. On the pasis of past
experience, this would suggest a tendency toward 6. slowing up in busi-
neas. In Chart 3 we show a. comparison of industrial production with
corporate earnings over the past several years.
A second element of weakness is the recent decline in commodity
prices, which has removed part of the foundation on which the winter
and spring improvement in business was built. There seens no doubt
that the sharp upward movement in commodity prices during the past two
quarters, which created a widespread belief that inflation WELG under
way, brought into the market a considerable volume of anticipatory
buying that would normally have been deferred until later in the year.
While the filling of outstanding orders will maintain factory production
for 8. time, the change in the public attitude toward inflation brought
about by the collapse in prices is likely to discourage new orders, and
eventually affect industrial production.
The decline in stock prices must also be considered an unfavorable.
factor in the business outlook. A considerable section of the business
community depends in some degree upon the stook market as indicating
the trand of business. The decline in the Dow-Jones industrial index
from 195 early in March to this week's low level of 171 is likely to
have an unfavorable effect upon business sentiment, and influence
future plans accordingly.
Regraded
295
Conditions in the cotton textile industry appear to be growing
less favorable. Although the domestic consumption of cotton during
March established an all-time record, textile sales during March and
April have been less satisfactory than expected. Department stores,
having bought too heavily when prices were rising, are in many cases
said to be requesting deferment of deliveries until May, when a
broadening of consumer interest is hoped for. Buyers generally have
enticipated their summer and fall needs in large volume. The recent
doclines in cotton prices have made buyers cautious and sharply re-
duced the volume of new business. Unless the retail demand for
finiched goods improves shortly, a greater than seasonal decline in
cotton textile activity seens likely during the summer months. The
volume of unfilled orders on the books of mills at present, however,
is believed to be large enough to maintain activity at high levels
during the second quarter.
The favorable factors in the immediate outlook appear to have
loos weight than the unfavorable factors, but are sufficiently im-
portant to be a strong supporting influence for business during the
coming months. These may be listed as follows:
(1) The recent improvement in real wages of factory workers,
which has hardly had time, as yet, to show its effect
in consumer demand.
(2) A continued strong retail demand for automobiles, which
may be further strengthened during the spring by the
improvement in factory wages mentioned above. Dealers
are reported to be selling cars as rapidly as they can
obtain them from the factory, with consumer demand far
from satisfied. This should help maintain production
in the steel industry.
(3) An increasing demand for railroad equipment. This demand
appears sufficiently urgent not to be affected by busi-
ness uncertainties, but may, on the contrary, be stimu-
lated by declining materials prices. This also will
tend to maintain the rate of output in the steel indue-
try.
(4) A well-maintained demand in the steel industry. The rate
of steel activity has recently been holding up at a time
when a seasonal decline could be expected. The posting
of unchanged finished steel prices for the third quar-
ter, however, has removed the fear of further price in-
creases, which had been one of the reasons for heavy
advance bookings.
(5) A more peaceful labor situation. For the first time in
months no serious strike threatens any industry.
296
6
We can see nothing in the situation at this time to suggest more
than B. temporary setback in industrial activity. Aside from the
probability that,business has advanced too rapidly during the past
two quarters, under the influence of 6. semi-inflation boom, and that
a little time may be necessary to enable consumption once more to get
into stop with production, nothing 80 far has occurred, in our esti-
nation, to change the fundamental factors pointing toward a further
recovery.
It is true that the volume of industrial production at present
is back to the 1929 level, from which the severe recession began
eight years ago, and that the rate of activity in some important
industries exceeds that of 1929. Changed conditions, however, warrant
the belief that the present level of industrial production is not
directly comparable with that of 1929. In the first place, the popu-
lation in this country and doubtless in the world has increased over
the intervening years. Our population as now estimated is 6 percent
larger than it was in 1929, which would justify 8. corresponding in-
crease in the normal level of industrial production. Secondly,
owing to the unusual severity and duration of this depression, the
replacement demand for durable goods, and even for many types of con-
sumers' goods, is probably greater than ever before. This apparently
explains in part the DBW records being made in the textile industry
and in the steel industry. In the third place, an appreciable part
of the present volume of industrial production represents Government-
financed orders for materials used in various emergency projects,
which cannot properly be considered a. part of the normal business
demand. Finally, a continued trend toward industrialization, toward
factory production in place of home and small shop production, and a.
continued increase in the number and variety of factory products
demanded by the consuming public, should tend to establish B.
progressively higher normal level of industrial production. A single
argument on the other side is the fact that restrictions on our
export trade have reduced our production for export, notably in
automobiles. Yet our imports have also been reduced to nearly a cor-
responding degree, thus increasing our demand for domestic products.
After each previous depression in our history the level of
business activity in this country has risen to new high levels.
In Great Britain, Japan, and B. number of other countries, new high
levels have already been reached after the recent depression. On
these facts alone one would be justified in expecting a further
rise from the present level GB being more probable than a decline.
This belief is strongly supported by the following facts:
297
- 0 -
(1) No characteristics of B. major top in business activity have
yet appeared. Interest rates remain near their lowest levels, which
suggests a rising long-term trend of business. No speculative boom,
such as usually characterizes a. major top in business activity, has
taken place. The recent boom in commodity prices now appears to
usve been largely of foreign origin, and confined in its speculative
effects mainly to foreign countries. Perhaps it marks an important
top in the British business cycle. In this country there has been
no speculative boom in the stock market, no material increase in
brokers' loans, and no boom in land values.
(2) Agriculture has, as yet, scarcely contributed its normal
share to business prosperity. With production seriously curtailed
by three successive years of drought, the farming industry has not
yet shown its potential influence in promoting recovery. This, in
turn, is en important reason for the lagging trend of railroad
earnings and railroad equipment purchasing. The powerful influence
of heavy agricultural production upon industrial activity and cor-
poration incomes 18 seen in the fact that recovery from nearly all
previous depressions occurred in bumper-crop years. The prospect
of increased agricultural purchasing power next fall, as well as an
increased volume of crops to be moved by the railroads And processed
by manufacturing concerns, will prove a strong support to business
during the final quarter of the year. Assuming normal yields, an
increase of approximately 5 percent in the volume of crop and live-
stock production can be expected during the 1937 calendar year, with
crop production probably exceeding last year by around 10 percent.
Pecause stooks of agricultural commodities have been greatly reduced,
and prices have risen since last fall, the increased crops will have
relatively little effect in depressing prices 0.6 compared with those
prevailing when last year's crop was marketed. An agricultural in-
come this year 10 to 12 percent larger than last year seems A
reasonable expectation.
(3) A revival of building activity has yet to play its part
in the business recovery. That this eventually will become an im-
portant factor is indicated by the huge deficit in both residential
and heavy construction that has accumulated since the decline began
in 1928. In England, where recovery began nearly two years earlier
than in this country, B. building boom occurred during the fourth and
fifth years of recovery, and was largely instrumental in raising in-
dustrial activity in 1935 to levels exceeding those of 1929. In the
United States, building construction has revived gradually since the
low in 1933, but is still below normal. The index of residential
construction contracts awarded during the first quarter of this year,
as computed by the Federal Reserve Board, WGB only 42 percent of the
1923-25 average, as compared with 126 percent during the peak year
1928. Non-residential contracts awarded during the first quarter,
excluding those for public works and public utilities, were 63 percent
of the 1923-25 average, which compares with 142 percent in both 1928
and 1929.
298
- 7 -
The present low level of construction seeme to be due in large
measure to high material costs, together with the faot that individual
and corporation incomes have only recently risen much above what might
be termed "subsistence levels." A construction boom requires not only
an urgent need for new construction, which exists at present, but in
addition it requires both the ability and the willingness to pay for
new houses, new factories, etc. The ability to pay has developed
largely during the past year, but the willingness to pay seems still
to be held back by the high cost of materials. This, in particular,
discourages speculative building, which has been an important factor
in previous building booms. If the recent decline in commodity prices
should bring a reduction in prices of building materials, it is entirely
possible that construction activity may support business on any recession,
and may even, 8.6 in Great Britain, lead the next upturn.
With these major factors still pointing toward higher levels of
industrial activity over the longer term, it is difficult to foresee
more than a temporary setback in business during 1937. Increased
agricultural incomes, an increased volume of agricultural production,
and a heavy volume of residential and factory construction would in
themselves tend to support most other branches of industry, partic-
ularly in railroad equipment, automobiles, construction materials,
and steel.
Security Prices
Stock prices have shown a declining trend since the peak was
reached early in March. Measured by the Dow-Jones averages, indus-
trial stooks have declined from a top of 195 to B. low last Monday
of 171, representing a loss of about 13 percent, which cancela all
gains made since last September.
Various factors are responsible for the decline in the stock
market. The movement appears to have been initiated by the drop in
bond prices, which occurred just before stooks reached their peak.
The weakness in bonds apparently had 8. certain effect in disturbing
confidence of investors in the outlook for securities, bringing
procautionary liquidation of stocks on the part of important in-
vestors. Deolining commodity prices later had an unfavorable
reaction on the stook market, leading to the belief that inflation
might be losing its effect as & business and speculative influence.
Disappointing earnings reports for the first quarter were also 6
factor in the market, indicating that many stooks had over-discounted
earnings prospects. This was particularly true of the utilities and
food companies, a number of which reported earnings lower than the
first quarter of last year. While earnings generally showed good
gains 8.8 compared with the corresponding quarter of 1936, they made
an unfavorable comparison with the last quarter earnings of that
299
- 8 -
year. This led to the feeling in some quarters that increased labor
and material costs were cutting into corporation profite, justifying
B. lower level of stock prices.
More recently, B. persistent selling movement by foreign holders
of American stocks has weighed heavily against the market and was an
importent factor on last week's decline. Previously, during the past
year or more, such selling has been of short duration, and foreign
traders have turned actively to the buying side when the stook market
rallied. This time the selling has continued on rallies and followed
the market down on ensuing declines.
Our reasoning suggests that this may mark the beginning of a
movement away from American securities, and may continue 86 a
depressing factor in the stock market. The original buying of our
securities appears to have been done largely for two purposes: to
provide B. safer investment for capital than was available in Europe
under its continual threat of war, and to take advantage of rising
price trends and improving business in this country. The avoidance
of taxes has also apparently been E. factor of some importance.
Within the past two weeks & decided change has appeared in European
war sentiment. The possibility now appears that the important
European powers may agree to an international conference looking
toward the settlement of economic difficulties and the halting of
the re-armament race. If successful, this would minimine or remove
one of the important factors responsible for foreign buying of
American securities. In the second place, the recent collapse in
commodity prices, the decline in corporate earnings, and the un-
favorable action of the stock market itself, have all tended to
discourage investments based on the theory of rising profits in
American industry. These are strong arguments for & belief that
B movement of foreign funds out of American securities may have
begun.
An analysis of the movement of foreign transactions over the
past two years in relation to the trend of the stock market shows
that foreign selling tends to be heaviest during periods of market
weakness, which suggests that the foreign holdings are partly
speculative in nature. To the extent that this is true, they may
continue to be liquidated on B. declining market, like other specula-
tive accounts, and tend to'prolong the recent market decline.
No extended decline in stock prices, however, seems in prospect.
While the effect of foreign selling remains an uncertain factor, the
lack of any large speculative interest in the stock market in this
country, together with the favorable long-term business outlook, the
low level of interest rates and the volume of funds seeking invest-
ment, suggest that any decline in stock prices over the next few
- 9 -
300
months is likely to be of moderate proportions. None of the
symptoms which in the past have usually proceded an extended market
decline, such as a high volume of brokers' loans, high call money
rates, and a heavy volume of stock transactions, have yet appeared.
Stocks seen generally not over-valued in relation to earnings, par-
ticularly when the prevailing low level of interest rates is taken
into account. In their decline over the past month and a half, they
have already discounted, at least in part, an expected setback in
business. As a matter of fact, et Monday's low the Dow-Jones in-
dustrial index had declined to the lowest levels of October, 1936,
during which month the Federal Reserve Board production index stood
at 110. Through their tendency to anticipate changes in business
some time in advance, stock prices may be expected to meet support
and begin an upward trend some time before business actually starts
to improve.
The bond market is beginning to show evidence of support, both
for Governments and corporates, which usually precedes e. turn toward
8 rising market trend. The decline in bonds began earlier than the
doclines in either stocks or commodities. Among the various quoted
price series, the Annalist average of 10 high grade rail bonds reached
a peak as early as mid-December, and started to decline sharply just
after the middle of January. Bonds of this class reached a low
point at the middle of March and have strongly held their ground
since that time, despite weakness in other divisions of the bond
market 8.5 well 6.8 in railroad common stocks. The Dow-Jones index of
corporate bonds, which is evenly divided between high grade rails,
second grade rails, industrials and utilities, started to decline
sharply during the latter part of February. This group has also
shown evidence of increased buying, and on the recent break in the
stock market it failed to reach its previous low.
The trend of prices for British consols is conspicuous as an
example of support followed by E. movement toward higher levels.
The decline in these bonds started considerably earlier than in
U. S. Government bonds, during the latter part of November, and be-
came stabilized during March when our bonds suffered their greatest
decline. Since then the trend has been slowly upward, with last
week showing 8. sharper rise in the face of a decline in British
stock prices. The market for U. S. Government bonds has been
stabilized during April, and the price trend has much the same
appearance 8.8 the trend of British consols during March. Our
experience leads us to believe that bonds will be first to strengthen
after the recent declines in the security and commodity markets. The
increased buying interest which has provided support for all types of
bonds during the past several weeks in the face of weakness in other
markets may be preliminary to the beginning of another upward move-
ment in bond prices.
- 10 -
301
Commodity Price Situation
During the past six months we have seen 8. rather typical rise and
fall of a speculative cycle in commodity prices, though we have yet to
through the final stage of that cycle, which is normally repre-
sented by 8. prolonged period during which the speculative holdings
acquired at higher levels are gradually liquidated, as increased pro-
duction stimulated by the price boom brings progressively lower prices.
The trand of commodity prices in the United States by weeks since last
August is shown in Chart 2, which compares the BLS spot price index of
30 sonsitive commodities with the Dow-Jones index of futures prices for
11 commodities.
The rise conformed in most respects with the usual pattern for a.
spoculative rise. Starting in an orderly manner during October and
November, it gained momentum 0.8 more and more buyers were attracted
into the commodity markets by widespread inflation and rearmament
publicity. Commodity speculation apparently was centered in London,
with Europe as a whole taking a much more important part in the market
than this country. The rises in practically all speculative commodities,
according to trade reports, were initiated by foreign buying. A foreign
dispatch to the Wall Street Journal recently mentioned that speculation
in armament and gold shares as well as commodities in London had been
rempent for months, and had interested all classes of the trading public.
In certain respects the speculation in commodities abroad appears to
have been comparable with our stock speculation of 1929. An aftermath
of this situation was the most severe commodity deoline in the London
market that had been recorded for any one day since Reuter's commodity
price index was started in 1931, together with numerous reports of
financial difficulties among commodity traders. While the volume of
commodity specule tion in this country showed 8. large increase, judging
from the published figures on trading volume, it apparently WEB much
less extensive than abroad, and its after-effects are likely to be
much less serious.
The trend of commodi ty prices over the past several months, as
shown in Chart 2, indicates that a typical "double top" has been
formed, which often precedes B. rather extended decline. This is
particularly evident in the index of futures prices. Following the
top reached in early January, B. reaction occurred lasting nearly two
months. During March a second upturn carried the index slightly
above its previous top, but the gains could not be held, and during
April a very sharp decline has occurred. Prices are now back to
the level at which they received support during February.
There are several reasons for believing that the trand of oon-
modity prices from this level may be downward. (1) An over-bought
situation created by a speculative boom is practically never corrected
11
302
by a short reaction, however sharp, but B. period of several months
is usually required for the liquidation of weak speculative holdings.
In 1933, for example, the first sharp reaction in late July was fol-
lowed by a general decline lasting until December. (2) The increased
production that is being brought out by the present high prices is
likely to be a more evident market factor next fall than it is now.
In most futures markets, particularly for agricultural products, the
fall months are quoted at substantial discounts from present spot
prices. In the case of the metals and certain other non-agricultural
commodities, present price levels are believed to be considerably
above production costs, a situation which in the past has usually
been soon corrected. (3) The possibility of a halt in the European
rearmament race, which has brought a collapse in the prices of arm-
ament stocks on European exchanges, removes one of the bases for the
speculative boom in metals and certain other commodities. (4) Any
recession in business this summer would tend to reduce the demand for
commodities, particularly in view of increased inventories that have
been built up in some industries.
The longer term trend apparently continues in favor of rising
commodity prices through the effect of expanding industrial demand,
increasing labor costs, an expansion in bank credit, and increased
world gold reserves.
Regraded
Jclassified
303
Table I
Federal Reserve Board Index of Industrial Production,
December 1936 compared with March 1937, by leading industries
Adjusted for normal seasonal variation
# Production index
I
#
1 Effective
# (1923-25 - 100)
Decline
Rise
:
I
Industry
I change in
a Dec. I March
:
I 1937
(points)
#
2 1936
(points)
2
total
#
I
: (points)
Iron and Steel
143
127
- 16
- 3.2
Pig Iron
104
108
+ 4
Steel Ingots
147
129
- 18
Textiles
139
P. 128
- 11
- 1.9
Cotton Consumption
144
136
- 8
Wool
141
P. 138
- 3
Silk Deliveries
134
114
- 20
Food Products
99
92
- 7
- 0.6
Meatpacking
100
89
- 11
Wheat flour
87
89
+ 2
Sugar meltings
115
108
- 7
Newsprint Production
64
64
0
.0
Automobiles
122
121
- 1
.0
Leather
134
P. 132
- 2
- 0.1
Cement
91
1/ 85
- 6
.0
Glass, Plate
89
229
+140
+ 1.8
Tin Deliveries
105
144
+ 39
+ 0.2
Zino
98
107
+ 9
+ 0.1
Lead
80
75
- 5
.0
Petroleum, Crude
161
173
+ 12
+ 0.6
P.
Petroleum Refining
191
i/
194
+ 3
+ 0.1
Tobacco Products
183
153
- 30
- 0.3
Bituminous Coal
97
P+ 110
+ 18
+ 0.8
Anthracite
73
81
+ 8
+ 0.2
P.
Industrial Production
121
P. 118
- 3
Manufacturing Production
121
P. 117
- 4
Mineral Production
117
P. 127
+ 10
I
February figures
P - Preliminary.
Points change in total index of industrial production resulting from
indicated rise or decline in each industry.
304
INDUSTRIAL ACTIVITY AND COMMODITY PRICES
PER
CENT
PER
CENT
Industrial Activity
1923 - '25 = 100 SEASONALLY ADJUSTED
130
130
125
125
WEEKLY
DEPT. OF COMMERCE
120
120
115
115
MONTHLY
F.R.B.
110
110
105
105
AUG.
SEPT.
OCT.
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
1936
1937
PER
PER
CENT
CENT
Commodity Prices
1924 - '26 = 100
35
85
30 SENSITIVE COMMODITIES, SPÓT
30
(B.L.S.)
80
APR.26
75
75
COMMODITY FUTURES
(DOW JONES)
70
70
65
65
AUG.
SEPT.
OCT.
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
1936
1937
Office of the Secretary of the Treasury
Over of - and Pursia
C - 135
305
INDUSTRIAL PRODUCTION AND CORPORATION PROFITS
1933 = 100 UNADJUSTED
PER CENT
(PRODUCTION)
PER CENT
By Quarters: 1932 - 1937
(PROFITS)
160
400
PROFITS
STAN. STAT,
161 CORPORATIONS
140
300
PRODUCTION
F.R.B.
120
200
100
100
80
o
60
-100
1932
1933
1934
1935
1936
1937
PER CENT
PER CENT
RODUCTION)
First Quarter for Each Year: 1926 - 1937
(PROFITS)
180
500
160
400
PRODUCTION
F.R.B.
140
300
PROFITS
STAN. STAT.
161 CORPORATIONS
120
200
100
100
80
0
-100
60
1926
'27
'28
'29
'30
'31
'32
'33
'34
'35
'36
'37
Office al the Secretary of the Treasury
C - 136
Division of - ml felde
306
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE April 29, 1937.
TO
Secretary Morgenthau
FROM
Mr. White HDW
Subject: Conversation with Dr. Otto Jeidels, April 26, 1937.
Dr. Jeidels is one of the owners of the largest wholly privately
owned bank in Germany, the Berliner Handelsgesellschaft, which is the
smallest of the big five commercial banks. A consular report of
June 26, 1936, reported that in November 1931 a large blook of the
bank's stock was purchased by American banking interests. Its assets
are reported to be about 275 billion marks. A summary of his views
on numerous topics, offered in response to B. few direct questions
during the conversation, follows:
(The following are Dr. Jeidels' views described from memory; observa-
tions in parentheses are mine.)
1. The German budget situation.
Dr. Jeidels states the estimates made in numerous quarters that
the "hidden", floating debt of the German Government is from 40 to
50 billion marks are much too high. He estimates that the Government
issued from 3 to 4 billion of these (Arbeitsbeschaffungs wechsel)
short-term bills during 1936, making a total outstanding of 12 to 15 bil-
lion. He claims that the estimates made by some reliable economists,
307
Secretary Morgenthau - 2 -
though carefully arrived at, are an error resulting from the fact
that the notes are renewable every three months and payment to industry
is made by giving them several notes dated ahead to replace the one
falling due inasmuch as they do not mature until at least B. year. He,
therefore, thinks that the various economists have added up these notes
cumulatively and thereby introduced a large error in their estimates.
(Careful studies which avoid the error he refers to have been made and
point to a figure closer to 25 billion than to 15.)
One of the strong features of the German budget, he emphasized in
my conversation with him even more than he did at the earlier con-
ference, was the fact that only 1 billion out of the total 13 billion
reported expenditures is used to pay for interest and outstanding
federal debt. This he compared with interest and amortization burden
of 18 billion francs out of a total budget expenditure of 40 billion
in the case of France.
(He overstated the proportion of the French budget going to pay-
ment of interest and amortization by not including the "extraordinary"
expenditures which are part of France's annual budget. Moreover, the
existence of 8. large proportion of the total budget required for servic-
ing debt does not of itself constitute a sign of actual weakness, nor
the absence a sign of financial strength. The interest charge e.g. on
the British Government debt is over 25 percent. The grave weakness in
the German Government finances are (a) her inability to service her
308
Secretary Morgenthau - 3 -
foreign debt, thus making it impossible for her to obtain badly needed
foreign loans, and (b) the rapid rate at which her "hidden" debt is
growing. The bills which make up this debt are not in fact rediscount-
able, and maturities are frequently met with renewals.)
Dr. Jeidels felt that the German Government finances-are not bad,
and that there was no danger of serious budgetary difficulties. (on
this point I suspected his optimism was dictated more by political
caution and expediency rather than his evaluation of the situation 9.6
an able banker.)
Expenditure on armaments in 1936.
Using the published budget figures, and adding the amount of bills
which he estimates were issued in 1936, he arrives at an estimate of
about 9 billions spent on armaments in 1936. This estimate is 3 billion
more than the one issued by the Foreign Policy Association, but 3 bil-
lion less than the one thought to be reasonably correct by Captain
Puleston.
(Judging from his likely underestimate of the total of short-term
bills, his estimate of the 1936 issue is probably also low, and there-
fore his estimate of German expenditure on armaments which was partly
based on that estimate would likewise be low.)
2. Devaluation of the mark.
Dr. Jeidels expressed the opinion that Germany had very little to
gain by 8. revaluation of the mark at this time. The economic advantages
309
Secretary Morgenthau - 4 -
that would accrue from such B. move were, he believed, slight in view
of the large proportion of her exports that are sold under clearing
agreements or special marks, Inasmuch as the clearing agreements have
some time to run and because numerous foreign countries have built up
large blocked balances in Germany as B. result of those agreements,
which they can reduce only by buying German goods at the nominal market
rate, Germany still has an advantage with respect to that trade which
she would lose if devaluation took place. (This advantage obtained
from her clearing agreements is rapidly growing less owing to the fact
that clearing agreements with Germany are becoming less popular.
Germany is resorting more and more to subsidizing her exports in order
to obtain foreign business.)
He admitted that devaluation would very much simplify their exchange
control and would stimulate their exports somewhat, but stated that the
chief reason why it was felt in Germany that devaluation would be
unwise at this time was the danger of a resultant rise in prices in
Germany and the political consequences of such a rise. The German
Government is making every effort to keep prices down. Ee claims that
the cost of living has risen only 15 percent since Hitler came into
office, and that though wage rates have not risen as much the number of
working hours and working days per year have increased 50 greatly that
the annual earnings of the average German has increased enough to
offset the rise in the cost of living. Therefore he concludes there
310
Secretary Morgenthau - 5 -
is no fall in the standard of living. However, any sharp rise in
prices now would stir up discontent and a demand for wage increases.
The German Government is for obvious reasons anxious to avoid stimu-
lating any populer discontent.
3. Foreign exchange problem.
Germany's foreign exchange problem is more acute than ever not-
withstanding the fact that her exports have increased substantially
(her export surplus is reported to be about 100 million marks greater
for the first quarter of 1937 than it was for the first quarter of
1936). As stated above, the advantage which she formerly possessed
through the clearing agreements is disappearing. The market has
changed from B. buyer's market to a seller's market and Germany is no
longer in a position to exact advantageous terms in her clearing agree-
ments as she was last year and the year before. Likewise the rise in
the price of raw materials which Germany must have both for domestic
needs and exports is leaving a small margin of benefit to her exports
and, lastly, more and more of her imported raw materials are being
used either for war stores or war material.
Trade with the United States with special marks.
Dr. Jeidels is not very hopeful that the Treasury regulation
(December 23, 1936) relating to trade with the United States with
special marks will make it possible for Germany to export much more
to the United States than she is doing now. The "Continental Trading
Regraded
311
Secretary Morgenthau - 6 -
Company", organized a few months ago in the United States to secure
trade under the new regulation, has not accomplished much yet. He
stated that the organization is a "quasi-official" one,
4. Germany's foreign credit.
He feels that Germany ought not to expect to receive long-term
foreign loans because it does not appear that she will have any success
in getting them. Moreover long-term loans would not be in Germany's
best interest. What she needs are 6 and 9-month credits with which
to finance raw material inventories she greatly needs. If only
Germany could get the credit with which to get the raw materials she
would have no difficulty whatsoever in meeting all kinds of competi-
tion for manufactured goods. The only chance for Germany to get these
foreign credits is to first pay off a portion of her long-term foreign
debt (three-fourths of this foreign debt is completely in default and
one-fourth partly) and then adjust the remainder on some basis of
Germany's ability to meet the payments. The loans following the adjust-
ment would have to be made with a "sympathetic understanding" of
Germany's problem because on the basis of cold economic facts Germany
would have a difficult time of obtaining any credits even if her long-
term debt were adjusted.
5. Germany's future.
He feels certain that Germany will be able to pull through. (even
if he felt otherwise I don't see how he could afford to say so here,
since after all he is not an unimportant personage in Germany, and,
312
Secretary Morgenthau - 7 -
incidentally, appears to be quite friendly with Schacht).
Germany's Government financial situation will not be a source of
trouble at least for a long time to come. Unemployment is at a very
low level; strikes have been virtually eliminated; the "Four-year"
plan will have some success, and after its completion and the improve-
ment of the world situation Germany will be economically better off
than ever.
It is not Germany's economic future, but her political and cultural
future that makes him uneasy. Germany's strength and weakness both lie
in what he likes to call her "Spartan" nature. Germans love discipline;
they have an amazing ability to take and execute orders. "My own
clerks", he said, "tell me they love to put on e. uniform and take
orders. They are very happy doing things in mass. Germans love to
take orders."
It is true that they are tiring of the speeches of Hitler and his
colleagues and that the authorities are finding it harder to give them
something new to keep them emotionally stirred up, but the years of
ceaseless, high powered propaganda has had its effect. They have
already forgotten what it ever was to have free speech, free criticism,
or complete freedom of action. They don't even seem to miss it. This
means that Germany is a marvellous machine, geared, to be sure, largely
on B. war basis. Germany's weakness is her laok of intellectual free-
dom. The darkest spot in Germany's future is the fact that intellectual
freedom is being crushed and the splendid development of Germen science
Uclassified
313
Secretary Morgenthau - 8 -
which has marked Germany's progress in the past will disappear because
pure and fruitful research is not promoted by the current way of life
in Germany. The young men have had their high school period shortened,
they spend 1% to 2% years in the army or labor camps and their college
courses are taken up in substantial part by political activities. Be-
sides, a great many of the leaders in science have become exiled and
are thereby developing no students to carry on.
Little is known in Germany of what is really happening in Spain
or elsewhere in the world. The news is more standardized than ever,
no foreign paper printed in German is permitted in the country, and
foreign newspapers are expensive. Thus very few persons have access
to news from outside of Germany, and what is disturbing is that the
public doesn't seem to mind the strict censorship very much.
(I think that his fears with respect to scientific progress in
Germany are somewhat exaggerated. Germany can hardly contribute nearly
so much in the future as she has in the past in the field of scientific
research both pure and applied. On the other hand, the fruits of
research in all foreign countries are available in the scientific jour-
nals and the results of such research useful to industry would be
readily adapted by the kind of technical men which Germany is now
training. Germany and the world will suffer EL loss in science, of
course, but that loss will in no sense cripple Germany or cause her
to fall in the scale of efficient producers. While I believe he
exaggerated the adverse effect on Germany's industrial development
314
Secretary Morgenthau - 9 -
caused by the death of intellectual freedom, he appeared to under-
evaluate the loss to the German people in terms of spiritual and
cultural values. However, when he was speaking on that aspect of the
subject I had the definite feeling that he was having a hard time
restraining himself from speaking his mind freely.)
315
April 29, 1937
3:35 pm
Present:
Mr. Magill
Mr. Oliphant
Mr. Helvering
Mr. McReynolde
Mrs. Klotz
HM,Jr: Come on, Mr. Magill. Now we will have something
that 18 good. I am trying to do everything that 18 difficult
before I leave tomorrow afternoon.
Mr. Magill: Well, the situation is this: as we all know,
the final step in the determination of tax liability, when
the Bureau has finally made up its mind that an additional
amount is due of what has been recorded, the Commissioner sends
out what 18 called a deficiency letter or 8 90-day letter which
gives the tax-payer right of appeal to the Board of Tax Appeals
within that time. He files a petition. The period was made
90 days rather than 60 in order to give the tax-payer an op-
portunity of coming in and discussing with the Commissioner the
possibility of settling the case, and 8 good many cases are
settled that way. There are, however, many more cases ap-
pealed to the Board than the Board in its present mechanism
can possibly hear, 80 that it has been essential, practically
all the time during the life of the Board, to have some ma-
chinery for settling these cases which have been appealed but
which, if not settled, simply back up on the Board's docket,
In that connection, I think the Board now has some
$550,000,000 deficiency unheard and although their backlog
18 8. million or less (I think it 18 not quite a.8 low as it
was some years ago), they still have untried about 8,500 cases
and they can try on the average about 1500 B. year, and there
are appealed to them running around 4500 cases B year. So
it is essential that there should be some kind of settlement
machinery if the Treasury 18 going to get its money in any
reasonable length of time.
Now, way back in Mr. Mellon's day there was created what
was then called a Special Advisory Committee with a view to
doing this job of disposing of these cases, 80 that the Board
would not bog down in its work and we would get our money, and
Regraded Uclassified
316
-2-
that body has continued in various forms. Today it 18
called the Technical Staff and performs the same function.
The Technical Staff, in other words, 18 a body which is
designated by the Commissioner (18 in his office) whose
duties are to advise him with respect to the disposition
of these controversies. To wind up that part of it, the
Commissioner has determined deficiency in the case of this
taxpayer in such and such an amount. As it stands now, and
has been for some time, the Technical Staff will engage in
negotiations with the taxpayer and his lawyer; the Tech-
nical Staff may recommend whereas the deficiency determined
was $1,000,000 that it 18 to the interest of the Government
to settle on a basis of $500,000 or $700,000, and they make
that recommendation to the Commissioner and the Commissioner
proceeds to sign a settlement agreement with them on that
basis.
Now, you notice that these cases BO settled in this way
are in large part cases which have been taken to the Board
by petition and to which the General Counsel's Office has
then filed an answer, as a rule generally denying these facts,
BQ that in that sense they have been in the General Counsel's
Office and the question then arises
HM,Jr: May I interrupt? When you get through, if there
18 any conflict, if the procedure was different before we set
up the General Counsel's Office, will you describe that?
Mr. Magill: Yes. As a matter of fact, I don't think it
was.
HM,Jr: I mean, is it different since we have set up the
General Counsel's Office in the Treasury or did the General
Counsel of Internal Røvenue have that same authority before
the position of Mr. Oliphant was created? In other words,
16 this set-up practically the same as it was when there was
a General Counsel of Internal Revenue!
Mr. Magill: I put it this way: I think -- in fact, it
18,80 far as the factual machinery. What machinery exists,
in fact, I think it 1s just the same. Now as to whether
the legal situation has changed by viture of the creation
of the General Counsel's
.....
HM,Jr: No; that does not particularly interest me,
It's just whether the machinery 18 the same today of handling
these cases as when there was B. General Counsel in Internal
Revenue?
Regraded
Uclassified
317
-3-
Mr. Magill: So far 88 I know, it 18. Ien't that true?
There has always been, practically since the Board was es-
tablished -- this Technical Advisory Committee came into ex-
istance about 1926 when the Board first started to function?
Mr. Helvering: Uh-huh.
Mr. Magill: And has been in continuous existence under
different names since that time and there have been periodi-
cally -- my observation has been that group freezes up and 1a
not performing its functions properly and the Commissioner
has shaken it up and given it a new name and some personnel,
but essentially the machinery has been the same all the time.
Isn't that true?
Mr. Oliphant: I think BO.
HM,Jr: Mac, this thing, if I am right, 18 something we
have been talking about for two years.
Mr. McReynolds: Yes.
HM,Jr: At different times I have brought it up and it
has always been what I have called a three-cornered affair,
with McReynolds sort of representing me in odd moments trying
to keep this thing straight, and due to give and take it has
been kept straight. But it seems to me, from what I have
listened and observed on this thing, there should be & out-
off point of responsibility where one group's responsibility
ends and another's begins because at different times cases
have been brought to my attention -- we are only human -- that
each group tx trying to make a record tries to ask the tax-
payer for a little bit more and, therefore, you have the con-
flict as between the two. Now, in approaching this thing,
the thing we want to do, I think we always ought to do, 18
to approach it from the standpoint of what 18 fair to the
taxpayer. After all, we are hired in the long run to work
for him and give him fair treatment and prompt treatment and
this thing, which has grown up long before any of us here were
here, it seems to me there is always a point of overlapping.
What I am trying to do 18 see if we can't decide where your
(Helvering's) group carries to a point and then your responsi-
bility ceases and Mr. Oliphant's begins, and B.B near as I can
make out now, no one can define where that cut-off point 18,
and that's the whole question. At times, as I have listened
to the discussion, it was even suggested that we do away with
Regraded
318
your (Helvering's) technical group entirely. That sugges-
tion hae been made. I sort of absorbed this over the last
INO years. Got a little here and 8 little there.
I realize it 18 a very difficult thing and like all these
things, I think we want to sink our own personalities in the
thing and decide what can we do which will make these cases
settle more promptly and without having this natural competi-
tion which would grow up, whether the two groups are in the
Treasury or whether there 1e a group here and in the Depart-
ment of Justice. It's the same competitive thing here. It's
between ourselves and Justice. Now I would rather not go
Into the question of what are your legal responsibilities,
Guy, as Commissioner or what are yours (01iphant). I think
if we get into that, it would be very difficult because I an
not B lawyer. But can't we -- I think Mac was supposed to
drew this thing up and now with Magill here, it 18 to help
all of us; he ought to be neutral. He 18 neutral, Can't
we draw up a document which would be agreeable to everybody
involved and it really geta down into Helvering and you
(Oliphant)
Mr. Oliphant: Guy and I have never had a chance to die-
ouss it. We have worked together and got along well on
problems and we mostly work together.
HM,Jr: What I have been asking for, for two years and
naven't got, WBB to have this on a piece of paper. I have
asked to have it put on & piece of paper and the nearest we
ever came was to have a luncheon and I asked -- I don't say
1 asked you (Oliphant), but Mac or somebody.
Mr. Oliphant: I want to make it very clear you never
asked me.
HM,Jr: W&B it you, Mac? Were you at the luncheon?
Mr. McReynolds: I was instructed, a week ago, to put it
on paper.
HM,Jr: You will admit both of you were at that luncheon
where we discussed this thing a couple of years ago,
Mr. Helvering: I remember.
HM,Jr: Oliphant says he and Guy have not had a chance to
discuss this thing. I would really like to get the thing
nettled. Could the four of you meet next week 86 often as
319
-5-
necessary to come to an agreement 80 that when I come back,
a week from Monday, the thing will be agreed to on paper?
Mr. Oliphant: I don't want to be here next week. I
want to be away quite a little bit, but I can get it started.
HM,Jr: It 18 not much use if you are going to be away.
Mr. McReynolds: Moore 18 knee deep in this. We have got
a lot of light on it.
HM,Jr: I don't want to push anybody if you are tired.
Mr. Oliphant: I am, and would like to have a little time.
HM,Jr: Well, there is no use doing it if you are going
to be away and let's Just drop it and start the day you get
back.
Mr. Oliphant: I wish you would. I have been B. little
pressed and I feel it.
HM,Jr: There is no occasion at this stage of recovery
to press anybody. Well, let's start it the day you get back
and what I would do, Ros, you hold meetings in your office
every afternoon until you get it settled. Iв that agreeable
to your
Mr. Magill: Fine.
Mr. Oliphant and Mr. Helvering: Yes.
Mr. Magill: I would like to emphasize one thing you said
that 18 very good. For my part, while I am unfortunately a
lawyer, I have the same feeling that you have: that it would
be better not to discuss the thing strictly on a legal basis.
We could spend a great deal of time discussing what the legal
rights and privileges of the two parties are, but I think
when you get downto it you really haven't gotten anywhere
because it is essentially B. problem of administration.
HM,Jr: Unfortunately all four of you are lawyers, so
when you get it down 80 I can understand it -- I have heard
enough about it to know that no one 18 going to approach it
from the spirit that they want to hedge in on Mr. Helvering
or Mr. Oliphant. That's the last thing. So you don't have
to look up what are your legal responsibilities.
Regraded Uclassified
320
-6-
Mr. McReynolds: I think you can ignore it entirely.
Mr. Oliphant: You can to this extent; This out-off ought
to correspond to administrative reality before that can be
done and still the whole thing put in such form that the
validity of the action taken can never be questioned, and
that's my responsibility -- that the validity of it will never
be drawn into question. The two things are not in conflict.
HM,Jr: We had lunch today with Mr. Parker and somebody
else, the two chief editorial writers of the Scripps-Howard,
just to do a Job because they came out with an editorial
against the President's budget message. It was one of the
hardest things to keep him on the subject. What he wanted
to talk about was Wallace.
Mr. Oliphant: May I finish?
HM,Jr: If you please.
Mr. Oliphant: I want to be sure there 16 no misunderetand-
ing. I heartily agree that when it comes to drawing this
line or making any other administrative settlement, the line
ought to be drawn or the line should be what corresponds to
administrative reality, administrative necessities. You have
to bear in mind that the action taken be not inconsistent and
goes into such form that the resulting action 16 invalid,
I want to give you this further light. We took up the
matter, 8.8 far as settlements were being handled, in our office
and I had a table made on the baeis of the amounts involved.
I found large numbers of cases involving only trifling amounts
that were just taking almost as long to get through the shop
8.8 large and important cases, 80 on the basie of distribution
we cut off a big piece of these small cases and shortened the
method by which we handled them, eliminating a lot of intermed-
iate initials, and you have seen those initials.
HM,Jr: May I interrupt you? If we are not going to go
into this until next week, because you are going to rest and
need B. rest, let's let the whole thing drop and when you get
back let's start having meetings, but I would like to get this
thing settled. It has been hanging fire for two years and I
would like to get it settled. If Mr. Oliphant gets back a
week from Monday and Mr. Helvering isfeeling well, I would go
to it andif you get to a certain point I would like to join
321
-7-
the conference, but I have said right along this 18 the
port of thing I brought Magill along to assist me. Mac
carried it as far as he could with his other responsibil-
ities, but there are other things. And this is one that
Magill is particularly down here to do for me and there
are & lot of things which we have had to let go by the
boards because we Just didn't have manpower enough to do
it. And this 18 one of the things, and there are other
things like it.
Mr. Helvering: Could I indulge in Just a little his-
tory on this thing and end up with one statement I would
like to make about it? When I first came into the Bureau
of Internal Revenue, for the first two or three months
cases came in from what was called the Advisory Committee.
I found that a man handling the case would make BL report
to the whole Committee. Then they had what I designated
8,6 a "town meeting". The other 15 men on the Advisory
Committee would meet in there and listen to what this man
said and then take a vote. Many, many cases came to me
with a vote of 9 to 6, or 8 to V or 5 to 10 -- things like
that, but on & great many cases there was unanimity of
opinion. That looked to me like a very poor way of handling
that, 60 I appointed a Committee of Wright Mathewe, Mr. Parker
on the Hill, Mr. Joe Cullen, an outside man recommended to me
by Roper as an outside man who worked under him when he was
Commissioner. A6 a result, I took this unified power away
from the Committee and delegated it to individual members.
In other words, I called these technical advisors and told
them they need not go to any other advisor on the case.
What I wanted, with proper accountants and conferees and
themselves, to bring me a case ready for my signature and
I wanted them to be ready to do it and I didn't want any
alibis about it. If there was a question that could not
be decided, then take it up with the head of the staff and
the two of them come in and talk it over. We disposed of
the old advisory committee that put this responsibility on
the 15 men.
Many, many cases come in which they recommend for defense;
many for settlement. The part I am trying to get at 16 when
this Settlement Committee, now in the various units of the
Technical Staff headed by one man whom we picked out as being
particularly efficient in that line, come in and recommend for
a defense or settlement, if the taxpayer or his representative -
there generally 18 & representative in those cases -- has any
-8-
idea that there 16 & future settlement policy or future
policy committee that he can go to, we never do get a
settlement as it should be made because they withhold
certain information. When we send a case to defense
they will waive certain things we have stood for before
the Technical Staff and sometimes bring in new evidence.
The thing I want to get clearly understood 18 I am abso-
lutely opposed to a second settlement agency.
HM,Jr: Now, you see, Guy, both you and Herman have
tried to argue it now and you say we don't want to settle
it this afternoon. You tell me you have improved your
thing and I am not opposed or for anything. Do you get me?
Mr. Helvering: What I wanted to get at before we go
into conference 16 to take into consideration the broad
question -- the taxpayer comes in and presents so much stuff
and then if he has another Committee to present his material
to
HM,Jr: Who suggested any euch Committee?
Mr. Helvering: I am talking about if a case was recom-
mended for defense.
HM,Jr: Nobody has said anything about that this afternoon.
Listen, old man, Herman says he's tired. When Herman says
he's tired, he's tired. I am tired. I thought we could do
it next week. Herman says politely and gently, Give me a
week to build up my strength. It's a fair request. I cheer-
fully comply with that request. Both of you -- Herman wants
to say within the last two months you nave improved.
Mr. Oliphant: Terms of reference are broad enough. I
don't want you to make it BO narrow that it does not include
H4,Jr: What we are trying to do 18 npeed up the whole
thing and it may be more than the mere question of drawing
this line.
Mr. Magill: Oh, absolutely!
HM,Jr: Let's understand what Magill 1e down here for.
Magill 16 down here to Bee that the machinery that has to do
with the taxpayer 16 re-examined, to see that everything about
it is as efficient as possible. That 18 his broad part. You
322
-9-
men in here know that personally I have been able to give
less time to the question of taxation than anything else.
My Job has been what the President said: to keep this na-
tion solventand he has been kind enough to say that I have.
The thing is so big -- Internal Revenue is the biggest ad-
ministrative job in the Government. Guy has done & swell
job, but I still feel that there is a great deal to be done
and Magill's particular function 1s to help all of us.
Mr. Oliphant: That's right, and we have needed it and
he has done a grand job.
HM,Jr: Each of you has done more than your own Job wait-
ing for Magill to come.
Mr. Oliphant: And doing his own job.
HM,Jr: Now he's here and his field is the field of tax-
ation. I can't make it any broader than that, BO let's 80
in and you fellows bring up anything you have in your mind
which you think will improve this thing and when you are ready
or 86 you decide any issue and you want to put it up to me,
let me know and I will set aside a couple of afternoons. Now
are you all satisfied?
Mr. Oliphant: Perfectly! Sure!
Mr. Helvering: Maybe I overstated, but
HM,Jr: No, no. I
Mr. Helvering: I feel BO strongly about protecting the
revenue, I may not be perhaps logical.
Mr. McReynolds: I want to say for Guy's benefit that
the thing Magill and I have been fussing around about for
quite some time goes to the very question that you are put-
ting your finger on; that 16, reducing the number of places
that a fellow can go every time a tax determination is made
before the case 16 finally disposed of. Now he can spend
three or four years in merely going from pillar to post,
in definite process of delay, and when he finally gets up
withdraw their objection and agree. Surprising number of
"before the gun" they either take judgment by default or
large cases are just that. What we have been trying to do,
Magill and I,and I am sure Oliphant appreciates it as much
323
-10-
as we do, is to reduce the number of places there are for a
fellow to go; improve the quality of the work. You know
what Charley Russell andRos and I have been working on.
From the very first time that a case comes up for consider-
ation and it is stated he owes more tax, have the maximum
of assurance that you can stand on what you are putting up
to him and then reduce the number of places he can go. There
ought not to be more than two before he has to go to the Board
of Tax Appeals.
Mr. Magill: Of course, that was the only reason for your
(Oliphant's) elimination of reviews.
Mr. McReynolds: I am merely trying to relieve Guy's mind.
Mr. Magill: What you say 18 perfectly correct. If there
16 anything we want to do it is to fix the responsibility at
a givenetime for settling the case and at that time they can
settle and it's only one crowd.
Mr. McReynolds: Then there will be no place for him to go,
except into Court.
Mr. Oliphant: I don't want you to have any feeling that
there has been any division of opinion between Guy and our-
selves -- we are not far apart.
HM,Jr: The only one I blame is myself and I simply say
I have not had time to sit down and spend hours on this. I
have said it openly and that's why I asked Magill to come down
here.
Mr. Oliphant: His coming has taken a lot off of everybody.
HM,Jr: I thank you.
o0o-o0o
324
LMS
GRAY
London
Dated April 29, 1937
Rec'd 3:40 P. m.
Secretary of State,
Washington.
252, April 29, 8 p. M.
FOR TREASURY FROM BUTTERWORTH.
In B luncheon conversation, Clay, economic adviser to
the Bank cf England, emphasized that the decline in the
London stock exchange prices had reached panic proportions
and that during this morning there virtually ceased to be
a market since the jobbers would not buy but were merely
willing to match sales and purchases - and there were very
few purchases. Clay definitely fears that if the present
movement is not quickly brought to a close a feeling of
uncertainty will displace the previous feeling of confidence
which in turn will lead to a general slowdown in ecpnomic
activity. In this connection he mentioned that after all
the present upward movement in the trade cycle had lasted
well over four years, that similar previous movements in
this country had been limited in duration between two to
four years, that no doubt the fact that the gold standard
had been abandoned and that an armament program had been
undertaken
325
LMS 2-10, 252, April 29, 8 P. ma, from London.
undertaken in the later stages of the recovery movement meant
that it could be prolonged longer but only if confidence was
not undermined. On the other hand almost all the economic
evidences were favorable and if the reaction could be imme-
diately brought to a close the position would no doubt be a
very healthy one; prices would have been more than adjusted
to the advent of dearer money and the speculators chestened.
However while he personally "never believed in attempting to
raise commodity prices to the 1927 level in six months' time"
he did hope that they would go higher than they were today,
otherwise the weight of the debt structure would be extra-
ordinarily heavy in the years to come.
Clay again reverted to the dangers of inducing a feeling
of uncertainty in the future; the absence of such a feeling
had played a very important part in British recovery and he
attributed much of Europe's difficulties to the fact that
European Governments kept alive among their own people a
feeling of impeding action.
Clay said that ironically enough Chamberlain was
scheduled to be the guest of honor at the annual dinner of
the bar association this evening and he awaited his remarks
with interest. He felt sure that no one was more surprised
than Chamberlain by recent events and that in framing his
national
326
LMS 3-50. 252, April 29, 8 p. m., from London.
national contributions tax proposals the Chancellor had only
one firm intention, namely, to propitiate labor; "the trouble
with conservatives was that they always think they can take
the wind out of the Socialist sails by adopting pseudo
Socialistic measures which are in many cases administratively
impractical, whereas, the Socialists when they are in power
are subconsciously aware of the impracticability of their
own concepts and are sufficiently cautious so that they
behave like proper conservatives. Chamberlain besides con-
ceding the whole moral case of capitalism had forgotten that
the capitalist is like the bee in that you can take away
from him almort all of his honey but you must at the same
time handle him carefully".
The London stock exchange steadied and strengthened
during the afternoon as limits diminished. The position
is still difficult because of the uncertainties which over-
hang the market. After tomorrow a preliminary estimate of
the situation can be taken for the selling for the account
ending Hay 6th must be concluded by tomorrow. A dozen differ-
ent names are bandied about as being in difficulties and as
far as can be asdertained three or four are in difficulties
and attempts are being made to help them. Another uncer-
tainty is that there is a large block of shares enroute to
Johannesburg for which it is not sure payment will be forth-
coming.
The
327
LMS 4-No. 252, April 29, 8 P. m., from London.
The gold market continues somewhat nervous and in
India gold touched 137 shillings today presumably on news
of the tabling of the Fish Gold Buying Bill.
The franc was strong on repatriation of funds acquired
through yesterday's sales of English stocks and similarly
the dollar was offered on repatriation of British funds
from New York.
BINGHAM
CSB
V5523 1832
TEXAST wis
- - - - -
328
April 29, 1937.
3:56 p.m.
H.M.Jr:
Hello
Doughton: Yes.
H.M.Jr:
How are you?
D:
All right, Mr. Secretary, how are you?
H.M.Jr:
Oh I'm taking nourishment three times a day.
D:
How's that?
H.M.Jr:
I'm taking nourishment three times a day.
D:
Well that's necessary; take. it some time in the
day anyhow or some time in the week.
H.M.Jr:
They said you called me?
D:
Yes, what I called - wanted to speak to you about -
did you read this morning's Washington Post pretty
carefully?
H.M.Jr: No I don't think I read it at all. I - - I - I look
at some other funny paper.
D:
You're supposed to read on column 5 under the head of
"Boom Feared Behind New Fiscal Policy" - account of
Secretary Wallace's speech - a chapter which it claims
was never ah - published - on April 3d - University
of Agriculture was not made clear till last night.
I wish you'd read that and tell me what you think of it.
H.M.Jr:
What State was that delivered in?
D:
Chapel Hill University of North Carolina.
H.M.Jr:
Oh.
D:
Yes, it goes on here, "Boom Feared Behind New Fiscal
Policy" by Mr. Wallace last night to combat the boom
trend, it was indicated, the Administration expects
to extend governmental control of industry and
regulate taxation and spending so as to avoid
excessive corporate and individual savings".
B.M.Jr: Yes, well now after I've read it what will I do then?
02 1 1
329
D:
How's that?
H.M.J.:
After I've read it what will I do then?
D:
Well you'll tell me whether or not you approve it.
Whether he's speaking for the Administration or for
himself. You're supposed to be close administrator
on fiscal policies for the President.
H.M.Jr:
Well I can tell you right now, without reading it,
that when it comes to fiscal policies and tax policies
Mr. Wallace is not talking for the Administration.
D:
Well I certainly felt that way. Our people over here -
a lot of them - some of them members from our own
delegation came to me about it very much upset and
excited
S.M.Jr:
Yes.
D:
..... - temperature way high and I told them to just
be cool; I didn't think there was anything to it.
R.K.Jr:
Well -
D:
That as far as the policy of the President was con-
cerned if there was anybody - any Cabinet officer
or any department spoke for the President about fiscal
matters it is the Secretary of the Treasury.
H.M.Jrl
Well that's what I think as long as I sit in this chair.
D:
Yes.
H.M.Jr:
And I'm still sitting.
D:
Now things like that are very damaging; I wish you'd
read it and then you can
H.M.Jr:
I wish, yes, but now may I make a request of you?
D:
Yes.
5,M.Jr.
As long as you feel that way tell somebody that at the
White House, see?
330
- 3 -
D:
Well I'll certainly do that.
R.M.Jr:
Because that will have more effect than telling me
because my policy is here. My backyard is big
enough and I stay in it, see?
D:
Well I'll tell you what we've got now and you'll
realize the same as I do. We've got plenty of
trouble for the President- for the present.
H.M.Jr: Yes.
D:
We've got plenty - plenty of load to carry now and
everyone of these new monkey wrenches thrown in the
machinery complicates the - ah - difficulty that
:
much more.
H.M.Jr:
Well you remember a man by the name of Tugwell made
a speech, about balancing the budget, in Los Angeles?
D:
Yes, I knew he did.
H.M.Jr:
Yes - well
D:
You read that and you and I'll talk it over and then
later we can talk to somebody higher up than you or
me.
H.M.Jr.: Good enough.
Yes.
H.M.Jr:
Thank you very much.
D:'
You're welcome. You'll find it on the first page of
the Post to-day under the head of "Boom Feara Behind
New Deal Fiscal Policy". All right.
H.M.Jr:
Hoodbye.
Regraded Uclassified
331
RB
GRAY
Paris
Dated April 29, 1937
Rec'd 5:01 P. m.
Secretary of State
Washington.
545, April 29, 4 P. m.
FROM cochran.
Minister of Finance bitterly complained before the
Chamber Finance Committee yesterday against the circula-
tion of stories of imminent peril in the financial situa-
tion and suggested that the campaign was the work of
political enemies.
The following is a summary of the information regarding
the Treasury situation up to April 1 and previsions from
that date to December 31 provided by the Minister:
January 1 to April 1, 1937: Requirements of the
Treasury for 1937 were estimated at the beginning of the
year at 36,127,000,000 (estimated deficit of ordinary
budget 4,600,000,000; special budget 17,715,000,000; advances
to departments and communes 12,272,000,000). During the
first quarter Treasury put out 10,117,000,000. Apparently
the Treasury would need to find 26,000,000,000 francs during
the remaining nine months.
Treasury
332
RB
-2-#545, April 29, 4 P. m. from
Paris (SECTION ONE)
Treasury requirements April 1 to December 31, 1937:
Requirements of state proper should not exceed
12,300,000,000 francs it is claimed. In arriving at this
figure it is considered that the deficit of the ordinary
budget should not exceed 1,400,000,000 francs for the
remaining nine months of 1937 and 7,900,000,000 is included
as representing the balance required for the special budget
and 2,500,000,000 for the postal administration, the pension
fund, and for Poland.
Advances to the departments and communes for next
nine months 7,830,000,000 francs. Therefore
END OF SECTION ONE.
BULLITT
SMS
EMB
333
RB
GRAY
Paris
Dated April 29, 1937
Rec'd 5:32 P. m.
Secretary of State
Washington.
545, April 29, 4 p. m. (SECTION TWO).
the total of requirements up to the end of the year
according to the Minister's statement amount to
20,130,000,000 francs. The difference between this amount
and the 26,000,000,000 francs referred to above is ex-
plained by the announced intention of the Government to
make economies to this extent,
The Minister held that actually these requirements
were partially covered by the Treasury account at the
Bank of France of 3,300,000,000, authority to borrow a
further 2,500,000,000 under the recent national defense
loan authorization 800,000,000 to be reimbursed by the
City of aris, and 2,200,000,000 still available in the
advance account at the Bank of France, a total of
8,800,000,000.
Turning to the question of the credit of the Govern-
ment, the Minister deplored the hesitation of the public
to invest in Treasury bills. "Thile he said it should
normally
334
RB
-2-2545, April 29, 4 P. m. from
Paris (SECTION TWO)
normally be possible to maintain a constant issue of about
12,000,000,000 francs, only 4,900,000 were in circulation.
The Government, he stated, particularly regretted this
situation as it leaned toward "open market" operations.
The Minister insisted that the Government would not
be called upon to issue a forced loan which he thought
would be doumed to failure under present circumstances.
Only the balance of the national defense loan would be
issued. Subscriptions to the two issues made in March had
been undertaken with enthusiasm. It was not true that
these issues had
BULLITT
SMS
EMB
335
RB
GRAY
Paris
Dated April 29, 1937
Rec'd 5:40 p. m.
Secretary of State
Washington,
545, April 29, 4 P. m. (SECTION THREE).
been covered by foreign subscriptions. 164,000,000 came
from foreign subscribers 1,406,000,000 from the Bank of
Trance, 5,807,000,000 from banks and Treasury agencies and
624,000,000 from other offices of the Treasury.
In conclusion, the Minister referred to the tri-
partite monetary arrangement to which he insisted the
Government would remain faithful. Ile attributed the
recent weakness of the franc to technical circumstances
such as to the unfavorable commercial balance (4,922,000
for the first quarter of 1937) re-constitution of stocks
of raw material, et cetera. He insisted the exchange
fund possessed necessary resources to combat speculation.
As, indicated above, durin; the remainder of the year
the Government seems to expect that the Treasury will be
called upon to find only about 20,000,000,000 francs over
and above budgetary revenue. However, nothing was said
about the repayment in October next of the British credit
of
336
RB
-2-#545, April 29, 4 p.m. from
Paris SECTION THREE
of 40,000,000 pounds or requirements for the railways, not
to mention the possible necessity to reimburse the so-called
Germain-Martin loan four and one half percent 1934 of
which 9,000,000,000 francs are outstanding. It also remains
to be seen whether the deficit of the ordinary budget will
be absolved to the extent hoped for by the Government and
whether the 6,000,000,000 of economies in the special budget
will finally be realized.
There has so far been little press comment on the
statements of the Minister. The view is put forward that
it is difficult to prove the figures presented and that
in any case it is only normal that M. Auriol should (#)
as bright a picture as possible of the situation. Opposition
papers are skeptical regarding the estimates and statistics
presented
BULLITT
(*) Apparent omission
SMS
EMB
337
LMS
GRAY
Paris
Dated April 29, 1937
Rec'd 3:17 P. m.
Secretary of State,
Washington.
545, April 29, 4 P. m. (SECTION FOUR)
Paris exchange market has been very nervous today with
rates varrying widely. To evidence of intervention by
French control. Paris impressed by fact that l'ew York
started selling dollars when American market opened. French
rentes were not helped by statement of Finance Minister
before Chamber Committee yesterday and merket observers
expect Senate Committee to question him rather roughly today
on some of the figures which he gave yesterday. Bank of
France statement as of April 23 showed no important change
except a large increase in deposits which reduced coverage
from 55.64 to 55.19. Fre ch share market was very bad with
curb issues losing between 15 and 20%. Paris brokerage con-
cern headed by American Albert Cudebec must be liquidated.
Today's erratic exchange trading and stock market break
are attributed principally to American factors. European
press carries report of "die's statement to Chamber of
Commerce that financial experts do not consider as permanent
the $35 per ounce gold buying price in the United States and
of
338
LMS 2-No. 545, April 29, 4 P. m., Sec. 4, from Paris,
of resolution introduced by Hamilton Fish to prevent
Treasury from paying more than $25 per ounce for foreign
gold. On top of this President Roosevelt's further attack
upon speculation is said to have encouraged European 11-
quidation of American shares.
(END MESSAGE)
BULLITT
KLP:083
RECEIVED
vegi CE RSA
YRUZA3RT
all to -
- - ut --- -
339
Thursday afternoon, April 29
I called up Hull and asked him whether there was
anything going on in England that affected the United
States Treasury and he said, Absolutely not. He said
that he had not heard anything for weeks.
Regraded Uclassified
340
April 30, 1937.
9:07 a.m.
H.M.Jr:
Hello.
Operator: Mr. Aldrich.
H.M.Jr:
Thank you.
0:
Go ahead.
H.M.Jr:
Hello
A:
Oh good morning Mr. Morgenthau.
H.M.Jr:
How are you?
A;
I'm very well, thanks.
H.M.Jr:
Mr. Aldrich I'm calling you because I think I had a
rather unfortunate interview with Dr. Anderson
yesterday - ah -
A:
Very unfortunate what?
H.M.Jr:
Interview.
A:
Oh yes.
H.M.Jr:
And he - ah - I don't know not many people do it but
he seemed to have the faculty to just about rub me the
wrong way more so than any person I've seen in a long
time.
A:
(Laughs)
H.M.Jr:
And I'm afraid in the interview I lost my temper.
A:
No, (laughs) I hadn't heard anything about it.
H.M.Jr:
Well, amongst other things, I mean, for your own
information, I had Mr. Haas here - he twice said,
"I'm taking Mr. Aldrich to Europe with me" and which,
knowing you, sort of amused me.
A:
(Laughs)
H.M.Jr:
And - but he did say that twice.
- 2 -
341
Ah - he must be - ah - losing his mind I should think.
H.M.Jr:
Well at - he was going at - he sat here for 15 minutes
and told me what he was going to tell the - ah - heads
of the various finances - financial people in the
country what he was going to tell them and then
A:
What he was going to tell them?
H.M.Jr:
Yes. Then when he got through he said, "Now I suppose
that's all right". So I said, "Well Mr. Anderson you
told me what you're going to tell them. You haven't
given me a chance to say what I think and, of course,
you can't speak for me".
A:
Well I had no idea he got to see you.
H.M.Jr:
Well he did and he was going - I'm - I'm quoting word
for word - he was going abroad and he was taking you
with him.
A:
(Laughs)
H.M.Jr:
And then he sat here for 15 minutes and, of course,
told me - going back - everything - contrary to what
the Administration believed in and I got so excited
to think that he might go abroad and possible be
interpreting what the United States Treasury thought
when we thought just 100% opposite. Now the point
A:
Well I'm glad you called me up.
H.M.Jr:
Now the point that I wanted to make - if you're going
abroad and if there's anything that you want to know
and if I can be of any assistance to you personally
why don't hesitate to call on me.
A:
Well, of course, that's
H.M.Jr:
But frankly
A:
I can't understand how - how he could have said anything
such thing.
H.M.Jr:
But frankly
A:
If he has any such ideas in his mind he must be losing
his mind.
342
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H.M.Jr: Now when he left I said, "Now my relations with
Mr. Stern and the Foreign Exchange of the Chase -
we've had - transactions going into millions of
dollars and the Chase has represented the Treasury
and during the past three years I've never had any
criticism. In fact the Chase has always given us
good execution but the whole thing I mean - well I
frankly lost my temper.
A:
Well what in the world was he talking about? What
was - what did he have in mind?
H.M.Jr:
Well he - he went over the whole monetary thing and
just sat here for 15 minutes and, as the boys say,
"he told me".
Yes.
H.M.Jr:
And then, after he finished up, he said - never giving
me a chance to get in a word - "Now I'm going abroad
and tell them this is the American policy". Well you
A:
He must have - he must have lost his mind if he talked
that way.
H.M.Jr:
Well I asked - I had somebody present and we talked
it over after he left and it - it was - it was a
performance and I - I - I felt it was sufficiently
important that I should call you and also tell you
if you are going and there is anything you want to
know - ah - we'll be up on my farm all next week and
if it's of enough importance to you why I'm available.
A:
Well what I can't understand is why there should have
been any conversation about the thing at all.
H.M.Jr:
Well I don't - he called up from the bank and said
he wanted to see - ah - first he asked for me
personally
A:
Well you know as a matter of actual fact - - let me tell
you something.
H.M.Jr: Yes.
A:
Ah - he was going over later on in the year
H.M.Jr: Yes.
343
- 4 -
A:
himself. *****and I didn't like the idea of his going by
H.M.Jr:
Yes.
A:
I'm going over - ah - sailing on the 5th and going
to the Coronation; take my two children there
H.M.Jr:
Yes,
A:
and I told him that I wanted him to come with me
at the time I left.
H.M.Jr:
Yes. Well I think I'm a truthful person and, as I
say, I didn't want to see him alone and he distinctly
twice said he was taking you with him to Europe.
A:
Well it's - ah - it's simply unbelievable - I mean
H.M.Jr:
Yes.
A:
what - what was the theory of it? Ah
H.M.Jr:
Well they're going over there to see these - he's
going over there to see these various important
people - the head of the various
A:
I couldn't hear that.
H.M.Jr:
He's going over to see the various heads of the
financial - ah - the head financial people of the
different governments.
A:
To tell them what they ought to do?
H.M.Jr:
Well that's the impression that I got.
A:
Why that's simply fantastic.
H.M.Jr:
And then - what - that he sketched me his monetary
theories which, of course, are just entirely different
than what we 're trying to do here and, after making
this statement for 15 minutes, he said, "Now I suppose
it's all right for me to tell these people abroad this".
And I said, "Of course, it isn't".
A:
(Laughs)
- 5 -
344
A:
What's he trying to do - commit you to what he had
in mind?
H.M.Jr:
Yes, that's the point.
A:
Well (Laughs) I don't think you need worry about it at all.
H.M.Jr:
Well I - he - he
A:
To tell you the truth. I think it's rather laughable.
H.M.Jr:
Well it was except I'm pretty tired and I've been thru
six very difficult weeks as you know.
A:
I know.
H.M.Jr:
And we're just beginning to see daylight and then to
have Anderson drop in on top of me
A:
(Laughs)
H.M.Jr:
I'm afraid I lost my sense of humor.
A:
(Hearty laughter) Well (laughs) I think you ought
to keep your sense of humor.
H.M.Jr:
Well that's why I'm going up on the farm for a week.
A:
Well you don't have to give it another thought.
H.M.Jr:
But I - well I wanted to tell you because - ah - ah -
ah
A:
Well I'm glad you did. I'm glad to hear the - ah -
the - ah - the basis on which he thinks he's going.
(Laughs)
H.M.Jr:
Well now also he seeing Mr. Hull or did see him
because he called up and said he wanted to see
Mr. Hull and myself before he went to Europe.
A:
Well now that I don't know anything about at all.
H.M.Jr:
Well I don't know what happened over
A:
I don't know what he said to Hull.
345
- 6 -
H.M.Jr:
Well I don't know either and it's none of my concern
but I wanted to tell you personally what happened.
A:
Well obviously it's silly.
H.M.Jr:
Yes, well I - I feel better now.
A:
Ah - well I don't feel so well. (Laughs)
H.M.Jr:
Well it's - it's all right and
A:
Well (laughs) I mean I don't like that - ah - that
attitude of
H.M.Jr:
Well frankly
A:
As far as I'm concerned it's rather - rather - (laughs)
H.M.Jr:
Well he - you
A:
rather disconcerting.
E.M.Jr:
I've always told people when the banking legislation
was on
A:
What?
H.M.Jr:
I've always cited you that when you wanted
something you came down here and you told us what
you wanted; what your position was and there never
was any question and you never sent anybody to
represent you.
A:
Well that's right.
H.M.Jr:
And that's always been so since I've been here.
A:
That
H.M.Jr:
And when you wanted something you came personally.
A:
Well naturally - I - - I'd do just as you would on that.
H.M.Jr:
Yes - and but this-this is the first time and I took
it perfectly for granted when Anderson came - he came
here for you.
346
- 7 -
A:
Well can't you see the - you can see the implication
of obvious. the whole thing, can't you? I mean it's perfectly
E.M.Jr: No I - I - I - I - - I don't get it.
A:
Well it - it comes from a state of mind which is
indicative of the trot that you just quoted to me.
H.M.Jr: Yes, well the man seemed highly nervous. His hands
tremble all the time he talks
A:
Yes.
H.M.Jr:
and he seems to be a highly nervous piece
of machinery.
A:
Emotional about it.
H.M.Jr:
Ah - yes and - ah - ah - - well he isn't a very good
representative, Mr. Aldrich, that's all I want to
tell you.
A:
(Laughs) Well (laughs) he doesn't - he certainly
doesn't represent me in that (laughs) connection.
R.M.Jr:
Well I'm awfully glad of it and, as I say, if - if
he came down here and talked the way he talked to
me to other heads of agencies here, frankly, he'll
do you a lot of harm.
A:
Who else is he seeing?
H.M.Jr:
All I know is Mr. Hull.
A:
Well now that's a very peculiar thing. I don't
understand the thing myself to tell you the truth.
H.M.Jr:
Well -
A:
Ah - however, I'll - I'll have a talk with him. I
don't think you need worry about it at all.
H.M.Jr:
Oh I'm not worrying. All I wanted was that - ah - - ah -
the few times I've seen you our relations
347
- 8 -
A:
I think it's just a question of a - of an enlarged
cranium myself.
H.M.Jr: I think SO.
A:
But that's always easy controlled when you
H.M.Jr: Well I - I - I felt it was awfully nice of him to
be willing to let you go along with him.
A:
(Laughs) Well I'm glad to say that doesn't impress
me in any way except humor. (Laughs)
H.M.Jr: Well I can imagine that. Well I'm glad I called you
and - and - and,as far as I'm concerned, it's a
closed incident.
A:
I'll be very much interested to hear what he has to
say (Laughs).
H.M.Jr:
Well you'll hear plenty
A:
What?
H.M.Jr:
because I got good and mad.
A:
Well that's all right. (Laughs) I probably did
you good. (Laughs).
H.M.Jr: All right.
A:
But I don't think you need take him very serious.
H.M.Jr:
I don't.
A:
All right.
H.M.Jr: Thank you.
A:
Goodbye.
348
April 30, 1937.
9:27 a.m.
H.M.Jr:
Hello
Operator:
Chairman Eccles. Go ahead.
H.M.Jr:
Hello Marriner.
Eccles:
Yes.
H.M.Jr:
I've got a - I'm smiling this morning because your
announcement comes out that you bought 39 odd million
dollars - or whatever it was - of bonds
E:
Yes.
H.M.Jr:
and the government bond market goes up. A
week ago to-day the announcement came out that you
didn't buy anything and the government bond market
went down so some of our fellows in New York don't
know it all.
E:
Well - ah - you and I agree on that.
H.M.Jr:
Yes, they don't know it all.
E:
(Laughs) There's a lot they don't know.
H.M.Jr:
They've consistently told us that if you announced
that you'd bought a lot of bonds it was - it was
bearish, you know?
E:
Yes, they said if you buy bonds it indicates that
the money - the market is artificial.
H.M.Jr:
Yes, well
E:
Of course, as a matter of fact really what it does -
if you don't buy it gives the propagandist - the
fellow that wants 3 or 4% interest a chance to - ah -
put out his propaganda and force the market down - ah -
whereas if somebody else is interfering - such as the
Federal Reserve System buying bonds it upsets his
apple cart.
H.M.Jr:
Well - now you take the 2-7/8's. They opened up
6/32d's - very nice.
Regraded Uclassified
349
- 2 -
E:
Well they had - ah - the whole market, of course,
yesterday was in fine shape and I - - I feel perfectly -
I feel perfectly certain that - ah - the trouble is
over with.
H.M.Jr:
Well it's been - it's been since the 10th of March
that we've been sweating here.
E:
I think that you'll find that they realize now -
ah - I noticed most of the comment yesterday that -
an - they're going to have - ah - there's going to
be plenty of money and they still haven't got any
places to put it.
H.M.Jr:
Yes. I think the worst is over.
E:
And I think that you'll find that after the first
of May that your bill market is going to go down.
I think the bill rates will go down. I don't think
they'll even stay . - they're not going to stay where
they've been.
H.M.Jr:
Yes.
E:
And I think your note your note market will - your
one to five year rates are going to go down and - ah -
that - that your bonds are going to go up. Now I'm -
I'm - I think you'll see that - that this whole thing
has indicated that there was no justification for this
other. It was just merely one of those sieges that -
ah - that - an developed and that our market operation -
the thing that pleases me about it is that I - the -
the thing that I wanted to do all the time - ah - I
had a devil of a time getting it over; had almost
entire opposition to commence with and then finally
got it over after a two day session, has really worked
out like I tried to persuade the group that it would
work out,
H.M.Jr:
Well you really started that ah - let's see it was
last Saturday or was it a week ago Saturday - no
last Saturday only.
E:
What?
H.M.Jr:
That they really started buying.
350
- 3 -
E:
Well no we started - ah
H.M.Jr:
But I mean after all the things they went through -
it was really last Saturday.
E:
Last Saturday they - they bought pretty heavily
H.M.Jr:
Yes.
E:
and they bought again on Monday and a little
less on Tuesday. There was two days of pretty
heavy buying.
H.M.Jr:
Yes.
E:
Now up to that time we had bought about sixty million.
H.M.Jr:
Yes.
E:
In the three weeks before. the two - the first two
weeks
H.M.Jr:
Yes.
E:
we bought about we bought about sixty - I think
we had about sixty million - no but
H.M.Jr:
If you remember - ah - a week ago to-day we had an
awfully bad day.
E:
Yes.
H.M.Jr:
Then Saturday you got sore and you made them step in.
E:
That's right.
H.M.Jr:
Well ever since then it's gone better.
E:
Well the week - that's right because : your - your
week before was the week that they didn't want to
show any - they didn't show any - ah
H.M.Jr:
That's right. You crossed the bridge, in my opinion,
last Saturday.
E:
Well it's - it's working out anyway and I feel a lot
better about it.
351
- 4 -
H.M.Jr:
So do I.
E:
And I think the - the - I think bills - it would
be my judgment that bills from now on as well
as notes - I don't think you're going to have a bit
of trouble on your June financing and a note issue
under very favorable terms and I think the bill
market - I - is - ah - is - ah - going to be easier
if anything.
H.M.Jr:
Well Wayne will be here and I can be gotten on the
'phone at the farm but I'm not going to call up
every day, see?
E:
Ah-ha.
H.M.Jr:
"ut if you want me I can be gotten very easily.
Make a note - it's Beacon, New York, 211.
E:
Beacon, New York
H.M.Jr:
Yes.
E:
......211.
H.M.Jr:
Yes.
E:
Well I hope I don't have to bother you and I hope
you have a good rest.
H.M.Jr:
All right, Marriner, and I think you've-done a
swell job.
E:
Well (laughs) thank you.
H.M.Jr:
I think you've done a swe
E:
Thank - thank you for the help.
H.M.Jr:
Well I think you've done a swell job and, as I say,
I - I think you licked them last Saturday.
E:
Well now I think we licked them that day
H.M.Jr:
That Friday night at my house.
E:
That Friday night - ah
352
- 5 -
H.M.Jr:
Yes, but the trouble was they didn't stay licked.
E:
No (laughs) that is, they didn't know they were
licked.
H.M.Jr:
No, we licked them Friday night at our house. You -
you put it - - they didn't know they were licked.
E:
That's right.
H.M.Jr:
Well it's all right between us - we can hold up our
head.
E:
Yes (laughs) all right, then.
H.M.Jr:
Atta boy.
E:
Thank you.
H.M.Jr:
Goodbye.
E:
Goodbye.
353
GROUP MEETING
April 30, 1937
9:30 A.M.
Present:
Mrs Klotz
Mr. Oliphent
Mr. Taylor
Mr. Gaston
Mr. Gibbons
Miss Roche
Mr. Haas
Mr. Lochhead
Mr. McReynolds
H.M.Jr:
(Following a phone conversation with Mr. Eccles)
You see, the interesting thing was that Friday
a week ago it came out in the papers that the
Federal Reserve hadn't bought anything, George
Harrison saying, "That's the way to show - if we
don't buy anything, that's a sign of strength, If and
then we had the worst day we had. Then Eccles got
sore and the boys stepped in and just bought their
heads off, didn't they? Today we come out and show
this heavy buying and the bond market - the 2-7/8's
opened up six 32d's.
Oliphant:
This morning?
H.M.Jr:
This morning. Get this thing. Last week, Friday,
they come out that they didn't buy anything, and
the bond market just goes to hell. Then Eccles
completely gets mad and he just tells them what to
do; Saturday they go in and buy their heads off.
Today they show that they bought 39 million and the
bond market opens up six 32d's.
Gaston:
That shows something about the natural forces that
are at work in the market, doesn't it?
H.M.Jr:
But - no, but it shows this. As Marriner said on
the phone, we licked them Friday night & month ago
at my house, but they didn't say - as he put it,
they didn't know they were licked.
Gaston:
What I mean about the natural forces, though, is that
apparently B limited group of men - if we think they
can force it down, they can do it.
H.M.Jr:
I thought you meant unnatural forces.
Gaston:
Speaking about their description of letting the market
354
- 2 -
find a natural level.
H.M.Jr:
While I think about it, I'd like to have the 9:30
have lunch with me today; I'm leaving. Don't break
any important engagements, but anybody who hasn't
got an engagement, why, at one o'clock I'd be glad
to have you.
Gaston:
You weren't going over to Ned Bruce's art party?
H.M.Jr:
No.
Gaston:
I had planned to go over to it.
H.M.Jr:
Well, that's all right. Anybody - - no, I'm not going
to it, but anybody who has an engagement - I mean this
is purely informal - if you will just let Mrs. Klotz
know who will or won't come. You (0liphant) going
in that group?
Oliphant:
I'd thought about it.
H.M.Jr:
That's all right, that's all right. Both Mrs.
Morgenthau and I were all set yesterday to go and
there was some mix-up.
Oliphant:
You mean to go yesterday?
H.M.Jr:
We were ready to go yesterday and accepted for
yesterday.
Oliphant:
Oh. That's too bad.
H.M.Jr:
See, we accepted for yesterday.
Oliphant:
Hope you get to see those 600 pictures.
H.M.Jr:
Put it this way. You two going to Ned Bruce's?
Gaston:
I'd planned, yes.
H.M.Jr:
Well, go ahead, it's all right. I mean if I felt
What you (McR) glumping your head about?
McR:
I got a neuralgia headache this morning.
355
- 3 -
H.M.Jr:
Better go to Dr. Swope. That's where I went yesterday.
When Steve Gibbons - how you - God, how you like to
fire! I never saw anything like it.
Gibbons:
What's the matter?
H.M.Jr:
Fire two people, have them prosecuted, sent to Jail,
and - Miss Roche, being 8 National Democratic
Committeeman means nothing to Steve Gibbons - I
mean just as leave see them in jail as not. I never
saw a man like him.
Mrs Klotz: He doesn't know whether you're kidding him or not.
H.M.Jr:
I suppose that's the way you go in training to be the
head of Tammany Hall in New York.
(Hearty laughter)
Well, the day may come when Tammany Hall may want
that kind of fellow.
Gibbons:
You know, they spoke to me about it and I said I'd
do it if they paid a salary. They thought that was
stupid. I said, "The head of Tammany Hall should
be paid a salary, give all his time to it."
H.M.Jp:
George, this kind of thing, "Business and Price
Situation" - in the future, send a copy directly
to Mr. Taylor, will you? That kind of thing.
Haas:
Fine.
H.M.Jr:
And this chart here - first quarter, showing produc-
tion and profits; just as soon as youget another
revised figure, will you let me have it?
Heas:
Yes.
H.M.Jr:
I don't want anything up on the farm, but if you
get that chart - I mean if they come in any more
than that, see?
Haas:
O.K.
H.M.Jr:
That kind of stuff Taylor would like to have.
356
- 4 -
Haas:
Fine.
H.M.Jr:
Because I - sometimes I read them in one week, but
I think it's very good. My only comment is this. I
think he's a little bearish on America and not bearish
enough on Europe. I don't think he takes Europe
seriously enough and I think he takes our condition
a little too seriously. But out of it all I still -
I'm 80 percent in agreement with him,
Gibbons:
What did those standard statistics - records show
yesterday?
H.M.Jr:
Well, they show that of the profits - these fellows
evaluate them and take a slide rule to them and take
the seasonal out and the drouth and the flood and rain
and storm - that they are not quite up to expectations.
But I mean by the time they get through But
you
compare them with the first quarter of 136 and they
still go
Haas:
....oh, way up.
H.M.Jr:
But see, they take out the factors of the flood and the
rain. I mean they do an awful lot of what they call
evaluating.
Gibbons:
Yes.
H.M.Jr:
It's all right.
Now, you (McR) have got some stuff for me to sign?
McR:
No, I don't.
H.M.Jr:
Yes, you have; you told me last night you had a
Secret Service order for me to sign.
McR:
Well - ah - Frank Wilson is back this morning,
presumably, and Joe and Frank have that order.
H.M.Jr:
Well, don't fall over backwards - I'll give you
an appointment which I won't cancel: 11 o'clock.
McR:
Swell.
357
- 5 -
H.M.Jr:
O.K.?
McR:
Yes, sir.
H.M.Jr:
I'd forgotten I gave Puleston an order at ten - a
meeting at ten. Did you (0liphant) - or did you
forget that I was going to see you at ten?
Oliphant:
No, I hadn't forgotten it. What time will you see
me? It won't take me five minutes.
H.M.Jr:
Well, we'll be through here - supposing I tell
Clarence to come right before ten. (On phone)
Tell Clarence Opper to be here at five minutes of
ten, please.
You're all right, aren't you (Lochhead)?
Lochhead:
(Nods yes)
Bank of England said quite a lot of dishoarded gold
came out.
H.M.Jr:
What's that?
Lochhead:
Bank of England said quite a lot of dishoarded gold
came out on the market there.
H.M.Jr:
Why is it, Archie, that you always pick the govern-
ment of countries - I mean the ones who eat the most?
Lochhead:
Well, just a natural inclination, that's all.
Taylor:
He didn't spare us either.
H.M.Jr:
What?
Lochhead:
As I say, something is expected of us, so I did my
best.
H.M.Jr:
All right, If you see Archie going into a ten course
Chinese dinner - believe me...
Lochhead:
Well, at least, I'm right up the next morning.
H.M.J.:
That's more than I can say. I dropped on the wayside.
Do you know that they've got four new attachés at the
Chinese Embassy just sitting there twiddling their
358
- 6 -
thumbs and who will be assigned to the new man,
and they just don't give them anything to do - did
you know that? - including a Counsellor of the
Embassy. There's four of them just waiting for
this new boy to come.
Haas:
I talked to Professor Merriam. You asked me to
call him.
H.M.Jr:
Yes
Haas:
He said he was very busy this week until the end
of the week, and he was going to come over to see
me. Do you want to see him b efore you go about that?
H.M.Jr:
I don't know. If you get something and can rough
it out, what you'd like to do, on one sheet
Haas:
All right.
H.M.Jr:
Now, what he wants, what he'd like us to do - he
told me sort of walking out - is to give the Treasury
viewpoint on the whole thing, whole economic picture,
where it hits the Treasury - spending, and all that
business, and everything else.
Now, Oliphant is very much interested, of course, in
tariffs and where the tariffs hit monopolies. I
don't know whether that would go into that kind of
a memorandum or not. I don't know. Maybe
Haas:
Well, maybe I better talk to him and then after
that
H.M.Jr:
I think you better talk to him,
Haas:
What bothered me about it - I wondered when you
expected something on it. If there's no particular
hurry.....
H.M.Jr:
Well, two or three weeks.
Haas:
Oh - and it's flexible; I mean you can set your date
later.
H.M.Jr:
My guess is that if we're going to do this thing -
I take this angle, the angle of spending: where
Regraded Iclassified
359
- 7 -
spending will do us good and where it's doing us
no good, And how about approaching it from that
angle,
Haas:
(Nods yes)
H.M.Jr:
which is more or less the thing that we did -
"Selective Spending" - but just bringing it up-to-date;
that is, the President had that.
Take, for example: why did the housing thing collapse
this spring, what do we need yet in the way of
recovery? Railroads? Incidentally, I read that
whole memorandum. We need - I mean we need a big
agricultural crop to bring up the railroads, the
freight; we need the housing to bring up the freight.
What can we yet get out of this lemon that hasn't
been squeezed out of it, and where should we stop
squeezing?
Heas:
O.K., I'll go over the whole thing.
H.M.Jr:
How's that for an approach?
Haas:
I think that's all right.
H.M.Jr:
What?
Haas:
I think that's all right.
H.M.Jr:
What do you think, Wayne?
Taylor:
(Nods approval)
Haas:
I thought yet you might want. something more specific.
H.M.Jr:
All right, but I'm just throwing out something; you
can play with it. My mind is thoroughly squeezed out.
Now, Miss Roche
Haas:
My only concern was I thought you might want it by
the time you got back.
H.M.Jr:
No, I don't want it by the time I get back - except
some smiles.
Miss Roche?
Regraded
360
- 8 -
Roche:
I have a letter you may want to sign, I think, before
you go. It's to the Pressmen's. I think it's been
initialed.
H.M.Jr:
Pressmen?
Roche:
Pressmen's Union, on that change of the procedure in
buying. The report's attached.
H.M.Jr:
There are only six initials. There are usually twelve.
McR:
She turned -them down very nicely.
Roche:
Thank you, Mr. McReynolds. Witness, I do sometimes
turn them down.
H.M.Jr:
O.K. (signs letter)
Now, you or Mac ready to report on space for that....
McR:
Well, they're willing to give us a lot more space
down there, but 1t would cost a lot to put it in
shape. And the way Miss Roche felt was that we'd
better do only temporary improvement there if we
could get authority to complete the Public Health
Administration Building down here. I'm talking to
Peoples this morning about the possibility of getting
the completion of that building authorized in this
program, and also having Procurement engineers make
an estimate of what it would cost to improve that
situation down there, to make it livable during the
time that the other That is, if we can get the
combination, the authorization for the completion of
the Administration Building, where that stuff could
be moved, plus temporary improvement in your querters
down there so that it would do while that's going on,
I thought that would probably be the best thing to
do. Doesn't seem to be anything else available.
H.M.Jr:
Well, there's nothing that I can put my teeth into
in what you're talking about.
McR:
I don't think there is anything you can do, except
when we get in the fight over whether he's going to
spend any money to complete that building, you can
help.
doche:
That would be very helpful.
361
- 9 -
H.M.Jr:
Well, I'm willing to take some Congressmen down
there whenever the committee is. I'm willing to
take them. I'd like to take them right after
lunch; they'd lose it.
McR:
I think that's where I got that neuralgia headache.
I was down there yesterday.
H.M.Jr:
Well, Mac, will you give it your personal interest?
McR:
Yes
H.M.Jr:
The thing that impressed me the most - the first
impression that a new employee gets of the United
States Government is that place - that's what that
doctor says - and believe me, that's some impression.
Roche:
Well, you ought to see it; it's really crowded.
Hundred or two hundred people come in there on a
hot day - well....
H.M.Jr:
Try to have something when I come back, will you?
McR:
Yes, sir.
H.M.Jr:
Okey-doke.
Anything else, Miss Roche?
Roche:
I think that's all, sir. Thank you very much.
Gibbons:
I talked to Mac yesterday about the practicability
of my going over with Miss "oche and talking to John
Lewis about these strikes and telling them our situa-
tion, where we have liquor, and see if he controls it.
H.M.Jr:
And what did Miss Roche say?
Gibbons:
I didn't talk to her. I say to have either she or
I....
11.M.Jr:
No, if you - do you mind my being very frank?
Gibbons:
Yes,
H.M.Jr:
Will you keep out of it?
Gibbons:
The only thing I thought was that I....
Regraded
362
- 10 -
H.M.Jr:
Now listen, I gave this fellow (McR) the responsi-
bility
Gibbons:
Well, we talked it over afterward, and there is a
possibility of this thing breaking out every day
all over the country, see?
H.M.Jr:
Well now, just
Gibbons:
I just thought that we might
H.M.Jr:
No, no. You don't mind my being as blunt as that,
do you?
Gibbons:
on no.
H.M.Jr:
But if you remember, they had that same idea on the
Coast of Coast Guard doing something on the Pacific
strike.
Gibbons:
Uh-huh. All right, it was just a thought.
H.M.Jr:
Of course, if Miss "oche thinks I'm wrong and wants
to take you over there
Roche:
I don't know the situation there.
H.M.Jr:
No, if you don't mind, let this fellow handle it.
Gibbons:
She knows Lewis and I know Lewis and I know McGrady,
and
H.M.Jr:
If you just - if you don't mind, old man, I'd keep
out of it. I'm being impolite, but that's what you
want.
Gibbons:
I just wanted to get your reaction.
H.M.Jr:
Well, you know my reaction; I gave it to you.
Gibbons:
I wanted a perfectly frank reaction. I didn't want
to do it unless it would be something that would be
of some service.
H.M.Jr:
I wouldn't.
Gibbons:
No.
363
11 I I
H.M.Jr:
Anything else?
Gibbons:
O.K., nothing else.
H.M.Jr:
O.K.
Gaston:
I have a little release prepared. Peoples is going
to send out notices to these employees whom he's
going to release on the 15th - some 290 or something
like that. I have B little release prepared; I
thought I'd give it out at about the time that he
sends his notices out to the employees.
McR:
That will be in their Handbook about the first of May.
Gaston:
Tomorrow. And I thought I'd give it out tomorrow.
Just a short release.
H.M.Jr:
Yes. Incidentally, I want to compliment you, or
whoever handled it, on the way that story was handled
about those four women that were laid off. Whoever
handled that story - the way it read and everything
else - I was more than pleased the way it was handled.
Gaston:
The boys found out about that, from what source I
don't know, and we appealed to them to go a little
easy.
H.M.Jr:
I thought it was beautifully handled, both from the
standpoint of the Treasury and the four women. It
could have been an awful mess.
Gaston:
Yes, yes.
McR:
We turned over everything to Gaston on that.
H.M.Jr:
It was beautifully handled. Do you (Gaston) know
that one of those women is the wife of a Captain
of Police here?
Gaston:
Yes, and one of the boys found that out. I had B
little argument, very friendly, with 2 fellow on the
Times. He had found the name of the woman, and I
told him he was taking a lot of chances 1f he printed
it, that I wouldn't confirm or deny it.
H.M.Jr:
Joan was trying to tell me at supper that the
Washington Herald changed hands, and she couldn't
364
- 12 -
quite get it straight. She read something about
Mrs. Patterson - I mean leased it or something. Did
you see it?
Gaston:
I didn't know about that.
McR:
Yes, she leased it. She is in entire control of it
now.
H.M.Jr:
She bought the contract, Joan said. She didn't have
it quite straight - "You know, I read it two weeks
ago, Dad, and I can't always remember those details."
But she had that much anyway.
McR:
Mrs. Patterson gave B party here at one of the movie
places day before yesterday, at which there were
several hundred women that she invited there, and
she announced to them that she was running the
paper without any strings now, and asked their sug-
gestions as to what kind of a paper they wanted, and
all that sort of thing. She's making quite B play
of it.
H.M.Jr:
Well, did she buy the paper or Just buy the lease?
McR:
Just bought the lease.
I
Gaston:
More "Hearst hooey."
Gibbons:
What Joan probably saw was what I started to read.
It was on the editorial page - about this Patterson
woman and Hearst, about her connection with him, and
about how marvelous he'd been to her and all that.
1 didn't finish it. Just propaganda.
H.M.Jr:
Herbert, anything else?
Gaston:
No.
H.M.Jr:
Wayne?
Taylor:
After reading that editorial, that Times thing, I
read & couple of other things, both of which I thought
were very interesting. One was Krock's column. My
guess on that is that that's Baruch.
H.M.Jr:
Uh-huh.
365
13 I I
Oliphant:
That was my guess.
H.M."r:
I see.
Taylor:
Very close connection there.
Oliphant:
Didn't parallel Anderson at all.
H.M.Jr:
Oh yes.
Taylor:
And the other one is Chamberlain's speech yesterday -
is well worth everybody's reading.
H.M.Jr:
I read it.
Taylor:
Yes
H.M.Jr:
Incidentally, I called up Mr. Aldrich this morning
and told him about Anderson and he said, you know,
that that was the funniest thing that had happened
to him. Yes, he just howled over the telephone;
he thought it was terrible, and was very appreciative
that I called him.
I said, "You know, Mr. Aldrich, I've often said
that whenever you want anything done in Washington,
you're the one bank president who comes down him-
self; you never send somebody else. You always come
down. You've followed that procedure for three
years, and if I may be so bold as to suggest that
you continue to follow that policy You send
Mr. Anderson down here many more times and you'll
lose all the friends you've got down here."
He said, "I can't take it seriously. I think it's
the funniest thing that's happened yet. I didn't
know Anderson was coming down." He said, "Anderson
wanted to go to Europe. To keep him out of mischief,
I'll take nim along."
Mrs Klotz: Didn't want him to go along.
H.M.Jr:
"I'm taking my wife and two children across to the
Coronation and I'm taking Anderson along to keep
him out of mischief." But he was so - he just
howled over the phone. He said, "Funniest thing I
ever heard."
Regraded Uclassified
366
- 14 -
I told him what - didn't Anderson say, "I'm taking
Mr. Aldrich with me"?
Haas:
"This is the talk." He talked like he owned the
bank.
H.M.Jr:
So I told him - I felt better about it - I told
h1m I'd lost my temper and "so would you.
"No," he said, "I just think it's funny."
Mrs Klotz: He (Anderson) must be losing his mind.
H.M.Jr:
That's what he said - got to have his cranium
examined. Must be - gotten a little large. He
just howled - said, "It's the funniest thing I
ever heard." So it's much better to have it that
way. He didn't even know that he was down here.
He would never let him come down. He said, "It's
news to me."
Oliphant:
Well, what do they keep him for?
H.M.Jr:
I don't know. Maybe he's got a contract.
Haas:
He's a new business man.
Oliphant:
Just a college professor gone wrong, George.
Roche:
Consumer counsel.
Oliphant:
This bill involving our paying out $25,000 - check-
ing through the question of whether or not the
President had vetoed it....
H.M.Jr:
Yes, I read it. Isn't that interesting?
Oliphant:
His veto message had to get down there within ten
days and there's no record either at the White House
or at the Capitol as to when that veto message had
gone down.
H.M.Jr:
Well, what I would do - I would give that to Mac
and let him go over and see Forster.
Oliphant:
See Forster, yes.
H.M.Jr:
Let him work it out. I wouldn't want to send a
Regraded Uclassified
367
- 15 -
memorandum. I'd let Mac go over and let him
bring it to Forster's attention, see? And he's
going over there anyway on something else.
Oliphant:
It's all here in that memorandum.
H.M.Jr:
I'd give it to Mac, see?
McR:
I'm going over to see Audolph today.
H.M.Jr:
Well, tell Rudolph you've got something on him.
Oliphant:
Well, he can work it out with the people down on
the Hill, then. It's something that's really up
to Rudolph.
H.M.Jr:
That's right.
I'll see Clarence and you right now.
Regraded Uclassified
368
TREASURY DEPARTMENT
My
INTER OFFICE COMMUNICATION
DATE April 30, 1937
TO
Secretary Morgenthau
FROM
Mr. Haas MAR
Subject: A Digest of two Articles on Russian Foreign Trade
(These articles, which were forwarded by
Mr. Oumansky of the Russian Embassy, appeared
in the Moscow Daily News of July and November,
1936, and were both written by 1. Rosenhols,
People's Commissar for Foreign Trade)
Tearist Russia was dependent on abroad for almost all its machinery
and for a considerable portion of its essential industrial raw materials.
The Soviet Union, by its program of industrialization, has now freed
itself from technical and economic dependence on other countries.
Russian Foreign Trade
(In millions of gold rubles)
Year
:
:
Total Foreign Trade
I
I
Imports
1913
2,895
1,374
1930
2,095
1,058.3
1931
1,916.2
1,105
1935
608.7
216
1936 (first 11 months)
559.7
277.9 (a)
(a) Includes payment on account for the Chinese Eastern Railway
Russian foreign trade policy was subordinated in the past to the
industrialization of the country.
The principal tasks of foreign trade now are:
1. The accumulation of foreign exchange reserves
2. Continuing past policy of importing only essential
materials and equipment
3. Aiding the technical reconstruction of the Soviet
economy
4. The utilization of long-term credits to hasten the
achievement of the second and later the third five-
year plan
5. Fostering the peace policy of the Soviet Union
369
Secretary Morgenthau - 2
(1) Accumulation of foreign exchange reserves
In the past it was 8. question of reducing indebtedness; now the
task is the positive one of accumulating reserves.
The reasons for this policy are:
(a) With the growth of the war danger and of
preparations for defence the significance
of 8 "war cheat" of gold and foreign ex-
change increases considerably.
(b) Russia deliberately restricts her imports
to a minimum in order to encourage self-
sufficiency. The result 1s that the surplus
of exports over imports must result in the
accumulation of foreign exchange.
In 1933-1935 the favorable balance was 400 million dollars, apart
from another 80 million of gold and silver exported.
The reasons why it 18 able to execute this policy are:
(a) In the future receipts from exports will no
longer be needed to liquidate indebtedness,
which fell from $1,220 million in 1931 to
$75 million in 1935.
(b) Some of its imports will be on long-term credit.
(c) Receipts from the sale of the Chinese Eastern Rail-
way are still due.
(a) Noticeable surpluses in the domestic production
of certain commodities have recently emerged.
(e) Most important of all, gold production in the
U. S. S. R. has greatly increased.
(2) Maintenance of the policy of imoorting only essentials
In spite of the improvement in the foreign exchange position, the
policy of importing only essentials must be continued because
(a) The accumulation of foreign exchange reserves is needed.
(b) Restriction of imports is the best lever for revealing
internal industrial resources.
From 1918 to 1928 imports were 4,000 million rubles. During the
first five-year plan they were about the same, but in the second they
will be not more than 35-40 percent of that sum.
370
Secretary Morgenthau - 3
The third five-year plan may well be accomplished almost without
any imports, the exceptions being tin and a few other raw materials.
Naturally this does not exclude importing technical innovations or
remedying any hitch which may appear in any branch of the economy, or
on the basis of long-term credits, such as were concluded with Germany
and Csechoslovakia in 1935, and with the United Kingdom in 1936.
(3) Technical Reconstruction
Foreign trade should actively assist Soviet economy in the sphere
of its further technical reconstruction. Where Soviet technique lags
behind that of other countries, it must catch up as rapidly as possible.
(4) Financial Credits
It has always been Soviet policy to extend imports on the basis
of long-term credits in order to accelerate construction. But the
following new considerations now enter:
(a) An essential condition for using these credits
is access to significant technical innovations.
Therefore financial credits are desirable only
from countries from which articles of great
technical importance can be obtained.
(b) The cost of the credite must be reduced. Sir per-
cent is too high.
(c) The terms of the credits must be for more than
five years.
(a) The aim is not to receive big or unlimited credits.
In some cases it has been necessary to insist on a
reduction in the amount of credit offered.
(e) Credits from manufacturers are rejected. A cash
basis is preferred.
Long-term credits at excessive rates have been rejected, and old
loans at high rates have been repaid before they were due. The Soviet
Union refused to carry on credit negotiations with England connected
with British claims concerning pre-1917 debts. A credit agreement with
England on a different basie is now being negotiated. A few years ago
the maximum rate paid for credits was 8 percent, then 6.5 percent, and
in 1935 it was 6 percent. Even this is now regarded as too high.
Regraded Uclassified
371
Secretary Morgenthau - 4
(5) Peace Policy
Foreign trade can be actively used to assist the Soviet peace policy.
Hitherto foreign trade was dominated by considerations of foreign exchange.
Now there are greater possibilities for maneuvering and for increasing
trade and economic cooperation with neighboring countries.
Trade Relations with Different Countries
United States: - Trade is developing satisfactorily on the
basis of the Soviet-American trade agree-
ment of July 11, 1935 in which the United
States granted most-favored-nation treat-
ment and the Soviet Union promised to
purchase 30 million dollars worth of
United States goods. Actually, they
purchased 36 million.
Great Britain: - The trade agreement of February 16, 1934
is based on the principle of gradual
equalisation of the balance of payments.
British imports from Russia between
September 1934 and September 1936 totalled
1 51 million, exports to Soviet Russia
I 27.8 million. But Russia also purchases
shipping services, bill brokerage, etc.
from Great Britain so that by January 1,
1936 excess of payments in Britain over
payments arising from the agreement was
8 million pounds. The new trade agreement
should foster mutual trade relations.
Germany: -
There has been an almost complete liquidation
of commercial indebtedness to Germany. The
peak of bill of exchange indebtedness to
Germany was reached on October 1, 1932 when
it amounted to 1,100 million German marks.
It is now only 52 million (spart from the
200 million five-year credit of 1935). In
the last two years trade with Germany has
declined. In 1936 Soviet exports to Germany
will amount to only 65-70 million marks 88
against 209.7 million in 1934.
Liquidation of past indebteduess, payment in cash for orders from
the United States and France, and the new agreement with the United King-
dom strikingly reflect the strengthening foreign trade of the U. 8. 8. 2.
in which the foreign trade monopoly will, as hitherto, remain one of the
firm foundations of the State.
372
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE April 30, 1937.
TO
Secretary Morgenthau
FROM
Mr. Hase DA
Subject: Meeting in the Secretary's Office, 3 P. M., April 29, 1937.
Present: Secretary Morgenthau; Dr. Benjamin Anderson,
Economist of the Chase National Bank; Mr. Haas.
Dr. Anderson opened the discussion by saying that very shortly
he and Mr. Aldrich, President of the Chase National Bank, are going to
Europe, and will contact important people in the financial field as well
as in the governments. He thought that the present was a very opportune
time to make some real progress in the monetary field. He pointed out
that he had good information which lead him to believe that the German
and Italian governments were now in a much more receptive mood, largely
because they realized the futility of not treading along peaceful lines,
particularly in view of the large rearmament program of Great Britain.
Dr. Anderson said what the world needa in a monetary way is a
three-fold program:
(1) The important countries of the world should become estab-
lished on a fixed gold basis. It is not so important just what the basis
is, but it must be fixed. He pointed out that this would instill confi-
dence in countries in Continental Europe. Gold would return to these
countries and this would automatically take care of our gold problem.
With the resultant increase in confidence, he said Gresham's Law would
cease to operate.
(2) Along with this program should go increased efforts to
carry out Secretary Hull's program of freedom of trade 80 that goods
could move.
(3) The gold content of currencies of the world 1s too low
and results in too great an output of gold. This should be limited by
increasing the gold content of currencies or, in other words, reducing
the price of gold in terms of currencies.
Dr. Anderson said the above 18 in brief what he and Mr. Aldrich
are going to say to the important people they meet in Europe. He asked the
Secretary if it would be all right if he said that he had discussed these
matters with the Secretary of the Treasury before he left for Europe.
373
Secretary Morgenthau
-2-
The Secretary replied that Dr. Anderson had not even asked him
as yet what his opinions were with regard to these subjects; and as to
Dr. Anderson indicating in any way that he represented the Secretary of
the Treasury, the Secretary said emphatically no. He said he did not need
anybody to represent him there, and if he did, Dr. Anderson would be the
last man he would select. The Secretary pointed out that since this
Administration came into office Dr. Anderson in his writings had consistently
onnosed everything the Treasury had done; and now that the job is done, and
with a balanced budget in sight, he would not under any circumstances allow
Dr. Anderson in any way to represent the Treasury Department. The Secretary
stated that this was a free country, and Dr. Anderson could make any state-
ments he wanted to malce, but that if there was the slightest impression
created that he was representing or expressing the views of the Secretary
of the Treasury that he would immediately inform the embassies abroad to
the contrary. The Secretary pointed out that after three years he has
finally developed a means whereby he can establish immediate contact with
the Chancellor of the Exchequer, the Minister of Finance in France, Belgium,
etc., and they have confidence in him and he has confidence in them.
Dr. Anderson said that the Secretary had misunderstood him. He
did not intend to infer that he was asking to represent the Secretary abroad,
The Secretary asked him what he came here for if it was not to lay out what
he was going to tell the people abroad. Dr. Anderson then attempted to cite
instances in which he did agree with the Administration's policy. He stated
that he agreed with Secretary Hull's reciprocal trade agreements and with the
Federal Reserve Board's action in increasing reserve requirements. The
Secretary stated that he was referring to the activities of the United States
Treasury. Then Dr. Anderson pointed out an instance, in 1934 or 1935, when
he appeared before some Senate committee, and Senator Thomas without success
made every effort to get him to state that he cuestioned the soundness of the
Government credit.
The Secretary reminded Dr. Anderson that ha had never attempted to
see him when the situation was really difficult. Dr. Anderson replied that
he had attempted to see the Secretary before. The Secretary said he could
not recall a single instance. Dr. Anderson then said that at the request of
Mr. Morgenthau's father he wrote a memorandum on employment which Wg8 sent to
the Secretary. The Secretary said he never received such a memorandum, and
stated further that his father is very careful not in any way to represent the
Secretary.
Dr. Anderson attempted to assure the Secretary that there was
nothing personal in any of his writings, and that he was expressing his
honset oninions. The Secretary said that the personal part of 1t was
immaterial, that he was not important but the United States Treasury was.
Dr. Anderson further stated that Mr. Stern and Mr. Funk of the Chase Bank
have cooperated with the Treasury. The Secretary said he knew that and
WE not making any reference to them, but that his remarks were directed
entirely to Dr. Anderson, the Economist of the bank.
Regraded Uclassified
374
-COPT-
EMBASSY OF THE UNITED STATES OF AMERICA
OFFICE OF THE TREASURY ATTACHE
CUSTOMS
2 Avenue Gabriel
Paris, France.
April 30, 1937.
MEMORANDUM FOR THE SECRETARY:
Subject: Narcotic Smuggling - Europe.
Since my last memorandum, we have our noses to the trail as before.
We have been getting a few breaks as regards informers, with the result
that we have lined up several who look as if they may turn out to be
more high-powered than the average of our former ones. We were glad to
receive word to-day of some success with regard to the seizure on the
PRESIDENT HARDING. We have several things on the fire which look pretty
good, but it is too early to say anything about them as yet. It would
appear that the cargo-smuggling angle (concealing the narcotics in
freight) is our largest and toughest problem. We are devoting our at-
tention to that as much as we consistently can with keeping the other
angle (personal carriers) covered.
Mr. Wait is back from his cure and looks much better. Now that
he has returned, and while awaiting Anslinger's arrival, I am going to
make B. quick trip to Turkey and Greece to see if I can get Christides
into the proper groove to produce results. He is willing but inexper-
ienced, and I hope to encourage and develop him.
Best regards as always,
Respectfully,
THOMPSON.
375
April 30, 1937
Mr. Oliphant's office reported today that the letter of
April 26 (filed herein under date date) had been turned over
to Mr. McReynolds who will handle it personally with Mr. Forster
at the White House.
This has to do with a time record for veto messages of. the
President.
FROM: MR. McREYNOLDS' OFFICE
376
TO:
The original 1 the
mrmo + the file
mR to
whind
mol
30ᵗʰ 37
Regraded Uclassified
377
Regraded Uclassif
MEMORANDUM FOR THE PRESIDENT:
You recently suggested consideration be given the 16-
appointment of Joseph Wolf as Collector of Internal Revenue
at st. Paul, Minnesots, and accordingly I have had the usual
investigation made,
Wolf was appointed originally as Collector on August 1,
1933, and served both in that capacity and as Democratis
Metional Committeemen until September 30, 1934, when he po-
signed as Collector to devote his entire time to the duties
of Commitionmen. He continued in this position until June,
1956. James R. Landy wes appointed Collector on June 16,
1985, to moreed Holf, who endorsed him for the position.
The investigation has disclosed there was an understanding
between Walf and Landy that at aome certain time in the future
when Welf desired remppointment as Collector, Landy would resign
and make way for such reappointment. A meeting was held at the
home of Mr. Adolph Brener of St. Paul in March, 1935, at which
wolf and Landy, with others, were present. It WILL at this meet-
ing that the arrangement between nolf end Landy was discussed
and the agreement entered into. According to the statement of
Landy, after wolf and the others had left the room, Mr. Adolph
Stemer indicated to Landy that, in view of Holf's lack of funds
and his considerable office expenses, something should be done
for him. As states it as agreed between Mr. Breaser and himself
that Landy would pay Wolf $75.00 a month. Following his appoint-
and he die make cush payments for a period of one year begin-
ning July 1, 1935. Photostatic copies of the checks in question
are in the files and wolf admits that ha received them. Be main-
tains, however, that these case represented payments to the
Demosratic compaign fund. However, nine of the checks were de-
posited in his personal bank account, and, 80 far as could be
accortained, all of the expenses of the State democratic office
este paid from the special account of Raths, the treasurer.
In name, 1956, Landy mé Wolf, with others, again net at the
home of Mr. Adolph Broner and there discussed the question of Landy
resigning in fever of nolf. Landy insisted his understanding had
been that be would be permitted to remain as Collector for two
years. All be had been in office only about one year, he refused
378
- 2 -
to resign. Landy and solf both state that the latter offered to
return the $900.00 received from Landy, but this offer -
declined. Landy testifies further that et . later date certain
influential and wanlthy oftimems of Minnesota offered to pay him
the sun of $2,500. which represented the anount of money be would
have earned M Collector from that time to the end of the two-year
period, and to return to him the $900.00 which be had paid wolf.
Landy states that be also refused this offer.
The investigation also developed evidence that Wolf had
received various sum of money from applicants whom be endorsed
for postmesterebips during the year 1933. Nolf neserts that all
of these contributions were made voluntarily and maintains that
the payments were used for political purposes and were not income
to him personally. He states that records and receipts were not
always kept and admite that some of the funds were deposited in his
personal bank account, but maintains that most of the were deposited
in the bank account of Mr. Raths as treasurer and were used to pay
expenses of Wolf's political office. with one exception, these al-
legal offenses occurred more than three years ago, and are, there-
fore, barred by the Statute of Limitations in no for 0.8 the appli-
estion of law is concerned.
However, it 1s definitely determined that Wolf did recomend
Landy for appointment as Collector; that et that time there was an
understanding between them that Landy would relinquish the office
to welf at nometime in the future; and further that Landy did pay
to Wolf the sun of $75.00 per month for a period of one year.
These offenses RTS in direct violation of Sections 149 and 150 of
the United States Orininal code, which sections prohibit the pay-
ment or receipt of any moneys in connection with the recommendation
for or appointment to a Federal office. The sections noted are est
out in full on the attached sheet.
Obviously welf ennaot be considered for appointment as Collector:
furthernors, Landy should be immediately resored from the position
which be bolds. It 10 my recommendation that this be done and that
all of the facts in this come be submitted to the Attorney General.
(Signed) Henry
Secretary of the treasury.
apr 30,1937
78/4/19 G74 4-29
mod
Regraded Uclassified
379
Section 149:
"Payments made for influence exerted in
procuring appointive public office prohibited.
It shall be unlawful to pay or offer or promise
to pay any our of money, or any other thing of
value, to any person, firm, or corporation in
consideration of the use or promise to use any
influence, whatsoever, to prosure any appointive
office under the Government of the United States
for any reason whatsoever. (nee. 11, 1926, 6. 5,
Section 1, 44 Stat. 918.)"
Section 150:
"Payments received for influence exerted in
obtaining appointive public office prohibited.
It shall be unlewful to solicit or receive from
anyone whatsoever, either as & political contribu-
tion, or for personal emolument, any sub of money
or thing of value, whatsoever, in consideration of
the promise of support, or use of influence, or for
the support or influence of the payes, in behalf of
the person paying the money, or any other person, in
obtaining any appointive office under the Government
of the United States. (Dec. 11, 1926, 0. 3, Section 2,
44 Stat. 916.)"
Regraded Uclassified
North China Daily hews Skenghan
apr 30 1937
TM work of rounding up live
JUSTICE TRAPS
Ginderg gang was done by Federal
agrile who (1) the where of their
activities Dought from members w
U.S. DEALERS IN
the (ing eleven packets of morphine
and heruin aggregating nure than
have pound. all vicions naivotics All
SHANGHAI DOPE
The contraband enzed RW traned to
nurres in China.
Nearly all lie persons arested
Lincluding one Roman actually sold
murphise or berom to Government
Taybank Case Gang and
agents and those who did not sell
Others Sentenced
were positively implicated an the
inflic The delicate and dangerous
work of buying the exidence from the
LONG GAOL TERMS
various dealers occupied the -genty
for 0 period of aix pronths, from
July to December 1936, When il livel
Further Seizures Here and
attempt to arress one of the traffick-
Respectfully Referred To
Commissioner of Customs
ors. are Johnnie Walker, was made
(Investigative Unit)
- -
in Hongkong
be was in the act de delivering a
quantity of flerom to another man
THE
He drew a pistol, acciously wounded
"You PANT get away with 0° -
one of the agents and excaped after
numing another down with DIT
lhe grin, warning sunded by the
motor-car. He was later appretional-
American Docersment to mine win
eù and is was his good fortune that
Haffle in Chine-e narcoties accoss the
the agent the shot lived to restify
broad sweep of the Parifie And (If
opainst him
recent months Uncle Sam has dealt
Futhless justice to many of the Town-
Schale Gang Caughi
ore on his own side of the
The determinalish of The Aplerican
men and women who have aft bein
authorities to Treat narcotic amag-
deating in desper that has patied
glern with the dirmost severity was
through Shanghai.
manifested last December already
The campaign DM. under The
when the Federal Court in New York
personal supervision of the
sentenced two transatiantie smugglers
of the Treamiry, Mr. Henry Mor
to forty and 25 years respectively
genthou, Jun- who is determined le
and imposed fines of U.S. $40,000 and
break the back of the insidinue trems
U.S. $45,000 on them The men were
If is already well known what the
Morrie Schatz and Seraßno Mancuse
Federal forces have accomplished in
and with them ware arrested nine
the Wendt-Brand-iatier cain and
of their assistants, all of whom were
now may be added what for hap
likewise sentenced.
bened in America in receit weeks
The nareolic seidures on the bent
to men and women who bate neipod
of which the Schatz band was cap.
delibule Shanghar expiration murphise
tured an were made in New York
and hernin comments in that
harbour, as in the Taybank case, On
country. Some of the product vital
October 13. last, more than nets
Toels are as follows.-
pounde of crude opium were found in
While the niv. Taybank. which o
the No. New York and lates that
now leck in this port, WMI in New
month 37 pounds in the Be de France
York herbour on March e, Federal
The largest hour Was made on board
agents went on board and seized 600
the No. Manhaltan un November =
five-thel tims of prepared smoking-
106 pounds of erude option being come
opium secreted below decks. Four
members of the were arrested
incated, and - week later 22 collage
of become were discovered in the -
An Nan. Chinese, Kechel
Normande. The Far Eaul 3@ulb 9.4-
Ben Hassen, Mulayan, boatswain
ilescribed 39 the place of
Onjar Ben Gant Malayan second
Seraßno Mannumo, one of the
boatswain. and Same Ben Basej<
principals In the Schatz 120g -
Malayan, storekeeper. Arrested also
brother of Salvalore Minicuso, WING
were one Willie Bonzinzi cubtact minu
in 1935 was sentenced 51 New York
between the crew and the New York
consignees of the oplum. and two
to four years Imprisonment DO 11.
narentic charge and Porty years for
river boat-men, Dominic and Time
Eldnapping and torturing a French
Boda, brothers, who were
réaman who had sold for his own
narenties between shaps and the
account certain drug: consigned N
shore. Bonanzi has bill linen con-
Salvatore Maneuso
victed and sentenced to ten years you
prison and a line of U.S. $5,000, while
Hongkong Shanghai Hapis
Omar Ben Gen/ was given a term X
four years, the Chinese three and a
An Important veleure made during
half years, and the boatswally and
recent weeks which has not yes conve
storekeeper shorter terms. The Budin
to trial in the American Court was
brothers will be sentenced on May a
that of 500 five-tael time at smoking
opium seized al Hongkong on March
A Lifetime in Garl
15 on the Blue Pannet classiver Details
Dealing in Shaughui incrphine and
plying between China norts aruk the
heroin has further trought » sentence
United States and Ort
of my years in 1be penitentiary DAY
January 8, at New
the head of one Louis Ginsters, a
British Columbia, 559 dive-tael
potorious wholesale operator in
of had bener reservement
southwestern United States, while
from the water off a dov's unreleast,
air of his lieutenante have been given
occupied by the Ixim
terms aggregating ninety years. Two
The latest Important secure was
other members of this gane have
made as Shanghai un March 17 on
been convicted but not yes sentenced.
board the American Treighter Mobile
while a further two are awaiting
City, This haul consisted of 300 Ave-
that It took the jury only aftern
lael time of refined optum deslined for
minutes to reach a verdict a the case
American shores,
of the seven principale
Regraded Uclassified
17
381
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE April 30, 1937.
CONFIDENTIAL FILES
TO
SUBJECT:
TELEPHONE CONVERSATION WITH
D. J. Cameron
FroM
DE NEDERLANDSCHE BANK
(Copy for Mr. Lochhead)
I telephoned Mr. De Jong of the Netherlands Bank and was
connected at 11:53 a.m. The connection was extremely poor. I told
Mr. De Jong that we had a news report that the Dutch Equalization
Fund announced that it had again cut its purchasing price for the
dollar to 1.82 1/4 guilders (54.8696$ per uilder) due to the large
offerings of dollars and the firm tone of sterling. I said I was
calling because in view of this report we hesitated to operate
against his order to sell guilders here at 5484, possibly contrary
to his purpose. Mr. De Jong thanked me for calling and apologized
for not cabling us. He said he did not wish us to sell guilders in
our market unless we could do so at 54.88 cents per guilder or
better (54.871 net to him). He said that he would cable us immediately
Mr. De Jong seemed to have difficulty understanding, but I made it
clear that I understood his instructions.
In closing he repeated his instructions with respect to
selling guilders for his account here.
RECEIVED
They
DEPARTMENTO TRIVAINT
/
Regraded Uclassified
382
RB
GRAY
Paris
Dated April 30, 1937
Rec'd 3:48 P. m.
Secretary of State
Washington.
554, April 30, 3 P. m. (SECTION ONE)
FROM COCHRAN.
The communique issued following the appearance of the
Minister of Finance yesterday before the Senate Finance
Committee indicates that the information given to this
body by the Minister was similar to that submitted on the
previous day to the Chamber Finance Committee, The state-
ment is made that the Senate Committee maintained its
previous position relating to the 1937 budget. (The views
of the Committee in this respect were reported on pages
8 and 9 of the Embassy's despatch 256 of January 7th
notably that revenue was overestimated by at least 200
billion francs, that expenditures were underestimated by
one billion, that pension fund would call for an additional
two billions and furthermore that important requirements
had been overlooked by the Government as concerned extra
budgetary outlays.) It is maintained that the position has
been still more aggravated by additional burdens laid on
public
383
RB
-2-,/554, April 30, 3 P. m. from Paris
SECTION ONE
public finances since the beginning of the year. The
Minister once more repeated that no further project of
law of a nature to add to deficit would be considered and
again declared that he had never envisaged any sort of a
forced loan. He was he said anxious to reestablish pro-
gressively budgetary balance. President of the Committee
Caillaux emphasized the necessity for the Government, if
the economic situation was to be restored, to adapt its
actions to its declarations and to maintain public order.
"Thile the exact situation of the Treasury and
BULLITT
CSB
384
EDA
GRAY
PARIS
Dated April 30, 1937
RECEIVED 4 p.m.
Secretary of State
Washington
554, April 30, 3 p.m. (SECTION TWO).
requirements are of course only known to the officials
directly concerned the approximate position at present
seems to be that indicated in y telegram of yesterday.
According to the Ministry's own figures twenty billion
francs will bE required between now and End of the year
over and above budgetary revenue and in this calculation
it appears certain that repayment in October of the British
credit of forty million pounds has not been included nor
has mention been made of loans to the railways. It is also
possible that the amount of three billion francs Established
as sufficient to meet demands in October next for reimburse-
ment of the four one half per cent 1934 Treasury bonds will
prove to bE insufficient. It may bE Explained that about
nine billion francs of these bonds are outstanding. They
are repayable at par in October 1937 at 103 per cent in
October 1940 and 108 per cent in October 1944. The Govern-
ment appears to have calculated that approximately one third
(three billion francs) will bE presented for reimbursement
in
385
EDA - 2 - 554, April 30, 3 p.m. Section two from Paris
in October as indicated above.
An official denial is published in today's press of
report that the Government intended to reorganize the
railways with a VIEW to taking en active part in their
administration. It has been claimed that the Government
planned to transform into shares its credit on the railways
of 25,000,000,000 francs, As the canital of the railways
represents about 7,000,000,000 francs the state under the
circumstances would i:rediately become holder of the
majoraty of the shares (about 30%).
Paris Exchange market today rather (=) but jumpy with
no important (#), Dollar recover:ng as Soviet sales thereof
let up. Possimistic news received from London on official
disappointment over initial reception given defense loan
and in regard to difficulties of brokerage houses. French
rentes and shares are, nevertleless, a little up from
yesterday.
BULLIT
CSB
(*) Ommissions
RECEIVED
-
Regraded Uclassified
386
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: April 30, 1927, 6 p.m.
NO.: 558
FROM COCHRAN.
Last night at the Embassy dinner I had the privilege
of talking with Auriol, Rist and Rueff. Auriol told me
that Caillaux had been quite tired, and at the session
of the Senate Finance Committee he had not subjected
him to any severe examination. There will be no further
devaluation of the franc, Auriol said. However, he
did make a remark which hinted that France may seek
consultations with Great Britain and the United States
with a view to widening the fluctuation limits of the
French franc. If I interpret his meaning correctly, this
naturally arouses suspicion as to his own confidence
in France's ability to avoid franc depreciation below
the lower limit fixed October 1 by the monetary law.
I was told by Auriol that he had informed the
Committee members that it is out of the question to
stabilize the franc now in view of the wide fluctuations
at present on the world's exchange markets. The three
officials mentioned above gave the impression that they
were in harmony on the operations of the exchange stabiliza-
tion fund of France.
BULLITT.
EA:LWW
Regraded Uclassified
387
PARAPHRASE OF SECTION TWO OF TELEGRAM NO. 558 of
April 30, 1937, from Paris.
It also appeared that there was no truth in the rumors
of prospective resignations from the Committee.
Very little new information was added by Rist to
what I have already passed on to you from time to time.
Most of all he is concerned lest there may be such a
sharp check in world prices that a setback will actually
be suffered by recovery. Rist is in favor of higher
world prices, considering the important gold stocks and
production. He insists that the only worry to France
would be in the event that her prices are ahead of world
prices.
Rist expressed the hope that there may be a lowering
of trade barriers Bo that countries which do not have
important monetary reserves may accumulate foreign ex-
change from profitable commerce, and convert this foreign
exchange into gold, thus effecting a better distribution
of world stocks of gold. I was questioned by Rist 88
to whether our country and Great Britain had reached
an agreement on a campaign for lowering prices; I insisted
that there had been no such agreement.
The Ambassador was told by Auriol and Spinasse that
they were entirely certain that in the long run France could
not hold out under the financial burden which the new social
laws and military budget imposed on it. There would in
the long run be internal collapse if an accord were not
reached
Regraded Uclassified
388
/
2
THING
03
reached on limitation of armaments. They felt confident,
the told the Ambassador, that the Government could surmount
its financial difficulties until June or July, and they
believed that the Government could hold out until Fall of
this year.
END MESSAGE.
BULLITT.
EA:LWW
Regraded Jclassified
389
MJD
GRAY
Paris
Dated April 30, 1937.
Rec'd. 9:45 p. m.
Secretary of State,
Washington.
559, April 30, 7 P. M.
FROM COCHRAN.
Reference Department's 191, April 29, 3 p. m. Leaving
Paris Saturday night for Basel where B. I. S. has monthly
annual meetings on Saturday and Monday. Shall proceed from
Basel directly to Geneva Tuesday 4th.
I am cabling summary of B. I. S. annual report from
Paris tomorrow. An account of the B. I. S. meetings will be
mailed from Basel or Geneva for coding to Paris.
CSB
BULLITT
390
MG
GRAY
London
Dated April 30, 1937.
Rec'd 12:50 p.m.
Secretary of State,
Washington.
254, April 30, 5 p.m.
FOR TREASURY FROM BUTTERWORTH.
London stock market has continued to absorb satis-
factorily the inevitable selling and the strength with
which Wall Street opened did muc to preserve confidence
that the worst was passed. At the same time institutional
buying became very noticeable this afternoon. There is a
general feeling of relief that the week is closing in
this manner.
BINGHAM
KLP
/
03V13038
frå
/ / a z / /
Regraded
391
lw
GR/.Y
Bombay
Dated May 1, 1937
Roc'd 6:23 a.m.
Secrotary of State
Washington
May 1, 11 a.m.
FOR THE SECRETARY OF THE TRE.SURY.
Silver markot has not been affected by the crisis
in other markets and ruled steady during the wook.
Roady opened at rupoos 52-15 per 100 tolas and doclined
to 52-11 at the close. Stocks on hand about 33,000
bars an offtako has improved to about 140 bars daily.
Imports during the wook 29 bars and shipmont reported
from London valued at 6,000 pounds.
During the early part gold markot was casy in
sympathy will th dollar but bocame woak on nows of bill
presented to Congress to limit price of foreign gold
to $25. Tho price of ready declined to as low as
rupees 34-3-6 por tola though closing at 34-9-6.
WATERMAN
CSB
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- document
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"ocrText": "191\nApril 27th, 1936.\nTol The Secretary\nFrom: Mr. McReynolds\nI called on the Comptroller General this morning at\neleven o'clock, at his invitation, to discuss the Treasury's\nproposal to designate depositary banks as fiscal agents of the\nTreasury to sell Baby Bonds. General McCarl stated that he was\nin entire agreement with the opinion written by the Treasury's\nGeneral Counsel on this question, with the understanding that\nany fees allowed the banks would be on the transaction basis\nrather than the denomination of the bonds disposed of. In\nother words, he pointed out what we already recognized, that is,\nwe would not be in 8. position to pay commissions for the sale\nof these bonds, although it is entirely proper to allow a fee in\nlieu of expenses of the fiscal agents, incurred in connection with\nthe sales.\nAfter disposing of this matter the Comptroller inquired\nparticularly about your health. Hie inquiry was made in 8 rather\nunique way. He said be had had reports that you had been 111,\nthat he felt very solicitous for your health and hoped you would\nnot permanently impair it by over-work, but that be would be very\nmuch more worried if you had not actually been 111. His\nexplanation of this attitude was that he felt the results of your\nadvice to the President had been lacking in recent weeks, and that\nIf you were not actually physically incapacitated the fact that\nwuch advice had not been given and heeded was an indication that\nthe President was accepting advice from less reliable sources.\nThe General said he would like to have an opportunity some-\ntime to tell your in how high esteem he held your administration of\nthe Treasury Department. He asked DO to tell you for him that be\nconsidered your administration of this Department the outstanding\naccomplishment of the present Administration; that to his opinion\nthe administrative and financing Jobs of this Department had been\nhandled with a maximum of skill and effectiveness; and that he\nfelt the most unfortunate thing that could possibly happen to the\nPresident would be to fail to follow your advice on general policy\nmatters.\nmar\nRegraded Uclassified\nTREASURY DEPARTMENT\n192\nINTER OFFICE COMMUNICATION\nDATE\n4-27-37\nTO\nSecretary Morgenthau\nFROM\nHerman Oliphant\nThe following is a chronological memorandum of telephone conversations\nand correspondence between yourself or members of your staff and Senator\nBulkley in connection with the proceedings taken against C. E. Moore,\nCollector of Internal Revenue at Cleveland.\nOn September 12, 1935, you wrote to Mr. Moore informing him that you\nhad arrived at B. decision; that he should sever his connection with the\nTreasury Department unless he and all members of his immediate family im-\nmediately give up all associations with the companies concerned, including\ntheir financial interest, and unless he forthwith made satisfactory arrange-\nments to pay into the Treasury the full amount of all such monies received\nby him or any members of his immediate family of such companies.\nOn September 19, 1935, Mr. Moore replied, but his answer was not\nresponsive.\nOn September 24, 1935, Acting Secretary Coolidge Baw the President\nand Charles West and the President informed him that he felt that the men\nshould give up the money they had made.\nOn September 27, 1935, Acting Secretary Coolidge saw Senator Bulkley\nand the Senator informed him that he had no fault to find with your conclusions\nas to what was right and fair and that he would try to work it out with Mr.\nMoore.\nOn October 1, 1935, Acting Secretary Coolidge wrote to Mr. Moore, in-\nforming him that his reply was not satisfactory end that he would hold it\nfor your action upon your return from Europe.\nOn November 19, 1935, a letter WES prepared and approved by you to\nMr. Moore. This was shown to Senator Bulkley who, in 8 huff, picked up his\nhat and started to leave. I was present when this happened and suggested\nto the Senator that he dictate his own letter 68 to what his understending\nof the agreement with the Secretary was. Charles West was also present at\nthis conference and the letter as dictated was agreed upon by all present\nexcept that part of it which provides that restitution should be made only\nfrom date of notice.\nOn November 20, 1935, you dictated a letter to Moore demending that\nRegraded Uclassified\n193\n- 2 -\nthe munies received by him be turned over to the Treasury. This letter\nwas identical as the letter dictated by Senator Bulkley except that it\n/temanded the return of all the monies so received. On the same date\nyou called Senator Bulkley and told him that this was your decision and\nSenator Bulkley replied to you, suggesting that the letter be sent to\nhim and he would see that it reached Moore and if there was any trouble\ngetting the money from Moore he would telephone you.\nOn November 25, 1935, Moore replied to your letter, offering to\ncomply with your request contained in your letter of November 20, pro-\nviding e. general regulation was promulgated concerning similar actions of\nother persons in the same position, and that the regulation should have a\nretro-active effect.\nOn November 29, 1935, you wrote Moore to the effect that the matter\nof a general regulation could not be considered in connection with his\ncese but would be taken up in due course on its own merit. A further\nrequest was made for a reply to the letter of November 20.\nOn December 3, 1935, you spoke to Senator Bulkley over the telephone\nand told him that you could not go along with Moore's request concerning\nthe general regulation contained in his letter of November 25, because\nyou could not allow Moore to stipulate conditions in connection with the\nadministration of the Treasury Department.\nOn December 6, 1935, Senator Bulkley wrote you and informed you that\nhe had \"secured the consent of all concerned to the following set-up;\nwithout further insistence upon B general regulation, Moore will divest\nhimself of all profits by returning them to the company and the company\nwill accept them only with the condition that they be turned over to\npublic charity as fast as received.\" He further states in this letter:\n\"I can assure you if you will give me your approval of the settlement\nherein suggested, the letters from Moore and the company, which would be\nnecessary to consummate it, will be worded in a friendly and respectful\nmanner.\"\nOn December 13, 1935, you called Senator Bulkley and told him that you\nhad decided to accept the offer made in his letter of December 6, 1935, and\nSenator Bulkley in replying said that he was glad the matter was all set\nand stated that he would arrange to have Moore write a letter which would\nbe pleasing to the Secretary.\nOn December 17, 1935, at 8. conference of yourself, Senator Bulkley\nand myself, Senator Bulkley delivered Moore's letter dated September 16,\nI realized from this transaction when and as I as able to do 30.\" At this\n1935, stating that he proposed \"to return to the company such profits as\ntime, you expressed to Senator Bulkley your doubt as to the sufficiency of\nRegraded Uclassified\n194\n- 3 -\nthis assurance and I advised you that the legal effect of this language\nwas eun obligation to pay within 8 time which would be reasonable under\nthe circumstances, Senstor Bulkley agreed with this interpretation and\nyou also expressed yourself 8.5 being satisfied with it. It was then\nagreed that the syndicate was to write you a letter designating either\nthe Cleveland Community Chest or the American Red Cross as the ultimate\nrecipient of the profits. You stated that you would require the same\narrangement with Pollack and Harper and would thereafter submit to\nSenator Bulkley your proposed publicity statement.\nOn December 20, 1935, Mr. Gardner Abbot, President of the Famous\nBrands Ohio, Inc., wrote you, stating that he would pay to the Cleveland\nCommunity Fund any monies returned by Collector Moore and any other\nTreasury employees involved.\nOn January 2, 1936, you wrote Collector Moore, in which you informed\nhim that you took his letter of December 16, 1935, to be an understanding\non his part, and his family, to dispose forthwith of all interest in\nFamous Brands Ohio, Inc., and to turn over to it all dividends, payments,\nand profits. A copy of the letter addressed to Famous Brands Ohio, Inc.\nwas enclosed with this letter.\nOn January 7, 1936, Collector Moore acknowledged your letter of\nJanuary 2 and gave assurance that he would comply with the demands outlined\nin his letter of December 16, 1935.\nOn January 13, 1936, Senator Bulkley called you and discussed with you\nthe proposed press release which had been shown to him by Mr. Gaston. The\nSenator said that while the release was inoffensive, he would have preferred\nhaving the details omitted therefrom. After some discussion, he said he\nwas satisfied with it and would accept your judgment.\nHerman Oliphant.\nRegraded Uclassified\n195\nCONFIDENTIAL:\nTrip of the President to Biloxi, Gulfport, Miss.,\nNew Orleans, La., Galveston, College Station,\nand Fort Worth, Texas, to Washington, D. C,\nApril 28-May 13, 1937.\nWEDNESDAY, April 28.\nLv. Washington (Southern Ry.)\n1:00 a.m.\nAr. Atlonta, Ga\n9:30 pam. cT.\nLv. Atlanta (A. and W. P. R.R.)\n9:40 p.m.\nTHURSDAY, April 29.\nAr. Montgomery, Ala\n2:40 a.m.\nLv. Montgomery (L. and N. R.R.)\n2:50 a.m.\nAr. Biloxi, Miss\n9:00 B.M.\nMotor to Gulfport (about 12 miles);\nentrain for New Orleans.\nWhile party is motoring, train equip-\nment will be moved to Gulfport.\nLv. Gulfport\n10:30 a.m.\nAr. New Orleans, La\n12:30 p.m.\n4:00 p.m. the President and his\nimmediate party go aboard USS\nPOTOMAC.\nMONDAY, May 10.\nLv. Galveston, Texas (Southern Pac. R.R.) 10:00 s.m.\n11:40 a.m.\nAr. Houston\n11:50 s.m.\nLv. Houston\nAr. College Station\n2:00 p.m.\nVisit A. and M. College.\nLv. College Station\n3:30 p.m.\nAr. Fort Worth\n9:00 p.m.\nTUESDAY, May 11.\nLv. Fort Worth (M. K. and T. R.R.)\n6:15 p.m.\nand Frisco.\nWEDNESDAY, May 12.\n11:55 a.m.\nAr. St. Louis, Mo\nLv. St. Louis (Pennsylvania R.R.)\n12:05 p.m.\nTHURSDAY, May 13.\nAr. Washington, D. C\n10:15 a.m.\nRegraded Uclassified\nSenator Pat Harrison\nand\nCommissioner George E. Allen\nwill accompany the President to\nGulfport, Mississippi.\n195-A\nA\nTelegraph Representatives:\nMr. C. S. Linkins\nWestern Union.\nMr. A.E. Arnold.\nWestern Union.\n186\nMembers of the party:\nTHE PRESIDENT.\nHon. M. H. McIntyre,\nAss't. Secretary to the President.\nCaptain Paul Bastedo, U. 8. N.\nCol. E. d. Watson, U. S. A.\nDr. Ross T. McIntire,\nMr. H. M. Kannee.\nMr. E. W. Smithers.\nMr. W, J. Hopkins.\nMr. Geo. A. Fox.\nMr. Chas. K, Clounch.\nSecret Service Agents.\nMr. Herbert G. Theurer,\nPost Office Inspector.\nNewspaper men:\nMr. Walter Trohan,\nChicago Tribune.\nMr. Geo. E. Durno,\nInternational News Service.\nMr. D. Herold Oliver,\nAssocieted Press.\nMr. Richard L, Harkness,\nUnited Press.\nMr. Philip Pearl,\nUniversal Service.\nMr. Robert P. Post,\nNew York Times.\nMr. John C. O'Brien,\nNew York Hereld Tribune.\nMr. Claude A. Mahoney,\nWall Street Journal.\nMiss Doris Fleeson,\nNew York Daily News.\nPicture men:\nMr. George Skadding,\nAssociated Press Service.\nMr. Jos. Jamieson,\nTimes Wide World.\nMr. James Lyons,\nUniversal Newsreel.\nMr. James Buchenan,\nParamount News.\nMr. John S. Thompson,\nAcme Newspictures, Inc.,\nMr. F. I. Thompson,\nInternational News Photos.\nTelegraph Representatives:\nMr. C. S. Linkins\nWestern Union.\nMr. A. E. Arnold,\nWestern Union.\nMr. G. M. Lawrence, D.P.A.,\nSouthern Railway,\nIn charge of Transportation.\nRegraded Uclassified\n197\nKLP\nGRAY\nLondon\nDated April 28, 1937.\nRec'd. 10 a.m,\nSecretary of State,\nWashington.\nRUSH\n249, April 28, 2 p.m.\nFOR TREASURY FROM BUTTER !Opth\nThe Chancellor of the Exchequer made in the House of\nCommons last night a reassuring statement in an attempt to\nremove misapprehension about the scope and incidence of the\nnational contribution tax. While he claimed that his\nproposals had been exaggerated and their possible effects\ngreatly magnified he indicated that he would be prepared to\nconsider carefully the advice he had invited from leaders\nand organizations representative of trade and industry and\nthat he was willing to accept modifications of what were in\neffect tentative proposals intended to be no more than an\noutline. In particular he stated that he would not insist\nupon the datum line for circulation of profits being the\naverage of the years 1933, 1934 and 1935 and that he was\nprepared to vary the rate of interest which is to be the\nbasis\nRegraded Uclassified\n- 2 -\n198\n#249 from London - April 28, 2 p.m.\nbasis of the capital standard,\nChamberlain emphasized that he regarded the tax as\nmild and moderate and reiterated that it was expected to\nyield only two million pounds during the current fiscal\nyear and not more than twenty-five million pounds next year\nwhich could not be regarded by industry as an intolerable\nburden.\nThis announcement has not the desired effect of\nrestoring a measure of confidence but the position will\nremain uncertain until the finance bill is considered\nin the House of Commons some time after the Coronation,\nDespite the possibility of coal and transport strike the\nLondon stock exchange opened firm. However, no decided\nadvance in prices is expected for the reason that\nadvantage will be taken of any strengthening of the market\nto liquidate tenuous positions.\nMr. Chamberlain's statement has interesting political\naspects and in this connection the comments of the liberal\nMANCHESTER GUARDIAN are pertinent and representative. Its\npolitical correspondent takes the view that \"if this was not\nMr. Chamberlain in retreat and for the first time in his\npolitical life, at least it was Mr. Chamberlain more\nchastened than one has ever seen\". On the other hand, its\nparliamontary correspondent describing the scene in the House\nof Commons states \"on the whole the impression was given\nthat\nRegraded Uclassified\n199\n- 3 -\n#249 from London - April 28, 2 p.m.\nthat the Chancellor is playing a very difficult hand very\nskillfully. He has to finance the rearmament program and\nhe has to satisfy labor that profiteering will be made\nunprofitable and he has to satisfy industry that profits\nwill not be made impossible. It is an awkward troika to\ndrive.\"\nBINGHAM\nCSB\n-ear 8,99A\n-\nRegraded Uclassified\nAlkoo\n200\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Paris, France\nDATE: April 28, 1937, noon\nNO.: 542\nFROM COCHRAN.\nThere are four principal causes of the present\nuneasiness on the exchange security and commodity markets\nin Europe; 1.e., the American gold scare, the French\nsituation, remarks by President Roosevelt on commodity\nprices, taxation by Great Britain and borrowing for\nrearmament.\nWith reference to the American gold scare, in my\ntelegram of April 2, 4 p.m, I reported that the rumor\nwas current in banking circles that there might be a\nreduction in the net price paid for gold by the Federal\nReserve Banks acting for the Treasury. The scare became\nwidespread when later it was made public that New York\nbanks had instructed their European branches to abstain\nfrom arbitrage gola dealings for the above reason.. Fewer\ndollars became available on European markets with the\ncessation of gold arbitrage, which caused a weakening of\nEuropean currencies, particularly the French. Washington's\nrepeated denials that no change in gold policy is contem-\nplated has not been entirely successful in allaying fears\nthat something to change the American gold price may yet\nbe done.\nThe rumors were partly intensified by the remarks of\n201\nPARAPHRASE OF SECTIONS TWO TO FIVE INCLUSIVE OF NO. 542\nof April 28, 1937, from Paris.\n-2-\nof Professor Sprague at the American Club in Paris, as\nI reported in telegram No. 465 dated April 8, 4 p.m.\nThe London FINANCIAL NEWS and certain other financial\npapers have been prone to attribute the commencement\nof the rumor to statements alleged to have been made\nby Sprague to bankers on his visit to London. It is\nlikely that Sprague will be present at Basel when the\ncentral bankers meet this week for their annual gathering\nand the FINANCIAL NEWS warns against Sprague's opinions\non the gold question being taken there as official.\nVarious writers contend that under war time and\nsubsequent legislation the Secretary of the Treasury and\nthe President have authority to alter the price paid for\ngold shipped from abroad without requiring further legis-\nlation and some insist that the statements issued from\nWashington have not closed the door definitely to a change\nin the gold price. I have not seen any official denial\nof this from the American side.\nSeveral reasons are given for increasing the prob-\nability of some American action being taken to change the\nprice of gold: (1) Washington experts have been unable\nto find a means for checking the inflow of foreign capital\ninto the country; (2) sterilization of gold has apparently\nbeen ineffective toward this end; (3) the Treasury has\nhad an additional burden imposed upon it in having to\nissue paper to pay for sterilized gold just at a time when\nRegraded Uclassified\n202\n- 3 -\nto support the government bond carrying Federal agencies\nhave had to intervene on the open market; (4) due to some\napprehension that tax returns will fall below estimates,\nthe American budget will have to be revised.\nThe factors cited in the preceding paragraph have con-\ntributed to the persistence of the rumors concerning a\nchange in the American price for gold, even though many\nobservers have been convinced that this would not be done\nfor several reasons - recovery has not gone sufficiently\nfar in the United States to relieve unemployment ex-\ntensively, prices have not yet risen to the scale originally\nenvisaged by the Government, and a reduction of the gold\nprice would most likely cause a collapse of the New York\nstock market as well as of world commodity prices.\nThese rumors may of course be due to some speculative in-\nstigation.\nThe effectiveness of the remarks which President\nRoosevelt made upon commodity markets, metals in par-\nticular, has caused a profound influence; in Europe it\nhad not been generally believed that United States re-\ncovery had gone far enough to warrant checking commodity\nprices. It has been realized nevertheless by banking\nand market circles that the situation had become danger-\nously top-heavy, with intense speculation in materials and\nmuch overstocking. Johannesburg was quick to begin selling\nwhen the gold scare started. A sharp dumping of other\ncommodities was begun due to the position taken by the\nUclassifi\n203\n+ I I\nPresident.\nSouth African gold shares, it should be remembered,\nconstitute one of the most generally traded group of\nsecurities in Europe, The repercussions were widespread\nwhen selling thereof began. A recession in other metal\nand raw commodity prices quickly followed. It would be\nremembered that European investors hold American shares\nextensively, in addition to the securities and supplies\nof metals involved. When the gold scare and commodity\ndepression developed, they disposed of important blocks\nof these. Since the rejuvenation of the Supreme Court\nwas suggested and since labor difficulties with resort\nto sit down strikes had grown, European investors had\nalready begun to believe that political and social\naffairs had not been going so well in the United States.\nThere is evident a disappointment that the progress of\nrecent years made in economic recovery has not been more\nsound and that world conditions are still 80 unstable\nthat a quick and unexpected upset therein can take place.\nAs for Great Britain. The strength of many securities\nand commodities is due to world rearmament at\nthe present time; but great uneasiness in British trade\ncircles and a decline in British gilt edge securities haw\nbeen caused by the fact that the new British budget will\ninvolve\nRegraded Uclassified\n204\n- 5 -\ninvolve heavy taxing of industry, and enormous borrowing\nwill be required. Sterling has 80 many currencies tied\nto it that naturally there is concern lest there will be\na disturbing effect throughout the world because of a\nprogram of expenditure in England that might cause a weaken-\ning of the currency.\nI have currently portrayed in my telegrams the vul-\nnerability of the French situation because of the Blum\nGovernment's failure to inspire sufficient confidence for\ndehoarding of capital and repatriation of it. Following\nthe change of policy in the first ten days of March, the\noutlook was somewhat brighter. But the French have not\nyet overcome important difficulties. If there is no\nimportant crisis, the French stabilization fund, with\nthe funds it has retained and repatriated, can maintain\neffective control for some time. The funds obtained through\nthe recent loan with its exceptional guarantees will not\nlast the Government beyond June, if they dexam are not\nexhausted before then. A loan of 900,000,000 france is\nalready asked for by the City of Paris. According to B.\npreliminary announcement of yesterday, the pensions office\nwill shortly float an issue for as much of two billion two\nhundred and twenty-eight million francs as can be obtained\non one year bonds at four percent. The proceeds of the new\nissue of the City of Paris will be taken by the Treasury as\nsoon as they are received. Such funds, it is anticipated,\nalong\nRegraded Uclassified\n205\n- 6 -\nalong with any other funds borrowed by other bodies, will be\napplied to rearmament and public works destined to relieve\nunemployment, and to quiet the labor element of the Left.\nEND SECTIONS TWO TO FIVE INCLUSIVE.\nBULLITT.\nD3V13038\n/ / and & e : s /\n/\nEA:LWW\nRegraded\nUclassifi\n206\nSection Six\nThrough pressing for a new loan of 10,000,000,000 francs\nfor public works, this faction has been seriously embar-\nrassing the Government and has otherwise upset confidence\nthrough nationalization of credit, suggesting forced levies,\netc.\nWhile the Government is expected to come successfully\nthrough the debate on general policies which has been\npostponed from Friday until May 7 and while the questioning\nof Vincent Auriol today and tomorrow by the Finance Com-\nmittees of the Chamber and Senate may not lead to any dis-\nclosures that will prove too embarrassing, there will un-\ndoubtedly remain the impression that the Government must\nresort to various and devious means to keep itself supplied\nwith funds. When the announcement was made early in March\nof the French change in policy, I obtained the views\nthereon of the main central bankers of Europe at the\nMarch meeting of the B.I.S. You will recall that these\nbankers were practically unanimous in believing that the\nBlum Government could not sufficiently overcome the diffi-\nculties which it faced to guarantee the stability of the\nfranc. There is a general feer that it may be necessary\nfor the franc to be devalued further with the franc now\ndepreciated to the lowest limit permitted by the monetary\nlaw of October first, with the stabilization fund losing\nover the past three weeks rather than gaining foreign\nexchange, with the Government applying the social,\nparticularly the forty hour, legislation in a manner which\n207\n-3-\nburdens industry and trade excessively at this period of\nrecovery, with prices rising 80 importantly that French\nexport trade is seriously hampered, with labor persistent\nin its demands, and with the Treasury faced with constant\nand recurring financial difficulties. In turn this gives\nrise to conjecture as to whether the tripartite agreement\ncould survive having the frano lowered. Should the franc\ndrop further, would it necessitate a out in the pound\nsterling which might lead to all kinds of currency upsets?\nThe disappointment of the world over the failure of\ntrade barriers to be lowered following the tripartite\nmonetary agreement of last autumn may be added to the\nby most observers\nfactors enumerated hereinabove. It is admitted/that the\nUnited States is about the only country to have made some\nprogress in the desired line through its reciprocal trade\narrangements. The achievement of better trade relations\nis the manifest desire of the Oslo countries. However,\nconsidering the British imperial preference policy,\nFrance's uncertain financial and social outlook, German\nautarchy and its political phases, et cetera, there is\nmuch skepticism as to whether Van Zeeland may be able to\nfind any common ground on which important trading countries\ncan now advance.\nCariguel and I talked about the American gold policy\nthis morning. Cariguel does not believe that we anticipate\nany change in our gold price at this time. However, he\nrealizes\nRegraded Uclassified\n208\n-:-\nrealizes the cost that may be imposed upon our Treasury\nif the present tendency of gold to flow to the United\nStates may continue or be increased as the Soviets dump\ntheir holdings and as others may be inclined to hasten\nto sell their gold to the United States market lest there\nbe a subsequent change in the price of gold. He feels\nthat our Treasury would be seriously handicapped by the\nsterilization of gold. With a deficit in the budget,\nthe Treasury must borrow from the market at increased\nrates. Member banks of the Federal Reserve system have\nbillions of idle money deposited with the Federal Reserve\nbanks as legal reserves, while the Treasury is borrowing\ndollars from the market. Cariguel is aware that under\nour legislation gold cannot be sold without a license.\nHe believes that conditions are changing BO rapidly\nthroughout the world that governments must keep up\nwith them in modifying their policies. In view of the\npresent circumstances he conceives and suggests entirely\nunofficially and only with the spirit of helpfulness the\nthe Treasury sell its gold to member banks,\nidea that/instead of borrowing funds from the market to\npay for the gold which it sterilizes.\nCariguel's idea would be for the Treasury to make an\narran ement with two, three or more of the important\nprivate banks such as National City, Morgan, and Chase\nto sell them gold at thirty-five dollars an ounce. There\nwould\nRegraded Uclassified\n209\nwould be no need for handling gold other than perhaps to\nchange the label on it so that the Treasury could logically\neliminate any handling charges; it would be held with the\nFederal Reserve Bank of the district concerned. The gold\ncould not be disposed of except by resale to the Treasury\nand could not be sold to individuals. A provision would\nbe made in the agreement either for the repurchase by\nthe Treasury of the gold at a specified time or preferably\nwould provide that the Treasury could call back the gold\nwhen it might have need of it. The bank, on the other hand\nwould have the privilege of selling the gold to the\nTreasury whenever its internal situation made this desirable.\nHowever, it would be stipulated that the price at which\nthe gold was to be repurchased would be exactly the same\nprice as that originally paid for it.\nI have been strictly confidentially informed that when\nthe French Bank was flooded with gold in 1931-32, it made\nsuch an arrangement as that above pictured with the\nCaisse des Depots and with the Credit Lyonnais. Therefore\nthese organizations actually developed gold bullion accounts\nwith the French Bank. The Bank of France bought back the\ngold when the market turned.\nThe following are two merits of the above plan:\n(1) the fact that the Treasury would be willing to undertake\nto redeem the gold from the Bank at the price which the Bank\nhad\n210\n-5-\nhad purchased it would constitute a very strong assurance\nto the market and the world in general that no change\nwas probable in the Government's gold price; (2) that\nthere would be available to. the Treasury the several\nbillion dollars of member bank reserve funds against\nwhich it could swap gold without any interest or handling\ncharges, knowing that it could get the metal back when it\nwanted it.\nEND OF MESSAGE\nRECEIVED is\n/ / FJS /\n/ / /\nEA:DJW\nRegraded Uclassified\n211\nFEDERAL RESERVE BANK\nOF NEW YORK\nOFFICE CORRESPONDENCE\nDATE\nApril 28, 1937.\nCONFIDENTIAL FILES\nSUBJECT TELEPHONE CONVERSATION WITH\no\nD. J. Cameron\nBANK OF ENGLAND\nROM\nMr. Sproul telephoned Mr. Siepmann of the Bank of England\nat about 12:50 p.m. today and inquired how things were going.\nMr. Siepmann said the London markets had been very much upset by\ncables received from this side, since the opening, repeating rumors\nthat several London houses would have to be helped over the next\nsettlement date to the extent of twenty million pounds, (the next\nfortnightly settlement is May 6, but I understand arrangements must\nbe made on May 3 to carry accounts over to the following settlement).\nHe also said there have been rumors for two days running to the effect\nthat the United States would impose a five dollar per ounce import\ntax on all gold imports without any advance notice, and that action\nwould be taken shortly. Mr. Siepmann said that the rumors about\ntheir market had been denied but that, at present, anything one said\nhad little effect as the public is confused and frightened. He also\nsaid the rumors might gain some substance if there were a few more\nbad days as conditions in the street are not too good. Mr. Sproul\nstated that we had also denied rumors on this side, about changes\nin the price of gold or similar actions, but that the rumors still\npersist.\nMr. Sproul then inquired about Paris, and Mr. Siepmann said\nthere was little new in the French situation. Their political and\nfiscal difficulties are still pressing he said, but the postponement\nof the general Parliamentary debate for another week (from Friday)\nhas had a somewhat quieting effect. He said that the French got in\nRegraded Uclassified\n212\nFEDERAL RESERVE BANK\nOF NEW YORK\nOFFICE CORRESPONDENCE\nDATE April 28, 1937.\nCONFIDENTIAL FILES\nSUBJECT: TELEPHONE CONVERSATION WITH\nD. J. Cameron\nBANK OF ENGLAND\nFROM\n-2-\na little sterling today and that they needed it badly.\nReverting to the situation in the London market, Mr.\nSiepmann remarked that if dollars should be wanted, due to the\ngold rumors, he would be pleased to see us jump in and take some\nsterling. Mr. Sproul suggested that the shoe is on the other foot\nat the moment, and asked if it wouldn't be appropriate for the Bank\nof England to assume some of the \"white man's burden\" and buy some\ngold. Mr. Siepmann replied that they had bought gold yesterday and\ntoday in the amount of about ten million dollars. He also said\nthey do not give us any gold against our order at $34.77 per ounce\nunless it becomes absolutely necessary. Mr. Sproul said that ster-\nling was, at present, quite strong at $4.94 5/16. Mr. Seipmann\ngave his opinion that sterling would go on toward $5.00 during the\nnext month or SO.\n67411378\n- cases\n-\nV \\\nRegraded Uclassified\nTREASURY DEPARTMENT\n213\nINTER OFFICE COMMUNICATION\nDATE April 28, 1937\nTO\nThe Secretary\nFROM\nMr. Taylor\nGeorge Harrison called shortly after two o'clock, after having\ntried to reach you, and told us that the New York Federal Reserve Bank\nhad received a cable from the U.S.S.R. State Bank indicating their desire\nto open an account. George told me that he would answer them along the\nlines of looking with favor on meeting this request but stating that\nthere were certain formalities which must be complied with before positive\nX affirmative action could be taken. He also said that in order to\nexpedite matters he would forward immediately the necessary papers from\nthis end in which the method of handling the account, the privileges of\nthe owner of the account, etc., were outlined. He was quite curious as\nto what we had in mind with the Russians and stated that before any final\naction was taken that it would be useful to know just what we had in mind\nas it would then enable them to handle the account properly. I said\nsomething along the lines of cooperating in the gold field and he appeared\nalarmed that they might be taken into the Tri-partite agreement. I did\nnot do anything further to appease his curiosity but he appeared somewhat\nshocked.\nnew.\nRegraded Uclassified\n,\nTREASURY DEPARTMENT\n214\nINTER OFFICE COMMUNICATION\nDATE April 27, 1937\nTo\nSecretary Morgenthau\nFROM\nMr. Taylor\nSavings Bonds (sales by post offices) .$1,146,673.55..Total..$725,502,672.17\nSavings Bonds (deposited Fed.Res.Bks) 126,543.75..Total. 53,954,062.50\n$1,273,217.30\nRegraded Uclassified\nMG\nAM\nPLAIN\nLondon\nDated April 28, 1937.\nRec'd 2:20 p.m.\nSecretary of State,\nWashington.\nRush 250, April 28, 7 p.m.\nFOR TREASURY FROM BUTTER ORTH.\nThe trend of the London Stock Exchange reported in\nmy telegram of this forenoon was decidedly reversed in the\nafternoon, the initial downward impetus is said to have come\nfrom heavy sales from Paris of oil and gold mining shares\ndue to the approaching end of a paris Stock Exchange settle-\nment account. Prices fell away quickly as each series of\nsales uncovered a new strata of vulnerable positions neces-\nsitating further sales. As was the case on Monday there has\nbeen considerable selling of American stocks by British\nholders who are either in need of immediate cash or fear\nthat \"the rot will spread across the Atlantic.\"\nRumors have also played a not inconsiderable part in\ncreating a panicky mental atmosphere. As mentioned yester-\nday there is a recurrence of the rumor that some action may\nbe taken in the United States to affect the price of gold and\nsuch is the state of nerves that even those who do not\ncredit\nRegraded Uclassified\n216\nMG\nPage 2,\n#250 from London\ncredit such rumors will not act in the face ot them and\ntherefore at times today it was virtually impossible to\ndeal in gold mining shares. It is also rumored that at\nleast one of the unit fixed trusts is in difficulties\nand that many stock exchange firms are shaky. As far as\ncan be ascertained it seems to be the case that definitely\nthree or four firms are in difficulties. It is also said\nthat if the present situation continues the stock exchange\nmay have to be closed for a few days; at the moment such\na suggestion seems entirely premature but the next few\ndays may be difficult inasmuch as selling must be concluded\nby Friday for the account which terminates on May 6.\nI had a word with the British Treasury which frankly\nadmits that they were surprised by today's events and\nare \"now waiting to see how the cat jumps\".\nBINGHAM\nCSB\nQ3V13038\nTEGY is RCA\nTROMINATED\n140ml - VRUZABRT CHO -\nRegraded Uclassified\n217\nApril 28, 1937\n9:30 group meeting;\nPresent: Mr. Magill\nMr. Oliphant\nMr. Taylor\nMr. Gaston\nMr. Gibbons\nMiss Roche\nMr. Lochhead\nMr. Gibbons: Mr. Wolfe is all completed.\nHM,Jr: What do I do with it? Fire the present Collector\nand refer it to the U. S. District Attorney? Did Landy pay\nWolfe the money?\nMr. Gibbons: Oh, yes. We have cancellation checks and\nWolfe put nine-tenths of it in his personal account and de-\nposited a few of them in the Committee's account.\nHM,Jr: What do I do now?\nMr. Gibbons: Of course, that's a presidential appointment\nand I guess you have to talk to the President.\nHM,Jr: Mac, draw up a recommendation for me to recommend\nto the President the dismissal of Landy and then take the\nnecessary steps to turn over the rest of the stuff to the\nDepartment of Justice.\nTaylor, whatever happened to the letter to Elmer Thomas?\nMr. Taylor: Harry White is working on it.\nHM,Jr: You got anything, Mac?\nMr. McReynolds: Mrs. Klotz said you want to change the\nform of letterhead we use -- didn't want -- there are two\nletterheads used by the Secretary, one used by you in your\nown personal office, Secretary of the Treasury; nobody else\nuses that. The other is Office of the Secretary for all\nmail that is prepared for your signature or signature of\nActing Secretary, but that same letterhead, Office of the\nRegraded Uclassified\n218\n-2-\nSecretary is used on all letters that I sign, Herbert\nsigns, George Haas signs, prepared throughout the Bureaus.\nHM,Jr: What's the matter with Just having Treasury\nDepartment?\nMr. McReynolds: We can.\nHM,Jr: or having Treasury Department and, in your case,\nup in the corner Administrative Assistant?\nMr. McReynolds: I have no objection either way.\nHM,Jr: Why should George Haas sign letters on Office of\nthe Secretary?\nMr. McReynolds: Well, because George\nHM,Jr: If you don't mind, it's entirely my own idea, I\nwould like to have it. No objection to having Treasury\nDepartment and up in the corner, Mr. McReynolds, Adminis-\ntrative Assistant to the Secretary.\nMr. McReynolds: I have no objections.\nHM,Jr: Or Mr. Gaston, Treasury Department, and up in\nthe corner, Assistant to the Secretary. But I don't want\nany more letters Office of the Secretary or Secretary of\nthe Treasury except that go out under my signature.\nMr. McReynolds: Or Acting Secretary.\nHM,Jr: The Acting Secretary would be under the Under-\nSecretary or Assistant Secretary -- go out on his stationery.\nOliphant has it on as Office of General Counsel. He's got\nit -- Office of the General Counsel.\nMr. McReynolds: I want to settle this. It's all settled\nbut one thing. You say nothing but your signature. The\ngreatbulkof mail prepared for your signature, which is signed\nby either Taylor or Magill not as Undersecretary or Assistant\nSecretary but 8.8 Acting Secretary, that ought to be on Secre-\ntary's paper. Nobody knows, half the time, whether you are\nto sign it or the other\nHM,Jr: All right, we will make one exception. When it's\nActing Secretary of the Treasury, that person will use Office\nRegraded Uclassified\n219\n-3-\nof the Secretary.\nMr. McReynolds: And no more.\nHM,Jr: And no more.\nMr. McReynolds: Settled!\nHM,Jr: It's just a matter of\nMr. McReynolds: No objections to it.\nHM,Jr: I think it's a very reasonable request. Everybody\nelse has his own stationery, but when the person signing 1s\nActing Secretary then he can use\nMr. McReynolds: Office of the Secretary.\nHM,Jr: Then I think he would use my own stationery.\nMr. McReynolds: No. You mean eliminate Office of the\nSecretary entirely? You have got now Secretary of the\nTreasury and Office of the Secretary with special seal which\nis used in your office only. Bulk of paper prepared for\nSecretary's signature 1s prepared in the Bureaus. They have\nnone of that paper and should not have, but Office of the\nSecretary they should have.\nHM,Jr: If a man is signing a letter for my signature as\nActing Secretary, he can use Secretary of the Treasury's paper.\nLet's have only one kind, Secretary of the Treasury, and then\nthe different people\nMr. McReynolds: Cut out Office of the Secretary entirely.\nMr. Oliphant: There has been some abuse of your signature\nby forgers.\nHM,Jr: Let's have only one kind of paper.\nMr. McReynolds: From now on we will use only one letter-\nhead for Secretary of the Treasury and we will limit that.\nHM,Jr: (To Mrs. Klotz) You sign private secretary, acting\nfor me, you use that paper. But there are hundreds of letters\ngoing out on Office of the Secretary. It's an Act of God that\nsomething serious has not happened. One man told me once he\nnever had a visiting card because, he said, I never want to\n220\n-4-\nhave the chance of somebody stealing it and using it. It's\njust a precaution, a hunch, with me. Mrs. Klotz can have\nOffice of the Secretary. She will use it at her discretion\nand anybody signing as Acting Secretary will write it on\nOffice of the Secretary. Let's leave it that way. Any\nother correspondence, anybody can have his own stationery\nor\nMr. McReynolds: Or just Treasury Department.\nHM,Jr: Does anybody see that it's unreasonable?\nMr. Gaston: I have no special stationery. I think Treas-\nury Department is sufficient.\nHM,Jr: You (Lochhead) never write any letters.\nMr. Lochhead: I only talk.\nHM,Jr: Miss Roche?\nMiss Roche: We have regular Assistant Secretary letterhead.\nHM,Jr: Gibbons?\nMr. Gibbons: Treasury Department and I sign Assistant\nSecretary.\nThis is not just a whim. You never come in and spring\nsomething Just out of the air.\nHM,Jr: Anything else important like that?\nMiss Roche: I have a memorandum on the 40hour week for\nadditional nurses for re-submission to the Budget Bureau to\ntake care of that situation.\nHM,Jr: How many hours do they work?\nMiss Roche: Fifty-six and some seventy-two; the average\nis fifty-six. We want 148 more nurses.\nHM,Jr: You go AB far as you can and if you can't get any-\nwhere, let me know.\nMr. McReynolds: I insisted on referring it to the Budget\nRegraded\nUclassified\n221\n-5-\nand Budget turned it down.\nHM,Jr: Let's try once more and if between now and Friday\nnoon you are not successful, let me know. Report at 9:30\nFriday and if you can't do it, let me know and I will talk to\nBell at that time.\nMiss Roche: Thank you, Sir.\nHM,Jr: Would you between now and 2:30, Miss Roche, and Mac\nand Berlew go over to this thing at the old Post Office and\nlet Berlew take a look at it. I thought I could do it today --\nthe dispensary.\nMrs. Klotz: It isn't fir for animals.\nMr. McReynolds: If you are going to call anybody, I would\ncall Ickes.\nHM,Jr: Is 2:30 a good time?\nMiss Roche: I think so. People go in around the noon\nhour and it's horrible; just horrible.\n(At this point, HM,Jr talked to Mr. Ickes and asked him to\nlend someone. Mr. Ickes suggested Demarey and HM, Jr said that\nanybody Ickes suggested would be O. K. HM,Jr. explained that\nthis was the first time he had appealed to Ickes on space.\nHM,Jr: We will go over there at 2:30 tomorrow.\nMacReynolds: Do you still want to go?\nHM,Jr: Sure! Who is Demarey?\nMr. McReynolds: Demarey 18 Assistant Director of the Park\nService.\nHM,Jr: I asked Ickes and let's go over. I thought Harold\nmight say he would go himself, but we will go over anyway. The\nnext time -- if it does not work this time, we will take a flock\nof newspaper men with us.\nMr. Gibbons: Nothing else.\nHM,Jr: We were on again with Bulkley this morning.\nRegraded Uclassified\n222\n-6-\nMr. Gibbons: On Moore? What's the status? They have\nnever done anything.\nHM,Jr: Never turned over a nickel.\nMr. Gibbons: Over a year now, isn't it?\nMr. Oliphant: Never turned over anything and has been taking\nmore.\nMr. Gibbons: How about the Customs men?\nHM,Jr: All the same, but we are concentrating on Moore.\nThey took three more checks afterwards.\nMr. McReynolds: And didn't even turn them in.\nMr. Gibbons: Incidentally, the young man came in from John\nGarner's that you told Kieley to send down to me. He is not\nrelated to Garner. I talked to Garner.\nHM,Jr: I did, too. I didn't tell Kieley to send him to\nyou. I didn't say anything. He's a faker.\nMr. Gibbons: I think the boy 1s a little bit crazy. He's\ncoming in to see me again and I am going to have Joe Murphy\nget his application, He has made one out. To see where he\nlives.\nHM,Jr: All right.\nMr. Gibbons: But he has letters from the whole North Car-\nolina delegation, showing that you can get letters from any\nSenator or Congressman.\nHM,Jr: Have you broke the news to Jim about\n.....\nMr. Gibbons: about those fellows? Oh, I told him they\nwill be lucky if they are not indicted.\nHM,Jr: What do you mean! I thought you were turning it\nover to the Department of Justice.\nMr. Gibbons: I told Jim that they are not only out as far\nas we are concerned, but they are luck if they are not indicted.\nThat's not our field. That's up to the Department of Justice.\nBut he knows that. He has known that for two weeks.\n223\n-7-\nMr. Gaston: I am willing to write an insurance policy\nthey won't be indicted.\nHM,Jr: Why should we not send the President a summary of\nJoe Wolfe?\nMr. Gibbons: Yes. As I say, it's an appointive position.\nHM,Jr: The President asked me why don't I send him a\nhistory of what Joe Wolfe has done.\nMr. McReynolds: That's what started this. He said he\nwanted Joe Wolfe put back in.\nHM,Jr: Why don't we turn it all over to the President and\nlet the President refer it to the Department of Justice?\nMr. Gibbons: Do you want to turn the whole file over to\nhim or prepare a resume?\nHM,Jr: This 1s the information it is based on and then\nit is up to the President to make what disposition he wants\nof it. Why should I send it to the Department of Justice.\nThe President asked me how about Joe Wolfe? Now I am asking\nhim and I say, fire the Collector and here's the facts about\nJoe Wolfe.\nMr. Gibbons: I don't say you should, but I suggest it be\nreferred to Department of Justice.\nHM,Jr: It will be. Word came from the President that we\nshould make this appointment and I am turning it back and show-\ning why we can't make it end that we should fire the Collector\nof Customs and it goes to the President and the President will,\nof course, turn it over to the Department of Justice for prose-\ncution.\nMr. Gibbons: You have a letter from Molly Dewson protesting\nthe displacement of some woman to make B. place for Landy. I\ntold her we did not make that kind of political choice in mak-\ning a woman a pawn.\nHM,Jr: Anything else, Herbert?\nMr. Gaston: No.\nMr. Taylor: Nothing.\n224\n-8-\nHM,Jr: You look tough today. What nails have you been\nchewing?\nMr. Taylor: Just listening.\nHM,Jr: I see.\nMr. Oliphant: According to the newspapers, the House and\nSenate agreed on the Neutrality Bill, but we never heard from\nthe State Department about the questions we raised.\nMr. Taylor: I thought you did.\nMr. Oliphant: No; they never responded to that letter.\nHM,Jr: What happened?\nMr. Taylor: The last I got was that it was being given\nvery active consideration, but they didn't have the answer\nto it.\nHM,Jr: Would you mind writing a letter, for my signature,\nsomething like this: My dear Mr. Hull: Would you mind doing\nme the courtesy of giving me an answer to such and such a letter?\nI will sign it tomorrow morning and shoot it over. Please.\nMr. Taylor: Yes,\nHM,Jr: You might also include about the English note some-\nthing like this: Possibly you would like to tell the English\nthat there will be no answer from the Treasury Department, but\nif any answer is made it will come from the State Department.\nMr. Taylor: They have already been told that. The British\nhave already been told that.\nHM,Jr: But let's put it in writing. Let's tell Hull we\nare going to do it, Think it over. You have until tomorrow\nmorning.\nHerbert, incidentally, I asked you to get the article in\nthe New Republic -- the one Mr. Hull 18 sputtering about. I\ngot this week's -- something about the Federal Reserve and the\nTreasury.\nMr. Gaston: I will get that today. Yes, that's right; you\ndid ask me to get it.\n225\n-9-\nHM,Jr: Hull was sputtering about some article in New\nRepublic, but this fellow evidently wrote something a couple\nof weeks ago that annoyed Mr. Hull. I guess he has never\nheard of a paper called The Masses.\nYou all right, Herman (Oliphant)?\nMr. Oliphant: Yes. Mr. Alley was in to see me yesterday.\nHe's representing the Independent Cooper Fabricators.\nMr. Magill: Which Alley?\nHM Jr: Has he got an office in New York.\nMr. Oliphant: General Cable Company. He was in on the\ncopper tax and pointed out there 18 very great controversy in\ncopper.\nHM,Jr: Do you mind getting the name of this Alley to Irey?\nBecause there 18 another Alley that I am interested in. Send\nhim a little memo that this man was in and what he represents.\nMr. Oliphant: Yes, sir.\nHM,Jr: In the office I have to tell you B terribly funny\nstory. Senator Ashurst comes in and says: I want to get\nthis thing straight, He said, I went in to see the President\nfour the four-cent tariff -- this 18 very much in the room --\non copper and he says, When I left, the President said -- oh,\nit was the other one, Hayden; Carl Hayden -- the President\nsaid, I just want you to know there 18 nothing doing; Just\nforget about it. We are going to extend all these miscellane-\nous taxes. Just forget about it, Carl. So he says, As I went\nout of the office, you and Bell went in. Well, next day,\nCongressman so-and-so was down to 800 the President about this\ncopper thing and the President said, Well, I don't know. Mor-\ngenthau and Bell have been kind of protesting about this tax\non copper. Now, Carl says, I want to know which statement\nis right. So I said, Senator, you are not asking me to repeat\n& conversation between the President, Mr. Bell and myself, are\nyou? Oh, no! no! no! So he said, I wouldn't think of doing\nthat, but I Just wondered which statement was correct. So I\nsaid, Well, I will tell you, Senator. I will tell you this:\nI told the President if you want these taxes extended, the\nonly way to do it 18 en masse; not separate them. I said,\nIf there is any change or idea of dropping it, I will give\nyou my word I will let you know. Yesterday he came in and\n226\n-10-\nI warn you, unless you want to have another White House-Pat\nHarrison incident, be terribly careful not to make any com-\nmitments, What our instructions were, were if we could do\nit without a rumpus, was to drop it. Those were our instruc-\ntions. And I would take it that a rumpus being in the offing,\nwe will not drop it.\nMr. Taylor: I gather that the Independents would welcome\nthat.\nHM,Jr: So I just had better watch my p's and q'e and think\nwe had better get re-instructed,\nMr. Oliphant: The man who 18 very much interested is John\nMcCarthy because of his interest in the monopoly price situa-\ntion.\nHM,Jr: The other man is General Hugh Johnson. He's per-\nfectly open about it. He's here to get the four cents dropped.\nHe's retained by American Smelting.\nMr. Oliphant: They have lots of foreign properties.\nHM,Jr: I am not going to get in on it. But certainly\nbetween the Hill and the Treasury, our word 18 the most 1m-\nportant thing. If there are going to be any monkey-shines\nabout it, I don't want to have anything to do with it.\nMr. Oliphant: Alley would bear watching because he said\nJohnson had seen me and I immediately had him come over with\nJohnson, He said he had not seen me, but Hugh Johnson had\nwritten a letter to Doughton quoting me and I asked to see\nthat letter.\nHM,Jr: It's one of these things. We had better keep out,\nall of us.\nMr. Oliphant: He told my man Johnson in Customs that he\nhad seen me and I approved it.\nHM,Jr: Carl Hayden goes in one day and he gets one im-\npression and the next day two congressmen go in and the Pres-\nident says Morgenthau and Bell want this thing dropped. We\nnever mentioned it. Never discussed it. Only thing was,\na couple of months ago we were told if we could drop it without\nany fuss, let it drop, but if there was any fuss, not to do\nanything with it.\n227\n-11-\nMr. Oliphant: He once asked if it could be done with\ntrade agreements and we found it could not.\nThe only thing worse would be to get into the sugarthing.\nMost terribly funny thing -- at Cabinet, Henry Wallace, talk-\ning about sugar: Now the State Department doesn't like it;\nWar and Navy don't like it; Interior does not like it, etc.\nfinally, I don't know how many other Departments he mentioned,\nbut finally Henry said, I have not had a chance to talk with\nthe Treasury about. The President said, The Treasury has no\nobjections. I Just howled! Now, I said, Wait a minute. Do\nI understand this is money coming in or money going out,\n\"Money coming in.\" All right. He was BQ fed up that he said,\nTreasury has no objections. He was a scream!\nMr. Magill: I went over to the State Department this morn-\n1ng to talk to Secretary Hull about Canadian tax treaty. The\nSecretary is in very much of a dilemma about it because in con-\nnection with British trade agreements, his argument with Great\nBritain is we don't give preferences to anybody else; we put\neverybody on the same basis. On the other hand, he also has\nto have the good will of Canada . What he really wants to\nknow from us was whether or not we would be willing to offer\nto the nations of the world similar concessions on the same\nbasis; that 18, 5% withholding rate for other non-resident\naliens if those countries will give our nationals 8 5% rate\nand if the countries will also agree to give us all this in-\nformation and help us enforce our taxes, which Canada agrees\nto do. I reminded him of Mr. Ecoles and Jim Landis on the\nsubject of the flow of foreign gold and the desire to increase\nthe holding rate rather than reduce it, and that's about where\nit was left. Apparently, the chances are that if we offered\nsuch an arrangement to other countries there would be very\nfew would want to accept it. I think very likely the Nether-\nlands would.\nHM,Jr: You haven't made up your mind?\nMr. Magill: No. I want to think about it & couple of days.\nIt seems to me that as far as I can see at the moment, it is\npurely the State Department's problem. They are in B. dilemma.\nThey got themselves in it. All right, get out. We are per-\nfectly contented.\nHM,Jr: Well, I will see you all tomorrow.\nRegraded Uclassified\n228\nApril 28, 1937.\n11:08 a.m.\nH.M.Jr:\nHello\nOperator: Mr. Sultzberger\nH.M.Jr:\nHello\nS:\nHello Henry.\nH.M.Jr:\nHow are you?\nS:\nI'm fine. How is yourself?\nH.M.Jr:\nI'm very well.\nS:\nGood.\nH.M.Jr:\nI got great pleasure in reading your leading editorial\nto-day.\nS:\nWell I'm very glad you did because it certainly is\nvery deserved.\nH.M.Jr:\nAnd I thought I'd call up and say, \"Thank you\".\nS:\nWell that's very nice of you. I'm anxious to see you.\nWe got in just a week ago.\nH.M.Jr: Yes.\nS:\nAnd I've been pretty well snowed under since then as\nyou can imagine.\nH.M.Jr:\nI should think so.\nS :\nBut I'm gradually poking my head out. Are you going\nto be up this way at all?\nH.M.Jr:\nWell we're going to be at the farm next week - all\nweek.\nS:\nAh-ha.\nH.M.Jr:\nAh - if you have any inclination to run up there\nsome evening I'd love to have you.\n1.\n- 2 -\n229\nS:\nWell that might be lots of - very nice to do.\nH.M.Jr: Ah -\nS:\nAh - you're going up over the week-end.\nH.M.Jr: Yes we're going to go up - be up there Saturday and\nI'm going to stay there a full week.\nS:\nI see. Well I'll talk with Ephie about that.\nH.M.Jr:\nSupposing you do and if you - if you could - would\ncare to come up with Ephigeme and spending an evening\nand night with us we'd love it.\nS:\nAll right, well that's fine because I'd very much like\nto talk with you.\nH.M.Jr: Fine. I - I hear that you and Roger don't agree on\nPalestine.\nS:\nNo I don't think we do. I must say that it drove me\nvery far afield but I don't know that Roger was so very\nmuch taken in by it.\nH.M.Jr:\nAh-ha.\nS:\nBut I certainly wasn't.\nH.M.Jr:\nWell -\nS:\nI had a long talk with your father about it the other\nday.\nH.M.Jr:\nDid you?\nS:\nYes.\nH.M.Jr:\nI didn't know that.\nS:\nHe was in for luncheon.\nH.M.Jr:\nWell - ah - our number up there is Beacon 211.\nS:\nRight.\nH.M.Jr:\nAnd if - if you - ah - can - will you give me a\nring?\nRegraded Uclassified\n&\n230\n- 3 -\nH.M.Jr: And we'll see if we can arrange it.\nS:\nFine.\nH.M.Jr:\nAll right, Arthur.\nS:\nAll right, Henry, many thanks for the call. Give\nmy love to Ellie.\nH.M.Jr:\nThank you.\nS:\nGoodbye.\nRegraded Jclassified\n231\nApril 28, 1937.\n11:11 a.m.\nOutside\nOperator: Hello - hello\nH.M.Jr: Yes.\n0.0:\nSecretary Morgan?\nH.M.Jr;\nYes.\n0;\nHello Dr. Anderson. Oh she must have disconnected.\n0.0;\nHello - ah - put your\n(long pause)\nH.M.Jr:\nHello\n0:\nDr. Anderson's on the line. He says he can talk to\nMrs. Klotz.\nH.M.Jr:\nHe can.\n0:\nYes. It isn't necessary to talk to you.\nH.M.Jr:\nAllright.\nKlotz:\nHello\n0:\nGo ahead\nK:\nHello\nDr.\nAndersoh: Hello - Mr. Morgenthau's - Secretary Morgenthau's\nSecretary?\nK:\nYes.\nA:\nThis is Dr. B M. Anderson of the Chase National Bank\nin New York.\nK:\nYes Dr. Anderson.\nA:\nI'm going with Mr. Aldrich to Europe on the Breman\nsailing - sailing late Thursday night, May 4th\nK:\nYes.\n232\n- 2 -\nA:\nAnd I want to have a talk with Secretary Morgenthau\nand also with Secretary Hull before I go.\nK:\nI see.\nA:\nNow Secretary Hull gives me either Thursday afternoon\nor Monday afternoon.\nK:\nOf next week?\nA.\nMonday of next week or Thursday of this week - - tomorrow\nor Monday.\nK:\nI see.\nA.\nAnd could you arrange for me to see Secretary Morgenthau\neither on Monday or on tomorrow?\nK:\nWell I - - I'll have to call you back Dr. Anderson. Look\nup my schedule and see what appointments I have for\ntomorrow and for Monday\nA:\nYes.\nK:\nand I'll let you know.\nA:\nNow then will you be good enough to use our private\nwire in the Washington Loan and Trust?\nK:\nWashington Loan and Trust.\nA:\nIf you call them.\nK:\nYes.\nA:\n...\n.they will put you through to me.\nK:\nOh I - I - - I'll call you directly. I don't mind.\nA:\nWill you also switch me back to Mr. McBride in\nSecretary Hull's office?\nK:\nI'll be glad to give you the operator.\nA:\nThank you.\n0;\nHello\nA:\nHello.\n233\n- 3 -\nK:\nDr. Anderson wants to talk to you.\n0:\nAll right.\n234\nApril 28, 1937\n3:15 P. m.\nPresent:\nMrs. Klotz\nMr. Oliphant\nMr. McReynolds\nMr. Manning\nMr. Helvering\nHM,Jr: Mac, have you got the letters -- the exchange\nof letters between Moore and myself? Have you got those?\nMr. McReynolds: Isn't that in that file of yours?\n(Mr. McReynolds examined the file.) Here's a letter from\nMoore of January 7: \"I have your letter of the 2nd inst.\nand assure you that I will comply with the terms of my\nletter to you of December 18, 1935,\" and the one to Moore,\nof January 2nd, is here and the one from Moore of December\n16th, and one to Moore of October 1.\nMr. Manning: And the letter from Abbott to the Secre-\ntary of December 20th.\nMr. McReynolds: One from Moore of September 19th and\none to Moore of September 12th. There are four letters\nfrom and to Moore.\nHM,Jr: What I want is, can I have the last letter that\nI wrote to Moore? What's the date of it?\nMr. Manning: January 2, I would say, 1936. \"I have\nyour letter of December 16, 1935, in reply to mine of No-\nvember 29, which I take to be an undertaking on your part\nand in behalf of your family to dispose forthwith of all\ninterest in Famous Brands Ohio, Inc., and to turn over to\nit all dividends, payments and profits which are the result\nof your respective connections with that company or its\npredecessor syndicate. Upon that assumption, I have written\nto Famous Brands Ohio, Inc., a letter, copy of which I enclose.\"\nHere's an answer to this, on January 7, saying ne will under-\ntake to comply.\nHM,Jr: Where is the one of the 16th?\n235\n-2-\nMr. McReynolds: And there 18 another letter from you\nto him and another from him to you.\nHM,Jr: All right. December 16th 18 the cut-off line.\nWhen was that subsequent order issued to Treasury officials\ntelling them they could not deal in stocks?\nMr. Oliphant: February 15, 1936.\nHM,Jr: What does it say? Roughly, what did it say?\nMr. Oliphant: \"No officer or employee of the Department\nshall directly or indirectly have any interest -- I am skip-\nping -- in any business, the whole or any substantial part\nof which consists of the production, sale or distribution\ncommercially of distilled spirits, wine or fermented malt\nliquor.'\nHM,Jr: Anything about his family?\nMr. Oliphant: \"directly or indirectly\".\nHM,Jr: You see, what I am doing, I spoke to Oliphant\nlast night. We have been through this Bulkley business.\nI don't want to get into an argument with him, but when I\ncall his attention to Moore's letter \"when and as I am able\nto do 80\", then immediately Bulkley will say he has not been\nable to do 80. If I can get it away from that and say that\nafter February 15th this boy continued to accept it, then he\nhas broken the rule of February 15th and everything else is\noverboard.\nMr. Manning; of course, that means new charges, Mr. Sec-\nretary.\nHM,Jr: True. But I think I am on much safer ground,\nbecause Bulkley will argue, all right.\nMr. Manning: Mr. Secretary, pardon me, he agreed to 8\n\"reasonable time\".\nMr. McReynolds: And I have a record that none of the\nthree made any effort whatever for a full year, although they\nsold the stock.\nHM,Jr: I am Just asking. I am wondering which 16 the\n236\n-3-\nbetter case to put it on.\nMr. McReynolds: They got additional dividends and they\nsold their stock and got money for it and they did not turn\nany of that in. All of that happened after they agreed to\nmake restitution. I think that's the strongest case.\nHM,Jr: Dr. Wells is Mrs. Moore's father, isn't he?\nMr. McReynolds: Yes.\nHM,Jr: And he received dividends April 30th, June 29th,\nSeptember 28th and November 30th -- all subsequent to Febru-\nary 15th.\nMr. McReynolds: Checks were turned over to her and de-\nposited in her account.\nHM,Jr: So subsequent to the order of February 15th,\nhis wife accepted four checks, 80 even if everything else --\nthat's the point I am trying to get. So let me Just review\nthis thing.\nWe asked him to do this. He said he would \"within B.\nreasonable time\". A reasonable time 16 from December --\nuse January, 1936 -- to now is certainly a reasonable time.\nHe did not comply with that and on top of that they took\nfour dividend checks which were deposited in his wife's ao-\ncount, all subsequent to February 15th.\nNow, what I say 18 anybody that does that after all that\nwe have gone through, if he can't give an explanation this 18\nwhat I am going to say. Then when the President returns I\nam going to ask him to dismiss him. This 18 the way I will\nput it.\nTo refresh my memory, Just what did Bulkley say he would\ndo in helping me?\nMr. Oliphant: This 18 what he said: On December 6,1935\nSenator Bulkley wrote you that he had secured the consent of\nall concerned to the following set-up: (I have that letter\nhere) \"Without further insistence upon & general regulation,\nMoore will divest himself of all profits by returning them\nto the Companym and the Company will accept them only with\nthe condition that they be turned over to public charity as\nfast as received.\"\n237\nHe further states in his letter; \"I can assure you that\nif you will give me your approval of the settlement herein\nsuggested the letters from Moore and the Company, which would\nbe necessary to consummate it, will be worded in & friendly\nand respectful manner.\"\nThen, when you got that letter, you asked him to come\ndown to see you on December 13, 1935. That was by telephone.\nYou called Senator Bulkley and told him that you had decided\nto accept the offer made in his letter of December 6th. Sen-\nator Bulkley, in replying, said he was glad the matter was all\nset and told you he would be glad to have Moore write B. letter\nwhich would be pleasing to the Secretary.\nHM,Jr: Ien't the thing for me to do to take the attitude:\nI am sure, Senator, you will be just as much shocked as I am\nto find out that the Collector never has made any effort to\ndo this? I am sure you will be Just as shocked. I can\nstart that way, You and I did everything we could to get\nthis fellow to do it. Not only has he let you down and he\nhas let me down. What can I do under the circumstances?'\nThat's the way I am going to approach it. 'I am sure you\nwill be Just as shocked as I am that this man has let you\ndown and let me down and let his country down.\nMr. Oliphant: Has let you down in your dealings with me.\nHM,Jr: Yes.\nMr. McReynolds: The strength of any argument he might\nhave that he was not able to make restitution falls when you\nfind him accepting additional checks and not turning them\nover eve, although they all got $72,000 additional after this\nthing came up.\n(Mr. Helvering came in at this point.)\nHM,Jr: Guy, I am just going to school on your Collector\nMoore. And Senator Bulkley 18 coming in. And this is what\nwe have found. In going over the correspondence I find that\nhe wrote me -- an interchange of letters in December 1935 and\nJanuary 1936 -- that he would give us back this money. Now\nhe has not given us back any of the money. Senator Bulkley\nwrote me letters saying he would assist me to see that this\nthing was carried out. On February 15th you got out an order\n(in 1936) telling them that nobody working for you could do\n238\n-5-\nthis. Notwithstanding that, Moore's wife transferred her\nstock to her father, after February 15th\nMr. Oliphant\nwho was living in the house with her\nHM,Jr: This fellow, Dr. Wells, receives four checks from\nthis company, which he endorses to Mrs. Moore and deposits in\nher account after your February 15th letter.\nWhat I thought I would do, when Bulkley comes in, I will\nsay, 'Now, Senator, I am sure you are going to be just as\nmuch shocked as I am that Collector Moore has let you down\nin your dealings with me, because he not only did not live\nup to the agreement, but he subsequently -- subsequently his\nwife accepted four dividend checks from Famous Brands Company.\nWhat are you going to do about 1t?'\nMr. Helvering: As I understood, he agreed to talk to\nMoore for the purpose of getting this thing adjusted. I did\nnot know -- but as I recall, wasn't he to pay that into some\norganization?\nMr. McReynolds: Pay into Famous Brands. And we had them\ncheck last February, after Famous Brands had been dissolved --\nlast December; a year later not one cent, by any of the three\nof them, was turned into Famous Brands during that time, but\ninstead of that, they accepted three additional dividend\nchecks, all of them, which they did not even turn in.\nHM,Jr: Now 1sn't that the right way to approach it? The\nreason I want you here, Guy, first, I am taking the responsi-\nbility, but on reading the law when it comes to suepending 8.\nman or taking any action, you have to do it. You take the\naction and recommend to me if he is diemissed by the President,\nbut in looking up the law the original action, I think, you\nhave to take. The thing has to clear from you to me to the\nPresident, but you have to act. I am seeing him, but I don't\nwant to go all through the thing and then they try to have\nBulkley play you against me or vice versa, but I think the\nwhole thing, when you get down to a summary, you have to recom-\nmend to me that he be dismissed.\nMr. Helvering: I did not know that I had authority to\nsuspend a Presidential appointee.\nHM,Jr: You do if you charge him with fraud and you recom-\nmend to me that he be suspended.\n239\n-6-\nMr. Helvering: In order not to get into & hole, Senator\nBulkley saw me at the inception of this and wanted to talk\nto me about it and I told him that I was going to recommend\nthat Moore had to get rid of all that stock, etc., etc.,\nand that we were going to severely reprimand him. I told\nhim that would be my recommendation. Now you went further\nthan that and Bulkley knows about that. My recommendation\nthat came over was after we had the talk with Mr. Opper and\nI Just want you to read this, BO you will understand this\nwas all before we had the hearings and when it first came up.\nHM,Jr: This is September 11, 1935. \"Recommendations\nhave heretofore been made to you for the separation from\nthe service of Bert C. Brown, Secret Service; C. W. Pollock,\nCustoms; and E. W. Barber, Customs. In these recommenda-\ntions I agree.\n\"In the cases of William G. Harper, Secret Service, and\nC. E. Moore, Collector of Internal Revenue, it would seem\nthat & dismissal from the service would result in punishment\ndisproportionate to the offense charged for the following\nreason: ****\n\"I recommend that these employees be required to dispose\nof any and all interest they may hold either directly or in-\ndirectly in Famous Brands, Inc., and that they be severely\nreprimanded for their indiscretion.\"\nThat's all right.\nMr. Helvering: I did not want Bulkley to turn to me and\nsay, 'You never agreed to this'.\nHM,Jr: I am glad tohave it. Then I write this letter\nand Bulkley writes me saying that he will see that this fel-\nlow carries this out -- that he dispose of his stock -- which\nhe has not done. That's breach number one. Breach number\ntwo: you issue the order of February 15th, the new order which\nBulkley saw and approved.\nMr. Oliphant: No record of that. He recommended that\nwe get one out.\nHM,Jr: As I remember, he saw the order of February 15th.\nWell, anyway, let's wash up everything and just let's get\nwhat happened after February 15th. If I take nothing, if\n240\n-7-\neverything else is off, we can start from the time that\nMoore says to me in 8. letter that he will dispose of his\nstock, his interest, and that he will give the money back.\nThen from there on we are together.\nMr. Helvering: We were together after the meeting\nover here.\nHM,Jr: He does not do that. That's breach number one.\nWell, he might argue that he said he would doit when he has\ntime, All right. Well, throw that out, but, on February\n15th, you send 8. strict letter and subsequent to that his\nwife receives his dividends. She goes through a phony trans-\naction of giving this stock to her father and then he receives\nfour dividend checks, which the fellow redeposits in ....\nMr. Helvering: He just endorses and gives them to Mrs.\nMoore.\nHM,Jr: Sure. The kind of fellow that will do that is\nhe any good to catch an income tax evader? I will tell you\nhow I feel, Guy, on this thing. I am in this particular\nstate and frame of mind that I am not going to argue very\nmuch with anybody these days. This fellow, in my opinion,\n16 not fit to be a Collector of Internal Revenue. The\nPresident asked me to first talk to Bulkley. I an going\nto be very calm and say that these are the facts. I am\nsimply going to say, 'Unless, Senator, there is something\nthat I don't know, I am simply going to tell the President\nwhen he comes back that this man, if he does not resign be-\ntween now and the 15th of May, I am going to recommend -- I\nmay say that Mr. Helvering and I recommend that the President\ndischarge him.' All right?\nMr. Helvering: Yes.\nHM,Jr: If Mr. Moore does not resign before the President\nreturns, Mr. Helvering and I will recommend to the President\nthat the President discharge him. Tell me if you have any\ndoubts.\nMr. Helvering: I Just don't see where I get into 8\nPresidential appointee.\nHM,Jr: You have to recommend it, under the law.\nMr. Helvering: I suspend them; yes. I always send\n241\n-8-\nover recommendations on suspensions.\nHM,Jr: Maybe my language is not correctly legal.\nMr. Helvering: What I would like for you to say 18, here\nis a man who had a fair agreement, both with the Commissioner\nand you. He has not done it and neither of us think he should\nstay in the service,\nHM,Jr: I will put it another way: in view of these facts,\nif these facts are correct, what do you recommend to me to do\nto Moore?\nMr. Helvering: I would join in a recommendation -- I would\nsay that he has not carried out the agreement he absolutely made\nand the fellow who would not carry out his agreement with the\nGovernment he is working for, I don't think ought to be in office.\nHM,Jr: That's the way you feel?\nMr. Helvering: Yes.\nHM,Jr: Technically, as to who 16 to tell him, I am not\ngoing to argue with you. If it 18 up to me to recommend his\ndismissal, I will. But, under the circumstances, let's say\nit's your obligation to say whether he's to be suspended or not.\nIn view of this thing, what would you do?\nMr. Helvering: I would recommend dismissal because he has\nnot carried out his agreement.\nHM,Jr: You will recommend dismissal unless something new\n16 disclosed?\nMr. Helvering: Yes. This fellow, by subterfuge, tried\nto avoid doing what he decided to do.\nHM,Jr: When you suspend, what happens?\nMr. Helvering: The cause of suspension 18 further investi-\ngation.\nMr. Oliphant: In case of suspension of a collector, under\nthe power conferred in this section, The Commissioner shall as\nsoon thereafter as practicable report the case to thePresident\nthrough the Secretary for such action as he may deem proper.\n242\n-9-\nHM,Jr: The first step 16 suspension?\nMr. Helvering: Yes.\nHM,Jr: That has to come from you?\nMr. Helvering: Yes.\nHM,Jr: What I say to you now, in this room, in view of\nwhat we have here, do you feel that the case 1s sufficiently\nserious that the man should be suspended?\nMr. Helvering: Yes, sir. I don't think there is any\nquestion about that.\nHM,Jr: All right. Then should we give this fellow a\nchance or should we Just go ahead and recommend his suspension?\nMr. Helvering: Well, we have had subsequent investigation\nand found all these new facts. The purpose of suspension is\nto investigate the matter further.\nHM,Jr: What do you think I should say to Bulkley, because\nI don't want to trade with him. Should I tell him we are go-\ning to suspend him?\nMr. Helvering: Of course, that will Just continue the\nfight -- the argument -- because the purpose of suspension is\nto have a hearing, an investigation on it.\nHM,Jr: Well, in view of that, what would you say?\nMr. Helvering: I don't know, but what we had better say,\nstraight out, what you said & while ago,\nHM,Jr: That was my feeling. We would simply say this\nman has not kept faith with you, with the Commissioner or with\nme or his country. Now, unless there 18 something which we\ndon't know about, on the return of the President I am going to\nrecommend to the President that the President dismiss him ...\nMr. Oliphant: ..unless he resigns.\nHM,Jr: ... unless he resigns. But the deadline 18 the\n10th of May, BO we will make it before the President comes\nback. If I don't have his resignation before the President\nreturns, then on the President's return I am going to recommend\nhis dismissal.\n243\n-10-\nMr. Oliphant: Of course, you may not need to say that\nat all when you say, 'He has let you down in your dealings\nwith me'.\nHM,Jr: I vill bet you one dollar to a quarter that he\ndoesn't.\nMr. Helvering: I think Bulkley will fight to keep him in.\nMr. Manning: He was ready to quit towards the end of\nthis. Bulkley was ready to throw up his sponge, as indicated\nin his telephone conversation with you.\nMr. Oliphant: He indicated he was through. I would give\nhim plenty of chance this morning. He got pretty tired of\nMoore.\nHM,Jr: How many people ought to be here with Bulkley?\nMac, were you in on those conferences with me?\nMr. McReynolds: I was in once when Bulkley was here.\nI think it would be better if just you and Helvering and Oliphant\nwere here.\nHM,Jr: I think 80.\nMr. McReynolds: He doesn't want the whole staff.\nHM,Jr: I am not going to take any notes? Don't you think\n80?\nMr. Helvering: Yes.\nHM,Jr: Are you and I together?\nMr. Helvering: Absolutely.\nHM,Jr: Am I being fair?\nMr. Helvering: I think you are giving this fellow every\nopportunity to do what he can.\nHM,Jr: As a matter of fact, I don't know when I have given\nhim as much opportunity.\nMr. Oliphant: Why don't you and the Commissioner see him?\nAnd then call me in if you need me.\n244\n-11-\nMM,Jr: I think that would be better.\nMr. Oliphant: A better chance for Bulkley to come through\nwith just you and the Commission than with any of the rest of\nus here.\nHM,Jr: I have all the letters here? Where 16 the order of\nFebruary 15th?\nMr. Oliphant: I think the other important thing is Bulkley's\nletter to you where he makes the proposal to you which you de-\ncide toaccept.\nMr. Helvering: That's the proposal where he says he will\npay it to charitable institutions.\nMr. Oliphant: Yes.\no0o-o0o\n245\nApril 28, 1937\nPresent: Mr. Oliphant\nMr. Helvering\nMr. McReynolds\nHM,Jr: Mr. Helvering and I 82% Senator Bulkley, pre-\nsented the facts to him, told him that we were sure that\nhe would be Just as much shocked as we were and he said,\nBut Moore has assured me that he has given money to charity!\nSo I said, I don't know anything about that, but we have a\nstatement from Mr. Abbott that he has not given any money\nto the Famous Brands company, which was part of the agree-\nment suggested by the Senator. The Senator said that he\nhad no recollection of that; that he inquired of Moore if\nhe was paying back the money and Moore assured him he had\ngiven a portion of the amount to charity. I read Senator\nBulkley his own letter in which he stated that the money\nshould be given back to Famous Brands and he said that that\nhad entirely slipped his memory. I then went over the\nvarious letters showing him that Moore had agreed to give\nit back to Famous Brands and the statement from Famous\nBrands that they had not received any of this money.\nThen went into the second phase: that after our in-\nstructions of February 15, 1936, that Mrs. Moore's father\nreceived four checks, three of which were deposited to her\naccount, which was in violation of our orders of February\n15th. Senator Bulkley said that this phase of the trans-\naction was Just unbelievable to him.\nI then started twice to say to him what I would do if\nthere was not some kind of an explanation and Senator\nBulkley begged me not to say what I would do until he had\na chance to inquire. Inasmuch as his whole attitude was\nthat of a man who was stunned by the information, I saw no\nreason to change my attitude, which was, namely: that I\nalso was shocked and I said, two or three times, \"Senator,\nMoore has let you down.\"\nDuring the course of the conversation, Mr. Helvering\nbacked me up.\nThe Senator asked Mr. Helvering if he had examined\nthe 1936 returns of either Mr. or Mrs. Moore and he said\nhe had not and the Senator suggested that he do Bo; that\n246\n-2-\nthere might be some explanation in the returns. Mr. Helver-\ning said he would, but he did not think he would find anything\nbecause the checks had been deposited to the account of Mrs.\nMoore. I suggested he also examine the 1934 and 1935 returns\nfor both Mr. and Mrs. Moore and Mrs. Moore's father, Helver-\ning said \"It is notning but a wash sale.\"\nI then asked the Senator if he would give me some answer\nwithin a reasonable time, emphasizing the word \"reasonable\"\nand he assured me he would.\nHe gave me the impression of sincerity and that he really\nseemed quite stunned and upset over the second phase.\nNote: After the Secretary dictated the above statement,\nthe following general discussion took place:\nMr. Helvering: The only thought 1e, you will be away\nover next week. That runs us up to May 10th.\nHM,Jr: Well, if he calls up, do you want to see him?\nMr. Helvering: No.\nHM,Jr: I will talk to him when I get back Monday a week.\nAnd if I see him Monday week that 18 still before the Presi-\ndent gets back. He won't call me anyhow.\nMr. McReynolds: I hate to let the other cases go in-\ndefinitely, but I am still of the opinion that .....\nHM,Jr: I don't think, Mac, I would move on the other\nthing because I can't fire a Secret Service man without\nfiring Moore.\nMr. McReynolds: No, I don't think BO,\nHM,Jr: As long as he takes such & quiet attitude about\nit, I can take the same. Now, if he fights me, I told him\n8. couple of times -- I said, I can't go into this thing again.\nBulkley said, well, he had given the thing much more time than\nit deserved. I said, 'I just can't go into it again.' There\nmay be some explanation, but I can't imagine what possible ex-\nplanation there may be. And I am not going to get excited\nabout it the way I did last time. And if he argues with me\n247\n-3-\nI don't know what he can say. The man did not return the\nmoney to the Company as they agreed to, and then the wife\nsubsequently -- now, they may try to say that the father\nreally owed the daughter.\nMr. Helvering: The daughter owed the father, and as &\nresult she transferred this stook to her father to pay that\nindebtedness and he further claims that endorsing dividends\nto her 16 further advancement to her after she had paid it\nback. The father's statement in the report was that when\nne endorsed checks over to her it was further advancement\nto her, as he had been making before.\nHM,Jr: He helped her buy the house. He would have to\nshow some record that she bought the house and he advanced\nthe money. Why not beat the gun and send someone out there\nand ask them to show evidence that he advanced money to her.\nHow much money does she still owe him?\nMr. Helvering: He states he advanced, one time, $3,000;\nanother, $1,000; and another, $450.00, and he took this\nstock for those advancements and then when the investigator\nasked him why he endorsed the dividends, he stated it was\nfurther advancement along the same lines.\nHM,Jr: Why not have Irey telephone and have someone on\nthe spot quick and make the father produce the evidence that\nhe loaned this money to the daughter?\nMr. Oliphant: or, better still, find out what disposi-\ntion the daughter made of the money -- whether or not it was\nfor the house. That might be a matter of public record.\nMr. Helvering: My reaction was that if the Senator found\nout that this was true, he wasn't going to have muchmore\npatience.\nHM,Jr: I am sorry, Guy, I don't agree with you. But\nwill you take & suggestion from me? You go back to your\noffice and you have Irey get a man to Cleveland Just as fast\nas he can and make the father and the wife show evidence,\nfirst, of purchase of the house and what money the father\ndid advance to her, whether in check or cash, through the\nwhole transaction, because you will find they will try to\nbuild a case there. And get a man out there as fast 88 you\ncan.\n248\nMr. Helvering: You are convinced that Bulkley is going\nstay with him anyhow?\nHM,Jr: Absolutely!\nMr. Helvering: That was my impression before we went\ninto this meeting.\nHM,Jr: He's quiet now because he thinks he's licked,\nbut if he thinks he has a peg to hang it on he will get\nvery determined about it. But if you don't mind, go\nback and get Irey to send somebody immediately and go into\nthe transaction of the purchase of the house and the question\nof the affidavits to show that the father loaned the daughter\nthe money. In whose name is the title to the house?\nMr. Oliphant: Yes; I would like him to start there.\nStay away from the father. Find out who owns the house.\nWho owns the mortgage. And then in the process of investi-\ngating their returns, go to the bank and get a list of her\npayments against the purchase of the house, before you go\nto him.\nHM,Jr: But go back to the date of the purchase of the\nhouse and see who bought it. I think we could go to the\nbank and see all of her checks and all of her father's checks\nand his checks.\nMr. Oliphant:\n...\nif their income tax returns are under\ninvestigation.\nHM,Jr: I would go back as far as necessary. Take my\nword for it: if he can get something to prove he did lend\nthe money, he will begin to fight, but if he thinks he is\nlicked, he will continue to act as he did.\nMr. Oliphant: And it will make a lot of difference if\nthey find that this Federal agent is in the bank.\nHM,Jr: And I would take it up just 8.8 soon as you get\nback to your office.\nMr. Helvering: I will.\nHM,Jr: It would be amusing if we found that Moore bought\nthe house and paid for it!\n000-000\nOFFICIAL COMMUNICATIONS TO\nTHE SECRETARY OF STATE\n249\nWASHINGTON, Dic.\nDEPARTMENT OF STATE\nWASHINGTON\nIn reply refer to\nFE 794.00/118\nApril 28, 1937\nThe Secretary of State presents his compliments to\nthe Honorable the Secretary of the Treasury and referring\nto a communication dated March 12, 1937, and to subsequent\ncommunications to the Secretary of the Treasury in regard\nto recent statements made in the Japanese Diet by the\nJapanese Minister for Foreign Affairs encloses for the\ninformation of the Secretary of the Treasury a copy of\ndespatch No. 2340 of April 1, 1937, from the American\nAmbassador at Tokyo which contains information in regard\nto the same subject.\nEnclosure:\nFrom Embassy Tokyo No. 2340,\nApril 1, 1937.\nor\nMy\nDepartment of State\nBUREAU\nFE\nDIVISION\nENCLOSURE\nTO\nLetter drafted\nADDRESSED TO\nTreasury\nU.S. GOVERNMENT PRINTING OFFICE\n1-1088\nenvoir\n18\nof BESIG\n250\nNo. 2340.\nTokyo, April 10 1937\nSUBJECT: FOREIGN POLICIES OF MR. MAOTAKE GATO, MINISTER\nFOR FORSIGN AFFAIRS.\nThe Honorable\nThe Secretary of State,\nWashington.\nSir:\nwith reference to the Embassy's despatek No. 2318,\ndated March 20, 1937, and to the Embassy's telegram No.\n95, March 24, 2 Pello, in regard to the foreign policies\nof Mr. Nootake Date, recently appointed Minister for\nForeign Affairs in the Heyashi Cabines, I have the\n1/\nhoner to enclose herewith a elipping from the JAPAN\nADVERTISER of March se, 1937, containing the inter-\npellations and replies which formed the besis of the\ntelegram under reforence. The Mubesay has been unable\nto obtain the stenegraphic recerd of the interpellations\n- 2 -\n257\nand Mr. Beto's replies thereto because the inter-\npolletions were made at a session of the Budget\nCommittee of the Lower House and stenographie\nrecords of such committee sessions are not publi-\nshed. The Embessy, however, has compared the LITO-\nTISER translation (apparently made from the Doned\nreport of the interpellations) with the Jepanese\nversion as published in several of the vernagular\nnewspapers, end has found that the ADVERTISER translation\nconveys the sense of the Japanese version of the inter-\npollations and the replies Pensonably correctly. There\nbeing no authoritative Japanese text, the Embassy\nhas been unable to prepare en axast translation.\nA large part of the interpollations were son-\ncerned with the question of Sino-Japanese relations.\nIn reply to the various interpellations Mr. Date in-\ndiented that the policy of the present Cabinet in this\nregard cime at economic and cultural cooperation before\npolitical negotiations are undertakem. Mr. Sate added\nthat this policy is gradually being understood by china\nand that it need not be feared that China will take\nadvantage of this policy to injure Japan. In reply\nto an interpelletion concerning the Debinet's inten-\ntions touching negotiations regarding North, Central\nand South chima, Dr. Sate said that as there are special\nand peoulier circumstances in North Chine, special\naccoures are required in dealing with that region, and\nthat 10 the circumstances naturally differ in Central\nml\nRegraded Uclassified\n252\n- 3 -\nand South China, it will be necessary to take different\nsteps in regard to those regions (Embersy's translation).\nMr. Rate also said that it is the desire of Japan so give\noff much aid as possible in connection with China's five-\nyear economic plen, and that the industrialization of\nChina is an important concern of Japan. He also said\nthat the Foreign Office would welcome capital invest-\nments in North China, and that he would discuss the\namount of such investments and the industries in which\nthe money would be invested with the Finance Ministry.\nunstioned in regard to the so-called \"special trade\"\nin North chine, Mr. Date seld that the matter is being\ncarefully considered, as it has importent bearing on\nJapanese trade with chine. Later, in reply to another\ninterpelletion, Mr. Date said that the \"special trade\"\nis 8 matter that conserns the Best Hopel régime and is\nnot one that should be taken up with Japan, although\nJapan will give attention to it in connection with the\nproblem of Chinsee tariff. The Demoi states that life\nHerinouchi, the Vice-Ninister for Foreign Affairs,\nexplained the so-called \"special trade\" in detail, but\nMr. Horinouchi's explanation was not published in any\nof the newspapers. Questioned in regard to the attitude\nof the Government toward the last Hopel Automouses régime\nand the Hopei-Chahar administration, Mr. Sate said that\nthose administrations into existence from pesulisF\neircumatance obtaining in North China, and therefore\nthey\n- 4 -\n253\nthey do not constitute 6 subject for discussion with\nJapen, although they might be discussed with China when\nSine-Japanese negotiations are resumed in the rusure.\nucstioned is regard to his former statement to the\neffect that it was his intention if possible to renew\ndiplomatic negotiations with China on 6 basis of equality,\nMr. Sate said that he meens that Japan should doal with\nChina with patience only is following the normal course\nof international negotistions. Be added that he believed\nthat intelligent Chinese were reflecting on the funds-\nmental causes of the Manchurian Incident, and that Japan\nshould race Chine with firm senfidence in its own posi-\ntion.\nIn connection with the discussion of Sine-Japanese\nrelations, Mr. Sate at one point stated that there appeared\nto be sche apprehension that he was reviving the so-eslled\n\"Shidebare diplonesy\", but stated that this was not the\n0586 and that he would not hesitate to take 6. positive\nstep if necessary (Embassy translation).\nIn regard to Soviet-Jupaness relations Mr. Date said\nthat the Government considers the border question as the\nnost urgent issue at the moment; this being the case\nJapan is negotiating with Soviet mussie on the question,\nbut the Foreign Office does not intend immediately to\nconclude a non-sggression past with the Seviet Union.\nAn interpellator referred to the discussion in Japan\nin regard to the question of the revival of the Angle-\nJapanese Alliance and Mr. Date replied that there was\nalso\nRegraded Jclassified\n234\nalso opinion is Great Britein fevoring this revival,\nbut that while Great Britain is a nember of the Lengue\nof Nations it would be difficult for that country se\nconclude an alliance with Japan. Be added that he\nwished to Feserve his opinion as to the attitude which\nJapan should take on the question.\nIn reply to as interpellation on relations with\nthe United States, Mr. Date said that the question of\nJapanese immigration into the United States is now\nbeing discussed in the United States and that the Japa-\nnese Government would endoavor to obtain a settle-\nment advantageous to Japam.\nLater the interpollators questioned the Premier and\nthe Var Minister in regard to their views on life Date's\nspeech of March 11, in which Mr. Sate had denied that\na \"crisis\" existed except in the minds of the people,\nand that It could be averted at any time that Japan no\ndesired. The Premier replied that he had had objections\nto the phraseology used by the Fereign Minister but that\nhe had requested Mr. Date's explanations, and had even-\ntually decided that his speech should stand as given.\nThe Minister for car, General Sugiyama, said that there\nwere parts of UT. Date's speech which he could not under-\nstand but when he later questioned him regarding the\npoints in question be had learned that M. Sate's views\nwere the same as kis. These replice indicated to the\nsatisfuction of the public that some working agreement\nhad been reached between the Minister for Foreign Affeirs\nand the military element in the Cobines, and that therefore\nMr.\n255\n- 6 .\nMr. Sate would probably remain in office during the\nlife of the Heyashi Cabinet.\nIt will be observed that, in outlining his more\nconcrete policies vis-n-vis other countries, Mr. Date\nindiented his intention of following the general policies\nof consiliation and penseful negotiation to which he had\ngiven expression in his earlier speeches. It is somewhet\nof 5 disappointment, however, to find a sessoned diplo-\nnatio officer such as Er. Date willing to bring up again\nsuch contentious subjects as the exclusion clause or the\nAmerican Immigration Act of 1926, and to hear him denying\nthe Japanese connection with the Nest Hopel Autonomous\nrégime and the Hopel-Chshar administration. Moreover,\nhis assertion that the smuggling in North China is the\nconcern only of the East Hopei régime and is not 6 sub-\njest for discussion with Japan, will not schence his\nreputation in these countries whose trade is suffering\nfrom the suuggling and which had hoped that under the\nadministration of Mr. Sate the Foreign office would ene\ndeaver to take stops to eliminate the Japanese connection\nwith the souggling. Newever, it may be assumed with\nreasonable safety that the replies so the interpella-\ntions in regard to North China did not represent the\nopinions of Mr. Date but were indicative of the opinions\nof the military and were foreed on Mr. Date.\nis would be interesting to learn more of the policies\nand opinions of Mr. Date, but the Lover House of the Diet\nhas now been dissolved and the House of years suspended,\nand\nRegraded\n256\n- 7 -\n:\nand consequently there will be no more interpollations\nand replies until the Net meets again, probably in May\nor June. In the meantime, the only index to Mr. Dato's\npolicies will derive from his diplomatie netivities.\nRespectfully yours,\nJoseph G. Grow.\nEnclosure: Clipping from the JAPAN ADVERTISER,\nMarch 26, 1937.\n710.\nENDST\nCopy to Subassy, Peiping.\n.\n. Messow.\nA true copy of\nthe signed origi-\nnal. r\nInclosure No.1, to despatch\n50.2540, dated April 1, 1937.\nfrom the Embassy at Tokyo,\n257\nThe Japan Advertiser.\nTokyo, Wednesday, March 24, 1927.\nDr. Se,ko Ota. Seiyukai, began the\nDoors) ways that Poreign Vice Min-\ninterpellation by asking about the\nLitter Kmauke Herinouch give an ex-\nadumetion of Japanese living in Man-\nplanetion of the 40-called special trade,\ncharle and was told by the Foreign\ncomprising goods entering China\nMinister that they are aducated \"In\nthrough East Hopel with payment of\naccordance with the wishes aet forth\nduties much smaller than those levied\nin the Imperial Rescript on Educa-\nby the Chinese Maritime Customs but\nNon. with minalderation given to local\nle gives no details,\nconditions\" He then Inquired about\nMr. General Sund, Minselto, amer-\nthe Japanese vermanic mission to\ntained from the Communications Min-\nChina,\nister that the Hirota Cabinet's plan for\n\"Because of the desirability of bet-\nState management of the electric pe-\nwer Industry is being No examined\nler sequaintance among influmal\nand that something will be presented\nbusinessenen of the two countries and\nle the Diet in the next ression. No\ndeuper understanding by them of con-\ndecision has yes been reached an the\nditions in each other's countries. 1\nbasic policy for the system, to be en-\nthink the mission has been alignificant,\"\nforent shortly, of requiring Govern-\nthe Foreign Minider replied. \"I be-\nment permission for electric power\nHave it La necessary for members of\nrates, but the reles in Tokyo will be\nthe mission to observe with prudence\nfowered to some extent. The Minister\nthe actual conditions in China The\nasked to be escused from comment-\npolicy toward China of the present\ning no the reported movement for\nCabinet, siming of economic and cul-\nmarging the live major pwwer mm:\ntitral co-operation befor) political ne-\npanies.\ngetiations, La gradually being under-\nMr. Sumi asked what the Premier\nstood by China, and there need be\nthought of the reference made to the\nno feur, I think. that advantage will\nSoviet Union of 4 model by an untile-\nbe taken of this by that country.\"\nused official under him in advocating\nreorganization of the economic system\nWould Divide Consideration\n\"The promotion of omtain enter-\n\"I think their North China, Contral\nprises INSURE be accelerated to BOTH\nChina and Sorth China should be con-\nextent from the standpoint of perfec-\nsidered segurately,\" the Foreign Min-\nLon of national defense.\" Premier Ha-\nlater responded. \"My in-called mooth-\nyashi said, \"and that is where control\nening of the ground seama to be INS-\nnecessary, Citation of the\npected of meaning revivel of the Shi-\nSoviet Union as an example, however\ndehara diplomecy. What 1 have in\ndoes not conform with conditions in\nmind is the present situation\"\nour country. E am of the opinion that\nDr. Ota asked If Japan cannot help in\nestrome control, as advocated by\nChina's Ive-year industrial program\ncome, will never da for us.\nand inguired about the possibility of\nThe interpellator assailed bureau-\ncompliance by the Yokohama Specie\ncracy and expressed a desire for cres-\nBank with the Chinese request for nur-\ntion of 9 commission composed of offi-\nrender of Its silver holdings in China.\nclais and civilians to study control of\n\"It is the desire of our country, of\nthe electric power Industry. The Com-\ncourse, la give as much aid as pussible\nmunications Minister indicated that he\nin connection with China's five-year\napproved of the idea. and at this point\nthe committee received for longh.\nsconomie plan,\" replied the Foreign\nMinister, \"As the Finance Minister has\nIn Die afternoon, Mr. Kaju Neka-\nflated. the question of dispussi of silver\nmin. Seiyakai. reisevt the question of\nis left to the discretion of the Yoko-\nJapanele flabing in Alaskan waters\nhama Spacie Bank\"\n\"As long - It Le dons outside Inc.\nDr. Ota mid that in connection with\nritorial waters.\" responded the Min-\nSinn-Japanese economie co-aperation\nlater of Agriculture and Forestry. \"I\nthere must be discussion of China's\n- no abjection. We must however,\ntariffs\nalso enmalder International relations\"\n\"The industrialization of China is no-\nMr. Nakamura urged special educa-\nturally an important matter for this\ntional facilities for fuller development\ncountry.\" the Foreign Minister told\nof individual calents, objected to the\nhim. \"To menurage exports to Chine\nprisent emphasis on the Chinese clas-\nof machinery and other Japanese goods,\nsice in the schools and advorsted more\nreforms of the Export Guarantee Law\nprivate Institutions of learning.\nshould be evaldered. As there is vx-\nMr. Taira Tatsukown, Seiyukai, aug-\npersed to be extensive demand for\ngested that the scrapping of old ships\nmaterial in connections with railway\nunder the law for encouragement of\nconstruction and other enterprists, I\nthe construction of better vewels be\nthink the will question must else be\nsuspended because of the shortage of\nconsidered, and endeavor will be made\nbottoms and will told that such is the\nin that direction.\"\nGovernment's intention Iron the next\nThe interpellator advorted . positive\nRosal year. The Communications Min-\npolicy in Numb Ching and pointed to\nLetim also said that consideration is\nthe connection between investments\nbeing given to abelition of the mastric>\nthere and the exchange control regula-\ntione on the purchase of foreign ships\nlians.\nMr. Kirubu Ognschi. Belyuksi, called\nInvestments Desired\nsitention to the increasing floancial\n\"The Foreign Ministry would wel-\nwantments of the Government out-\ncome cepital investments in North\nside the budget, such as the expital\nChina, and I wish to discuss with the\nInvestment in the Imperial Fuel De-\nFinance Minutry authorities the pas-\nvelopment Company, and feared that\nsible amount that can be Invested end\nDay will hurden the nation for many\nthe most suitable Industries,\" stated the\n5\nMinister. \"Though Japan is not direct-\nMare Revenue Expected\nby concerned with the so-called special\n\"I think revenue will increase with\ntrade there, the matter a being care-\nfully cunsidered, for it has all Important\nthe development of enterprise. Pre-\nmier Hayashi replied. Tand that power\nhearing on Japanese trade with China\"\nto aborb bonds will likewise increase\nRegraded Uclassified\nI shall evply after consulting the FL\n\"I am lokk that there is opiniun in\nadmitted the and for and . a\nnation Minister.\"\nBritain Invorable for revival of the\nto realize administrative refurns but\nMr Oguelsi advocated that the shrin-\nAnglo-Japana alliance. but - ling\nvalied attenting a the possibility of\n- bureau of the Home Office lay Drive\nas Dritain in @ member of the League\nan worline opening of the next regular\nactive De the training of private and\nof Nations a would be quile a pm-\nund mid that no devision has\nprovide lariter administration for\nblem the \" to conclude an alli-\nlasen reached. He said he had no in-\nshrines\nance with Japan similar to that of the\ntention of withing up a connities to\nAsked what be thought about paint-\npast, I wish to reserve my optation\nalidy the faill for revision of the Com-\nme sculpture. music and other art\nregarding what attitude we should\nmercial Code while the Diet M not\nforms, the Premier said he believed\ntake no the Matter.\"\nsitting and refused to any whather he\nthat \"art must be the true manifesta-\nHe also saked la be excused trom\nplans to form a. now inititical party or\nDon of the Japanege spirit.\" He re-\nspeaking about the Japanese-Nother-\nname party men as Education and\npetied recent thefts of and hasards\nlands trade negotiations, calling them\nOverass Ministers.\nto national treasures and promised\na delicate matter.\nAsked About prolongation of the exc-\ngreater vigilance\nAfter A brief receips for dinner, the\nrent session. which normally should\nCommerce and Industry Minister Go-\nlession was resumed with further\nend tomorrow, the Promier pointed sign\ndo stated that taxi fares and other\nquestion of Mr. Sato regarding the\nthat prolangation is a prerogative of\nautomobile problems are being studled,\nChina question\nthe Throne and that every circumages-\nThe tax on poline with be increased\nBe-examination Needed\ntion a required in deciding where to\nduring the next eight years, but the\n\"The <isms and principles that have\nappeal for it\nincrease scheduled for the coming flo-\nBeen applied in relations with China\nMr. Yoshiharu Yotani, Tohokai,\ncal year will be the last for at least\nto the past and the conditions that\ncharged that Mr. Sato's diplomacy re-\nthree years\nhave been inalsted on have continuity,\"\npresents a reversium to the Shídehara\nMr. Fumjiro Tchinomiya, Minserto,\nMr. Salu stated. \"It goes without say-\ndiplomacy and asked the War Minister\ndoclared that full understanding of the\ning that there is ceed to re-examine\nLE Mr. Sate's views on the current situs-\ncharacteristics of the Chinese is neces-\nthese principles and conditions with\ntion are altored by him.\nsary before Japan can frame its ha-\nthe lapse of time,\"\nVague Points Clarified\ntional policy.\nMr. Chuks Ikemki, Second Lobby,\n\"When 1 heard Mr. Sate speak in\nWhen I said that we should deal\nusked about the East Hopei and Hopel-\nthe Diet on March 11.\" General Sugi-\nwith China with patienes,\" Foreign\nChabar regimes,\nyama replied. \"I thought bis speech\nMinister Sato told him. \"I meant that\n\"Those regimes came into existence\nleft something to be dostred. By that\nWe should do an only in following the\nunder special eircumstances,\" the Min-\nI mean that I found something in It\nnormal course of international rela-\nlater replied. \"and the there la no\nthat I could not understand. Subm-\nlians [ think that among the Chinese\nthought on Japan's part of what to do\nquently I questioned him regarding the\nthere are Intelligent persons who are\nabout them. They will be diseased\npoints I could not understand and\nreflecting deeply on the causes of the\nas a metter of course iss the diplo-\nlearned that his view was the same as\nManchurian Incident, Japan should\nmatic negotiations to be resumed with\nmine.\"\nTice China, 1 believe, with deep con-\nChina. 1 de not think that my\nPremier Heyashi had the name to say.\nin its awn position.\"\nDiet speeches will affect the North\n\"As E stated in this committee some\nHopel Trade Mentioned\nChina regimes, As for the five-Min-\ntime ago,\" the Foreign Minister can-\nThe pherequisite for a Sino-Japanase\nlater coimeil, the reports alleging to\ntributed. \"I did not amend my spevch.\nentense, in Mr. Tehinomiya's opinion, is\ngive my intentions are not accurate, I\nNor did I explain the speech after its\nDON operation with China in suppressing\nconsider the notter one for-the Cabi-\ndelivery. What I did Was to clarify\nthe so-called special trade in North\nnet as a while to a decide, not three\nthe meaning of what I said in the\nChina. which at the same time would\nMinisters or Ave Ministers. According\nspeech. My first speech in the Diet\nto circumstances, however, there may\nstill stunds\"\ncontribute to better understanding of\nJapan's attitude smong foreign Powers,\nbe meeting from lime to time of\nMr. Yutani was not satisfled.\n\"I am entirely in accord with the\nthree Ministers or five Ministers.\"\n\"I explained those points In my\ninterpellator's views on Sino-Japaneme\n\"The army authorities,\" the War\nspeech of March il about which the\nMinister stated. \"are concurred about\nPremier and the War Minister and\novonamic co-operation,\" said Mr. Sate,\nmatters relative to military administra-\ndouble and did so to their entire satis-\nTrut economic co-operation must be\nconsidered in conjuction with political\ntion In North China. At no time have\nfaction.\" Mr. Sato added.\nco-operation As for the special trade\nthey Interfered with foreign policy,\nMr. Yutani turned to the Premior,\nwho told him:\nIn North China, is la - matter that\nand 14 is their intention to maimate\ninncerns the East Hopei regime and\nthe same attitude in the future.\"\n\"As for the Foreign Minister's first\nspeech, I had objections to the phrase-\nnot one that should be taken up with\nThe Navy Minister expressed agree-\nology at the time it was made, 1 later\nJupen. Japan will give attention to 11,\nment with this datement.\nasked his explanation and decided that\nhowever, in conjunction with the piv-\nFloance Minister Toyotero Yuji said\nhis speech should stand.\"\nbleen of Chinese tariffs. Improve-\nthat at the moment he is not con-\nThe War Minister astreed with this\nment of economic ralations between\naidering credits for China but that a\nMr. Yutani Instited that the Pro-\nJapan and China is the prerequisite for\nwill be necessary to consider them if\nmier's remark about the situation be-\nuntablishment of credit, I have con-\nSino-Japanese enterprises are under-\nIng such that il might explode at .\nsulted the Ministries concerned regard-\nline details Investment in China of\nikm Be denied that the exchange\ntouch cannot be recumeiled with Mr.\nthe profits of Japanese enterprises in\ncontrol law is causing difficulties.\nSato's specch, which live glid embodied\nChina is worth consideration.\"\nwur Maintain Yes\na defentiat policy,\n\"What I wish,\" he continued, \"Is to\n\"As I said in my replies to questions\nMr. Kaju Nakumure asked a number\nof questions about foreign relations to\nmaintain the value of the yen in terms\nsbout the speech of March LY in the\nwhich the Foreign Minister replied as\nforeign currency. For this, it is De-\nHouse of Peers and this committee.'\nfollows:\nressary to promote exports shipping\nMr. Sato stated. 1 want to have a\nand Beheries. 1 mean to da every-\nconsidered in the light of my supple-\nThe Government considers the (So-\nthing postible to prevent the fall of\nmentary speeches Mr. Vutani\nviei-Manchukuo! border question the\nmust urgent issue of the moment With\nthe yen in terms of foreign currencies,\nseeme to have come to the conclusion\nthat aditude, Japan la negotiating\nthough there may be a temporary in-\nthat I regretied my supplementary\nwith the Soviet Union, and the For-\ncroado in indebledness.\"\nspeech. 1 am sure that that in his own\neigo Office has no intention of con-\nThe Home Minister said he could\nconclusion. As for the reaction to my\nnot say whether the Government will\nspeech abroad. I have said that a was\ncluding immediately è non-aggrewich\nDard,\nintroduce e labor union faill in the past\ngenerally favorable. or inture, I with\nnot antisfied wilh that\nThe imalgration question is debat-\nlession without studying the matter,\ned. las the United States, 100, and We\nMr. Tomindo leu, Kokumin Domel,\nWOR Mr. Yutam will voicing\nfaction, the committee adjusted late\nshall try to obtain . actionment ad-\nskell if the Government will call an\n- The Premier\nnights\nventageous to un.\nMEMORANDUM\n259\nApril 28, 1937\nTo:\nSecretary Morgenthau\nFrom: Dr. Burgess\nTreasury bond market was quiet today with a fairly good\ntone. Prices showed little variation during the day but\nmost issues closed higher than yesterday: the long bonds\nwere unchanged to 4/32 better, with the exception of the\n3-1/8s of 1949/52 off 2/32; the remainder of the list was\ngenerally unchanged to 2/32 better. At the close quotations\nwere at their best levels for the day. Treasury bond turn-\nover on the board was $901,000. H.O.L.C.'s were up 4/32 to\n5/32; F.F.M.C.'s were up 1/32 to 9/32.\nTreasury note market quiet with a firmer tendency. The\n1-3/8s of 1941 closed up 3/32 and the new 1-1/4s up 4/32;\nremainder of the middle and long maturities were up 1/32 to\n2/32.\nDomestic bonds were dull and prices generally tended to\nbe easier. In the second grade group, utilities were off\nfractionally to 1 point; industrials and rails were mixed.\nOn the high grade market recent refunding rail issues were\noff small fractions; industrials and seasoned issues gen-\nerally were steady.\nForeigns were mostly steady and quiet, with few price changes.\nPurchased for Treasury today $1,000,000 miscellaneous\nTreasury bonds for account Government Life Insurance Fund.\nRegraded\nUclassified\n260\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE April 28, 1937.\nTO\nThe Secretary\nFROM\nMr. Taylor\nDuring the next few days I am going to give you various thoughts\nthat have occurred to me in connection with several of our problems, with\na view to your having them before you during your \"reading period\" next week.\nTesterday after lunch I had a long talk with Marriner Ecoles on\nthe questions of financing, gold, etc. In connection with the financing,\nI reverted to one of our earlier discussions in which I had asked him to\ngive some thought to the idea of the gross amount of Bills which the\nbanking system could properly handle, the proper maturities, the maximum\namount which should mature on quarterly dates, etc. He welcomed this\ndiscussion and is having his men do some work on it. I likewise talked\nto Larry Seltzer about the problem this morning and he is investigating\nthe subject.\nWhat I have particularly in mind is that given a debt structure\nof 35 billion dollars, estimated annual receipts of approximately 7 billion\ndollars, and estimated quarterly receipts from income taxes of say 700\nmillion dollars we can probably think in terms of not only a larger total\namount of Bills, but also in terms of larger amounts falling due on the\nquarterly dates. With higher general receipts as a new factor and the\nSocial Security taxes also present, it is my impression that we can think\nin terms of, say 3 billion Bills, without running the risk of having too\n261\n- 2 -\nlarge a floating debt, or putting it another way, we can compare\nour position to that of an industrial concern which has expanded\nits business and therefore its cash receipts to an extent that\nwhere as in an earlier period current indebtedness of $1,000,000\nwould have been unsound, today current indebtedness of twice that\namount would be entirely conservative.\nWD.\nRegraded Uclassified\nMEMORANDUM\n262\nApril 29, 1937\nTo:\nSecretary Morgenthau\nFrom: Dr. Burgess\nTreasury bond prices rose today in quiet trading. Quotations\non the board advanced steadily and closed at the highs of the\nday, with the long maturities 10/32 to 15/32 up from yesterday\nand the rest of the list generally 3/32 to 11/32 up. Treasury\n.bond turnover on the board was $905,000, about the same as\nyesterday. In the guaranteed group the H.O.L.C.'s were 5/32 to\n16/32 better than yesterday and the F.F.M.C.'s were 9/32 to\n13/32 better. There was a little activity in Treasury notes and\nthe market was firm. Closing quotations on notes were at the\nhighs of the day with the 1937 to 1941 maturities generally\n3/52 to 4/32 better than yesterday. The 1 3/8s of 1941 and the\nnew 1 1/4s were up 5/32 and 7/32 respectively. The rest of the\nlist was unchanged to 1/32 better.\nDomestic bonds were fairly active in the first two hours\nand prices firmed fractionally. Prices eased off slightly in\ndull trading during the rest of the day and at the close both\nhigh and second grade bonds were small fractions up from\nyesterday.\nForeigns were generally steady and quiet. Brazilian Govern-\nment bonds were weak on unfavorable cable advices, and the 6฿8\nwere off more than 2 points.\nPurchased today $479,000 2-7/82 Treasury bonds of 1955-60\nfor account Government Life Insurance Fund.\nTREASURY DEPARTMENT\n263\nINTER OFFICE COMMUNICATION\nDATE April 29, 1937\nTO\nThe Secretary\nFROM\nMr. Taylor\nOur luncheon with Oumansky involved a very general discussion of\ncapitalism, business cycles, the orthodox Bolshevik approach, emphasizing\nB. fully employed population and their ability to avoid the cycles prevalent\nin the capitalistic world, etc. He advanced the information that the Soviet\nml economic staff had come to the conclusion that no fundamental changes\nhad been made in the capitalistic system and that therefore another depression\nwould appear in the not too distant future, probably between 1939 and 1941,\nand that owing to the severity of the last one, that the capitalistic world\nwould not be in very good position to meet the next one, He went into this\nsituation at some length and emphasized the fact that economic disasters\nof this character inevitably led to political disasters and that political\nand economic disasters often produced wars; that his country was far from\nfatalistic about the situation and that it was in the spirit of cooperating\nwith other nations, who had equally peaceful motives, that he felt that the\nmessage which he had conveyed to you should be interpreted.\nHe also discussed at some length the great market for certain types\nof American products in his country, in particular mass production machinery,\nthat if the desire on both sides were present, a great deal of business\ncould be done between the two countries, but that, naturally, there were\nonly three methods of payment - goods, gold and credits. He then asked the\nRegraded Uclassified\n264\n. 2 -\ndirect question as to whether the United States wished to increase its\nbusiness with the Soviets, to which I replied that I assumed that we did.\nHe referred again to the significance and possible historical\nimportance of the message which he had delivered to you as a great\npotential force for world economic stability and peace,\nThe only other direct question which he asked was a hypothetical\none, as to the effect of the lowering the price of gold on our agricultural\nproducts which we exported. I replied that I thought that the question\nanswered itself and that the question of the gold price was being debated\nin the newspapers - on the one hand by professional economists and on\nthe other hand by others who might have a rather direct speculative\ninterest.\nOn the whole, Oumansky was very expansive and was apparently\ngoing out of his way to give us the Soviet program,as he covered\npractically everything in the known world, including national defense - which\nhe said was in excellent shape. As you might gather, Archie and I did\nnot have too much opportunity to interrupt and confined our remarks pretty\nmuch to questions and comments on the similarity of the problems, no matter\nwhat system you happen to operate under, and the fact that a great many\nchanges had been made in various control mechanisms which might materially\nalter the standard cyclical pattern, but that we were more or less in\nthe position of having designed en automobile which had not been\ntested at full speed and that it would be difficult to say that any of\nthe particular controls would be completely effective until they had been\ngiven a more complete test.\n265\n- 3 -\nI touched briefly on some of the lessons which we thought\nwe had learned as a result of the postwer period, both in domestic\nconnented\nand foreign financing. I touched briefly on the slight alteration\nin the pattern for foreign financing which was appearing through\nthe instrumentalities of organizations like the Export-Import\nBank and the British Overseas Credit, etc. This reference to the\nExport-Import Bank caused him to say that his country was barred\nby the Johnson Act, but that of course he felt that their situation\nwas entirely different from the countries which had defaulted on\ntheir war obligations. I said that this was a question with which\nhe was entirely familiar and that it would be useless for us to\ntouch on it at this time but that it would be extremely desirable to\nclear up the misunderstanding which existed.\nAs we left he referred to the possibility of additional con-\nversations with you. I assumed this to mean that he is awaiting\nfurther instructions from his Government following the opening of the\naccount with the Federal.\nThe description I have given above covers what I consider the\nmost important questions and statements which he raised. There was a.\ncertain amount of additional conversation which I can give you if you\nwould care to have it, but I de not think that any of it was particularly\nsignificant.\nwerl\n266\nApril 29, 1937.\n9:12 8. m.\nH.M.Jr: Hello.\nOperator: Chairman Eccles - go ahead.\nH.M.Jr: Hello.\nMarriner\nEccles:\nHello.\nH.M.Jr: Marriner.\nE:\nAh - good morning.\nH.M.Jr: How are you?\nE:\nFine this morning.\nH.M.Jr: Two things. First place unless you know some good\nreason why we shouldn't we're going to go ahead with\nour nine months stuff next week.\nE:\nNo I don't know of any good reason. I think I would\nadvise sticking to it for another week and see how\nit goes after the increase goes into effect.\nH.M.Jr: All right - that's that. Now the other thing - I\ndon't know whether Taylor's had a chance to tell you\nbut the Fed in New York got a cable from the Russian\nState Bank asking - that they'd like to make a deposit,\nsee?\nE:\nI talked to George Harrison last night\nH.M.Jr: Yes.\nE:\n.....\nand he's sending down this morning a copy of\nthe cable and a copy of his suggested reply.\nH.M.Jr:\nRight.\nE:\nAnd I'm going to get the Board to approve of it\nthis morning.\nH.M.Jr: Fine. And then would you mind sort of just taking\na little personal interest in it because - ah - ah\nI gather from Wayne that we may go up against a little\nresistance in New York, see?\nE:\nYes.\n267\n- 2 -\nH.M.Jr: See?\nE:\nWell - ah - well I'll follow it through then. I\ndidn't get that from George. The cable that he read\nto me over the 'phone was in substance - ah - ah -\nright along the line of the memorandum\nH.M.Jr: Yes.\nE:\n.....\nthat he sent down which you saw, of course,\nabout a week ago.\nH.M.Jr: Yes.\nE:\nAh - and I told him that if he'd send the cable down\nwe would send him up a copy - a statement to the effect\nthat we had advised the Treasury, see?\nH.M.Jr: Yes.\nE:\nThat we would approve of an application\nH.M.Jr: Yes.\nE:\n......\nwhen it was submitted by the Federal Reserve\nBank of New York.\nH.M.Jr: Yes.\nE:\nSo that I'll - - I'll check - ah - I'll check\nH.M.Jr:\nWell I - - I just - maybe I'm a little over-suspicious\nbut - ah - I don't want anything on this because I've\ngiven my word, see?\nE:\nYes.\nH.M.Jr:\nAnd I'm anxious that it go through in a perfectly\norderly manner. That's all that I wanted.\nE:\nYes.\nH.M.Jr:\nAnd if there's any questions raised I'd appreciate\nit if you'd let either Wayne or me know.\nE:\nWell all right, I'll\n......\n268\n- 3 -\nH.M.Jr: Now there may - maybe I'm all wrong and maybe it will\ngo through in a perfectly normal manner.\nE:\nWell I think it will if the - if the Central Bank of\nRussia, of course, will submit the statement in the\nusual - make the usual application\nH.M.Jr: Well that\n....\nE:\n.....\nand I, of course, I assume they will because\nWayne - Wayne told me that he had talked to them\nand they - they raised no objection to the require-\nment as covered by the Harrison memorandum.\nH.M.Jr: Well that's all to the good and if - and if nothing\nelse came out of this if we got the Russian Bank to\nmake their first public statement I'd consider that\na great accomplishment.\nE:\nSo would I - I'd like to see it.\nH.M.Jr:\nSure - so would the rest of the world.\nE:\nWell we'll know whether they will or not pretty soon.\nH.M.Jr:\nWell I - - in - in - you - you - you see I asked - we -\nwe've given you what's in the back of our minds.\nE:\nYes.\nH.M.Jr:\nWe haven't told it to George.\nE:\nYes.\nH.M.Jr:\nAnd he's just dying of curiosity.\nE:\nI see. (Laughs)\nH.M.Jr:\nSee?\nE:\nI see.\nH.M.Jr:\nAnd we simply say this is what we like and we\nhaven't given any reasons.\nE:\nAh-ha.\n269\n- 4 -\nH.M.Jr: And he wants reasons and we haven't given him any.\nE:\nI see.\nH.M.Jr: So ah - if you just give it a little - just kind\nof watch it, see?\nE:\nWell I - I\n.......\nH.M.Jr: It may go through perfectly all right and then again\nit may not.\nE:\nWell I - - I - - that's right. Well I'll watch it and -\nand ah - George hasn't replied - hasn't sent the\ncable he read it to me on the 'phone\nH.M.Jr: Yes.\nE:\n..... and and I didn't particularly like well\nthe - the the I asked him to submit it.....\nH.M.Jr: Yes.\nE:\n.....\nand told him\nH.M.Jr: Yes.\nE:\n..... that the cable. ah should be worded in two\nways - at least the last part one was it would\nindicate that he knew the Board of Governors would\napprove of it and the other was that he didn't know\nanything about any previous discussion of this thing,\nsee?\nH.M.Jr: Yes.\nE:\nAnd I felt that the cable - that a cable should more\nor less indicate that he was somewhat familiar with\nsome previous discussion.\nH.M.Jr:\nWell why not?\nE:\nWhat is it?\nH.M.Jr: Why not? He - he\n270\n- 5 -\nE:\nWell I think that - I - well he said that he would\nbe perfectly willing to do that\nH.M.Jr: Yes.\nE:\n.....\nah - if he could get something from the Board,\nsee? .....\nH.M.Jr: I see.\nE:\n.... to the effect that he could indicate that.\nH.M.Jr: I get you.\nE:\nYou see? So I told him if he'd send it down this\nmorning that I would get it cleared and I'll - by\nnoon and he could send his cable off I thought along\nthe line that would indicate - at least that he wasn't\nentirely unfamiliar with the fact that the matter had\nbeen discussed.\nH.M.Jr:\nAh-ha.\nE:\nSee?\nH.M.Jr: Fine.\nE:\nSo that's where it stands now.\nH.M.Jr:\nThank you very much.\nE:\nAll right, goodbye.\nRegraded Iclassified\n271\nApril 29, 1937\n9:30 group meeting.\nPresent: Mr. Magill\nMr. Oliphant\nMr. Taylor\nMr. Gaston\nMr. Haas\nMr. Gibbons\nMr. Lochhead\nMr. McReynolds\nMrs. Klotz\nHM,Jr: Did anybody tell you (Haas) what Lionel Edie\nwanted?\nMr. Haas: Yes. Seltzer told me that he came in and\nmy secretary told me that he called me yesterday morning,\nI guess. Did you see him?\nHM,Jr: No. Are you strong enough to digest Dr. Anderson,\nof Chase?\nMr. Lochhead: Did you read Edie's speech?\nHM,Jr: No.\nMr. Lochhead: We are going to lower the price of gold.\nThat's all there is to it. He made & speech at the Chamber\nof Commerce.\nHM,Jr: Herbert (Gaston) I was kind of thinking I would\ntalk either for record or for background today. I have\nsatisfied myself what this selling in the market 1s and all\nthat. It's definitely in England. I have spent hours and\nlots of money on it and I am thoroughly satisfied what it 18.\nI wanted to either ask some newspaper to make an independent\ninvestigation, giving a pretty broad hint of what they would\nfind, or give it to these boys for background.\nMr. Gaston: I think BO. I think you could talk for\nbackground to them.\nHM,Jr: What do you think, George (Haas)?\nMr. Haas: I think it's very dangerous to slip out infor-\nmation which you think 18 the cause. I think there is a\nRegraded Uclassified\n272\n-2-\nrather fundamental situation which has a result of stock\nmarket decline. For one thing, the first quarter earnings\nstatements definitely do not show the increase which was\nexpected in terms of volume of production. I have a state-\nment here on that. You also had previously the anticipated\nexpansion due to further price rise, all washed out, It's\njust adjustment taking place.\nHM,Jr: I don't agree with you at all.\nMr. Haas: I would like to have a chance to talk to you\nabout it,\nHM,Jr: It's another pepper situation in London and\nthere 18 a desperate situation on it. I have spent an\nawfully lot of time on 13.\nMr. Haas: I don't say that's not there, but all these\nother reasons are there.\nHM,Jr: True. But there is an acute situation in London\nright now.\nMr. Haas: That may be, and that's one of the factors in\nit, but you may have a domestic situation which would lead\nto stock market decline.\nHM,Jr: But not a four or five point drop.\nMr. Haas: I don't think that's 60 important.\nHM,Jr: I don't see where you get this earning stuff any-\nway unless you have & list of how many corporations have you\ngot quarterly earnings, first quarter, for?\nMr. Haas: We have Standard Statistics index of 161 or\nsomething like that,\nHM,Jr: They follow 700 or 800 corporations. What 18\nit for the first quarter. Standard Statistics 18 a good\nindex.\nMr. Haas: Those are not all in yet,\nHM,Jr: How many are in?\nMr. Haas: I don't know how many of that group are in,\nbut they have an index which has 161 corporations in it --\n273\n-3-\nidentical corporations. That's in, I think.\nHM,Jr: Do you know?\nMr. Haas: I haven't had a chance to talk to Daggit, but\nin a statement he sent out to the house I assumed they were\nidentical corporations that he was carrying from one quarter\nto the next.\n(At this point, HM,Jr. tel ephoned Mr. Daggit to come to\nhis office.)\nHM,Jr: I would like to know about Standard Statistics.\nIf that's true, than that's B new one for me. Let's pass\nit until he comes.\nMr. Haas: I have a statement here which I think you\nshould take time out to read on the whole business of prices\nand stock market.\nHM.Jr: Let me read it. I have time to do it before\n10:30.\nMr. Haas: The summary 1s not as good as the rest of it.\nIt's difficult to summarize.\nHM,Jr: If you stop behind I would like to talk to you\nabout it, because I still think I am right. My only inter-\nest in it is I don't want it to go 80 far that it will hurt\nbusiness. There 18 no indication that business is slowing\nup. All you need to do 18 look at Sears-Roebuck sales.\nSimply tremendous!\nMr. Haas: I wish you would give me 8. chance to talk to\nyou about it. I have discussed it rather thoroughly with\nDaggit.\nHM,Jr: Is it all in here?\nMr. Haas: Practically.\nMr. McReynolds: Nothing.\nMr. Lochhead: Bond market 1s opening up quite well.\nStock market -- nothing developing on that, but bond market\nlooks right good.\n(Mr. Daggit came in at this point.)\nRegraded Uclassified\n274\n-4-\nHM,Jr: (to Mr. Daggit) Have you got figures from Standard\nStatistics as to first quarter earnings?\nMr. Daggit: We have them -- preliminary. Do you want\nme to get it?\nHM,Jr: Get it and be back at 10 o'clock. Have you got\nany other figures on first quarter earnings?\nMr. Daggit: I don't believe we have. I will see.\nHM,Jr: See what you have. Anything that Dow-Jones or\nanybody -- and can you be back at 10 o'clock or as near that\nas possible?\nMr. Daggit: Yes. I will do that.\nMr. Gibbons: Strike called -- sit-down strike -- at the\nParke-Davis plant up in Detroit. May be serious. They have\nover $1,000,000 worth of narcotics in there and the plant\nserved notice that they are no longer in charge. Yesterday's\npaper reported that the narcotic agent they threw out was\ngoing to prosecute them. of course the local United States\nDistrict Attorney probably gave that out, but it looks as\nthough the situation is serious. Here's $1,000,000 worth\nof narcotics and these people serve notice on us that they\nare no longer in control and these fellows get in and right\nin the room where there 1s $1,000,000 worth of narcotice.\nHM.Jr: If you are sure of that, do Just what Waesche did.\nA plant asked for guards, but he sent a couple of extra in-\nspectors Just to be sure they would be on the ground. All\nyou have to do 16 send & couple of narcotic agents to 800\nthat the stuff 18 not stolen.\nMr. Gibbons: They would not let them in; turned the hose\non them.\nMr. Gaston: Harold Graves has some pretty full informa-\ntion on that and he has a recommendation that he wants to go\nover with you.\nHM,Jr: Is he ready?\nMr. Gaston: I taink Bo?\nMr. McReynolds: He told me about it and I told him to\ntake it through Guy Helvering.\nRegraded Uclassified\n275\n-5-\nHM,Jr: But that might take too long. There 18 nothing\non my desk. Let's designate somebody.\nMr. Gibbons: It's a serious thing that might develop.\nHM,Jr: Let's have somebody to handle these things. I\ncan't handle it myself. Waesche mentioned it and he's handling\nit in 8. very sensible manner,\nMr. McReynolds: Waesche talked to me about this and Gibbons\nhad the same thing up in Boston.\nMr. Oliphant: Mac handled the Boston situation beautifully.\nMr. McReynolds: I can do it.\nHM,Jr: Will you do it?\nMr. McReynolds: I will.\nHM,Jr: And if you need something, walk in and tell me.\nMr. McReynolds: I think we will have to, with respect to\nboth alcohol and narcotics, because there you have a situation....\nHM,Jr: Let's understand each other. If there is something,\nyou walk in; otherwise, if I don't hear from it, you are handling\nit.\nMr. McReynolds: If we get to a point where I can't get\nagreement to keep out of bounds, I am coming in.\nHM,Jr: You just walk in. But I don't want it to come\nthrough Helvering and Harold Graves has a memorandum and some-\nbody else. The strike thing is something that has to be handled\non the split second and if you can't get an agreement, walk in.\nMr. McReynolds: O. K. We will do it that way.\nHM,Jr: Satisfactory to you (Gibbons)?\nMr. Gibbons: O. k. Did you get fixed up last night?\nHM,Jr: Mrs. Roosevelt, as I expected, knew nothing about\nwhat Hall Roosevelt was talking about. After he got over\nthere he got very excited all over again and she very definitely\ndid not want to use a Government plane. Hall Roosevelt was all\nRegraded Uclassified\n276\n-6-\ncock-eyed. He insisted that a plane was leaving New York\nat 9 o'clock and that Mrs. Roosevelt could leave Baltimore\nat 10:30 and catch that plane. I said, I don't agree with\nwhat you Bay. That can't be done. Because New York and\nBaltimore are practically the same distance from Cleveland\nand a plane leaving New York at 9, Mrs. Roosevelt can't catch\nit leaving Baltimore at 10:30. So we were all arguing back\nand forth and he was all mixed up, I got hold of Burke and\ntold him to get ready; told him to get gassed up and be ready\nto go to Baltimore to meet Mrs. Roosevelt and I would let him\nknow. Between the time -- this was all through supper -- I\nkept saying to Hall, What are the facts? And he said, I\nwon't know until 8:30. And he did not even know what plane\nshe was taking. He was all mixed up. 80 I told Burke to\nfind out what time the plane left, etc., etc., -- this was\nall through supper -- and I said to be ready. Then he found\nthat she was planning to take the plane that left Newark at\n11 and get to Cleveland at 2. So Hall finally said he was\nsatisfied that conditions were such that she could fly and he\n80 recommended. As long 8.8 he took that attitude and knowing\nthat Mrs. Roosevelt said the President was opposed to her using\na Government plane and it was B. tremendous responsibility to\nput her on a plane at 11 o'clock at night and send her to\nCleveland -- terrific responsibility -- BO I said, Now, Hall,\nwhat do you want us to do? And he said, She can go on this\nplane. It was a plane of the Pennsylvania Air Lines; they\nhave not had an accident in three years; never a single pas-\nsenger injured; regular plane; regular pilot; knew she was\ngoing; said it was all right. I said to Burke it would be\n8. great experience for us to see if we could get out in half\nan hour and we were ready. That was his attitude. But Hall\nRoosevelt 18 just crazy.\nAnd he wanted us to come down here\nin the river and bring her up. Nice evening! But to take\nMrs. Roosevelt from Baltimore at night and fly her to Cleveland--\nI did not want to do it. But Burke handled himself extremely\nwell, the way he always does.\nMr. Gaston: John Mitchell said he would bring those clip-\npings in today -- the New Republic things.\nMr. Gibbons: Won't anything break in the papers about the\nSt. Paul situation?\nHM,Jr: It can only break if there is a leak in the Treasury.\nMr, McReynolds: It has not gone any place except from me\nto Elmer Irey.\nRegraded Uclassified\n277\n-7-\nHM,Jr: A8 a matter of fact, I was thinking if the stuff\n18 ready, why bother the President while he is on vacation?\nHave it ready and I will send it over and I would give it to\nForster and simply say, 'You use your Judgment. If you want\nto send it down to the President, all right, but there 18 no\nhurry.'\nMr. McReynolds: After you sign it, I will take it over.\nHM,Jr: I will sign it and you hand it to Forster.\nMr. Gibbons: I understand you are not interested in selling\nany tables at the dinner you are going to address Sunday night.\nHM,Jr: Can you hold that & minute? Who sent a bill up\nhaving to do with antiques coming in to New York?\nMr. Gibbons: It's the General Omnibus Bill.\nMr. Oliphant: That's our general Customs Bill. We went\nover the whole line of legislation.\nHM.Jr: Remember, I reserved the right to Bay that I did\nnot remember. Was it in that?\nMr. Oliphant: Yes.\nHM.Jr: Because somebody called up Mrs. Klotz -- he was the\nhead antiquer -- and wanted to see me and I said, Why should I\n800 him. And there was a. big article in the New York Times\nthat Steve Gibbons said that 75% of antiques that came in are\nfake.\nGaston: Who is the antique expert we can refer the New York\nSun to?\nHM,Jr: Steve Gibbons and Herman Oliphant. You know,\nsooner or later these things always come to the surface. All\nthat Herbert Gaston wants to know 18 who to refer the antique\neditor of the New York Sun to, You got it now, Herbert?\nMr. Gaston: I have got it now.\nHM,Jr: What about tables for Sunday night dinner?\nMr. Gaston: Bernie Kilgore called me and said that Hoguet\nhad called him up and said & man who had represented himself to\n278\n-8-\nbe your secretary had gone to Hoguet and tried to sell him &\nticket to a dinner Sunday night at which you were going to\nspeak and when Hoguet said he could not be in New York that\nnight he urged him to take a table on behalf of the firm; said\nit would please the Secretary very much. 80 I told him the\nSecretary never encouraged anybody to sell tickets to any sort\nof a dinner,\nHM,Jr: Have you been able to run it down?\nMr. Gaston: Hugh McQuillan 1s working on it.\nHM,Jr: Do you (Gibbons) know of any dinner the Democrate\nare giving?\nMr. Gibbons: They are giving 8 dinner and Gene Buck 18 to\npreside and Herbert Hoover is going to attend. It's not for\nthe Jews; it's for the Catholic Guild Actors.\nHM,Jr: Who said anything about the Jews? Why bring that\nup?\nMr. Gibbons: This big dinner 1s for the Catholic Guild\nactors and Hoover is one of the speakers.\nHM,Jr: When did he join your church. He must be begining\nto think of running again in 1940.\nMr. Gaston: I have another letter where you are in fine\ncompany; wanting some testimonialsSix prominent ex-Navy men\nhave been invited to write testimonials for the publication\nOur Navy and the six people are Walter Winchell, Phil Baker,\nJack Benny, Paul Whiteman and Freeman E. Gosden, 80 you see\nyou rate with Amos and Andy.\nHM,Jr: Swell! I am coming up! That's the best thing\nthat has happened since they pulled off that publicity stuff\nwith Mae West.\nI think you (Gaston) let me down when you did not let me\nkiss Jean Harlow when she was down here.\nMr. Gaston: I did not have a chance. I don't get in on\nthis testimonial stuff.\nHM,Jr: Did you know L. W. Robert, Jr., was Chairman of\nthe Axton Tobacco Company?\n279\n-9-\nMr. Magill: Chanler Tobacco Co., which owns all the stock.\nHM,Jr: So the head of the Reynolds Tobacco Co. takes it\nperfectly for granted that we are going to knock the tax on\ncigarette.\nMr. Haas: On the cheap cigarettes.\nHM,Jr: He BeeB the handwriting on the wall, but it's the\nwrong wall.\nHM, Jr: Mac, I will go directly from Procurement to the\n2:30 appointment. I am Just doing this because I take it\nfor granted they asked you to do it and you fell down.\nMr. McReynolds: I haven't any jurisdiction over space.\nHM,Jr: Did they ask you about it?\nMr. McReynolds: Oh, yes! We have been on Interior's neck\nfor & month. I will see that we have Mies Roche and Demaray\nthere at 2:30.\nHM,Jr: Let's make it at 2:15, but I'm relying on you.\nMr. McReynolds: I will have Miss Roche and Demaray there\nat 2:15.\nMr. Taylor: I would like to tell you about a scene at the\nWashington Hotel with Mrs. Garner there. Some friends of mine\nwho were staying at the Washington -- it has to do with this\nboy you are having trouble with -- coming into their room and\nthe fellow 16 out in the corridor with one foot in the door, saying\n'But Mrs. Garner, my future depends on it.'\nShe said, \"But\nyou misrepresented to the Treasury.\" This goes on for fifteen\nminutes and then the house detective and somebody comes along\nand leads him away. Apparently something wrong with him.\nHM,Jr: On which side of Mrs. Garner's door were you?\nMr. Taylor: I wasn't there. It was a friend of mine. I\nam Just a reliable reporter. One of my scoute reported this.\nHM,Jr: This 1s the best meeting we have had for along time.\nMr. Taylor: Like some British news?\nHM.Jr: Sure.\nRegraded Uclassified\n280\n-10-\nMr. Taylor: Mr. Bingham and Mr. Davis are having a\nseries of very polite conversations at the minute on the\nother side with Mr. Chamberlin, the Chancellor, and pending\nthe outcome of those conversations we won't have any news\nthat means anything.\nHM,Jr: Are we still being humorous?\nMr. Taylor: No.\nHM,Jr: Who told you this?\nMr. Taylor: Feis.\nHM,Jr: What are they discussing?\nMr. Taylor: The world -- with specific relation to our\nrelations with the British?\nHM,Jr: Our relations?\nMr. Taylor: United States.\nHM,Jr: But not Treasury?\nMr. Taylor: No.\nHM,Jr: May I make a little prophecy? Out of that three-\ncornered conference will come no news.\nMr. Taylor: I am not betting against you.\nHM,Jr: That was all in the Hearst paper and Jack Garner\nwent clear up to the ceiling and, believe me, Mr. Hull had a\nvery unpleasant situation at Cabinet and he said, pounding the\ntable, \"I want to know what are those fellows talking about.\nIf it has anything to do with debt settlement or lending money,\nI want to know.\"\nMr. Taylor: I gathered that they don't know here.\nHM,Jr: This was at 2:30 and I was at Mr. Garner's office\nthat morning. It's all right. The President assured him that\nthey were not talking about anything that anybody could not know\nabout. I told you last night about the dinner that took place\nRegraded\nUclassified\n281\n-11-\nlast night in Paris?\nMr. Taylor: Yes.\nMr. Oliphant: Nothing, except I located the report we\nwere looking for. Harold gave it to Alexander.\nHM,Jr: How come?\nMr. Oliphant: I don't know. You probably sent it to\nMac and Mac automatically sent it to Harold.\nHM,Jr: How come? It don't sound like Harold.\nMr. McReynolds: I haven't talked to him about it.\nHM,Jr: You and Harold come in here together at 10:15. It\ndoesn't sound like Harold.\n(To Mrs. Klotz) It wasn't in our stuff?\nMrs. Klotz: It never was. We never had the thing in our\noffice. I am quite positive.\nHM,Jr: The point 1s it went from Mac to Harold. You say\nyou never had it?\nMrs. Klotz: Never had it. I was anxious to look at it\nand that's why I remember BO definitely that we never had it.\nMr. Oliphant: Harold will know where he got 1t.\nMr. McReynolds: I have no recollection.\nHM,Jr: Well, find out. If Mrs. Klotz says we did not\nhave it, we did not have it.\nMr. Lochhead: About two years ago we had a big book. We\nkept it in our safe because there was no room to hold it.\nHM,Jr: It's interesting, but it won't shake the foundations\nof the world.\nMr. Oliphant: No. \"God's still in the Heaven and all's\nright with the world.\"\nHM,Jr. (To Magill): Are we going to have a meeting at 3:307\nRegraded Uclassified\n282\n-12-\nMr. Magill: Right! I have been after them already this\nmorning on the investigation they are making in the field, which\ndoes not seem to be going very well. Unfortunately, Guy Helver-\ning is having some teeth out.\nHM,Jr: Won't he be here?\nMr. Magill: He said he would try to be.\nHM,Jr: If he is not, I don't want the meeting unless he's\nhere. Just 80 you know my plans, we are going up to New York\ntomorrow afternoon and I will be back here Monday a week. I\nwill be at the Farm. We are going up on the 3 o'clock train,\nStandard Time.\nAll right, George, let's you and I see Daggit.\n000-000\nRegraded\nUclassified\n283\nyellowley\nL CHICAGO--E. C. YELLOWLEY, CHIEF OF THE ALCOHOL TAX UNIT, AND HIS CHI\nASSISTANT, LEVI 2. BAKER, TODAY WERE ORDERED CITED FOR CONTEMPT OF\nCOURT BECAUSE OF CONVERSATIONS YELLOWLEY IS ALLEGED TO HAVE HAD\nWITH A FEDERAL GRAND JURY FOREMAN.\n4/29--R1150A.\nQADD YELLOWLEY, CHICAGO\nFEDERAL JUDGE JAMES H. WILKERSON ORDERED ASSISTANT U.S. DISTRICT\nATTORNEY DANIEL GLASSER TO DRAW UP THE CITATION AND ORDERED YELLOWLEY\nTO FILE HIS ANSWER MAY 6. HEARING DATE WAS SET AT MAY 10.\nWILKERSON ORDERED CHARGES AGAINST THE ALCOHOL INVESTIGATOR AFTER\nRECEIPT OF A REPORT BY SIDNEY S. ECKSTROM, FOREMAN OF A GRAND JURY\nUNDERSTOOD TO HAVE INVESTIGATED ENFORCEMENT OF LIQUOR LAWS.\nECKSTROM REPORTED THAT ON THE NIGHT OF APRIL 21 HE RECEIVED A TELE-\nPHONE CALL ASKING HIM TO COME TO A LOOP HOTEL. HE MET YELLOWLEY\nTHERE, HE SAID, AND TALKED WITH HIM TWO HOURS AND A HALF.\nHE SAID, HOWEVER, THAT THE ALCOHOL CHIEF MADE NO ATTEMPT TO\nINFLUENCE HIM AND THE REPORT OF THE JURY WAS N 0 T CHANGED.\n4/29--R1153A\n284\nApril 29, 1937.\n11:05 a.m.\nH.M.Jr:\nHello\n0:\nMr. Krock.\nH.M.Jr:\nHello\nArthur\nKrock:\nYes sir.\nH.M.Jr:\nArthur.\nK:\nYes.\nH.M.Jr:\nHenry talking. I've got an idea which may or may\nnot appeal to you. Ah - I was just reading Ferdinand'\nCoons' story out of London on \"Stocks Fall in London\".\nK:\nYes.\nH.M.Jr:\nAnd about their commodity troubles and all that and,\nof course, it's the only intelligent story which is\nin any paper to-day on the situation.\nK:\nI thought it was very good.\nH.M.Jr:\nNow - what - I - I don't think the other people\ncaught onto is - \"What is the situation here\", see?\nAh - what about our banks and our commodity loans\nand our loans against stocks, see?\nK:\nYes.\nH.M.Jr:\nNow the people get angry when the President keeps\nwarning them all the time - but he has and I think\nif you'd have somebody write a story or you can\nwrite it yourself - due to these warnings and due to -\nif you don't mind my saying so - our constantly warning\nthe people - ah - you'll find, on investigation that\nour banks have not made commodity loans, our brokerage\nhouses are all in good shape and we can take this\nsort of thing in the - in our stride.\nK:\nVery good point.\nH.M.Jr:\nNow no one has pointed that out.\n285\n- 2 -\nK:\nVery good point.\nH.M.Jr:\nAnd it might have a quieting effect.\nK:\nIt probably would and I shall - I'll put it in the\nworks at once.\nH.M.Jr:\nDo you get it?\nK:\nYes I think I have it.\nH.M.Jr: What?\nK:\nI'm sure I have it.\nH.M.Jr:\nAnd nobody's handled it that way.\nK:\nNo, I real- - I - I'll put it in the works right\naway.\nH.M.Jr:\nThank you.\nK:\nThank you.\n286\n*pril 29, 1937.\n2:47 p.m.\nH.M.Jr:\nHello\n0:\nCongressman Doughton is in the building but they don't\nknow exactly where; they'll try to reach him.\nH.M.Jr:\nAll right, leave word I called.\n0:\nAll right.\nH.M.Jr:\nAnd let me talk to - ah - to - ah - Mr. Oliphant.\n0:\nRight. Go ahead.\nOliphant:\nHello\nH.M.Jr:\nHerman\n0:\nYes.\nH.M.Jr:\nNot to hold you up - you couldn't clear what you have\non your mind over the 'phone?\n0:\nWell I think I could.\nH.M.Jr:\nTry it.\n0:\n\"h - I think from the stand- - from our standpoint\nthat that Chicago thing is pretty serious.\nH.M.Jr:\nYes.\n0:\nHe didn't know how it might turn out but there's been\nno technical violation under the law because what\nhappened is our official representative there - ah -\nmakes a secret contact through a third person to\nmeet the Foreman of the Grand Jury in a hotel room;\nH.M.Jr:\nYes.\n0:\nnot in his office and not at the man's house\nH.M.Jr:\nYes.\n0:\nto discuss something or that he tried to get from\nhim something that the Foreman wouldn't give him in the\nGrand Jury room.\nH.M.Jr:\nYes.\n287\n- 2 -\n0:\nAnd I don't know . - ah - looks to me like an apology\nis going to be called for.\nH.M.Jr:\nWell by God I'm not going (laughs) to make it.\n0:\nWhat?\nH.M.Jr:\nI won't make it. I'll tell you what my reaction was\nwhen Graves was in here.\n0:\nAh-ha.\nH.M.Jr:\nAh - he wanted - he suggested my calling up the\nAttorney General to call it off. I said, \"No.\"\nI said, \"If this man has done it or hasn't done it\nmake him go through with it,\" see?\n0:\nAh-ha.\nH.M.Jr:\nI'm not going to call up the Attorney General.\n0:\nWell I think this action of Yellowley's is unbelievably\nstupid.\nH.M.Jr:\nWell all I would suggest, in sending somebody out\nthere, would be to - ah - just so he isn't left cold,\nthat's all.\n0:\nYes.\nH.M.Jr:\nBut make him take his medicine.\n0:\nYes - yes.\nH.M.Jr:\nWhat do you think?\n0:\nWell I - ah - that's the way I'd like to do it. I'd\nlike to - I'm sending a very good man - Mr. Forrest\nwho's had a lot of experience in the court room -\nAssistant District Attorney in Baltimore - I want to\ngo over it carefully with him before he goes\nH.M.Jr:\nYes.\n0:\n.....and fortunately now a date has been set\nH.M.Jr:\nGood.\n288\n- 3 -\n0:\nand the hearing doesn't come off until the 10th.\nH.M.Jr:\nYes.\n0:\nBut I'd like for him to go out now in the meantime and\nlook the situation over and find a little more about\nwhat actually happened and then - ah -\nH.M.Jr:\nWell I - I feel this way - without knowing the law\nthat if - I wasn't going - without - going to call\nup the Attorney General and ask him to excuse him\nfrom something which he - - which may or may not been\nwrong.\n0:\nOh quite the contrary - if you were calling the Attorney\nGeneral at all you'd be calling him to apologize.\nH.M.Jr:\nWell I'm not going to apologize; I'm through apologizing.\n0:\nWell I know what . you know what I mean. The thing -\nthe thing is on the reverse.\nH.M.Jr:\nWell then if it isn't until the 10th, let your man\ngo out, get the first hand attention, confer - if\nyou can't make up your mind I'd be glad to talk to\nyou about it from the farm.\nO:\nFine.\nH.M.Jr:\nNow does that leave your mind\n0:\nPerfect.\nH.M.Jr:\nThank you very much.\nRegraded\n289\nApril 29, 1937\nHM, Jr called in Sloan and Bryan and said he wanted\na pep up the sale of baby bonds between now and July 1.\nHe suggested advertising in the newspapers. He\nasked the boys to prepare a plan suggesting what news-\npapers to advertise in without getting into trouble\nfor advertising in some papers and not in others. He\ntold them he did not want any criticism because of it\nand wanted them to work out a plan in such a way that\nthey will be able to give a good excuse for omitting\ncertain papers.\nRegraded Uclassified\n290\nMay 7, 1937\nMr. Teylor\nDivision of Savings Bonds (Mr. Sloan & Mr. Bryen)\nSubject: Report of Conferences.\nWe have had extended joint conferences during the last\nseveral days with several representatives of both of our ad-\nvertising agencies, and have thoroughly cenvessed the methods\nand possibilities of immediately and materially increasing the\nsale of United States Sevings Bonds.\nIn these discussions we have placed the following\nrequirements:\n(a) Special campaign and expense limited to present\nfiscal year, ending June 30, 1937.\n(b) Quote of increased sales from these special\nactivities to be not less than $100,000,000.\n(c) Maximum newspaper and redio publicity.\n(d) Protection against criticisms from competitive\nmedia.\nThe time element eliminates all madia except radio end\nnewspaper.\nRADIO\nNe recommend talks over local radio by postmasters. Usually\ntime 1a cheerfully allotted to postmasters and 88 we will be using,\nperhaps, extensive newspaper space, the radio stations controlled\nby newspapers will be all the more likely to cooperate. No recom-\nzend 8 dialog form of redio presentation.\nNEWSPAPER ADVERTISING\nIn order to approximate en increased sale of $100,000,000 or\nmore within the next several months extraordinary effort is re-\nquired. Our greatest relience is on newspaper publicity. To\n-&-\nsecure the maximum publicity and eliminate all possible criticism\nfrom competitive media, re are recommending nothing short of paid\nadvertising in every English language deily newspeper in the United\nStates. This will cost for the program we are outlining between\n$215,000 and $265,000 depending upon the insertions in emaller\npapers. Our recommendation 18 for a 300-line advertisement (61x7)\nto run three times in the emaller dailies which number approxi-\nmately 1,809.\nCandidly, we do not expect this size advertisement in these\nleaser dailies to assist greatly in the seles, but we are count-\ning on the sustaining publicity. Ne expect our selling job to be\naccomplised by 700-line copy in all of the leading deilies. This\ncopy to appear six times in each of these papers.\nThe division of cost is -- for the metropoliten deilins\napproximately 150 papers) six insertions each,\n$190,928.40\nFor the lesser dailies (1,809 papers) three\ninsertions each\n72,474.00\nTotal\n$263,401.40\nPUBLICITY\nNo recommend decentralizing our publicity, end, if practical,\npermitting the postmaster to place the advertising in their respec-\ntive local papers. He would furnish to postmasters c minimum of\nthree releases per week during this campaign, and there would be\nno question but re would receive tremendous publicity.\nNEW ISSUE\nIn our several conferences, everyone ettending was unanimous\nin the belief that, if the \"Investment Bonds\" which you have out-\nlined would be offered as B limited issue at this time, several\nhundreds of millions of dollars could be very quickly placed\nthrough the advertising compaign shove suggested for Sevings Bonds.\nEvery suggestion you have mede with reference to these bonds has\nbeen enthusisstically endorsed with the exception of the invest-\nment bonds being sold in the lower brackets. We feel that, in\norder to stay away from confusion and natual competition with\nSevings Bonds, $1,000 should be the minimum denomination of the\ninvestment bonds, and that the meximum purchase in any calendar\nyear should be $25,000. We 880 no difficulty in effectively com-\nbining our advertising of Sevings Bonda with \"Investment Bonde\".\nRegraded\n291\n-8-\nCONTESTS\nBe are all agreed that a contest offering awards or additional\ncompensation to letter-carriers would sell a great volume of\nSevings Bonds within a very limited period. Likewise, contests\nwith the public at large could be plenned.\nBut we are agreed that the time at our disposal to launch\nany contest is insufficient. Nevertheless, we will present to\nyou in the near future the details of these suggested contests.\nJWB:gc (mtr)\nRegraded Uclassified\nHH\n292\nT\nPrepared by Mr. Daggit\nDivision of Research and Statistics\nIN:\nDATE April 29, 1937\nTO\nSecretary Morgenthau\nFROM\nMr. Hans YOR\nSubject: The Business and Price Situation\nSummary\nBusiness activity during April, as indicated by weekly data, has main-\ntained the high level of March, and shows some rising tendency. It still re-\nmains a few points lower than the December peak, when allowance is made for\nseasonal trends, though actual production is higher than in December.\nCertain elements of weakness in the business outlook have appeared. A\ndecline in first quarter corporate earnings in relation to output may indicate\n& slowing up in business. The downturn in commodity prices during the past few\nwooks tends to remove any speculative basis for the recent business expansion,\nand to that extent may have an unfavorable reaction on business activity. A\ndecline in stock prices to the lowest levels since last September also may\naffect business unfavorably, since the stock market influences business senti-\nment. A sharp falling off in new business in the textile industry may indicate\na greater than seasonal decline in textile activity during the summer.\nOn the other hand, the level of business activity during the coming months\nwill be supported by the improvement in factory payrolls, by 8. continued strong\nrotail demand for automobiles, by an increasing demand for railroad equipment,\nby well-sustained activity in the steel industry, and by the more peaceful\nlabor situation. Any setback in industrial activity during 1937 seems likely\nto be temporary, in view of the fact that no characteristics of an important\ntop in business activity have yet appeared; that agriculture has yet to con-\ntribute its normal share to business prosperity; and that a revival of build-\ning activity has yet to play its part in business recovery.\nThe docline in security prices during March and April was apparently\ninitiated by previous weakness in bond prices, and was later influenced by\ndeclining commodity prices, unfavorable earnings statements, and increased\nforeign selling. No extended decline appears in prospect, however, in view\nof the favorable long-term business outlook, the lack of any large specula-\ntive interest (aside from foreign holdings), and the fact that present prices\nalready discount a considerable setback in business activity. The fact that\nthe bond market is beginning to show evidence of increased buying interest\nappears favorable for stook prices.\nThe recent decline in commodity prices, brought on largely by weakness\nin foreign markets, may be prolonged by further liquidation, by increasing\nproduction in response to high prioe levels, by the possibility of a halt\nin the rearmament race, and by any tendency toward & recession in business.\nThe longer term outlook appears in favor of a rising trond.\n. 2 -\n293\nThe Business Situation\nBusiness activity during April (seasonally adjusted) has maintained\nthe high level of March, but remains somewhat below the peak established\nlast December. The weekly indexes of the Department of Commerce show a\ngradual upward tendency during the month. Steel production has risen\nslightly to a new high level, after holding for six weeks within a. narrow\nrange. Automobile production has expanded sharply in recent weeks, after\npreviously being depressed because of strikes, and both electric power\nproduction and petroleum production have increased. These have been partly\ncounteracted by E. large decline in bituminous ooal production. The recent\ntrond of business activity on a weekly basis, in comparison with previous\nmonthly figures, is shown in Chart 1.\nFor the month of March, industrial production (seasonally adjusted)\nincreased its gains over the previous two months, but did not reach the\nhigh level established in December. A comparison of the March figures\nwith the December figures, by industries, is shown in Table 1, attached.\nThe Federal Reserve Board index of production for March, estimated at\n118, compares with 116 in February, 114 in January, and 121 last December.\nThe average for the year 1929 was 119.\nA greater than seasonal gain was recorded in a. number of important\nbusiness series. The production of cotton goods during March reached the\nhighest level on record, 779,000 bales of ootton being consumed, as com-\npared with the previous high of 696,000 bales in June 1933. Steel ingot\nproduction reached & volume exceeded only during the early months of\n1929. Lumber production expanded more than seasonally, as did the output\nof bituminous coal, and the volume of freight car loadings. Electric\npower production remained unchanged, when 8 decline was normally to be\nexpected. Automobile production, held baok by strikes, showed no in-\ncroase during March.\nIn terms of actual production, not adjusted for seasonal variation,\nthe March index of production was substantially higher than last December,\naveraging 122 as compared with a December figure of 114. This has been\nreflected in increased employment and payrolls, and the position of fac-\ntory workers has shown a noticeable improvement. The increase in payrolls\nhas been greater than the increase in employment, while living coste have\ngone up but slightly. Thus a definite betterment in real wages has\noccurred. As compared with an average for the period 1923-25, represented\nby 100, real factory wages during March stood at 117.1. In comparison,\nthe average for the year 1929 was 110.9. Comparative figures for the paet\nfour months are shown in the table below.\n(1923-25 . 100)\nMarch February January December\nFRB Industrial Production\n3,\n118\n116\n114\n121\n1\nFRB Employment\n3/100.8\n99.7\n98.8\n98.6\nBLS Payrolls\n3/101.2\n96.8\n90.6\n95.1\nNICE Cost of Living\n86.4\n85.7\n85.4\n84.7\n2 Real Wages\n3 117.1\n111.8\n106.1\n112.3\n1\nAdjusted for seasonal variation\n3\nProliminary.\n2\nPayrolls divided by cost of living.\n- 8 -\n294\nThe Business Outlook\nCertain elements of weakness in the business outlook have recently\nappeared. Of important significance is a decline in corporate earnings\nin the face of increased industrial production. The earnings of 161 cor-\nporations (industrial, rail, and utility) during the first quarter of\nthis year, according to a preliminary estimate of Standard Statistics,\nshow a reduction of 25.5 percent from the earnings during the last quar-\nter of 1936. Yet industrial production in this period showed a rise of\n3.5 percent. The estimated corporation earnings for this quarter were\nonly 1.6 percent above the earnings during the third quarter of 1936,\nwhereas industrial production was 10.4 percent higher. A slight upward\nrevision will be made in the preliminary earnings estimate on the basis\nof recent corporation reports, which will not change our conclusions.\nWhile 8. slight reduction in earnings could have been expected on\nthe basis of seasonal factors, and on E. reduction in inter-corporate\ndividends as compared with the December quarter, a decline of this\nextent during a. period when output was increasing apparently indicates\nB. tendency for production to run ahead of consumer demand, since corpo-\nrations have evidently been unable to pass on all of their recently in-\ncreased labor and material costs to consumers. On the pasis of past\nexperience, this would suggest a tendency toward 6. slowing up in busi-\nneas. In Chart 3 we show a. comparison of industrial production with\ncorporate earnings over the past several years.\nA second element of weakness is the recent decline in commodity\nprices, which has removed part of the foundation on which the winter\nand spring improvement in business was built. There seens no doubt\nthat the sharp upward movement in commodity prices during the past two\nquarters, which created a widespread belief that inflation WELG under\nway, brought into the market a considerable volume of anticipatory\nbuying that would normally have been deferred until later in the year.\nWhile the filling of outstanding orders will maintain factory production\nfor 8. time, the change in the public attitude toward inflation brought\nabout by the collapse in prices is likely to discourage new orders, and\neventually affect industrial production.\nThe decline in stock prices must also be considered an unfavorable.\nfactor in the business outlook. A considerable section of the business\ncommunity depends in some degree upon the stook market as indicating\nthe trand of business. The decline in the Dow-Jones industrial index\nfrom 195 early in March to this week's low level of 171 is likely to\nhave an unfavorable effect upon business sentiment, and influence\nfuture plans accordingly.\nRegraded\n295\nConditions in the cotton textile industry appear to be growing\nless favorable. Although the domestic consumption of cotton during\nMarch established an all-time record, textile sales during March and\nApril have been less satisfactory than expected. Department stores,\nhaving bought too heavily when prices were rising, are in many cases\nsaid to be requesting deferment of deliveries until May, when a\nbroadening of consumer interest is hoped for. Buyers generally have\nenticipated their summer and fall needs in large volume. The recent\ndoclines in cotton prices have made buyers cautious and sharply re-\nduced the volume of new business. Unless the retail demand for\nfiniched goods improves shortly, a greater than seasonal decline in\ncotton textile activity seens likely during the summer months. The\nvolume of unfilled orders on the books of mills at present, however,\nis believed to be large enough to maintain activity at high levels\nduring the second quarter.\nThe favorable factors in the immediate outlook appear to have\nloos weight than the unfavorable factors, but are sufficiently im-\nportant to be a strong supporting influence for business during the\ncoming months. These may be listed as follows:\n(1) The recent improvement in real wages of factory workers,\nwhich has hardly had time, as yet, to show its effect\nin consumer demand.\n(2) A continued strong retail demand for automobiles, which\nmay be further strengthened during the spring by the\nimprovement in factory wages mentioned above. Dealers\nare reported to be selling cars as rapidly as they can\nobtain them from the factory, with consumer demand far\nfrom satisfied. This should help maintain production\nin the steel industry.\n(3) An increasing demand for railroad equipment. This demand\nappears sufficiently urgent not to be affected by busi-\nness uncertainties, but may, on the contrary, be stimu-\nlated by declining materials prices. This also will\ntend to maintain the rate of output in the steel indue-\ntry.\n(4) A well-maintained demand in the steel industry. The rate\nof steel activity has recently been holding up at a time\nwhen a seasonal decline could be expected. The posting\nof unchanged finished steel prices for the third quar-\nter, however, has removed the fear of further price in-\ncreases, which had been one of the reasons for heavy\nadvance bookings.\n(5) A more peaceful labor situation. For the first time in\nmonths no serious strike threatens any industry.\n296\n6\nWe can see nothing in the situation at this time to suggest more\nthan B. temporary setback in industrial activity. Aside from the\nprobability that,business has advanced too rapidly during the past\ntwo quarters, under the influence of 6. semi-inflation boom, and that\na little time may be necessary to enable consumption once more to get\ninto stop with production, nothing 80 far has occurred, in our esti-\nnation, to change the fundamental factors pointing toward a further\nrecovery.\nIt is true that the volume of industrial production at present\nis back to the 1929 level, from which the severe recession began\neight years ago, and that the rate of activity in some important\nindustries exceeds that of 1929. Changed conditions, however, warrant\nthe belief that the present level of industrial production is not\ndirectly comparable with that of 1929. In the first place, the popu-\nlation in this country and doubtless in the world has increased over\nthe intervening years. Our population as now estimated is 6 percent\nlarger than it was in 1929, which would justify 8. corresponding in-\ncrease in the normal level of industrial production. Secondly,\nowing to the unusual severity and duration of this depression, the\nreplacement demand for durable goods, and even for many types of con-\nsumers' goods, is probably greater than ever before. This apparently\nexplains in part the DBW records being made in the textile industry\nand in the steel industry. In the third place, an appreciable part\nof the present volume of industrial production represents Government-\nfinanced orders for materials used in various emergency projects,\nwhich cannot properly be considered a. part of the normal business\ndemand. Finally, a continued trend toward industrialization, toward\nfactory production in place of home and small shop production, and a.\ncontinued increase in the number and variety of factory products\ndemanded by the consuming public, should tend to establish B.\nprogressively higher normal level of industrial production. A single\nargument on the other side is the fact that restrictions on our\nexport trade have reduced our production for export, notably in\nautomobiles. Yet our imports have also been reduced to nearly a cor-\nresponding degree, thus increasing our demand for domestic products.\nAfter each previous depression in our history the level of\nbusiness activity in this country has risen to new high levels.\nIn Great Britain, Japan, and B. number of other countries, new high\nlevels have already been reached after the recent depression. On\nthese facts alone one would be justified in expecting a further\nrise from the present level GB being more probable than a decline.\nThis belief is strongly supported by the following facts:\n297\n- 0 -\n(1) No characteristics of B. major top in business activity have\nyet appeared. Interest rates remain near their lowest levels, which\nsuggests a rising long-term trend of business. No speculative boom,\nsuch as usually characterizes a. major top in business activity, has\ntaken place. The recent boom in commodity prices now appears to\nusve been largely of foreign origin, and confined in its speculative\neffects mainly to foreign countries. Perhaps it marks an important\ntop in the British business cycle. In this country there has been\nno speculative boom in the stock market, no material increase in\nbrokers' loans, and no boom in land values.\n(2) Agriculture has, as yet, scarcely contributed its normal\nshare to business prosperity. With production seriously curtailed\nby three successive years of drought, the farming industry has not\nyet shown its potential influence in promoting recovery. This, in\nturn, is en important reason for the lagging trend of railroad\nearnings and railroad equipment purchasing. The powerful influence\nof heavy agricultural production upon industrial activity and cor-\nporation incomes 18 seen in the fact that recovery from nearly all\nprevious depressions occurred in bumper-crop years. The prospect\nof increased agricultural purchasing power next fall, as well as an\nincreased volume of crops to be moved by the railroads And processed\nby manufacturing concerns, will prove a strong support to business\nduring the final quarter of the year. Assuming normal yields, an\nincrease of approximately 5 percent in the volume of crop and live-\nstock production can be expected during the 1937 calendar year, with\ncrop production probably exceeding last year by around 10 percent.\nPecause stooks of agricultural commodities have been greatly reduced,\nand prices have risen since last fall, the increased crops will have\nrelatively little effect in depressing prices 0.6 compared with those\nprevailing when last year's crop was marketed. An agricultural in-\ncome this year 10 to 12 percent larger than last year seems A\nreasonable expectation.\n(3) A revival of building activity has yet to play its part\nin the business recovery. That this eventually will become an im-\nportant factor is indicated by the huge deficit in both residential\nand heavy construction that has accumulated since the decline began\nin 1928. In England, where recovery began nearly two years earlier\nthan in this country, B. building boom occurred during the fourth and\nfifth years of recovery, and was largely instrumental in raising in-\ndustrial activity in 1935 to levels exceeding those of 1929. In the\nUnited States, building construction has revived gradually since the\nlow in 1933, but is still below normal. The index of residential\nconstruction contracts awarded during the first quarter of this year,\nas computed by the Federal Reserve Board, WGB only 42 percent of the\n1923-25 average, as compared with 126 percent during the peak year\n1928. Non-residential contracts awarded during the first quarter,\nexcluding those for public works and public utilities, were 63 percent\nof the 1923-25 average, which compares with 142 percent in both 1928\nand 1929.\n298\n- 7 -\nThe present low level of construction seeme to be due in large\nmeasure to high material costs, together with the faot that individual\nand corporation incomes have only recently risen much above what might\nbe termed \"subsistence levels.\" A construction boom requires not only\nan urgent need for new construction, which exists at present, but in\naddition it requires both the ability and the willingness to pay for\nnew houses, new factories, etc. The ability to pay has developed\nlargely during the past year, but the willingness to pay seems still\nto be held back by the high cost of materials. This, in particular,\ndiscourages speculative building, which has been an important factor\nin previous building booms. If the recent decline in commodity prices\nshould bring a reduction in prices of building materials, it is entirely\npossible that construction activity may support business on any recession,\nand may even, 8.6 in Great Britain, lead the next upturn.\nWith these major factors still pointing toward higher levels of\nindustrial activity over the longer term, it is difficult to foresee\nmore than a temporary setback in business during 1937. Increased\nagricultural incomes, an increased volume of agricultural production,\nand a heavy volume of residential and factory construction would in\nthemselves tend to support most other branches of industry, partic-\nularly in railroad equipment, automobiles, construction materials,\nand steel.\nSecurity Prices\nStock prices have shown a declining trend since the peak was\nreached early in March. Measured by the Dow-Jones averages, indus-\ntrial stooks have declined from a top of 195 to B. low last Monday\nof 171, representing a loss of about 13 percent, which cancela all\ngains made since last September.\nVarious factors are responsible for the decline in the stock\nmarket. The movement appears to have been initiated by the drop in\nbond prices, which occurred just before stooks reached their peak.\nThe weakness in bonds apparently had 8. certain effect in disturbing\nconfidence of investors in the outlook for securities, bringing\nprocautionary liquidation of stocks on the part of important in-\nvestors. Deolining commodity prices later had an unfavorable\nreaction on the stook market, leading to the belief that inflation\nmight be losing its effect as & business and speculative influence.\nDisappointing earnings reports for the first quarter were also 6\nfactor in the market, indicating that many stooks had over-discounted\nearnings prospects. This was particularly true of the utilities and\nfood companies, a number of which reported earnings lower than the\nfirst quarter of last year. While earnings generally showed good\ngains 8.8 compared with the corresponding quarter of 1936, they made\nan unfavorable comparison with the last quarter earnings of that\n299\n- 8 -\nyear. This led to the feeling in some quarters that increased labor\nand material costs were cutting into corporation profite, justifying\nB. lower level of stock prices.\nMore recently, B. persistent selling movement by foreign holders\nof American stocks has weighed heavily against the market and was an\nimportent factor on last week's decline. Previously, during the past\nyear or more, such selling has been of short duration, and foreign\ntraders have turned actively to the buying side when the stook market\nrallied. This time the selling has continued on rallies and followed\nthe market down on ensuing declines.\nOur reasoning suggests that this may mark the beginning of a\nmovement away from American securities, and may continue 86 a\ndepressing factor in the stock market. The original buying of our\nsecurities appears to have been done largely for two purposes: to\nprovide B. safer investment for capital than was available in Europe\nunder its continual threat of war, and to take advantage of rising\nprice trends and improving business in this country. The avoidance\nof taxes has also apparently been E. factor of some importance.\nWithin the past two weeks & decided change has appeared in European\nwar sentiment. The possibility now appears that the important\nEuropean powers may agree to an international conference looking\ntoward the settlement of economic difficulties and the halting of\nthe re-armament race. If successful, this would minimine or remove\none of the important factors responsible for foreign buying of\nAmerican securities. In the second place, the recent collapse in\ncommodity prices, the decline in corporate earnings, and the un-\nfavorable action of the stock market itself, have all tended to\ndiscourage investments based on the theory of rising profits in\nAmerican industry. These are strong arguments for & belief that\nB movement of foreign funds out of American securities may have\nbegun.\nAn analysis of the movement of foreign transactions over the\npast two years in relation to the trend of the stock market shows\nthat foreign selling tends to be heaviest during periods of market\nweakness, which suggests that the foreign holdings are partly\nspeculative in nature. To the extent that this is true, they may\ncontinue to be liquidated on B. declining market, like other specula-\ntive accounts, and tend to'prolong the recent market decline.\nNo extended decline in stock prices, however, seems in prospect.\nWhile the effect of foreign selling remains an uncertain factor, the\nlack of any large speculative interest in the stock market in this\ncountry, together with the favorable long-term business outlook, the\nlow level of interest rates and the volume of funds seeking invest-\nment, suggest that any decline in stock prices over the next few\n- 9 -\n300\nmonths is likely to be of moderate proportions. None of the\nsymptoms which in the past have usually proceded an extended market\ndecline, such as a high volume of brokers' loans, high call money\nrates, and a heavy volume of stock transactions, have yet appeared.\nStocks seen generally not over-valued in relation to earnings, par-\nticularly when the prevailing low level of interest rates is taken\ninto account. In their decline over the past month and a half, they\nhave already discounted, at least in part, an expected setback in\nbusiness. As a matter of fact, et Monday's low the Dow-Jones in-\ndustrial index had declined to the lowest levels of October, 1936,\nduring which month the Federal Reserve Board production index stood\nat 110. Through their tendency to anticipate changes in business\nsome time in advance, stock prices may be expected to meet support\nand begin an upward trend some time before business actually starts\nto improve.\nThe bond market is beginning to show evidence of support, both\nfor Governments and corporates, which usually precedes e. turn toward\n8 rising market trend. The decline in bonds began earlier than the\ndoclines in either stocks or commodities. Among the various quoted\nprice series, the Annalist average of 10 high grade rail bonds reached\na peak as early as mid-December, and started to decline sharply just\nafter the middle of January. Bonds of this class reached a low\npoint at the middle of March and have strongly held their ground\nsince that time, despite weakness in other divisions of the bond\nmarket 8.5 well 6.8 in railroad common stocks. The Dow-Jones index of\ncorporate bonds, which is evenly divided between high grade rails,\nsecond grade rails, industrials and utilities, started to decline\nsharply during the latter part of February. This group has also\nshown evidence of increased buying, and on the recent break in the\nstock market it failed to reach its previous low.\nThe trend of prices for British consols is conspicuous as an\nexample of support followed by E. movement toward higher levels.\nThe decline in these bonds started considerably earlier than in\nU. S. Government bonds, during the latter part of November, and be-\ncame stabilized during March when our bonds suffered their greatest\ndecline. Since then the trend has been slowly upward, with last\nweek showing 8. sharper rise in the face of a decline in British\nstock prices. The market for U. S. Government bonds has been\nstabilized during April, and the price trend has much the same\nappearance 8.8 the trend of British consols during March. Our\nexperience leads us to believe that bonds will be first to strengthen\nafter the recent declines in the security and commodity markets. The\nincreased buying interest which has provided support for all types of\nbonds during the past several weeks in the face of weakness in other\nmarkets may be preliminary to the beginning of another upward move-\nment in bond prices.\n- 10 -\n301\nCommodity Price Situation\nDuring the past six months we have seen 8. rather typical rise and\nfall of a speculative cycle in commodity prices, though we have yet to\nthrough the final stage of that cycle, which is normally repre-\nsented by 8. prolonged period during which the speculative holdings\nacquired at higher levels are gradually liquidated, as increased pro-\nduction stimulated by the price boom brings progressively lower prices.\nThe trand of commodity prices in the United States by weeks since last\nAugust is shown in Chart 2, which compares the BLS spot price index of\n30 sonsitive commodities with the Dow-Jones index of futures prices for\n11 commodities.\nThe rise conformed in most respects with the usual pattern for a.\nspoculative rise. Starting in an orderly manner during October and\nNovember, it gained momentum 0.8 more and more buyers were attracted\ninto the commodity markets by widespread inflation and rearmament\npublicity. Commodity speculation apparently was centered in London,\nwith Europe as a whole taking a much more important part in the market\nthan this country. The rises in practically all speculative commodities,\naccording to trade reports, were initiated by foreign buying. A foreign\ndispatch to the Wall Street Journal recently mentioned that speculation\nin armament and gold shares as well as commodities in London had been\nrempent for months, and had interested all classes of the trading public.\nIn certain respects the speculation in commodities abroad appears to\nhave been comparable with our stock speculation of 1929. An aftermath\nof this situation was the most severe commodity deoline in the London\nmarket that had been recorded for any one day since Reuter's commodity\nprice index was started in 1931, together with numerous reports of\nfinancial difficulties among commodity traders. While the volume of\ncommodity specule tion in this country showed 8. large increase, judging\nfrom the published figures on trading volume, it apparently WEB much\nless extensive than abroad, and its after-effects are likely to be\nmuch less serious.\nThe trend of commodi ty prices over the past several months, as\nshown in Chart 2, indicates that a typical \"double top\" has been\nformed, which often precedes B. rather extended decline. This is\nparticularly evident in the index of futures prices. Following the\ntop reached in early January, B. reaction occurred lasting nearly two\nmonths. During March a second upturn carried the index slightly\nabove its previous top, but the gains could not be held, and during\nApril a very sharp decline has occurred. Prices are now back to\nthe level at which they received support during February.\nThere are several reasons for believing that the trand of oon-\nmodity prices from this level may be downward. (1) An over-bought\nsituation created by a speculative boom is practically never corrected\n11\n302\nby a short reaction, however sharp, but B. period of several months\nis usually required for the liquidation of weak speculative holdings.\nIn 1933, for example, the first sharp reaction in late July was fol-\nlowed by a general decline lasting until December. (2) The increased\nproduction that is being brought out by the present high prices is\nlikely to be a more evident market factor next fall than it is now.\nIn most futures markets, particularly for agricultural products, the\nfall months are quoted at substantial discounts from present spot\nprices. In the case of the metals and certain other non-agricultural\ncommodities, present price levels are believed to be considerably\nabove production costs, a situation which in the past has usually\nbeen soon corrected. (3) The possibility of a halt in the European\nrearmament race, which has brought a collapse in the prices of arm-\nament stocks on European exchanges, removes one of the bases for the\nspeculative boom in metals and certain other commodities. (4) Any\nrecession in business this summer would tend to reduce the demand for\ncommodities, particularly in view of increased inventories that have\nbeen built up in some industries.\nThe longer term trend apparently continues in favor of rising\ncommodity prices through the effect of expanding industrial demand,\nincreasing labor costs, an expansion in bank credit, and increased\nworld gold reserves.\nRegraded\nJclassified\n303\nTable I\nFederal Reserve Board Index of Industrial Production,\nDecember 1936 compared with March 1937, by leading industries\nAdjusted for normal seasonal variation\n# Production index\nI\n#\n1 Effective\n# (1923-25 - 100)\nDecline\nRise\n:\nI\nIndustry\nI change in\na Dec. I March\n:\nI 1937\n(points)\n#\n2 1936\n(points)\n2\ntotal\n#\nI\n: (points)\nIron and Steel\n143\n127\n- 16\n- 3.2\nPig Iron\n104\n108\n+ 4\nSteel Ingots\n147\n129\n- 18\nTextiles\n139\nP. 128\n- 11\n- 1.9\nCotton Consumption\n144\n136\n- 8\nWool\n141\nP. 138\n- 3\nSilk Deliveries\n134\n114\n- 20\nFood Products\n99\n92\n- 7\n- 0.6\nMeatpacking\n100\n89\n- 11\nWheat flour\n87\n89\n+ 2\nSugar meltings\n115\n108\n- 7\nNewsprint Production\n64\n64\n0\n.0\nAutomobiles\n122\n121\n- 1\n.0\nLeather\n134\nP. 132\n- 2\n- 0.1\nCement\n91\n1/ 85\n- 6\n.0\nGlass, Plate\n89\n229\n+140\n+ 1.8\nTin Deliveries\n105\n144\n+ 39\n+ 0.2\nZino\n98\n107\n+ 9\n+ 0.1\nLead\n80\n75\n- 5\n.0\nPetroleum, Crude\n161\n173\n+ 12\n+ 0.6\nP.\nPetroleum Refining\n191\ni/\n194\n+ 3\n+ 0.1\nTobacco Products\n183\n153\n- 30\n- 0.3\nBituminous Coal\n97\nP+ 110\n+ 18\n+ 0.8\nAnthracite\n73\n81\n+ 8\n+ 0.2\nP.\nIndustrial Production\n121\nP. 118\n- 3\nManufacturing Production\n121\nP. 117\n- 4\nMineral Production\n117\nP. 127\n+ 10\nI\nFebruary figures\nP - Preliminary.\nPoints change in total index of industrial production resulting from\nindicated rise or decline in each industry.\n304\nINDUSTRIAL ACTIVITY AND COMMODITY PRICES\nPER\nCENT\nPER\nCENT\nIndustrial Activity\n1923 - '25 = 100 SEASONALLY ADJUSTED\n130\n130\n125\n125\nWEEKLY\nDEPT. OF COMMERCE\n120\n120\n115\n115\nMONTHLY\nF.R.B.\n110\n110\n105\n105\nAUG.\nSEPT.\nOCT.\nNOV.\nDEC.\nJAN.\nFEB.\nMAR.\nAPR.\nMAY\nJUNE\n1936\n1937\nPER\nPER\nCENT\nCENT\nCommodity Prices\n1924 - '26 = 100\n35\n85\n30 SENSITIVE COMMODITIES, SPÓT\n30\n(B.L.S.)\n80\nAPR.26\n75\n75\nCOMMODITY FUTURES\n(DOW JONES)\n70\n70\n65\n65\nAUG.\nSEPT.\nOCT.\nNOV.\nDEC.\nJAN.\nFEB.\nMAR.\nAPR.\nMAY\nJUNE\n1936\n1937\nOffice of the Secretary of the Treasury\nOver of - and Pursia\nC - 135\n305\nINDUSTRIAL PRODUCTION AND CORPORATION PROFITS\n1933 = 100 UNADJUSTED\nPER CENT\n(PRODUCTION)\nPER CENT\nBy Quarters: 1932 - 1937\n(PROFITS)\n160\n400\nPROFITS\nSTAN. STAT,\n161 CORPORATIONS\n140\n300\nPRODUCTION\nF.R.B.\n120\n200\n100\n100\n80\no\n60\n-100\n1932\n1933\n1934\n1935\n1936\n1937\nPER CENT\nPER CENT\nRODUCTION)\nFirst Quarter for Each Year: 1926 - 1937\n(PROFITS)\n180\n500\n160\n400\nPRODUCTION\nF.R.B.\n140\n300\nPROFITS\nSTAN. STAT.\n161 CORPORATIONS\n120\n200\n100\n100\n80\n0\n-100\n60\n1926\n'27\n'28\n'29\n'30\n'31\n'32\n'33\n'34\n'35\n'36\n'37\nOffice al the Secretary of the Treasury\nC - 136\nDivision of - ml felde\n306\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE April 29, 1937.\nTO\nSecretary Morgenthau\nFROM\nMr. White HDW\nSubject: Conversation with Dr. Otto Jeidels, April 26, 1937.\nDr. Jeidels is one of the owners of the largest wholly privately\nowned bank in Germany, the Berliner Handelsgesellschaft, which is the\nsmallest of the big five commercial banks. A consular report of\nJune 26, 1936, reported that in November 1931 a large blook of the\nbank's stock was purchased by American banking interests. Its assets\nare reported to be about 275 billion marks. A summary of his views\non numerous topics, offered in response to B. few direct questions\nduring the conversation, follows:\n(The following are Dr. Jeidels' views described from memory; observa-\ntions in parentheses are mine.)\n1. The German budget situation.\nDr. Jeidels states the estimates made in numerous quarters that\nthe \"hidden\", floating debt of the German Government is from 40 to\n50 billion marks are much too high. He estimates that the Government\nissued from 3 to 4 billion of these (Arbeitsbeschaffungs wechsel)\nshort-term bills during 1936, making a total outstanding of 12 to 15 bil-\nlion. He claims that the estimates made by some reliable economists,\n307\nSecretary Morgenthau - 2 -\nthough carefully arrived at, are an error resulting from the fact\nthat the notes are renewable every three months and payment to industry\nis made by giving them several notes dated ahead to replace the one\nfalling due inasmuch as they do not mature until at least B. year. He,\ntherefore, thinks that the various economists have added up these notes\ncumulatively and thereby introduced a large error in their estimates.\n(Careful studies which avoid the error he refers to have been made and\npoint to a figure closer to 25 billion than to 15.)\nOne of the strong features of the German budget, he emphasized in\nmy conversation with him even more than he did at the earlier con-\nference, was the fact that only 1 billion out of the total 13 billion\nreported expenditures is used to pay for interest and outstanding\nfederal debt. This he compared with interest and amortization burden\nof 18 billion francs out of a total budget expenditure of 40 billion\nin the case of France.\n(He overstated the proportion of the French budget going to pay-\nment of interest and amortization by not including the \"extraordinary\"\nexpenditures which are part of France's annual budget. Moreover, the\nexistence of 8. large proportion of the total budget required for servic-\ning debt does not of itself constitute a sign of actual weakness, nor\nthe absence a sign of financial strength. The interest charge e.g. on\nthe British Government debt is over 25 percent. The grave weakness in\nthe German Government finances are (a) her inability to service her\n308\nSecretary Morgenthau - 3 -\nforeign debt, thus making it impossible for her to obtain badly needed\nforeign loans, and (b) the rapid rate at which her \"hidden\" debt is\ngrowing. The bills which make up this debt are not in fact rediscount-\nable, and maturities are frequently met with renewals.)\nDr. Jeidels felt that the German Government finances-are not bad,\nand that there was no danger of serious budgetary difficulties. (on\nthis point I suspected his optimism was dictated more by political\ncaution and expediency rather than his evaluation of the situation 9.6\nan able banker.)\nExpenditure on armaments in 1936.\nUsing the published budget figures, and adding the amount of bills\nwhich he estimates were issued in 1936, he arrives at an estimate of\nabout 9 billions spent on armaments in 1936. This estimate is 3 billion\nmore than the one issued by the Foreign Policy Association, but 3 bil-\nlion less than the one thought to be reasonably correct by Captain\nPuleston.\n(Judging from his likely underestimate of the total of short-term\nbills, his estimate of the 1936 issue is probably also low, and there-\nfore his estimate of German expenditure on armaments which was partly\nbased on that estimate would likewise be low.)\n2. Devaluation of the mark.\nDr. Jeidels expressed the opinion that Germany had very little to\ngain by 8. revaluation of the mark at this time. The economic advantages\n309\nSecretary Morgenthau - 4 -\nthat would accrue from such B. move were, he believed, slight in view\nof the large proportion of her exports that are sold under clearing\nagreements or special marks, Inasmuch as the clearing agreements have\nsome time to run and because numerous foreign countries have built up\nlarge blocked balances in Germany as B. result of those agreements,\nwhich they can reduce only by buying German goods at the nominal market\nrate, Germany still has an advantage with respect to that trade which\nshe would lose if devaluation took place. (This advantage obtained\nfrom her clearing agreements is rapidly growing less owing to the fact\nthat clearing agreements with Germany are becoming less popular.\nGermany is resorting more and more to subsidizing her exports in order\nto obtain foreign business.)\nHe admitted that devaluation would very much simplify their exchange\ncontrol and would stimulate their exports somewhat, but stated that the\nchief reason why it was felt in Germany that devaluation would be\nunwise at this time was the danger of a resultant rise in prices in\nGermany and the political consequences of such a rise. The German\nGovernment is making every effort to keep prices down. Ee claims that\nthe cost of living has risen only 15 percent since Hitler came into\noffice, and that though wage rates have not risen as much the number of\nworking hours and working days per year have increased 50 greatly that\nthe annual earnings of the average German has increased enough to\noffset the rise in the cost of living. Therefore he concludes there\n310\nSecretary Morgenthau - 5 -\nis no fall in the standard of living. However, any sharp rise in\nprices now would stir up discontent and a demand for wage increases.\nThe German Government is for obvious reasons anxious to avoid stimu-\nlating any populer discontent.\n3. Foreign exchange problem.\nGermany's foreign exchange problem is more acute than ever not-\nwithstanding the fact that her exports have increased substantially\n(her export surplus is reported to be about 100 million marks greater\nfor the first quarter of 1937 than it was for the first quarter of\n1936). As stated above, the advantage which she formerly possessed\nthrough the clearing agreements is disappearing. The market has\nchanged from B. buyer's market to a seller's market and Germany is no\nlonger in a position to exact advantageous terms in her clearing agree-\nments as she was last year and the year before. Likewise the rise in\nthe price of raw materials which Germany must have both for domestic\nneeds and exports is leaving a small margin of benefit to her exports\nand, lastly, more and more of her imported raw materials are being\nused either for war stores or war material.\nTrade with the United States with special marks.\nDr. Jeidels is not very hopeful that the Treasury regulation\n(December 23, 1936) relating to trade with the United States with\nspecial marks will make it possible for Germany to export much more\nto the United States than she is doing now. The \"Continental Trading\nRegraded\n311\nSecretary Morgenthau - 6 -\nCompany\", organized a few months ago in the United States to secure\ntrade under the new regulation, has not accomplished much yet. He\nstated that the organization is a \"quasi-official\" one,\n4. Germany's foreign credit.\nHe feels that Germany ought not to expect to receive long-term\nforeign loans because it does not appear that she will have any success\nin getting them. Moreover long-term loans would not be in Germany's\nbest interest. What she needs are 6 and 9-month credits with which\nto finance raw material inventories she greatly needs. If only\nGermany could get the credit with which to get the raw materials she\nwould have no difficulty whatsoever in meeting all kinds of competi-\ntion for manufactured goods. The only chance for Germany to get these\nforeign credits is to first pay off a portion of her long-term foreign\ndebt (three-fourths of this foreign debt is completely in default and\none-fourth partly) and then adjust the remainder on some basis of\nGermany's ability to meet the payments. The loans following the adjust-\nment would have to be made with a \"sympathetic understanding\" of\nGermany's problem because on the basis of cold economic facts Germany\nwould have a difficult time of obtaining any credits even if her long-\nterm debt were adjusted.\n5. Germany's future.\nHe feels certain that Germany will be able to pull through. (even\nif he felt otherwise I don't see how he could afford to say so here,\nsince after all he is not an unimportant personage in Germany, and,\n312\nSecretary Morgenthau - 7 -\nincidentally, appears to be quite friendly with Schacht).\nGermany's Government financial situation will not be a source of\ntrouble at least for a long time to come. Unemployment is at a very\nlow level; strikes have been virtually eliminated; the \"Four-year\"\nplan will have some success, and after its completion and the improve-\nment of the world situation Germany will be economically better off\nthan ever.\nIt is not Germany's economic future, but her political and cultural\nfuture that makes him uneasy. Germany's strength and weakness both lie\nin what he likes to call her \"Spartan\" nature. Germans love discipline;\nthey have an amazing ability to take and execute orders. \"My own\nclerks\", he said, \"tell me they love to put on e. uniform and take\norders. They are very happy doing things in mass. Germans love to\ntake orders.\"\nIt is true that they are tiring of the speeches of Hitler and his\ncolleagues and that the authorities are finding it harder to give them\nsomething new to keep them emotionally stirred up, but the years of\nceaseless, high powered propaganda has had its effect. They have\nalready forgotten what it ever was to have free speech, free criticism,\nor complete freedom of action. They don't even seem to miss it. This\nmeans that Germany is a marvellous machine, geared, to be sure, largely\non B. war basis. Germany's weakness is her laok of intellectual free-\ndom. The darkest spot in Germany's future is the fact that intellectual\nfreedom is being crushed and the splendid development of Germen science\nUclassified\n313\nSecretary Morgenthau - 8 -\nwhich has marked Germany's progress in the past will disappear because\npure and fruitful research is not promoted by the current way of life\nin Germany. The young men have had their high school period shortened,\nthey spend 1% to 2% years in the army or labor camps and their college\ncourses are taken up in substantial part by political activities. Be-\nsides, a great many of the leaders in science have become exiled and\nare thereby developing no students to carry on.\nLittle is known in Germany of what is really happening in Spain\nor elsewhere in the world. The news is more standardized than ever,\nno foreign paper printed in German is permitted in the country, and\nforeign newspapers are expensive. Thus very few persons have access\nto news from outside of Germany, and what is disturbing is that the\npublic doesn't seem to mind the strict censorship very much.\n(I think that his fears with respect to scientific progress in\nGermany are somewhat exaggerated. Germany can hardly contribute nearly\nso much in the future as she has in the past in the field of scientific\nresearch both pure and applied. On the other hand, the fruits of\nresearch in all foreign countries are available in the scientific jour-\nnals and the results of such research useful to industry would be\nreadily adapted by the kind of technical men which Germany is now\ntraining. Germany and the world will suffer EL loss in science, of\ncourse, but that loss will in no sense cripple Germany or cause her\nto fall in the scale of efficient producers. While I believe he\nexaggerated the adverse effect on Germany's industrial development\n314\nSecretary Morgenthau - 9 -\ncaused by the death of intellectual freedom, he appeared to under-\nevaluate the loss to the German people in terms of spiritual and\ncultural values. However, when he was speaking on that aspect of the\nsubject I had the definite feeling that he was having a hard time\nrestraining himself from speaking his mind freely.)\n315\nApril 29, 1937\n3:35 pm\nPresent:\nMr. Magill\nMr. Oliphant\nMr. Helvering\nMr. McReynolde\nMrs. Klotz\nHM,Jr: Come on, Mr. Magill. Now we will have something\nthat 18 good. I am trying to do everything that 18 difficult\nbefore I leave tomorrow afternoon.\nMr. Magill: Well, the situation is this: as we all know,\nthe final step in the determination of tax liability, when\nthe Bureau has finally made up its mind that an additional\namount is due of what has been recorded, the Commissioner sends\nout what 18 called a deficiency letter or 8 90-day letter which\ngives the tax-payer right of appeal to the Board of Tax Appeals\nwithin that time. He files a petition. The period was made\n90 days rather than 60 in order to give the tax-payer an op-\nportunity of coming in and discussing with the Commissioner the\npossibility of settling the case, and 8 good many cases are\nsettled that way. There are, however, many more cases ap-\npealed to the Board than the Board in its present mechanism\ncan possibly hear, 80 that it has been essential, practically\nall the time during the life of the Board, to have some ma-\nchinery for settling these cases which have been appealed but\nwhich, if not settled, simply back up on the Board's docket,\nIn that connection, I think the Board now has some\n$550,000,000 deficiency unheard and although their backlog\n18 8. million or less (I think it 18 not quite a.8 low as it\nwas some years ago), they still have untried about 8,500 cases\nand they can try on the average about 1500 B. year, and there\nare appealed to them running around 4500 cases B year. So\nit is essential that there should be some kind of settlement\nmachinery if the Treasury 18 going to get its money in any\nreasonable length of time.\nNow, way back in Mr. Mellon's day there was created what\nwas then called a Special Advisory Committee with a view to\ndoing this job of disposing of these cases, 80 that the Board\nwould not bog down in its work and we would get our money, and\nRegraded Uclassified\n316\n-2-\nthat body has continued in various forms. Today it 18\ncalled the Technical Staff and performs the same function.\nThe Technical Staff, in other words, 18 a body which is\ndesignated by the Commissioner (18 in his office) whose\nduties are to advise him with respect to the disposition\nof these controversies. To wind up that part of it, the\nCommissioner has determined deficiency in the case of this\ntaxpayer in such and such an amount. As it stands now, and\nhas been for some time, the Technical Staff will engage in\nnegotiations with the taxpayer and his lawyer; the Tech-\nnical Staff may recommend whereas the deficiency determined\nwas $1,000,000 that it 18 to the interest of the Government\nto settle on a basis of $500,000 or $700,000, and they make\nthat recommendation to the Commissioner and the Commissioner\nproceeds to sign a settlement agreement with them on that\nbasis.\nNow, you notice that these cases BO settled in this way\nare in large part cases which have been taken to the Board\nby petition and to which the General Counsel's Office has\nthen filed an answer, as a rule generally denying these facts,\nBQ that in that sense they have been in the General Counsel's\nOffice and the question then arises\nHM,Jr: May I interrupt? When you get through, if there\n18 any conflict, if the procedure was different before we set\nup the General Counsel's Office, will you describe that?\nMr. Magill: Yes. As a matter of fact, I don't think it\nwas.\nHM,Jr: I mean, is it different since we have set up the\nGeneral Counsel's Office in the Treasury or did the General\nCounsel of Internal Røvenue have that same authority before\nthe position of Mr. Oliphant was created? In other words,\n16 this set-up practically the same as it was when there was\na General Counsel of Internal Revenue!\nMr. Magill: I put it this way: I think -- in fact, it\n18,80 far as the factual machinery. What machinery exists,\nin fact, I think it 1s just the same. Now as to whether\nthe legal situation has changed by viture of the creation\nof the General Counsel's\n.....\nHM,Jr: No; that does not particularly interest me,\nIt's just whether the machinery 18 the same today of handling\nthese cases as when there was B. General Counsel in Internal\nRevenue?\nRegraded\nUclassified\n317\n-3-\nMr. Magill: So far 88 I know, it 18. Ien't that true?\nThere has always been, practically since the Board was es-\ntablished -- this Technical Advisory Committee came into ex-\nistance about 1926 when the Board first started to function?\nMr. Helvering: Uh-huh.\nMr. Magill: And has been in continuous existence under\ndifferent names since that time and there have been periodi-\ncally -- my observation has been that group freezes up and 1a\nnot performing its functions properly and the Commissioner\nhas shaken it up and given it a new name and some personnel,\nbut essentially the machinery has been the same all the time.\nIsn't that true?\nMr. Oliphant: I think BO.\nHM,Jr: Mac, this thing, if I am right, 18 something we\nhave been talking about for two years.\nMr. McReynolds: Yes.\nHM,Jr: At different times I have brought it up and it\nhas always been what I have called a three-cornered affair,\nwith McReynolds sort of representing me in odd moments trying\nto keep this thing straight, and due to give and take it has\nbeen kept straight. But it seems to me, from what I have\nlistened and observed on this thing, there should be & out-\noff point of responsibility where one group's responsibility\nends and another's begins because at different times cases\nhave been brought to my attention -- we are only human -- that\neach group tx trying to make a record tries to ask the tax-\npayer for a little bit more and, therefore, you have the con-\nflict as between the two. Now, in approaching this thing,\nthe thing we want to do, I think we always ought to do, 18\nto approach it from the standpoint of what 18 fair to the\ntaxpayer. After all, we are hired in the long run to work\nfor him and give him fair treatment and prompt treatment and\nthis thing, which has grown up long before any of us here were\nhere, it seems to me there is always a point of overlapping.\nWhat I am trying to do 18 see if we can't decide where your\n(Helvering's) group carries to a point and then your responsi-\nbility ceases and Mr. Oliphant's begins, and B.B near as I can\nmake out now, no one can define where that cut-off point 18,\nand that's the whole question. At times, as I have listened\nto the discussion, it was even suggested that we do away with\nRegraded\n318\nyour (Helvering's) technical group entirely. That sugges-\ntion hae been made. I sort of absorbed this over the last\nINO years. Got a little here and 8 little there.\nI realize it 18 a very difficult thing and like all these\nthings, I think we want to sink our own personalities in the\nthing and decide what can we do which will make these cases\nsettle more promptly and without having this natural competi-\ntion which would grow up, whether the two groups are in the\nTreasury or whether there 1e a group here and in the Depart-\nment of Justice. It's the same competitive thing here. It's\nbetween ourselves and Justice. Now I would rather not go\nInto the question of what are your legal responsibilities,\nGuy, as Commissioner or what are yours (01iphant). I think\nif we get into that, it would be very difficult because I an\nnot B lawyer. But can't we -- I think Mac was supposed to\ndrew this thing up and now with Magill here, it 18 to help\nall of us; he ought to be neutral. He 18 neutral, Can't\nwe draw up a document which would be agreeable to everybody\ninvolved and it really geta down into Helvering and you\n(Oliphant)\nMr. Oliphant: Guy and I have never had a chance to die-\nouss it. We have worked together and got along well on\nproblems and we mostly work together.\nHM,Jr: What I have been asking for, for two years and\nnaven't got, WBB to have this on a piece of paper. I have\nasked to have it put on & piece of paper and the nearest we\never came was to have a luncheon and I asked -- I don't say\n1 asked you (Oliphant), but Mac or somebody.\nMr. Oliphant: I want to make it very clear you never\nasked me.\nHM,Jr: W&B it you, Mac? Were you at the luncheon?\nMr. McReynolds: I was instructed, a week ago, to put it\non paper.\nHM,Jr: You will admit both of you were at that luncheon\nwhere we discussed this thing a couple of years ago,\nMr. Helvering: I remember.\nHM,Jr: Oliphant says he and Guy have not had a chance to\ndiscuss this thing. I would really like to get the thing\nnettled. Could the four of you meet next week 86 often as\n319\n-5-\nnecessary to come to an agreement 80 that when I come back,\na week from Monday, the thing will be agreed to on paper?\nMr. Oliphant: I don't want to be here next week. I\nwant to be away quite a little bit, but I can get it started.\nHM,Jr: It 18 not much use if you are going to be away.\nMr. McReynolds: Moore 18 knee deep in this. We have got\na lot of light on it.\nHM,Jr: I don't want to push anybody if you are tired.\nMr. Oliphant: I am, and would like to have a little time.\nHM,Jr: Well, there is no use doing it if you are going\nto be away and let's Just drop it and start the day you get\nback.\nMr. Oliphant: I wish you would. I have been B. little\npressed and I feel it.\nHM,Jr: There is no occasion at this stage of recovery\nto press anybody. Well, let's start it the day you get back\nand what I would do, Ros, you hold meetings in your office\nevery afternoon until you get it settled. Iв that agreeable\nto your\nMr. Magill: Fine.\nMr. Oliphant and Mr. Helvering: Yes.\nMr. Magill: I would like to emphasize one thing you said\nthat 18 very good. For my part, while I am unfortunately a\nlawyer, I have the same feeling that you have: that it would\nbe better not to discuss the thing strictly on a legal basis.\nWe could spend a great deal of time discussing what the legal\nrights and privileges of the two parties are, but I think\nwhen you get downto it you really haven't gotten anywhere\nbecause it is essentially B. problem of administration.\nHM,Jr: Unfortunately all four of you are lawyers, so\nwhen you get it down 80 I can understand it -- I have heard\nenough about it to know that no one 18 going to approach it\nfrom the spirit that they want to hedge in on Mr. Helvering\nor Mr. Oliphant. That's the last thing. So you don't have\nto look up what are your legal responsibilities.\nRegraded Uclassified\n320\n-6-\nMr. McReynolds: I think you can ignore it entirely.\nMr. Oliphant: You can to this extent; This out-off ought\nto correspond to administrative reality before that can be\ndone and still the whole thing put in such form that the\nvalidity of the action taken can never be questioned, and\nthat's my responsibility -- that the validity of it will never\nbe drawn into question. The two things are not in conflict.\nHM,Jr: We had lunch today with Mr. Parker and somebody\nelse, the two chief editorial writers of the Scripps-Howard,\njust to do a Job because they came out with an editorial\nagainst the President's budget message. It was one of the\nhardest things to keep him on the subject. What he wanted\nto talk about was Wallace.\nMr. Oliphant: May I finish?\nHM,Jr: If you please.\nMr. Oliphant: I want to be sure there 16 no misunderetand-\ning. I heartily agree that when it comes to drawing this\nline or making any other administrative settlement, the line\nought to be drawn or the line should be what corresponds to\nadministrative reality, administrative necessities. You have\nto bear in mind that the action taken be not inconsistent and\ngoes into such form that the resulting action 16 invalid,\nI want to give you this further light. We took up the\nmatter, 8.8 far as settlements were being handled, in our office\nand I had a table made on the baeis of the amounts involved.\nI found large numbers of cases involving only trifling amounts\nthat were just taking almost as long to get through the shop\n8.8 large and important cases, 80 on the basie of distribution\nwe cut off a big piece of these small cases and shortened the\nmethod by which we handled them, eliminating a lot of intermed-\niate initials, and you have seen those initials.\nHM,Jr: May I interrupt you? If we are not going to go\ninto this until next week, because you are going to rest and\nneed B. rest, let's let the whole thing drop and when you get\nback let's start having meetings, but I would like to get this\nthing settled. It has been hanging fire for two years and I\nwould like to get it settled. If Mr. Oliphant gets back a\nweek from Monday and Mr. Helvering isfeeling well, I would go\nto it andif you get to a certain point I would like to join\n321\n-7-\nthe conference, but I have said right along this 18 the\nport of thing I brought Magill along to assist me. Mac\ncarried it as far as he could with his other responsibil-\nities, but there are other things. And this is one that\nMagill is particularly down here to do for me and there\nare & lot of things which we have had to let go by the\nboards because we Just didn't have manpower enough to do\nit. And this 18 one of the things, and there are other\nthings like it.\nMr. Helvering: Could I indulge in Just a little his-\ntory on this thing and end up with one statement I would\nlike to make about it? When I first came into the Bureau\nof Internal Revenue, for the first two or three months\ncases came in from what was called the Advisory Committee.\nI found that a man handling the case would make BL report\nto the whole Committee. Then they had what I designated\n8,6 a \"town meeting\". The other 15 men on the Advisory\nCommittee would meet in there and listen to what this man\nsaid and then take a vote. Many, many cases came to me\nwith a vote of 9 to 6, or 8 to V or 5 to 10 -- things like\nthat, but on & great many cases there was unanimity of\nopinion. That looked to me like a very poor way of handling\nthat, 60 I appointed a Committee of Wright Mathewe, Mr. Parker\non the Hill, Mr. Joe Cullen, an outside man recommended to me\nby Roper as an outside man who worked under him when he was\nCommissioner. A6 a result, I took this unified power away\nfrom the Committee and delegated it to individual members.\nIn other words, I called these technical advisors and told\nthem they need not go to any other advisor on the case.\nWhat I wanted, with proper accountants and conferees and\nthemselves, to bring me a case ready for my signature and\nI wanted them to be ready to do it and I didn't want any\nalibis about it. If there was a question that could not\nbe decided, then take it up with the head of the staff and\nthe two of them come in and talk it over. We disposed of\nthe old advisory committee that put this responsibility on\nthe 15 men.\nMany, many cases come in which they recommend for defense;\nmany for settlement. The part I am trying to get at 16 when\nthis Settlement Committee, now in the various units of the\nTechnical Staff headed by one man whom we picked out as being\nparticularly efficient in that line, come in and recommend for\na defense or settlement, if the taxpayer or his representative -\nthere generally 18 & representative in those cases -- has any\n-8-\nidea that there 16 & future settlement policy or future\npolicy committee that he can go to, we never do get a\nsettlement as it should be made because they withhold\ncertain information. When we send a case to defense\nthey will waive certain things we have stood for before\nthe Technical Staff and sometimes bring in new evidence.\nThe thing I want to get clearly understood 18 I am abso-\nlutely opposed to a second settlement agency.\nHM,Jr: Now, you see, Guy, both you and Herman have\ntried to argue it now and you say we don't want to settle\nit this afternoon. You tell me you have improved your\nthing and I am not opposed or for anything. Do you get me?\nMr. Helvering: What I wanted to get at before we go\ninto conference 16 to take into consideration the broad\nquestion -- the taxpayer comes in and presents so much stuff\nand then if he has another Committee to present his material\nto\nHM,Jr: Who suggested any euch Committee?\nMr. Helvering: I am talking about if a case was recom-\nmended for defense.\nHM,Jr: Nobody has said anything about that this afternoon.\nListen, old man, Herman says he's tired. When Herman says\nhe's tired, he's tired. I am tired. I thought we could do\nit next week. Herman says politely and gently, Give me a\nweek to build up my strength. It's a fair request. I cheer-\nfully comply with that request. Both of you -- Herman wants\nto say within the last two months you nave improved.\nMr. Oliphant: Terms of reference are broad enough. I\ndon't want you to make it BO narrow that it does not include\nH4,Jr: What we are trying to do 18 npeed up the whole\nthing and it may be more than the mere question of drawing\nthis line.\nMr. Magill: Oh, absolutely!\nHM,Jr: Let's understand what Magill 1e down here for.\nMagill 16 down here to Bee that the machinery that has to do\nwith the taxpayer 16 re-examined, to see that everything about\nit is as efficient as possible. That 18 his broad part. You\n322\n-9-\nmen in here know that personally I have been able to give\nless time to the question of taxation than anything else.\nMy Job has been what the President said: to keep this na-\ntion solventand he has been kind enough to say that I have.\nThe thing is so big -- Internal Revenue is the biggest ad-\nministrative job in the Government. Guy has done & swell\njob, but I still feel that there is a great deal to be done\nand Magill's particular function 1s to help all of us.\nMr. Oliphant: That's right, and we have needed it and\nhe has done a grand job.\nHM,Jr: Each of you has done more than your own Job wait-\ning for Magill to come.\nMr. Oliphant: And doing his own job.\nHM,Jr: Now he's here and his field is the field of tax-\nation. I can't make it any broader than that, BO let's 80\nin and you fellows bring up anything you have in your mind\nwhich you think will improve this thing and when you are ready\nor 86 you decide any issue and you want to put it up to me,\nlet me know and I will set aside a couple of afternoons. Now\nare you all satisfied?\nMr. Oliphant: Perfectly! Sure!\nMr. Helvering: Maybe I overstated, but\nHM,Jr: No, no. I\nMr. Helvering: I feel BO strongly about protecting the\nrevenue, I may not be perhaps logical.\nMr. McReynolds: I want to say for Guy's benefit that\nthe thing Magill and I have been fussing around about for\nquite some time goes to the very question that you are put-\nting your finger on; that 16, reducing the number of places\nthat a fellow can go every time a tax determination is made\nbefore the case 16 finally disposed of. Now he can spend\nthree or four years in merely going from pillar to post,\nin definite process of delay, and when he finally gets up\nwithdraw their objection and agree. Surprising number of\n\"before the gun\" they either take judgment by default or\nlarge cases are just that. What we have been trying to do,\nMagill and I,and I am sure Oliphant appreciates it as much\n323\n-10-\nas we do, is to reduce the number of places there are for a\nfellow to go; improve the quality of the work. You know\nwhat Charley Russell andRos and I have been working on.\nFrom the very first time that a case comes up for consider-\nation and it is stated he owes more tax, have the maximum\nof assurance that you can stand on what you are putting up\nto him and then reduce the number of places he can go. There\nought not to be more than two before he has to go to the Board\nof Tax Appeals.\nMr. Magill: Of course, that was the only reason for your\n(Oliphant's) elimination of reviews.\nMr. McReynolds: I am merely trying to relieve Guy's mind.\nMr. Magill: What you say 18 perfectly correct. If there\n16 anything we want to do it is to fix the responsibility at\na givenetime for settling the case and at that time they can\nsettle and it's only one crowd.\nMr. McReynolds: Then there will be no place for him to go,\nexcept into Court.\nMr. Oliphant: I don't want you to have any feeling that\nthere has been any division of opinion between Guy and our-\nselves -- we are not far apart.\nHM,Jr: The only one I blame is myself and I simply say\nI have not had time to sit down and spend hours on this. I\nhave said it openly and that's why I asked Magill to come down\nhere.\nMr. Oliphant: His coming has taken a lot off of everybody.\nHM,Jr: I thank you.\no0o-o0o\n324\nLMS\nGRAY\nLondon\nDated April 29, 1937\nRec'd 3:40 P. m.\nSecretary of State,\nWashington.\n252, April 29, 8 p. M.\nFOR TREASURY FROM BUTTERWORTH.\nIn B luncheon conversation, Clay, economic adviser to\nthe Bank cf England, emphasized that the decline in the\nLondon stock exchange prices had reached panic proportions\nand that during this morning there virtually ceased to be\na market since the jobbers would not buy but were merely\nwilling to match sales and purchases - and there were very\nfew purchases. Clay definitely fears that if the present\nmovement is not quickly brought to a close a feeling of\nuncertainty will displace the previous feeling of confidence\nwhich in turn will lead to a general slowdown in ecpnomic\nactivity. In this connection he mentioned that after all\nthe present upward movement in the trade cycle had lasted\nwell over four years, that similar previous movements in\nthis country had been limited in duration between two to\nfour years, that no doubt the fact that the gold standard\nhad been abandoned and that an armament program had been\nundertaken\n325\nLMS 2-10, 252, April 29, 8 P. ma, from London.\nundertaken in the later stages of the recovery movement meant\nthat it could be prolonged longer but only if confidence was\nnot undermined. On the other hand almost all the economic\nevidences were favorable and if the reaction could be imme-\ndiately brought to a close the position would no doubt be a\nvery healthy one; prices would have been more than adjusted\nto the advent of dearer money and the speculators chestened.\nHowever while he personally \"never believed in attempting to\nraise commodity prices to the 1927 level in six months' time\"\nhe did hope that they would go higher than they were today,\notherwise the weight of the debt structure would be extra-\nordinarily heavy in the years to come.\nClay again reverted to the dangers of inducing a feeling\nof uncertainty in the future; the absence of such a feeling\nhad played a very important part in British recovery and he\nattributed much of Europe's difficulties to the fact that\nEuropean Governments kept alive among their own people a\nfeeling of impeding action.\nClay said that ironically enough Chamberlain was\nscheduled to be the guest of honor at the annual dinner of\nthe bar association this evening and he awaited his remarks\nwith interest. He felt sure that no one was more surprised\nthan Chamberlain by recent events and that in framing his\nnational\n326\nLMS 3-50. 252, April 29, 8 p. m., from London.\nnational contributions tax proposals the Chancellor had only\none firm intention, namely, to propitiate labor; \"the trouble\nwith conservatives was that they always think they can take\nthe wind out of the Socialist sails by adopting pseudo\nSocialistic measures which are in many cases administratively\nimpractical, whereas, the Socialists when they are in power\nare subconsciously aware of the impracticability of their\nown concepts and are sufficiently cautious so that they\nbehave like proper conservatives. Chamberlain besides con-\nceding the whole moral case of capitalism had forgotten that\nthe capitalist is like the bee in that you can take away\nfrom him almort all of his honey but you must at the same\ntime handle him carefully\".\nThe London stock exchange steadied and strengthened\nduring the afternoon as limits diminished. The position\nis still difficult because of the uncertainties which over-\nhang the market. After tomorrow a preliminary estimate of\nthe situation can be taken for the selling for the account\nending Hay 6th must be concluded by tomorrow. A dozen differ-\nent names are bandied about as being in difficulties and as\nfar as can be asdertained three or four are in difficulties\nand attempts are being made to help them. Another uncer-\ntainty is that there is a large block of shares enroute to\nJohannesburg for which it is not sure payment will be forth-\ncoming.\nThe\n327\nLMS 4-No. 252, April 29, 8 P. m., from London.\nThe gold market continues somewhat nervous and in\nIndia gold touched 137 shillings today presumably on news\nof the tabling of the Fish Gold Buying Bill.\nThe franc was strong on repatriation of funds acquired\nthrough yesterday's sales of English stocks and similarly\nthe dollar was offered on repatriation of British funds\nfrom New York.\nBINGHAM\nCSB\nV5523 1832\nTEXAST wis\n- - - - -\n328\nApril 29, 1937.\n3:56 p.m.\nH.M.Jr:\nHello\nDoughton: Yes.\nH.M.Jr:\nHow are you?\nD:\nAll right, Mr. Secretary, how are you?\nH.M.Jr:\nOh I'm taking nourishment three times a day.\nD:\nHow's that?\nH.M.Jr:\nI'm taking nourishment three times a day.\nD:\nWell that's necessary; take. it some time in the\nday anyhow or some time in the week.\nH.M.Jr:\nThey said you called me?\nD:\nYes, what I called - wanted to speak to you about -\ndid you read this morning's Washington Post pretty\ncarefully?\nH.M.Jr: No I don't think I read it at all. I - - I - I look\nat some other funny paper.\nD:\nYou're supposed to read on column 5 under the head of\n\"Boom Feared Behind New Fiscal Policy\" - account of\nSecretary Wallace's speech - a chapter which it claims\nwas never ah - published - on April 3d - University\nof Agriculture was not made clear till last night.\nI wish you'd read that and tell me what you think of it.\nH.M.Jr:\nWhat State was that delivered in?\nD:\nChapel Hill University of North Carolina.\nH.M.Jr:\nOh.\nD:\nYes, it goes on here, \"Boom Feared Behind New Fiscal\nPolicy\" by Mr. Wallace last night to combat the boom\ntrend, it was indicated, the Administration expects\nto extend governmental control of industry and\nregulate taxation and spending so as to avoid\nexcessive corporate and individual savings\".\nB.M.Jr: Yes, well now after I've read it what will I do then?\n02 1 1\n329\nD:\nHow's that?\nH.M.J.:\nAfter I've read it what will I do then?\nD:\nWell you'll tell me whether or not you approve it.\nWhether he's speaking for the Administration or for\nhimself. You're supposed to be close administrator\non fiscal policies for the President.\nH.M.Jr:\nWell I can tell you right now, without reading it,\nthat when it comes to fiscal policies and tax policies\nMr. Wallace is not talking for the Administration.\nD:\nWell I certainly felt that way. Our people over here -\na lot of them - some of them members from our own\ndelegation came to me about it very much upset and\nexcited\nS.M.Jr:\nYes.\nD:\n..... - temperature way high and I told them to just\nbe cool; I didn't think there was anything to it.\nR.K.Jr:\nWell -\nD:\nThat as far as the policy of the President was con-\ncerned if there was anybody - any Cabinet officer\nor any department spoke for the President about fiscal\nmatters it is the Secretary of the Treasury.\nH.M.Jrl\nWell that's what I think as long as I sit in this chair.\nD:\nYes.\nH.M.Jr:\nAnd I'm still sitting.\nD:\nNow things like that are very damaging; I wish you'd\nread it and then you can\nH.M.Jr:\nI wish, yes, but now may I make a request of you?\nD:\nYes.\n5,M.Jr.\nAs long as you feel that way tell somebody that at the\nWhite House, see?\n330\n- 3 -\nD:\nWell I'll certainly do that.\nR.M.Jr:\nBecause that will have more effect than telling me\nbecause my policy is here. My backyard is big\nenough and I stay in it, see?\nD:\nWell I'll tell you what we've got now and you'll\nrealize the same as I do. We've got plenty of\ntrouble for the President- for the present.\nH.M.Jr: Yes.\nD:\nWe've got plenty - plenty of load to carry now and\neveryone of these new monkey wrenches thrown in the\nmachinery complicates the - ah - difficulty that\n:\nmuch more.\nH.M.Jr:\nWell you remember a man by the name of Tugwell made\na speech, about balancing the budget, in Los Angeles?\nD:\nYes, I knew he did.\nH.M.Jr:\nYes - well\nD:\nYou read that and you and I'll talk it over and then\nlater we can talk to somebody higher up than you or\nme.\nH.M.Jr.: Good enough.\nYes.\nH.M.Jr:\nThank you very much.\nD:'\nYou're welcome. You'll find it on the first page of\nthe Post to-day under the head of \"Boom Feara Behind\nNew Deal Fiscal Policy\". All right.\nH.M.Jr:\nHoodbye.\nRegraded Uclassified\n331\nRB\nGRAY\nParis\nDated April 29, 1937\nRec'd 5:01 P. m.\nSecretary of State\nWashington.\n545, April 29, 4 P. m.\nFROM cochran.\nMinister of Finance bitterly complained before the\nChamber Finance Committee yesterday against the circula-\ntion of stories of imminent peril in the financial situa-\ntion and suggested that the campaign was the work of\npolitical enemies.\nThe following is a summary of the information regarding\nthe Treasury situation up to April 1 and previsions from\nthat date to December 31 provided by the Minister:\nJanuary 1 to April 1, 1937: Requirements of the\nTreasury for 1937 were estimated at the beginning of the\nyear at 36,127,000,000 (estimated deficit of ordinary\nbudget 4,600,000,000; special budget 17,715,000,000; advances\nto departments and communes 12,272,000,000). During the\nfirst quarter Treasury put out 10,117,000,000. Apparently\nthe Treasury would need to find 26,000,000,000 francs during\nthe remaining nine months.\nTreasury\n332\nRB\n-2-#545, April 29, 4 P. m. from\nParis (SECTION ONE)\nTreasury requirements April 1 to December 31, 1937:\nRequirements of state proper should not exceed\n12,300,000,000 francs it is claimed. In arriving at this\nfigure it is considered that the deficit of the ordinary\nbudget should not exceed 1,400,000,000 francs for the\nremaining nine months of 1937 and 7,900,000,000 is included\nas representing the balance required for the special budget\nand 2,500,000,000 for the postal administration, the pension\nfund, and for Poland.\nAdvances to the departments and communes for next\nnine months 7,830,000,000 francs. Therefore\nEND OF SECTION ONE.\nBULLITT\nSMS\nEMB\n333\nRB\nGRAY\nParis\nDated April 29, 1937\nRec'd 5:32 P. m.\nSecretary of State\nWashington.\n545, April 29, 4 p. m. (SECTION TWO).\nthe total of requirements up to the end of the year\naccording to the Minister's statement amount to\n20,130,000,000 francs. The difference between this amount\nand the 26,000,000,000 francs referred to above is ex-\nplained by the announced intention of the Government to\nmake economies to this extent,\nThe Minister held that actually these requirements\nwere partially covered by the Treasury account at the\nBank of France of 3,300,000,000, authority to borrow a\nfurther 2,500,000,000 under the recent national defense\nloan authorization 800,000,000 to be reimbursed by the\nCity of aris, and 2,200,000,000 still available in the\nadvance account at the Bank of France, a total of\n8,800,000,000.\nTurning to the question of the credit of the Govern-\nment, the Minister deplored the hesitation of the public\nto invest in Treasury bills. \"Thile he said it should\nnormally\n334\nRB\n-2-2545, April 29, 4 P. m. from\nParis (SECTION TWO)\nnormally be possible to maintain a constant issue of about\n12,000,000,000 francs, only 4,900,000 were in circulation.\nThe Government, he stated, particularly regretted this\nsituation as it leaned toward \"open market\" operations.\nThe Minister insisted that the Government would not\nbe called upon to issue a forced loan which he thought\nwould be doumed to failure under present circumstances.\nOnly the balance of the national defense loan would be\nissued. Subscriptions to the two issues made in March had\nbeen undertaken with enthusiasm. It was not true that\nthese issues had\nBULLITT\nSMS\nEMB\n335\nRB\nGRAY\nParis\nDated April 29, 1937\nRec'd 5:40 p. m.\nSecretary of State\nWashington,\n545, April 29, 4 P. m. (SECTION THREE).\nbeen covered by foreign subscriptions. 164,000,000 came\nfrom foreign subscribers 1,406,000,000 from the Bank of\nTrance, 5,807,000,000 from banks and Treasury agencies and\n624,000,000 from other offices of the Treasury.\nIn conclusion, the Minister referred to the tri-\npartite monetary arrangement to which he insisted the\nGovernment would remain faithful. Ile attributed the\nrecent weakness of the franc to technical circumstances\nsuch as to the unfavorable commercial balance (4,922,000\nfor the first quarter of 1937) re-constitution of stocks\nof raw material, et cetera. He insisted the exchange\nfund possessed necessary resources to combat speculation.\nAs, indicated above, durin; the remainder of the year\nthe Government seems to expect that the Treasury will be\ncalled upon to find only about 20,000,000,000 francs over\nand above budgetary revenue. However, nothing was said\nabout the repayment in October next of the British credit\nof\n336\nRB\n-2-#545, April 29, 4 p.m. from\nParis SECTION THREE\nof 40,000,000 pounds or requirements for the railways, not\nto mention the possible necessity to reimburse the so-called\nGermain-Martin loan four and one half percent 1934 of\nwhich 9,000,000,000 francs are outstanding. It also remains\nto be seen whether the deficit of the ordinary budget will\nbe absolved to the extent hoped for by the Government and\nwhether the 6,000,000,000 of economies in the special budget\nwill finally be realized.\nThere has so far been little press comment on the\nstatements of the Minister. The view is put forward that\nit is difficult to prove the figures presented and that\nin any case it is only normal that M. Auriol should (#)\nas bright a picture as possible of the situation. Opposition\npapers are skeptical regarding the estimates and statistics\npresented\nBULLITT\n(*) Apparent omission\nSMS\nEMB\n337\nLMS\nGRAY\nParis\nDated April 29, 1937\nRec'd 3:17 P. m.\nSecretary of State,\nWashington.\n545, April 29, 4 P. m. (SECTION FOUR)\nParis exchange market has been very nervous today with\nrates varrying widely. To evidence of intervention by\nFrench control. Paris impressed by fact that l'ew York\nstarted selling dollars when American market opened. French\nrentes were not helped by statement of Finance Minister\nbefore Chamber Committee yesterday and merket observers\nexpect Senate Committee to question him rather roughly today\non some of the figures which he gave yesterday. Bank of\nFrance statement as of April 23 showed no important change\nexcept a large increase in deposits which reduced coverage\nfrom 55.64 to 55.19. Fre ch share market was very bad with\ncurb issues losing between 15 and 20%. Paris brokerage con-\ncern headed by American Albert Cudebec must be liquidated.\nToday's erratic exchange trading and stock market break\nare attributed principally to American factors. European\npress carries report of \"die's statement to Chamber of\nCommerce that financial experts do not consider as permanent\nthe $35 per ounce gold buying price in the United States and\nof\n338\nLMS 2-No. 545, April 29, 4 P. m., Sec. 4, from Paris,\nof resolution introduced by Hamilton Fish to prevent\nTreasury from paying more than $25 per ounce for foreign\ngold. On top of this President Roosevelt's further attack\nupon speculation is said to have encouraged European 11-\nquidation of American shares.\n(END MESSAGE)\nBULLITT\nKLP:083\nRECEIVED\nvegi CE RSA\nYRUZA3RT\nall to -\n- - ut --- -\n339\nThursday afternoon, April 29\nI called up Hull and asked him whether there was\nanything going on in England that affected the United\nStates Treasury and he said, Absolutely not. He said\nthat he had not heard anything for weeks.\nRegraded Uclassified\n340\nApril 30, 1937.\n9:07 a.m.\nH.M.Jr:\nHello.\nOperator: Mr. Aldrich.\nH.M.Jr:\nThank you.\n0:\nGo ahead.\nH.M.Jr:\nHello\nA:\nOh good morning Mr. Morgenthau.\nH.M.Jr:\nHow are you?\nA;\nI'm very well, thanks.\nH.M.Jr:\nMr. Aldrich I'm calling you because I think I had a\nrather unfortunate interview with Dr. Anderson\nyesterday - ah -\nA:\nVery unfortunate what?\nH.M.Jr:\nInterview.\nA:\nOh yes.\nH.M.Jr:\nAnd he - ah - I don't know not many people do it but\nhe seemed to have the faculty to just about rub me the\nwrong way more so than any person I've seen in a long\ntime.\nA:\n(Laughs)\nH.M.Jr:\nAnd I'm afraid in the interview I lost my temper.\nA:\nNo, (laughs) I hadn't heard anything about it.\nH.M.Jr:\nWell, amongst other things, I mean, for your own\ninformation, I had Mr. Haas here - he twice said,\n\"I'm taking Mr. Aldrich to Europe with me\" and which,\nknowing you, sort of amused me.\nA:\n(Laughs)\nH.M.Jr:\nAnd - but he did say that twice.\n- 2 -\n341\nAh - he must be - ah - losing his mind I should think.\nH.M.Jr:\nWell at - he was going at - he sat here for 15 minutes\nand told me what he was going to tell the - ah - heads\nof the various finances - financial people in the\ncountry what he was going to tell them and then\nA:\nWhat he was going to tell them?\nH.M.Jr:\nYes. Then when he got through he said, \"Now I suppose\nthat's all right\". So I said, \"Well Mr. Anderson you\ntold me what you're going to tell them. You haven't\ngiven me a chance to say what I think and, of course,\nyou can't speak for me\".\nA:\nWell I had no idea he got to see you.\nH.M.Jr:\nWell he did and he was going - I'm - I'm quoting word\nfor word - he was going abroad and he was taking you\nwith him.\nA:\n(Laughs)\nH.M.Jr:\nAnd then he sat here for 15 minutes and, of course,\ntold me - going back - everything - contrary to what\nthe Administration believed in and I got so excited\nto think that he might go abroad and possible be\ninterpreting what the United States Treasury thought\nwhen we thought just 100% opposite. Now the point\nA:\nWell I'm glad you called me up.\nH.M.Jr:\nNow the point that I wanted to make - if you're going\nabroad and if there's anything that you want to know\nand if I can be of any assistance to you personally\nwhy don't hesitate to call on me.\nA:\nWell, of course, that's\nH.M.Jr:\nBut frankly\nA:\nI can't understand how - how he could have said anything\nsuch thing.\nH.M.Jr:\nBut frankly\nA:\nIf he has any such ideas in his mind he must be losing\nhis mind.\n342\n- 3 -\nH.M.Jr: Now when he left I said, \"Now my relations with\nMr. Stern and the Foreign Exchange of the Chase -\nwe've had - transactions going into millions of\ndollars and the Chase has represented the Treasury\nand during the past three years I've never had any\ncriticism. In fact the Chase has always given us\ngood execution but the whole thing I mean - well I\nfrankly lost my temper.\nA:\nWell what in the world was he talking about? What\nwas - what did he have in mind?\nH.M.Jr:\nWell he - he went over the whole monetary thing and\njust sat here for 15 minutes and, as the boys say,\n\"he told me\".\nYes.\nH.M.Jr:\nAnd then, after he finished up, he said - never giving\nme a chance to get in a word - \"Now I'm going abroad\nand tell them this is the American policy\". Well you\nA:\nHe must have - he must have lost his mind if he talked\nthat way.\nH.M.Jr:\nWell I asked - I had somebody present and we talked\nit over after he left and it - it was - it was a\nperformance and I - I - I felt it was sufficiently\nimportant that I should call you and also tell you\nif you are going and there is anything you want to\nknow - ah - we'll be up on my farm all next week and\nif it's of enough importance to you why I'm available.\nA:\nWell what I can't understand is why there should have\nbeen any conversation about the thing at all.\nH.M.Jr:\nWell I don't - he called up from the bank and said\nhe wanted to see - ah - first he asked for me\npersonally\nA:\nWell you know as a matter of actual fact - - let me tell\nyou something.\nH.M.Jr: Yes.\nA:\nAh - he was going over later on in the year\nH.M.Jr: Yes.\n343\n- 4 -\nA:\nhimself. *****and I didn't like the idea of his going by\nH.M.Jr:\nYes.\nA:\nI'm going over - ah - sailing on the 5th and going\nto the Coronation; take my two children there\nH.M.Jr:\nYes,\nA:\nand I told him that I wanted him to come with me\nat the time I left.\nH.M.Jr:\nYes. Well I think I'm a truthful person and, as I\nsay, I didn't want to see him alone and he distinctly\ntwice said he was taking you with him to Europe.\nA:\nWell it's - ah - it's simply unbelievable - I mean\nH.M.Jr:\nYes.\nA:\nwhat - what was the theory of it? Ah\nH.M.Jr:\nWell they're going over there to see these - he's\ngoing over there to see these various important\npeople - the head of the various\nA:\nI couldn't hear that.\nH.M.Jr:\nHe's going over to see the various heads of the\nfinancial - ah - the head financial people of the\ndifferent governments.\nA:\nTo tell them what they ought to do?\nH.M.Jr:\nWell that's the impression that I got.\nA:\nWhy that's simply fantastic.\nH.M.Jr:\nAnd then - what - that he sketched me his monetary\ntheories which, of course, are just entirely different\nthan what we 're trying to do here and, after making\nthis statement for 15 minutes, he said, \"Now I suppose\nit's all right for me to tell these people abroad this\".\nAnd I said, \"Of course, it isn't\".\nA:\n(Laughs)\n- 5 -\n344\nA:\nWhat's he trying to do - commit you to what he had\nin mind?\nH.M.Jr:\nYes, that's the point.\nA:\nWell (Laughs) I don't think you need worry about it at all.\nH.M.Jr:\nWell I - he - he\nA:\nTo tell you the truth. I think it's rather laughable.\nH.M.Jr:\nWell it was except I'm pretty tired and I've been thru\nsix very difficult weeks as you know.\nA:\nI know.\nH.M.Jr:\nAnd we're just beginning to see daylight and then to\nhave Anderson drop in on top of me\nA:\n(Laughs)\nH.M.Jr:\nI'm afraid I lost my sense of humor.\nA:\n(Hearty laughter) Well (laughs) I think you ought\nto keep your sense of humor.\nH.M.Jr:\nWell that's why I'm going up on the farm for a week.\nA:\nWell you don't have to give it another thought.\nH.M.Jr:\nBut I - well I wanted to tell you because - ah - ah -\nah\nA:\nWell I'm glad you did. I'm glad to hear the - ah -\nthe - ah - the basis on which he thinks he's going.\n(Laughs)\nH.M.Jr:\nWell now also he seeing Mr. Hull or did see him\nbecause he called up and said he wanted to see\nMr. Hull and myself before he went to Europe.\nA:\nWell now that I don't know anything about at all.\nH.M.Jr:\nWell I don't know what happened over\nA:\nI don't know what he said to Hull.\n345\n- 6 -\nH.M.Jr:\nWell I don't know either and it's none of my concern\nbut I wanted to tell you personally what happened.\nA:\nWell obviously it's silly.\nH.M.Jr:\nYes, well I - I feel better now.\nA:\nAh - well I don't feel so well. (Laughs)\nH.M.Jr:\nWell it's - it's all right and\nA:\nWell (laughs) I mean I don't like that - ah - that\nattitude of\nH.M.Jr:\nWell frankly\nA:\nAs far as I'm concerned it's rather - rather - (laughs)\nH.M.Jr:\nWell he - you\nA:\nrather disconcerting.\nE.M.Jr:\nI've always told people when the banking legislation\nwas on\nA:\nWhat?\nH.M.Jr:\nI've always cited you that when you wanted\nsomething you came down here and you told us what\nyou wanted; what your position was and there never\nwas any question and you never sent anybody to\nrepresent you.\nA:\nWell that's right.\nH.M.Jr:\nAnd that's always been so since I've been here.\nA:\nThat\nH.M.Jr:\nAnd when you wanted something you came personally.\nA:\nWell naturally - I - - I'd do just as you would on that.\nH.M.Jr:\nYes - and but this-this is the first time and I took\nit perfectly for granted when Anderson came - he came\nhere for you.\n346\n- 7 -\nA:\nWell can't you see the - you can see the implication\nof obvious. the whole thing, can't you? I mean it's perfectly\nE.M.Jr: No I - I - I - I - - I don't get it.\nA:\nWell it - it comes from a state of mind which is\nindicative of the trot that you just quoted to me.\nH.M.Jr: Yes, well the man seemed highly nervous. His hands\ntremble all the time he talks\nA:\nYes.\nH.M.Jr:\nand he seems to be a highly nervous piece\nof machinery.\nA:\nEmotional about it.\nH.M.Jr:\nAh - yes and - ah - ah - - well he isn't a very good\nrepresentative, Mr. Aldrich, that's all I want to\ntell you.\nA:\n(Laughs) Well (laughs) he doesn't - he certainly\ndoesn't represent me in that (laughs) connection.\nR.M.Jr:\nWell I'm awfully glad of it and, as I say, if - if\nhe came down here and talked the way he talked to\nme to other heads of agencies here, frankly, he'll\ndo you a lot of harm.\nA:\nWho else is he seeing?\nH.M.Jr:\nAll I know is Mr. Hull.\nA:\nWell now that's a very peculiar thing. I don't\nunderstand the thing myself to tell you the truth.\nH.M.Jr:\nWell -\nA:\nAh - however, I'll - I'll have a talk with him. I\ndon't think you need worry about it at all.\nH.M.Jr:\nOh I'm not worrying. All I wanted was that - ah - - ah -\nthe few times I've seen you our relations\n347\n- 8 -\nA:\nI think it's just a question of a - of an enlarged\ncranium myself.\nH.M.Jr: I think SO.\nA:\nBut that's always easy controlled when you\nH.M.Jr: Well I - I - I felt it was awfully nice of him to\nbe willing to let you go along with him.\nA:\n(Laughs) Well I'm glad to say that doesn't impress\nme in any way except humor. (Laughs)\nH.M.Jr: Well I can imagine that. Well I'm glad I called you\nand - and - and,as far as I'm concerned, it's a\nclosed incident.\nA:\nI'll be very much interested to hear what he has to\nsay (Laughs).\nH.M.Jr:\nWell you'll hear plenty\nA:\nWhat?\nH.M.Jr:\nbecause I got good and mad.\nA:\nWell that's all right. (Laughs) I probably did\nyou good. (Laughs).\nH.M.Jr: All right.\nA:\nBut I don't think you need take him very serious.\nH.M.Jr:\nI don't.\nA:\nAll right.\nH.M.Jr: Thank you.\nA:\nGoodbye.\n348\nApril 30, 1937.\n9:27 a.m.\nH.M.Jr:\nHello\nOperator:\nChairman Eccles. Go ahead.\nH.M.Jr:\nHello Marriner.\nEccles:\nYes.\nH.M.Jr:\nI've got a - I'm smiling this morning because your\nannouncement comes out that you bought 39 odd million\ndollars - or whatever it was - of bonds\nE:\nYes.\nH.M.Jr:\nand the government bond market goes up. A\nweek ago to-day the announcement came out that you\ndidn't buy anything and the government bond market\nwent down so some of our fellows in New York don't\nknow it all.\nE:\nWell - ah - you and I agree on that.\nH.M.Jr:\nYes, they don't know it all.\nE:\n(Laughs) There's a lot they don't know.\nH.M.Jr:\nThey've consistently told us that if you announced\nthat you'd bought a lot of bonds it was - it was\nbearish, you know?\nE:\nYes, they said if you buy bonds it indicates that\nthe money - the market is artificial.\nH.M.Jr:\nYes, well\nE:\nOf course, as a matter of fact really what it does -\nif you don't buy it gives the propagandist - the\nfellow that wants 3 or 4% interest a chance to - ah -\nput out his propaganda and force the market down - ah -\nwhereas if somebody else is interfering - such as the\nFederal Reserve System buying bonds it upsets his\napple cart.\nH.M.Jr:\nWell - now you take the 2-7/8's. They opened up\n6/32d's - very nice.\nRegraded Uclassified\n349\n- 2 -\nE:\nWell they had - ah - the whole market, of course,\nyesterday was in fine shape and I - - I feel perfectly -\nI feel perfectly certain that - ah - the trouble is\nover with.\nH.M.Jr:\nWell it's been - it's been since the 10th of March\nthat we've been sweating here.\nE:\nI think that you'll find that they realize now -\nah - I noticed most of the comment yesterday that -\nan - they're going to have - ah - there's going to\nbe plenty of money and they still haven't got any\nplaces to put it.\nH.M.Jr:\nYes. I think the worst is over.\nE:\nAnd I think that you'll find that after the first\nof May that your bill market is going to go down.\nI think the bill rates will go down. I don't think\nthey'll even stay . - they're not going to stay where\nthey've been.\nH.M.Jr:\nYes.\nE:\nAnd I think your note your note market will - your\none to five year rates are going to go down and - ah -\nthat - that your bonds are going to go up. Now I'm -\nI'm - I think you'll see that - that this whole thing\nhas indicated that there was no justification for this\nother. It was just merely one of those sieges that -\nah - that - an developed and that our market operation -\nthe thing that pleases me about it is that I - the -\nthe thing that I wanted to do all the time - ah - I\nhad a devil of a time getting it over; had almost\nentire opposition to commence with and then finally\ngot it over after a two day session, has really worked\nout like I tried to persuade the group that it would\nwork out,\nH.M.Jr:\nWell you really started that ah - let's see it was\nlast Saturday or was it a week ago Saturday - no\nlast Saturday only.\nE:\nWhat?\nH.M.Jr:\nThat they really started buying.\n350\n- 3 -\nE:\nWell no we started - ah\nH.M.Jr:\nBut I mean after all the things they went through -\nit was really last Saturday.\nE:\nLast Saturday they - they bought pretty heavily\nH.M.Jr:\nYes.\nE:\nand they bought again on Monday and a little\nless on Tuesday. There was two days of pretty\nheavy buying.\nH.M.Jr:\nYes.\nE:\nNow up to that time we had bought about sixty million.\nH.M.Jr:\nYes.\nE:\nIn the three weeks before. the two - the first two\nweeks\nH.M.Jr:\nYes.\nE:\nwe bought about we bought about sixty - I think\nwe had about sixty million - no but\nH.M.Jr:\nIf you remember - ah - a week ago to-day we had an\nawfully bad day.\nE:\nYes.\nH.M.Jr:\nThen Saturday you got sore and you made them step in.\nE:\nThat's right.\nH.M.Jr:\nWell ever since then it's gone better.\nE:\nWell the week - that's right because : your - your\nweek before was the week that they didn't want to\nshow any - they didn't show any - ah\nH.M.Jr:\nThat's right. You crossed the bridge, in my opinion,\nlast Saturday.\nE:\nWell it's - it's working out anyway and I feel a lot\nbetter about it.\n351\n- 4 -\nH.M.Jr:\nSo do I.\nE:\nAnd I think the - the - I think bills - it would\nbe my judgment that bills from now on as well\nas notes - I don't think you're going to have a bit\nof trouble on your June financing and a note issue\nunder very favorable terms and I think the bill\nmarket - I - is - ah - is - ah - going to be easier\nif anything.\nH.M.Jr:\nWell Wayne will be here and I can be gotten on the\n'phone at the farm but I'm not going to call up\nevery day, see?\nE:\nAh-ha.\nH.M.Jr:\n\"ut if you want me I can be gotten very easily.\nMake a note - it's Beacon, New York, 211.\nE:\nBeacon, New York\nH.M.Jr:\nYes.\nE:\n......211.\nH.M.Jr:\nYes.\nE:\nWell I hope I don't have to bother you and I hope\nyou have a good rest.\nH.M.Jr:\nAll right, Marriner, and I think you've-done a\nswell job.\nE:\nWell (laughs) thank you.\nH.M.Jr:\nI think you've done a swe\nE:\nThank - thank you for the help.\nH.M.Jr:\nWell I think you've done a swell job and, as I say,\nI - I think you licked them last Saturday.\nE:\nWell now I think we licked them that day\nH.M.Jr:\nThat Friday night at my house.\nE:\nThat Friday night - ah\n352\n- 5 -\nH.M.Jr:\nYes, but the trouble was they didn't stay licked.\nE:\nNo (laughs) that is, they didn't know they were\nlicked.\nH.M.Jr:\nNo, we licked them Friday night at our house. You -\nyou put it - - they didn't know they were licked.\nE:\nThat's right.\nH.M.Jr:\nWell it's all right between us - we can hold up our\nhead.\nE:\nYes (laughs) all right, then.\nH.M.Jr:\nAtta boy.\nE:\nThank you.\nH.M.Jr:\nGoodbye.\nE:\nGoodbye.\n353\nGROUP MEETING\nApril 30, 1937\n9:30 A.M.\nPresent:\nMrs Klotz\nMr. Oliphent\nMr. Taylor\nMr. Gaston\nMr. Gibbons\nMiss Roche\nMr. Haas\nMr. Lochhead\nMr. McReynolds\nH.M.Jr:\n(Following a phone conversation with Mr. Eccles)\nYou see, the interesting thing was that Friday\na week ago it came out in the papers that the\nFederal Reserve hadn't bought anything, George\nHarrison saying, \"That's the way to show - if we\ndon't buy anything, that's a sign of strength, If and\nthen we had the worst day we had. Then Eccles got\nsore and the boys stepped in and just bought their\nheads off, didn't they? Today we come out and show\nthis heavy buying and the bond market - the 2-7/8's\nopened up six 32d's.\nOliphant:\nThis morning?\nH.M.Jr:\nThis morning. Get this thing. Last week, Friday,\nthey come out that they didn't buy anything, and\nthe bond market just goes to hell. Then Eccles\ncompletely gets mad and he just tells them what to\ndo; Saturday they go in and buy their heads off.\nToday they show that they bought 39 million and the\nbond market opens up six 32d's.\nGaston:\nThat shows something about the natural forces that\nare at work in the market, doesn't it?\nH.M.Jr:\nBut - no, but it shows this. As Marriner said on\nthe phone, we licked them Friday night & month ago\nat my house, but they didn't say - as he put it,\nthey didn't know they were licked.\nGaston:\nWhat I mean about the natural forces, though, is that\napparently B limited group of men - if we think they\ncan force it down, they can do it.\nH.M.Jr:\nI thought you meant unnatural forces.\nGaston:\nSpeaking about their description of letting the market\n354\n- 2 -\nfind a natural level.\nH.M.Jr:\nWhile I think about it, I'd like to have the 9:30\nhave lunch with me today; I'm leaving. Don't break\nany important engagements, but anybody who hasn't\ngot an engagement, why, at one o'clock I'd be glad\nto have you.\nGaston:\nYou weren't going over to Ned Bruce's art party?\nH.M.Jr:\nNo.\nGaston:\nI had planned to go over to it.\nH.M.Jr:\nWell, that's all right. Anybody - - no, I'm not going\nto it, but anybody who has an engagement - I mean this\nis purely informal - if you will just let Mrs. Klotz\nknow who will or won't come. You (0liphant) going\nin that group?\nOliphant:\nI'd thought about it.\nH.M.Jr:\nThat's all right, that's all right. Both Mrs.\nMorgenthau and I were all set yesterday to go and\nthere was some mix-up.\nOliphant:\nYou mean to go yesterday?\nH.M.Jr:\nWe were ready to go yesterday and accepted for\nyesterday.\nOliphant:\nOh. That's too bad.\nH.M.Jr:\nSee, we accepted for yesterday.\nOliphant:\nHope you get to see those 600 pictures.\nH.M.Jr:\nPut it this way. You two going to Ned Bruce's?\nGaston:\nI'd planned, yes.\nH.M.Jr:\nWell, go ahead, it's all right. I mean if I felt\nWhat you (McR) glumping your head about?\nMcR:\nI got a neuralgia headache this morning.\n355\n- 3 -\nH.M.Jr:\nBetter go to Dr. Swope. That's where I went yesterday.\nWhen Steve Gibbons - how you - God, how you like to\nfire! I never saw anything like it.\nGibbons:\nWhat's the matter?\nH.M.Jr:\nFire two people, have them prosecuted, sent to Jail,\nand - Miss Roche, being 8 National Democratic\nCommitteeman means nothing to Steve Gibbons - I\nmean just as leave see them in jail as not. I never\nsaw a man like him.\nMrs Klotz: He doesn't know whether you're kidding him or not.\nH.M.Jr:\nI suppose that's the way you go in training to be the\nhead of Tammany Hall in New York.\n(Hearty laughter)\nWell, the day may come when Tammany Hall may want\nthat kind of fellow.\nGibbons:\nYou know, they spoke to me about it and I said I'd\ndo it if they paid a salary. They thought that was\nstupid. I said, \"The head of Tammany Hall should\nbe paid a salary, give all his time to it.\"\nH.M.Jp:\nGeorge, this kind of thing, \"Business and Price\nSituation\" - in the future, send a copy directly\nto Mr. Taylor, will you? That kind of thing.\nHaas:\nFine.\nH.M.Jr:\nAnd this chart here - first quarter, showing produc-\ntion and profits; just as soon as youget another\nrevised figure, will you let me have it?\nHeas:\nYes.\nH.M.Jr:\nI don't want anything up on the farm, but if you\nget that chart - I mean if they come in any more\nthan that, see?\nHaas:\nO.K.\nH.M.Jr:\nThat kind of stuff Taylor would like to have.\n356\n- 4 -\nHaas:\nFine.\nH.M.Jr:\nBecause I - sometimes I read them in one week, but\nI think it's very good. My only comment is this. I\nthink he's a little bearish on America and not bearish\nenough on Europe. I don't think he takes Europe\nseriously enough and I think he takes our condition\na little too seriously. But out of it all I still -\nI'm 80 percent in agreement with him,\nGibbons:\nWhat did those standard statistics - records show\nyesterday?\nH.M.Jr:\nWell, they show that of the profits - these fellows\nevaluate them and take a slide rule to them and take\nthe seasonal out and the drouth and the flood and rain\nand storm - that they are not quite up to expectations.\nBut I mean by the time they get through But\nyou\ncompare them with the first quarter of 136 and they\nstill go\nHaas:\n....oh, way up.\nH.M.Jr:\nBut see, they take out the factors of the flood and the\nrain. I mean they do an awful lot of what they call\nevaluating.\nGibbons:\nYes.\nH.M.Jr:\nIt's all right.\nNow, you (McR) have got some stuff for me to sign?\nMcR:\nNo, I don't.\nH.M.Jr:\nYes, you have; you told me last night you had a\nSecret Service order for me to sign.\nMcR:\nWell - ah - Frank Wilson is back this morning,\npresumably, and Joe and Frank have that order.\nH.M.Jr:\nWell, don't fall over backwards - I'll give you\nan appointment which I won't cancel: 11 o'clock.\nMcR:\nSwell.\n357\n- 5 -\nH.M.Jr:\nO.K.?\nMcR:\nYes, sir.\nH.M.Jr:\nI'd forgotten I gave Puleston an order at ten - a\nmeeting at ten. Did you (0liphant) - or did you\nforget that I was going to see you at ten?\nOliphant:\nNo, I hadn't forgotten it. What time will you see\nme? It won't take me five minutes.\nH.M.Jr:\nWell, we'll be through here - supposing I tell\nClarence to come right before ten. (On phone)\nTell Clarence Opper to be here at five minutes of\nten, please.\nYou're all right, aren't you (Lochhead)?\nLochhead:\n(Nods yes)\nBank of England said quite a lot of dishoarded gold\ncame out.\nH.M.Jr:\nWhat's that?\nLochhead:\nBank of England said quite a lot of dishoarded gold\ncame out on the market there.\nH.M.Jr:\nWhy is it, Archie, that you always pick the govern-\nment of countries - I mean the ones who eat the most?\nLochhead:\nWell, just a natural inclination, that's all.\nTaylor:\nHe didn't spare us either.\nH.M.Jr:\nWhat?\nLochhead:\nAs I say, something is expected of us, so I did my\nbest.\nH.M.Jr:\nAll right, If you see Archie going into a ten course\nChinese dinner - believe me...\nLochhead:\nWell, at least, I'm right up the next morning.\nH.M.J.:\nThat's more than I can say. I dropped on the wayside.\nDo you know that they've got four new attachés at the\nChinese Embassy just sitting there twiddling their\n358\n- 6 -\nthumbs and who will be assigned to the new man,\nand they just don't give them anything to do - did\nyou know that? - including a Counsellor of the\nEmbassy. There's four of them just waiting for\nthis new boy to come.\nHaas:\nI talked to Professor Merriam. You asked me to\ncall him.\nH.M.Jr:\nYes\nHaas:\nHe said he was very busy this week until the end\nof the week, and he was going to come over to see\nme. Do you want to see him b efore you go about that?\nH.M.Jr:\nI don't know. If you get something and can rough\nit out, what you'd like to do, on one sheet\nHaas:\nAll right.\nH.M.Jr:\nNow, what he wants, what he'd like us to do - he\ntold me sort of walking out - is to give the Treasury\nviewpoint on the whole thing, whole economic picture,\nwhere it hits the Treasury - spending, and all that\nbusiness, and everything else.\nNow, Oliphant is very much interested, of course, in\ntariffs and where the tariffs hit monopolies. I\ndon't know whether that would go into that kind of\na memorandum or not. I don't know. Maybe\nHaas:\nWell, maybe I better talk to him and then after\nthat\nH.M.Jr:\nI think you better talk to him,\nHaas:\nWhat bothered me about it - I wondered when you\nexpected something on it. If there's no particular\nhurry.....\nH.M.Jr:\nWell, two or three weeks.\nHaas:\nOh - and it's flexible; I mean you can set your date\nlater.\nH.M.Jr:\nMy guess is that if we're going to do this thing -\nI take this angle, the angle of spending: where\nRegraded Iclassified\n359\n- 7 -\nspending will do us good and where it's doing us\nno good, And how about approaching it from that\nangle,\nHaas:\n(Nods yes)\nH.M.Jr:\nwhich is more or less the thing that we did -\n\"Selective Spending\" - but just bringing it up-to-date;\nthat is, the President had that.\nTake, for example: why did the housing thing collapse\nthis spring, what do we need yet in the way of\nrecovery? Railroads? Incidentally, I read that\nwhole memorandum. We need - I mean we need a big\nagricultural crop to bring up the railroads, the\nfreight; we need the housing to bring up the freight.\nWhat can we yet get out of this lemon that hasn't\nbeen squeezed out of it, and where should we stop\nsqueezing?\nHeas:\nO.K., I'll go over the whole thing.\nH.M.Jr:\nHow's that for an approach?\nHaas:\nI think that's all right.\nH.M.Jr:\nWhat?\nHaas:\nI think that's all right.\nH.M.Jr:\nWhat do you think, Wayne?\nTaylor:\n(Nods approval)\nHaas:\nI thought yet you might want. something more specific.\nH.M.Jr:\nAll right, but I'm just throwing out something; you\ncan play with it. My mind is thoroughly squeezed out.\nNow, Miss Roche\nHaas:\nMy only concern was I thought you might want it by\nthe time you got back.\nH.M.Jr:\nNo, I don't want it by the time I get back - except\nsome smiles.\nMiss Roche?\nRegraded\n360\n- 8 -\nRoche:\nI have a letter you may want to sign, I think, before\nyou go. It's to the Pressmen's. I think it's been\ninitialed.\nH.M.Jr:\nPressmen?\nRoche:\nPressmen's Union, on that change of the procedure in\nbuying. The report's attached.\nH.M.Jr:\nThere are only six initials. There are usually twelve.\nMcR:\nShe turned -them down very nicely.\nRoche:\nThank you, Mr. McReynolds. Witness, I do sometimes\nturn them down.\nH.M.Jr:\nO.K. (signs letter)\nNow, you or Mac ready to report on space for that....\nMcR:\nWell, they're willing to give us a lot more space\ndown there, but 1t would cost a lot to put it in\nshape. And the way Miss Roche felt was that we'd\nbetter do only temporary improvement there if we\ncould get authority to complete the Public Health\nAdministration Building down here. I'm talking to\nPeoples this morning about the possibility of getting\nthe completion of that building authorized in this\nprogram, and also having Procurement engineers make\nan estimate of what it would cost to improve that\nsituation down there, to make it livable during the\ntime that the other That is, if we can get the\ncombination, the authorization for the completion of\nthe Administration Building, where that stuff could\nbe moved, plus temporary improvement in your querters\ndown there so that it would do while that's going on,\nI thought that would probably be the best thing to\ndo. Doesn't seem to be anything else available.\nH.M.Jr:\nWell, there's nothing that I can put my teeth into\nin what you're talking about.\nMcR:\nI don't think there is anything you can do, except\nwhen we get in the fight over whether he's going to\nspend any money to complete that building, you can\nhelp.\ndoche:\nThat would be very helpful.\n361\n- 9 -\nH.M.Jr:\nWell, I'm willing to take some Congressmen down\nthere whenever the committee is. I'm willing to\ntake them. I'd like to take them right after\nlunch; they'd lose it.\nMcR:\nI think that's where I got that neuralgia headache.\nI was down there yesterday.\nH.M.Jr:\nWell, Mac, will you give it your personal interest?\nMcR:\nYes\nH.M.Jr:\nThe thing that impressed me the most - the first\nimpression that a new employee gets of the United\nStates Government is that place - that's what that\ndoctor says - and believe me, that's some impression.\nRoche:\nWell, you ought to see it; it's really crowded.\nHundred or two hundred people come in there on a\nhot day - well....\nH.M.Jr:\nTry to have something when I come back, will you?\nMcR:\nYes, sir.\nH.M.Jr:\nOkey-doke.\nAnything else, Miss Roche?\nRoche:\nI think that's all, sir. Thank you very much.\nGibbons:\nI talked to Mac yesterday about the practicability\nof my going over with Miss \"oche and talking to John\nLewis about these strikes and telling them our situa-\ntion, where we have liquor, and see if he controls it.\nH.M.Jr:\nAnd what did Miss Roche say?\nGibbons:\nI didn't talk to her. I say to have either she or\nI....\n11.M.Jr:\nNo, if you - do you mind my being very frank?\nGibbons:\nYes,\nH.M.Jr:\nWill you keep out of it?\nGibbons:\nThe only thing I thought was that I....\nRegraded\n362\n- 10 -\nH.M.Jr:\nNow listen, I gave this fellow (McR) the responsi-\nbility\nGibbons:\nWell, we talked it over afterward, and there is a\npossibility of this thing breaking out every day\nall over the country, see?\nH.M.Jr:\nWell now, just\nGibbons:\nI just thought that we might\nH.M.Jr:\nNo, no. You don't mind my being as blunt as that,\ndo you?\nGibbons:\non no.\nH.M.Jr:\nBut if you remember, they had that same idea on the\nCoast of Coast Guard doing something on the Pacific\nstrike.\nGibbons:\nUh-huh. All right, it was just a thought.\nH.M.Jr:\nOf course, if Miss \"oche thinks I'm wrong and wants\nto take you over there\nRoche:\nI don't know the situation there.\nH.M.Jr:\nNo, if you don't mind, let this fellow handle it.\nGibbons:\nShe knows Lewis and I know Lewis and I know McGrady,\nand\nH.M.Jr:\nIf you just - if you don't mind, old man, I'd keep\nout of it. I'm being impolite, but that's what you\nwant.\nGibbons:\nI just wanted to get your reaction.\nH.M.Jr:\nWell, you know my reaction; I gave it to you.\nGibbons:\nI wanted a perfectly frank reaction. I didn't want\nto do it unless it would be something that would be\nof some service.\nH.M.Jr:\nI wouldn't.\nGibbons:\nNo.\n363\n11 I I\nH.M.Jr:\nAnything else?\nGibbons:\nO.K., nothing else.\nH.M.Jr:\nO.K.\nGaston:\nI have a little release prepared. Peoples is going\nto send out notices to these employees whom he's\ngoing to release on the 15th - some 290 or something\nlike that. I have B little release prepared; I\nthought I'd give it out at about the time that he\nsends his notices out to the employees.\nMcR:\nThat will be in their Handbook about the first of May.\nGaston:\nTomorrow. And I thought I'd give it out tomorrow.\nJust a short release.\nH.M.Jr:\nYes. Incidentally, I want to compliment you, or\nwhoever handled it, on the way that story was handled\nabout those four women that were laid off. Whoever\nhandled that story - the way it read and everything\nelse - I was more than pleased the way it was handled.\nGaston:\nThe boys found out about that, from what source I\ndon't know, and we appealed to them to go a little\neasy.\nH.M.Jr:\nI thought it was beautifully handled, both from the\nstandpoint of the Treasury and the four women. It\ncould have been an awful mess.\nGaston:\nYes, yes.\nMcR:\nWe turned over everything to Gaston on that.\nH.M.Jr:\nIt was beautifully handled. Do you (Gaston) know\nthat one of those women is the wife of a Captain\nof Police here?\nGaston:\nYes, and one of the boys found that out. I had B\nlittle argument, very friendly, with 2 fellow on the\nTimes. He had found the name of the woman, and I\ntold him he was taking a lot of chances 1f he printed\nit, that I wouldn't confirm or deny it.\nH.M.Jr:\nJoan was trying to tell me at supper that the\nWashington Herald changed hands, and she couldn't\n364\n- 12 -\nquite get it straight. She read something about\nMrs. Patterson - I mean leased it or something. Did\nyou see it?\nGaston:\nI didn't know about that.\nMcR:\nYes, she leased it. She is in entire control of it\nnow.\nH.M.Jr:\nShe bought the contract, Joan said. She didn't have\nit quite straight - \"You know, I read it two weeks\nago, Dad, and I can't always remember those details.\"\nBut she had that much anyway.\nMcR:\nMrs. Patterson gave B party here at one of the movie\nplaces day before yesterday, at which there were\nseveral hundred women that she invited there, and\nshe announced to them that she was running the\npaper without any strings now, and asked their sug-\ngestions as to what kind of a paper they wanted, and\nall that sort of thing. She's making quite B play\nof it.\nH.M.Jr:\nWell, did she buy the paper or Just buy the lease?\nMcR:\nJust bought the lease.\nI\nGaston:\nMore \"Hearst hooey.\"\nGibbons:\nWhat Joan probably saw was what I started to read.\nIt was on the editorial page - about this Patterson\nwoman and Hearst, about her connection with him, and\nabout how marvelous he'd been to her and all that.\n1 didn't finish it. Just propaganda.\nH.M.Jr:\nHerbert, anything else?\nGaston:\nNo.\nH.M.Jr:\nWayne?\nTaylor:\nAfter reading that editorial, that Times thing, I\nread & couple of other things, both of which I thought\nwere very interesting. One was Krock's column. My\nguess on that is that that's Baruch.\nH.M.Jr:\nUh-huh.\n365\n13 I I\nOliphant:\nThat was my guess.\nH.M.\"r:\nI see.\nTaylor:\nVery close connection there.\nOliphant:\nDidn't parallel Anderson at all.\nH.M.Jr:\nOh yes.\nTaylor:\nAnd the other one is Chamberlain's speech yesterday -\nis well worth everybody's reading.\nH.M.Jr:\nI read it.\nTaylor:\nYes\nH.M.Jr:\nIncidentally, I called up Mr. Aldrich this morning\nand told him about Anderson and he said, you know,\nthat that was the funniest thing that had happened\nto him. Yes, he just howled over the telephone;\nhe thought it was terrible, and was very appreciative\nthat I called him.\nI said, \"You know, Mr. Aldrich, I've often said\nthat whenever you want anything done in Washington,\nyou're the one bank president who comes down him-\nself; you never send somebody else. You always come\ndown. You've followed that procedure for three\nyears, and if I may be so bold as to suggest that\nyou continue to follow that policy You send\nMr. Anderson down here many more times and you'll\nlose all the friends you've got down here.\"\nHe said, \"I can't take it seriously. I think it's\nthe funniest thing that's happened yet. I didn't\nknow Anderson was coming down.\" He said, \"Anderson\nwanted to go to Europe. To keep him out of mischief,\nI'll take nim along.\"\nMrs Klotz: Didn't want him to go along.\nH.M.Jr:\n\"I'm taking my wife and two children across to the\nCoronation and I'm taking Anderson along to keep\nhim out of mischief.\" But he was so - he just\nhowled over the phone. He said, \"Funniest thing I\never heard.\"\nRegraded Uclassified\n366\n- 14 -\nI told him what - didn't Anderson say, \"I'm taking\nMr. Aldrich with me\"?\nHaas:\n\"This is the talk.\" He talked like he owned the\nbank.\nH.M.Jr:\nSo I told him - I felt better about it - I told\nh1m I'd lost my temper and \"so would you.\n\"No,\" he said, \"I just think it's funny.\"\nMrs Klotz: He (Anderson) must be losing his mind.\nH.M.Jr:\nThat's what he said - got to have his cranium\nexamined. Must be - gotten a little large. He\njust howled - said, \"It's the funniest thing I\never heard.\" So it's much better to have it that\nway. He didn't even know that he was down here.\nHe would never let him come down. He said, \"It's\nnews to me.\"\nOliphant:\nWell, what do they keep him for?\nH.M.Jr:\nI don't know. Maybe he's got a contract.\nHaas:\nHe's a new business man.\nOliphant:\nJust a college professor gone wrong, George.\nRoche:\nConsumer counsel.\nOliphant:\nThis bill involving our paying out $25,000 - check-\ning through the question of whether or not the\nPresident had vetoed it....\nH.M.Jr:\nYes, I read it. Isn't that interesting?\nOliphant:\nHis veto message had to get down there within ten\ndays and there's no record either at the White House\nor at the Capitol as to when that veto message had\ngone down.\nH.M.Jr:\nWell, what I would do - I would give that to Mac\nand let him go over and see Forster.\nOliphant:\nSee Forster, yes.\nH.M.Jr:\nLet him work it out. I wouldn't want to send a\nRegraded Uclassified\n367\n- 15 -\nmemorandum. I'd let Mac go over and let him\nbring it to Forster's attention, see? And he's\ngoing over there anyway on something else.\nOliphant:\nIt's all here in that memorandum.\nH.M.Jr:\nI'd give it to Mac, see?\nMcR:\nI'm going over to see Audolph today.\nH.M.Jr:\nWell, tell Rudolph you've got something on him.\nOliphant:\nWell, he can work it out with the people down on\nthe Hill, then. It's something that's really up\nto Rudolph.\nH.M.Jr:\nThat's right.\nI'll see Clarence and you right now.\nRegraded Uclassified\n368\nTREASURY DEPARTMENT\nMy\nINTER OFFICE COMMUNICATION\nDATE April 30, 1937\nTO\nSecretary Morgenthau\nFROM\nMr. Haas MAR\nSubject: A Digest of two Articles on Russian Foreign Trade\n(These articles, which were forwarded by\nMr. Oumansky of the Russian Embassy, appeared\nin the Moscow Daily News of July and November,\n1936, and were both written by 1. Rosenhols,\nPeople's Commissar for Foreign Trade)\nTearist Russia was dependent on abroad for almost all its machinery\nand for a considerable portion of its essential industrial raw materials.\nThe Soviet Union, by its program of industrialization, has now freed\nitself from technical and economic dependence on other countries.\nRussian Foreign Trade\n(In millions of gold rubles)\nYear\n:\n:\nTotal Foreign Trade\nI\nI\nImports\n1913\n2,895\n1,374\n1930\n2,095\n1,058.3\n1931\n1,916.2\n1,105\n1935\n608.7\n216\n1936 (first 11 months)\n559.7\n277.9 (a)\n(a) Includes payment on account for the Chinese Eastern Railway\nRussian foreign trade policy was subordinated in the past to the\nindustrialization of the country.\nThe principal tasks of foreign trade now are:\n1. The accumulation of foreign exchange reserves\n2. Continuing past policy of importing only essential\nmaterials and equipment\n3. Aiding the technical reconstruction of the Soviet\neconomy\n4. The utilization of long-term credits to hasten the\nachievement of the second and later the third five-\nyear plan\n5. Fostering the peace policy of the Soviet Union\n369\nSecretary Morgenthau - 2\n(1) Accumulation of foreign exchange reserves\nIn the past it was 8. question of reducing indebtedness; now the\ntask is the positive one of accumulating reserves.\nThe reasons for this policy are:\n(a) With the growth of the war danger and of\npreparations for defence the significance\nof 8 \"war cheat\" of gold and foreign ex-\nchange increases considerably.\n(b) Russia deliberately restricts her imports\nto a minimum in order to encourage self-\nsufficiency. The result 1s that the surplus\nof exports over imports must result in the\naccumulation of foreign exchange.\nIn 1933-1935 the favorable balance was 400 million dollars, apart\nfrom another 80 million of gold and silver exported.\nThe reasons why it 18 able to execute this policy are:\n(a) In the future receipts from exports will no\nlonger be needed to liquidate indebtedness,\nwhich fell from $1,220 million in 1931 to\n$75 million in 1935.\n(b) Some of its imports will be on long-term credit.\n(c) Receipts from the sale of the Chinese Eastern Rail-\nway are still due.\n(a) Noticeable surpluses in the domestic production\nof certain commodities have recently emerged.\n(e) Most important of all, gold production in the\nU. S. S. R. has greatly increased.\n(2) Maintenance of the policy of imoorting only essentials\nIn spite of the improvement in the foreign exchange position, the\npolicy of importing only essentials must be continued because\n(a) The accumulation of foreign exchange reserves is needed.\n(b) Restriction of imports is the best lever for revealing\ninternal industrial resources.\nFrom 1918 to 1928 imports were 4,000 million rubles. During the\nfirst five-year plan they were about the same, but in the second they\nwill be not more than 35-40 percent of that sum.\n370\nSecretary Morgenthau - 3\nThe third five-year plan may well be accomplished almost without\nany imports, the exceptions being tin and a few other raw materials.\nNaturally this does not exclude importing technical innovations or\nremedying any hitch which may appear in any branch of the economy, or\non the basis of long-term credits, such as were concluded with Germany\nand Csechoslovakia in 1935, and with the United Kingdom in 1936.\n(3) Technical Reconstruction\nForeign trade should actively assist Soviet economy in the sphere\nof its further technical reconstruction. Where Soviet technique lags\nbehind that of other countries, it must catch up as rapidly as possible.\n(4) Financial Credits\nIt has always been Soviet policy to extend imports on the basis\nof long-term credits in order to accelerate construction. But the\nfollowing new considerations now enter:\n(a) An essential condition for using these credits\nis access to significant technical innovations.\nTherefore financial credits are desirable only\nfrom countries from which articles of great\ntechnical importance can be obtained.\n(b) The cost of the credite must be reduced. Sir per-\ncent is too high.\n(c) The terms of the credits must be for more than\nfive years.\n(a) The aim is not to receive big or unlimited credits.\nIn some cases it has been necessary to insist on a\nreduction in the amount of credit offered.\n(e) Credits from manufacturers are rejected. A cash\nbasis is preferred.\nLong-term credits at excessive rates have been rejected, and old\nloans at high rates have been repaid before they were due. The Soviet\nUnion refused to carry on credit negotiations with England connected\nwith British claims concerning pre-1917 debts. A credit agreement with\nEngland on a different basie is now being negotiated. A few years ago\nthe maximum rate paid for credits was 8 percent, then 6.5 percent, and\nin 1935 it was 6 percent. Even this is now regarded as too high.\nRegraded Uclassified\n371\nSecretary Morgenthau - 4\n(5) Peace Policy\nForeign trade can be actively used to assist the Soviet peace policy.\nHitherto foreign trade was dominated by considerations of foreign exchange.\nNow there are greater possibilities for maneuvering and for increasing\ntrade and economic cooperation with neighboring countries.\nTrade Relations with Different Countries\nUnited States: - Trade is developing satisfactorily on the\nbasis of the Soviet-American trade agree-\nment of July 11, 1935 in which the United\nStates granted most-favored-nation treat-\nment and the Soviet Union promised to\npurchase 30 million dollars worth of\nUnited States goods. Actually, they\npurchased 36 million.\nGreat Britain: - The trade agreement of February 16, 1934\nis based on the principle of gradual\nequalisation of the balance of payments.\nBritish imports from Russia between\nSeptember 1934 and September 1936 totalled\n1 51 million, exports to Soviet Russia\nI 27.8 million. But Russia also purchases\nshipping services, bill brokerage, etc.\nfrom Great Britain so that by January 1,\n1936 excess of payments in Britain over\npayments arising from the agreement was\n8 million pounds. The new trade agreement\nshould foster mutual trade relations.\nGermany: -\nThere has been an almost complete liquidation\nof commercial indebtedness to Germany. The\npeak of bill of exchange indebtedness to\nGermany was reached on October 1, 1932 when\nit amounted to 1,100 million German marks.\nIt is now only 52 million (spart from the\n200 million five-year credit of 1935). In\nthe last two years trade with Germany has\ndeclined. In 1936 Soviet exports to Germany\nwill amount to only 65-70 million marks 88\nagainst 209.7 million in 1934.\nLiquidation of past indebteduess, payment in cash for orders from\nthe United States and France, and the new agreement with the United King-\ndom strikingly reflect the strengthening foreign trade of the U. 8. 8. 2.\nin which the foreign trade monopoly will, as hitherto, remain one of the\nfirm foundations of the State.\n372\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE April 30, 1937.\nTO\nSecretary Morgenthau\nFROM\nMr. Hase DA\nSubject: Meeting in the Secretary's Office, 3 P. M., April 29, 1937.\nPresent: Secretary Morgenthau; Dr. Benjamin Anderson,\nEconomist of the Chase National Bank; Mr. Haas.\nDr. Anderson opened the discussion by saying that very shortly\nhe and Mr. Aldrich, President of the Chase National Bank, are going to\nEurope, and will contact important people in the financial field as well\nas in the governments. He thought that the present was a very opportune\ntime to make some real progress in the monetary field. He pointed out\nthat he had good information which lead him to believe that the German\nand Italian governments were now in a much more receptive mood, largely\nbecause they realized the futility of not treading along peaceful lines,\nparticularly in view of the large rearmament program of Great Britain.\nDr. Anderson said what the world needa in a monetary way is a\nthree-fold program:\n(1) The important countries of the world should become estab-\nlished on a fixed gold basis. It is not so important just what the basis\nis, but it must be fixed. He pointed out that this would instill confi-\ndence in countries in Continental Europe. Gold would return to these\ncountries and this would automatically take care of our gold problem.\nWith the resultant increase in confidence, he said Gresham's Law would\ncease to operate.\n(2) Along with this program should go increased efforts to\ncarry out Secretary Hull's program of freedom of trade 80 that goods\ncould move.\n(3) The gold content of currencies of the world 1s too low\nand results in too great an output of gold. This should be limited by\nincreasing the gold content of currencies or, in other words, reducing\nthe price of gold in terms of currencies.\nDr. Anderson said the above 18 in brief what he and Mr. Aldrich\nare going to say to the important people they meet in Europe. He asked the\nSecretary if it would be all right if he said that he had discussed these\nmatters with the Secretary of the Treasury before he left for Europe.\n373\nSecretary Morgenthau\n-2-\nThe Secretary replied that Dr. Anderson had not even asked him\nas yet what his opinions were with regard to these subjects; and as to\nDr. Anderson indicating in any way that he represented the Secretary of\nthe Treasury, the Secretary said emphatically no. He said he did not need\nanybody to represent him there, and if he did, Dr. Anderson would be the\nlast man he would select. The Secretary pointed out that since this\nAdministration came into office Dr. Anderson in his writings had consistently\nonnosed everything the Treasury had done; and now that the job is done, and\nwith a balanced budget in sight, he would not under any circumstances allow\nDr. Anderson in any way to represent the Treasury Department. The Secretary\nstated that this was a free country, and Dr. Anderson could make any state-\nments he wanted to malce, but that if there was the slightest impression\ncreated that he was representing or expressing the views of the Secretary\nof the Treasury that he would immediately inform the embassies abroad to\nthe contrary. The Secretary pointed out that after three years he has\nfinally developed a means whereby he can establish immediate contact with\nthe Chancellor of the Exchequer, the Minister of Finance in France, Belgium,\netc., and they have confidence in him and he has confidence in them.\nDr. Anderson said that the Secretary had misunderstood him. He\ndid not intend to infer that he was asking to represent the Secretary abroad,\nThe Secretary asked him what he came here for if it was not to lay out what\nhe was going to tell the people abroad. Dr. Anderson then attempted to cite\ninstances in which he did agree with the Administration's policy. He stated\nthat he agreed with Secretary Hull's reciprocal trade agreements and with the\nFederal Reserve Board's action in increasing reserve requirements. The\nSecretary stated that he was referring to the activities of the United States\nTreasury. Then Dr. Anderson pointed out an instance, in 1934 or 1935, when\nhe appeared before some Senate committee, and Senator Thomas without success\nmade every effort to get him to state that he cuestioned the soundness of the\nGovernment credit.\nThe Secretary reminded Dr. Anderson that ha had never attempted to\nsee him when the situation was really difficult. Dr. Anderson replied that\nhe had attempted to see the Secretary before. The Secretary said he could\nnot recall a single instance. Dr. Anderson then said that at the request of\nMr. Morgenthau's father he wrote a memorandum on employment which Wg8 sent to\nthe Secretary. The Secretary said he never received such a memorandum, and\nstated further that his father is very careful not in any way to represent the\nSecretary.\nDr. Anderson attempted to assure the Secretary that there was\nnothing personal in any of his writings, and that he was expressing his\nhonset oninions. The Secretary said that the personal part of 1t was\nimmaterial, that he was not important but the United States Treasury was.\nDr. Anderson further stated that Mr. Stern and Mr. Funk of the Chase Bank\nhave cooperated with the Treasury. The Secretary said he knew that and\nWE not making any reference to them, but that his remarks were directed\nentirely to Dr. Anderson, the Economist of the bank.\nRegraded Uclassified\n374\n-COPT-\nEMBASSY OF THE UNITED STATES OF AMERICA\nOFFICE OF THE TREASURY ATTACHE\nCUSTOMS\n2 Avenue Gabriel\nParis, France.\nApril 30, 1937.\nMEMORANDUM FOR THE SECRETARY:\nSubject: Narcotic Smuggling - Europe.\nSince my last memorandum, we have our noses to the trail as before.\nWe have been getting a few breaks as regards informers, with the result\nthat we have lined up several who look as if they may turn out to be\nmore high-powered than the average of our former ones. We were glad to\nreceive word to-day of some success with regard to the seizure on the\nPRESIDENT HARDING. We have several things on the fire which look pretty\ngood, but it is too early to say anything about them as yet. It would\nappear that the cargo-smuggling angle (concealing the narcotics in\nfreight) is our largest and toughest problem. We are devoting our at-\ntention to that as much as we consistently can with keeping the other\nangle (personal carriers) covered.\nMr. Wait is back from his cure and looks much better. Now that\nhe has returned, and while awaiting Anslinger's arrival, I am going to\nmake B. quick trip to Turkey and Greece to see if I can get Christides\ninto the proper groove to produce results. He is willing but inexper-\nienced, and I hope to encourage and develop him.\nBest regards as always,\nRespectfully,\nTHOMPSON.\n375\nApril 30, 1937\nMr. Oliphant's office reported today that the letter of\nApril 26 (filed herein under date date) had been turned over\nto Mr. McReynolds who will handle it personally with Mr. Forster\nat the White House.\nThis has to do with a time record for veto messages of. the\nPresident.\nFROM: MR. McREYNOLDS' OFFICE\n376\nTO:\nThe original 1 the\nmrmo + the file\nmR to\nwhind\nmol\n30ᵗʰ 37\nRegraded Uclassified\n377\nRegraded Uclassif\nMEMORANDUM FOR THE PRESIDENT:\nYou recently suggested consideration be given the 16-\nappointment of Joseph Wolf as Collector of Internal Revenue\nat st. Paul, Minnesots, and accordingly I have had the usual\ninvestigation made,\nWolf was appointed originally as Collector on August 1,\n1933, and served both in that capacity and as Democratis\nMetional Committeemen until September 30, 1934, when he po-\nsigned as Collector to devote his entire time to the duties\nof Commitionmen. He continued in this position until June,\n1956. James R. Landy wes appointed Collector on June 16,\n1985, to moreed Holf, who endorsed him for the position.\nThe investigation has disclosed there was an understanding\nbetween Walf and Landy that at aome certain time in the future\nwhen Welf desired remppointment as Collector, Landy would resign\nand make way for such reappointment. A meeting was held at the\nhome of Mr. Adolph Brener of St. Paul in March, 1935, at which\nwolf and Landy, with others, were present. It WILL at this meet-\ning that the arrangement between nolf end Landy was discussed\nand the agreement entered into. According to the statement of\nLandy, after wolf and the others had left the room, Mr. Adolph\nStemer indicated to Landy that, in view of Holf's lack of funds\nand his considerable office expenses, something should be done\nfor him. As states it as agreed between Mr. Breaser and himself\nthat Landy would pay Wolf $75.00 a month. Following his appoint-\nand he die make cush payments for a period of one year begin-\nning July 1, 1935. Photostatic copies of the checks in question\nare in the files and wolf admits that ha received them. Be main-\ntains, however, that these case represented payments to the\nDemosratic compaign fund. However, nine of the checks were de-\nposited in his personal bank account, and, 80 far as could be\naccortained, all of the expenses of the State democratic office\neste paid from the special account of Raths, the treasurer.\nIn name, 1956, Landy mé Wolf, with others, again net at the\nhome of Mr. Adolph Broner and there discussed the question of Landy\nresigning in fever of nolf. Landy insisted his understanding had\nbeen that be would be permitted to remain as Collector for two\nyears. All be had been in office only about one year, he refused\n378\n- 2 -\nto resign. Landy and solf both state that the latter offered to\nreturn the $900.00 received from Landy, but this offer -\ndeclined. Landy testifies further that et . later date certain\ninfluential and wanlthy oftimems of Minnesota offered to pay him\nthe sun of $2,500. which represented the anount of money be would\nhave earned M Collector from that time to the end of the two-year\nperiod, and to return to him the $900.00 which be had paid wolf.\nLandy states that be also refused this offer.\nThe investigation also developed evidence that Wolf had\nreceived various sum of money from applicants whom be endorsed\nfor postmesterebips during the year 1933. Nolf neserts that all\nof these contributions were made voluntarily and maintains that\nthe payments were used for political purposes and were not income\nto him personally. He states that records and receipts were not\nalways kept and admite that some of the funds were deposited in his\npersonal bank account, but maintains that most of the were deposited\nin the bank account of Mr. Raths as treasurer and were used to pay\nexpenses of Wolf's political office. with one exception, these al-\nlegal offenses occurred more than three years ago, and are, there-\nfore, barred by the Statute of Limitations in no for 0.8 the appli-\nestion of law is concerned.\nHowever, it 1s definitely determined that Wolf did recomend\nLandy for appointment as Collector; that et that time there was an\nunderstanding between them that Landy would relinquish the office\nto welf at nometime in the future; and further that Landy did pay\nto Wolf the sun of $75.00 per month for a period of one year.\nThese offenses RTS in direct violation of Sections 149 and 150 of\nthe United States Orininal code, which sections prohibit the pay-\nment or receipt of any moneys in connection with the recommendation\nfor or appointment to a Federal office. The sections noted are est\nout in full on the attached sheet.\nObviously welf ennaot be considered for appointment as Collector:\nfurthernors, Landy should be immediately resored from the position\nwhich be bolds. It 10 my recommendation that this be done and that\nall of the facts in this come be submitted to the Attorney General.\n(Signed) Henry\nSecretary of the treasury.\napr 30,1937\n78/4/19 G74 4-29\nmod\nRegraded Uclassified\n379\nSection 149:\n\"Payments made for influence exerted in\nprocuring appointive public office prohibited.\nIt shall be unlawful to pay or offer or promise\nto pay any our of money, or any other thing of\nvalue, to any person, firm, or corporation in\nconsideration of the use or promise to use any\ninfluence, whatsoever, to prosure any appointive\noffice under the Government of the United States\nfor any reason whatsoever. (nee. 11, 1926, 6. 5,\nSection 1, 44 Stat. 918.)\"\nSection 150:\n\"Payments received for influence exerted in\nobtaining appointive public office prohibited.\nIt shall be unlewful to solicit or receive from\nanyone whatsoever, either as & political contribu-\ntion, or for personal emolument, any sub of money\nor thing of value, whatsoever, in consideration of\nthe promise of support, or use of influence, or for\nthe support or influence of the payes, in behalf of\nthe person paying the money, or any other person, in\nobtaining any appointive office under the Government\nof the United States. (Dec. 11, 1926, 0. 3, Section 2,\n44 Stat. 916.)\"\nRegraded Uclassified\nNorth China Daily hews Skenghan\napr 30 1937\nTM work of rounding up live\nJUSTICE TRAPS\nGinderg gang was done by Federal\nagrile who (1) the where of their\nactivities Dought from members w\nU.S. DEALERS IN\nthe (ing eleven packets of morphine\nand heruin aggregating nure than\nhave pound. all vicions naivotics All\nSHANGHAI DOPE\nThe contraband enzed RW traned to\nnurres in China.\nNearly all lie persons arested\nLincluding one Roman actually sold\nmurphise or berom to Government\nTaybank Case Gang and\nagents and those who did not sell\nOthers Sentenced\nwere positively implicated an the\ninflic The delicate and dangerous\nwork of buying the exidence from the\nLONG GAOL TERMS\nvarious dealers occupied the -genty\nfor 0 period of aix pronths, from\nJuly to December 1936, When il livel\nFurther Seizures Here and\nattempt to arress one of the traffick-\nRespectfully Referred To\nCommissioner of Customs\nors. are Johnnie Walker, was made\n(Investigative Unit)\n- -\nin Hongkong\nbe was in the act de delivering a\nquantity of flerom to another man\nTHE\nHe drew a pistol, acciously wounded\n\"You PANT get away with 0° -\none of the agents and excaped after\nnuming another down with DIT\nlhe grin, warning sunded by the\nmotor-car. He was later appretional-\nAmerican Docersment to mine win\neù and is was his good fortune that\nHaffle in Chine-e narcoties accoss the\nthe agent the shot lived to restify\nbroad sweep of the Parifie And (If\nopainst him\nrecent months Uncle Sam has dealt\nFuthless justice to many of the Town-\nSchale Gang Caughi\nore on his own side of the\nThe determinalish of The Aplerican\nmen and women who have aft bein\nauthorities to Treat narcotic amag-\ndeating in desper that has patied\nglern with the dirmost severity was\nthrough Shanghai.\nmanifested last December already\nThe campaign DM. under The\nwhen the Federal Court in New York\npersonal supervision of the\nsentenced two transatiantie smugglers\nof the Treamiry, Mr. Henry Mor\nto forty and 25 years respectively\ngenthou, Jun- who is determined le\nand imposed fines of U.S. $40,000 and\nbreak the back of the insidinue trems\nU.S. $45,000 on them The men were\nIf is already well known what the\nMorrie Schatz and Seraßno Mancuse\nFederal forces have accomplished in\nand with them ware arrested nine\nthe Wendt-Brand-iatier cain and\nof their assistants, all of whom were\nnow may be added what for hap\nlikewise sentenced.\nbened in America in receit weeks\nThe nareolic seidures on the bent\nto men and women who bate neipod\nof which the Schatz band was cap.\ndelibule Shanghar expiration murphise\ntured an were made in New York\nand hernin comments in that\nharbour, as in the Taybank case, On\ncountry. Some of the product vital\nOctober 13. last, more than nets\nToels are as follows.-\npounde of crude opium were found in\nWhile the niv. Taybank. which o\nthe No. New York and lates that\nnow leck in this port, WMI in New\nmonth 37 pounds in the Be de France\nYork herbour on March e, Federal\nThe largest hour Was made on board\nagents went on board and seized 600\nthe No. Manhaltan un November =\nfive-thel tims of prepared smoking-\n106 pounds of erude option being come\nopium secreted below decks. Four\nmembers of the were arrested\nincated, and - week later 22 collage\nof become were discovered in the -\nAn Nan. Chinese, Kechel\nNormande. The Far Eaul 3@ulb 9.4-\nBen Hassen, Mulayan, boatswain\nilescribed 39 the place of\nOnjar Ben Gant Malayan second\nSeraßno Mannumo, one of the\nboatswain. and Same Ben Basej<\nprincipals In the Schatz 120g -\nMalayan, storekeeper. Arrested also\nbrother of Salvalore Minicuso, WING\nwere one Willie Bonzinzi cubtact minu\nin 1935 was sentenced 51 New York\nbetween the crew and the New York\nconsignees of the oplum. and two\nto four years Imprisonment DO 11.\nnarentic charge and Porty years for\nriver boat-men, Dominic and Time\nEldnapping and torturing a French\nBoda, brothers, who were\nréaman who had sold for his own\nnarenties between shaps and the\naccount certain drug: consigned N\nshore. Bonanzi has bill linen con-\nSalvatore Maneuso\nvicted and sentenced to ten years you\nprison and a line of U.S. $5,000, while\nHongkong Shanghai Hapis\nOmar Ben Gen/ was given a term X\nfour years, the Chinese three and a\nAn Important veleure made during\nhalf years, and the boatswally and\nrecent weeks which has not yes conve\nstorekeeper shorter terms. The Budin\nto trial in the American Court was\nbrothers will be sentenced on May a\nthat of 500 five-tael time at smoking\nopium seized al Hongkong on March\nA Lifetime in Garl\n15 on the Blue Pannet classiver Details\nDealing in Shaughui incrphine and\nplying between China norts aruk the\nheroin has further trought » sentence\nUnited States and Ort\nof my years in 1be penitentiary DAY\nJanuary 8, at New\nthe head of one Louis Ginsters, a\nBritish Columbia, 559 dive-tael\npotorious wholesale operator in\nof had bener reservement\nsouthwestern United States, while\nfrom the water off a dov's unreleast,\nair of his lieutenante have been given\noccupied by the Ixim\nterms aggregating ninety years. Two\nThe latest Important secure was\nother members of this gane have\nmade as Shanghai un March 17 on\nbeen convicted but not yes sentenced.\nboard the American Treighter Mobile\nwhile a further two are awaiting\nCity, This haul consisted of 300 Ave-\nthat It took the jury only aftern\nlael time of refined optum deslined for\nminutes to reach a verdict a the case\nAmerican shores,\nof the seven principale\nRegraded Uclassified\n17\n381\nFEDERAL RESERVE BANK\nOF NEW YORK\nOFFICE CORRESPONDENCE\nDATE April 30, 1937.\nCONFIDENTIAL FILES\nTO\nSUBJECT:\nTELEPHONE CONVERSATION WITH\nD. J. Cameron\nFroM\nDE NEDERLANDSCHE BANK\n(Copy for Mr. Lochhead)\nI telephoned Mr. De Jong of the Netherlands Bank and was\nconnected at 11:53 a.m. The connection was extremely poor. I told\nMr. De Jong that we had a news report that the Dutch Equalization\nFund announced that it had again cut its purchasing price for the\ndollar to 1.82 1/4 guilders (54.8696$ per uilder) due to the large\nofferings of dollars and the firm tone of sterling. I said I was\ncalling because in view of this report we hesitated to operate\nagainst his order to sell guilders here at 5484, possibly contrary\nto his purpose. Mr. De Jong thanked me for calling and apologized\nfor not cabling us. He said he did not wish us to sell guilders in\nour market unless we could do so at 54.88 cents per guilder or\nbetter (54.871 net to him). He said that he would cable us immediately\nMr. De Jong seemed to have difficulty understanding, but I made it\nclear that I understood his instructions.\nIn closing he repeated his instructions with respect to\nselling guilders for his account here.\nRECEIVED\nThey\nDEPARTMENTO TRIVAINT\n/\nRegraded Uclassified\n382\nRB\nGRAY\nParis\nDated April 30, 1937\nRec'd 3:48 P. m.\nSecretary of State\nWashington.\n554, April 30, 3 P. m. (SECTION ONE)\nFROM COCHRAN.\nThe communique issued following the appearance of the\nMinister of Finance yesterday before the Senate Finance\nCommittee indicates that the information given to this\nbody by the Minister was similar to that submitted on the\nprevious day to the Chamber Finance Committee, The state-\nment is made that the Senate Committee maintained its\nprevious position relating to the 1937 budget. (The views\nof the Committee in this respect were reported on pages\n8 and 9 of the Embassy's despatch 256 of January 7th\nnotably that revenue was overestimated by at least 200\nbillion francs, that expenditures were underestimated by\none billion, that pension fund would call for an additional\ntwo billions and furthermore that important requirements\nhad been overlooked by the Government as concerned extra\nbudgetary outlays.) It is maintained that the position has\nbeen still more aggravated by additional burdens laid on\npublic\n383\nRB\n-2-,/554, April 30, 3 P. m. from Paris\nSECTION ONE\npublic finances since the beginning of the year. The\nMinister once more repeated that no further project of\nlaw of a nature to add to deficit would be considered and\nagain declared that he had never envisaged any sort of a\nforced loan. He was he said anxious to reestablish pro-\ngressively budgetary balance. President of the Committee\nCaillaux emphasized the necessity for the Government, if\nthe economic situation was to be restored, to adapt its\nactions to its declarations and to maintain public order.\n\"Thile the exact situation of the Treasury and\nBULLITT\nCSB\n384\nEDA\nGRAY\nPARIS\nDated April 30, 1937\nRECEIVED 4 p.m.\nSecretary of State\nWashington\n554, April 30, 3 p.m. (SECTION TWO).\nrequirements are of course only known to the officials\ndirectly concerned the approximate position at present\nseems to be that indicated in y telegram of yesterday.\nAccording to the Ministry's own figures twenty billion\nfrancs will bE required between now and End of the year\nover and above budgetary revenue and in this calculation\nit appears certain that repayment in October of the British\ncredit of forty million pounds has not been included nor\nhas mention been made of loans to the railways. It is also\npossible that the amount of three billion francs Established\nas sufficient to meet demands in October next for reimburse-\nment of the four one half per cent 1934 Treasury bonds will\nprove to bE insufficient. It may bE Explained that about\nnine billion francs of these bonds are outstanding. They\nare repayable at par in October 1937 at 103 per cent in\nOctober 1940 and 108 per cent in October 1944. The Govern-\nment appears to have calculated that approximately one third\n(three billion francs) will bE presented for reimbursement\nin\n385\nEDA - 2 - 554, April 30, 3 p.m. Section two from Paris\nin October as indicated above.\nAn official denial is published in today's press of\nreport that the Government intended to reorganize the\nrailways with a VIEW to taking en active part in their\nadministration. It has been claimed that the Government\nplanned to transform into shares its credit on the railways\nof 25,000,000,000 francs, As the canital of the railways\nrepresents about 7,000,000,000 francs the state under the\ncircumstances would i:rediately become holder of the\nmajoraty of the shares (about 30%).\nParis Exchange market today rather (=) but jumpy with\nno important (#), Dollar recover:ng as Soviet sales thereof\nlet up. Possimistic news received from London on official\ndisappointment over initial reception given defense loan\nand in regard to difficulties of brokerage houses. French\nrentes and shares are, nevertleless, a little up from\nyesterday.\nBULLIT\nCSB\n(*) Ommissions\nRECEIVED\n-\nRegraded Uclassified\n386\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Paris, France\nDATE: April 30, 1927, 6 p.m.\nNO.: 558\nFROM COCHRAN.\nLast night at the Embassy dinner I had the privilege\nof talking with Auriol, Rist and Rueff. Auriol told me\nthat Caillaux had been quite tired, and at the session\nof the Senate Finance Committee he had not subjected\nhim to any severe examination. There will be no further\ndevaluation of the franc, Auriol said. However, he\ndid make a remark which hinted that France may seek\nconsultations with Great Britain and the United States\nwith a view to widening the fluctuation limits of the\nFrench franc. If I interpret his meaning correctly, this\nnaturally arouses suspicion as to his own confidence\nin France's ability to avoid franc depreciation below\nthe lower limit fixed October 1 by the monetary law.\nI was told by Auriol that he had informed the\nCommittee members that it is out of the question to\nstabilize the franc now in view of the wide fluctuations\nat present on the world's exchange markets. The three\nofficials mentioned above gave the impression that they\nwere in harmony on the operations of the exchange stabiliza-\ntion fund of France.\nBULLITT.\nEA:LWW\nRegraded Uclassified\n387\nPARAPHRASE OF SECTION TWO OF TELEGRAM NO. 558 of\nApril 30, 1937, from Paris.\nIt also appeared that there was no truth in the rumors\nof prospective resignations from the Committee.\nVery little new information was added by Rist to\nwhat I have already passed on to you from time to time.\nMost of all he is concerned lest there may be such a\nsharp check in world prices that a setback will actually\nbe suffered by recovery. Rist is in favor of higher\nworld prices, considering the important gold stocks and\nproduction. He insists that the only worry to France\nwould be in the event that her prices are ahead of world\nprices.\nRist expressed the hope that there may be a lowering\nof trade barriers Bo that countries which do not have\nimportant monetary reserves may accumulate foreign ex-\nchange from profitable commerce, and convert this foreign\nexchange into gold, thus effecting a better distribution\nof world stocks of gold. I was questioned by Rist 88\nto whether our country and Great Britain had reached\nan agreement on a campaign for lowering prices; I insisted\nthat there had been no such agreement.\nThe Ambassador was told by Auriol and Spinasse that\nthey were entirely certain that in the long run France could\nnot hold out under the financial burden which the new social\nlaws and military budget imposed on it. There would in\nthe long run be internal collapse if an accord were not\nreached\nRegraded Uclassified\n388\n/\n2\nTHING\n03\nreached on limitation of armaments. They felt confident,\nthe told the Ambassador, that the Government could surmount\nits financial difficulties until June or July, and they\nbelieved that the Government could hold out until Fall of\nthis year.\nEND MESSAGE.\nBULLITT.\nEA:LWW\nRegraded Jclassified\n389\nMJD\nGRAY\nParis\nDated April 30, 1937.\nRec'd. 9:45 p. m.\nSecretary of State,\nWashington.\n559, April 30, 7 P. M.\nFROM COCHRAN.\nReference Department's 191, April 29, 3 p. m. Leaving\nParis Saturday night for Basel where B. I. S. has monthly\nannual meetings on Saturday and Monday. Shall proceed from\nBasel directly to Geneva Tuesday 4th.\nI am cabling summary of B. I. S. annual report from\nParis tomorrow. An account of the B. I. S. meetings will be\nmailed from Basel or Geneva for coding to Paris.\nCSB\nBULLITT\n390\nMG\nGRAY\nLondon\nDated April 30, 1937.\nRec'd 12:50 p.m.\nSecretary of State,\nWashington.\n254, April 30, 5 p.m.\nFOR TREASURY FROM BUTTERWORTH.\nLondon stock market has continued to absorb satis-\nfactorily the inevitable selling and the strength with\nwhich Wall Street opened did muc to preserve confidence\nthat the worst was passed. At the same time institutional\nbuying became very noticeable this afternoon. There is a\ngeneral feeling of relief that the week is closing in\nthis manner.\nBINGHAM\nKLP\n/\n03V13038\nfrå\n/ / a z / /\nRegraded\n391\nlw\nGR/.Y\nBombay\nDated May 1, 1937\nRoc'd 6:23 a.m.\nSecrotary of State\nWashington\nMay 1, 11 a.m.\nFOR THE SECRETARY OF THE TRE.SURY.\nSilver markot has not been affected by the crisis\nin other markets and ruled steady during the wook.\nRoady opened at rupoos 52-15 per 100 tolas and doclined\nto 52-11 at the close. Stocks on hand about 33,000\nbars an offtako has improved to about 140 bars daily.\nImports during the wook 29 bars and shipmont reported\nfrom London valued at 6,000 pounds.\nDuring the early part gold markot was casy in\nsympathy will th dollar but bocame woak on nows of bill\npresented to Congress to limit price of foreign gold\nto $25. Tho price of ready declined to as low as\nrupees 34-3-6 por tola though closing at 34-9-6.\nWATERMAN\nCSB"
}