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Volume 94, November 1 – November 10, 1937
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Volume 94, November 1 – November 10, 1937
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 94
November 1 - November 10, 1937
Regraded Unclassified
A
Book
Page
Alsop (Joseph) - Kintner (Robert)
To start column for North American Newspaper Alliance
on November 15th
XCIV
21
Annenberg, Moe
See Nation-Wide News Service: Oliphant memorandum on
American Telephone and Telegranh Company leased-wire service
- B -
Bank for International Settlements
Cochran reports on meeting - 11/9/37
210
Business Conditions
Sterilization of gold: Future action, in light of
threatened depression, reviewed by HMJr with
a) Riefler - 11/3/37
36
b) Viner - 11/3/37
41
HMJr writes FDR concerning fear of another depression
a) Letter in HMJr's own handwriting
47
b)
" as sent - 11/4/37
48
HMJr and FDR discuss threatened depression - 11/4/37
49
a) FDR scathing in rejection of idea
b) FDR asks HMJr to talk to Eccles sbout Eccles'
proposed program
1) HMJr 'phones Eccles to bring any plans he
may have with him when he comes over for
luncheon - 11/4/37
54
c) HMJr asks about further sterilization of gold;
FDR says he has completely misunderstood HMJr -
thought he was asking him to raise the price of
gold
d) HMJr thinks United States should study
1) Cessetion of sterilization of gold
2) Spending some of the gold already sterilized
3) Lowering excess reserve requirements
FDR at Cabinet meeting states he's tired of depressing
picture everyone is painting without any actual
suggestions - 11/4/37
52
a) HMJr feels Government should study
1) Public utilities
2) Railroads
3) Housing
b) Farley and Wallace back HMJr in his point of view
1) HMJr discusses situation with Farley -
11/6/37
130,156
Sterilization policy: Possible discontinuance discussed
at conference; present: HMJr, Taylor, Viner, Lochhead,
White; Eccles, Goldenweiser, Himmelblau - 11/5/37
86
Taylor memorandum giving three main reasons for
threstened depression - 11/5/37
128
1) Lack of positive attitude on labor problem
2) Dislike of present tax structure
3) Fear that Administration will resume excess of
spending at first signs of 8. recession
Regraded Unclassified
- -B- - (Continued)
Book Page
Business Conditions (Continued)
Butterworth gives London Economist's point of view
on situation in America - 11/6/37
XCIV
136
Butterworth reports on pressure of dollar - 11/8/37
145,148
FDR and HMJr discuss further threatened depression -
11/8/37
152
a) FDR compares Fascism and Democracy at
present time
- C -
China
Haas memorandum on current trade with Japan and China -
11/3/37
29
Chinese Ambassador confers with HMJr - 11/3/37
45
a) Silver now in London discussed
Chinese Ambassador consults HMJr about second shipment
of ten million ounces of silver on boat following
S/S President Roosevelt which will carry ten million
ounces on 11/15/37
151
Claims, Government
Further Oliphant memorandum concerning utilities and
railroads against which Government has claims, with
view to selection of one as possible subject for
model reorganization 11/9/37
195
a) Utilities Power and Light (in the Chicago area)
b) Wichita, Northwestern Railway Company, if
handled strictly within the Treasury;
Alabama, Tennessee, and Northern Railroad
Corporation, if handled through Reconstruction
Finance Corporation
- D -
Depression
See Business Conditions
- E -
England
See Stabilization: Great Britsin
- F -
Financing, Government
Calling of approximately $5 billion of outstanding bonds:
Oliphant reports at 9:30 meeting two cases are about to
be argued which will establish right of Government to
take this action (Mason case) - 11/3/37
14
France
See Stabilization
Regraded Unclassified
- G -
Book Page
Gold
See Japan
If Stabilization: Great Britain
For Sterilization (future plans), see Business Conditions
Great Britain
See Stabilization
- I - -
Italy
See Stabilization: Great Britain
- J -
Japan
Treasury asks State Department to arrange through
American Embassy, Tokio, for information concerning
all developments affecting the yen, the exchange
situation, et cetera, since actual Japanese export
of gold to United States since October 1st has been
larger than amount mentioned by Bank of Japan - -
11/2/37
XCIV
7
Haas memorandum on current trade with Japan and China -
11/3/37
29
- K -
Kintner (Robert) - Alsop (Joseph)
To start column for North American Newspaper Alliance
on November 15th
21
- M -
Magill, Roswell
FDR, James Roosevelt, and HMJr confer concerning - -
11/8/37
153
Mason Case
See Financing, Government - Calling of United States bonds
- N -
Nation-Wide News Service (principal purveyor of racing information)
Oliphant memorandum on whether American Telephone and
Telegraph Company can refuse leased-wire service - 10/3/37.. 47-A
Netherlands
See Stabilization
- 0 -
Oliphant, Herman
See Nation-"ide News Service: memorandum on American Telephone
and Telegraph Company leased-wire service
Regraded Unclassified
- P -
Book Page
Public Utilities
See Claims, Government
- R - -
Racing Information
See Nation-"ide News Service
If Annenberg, lloe
Railroads
See Claims, Government
Revenue Revision
Magill memorandum of conference with FDR; present:
HMJr, Wallace, Doughton, Marvin Jones, Vinson,
Bell, and Magill - - 11/9/37
XCIV
192
- S - -
Silver
See China
Stabilization
See also Business Conditions
HMJr's statement concerning gold leaving country
a) Asks Knoke concerning reaction - 11/9/37
196
b) Thanks "Sandy" Klein for the way gold story was
handled - 11/9/37
200
c) Asks Butterworth concerning reaction - 11/9/37
205
France:
Report on actions of French control operating through
London provided by Cochran -
11/3/37
9
11/4/37
73
Great Britain:
Waley gives Butterworth resume of commissions including
(a) proposed visits to Turkey and Italy, and (b) Swiss
sales of dollars and purchases of gold - 11/2/37
3
Butterworth reports on conversation with Clay, Economic
Adviser of Bank of England - 11/3/37
11
a) Clay , xpresses doubt that recovery's pause
is only temporary
HMJr tells Lochhead to inform England that "after today
we will sell no more gold in London; we will retain
the little we have left" - 11/4/37
49
Butterworth reports further - 11/4/37
61
a) No gold coming out of India, thus further
complicating situation
Netherlands:
Knoke talks to de Jong (De Nederlandsche Bank) concerning
subdivision of special gold account into Account A -
that of Dutch Equalization Fund - and Account B -
that of De Nederlandsche Bank - 11/8/37
140
Switzerland: Lochhead memorandum on present situation - 11/6/37
134
Gentlemen's agreement entered into between National Bank
and Swiss Bankers' Association with a view to restricting
floating foreign capital and hoarding of currency in
231
Switzerland - - 11/9/37
Regraded Unclassified
- S - (Continued)
Book Page
Switzerland
See Stabilization
- T -
Taxation
See Revenue Revision
Turkey
See Stabilization: Great Britain
Regraded Unclassified
1
LMS
GRAY
London
Dated November 1, 1937
Rec'd 3:30 p. m.
Secretary of State,
Washington.
682, November 1, 6 p. m.
FOR TREASURY FROM UTTERWORTH.
DUE to French holiday foreign Exchange market was
small today. HOWEVER, Swiss banks continue to sell dol-
lars against sterling for the purpose of purchasing gold
and recent dollar movements are occasioned by this policy.
Several London banks have what constitutes standing orders
to purchase gold on Swiss account. Despite press stories
appearing in the FINANCIAL NEWS and other journals there
is little EVIDENCE to indicate any widespread rehoarding
movement. The concluding portion of the article on this
subject appearing in today's FINANCIAL NEWS may bE of
interest as indicative of the limits of public knowledge
on recent operations. "There would bE an EXCELLENT oppor-
tunity for the Washington Administration to unload some
of the gold the influx of which gave rise to so much
agitation a few months ago. All they would have to do
is by agreement with the British authorities to allow
the
Regraded Unclassified
2
2-No. 682, November 1, 6 P. m., from London.
the premium on gold to widen in accordance with supply
and demand, and to remove the ban on gold withdrawals
through private arbitrage. Or alternatively they could
undertake to sell gold in the London market so as to
strengthen the dollar rate through the repatriation of
the proceeds. It is not known whether the gold sold by
official quarters is British or American but judging by
the tendency of the dollar rate the United States authori-
ties Either do not sell gold or do not sell Enough 0° it.
Nor does the Exchange equalization account appear to bE
very enxious to prevent an appreciation of sterling. Even
though until now the movement has nov been substantial
it would be well if the Exchange Equalization account paid
attention to it before it proceeds much further. During
the gold scare the exchange equalization account failed
to buy sufficient gold to prevent an unwanted appreciation
of starling. Now it is selling too much gold, Encouraging
a rise in sterling instead of counteracting it. If the
authorities are anxious to moderate the widening of the
gold premium they could do so without thereby causing a
rise in sterling. They could buy dollars and sarmark
gold in NEW York to an amount in EXCESS of the amount they
sell in the London market."
BINGHAM
KLP
Regraded Unclassified
3
EDA
GRAY
LONDON
Dated November 2, 1937
RECEIVED 5:20 p.m.
Secretary of State
Washington
687, November 2, 7 p.m.
FOR TREASURY FROM BUTTERWORTH.
in the course of a conversation Waley Expressed much
the same views as Phillips, reported in No. 673, October
28, 6 p.m., Emphasizing that this was a moment of
"pause" in the British recovery movement and that activity
remained at an extraordinarily high level. HE did, however,
admit that a very definite change in mentality had occurred
and that insufficient time had intervened to perceive any
reflection of that change in systematizing Economic
activity. At the same time hE pointed out that the cart
does not pull the horse in Great Britain in a manner com-
parable to the United States,
Waley also said that he was shortly making visits
to Turkey and Italy. The exchange clearing arrangement with
Turkey was not working satisfactorily al though the trade
between the two countries was roughly in balance. British
creditors were now approximately Eighteen months in
arrears in obtaining payments. HE referred to the
3,000,000
Regraded Unclassified
4
EDA - 2 - #687, November 2, 7 p.m. from London
3,000,000 pound credit given by British interests for
the construction of a steel works in Turkey as a com-
plicating factor and an even more complicating factor
"the Foreign Office's ardent desire to bE very friendly
with the Turk".
The Anglo-Italian clearing had worked out very well
and practically all of the arraars of British creditors
had been cleared away. Waley implied that certain read-
justments now had to DE made in this agreement but they
related more particularly to the future allocation of funds
between financial interests and current trade. In response
to an inquiry about the possibility of abandoning exchange
control at this time Walty said that in the given cir-
cumstances having chiefly in mind Italy's very real need of
foreign Exchange "the abolition of the Anglo-Italian
clearing might prove too great a temptation for Italy".
(that?)
HE added the while it was impossible to get any precise
information about Italian foreign exchange assets there
WETE increasing indications of stringency and he attached
considerable importance to the fact that in Abyssinia all
possible projects WERE being hEld in abeyance at the
moment and that Italy in fact had not EVEN penetrated much
less attempted to control important sections of the country
which might well prove worth-while.
In connection
Regraded Unclassified
5
EDA - 3 - #687, November 2, 7 p.m. from London
In connection with the question of Swiss sales of
dollars and purchases of gold mentioned in No. 682, November
1, 6 Dama, and the fact that recent daily fixings of the
price of gold at a premium of four or five pence per
ounce on the NEW York dollar parity has occassioned
comment, it is worth recording that the National Bank
(has?)
of Switzerland have a discrstionary buying price of
Swiss francs of the 151,468 per ounce. It is understood
here they are not required to take any gold offered to
them at this price but that figure is a sort of yardstick
by which a Swiss purchaser of gold could measure the
maximum price which he can safely pay. At today's rate
of francs 21,49 and after taking charges into account
the National Bank of Switzerland's gold price is Equivalent
to about 141 shillings per ounce. Therefore a Swiss
purchaser of gold who felt reasonably sure that the National
Bank of Switzerland would not lower its price of gold
could also feel reasonably assured that on any price in
Swiss francs lower than the official Swiss price he would
be unlikely to lose on the transaction and hE would there-
fore bE quite willing to pay the London price at the ruling
Swiss rate of Exchange EVEN though the London price was
well above the dollar parity. Why hE should bE such an
urgent buyer of gold or why per contra the British fund
does
Regraded Unclassified
6
EDA - 4 - #687, November 2, 7 p.m. from London
does not let out more gold is another matter but the
above may (#) some light on the ruling premium on
gold.
BINGHAM
(*) Apparent omission
SMS :NPL
RECEIVED
S
/ a -
Regraded Unclassified
7
EDA
TELEGRAM SEIT
GRAY
November 2, 1937
6 p.m.
AMEMBASSY
TOKYO (JAPAN)
283.
Your 454, October 6.
Actual Japanese export of gold to United States since
October 1 has been much larger than amount mentioned by
Vice Governor of the Bank of Japan. Treasury would like
to know how much more of a gold movement it might have to
anticipate between now and beginning of next year. Will
you endeavor to procure information on this point 1f and
as it can be done without Embarrassment.
Please keep Department fully informed as to all
developments in Japanese situation which may affect the
yen, the Exchange situation, and other matters of interest
to the Treasury.
WELLES
ACTING
IIRW
EA:RF:LWWW FE
Regraded Unclassified
MISC. 3,2 60M 6-37
8
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE November 3, 1937.
TO CONFIDENTIAL FILES
SUBJECT: Telephone Conversation with
D. J. Cameron
Bank of England
FROM
Mr. Dietrich called me yesterday at home and requested me
to telephone the Bank of England to find out whether they had sold
any gold. I accordingly put in a call for Mr. Bolton and was con-
nected at 1 o'clock.
Mr. Bolton said that they had bought from us $2,500,000
at $34.86; that the official price was 140.6 1/2, which was up one
penny from the previous day, and that the equivalent was $34.86-7.
He said the exchange market was extremely quiet and that the French
were getting a little exchange which would probably continue until
the opening of the French Chamber near the end of this month.
Regraded Unclassified
9
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 3, 1937, 5 p.m.
NO.: 1552
FROM: Cochran
The French control operating through London gained
approximately 1,000,000 pounds of foreign exchange while
French markete were closed on Saturday, Monday, and
Tuesday. That is it gained about 250,000 pounds on
Saturday, on Monday 300,000 pounds, and on Tuesday
500,000 pounds. The control yielded about 40,000 pounds
this morning, bringing rate down from 147.50 to 147.10.
By 4:30 p.m. at this lower level the control had bought
back all that had been lost earlier in the day.
Therefore, there may be a slightly favorable balance for
the day. One Paris-American bank purchased $200,000
for the control on Friday evening. The stock market is
inclined to be dull and rentes to be weak. Remarks made
publicly by labor leader Jouhaux in favor of exchange
control and by Cabinet Minister Faure in favor of
nationalization of industry tend to dim outlook which
Redical Socialist Convention at Lille had somewhat
frightened.
During the Paris holidays my market contact visited
London and talked to a number of people, including Bolton.
Bolton gained impression in London that demands were being
made upon British control to yield more gold to supply
hoarding
Regraded Unclassified
10
-2-
hoarding demands than it liked, and probable future large
demands from India were a source of worry to the control.
It was the opinion of my market contact
that purchase today of belgas by the British fund might
indicate an attempt to raise this currency to a level 80
it would draw gold from the United States and in this way
let America share further in meeting demands for gold
on the part of Europe. I repeat this to you with due
reservation.
Statement of Swiss National Bank as of October 30
showed gold gain 101,500,000 Swiss francs. Statement of
Netherlands Bank as of November lst showed gold gain
24,000,000 florins.
END MESSAGE
BULLITT
********
EA:EMF
Regraded Unclassified
11
JS
Gray
LONDON
Dated November 3, 1937
Rec'd 5:50 p.m.
Secretary of State,
Washington, D.C.
691, November 3, 8 p.m.
FOR TREASURY FROM BUTTERWORTH.
In the course of a lunchson conversation Clay, Economic
Adviser of the Bank of England, Expressed serious doubts
whether Britain's recovery movement was only momentarily
at E "pause" which would in due course bE terminated in a
further upward movement (The Treasury's VIEW Expressed by
Philips and Waley in No. 673, October 28, 6 p.m. and No.
687, November 2, 7 p.m.). Clay emphasized the change in
mentality and the fact that contracts were in some cases
being canceled, in others not being placed if delivery
could not bE obtained in a reasonable time. While certainly
activity remained at a very high level, it was impossible
to predict on the basis of available information the trend.
Any definite prediction now hazarded would in the last
analysis depend on a personal interpretation of the trade
cycle theory. But there was no doubt that private Enterprise
was hesitating and the British Government would not bE prepar
to take its place. In this connection Clay referred to the
rearmament program which unless it had to bE revised upwards
was
Regraded Unclassified
12
-2-
From London, #691.
was now passing its peak. Thus far it had been mainly
directed towards constructing production facilities: while
constrictional programs would of course continue for many
months such as the moving of Government arsenals from the
south of England to less exposed places in the north, in
the main there would now begin the second stage of pro-
ducing from the recently expanded works large quantities
of "consumer goods" such as munitions, guns, airplants,
Et cetera.
Clay likewise commented on the improved tactics
recently adopted by the French fund and confirmed the
fact that it had Gained about 25,000,000 pounds since the
latest depreciation. HE also felt that Bennet's budget
reforms and the recent slections had improved the position
but not fundamentally; that the real difficulty remained
politically and that no sign of a return of confidence
was apparent. Clay thought that the franc at its present
level was neither undervalued nor overvalued but that it
was likely that it would be further depreciated at least
temporarily before the French situation turned.
Clay also referred to the tripartite agreement and
characterized the relations between Solton and his oppo-
site numbers in the United States, France, Switzerland,
Holland, and Belgium as EXCELLENT. Incidentally, he men-
tioned that the amount of foreign Exchange business being
done in London was increasing
increasing
Regraded Unclassified
13
-2-
From London, #691.
increasing and gave the following reasons therefor: (One)
it was the traditional center; (two) similar trading hours
and proximity to the continent: (three) the fact that a
large market always tends to grow larger; and (four) the
technical factor that it is more favorable for continentals
to sell their gold in London and with the sterling thus
acquired to buy dollars due to American fixed gold price.
Clay termed the American position as one of "liqui-
dity deflation" and compared it in some respects to the
French situation. But in his opinion American havy indus-
try had never really acquired sufficient momertum to with-
stand local storms and hE viewed the present in cerms of
1924 or 1927.
Rumors continue to circulate in the city regarding
possible dollar devaluation and they reach here partic-
ularly from Sweden and Switzerland where they are Either
Entertained or being kept alive.
Am informed that agreement has virtually been reached
between Swiss banks and the National Bank by which a charge
per
of one/cent per annum will be imposed on fortign balances
in Switzerland.
BINGHAM
SHS EMB
14
GROUP MEETING
November 3, 1937
9:30 a.m.
Present:
Mr. Taylor
Mr. Magill
Mr. Gaston
Mr. Oliphant
Mr. Haas
Mr. Gibbons
Mr. Upham
Mr. Lochhead
Mr. McReynolds
H.M.Jr:
Good morning.
Magill:
Good morning.
Oliphant:
Good morning.
H.M.Jr:
Is that where you (01iphant) keep your notes (on shoe)?
Taylor:
He ran out of cuffs.
H.M.Jr:
Well, that's something, anyway.
Oliphant:
Little hole in the bottom of it.
H.M.Jr:
You're trying to balance the shoe.
Oliphant:
How are you?
H.M.Jr:
I'm all right.
Something wrong with our daily balance; it's going
up. It is, you know. I suppose it's Social Security
money.
Incidentally, should I call up Mrs. - whatever her
name is - the publisher of the Washington Herald?
That was a darn good editorial that man wrote.
Gaston:
I didn't read it this morning.
Taylor:
Mr. James Wiggam wrote that.
H.M.Jr:
Any harm calling him up? Would you call up Mrs.
.....
Gaston:
I think it would be a good idea.
Regraded Unclassified
15
-2-
H.M.Jr:
What's her name?
Taylor:
Patterson.
H.M.Jr:
Would you at the same time tell her that I think
Mr. Cecil Dickson is a
...
I'm going to get a
Washington Herald. He takes Lippmann and Sullivan -
"Walter and Mark" - just takes them apart.
(To messenger) Get & copy of the Washington Herald,
please.
Wait till you see it.
Gaston:
Yes.
Gibbons:
He's a hundred percent with the Administration, you
know.
H.M.Jr:
I had nim in here for lunch with me.
Gaston:
I thought of writing a letter to the Herald Tribune
about Walter and Mark.
H.M.Jr:
Excuse me (throwing newspaper to Taylor). How's that
for a forward pass?
How are you (Magill)?
Magill:
Very good, very good.
H.M.Jr:
You ready?
Magill:
Got a document for you.
H.M.Jr:
Well, I've got a gentleman who stayed over, wants
to see me at ten. Take five minutes. I thought
right after that.
Magill:
Will you give me a ring?
H.M.Jr:
Yes. Be five or ten minutes. I've got from then
till noon. Is it a good document, what you have
written?
Magill:
I think SO.
Regraded Unclassified
16
-3-
H.M.Jr:
Huh?
Magill:
Probably be better to say no; too long, I think.
H.M.Jr:
The only thing on that Wiggam thing there is, he
compares Social Security to our having advanced
payment on the bonus. I don't think he's quite
correct on that. But he did a very nice job, and
so much - so surprising, I mean, to get anything
like that.
Gaston:
Well, the bonus is useful to answer the point as
to whether the Government will - makes good its
obligations.
H.M.Jr:
Yes, but he doesn't - you haven't read it?
Gaston:
No, I haven't read it.
H.M.Jr:
Well, I'll wait until you read it. And here's your
friend Cecil Dickson, and you might decide whether
I should do anything more about it.
Well, you're (Magill) all right then?
Magill:
(Nods yes)
H.M.Jr:
Herman?
Oliphant:
We're Just about to argue the two cases which will
involve our power to call about five billion of
outstanding bonds. If we lose the case, we can't
call them, and if we win the case, we can; and that's
the test case, the Mason case. Justice accepted
our point of view on making the brief largely an
economic brief on the practical consequences of the
decision one way or the other, and George Heas's shop
did an unusually fine job in getting some material
together. They are responsible for that.
Haas:
Henry Murphy in particular.
H.M.Jr:
What?
Haas:
Henry Murphy in particular.
Regraded Unclassified
17
-4-
Oliphant:
I was discussing that general tie-bid situation
with them.
H.L.Jr:
What?
Oliphant:
The tie-bid situation.
H.M.Jr:
Well, just as soon as I get a breathing spell I'm
going to ask Stanley Reed and Bob Jackson and you
and I to sit down. There is something - I read your
thing, and before I sign that I'd want to show what
I'm going to write to Justice, because there is some-
thing there which I don't understand. And all the
things that I've been doing this last week, as you
know - Commodity Credit and R.F.C., budget, taxes -
I can't do everything.
Oliphant:
Well, I'm saying that
H.M.Jr:
put I say it's one of those things that
Oliphant:
is that it turned out that what Stanley and I
were talking about - we were talking about separate
things, and were in agreement on the basic thing.
H.M.Jr:
Well, I want that. It's just a Question of
Oliphant:
No hurry about it.
H.M.Jr:
And on that stuff that you gave me, on those two
forms of companies - I just - my eyesight went
bad on me after I had read it, and I'm going to
put that in the cooler for a while.
Oliphant:
I might point out that S.E.C. is probably in the
process of
H.M.Jr:
01 doing something.
Oliphant:
Whenever you want to talk about it.
(1.M.Jr:
Wayne?
Oliphant:
Rogge's working on it.
Taylor:
I gave you over the telephone yesterday that business
about that letter for Social Security, and Mac's been
Regraded Unclassified
18
-5-
working on that.
(McReynolds hands Secretary letter)
H.M.Jr:
How many pages?
MeR:
Well, Wayne said they wanted something to put in
the Congressional Record, and I told him Harold
could write the letter that way.
Taylor:
They might have to put it in.
McR:
And it is a perfectly good bjective, tangible
letter, from that standpoint.
H.M.Jr:
I'd better read it.
McR:
I think you ought to read it.
H.M.Jr:
Just let me read it. (Begins to read letter)
McR:
Helvering's approved it.
I.M.Jr:
Now, just a second.
Listen, this letter should be in this form - I'll
be darned if I take the blame - Mr. Helvering should
write me a memorandum, then I'll forward it to Mr.
Altmeyer. I'm not going to sign that. Why should
I sign it because Helvering's fallen down on this
job? The hell with it. I'm sick and tired - I
mean anything that's good, I give credit to everybody
else. Let Helvering write me a memorandum and sign
it; if those are the facts, I'll forward it to Mr.
Altmeyer. I mean nobody brought it to my attention,
and I put Harold Graves in there personally. It
would still be the way it was if I hadn't put Harold
Graves in there.
Taylor:
I haven't seen that letter, but I can
H.M.Jr:
Mr. Helvering sat there and didn't do his job, and
let the Social Security back up. And it would have
been in a worse mess if I personally out of my office
hadn't sent somebody over there to correct the thing.
Now, why should I take the blame? I won't do it.
Regraded Unclassified.
19
-6-
Taylor:
That isn't the idea, to have you take the blame.
H.M.Jr:
No, I'm not going to do it. I'm sick and tired of
doing the work of all these bureau heads around the
Treasury. And if Mr. Helvering will put his name
to it and send it as a memorandum to me, I will for-
ward it to Mr. Altmeyer. Mr. Helvering fell down
and he'd still be down on his neck if it wasn't for
Harold Graves. I never was notified what the situa-
tion was until I put Graves in there. And you can
let Mr. Helvering put his name to it if that's the
situation and if he'll bring it to me this afternoon
I'll forward it to Altmeyer.
Now, the only difference that I have is that I'm
not going to take the rap. You want that letter
over there as a matter of record, don't you?
Taylor:
That's the
...
H.M.Jr:
All right, it's a good idea, but let Mr. Helvering
write it. See any objection to that? Will you fix
it up, Mac?
McR:
Yes.
H.M.Jr:
The statement is true, isn't it, that if Graves
hadn't gone over there at my request, it would still
have been in the mess it was.
McR:
It probably would.
H.M.Jr:
And probably worse. If you bring that to me this
afternoon, I'll sign it as a memorandum from Helvering
to me. But I'd like Mr. Magill to see it too. I'd
like Magill to see it before I sign it. What else?
Taylor:
Here's E letter from Sir Frederick Phillips.
H.M.Jr:
Thank you.
You (Magill) read that and see whose job that
is (handing a letter to Magill).
Do you (Taylor) mind if Archie sees this?
Taylor:
No, I showed it to him.
Regraded Unclassified
20
-7-
H.M.Jr:
Give it to Mrs. Klotz to have it copied, if
you don't object, for my diary. Have it photo-
stated for my diary.
And he's coming in at 2:30. Did Archie tell you
what I proposed to do?
Taylor:
Yes, and I want to talk about that a little before
they come in.
H.M.Jr:
How much is a little?
Taylor:
About & minute and a half.
H.M.Jr:
Do you want to stay right after this?
Taylor:
Yes.
H.M.Jr:
Herbert?
Gaston:
Well
H.M.Jr:
Should I call up Mrs. Patterson on that or not?
Gaston:
Well, after reading it over, I don't think it's so
not.
H.M.Jr:
O.K. All right, what else?
Gaston:
The Press Club holds its annual dinner on Saturday,
the 13th, and the President will be there, and while
you have not had any special invitation, it is
exclusively for members and they are hoping that you
as B member of the Press Club will attend, and they
are making provision to seat you at the speakers'
table with the President.
H.M.Jr:
Well, the answer - what I was going to say - I talked
to the President. I said I'd like to go away for
a week after I get through with my speech; I felt
by that time I'd need a week. And he said "No,"
very definitely, that he wanted me here the week
that Congress opens. So when I recommended that we
not have a special session, he said, "None of us
would have anything to do." But he very definitely
wants me nere. So I think that after I make my talk
21
-8-
up at New York I'll go up to the farm and take a
three-day weekend over there, which will cover that
Saturday; so I will not be
Geston:
So you will not be nere.
B.M.Jr:
So I will not be here. But I will get that in and
that still complies with the President's request that
I be nere when Congress meets.
Custon:
We're losing two of our good reporters here in the
Treasury. Bill Ardery is being transferred by the
A.P. to the Senate, and they're going to bring a
financial man in from New York down here to take the
Treasury run, which I think is D good idea. And the
other one is that Bob Kintner on November 15th is
going to start with Joe Alsop this North American
Newspaper Alliance column, taking the place of
Baukhage. Be E joint signature - Joe Alsop and Bob
Kintner. And they will also write as 8 team for the
Saturday Evening Post.
R.M.Jr:
what's nappened to
Gaston:
Baukhage?
Upham:
Catledge.
Gaston:
Turner Catledge. Well, his work on the Times inter-
feres with nis doing outside work.
H.W.Jr:
Does that mean that Kintner no longer works for the
Trib?
Gaston:
No longer with the Herald Tribune. Working for the
North American Newspaper Alliance.
Taylor:
That true of Alsop too?
Gaston:
Alsop too. They're both leaving the Tribune.
E.M.Jr:
Well, the Times practically is the North American
Newspaper Allience.
Gaston:
That's true. The New York Times is almost the
governing voice in the North American Newspaper
22
-9-
Alliance. So they are practically leaving the
Tribune to work for the Times.
Taylor:
Tapp called up from Agriculture Saturday and said
that there was quite a lot of hurry on this bill,
agricultural bill.
H.M.Jr:
Yes.
Taylor:
Wondered whether we were ready with our changes
covering the set-up of the Corporation, and if we
wanted to take it up through them or whether we
wished to take it up direct with Marvin Jones. I
didn't tell him that you were having lunch with
Marvin Jones.
H.M.Jr:
Why I'm having lunch with Marvin Jones is, I'm
going to ask him where he's going to get the money.
I'm having lunch with him and Bell. "All right, Mr.
Jones. You fellows are going to do all this. How
you going to pay for it?"
Taylor:
Do you want to talk to Marvin Jones today
H.M.Jr:
On that particular item?
Taylor:
...on that particular item?
H.M.Jr:
Too unimportant.
Taylor:
As to whether he wants to hear it from us direct.
H.M.Jr:
Just too unimportant. Just as leave do it through
Agriculture and then have our own people watch it
besides. You (Oliphant) prepare a bill through your
drafting section.
Oliphant:
Right - or let Agriculture prepare it - which is it?
H.M.Jr:
Well, I think you better send one over, tell them,
"This is the way we'd like it." And then give them
& copy and give Mr. Jones a copy - I mean both Jesse
Jones - I'd show it to Wallace and Jesse Jones and
Marvin Jones.
23
-10-
Ollphant:
Let's have it nominally prepared under the direction
of Mr. Bell, see?
H.d.Jr:
All right, yes.
Oliphant:
Right. That takes care of any
H.M.Jr:
But I'm not going to - I mean that's a detail.
I mean I'm going to telk over-all cash. That's
what I'm going to talk about.
Taylor:
You see, Involved in that is whether it should be
in the Department of Agriculture.
H.M.Jr:
Well, if you don't mind, as to - I'm not going to
get dragged down into what I consider a very unim-
portant thing. I'm simply going to say, "After
reading all this in the papers, would you mind,
Marvin, just letting me in on a little secret:
now, and who's going to pay for it?" But - I mean
I'm glad to get it - I'm not going to get into that.
I've told Wallace and so forth - my God, the President,
what did he say in the independent agencies thing -
doesn't It say "independent" and all that?
Taylor:
Yes, but even then there has to be some work done on
it.
B.M.Jr:
Well, I'm going to forget about it. But I think it
should be brought to Bell's attention, because Bell
is also preparing a shifting from Agriculture on the
loaning that they have done under the old - taking
care of the relief people; that's going back to
Hopkins - loans on farms and all that business;
I can't give you all the details, but it's an entire
reshuffling of that whole business. In other words,
getting any handling of actual money away from
Agriculture.
McR:
Resettlement loans?
H.M.Jr:
Yes,
Ollphant:
Well, I've had a note from Bell asking me to draft
that statute.
H.V.Jr:
Well then, give it to Bell.
Regraded Unclassified
24
-11-
Oliphant:
I think that's the way so far as Agriculture is con-
cerned. If they ask us, we'll say, "Bell is doing
it."
H.M.Jr:
That's right, and we'll watch it.
O.K., Wayne?
Taylor:
Well, I was wondering who was going to make the
loans.
H.M.Jr:
Well, you'll have to ask Bell. I mean things have
happened so fast the last few days. I keep track
of the important things, but I - I mean here they're
working at such high speed, I just can't keep track
of everything.
McR:
Danny won't consent to Agriculture making them.
Taylor:
That's all right, but I just wondered who.
H.M.Jr:
Well, talk to Dan, because we did the Agriculture
Department - went so fast, I
....
All right?
When I see Magill, I'd like for you (Gaston) to
stay.
Gaston:
Yes, sir, at when?
H.M.Jr:
Pardon me?
Gaston:
At when?
H.M.Jr:
Well, be five minutes after this. I'll phone you.
Gaston:
Yes, sir.
H.M.Jr:
George, in going over with Bell - he did the
Treasury Department, and maybe McReynolds knows
all about this; McReynolds ought to handle this
for you. He took the Statistical Division in
Internal Revenue and bunched it with yours, and
made the statement: "bet Haas justify both of them.
Now, do you consider you are responsible for both of
them?
25
-12-
Haas:
Yes, according to ...
H.M.Jr:
All right. He gave you 5 substantial cut, see?
Taylor:
that's a swell place to save money.
Baas:
Well, if the responsibility can cut, it cuts off
the Section over here. All right, I'd better look
it over. But I am responsible under an order which
you issued some time ago,
H.V.Jr:
And ne also cut Internal Revenue, and he also
cut Baby Bonds a million dollars. And Bell made
the statement: "That's a very expensive organization."
Taylor:
Sure it is.
H.S.Jr:
Well, I'm just telling you people. And if on that -
if you'd all work through Mac, clear it, let Mr.
McReynolds be the funnel to take it up with the
Budget, rather than having us all jump on Bell, see?
But those were the outstanding things: that he cut
Baby Bonds e million, he cut Haas, he cut Internal
Revenue. He cut Coast Guard - not badly, but some-
thing.
Gibbons:
Hun?
E.M.Jr:
He cut Coast Guard - I forget what it was. But you
(McReynolds) better find out.
MeR:
Yes, we'll get those figures.
H.M.Jr:
What?
MeR:
we'll get them back, have a chance to talk about them.
H.M.Jr:
I thought on Baby Bonds and on Haas I don't know the
set-up, and I wouldn't argue on Treasury with him
anyway.
Gibbons:
In the Merry-Go-Round this morning they've got the
story on Waesche's set-up to transfer personnel for
the ships, you know.
H.M.Jr:
Yes.
:
26
-13-
Gibbons:
But they give the credit to old Admiral Wiley.
They said that Kennedy's organization kicked hell
out of the idea until this Maritime
....
H.M.Jr:
Commission.
Gibbons:
No -
the Maritime Union went after Kennedy.
Now Kennedy has revived it. But they've got it
pretty accurately.
H.M.Jr:
They've got a lot of accurate stuff.
Gibbons:
Except that fortunately they don't mention Waesche.
H.M.Jr:
They've got a lot of stuff here that is very
accurate. They don't have to go just anywhere
for it.
Gibbons:
You mean in that Merry-Go-Round.
H.M.Jr:
Lot of stuff in there.
Gibbons:
I often wonder where they get it.
H.M.Jr:
Well, I know where they get it from.
Gibbons:
I don't mean in the Treasury; I mean every department.
H.M.Jr:
They don't get it out of the Treasury.
Gibbons:
Not only Treasury matters, but every department.
Those fellows - they hit the nail practically on the
head practically all the time.
H.M.Jr:
All right.
Gibbons:
That's rather amusing.
Lochhead:
Nothing.
Upham:
Nothing.
H.M.Jr:
Mac?
McR:
Nothing.
Regraded Unclassified
27
-14-
H.M.Jr:
Now Mr. Taylor wants to see me for a minute and a
half.
Oliphant:
I'd like to discuss the legal aspects of that problem
with Stanley and Bob preliminary to your meeting with
them, if you want to.
H.M.Jr:
That's all right.
28
Ribbon copies of this memo sent
to President and Secretary of State
11/15/37 by the Secretary.
Regraded Unclassified
29
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 3, 1937
TO
Secretary Morgenthau
FROM
Mr. Haas DA
Subject: Current trade with Japan and China. (Preliminary data)
Trade with Japan
1. United States exports to Japan
October 1937 October 1936 September 1937
1st week
3 1,727,000
2nd week
5,746,000
3rd week
4,492,000
For whole
For whole
4th week
6,763,000
month
month
Four weeks
$18,728,000
$26,663,000
$16,842,000
Excluding cotton, our exports this month, although
incomplete, are almost twice as great as the exports during
the whole month of October 1936, and considerably greater
than the exports of September 1937:
Exports - 4 weeks October 1937, excluding cotton - $17,715,000
If
whole month October 1936
11
If
9,787,000
=
II
=
September 1937
=
=
15,354,000
2. United States imports from Japan
October 1937 October 1936 September 1937
1st week
3,328,000
2nd week
3,984,000
3rd week
3,419,000
For whole
For whole
-
4th week
4,060,000
month
month
Four weeks
$14,791,000
$15,930,000
$15,988,000
The composition of our imports from Japan 18 approxi-
mately the same as that of October 1936. It now appears
that the total imports this month may be slightly less
than that of a year ago, or of a month ago, but not by
more than 5%.
Regraded Unclassified
30
Secretary Morgenthau - 2 -
3. United States export of cotton to Japan remains
negligible.
1st Week
nil
2nd Week
$192,000
3rd Week
297,000
4th Week
452,000
Four weeks $941,000
Last October cotton exports to Japan amounted to
$16,876,000.
4.
Compared with previous months, there is à sharo decrease
in exports of scrap iron and steel.
1st Week
$ 65,000
2nd Week
354,000
3rd Week
468,000
4th Week
106,050
Four weeks $993,050
Monthly average March to August 1937, $5,600,000.
5. Raw silk imports from Japan continue.
lst Week
$2,040,000
2nd Week
2,087,000
3rd Week
2,095,000
4th Week
1,861,000
Four weeks $8,083,000
(Average monthly imports from Japan in 1936, $8,000,000)
6. The following items show large decreases in our exports
to Japan compared with October of last year.
Four weeks of
Month of
October 1937
October 1936
Cotton, unmanufactured
$941,000
$16,876,000
Finished iron and steel
manufactures
136,000
1,440,000
Wood, unmanufactured
192,000
420,000
Tobacco
19,000
384,000
Regraded Unclassified
31
Secretary Morgenthau - 3 -
7. The following items show large increases in exports
to Japan compared with October of last year.
Four weeks of
Month of
October 1937
October 1936
Iron and steel semi-
manufactures
$ 3,580,000
$ 197,000
P1g iron
887,000
None
Hides and skins
833,000
141,000
Ferro Alloys
279,000
6,000
Petroleum products
4,216,000
2,224,000
Copper
1,441,000
956,000
Pig lead
167,000
None
Scrap brass
418,000
104,380
Industrial Machinery
1,345,000
658,000
Coal tar products
255,000
63,000
United States Trade with China
8. United States exports to China and Manchuria.
North China
Shanghai, South China
and Manchuria
and Hong Kong
3rd Week
$ 457,000
$ 787,000
4th Week
565,000
1,788,000
3rd and 4th
Weeks of
October 1937
$1,022,000
$2,575,000
For whole of China, Manchuria and Hong Kong
Whole month October 1936 $5,049,000
If the exports during the third and fourth week are a
good sample, our exports to China for the whole month
will be considerably greater than last October.
9. United States imports from China, Manchuria and Hong Kong.
North China
Shanghai, South China
and Manchuria
and Hong Kong
3rd Week
$ 414,000
$ 956,000
4th Week
653,000
724,000
3rd and 4th
Weeks of
October 1937
$1,067,000
$1,680,000
Regraded Unclassified
32
Secretary Morgenthau - 4 -
For whole of China, Manchuria and Hong Kong
Whole month October 1936 $5,446,000
Our imports from China will probably be somewhat greater
than last year, 1f the 3rd and 4th week 1s a good sample.
10. Leading export items to China
(a) North China and Manchuria - 3rd and 4th weeks only
Iron and steel semi-manufactures
$ 218,000
Tobacco
205,000
Petroleum products
205,000
Vehicles, parts and accessories
136,000
Electrical machinery and apparatus
44,000
Cotton
38,000
Industrial Machinery
36,000
Other
140,000
Total
$1,022,000
(b) Shanghai, South China ports and Hong Kong
Petroleum products
$ 608,000
Tobacco
409,000
Iron & Steel semi-manufactures
280,000
Vehicles, parts and accessories
216,000
Edible vegetable products
209,000
Iron & steel finished manufactures
112,000
Radio and apparatus
90,000
Wood, unmanufactured
80,000
Electrical machinery
72,000
Industrial machinery
76,000
Copper
70,000
Industrial chemicals
60,000
Other
293,000
Total
$2,575,000
Regraded Unclassified
33
Secretary Morgenthau - 5 -
11. Leading imports from China.
(a) Manchuria and North China - 3rd and 4th weeks only
Bristles
$ 340,000
Food products
171,000
Wool and manufactures
168,000
Leather
104,000
Other
284,000
Total
$1,067,000
(b) Shanghai, South China ports and Hong Kong
Wood oil
$ 419,000
Raw silk
341,000
Tin
193,000
Flax and Hemp manufactures
181,000
Tungsten ore
103,000
Food products
98,000
Tea
58,000
Chemicals
33,000
Other
254,000
Total
$1,680,000
Regraded Unclassified
34
Secretary Morgenthau - 6 -
Of the total of $18,728,000 of exports to Japan during
the first four weeks of October, the following items account
for almost all the total:
Petroleum products
$ 4,216,000
Iron & steel semi-manufactures
3,580,000
Copper
1,441,000
Industrial machinery
1,345,000
Paper base stock
1,106,000
Scrap iron and steel
994,000
Cotton
941,000
Pig iron
887,000
Hides and skins
833,000
Vehicles
634,000
Scrap brass
418,000
Ferro Alloys
279,000
Coal tar products
255,000
Fertilizer
208,000
Wood, unmanufactured
192,000
Pig lead
167,000
Industrial chemicals
133,000
Photographic and projection goods
131,000
Other
968,000
Total
$18,728,000
Regraded Unclassified
35
Secretary Morgenthau - 7 -
Of the total of $14,791,000 of imports from Japan
during the first four weeks of October, the following
items account for the bulk:
Raw silk
$ 8,021,000
Cotton manufactures
1,119,000
Tea
457,000
Silk manufactures
456,000
Chinaware and porcelain
374,000
Rayon manufactures
356,000
Fish
333,000
Inedible animal products
331,000
Perilla oil
307,000
Wool manufactures
272,000
Pyrethum flowers
260,000
Paper manufactures
237,000
Earthenware
197,000
Chemicals
189,000
Lily bulbs
183,000
Wood manufactures
163,000
Metal manufactures
156,000
Food products
153,000
Glass manufactures
136,000
Flax and hemp manufactures
135,000
Other
956,000
Total
$14,791,000
Regraded Unclassified
36
November 3, 1937
11:55 a.m.
H.M.Jr:
Hello.
Operator:
Dr. Riefler.
H.M.Jr:
Thank you.
Operator:
Go ahead.
H.M.Jr:
Hello.
Winfield
Riefler:
Hello.
H.M.Jr:
Morgenthau.
R:
Yes.
H.M.Jr:
Well, how do you feel today?
R:
Well, I've been thinking it over quite a bit. My
feelings are a little mixed. I'll try to give you
both sides.
H.M.Jr:
Yes.
R:
Will that be satisfactory?
H.M.Jr:
Please.
R:
From the long-term point of view, I am awfully
sympathetic to the
of attitude
that Jake Viner has expressed. What he wanted to
do, more or less, was to remove sterilization from
a day-to-day decision.
H.M.Jr:
Yes.
R:
And that is a - it is a valuable long-term point of
view, and I'm impressed with it. That's my present
one.
Second, the dropping of sterilization is not an
awfully major move now because we have had a good
excess reserve, I think.
H.M.Jr:
Yes.
R:
Even in New York. That's the middle position.
Regraded Unclassified
37
- 2 -
H.M.Jr:
Yes.
R:
Third, sterilization does - it is a moderate factor
toward control of a situation at a time when it is
weak.
H.M.Jr:
Yes.
R:
I mean it - it sounds - it sounds as though you're
trying to deflate - not really, but it sounds as
though you're maintaining a deflationary policy
at a time when business is falling off.
H.M.Jr:
That's it.
R:
And therefore is continuously subject to misinterpre-
tation and attack.
H.M.Jr:
You mean the sterilization?
R:
Yes, sterilization as such is.
H.M.Jr:
Yes.
R:
I mean people keep on saying, "Well, what do you mean
by sterilizing when business is falling off?"
H.M.Jr:
Yes.
R:
And it's a very difficult problem to constantly
explain that it is not so important and that you're
not - you're not really doing that.
H.M.Jr:
Yes.
R:
On balance, I think that I would be inclined to drop
it, just because of the - of the pressure at that
point, to free yourself
.....
H.M.Jr:
You'd be inclined to?
R:
I - I wouldn't take much kick out of it. I think
you're losing certain things if you do it.
H.M.Jr:
Uh-huh.
R:
But I think I'd probably be inclined to drop it.
H.M.Jr:
Uh-huh. Well, I'm not going to make up my mind until
I have a chance to think about it much more.
Regraded Unclassified
38
- 3 -
R:
Yes.
H.M.Jr:
But I did want to know what you thought.
R:
Well, that gives you my picture pretty much, doesn't
it?
H.M.Jr:
Yes, it does.
R:
I mean it - it's not an important move actually,
and it is one of those bothering things in terms
of functioning and popular psychology.
H.M.Jr:
Yes.
R:
And you just have to weigh the advantages of one
against the other.
H.M.Jr:
That's right.
R:
I don't think it's going to improve the situation
very much
H.M.Jr:
No, I don't.
R:
.... actually.
H.M.Jr:
The only thing that would make me do it would be with
the hope that the public would feel, well, that we -
we're not so anti-deflationary as they think we are.
R:
Yes.
H.M.Jr:
See?
R:
Yes.
H.M.Jr:
Now, on the other hand, the Federal Reserve made their
last move last week.
R:
Yes.
H.M.Jr:
And it had an effect for about two days, and that's all.
R:
Yes.
Regraded Unclassified
39
- 4 -
H.M.Jr:
And if the market continues to go down, and it's
off sharply today, I think the more they study
that move the Federal made, the more they'll decide
it was unwise.
R:
Yes.
H.M.Jr:
And I'm fearful that this is
.....
R:
Well, they may say the same about this, of course,
if you drop it.
H.M.Jr:
Well, I think it'd be good for about three days.
R:
Yes.
H.M.Jr:
The more I
.....
R:
It's not a good move in any sense to the market.
I mean it's
H.M.Jr:
Well
R:
It's not important enough.
H.M.Jr:
Well, the only - the more I think of it, the less
I like it - to do it by itself.
R:
Yes.
H.M.Jr:
But I - - I'm going to keep examining it for the next
couple of days.
R:
Yes. Well, I think that as far as timing is concerned,
I would not do it while the market's dropping.
H.M.Jr:
No.
R:
Because it isn't - it really isn't important in any
short-term sense, or very important in a long-term
sense today; and you give them something to talk
about
but it wears out in two or three
days and leaves a worse situation than you had at the
beginning.
Regraded Unclassified
40
- 5 -
H.M.Jr:
That's right.
R:
No, I - - I wouldn't do it until I came to a very
quiet period.
H.M.Jr:
I see. Well, thanks very much.
R:
I mean that's just about the way I feel about it.
H.M.Jr:
Thank .....
R:
I think that's the psychology.
H.M.Jr:
Thank you.
R:
All right.
H.M.Jr:
Goodbye.
Regraded Unclassified
41
November 3, 1937
2:07 p.m.
Operator:
Go ahead.
H.M.Jr:
Hello.
Jacob
Viner:
Hello.
H.M.Jr:
Hello, Jake?
V:
Hello, Henry.
H.M.Jr:
How are you?
V:
All right.
H.M.Jr:
Have you had a chance to think that matter over?
V:
Why, yes, I've thought a little about it.
H.M.Jr:
Well, do you want ...
V:
And I say that you oughtn't to do it unless Eccles
requests you to.
H.M.Jr:
Uh-huh.
V:
But if he requests you to
...
H.M.Jr:
Yes.
V:
....I don't see very much to be gained by it, not
very much to be lost by it. But if he requests you
to - I think it's his responsibility.
H.M.Jr:
Well ....
V:
I don't mean that you ought to wait until he - you
may ....
H.M.Jr:
Well, I'm seeing him tomorrow.
V:
I see, You may tell him that if he wants you to do
it, you'd be willing to do it.
H.M.Jr:
Uh-huh. Well, my - after 24 hours I'm more luke- -
I'm getting lukewarm on it.
Regraded Unclassified
42
-2-
Viner:
It - it - I would be lukewarm about it. It's a
circuit gesture.
H.M.Jr:
It's a what?
Viner:
It's a circuit device.
E.M.Jr:
Yes.
Viner:
It would - it would increase the excess reserves in
the banks
11.M.Jr:
Yes.
Viner:
at a moment when it's not at all clear that they'd
have any need for added reserves.
H.M.Jr:
Yes. Well, it isn't a matter that I could defend on -
as good economics.
V:
Well, I don't think there'd be very much to worry
about 1f you did it, but I don't think you - if you
did do it, you ought to make any claims for it as
being an important move.
E.M.Jr:
Well, of course, the Federal Reserve did that thing
on margins, and the market went up, I think, one day,
and ever since then it's gone off.
V:
Yes. Well, that was a minor move too.
HMJr:
I know. I know.
V:
And I - you see, I don't think that at the moment that -
that the things that are the trouble are the monetary
set-up of the Government.
H.M.Jr:
I agree with you too.
V:
I think that that's all right.
H.M.Jr:
Now - thank heavens. Well, that's what I agree, and -
and I think we've made all the moves we can.
V:
And I certainly say that - that it would be important
that you shouldn't give the rest of the Government the
impression that you have within your power some
monetary devices whereby you can solve their problems
without their fixing their own houses in order -
putting their own houses in order.
Regraded Unclassifie
43
-3-
H.M.Jr:
I check with you a thousand percent. A thousand
percent. As a matter of fact, I'm sick and tired
of having them always dump it on the Treasury as
far as the monetary thing goes.
V:
Uh-huh.
H.M.Jr:
Taxation is something else. All right, Jake, thank
you very much. The market's off five points today.
V:
The stock market dropped five points?
H.M.Jr:
Yes.
V:
Did it?
H.M.Jr:
Yes.
V:
Well, I'm not altogether surprised.
H.M.Jr:
Neither am I.
V:
I'm going to have some very serious talk with you
on Friday or Saturday if you give me a chance.
H.M.Jr:
I'll give you all the chance you want if you'll give
me concrete suggestions.
V:
I'll give you concrete suggestions.
H.M.Jr:
Yes, but I - I - I just don't want - I mean I'm beyond
the generalization standpoint.
V:
All right.
H.M.Jr:
But I'll listen to you as long as you'll talk if you'll
give it to me one, two three.
V:
Well
H.M.Jr:
You know what I mean.
V:
Yes. Well, I'll try - I'll try you out anyway.
I'll try to talk to you and
....
H.M.Jr:
Listen, Jake
V:
-
you won't, that's all.
H.M.Jr:
....have you ever asked me for time that I haven't
given it to you?
V:
No, I'm not - I'm not ....
H.M.Jr:
0. K.
Regraded Unclassified
44
-4-
V:
....
in a complaining mood.
H.M.Jr:
No.
V:
But you said to me if I did certain things. Well,
I'll make my attempt and you'll do what you please.
H.M.Jr:
Well, listen, Jake, you know you always do it your
own way anyway.
V:
(Laughs) We'll see. I -
H.M.Jr:
Fine, fine.
V:
I really am very much troubled about this thing.
H.M.Jr:
Well, so am I, so am I, and I'll be more than
delighted to listen to you.
V:
What's that?
H.M.Jr:
I'll take it in the Jacob Viner way.
V:
Oh, fine.
H.M.Jr:
I'll be delighted to. Thank you.
V:
Ah -
H.M.Jr:
What?
V:
You'll see me Friday morning.
H.M.Jr:
Yes, sir.
V:
All right.
H.M.Jr:
Good night.
V:
Goodbye.
Regraded Unclassifie
45
The Chinese Ambassador - November 3, 1937 - 2:15 P.M.
Amb:
We always come to you when we need some help.
H.M.Jr:
We always try to help when we can.
Amb:
Dr. Kung wired me stating that we need more
ammunition and, therefore, we have to maintain
our credit in order to get the things we want.
We are prepared to sell some more of our silver
either in Hong Kong or in London. Kung asked
me to come here to see if we can get your help
again.
H.M.Jr:
Let's talk about the silver you have in London.
This would be a transaction between the Central
Bank of China and ourselves.
Amb:
Yes that is the way.
Lochhead: If we take Hong Kong silver it would be coins
but if we take silver from London it probably
would be in bars. As the coins would have to
be melted down, in any case, you might prefer
to sell us silver in Hong Kong. From your
point of view that would be preferable. To us
it would be the same either in Hong Kong or
London.
H.M.Jr:
This is not clear in my mind. Is this to be added
to the money you already have here for stabilization
purposes?
Amb:
Yes. The same as the old way.
Lochhead: They have 50 million dollars earmarked in gold at
the Federal Reserve Bank. The other dollar currency
is pretty well exhausted.
H.M.Jr:
You only asked to see me yesterday so you only had
to wait one day. I was not in Washington yesterday.
Amb:
That is correct.
Regraded Unclassifie
4S
02 I I
H.M.Jr:
We will, as of to-day, buy from you ten million
ounces of silver to be paid for on delivery in
either San Francisco or New York at 45¢ - which
is the price to-day. Same terms as before. This
holds good for this week.
Amb:
I think that is the same price.
H.M.Jr:
If next Monday or Tuesday you want to come back
to see me my door is open.
Amb:
I can't ask for anything more.
H.M.Jr:
Where is Dr. Kung?
Amb:
Dr. Kung is in Shanghai.
H.M.Jr:
Is the story in this week's Saturday Evening Post
on China a fair one? It is called "Red China".
Amb:
I have not read the story but the Red Army is
doing good work.
H.M.Jr:
You need not answer this if you do not want to;
I am simply curious to know. Am I correct in
believing that most of your supplies are going
to Germany and then reshipped in German boats?
Amb:
Not entirely. We have various different lines
to take things over. We are buying some things
from Germany. We have some things carried over
by French and German boats.
The Ambassador, getting up to go, said,
"We appreciate very much what you are doing for us".
Regraded Unclassified
47
On the evening of November 3d, at home, H. M. Jr.,
wrote the following draft, in long-hand, of a proposed
letter to the President.
2211 THIRTIETH STREET
WASHINGTON, D.C.
my dear me President:
as I might told you over the telephone
lest, I have had to come to
the conclusion this wak
J that we, headed right into
another depression
Last Friday you told the newspaper
the 1/3 undermineshed etc. This
that your first interest was
hart of our hopulation is also my
deep caron and therefore I am
bringing matter again to your
However, the next day he made several changes in the
above letter and sent the final one to the President as per
attached copy.
Regraded Unclassified
attention in writing.
the first to ful another
Thardly need tell you that
depression will be the 1/3
under musted etc. This and
process has already began
m. President what
can we do
are you going to to to stol it?
as ever faith fully yours,
to commend,
H.m.h.
Regraded Unclassi
10-17'38
47-A
Mr. Secretary:
Mr. Oliphant suggested that
the original be retrieved as it would
be in a more convenient form for you.
McGuire
HO's letter you, together with carbon copy
of this memorandum left in the Treasury
mail bag. (6:00 P.M. 10/17'38
Regraded Unclassified
47-B
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE NOV 3 1937
TO
The Secretary
FROM Herman Oliphant
This is a memorandum on the question as to whether the American
Telephone and Telegraph Company can refuse leased-wire service to the
Nation-Wide News Service, the principal purveyor of racing information to
bookmakers.
Summary
It seems clear that 1f the American Telephone and Telegraph Com-
pany might legally refuse to give leased-wire service to the compenies who
sell racing information to bookmakers, these news companies could not con-
tinue to do business. In turn, the continued existence of the large-scale
bookmaking business is dependent upon the news companies because it cannot
operate without receiving racing news almost instantaneously from the track.
In inquiring as to whether the American Telephone and Telegraph Com-
pany could refuse service to the Nation-Wide News Service, we were imme-
distely confronted with the Federal law which requires the Telephone Com-
pany to give service to anyone who applies for it and is willing to pay the
company's reasonable rates and comply with its reasonable regulations. This
law is subject to the well-established exception, however, that no utility
will be compelled to give service to be used for an illegal purpose.
Consequently, it was necessary for us to determine whether, in view
of this exception to the general rule, the American Telephone and Telegraph
Regraded Unclassified
47-C
- 2 -
Company might refuse service to the Netion-Wide News Service if it were
established that the latter company was regularly transmitting information
through the Telephone Company's facilities to illegal bookmaking establish-
ments and that this fact was known or ought reasonably to have been known
to the American Telephone and Telegraph Company.
We have concluded that the Telephone Company may, under these circum-
stances, justify El refusal of private-wire service to the news company. The
authorities on this question indicate that, if the news company sells exclu-
sively to illegal enterprises, the Telephone Company may refuse service
forthwith, but that, if the news company caters to legitimate newspapers and
racing sheets as well as illegal business, the news company must be given en
opportunity to cease selling its news to illegal enterprises before telephone
or telegraph service may be refused. The Telephone Company may give the news
company this opportunity to mend its ways by promulgating a general regulation
to the effect that, if leased-wire service is put to illegal uses, the ser-
vice will be discontinued notwithstanding any contract existing between the
parties. The judicial decisions indicate that such B. regulation would be
valid and would justify service discontimuence if violated.
The American Telephone and Telegraph Company in furnishing its facil-
ities for the dissemination of sporting information is acting BB a common
carrier in interstate commerce and is therefore subject to section 201 of
the Communications Act of 1984, 48 Stat. 1070 (U.S.C. title 47, sec. 201),
which requires all common carriers and public utilities to furnish their
Regraded Unclassified
47D
- 3 -
services to all alike without discrimination. Matter of Private Wire
Contracts, 50 I. C. C. 731, 751, 759; Western Union Telegraph Co. V. Foster,
247 0. S. 105. However, this general rule against discrimination is sub-
ject to the exception that service may be refused or withdrawn if it is be-
ing used for illegal purposes. The judicial decisions which have enunciated
this exception would justify the refusal by the Telephone Company to give
service to the Nation-Wide News Service.
Smith V. Western Union Telegraph Co., (1887) 84 Ky. 664, 2 S.W. 483,
presents a good example of the manner in which courts deel with cases of the
character under consideration. 1 The petitioner, the owner of 8. bucket shop,
filed a petition for mandemus against the Telegraph Company to require that
1 Other cases identical in principle to the Smith case follow:
People ex rel Hiegel V. New York Telephone Co., (1922) 195 N.Y. Supp. 332,
(refusal of telephone service to a bookmaker);
Thurston V. Union Pac. R. R. Co., (1877) 25 Fed. Cas. 1192, (refusal of
railway service to one who intended to gamble on the train);
People ex rel Montario V. New York Telephone Co., (1917) 167 N. Y. Supp.
1114, (refusal of telephone service to a bookmaker);
Western Union Tel. Co. V. State, (1905) 165 Ind. 492, 76 N.E. 100 (refusal
of telegraph service to a bucket shop);
Sullivan V. Postal Tel. Cable Co., (C.C.A. 7th, 1903) 123 Fed. 411 (refusel
of telegraph service to a bucket shop) ;
People ex rel Restmeyer V. New York Telephone Co., (1916) 159 N. Y. Supp.
369, (refusal of telephone service to a bookmaker);
Cullen V. New York Telephone Co., (1905) 94 N. Y. Supp. 290, (refusal of
telephone service to B bookmeker);
Godwin v, Carolina Tel. & Tel. Co., (1904) 156 N. C. 258, 48 S. E. 636,
(refusal of telephone service to a house of prostitution);
Bryant V. Western Union Tel. Co., (c.c., D. Ky., 1883) 17 Fed. 825,
(refusal of telegraph service to a bucket shop).
Regraded Unclassified
47E
- 4 -
Company to furnish him with the use of telegraph facilities for the recep-
tion of market reports, and contended that the Company was under a duty to
give service notwithstending the character of the patron's business. The
court held that the Telegraph Company could not be compelled to render a
service which was indispensable to the continued existence of E business
which was contrary to law, good morals, and public policy.
There is an apparent distinction between the Smith case end the
situstion under discussion, for in our case the bookmaker, conducting an
illegal business, is not the patron of the Telephone Company and would not
be seeking the telephone service. On the contrary, the Nation-Wide News
Service, engaged in a business which is not made illegal by statute, is the
petron and would be seeking the service. It 1s because of this distinction
that the American Telephone end Telegraph Company has taken the position
that it has no legal right to refuse service to the news company. It con-
tends that the Smith case and others of its kind do not justify the Company
in going behind the news company to question the legality of the business
in which the purchasers of the information are engaged.
It is believed that the Telephone Company places too narrow a con-
struction upon the cases. The principle upon which they are based is that
1
a public utility should not be compelled to foster an illegal enterprise.
1 Last spring Judge Eugene O'Dunne of the Baltimore Criminal Court secured
the indictment of the Chesapeake and Potomac Telephone Company for aiding
and abetting bookmaking. In a letter directed to the Telephone Company prior
to submitting the matter to the grand jury, Judge O'Dunne stated:
"I know you are subject to certain orders and regulations of the
Public Service Commission as to service, but I take it that these
cannot conflict with such obligation BS every person, natural or
artificial, owes the State of Maryland in not knowingly fecilitating
the commission of crime. Even an humble pawnbroker cannot justify
selling 8. gun to a man when he knows or by common intelligence ought
to know that he wants it to kill someone with."
Regraded Unclassified
47F
- 5 -
It is difficult to believe that a court would ignore the patent fact that,
if it compels service to the news company, it would, as a practical matter,
be compelling service to bookmakers. No decisions were found which would
throw any doubt upon the velidity of this proposition, and three lower court
cases, which are closely in point, may be cited to support it.
In People ex rel Sleight Newa Co. V. New York Telephone Co. (N. Y.
Sup. Ct., Special Term, N. Y. L. J., December 17, 1918), the petitioner was
a concern engaged in #isseminating sporting news and it was shown upon the
trial that violations of the bookmeking statute resulted from the dissemi-
nation of this information. The court refused to grant a writ of mandamus.
Again in People ex rel Empire News Co., Inc., V. New York Telephone Co.
(N. Y. Sup. Ct., Special Term, N. Y. L. J., March 10, 1919), the petitioner
was a news company, but it appeared from the evidence that the company fur-
nished information to legitimate newspapers as well as to bookmakers. The
court granted the writ of mandamus upon the condition that the petitioner
restrict its sales to legitimate enterprises.
In Bulletin Publishing Company V. Southwestern Bell Telephone Co.,
(Texas case, unreported), the Telephone Company had refused the application
of the Publishing Company for the installation of twenty-five individual
line telephones in an office 10 by 22 feet in size. When the Publishing
Company sought to compel the Telephone Company to make this installation,
the latter justified its refusal of service on the ground that due to the
great number of telephones desired for such EL small office it suspected
that they were to be used for bookmaking. Despite the Publishing Company's
Regraded Unclassified
47G
- 6 -
contention that it merely intended to gether and disseminate sporting news,
the court refused to compel the granting of service.
These cases appear to be supported by the decisions in the Smith
case and others of its kind and would afford a sound legal basis for the
refusal by the American Telephone and Telegraph Company to give service to
the Nation-Wide News Service.
As above stated, the court in the Empire News Company case granted
the writ of mendamus because the news company was able to show that it
catered to legitimate newspapers, but granted it only upon condition that
the news company restrict its sales to such legitimate enterprises. Since
it is possible that the Nation-Wide News Service does business with legiti-
mate enterprises as well as bookmakers, it is necessary to take cognizance
of this element in the Empire News decision. Since a violation of the
court's order in that case would have entitled the Telephone Company to
refuse leased-wire service, the effect of the decision is merely to give
the news company an opportunity to mend its ways before denying it telephone
service.
If it appears that the Nation-Wide News Service does sell news to
some legitimate establishments, it is believed that the Telephone Company
could give the News Service the opportunity, apparently required by the
Empire News decision, to sever its connection with illegal enterprises by
issuing a general regulation to the effect that leased-wire service would
be discontinued if put to illegal uses. It is well settled that a public
utility can refuse or withdraw service if the patron fails or refuses to
Regraded Unclassified
4TH
- 7 -
comply with its reasonable regulations¹. The criterion that determines the
validity of a public utility regulation is its reasonableness as judged upon
the facts and circumstances involved in the particular case. For example,
utilities may promulgate end enforce regulations designed to protect their
equipment 2 to eliminate waste of their particular product 3 to protect the
public from injury from use of their equipment⁴, to insure the payment of
their charges⁵, and to foster the efficiency of their service⁶. Certainly,
it would seem that, if a court may properly lay down a rule, as was done
in the Empire News case, to the effect that service could be discontinued
if put to illegal uses, at regulation issued by the Telephone Company to
the same effect would be held valid. After the promulgation of such 8. regu-
lation, the Company could immediately discontinue leased-wire service with
impunity, if the Telephone Company discovers that the News Service con-
tinues to violate its regulation by using the leased wires to foster book-
making establishments.
It should be stated in this connection that an examination of the
American Telephone and Telegraph Company's regulations governing private-
wire service failed to reveal the existence of any such general regulation
as is above suggested. We understand, however, that the Telephone Company
does, at the present time, insert a provision in their contracts with the
Nation-Wide News Service to the effect that, if the Company is advised by
1. Harbison V. Knoxville Water Co., (1899) 53 8. W. 993.
2. Gardner V. Providence Tel. Co., (1901) 49 Atl. 1004.
3. Shiras V. Ewing, (1892) 29 Pac. 320.
4. Wiegand V. Alabama Power Co., (1930) 127 So. 206.
5. Western Union Tel. Co. V. McGuire, (1885) 2 N. E. 201.
6. Huffman V. Marcy Mutual Tel. Co., (1909) 121 N. W. 1033-
Regraded Unclassified
47D
- 8 - -
a local prosecutor or other law officer that their equipment is being used
for illegal purposes, they will remove the equipment and discontinue service.
This is obviously not broad enough to accomplish the purpose desired, for,
in the first place, the Telephone Company has, in accordance with the con-
tract provision, abstained from acting until they are requested to do so by
the local prosecutor, and, in the second place, the provision would permit
discontinuance of service only for the particular bookmaking establishment
and not for the entire Nation-Wide News Service net work.
48
November 4, 1937.
My dear Mr. President:
AS I told you over the telephone last night,
I have had to come to the conclusion that we are headed
right into another depression.
Last Friday you told the newspapermen that
your first interest W&S the one-third of the Nation
who are ill-nourished, ill-clad and ill-housed.
This
part of our population is also my deep concern and
therefore I am bringing this matter again to your atten-
tion, in writing.
I hardly need tell you that the first to feel
another depression will be this same one-third. This
cruel process has already begun.
The question is, Mr. President - what are we
going to do to stop it ?
AS ever,
Faithfully yours to command,
The President
The White House
Regraded Unclassified
49
November 4, 1937 9:45 8.m.
I told Lochhead at 7:15 this morning to inform England
that after to-day we would sell no more gold in London. We
will retain the little we have left.
I called the President last night at 6:15 and told him
that I was now convinced that we were headed into another
depression and that I thought he had to do something about it.
I said I would like to call in a number of people over Saturday
and Bunday and discuss whether we should do something about
gold, From then on the President got very excited, very
dictatorial and very disagreeable.
He quoted at great length a man whom he described as
a "wise old bird" who had told him that there were 2,000 men
in this country who had made up their minds that they would
hold a pistol to the President's head and make certain demands
of him, otherwise they would continue to depress business.
He quoted a lot of other generalities.
I said, "A great depends on who this person is" and,
like à cruck from a whip, he said, "It is not necessary for
you to know who that person is which, after thinking it over,
led me to believe that the "wise old bird" was himself whom
he WLS quoting. In any event, he was extremely rude to me at
that point. Naturally I was not very warm in my conversation.
Mrs. Morgenthau who had heard the conversation said that my
voice sounded like the drippings of an icicle.
He then said, "Has production gone below consumption" so
I replied, "I do not know" and he said, "That is the all im-
portant thing". (I do not believe anybody can answer that
question honestly and that is the pattern that Paul Mazur
presented to me at the instigation of Jimmy Roosevelt).
The President then asked me, "Are you selling much gold?",
and I replied yes that we were down to our last ten million.
He said, "If gold moves out of this country won't that be
bullish". I said, "I do not think it would be anything because
some people will say that it is moving out of the country
because people are frightened." The President then said,
"That is perfectly ridiculous. If gold goes out of the country
people will be delighted to think that someone else than the
United States 1s willing to pay $35.00 an ounce for gold."
Regraded Unclassified
50
The President then continued to pound ne on how people
wunted to bargain with him before they would agree to do
anything SO I said, "Mr. President, I do not see that kind
of people. The only person I talk to 1s you" and, I said, "I
cannot do anything for you and there is not much of anything
you can do for me - and this question that I am raising is one
that has to be settled just between you and me",
The President said, "Have you talked to Eccles?" and I
suid, "No". He said, "Eccles has a program and I asked him
why he 61d not show it to you and he replied that he did not
think Morgenthau would be in sympathy with his program. n I
tole the President that Eccles was having lunch with me on
Thursday (I did not tell the President that since Eccles
returned from the West he has been steering clear of me).
Perhaps I mude - mistake on Monday when I knew that Eccles
PLS going to see the President after ne that I asked the
President to excuse me us I would rather have Eccles see him
alone. This any have given the President the idea that Eccles
=nd I did not get Llong too well - which, of course, we do not.
Finally the President said, "I just will not raise the
price of gold at this time" and I answered, "For God's sake,
Mr. President, I never asked you to raise the price of gold".
He said, "That are you talking about?" and I replied, "I am
talking about should we stop sterilising gold?" and then he
let out the most raucous 1.ugh and he said, "I have completely
misunderstood you". I thought you were urging me to raise the
price of gold". I shid, "I never even hinted at such a thing",
I said, "I an also considering should we spend some of our
sterilized gold and, thirdly, should the Federal Reserve lower
Its excess reserve requirements. In other words, I said,
should we retrace the steps that we have taken?"
He kept constantly interrupting me and he said, "Why
that is entirely different. By all means go ahead and study
those questions".
I then asked him whether I could come and see him the
first thing Saturday morning to go over the final draft of
my speech. He said, "Yes, I want to talk to you about that
very much because I think in several places you make too
categorical statements and I do not want to be saying things
now that we will have to withdraw two months later."
Regraded Unclassified
51
- 3 -
The only way I could explain to myself as to why he
misunderstood me about the gold was that he must have had
it in the back of his mind that he may wish to raise the
price of gold, and that is why he was so vehement in his
arguing with me against it.
Regraded Unclassified
5₂
November 4, 1937
At the end of over two hours at Cabinet, the
President said: Now, I want to say something. He
said, of course I am glad to hear from the various
members of the Cabinet their sad story on how bad
business conditions are. He said: Last night when
I went to bed alongside of my bed was the darndest
letter you ever saw from Henry. Then he made a
grimace of a long, long face, and he said: It was
just terrible. Then he proceeded to lose his temper
and said: I am sick and tired of being told by the
Cabinet, by Henry and by everybody else for the last
two weeks what's the matter with the country and no-
body suggests what I should do.
There was complete silence. I said: All right,
Mr. President, do you want me to start? He said, Yes.
I said: All right, I will tell you what's wrong
with it. I said, You can do something about public
utilities. You can do something about the railroads.
You can do something about housing. Then, I said,
After all, we are not sitting here as members of your
Cabinet unless you have got confidence in us and it
seems to me that you should tell the various members
of your Cabinet to take a particular problem, develop
it as far as they can, and then if they should get
stuck, come and bring it to you, but work it up for
you. I said: As far as I am concerned, you can give
me any problem that you want. I said: I am working
18 hours a day now, but I will take anything you give
me.
I said: I mentioned in my letter what you should
do about it. I said: I am in the same boat that you
are, and, I said, you just name the problem and I will
take it up.
He said: Well, as far as public ut ilities and
housing are concerned, he said, I have practically got
that ready. Railroads is a very complicated proposi-
tion. He then went into a long discussion on railroads.
I said: Now, I would like to say one more thing.
I said: You have to say something yourself about busi-
ness on November 15th. And then he sneered at me and
he said: "You want me to turn the old record on." I
said very forcefully, If you don't want to hear from
53
-2-
me, I don't have to tell you, but you asked me.
Jim Farley said, "Henry, go on and tell the Pres-
ident."
And I said: What business wants to know 18 are
we headed towards State socialism or are we going to
continue on a capitalistic basis? He said: I have
told them that again and again, and I said: All right,
Mr. President, tell them for the fifteenth time on
November 15th, because, I said, that's what they want
to know.
Farley said: That's what they do want to know.
Wallace backed me up. He said you have to do something
about labor. Can't Miss Perkins do something about it?
Then Farley said: What about telling them that
you are going to reduce the cost of Government? He
(Farley) said: That's what people are interested in.
And then the President went into a discussion about
increased relief and turned to me and said: Now, Henry,
you have got to be ready in case we are going to have to
spend more money for relief. I said: Mr. President,
I have gone into that whole thing in my speech and you
can see it tomorrow morning.
This 1s the first time in my experience that the
Cabinet has ever talked on a man to man basis with the
President and that we did not sit back and either talk
trivilaties or listen to him. When we got through
Farley said: Mr. President, I would like to say that
this is the best Cabinet meeting we have ever had.
COMMENT: I suppose the President thought he could
down me in front of the whole Cabinet, but instead of
that his Cabinet handed it to him.
He agreed that on the 15th he would again re-state
his position on his attitude on business and Farley, for
the first time that I have ever heard him, spoke up and
said: I would like to see what you are going to say,
Mr. President before you say it. The President said:
All right, Jim; I will turn on the old record.
Regraded Unclassifie
54
November 4, 1937.
10:48 a.m.
H.M.Jr:
Hello.
Operator:
Chairman Eccles. Go ahead.
H.M.Jr:
Hello.
Eccles:
Hello.
H.M.Jr:
Hello Marriner.
E:
Good morning, Henry.
H.M.Jr:
I tried to get you, but they said that you came in
late last night, I don't know whether -
E:
Yes. Yes, I wasn't - as a matter of fact, I didn't get
in here until this morning on an eight o'clock train,
and I didn't find out until this morning that you had
tried to get me.
H.M.Jr:
I just wanted to talk a bit. You're coming over at
noon, aren't you?
E:
That's right.
H.M.Jr:
Now, I want to say, that anything that you've got -
that you think that will be helpful on the present
situation we're in, if you've got anything in writing,
I'd be more than pleased if you'd bring it along.
E:
Well, I'll tell you what I do have. I have a memorandum
I left with the President and as far as I'm concerned,
if he has no objection, I certainly have no objection
to giving it to you.
H.M.Jr:
Well as a matter of fact, he spoke to me last night.
E:
Yes.
H.M.Jr:
And he said, had I seen what you had shown him, and I
said no. He said he would like me to see it.
E:
Yes.
H.M.Jr:
And that he had asked you why you didn't show it to me,
and he said, that you didn't think I'd be sympathetic
to it.
Regraded Unclassifie
55
- 2 -
E:
No, that's not correct. He didn't ask me any such a
thing.
H.M.Jr:
Well, I -
E:
As a matter of fact, the - the memorandum that I left
with him was not completed until Sunday and I caught
the train Sunday afternoon and I got up to New York
late Sunday night. I went up to Hyde Park, so that it
would have been a physical impossibility for me to show
it to anybody.
H.M.Jr:
Well, I -
E:
And if -
H.M.Jr:
Well, I wanted to tell you that because I always figure,
by now, if I have anything like that, that bothers me,
I think the quicker I repeat it, the better.
E:
That's right. Well, I'll be very glad to - anything
that I leave with the White House, if - certainly if -
H.M.Jr:
Well, he and I had it - kind of talk last night, and
then he said, had I seen this, and I said no. Then I
said I had invited you to have lunch with me. He said
"Fine, tell Marriner to show you that."
E:
Yes. Well, I'll be very glad to do it. There's not a
thing in it. that - I wouldn't show him anything that
I wouldn't be glad to show you.
H.M.Jr:
As a matter of fact I wanted to tell you he sort of
suggested that I stay, and I felt this way that I didn't
want you to think that I was trying to horn in on that
meeting, 80 I asked to be excused.
E:
Yes.
H.M.Jr:
See.
E:
Yes.
H.M.Jr:
I figured you had come a long distance and that you
were entitled to Bee him and I didn't want you to have
& feeling that I was trying to horn in on the meeting.
E:
Well as a matter of fact what - what happened. When I
Regraded Unclassifie
56
- 3 -
got back, and I went over to see him about the opening
of the building and what - and he asked me to give him
some suggestions as to what he might say, and 80 when I
went over, I Just had a few minutes that morning, that
was the Wednesday morning that he came down, you know,
and the services here were at two o'clock. He got in
that morning, 80 I just had about ten or fifteen
minutes, and he didn't even want to talk about that,
he just said, well what had been suggested was O.K. and
then he said "What do you think of things?" and he
started talking about things in general, and I said to
him, I said, "Well now, you haven't the time here,
I know, to really get into that, and what I would prefer
to do, if agreeable, 18 to really discuss it at some
time when we can spend a little time."
H.M.Jr:
Yes.
E:
You know when you've got about ten minutes to start
getting into something, general discussion, I just
figure it'd be a waste of time.
H.M.Jr:
And when he usually takes about fifteen of it himself.
is
Yes, well he was - you know just what he was BO - 80
I knew enough to just steer clear of it.
H.M.Jr:
Fine.
E:
So that - Bo he said "Will you come over Friday for
lunch?" and Mac was there; he said, "put down Marriner
for lunch on Friday," So I went over Friday. Well I
didn't get an awful lot of time, he had about - I
think it was about forty minutes and he took more
than twenty of it, and I just discussed more or less
in a general way, certain things that seemed to me
to be pretty important, and he said, "Well," and we
didn't get through, - no, I said, "Well, I don't know
whether I have given you a very clear picture, I said
"I'm sorry that we haven't more time 80 I can" -"Well,"
he said, "Maybe you can come up to Hyde Park."
H.M.Jr:
I sée.
is
He said: "When we won't be disturbed." He said "Down
here", he said, "You know how it 1s, "and so I said "Well"
and he said "When," he said "What about next Friday?"
That was a week from that day.
H.M.Jr:
Yes.
Regraded Unclassifie
57
- 4 -
E:
I said, "Well I'll be glad to come up, of course, any
time that it's convenient for you." We discussed
particularly housing, and he suggested that I par-
ticularly give some thought to a housing program.
H.M.Jr:
Fine.
E:
So along the end of the week, I just figured I
waen't ready.
H.M.Jr:
Yes.
E:
So I got Mac on the phone and I said "If - if instead
of coming up on Friday as was suggested last week, that
I" - this was on Wednesday - and I said, "If that could
be put off until Monday, it would suit me a lot better
and I feel I'd be much better prepared." So, I got word
back Monday was O.K. So in the meantime I tried to -
I did nothing else practically for a week, but tried to
think through the whole thing and to state it in such
a way that I thought it would be effective and - and
that together with the housing program 18 practically
all I did. In fact, it was all I did.
H.M.Jr:
Well, now -
E:
But it wasn't finished until Sunday.
H.M.Jr:
There's nothing - I mean -
E:
So I'm Just giving you the - how the thing developed
and exactly what it consists of. Now as far as the
actual program itself is concerned, I'll be glad to
- to give you the same memorandum that he has.
H.M.Jr:
Well, I'd appreciate it for this reason; I've got - got -
something very definite in my mind that affects both
our organizations.
E:
Yes.
H.M.Jr:
And I want to go over with you - I mean I want to talk
business.
ia
Well, nothing is more important that this situation.
H.M.Jr:
Yes.
E:
I mean it's here, and there isn't anything else, there's
Just nothing - I mean, - as far as I'm concerned, I don't
Regraded Unclassif
58
- 5 -
think that we could possibly spend our time to any
better advantage no matter how much it takes, than
considering immediately Just what the present problem
16.
H.M.Jr:
So, if you'd let me have it, and another thing, I
want to - in strictest of confidence, show you what
I propose to say next Wednesday night in New York.
E:
Yes.
H.M.Jr:
I'm very anxious to have you see it, to get your
reaction.
E:
Well, I'll be glad to see it, and I'll be glad to give
you my opinion, and I'll bring this memorandum over with.
me.
H.M.Jr:
It's an important document and I've worked one month
on it. It goes into the whole spending program.
E:
Yes.
H.M.Jr:
See.
E:
Yes.
H.M.Jr:
And I want you to see it.
E:
Yes.
H.M.Jr:
Aná it goes into the tax program.
E:
Yes.
H.M.Jr:
It's very confidential but I'm going to show it to you
when you come over.
E:
All right. All right.
H.M.Jr:
And I want your very frank comment.
E:
What I'd like to do though, of course it would be
difficult to give an opinion, unless - you know -
you've got to - you know those things, for instance
if I give you the copy of the one to the President
I wouldn't want you to pass judgment on it, without -
H.M.Jr:
Well, I'll let you take a copy with you, how's that.
E:
I wish you would, then you take this other and then
let's get together again tomorrow or the next day and
Regraded Unclassi
59
- 6 -
H.M.Jr:
take such time as, after we've both had a chance to
assimilate - pick what the other's - what the other's
thinking.
H.M.Jr:
Did you go into the monetary thing at all?
E:
No, not in the monetary, not in a technical sense
at all.
H.M.Jr:
Did you go into gold at all?
E:
No, don't touch it.
H.M.Jr:
Well, that's what I want to talk to you about.
E:
Don't touch it.
H.M.Jr:
That's not in my speech, but -
E:
Yes. I've thought - I've thought of the aspect of it,
but I didn't put anything in here because that seems to
me -
H.M.Jr:
Well then we can talk about that at lunch.
E:
O.K.
H.M.Jr:
You haven't - you didn't take your speech and break it
down into subjects? You haven't got a list of what
subjects you cover in that, - I mean in your statements
to the President.
E:
Well, what the statement 18, pretty largely, 18 -
it's non-technical.
H.M.Jr:
Yes.
E:
Very non-technical. It was - it was written merely
to relate what I conceive to be the thing that's
brought about the present situation.
H.M.Jr:
I see.
E:
And what are some of the immediate steps that ought to
be taken to meet it.
H.M.Jr:
Uh-huh. Well, I'll take a look at it.
Regraded Unclassified
60
- 7 -
E:
And that's what it 18. It has to do pretty largely
with the labor problem and the price rise that stopped
our building -
H.M.Jr:
I see
E:
program, and our railroad equipment buying and got your
economy out of balance, 80 that it attacks the labor
thing pretty strong.
H.M.Jr:
I'd like to read it very much.
E:
Pretty strong, because I think that's the causes
and that's one of the things that first has to be,
at least partly dealt with, that together with
monopoly in construction materials.
H.M.Jr:
O.K. Marriner.
E:
See.
H.M.Jr:
See you at one.
E:
All right.
H.M.Jr:
Are you bringing Goldenweiser
with you?
E:
Well I thought just you and I - - unless you want
somebody else.
H.M.Jr:
Oh would you rather keep it that way?
E:
I think 80. I think as long as its got to do with
the White House just you and I had better -
H.M.Jr:
Just you and I.
E:
I think 80.
H.M.Jr:
All right.
E:
Because when you bring others in, there's just that
many more, and -
H.M.Jr:
Just you and I. Will you tell Goldenweiser, then?
it's
E:
Tell him/just you and I.
H.M.Jr:
Yes.
E:
O.K. Goodbye.
Regraded Unclass
61
MBo
GRAY
London
Dated November 4, 1937
Rec'd 3:25 p.m.
Secretary of State,
Washington.
695, November 4, 7 p.m.
FOR TREASURY FROM BUTTERWORTH.
Rumors regarding possible dollar devaluation continue
and hoarding on behalf of Continentals is on the increase.
French nationals are not only getting back into gold but
to some Extent salling dollars and sterling for francs.
For instance, Midland Bank states in confidence that during
past two WEEKS it has repatriated from France one million
four hundred thousand pounds in Bank of England notes. The
premium on gold is causing considerable comment in the City
particularly as during fixing this morning no gold was
forthcoming at 6 pence premium; gold ESSENCES fixed 9 pence
premium, all of which is said to have been supplied by the
Bank of England.
The Indian position casts further light on the "scarcity
of gold scare". No gold is coming out of India and India
may WEll bE oversold for January and February delivery. Pres-
Ent indications are that local gold from upcountry may not
prove sufficient and therefore there is a possibility that
importations may result.
KLP:CSB
BINGHAM
Regraded Unclassified
nov.
62
Conversation Mr. Knoke had with Mr. Bolton of the Bank of England,
I called Mr. Bolton at 10:58 this morning. They had had rather
B. hectic time, he said, and reminded me that he had warned me over
the last two months that there was developing a more critical feeling
toward the dollar. This critical feeling had been accentuated by
various shocks which people had received from Wall Street. The very
fact that Wall Street had started off on Monday morning quite weak
in spite of the change in margin requirements had come as a new
shock to the Continent, with the result that the dollar had weakened
further in terms of all foreign currencies and gold. Another more
immediate factor, he thought, might have been the rumor that the
American Treasury was on the verge of completing an arrangement
with the French Treasury, providing for an exchange of information
about foreign balances. There might be no truth in this rumor;
nevertheless, it seemed to have been sufficient for the French
people to take precautions and get out of the New York market,
preferably into the London gold market. I replied that I knew of
no such negotiations and that, for at least four weeks now, I had
not heard of any such rumors.
A further reason for the weakness of the dollar, he thought,
were the gloomy reports about the position here next year, which
continued to reach EurOpe from the United States. This led people
to wonder what was going to happen to Treasury financing in months
to come, which opened up a vista that was definitely disturbing to
the world. I asked whether he had read Sprague's comments in
Regraded Unclassified
63
- 2 -
Cleveland yesterday, and read to him that part dealing with the
possibility of a higher gold price here. Bolton replied that he
had not heard of it but that Sprague always reminded him of a
stock market buyer who bought at top and sold at bottom. Taking
it all the way round, the feeling seemed to gain ground that no matter
what might happen in Europe, the possibility existed that inflation
in America might gradually exceed any inflation that Europe might
have to put up with. With the public in Europe in this state of
mind, the ground was well laid for further pressure on the dollar.
So far, he did not think we had seen any speculative selling of
the dollars, the recent pressure coming from foreigners who were
actually long of the market.
Meanwhile, at the Bank of England, they were going along with
their efforts, as he put it, "to mold the market to meet every
change in the situation." As a result they were allowing the
hoarding demands for gold to have its full effect on the market
because that, they thought, would probably help both the British
and, ultimately, us. At the moment, their dollar purchases were
not 80 heavy, simply because the other currency controls were anxious
to buy on 8 large scale. The Dutch today had bought very substantial
amounts of dollars, absorbing the bulk of whatever was offered.
The British had absorbed these dollars from the Dutch and given them
gold in exchange to the extent that their own position and our
standing order permitted of such conversion. I mentioned that one
of my reasons for calling him today had been to let him know that
our Treasury had decided to maintain a minimum of $5,000,000 worth
Regraded Unclassified
64
- 3 -
of gold in London and that, therefore, after closing of business
today, our order of last night would be cancelled, I explained
that I wanted him to know this because, during previous conversa-
tions, I had mentioned a minimum of $10,000,000. Bolton replied
that, since I had more or less warned him in the past, this piece
of news did not worry him at all and repeated how extraordinarily
useful our orders had been heretofore in keeping the situation down.
They would continue to do their best to manipulate the gold price
in London, as he put it, for the purpose of molding the market and
if the hoarding demand continued, to let the price rise gradually
to the New York parity. Meanwhile, they were discussing with the
Canadians the possibility of getting some Canadian gold. In addition,
they expected that the Indian gold which had heretofore continued
to New York, would at this level find its way into the London
market. I mentioned that 1f at any time they decided to put sterling
orders into this market after their closing, we would, of course,
be very glad to act under his instructions.
I referred to our recent telephone conversation in which I had
mentioned the amount of $140,000,000 as the maximum of gold still
available to the Japanese for support of their currency abroad and
mentioned that, allowing for the latest shipment of $40,000,000,
part of which was still on the water, the amount of gold which Japan
could still sell might be just under $100,000,000. There was,
however, the possibility that the Bank of Japan might temporarily,
against payment of a penalty tax, let its gold reserve fall below
the statutory requirements.
Regraded Unclassified
65
- 4 -
We discussed the situation in France and I mentioned that the
Bank of France had recently managed to accumulate rather important
amounts of dollars which they had asked us to convert into gold here.
Including today's purchase of $9,000,000, the total thus converted
would be close to $20,000,000. I referred to Bonnet's recent speech
in Lille to the effect that the world would soon see gold moving
from New York to Paris and Bolton thought that this comment of
Bonnet's was the true clew to the situation, The French were
terribly anxious to get some gold on the water and have the world
see it move to Paris. Conditions in Belgium seem a little quieter
but nobody knew what the possibility was of fixing up a government
in the near future. The suggestion had been made that the King
would choose his own man and run the country more or less under an
autocratic government. Latest news from Switzerland spoke of B. 1%
charge, he said, which the Swiss banks might make on all foreign
deposits. Bolton did not think that that would do much good,
He then referred to the sterling rate and expressed the thought
that probably, at some point, Washington would be interested in
taking some step to maintain the rate of exchange. He wondered
what sort of rate Washington had in mind. I replied that I was
fairly well satisfied that no definite figure was under contemplation,
that our gold and sterling operations in London had been effected
solely for the purpose of maintaining an orderly market and that,
for instance, last night's sales had been made by us in order to
prevent the sterling market's closing completely disorganized,
Regraded Unclassified
66
- 5 -
with all buyers and no sellers. Bolton replied that, of course,
as we knew, they had no feelings in the matter and that with them
also, it was simply a question of an orderly market. He reverted
to the change in the attitude of the public towards the dollar and
expressed uneasiness because one of these days we might wake up
and see a big flood of dollars pour into the European market. I
mentioned that in my own opinion there was no intention whatever in
Washington to change the gold price one way or the other, nor did
I think that we need expect early unfavorable political reaction
to any sustained outflow of capital and the resulting loss of gold.
I felt sure that we could readily lose every bit now held in the
inactive account without the public getting uneasy as it did in
1933. Bolton inquired whether this inactive gold stood on our
books at our fixed price 80 that when we came to sell it we would
sell it only at $35 plus 1/4. This, I confirmed.
Regraded Unclassified
SC. SOM
FEDERAL RESERVE BANK
OF NEW YORK
67
FFICE CORRESPONDENCE
DATE November 4, 1957.
CONFIDENTIAL FILES
SUBJECTIONS CONVERSATION WITH
D
L. I. Knoke
BANK OF FRANCE
ROM
Mr. Cariguel called me at 11:25 this morning. They had
bought today just over $9,000,000 which, he thought, was a great
many dollars for the Paris market. They had taken in more dollars
today then sterling which was a reversal of their daily experience
in recent weeks and months. He was going to cable us tonight to
request that we convert these dollars into gold.
We discussed the dollar market at some Tength and Cariguel
thought that the pressure might well continue for a while, until
people got tired of it. As regards the market in London, he thought,
the dollar had received no support there at all until the rate reached
4.98. The weakness of the dollar, he thought, had been helped along
by the premium on gold in London, which he called a little disturbing.
I suggested that, bearing in mind the fact that the bulk of the gold
was held in this country, if the demand for the metal continued, the
London price was likely gradually to work up to our price of $85 plus
shipping charges. Cariguel seemed to agree with this.
With reference to the Paris market, he said, things were
very quiet; the stock market was steady with little business; money
was a little easier. On the whole, he added, they were fairly well
pleased with the way things were going and with the amount of capital
that was coming back to France, I discrectly inquired as to their
total gain of foreign exchange in recent weeks and Cariguel answered
that, since the fourth of October, they had gained about 4,000,000,000
francs. The total holdings of gold and exchange in the Stabilization
Fund were well over 10,000,000,000 franes.
LWK:EMC
Regraded Unclassified
m trimean
ISC. 1.2 60M 6.37
FEDERAL RESERVE BANK
68
OF NEW YORK
FICE CORRESPONDENCE
DATE November 4, 1957.
D COMFIDI 114
SUBJECT: TELEPHONE CONVERSATION WITH
L. 1. Knoke
BANK OF ENGLAND.
ROM
I called Mr. Bolton at 10:58 this morning. They had had
rather a heetic time, he said, and reminded no that he had warned no
over the last two months that there was developing a more critical
feeling toward the dollar. This eritical feeling had been accontuated
by various shecks which people had received from Wall Street. The
very fact that Wall Street had started off on Monday morning quite
weak in spite of the change in margin requirements had come as a new
shock to the Continent, with the result that the dollar had weakened
further in terms of all foreign currencies and gold. Another more 1a-
mediate factor, he thought, might have been the rumor that the American
Treasury was on the verge of completing an arrangement with the French
Treasury providing for an exchange of information about foreign belances.
There might be no truth in this rumor) nevertheless, it seemed to have
been sufficient for the French people to take precautions and get out of
the New York market, preferably into the London gold market. I replied
that I knew of no such negotiations and that, for at least four weeks
now, I had not heard of any such rumors.
A further reason for the weekness of the dollar, he thought,
were the gloomy reports about the position here next year, which -
tinued to reach Europe from the United States. This led people to won-
der what was going to happen to Treasury financing in months to come,
which opened up a vista that was definitely disturbing to the world.
I asked whether he had read Spregue's coments in Cleveland yesterday,
and read to his that part dealing with the possibility of a higher gold
price here. Bolton replied that he had not heard of 1% but that Spragno
Regraded Unclassified
C 1,2 60M 6-37
FEDERAL RESERVE BANK
63
OF NEW YORK
FFICE CORRESPONDENCE
DATE November 4, 1957.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
OM
he 1. Knoke
BANK OF HEGLAND,
- £ -
always reminded his of a stock market buyer who bought at top and sold
at bottom. Teking it all the way round, the feeling seemed to gain
ground that no matter what night happen in Europe, the possibility #
isted that inflation in America might greatly exceed any inflation
that Europe might have to put up with. With the public in Europe in
this state of mind, the ground was well laid for further pressure on
the dollar. Bo far, he did not think we bad seen any speculative
selling of the dollars, the recent pressure coming from foreigners who
were actually long of the currency.
Meanwhile, at the Bank of England, they were going along with
their efforts, as he put 18, ato mold the market to meet every change
in the situation." As a result they were allowing the hearding demand
for gold to have its full effect on the market because that, they
thought, would probably help both the British and, ultimately, us. At
the moment, homeman, their dollar purchases were not 20 heavy simply because
the other currency controls were enxious to buy on a large scale. The
Dutch had today bought very substantial amounts of dollars, absorbing
the bulk of whatever was offered. The British had absorbed these dollars
from the Dutch and given the gold in exchange to the extent that their
own position and our standing order permitted of such conversion. I sex-
tioned that one of my reasons for calling his today had been to let his
know that our Treasury had decided to maintain a minimum of $5,000,000
worth of gold in Landon and that therefore, after closing of business
today, our order of last night would be canceled. I explained that
Regraded Unclassified
FEDERAL RESERVE BANK
70
OF NEW YORK
FFICE CORRESPONDENCE
DATE November 4, 1987.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
ROM
L. 1. Knoke
BARK or ENGLAND.
- 8 -
I wanted him to know this because, during previous conversations, I had
mentioned a minimum of $10,000,000. Bolton replied that, since I had
more or less warned his in the past, this piece of news did not worry
him at all and repeated how extraordinarily useful our orders had been
herstofore in keeping the situation dow. They would continue to do
their best to manipulate the gold price in London, as he put it, for
the purpose of molding the market, and if the hearding demand continued,
to let the price rise gradually to the New York parity. Meanwhile,
they were discussing with the Canadians the possibility of getting some
Genadian gold. In addition, they expected that the Indian gold which
had heretofore continued to New York, would at this level find its way
into the London market. I sentioned that if at any time they decided
to put sterling orders into this market after their closing, we would,
of course, be very glad to not under his instructions.
I referred to our recent telephone conversation in which I had
sentioned the amount of $140,000,000 as the maximum of gold still avail-
able to the Japanese for support of their currency abroad and mentioned
that, allowing for the latest shipment of $40,000,000, part of which was
still on the water, the amount of gold which Japan could still sell might
be just under $100,000,000. There was, however, the possibility that the
Bank of Japan might temporarily, against payment of a penalty tax, let its
gold reserve fall below the statutory requirements.
We discussed the situation in France and I mentioned that the
Bank of France had recently managed no accumulate rather important amounts
of dellars which they had asked us to convert into gold here. Including
Regraded Unclassified
ISC. 3.2 60M 6-37
71
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE November 4, 1957.
o CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
ROM
L. 1. Knoke
BANK OF ENGLAND.
- 4 -
today's purchase of $9,000,000, the total thus converted would be
close $20,000,000. I referred to Bonnet's recent speech in Lille to
the effect that the world would soon ... gold moving from New York to
Paris and Bolton thought that this comments of Bonnet's was the true due
to the situation. The French were terribly anxious to get some gold
on the water and have the world see it nom to to Paris. Conditions in
Belgium seemed a little quieter but nobody knew what the possibility
was of fixing up a government in the near future. The suggestion had
been made that the King would choose his own man and run the country
more or less under an autocratie government. Latest news from
Switserland spoke of & 1% charge, he said, which the Swiss banks might
make on all foreign deposits. Belton did not think that that would do
much good.
He then referred to the sterling rate and expressed the thought
that probably, at some point, Washington would be interested in taking
some steps to maintain the rate of exchange. He wondered what sort of
rate Washington had in mind. I replied that I was fairly wall satisfied
that no definite figure was under contemplation, that our gold and
sterling operations in London had been effected solely for the purpose
of maintaining an orderly market and that, for instance, last night's
sales had been made by us in order to prevent the sterling market's
closing completely disorganised, with all buyers and no sellers. Bolten
replied that, of course, as we know, they had no feelings in the matter
and that with them also, is was simply a question of M orderly market.
He reverted to the change in the attitude of the public towards the dollar
Regraded Unclassified
72
ISC. 3.2 60M 6-37
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE November 4, 1937.
o CONFIDENTIAL FILES
TELEPHONE COWERSATION WITH
SUBJECT:
L. 1. Knoke
BANK OF REGLAND
ROM
- 5 -
and expressed uneasiness because one of these days we might wake up
and see a big flood of dollars pour into the Buropean markets. I -
tioned that, in my own opinion, there was no intention whatever in
Washington to change the gold price one way OF the other, nor did
I think that we need expect early unfavorable political reaction to
any sustained outflow of capital and the resulting loss of gold. I
felt sure that we could readily lose every bit now held in the inso-
tive account without the public's getting uneasy as it did in 1933.
Bolton inquired whether this inactive gold stood on our books & our
fixed price so that when we came to sell it we would sell it only
at $35 plus 1/4. This, I confirmed.
LWK:KMC
NEW 1 3 1 n
Regraded Unclassified
PARAPHRASE OF TELEGRAM RECEIVED
73
FROM: American Embassy, paris, France
DATE: November 4, 1937, noon
NO.: 1555
RUSH. FROM COCHRAN.
Yesterday the French control's net gain of foreign
exchange reached one hundred eighty million francs. Some
of this was in dollars, but most of it was in sterling.
Today by twelve noon the control had acquired seven and
one-half million dollars; the rate varied from twenty-nine
point fifty-six to fifty-nine and one-half. The French
control is not taking in much sterling at one-forty-seven
point naught eight, since sterling is stronger against
dollars. According to my official contact, the Nether-
lands Bank has also had a very active time this morning
purchasing dollars. However it is thought the main
causes for the weakness of the dollar are: (1) London
premium on gold. (2) The American budget has sincing
an increasing deficit, and further plans for supporting
farm prices are envisaged. (3) The American markets
are weak, and there is gossip with regard to possible
resorting to further raising the price for gold. The
rather optimistic statement of Bonnet with regard to French
finances yesterday before the Chamber committee resulted
helping
in/strength of franc against both dollar and sterling.
In the press here an item played up 18 the probability of
gold shipments to France from the United States.
BULLITT.
EA:LW
Regraded Unclassified
74
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris
DATE: November 4, 1937, 4 p.m.
NO. 1558 FROM COCHRAN
This forenoon while Guaranty and Chase operated on
the market buying dollars for the French control, this after-
noon Morgans had an order and they were quite active around
29.53 and 54. I am told by both Guaranty and National City
that holders of American currency are a source of fair demand
for francs. Thus there is a. continued heavy offering of
dollars on all sides for the reasons given in my telegram
No. 1555 sent earlier today.
There was a rise in French rentes. National defense bonds
are more sought, and money is easier. The market is brighter,
in particular since avoidance of strike threatened for today
on the part of Public Service workers.
The recent remark which Bonnet made at Lille to the effect
that in a short time gold would be coming here from the United
States was not contained in his prepared speech. Officials of
the Bank of France were surprised when they read press accounts
of it. This matter has now received 80 much publicity that the
French control feels in order to save face it will have to BEER
effect an actual gold shipment. Bids are made by market wits
for the casks containing the first gold shipment for use as
pots for flowers. It is possible such a shipment would assist
in relieving European worries about the American price for gold.
Bank of France statement as of October 28 showed no change
Regraded Unclassified in
75
- 2 -
in gold and no new advances to the state; with circulation
up one and one fourth billion france, coverage was 51.36
versus 51.69.
BULLITT
EA:LWW
MON INSURED STATE 1 3 STATE +
Regraded Unclassified
76
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 5, 1937, 2 p.m.
NO.: 1563
RUSH FROM COCHRAN.
At noon I called on Bonnet to bid him goodbye.
Bonnet said he was gratified over the improvement in French
finances which had begun to be evident. He was interested
to note the statement of the American Secretary of the
Treasury as reported in AGENCE ECONOMIQUE this morning to
the effect that the dollar would not be further devalued;
he himself had been of the opinion that it was not likely
there would be further devaluation. The reasons for the
recent market collapse in the United States and the outlook
for recovery are however of concern to Bonnet. He believes
that the present dollar weakness will not be lasting.
I mentioned to Bonnet that I was going to Basel this
weekend. He brought up the question of Quesnay's successor
and insisted that the general manager of the BIS should
continue to be French.
I made reference to Bonnet's statement made two days
ago before the Chamber's Finance Committee that the French
were having negotiations with London over the question of
the
Regraded Unclassifie
77
- 2 -
the forty-million pound banking credit which matures in
November and December. Bonnet said that this was 80,
and in strictest confidence, said he hopes the solution
will be a repayment of one-half of the credit - for which
approximately 3 billions of francs would be required -
with the other half to be renewed. I asked him whether
the other half of the credit would be extended by the
British bankers or whether Switzerland or some other
market would have to be sought. He was of the opinion
that the British bankers would prolong the other half.
He felt that if the British Government was really anxious
to cooperate with France no obstacles would be placed
in the way of renewal of this part of the loan.
Bonnet said he was unhappy at having to relinquish
his post as Ambassador to our country.
I had a talk with Rueff, movement of funds section
of the Ministry. I made reference to the statement of
Bonnet before the Finance Committee to the effect that
for the remainder of the calendar years the Treasury's
needs could be taken care of without drawing upon the Bank
of France for money. Rueff said the situation of the
Treasury was easier than it had been for some time. He
said
78
- 3 -
said needs for one month ahead could now be provided for
and that the statement of Bonnet is entirely correct
and safe, provided it does not involve repayment on the
London banking credit. The Treasury is taking care of
current needs by some domestic short term borrowing on
bills of the Treasury, by the railway loan floated in
Switzerland, by the recent issue on the Paris market of
the Credit National loan, and by the Department of the
Seine loan - which was anticipated in my telegram of
October 29, 5 p.m., No. 1541. The last mentioned loan
is for approximately six hundred million francs and
begins November 9. The state has made advances to all
these bodies, and the state will be reimbursed by an
important part of the proceeds of the three loans.
My friend said he was very much against the Treasury
drawing on the Bank of France to meet domestic needs.
However, he would not be against using the Bank of France
credit if repayment is to be made on the London loan at
maturity. At the present time, he said, the stabiliza-
tion fund is "practically full" Bo that there would be no
discretion in obtaining the sterling necessary for a
large payment to the British; it would probably be necessary,
however, to draw on the bank in order to obtain the francs
for
Regraded Unclassified
79
- 4 -
for the purchase of sterling from the stabilization
fund.
I also spoke with Couve de Murville, another officer
who I think is advancing rapidly.
in the Ministry/' I mentioned to him the easier treasury
situation, and he reminded me that the French have yet
to adjust several basic problems, the production and
balance of trade and the cost of living. He also mentioned
that with the-reconvening of Parliament on the sixteenth
of November, political controversies may be provoked.
He expressed pleasure at the improvement 80 far, but
he thinks it is foolish to boast of the situation until
03V13037
France's recovery shall have lasted the two or three
years necessary to put her into good shape once more.
END MESSAGE.
BULLITT.
EA:LWW
80
PARAPHRASE OF SECTION TWO OF TELEGRAM NO. 1567
of November 5, 1937, from Paris.
RUSH.
The Bank, my official contact believes, will have to
furnish the Treasury the francs required to purchase the
sterling from the control to pay off one-half of the British
banking credit unless there is sufficient repatriation of
francs to permit the Treasury to get the necessary francs
through short term paper on the Paris market. Such develop-
ments are not likely to take place.
During the time I was at the Bank word was received
of a statement by the President of the United States
criticising currency speculators more sharply even than
stock market speculators, and denying gossip about alleged
American monetary changes. The sales of dollars observed
here come from the United States as well as Scandinavia,
Switzerland, and other countries.
An order was received by one Paris-American bank to
sell a half million dollars for an American client and
to purchase gold in London with the proceeds.
Dollar sales were not on 80 large a scale as yesterday
but nervous feeling still prevails. French rente and stock
market irregular.
The Governor of the Bank of France left this evening
for
Regraded Unclassified
81
- 2 -
for Basel. Tomorrow morning he is to confer there with
Governor Norman in an effort to settle BIS managership
differences. Both these Governors have been canvassing
other Central Bank directors of the BIS for support since
the last board meeting in October.
END MESSAGE.
BULLITT.
EA:LWW
03V13938
0
EDA LEVERNA e s s \ 3 1
Regraded Unclassifie
82
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 5, 1937, 6 p.m.
NO.: 1567
RUSH FROM COCHRAN.
Yesterday the gain of the French control was
355,000,000 francs of foreign exchange. $9,800,000
was included in this amount. A little sterling was
lost in the forenoon today but the control was slightly
ahead on balance at 5 :30 p.m. when I was at the Bank
of France. At that time it had also acquired $95000(?).
This evening the total gold and foreign exchange
holdings of the control in francs are approximately ten and
a quarter billion. This amount includes the foreign ex-
change proceeds of the recent Swiss bank loan to the
French railways. All of the proceeds of this loan went
to the control with the exception of a small amount of
Swiss francs which were needed by the French Treasury
itself.
END SECTION ONE.
BULLITT.
EA:LWW
Regraded Unclassified
83
LMS
GRAY
London
Dated November 5, 1937
Rec'd 4:22 p. m.
Secretary of State,
Washington.
699, November 5, 7 P. m.
FOR TREASURY FROM BUTTERWORTH.
Although little or no credence is given in the City
to rumors circulating on the continent of impending de-
valuation of the dollar, they have stimulated the movement
(*) gold, gold shares and British Government securities.
Orders for gold are now coming from such countries as
Czechoslovakia as well as Holland, France and Switzerland.
Gold was fixed at 140 shillings 6 pence being almost a
11 penny premium on the dollar and although the dollar rate
went up 1½ cents gold was not made available under fixing
price.
At a dinner of the Political Economy Club HENDERSON
read a paper on the trend of British Economic activity.
His conclusions were that there will have to bE a very
SEVERE depression indeed in the United States if there is
to bE EVEN a moderate depression in this country; that
apart from possible repercussions from outside, Britain's
industrial
84
LMS 2-No. 699, November 5, 7 P. m., from London.
industrial outlook remains reasonably satisfactory so far
as the next year or so are concerned, but in any CASE 1938
will bE less good than 1937 and probably 1939 less good than
1938. Loveday found some support when hE placed greater
Emphasis upon the significance of American developments,
particularly with respect to commodity prices and on all
sides there was general agreement that further declines in
commodity prices would bE serious. The discussion then
turned to the United States' position and one Maurice
Hutton who had recently interviewed Government officials
in Washington presented a highly critical analysis of
American Government policy. Hawtrey also participated
in the discussion referring scornfully to this Government
who talked about the "peak of the boom" in England being
past when at no time unemployment had fallen below ten
percent. HE saw no reason why the upward movement should
not bE continued if governments behaved sensibly, with
industrial needs taking the place of armament requirements
as the latter declined and he hoped to SEE a condition
recorded as normal when not more than five percent of the
population was unemployed.
The sense of the discussion revealed a feeling that
while the peak of Britain's recovery movement had been
passed no drastic decline in activity was to bE EXPECTED
in
Regraded Unclassified
85
LMS 3-No. 699, November 5, 7 p. m., from London
in the next six to twelve months; that there were now so
many imponderables, both political and Economic, that
further predictions were futile and an attitude of caution
in making commitments was therefore necessary.
F
BINGHAM
SMS :EMB
(#) Apparent omission.
COVITION
was -
YEURNAPY
- - -
Regraded Unclassified
86
RE POSSIBLE DISCONTINUANCE OF
November 5, 1937
GOLD STERILIZATION POLICY
10:30 a.m.
Present:
Mr. Taylor
Dr. Viner
Mr. Lochhead
Dr. Himmelblau
Mr. Eccles'
Mrs Klotz
Mr. Goldenweiser
Mr. White
H.M.Jr:
This thing is 8 kind of - Eccles is on his way over
and I sort of asked him to come over on account of
this talk of mine, see? And I wish I had a little
time before he came to explain it. But we have sort
of come to the crossing of the roads, in that he
feels we need certain objectives which he has, which
will take time, like housing and labor and all that,
and I go along with him; but in the meantime he wants
us to practically start another CWA.
Kieley:
Mr. Eccles.
H.M.Jr:
Please.
(Eccles comes in)
Marriner, if it is agreeable to you, what I wanted
to do - rather than discussing my talk any further
at this time, you see, pending my seeing the Presi-
dent, see, what I'd like to do is to take this time
with these people - I mean just let's forget that
talk for 8 minute, if you're willing, and also your
program for a minute, and then I want to talk about
gold, see? Because the more I think about it the
more I'd like to bring down the same group of people
that I brought here before when we made a decision
affecting foreign exchange. We've brought in people
from the outside over Saturday and Sunday, after
markets are closed, you see, to talk with us and
advise with me. I don't know whether you came to
the Treasury when we were doing those original gold
things - foreign exchange.
Eccles:
No, I don't know - I was - you don't mean - I
remember originally you brought down Stewart, I
think.
S.M.Jr:
No - Walter Stewart, yes, and people like - a couple
Regraded Unclassified
87
-2-
bankers, people that keep their mouth shut and I've
got confidence in, who are in the business.
And as I say, what I'm thinking about is this -
BS I say, if I'm going to do anything about gold,
I'd want to announce it Sunday night, see? I mean
if we're going to do anything at all - and I haven't
had & chance to talk with Viner and these other
people and 1 just wanted to chin about - yes, I did
talk with Viner; excuse me. And 1 just want to talk
about the possibility of announcing, first - there
are two schools of thought in the Treasury; one is
that we - first, that we announce that we are dis-
continuing sterilization of gold; that's one, see?
And the other one is that we take the second step
and use some of the gold to pay off the weekly matur-
ing bills, see?
I'd like to talk about the first thing, just the
stopping. We are right now, this week, in a transi-
tional period, and with the amount of gold going out
today there isn't - well, we're just not sterilizing,
that's all. And the statement which read - is that
"I have deemed It advisable, in the public interest. 11
well, supposing I announce that we stop sterilizing
Sunday night. Then they read the rest of the statement.
"Well, why are you doing it?"
"Well, there's no more gold coming in, and the situa-
tion - we've got a billion and a quarter."
"Well, is gold going out, Mr. Morgenthau?"
"Yes, gold is going out."
"Well, as it goes out, are you going to carry out
what you said here, and that is to redeem the out-
standing obligations in case of a movement in the
reverse direction?"
And the answer to that would be, "Yes."
And why do I want to do it? Why am I considering
doing it? - put it that way. Because, talking again
just for myself, I can't help but think that certainly
part of this is psychological, and I'd like to retrace
Regraded Unclassified
88
-3-
the steps that the Treasury took 88 to putting the
lid on this thing in the minds of the public, and
that is my main reason for doing it.
Now, I realize perfectly 1f you ask the question,
"Well, what are you going to do when gold begins
to move here?" - well, I just haven't talked that
question. But I feel, with a fund of a billion and
a quarter, that that's enough to take care of the
situation for which this movement was made, and that
was to build up a fund against the possibility of
gold moving out. Well, now it is moving out; the
fund is there, it's a billion and a quarter, and
that's enough.
Now, as to the second step, I've got much more
doubt - I mean I'm not sold. I haven't made up
my mind on any of this. Do you understand? I don't
ask people to come down and ask you to come over
if I've made up my mind.
And again I want to say that it would be most, most
helpful, if we should decide to do anything, that
it could be done so that some sort of a joint state-
ment could be made. I mean I'd feel much happier
about the whole thing if the thing could be done
just the way it was done here - "The Secretary of
the Treasury, after conferring with the Board of
Governors" - I mean if the thing could read exactly
the same, I'd feel much happier about it.
And I'm not saying that if we can't agree I'll do
anything. In other words, the whole thing is open.
I'll hear from anybody that wants to talk for or
against it.
Viner:
I'm a little confused. I don't know just what the
proposition is. Is the proposition that if there
is a net loss of gold, we will use the proceeds in
money of the sale of the gold to redeem bills out-
standing that we used originally to pay for that
gold?
Taylor:
Securities.
Viner:
Huh?
Regraded Unclassified
39
-4-
Taylor:
Securities.
Viner:
Or redeem Governments.
Taylor:
Doesn't necessarily mean bills.
H.M.Jr:
Well, I'm on record - may I read this to you?
Viner:
Yes, certainly.
H.M.Jr:
This is the statement I made. Just let me read
it to you. I made this on December 22.
"The Secretary of the Treasury, after conferring
with the Board of Governors of the Federal Reserve
System, announces that he proposes, whenever it is
deemed advisable and in the public interest to do
so, to take appropriate action with respect to net
additional acquisitions or releases of gold by the
Treasury Department.
"This will be accomplished by the sale of additional
public debt obligations, the proceeds of which will
be used for the purchase of gold, and by the purchase
or redemption of outstanding obligations in the case
of a movement in the reverse direction."
In other words - does that answer your
Viner:
Yes. You don't need any announcement at all then,
1f that's what the proposal is. You're just carry-
ing it out.
White:
No, no, I thought the Secretary indicated that that
action was going to be carried out anyhow; that action
of the acquisition of bonds with the proceeds of the
gold that is sold is something that would automatically
take place by virtue of that statement. He is now
raising the further issue as to whether or not you
shall take additional gold.
Taylor:
You're raising a separate issue in addition to that,
which is, should you pay off these maturing bills?
White:
Oh no, that's settled, that's settled.
Taylor:
No, it isn't. I don't see that it's settled.
Regraded Unclassified
:
90
-5-
Viner:
You mean, is that the form which the purchases of
Governments shall take? Whether it shall be running
off bills or buying Governments.
Taylor:
You're going to retire outstanding obligations.
H.M.Jr:
Something.
Taylor:
Something. Now, it doesn't mean bills.
H.M.Jr:
Something. I mean
....
Taylor:
That was particularly written that way in the
first place.
H.M.Jr:
Outstanding obligations. What they'd be I'm not
prepared to say. But, outstanding obligations.
Taylor:
That's the point I'm making; it doesn't necessarily
mean bills.
White:
Oh no, no, just so you
....
Lochhead:
May I express what I think the issue on this first
point is: that there is an outflow of gold going
on just now, and we probably will not be acquiring
gold to sterilize, so therefore it is an opportune
moment to state that this program - as far as sterili-
zation is concerned, we're not getting it anyway -
now, the only effect making that statement would have
would be that if in a month or so from now gold
started to come in, we would not start to automatically
sterilizing it again. We would carry out everything
that was in the first statement, but we have not bound
ourselves to follow it through at a later date.
H.M.Jr:
Excuse me just a second. (Has conversation with
Miss LeHand on White House phone)
Just one second. Will you (Eccles) be free at 11
o'clock?
Eccles:
Yes, Saturday.
H.M.Jr:
I just want to take a minute to explain. I'm asking
these people down; I'm going to put this thing up to
them, want them to tell me whether they think it's
Regraded Unclassified
91
-6-
good, bad, or indifferent. I mean I'm separating
this entirely from my - I'm not mixing this and my
speech. See what I mean, Marriner? I mean if I
didn't make any speech at all, I'd want to bring
this thing up at this time. Then Miss LeHand said
the President will not be available Sunday but will
be available just before supper
....
Eccles:
Saturday or Sunday?
H.M.Jr:
Saturday. So what I was thinking about is that
after you got an indication of what I was thinking
about, if it wouldn't be asking or rushing you too
much, whether you could either say, "I can't go
along with you at all," or at least "I'll tell the
Board how you feel and have & meeting this afternoon,"
so we could
....
Eccles:
Well, there are only two members of the Board here,
see? Davis left last evening and won't be here until
Monday, and it will be impossible for the Board to
take a part in this at all, I am perfectly sure,
this week-end.
H.M.Jr:
Well, the way this gold thing is moving now - see,
sterling is up practically to five dollars, and gold
has jumped from - yesterday in London to $34.95 to
what?
Lochhead:
$34.99.
H.M.Jr:
$34.99. We're just in the midst of a big movement.
We have to move on 24 hours
Eccles:
Well, what do you mean? You mean with reference to
using ....
H.M.Jr:
Announcing the - I mean the possibility of - no,
the possibility of announcing the stopping of our
sterilization policy.
Eccles:
Well, you don't mean stopping in the sense that if
it reversed the other way you wouldn't continue.
You mean that announcing ....
H.M.Jr:
Just the same way, that in the public interest it is
nog longer appropriate to sell - no longer necessary
or appropriate to
....
92
-7-
Eccles:
Sell bills?
H.M.Jr:
... sell bills with which to buy gold.
Eccles:
Yes. Well, that isn't an announcement of a dis-
continuance; that is an announcement that there is
no necessity, the necessity doesn't exist. It
doesn't say that you discontinue a policy, because
although there is an outflow this week, say the thing
reversed and you had the gold coming in next week;
it seems to me that if you announce a discontinuance,
the question naturally arises, "Well, does that mean
that if there was a reverse trend, you would not
sterilize?"
H.M.Jr:
That's the bridge I want to cross. That's the bridge
I want to cross.
Eccles:
It seems to me that to give them the facts that it
isn't necessary to do it - it doesn't mean that it
is a change of policy or a discontinuance.
H.M.Jr:
No, I want to announce discontinuance of steriliza-
tion.
Eccles:
That's very different from the other.
H.M.Jr:
I want a definite announcement of the discontinuance
of sterilization; that's proposition number one.
Let me rephrase that; I mean I want to consider,
should we announce the discontinuance of the sterili-
zation policy? That's the thing.
Eccles:
Personally, I don't think we should.
H.M.Jr:
Well, that's what I want to talk today, and that's
what I want to ask these people's advice on tomorrow.
Now, let's hear - let's talk about it a little now,
shall we?
Eccles:
Yes, it's all right with me.
(Mrs Klotz leaves)
Eccles:
I don't think that there is any justification
for the change of policy with reference to
sterilization. In the first place, it is a function
Inclassifie
93
-8-
under the powers that the Treasury has that they,
it seems to me, should perform. If they discon-
tinue it and there is a b1g movement of gold this
way - it is something that the Reserve System has
no influence or power over; we're not given any
responsibility to deal with the exchange problem
at all; we have no powers that enable us to handle
any problem that might be created as a result
of gold inflow. And it seems to me that for the
Treasury to say, "All right, we have discontinued
it," means that you have - that the problem in effect
goes into the lap of the Reserve System, where they
have no power to deal with the effects of it in the
first instance, and where the responsibility of deal-
ing with the exchange problem in no way lies with the
Reserve System but does lie with the Treasury. And
to - it just seems that so long as you have the
powers that are in the Treasury, the problem of
sterilization becomes a part of the Treasury problem,
unless the Reserve System gets additional powers.
I certainly would - under the circumstances, the
Reserve System would just be in a perfectly impossible
place to be.
H.M.Jr:
(On phone) Tell Mrs. Klotz to include Mr. Riefler
for tomorrow. - - Yes.
Well
Eccles:
The Question of sterilization, it seems to me, of
all countries - it is largely with the Treasuries,
or the central banks have powers to deal with it;
usually, as I understand it, it is pretty largely
with the Treasury, and they are working in con-
junction with the central banks. Certainly that's
the way the Bank of England operates.
And the question immediately arises - the Treasury
say, "We're going to discontinue" - then the whole
question comes: What if the reverse flow comes; then
who's going to handle it? Now, true, at the moment
there is gold going out. It is due, in my opinion,
in part to an improved situation in France and a
deteriorating - and some deterioration of our
situation here. In other words, it is a result of a
Regraded Unclassified
94
-9-
capital flow, capital that we have been getting
for several years; it was a capital movement of
gold which came over here because of El bad situa-
tion there and a better one here. Now the situa-
tion is reversed; the situation has deteriorated
here and capital has gone out. It is hot money,
and they are getting the not money that we have been
getting, in some instances. Certainly that is true
of Switzerland, certainly it is true of Sweden, cer-
tainly it is true of Holland, and I suppose it is
true more of England. France is getting some normal
return of the capital she lost and we hope she can
retain.
Now, it's unfortunate that our situation, in order
that we can reverse the flow of gold, has to be
bad, so that capital won't stay here. It seems to
me that the loss of this gold has been extremely
costly, in a way, I mean conditions that possibly
brought about that loss cost much more than the cost
of sterilization. Now, if the situation here improves,
as it must do sooner or later, then there is no reason
to expect that we won't get again B flow of some of
that capital; a reverse flow could happen.
So it seems to me that we've got the problem of
sterilization so long as you don't have a gold
standard or some other mechanism that is not now
provided under the law. That's about my story.
H.M.Jr:
Well, let's have a positive statement, why we should
have it, see. And Harry, you talk - why don't you
take the positive position?
White:
All right. I agree with Marriner - I think we all
do - that gold is flowing out from B combination of
both factors, and that we would very much prefer to
see
H.M.Jr:
Excuse me just a minute. Would you (Eccles) mind
if, we would have Goldenweiser come over here?
Eccles:
I'd be glad to have him come over.
H.M.Jr:
I'd like him to sit with us tomorrow.
Regraded Unclassified
95
-10-
Eccles:
Let's have him - let's have him come over.
H.M.Jr:
Is that agreeable to you?
Eccles:
Not only agreeable, but it's what I'd like to have.
H.M.Jr:
(On phone) Ask Mr. Goldenweiser if he would please
come over to the Treasury. Mr. Eccles would like to
have him come over to my office.
Eccles:
Of course, I didn't know we were going to have B
conference and what was going to be discussed, so I'm
just
H.M.Jr:
Well, I understand, old man, and I'm not trying
If you just think of it this way
Eccles:
I've been thinking out loud.
H.M.Jr:
This is a Treasury meeting which I've asked you as an
individual to sit in on, just in the same capacity,
if you don't mind comparing you - when we are working
on stuff that affects the State Department, we have
Dr. Feis sitting here; instead of his going to report
to Mr. Hull, you report to yourself. That is, this
is in the formative stage and this is a Treasury meet-
ing. But it's in a formative stage. And I very much
wanted you to
Eccles:
Well, I appreciate it. It saves time, I think.
H.M.Jr:
And it saves time. I'm not in any way trying to
commit you to anything. But it's exactly the kind
of meeting that would affect State and Mr. Feis sits
here. If you will do it in that spirit, why, I would
very much like to have you sit here. But I'm not in
any way trying to push you or commit you. But it
just so happens that I, going back to my speech, have
gone as far as I can with it up to the time that the
President sees it. Now, when the President sees it,
that bridge will be crossed. You see what I mean?
And I'm willing to cross the bridge now, if he is, you
see. And I'm not going to try - I'm not going to use
salesmanship on him; I just want him to make up his
own mind. See, Marriner?
Regraded
96
-11-
Eccles:
Well, I don't know that I blame you, because after
all too much salesmanship is taking an awful lot of
responsibility, isn't it?
H.M.Jr:
Sure, sure. I'm not trying to sell
....
Viner:
Don't you want to take lots of responsibility?
Eccles:
Well, there are certain situations in which I'd
just as soon not.
H.M.Jr:
No, but I'm his Secretary of the Treasury, and I
think I'm entitled to know at this stage which
horse I'm riding.
Eccles:
I think you've got to know.
H.M.Jr:
What?
Eccles:
I think you've got to know.
H.M.Jr:
I mean I've just got to know where I'm at. And the
thing is now - and the reason that Haas isn't here is
that he's editing it with Gaston.
Just as a matter of interest, I told you that I was
going to show it to Parker, didn't I?
Eccles:
To who?
H.M.Jr:
Parker; he's the Chief Editor for Scripps-Howard.
But he's the only newspaperman I've showed it to.
And I don't know - I value his opinion; I mean I
don't consider him a newspaperman, he's an editor.
He went over it. When he got all through and done,
he said, "I'll put my money on this statement: that
the speech is constructive." I mean that was just
his reaction this morning.
But anyway, let's get back to gold. And if you want
to say anything to me privately or personally before
we leave, I'll be glad to receive it, Marriner.
Eccles:
All right.
97
-12-
But you understand. Now, Mr. Eccles' position
here - this is & Treasury conference which he's
sitting in on as a favor to me, in order to keep
nimself posted on what we are thinking of doing.
Now Dr. White.
White:
I said that I agree, and I think we all agree, with
the statement that it 1s unfortunate that one of the
motives that is leading gold to flow out is & recession
here; we would have preferred it otherwise.
However, gold is flowing out; to the extent that gold
does flow out, then, action is almost automa tic after
the stabilization fund of 200 million is filled with
cash. From then on, the purchase of securities auto-
matically takes place, and the Secretary would want to
make a decision whether he should purchase bills or
some other form; that's a separate problem.
But the question as to whether to announce at this
time E cessation of the program of sterilization
because the moment is appropriate, appropriate action
is being taken, I think has to be evaluated exclusively
from the point of view of what effect it would have on
business conditions. The actual effect it would have
admittedly is nil, because no gold is flowing in;
therefore, no sterilization would take place anyway.
Therefore, its effect has to be a psychological one;
it would be & psychological one even if there were B
little gold flowing in. Now, the psychological effect
of that statement is, I feel, not very great; but it
is somewhat bullish, slightly bullish. It is an indi-
cation that there is a reversal in policy, that there
is a public abandonment, if you like, of & policy of
restriction, that there 1s B reemphasis on the intro-
duction of an easy money policy as the first step
toward meeting what may be B continued recession.
From that point of view it is valuable, and I think
possibly we would wish to consider it.
The Secretary will raise the question 63 to whether
we ought to go further than that, but taking up
your (Eccles) point, let's assume that that statement
is made. Let us assume that the reaction Is slightly
98
-13-
bullish, that the public begins to feel that the
Government has taken cognizance of the recession
and is going to take such moderate reasonable mea-
sures as will insure a return to recovery.
Let us say that we go beyond that, Let us say that
gold continues to flow in. Now, your point was,
when that happens, what's the Federal Reserve Board
going to do about it? Well, it appears to me that
that is 8 bridge that should be crossed at that time;
that after all the policy was definitely stated to be
one which was going to be adjusted according to the
situation, and if the situation in the future, one
month or two months or four months from now, is such
that you are getting a return flow of gold, and if,
further, you feel that that return flow of gold
jeopardizes the stability - the imminent stability
or the future stability - then I think there is an
excellent ground for a reconsideration of the case
at that time, and I am sure it will receive considera-
tion at that time, in the same way that it was
considered earlier.
But we want to squeeze the maximum effect we can
out of any action that we can take that is moderate
and reasonable, to attempt to check the present
recession. And I wouldn't wish to claim too much
for it. I don't think the Secretary does. It is
a moderate tep which we hope would have some kind
of a favorable psychological eaction. Your point
doesn't become an issue until some time in the future.
When it does become an issue, I think it should be
given and will be given such consideration as the
situation warrants.
H.M.Jr:
That certainly is very frank.
Jake, want to say something?
Viner:
I made my speech last night. I think that it would
be an extremely foolish move on that ground. It is
a trivial move; it has no immediate significance.
There is no logic behind it except that it is an
inflationary gesture, and I don't think that's the way
at all to deal with the present situation. I think
that there is a logic in the sterilization program,
99
-14-
more logic in that than in some other parts of
our whole set-up, that it is working beautifully
now in terms of the present situation; that now, if
there is going to be a gold outflow, it is going out
without disturbing the credit base of the country
at all, which is just what it was set up for. That
part of the system is working just right, and because
it is working right, you now say, "Well, when the
time comes for the movement - the movement reverses
itself, we'll abandon the system."
Now, if White is right that if there is an inward
flow of gold we ought then to decide on the merits
of the situation what we do, then I say that is the
time to decide whether we abandon this policy, not
now and not when it is working well.
And apparently the sole objective there is that you,
as Secretary of the Treasury, shall do some inflation-
ary talk. Well, I say that is just what is not indi-
cated now. Nobody believes that you can cure this
situation now by that sort of monetary dope, and
that is not what the sick horse needs. I'd say it
is unimportant except as an indication of how we're
going to look for help; as that, it is very important,
because as I see it personally it is looking forward in
absolutely the wrong direction, as wrong as you can
find.
White:
You feel, then, it is an important indication of
the
Viner:
If it works. How the public takes it, I don't know.
If there is a statement which is along the lines of
your statement, then it would be important. Then
the public would say, "The Secretary still thinks
that he's got monetary tricks in his bag that he can
use without touching on the fundamental issues in the
situation which will correct the situation." And I
say you have not got the monetary tricks and if you
think you have you are on the downward path to a
crash.
H.M.Jr:
If what?
Viner:
If you think you have monetary tricks in your bag
100
-15-
which will solve the present situation, I say
in my opinion - and I say it soberly after a
week's hard thinking - you are altogether wrong.
Kieley:
Dr. Goldenweiser.
H.M.Jr:
Please.
Eccles:
This isn't monetary.
(Goldenweiser comes in)
Golden.:
Good morning, Mr. Secretary.
H.M.Jr:
How are you?
Do you (Eccles) want to explain what we are talking
about?
Eccles:
Yes, I can. Do you want me to take the time?
H.M.Jr:
Well, yes, so that
Eccles:
Well, the Secretary was having a conference with
these men here and he asked me to come over. I
didn't know of the conference. I thought I was
going to meet him. The thought in having me here
was that it would possibly facilitate matters or
save time. Now, the thing that they are discussing
is the gold question. There is an outflow of gold
at this time, and at the time the statement was
made, when the policy of sterilization was adopted,
it was stated by the Secretary that the proceeds
from the gold outflow would be used to retire the
debt that was created for the purpose of steriliza-
tion.
Golden.:
You mean last December?
Eccles:
That's right.
The question now is, should they announce a discon-
tinuance of the sterilization policy? That's one
of the questions. Another question is - well, I
don't know that you raised that one yet; that was
the question of desterilizing either all or a portion
101
-16-
of the gold now in the sterilization fund by the
retirement of Government obligations - the discon-
tinuance of bills of 50 million a week and the
retirement of such maturities, I suppose, as would
come due in the near future. I mean that's the
Golden.:
That's the picture.
Eccles:
Now, I've expressed myself briefly on the first
point and Dr. White has also expressed himself,
and Mr. Viner.
H.M.Jr:
Viner unalterably opposed.
Bccles:
Well, I agree with Viner a hundred percent.
Golden.:
Unalterably opposed to discontinuing it now, 1s that
it?
H.M.Jr:
He can make his statement again.
Golden.:
What is it, Jack?
Viner:
Well, you see, at the present time the sterilization
program works to release - I mean gold is flowing
out, not in, at the moment. The question under con-
sideration is whether we should choose this time to
say that if the flow of gold reverses itself and it
begins to come in again, we will not then sterilize.
I say it obviously has no immediate direct effect,
it is a statement as to policy in the future, it is
made at this time for some purpose. The purpose
presumably will be stated that this is intended to
indicate that we are not going to take any control
measures or deflationary measures until future cir-
cumstances may indicate that they are necessary.
And I say that that means we are using it now - it
is trivial in itself at the present time, its signi-
ficance is only as indicating a direction which the
Government is taking for meeting what is in my
opinion a very serious situation.
And then I say that as a sign of the line of policy
to be taken to meet the situation, it is as wrong
as it could possibly be, because it is the wrong
direction; it looks again for monetary devices,
Unclassifi
102
-17-
monetary manipulations and operations, as a means
of dealing with a fundamental malad justment in the
economic situation, a maladjustment of the sort
which isn't monetary at all.
Golden.:
But you say that the question is that of announcing
now that you are not going to - that the whole
sterilization program in effect will be abandoned,
and at a time when that is not in itself going to
release any funds.
Viner:
That's right.
Golden,:
Well, I haven't thought about that particular thing.
I can't - I don't see the - may I ask what the purpose
of that would be at this stage?
H.M.Jr:
well, let White - I mean let White state his position
again.
White:
I take it this is all in the nature of discussion.
I'm going to take your (H.M.Jr) position, because my
personal position is that that in itself would not
be sufficient; but on the basis of that alone
H.M.Jr:
Well, why not go through that and state the whole
position for yourself and for Haas? Give him the
whole works.
Viner:
For Goldenweiser.
H.M.Jr:
I mean he's talking - he can talk for himself and for
Haas, saying what their position is on this whole
gold question, for the benefit of Dr. Goldenweiser.
Viner:
I'm - I'd like to hear it too.
White:
Well, the only change with respect to what has already
been stated is that we feel that the announcement of
a cessation of the policy of sterilization until
further notice, in the usual terms, should be coupled
with a statement that it is intended to use a portion
of the gold which is now in the inactive fund, such
portion as remains there after any outflow will take
place, for the purpose of taking up the bills which
Regraded Unclassified
103
-18-
are maturing weekly - some large concentration in
December, so that probably until the remainder of
the year it amounts to 900 million dollars, leaving
the further policy to be stated later as to what
shall be done next year, whether that shall be con-
tinued. And the more gold that flows out, the less
necessary does it become to resort to this, because
the outflow of gold accomplishes the same purpose.
Taylor:
Certainly it does.
White:
In part it does not substitute, and it is not a
substitute, for what we conceive to be the most
important effect of an announcement, namely the
psychological effect. And I think the fact that
Viner pointed out is true, that the importance does
not lie in the mechanical effects, it does not lie
in the fact that you are increasing reserves and
thereby having certain consequences mechanically;
it lies in the realm of psychological effect on the
business community. It is an announcement that the
Administration has taken cognizance of the recession
and it is about to initiate a policy of taking such
sction 83 in its opinion will help the situation.
And one of the first and moderate steps is the
reintroduction of & - shall we say & more easy
money policy. To call that manipulation is a
little bit unfair, because it is only doing the
reverse of what we did when we initiated the policy.
It wasn't called manipulation then; it was protect-
ing our domestic economy.
Viner:
I didn't mean that manipulations were necessarily
wrong. What I think I said was that to give the
public the indication that we think that by manipula-
tions of the monetary structure we can cure this situa-
tion, is a wrong procedure.
White:
Well, I didn't think
Viner:
I believe in monetary manipulations at the right time,
and in the right direction, and connected with the
other items in the policy. I'm not an opponent of
manipulations.
Regraded Unclassified
104
-19-
White:
I don't think, and I didn't think that it is
expected on all hands, that this move will create
miracles or will stop the recession. We merely
feel that it is B bullish step, that psychologically
it may be interpreted - may well be interpreted
Eccles:
As an effort to cure a situation by
H.M.Jr:
Excuse me, Marriner. Do you (Lochhead) want to
check on the foreign exchange thing?
Lochhead:
I was just looking at this. Sterling is four
ninety-nine and five-eighths, and francs are up to
.0340.
H.M.Jr:
Pardon me?
Lochhead:
Francs are .0340 and sterling is four ninety-nine
and five-eighths. And incidentally, they also say
that there's been an increase in the price of gold
in the London market since the opening. This isn't
official, but they claim it works out $35.10 in the
open market.
H.M.Jr:
Go out and talk to Knoke, and then I'll come out and
talk to you a minute.
(Lochhead goes out)
White:
I don't think that this implies that the Administra-
tion feels that the recession can be cured by monetary
means. It merely is in the position where it has
to take whatever means - all the means that it thinks
have reasonable possibilities for success and will
contribute toward a turn of the trend. And I think
that's the issue. I think Jake stated it very clearly.
If you believe that at this time an indication that
the Administration is going to pursue - he called it
an inflationary policy
Viner:
Easy money policy, all right.
White:
I call it easy money policy.
at this time -
if you feel that this 1s bad, then the step is bad.
If, however, one feels that will help to contribute
to make the business men believe that action will be
Regraded Unclassified
105
-20-
taken, that we may be going into a period in which
the immediate trend of prices will be checked -
downward trend - and will be upward, and if you
feel that the business community responds to the
expectation of easy money policy, which is followed
by rising prices, etc., then I think the move is 8
good one, and it must be evaluated on that basis.
If, nowever, you are opposed to the Government taking
any action which would indicate to the business com-
munity that they are going to abandon the policy of
rigid - I don't like to use an adjective; it's bad -
deflationary thinking, obviously you won't be in favor
of it. But we're in favor of it because we think it
will introduce a note of hope for rising prices, a
hope for easy money, a hope for
Eccles:
That's one of the troubles now; you've got prices too
high, in certain fields.
White:
It isn't 8 question of level of prices; it's a
question of which way they're moving. I agree with
you that some prices are too high. But I agree with
Jake that we can't expect miracles from it.
Viner:
Well, I'm not willing to agree; you may get a
miracle out of that sort of a statement.
Taylor:
You may get a miracle in reverse.
Viner:
In reverse.
Taylor:
It reminds me of the situation with two boys out
in the boat and they discovered that the enchor
didn't have any chain on it. "Well," they said,
"we'll turn it over anyhow; it might do some good,'
White:
Well, it's like all analogies. It sounds good in
itself, but it doesn't bear on the point et issue.
We're not turning the boat over, we're not out at
sea. We're merely announcing 8 reversal of &
policy which has been in operation and has been
accompanied by - we won't say "caused" - has been
accompanied by increasing recession.
Becles:
You're indicating that the policy, then, is respon-
sible for the recession, and therefore you're
reversing the policy.
Regraded Unclassified
106
-21-
White:
No, no, I studiously avoided saying it was the
cause. We won't go into that. I merely say
it was accompanied by
Ecoles:
But it seems to me that you're trying to a ccomplish
this through what would tend to be an inflationary
gesture, on the assumption that the cause is a lack
of sufficient easy money and therefore the recession
has been brought about by that reason.
White:
Well, I think you yourself took a similar position
a short time ago when you were considering increasing
reserve requirements. The discussion was centered
around a question as to whether that move would help
to check rising prices, would help to give you control
over a situation which may be running away. In other
words, the discussions, the pros and the cons, rested
upon what the effect would be of a reduction in
reserves. If you thought it had no effect, I can't
quite see why all that discussion took place or why
it was such an important move at the time. It was
obviously because you felt that the reduction in
excess reserves would have some effect if you took
it. Exactly. For the very same reason, we want to
investigate
Eccles:
Of course, I don't want to discuss this, because -
but I issued a statement; if you will look at it,
you will see very definitely that the action taken
was not with the idea of restraining the use of
credit. It was - there was nothing to that effect
said. It was not with the idea of putting on the
brakes. It was merely with the idea of taking up
some slack, and you've still got some slack.
White:
Why? Why couldn't you have waited to
Viner:
Is that history 8. matter for discussion now? The
situation that we are facing is a situation in
November, 1937.
White:
Exactly. Except that in the analysis of a situation,
one frequently and unfortunately has to resort to
historical precedents in order to bring out a point.
Viner:
I know, but supposing the policy was wrong in March,
1937.
Regraded Unclassified
107
-22-
White:
Well, I don't wish - I mean I wouldn't speak of that
again. I merely raised it as an indication
....
Taylor:
I don't know whether it is my turn or not.
H.M.Jr:
It is.
Taylor:
Last night after I went home from the Treasury,
before the dinner, why, I thought I would - I saw
certain points which would be brought up, and so
I wrote them down on the back of an envelope.
There's only a few that apply to this particular
subject, and I'd just like to make myself perfectly
clear.
H.M.Jr:
Go shead and read.
Taylor:
"There is no credit stringency. If one develops
we can take appropriate measures. An outward gold
movement has started. The entire mechanism which
has been created during the past two years was
intended to insulate our domestic credit structure
against the bad effects of a withdrawal which we
hoped would take place. I do not think we should
desterilize a large block of gold. I don't think
we should pay off our bill maturities by desterilizing
enough gold to meet these maturities, as it is probable
that the natural outward movement will take care of
quite a proportion of these requirements and have the
same effect as formal action."
H.M.Jr:
Is that all you got? Is that all?
Taylor:
That is on this subject.
H.M.Jr:
Oh.
Taylor:
The other isn't very long.
H.M.Jr:
Go ahead. I thought I saw more than one page.
Taylor:
Well, I picked out the pieces that directly applied
to this subject.
H.M.Jr:
Go on, read the whole memorandum.
Regraded Unclassified
103
-23-
Golden.
May I ask one question to clear up the last
sentence. "Would have the same effect" - what
do you mean, the same effect on the budget?
H.M.Jr:
On the cash balance position. And you could use
those proceeds or not to do what you wanted to as
far as your financing went. I don't think we ought
to retire bills.
Golden.
But gold going out isn't going - if gold is going
out and you meet it out of the sterilized gold
.....
Taylor:
That's the only place we can get it.
Golden.:
That's all right, I'm just trying to get clear - it
isn't going to have the same effect as though you
were meeting maturities out of it, is it?
Taylor:
Well, it won't have the same effect but it will put
you in the same position, you see, so that you will
retire public debt. I don't think it ought to be
bills.
Golden.:
To the extent that it does.
Taylor:
Yes.
Golden.:
I see.
Eccles:
It doesn't become excess reserves, but it retires
bills. If youretire bills and it doesn't go out,
then of course you have increased your
Taylor:
In other words, I think we ought to stay put on
December 22.
Golden.:
The difference I want to make is that it doesn't -
does reduce your public debt, but it does not
increase your reserve position. That's the distinc-
tion. Now, excuse me, go ahead.
H.M.Jr:
Say that again please.
Golden.:
I mean, Mr. Secretary, that if all you do is meet
gold exports out of your sterilized gold, and retire
Regraded Unclassified
109
-24-
that proportion of Treasury bills, the excess
reserves of the member banks will not change;
whereas, if you adopt a policy of paying off all
the bills that mature out of your sterilized gold,
then your excess reserves will increase unless the
gold movement assumes proportions that no one can
possibly expect.
H.M.Jr:
You (Taylor) want to read the rest, or isn't that
pertinent?
Taylor:
The rest of it isn't pertinent to this particular
discussion.
H.M.J.:
May I take a look at it.
Taylor:
Yes. (Hands papers to Secretary). That's the
cable, and that fits - that's simply part of the
text, you see.
H.M.Jr:
Excuse me a minute. (Reads)
Do you have any reaction to this discussion, Mr.
Himmelblau, or is this
H'blau:
On the first proposal that you are discussing, I
raise no point. On the second, I have an idea
I mentioned, but I don't know what the effect on
business would be, if these technical things take
place; that's beyond me.
H.M.Jr:
You don't know. Well, let me ask you this, because
that's why I'd like to have you in here: talking in
very general terms, supposing we do something about
gold, and the average business man just knows
Washington is doing something about gold, see?
H'Blau:
Be a question of the motive.
H.M.Jr:
Pardon me?
H'blau:
Be the question of the motive - why you're doing it.
H.M.Jr:
Well, I mean what at this juncture would his reaction
be, good or bad? Do you think we're doing something
to help him or hurt him?
Regraded Unclassified
110
-25-
H'blau:
Depends on who picks up the argument and uses it.
In other words, your publicist would pick it up
and say it's either good or bad, and the business
man would believe his particular favorite publicist.
H.M.Jr:
Well, what do you think?
H'blau:
Well, frankly, I don't know much about the effect
of gold movements. That's beyond me.
H.M.Jr:
And this discussion this morning hasn't made it any
clearer.
H'blau:
As to the - the only effect, if you want to move a
bit beyond the question which is Point Number Two -
I think if the effect of this action is to reduce
the total debt even temporarily, that would have a
very favorable effect psychologically.
H.M.Jr:
Well, of course, if gold goes out, and it is going
out under the announcement we have, remember,
we automatically reduce our debt.
H'blau:
And I think that would have a very favorable effect.
Now, the question that you are postulating is whether
or not you should do nothing, or just let it go out,
and then later on say you won't sterilize any more,
or whether you should say something more. It's all
new to me. I hadn't heard of it, frankly. I just
don't quite clear my own mind on it.
H.M.Jr:
Let me ask you this, which you do know. What do you
hear from your clients this past week as to their
business?
H'blau:
Poor.
H.M.Jr:
Poorer?
H'blau:
Yes, business is poor, has been poorer; in other words,
it has been falling off.
H.M.Jr:
You didn't tell me that a week ago.
H'blau:
You asked me what happened this last week.
H.M.Jr:
I'm very definite.
Regraded Unclassified
111
-26-
H'blau:
During this past week it simply has been falling
off. In other words, simply - I would say a
more intense feeling of being out in the dark and
not knowing which way to turn.
Viner:
You may be interested in this, by the way, that
some sort of retail conference, I guess the big
department stores, Himmelblau, has been going on
in Chicago.
H'blau:
Chain stores primarily.
Viner:
And General Wood spoke to a small group in confidence
and said that in the past ten days their orders have
been slumping badly, even from the farm - their farm
orders - so that the slump has reached the farm.
Eccles:
I got a letter from Wood yesterday, inasmuch 23 you
have mentioned this now, so that he apparently - he
wrote the letter confidentially - but he said that
during the past two weeks, which were the last two
weeks of October, that their total volume of sales
was 15 percent less than the same period a year ago.
White:
Rummel of the "acy Brothers - oh, excuse me - snother
bit of evidence: Rummel of the Macy Brothers made B.
statement to a group two or three days ago in which
he said that their sales at Macy's held up until two
weeks ago, and then began to drop rather sharply.
H.M.Jr:
Well, that checks.
White:
I'd like to point out a difference, a fundamental
difference, in the opposition that I think ought to
be called to your attention. On the one hand we
have one view indicating that the thing will have a
lot of effect, bad or good, but it has the potential-
ities of being a substantial effect. I take that to
be Viner's view.
Viner:
It may, yes. It's a psychological question.
White:
Whereas one must put against that the view that it
will have no effect, and therefore opposing it.
H.M.Jr:
Well, that's - there's another view.
Regraded Unclassified
112
-27-
Viner:
Well, the effect
Eccles:
I see almost no possibilities of its having 8 good
effect. I'm assuming that that's the proposal and
that it is not part of a general picture. I'd
certainly say that the Government program ought to
be one which includes assurance to the public that
we are going to maintain easy money, say, 88 part
of our general program.
H'blau:
Have you heard from any source that there was any
intent that they wouldn't maintain easy money?
H.M.Jr:
Well, you've got all the people in the room here
responsible for it.
H'blau:
Well, I thought the general impression was that that
policy is being maintained. I've never heard anything
to the contrary until this morning.
Eccles:
I'm surely on record enough on that score, and there
is no indication or feeling that there is any inten-
tion to do other than that. And everybody knows
that, comparatively speaking, money is the most
available thing there is today. People want to
know what to do with their money. It isn't a question
of a lack of it. The great trouble is idle balances
and banks with idle reserves that they just don't
know what to do with.
H.M.Jr:
Well, to answer you (Himmelblau), the people who
advocate this feel that it is a certain move which
they made down here to stop this rise in prices, see?
And one of the moves which they blame for it is this
gold sterilization policy, again quoting them, and
they feel that if we announce the discontinuance of
that, that would be an indication that Washington
felt that the deflation of prices has gone far enough.
Eccles:
That we ought to have a further rise, that would mean.
That would mean higher building costs, certainly not
lower, if it had the effect that it is desired to have.
It would mean the railroads would be in the same boat,
be less able to buy. Bottlenecks that exist would
exist to a greater extent. You wouldn't be dealing
with the fundamental problems at all.
Regraded Unclassified
113
-28-
White:
That's what they said in '30, '31 - "Prices were too
high. When they get down low enough, people will
begin doing work." And you've heard - a great many
said - you can go back to it, if I may use a his-
torical episode - there were a very great many
economists who said, "The adjustment is taking place.
We're on the way down. When things go low enough,
the trend will turn."
Eccles:
I'm not arguing that.
White:
No, no, I'm
Eccles:
I'm not saying that it will pick up of itself. I
think it requires positive action. And I'm certainly
not in sympathy at all with what was done in '31.
But I think the action has to get down and deal more
with the causes of the thing rather than deal with
matters that are not the causes. And it seems to me
the monetary is the one thing that has had least to
do with the situation that has developed.
H.M.Jr:
The fact remains in the minds of the public and in the
minds of the world, beginning with the President - I
mean a number of statements that were made by him and
other people that prices were too high, and from that
time on prices have gone down.
Eccles:
Started really before that. In the wholesale prices
in London that broke before that.
H.M.Jr:
Well, I think they broke right after a statement came
out of the White House. I think that they started
to break right then. But anyway, we're dealing with
a state of mind. I mean it's - and there's no indi-
cation - this has nothing to do with
Viner:
Of course, that statement shouldn't have been made
in that way, and there is never a situation in which
all prices are too high.
H.M.Jr:
May I just - and I say again, the people that advocate
it say there is no indication from Washington that
they feel that prices now are low enough. Now let
me go back - after all, right or wrong, Mr. Roosevelt
Regraded Unclassified
114
-29-
started out this whole question; he's always been
talking of prices, that he wanted prices to r each
that level and that stability so that B man could
sell his goods and pay off his debts at approximately
the price at which he contracted them. He sent that
as & message to London in 133.
Eccles:
But merely action of this sort doesn't increase
prices of products, such as the agricultural
products, where there are the surpluses.
H.M.Jr:
Well - but Marriner, I again say that nobody here
has said that the present price level has dropped
to a point where we think it is low enough, and
every day it's just going a little lower.
Ecoles:
I don't think that a statement of it would correct
that.
H.M.Jr:
One of the things that they blame for the falling off
in prices, right or wrong, is the gold sterilization
policy. And I again preface my remark - I haven't
crossed this bridge. This is simply in the argumenta-
tive stage, you see, and I'm asking and listening and
asking more people to come down. Because this thing
has been advocated by such important people that it
just can't be brushed aside; I mean people outside of
the Treasury who are of first importance in ability
and respectability.
What do you say, Goldenweiser?
Golden.:
No, I was just listening.
H.M.Jr:
No, I mean nothing has been settled. But I think
when a thing of this kind is recommended by people
of that nature - I mean you just can't - my job,
I take it, is to listen, weigh them, and make up my
mind. That's what I'm trying to do today and tomorrow.
Golden.:
You want to make a decision tomorrow, Mr. Secretary?
H.M.Jr:
I want to make up my mind tomorrow if I should do
anything over the week-end. I might decide to do
nothing over the week-end and then let it run another
week, you see, I mean
Regraded Unclassified
115
-30-
Golden.:
Sure, you never can say way in advance.
H.M.Jr:
And I'm perfectly frank in saying that I'm approach-
ing this thing at this particular time - not trying
to cure fundamentals. To use an example, labor - I'm
not thinking of that for the moment. I'm just trying
to think, what can we do to indicate to the public
something which will convince them that we are con-
scious of the fact of what is going on. Now, the only
public statement that's been made by anybody down
here is a statement by Roper that everything's lovely.
Eccles:
That's ridiculous.
H.M.Jr:
You go through the press and see if there is any
person in any position of responsibility who has
let business know that we know that the thing is
dropping out from under our feet every single minute.
I mean I haven't seen any statement, have you, Mr.
H'blau:
No.
H.M.Jr:
I haven't seen any statement by any person of
responsibility that we realize that business con-
ditions are as bad as they are.
Viner:
There is the Department of Agriculture release on the
forecast of their economists as to the trend of
business.
Golden.:
Yes, there is.that - their statement about a recession.
E'blau:
Well, that just came out.
Golden.:
That came out day before yesterday.
H.M.Jr:
Yes, but Wallace didn't put his name to it.
Taylor:
He never does. That's the B.A.E. *nat comes out of
the B.A.E.
Golden. :
The summary of business conditions that we issued
recently S hows an unfavorable trend. There isn't
much interpretation, but
White:
You mean the index dropped.
Regraded Unclassified
116
-31-
Golden.:
Not only the index of production, but every single
....
Viner:
Every single element in it.
Golden.:
All the way through.
White:
But you avoid any interpretation.
Golden.:
That particular thing doesn't interpret it; just states
it.
H.M.Jr:
Well, I was thinking in terms of individuals, Mr.
Goldenweiser.
Golden.:
High officials, yes.
H.M.Jr:
Mr. Lubin got out a statement showing that the trend
of labor was off, didn't he? The same day Miss
Perkins tried to take it and make it look good, if I
remember correctly. I was thinking in terms of indivi-
duals.
Eccles:
This thing has reached a situation where a statement
by anybody, it seems to me - except the President
himself, in which he shows & recognition of the trend
and undertakes to correct it by having some positive
program - is all lost. And I think that the fewer
statements the better, and that he should - Congress
is meeting here; there's his opportunity, it seems
to me, to go before Congress with a message that not
only recognizes exactly what the situation is, as
he sees it, the causes for it, but what ought to be
done about it. Now, that - then you can rally
support; you've got a program, you intend to do
something. If the statement is accepted favorably,
it can do some good. But any of the rest of us making
statements - it just doesn't - I don't think it has the
effect.
H.M.Jr:
Well, we can't argue on that - I mean comparing
anybody else's statement to the President's.
Jake, would you mind stating - I mean you've made
several times the statement that this doesn't go
to the root of the matter, the fundamentals. Would
Regraded Unclassified
117
-32-
you mind stating what you think are the funda-
mentals?
Viner:
Well, as I see the situation, it is this. I have
some notions as to what started the downward trend,
but I don't think the monetary policy had much, if
anything, to do with it. I feel myself that what
started the downward trend was the upward trend in
prices and the feeling of business that the trend
was going to continue, and the fact that they
over-bought, and the result was that orders stopped
coming in, they realized that they had over-bought,
and they began checking up. I think you can get an
adequate explanation of the first stages of this
decline in terms of the purchasing agents' discussions
as reported in the newspapers at their various meetings.
They discovered about March or April that last fall and
early this spring they had generally over-ordered in
anticipation of higher prices, and they had commitments
outstanding larger than they would need for a long
time unless business kept on rising at a quite rapid
rate.
Since then, what has happened has been - see, I thought
we were going to have not 8 depression, - a reverse -
what do you say for E slight
White:
Recession.
Viner:
a summer recession. My forecast was for that.
I was wrong. And I was wrong, I think, now, examining
that and talking to people - the mistake was that I
had underestimated, didn't know the full extent of the
commitments that were outstanding.
Eccles:
Backlog of orders.
Viner:
And business kept on going this summer on orders which
were going into inventories, so that therefore that
postponed the recession for three or four months.
Then the next thing is, why is the recession taking
the nosedive, because I just heard a business executive
say that this is going downhill faster than on any
previous occasion, that it has spread from - the lags
Regraded Unclassified
118
-33-
are all being shortened; I mean it started at
the usual place, but the lags are all short and the
rate of intensification is more rapid.
And what is the nosedive? Well, when business psy-
chology points that way, they use all the unfavorable
terms they can pick up in the situation to justify
their pessimism, and they've got plenty of them now.
There is this underlying fear of government policy
which was existent even when business seemed to be
in a healthy condition; there is this emotional ele-
ment which, when they have borderline decisions to
make - the fact that they resent the policy of the
government helps them to make the decision: inaction
and liquidation, etc.
And that the fundamentals are that our recovery was
mainly a consumers' goods and retooling recovery.
It didn't become a capital goods recovery and a
housing recovery.
I think that this was the first time that, in so
many years of recovery, we didn't get back to the
pre-depression normal; we have not yet had full
recovery, and that that is unprecedented. And that
the explanation there is that the Government has
established these bottlenecks of various sorts, some
of them legislative, some of them atmospheric; and
that the persons who control funds, who are relatively
a few thousand persons in the community, don't feel
that they have any security, they don't see a prospect
of profit, they are not convinced that the Government
wants them to have any prospect of profit; and that,
with the sick spiral that you have now, unless some
of those ideas of theirs can be gotten out of their
mind, there is no need for this spiral to be any
less intensive than the '30, '31, or '32.
Now, there are certain things that can be done, and
there
H.M.Jr:
Well, just tick them off. What are the things that
we can do? That the Government can do. Government.
Viner:
Well, I think the only constructive approach to the
Regraded Unclassified
118
-34-
problem is the one that Mr. Eccles has suggested,
for the President to state what his policy is now
in the light of this situation and how he intends to
implement it, and if that is the policy which is right
that may cure the situation.
H.M.Jr:
Well, what is the right policy for him to follow?
Viner:
Well, I'd say ne's got to remove the bottlenecks
which he has established or has permitted to become
established. One of them is the too rapid rise of
costs in terms of prices, in terms of higher labor
costs. Now, you may say that politically that is
fatal for him. I'm not - I mean if you say the right
things can't be done, then I throw un my hands.
Another one is the utilities, who are attacked from
two sides. One of them is the TVA thing, which tells
them that the Government plans with 8 ridiculous
pretense of a yardstick to establish Government-owned
enterprises wherever it wants to, and is going to do
it on 8 larger scale regardless of what conditions
may be. Hell, how could the Board of Directors of
a utility company propose to anybody that they sink
more money into an enterprise that faces the uncer-
tainties they do? The other one is the holding com-
pany thing, in which I think the utilities are to
blame themselves. But there is a bottleneck there,
and perhaps it is possible to overcome it by more
vigorous initistive on our part.
Another one is the housing situation. And, as I
have said since 1934 and kept on saying, the notion
that you can get a housing revival when the housing -
the ingredients of housing are monopoly-controlled
products with high prices, with Government encourage-
ment - and our 820 8 day labor providing a commodity
for $20 a week consumers; you can't do that. The
housing problem has never been faced squarely since
1934. The Government has evaded it and evaded it.
And he'd have to deal with that.
Eccles:
I haven't seen Jake at all.
H.N.Jr:
No, no. Let me ask Jake one question. In this
interim - I'd like very much to have you tate this -
in this interim
Let's say the President did say
Regraded
- 120
-35-
the thingsyou think he should say. Do you believe
that in the interim period, next few months, until
those things can catch on, we should increase
spending?
Viner:
I say you should certainly not do anything until.
those things are said.
H.M.Jr:
I mean do you believe we should increase the spending?
Viner:
No, no, I'm not through. I'd say also the tax
structure - I haven't said anything about the tax
structure.
H.M.Jr:
Oh, I know how you feel about that.
Eccles:
On this spending, what you mean is that these things -
some of these things have got to be said, something's
got to be done with reference to the housing, and
then, but do you think that you should reduce spending
temporarily or that you should increase it in connec-
tion with a
Viner:
In connection with E statement of E reorientation
of policy of that sort. I would also make the
statement that the Government, in the meantime,
intends to do what it can until business has time
to make its plans, etc., to keep things going as
fully as they can.
I'd also say one other concrete move, as part of a
program. Again I am going back to 1934. I would
H.M.Jr:
Let me interrupt you.
Viner:
I would reduce the contributions on Social Security
without affecting the budget by reducing the reserves
set up.
H.M.Jr:
Would you change the speed of spending as it is right
now?
Viner:
As a single step I would not.
H.M.Jr:
No, as part
.....
Regraded Unclassified
121
-36-
Viner:
I mean aside from a reorientation of policy, anything
which looks in the direction of unbalancing the
budget further
H.M.Jr:
No, as a part of the whole thing.
Viner:
Yes, I say budget-balancing becomes less important.
I'd put a top on expenditures, then I'd let revenues
take care of themselves, if at the same time there
were an announcement of 8 reorientation of policy with
respect to private business; in other words, that
business should feel we are not trying to get out of
this depression by Government spending, but by making
it possible for private business to expand and take
its place, and perhaps for E. short interim period
easing the process along by increasing the spending -
as part of a year's program; in other words, doing it
now and not doing it next spring. But short of that,
1 must say, I'd say almost anything you'd do, in my
opinion, would be wrong, if it isn't that.
Eccles:
Be in a worse situation next year than you are now;
if you get B shot in the arm through an inflationary
scare, it would go right up and
Viner:
It mightn't even go up.
Taylor:
Might not even go up.
Viner:
And if it did go up, it would be a little balloon
which would come down faster than it went up.
H.M.Jr:
Let's say for argument we're spending 150 million
dollars a month emergency money right now - exactly
what we spent last month.
Viner:
I'd say the only increased spending I'd justify
right now is by Harry Hopkins.
Eccles:
It's quick.
Viner:
Not only because it's quick, but it would also relieve
human distress.
Eccles:
I mean looking at it purely from an economic standpoint,
that would be an effective, quick flow of funds.
122
-37-
Taylor:
You'd have that whether you wanted that or not.
Eccles:
Therefore recognize it.
Taylor:
Don't be scared about that. But don't try to
speed it up. That's something you know we're going
to do. Don't say, "We can't afford that," because
Christ knows we're going to do it anyhow. But don't
take any action which would encourage that.
Eccles:
The only way you can talk about a balanced budget is
first to stop a recession. The balanced budget of
139 1s dependent entirely on the stopping of this
recession now.
Taylor:
Our whole tax structure is based on business activity
and business profits.
Viner:
And I'd point out something else with respect to the
fiscal year 1938 estimates, that even if the corpora-
tions break even in the last quarter of this year, so
that, as far as that is concerned, they retain the
profits they have earned in the last nine months,
they're going to have big inventory losses to write
off December 31, so that our estimates for this year
are likely to be off.
H.M.Jr:
I wasn't far off - spent 145 million dollars emergency
expenditures last month.
Eccles:
How much, did you collect on Social Security, though
that isn't figured as revenue?
H.M.Jr:
No, no, I'm just talking about emergency expenditures.
Eccles:
But that - oh, I see, yes. That doesn't mean the
Golden.:
That's not the net.
Eccles:
Doesn't it mean the
Golden.:
The rate at which the billion and a half is spent.
H.M.Jr:
of course, the carry-over, the whole thing - Agricul-
ture, War, Civilian Conservation, Public Works, Works
Progress.
Eccles:
now does that compare with a year ago?
Regraded
123
-38-
H.M.Jr:
September - October, 145. September a year ago,
we spent 253.
Eccles:
And a year ago you had the bonus effect.
H.M.Jr:
Well, that was pretty well gone by then, Marriner.
Eccles:
September?
Golden.:
Well, they had the money.
H.M.Jr:
Well - oh, I'm talking about out of the Treasury.
Viner:
The money was paid out mostly in June, but it
couldn't have been spent until the summer, and 500
millions of it, if I remember right, was out after
June 30.
Golden.:
Mr. Secretary, I came in here this way and listened to
see what the bjects - what the main positions were.
I am prepared to state, if you wish, how it looks to
me.
H.M.Jr:
I wish you would, please.
Golden.:
As far as the economic analysis is concerned, I agree
absolutely with Viner. I think it is exactly the
same way that I look at it - and the reasons for the
situation and the remedies as he mentioned them, too.
So that there is no difference of opinion on that.
On the more specific question that you spoke of, about
the gold, at this time, as near ES I can think of it
in a hurry, I would - I can see no particular point
in announcing the discontinuance of your policy at
this exact stage, when the policy is no longer result-
ing in increasing your debt and when the gold movement
is not inward. You are having an outward movement of
gold, and it probably is not going to get reversed for
some little time now. So I don't see that it is a
very opportune time, or an effective time, to discon-
tinue your policy. It might be taken that you are using
sterilization at the time when gold might have been
inflationary and you stop using it when it ceases to
be inflationary. It might be misinterpreted as though
Regraded Unclassified
124
-39-
you were going to play the deflationary game on
both ends. So that by itself I can see no
particular - it doesn't seem to me this is an
opportune time for announcing it.
I do think this: as between this date of November
8th, or whatever it is, and the - November 6th -
I don't know what date it is - and the end of the
year, it is necessary to carry out with complete
good faith and in a generous interpretation the
policy that was announced on September 12th, of
seeing to it that there is no shrinkage in reserves
from now until the end of the year. Now, the Treasury
has taken care of three hundred millions of it, and
the question is, between now and the end of the year,
either the Treasury or the Federal Reserve System has
got to supply the additional reserves. And I would
not be very meticulous about being sure that we don't
supply too much, because this is not the time when
that is going to do any harm. And so my proposal
would be that the Federal Reserve System now proceed
immediately to buy some securities so as to anticipate
the coming December demand for funds, and to see to
it that the reserve picture never goes below - much
below a billion dollars. It is likely to go down to
about 800 million dollars, but it may not go that
low, because the currency - one of the indications
of our recession is that the currency demand is
much smaller than anticipated and it may be that the
reserves won't go down below 900 million dollars.
But I would be in favor of action either by the
Treasury or by the System to buy Governments between
now and the end of the year, and my own preference
would be, in order to carry out the arrangement, that
the action from now on be purchases by the System.
As far as gold is concerned, I do think that an
inflationary announcement in the gold field is likely
to have bad psychological effects rather than good
ones, because I think that people would interpret it
as meaning that we still have too much faith in the
monetary remedies, that we are still - that we are
misreading the situation, and that there is less
reason for confidence that we are going - that the
System is going to function uninterrupted and
uninterfered with, than there will be if you say
Regraded Unclassified
125
-40-
nothing about it at this stage. I haven't
organized my thoughts very well, but that's about
the way it looks to me at the moment.
Eccles:
I'd like to raise a question. The President has
made quite a number of statements with reference
to the budget picture and the 700 million deficit
for this year, with a balanced budget next year,
which has of course been given a good deal of pub-
licity. It's a commitment.
It seems to me that - and there is some disagreement,
no doubt, on this point - that the 700 million dollar
deficit is not a deficit in the same sense that it
would be 11 it wasn't for the Social Security not
being included as revenue-producing - if the Social
Security was considered a revenue-producing operation.
This is what I mean, that in this fiscal year 138 the
Government will have taken out of the community in
money about 400 million in excess of what it puts back
into the community. In other words, so far as the
public is concerned, there will be & reduction in the
amount of Government debt held by them. The reduction
will be very largely in the amount of Government debt
held by the banks, because the retirement will be
in bills and notes, if you could carry through on the
schedule. And then the Treasury would issue to the
Social Security fund the three percent - what is it,
three percent bonds; it's three, isn't it?
H.M.Jr:
Two and a half and three. Two different kinds.
Eccles:
Yes. So that so far as the effect on the economy
is concerned, it is deflationary to the extent of
400 million, even though we say that we have a
deficit of 700 million. Now, it seems to me that it
isn't fair to have the Government put in the position
where they've got the deficit, which in the minds of
a lot of people means that they are really spending
700 million more than they are taking in, whereas they
are actually spending 400 million less than they are
taking in when you take into account these funds. And
the monetary effect is exactly the same, so far as the
community buying power is concerned, as it would be if
those were any other kind of taxes. It's 400 million
dollars deflationary.
Regraded Unclassified
126
-41-
Golden.:
That's committed for the next fiscal year.
Eccles:
For this year.
Golden.:
I mean ending '38.
Eccles:
That's right. Now, for the next fiscal year, we
figure that we haven't got a balanced budget until
we have actually retired from the public over a
billion dollars of outstanding Government debt. Now,
that is - that would be deflationary to the extent
of 8. billion dollers. And unless you have private
credit expanding by fully that amount or more - it
should be more - then it isn't wise to retire that
amount, whether for Social Security or whether for
cancellation, so far as the community - the effect
on the community - is concerned. I mention that
because it is a big factor, it seems to me, in these
considerations here and what the President might have
to say with reference to the budget picture.
Now, I mentioned something to you yesterday, Henry,
on the desterilization of gold in the fund for the
purpose of taking care of deficits to the extent that
you don't have to change the budget picture. In other
words, if you should take five hundred million or a
billion of the gold in the desterilized - in the
sterilized fund for the purpose of providing Hopkins
with funds, or for the purpose of taking care of funds
that Wallace. might get through your agricultural pro-
gram here for the support of the corn and wheat and
prices - to keep those from going down. To have to
go out and borrow money - it would increase the public
debt; it wouldn't look good.
H.M.Jr:
Well, Marriner, the way the thing is going now, if it
keeps up this way for a little while, we won't need
any new money - I mean we're selling it so fast. I
mean the figures that we have made - we won't need
any money in December.
Ecoles:
Is this - yes, I know, but if - what I am thinking
of is
H.M.Jr:
It's the same thing if it didn't happen.
Regraded Unclassified
127
-42-
Eccles:
If the President should go before Congress and
say, "Now, we're not going - we're going to balance
this human budget; we've got these people out of
employment and we want to give assurance that while
private spending is diminishing, we can't diminish
public expenditures at the same time, and during this
interim period, why, we are going to meet this require-
ment to the extent that we have to increase what
Hopkins - what we may need for relief and to the
extent that we may need for this corn program. But
we have borrowed a billion and a half approximately
and we have increased the debt by that amount and
we have gold that is being carried against it. We
can desterilize a portion of that gold, get those
funds, without further expanding the debt." I'm
thinking of it from a public standpoint. Now, see
what reaction some of these men here have on it.
H.M.Jr:
Well, 1f you don't mind, I'd like to stop now. I
know what you've got; I don't want to stop you, and
if you want to go into Taylor's room and talk it
over
Eccles:
All right, I'll do that.
H.M.Jp:
But I've just got to stop; I mean you're more than
generous to give me all the time you have, but I
didn't allow enough.
Eccles:
There is nothing - there's nothing else important
right now.
H.M.Jr:
I don't know whether you want to continue it in
Taylor's room. Now, that's up to you.
Eccles:
I'd like to do that. I talked to you yesterday.
H.M.Jr:
I would like Viner to stay to talk about a personal
matter, if you would.
Regraded Unclassified
128
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE November 5, 1937
TO
The Secretary
FROM Mr. Taylor
The business community and the new capital market are in a state
of stagnation, if not panic. There are three main reasons for this
situation:
1. They are disturbed by what they consider to be the lack of
a positive attitude on the labor problem.
2. They do not like the present tax structure, in particular the
undistributed profits tax, and the capital gains tax in their present form.
3. They do not think that the Government has the courage to
curtail subsidies and what they consider unnecessary expenditures; and
they fear that at the first signs of a recession the Administration will
resume excessive spending or start monkeying with the dollar. Either
move would mean the beginning of the end in their minds, and the printing
press would be just around the corner.
In effect we have a repetition to & as yet, minor degree of
the French situation. Business and capital have temporarily lost con-
fidence in the Government; until this confidence is restored no purely
monetary or credit move will be effective. I refer you to the cable of
October 30th, No. 1545, Section 2, summarizing the resolutions passed
by the Radical Socialists. They apply with equal effectiveness here.
The Radical Socialists in France compare to moderate left group in this
country; in other words, the New Deal.
Regraded Unclassified
129
- 2 -
What can the Treasury do? There is no credit stringency, if
one develops we can take appropriate measures. An outward gold move-
ment has started. The entire mechanism which has been created during
the past two years was intended to insulate our domestic credit structure
against the bad effects of a withdrawal which we hoped would take place.
If we are facing an unbalanced budget in any case, let us take
the risk of unbalancing it by changing our tax structure; in other
words, let's see if business will make the expenditures. If they do
our tax receipts will automatically increase; if they don't, we will
have to borrow and go through the whole process of 1933-1937, provided
it will work again, and it probably won't because we have educated the
public to know what the moves mean.
I do not think that we should desterilize a large block of
gold. I do not think that we should pay off our bill maturities by
desterilizing enough gold to meet these maturities as it is probable
that the natural outward movement will take care of quite E. portion of
these requirements and have the same effect as formal action. I do
think you should make your speech about 8.5 is.
well
130
November 6, 1937
11:03 a.m.
H.M.Jr:
Hello.
Operator:
Here's Mr. Farley.
H.M.Jr:
Hello.
James A.
Farley:
How's the situation?
H.M.Jr:
Hello, Jim?
F:
Yes, are you free to talk?
H.M.Jr:
Yes, I can listen.
F:
How's the situation this morning? Any better?
H.M.Jr:
Well, I was with him for an hour and a quarter.
F:
Yes.
H.M.Jr:
And - much better.
F:
Well, that's fine.
H.M.Jr:
Yes.
F:
I think that that was extremely helpful yesterday.
H.M.Jr:
I think so; I think it may be a turning point, Jim.
F:
Yes. Well, it's highly essential that - frankly,
that - I think that we ought to sort of have another
check-up next Friday on it. You know what I mean.
H.M.Jr:
I know. And what I did this morning was - you see,
I'm speaking in New York on the night of November
10th.
F:
Yes.
H.M.Jr:
On spending.
F:
Yes.
H.M.Jr:
And on taxes.
Regraded Unclassified
131
-2-
F:
Yes.
H.M.Jr:
And I've got a very strong speech.
F:
Yes.
H.M.Jr:
And by God he okayed it.
F:
I see. Well, that's all right.
H.M.Jr:
What?
F:
That's all right.
H.M.Jr:
See?
F:
That's all right, but it's highly... Now, I'm going
to make a statement here and I don't want you to
even comment on it one way or the other.
H:M.Jr:
Yes.
F:
It's just the same thing to you.
H.M.Jr:
Yes sir.
F:
But I'm fearful at times that he gets somewhat of
the wrong slant from people who want to ingratiate
themselves with him and don't lay the cards right
on the table.
H.M.Jr:
Well, you're just a thousand percent right, Jim.
F:
See? Now, God knows I've never done that, but I've
never butted in much in fields where I have no right
to be in.
H.M.Jr:
Yes.
F:
But I felt that the time has arrived to speak out in
court.
H.M.Jr:
Well ...
F:
Of course, between you and me, we don't get very much
help in there, you know.
Regraded
132
-3-
H.M.Jr:
I know we don't.
F:
See?
H.M.Jr:
And we sit around for a couple of hours and it's
pretty much wasted.
F:
Yes, but there isn't - you don't get much help
from your associates in there.
H.M.Jr:
No.
F:
And I think it's because of fear. They just - they
just - they're afraid to speak out.
H.M.Jr:
Well ....
F:
It's unfortunate, but that's true.
H.M.Jr:
Yes. Well, I had to get under his skin, didn't I?
F:
Yes, you did.
H.M.Jr:
What?
F:
Of course I had to use that word "stubborn" because
that's just what the boys use, you know.
H.M.Jr:
I know.
F:
I don't know whether he liked it or not, but I gave
it to him
....
H.M.Jr:
Well, he was in a very good humor this morning.
F:
He was, huh?
H.M.Jr:
Very. And ....
F:
Well, I think - frankly, I think that he saw the
sincerity of everybody.
H.M.Jr:
And I was with him for an hour and a quarter on this
speech, and he - the only thing he looked - he never
referred to what happened there except to say that
he - the things which were brought out there, see? -
F:
Yes.
Regraded Unclassified
- 133
-4-
H.M.Jr:
- and the things which were necessary to do - he told
that to Roy Howard and his twelve editors who were
with him last night. Now, isn't that interesting?
F:
de told that to them?
H.M.Jr:
He told them that - "Here are the things ..." - he
said, mI told them what are the things which are
necessary to be done which were brought out in
Cabinet yesterday."
F:
That's very interesting.
H.M.Jr:
What?
F:
That's very interesting.
H.M.Jr:
I thought it was most encouraging. That's the only
reference he made, and I was with him from 9:15 to
9.. - to 10:30.
F:
That's very interesting. Well, all right. Well,
thanks a lot. I was just sort of checking up.
H.M.Jr:
Well, Jim, I can't tell you how much I appreciate
the backing you gave me yesterday.
F:
Well, hell, you were telling the truth. I always
stand for B. fellow when I think he's telling the
truth. I'd have disagreed with you just as quickly
if I'd thought you were saying the wrong thing from
my point of view.
H.M.Jr:
Well, I - I certainly appreciate the backing you
gave me.
F:
O.K., sir.
H.M.Jr:
Thank you very much.
Regraded Unclassified
TREASURY DEPARTMENT
134
INTER OFFICE COMMUNICATION
DATE: November 6, 1937
Ta
Mr. Morgenthau
FROM A. Lochhead
On Friday, November 5, the Swies National Bank at Berne cabled to
the Federal Reserve Bank of New York and requested that the Federal Reserve
Bank purchase for the account of the Swies National Bank $6,000,000 gold at
$35 per ounce, plus 1/4% charges, debiting the account of the Swise National
Bank, Zurich, on their books in payment. A further cable received the same
day instructed the Federal Reserve Bank to purchase an additional $5,000,000
in gold in the same manner. No reference was made in these cables as to
whether or not these transactions were conducted under the Tripartite Agree-
ment, and although the Federal Reserve Bank had received $6,000,000 for the
credit of the Swise National Bank the day previous, it was found that these
funds were merely & transfer from the Swise National Bank's own account with
the National City Bank of New York. The Federal Reserve Bank, under our 12-
structions, cabled to the Swiss National Bank, Berne, pointing out that if
the purchase of gold which they requested WBS under the terms of the Tripartite
Agreement, it would be necessary to show that the dollare 80 acquired were
the result of an exchange transaction, and the entries passed through the
Special Account of the Swins Bank which had been set up on the books of the
Federal Reserve Bank for that purpose and in conformity with the procedure
agreed to by the Swine National Bank at the time they had adhered to the
Tripartite Agreement. It was pointed out that any sale of gold other than
under the Tripartite Agreement could only be made under a special license
obtained through the Treasury Department.
Today, the Swise National Bank, Berne, informed the Federal Reserve
Bank, by cable, that they had been obliged to purchase approximately
$21,000,000 on November 5 in order to stabilize the Swise dollar rate in
their market. These funds are to be received by the Federal Reserve Bank on
November 8, and are to be cleared through the proper account. They requested
that a purchase of $11,000,000 of gold be made and sarmarked for their account
under the terms of the Tripartite Agreement and stated that they would inform
us on Monday as to their exchange transactions today and would at that time
rive us further Instructions 80 to gold conversions against these operations.
Regraded Unclassified
135
JR
GRAY
Paris
Dated November 6, 1937
Rec'd 9:04 a.m.
Secretary of State,
Washington.
1569, November 6, 1 p.m.
FROM COCHRAN.
Paris banks open this forenoon to compensate for
holiday sarlier in WEEK. Feature of unofficial trading is
continued weakness of dollar. One Paris American benk
bought ,170,000 for French control at 29.41 3/8 and
Lazards did probably a larger amount. Impression here is
that Netherlands control this morning began selling florins
and buying sterling instead of dollars as heretofore,
Proceeding to Basel tonight; returning Tuesday
morning.
BULLITT
CSB
- -
136
JR
GRAY
London
Dated November 6, 1937
REc'd 4:15 p.m.
Secretary of State,
Washington.
701, November 6, 6 p.m.
FOR TREASURY FROM BUTTERWORTH.
Today's ECONOMIST contains an analytical article or the
Economic outlook in America, partinent Excerpts from which
are as follows:
"At milsummer then the position was that current
consumption was healthy and flourishing but that the
capital goods industries was still flagging, hindered by a
dormant new issue market *** steel activities which was
reduced by the strike in May never fully recovered and has
been declining rapidly since April. Thus the capital goods
industries were not only in the more vulnerable position
sarlier in the year but they have in fact started the down-
ward movement. There can bE no one Explanation for this
change in trend. Part of the responsibility can bE upon the
depressing Effects in the bond market of the Federal RESErVE'S
policy of raising the reserve requirements of the banks.
This undoubtedly put a stop to the incipient revival in the
new issues market. Simultaneously the heavy tax on
undistributed
Regraded Unclassified
137
JR -2- "701, November 6, 6 p.m., from London.
undistributed profits made it more difficult to finance
capital Extensions out of prograss. In some industries
notably the railways and building, rising labor costs
either directly instigated or at least Encouraged by Govern-
ment action prevented Expenditure on capital goods. And
finally the effort made in Washington to balance the budget
severely reduced the Government's own Expenditure on capital
goods. It might almost have been a concorted program to
discourage capital investment.
The decline in the volume of new business for the
heavy industries naturally reacted on the stock sxchange.
Security prices had risen less rapidly than corporation
profits since the bottom of the slump, But the lEVEl of
prices was not in this sense 500 hig..; it SEEMS to bE true
that the regulatory action of the last few years has made
the market very vulnerable to selling pressure. Comparative-
ly small sales produced drastic reductions in quoted prices,
Sharp falls in security prices turned industrial hesitation
into pessimism and pessimism into an alarm. Psychology
thereupon affected the confidence of businessmen throughout
the country. Not only that; every individual and corporation
whose credit depended upon stock Exchange collateral found
his borrowing power reduced. As always deflation in one
part of the system spreadsto others".
After
Regraded Unclassified
138
JR -3- 701, November 6, 6 pama, from London.
After Emphasizing that this is not 1929, that
fundamentally the position is much lESS unsound, consumers'
purchasing power being WEll maintained and capital goods
being under rather than over supplied, the article concludes
with the following recommEndations: "The difficulty seems
to lie in the main in the nexus of finance and confidence
which links the need for capital Equipment with the
industries which are ready to supply it. It is a straighten-
ing out of circulation not a distortion of structure, It
follows that the main line of remedial action should be
a direct attempt to remove the obstructions to activity in
the capital goods industries. There are many "orms which
this action could take, all of which are familiar to the
authorities at Washington and could be applied if the
decision on policy were taken. Something has been done to
reverse the depression influences in the bond market and
to improve the technical position of the stock market.
l'uch could bE done to lower the cost of capital construction
and to raise the margin of income of SOME industries notably
the railroads which are at present unable to afford require-
ment they require. Much could also bE done by the adjustment
of taxes which at present discriminated against capital
expenditure. If, in curing the recession of 1937, policies
were adopted which led to repetition of the wild Expansion
of 1929 the net result would certainly bE more harmful than
beneficial. The supreme task of the American authorities is
to avoid all extremism in policy.
SNS:EMB
BINGHAM
Regraded Unclassified
m Inchhiad
MISC. 3.2 60M 6-37
FEDERAL RESERVE BANK
OF NEW YORK
139
OFFICE CORRESPONDENCE
DATE November s, 1937.
To
CONFIGENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
FROM
L. W. Knoke
BANK OF FRANCE.
Mr. Cariguel called no at 10:10 today and inquired whether
it would be possible for us to send them by the Normandie on
November 10 $10,000,000 of their earmarked gold. I assured him
that, as far as we were concerned, shipment would be promptly
effected and Cariguel stated that he had arranged for freight and
insurance and would confirm his request by cable.
Dollars continued under offer today, he stated, and he
had bought about $7,000,000.
LWK:KMC
-
Regraded Unclassified
MISC. 3.2 60M 6-37
FEDERAL RESERVE BANK
140
OF NEW YORK
OFFICE CORRESPONDENCE
DATE November 8, 1957.
To
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
FROM
L. W. Knoke
DE BEDERLANCECHE BANK.
I salled Mr. de Jang at 10:23 today. I referred to his
cable of November e, instructing us to subdivide his special gold
account into special gold account A and special gold account B.
I assumed, I explained, that one of these two new special gold
accounts was that of the Dateh Equalization Fund, the other of the
Netherlands Bank. de Jong replied that this assumption was correct,
that this split-up was of a temporary nature and had been made nesss-
sary by the feet that the Equalization Fund, which was full of gold,
required guilder assets, and for that reason it sold $10,000,000 worth
of gold to Netherlands Bank; that special gold account B was the
bank's account, special gold account n that of the Fund. I thanked
de Jong and told him that I would send him a sable tenight repeating
our understanding as to the nature of these two special gold ao-
counts and asking his to confirm to us that gold held in account B
was the property of the Retherlands Bank and that no third party had
an interest in it. I explained that it was necessary for us to clear
up this point because of a license issued to us by the Treasury
Department in which was incorporated a similar provision to the of-
feet that gold received by us for earmark hereafter must be the property
of the institution for whose benefit the cereark was arested. I added
that in our new terms and denditions, of which he would before Long get
a copy, he would find a similar clause under earmarking of gold.
de Jong replied that he understood the situation and that everything
was in order. Be asked no whether there would be any difficulties in
retransferring the gold from special account B to special account 4.
Regraded Unclassified
MISC. 3.2 FOM 6-37
- 141
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE November a, 1987.
To CONFIGENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION VITE
FROM
L. W. Inoke
DE HEDERLANDSCHE BANK.
- 2 -
I assured his that there were not any, that under the present set-up
gold which we held under earmark was transferable to others who were
entitled to gold, for instance, to his own Fund or to other members
of the Tripartite Agreement, etc. He also wanted to know whether,
in case of need, he could convert into gold those dollar balances
which he had accumulated over & period of time. I explained that
1
conversion intogeld was automatic under the Tripartite Agreement
only if the procedure set up for that Agreement had been followed.
Conversion into gold outside of the Tripartite Agreement was possi-
ble only with a license to be dasued by the Secretary of the Treasury
with the approval of the President. Newever, I thought I had reason
to assure that such license could be had upon application. de Jong
replied that he did not think they would apply for such & license
but that he had asked the question just for his information.
" discussed today's market which he said had been an active
one, with dellars freely offered. I emphasized that we should be very
happy to operate for his in this market any time he wanted us to do no.
I added that I thought ve would probably, before long, loss a good deal
of gold and that everybody here seemed very happy over it. de Jong
thought be could understand that because they had had the same
feeling when they recently began to lose gold.
I made reference to his recent order to reinvest in three
months Treasury bills naturing bills that we were holding for his so-
count. I pointed out that the yield on Treasury bills will practically
down to sero, with dealers bidding .05% per - and such bills
Regraded
Unclassifie
ISC. 3.2 60M 6-37
142
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE November s, 1937.
To CONFIDENTIAL FILES
SUBJECT: THE WHONE CONVERSATION WITH
FROM
L. W. Knoke
DE REDUCLANDOCHE BANK
- 8 -
practically unobtainable. Under the circumstances, would he be
interested in four months bills, which promised to continue in fair
supply and which were quoted .18% per - bid, .14% per annum of-
fered. de Jong replied that his first thought was rather not to re-
invest, that, however, he would like to talk it over with his -
cistes and send us a cable today.
LWK:KMC
03V13038 evon
Tear TRUZART -
\ THE \ \
Regraded Unclassified
. 3.2 60M 4-17
FEDERAL RESERVE BANK
THE 143
OF NEW YORK
FFICE CORRESPONDENCE
DATE November a, 1937.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
M
L. 1. Knoke
BANK OF ENGLAND.
Mr. Bolton called at 11:14 today. The market had been
very active since the opening, he said. They had so far taken
$22,000,000 ($12,000,000 from the Csechoslovakians). I mentioned
that since gold prices in London and New York were now in line, I
assumed they would begin earmarking here. Bolton replied they did
not wish to earmark a lot of gold unless they felt that this movement
was going much further. What he proposed to do was to earmark,
say four or five million dollars tonight and then ship a few million
to London in order to get the London market into shape and enable
them better to control gold there. Be also had a strong feeling
that it would have a salutary effect to see gold moving from New York
to London
to London or to Paris. Such shipment/would be purely experimental;
at any rate, it seemed to them the movement had gone far enoughs and
physical shipments might well help to correct the situation. I sug-
gested that what had really happened was no more than had been ex-
pested. I also mentioned that the French had just asked us to ship
to them on Wednesday on the Normandie $10,000,000 of their gold, which,
I thought, should have & very wholesome effect. Discussing today's
market in detail, Bolton said that he had not been able to find a
trace of selling of dollars from London but that the bulk had been
for account of Switserland, Holland, Belgium and Central European
countries. As usual, the latter had acted more quickly than other
countries, but, in all of them, there were 6 good sany holders of
dollars who got the wind up. I asked whether he could tell no any-
thing about the sales by Csechoslovakian National Bank, but Bolton
Regraded Unclassified
- 144
1.2 60M 6-37
FEDERAL RESERVE BANK
OF NEW YORK
FFICE CORRESPONDENCE
DATE November 8, 1937.
CONFIDENTIAL FILES
SUBJECT: TELEPHONE CONVERSATION WITH
DM
L. W. Knoke
BANK OF ENGLAND
- B -
replied that all he knew was that Prague had called him on the tele-
phone and offered him the dollars which he had taken right away because,
under the prevailing market conditions, he did not want them to throw
such large amounts on the market. There had been no time for him to
ask many questions.
He inquired whether the Swiss had done anything here and I
told him that we had on Saturday received a request to earmark tomorrow
about $11,000,000. I also mentioned that Cariguel had just called me
to say that he had bought $7,000,000 in the Paris market today. Bolton,
I thought, made it quite a point to let me know that, as far as they
were concerned, their policy was to try and keep the market in good
order and that they did not take much interest in any particular sterling-
dollar rate. I used this opportunity to repeat that we would be entirely
at their disposal if at any time, they wanted us to operate for their
account in this market after London was closed.
LWK:EMC
Regraded Unclassified
145
RB
GRAY
London
Dated November 8, 1937
Rec'd 4 p. m.
Secretary of State
Washington.
703, November 8, 7 P. m.
FOR TREASURY FROM BUTTERWORTH.
The sterling dollar rate has moved during recent
days about one percent and as always when it is subject
in a brief period to any such fluctuation questions and
criticisms begin to appEar as to the workings and Efficacy
of the tripartite agreement. This is perhaps accentuated
by reason of the fact that although the city and the public
generally associate the tripartite agreement with stability,
in the Case of the franc it has been more honored in the
breach than in the observance.
This has played a part in the pressure on the dollar
today augmented by persistent rumors from the continent
regarding devaluation and by a technical factor, viz that
almost all fortign Exchange dealers were long of dollars
and when the dollar weakened further today many of them were
forced to switch. Although the sales of dollars in London
were not
Regraded Unclassified
146
PB -2- No. 703, November B, 7 p.m. from London
were not as great as in Paris, nevertheless the pressure
was very heavy, selling coming from many parts of the con-
tinent and this country. On the other hand if and when any
indication is forthcoming that gold will or is being shipped
from the United States a rapid reversal is to be EXPECTED.
The uncertainty in the exchange position is said to
have played a vart in the abrust decline in commodity rices
točav, most of the metals for Example making new recent laws.
Likewise, the London stock Exchange was very weak. The
decline in commodities is having an important psychological
Effect here: it is accentuating decidedly the feeling of
uncertainty and at the same time is bringing home the im-
portance of American developments on this country.
There are a few bankers in the city who SEE in the
present dollar sterling and gold movements an indication
that the authorities of the two countries are advertently
or inadvertently taking upon themselves the responsibility
of handling the major adjustment movements between the two
countries rather than merely attempting to iron out minor
Exchange fluctuations. They are aware that one result would
bE that foreign Exchange dealers who have heretofore relied
on their opposite numbers in other countries for balancing
operations
Regraded Unclassified
- 147
RB -3- No. 703, November 8, 7 p. m. from London
operations would increasingly have to defend in their
(of?)
importance dealings on the authorities in their own
country. Incidentally I should think that Sispmann would
bE aware of any such trend and would bE willing (as an
individual) quistly to foster it.
BINGHAM
CSB
03V13039
TEST even
- - 44 - -
-
Regraded Unclassified
PARTIAL
148
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 8, 1937, 5 p.m.
NO.: 1573
FOR TREASURY.
The dollar has been offered on a large scale here
today with the result that the rate has fallen to around
29.25. Our market contact informs us that the fund has
been able to retrieve very substantial amounts of both
sterling and dollars. This contact states that well over
ten million dollars have been purchased by the Chase and
National City together. It is our understanding, also, that
before 11 o'clock this morning the British control pur-
chased at least $15,000,000. The sterling rate is now
around 147.08.
Various reasons are put forward to explain the flight
from the dollar. Among the most outstanding may be men-
tioned the impression that the American Government might
eventually be led to reduce the present gold value of the
dollar, the decline in business in the United States and the
unsettled international
Regraded Unclassified
149
RB -2- No. 1573, November 8, 5 p.m. from Paris
international situation.
The security market was depressed and prices were
lower all around including rentes. (END GRAY)
BULLITT
NPL
RGC
DECEIVED
TROL
VENDAIRY
THE
a
will
the - -
Regraded Unclassified
150
MEMORANDUM OF THE DAY'S ACTIVITIES
November 8, 1937
To:
Secretary Morgenthau
From:
Mr. Magill
The Committee spent the day discussing the tax on capital
gains. It was decided tentatively that profits on the sale of
property held for one year or less should be taxed in the same
way as ordinary income. This is the present scheme. The Committee
also inclines to the view that 8. taxpayer should be permitted to
carry-over net losses from the sale of capital assets for one year
and to deduct them from any capital gains for the subsequent year.
The Committee has reached no conclusion as to the method
of taxing capital gains. The general inclination is to provide
some rate of tax lower than the present for the benefit of texpayers
with large incomes. I have been holding out against any method of
treatment which is more beneficial to taxpayers with large incomes
than to taxpayers with small incomes. I think the chances are that
the Committee will arrive at some conclusion within a day or two.
Thereafter the Committee will probably wish to proceed with a dis-
cussion of the undistributed profits tax.
The Committee is meeting regularly from ten to twelve and
from two to four each day. This plan creates serious problems for
us since the Committee obviously wants me to take the initiative
in presenting the material and recommendations; and, of course, the
material has to be prepared at night.
The Committee's attitude is entirely friendly and cooperative.
They are all anxious to have us show them some way in which they can
reduce everyone's taxes and still get the same amount of money we
have been receiving heretofore.
Rm
Regraded Unclassified
151
November 8, 1937 - 11 a.m,
H.M.Jr:
Mr. Lochhead tells me that we are going to get
off a shipment of your silver.
Lochhead: The Central Bank in Shanghai instructed the
Central Bank in London to ship 10 million ounces
of silver. We looked up the steamers and it
will probably be leaving on the President
Roosevelt on the 15th.
Amb:
Dr. Kung is anxious to dispose of more of his
silver and would like to get your help again -
whether you could take another lot this week.
H.M.Jr:
I would not want to take it on this boat. I
do not want to take more than 10 million ounces
at a time. I will take another 10 million ounces
on a boat which follows the Roosevelt. I am will-
ing to say to you now that I will buy a second
10 million ounces of silver at 45¢ - same terms -
but it would have to come over on another boat
or I will take it this week if it comes from the
Pacific side.
Amb:
Dr. Kung wants me to express his great thanks
to you.
H.M.Jr:
I am interested in the 19 airplanes that sailed
from Philadelphia on Friday on an English boat.
Does that boat go directly to China?
Amb:
It goes via the Suez Canal.
Regraded Unclassified
152
November 8, 1937.
At lunch with the President he said, "I want to put &
flea in your ear. Have you ever stopped to consider that Fascism
is winning out in this world and that Democracies are gradually
becoming weaker?" He said, "Take it in Brazil, for instance,
as the situation gets worse the President of Brazil turns towards
Fascism and the Army because he has seen thatFascism in Germany
has been a success - as it has been in Italy." He said, "In
no country was labor stronger than it was in Germany but Hitler
tells labor in Germany about how long they should work and what
their wages should be." He said, "You can't deny that the new
tri-partite agreement between Germany, Italy and Japan, for the
time being, is going forward while the Democratic countries are
all going backward".
He said, "Take the situation in our own country".
Re said, "Four or five people may get together and they'll talk
this thing over and they 11 simply say we have simply got to
get our own man in Washington but there is no use in trying to
make them understand". He said, "Washington every so often
says that they want business to make a profit and they believe
in property rights but we don't believe them". He said, "Now
I don't say that 2,000 men have all got together and agreed to
block us but I do say that 2,000 men have come to about the
same conclusion." I said, "I agree with you on that but I
can't agree that any particular group have met somewhere and
have decided to go on a sit-down strike". "What I have got to
think out", said the President, "is do we want to hold all of
the form that we have got and continue to go forward or do the
way Mr. Hoover did, call in groups and try to cure the particular
situations one at 2. time?"
He said, "Now to-day I am meeting with Hopkins and
a certain group of economists; tomorrow I am meeting with
another group; Wednesday I am meeting with Gerard Swope and
some others on housing and Thursday with another group on
public utilities". I interrupted him to say, "Now, Mr. President,
if you can't find anybody else in Washington to get this small
housing program started promptly, I am willing to do it". I
said, "Not that I am feeling particularly well but if you can't
find anybody else I am willing to take it on". I said, "What I
am talking about is building five or ten thousand houses, not
to cost more than $5,000. apiece". He said, "Well I will want
to talk to you about it about Thursday".
He then continued this talk about what the chances
were that the industrialists in this country would gradually
let their thoughts crystalize that it was better to get their
own man down here. Several times I said to the President, "Now
is there anything behind what you're saying to me; have you
Regraded Unclassified
153
2
something on your mind that you're trying to get over to me?
I am just not getting it". He said, "No, absolutely not, I
have nothing in mind other than what I am telling you".
I said, "Well I have tried to define the New Deal
to my son, Henry, the other day and, I said, my conception
of what you had accomplished in the five years was that the
United States had come through this terrific world turmoil
and that the individual in this country still had the right
to think, talk and worship as he wished". The President said,
"And add to that the right to work". I said, "That's my idea
of what you have accomplished but, I said, if you're asking
me I'd say it is far more important that you paint a big broad
picture and maintain the true Democratic principles in this
country than to think of any single individual problem".
I then said, "I don't know whether you are conscious
of the fact, that when you're talking about them wanting to
get their own man down here, of the drive that's on me and
that they're using Jones and Kennedy on account of our attitude
on taxes". The President said, "I am perfectly aware and con-
scious of that and, he said, "that's what bothered me the other
night so much about Magill". He said, "Can't you get a pair of
handcuffs with just one link between them and handcuff Magill
and Oliphant together?" He said, "Oliphant has got vision".
He said, "Magill only gave me little piddling things". He said,
"I am worried about Magill". At this particular stage, Jimmy
Roosevelt came in. I said, "Now, Mr. President, you don't have
to worry one minute about Magill". I said, "He Is absolutely
loyal and, I said, I don't come and tell you everytime somebody
wants to resign but, I said, it took me three days to get Magill
back on his feet after you got through with him in Hyde Park".
The President didn't like this. "And, I said, perfectly frankly,
if Magill resigned to-day I think it is almost impossible to
replace him". Jimmy Roosevelt then spoke up. He said, "Magill
is fine, I agree with Henry". I said, "You tried to take in
three hours six months work and you just couldn't take it and,
I said, it is out of the question to expect Magill and Oliphant
to work together". I said, "I have had trouble enough trying
to keep both of them happy without trying to get them to work
together and, I said, if you want Magill to be inspired, you
certainly ought to give us another session".
He said, "Well how do I know what Magill is saying
on the Hill" so I said, "I am telling you that you don't have
to worry about what Magill is saying on the Hill; that he is
only saying up there what we have agreed on".
Regraded Unclassified
154
3 I I
The President said, "Why should I spend so much time
on the details of the taxes" and I said, "Well you took up an
awful lot of time arguing about details the other night."
He handed me a report that Roper gave him. He said,
"Now look at that - a lot of generalities". He said, "How can
I get anything out of that"?
I don't exactly know what the President was trying
to get over. I suppose he was trying to give me a picture
of how he felt and possibly frighten me a little bit by waving
the Fascist flag before me. I know this wasn't necessary.
On the other hand, when he got all through and done my reaction
was that he is fighting like a cornefed lion; that he does not
want to be tamed and still, on the other hand, he does not know
where he can put his strength at this particular juncture to
bring about recovery.
Of course, the Fascist governments are going ahead
and it is most vitally important that this country shouldn't
have an industrial slump because it gives the enemy of true
liberalism an opportunity to crack down on us as the most
important Democracy and point with pride to our failure.
Regraded Unclassified
155
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE NOV 8 1937
TO
Secretary Morgenthau
FROM
Herman Oliphant
For your information
Spent part of Saturday afternoon with a small group Jackson
has working on the revision of the Sherman, Clayton, and Federal
Trade Commission Acts.
After the meeting, Lubin told me that, at your suggestion,
he had been working with Captain Collins on keeping Government
purchases from being made at the peaks of seasonal demand. In this
connection he said he had found the Government could immediately
let some large contracts for future supplies which, if done quickly,
he thought would do much to reverse the present recession. I
suggested he put it on a sheet of paper and send it direct to you.
%
Regraded Unclassified
156
November 8, 1937
2:57 p.m.
Operator:
Go ahead.
H.M.Jr:
Hello.
James A.
Farley:
Hello.
H.M.Jr:
Yes, Jim.
F:
I was just curious to know whether there's anything -
any - the situation changed any since I talked with
you Saturday.
H.M.Jr:
No. I saw him again today.
F:
Yes.
H.M.Jr:
And the situation hasn't changed any, and I don't
think he's changed any. And I still think that
while we've cracked the ice - I still think
....
F:
What's that?
H.M.Jr:
We've still got - the battle is still before us.
F:
I see.
H.M.Jr:
See? Hello?
F:
Yes.
H.M.Jr:
And I think there's lots of work to be done.
F:
Yes, I do too.
H.M.Jr:
See?
F:
Well, I was just curious to know how you were getting
along with him yourself.
H.M.Jr:
Well, personally, I'm get- - I mean as far as my
personal relations are concerned, I was - they're
aces high. Hello?
F:
Yes, I know.
Regraded Unclassified
157
-2-
H.M.Jr:
I was with him this morning
you know, and then again for lunch. But it's a
tough job, Jim.
F:
Yes.
H.M.Jr:
It's a tough job.
F:
Well, I'll talk to you; I'll be down later in the
week and I'll talk with you.
H.M.Jr:
All right. I mean it's - ah - the situation is
very, very serious and it's - and the whole thing
is very difficult.
F:
Yes. Well, we'll just have to keep pitching fast
balls, that's all.
H.M.Jr:
Yes, and - and hard ones.
F:
That's right.
H.M.Jr:
That's right.
F:
O.K., goodbye.
H.M.Jr:
Thank you.
Regraded Unclassified
158
November 8, 1937
3:38 p.m.
H.M.Jr:
Hello.
Operator:
I'll have to call Dr. Viner at his apartment; it
will be about fifteen minutes.
H.M.Jr:
All right.
* * * * *
3:55 p.m.
H.M.Jr:
Hello.
Jacob
Viner:
Hello.
H.M.Jr:
Jake!
V:
Yes.
H.M.Jr:
I thought you'd like to know that the speech is
finished and it's gone to the mimeographer.
V:
Fine.
H.M.Jr:
The President made a few more changes, liberalizing
a little bit more at the end.
V:
Uh-huh.
H.M.Jr:
A little bit more - how shall I say?
V:
Hedging?
H.M.Jr:
Pardon me?
V:
Hedging?
H.M.Jr:
No, not hedging, but making things a little bit more
clear that we're going to take care of the - the
undernourished, etc. etc.
V:
Uh-huh.
H.M.Jr:
Everybody around here, including Taylor ....
V:
Yes.
Regraded Unclassified
159
-2-
H.M.Jr:
....on that is entirely satisfied.
V:
Right.
H.M.Jr:
See?
V:
Yes.
H.M.Jr:
Entirely satisfied. And so am I.
V:
That's all right.
H.M.Jr:
And I again want to say how much I appreciate all
the help you gave me.
V:
That's all right; I was glad to do it.
H.M.Jr:
Now ....
V:
Other things - how's the market today?
H.M.Jp:
Well, - ah - the - for your information - I mean I'll
take a chance on the phone
....
V:
Yes.
H.M.Jr:
....
there's ten million gold going out Wednesday to
France.
V:
Uh-huh.
H.M.Jr:
And Britain made up its mind and earmarked five today
for two days and it goes out Thursday.
V:
Uh-huh.
H.M.Jr:
So that's that.
V:
Uh-huh.
H.M.Jr:
But ...
V:
Uh-huh.
H.M.Jr:
But we made a survey: from the first of September
to the fifth of Oc- - November ....
V:
Yes.
Regraded Unclassified
160
-3-
H.M.Jr:
.... the total net movement of capital, including
everything, out of the country is only a hundred
million.
V:
Uh-huh.
H.M.Jr:
Which isn't bad.
V:
Oh no.
H.M.Jr:
That's the total net figure.
V:
Uh-huh.
H.M.Jr:
Including everything.
V:
Uh-huh. Well, that isn't a major movement.
H.M.Jr:
Pardon me?
V:
That isn't a major movement.
H.M.Jr:
No.
V:
No.
H.M.Jr:
Well, my main object in calling was ....
V:
All right, thank you very much for calling me.
H.M.*r:
... to say thank you.
V:
And I'll - I'll listen in on the radio Wednesday night.
H.M.Jr:
Let me know what your children think of it.
V:
All right, I will.
H.M.Jr:
I'm serious.
V:
All right.
H.M.Jr:
Goodbye.
V:
Goodbye. Good luck.
H.M.Jr:
Thank you. I need it.
Regraded Unclassified
161
November 8, 1937
3:35 p.m.
H.M.Jr:
Hello.
Operator:
Dr. Himmelblau.
H.M.Jr:
Thank you.
0:
Go ahead.
H.M.Jr:
Hello.
Doctor
Himmelblau:
Himmelblau speaking.
H.M.Jr:
This is Morgenthau.
H:
Yes, sir.
H.M.Jr:
I just wanted to say I was awfully sorry I didn't
have a chance to see you before you left, and also
to say how much I appreciatedyour coming down.
H:
Oh, that was all right; I knew you were tied up.
H.M.Jr:
Mr. Taylor told me that he thought you were getting
along very well.
H:
Yes, well we expect to have something finished late
this week.
H.M.Jr:
Well, that'd be grand. And I appreciate so much
your coming down and going to all the trouble that
you have.
H:
That was a most interesting lunch.
H.M.Jr:
Well, I just wanted to tell you that.
H:
Thank you ever so much.
H.M.Jr:
Goodbye.
H:
Goodbye.
Regraded Unclassified
162
GROUP MEETING
November 9, 1937
9:30 8.0.
Present:
Mr. Magill
Mr. Oliphant
Mr. Taylor
Mr. Gaston
Mr. Haas
Mr. Gibbons
Mr. Upham
Mr. Lochhead
Mr. McReynolds
Mr. Bell
H.M.Jr:
Herbert, I'd like to call up Sandy Klein and tell him
how much I appreciate how they handled that story last
night on gold. I thought they handled that beautifully.
Gaston:
Why, you might mention another thing to him. Sandy
called me up and two others called me up; somebody
read on your pad a note, "Great Britain, five, and
each fellow wasafraid that the others would think we
had sold them five million. And I told him I was sure
nobody would use anything like that, and that that was
just & reminder that there was five hours' difference
in time between New York and London. But at any rate
I talked to Sandy at some length.
H.M.Jr:
When I saw what he was reading, I just slipped my
thing down.
Gaston:
It was Sandy that read it?
H.M.Jr:
Sure.
Gaston:
The fellows that threatened to use it - one of the
other fellows had actually written it up in a pretty
definite sort of way, but Sandy persuaded him not to
use it.
E.M.Jr:
Sandy read it, and the only other fellow who could
have read it was Clarence Linz. But Sandy managed
to read it. Mrs. Klotz usually takes everything
and turns it upside down. But this was right in front
of my nose. If you have something like that, you don't
think a fellow sitting over there is going to read it.
But he did.
Regraded Unclassified
163
-2-
Oliphant:
And upside down.
H.M.Jr:
But I was absolutely truthful with those boys, because
that five million dollars is earmarked here and we
don't know what it's going to do.
Lochhead:
No, excuse me, but
.....
H.M.Jr:
Is that gold earmarked today?
Lochhead:
The gold that is earmarked today
....
H.M.Jr:
Is it? Is it earmarked tomorrow still? Well, is it
earmarked today?
Lochhead:
It will be earmarked today.
H.V.jr:
And aren't we on a 24-hour basis? Well, how the hell
did I know what they did? I say it's still earmarked
today.
Lochhead:
Yes.
H.M.Jr:
It will still be under earmark and we are on a 24-hour
basis, and you don't know now that if the price con-
tinues to drop they ship it. Now, they turned
gold around from India that landed here yesterday.
How do you know that if this thing - after today -
everything dropping down - that that will go out
Thursday? You don't, Archie. I'll make you a bet
on it too. I'll make you a bet on it. I'll give
you odds that it doesn't go out.
Lochhead:
oh, I'll take you on that. I'll take you on that,
when you offer to give me odds.
Taylor:
(To H.M.Jr) Be careful.
Lochhead:
I'll let you talk with the newspapermen, but when you
want to bet with me
....
H.M.Jr:
But technically what we told them is correct; that gold
is earmarked today. And I'm not going to talk about
something 72 hours off. Because you might have
announced that gold arrived from India; it did, but
it went back again.
Regraded Unclassified
164
-3-
But thanks for the tip. From now on I'll look
everything over twice. But that's a very smusing
story, huh?
Taylor:
I think the difference in time is a perfect answer.
Gaston:
Of course, his attitude was such that he wouldn't use
it, but he was afraid that the other fellows were going
to use it and was he going to be left out on a limb.
H.M.Jr:
That's a grand story, and of course the whole purpose
of withholding it - I mean the psychological effect -
if it goes to France, it's because the French conditions
have improved since September 17; but if it went to
England, it went for another reason. But - well,
anyway, should I call up Sandy later?
Gaston:
Yes, I think it would be a good idea.
H.M.Jr:
What?
Gaston:
I think it would be a very good idea to call him up.
H.M.Jr:
And without mentioning anything, simply say I want
to tell the boys I think they handled a very difficult
story extremely well.
Gaston:
Very good, yes.
H.M.Jr:
(On phone) Ask Mr. Sandy Klein, from the News Room,
if he will be up here at ten o'clock. I'd like to
see him please. - - Sandy Klein of United Press,
ten o'clock.
Now, that's that. But that's very funny, isn't it?
Magill:
You'd make a good lawyer. Archie makes a poor witness,
though.
H.M.Jr:
That's very good. Well, I accept that as a compliment.
Taylor:
Coming from a lawyer.
H.M.Jr:
Yes, coming from a lawyer.
Magill:
First duty before you put a witness on the stand is
Regraded Unclassified
165
-4-
to interview him in your office.
H.M.Jr:
Known to John E. Mack as "horse-shedding."
Magill:
We're working on capital gains.
H.M.Jr:
So I see.
Magill:
As I wrote you last night, the boys are very anxious
to reduce taxes in all directions, particularly for
the wealthy. They have also been extremely anxious
for me to lead them by the hand, which so far I have
refused to do.
H.M.Jr:
That was nice of you.
Magill:
No, it's unkind. Not being led by the hand, I think
about what they'll decide to do will be that there
ought to be a top rate of about 20 percent on capital
gains. Having reluctantly abandoned 123 percent and
15 percent, I think they'll probably stop at about 20.
H.M.Jr:
Well, would you like to have my comment?
Magill:
I would.
H.M.Jr:
I mean the news story on capital gains - well, it
makes just as much sense to me as Mark Sullivan on
Social Security.
Magill:
Just about.
H.M.Jr:
Just about. And if anybody knows what those figures
mean, I'd pin a rose on them. I mean the - you'd
like my comment, you know, as one lawyer to another.
Magill:
As one lawyer to another.
As you doubtless appreciated, we deliberately refused
to put any interpretation on the figures. You can
put two or three interpretations on it.
H.M.Jr:
Well, I just thought you'd like to have a legal
opinion on this. But if anybody can tell it, I
suppose that's all right.
Regraded Unclassified
168
-5-
Magill:
It is, as a matter of fact.
H.M.Jr:
O.K., all right. What time do you and Cyril want
to go?
Magill:
Our kindergarten starts at 10 o'clock.
8.M.Jr:
Well, you can stay another five minutes.
Magill:
Undistributed profits is going to rear its ugly
head in, I should say, about two days.
H.M.Jr:
We're all feeling better today.
gill:
The boys were very anxious to grab it by the throat
on Monday.
H.M.Jr:
How about Armistice Day? Wouldn't that be a good
day?
Magill:
No, they say, "We work every day; we're going to
stop that day." Except your speech - they are agreeable
to letting me have B furlough tomorrow afternoon.
H.M.Jr:
Are you through?
I just want to say something very interesting - and
those of you who have been in on this speech and
worried so - and Harry White would be interested in
this. Mrs. Morgenthau made a very interesting comment.
She said, "Some of your people are so worried that
you're going to get out on the end of a limb." She
said, "As a matter of fact, the only remark that you
have made publicly - you people are all so close to
it that
" - the only remark that I have made
publicly on balancing the budget is that nobody could
tell whether the budget would be balanced until January.
All the statements about balancing the budget have been
made by the President. I haven't said & word. My
hands are absolutely untied. You people know the road
that I have traveled with him the last month, so you
have all been worrying; but publicly this is the first
time I have said anything. And the only fellow that
really is sawing himself off is the President, and
that's why he came out with that statement twice
yesterday from the White House. He's not going to let
anybody start it. And when is his next press conference,
Regraded Unclassified
167
-6-
Wednesday morning or today?
Gaston:
It is this afternoon at four o'clock.
H.M.Jr:
Well, I bet you anything that you want that he
spills my speech tonight. He's not going to let me
go up there and say that without getting it out from
the White House first. Want to bet?
Gaston:
I think he probably will.
H.M.Jr:
But isn't my wife's comment on that interesting?
Gaston:
Very good, very true.
H.M.Jr:
I mean here we are all so worried here and everything.
But now that I've arrived at the point where I am, up
to what he says tonight, I'm ahead of the procession -
the way it is written now.
Gaston:
Yes. Yes.
H.M.Jr:
Forgetting all the heartaches we've gone through.
Oliphant:
You never mentioned it but once in your press conference?
H.M.Jr:
They said, "What about balancing the budget?" I said,
"How could anybody tell?"
Oliphant:
And it wasn't mentioned
....
H.M.Jr:
I said, "How could anybody tell the budget could be
balanced until January?" Then they went up to see
the President and said, "Morgenthau said the budget
won't be balanced and you say it will."
He said, "What did Morgenthau say?"
"He said, 'Well, how could anybody tell the budget
could be balanced until January?'"
He said, "That's right."
Now, that's the only comment I've made.
Oliphant:
That's an interesting perspective; she's away from it.
Regraded Unclassified
168
-7-
H.M.Jr:
I thought it was very interesting.
All right, you're (Magill) excused. But isn't
that interesting?
Magill:
Very. (Holds aside conversation with Oliphant)
H.M.Jr:
Say, listen, what does that mean, that I can't play
cross-word puzzles now that the Supreme Court has
taken action on puzzles?
Magill:
Oh, Herman felt that the Legal Department couldn't
get along without a Supreme Court decision as to
whether a jig-saw puzzle was a gain. So, while the
Supreme Court has a good deal to do, he thought this
was one of those burning questions that had to be
decided. They decided it.
H.M.J.:
Isn't Magill good today? Isn't Magill good today?
Attaboy!
(Magill and Upham leave)
H.M.Jr:
(On phone) Hello. - - Well, I'll talk. Otherwise,
he'll be worried whether I had him up
....
Hello,
Sandy Klein. Morgenthau. As the President of the
Treasury Press Club, I just wanted to tell you I
wish you'd tell the boys that I am simply delighted
the way they handled that gold story.
Klein:
Well, I certainly will tell them.
H.M.Jr:
I thought that they handled a very difficult story
absolutely
Klein:
Well, that's fine, I'm glad to hear that, sir. All
right, I'll be glad to convey that all to them.
H.M.Jr:
Goodbye. (Conversation with Klein finished)
If he had been here, I could have kidded him a little
bit about reading upside down. He must have practiced
reading backwards. But I can't do it over the tele-
phone.
Gaston:
Maybe he just worked in the Printing Office.
Regraded Unclassified
169
-8-
H.M.Jr:
All right. Herman?
Oliphant:
Nothing except on that cross-word puzzle I did issue
orders that trivial cases like that shouldn't be car-
ried to the Supreme Court, but those matters should be
handled by changes in the legislation.
H.K.Jr:
Well, all I can say is, all the columnists have lost
their sense of humor.
Oliphant:
I hoped the Supreme Court would spank us.
H.M.Jr:
I thought that was a marvelous story - that we'd get
funny about it.
Oliphant:
It was. Did you see - we dragged that poor case all
the way through the District Court, the Circuit Court
of Appeals, and the United States Supreme Court, to
settle a little question that could have been settled
by one line.
H.M.Jr:
It was silly. O.K. Anything on your mind, anything
that's pressing? I'm going to get back to earth
again next week.
Oliphant:
Good.
H.M.Jr:
I have no more speeches in prospect.
Gaston:
I've got a couple invitations for you.
H.M.Jr:
O.K., I've got a price for them too. And I've paid
the price this last month. Got a couple good ones?
Wayne just loves to make speeches.
Taylor:
Oh yes!
Gaston:
One is 8 company which records the voices of great
mer. for posterity, and they want five minutes of you
and
H.M.Jr:
Well, I'm not a great man and I'm not interested in
posterity.
Gaston:
Picture and record. You can take part of this speech
and do it. It goes into E library.
Regraded Unclassified
170
-9-
H.M.Jr:
No. What else? What serious matters have you got?
Gaston:
Well, as to the handling of this speech, my present
idea is simply that we will give it out here about
four o'clock tomorrow afternoon, and I've put a line
on it saying that it is for release on delivery and
must not be printed in any papers appearing on the
street before delivery is begun, and up to delivery
it must be treated as wholly confidential. Giving
it out here at four o'clock won't give them much
chance to get it around. And then I'll take some
copies - to make sure, I'll go around to the papers
in New York and hand them around between five and
six o'clock.
H.M.Jr:
And then give some to Ethel, Herman's friend.
Oliphant:
(Laughs) Oh, she's a wonder. She called me up
again.
H.M.Jr:
Did she? I only heard the first story.
Oliphant:
You mean you heard the one where she called me up
and because you thought you shouldn't take too much
time she wanted me to let her know whether you
wanted ....
H.M.Jr:
Well, you were going to sit on - she thought I had
two tickets here for you and Mrs. Oliphant.
Vliphant:
I didn't hear that one. I talked to her again. She
got her tickets back.
H.M.Jr:
You were her personal guest. She must be an old
girl friend of yours. What is she, Mitchell's
secretary?
Oliphant:
She is now, and she runs this Political Science.
H.M.Jr:
So I hear.
Oliphant:
And anybody else that is anyway near her she runs.
H.M.Jr:
She's a scream. I asked about my 30 minutes - did
I have to worry about Byrd running overtime? "Not
with Ethel there."
Regraded Unclassified
171
-10-
Oliphant:
She called me up again, kept talking and talking
about the time you had to talk, and there was no
reason why you shouldn't - she got more and more
excited. I said, "Wait a minute, has he got the
invitation yet?" "No."
H.M.Jr:
Oh, you're going back to earlier. Well, I wish I
had taken more time.
Oliphant:
Maxwell Smith has been retained for Goodyear Tire
and Rubber Company. It seems this tire thing has
broken up the combination.
H.M.Jr:
Good. Fine. Anything else?
Oliphant:
That's all.
Gaston:
I know of nothing else.
Taylor:
Sloan Colt, whom you probably remember, is here in
town today and would like to pay his respects. He
wants to take his chance on doing it; he's coming
into my office at 10:15. He's down here to see the
Federal Reserve Board. They wanted him to come down
for something. He's a very good fellow, as you know,
and I think it would be a good idea if you did see
him, just to say hello to him.
H.M.Jr:
Well, you better do it at 10:15, will you?
Taylor:
All right, fine.
H.M.Jr:
At 10:15. O.K. Because I want to go down and work.
Gaston:
I have a letter from Richard Waldo saying that the
President of Barclay's, Limited, is in this country
and he's going to drop into Washington sooner or
later - doesn't give any definite date - thinks
it would be very fine for you to see him, because
he's a very brilliant fellow; that's the British
bank, Barclay's. If he's coming up, it's a question
of handling it the day he comes, I should say.
H.M.Jr:
Yes.
George?
Regraded Unclassified
172
-11-
Haas:
I have nothing new this morning.
H.M.Jr:
All right.
Gibbons:
Nothing.
Lochhead:
Exchange has slackened off, but they haven't gone
down very much. It seems they are trying to weigh
what this all means for a little while.
H.M.Jr:
Yes.
McReynolds?
McR:
One thing I'd like to know is whether you want me
to put Dan on notice that he hasn't closed the
question of your Baby Bond advertising program.
H.M.Jr:
Well, you and Wayne - let Wayne go to bat on that,
if he wants to.
Taylor:
Well, I'm - it isn't - it isn't 8 question of that
at all.
McR:
Well, it's just a question of policy there. If
Dan is bull-dozed enough, he'll put the money back.
If he isn't, he won't put any back.
H.M.Jr:
Well, I'm in a very, very vulnerable position at this
time as far as going to Dan about anything in the
Treasury, but you (Taylor) are not, and you know the
story, and I don't care how hard you go at him. I
mean you know what tools you need to work with; I
don't. I can learn them, but I don't want to take
the time. You fix it up. Somebody has told Dan that
this is a very expensive thing and so forth. And I
think if you explain to Dan why we want a million
people and ultimately want five million people to be
stockholders in this government, I think you can
sell him. But I don't think anybody's ever taken
the time to sell Dan on Baby Bonds.
Taylor:
Dan goes back to the White House conference in which
they changed that number and Baby Bonds were mentioned
there.
Regraded Inclassified
173
-12-
H.M.Jr:
What White House conference was that?
Taylor:
That's when they changed the number.
McR:
The boss was present when the President marked that
stuff up at Hyde Park.
H.M.Jr:
All Dan says is, "This is very expensive, and cut
it off. But I can't sit there - when I sit there,
I'm sitting on Dan's side of the table - and argue
about the Treasury. So I would say, take Dan out
for lunch and give him the works, huh?
Taylor:
Well, he'll go right back to the White House with it.
H.M.Jr:
No, no. You're hesitating doing it?
Taylor:
Not in the slightest, but I'm just telling you what
the story is.
H.M.Jr:
Give him the story why we need it, and then let him
make up his mind.
Taylor:
No good.
H.M.Jr:
Why not?
Taylor:
Because he'll go back and say, "The President marked
this - changed that figure from four to three."
H.M.Jr:
Listen, will you give him the story and then when
you get through
....
Taylor:
I've already done it.
H.M.Jr:
When?
Taylor:
Constantly.
H.M.Jr:
Well, evidently, if you don't mind my saying it,
you didn't make a very good salesman to Mr. Bell.
(Bell comes in)
Taylor:
Here he is right here.
Regraded Unclassified
174
-13-
H.W.Jr:
I'll just repeat word for word. Before Mr. Bell
came in, we were talking about the money on the
Baby Bonds, and I
Bell:
That's just what I came down here for.
H.M.Jr:
I said that when I go over there with you on this
departmental budget I'm sitting on the same side
of the table as you are, and I can't say anything
and won't say anything in behalf of the Treasury.
I said it was up to Mr. Taylor to explain to you why
he needed the money, and he said he had as you came
in, and 1 said, "Well, evidently you didn't do a
very good job." And that's word for word what I
said. And I wouldn't talk to you, because I 80 over
there with you and I can't pass on my own department.
Check?
Bell:
Well, I haven't passed on the estimate as Wayne
subsequently explained it to me. In my original
recommendation, I recommended four million, and the
President cut it to three million.
H.M.Jp:
You went so fast that day, Dan - all I knew, I was
out B million, but I didn't know where. I mean you
were going - and neither did the President. I didn't
want to say anything, but you were traveling awfully
fast.
Bell:
Well, we were getting at the end of the time.
Well, I recommended in my statement four million
dollars for expense alone, as compared with four
million four recommended by the Treasury. In other
words, I cut the Treasury $400,000.
VeR:
And we can get along on the four.
Taylor:
Do that all right.
H.M.Jr:
Then what are we arguing about?
Bell:
The President cut my four million another million,
down to three. Now, what is in my mind - I can take
the responsibility, I think, and put it back to four.
But I hesitated to do it because you were sitting there
when he cut it and I said, "There goes your Baby Bonds,"
Regraded Unclassified
175
-14-
and you didn't say anything.
H.M.Jr:
I can explain.
Bell;
I'm perfectly willing to take the responsibility and
put it back to four. But I do think you're faced
with this problem
H.M.Jr:
I'll never go over with you on departments and talk
in behalf of the Treasury. I won't do it.
Bell:
The committees in Congress are looking at this -
Appropriation Committee is looking at this expensive
loans item. Last year they put a limit of $2,975,000
on it, something that's never been done before; it's
been there for 17 years. Now, the Treasury has gone
ahead on a program which deliberately creates &
deficit of about a million and a half, and you may
be severely criticized when you go up for 8 deficiency
this spring. Now, next year you come along on a four
million doller program, carrying that program of 138
forward, and they may cut you again to the two million
975. Now, you always have to face that.
E.H.Jr:
Well, I think it is up to whoever is in charge of
Baby Bonds to explain it. Now, after all, we've got
almost twice as many names, and the whole idea back
of this thing is - what I hope some day is to get
five million people that own Governments, and if we
get five million people to own Governments, I think
they're going to take an interest in their government;
going to have B tremendous correspondence - constantly
writing in, asking questions about expenditures, taxes,
etc. We've got to develop this - what they call in
France the rentier class, the middle class, in America,
who are Government bondholders. And I think it is a
real investment to get these people owning Governments
and I think eventually it is going to save us a great
deal of money; we've got somebody we can appeal to.
Bell:
Well, I think somebody has got to go into that phase
of it before the Committee, because you've got to
Taylor:
Well, I'd be delighted to do that.
Regraded Unclassified
176
-15-
H.M.Jr:
I think it is Mr. Taylor's job.
Bell:
You've got to say frankly that you realize this is
the most expensive form of financing that we do, yet
there is this aspect, that it has an appeal and good
from the standpoint of the country, and get the
Committee sold on it.
H.M.Jr:
Are you willing to defend it?
Taylor:
Absolutely.
Bell:
All right, then, I'll restore the four million dollars
on my own responsibility and make a
....
Taylor:
Be delighted to be the Roman sacrifice on that one.
H.M.Jr:
Talking about the French, they'd go over and kiss
them on both cheeks.
Taylor:
Let me pick my Congressman that I kiss, will you?
H.M.Jr:
Well now, I'll give you an idea. I'd say, take one
advertisement and explain the thing right in the
advertisement.
Bell:
Can you take an advertisement and explain the results?
Taylor:
You bet.
Bell:
That's fine.
H.M.Jr:
Why not say, "This is what it costs, this is what
we re doing, and this is the results," and put it on
a page in the Saturday Evening Post.
Bell:
I'd be frank about the cost. I'd say you realize it
is the most expensive form of financing.
Taylor:
No question about it. We did it deliberately.
H.M.Jr:
why don't you have them write an ad, put it right in
the advertisement?
177
-16-
Bell:
You mean right in the hearing.
H.M.Jr:
No, on the full page ad; come right out publicly and
say it.
Oliphant:
Say what?
H.M.Jr:
Just how much it costs to do this thing, what the
results are, what we get for this money, and why we're
doing it. Now, why not take the wind out of their
sails and say so right now? They've had this ad
written for some time about the results, but not what
it costs. In other words, come out first before they
attack us.
Bell:
I don't know where your interest rate would go-16 you
had your cost of financing, do you?
Taylor:
Huh?
Bell:
How much would your 2.91 be increased by your costs
of financing?
Taylor:
All depends on what you call the cost of financing.
Bell:
Well, I call it all the overhead.
Taylor:
You mean all over, the Post Office stuff, the Federal
Reserve, and so on.
Bell:
Including that.
Taylor:
Yes.
Bell:
In other words, I call about $2,200,000 of the budget
that you have outlined for this year as the over-all
cost.
Haas:
Well, on the other bonds you put a one-point premium
all the time. That's really a cost on those.
Bell:
But your coupon reflects that,
Haas:
Put the cost is there just the same.
Bell:
That's your interest cost.
Regraded Unclassified
178
-17-
H.M.Jr:
Very definitely has to be a job of education, and
I think it's up to you to do it.
Taylor:
Yes, sir.
Bell:
That's what I came down for.
H.M.Jr:
May I say - may I address the Director of the Budget
and thank him for his very fair attitude in this
matter.
Bell:
You're very welcome.
Taylor:
The Savings Bonds thank you.
H.M.Jp:
Because you know what I thought you were going to
say to me? I thought you were going to say, "I'll
put back two million if you'll save it out somewhere
else." Then I'd say, "All right, take it out of
one of Steve Gibbons' bureaus."
Bell:
I have a bee on almost all of them.
H.M.Jr:
Danny, make a note that - if somebody should ask -
that even though you were Assistant to the Secretary,
the whole time you were here, the Secretary of the
Treasury never asked you for a nickel as Director
of the Budget. Not once. And I never will.
All right, we thank you.
Now, you're all through with my speech?
Bell:
Yes. I'll talk to Herbert as soon as this is through,
if you want me to.
H.M.Jr:
Well, can you do it right now? Did you read it?
dow did you like it?
Bell:
Fine.
S.M.Jr:
No!
Bell:
Yes.
H.M.Jr:
My gosh! Do you really like it?
Regraded Unclassified
179
-18-
Bell:
There is one matter of policy that I'd like to raise.
Who's going - you're going to speak first?
H.M.Jr:
No, Byrd.
Gaston:
Last, Parker Gilbert, 15 minutes; Byrd, 30 minutes;
and then the Secretary.
Bell:
Of course, Byrd is going into the waste - wasteful
expenditures - and I was just wondering if you
couldn't say that this war, like - just like any
war, you had - you naturally had wasted expenditures
because of the large programs that have to be carried
on.
Oliphant:
Prepared hastily - initiated and carried on hastily.
Bell:
When we went into the War, we bought enough leather
to carry on ten wars. That was 8 complete waste.
But it had to be done overnight. And just the same
way, this program had to be done hurriedly, and it
was in those cases justified from that standpoint.
I just wondered if you would take some of the wind
out of Byrd's sails.
Haas:
Mr. Secretary, you had that put in about draft eight,
and I guess cutting down we cut it out.
Gaston:
That was in once.
Haas:
Just take B sentence or two. I think it would be a
good point.
H.M.Jr:
See if you can take
Haas:
Just a sentence or two; I think it's a good point.
H.M.Jr:
Yes,
Bell:
On page 8, where you talk about the revenue and
expenditures of this year, the difference between the
revenue and expenditures comes out to a definite figure,
and yet you go up to 700 million. I think I'd change
that to 695 million to make the figures gee, wouldn't
you?
Regraded Unclassified
180
-19-
H.M.Jr:
Yes.
Bell:
In other words, your result is five million off
from the actual subtraction.
H.M.Jr:
Just as easy to make it exact.
Bell:
On page 9, you say "to attain an ordinary balancing
of the budget next year, ff and then you put in a
parenthetical phrase
H.M.Jr:
Which is yours, word for word.
Bell:
Then you 80 on, "it would therefore ----" I wonder
if the "therefore" shouldn't come out. "To a ttain
an ordinary balancing of the budget, it would be
necessary "
H.M.Jp:
I read that thing over three times. I knew there
was something the matter. Herbert, do you want to
look at that? I've read that thing three times; I
knew there was something the matter with it.
ft
ordinary balancing of the budget next year,
it would be necessary
Bell:
You see, your "therefore" is hung on the parenthetical
part of it.
H.M.Jr:
There's something
Gaston:
What it means is that in view of our decision not to
count on more revenue, it would be necessary.
H.M.Jr:
Well, do you want the "therefore" in?
Gaston:
No, it isn't necessary; it isn't essential.
Bell:
Little awkward, I think.
Gaston:
It was just meent to refer back to that original
assumption.
Bell:
On page 10 - I don't think there is much you can do
about this - of course, you have picked out certain
expenditures which you want to comment on and talk
about later on as the ones responsible for the past
Regraded Unclassified
181
-20-
deficits. No particular expenditure is responsible
for any deficit. Now, maybe that's all right. I
don't see how you can correct that item.
Gaston:
Well, they are the added things, aren't they? They
are the ma jor added items to an ordinary budget.
Bell:
Public highways and public works, normally no; but
they have always been in our budgets.
Gaston:
But what we're speaking about is huge additions to
those items which are largely responsible.
Bell:
You don't say that. You say that several of these
items of expenditure have been mainly responsible
for our past deficits; then you talk about Agricul-
ture, and we added five hundred million dollars to
the tax structure two years ago to take care of your
agricultural payments, largely your agricultural
payments. I haven't any suggestion for correcting it.
H.M.Jr:
I think that's all right, Dan; I think they 'll get
that. It's the large - those are the excess expendi-
tures, in those items.
Bell:
Well, if they were eliminated, our budget would be
balanced, certainly.
H.M.Jr:
Right. I think that's all right.
Bell:
Now, you take them up one at a time - the highways -
and you say, "Prior to the depression, the Federal
grants to the states for public highway construction
regularly ran under one hundred million dollars
annually." There are two cases where they ran
slightly over. I'd like to suggest one of two things.
Bither say "generally" instead of "regularly" or say
"rarely ran over." On two occasions they ran over
a hundred million.
H.M.Jr:
What page are you on?
Bell:
Bottom of page 10.
Gibbons:
Why not say "with one or two exceptions"?
Regraded Unclassified
182
-21-
Bell:
If you wanted just one word changed, you can say
"generally ran under one hundred million dollars."
If you want to make it the other way, you can say
"rarely ran over one hundred million dollars."
(McReynolds leaves)
Oliphant:
"Ran about one hundred million dollars" - shorter
yet.
Bell:
Sometimes it went down to about 75. So "generally"
is B good word.
H.M.Jr:
"Generally" is all right.
Bell:
Down at the bottom of page 11, you say, "Next year,
despite the fact that available unspent appropriations
for this purpose already exceed a hundred million
dollars
I'd like to suggest this: "Next year,
despite the fact that there will be available in
appropriations and allocations already made for this
purpose more than 600 million dollars
H.M.Jr:
You (Gaston) get that.
Bell:
In other words, what you're trying to state is that
there is already on the books 600 million. Say
"already made."
H.V.Jr:
As a matter of fact, when you go out of here, just
go over this with Gaston. But I want to make - my
time is getting short; I want to get it right from
the "horse's mouth," as the English say.
Beli:
Page 12, that third numbered paragraph. You say,
"These expenditures are already being reduced by
780 million dollars below last year."
H.M.Jr:
Where are you, Dan?
Bell:
Last line
Gaston:
Page 11.
Bell:
12.
H.M.Jr:
780 million dollars.
Regraded Unclassified
183
-22-
Bell:
There are some switches there in these figures.
See, we get into difficulty when we take one
statement on 8 functional basis and another
statement on an objective classification basis.
I'd like to change that to "more than three
quarters of a billion." About 20 million dollars
difference. That's better reading anyhow.
E.V.Jr:
All right.
Bell:
Now, included in the third paragraph are some
figures that you've got down in the second paragraph.
You see, that's the trouble we get into when we take
a functional and an objective classification, because
they overlap. The Resettlement expenditures include
grants for relief, which you've got in the third
paragraph above, and lower interest rates for Federal
Land Bank borrowing is relief. And there's about 90
million dollars in that paragraph - the figures are
correct, the statement is correct, but there is that
overlapping, and there isn't anybody that can check
it. I think that you probably ought to leave
Resettlement and lower interest rates in that para-
graph, even though there is some duplication.
Gaston:
I think that's all right. I thought about it.
H.M.Jr:
Nobody can check it?
Bell:
No.
H.M.Jr:
(Laughing) Leave it.
Gaston:
We're talking about isolated expenditures from the
standpoint that
.....
H.M.Jr:
See how legalistic I am?
Gaston:
We considered that.
Bell:
I don't think it is serious.
H.M.Jr:
And I can call on you to justify it.
Bell:
Well, I can check it. I don't think anybody will
object.
Regraded Unclassified
184
-23-
Now, down at the bottom of page 16 and top of page
17, you say, "This net improvement of more than two
billion dollars in a single year provides the best
answer to those who, in most cases ignorant of the
true facts, " etc. "True, much of this year's
anticipated budgetary improvement comes from increased
revenue, but we are supplementing this by seeking
reductions in expenditures."
The seeking reduction in expenditures, in my way
of interpretation, would apply to the present year,
if that's what you're talking about, only
....
H.M.Jr:
Yes, that's right.
Bell:
There's an improvement of two billion and 12 million
H.M.Jr:
How much?
Bell:
Two billion and 12 million, and there's 98 million
applied to reduction in expenditures.
H.M.Jr:
How much?
Bell:
98 million. You see, 557 million of the reduction
is bonus, elimination of the bonus; and one billion
357 million is increased revenue. So that accounts
for one billion 914 million.
H.M.Jr:
Well, we still saved something.
Bell:
If you will change that a little so you will indicate
it's going to apply to 1939
Gaston:
of course, the present picture, I think, is a little
better than that. While that revenue increased all
that amount, we took on - we had only about 250
millions in revenue from Social Security and we took
on huge expenditures of over 400 million in Social
Security there.
Bell:
Well, if you take the additional expenditures we took
on because of last minute acts of Congress
Regraded Unclassified
185
-24-
H.M.Jr:
Well, what the hell have you and I been doing the
last six weeks?
Gaston:
But to make up for that we did make some other
cuts.
Bell:
But it is on its face
....
H.M.Jr:
I think I'm very noble to say, "True, much of this
budgetary improvement comes from increased revenue."
Bell:
Well, I think it can be explained like Herbert has
explained it, but it isn't explainable on its face.
H.M.Jr:
No, but I feel I am perfectly sincere in that we did
go right out and make cuts and 1f it hadn't been for
Congress we would have cut that 418 - it was originally.
Bell:
We would have cut it to 150.
H.M.Jr:
Yes.
Bell:
I'm agreeable to leaving it like that.
H.M.Jr:
That isn't the way it was written at first, but this
that is written now is the President of the United
States.
Bell:
I have no serious objection to it.
H.M.Jr:
I didn't tell you that until I got through arguing
with you; I didn't want to embarrass you.
Bell:
18, top of the page.
Gaston:
Herman suggests - I suppose it's impossible to change
it - it says "ignorant of the true facts"; if we had
a word like "unaware" of the true facts, it would be
much better.
Taylor:
"Ignorant" is all right.
Gaston:
Of course, technically they mean the same thing, but
"ignorant" has some contemptuous connotations.
H.M.Jr:
Let me just tell you gentlemen this. The President
raised the question, "Where is the Social Security
Regraded Unclassified
186
-25-
thing?"
"NOW, Mr. President, I lifted that out of there. But
there are the sentences that you have written in with
your own handwriting and I want to give you my word
that I haven't changed a single word." That's what I
told him. I decided this is no place to 8 rgue about
whether Social Security is right or wrong; I'm not
going to argue about it. But I said, "As to the
individual words that you put in there, every single
word is in there." And I wouldn't even want to change
one word, because 1f something comes out - now, there's
a lot of stuff in here which he's read three times,
and I was dumfounded that he let it go back. So
subsequently he can't say, "Well, Henry must have
changed it." "No, Mr. President, every single word
that you've got is there." I know - I think after the
speech is over that may be worth B great deal to me.
Oliphant:
I didn't know about that.
Taylor:
Dut 1 think "ignorant" is all right.
H.Z.Jr:
But I don't want him to say afterwards to Steve
Early, "How did you let Morgenthau say that?" I want
to say that every single word is as he wrote it,
but there are certain things which he wrote which
I lifted out bodily. Huh? It's worth & lot. Say,
listen, there are things in those last two pages that
I don't like to say either.
Bell:
I only have one more.
H.M.Jp:
That's for the New York Tribune. That's what the
President says.
Pell:
Top of page 18, second line, you say, "The maximum
reduction made in any single year in the public debt
held by private investors was one billion 350 million
dollars." Published records show one billion 286, and
by taking in unpublished material we can r un it up to
one billion 350, 88 here stated. I'd like to say "more
than one billion and & quarter."
R.M.Jr:
Put it in.
Regraded Unclassified
187
-26-
Gaston:
Larry suggested to me that we change it to a
billion three.
Bell:
Billion and a quarter, I think, is a good round
figure, nice to say.
Gaston:
Yes.
Bell:
Those are the
....
H.M.Jr:
If the President of the United States should say to
me, "What does Danny Bell think of this speech?" what
should I tell him?
Bell:
I think it's a good speech.
H.M.Jr:
That's what I told him.
Regraded Unclassified
. 188
November 9, 1937.
11:57 a.m.
H.M.Jr:
Hello
Operator:
Mr. Butterworth.
H.M.Jr:
Thank you.
0:
Go ahead.
H.M.Jr:
Hello.
Butterworth:Hello, how do you do, sir?
H.M.Jr:
I'm fine. Butterworth, what I wanted was just a
little gossip on the reaction to what I said
yesterday about gold leaving the country.
B:
Well, your statement had the desired effect.
H.M.Jr:
Yes.
B:
It's been quiet today. The trend has been reversed,
at least temporarily.
H.M.Jr:
Yes.
B:
I think it will take a day or two to work itself out.
H.M.Jr:
Yes.
B:
There was still some signs of a demand for gold this
afternoon.
H.M.Jr:
Uh-huh.
B:
As you know the
of gold was six and a
quarter, and with a premium of only one shilling
and fourpence.
H.M.Jr:
Uh-huh.
B:
The dollar has been dead this afternoon, but not only
are some of the continentals reversing their position -
H.M.Jr:
Yes.
B:
But there's been some buying on commercial account
as well.
H.M.Jr:
Uh-huh.
B:
And I understand from one of the dealers that there's
Regraded Unclassified
189
-2-
been some buying of dollars on behalf of China.
H.M.Jr:
Uh-huh.
B:
The Bank of France, according to my information,
has been bidding for dollars, while the British
controls here have been selling them this after-
noon at five dollars to one pound.
H.M.Jr:
I see, But the general effect was good.
B:
As far as the general atmosphere is concerned, I think
that the facility which your statement gave to the
exchange situation has helped the commodity markets
as well.
H.M.Jr:
Good.
B:
They've strengthened up in this country; and copper,
for instance, went up to 39 pounds, for instance,
this morning.
H.M.Jr:
Uh-huh.
B:
And the stock exchange has likewise strengthened up
a little bit.
H.M.Jr:
Good.
B:
There is still a general atmosphere, of course, of
uncertainty.
H.M.Jr:
Well, that's to be expected.
B:
And, even in the short time that I've been back,
three weeks, I've noted the change in the atmosphere
here.
H.M.Jr:
Yes.
B:
It's become more uncertain, and every day it's be-
coming more apparent to more people, that the key to
the position lies in the United States.
H.M.Jr:
Uh-huh,
B:
These people here, as you know, sir, are more sus-
ceptible to the movements in the commodity markets,
than they are to the movement in the stock exchange.
H.M.Jr:
I see.
Regraded Unclassified
190
-3-
B:
And the declines in the commodities put the fear of
God into them.
H.M.Jr:
Uh-huh.
B:
The government is concerned that they have been -
they're making credit pretty stringent now, and they
seem to have gotten control of the government
security markets.
H.M.Jr:
I see.
B:
British governments have been appreciated, but there
have been rumors here that - that is preparatory to
the issuance of a new loan.
H.M.Jr:
Uh-huh.
B:
But I have no - I have made no official inquiries
about that, but personally I should doubt it.
H.M.Jr:
I see.
B:
I think they're trying to use that as a measure of
establishing confidence.
H.M.Jr:
Uh-huh. Well, that's about all that I wanted.
B:
Right, sir.
H.M.Jr:
Uh - that's all - you're all right, are you?
B:
I am very well, sir, thank you.
H.M.Jr:
That's good.
B:
Are there any - I am going to see Phillips shortly;
are there any particular questions you'd like me to
take up with Him?
H.M.Jr:
No, no.
B:
He asked me last time, he said "If there's any
particular thing that your people want, you just let
me know", so I thought I'd pass that on to you, when
you telephoned me next, so in case there was anything,
you could just give me a flash.
H.M.Jr:
No, everything - I said everything that I had to say,
yesterday.
Regraded Unclassified
n
191
-4-
B:
Good. Right, sir.
H.M.Jr:
All right.
B:
Thank you very much.
H.M.Jr:
Goodbye.
Regraded Unclassified
192
Memorandum of conference with the President on November 9, 1937,
at 2 P.M. attended by Secretary Morgenthau, Secretary Wallace,
Congressmen Doughton, Marvin Jones and Vinson, Measrs. Bell
and Magill
Secretary Morgenthau slipped in ahead of the rest of us in order
to request the President to discuss the tax revision program first.
As soon as we were all seated the President turned to Mr. Doughton and
asked how the tax revision program was coming along. Mr. Doughton said
that the subcommittee was proceeding very satisfactorily; and that the
Treasury was supplying all the necessary information. He asked
Mr. Vinson, whom he characterized as the greatest tax expert in the
United States, other than the President, Secretary Morgenthau, and my-
self, to tell the President what the committee had done.
Mr. Vinson said that the committee had been working on capital
gains and expected to take up the undistributed profits tax next. It
had been agreed that capital gains realized on sales of property held
for less than a year should be taxed exactly like ordinary income:
and that net losses from the sale of capital assets should be cerried
over for one year and applied against any capital gains for the second
year. The committee was considering various methods of taxing capital
gaine and had not yet decided upon one, pending the receipt of esti-
mates from the Treasury as to several alternative plans.
The President said that he had always thought some consideration
should be given to the taxpayer's intent in making a transaction and
cited the case of an individual who buys a $5000 house which, because
a new boulevard is cut through, becomes worth $25,000. The individual
did not go into the transaction for the purpose of speculation.
Mr. Vinson pointed out that the present method of taxing capital gains
took care of this kind of situation by taxing less than 100 percent of
the gain if the property sold had been held for more than one year.
Mr. Vinson said the committee wanted to go ahead with the undis-
tributed profits tax tomorrow and wanted to get the President's views.
The President said that he thought the general plan of the house bill
last year was excellent and that the principle of the undistributed
profits tax should be retained. He said he thought that some prefer-
ential treatment should be given for small corporations with incomes
of $15,000 or less, to permit them to use earnings on expansion of
plant or on reserves. Mr. Vinson said that he felt it would be de-
sirable to give some further exemption for small corporations diminish-
ing as the amount of earnings increased; and that some special treat-
ment should be given to deficit corporations. He did not define what
he meant by a "deficit corporation." The President said that we would
have to guard against the possibility of corporations defeating the
tax through readjustments in their capital structure. The President
Regraded Unclassified
193
- 2 -
said that the Vice President and a number of other prominent Democrate
were interested in attacking the problem of monopoly. He said that
too much of the wealth of the country WAS controlled by 200 large
corporations. He gave as an illustration the control by New York
bankers over loans being made by small country banks. Consequently,
he felt that in connection with the program of controlling monopolies
it would be well for the subcommittee to consider the desirability of
lessening the taxes on small corporations as compared to large ones.
The President also suggested the possibility of providing that sums
exempted from the undistributed profits tax should be set aside in
reserves and the Treasury should make some efforts to see that if
they were used for any other purpose a tax would be imposed. Vinson
pointed out that it would be difficult or impossible to exercise such
supervision. I told the President that in connection with the capital
gains the committee was considering the possibility of a maximum rate
of, say 20 percent, which the taxpayer might use at his option instead
of the present rate scale. The President indicated no objection to
this plan.
The conference then proceeded to A discussion of the financing
of the agricultural program. The President insisted that the amounts
required for emergency expenditures, now being made under section 32.
should be provided by some permanent form of taxation. Mr. Jones in-
misted equally strongly that it was proper to earmark part of the re-
ceipts from the tariff for use for agricultural benefit payments,
since the teriff receipts came out of the farmers. It was suggested
that the tax provisions ought to be referred to the Ways and Means
Committee, but no agreement was reached on that subject. Mr. Jones
stated that the provisions were now part of the agricultural bill but
in a separate title.
At the close of the conference the President suggested that there
was a great deal of discussion to the effect that the Supreme Court
would reverse its position on the taxation of stock dividends if the
law were amended to provide that all stock dividends should be taxable.
Mr. Vinson pointed out that the law had been amended in such a way that
all stock dividends are now tarable except those the Macomber decision
holds are not taxable. The President said he thought that the only
stock dividend which should be exempt is 8. dividend of no-par common
stock to E. holder of no-par common. Mr. Vinson argued that legally
a holder of par value common was in the same position and that indi-
cated that he did not favor any further change in the law. The
President asked me whether we were getting a tax on stock dividends
now. I told him that we had cases before the Supreme Court under the
prior law and that under the present law we were collecting the tax
on stock dividends 90 far as they are legally taxable.
At the close of the conference Secretary Morgenthau told ne that
he suggested to Mr. Early in an aside that his four o'clock press
conference the President might as well take credit for what had been
decided as to the undistributed profits tax. Mr. Early said that he
Regraded Unclassified
194
- 3 -
had spent the morning urging the President to do so; and he immediately
passed on the suggestion to the President. The President called out,
"No, nothing has been decided. Everything is still in the study stage.
The Treasury is still submitting information." By this time everyone
was leaving the room except Mr. Jones, who continued in conversation
with the President.
Rm
Notes taken by Mr. Magill
Regraded Unclassified
195
TREASURY DEPARTMENT
FILE
(per NMC 12/17/3
mas)
INTER OFFICE COMMUNICATION
DATE NOV 9 1937
TO
Secretary Morgenthau
FROM Herman Oliphant
In further reference to a utility and railroad for a model
reorganization, I have learned, since I gave you the data on a
number of companies, that the best possibility in the utility
field is apparently the reorganisation of the Utilities Power &
Light (in the Chicago area). This is now in progress under the
auspices of the SEC, in connection with its control over public
utility holding companies and not because there is any Government
claim against the company. Rogge is handling it. Do you want me
to do anything further?
As to a railroad, the best of the three possibilities I
suggested appears to be Wichita, Northwestern Railway Company, if
the matter is to be handled strictly within the Treasury. If,
however, it can be operated through the RFC, the best possibility
would seem to be the Alabama, Tennessee & Northern Railroad Cor-
poration. Do you want further work done on either of these in
X
line with your original suggestion?
Regraded Unclassified
196
November 9, 1937
9:28 a.m.
H.M.Jr:
Hello
Knoke:
Yes Mr. Secretary.
H.M.Jr:
How do they feel in New York after my little
announcement?
K:
Well, it seems to me the whole worldhas turned off.
H.M.Jr:
Really.
K:
Oh, yes, you see all the rates are down. The guilder
rate 1s down, the Swies rate is down and the belga
is down, and sterling is down.
H.M.Jr:
So it had a good effect.
K:
Yes - oh, yes, I think the - it surely had a good
effect.
H.M.Jr:
I thought 80.
Hello.
K:
May I Just one say - say one thing Mr. Secretary.
H.M.Jr:
Say two.
K:
I think, you see the fact that you mentioned ten
million, two fifty, I think, showed that your
information was based on something that the Bank of
France gave.
H.M.Jr:
Yes.
K:
I had hoped you would say something that was based
on the reports here in the market that freight and
insurance had been booked.
H.M.Jr:
Had been what?
K:
That freight and insurance had been booked, and -
H.M.Jr:
You mean why I mentioned the amount.
K:
Yes.
H.M.Jr:
The reason I mentioned the amount, the United Press
said that there was six billion france had been
engaged.
Regraded Unclassified
197
- 2 -
K:
Six billion francs.
H.M.Jr:
Yes. So, that was the story the United Press had.
K:
I see.
H.M.Jr:
So I felt it was - I did what I realize was unusual,
I mentioned the amount.
K:
Well, if you had just mentioned ten - ten million
dollars, I think that would have -
H.M.Jr:
Well, Archie told me ten and a quarter.
K:
Yes, all right, but don't you see, ten million and
a quarter 18 what they bought and ten million 18 what
they've asked us to ship.
H.M.Jr:
Well, again -
K:
There's no connection between the two.
H.M.Jr:
No, you're perfectly right, but let me explain. I
said - I said a little over ten.
K:
Yes.
H.M.Jr:
So they said well does that mean maybe twenty.
K:
Yes, I see.
H.M.Jr:
So I said all right, I'll give you the specific
amount.
K:
Yes.
H.M.Jr:
You see what I mean?
K:
Yes.
H.M.Jr:
I mean, there's always two sides, you see, and first
they had it B1X billion francs, then when I said, "A
little over ten," they said, "Well, how much over?"
K:
Yes.
H.M.Jr:
So I said, "Well, I'll tell you the exact amount."
Unclassified
198
- 3 -
K:
But at anyrate, the effect has been very good, there's
no doubt.
H.M.Jr:
Listen, outside of you and me and Mr. Cariguel,
nobody knows whether it's ten or ten and a quarter.
K:
Yes.
H.M.Jr:
But, on account of the United Press having this
perfectly asinine story, I thought it was better to
give the exact amount. I first said,"Slightly over
ten."
K:
Yes.
H.M.Jr:
Then they said, Well how much over?"you see.
K:
These birds do ask questions all the time.
H.M.Jr:
Yes. I thought the New York Tribune handled it
beautifully.
K:
I tell you I never read the Tribune.
H.M.Jr:
Well, read it today, will you.
K:
Yes
H.M.Jr:
New York Tribune handled the story the best of all.
K:
The Tribune.
H.M.Jr:
Yes, but it's - the main thing is it's - it's had a
good effect.
K:
Oh, that is definitely 80.
H.M.Jr:
Oh, I agree with you on the detail that if I didn't
have to set any amount, it would have been better,
but I had to.
K:
Yes.
H.M.Jr:
See
K:
Yes
H.M.Jr:
But it's had a very good effect, hasn't it?
K:
Well that I am positive of, yes.
H.M.Jr:
No, I am always glad to get suggestions and criticism 8.
199
- 4 -
K:
Well, it was not meant as -
H.M.Jr:
No, I understand.
K:
It was meant as a - my personal reaction.
H.M.Jr:
Righto. Thank you very much.
K:
Thank you.
200
November 9, 1937.
9:44 a.m.
H.M.Jr:
Operator:
All right. Go ahead.
H.M.Jr:
Hello
Sandy
Klein:
Hello
H.M.Jr:
Sandy Klein.
K:
Yes.
H.M.Jr:
Morgenthau.
K:
Good morning, Mr. Secretary.
H.M.Jr:
As the President of the Treasury Press Club, I just
wanted to tell you - I wish you'd tell the boys, that
I'm simply delighted the way they handled that gold
story.
K:
Oh, swell, I certainly will tell them.
H.M.Jr:
I thought that they handled a very difficult story,
absolutely first class.
K:
Well, that's fine, I'm glad to hear that, sir.
H.M.Jr:
And I'm delighted.
K:
All right, I'll be glad to convey that along to them.
H.M.Jr:
Goodbye.
K:
Goodbye.
201
November 9, 1937.
10:30 a.m.
H.M.Jr:
Hello
Operator:
Chairman Eccles.
H.M.Jr:
Hello
Marriner
Eccles:
Hello
H.M.Jr:
Marriner?
E:
Yes, Henry.
H.M.Jr:
I just want to explain, in person, that that call
yesterday was - I thought, today being Tuesday,
I thought it was our lunch date, you see.
E:
That's right.
H.M.Jr:
Until I called you up simply to find out - I had
nothing special other than I wanted Just to have a -
E:
Well, the - the only reason that I - I have always
left Tuesday aside, but the reason that it came in
now was this housing matter, that - that you know
I've been working on.
H.M.Jr:
I know.
E:
I've got this conference, these men -
H.M.Jr:
Fine.
E:
In here today at one o'clock.
H.M.Jr:
All right.
E:
The five of them, Wharton, Swope and 80 forth.
H.M.Jr:
All right.
E:
And we have a meeting tomorrow with the President.
H.M.Jr:
Fine.
E:
And so, it was necessary on account of getting our
meeting fixed tomorrow at the White House to get
them in today.
H.M.Jr:
Fine.
202
- 2 -
E:
So that's the reason that I had to - I had to put off
that - our regular meeting. I dislike to do 1t,
because I would like to have had a -
H.M.Jr:
Well, I just didn't want to have it go through
operators, and have any misunderstanding. That's
why I'm calling.
E:
Well let's get together later in the week.
H.M.Jr:
Well, I'm going to go away tomorrow, and I -
E:
Oh, you won't be back until -
H.M.Jr:
No, but -
E:
You won't be back before next Monday.
H.M.Jr:
No.
E:
I see.
H.M.Jr:
I hope not, unless there's some emergency, I'm not
sure.
E:
Yes, yes.
H.M.Jr:
I mean, but -
E:
And by the way, I've got Harrison and St Clair, the
two members of the executive committee of the Open
Market Committee.
There's the three here and
the two outside, BO - what we call our executive
committee. I've got them in here this morning and
with the idea of discussing the question of buying
notes or bills as we discussed doing in September,
and I don't know - of course the excess reserves
in New York - the situation has been pretty easy,
it's just the question of doing something in con-
templation. I don't know what reaction we'll get
from Harrison. As a matter of fact I can guess.
H.M.Jr:
Righto.
E:
But at least, I just thought I'd tell you that that's -
we got them in here for a preliminary discussion
anyway.
H.M.Jr:
Well, why don't you give me a ring later on this
afternoon or tomorrow and let me know how you're
coming along, if you feel like it.
203
M I 1
E:
Do you mean on - on the housing?
H.M.Jr:
No, I mean on this thing with Harrison.
E:
Oh, yes, you -
H.M.Jr:
Let's put it this way. If you decide you're going
to do anything, give me a ring, but if you decide
not to do anything, I won't hear from you.
E:
Yes.
H.M.Jr:
How's that?
E:
Do you - you don't see any objection to at least
starting in. After all, it's a situation if you're
going to accumulate any - a hundred - even a hundred
millions of bills or notes over a period of a couple
of months. It takes -
H.M.Jr:
Well, if you're going to do it, now's the time to
do it.
E:
Well, of course, you don't want to do it in
December.
H.M.Jr:
But I don't know whether - whether that's - whether
it's necessary now.
E:
Well, nobody knows definitely.
H.M.Jr:
No.
E:
But if you wait until December.
H.M.Jr:
Then it's too late.
E:
Then it's too late because you can't pick up a
lot of them in a hurry.
H.M.Jr:
That's right.
E:
Without raising hell with the market.
H.M.Jr:
That's right.
E:
And not only that, but what financing you may have
to do that's uncertain.
H.M.Jr:
That's right.
204
- 4 -
E:
And you certainly don't want to be in the market
at the time you have any kind of financing.
H.M.Jr:
That's right.
E:
So that it seems to me that it's now or never.
H.M.Jr:
Check all around, yes.
E:
All right, fine.
H.M.Jr:
Goodbye.
E:
Goodbye.
205
November 9, 1937.
11:57 a.m.
H.M.Jr:
Hello
Operator:
Mr. Butterworth.
H.M.Jr:
Thank you.
0:
Go ahead.
H.M.Jr:
Hello.
Butterworth: Hello, how do you do, sir?
H.M.Jr:
I'm fine. Butterworth, what I wanted was just a
little gossip on the reaction to what I sald
yesterday about gold leaving the country.
B:
Well, your statement had the desired effect.
H.M.Jr:
Yes.
B:
It's been quiet today. The trend has been reversed,
at least temporarily.
H.M.Jr:
Yes.
B:
I think it will take a day or two to work itself out.
H.M.Jr:
Yes.
B:
There was still some signs of a demand for gold thie
afternoon.
H.M.Jr:
Uh-huh.
B:
As you know the
of gold was six and a quarter,
and with a premium of only one shilling and fourpence.
H.M.Jr:
Uh-huh.
B:
The dollar has been dead this afternoon, but not only
are some of the continentale reversing their position -
H.M.Jr:
Yes.
B:
But there's been some buying on commercial account
as well.
H.M.Jr:
Uh-huh.
B:
And I understand from one of the dealers that there's
206
- 2 -
been some buying of dollars on behalf of China.
H.M.Jr:
Uh-huh.
B:
The Bank of France, according to my information, has
been bidding for dollars, while the British controls
here have been selling them this afternoon at five
dollars to one pound.
H.M.Jr:
I see. But the general effect was good.
B:
Ae far as the general atmosphere is concerned, I think
that the facility which your statement gave to the
exchange situation has helped the commodity markets
as well.
H.M.Jr:
Good.
B:
They've strengthened up in this country; and copper,
for instance, went up to 39 pounds, for instance,
this morning.
H.M.Jr:
Uh-huh.
B:
And the stock exchange has likewise strengthened up
a little bit.
H.M.Jr:
Good.
B:
There 1s still a general atmosphere, of course, of
uncertainty.
H.M.Jr:
Well, that's to be expected.
B:
And, even in the short time that I've been back, three
weeks, I've noted the change in the atmosphere here.
H.M.Jr:
Yes.
B:
It's become more uncertain, and every day it's becoming
more apparent to more people, that the key to the
position lies in the United States.
H.M.Jr:
Uh-huh.
B:
These people here, as you know, sir, are more sus-
ceptible to the movements in the commodity markets,
than they are to the movement in the stock exchange.
H.M.Jr:
I see.
B:
And the declines in the commodities put the fear of
God into them.
H.M.Jr:
Uh-huh.
207
- 3 -
B:
The government 18 concerned that they have been - they're
making credit pretty stringent now, and they seem to have
gotten control of the government security markets.
H.M.Jr:
I see,
B:
British governments have been appreciated, but there
have been rumors here that - that is preparatory to
the issuance of a new loan.
H.M.Jr:
Uh-huh.
B:
But I have no - I have made no official inquiries
about that, but personally I should doubt it.
H.M.Jr:
I see.
B:
I think they're trying to use that as a measure of
establishing confidence.
H.M.Jr:
Uh-huh. Well, that's about all that I wanted.
B:
Right, sir.
H.M.Jr:
Uh - that's all - you're all right, are you?
B:
I am very well, sir, thank you.
H.m.Jr:
That's good.
B:
Are there any - I am going to see Phillips shortly;
are there any particular questions you'd like me to
take up with him?
H.M.Jr:
No, no.
B:
He asked me last time, he said "If there's any
particular thing that your people want, you just let
me know", so I thought I'd pass that on to you, when
you telephoned me next, so in case there was anything,
you could Just give me a flash.
H.M.Jr:
No, everything - I said everything that I had to say,
yesterday.
B:
Good. Right, sir.
H.M.Jr:
All right.
B:
Thank you very much.
H.M.Jr:
Goodbye.
208
November 9, 1937.
12:55 a.m.
H.M.Jr:
Hello.
Operator:
Mayor LaGuardia.
H.M.Jr:
Right.
0:
Go ahead.
H.M.Jr:
Hello.
LaGuardia:
Hello, Mr. Secretary, how are you?
H.M.Jr:
Fine. My belated congratulations.
L:
Thanks very much. Say, I suppose you're coming to
the football game.
H.M.Jr:
(laughs) I'm having a football game of my own, I'm
talking - I'm spending Wednesday night in your city.
L:
Oh, and then you won't - will you be in town next
Monday, in Washington, I mean?
H.M.Jr:
Yes, yes.
L:
I'll be there Monday, Tuesday and Wednesday.
H.M.Jr:
Well -
L:
Can I phone your office and make an appointment then?
H.M.Jr:
Yes, would you like to have lunch with me Tuesday?
L:
Yes. We'll do that, I'm there with the conference
of mayors, so may I telephone Monday morning if I
can do it Monday or Tuesday.
H.M.Jr:
Well -
L:
Because we have one luncheon of the mayors, see.
H.M.Jr:
Well, you -
L:
And I don't know what day it is.
H.M.Jr:
Well, Monday, I usually lunch with the President, but
either Tuesday or Wednesday -
L:
All right.
- 2 -
209
H.M.Jr:
Would be fine.
L:
Then I'll phone you Monday.
H.M.Jr:
Thank you.
L:
Thank you, very much.
H.M.Jr:
All right.
Regraded Unclassified
2:0
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 9, 1937, 9 am.
NO.: 1577
FROM COCHRAN.
This morning I returned from Basel where on Sunday
and Monday the directors of the BIS had their meeting.
The subjects discussed in the main were the successor for
Quesnay as general manager, capital movements, and gold.
Following the confidential meeting on Sunday of
the central bank governors, Governor Fournier told me that
they had discussed the general managership. He said he
did not press for a vote on naming a Frenchman because he
possibly
felt he might/not have been successful. Fournier is very
well thought of by Trip and some of his other colleagues,
and these colleagues of Fournier's would not want anything
to happen in the BIS which might be interpreted in France
as a reflection upon Fournier's ability to hold his own
with his friends at the BIS. The suggestion was made by
Trip to have a Frenchman appointed for one year with the un-
derstanding that in the meantime a study should be made
of the question of general reorganization of the BIS
management. It is not believed that such a tentative
arrangement would be accepted by a Frenchman. Therefore
there were many informal conferences on the subject of the
general
211
- 2 -
general managership. However, the matter was not brought
up in the official meeting, and no decision will be taken
before the board meeting in December. It was even suggested
that the decision be postponed until next May when the
annual meeting is held.
END SECTION ONE.
BULLITT.
EA:LWW
BECEIAED
TEST a you
INSURANCE TRUNKIRT
1 - - - -
reserved all to with
Regraded
212
PARAPHRASE OF SECTION TWO OF TELEGRAM NO. 1577 of
November 9, 1937, from the American Embassy, Paris.
It is thought that some of the directors who really
are in favor of entire reorganization on an efficiency
basis will in the end vote for a French general manager
rather than risk injury to the institution. There is
not much cause for the French feeling that the British are
in favor of German assistant general manager Hechler for
the post as a nice gesture to Germany; Hechler himself
does not want it. The Germans furthermore prefer con-
tinuance of the present system of replacing an officer
with one of the same nationality, lest the original
assistant general managership of Germany eventually be
lost. For the same reason the Italians want continuance
of the system as at present they have the secretary gen-
eralship.
The BIS President, Beyen, still hopes he can make
a visit to the United States but until the above question
is settled he will not be able to leave his post.
The Governor of the Bank of England, Norman, told me
that just before he left London to attend this meeting
the Chancellor of the Exchequer had told him that an
arrangement was being sought by the Ministry of Finance
of France whereunder one-half of the London Banking Credit
to the French Railways would be paid at maturity, and
the
213
- 2 -
the remainder consolidated into three-year bonds with no
security to be pledged for this part of the loan. The
Governor said that when he got back to London he would
take this matter up with the city bankers. He believed
that the bankers would be willing to extend one-half of
the credit for say six months, but that consolidation or
withdrawal of existing security provisions would be opposed.
Governor Norman said he is not at all convinced that
France 18 soundly on the way to financial recovery, and
he believes France may yet have further serious diffi-
culties. He said that in his opinion the recent cantonal
elections and party conventions have shown the mere
glossing over of a fundamental difference of policy and
opinion within the Popular Front party. No important
return of confidence is anticipated by Norman as long
as the real situation of the Government and its ineffec-
tiveness in solving really basic problems are known to
the capitalists. Norman does not think that a liberal
policy can be followed successfully by a Left Government.
Therefore it would not be a surprise to him to see fur-
ther deterioration follow the present period of respite
in France. After Parliament reconvenes and actual feelings
are disclosed, he said, another Blum Government and ex-
change control might result. In his opinion the elections
proved
214
- 3 -
proved that conditions in France are not yet sufficiently
bad to demand that a Center Government be set up, and
as this is politically impossible, he thinks that if the
Chautemps Government fails the swing will be further to
the Left. He expressed the belief that France can be
more genuinely aided by being told the truth than by
paying nice compliments to her.
Governor Norman said that the instability of the world
situation is revealed by the recent market collapses,
movements of capital and fluctuations of currencies. In
nis mind a problem is still presented by the gold situa-
tion. At the present price he does not want to take any
more than he must. I asked Norman whether at present he
was not losing a fair amount of gold; he replied that
the few millions now going to France did not amount to
much, and that all too son he would be getting them back
again. Each country, ne said, should look after its
own currency if it 18 at all able to, and he recognized
that France did not have sufficient strength to do this.
I -gained the impression from this and B. related remark that
he does not wish to support the dollar and earmark gold in
our country.
According to Niemeyer the French situation is still
doubtful.
215
- 4 -
doubtful. He said that the stories of Bonnet maneuvering
within the Chautemps Government had not had a good impres-
sion in London.
In strictest confidence Governor Trip told me that
the British authorities had informed him a few days ago
that they could not be looked to to take dollars against
gold in unlimited quantities. Trip as you know has been
converting gold into dollars at London, the dollars being
purchased in Europe to steady the florin-dollar rate.
Trip has been regularly transferring into gold in the
United States only those dollars bought for him in New
York by the Federal Reserve when the Netherlands Bank was
closed. The above notice was received by Trip just
about the time that an important premium on gold was
developing on the London market.
END SECTIONS TWO THREE AND FOUR.
BULLITT.
EA:LWW
216
PARAPHRASE OF SECTION FIVE OF TELEGRAM NO. 1577
of November 9, 1937, from Paris.
Trip had to change his practice, since he was convinced
that the British were willing to 800 the dollar drop to
a point which might in reality be considered an export
gold point for New York vis-a-vis London, and since he
felt they were not willing to take all the dollars which
he might accumulate. Trip would have been flooded with
dollars, which perhaps he would not have been able to
dispose of in London, if he had continued to hold the
florin-dollar rate steady irrespective of the change in
the dollar-sterling rate. Therefore he began to let up
on his dollar purchases last week, allowing the dollar-
florin rate to weaken and he started purchasing sterling
and converting the latter into gold in London.
The Netherlands Bank Governor does not believe that
the world is entering a second economic depression; he
looks for improvement in the United States and elsewhere.
This improvement would be facilitated if - as is expected
by some observers at Basel - the Japanese may be satisfied
with their achievements in China by the end of the year,
and if by Spring Franco gains control of Spain. This
period of deflation, he said, helped industries in the
Netherland East Indies to get on such B. basis that even
now
217
- 2 -
now they can make good profits despite the recent price
drop for rubber, sugar and tin. Trip is still of the
opinion that assurance to the world that the dollar's
gold value will not be changed would go a long way toward
aiding recovery in general.
Governor Trip said he was a little unhappy when he
learned of Bachmann's plans, announced on Monday to the
press, for checking the influx of funds into Switzerland.
This plan, Trip believed, would be only partly effective.
He said even if it were effective it would simply cause
trouble for other countries of capital refuge - such as
the Netherlands. He prefers a more natural settlement of
these problems, believing that most of them will be
worked out in time.
I quote below the English translation of the French
draft of the confidential Gentlemen's Agreement between
the Swiss National Bank and the banks in Switzerland,
a summary of which was given to the press by Bachmann:
END SECTION FIVE.
BULLITT.
EA:LWW
- 218
RB
GRAY
Paris
Dated November 9, 1937
Rec'd 3:45 p. m.
Secretary of State
Washington.
1577, NOVEMBER 9,9a. m. (SECTION SIX)
"The banks, parties to the present convention, declare
themselves prepared to aid the National Bank in its efforts
to reduce the EXCESS of foraign deposits accumulated in
Switzerland, within the framework of the measures outlined
below:
One. In the sense of the present convention all
oldings with Swiss francs of forsigners domiciled abroad
will bE considered as foreign holdings. Also the banks
will be prepared, according to the provisons of the present
convention, to deal with the holdings deposited in the name
of a Swiss holder of an account (individuals and legal
Entities, financial companies and holdings, Et cetera) but
in regard to which the bank knows or is in a position to
know that such holdings are not the property of the Swiss
holder of an account, but of o foreigners. There will COME
under this category notably the holdings of holding companies
Established with Switzerland for the purpose of managing
foreign
Regraded Unclassified
219
RB -2- No. 1577, November 9, 9 a, m. (SECTION SIX) from
Paris
foreign funds.
Two. From the date of the coming into force and
during the life of the present convention the banks under-
take to suspend all interest allowances on all foreign
sight deposits with Swiss francs. Maturing time deposits
with Swiss francs as well as new time deposits, will bE
assimilated to these sight holdings unless they are firm
for nine months minimum,
Three. The banks undertake no longer to accept foreign
sight deposits but only at three months firm at least.
Four. The banks undertake furthermore to inform foreign
holders of accounts of deposits already Existing and to the
extent to which these deposits EXCEED the balances at Septem-
ber 30, 1936, that they are bound for three months, and as
concerns sight deposits, for as long as they still Exist
with the banks on DECEMBER 1 and as concerns maturing time
deposits, for as long as they still remain with the banks
ons month after maturity.
Five. The fixed deposits, in the sense of Articles
Three and Four, which are bound for period of less than six
months, will bE subject to a commission of one percent per
annum.
Six. The
220
RB -3- No. 1577, November 9, 9 a. m. (SECTION SIX)
from Paris
Six, The following are Excluded from the time limits
and the commission provided for under Articles Three, Four,
and Five:
(A) The accounts of banks in so far as their
total corresponds to the amounts necessary for the
settlement of normal business relations;
(B) The accounts of commercial Enterprises in
so far as they SERVE commercial purposes with Switzerland.
BULLITT
SMS
NPL
221
RB
GRAY
Paris
Dated November 9, 1937
Rec'd 4:26 p. m.
decretary of State
washington.
1577, November 9, 9 a. m. SECTION SEVEN.
(C) The accounts of individuals and of legal entities,
not intended for commercial USE, which have been opened
in corelation with a deposit of securities and the average
holding of which does not reach 20,000 francs-- during,
respectively, the second half of 1937, the first SIX months
of 1938, and the last six months of 1938. In the EVENT of
a oursly temporary passing of this limit, as the result of
a credit of coupons or as a result of the reimbursement of
securities, the provisions of Articles Three, Four, and
Five will not bE applicable;
(D) Foreign deposits which are intended to cover
matured interest, the amortization or the reimbursement
of credits and of loans in Swizterland.
SEVEN. The banks will refuse the safekeeping of
Swiss bank notes in open accounts for the account of
foreigners. At the time of the opening of new firm deposits
and
222
RB -:- No. 1577, November 9, 9 a, m. SECTION SEVEN
from Paris
and at the time of renting new safe deposit boxes, the
banks will require from foreign clients a written declara-
tion, on a standard form for all banks, attesting that
they will not give Swiss bank notes in deposit or that
they have not deposited such notes in the saft deposit
box. This written declaration will also bE demanded when
the occasion presents itself from holders of deposits
already Existing and from present holders of safe deposit
boxes,
Eight. The banks will adhere to this convention
upon the condition that the Swiss National Bank and the
Office of Postal Checks will also apply the preceding
provisions, and that the Swiss National Bank will bind
all banks and bankers likely to handle matters with foreign
customers to adhere to the convention.
Nine. The convention will come into force on Nov-
Ember 15 and will have Effect up to DECEMBER 31, 1938.
it least three months before this date, the Swiss National
Bank will communicate with the banks in case a renewal
should appear opportune to it."
(Note: In the revised text of which no copy is yet
available, there will appear an addition under Article
Six
223
RB -S- No. 1577, November 9, 9 a. m. SECTION SEVEN
from Paris
Six which provides that foreigners with financial interests
in Switzerland are permitted to have on deposit 5,000
Swiss francs without paying commission).
BULLITT
SMS
224
PARAPHRASE OF SECTIONS EIGHT AND NINE OF TELEGRAM NO. 1577
of November 9, 1937, from Paris.
The central bankers who were at Basel were quick to
pick flaws in the plan quoted above. The ownere of flight
capital seeking refuge in Switzerland who do not want to
leave their funds as long as this regulation (omission)
can circumvent it by purchasing Swiss bank notes and hold-
ing them outside of Switzerland, or by investing in real
in
property in Switzerland or/securities, including government
bonds. Should these owner's chose to invest in government
bonds, the Swise Government might have a real problem on
its hande if dumping of them was once started by foreigners.
I had several talks with Bachmann. The large influx
of foreign bonds is a source of concern to him; he is
particularly concerned over the extent to which Swiss and
some French are turning into Swies francs their American
securities or bank deposits. He said he had to take
21,000,000 dollars one day last week in spite of the
shifting tactics followed by the Swiee control. During
the past six months he has converted into dollars all of
his stabilization fund, most of his other foreign exchange
holdings, and some of his gold. He now finds that fear
of further dollar devaluation has seriously alarmed the
Swiss. Bachmann arranged for Schnorf, his exchange expert,
to come to Basel to talk with me on Monday afternoon.
They
225
- 2 -
They gave me a number of questions on gold and dollars
which I shall report to the Treasury on my visit to the
United States.
The President of the BIS, Beyen, also discussed with
me gold privileges for the Bank. Beyen does not think that
there will be a change in the value of the dollar. He
believes that the longer governments fool around with
managed currencies the stronger will be the eventual clamor
for an international gold standard system, and perhaps
there will not be BO many innovations therein a6 have been
anticipated during the past few years.
From another source I learned, incidentally, that at
the informal meeting on Sunday the fact that the BIS is
long $6,000,000 was made known to the Governors. The
statement was made by Schacht that he did not trust any of
these foreign currencies, and he suggested the unvarying
Reichsmark as the proper medium for BIS investments, unless
8. guarantee of convertibility into gold of any Swise france
they might hold could be given by Bachmann. Bachmann's
already heavy spirit was further depressed by this teasing.
The management was given no institutions(instructions?) about
the dollars, but this occasion was taken by Rooth and Trip
to express confidence in the American currency.
At Basel the one most nervous about the dollar's future
was
226
- 3 -
was Bachmann, but most of the bankers there were dis-
appointed with the American situation. They were not at
all sure that we may not continue to contribute to the
uneasiness of the world. It was the consensus of opinion
that nothing would lead more directly to complete chaos
in the world's currencies than further dollar devaluation.
END SECTIONS EIGHT AND NINE.
BULLITT.
EA:LWW 03V133311
THROANT
wind
JY
T
Delaw we - -
227
PARAPHRASE OF SECTIONS TEN, ELEVEN AND TWELVE OF TELEGRAM
No. 1577 of November 9, 1937, from Paris.
These central bankers reason that the dollar rate will not
be lowered by the President because (1) since the last
depreciation he apparently has come to distrust monetary
manipulation, (2) the cost of living would be increased,
(3) the dollar sterling rate is now around five dollars
and not four twenty four - which would merely provide gold
producers with a further subsidy. Some of these observers
at the same time reason, to put it concisely and somewhat
brutally, that the President has given attention to
emergency measures rather than to those that are construc-
tive. A spurt through spreading purchasing power has
resulted from these emergency measures, such as the N.R.A.,
the bonus to the veterans, silver, and the public works
they
program; the force of these measures is spent, and/cannot
be repeated; their place has not been taken by normal forces.
Furthermore confidence has been shaken and peace has not
been made with business interests. The question is asked
whether the President as the second term advances can reach
a successful mutually trusting compromise with these business
interests, whether big business would rather see the Admin-
istration fail at this late day, or whether desperate emer-
gency measures will again be resorted to by the President.
European observers are disturbed by the latter possibility,
including conceivable monetary change.
I had a talk with Schacht, in which he discussed
everything
228
- 2 -
everything from Bedaux to China. He related to me that
at a party given by Consul General Jenkine & lady guest
asked him a question to which he gave 8. joking reply - not
knowing she was a newspaperwoman which she immediately
cabled to her American paper with the resultant injuries
to story that Schacht was out of the Government. While
we were speaking of Japan, I remarked that Japan's policy
would certainly not make friends for her, would destroy
her currency, and check the advances made in the past few
years in world trade. Schacht agreed with all this, saying
that the military powers "in some countries" seemed bent
on destroying those countries. The
undertakings and standard of living of Japan, Italy and
Germany were compared by Schacht, and he insisted that
?
this country was still better off than the others were.
There is a consensus of opinion on the part of Schacht's
friends that within the next few days he will definitely
leave the Ministry of Economics since he has not obtained
sufficient concessions from Hitler and Goering on account
of his resignation which he tendered on the eighteenth of
August. He cannot run the Ministry independent of the
four year plan, and prefers to leave to Ganzging Goering
the undivided responsibility. The possibility was ex-
pressed by some of Schacht's friends that on April 1 Schacht
and Under Governor Dreyse will leave the Reichsbank,
223
- 3 -
Some observers think, on the other hand, that before that
time Hitler will have 80 thoroughly realized the folly of
permitting the military to get control of German economics
that he will make every effort to keep Schacht in the
Reichsbank and will keep him in the Cabinet without port-
folio in the interim.
The opinion was expressed by observers that Germany
is at present losing a great opportunity for increasing her
world trade while others are engaged in arming or in fighting.
In the present circumstances Germany is prevented from being
a dangerous competitor because her first attention is to
munitions and because of her production with uneconomically
prepared or obtained materials. A crash in Germany is not
expected by any one. Germany has enough food and materials
in sight to carry through the coming winter.
Just now Jangsen is Acting Governor of the Bank of Bel-
gium, and he came to Basel for the first time at thie month's
meeting. The former Governor, Franck, left the Belgian
Bank, severing all connections when his vacation started
in anticipation of retirement because of age at the end of
this year.
I was informed by Galopin, the Belgian industrial direc-
tor, that he thought Janssen had a good chance to succeed to
Franck's post; he does not think that Paul van Zeeland will
be
230
- 4 -
be considered any more. Van Zeeland, he said, was contin-
uing with his world economic study but in the present cir-
cumstances this task 1£ hopeless. I was assured by Galopin
that the latest depreciation in the French franc could be
withstood by the belga.
There was not as much discussion about the French
situation as there usually is. Pleasure was expressed by
everyone at the slight progress France has made, but no
one is yet convinced that there will be entirely smooth
going for that country. The French Government is paying
almost seven per cent for domestic borrowing which fact is
not conducive to optimism.
With regard to the Japanese situation, no one expects
sanctions since they would not be effective without war.
December 13 has been set for the date of the next
meeting.
END MESSAGE.
BULLITT.
EA: LWW
231
RB
GRAY
Bern
Dated November 9, 1937
REC'd 2:50 P. m.
Secretary of State
Washington.
90, November 9, 6 p. m.
REference Legation's No. 89, November 8, 5 p. m.
Text of agreement mailed QUEEN MARY November 10,
Agreement Enters into force November 15, 1937 to remain
03V13039
in Effect until DECEMBER 31, 1938.
HARRISON
PLP
1 - I -
Gentlemen's agreement between the
National Bank and Swiss Bankers
Association with a ViEW to restrict-
ing floating foreign capital and
hoarding of currency in Switzerland.
232
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 9, 1937, 5 p.m.
NO.: 1578
FROM COCHRAN.
Offer of dollars on Paris market was lighter today.
One Paris American bank purchased two and three quarters
million dollars for the French control and a French bank
did about two million dollars. The British control was
reported this evening to be offering dollars at 5.009.
French rentes are down and market sentiment is not good.
While no tangible reason can be found, general uneasiness
comes from fear that political difficulties arise when
Parliament reconvenes and particularly that Blum may cause
trouble.
I had a visit this afternoon from Morgan Paris partner.
This observer thinks that there has been improvement in the
French situation especially as compared with what it was
8. year ago. He does not feel, however, that everything
is clear for the future. Last week his firm in London met
with Lazard and Rothschild to discuss renewal of the
British banking credit to the railways of France. Among
the banks which participated in this credit in London there
is general feeling that France should repay the whole amount.
M y contact thought it might be possible, however, for France
to
233
- 2 -
to get renewal for part of the credit. He thought it
would be impossible to effect a change in the very nature
of the credit through consolidation into medium term bonds
which would probably have to be passed on to the public.
I invited to lunch at my home today Governor Rooth
of the Swedish Central Bank. Governor Rooth came from
Basel to Paris last night and will proceed shortly to Lon-
don on his semiannual tour of central banks. The Bank
of France Governor, Fournier, also had lunch with us.
Governor Rooth told us that during the past few weeks
business in Sweden has slackened, but pressure for apprec-
iation of the crown, on the other hand, has died down and
it is not anticipated that there will be monetary change
in Sweden. The large amount of gold which the French
fund had acquired yesterday while Governor Fournier was
at Basel delighted Fournier. The attention being given
to the first gold shipment from the United States to
France amused him a little. Governor Fournier discussed
with us the French railways and the real problem they
present to finances in France. He anticipates an increase
in rates of 25 percent, to be made effective the first of
January. In order to overcome thedeficit of the railways
they must either raise the rates or there must be an in-
crease
234
- 3 -
crease in taxes to permit the Treasury to cover the def-
icit of the railways. It has been considered just to
raise the railway rates since France already has high
taxes but comparatively reasonable railway rates.
END MESSAGE.
BULLITT.
EA:LWW
BECEINED
TEST OI you
TRUZA3RT wwo
- - at - -
alt to
235
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: November 10, 1937, noon.
NO.: 1582
RUSH FROM COCHRAN,
This morning at 11 o'olock I visited the Bank of
France. There was considera de demand for the dollar,
and by that hour there had been no operations either in
dollars or sterling by the French control. At the Bank
it was the opinion that the dollar scare was abating banks and that
an importan cause was the widely publicized shipment of
gold from the United States.
The French stabilization fund as of this morning
contained in gold and foreign exchange approximately
eleven and one-half billion francs. This amount of for-
eign exchange holdings includes the Swiss franc proceeds
of the recent loan to the French railways from the French
banks; however either today or tomorrow this amount will
be converted into gold. In a previous telegram I reported
that 8. gain of three hundred fifty-five million French
france of foreign exchange was made by the
control last Thursday. The control gained forty-four mil-
lion francs on Friday, thirty-two million francs on Satur-
day, three-hundred sixty-two million francs on Monday, and
two hundred fifty-seven million francs on Tuesday.
I sail on the SS QUEEN MARY this afternoon.
BULLITT.
EA:LWW
23S
lw
GRAY
London
Dated November 10, 1937
Rec'd 2:10 park
Secretary of State
Was ington
706, November 10, 6 p.m.
FOR TREASURY FROM BUTTER ORTH.
There is little to add to the information given in
yesterday's telephone conversation. The reversal of the
trand Effected by the statement regarding gold exports
from America has continued. Gold was fixed at 140 shillings
2 pence the premium being reduced to 1 shilling 11 pence.
The demand since fixing has been within reasonable limits.
In the circumstances the dollar has not been particularly
active but the movement into the franc continues.
The rise in British Government securities is worthy
of note and is not merely a result of industrial uncer-
tainties. There are signs that the British monetary auth-
orities are attempting to make credit easy, that they have
taken control of the gilt-edge market and are engineering
the rise in British stocks in the belief that it will have a
beneficial psychological Effect.
KLP
SINGHAM
237
lw
GRAY
Paris
Dated November 10, 1357
Rec'd 2:10 p.m.
Secretary of State
Washington
1585, November 10, 5 p.m.
FOR THE TREASURY.
Trading was quiet on the Exchange market here today
and the pound and the dollar moved within the comparatively
narrow limits of 147.06 to 147.09 29.39 to 29.43 respec-
tively. There was Evidence that ungasiness with respect
to the future of the dollar has considerably subsided.
The security market was more cheerful all around.
Rintes gained about 75 centimes.
BULLITT
Kep