Ask the Scholar

{
    "localId": "28276039",
    "label": "Volume 128, June 7 – June 15, 1938",
    "core": "doc",
    "dtoType": "document",
    "citationUrl": "https://catalog.archives.gov/id/28276039"
}

{
    "id": "28276039",
    "sourceUrl": "https://catalog.archives.gov/id/28276039",
    "contentType": "document",
    "title": "Volume 128, June 7 – June 15, 1938",
    "citationUrl": "https://catalog.archives.gov/id/28276039",
    "collections": [
        "Henry Morgenthau, Jr. Papers",
        "Diaries of Henry Morgenthau, Jr."
    ],
    "iiifBase": "https://s3.amazonaws.com/NARAprodstorage/opastorage/live/39/2760/28276039/content/presidential-libraries/roosevelt/FDR-MORGEN/589213/md0170.pdf",
    "thumbnailUrl": "https://s3.amazonaws.com/NARAprodstorage/opastorage/live/39/2760/28276039/content/presidential-libraries/roosevelt/FDR-MORGEN/589213/md0170.pdf",
    "largeImageUrl": "https://s3.amazonaws.com/NARAprodstorage/opastorage/live/39/2760/28276039/content/presidential-libraries/roosevelt/FDR-MORGEN/589213/md0170.pdf",
    "imageCount": 2,
    "hasImages": true,
    "source": "import",
    "hasTranscription": false
}

{
    "url": "https://catalog.archives.gov/id/28276039",
    "naId": 28276039,
    "levelOfDescription": "fileUnit",
    "recordType": "description",
    "ocrSource": "nara-archive"
}

{
    "seq": 2,
    "pageIndex": 0,
    "type": "document",
    "url": "https://s3.amazonaws.com/NARAprodstorage/opastorage/live/39/2760/28276039/content/presidential-libraries/roosevelt/FDR-MORGEN/589213/md0171.pdf",
    "mediaId": "a527b5220ef90fbe",
    "ocrText": "LL Times Wookly Business Index\nWeight\nJune 4 Tk.\nChange\nintemebile Production\n.03\n33.0\noff 12.9\nSteel Ingot\n.\n.10\n33.3\noff 6,8\nElectric Power\n-\n.49\n89.4\noff 1.1\nlamber\n.\n.06\n60.1\nunch.\nMiscellaneous Carloadings\n.19\n65.0\nup 1.2\nAll Other\n#\n.08\n78.8\nup\n,9\nGetton Mill Production\n.05\nOn basis of available data, EXT business index in June 4 vk.\nis off 1.2 from prev. wk,\nEast work:\nIII index of auto production in June 11 wk. rose to 41.2\nfrom 33.0.\nHope fing stemal\nin The hummer\n-\nRegraded Uclassified\n262\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE June 10, 1938\nSecretary Morgenthau\nTO\nFACM\nMr. Heas DR\nSubject: Factors influencing the recent upturn in commodity\nprices\nThe rise In prices of sensitive commodities which has\nduring the past week appears to have a more substan-\n[30] biste than previous temporary upturns, since it derives\nto strength in part from actual improvement in prospective\nmay conditions for B. number of commodities as well B.S from\nindications of B. changing sentiment toward the general trend\n= rices.\nfollowing the low point reached on May 31, the Dow-Jones\ninter of counodity futures prices has risen by 11. percent, with\nquotically All sensitive commodities sharing in the improve-\nwent. With the exception of the M-percent rise caused by the\numpuncement of the recovery program in April, this 1s the\nonly important price upturn since the Austrian crisis early\nin birth set in motion a chain of deflationary influences.\nIt is not possible to say with certainty that this rise\nwrite the actual turning point in the price trend, since for-\nAIM deflationary influences may again become 2 depressing\nFrom the standpoint of the domestic situation, how-\nstate, several things point toward this conclusion.\n(1) Production curtailment for a number of com-\nmodities should soon exert & strengthening influence\non commodity prices,\n(2) The widespread belief in e fall business\ninturn may lead to anticipatory buying of commodi-\nties some time in advance.\n(3) The belief that deficit spending and\nconetary expansion will sooner or later operate to\n1155 commodity prices will encourage further buying\nand tend to perpetuate & rising price trend.\n(N) A direct stimulus will soon be given to\nprices by Government purchasing of materials under\nthe spending program, and by an increase in con-\nsumer purchases resulting from W.P.A. and relief\nexpenditures.\nRegraded Uclassified\n263\nSecretary Morgenthau - 2\nCauses of the recent unturn\nA combination of influences has brought on the rise in\ncommodity prices during the past week:\n(1) The momentum of the previous decline had\ncarried many prices into over-sold conditions,\nmaking them quickly responsive to a change in sen-\ntiment.\n(2) A tendency has recently become evident in\nthe security and commodity markets to ignore cur-\nrent depressed business conditions and center\nintention on the more optimistic fall outlook.\n(3) Rumors of possible inflation moves or\nfurther devaluation of the dollar have been 8. fac-\ntor in the commodity markets. Such rumors, which\nare characteristic of a rising market, may con-\ntribute to a further upturn.\n(4) A more important influence is the feeling\nthat each week brings nearer the time when\nGovernment spending will become a very real factor\nin commodity prices.\n(5) In view of these, and other factors, the\nsentiment is gaining ground that commodity prices\nare about at bottom.\n(6) An improvement in the statistical posi-\ntions of 8. number of industrial raw materials, due\nto production control or export restrictions, has\nbeen a strong factor in the more bullish sentiment.\n(a) A drastic curtailment is under way\nin copper production, with Kennecott shut-\nting down completely for at least a month,\nand other companies sharply reducing pro-\nduction.\n(b) Export quotas on tin have again\nbeen reduced, the International Tin\nCommittee having out third-quarter quotas\nto 45 percent of standard allotments,\npart of which, for the time being, will\ngo into a buffer pool (\"ever normal gran-\nary\" principle).\n264\nSecretary Morgenthau - 3\n(c) Rubber quotas for the third ouar-\nter have been cut to 45 percent of standard,\nas compared with 60 percent for the second\nquarter, which provides the market with the\nsmallest quarterly supply of rubber in many\nyears.\n(d) Lead and zinc productions have\nbeen further curtailed as a result of re-\ncent unprofitable prices.\n(e) Crude oil production has been\ndrastically curtailed, which has caused a\nfirming of the price structure for gaso-\nline.\n(f) Total visible stocks of all cattle\nhides and leather at the end of April\nshowed a reduction to the smallest total\nfor that month in 17 years.\n(7) Curtailed production will continue to be\na bullish factor for a considerable time after\nprices improve, owing to the slow response of pro-\nduction to prices, just as excessive production\ncontinued far beyond the drop in prices last spring.\n(8) While the agricultural price situation con-\ntinues apparently unfavorable, owing to excessive\nsupplies, the fact that prices for certain major\ncrops have declined to, or below, the mandatory\nGovernment loan levels tends to put a bottom under\nthem.\n(a) The decline in cotton has carried\nit well under the 8.32-cent level, which\nis the minimum mandatory loan on the new\ncrop, suggesting that part of the crop will\nbe taken off the market by the Government\nunder loans, unless prices improve.\n(b) Wheat prices, before their recent\nupturn, had declined to the minimum loan\nlevel.\n(9) Recent reports of crop damage to wheat,\nand of unfavorable progress of the cotton crop,\nhave had some bullish influence on prices.\n265\nREB\nTELEGRAM SENT\nGRAY\nJune 10, 1938.\n6 p. m.\nAMLEGATION\nBA GKOK (SIAM)\n17\nYour 12, May 28, 1 P. m.\nPlease reply in the name of the Secretary of the\nTreasury substantially as follows to the communication\nfrom the Government of Siam.\nThe current practice of the United States Treasury is\nto purchase silver other than new production only in the\nform of good delivery bars bearing the stamp of a recog-\nnized refinery located in the United States. Such\npurchases are for delivery the day of the purchase, or\nthe day following the purchase at the United States Assay\nOffice in NEW York, or United States mints at Denver or\nSan Francisco, The price paid for such silver is fixed\nEVERY day, the price today being 43 cents per ounce ,9995.\nIf, as is supposed, the silver is in the form of\nSiamese coins now in Siam, no purchase could bE con-\nsummated before the lapse of considerable time, owing to\nthe necessity of shipment and of converting the coins into\nRegraded Uclassified DU:\n266\nREB\n2-#17, To Bangkok, June 10, 6 pame\ninto fine bars. If, however, the Siamese Government is\ndesirous of avoiding the above-mentioned delay in dis-\nposing of a portion of the silver mentioned, the repre-\nsentative of the Siamese Government in Washington could\nbE instructed as to the reasons for the request and\nauthorized to discuss it with the United States Treasury.\nShould the Siamese Government wish to buy gold from\nthe United States Government with the proceeds of such\nsales, dus consideration would bE given to such applica-\ntions at the time they were received.\nHULL\n(HF)\nEA:FL:DJW\nFE\nRegraded Uclassified\nour\nTO:\nMRS. klotz\n267\nI attach hereto for the Secretary's\nLes, and for his notation if you\nconsider it advisable, a memorandum\nprepared by Mr. Woolf, Acting Chief\nof the Intelligence Unit, covering\nthe several conferences held, in COM-\npliance with the Secretary's in-\nstructions to me, withrelation to\nthe matter recently presented to the\nSecretary by Governor Stark of\nMissouri.\nGovernor Stark expressed himself to\nme as being entirely satisfied with\nthe manner in which our investigation\nis proceeding.\nFrom: MR. GRAVES 6/14/38\nRegraded Uclassified\n268\nMEMORANDUM\nJune 11, 1938.\nGovernor Lloyd C. Stark, of Missouri, when in Washington\non June B, 1938, called on the Secretary of the Treasury in\nregard to an investigation being made by Special Agent Rudolph\n6. Hartmann and Internal Revenue Agents L. B. Sullivan end P. L.\nMcGrath with respect to impounded funds of a number of insurance\ncompanies operating in Missouri, part of which funds was die-\nbursed through Robert J. Folonie and Charles R. Street, who\nserved as trustees for a number of insurance companies.\nThis investigation was instituted as the result of infor-\nmetion secured by Revenue Agents in conducting an examination\nof the returns of Charles R. Street, indicating approximately\n$100,000, representing money paid by seventeen insurance com-\npaniés in connection with litigation, had passed through his\naccounts. Although Mr. Street claimed that he was not the re-\ncipient of the money, he refused to give the names of the per-\nsona who had received it,\nIn accordance with the direction of the Secretary, Mr.\nHarold N. Graves, Special Assistant to the Secretary, Mr. John\nR. Kirk, Deputy Commissioner, Income Tax Unit, Messrs. M. H.\nDinneen and J. C. Corbley, Auditors, Special Ad justment Section,\nand Mr. W. H. Woolf, Acting Chief, Intelligence Unit, reported\nat the Secretary's office at 10:00 a.m., June 9, at which time\nthe persons mentioned were introduced to Governor Stark by the\nSecretary, who also stated that Mr. Graves would act in his\nstead in conducting any further conferences, and that the\nGovernor might expect full cooperation in every way practicable.\nThe Governor was informed on this occasion that as the\nAgents who were conducting the investigation had not arrived in\nWashington, the Department was not aware of the facts so far\ndeveloped end therefore was not in a position to discuss the\ncase intelligently. The Governor was informed by Mr. Graves\nthat he would be contacted later when the matter could be gone\ninto further. On this occasion the Governor also stated that\nMr. Morris M. Milligan, United States Attorney, Kansas City,\nMissouri, would be in Washington and would attend the con-\nference.\nRegraded Uclassified\n283\n20 11:30 a.m., June 9, Special Agent Hartmenn and Internal\nRevenue Agent Sullivan reported at Mr. Graves' office in the\nSureet, et which time there were present also Mr. Harold N.\nDraves, Vr. John R. Kirk, Mr. James V. Carter, Head, Special\nBloatment Section, Mr. Lawrence J. Bernard, Assistant to the\nGeneral Counsel, Mr. M. E. Dinneen, Mr. J. C. Corbley, Mr.\nA. Buswell, Read, Fraud Division, Intelligence Unit,\nand =.P. 2. E. Woolf, Special Agent Hartmann outlined what had\nbeen Jone in connection with the investigation, but stated\nthat they were then in the midst of the examination and had not\n\\|Relosed any facts which would warrant a conclusion 08 to who\nhad received the funds mentioned in the insurance company mat-\nterm.\n-\nfurther conference was held in Mr. Graves' office at 1:30\njoin, June 9, at which time there were present Mr. Graves, Mr.\ngles, Lr. Bernard, Special Agent Hartmann, Internal Revenue\nwith Sullivan, end Mr. W. H. Woolf. This conference was prin-\nsigully for the purpose of discussing the manner in which the\nFurther Investigation should be conducted, whether there was\nEval for additional men, été. It was deemed advisable to allow\nspecial Agent Hartmann and the two Revenue Agents mentioned to\nproceed with their investigation without additional help at this\nuse. Mr. Hartmann was of the opinion that after examining cer-\nthis records in Chicago and New York, he would then be in at better\nmaition to determine the necessity for additional help. Mr.\npartmann advised that the examination would be concluded in\nChicago on or about June 16, and that they would then proceed\nto New York, after which they would report at Washington when\nthe question of assigning additional Agents could be discussed.\nIn accordance with arrangements previously made by Mr.\nInver with Covernor Stark, a further conference was held in the\n*Tice of Mr. Graves in the Treasury Department st 5:30 p.m.,\nDiav 20, at which time there were present Governor Stark, United\nthe Attorney Milligan, Mr. Graves, lir. Kirk, Er. Bernard, Mr.\nVetnens, Mr. Sullivan and Mr. Woolf. The Governor was informed\nthat the investigation had not proceeded to the stage where evi-\nless tsd been obtained indicating to whom the payments were mede\nin exemection with the insurance transactions referred to above.\nCortain pheses of the case were discussed by the Governor, end\nSpecial Agent Hartmann also informed the Governor of information\nwhich he had obtained, not of B confidential nature but 8 matter\npublic record. The United States Attorney stated that if\n#utlafactory evidence wus obtained as the result of the investi-\nextion, no would proceed with the prosecution. The Governor\nRegraded Uclassified\n270\nalso was asked to give any information which he thought would be of\nvalue in connection with the investigation, and he made some sug-\ngestions as to persons who he thought should be interviewed. The\nGovernor was informed by Mr. Graves that it was the purpose of the\nDepartment to cooperate fully in every way practicable. The Gov-\nernor assured him he realized that there was no evidence in the\nDepartment which would be of value to him in connection with any\nproceedings at the present time, but expressed his appreciation\nof the manner in which he had been treated and the time spent in\ndiscussing the case with him.\n- 3 -\nRegraded Uclassified\nAM\n271\nThe National City Bank\nof New York\nESCABLISHED -\nNew York June 11, 1938\n- ------- CITIBANE\nREMUND PLEASE quare INITIALS\nGBR\nThe Honorable Henry Morgenthau, JY+1\nSecretary of the Treasury,\nWashington, D.C.\nMy dear Secretary Morganthau:\nAt Mr. Rentschler's request I take pleasure\nin serring you enclosed latest available copies of memoranda on business\nconditions and commodity markets prepared in this department for circula-\ntion exclusively within out institution. As Mr. Rentschler doubltess\nexplained to you, memoranda similar to these are gotten together on Mon-\nday of each week. At his suggestion I have marked for special attontion\ncertain passages in the past week's commodity memorandum, and will send\nyou both business and commodity memoranda for next week as scon as pre-\npared.\nIn addition to the enclosed reviews, we\nprepare on Friday of each week for Mr. Rentschler's own confidential use\na very brief summary of business and financial developments as we see them.\nThe following reproduction of the summary forwarded to Mr. Rentschler\nyesterday will indicate to you the nature of this reports\nSee no change now or near future in business situa-\ntion. Steel mill operations 26 per cent. Automobiles,\ntextiles sluggish. Curtailment will continue through\nsummer. Retail trade falling further behind last year.\nSummer prospects poor but local retailers say that despite\nlower sales they will have to buy more goode for Fall than\nlast year due to inventory reduction. May building figures\nabove last year for the first time. Applications for\nF.H.A. mortgage insurance continue heavy. The relly in\ncommodity prices this week is encouraging. Commodities\nshould find stronger support through production curtail-\nment but unsafe to count on much advance until business\nturns up and demand rises. High grade bonds continue\nstrong; others steadier except rails which are thin soft.\nOpposition of unions to wage outs is blooking bill for\nrail loans. Doubt that wage-hour bill if passed will\nhave any immediate effect on business. Banks had tempor-\nary pickup in loans to dealers on Governments; will wash\nout after quarter date financing. Business loans still\ndeclining.\nRegraded Uclassified\na 272\nThe Honorable Henry Morgenthau, Jr.,\nPage 2.\nIn conclusion, may I add a personal word of\nappreciation of your gracious hospitality to me, in company with\nother economists, on occasion of a conference with members of\nyour staff at the Treasury Department a month ago.\nRespectfully yours,\nGeo. B. Roberts,\nVice President\nRegraded Uclassified\nWORKS PROGRESS ADMINISTRATION\nWALKER-JOHNSON BUILDING\n1734 NEW YORK AVENUE NW.\n273 x\nWASHINGTON, D.C.\nHARRY L HOPKINS\nADMINISTRATOR\nPERSONAL\nJune 11, 1938\nCONFIDENTIAL\nThe Honorable\nThe Secretary of the Treasury\nWashington, D. C.\nMy dear Mr. Secretary:\nHarry has handed to me your confidential\nnote to him of June 9, with regard to surplus com-\nmodities in Cleveland.\nI understand that the Ohio Legislature\nhas appropriated $1,500,000, which will, if it\nclears all legislative barriers, meet the imme-\ndiate situation out there. It constitutes an\nimportant development in forcing the state to\nassume some portion of its responsibilities.\nI assume you have sent the same state-\nment to Secretary Wallace 80 that the Surplus\nCommodities' people can take some action on it.\nSincerely yours,\nAubrey\nDeputy Administrator\nRegraded Uclassified\n274\nGRAY\nEG\nParis\nDated June 11, 1938\nRec'd 9:55 a.m.\nSecretary of State,\nWashington.\n914, June 11, 1 pam.\nFROM COCHRAN.\nREference my 892 of June 8, 10 a.m.\nFrench and German negotiators met yesterday to discuss\n(1) renewal of Franco-German commercial agreement of July 10,\n1937, (2) modifications to commercial exchanges between\nFrance and Austria made necessary by the annexation of\nAustria by Germany and (3) the service of the Austrian\nloans, With reference to latter AGENCE ECONOMIQUE of this\nmorning states that the German Government has officially\nindicated that it does not recognize these loans and that it\nrefused to Effect the SERVICE on them. According to this\nsource the French Government is determined to assume the\nrtestablishment of the SERVICE of the loans but that nothing\nhas yet been decided with respect to the solution that will\nbe proposed in the EVENT that the German Government main-\ntains its refusal. This paper Envisages the regatablish-\nment of the clearing arrangement.\nThe following appears in AGENCE ECONOMIQUE with respect\nto the Haitian 1910 loan.\n(END SECTION ONE)\nBULLITT\nCSB\nRegraded Uclassified\n275\nGRAY\nFS\nParis\nDated June 11,1938\nRec'd 10:30 a.m.\nSecretary of State,\nWashington.\n914, June 11, 1 p.m. (SECTION TWO)\n\"The negotiations which have been going on between\nthe French Government and the Government of Haiti for the\nreimbursement of the 1910 gold loan are about to bE con-\ncluded. In the first place the holders will receive an\namount of 500 paper francs for each bond the only sum which\nthe Government of Haiti recognizes is due by it.\nIn addition a pool will bE constituted which will\nbe maintained by a tax on sach import license of coffee\nfrom Haiti into France.\nThe amount thus furnished will SERVE to remunerate\nthe holders. The total amount which will bE attributed\nto Each one has not yet bEEn determined. It will depend\nupon the duration of the operation of the pool, and this\nduration will be fixed according to the possibilities of\nthe coffee market.\nAccording to certain indications the amount attributed\nto each holder will bE about $20 for a period of ten years\nand $25 for a period of fifteen years.\nThe\nRegraded Uclassified\n276\nFS 2-No. 914 June 11, 1 p.m. from Paris\nThe international price of Haitian coffee is such\nthat the collection of the tax Envisaged may bE made\nwithout giving rise to an increase in the price of\ncoffee on the Havre market.\"\n( END !IESSAGE)\nBULLITT\nCSB\nRegraded Uclassified\n277\nGROUP MEETING\nJune 13, 1938.\n10:15 a.m.\nPresent:\nMr. Taylor\nMr. Oliphant\nMrs Klotz\nMr. Gaston\nMr. Haas\nMr. White\nMr. Gibbons\nMr. Lochhead\nMr. Upham\nMr. Bell\nMr. McReynolds\nDliphant:\nJulius Henry Cohen filed a motion for a reargument\nof the Port Authority case on the ground that these\nemployees affected by that decision, since their\ntaxes would go back to 1926, had been arbitrarily\ndealt with by the Supreme Court, and in effect ....\n(words not understood) .. the Court on that question\nthat's up between Hughes and Wallace; and second,\nand more important and rather historic, on the ground\nthat Court decisions in general ought not to be\nretroactive. And that motion will come on for\nargument at the opening of the October term, and in\nthe meantime the Department of Justice has joined\nthe stipulation staying the mandate in the previous\ncase. So the whole thing is put on ice until October.\nH.M.Jr:\nWell, it will be pleasant ....\nOliphant:\nWhat?\nE.M.Jr:\n... for the summer.\nOliphant:\nYes. Well, it certainly relieves us of B lot of heat.\nH.M.Jp:\nAll right.\nOliphant:\nTakes the heat off of us.\nAnd then, Friday we won the British American Tobacco\ngold case in the District Court.\nE.M.Jr:\nOh, grand.\n011phant:\nThat's our last big case.\nH.M.Jr:\nGrand. Was that Taft? Who defended that - who was\ntheir counsel?\nRegraded Uclassified\n278\n-2-\nOliphant:\nWell, they were suing the Federal Reserve Board -\nthe Federal Reserve Bank of New York. That was a\nbunch of gold that they had in this country and\nsurrendered under protest and then tried to get it\nback.\nLochhead:\nWas that Hatfield that tried it for the British\nAmerican Tobacco?\nTaylor:\nHartfield.\nOliphant:\nYes, that's right, Hatfield handled it.\nLochhead:\nYes.\nOliphant:\nI mean he argued it.\nH.M.Jr:\nHatfield or Hartfield?\nOliphant:\nHartfield. In fact, they took depositions in London.\nHe went over there.\nH.M.Jr:\nAnything else?\nOliphant:\nWe're hopeful that they won't appeal the case in the\nDistrict Court.\nH.M.Jr:\nO.K.?\nOliphant:\nThat's all.\nH.M.Jr:\nHerbert?\nGaston:\nI haven't anything, except Harry Butcher's office\ntold me that Columbia had dropped any broadcasting\nhook- - chain hook-up.\nH.M.Jr:\nThat's all right.\nGaston:\nThat's all.\nGibbons:\nNothing.\nH.M.Jr:\nAre you looking into these bids on these ten airplanes\nfor Coast Guard?\nGibbons:\nThey got - the Sikorsky is the lowest bidder now,\nand Captain Chalker's outfit hasn't finished going\nRegraded Uclassified\n279\n-3-\nthrough the bids to see who's complied with the\nspecifications.\nB.M.Jr:\nWell, when they're ready, would you let Mac know,\nand I'd like to see them. How much are they under?\nGibbons:\nOh, quite a way.\nH.M.Jr:\nHow much? Do you know?\nGibbons:\nWell, on the - for one plane there is a spread, I\nthink, of about twenty-five thousand, and on the\nothers it doesn't amount to quite that much - that's\nin a group of seven.\nH.M.Jr:\nWhen you're ready, will you let me know?\nGibbons:\nYes. It's quite an amount.\nH.M.Jr:\nAnything else?\nGibbons:\nThat's all.\nMcR:\nI had Peoples get hold of Chalker Friday and get in\ntouch with the Mail Aeronautics Bureau to get the\nanalysis of their bids on the same type of planes,\nso whenever you have the Coast Guard boys in - I\ntold Peoples not to go any further with the thing,\nbut just to get the background on 1t, and I think\nyou'll find he'll have a good deal of information\non it.\nGibbons:\nThey claim they haven't got the landing that this\nHall Aluminum have, and all that; but nevertheless,\nI told them to let me see the thing before they\npass it.\nH.V.Jr:\nGeorge?\nHaas:\nI have B. few little things,\n(Hands sheet of Surplus Commodities figures\nto Secretary)\nH.K.Jr:\nIs that new?\nHaast\nUh-huh, the last column.\nRegraded Uclassified\n280\n-4-\nH.M.Jr:\nLet's see, what did they buy? They bought butter,\ncabbage, cotton fabric. What's this, tobacco?\nHaas:\nTobacco. Not a very balanced diet.\nH.M.Jr:\nThis is Surplus Commodities. Tobacco, rice. Are\nyou doing anything on this, getting anywhere on it?\nHaas:\nWell, on that particular thing I haven't been doing\nanything - on those particular figures, because you\nreally can't tell much about ...\nH.M.Jr:\nI mean is Parran getting anything?\nBaas:\nWell, Parran is - that's another point. I called\nDr. Parran and I asked him - told him I thought he\nmight want to send someone out with Miss Lonigan.\nHe said, \"Very much so.\" So he sent Dr. Palmer\nout. And Dr. Stanley was sending somebody out,\nbut I don't know just - Saturday she hadn't selected\nthe person, but someone was to go on Sunday evening\nwith Miss Lonigan from Dr. Stanley's bureau. Then,\nDr. Parran said he would like to see you, and Mrs.\nKlotz is working on that.\nH.M.Jr:\nSee him at 11:30.\nKlotz:\nYou gave him an appointment.\nH.M.Jr:\nMake it 11:30.\nKlotz:\nYou gave him tomorrow.\nH.M.Jr:\nI'd rather do it today.\nKlotz:\n11:30.\nBaas:\nThe other thing, you perhaps saw in the press over\nthe week-end that the Dodge figures for the first\ntime, first month - May - were above a year ago.\nH.M.Jr:\nNo, I didn't see that.\nYou'll be here at 11:30, too, see?\nHaas:\nYes.\nRegraded Uclassified\n281\n-5-\nHere's the first of the month this year - there's\nlast year's and there's this year's.\nB.V.Jr:\nYes.\nHass:\nAnd here's residential last year; It's holding up.\nquite a sharp increase from April, you see, of this\nyear - April of this year compared to May of this\nyear, That, in view of some of the other series,\nhasn't done badly. There's a big project up in New\nYork, of course, but I know the area and from the\nfigures the Government project and even residential\nis holding up well.\nH.M.Jr:\nWell, I made a. little statement last week to myself\nthat we had had a drouth now for fourteen months,\nbeginning with April 1, '37; I put my hand out, I\nfelt & couple drops of rain. Maybe this little .....\nraincloud will blow over, but if the thing keeps\non the way it is for another two weeks\nNow, all right, Harry, don't - I'm not - this is\nfor myself. And I'll say this. You economists -\nnobody forecasted this thing and no one has explained\nit properly, and when this thing begins to turn\neverybody is going to not understand until it has\nturned. And you cite me remarks by a dozen people,\nand there's nobody, I don't care who it is - I dare\nanybody to show me that this thing WES forecast in\nwriting. Not by word of mouth, but in writing.\nAnd I'm saying this because I want to watch this\nthing. I'm simply saying I felt a couple drops of\nrain. Maybe this little cloud is going to pass over.\nI'm not making any forecasts. But there are certain\nthings happened since the 31st which I think bear\nwatching, and I'm watching. Nobody has to believe\nme, nobody has to follow me, nobody has to pay any\nattention to me, but\nHaas:\nThere are certain definite fundamental things.\nH.M.Jr:\nBut I'm very much interested, and I think there are\ncertain things happening that are most - I think the\nmost intelligent non-partisan bulletin which I read\nwas the National City Bank bulletin of June. And I\ncalled up Mr. Rentschler and he's sending me his\nthing, he sald he's never let anybody see before - the\n----\n(see diary entry of 6/22/38, newspaper reporte of President's\npress conference of 6/21/38, quoting President's use of this\nrain-drop story.)\nRegraded Uclassified\n282\n-6-\nstuff he gets every Friday from Mr. - who's the\nVice President?\nHaas:\nRoberts.\nH.M.Jr:\nAnd then their commodity man. What's his name?\nHaas:\nI don't know the commodity man.\nH.M.Jr:\nWell, he's got a commodity man; somebody told me\nhe's the best commodity man in America.\nBell:\nYou get his reports, George.\nHaas:\nOh, is that who that is? I read them.\nH.M.Jr:\nEverybody can shake their head and everything else,\nbut I do say that since the first of - the 31st,\nthere's something very definitely going on. Now,\nwhether this little raincloud will go by and we'll\nwait another fourteen months, I don't know, but\nHaas:\nI've got one of his bulletins - you might be\ninterested - sounds just about the way you sound\nnow.\nH.M.Jr:\nWell, it will come today.\nKlotz:\nIt's here.\nH.M.Jr:\nIs it here?\nKlotz:\nYes.\nH.M.Jr:\nWould you mind getting it?\n(Mrs Klotz goes out)\nH.M.Jr:\nSee, certainly I'm going to do everything I can.\nI was responsible for that one-page story in the\nWall Street Journal, Harry, where everybody was\nsaying that the automobile factories were going to\nshut down for two months, and I asked them to check\nup and they found they were not going to shut down\nfor two months. They said - the publicity, all the\nstories were that for two months they're going to\nshut down. So I asked the publisher of the Wall\nRegraded Uclassified\n283\n-7-\nStreet Journal whether he wouldn't check it.\nHe found they wouldn't - the head of Chrysler\nfor the first time has turned; they're lengthening\ntheir schedules; they're getting orders; they can't\nunderstand it. As I say, the raindrops are there.\nNow, it may be a little cloud which will pass over,\nmaybe we'll come to another 14 months; but I'm watch-\ning it the way I never watched it before.\n(Mrs, Klotz returns with material\nfrom National City Bank)\nH.M.Jr:\nWell, I'll leave this until afterwards.\nOliphant:\nIn that connection, somebody ought to take pretty\nseriously Stuart Chase's article in the Survey\nGraphic, which was reprinted in Reader's Digest.\nIt's called \"The Case Against Home Ownership\" and\nif there's an answer to it\nH.M.Jr:\nAgainst home ownership?\nOliphant:\n\"The Case Against Home Ownership.\"\nB.M.Jr:\nYou mean for renting and\nOliphant:\nAnd - yes - and not for home ownership. And it's a\nvery deadly article. Since it's been reprinted in\nthe Reader's Digest, it's got a very wide circulation.\nH.M.Jr:\nAs I say, I'm just passing this for anybody's informa-\ntion, and disregard it and laugh at it and anything\nelse, but I'm watching the thing in a way I never\nwatched it before. As I say, anything good or bad,\nlet me have it.\nHaas:\nUh-huh.\nH.M.Jr:\nBut it was interesting the way the Wall Street Journal\nwent out and they just killed this story that all the\nfactories are going to shut down for two months.\nHaas:\nYou know, that's what they've also done there, Mr.\nSecretary. None of the big companies have felt\nthey're going to close down. Now they have revised\ntheir production plans for July upward on the basis\nH.M.Jr:\nWell, I asked them the middle of last week. Did you\nsee the letter from Kellar, president of Chrysler?\nRegraded Uclassified\n-8-\n284\nHaas:\nYes, sir.\nTaylor:\nOn this possibility of railroad legislation, the\nlabor group is trying to combine this legislation\nwith this bill that they have in for changing the\nmethod of handling retirement funds, and so on.\nAs far as we can see, there is absolutely no\nconnection between the two. And I said I would\nlook it up again to be sure that I was right in\nmy impression of that. But apparently Harrison\nis trying to find some way in which\nH.M.Jr:\nPat?\nAaylor:\nNo, George Harrison.\nso that he can support\nwhatever little bill they may get through for\nloosening up the R.F.C. requirements.\nH.M.Jr:\nShould I do anything about it?\nTaylor:\nWell, I think that I'll have another check to be\nsure that our position is as I think it is, and\nthen I'll report back to you about it. But as\nfar as is apparent, there is absolutely no connec-\ntion.\nMcR:\nCouldn't possibly be.\nTaylor:\nWhat?\nMcR:\nCouldn't possibly be.\nBell:\nAnd the retirement bill is not in accord.\nH.M.Jr:\nI'm just to sit tight, I don't have to do anything.\nTaylor:\nUntil I report back to you. But at the minute I\nthink we'll say what I'm telling you, that there\n18 absolutely no connection between the two.\nH.M.Jr:\nAnything else?\nTaylor:\nOn Commodity Credit, there will be a meeting which\nwill be held today to pass on the wheat situation.\nH.M.Jr:\nI see.\nTaylor:\nThere are certain aspects of that which I don't\nRegraded Uclassified\n-9-\n285\nthink there is anything we can do about, but -\nthe point being the amount of farm storage for\nwheat which will be used for this wheat loan.\nThere are apparently some minor difficulties\nthere; first, as to the standards which will be\napplied, and the actual availability of adequate\nfarm storage for wheat, because farm storage for\nwheat is an entirely different kind of thing than\nfarm storage for corn, for example. I think you\nwill know more about it - maybe tomorrow you may\nbe brought into it to express an opinion.\nBell:\nWell, we set up more money for administration of\nthe Warehousing Act SO they could put this thing\ninto licensed warehouses.\nTaylor:\nWell, there is quite a movement for farm S torage\nof wheat.\nBell:\nI know, but\nMcR:\nIt isn't safe.\nTaylor:\nSee? And\nMcR:\nWith farm torage, it's hard to keep it safe. Dampens\nthe wheat.\nTaylor:\nAnd the farm storage standards to be prescribed\nby the county agents, apparently, or administrative\ncounty units. Maybe that's possible, but I wouldn't\nknow. But I do know that storage of wheat on the\nfarm is an entirely different matter than the\nstorage of corn, and if those standards are not\nadequate, why, you can go to the cleaners on the\ndeterioration of wheat as quickly as anything I\nknow.\nH.M.Jr:\nAre you watching it?\nTaylor:\nTrying to.\nH.2.Jr:\nAll right, anything else?\nTaylor:\n(Nods no)\nUpham:\nYou had 8 telephone call this morning from Congressman\nMcClellan of Arkansas and he wants to come down and\nRegraded Uclassified\n-10-\n286\nhave a conference with you and Commissioner\ndelvering to report to you the situation with\nrespect to the Internal Revenue Collector down\nthere who is managing Mrs. Caraway's campaign\nfor the Senate against him. I told him I'd call\nhim back.\nH.M.Jr:\nAll right. What - have we 10:30 tomorrow, Mrs.\nKlotz?\nKlotz:\nYes.\nH.M.Jr:\nFree?\nKlotz:\nThat is, if Parran is coming today.\nif\nH.M.Jr:\n\"ill you tell Mr. Helvering?\nUpham:\n10:30 tomorrow?\nH.M.Jr:\nYes.\nUpham:\nAnd here's this document that you asked me to put\non your desk this morning.\nH.M.Jr:\nAnd then, if you will arrange to have Accles and\nRansom for lunch tomorrow - and Taylor for lunch\nand yourself for lunch.\nUpham:\nSurely.\nH.M.Jr:\nTomorrow. Anything else?\nUpham:\nNo. I may have to explain one or two little things\nin there.\nH.M.Jr:\nAll right, we'll see how we get along.\nHarry?\nWhite:\nHere's a table that will be of a little interest.\nThe first three sentences give it.\nH.M.Jr:\n(Reads table) French exports are up, aren't they?\nWhite:\nWell, they've had a pretty substantial depreciation\nsince ...\nRegraded Uclassified\n287\n-11-\nH.M.Jr:\nPardon me?\nWhite:\nWell, France has devalued substantially since then.\nH.M.Jr:\nThat's in currency and not in tonnage.\nwhite:\nThat's in currency; this is always in currency.\nH.M.Jr:\nYou couldn't give me a ....\nWhite:\nVolume figure? Yes.\nH.M.Jr:\nWell, and also the net, so that it shows. You've\ngot that - I guess that's a net.\nWhite:\nThe balance of trade.\nH.M.Jr:\nYes.\nWhite:\nIt's there.\nH.M.Jr:\nAnd I told the President you'd have for me at noon\ntoday a memorandum on the Japanese financial situation.\nWhite:\nWell try to get it out.\nH.M.Jr:\nI told him.\nWhite:\nYou've already told him?\nH.M.Jr:\nI told him I'd have it at one o'clock.\nWhite:\nWe're working on it.\nH.M.Jr:\nAll right.\nNo you mind taking this back, and I tell you what\nI'd do. I've planned anyway to go over with you -\nI'm warning you - the export thing, go over it.\nI haven't looked at the import-export business for\na long time. Anything else?\nWhite:\nNo, that's all. The rumors, as you see, are\nincreasing on gold, will continue to increase.\nH.M.Jr:\nWhy?\nWhite:\nWell, it's inevitable, so long as the recession\nRegraded Uclassified\n288\n-12-\ncontinues and deepens, that it will occur to more\nand more people that that may be 8. step, unless\nsome contrary action is taken.\nH.M.Jr:\nWell, I was very interested in - Kiplinger, for\ninstance, told me that the Vice President of\nGeneral Motors, who was in to see us, called on\nMr. Kiplinger to try to sell him on the proposal\nto increase the price of gold.\nOliphant:\nWas that Gibson?\nTaylor:\nMooney and Smith.\nH.M.Jr:\nMooney and Smith were in to see us. We tried to\nmake them come out with what they wanted to say,\nbut they wouldn't say. But Kiplinger says, \"You\nhaven't - don't have to look far. After all, Mr.\nMooney came around and tried to sell it to me.\"\nSo - I mean with their offices all over they can -\none day they can start the rumor in London, General\nMotors; the next day, start it in Germany; the\nnext day, start it in Paris, start it in Barcelona,\nevery place they've got offices.\nOliphant:\nHe's in charge of the export business.\nH.M.Jr:\nOh yes, entirely. With a plant in England, one in\nGermany. So I mean you won't have to look much\nfurther.\nWhite:\nExcept that it has a broader base than that now.\nIt's coming from other\nTaylor:\nHe still wants an open gold market.\nWhite:\nBut for the reason, too - at the present that's\nwhat he says - that's what he told the President.\nH.M.Jr:\nBut then when I sent Smith back to see Harry, to\npin him down - that's just window dressing.\nWhite:\nThat's right.\nH.M.Jr:\nWhat they want is to raise the price of gold.\nOliphant:\nWho is Smith?\nRegraded Uclassified\n-\n289\n-13-\nH.M.Jr:\nPardon me?\nOliphant:\nwho is Smith?\nH.M.Jr:\nHe's - I don't know whether he's an economist or\nstatistician.\nWhite:\nde's neither.\nH.d.Jr:\nHe's the fellow that plays around with foreign\nexchange and gold for Mooney, and has a staff.\nHe's directly under Mooney. Whole series of\nletters. What is he? Is he a statistician?\nWhite:\nHe says he's not an economist.\nH.M.Jr:\nForeign exchange.\nWhite:\nHe says he deals with foreign trade, and I gather\nhis chief experience is that of an export sales\nmanager.\nTaylor:\nHe's a good one, too?\nB.M.Jr:\nWho, Smith?\nTaylor:\n(Nods yes)\nWhite:\nVery confused on\n....\nH.M.Jr:\nAwfully confused.\n\"nything else, Harry?\nWhite:\nNo, that's all.\nLochhead:\nI think it was just about last April they were going\nto bring criminal procedures against you for buying\ngold at $35 an ounce.\nThe markets haven't developed anything since the\nearly figures.\nH.M.Jr:\nYou saw Mr. Sloan's very pessimistic statement today\non the outlook for '39?\nLochhead:\n(Nods yes)\nRegraded Uclassified\n230\n-14-\nBell:\n\"hat are we going to do about investing Government\nlife insurance funds?\nH.M.Jr:\nOh, I'd like to sit down and talk to you about it\n8 little bit. I don't want to do it just today.\nI've sent Harris up to New York to try to get the\nstory of what's behind this tremendous turnover that\ntook place last week, something which I don't under-\nstand. I mean I think the situation is so much\nbetter than they will even tell me, see? And -\ncouldn't I, if I wanted to, give those fellows a\ntwo percent note for the time being?\nBell:\nI think 90.\nH.M.Jr:\nWhat?\nBell:\nI think so.\nH.M.Jr:\nBecause I think that we might need 8. little money\nmaybe in August to do a little buying. When is\nthat money available?\nBell:\n15th.\nH.M.Jr:\nI'd give them a two percent note and keep that there,\nput it in the \"kitty.\"\nBell:\nAll right.\nH.M.Jr:\nI think it's a mistake to buy now, for their sake.\nI think we'll buy low later on.\nLochhead:\nVery easy to buy\n....\nH.M.Jr:\nI think they'll buy low later on, probably.\nBell:\nProbably when you do buy, unless it's on a declining\nmarket, you ought to sell the Civil Service bonds\nat the same time.\nH.M.Jr:\nYou mean on a rising market.\nBell:\nUnless it's on a falling market. You shouldn't\nsell the Civil Service bonds on a falling market.\nH.M.Jr:\nThere are no orders to sell.\nRegraded Uclassified\n291\n-15-\nBeilt\nNo, but I say if you buy in the market for Government\nLife and the market is stable, then you should sell\nat the same time the Civil Service bonds. That would\noffset it.\nH.M.Jr:\nThat's right. But I'd like to sit tight for a little\nwhile and just watch this thing.\nBell:\nAll right.\nI had a conference with the T.V.A. officials and\nsent you a memorandum on it.\nH.M.Jr:\nOh, their financing?\nBell:\nYes. It's 8 very small amount, but you have no\nauthority tobuy those securities under the section\nunder which they intend to issue.\nH.M.Jr:\nI have none?\nBell:\nNo, sir. So I've suggested, as a way out, that they\nattach an amendment to this deficiency bill - have\nSenator Norris do it on the floor of the Senate -\ncombining the two sections in the Act which give\nthem authority to issue their obligations. It's 50\nmillion dollars in each section. Under Section 15\nunder the old Act you have no authority to buy, and\nthe bonds issued under that section will have the\ncirculation privilege and tax-exemption features.\n*he ones to be issued under Section 15-A you may\nbuy, and they're just like the other obligations\nthat are guaranteed as to principal and interest.\nNow, if we repealed Section 15 and combined the\nauthority with that in Section 15-A, that would\nmake a hundred million dollar revolving fund, and\nyou could buy those securities and refinance them\nin the market.\nH.M.Jr:\nBut they wouldn't have the circulation privilege.\nBell:\nNo, that section would be repealed.\nH.M.Jr:\n\"hat else would you repeal?\nTaylor:\nFull tax-exemption.\nRegraded Uclassified\n292\n-16-\nBell:\nYes.\nH.M.Jr:\nYou still think of that as ....\nBell:\nThey went back to talk to Lillienthal. The only\ndifficulty is the T.V.A. investigation on the Hill.\nDon't know what that would bring up if you brought\nup that amendment on the floor.\nH.M.Jr:\nWell, will you and Mr. Taylor and Mr. Oliphant\nhandle that for me, please?\nBell:\nAll right. I'll know today as to what course they\nwant to pursue.\ni\nH.M.Jr:\nSounds sensible to me. Will the three of you handle\nit?\nBell:\nYes. I've talked to Mr. Taylor before about it.\nH.M.Jr:\nAnything else?\nBell:\nThat's all.\nMcR:\n(Nods nothing)\nH.M.Jr:\nAnybody want to make any suggestions that read the\nspeech in Gaston's office?\nWhite:\nHerman had some.\nH.M.Jr:\nYes.\nWhite:\nOh, you know about them.\nH.M.Jr:\nYes, I know about them.\nHaas:\nI haven't read it. Do I still have the chance?\nGaston:\nYes.\nH.M.Jr:\nYou have a chance to read it, but you won't have any\nchance to make any suggestions.\nHaas:\nO.K.\nH.M.Jr:\nHow about you (Taylor)?\nTaylor:\nHaven't had a chance to read it.\nH.M.Jr:\nAnybody else? Well, if Gaston and White will\nstay now please.\nRegraded Uclassified\n293\nJune 13, 1938.\n10:47 a.m.\nH.M.Jr:\nHello. Hello Ransom.\nRonald\nRansom:\nOver the weekend, rather late Saturday afternoon,\nat my suggestion, Cy Upham gave me a very clear\nstatement of the three points at issue between\nthese three groups that have been discussing bank\nexamination.\nH.M.Jr:\nYes.\nR:\nAnd that 1s perhaps the first time that I have gotten\nclearly, in my own mind, Just exactly what was being\ndiscussed.\nH.M.Jr:\nYes.\nR:\nThat 18 where we were not in agreement with one\nanother.\nH.M.Jr:\nYes.\nR:\nThat memorandum, I passed on by messenger Saturday\nafternoon to Mr. McKee and Mr. Davis, who have been\nrepresenting the Board in the matter.\nH.W.Jr:\nYes.\nR:\nAnd I got it back on my desk from them this morning\nshowing that both of them had been over it.\nH.M.Jr:\nI see.\nn°2\nWe have 8. meeting this morning at eleven thirty.\nMr. Eccles has been out of town for the past three\ndays and Szymczak\nfor B. day or two, and this will be the first time\nwe've had an opportunity to discuss it with the\nwhole Board in the light of where we've gotten to\nat the present time.\nH.M.Jr:\nYes.\nR:\nAnd I would like, after that meeting, to communicate\nwith you, and tell -\nH.M.Jr:\nWhy don't you do it at lunch tomorrow?\nR:\nAt lunch tomorrow.\nH.M.Jr:\nI'll hold it till lunch tomorrow. I won't act\nRegraded Uclassified\n- 2 -\n6 - 294\nuntil I see you and Eccles at lunch tomorrow.\nR:\nThank you very much.\nH.M.Jr:\nI'll see you in plenty of time.\nR:\nAll right, thank you.\nH.M.Jr:\nBut I want your cooperation.\nR:\nAll right.\nH.M.Jr:\nThank you.\nR:\nThanks very much.\nRegraded Uclassified\nTREASURY DEPARTMENT\n295\nINTER OFFICE COMMUNICATION\nDATE June 13, 1938\nSecretary Morgenthau\nTO\nMr. Hase\nFROM\nMeeting held in Secretary Morgenthau's office\non June 13, 1938, at 11:30 a.m.\nSubject: Means for securing adequate food for those on relief\nPresent:\nSecretary Morgenthau\nDr. Parran\nMr. Hass\nSecretary Morgenthau read a list of commodities purchased\nlast week by the Federal Surplus Commodities Corporation, copy\nof which 16 attached. The Secretary remarked that one could\nscarcely call that list a balanced diet.\nSecretary Morgenthau pointed out to Dr. Parran the need\nfor giving some publicity to the food requirements of families\non relief.\nDr. Parran replied that Secretary Wallace was opposed to\ngiving this matter publicity, and added Secretary Wallace had\nstated the reason was that the States and local relief funds\nmight dry up entirely if it was felt the Government was coming\nto the aid by supplying food relief.\nSecretary Morgenthau said he thought Secretary Wallace's\nobjection was more fundamental in that it related to the success\nof the whole program for agriculture in the last five years.\nSecretary Morgenthau stated the President had indicated\nvery strongly that he would not let people starve. But people\nactually are starving, and $100 millions would go a long way\ntoward improving this situation, and more might be spent if\nnecessary.\nSecretary Morgenthau reported he had an idea over the\nweek-end - that the District of Columbia might be used B.B an\nexample in illustrating the inadequacy of B. food supply for\npersons on relief. In the case of the District, the problem\nof State and local relief funds would not be involved, and in\naddition the situation here is about as bad as that in Cleveland.\nRegraded Uclassified\n296\nSecretary Morgenthau - 2 -\nDr. Parran concurred that the Secretary's idea was an\nexcellent one, and stated he would proceed at once to set up\na project to secure the necessary information with regard to\nthe food consumption, etc., for relief families - Dr. Stanley,\nChief of the Bureau of Home Economics, to cooperate with\nDr. Parran on the project.\nDr. Parran favored including some other cities in\naddition to the District in the outline of the proposed\nprogram of study.\nDr. Parran agreed to furnish the Secretary with an out-\nline of the proposed project within the next few days.\n297\nFederal Surplus Commodities Corporation\nSummary of Commodities Procured -\nJuly 1, 1937 to June 8, 1938\n:\nJuly 1,\nApril 28,\nMay 5\nMay 12,\nMay 19,\nTotal\n:\nMay 26,\nJune 2,\nUnit\n1937\n1938*\n1938\n1938\n1938\n:\n1938\n1938\nJuly 1,\nCommodity\nto April 29,\nto May 4,\nto May 11,\nto May 18,\nto May 25,\n:\nto June 1,\nto June 8\n1937\n1938*\n1938\n1938\n:\n1938\n1938\n1938\nto June 8,\n:\n1938\n:\n1938\nApples (Dried)\nPounds\n14,449,700\n144,000\n180,000\n-\n-\n-\n-\n14,773,700\nApples (Fresh)\nBushels\n5,603,648\n46,200\n7,800\n2,400\nI\n-\n-\n5,660,048\nApricote (Dried)\nPounds\n2,990,000\n-\n-\n-\n1\n-\n(\n2,990,000\nBeana (Dried)\nPounds\n52,990,000\n450,000\n400,000\n100,000\n2,090,000\n60,000\n-\n56,090,000\nBeane (Snap)\nBushels\n-\n-\n1\n-\n9,000\n6,480\n-\n15,480\n/\nButter\nPounds\n8,320,208\n918,040\n753,828\n513,712\n663,544\n1,451,152\n1,734,052\n14,354,536\nCabbage\nPounds\n10,167,386\n7,020,000\n5,808,000\n7,272,000\n1,294,000\n1,968,000\n96,000\n33,625,386\nCelery\nCrates\n166,540\n6,570\n20.075\n2,555\n-\n-\n-\n195,740\nCotton fabric\nYards\n629,536\n26,279\n-\n92,000\n400\n-\n237,678\n985,893\nCottonseed oil\nPounds\n9,780,000\n-\n-\n-\n-\n-\n-\n9,780,000\nEgge (Shell)\nCases\n270,164\nI\n-\n-\n-\n-\n,\n270,164\nFlour\nBarrels\n-\n-\n-\n7,000\n3,000\n124,800\n-\n134,800\nGrapefruit\nBoxes\n155,499\n43,000\n69,000\n48,000\n37,500\n42,042\n18,500\n418,541\nOrapefruit juice\nCases\n-\n-\n40,500\n4,660\n-\n-\n-\n45,160\nGrapes\nTons\n7,915\n-\n-\n-\n-\n-\n-\n7,915\nMilk (Dry skim)\nPounds\n8,642,250\n-\n-\n-\nI\n7,940,000\nI\n16,582,250\nMilk (Fluid)\nQuarts\n8,082,385\n459,090\n472,325\n482,584\n494,587\n477,520\n497,184\n10,965,675\nOnione\nPounds\n3,000,000\n-\n-\n-\n-\n-\n1\n3,000,000\nOranges\nBoxes\n1,563,626\n87,514\n78,972\n49,934\n31,280\n13,860\n10,164\n1,835,350\nFaver bags\nBaga\n-\n-\n-\n-\n-\n8,400,000\n-\n5,400,000\nPenches (Dried)\nFounds\n2,534,000\n,\nI\nI\n-\n-\n-\n2,534,000\nPears (Fresh)\nBoxes\n317,982\n,\n1\n-\n-\n-\n-\n317,982\nPeas (Canned)\nCases\n927,026\n1\n-\n,\n,\n-\n-\n927,026\nPeas (Dried)\nPounds\n6,000,000\n-\nI\nI\n-\n-\n-\n6,000,000\nPotatoes (Sweet)\nBushels\n440,304\n-\n1\n-\n-\n-\n-\n440,304\nPotatoes (White)\nBushels\n4,149,756\n117,325\n63,365\n7,337\n-\n-\n-\n4,337,783\nPotato starch & flour\nPounds\n2,561,720\n280,280\n-\n-\n-\n-\n-\n2,842,000\nPrunes (Dried)\nPounds\n45,105,650\n-\n1,400,000\n-\n-\n-\n960,000\n47,465,650\nRice (Milled)\nPounds\n70,550.000\n3,360,000\n2,080,000\n560,000\n-\n-\n,\n76,550,000\nTobacco\nPounds\n-\n-\n-\n-\n1,000,000\n-\n1,600,000\n2,600,000\nTomatoes (Canned)\nCases\n50,000\n,\n-\n-\n-\n-\n-\n50,000\nTreasury Department, Division of Research and Statistics.\nJune 13, 1938.\na\nDates shown are those reported by Federal Surplus Commodities Corporation. Actually, however, no purchases have been\ncounted twice because of this discrepancy.\nRegraded Uclassified\nTREASURY DEPARTMENT\n298\nWashington\nFOR IMMEDIATE RELEASE.\nPross Service\nMonday, Juno 13, 1938.\nNo. 13-63\nSecretary of the Treasury Morgenthau today announced the final subscrip-\ntión and allotment figures with respect to the current offering of 2-3/4 percent\nTreasury Bonds of 1958-63 and 1-1/8 percent Treasury Notes of Sories A-1943.\nSubscriptions and allotments wore divided among the several Federal Reserve\ndistricts and the Treasury as follows:\n2-3/4 PERCENT TREASURY BONDS OF 1958-63\nFodoral Reservo\nJune notes\nSeptember notes\nTotal\nDistrict\nexchanged\nexchanged\nexchanges\nBoston\n$ 22,296,900\n$ 8,610,550\n$ 30,907,450\nNew York\n405,885,800\n250,970,550\n656,856,350\nPhiladolphia\n4,752,100\n7,219,600\n11,971,700\nClovoland\n5,416,300\n15,896,950\n21,313,250\nRichmond\n5,702,800\n5,160,650\n10,863.450\nAtlanta\n3,083,900\n2,711,900\n5,795,800\nChicago\n73,070,800\n35,698,400\n108,769,200\nSt. Louis\n12,999,200\n2,741,650\n15,740,850\nMinnospolis\n3,247,100\n3,950,150\n7,197,250\nKensas City\n7,831,000\n7,010,950\n14,841,950\nDallas\n5,946,900\n930,600\n6,877,500\nSan Francisco\n18,356,600\n5,342,450\n23,699,050\nTreasury\n3,150,800\n865,000\n4,015,800\nTOTAL\n$571,740,200\n$347,109,400\n$918,849,600\n1-1/8 PERCENT TREASURY NOTES OF SERIES A-1943\nFederal Reserve\nJuno notes\nSoptember notos\nTotal\nDistrict\nexchanged\nexchanged\nexchanges\nBoston\n2,551,000\n5,549,000\n8,100,000\nNow York\n21,659,300\n-212,617,300\n234,276,600\nPhiladelphia\n1,262,300\n3,162,900\n4,425,200\nClovoland\n2,423,200\n3,160,000\n5,583,200\nRichmond\n230,000\n379,400\n609,400\nAtlanta\n275,500\n441,000\n716,500\nChicago\n1,834,700\n3,496,700\n5,331,400\nSt. Louis\n3,620,100\n922,400\n4,742,500\nMinnespolis\n254,500\n117,700\n372,200\nKansee City\n280,000\n750,200\n1,030,200\nDellas\n569,000\n71,000\n640,000\nSan Francisco\n976,500\n909,400\n1,885,900\nTreasury\n17,500\n51,000\n68,500\n$ 36,153,600\n$ 231,620,000\n$ 367,781,600\nTotal June notes exchanged\n$607,893,800\nTotal September notes exchanged\n.....\n578,737.400\nTotal exchanges\n$1,106,631,200\no0o\nRegraded Uclassified\n6-13-38\n299\nFederal Surplus Commodities Corporation\nSummary of Commodities Procured -\nJuly 1, 1937 to June 8, 1938\n:\n:\nJuly 1,\nApril 28,\nMay 5,\nMay 12,\nMay 19,\nMay 26,\nJune 2,\n:\nTotal\n:\n:\n1937\n1938*\n1938\n1938\n1938\n1938\n1938\nJuly 1,\nCommodity\n:\nUnit\nto April 29\nto May 4,\nto May 11,\nto May 18,\nto May 25,\nto June 1,\nto\nJune 8,\n1937\n:\n:\n1938*\n1938\n1938\n1938\n1938\n1938\n:\nto June 8,\n1938\n:\n:\n:\n:\n:\n1938\nApples (Dried)\nPounds\n14,449,700\n144,000\n180,000\n-\n-\n1\n- 14,773,700\nApples (Fresh)\nBushels\n5,603,648\n46,200\n7,800\n2,400\n-\n1\n-\n5,660,048\nApricots (Dried)\nPounde\n2,990,000\n-\n-\n-\n-\n1\n-\n2,990,000\nBeans (Dried)\nPounds\n52,990,000\n450,000\n400,000\n100,000\n2,090,000\n60,000\n- 56,090,000\nSeans (Snap)\nBushels\n-\n-\n-\n-\n9,000\n6,480\n-\n15,480\nButter\nPounds\n8,320,208\n918,040\n753,828\n513,712\n663,544\n1,451,152\n1,734,052\n14,354,536\nCabbage\nPounds\n10,167,386\n7,020,000\n5,808,000\n7,272,000\n1,294,000\n1,968,000\n96,000\n33,625,386\nCelery\nCrates\n166,540\n6,570\n20,075\n2,555\nI\n-\n-\n195,740\nCotton fabric\nYards\n629,536\n26,279\n-\n92,000\n400\n-\n237,678\n985,893\nCottonseed oil\nPounds\n9,780,000\n-\n-\n-\n-\n-\n-\n9,780,000\n2000 (Shell)\nCases\n270,164\nI\n-\n-\n,\n-\n-\n270,164\nflour\nBarrels\n-\n-\n-\n7,000\n3,000\n124,800\n-\n134,800\nGrapefruit\nBoxes\n155,499\n48,000\n69,000\n48,000\n37,500\n42,042\n18,500\n418,541\nGrapefruit Juice\nCases\n-\n-\n40,500\n4,660\n-\n-\n1\n45,160\nGranes\nTons\n7,915\n1\n-\n-\n-\n-\n-\n7,915\nT11k (Dry skin)\nPounds\n8,642,250\n1\nI\n1\n-\n7,940,000\n-\n16,582,250\nMilk (Fluid)\nQuarts\n8,082,385\n459,090\n472,325\n482,584\n494,587\n477,520\n497,184\n10,965,675\nOnions\nPounds\n3,000,000\n-\n-\n-\n-\n-\n-\n3,000,000\nOranges\nBoxes\n1,563,626\n87,514\n78,972\n49,934\n31,280\n13,860\n10,164\n1,835,350\nPaper bage\nBags\n-\n-\n-\n-\n-\n8,400,000\n-\n8,400,000\n1\nPeaches (Dried)\nPounds\n2,534,000\n-\n-\n-\n1\n-\n-\n2,534,000\nPears (Fresh)\nBoxes\n317,982\n-\n-\nT\n-\n-\n-\n317,982\nPens (Canned)\nCases\n927,026\n-\n1\nI.\n,\n-\n-\n927,026\n2025 (Dried)\nPounds\n6,000,000\n-\n-\n-\n-\n-\n-\n6,000,000\nPotatoes (Sweet)\nBushels\n440,304\n-\n-\n-\nI\n1\n-\n440,304\nPotatoes (White)\nBushels\n4,149,756\n117,325\n63,365\n7,337\n-\n,\n-\n4,337,783\nPotato starch & flour\nPounds\n2,561,720\n280,280\n-\n-\n-\nI\n-\n2,842,000\nPrunes (Dried)\nPounds\n45,105,650\n-\n1,400,000\n-\n-\n-\n960,000\n47,465,650\nRice (Uilled)\nPounds\n70,550,000\n3,360,000\n2,080,000\n560,000\n-\n,\n-\n76,550,000\n(\nTobacco\nPounds\n-\n-\n-\n- 1,000,000\n- 1,600,000\n2,600,000\nTountoes (Canned)\nCases\n50,000\n-\n-\n-\n-\n-\n-\n50,000\nTreasury Department, Division of Research and Statistics.\nJune 13, 1938.\n.\nDates shown are those reported by Federal Surplus Commodities Corporation. Actually, however, no purchases have been\ncounted twice because of this discrepancy.\nRegraded Uclassified\n300\nJune 13, 1938.\nAt lunch to-day the President said, \"I hope we get\nthe 212 million in the bill. We need that extra money to\nspend\".\nI got Mr. Hill approved by the President to succeed\nBill Myers.\nRegraded Uclassified\nJune 13, 1938\nMORGENTHAU SAYS HE HAS HAD NO CONTACT WITH\nMENNEDY ON MONEY MATTERS - TREASURY BILL RATE\nDROPS\n3,30\nWASHN - SECY MORGENTHAU SAID TODAY\nTHAT HE HAD HAD NO CONTACT WITH JOSEPH P\nJUN 13\nKENNEDY AMBASSADOR TO GREAT BRITAIN ON THE\nSUBJECT OF A NEW MONETARY DR DEVALUATION\nAGREEMENT SUCH AS HAS BEEN RUMORED IN NEW YORK\nAND LONDON\nWHEN PRESSED FOR A FURTHER STATEMENT THE\nSECRETARY REPLIED -HAVING HAD NO CONTACT WITH\nMR KENNEDY ON THAT SUBJECT I CAN-T GO BEYOND\nTHAT STATEMENT -\nSECRETARY MORGENTHAU AGAIN DEPRECATED DE-\nVALUATION RUMORS BUT SAID THAT HE HAD NOT HAD\nTIME TO INVESTIGATE THE SOURCE OF THE\n-THERE ARE SQ MANY PEOPLE WHO CAN START\nTHESE RUMORS AND MAKE MONEY ON THEM THAT\nI\nGUESS THEY WILL JUST GO ON ON - LAST YEAR THE\nRUMORS WERE THE OTHER WAY AND IT TOOK THE PRESI-\nDENT AND MYSELF A MONTH TO CONVINCE PEOPLE THAT\nWE WEREN-T GOING TO DROP THE PRICE OF GOLD -\nFINALLY WE CONVINCED PEOPLE THAT WE MEANT\nWHAT WE SAID- THE SECY REMARKED\nTHE SECY SAID THAT THE SPEECH WHICH HE WILL\nDELIVER AT TEMPLE UNIVERSITY WHERE IS TO BE\nGIVEN AN HONORARY DEGREE JUNE 17 WOULD BE\nENTITLED -THE ROAD AHEAD- BUT HE DECLINED AT\nHIS PRESS CONFERENCE TO DISCUSS THE BUSINESS\nOUTLOOK - HE ADMITTED THAT HE HAD BEEN RECEIVING\nWEEKLY SALES REPORTS FROM SEVERAL INDUSTRIES ON\nA CONFIDENTIAL BASIS -FOR MY GUIDANCE AND FOR\nTHE GUIDANCE OF THE PRESIDENT- BUT HE REFUSED TO\nSAY WHETHER THESE REPORTS INDICATED A SUMMER\nSHUTDOWN IN THE AUTOMOBILE INDUSTRY\nTHE DISCOUNT RATE ON TREASURY BILLS\nEVIDENTLY DROPPED TO A NEW LOW FOR 100 000 000\nDLS OFFERINGS TODAY WHEN NEW YORK BANKS BID FOR\nAN ISSUE OF TREASURY BILLS AT AN AVERAGE 015-\nCOUNT OF 0 027 PC AGAINST o 042 PC ON A\nSIMILAR ISSUE A WEEK AGO THE SECY ANNOUNCED\nUNDERSECY ROSWELL MAGILL WILL HAVE A FORMAL\nSTATEMENT ON HIS FUTURE POSITION IN THE TREASURY\nWHEN HE RETURNS FROM HIS VACATION JULY 5 SECY\nRegraded Uclassified\nMORGENTHAU SAID\nTREASURY DEPARTMENT\nWashington\n302\nFOR IMMEDIATE RELEASE,\nPress Service\nMonday, June 13, 1938.\nNo. 13-53\nSocretary of the Treasury Morgenthau today announced the final subscrip-\ntion and allotment figures with respect to the current offering of 2-3/4 percent\nTreasury Bonds of 1958-63 and 1-1/8 percent Treasury Notes of Serios A-1943.\nSubscriptions and allotments were divided among the several Foderal Resorve\ndistricts and the Treasury as follows:\n2-3/4 PERCENT TREASURY BONDS OF 1958-63\nFoderal Reservo\nJune notes\nSeptember notes\nTotal\nDistrict\nexchanged\nexchanged\nexchanges\nBoston\n$ 32,296,900\n$ 8,610,550\n$ 30,907,450\nNew York\n405,885,800\n250,970,550\n656,856,350\nPhiladelphia\n4,752,100\n7,219,600\n11,971,700\nClovoland\n5,416,300\n15,896,950\n21,313,250\nRichmond\n5,702,800\n5,160,650\n10,863,450\nAtlanta\n3,083,900\n2,711,900\n5,795,800\nChicago\n73,070,800\n35,698,400\n108,769,200\nSt. Louis\n12,999,200\n2,741,650\n15,740,850\nMinnospolis\n3,247,100\n3,950,150\n7,197,250\nKansas City\n7,831,000\n7,010,950\n14,841,950\nDallas\n5,946,900\n930,600\n6,877,500\nSan Francisco\n18,356,600\n5,342,450\n23,699,050\nTreasury\n3,150,800\n865,000\n4,015,800\nTOTAL\n$571,740,200\n$347,109,400\n$918,849,600\n1-1/8 PERCENT TREASURY NOTES OF SERIES A-1943\nFederal Reserve\nJuno notes\nSeptember notes\nTotal\nDistrict\nexchanged\nexchanged\nexchanges\nBoston\n2,551,000\n5,549,000\n8,100,000\nNew York\n21,659,300\n212,617,300\n234,276,600\nPhiladolphia\n1,262,300\n3,162,900\n4,425,200\nClevoland\n2,423,200\n3,160,000\n5,583,200\nRichmond\n230,000\n379,400\n609,400\nAtlanta\n275,500\n441,000\n716,500\nChicago\n1,834,700\n3,496,700\n5,331,400\nSt. Louis\n3,820,100\n922,400\n4,742,500\nMinnespolis\n254,500\n117,700\n372,200\nKanses City\n200,000\n750,200\n1,030,200\nDrllas\n569,000\n71,000\n640,000\nSan Francisco\n976,500\n909,400\n1,685,900\nTreasury\n17,500\n51,000\n68,500\n$ 36,153,600\n$ 231,628,000\n$ 267,781,600\nTotal June notes exchanged\n$607,893,800\nTotal September notes exchanged\n578,737,400\nTotal exchanges\n$1,186,631,200\n-00\nRegraded Uclassified\n303\nTREASURY DEPARTMENT\nMy\nINTER OFFICE COMMUNICATION\nDATE June 13, 1938\nTO\nSecretary Morgenthau\nFROM\nMr. Hase MR\nSubject: The Business Situation, wook ending June 11, 1938\nSummary\nWhile business currently continues depressed, some\nbrightening of the horizon 1s beginning to appear, leading\nmany to take for granted the near-term prospects and center\nattention on the more optimistic fall outlook.\n(1) Sensitive commodity prices show some evi-\ndence of a turn in the general trend, based upon\nsubstantial improvements in the supply outlook for\nmany commodities and on an apparent change in spec-\nulative sentiment toward the trend of commodity\nprices.\n(2) The belief is growing that the Government\nrecovery program will before long become an impor-\ntant factor in commodity prices and business activ-\nity.\n(3) Some tentative signs of business improve-\nment have begun to appear in certain sections.\n(4) Automobile output 18 holding up better\nthan earlier forecasts had suggested, and expecta-\ntions for July are being revised upward.\n(5) The prospect has become more favorable\nfor & downward adjustment of steel and automobile\nprices, which would tend toward expanding produc-\ntion.\n(6) A level of consumption which continues\nabout 10 points higher than the current level of\nindustrial production provides a strong basis for\nincreased production as soon as inventories have\nreached a proper adjustment with sales. The\npoint of adjustment 18 largely B. psychological\none, and may be reached soon if commodity prices\ncontinue to rise.\nRegraded Uclassified\n6 304\nSecretary Morgenthau - 2\nThe current business trend\nThe New York Times index, for the week ended June 4,\ndeclined to & new low for the year at 75.1, comparing with\n75.7 during the previous week. Declines in steel output and\nautomobile production more than offset B. sharp improvement\nin cotton mill activity and some rise in carloadings. For\nthe following week, the index will be favorably affected by\na rise in automobile production to 40,200 units, as compared\nwith 27,000 units during the week of June 4.\nThe price situation\nThe upturn in sensitive commodity prices this month,\nconsidered in the light of evidence that basic supply condi-\ntions are improving for & number of commodities, provides\nan important strengthening factor in the business outlook.\nPrevious upturns, notably those on the President's price\nstatement in February and on the announcement of the recov-\nery program in April, were based more on speculative possi-\nbilities than on fundamental improvement. During the current\nweek some weakening of the dollar has occurred, though not as\npronounced as in the two instances mentioned.\nIt 1s logical to expect some setback in prices during\nthe next few weeks, following & 4-percent rise in 10 days in\nthe Dow-Jones futures price index. Factors which make for 8\nstrengthening in the general trend of commodity prices are\nthese:\n(1) A direct stimulus will soon be given\nto prices by Government purchasing of mater-\nlale under the spending program, and by an\nincrease in consumer purchases resulting from\nW.P.A. and relief expenditures.\n(2) Production ourtailment for a number\nof commodities should soon exert & strengthen-\ning influence on commodity prices.\n(3) The effect of the increase in excess\nbank reserves should sooner or later operate\nto raise commodity prices, particularly when\nbusiness activity and deposit turnover in-\ncrease.\n(4) Depleted inventories, coupled with\nbuying in anticipation of & fall business 1m-\nprovement, should operate to raise commodity\nprices.\nRegraded Uclassified\n305\nSecretary Morgenthau - 3\nLarge supplies of agricultural products will continue\n& depressing factor, though their effect will be minimized\nby (1) Government loans, which will tend to prevent declines\nfrom current levels; (2) recent unfavorable crop develop-\nments for cotton and reported crop damage to wheat; and (3)\nthe fact that by the end of July the peak of market pressure\nfrom the hedging of the large wheat crop will probably be\npast.\nSome improvement in South\nSome tentative signs of regional business improvement\nappear in the trends of department store sales (See Chart 1).\nIn the 11th (Dallas) Federal Reserve district an improvement\nIn recent weeks has been particularly marked. The Kansas\ndistrict showed a sharp upturn last week, In the 6th and\n11th districts, which include the larger part of the Southern\nregion, sales are continuing noticeably better than for the\ncountry as & whole.\nA recent letter from Mr. Keller, president of the\nChrysler Corporation, mentioned that \"in some sections of\nthe country business seems to be much better than it is in\nothers.\" We note that steel activity in the South has been\nrunning at a rate twice as high 88 the average, operations\ncurrently being about 52 percent of capacity, AB compared\nwith the national average of 26 percent. In other depression\nperiods, Southern output has at times been below that for\nthe country 88 BL whole, due to the preponderance of heavy\nsteel manufacturing in that section.\nThe steel situation\nThe widening price disparity between steel prices and\nother commodity prices in recent weeks has been accompanied\nby B. drying un of new orders for steel. For the week ending\nJune 1, new orders of the U. S. Steel Corporation reached &\nnew low for the year, equivalent to about 22 percent of\ncapacity. The rate of steel operations has accordingly de-\nclined, running this week and last at 26 percent of capacity.\nOperations have been maintained somewhat above the level of\nnew orders because of some surplus of orders previously\nbooked.\nSteel companies are said to be coming to the conclusion\nthat price reductions may be necessary for stimulating de-\nmand, following the obvious failure of their announcement of\nunchanged prices to release the supposed pent-up volume of\norders. Price-shading on various steel products is reported\nRegraded Uclassified\n306\nSecretary Morgenthau - 4\nto be increasing. The steady decline in steel operations\nand employment, with further shutdowns in prospect, are giv-\ning concern both to steel executives and labor leaders, and\nincreasing the prospect of some cooperative arrangement be-\ntween labor and management that will lead to B. reduction in\nfourth-quarter prices.\nWith operations at present low levels, furthermore, it\nis becoming increasingly difficult for steel companies to\nJustify in the eyes of steel buyers and the public the\nmaintenance of prices at a level higher than at any time\nsince 1924. Pressure for B. reduction will undoubtedly oome\nfrom the automobile companies as soon as they are ready to\nplace their steel orders for 1939 modele.\nThe widespread postponement of steel buying on the ex-\npectation of reduced prices may result in a heavy volume of\norders when prices are reduced. Commenting on the similar\nsituation in the pig iron market, the Journal of Commerce\nmentions that \"at no time in history have buyers BO post-\nponed until the last minute their purchases. Therefore when\nsentiment does change for the better all consumers of pig\niron should be coming into the market at once, and old times\nwill return to the pig iron market.\nThe brightest spot in the current steel outlook 18 the\npossibility of increased orders for steel for Government-\nfinanced projects. This week's awards for structural steel,\nwhile continuing at B. low level, were double those of last\nweek, and largely for Government projects.\nAutomobile, construction, and\ntextile prospects better\nAutomobile sales recently have been better than had\nbeen anticipated and have led to an upward revision of pro-\nduction estimates for June and July. General Motors' new-\ncar sales during the period from May 21 to 31 were well\nmaintained at 34,768 units, 88 compared with 30,752 units\nduring the period from May 11 to 20.\nWard's Reports have raised their June production esti-\nmate to about 170,000 unite, which compares with about\n195,000 units in May. Production of about 130,000 units in\nJuly 1s now regarded as B. reasonable possibility, contrasting\nwith recent estimates ranging from B. complete shutdown to a\nproduction of about 95,000 units.\nRegraded Uclassified\n307\nSecretary Morgenthau - 5\nA sharp increase in construction contract awards, 8.6\nreported by the F. W. Dodge Corporation for the last period\nof May, represents & continuation of the steady improvement\nin such awards that has been taking place over the past\nseveral months. The increased total, which reached the\nhigh daily average of $18,842,000, 8.8 compared with\n$8,491,000 in the previous period, reflects a sharp rise\nboth in public and private projects. Public works and util-\nity awards during May totalled much above those of May last\nyear, while residential awards were about 1 percent lower.\nA marked upturn in textile sales has occurred this\nweek, reported to have been stimulated by recent heavy\nGovernment orders for ootton goods. Sales of cotton gray\ngoode for the week were about twice the volume of current\nproduction. It 1s generally felt in the trade that the low\nbids at which the Government 18 buying its huge order of\nsome 57,000,000 yards of cotton goods for W.P.A. sewing\nrooms will establish the extreme bottom for cloth prices.\nConsumer demand well maintained\nThe level of consumer demand continued through April\nat an equivalent level of about 90 for the F.R.B. index,\nwhile production averaged slightly under 80 (See Chart 2),\nindicating that the time 1s rapidly approaching when inven-\ntories will have been reduced to a level that will force a\nrise in production to meet current requirements. Studies\nof inventory trends which we are now making confirm the\nfact indicated by our basic demand study that inventories\nbegan to be reduced last October and have been steadily de-\ncreasing eince then.\nIn this chart (Chart 2) it will be noted (1) that B.\nhigh level of basic demand throughout 1936 anticipated the\nrise in industrial production in that year; (2) that & de-\ncline in basic demand beginning in January 1937 anticipated\nthe later decline in industrial production; and (3) that &\nrelatively high level of basic demand in 1938 suggests R.\nhigher level of industrial production later in the year.\nAmong the various industrial groups, of which the 8\nleading ones are shown on the chart, it will be observed\n(1) That a low level of basic demand for orude and refined\npetroleum in 1937 has been followed by B. sharp downward\nadjustment of production. The production of crude petrole-\num during May will also be sharply lower. (2) That rela-\ntively low levels of production for leather and cement\nseveral months ago have been followed by & rise in produc-\ntion to the level of demand. (3) That increased production\nRegraded Uclassified\n308\nSecretary Morgenthau - 6\nof iron and steel, textiles, and automobiles appear to be\nindicated by the relatively high levels of basic demand.\nThe failure of steel and automobile production to improve\nmore quickly has apparently been due partly to excessive\ninventories and partly to rigid price policies. Textile\nproduction has been handicapped by excessive inventories\nin the hands of spinners and wholesale merchants, but sub-\nstantial progress in adjusting these inventories has\nrecently been made.\nRegraded Uclassified\nNOTIMATED BABIC DEMAND COMPARED WITH PRODUCTION. BY INDUSTRIES\n1923 --- - 100, Adjusted\n1936\n1937\n1020\nMA\nVILA\nJUNT\nCombined Index\nENT\n120\n120\n110\n110\nTRANSIC\n100\n100\n30\nso\nPRODUCTION\nno\n00\n70\n2\n8\n8\n1936\n1937\n1978\nBelacted Industrial Groups\n1936\n1837\n1938\n1936\n1537\n1938\nPLR\nPER\nPEN\nPER\nCENT\nCENT\nCENT\nCENT\nIron and Steel\nTextiles\nWEIGHT 19.25°\nWEIGHT 17.61'\n146\n140\n120\n120\n120\n120\n100\n100\nMusic DEMAND\"\n100\n100\n80\n8\nPRODUCTION\n80\n8\n8\nDowe\n1536\n1937\n1438\na\na\nPRODUCT\nLumber\nSI\nexcent\nB\nDO\na\n40\nProduction\n&\nBASIC Deasid\n1936\n1937\n1938\n2XI\nor\n40\n200\n1930\n1917\n1035\nCrude Petroleum\n(80\n180\nWEIGHT 5.0%\nAutomobiles\n150\n180\nWEIGHT\n160\n100\nPRODUCTION\n160\n160\n140\nHM\n\"Usic DEMAND\nWEARE\n140\n140\nNO\n120\n120\n120\n1934\n1937\n1938\n220\n100\n100\n220\nRefined Petroleum\nWEIGHT 7.05\"\n200\n200\n80\n8\nPRINCTIONA\n(B)\n180\n60\n60\nPRODUCTION\nad\niso\nHO\n8\n1438\n( 9 1 7\n1938\n1936\n1937\n1933\n100\n140\n140\nno\nLauther\nerigit 1.48'\n50\n(20\n!\n8\nThesic Drawn\nBASIS Crass\n100\n8\n100\n(0)\nFRAND -\nPRODUCTION\n8\nall\n8\n....\n1937\n1938\n4l\n1436\n1937\n1936\nMISSI unit ARE 18 MOST cases\nlatient - COMBISLE TADIES\nel M Serviary at TM treatmery\nC-211\n- , - 1 -\nRegraded Jclassifie\n310\nDEPARTMENT STORE SALES\nBy Federal Reserve Districts\n-\n0\n©\n3\n@\n@\n-\n/\n-\n-\n©\n0 5 I\n/\n©\n@\n-\n-\n©\na\nFIR\nCERT\nDiet. Boston\nCENT\n180\nDiet. R, Minnespolis\n130\n130\n120\nDistrict /\nDistrict .\nno\n110\n100\n100\n90\nWEEKLY INDEX OF SALES\nNO\n1936 - 100 For Each District\nso\n1938 Sales in Each District\n1930 Sales\nTotal U.S.\nTutal us\n60\n19.37 Soins\nTotal us\n10\nPER\nCENT\n70\nTOTAL\nso\n130\nso\n40\n- # M A M , + A . o e to\n50\n1988\n120\nJ f M A M a a A a a M o\n1938\n190\n110\n132\nNew York\n1937\n120\nDat IC Kenses City\n100\n120\n110\n110\n90\n100\n100\n90\n00\n10\n1938\nso\nso\n70\n70\n76\nso\n60\n40\nso\n50\nno\nJ.\nF\nM\nA\nM\na\n-\nA\nS\no\nN\nD\ny\n40\n, M A M , / A . o N DI\nJ f M A M J - + 6 - o\n1936\n1938\n130\nPER\nPER\n140\nDist.\nCENT\nDiet. 5, Rich\nCANT\nDist. 7. Chicago\nDiet IL Dellas\n120\n120\n120\n(se\n110\n110\n(20\n100\n100\nDE\n90\nso\n90\n135\nac\nes\n60\n#\n70\n70\nTO\nso\nNO\nso\n40\n70\nso\nso\nso\n60\n40\n40\n40\n50\nè , - - M / J A . o # D\ndi F M A M , , A 5 o IN DI\nJ . - - M a , A 5 o - e\n4 F M A M di 4 A 5 o M D\n1938\n1938\n1938\n1430\n149\n150\n140\n130\nDiet. 4. Cleveland\nDies a, Atlanta\nDist. 9. St. Louis\nDist. 12, San Francisco\n130\n140\n130\n(20\n120\n130\n120\n110\n110\n120\n110\n100\nse\n110\n100\nNO\n90\n100\nve\nno\ngo\n90\nso\n76\n70\n60\n70\nNO\neû\n70\nao\nso\nso\n60\n50\n40\nJ P M & M J J A 5 o H o\n, . M A M 4 à A $ 0 N 0\nà . M A M J. , A $ o - D\n, # M - M J à A 5 o N D\n1930\n1938\n1938\n1938\nRegraded Uclassif\nTREASURY DEPARTMENT\n311\nINTER OFFICE COMMUNICATION\nDATE JUN 13 1938\nTO\nSecretary Morgenthau\nHerman Oliphant\nFROM\nFor your information\nOn April 28 the President asked Mr. Altmeyer, Chairman of the Social\nSecurity Board, to give attention to extending and liberalizing the Old Age\ninsurance system to permit the commencement of Old Age annuities at an\nearlier date than January 1, 1942; the payment of larger benefits than are\nnow provided during the sarlier years of the system; the payment of benefits\nfor aged wives and widows; and the payment of benefits to young children of\ninsured persons dying before reaching retirement age. Recommendations are to\nbe submitted to the President before Congress reconvenes in January.\nMr. Altmeyer wrote you on May 17 that he was ssiling for Europe but\nwanted to discuss the situation with you after he returned with a view to\nobtaining your cooperation and the assistance of the Government Actuary and\nmembers of the Treasury Research and Statistics staff in connection with the\nstudy.\nMr. Tate and Mr. Willcox, of the legal staff of the Social Security\nBoard, have asked to have lunch with Ed Foley and me on Tuesday to discuss\nthe proposed legislation.\nAttached are copies of the President's letter to Mr. Altmeyer and\nAltmeyer's letter to you.\nChabal,\nAttachments\nRegraded Uclassified\n312\nCOPY\n10\nMay 17, 1938\nThe Honorable\nThe Secretary of the Treasury\nWashington, D. C.\nMy dear Mr. Secretary:\nI am sorry that we have not had an opportunity to discuss\npersonally the letter of the President dated April 28, a copy of\nwhich I am enclosing. This letter, as you will note, relates to\npossible amendments to the Social Security Act which I originally\ndiscussed with you last September. Since that time we have carried\non sustained research and have had a trumber of discussions with the\nSocial Security Advisory Council. The Government Actuary and members\nof your Research and Statistics staff have been kept. informed of the\nprogress of this research and have attended meetings of the Social\nSecurity Advisory Council. As our research has progressed, it appears\nthat it will be possible to accomplish some of the objectives Bug-\ngested in the President's letter with a relatively small increase in\ncost because of other readjustments that can be made in the present\nbasic benefit schedule.\nWe recognise, of course, the Treasury's responsibility as\nregards the financial aspects of any change in the Social Security\nAct. We also recognize that any considerable extension of coverage\nof the old age insurance system would probably require important\nmodification of the type of taxes and the methods of tax collection\nthat would be employed. Therefore, we would appreciate it very much\nif the Government Actuary and the Division of Research and Statistics\nof the Treasury Department could give rather intensive consideration\nto Social Security problems during the next six months.\nI am going abroad on May 18 and expect to be back in the early\npart of July. In the meantime, of course, the research work being\ncarded on by the Social Security Board staff will go forward. Is\nsoon as I return, I am hopeful that It will be possible to confer\nwith you personally.\nSincerely yours,\nChairman\najarb\nRegraded Iclassified\n313\nApril 28, 1938\nMr. Arthur J. Altmeyer,\nChairman,\nSocial Security Board,\nWashington, D. C.\nMy dear Mr. Chairman:\nI am very anxious that in the press of administrative duties\nthe Social Security Board will not lose sight of the necessity of\nstudying ways and means of improving and extending the provisions of\nthe Social Security Act.\nThe enactment of the Social Security Act marked a great advance\nin affording more equitable and effective protection to the people\nof this country against widespread and growing economic hazards.\nThe successful operation of the Act is the best proof that it was\nsoundly conceived. However, It would be unfortunate If we assumed\nthat it was complete and final. Rather, we should be constantly\nseeking to perfect and strengthen it in the light of our accumulating\nexperience and growing appreciation of social needs.\nI am particularly anxious that the Board give attention to the\ndevelopment of a sound plan for liberalizing the old age insurance\nsystem. In the development of such a plan I should like to have the\nBoard give consideration to the feasibility of extending its coverage,\ncommencing the payment of old-age insurance annuities at an earlier\ndate than January 1, 1942, paying larger benefits than now provided in\nthe Act for those retiring during the earlier years of the system,\nproviding benefits for aged wives and widows, and providing benefits\nfor young children of insured persons dying before reaching retirement\nage. It is my hope that the Board will be prepared to submit its\nrecommendations before Congress reconvenes in January.\nVery truly yours,\n(signed) Franklin D. Hoosevelt\nRegraded Uclassified\n314\nREMARKS BY AMERICAN REPRESENTATIVE CONCERNING\nSITUATION IN FAR EAST.\nJuno 13, 1938.\nWe have before us today for considera-\ntion and study the annual report of the\nChinese National Government on the traffic\nin opium and other dangerous drugs for the\ncalendar yoar 1936. In the past, I have\nbeen one of the soverost critics of the\nChinoso annual reports. I have criticized\nthem drastically, because I know that their\nincompleteness and inaccuracios caused them\nto present to the public a thoroughly mis-\nleading picture of the sincere efforts\nwhich were being exorted in China to combat\nthe drug cvil. Today I tako pleasure in\nexpressing appreciation of the completeness\nand of the informative nature of China's\n1936 report. I think that the membors of\nthe Committoo will undoubtedly agree with\nme that this report is unquestionably the\nbost which the Chinose Government has yot\npresented and that it could well serve as\na model of completeness to many other\nGovernmentSRegraded Uclassified\n-2-\nsolely to secure to the Government\n315\nMonopoly the profits from manufactured\nGovernments. Dotailed discussion of that\nreport I leave to my colleagues of the\ndrugs as well as those from raw and pro-\nCommittee and turn now to the condition\npared opium, and neither contains pro-\nvisions that would tond to discourage\nin China as it was in 1937 and as it is\naddiction or would effectively hamper\ntoday.\npromiscuous distribution. In the last\nIn considering the conditions in\nof March, the monopoly shops woro solling\nChina today, I propose, for convenience,\nopium freely to all and sundry without\nto discuss the subject by areas, as\nrestrictions and without the production\nfollows:\nof permits.\n(1) Manchuria and Jehol,\nWhere is this opium coming from -\n(2) China North of the Yollow\nRiver,\nAs WAS pointed out in this Committee\n(3) Central China,\nlast year, Chosen (Korea) has for some\n(4) Southwost China,\nyears past been one of the principal\n(5) Southern China.\nsuppliers of raw opium illicitly Introduced\nWith regard to Manchuria and Johol,\ninto Manchuria and this movement has boon\nfrom all of the information that I have bcon\nopenly encouraged, aided and abetted by\nable to obtain, there has boen no real or\nthe Government Genoral of Chosen. In\neffective improvement during the past year\n1932, in roply to an inquiry made by the\nin the conditions obtaining in respect of\nAmorican Government, the Japanose Government\naddiction, illicit import, illicit traffic\nstated that the Government General of Chosen\nor opium production. The rógime still\nhad made arrangements to give to the Govern-\nfunctioning in that area promulgated an\nments General of Taiwan and Kwantung a\nolaborato law and regulations therounder,\nportion of the rew opium produced in Chosen\nbut both of those appear to be designed\nin exchange for morphine produced ns an\nincidental\nsolely\nRegraded Uclassified\n-5-\nincidental in the manufacture of smoking\n316\nopium in Taiwan and in exchange for\nof raw opium from Choson into Manchuria\nmorphine confiscated in the Kwantung\nbetween January and April, 1937, totalled\nLeased Territory. The roply further\n29,000 lb. it appears that the Government\nstated that thore had boon no change in\nGenoral of Choson 18 continuing to increase\nthe policy previously followed in regard\nits contribution to the illicit opium\nto the production of raw opium in Choson,\ntraffic. Choson appears to have reported\nthat policy boing to produce no more than\nexports directly to Manchurin ns follows:\nthe quantity necessary for consumption\n1933\n1,899 kg.\nin Chosen, and that there would be no\n1934\n6,808 kg.\nincrease in the area devoted to poppy culti-\n1935\n3,752 kg.\nvation.\n1936\n11,238 kg.\nBut there seems to have been a quick\nThe quantities which wont by way of the\nchange in that policy, for the area so\nKwantung Leased Territory are not cloarly\ncultivated rose from 1068 hoctares in 1932\nknown.\nto 2240 hectares in 1933. In Fobruary,\nOpium has also boon imported from\n1937, the Choson authorities publicly\nIran and, apparently, from Turkey. In\nadmitted that they had for somo years boon\nLeague document No. 0.0.1564(f) thore were\nshipping some 41,000 pounds of raw opium\nembodied certain tabulations (apparently\nannually to Manchuria and stated that thoy\nbased on the publications known as \"Annual\nproposed furthor to exploit this illicit\nReturns of the Foreign Trado of Manchukuo\"\ntraffic, would subsidizo it, and expected\nand ns \"Monthly Returns of the Foreign\nto add, in the years 1937, 1938 end 1939\nTrade of Manchukuo\") which had boon drawn\nto the aroa alroady devoted to poppy culti-\nup to show the import of opium into Manchuria\nvation, some 995 hectares. As importations\nand Johol. Some of these tablos carry the\nfigures through 1936 and others through 1935\nof\nonly.\nRegraded Uclassified\n-6-\n-7-\n317\nonly. Figures have now boon published\nthrough 1936 and, in somo particulars,\nThis picture is somowhat different from\nthrough 1937.\nthat prosented in document 0.C.1564(f).\nExamination of the published returns\nI nm not in n position cs yet to\nfor 1935, 1936 and 1937 however indicates\npresent exact figures for the export to\nthat the opium imported from Turkey and\nManchuria in 1937 of Iranian raw opium,\nall of which is illicit, but there are\nfrom Iran has been reported under two\nindications that the quantities of such\ncategories, (viz.: \"Opium\" and \"Modicinal\nopium were greater than in 1936.\nSubstances and Spices\") so that the true\nThe opium crop harvested in Manchurin\nvalue of opium imported into Manchuria\nand Jehol in 1937 is reported to have boon\nfrom Turkey in 1936 and 1937 is repre-\na good one, The poppy was cultivated in\nsented not by the figuros under the speci-\ntwelve of the sixtoen provinces and, from\nfic 1tem \"opium\" but by those under the\nB cultivated area of 177,000 acros, there\ngeneral catogory \"medicinal substances and\nWELS collected a total quantity of 2,796,000\nspices\". The imports from Turkey are thus\nlb. or 1,271,000 kilograms. A largo part\nthought to have been:\nof this crop went to supply the heroin\n1935\n.M.Y. 504,475\nfactories in Hopei, particularly in and\n1936\n.M.Y. 829,156\naround Tientsin. The production in Johol\n1937\n.M.Y. 926,814\nhas been ostimated at three times that of\nSimilarly, the imports from Iran are thought\n1936. The crop collected in Hsingan West\nto have been:\nhas been estimated at double that collected\n1935\nM.Y. 360,000\nin 1936.\n1936\n.M.Y. 484,497\nLeague document No. 0.0.1564(g) which\nThe Iran figures for 1937 did not appear in\nwas circulated March 1, 1938 lists certain\nthe monthly returns and are not yet available.\nareas in which poppy cultivation is to be\nThis\npermitted\nRegraded Uclassified\n-8-\n+\n318\npermitted in, 1938, according to the pub-\ncomparison for the whole of Manchuria\nlication known as \"Tho Manchukuo Official\nand Johol cannot safely be made until\nGazette\". These quoted statements appear\nfurther information becomos available\nto be thoroughly misleading. It is not\nconcorning Sankiang and Pinkiang and\nclear whether or not such cultivation will\npossibly other provinces.\nbe permitted olsewhere and inquiries have\nFurthermoro, it should be pointed\nbeen made with a view to obtaining informa-\nout that the aroas actually under poppy\ntion on that subject. The conversions\ncultivation in Manchuria and Johol have\nfrom mou to acres in this document have not\nin the past been far from identical with\nall been made at the usual rate of six mou\nthe authorized areas, a fact which has\nto the acre whereas the conversion for 1937\nbeen publicly admitted by the règime at\n(in \"The Manchukuo Government Gazette\"\npresent functioning in that part of China.\nNo. 758 of October 1, 1936) was made at the\nIt Is reliably reported that, in 1937,\nrate of six mou to the acre. This differ-\n52,560 acros which had not been authorized\nonce would appear to render misleading\ntherefor were devoted to poppy cultivation.\nthe comparison which appears in Leaguo\nAs to the manufacture of narcotic drugs\ndocument No. 0.0. 1564(g). The correct\nin this area, it is reported that the Opium\nfigure for 1938 would appear to be 118,000\nMonopoly Administration continuos to main-\nacros instead of 113,500. In other words,\ntain and operate narcotic drug factorios in\nLeague document No. 1564(g) would scem to\nMukden and Chongteh, the output of which is\nindicate nothing more definite than a pro-\nfar boyond all possible medical needs of\nposed reduction of poppy growing areas in\nManchuria and Jchol, and a laboratory in\nJehol by 50,000 mou or 8,333 acres and a\nHarbin. The Mukden factory has been re-\nproposed incroase in such areas in West\nported as turning out from 75 to 100 kilo-\nHsingan of 10,000 mou or 1,666 acres. A\ngrams daily of morphine and heroin. The\ncomparison\nChengteh\nRegraded Uclassified\n-10-\n11-\n319\nChengteh factory is stated to be turning\nat this session and which had beon pub-\nout mostly base or crudo morphine for\nlished in the Manchuria Daily News in\nexport to factorios at and near Tientsin\nFebruary, 1938, the monopoly, in the\nthere to be used in the manufacturo of\nfirst five years of its existence\nhoroin. Private manufacture of opium\n(1933-1937 inclusive) expended Manchurian\nderivatives has apparently migrated from\nYuan 86,852,558 in the purchase of opium\nManchuria, Jehol and the Kwantung Leased\nand received in payment for opium sold\nTerritory to Tiontsin and other parts of\nManchurian Yuan 134,671,662. This repro-\nHopoi Province.\nsents a gross profit of 55% The author\nWhen we come to the abuse of narcotic\nstates that in 1933 and 1934 the monopoly's\ndrugs, thore appears to be no decrease\noporations showed Manchurian Yuan 22,630,345\nwhatever in Manchuria or in Johol in oither\nexpended for the purchase of opium as against\npipe addiction or addiction to manufactured\nManchurian Yuan 19,883,759 received in pay-\ndrugs, nor does it appear that the business\nmont for opium sold, representing a deficit\ninterests concerned anticipate any docrease.\nof Manchurian Yuan 2,746,586 or 12% on the\nThe budget estimates for 1938 anticipate\ncost of the opium purchased. The article,\nthat receipts from sales by the opium\nhowever, states that the operations of the\nmonopoly will increase from the estimated\nsucceeding three years were very much more\nMY 47,850,000 of 1937 to MY 71,045,200 in\nsuccessful, opium purchased having cost\n1938, an increase of 48 4/10%.\nManchurian Yuan 64,282,113 and opium sold\nThe \"Manchukuo\" Opium Monopoly appears\nhaving brought in Manchurian Yuan 114,747,903 -\nto have been doing a lucrative and constantly\na gross profit of 78 1/2%. The article\nincreasing business. According to a series\nstates that in the five years 1933-1937\nof articles by Mr. Ke1 Miyakawa which was\ninclusive, the Government purchased\ndirculated to the members of the Committee\n41,000,000 taols of opium and sold 35,000,000\ntaels.\nat\nRegraded Uclassified\n-12-\n-13-\n320\ntaels. It does not state what became of\ndono about the ash heaps of Mukden and\nthe balance of 6,000,000 taels (500,000\nHarbin, the final rosting placos of\nlb. or 227,363 kilograms).\nthousands of victims of narcotic addiction,\nWhile the funds prosper, public\nwhich were described to you last year.\nhealth continues to suffor.\nIn China betwoon the Yellow River and\nThe municipal sanitary authorities at\nthe Great Wall, which has for somo time\nHarbin stato that, in the seven months\npast been controlled by the northern\nJanuary to July, 1937, inclusive, 1793 un-\nJapanese army, conditions are far worse\nclaimed corpses wore picked up in the\nthan they were a year ago. A sort of ci-\nstroets and alleys of that city, of which\nvil government sot up and maintained in\n1485 had diod 28 a result of narcotic\nHope1 by that army took a hand in narcotics\naddiction. In Mukden, police statistics\ncontrol shortly after its establishment.\nshowed 67 deaths in November, 1937, ro-\nThe Chinese Contral Government's provisional\nported to be due to narcotic addiction.\nanti-opium and anti-narcotics laws and regu-\nBy October, 1937, addiction among the\nlations were rescinded by order No. 33 of\nJapanese in Manchuria had increased to\nthe Peiping \"Provisional Government\" dated\nsuch an extent that the Sanitarium main-\nFebruary 24, 1938. All porsons who were\ntained at Mukden by the Kwantung Buroau\nbeing detained undor these regulations were\nwas crowded and bocame obligod to limit its\npromptly roleased from prison. There has\nadmissions to Japanese, refusing longer to\nboon no logal control of the narcotics\ncaro for Chinese. The increasing addiction\ntrado in North China since the beginning\namong the Japanese 18 reported to be heroin\nof August, 1937, and, except for tho possible\naddiction, which 18 more difficult to de-\nfuture establishmont of a monopoly and for\ntoot than opium smoking. I have been\npossible minor Chineso polico regulations,\nunable to learn of anything real boing\nno control of the trade seoms likely under\npresent\ndone\nRegraded Uclassified\n-15-\npresent conditions. Illicit traffic is\n321\nflourishing like the groon bay tree and\nthe several gangs operating in this\nclandestino manufacture has increased\ntrade. They experienced no difficulty\nand has extended its oporations beyond\nwhatever in purchasing in that Conces-\nthe wildest dreams of its promoters.\nsion all of the heroin that they de-\nThe manufacturer has at his command a\nsired. As you are aware, 650 kilograms\nsoemingly unlimited supply of raw material\nconstitutes about two-thirds of the\nin the shape of erudo morphine from the\nentire world's legitimate need for\n\"Manchukuo\" Opium Monopoly factory in\nheroin for a year. It represents, in\nJehol and Iranian opium brought in from\nround figures, ten million grains.\nManuchuria. To illustrato to you the\nAdultorated to the 10% purity now gen-\nparticular interest which my Government\nerally met with in the illicit traffic\nhas in the continuance in North China of\nin the United States, this would amount\nthis disgraceful stato of affairs, I nood\nto one hundred million grains of the\ncite but one caso out of several illicit\nadultorated product, enough to supply\ntraffic cases which had their base and\nsome 10,000 addicts for a year, ten\norigin in the Japanese Concession in\nthousand of my countrymen hold for a\nTiontsin.\nyear in a slavery worse than death be-\nIn seizure reports and in statements\ncause those in control of North China\nbefore the Illicit Traffic Sub-Committee,\nfail to meet their obligation to limit\nparticulars have boon presented showing\nthe manufacture and control the distri-\nhow, in a period of somo fiftoen months,\nbution of narcotic drugs, while the\n650 kilograms of horoin were exported to\nrégime in control in Manchuria itself\nthe United Statos from the Japanese Con-\nmanufactures and supplies the raw mater-\ncossion in Tientsin by a single one of\n1al.\nPure heroin has an illicit value of\nthe\none\nRegraded Uclassified\none dollar per grain in the United States.\nTen thousand poor wrotched addicts pay\nthree dollars per day each for three grains\nof heroin -- thirty thousand dollars por\nday or approximately ton million dollars a\nyear wasted as a result of the operations\nof only one of several gangs, operations\nmade possible by complaisant disregard by\nthe responsible authorities in North China\nof local law and of treaty obligations.\nThe Japanese Government shares with\nthe American Government and with other\nGovernments a well rocognized obligation\nto limit to medical and scientific needs\nthe manufacture of narcotic drugs and to\ncooporate in the effort to prevent the\nuse of those drugs for purposes other than\nmedical and scientific. The actions in\nrespect of narcotic drugs of the provi-\nsional regime at Peiping and of the rogime\nat present functioning in Manchuria and\nJehol can hardly be regarded as limiting\nthe manufacture or controlling the distribu-\ntion of narcotic drugs; and it should bo\npointed out that, in the light of the\nsituation\nRegraded\nUclas\nPages 322-331\nskipped in numbering\nby faulty machine\n-17-\n332\nsituation existing in North China, the\nJapanese Government has an inescapable\nresponsibility for the importation of\nopium into that territory in contraven-\ntion of the laws of China..\nI put it to you that there is no\nlegality or legitimacy in the assumption\nof authority by the provisional régime\nat Peiping, and that it is to be profound-\nly regretted that the Japanese Government\nhas not exercised that restraining influ-\nence which it is in a position to exercise\nupon the authorities of the provisional\nrégime, who have been proceeding in contra-\nvention of existing conventions and in\ndisregard of local law. I venture to ex-\npress the hope that the Japanese authori-\nties, both civil and military, will lose\nno time in putting an end to the state of\naffairs now obtaining in the parts of China\nunder their control or of which they are in\nmilitary occupation.\nThe situation in the Yangtsze Valley\neast of Hankow is far from clear. Due to\nthe hostilities which have taken and are\ntaking\nRegraded\ntaking place in that region, it is pro-\nbably premature to attempt observations\non the situation there.\nIn Shanghai, control appears to\nhave broken down completely except in\nthe French Concession and in the Interna-\ntional Settlement, in both of which areas\nthe police have continued their efforts\nto prevent illicit traffic. Shanghai\nhas been full of rumors and apprehension\nis felt lest the City, unless definite\nmeasures are adopted before long, will\nsuffer the narcotic plague that has been\nbrought to Harbin, to Mukden, to Tientsin\nand to Peiping. In Shanghai, however,\nwhat has to be faced is now becoming\nclearer and the prospect is such as to\ncause all foreign nations as well as the\nChinese deep concern.\nHuge quantities of Iranian opium\nare reliably reported to have arrived in\nNorth China and in Shanghai consigned to\nthe Japanese Army and to Japanese firms,\nwhile further large consignments are en\nroute to those destinations under similar\nauspices\nRegraded Uclassified\n-19-\nauspices and still others are on order.\nIn addition, a large quantity (1000\n333\nchests) of Iranian opium is reported as\nbeing held in Macao to the order of the\nJapanese Army and Japanese firms, in-\ntended eventually for sale in either\nSouth China or in Shanghai.\nOn December 29, 1937, the Japanese\nS/S MUKO MARU is reliably reported to\nhave left Bushire for the Far East carry-\ning 1500 chests of Iranian opium shipped\nto the Far East by Japanese interests.\nThis means 240,000 pounds or 109,000\nkilograms. I should like to ask the\nJapanese representative whether he can\ngive us information as to the déstina-\ntion and eventual use of this 109 tons\nof raw opium of high morphine content,\nwhich was shipped under unusual circum-\nstances.\nI am reliably informed that, during\nthe first three months of 1938, orders\nwere placed in Iran by Japanese interests\nfor 2900 chests of Iranian opium of which\n1128 chests went forward to the Far East\nin\nRegraded Uclassified\n-20-\nin the first seventeen days of March,\n1938. It may be mentioned that 2900\nchests is, roughly, 464,000 pounds or\n211,000 kilograms. The 1128 chests al-\nready shipped is, roughly, 180,500\npounds or 82,000 kilograms. The balance\nof the order, 129,000 kilograms, on March\n17 remained to be shipped.\nIncluded in the shipments made in\nMarch was one of 428 chests (or a little\nover 31 tons) reliably reported to have\nbeen shipped from Bushire to Tangku by\na well known Japanese commercial house,\none of the largest corporations in Japan,\non March 14, 1938, by the Japanese S/S\nSINGAPORE MARU. In the case of this ship-\nment, I am reliably informed that Wang\nKe-ming, acting in the name of the so-\ncalled \"North China Provisional Government\"\nissued, under date of March 12, 1938, to\nIsamu Fugita, the Mitsui Bussan Kaisha\nagent at Macao, a secret administrative\norder which purported to authorize the\nimportation. It should be noted that this\norder was dated only two days before the\nshi Regraded Uclassified\n334\nshipment left Bushire. I am reliably\ninformed that the SINGAPORE MARU arrived\nin Shanghai at 11 A.M. April 12 and\nsailed the same day at 3:15 P.M. Flying\nthe Japanese military transport flag,\nshe had anchored in the river section\nknown as No. 35 Buoy, which is about\nthree miles down river from the Customs\nJetty on Shanghai Bund. As far as has\nbeen ascertained, no cargo was landed\non this occasion, but ship stores may\nhave been taken aboard. The lot of 428\nchests from the SINGAPORE MARU is re-\nported to have arrived in Tangku and to\nhave been distributed under the control\nof a Japanese army officer at Tientsin,\n300 chests having been sent to Shanghai\nwhere they arrived April 22nd, via Dairen,\nand were taken over by the Japanese Army.\nI should like to ask the Japanese repre-\nsentative whether he can give us any in-\nformation in regard to this transaction\nand any information as to what became of\nthe additional 550 chests carried by the\nSINGAPORE MARU.\nI am also informed that efforts have\nbeen\nUclassified\nbeen under way for some time to sell,\nunder the control of a colonel of the\nJapanese Army who has been entrusted\nby that army with arrangements for the\nsale of opium in the Shanghai region,\n460,000 pounds of Iranian opium which\nwas consigned in care of the Mitsui\nBussan Kaisha at Shanghai. This is\n2875 chests. I am informed that deliv-\nery of these sales is to be against cash\nand will be made under Japanese military\nsupervision to any part of central China\nnow occupied by the Japanese Army.\nAs the country for miles around\nShanghai has been completely devastated,\nall business is at a standstill, and the\npurchasing power of the people has dis-\nappeared, there is actually no market at\nall for these huge quantities of Iranian\nopium unless it is disposed of in the\nform of heroin and that mostly for export\nto Europe and America. What the Japanese\nArmy will do with this vast quantity of\nIranian opium remains to be seen. The\nreport is that the Colonel referred to,\nthrough\nRegraded Uclassified\n-23-\n335\nthrough his Japanese assistant and with\nthe aid of representatives of the Mitsui\nBussan Kaisha is negotiating with the\nso-called Consolidated Tax Bureau of\nTatao (or provisional régime set up by\nthe Japanese Army in Shanghai) to estab-\nlish a large heroin factory in Shanghai.\nCheap heroin cigarettes which sell\nat prices lower than opium are already\nmaking their appearance for sale to the\nChinese in the parts of Shanghai under\nJapanese control and offers are being\nmade to sell horoin in large quantities\nfor export to the United States and Europe.\nI have been furnished with particu-\nlars of one sale of Japanese owned Persian\nopium in Shanghai under circumstances\nwhich point to intention to uso it for\nthe manufacture of heroin.\nIn addition to the 428 just mentioned\nas shipped by the Mitsui Bussan Kaisha,\nthe SINGAPORE MARU also carried 550 chests\nof Iranian opium destined for Tangku, a\ntotal cargo of 978 chests for China shipped\nby Japanese companies in a Japanese ship\nto\nRegraded Uclassified\n-25-\n336\nto a country the law of which prohibits\nAs to South China. In addition to\nthe import of opium. Three days later,\nthe 320 tons of Iranian opium to which I\nanother Japanese ship, the SHANGHAI MARU,\nhave referred as being on order or already\nis reliably reported to have left Bushire\nin China for Japanose account, Japanese\nwith 150 chests destined for the Far East.\ninterests are reported as having on stor-\nI wonder if the Opium Advisory\nage in Macao 1,000 chests of Iranian opium,\nCommittee, to whose attention the Japanese\nor 72 3/4 tons. It is not yot clear whether\nrepresentative last year called the newly\nthis is a shipment that recently-left Iran\nenacted laws for punishing Japanese who\nor whether it represents a purchase from\nimport opium into China or who deal in\nMacao stocks. The Committee will recall\nopium therein, would be willing to suggest\nthat the stocks loft from the Old Macao\nto the Japanose representative that those\nOpium Farm have never boon fully accounted\ntransactions of Japanose subjects in China\nfor and were a few years ago offered for\nshould be investigated and reported upon\nsale by an officer of the Macao Opium\neven if they cannot be adequately punished.\nMonopoly who was later discharged. It\nLest it seem strange that I make no\nwill also rocall that my questions as to\ninquiry of the Iranian reprosentative, I\nthose stocks, reputed stored in the Banco\nmay explain that it is becauso his pre-\nUltramarino at Macao have never been ans-\ndecessor has repeatedly made it clear to\nwored. I should like again to inquire\nthe Committee that the Iranian Government,\nwhother the Portuguese representative can\nwhile asking for import certificates,\ngive us any information on this subject\nmakes no inquiry into their authenticity\nor will endoavor to have it investigated.\nand retains no record of documents which\nNow we como to Southwost China. It\nmay have been presented as purporting to\nwill be recalled that, a ycar ago, avail-\nbe such cortificates.\nable information indicated that, in the\nAs\ncrop\nUclassified\n-26-\ncrop year 1936-37, there had been a very\nmaterial reduction in the quantities of\nraw opium produced in Southwest China,\n1.0. Yunnan, Kweichow and Szechuen, pro-\nvinces which are under control of the\nChinese National Government. Information\navailable at present in regard to produc-\ntion in those provinces in the crop years\n1937-38 is fer from complete. I may say,\nhowever, that it does not indicate any\nincreaso nor does it indicate any decrease.\nTo conclude, I may point out that, in\nbriof, the situation in the parts of China\nunder control of the Chinose National Govern-\nment continuos to give ovidence of sincere\neffort with encouraging results. The situa-\ntion in Macao continues to call for explana-\ntion. The situation in the parts of China\nunder Japaneso control is worse than ever\nand gives cause to the entire world for\nserious approhension.\nRegraded Uclassified\n337\nADDITIONAL STATEMENT\nJune 21, 1938.\nI am reliably informed that, about\nApril 3rd, 1938, an armed Japanese vessel\nreached Macao from Iran carrying something\nover two thousand chests of raw Iranian\nopium. of these, eleven hundred chests were\nlanded at Hak Sha Wan (Black Sand Bay) a\nsuburb of Macao. The report is to the effect\nthat, under cover of night, these 80,000\nkilogrammes of opium were escorted by Portu-\nguese troops to the Banco Nacional Ultramarino\nin the City of Macao, where they were left\nfor safekeeping. Prior arrangements had been\nmade by Chinese opium traffickers and the\nJapanese owners of the opium with high Macao\nauthorities for the landing and storage of\nthe drug.\nThe transaction 18 reported to have\nbeen carried out under the personal direction\nand supervision of the head of the Macao\nOpium Monopoly. Of these eleven hundred\nchests disembarked at Macao, five hundred\nchests or 36,363 kilogrames were later\nRegraded Uclassified\n338\nshipped to Japanese consignees at Shanghai,\nThe vessel is reported to have gone\nfrom Macao to a port in Formosa, where the\nbalance of the opium, about one thousand\nchests (72,727 kilogrammes) was landed.\nI should like to inquire whether the\nPortuguese, Japanese and Iranian representa-\ntives will undertake to ask their respective\nGovernments to report on this case under\nthe terms of Article 23 of the Narcotics\nLimitation Convention of 1931.\nRegraded Uclassified\nFrom white\n339\nJune 13, 1938.\nJapan's Foreign Exchange Situation\n1. If Jepan continues military operations in China on the\npresent scale she must increase her supply of foreign ex-\nchange.\nHer present stock of foreign exchange 1g being depleted,\nwe estimate, at the rate of from $15 to $25 million 8. month.\nHer total assets quickly convertible into foreign exchange re-\nsources (including securities, gold, silver, foreign balances,\netc.) are in the neighborhood of from $400 to $500 million.\nJapan could continue her present scale of operations in\nChina for at least 18 months. But Japan should maintain large\nforeign exchange reserves to meet her essential requirements\nIn event of en outbresk of war with U.S.S.R. She cannot af-\nford to let her foreign exchange resources drop much below\npresent levels 80 long as the character of Japan's present\nforeign policy continues.\n2. Jepan can increase her supply of foreign exchange only by\nincreasing her merchandise exports.\nJapan cannot further reduce her imports -- in fact, she\nhas reached the point where she must permit her imports to\nincrease.\nJapan has been able to keep her losses of foreign exchange\ndown to the low level of $15 to $25 million a month only by\nusing up her stock of raw materials and cutting her imports\nto the bone. Her curtailment of imports has been 80 severe\nthat it is seriously affecting her export markets as well as\nher store of materials. She must relax to some degree her\nrestrictions on imports. (The new government formed last\nmonth announced that it would relax some of the restrictions.)\nThere is no other item in Japen's balance of payments that can\nbe expected to yield substantial supply of foreign exchange\nin the near future, other than exports.\n3. Japan will find it extremely difficult to increase her\nexports without resort to drastic measures.\nHer exports to foreign exchange areas for the first four\nmonths of 1938 were about one-third less than last year and\nabout one-fifth lower than they were in 1936.\nThe barriers which face Japanese attempts to increase\nher exports are:\n(a) Sharply declining world trade;\n(b) Rising prices in Japan and falling world prices;\nRegraded Iclassified\n- 340\n- 2 -\n(c) Increased competition among industrial countries\nfor narrowing markets, and\n(i) The anti-Japanese boycott shows no signs of letting\nup.\nTogether these factors make it very difficult for Japan\n:: increase substantially her sales without resort to drastic\nrequires. Japan must resort to either or a combination of\nthe following:\n(a) Depreciation of the yen;\n(b) À progrem or barter transactions;\n(c) Adoption of multiple currency system B.E practiced\nby\nF. The simplest method for Japan to employ 18 depreciation\n65 the yen.\nDevelopment of barter transactions or employment of mul-\nNole currency eystems connot be built up in a short period\nof time, particularly by Japan. Kitherto Japan has attempted\nto keep the yen stable chiefly in order to prevent her cost\nof living BL home from rising too repidly. The necessity\nfor increasing her supply of foreign exchange may soon force\nTer, gowever, to adopt currency depreciation despite its e:-\nrect on the cost of production and desoite the retalistory\npessures adopted abroad. There are elr edy signs that the\npressure toward depreciation 1s increasing in Japen.\n3- Japan Just make every effort to end the acute stage of\nostilities with China Muring the next few months.\nThe only measures open to Japan to increase her export\ntrude vill cause more political trouble for ber. Subston-\n111 depreciation of the yen in the near future vill greatly\nclatoro the international currencies And will algo give rise\nCO\nincreasing snti-Japanese sentiments throughout the world.\nRegraded Uclassified\n341\nJune 13, 1938\nI showed this to the President at lunch today and he\nlooked at it and said nothing.\nGOLD AND SILVER\n8105 N 1) IO 1550\nLONDON - REUTERS - IN GOLD MARKET AT TIME\nOF PRICE FIXING THE REVIVAL OF NERVOUSNESS\nANENT EVENTS IN SPAIN AND RESURRECTION OF THE\nRUMOR FROM NEW YORK THAT AMBASSADOR KENNEDY\nIS ARRIVING IN AMERICA WITH A TRI-PARTITE\nDEVALUATION AGREEMENT CAUSED A SHARP\nEXPANSION OF HOARDING DEMAND FOR GOLD FROM\nTHE CONTINENT - WELL INFORMED IN LONDON HOWEVER\nCONTINUE TO REGARD DEVALUATION TALK AS\n-RIDICULOUS-\nSILVER MARKET WAS QUIET BEFORE TIME OF\nPRICE FIXING - LITTLE CHANGE IN PRICE IS\nEXPECTED\n-0-\nRegraded\nUclassified\n342\nMemorandum of Conference held in Secretary Morgenthau's\nOffice at 4 P. m., June 13th, 1938.\nPresent: Secretary Morgenthau\nMr. Thurman Arnold, Assistant Attorney General\nMr. McReynolds\nThe Secretary stated that at the President's request\nhe had asked Mr. Arnold to come over to discuss the rumor\nthat had been brought to the President, presumably by\nHarlee Branch, that the automobile companies were\nrefusing to fill orders received from their dealers in\nthe South. The Secretary stated that the President had\ndirected him. in order to conserve the President's own time,\nto say to Mr. Arnold that it was his desire that he,\nArnold, have United States attorneys contact postmasters\nin various states in the South for the purpose of\nascertaining through them whether there 1a substance to\nthis report. The Secretary stated that he had suggested.\nas an alternative that the Postmaster General himself,\non his own stationery, write to a hundred representative\npostmasters in the South directing them to make this\ninquiry and report directly to him, but that the President\nabandoned this in favor of the plan indicated above.\nMr. Arnold stated that the President had already\ncalled him and told him what he desired in this matter and\nalso told him that he had directed the Secretary of the\nTreasury to discuss the matter with him. Mr. Arnold stated\nhe had reported to the President that the Secretary of the\nTreasury had already called him and made an appointment\nfor that purpose.\nThe conference closed with a statement of the Secretary.\nconcurred in by Mr. Arnold, that there was no occasion for\nthe Secretary to be connected further with this project.\nmR\nRegraded Uclassified\n343\nJune 13, 1938.\n3:45 p.m.\nOperator:\nGo ahead,\nH.M.Jr:\nHello.\nCong. Cliff\nWoodrum:\nHello, Mr. Secretary.\nH.M.Jr:\nHow are you?\nW:\nWe've just about completed our labors and I think\nwe'll take that conference report up in the House\ntomorrow.\nH.M.Jr:\nI see.\nW:\nOn that parity payments we couldn't do anything, of\ncourse, the Senate was - was adamant and the House\nI expect will accept it though, we're going to make\na fight on it.\nH.M.Jr:\nI see. Would it come up for special vote?\nW:\nYes, I'm going to - I'm going to make them go on\nrecord on it, if they're going to do that, why let\nthe people take the responsibility for it who are\ndoing the job.\nH.M.Jr:\nI see.\nW:\nDon't you think so?\nH.M.Jr:\nI should think 80.\nW:\nWell, of course the House is in the mood they'll take\nmost anything they can get hold of now -\nH.M.Jr:\nAnd go home -\nW: :\nIn the way of expenditures.\nH.M.Jr:\nYes.\nW:\nNow on the W.P.A. accounting we accepted the Senate\namendment which leaves that in the Treasury.\nH.M.Jr:\nFine.\nW:\nThat's what you wanted, wasn't it?\nRegraded Uclassified\n344\n- 2 -\nH.M.Jr:\nVery much.\nW:\nAll right, sir. And what else were you interested in?\nH.M.Jr:\nWell I was interested in this question of having the\nmoney available for the President if he needs it for\ndirect relief.\nW:\nWell we've put twenty five million in that - for that.\nH.M.Jr:\nTwenty five.\nW:\nThat's for direct relief, and then we gave him the -\nwe gave him a hundred and seventy five million that\nhe can manipulate for work relief.\nH.M.Jr:\nFor work relief?\nW:\nYes.\nH.M.Jr:\nBut not for direct.\n%:\nNo, twenty five that he can use for direct relief.\nH.M.Jr:\nI Bee. Now what happened to that fifty million that\nthey had in there for surplus commodities.\nW:\nWe're leaving that in.\nH.M.Jr:\nOh you're leaving that in?\n7:\nYes.\nH.J.Jr:\nIs that mandatory?\nW:\nNo, not mandatory.\nH.L.Jr:\nIt's optional.\nV:\nIt's optional. He said he wanted that.\n9.N.Jr:\nHe did.\n%:\nYes. Told me he'd like to have that. I asked him\nabout 1t.\nH.W.Jr:\nAnd BQ there's fifty million optional for surplus\ncommodities.\nW:\nYes.\nRegraded Uclassified\n345\n- 3 -\nH.M.Jr:\nTwenty five million optional for direct relief.\nW:\nRight.\nH.M.Jr:\nAnd a hundred and seventy five that he can manipulate\non work relief.\nW:\nAny time, anywhere he wants it.\nH.M.Jr:\nI see.\nAnd the Treasury gets the accounting.\nW:\nYes.\nH.H.Jr:\nAnd you're going to putit up to the House to vote\non parity payment.\nW:\nYes. Now the - we - we got the money for the National\nEmergency Council and for the National Resources\nCommittee.\nH.H.Jr:\nOh, you did.\nW:\nHe was very anxious about that.\nH.M.Jr:\nI know.\nW;\nThe House cut that.\nH.W.Jr:\nYes.\nW:\nThe Senate put some of it back, but the Senate\nconferees would have receded, but we accepted our\namendment before they could recode.\nH.N.Jr:\nFine.\nW:\nSo that saved that.\nH.M.Jr:\nFine.\nWell, thank you 80 much for calling.\nW:\nYes, sir, any time.\nH.N.Jr:\nThank you very much.\nW:\nAll right, sir.\nRegraded Uclassified\n346\nJune 13, 1938.\n3:53 p.m.\nOperator:\nGo ahead.\nH.M.Jr:\nHello.\nNathan\nStraus:\nHello Henry, awfully glad to hear from you.\nH.M.Jr:\nHow are you coming along?\nS:\nPretty good.\nH.M.Jr:\nNathan, do you get out anything there that I could\nsee, that would show when you people are actually\ngoing to start some buildings?\nS:\nYou mean in the terms of actual expenditure?\nH.M.Jr:\nYes.\nS:\nWhere or when?\nH.M.Jr:\nWhen.\nS:\nI can show you not only that a detailed draft made\nout according to our best estimates of how the\nmoney is going to go out.\nW.H.Jr:\nYes.\nS:\nAnd I can tell you that it's going to be disap-\npointingly slow.\nH.M.Tr:\nWell -\nS:\nI will send you over that draft. I'll check up\nif we've got it, tomorrow.\nH.M.Jr:\nThat will be grand.\nS:\nFine.\nH.M.Jr:\nWill it show when and where, or just when?\nS:\nThis only shows when.\nH.M.Jr:\nDoes that mean actually when the money is going\nto go out?\nS:\nYes, it shows two different lines - dates when\ncontracts are signed and dates when we are going\nto call upon you for the money. In other words,\npay out the money.\nRegraded Uclassified\n347\n- 2 -\nH.M.Jr:\nAnd how much.\nS:\nYes, and how much in each State, e.8 far as we can\nproject it for a whole year ahead. I'm afraid -\nthe next few months, it's very small Henry.\nH.M.Jr:\nYes. How are you coming on your amendments on the\nHill?\nS:\nI think we're all right, but I think we'll break -\nwe'll not break the bottle of champagne until after\nCongress has adjourned.\nH.M.Jr:\nI see. Will that help you much? Getting - at the\nspeed it's starting.\nS:\nOh, Henry, perfectly enormously because it's just\nthose authorities that are best equipped in the big\ncities to go ahead in a big way that we're stopped.\nPlaces like Cleveland, Ohio- Los Angeles - where\nwe're cut down, you see, by the ten per cent to one\nstate. Oh, yes, very very materially.\nH.W.Jr:\nWell -\nS:\nAlmost\nH.M.Jr:\nWell will that change the grant?\nS:\nNo, the grant is in terms of that, I had that 8.8\nsoon 8.8 I thought there was a chance of the amend-\nment, I had that.\nH.M.Jr:\nYou mean this 1s - the grant is in terms that if\nyou get your amendment.\nS:\nYes, sir, that's correct.\nH.S.Jr:\nRight.\n5:\nAnd, of course, it's obviously until the amendment\ngoes through completely confidential but I'm glad to\nsend it over to you.\nH.B.Jr:\nI - I'd like to have it, and 1f there are any -\nif you find in a week or ten days you have to change\nit to any degree I'd appreciate the changes.\nRegraded Uclassified\n348\n- 3 -\nS:\nI'll keep you right in touch with it, Henry, I'll\nsee you get some of it tomorrow morning.\nH.M.Jr:\nO.K.\nS:\nFine.\nH.M.Jr:\nThank you Nathan.\nS:\nGood luck.\nRegraded Uclassified\n349\nJune 14, 1938\nI called Mr. Hull and asked him if he knew anything\nabout these rumors about Kennedy bringing back a new tripartite\nagreement, which would result in an increase in the price of\ngold. Mr. Hull said he knew absolutely nothing about it and\nhe said at his press conference this morning they asked him if\nhe knew anything about the rumor that Mr. Kennedy had been dis-\ncussing with England the question of the settlement of debts.\nHe said he knew nothing about that. He said in the case of\nMr. Kennedy or Mr. Bullitt he always refers all inquiries to\nthe White House.\nI said that I knew nothing about either of the two\nabove questions and had been denying for a week that there would\nbe no increase in the price of gold, but I wondered if I was\nletting myself out on the end of the limb. He said he was in\nexactly the same boat as I was.\nRegraded Uclassified\nJune 14, 1938\n350\nAMBASSADOR KENNEDY NOT RESIGNING\n1933\nBOSTON - AMBASSADOR JOSEPH P KENNEDY IN\nAN EXCLUSIVE TRANSATLANTIC COPRIGHTED TELEPHONE\nINTERVIEW WITH THE BOSTON EVENING AMERICAN\nDECLARED THAT HE IS NOT RESIGNING AND HAS NO\nINTENTION OF RESIGNING - HIS EMPHATIC DENIAL\nREFUTES A STORY APPEARING IN LORD BEAVERBROOK-S\nLONDON DAILY EXPRESS AND WIDELY REPRINTED IN\nTHE UNITED STATES TO THE EFFECT THAT AFTER\nTHREE MONTHS AS AMBASSADOR MR KENNEDY\n-WANTS TO QUIT HIS JOB WITH A BLAZE OF GLORY\nAND FOR THAT REASON HE IS ARRANGING A SETTLEMENT\nOF THE BRITISH DEBT TO THE UNITED STATES-\nMR KENNEDY TOLD THE BOSTON EVENING AMERICAN-\n-THERE IS NOT ONE WORD OF TRUTH IN THAT STORY -\nI HAVE NO INJENTION OF RESIGNING AS THE UNITED\nSTATES AMBASSADOR AND I HAVE NOT HAD ANY SUCH\nTHOUGHT - I HAVE NO PLANS ABOUT THE BRITISH WAR\nDEBT TO THE UNITED STATES AND I HAVE NO\nINTENTION OF DISCUSSING THE WAR DEBT\nWITH PRESIDENT ROOSEVELT WHEN I GET OVER THERE-\n-0-\nRegraded Uclassified\n351\nJune 14, 1938\nMr. Eccles, Mr. Ransom and Mr. Upham had lunch with\nMr. Morgenthau.\nThere was some discussion of the possibility of\nrailway legislation at this session of Congress, particu-\nlarly the possibility of loans by the RFC without the\napproval of the ICC. Mr. Morgenthau was hopeful that\nsomething might be done for the railway equipment business\nwhich is about as depressed as any in the country.\nMr. Eccles said he understood Mr. Jones was willing to\nmake some loans at four per cent but no one was interested\nin borrowing at that figure. Mr. Morgenthau suggested\nthat after Congress has adjourned, and it is determined\nwhat legislation, if any, there has been on the subject,\nthat he and Mr. Eccles get Jones over and \"put the heat\non him\" to see just how much he can do and how much he 1s\nwilling to do.\nIn response to 8. statement by Mr. Eccles about the\npressure of work, Mr. Morgenthau commented that surely\nthe Federal Reserve Board was having a much easier time\nthis spring than last and that their problems for the last\nUclassified\n352\n- 2 -\nfew months have not been particularly difficult. Mr. Eccles\nreplied that the things which were their direct responsi-\nbility had not been 80 troublesome but that because he\n\"1s still 8 citizen of this country,\" he cannot do other\nthan make his views known and his influence felt in fields\nother than those which are B. direct responsibility of the\nBoard of Governors.\nMr. Morgenthau referred to the conferences that had\nbeen under way looking toward B. degree of uniform practice\nin bank examination and suggesting that since Mr. Ransom's\nconversation with him, he had postponed action until\ntoday in the hope that the Federal Reserve would find\nitself willing to go along with the agreement. Mr. Ransom\nthen read the attached statement which had been prepared,\nrepresenting the attitude of the Board in its approach to\nthe problem. He said that he was sure neither the Comp-\ntroller of the Currency nor the members of the FDIC Board\ncould do other than agree with the statement. When he had\nfinished reading the statement, Mr. Morgenthau said that\nhe thought it just at lot of spinach, that he didn't agree\nwith it, and that he thought it was definitely a criticism\nof the other agencies, and that he hoped it would not be\nRegraded Uclassified\n353\n- 3 -\ndistributed. Mr. Upham said that he did not agree with\nit and that he thought neither the Comptroller of the\nCurrency nor the Chairman of the FDIC would agree with it.\nMr. Eccles said that the majority and the minority\nin the matter of bank examination practices were poles\napart. Mr. Ransom said that he thought they were pretty\nclose together. Mr. Morgenthau said when the Chairman\nand Vice Chairman of the Board of Governors held such\ndiverse views, how could they expect any agreement.\nMr. Ransom said that he thought whether there was an\nagreement or not the conferences had been definitely of\nvalue. He said that he thought the wrong people had been\nconferring, that the ones who should talk the thing out\nare Mr. Eccles, Mr. Crowley and Mr. Diggs. He said that\nhe had kept out of it, the matter having been handled\nfor the Federal Reserve by Mr. McKee and Mr. Davis, and\nthat when he had directed his attention to it at the end\nof last week, he could not even tell what the issues were.\nHe said that Mr. Upham had prepared for his use a statement\nof the issues which he regarded as very helpful and that\nhe had now a pretty clear idea of the differences which\nexisted. He said that they had had a preliminary discussion\nRegraded Uclassified\n354\n- 4 -\nof it at the Board on Monday and Tuesday and the statement\nwhich he had previously read was the outgrowth of that.\nMr. Morgenthau said he understood there was a divided\nopinion in the Board and Mr. Ransom replied that the Board\nis unanimous on the necessity for liberalizing examinat\nand investment policy. Mr. Morgenthau said he was amazed\nthat the Board should not have discussed it before yester-\nday since the conferences had been going on for six weeks.\nMr. Morgenthau said that the gossip, as he got it,\nis that the Federal Reserve is hopeful that no agreement\nwill be reached and that their attitude 1s one of opposi-\ntion to agreeing because of the possible deterrent effect\nthat it would have upon the larger and more ambitious\nprogram of change which they hope to see come about,\nparticularly the unification and consolidation of banking\nagencies into one. Mr. Eccles characterized that rumor\nB.S. \"a damned lie.\" Whereupon Mr. Upham reminded him that\nafter lunch three weeks ago, Mr. Eccles had stated that\nhe hoped no agreement is reached because it would just\nmean that it would take that much longer to secure any\nreal or substantial reform. Mr. Eccles asserted that what\nhe said was something quite different from that--that we\nRegraded Uclassified\n355\n- 5 -\nmust work for the more important thing involved in a\nreal liberalization of bank examination policies.\nMr. Upham insisted and reinsisted that he had stated\nexectly what Mr. Eccles had said to him. Whereupon,\nMr. Eccles continued his conversation, ignoring Mr.\nUpham's remarks. Mr. Upham said that Ronald Ransom was\npresent and heard what was said. Mr. Ransom made an\ninconclusive statement to the general effect that Mr.\nEccles had said something about half way between the\nconflicting reports.\nThe discussion digressed somewhat and Mr. Morgenthau\nsaid that he had been hopeful that for once we could get\nan agreement on something, no matter how minor-1f not\nmore than that the reports be printed on pink paper with\ngreen ink. He said he couldn't understand why important\nWashington officials couldn't agree and not be continually\nworking against each other. He said that if he were all\nthe time going around criticising what Jesse Jones and\nJohn Fahey and Stewart McDonald and other Presidential\nsppointees are doing, he wouldn't think he was doing much\nto help the President. Mr. Ransom said that the questions\nRegraded Uclassified\n356\n- 6 -\ninvolved were more important than the kind of paper or\nkind of ink that would be used and he told the Secretary\nthat if he could have fifteen minutes of his undivided\nsttention some day, he would be 8 poor salesman if he\ncouldn't convince the Secretary of the absolute necessity\nfor a consolidation of Federal banking agencies into one.\nHe said he didn't care which one it was but his own\nopinion 1s that it must be the Federal Reserve System.\nMr. Morgenthau said that he could not accept the\ncontention that bank examination should be a function\nof the business cycle with loose examination in bad\ntimes and strict examination in good times. Mr. Rensom\ncommented that the way it works now is there is strict\nexamination in bad times and loose examination in good.\nMr. Upham stated that he could not permit the\nmeeting to break up without having seid one other thing.\nHe said that in the fourteen years he had been in Wash-\nington he had at various times been very close to the\nFederal Reserve Board and its staff, that he was and 1s\nvery fond of them and that it was partly because of his\ninterest in them that he had gone to Mr. Ransom last\nweek and told him that he regarded their sttitude in not\nRegraded Uclassified\n357\n- 7 -\nbeing willing to agree as (a) unfair to the Secretary\nof the Treasury, particularly in view of the fact that\nthe President's susggestion about coordination had been\nmade at their instance and taken seriously by the\nSecretary in his attempt to translate it into action\nonce the President had indicated his wish; and (b) that\nthe Reserve Board was doing itself and the System a\ndisservice by adopting B. hold-out attitude. He said\nthat under those circumstances he felt that it was a\nvery serious matter for the Chairman of the Board of\nGovernors to tell the Secretary of the Treasury that\nhe, Mr. Upham, was a liar. He said he was sure that\nhe had reported accurately to the Secretary what Mr.\nEccles had said, and that in view of the circumstances\nhe didn't feel as though he would be of any use to the\nSecretary in inter-agency relationships. Mr. Morgenthau\nsaid that he thought Mr. Eccles had been a little unfor-\ntunate in his choice of words and that he believed he\nwas big enough to apologize. Mr. Eccles said he would\nbe glad to do so, and that he had had no intention of\ncalling Mr. Upham a liar. Mr. Morgenthau said that\nMr. Upham had taken the part of Mr. Eccles so many times\nRegraded Iclassified\n358\n- 8 -\nin the last four years that he had on several occasions\nasked him whether he was working for Eccles or for the\nTreasury. He said Mr. Upham was one of the best friends\nthe Reserve System had in Washington. Mr. Ransom com-\nmented that Mr. Eccles had told him just that when he\nfirst came to Washington.\nMx. Morgenthau then said that there were other\nincidents which led to his feeling that the attitude of\nthe Federal Reserve was one of not wanting to cooperate.\nHe referred particularly to the resolution which had\nbeen passed by the Federal Advisory Council and the\nstatements made by Mr. Ecoles and Mr. Ransom at lunch\nthree weeks ago to the effect that no such resolution\nhad been adopted. Mr. Ransom attempted to explain that\nby saying that the secretary of the Council not being\nthere, they had not received the resolution from the\nacting secretary until later. Mr. Upham commented that\nseveral others in the city had known that it was adopted\nand had seen copies of it, and that it was curious that\nthe members of the Board should be the only ones who\ndidn't know.\nRegraded Uclassified\n359\n- 9 -\nMr. Ransom suggested that Mr. Eccles, Mr. Crowley\nand Mr. Diggs should get together and discuss things.\nHe said that at least they could state positively and\nin black and white what the points of differences were.\nMr. Morgenthau said he had no interest in a further\nstatement of the points of issue, that what he wanted\nwas for them to agree on something, no matter if it was\nonly one little insignificant thing. Mr. Eccles said\nthat they would like to have twenty-four hours or so\nto put down in black and white their decisions on the\nmatters under discussion, and it was left to Mr. Upham\nto arrange a meeting of the heads of the three agencies,\nat which he also would be present.\nThe next day Mr. Upham called Mr. Eccles on the\nphone to arrange a meeting, which, at Mr. Eccles'\nrequest, was to be luncheon on Friday at the Federal\nReserve Board. During the course of this conversation,\nMr. Eccles said that his whole attitude had been one\nRegraded Uclassified\n360\n- 10 -\nnot of refusing to cooperate but he is in the impossible\nposition of where he cannot consistently agree to the\nproposals that are agreed to by the other agencies. It\nhas been his long-standing view that no attention should\nbe paid to market prices of securities in the reports\nor to their ratings by rating agencies, and that since\nthe Banking Act of 1935 none of these tests of liquidity\nare of any importance, since banks can and should redis-\ncount with the Federal Reserve banks when they are in\nneed of liquid funds. The same old crowd is in charge\nof bank examinations that were in 1932. They are not\ndoing what the President wants done. He thinks their\nposition as well as the majority agreement should be\nput up to the President for his decision.\nMr. Eccles referred to and read over the telephone\na couple of articles, one in the Goldsmith letter and\none in the Vall Street Journal, reporting that Secretary\nMorgenthau had said at his press conference that it made\nvery little difference whether the Federal Reserve went\nalong on the bank agreement since the Comptroller of the\nCurrency and the FDIC and the State Bank Commissioners\nRegraded Uclassified\n361\n- 11 -\nincluded all banks under their supervision. Mr. Goldsmith\nhad added that Mr. Morgenthau regarded the supreme court\nof finance as of very little importance in this matter.\nMr. Eccles said that everybody down at the Federal Reserve\nBoard were pretty sore about this and that it had operated\nto influence them to be less interested in cooperation.\nThe attitude in their Board and staff seems to be as a\nresult of this 8 sort of \"what the hell's the use\" attitude.\nMr. Eccles said that bend profits must be segregated\nin special reserves. Mr. Upham told him that Mr. Paulger\nhad presented his views on those points faithfully and\nthat the others just did not agree to them. Mr. Upham\ntold him that he had been hearing those views and both\nsides of the case presented and argued about for days\nuntil he was dizzy. What he was interested in was not\nstatements of inflexible adherence to position or policy\nbut compromise.\nUpm\nRegraded Uclassified\n362\nIn his message to Congress on April 14th, the President\ndeclared his purpose \"immediately to make additional bank resources\navailable for the credit needs of the country\", and announced the\ndesterilization of approximately $1,400,000,000 of Treasury gold\naccompenied by action on the part of the Federal Reserve Board to\nreduce reserve requirements by about three-quarters of a billion\ndollars, stating that \"these measures will make more abundent the\nsupply of funds for commerce, industry and agriculture.\" He stated:\n\"AB as part of better administration, I hope that Federal banking\nsupervision can be better coordinated.\"\nPursuant to the latter suggestion, the Secretary of the\nTreasury initiated a series of conferences among the three Federal\nbenking supervisory agencies, namely, the Federal Deposit Insurance\nCorporation, the Office of the Comptroller of the Currency, and the\nBoard of Governors of the Federal Reserve System.\nThe purpose of this portion of the President's message and\nof the conferences, 85 understood by the Board of Governors, was,\nfirst, that there should be no question whatever ES to the abundance\nof credit available for sound business enterprise, and, second, that\nthe policies, practices and regulations of the three Federal agencies\nshould be reexamined in order to determine wherein they might be 1m-\nproved with E. view to furthering this objective, consistent with\nsound banking principles.\nRegraded Uclassified\n363\n- 2 -\nAa a result of consideration of the problem before and\nsubsequent to the President's message, the Board of Governors had\nconcluded that certain existing policies, practices and regulations\nwith respect to bank examination and supervision tend to be un-\nnecessarily restrictive, working 8 hardship particularly upon small\nbusiness enterprise and the banks with which they deal. Thus, de-\nflationary forces tend to be accentuated in periods of business dem\npression when criticisms by examining authorities encourage forced\nliquidation of existing loans and investments.\nExperience following 1929 justifies the view that de-\npressions are made worse and recovery delayed when banks are led\nto liquidate loans that are needed by borrowers to carry on busi-\nness, end that are earning assets of the banks, but that may be\ntemporarily slow in a time of severe economic downswing. Similarly,\nto apply the test of current marketability end rating to bank hold-\nings of securities is to give disproportionate weight to current\nmarket quotations that do not necessarily reflect the true value of\nthe securities, or the experience, record and character of the issuers.\nUnder such circumstances, banks are unable to sustain the\nexisting volume of credit, let alone extend the new credit needed for\nrecovery, and pressures naturally accumulate for creation of com-\npetitive governmental agencies to render the services to the public\nund to extend the credit which the banks are either discouraged or\nprevented from giving.\nRegraded Uclassified\n3S4\n- 3 -\nTherefore, the Board is of the opinion that such re-\nstrictions hamper the Government's policy of making credit abundant-\nly evailable on terms and conditions that would encourage sound\nprivate enterprise. The Board is also of the opinion that such re-\nstrictions result in unjustified criticism of the banks of the\ncountry and prevent them from performing essential public services\nin accommodating business, agriculture and industry, thus hindering\nthem in adequately serving their communities; and that such re-\nstrictions cannot be justified on the basis of protecting either\nthe banks or their depositors against speculation and other un-\nsound banking practices.\nWith these broad considerations in mind, the Board of\nGovernors approached the problem of reviewing the existing bank ex-\namination and supervisory policies, practices and regulations from\nthe standpoint of (1) arresting further contraction of existing credit\nend encouraging the banks to extend credit to sound borrowers on terms\nand conditions that would encourage production, provide employment and\nat the same time yield returns that would enable the banks to earn 8.\nliving; (2) to protect the banking system against the pressures for\nestablishing competitive governmental agencies and at the same time\nto create and maintain sound and enduring principles of banking\noperations in the general public interest; and (3) furthering economic\nrecovery.\nRegraded Uclassified\n365\nZ-114\nJune 14, 1938.\nDear Senator Vandenberg:\nYour letter of May 17 is of much interest to me and to\nthe other members the Board of Governors, for it raises funda-\nmental questions ablic interest. I appreciate, as I know my\ncolleagues do, your interest in having a correct statement of the\nfacts with which to meet misleading and damaging propagande that\njeonardizes not merely our banks but our entire economic structure\nand, in the final analysis, our democratic institutions.\nYou state that in your part of the country there is\nagitation to abolish the Federal Reserve System and to substitute\ngreenbacks for bonds, and that the advocates of this course make\ntwo main points: first, that, although the Constitution gives\nCongress the power to \"coin money and regulate the value thereof\",\nCongress has abdicated this power; end, second, that in conse-\nquence of this abdication, private banking, operating through the\nmedium of the Federal Reserve System, is the actual controller of\ncoinage and values and therety takes B. profit to itself through\nthe exercise of this power.\nWe are constantly bombarded, as you are, by those who\nImagine that all the complicated problems of our economic life\ncan be solved by monetary magic. Unfortunately, the problems are\nnot so simple. The failure on the part of many groups to under-\nstand how our economic system functions increases the difficulty\nof finding practical solutions to the vital problems that confront\nus.\nOne of the most conspicuous and arresting facts of the\nsituation as it exists now and has existed since the banking holi-\naay is that we have an abundance, not 8 scarcity, of money and of\nfunds seeking investment in profitable and productive outlets. It\nwould be supposed that in the presence of this fact those who imagine\nthat e mere increase in the volume of money would assure full employ-\nment and prosperity would at least reexamine their arguments. I\ndoubt whether in all history there has ever been such a convincing\ndemonstration of the falsity of the theory that mere creation of 8\nvast volume of funds will of itself produce or maintain prosperous\nconditions.\nRegraded Uclassified\n365\n- & -\nZ-114\nThe vital point which is so strangely overlooked by the\nquantity of money theorists is that in order to have prosperity we\nmust not only have an adequate supply of money but it must be put\nto active use for productive enterprises.\nThe great need now, as has been the case ever since the\nlate twenties and, indeed, throughout much of the so-called pros-\nperous ara is to draw upon our existing human and material re-\nsources and put them to productive use. Our problem is not and has\nnot been in any sense one of an inadequate supply of money and credit.\nwe have today, for example, as you are aware, B. larger volume of\ncurrency and bank deposits than we had at the peak of the boom in\n1929. Interest ratos have been and continue to be at unprecedentedly\nlow levels. This would not be the case if there were a scarcity of\nmoney. It is a scarcity of money, together with demand for it, that\nmakes interest rates rise.\nExcess reserves of the banking system are and have been\nvery much greater then they were throughout the period of the\ntwenties. At present they exceed $2,500,000,000. and by the end of\nthe year they are likely to exceed $3,500,000,000, which ia grenter\nthan they ever have been in oll history. Excess reserves represent\nidle money. In their present proportions, they represent credit ro-\nsources on which business could draw practically without limit if\nbusiness were able or willing to use these resources for productive\npurposes.\nIn my judgment, one reason why bank credit is not flowing\nadequately into productive business channels is because the banks\nare under too severe restrictions in their lending and investing\noperations. This is due both to Federal end State bank examination\npolicies and to the Regulation of the Comptroller of the Currency\ngoverning investments by member banks, Ao to loans, many would-be\nborrowers cannot get deserved accommodation by the banks, not be-\ncause the bankers are necessarily at fault, but because of the re-\nstrictions imposed upon them. While lurger units of business can\nobtain ample bank credit, there are numerous cases where sound local\nbusinesses need working capital or fixed capital on longer terms then\nthe banks can mske without being criticized by most bank examiners\nwho have been trained in the school which identifies liquidity with\nsoundness. Similarly, the Comptroller's Regulation in effect con-\nfines permissible bank investments to registered socurities that are\ngiven approved ratings by recognized rating firms and that have E\nwide end active market. Thus many local industries of small and\nRegraded Uclassified\n367\nd) 1 -\n2-114\nmodium size, which cannot stand the costs of registering and isouing\nsocurities for general public offering but which are perfectly sound\nrisks, are denied access to that type of credit which is available\nto larger business units through the purchase of their securition by\nbanks. Without questioning the necessity for regulations in the\nfield of investment securities, I an confident that it is B. mistake\nto prohibit member banks from purchasing sound securities of local\nbusinesses. I have urged that the Comptroller's Regulation be re-\nvised 30 that bank lending end investment policy can meet changed\nconditions and présent day requirements of business and industry.\nIn e recent address, I stated: \"Bankers cannot justly be held ro-\nsponsible for such restrictive governmental banking policies GS con-\nfuse soundness with liquidity or true worth with current depressed\nmurket values. I favor modernization of these practices and regu-\nlations, to encourage the benkers to meet changed credit conditions\nand needs within their own communities, and thus to discourage the\nalternative which is multiplication of governmental agencies set up\nto provide credit eccommodation that the banking community could and\nshould in normal times be adapted to extend to the public.\"\nThus while the actual and potential supply of funds is un-\nprecedented, and the trouble is by no means a lack of such resourcos,\nmonetary policies which have cimed at providing this abundence of\nmoney Are frustrated when, at the some time, examinution and invost-\nment policy remain restrictive and, indeed, are exactly contrary to\nmonetary policy. It is for this renson that I have likewise con-\ntended that bank examination and investment policies must be closely\ncoordinated with monetary policy. Otherwise, the result is likely to\nbe the stolemate that now exists in the case of many sound but small\nbusiness men who would obtain credit and put it to productive use, and\nto whom the bankers would make loans, but for the fact that the Govern-\nment's underlying policy of creating ample credit at reasonable rates\nfor the encouragement of legitimate business is balked, in the cuses I\nhave indicated by restrictive rules and regulations.\nI have digressed from discussion of the specific points\nraised in your letter since I felt it necessary to emphasize that\neven in the field of credit control, which is generally entrusted\nto the Federal Reserve authorities, improvement and coordination of\nthe activities of different branches of the Government 18 necessary.\nThis situation indicates the urgent nood for amendments to the bank-\nLng laws to insure correlation of policios among the verious banking\nend other financin] supervisory authorities.\nsifie\n338\n2-114\n4 -\nBut, aside from the obstacles just described to the flow\nof money into productive enterprise, the principal reason why this\n[low is held back is that business snd industry generally see no way\nto use funds profitably. They are not sure of finding & profitable\nmarket for their products. And this condition cannot be remedied\nuntil consumers have sufficient incomes to buy those products.\nLock of recognition of this fact lies behind much of the\nmonetory agitation, particularly that directed against the banking\nsystem and against the methods of financing the requirements of the\nGovernment.\nOur banking system has developed its present pattern since\nthe beginning of the Republic and while no one familiar with it\nwould contend that it has attained perfection or has yet approached\nthe ideal, it has been adapted, step by step, in accordance with\nAmerican principles and traditions of democratic government and to\navoid too great a concentration of or on abuse of power. So many\nsefeguerds against these evils have been established over the years\nas to present other difficulties, such as those arising from divided\nresponsibilities. Yet, with Ell of the admitted faults, the system\nis infinitely preferable to one which completely abandons the basic\nprinciples upon which democratic governments were long ago established\nend have since been maintained. Similarly, the procedure whereby the\nGovernment issues its securities, pays interest upon them, and repays\nthem at meturity, has been established out of long experience.\nThe Government represents all of our people. Its debts\nare the debta of all of our people. When me as a people, acting\nthrough our collective medium of government, borrow money, we are\nborrowing from ourselves, and when we pay interest on or pay back\nthe principal of the debt thus created, we are paying ourselves.\nThe money required to pay the interest and to pay back the principal\nls raised by taxation lovied broadly on the basis of ebility to pay.\nWhat is to be gsined by doing away with this established\nprocess? If the Government is not to pay interest, then it can no\nlongor borrow from its citizens. Certainly they cannot be asked to\nlend their savings without any return whatsoever-not if we are to\npreserve B. democratic system of private capital. The Government\nwould have to fall back, then, upon Issuing currency. Currency 1º\nused only for 8 omall part, not more than 10 per cent, of our busi-\nness transactions. The heart of our system is the extension and con-\ntraction of credit in accordance with the requirements of commerce,\nRegraded Uclassified\n339\nZ-114\n- 5 -\ninjustry and agriculture. But let us suppose that the Government\nwere to issue more and more currency in order to meet its current\nobligetions and also to pay off its bonded debt entirely, 88 some\nof the advocates to whom you refer have proposed. The recipients\nof the currency, if they are on the relief rolls, for example, would\nspend the money as they do the cash they receive now, but ultimately\nit would find its way into the hands of some merchant or producer\nwho would deposit it in his bank, and the bank in turn would forward\nthe cash to the Federal Reserve bank where it would add to excess re-\nserves. Or, if the recipient 16 the holder of Д Government bond\nwhich he is obliged to exchange for currency, he might possibly\nspend some of the currency, or he might endeavor to buy some other\nsecurity which would return a yield on his capital, or he might de-\nposit the currency in his bank, which in turn would forward it to\nthe Federal Reserve bank, but in every case the currency ultimately\nwould find its way to the Federal Reserve banks and add to EXCOSE\nreserves.\nSuppose that the entire national debt were to be paid off\nin this fashion. About $34,000,000,000 of the Government debt is\nreprosented by Treasury securities held by banks, insurance companies\nend other corporate and individual investors. To replace these se-\ncurities with cash would mean that the cash would flow into the Fed-\neral Reserve banks and build up excess reserves by $34,000,000,000,\nor to a prospective grand total of more than $37,000,000,000. There\nis no way in which any such deluge of excess reserves could be kept\nwithin control to prevent them from being used as 8 basis for B. reck-\nless inflation. Under our system of so-called fractional reserves,\nfor every dollar of excess reserves they have the banks can lend\nauproximately seven dollars. Thus, $37,000,000,000 of excess re-\nserves, if used as a basis for loans, would be capable of expanding\ninto some $250,000,000,000 of bank loans, on astronomical figure\nthat, if ever realized, would mean the wildest inflation imaginable.\nYet the figure serves to illustrate the absurdity of the proposal to\npay off the Covernment's deht in cash.\nAssuming that the banks would not indulge in any such\norgy of inflation-end, as I have pointed out, there would be no\nway to control the situation-then all that would be accomplished by\nthe proposel, is that the holders of Government securities, whether\nthey be individuals or insurance companies, or suvings and other\nbanks, would receive cash for their Government securities and this\neash they would try to invest in some other interest-bearing obli-\ngotion, presumably one issued by e private corporation, and if they\nRegraded Uclassified\n370\nZ-114\n- 6 -\nfailed to find a satisfactory investment they would deposit the cash\nin the bank. In any event, the currency would finally find its way\nback to the banking system, because no more currency will remain in\ncirculation than the public needa for pocket, payroll and 8 few\nother purposes.* The heart of the American financing system is\ncredit-not coins or paper money. They are the small change. The\ngreat bulk of business is done by bank checks.\nAfter the money was deposited in the bank it would probably\nbe added to the already redundant amount of funds that fail to find EL\nsutisfactory Investment outlet. The effect would be to bid up to\nlarger and larger premiums the existing supply of such investments,\nwhich are even now et extremely low yields.\nThe creation of more idle funds would not create more\nreal wealth. It would not lead industry to produce more of the\nnecessaries and comforts of life which our people need or, want.\nIt would not help to distribute among the people of the country\nthe needed und wanted things, housing, clothing, food, and ell the\ninfinite variety of other products, which our economy could and\nshould produce.\nFurthermore, the use of the printing press by the Govern-\nment would remove all restraint on public expenditures. When the\nGovernment prints money someone has to pay for what it buys. Pro-\nduction does not increase and in the exchange of goods some group\nin the population must bear the cost of uncompensated acquisitions\nby the Government. Who pays in the first instance depends on cir-\ncumstances, but ultimately it is paid for by those least able to\nbear the cost. For inflation inevitably follows this course, and\nthe burden of inflation, through loss of buying power of money,\nfalls heaviest on the poor who spend all their earnings to meet the\ncost of living. It is far cheaper and more equitable to pay for\nGovernment expenditures out of taxes, to which contributions are in\naccordance with ability to Day, than to pay for them by inflation,\nwhich destroys the value of the pay envelope, the savings account,\nand the insurance policy.\n\"The reasons for this are explained in more detail in \"The Currency\nFunction of the Federel Reserve Banks\", copy of which 10 attached.\nRegraded Uclassified\n371\n-7-\nZ-114\nThere is no question whatever as to the sovereign right\nof the Government to abandon tried and tested principles and to\nissue greenbacks. What is at issue, is not the right of the Govern-\nment to do virtually what it pleases with its currency. The issue\nis whether the Government shall adhero to principles established\nthrough long and often bitter experience or throw those principles\nto the wind in favor of the printing prese methods that we as a\nnation have discarded, but that have led some countries to financial\nruin.\nAs I have indicated, the basic fallacy of the groups to\nwhom you refer appears to be that of mistaking money for real wealth.\nThe Government might, and certainly constitutionally could, flood\nthe nation with paper currency, unbacked by anything other than the\nsir we breathe, and limited only by the ability of the presses to\nturn out the printed money. Yet that would not add one dollar to\nour real wealth. It would not better the lot of our people. It\nwould serve only to engulf all of us in a ruinous inflation and col-\nlapse. Possibly 8 few shrewd speculators might benefit by that, but\nfor the great mass of our people it would be utterly disastrous.\nStripped of the specious profundities about the consti-\ntutional right of the Government to coin money, the argument for\nabandonment of the established principles on which this Government\nhas always stood leads to the same end as the bolder, fronker cry\nfor an unlimited inflation. That would be the inescapable outcome,\nunless it be argued that the Government would be as likely or more\nlikely to avoid the pitfalls of reckless, inflationary issuance of\nits non-interest bearing obligations, than is the case today when\nit is committed to pay the interest and principal on its debt. Ex-\nperience disproves that argument. Governments have too often been\ntempted to travel this path to national bankruptcy when all re-\nstraints wore removed, That is why the proponents of greenbacks\nalso would abolish the Federal Reserve System, which was created\nnearly a quarter of B century ago as 8. means of assuring elasticity\nof our money system and at the same time to prevent abuses and to\nimpose restraints against reckless inflation and speculation. It\nis not surprising that those who want greenbacks also wont to re-\nmove even such limited restraints against inflation as Congress has\ngiven to the Reserve System.\nThis background serves to indicate the answer to the two\npropositions you set forth as characteristic of current monotary\nagitation: first, the argument that Congress has abdicated its con-\nstitutional right to coin money end regulate the value thereof; and,\nRegraded Uclassified\n372\n- 8\n2-114\nsecond, the contention, that as à result of this abdication, the\nprivate banking dystem reaps large profits. Both contentions\nare false.\nUnder the division of powers between the Legislative,\nExecutive and Judicial branches of the Government provided for\nin our Constitution, it is not the function of Congress to ex-\necute the lews. It is the function of Congress to make the laws\nand the function of the Executive branch of the Government to\nexecute them.\nWhen the authors of the Constitution provided that\nCongress should have power to coin money end regulate the value\nthereof, they did not mean that Congress should set up mints and\nprinting presses in the Capitol and operate them itself. They\nmeant that Congress should pass laws regarding the coinage of\nmoney and regulating the value thereof and leave it to the Execu-\ntive branch of the Government to execute these laws, and this is\nexactly what Congress has done.\nThe right of Congress to entrust to administrative\nagencies the execution of the laws which it enacts is as old as\nthe Republic. It has never been seriously questioned. It has\nbeen 60 long recognized and established by the courts as to be\nbeyond serious controversy. Similarly, the Congress has a right\nto assign execution of its will to whatever agency it cares to\nsolect or create. In 80 doing, the Congress frequently selects\nan executive agency of the Federal Government, such as the State,\nWar, Navy or Agriculture Departments. Or it may select an Inde-\npendent agency, for whose operations it appropriates the necessary\nfunds, such AB the Federal Trade Commission or the Interstate Com-\nmerce Commission, Congress assigns the execution of its power to\nocin money, for Instance, to the Treasury Department, and, in re-\ncent years, has given the President B limited authority to determine\nthe gold value of the dollar. In all such cases, Congress has not\nabdicated its power. Congress has only done what it constitution-\nally hAs the right to do: It. Ins set up or used existing admini-\nstrative agencies to execute its will, while retaining the power to\ntake back the authority or to place that authority elsewhere. Ab-\ndication of A power means its surrender. Congress surrenders none\nof its power to coin money and fix the value thereof. It simply\ndesignates the Treasury 03 the instrument of its will and power to\ncoin m.ney.\nRegraded Uclassified\n373\n- 9 -\n2-114\nIn exactly the same way, Congress has established the\nFederal Reserve System 88 an independent agency to carry out its\nmandate in connection with the terms and conditions upon which\nmumber banks may create credit currency. The only important point\nof difference between creation of the Reserve System and creation\nof the Interstate Commerce Commission as Independent agencies to\ncarry out the will of Congress is that the expenses of the former\nare paid out of the carnings of the System, while the expenses of\nthe latter are paid out of the Treasury. Congress ordained that\nthis difference should exist in respect to the Reserve System 08\n6 further safeguard of its independence of action in the exercise\nof the delegated authority of Congress. At the same time, Congress\nhas the power to abolish the System, to change it, to require that\nits expenses be paid in some other manner, and to appropriate the\nearnings and surplus of the System. In fact, Congress has exer-\ncised this power by appropriating to the Federal Deposit Insurance\nCorporation fund approximately $140,000,000 from the surplus of the\nReserve System built up out of earnings. By no stretch of the\nimagination can this be called an abdication or surrender of a con-\nstitutional power by the Congress. It is, as In innumerable other\ncuses, nn assignment by Congress of the execution of en unquestioned\nand fully retained constitutional power.\nAs for the question of the profits of the banking system,\nso far ns the Federal Reserve System is concerned, It is not and\nnever has been operated with A view to making profits, and in this\nrespect differs fundamentally from the usual commercial bank. Such\nprofits as have accrued to the System through its operations, from\nwhich reserves have been established to cover contingencies, from\nwhich expenses of the System have been paid, on which franchise\ntaxes have been levied at times by Congress, and which have been\nappropriated by Congress ES in the case of the Federal Deposit In-\ncurance Corporation fund, have been derived 68 an incident of and\nnot as E result of the objective of the System's operations.\nThe System's operations are intended to serve the general\npublic welfere, Such operations are a part of the financial mecha-\nnism necessary in all modern governments. To abolish the System\nwould not do away with the necessity for creating some similar mecha-\nnism to perform the credit and supervisory functions which Congress\nhas deputized the System to perform. Opinions may differ 8.8 to\nwhether some other mochanism might be better, but the right of the\nVengress to create the Reserve System ES the agency for the per-\nformance of these essential functions cannot be seriously challenged.\n374\nLO , I\n2-114\nAccordingly, there is no substance whatever to the\nassertion that Congress has abdicated its constitutional powers\nby authorizing the Reserve System to carry out its will, and, by\nthe same token, the argument that thereby private banking 1m-\nproperly derives a profit falls to the ground. The assumption\nthat the Reserve System, created by and existing at the will of\nCongress, is 8 privately-owned System springs from B. misconception\nof the foots. The mejor monetary, credit and supervisory powers\nof the System are exercised by 8. Board of Governors, nominated by\nthe President and confirmed by the United States Senate. All\nnational banks are required by law to be members of the System,\nand State banks are admitted to membership under specified con-\nditions laid down by the Congress. All of these member banks are\nrequired by law to subscribe B proportional amount of their capital\nto the Federal Reserve banks in their respective districts, on\nwhich subscription a rate of return, fixed by Congress and change-\nable at the will of Congress, is paid. What is, in fact, a com-\npulsory contribution by the member banks is termed a purchase of\nstock, but this designation is misleading since no member bank is\npermitted by law to trade In the stock or to enjoy various other\nprivileges which are usually associated with stock ownership.\nIn any case, regardless of whether the member banks are\nrequired by law to subscribe to this unprivileged stock or whether\nsome other device be substituted for the subscription, the matter\nis relatively unimportant, for it would make no real difference to\nthe proper functioning of our economic system if this detail were\nchanged. The effort of agitators to raise this bugaboo obscures\nthe true meaning of their attacks, which, if successful, would\nundermine the foundations of our economic institutions.\nThey would destroy to no purpose the established first\nprinciples upon which our Government and all solvent governments\nhave operated for centuries. They would do away with the Reserve\nSystem created out of long experience and adapted, step by step,\nover the past quarter of a century. Yet doing away with it would\nnot do away with the necessity for a similar medium to perform\nessential functions for the Government and the public at large.\nThey would, in the end, destroy our banks, our savings, insurance,\nand other fiduciary institutions, for the day that the Government\nabandoned interest-paying and turned to the printing press would\nmark the beginning of the and of the basic principles upon which\nour economic institutions are founded.\nRegraded Uclassified\n375\n- 11 -\n2-114\nPermit me to express again my appreciation of the\nspirit in which you write and your desire to help the public\nto distinguish between sound principles of government and of\neconomics that have been established by centuries of experience\nand proposals which could only bring disaster to the great mass\nof our people.\nSincerely yours,\n(Signod) M. S. Ecclos\nM. S. Eccles,\nChairman.\n.\nHonorable Arthur H. Vandenberg,\nUnited States Senate,\nWashington, D. C.\nAttachment.\nRegraded Uclassified\n375\nGORDON S. RENTSCHLER\n55 WALL STREET\nNEW YORK\nJune 14, 1938.\nPersonal\nDonr Henry:\nI an enclosing four memoranda --\nn. states the problem as we see it\nb. covers in more dotail the various definite things\nthat are waiting to be done\nC. is n practical suggestion from a railroad opera-\ntor's point of view, and\nd. states the problem B.D. a railroad oconomist 8003 it.\nI believe that there is a big field here for useful use of money\npromptly. The road would be open not only to put money out promptly\nbut to use it for purposes which would really be self-liquidating and\nextremely useful not only in helping immediate recovery but in having\nscrothing left that would be very worth while and productive.\nIf I can be of any further help to you in this matter, please\nlet no know.\nWith warmest regards, I am\nEndon sincerely,\nThe Honorable Henry Morgenthau, Jr.\nSecretary of the Treasury,\nWashington, D. C.\nRegraded\na.\n377\nAttached is a very brief outline of some of the ways\nin which Government funds could be properly made available to\nthe railroads. It is not comprehensive and does not attempt\nto deal with the various phases of the report made to the\nPresident by the Splawn Commission or any legislation now\npending in Congress.\nI assume Congress will not deal with the railroad\nproblem broadly before adjournment. The most that we can\nhope for is that they will be willing to allocate part of\nthe funds included in the present spending program to solv-\ning some of the railroads' financial and operating difficul-\nties. In order to accomplish this, the suggestions necessar-\nily must be definite, simple and not encumbered with too much\nadministrative machinery. It must also be remembered that the\nroads cannot be expected to borrow unless it is evident that\nthe use of the funds will produce such savings in the cost of\noperation or otherwise 0.0 to make the expenditure prudent.\nFurther, maturity, rates of interest, payments on account must\nbe liberal as well 8.8 any requirements with regard to the post-\ning of collateral, if available.\nThe Reconstruction Finance Corporation, already famil-\niar with the problem, should be empowered to make advances give\ning it broad discretionary power. There should be no requirements\nof 8. previous certification from the Interstate Commerce Commission.\nThe grant of the loaning power to the R. F. C. might well be limited\nto one year.\nRegraded Uclassified\n378\nTHE RAILROAD PROBLEM\nSPECIAL SUGGESTIONS FOR IMMEDIATE FINANCIAL ASSISTANCE\nBY THE FEDERAL GOVERNMENT\nI - Advances for improvements to way and structures,\nThere are literally thousands of projects already engineered\nwith full information in the possession both of the railroad execu-\ntives and of the Interstate Commerce Commission which could be\nstarted promptly and which would result in a matorial improvement\nof the facilities of the railroads, reduce operating costs and\ntherefore be self-liquidating over a reasonable period of time.\nThey would require the employment of great numbers of workers.\nFor a variety of reasons, the railroads are not in a position to\nprovide the necessary funds to finance such improvements at the\npresent time.\nThe most obvious expenditure of this sort which might well\nbe lifted entirely from the railroads is the cost of the elimination\nof grade crossings. The Federal Grade Crossing Elimination Program\nshould be rapidly extended and the entire cost of the improvement\nborne by the Federal and State Governments.\nNumerous grade revisions, curve elimination, rebuilding of\nbridges, traok work of all kinds including sidings, yards and the like,\nmodernization of water supply, water treating plants and the like would\nprovide much additional work and would result in immediate operating\nsavings. Repayment for the funds provided for work of this kind might\nbe spread over 6. period of from ten to even twenty years, payments to\ncommence, for example, three years after the program has been completed.\nRegraded Uclassified\n379\nII - Equipment\nWith the great falling off in traffic, all roade are\nburdened with excess equipment. Many cars on sidings and some\nstill in use are over-age and expensive to operate. We must\nassume that business and railroad traffic will recover. We\nshould work out, therefore, an intelligent program to provide\nnow for the rebuilding and modernisation of railroad equipment\nprovided the necessary funds could be made available and the\ncost liquidated over & period of years comparable with the reason-\nable life of the equipment. It is sensible to do this kind of\nwork when business is inactive and wages and prices relatively\nlow rather than to postpone it until the pressure of increasing\ntraffic adds substantially to the cost of doing the work. The\ngreat electrification program of the Pennsylvania Railroad which was\npushed forward in 1932-1933 is an example of the wisdom of this sort\nof borrowing.\nIn addition tofreight cars, substantial savings may be\neffected by many roads through the scrapping of obsolete power.\nThis is true not only of the heavier passenger and freight loco-\nmotives but 1s largely true of switching engines and lighter power,\ndue in no small part to the development of the Diesel engine.\nFunds advanced to provide the cost of new power equipment\ncan be very readily secured by the equipment itself and paid for\nover a period of years by the savings produced by its operation.\nIn order to stimulate the rebuilding of equipment and\nthe purchase of additional power, it is particularly essential that\nthe rates of interest be made unusually low 8.6 an additional induce-\nRegraded Uclassified\n380\nment to the carrier to undertake the expenditure.\nA particularly appropriate expenditure would be the\ninstallation of air conditioning equipment in passenger care.\nCompetition for traffic is an incentive for railroads to incur\nexpenditures of this kind although, in many cases, today the\nfunds are lacking.\nIII - Railroad Shops\nThe railroad shops of the country in many instances\nare obsolete and expensive to operate. New structures, power\nplants and machine tool equipment are urgently needed.\nThe\nsavings effected could be readily calculated and over a reason-\nable time would pay for the cost. Special provisions might well\nbe worked out in which the new equipment purchased, itself could\nbe used as security for the advances.\nRegraded Uclassified\nB\n387\nDiggestions for useful expenditures by railroads if funds could be made available\ngrunts of material, or lahor, or both, or by long-term loans at very low rates\nof interest. (10 to 20 years, at 3.31 per cent).\n1. E_ECTRIFICATION\na - Roadways\nD - Structures\no - Equipment\nlectrification on the major trunk lines, which has proven accessful on the\nNew York Central and Pennsylvania, could be done on many other rouds for\nwhich density of traffic would warrent the expenditure. Electrification\nresults in faster and more efficient service and lowering of costs. The\nnew construction and equipment would create a great deal of new employment\nand denand for materials in the steal, building materials, lumber, mach-\ninery, electrical equipment and other industries. The Pennsylvania elec-\ntrification might be extended from Harrisburg west to Pittsburgh. Other\nlines that might be electrified are the Lackawanna, Lohigh Valley, Ches-\napeake & Ohio, Erie (if feasible financially), Mickel Plate, Morfolk &\nWestern, stc\n2. JD REPAIR OF WAYS\nLarge expenditures could be rade to restore the roadways to condition for\nhandling normal traffic, and purchases of track materials, ties, etc.,\nwould increase employment in many infustries.\n3. MAINTAINE AND REPAIR OF STRUCTURES\nHeeded expenditures for paint, roofing, lumber, etc., for maintenance AND\nrepair of stations, bridges, warehouses, piers, owerhouses, etd., would\nhe stread over numerous industries.\n4. HEPAIR D MODERNIZATION OF EJIRET\na. - Locomotives\n: - Freight DATE\n0 - Passenger cars\nLarge expenditures could be made for putting all of the existing equipment\nin proper condition to handle a return of normal traffic. Equally large\nexpenditures could be made for new and modern equipment, including the new\nstream-lined, 11ght-weight passenger trains. The cost of new equipment\nfor a complete train service (usually four physical trains) runs around\n210,000,000. If the New York Central end the Pennsylvania both added\neight streamlined trains each, to take the place of present old equipment,\nthe expenditures for equipment would be $160,000,000. These trains have\nnow proven acceptable, and the other railroads would like to follow the\nlead of the Pennsylvania and New York Central.\n5. WODERNIZATION OF MACHINE SHOP ENTRENT\nà large portion of the machinery and tools in the railroad machine shops\nis very old, and the expenditure for new equipment would give the railroads and\nthe benefit of the marked improvements in efficiency of such machinery\ntools that has been made during the past ten years. The electrification\nprogram would also call for new machine shop equipment.\n6. \"RADE-CROSSING ELIMINATION\nThis has been for years proceeding slowly, but the public denand is 30\ngreat that it will have to be speeded up eventually. The P.W.A. spent\nRegraded Uclassified\n382\nabout $100,000,000 on such projects, yet little real progress has been made\ntoward the ultimate goat. There are still about 250,000 grade-crossings,\nand each year the eliminations are more than offset by the new crossings\nthat are cut. Improvements of this nature, however, not only are non-produe-\ntive of railroad revenue, but they promptly result in an increase in local\ntax assessments.\n7. ELIMINATION OF UNFROFITABLE MILEAGE\nLarge expenditures could be made in tearing up track and demolishing struc-\ntures on lines that are no longer profitable and that should be abandoned.\nThe substitution of bus and truck service by the railroads on such lines\nwould increase demand for automobiles and trucks. Expenditures on tearing\nup old track, etc., would be almost entirely for labor, and would be widely\nspread around the country.\n8. VISCELLANEOUS\nThe above siggestions are all believed to be practical and feasible, and to\nbe of major importance, not only in creating new employment and increasing\nthe purchases of materials from other industries, but in putting the rail-\nroads in better condition to handle their traffic in the future. In addit-\nIon to the direct and indirect demand created for labor and materials, there\nwould also be an increase in railroad clerical employment in connection with\nthe voluminous accounting reports and statistics that they would be required\nto prepare if such projects were expanded. Numerous other projects could\nbe undertaken by certain railroads, but would not be needed by others, such\nas completion of full automatic signal control. The trend toward faster\nfreight service warrants the greater use of the 1.c.1 container service,\nwhich means the purchase of containers, and container cars, and container\ntrucks. If the routine expenditures for maintenance and repairs could be\nlifted from the 1937 level to that of 1929, it would mean approximately\n$1,000,000 more spent every day for iron and steel products, forest prod-\nucts, and miscellaneous products (exclusive of expenditures for fuel and\nfor rolling stock). These purchases would be spread into practically\nevery ind stry and the money would go into practically every county in the\nUnited States. Note attached schedule of purchases in 1937.\nune 14, 1938\nRegraded Uclassified\n383\nAPPENDIX C\nPURCHASES OF FUEL, MATERIAL AND SUPPLIES\nRAILWAYS OF CLASS 1-CALENDAR YEARS 1937 AND 1936\nI'm\n1057\n1996\nFail:\ncosi.\n$216,275,000\n$208,793.000\nAuthracite coal\n3,908,000\n4,372,000\nFuel oil\n63.856,000\n52,133,000\nQuality\n5,859,800\n3,804,000\nAD other (coke, word, fuel for (laminative)\n3,195,000\n3,168,000\nTotal fool\n$294,293,000\n$272,270,000\nParent Products:\nCrue time (treated and untinated)\n# 58,710,000\n# 40,989,000\nSwitch and bridge time (treated and untreated)\n6,389,000\n5,287,000\nTimber and lumber (taridgo and building. equipment, rough and finished\nlumber)\n35,345,000\n27,888.000\nOther format products\n4,063,000\n2,519,000\nTotal forest products\n$104,707,000\n. 76,683,000\nfrom and Steel Products:\nStandrail (IM/W and accound hand. except scrap)\n44,424,000\n37,239,000\nWhen siles and time\n31,173,000\n24,501,000\nFroge, switchen and crosings, und parts of same\n12,566,000\n8,192,000\nTrack fastenings, truck bolta, apikes, etc\n36,558,000\n31,206,000\nIron bridges, turntables and structural steel. all kinds\n4,133,000\n3,782,000\nBar from and spring sted, tool strul, unfabricated rulled shapes, wire\nstiling and chain, except light evil; boiler, firebox, tank, and short iron\nset steel, all kinds\n32,186,000\n24,901,000\nForgings and pressed sted parts for locomotives\n4,642,000\n3,103,000\nCar forgings, iron and steel, and fabricated or shaped stool. for passenger\nand freight care\n18,042,000\n11,072,000\nFlue and tubes for locomotives and stationary boilers\n5,999,000\n5,504,000\nInterlocking and signal material\n15,463,000\n10,310,000\nTelegraph, telephone and redio material\n2.607,000\n2,044,000\nBolta, nota, washers, riveta, lag acrows, pins and stude\n12,417,000\n10,505,000\nSprious, bolient and elliptical, all kinds for locomutives and care\n3,868,000\n1,228,000\nLocomotive and car castings, boams, couplers, frames nod our rufe\n62,373,000\n45,183,100\nTruck and roadway tools, all kinds, miscellaneous track material and wire\nfracing. Motor, hand. push and veloripede care, and parta for same\nT,809,000\n3,716,000\nMachinery and repair parta, including all power driven shop machinery\n5,405,000\n3,107,000\nMachinery, boilers, repair parta and all other iron and start products\n9,711,000\n6,550,000\nPige, iron and steel, and fittings, all kinds\n6,663,000\n5,519,000\nHardware, all kinds, including naila\n3.655,000\n3,695,000\nHard and small machine tools, such na drills. tape, reamon, dies, chasers,\nincluding air tools and parts\n9.034,000\n5,483,000\nAir brake material\n12,000,000\n7,425,000\nStandard and apecial mechanical applianos for locomotives\n13.603,000\n10,573,000\nAutomotive requipment and supplies\n5,070,000\n3,915,000\nTotal irom and steel products\n$359,409.000\n$273,753,000\nCannot\n1,841,000\n# 1,738,000\nLabricating oils and gream, illusionting oils: boller compound: waste\n19,120,000\n17,366,000\nNon-Ivernis motal and metal products\n27,368,000 -\n22,219,000\nBellest\n11,298,000 -\n10,661,000\nAll electrical materials\n17,800,000 -\n13,419,000\nStationery and printing\n16,431,000 -\n14,011,000\nCommission supplies for dining care, camps, and\n19,873,000\n-\n16,814,000\nBubber and leather goods\n7,782,000 -\n7,109,000\nGlass, drug, chemicals, including chemicals fur Limber treatment: paint-\n- supplies\n30,821,000 -\n27,309,000\nArch brick Tur locumotives\n2,874,000\n2,365,000\nPassenger car trimmings\n10,047,000\n8,161,009\nLocomotive, train and station supplies\n10,500,000\n9,028,000\nAll other miscellanous purchase\n32,219,000\n30,515,000\nTotal miscollaneous purchases\n$307,974.000\n$180,715,000\nGrand Total\n$966,383.000\n$003,421,000\n37\nSource: À Review of Railway Operations in 1937, by Association\nof American Railroads, Bureau of Ruilway Economics, 1938.\nRegraded Uclassified\n384\nFrom \"Railway Age\"\nIssue 3/19/38 - D. L. & W. improved yard operations at Seranton, Pa., with\ninstallation of power switches and car retarders. Geogra-\nphical limits of expansion ware overcome and traffic was\nexpedited and operating expenses reduced.\nIssue 4/10/38 - Union Pacific improved station at Cheyenne, Wyoming, con-\nstructing new concourse, subway platforms and sheds. Band-\nling of passengers and servicing of trains greatly improved.\nIssue 5/7/38 - Article pointing out that station facilities mist keep\npace with modernized train service. Facilities must be ad-\njusted to following trends: (a) reduced local and increas-\ned long distance travel taxes station passenger facilities\nmaking increased demands on more important terminals, (b)\nincreased lengths of trains, (c) increased use of auto-\nmobiles by patrons arriving at and departing from stations,\n(d) more attractive and converient appointments in stations,\n(a) possible to increase revenue from concessions, (f)\ntrunk baggage being replaced more with hard baggage, af-\nfecting checking facilities, (g) faster train schedules,\nIssue 1/1/38 - 1. New machine tools are the greatest need in shop equip-\nment. High speeds and long runs are demanding greater ac-\ncuracy of machining. The large number of obsolete\nmachines are unable to meet this demand, The article in-\ndicates that many machines are in E 20 to 30 years age\ntype and that one rodern machine has enough greater produc-\ntive ospacity to take the place of from 1.35 to 2.50 mach-\nines of the older type. Also domonstrates how en invest-\nof by\nment *saved 38 percent of the investment by the end of 20\none costorn road\nmonths operation.\nNew construction needs include:\nRevision of alinement\nPassing sidings\nYards\nTerminals\nShops\nPower Plants\nLocomotive handling facilities\nCar repair and maintenance\nInspection facilition\nServicing\nWater stations\netc.\nFor example between 1910 and 1930 all but n few of the\nmore than 18,000 water stations supplying water to loconotives were re-\nbuilt or replaced. Yet today, much of the improvement work done during\nthese two docades has been made obsolete by the changing methods of hand-\nling traffic. Graeter spacing stations now required and those now used\nsuffer from heavier derende. of\nRegraded.Uclassi fied\n385\n- 2 -\nAnother article in the same issue shows that in the five\nyears ending 1929 Class I roads spent an avorage of $849,000,000 a year for\nmaintenance of way and structures. In the seven years 1931 to 1937 inclu-\nsive the average annual expenditure was about $415,000,000, and the roads now\nare about a billion dollars behind in these expenditures.\nJune 13, 1938\nRegraded Uclassified\n386\nFor period of, say, 6 months beginning July 1st, the\nGovernment will assume wages of increased railroad employment,\nsubject to following limitations:\n1.\nRailroads, at own cost, will furnish all necessary\nmaterials, supplies and tools.\n2.\nGovernment aid will be limited to wages of persons\nnot on railroad payroll during May 1938, or, if on that payroll,\nonly to extent of increased days of employment; preference in\nreemployment to be given to furloughed railroad employees. If,\nin case of any particular carrier, employment roster in May 1938\nincluded employees on special, emergency, or other abnormal work\nor projects which have been, or during period of this program\nshall be, completed, such work or project shall not be deemed\nincluded in statistics of May 1938.\n3.\nAmount of such Government aid to be determined by\nappropriate Government officials with a view to (a) relief of\nunemployment, and (b) availability and propriety of the work\nwhich will be performed by the reemployed men.\nIf deemed appropriate, the foregoing could be limited\nto (a) maintenance of way and structures, (b) maintenance of\nlocomotives and cars, and (c) additions and betterments.\nRegraded Uclassifie\n387\nJune 15, 1938\nPROPOSED MAINTENANCE LOANS TO RAILBOADS\nOn May 15, the number of railway employees aggreg. 204,000, the lowest number\nemployed at any time in forty years, or since 1898. This is = decrease of 22%\nunder May 1937. Ten years ago, in 1928, the number of railway employees totaled\n1,856,000, which ITES 752,000, or BS% in excess of those employed on May 15. The\ncrere decline in traffic in combination with advances in muges lest November are\nresponsible. If net railway operating income continues at its unprecedently low\nlevel, the actural result will be 4. continuance in the reduction of the number of\nemployees. Reduction of employment our be chunged only by en increase of gross\nburdings, or El reduction of rages, or both.\nThe only likelihood of borrowing by railroads for maintenance work, at least until\n& reduction la *ucomplished, in by opinion, will be from the financially weak\ncommiss. The carriers that are bordering on bankruptcy and capital reorg nisa-\ntion, such 00 the Baltimore and Ohio, the Lehigh Valley, the Boston and Maine, the\nSouthern Reilya the Illinois Central and others, may borrow money to do current\nmaintenche work in order that interest payments may be made. Certainly, it would\nseem unlikely that reilroad av vingements would incar additional short-term debt to\ndo meconomic maintenance work then not needed, and particularly in view of the\npresent high wage level.\nLong-term improvement projects, corresponding to the Pennsylvania Railroad's elect-\nrification program over the past few years, which WES vided in 1932 and 1933 through\nsubstanti 1 borrowings from the Reconstruction Finance Corporation and the Public\nTorks Administration, was justified then because wages and especially matorial costs\nPET'S lon. This is not the position today when reilroad wges are at the highest\nlevel of all time. General electrification, however, is only profitable on heavy\ndessity min-line operation. There LTe only = few heavy density lines, which st\n% 1029 traffic, would justify the original cost of electrification.\nAccording to the Association of American Reilronds, the increase in the cost of\nrulling meterials ená supplies from 1933 to 1357 703 more thun GO%. High material\ncosta and high ragos, in periods of low traffic, simply accelerate a contraction\nin slint improvements. Capital expenditures and purchases of materials end sup-\n-lies by Clasa I Roilways over the pust ten years from 1928 to 1937 were at the\nlottom in 1982 and 1955, when traffic was low, 05 shown below:\nPurchases of\nCapital\nRelatives\nmaterials\nRelatives\nexpenditures\n1928 equals 100\nand supplies\n1928 equals 100\n(000)\n(000)\n1928\n100.0\n$1,271,341\n100.0\n$676,665\n1029\n853,721\n126.2\n1,329,535\n104.6\n1.30\n872,608\n128.9\n1,038,500\n81.7\n7981\n361,912\n53.5\n695,000\n54.7\n1932\n167,194\n24.7\n445,000\n35.0\n125°\n103,947\n15.4\n465,850\n35.6\n1986\n212,712\n31.4\n600,224\n47.2\n1355\n188,502\n27.8\n593,025\n40.6\n1930\n298,991\n44.2\n803,421\nS3.2\n1877\n503,793\n75.3\n966,785\n76.0\nRegraded Uclassified\n÷-\n388\nThe relative stability in capital expenditures on roadway and structures, which\nincludes necessary maintenance on main-line treck, in comparison with the :lmost\nconta cossition of equipment purchases in 1933 is shown below:\nCapitol Expenditures\nof of\nRoadway and\nX of\nEcuipment\nyear's total\nstructures\nyear's total\n(000)\n(000)\n1985\n$15,454\n14.9%\n$88,493\n85.1%\n1934\n92,005\n43.3\n120,707\n56.7\n1935\n70,735\n42.1\n108,367\n57.9\n1238\n152,104\n53.2\n152,837\n46.8\n1937\n882,877\n63.5\n186,018\n36.7\nShedi,sea of fuel, materials and supplies in 1937 were classified ES follows:\n(000)\n$ of\nPurchases\ntotal\nIron And steel products\n$359,409\n37.00\nFuel\n294,293\n30.5\nTies, Maler and Lumber\n104,707\n10.8\nMiscellencous\n207,374\n21.5\nTotal\n1966,333\n100.0\nare ittached recording the purchases of fuel, materials, and e uipment,\nnei the number of employees and total compensation in 1037 by states. Pennsylvenia,\nIllinois, Ohio, and New York head the list.\nTaste 1a little demand for ne equipment et the present level of traffic, and ex-\ntusivo rehabilitation of rolling stock in need of roggirs is unnecessary. The\nmost Seconstruction Fin nce Corporation acintenance loan of the Lehigh Villey\nAddrosd in April, amounting to $778,000, represented 68% of : $1,173,000 repair\nto eraip coal with cast-steel erch bar trucks to conform with the\nAssociation of American Railroad ruling. The entire 1:bor cost of the program, how-\n- secunted to only $168,000, or 14%, of the total expenditure. The belance TAB\nCirtled into matori:1 costs of $985,000 (75%) and overhead expenses of $01,000 (7%),\nLoss credit of $63,000 for solvage. Nuterial costs absorb the groater part of\nthere reguire and directly sfford little relief to reilroed workers, Ithough in-\nSpecify help the employees in the equipment industry.\nPyer 30 money now mere borrowed by both the strong milroads and the financially week\norgarties, it Sasms improbable that such maintensnce work would be in excess of\ncapport reguiremento to keep the property operating in n. sefe condition. This would\nnot eagloy within I men, but simply makes it possible to maintain the existing\nof employes et the present low level of traffic. The constant accumulation\nof Mort-term notes, in the long run, is st the expense of the stockholders-the\ntheat owners, and of the junior bondholders-who will be the future owners of many\nnilzo de in this country.\nThe Duets of the transportation industry show that approximately 80% obsolescence\nvide in the railroads due to competitive transportation. Coordination, consolide-\ntion and absndonments, which meons & grester decresse in the number of employees,\nRegraded\n389\nare needed by the railroads and not temporary maintenance expenditures on unproduc-\ntive property. The problem is basic and cannot be solved by methods of expediency.\nExtensive additions and betterments programs by railroads in bankruptcy, too, should\nnot be supported by the security-holders at the expense of interest payments on\nunderlying debt.\nIt would seem that what the railroad industry needs, from the creditors' and owners'\npoint of view, is a national investigation of union working rules. This is one\nthing that railro à labor has endesvored to avoid for years. The so-colled \"festherbed\nworking regulations, now in effect, which cost the railroads substantial sums in\nIsbor expenses, should be changed to require every railroad employee to do 2 full\nday's work for e day's pay. The reilroads then would be helped in their efforts to\ngoend more income, and not borrowed money, on plant rehabilitation to meet extensive\ncommetition.\nFor the four months' period ended April 30, 1938, Class I Railroads show a decline\nof 23.7% in total operating revenues ná a reduction of 80.9% in net railway operat-\ning income under the corresponding period of 1937. Net railway operating income of\n228,791,000 for the first four months in 1938 was at the ennuel rate of return of\n0.44% on their property investment. In the same period in 1937, net railway operat-\ning income vas $195,872,000, or 3.01%, on their property investment. For the first\nnurter of 1938, the latest complete date available, Class I Railroads show net\ndeficit after fixed charges of $106,249,000, in contrast with net income of $15,-\n330,000 in the first quarter last year. Car londings for May show a 29% decline\nunäer MAY 1957, and traffic levels indicated for June are just as discouraging.\nFailroad operating nd financial managements, under these adverse circumstances,\nTTO concerned primarily ith curtailing expenditures in relation to income, and ef-\nfecting further reductions in the costs of operation.\n390\nCLASS I RAILWAYS\nPurchases of fuel, materials and supplies, and equipment in 1937 by States\n(in thousands)\nFuel,\nmaterials\nand\nPer Cent.\nNew\nPer Cent.\nsupplies\nof total\nequipment\nof total\nPenn.\n$165,135\n17.1%\n$ 45,242\n27.9%\nIll.\n113,761\n11.8\n35,749\n21.3\nOhio\n61,373\n6.4\n6,206\n3.6\nN.Y.\n50,749\n5.3\n17,795\n10.6\nInd.\n49,824\n5.2\n28,247\n16.8\nCalif.\n45,235\n4.7\n952\n0.5\nW. Ve.\n34,781\n3.6\n5,895\n3.4\nMo.\n28,401\n2.8\n9,600\n5.6\nAla.\n23,439\n2.4\n7,768\n4.6\nTex.\n23,071\n2.3\n4\n-\nTotal 10 states\n595,769\n61.6\n157,458\n94.3\nAll others\n370,614\n38.4\n9,520\n5.7\nTotal\n966,383 (a)\n100.0%\n$166,978\n100.0%\n(a) $106,174,000 was not distributed by states.\nRegraded Uclassified\n391\nCLASS I RAILWAYS\nNumber of employees and total compensation in 1937 by States\n(in thousands)\nNumber of\nTotal\nemployees\ncompensation\nreceiving\n(money wages)\npay in\nPer Cent.\nYear\nPer Cent.\nJuly 1937\nof total\n1937\nof total\nPenn.\n131\n10.4%\n$ 220,687\n11.1%\nIll.\n106\n8.4\n171,285\n8.6\nN.Y.\n102\n8.1\n166,528\n8.5\nOhio\n84\n6.6\n140,305\n7.2\nCalif.\n54\n4.3\n92,248\n4.6\nTex.\n51\n4.0\n79,286\n4.0\nMo.\n41\n3.2\n63,454\n3.2\nInd.\n40\n3.1\n63,411\n3.2\nMinn.\n37\n2.9\n58,023\n2.9\nN.J.\n34\n2.7\n56,927\n2.8\nTotal 10 states\n680\n53.7\n1,112,154\n56.1\nAll others\n585\n46.3\n871,836\n43.9\nTotal\n1,265\n100.0%\n$1,983,990\n100.0%\nUclassified\n392\nGROUP MEETING\nJune 14, 1938.\n9:30 A. M.\nPresent:\nMr. Oliphant\nMr. Gaston (Late)\nMr. Taylor\nMr. Haas\nMr. White\nMr. Upham\nMr. Lochhead\nMr. Gibbons\nMr. Bell\nMr. McReynolds\nMrs. Klotz\nH.M.Jr:\nMac?\nMcReynolds: I have nothing to report this morning.\nH.M.Jr:\nWhat?\n(\nMcReynolds:\n(Nods head, \"Nothing.\")\nH.M.Jr:\nWhat? I don't hear you.\nMcReynolds: I have \"no.\"\nH.M.Jr:\nYou've nothing - just coasting, huh?\nMcReynolds: I've got a draft of B. letter on that Sherwood\nthing, any time you want to talk.\nH.M.Jr:\nOh, well, I need a little time --- (Low to\nMrs. Klotz.)\nAll right.\n(Nods to Mr. Bell.)\nBell:\nI have nothing, except to report that the T. V. A.\ndecided not to ask for legislation, after confer-\nring with Senator Norris.\nH.M.Jr:\nWhat will they do for money?\nUclassified\n393\n- 2 -\nBell:\nThey are now thinking of going to the R. F. C. to see if\nthat corporation will buy its notes.\nH.M.Jr:\nMr. Jones said he'd send me a memo yesterday\nshowing how much they'd been lending\n.....\n(inaudible)\nStraus was going to send me something on it,\nbut Jones was to definitely do it.\nKlotz:\nHow much they have been lending?\nH.M.Jr:\nJones was to give me a memorandum on how much\nmoney they had been lending, and to whom.\nWhat else, Dan?\nBell:\nThat's all.\nH.M.Jr:\n(Nods to Mr. Gibbons.)\nGibbons:\nThis wire tapping bill, that's in the hands of\na fellow named Quinn, a little country newspaper\nman from Pennsylvania, and Hester's office -\nOliphant's office called me, and somebody would\nprobably have to call Bankhead to give this\nfellow - get him recognized on the floor. Do\nyou want to do that?\nH.M.Jr:\nNo, I don't.\nGibbons:\nWhat about it, Herman, what do you think? Quinn\nis not a very heavy citizen. Congressman Lea\ncould probably get it done.\nOliphant:\nHester told me this morning the prospects for it\nweren't very promising because of that fact.\nThey are inclined to sort of stay away from it\nuntil that clears up.\nH.M.Jr:\nWell, how can it clear up within the next two\ndays?\nGibbons:\nWell, do you think it would be well for me to call\nBankhead and\n......\nH.M.Jr:\nWell, you and Oliphant work together. I definitely\ndon't want to call him.\n*394\n- 3 -\nGibbons:\nDid Gaston tell you about the new Collector of\nCustoms in Boston? He was the Chairman of the\nState Democratic Committee. The papers are\ngoing to break a\nH.M.Jr:\nWhat have your men been doing?\nGibbons:\nHe resigned, but he's still signing his name as\nChairman of the State Democratic Committee.\nI said that is equivalent to forging a check.\nH.d.Jr:\nIf you don't mind, let it 80 a little\nGibbons:\nI mean, the newspaper men are going to ask you -\nthey've got a letter that he signed.\nS.M.Jr:\nWhat are you going to do about it?\nGibbons:\nI told Jimmy that you are going to throw him out.\nU.M.Jr:\nListen, don't tell anybody I am going to throw a\nPresidential appointee out until you see me.\nWhy don't you have this fellow come down from\nBoston and talk to him.\nGibbons:\nJiminy went up there over the week-end. I thought\nit was fair for Jimmy to tell him.\nH.M.Jr:\nWell, supposing you send for him.\nGibbons:\nBut the thing I didn't want was for the newspaper\nmen to come in here and spring something on you.\nU.N.Jr:\nWell, I wouldn't see them until next Monday\nanyway.\n(Telephone conversation with Senator Hattie W.\nCaraway, at 9:35 A. M., attached.)\n395\nJune 14, 1938.\n9:35 a.m.\nE.W.Jr:\nGo ahead,\nOperator:\nGo ahead,\n9.2.Jr:\nHello.\nfre.\nCarraway:\nIs this Mr. Morgenthau?\nH.B.Jr:\nYes, Mrs. Carraway.\nC:\nWell, this 18 a rather personal matter I want to\ntalk to you about. It's rather confidential.\nR...Jr:\nYes, mam.\nC:\nThere's one of the Congressmen, who is running\nagainst me for the Senate.\nS.M.Jr:\nYes, mam.\nis\nI understand he is trying to meke trouble for my\nrevenue collector down home, because he thinks he's\ntoo active in politics.\nYes.\n8:\nIt looks to me like he's always - this man has always\nbeen very strong for the President, I mean this -\nrevenue collector,\nK.M.Jr:\nYes,\nC₁\nAnd he's not taking eny active part in my campaign\nexcept under cover. He's not out in front or anything\nlike that. The funny thing about it is that when -\nin the election last year the nomin tion was offered\nto Mr. McClelland by Mr. - by these people down home,\nand Mr. Atkins took a leading part in it. He\nrefused to do anything about it unless they put fifty\nthousand dollars on the barrel head to make the\ncampaign and of course they couldn't do that. He\ncouldn't take a chance.\nH.C.Jr:\nUhouh.\nC:\nHe tried to get Mr. - this man to come in with him\nfor him this year, and when he wouldn't do it and\nsaid he was for me, why then Mr. McCelland says\nthat he's going to make all the trouble for him he\nRegraded Uclassified\n396\n- 2 -\ncan and he comes up here to you and Mr. Helvering\nto try to get this man stopped and put him in bad.\nNow Mr. Atkins 1e not going to take any front, he's\nnot going to be in evidence at all in the campaign\nand it looks to me like it's & persecution because\nthe man seee he's in the winning side and he's\nmoving heaven and earth to try to get in. Now I\nlaughed and said, \"Well here now, that he wouldn't\ntake a chance and get the man, he didn't think he\ncould best Carl Bailey.\"\nH.H.Jr:\nUhhuh.\n0:\nAnd it reminded me of the story Dad used to tell.\nH.M.Jr:\nWhat WBB that?\nC:\nAbout a man who went down town to jump on the folke\ndown there until some little fellow got tired of it\nand they run him off the streets and he went home\nand jumped on his wife and says, \"I'm going to give\nyou A licking because I can best any damned woman\nin the state.\" And I think that's Mr. McClelland'e\nattitude.\nWell -\nO:\nAnd I 61dn't want you to let him prejudice you all\nin any way against this friend of mine.\nH.W.Jr:\nWell, I'm very glad to have your side of the story\nbecause this Congressman McClelland has demanded to\nsee me and he's coming in at ten thirty this morning.\nC:\nWell, and I want to tell you another thing.\nH.S.Jr:\nYes.\nO:\nWe've always been very good friends, that is -\nhis wife and he have insisted on entertaining me\ndown town and the time the Little Business men Avere here -\nEXAM:\nYes.\n6:\nTe - I went to a dinner that he and his wife gave\nat the Shoreham and he eat up and told - he had\none of these men from my State there, and this man\nwas crowing over the way they treated the men who\ngot up and started to speek for the President -\n397\n- 3 -\nfor the Administration and howled him down and he\njust patted this man on the back and made such an ado\nover it and WAE just tickled to death and encouraged\nhim to do everything they could against the Ad-\nministration. Well now I haven't gone along entirely\nwith the Administration all the time. Everywhere\nthat I think that my people are better served by\nnot doing it I haven't done it. But that's been on\nvery few occasions, and after all I'm a Democrat,\nand I don't think anybody ought to try to put the\nAdministration in B. hole.\nNo, you're quite right,\n:\nThis young man was going to run on en anti-administratio\nplatform until he voted against the re-organization\nbill and it had such flare back, that he's climbing\nnow on the band wagon.\nI see.\n6\nAnd I don't have any patience with that kind of\npeople, and he doesn't have any sense of propriety\nbecause in all this time that he W88 being 80 nice\nto me he didn't even indicate to me he WBS thinking\nof getting in the race and went down there next\nweek end ennounced against me, Now I would have\nfelt better if he had told me he was going to\noppoBe me.\nWell, it -\nC;\nUnder cover there's no doubt but what he'e against\nthe Administration because I heard him make B sbeech\nto the business men telling him how the speech that\nhe WAE going to make, showing that this - the CIO\nand Roosevelt were going to be dictators, they were\ngoing - this country was going into 8 dictatorship.\nI wouldn't tell you this - never mentioned it except\nthat when he takes this attitude I think it ought\nto be known.\nJr:\nBut Mrs. Carreway, all I'm doing here 18 just trying\nto run the Treasury 28 well as I know how.\nI realize that and I think you're doing a good job.\nH.M.Jr:\nThank you, and as long as I'm here in the Treasury,\nRegraded Uclassified\n398\n- 4 -\nwe won't take any sides in any Democratic primary.\nC:\nYes.\nH. .Jr:\nAnd -\nC:\nWell, I think that's right.\nH.4.Jr:\nWell, I - I don't want to take any sides, and I\nalways want the best woman or the best man to win,\nand I assure you all I'll do is to see that our\npeople stay strictly neutral.\nC:\nYes, well -\nH.H.Jr:\nI appreciate you calling me, and I'll have to listen\nto Congressman McClelland and Mr. Helvering $ here,\nand -\n6\nI'm perfectly willing to leave it up to you all, but\nI dien't want you to give him any encouragement.\nH.M.Jr:\nWell I'm very glad to have had a chance to listen.\nis\nAnd I didn't think 1t was necessary really to call\nyou, but I did think if he were going down there\nand going to put up a big spiel, that you ought to\nknow the other side of the picture.\nH.M.Jr:\nThank you 80 much.\nC:\nYou're welcome and I thank you.\nH.R.Jr:\nGoodbye.\nC:\nGoodbye.\n399\n4 -\nH.M.Jr:\n(Over telephone - jokingly.) Get me Tommy\nCorcoran, please. (Hearty laughter.)\nI've got to find out which side we are on.\nGibbons:\nWhat did she say about fifty thousand dollars\non the barrel?\nDell:\nUnder cover.\nT.M.Jrt\nI didn't get that - I was laughing so, inside.\nUphom:\nShe's a good talker - I don't know why she\ndidn't speak out on the phone more.\nMcReynolds:\nMcClellan demanded that this Collector put up\nfifty thousand dollars.\nU.H.Jr:\nIf I knew Corcoren well, I would call him up\nand say, \"Listen, I've got a tough situation -\nwill you tell me which side I should be on?\"\nWell, we've left them alone for the last five\nyears, we'll leave them along the next two and\nat half.\ncheynolds: Dan suggested to me that would be (Inaudible)\nH.M.Jr:\nYou're all fixed up, you and Jimmy and every-\nthing else?\nMibbons:\nI told you what I told him. It was very unfair\nto you. \"You'be be justified, 11 is what my\nexact words were.\nH.M.Jr:\nI'll tell you this: As this goes on, it's\nnice that we clean up each situation as we meet\nit and don't have them accumulating and hanging\nover our heads.\nGilbons:\nI just didn't want the newspaper men to walk\nin on you.\nH.M.Jr:\nIs Herbert sick?\nBous:\nI saw him on Connecticut Avenue; he was walking\ndown. He probably was a little late.\nRegraded\nUclassified\n400\n- 5 -\nH.V.Jr:\n(Over telephone.) Find out if Mr. Gaston is\nill.\n(To Mr. Lochhead;) How's gold?\nLochhead:\nThe gold market is pretty active in London again\ntoday. The market got up to about 34.93.\nSterling stays steady at 496 3/4. That's a\nlittle lower than yesterday. Yet, on the other\nhand, we had 2 little weakness in silver today;\nit's down to 41.92 in London. Some India\nselling in late session.\nR.M.Jr:\nWhat was it yesterday?\nLochhead:\nIt was 42.33 yesterday.\nH.d.Jr:\nSwitching from silver to gold.\nLochbead:\nIt may be to some extent that India is doing\nthat, because it came from the India market.\nT.1.Jr:\nAnything else?\nLockboad:\nThat's all.\nH.N.Jr:\n(Nods to Mr. Upham.)\nUpham:\nThere was some very important news in the comic\nstrips this morning, which I think will really\ndo the President some good. He has asked the\nPresident of France to give a pardon to Joe\nPalooka. He's a comic strip character, who's\nin the Foreign Legion, and has deserted. And\na lot of people, I think, will really take that\nseriously.\nU.I.Jr:\nWell, not knowing Joe Palooka\n......\nUpham:\nDon't you know Joe Palooka?\nM.Jr:\n(Telephone.) Hello. Well, that's funny.\nHams:\nI thought it was he (Mr. Gaston) walking down.\nT44.Jr:\nMaybe he went to the dentist.\nI have Upham down at a quarter of eleven, st\nwhich we go over those bank things. I'll give\nyou fifteen minutes on bank examinations.\nRegraded Iclassified\n- 6 -\n401\nUpham:\nThank you.\nH.M.Jr:\nTaylor, can you be here at a quarter of eleven?\nTaylor:\nYes sir.\nH.M.Jr:\nOliphant, can you be here at a quarter of\neleven?\nOliphant:\n(Nods \"Yes.\")\nH.M.Jr:\n(Nods to Mr. White.)\nWhite:\nAre you interested in the application of the\nWalsh-Healey Act - purchases of gold and possibly\nof silver? The conditions of the purchases of\nthose two metals are rather interesting in\nconnection with the labor situation.\nH.M.Jr:\nI don't know a thing about it.\nWhite:\nShall I take it up with Oliphant? Supposing I\nprepare a memo on it.\nH.M.Jr:\nSupposing you prepare a memo for me.\nOliphant:\nI think it will be academic by day after tomorrow,\nbecause I don't think the bill will pass.\nTaylor:\nWe've been getting communications for a long\nperiod on that subject.\nOliphant:\nYou know what the Walsh-Healey bill is. You\nmust meet labor standards if you are to get\nyour supplies\n.....\n(inaudible)\nThe\nstatute does not extend to gold and silver.\nH.M.Jr:\nHave I had any - well, I mean, it's like - Harry,\nit's you - you're cutting something - cuts ter-\nribly deep, and I would say that the chances of\nCongress going home between now and Thursday\nnight are about a hundred per cent.\nWhite:\nIf it passes we'll prepare a memo for you.\nH.M.Jr:\nIs that optional on the part of the Government?\nCan they go direct to the industry to which it\napplies?\n402\n- 7\nWhite:\nThere may be some question of whether gold and\nsilver will be under that category.\nE.M.Jr:\nPrepare a memo and I'll take a look at it.\nTaylor:\nWe've got some opinions on that.\nI heard the President say yesterday at lunch =\nhe said, like my speech - I say it's finished.\nHe won't even listen to anything more - anything.\nSo I greatly question it, if it's anything nev.\nI mean, he just won't listen to it, and I don't\nthink they will on the hill, especially when\nthey threw the railroad stuff out the\nwindow.\nAnything else, Harry?\nWhite:\n(Nods \"No.\")\nGeorge.\nShas:\nA few more here in the right direction. (Herds\nH.M.Jr. black book.)\nB.M.Jr:\nThose of you who are following the gold, I\nsuggest you read the editorial in today's\nWashington Herld, called \"Devaluation Rumors.\"\nI don't know where they get it, but I believe\nAmbassador Kennedy - and this takes e very con-\nstructive attitude, and throws it down and explains\nwhy Kennedy wouldn't be doing a thing like tus.\nIt's quite interesting. Did you read it?\nLochhead:\nYes, I read it; I thought it was 8 ver, good\neditorial. I was wondering where they Got the\ninformation for it. It looked like a pretty\nwell prepared story.\nM.M.Jr:\nVery carefully prepared - very cereful.\nLet me see what you gave me, George. (Looss st\nblack book.)\nHans:\nTexas again.\nS.M.Jr:\nTexas, good or bad?\nHous:\nGood, for a week.\nRegraded\n403\n- 8 -\nOh, George. I'm surprised at you; I'm surprised\nat you.\nTylor:\nIt might be Jim Whigham. He probably would do\nit on his own time, too.\n...Jr:\nBe probably got it from Gaston. Anything else?\nAbout three minutes, I'd like to have.\nBefore lunch?\nUpior:\nYes. It hasn't anything to do with lunch.\nI've got an urgent family engagement for lunch\ntoday, which I'd like to keep.\nThat's all right. Well, why don't you, after\ntis Quarter - what time do you - can you be\nhere? At a quarter of eleven, on this bank\nthing. Why don't you stay behind on that?\nFine.\nAt the request of the State Department, there\nis a committee at work - a committee from\nState and Agriculture and Surplus Commodity,\nstill working on that problem of getting rid\nof surplus agriculture products, and getting\ncommodities - and we are trying to - I am\nnot very hopeful of a solution being found\nwithout legislation, but they are\nWho is?\nAgriculture.\nRest\nCan 1 come back again? I want to give you a \"\nreport on the berries.\nI didn't know you had gone.\nThis would amuse you - with the berries. Ham\nFish, a boy about twelve years old, just the age\nof my youngster - he came for supper last night\nand we had the strawberries for supper, and\nafter he WAS through he said, \"Well, all I can\nsay is, he must have a Republican superintendent.\"\n(Hearty laughter.)\nRegraded Uclassified\n404\n- 9 -\nHe admitted they were the best berries he had\never tasted.\nGibbons:\nHe's only about twelve years old?\nTaylor:\nYes.\nH.M.Jr:\nYesterday I sent some over to the President for\nlunch. He liked them\n(Mr. Gaston comes in.)\nR.M.Jr:\nHello.\nGaston:\nGood morning.\nH.M.Jr:\n.....\nso I told him that I sold them to the\nGrand Union Company. Quick, he said, \"See that\nthe salesman comes and sees me - I want to sell\nthem my Christmas trees.\" Then he went into a\nlong explanation of how he had to cut his\nChristmas trees on the third of December, how\nhe sold them for four hundred sixty dollars,\nless this, and less that, and he was more\ninterested in his Christmas trees, and wasn't\neven listening about my strawberries.\nYou (Mrs. Klotz) had a little party on the berries\ntoo, didn't you?\nKlotz:\nOh, they just made a bee-line drive to the ice\nbox.\nMcReynolds:\nMiss Callaway's neice, who lives out in\nNebraska, said they voted, when one of these\nnewspaper things was going off, and the children's\nschool voted for Roosevelt and against him, and\nshe said, \"I was the only child in the school\nwho voted for Roosevelt, except those on relief,\nbut we want him. (Laughter.)\nH.M.Jr:\nThis is a good meeting, this morning.\nOliphant:\nYou know, \"A child shall lead them,\" so the Bible\nsays.\nH.M.Jr:\nAll right. White, Oliphant, and Gaston stay,\nplease.\nTO:\nMRS. KLOTZ\n405\nam told that this is one of the\nlargest cases made by the Bureau of\nNarcotics in Chicago in recent years.\nPlease give the memorandum to the\nSecretary if you think he would be\ninterested.\nFrom: MR. GRAVES 6/14/38\n406\nTREASURY DEPARTMENT\nWASHINGTON\nJune 14, 1938.\nMEMORANDUM FOR THE SECRETARY:\nDistrict Supervisor James Biggine, Bureau of Narcotics,\nreports the arrest at Chicago late Saturday, June 11, of\nGeorge 0. Roberts, an official of a drapers' union, and\none John Konig. Roberts maintained two offices in build-\nings in the Loop in Chicago, from which he conducted an\nextensive. drug distributing business.\nIn connection with these arrests, officers seized\nfrom Roberts a total of 133 ounces of heroin and 17\nounces of morphine; from Konig they seized a total of\n15 ounces of heroin. From Roberts there wore also\nseized approximately 35,000 manila envelopes of a type\ncommonly used in Chicago in the distribution of drugs.\nSeveral thousand glassine envelopes for which the manile\nenvelopes are commonly the outside enclosure were also\nseized. A seal \"Merck\" was also seized, 88 well as\napothecary scales, sieves, alcohol lamps, and sticker\nseels.\nThe investigation is being continued.\nGRAVES.\nRegraded Uclassified\n407\nJune 14, 1938.\nMIDIORANDOM FOR THE SECRETARY:\nDistrict Supervisor James Biggins, Bureau of Marcotics,\nreports the arrest at Chicago late Saturday, June 11, of\nGeorge 0. Roberts, an official of a drapers' union, and\none John Konig. Roberts maintained two offices in build-\nings in the Loop in Chicago, from which he conducted an\nextensive drug distributing business.\nIn connection with these arrests, officers seized\nfrom Roberts a total of 133 ounces of heroin and 17\nounces of morphine; from Konig they seized 8. total of\n15 ounces of heroin. From Roberts there were also\nseized approximately 35,000 manila envelopes of a type\ncommonly used in Chicago in the distribution of drugs.\nSeveral thousand glassine envelopes for which the manila\nenvelopes are commonly the outside enclosure were also\nseized. A seal \"Merck\" was also seized, as well as\napothecary scales, sieves, alcohol lamps, and sticker\nseals.\nThe investigation is being continued.\nCRAVES.\nRegraded Uclassified\n408\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE June 14, 1938\nTO\nSecretary Morgenthau\nMr. White\nFROM\nAM\nSubject: Tankers Available for Mexican 011\nSummary\n1. The Mexican Government must have the constant ser-\nvices of only about 60 tankers (out of B. world total\nof 1, ,690), or percent of the world supply, to trans-\nport her export oil.\n2. Mexico, 28 far 8.6 18 known, has only one tanker\nregistered under her own flag, plus 2 or 3 which were\nin Mexican harbors and were expropriated along with\nthe properties.\n3. There appears to be a concerted attempt on the part\nof American, British and Dutch oil companies to prevent\nMexico from obtaining the required tankers.\n4. Eighty-eight percent of the world's supply of tankers\nare directly controlled or are influenced by the American,\nBritish and Dutch 011 companies. (About 60 percent of\nthe world's supply is controlled directly by these comp-\nanies; and about 28 percent is owned by interests which\nare under the influence of the oil companies.)\n5. About 11 percent of the world's tankers is owned\nby Germany, Italy, Japan and U.S.S.R. Mexico could prob-\nably charter all she requires from any two of the first\nthree countries mentioned if she were willing to make an\noil deal with them.on their terms.\n6. Mexico would find it difficult, if not impossible,\nto purchase or build enough tankers within the near future\nto handle her export oil.\n7. Further investigation by the legal staff may possibly\nreveal that the United States Government, through the\nMeritime Commission, has the power to provide Mexico with\non adequate number of tankers.\n1/\nPreliminary study based on published information, consu-\nlar despatches, and information obtained from Mr. Knoke.\nFurther data can be obtained only by going outside of the\nDepartment.\n409\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE June 14, 1930.\nTO\nSecretary Morgenthau\nFROM\nMr. White\nsubject: Tankers Available for Mexican 011.\n1, The Mexican Government must have the constant ser-\nvices of about 60 tankers to handle her export 011.\nMenico has approximately 2,000,000 barrels of oil\navailable for export monthly. About 60 tarkers are\nnecessary to transport this quantity. Up to March these\ntankers were supplied almost wholly by the some inter-\nesto, American, Sritish and Dutch, which owned the ex-\npropriated oil fielde.\n2. Mexico, 28 far B.E is known, has only 1 tanker\nregistered under her flag.\nMexico had 1 tanker registered on June 30, 1936,\nand it is not known that further tankers have been our-\nchosed since then. At the time of expropriation, it was\nreported that 3 tankers of the Apuils Company (Sritish)\nwere seized st Tampico. Cne of these WBB leter sent to\nobile, Alabama, for overhauling, and WAE immediately\nheld to the result of an injunction placed by the Aguila\nCompany.\n3. There appears to be a concerted attempt on the part\nof American, British and Dutch oll companies to prevent\nexico from obtaining the required tankers.\n(a) The British Foreign Office, according to press\nreports, appears to be pursuing B. policy of dis-\ncouraging the use of British tankers in the trans-\nnortation of Mexican 011.\n(b) The oil companies whose properties have been\nexpropristed, both American and British, have stated\nthat they will orine legal action against any oil\ncargoes coming from Mexico. Such action implies\nholding of cargoes in port under court injunction.\nPrepared by Mr. 3. Miller.\nRegraded Uclassified\n410\nSecretary Morgenthau - 2\n(c) We understand that ship charterers in New York\nwould refuse to charter tankers for transportation\nof Mexican oil because of reciprocity agreements and\nvery friendly relationships which they have with the\n011 firms involved in the Mexican episode.\n(d) It is doubtful, for the same reasons, whether\ninsurance can be obtained for shipments of Mexican\n011. Ocean underwriting is concentrated in London\nand New York, where the influence of the expropriated\n011 companies can be very effective. It is unlikely\nthat any privately owned ship would embark on B sea\nvoyage unless the cargo were properly insured.\n4.\nEighty-eight percent of the world's supply of tankers\nis directly controlled or is influenced by the 011 companies\nof the United States, United Kingdom and the Metherlands.\n(e) The oil companies of the United States, United\nKingdom and the Netherlands own directly about 60 per-\ncent of the world's tankers.\nThe total number of tankers in the world 8.8 of\nJune 30, 1936 W88 1,692. Since then, a few tankers\nhave been built, but enough have become obsolete to\nmake this figure relatively correct today. The fol-\nlowing are the totals registered under each of the\nfollowing countries:\nUnited States\n400*\nUnited Kingdom\n522\nNetherlands\n115\n1,037 or 61 percent\nThe bulk of these tankers is owned by the oil companies\ndirectly involved in Mexico, A small number are prob-\nably owned by independent operators who, no doubt, may\nbe regarded, for the purpose of this problem, as coming\nunder the influence of these 011 companies. The balance\nof the tankers, a small number, are sttached to the\nhavies of the respective governments, and of course, not\navailable.\nSurvey of United States Maritime Commission of November 10,\n1937 gives number of tankers as 343 with tonnage of\n2, 452,000, which happens to be the same tonnage given for\nthe 400 tankers shown above. Obviously & discrepancy.\n411\nSecretary Morgenthau - 3\n(b) The 011 companies of these three countries, with\nthe assistance of the British Government, can probably\ninfluence an additional 27 percent of the remaining\n32 percent of the world's supply of tenkers.\nThe American, British and Dutch oil companies\nare most powerful, and their sphere of influence is\nworld wide. Tanker shipping interests of the world\nare almost completely dependent on American, British\nand Dutch oil companies for their main sources of in-\ncome. They would without doubt wish to cooperate\nwith any policies or boycotte pursued by the oil\ncompanies. Furthermore, pressure by the British\novernment can now be brought more forcefully and\ndirectly than would otherwise be the case since dip-\nlomatic relations between Mexico and Great Britain\nhave been severed.\nThe tankers registered in countries under the\nAmerican, British end Dutch influence are:\nNorway\n245\nFrance\n50\nPaname\n31\nSweden\n25\nArgentina\n23\nVenezuela\n22\nDenmark\n18\nGreece\n14\nBelgium\n10\nPortugal\n5\nFinland\n3\nRumania\n3\nPeru\n3\nCuba\n1\nUruguay\n1\n454 or 27 percent of world supply\n(c) Spein has 17 tankers registered under her flag,\nor 1 percent of the world's supply. It 1e not known\nhow many of these 17 belong to rebels or loyalists,\nand therefore, impossible to hazard how many of Spain's\ntankers wight De available to Mexico.\n412\nSecretary Morgenthau - 4\nMany of the tankers in the foregoing table,\nnotably of Venezuela, Panama, Argentina, Cuba, Peru,\nUruguay, and possibly also in several European coun-\ntries, are owned directly by American and British\ninterests but are registered under various flage for\nvarious reasons.\nIt is believed that the oil fields and tankers\nof Greece, Rumania and Portugal are dominated by\nBritish interests. We have, therefore, included\nthem in this list, although it is possible that the\nfirst two countries may be subject to pressure from\nGermany or Italy.\n5. About 11 percent of the world supply of tankers 1s\nowned by Germany, Italy, Japan and Russia.\nItaly\n71\nJapan\n58\nGermany\n34\nRussia\n20\n183 or 11 percent of world supply\nIt 18 uncertain what portion of these tankers are\nsvailable to Mexico.\n(a) The Russian tankers are probably not available\nto Mexico for two reasons:\n(1') She has no diplomatic relations with\nMexico;\n(21) Russia is the world's second largest\nproducer of 011, and the small quantity of\n20 tankers registered under her flag seems\nhardly enough to take care of her own trade,\nmuch less have any available for any other\ncountry.\n(b) Tankers belonging to anti-democratic countries\nenumerated above could be made available to Mexico in\nquantities sufficient to transport all her 011, but\nonly if Mexico reverses her present policy and decides\nto sell to them. Mexico has BO far, within our know-\nledge, refused to consider any proposition from the\nFascist countries. If she loses all hope of arriving\nRegraded\nUclas\n413-\nSecretary Lorgenthau - 5\nat a settlement with the democratic countries, she\nmay try to arrange & deal with the others -- selling\n011 to them, and using their tankers for transport.\nThe total tankers of Italy, Germany and Japan\n1e 163. As Mexico needs only 60, this amount could\nbe diverted from present routes in order to transport\nexican 011.\nThere are severel obstacles to the successful\nconsummation of an oil deal between Mexico end\nTermany, Jepan and Italy:\n(1') Mexico needs foreien exchange badly, out\nso do Germany, Itely and Japan. These countries\nvery probably pay out some foreign exchange at\nthe present time in order to get their oil sup-\nplies; end also there is much machinery and\nmateriale which they could ship to fill Mexico's\nneeds. Therefore, there 18 B definite base for\nbargsining. However, it would ne B hard driven\nbargain for Mexico, snd it is not expected that\nshe would derive E gre t deel of foreign exchange\nfrom such a deal.\n(2') By accepting Mexican oil Cermany, Italy\nend Japan open themselves to possible injury\nfrom the oil companies, end for this reeson,\nthese countries may cooperate with the oil\ncompanies and refuse to buy Mexican oil now.\nGermany, Italy and Japan require for more 011\nthan Mexico can furnish, and depend on the\nAmerican, Sritish and Dutch oil companies for\ntheir main sources of supply,\n5.\nThe United States Government, through the Maritime\n: ission, may have the power and facilities to provide\nArico with an adequate number of tankers.\nThe Government owned fleet in active operation con-\nstats of 36 cargo vessels, and B 1810-up fleet of 113 ves-\nsels. It 18 not known if any of these are tankers, but\nif not, many could De converted to tankers. It 18 known\nthat 4 veasels sold recently into private operation were\nconverted by the Government to bulk liquid carriers. This\nleid-up fleet 18 being held \"10 reserve for e possible use\nRegraded Uclassified\n414\nSecretary Morgenthau - 6\nin commercial or national emergencies\". This occasion\nmight be considered \"an emergency\". The Maritime Commission\ncould also purchase tankers from private sources, and turn\nthem over to Mexico.\n7. Conclusion\nMexico cannot obtain an adequate supply of tankers\nunless:\n(a) Mexico comes to a satisfactory settlement with\nthe owners of the expropriated properties -- American,\nBritish and Dutch oil companies.\n(b) Mexico closes & deal with the Fascist countries\nfor all her export oil.\n(c) The United States Government decides to come to\nher aid.\nUclassified\n415\nThe National City Bank\nM\nof New York\nESTABLISHED 1612\nNew York June 14, 1938\nCABLE ADDRESS \"CITIBANK\"\nIN REPLYING PLEASE QUOTE INITIALS\nThe Honorable Henry Morgenthau, Jr.,\nSecretary of the Treasury,\nWashington, D. C.\nof\nMy dear Secretary Morgenthau:\nIn accordance with my letter of Saturday, I\ntake pleasure in sending you this week's business and commodity\nreviews, as prepared in this department for circulation within\nour organization.\nRespectfully,\nGeo. B. Roberts\nVice-President\nRegraded Uclassified\n416\nMemorandum on Business Conditions for Neek ended June 11, 1938\nReports from trade and the industries indicate that business is\nstill Flat. The volume of new orders reaching the industries is not improv-\n166+ the trend of operations is, at best, sideways, and wholesale and retail\nCrade comparisons are no better. There is, however, some encouragement to be\ngrand in S decidedly firmer tone in staple commodity prices and also in the\nday building figures. Staple commodity price indexes have made their first\nrally mines early in April with Moody's index up 5g points from the low. The\ncarpet rise has been in wheat and in our opinion the higher wheat prices\nstanet De mintained unless crop damage becomes exceptionally severe. The\nusit price has now risen considerably above the prospective Government loan\nEAMPI and in all probability enough surplus wheat will be harvested this season\nto Jrine the price down to that level or lower before it finda support. A\nany of other important commodities, however, have also rallied, including\nMILT fine products, rubber, sugar, 00008 end tin, and the metals are holding\nthe with buying e. little more active singe the last price outs. As stated\nUF were, I don't expect commodity prices to strengthen very much until the\ninital business curve, which is an index of the demand for commodities, also\n- syward, but in fl good many cases there are more reasons to expect steady\ndirects than we have had for B. long time past.\nThe May building figures turned out unexpectedly favorable, due in\nServe east to the award of some substantial public works contracts in the last\n- of the month. This brought total contract awards for May to 33 per cent\n1925 April and 16 per cent above May last year, the first time that B. year-to-\n05 *in has been shown. Residential building also closed the gap, being less\n2.00 L jor nent below last year; non-residential construction was 17 per oent\n-ef- -he mortgages selected for appraisel by the F.H.A. again set a new high\nstool, (9) millions against 394 millions in April and $58 millions in May, 1937-\nIe April 71 per cent of the mortgages accepted for insurance represented new con-\nstruction.\nSteel mill operations seem to have settled down for the present at\n- 80-20 per cent of capacity, having been unchanged for two weeks, and no\ncartifular change indicated this week. Business is slack; timplate operations\n- impring, and no improvement is expected in the near future.\nAutomobile ussemblies picked up last week on Ford's resumption and\nwitht cain by both General Motors and Chryaler. However, the total was 10\nM is 245 cent below the cre-Memorial Day figure and this seasonal recession\nwill instinue. Mr. Sloan's statement to the stockholders, reported in this\npapers, is not at all octimistic. General Motors continues to make\n5 stiellent showing in reducing field stocks. Its domestio retail sales in May\n- 36,000 against 178,600 a year ago. Its sales to dealers were 71,700 compar-\nVd with 180,000 a year ago. In March, April and May dealers' stocks were our-\ntalled 70,000 cars. This showing is fairly typical of the industry 9.8 a. whole\nat inslers are still very well supplied in relation to current sales, and of\ncrange their liged our stocks are extremely heavy.\nThe Index of machine tool orders for May dropped to 66.7 from 90.3 in\nApril and 208.5 last year, The bulk of the drop is in domestic business but\nchaige orders are now declining also. The paper business continues sluggish.\nindic wrapping paper DAI been out :10 9. ton and some other grades look weak. Car\nInding propred seasonally in all groups except a slight increase in oro- Elec-\n1:14 wiver output declined alightly more than seasonally to 11.8 per cent below\nirrn year. Coal production is not changing. Textile business 16 still marking\ntime, DUT cotton goods business picked up on Friday,\nRegraded Uclassified\n417\nIn the week ended June 4 department store sales over the country\nwere off 16 per cent. The drop in New York and Brooklyn was 19 per cent.\nChecking around New York City we find that June, July and August are all ex-\npected to show increasing rates of decline from last year because furniture\nand furnishings generally bulk heavy in Summer business and these are the lines\nwhich are most depressed. From September on a better showing is expected. It\n13 definitely believed by well posted people that retailers will buy more\ngoods this Fall than they did last Fall even though their sales are lower be-\ntheir inventories are down.\nFinal figures for May retail trade as follows: department store\nsoles off 17 per cent; Federal Reserve Board's adjusted index is down 4 points,\n79 In (ay compared with 83 in April and 86 in March; Sears, Roebuck off 15 per\nsent; contgomery Ward 7.6; 24 chains 10.4 per cent. Retail prices are 6.4 per\noent below last year, according to the Fairchild index, and about 8 por cont\nlaws according to average sales checks in the New York stores. Itema in the\nwas order flyer catalogues show B. still greater reduction.\nAlan H. Temple\nune L., 1388\nStatistician\nRegraded Uclassified\n418\nSPOT cas ODITY RIGES\nConsidity\nJuno 11\nWook AGO\nSince Jen, 1, 1928\nMonth Ago\nYear Am\n8102\nUp\n8.840\n8.484\n7.056\n11,82\n16.00\n9,266\n1,00\nSteers\n9,200\n8.8%\n12.046\n$0.58 3/4\n10.22\n30.57 1/4\n2.07\nCorn\n00.59\n1/4\n81.17\n1/4\n01.38\n8/6\n00.22\nLard\n8,000\n6,806\n8.900\n12.30g\n10.25\nCottonsood 011\n6,75\n4.106\n0,60,\n0.75\n8.05\n10.88\n0.76 3/8\n2.50\nThent\n$0.72 1/2\nCO.84\n7/8\n$1.20\n02.16\nRubber\n12.000\n11.31\n00.45 3/4\n11.83\n18.87\n80,00\n2,600\nCotton\nB.24c\n8,00\n3.724\n12.48\n23.000\n5.00\nsugar, Rovr\n1,846\n1.80\n1.05\n2.50\n3.60g\n0.57g\nBooon\n4.656\n4.60\n4.00\n7.456\n17.756\n8.86\nCoffee\n6.404\n0.350\n0.406\n11.76\n24,070\n0.000\n7in\n39.37\n38.60C\n30.00€\n55,50\n72.00\n18.36\nDown\nfilk\n$1.65\n01.66\n31.62\n$1.87\n06.01\n$1.05\nTidos\n8.60\n8.75\n0.75\n15.26\n26.60\n3.75\nChohunged\nnool\n00.64\n$0.64\n20.08\n01.02\n$1.28\n00.305\nStool Scrap\n$10.75\n010.75\n$11.75\n$18.75\n$23.75\n08.26\nCoppor\n9,00\n0.000\n10.00\n14.00\n23,07\n4,876\nLevé\n4,00\n4,000\n4,50\n6,000\n9,50\n2,65\nZirz\n4.00\n4,006\n6.00\n6.75d\n8.76\n2.30\nCooly's Inder\n133,5\n181.2\n137.7\n199.3\n(\nCoppor - Domestic saloo during the first 8 business days of June were 8,508\ntano, representing a small improvement over the May average which was the lowost in this\ndepression. Actual domestic consumption of copper during day is ostimated to have beon\naround 40,000 tons or about 8,000 tons in excess of producers' deliverios which more 31,684\ntons, Indicating that fabricators satisfied about 20% of their nonth's consumption from\ntheir con stooke, Fabricators are booking very little new business.\nThe London coppor market was up slightly last week and the oxport price\nhave rosc to 0.000 compared with 8,050 a wook ago, Domestic price romains firm at %\nZinc - The stendy rise in sino stocks continued during -ay, the increase be-\nInc 13,000 tons for the month, compared with 17,000 in April. Stocks have risen in 9 months\nfrom 11,227 tons (record low last August) to 148,120 tons at the end of :lay. highest on\nThe only encouraging fonture of the \"my statistics was the slight riso in shipments\nto 24,028 tons from 20,806 in April. Production dropped only elightly to 57,510 tons from\n16,006 in April. However, sine concentrato production 1s now boing ourtailed sharply.\nOwntrally this must be reflected in lower anolter oporations and honco zinc production.\nThe carent, ot 4, is stendier than the statistics would imply.\nThere WOO a little more activity in the rino market last wook, salos arroad-\nGollverios by 1,264 tons. This was reflocted in e corresponding riso in unfilled orders,\nnow at 24,969 tono, compared with 67,143 B year ago.\nLoad - Good buying put in an appoarance last wook, sales recol:ing 8,367\ntime, which in the largest workly volume since last Jenuary, while stooks are expected\nam further slight increase when May statistics are released, the notal is in strong\nist with 210 price down to 40, producers are not inclined to press calos.\nHides - Contrary to the upward trand which has taken place in the stooks\nother condities, stocks of hides have been going down for the pact 4 months. At\ne April (Intest figures available) they word the mallest for that month in any\npart 17 years of record, In torms of provious 3 nonths' consumption April stooks\nRegraded Uclassified\n419\n-\nreprosented a G.S months' supply against 12,2 last Desember and 7.1 & year age and will adboe\ndi bolow the 5-year April average of 9.4.\nThe trand of hido and leather statistics has been fevorable since early\nthis year. Loather consumption in April ran ahoad of both leather production and the\nsight novoment of onttle bides for the 4th ocnsecutive month. As a result total stocks in\nall henda of hidos, in-procese leather, and finished leather have declined about 10% zince\nthe end of Jenuary, hidos by 563,000 pieces, in-procces by 196,000 and finished leather by\n020,000 or c. total of 1,378,000 pioces. As betwoen tanners and packers, however, the latter\nare still corrying G. larger proportion of total hido stooks than usual, tomore continuing to\nbuy only for curront neoda based on shoo namufacturors' leather requirements,\nAsido from the smaller oattle slaughter, the chief factor behind the\ningroved statistion] position of hides 16 that during the first 4 months of this year -\nwere a not exporter wheroas we are normally a boavy importer. During this poriod our not\nexports were 30,000 hides whereas last year during this same period we imported 1,047,000\nhides. Net exporte of 121,000 hidec in April were the largest since records bogun in\n1982. Our prico structure for several nonths has been low relativo to the world market\nin Buenos Airos and imports deolined sharply beginning last Soptember.\nShoe production for the first 4 norths was off 28% from EL your ago(when\n14 not on all-tino high) and the anallost for the period since 1933. The Jen.-April trand,\nhowever, were up more than seasonally. Compared with a year ago, January was off 51%\nMorch 20% and April only 18%.\nTheat - The Government crop report placed the Wintor wheat crop at 761\nmillion buchols, which is 50 million loss than the everage of the private reports, The\ncocompanying coments stressed the uncortain outoome of much of the crop; and 0.8 the re-\nport coincided with nows of small threahing out-turne and low weighte in the Southwest,\nwas received quite bullishly.\nThis roport emphasises that the whoat crop 1e atill e. long way from\nlutvost. Nevertholess, the June 1 prospect, allowing 270 million for Spring wheat basod\n& present conditions, 1a for a crop of 1,030 million buchels. Domestic requirements may be\noutinated at 670 million and the authorities agree that exports will bo limited to (1)\nwhost from noar the ports and honoo carrying stall freight charges, (2) whatover can be\nin the early part of the season. The Department of Agriculture people ostimate\nprobable exports at 40 million buchels. Roasons for the low figure: our price will be\npaid, Canada has what nov looks to be c. 400 million bushel orop, and Arguntina moisture\ndituation is fuverable.\nThis adds up to a total absorption of wheat for the coming season of 710\nallies, or un indicated eurplus of 320 million bused on the Juno 1 outlook. If the crop\nprospoot hereafter should decline as much as 150 million bushcls, there would still be c\neurples of hearly 200 million to add to our present carryover of 200, On this basis it\nnums to no that the rally in whont prioes connot hold and that whoat must sell down to\nVio point whore the Government loan will support it. % do not yet know exactly what\n#10 point will be. Proliminary discussions in the A.A.A. indicate that the loan will\nto 06 besie No.2, at solootod intorior points, with grade and transportation differentials.\non the loontion of tho baso points, this night work out between 70 and 766 in\nPhinago, But the loan details are still being studied and it is unsafe to count on\n(Tiennos. I understand definitely, however, that the loen is not empooted to\nvalate An allownce for premium grades. Growers having premium whoat will therefore be\nc5)= % got notro in the market for it than from the loan. This will tond to make the\nwhat drop oven below tho loan values during the crop noving noason. The B0110 thing\nin cotton last Fall, for the Barro reason.\n10,\n1038,\nAlan II Templo,\nStatistician\nRegraded Uclassified\n420\nSPOT COMMODITY PRICES\nSince dan. 1. 1926\n8\nWeek Ago\nNonth Ago\nYear Ago\nWish\nLow\n9.20%\n9.024\n8.374\n12.00H\n10.22₫\n2,976\n20.57%\n80.54%\n$0.58 1/8\n$1.29\n$1.30%\n20.21\n8.80%\n8.45£\n8.60g/\n12.55%\n19.23$\n4.105\n1.80₫\n1.75$\n1.854\n2.454\n3.60%\n0.574\n18.60₫\n36.80%\n37.374\n55,87₫\n72.50₫\n16.56g\n8,054\n7.92₫\n8.67$\n13.24$\n23.20$\n6.00g\n11.314\n11.29/\n11.80$\n19.874\n98.50d\n2.56£\n4,50£\n4.45d\n4,90%\n7.45₫\n17.76₫\n5.55$\n8,48%\n8.55d\n7.716\n11.254\n15.00%\n1.62₫\ny!\n6,50%\n6.874\n8.75₫\n9.00$\n10.88%\n2,56£\n02.85\n$1.60\n$1.65\n$1.78\n$6.97\n$1.05\n710.75\n$11.00\n$11.75\n$18.75\n323,70\n$8.25\n60.64\n$0.66\n$0.68\n$1.02.\n21.20\n$0 585\n$ 0.723\n$0.74 7/8\n$0.85 3/8\n$1.234\n$2.15\n50,452\n8.754\n8,75%\n8.75%\n25.25₫\n28.504\n5.755\n6.35£\n6.36g\n6.75c\n11.76d\n24,57%\n8.00€\n0.000\n9.00K\n10.00\nPOO'97\n23,87₫\n4.87d\n0.00$\n4.00$\n4.50%\n6.00s\n9.60$\n2,65d\n4.00$\n4.00$\n4.15₫\n8,75%\n6.75%\n2,30₫\n131.2\n132.0\n136.7\n205.6\nèt DADE week b&s brought e number of important developmente in the considity me-\nshink it quite likely that we shell look back upon it as marking a tarn for the\n,seition of several important commodities, and = shack to the decline in\nDess developments are: the drastic curtailment in copper mining; the out\nexport allowance to 45 per cent; the out in the tin export allowance aná\nof a pool\"; greater curtailment in load and sine production; a dealine\nender the 8,324 which is the minimum mandatory loan on the oning crop;\nLa wheat and wool which brings then practically to the level of the Govern\nad loaves very little room for further decline; 12 small out (minor, to be sure)\ninvelopments should bring standior commodity warkets. Moody's index deopped\nof April from 142 to 130 early last week. It closed the week st 131.2.\nimprovement is the probable sessonal casing in livestook prices, and the\nto industrial pair anterials. Prices seem unlikely to start 40 mush in advance\nourve, which is etill dropping. But there is certainly nore renson than\nisve tbst the decline is exhausting itsolf.\nInternational Tin Committee not third quarter nuotas at 45% (except\n36 Indice which received 52@), compared with 56% in the 2300nd, 70% to\nin the third cuarter of 1937. Moreover, the Committee annomed that\npry countries bad agreed to the principle of a buffer pool to take sur-\nmirket. Desision as to what percentage of the 46% quota would be\nor déforred, although the committee previously has intimated that\nTAXE meeting will he hold before July 1. Malays has asked for A larger\nmipply ircluding Straits and Arahem earryover, declined 2,600 tona\nRegraded Uclassified\nI\n421\niring May. Total stocks of 26,300 tome are only a time months' supply. The Deverside\ntrend of the statistical position cembined with the out in the and fenation of\nthe Buffer Pool brought a sharp rally in the Landon market and prices there were .\n10 for the week.\nThe third quarter world empply can be net approximately at 82,700 too, usendag\nnon-signatory countries continue to ship 7,500 tone quarterly. Against this, world -\nsumption was 40,700 in the first quarter of 1938 and 50,800 in the last quarter of 1937.\nCopper - Both Anaconda and Neunecott have announced further curtailment,\nbeing 8. complete shutdown for at least one month. This, together with outs by ether IN-\nduoors, will reduce mine production probably about 22,000 tens - month. lieuse within about\nis months, which is the time required for a change in mine production to be reflected in\nrefinery operations, refined production should be running around $5,000 tens per month, in-\ncluding copper from scrap, compared with 55,000 in April.\nThere is every reason to think that actual domestic consumption is running over\n35,000 tons monthly. Refiners' domestic deliveries have averaged 29,000 80 far this year,\nand fabricators have been drawing on their own stocks for possibly another 8-10,000. In\nthe past 2 months exports have nm 11,000 monthly, making & total disappearance of between\n45,000 and 50,000. Hence the out in production is sufficiently drastic to balance up the\nmarket position even if consumption declines further and exports fall off. Export demand\nhas now slackened somewhat and shipments in the coming weeks will be maller. Nevertheless,\nwith production cut back to the extent indicated, it seems certain that total stocks of\ncopper in the country will be dropping, evon though the reported statistics which cover only\nVisible supplies may contime to rise for a time. On this basis producers expect to be able\nNo hold the 9$ price unless the London market breaks badly and export business stops 00-\nletely. Foreign copper rose slightly last week while the export and domestic markets were\nunchanged.\nWheat - Private crop reporters were unanimous in their opinion that, based upon\ngrowing conditions as of June 1, this year's whoat crop will be the largest in the history\nof this country. In response, domestic wheat markets dropped last week to the lowest point\nin nearly 5 years. The average estimato was 810,000,000 Winter and 267,000,000 Spring, or\na total crop of 1,077,000,000 bushols. Previous record crop was 1,008,637,000 in 1915 when\nthere was & tremendous demand for our wheat abroad due to the war.\nThe Canadian erop was estimated at 340,000,000 bushels by two of the private 26-\nporters. The world wheat outlook is bearish, even though Europe may buy more theat than\nlast year, and world prices are likely to rule low.\nIt is very doubtful that we shall be able to export wheat mit season, and at the\nsame time peg it at 60$ on the farm, which is the minimum figure for the mendatory loan to\nbe made under the new Farm Act. Reflecting this forthcoming peg. the distant months in the\nKansas City market lately have gone completely off an export basis, December being only 12#\nbelow Liverpool. New crop futures in the American markets have already sold dom to the\nbasis of the Government loan, and there is little room for any further decline. The conse-\nquence of the price pegging operation on which the Government is getting ready to enbark is\nthat there may be a carryover of 600,000,000 bushels of wheat in this country at the end of\nthe coming season.\nJune 6, 1938\nAlan H. Temple,\nStatisticisn.\nRegraded Uclassified\n422\nNamerandes en Business Conditions for lost ented June 4, 1388\nBased on present operating rates is the major industries and the RP-\nparent certainty that there will be to turn for the better during this earth,\n- attimate that June will bring a further decline of perhaps 2 pointe is the\nsumposite indexes D\" business. The Pederal Reserve index for April val 77; for\nMay eitr calculations show 74 or 75; and & June figure of 72 is Indicated. The\nDaty figure will be still lower before correction for the usual sessonal decline:\nbe whether the drop will be greater than seasonal it is too early to prodict.\nCommodity prices made another new low in the fore part of last week but\nrellind somewhat later. I believe there is a fair probability that staple 00M-\nmainy prices on the average will stendy around present levels, Further outs 1a\nproduction have been made in copper, tin, lead, time and rubber. Whest, BOTD and\nmet will have the supporting effect of Government loans, and there is little\nPOUR for 9. further drop before they rest on the loan levels. Cotton is below\nthe minimum price at which - loan on the coming erop will be mandatory. This\nprice Le roughly 8.32 centa in the southern markets; end in the long run the price\nof cotton must return to that level. These influences my well stop the downtrend.\nTo start the markets upward, however, improvement in demand will be messeary.\nIndustrial and trade news continues to present a picture of depression.\nSteel mill operations dropped last week to 26 per cent, and apparently will be\nabout the same this week; for although Youngstown and Chiengo will be up alightly,\nPittsburgh will be off. New business is still in the slow downtrend which began\nafter March end scrap prices were lower again last week both in Pittsburgh and\nClaveland. Machine tool orders are believed to have been lower in May than in\nApril when they were leas than one-third of & year ago and are expected to be off\na little more in June.\nAutomobile production last week dropped to only 27,000 vehicles, accord-\ning to Ward's estimate. This was due largely to the Ford shutdown and as Ford\nwill resume this week there will be some recovery. However, indications are that\nJune assemblies, U.S. and Canada, will not much exceed 150,000 units against an\nostimate of 195,000 in May, 238,000 in April and 521,000 in June a year ago.\nCar loadings gained more than seasonally due to an improvement in coal\nand ore loadings which are at last beginning to pick up alightly after 6. very poor\nstart. Electric power production gained seasonally. Textile business continues\nsluggish with mills again failing to sell their production. A few woolen mills\nhave received late orders for Fall fabrics and will be busy for e. couple of months\nbut for the industry as a whole the situation is still poor.\nDepartment store sales in both New York City and the country as a whole In\nthe week ended May 28 were off 19 per cent, according to Federal Reserve reports.\nThe average for the month of May was about 15 per cent. These figures include the\naffect of rather unfavorable weather. It was a little better in New York City on\nthe good days last week.\nAn anthracite coal man told me on Saturday that the household automatic\nstoker business is one line which is running substantially above a year ago.\nAttached is a compilation of dividend declarations for May and the five\nmonths.\nAlan H. Temple,\nJune E, 1938\nStatistician\nRegraded Uclassified\nHYDRI DICLARED DONING KAT a FIMIT AS 2801-08\nMosthly Tenale (000g Outbbed)\namaz\nI\nTobruary\nthrough\nPive Mostin\nstale by Ontited)\nalso & Insurance\nmin stores\n1\nsportment oberes\nX a positing\nMI order\nHere\nequipment\ndo\nMalio whilities\nbilreado\nbilread equipment\nResl\nRecollament\nTotal\nof Assoial Declarations\nFavorable Changes\nInitial\nRecemed\nIncreased\nExtra\nInd (necumulated)\n#\nTotal Favorable\nUnfavorable Charges\nReduced\nOndtted (presed)\n-1 1\nTotal Universable\nSeurces be York Times compilation of dividend nations by all corporations\npublicly assumed.\nthe 4, 1950\nRegraded Uclassified\n424\nDEPARTMENT OF THE INTERIOR\nUNITED STATES HOUSING AUTHORITY\nWASHINGTON\nOFFICE OF THE\nJune 14, 1938.\n4.17.2\nADMINISTRATOR\nPest Henry:\nReferring to your telephone call, I had the figures which\nyou requested prepared on the assumption that the United States\nHousing Authority would be given the right to make 100% loans.\nThis provision has now been eliminated in the report of the Con-\nference Committee. I have, accordingly, revised the figures\nbearing the change in mind. It is, of course, a blow to our\nprogram. The October and November loan figures, as shown below,\nwould have been more than double and the December figure nearly\ntreble the amount shown if we could have made 100% loans.\nI hope these figures, which represent our best estimates\nat this time, may prove of service for your purpose. The figures\nare, of course, confidential.\nApril\n8\n446,000 (actual)\nMay\n773,500\nn\nJune\n2,500,000 (estimated)\nJuly\n4,500,000\n\"\nAugust\n7,500,000\n11\nSeptember\n9,000,000\n\"\nOctober\n10,500,000\n11\nNovember\n12,000,000\n=\nDecember\n13,000,000\nn\nTotal\n$ 60,219,500\nThese figures are loans to local authorities and do not in-\nclude the expense of administration.\nCordially Parkan thaus yours,\nNATHAN STRAUS,\nAdministrator.\nHonorable Henry Morgenthau, Jr.,\nSecretary of the Treasury.\nto Jayln-Haas- white- 1hrt Bell.\nRegraded Uclassified\n.\n425\nJune 14, 1938.\n4:10 p.m.\nH.M.Jri\nHello.\nOperator:\nDr. Parran. Go shead,\nH.2.Jr:\nHello.\nDr. Parran:\nHello, Mr. Secretary.\nM.M.Jr:\nHow are you?\nP:\nWorking hard.\nP.D.Jr:\nThat's good. Did you call me?\nP:\nYes, Just to give y-2 R progress report on matters\nwe discussed yesterday.\nin\nH.M.Jr:\nYes.\nP:\nI talked with Dr. Palmer.\nE.M.Jr:\nI don't hear very well.\nP:\nI was - I talked on the phone this morning with\nDr. Palmer who 1s in Cleveland with Miss Lonigan\nend a representative from Dr. Stanley's office.\nH.M.Jr:\nYes.\nin\nAnd he says that the Surplus Commodities Corporation\nis not beginning to mest the needs there, what they're\ndoing is merely 8 drop in the bucket, and of equal\nimportance they are handing out flour but many of\nthese poor people have no way of using the floor.\nThey have no shortening and they have no baking\npowder and many of them have no gae even in their\nhouses.\nH.W.Jr:\nYes.\nin\nHe emphasized the situation which he sensed very\nacutely yesterday.\nH.H.Jr:\nYes.\nof\nThat 18 the need for gearing their work to the\nnutritional needs and the health needs.\nR.W.Jr:\nYes.\nRegraded Uclassified\n426\n- 8 -\n4\nRelief load and 80 on. We are planning 8 meeting\ntomorrow with Dr. Stenley's people and the group\nwhich has been in Cleveland to review the situation\nand particularly to lay down the details of the\nstudy here in the District.\nW.I.Jr:\nGood.\n::\nShould have 8 report for you with cost estimates\nby tomorrow afternoon.\nWell, I expect to go up to Philadelphia tomorrow\nafternoon unless something happens which is unforeseen\nBO - but I will be in touch with the office on\nThursday, and if you'd keep - let Mrs. Klotz\nknow.\nis:\nI - I shall give that report to Mrs. Klotz tomorrow\nafternoon or first thing Thursday morning, one or\nthe other.\nE...Jr:\nThank you 80 much.\nin\nin\nThe other point/which I thought you might be\ninterested.\nH.M.Jr:\nYes.\nWas on the venereal disease bill.\nH.H.Jr:\nOh yes.\nThe Appropriations Committee in the Senate cut\nthe President's estimate of three million to a\nmillion and a half. I think we'll get pretty\nstrong support in the Senate in having it re-\nstored, it's all a question of having it kept\nin conference. I believe we'll get it put back\nin the Senate. Senator Barkley has promised to\nhelp and La Follette has taken up the ball -\nGood.\nin\nof course and some others.\nGood.\nel\nI thought you'd be interested in all that.\nM.M.Jr:\nWell, I hope you get it.\nRegraded Uclassified\n- 3 -\n427\nP:\nI shall do everything I can. I think we have it\npretty well in hand with the exception of the\nHouse conferees and that means Mr. Woodrum. If\nthe Department had any contacts with him it might\nhelp.\nH.M.Jr:\nWell, have you been using Hester on this?\nin\nI haven't. I called Mr. Oliphant and he said that\nafter talking with Hester they thought they'd\nbetter leave it in my hands.\nH.M.Jr:\nI see.\nP:\nBut I'd appreciate any help they could give if you\nthink that would be appropriate.\nH.M.Jr:\nWell, I'm going to see Mr. Oliphant in a few\nminutes. I'll speak to him about it.\nP:\nThanks. Very much.\nRegraded Uclassifie\nMr. McReynolds:\n428\nThe Secretary would like you to\nplease read this and just give the gist\nto Admiral Peoples. Thank you.\nJune 15/38\nMcH Dane 16 June 1030 am.\nOpyreture\nMac- mac here 16/37-2016\nfor\nMR\n: 429\nNote:\nA copy of this was given to McReynolds\nto-day, at the request of Mrs. Klotz.\nMr. McReynolds was to read this over\nand then give the gist of it to\nAdmiral Peoples.\nMcH\nJune 15/38\n430\nJune 14, 1938.\n4:49 p.m.\nH.H.Jr:\nHello.\nOperator:\nSecretary Wallace. Go ahead,\nH.K.Jr:\nHello.\nSecy.\nWallace:\nHello.\n8.3.Jr:\nHello, Henry.\nW:\nHenry, the President brought uo again this matter\nof trading wheat for various things over the\nworld end this time it took this form.\nH.W.Jr:\nYes.\n%:\nThat we traded it for those things which the Government,\nespecially the Army and Havy purchase. He mentioned\nteakwood in the Streit Settlements and shellac some-\nwhere and BO on, and thought possibly the Army, in its\nneeds for maganese and tungsten and 82 on could -\nwhile it didn't purchase the stuff direct, could\nwork out a scheme whereby in effect it did do the\npurchasing it made purchasing arrangemente through,\nwe'll say the steel corporation and what not. I\ntold him well that comes under - that would be under\nprocurement, it seems to me to do the fundamental\nwork there of sesing to what extent the Government\npurchases could be assembled on a basis that would\nenable us to trade wheat for the products. And he\nsaid, \"Yes, suppore you get in touch with Fenry end\npase it on to him.\" So that's that.\nP.M.Jr:\nWell, I'll pass it on to Peoples, but with all due\nrespect to the President I think he's All wet on that.\nW:\nI told him -\nH.M.Jr:\nBut we'll pass -\nW:\nIt sounded like the good old 1dea and I told that's\nwhat we had up to him once and then he said - then\nhe put it on the basis of Government purchases.\nRemember the thing that Oliphant said couldn't be\ndone was -\nR.1.Jr:\nYes.\nRegraded Uclassified\n- 2 -\n431\nW:\nCame up first on that basis.\nH.M.Jr:\nYes. Well, like all of these suggestions of the\nPresident, we naturally give them careful con-\nsideration. I'll turn it over to Peoples and ask\nfor what?\nW:\nNo, he mentions specifically teak and shellac and\nthen those rare metals that the Army uses.\nH.M.Jr:\nRight. I Just don't see how we can do it. You know\nthey had an excellent Bill up there to buy twenty\nfive million dollars of things that the Army and\nNavy needed desperately.\nW:\nThat's the best way to do it.\nH.M Jr:\nWhy sure, we've got the money and why not do it.\nW:\nSure, that's the way to do it.\nH.M.Jr:\nYes, sir.\nW:\nWell -\nH.M.Jr:\nAll right.\nW:\nAll right. He also mentioned possibly export -\nimport banks should be in order too.\nH.M.Jr:\nRight.\nW:\nAll right.\nH.M.Jr:\nThank you.\nRegraded Uclassifie\nPages 432-441\nskipped in numbering\nby faulty machine\nRegraded Uclassified\n442\nJune 14, 1938.\n5:15 p.m.\nOperator:\nGo ahead,\nGeorge\nRessersmith:\nHello.\nH.M.Jr:\nYes.\nMr. Secretary, this 18 George Messersmith.\ntalking.\nH.M.Jr:\nHello.\nI have just been talking with Dan Bell and Sumner\nWelles. You know we had this - we haven't been\nable to make these payments to Panama under the\nTreaty because she has refused to accept them for\nthe last five years on the ground that we were\npaying in the new dollar and they were insisting\non the old dollar.\nH.H.Jr:\nYes.\nAnd we have an accumulation of checks now that\nhave issued - been issued for five years in the\nTreasury, and the whole thing was held up on\naccount of the new Treaty/being reported out.\nNow the Senate Committee on foreign affaire -\nSenator Pittmen has Just told us - has reported\nout the Treaty.\nH.H.Jr:\nYes.\nAnd on the basis of that now Summer Wells has\ngot in touch with the President and the President\nhas just sent word over that he quite approves\nof 8 joint resolution being passed authorizing\nthe payment of a certain amount of money to the\nColum - to the Pan-American government\nto cover these arrears, and I talked over - the\nPresident said I could tell Dan Bell it was\nall right with him which I've done and Bell\nsuggested that you might be helpful on the thing.\nH.M.Jr:\nWell I don't know. I mean -\nWhat's that?\nH.M.Jr:\nI haven't been following it personally.\nRegraded Uclassified\n443\n- 2 -\nM:\nNo. Well the Treasury has been - Wayne Taylor\nknows about it.\nH.M.Jr:\nWell, isn't Wayne in?\nM:\nWhat's that?\nH.M.Jr:\nIsn't Wayne in?\nM:\nWell I didn't like to talk with him without your\nauthorization.\nH.M.Jr:\nWell now just a minute. Let me see if I can get\nhim on this wire. will you hold on?\nM:\nYes.\nH.M.Jr:\nPlease.\nOperator:\nOperator.\nH.M.Jr:\nIs Wayne Taylor in?\n0:\nI'll see.\nH.M.Jr:\nPut him on this wire.\n0:\nAll right.\nM:\nIt's a thing which has been very bothersome you\nknow.\nH.M.Jr:\nOh I'm glad you called me, and let me see whether\nI can help.\nM:\nBell - Dan Bell thought that your legislative officer\nmight be able to help down on the Hill on it.\nH.M.Jr:\nI don't know. We'll just see if Taylor is in.\nJust a moment.\nOperator:\nHello, here's Mr. Taylor.\nH.M.Jr:\nHello.\n0:\nGo ahead.\nWayne\nTaylor:\nHello.\nH.M.Jr:\nWayne?\nRegraded Uclassified\n444\n- 3 -\nT:\nYes.\nH.M.Jr:\nMessersmith 1s on this wire.\nT:\nAll right.\nH.M.Jr:\nAnd he's got a proposition about the Panama.\nT:\nYes.\nH.M.Jr:\nAre you familiar with that?\nT:\nYes, I am.\nH.M.Jr:\nWill you catch the ball and see what you can do\nto help him?\nT:\nYes. I've got Bernstein already working or that.\nH.M.Jr:\nYes,\nM:\nOh you do?\nT:\nYes.\nM:\nWell, I - at the President's request Sumner Welles\nhad me take it up with Bell and Bell thought you\nmight be helpful on it. He's clearing it this\nafternoon.\nT:\nYes.\nM:\nAnd Dr. Corrigan, our Minister to Panama, 1s down\non the Hill now and he's talking with Pittman and\nMcReynolds, hoping that they'll help him with Glass\nand Taylor, the chairman of the House Committee,\nyou know.\nT:\nYes.\nM:\nAnd Dan Bell suggested that I call the Secretary\nbecause he might be able to let your legislative\nofficer help them on it.\nT:\nYes.\nH.M.Jr:\nWell Wayne would you take it over for me?\nT:\nYee, I -\nRegraded Uclassified\n445\n- 4 -\nH.M.Jr:\nYou're already on it.\nT:\nI already had it.\nH.M.Jr:\nWell you see Messersmith that's how efficient we\nare.\nM:\nWell, I'm - I'm standing back in amazement.\nH.M.Jr:\nWell, once we're good, see? Well I'll let you\ntalk to Wayne Taylor and he seems to already\nbe there.\nM:\nYes, well thanks a lot.\nH.M.Jr:\nGlad you called. You take - well I'll hang up\nWayne.\nT:\nAll right, Henry. Well I don't know -\nRegraded Uclassified\n446\nPARAPHRASE OF TELEGRAM RECEIVED\nFROM: American Embassy, Paris\nDATE: June 14, 9 a.m.\nAAA\nNo.: 925.\nFROM COCHRAN.\nDirectors of the BIS were informed by the management\nat their monthly meeting yesterday of the status of the\nAustrian 1930 Loan for which BIS is trustee. I quoted\nthe communique thereon in my cablegrame 892 of June 8,\n10 a.m. The BIS 18 taking no action beyond its formal\nprotest since the matter of servicing this and other\nAustfian loans 18 now the subject of negotiation between\nGovernments. I was told by Schacht that Germany was not\nwilling to assume the unqualified role of a successor\nstate to Austria inasmuch as this would involve obligations\nunder Austria's foreign treaties, some of which (most\nparticularly that with the Vatican) are not acceptable to\nGermany. Schacht said it was manifestly impossible for\nGermany to accept this heritage since the two guaranteed Austrian\nloans were primarily issued for the purpose of helping\nAustria to maintain its independence from Germany and this\nwas so indicated in the general bonds. However, Schacht\ninsisted that his people were willing to discuss with the\ninterested powers this question of loans.\nHe said that Germany was continuing to receive various\nprotests from the United States Government. Schacht thought\nthat some of his ideas on foreign trade were very close to\nthose\nRegraded Uclassified\n44\n-2-\nthose of Mr. Hull, but he did not see how ve could expect\nthe Germans to meet all of their obligations to us when we\nnot only out down our purchases of German goods but also\nbring such economic pressure upon other countries which\nordinarily fitted into the scheme of multilateral or\ntriangular trade that they find it necessary to curtail\ntheir purchases in Germany. Specific and emphatic refer-\nence was made by Schacht to the case of Brazil.\nSchacht said, in speaking of the latest depreciation of\nthe French frano, that this was one more evidence of the\ncorrectness of his decision not to bring the reichsmark\ninto line with the Tripartite Agreement. Schacht told me\nthat his monetary setup had now been BO organized and\nperfected that Germany can carry on, irrespective of what\nmay happen to other moneye, without any change in the\ncurrency.\nThe following ideas were gained from remarks by Hulse,\nHechler and Schacht: Rather than undertake any multilateral\nagreement, Germany prefers to treat with creditor countries\nindividually on the Austrian loan question. The Germans\nwill not pay the established rate of seven percent on the\n1930 Austrian Loan but will insist on a conversion thereof.\nThere will be 8 tieup of Dawes and Young loans with the\nAustrian loans in certain negotiations through The Germans\ncontending that it is impossible to pay on the latter\nunless there is a conversion of the former. The Germans\nare\nRegraded Uclassified\n448\n-3-\nare expected to demand, in their negotiations with the\nBritish, a. greater reduction in the Young and Dawes loans\nthan to 4 and 5 percent, respectively, which are said\nto have been the rates Germany sought in conversion pro-\nposals and which the British refused a few months ago.\nSchacht told me, in speaking of the situation in\nCzechoslovakia, that the more talk there was of war, the\nless likelihood he thought there WBB of war taking place.\nHe told a friend of mine that it was not 80 much the\nSudeten question that bothered Germany as it was the con-\ncentration of 8. large number of Soviet war planes at an\naviation base in Ozechoslovakia. Schacht pointed out to\nthis friend the precarious state of Italian finances and\nthe costliness of what he considered ill-advised interven-\ntion in Spain by Italy.\nI was told by Bachmann that the German negotiators\nhad been in Switzerland before going to Paris for the\nmeeting with the French last Friday. Attempt had been\nmade by the Germans to get the Swiss to replace the Swise-\nGerman clearing agreement with a paying agreement, but\nthe Swies had refused BO far. Bachmann was given to\nunderstand by Trip that when the German negotiators came\nto the Netherlands, after leaving Paris, any change\nin their German clearing agreement would likewise be\nopposed.\nAs for Sweden,\nRegraded Iclassified\nAs for Sweden, Rooth told me that they were not likely\nto impose B. clearing on Germany in order to try to insure\nloan service lest the Germans retaliate by cutting down\non their purchases of Swedish wood pulp, and so on, which\nfar exceed the loan service in value to his country.\nSchacht told me that if the British imposed a clear-\ning, Germany was quite ready to purchase enough additional\niron from England to reverse the trade balance, and wipe out\nany margin for service of debts.\nI had a talk with Janssen, who told me that in his\nrecent defense of the belga he had gone quite a way in impos-\ning strict rules. However, he felt he had been justified\nin his action by two results, namely, by demonstrating\nthat the Belgian National Bank was a well endowed and\ndetermined force to be depended upon and reckoned with in\ndefense of its currency and in not yielding to speculatore'\ndemands, and also in further disproof of the supposition\nthat the French franc and the belga have some connection.\nHe preferred he said the plan of former Finance Minister\nSoudans, which WB.S to raise by immediate taxation the\nsum of one billion two hundred million france which are\nneeded for balancing the budget to the present plan of\nthe present Finance Minister, Girard, which is to impose\ntax measures for raising only seven hundred and fifty\nmillione\nRegraded Jolassified\n450\n5 I I\nmillions thereof.\nJanssen said that, on the other hand, he admires Girard\nas a rational financial technician who, working with Hymans -\nto satisfy the Flemish element - will contribute much toward\nmaking the Spaaks Government a strong one and the chances\nof lasting for some time are good.\nReference was made by Janssen to the one year loan which\nis just now being obtained by his Government from the Dutch\nbankers - the Mendelssohn and Netherlands Trading Corporation.\nThis loan is in the amount of 35,000,000 florine. They are\ngetting from Swiss bankers 25,000,000 Swiss france - the\nCredit Suisse and Swiss Bank Corporation. In his opinion,\nif a little time had been allowed to elapse, there would\nhave been such an improvement in conditions that Belgium\ncould have raised the money at home or else obtained it\nabroad on better terms. The present loan will be at a rate\nslightly over 4 percent, as well as commissions. He realizes\non the other hand that the international political situation 1a\n60 uneasy that a sudden turn for the worse might take place,\nand borrowing would thus be made more difficult.\nJanssen said that since I had visited him a month ago\nthere had been much improvement in the monetary and financial\nsituation\nRegraded Uclassified\n451\n- 6 -\nsituation and he does not think 8. crisis threatens; but\nhe said the outlook is not yet entirely clear for Belgium.\nAs for the Belgian economic situation, Janssen said\nit was nothing to boast about but they were no worse off\nthan cometing industrial countries, such as France, Great\nBritain and the United States. In recent weeks, according\nto the estimate of Galopin, the Belgian Industrial Director,\none billion Belgian francs of French capital had been with-\narawn from Belgium. He said that another three billion\nhad been converted into gold or foreign currencies, a\ngreat part of the foreign currencies being held on deposit\nin banks in Belgium, or else had been used to build up\nlarge stocks of imported raw materials lest the belga go\ndown or the price of the raw materials rise.\nJanssen's defense of the belga pleased Trip very much.\nHe realized that the speculators would next have attacked\nthe florin if they had been successful against the belga.\nUnder the circumstances, only about $150,000 in gold was\nlost by the Dutch control after the French devaluation.\nTrip said he web glad to gee hie bankers extend foreign\ncredits such as that they were giving to Belgium.\nAo for the French situation, Trip said he had no more\nconfidence in it than before. He regrete the weakening of\nthe\nRegraded Uclassified\n452\n- 7 -\nthe Tripartite Agreement through repeated franc depreda-\ntions and the Government's failure to effect the courageous\nmeasures necessary for lowering the public debt charge\nand bring about an increase in production, and thus make\nit possible to have & stable currency in France. Trip\npointed out the vulnerability of the Tripartite system\nas demonstrated by the French action. He said that\none member can SQ place its own interests - whether towards\ngaining competitive international trade advantages or\nsuperior internal social and labor conditions - above\nits obligations for international cooperation in maintaining\nstability of its currency that the whole structure is\nadversely affected.\nThe French economic situation, in Fournier's opinion,\nwas \"leveling out\", and there was no immediate cause for\nworry, according to various indexes. Fournier said he\ndoes not think that there will be any provision toward\ngiving the labor laws further elasticity in the third series\nof Government decrees to be issued before expiration of\nthe Government's special authority with the adjournment of\nParliament by the twenty-seventh of June.\nThe Governor of the Bank of England, Norman, was ill\nand could not come to Basel for the meeting. Hie alternate\nCobbold and I had a long talk. Even though the French\nstabilization\nRegraded Uclassified\n453\n- 8 -\nstabilization fund is not having particularly heavy losses\njust now, Cobbold is BO sure that by September there will\nbe a recurrence of the same old French treasury and monetary\ncrisis that he 18 advancing his holiday by two weeks.\nAmerican business visitors in London, be Cobbold said,\nstill give dismal and discouraging accounts of the situation\nin their own country. Both Cobbold and I denied to many\nof our friends the rumors that dollar and sterling are to\nbe devalued which had been going around.\nAt Basel, none of the bankers - always excepting Bach-\nmann - seemed to be seriously concerned about the dollar's\nposition. In view of the conditions in Europe, they\nrealize that the dollar should enjoy a position of security\nsuperior to that of any currency in Europe. They are at\nthe same time in agreement that if we continue to pursue\nthe poltbies of spending such as we are now following they\nwill eventually wreck the currency. It is surprising to\ncentral bankers who are accustomed to looking upon them-\nselves as the orthodox defenders of their currencies and\nupon the politically manned and influenced treasuries as\nthe dangerous spenders to see that in the United States the\nsituation is somewhat reversed. All of my friends emphasized\nthe importance to the world and to their own particular\ncountries of an early improvement in the business situation\nin\nRegraded Uclassified\n454\n- 9 -\nin the United States. The very recent rises in the prices\nof grain in the United States were encouraging to Jacob-\nsson. He hoped that this is a beginning in the turn of the\neconomic situation. In his opinion it is particularly\nimportant that the farmers whose prices have undergone\nthe greatest decline should be the first to experience\nrecovery, especially since this element would be quick to\nrecommend manipulation of the currency.\nAt the present time Rooth has no more Swedish gold\nen route to the United States. However, if he can get\nmore favorable insurance rates than he has had, he may\nrenew shipments. Very soon he will seek American approval\nof a gold swap operation.\nI was told by Bachmann that since the fourth of May\nhe had lost some gold to France, but that there is almost\nan end to such repatriation. He told me that through the\nSwise banks he is still selling a lot of gold coins for\nhoarding in various countries of Europe. I questioned him\nabout the purchases of gold in London that he started again\nlast week. He said that they had been sealing gold coins\nand they needed gold bare to replenish their gold stock.\nHe told me that he had been able to withstand efforts\nto\nRegraded Uclassified\n455\n10 I I\nto have bookkeeping profits from the Swiss franc deprecia-\ntion turned over to the state to be applied to current\nexpenses; however, there is under consideration a plan\nwhereby the Government would borrow 395,000,000 Swise francs\nfrom the Bank. One-half of this amount XXX would be ex-\npended for national defense, and one-half on public works\nfor relief of the unemployed. Two methods would be used\nby the Government for trying to raise the money for repayment\nof this credit - 8. special tax would be placed on large\ndepartment and chain stores, and the crisis tax, which\nexpires shortly, would be extended. Both bodies of the\nSwiss Parliament must approve this proposal and then a\nnational referendum must be held, 60 it is not likely that\nit will be adopted before 1939.\nSince plans have been consummated for a banking\ncredit to Belgium, Bachmann said that they have dropped\nplans for issuing a long term public loan on the Swiss market\nfor the benefit of Belgium.\nBachmann feels that France has failed to uphold its\nend in the Tripartite Agreement, which made him very unhappy.\nWhatever is done to impair the Agreement, he said, makes\nit that much more difficult for the Swiss Government and\nCentral Bank to uphold its conservative policies in B. free\neconomy.\nRegraded-Uclassified'\n: 456\n- 11 -\neconomy. A deep impression has been made on trade unions\nand various other Swiss groups by stories from Germany and\nItaly about benefits derived by workmen in those countries\nfrom the autarchic governments. These groups are quick to\ncriticise failures on the part of liberal governments to\nachieve success, and particularly the French.\nJuly 11 has been set as the date for the next meeting\nof the BIS directors.\nEND MESSAGE.\nBULLITT.\nEA:LWW\ncase\nFEDERAL RESERVE BANK\nOF NEW YORK\n457\nFICE CORRESPONDENCE\nDATE June 14, 1938.\nCONFIDENTIAL FILES\nSUBJECT: TELEPHONE CONVERSATION WITH\nJ. W. McKeon\nBANK OF ENGLAND.\nDM\nMr. Bolton called Mr. Knoke at 11:07 this morning. All\nforeign exchanges were quiet in the London market today, but there\nhad been a large demand for gold; Bolton stated that recently the\nControl had furnished to the market the equivalent in gold of ap-\nproximately £1,000,000 a day. Mr. Knoke asked who the buyers of gold\nwere. Amsterdam and Bombay were the largene buyers Bolton stated, the\nlatter having bought considerable gold for forward delivery. Business\n!,ad been done in the forward goid market at about 7 1/2d premium.\nThere had been considerable switching of dollars into gold together\nwith buying gold for hoarding purposes. The dollar appeared weak, and\nwith our unemployment situation, together with our huge spending pro-\ngrams, level-headed people in London felt that the dollar must go\nlover, particularly for the long-range view.\nMr. Knoke told Bolton that the Swis: frane mas strong this\ncorning and asked nin if ne knew the reasons. Bolton thought that\none Germans had converted a moderate amount of Marks into Swiss france,\nE-t thought the movement artificial.\nJWMcKiCa\nRegraded Uclassified\nFEDERAL RESERVE BANK\n458\nOF NEW YORK\nFICE CORRESPONDENCE\nDATE June 14, 1938,\nCONFIDENTIAL FILES\nSUBJECT: TELEPHONE CONVERSATION WITH\nJ. W. McXeon\nBANK OF FRANCE.\nMr. Cariguel called Mr. Knoke at 11:20 this morning.\nAlthough foreign exchanges had been quiet recently, Cariguel\nfound it necessary to go to the support of the franc, losing\nbetween £100,000 to £200,000 daily. The main reasons for the\ncontinued weakness in the franc appeared to be (1) that repatrie-\ntion of French capital had ceased, (2) that France continued to\nhave an adverse balance of trade. Cariguel thought the Government\nmust do more than it has so for done, for the Franc to recover.\nOne of the world's troubles, he felt, was $ general lack of\nconfidence in ell currencies.\nJWMcKsLWK./KW\nRegraded Uclassified\n459\nMy\nJR\nGRAY\nLondon\nDated June 14, 1938\nRec'd 2:30 p.m.\nSecretary of State,\nWashington.\n512, June 14, 6 p.m.\nFOR TREASURY FROM BUTTERWORTH.\nIn the course of a conversation at the British\nTreasury Phillips referred to the devaluation rumors\nend the hoarding movement they were again stimulating\nand said that hE, of course, assumed that there was\nnothing in it. I in turn referred to your public\nstatements. Later in the conversation, however, hE\nshid that hE hoped that the United States was not\ngoing to \"start any major hares\", that while hE was in\nfavor of doing anything to hElp a situation, if help\nit would, hE did not believe that there were any\ndeflationary influences of a monetary character at\nwork and hE felt sure that there was no important\naction in the monetary field which could bE usefully\ntaken. No doubt the general price level in the United\nStates was too low in terms of wages but monetary action\nalone would not bE able to solve that.\nPhillips\nRegraded Uclassified\n460\n⑉2⑉ #512, June 14, 6 Della, from London.\nPhillips went on to say that the only contingency\nwhich ht have to be faced in the near future was the\npossibility, if = European crisis became imminent, of a\nmajor movement into dollars. In his opinion it might\nwell bE of sufficient magnitude so that shipping\nfacilities would prove inadequate and in this connection\nhE referred to their gold reserve which is being\nbuilt up in Ottewn (SEE my 395, May 12, noon); this was\nunfortunately = slow matter and the St. Lawrence would\nfreeze up in the fall.\nOn the general outlook Phillips said that there was\nno significant single sign of improvement; on the other\nhund there were a number of deteriorating influences at\nwork. HE referred to the adverse Effect which the\nMexican and Austrian defaults had had and the difficulty\nof maintaining confidence while a Czech crisis was on the\npoint of breaking out EVERY couple of weeks. NEVERTHELESS\nhE hEld to the view that the British situation would not\ndeteriorate rapidly and hE anid hE hoped (repeat hoped)\nfor an upturn from the United States in the outumn.\nKENNEDY\nKLP\nRegraded Uclassified\n461\nAll\nJR\nPLAIN\nLondon\nDated June 14, 1938\nRec'd 2:35 p.m.\nSecretary of State,\nWashington.\n514, June 14, 6 p.m.\nFOR TREASURY FROM BUTTERWORTH.\nThe movement into gold has in no W13E abated today.\n574 bars were purchased at fixing at a premium of Eight\npence. Large amounts were dealt in after fixing and\nthough the dollar remained steady the premium tended to\nincrease. Coin has likewise been in demand the sovertign\nmoving to thirty-three shillings and eight pence. The\ndewand for gold is general on the continent and NEW York\nis also a buyer. The Swiss franc was bid down against\ngold. The French franc was somewhat offered particularly\nin the morning and the dollar sterling exchange has been\nnotive though steady.\nKENNEDY\nKLP\nRegraded Uclassified\nAM\n462\nJR\nGRAY\nLondon\nDated June 15, 1938\nRec'd 1:30 pam.\nSecretary of State,\nWashington.\n517, June 15, 6 p.m.\nFOR TREASURY FROM BUTTER'/ORTH.\nThe pounds BO \"illion defense loan referred to\nin my 511, June 13, has in contrast to last year's\npounds 100,000,000 loan been well received by the\nmarket. In order to avoid invidious comparisons the\nsystem V18 this time altered in that it was announced\nwould\nthat regardless of subscriptions the books remain\nopen until 3:30 this afternoon. Bank of England states\nit will not have ascertained the real position until\nInte this evening.\nIncidentally in yesterday's conversation Phillips\nreferred to this operation and said that the Trensury\nhad been anxious not to push the market too hard, that\nIn their view it was much better to cover their\nrequirements gradually rather than attempt to take\nadvantage of favorable conditions to obtain a large\namount and that therefore the amount had been fixed at\nonly Eighty million.\nThe\nRegraded Uclassified\n463\n-2- #517, June 15, 6 p.m., from London.\nThe movement into gold continues. Although the\nfixing at 604 bars was larger than yesterday and post\nfixing derlings probably totaled half that amount,\nnevertheless the movement seemed to have somewhat less\nimpetus behind it.\nThe rapidity with which the dollar was brought\nfrom 1.98 to 4.971 indicated to the market that\nofficial intervention occurred. The French franc\nhas been somewhat week again with the French fund\ngiving support et 178.40. It is noteworthy that the\nbelga despite dollar weakness has remained strong.\nJOHNSON\nRR:CSB\nRegraded Uclassified\n464\nPARAPHRASE OF TELEGRAM RECEIVED\nHAA\nFROM: American Embassy, Paris, France\nDATE: June 15, 1938, 4 p.m.\nNO.: 935\nFROM COCHRAN.\nAt noon I called at the Bank of France. The French\ncontrol had lost only 20,000 pounds before the fixing of\ngold in London this morning; this figure had risen to\n85,000 pounds between fixing time and twelve noon. The\ncontrol was holding the rate slightly below 178.40 in\nParis, and gave instructions to do likewise in London.\nWhile I was with my friend he talked with London. Bolton\nreported that there was an active demand for gold on\ncontinuing rumors of dollar devaluation. According to\nmy friend purchases of gold were widespread, coming from\nthe leading continental centers as well as the United\nStates. He mentioned, incidentally, that official German\nselling of sterling is taking place today.\nMy friend told me that there appears to be a general\nlack of faith in all currencies because of the European\npolitical situation. A particular contributing factor\nis the deterioration in world business conditions, in\nthe United States especially.\nI asked my friend for his personal and confidential\nopinion as to where a currency break might most likely\ncome.\nJclassified\n465\n- 2 -\ncome. He said that a great deal would depend on the\nwillingness of authorities in London to continue to yield\ngold in response to a terrific demand on the London market\nfor gold. This morning in his conversation with Bolton\nOlds said that the proper thing for the British to do was\n# to continue to give gold indefinitely,\" in his opinion.\nMy friend was apparently upset by this remark, because\nthe French situation already worried him. The pressure\non the franc has not been heavy, as indicated above, but\nthere are still daily losses of gold by the French control,\npartly for commercial needs, and now perhaps as a conse-\nquence of fear that there will be further depreciation\nof the currency.\nAt the Bank of France I was told that the Bank had\nup to the present no details of the reported arrival of\nanother shipment of gold in France. This shipment is said\nby the press to be 50,000,000 French france, coming from\nthe Spanish Government. According to the press a second\nshipment is destined for the United States. The first\nshipment of a few weeks ago was not connected with the Bank\nof France. It is expected that shortly a court decision\non the Spanish gold held by the Bank of France will be\nrendered, and Fournier has promised to give me full details\non the matter.\nI\n466\n- 3 -\nI went to see Pennachio at half-past twelve. During\nthe morning he had had a telephone call from the Bank of\nItaly in Rome, and also a call from his Bank's representative\nin London regarding the rumored devaluation of the dollar\nand of the lira within 48 hours. Officials of the Bank\nof Italy are of the opinion that the lira devaluation rumor\nconnected with the rumor of dollar devaluation had originated\nin New York City.\nPennachio said he told his colleagues that the dollar\nshould certainly not be looked upon as a weak currency\nthreatened with devaluation, as it is far removed from\nEurope and is favored by such a strong backing in gold and\nthe trade balance is favorable. According to his friends,\nthe rumors did not calculate that monetary conditions were\nforcing devaluation, but that the dollar devaluation was\npurely fram the desire of the President in an election year\nin order to bring business out of its stagnant position\nthrough the stimulus of manipulation of the currency.\nWith regard to the lira, the Italian officials insisted\nthat Italy will not take any initiative in & further chain\nof depreciation of currencies; they do not even intend\nto put out a cheaper tourist lira. The most likely action\nwill be to lower railway rates and offer other attractions\nof an economic type in order to increase the tourist busi-\nness, which this year above all will be necessary in Italy's\nefforts to balance international payments. END SECTIONS ONE\nAND TWO.\nBULLITT.\nEA:LWW\nRegradedUclassified\nHRE\n467\nGRAY\nPARIS\nDated June 15, 1938\nRec'd 5:10 pame\nSecretary of State\nWashington\n935, June 15, 4 peme (SECTION THREE)\nAt 4:00 p.m. my market contact said French control\napparently yielded important amounts of sterling this\nafternoon. HE alone had taken 100,000 pounds and thought\nthe market as a whole had absorbed at least 500,000 pounds.\nHE said market was dominated by rumors in regard to dollar\n=sterling rate which hE thought came principally from the\nUnited States. NEW York brokerage concern has asked for\nquotations on gold futures. Turnover in gold coins is\nterrific. Forward franc weaker; rentes declined; new\nnational defense bonds offered at 22 franc discount per\nthousand; City of Paris loan practically unsalable;\nFrench business very dull; market atmosphere bad as a\nconsequence of foregoing factors and the constant threat\nof international developments. Of the continental\ncurrencies Dutch florin continues strong and belga is\nclose to point where gold imports from the United States\nmight bE EXPECTED.\nMarket has paid no attention to third series of\ndecree laws under authorization approved by Parliament\nApril\n4L8\nHRE\n2-#935 From Paris June 15, 4 pame\nApril 13 which were published in the Journal Officiel\ntoday. They number 45 and relate to finance, national\neconomy, and defense. Provision is made for (one)\nmodification of taxes on foreign securities hEld abroad\nby French insurance companies; (two) Exoneration of tax\non undistributed profits for concerns investing reserves\nin workers dwellings; (three) strengthening of laws\nagainst fiscal fraud and for the protection of investors;\n(four) increase of tax on cotton imports to encourage\ncotton production in French North Africa and in the French\ncolonies; (five) reorganization of subsidized merchant\nshipping; (six) organization of Economic regions; (seven)\nreduction in present rate of press telegrams; (sight)\nreorganization of the technical SERVICES of the War, Navy,\nand Air Ministries and (nine) strengthening of the air\nservice, Most of these measures appEar from preliminary\nExamination to bE of secondary importance.\nEND OF MESSAGE.\nBULLITT\nNPL:EMB\nRegraded Uclassified\n469\nJune 15, 1938.\n9:03 a.m.\nH.M.Jr:\nHello.\nDan\nBell:\nYes.\nH.M.Jr:\nDan. Anything new on the project that we can get\nBurlew to get started on?\nB:\nWell, I don't know about his stuff.\nH.M.Jr:\nBut I mean -\nB:\nI haven't heard any more from him. We're working on\nthe Federal project. Got it pretty well lined.\nH.M.Jr:\nYou have.\nB:\nYes.\nH.H.Jr:\nWell I mean have you got - have you got two hundred\nmillion ready?\nB:\nNo, I don't think SO. Not that many unlesswe give\nArmy and Navy a good deal more.\nH.M.Jr:\nWell, when would you be ready to have the President\nO.K. some more?\nB:\nWell, I've got some ready now. I've got some\nH.V.Jr:\nExcuse me.\nB:\nI've got some\nready now.\nprojects.\nH.M.Jr:\nYes.\nB:\nAnd also some housing for prisons, small amount,\nI've got some commerce stuff ready. I'll have some\nmore Navy today.\n3.H.Jr:\nWell I mean, when do you want to get him to clear it?\nYou see I'm going over there in fifteen minutes.\nThat's why I'm calling.\na:\nWell, I -\nH.M.Jr:\nI mean I can't take it then, but I wanted to know\nwhether - what I could say to him.\nB:\nWe might have some tomorrow before he goes away.\nRegraded Uclassified\n470\n- 2 -\nH.M.Jr:\nWell, my use - can I help any by getting hold of\nBurlew or anything?\nB:\nNo, I can do that. I think Burlew's got the stuff\nready. Just waiting.\nH.M.Jr:\nWhat?\nB:\nI expect he's got the stuff ready.\nH.K.Jr:\nWell, I think I'll give him a ring now.\nB:\nI can do it.\nH.M.Jr:\nWell I just wanted to get it fresh, BO before I\nwent over you see?\nB:\nYes.\nM.M.Jr:\nWhat?\nB:\nYes. All right.\nH.M.Jr:\nAnd then I'll see you when I come back. How's that?\nin\nAll right. Fine.\nR.M.Jr:\nSee?\nas\nYes. I don't - I don't know that the President will\nwant to go to two hundred million on -\nH.M.Jr;\nBut he's going to be - he's going to be awey for a\nfull week.\nE\nYes, I know.\nH.W.Jr:\nAnd I thought that if we could get him to sign some\nstuff before he left.\n3.\nWell we can, we've got some stuff that we can get to\nhim tomorrow.\nB.M.Jr:\nRight.\nB:\nNow probably we candig up some stuff on reclamation, of\nwhich won't be spent but which will carry some\nthat reclamation through the year. Remember the\nRegraded Uclassi ified\n471\n- 3 -\ngrand couple said he wanted to rush a little.\nH.M.Jr:\nRight.\nWell, that can get started.\nH.M.Jr:\nO.K.\nAnd that's very simple.\nH.M.Jr:\nAll right.\nRegraded Uclassified\n472\nJune 15, 1938.\n9:07 a.m.\nE.N.Jr:\nHello.\nOperator:\nMr. Burlew.\nH.M.Jr:\nHello.\nBurlew:\nGood morning.\nH.M.Jr.\nHello Burlew. How are you?\nB:\nAll right, I hope you are.\nH.ll.Jr:\nFine. I was Just talking to Dan Bell, and the\nPresident is going away tomorrow to be gone for a\nweek, and I wondered if you fellows had done anything\nmore - ready for him to sign.\nB:\nYes. Of course he said he wanted to sign that book\na second time when the Bill was passed. Now we've\ngot everything in there that's ready except one\nproject/which the President himself 18 interested in.\nH.H.Jr:\nYes.\nB:\nAnd -\nH.N.Jr:\nWhat's that?\nB:\nWell that's a bridge in Long Island - Shoulder Island\nbridge.\nH.M.Jr:\nOh.\nB:\nAnd that - we're making a special book for it.\nH.M.Jr:\nI see. I wonder why he's interested in that,\nE:\nWell -\nH.M.Jr:\nPart of the Park System?\nB:\nYes, it's part of the System over there - Park\nSystem, and his former law partner is interested in\nit.\nH.H.Jr:\nOh, O'Connor?\n3:\nYes, O'Connor. He - the President called me on\nRegraded Uclassified\n473\n- 2 -\nthe telephone about it and sent O'Connor over to\nBee me.\nH.M.Jr:\nOh! I see.\n3;\nAnd the President himself turned it down last year.\nH.E.Jr:\nI see.\nin\nWe wanted to allot it, but he wouldn't do it, he\nsaid there wasn't anything important about it, but\n1t turns out that he was misinformed.\nH.H.Jr:\nNow, how much will you have ready - Bell says he'll\nhave some Federal projects ready by tomorrow.\nB:\nYes. We, of course, haven't gotten our Interior stuff\nall in there yet.\nH.M.Jr:\nBut I mean - If I say that you'll be ready - - if you\nand Bell will be ready to see him tomorrow.\nB:\nYes, I wish we could.\nR.C.Jr:\nWhat?\nB:\nI wieh we could see him tomorrow.\nH.M.Jr:\nWell, supposing I ask for an appointment for the two\nof you. I won't be here.\nB:\nWell that would be fine, because I ought to see him\non several of those things.\nH.II.Jr:\nWell, I tell - I'll mention it to him but you ask\nhim what to sign, will you?\net\nYes. Now Mr. Secretary, may I say this that this\nhelium business worries me very much. When the\nSecretary went away he had an understanding con-\nfidential with the President that it would be acted\non while he was gone, see?\nH.M.Jr:\nYes.\nETP\nAnd to the he way it would be handled, but nothing's\nlaid down very careful instructions to been me 88\n, 474\n- 3 -\ndone and the Secretary 1s going to get back next\nweek, you know.\nH.H.Jr:\nWhich way was it to be handled?\n9:\nWell - the first purchase was to be allowed, see?\nH.W.Jr:\nOh!\nB:\nAnd with no committment 88 to the future.\nH.M.Jr:\nYes.\nEl\nNow the Secretary said he would never agree to the\nsale, himself, and it was to be handled while he was\ngone. Now I wonder if I should bring that up.\nH.D.Jr:\nWell, I think you'll have to use your own judgment.\nE:\nYes. That's an awfully ticklish subject, you know.\nH.M.Jr:\nYes, On that subject I can't advise you.\nB:\nYes. Well all right, I think I'd better bring it up\nthough.\nH.H.Jr:\nIf you don't mind I'd rather keep out of that.\nB:\nYes. All right.\nH.M.Jr:\nFor personal reasons.\nE:\nYes, I see.\nH...Jr:\nBut on the - on getting the stuff started I'll ask\nto see the President. If you call up McIntyre\nyourself.\niii\nYes.\nH.M.Jr:\nAnd say that you and Bell want to see him tomorrow.\nB:\nAll right and did I understand you to say you'd\ncall up too.\nH.X.Jr,\nWell, I'm going to see the President in four minutes.\n3:\nOh I Bee, then you'll propose it. Yes.\nRegraded Uclassified\n: 475\n- 4 -\nH.M.Jr:\nI'm going over now to the White House. That's\nwhy I'm calling you.\nB:\nYes, I see.\nH.M.Jr:\nAnd when I go to the White House I'll tell him\nthat you and Bell are ready.\nB:\nYes, good enough.\nH.M.Jr:\nAnd that you have another bunch of projects.\nB:\nAnd then I'll get the time from McIntyre.\nH.M.Jr:\nWell - but you'd better follow it up. You know\nhow those White House appointments are.\nB:\nYes. I know.\nH.M.Jr:\nAnd the helium thing, you'll have to use your own -\nB:\nAll right.\nH.M.Jr:\nAll right.\nB:\nThank you.\nH.M.Jr:\nGoodbye.\nRegraded\n- 476\nGROUP MEETING\nJune 15, 1938.\n10:00 a.m.\nPresent:\nMr. Taylor\nMr. Oliphant\nMrs Klotz\nMr. Gaston\nMr. Haas\nMr. White\nMr. Lochhead\nMr. Upham\nMr. Gibbons\nMr. McReynolds\nH.M.Jr:\nHerbert, if it's not too difficult, would you see\nthat John Boettiger's paper in Seattle gets whatever\nadvertising we do?\nGaston:\nI have.\nH.M.Jr:\nYou have?\nGaston:\nI have.\nH.M.Jr:\nAre you sure?\nGaston:\nMy last communication with Mr. Spangler - he assured\nme that hereafter they'd get it all.\nH.M.Jr:\n(To Mrs Klotz) Five cents.\nKlotz:\nNo, no, not yet.\nGaston:\nHe's written me two letters - the first, that it\nalso went to the Times, and he started to split it\nthen between the two; and then, after my later com-\nmunication, he said, \"Well, we'll give it all to the\nTimes.\"\nKlotz:\nNo, I'd like to look here first (for some papers).\nH.M.Jr:\nWell, anyway, it's going to his paper.\nGaston:\nI'll make certain that it is.\nH.M.Jr:\nMake sure, will you?\nGaston:\nI'll make certain that it is. That was the under-\nstanding.\nH.M.Jr:\nAll right.\nUclassifi\n477\n-2-\nHerman?\nOliphant:\nI said I'd give you this back this morning. That's\nthe thing Miss Maguire brought in.\nH.M.Jr:\n(on phone) Hello. (Conversation with Mr. Bell\nfollows:)\nRegraded Uclassified\n478\nJune 15, 1938.\n10:02 a.m.\nH.M.Jr:\nHello.\nOperator:\nMr. Bell. Go ahead.\nH.M.Jr:\nHello.\nDan\nBell:\nYes.\nH.M.Jr:\nDan?\nB:\nYes.\nH.M.Jr:\nThe President will see you and Burlew tomorrow on\nwhatever Federal and non-Federal projects you have\nready.\nB:\nI see.\nH.M.Jr:\nSo will you follow up and ask for an appointment?\nmi\nYes. Yes.\nH.M.Jr:\nHe'd like to see the two of you before he leaves\ntomorrow and sign whatever you've got.\nB:\nYou don't know what time he's leaving? In the\nevening?\nH.M.Jr:\nI - I don't know.\nB:\nUhhuh. All right, I'll follow it up.\nH.M.Jr:\nBut he said he'd see the two of you before he left,\nbut I would follow it up, if you would please.\nB:\nYes. Well now we've got very little in here. The\nbig item is being worked on by War, Navy and\nReclamation.\nH.N.Jr:\nWell Burlew has some stuff.\nB:\nWell, yes - I mean the non- I mean the Federal.\nH.N.Jr:\nWell clean up whatever you have before he leaves.\nB;\nYes. I will.\nH.M.Jr:\nWill you?\n479\n- 2 -\nB:\nDid Burlew say that he had quite a list of non-\nFederal stuff.\nH.M.Jr:\nHe - no, but he said he's got - he's got Federal\nstuff.\nB:\nOh, Federal.\nH.M.Jr:\nHe's got books, yes.\nB:\nI see. Well I had thought -\nH.M.Jr:\nNon-Federal.\nB:\nNon-Federal.\nH.M.Jr:\nNon-Federal.\nB:\nI see. He's ready on that, then.\nH.M.Jr:\nHe's got some, and I want everything signed that the\nPresident will sign before he leaves town.\nE:\nYes. Well I think we can have some of it ready\ntomorrow.\nH.H.Jr:\nWell, put B. little pressure on the boys.\nB:\nYes, I will.\nH.M.Jr:\nAll right, Dan.\nin\nFine.\nUclassifie\n480\n-3-\nH.M.Jr:\n(To Mrs Klotz) Ten cents - in this room.\nKlotz:\nWell, you may have taken it home.\nH.M.Jr:\nNo, at home or here.\nKlotz:\nWell now, suppose it has your little \"M\" on it.\nPoes that go, no matter where it is?\nH.M.Jr:\nYes.\nKlotz:\nO.K. Fifteen cents.\nH.M.Jr:\nNo, ten. Ten. Ten.\nKlotz:\nI'll play poker with you.\nOliphant:\nThese various items of information and news.\nThe Mellon case has been settled.\nH.M.Jr:\nCheck on the barrelhead?\nOliphant:\nI don't know where the check is.\nH.M.Jr:\nCan't hear you.\nOliphant:\nI don't know where the check is.\nH.M.Jr:\nI thought we settled that the other day.\nOliphant:\nWell, we've seen them and they have ....\nH.M.Jr:\nTwo million eight, or something like that?\nOliphant:\nAbout two million eight.\nH.M.Jr:\nWe can use it. Last us about two minutes.\nOliphant:\nDid Guy send over that memorandum on the general\nhistory of the case and how much more was involved\nthan this?\nH.M.Jr:\nNo, no.\nOliphant:\nYes, it might be interesting.\ned\n481\n-4-\nH.M.Jr:\nAll right. Anything else?\nOliphant:\nNo, nothing else.\nH.M.Jr:\nHerbert?\nGaston:\nNo.\nOliphant:\nJust some items of information to look at,\nGaston:\nI haven't anything.\nH.W.Jr:\nIf you give Mrs. Klotz a dozen copies of my speech,\nmight take it along.\nGaston:\nYes. You're leaving this afternoon, are you?\nH.M.Jr:\nYes. You might send - make a note and send a half\ndozen copies to Butterworth and half a dozen copies\nto ....\nKlotz:\nCochran.\nH.M.Jr:\n... Cochran. Mail those today.\nOliphant:\n\"hat time will you be leaving?\nH.M.Jr:\nAfter lunch.\nAnything else, Herbert?\nGaston:\nNo. I sent 20 copies to Joyce ...\nH.M.Jr:\nI'd give him a half dozen\n....\nGaston:\n: by way of Secret Service. They're delivering it\nto him about 1:30 this afternoon.\nH.M.Jr:\nAll right. Anything else?\nGaston:\nThat's all.\nH.M.Jr:\nWayne?\nTaylor:\nPanama. As you know, yesterday, why, the Senate\nForeign Relations Committee reported out this\nresolution which, in effect, why, makes up all the\nRegraded Jelassified\n482\n-5-\nback payments at the new rate, and so on, to the\nPanama Government. We took it up with the General\nCounsel's office with a view to seeing what effect\nthat would have on our gold cases, and also tried\nto produce some wording of the resolution which\nwould have less effect. General Counsel feels that\nthere is no wording of such a resolution which will\nnot have an extremely bad effect on the possibilities\nof winning certain of our future gold cases, and from\nthat standpoint, why, we don't feel that we can go\nalong. Now, there is quite a lot of history connected\nwith that, and the wording of the original treaty, and\nwe had to go back to correct the minutes, and so on.\n(Phone rings)\nH.M.Jr:\n(To Mrs. Klotz) Please.\nYes.\nTaylor:\nBut I think Herman can give you the details of ...\nH.M.Jr:\nI'll talk to him.\n(On phone) Hello. Go ahead. - Yes. - Good\nmorning. - What? Give me the number again. -\nYes. - Yes. - I see. - I see. And were they\nnice about it? - Uh-huh. - Yes. Isn't that 8\nlittle high? - Uh-huh. I see. Is that the\nregular? - I see. Well, could you find out what\nthe regular is. - Yes, find out what the regular\nis. - No. - No. - Well, we can cross that\nafterwards. - Yes. That's all, thank you. -\nThank you.\nTaylor:\nI think Herman can tell you - I mean in detail why\nwe're\nH.M.Jr:\nNo, I'm not interested. If that's what they feel,\nand the gold case - any future gold cases would be\nword for it, and I don't want to go into. it I mean he\njeopardized, today I'll just take General Counsel's\neither knows or doesn't know.\nTaylor:\nWell, it's - I don't think it would do any particular\ngood to know the details.\nIclassifi\n483\n-6-\nH.M.Jr:\nNo. Some other day I would like to know, but not\nparticularly today.\nTaylor:\nNow, my suggestion is that I call up Mr. Messersmith\nor Mr. Welles and tell them that this unquestionably\nleaves us in very bad position.\nH.M.Jr:\nRight, and as long as the General Counsel feels\nthat way, I'd be very definite with them.\nTaylor:\nI put them on warning last night about it, that\nit didn't look as if - certainly couldn't help us\nany.\nH.M.Jr:\nRight.\nTaylor:\nAnd if we do have to oppose it on the Hill - there\nisn't terribly much chance of its getting through\nin any case on account of the time element involved -\nnow do you suggest we go about it?\nH.M.Jr:\nWell, very easily - I'd have an informal memorandum\nof one page which would be delivered to Bankhead and\nBarkley for their guidance, saying that if this thing\nwent through out future gold cases would be in jeopardy.\nI'd have a one-page memorandum and I'd see that\nHester delivers it to Barkley and to Bankhead, and\nI'd get-it up this morning.\nTaylor:\nYou can take care of that, Herman.\nH.M.Jr:\nThat's what I'd do.\nOliphant:\nI'm not going to send it up unless you tell me that\nthe State Department is going to insist.\nTaylor:\nNo, but I think I'd have it ready.\nOliphant:\nYes, I'll have it ready.\nTaylor:\nThe time element being what it 1s, you can't tell\nwhat will happen.\nThe only other thing of particular interest is that\nHungary paid $9800 today.\nH.M.Jr:\nGood. Anything else?\n484\n-7-\nTaylor:\n(Nods nothing)\nH.M.Jr:\nGeorge?\nHaas:\nThe only thing I have is that this bad steel price\nsituation may be working itself out.\nH.M.Jr:\nthree dollars on sheet steel.\nHaas:\n+ don't know exactly what that means, but it may be\njust public recognition of what's already taken place.\nPut it's all to the good. Down with steel prices will\ntend to improve the whole price structure.\nH.M.Jr:\nI see steel bars is supposed to be down too.\nHaas:\nUh-huh.\nH.M.Jr:\n\"ind out from Peoples how much he can find out about\nthat, will you?\nHaas:\nUh-huh. That's very important.\nH.M.Jr:\nWill you? And I'd like to have something Monday\nmorning on it.\nHaas:\nYes, sir.\nH.M.Jr:\nDee? Just how much that is, what it amounts to.\nDoes it say reinforcing ...\nHaas:\nReinforcing bars.\nH.M.Jr:\nIs down. Well, if that's down - and I was very\ninterested to see that either the Times or the\nTribune said, \"Well, an important thing like this -\na statement should be made by the steel people,\nnot just let it slip out.\" It's either the Times\nor the Tribune.\nHaas:\n'hat's all I got.\nH.M.Jr:\nAnd I don't think there is any particular secret -\nMr. Kellar was in here for half an hour yesterday;\ndidn't tell me - I mean it's confidential inside this\nroom, but he said that - he's the President of\nChrysler - that their business - orders had so\nRegraded\n485\n-8-\nincreased that they had increased their July\nschedule by 1500 cars; that they had been worrying\ngreatly about whether they could get rid of 1938\nmodels; they are no longer worried about that.\nThey're going to start their Plymouth production\nSeptember, which is earlier than they have ever\nstarted it. They are spending $14,000,000 on new\nmodels, as against six this year. And their\nsecond-hand car situation they consider in very\ngood shape. Let's see, where is the - anyway, the\nincrease in the orders is coming from the South and\nthe Pacific Coast.\nHaas:\nUh-huh. That checks with the regional\nH.M.Jr:\nAnd he says if he gets any change either up or down\nbetween now and the first of July, he'll call me on\nthe phone. They're building 1800 cars a day. First\n12 days they built 12,225. Now, where is it - they\nhad on hand on the 11th of June used cars - let's see,\nis that - 155,000, as against 169,000 the same time\nlast year. And he says he looks for a 20 percent\nincrease in business next year.\nHaas:\n20 percent.\nH.M.Jr:\nIncrease.\nHaas:\nIncrease? Sloan says it's going to be like 1932.\nH.M.Jr:\nWell, he says increase, and he says that they've all\nbeen fooled both on domestic and on exports.\nHaas:\nOh-huh.\nH.M.Jr:\nAnd in China they're doing a very interesting thing.\n*hey're doing business with China and they get paid\nin 60 days, which takes care of the labor and the\ncost of materials; and they get a discountable note\nwhich takes care of their profit - of their overhead;\nand they take a two-year note, which represents their\nprofit. What?\nOliphant:\n\"emember that scheme in connection with\nUclassified\n406\n-9-\nH.M.Jr:\n\"ut they're doing it without any Government help.\nOliphant:\nVery interesting.\nH.M.Jr:\nAnd I didn't know - maybe you people knew - how they\nhandled their export business. In '28 they sold all\ntheir plants for cash, got their money out of it,\nand all of their assembly plants are owned by their\ndealers. They don't have a dollar in any foreign\nplant. And they sell their cars on the docks for\ncash. He says last year their English dealer invested\nthree million dollars which he raised 1A London and\nbuilt an assembly plant. And he says, \"Yes, 6.1ev\nuse English batteries and English tires, and maybe\nEnglish fenders, which pleases the English, but...\"\nand ne says they haven't got & dollar in any plant\nend every sale they make is on the docks where they\nexport from. And he says their export business is\nfine. But he's not pessimistic. He said everybody's\nbeen worried whether they could get rid of their\ncars, and he says they're going to sell this year's\nproduction. And they've had to do a little borrowing,\nwhich I thought was very interesting.\nHaas:\nNot long ago they were the bluest - Walter Chrysler.\nH.M.Jr:\nWell, that's passed. And any change ne gets the\nnext two weeks, ne'll call me on the phone - for\nbetter or worse.\nlie lays quite B lot of stress on the wheat crop.\nde thinks that it will help. But you follow the\nsteel thing for me, will you?\nHarry?\nWhite:\nYou asked some time ago about tankers.\nH.M.Jr:\nWhat?\nWhites\nTankers - Mexican tankers. There's a memo here with\n8 brief summary on the first page. And then there is\nsomething here that illustrates what Great Britain\nincrease her exports. Just a brief statement. And\nis doing to strengthen her political influence and\nthen nere is something you asked for.\nRegraded Uclassified\n-10-\n487\nAnd the Philippine Committee has gone forward\nWayne Taylor. The details won't\nand has finished a report which I'm taking up with\n...\nH.M.Jr:\nAll right.\nWhite:\nThe details I don't think will either interest you\nor come to you until a long time after it reaches\nlegislative stage anyway, 1f then. But there is\none point which was suggested from that that I wonder\nwhether you might wish to re-examine. You're paying\ntwo percent interest to the Philippine Government\nfor 50 million dollars of time deposits. They have\n150 million here. About 50 to 60, they have no\nchoice. It's the sum due them on coconut oil, etc.,\nwhich they cannot withdraw except under conditions.\nThen they've got about 50 million of demand deposits\non which they re not getting interest; the law doesn't\npermit it. But there's about 50 million which they\nkeep here as currency reserve\nH.M.Jr:\nYes.\n\"nite:\non which at the time of the law it was specified\nthey shouldn't get more than two percent. But at the\ntime of the law one-year notes were selling at more\nthan twice what they are now. So that, unless there's\nsome special reason, they seem to be getting quite\na good thing.\nH.M.Jr:\nwhat do you suggest?\nWhite:\nThey ought to be reduced to one percent.\nH.M.Jp:\nUn now much?\nWhite:\n50 million dollars. At least it ought to be\nre-examined until some\n....\nH.M.Jr:\nWell, will you, Taylor, end Bell - Taylor, you're\nleaving tomorrow?\nTaylor:\n(Nods yes)\nH.M.Jr:\nme a signed memo recommending or not recommending.\nWell, before you 80 would you, White and Bell give\nWill you?\nRegraded Uclassi\n488\n-11-\nTaylor:\nWe've had that same thing up before. Each time\nWhite:\nI didn't know, Did you?\nTaylor:\nYes.\nH.M.Jr:\nWell, will you clean it up before you go, please?\nTaylor:\nNo, I felt very much the way that you did and tried\nto get it reduced before, and I don't remember\nexactly the reason why we weren't able to do it.\nPut it was\nH.M.Jr:\nWell, will you - O.K.?\nTaylor:\n(Nods yes)\nH.M.Jr:\nAnything else, Harry?\nWhite:\nNo, that's all.\nLochhead:\nIn view of the large turnover in the London gold\nmarket, we have been trying to reconcile the compara-\ntively small turnover in dollars. And it was interest-\ning - this morning the Dutch bank called up the Federal\nand spoke about the situation over here. They said\nthey - the Dutch bank wasn't giving much credence\nto the talk about dollar devaluation. They said as\nfar as the flight of gold - they said it wasn't\nnecessarily from the dollar, a flight from dollars,\nbut they were meeting it all over Europe - general\nflight from all currencies into gold; therefore, the\ngold market in London is getting the brunt of the\nflight of gold from various currencies, not only\nthe United States dollar.\nH.M.Jr:\nAnything else?\nLochhead:\n(Nods nothing)\nH.M.Jr:\nYou stay behind a minute; I want to ask you something.\nCy? Ransom is trying to call me.\nUpham:\nOh. Well, I hope to have that meeting tomorrow. Mr.\nDiggs is away today. We need a neutral meeting ground.\nI thought we might use the Under Secretary's office;\nRegraded Uclassified\n489\n-12-\nI'm sure he wouldn't mind.\nH.M.Jr:\nafterwards. I'm sure he'd be delighted. Have it fumigated\nOliphant:\nI might report that I had the first meeting of all\nthose lawyers and they all agreed on the legal point\nthat I had made, and it's just a question of having\nanother meeting this afternoon at three c'clock and\npolishing.\nH.M.Jr:\nWell, could you get it to Upham, then, by tomorrow?\n01iphant:\nYes, ought to have it by tomorrow.\nH.M.Jr:\nUpham and I had a rather disagreeable meeting yester-\nday. But it didn't make me feel any better after I\nread Kintner and Alsop last night, because that\nstory came right out of the Fed.\nMcR:\nCouldn't very well have gotten out any place else.\nH.M.Jr:\nOut when I told Eccles that we had the feeling over\nhere that they just didn t want to get together on\nany unification of banking business because it would\nretard their being able to take over all these\nbank examination agencies - and he got rather heated,\nbut before they got through he cleared the stmosphere,\nand Mr. Accles announced that he will go to work and\nsee what he can do. But it's the same old talk about\n\"Can't work with the Board,' so forth and so on.\nSo I said, \"Well, if you put your shoulder to this\nwheel, we'll get somewhere.\" And he now says he'll\ndo it. But we had some pretty ugly words for a while.\nIf they don't do it this week, then I'm perfectly\nwilling to go out and go to the country with it,\nbecause I'll take my chances on the public resction.\nAnd then if anybody wants to read now they feel, all\nyou've got to do is read last night's story in Alsop\nand Kintner. That will bring you right up to the\nminute.\nGibbons:\n(Nods nothing)\nH.M.Jr:\nBut Upham, don't let's - between the t.wo of\nyou, now, certainly the Treasury - you two get together\nRegraded Uclassified\n400\n-13-\nthis afternoon, see. Will you please?\nUpham:\nGlad to.\nOliphant:\nWe said we could have it for him by tomorrow,\nH.M.Jr:\nFirst thing tomorrow morning.\nOliphant:\nI assume that will be the\n...\nH.M.Jr:\nWell, If the meeting - whatever the meeting is,\nlet Mr. - but you and Upham figure at least to\nleave an hour's time so the two of you can sit\ndown together for an hour before the meeting.\nUpham:\nof course, the meeting is more on the other things\nthan it is on that.\nH.M.Jr:\nI know, but let's get that out of the way. Allow\nan hour's time, please,\nOliphant:\nThey're all agreed on it. Just 8 question of per-\nfecting the language.\nH.M.Jr:\nYou're (Gibbons) going to be here Friday and Saturday.\nGibbons:\nFriday they're dedicating that Coast Guard hangar at\nFloyd Bennett Field.\nH.M.Jr:\nYou've got to be here. You'll be the only one.\nGibbons:\nI don't want to go.\nH.M.Jr:\nWell, you're not sorry.\nGibbons:\nWell, Herbert thought I should go.\nH.M.Jr:\nWell, you can't; you're the only person ...\nGaston:\nIt's not Friday, it's Saturday, isn't it?\nGibbons:\nNo, it's Friday.\nH.M.Jr:\nYou're the only ....\nGibbons:\nYou remember I had spoken to you and you said, \"Let\nWaesche do it,\" and Herbert\n....\nRegraded Uclassified\n491\n-14-\nH.M.Jr:\nI crossed that bridge á month ago when the corres-\npondence came through, and we said to let Waesche\ngo. It's unimportant.\nGibbons:\nOh yes. It's a ...\nH.M.Jr:\nI crossed that. I don't know why I have to keep\ngoing over and over it. I said, \"Let Waesche go,\"\na month ago.\nGaston:\nI didn't know that. Waesche talked to me about it,\nand he didn't mention that.\nH.M.Jr:\nMy God, we've got ten of these hangars all over the\nplace. It's important, please, that you be here\nFriday and Saturday.\nGibbons:\nSure, that's perfectly fine with me. The only reason\nI brought it up to you - it was New York and that\nwas your state, and you said, \"No.\"\nH.M.Jr:\nOne hangar, two planes, one pilot. That's all right.\nGibbons:\nThat's fine with me.\nH.M.Jr:\nYou'll still vote for LeGuardia.\nGibbons:\nDid you see that vote in the Council up there yester-\nday, investigating the relief? This morning's Times.\nIncidentally, you saw the - I guess everybody's\nfamilier with the story last night - the failure of\nthe Argentine corn crop?\nH.M.Jr:\nNo, I was very much more interested that the Coast\nGuard was being sued for killing 232 minks.\nGibbons:\nI didn't see that. 232 minks.\nLochhead:\nYes.\nGibbons:\nWho's suing them, Minsky?\nH.M.Jr:\nHe most likely is - burlesque.\nLook up the corn crop in Argentine, will you (Haas)?\nRegraded\n492\n-15-\nGibbons:\n50 percent failures.\nI'm O.K.\nMcR:\nI was somewhat disappointed when Herman called me\nlast night and said you didn't want to do anything\nfurther on that wire-tap bill.\nH.M.Jr:\nWell, I think Herman is right.\nGibbons:\nI think\n...\nMcR:\nO.K.\nH.M.Jr:\nWhat Herman and I agreed on - we'd let nature Came\nits course. To tap or not to tap, that is the question.\nGibbons:\n\"lso in this morning's Times, the Republicans in the\nState Constitutional Convention are going to com-\npromise the thing; they're going to get something out\nof each other.\nH.M.Jr:\n°liphant was very moral with me. I said, \"Well, we're\ntapping wires every day.\" He said, \"On, are we?\"\nMeR:\nWe wouldn't think of tapping the wires under present\nconditions. I'm just trying to make it legal.\nH.M.Jr:\nWhat do you mean? Well, just for my information,\nfind out and tell me. I mean I'd like to know what's\ngoing/ in the Treasury. I don't like to have my head\nin the sand. I'd like to know how many wires were\ntapped as of yesterday.\nOliphant:\nI'd like, in view of our talk, ....\nH.M.Jr:\nI'd like to know, as of yesterday, now many wires\nwe've tapped.\nUpham:\nAnd whose?\nH.M.Jr:\nNo.\nKlotz:\nNo.\nTaylor:\nJust the total.\nRegraded Jolassified\n493\n-16-\nH.M.Jr:\nJust the total.\nMcR:\nThe House will pass that bill and will pass it today,\nand if nothing's done about it - they're making a minor\nchange in it - if nothing's done about it, it is likely\nnever to get cleared in the Senate and get through. A\nvery little assistance in getting those fellows\ntogether would mean that that thing would pass.\nH.M.Jr:\nI think Oliphant's entirely right, in view of this\nsituation, with Governor Lehman and Judge Poletti\ntaking one position and LaGuardia\nGibbons:\nDewey.\nH.M.Jr:\n... and Dewey taking another. I'm willing just to\nsit tight and see what happens.\nMcR:\nI take the decision, believing it's wrong.\nH.M.Jr:\nWhat's that?\nMcR:\nI say I accept the decision, believing it's wrong.\nH.M.Jr:\nWell, I can see you've got a sore throat again today.\nYou better take throat treatments, either - keep it\nsore; you're good when it's that way.\nNo, that's all right; that's what these conferences\nare for. But I think on this matter Oliphant is\nentirely right, and his advice to me on the question\nof search and seizure and all that sort of thing -\nI think he's right. He won't admit that we're tapping\nany wires in the Treasury.\n011phant:\nI've made no inquiry.\nH.M.Jr:\nWell, why is your wire tested every month?\nOliphant:\nIs it?\nH.M.Jr:\nWhat? (Laughs)\nMcR:\nSave a little money. We won't need 50 many of these\nenforcement boys. We can drop out 750 of them.\nH.M.Jr:\n750 what?\nRegraded Uclassified\n494\n-17-\nMcR:\nof the enforcement boys. They won't have anything\nto do.\nH.M.Jr:\nGee, that's an awful statement to make, Mac. Boy!\nThey must be leaning on an awful weak crutch.\nMcR:\nOr we can double the force and try to get it some\nother way.\nOliphant:\nI would say that if that statement is true, there is\ngrave abuse of wire-tapping.\nGibbons:\nYou mean that 750 - all they do\nMcR:\nNo, it isn't interstate, Steve.\nH.M.Jr:\nAll right, Mac, you may be right, but on El question\nof a moral issue I think Oliphant's advice to me is\na hundred percent right.\nMcR:\nIt's a question of how much moral issue there is in\nworking on immorality.\nH.M.Jr:\nWell, I've faced this thing right straight along and\nI've backed the boys; if they get into trouble, I'm\nwilling to help them get out of jail. So I mean my\neyes are open and I know what we're doing, and I think\nthat's why we got such a damn good record.\nOliphant:\nWell, with your permission I'd like to give you a\nsimple statement of what the law is.\nd.M.Jr:\nI know what the law is. I know that decision. I\ndon't want it. And notwithstanding that minority\nreport, we have continued doing this thing. And we\nanswered that we would be - we have made the strides\nwe have in bootlegging and narcotics and counterfeiting\nand we never could have if we hadn't tapped wires. We\nnever could have. I've said, \"Fight crooks with\nwhatever means is necessary,\" and that's why we got\nsuch a good enforcement record.\nBut I think with this particular constitutional\nconvention on in Albany, for us to go up there and\ntake a decided stend at this time ....\nGibbons:\nI think you'd be sticking your neck out at this time;\n8. question of policy, not a question of morals.\nH.M.Jr:\nAll right, gentlemen.\nRegraded Uclassified\nPrepared by: Lawrence H. Seltzer,\n495\nAssistant Director of\nResearch and Statistics;\nAssisted by: Gertrude N. Stanley.\nRegraded Uclassified\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE June 15, 1938\nTO\nSecretary Morgenthau\nFROM\nMr. Haas OR\nSubject: Banking reflection of Treasury financing\nmy\nThe week ended June 8 witnessed a sharp increase in\nthe loans and deposits of weekly reporting member banks,\nThis was due almost entirely to the activity of New York\nbanks and dealers in connection with the Treasury financing.\nThe reporting New York City banks increased their total\nloans and investments by $465 millions, of which loans to\nbrokers and dealers represented $242 millions, loans to\nbanks $54 millions, and purchases of United States Govern-\nments (mainly the maturing notes presumably) $115 millions.\nThe remainder of the weekly reporting member banks\nreduced their holdings of United States Governments by\n688 millions and their total loans and investments by\n$57 millions, Commercial, industrial, and agricultural\nloans of both New York City and other weekly reporting\nmember banks continued their long decline - by $34 mil-\nlions last week,\nAttached hereto 10 a tabular presentation of some\nsalient items in the banking situation.\nAttachment\nRegraded Uclassified\n497\nWeekly Reporting Member Banks*\n(In millions of dollars)\n: June 8 : : June 1 : Change\nTotal Loans and Investments\n20,944\n20,536\n+ 408\nChange since peak reported\nDecember 23, 1936\n- 1,997 - 2,405\nChange since low reported\nMarch 8, 1933\n+ 4,630 + 4,222\nTotal Loans\n8,625\n8,334\n+ 291\nChange since peak reported\nSeptember 15, 1937\n- 1,424 - 1,715\nChange since low reported\nJuly 31, 1935\n+ 814 + 523\nTotal Investments\n12,319\n12,202\n+ 117\nChange since peak reported\nJuly 1, 1936\n- 1,840 - 1,957\nChange since low reported\nMarch 8, 1933\n+ 4,901\n+ 4,784\nCommercial Loans (new series)\n4,323\n4,357\n- 34\nChange since peak reported\nOctober 13, 1937\n- 1,026 - 992\nChange since previous low\nreported June 1, 1938\n- 34\n-\nTotal Holdings of Direct Obligations\nof the United States\n7,891\n7,844\n+ 47\nChange since peak reported\nJuly 1, 1936\n- 1,619 - 1,666\nChange since low reported\nMarch 8, 1933\n+ 3,344 * 3,297\nDemand Deposits, Adjusted\n15,034\n14,589\n+ 445\nChange since peak reported\nFebruary 24, 1937\n- 604 - 1,049\nChange since low reported\nSeptember 5, 1934\n+ 4,178 + 3,733\nExcess Reserves - All Member Banks\n2,710\n2,640\n+ 70\nChange since peak reported\n-\n602\n-\n672\nDecember 11, 1935\nChange since low reported\n+ 2,557 + 2,487\nMarch 8, 1933\nF lows refer to period since January 1, 1933, except and\nPeaks and Loans series, which starts May 19, 1937,\nDemand for Commercial Deposits, Adjusted, series, which starts September 5,\n1934.\nRegraded Uclassified\n198\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE June 16, 1938\nTO\nSecretary Morgenthau\nFROM\nMr. Haas YOR\nSubject: The small corn crop in Argentina\nAn article which appeared in newspapers yesterday on the\nsmall corn crop in Argentina and its possible effect in stim-\nulating United States exports of corn was apparently based on\nthe official Argentine estimate of the crop, which wes issued\nJune 8. This indicated 6. crop of 178,927,000 busliess, the\nsmallest since the seasons 1921-22 and 1922-23, in each of\nwhich a crop of 176,000,000 bushels was harvested. It compares\nwith & crop of 359,615,000 bushels last year. Drought in some\nof the important producing areas was responsible for the short\n1938 crop. Harvesting of the crop is now practically com-\npleted.\nThe Bureau of Agricultural Economics has made no estimate\nof the probable effect of the short Argentine crop on our ex-\nports of corn. During the previous short-crop years mentioned\nabove, however, our exports of corn expanded substantially.\nIn 1921 our net exports increased to 179,000,000 bushels (6.1\npercent of production), whereas during the previous 10 years\nthey had not exceeded 2.7 percent of production. In 1922 we\nexported 96,000,000 bushels (3.6 percent of production) which\nhas not been approached in any year since then.\nRegraded Uclassified\nJune 15, 1938\n. 499\nTo:\nThe Secretary\nFrom:\nMiss Lonigan\nThe Ohio legislature voted emergency relief funds of\nwhich Cleveland's share is estimated at between $400,000 and\n$500,000. That 18 Just about sufficient to pay outstanding\nbills for grocery orders, rents, and staff salaries, and to\ncarry relief through June 15th. From then on, there are no\nfunds.\nThere 10 one catch in the appropriation. It provides\nfor a loan to the cities against future tax collections under\nmunicipal ordinances still to be voted. There is a question\nwhether it could be legal to issue the bonds and whether it\nwould be possible to persuade bankers to accept them.\nThe city fund for WPA sponsors' contributions 18 exhausted.\nThe city is continuing to make contributions to WPA by withdraw-\n1ng funds earmarked to cover mandatory expendi tures later in\nthe year. That is, they are borrowing November and December\nfunds, for regular expenses.\nMorals Financing\nRelief is still limited to four day grocery orders only\nto families with emergencies.\nRents and salaries are not being paid. The whole relief\norganization 18 being operated on a \"morals basis\". The city\ncouncil passes on ordinance stating that certain expenditures\nconstitute & moral obligation against city financing. Creditors\n- 2 -\naccept them because the city's record of payments 18 good.\n500\nIt 18 this sort of financing which makes it seem unlikely\nthat the cities are going to be any better able to carry relief\nburdens next winter than they are now.\nSurplus Commodities\nSurplus commodities are still the mainstay of relief\nfamilies.\nFigures were obtained showing actual distribution of com-\nmodities during May and June when the relief crisis has been\nmost acute. The first week the families received rice, oranges\nand apples. The second, potatoes, cabbage, butter and celery.\nThe third week, apples, celery and dried beans, the fourth week\nof May, rice, oranges, potatoes, butter and dried beans. Far\nthe largest quantity distributed was in oranges. No flour or\nskim milk was issued in May.\nThe first week in June, families received flour, cabbage,\ngreen beans, rice and butter. The day we were in Cleveland\nthey received butter and skim milk. The local relief officials\nwanted to distribute rice, but they were overruled.\nActual distribution of commodities in May was estimated\nby relief officials as follows:\nPounds per family\nMay\nDried beans\nButter\n21\nCabbage\n4\nCelery\nOranges\n31\nPotatoes\n27\n43\nRice\nOnce again oranges are seen to be the staple diet of\n- 3 -\n- 501\nrelief families dependent on surplus commodities.\nWe asked what else the families were getting, \"I go into\n& number of houses where they are eating garbage - - the tomatoes\nand lettuce are bruised - - I have myself seen them runmaging in\ngarbage cans - - there is a great increase in begging in the better\nneighborhoods - people don't want food to eat themselves. They\nnets for food in cans that they can take home - If it hadn't been\nfor surplus commodities we wouldn't have dared remain in the\noffices. They would come in and break doors and furniture - - I\ndon't know how long our visitors can take it.\"\nThe same story comes from new district secretaries that was\ntold last week. \"The people Just come to the waiting room and\nsit and cry and cry\".\nIn one old house the landlord cut off all gas connections.\nThe Janitor went to neighboring stores and got bread and meat bones.\nHe fed 119 children.\nOutdoor distribution\nWe went out to look at the commodity stations. Commodities\nare distributed in twenty-two stations, mostly in vacant lots.\nThe relief client stands in line, presents his cards, puts\nhis commodities in a paper beg, or a baby carriage or child's\nvagon and takes them home.\nFamilies stood in line all winter without sufficient clothing.\nA visitor with many years experience said, \"It's the old people\n\"!..0 break your heart\".\nWhile we were in Cleveland we had lunch with the Director of\nHealth and Welfare, and the head of the Home Relief Division of the\ned\n- 4\n502\ncity of Cleveland, together with two representatives of the FSRC.\nThis was most fortunate because for the first time the Director of\nHerlun and Welfare realized the importance of surplus commodities\nAnd the necessity for a better distribution system than the present\ncorner lots. He agreed to find means as soon R.S possible to rent\nstores and out commodity distribution under cover, if possible on\n9 five-day basis, instend of only one day a week in each neighbor-\nhood.\nUntil recently surplus commodities were Just a headache to\nrelief officials because they came 60 irregularly, aná caused so\nmuch work. Now that they are the mainstay of Cleveland relief, the\nofficials have to reorient their thinking shout the costs of com-\nmolity distribution. All problems of commodity distribution, includ-\ncosts, are made easier if a few stanles are distributed regularly\nIn substantial quantities.\nThe Families\nWe also went to some of the homes of relief clients, in a very\nooor colored neighborhood. In every one of the families that we\nvisited the stove was so bad, that it smoked the whole house when\nIt Wes lit. Water was usually coming in through the roof. There\nTHE no ice-box. Butter was kent in the open air in hot rooms. Some\nof the women tried to bake bread with the flour, others made biscuits,\nsome cooked it on top of the stove. They Lad no lard, no salt, no\nSizing pans. Frequently they just did not know how to make bread.\nTuey said they \"did not know what to do with the white powder\".\nThe relief people still expect surplus commodities to be ir-\nregular and low in quantity. They said that if there was any chance\nof their getting continuous supplies of flour, they would get the\n503\n- 5 -\nsettlement houses to put on demonstrations of how to bake bread,\nas they did in Red Crose days.\nRelief dietitians say that the celery came in such large quanti-\nties that it was frequently spoiled before families could eat it.\nPotatoes and onions begin to sprout, when kept too long in the home.\nOne of the most curious elements of the situation 18 the way it\nnever occurred to the relief officials, high or low, to keep asking\nfor more or different surplus commodities. They have been 80 brow-\nbeaten since 1935, so intimidated by the fight over relief taxes and\nthe hostility of legislators, that they take everything without\nquestion. They would never have asked for a continuous distribution\nof flour, or urged that part of the flour be sent as milk-wheat-o\nwhich the families like much better. They thought the Federal Govern-\nment had made its decisions to send just so much commodities and no\nrequest of theirs would change it.\nFamilies occasionally trade their surplus commodities. They\ndo it to get sugar or salt, or children's shoes. They give part of\ntheir scanty supplies to families not on relief but in worse need\nthan they are. Men who are working one or two days a week may have\nto give all the money to the landlord and be wholly without food.\nDelinquencies are skyrocketing. \"No one wants to stay home\".\nThe twelve and thirteen year olds are especially difficult. Preg-\nnancies are mounting 80 fast the humane society hasn't funds to take\nany more cases.\nPhysical Effects\n\"There are no people starving in Cleveland but there are B.\nUclassified\n- 6 -\ngreat many hungry people\", said the head of the visiting nurses.\n504\n\"Children get very irritable when they are hungry. Women give the\nfood to the children or the working man\". Her greatest concern is\nfear of tb. among the growing girls.\nDr. Richard Balt of the Child Health Association said they saw\nthe worst effects in the children entering schoola. Infants up to\nfifteen months were well taken care of through free milk and baby\nhealth stations. From there on the children lose steadily until\nthey enter school. In the three pre-school years, the depression\n10 today wiping out virtually all the gains made by the whole infant\nwelfare program.\nThe children entering school showed evidence of anemia, poor\nmuscle tone and other indications of \"nutritional sag\". They\nimproved in school with the milk feeding, and in day nurseries and\nplaygrounds, wherever they got food.\nAll the doctors spoke of the fear of rising tb. rates. The\nhealth records show a falling death rate, but a rising number of\ncases in the early stages, which may mean more cases or better\ndetection.\nOne gets a sense that Cleveland had An extremely fine health\nprogram from ten to twenty years ago, as it had an extremely pro-\npressive organization of private philanthropy. The people Are\nsurviving the present stress only because the tb. and baby health\nwork were so very well done. Unfortunately one also gets the sense\nVery strongly in both the medical and the philanthropic work that\nthe old leadership 1s moribund, and the new leadership has not yet\nrisen to take its place. There 18 in both health and welfare work\nin Cleveland a sense of grandeur in eclipse that 18 very sad, like\nRegraded Uclassified\n505\n- 7 -\na fine old house settling into decay. This is a period of stag-\nnation in much more than an economic sense.\nPart of the health as well AS the economic problem in Cleveland\n1F the mass migration of workers, white and colored, from the South,\nwho bring with them the habits and limited skille of poor rural\ngertions. Colored families constitute about 6 percent of the popu-\nIntion, but occupy about 00 percent of the free tuberculosis beds.\nPossible Uses of Surolus Commodities\nMedium-size families are getting a twenty-four pound sack of\nflour fL month. The dietitian of the Emergency Relief Administration\nentimates that for an adequate diet each family needs 8 little over\ntwo sacks A month, but for B. compensatory diet, when most other\ncommodities are missing, it needs 75 pounds, or three times the\npresent distribution. This compensatory diet is probably not to be\nrecommended for long periods of time but something like it is needed\nwhere other commodities are few and casual, And where undernourish-\n18AL has probably existed \" Tong time.\nWhat Cleveland needs at the moment in the WAY of Federal com-\nrodities is:\n1. Creation by the FSRC of an emergency standard of per\ncapita allowances, so that families would set double or even\ntriple allowances of staples, for a limited time, where n. true\nemergency existed. This might at first be three times the\npresent distribution for commodities like flour.\n2. A wider variety of wheat products especially milk-\nwheat-o (Dr. Stanley says this is under way). Noodles and\nother egg products wight Also be useful.\n3. A wider range of commodities if practicable\nUclassified\n- 8 -\n4. Indoor distribution by the city\n506\n5. More frequent distribution by the city, especially\nif perishables like butter. Elimination of any Federal\nrestrictions that compel cities distribute butter only twice\na month.\n6. Expenditure of more funds for stores, trucking service,\nand labor, to make commodity distribution more useful.\n7. Full publicity wherever possible. For example, grocers\ncomplain that if they know when Surplus Commodities was going\nto distribute potatoes, they would buy less. It 18 not always\npossible to give exact information about freight car arrivals,\nbut it would be possible to give grocers the available inform-\nation and let them use their own judgment.\n8. Distribution of commodities through other than family\nchannels, as school lunches, day nurseries, playgrounds.\nUclassified\n- 9 -\n507\nWPA Projects\nI called on the WPA Director in Cleveland. He told me\nthat in December they had prepared projects virtually for the\nwhole year. That is what 18 carrying them through now. Pro-\njects they had planned for next year's indoor work for bad\nweather they have to carry out now.\nOverloading on all projects is common here as elsewhere.\nThe shortage of projects will show up increasingly month after\nmonth.\nWPA certification is on a much higher basis than admission\nto relief, although both are administered by relief officials,\nthe WPA standard is set virtually at their choice. Allowances\nfor food, clothing, rent and miscellaneous items bring the\nQuaget for a family of four to $59.78. Anyone who has an income\nwithin $10 of this amount is eligible for WPA, whereas under\nthe relief, system they would receive only $10 a month. That\nmeans that workers with family incomes of $50 can go on WPA,\nand get $60 now or $110 altogether. That makes fearfully wide\nthe gap between the less needy who go on WPA, and the men in the\nsame situation who happen not to get WPA employment and get only\nA four-day grocery order if their children hancen to be sick.\nUclassified\n- 508\nSURPLUS COMMODITIES DISTRIBUTION\nMay, 1938\nWeek Ending\nCommodities\nMay 7\nMay 14\nMay 21\nMay 28\nJune 4.\nRice\n-\npounde\n48,283\n-\n-\nIf\n58,052\n36,126\nOranges -\n369,600\nI\n380,380\nIf\n123,410\n-\nApples -\n263,450\n-\n-\n-\nI\nPotatoes -\n#\n-\n527,765\n-\n147,400\n-\nCabbage -\nW\n-\n248,720\n-\n-\n39,950\nButter -\nII\n-\n56,500\n-\n57,832\n58,335\nCelery - stalks\n-\n12,900\n120,300\n-\n-\nDried beans-pounds\n-\n-\n36,064\n-\n-\nGreen beans-\nIf\n-\n-\nI\n16,200\n69,630\nFlour\n-\n-\n-\n-\n-\n568,718\nTotal pounds\n681,333\n832,985\n416,444\n402,894\n772,759\nTotal stalks\n-\n12,900\n120,300\nI\n-\nCOMMODITIES ACTUALLY DISTRIBUTED\nJanuary 15 - April 23, 1938\nJanuary\nFebruary\nMarch\nApril\nCommodities\n15 22 29\n5 12 19 26\n5 12 19 26\n2 9 16 23\nRice\nX\nX\nX\nPears\nX\nX\nX\nX\nPotatoes\nX\nX x X\nX\nX\nX\nX X\nX\nX\nApples\nX\nX\nX\nX X I\nOranges\nx\nX\nCelery\nK\nPeaches\nLISTED COMMODITIES\nNO AMOUNTS DISTRIBUTED\nJanuary 15 - April 23, 1938\nCanned milk\nSweet potatoes\nPrunes\nSkim milk\nHerrings\nWalnuts\nCelery\nOnione\nGrapefruit\nCanned meat\nFish\nButter\nOatmeal\nGrapes\nEgge\nCabbage\nRegraded Uclassified\n509\nTREASURY DEPARTMENT\nINTER OFFICE COMMUNICATION\nDATE\nTO\nSecretary Morgenthau\nJune 15, 1938.\nFROM Herman Oliphant\nFor your information\nJames Roosevelt called and asked ze to are Mr. Guyld and\nMr. Russell who were urging that the President not veto 8. private\nrelief bill (S. 667) involving waiving the statute of limitations\non a tax claim. Mr. Tarleau TEB present at the interview.\nThe office of the Chief Counsel, Bureau of Internal Revenue\nhas allowed the reward claim of John Zismerman, former Bureau auditor\nand former comptroller of the taxpayer in the amount of $20,610.22\nin the income tax case of Almours Securities, Inc., personal holding\ncorporation of Alfred I. duPont. The award is one per cent of the\nadditional taxes collected.\nThe Washington Post recently reported that John Ringling, the\ncircus magnate, who died several years ago, left an estate valued\nat $23,462,752. Cases are pending in the Bureau of Internal Revenue\nasserted against the estates of John Ringling, of Charles Ringling,\ninvolving three or four million dollars in income taxes end penalties\nand of Richard T. Ringling, arising from profits from Ringling\nBrothers Barnum and Bailey.\nThe Tax 1. Appeals has been closed by settlement, which thus A. avoiding 11.\nW. Mellon case that was litigated so long before the\nBoard of of an appeal. The Gregory case (in and\nthe necessity brother owned 25 per cent of the stock) had thirty- been\nMellon and his have also been settled. There cases net losses\nsix related cases in Pittsburgh and involved valuation, taken\nset and for other hearing complicated questions. They would have approximately\ntwo weeks to try.\ntoward adjournment, Congress passed the price wages pro- and\nhours bill and sent back to conference). the House the\nIn its rush the relief bill (except the farm parity The monopoly\nvisions bill, which therein, had already which were passed the Senate, last was minute passed filibuster in in\n237 Senate to 55. over the As you flood probably control know, bill halted a the rush of legislation\nshortly after mid-night last night.\nRegraded Uclassified\n511\nTREASURY DEPARTMENT\nBUREAU OF NARCOTICS\nWASHINGTON, D. C.\nJune 15, 1938.\nCONFIDENTIAL\nThe Honorable\nThe Secretary of the Treasury\nWashington, D. C.\nSir:\nI have the honor to report that in compliance\nwith your instructions I attended meetings of the\nOpium Advisory Committee of the League of Nations\nat Geneva, Switzerland, from May 16th to June 1st.\nThe meetings included those of the Sub-Committec\nwhich reviews the illicit traffic, and of the\nProparatory Committee on the Limitations of the\nProduction of Opium.\nI also attended all secret meetings of Narcotic\nEnforcement Heads of several countries. The exchange\nof confidential information concerning the activities\nof important international traffickers was of mutual\nbenofit and will result in increased cooperation by\nforeign Police in suppressing the smuggling of\nnarcotics to the United States and to other countries.\nMy report on all meetings attended is as\nfollows:\nRegraded Uclassified\nMEETINGS OF THE SUB-COMMITTEE ON SEIZURES.\n-512\nThe Sub-Committee held a number of meetings\nGENERAL TREND OF THE ILLICIT TRAFFIC.\nduring which it reviewed the situation in regard\nto the illicit traffic in 1937 and the first three\nThe principal illicit markets for raw opium\nmonths of 1938. The meetings were attended by the\nappear to have been China, India, Burma, Indo-China,\nrepresentatives of the United Kingdom, Canada, China,\nHong Kong, U.S.S.R., Iran, Choson, Netherlands\nFrance, Japan, the Nethorlands, Siam, and the United\nIndies, Siam and Egypt.\nIn the caso of prepared opium, the principal\nStates of America. The following experts also\nillicit markets appear to have been China, Siam,\nattended the meetings: the Chief of Police of\nStraits Settlements, Indo-China, Hong Kong and\nRotterdam, Commissioner Corby of the Police Mobile\nof the French Sureté Nationale, the Commissioner of\nNetherlands Indies.\nAs to morphine, the principal illicit markets\nNarcotics of the United States of America and the\nappear to have been China, Turkey and the United\nAmorican Treasury Attachó et Paris.\nThe application of the provisions of Article\nStatos of America.\nAs to horoin, the principal illicit markots\n23 of the Convention of 1931, as a result of which\nappear to have beon China, the United States of\nall reports submitted by Governments to describe\nAmerica, Egypt, Kwantung Leased Territory, Hong\nindividual cases of illicit traffic are now trans-\nKong, Grooce, Franco and Turkey.\nmitted to all parties to that Convention, has\nAs to cocaino, the principal illicit markets\ngreatly facilitated the work of the Sub-Committee\nappear to have been India, Burma, China and France.\nin addition to providing interested Governments\nThe principal illicit markots for Indian hemp\nwith better facilities for carrying on the campaign\n(cannabis) drugs appoar to have been Egypt, Sudan,\nagainst the illicit traffic.\nTunis, Kenya, Uganda, Madagascar, Basutoland,\nAdvance reports or full annual reports for\nPalostine, Syria, Turkoy, India, Coylon, North\n1937 dealing with Illicit traffic were received\nBorneo, Jamaica, and the United States of America.\nfrom 77 Governments and statements on the same sub-\nThe information available indicated that\nject were presented orally on bohalf of 4 Governments.\nsmuggling with the connivence of members of ships'\nThe reports give ovidence of the world-wide exton-\ncrews continues to a disconcertingly wide extent in\nsion of cooperation in the campaign against the abuse\nmost parts of the world. Thore was a marked Improve=\nof narcotic drugs.\nment in this respect in the casos of cortain Japanese,\n-2-\nRegraded Uclassified\n:--513\nBritish and Canadian steamship lines which operate\nPRINCIPAL CHANNELS OF THE ILLICIT TRAFFIC.\nin the trans-Pacific trade, namely, the Nippon Yuson\nThe following brief analysis of the Illicit\nKaisha, the Blue Funnel Line and the Canadian\ntraffic in 1937 is based on the spocial scizuro\nPacific Line. The representative of Japan submitted\nreports forwarded by Governments.\na memorandum doscribing the measures taken by the\n1. Raw Opium.\nauthoritics in Japan and by the Nippon Yusen Kaisha\nSoizures of raw opium have boon roported from\nwhich have brought about this result. The Committee\nthe United Statos of Amorica, Aden, Austria, Bulgaria,\ncongratulated the authoritics of those throe countries\nFranco, Gormany, Turkey, Egypt, India, Portugueso\nand the steamship lines concerned on the successful\nIndia, Union of Indo-China, Straits Settlements,\noutcomo of the enforcement of their measures to pre-\nNothorlands Indies, Siam, Hong Kong, Barbados, Macao\nvent the smuggling of drugs by ships' personnel or\nand China.\nas unmanifested cargo,\nThe largest seizures werd, as usual, made in\nThe number of different labels on prepared\nthe Far East whore they were also most numerous.\nopium found in the illicit traffic in Nothorlands\nIn the United Statos sixtoon suizures were specially\nIndia was noticoably smallor. On the other hand, a\nroported in which 75 1/2 KE. wore involved. The\nconsiderable number of labels not proviously\nmajority of the raw opium scizures made in the United\noncountered in Amorica put in an appoarance in the\nStates were offected in the Atlantic Coast Area.\nUnited States of America.\nIn Austria two scizuros of raw opium were mado,\nThe situation in respoct of labels on manu-\none of 62 kg. Both of these casce point to à con-\nfactured drugs found in the illicit traffic through-\ntinuanco of the smuggling of raw optim from Balken\nout the world continued much the same as for sovoral\ncountries with France as probable dostination for\nyears past. There were vory few casos in which\nshipmont to the United Statos of Amorica.\ngenuine labels of licensed drug manufacturors were\nIn Turkey thoro wore 7 scizuros of raw opium\nfound and in those few casus it was usually apparont\nspocially reported, amounting to about 399 Kg. and\nthat the drugs had boen obtained oithor by burglary,\nin 1930 a largo seizuro of 210 kg.\nor through forgory of proscriptions or through the\nAs rogards Egypt, soizures of raw opium were\nconnivance of modical practitionors.\nloss frequent than in 1936, but they involved a\n-5-\nRegraded Uclassified\n- 514\nlarger total quantity. In 1936 there were 17\n1937 amounted to a littlo less than B kg.\ncasos involving over 80 kg., whereas in 1937 13\nTho Notherlands Indios sent. in seven special\ncases involving about 150 kg. were reported. Most\nof the opium came from Syria.\nreports on seizures of raw opium involving just\nunder 322 kg. It was all of Iranian (Porsian)\nOne large scizuro of nearly 37 kg. was made\norigin.\nas a result of information received concorning a\nSiam forwards quartorly reports, the reports\ngang of smigglers who had arranged to smigglo drugs\nfor the first two quartors having been received\nby scroplano Into Egypt from Syria and Palostine,\nand covering seizuros of raw opium amounting to\nIndia reported B soizuros -- 2 in Calcutta, 4\n188 1/2 KE. In addition a report of a soizuro of\nin Bombay, and 2 in Madras. One of those reported\nabout 323 kg. in October 1937 WAS communicated.\nin Madras involved 136 Kg. of Excise opium which\nThis opium came from the Shan States.\nthe accused were attempting to smugglo to Coylon.\nLike the Straits Settlements, Hong Kong\nFrom Aden 2 scizures wore specially reported,\nfurnishos monthly roports. Seizuros reported for\ninvolving altogother about 2 1/2 kg. The interest-\n1937 amounted to 796 KB. In ono caso the scizuro\ning point about these soizuros is that the opium\namounted to 200 Kg. of raw opium and 102 Kg. of\nwas stated to be the product of the Kingdom of the\npropared opium.\nYomon.\nThe soizuros specially reported by Macao during\nSpecial reports of seizures in the Union of\nthe yoar vero not many and involved small quantities.\nIndo-China were received for the first three quarters\nA scizure of 40 Kg. was reported by the Bulgarien\nof 1937. During the first quartor, the principal\nGovernment. This opium VIAS intended for export to\nseizuros totallod about 150 kg. and during the\nAntworp, thence probably to the United States of\nsecond quarter about 122 kg. The report on the\nAmorica. A woll-known trafficker was arrested in\nthird quartor contains the following information:\nconnection with this CRBO.\n386 police reports were drawn up, 144 persons were\nFrance reported three soizurge. The total\narrested and 141 sentenced. 233 kg. of raw opium\namount involved in thèse was 47 KE. One soizure\nand 23 kg. of prepared opium were soized.\ninvolved 40 Kg. which was soizod at Margoillos on\nFor the Streits Settloments the usual monthly\nboard a vessol coming from Róunion. It had beon\nreports were sont in. The total quantity soized in\nconcealed in an oil tank not used since 1934.\nRegraded Uclassified\n- 515\nAs regards the situation in China, the quanti-\nty of raw opium reported as confiscated was 60 1/2\nIn the Union of Indo-China spocially roported\nkg. This figure includes seizures made in the\nscizures of propared opium aggregato much loss than\nInternational Settlement, Shanghai, (20 kg.), and\nthose of raw opium. The scizuros of propared opium\nthe Fronch Concession in Shanghai (6 kg.). The\nreported during the first throe quarters amounted\nChina figuros are incomplote.\nto about 67 Kg.\nMonthly reports have boon received from tho\n2. Prepared Opium.\nStraits Sottlomonts covering the entire year. Those\nScizures of prepared opium were specially\nreports involved 1708 kg. of propared opiun. Almost\nreported from the U. S. A., the Commonwealth of\nall of the seizures word effected in Singapore,\nthe Philippincs, Canada, Australia, United Kingdom,\nonly small quantities having been found in the\nGermany, Union of Indo-China, Straits Sottlements,\n1111cit traffic in Ponang and Malacca.\nNetherlands Indios, Siam, China, Hong Kong and Macao.\nIn the Nothorlands Indios about 48 kg. were\nThe United States of America sent in special\nspecially reported as having boon soized, which is\nreports on 25 scizuros of prepared opium which\nmore than the quantities reported scizod in 1936\ninvolved about 202 kg. From the Commonwealth of\n(37 kg.), but less than the rev opium spocially ro-\nthe Philippincs, 51 cases were specially reported\nported as having boon seized in 1937.\nwhich involved a little over 24 kg.\nThe total seizuros in Siam amounted to 2176 kg.\nCanada specially reported 8 cases involving\nIn regard to Hong Kong, monthly reports have\nsmall quantities of prepared opium. In one, the\nbeen received covering the wholo year of 1937. The\nopium was smuggled through the post in Chinese nows-\nquantity of propared opium specially reported as\npapers which had been posted in Hong Kong. In ono\nhaving boon séizod was 928 kg.\ncase (48 Tammes) the opium was contained in tubes\nMacao also senda in monthly soizure reports,\nfiguros for the whole year boing evailable. The\nof the Singapore and Hong Kong Monopolios. Canada\nnumber of casos of illicit traffic spocially reported\nalso submitted a special report on the soizure of\nas involving prepared opium WAS about 117 but the\n550 five-taol tins of prepared opium in one lot,\nquantities involved word usually vory small, tho\nwhich had been recovered from the 50a bottom along-\ntotal for the year amounting only to about 10 Kg.\nside a wharf at Now Westminstor, British Columbia.\nFrom China prepared opium seizures amounting to\nRegraded Uclassified\n516\n108 kg. have boon specially reported. These\nUnited States, the total quantity boing 10 KE.\nfiguros are incomplete.\nwith the exception of one soizuro of 7 kg. on a\nAttention is drawn to a number of seizures\nvessel coming from Japan the scizures of morphine\nof propared opium in Australia. In January 1937\nwere of small quantities. Tho cube morphino\nthere was one seizure of 1 1/2 kg.; in February\nappoared to have been obtained in Italy and in\ntwo scizuros involving over 4 1/2 kg., in May one\nFrance and brought to the United States by seamon.\nscizure of over 3 kg., and in August one of 114 gr.\nSeizures word made on the Atlantic Coast, on the\nIn all CBSOS the propared opium errived in Australia\nPacific Const, in tho South Central Area and in the\non ships coming from Far Eastorn ports and the con-\nNorth Contral Area.\ntainers bore marks woll known in the illicit traffic.\nSporadic scizuros of morphino were reported\n(Yick Koe, Lion and Globo).\nfrom France (morphine base), Canada and Burms. In\nSiam there wore 310 casos of morphine peddling, but\n3. Morphino\nthe total quantity seized was a little under 2 kg.\nScizures of morphino were reported in the\nIn China, four CRDUS were reported. In these\nUnited States of America, Canada, France, Turkey,\ncertain quantities of morphino smugglod by Koroans\nBurma, Siam and China.\nwere soized, the total quantity being about 1 1/2\nIn Turkey there were only 2 morphine scizuros\nkg. The figuros are incomplote.\nspocially reported. They took place in Istanbul.\nA morphino soizure was reported by the Sovict\nIn addition 37 kg. of morphine base, 1 kg. of\nauthorities involving B. large number of Japanose\nmorphine hydrochlorido and 10 kg. of a mixture of\nin Vladivostok.\nThe Japaneso representativo roported (from\nmorphine and animal charcoal were scizod in connection\nwith the discovery of clandestine leboratorios. In\nthe minutos):\n1936 separato soizuro reports concorning morphino\nwore received covering a total quantity of 43 kg.,\n\"This case had received much publicity at the\nwhoreas in 1937 the total quantity thus reported\ntimo. It should, however, bo romembored that in\nwas about 20 Kg. of morphine hydrochlorido and about\nthe Union of Soviet Socialist Republics the courts\n37 kg. of morphino baso.\nreflected the policy of the Government and the\nTwelve morphine soizuros Wore reported from the\n-11-\nRegraded Uclassified\n--517\nvordict was often a forogono conclusion. One of\nEgypt, Turkey, Hong Kong and China.\nThe principal markots for illicit heroin\nthe subjects of the Soviot authoritios was to rid\nremain the United States of America and China. Tho\nVladivostok of the Japanese, and casos like the\nabove wore more pretoxts to achieve that purpose.\nlargest horoin seizuros in the United States wero\non the Atlentic Coast, mainly at New York. Seizuros\nAs B. Japanoso Consular omployee was involved\nwere effected in every part of continental United\nin the case, the Japanoso authorities had made\nStatos. The largost soizure was nnd in Now York of\nenquirios but had failed to discovor evidence of\n13 kg. This was found in throo suitcases bolonging\nhis complicity. Diplomatic ropresentations had\nto a passonger en the S. S. NORMANDIE. There were\nbeen made in vain.\ntwo scizuros of almost 10 kg. each, one effected in\nI hoard of a similar case in Moscow in 1932.\nNew York City and one at Rouse's Point, Nov York,\nA Korean guido, whom the Soviet authorities sus-\nboth involving horoin which had been obtained in\npectod of supplying secret information to Japanoso\nFrance.\nand other tourists, had boon arrosted for opium\nIn Egypt there were 16 cases of illicit traffic\ntrafficking. The prisoner's wife - a Russian - had\nin heroin specially reported as compared with 14 in\naftorwards informed Japanoso investigators that &\n1936. The quantity involved, however, was far 1038\ntrunk containing opium hnd boon left for hor husband\nin 1937 than in the provious year ( 2 1/2 Kg. as\nwhile he was absent. The polico had thom called,\ncompared with 10 kg.). The largest quantity scized\nfound the trunk and arrested the guido. The\nat one timo was 744 grammes. In no CRSO was the\nJapanese Embassy had boen informed by the Soviet\norigin indicated and in most casoe it was stated to\nauthorities that the prisonor was boing deported\nbe unknown.\nto Japan, but It was later announced that no had\nChina has 50 far specially reported 19 cases of\ndiod before reaching Pogranichnaya.\"\nhoroin seizuros for 1937 in which foroignors wore\nimplicated. The traffickers vore usually Japaneso\nor Koreans. One American woman was arrested at\n4. Horoin\nAnyang with 4 KG. in hor suitcases. Numorous\nHoroin soizuros were reported from the United\nhorein seizures were made on Chineso reilways.\nTwonty-sovon Kg. wore soized in Hong Kong in\nStates of Amorica, Canada, United Kingdom, France,\n-13-\nRegraded Uclassified\n--518\nJanuary in baggago bolonging to one Japanese and\nHoshi Pharmncoutical Company, Japan. No soizuros\none Chinoso, both of whom camo from Tiontsin.\nwore reported from Singapore. Only ono caso WAS\nHoroin was seized in connection with three of\nreported from China involving 280 grammos of cocaino.\nthe clandestine laboratories discovered in Turkey.\nThis was scized nt Chofoo. France reported 4\nFrance made special reports on seven cases, six nt\nscizures, two at Marsoillos, ono in Peris, and one\nParis and one at Marsoilles. In all of those the\nat Raincy, involving in all a little over 1 kg.\norigin was reported as boing unknown.\nUruguay reported one soizure of 2 kg. (gross weight)\nThore were also E number of horoin soizuros in\nin August. This coesine had boon snuggled from Brazil.\nthe Shanghai International Settlomont. Tho total\nOne soizure was made in Hong Kong of nearly 5 kg.\namount soized was about 4 1/2 kg.\nbearing the labol of the Hoshi Pharmacoutical Company,\n5. Cocaino\nTokyo.\n6, Indian Homp\nCocaino scizures were specially reported from\nthe United States of America, Franco, India, Burma,\nSoizures of Indian hemp and Indian hemp drugs\nUruguay, Siam, Hong Kong and China.\nwore reported from the United States of Amorica,\nIn the United States thore wore four casos.\nCanada, the United Kingdom, France, Hungary, Turkey,\nThe quantities involved were very small. Sinco\nEgypt, China and Portuguoso India.\nMay 1937 no cocaine soizures have been reported in\nAB regards the United Statos the traffic is\nIndia proper. Japan W&B formorly the nurce of\nheavy but fov soizuro CASOS are of international\nconsiderable cocaino traffic to India. Throo cases\nsignificanco. Although under no treaty obligation\nwore reported in the first fivo months of 1937, all\nto report cannabie scizuros, the Ancrican Government\nin Calcutta, the total quantity seized amounting to\nhas reported a number which were of international\nnearly 11 kg. In all three casos the cocaino was\ninterest. Illicit traffic in hashish was as usual\nbrought to India on ships coming from Far Eastern\nprevalent in Egypt, the quantity specially reported\nports. Botwoon 9 and 10 kg. boro the \"Fujitsuru\"\nas seized amounting to 92 1/2 kg. There were 23\nbrand label. In Rangoon there were two CASCE, one\ncasos thus reported, as compared with 19 CROOS and\nin April and one in July. 10 1/2 kg. wore seized\n47 kg. last year. The hashish came oithor from\nwhich bore the \"Fujitsuru\" labol and those of the\nSyria or Palustino or from ports in India. It might\nRegraded Uclassified\n5.9\nbe mentioned, however, that the quantities from\nseizuros wore reported involving 3400 horoin pills\nIndia were individually small. Turkey reported 12\nand 1 1/2 kg. of red pills at Lapps and 534 grammos\ncasos totalling about 52 kg., an incroase over\nof morphine pills at Chofoo. Two pill factorios\nlast year.\nwere discovered in the International Settlement at\nOne scizure of 15 1/2 kg. was specially\nShanghai in March, when about 10 kg. of pills were\nreported from Syria. This hashish was destined for\nseized. There were 12 Chinese arrosted for conduct-\nEgypt. 3 1/2 kg. were seized in Hungary. It was\ning pill dons and 48 for smoking pills. Forty of\nprobably of Bulgarian origin. Small seizures of\nthose were convicted and twenty were discharged.\nmarihuana were reported from Canada and one seizure\nThe sentences in the 0280 of conductors ranged\nof eight packots of hashish at Marseillos by the\nbetween five and fiftcon years' Imprisonment and\nFrench Government.\nsmokers of pills were sentenood to various terms of\nimprisonment ranging from 18 months to 15 years.\n7. Narcotic Drug Pills\n8. Clandestine Manufacture\nSeizuros of narcotic drug pills wore reported\nfrom the United States of America, Canada, Macao,\nThere have boon no reports of any clandostine\nand Chinn.\nmanufacture discovered aftor August. The illicit\nIn the United States there was ono seizure in\nlaboratorios reported as discovered betwoon January\nNew York of 9741 horoin pills in connection with\n1 and Soptomber 1 were two in the International\nthe discovery of a heroin pill factory. Heroin\nSottlemont, Shanghai (pill factories), six in Turkey,\npills were also seized at Chicago and San Antonio,\nand one in the United States of America (Now York -\nwhile morphino pills were seizod at Boston, Now\npill factory).\nYork and San Francisco. There were cight soizuros\nTurkey\nof Chinese modicinal pills reported, two of which\noccurred in San Francisco, two at Chicago, and the\nA small illicit laboratory was found in April\nrost at Memphis, Detroit, Washington and Seattle.\n1937 at Istanbul. Small quantities of morphino\nThe Chinose Government reported tho scizures of\nbase, horoin, and raw opium were soizod. Another\nabout 11 kg. and 10,000 pills during the first six\non a larger scalo which had boon working for about\nmonths by the Railway authorities. Three other\nnine months was discovered at Istanbul in May,\n17-\nRegraded Uclassified\n520\n16 kg. of morphine base and 307 kg. of opium word\nThose small factories move constantly from place\nscized. Still another which had been in oxistonco\nto place to avoid discovery.\nfor two yours was raided in May at Prinkipo, Prince's\nIsland. 19 kg. of morphine base and various quanti-\nUnited States of Amorica\nties of acotic acid and other ingredients, together\nThe Government of the United States reported\nwith factory equipment, wore soized. In Juno a\nthe discovery of a heroin pill factory at Now York\nclandostine laboratory WAS discovered at Thorapia,\nin March. This factory was run by Chinose in two\nBosphorus, when 1 kg. of morphino base, 10 kg. of a\nChinese laundries. 9741 horoin pills wore seized\nmixture of morphino and animal charcoal, 11 KE- of\ntogethor with a small quantity of propared opium and\nliquid containing horoin Were soized in addition to\ndross and the matorial and equipment necessary for\nchemical apparatus and chomicals. In June also a\nthe manufacture of the pills.\nhoroin manufacturing laboratory WILS found at\nIn regard to the situntion concerning clandestine\nYochilkouy, Istanbul, when 20 Kg. of raw opium, 1 kg.\nmanufacture in China north and south of the Groat\nof morphino, and 1 kg. of diluted morphine woro\nWall there are no official reports. The statoments\nseized. In August a clandostine laboratory was dis-\nmade in the Advisory Committee at the Twenty-second\ncovered working at three different addresses.\nSossion (May-June 1937) and information furnished by\nInvestigation showed that the gang carried on\nGovernments in regard to the origin of drugs seized\nclandostino manufacture in small quantities, subso-\nin the illicit traffic in 1937 furnish ovidonce of\nquently disposing of their goods in the local market.\nthe fact that clandostine menufacture is continuing\nA very small quentity of horoin, togethor with\nin those area B and that the situation remains\nmatorial and equipment, WAG soizod,\nserious in this respect. In this connection attention\nis drawn to the information contained in the annual\nShanghai (International Settlamont)\nreport by the Government of China for 1936 about\nTwo pill factorios were discovered in March and\ncases of illicit manufacture of narcotics discovored\nabout 10 kg. of pills seized. The Shanghai Municipal\nduring the year, which showed 69 cases of illicit\nCouncil reported that clandostino manufacture on a\nmanufacture in China botween the Yangtsze and the\nlarge scale has practically consed. The mothods used\nGreat Wall, involving 175 porsons.\nnow are mostly primitive, the pills boing hand-rolled.\n-19-\nRegraded Uclassified\nthan doubled in cortain soctions of the Pacific\nPrices of Drugs in the Illicit Traffic\nCoast Aroa. In the Atlantic Coast Area the price of\nThe Advisory Committee, in its report to the\npropared opium underwont littlo change, with the\nCouncil on the work of its 22nd session, suggested\nexception of a brief period in the summer and autumn\nthat, owing to the wido variations in local circum-\nof 1937 when it rose about 25%. This was bolieved\nstancos, dotailed statistical information with\nto have beon due directly to large seizures of pre-\nregard to pricos is of little use for the purposes\nparod opium effected shortly before. The fact that\nof establishing comparisons between different regions\nprices on the Atlantic Coast have varied but little\nof the world, and it WCS docided that Governments,\nwould indicate that thoro is no docrease in the\nin submitting thoir reports, should be asked to con-\nsupply available in China.\nvoy their considered opinions on the significance of\nThe prico of morphine in the illicit traffic\nthe prices reported and on the conclusions to be\nremained about the same as in 1936 in the Atlantic\ndrawn from them.\nCoast and North Central Aress, with A slight increase\nin the South Contral Area and a mrked riso in the\nA number of Governments complied with this\nPacific Coast Area following the outbroak of hostili-\nsuggestion. The information furnished in respect of\ncertain countries where illicit traffic is a serious\ntios in the For East.\nThe price of horoin in the illicit traffic WRS\nproblem is summerized below.\nfairly constant in the North Atlantic Coast and\nUnited States of Amorica\nPacific Coest Aroas, but in the South Atlantic Coast\nand South Central Areas there was an appreciable\nRaw opium prices in the Illicit market under-\nincrease. It WILE evident that there was at times an\nwont only n slight increase in 1937.\nacute shortage in the Illicit traffic despite heavy\nThe price of propared opium in the illicit\nadulteration, The fluctuations in price are attributed\ntraffic on the Pacific Coast. undorwent a slight\nto the frequont soiguros offected and the arrost of\ndooroase in the early pert of 1937 following the\nimportant smugglore and distributors.\nsettlement of a striko of American soamer end\nThe trend of prices in the wholosale illicit\nstevedores, These prices romained fairly constant\ntraffic and other circumstances during the first\nuntil the outbreak of Sino-Japanese hostilities,\nhalf of the calendar year 1937 indicated that the\nwhen they began to rise steadily. By the end of\nDecember 1937 the price of prepared opium had more\n-21-\nRegraded Uclassified\n522\ndemands of the illicit traffic continued to be mot.\n$80 to $150 per 02. in 1936. The horoin WELS heavily\nHowever, following the outbreak of hostilities in\nadulterated.\nthe Far East in the autumn of 1937, prices of\nAt Vancouver the price of morphino, which was\nnarcotic drugs, principally those of propared\n$2 per grain in the period January to May, incroased\nopium, rose approciably, particularly in the Pacific\nto $3 por grain in the period June to Docember.\nCoast Aroa, and thore was indication, for a time at\nThe price of smoking opium increased from $195\nloast, that propared opium and other drugs were boing\npor 5-tael tin in January to $360 por 5-taol tin in\ntransported to the Pacific Const across the continent\nAugust. This constituted what is believed to be FL\nfrom New York City. Subsequent to several largo\nworld record price. Prices foll again towards the\nseizures of propared opium and heroin in the Atlantic\nend of the year.\nCoast Area, thore appoared to bo, in that aroa, e\nFrance\nnoticoable shortage of those drugs in the illicit\ntraffic accompaniod by higher prices.\nThe French advence statement noted a slight\nincrease in the prices of drugs on the illicit market,\nCanada\nwhich was regarded as roflocting, in all probability,\nThe Canadian advance report states that in\nan all-round increase in the value of goods.\nMontreal, as in 1936, no reliable prices were obtain-\nSyria and Lobanon\nable owing to extromo shortage.\nAt Toronto the price of heroin, hoavily adultor-\nThe price of locally produced bashish of inforior\natod, increased in 1937. The price at the and of\nquality at Beirut during 1937 renged from france 200\n1936 was from $1.25 to $1.50 por 3-grain capsule, ns\nto francs 300 por kg. as compared with france 160 to\ncompared with prices of $1 to $2 per 3-grain capsulo\nfrancs 170 per kg. in 1936. The price of locally\nin 1937. Cocaine, which in 1936 was sold at from\nproduced hashish of good quality rangod from francs\n$70 to $100 per OZa, was not sold at all in 1937.\n500 to france 600 per KE., and of Turkish mahish\nThe price of smoking opium por dock remained the same.\nfrom france 700 to france 1000 per KC.\nAt Winnipog, as at the ond of 1937, no drugs\nThe price of hashish was subject to fluctuation\nwere obtainable except horoin, the price of which\nowing to scarcity of imports. It stoadily increased\nranged between $80 to $100 per oz. AB compared with\nas a rosult of the severo measures takon by the\n-23-\nRegraded Uclassified\n523\nauthorities to prevent the illicit cultivation of\nin the provious year. From August onwards, however,\nas a rosult of the hostilities, prices for opium\nIndian hemp.\nand other narcotic drugs rose to an unprocedented\nThe price of opium romained stationary as com-\nhigh lovel. Thus, the maximum price of Sgechuen\nparod with 1936, notwithstanding the devaluation of\nraw opium, which in 1936 amounted to $3.80 por OZ.,\nthe franc, owing to very large illicit imports from\nrose to $4 in August 1937 and to $16 per oz. in\nTurkey, The price ranged from francs 200 to francs\nDocember 1937. The meximim price of Yunnan rew\n220 per kg.\nopium, which in 1936 was $3.20 per 02., had rison\nNothorlands Indies\nto $13 per OZ. by the end of 1937. The price of\nherbin, which in 1936 ranged from $25 per oz. to $30\nThe wholesale prices ruling In the illicit\nper OZ., variod in Docember 1937 betwoon $70 and $90\ntraffic in the chief conters variod between F1. 100\npor OZ.\nand Fl. 340 por kg. for raw opium ns compared with\nprices varying botwoen F1. 130 and F1. 330 in 1936.\nGeneral Observations in rogard to the Illicit\nTraffic in 1937.\nThe prices of propared opium veriod between Fl. 135\nand F1. 640 por kg. in 1937, 28 compared with prices\nA study of the information as regards the\nvarying from F1. 250 to F1. 570 per KE. in 1936,\nillicit traffic in 1937 available to the Sub-Committoe\nThe retail prices of horoin varied between F1.\nsuggests the following observations.\n4000 end Fl, 5000 por Kg. Heroin injections cost\nThere is evidence of changes in the illicit\nfrom 10 to 20 cents, the drug boing nearly always\ntraffic in regard to its sources and channels and\nadministered mixed with other substances. In 1936\nalso as rogards the drugs available to or preferred\nthe authorities wore alarmed by the fact that\nby the addict. Although there are signs of decrease\nmorphine injections could be obtained at prices\nin the volumo of illicit traffic in certain parts of\nvarying from 2 to 20 cents.\nthe world, notably the United States of Amorica and\nCanada, thore are unfortunately no dofinito signs of\nShanghai International Settlement\nan abatoment of the traffic clsowhere,\nThe Far Enst, more especially China north and\nThe wholosale and rotail prices ruling in the\nfllicit traffic during the first eight months of the\nsouth of the Groat Wall, appears to an over-increasing\nyour were approximately the same ns those prevalent\n-25-\nRegraded Uclassifie\n524\nextent to bo the principal source and center of the\ngreat many of its mrkots. To a certain extent\nillicit traffic in both opium and manufactured\ncocaine smuggling continues in certain Contral\ndrugs, Iranian (Persian) opium ontering the illicit\nEuropean countries and there is still a serious\ntreffic through China.\ntraffic in cocaine into India, although in 1937\nImportant sources and centers of illicit traffic\nboth the number of seizuros and the quantity seized\nare also to be found in the Balkan countrios, the\nare considerably less than in provious years.\nAS in previous years gonuino labols of licensed\ntraffic passing to the United States of America pro-\nmanufacturors have very mroly boen found in the\nbably through France, The continued discovery in\nillicit traffic, with the exception, however, of\nTurkey of clandestine ostablishments for the manu-\nlabols of Japanese manufacturors which are still\nfacture of irugs is an indication that to some extent\nthe illicit traffic obtains supplies from that country.\nmet with although to EL docreasing extent.\nClandestine manufacturers do not uso labols.\nJapan continues to supply drugs th the illicit\nAlthough it is impossible to state that illicit\ntrafficker in Canada and the United States of America.\ntraffic in general is diminishing, thore are cortain\nBy far the groatest proportion or the raw opium\nfacts which may be noted with satisfaction. Licensed\nseized in tho illicit traffic is of Irenian and\nmanufacture and the lawful international trado con-\nChinoso origin. Chinose raw opium is almost never\ntinue to be strictly controlled, the escape of manu-\nfound in the illicit traffic outside of the Far East.\nfactured narcotic drugs into the illicit traffic\nIn other words almost all raw opium seized outside\nfrom these sources being nowadays almost insignifi-\nof the Far East comos from Iran, but usually through\ncant. International cooperation for the suppression\nChina. In the Far East itsolf Iranian and Chinose\nof the illicit traffic is developing year by year.\nopium seem to bo compoting in the illicit traffic\nPolice services in the principal countries affocted\non fairly oven terms.\nby the illicit traffic are in close touch with one\nAll ovidence goes to show that the origin of\nanother. The Advisory Committoe is receiving, with\nthe propared opium which supplics the illicit\nfew exceptions, the whole-hearted cooperation of\ntraffic is Chine or ports on the China coast.\nGovernments with the result that its information,\nAs to the Illicit traffic in narcotic drugs,\nis the necessary basis for success in its be work,\nheroin appoars to become more and more the favorite\nwhich is becoming more and moro complete. It should\ndrug of addiction. Cocaino seems to have lost a\n-27-\nRegraded Uclassified\n525\nadded that Governments show a gratifying willingness\nin the illicit traffic will soon be taken. The\nnot only to supply information but also to adopt\nrepresentative of Yugoslavia stated that legislation\nthe Advisory Committee's suggostions as regards\nin that country, present and proposed, is designed\nmeasures designed to improvo control and to\nto prevent and to suppress illicit traffic and\nfrustrate the activities of the illicit trafficker.\nclandestine manufacture in Yugoslavia.\nOn the other hand, one country (Persia), which 18\none of the principal suppliers of raw opium, still\nMEASURES DESIGNED TO COMBAT THE ILLICIT TRAFFIC\nfails to follow out the export and import certificato\nsystem, with the result that large quantities of raw\nThe Sub-Committee noted with interest the\nopium continue to be made available to the illicit\nreplies of Governments to the suggestions of the\ntraffic.\nOpium Advisory Committee concerning measures to pre-\nThree specially reported cases were noted in\nvent the use of ocean-going vessels for illicit\nwhich raw opium and morphine base (crude morphine)\ntraffic in narcotic drugs. This is taken to indi-\nhad been seized while it was being illogally trans-\ncate substantial agreement by Governments with the\nported to France from Yugoslavia. In view of the\ngeneral principles advanced by the Committee in\nnumerous cases, not yet reported by the Yugeslav\nthis connection.\nor other authorities, but information in regard to\nInformation presented to the Sub-Committee indi-\nwhich had reached the Sub-Committee and indicated\ncated that study is being devoted in several countries\na disconcerting and apparently continued increase\nto the problem of identifying by chemical or physical\nin the movement of raw opium, morphine base, morphine\nexamination the place of manufacture of opium and\nand heroin from Yugoslavia to France and to Italy,\ncoca leaf derivatives found in the illicit traffie.\nthe Sub-Committee welcomed the attendance at one of\nThe matter is receiving attention in Japan, the\nits lator meetings of the reprosentative of Yugoslavia,\nNetherlands, Belgium, France, Great Britain and the\nwho submitted information concerning some of these\nUnited States of America.\ncases and who undertook to procuro further informa-\n(From the Minutes)\ntion. The illicit traffic situation in Yugoslavia\nis such as to justify serious misgivings, and it is\nM. AMAU (Japan) asked whether it was possible to\nhoped that effective measures to repress this trend\n-29-\nRegraded Uclassified\n526\ntrace the origin of a specific narcotic drug by\nThe representative of Franco reported that\nsome form of chemical analysis.\nAngelo (Jerry the Lug) Iandosco, recently deported\nThe CHAIRMAN referred the Japanose representa-\nfrom Havana and now in Sing Sing Prison on a parole\ntive to the reply given at the Sub-Committee's third\nviolation, had taken part in a transaction in Paris\nmeeting by M. Einthoven to 8 similar question asked\ninvolving 4 tons of rain opium coming from the firm\nby Mr. Anslinger.\nof Taranto in Turkey and imported into Franco by\nMr. ANSLINGER (U.S.A.) added that morphine\nP. licensed firm through its agont JACQUES GABBAI.\nseized recently on the Pacific Coast of the United\nAmong the many activities of Indosco in Europe 18\nStates of America had been identified as \"Cotton\none typie it his mothods. Ho and Gabbai went to\nMorphine\" a distinct variety which came from Japan.\nSofia, Bulgaria, and at the point of a revolver\nforced the director of a drug firm to complete a\ntransaction.\nThe French representative reported that the\nThe situation at Havre leving boon brought to\nmethods adopted by the traffickers were becoming\nthe fore by seizures effected in the United States\nincreasingly ingenious. The following was a typical\nof Amorica from the crews of ships which had cloared\ncase. On December 30th information was received\nfrom that port, the representative of France stated\nthat a vessel arriving at Marseilles had opium con-\nthat considoration would be given in that country to\ncealed on board. Nothing was discovered among the\nthe possibility of intensifying the surveillance\ncargo which consisted of cases of tomatoes, nougat,\nexercised to prevent ships' personnel from procur-\netc., until a caso was sawed open and opium, totalling\ning drugs for smuggling purposes, particularly at\n40 Kg., was found to be contained in hollow boards,\nHavre and other ports where drugs appoared to be\nthe ends of which were carefully covered with laths\nillicitly offered and sold to sailors and ship\nglued down to provent detection.\nstewards.\nIn another case, an explosion lod to the dis-\ncovery that a man, in Paris, who was believed to be\nwith regard to smuggling from Franco to tho\nimporting floor polish (of supposed Caschoslovak\nUnited States of Amorica, the following is en\norigin), was actually trafficking in heroin and\nrecord of the minutes:\nmorphine, which he dissolved in beeswax.\n-31-\nRegraded Uclassified\n527\n\"Mr. ANSLINGER (U.S.A.) asked M. Corby whother\nho could give any information as to the precautions\ncaptain - ho spoke as & naval officer with twenty\ntaken in the case of the French vessels sailing to\nyears' experience - was of littlo use in such casos,\nthe United States (in particular the \"Paris\" and\nThe most offective assistance was provided by\nthe \"Normandie\") to which Document O.C.S. 313 (R)\ninformers. Ho would, however, inform his Government\nreferred.\nof the suggestions contained in the Socretariat's\nM. CORBY (France) said there was actually a\nnote as well as of the Japanoso communication.\ntriple form of control - by the administrativo\nColonol SHARMAN (Canade) said there had been\npolice, the judicial police, and the Customs authori-\na number of cases in Canada involving mombers of\nties. If a trafficker loft a country where ho was\nFrench crows. He had cross-examined a stoward and\nknown to the police for France, the French police\nan officer whom it had been possible to arrost\nwere informed. Traffickers usually booked rooms\nbecause of the amatourish way in which they sought\nin hotols in their own name; and that gave the police\nto dispose of the drugs they word carrying. They\nan additional form of control. It was impossible,\ntold him thoy were constantly boing solicited in\nhowever, to search large quantities of cargo; and\nHavre to carry drugs to America. Vould It not be\nthat was where the services of the informer had to\nadvisable to employ station police agents in Havro\nbe enlisted.\nns a means of obtaining more information than was\nThe CHAIRMAN (Mr. Fuller, U.S.A.) thought M.\nto bo had by supervision on board ship?\nCorby had not quite realized the purport of Mr.\nM. BOURGOIS (Franco) said he would draw atten-\nAnslinger's quostion. Mr. Anslinger was referring\ntion to the increaso in the Havro drug traffic in\nto soamen on French vessels, not to passengers.\nhis report. Ho was cortain the authoritics would\nWhat were the steps takon to provent French and\nact on his recommendations. He agreed that the\nforeign seamen from cerrying drugs on ships going\nstationing of police agents in Havro might be useful.\nto America?\nMr. ANSLINGER (U.S.A.) nekod whether M. Corby\nM. BOURGOIS (France) answored that no special\nknew the origin of all the horoin which was being\nstops were taken. There were of course police\nsont to Havro.\nofficials on board; but there was no special super-\nM. CORBY (France) could not say, though he was\nvision of ships. The personal responsibility of the\npractically cortain it was not manufactured in Franco.\nIt might como from the East; but no evidence to that\nRegraded Uclassified\n528\neffect had ever been oxtracted from prisoners. It\n(Minutes - Dr. Hoo Chi-Tsai)\nwas astonishing how secretive traffickers of both\nsexes could be.\nThe CHAIRMAN asked whether any more clandestino\nfactories had been discovered since the St. Honoré\n\"Up to the outbreak of hostilities the trend\ncase.\nof the traffic had remained much as in 1937; heroin\nM. CORBY (France) did not know of any. Ho\nhad continued to enter Chinese Government territory\nadded that he had obtained cortain information\nfrom the Japanese Concession of Tientsin, being\nbrought in by rail or boat by Korean or Chinese\nfrom sleeping-car attendants on the Simplon-Orient\nExpress which secmed to indicate that the horoin\npeddlers. The foreign opium seized was mostly from\ncame from the East.\nMacao. Since the outbreak of hostilities, however,\nthe illicit consumption of manufactured narcotic\nM. BOURGOIS (Franco) pointed out that in the\ndrugs had greatly increased in territories under\nSt. Honoré caso the heroin had been manufactured\nforeign military occupation.\nfrom morphine. The process of manufacture was easy\nThe report to be distributed by the Chinese\nenough. It could be dono in an ordinary kitchen.\nGovernment would fully substantiate the complaints\nThe morphino in this particular CASO probably came\nfrom the East.\nmade by the Chinese authorities regarding the\nclandestine manufacture of narcotic drugs in the\nIn connoction with M. Corby's remarks, the\nformer Japanese Concession of Hankow. Reports to\nCHAIRMAN mentioned the case of 11 sleeping-car atton-\nthis effect had been denied by the Japanese authori-\ndant who had sot up as a hotel propriotor in\nties, but after the Concession was ovacuated in\nBelgrade apparently on the strongth of his earnings\n1937 raids made by the Chinese authorities conclusive-\nfrom drugs smuggled in his slooping-car.\nly proved the existence of the illicit manufacture in\nColonol SHARMAN (Canada) obsorved, with refor-\nquestion.'\nence to the difficulty mentioned by M. Corby of\nobtaining confessions from prisoners, that in Cenada\nthe threat of very severe ponalties had boon found\nExcerpts from statement by His Excellency M.\nuseful.\"\nAMAU, Japanese Delegate to the Opium Advisory\nCommittee:\nRegraded Uclassifie\n529\n\"It is needless to emphasize here that the\naroused by the gravity of the situation and at\ndetermination of my Government is firmly set to\nthe rounion of the Directors of Customs hold in\nsuppress all the activities of the clandestine\nTokyo in May 1937 they agreed to take most effectivo\ntrade in narcotic drugs in and out of the country\nmeasuros.\nand that the authorities have redoubled their\nIn the annual rounion of the local Governors\nefforts in order to achieve tangible results.\nin 1937, the Ministor for Homo Affairs particularly\nThe year 1937 has been particularly marked by\nemphasized the importance of exorcising strict con-\nvarious activities, on the one hand, the development\ntrol on tho traffic in narcotic drugs. This warning\nof the police activities in arresting bands of\nwas repoated also by the authoritics-in the annual\nsmugglers; and, on the other hand, the strengthening\nconference of the Diroctors of police affairs of the\nof the measures of control of the illicit traffic\nprefecturos of the country.\nof narcotics, both of which I shall describe in\nAll those activities will show plainly that in\ndetail later in this report.\nspite of the difficult and complicated task which\nAs to the revision of laws and regulations\nthe authorities have to faco in this fight against\nrelating to the control of narcotic drugs with a\nthe lavless elements, they are propared to do their\nview to providing heavier punishment to offenders,\nutmost to stamp out this illegal activity of the\nI am in a position to report to you that the com-\ntraffickers.\npetent Government departments, in spite of the\nDuring 1937, the Japanese authorities havo\noverwhelming pressure of the work due to the present\nestablished a closer cooporation in the preventive\n\"incident\" have already appointed a special Committee\nwork with the authorities of various Governments.\nwhose duty is to gather the materials necessary for\nSince 1936, the Japaneso authorities have faced\nthis legislation and propare the text. In this\na serious problem in the frequent soigurcs in foreign\nconnection our authorities express the desire of\ncountries of the narcotic drugs which were reported\nobtaining the texts of laws and regulations now in\nas having come from Japan. The authoritics made\nforce in various countries which have instituted\nthorough investigations in various directions in\nthe successful control of the traffic in narcotic\nordor to detect the source of supply and espocially\ndrugs.\nthe leading traffickers involved in the smuggling\nThe Japanese Customs authorities too were keenly\ntransactions. These efforts resulted in the arrests\nRegraded Uclassified\n530\nof cortain important groups of traffickers during\nillicit trafficking have boen so light that they\n1937. One of thèse bands of traffickers Was com-\nare entirely inadequate to act as doterrents. The\nposod of cortain members of the crews on the ships\nYugoslav representative stated that consideration\nplying between the ports of Japan and those of the\nis being given to proposals looking toward logisla-\nU. S. A. The other was that of the Heian Maru case,\ntion that would provide for the imposition of more\nFor those arrosts our authorities appreciated the\nsevere penalties. He also said that measures had\naid given by the American cuthorities for furnishing\nbeon put into force in March, 1935, which wore\nus with valuable information. The other group was\ndesigned to provide more adoousto control of raw\nrolated to licensed drug dealors in Kobo and in\nopium within the country which 1s not in the hands\nOsaka.'\nof the monopoly but in thoso of privato producers\nand private doalors.\nThe seizure roports bofore the Sub-Committoc\nDRUG ADDICTION\ncontinued to indicato, in the caso of some countries,\nthe insufficiency of the ponalties provided for\nReports indicated an incroase in addiction in\nillicit trafficking in narcotic drugs. The representa-\nFrance, Tunisia, Sinm, Czochoslovakia, The\ntive of Japan stated that a committoe has now boon\nNethorlands Indies, Hong Kong and Manchukuo.\nset up in that country to draft logislation which\nIn the United Statos of America and in Canada,\nwill increase the severity of penalties for such\na considerable docrease WRE reported.\nnctivities and added that it is hoped to present a\nproposed 1ew to the Diot in the coming autumn or\n(From the Minutos)\nwinter. The Sub-Committoe heard that this question\nis roceiving attention in Cgechoslovekia. Activity\nColonel SHARMAN (Canada) had, in giving evidence\non the part of the authorities appears to have been\nrocently before e Parlinmentary Committoe, expressed\nexerted in Hungery, but those authorities soem to\nthe view that drug addiction in Canada had docroased\nbe hampored by the insufficiency of penaltios.\nby about 30%. When discussing the matter Inter in\nThe discussions in the Sub-Committoe brought\nWashington no had found that Mr. Anslingor had inde-\nout the fact that, in Yugoslavia also, ponaltics for\npondently reached the stume conclusion.\nRegraded Uclassif\n531\nINCREASE IN USE OF WHITE DRUGS IN\nof an opium monopoly to be a guarantoe against the\nCOUNTRY MAINTAINING OPIUM SMOKING MONOPOLY\nabuse of white drugs. The growth of this abuse,\n(From the Minutos)\nhe himself believed to be partly due to a change in\nthe habits of drug addicts, who could not nowadays\nafford time for the leisurely practice of opium-\nNotherlands Indies\nsmoking.\nM. DELGORGE (Notherlands) drow attention to\nthe growth in addiction to white drugs, a dovelop-\nment which was causing the Nothorlands authorities\nSECRET MEETINGS NARCOTIC POLICE\nmuch anxiety, as it presented greater dangers than\nTheso meetings were attended by the Narcotic\nthe vice of opium-smoking. Many former opium-smoking\nEnforcement Heads of the Unitod Kingdom, The\naddicts wore turning to white drugs as cheaper and\nNethorlands, Canada, Switzorland, the United States,\nmore convenient to uso. Horoin was always taken in\nand the American Trensury Attaché at Paris.\nthe form of injections. The number of seizures, it\nInformation was exchanged concerning notorious\nwould be notod, had also considerably increased.\ninternational illicit traffickers.\nDr. HOO CHI-TSAI (China) drew the Sub-Committeo's\nThe activities of Carlos BACULA, formor\nattention to the connection between the existence of\nPeruvian Diplomat were discussed. It was brought\nan opium monopoly and the abuse of white drugs. It\nout that certain South American diplomate may still\nhad frequently boon argued that if opium monopolies\nbe engaged in running narcotics for BACULA. In\nwore maintained the abuse of white drugs would\nJuly, 1937, one of BACULA'S connections, Dr. Educard\ndecrease. This did not 50cm to be borne out by the\nArgarich, a member of the Argentinian Diplomatic\nexperience of the Notherlands Indies where, notwith-\nCorps, committed suicido after having boon discovored\nstanding the existence of an opium monopoly, the\nby the Yugoslav Police in running narcotics to Paris\nabuse of white drugs was on the Increase. He had\nfor shipment to the United States. Among HACULA's\nno solution himsolf to offor, but suggested that\nconnections were \"Jerry the Lug\" IANDOSCO, \"Little\nthe problem required roconsideration.\nAugio\" DEL GRACIO, Jack \"Legs\" DIAMOND (deceased),\nM. DELGORGE (Notherlands) explained that the\nthe Frenchman DEVINEAU, the Greek bankor ELIEOPOULUS\nNetherlands authorities had never held the existence\n-41-\nRegraded Uclass\n532\nand many other traffickers of international repute.\nInstead of dovoting its timo at the outset to\nA few days after our meetings, BACULA was\nobtaining an agreement among the producing countries\narrested at Zurich, Switzerland, on a warrant from\non the principles to be incorporated in a convention,\nthe German Police at Vienna, in connection with the\nthe Committee spont a number of days discussing\nseizure of 300 kilos of raw opium evidently destined\ndetails of several plans to limit production.\nfor the United States.\nAfter futile dobato on details it was finally\nSince the Gorman annexation of Austria, the\nagreed to consider the following principles:\nGerman Narcotic Police have done more in one month\nMain Principles on which a future convention might\nthan the Viennese police did in ton years in\nbe based.\nnarcotic enforcoment.\nI. Substances subject to limitation.\nLaurent DELEGLISE, a former Frenchman, who\n(1) Quostion whother limitation shall extend\nbought Austrian nationality and who was a well known\nto the cultivation of the opium poppy for purposos\ntrafficker in the United States and Canada, lived\noutside of Vionna in a modioval castle called RANNA.\nother than production of raw opium, in particular\nGerman polico with machino guns surrounded the\nthe question of the use of poppy straw and capsulos\nas raw material for oxtraction of morphine.\ncastle, captured DELEGLISE and placed him in a con-\n(2) While it is impossible to fix a quantitative\ncentration camp along with Herman BLAUAUG, the latter\nlimit for the production of poppy straw, as boing a\nhaving been one of the most persistent smugglers of\nby-product of the cultivation of the poppy for seed,\nenermous quantities of narcotics to the United Statos.\noffective means must be laid down to ensure that\nSeveral other traffickers wore similarly apprehonded.\nnono of it is used (or exported for use) for the\nThese meetings, which are hold independently\nmanufacture of dangerous drugs except by license,\nof sossions of the Opium Advisory Committoo, offer\nand under the supervision of tho Government.\na splendid opportunity to furthor international\nII. Requirements to which production is to be limitod.\npolice cooporation.\n(3) Question of World requirements to which pro-\nduction is to be limited.\nPREPARATORY COMMITTEE FOR A CONFERENCE\nTO EXAMINE THE POSSIBILITY OF LIMITING\n(4) A definito quantitative limit to be fixed\nAND CONTROLLING THE CULTIVATION OF THE\nOPIUM POPPY AND THE PRODUCTION OF RAW\nannually for the amount of raw opium to be produced\nOPIUM:\neach year.\nRegraded Uclassified\n533\n(5) This limit should be the sum of the\nnational control.\nrequirements of the consuming countries (including\n(13) Question whether the future Convention\nthe consumption of the producing countries) as\nshould contain provisions for dotermining the level\ncortified by their respectivo Governments, subject\nof stocks to be kept in consuming countries.\nto examination by a controlling authority.\n(14) Existing excossive stocks to be reduced\nIII. Mothods of achieving limitation.\nover a period of years.\n(6) World requirements of raw opium to be\nV. International control.\nascertained by a system of government estimatos\n(15) The oxecution of the Convention, as in the\n(annual and supplomontary).\ncase of the Drugs Limitation Convention of 1931, to\n(7) The governments of importing countrios to\nbe supervised by a controlling authority to be con-\nundertake the obligation to tako over each year such\nstituted in mannor laid down in the Convention and\nquantities as have boon ostimated for (binding\nentrusted with such powers and dutios as shall bo\nestimates).\nspecified in the Convention.\n(e) Governments of producing countries to sub-\nVI. National control.\nmit ostimatos concerning the area to be cultivated.\n(16) Measures to safeguard the carrying out of\n(9) Estimatos to be examined by an international\nthe Convention by producing countrios through\ncontrolling authority.\nnational control; establishment of Government monop-\n(10) Alternativo mothods for the allocation of\nolios.\nthe exportable quantity to exporting-producing\nVII. Question whether limitation could or should\ncountries, viz. (a) qunta system or (b) free order\nbe combined with regulation of raw opium prices.\nsystem.\nIt became apparent from the statements of the\n(11) The controlling authority to have the task\nprincipal producing countrios - Turkey, Yugoslnvia\nof allocating to each producing country the annual\nand Iran - that they were not roady to agree to\nquantities to be (a) produced (production quotas)\nlimitation. They acted in concort throughout in\nand (b) exported (export quotas).\ndemanding the right to decido for thomsolvos the\nIV. Question of stocks.\nacreage to be sown and the amount of opium to be\n(12) Regulating stocks to be kopt in producing\nproduced. They stated that OXCOSS stocks would be\ncountries at a fixed level under international and\nRegraded Uclassified\nin narcotic drugs resort in order to obtain pass-\n+14\nports, and the traffic in false passports of which\nhold under Government control. On account of\nthey frequently avail themselves. The Committee\nsocial and economic necossity within their own\nstressed the desirability of a thorough study of\ncountries, they declared their intontion to act\nthis question and recommended that direct coopera-\nindopendently of an international controlling\ntion should be established between the authorities\nauthority.\ncharged with the issuance of passports and those\nIt is possible that an extension of morphine\nin the same country responsible for the control of\nextraction from the poppy strav may result in an\nthe drug traffic, with a view to the punishment\nautomatic limitation of opium production for\nof offenses of this kind.\nmodical noeds and that the only merket romaining\nfor producing countries will be the opium smoking\nand cating monopolios.\nFor its part, the Assembly, on October 2nd,\n1937 (eighteenth session), on the proposal of its\nFifth Committee, adopted the following resolution:\nEXCERPTS FROM PROGRESS REPORT OF\nTHE OPIUM TRAFFIC SECTION OF THE\n\"The Assenbly,\nLEAGUE OF NATIONS SECRETARIAT:\n\"Considering the serious situation existing\nin the Far East as revealed by the discussions\nThe Advisory Committee adopted a body of rules\nheld at the Twenty-second session of the\nAdvisory Committee on Traffic in Opium and\nsuitable for use by Governments for the effective\nOther Dangerous Drugs and by additional informa-\ntion furnished to the Fifth Committee;\ncontrol of pharmacies. The Committee decided to\n\"Considering further that such a situation\nask the Council to request the Socretary-General\nconstitutes a danger, not only to China, but\nalso to the whole world;\nto communicato those rules to Governments for thoir\n\"Endorses fully the resolution on the sub-\ninformation and guidanco. The Council, on September\nat its last session, which was approved by\nject adopted by the Opium Advisory Committee\n16th, 1937, (Nincty-cighth cossion) requested the\nthe Council;\nSecretary-Genoral to communicato the rules to\nGovernments, and this was donc on November 11th,\n27\n1937.\nThe attontion of Governments had boon drawn\nto the numerous irregularities to which traffickers\n-46-\nRegraded Uclassified\n\"Repeats its previous earnest appeals to\nthe Japanese Government to take effective\nmeasures without delay to put an end to the\n535\nclandestine manufacture and illicit traffic\nand requests the Japanese Government to\ncarried on by Japanese subjects in China,\ninform the Opium Advisory Committee of the\naction which is being taken;\nneeds of the world is the increasingly close\n\"And trusts that the Chinese Government\nrelationship betwoen ostimatos and statistics.\nwill not relax its efforts in the face of an\nadmittedly difficult situation, and that it\nA comparison of estimatos with the most rocont\nwill be able to report to the Opium Advisory\nCommittee a progressive improvement in the\nstatistics relating to drug manufacture appears\nsituation in the regions in China to which\nneither extends. Japanese nor other foreign influence\nto show that the wido gaps formorly found to\noxist between Government forecasts and actual\nIn pursuance of the resolutions adopted by the\nnoods show a diminishing tondency, since Govern-\nAdvisory Committee, the Council and the Assembly,\nments endoavor more and moro to bring thoir\nthe Secretary-General, in communicating them to\nestimates down to the level of actual requirements.\nGovernments, requested the latter to give effect,\n50 far as lay within their power, to the recommenda-\ntions made therein, and also to comply with the\nThere is attached heroto the Amorican Stato-\nAdvisory Committee's request for information.\nmont made bofore the Opium Advisory Committee con-\ncorning the situation in the Far East.\nYours respectfully,\nThe Supervisory Body noted with satisfaction\nthat the number of ratifications of the Limitation\nConvention is now 64, a figure higher than that\nCommiss Hyanding of Narcotics.\nANSLINGER\nroached up to the present by any international con-\nvontion negotiated under the auspices of the League.\nA factor which has contributed to the improve-\nment in the situation with regard to the modical\nRegraded Uclassified\nJune 15, 1938.\n536\n2:01 p.m.\nH.M.Jr:\nHello.\nOperator:\nMr. Knoke. Go ahead.\nH.M.Jr:\nHello.\nKnoke:\nMr. Secretary?\nH.M.Jr:\nTalking.\nK:\nI'm Knoke.\nH.M.Jr:\nYes.\nK:\nI'm calling to report out.\nH.M.Jr:\nYes.\nK:\nI'm leaving tonight and I just wanted to say goodbye.\nH.W.Jr:\nOh, you're going tonight?\nK:\nYes.\nH.M.Jr:\nOh, are you going on the Bremen?\nK:\nYes.\nH.M.Jr:\nOh I didn't know you were going that soon.\nK:\nWell, we had to rush it because otherwise I couldn't\nhave met Cariguel\nin Paris.\nH.M.Jr:\nI see.\nK:\nWho is going on a vacation. A week later would have\n- would have got me Just a trifle too late.\nH.M.Jr:\nWell, you can go over and settle that gold rumor.\nK:\nYes. I'll settle everything I can, settle.\nH.M.Jr:\nAll right. Well I hope you have a good time.\nK:\nThank you very much, Mr. Secretary. I'll try and get\nsome information everywhere.\nH.M.Jr:\nDo that. How long are you going to be gone?\n- 537\n- 2 -\nK:\nWell I expect to be back the middle of August.\nH.M.Jr:\nOh. Well, I hope to sail for Europe on the 18th\nofJuly.\nK:\nOh, yes.\nH.H.Jr:\nI'm not advertising it.\nX:\nWell -\nH.H.Jr:\nThat's just for you.\nK:\nI see. You'll be in France?\nK.C.Jr:\nYes, Southern France.\nK:\noh, I say. Well I will have Just passed through\nby then.\nH...Jr;\nWell. Good luck.\nK:\nI also hope you have a pleasant vacation.\nH.C.Jr:\nThank you.\nK:\nGoodbye, sir.\nRegraded Uclassified\n- 538\nJune 15, 1938.\n3:49 p.m.\nH.M.Jr:\nHello\nOperator:\nCommissioner Hanes. Go ahead.\nH.M.Jr:\nHello.\nCommr.\nHanes:\nHello. Mr. Secretary?\nH.M.Jr:\nYes.\nH:\nJohn Hanes.\nH.M.Jr:\n'How are you?\nH:\nFine, thank you. How are you, sir?\nH.M.Jr:\nI'm all right.\nH:\nGood.\nH.M.Jr:\nHanes - I saw the President this morning and told\nhim about the discussion that I've been having with\nDouglas about your services.\nH:\nYes, sir.\nH.M.Jr:\nAnd told the President - reminded him what my under-\nstanding was on July 1, you see?\nH:M.Jr:\nYes.\nH.M.Jr:\nDouglas.\nH:\nYes, sir.\nH.M.Jr:\nAnd that my suggestion was that we swear you in on\nJuly 1, and that you work with us mornings, giving\nhim the afternoons as long as necessary, and the\nPresident said, \"Why,\" he said,\" I think that's\nproper and entirely fair.\" See?\nH:\nYes.\nH.M.Jr:\nSo, unless you have some objection.\nH:\nWell, I haven't any. I've told you right along.\nH.M.Jr:\nI know.\n- 539\n- 2 -\n5\nI haven't\nM.M.Jr:\nWell then - I'm not going to say any more to\nDouglas. I'm just going to go ahead on that basis\nthat on July 1, we'll swear you in.\nH:\nWell - he's - you know he's in Celifornia now.\nB.H.Jr:\nYes.\nH:\nBill's gone out West, and I don't know when he'll be\nback. He's in Seattle today. I imagine he'll be\nback sometime about the end of next week.\n2.2.Jr;\nWell I'm not - frankly - unless you 88% me very\nearnestly I'm Just not going to fuss about it.\nThe only thing that I could ask you would be this -\nthe only thing that I would want to REK you - feel\nlike asking, is that you don't let me get off on\nthe wrong foot with Bill.\nH.H.Jr:\nWell -\n=\nThat's all, because when I leave here, I just want\nto leave a good taste,\nE.2.Jr;\nWell you - I'll do everything I can to cooperate,\nbut on the other hand -\nHe just - I know he doesn't want me to go on the\nfirst of July.\nH.M.Jr:\nWell -\n51\nI know that - he said to me three or four times -\n\"I just hope that Daugherty won't leave me on the\nfirst of July. because I'm right in the middle of\nthis thing.\"\nH.M.Jr:\nWell -\nH;\nI Personally, I think that I can give him all that\nhe - needs and I certainly can keep in touch with the\nsituation, although I'd like to devote B. hundred\nper cent of my time to you and get the work. That's\nwhat I want to do, sir.\nH.I.Jr:\nWell - well then, I'm -\n540\n- 3 -\nH:\nSuppose I do this. Suppose I tell Bill the\nminute he gets back.\nH.U.Jr:\nSuppose you tell him the minute he gets back.\nH:\nThat you had this talk and if he wants to do anything\nfurther about it - that you expect me over there on\nJuly the let - definitely.\nH.M.Jr:\nYes, and the President expects you over here,\nAl right, and if -\nP.V.Jri\nAnd -\nAnd if he wants to change anything let him 89 to\nsee you or the President, or -\nH.M.Jr:\nWell, let him go - yes - right, Let him 80 see the\nPresident, because I - the President was very definite\nthat he wants you over here July 1.\nYes.\nR.C.Jr:\nHe feels there's a big job to be done over here and\nat the same time he would like you to continue the\nafternoons with SEC 8.8 long 58 necessary.\n5\nYes.\nH.D.Jr:\nBut the - I mean I put it very - I put it up to the\nPresident this way - \"Do you think I'm right - Do\nyou think I'm fair and is this what you want\"? And\nhe said \"Absolutely\".\n=\nYee.\nH.W.Jr:\nSee?\nI see.\nH.M.Jr:\nSo, I'll do everything I can to cooperate and leave\na good taste in Douglas' mouth.\nH:\nYes,\nH.M.Jr:\nBut on the other hand, I don't want a sour taste\nmyself. How's that?\nH:\nThat's right.\nH.K.Jr:\nWell, let's get together next week.\n541\n#\n- 4 -\nH:\nI'll tell him as soon as he comes back.\nH.M.Jr:\nAnd I - I want to see you next week.\nH:\nAll right. Let me know. Any time at all.\nH.M.Jr:\nAll right.\nH:\nThank you.\nRegraded Uclassified\n542\nJune 15, 1938.\n4:20 p.m.\nH.M.Jr:\nHello.\nJesse\nJones:\nHello, how are you?\nH.M.Jr:\nHello, Jesse.\nJ:\nHow are you?\nH.M.Jr:\nOh, I'm all right. I'm disappointed about the\nrailroad business.\nJ:\nYes, that was pretty bad wasn't 1t? Are you\ngoing to have any time tomorrow?\nH.M.Jr:\nI'm going up tonight to do what you did last year\nat Temple University.\nJ:\nOh, you are?\nH.M.Jr:\nYes. I'm making the commencement address.\nJ:\nGoing to be decorated.\nH.M.Jr:\nThat's right.\nJ:\nWhen are you coming back?\nH.M.Jr:\nI won't be back till Monday, Jesse.\nJ:\nBack Monday, eh.\nH.M.Jr:\nBut - are you going to be in town next week?\nJ:\nYes, I am.\nH.M.Jr:\nWell after this cloud - smoke blows over I want\nvery much to talk to you about -\nJ:\nAll right, then.\nH.M.Jr:\nWhat I want to talk to you about 18 the railroad\nthing, and if there ie anything under - the\nexisting authorities that you can do.\nJ:\nYes.\nH.M.Jr:\nBecause believe me it's a sick baby.\nRegraded Uclassified\n543\n- 2 -\nJ;\nI know - you don't know how sick it 1s, sir or -\nI don't mean that because you do know - we all\nknow.\nH.M.Jr:\nWell I'd very much like to talk to you about it.\nI mean if there's anything we can do.\nJ:\nAll right, then - Then if we can do it this Monday\nor Tuesday.\nH.M.Jr:\nWell now I'll tell you what we'll do. Let's say\nlunch next Tuesday.\nJ:\nAll right.\nH.M.Jr:\nHow's that?\nJ:\nThat's all right.\nH.M.Jr:\nWell let me Just look, please. I - yes - how's\nthat?\nJ:\nThat's all right. I've got an invitation - I'm\ninvited to - not to address but to meet with the\nSavings Banks on next Tuesday in New York, but I\ndon't think I'm going to do it - I don't think\nI'm ready to talk to them.\nH.M.Jr:\nWell.\nJ:\nAnd I told him\nhe wired me to know\nif I wouldn't meet with them.\nH.M.Jr:\nYes.\nJ:\nTo discuss this railroad situation.\nH.M.Jr:\nYes.\nJ:\nSo I told him on the phone today that I didn't\nthink I'd be ready by Tuesday but I would do it\nthe latter part of the week, BQ I think that\nTuesday 18 all right.\nH.M.Jr:\nWell if there's any change, let me know.\nJ:\nI'll do that.\nRegraded Uclassified\n544\n- 3 -\nH.M.Jr:\nThat's quite an order they give you up at Temple,\nisn't it?\nJ:\nOh you bet your life, it's e nice place to 80 Henry.\nH.M.Jr:\nYou - you talk at the college or -\nJ:\nNo, you talk - you talk at the same place the\nConvention was held.\nH.M.Jr:\nI see.\nJ:\nYou were up there weren't you?\nH.M.Jr:\nOh, yes.\nJ:\nWell you talk from that same place, and the house\nwill be full.\nH.M.Jr:\nIs that right?\nJ:\nAnd it's as nice a place to talk - in fact it's AR\nnice - I believe it's the nicest place to talk that\nI've talked in.\nH.M.Jr:\nIs that right?\nJ:\nThe acoustics are good and - well the whole situation.\nYou'll really enjoy it.\nH.M.Jr:\nAll right.\nJ:\nI'm delighted that you're going and I congratulate\nyou.\nH.M.Jr:\nThank you.\nJ:\nGoodbye.\nH.M.Jr:\nGoodbye.\nRegraded Uclassified"
}