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Volume 134, July 12 – July 31, 1938
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Volume 134, July 12 – July 31, 1938
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 134
July 12 - July 31, 1938
Regraded Uclassified
- A -
Book Page
Anti-Monopoly Study
See Temporary National Economic Committee
Appointments and Resignations
Delano, Preston:
HMJr recommends to FDR appointment as Comptroller
of Currency after California primaries -
7/13/38
134
156,291
a) FDR's cable explaining that there are no
Comptrollers in Galapagos and hoping there
are none in Paris
292
- B -
Bank Examinations
Eccles reports to HMJr that Crowley and Diggs are
disregarding agreement - 7/14/38
212
Bank for International Settlements
Treasury reaction requested to signing of a treaty
arrangement which would make BIS fund in United
States inviolable
a) Discussed at 9:30 meeting - 7/13/38
143
b)
"
"
"
If
7/14/38
174
Bank of America
Telegram to White House concerning applications pending
in Comptroller's office for various branches -
7/12/38
78
a) Transmitted to HMJr and returned to White House
"without comment"
Buell, Raymond Leslie (Foreign Policy Association)
Gives HMJr report on two-months' tour of Europe -
7/13/38
154
Business Conditions
Haas memorandum: "Commercial loans in relation to
inventories" - 7/12/38
39
a) Discussed at 9:30 meeting - 7/13/38
142
b) Copy of memorandum sent to FDR - 7/13/38
158
- C -
China
White memorandum: "Proposed Chinese loan" - 7/12/38
43
a) Suggested draft of brief memorandum from HMJr
to FDR attached
44
Conference in re silver; present: HMJr, C. T. Wang,
Taylor, White, and Lochhead - 7/12/38
70
a) China wishes to make arrangements for selling
new lot (fifty million ounces) beginning July 30th
b) Questions suggested by White
97
Wellington Koo calls on HMJr in American Embassy, Paris -
7/26/38
306
Regraded Uclassified
- C - (Continued)
Book Page
Coast Guard
Conference in regard to establishment of training
schools for merchant seamen; present: HMJr,
Gardner Jackson, Mellett, and Gaston - 7/12/38
134
38
a) Effect on marine unions discussed
- D -
Debts, Foreign
Great Britain: Debate in House of Lords - 7/27/38
350
Delano, Preston
See Appointments and Resignations
- E -
Evian Conference
Apparently a success; consequently Kennedy wishes to
attend - 7/13/38
159
- F -
Financing, Government
9/15/38 - Burgess presents alternative schedules for
handling September issue - 7/15/38
229
Reconstruction Finance Corporation:
Closing of subscription books - 7/12/38
1
a) Final subscription and allotment figures -
7/14/38
208,263
HMJr tells Jones notes have been oversubscribed
thirteen times and allotment has been made on
a basis of 8%, giving Reconstruction Finance
Corporation approximately $210 million - 7/14/38
182
Jones asks HMJr to make interest rate very, very low
and HMJr repeats request to McReynolds - 7/14/38
215,216
France
See also Stabilization
See also Vacation, HMJr (France)
Memorandum on present French situation given to HMr -
7/12/38
98
- G -
Giannini, Amadeo P.
See Bank of America
Gold
Sue Japan
Great Britain
See Stabilization
Regraded Uclassified
- H - -
Book Page
Haas, George C.
HMJr consults War Department about reinstatement as
Colonel in Reserve Corps - 7/12/38
134
65
a) Telephone conversation (HMJr-Haas)
46
General Craig explains situation to HMJr - 7/13/38
160
HMJr and Craig again talk after Haas calls on Craig -
7/14/38
184
Hull, Cordell (Secretary of State)
See also Stabilization: Great Britain
HMJr calls to say goodbye - 7/13/38
164
a) Hull asks that price of silver be dropped about
one cent because of situation in Mexico
b) Discusses difficulties with Foreign Service
c) Comments on physical examination which he has
just had and the excellent condition in which
he was found to be
- I -
Internal Revenue, Bureau of
"Get acquainted" conference; present: HMJr, Hanes,
Helvering, Magill, and McReynolds - - 7/12/38
50
- J -
Japan
Gold: Production "stepped up" very substantially;
production to be about $70- to $80 million worth
next year - 7/12/38
24
- K - -
Kennedy, Joseph P.
Cochran transmits speech delivered before American
Society in London - 7/14/38
186
- M -
Maritime Commission, United States
See Coast Guard
Mexico
See HMJr's farewell conference with Hull
164
a) Aske that price of silver be reduced about one cent
Mint, Bureau of
Transfer to Hanes and raises for Mrs. Ross and
Miss O'Reilly discussed - 7/15/38
231
Monopoly Study
See Temporary National Economic Committee
Regraded Uclassified
- M - - (Continued)
Book Page
Morgenthau, Henry, Junior
"A farmer at heart; Secretary of Treasury and
Secretary of Agriculture save strawberry and
raspberry industry in Hudson River Valley" -
newspaper articles - - 7/12/38
134
93,95
Gallup poll of expression on ability - 7/15/38
255
- N - -
Narcotics
Wait resumé since return to Paris from Washington
about November 1, 1937 - 7/25/38
295
- P -
Public Health
Completion of National Institute of Health (Bethesda,
Maryland) discussed at 9:30 meeting - 7/13/38
145,148
Dispensary: Plans for space in Loans and Currency
Building now and eventually in new Social Security
Building discussed at 9:30 meeting - 7/14/38
179
- R - -:
Reconstruction Finance Corporation
See Financing, Government
Revenue Revision
Conference in re tax legislation and improvement;
present: HMJr, Magill, Hanes, Helvering, White,
Haas, Tarleau, Blough, Shoup, and McReynolds - -
7/12/38
84
- S -
Silver
See China
If Mexico
If Spain
Spain
Silver: Conference; present: HMJr, Taylor, Oliphant,
Bernstein, Lochhead, and White - 7/14/38
209
a) Possibility of handling one more shipment in
August from Spain discussed
Stabilization
France:
Exchange market movements resume - 7/12/38
116,265,
267,282
Regraded Uclassified
- S - (Continued)
Book Page
Stabilization (Continued)
Great Britain:
Sid Olson's story, Washington Post 7/12/38:
"State Department quells rumor of monetary pact
with Great Britain" - 7/12/38
134
16
Gaston memorandum on questions and answers of
Hull press conference
167
Conference on possible monetary aspects of pending
trade agreements; present: HMJr, Taylor, Oliphant,
Lochhead, Bernstein, and White - 7/14/38
199
Cochran, at HMJr's suggestion, asks Lochhead for
entries from confidential files indicating attitude
of British monetary authorities to further devaluation
when question of France's imposing some sort of
exchange control arose - 7/26/38
309
Sulzberger, Arthur H. (New York Times)
Letter written en route to West and delivered to HMJr on
boat en route to Europe - 7/12/38
31
a) Editorial from New York Times attached
- T -
Taxation
See Revenue Revision
Temporary National Economic Committee
Oliphant and Peoples memoranda on conference held at
Federal Trade Commission - 7/12/38.
75,76
Trade Agreements
See Stabilization: Great Britain
- U -
Unemployment Relief
Lonigan report on recent trip to Cleveland - 7/13/38
192
a) Copy sent to Hopkins and Wallace
197,198
- V -
Vacation, HMJr (France)
HMJr and Bullitt discuss plans - 7/12/38
9
Bewley transmits Chancellor of Exchequer's invitation to
visit London - 7/14/38
224
Schedule of appointments in Paris
279
Press comment on HMJr-Marchandeau currency talks - 7/25/38
293,356,357
Press comment on HMJr-Bonnet conference - 7/26/38
308
- W -
War Debta
See Debts, Foreign
Regraded Uclassified
1
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Pross Service
Tuosday, July 12, 1938.
No. 13-93
7-11-38
Socretary of the Treasury Morgenthau announced last night that the sub-
scription books for tho current offoring of 7/8 porcont notos of Serios N of
the Reconstruction Finance Corporation closed at the close of business Monday,
July 11.
Subscriptions addrossed to & Foderal Rosorvo bank or branch, or to tho
Treasury Department, and placed in the noil bofore 12 o 'clock midnight, Monday,
July 11, will be considered as having been entored before the close of tho sub-
scription books.
Announcement of the amount of subscriptions and the basis of allotnont
will probably be mado on Friday, July 15.
--000--
Regraded Uclassified
2
GROUP MEETING
July 12, 1938.
9:30 A. M.
Present:
Mr. Magill
Mr. Oliphant
Mr. Gaston
Mr. Taylor
Mr. Haas
Mr. White
Mr. Upham
Mr. Hanes
Mr. Gibbons
Mr. Lochhead
Mr. Bell
Mr. McReynolds
Mrs. Klotz
H.M.Jr:
China's coming in at eleven fifteen - Archie,
and Taylor; White. Same deal?
Taylor:
(Nods "Yes.")
Lochhead:
Yes, I think about the same, as far as we can
see - just carries them through the next two
and a half months.
H.M.Jr:
Want to increase it?
Taylor:
(Nods "No.")
H.M.Jr:
Want to decrease it?
Taylor:
(Nods "No.")
H.M.Jr:
Harry.
White:
Same rate. There's some further information
Archie would like to get from them.
H.M.Jr:
From them?
Lochhead:
Of course, we'd like to know what amount they
really have got in London and what form it is in -
if we have a right to ask them.
H.M.Jr:
Why not?
Regraded Uclassified
- 2 -
3
White:
They've got stories of having a hundred million
on collateral, Archie says, which is a hundred
million ounces.
Taylor:
We asked them that before and didn't get anywhere,
to my knowledge.
Lochhead:
It was rather indefinite. They have left about
a hundred million there now. There's some talk
about there being a hundred forty over there.
H.M.Jr:
Well, you can ask them anything you want.
White:
It's important to know just what they have, because
when they stop there are certain things that will
have to be considered.
H.M.Jr:
Well, get a - have some questions and put them on
my desk.
(Nods to Mr. Magill.)
Magill:
I had a talk with Graves yesterday, and later with
Mr. Arundel, the Chairman of the Board of Tax
Appeals, about their cooperation in this decentral-
ization program of ours, all of which seemed to
work out very satisfactorily. We need to get
quite a little help out of the Board if the
things are to work properly. We are having to
set cases down on definite calendars, and conduct
almost constant hearings in New York, at least
during the fall. They seem to be prepared to
help along on that, satisfactorily.
H.M.Jr:
What else?
Magill:
Well,
H.M.Jr:
Did Hanes sit in with you on that?
Hanes:
(Nods "No.")
Magill:
No. He ought to sit in with Graves pretty soon,
to get the feel of the things, I think. This
came up very quickly; Arundel is going away and
asked me to have lunch with him, and I thought it
made an excellent opportunity to put the heat on
him with respect to some of these matters we wanted
him to do, so I got Graves over and worked it out
that way.
Regraded Uclassified
- 3 -
H.M.Jr:
Well, I think Hanes ought to be the one.
Magill:
Yes, I think so too. I am still - I had a session
with Hanes a while before you left, with respect
to tax work for next year.
H.M.Jr:
What are we doing at ten thirty? What's this
meeting with Helvering at ten thirty? Just to
get together?
Hanes:
Yes, that's all; you arranged that Friday.
McReynolds:
That's merely to bring in the boys who are in
charge of the New York Office.
H.M.Jr:
No.
McReynolds: That's different.
H.M.Jr:
Why couldn't they follow that meeting; why
couldn't they be here at ten forty-five and do it
all at one time?
Klotz:
You want to call them now.
H.M.Jr:
Yes, Mac can step out.
McReynolds:
Get Helvering and these two boys that are going
to set up the New York Office.
H.M.Jr:
Plus Harold Graves - at ten forty-five.
McReynolds:
I'll call them. (Leaves the room.)
H.M.Jr:
See? And then as long as we are doing that -
are you going to be here at ten thirty?
Magill:
I think so.
H.M.Jr:
You be here? (Hanes)
Hanes:
(Nods "yes.")
H.M.Jr:
Now, while I'm doing that, I want to do that on
taxes. Well, I can get you and Haas - we'll talk
it over at ten thirty - I mean, people like
Blough, and your man - Shoup - - they're all around
the office - we can get them, couldn't we?
Magill:
Yes - anytime we want to. I think it would be a
Regraded Uclassified
5
+ 1 I
good idea, if you can work it in, before you go,
to have a half hour, or hour's session with respect
to tentative plans for next year's tax legislation.
H.M.Jr:
Well, it can't be an hour. Let's see how we get
along from ten thirty to ten forty-five. I mean -
forty-five minutes. We can get those fellows
in then. This other, we can have at eleven
thirty.
(Mr. Kieley comes in.)
Have you reached the Chinese Ambassador yet?
Kieley: Yes sir.
H.M.Jr: Suppose you call him back and ask him
if it would be just as convenient at ten thirty.
Kieley: Yes sir. Ten thirty.
H.M.Jr: I mean eleven thirty.
Magill:
I wouldn't think it would take so long.
(Mr. McReynolds comes in.)
McReynolds: There's one man in New York. I think he was
sent up there Sunday.
H.M.Jr:
Well, somebody wants me to see them.
McReynolds: I was the one.
H.M.Jr:
Can you bring them down tomorrow?
McReynolds:
They are going to call John Kieley back, and let
him know for sure.
H.M.Jr:
If they are not, I'll make it ten thirty tomorrow.
That will be who, Mac?
McReynolds: The Commissioner, Mooney, Hanson - those are the
two men that will be in charge of the New York
Office - Graves, Mr. Magill, and Mr. Hanes.
H.M.Jr:
0. K. You fellows hold ten thirty tomorrow open.
All right?
Regraded Uclassified
6
- 5 -
Hanes:
Uh huh.
Magill:
(Nods "Yes.")
H.M.Jr:
What else?
Magill:
That's all.
H.M.Jr:
Hello, you monopolist.
Oliphant:
Did you get your list of books?
H.M.Jr:
Oh say! Listen, what does he think I want to
do - study to become a librarian? Listen, with
the exception of one book - I'll take the
.....
I
....
and intellectual, and he read
that list through, - "You don't want that list."
He's connected with what publishing firm? That's
a terrible list. Oh terrible. Take my wife -
she never even heard of any of the books, let
along ever read any of them. Tell him "Thank
you for the compliment."
Herbert, call up Harry Sherman, of the Book-of-
the-Month and ask him to give me a good snappy
list, will you?
Gaston:
Yeah. Yeah.
(Laughter.) Is he the same Harry
Sherman who's writing these anti-administration
tax articles for the New York Herald-Tribune?
Magill:
No.
H.M.Jr:
He's the head of the Book-of-the-Month Club.
I know he'll give it to me. Tell him to send me
down a good snappy list.
Klotz:
This (list) is special.
H.M.Jr:
Let's leave that and then we'll get Harry
Sherman's list.
(Speaks aside to Mrs. Klotz.)
I bought that one (indicating) - (title inaudible.)
I bought that.
All right.
Regraded Uclassified
7
- 6 -
Oliphant:
In that last report on the monopoly thing, I -
there was a tax statement Peoples and I
worked out
.....
H.M.Jr:
I can't hear you.
Oliphant:
In the last report, at the last meeting of the
monopoly thing, I attached a tax statement
Peoples and I worked out, as a basis for discus-
sion.
H.M.Jr:
I haven't got it yet, Herman. Maybe they mailed
it to me. They did once.
Oliphant:
(Hands H.M.Jr. copy of statement.)
H.M.Jr:
All right. What else?
Oliphant:
Well, ....
H.M.Jr:
Did you fix up your assistant for Ed?
Oliphant:
Tietjens. That's a very good man.
H.M.Jr:
Did you O. K. his hiring an Assistant to Ed Foley?
McReynolds:
(Nods "Yes.")
H.M.Jr:
What's his name, Herman?
Oliphant:
Tietjens. T-1-e-t-j-e-n-s.
H.M.Jr:
Anything else? Do I have to read this (tax
statement)?
McReynolds:
Herman's hiring this man; he's just a replacement
for one of the boys he lost down there in the
same office. Herman always gets a little the
best of it though. He lets a four thousand boy
go and wants a six thousand boy in his place.
Otherwise, he's getting to be a pretty good boy.
Oliphant:
When Clarence was there he had Bernie to help him.
H.M.Jr:
Don't explain, Herman. You'll get yourself in
trouble.
All right. Herbert.
Regraded Uclassified
8
- I .
Gaston:
I talked to Thomas, over in the State Department,
who is taking McDermott's place, about this press
conference the Secretary of State held in
connection with a trade agreement with Great
Britain. He got himself in bad, and Thomas was
very apologetic about it. He wanted to know if
he shouldn't have the Secretary hold another press
conference today and clarify the thing. What was
said was something like this. A reporter said
that the dispatches from New York today say that
on the exchange market the British pound declined
as a result of rumors that the trade agreement
that will be signed will fix a ratio of $4.86 to
$4.87 for the pound; and Hull said, "Well, that's
more in line with the Treasury Department's
responsibility - purely monetary phase," and
then he went on to say that in his judgment if the
trade agreement agreement is signed, it will be
a great factor in restoring trade. A little
later a fellow asked him a rather tricky question;
he said, "Would you go so far as to say that a
trade agreement will be concluded apart from any
monetary arrangement?"
(Telephone rings.)
H.M.Jr:
Excuse me. Hello. 0. K. Hello. Hello, Bill,
how are you?
(Conversation with Ambassador
William C. Bullitt at 9:44 a.m., attached.)
Regraded Uclassified
9
July 12, 1938.
9:44 A. M.
H.M.Jr:
Hello.
William C.
Bullitt:
Hello, Henry, how are you?
H.M.Jr:
Hello, Bill, how are you?
B:
Fine.
H.M.Jr:
Ah - Bill ....
B:
Delighted that you're coming over.
H.M.Jr:
Pardon me.
B:
I say I'm delighted you're coming over.
H.M.Jr:
Well, so are we. Ah - ah, Bill, I got your letter
about, ah, your kind offer to have a luncheon on
Sunday.
B:
Yes.
H.M.Jr:
And I talked it over with the family.
B:
Yes.
H.M.Jr:
And this is what we thought we'd do in view of
your letter.
B:
Yes.
H.M.Jr:
That we would spend, say three days in Paris
instead of one.
B:
Two days.
H.M.Jr:
Three.
B:
Three.
H.M.Jr:
Yes.
B:
Yes.
Regraded Uclassified
10
- 2 -
H.M.Jr:
And then possibly not come back on our way back
at all.
B:
Yes.
H.M.Jr:
Now, would that be agreeable to you?
B:
That's entirely agreeable to me, Henry. Anything
that suits you best.
H.M.Jr:
Well, the children say that they want more time
in Paris.
B:
Yes.
H.M.Jr:
And inasmuch as I'm - ah - want them to enjoy
the trip, why, I think we'll spend three days.
B:
Yes.
H.M.Jr:
And, ah, I'm more than willing to put myself in
your hands.
B:
Well, now, Henry. If you're going to be here
for three days,
H.M.Jr:
Yes.
B:
... ah, ah, would - would you like me to get
together almost all of the political people of
any importance?
H.M.Jr:
I think it would be grand.
B:
All right. Now, ah, would you - ah, how many
youngsters have you got with you?
H.M.Jr:
Well, I have two sons, one twenty-one and one
nineteen.
B:
Yes.
H.M.Jr:
And my daughter, fifteen.
B:
Yes.
H.M.Jr:
Ah - ....
Regraded Uclassified
11
- 3 -
C:
That's perfectly fine.
H.M.Jr:
Well now, Bill, don't you think we'd better go
to a hotel, see - we're going to be there that
length of time?
C:
Not a bit of it - I'll tell you what I'll do.
I'll simply hold the establishment in town.
H.M.Jr:
No, but would - it, it, it - it's asking really
too much.
B:
No, not at all; it's no trouble at all. All I'll
do is simply to, ah, have the town house to stay
open, and you can stay at the town house, and
there's plenty of room for everybody.
H.M.Jr:
Well, now - ah - Bill, I - I, ah, I, I - really,
I feel as though it's too much.
B:
No, it's not too much at all. It's perfectly
easy. Well then, I'll change your reservations.
H.M.Jr:
Yes.
B:
And you'll get down, ah - ah, you'll get down
to, ah, ah - Antibes two days later.
H.M.Jr:
Yeah. We - we'll spend the, ah, twenty-fourth,
twenty-fifth, and twenty-sixth.
B:
Yes.
H.M.Jr:
And leave on the night of the, ah, twenty-sixth;
is that right?
B:
Yes. All right, that's fine, Henry.
H.M.Jr:
Is - is that right? I think that's - we get in,
yes - we get in there to Paris late the night of
the twenty-third.
B:
Yes.
H.M.Jr:
And we'll spend the twenty-fourth, the twenty-
fifth, and leave the afternoon of the twenty-sixth.
B:
All right; that's perfectly fine..
Regraded Uclassified
12
- 4 -
H.M.Jr:
And - and, ah - if it - if you could have
somebody change the reservations.
B:
Yes, I'll do that; I'll change all the reserva-
tions.
H.M.Jr:
And I - I don't think I'm going to England at
all, Bill.
B:
Yes.
H.M.Jr:
See?
B:
Yes, I see, Henry.
H.M.Jr:
I don't think I'll go there at all.
B:
And then I will - I'll get you reservations for
the evening of the twenty-sixth instead of the
twenty-fourth.
H.M.Jr:
The evening of the twenty-sixth.
B:
Yeah.
H.M.Jr:
Yeah. And if somebody could let the hotel know,
also.
B:
Yes, I'll notify everybody.
H.M.Jr:
And, Bill.
B:
Yes.
H.M.Jr:
If there is a luncheon for the - which will be
for the men.
B:
Yes.
H.M.Jr:
Ah - and it was possible, I'd like my two sons
to be with me.
B:
All right, fine.
H.M.Jr:
See?
B:
Yeah.
Regraded Uclassified
13
- 5 -
H.M.Jr:
Because the whole purpose of this trip is
B:
The only reason I thought of having a men's lunch-
eon was because I thought you'd just be here
for one meal, and would want to see so many people.
H.M.Jr:
Well
B:
There isn't - ah, there isn't a faintest reason
we should have a men's luncheon, because we'll
now have time to put in people at different
meals.
H.M.Jr:
Well, ah, I - I, I - - I'll - I'm more than willing
to leave it entirely in your hands.
B:
All right.
H.M.Jr:
Just don't rush me too much.
B:
Well, that's fine.
H.M.Jr:
Remember I'm an old man.
B:
All right. Fine.
H.M.Jr:
All right.
B:
You don't get here until late in the evening of
the twenty-third, do you?
H.M.Jr:
We get there the late evening of the twenty-third.
B:
Yeah. So really what you have is the twenty-fourth
and the twenty-fifth.
H.M.Jr:
And the boys want to know already what can they do
Saturday night in Paris?
B:
Well, let them go into town and don't - don't
bother them.
H.M.Jr:
All right. (Laughs) Thank you so much.
B:
Fine, Henry, God bless - look here, things are
going much better, aren't they?
H.M.Jr:
What's that?
Regraded Uclassified
14
- 6 -
B:
I say things at home are going better, aren't they?
H.M.Jr:
Oh yes. If you remember, I was foolish enough to
forecast that there wouldn't be any busted
railroads for a month.
B:
Yeah.
H.M.Jr:
Well, it still is good.
B:
Well, how about it, Henry - not going to bust
now?
H.M.Jr:
Well, I wouldn't want to go on record, but -
but everybody feels much more comfortable.
B:
Yeah.
H.M.Jr:
And the President's trip out West seems to be a
great success.
B:
That's fine.
H.M.Jr:
Yes.
B:
Well, goodbye, Henry; good luck. I'll look forward
very much to seeing you.
H.M.Jr:
Thank you.
B:
Goodbye. Goodbye.
Regraded Uclassified
15
80 I I
H.M.Jr:
I certainly gave him plenty of opportunity to
fall out of having the family. That was the
main purpose - I mean, for all of us to descend
on him - but he insists on opening his Embassy
in Paris. I think it will work out, and we don't
think we'll come back at all. We're going to
drive up along the Italian border in to Chamonix,
into the French Alps, and come out that way.
We may go into Holland and Belgium, and then
, and not go into New York. I can't say
it in French - the Alpine drive from the Riviera
down through.a town called Barcelonnette.
Taylor:
I've been in on the other half of it, from Italy,
up.
H.M.Jr:
You go up, almost over three or four thousand
meters.
Taylor:
Go over the Marseille Pass when you come up from
Italy.
H.M.Jr:
We didn't think we'd come up through Paris at
all, so we compromised on three days while we
are there.
Herbert, you were talking about
Gaston:
Yes. Well, here's where Hull put his foot in
it; they asked him this tricky question - "Would
you go so far as to say that a trade agreement
will be concluded apart from any monetary arrange-
ment?" and he said, "You may recall that it's
been the policy here all along to carry on the
strictly trade agreement side, here in the
State Department. Along parallel with it is
the question of exchange stability and more
permanent monetary arrangements. You will have
to speak to the Treasury about them."
That carries the plain implications that there
are new monetary negotiations going on. Thomas
was in great difficulty trying to explain what
Hull meant by that. He went back and talked to
him about it and the substance of his talk was
that Hull merely meant to say that the trade
agreement itself would result in greater exchange
stability as the result of increased trade, but
as to the exact monetary arrangement, that was
up to the Treasury Department.
Regraded Uclassified
16
9
H.M.Jr:
Just for the record, I called Mr. Gaston last
night and asked him to do this for me, see? Just
for the record, and here's Sid Olson's story in
the Post. (Washington Post, July 12, 1938.)
Put that in the record please.
(The Olson story follows:)
"STATE DEPARTMENT QUELLS RUMOR OF MONETARY PACT
WITH BRITAIN" "Misconstruction of Hull Remark
Blamed for Report of Contemplated Accord; Venezuela
Tariff Treaty Negotiations Opened."
"By Sidney Olson." "
"The State Department last night scotched rumors
Secretary of State Cordell Hull had indicated a
monetary agreement paralleling the proposed
Anglo-American reciprocal trade agreement is
contemplated.
"Confusion arose over a misconstrued press-con-
ference remark by the Secretary to the effect
that greater monetary stability was a natural
corollary to the lowered trade barriers which
are a consequence of a reciprocal trade agreement.
"Some observers took the view Hull had indirectly
confirmed reports dating from last April that
some revision of the present tripartite monetary
agreement is a part of the Administration's vast
economic program.
"Present Pact Satisfactory.
"A majority of Federal financial officials, how-
ever, held there is no present pressure from any
major source to revise the flexible and until
now satisfactory tripartite agreement on stabiliza-
tion of the currencies of England, France and the
United States, that agreement has been on a 24-
hour basis ever since its inception, it was pointed
out, and even the May 5 devaluation of the French
franc by Premier Edouard Daladier did not affect
the monetary accord.
"This situation, based almost entirely on hot
weather speculation, was immediately coupled in
some quarters with the impending trip abroad of
Secretary of the Treasury Henry Morgenthau, Jr.,
who leaves Friday for London and Paris before
vacationing in southern France.
Regraded Uclassified
17
- 10 -
"Venezuela Negotiating.
"It overshadowed the immediate news from the
State Department that formal negotiations are
now commencing for a reciprocal trade agreement
with Venezuela. Others are under way with Great
Britain, Ecuador, Turkey and Canada. Negotia-
tions with Canada, with which this country
concluded its first major trade agreement in
November, 1935, are intended to broaden its scope
and key it into the huge contemplated agreement
with Great Britain.
"Seventeen trade agreements in all have now been
concluded, with Belgium, Brazil, Colombia, Costa
Rica, Cuba, Czechoslovakia, El Salvador, Finland,
France, Guatemala, Haiti, Honduras, The Nether-
lands, Nicaragua, Sweden and Switzerland.
"Reports from New York and dispatches from abroad
concerning a possible parallel monetary agreement
to the British-American trade agreement had said
the dollar would be placed against the pound
at a valuation of $4.86 or $4.87. For many months
the pound has been somewhat weaker than that
point, having dipped below $4.90. Closing
figure yesterday was $4.92 7/8, The reports
began in the belief the pound is weakening.
"Changes Held Unlikely.
"Officials here, noting the long-continued influx
of British gold into this country has slowed to
almost nothing, said the British have worked
harmoniously with this Government to keep the
currencies in close relationship, with the
flexible working agreement serving to implement
necessary operations in the market.
"While not willing to make long-range predictions,
the officials said that at least for the present
there is no probability of E change in the present
monetary accord, as there is no reason of major
importance for disturbing the existing parity in
the currencies. They cited the French pinning of
the franc to the British pound sterling at 179
francs to the pound - third devaluation of the
franc since the World War - as an example of how
even the most sweeping operations can be carried
Regraded Uclassified
18
- 11 -
off successfully in conformity with the theory
of international monetary stabilization.
"Hull, whose misreported remarks gave rise to
considerable speculation during the afternoon,
referred all further inquiries to the Treasury.
Morgenthau, who yesterday attended the funeral
of Supreme Court Justice Benjamin Cardozo, in
New York, was expected to return to Washington
today to clear his desk for his departure Friday."
H.M.Jr:
How often does Mr. Hull have trade agreement
press conferences?
Gaston:
I don't know; it's his regular press conference.
Taylor:
They have a regular press conference every day
over there.
H.M.Jr:
I think he ought to clear up - he ought to clear
it up, because the Bank of England had to give
out a statement on this thing. I spoke to Archie
early this morning about it.
Lochhead:
There was a very heavy turn-over in the London
markets this morning. There was some form of
agreement in process which would bring the
sterling rate down to the old parity. The Bank
of England said to us they had intimated to the
market they knew nothing of any such arrangement.
High officials stated - the Secretary said,
"That is rather unusual." It showed that the
rumor had taken great force.
Gaston:
That rumor preceded his press conference. It was
put up to Hull at the press conference. The way
he answered it tended to give weight to the
rumor.
Lochhead:
The rumor has gained weight the last three or
four days.
Gaston:
I think he ought to straighten it out, but I'm
afraid he'll gum it up some more.
H.M.Jr:
Wayne, you want to get in on this?
Taylor:
I saw the story in the Post this morning; Olson
handled it very well.
Regraded Uclassified
19
12 I .
Gaston:
I talked to Olson and some others; I told them
I knew of no arrangements different from the
present arrangement.
M.M.Jr:
Why not let's let it ride and see what happens
to sterling. How is it now?
Lochhead:
Sterling is more or less steady now. I imagine
you will be getting inquiries.
H.M.Jr:
I don't have a press conference until Thursday.
Lochhead:
Well, the market has turned around and gotten
steady now.
Gaston:
Thomas wants me to call him back after talking
to you and let him know whether Hull ought to
open it up at a press conference today. I
doubt that he ought to call a press conference
for that purpose.
H.M.Jr:
I doubt it. But I think that if he has another
opportunity to hit it he ought to hit It again.
Gaston:
Without calling a press conference for it.
Taylor:
I think they have a press conference every day,
and he can very easily repeat what is in that
Olson article without making any other comment
on it. "I'm sorry I was misunderstood; I
simply meant the Treasury takes care of monetary
arrangements."
H.M.Jr:
Will you get in to me - when you come in on the
Chinese, bring me the little paragraph that's
in all of these trade treaties, on this leeway
on foreign exchange. You know, that paragraph.
Will you bring me in that thing - will you?
White:
(Nods "Yes.")
H.M.Jr:
The paragraph covering that in the trade agreement -
bring that in, Harry.
White:
The paragraph covering the general trade agreement.
In that connection, the discussion which is
apparently going on, indicates that they would
like, and rather expect, sterling to drop.
Regraded Uclassified
20
- 13 -
H.M.Jr:
Who?
White:
The British, and those engaged in the trade
agreement, from the general talk, seem to be
concerned as to what our attitude would be in
case of a drop, and from the discussions in
the British financial circles, it's common
knowledge they are worried about their unfavor-
able balance in trade, and I think we can expect
they will do nothing to stop the decline down
to $4.86 or $4.88 - something like that, within
the next short period.
H.M.Jr:
Are you sure of that, Harry? That that's to
their interest?
White:
I should do that if I were in their place. I
believe that implicitely. It's greatly important.
I wouldn't give it too great a significance,
either to their interest or adversely. It would
be to their interest.
Haas:
It's a bad thing for us.
White:
From their point of view, I mean.
Taylor:
The general dope is, Harry, that they had just
as soon have it where it was, until they have
completed certain amounts of purchases for
their rearmament program. After that happens,
they'd just as soon have it ease off.
White:
Except their armament purchases are going to
extend over a longer period of time, and they
seem to be disturbed about the fact that the
trade is going against them. I mean, they do
not regard it as a prime important factor, in
any sense, and they would like to see it ease
off and they will do nothing to stop it, which
they easily could stop it.
H.M.Jr:
I don't know how many millions of dollars of
sterling was bought during this rumor period;
we were talking about - we were going to increase
the price of gold. There were millions and
millions of dollars. The natural thing is,
these people tried to get their dollars together
and sell sterling, and that readjustment period
is on now. Is that right, Archie?
Regraded Uclassified
21
- 14 -
Lochhead:
They are giving up 8 certain amount of gold
and a certain amount of foreign exchange. See,
they could, if they wanted to, do more, but they
are doing enough.
White:
They could stop it, but they don't mind it
going down a little, and I think they'd be a
little happier if it gradually went down
without them being subjected to the charge that
they are pushing it down.
H.M.Jr:
Well, I think, again, we've got to watch our-
selves and see that they don't pull the wool
over our eyes. But I am glad that Mr. Hull's
press man is disturbed, and you can say to him
that I was equally disturned, but - and I think
that Mr. Hull - if he had an opportunity to
correct it, - not correct it but amplify his
statement, I'd appreciate it very much.
Gaston:
Yes.
H.M.Jr:
Herbert, this story of Alfred Flynn's, in which
it says I've got these bank examinations on a
temporary basis - it has disturbed Mr. Jones.
Would you see Mr. Alfred Flynn and have a little
talk with him?
Gaston:
They called me the night this came out. I didn't
know they had - they didn't tell me who had this
story, but I told them it wasn't correct,
H.M.Jr:
Tell Mr. Flynn it isn't correct and while I
realize it is summer and they haven't had any
week-end stories, and all that, I'd appreciate
it if he wouldn't do it at my expense.
Gaston:
Of course, he didn't just pick this out of the
air.
H.M.Jr:
Oh not
Gaston:
This was fed to him.
H.M.Jr:
I know, and I haven't been in Washington for
five years for nothing, either, but I still think,
in kindness to Mr. Flynn, I think the thing to
do is to send for him and if he wants to get back
to a Federal story, that's his business. That's
playing on the level with him.
Regraded Uclassified
- 15 -
22
Taylor:
In addition - I'm not saying- - on that same
subject, why, Mr. Eccles and Mr. Jones think it
would be advisable for you to deny that as hard
as possible.
H.M.Jr:
No, I'm not going to do that. No. I'm not
going to do that. Herbert will handle it. I'm
not going to. I can't keep up with these boys
that are interested in bank examinations; I
just can't keep up with them. I mean, it's
just too much. Herbert can do it.
Gaston:
What I've told the boys who asked about it -
they asked me whether this was temporary or
permanent or for trial period. I told them
nothing was ever permanent but these were not
put in for trial periods. Later, if we found
some bugs in it
.....
H.M.Jr:
In the room here, did it come out of the
F. D. I. C. or out of the Comptroller's Office?
Gaston:
That's right.
(Laughter.)
Oliphant:
All right, Herb, go to the end of the class.
H.M.Jr:
Which shop?
Upham:
I agree with Herbert.
H.M.Jr:
All right - if you don't want to play.
Gaston:
It might have come out of both.
Upham:
Flynn's on vacation; you'll have a little trouble
getting him.
H.M.Jr:
Well, he can ask for Flynn and if he isn't there
then whoever the Washington manager is.
What else?
Gaston:
That's all.
H.M.Jr:
Mr. Hull asked me to have lunch with him today
and their Royal Highnesses, so lunch is off today.
Taylor:
So does Mr. Jones - he wanted to beg off on that
too.
Regraded Uclassified
23
- 16 -
H.M.Jr:
Fine. What else?
Taylor:
(Nods "Nothing.") I think that thing has more
important implications, not on any row, but on
the credit structure, than would appear at first
flush.
H.M.Jr:
Listen, I am practically on the Hobland-America
boat. I am just sort of in between.
Upham:
The New York Times commented on it this morning,
and regards it as a victory for the Secretary
of the Treasury.
H.M.Jr:
Well, I still will let my able public relations
gentleman, Mr. Herbert Gaston, handle that.
If he will handle that as well as he did Mr.
Hull's faux pas. Huh?
Taylor:
That required rating of yours is included in the
Anglo-French dictionary, if you're practicing.
H.M.Jr:
What else?
Taylor:
Lots of curiosity about the Chinese.
H.M.Jr:
Well, we'll see them.
Georgie?
Haas:
Some cabbage, syrup, and fresh tomatoes.
H.M.Jr:
What else?
Haas:
That's all.
H.M.Jr:
Harry, you old optimist.
White:
We'll pass that.
Before you go, would you like a written or oral
report on the French situation to date, and the
Far Eastern situation?
H.M.Jr:
Does that come under the reading of detective
novels?
White:
The French might.
Regraded Uclassified
24
47 . I
H.M.Jr:
Yes. Yes.
White:
Which would you prefer. Something you don't
have to read or something you have to listen to.
H.M.Jr:
As Gaston says - both.
White:
There are two articles - one in the British
Economist - on the United States that I think
somebody in the Administration ought to handle.
The British Economist is read by certain groups,
as you know, and since you are going to be in
Europe, particularly, I think that article is
rather an unfortunate one, and I think some day
the Administration ought to answer that.
H.M.Jr:
Will you discuss it with Herbert right away?
White:
And I'd like to see you for a minute on some
other things. Then there was a recent report
that came out on Japan.
H.M.Jr:
Three fifteen. (To Mrs. Klotz:) Today?
Klotz:
(Nods "Yes.")
H.M.Jr:
Harry, call Mrs. Klotz about - when I come back,
I'll have you on a temporary list for this
afternoon.
White:
Good. The gold production in Japan has been
stepped up very substantially so that they - it
is estimated they will produce about seventy
to eighty million dollars worth of gold next
year, and they have cut their
T.....
H.M.Jr:
How much gold?
White:
From seventy to eighty million. That's the most
optimistic estimate, but it seems to be some-
where near what is reasonable. I mention it
only to indicate that her exchange problem is
being well met. Her problem - her chief problem
now is maintaining adequate stores and adequate
imports of raw materials, not for the Chinese
war but for any rushing difficulties. She has
stepped up her gold, and moved down her adverse
balance of payments so there is no reason to
expect any serious exchange difficulties,
rushing trouble doesn't come through.
Regraded Uclassified
25
- 18 -
H.M.Jr:
What else?
White:
That's all.
H.M.Jr:
Cy.
Upham:
Can you put Smyth on that temporary list?
H.M.Jr:
This afternoon?
Upham:
(Nods "Yes.")
H.M.Jr:
What else?
Upham:
That's all.
H.M.Jr:
John, everything under control?
Hanes:
Yes sir.
H.M.Jr:
(Nods to Mr. Lochhead.)
Lochhead:
Mostly talk about the sterling dollar rate; the
franc, under cover of this, is also getting very
weak and there is quite a change in spirits over
there. They seem to be getting quite pessimistic.
Of course, you got that cable yesterday - but the
market is rather disturbed. Secondly, the gold
hoarding in London still persists, in spite of
the fact they talked about devaluation of the -
there is still a steady demand for gold, and gold
coins are demanding a premium, and apparently
has no signs of let-up yet.
H.M.Jr:
Looking back over two or three weeks, is Europe
on fire about stocks?
Lochhead:
I'd say no.
White:
About two million dollars worth on balance, the
last we have reports on, and before that there's
been net sales - so on the whole, you can say
there are almost about zero net sales in the last
few weeks, - net purchases in the last week.
H.M.Jr:
Any trend on the net movement of capital out of
this country?
Regraded Uclassified
28
- 19 -
White:
It continued very mildly the last week we have
any record of - the week of July 2.
H.M.Jr:
Any record of those going out.
White:
It too is so small.
Lochhead:
I think it is so small'you can hardly call it
an outflow.
H.M.Jr:
(Nods to Mr. Gibbons.)
Gibbons:
Tremaine has been going to follow Lehman provided
the General Counsel gives us an opinion that the
Comptroller General can step in.
H.M.Jr:
Did you tell him the kind of opinion you wanted?
Gibbons:
Yeah.
McReynolds:
He's been working on it; it's just a question of
whether our specifications are unreasonable.
It's a thousand to one whether it's favorable
or not.
H.M.Jr:
O. K. What else?
Bell:
Well, it ought to be a good opinion. Whether or
not the Comptroller General can step in after
it - I'd like to read that.
Oliphant:
That is "Yes." Huh?
Bell:
That's the safest answer.
Gibbons:
Before you go, I'd like to talk to you about
that Customs situation - Ballinger and I.
H.M.Jr:
Will you put Gibbons down?
Klotz:
We can give it to him right now. Three fifteen
tomorrow.
H.M.Jr:
Three fifteen tomorrow. All right.
Gibbons:
Outside of that, that's everything.
H.M.Jr:
Politics all right?
Regraded Uclassified
27
- 20 -
Gibbons:
It's too hot to think about politics.
H.M.Jr:
Are you through?
Gibbons:
I think I'll go fishing after you leave, with
some politicians. (To Mr. Oliphant:) Is Bob
Jackson going to be in Washington?
Oliphant:
He's on leave now; he'll be back the first of
August.
Gibbons:
General Mooney, Buck, and that crowd- goes up
to Canada each year.
H.M.Jr:
Will you send a cable to Butterworth - as long
as I'm going to be in Paris three days - so I'll
get it that Monday instead of Sunday?
Lochhead:
(Nods "Yes.")
H.M.Jr:
(Nods to Mr. Bell.)
Bell:
I think I'll have those expenditure figures
sometime tomorrow; they'll be in the rough and
will not be in the chart. I don't know how long
it will take George to put them in chart form.
H.M.Jr:
All right.
Bell:
And the President will get the bad news on the
Budget this afternoon for tomorrow morning's papers.
H.M.Jr:
That's the Budget's own stuff.
Bell:
Yes.
H.M.Jr:
All right. What else?
Bell:
Ah
Gibbons:
Incidentally, ....
H.M.Jr:
Do I sign that or not? You and the President?
Bell:
I am releasing it.
H.M.Jr:
It doesn't go out over my signature?
Bell:
It's the President's statement and I release it.
Regraded Uclassified
28
- 21 -
Gibbons:
What did Senator King want?
H.M.Jr:
I thought I paid that debt.
Gibbons:
I saw something complimentary in the paper about
what King said about it.
Upham:
That reminds me, Mr. Secretary. Congressman
Cochran is trying to reach me this morning.
H.M.Jr:
If he wants the truth, the man he wants to promote -
if he presses me much more I'll fire the man,
because he's a crook. It's just gotten down to
the basis - I wrote him a letter and told him we
couldn't promote the man. If he presses me, I'll
just have to fire him. I don't know why he
wasn't fired a long time ago. Why hasn't he been
fired, Mac?
McReynolds:
Jack knows everything about him; Jack is the
one that kept him out of jail.
(Laughter.)
You can't tell him anything else.
H.M.Jr:
0. K. We'll make him Warden.
McReynolds:
I told him in that letter, we couldn't promote
him.
Taylor:
He kept him out, but we've got the business now.
H.M.Jr:
All right. Let him call.
Upham:
He'll call me.
H.M.Jr:
Refer him to McReynolds.
McReynolds:
He's been talking to me about it for three years.
H.M.Jr:
Mac?
McReynolds:
Have you been taking all of Jesse's money away
from him over there at R. F. C.? The last five
mornings he's called and wanted taxi service from
his hotel, for an hour. I've given it to him.
H.M.Jr:
No.
McReynolds: He called this morning.
Regraded Uclassified
29
- 22 -
H.M.Jr:
You don't mean it?
McReynolds:
He started last Thursday - every morning since
then, he's asked to have a car sent over to pick
him up at his hotel, and he wanted to use it about
an hour.
H.M.Jr:
Well, keep giving it to him.
McReynolds:
I told the boys to let him have it; every time
he wants a car to let him have it.
H.M.Jr:
How do you dope that one?
McReynolds:
I thought maybe Dan and Wayne and yourself had
taken all the money away from him and he didn't
have any money for taxi fare.
Gaston:
He's probably sent his car to Texas.
McReynolds:
I asked somebody - I've forgotten who it was -
"Hasn't Jesse got a Cadillac?" They said, "But
Mrs. Jones is using that."
H.M.Jr:
Just as long as Jesse wants a car from the
Treasury let him have it.
McReynolds:
We now have a letter from the Maritime Commission
asking the Coast Guard to go ahead on the train-
ing; they say they will pay the bill.
H.M.Jr:
Grand.
McReynolds:
Herman is a little worried about the labor implica-
tions. I didn't think there was anything new
in it; I didn't see why we shouldn't go ahead.
I think Herman's idea - I ought to let him express
his own.
H.M.Jr:
Well, I can't do it on the fly. Let's have a
talk on it.
Gibbons:
I think there is some dynamite in it, unless
we have the whip-hand.
McReynolds: The letter is in his shop.
Oliphant:
I have initialed it and sent it through.
Regraded Uclassified
30
- 23 -
Gibbons:
It's on my desk now.
H.M.Jr:
Let's talk about it. Everybody interested in
having the Coast Guard train able bodied seamen
for the Maritime Commission, at three thirty
o'clock tomorrow. And ask the Assistant Secre-
tary of Labor to be here, too, to advise me.
Gibbons:
There's only one over there.
H.M.Jr:
I know, but he's a good egg.
Taylor:
McLaughlin.
H.M.Jr:
Ask McLaughlin to be here.
Bell:
I think it would be grand if we could hold the
whole thing.
Gibbons:
If we wouldn't have Labor and C. I. 0. butting
in on you.
McReynolds:
Steve, you want to call the Assistant Secretary
of Labor?
Gibbons:
I've been talking to him.
H.M.Jr:
Herbert, ask
Bob Jackson whether he thinks
I ought to take this or not. Will you call him
up, and ask him what he thinks - if we ought to
take this.
Bell:
Waesche has had some contact, hasn't he, with
the Labor leaders?
H.M.Jr:
Anybody want
....
McReynolds:
They've got it in the bill.
Oliphant:
Could I have a minute now?
H.M.Jr:
Now, Oliphant, just a minute.
0. K.
Regraded Uclassified
7-12-38
(postingule)
The Chief
31
EN ROUTE
Dear Henry.
J see in The Tries that
you are sailing on triday the day
on which extract to 8et home.
so this letter will take the place
of the phone call J exhiched to
8am you.
In been all around the
country on a strewens tour.
J
was prompted to take it by in the
of the Red amen's philosophy "Sheah
first & think after wards. it sans
time." was in Enrohe m a
minth & wherned just fin weeks
ago as a result of that this
in had an editorial which 4m
may han seen, called a way
muh hading himis men
home. In every point J met
32
to see Phil Follette + then
The Chief
on my way to Chicago cuscome
the back to from trans now
farmers, newspaper men a couple 3 government
EN ROUTE
then Purtland 4 then Cosbrigeles.
^
senators - mayors. goot
to San Francisco their to Seattle
admin stratns, a lahn leader etc
omaha + few the hert hereing
Omaha. sheet the maglet are
of in every place , found
of my - 500 commy a msm
agreement with m view that
by train to It Limis- the met
of was should come in Europe
two which ago tomorrow. what
an would initally h drawn
into it. In each case J told
18 pynose r as to unmale
who right about amission futher
them how where solten out 3
to chick up to determ une if as
the army sot not 3 the reserved
at any rah J diaded I'd like
Y the hids never had any try
soldiers. I advinted that our
. In Lan by pringsm an yrs .cam n
paper assumed it was mishind
isolation & only shrang from
dup roots which had been
comment - the Suman office
heavily hourished by mn experience
you) The huce caused cm sidually
MAY the last was the post was
of Rits" () luclose a why of it escaped
period - our detto hadn't been
Regraded Uclassified
Rebitlican senatrical hommature
where winned is running fn
33
always florishes. In Kausan
The Chief
bad times which La when LA
following the wormal cresse 8
EN ROUTE
feeling knower that it La is
all the dicent proble seem against
fn a few to check. than the
him + should he h unmmahd
mp
they will Lam were subport the
anti Service them as defhi
Democrat. Landen told me that
(his much concerned on the where
+ pumplems -
(ssue) so did the for heoper.
could h on the drable &
question as to H
The must fritunate thing for
years is that the lahn leaders of
[vi] mine my any mm having my
the Pacific wast are who of that
as a whenter he's that type
faish. If they who it unded h
+ in wager the would form note
danglass in the extreme fn
my one man due april a lawyer
the lahn issue is paramount.
think In must her singreen, that
it's all they tach about apparintly
primptly that they dad too. J
of the wagner act. the NLRB's
unggled a hs others administed
prejudices & mm Pechins all
he for a new high in lows.
will home involved. Sime
But ) said. dispute that J think
he the middle west they
per a in didnt like the Heach etc.
advist that the farm provide
is not political hut are that
Regraded Uclassified
hearynh as J knew tas you
rechless spending poli my.
34
The Chief
with no way, has been a
Suice this is written in price
think the there b us might agree
EN ROUTE
that ym han been in what ,
know is the sourent place in
full well the restraining facts
encommend so ten. as business
the highest esteem of recognize
is concerned. my judgement
friend of 4 mus. hurds you in
would h that god will determine
letter the's a min shing good
the politics of the mid west
fact which really humphd this
+ them far good is mo and Deal.
The with wish doesnt need the
Sat next to Tun Smith- the
r NH any ts my can n
almosphly as an internudiary.
too if hid had the same job.
P.w.a. sum to h doing the
trick.
2 think fesus winld han been
of dis fair. on the other hand
This is setting too long - in
was regarded much a sord deal
was started to hel ym of Tom
fursh + instead M m in has
means all anti new deal) Wallace
J hut (and they will by no
a summary of the would
Indused into the in its size.
face on it. he the smbs that
F.D.R. has certainly been
poli tical for tunes we rise +
fine m the Evian matter
+
Regraded Uclassified
35
and
The Chief
m 7 my am
clut.
EN ROUTE
Contact of years in can has PAP
anothir meeting of the
P.S. Possibly Ishmed add that
fn set it are. mayb in a
what humbra the iditrial which
Han a sord vacation
in the manua of the lense that fact
hind.
hult humpfed this trip was
tainted out of that frame of
Conscummers 3 the pity that the
h judicial + trunt not h
weight 8 the U.S. could we h
as J. rol has mym Hmp
used an advance of transe in
to stay away. Deshite the
Eurohe to help mevent it, rasher
morals make it wise for me
than after had started
discussed both mine * the taber's
to help one side win. realyed
that no state dept cmed
he has on Humans occasing
sufer trucherly the heanmer in which
comment us that way but had
wish J neglet Lell him so but
the fulny that all our solation
industribly in the matter. /
tach was misleading of that
in there capital where place
weight either durtly n
sermed un highly regarded
Mm because must have had
than in thus, they had buter
han been conserves that
numb that they could act
Regraded Uclassified
ultimately count us out.
fees that such knowledge hight
deter them from starting. Lets
who so.
a.I.S.
the Kro Herk Eimes
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Regraded Uclassified
37
CHICAGO
000
52 7 PM
1938
ILV
Hon. themy Jr.
S.S. Stabendam
42
Sailing fuly 15th
Holland american Line
hunguh City
Regraded Uclassified
38
July 12, 1938.
MEMORANDUM TO MRS. KLOTZ:
Today, Tuesday, July 12th, the Secretary asked Mr.
Gaston to talk to Gardner Jackson and get his opinion on
the request of the Maritime Commission that the Coast Guard
be authorized to establish training schools for merchant
seamen. Mr. Jackson said he would like about fifteen minutes
to talk to the Secretary about it and & conference Was arranged
for 4:30. There were present the Secretary, Gardner Jackson,
Lowell Mellett and Mr. Gaston.
The Secretary told Jackson that being only B, simple farm
boy he didn't want to be used as a tool in a plan to crush the
marine unions and he wanted to know whether Mr. Jackson thought
these schools of seamanship would have that effect. Mr. Jackson
said that his unions (the C.I.O. group) had fought energetically
the original proposal to have the Coast Guard train merchant 208-
men as they thought it was simply a device to break the unions
by furnishing a supply of trained seamon who were not union mem-
bers. However, their objections prevented the enactment of the
bill in its original form and as finally passed they saw no great
objection to it. The effect would depend a great deal on how
the act Was administered, The Secretary repeated that he was not
going to permit himself to be used as a tool to break the unions
and he wanted to be very careful not to commit himself to anything
that would do that. He said he would like to have the benefit of
Mr. Jackson's advice in connection with organizing the work, if
he approved it. Jackson said he would be very glad to cooperate.
The Secretary called in Mr. McReynolds and read the proposed
letter, which merely committed the Secretary to authorizing a con-
ference with the Maritime Commission to discuss the proposal. The
Secretary signed the letter. Mr. Jackson seked if the Secretary
would like to have some more details on the subject and the Secre-
tary said no, ho would not have time to go into it now, but he would
leave the matter in the hands of Mr. McReynolds, Mr. Oliphant,
Admiral Waesche, Mr. Gaston and Mr. Jackson. He said that Mr.
Gaston would be Mr. Jackson's contact man and would arrange for a
meeting with the others to discuss plans. Mr. Jackson expressed
himself AS well satisfied with this arrangement and said that he
would expect to hear from Mr. Gaston.
--000--
11th Regraded Uclassified
Prom
39
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 12, 1938
TO
Secretary Morgenthau
FROM
Mr. Haas
Subject: Commercial loans in relation to inventories.
Summary
On June 29 B. letter was sent by the Treasury to the
presidente of each of the 12 Federal Reserve Benks, asking
each to contact a group of representative banks in his
district to determine to what extent the reduction in com-
mercial loans since last October was due to the liquidation
of inventories.
The replies indicate the difficulty of determining
with any degree of accuracy the reasons for reductions in
loans in individual cases, but nearly all the banks are in
agreement that there has been a liquidation of inventories
since last October, and that this has been a factor of
greater or less importance in the reduction in commercial
loans. Opinions vary as to how much of the reduction has
been due to this factor. Two other factors, the liquida-
tion of receivables and the liquidation of finance company
loans, are also mentioned by most banks as partly responsi-
ble for the decline in commercial loans.
It may be noted that the liquidation of receivables
itself reflects a liquidation of inventories, since a com-
mon way for a merchant or other buyer to stock up with goods
and materials is to buy on credit, liquidating his account
when the goods are sold. This fact 19 recognized by some of
the banks; the letter from the Federal Reserve Bank of New
York, for example, says that the reduction in accounts re-
ceivable "may in fact represent a decrease in inventories in
some other atage of the manufacturing and merchandising
process.
Regraded Uclassified
40
Secretary Morgenthau - 2
A summary of the individual comments by Federal Reserve
districts is given herewith.
Boston: "It has long been recognized that there was a
general conformity between the movements of inventories and
of commercial bank loans. While certain questions were
raised by the banka interviewed, "in the main the banks con-
ceded that there was a general correspondence between the
decline in loans and the decline in investories.
What-
ever the qualifications, it seems reasonably certain from
the experience of 1921 and 1938 that commercial bank loans
and inventories follow in a general way the same trends --
both downwards and upwards -- whether or not with 8 lag in
inventories may be 8. debatable question."
New York: "Inventory liquidation, of course, has been
one of the major factors causing reductions in the commercial
loans of the New York City banks, but lack of data makes it
hazardous for the banks to give anything but the roughest
sortof guess of its exact influence."
Another principal factor has been a reduction in
accounts receivable. "This reduction in accounts receivable
may in fact represent 8. decrease in inventories in some other
stage of the manufacturing and merchandising process.'
"In addition
most of the New York City banks inter-
viewed reported that a substantial part of the reduction in
commercial loans has been due to a reduction in borrowings
by finance companies.'
Philadelphia: "In most instances it does not appear
that the reduction of inventories has been a factor of any
unusual significance, although some cases of declining loans
can be traced directly to inventory liquidation.' Other fac-
tors cited are (a) Greatly reduced volume of business; (b)
lower level of prices; (c) reduction of receivables; (d) sub-
stantial liquidation of finance company paper; (e) general
apprehension of future developments.
Cleveland: "We wrote to fourteen representative banks
for an expression of opinion.
In the main the opinions
voiced by these banks substantiate the statement that the re-
duction in commercial loans reflects a liquidation of inven-
tories.
Regraded Uclassified
41
Secretary Morgenthau - 3
Richmond: A summary of repliem from 14 banks whose
loans had been reduced since last October shows that 11 con-
sider inventory liquidation to have been a factor in the
reduction, although estimates of its importance vary.
Atlanta: "I think it is undoubtedly true that commercial
loans have been reduced to a material extent by reason of the
liquidation of inventories." One banker reported that inven-
tories of his borrowing customers had declined by 20 percent,
and loans by 17 percent. One banker estimated that liquidation
of inventories accounted for 60 percent of reduction in com-
mercial loans; two other bankers in the same city estimated
33 1/3 percent and 25 percent, respectively. Another banker
estimated that 75 percent of its decline in loans WELB due to
this cause, while still another attributed practically the
entire reduction to liquidation of inventories.
Chicago: "We estimate that possibly 40 to 60 percent of
the decline in borrowings from banks has been due to inventory
liquidation, and that the balance of the decrease has been
effected through a reduction in receivables, plus about 5 per-
cent obtained from new capital issues."
St. Louis: "In virtually all instances, officials of
the banks were of the opinion that there has been a substan-
tial decrease in inventories of all descriptions during the
past seven months The declines in commercial loans of the
banks contacted were for the most part commensurate with the
smaller inventories carried by the mercantile and industrial
customers.
Minneapolis: "The summary indicates that the decline in
commercial loans in this district was largely the result of
liquidation of inventories of grain, milling and fuel con-
cerns and that decreases in advances to finance companies
were of only slightly less importance. There was also a
material reduction in the amount of commercial loans result-
ing from the liquidation of accounts and notes receivable
outstanding on merchants and manufacturers' books last
October,
Kansas City: "Inquiry of approximately a dozen large
banks in the Tenth District geems to establish quite defi-
nitely that the liquidation of inventories since last October
has been accompanied by a reduction in bank loans
Even
where loans have not declined, or where a decline has been
the result of factors other than inventory changes, banks re-
port that specific loans made to carry stocks of goods have
been reduced or eliminated as inventories were liquidated."
Regraded Uclassified
42
Secretary Morgenthau - 4
Dallas: "Most of the banks interviewed reported that
there had been some decline in commercial loans which in all
probability represented in part the liquidation of business
inventories; however, it should be borne in mind that the
accumulation of inventories in this district during the fall
of 1936 and the early part of 1937 did not take place to the
extent that it did in some other parts of the country
We feel, therefore, that the liquidation of business inven-
tories, other than of a seasonal nature, has had relatively
little effect upon the trend of commercial, industrial and
agricultural loans at reporting banks in this district. #
San Francisco: "A majority of the banks state that a
considerable part of the decrease in loans -- perhaps around
50 percent -- reflects liquidation of stocks. If
Regraded Uclassified
43
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 12, 1938
TO
Secretary Morgenthau
FROM
Mr. White
Subject: Proposed Chinese Loan
The advantages to the United States and to
world peace that would result from the extension
of a substantial loan by the United States to China
this Summer are so great that I wonder whether you
think it might not be worth while to leave something
like the attached with the President before you leave.
(Appended also 18 an opinion by Mr. Oliphant which
indicates that either the Export-Import Bank and/or
the Commodity Credit Corporation could legally extend
a loan without legislation. Whether they would do BO
or not depends, of course, on the President.)
Regraded Uclassified
44
July 12, 1938
Suggisted deaft + brief have you : EDK
The Ambassador of China stated to me this morning
that his Government wished informally to request that
the unused balance of the 1933 Wheet and Cotton Loan,
smounting to 433 million, be extended to China now.
The General Counsel of the Treasury has informed
so that in his opinion the Export-Import Bank and/or the
Commodity Credit Corporation have the legal authority to
grant such B. loan without additional legislation.
I believe that sometime during the Summer will be
an opportune moment in which this Administration can make
a treat contribution towards world peace and towards
strengthening the forces of democracy. Such 8 step would
be the gr nting of substantial financial assistance to
China (which I discussed with you last month) for the pur-
chase of our surplus agricultural products.
The reasons why I feel so strongly that a loan to
China would be an excellent move are:
On economic grounds
1. It would help business in the United States, raise
the level of farm prices and farm income.
2. It would assure to the United States for many
years to come E favored market among the 400 million
people in China.
3. It would enable & curtailment of military ex-
penditures in future budgets. One of the important
ressons for construction of a large Navy 1e the grow-
ing power of Japan. A Jupanese victory will greatly
increase our expenditures on armaments during the
next decade. Anything we can do to help Ohina in
its resistance to Japan weakens Japan and thereby
strengthens our defenses against possible enemies.
$100 million spent to help the Chinese at this
stage in the hostilities is more effective from
a military point of view than many times that sum
spent on battleships.
Regraded Uclassified
45
- 2 -
On political grounds
1. The loan would have the full support of B. great
majority of the American people and would help to
strengthen this Administration as no other single
act of our foreign policy likely to be taken would.
This 1s particularly important before the 1938 elec-
tions.
2. It will be the first time since the rapid growth
of Fascist power that B. democracy has taken a positive
step to aid B. victim of aggression.
(a) It would raise the American prestige abroad to
& higher point than it has ever had since 1918.
(b) It would strengthen the liberal forces in the
threatened democracies and would be interpreted as
a precedent whereby smaller democracies in danger
from aggression can receive real help from the
strongest country in the world.
(c) It would be a most important step toward weak-
ening the aggressive military policy of Japan, Germany
and Italy that has 80 far been taken. It would
strengthen the liberal forces in Japan and weaken
the military clique intent upon continued prosecu-
tion of the war in China.
On humanitarian grounds
1, Probably millions of Chinese will die of starvation
during the coming year; most of their lives would be
spared by a loan for the purpose indicated.
The State Department has objections to the proposal.
These objections were told to me when the proposal was dis-
cussed a month ago. None of the arguments then presented
impressed me as being nearly good enough to outweigh the
advantages of the loan.
Regraded Uclassified
46
July 12, 1938.
10:27 A. M.
George C.
Haas:
Hello, Henry?
H.M.Jr:
Hello George.
R:
How are you?
H.M.Jr:
Fine.
H:
Henry, I have decided I will take advantage of
your kind offer.
H.M.Jr:
Good.
H:
Ah - now, ah - of course, I ah - it will be at
their - I mean, strictly at their convenience,
but I'll just tell you that, ah, either Thursday
of this week, or of next week, would be what
would be best for me. I don't know whether that
suits them at all.
H.M.Jr:
That's all right; I can find out.
H:
And Thursday, of next week, would be very fine
because I have to be in Baltimore on Friday.
H.M.Jr:
But this Thursday would do also?
H:
Yeah, this Thursday would do also.
H.M.Jr:
What?
H:
Yes.
H.M.Jr:
I think it's
H:
I want to tell you I enjoyed that Temple address;
I think it was fine.
H.M.Jr:
Well, I - I enjoyed, ah, ah, kidding with you, too.
H:
Thank you.
H.M.Jr:
Now, ah, what's your phone number?
H:
Bowling Green 9-7060.
Regraded Uclassified
47
- 2 -
H.M.Jr:
Bowling Green 9 - what?
H:
7060.
H.M.Jr:
7060. 9-7060. Ah, you'll hear from me very
shortly.
H:
All right, I'll be here.
H.M.Jr:
I'll call you, George.
H:
Thank you.
.
H.M.Jr:
You're welcome.
Regraded Uclassified
48
July 12, 1938.
10:32 A. M.
H.M.Jr:
Hello.
Operator:
Mr. Jones. Go ahead.
H.M.Jr:
Hello.
Jesse
Jones:
Hello.
H.M.Jr:
Jesse.
J:
Will you excuse me from lunch?
H.M.Jr:
Yeah. If you're going to eat at the same place
I am.
J:
Yes.
H.M.Jr:
Ah, ah - up to date, with the final returns not
in yet, we've got two billion one.
J:
Two billion one?
H.M.Jr:
Yeah. And, ah, they're quoted at sixteen to
eighteen-thirty-seconds. It's just what we
figured them on.
J:
How's that?
H.M.Jr:
They're quoted at from sixteen to eighteen-
thirty-seconds premium.
J:
Uh huh.
H.M.Jr:
See? Which is about a half a point premium.
J:
Uh huh.
H.M.Jr:
Which is very nice.
J:
That's very nice, isn't it?
H.M.Jr:
Yeah. Which - ah - the boys say there's ah - they
ah, they haven't got all the subscriptions in yet,
because they haven't opened the mail.
J:
Ah hah. Well thank you very much, and I'll see
you at lunch.
Regraded Uclassified
49
- 2 -
H.M.Jr:
Yeah. But, I mean - - ah - - they're quoted at ah -
at, at ...
J:
I'm glad to know about it.
H.M.Jr:
They're bid a half a point premium.
J:
I'm - I'm glad to know about that.
H.M.Jr:
So we certainly priced it conservatively.
J:
Hit it just about right.
H.M.Jr:
As near as anybody could.
J:
Just about right.
H.M.Jr:
Yeah.
J:
Well, that's just fine.
H.M.Jr:
Fine.
J:
Well, we're very happy about it here. I've told
some of the Directors and - and "Ham" Mulligan,
and they're very much pleased.
H.M.Jr:
Fine.
J:
Thanks.
Regraded Uclassified
50
RE INTERNAL REVENUE MATTERS
July 12, 1938.
10:30 a.m.
Present:
Mr. Magill
Mrs Klotz
Mr. Hanes
Mr. Helvering
Mr. McReynolds
H.M.Jr:
Well, the idea of this was a sort of - to get
together. I didn't know whether you (Helvering)
were going to Europe or not. Are you going?
Helvering: Yes.
H.M.Jr:
When are you sailing?
Helvering: A week from tomorrow.
H.M.Jr:
Well, I'm a week - half E week ahead, of you. No,
three days ahead of you.
nelvering: You leave on the what - 16th?
H.M.Jr:
I leave on the 16th - 15th, the boat goes.
And I thought this, that you and Hanes ought to
spend as much time as you could together before
you go, and get acquainted.
Helvering:
I wonder, would you (Hanes) like to come over and
get a general view of the set-up over there?
Hanes:
I'd like to very much. That's what I've been waiting
for.
Helvering:
Well, supposing we just put that down, then, for
tomorrow morning, if you
Hanes:
Aside from what
....
H.M.Jr:
We had tentatively
I don't know what Mac did,
but he was going to bring those men in at 10:30
tomorrow from New York. Then we have a big staff
at 11. So that maybe you'll have to put it off
until tomorrow afternoon.
Hanes:
Could you have lunch with me tomorrow, or if you
can't, after lunch?
Helvering: I've got - I'd have to have it Thursday morning, then,
or
Regraded Uclassified
51
-2-
H.M.Jr:
What are you doing this afternoon?
Helvering:
Well, I've got two appointments - two hearings.
H.M.Jr:
And tomorrow afternoon?
Helvering:
Tomorrow afternoon is all taken up.
H.M.Jr:
I see.
Helvering:
Isn't tomorrow Wednesday?
Hanes:
Tomorrow's Wednesday.
H.M.Jr:
Well, let it go until Thursday?
Helvering:
Thursday, any time Thursday.
Hanes:
What about those receivers, too? You remember you
H.M.Jr:
Well, we can talk some now. I've got plenty of time
right now.
Well, you and Hanes will get together Thursday
morning.
Helvering:
Yes.
Hanes:
We have a meeting here Thursday morning, don't we?
Ten Thursday?
H.M.Jr:
No. Wednesday we're scheduled - bringing those men
in who are opening up the New York office, if that's
on. Let me just find out from McReynolds.
(On phone) McReynolds, please. - Hello. -
Mac, you didn't tell me, are those boys coming
down from New York 10:30 tomorrow? What? All
right, 10:30 tomorrow. And that's that. And
you'll see who else is here. - Yes. - Well,
come on in anyway; you ought to be here now. In
my office. Please.
Helvering:
What's this at 10:30 tomorrow?
H.M.Jr:
About the opening up of the New York office. Some-
body said I should see these two boys that are going
Regraded Uclassified
52
-3-
to have charge of it.
Helvering: Mooney and ...
H.M.-r:
Yes, and somebody else.
Magill:
Hanson.
Helvering:
Hanson.
H.M.Jr:
Thought it was important enough I see them, take
a look at them, give them a little pep talk.
Helvering:
Two good fellows.
H.M.Jr:
All right.
Helvering:
Those are two ...
Magill:
they got a big job up there.
H.M.Jr:
Somebody, I don't know who, said it. Maybe Mac did.
Magill:
Ilthink it was Mac.
(McReynolds comes in)
H.M.Jr:
No one else.
Helvering: Hello, Mac.
H.M.Jr:
Sit down, Mac.
Helvering:
Well, are you - you're just going to meet them,
that's the idea.
H.M.Jr:
That's all.
Helvering:
No discussion of policy or anything like that.
That's all been
....
H.M.Jr:
No, that's all settled. No, just somebody - I
suppose it was McReynolds - said he thought ....
McR:
It was Graves' idea the other day, a week ago last
Friday. He thought it was a good idea for these
Regraded Uclassified
53
-4-
boys who are going to head up the New York office
to get
Helvering:
Doesn't hurt, Mr. Secretary, for you to tell those
boys, "You realize you've got a big job and
"
H.M.Jr:
O.K.
Mon:
Yes, that was his idea, just to pep them up.
Helvering:
Because they like to know the thing's gone all along
the line, everybody understands it.
H.M.Jr:
O.K.
Helvering:
It's a good thing.
H.M.Jr:
Now, what else We got here?
Magill:
I don't know of anything particular. I think the
best thing that can be done is what you have just
worked out; that is, for John to get over there and
meet some of your chief people over there and know
who it is he's got to work with.
H.M.Jr:
I'd call them together and give them a little talk
and then let John Hanes give them a little talk.
Magill:
For instance, you'll be getting a lot of stuff from
the Income Tax Unit and the Estate Tax Unit, and
less from the others.
McR:
of course, Hanes would have done that last week
except for the fact that the Commissioner was
away, and he felt that it would be better to do
it when the Commissioner was here.
Helvering:
Now let me ask just what position Mr. Hanes is going
to occupy nere in the Treasury?
H.M.Jr:
When Mr. Magill goes back to pouring knowledge into
Magill:
empty skulls of prospective lawyers
H.M.Jr:
in attendance at Columbia University, Mr. Hanes
will be "ssistant Secretary with Internal Revenue
under him.
Regraded Uclassified
54
-5-
MeR:
He'll take Magill's
....
H.M.Jr:
He'll take over Magill's responsibility.
Helvering:
Uh-huh.
H.M.Jr:
Poes that answer your question?
McR:
In respect both to the ordinary contacts with the
Bureau and tax legislation.
H.M.Jr:
He'll take over Magill's responsibility.
Helvering:
Legislation and our contacts.
McR:
"egislation and Internal Revenue.
H.M.Jr:
And political appointments. You and I will give him
those, won't we?
Aelvering:
He can have those.
H.M.Jr:
Magill, you know - Magill's just gotten away with
murder. Doesn't know anything about political
appointments. When anything's mentioned, you always
see his eyes go skyward. But Guy and I and Steve
have had
....
Magill:
Just to show what E good friend of yours I am, I
haven't said a word about this to Hanes, so
H.M.Jr:
Well, I knew you were my friend.
Helvering:
well, since you've mentioned it, when I g ot back I
found about 40 letters over there just protesting
about this, that, and the other - on our recent
reduction. But outside of half a dozen, there's
not much to it.
H.M.Jr:
Well, what about these 40 or 50 men, Mac, while we're
on this, that you felt had been in the service 18 or
20 years, who were going?
Helvering:
Some bad ones there; that is, what I mean - there's
some lamentable situations.
Men:
What I had in mind, Guy, was
Regraded Uclassified
55
-6-
H.W.Jr:
Let's talk about it.
McR;
There are quite a number of people who have been
in 18, 20 - some of them, more - years, non-Civil
Service, straight deputy appointments, who are
superannusted, and very largely they are in this
group that are being dropped. No retirement
privileges. They have worked just the same as any
of the clerks who have Civil Service.
I told the boss that I was coming in with B proposal
for legislation that would give those people who want
to be retired who have been there more than 15 years,
which is the minimum age or minimum length of service
for retirement - would give them the regular retirement
benefits as they're dropped because they become super-
annuated.
Heivering:
Harold discussed that with me a little, and I urged
him to get a little more information than he was
getting.
MCA:
Well, we'll need complete information. And there's
something that will have to be done. Some difficulty
in the legislation. But it seems to me only fair,
because you've got a lot of people who have worked
for twenty or more years as Deputy Collectors at the
regular salary, same as they would have gotten if
they had been Civil Service employees, under the
same conditions. Of course, there hasn't been any
reduction from their pay on account of retirement.
But certainly it would be economical from the Govern-
ment 5 tandpoint to pay them what the retirement pay
would be and let them go rather than keep them at the
regular salary, and it certainly is inhuman to throw
them out to go on relief rolls and become mendicants
when they are beyond the point where they can earn
anything if we drop them. Now, that's the alternative
you have.
H.M.Jr:
Well, it's just a question of being - difference
between being a machine and being a human. And what
I'd like to do very much before I leave, if I'm
not pushing you fellows too hard - but if it's
possible to take care of these special cases, the
kind that Mac has described, I'd like very much to
do it.
Regraded Uclassified
56
-7-
McR:
of course, you can't take care of them without
legislation.
H.M.Jr:
But you can keep them on the payroll.
MeR:
I think Helvering would be in agreement to keep
them on the payroll. Then this gives us a good
chance, if we put up that kind of legislation, to
cover the men as vivil Service people from that
point on, and pick up the people that you're
dropping and throw them on to retirement rolls.
Helvering:
Way isn't that - this is a good point to start
our real Civil Service in the Collectors' offices.
MCR:
That's just the hole you need.
Magill:
Certainly use it that way.
Helvering:
We'd be in a whole lot better shape.
H.M.Jr:
I'm back of you & thousand percent. Put those
fellows under Civil Service, be a great thing.
McR:
The benefits to the group themselves are going to
be so apparent
Helvering:
Well, every time a new - one case down in Florida;
just as well mention it - here come two new Senators
in at once, on account of the death of the two
Senators down there - occurred within a few months.
well, we just had one "8" of a time to keep them from
upsetting the whole
H.M.Jr:
Well now, Guy, would it be crowding you too much
to come in at 10:30 tomorrow - to have an answer
on this thing?
McR:
I don't think he can have an answer.
Helvering:
Well, I'm going to have it the 15th.
H.M.Jr:
Well, I don't want to - I mean
Helvering:
You see, I've got to make a survey, Mr. Secretary,
of all these 840 we dropped. Now, there's a great
many of those - majority of them haven't served 15
years, but there's a certain portion of them that's
Regraded Uclassified
57
-8-
served - oh, up to - one case, 22 years.
H.M.Jr:
Well, how will we leave it so that I can sleep on it -
I mean I won't be worrying about it? I mean
Helvering: Well, the
H.M.Jr:
I mean - well, let's see, are you
Helvering: Of course, cutting right down, without any humanity
in it - here's a lady, for instance - I know of one
case in New York, a lady who is supporting an insane
sister or a niece, I forget which, and she's 60-some
years old, and she's been there20 years. Of course
H.M.Jr:
"hy don't the four of youget together, and I'm tre-
mendously interested in this thing - that this thing
be reviewed. Will you do that?
Magill:
Surely, surely, we'll do that.
Helvering:
We'll have a full tabulation made.
H.M.Jr:
Why don't the four of you follow it through, because
there's some tremendously heart-to-heart cases there.
How many people are we laying off, 800?
Helvering: 843.
H.M.Jr:
There's 40 or 50
....
McR:
Of course, that's regular deputies too. That doesn't
include the reduction that was made on these temporary
appointments on Social Security. It was all done before
that. These are 843 who have been on the regular roll.
Helvering:
Of course, those previous
Men:
They knew they were going to get canned.
Helvering:
Yes.
McR:
Of course, no question about that. We're not raising
that point.
H.M.Jr:
Will the four of you go into that for me, see if you
can't have it ready by the time I go, huh?
Uclassif
58
-9-
Helvering: Well, we can do this right now, as far 85 I'm
concerned. I could say that we'll advise these
Collectors where these cases are that, pending
further advice, we're going to keep these people
on.
McR:
Who have had 15 or more years and where there's
no moral delinquency. And if you've got a dis-
cipline case and they have to fire them, why, ...
But 15 years is the minimum at which they can
benefit from retirement.
H.M.Jr:
All right. Pending
MeR:
But you've got to have legislation before you can
dispose of it. I think the thing to do is for Guy
to tell his boys to take out the 15 and more year
cases and keep them on the roll until we can have
a chance to cure it by legislation.
H.M.Jr:
All right? Everybody?
delvering:
Uh-huh.
Men:
And we'll have the thing drafted.
Magill:
The thing is a natural, because you've got not only
the chance to do a little something human, but you've
also got a chance to cure this Deputy Collector
situation, which is really serious.
MeR:
Same legislation.
H.M.Jr:
And that should bring that under Civil Service,
Magill:
We very badly need it.
Men:
All the rest of the people outside of Civil Service
are being taken in by this Executive Order. These
people can't be taken in because they are specifically
exempted by law, and it will take a law to do it. I
don't think there will be any objection to it. I know
Guy has been in entire sympathy. We've been talking
it over for the last couple years. He's been in
entire sympathy with the idea, and I think nine out
of ten of your Collectors are in favor of that.
H.M.Jr:
Well, that's enough on that. We're all in agreement
on that. What else?
Regraded Uclassified
59
-10-
Helvering: I just wanted to mention, there's one or two cases
where certain Senators are going to ask for retire-
ment letters for some of the best fellows in the
service, and I don't know whether it's going to
proceed any further, but an illustration is out in
Indiana, where Smith out there, I think, is - he's
one of the best Collectors we've got.
ment
Got that in Customs as well as Revenue.
H.M.Jr:
Well, I can't
Helvering: I just want to discourage that as much as possible,
where we could.
H.V.Jr:
well, here's the point. They - they - in Los
Angeles we had a Collector of Customs who did a
swell job. The White House sends over an order:
"Please have a commission made out in an hour for
a new man." Fellow had an excellent record. Port
of Los Angeles was run beautifully. Took a great
interest. He was our coordinator for law enforcement
for the district. He leaned over backwards about not
earning any money on the side through writing; he's
a writer, and
...
Helvering:
Yes, I know.
H.M.Jr:
Al Cohn. The minute he left us he got a job as a
columnist on a newspaper. Then 20th Century Fox
took him on right away; he's a writer of plays.
And I don't know - all I can say is, resist it all
you can. But when we get into that business and the
President of the United States says, "Send over a
commission within an hour for a new man," I can't
do anything about it.
McR:
Well, under the present legal set-up there isn't any-
thing you can do about it. It's presidential patronage.
Helvering: Senator Minton was in to see me, and insists on this
man Smith. I said to nim, "Now, Senator, if through
the Treasury the President asks me, 'What about
Smith?' I'm going to have to say he's one of the best
Collectors we've got."
Regraded Uclassified
60
-11-
H.M.Jr:
I don't know what attitude Mr. Hanes wants to take -
probably doesn't know himself yet - but as far as
I'm concerned - Hanes can talk for himself after
he's been here on that sort of stuff - if you and
Steve Gibbons will handle it with the White House -
I mean as far as I'm concerned, I much prefer to be
left out of it. But my policy still holds good that
when you're in hot water I'll back you up. I mean I
haven't let you down yet and I won't; but if you get
into trouble I'm always here.
Helvering: Some of these fellows, they're all thumbs; I don't
care how quick we get rid of them. But when we've
got an extra good man
H.M.Jr:
Well, they've been around talking about the Collector
of Customs up at Baltimore - he's supposed to be a,
Tydings man - want to get rid of him. So I said,
"Well, I just don't get in on that kind of stuff,
and as far as I know he's doing his job, and if the
President of the United States doesn't want to
reappoint him, I can't - I don't want to do anything
about it." As I say, I don't know - Hanes can make
up his own mind what he wants to do.
Helvering:
That particular situation, I believe they're barking
up the wrong tree. About Dailey?
H.M.Jr:
Yes.
Helvering: Being & Tydings man - I don't know whether he is or
not.
H.M.Jr:
I'll show you how much I know; I had to ask for his
name.
MOR:
Well, Dailey is a pretty good name.
H.M.Jr:
I'm glad you mentioned this particular thing. As we
go along and you (Hanes) get the feel of it, you can
make up your mind whether you want to do what Magill
has done, and do nothing about it, or whether you want
to get in on it and take part of the responsibility.
What I'll do is - I'm always here, I'll always go in
the front line trenches when there's trouble, but
unless there's trouble, why - I mean I won't appoint
B. man that isn't fit to be appointed for anybody; I
haven't; but when it comes to changing these people
Regraded Uclassified
61
-12-
I mean if a man's record isn't clean, I just won't
appoint him, and I haven't. Nobody we've appointed
hasn't had a clean record. But when it comes to
swapping people around because they want to do
political housecleaning, there's nothing much I
can do about it, as long as they give me a fellow
with a clean r ecord to take his place.
McR:
Of course, situations differ with respect to
Collectors of Internal Revenue and Customs. Customs
has a definite four-year appointment; Revenue has
an indefinite appointment; they're good until replaced.
H.M.Jr:
Well, you take the case - you take Senator George,
for instance, of Georgia. I go up before the
Appropriations Committee in the Senate and every
single Senator there said, "How do you do" to me
and shook hands with me, except Senator George, and
he cut me dead. Why? Because the President wouldn't
reappoint his Collector of Internal Revenue. So
Senator George, when I go up there, cuts me dead.
And I had no more to do with it than Hanes did. But
every man in the room shook hands and said hello
except George, and he turns his head up. I had
absolutely nothing to do with it.
What else?
Helvering:
I think the man we're going to appoint down there is
a good man, will do it all right.
H.M.Jr:
What else?
Helvering:
I don't know ...
H.M.Jr:
Well, I'd like if you - have you got anything?
Hanes:
What?
H.M.Jr:
Anything you want to bring up?
Hanes:
No.
H.M.Jr:
You (Magill)?
Magill:
Well, yes, I would.
Regraded Uclassified
62
-13-
H.M.Jr:
Go ahead.
Magill:
What I'd like to do would be to spend - as I said
to you earlier this morning, spend some time dis-
cussing tax legislation, what we ought to be doing
about it.
H.M.Jr:
Well, I'd like to unburden. Take me about four
minutes. Who would you like to have here to listen?
I want to do a little philosophizing on tax revenue,
budget, and all that stuff.
Magill:
Blough and Shoup, I should think.
H.M.Jr:
You (Hanes) want anybody else?
Hanes:
Tarleau?
Magill:
Might have Tarleau too.
McR:
Better have Tarleau.
H.M.Jr:
(On phone) Hello. Would you have in Mr. McReynolds'
office - I mean in Mr. Kieley's office, as near 11
o'clock as possible - let them a ssemble there -
Tarleau, Blough, Shoup, Haas, and White.
Anybody else?
Magill:
No, I don't think SO.
H.M.Jr:
on, you (Hanes) did want to talk about this receiver-
ship thing.
Hanes:
Yes, I wanted to hear about it.
H.M.Jr:
How do we handle receiverships of businesses that we
put in receivership on account of delinquency in
taxes?
Helvering:
That's handled directly under the General Counsel's
office through a special set-up there under Mr.
Thurman Hill.
McR:
Reorganization Section.
H.M.Jr:
Thurman Hill?
Regraded Uclassified
63
-14-
McR:
Thursman Hill.
Helvering:
Reorganization and Bankruptcy Section in General
Counsel's office.
H.M.Jr:
In General Counsel's office. Well, who is Thurman
Hill responsible to?
Magill:
Wenchel and then Oliphant.
Helvering:
of course, the cases don't come through Wenchel's
office; they come directly through Oliphant. You
remember Thurman Hill. He's the man I brought in -
tall, dark-complected fellow - you appointed him
at my suggestion three or four years ago.
H.M.Jr:
Aansas?
Helvering:
Yes.
H.M.Jr:
Well now, how big a business is that, Guy?
Helvering:
They have some big cases.
H.m.Jr:
They do?
Men:
vuite a section.
H.M.Jr:
But he's in the General Counsel's office.
Helvering:
Uh-huh.
H.M.Jr:
I'll tell you what let's do. This thing won't take
very long tomorrow, Mac, at 10:30. Tell Oliphant
that tomorrow morning - oh - patting these boys on
the back won't take more than five minutes.
McR:
In five minutes you can do that.
B.M.Jr:
Well, that's 10:30. At 10:35 let's have Oliphant,
if he wants to come, and Mr. Hill in here, and tell
them that I want them to give me 8 thumbnail sketch
of what work he's doing, just how he does it, number
of companies, kind of companies, so forth. I've
never had a report from them. I want a report.
Helvering: Mr. Hill today is in New York on a case.
Regraded Uclassified
64
-15-
H.M.Jr:
Well, let him come on down. This is important.
Helvering: I'll get in touch with him. He may be on his way
back.
H.M.Jr:
Unless he's got to be in court.
Regraded Uclassified
65
July 12, 1938.
10:59 A. M.
H.M.Jr:
Hello.
Operator:
Secretary Woodring is in New York and Mr.
Johnson is out of the city too. She said it
depends on what you want to talk about who
could help you.
H.M.Jr:
Well, is ah - who's Acting Secretary of War?
Operator:
I'll find out.
-
11:00 A. M.
H.M.Jr:
Hello.
Colonel
Somers:
Good morning, Mr. Secretary, this is Colonel
Somers.
H.M.Jr:
How are you?
S:
Very well, sir.
H.M.Jr:
Ah, Colonel, ah, I understand the General is
Acting Secretary of War today?
S;
Yes sir, he is. Mr. Woodring is up north, and
Mr. Johnson is out on the Pacific Coast.
Maybe ...
H.M.Jr:
Good. (Laughs) / that isn't the thing to say.
S:
(Laughs.)
H.M.Jr:
Ah, I have a cousin by the name of George C.
Haas, H-a-a-s.
S:
George C. Haas.
H.M.Jr:
H-double a - S.
S:
Yes sir.
H.M.Jr:
Who up until five years ago was a Colonel in the
Reserve Corps, and ah, I believe, at the invitation
C6
- 2 -
of the Army, he took his examination twice, now,
and he passed it twice. Ah - to be reinstated.
And he told me the story, and I'd like it if
General Craig would listen to it. It - ah -
I don't just quite understand, ah, why he hasn't
gotten the status which he seems to have been
recommended for, see?
8:
Yes sir.
H.M.Jr:
You think that it would be possible for him to
see him?
S:
Ah - you mean for the General to see, ah, ...
H.M.Jr:
Colonel Haas.
S:
Colonel Haas?
H.M.Jr:
Yes.
S:
Why, if he - if it isn't possible to see the
General, I tell you who we can talk to, is, ah,
either General Thompson, or General Hartshorne,
who are at the head of the Reserves. Let us look
into this case for you, Mr. Secretary.
H.M.Jr:
Supposing you look into it. I understand
he's been recommended - ah, what do you call it -
ah - for the list, ah.
S:
Oh, the Brigadier-General eligible list.
H.M.Jr:
Yes.
S:
Yes. Well you see, they don't appoint any Reserve
Brigadier-Generals; they take this examination
and they are put on this list.
H.M.Jr:
No. No, I don't think - no. He wants just to be
reinstated as a - as a Colonel.
S:
As a Colonel.
H.M.Jr:
No, this other thing - not the Brigadier-General's
list. He wants - as I understand it, you're
out five years you have to take the examination
to get in. Is that right?
Regraded Uclassified
S7
- 3 -
S:
I think that's true.
H.M.Jr:
He was out five years and three months. No, he
doesn't want that; he just wants his reinstatement.
8:
All right, sir.
H.M.Jr:
He passed all the all of his examinations -
twice, I believe.
S:
You know how old he is, Mr. Secretary?
H.M.Jr:
He's fifty.
S:
Fifty?
H.M.Jr:
Yeah.
S:
He's young enough, all right.
H.M.Jr:
What?
S:
I say he's young enough.
H.M.Jr:
Yes. There's something I don't know - I listened
to it, and I thought that, ah, ah, under the
circumstances, that ah, - that ah, somebody ought
to really listen to it, because, ah, ah - what
he says - and he's a very truthful, very honor-
able gentleman, has excellent war record,
....
S:
Yès sir.
H.M.Jr:
It looks to me as though there's some misunderstand-
ing somewhere.
S:
Well, could ah - could Colonel Haas drop in here
tomorrow sometime?
H.M.Jr:
Well, he said he could come down Thursday.
S:
Thursday?
H.M.Jr:
Yeah.
S:
Well, I tell you, sir; if you'll have him come to
my office Thursday morning, ah Room 223 Staten
Building, ah, I'll make arrangements for him to see
General Craig if he's here; if not, General Harts-
horne will take care of him.
Regraded Uclassifie
68
- 4 -
H.M.Jr:
Yeah. Well, if possible, I'd like, ah, if it
isn't asking too much, / General Craig
see
him himself.
to have
S:
Yes sir. Ah, if the General is here, Mr.
Secretary, I'll promise you he'll see him.
H.M.Jr:
Well.
S:
And in the meanwhile, we'll get the case out
and check up on it and see just exactly what's
wrong.
H.M.Jr:
Good. And if, if - if you find that, after
looking at it, that it - ah, ah, ah, - he
shouldn't come down, don't hesitate to call me.
S:
All right, sir.
H.M.Jr:
And, and, and tell the General it's something -
I just want to bring it to his attention, and
it goes without saying, whatever action he takes
is, of course, up to him, but all I'm doing is
just to bring it to his attention.
S:
Yes sir.
H.M.Jr:
I make no recommendation of any kind.
S:
Yes sir.
H.M.Jr:
You understand?
S:
Yes, Mr. Secretary, and I'll - say, ten o'clock
Thursday morning?
H.M.Jr:
Ten o'clock Thursday - and what's the room
number?
S:
223.
H.M.Jr:
2 - 2 - 3.
S:
Yes, Mr. Secretary.
H.M.Jr:
Thank you so much.
S:
That's the Secretary of War's office.
Regraded Uclassified
69
- 5 -
H.M.Jr:
Ah, Room 223, Colonel Somers.
S:
Yes sir.
H.M.Jr:
And if you'll - and - and all I want is to get
him a hearing; that's all.
S:
Yes sir, and that is George C. ....
H.M.Jr:
Haas.
S:
H - - a - a - S.
H.M.Jr:
Of New York.
S:
Of New York.
H.M.Jr:
Yes.
S:
He's formerly a Colonel of the Reserves.
H.M.Jr:
That's right.
S:
Very well, sir.
H.M.Jr:
Thank you.
S:
Goodbye, sir.
Regraded Uclassified
BK 134
70
RE CHINESE SILVER
July 12, 1938.
11:40 a.m.
Present:
Mr. C. T. Wang
Ar. Taylor
Mr. White
Mr. Lochhead
H.M.Jr:
This is just the same, only he does it that way instead
of by pencil.
Wang:
Well, Mr. Secretary, I was just going to remark that
I understand that the arrangement made for during the
last five installments will be up by the middle of
this month, and I got word from Dr. Kung, who says
that he desires to sell another lot to you beginning
from the end of this month.
H.M.Jr:
Beginning when?
Wang:
The end of this month.
H.M.Jr:
Yes.
Wang:
I think the last one ends July 15, so the next one
will begin July 30.
H.M.Jr:
July 30.
What do you call E lot?
Wang:
Oh, a lot means 50 million ounces. We've been
sending that amount.
H.M.Jr:
Well, how much silver has the Chinese Government got
left?
Wang:
I doubt - after this lot there may be another lot of
50, but I doubt whether there will be any more,
excepting that there's lots of silver in the country
not quite gathered together yet, according to the wire
we received from Dr. Kung-
H.M.Jr:
Well then, must you tell me - you say that you have
about a hundred million ounces left?
Wang:
I think so.
H.M.Jr:
Is that about right?
Regraded Uclassified
71
-2-
Lochhead:
That's in London, I presume. A hundred million
ounces in London.
Wang:
London and Hongkong. But anyhow, this is easily
transportable. That has been gathered already and
can be transported. But in the country I would
imagine there must be about E hundred million more
yet. We have lost some in North China, or it's held
up, rather - perhaps 70 million.
B.M.Jr:
How much?
Wang:
70 million.
H.M.Jr:
That you lost?
Wang:
Well, I think more or less it canbe considered as
lost, or has to be written off; at least, taken over
by - by our enemies through the puppets. You see,
that's the silver that has been lying in the vaults
of the different banks in North China.
Lochhead:
I was wondering whether the Ambassador could get us
some figures in regard to just where this is held.
It would help us in making arrangements. For
instance, if you could tell us how much silver is
available for sale, now much is in London and how
much in Hongkong.
Wang:
I'm sorry, I'm not in a position to give you exact
figures.
Lochhead:
I was just wondering whether you could obtain the
figures for us at some time.
mang:
Oh yes.
Lochhead:
We'd also like to know how much is in coin and how
much in bars; really. be very helpful to have that
information in making these arrangements.
Wang:
Yes, I'd be glad to wire at once. But I know there's
approximately over a hundred million between Hongkong
and London and on the way, you see, because we're
shipping over by different boats; but I can't say
definitely at this moment how much silver is already
in London, how much still in Hongkong, how much on
Regraded Uclassified
72
-3-
the way.
H.M.Jr:
Well, before you came in we talked this matter over
and in behalf of the United States Treasury I'm
ready to say we'll buy another 50 million ounces
of silver, beginning the 30th of July, and that we
will take ten million ounces on the 30th and then
ten million ounces
Wang:
every two weeks.
H.M.Jr:
Every
wang:
15th and 30th.
H.M.Jr:
15th and 30th. And on exactly the same conditions that
we have before.
wang:
Yes.
H.M.Jr:
But we'll - you'll advise your government. I don't
know - do we have to draw up papers on that, Wayne?
What?
Taylor:
(Nods no)
Lochhead:
We make specific bids every two weeks.
Wang:
Just as we did before.
Dr. Kung wants me to again express nis appreciation
for your help in meeting our exchange through this
sale of silver.
ne
While/has not given me any specific instruction, I
wonder, Mr. Secretary, if I could bring up to you
informally perhaps, thinking out aloud, my thoughts
that before very long I feel that a sale of silver
will be exhausted, and I have to look shead, and one
day is coming on - with the vast areas of ruined
cities and towns and people having lost all their
homes and their possessions, I can see that the
sufferings for this coming winter will not only
be very severe, but will be very widespread. So I've
been thinking and I've been looking over the record
of the wheat and cotton loan - cotton-wheat loan.
I think China only used up something like 18 million
73
-4-
instead of over 50, and it has paid about one-third
of it. I think we're still owing the Export-Import
Bank over 12 million, maybe 13 million. I wonder
whether it's possible now for us to renew our request
for the use of the balance. Of course, we have agreed
to discard it, to stop it about a little over two
years ago. Of course, I just take this up informally.
H.M.Jr:
I understand.
Mang:
And would like to get your best thoughts on it.
H.M.Jr:
Well, I'd have to think that over.
Wang:
Let you
Yes, yes.
H.2.Jr:
think that over.
Wang:
It will be such a help, as I can see it, because
most of the territories ruined by the Japanese are
of people who eat wheat. There's a small section,
part of Kansu and part of Szechwan, where the popula-
tion eat rice, but in Shansi and Hopei, Shantung,
Shensi, Anhwei, they're all wheat-eating people.
And I saw in the papers the crop here is very good.
H.M.Jr:
Very good.
Wang:
I thought it would be extra
H.M.Jr:
How much was the loan originally?
Wang:
Originally it was for 50 million.
White:
Dut the rest was written off officially, SO nothing
is
H.M.Jr:
Well, my associates and I will talk it over. I'm
leaving Friday and I doubt if I'd have an enswer for
you before that, but Mr. Taylor will be here.
Wang:
Yes. I don't think
B.M.Jr:
Re's the - a director of the Export-Import Bank.
Wang:
Yes. I mean a word from you would be very helpful -
would be very helpful in dealing with the Export-
Import Bank.
Regraded Uclassified
74
-5-
H.M.Jr:
Well, possibly, but there's lots of questions
involved, as you appreciate.
Wang:
Yes.
H.M.Jr:
And - but we'll give it friendly consideration.
Wang:
Yes, thank you very much.
H.M.Jr:
Was there anything else you had?
Wang:
No, I don't think I have anything else.
75
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 12, 1938
TO
Secretary Morgenthau
FROM
Herman Oliphant
The executive members of the Monopoly Committee met today with
Senator O'Mahoney and numerous administrative details were considered and
disposed of. Each executive member is to have working with him one con-
gressional member, and O'Mahoney assigned Hatton Summers to work with the
Treasury.
After the administrative matters were disposed of, Senator O'Mahoney
left and the executive members proceeded to discuss what part each was pre-
pared to go to work on at once and a common agreement was reached, including
approval of the topics for the Treasury mentioned in the memorandum which I
sent with my last report to you. Funds for the first month of work have
been allocated to each of the Departments. $7500 to the Treasury.
Regraded Uclassified
CONFIDENTIAL
TREASURY DEPARTMENT
76
PROCUREMENT DIVISION
OFFICE OF THE DIRECTOR
WASHINGTON July 12, 1938
MEMORANDUM:
Re: Meeting of Executive Representatives
of Anti-monopoly Committee
À confidential meeting of the Executive Representatives was held in the
Hearing Room of the Federal Trade Commission at 2:15 P.M. today, adjourning at 4:40 P.M.
Present:
Chairman: J. C. O'Mahoney
Justice
Thurmen K. Arnold; Wendell Berge, and John Abt
Commerce
R. C. Patterson; T. C.Blaisdell, Jr., and R. Nathan
Labor
I.LUbin and A. Ford Hinrichs
Federal Trade
E. L. Davis
Treasury
H. Oliphant, and C. J. Peoples
SEC
W. 0. Douglas, and J. N. Frank
Executive Secretary - Leon Henderson
The Chairman announced that in accordance with the resolutions of the last
meeting the following Congressional members will be associated with the Executive
Members as indicated:
Congressional Associations
Senator O'Mahoney with SEC
Senator King )
Senator Borah) with Justice and Federal Trade Commission
Cong. Eicher with Labor
Cong. Reece with Commerce
Cong. Summers with Treasury
Executive Committee
The Chairman further announced the appointment of the following Executive Committe
Sen. J. C. O'Mahoney; Cong. H. W. Summers, Thurman W. Arnold, I. Lubin,
R. C. Patterson
Administrative Assistant to
Executive Secretary
Mr. Daniel Bertrand and Mr. Wm. Leary were appointed to aid the Executive Secretary
Arthur R. Himbert as assistant to the Chairman.
Regraded Uclassifie
77
Memorandum
-2-
July 12, 1938
Agenda
There was considerable discussion on the various subjects to be first taken in
hand. It appeared to be the consensus that Justice and Federal Trade with aid from
Commerce would take up:
Patent law
Rubber
Steel
Agricultural machinery
Oil
milk and bread
By Commerce
Trade Associations
If Labor
History of employment in industry; wage rates; dividends vs. wage
policy; rigidity of market prices with respect to Labor
n
Treasury (a) Identical bids and other monopolistic prices encountered in government
procurement; government specifications in relation to patents and
other phases of monopoly control; timing of government purchases
in relation to fixed and excessive prices; cost studies in cases of
excessive prices on government purchases as one method of control
of such prices.
(b) Supplementation of general prohibition of anti-trust laws by the
addition of specific prohibition,and
(c) Re-cxamination of the procedural aspects of anti-trust laws.
The Executive Secretary remarked that of the agenda submitted there appeared to
be the least duplication on the part of the Treasury. He was to further simplify the
matter through correlation and coordination of effort.
Director of Procurement
Regraded Uclassified
78
July 12, 1938
Dear Mr. McIntyre:
I have your note of July 7th referring
"without comment" the personal telegram to
you from A. P. Giannini, dated July 5th.
Thank you for letting me see this wire.
I am returning it, also without comment.
Sincerely yours,
(Signed) J.Margenthan, Jr.
Secretary of the Treasury
Honorable Marvin H. McIntyre,
Secretary to the President,
The White House.
Enclosure
CBUspm
upon
Regraded Uclassified
79
July 12, 1938
Mrs. Klotz:
(1) I think the Secretary
ought to see this wire.
(2) Attached is a
suggested reply to Mr. McIntyre.
(3) Before it is returned,
I should like to photostat the
telegram.
Upm
Beer god us
copies for our
file 1 8/5
Regraded Uclassified
80
THE WHITE HOUSE
WASHINGTON
July 7, 1938
MEMORANDUM FOR SECRETARY MORGENTHAU
Referred without comment.
mixm
it
M. H. McINTYRE
Secretary to the President
Enclosure
Regraded Uclassified
FLEGRAM
The White House
Mashington
222 N.L.
Los Angeles, Calif., July 5 1938
N.H. Mointyre,
(Personal)
Jan Bank of America has applications pending in the comptroller office
for branches at Gonzales, Pinole, Galt, Crockett, Rodeo Holtville,
Mo arlane Marchfield, Campbell and Watts all in California. The Gomzales
and Pinole applications were granted by comptroller 0'Connor on Jany.,
third subject to opening: during January. Within the month we requested
additional time to equip banking quarters and understood this would be
allowed and proceeded in good faith. Although Gonzales Banking room has
en ready for months we have not been able to get the permit renewed.
The Galt applications is take over an existing bank where owner is
desirous of closing the transaction. Most of these applications have been
pending since last year. Without criticizing anyone I am wiring to ask
that you talk with Secretary Morgenthau and convey to him my request
that he give these applications personal consideration at the earliest
sonsisitent time. I wish you would also inform the President and
Secretary Morgenthau or rather confirm what they probably already know
from Mc'onald that the bank of America has given the FHA its utmost
etc peration and that our joint efforts have gone along way to-ward
outstaing and increasing business in California. Furthermore we are
giving the RFC our corrual cooperation on Industrial loans. "alifornia
looking forward to greeting the President. Cordial reagrds
A.P. Giannini
Regraded Uclassified
2042
2042
THE WHITE HOUSE
WASHINGTON
July 7, 1938
I
oranium FOR
SECRETARY MORGENTHAU
Referred without comment.
min
m
M. H. McINTIRE
Secretary to the President
Enclosure
Regraded Uclassified
TELEGRAM
The White House
Mashington
11SUAb 222 N.L.
Los Angeles, Calif., July 5 1938
M.H. Mointyre,
(Personal)
The Bank of America has applications pending in the comptroller office
for branches at Gonzales, Pinole, Galt, Crockett, Rodeo Holtville,
Mo arlane Marchfield, Campbell and Watts all in California. The Gomzales
and Pinole applications were granted by comptroller 0'Connor on Jany.,
third subject to opening: during January. Within the month we requested
additional time to equip banking quarters and understood this would be
allowed and proceeded in good faith. Although Gonzales Banking room has
en ready for months we have not been able to get the permit renewed.
The Galt applications is take over an existing bank where owner is 1
desirous of closing the transaction. Most of these applications have been
pending since last year. Without criticizing anyone I am wiring to ask
that you talk with Secretary Morgenthau and convey to him my request
that he give these applications personal consideration at the earliest
consisitent time. I wish you would also inform the President and
Secretary Morgenthau or rather confirm what they probably already know
from McDonald that the bank of America has given the FHA its utmost
pooperation and that our joint efforts have gone along way to-ward
sustaining and increasing business in California. Furthermore we are
giving the RFC our 009:131 cooperation on Industrial loans. "alifornia
looking forward to greeting the Pr sident. Cordial reagrds
A.P. Giannini
Regraded Uclassified
84
HD TAX LEGISLATION AND IMPROVEMENT
July 12, 1938.
11:00 E.M.
Present:
Ar. Magill
Mr. Banes
Mr. Helvering
Mr. White
Mr. Haas
Mr. Tarleau
Ar. Blough
Mr. Shoup
Mr. McReynolds
H.M.Jrt
I just wanted to talk 8 little bit, do a little
philosophizing, on this question of revenue and
taxes. And I think if during the summer - and as
I say, I haven't had a chance - and these people
here, the rest of you, be thinking about it, come
back and see me before I go if you want to.
Now, We can forecast for the next two or three years
about what the Government expenditures are going to
be, without any great difficulty, and I'd like to
see & program worked out, say, over & three-year
basis, because we'll send up a budget in - we have
to make a budget up in the fall of 138, fall of '39,
and the fall of 140, so there's three years; and
re-examine all of our present sources of revenue,
explore new sources of revenue, with the possibility
of furnishing enough revenue to run the Government
somewhere on a seven billion dollar basis. Use that
ES la mean, anyway. I think that would be a good
mean, anyway. If business gets better, we hope to
retire some of this debt, and I personally would
very much like to see the taxes on consumer goods
reduced. I think it's what, about 60 percent, Shoup,
now?
Wagill:
57.
Shoup:
Depends on how you count payroll taxes. It gets
rather complicated. It's & large percentage.
H.M.Jp:
I'm just talking for myself - I mean my own feeling.
I think I'd like to see - I mean I'm throwing it out,
I'm not telling you - but this tax on consumption
certainly oughtn't to be over half. I think we've
got to look towards tne inheritance and estate tax
for more money.
Regraded Uclassified
85
-2-
I personally doubt whether politically we can get
this thing through called broadening the tax base,
meaning that the fellow with a thousand dollars or
less will pay anything. And I think before we do
that we've got to get the fellows in my class, and
that's the fellows in that big middle group.
I don't know whether it's possible - I'm just shooting
from the hip, but I just want to give you something
of the way I feel - I don't know whether it's pos-
sible, but if we could have a tax which would be the
same for corporations and partnerships and individuals
and all that, and - with no exceptions, with no
exceptions, and - so that if we needed e 20 or 25
or 30 percent tax, all we'd have to do would be just
to change the rate and either raise it or lower it.
And then the most important thing - not the most
important thing - but that we'd establish this tax
basis on the known income rather than gambling on
income eighteen months hence, and that would be the
last thing that Congress does rather than do it the
way we do it now. I mean I think when you get into
that, Hanes, you'll be amazed - I mean we sit here in
December and try to forecast what business is going
to be 18 months hence, then we announce that we're
going to raise so much revenue. Whether the thing -
I don't know whether it's you (Magill) or Shoup
developed that if in June we decided that Congress
had passed so much legislation, which would cost so
much, and we'd establish a tax based on the previous
year's business. Isn't that the idea?
Shoup:
Roughly what it comes to. or current year's business.
H.W.Jr:
We'd know exactly - we'd be doing it on & known fact
ratner than trying to do it on a completely unknown
fact. We'd face this thing and simply say, "All
right, our expenses are seven billion dollars and
how over a three-year period there's going to be 21
billion dollars." And then B. certain elasticity so
that when business isn't so good he ought to spend a
little bit more and if business is better he ought to
spend a little bit less; and having this Public Works
thing on an elastic basis, so we wouldn't be committed,
30 the President could stop It, which he can now, and
start it. I said yesterday I think the main thing is
we start to spend too slow and we stop spending too
Regraded Uclassified
86
-3-
slowly, we're not sufficiently flexible. We got it
under way too slowly and when things plck up we stop
too slowly.
But I think the whole thing is entirely too compli-
cated, and the answer is this: 40,000 accountants and
tax experts registered when there should only be four
thousand.
But I think if we could take a look at this thing on a
three-year basis rather than just on B one-year basis.
And then any taxes we figure - I think we ought to
very much have in mind the states and the municipali-
ties, and if we're going to do something new don't
let's put on something which is necessarily going to
take it away from somebody else.
I also think - I'm just shooting this stuff off to
you fellows, to think about it and come back at me
again Thursday afternoon if you want to - I think
we ought - I'm just throwing this out, this question
of our collecting - instead of making the Texas and
Standard 011 and any of these people file all of
these separate things in the states and municipali-
ties at great expense, there's no reason why the
Federal Government shouldn't collect all the gasoline
tax, then if the state wants us to collect so many
cents, we'd collect it and rebate it, so the oil
company would only have to make out a Federal blank,
not have to file it in every single state. Isn't
that what they do now?
Shoup:
They have to file with each state.
Magill:
Worse than that.
H.M.Jr:
What?
Magill:
Worse than that.
H.M.Jr:
There's no reason why we shouldn't collect from the
Texas or Standard, so they'd have to give only one
blank, and if the State of Florida wants to collect
whatever it is - I mean the states would just have
to say, "Please collect so much for us at the source,'
and we would. And I think the same would be true -
Regraded Uclassified
87
-4-
let's see, the states collect on inheritance, don't
they?
Shoup:
Yes, or estate - all but one state has it.
H.M.Jr:
What I'm talking about is if we could, for the states,
collect for them, the savings to the individual, the
corporation, would be enormous, wouldn't it?
shoup:
Yes, it would. In the income tax field that is
particularly possible.
H.M.Jr:
In the income tax.
Shoup:
the savings that are possible.
H.M.Jr:
And after 811, I think we should think of the expense
to the business man or corporation of paying his tax.
I mean it's enormous, entirely out of proportion.
And I'm just throwing out some of the things I have
accumulated over a time, and I'm not thinking of
laying any of these things down - some of them may
be very impractical - but I've absorbed these things
now over four years and so - and I don't know who
was worrying about what we were going to do over this
summer, but I just wanted to give you some of the
things that I had in my mind. And as I say, I'm
not attempting to say that this is what I want, but
these are some of the things that I'd like to leave
behind in the way of milestones.
But it would be very nice just to take the oil com-
panies, for instance, and figure how much we would
save them in bookkeeping if they only - if we
collected from Mr. X oil company all the gasoline
taxes and then rebated them, what would it mean in the
way of savings to one of these corporations? It
would be enormous. Would that be possible, Shoup or
Blough, to figure that? I mean what it costs these
companies to file and all the rest of that.
Snoup:
4f we could get access to one of the companies' books,
1f they'd cooperate with us.
Men:
Be glad to tell you.
Regraded Uclassified
88
-5-
Magill:
They'd tell you.
S.M.Jr:
I'd be interested in just what it means on their
dividends. I'll bet you it's an amazing figure -
the cost of the paper work.
Mert:
Be more difficult for them to bootleg this stuff
without taxes over state lines, too.
H.M.Jr:
I know, but I was just thinking in terms of the cost
to them.
Shoup:
Of course, as long as there is a difference in the
rates among states, even Federal collection would
necessitate considerable record keeping of shipments,
you see, as to where they're going and they're to
be consumed. If there were a uniform rate over all
the country, then collection at the refinery could
simply replace all other gasoline taxes.
H.M.Jr:
But it would be all on Federal blanks instead of 48
different blanks. I mean I'm encouraged - we did
what is seemingly the impossible - after all, we got
three Federal bank examination agencies plus 48 states
to agree on a number of very complicated rules and
regulations on bank examinations. Now, if that can
be done on a purely voluntary basis, with nothing but
just moral persuasion to get that done - I think we
could go much further with the states, I mean.
Magill:
You've really got three different matters that
you've mentioned, end 88 a matter of fact we have
been working at all three of them along much the
lines you've outlined them. We had the Shoup-Blough
report of last summer, with a recommendation of an
ideal Federal tax system on the basis of seven billion
dollars receipts, and Shoup is working on a restatement
of that at the present time.
The budget - matter of making the budget at a dif-
ferent time and different way, you remember, we took
up last spring, and we're going to bring that up to
date.
And the last business of Federal-state cooperation,
in my judgment, is the most important single thing
that we have to do, and I have long felt, as I think
Regraded Uclassified
89
-6-
you have, that it - there's been plenty of talk
about it and we know what we'd like to do and so
on, but the thing now is to adopt some type of
procedure which will actually get it into action.
And I think that all of us here are agreed on the
proposition that the only way we can see to do that
effectively with the 48 states, and so forth, is for
the President to designate B. commission of very
high grade men of national standing, say about a
l'ive-man group, empowered to go Into this situation
and make a report, conduct the necessary research
and so forth, with a view to making recommendations
which would be accepted in the end by the Federal
Government and by the states as a solution of this
problem. You are obviously not going to get a solu-
tion unless the group which suggests it is E group
which carries weight both with the states and with
the Federal Government, and that is why I think you
come to the idea of & presidential commission of the
sort that I have indicated.
It clearly must not be political, in the ordinary
sense. I think it clearly ought not to have
representatives of the states and Federal Government,
in the ordinary sense, but should have men of the
highest standing to
H.M.Jr:
But Ros, I think - I agree with you - but I think we
ought to know enough about 1t, that If, for instance,
we had the figures on the tax cases and the cost -
danes expects to go in the field - und if we agreed
on this program, say, "Now, this is costing so much
and this thing is just perfectly silly; we're going
to ask for legislation to have this thing changed,
because there's no reason why the corporations of
America should be spending 50 much for bookkeeping."
I have never seen the figures, but I suppose they're
available. Of course, the railroads, I know, have all
those figures available. And as I say, we could -
and that would go for income tax, go for inheritance
and estate taxes.
logill:
Yes, that's true. of course, what you have - the
question is what you can get the states to accept,
and there's going to be 8 lot of difficulty. You
see, you take 8 state like New York, in which you're
getting over a hundred million dollars from individual
income taxes; it's not going to be In any hurry to give
Regraded Uclassified
90
-7-
that up, no matter what
...
H.S.Jr:
No, I don't mean that they'll give it up, but I'm
just thinking in terms of collection.
Mogill:
Well, that's just what they wouldn't want.
MeR:
They've got their own organization. They don't want
to break it down.
Wagill:
Got their own organization, got their own control,
and you'll get a terrific barrage to the effect that
if the states let the Federal Government collect
the gasoline tax and the income tax, that they're
giving up their life-blood, just becoming counties
of the Federal Government. Do that there's an
awful lot of spade work has to be none on it.
H.M.Jr:
I agree with you, but we went all through that -
I went all through that in New York state with
Governor Roosevelt on the question of land tax and
school tax and road tax, and when he'd go into a
county we nad b book fixed up for him showing how
much the county contributed and how much the state
contributed, and everything else; he just went out
and sold it.
But don't forget that even in the State of New York
the Federal Government must be returning to the
state - I don't know what the figures are - far
in excess of what they contribute to us.
Vagill:
(Nods no) Other way >round.
H.A.Jr:
Are you sure of that?
Shoup:
Yes, that's right.
Ingill:
Very certain of it.
Shoup:
On an economic basis, certainly New York is contributing
more than it's getting; must by the nature of the cuse,
being the richest state.
N.M.Jr:
What? Then we'll take another state. We'll also not
take North Carolina.
Regraded Uclassified
31
-8-
Shoup:
That's all right, because the so-called taxes North
Carolina pays are chiefly paid by everybody else in
the country who smoke the cigarettes.
H.M.Jr:
Well, all I was trying to do is - I realize what I'm
saying is difficult, but I - do you question that it's
the direction in which we should try to move?
Magill:
All I'm trying to do is to sell you on the idea of
this commission, because I think
H.M.Jr:
All right.
Ragill:
I think we've been thinking of this - Shoup and Haig
at Columbia, one or two others - Blough - for some
years, and we've all come to the conclusion that
you're not actually going to get anywhere unless
you take that step.
white:
Ros, is there a preliminary report, and if not, why
might not one be prepared within the Treasury exploring
that avenue and ending up with the recommendation
showing the necessity for that, in which a great deal
of the spade work would be done?
Magill:
Well, I think we've done - pretty well done the spade
work, as far as that's concerned.
H.M.Jr:
well, all I wanted to do is - you men are going to
be nere this summer - is What's Morgenthau thinking
about, now does he feel about it?" Now I've unbosomed
myself. These ideas are things I've collected. You
know about how I feel, and that's all I'm trying to
attempt to do. You see just what's going through my
head. I'm talking - didn't prepare for this. Just
the things which have been running through my head,
and this idea of thinking of the budget in terms of
three years rather than one year, I think, is new
certainly for me, would be new for the President.
Certainly right after Labor Day the President is
going to call for something, he'll want something;
I think we ought to have something for him.
And it's just like Mrs. Roosevelt - some Englishman
came over to see her and gave her a lot of talk about
Government credit and all that, and I think there is
a job to be done if we do it over a three-year basis.
I mean I don't - my thinking hasn't cleared. I'd like
Regraded Uclassified
92
-9-
to know how much revenue ought to be raised and how
much texes ought to be raised for the balance of
the President's administration, and I think if we
can set that up and first clear it in our own minds
and then try to clear it in the President's, then
take it to the country, why, maybe there would be
less worrying about Government credit. You see, the
fellows - the big institutions aren't afraid. Our
long-term Government bond market is the strongest
it's ever been right today, but - so they're not
worried. But the fellow on the street, the small
fellow - he's worried, he doesn't understand it.
The reason is we've never gone out with a program to
sell; we haven't had a program. Let's be frank;
we haven't got - program.
Put I thought with all this talent maybe this summer
you fellows would work it out.
Have you (Shoup) any date in your mind - I mean are
you going to stay on with us for some time now?
Shoup:
I had planned to stay on according to an agreement we
had had originally until the end of the summer, then
going back to Columbia for the fell term, of course,
because my leave has expired and I must go back there
first or middle of September.
H.M.Jr:
is that the understanding?
shoup:
That was the understanding.
declare:
All the more reason we should squeeze his brain dry.
That's what I wanted to find out. It's up to them
to get all we can. Maybe we can have you come back
another term.
MoH:
I tried to argue Shoup into staying, you understand,
but he decided ne wanted to be E schoolmaster, so
we get Blough in his place. Whatever we can get
out of Shoup in the meantime, we're just that much
anead.
august, September - we've got two months yet with
Shoup here, so that's quite a long time.
Thank you for letting me talk at you.
Regraded Uclassified
July 12, 1938
93
My dear Mr. President:
I thought you would be amused
by the inclosed article which appeared,
this afternoon, in the Washington Times.
From your neighbor who has
switched from squash to strawberries,
Sincerely yours,
The President,
En Route.
Regraded Uclassified
\
GENTLEMAN FARMER
LOOKS OVER HIS CROPS
Homestead Farms comprises 1,500
no they harvest this year's herry crop
rever in the fertile Hudson River Valley
The hos-Henry Morgenthau, Itm section
OPOT Fishkill, N.Y. The tanned man on
lary of the Treasury-bas / deep love of
(he left - Ture, charting with hi= hands
the soit. The understands Tarmine.
Regraded Uclassified
95
Morgenthau Reveals
He's Farmer at Heart
Treasury Head Tells How Appeal to Wallace
Saved Hudson Valley Strawberry Crops
By JOHNSTON D. KERKHOFF.
FISHKILL, N. Y., July 11.-It took the com-
bined forces of the Secretary of the Treasury and the
Secretary of Agriculture, but they did it. They saved
(he strawberry industry in the Hudson River Valley,
and now they hope to save the raspberry industry.
This little story of an unofficial New Deal project
10 a Republican stronghold was
Agriculture came to the Valley,"
told by the man who is the
the Secretary related. "They
guardian of Uncle Sam's Treas-
failed to lind any plant disease.
Then they traced the plants back
ury, Henry Morgenthan, Jr., but
to the Surth, and the reason for
whose real love is his 1,500.
a rulned industry was found."
sere farm, nestled in the Fish-
It was simply this: The Bouthern
kill Mountains.
growers were shipping plants that
FLIES EN WEEK-ENDS.
had been fromen or prepared for
shipping after blossoming. which
Each week-end a plane flies him
La tough on any strawberry. Now
from aweitering Washington to they are placed in 3 mulch In cold
Homestead Farms, three miles from storage, and the industry is boom-
here; to the lovely, cool while ing again
Colonial house: to a tennis court, HAD 23,000 QUARTS
some gardens, & swimming pool.
"We bad 22,000 quarts of
Here are pesoe and pleasure,
strawberries I bis year," the
and you will find these, also, in
Secretary mid. He added
the apple orchard, or the new
proudly, as though he didn't
cherry orchard. in the strawberry
handle the sountry's billions.
fields or in the red and green
"Our gross was 83,500 from 2
avenues where grow the rasp-
8-10th acres.
berries.
"Something Le happening to
"The raspberries are dying
the raspberry bushes." the secre-
now, so I'm going Le Secretary
lary says sadly, potating to
Wallace again. The Valley is
willing leaves. "We'll have to
the market banket of New York,
get after this."
and we con't intend to see It
die out."
VALLEY FACED RUIN.
The secretary has been a farmer
He did something about the since 1914. To the Homestead
strawberries a while back. This Farma he brought his bride, Mrs.
flourishing industry sickened three Elloor Mergenthau: here his sobs,
years ago: In no time it was dead. Henry 3d and Robert, and his
Ruin threatened many in thedsughter, Joan. have been raised
Valley. The strawberry plantswith a love for the soll. Their
timply would not survive. Brought yard consists of & 250-acre
up from the South, transplanted, apple orchard, 50 acres of small
they withered away, and no one fruits, a vineyard. rolling meadows
could discover the cause.
and majestic woods.
Secretary Morgenthau appealed
FAVORS MILK CONTROL.
to Secretary of Agriculture
Ther are 100 head of Holsteins
Wallace. telling of the plight of
and Jerseys, and the dairy pays
the Valley people, including, of
for one-half of the county taxes
course, President Roosevelt, whose
and one-half of the Insurance
strawberry beds are only 20 múes
Even so, Secretary Morgenthau
from Secretary Morgenthau's.
shaker his head over the dairy
TRACED CAUSE.
buxiness. There 18 much differ-
Official Washington swung into
ence between the price to the
setion.
(armer and the price to the con-
"Agents of the Department of
summer, he believes.
T laver sume aresem of come
Regraded Uclassified
36
trol whereby the milk Industry
will be treated as A public
utility," he said.
He likes to talk farming. reeting
off the names of the apples: Mac-
Intosh, Northern Spy. Baldwin,
Cortland (a new one, a cross be-
tween Ben Davis and MacIntosh)
and Delicious.
He is experimenting by planting
raspberry bushes in rows 11 feet
apart so that a tractor can be used
for cultivation: he likes to walk
down these lanes and talk shop
with the berry pickers, men and
women, all of them from smaller
heighboring farms.
NOT HIT BY DEPRESSION.
"The depression didn't touch
us up here." he says. Most of
us had & little put away; the
soil gave us our food, and we
went right on-until that straw-
berry trauble gave us pause."
The Morgenthaus sall Friday
for u. month's vacation in Europe,
but the Secretary is looking for-
ward to 1940. He will have been
by then 12 years with Roosevelt as
Governor and President, but his
ambitions do not lie in Washing-
ton.
"No sfr," he said. "You'll find
me right here seven days a
work.
=
H. MORGENTHAU, Jr.
Studying New Apples
Regraded Uclassified
BK
97
July 12, 1938
Questions that you might consider securing information on
from the Chinese Ambassador:
1. How much silver does his Government now have in London
or enroute to London?
2. How much 18 pledged as collateral? How long does his
Government intend to maintain that silver as collateral?
3. How much silver 1s there now available in the hands of
the Chinese Government in China? In Hong Kong?
4. How much more silver does the Chinese Government expect
to collect from circulation, from hoards and native banks?
5. Is the Chinese Government obtaining any substantial
credits from foreign countries? (especially England and
France)
6. Does China now have adequate transportation facilities
for the importation of large quantities of foodstuffs into
refugee areas?
H.White
Regraded Uclassified
7-12-38 98
The French Situation Now
Senclusion
L. Tt= French economic situation 18 still bad. Index of industrial
conduction continues to fell. It 16 now 10 percent less than last
1980. Unemployment 18 at high levels and production of coal, iron
1.95 ptep1 are at substantially lower levels than last year, even
though last year France was suffering from & recession.
3. Though the political situation in France 1e more quiet than
: 100 been in B. long time some acute commentators believe that
" : :- meraly & Tull before the storm to come in the fall. The
Tring cost of living will give Impetus to political activities
the 20rtiee of the left and may lead to B renewal of strike
FIVER throughout France. The Government 1journed parliament in
Dune, refusing to permit discussion of two major issues, first,
increases in wages for government employees to compensate for the
cost of living and second, the French foreign policy to
Scain which is the most important of domestic problems at the pre-
sont -ime.
3. The franc is not stable. The factors which brought about pre-
10118 deoreciations are still present in en equally scute form.
The enconsaive depreciations of the franc have not solved her
Mems, They have been real "shots in the arm" which served to
818 France through critical periods but left basic problems un-
touched. Bor will enother depreciation of the franc help towards
the solution any more than have the Deet ones. In fact another
develuation -- it would be the 4th in three years -- might even
he the preliminary step toward uncontrolled depreciation. The
Spete problems which have not been solved and which must be
selved before the franc 18 stabilized are:
(1) large budget deficite
(?) large adverse trade balances
(3) high interest rutes in the capital merket
(4) lack of confidence in the franc
(5) political instability in domestic and foreign affairs
Those who claim that France's monetary difficulties are inevit-
shie 85 long BB she does not correct her fundamental maladjustments
EDE partly right, but they are, we feel, wholely wrong in expecting
Us those malad justments can be corrected within the near future.
Large budget, large adverse trade balances and lack of confidence
Regraded Uclassified
99
- 2 -
In the franc are conditions which realistically will not and
connot be remedied through the coming months.
The last devaluation (May 5) did improve the French situation
somewhet.
(n) There WAE 8. repatriation of French capital of over
2400 million.
(b) French international competitive position was improved
and the unfavorable balance of trade in terms of gold (not
franca) will be cut probably about one-third.
(c) France has added to its gold reserves in terms of
francs about 6 billion francs profit from the higher value
of 1te gold holdings.
Unfortunately all three of these effects are transitory.
There hee been no basic improvement in the French situation to
servent the dissipation of these geins. Her budgetary position
'E 10 better; her unfavorable balance of payments, though slight-
ly improved, remains dangerously high; and the small intermittent
flows of gold can easily grow into & heavy stream with snother
"Mitht of capital" which will accompany, ae it has in the past,
the next political crisis.
4. There 18, we are convinced now, 88 we were convinced last
""er and the year before lest, only one practical approsch to
"he solution of France's currency difficulties, namely, the
imposition of effective exchange controls over non-commercial
transactions.
Exchange control will not solve her currency problem but
13 will be the first step toward that solution. Exchange control
by itself will at best only check the flight from the franc. But
in addition to exchange control it will also be necessary to en-
sure repatriation of some French capital by the imposition of
eperopriate penalties on failure to bring back capital within a
reasonable ecified time.
Obviously these measures are drastic and unpleasant but these
alternatives which ere politically possible, are worse.
5. France will be quiet when you arrive but you may see the fire-
torks before you leave Europe.
Regraded
Uclassifi
100
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: July 12, 1938, 9 a.m.
NO.: 1094
FROM COCHRAN.
This morning I returned from Basel where over the
weekend the BIS directors held their meeting.
On Sunday at an informal meeting, Governor Fournier
explained the French open market system. Niemeyer dis-
cussed Hungarian banking changes.
Mostly routine material taken up at meeting on Monday.
In private discussions the main topics of conversation
business
were the American (1)/situation, outlook for European
political situation, finances of the French and German
debt arrangements.
In a talk with Niemeyer, he told me that he regretted
two unfortunate factors in the Anglo-German debt agreement -
first, a. separate agreement had been made, at German in-
stance, which broke the united front of the creditors of
Austria and the Reich; second, Germany accepted the agree-
ment only after original repudiation of Austrian debt
solved much difficult negotiation and with Germany faced
by a threatened British clearing, all of which led to
doubt as to the sincerity with which the present promises
made by Germany will be carried out. Niemeyer himself
thinks the terms of the agreement are as good as could
be expected, and even better than was anticipated by most
of
Regraded Uclassified
101
- 2 -
of his countrymen. He said he does not look for Italy to
cause any new trouble over Spain, or for international
complications to spread from the Spanish situation.
Toward fall Trip expects negotiations on a debt and
trade arrangement between the Germans and the Dutch. He
expressed regret that the British had made 8. separate agree-
ment after group meeting of the (?) creditors had been con-
vened in London, and without plans for an arrangement being
made known to other foreign groups. He said he liked the
British agreement's amortization features, and hoped that
equally favorable treatment would be given to the Dutch.
As for conditions in the Netherlands, Trip said
they remain about the same. His country is suffering from
general world depression, the consequent unemployment,
and the worrisome Treasury situation, although the latter
18 not dangerous. Trip said he is happy that he ag Central
Bank president can still say what he thinks, and that
he was able to point out the needs for monetary stability
and sound national economy 8.8 he did in his last annual
report on the Bank. He 18 sorry that many of his central
bank colleagues either cannot do what he can, or they
do not share his common sense.
Governor Rooth told me he believes there will be
Swedi debt negotiations with Germany by September. He
would be satisfied for Sweden to get the same treatment
as Great Britain, provided the Kreuger loan - already re-
duced
Regraded Uclassified
102
- 3 -
duced from 6 to 4 1/2 percent,-is given special considera-
tion. Germany has repurchased around $40,000,000 of this
loan; the original amount was $125,000,000.
Governor Rooth would not permit the sale in Sweden
of new two percent bills of the French National Railways
with maturity in September. The issuance of such short
term paper worried him, as he was afraid the French anticipated
further monetary depreciation. He plans to keep on shipping
fortnightly lots of gold of around three million dollars
each from England via Sweden, until he has a total of
fifty million in New York.
Governor Fournier of the Bank of France thought that
a more favorable agreement should be given to
the French by the Germans than was given to the British
since the franc is depreciated more than sterling, and
the Germans could thus afford, after violating the gold
clause, at least to pay more interest than they will pay
on the sterling bonds. At Basel the general impression
was that the Daladier Government has been a disappointment
in that the decrees it has issued have been of a timidly
ineffective character; none of the country's basic diffi-
culties have been solved, in spite of the fact that the
labor situation is fairly calm; and, by autumn, the Treasury
will have had to borrow from the Bank of France, which
will
Regraded Uclassified
103
- 4 -
will weaken the franc, and further depreciation of the currency
may again have to be faced - which is not warranted by the
comparative price level - or exchange control may have to
be instituted - which no one believes would be successfully
effective. Some Basel observers fear that the French situa-
tion might get serious enough again to encourage Germany
to further marauding.
Generally it was believed that the Austrian experience
has somewhat cooled Henlein's ardor for an anschluss between
Germany and Czechoslovakia, and that an early aggression
of a violent sort against Czechoslovakia is not to be ex-
pected. Hitler may have to operate next against Danzig,
Memel or even Liechtenstein in order to keep his mill of
mischief grinding and to keep the Goering group satisfied.
I had a talk with Schacht, who said that the general
world situation worried him more than it did last month.
I asked Schacht whether rebuilding of Berlin and Munich
was destined to serve as the outlet for labor which is at
present working on armaments; he said it was not. It had
always been his hope that this labor might be diverted to
the heavy export industries. This hope is waning, however,
especially since his exports in June were even below the
unfavora he figure for May. I asked him whether he was
afraid that there would be new British economic penetration
in
Regraded Uclassified
104
- 5 -
in the Danubian and Near Eastern countries; he replied
that he did not seriously fear this. He realized that
these areas would like to have some outlets other than
Germany BO that their frãe exchange receipts could be in-
creased, but he laid emphasis on the degree to which Ger-
many was the natural purchaser of 80 many products of
these countries which could not be absorbed by the British.
Therefore he looks for certain British investments in
these countries from which profits may be gained, but
does not think there will be serious displacement of
German trade.
All of Schacht's plans regarding the British had
been based on the knowledge that England would always
be held back in countermoves by her ties with her domin-
ions, he said, because the dominions BO importantly look
to Germany a.g the main foreign buyer of their wool, hides,
and 80 on.
Schacht told me again of hie resentment over what
he considers official American efforts to block his trade
in Brazil and other countries which, he said, cuts down
the foreign exchange which he may have or care to spend
for goods from the United States.
According to Janssen, the monetary situation in
Belgium is better than it was B. month ago. He said his
bank
Regraded Uclassified
105
- 6 -
bank had recovered a fair amount of gold and there was a
let-up in the pressure on the belga. There was an improve-
ment in the position of the Treasury, but it was not yet
easy. He did not anticipate any early difficulties.
The brother of ex-Premier Paul Van Zeeland, Marcel Van
Zeeland, believed that the Belgian political situation was
unsound. The opposition to Spaak's Government is not strong
enough to threaten it now, he said, but it was still effec-
tive enough to prevent the Government from taking any
constructive measures needed to pull the country out of
its present position. Marcel Van Zeeland said his brother
Paul was looking forward with much interest to his
visit and lectures in the United States in October.
Genuine pessimism was expressed by Galopin, the
Belgian industrialist director. There had been a small
pick-up in steel and textiles in Belgium in the past two
weeks, he said, but otherwise the economic situation was
bad. The European problem concerns him, 8.8 well ae the
failure of the United States to regain its self-confidence.
Galopin does not think that it is enough for the United
States to cooperate with Europe through reciprocal
trade agreements and moral lectures; he 1s convinced that
both Berlin and Rome would alter their policies if the
United States definitely let the azis states understand
that in their aggressions they had gone as far as the
civilized
Regraded Uclassified
106
- 7 -
civilized world would permit them to go.
If the United States will not do this, Galopin expects
continuation of the armament race, with ultimate disaster
for all of us. He knows, as head of the concern which is
Europe's biggest copper distributor, that the copper which
he is selling is going into armaments and is not being used
for anything else.
In Belgium the steel industry is working at 40%, and
at full capacity in Germany. However, there has been no
increase in the exports from Germany. Galopin expects
that as European ability fo finance rearmament diminishes,
there will be a decrease in European purchases of American
commodities, and increase in unemployment in America.
He does not have much faith in the recent gains on the
American stock market. He thinks when earnings of companies
for the second quarter are disclosed, there will be 8.
setback. There has been a move in copper and other non-
ferrous metals from stocks to manufacturers but no further,
he said, and therefore general business is not augmented
to the extent that might be suggested by such sales.
I talked with Reusch, German industrialist director,
who said that after having been in business for fifty years
he could not enthuse over & speculative stock market in
New
Regraded Uclassified
107
- 8 -
New York.
The extent to which the rest of the world depends
on the United States to take the lead in economic recovery
was stressed by Jacobsson. In his opinion the burden of
British arming will far offset immediate benefits to
employment, manufacturing, and BO on. He expects that
the five-year upward move in the sterling area will return
downward as export trade is negleoted, as taxes increase,
and as purchasing power 18 reduced, unless a revitalization
in world economy was really advanced by the United States
by means of the following - increasing purchases abroad
by the United States; assisting in raising the prices of
raw commodities, which will enable other countries to take
European mamifactured goods as well as American; sending
tourists abroad; having prosperous American stock ex-
changes, which will be encouraging examples for markets in
foreign countries. Jacobeson was in London recently;
following this visit he said he believed that Chamberlain's
policy of liquidating British commitments, political and
otherwise, is gaining support and there is a good chance
for success of this policy.
The Bank of England Governor, Norman, 18 recovering
from his illness but could not come to Basel; Cobbold,
his alternate, told me that in a few weeks the Governor
expects to resume his duties; he denied rumors that Norman
is thinking of retiring. Cobbold does not believe that
Regraded further Uclassified
108
- 9 -
further franc devaluation is necessary. He said he believed
it would be a severe test for the Tripartite if there is
any new move in that direction. He thought that if there
is considerable recovery in world economics in the next
few months 8. serious franc crisis might be avoided.
The Bank of Japan representative, Yanagita, asked to
see me. By September, and before Hankow is entered, he said,
a period of vitial decisions ie coming in the Chino-Japanese
conflict. In his opinion, the opposition of the non-military
element in Japan to the risks of further advances in China
is becoming so strong 8.8 the strain on his country is
realized that there is approaching a real opportunity for
intervention leading to an armistice and arbitration of
the Chinese-Japanese problem in B. manner that both parties
could honorably accept. Such an intervention could be
successfully
made/by one person, he believes, and that would be President
Roosevelt, through offering his god offices in a personal
letter to the Emperor and to the Chinese.
The Far East was cited by Galopin as an example of
what would happen to Western Europe if there is no change
in policies. If the Boong family leadership of China is
destroyed, he said, Japan will not have the resources to
build up the territory conquered and there will be B. set-
back of fifty years in foreign trade with China.
The
Regraded Uclassified
109
- 10 -
The President of the Swiss National Bank, Bachmann,
said that his Bank was not losing much more gold through
withdrawals of foreign funds from his country, but was
filling an increasing demand for gold coins for hoarding in
Switzerland as well as other countries of Europe. In
Switzerland the tourist trade is rather good, the most num-
erous visitors being British and Dutch.
October 10 has been set as the date for the next
meeting of the BIS.
END MESSAGE.
BULLITT.
divison
st w
EA:LWW
Regraded Uclassified
110
JR
GRAY
London
Dated July 12, 1938
Rec'd 9:30 a.m.
Secretary of State,
Washington.
RUSH.
624, July 12, 1 p.m.
FOR TREASURY FROM BUTTERWORTH.
The Secretary of State's remarks at yesterday's
regular press conference WETE grossly misquoted by the
Washington correspondent of the co-owned DAILY TELEGRAPH
and MORNING POST and FINANCIAL TIMES who began his story
as follows:
"Mr. Cordell Hull today indicated that discussions
of Anglo-American monetary problems were being carried
on between the British and United States Treasuries
parallel with the trade pact negotiations."
In view of the Extent to which the dollar has been
affected by recent rumors, arrangements were made
to have the Exact text of the Secretary of State's
remarks, as reported in the radio bulletin, made
available to the press and it was also reproduced on the
ticker
Regraded Uclassified
111
-2- #624, July 12, 1 p.m., from London.
ticker. Acting at the same time but independently the
Bank of England let it bE known informally in the foreign
Exchange market that no arrangement looking to the
immediate reestablishment of fixed parities at the old
level was being considered.
This had the Effect of strangthening starling which
opened at 4.92-5/8 to 34.93-1/8; later it Eased to
34.92-11/16.
KENNEDY
HPD
Tablec
/
-
-
Regraded Uclassified
FEDERAL RESERVE BANK
112
OF NEW YORK
July 18, 1958
OFFICE CORRESPONDENCE
DATE
CONFIDENTIAL FILES
TELEPHONE CONVERSATION WITH
TO
SUBJECT:
J.W. McKeon
BANK OF ENGLAND
FROM
Mr. Hawker of the Bank of England called no on the tolo-
phone at 10:30 an today. He said that they were having a hectic
time in the foreign exchange market due to continued rumors of
stabilization of the pound and the dollar at around 4.87. He had
sold about $1,000,000 this morning at around 4.92 3/8 after which
the pound firmed up to 4.92 7/8. There was a general demand for
the dollar all over the continent. Gold continued to be firm with
the demand coming from all quarters of the world, mostly Europe.
American dollar eagles and British sovereigns were quoted at a premium
of around 2 1/2% with the demand rising.
Francs were very weak again, Hawker stated, and he understood
that Cariguel had lost between 2 1/2 and 8 million pounds in the last
few days. He said that although it was very difficult to place a
finger on the real reason for this sudden turn with France, he had
been told that the French people were becoming very pessimistic about
their internal situation.
"Have you any idea about how much gold has been purchased for
hearding purposes during the past month" I asked Hawker. He said that
it was very difficult to say, but he guessed between 10 and 15 million
pounds. I told him that exchanges had been very dull and idle here
during the past week and that I believed we would continue to have
a rather quiet market for the next few weeks.
Gold was fixed in London at 141-2 1/21 later in the morning
it sold at 141-4; 90-day future gold contracts were quoted 5 to 7
pence premium.
Regraded Uclassified
113
TELEGRAM SENT
JR
GRAY
July 12, 1938
1 p.m.
AMEMBASSY
LONDON (ENGLAND)
342.
FOR BUTTERWORTH FROM THE SECRETARY OF THE TREASURY.
Have rearranged plans and will now bE in Paris until
the evening of the twenty-sixth. Therefore do not
believe it necessary for you to join me on the twenty-
fourth, but rather come over on Monday, the twenty-fifth.
HULL
(HF)
EA:HF:LWW
Regraded Uclassified
- 114
REB
GRAY
London
Dated July 12, 1938
Rec'd 1:45 P. m.
Secretary of State,
Washington.
626, July 12, 6 p. m.
FOR TREASURY FROM BUTTERWORTH.
Speculative demand for dollars ceased in the after-
noon but the steady and persistent commercial demand
continued. Likewise gold dealings were negligible in
the afternoon although 432 bars WETE dealt in at fixing
and there were substantial dealings immediately there-
after. On the other hand the pressure on the franc con-
tinued throughout the day with the French authorities
making a decided stand towards the close.
Reuter sent out the following report late this
afternoon. "The foreign Exchange market is quister.
This is attirubted in some quarters to the reassuring
messages from responsible British and American quarters
regarding starling-dollar rumors. Though the immediate
market reaction to these messages was only momentary,
it 18 thought that their implication has now spread
further
Regraded Uclassified
115
REB
2-#626, From London, July 12, 6 p.m
further afield and helped to allay uneasiness on this
score. If
KENNEDY
KLP
Regraded Uclassified
116
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: July 12, 1938, 5 p.m.
NO.: 1096
FROM COCHRAN.
At 12 noon today I called at the Bank of France.
The French control at that time had lost 600,000 pounds.
The rate had moved from 178.55 to .70, at which point
an effort was being made to break the attack on the franc.
London was given instructions to try to move the rate back
from around .70 toward .50 during the noon hour if it
would not be too expensive to do 80. Evidently this
effort failed, and the rate was still .68 at 4 p.m. here.
Both here and in London, intervention was made in behalf
of three months franc. The discount narrowed from 3.50
to 3. The French control lost about 1 1/2 million pounds
on the London market
of
yesterday, and about 30,000,000 francs /sterling on the
London market on Saturday.
My contact remarked about this sudden turn in the
franc that started last Thursday, and about the pessimistic
sentiment that is still evident. He puts blame on Rist
for taking just the time the decree law powers are 01-
piring to publish an article in a foreign magazine leading
to the conclusion that the decrees which were issued were
not adequate, and that drastic new measures to right the
budgetary situation and to prevent further flight from
Regraded Uclassified
117
CO I I
the franc must be taken. My friend is also cognizant that
worries have come to the exchange market from weekend
speeches in Italy and Germany, and from unfavorable reports
about the situation in Czechoslovakia, and BO on. The re-
newed rush for gold is interpreted by my friend as evidence
that faith in any currency is diminishing.
Today at a luncheon of French and American bankers the
officer of Societe General who is in charge of foreign
business told me that the worries of the French are mainly
due to the fact that this year the Government's receipts
are only fifty billion france, while it is spending over
one hundred billion francs. The head of Credit National,
Baumgartner, said that the Credit would not issue a
public loan until September, and then one billion francs
would probably be the limit.
Market contacts state Belgian National Bank gained
more gold today and Dutch control was selling florins through
Bank of England in view of Strength of Dutch currency. Gen-
eral impression this evening is that sentiment is a little
better than yesterday. According to one source, autonomous
national defense office will tomorrow open issue of 3 1/2
percent 18 months bonds in unfixed amount, to be subscribed
to only in currency. Rate on two-year national bonds will
be raised tomorrow from 3 to 3 1/2 percent. END MESSAGE.
BULLITT.
EA:LWW
Regraded Uclassified
118
REB
TELEGRAM SENT
GRAY
July 12, 1938.
6 P. m.
AMEMBASSY
PARIS (FRANCE)
458
FOR BULLITT FROM THE SECRETARY OF THE TREASURY.
Confirming my telephone conversation of today,
I will arrive in Paris on the night of July 23 and
will stay until the Evening of July 26,
HULL
(FL)
EA:IWW
Regraded Uclassified
119
PARAPHRASE OF TELEGRAM RECEIVED
FROM: AMERICAN EMBASSY, Paris, France
DATE: July 13, 1937, 11 a.m.
NO.: 964
FROM COCHRAN
This morning I returned from Basel where on Sunday
and Monday the BIS directors met.
The French financial and monetary developments,
the gold question, and international politics held the
center of discussion.
The Netherlands Bank President, Trip, expressed dis-
pleasure that the French had failed to give the Dutch some
warning of their plans - just as they had failed to warn
them last September. He did not think that the present
French Government would succeed in restoring confidence
sufficiently to bring capital back to the country; there-
fore in a few months he looks for further franc difficul-
ties. It is quite certain that the frano will not be
followed by the florin. The cantral bank directors were
informed by Trip of the communique issued to the press on
June 17 by the Netherlands Bank to the effect that his
bank had been authorized by the Ministry of Finance to
announce that in the present circumstances the bank was
disposed to grant without restriction exemptions from the
embargo
Regraded Uclassified
120
- 3 -
embargo upon gold ooins and bars which the decree of
September 26, 1936, embodied. The Netherlands Bank
President told me that while the policy was to give per-
mission for all transactions that might arise, until
conditions are more settled they did not desire to ab-
rogate the existing decree since new legislation to
re-control gold exports would be required. Another step
recently taken, Trip said, was toward being more generous
in approving foreign lending from their country. Those
whose securities are already quoted on Dutch markets are
the first borrowers to be favored. He said that there
will continue to be supervision of foreign lending, that
is, not leaving the market free to any transactions which
Dutch bankers might want to undertake.
I was questioned by President Bachmann of the Swies
National Bank as to whether the Secretary of our Treasury
had made any response to his two communications on Swies
gold policy and operations on the market in the United
States. (Reference is made to my telegram No. 819 of
June 19, 10 a.m., and telegram No. 885 of June 30, noon.)
I was told by Bachmann that after our talk last month
he had stopped shipping gold to New York and that he
had not been converting into dollars any more of the
gold which the Federal Reserve Bank of New York held in
earmark for him. Recently the Swies National Bank has
been
Regraded Uclassified
121
- 3 -
been acquiring very little gold since there has been a
considerable let-up in Swiss dehoarding and furthermore,
the Swiss banks are complying with his request that in-
stead of disposing of dehoarded gold through the central
bank they dispose of it directly on the London market.
In London there had been no opposition to this, as most
of the gold privately hoarded by the Swiss has actually
been held there for safe keeping.
END SECTION TWO.
BULLITT.
EA:LWW
Regraded Uclassified
122
PARAPHRASE OF SECTION THREE, ETC., OF TELEGRAM NO. 964
of July 13, 1937, from the American Embassy, Paris.
However, Bachmann wants to ship the remainder, some
Swiss france
70 million (7)-7) (2) (7) of the gold of which he still holds
considerably more in his equalization fund to New York
for earmarking with the Federal Reserve, and which he
possibly will eventually convert into dollars. It is
diminish the amount of
not his intention to increase or (7) (1) N gold which
the bank holds which appears in its statements.
It is my feeling that in meeting our wishes Bachmann
has shown a good spirit. I am of course not familiar with
all of the factors influencing the Treasury Department;
however, may I venture the recommendation that I be author-
ized to indioate to Bachmann our appreciation of the course
recently taken by him, and let him know that the United
States has no objection to his shipping the balance above-
mentioned to New York and of converting it on our market
when and as his bank thinks it is to its best interests
to do 80. In my opinion the tripartite arrangements have
suffered too severe a blow through the recent move of the
French to permit us to risk 8. disagreement with the Swiss
over such a small amount, especially since during the
more nervous period they complied with our wishes. It seems
that Bachmann now understands more clearly our desire to
be consulted or at least advised regarding his operations
on the American market.
The tourist trade in Switzerland is good. Switzerland
has
Regraded Uclassified
123
- 3 -
has lost very little capital to France since the thirtieth
of June. As to the French outlook Bachmann is by no
means optimistic. He told as that the recent Swise con-
version loan went over well and he only regrets that
15 years is the time limit on it.
Governor Norman of the Bank of England favored a
stricter attitude towards the French than was adopted
by the United States with regard to their deviation from
the original conception of the Tripartite Agreement.
[Norman, incidentally, was the author of the most pointed
remarks in Simon's letter to Bonnet dated June 30.] France's
partners in the Agreement should have been consulted,
Norman thinks, rather than merely informed at the last
mimute as to what was going to be done with the franc.
He also said they should have been given some other accur-
ances regarding the French program and the currency's
future than have BO far been given. I said that it seemed
possible that by November the new credit to the State by
the Bank of France would be exhausted if the French must
repay the British banking credit in addition to meeting
their other obligations. The Bank of England Governor
insisted that France should stop thinking about and depend-
ing upon foreign credits since no good was accomplished
by the recent ones and no new ones are warranted by the
present set-up.
At Basel the general opinion was that under the present
Regraded Uclassified
124
- 3 -
regime France 18 not going to witness a recovery of gold
anything like the extent that it did under Poincare's
government - - one reason is that Poincare 18 not there.
Another reason was that a domestic social problem did not
face Poincare. A third reason was that under Poincare
France was a stronger power in European politios and arms
than it is at present, and finally, France's calm is
seriously threatened by the Spanish situation.
The hope was expressed by Quesnay and some others
at Basel that France might gradually recover under the
present government. It is their opinion that The United
States was correct in its attitude toward France and
that the retention of the Tripartite Agreement will help
sustain France in the problems she is facing. They
do not think that the international realization that
France is weakening should be permitted now, as the
alternative will rally France's foreign friends to her
support and will arouse a patriotic sense of responsibility
on the part of the French people. These observers are
convinced that the measures 80 far taken by Bonnet were
necessary - perhaps with one exception, that of punish-
ing speculators in gold and exchange, which is a oon-
timuation of Auriol's policies - and that he has shown
real courage to date. They said that they hoped there
may gradually come & better repatriation of capital and
an improvement in Government securities which in the
late
Regraded Uclassified
125
4
late autumn would permit a conversion operation and
thus the heavy debt carrying burden could be greatly re-
duced.
It 18 Jacobsson's belief that the rate of 130 france
to the pound will not give France competitive advantages.
He feels that the United States was entirely correct in
ite attitude under the Tripartite Agreement. France,
he thinks, should try to hold de facto stability at around
130, but no definite level should be pledged or indicated
since the speculators would then have too much ground
for operations. Jacobsson looks for an orderly recovery
of France within the Tripartite Agreement should the
above mentioned hopes of Quesnay and others be met. If
by autumn substantial recovery has not taken place,
he conceives & move toward say 150 or 160 france to the
pound and complete departure of France from the Tripartite
Agreement with 8. nationalist government, undertaking
drastic action, coming in. However, this could only
take place after the French situation has deteriorated
alarmingly from what it is now.
Quesnay mentioned an idea which he understood was
in the minds of some officials in France of not utilizing
much more gold out of the reduced reserves of the Bank of
France to hold the rate of the franc. In other words,
they would spend on the frano only such amounts as might
come to the stabilization fund through repatriation of
Regraded Uclassified
126
- 5 -
capital. This idea has not come to me from any other
source. Recently everything coming to me from official
sources has led me to believe that France will use boldly
and consistently the technical resources now available
in order to maintain a steady rate. However it should
not be lost eight of house that with growing apprehension
over international wars, the conservative and military
elements in France may become quite alarmed if they 200
much further decline in the Bank of France gold which
they have always considered their war chest. According
to Quesnay, Labeyrie will not voluntarily resign from his
position as Governor of the Bank of France. Quesnay men-
tioned rumors that labor leader Jouhaux might leave the
Bank's Board and thus cause trouble if Labeyrie were
forced out to make way for & banker. No offer has been
made to Quesnay of either the governorship or under-
governorship but I am sure if given the chance he would
accept either one. The directors of the BIS were given
copies of the agreement between the Ministry of Finance
and the Bank of France and of recent French monetary
legislation.
Memoranda on the gold question have been prepared
by Quesnay and by Jacobsson. These were confidentially
circulated to those members of the board who are Gover-
nors of central banks. I as sending copies of these
memoranda by mail. There was a general impression at
Regraded Uclassified
127
- 6 -
Basel that international politics will 80 completely
occupy public attention this summer that for a while at
least the gold question will quiet down. Jacobsson,
Norman, Rooth, and some others still think, however, that
present methods, as for example sterilization, must give
way to a more carefully thought out treatment of the
whole gold question. A few BIS observers who were at
the meeting in Berlin of the International Chamber of
Commerce (the resolutions of which were considered at
Basel) feel that there is a growing world desire for 8.
return to some sort of modified gold standard. They
stressed the need for close joint study of possible plans
toward this end by the two leading monetary powers, the
United States and Great Britain.
I was informed by Governor Rooth that the Swedish
situation is not such as to require any immediate action
along monetary lines. It is his opinion that some time
in autumn the question will again come to the fore.
It Beems that central bankers and economiste of Scan-
dinavia are the ones most seriously considering the
desirability of changing the price of gold.
The National Bank of Belgium Governor, Franck, told
me of Ecoles' reply to him in which Ecoles had advanced
the idea that the problem facing us was that of maldistri-
bution
Regraded Uclassified
128
- 7 -
bution of gold resulting importantly from the degrees of
confidence inspired in capital by certain countries.
The Belgian Bank Governor told me that recently he had
discussed the question of control of gold production with
officials from South Africa. Governor Franck was (7) not
surprised to find that both production control and &
change in gold price were opposed by the South Africans.
However, he believes that Alln the public discussion of the
gold question has perhaps E useful in bringing gold
producers to a realization that gold should not be produced
extravagantly lest their business be restricted by govern-
mental action. The Soviet authorities have also been
with regard to control of production,
contacted by Franck/ but 80 far his advances have received
no response. The directors of the BIS were given the text
of the Belgian law of the fourteenth of June establishing
8. special and exceptional tax on profits from certain
speculative transactions in the monetary field.
I had talks with Reusch, Vocke and Schroeder of the
German Delegation. They said that there were no signif-
icant developments in the situation in Germany. They
were pleased over the improvement in the export trade and
said & fair number of tourists were coming to Germany.
This past week-end Schacht spent most of his time in
Zurich, where Swiss-German commercial negotiations were
being carried on.
The Bank
Regraded Uclassified
129
- 8 -
The Bank of Italy Governor, Assolini, is coming to
Paris from (?) (Basel?) to visit the Governor of the
Bank of France.
The Governor of the Bulgarian Central Bank, Montchiloff,
is in Basel studying with officials of the BIS his plan
for financing of purchases of raw materials in such countries
as his own.
There will be no meeting of the Board of Directors
before the eleventh of October unless the chairman may
find it necessary to call a special meeting. The BIS
President, Beyen, hopes to visit the United States the
latter part of October of this year.
END MESSAGE.
BULLITT.
EA:LWW
Regraded Uclassified
130
REB
GRAY
London
Dated July 13, 1938
Rec'd 3:06 P. m.
Secretary of State,
Washington.
628, July 13, 6 P. me
FOR TREASURY FROM BUTTERWORTH.
The dollar-sterling rumors sem to have been
quashed at least for the time being and conditions in
the foreign Exchange market have now assumed more
normal proportions today. Although there was a good
commercial demand for dollars it was more than offset
by the undoing of positions particularly from Paris
prior to the holiday. HOWEVER, the belief is current
and firmly hEld that the dollar will continue to
strengthen in terms of sterling unless it is arbitrarily
hEld.
The demand for gold from the Continent continues,
493 bars WEI'E dealt in at fixing and substantial
(deal?)
dealt occurred thereafter. London bullion brokers
state that the European political situation is now
the basic stimulant of this movement.
The
131
REB
2-#628, From London, July 13, 6 p.m.
The French fund pushed the franc to 178.33
during the morning but inasmuch as Paris was closed
this afternoon it lost but little sterling.
KENNEDY
HPD
Regraded Uclassified
132
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: July 13, 1938, 4 p.m.
NO.: 1105
FROM COCHRAN.
In a banquet speech yesterday Prime Minister Daladier
insisted upon the Government's determination to reestablish
order in public finances and to hold its ourrency. He said
this policy was being facilitated through tourist influx and
improvement in the trade balance and through avoiding useless
expenditures. Minister of Finance Marchandeau in announcing
the new three one-half per cent issue of 18 months bonds ex-
plained to the press that proceeds would be used exclusively
for armament purposes.
At noon I talked with the Bank of France. This after-
noon all Paris banks are closed, as well as tomorrow.
My contact told me that the speech made by Daladier had not
helped the franc, although after it the control had today
made an attempt to break the attack on the franc and the
rate had been brought down to 178.33. However, confidentially
I was told that it had been quite costly during the morning
to get the rate back to this point and keep it there, as
today's pressure was as heavy as it was yesterday.
Today I had luncheon with Professor Rist. I asked him
what had been the cause of the latest franc weakness. Rist
told
133
- 2 -
told me that one or two of his friends in the Bank of France
and the Treasury had been inclined to criticise his article
in Foreign Affairs as too "timely" and consequently one
of the contributing causes of the weakness, but, he added,
when disagreeable the truth is always untimely. He said
that economists as well as doctors usually discovered that
when their clients did not follow professional advice soon
enough they suffered. He gave the following as the
immediate factors responsible for the present flurry:
it was believed that in May the question of Czechoslovakia
had not really been settled, and that it might soon cause
(?) Germany; the dollar-sterling readjustment rumors; there
is gossip that by October another financial crisis will be
faced by France.
Rist regretted that Daladier is ignorant of financial
matters, and that he W&B 80 weak as to take quack advice
like he did on the open market matter. Desterilization of
gold by the United States was approved by Rist. He criti-
cized the British authorities for "hoarding" Bo much,
and said that it is sound and logical for the Swise National
Bank to coin and distribute gold coins for the purpose
of hoarding privately; the latter he said was further
evidence in support of his theory that we must all get
baok to & gold basis for our currencies, and the more
general utilization of gold.
Rist mentioned, incidentally, that Trieste had lost
one-
Regraded Uclassified
134
- 3 -
one-third of its shipping since Austria was taken over
by Germany and the Austrian timber previously exported
through Trieste was diverted to German uses. In his
opinion, the first fifteen years of Italian occupation
of Ethiopia will yield little return.
French Treasury statement as of May 31 shows treasury
loaned stabilization fund four billion three hundred
million france after issuance of enabling decree on May 17.
This took place immediately after re-(?) of capital to
France which caused stabilization fund to require more
france to purchase gold than its normal endowment permitted.
The control has confidentially told me that most of
this amount has been repaid - which means that the gold
losses of the control since the loan was made shortly
after the seventeenth of May have set off something like
this amount.
British financial press today reports "the banking
group headed by Mendelssohn and Company has granted the
French Government the 3% loan totaling 75,000,000 florins.
Of this total 35,000,000 florins is on Dutch account.
The balance of 40,000,000 florins will be placed in France.
The credit is in the form of Treasury bills repayable in
one and a half years. The Netherlands Bank will re-discount
the bills. Transactions in the new loan took place today
on
Uclassified
135
- 4 -
on the basis of the interest of 3%.
I had a talk with Rueff and asked him about the
preceding. Rueff said that the amount mentioned was too
much, and that the story is premature. However, he said
an arrangement is actually being made whereby the French
state, by authority of 8. decree issued in July 1937,
will take over the florin debt acquired by the French
Railways in November 1937. As soon as details are avail-
able I will transmit them.
This afternoon the representative of the Bank of Italy,
Pennachio, expressed to me the opinion that theoretical
such as those mentioned hereinabove
reasons/cannot be given for the sudden current weakness
of the franc; he said that the general public has not been
responsible for the operations against the franc, but
that they have been made by a few professional operators
whom he suspects of having some practical inside information
which is unfavorable.
END MESSAGE.
BULLITT.
EA:LWW
Regraded Iclassified
136
GROUP MEETING
July 13, 1938.
9:30 A. M.
Present:
Mr. Magill
Mr. Oliphant
Mr. Gaston
Mr. Taylor
Mr. Haas
Mr. Upham
Mr. White
Mr. Hanes
Mr. Lochhead
Mr. Gibbons
Mr. Bell
Mr. McReynolds
Mrs. Klotz
H.M.Jr:
Wayne, here's this letter from Sumner Welles,
which you, White, and Archie can read, then
return for my files. You might tell Sumner
that I had a chance to talk to Mr. Hull about
it this morning; that Mr. Hull and I agree,
pending the return of the President of the United
States; we didn't wish to begin a conversation
with the British.
Taylor:
Pending the return of the President.
H.M.Jr:
Pending the return, at which time Mr. Hull and
I will take it up with the President. Check?
Taylor:
Uh huh.
H.M.Jr:
Huh? Hull feels very strongly about it. In
other words he doesn't want to mix it - very
emphatic. He doesn't want to start anything
at this time.
Mr. Magill.
Magill:
Nothing new, sir.
H.M.Jr:
That's too bad. We're not coasting, are we?
Magill:
Business goes on as usual.
137
--2--
H.M.Jr:
We're not coasting, are we?
Magill:
Well, so Mr. Bell tells us.
H.M.Jr:
We're just floating on a four million dollar
deficit.
Taylor:
A gradual curve.
Bell:
A pretty sharp upturn, I thought.
H.M.Jr:
Was there anything in there about not paying for
the deficit, - devaluation, or something. Some
commentator used it on the radio this morning.
Bell:
I think he used the five million dollars, which
included the desterilized gold.
H.M.Jr:
(Aside to Mrs. Klotz.)
Herman?
Oliohant:
The New York Times recalled this morning that
when Mr. DuPont and Mr. Raskob charged that the
cases brought against them were for political
purposes, that you said you would answer that
one by proving the case in court, and that
happened, as you probably noticed, yesterday.
H.M.Jr:
That's a result of Mr. Hanes coming into the
Treasury, - prove the DuPont-Raskob case.
Hanes:
I accept that.
Oliphant:
Except they decided it about two weeks ago and
didn't tell us. When I recall that the case was
tried by our man, Mr. Leming, alone, and he had
against him, the highest priced legal talent in
New York, I think the case
H.M.Jr:
You want Gaston to do a little gloating for us?
Oliphant:
Well, I think so.
Gaston:
The newspapers gloated pretty well, this morning
Magill:
I think you have all the gloating you need at
the present moment.
138
- 3 -
Gaston:
We might tell them this is a result of the
principles established in the Mellon case.
H.M.Jr:
I personally thought the publicity was excellent.
Magill:
I did too.
H.M.Jr:
Well, shall we let it ride?
Magill:
Yes, I think so,
Oliphant:
I wish it were understood that jobs that are
done like that are by ordinary career men.
Gaston:
I'll take care of that; I'll have somebody run
a feature story on Leming, with a picture of him.
Oliphant:
He's a very modest, nice man - slow
Magill:
(Laughs.)
Oliphant:
Now, Ros
....
Magill:
I was laughing at Cy; Cy opposes the picture.
Oliphant:
Leming is like the mills of the gods; he grinds
slowly, but he grinds exceedingly small.
Magill:
That's a very exact picture.
H.M.Jr:
Read that (Bell), and see what you think of it.
Bell:
(Reads letter.) Very good.
H.M.Jr:
What?
Bell:
It has my hearty approval.
H.M.Jr:
What?
Bell:
Hearty approval.
Gibbons:
I think the whole point to this case, aside from
the political point of view, it was started not
from this administration. There was an examination
before we came in here.
H.M.Jr:
I thought you were going to say, "You see, this
is what happened to Raskob and DuPont; if you boys
will come across and make a handsome contribution,
you won't get this."
Regraded
139
- 4 -
Gibbons:
It wasn't my angle, but my point.
H.M.Jr:
Don't you ....
Gibbons:
Incidentally, did you know Mrs. Roberts' father
died?
H.M.Jr:
(Nods "Yes.") You people are all too noble,
around here.
Gibbons:
But that's the thing that was played up - that
this administration had started this case
against Raskob. That's the idea that is left
with the people. Isn't it a fact, Herman, that
the examination really started before?
Oliohant:
I'll have to verify that.
Gaston:
They started a small one against him, and he
appealed on that and they came back and slapped
one about twice as good on him.
H.M.Jr:
It was a good case, and I think if Mr. Leming
can get a little publicity, it will be fine.
Oliphant:
All of which will embarrass him a little - he's
that kind of a fellow.
H.M.Jr:
Shall I write any congratulatory letters to
anybody?
Oliphant:
I should not. I'll have the Munitions matter
ready today.
H.M.Jr:
I want to sort of leave that behind me.
Oliphant:
Or I can have it a little later; that is, I've
got other work.
H.M.Jr:
I think we'll let it come up just for guidance
while I am gone.
Oliphant:
It's routine.
H.M.Jr:
Yeah.
Oliphant:
Well, that wouldn't hurt us.
Uclassified
140
- 5 -
H.M.Jr:
What else?
Oliphant:
That's all; except that meeting yesterday that
Peoples and I attended. There's no change
in the things we worked out.
H.M.Jr:
Herbert.
Gaston:
The boys are interested in Chinese silver, and
whether we've made any new agreement.
H.M.Jr:
I'll call them tomorrow.
Gaston:
And R. F. C. financing. I suppose we'll have
a clean-up on that tomorrow or Friday.
N.M.Jr:
Give me something to say tomorrow morning at
ten thirty, will you.
Bell:
Friday morning - is that a closed date? We
won't get the final reports until late Thursday
evening, and we're supposed to announce it
Friday morning.
Gaston:
There's no reason why the Secretary shouldn't
tell the approximate amount of over subscription
tomorrow - there wouldn't be any harm.
Bell:
Well, it will be about two billion six. I shall
recommend about eight per cent - that will be
two hundred ten million - maybe go to twelve.
H.M.Jr:
(Nods to Mr. Lochhead.)
Lochhead:
They are having quite a job going over this time;
I spoke to Harris this morning; they have found
cases where one man put in for sixteen, and
things like that - it will be difficult to get
the final, exact figures. They'll have to do
a lot of weeding out.
H.M.Jr:
Archie, talk, sometimes, to Hanes, about putting
the bond market on the curb - making the curb
the bond market. Isn't that what you have in
mind?
Hanes:
That's what they've been talking about, Mr.
Secretary. It hasn't gotten very far yet, but
that's the plan.
141
- 6 -
H.M.Jr:
Talk to Archie sometime about the plan. We're
pretty big in the bond market; our throwing our
business one way or another will be an important
factor.
Gaston:
There's some interest in whether there's going
to be any other agency financing in the near
future.
H.M.Jr:
No. Nothing other than the regular bonds that
Jones is offering - the five - six million he
took.
Anything else?
Gaston:
That's all.
H.M.Jr:
Wayne.
Taylor:
Did you get a chance to talk to Secretary Hull
about the things that are coming up?
H.M.Jr:
I mentioned it; he wasn't interested, and didn't
seem to be familiar with it. I mentioned it
and he didn't seem to be familiar with it.
Before I go I'll get together with you and White
on it. He just didn't seem to be - didn't seem
interested. I don't think it's been brought to
his attention. Anything else?
Taylor:
No, that was the only thing I was curious about.
Gaston:
By the way, Secretary Hull did correct that
statement yesterday at a press conference.
H.M.Jr:
Oh, did he?
Gaston:
Yes.
H.M.Jr:
Well, he was awfully nice about it this morning.
I didn't bring it up, but he did - he felt very
badly about it.
Gaston:
He corrected it - plenty. He said, "We have not
been carrying on any monetary negotiations and
as far as I know, there have been none anywhere."
H.M.Jr:
How do you know he did this?
Uclassified
- 7 -
142
Gaston:
I have his text. It was telephoned over -
Frank King took it over the telephone. I'll send
a memorandum in for you.
H.M.Jr:
Anything else?
Gaston:
(Nods "No.")
H.M.Jr:
George.
Haas:
I haven't anything, Mr. Secretary. There are
some new figures that have come in.
H.M.Jr:
Give them verbally.
Haas:
The significant part of it is, it's the first
time residential contracts are above a year ago.
H.M.Jr:
For how long a period?
Hass:
Just a short period - it's a seven day period.
H.M.Jr:
And how is the total?
Haas:
The total is not there yet. The total is governed
so much by the government contracts coming in,
that it is fluctuating.
H.M.Jr:
How does it look?
Haas:
Looks up, but not above a year ago.
H.M.Jr:
But residential is.
Haas:
Yes.
H.M.Jr:
What else?
Haas:
That's all.
H.M.Jr:
Have you circularized this thing on commercial
loans that came in?
Haas:
No, you have the only copy.
H.M.Jr:
Ask whoever is interested in it - see that they
get a copy. We sent out a questionsire to the
twelve Federal Reserve Banks, and they - a hundred
and fifty commercial loans in connection with
143
- 8 -
inventories. If anybody's interested, ask Haas.
I think it lays to rest, this inventory thing.
Oliphant:
Does this look like a good predictor?
H.M.Jr:
Oh yes. Commercial loans and inventories go
up together. Whether they rise together, I
don't know. These banks all say inventories are
pretty well liquidated. There is a big cross-
section - about a hundred and fifty commercial
banks.
White:
Wouldn't want to give it any publicity?
H.M.Jr:
No.
White:
Very bullish.
H.M.Jr:
Harry!
White:
You need every possible help, you know.
H.M.Jr:
You want to squeeze the raindrops out.
White:
Want to send a few more birds over.
Klotz:
Did you hear what he said?
H.M.Jr:
Yes.
Haas:
You know, Mr. Secretary, that comment from the
Dallas Bank - that really checks with those other
figures - how well they've been doing all this
period. Better than the others in the country.
H.M.Jr:
Upham.
Upham:
(Nods "Nothing.")
H.M.Jr:
Harry.
White:
You might be interested in the request from the
B. I. S. that was answered - are you familiar
with that?
H.M.Jr:
No.
White:
Well, the request was to get our reaction to the
signing of a treaty arrangement which would make
their fund here inviolable, so that we would have
no control over them - B. I. S. gold or assets.
144
- 9 -
We talked it over and turned them down flat, in
the letter. If you are further interested in
the letter
H.M.Jr:
Professor Riefler sent me a telegram that he had
returned from Geneva. He had nothing particular,
but I could reach him on the phone. I wrote him
back and said if there was nothing particular,
I was leaving in a couple days. I would have
thought he'd have come to town to report to the
State Department. I don't know whether he did.
Has anybody heard from Riefler?
Taylor:
I can check up and find out if he's had anything
over there. Isn't he - didn't he get an office
up there, or did he change his mind?
H.M.Jr:
He went as alternate to Jeff Coolidge to Geneva.
Taylor:
My impression was that he was stopping that too.
H.M.Jr:
He wrote me he was not going to go; then changed
his mind and went. He wrote me he was not go-
ing to Geneva; that he severed that connection
too, but he didn't - he went.
Anything else, Harry?
White:
No.
H.M.Jr:
John?
Hanes:
No.
H.M.Jr:
Archie?
Lochhead:
The rumois on the sterling dollar rate are dying
slowly, but not altogether, and a great many
people seem to fear there will be a rate, ac-
companied by the devaluation all the way around.
That's the reason why there is such a demand for
gold in London, which has continued steadily.
The franc is rising a little bit. The stock market
this morning is opening strongly; the Government
bonds are inclined to be off. I didn't know
whether it would be on the Budget summation -
New York says no. New York claims the market -
New York claims that the easiness in the Govern-
ment bonds is not due to the Budget figures that
come out, but the fact that more people are getting
145
- 10 -
interested in the stock market. Interest is
swelling over that way. They are only off two
thirty-seconds.
H.M.Jr:
(Points to Mr. Gibbons.)
Gibbons:
The allottments
.....
Lochhead:
Both England and Switzerland were on the selling
side of the stock market yesterday - both fairly
heavily.
H.M.Jr:
Well, don't forget to coach me before I leave
in what I should say about sterling, Archie, when
I get over there.
Lochhead:
All right. Silence will be a good thing to say.
H.M.Jr:
I accept.
Gibbons:
The allottments made for the Coast Guard - it
looks like that three million six hundred thousand
will have to be released because of the grounds.
H.M.Jr:
Good! Public Health.
Bell:
(Laughs.)
H.M.Jr:
Come on now! Come on, big boy.
Bell:
That's terrible.
Gibbons:
Here's one, for instance. The ground is six hundred
eighteen dollars, you know, but yet they haven't -
they have never acquired this thing - they haven't
acquired the ground in over twenty years -
they've worked on it, from time to time.
H.M.Jr:
Well, get after them. Harold Ickes is having
lunch with me at one o'clock. Three million,
how much, did you say?
Gibbons:
Three million six hundred eleven thousand. They
won't be able to search a title.
Bell:
That's terrible. Haven't even put in the
....
H.M.Jr:
Come on, let's finish Bethesda
and move
the people out there; let's finish Bethesda up.
The President would like that.
148
- 11 -
Gibbons:
It's awfully stupid on the part of the Coast
Guard.
H.M.Jr:
I'm not worrying; the Coast Guard has more than
they are entitled to anyway. I'd like to finish
Bethesda up.
Gibbons:
There's three million dollars we won't be able
to use.
H.M.Jr:
What do you say, Bell?
Klotz:
He says "Yes."
Bell:
I don't talk here as Director of the Budget.
H.M.Jr:
We've got to do it, anyway. The land is there.
Bell:
That would be a long-time program.
H.M.Jr:
Why not let's finish Bethesda?
Klotz:
Have you seen that condition over there?
Bell:
I don't dare look at it.
H.M.Jr:
Take him over to see it.
Any other good news like that, Steve?
Bell:
Poor Coast Guard.
Gibbons:
They admitted it to me. That's all. I'll
see you at three thirty.
Bell:
We gave the Coast Guard two ice boats - at least
we recommended them.
H.M.Jr:
Built of wood.
Gibbons:
No steel.
H.M.Jr:
Dan?
Bell:
I have nothing.
H.M.Jr:
Were you through?
Gibbons:
Yeah.
147
12 I I
H.M.Jr:
(Points to Mr. McReynolds.)
McReynolds:
You asked Harry about cement stuff.
H.M.Jr:
Yes.
McReynolds:
The letter from the War Department, Peoples has,
and he wants to come over and talk to you about
it today.
R.M.Jr:
I picked that up from Mrs. Forbush in a weekly
review - that was a fresh letter from the
War Department. I want to make - I hope we can
give the War Department a good answer on cement.
McReynolds: Well, the answer they got was if they don't get
service on buying cement, it's their own fault,
because they've got clearance to buy it.
H.M.Jr:
Will you please write the letter to the Secretary?
Can't we also say we are saving them money?
McReynolds:
I know we can on the West Coast.
T.M.Jr:
The War Department has put in a release - if it's
right, I'd like to investigate it.
McReynolds:
I told
before he sent the letter over
he telephoned me - I said, "If you fellows are
being delayed in your program of buying cement
it's nobody's fault but your own, because you
have a clearance to buy until some future agree-
ment is reached, that hasn't yet been arrived
at; you've got a clearance to buy your own
cement." Peoples is working the thing up, and
he was over yesterday afternoon.
H.W.Jr:
But don't tell Peoples - don't let the Army put
that over on the Navy.
McReynolds:
I did it personally, before the letter was sent
over; I reminded them, and they admitted they
had that.
H.M.Jr:
Let's do it all in writing - very formally. Have
you the cement information for me?
McReynolds:
One little interesting item I thought you ought
to know. Dan brought down to me yesterday - he
148
13 I I
and Harry Collins, and representatives of some
banks who had been extending credit to small
contractors, working for W. P. A. who, during
the last three years, have been getting their
checks through the banks. The banks financing
the contractors and keeps them going, using the
basis of their contracts for security. Ten
days ago the Comptroller issued a ruling to
Procurement that no checks were to be sent in
care of the banks. See, the way the banks had
gotten hold of it, was the checks were sent to
them - to the contractor in care of the bank.
The contractor came in, took care of the debts,
and got the balance. The Comptroller ruled they
couldn't send them to the bank.
Oliphant:
Did the bank endorse for the contractor?
McReynolds: No. Oh no. And they'd stopped doing it, and
the bankers were in. The boys came down and
in about thirty minutes we had that ruling
reversed. They were to go on and send the checks
in care of the banks, as they had been.
H.M.Jr:
That was one of the days you had a sore throat.
McReynolds:
I called Harry Collins in New York - he's mostly
in New York. He got ahold of the New York people
and cleared it immediately there, and they wired
it from here.
H.M.Jr:
I ordered Irey to stay away until after Labor
Day.
McReynolds:
Did you go out and see him?
H.M.Jr:
Yes, I did. He's fine - cheerful. Mrs. Irey
is just delighted.
Seriously, if you two men - if it wouldn't rush
you too much - if I could have a little memo to
take up with Harold at one o'clock, how much
would it cost, etc., to finish Bethesda? Just
a memo.
Bell:
I think the figures are in that memorandum - a
million and a half, as I recall 1t.
149
- 14 -
VcReynolds: Practically a million and a half - something
between a million five and a million eight.
H.W.Jr:
Give me something I can give him.
What else?
McReynolds;
Nothing.
Bell:
He ought to initial the letter we'd send along.
We made an arrangement, while he was away, the
Budget would handle all Federal projects.
H.M.Jr:
When are you leaving town, tomorrow morning?
Bell:
Yes, tomorrow morning.
H.M.Jr:
May I suggest this, when you handle this: "The
Coast Guard is cancelling three million dollars,
and you'd like to put it into Public Helath, and
could you get his initials on it?"
Gibbons:
You're sure, aren't you, Mac, they won't be able
to clear those sites?
McReynolds: One of Herman's men came in to me yesterday to
make a synthetic committment of those funds, but
I told him we wouldn't do it that way.
H.M.Jr:
Where could the Public Health use the other
million and a half. Three million six - ...
Gibbons:
Three million six, and two million from that
McReynolds:
There are only
....
H.M.Jr:
Have they got another hospital ready?
Bell:
There are several hospitals.
H.M.Jr:
Is there any other place they need one?
Klotz:
Yes, I've got a memo on my desk
....
Bell:
They really ought to get their money out of the
Public Building Funds.
9.M.Jr:
If they are ready. They didn't get anything out
of this two hundred million.
150
- 15 -
Bell:
They didn't deserve anything.
H.M.Jr:
They deserve it as much as the Army and Navy.
Bell:
The Army and Navy didn't get anything.
R.M.Jr:
Look what they got out of Congress.
Bell:
This is part of what they got out of the Congress
for the building program. That's the reason
Army and Navy didn't get anything.
9.9.Jr:
How much are they going to 'get out of the Public
Building Fund?
Bell:
Five million dollars.
H.M.Jr:
Any of it for Bethesda?
Bell:
Peoples' letter said five million dollars of the
Public Building Funds had been allotted to Public
Health for hospitals.
McReynolds:
That's right, I think, except for Bethesda. In
the Public Building Fund we are having difficulty
getting money for Bethesda. You don't have so
much difficulty getting it away from Washington,
and if we can make that kind of trade and get
what is difficult to get for Public Buildings
H.W.Jr:
We release three million six, and all we ask is
a million and a half.
Gibbons:
Ickes will probably want to know right away if
the Senator running over there in Maryland will
get credit for this.
H,M.Jr:
No.
Bell:
Why do you talk them out?
H.M.Jr:
I personally - one I was particulary interested
in was to clean up with Bethesda.
Bell:
Why not say Coast Guard is releasing three million
six and we want to release some Public Health
projects, particularly Bethesda, and clean that up.
H.M.Jr:
Thank you; I'll do that.
B _:
We can use the other that comes along.
H.M.Jr:
We'll do it just that way. Thanks very much.
151
Regraded Uclassified
MEMORANDUM
Conference held in Secretary's Office
July 13, 1938 - 10:30 a.m.
Present: Secretary Morgenthau
Mr. Magill
Mr. Hanes
Mr. Graves
Commissioner Helvering
Mr. Marse
Mr. Mooney
Mr. Hanson
Mr. McReynolds
The Secretary discussed the forthooming establishment
of the Settlement Unit in New York. He explained to Mr. Mooney
and Mr. Hansen. who will be in charge of that Unit, his
attitude and interest in the success of the decentralization
plan: assured them of the assistance and support of the Depart-
ment, and promised to see that they were furnished all the
equipment and help they will require on the job.
152
MEMCRANDUM
Conference held in Secretary's Office
July 13, 1938 - 10:40 0.8.
Present: Secretary Morgenthau
Mr. Magill
Mr. Hanes
Mr. Oliphant
Mr. McReynolds
Commissioner Relvering
Mr. Ryan - Internal Revenue
Mr. Crossley - Internal Revenus.
The Secretary saked for a brief explanation of the work of the
Reorganisation, Bankruptcy and Receivership Section of the Office
of the Chief Counsel for the Bureau of Internal Revenue. This
statement was given by the Assistant Chief Counsel for the Bureau
of Internal Revenue and use supplemented by explanations from
Mr. Crossley of the Reorganization Section.
The Secretary thereupon commented that although it appeared
that it has not been the policy or practice of the Government to
force tarpayers into bankruptcy or receivership as a means of
forcing collection of taxes, nevertheless it likewise appeared
that the Government has not heretofore taken any affirmative action
in these distress situations to help in the formulation or
execution of plans looking toward the rehabilitation of the
financially distressed taxpayer and his continuance in business.
He also stated that there was now a splendid opportunity for the
Government to aid "sick" business enterprises by so handling the
reorganization, bankruptcy and receivership activities of the
Bureau of Internal Revenue as to aid in the ours rather than to be
the agency for delivering the blow which will terminate their
existence. Such attitude of affirmative helpfulness will not only
maintain those business units' existence and reduce unemployment
but will benefit the Government directly by the creation of goodwill
and placing such businesses once more OD an income-producing basis.
thereby evantually increasing the tax revenues.
The Secretary emphasised that Assistant Secretary Hanes was
particularly well qualified to direct such notivity on the part of
the Treasury and the Bureau of Internal Revenue. in view of his
153
- 2 -
broad experience and particularly his recent experience with
the Securities and Exchange Commission. Specifically, the
Secretary directed the following steps be taken in order to
initiate this program:
1. The General Counsel of the Treasury will take
steps to insure that Assistant Secretary Hanes be
advised in detail as to the work of the Reorganization,
Bankruptcy and Receivership Section of the Chief Counsel's
Office and to see that he receives the fullest cooperation
in any procedures which he may formulate.
2. That contact be made with the Comptroller of the
Currency and the Federal Deposit Insurance Corporation,
such contact to be made by the Administrative Assistant
to the Secretary. or, if necessary. by the Secretary
himself, to determine how these agencies may cooperate in
the furtherance of this plan.
000000
Regraded Uclassified
H.D.While
154
liceting in the Secretary's Office
Wednesday, July 13, 1938, at 11:00 A.M.
*Hat of an oral report made by Raymond Leslie suell, Foreign Policy
esconiation, to the Secretary, at Vr. Fuell's request. Mr. White was
procent.
I, guell had just returned from a two month's tour of Europe and
visted to report to the Secretary his views on the European situation.
na stated that he felt pessimistic about the general European situ-
ativn. Vost countries on the Continent were, he helieved, going rapidly
terminal totalitarism. The French situation was bad and showed no imme-
diate prospect of progression toward a solution of any of the basic
problems which confronted it, He reported that the only country that
served to be very hopeful was Germany, where unemployment was virtually
absent and where the United States recession was regarded as proof of
the inavitable weakness of democracies. He stated that he expected
truble in Ozechoslovakia when the present negotiations with the Sudenten
lemans came to an impasse. The Czechs would not, he believed, grant
the degree of autonomy the Germans would insist upon. Ke feared trouble
start within a month or 50,
waid that in the recent Czechoslovekian incident Russie had warned
that her armies would march on Poland il she attempted to take
NY part of Czechoslovakia. And Humania also informed Hungary that any
altock of Sungary on Cwechoslovakia would bring Rumania actively on the
start o: Usechoslovakia. Germany, he felt, had in no way abandoned her
of attacking Missia via Czechoslovakia and Poland.
Fuell thought that the people in Spain felt that the conflict
socid last at least another six months, and that be expected the present
- Hish-Spanish negotia ions to eventually break down because Mussolini
baby needed a victory in Spain.
he also expressed the view that Russia was going to withdraw more
can nore from the European scene, though be said that there were some
the believed that mussia would sooner or later tie up with Germany,
lower, he felt this WES impossible until Stalin passed out of the
licture.
le felt that the only help for European difficulties was for the
\nited States to take an active part, first through the exercise of
"force" and secondly by inducements to Gernany to help wean her away
from her present role or aggressive expansion. He specifically recom-
monded that the United States repeal the Reutrality Act as a first
step, thus indica ing to Germany and Italy that the United States meant
business. He said that Sermany and England had already "written off"
155
- 2 -
United States as a factor in the European situation and that, as a.
consequence, Germany was more aggressive, and England was driven more
and more to seek some arrangement with the aggressors, Italy and Germany.
He likewise expressed the view that the United States ought to
make an arrangement with the other Tripartite countries guaranteeing
for the next few years fixed exchange rates and asked the Secretary
what he thought of that step. The Secretary replied that he had con-
siderable doubt as to the wisdom of any such action and that the
United States at the moment had nothing to gain by committing itself
to a program of that kind. He said that he deemed it essential that
the United States should keep the power to devalue further as a club
to defend it against possible unwanted adverse movements and that the
power should not be used as a "needle" (i.e., to attempt to inject new
vigor in the recovery) to secure advantages.
Mr. Buell stated that in Europe he found people favorably disposed
toward Mr. Hull's and Nr. Morgenthau's policies but that they felt
much less satisfied with the President's program.
He stated that Europeans were confident that the United States
would experience prosperity again.
Uclassified
156
July 13, 1938
My dear Mr. President:
After the California primaries
are over, I would like to recommend for
your consideration Mr. Preston Delano
as Comptroller of the Currency.
Yours sincerely,
The President,
Ea Route.
Regraded Uclassified
157
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 13, 1938
TO
Secretary Morgenthau
FROM
Mr. Haas MA
Mr. Dan Bell has just turned over to me the
estimated monthly expenditure data which you asked him
to obtain from the various governmental agencies.
It 1s my understanding that you wanted these
data set un in a master chart along with some additional
sub-charte in such a manner 8.8 to provide you with &
statistical control of performance.
More specifically, 8.8 I interoreted your request:
(1) It calls for an estimate of expenditures by
months from each governmental agency, including Government
corporations;
(2) These data would be put on B. master total chart
along with some important sub-charts as would be selected;
(3) Each month as actual expenditure data becomes
known, it would be plotted against the estimate to provide
8. comparison of actual results with estimated results;
(4) Each spending agency would confirm or revise
their estimates each month.
This outline 18 in conformity with similar controls
which you have set up in the past, and seems to me 18 the
minimum necessary to provide you with a current statistical
picture of progress and the future program.
Mr. Bell's understanding of your request does not
exactly agree with my understanding as outlined above.
In order that this control may be set up and operat-
ing upon your return, you may wieh to Bee Mr. Bell and myself
before you leave. Mr. Bell asked that I send this message
to you. He told me he had planned on leaving tonight.
158
July 13, 1938
My dear Mr. President:
I am sending you herewith, for your
information, the following memoranda:
1. Commercial Loans in relation to
inventories - prepared by Mr.
Haas filed 7-12
2. The Business Situation, week
ending July 9, 1938 - prepared
by Mr. Haas 7-11
3. Reorganization of Secret Service
under my supervision - prepared
by Chief Wilson 7-9
Faithfully,
(Signed) H. Morgenthau, Jr.
The President,
En Route.
Enclosures.
HSK/NMC/mas
305 I: 1838
Regraded Iclassified
159
July 13, 1938
Arthur Goldsmith cabled Eddie Greenbaum that
the Evian conference is on the rocks. The only way to
save it is to send Kennedy to Evian.
(Eddie says that
Kennedy must have seen the cable before it was sent).
When I told Eddie that Sumner Welles said that the confer-
enoe is a great success, he said "That is why Kennedy
wants to go over and cash in on it."
Regraded Uclassified
160
July 13, 1938.
3:29 p.m.
H.M.Jr:
Hello.
Malin
Craig:
Mr. Secretary, this is General Craig.
H.M.Jr:
Good afternoon.
C:
I have your message of yesterday and I've looked up
the case of that Colonel Haas.
H.M.Jr:
Yes.
C:
Here is the situation, Mr. Secretary.
H.M.Jr:
Please.
C:
He was in the service; he has a very fine war record,
very find record, and about a year ago, for reasons
unknown, he took the re-examination and passed it
for a commission as Colonel.
H.M.Jr:
Yes.
5:
There has never been a vacancy and is not yet one to
which he's entitled.
H.M.Jr:
Yes.
C:
Now, there is a vacancy in one field artillery regiment,
but there are three qualified in that they have worked
for it and gotten their certificates of promotion to
Colonel, and one of them will get that vacancy.
H.M.Jr:
I see.
C:
To put him back again as a Colonel throws out of line
all of the Colonels who are working for those same
certificates.
H.M.Jr:
I see.
C:
Of course, he's only concerned with the field artillery.
H.M.Jr:
Yes.
C:
He's been recommended - he must be 8. very fine man,
161
- 2-
because he applied for the present vacancy ...
M.M.Jr:
Yes.
C:
... and he's been recommended by his - those whom he
knows, and Joe McCoy up in the Second Corps Area.
H.M.Jr:
Yes.
C:
But cases of that sort are - recommendations and
requests of that sort are quite common; they run
about one in two weeks to one in three weeks - of
men who have left the service for their own reasons,
then want to come back to get a particular thing.
H.M.Jr:
Yes.
C:
And I know of no way that it can be done without
upsetting the precedents of all the time we've had
reserves and being unfair to men who have had con-
tinuous service.
H.M.Jr:
"ell of course I'd be the last one to ask you to do
that.
C:
Sir?
H.M.Jr:
I'd be the last one to ask you to do that.
C:
I knew that, and that's why I've explained it to you.
But I wondered if Colonel Haas would feel better if
he were to talk to me and get the whole picture. He
may - he might not know it.
H.M.Jr:
I think he would, because quite frankly I explained
to Colonel Somers the issue for my cousin.
C:
Yes, sir.
8.M.Jr:
He's down in Wall Street, which is the hotbed of the
anti-Administration people.
C:
Yes, sir.
H.M.Jr:
He seems to think that he's - well, he just doesn't
understand. Hello?
162
-3-
C:
Yes, sir.
H.M.Jr:
And I simply felt, if it wasn't asking too much, if
he could have five minutes.
C:
I'll be glad to give him all the necessary time to
show him - to show him that we've had, oh, many similar
cases elsewhere and we've never done it where it does
injustice to men who have continuously played the game.
H.M.Jr:
Well, he - he is such a good friend of the Army and I -
that I felt - he's all upset about it, you see?
C:
Yes, sir.
H.M.Jr:
And he worked terribly hard at getting ready for this.
C:
Yes, sir.
H.M.Jr:
So if you would give him five minutes, I would consider
it an accommodation.
C:
Mr. Secretary, I'll give him all the time he wants and
do my best to explain it. And from his record - I
don't know him - he's the kind of man who will say
instantly, ...
H.M.Jr:
Yes.
C:
"I understand. You're right."
H.M.Jr:
But I - I don't want to ask you to do the slightest
little thing that in any way would be unfair to
anybody else.
C:
Well, I thank you. I have spent most of today looking
the whole thing up, and the whole case.
H.M.Jr:
Oh, for Heaven's sakes.
C:
And that is the situation, and his application has
already been disapproved from here, although he hasn't
gotten it yet.
H.M.Jr:
I see.
C:
But I would rather explain to him. I'll be very glad
163
-4-
to give him all the time he wants and show him the
records and let him understand.
H.M.Jr:
Thank you so much.
C:
Thank you, Mr. Secretary.
H.M.Jr:
Thank you.
Regraded Uclassified
164
July 13, 1938
Called on Cordell Hull to say good-bye.
He opened the conversation by saying "Could
you drop the price of silver about A cent?" I said,
"Well, there is no good reason for doing it." I said,
"You mean domestically or foreign silver?" He evidently
meant foreign silver. I said, "If somebody dumped a lot
of silver on us, we would have some excuse to drop the
price, but with no exouse I think it would be an upsetting
factor at this time."
He said, "Well, we are having lots of trouble
in Mexico and" he said "you know the President and Daniels
have given the Mexicans the impression that they can go
right ahead and flaunt everything in our face." He sald,
"Daniels is down there taking sides with the Mexican Gov-
ernment and," he said, "I have to deal with these Com-
munists down there and have to carry out international
law."
He said, "Couldn't you drop the price of
silver?" I said, "I don't think BO. I said, "I know
I can't." He said, "Well, it 18 very difficult for me
in Mexico."
He said, "You know, these four favorites of
the President, Kennedy, Bullitt, Joe Davies and Daniels,
are constantly going over my head." He said, "Now,
Bill Bullitt takes one of his pets, John Wiley, who is
at the bottom of the list and has him made a Minister."
I said, "To what country?" "on," he said, "some little
country; I don't know, but, "he said, "I recommended a
number one man, but I can't get him appointed. Bullitt
goes to the President direct."
I said, "Now, I don't want to go to England."
I said, "I can't do anything to help you with your trade
treaty and I don't want them to twist anything that I
might say or have Kennedy twist anything that I might
say that might be proved to be embarrassing to you in
your negotiations." I said, "Sumner Welles told me
yesterday that I must go and I wish you would Bee that
nothing 1s started on this side which would put me in
the position that I would have to go." Hull was in com-
plete sympathy. He said, "Well, you don't know what
165
Kennedy would do with these two high-pressure advertising
men that ne has with him." He said, "Why, when he was
here he doesn't let me know and he comes in one morning
and says he has got to see me right away. Then," he said,
"when he gets ready to go away, I have a meeting on with
twolve people and he sends in word can't I step out and
say good-bye to him." He said, "He will claim that he
put through the trade treaty and he does not even know the
first thing about it."
Hull gave me every indication that he has no
more love for Kennedy than I have.
I asked him whether he would not like to see
Professor Buck and he said he would.
I told him that Sumner Welles sent me over, at
five o'clock last night, a memorandum of the conversation
that he had had with the British Ambassador and that Sumner
Welles wanted an immediate answer, which I refused to give
him. Hull said, "Well, I only saw the memorandum last
night myself." I said that my own feeling was that we
should give the British no answer on the debt question at
this time with his trade treaty negotiations pending and
with the President away. Hull agreed with me enthusias-
tically. He said that the question of debt negotiation
reste with the Secretary of the Treasury and "1f we ever
get down to negotiating," he said, "you have to be Chair-
man of tile Committee that handles it." I allowed that
that was correct.
As I was leaving Hull, Norman Davis was waiting
to see him. It 18 interesting that almost every time I
have called on Hull I have found either Norman Davis or
Barney Baruch waiting to see him.
In my conversation with Hull, he went through
the motions of apologizing for having given the wrong 1m-
pression at his press conference on the dollar-sterling
rate in connection with the new trade agreement with Great
Britain. (At the 9:30 group meeting this morning Gaston
said Hull had made the correction and will dictate 8 memo-
randum of Hull's first statement and his correction.)
I found Hull very friendly and much less sar-
castic and, for once, less critical of the President.
He told me that he had gust been examined thoroughly by
168
-3-
the doctor and that the doctor found him fit. (I don't
suppose by any chance this was to let me know that he was
well enough to run for President.)
o0o-o0o
Regraded Uclassified
107
July 13, 1938.
MEMORANDUM
TO: Secretary Morgenthau
FROM: Mr. Gaston
At his regular daily press conference on Monday morning,
July 11th, Secretary Hull WAS questioned on the subject of monetary
negotiations in connection with the pending trade agreement with
Great Britain. Questions and answers were substantially as follows:
Q. Dispatches from New York today report that the British
Pound declined on the money markets B.B the result of rumors that
the trade agreement to be signed between Great Britain and the
United States will fix a ratio of about 4.36 or 4.37 to the dollar.
Could you comment on that?
A. That is more in line with the Treasury's responsibilities -
the purely monetary phase. My judgment is that if we conclude a
satisfactory A greement with Great Britain it will be one of the
largest factors in restoring world trade of any progress that we
have made in the last year. The matter is developing and I still
adhere to my rule not to make any predictions.
Q. Would you go 80 far ne to any that a trade agreement will
be concluded apart from any monetary arrangement?
do You may recall that it has been the policy all along to
carry on the strictly trade agreement side here in the State Depart-
ment. Along, parallel with it is the question of exchange stability
and more permanent monetary arrangements. You will have to speak to
the Treasury about them.
Thomas, who is Mike McDermott's chief assistant in the Divi-
sion of Current Information of the State Department, almost at once
realized that this statement was likely to give trouble, as it
seemed to support the view that parallel negotiations for 6. new
monetary arrangement were going on between the British and the
Treasury Department and Thomas at once went back to Secretary Hull
and got his authorisation to clarify the statement. Thomas WAS
authorised to say that what Secretary Hull was attempting to convey
168
- = -
was that the trade agreement itself would result in a. freer
flow of gold and greater exchange stability. Thomas called
all the newspaper men he could reach and gave them this inter-
pretation of Secretary Hull's reply. He failed, however, to
reach Dennis Smith of the London Daily Telegraph and Morning
Post, who sent the following:
"Mr. Cordell Hull today indicated that discussions
of Anglo-American monetary problems were being carried on
between the British and United States Treasuries parallel
with the trade pact negotiations."
Thomas says he tried to reach me on the phone, but I was out to
lunch and he gotso busy during the afternoon that he didn't have
another chance to call me. However, two or three newspaper men
did call me, among them Sidney Olson of the Post, and I told
them that I knew of no monetary negotiations with Great Britain;
that we already had stability in exchange and a working arrange-
ment under the tri-partite understanding that WELL producing sat-
isfactory results. I added that I thought it likely Secretary
Hull referred to that rather than to any new negotiations.
I mentioned all of this on the phone to you Monday evening
and you asked me to got in touch with the State Department. I got
Thomas on the phone shortly after I arrived Tuesday morning and
he told me what I have recited above and further asked our advice
8.9 to whether Secretary Hull should correct his statement at a.
prese conference. I brought this up at the 9:30 group meeting
and it was your decision that if an opportunity offered in a regu-
lar press conference Hull should undertake to clarify his statement.
This decision I reported at once to Thomas. The result was that
the following ensued at the Tuesday morning conference:
"Q. Mr. Secretary, could you amplify or clarify your
statement of yesterday with regard to the monetary accord
possibly being linked up with the British-American trade
agreement?
"A" Mr. Hull: I don't know of anything more to say than
Mr. Thomas and I togother said yesterday. As soon as I dis-
covered somebody was misinterpreting what I had in mind, I
requested Mr. Thomas to say to each one of you gentlemen that
there is absolutely nothing now on that subject, so far as
We were concerned, in connection with the trade agreement, and
nothing new on it anywhere else (Treasury) so far as we knew
or had heard about, and that is the status of the matter."
Thomas read this to me over the telephone and I had Frank King take
it down in shorthand and transcribe it.
Uclassified
169
GROUP MEETING
July 14, 1938.
9:30 A. M.
Present:
Mr. Magill
Mr. Oliphant
Mr. Gaston
Mr. Haas
Mr. Taylor
Mr. White
Mr. Hanes
Mr. Lochhead
Mr. Gibbons
Mr. Upham
Mr. McReynolds
Mrs. Klotz
H.M.Jr:
Magill, good morning.
Magill:
Good morning, sir.
H.M.Jr:
Anything?
Magill:
No, I think not. Have you got any five 'minuteses'
during the day?
H.M.Jr:
Sure:
Magill:
I have two things I'd like to speak to you about -
each of which will take two and a half.
H.M.Jr:
Three thirty.
Magill:
Fine.
H.M.Jr:
If I get a break during the day I can switch it
earlier.
Magill:
All right.
H.M.Jr:
White, did you want to see me too?
White:
Yes sir.
H.M.Jr:
White, three forty. I won't "devalue" you and
double up; I'll "revalue."
What else?
170
- 2 -
Magill:
I haven't anything. Mr. Hanes and I have been
conducting seminaries for each other's benefit.
H.M.Jr:
Good.
(Nods to Mr. Oliphant.)
Oliphant:
Nothing, I think.
H.M.Jr:
You know?
Oliphant:
Yes, I'm pretty well sure.
H.M.Jr:
Herbert.
Gaston:
Nothing of any importance, sir. I notice
Corrington Gill was around among all the manu-
facturers of clothing in New York and bought some
surplus clothing for the W. P. A., in the morning
papers.
H.M.Jr:
Good. That's all right. I'd rather he did; we're
just their agency.
Haas:
I noticed they turned down the dress suits.
H.M.Jr:
Also the spangles. The interesting thing - when
they got all through, and offered to buy every-
thing in America there was only ten and a half
million dollars of surplus clothing. All that
was offered - ten and a half million. By the
time they rejected the dress suits, they got
down to nine and a half million. These are
winter clothes, too.
Haas:
Oh yes.
H.M.Jr:
Herbert, will you have the New York Times start
sending to me, beginning with Sunday, please,
to the American Embassy, Paris,
.....
Gaston:
In care of the Embassy?
H.M.Jr:
Yeah.
Gaston:
Yeah.
H.M.Jr:
And, let's see - beginning with that, it goes
through until, let's see, - oh well, take it
through the fifteenth; that makes it just about
171
- 3 -
fifteenth. through the fifteenth of August. Through the
Geston:
Just the Times?
H.M.Jr:
I think so. What else?
Gaston:
I think nothing else. The boys will probably
ask, at the press conference this morning, about
Chinese silver and about monetary negotiations
with Great Britain, if any.
H.M.Jr:
That's all being conducted by Mr. Taylor.
Taylor:
I'll be here all summer.
H.M.Jr:
All right - that's the answer.
Caston:
Getting out a couple routine releases - one
on your marksmanship contest and the other on
law enforcement results for the year.
H.M.Jr:
Why don't you get me out a release like Nathan
Straus got out yesterday - that's a release.
Gaston:
I haven't seen it yet.
H.M.Jr:
There is a model; that's a release of a release.
Gaston:
I'll certainly look at it.
H.M.Jr:
Take a look at it.
McReynolds:
Maybe he has more time to devote to it.
H.M.Jr:
He brought it in and showed it to me, and I didn't
want to be sarcastic so I said, "Well, that's
very nice." He was tickled. It's a model.
Anything else?
Gaston:
Nothing else.
H.M.Jr:
George.
Haas:
Got a few things here.
H.M.Jr:
Say, George, on that book, what I would do - I'm
going to take it with me, and then once a week
172
- 4
will be time enough - does your report come out
Mondays?
Heas: 8
Which report do you have in mind?
The business report.
Hass:
On Mondays.
H.M.Jr:
Well, that, plus photostatic copies of this -
so I can just fit it in once a week.
Heas:
I see - send it over to you.
H.M.Jr:
(Speaks aside to Mrs. Klotz.)
Well, up to the end of this month Mrs. Klotz
will handle all the mail for me, and she goes
on her vacation, and then Mr. McReynolds will
handle it. All I want, - I mean, I don't want
any cables, but I would like to keep this, plus
your weekly report.
Haas:
I see.
H.M.Jr:
Because this does give me your
Baas:
I'd like to talk to you a little bit - I had
planned on discontinuing that.
H.M.Jr:
Which, this?
Haas:
No, not that - the weekly report, while some of
us went on a vacation.
H.M.Jr:
That's all right. This is good enough.
Hans:
But, I mean, if you need it, we'll stay and work
it out.
H.M.Jr:
I could not take this on my lap and read this,
thinking that you were in Washington sweltering
here.
Haas:
I was thinking of being gone a month. I thought
it better to go as soon as possible in order to
get back and get some of the other things you
want. That can come through, routine like, once
a week.
173
5 I #
H.M.Jr:
Once a week is enough.
Haas:
We can just let it go automatically on the boats.
Do the mail boats go Friday or Saturday?
H.M.Jr:
Let them accumulate, and let them go through
in the pouch. Why not accumulate it once a week
and find out when
.....
Klotz :
I think it would be a very good idea to put
everything in a pouch.
H.M.Jr:
If I run out of (?) - send it over in the
pouch.
McReynolds: Anything the State Department sends is in a
pouch.
H.M.Jr:
Anything? Including Ry-Crisp?
McReynolds: The State Department people don't send anything
less than Ry-Crisp in those pouches.
H.M.Jr:
That will come.
Haas:
That will come.
H.M.Jr:
You say you want to see me?
Haas:
No. No.
H.M.Jr:
Good.
Haas:
What I had in mind was - I wanted to see you,
unless you've seen Danny Bell, I want to see
you.
H.M.Jr:
Oh, let me do this right after this meeting. Let
me do this right after this meeting.
Wayne?
Taylor:
I talked to Sumner Welles yesterday, and gave
him your message, and he says that's fine with
him, and he agrees completely.
H.M.Jr:
Fine.
- 6 -
174
Taylor:
And this is that business about B. I. S. not
agreeing to that.
H.M.Jr:
Well, now, are you and Archie and White clear
on how to answer this business of these paragraphs
in the trade treaties, or should I talk to you
before I go?
White:
I think we're in agreement.
Taylor:
Yes, we're in agreement on it; we'd like to
talk about it so that
....
H.M.Jr:
Well, it will be about seven - about, around
eleven thirty. I'll call you, though, so you
won't be waiting outside. It will be about -
I'll phone you.
Oliphant:
Don't forget the rush act again on this British
agreement. No time to look it over?
H.M.Jr:
I'm sure there won't.
Whit e:
Oh no. No, no.
H.M.Jr:
I'd like you to sit in on this thing, Herbert
(meaning Herman), and know about it.
Oliphant:
Eleven thirty?
H.M.Jr:
Who will be on that gold thing while you're gone -
Bernstein?
Oliphant:
Yes.
H.M.Jr:
Then he'd better listen too.
Oliphant:
I'll bring him in.
H.M.Jr:
Anything else, Wayne?
Taylor:
(Nods "No.")
H.M.Jr:
What I am trying to do is build up in the
Government Life a twenty-five million dollar fund -
two per cent note, which you can use at your
discretion while I'm gone, to buy long-term
Governments when the market is soft. When you
run out of that send "Papa" a telegram. There's
175
- 7 -
twenty-five million dollars at your disposal,
if the Government bond market turns soft later,
and if you need another twenty-five million send
me a cable. Is that enough leeway?
Taylor:
I think so.
H.M.Jr:
Is that enough, or do you want fifty?
Taylor:
I think twenty-five is all right. If we use that
we'll be yelling for help.
H.M.Jr:
If twenty-five - if - when she has soft spots,
I'd do it in long-term Governments. That fund
is up to twenty-three now.
Lochhead:
It's up to twenty-four; it was twenty-three, and
we added a million dollars, and they have orders
up stairs to automatically increase it to twenty-
five.
Taylor:
I'll do the same - I'll work with the Board, the
way we did it before.
B.V.Jr:
Try to get them to do it first.
Taylor:
We didn't have to use the fifty before.
R.M.Jr:
Eccles is coming in at three. I'd like to have
you in and talk about it, Cy - Eccles.
Uphan:
(Nods "Yes.")
H.M.Jr:
So we can see how sharp Eccles teaches, and take
his blood pressure. Your thought is to keep -
go fifty-fifty?
Taylor:
No.
H.M.Jr:
Let them go first?
Taylor:
Yes.
H.M.Jr:
You've got twenty-five anyway, and that's enough.
Taylor:
And I'd just as soon not let Marriner know
I've got the twenty-five.
176
- 8 -
H.W.Jr:
I said something to him about that.
McReynolds: Wayne evidently wants a file for Marriner's
teeth.
Taylor:
No, not at all. It worked all right before,
when we had the fifty, and didn't have to use
the fifty. But it's better than the fifty-fifty
arrangement, if you haven't got many chips, but
it may not work this time.
Lochhend:
Their rating power has run down very materially,
though. It's run down to about thirty-two
million from around forty million.
H.M.Jr:
0. K.?
Taylor:
We'll listen to Marriner and I think it's - I
don't think I'd let him know that we had the
twenty-five, and 30 on, but that we'll cooperate
as in the past.
H.M.Jr:
Harry?
White:
Nothing - unless you'd like to know the status
of the British Trade Agreement. I just checked
up on it.
H.V.Jr:
Why don't you do that for me at eleven thirty?
White:
Yes sir. It will only take a minute - I can
tell you then.
M.M.Jr:
That's what we're going to talk about. I told
Mr. Hull I knew none of the details; didn't want
to know any of the details after I left.
White:
I'll just tell you the general status.
H.4.Jr:
When I get over there, what I'm going to say
is, I don't know anything about 1t. And that's
pretty near the truth.
White:
Well they don't know a lot more yet.
H.M.Jr:
And, if, while I'm gone, any bright fellow has
an idea that Mr. Morgenthau should go to England,
or anybody approaches anybody with the idea I
should go to England, discourage it very much,
because I don't want to go to England - not this
summer.
177
- 9 -
Anything else, Harry?
White:
No.
H.M.Jr:
(Nods to Mr. Hanes.)
Hanes:
Nothing.
H.M.Jr:
Would you like the to say anything - this will
be at the press conference at ten thirty - that
I've thing? asked you to look into the bankruptcy
Hanes:
Unless you wish.
H.M.Jr:
Oh no. Only if you wish. Too young?
Hanes:
No.
H.M.Jr:
Too young?
Hanes:
Yes.
H.M.Jr:
You're not ready for it?
Hanes:
No.
H.M.Jr:
Anything else? You're going to go away the end
of August, aren't you?
Hanes:
I had planned to - the fifteenth.
H.M.Jr:
(Nods to Mr. Gibbons.)
Gibbons:
Nothing.
R.M.Jr:
(Nods to Mr. Lochhead.)
Lochhead:
Over the holiday everything was very low on the
exchange.
H.M.Jr:
Run it up or down?
Lochhead:
I think they should run it up.
H.M.Jr:
Very good for us. I read on the front page -
Mr. Bullitt called on Mr. Bonnet to arrange for
my visit to Paris. That's all right - just off
the gold, and he does this.
178
- 10 -
Lochhead:
You didn't think he wouldn't do that, did you?
H.M.Jr:
He's all right. The best offer I've had, one
of the well known brands of champagne - the
American agency wrote me that all their Paris
representatives would be very glad to look
after me while I am in Paris. Inasmuch as he
didn't get down to brass tacks and didn't
mention how many cases would be sent over here
for me to sample, I turned him down cold.
Gaston:
Wine salesmen know more than just wine.
H.M.Jr:
I thought it was a pretty good gesture.
White:
Are they always putting on a show for the boys?
H.M.Jr:
No, not that I know of, but believe me - what's
the name of this man over here that's a star?
Klotz:
Chevalier.
H.M.Jr:
Chevalier is the fellow I'm crazy about.
Gibbons:
We had a great Customs case against him one
time. (Laughter:)
B.M.Jr:
Listen, if every time I look around the dinner
table when I go out, as to the people the
Treasury has cases against, half the people -
either I or the rest of the people would have
to leave the table. Somebody would have to leave
the table.
Gibbons:
We got Mabel Walker Willdebrand fixed up.
E.M.Jr:
I knew she was a smart girl.
Cy?
Upham:
Nothing.
Klotz:
(Whispers to H.M.Jr.)
H.M.Jr:
Yeah. We'll fix up that, too.
Klotz:
Huh? You didn't hear that.
179
- 11 -
H.S.Jr:
When are you going over to see Harold Ickes
about an allotment?
McReynolds:
I've got - Ickes is going to telephone me
the time. He told me at nine o'clock this
morning.
You come back, will you - check with me at two
o'clock about where this dispensary is going
to be.
McReynolds:
I'll tell you now.
H.U.Jr:
Where is it going to be?
McReynolds:
In the new Social Security building; they've got
all the plans for 1t. The plans are in process
now. It will be a year before the building is
completed. We haven't got any money to fix that
place over there. We've used all the funds to
fix that building. They can't occupy ordinary
office space; they've got to have equipment for
it, and we haven't got any money to buy the
equipment.
H.W.Jr:
What's the matter with the present?
McReynolds: Of course, you could move them in. They'd be
worse off there now than they are, unless you
had their equipment built in and space for it.
H.2.Jr:
Well, my god; I've been over there. All the equip-
ment they've got - after all the machinery goes
with it, but the rest of it - partitions - is
just a matter of curtains.
Mcheynolds: They are building a space for it in the Social
Security building.
H.V.Jr:
All right! I'll tell you what we'll do - two
forty-five, McReynolds, Parran, Peoples, and
Hall. See? Let them know what it's about. It's
going to be on the ground floor of that building.
That's where she's going.
McReynolds: All right - you're the boss.
H.M.Jr:
I know it. And it's going to 80 there.
180
- 12 -
McReynolds: Hall isn't here.
R.N.Jr:
Well then, whoever is in charge of that building.
It's going to go there, pending the
McReynolds: You wouldn't want it in Hall's end of the floor.
We'd want to put it at the other end of the
building. It would have to be in the office
end of the building. Hall's office isn't the
place for it.
H.M.Jr:
Pending the completion of the Social Security
building, and then it will go there.
Smile, Macl
McReynolds: I am perfectly willing to smile, but you will
run into a lot of difficulties about the set up.
H.M.Jr:
That's all right. It's just a test for
organization; see how good you are.
McReynolds: I have the fellows this morning working on it.
M.M.Jr:
Two forty-five on the ground floor.
McReynolds:
We'll be ready to go.
H.M.Jr:
Let them come in here. I'm not going over there.
I won't go over there - bring the floor plans
in here with them - and whoever is necessary to
make the decision, but let them have a little
preliminary hearing to make it easy for me.
McReynolds: I wouldn't deliberately try to make it hard for
you.
H.M.Jr:
If it's a nice day tomorrow, and the sun's
shining between here and New York, I'll come in;
if it's not a nice day, I'll take the ten o'clock
train. I'll see you all at lunch anyhow. You've
all got your vacations, haven't you? If it's a
nice day, I go up by airplane; if it's a rainy
day, I go by train.
If anybody's got any bright ideas, and wants to
see me, if they'll get in touch with Mrs. Klotz -
right after three fifty.
181
- 13 -
Oliphant:
Three fifty?
H.M.Jr:
You want it?
Oliphant:
(Nods "Yes.")
H.M.Jr:
Sold.
Oliphant:
For one minute.
H.M.Jr:
Thank you all.
Regraded Uclassified
182
July 14, 1938.
10:51 a.m.
H.M.Jr:
Hello.
Operator:
Jones.
Go ahead.
H.M.Jr:
Hello.
Jesse
Jones:
Hello.
H.M.Jr:
Jesse.
J:
Yes.
H.M.Jr:
I thought you'd like to know ...
J:
Yes.
H.M.Jr:
... that your notes are oversubscribed thirteen times.
J:
Thirteen.
H.M.Jr:
And we allotted on a basis of 8 percent.
J:
Eight?
H.M.Jr:
Eight.
J:
I see.
H.M.Jr:
Which will give you about 210; it may vary a couple
million under or a couple million over.
J:
All right, that's fine.
H.M.Jr:
That'll be right around 210.
J:
What time you getting away, Henry?
H.M.Jr:
Oh - ah - I ....
J:
This afternoon?
H.M.Jr:
Yes - I mean I'm leaving early tomorrow morning.
J:
Huh?
183
-2-
H.M.Jr:
I'm leaving early tomorrow morning.
J:
You're leaving here early tomorrow morning?
H.M.Jr:
Yes.
J:
Uh-huh. Sailing tomorrow afternoon?
H.M.Jr:
Sailing tomorrow afternoon.
J:
Uh-huh. Well, I thought I might drop by some time
during the afternoon and shake your hand and ...
H.M.Jr:
I'd be delighted. How's four o'clock for you?
J:
I think all right. I'm - I'm going to have lunch
with Ickes, try to straighten out some of these
conflicts between our lending.
H.M.Jr:
Yes.
J:
And then if four suits you, I'll try to make it at
that time.
H.M.Jr:
Well, if I don't hear from you, I'll expect you at
four o'clock.
J:
All right, fine.
H.M.Jr:
Thank you.
J:
Bye.
Uclassified
184
July 14, 1938.
11:44 a.m.
H.M.Jr:
Hello.
Operator:
General Craig.
H.M.Jr:
Yes. Hello.
Malin
Craig:
How do you do, Mr. Secretary. General Craig.
H.M.Jr:
General, I just wanted to thank you for your courtesy
and kindness to George Haas.
C:
Well, I met one of the most delightful gentlemen I've
seen for a long time, Mr. Secretary, and he's - he's -
he's a good soldier, that fellow.
H.M.Jr:
I think so, and he left here all for you.
C:
(Laughs)
H.M.Jr:
And he said he'd never been treated better and he said
he didn't know that he was as good as he was, and he
understands perfectly, and he went back more than happy.
C:
Well, the trouble was that things were misrepresented
to him and he confessed that to me. I told him I
could only surmise that.
H.M.Jr:
Yes.
C:
And he - he told me about it.
H.M.Jr:
Well, I - I - I do appreciate all the time and trouble
you took.
:
Why, not at all, Mr. Secretary. By golly, I - - I wish
to the devil I could know you better.
H.M.Jr:
Well, that's mutual.
C:
Hun?
U.M.Jr:
That's mutual.
C:
All right. And I see you're going away and hope you
get some rest and have 8 good time.
185
-2-
H.M.Jr:
Fine. Thank you.
C:
It won't all be rest, but some of it.
H.M.Jr:
Some of it will be.
C:
All right, sir.
H.M.Jr:
Right.
C:
Well, good luck to you and thank you for calling,
Mr. Secretary.
H.M.Jr:
Goodbye.
Regraded Uclassified
- LOMMUNICATIONE -
EME SECRETARY or STATE
186
- D. c.
DEPARTMENT OF STATE
WASHINGTON
In reply refer to
EA 123 Kennedy, Joseph P./90
July 14, 1938
My dear Mr. Secretary:
I enclose herewith, in accordance with your
request, a copy of the speech which Ambassador
Kennedy delivered on July 4, 1938, before the
American Society in London.
Sincerely yours,
Lives Frederick Livesey,
Acting Adviser on International
Economic Affairs.
Enclosure:
Despatch of July 5, 1938,
from London, and en-
closure.
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
Department of State
su
EA
DIVISION
ENCLOSURE
TO
Letter drafted
ADDRESSED TO
TREASURY
U.S. GOVERNMENT PRINTING OFFICE
1-1031
Regraded Uclassified
187
LONDON, July 5, 1938.
SUBJECT: Transmission of text of Ambassador's
address before the American Society,
London, on July 4, 1938.
The Honorable
The Secretary of State,
Washington, D. C.
Sir:
1/
I have the homor to forward herewith, for the De-
partment's records, five copies of the address which I
made before the American Society last night, at the
Dorchester Hotel in London.
Respectfully yours,
For the Ambassador:
Herschel V. Johnson
Counselor of Babassy
Enclosures: 1. Five copies of text of Ambassador Kennedy's
address.
A TRUE COPY
OF THE SIGNED
NDB/HEJ
ORIGINAL
NED
Regraded Uclassified
Melecare
No.
to despaich Bc
of
7/5/38
from the Emiossy at London, England,
108
American Embassy
July 4, 1938.
Confidential - For release after 10:30 p.m., GMT, July 4, 1938.
Address of Ambassador Kennedy bofore the American Society
nt its Independence Day dinner held at the Dor-
chester Hotel July 4, 1938.
One of the first things I saw this morning at Southampton
as I looked over the side of my ship, was the American flag
flying from the tender that had come out to take us off. Later,
as my boat. train pulled into London, I saw the Stars and
Stripes floating from many a flagsteff, and the sight cheered
me.
It was a further manifestation that this celebration
which Americans ell over the world join in making today comes
under the most cordiel auspices in England - a further proof
that the differences which divided us more then o century
and B half ago have faded in our memories.
It is usual enough, of course, for American envoys in
foreign countries to join with their competriots in cele-
broting the Fourth of July. I imagine it is unusual, how-
iver, for an ambassador to come to = patriotic dinner of this
kind so fresh from our native country, the touch of whose
soil - as the earth to the wrestler in Creek mythology -
always gives us new strength end hope.
Our country, I am happy to report to you, is reviving
from its economic difficulties, but only the future course
of the world con determine whether that revival will be of
o permanent nature. In the United States, at any rate,
the psychological elements which chld us so strongly in their
depressing grip last winter are tending to disappear.
Every American, of course, feels e special thrill on
the Fourth of July, but when he is nwny from his own country,
his own people and his own surroundings, his sontiment is
20t to be sharpened by pleasureable pangs of homesickness.
If you ore experiencing this sensation, es I have today, I
hope you will interpret it as D. good sign - a healthy
symptom.
For a men can never really forget his native land or
cease to long for It, nt least occasionally, no matter do how
many years he stays r.way from it. That is, he cannot so
If he is the kind of good citizen, loyal friend and thorough
American I know you nll to be.
Most of you are obliged to live abroad for rensons which
are good and sufficient. You pre, for the greater part,
engnged In the promotion of trade end other forms of exchange
between
Regraded Uclassified
between our country and Great Britoin, and your contribution
to the relations of the two and to stobility of the world is
n good end great one.
For we are finding, more and more, that nations cannot
live to themselves with any more happiness or comfort than
can individuals. Leaving caide political considerations,
the economic developments of the past several years have
borne in on us all how interwoven are the strands of world
economy these drys. We connot be prosperous in the United
Stotes if the rest of the world is suffering, nor can the
rest of the world climb the economic and industrial grode
if we in America are poor.
Congress has adjourned and its members have taken to
the stump. That alone secms to cause people to breathe more
ensily, although I have always held the view that the business
community's traditional fear of legislation passed by
Congress ought to be an exploded myth. I have never known a
clearer illustration of this point than the steady upward
march of the stock market and other indices for the thirteen
months between Merch, 1935 and April, 1936. During that
period, Congress passed the Wagner Labor Relations Act, The
Public Utilities Holding Company Act, the Social Security
Act end increased all sorts of taxes, in addition to passing
many other laws which would ordinarily frighten business out
of its wits, but there was confidence abroad in the country
and things kept on going right ahead. I think that we are
victims of our own fears, in times of psychological business
depression, and that we are inclined to blame on Congress
our own apprehensions of the unknown.
There is more then usual interest in the Congressional
and other elections to be held next fall, which is natural
enough under the uncertein circumstances of the day. I
have been asked an much for my own opinion of the outcome
if those elections that I nsk your leave to digress here D
moment to give some sort of on answer. It appears to ne
that, with business picking up and the stock parket quota-
tions rising almost daily, my Republican friends have very
little basis for the extravagent hopes I hear them sometimes
express.
Whet is most herrtening tn those of us who believe that
the American system, pretty well as We have ulways known It,
is the best way for us to live, is the thtal nbsence at
home of any demands for a radical change. We still think
in terms of Democrats versus Republicons. If we don't like
one set of governing officials we can turn then out in favor
of a new set - but we went to make the change in the orderly
end lowful manner to which we have olways been accustomed.
Elsewhere in the world, this is not true. One has only
to cost his eyes about the map to see where people, embittered
by injustice and impoverished by lack of opportunity, have
turned despoiringly to new ronds. They may or may not
believe themselves to be better off. With that, we can have
little
Regraded Uclassified
190
-3-
11ttle concern, but we can and should watch our own citizens
closely for any indications of e sinilar psychological de-
velopment. We must never cause them to lose hope that they
can pull themselves out of their own troubles and that the
machinery of their government is available to them for the
purpose.
For my own part, I am returning to London considerably
heartened as a result of my visit to Washington, New York
end Boston. Limited es WAS my time, I saw a great meny
people of different stations in life. I talked with Govern-
ment officials, including our President, with bankers and
industrialists, with former classmates at Harvard, with the
young men who are friends of my sons, and with old friends
in many walks of life. They did not appear to be in great
fear for the future of our country, viewed over the long
term. Quite naturally, like the rest of us, they had their
own immediate and vexing problems. But they still have feith
that their difficulties will be overcome and that their
country will be n. good place for their children and grand-
children to inherit.
It would be in bad taste, of course, for us to imitate
the Pharises and congratulate ourselves on being better than
the rest of the world. I do not moan to do that. But I do
think it is legitimate for us to thank God for the blessings
our own country holds for us and for the opportunities it
will offer to our children. And there could be no more
appropriate ocorsion on which to indulge in 3 few reflections
of this kind then at this Fourth of July dinner.
I como back to my post burdened with good wishes for
Greut Britcin from all kinds of people. They went Great
Britain to settle its difficulties quickly and successfully
and they want Great Brittin to keep on living comfortably
in the femily of nations nlong with a friendly and happy
United States of America. They want me, and those of us who
live here, to help cll we can toward that end. I know that
the American Society will continue to do its own large share
of that work.
As Honorary Choirman of this Society, I want to thank
all of our distinguished guests for joining us tonight in
this American festival. To our own members, I wish success
in the lives they have nade for themselves here.
And when thrse of us who will happily find ourselves
together on this most venerated dcy in our history to colebrate
its glorious tradition, may we olweys find our country and
this now in which we live et pence one laboring in the some
spirit of good will for r.ll the world.
Regraded Uclassified
191
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 14, 1938
TO
Secretary Morgenthau
FROM
Mr. Haas MA
Attached 18 Miss Lonigan's report of her recent
trip to Cleveland.
192
July 13, 1938
To:
The Secretary
From:
Miss Lonigan Et
Two things stand out in the Cleveland situation, one
good and one disheartening. The distribution of surplus
commodities 18 rapidly being transferred to indoor stores.
Money for relief is still not available. The legislature
voted new funds but there is B. question of their legality.
There are flickers of reviving employment. The atmos-
rhere 18 definitely more cheerful.
Distribution of Surplus Commodities
Monday actually was one of the worst examples of the
evils of outdoor distribution of commodities. Because of a
heavy rainstorm in the morning it was not possible to move
the flour in the trucks, or stack it on the ground. The
relief cliente therefore had to wait two hours or more in
the rain until the flour came, There was a near riot at
one of the stations.
Fortunately the change to inside stores has been pro-
ceeding rapidly. Five stores have been rented and are being
remodelled. The first store will be opened, fully equipped,
next Monday morning. The stores will be open five days &
week, and clients can come in in more orderly fashion and be
waited on promptly. Also it will be possible to move staples
regularly, without delay in bad weather, and at much lower
trucking cost.
The stores will be staffed by people on city work
Regraded Uclassified
-2-
193
relief. Five stores will be opened in July. It is hoped that
sixteen will be open by Labor Day.
This is a splendid improvement in the situation as it was
in June. It was carried out about as fast 8.8 possible in view
of the shortage of funds in Cleveland.
The Federal Surplus Commodities Corporation has promised
to give more commodities as soon as distribution is improved.
Cleveland relief will thus have more commodities and far decenter
methods of local distribution as a result of the interest of the
Federal agencies in the situation.
Relief Finances
The last grocery orders issued (for ten days) expired
last Saturday. The city had $5000 for a few emergency orders.
No other funds were actually available.
The state legislature passed several additional laws per-
sitting the city to 1ssue bonds against sales and other taxes
for next year. There 1s, however, a possibility that the sales
tax might be rescinded at the next election. Also there is some
question whether some of the taxes do not go over the charter
limits and therefore require a popular vote. As 8 result the
city has not yet been able to arrange for sale of the bonds.
"They're not the kind of bonds bankers want to buy", said
Mr. Ramsey, the highly respected director of health and welfare
in Cleveland. He sounded tired. These men have a budget crisis
every ten days or so, worse than most administrators have once a
year.
The relief staff have now been paid through the 15th of
June. They have not been paid for the last half of June, and
Regraded Uclassified
- 3 -
194
do not know when they will be.
The city is about three months behind schedule in its
phyments of rent for quarters. That is one of the reasons
"ty it was difficult to rent space for stores.
In view of the almost hopeless difficulties under which
they work, in addition to uncertainty about their own salaries,
relief officials and staff deserve the highest praise for the
1:8] in which they have carried their responsibilities.
Outlook for Relief Financing
There is no possibility that the confusion in relief
finances can be settled this coming year. All the solutions
offered so far are ways of borrowing money from next year's
normal income.
The conflict between the rural communities, representing
real estate owners, and with A. comparatively light relief
problem, and the industrial cities with heavy relief burdens,
Mgh average costs, and mostly indirect taxation, is not a
metter of local personalities and local politics. It 18
deep-seated social conflict, at the surface in Ohio, Indiana,
and Illinois, underground in Michigan, New York, and the better
managed states.
Meanwhile the extra funds are lacking, out of which a
beginning might be made on preventive and curative programs,
and the families are barely kept alive without any help in
regaining self-support.
Mr. Mock, formerly director of the city Home Relief Divi-
sion, and now with the Cleveland Welfare Federation, said he
thought the first need was for the families to have food enough
Regraded Uclassified
- 4 -
195
to regain their fighting spirit.
The Families
Different relief visitors were seen on this visit.
They tell the same story as the earlier relief officials.
Families on direct relief are the old, the tired, the
sick and half-sick. They are the ones most easily exploited,
and the ones every agency is most eager to be rid of.
When food orders stop, neighbors help, parents give food
to children, single men get it from garbage pails. The chil-
áren are the best off because parents will fight for them if
not for themselves. The families with adults only probably
20 very hungry. The head of the visiting nurses said nellagra
18 reancearing, whereas a few years ago no one ever saw a
Dellarra case in Claveland. This may also be due to too much
Arink. Sick people are sent to the hospital and doctors report
"There's nothing the matter except that they've gone too long
without enough food". Or they do not go to the dispensary,
end tell the visitor, "I didn't have any car fare, I didn't
have anything to eat. I didn't feel like going". All special
diets, for the tubercular, the diabetic, for sick babies, are
stopped.
Probably no one is starving. "No one gives to the poor
lize the poor".
Eight or ten visitors have been struck by clients. If
relief families hadn't been the less aggressive kind there
would have been "riots and everything else".
They have absolute faith that somehow "the President 16
Regraded Uclassified
- 5 -
198
going to see them through".
Relief end WPA
The relief load is falling elightly. It 18 partly WPA,
partly that fewer people apply when the papers say there are
no funds, partly that relief officials reject all borderline
cases when funds are low.
TPA employment has risen from 67,000 to 74,000.
About one-quarter of the families on relief are "supple-
mentation cases", cases where there is someone employed either
in private industry or on WPA. Criticism of the supplementation
of WPA cases from local funds is mounting.
The city still has a few work relief projects of its own
for building maintenance, office cleaning, doormen and messen-
ger service. They are not doing half as much on work relief
as they did before WPA took their best people.
Housing
The greatest pressure on the family budgets of relief,
WPA and irregularly employed families, 18 the high cost of
rents. Rent is the ever pressing necessity that cuts down
food purchases. Anything that can be done to expedite low-
rent housing in Cleveland will not only create employment but
vill also create margins to be spent for food.
With the stabilizing of unemployment and the increase in
spending, the worst of the acute situation should be over.
The chronic problem will remain for next fall and next
winter.
Regraded Uclassified
197
July 14, 1938
My dear Harry:
I am sending you herewith, for
your confidential information, a copy
of Miss Lonigan's report on the Cleve-
land situation.
Sincerely yours,
Hon. Harry L. Hopkins,
Administrator,
Works Progress Administration,
Washington, D. C.
Regraded Uclassified
198
July 14, 1938
My dear Mr. Secretary:
I an sending you herewith, for
your confidential information, a copy
of Miss Lonigan's report on the Cleve-
land situation.
Sincerely yours,
The Honorable
The Secretary of Agriculture.
199
RE POSSIBLE MONETARY ASPECTS OF PENDING July 14, 1938.
TRADE AGREEMENTS
2:40 p.m.
Present:
Mr. Taylor
Mr. Oliphant
Ar. Lochhead
Mr. Bernstein
Mr. White
(White comes in)
H.W.Jr:
We can't have ham omelet without
....
White:
well, it's very nice tobe "ham" even if
...
H.M.Jr:
Just because you said goodbye to me doesn't mean
...
White:
That's why I thought
....
H.M.Jr:
Well, "Monsieur" Taylor, como si, como esta?
Taylor:
I think maybe the "ham" had better discuss this,
because he's got the text there.
H.V.Jr:
All right.
White:
The first change is E very simple one, very signi-
ficant one. That's the paragraph in question.
H.W.Jr:
"Nothing in this agreement shall be construed to
prevent the adoption of measures prohibiting or
restricting the exportation or importation "
-
you want to leave out the word "gold"?
White:
The British Treasury has asked that the word "gold"
be left out.
H.M.Jr:
My respects to the British Treasury and tell them to
jump in the Atlantic Ocean.
Oliphant:
Enough said.
E.M.Jr:
What?
Oliphant:
Enough said.
Taylor:
Period.
H.M.Jr:
Period.
And according to the Washington Post the British
Regraded Uclassified
200
-2-
rule under the sea - is that what they said? oh,
that was while you (Taylor) were away. They had
these eleven boats all sunk, and they said "The
British Navy rules under the sea."
Lochhead:
They waived the rules instead of ruling the waves.
H.M.Jr:
All right, that's Number One, except if Bernstein
objects on legal grounds.
Permstein: Don't object on legal grounds or other grounds.
white:
This is the paragraph you
H.m.Jr:
Have you learned now to say, "Hasta le visto"?
The answer is "masta luego."
Bernstein:
Are you going to Spain or France?
a.H.Jr:
No, but I learnt it while 1 was there E little while.
You (011phant) were down there in New Mexico. Didn't
you speak Spanish?
Olighant:
un, a long time ago I used to speak the language.
Little rusty now.
B. .Jr:
Article XII. "In the event that the rate of
exchange between the currencies of the United
States of America and the Caechoslovak Republic
varies considerably (from the rate obtaining on
the day of the signature of this Agreement) ..."
walte:
Which they would like to eliminate unless there is
an informal understanding that the rate would be
permitted to vary ten percent from the old par of
4.86.
4.V.Jr:
No. No. "In the event that the rate of exchange
between the currencies of the United States of
America and the Czechoslovak Republic veries
considerably (from the rate obtaining on the day
of the signature of this Agreement), the Government
of either country, if it considers the change in
rate so substantial as to prejudice the industry
or commerce of the country, shall be free to propose
negotiations for the modification of this Agreement
or to terminate this Agreement in If its entirety on
thirty days' written notice."
if it considers
Regraded Uclassified
201
-3-
the change in rate so substantial "
Taylor:
I thought they nad 8 change in word for "substantial."
white:
They've got another suggestion. This is the British
suggestion.
H.M.Jr:
"In the event that the rate of exchange between the
currencies of the United States of America and the
Czechoslovak Republic varies considerably.. - it's
all right with me.
White:
This is the British suggestion which they want to
accompany
Olighent:
But only on the understanding that there is 8 side
bet to the effect that it is only to vary ten percent
from 4.86.
White:
That's the oral understanding that is to accompany
their phraseology.
H.M.Jr:
Mr. Chamberlain - when we had the tripartite thing
up, he wouldn't - that's just the thing he wouldn't
do. This is the British suggestion?
«hite:
This is the British suggestion, provided it is
accompanied with something that won't appear in the
text.
H.M.Jr:
"If B wide variation should occur in the rate of
exchange between the currencies of the United Kingdom
and the United States of America, and if either high
contracting party should consider the change in rate
to be of such a character as to prejudice the industry
or commerce of the territories of that high contracting
party, such high contracting party may propose negotia-
tions for the modification of this agreement or may
terminate the agreement in its entirety on giving
thirty days' notice in writing to that effect."
White:
Mr. Oliphant is of the opinion that their phreseology
is a satisfactory substitute, providing
H.M.Jr:
No - excuse me - I don't want & single thing changed.
I think that this thing, unless you people can argue
with me - this thing - the question - I mean I'd want
Regraded Uclassified
202
-4-
two weeks to study this thing. And then, what
have I pt a tripartite agreement for? And we've
just gone all through it with Mr. Hull three times
and denied the thing; I denied it flatly this
morning. And if the British Treasury wants to
take up the question of the relationship between
the dollar and the pound, they should do it through
the Treasury, through the tripartite agreement,
And I say it has nothing to do with the trade
agreement and I would want a month
White:
They were told that.
R.M.Jr:
Pardon me?
White:
That's practically what Wayne told
8.1.Jr:
Now, you've (Taylor) got to stay behind and I want
to know whether that's all right with you.
Taylor:
Completely. That wording is - unaccompanied by
anything else, seems all right to me. It means the
same thing
Oliphant:
That's the point. The two languages, the words we
have previously used and the words they suggest mean
exactly the same thing. The whole thing is whether
or not you're going to have this side bet.
ing
J.V.Jr:
Well now, Herman, without mention/shy names, we
might do this and somebody in the State Department,
I don't know who, might give them a side bet. I
don't know - somebody might. And unless Taylor
says to me, "Now, I disagree with you heartily;
I'd like tohave a chance to - I'm going to stay
behind to handle this" - but I take it you don't.
Taylor:
I certainly don't.
H.M.Jr:
You're in complete agreement.
Taylor:
Absolutely.
S.M.Jr:
weave it as is. After all, it was very effective with
the French, and the State Department never raised any
question then. Right?
Regraded Uclassified
203
-5-
Taylor:
Right. And that's been thoroughly explained to
the British three times.
2.2.Jr:
And I frankly would hate to have this thing start
going over there, because I'd like to be able to
say when I'm asked, "Gentlemen, as far as the trade
treaty is concerned, I know there are negotistions
going on, but I don't know anything about the details.
The monetary thing - we have nothing." And I'll look
anybody in the eye and tell them SO. And I don't
believe that Neville Chamberlsin will sign a thing
ten percent either way on 4.86. Christ! he fought it
to a standstill - what RES it, three or four years
ago?
Optionant:
We're all agreed on that.
G.S.Jr:
But now, if anybody feels strongly, I'll listen.
Goehher.d:
we couldn't feel strongly the other wey, taking the
background that we have with the tripartite negotia-
tions. These changes do not fit in with the tripartite
negotiations.
"No competitive depreciation
"
Tylor:
1.2.Ar:
is a nice phrase.
.nitet
It's already taken care of by the tripartite. There's
complete agreement.
What's the particular status of the trade agreement?
white:
I can outline very briefly in just a minute
If you please.
white:
The United States nas offered a large number of
concessions, very substantial concessions, parti-
cularly on cotton textiles and 24 lot of Items of
manufactured goods, to Great Britsin. In exchange,
it has requested concessions which include a fairly
long list of manufactured articles.
Who's made the concessions?
White:
The United States has offered to ive these
Regraded Uclassified
204
-6-
concessions, and the United States has asked for
a reduction in the preference which Empire countries
have in sending goods to Great Britain and an increase
in the quotas of some pork products that come from the
United States, and some reduction in duty in B. long
list of manufactured articles.
H.S.Jr:
Anything for apples?
White:
Yes.
8.1.Jr:
Good.
White:
Fruits and vegetables - that's part of the Empire
preference.
The British have been very reluctent to give much
at all. They've given concession on wheat, they've
given apparently some concession on Empire preferences,
to a small degree; they've given in very little on
any manufactured goods. And they appear to be most
reluctant to give any more concessions and - this
is the opinion of the negotisting committee - are
stalling interminably; that they won't budge an
inch from their present position until they hear
from Chamberlain, and that what are the factors
that's going to make up Chamberlein's mind, or the
others, they don't know; but as matters stand now
they've gone very little of the way, and there
doesn't seem to be any immediate prospect of
consummation, but
H.M.Jr:
No immediate prospect.
White:
No immediate. But they said the thing could change
over night, the thing could be settled very quickly
if they agreed on a rather small group of important
conditions, which they have given no indication of
conceding at the moment, and appear to be in no
hurry whatsoever.
H.W.Jr:
Well, Mr. Bewley is coming in at 4:15 - he phoned me -
has & message from Sir John Simon. I imagine it's
an invitation
Taylor:
well, the
...
H.N.Jr:
He'll be here. Do you know about 1t?
Regraded Uclassified
205
-7-
Taylor:
(Nods no)
H.M.Jr:
Will you be here at 4:15?
Taylor:
Yes.
H.M.Jr:
It might have to do with this. Well, if you'd be
here, please.
Taylor:
(Nods yes)
H.d.Jr:
Everybody happy?
Oliphant:
Yes. That's all.
H.M.Jr:
I really think, Wayne, where this means so much to
Cordell, I would like you to ask for an appointment
to see him and explain it to him personally, so he
gets it firsthand.
Taylor:
All right.
H.M.Jr:
I think it's important enough that it doesn't go
through to him second-hand or third-hand. So 1f
you'd ask for an appointment to see him and go over
Taylor:
Yes. les.
H.M.Jr:
because this is the apple of his eye, and I really
think if you could ask to see him and explain it - "This
is the way we feel" - and I'm sure, in view of what
happened this week
...
So if you don't mind, I'd
call now and ask him whether he could see you at his
earliest convenience.
white:
I'm sure they will agree, because they have a
feeling that (words not clearly understood)
sincere or legitimate request.
H.M.Jr:
And then if tney had any change - "Well, this is
the way we feel." But I think I'd call up and
say, could you see him at his earliest convenience,
because I've seen the time when some - when things
aren't always explained to Cordell entirely the
way they happen.
206
ARTICLE XII
In the event that the rate of exchange between the currencies of
the United States of America and the Czechoslovak Republic varies
considerably (from the rate obtaining on the day of the signature
of this Agreement), the Government of either country, if it considers
the change in rate so substantial as to prejudice the industry or
comerce of the country, shall be free to propose negotiations for
the modification of this Agreement or to terminate this Agreement
in its entirety on thirty days' written notice.
ARTICLE XV
Nothing in this Agreement shall be construed to prevent the adoption
of measures prohibiting or restricting the exportation or importation
of (gold or) silver, or to prevent the adoption of such measures as
either Government may see fit with respect to the control of the export
or sale for export of arms, ammunition or implements of war, and in
exceptional circumstances, all other military supplies. It is agreed,
further, that nothing in this Agreement shall be construed to pr vent
the adoption or enforcement of measures relating to neutrality.
Regraded Uclassified
207
Paragraph desired by the British to replace the one
contained in previous American trade agreements.
If a wide variation should occur in the rate of exchange between
the currencies of the United Kingdom and the United States of
America, and if either high contracting party should consider
the change in rate to be of such a character as to prejudice
the industry or comerce of the territories of that high contract-
ing party, such high contracting party say propose negotiations
for the modification of this agreement or may terminate the agree-
ment in its entirety on giving thirty days' notice in writing to
that effect.
208
TREASURY DEPARTMENT
Washington
FOR IMEEDIATE RELEASE,
Pross Service
Thursday, July 14, 1930.
No. 13-90
Secrotary of the Treasury Morgonthou today announced the subscription
figuros and the basis of allotment for the offering of $200,000,000, or there-
abouts, of 7/0 porcent notes of Scrice N of the Reconstruction Finance Cor-
poration.
Roports received from the Foderal Reservo bonks show that subscriptions
aggrogato $2,625,000,000. Subscriptions word allotted 0 percent, but not loss
than $1,000 on any ono subscription.
Furthor dotails as to subscriptions and allotments will be announced
when final reports nro roceived from the Federal Roserve banks.
o0c
Regraded Uclassified
209
RE SPANISH SILVER
July 14, 1938.
2:55 p.m.
rresent:
Mr. Taylor
Mr. Oliphant
Ar. Bernstein
Ar. Lochhead
Mr. White
a.2.Jr:
Would we be normally able to handle one more
shipment of silver in August from Spain?
Lochhead:
Well, the way it stands just now, we made the bid
on the third shipment - they think it may be loaded
about the end of this week. In that case, it would
get in somewhere around the 23d or 25th; so therefore,
if that got in and was cleared up, they might ask -
I mean along with your program you've mentioned, you
might give them another bid; that'd be the latter
part of July.
H.M.Jrt
Well, I think if we give them a bid about - say,
around the first of August?
Lachhead:
Well, I don't think you could clear up this next
shipment much before that, even if it came the 23d.
Oliphant:
Well, say the first week in August.
B.M.Jr:
Well, I'd say - let's leave it this way: early in
August. How's that? Is that all right, Wayne?
Taylor:
(Nods yes)
H.M.Jr:
What? I mean that doesn't - but I mean I don't think
I'd give tnem another bid in July If they're going to
run in two on us here.
Jochhead:
Well, yes, just like to spread them a little bit.
And I'd like to get some more silver out of New York
before we get any more, because we won't know where
to put them.
White:
And the matter of their jurisdiction - push it
earlier.
H.M.Jr:
Oh sure, I just
...
Taylor:
All other things being equal, why, make another bid.
210
-2-
Oliphant:
Early in August.
H.M.Jr:
I think if we - if it works out that we take ten
million a month from them - ten million - after
all, we're taking twenty million a month from
China. I think if it works out that we take
ten million ounces a month from Spain - I think
we're doing handsomely.
Lochhead:
You'll be interested to know that Siam ...
H.M.Jr:
If it works out like that, huh?
Taylor:
Work It out on a population basis, huh?
H.M.Jr:
AD - no, on the basis of direct hits by bombs.
Lochhead:
You may be interested to know that Siam has
approached the National City Bank about handling
their silver. The bank called me up.
H.M.Jr:
well, I think if we did Spain - about ten million
ounces a month, leaving you fellows a little leeway.
Regraded Uclassified
211
July 14, 1938
At 3:30 p.m. Mr. Morgenthau conferred with Mr. Eccles.
Dr. Taylor and Mr. Upham were present.
Mr. Morgenthau told Mr. Eccles that he had nothing
special to discuss with him prior to his deperture for
veration, out wanted him to know that he was depending
on 1.1m and wayne to take care of the Government bond
market while he was away. Mr. Eccles expressed the view
that the bond market was plenty high and probably shouldn
be cermitted to go much, if any, higher. Mr. Morgenthau
expressed the view that he wouldn't like to see it have
EL vory oronounced sinking spell, at least while he is away.
In Eccles was of the opinion that there was no reason to
expect anything in the way of E. decline in view of the
tremendous volume of excess reserves that are outstanding.
Mr. Taylor expressed the view that banks are selling
Governments to some extent and may continue to do SO.
Dr. Eccles hinted at the possibility of e semi-inflationary
boom this fall which might need some control, and which
might even require, eventually, additional powers for the
Sederal Reserve Board.
212
- 2 -
Mr. Morgenthau asked Mr. Eccles if he had anything
he wished to discuss with him before his departure, and
Sr. Eccles brought up the matter of uniform bank exam-
Instion. He said he had just come from a meeting with
Crowley, Diggs, Nichols and Folger, and that the details
of exemination forms and instructions to examiners had
not yet been agreed upon. He maintained that Crowley
and Diggs are disregarding the agreement, putting market
prices in where they had agreed not to and doing a number
of things to which he cannot agree. Mr. Morgenthau said
that he should think they could get together and carry
out the agreement, but suggested that Mr. Taylor and
"r. Upham could serve as arbitrators if they wished.
Upm
213
July 14, 1938.
3:16 p.m.
H.M.Jr:
Hello.
Operator:
Chairman Douglas.
H.M.Jr:
Hello.
Wm. 0.
Douglas:
This is Bill Douglas.
H.M.Jr:
How are you?
D:
Fine. You remember you called me up about a man about
a week ago or 30,
H.M.Jr:
Yes. I forgot all about it.
D:
I hadn't neglected it. This chap, I think, on the
basis of his personal wishes and what not, feels
that he has squeezed the particular orange here dry,
and if there was something there I think he would
like to have it.
H.M.Jr:
Uh-huh.
D:
Therefore, my policy has been in cases like that
not to stand in his way, so 1f you want him you've
got my blessings.
H.M.Jr:
Well ....
D:
He's a good man, and I hate to lose him, but
...
H.M.Jr:
Well, since that's happened, John Hanes has changed
his mind.
D:
I see.
H.M.Jr:
And has postponed making - doing anything until after
Labor Day.
D:
Yes. Well, you just have my - proceed right, as far
as we're concerned, as, if and when you decide to do it.
H.M.Jr:
Well, Hanes said that for the time being he thought
he'd first better get acquainted with the material
here.
214
-2-
D:
Yes.
H.M.Jr:
And he's going to let it slide. But I appreciate very
much your attitude.
D:
O.K.
H.M.Jr:
Thank you.
D:
Goodbye.
215
July 14, 1938.
5:06 p.m.
Operator:
Go ahead.
Jesse
Jones:
Hello.
H.M.Jr:
Hello?
J:
Hello, Henry.
H.M.Jr:
Yes, Jesse.
J:
You said you wished I'd have a nice summer, didn't
you?
H.M.Jr:
Yes.
J:
Will you tell Mr. Bell to make our interest rate
very, very low?
H.M.Jr:
I'll - I'll tell him to do what you asked me to do
the first time.
J:
Begin dating - date it July first.
H.M.Jr:
July first, one and a half percent on your net
balance.
J:
So you'll tell him to do that.
H.M.Jr:
I'll - I'll issue the order at once.
J:
Thank you very much.
H.M.Jr:
Thank you. Goodbye.
Regraded Uclassified
216
July 14, 1938.
5:07 p.m.
Operator:
McReynolds.
H.M.Jr:
Mac.
W. H.
McReynolds: Yes.
H.M.Jr:
Will you see that Taylor, whoever's handling it,
beginning with July 1 we charge RFC one and a half
percent on their net balance.
McR:
One and a half percent on their net balance.
H.M.Jr:
Beginning July 1.
McR:
That's RFC.
H.M.Jr:
Jesse Jones just called me.
McR:
Yes. July 1 ...
H.M.Jr:
July
McR:
... net balance, RFC, one and a half percent.
H.M.Jr:
Check.
McR:
I will.
H.M.Jr:
Sold.
McR:
Yes, sir.
H.M.Jr:
What I can't find out yet is - I've got to face the
two of you - whether - who was kidding who. Were you
kidding Mrs. Klotz or she you?
McR:
No, she was kidding me.
H.M.Jr:
Are you sure?
McR:
Oh, she was kidding me undoubtedly. That was her
intention.
H.M.Jr:
Yes, all right. I'll have to face the two of you.
McR:
All right.
H.M.Jr:
All right, Mac.
Regraded Uclassified
217
REB
GRAY
London
Dated July 14, 1938
Rec'd 3:35 P. me
Secretary of State,
Washington.
635, July 14, 6 P. me
FOR TREASURY FROM BUTTERWORTH.
At B. meeting of the Tuesday Club last night the
German Economic and financial situation WGB discussed.
In view of the fact that the group was representative
of the city, Treasury, Foreign Office and universities
it is interesting that no suggestion that the German
system would break down in the near or immediate future
was made. On the contrary there was general agreement
that should the world settle into a period of depression
in the fall Germany would remain comparatively unaffected
and consequently the Nazi totalitarian system with its
full Employment of available labor and capital would shine
by comparison with the state of the British and American
democracies where the volume of both idle capital and
unemployed labor resources would bE increasing.
One factual statement of possible interest was made
by E. M. H. Lloyd, Assistant Director of the Food DEfense
plans
Regraded Uclassified
218
REB
2-#635, From London, July 14, 6p.m.
plans Department of the Board of Trade, who said that
Germany had used B. part of the devisen obtained from
Austria to purchase large quantities of grains, meats
and other raw. materials including rubber. On top of
this Germany was going to have such a good harvest year
that some German foodstuff contracts had to bE canceled
because of lack of storage facilities in Germany.
The fortign Exchange market was inactive today.
HOWEVER 336 bars of gold were dealt in at fixing but
subsequent dealings were very small.
KENNEDY
CSB
Regraded Uclassified
219
REB
GRAY
London
Dated July 14, 1938
Rec'd 3:50 P. me
Secretary of State,
Washington.
633, July 14, 6 P. m.
STRICTLY CONFIDENTIAL. FOR TREASURY FROM BUTTERWORTH.
In a conversation at the British Treasury Phillips,
who has just returned from a meeting of the Finance
Committee of the League at GENEVA, said that he had
stopped off at Paris to talk to Cariguel who had EVEN
harsher things than usual to say about Inspecteurs de
Finance and politicians. Cariguel fElt strongly that
valuable opportunities had been lost and hE thought,
although hE did not say it in so many words, that the
French Government would bE forced to borrow from the
Bank of France by September. Phillips obviously sympath-
ized with Carigual's viewpoint. HE too feels that
Daladier has been hesitant, weak and inept in his handling
of the French situation particularly in respect of modify-
ing the forty-hour WEEK which Phillips believes is crucial.
Waley
Regraded
220
REB
2-#633, From London, July 14, 6 p.m.
Walcy said that Rowe-Dutton British Financial Attache
in Paris reported that the view 1a current in France as
it is here that the next financial crisis 1a scheduled
for October. Rowe-Dutton, however, makes the point that
the prevalence of such an opinion has the Effect of
advancing the date for the crisis and therefore hE would
not bE surprised to find it occurring in September.
From B. French diplomat who recently had an interview
with Daladier about the international situation I learn
under conditions of strictest confidence that Daladier
brought up the question of exchange control during the
course of the conversation and gave him the impression
that while he did not favor such methods he was "playing
with the idea". My informant obviously felt that
'homme du six fevrier" had just that type of hysterical
courage which would grasp such an expedient during a
crisis after having, through indecision, let other more
profitable ones alip through his fingers. My informent
also felt that most of the French Cabinst were perplexed
and uncertain of their course and that therefore in the
End many might acquiesce in any measure which could bE
represented as inevitable. Paul Reynaud is said to bE
tempted by a new game having misplayed his hand at the
time
Regraded Uclassified
221
REB
3-#633, From London, July 14,6p.m.
time the Daladier Government was formed. HE is now
considering whether he should try to steal the thunder
from the Left by coming out in favor of Exchange control
(with himself as the controller). Incidentally my in-
formant told me that the American Treasury had Expressed
that thoughtduring the last French crisis that the
imposition of a limited Exchange control system might be
the more suitable method of dealing with the Existing
problem and that this fact was having an Effect on the
present current of thought (SEE my 420, May 18, 6 P. m.).
My informant was of the opinion that Exchange control
could not be instituted in France without causing dis-
organization and disturbance and therefore he feared the
immobilizing which this would entail and the opportunity
it would afford to Germany.
In view of the above I questioned Phillips as to
his view of the trend of Events in France and of the
desirability or otherwise of the institution of Exchange
control by France. Phillips said that hE saw no signs
that a movement towards control was gaining momentum,
that it would bE part and parcel of a resurgence of a
Left political swing and that if anything the trend of
political
Regraded Uclassified
222
REB
4-#633, From London, July 14,6 p. me
political opinion in France according to British sources
was towards the Center. Phillips also felt that most
of the French Cabinet would not stand for any such measure
and that the Senate was now no more prepared to accept
such a development then it had been during the second
Blum Government.
Phillips again reiterated his profound conviction
that for France the institution of Exchange control
would prove both futile and vicious:
effectively - n
(1) It would not bE run / black market in francs
would immediately develop, capital would continue to bE
exported and the worst of both possible worlds would
ENSUE, namely all the disadvantages of exchange control
would bE
/ followed by the disadvantages of a further depreciation
of the franc.
(2) Not only would capital continue to BEEK refuge
abroad but French capital now abroad would certainly
not return.
(3) Likewise Exchange control could not bE instituted
over night and during EL period in which the matter would
bE publicly debated and legislative power sought enormous
sums
Regraded Uclassified
223
REB
5-#633, From London, July 14,6 p.m.
sums would leave the country. This would accentuate both
the fiscal and Exchange problems.
(4) While Exchange control would hinder to a cer-
tain extent French Exports it would by no means rectify
the balance of trade by reducing sufficiently French
imports for the basic armament demands would have to
bE satisfied.
(5) Furthermore the setting up of a control system
would mean an Extension of political corruption and
coercion inasmuch as the allocation of the available
foreign Exchange for imports which could not in France
bE kept out of those realms.
KENNEDY
CSB
Regraded Uclassified
224
July 14, 1938
Mr. Bewley came in to see Mr. Morgenthau
today at 4:15.
Following is a record of their con-
versation:
Mr. Bewley: I was rung up on the long
distance telephone and I have brought you EL message
from the Chancellor of the Exchequer, which 1s as
follows:
a The Chancellor of the Exchequer is
greatly looking forward to meeting Mr. Mor-
genthau during his visit to Europe and very
much hopes that before sailing for Europe
Mr. Morgenthau will be able to fix a date on
which he will give the Chancellor the pleasure
of seeing him in London. Parliament is likely
to continue till Thursday 28th or Friday 29th
of July, after which Ministers will be separat-
ing in all directions and the August holidays
will begin at once. If Mr. Morgenthau could
ue in London for & day or two in the week 24th
to 29th July that would suit arrangements at
this end very well."
HM,Jr: I appreciate the message, but here is
RJ difficulty. We were going to spend one day in Paris,
but my children had a "sit-down strike" and we had to
make it three days in Paris. I have hotel reservations
at Antibes, which were very difficult to get. I am
anxious to get there and forget that I am Secretary of
the Treasury and I do not think, as much as I would like
to, that it would be possible to come to London during
the week that Sir John Simon asks me to.
Mr. Bewley: I think he will be disappointed.
HM.Jr: I will too. You see, I only arrive
in Paris on the night of the 23rd. We have all our
plans fixed and, as I said, Mr. Bullitt had great dif-
ficulty in getting our reservations at Antibes.
Mr. Bewley: You can get from Paris to London
very quickly.
HM,Jr: True, but Just as Sir John Simon has
Regraded
Uclassified
225
-2-
nis holiday fixed, so I have mine. I don't think it
would be possible to go to London during the first week
that I am over.
Mr. Bewley: Do you mean that there would be
A later period that you could come to London?
HM,Jr: Well, depending on how much rest I
get would decide what further plans I might want to make,
but if everybody will be away I do not think there 18
much sense in coming over. Perhaps some of them will
be on the Mediterranean.
Mr. Bewley: That might be conceivable.
HM,Jr: I certainly appreciate it very much,
but if Mrs. Morgenthau knew that I plan to tear around
over Europe she would cancel the trip.
Mr. Bewley: Is there any message you would
like to send in reply?
HM,Jr: I appreciate his message very much
and when I get there I have asked Butterworth to come
to Paris to spend a day with me and I will talk to him
and possibly he will know at that time what the plans
are of your Government and he can take a message back.
I an not taking anybody with me. I am not taking any
material with me. I am not really prepared for any
meeting.
Mr. Bewley: Especially as you are going to
Paris the Chancellor will be disappointed in your not
coming through to London.
HM.Jr: You will please convey my hearty
thanks to him.
000-000
Regraded Uclassified
226
JR
GRAY
Paris
Dated July 15, 1938
Rec'd 1:34 p.m.
Secretary of State,
Washington.
1112, July 15, 5 p.m.
FROM COCHRAN.
Effects of denials by American and British officials
of monetary negotiations helped quiet Exchange market
today. French control was, however, obliged to yiEld
sterling stadily to meet a fair demand at 178.30. Bank
of France statement as of July 7 showed no important
changes with coverage 47.63 versus 47.25. Enthusiasm
for sterling dampened slightly by British trade returns
for first six months.
BULLITT
KLP
Regraded Uclassified
227
REB
PLAIN
London
Dated July 15, 1938
Rec'd 2:50 P. n.
Secretary of State,
Washington.
641, July 15, 6 P. m.
POR TREASURY FROM butterworth.
The following excerpt from a speech which Sir John
Simon made in the House of Commons this afternoon in
connection with the winding up of the third reading of
the Pinance Bill may bE of some interest:
"OnE special word I wish to say about the United
States. 2 do not think it is generally realized how
much the falling off in the world consumption of primary
commodities which has undoubtedly happened in recent
months has been connected with what has happened in the
United States. There are special conditions there such,
for Example, as the growth of stocks in manufacturer's
hands during 1937. They have had something to do with
producing that situation. But if you exclude the United
States--always D. very big thing to do--from your figures
and look at what is the world consumption of copper, tin
and
Regraded Uclassified
228
REB
2-7641, From London, July 15, 6 p.m.
and rubber you SEE that apart from the United States it
has shown no special reduction during the first five
montho of this year. Of course if the falling off in
American consumption were to continue it would have an
Effect throughout the world. But on the other hand
if there is recovery there-and WE hope that there may
be-there is no doubt that this will mean a picking up
by the engine and the whole machinery
....
the latest
figures Bl:ow some tendency to improvement. It is true
that this 13 shown in stock exchange quotations and
primary commodity prices more than in actual trade con-
ditions but on the whole my advisers take the V1EW that
they (to present an added reason for distrusting and dis-
counting gloomy prophecies as to the future."
The Foreign exchange market was not very active
today. Although about noon the pressure on the franc
was strong the French fund held the rate at 178.30.
The demand for gold decreased decidedly, only 177 bars
bring dealt in at fixing at 1423. 2D. which is only 2D.
premium.
KENNEDY
KLP
Regraded Uclassified
229
(copy)
July 15, 1938.
Dear Dan:
For your information and that of the Secretary I enclose here-
with alternative schedules for the handling of the September issue. I
recommend most strongly in favor of the first schedule which would involve
announcing the issue on Tuesday morning, September 7. I recommend against
any shorter schedule for the following three principal reasons.
1. Safety and accuracy. Our people are handling in this period
some $600,000,000 of new securities and the payment for them. If the sched-
ule is hurried as much NB indicated in the second alternative with people
working long hours under serious pressure, we cannot be sure of the neces-
sary safety and accuracy. There is always danger of serious errors or lome.
2. Policing of subscriptions. Over a period of years we have
gradually established precedents and methods for assuring a fair distribu-
tion of subscriptions among subscribers in accordance with their merits.
The second schedule would allow ue no time for a survey of the subscrip-
tions with this objective. We would have to take practically every sub-
scription offered. It would be unfair to legitimate subscribers and would
break down the principles we have been trying to establish in handling the
subscriptions.
3. There is a human aspect to this problem. Even with the
extended schedule the men and women in whom we repose confidence to handle
this work are forced to work long hours and under high pressure. The
shortened schedule would further lengthen these hours and further increase
the pressure. In view of the responsibility of handling the large nums
Regraded Uclassified
- 2 -
involved I do not believe this 1a either safe or humane.
AB I indicated to you it seems to me quite practicable to follow
the first schedule and yet give the Secretary an opportunity for adequate
consideration of the financing. I propose to return from my holiday early
in the week beginning August 22 80 that I will have from ten days to two
weeks to study market conditions. I would also suggest that you or Wayna
Taylor might plan to spend a day or two in New York from September 1 to 3,
interviewing various people quietly. I would then be prepared to go to
Washington after the close of the market on September 4 50 as to spend that
evening and as much of Sunday as seems desirable reviewing the issue with
the Secretary. We ought to be able to make a recommendation to him at
that time sufficiently definite so that 8. decision could be reached. If
anything extraordinary happene on Monday, Labor way, we could still make a
change on that day and announce a. changed form of issue for Wednesday morn-
ing, though this should only be done in extraordinary circumstances. This
seema to me to involve no more danger due to unforeseen circumstances
arising than would the second schedule which must involve the lapse of a
full business day between the decision and its announcement. In fact, the
second schedule 18 even worse than the first because this business day
which elapses 18 one in which all the markets in this country are open,
whereas under the first schedule only a holiday intervenes. We have fre-
quently announced an issue the day after Labor Day without any record of
difficulty as far as I remember.
Sincerely yours,
Hon. Daniel W. Bell,
Assistant to the Secretary,
United States Treasury,
Washington, D. C.
WRB.H
encl,
Regraded Uclassified
231
GROUP MEETING
July 15, 1938.
11:00 a.m.
Present:
Mr. Magill
Mr. Taylor
Mrs Klotz
Mr. Lochhead
Mr. Hanes
Mr. Gaston
Mr. Hass
Ar. Gibbons
Mr. Upham
Mr. McReynolds
Mr. Oliphant
(McReynolds shows H.M.Jr a note)
H.M.Jr:
Oh, talk to him when I come back, In connection
with O'Reilly. You want it - you want to do?
Sex:
I don't - I told Mrs. Ross that on these presidential
places I had nothing whatever to do with it.
B.R.Jr:
Well, when I come back.
dent
Yes. Joe O'Mahoney came in to see me.
n.d.Jr:
I think I'd like to give - let it go. If we can
give O'Reilly something, we'll give Ross something.
Give them each five hundred.
You can't give O'Reilly five hundred, because she's
within two hundred of the top.
d.M.Jr:
Well, give them each two.
year
You can't give the chief - they're not two hundred
dollar steps.
H.M.Jr:
Well, Mac
SCR:
I'm perfectly willing to let it
n.w.Jr:
When I come back. Don't you (Klotz) think so?
Klotz:
I don't know.
R.M.Jr:
All right. You'd give Nellie five hundred?
Regraded Uclassified
232
-2-
Klotz:
No, I'd give - if I could, make it the other way around.
McR:
Mrs. O'Reilly refuses to take it
...
Klotz:
I'd give
....
McR:
... because the other one doesn't get it.
Klotz:
That's why you should give it to her.
H.M.Jr:
Can you give Nellie 250?
McR:
No, only five hundred.
H.M.Jr:
499?
McR:
No.
H.M.Jr:
Five hundred. All right. She's been here five years.
Klotz:
Hundred dollars a year, that's right.
McR:
I said that on a presidential appointment I can't
H.M.Jr:
Call up Chip Roberts and ask his advice.
Don't you think that Hanes ought to have the Bureau
of the Mint and Nellie Tayloe Ross?
McR:
I'm perfectly willing to give it to him. I think
Wayne would be perfectly willing.
Taylor:
Fine with me.
H.M.Jr:
Mac, you draw up a Treasury order transferring the
Bureau of the Mint to Hanes, effective today.
McR:
Is Hanes here?
Hanes:
What's this?
H.M.Jr:
Effective today, we're transferring the Bureau of
the Mint and Nellie Tayloe Ross to you.
McR:
Don't consent to it.
Hanes:
I'll have to think that over.
H.M.Jr:
Well now, Wayne's pushing me very hard, and so's ....
233
-3-
Taylor:
No, I wasn't pushing you. I said it was fine with
me, but
McR:
I should think Wayne - he isn't pushing because he
never sees her.
Taylor:
Oh yes, I do.
McR:
I didn't know you ever saw her.
Klotz:
You're all very unkind to the lady.
H.M.Jr:
Keep O'Mahoney happy. Give her five hundred because
she earned it a thousand times, and give Miss O'Reilly
the maximum.
Oliphant:
Personally I'd like to see Miss O'Reilly leave the
service at the maximum.
Mch:
We can do that very easily. We do that effective
the first of July. And we'll give Mrs. Ross one step
promotion effective the first of August.
Klotz:
Can't Miss O'Reilly get more than 200?
McR:
No, because she's at the top - next to the top.
H.M.Jr:
O.K.
Men:
She goes to the top of the list. That's all she can
get.
H.M.Jr:
What other good news you got, Mac?
McR:
I told Joe yesterday when he mentioned It to me that
anything that was done on that goes down on his -
was an obligation that he was - he was obligated to
you for whatever was done; you were doing B favor
for him personally. He says, "All right, I'm glad
to have it on that basis." He managed her campaign
for Governor.
H.M.Jr:
I happen to like Joe O'Mahoney. I've liked him for
six years.
McR:
I like him.
Regraded Uclassified
234
-4-
H.M.Jr:
I think he's a square-shooter.
Gibbons:
Perfectly on the level.
H.M.Jr:
Always has been with me. Always.
McR:
He'll consider this a personal favor.
H.M.Jr:
All right. Rub it in.
McR:
On that basis.
H.M.Jr:
Rub it right in.
McR:
I'll tell him it's as a personal favor. He asked
me. to let him know.
H.M.Jr:
Any other important matters?
McR:
No, nothing else.
Taylor:
Do you ask him to sign receipts for those, Mac?
McR:
But Joe is pretty good in recognizing his obliga-
tions. He doesn't ...
Taylor:
No, I was just ....
H.M.Jr:
He does - he'll keep feith.
Gibbons:
Nothing.
H.M.Jr:
All right. Archie?
Lochhead:
We've done our business a few moments ago.
H.M.Jr:
We handed over some money to Mr. Del Rios. All right?
McR:
I told Wayne that you wanted one and a half rate on
net balances to be given Jesse Jones, effective the
first of July.
H.M.Jr:
Jesse was over here and sat here for half an hour
saying nothing, and after having done business with
Jesse for five years I said nothing. So then Jesse
was - when he starts to go back to the office he
Regraded Uclassified
235
-5-
says, "On by the way, Henry, if you really want
to make me happy, why don't you give me one and
a half for my balances?" I said, "From the first
of July?" He's been playing with me for e month,
not paying me the interest for the first six months,
trying to get it effective the first of January.
80 + said, "The first of July - will you be happy?"
"All right, that's fine." "All right, goodbye."
See, we sat here talking about nothing for 30
minutes, and I just made up my mind I'd meke him
talk first.
Taylor:
Might interest you to know he asked me whether I
thought he was going to do any better than that.
I told him no.
H.M.Jr:
Well, he was perfectly happy. He's traded around
for a month. Balance is several million dollers.
Gibbons:
You know, they tell - a friend of mine told me El
story about Jesse. Insurance man went in and they
were all crying to Jesse about doing something for
this insurance company. Right after 133, you know,
and this concern was going into bankruptcy and Jesse
stopped and said, "It reminds me of E story. When
I was a kid, two boys were fighting. One had the
other one down, punching him. Old man came along,
said, 'Let that boy up. K4d looked up at him - 'How
much is in it?!" And he said, "What would you do?
What would you do? What would you do?" After -
that was the end of the conversation, after these
fellows talked to him. Boy, he's a trader.
H.M.Jr:
All right.
Gibbons:
I'm all right.
Hanes:
Mr. Secretary, Bill Douglas wants me to go with him
to New York on Monday for another meeting of the
Stock Exchange committee. Is that all right?
H.M.Jr:
That's O.K., fine. No, what I told Douglas the
last time - not the last - he called me again
yesterday; stay behind a minute, I'll tell you what
he said. I told him - he wanted to set a date; I
think I told him - I said, "There is no date. As
far 8.9 Hanes is concerned - whenever you want Hanes'
Regraded Uclassified
3S
-6-
cooperation, 83 far as I'm concerned, I'm more
than pleased to have Banes give you as much time
as he can spare, with no date limit on it." See?
de called me on another matter. If you'll stay
behind. All right?
Hanes:
Fine.
H.M.Jr:
And give the New York Stock Exchange my regards
and tell them they're doing fine. Tell them,
another month end they re going to be popular.
Hanes:
(Laughs)
H.M.Jr:
Cy, you and Wayne got all those rules and regulations
written on the banking thing?
Upham:
Well, we've only had an application from one side.
I don't know how we canarbitrate very well unless
the other side wants to come in and submit their -
I think they're going ahead without asking us.
H.V.Jr:
I was just worried you fellows wouldn't have anything
to do. So I'll leave it in goods hands and not esk
any questions. Is that all right?
Taylor:
I don't know whether that's all right or not.
H.M.Jr:
Well then, we'll leave it in your hands, anyway.
If they're not good ... Well, anyway, I'm not
going to fuss with it.
Upham:
I wouldn't.
Taylor:
I wouldn't.
H.M.Jr:
Personally, I think that the office of the Secretary
of the Treasury has done its job. I think those
fellows ought to be able to write their own rules
and regulations.
Taylor:
They know what the agreement was and they know what
the spirit of the agreement was.
H.M.Jr:
And I notice that you and Marriner didn't get down
to talking turkey on the bond market either, which
is all right. You're going to keep that 25 million
Regraded Uclassified
237
-7-
in your key pocket, aren't you?
Taylor:
That's a good place for it. You'd like to have it
there if possible when you get back, wouldn't you?
H.M.Jr:
Yes, I'll be able to use it. It's all right with
me. All right.
Vilphant:
Well, does that mean in the meantime that loans to
local industry and so forth are being sidetracked?
H.M.Jr:
Leaves everything where they were. And these are
presidential appointees, and I - but I say, and I
think I'm right, that the Secretary of the Treasury
shouldn't try to write rules and regulations, policy
having been decided as to - the philosophy of it
having been decided, I shouldn't have to, or shouldn't
write the rules and regulations for F.D.I.C. and
Comptroller of the Currency and Federal Reserve.
Jesse Jones says, "I got a copy all printed - the
rules and regulations." He says, "I don't care
whether they agree or not, but my copy goes out
Saturday." "Yes," he says, "I've got them all
printed."
Oliphant:
Well, Jesse will do what you did in bringing them
all together - force their hand.
H.M.Jr:
He says, "I've got a set all printed. My letter
goes out, asking the banks to cooperate, based on
this new thing. The letter goes out Saturday. I
can't help it if they don't agree to it. I've got
them all printed.
McR:
That'll kind of put the other boys on the spot.
Oliphant:
That will have the effect of your statement to the
press.
H.M.Jr:
I said, "Good work. Whose are they?" He says,
"They re all right, they're good rules."
Wayne?
Taylor:
No. I've got 8 going-away present for you from the
Savings Bond boys,
Regraded Uclassified
238
-8-
H.M.Jr:
Thank you very much.
Taylor:
That's the new booklet.
H.M.Jr:
I don't - where's the Savings Bond?
Taylor:
You'll find it in there.
H.M.Jr:
I can't - $18.75 - where is it? All right. Suppose
you got a ruling from the Counsel General - General
Counsel.
Taylor:
You're not allowed to speculate in Government
securities.
H.M.Jr:
All right. Thank you very much. What else?
George ...
Taylor:
Oh, I'm having lunch with Bewley today.
H.M.Jr:
Oh, good.
Taylor:
He's ....
H.M.Jr:
I just want to take the ones as they come. That's
too heavy.
Haas:
I see. I thought when we'd send them to you, Mr.
Secretary, we'd send the complete sheet with the
photostat of the chart each time.
H.M.Jr:
That's right, and I'll look at it and tear it up.
You're having lunch with Bewley. And you're going
to see Mr. Hull.
Taylor:
Not going to see him until I talked to Bewley
and found out what was about it, and then I'll
follow that up.
B.M.Jr:
Fine. You through?
Taylor:
(Nods yes)
H.M.Jr:
George?
Regraded Uclassified
33
-9-
Haas:
I have nothing this morning. Those figures,
you know, which you asked Accounts and Deposits -
Dan Bell - to get together on expenditures and
employment; we're getting those. I asked them
to get the corporation - that's going to give you
an exceedingly interesting picture. Won't have it
until you get back. We'll have it before; it won't
take us that long, but we can't have it before you
leave.
H.M.Jr:
But it will be interesting.
Haast
Going to be very interesting. Gives you a basis for
following their estimates of actual performance,
which should have been done a long time ago.
H.M.Jr:
Will that be kept up monthly?
Heast
Yes. And I think after you come back you may decide
that you'd like to have each of these agencies make
a - revise their estimate each month. I mentioned
that to Dan and he said that would involve some
staff, and so on. But I think you can let that
decision ride until you get back.
H.M.Jr:
Well, Den's got a hundred thirty thousand dollars
from Congress to expand the Budget.
Heas:
This isn't the Budget. It's done up here In
Accounts and Deposits.
H.M.Jr:
Well ...
Heas:
But I mean he's glad to do it if you want it. I
think you'll decide to do it after you get back.
H.M.Jr:
Anything else?
Haas:
I have nothing else.
H.M.Jr:
Herbert?
Gaston:
Mr. Gregory, of the Herald-Tribune, would like to do
a story right away as you were sailing about the
difficulties of the French currency and his belief
that the great democracies must stand together and
Regraded Uclassified
240
-10-
that eventually the French will have to put in
some form of exchange control, and that you're
likely to talk to them about that subject. And
I said, "Please don't write anything about the
French currency until the Secretary has finished
his visit to Paris."
H.M.Jr:
Tell them it's slim.
Gaston:
You check with that.
H.M.Jr:
Oh yes.
Gaston:
Uf course they'll be speculating about what you
may talk about there.
H.M.Jr:
Sure, I'm speculating myself about what I'm going
to talk about.
Geston:
All I can do is just try and discourage them from
writing anything on the subject until after you've
finished your visit there, because I told them
it would probably raise 2 lot of hopes and probably
convey the implication to those people that you
had something definite in mind.
H.M.Jr:
Purely courtesy calls.
Gaston:
Harold Brayman wants to do a story about the
tripartite agreement and the stabilization fund
and the general problem of international exchange
for Fortune. Fortune's coming back to that
stabilization fund idea. Be asked me to mention
that to you, and I told him there was very little
chance that you'd consent to any help from the
Treasury on such a project at this time.
H.M.Jr:
(Nods agreement)
Gaston:
Lowell Mellett wants to take - us to take over two
of their Press Intelligence people, as we did last
year. They suddenly discovered two or three days
ago that two of them were not going to be paid
for this period until we paid them. I think it is
Danny Bell's problem. And we've paid them for the
period up until the 15th of the month. People that
we were paying all through last year. People that
worked in the Bureau of Press Intelligence.
H.M.Jr:
Blackburn?
Regraded Uclassified
241
-11-
Oaston:
Under K. C. Blackburn. Two of their people had been
on our payroll for more than 8. year, and we didn't
expect to carry them this year, but they suddenly
discovered a few days ago that they weren't going to
be paid unless we paid them. So Maurice Collins
agreed to take them on for this payday. We have no
appropriation under which we can pay them without
falsifying the records. The only reason I'm speaking
about it is that Lowell Mellett made a special plea
that I speak to you personally about it. I really
think it is something for Danny Bell to work out.
Klotz:
He worked it out last year. Went through the same
thing.
H.M.Jr:
If you can help Lowell Mellett, Mac, it will be 8 nice
thing.
McR:
We helped him with two weeks' pay.
H.M.Jr:
He doesn't know his way around.
Gaston:
Mac, didn't we - we had the money last year, but
H.M.Jr:
If you could show him through Danny's office a way to
do it, it would be very nice.
McR:
He can go to Dan now.
H.M.Jr:
No, but Dan's not here, and Lowell Mellett doesn't
know all these miles of red tape, and if you could
help him get it some place outside of the Treasury
payroll it would be very nice. And K. C. Blackburn
is very cooperative with me whenever I want anything.
McR:
I don't know how we can get it any place outside of
the Treasury payroll. The money that's being paid
for two weeks is on Danny Bell's allotment of emer-
gency relief.
H.M.Jr:
Couldn't you put them on the cafeteria payroll over
at the Bureau of Engraving?
McR:
No.
H.M.Jr:
(Laughs) O.K. Mac will find a way.
Regraded Uclassified
242
-12-
Gaston:
All right. That takes it off my hands.
Some of the boys wanted to know exactly when you're
going to leave here and what field you're going to
land at. I told them it would be very difficult to
find out. They wanted to send somebody to meet you
at the airport.
H.M.Jr:
I'm going to land - I don't mind telling them - I'm
going to land at Newark.
Gaston:
You don't mind telling them.
H.M.Jr:
Would you tell?
Gaston:
I don't think there is any harm in it. Nothing
particularly they can say to you.
H.M.Jr:
You don't need to let them know when I'm going to
leave, and after you've heard I've left - after I've
left you let them know.
Gaston:
Right.
And this is a dummy of - and copy of the intro-
duction
....
H.M.Jr:
Would you stay behind? I'd like to look at it.
Don't you think this (newspaper clipping) is very
ostentatious? (Laughs)
Gaston:
(Laughs)
H.M.Jr:
Show it to Herman.
Gaston:
Very modest, I should say.
H.M.Jr:
I think it's entirely out of place. Anything else?
Gaston:
That's all.
H.M.Jr:
Herman?
Oliphant:
I can't think of any good questions; nothing I can
think of until after you're gone.
Regraded Uclassified
243
-13-
H.M.Jr:
All right. That's very nice.
Oliphant:
I can't think of them.
H.M.Jr:
All right, swell. I don't think ...
011phant:
I'll think of them after you're gone.
H.M.Jr:
Ros, did you have a chance to read that letter?
Magill:
(Nods yes)
H.M.Jr:
Will you stay a minute?
Magill:
Mr. Taylor and two or three of his associates who
are going to be here during August, and I, arranged
to meet periodically and console each other for your
absence, and we'll send you a brief epistle
H.M.Jr:
Don't - no, no.
Magill:
"e won't send you a brief epistle at any time. We'll
send it to Herman.
d.M.Jr:
No, I'll tell you exactly
-
to
Herman?
No,
no,
let's understand. I don't really - if - if there's
something that is really a crisis, use the cable, see?
And that gives me a chance to read it and I can either
not answer it or I can phone. But if it's something
that is terribly important, the method of communication
will be through Mrs. Klotz while she's here, and after
she leaves, McReynolds, and it goes through Cosst Guard.
And we have our own code, and then I have a strictly
confidential code, only one, between the President and
myself, so I can communicate directly. And the Omaha,
I find, is only 20 miles from where I am, so I have
to use a Navy communication direct; I suppose I can
reach him direct on the Omaha if I want. So I have
the means. But I don't want to - but if there is
something really that you fellows can't decide, send
me a cable and I'll have a chance to look at it. But
Magill:
I don't see what
H.M.Jr:
I love you all dearly, but I can wait
....
Magili:
You really don't want letters.
Regraded Uclassified
244
-14-
McR:
You don't want to hear from him.
Oliphant:
Does that go both ways?
B.M.Jr:
That goes both ways.
Klotz:
That's wonderful.
(H.M.Jr and Oliphant shake on it)
Klotz:*
That's marvelous.
McR:
The boss will be surprised about what will happen when
he gets out of town.
H.M.Jr:
No, I won't.
Taylor:
Well, we out-waited him last summer. Remember?
H.M.Jr:
One day I called at the wrong time and they said,
"Well, if you want the telephone numbers of all the
golf links within twenty miles of Washington, we'll
get them." This crowd, you know - if they're sure
I'm not going to phone, try and find them. Try and
find anybody after 12 o'clock.
Klotz:
Oh yes, teacher.
Magill:
Or Saturday morning.
H.M.Jr:
Or Monday morning.
Magill:
No, no.
H.M.Jr:
Monday all right?
Magill:
Monday's all right.
H.M.Jr:
Well, you're school teacher while I'm gone, Mr.
Magill.
Magill:
I'm going to enforce a strict rule, too.
McR:
But who's going to be here to enforce it?
H.M.Jr:
Well, I hope you'll
....
Regraded Uclassified
245
-15-
Magill:
I already cancelled Archie's leave. He's going to
stay around here.
H.M.Jr:
You're taking some, aren't you, Archie?
Lochhead:
Yes, I'm starting today.
Klotz:
He's started this morning.
Lochhead:
I've already started. This 11 o'clock meeting is
disturbing; it set me off stride this morning.
H.M.Jr:
I don't know whether I got the story exactly correct,
but as far as I can get it, Monsieur Auriol as Minister
of Finance got mixed up with Monsieur Auriol as Minister
of Justice, and the two of them didn't consult and
therefore the Spaniards had their gold trouble. Is
that about right?
Lochhead:
It's about right.
H.M.Jr:
I think it's terribly funny. He was first Minister
of Justice, wasn't he - or second? Which was he
first - Auriol?
Lochhead:
No, Auriol was Minister of Justice first.
H.M.Jr:
And as Minister of Justice
...
Lochhead:
He told them to bring the suit in a certain way.
H.M.Jr:
de got himself tangled up with Mr. Auriol as Minister
of Finance.
Well, don't work too hard and I'll guarantee you that
my instructions about no letters will be both ways.
Regraded Uclassified
246
July 15, 1938.
My dear Mr. Welles:
Before be left for his vacation the
Secretary asked - to acknowledge for
him the memorandum you sent with your
letter of July 13th. No was very mush
interested in seeing this and approciated
your thought in bringing 10 to his atten-
tion.
Sincerely yours,
H. S. Klots,
Private Secretary.
Honorable Summer Volles,
The Under Secretary of State,
Washington, D. c.
cato H&
GEF/FM
By have
Regraded Uclassified
act HSK287
THE UNDER SECRETARY OF STATE
WASHINGTON
July 12, 1938.
Personal and
Confidential
Dear Henry:
In accordance with our conversation to-
day I am sending you a memorandum of my con-
versation with the British Ambassador on
July 8. I shall appreciate it if you will
call me on the telephone and let me know if
me
there 18 anything you would like ^ to say to
the Ambassador with regard to this subject.
Believe me
Enc.
Yours A very sincerely, hish
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
Regraded Uclassified
DEPARTMENT OF STATE
248
Memorandum of Conversation
DATE: July 8, 1938.
SUBJECT:
STRICTLY CONFIDENTIAL
PARTICIPANTS: The British Ambassador, Sir Ronald Lindsay;
The Under Secretary.
COPIES TO: s, A-B, PA/D, Eu, EA
⑉ I-148
The British Ambassador called to see me at his
request this afternoon.
The Ambassador said that he was coming in to 800
me entirely upon his own initiative and without instrue-
tions from his Government. He said he desired to discuss
the subject of war debts. The Ambassador said that
throughout his term of service AS Ambassador to the United
States he had consistently felt that an equitable agree-
ment on the subject of the British debt should be reached
between the two Governments and that his Government
should not have suspended payments on the debt. On the
other hand, he said, he saw very little practical
Regraded Uclassified
249
advantage to be gained from the British Government's making
a yearly payment of say fifty or one hundred million dollars
while at the name time the total amount of the debt was
yearly increasing. Me said that the debt in his opinion
was a legitimate obligation or his Government and must be
ant, but that at the name time the debt was now reaching
*extronomical proportions" and every year that a solution
was postponed the more difficult A solution would become.
fle said that he was rully familiar with public opinion in
this country with regard to this question and that he
relt it was the one obstacle to A completely cordial and
friendly relationship between the two countries; but that,
while he thought he estimated correctly public opinion in
general 0.0 interpreted by the American press, he 01c not
feel that he know clearly what the opinion of the Congress
might be with regard to the question and that this point
was all important insemuch as it WAS the Congress in the
last analysis which would have to decide the matter. The
Ambassador said that he had been interested in the reso-
tion of the Congreen, as reported in the press, to the
Hungarian offer for the settlement of the Hungerian debt,
and he wondered If I would lot him know, entirely informally
one unor inially, what my opinion on this subject might
be.
Regraded Uclassified
250
I told the Ambassador that I was sure he would
realize that I could not attempt to not as the interpreter
of the Congress with regard to 80 highly controversial
and delicate a subject as this. Furthermore, I said,
the Treasury Department was as directly concerned in the
questions involved as was the Department of State, and
I could not undertake to speak for the Secretary of the
Treasury. I said, however, that I thought the Ambassador
should understand that the Hungarian debt was in a category
quite distinct from the British debt. The Hungarian debt
had been incurred for the purchase of flour in the United
States to be utilized largely for relief purposes within
Hungary, and the terms offered by the Hungarian Govern-
mont were practically identical with the terms offered some
years age by the Austrian Government for a debt of a similar
character which had been considered acceptable by the
Congress. I said that I could 800 no objection in giving
him 88 my own personal view the opinion that the reason
Congress had not proved more receptive to the suggestion
made by the President in transmitting the Hungarian debt
proposal was that there existed the very widespread belief
that acceptance at the present time of the Hungarian
proposal, although, an I had stated, this debt was in 8
different category, aight imply the creation of a. precedent
for the further adjustment of other intergovernmental debte
Regraded Uclassified
251
owing to the United States, including that of Great
Britain.
I stated that I had been very glad to hear the
Ambassador's own opinion with regard to this proposal,
and that I felt very much the way he did in the matter,
I sald it seemed to no very clear that American public
opinion in general - that of the average man and woman
in the street . had been profoundly shocked when the
British Government had suspended payments on its debt
owing to the United States and because the British Gov-
ernment had apparently for some years past assumed the at
titude that the debt had been wiped off the books by uni-
lateral decision. There had been a general feeling, I
said, in this country that an Englishman's word was at
good all his bond, and a very deep and widespread resent-
ment had unquestionably been created by what was so gen-
erally construed as the ignoring of a legitimate obliga-
tion. There were many other factors involved in this sit-
uation, I added, with which the Ambassador and I were both
completely familiar and which there was no use of my enu-
merating, but I believed, as did the Ambassador, that until
this far-reaching problem could be settled on a basis which
seemed Just and fair to the peoples of our two countries,
the relationship between Great Britain and the United
States could not be what we both desired it to be.
Regraded Uclassified
252
-6-
I said that inassuch as the Ambassador was returning to
England, presumably within the next four or five weeks,
he would undoubtedly have the opportunity of discussing
this matter with his own Government and that, speaking
again individually and without any authority for no doing,
I felt that if the British Government reached the determina-
tion that it wished to discuss & solution of the problem
with this Government, any representations they made would
receive the most attentive and expeditious consideration
by this Government.
I stated that of course we all of us were hopeful
that a satisfactory result might soon be obtained in the
trade agreement negotiations and that, after such result
had been obtained and the trade agreement had been signed,
it might seem a singularly appropriate moment to try and
reach independently & satisfactory solution of this other
major problem.
Before he left the Ambassador spoke to me of the in-
formation he had recently received from his Government with
regard to the European situation. Ris Government anemed to
believe that the Osechoslovak Government was now adopting
EL less intransigent point of view with regard to the German
minority question and would propose terms to the Sudaten
minority which would be within the bounds of reason. He
Regraded Uclassified
253
stated that the French and British Governments were
cooperating, he thought, very harmoniously in attempting
to get the Csechoslovak Government to take a consiliatory
attitude. with regard to the Spanish situation, the
Ambassador was informed by his Government that they be-
lieved the tension had been somewhat lessened as between
Italy and Great Britain in view of the recent decisions
obtained from the Mon-Intervention Committee. The Ambas-
sador said, however, that his Government felt that rela-
tions between France and Italy were getting steadily worse,
that the French had threatened to withdraw their Charge
d'Affaires from Rome and had only refrained from doing 80
upon the insistence of the British Government, and that
it seemed to be a case of where both Italy and France were
doing everything possible to annoy one another about
trivial matters, thus accomplishing no real purpose but
merely making an atmosphere that was already bad progressively
worse.
Regraded Uclassified
254
July 18, 1938.
Mr. William 4. Lydgate,
American Institute of Public Opinion,
110 East 42nd Street,
You York, 3. Y.
Dear Mr. Lydgates
I - greatly obliged to you for your kindness in
gleaning from the returns on your recent poll such comment
as was available with respect to Secretary Morganthan.
Very truly yours,
Herbert 2. Gaston
Assistant to the Secretary.
HEG/mah
Regraded Uclassified
255
GEORGE DALLUP
AMERICAN INSTITUTE OF
X
WILLIAM A. LYDCATE
Director
Public Opinion
JOHN TIBBY
n. CLAUDE E, ROBINSON
Editors
Austrité Director
EDITORIAL OFFICE
110 EAST 42nd STREET, NEW YORK, N.Y.
July 15, 1938
Mr. Herbert E. Gaston
Treasury Department
Washington, D. C.
Dear Mr. Gaston:
An I indicated to you in my recent letter, the number of
comments and remarks on any one Cabinet member in our sur-
vey was few. However, our statistical office has given me
a tabulation of such comments as there were on Mr. Morgenthau.
I give them to you with the warning that they do not neces-
sarily represent at true cross-section of opinion.
The unfavorable comments were few and less specific than the
favorable ones. In general, such oriticism as there was
centered around the idea "Mellon was a better Sccretary."
Among poorer voters, there were a handful of comments to the
effect that "Morgenthau is against spending."
The favorable comments include the following:
"He is progressive enough to advance with the times."
"Morgenthau is a good man but hampered by the ad-
ministration."
"From the Republican viewpoint, Morgenthau is the
only one any good."
"Morgenthau and Hull are the best Cabinet members."
"Morgenthau's banking policies are sound and effect-
ive."
"I think Morgenthau has the hardest job of all."
Regraded Uclassified
256
--2
Mr. Herbert E. Gaston
July 15, 1938
I am sorry that the survey did not produce a larger harvest
of comments. If in the future we gather any further evi-
dence regarding the public's attitude toward the Secretary,
I shall be glad to let you know.
Very truly yours,
William a. Lydgate
William A. Lydgate
wal/es
Regraded Uclassified
Mr.
25
R. GEORGE GALLUP
AMERICAN INSTITUTE OF
WILLIAM A. LYDGATE
Director
Public Opinion
JOHN TIBBY
R. CLAUDE E. ROBINSON
Editurs
Associate Director
EDITORIAL OFFICE
110 EAST 42nd STREET, NEW YORK, N.Y.
File
July 11, 1938
ilul
Mr. Herbert E. Gaston
Treasury Department
Washington, D. C.
Dear Mr. Gaston:
I have your letter of the 7th addressed to Dr. Gallup.
I am having our statistical office go through the ballots to
tabulate anything they can find regarding Secretary Morgenthau-
I do not promise that we will have anything for you, as we did
not ask voters to comment specifically on each cabinet member
other than to answer yes, no, or no opinion. Thus, any remarks
or comments concerning the Secretary would probably not repre-
sent a cross-section.
However, if there are enough cases to give a reliable indication,
I will send a summary on to you.
Very truly yours,
William G. Syngate
William A. Lydgate
wal/es
Regraded Uclassified
719-kay 22.
58
July To 1938.
Dr. George Gallup,
Director, American Institute of Public Opinion,
110 East 42nd Street, In York, J. Y.
Dear Dr. Gallup:
I was greatly interested in your poll of opinion as
to the members of the President's cabinet, published in last
Sunday's newspapers. It occurred to ne that you might have
additional unpublished material indicating opinion as to
Secretary Morgenthau, particularly as to phases of his record
which are approved and the character of criticians. If you
have available any such information, I should greatly appre-
ciste anything that you can send to no.
Very truly yours,
Herbert E. Gaston
Assistant to the Secretary.
HEG/mah
Return to P.
Secretary's File Roam
Regraded Uclassified
259
July 10, 1930.
Dear Dr. Yang:
The Secretary - just clearing his
desk to leave the office for a -
vacation is Marope when Mr. Nusk arrived,
bringing your letter. Mr. Margenther use
extremely glad that 10 come before be left,
and be read it with a great deal of in-
terest, but the not able be asknowledge is
himself. He therefore asked the to is 80
for him, and to explain that be the leav-
ing the effice that afternoon in order to
join bis family as the hoat.
He was such interested in what you
said, and appreciated your word of personal
greeting and good will.
Sincerely yours,
B. S. Klots,
Private Secretary.
Dr. H. H. Rung.
Ministry of Finance,
Hankow, China,
GEF/dbs
a to No
Regraded Uclassified
260
Original filed in Famous
Signatures folder.
Regraded Uclassified
MINISTRY or FINANCE
ERSONAL
Hankow, China.
June 21, 1938,
Sear Mr. Morgenthaui
Since returning to China, have often thought of you
and recalled with appreciation the hospitality which you were good
snough to extend to me during my visit in America last summer.
often I think of writing to send you my greetings and remembrance,
but unfortunately my multifarious duties leave me hurdly any time
to myself. As Mr. J. Lossing Buck is soon returning to the States,
I take great pleasure in sending you this message which 1 hope will
find you in the best of health and spirit.
I need hardly reassure you that I appreciate the ready
no-operation which your Government has, through you, extended to
us during the past years towards the realization of our monetary
reform. Especially thankful I am for your efforts in making possible
further progress in our co-operation through the new arrengements
which you and I had the satisfaction to make personally last summer.
Your sympathetic interest and friendly assistance towerds our finan-
cial problems, further evidenced by your continued purchases of
silver, have been of considerable help to us at this difficult time,
and I want you to know that I remember them.
Japan's invesion came when our progress in economic and
financial reconstruction had acquired a momentum that WES remaking
the country and making it E. stronger factor in the world situation.
For one thing, the success of our currency reform had brought great
benefits not only to our own people but also to others who traded
with us. Undoubtedly, the interruption of our progress in self-
development by Japan's undeclared war must be considered a great
tragedy in history.
Nevertheless, China's finances have stood up well under
the strain imposed by the hostilities and we are courageously and
resolutely facing the urgent problems that confront us, In spite of
the hostilities, we had been able to hold our currency at a stable
level for months until recently the Japanese attempted to sabotage
our credit structure. By Instigating the puppet regime in reiping
to establish the so-celled "Federated Reserve Bank", issuing notes
with B. nebulous reserve and not freely convertible into foreign
surrency, Japan's financial strategists sought to force their yen
notes and the worthless puppet notes on the Chinese people in the
occupied areas and to take advantage of our source of foreign ex-
change by exchanging the Chinese legal tender notes for foreign
currency. At the same time, they created rumors to disturb our
money market and shake our credit. Shanghei, which 18 infemous for
rumor-mongers and speculators, evally fell prey to this sinister
Japanese scheme, However, with new measures edopted by the Govern-
ment to prevent speculation and combat the Japanese plot of sabotage,
I believe the repent depline of our currency will soon prove E
passing phase.
The Non. Morgentheo, dex-page two
At the same time. we are forging areac with our reconstrue-
tion program, notably the relief of apriculture, the development of
industries in the intorior, the promotion of export trade, and the
building of hi/hways and rhilways. In this connection, I remember
you have asked Mr. Buck to insuire whether the Burma rood is being
built. I am glad to inform you that WAS are not only building the
highway to Burne but are also proceeding with our Plans to construct
a railway connecting that territory with our Southweat,
While we cannot minimize the urgent problems we have to face
in the successful presecution of this protracted war, we are fully
sware of the still greater ones that will arise at the end of the
present hostilities. We are accordingly planning ahoud, and when
that day comes, China's need for foreign capital and technical
assistance will yet be greater than ever before.
I Am glad to note that the American Government end people
have gradually come to appreciate the real menace of Japenese aggres-
sion, not only to Chine's integrity and existence but also to America's
vital interests and security in the racific and even on the American
Continent. Rightly they have become more positive in their condemna-
tion of Japan's lawlessness and militarism and in their faith in China's
cause. To-day the victim of Japanese aggression is the Chinese people;
to-morrow it will be Jupan's next nearest neighbours if her mania for
war and destruction is not checked in time. I cannot overemphasize
that close co-operation among geace-loving and democratic nations is
the only means to preserve world peace and collective security. To
enjoy peace we must have the foresight and courage to defend peace,
To-day China 1a toking a courageous stand against the onward march of
brutal force and ruthless barbarism. Can the isolationist policy or
the Neutrality Law protect America from this common mensce? My American
friends tell me that 90% of America's people are in sympathy with
China's couse. If that Is the 0836, It should give your Government
B. strong backing with which to strengthen its policy towards the
Japanese aggression, China does not ask any nation to fight this war
for her. But 1f sympathetic nations will only take a firmer line of
action, I believe even de un's mod militarists will have to pull in
their horns.
May I close by requesting you to convey to your illustrious
President my kindest personal greetings and heartfelt gratitude for
the many expressions of his symeaths and essistance in our national
cause? The same I extend to you together with my best wishes (for
your continued success and health.
lincerely yours,
H. 1. Kung.
The Honourable Henry Mopponthou, Jr.
Secretary of speasury
Washington, D,
U.S.A.
Regraded Uclassified
263
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE,
Pross Service
Monday, July 18, 1938.
No. 14-5
Acting Socretary of the Trensury Magill today announced the final sub-
scription and allotment figuros with respect to the curront offoring of 7/8
percent notos of Sorios If of the Roconstruction Finance Corporation.
Subscriptions and allotmonts were divided among the several Fodoral
Roserve districts and the Treasury as follows:
Foderal Reserve
Total Subscrip-
Total Subscrip-
District
tions Received
tions Allotted
Boston
$ 147,228,000
$ 11,835,000
Now York
1,438,545,000
115,202,000
Philadolphia
129,060,000
10,355,000
Cloveland
158,236,000
12,754,000
Richmond
77,680,000
6,418,000
Atlanta
64,865,000
5,479,000
Chicago
279,329,000
22,571,000
St. Louis
51,383,000
4,194,000
Minneapolis
18,561,000
1,541,000
Kansas City
39,357,000
3,206,000
Dallas
40,193,000
3,296,000
San Francisco
181,934,000
14,583,000
Treasury
200,000
16,000
TOTAL
$2,626,571,000
$211,450,000
nOo
Regraded Uclassified
264
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
July 18, 1938
DATE
CONFIDENTIAL FILES
11
SUBJECT
TELEPHONE CONVERSATION WITH
J. W. EcKson
Tage
BANK OF ENGLAND
Mr. Hawker of the Bank of England telephoneime at
10:15 am today. Foreign exchanges continued very dull and
featureless. There was still a large demand for gold bars
in London and Bombay. Likewise the demand for American
eagles and British sovereigns continued; quoted at about
3 1/4% premium. 90-day forward gold was quoted at five to
seven pence premium. I asked Mr. Hawker about recent ship-
ments of Russian gold, also about Japanese operations in
London. He said both had been very quiet. I advised him
of two Japanese gold shipments to this country, totaling
about $12,000,000, reported to us last week.
Regraded Uclassified
265
LMS
GRAY
Paris
Dated July 18, 1938
Rec'd 2:10 P. m.
Secretary of State,
Washington.
1121, July 18, 5 p. m.
FROM COCHRAN.
Paris exchange market has been quiet but control
obliged to give SOME sterling at 178.18. Minister of
Finance yesterday gave a fairly optimistic picture of
French financial situation when making plea for subscrip-
tions to the eighteen months national defense loan which
opens today. HE said in part "1s it really necessary,
after the figures which I have just cited and the assur-
ances which I have just given, that I add the denial of
the French Government to the most official declarations,
made in the name of the states to which the Tripartite
Agreement binds us, to affirm that there is not and cannot
be any question of devaluation or monetary manipulation".
The above address was expected to help French Govern-
ment scourities but a weekend speech of labor leader
Jouhaux on the other hand november added to the fear that trouble
may come in October or on his arrival and official
intervention
Regraded Uclassified
268
LMS 2-No. 1121, July 18, 5 P. m., from Paris.
intervention was required today to improve quotations
on rentes. Money is tight. Government has announced
that two-thirds of the two billion two hundred seventy-
Eight million francs of 1937 ONE year bonds maturing
August 5 have been converted (SEE my 1008, June 27, 5 p. m.)
BULLITT
CSB
Regraded Uclassified
267
REB
GRAY
Paris
Dated July 19, 1938
Rec'd 2:08 p. m.
Secretary of State,
Washington.
1132, July 19, 4 p. m.
FROM COCHRAN.
Faris Exchange market quiet with control giving
only small amount of sterling at 178.17 to .19, Feature
of the day is strength of dollar and demand for gold in
London. Paris traders attribute foregoing to renewed
nervousness over Czechoslovak problem.
Bank of France yesterday invoiced 31,614 francs of
gold bars to Federal RESERVE Bank of NEW York on ILE DE
FRANCE for account B. I. S.
BULLITT
KLP
Regraded Uclassified
268
JR
PLAIN
London
Dated July 19, 1938
Rec'd 2:15 p.m.
Secretary of State,
Washington.
651, July 19, 6 p.m.
FOR TREASURY FROM BUTTERWORTH.
The dollar has been strongly bid today. The
unusually large gold fixing of 605 bars all but 60 of
which were supplied by the Bank of England gave support
to sterling for a time but in the afternoon the British
authorities were in and out at 4.91 7/8-3/4. The demand
for dollars 1s both commercial and speculative SEE
paragraph one my 628, July 13, 6 p.m., and there is still
talk of it moving to 4.86.
The bullion market is frankly puzzled by the
continuance of the extraordinary demand for both bar gold
and coins. It considers that the dominant motive is now
fear of international complications. But at the same time
it is aware of transactions with other motives, for
Example, I understand that an order was EXECUTED today
through the Swiss Banking Corporation (but not necessarily
for a Swiss national) for pounds 200,000 of six months
gold against six months dollars.
The
Regraded Uclassified
289
-2- #651, July 19, 6 pame, from London.
The recent fall in the Berlin Bourse is regarded in
the city as entirely due to political considerations.
More or less the same story filters through from Berlin
to the city, namely, that Ribbentrop has been losing
favor rapidly and that therefore hE may think it desirable
to push for some coup. His position is likened to a
commission agent rather than a salaried employee.
KENNEDY
HPD
Regraded Uclassified
270
REB
GRAY
London
Dated July 20, 1938
REC'd 1:55 P. m.
Secretary of State,
Washington.
654, July 20, 7 P. m.
for TREASURY FROM BUTTERWORTH.
The dollar was bid at the opening but as soon as the
Bank of England let it bE known prior to gold fixing that
it was prepared to give gold freely at about parity price
pressure for the dollar ceased. Actually the Bank of
England's tactics did not entirely succeed in that a
slight premium still persisted but it may well disappear
tomorrow.
KENNEDY
KLP
Regraded Uclassified
271
rr
GRAY
London
Dated July 20, 1938
Rec'd. 3:13 p.m.
Secretary of State,
Washington.
653, My 20, 6 p.m.
FOR TREAS BY FROM BUTTER /ORTH.
To andeso the present British economic situation
and general outlook it.in convenient this month to
divide the available statistics roughly into indices
reflecting the level of activity for a given time
and berometers reflecting opinion 03 to the future
trend.
Prestically all the indices for June reflect n
continuation in the downward trend of business activity.
A substantial increase in unemployment which was widely
spread, except for n few seconnal trades, further
accontuated the depressed condition of export industries.
Indeed industrial conditions in the basic industries
were wordening to n critical RESTEE. The decline in
mercantile chipbuilding orders to about 50,000 gross
tona for the second quarter of the year na compared
with 250,000 pross tons in the corresponding quarter of
1937 10 causing much discussion of the need for govern-
ment subsidy of this industry in spite of the govermment's naval
Regraded Uclassified
272
2 - 653, July 20, 6 p.m. from London.
naval orders. Coal mining Especially for the export trade
1s suffering from German subsidized coal Exports and
the need for government assistance to the British coal
industry is being urged. The cotton manufacturing
industry continues consideration of its reorganization
and a bill is now being drafted to enable a majority of
firms to compel the minority to fall into line in an
Elaborate scheme for price fixing, production control and
the scrapping of redundent plans. Meanwhile the June
exports of cotton cloth are the lowest for 85 years.
The wool manufacturing industry suffered an increase in
unemployment in June but exports improved slightly.
Iron and steel production showed a very marked fall in
June and though this is due in part to abnormal accumula-
tions of stocks the peak production levels of last year
cannot bE expected to return even with the special
stimulus of armament requirements especially if the ship-
building industry continues depressed. The various
engineering trades though in a better position than
some of the above mentioned basic industries are by no
means prospering.
(END SECTION ONE).
KLP
KENNEDY
Regraded Uclassified
273
REB
PLAIN
London
Dated July 20, 1938
Rec'd 3:23 P. m.
Secretary of State,
Washington,
653, July 20, 6 P. m. (SECTION TWO)
Though exports of machinery and vehicles Enjoyed
the distinction of being practically the only items in the
main Export classifications which showed an increase over
last year, the Export outlook for these trades is not
promising. The increase in machinery exports is due largely
to the delivery of Russian orders placed in 1936 and 1937
while the increase in the exports of vehicles is due
largely to the delivery of a few large ships to overseas
customers. Exports of aircraft a small item though higher
than a year ago were lESS than in May while exports of
rail vehicles and parts WETE up on both last month and
last year but new orders for such goods are not keeping
pace with deliveries. These two items, machinery and
vehicles intended to affect the total export figures
sufficiently to check the downward trend in total exports
but as they are both 1tEms involving long periods of
production and as new orders will bE slow to come EVEN after
Regraded Uclassified
274
REB
2-#653, From London, July 20,6p.m.
(SEC. Two)
after a general world improvement sets in the general
export outlook cannot bE said to have improved by the
month of June.
The import statistics for the month showed a sharp
reduction in the total value of raw materials imported
every item in this classification showing a decrease on
last year and EVEry item EXCEPT paper making materials
showing n. decline on the previous month. These figures
reflect not only price reductions and a bettering of the
terms of trade for Great Britain but also substantial
declines in the volume of materials brought in for British
manufacture so that they indicate a further decline in
plans for industrial activity. Increases in imports of
all the major categories of foodstuffs were recorded
however a fact which is probably due largely to defence
storage activity.
Other indices such as rail traffics, bankers clearings
and new automobile registrations also moved downwards.
Building activity continued at B. high lEVEl but plans
approved declined slightly again in June.
Statistical data reflecting sentiment as to the future
trend on the other hand was noticeably affected by the
change
275
REB
3-#653, From London, July 20, 6pm
(SEC. Two)
change on Wall street towards the End of June, The
FINANCIAL TIMES commodity price index based on the third
week of September 1931 as 100 which has been falling
steadily since the apring of 1937, standing at 136.8 in
June last year, touched 119.1 in the third WEEK of June
this year. It rose to as high 88 121.6 in the first
WEEK of July. The turn in the trend of commodity prices
must bE regarded as the cause of the change in sentiment
since the international situation cannot be said to have
EASED sufficiently to Effect any major renewal of confidence.
The behavior of the Stock Exchange reflects the general
opinion that the turn in the commodity price trend is
significant and likely to endure and the London Stock
Exchange following Wall Street fairly closely has been
active since the latter part of June. The FINANCIAL NEWS
index of prices of ordinary shares based on 1935 as 100
rose from 80 on June 1 to 89,4 on July 7 subsequently
dropping back to 85.8 by July 18. Meanwhile the same index
based on 1928 as 100 for fixed interest securities rose
in the same period from 12803 to 138 and has remained
steadily at about that level since July 7. A crop of new
issues to bE floated in London 13 also significant and
though
Regraded Uclassified
278
REB
4-#653, From London, July 20, 6pm
(SEC. Two)
though these constitute municipal loans and fixed interest
stocks their apparance is regarded as a sign of returning
confidence on the part of business.
If the change in sentiment which is due almost
entirely to the Expectation of business recovery in the
United States proves to bE well founded there will bE
some increase in business activity in Great Britain but
British Exports cannot be EXPECTED to increase substan-
tielly until after n considerable time-lag. Furthermort
the growing difficulties of the great basic industries
require more fundamental adjustments than a slight or
EVEN substantial upturn in the world Economic activity.
(END MESSAGE)
KENNEDY
HPD
Regraded Uclassified
277
July 20, 1950.
Dear Mr. Livesey:
This will acknowledge your letter of
July 20th which has been brought - by Mr.
Leahhead, the Technical Assistent to the
Secretary. A espy of telegram #1138 has
been cabled to the Secretary, and no
appreciate your letting M have this
information ⑉ promptly.
Sincerely yours,
H. S. Klets,
Private Secretary.
Mr. Frederisk Livesey,
Acting Advisor on International
Becnemic Affairs,
Department of State,
Washington, D. 0.
GEF/dbs
By hand
Regraded Uclassified
COPY
278
DEPARTMENT OF STATE
Washington
July 20, 1938.
My dear Mr. Lochhead:
I enclose three copies of telegram No. 1135 of
July 20, 1938, from the American Embassy, Paris, trans-
mitting a rearranged schedule of appointments for
Secretary Morgenthau while he is in Paris. The Embassy
requests that this message be communicated to Secretary
Morgenthau.
Sincerely yours,
For the Secretary of State:
/s/ F. Livesey
Frederick Livesey,
Acting Adviser on International
Economic Affairs.
Enclosures:
3 copies, No. 1135,
July 20.
Mr. Archie Lochhead,
Technical Assistant to the
Secretary of the Treasury.
279
Copy
GRAY
Paris
Dated July 20, 1938
Rec'd 9:38 a.m.
Secretary of State,
Washington.
1135, July 20, noon.
To be transmitted through the Treasury Department
to the Secretary of the Treasury on the high seas:
Your appointments have been rearranged as follows
due to the change in hour of your arrival:
Saturday July 23 you arrive presumably between 10
and 11 p.m.
Sunday July 24, 11 a.m., you and Mrs. Morgenthau call
on the President.
1 p.m., lunch for you and your family at Chantilly.
Blum will be present.
8:30 p.m., dinner for you and Mrs. Morgenthau at the
residence of the Minister of National Economy, Patenotre.
Monday July 25, 12:15 p.m., you call on Marchandeau.
1 p.m., you and Mrs. Morgenthau lunch with Marchandeau
at Ministry of Finance.
8:30 p.m., dinner for you and your family at the
Embassy residence with members of the Cabinet.
Tuesday
Regraded Uclassified
280
-2- #1135, July 20, noon, from Paris.
Tuesday July 26.
1 p.m., you and Mrs. Morgenthau lunch at the Quai
d'Orsay with the Minister for Foreign Affairs.
5:50 p.m., depart for Antibes.
Best wishes.
BULLITT
RR:WWC
281
EG
GRAY
London
Dated July 21, 1938
Rec'd 1:45 p.m.
Secretary of State,
Washington.
663, July 21, 6 p.m.
FOR TREASURY FROM BUTTERWORTH.
Asked in the House of Commons this afternoon
whether as a result of their conversations with the
Governments of France and the United States it was
the intention of His Majesty's Government to take
steps to advance the question of stabilization of
currencies the Chancellor of the Exchequer replied
"No conversations of the character suggested have
taken place and I have nothing to add to previous
statements on this subject".
The tendency of the dollar to appreciate in
terms of sterling
once again asserted it-
self. The dollar opened at 4,92% but was bid down
at gold fixing to 4.91.5/8 where it has remained for
the rest of the day. The Bank of England did not
pursue its tactics of yesterday and permitted a penny
premium to bE maintained.
The demand for gold continues unabated.
KENNEDY
KLP
Regraded Uclassified
282
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: July 21, 1938, 5 p.m.
NO.: 1144
FROM COCHRAN.
Today there was increasingly heavy pressure on the
franc. The control apparently yielded more sterling than
any day this week, at a rate of 178.18. There is a con-
tinued large demand for dollars. Lazards, who presumably
have taken a strong position in the dollar, are talking
it up, saying sterling will go back to its old parity.
There is continuation of terrific demand for gold
coins.
Statement of the Bank of France as of July 14 showed
coverage 47.61 versus 47.63, with no important changes.
In the press today 1s a story denying the report of
yesterday that & Franco-German agreement on trade had been
reached but that negotiations on financial aspects had
not been successful and would be resumed later not in
Paris but in Berlin. The report in today's press is that
the general negotiations have had no break and that they
will continue with regard to both phases, which it is
felt are related and cannot be separated.
Some of the depression today can be attributed to
the strike outbreak in the Anzin coal industry of the
northern
Regraded Uclassified
283
- 2 -
northern part of France which involves some 20,000 men.
This strike has come just when an effort is being made
to increase production in the French coal industry.
Yesterday the case of the Bank of France Spanish gold
came up again, but was postponed until January 25.
BULLITT.
RECEIVED
8881 is
TRANTRAN30 YRUSNIFT
- - - of 1 and
all to willo
EA:LWW
I
Regraded Uclassified
284
Ticker Comment
while you were away
Dow-Jones 2:00
July 22, 1938
Paris - U. S. Secretary of Treasury Morgenthau is due
to arrive in France Saturday evening from United States.
He will visit with President LeBrun Sunday morning and will
dine the same day with Minister of National Economy Paternotre.
On Monday he will lunch with the Finance Minister and will
meet the Cabinet ministers at an Embassy dinner that night.
On Tuesday he will lunch with Foreign Minister Georges Bonnet
and will leave for the south Tuesday evening.
Secy Morgenthau last visited France in October 1935 on
his way home from Spain.
Regraded Uclassified
285
EG
PLAIN
London
Dated July 22, 1938
Rec'd 2:43 p.m.
Secretary of State,
Washington.
670, July 22, 6 p.m.
FOR TREASURY FROM BUTTERWORTH.
STRICTLY CONFIDENTIAL.
The following Excerpts are quoted from the speech
made last night by Earl Stanhope, the British Treasury's
spckesman in the House of Lords, in reply to a speech by
Lord Samuel made during the debate on the finance b111
urging the British Government to state that the British
war debt 1s not a closed chapter. These paragraphs may
bE of interest particularly in view of the fact that the
British Treasury went out of its way to call my attention
to the fact that this statement would bE made.
"I can certainly say that so far as His Majesty's
Government are concerned the question has never become
one that is thought to bE closed and finished in any way.
I am anxious not to upset the situation which is by no
means Easy: and as perhaps this 1s not the best moment
for discussion in view of the negotiations WE are having
with
Regraded Uclassified
288
⑉2⑉ #670, July 22, 6 p.m. from London
with regard to trade matters with the United States from
which both of us hope to obtain an Early and satisfactory
agreement, your lordships will forgive me if I make a
statement not so much in my own words as in words prepared
for me by the various departments concerned who have this
matter of course under constant consideration."
After quoting the statement which concludes the
British Government's note each half year Expressing willing-
ness to reopen discussions whenever a satisfactory result
might bE EXPECTED Stanhope went on to say:
"There 1s not much that can be added to this statement
but it may bE well to contradict the suggestions sometimes
made that His Majesty's Government fail to recognize the
great importance of this question or that the debt has
been repudiated: such suggestions are entirely unfounded.
The noble Lord, the leader of the opposition, I think, EX-
pressed the hope that this matter could bE discussed be-
tween the governments concerned but I am sure the noble
Lord will appreciate that before the Government of the
United States can put any agreement into operation they
will have to obtain the assent of Congress. Therefore I
am quite sure that both he and the noble Viscount who
raised the question will appreciate that it is necessary
to
Regraded Uclassified
287
⑉3⑉ #670, July 22, 6 p.m. from London
to consider not only the opinions of the governments but
of the peoples concerned. Nothing could bE more disastrous
than to raise the question at a moment when there cannot
bE certainty of getting a settlement acceptable on both
sides of the Atlantic.
The question of the British war debt is bound up
with the question of inter-governmental debts as a whole
and the debts due to us are considerably greater than that
due by us, The question also has to be considered with
reference to our balance of payments and to the stability
in international Exchanges which it 13 the desire of both
the United States Government and His Majesty's Government
to maintain to the greatest possible Extent. I think the
noble Viscount will certainly corroborate my statement
when I say that this question is perhaps of even greater
importance than any payment of debt due by us to the
United States - the question of maintaining the Exchanges
and the stability of the sterling and dollar area and of
course the franc area on which the three governments
recently CAME to an agreement. It would require very
careful consideration of the attitude of the public mind
in that respect. That and other aspects such as the EX-
change of trade cannot be ignored in considering whether
circumstances
Regraded Uclassified
288
-4- #670, July 22, 6 p.m. from London
circumstances are such as to warrant the hope that fresh
negotiations would lead to a satisfactory result. But I
hope I have said enough to convince your lordships that
the statement at the End of the White Paper which as the
noble Viscount said passes twice a year between us and
the United States is by no means a form of words but one
which has lEft the question open for consideration at a
moment when both governments feel that WE are likEly to
arrive at a solution satisfactory to Each of us."
(END SECTION ONE)
KENNEDY
HPD
Regraded Uclassified
289
PARAPHRASE OF SECTION TWO, TELEGRAM NO. 670 of
JULY 22, 1938, FROM THE AMERICAN EMBASSY, LONDON
The Ambassador has directed me to state that it
is his opinion that the right strategy for our country
to pursue would be to have all in authority abstain from
making comments on the war debt problem of Great Britain,
either at the present time or later on. The Ambassador
for his part has made a point of not being drawn into
any discussions, tentative or otherwise. He believes
that such an attitude in the long run will be the most
effective and the best calculated to get Great Britain
to take up the war debt problem with us.
END MESSAGE.
KENNEDY.
EA:LWW
Regraded Uclassified
230
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: July 22,1938, 6 p.m.
NO.: 1147
FROM COCHRAN.
Today there was some improvement in the franc.
The control was not obliged to give up sterling until
late this afternoon; then at a rate between 178.17 and .18
a small amount was sold.
Better market for rentes and shares. Following happy
visit of British sovereigns atmosphere somewhat improved.
Tight money market.
Today large banks did much rediscounting at the Bank
of France. For the next two or three months the Govern-
ment will refuse to consider any new requests for raising
prices.
BULLITT.
2022 NS
EA: LWW
Regraded Uclassified
CONFIDENTIAL - EXACT TRANSLATIONS
291
July 23, 1938
PRESIDENT ROOSEVELT
TO BE CONSISTENT I WISH TO SUPPLEMENT MY RECOMMENDATION TO YOU FOR
COMPTROLLER OF CURRENCY PERIOD I SUGGEST AFTER CALIFORNIA PRIMARIES
YOU FIRST OFFER POSITION TO JEFTY OCONNER AND IF HE REFUSES TO ACCEPT
THEN OFFER IT TO PRESTON DELANO PERIOD BEST REGARDS
MORGENTHAU
USS HOUSTON
24 JULY
HENRY MORGENTHAU JR
IN GALA PAGOS THERE ARE NO COMPTROLLERS OF CURRENCY OR OTHERWISE
PERIOD ARE THERE ANY IN PARIS PERIOD HAVING A GRAND TRIP PERIOD
MY BEST TO YOU ALL
ROOSEVELT
COPY
TREASURY DEPARTMENT
Telegraph Office
292
1938 JUL 25 AM 8 15
NO 2DN 37GOVT EXEC
USS HOUSTON JULY 24 1938
GOVT EXEC TREASURY DEPARTMENT
WASHINGTON (DC)
FOR HENRY MORGENTHAU JUNIOR IN GALAPAGOS THERE ARE NO
COMPTROLLERS OF CURRENCY OR OTHERWISE PERIOD ARE THERE ANY
IN PARIS PERIOD HAVING A GRAND TRIP PERIOD MY BEST TO YOU ALL
ROOSEVELT
743AM-S
Regraded Uclassified
PARIS---SECRETARY WORGENTBAU CONFERRED TODAY WITH PAUL REDCHANBEAU
THE FRENCH or FINANCE. IT WAS BELIEVED THEY DISCUSSED THE
UNITED STATES-MIITISK-FRINCE MONETART ACHEEMENT,
7/25-R901A
293
MORGENTHAU-MARCHANDEAL CURRENCY TALKS207
PARIS - CONVERSATIONS BETWEEN SECRETARY OF
TREASURY MORGENTHAU AND FINANCE MINISTER
MARCHANDEAU WERE FOLLOWED BY AN OFFICIAL
STATEMENT THATY -THEY NOTED A PERFECT
FUNCTIONING OF THE TRI-PARTITE CURRENCY
AGREEMENT AND AFFIRMED THEIR MUTUAL DESIRE TO
ASSURE ITS MAINTENANCE-
IT is UNDERSTOOD THAT THE OPPORTUNITY WAS
TAKEN TO EXPLAIN FULLY TO THE AMERICAN
SECRETARY THE PROBLEM OF FRENCH FINANCES WHICH
IS DOMINATED BY THE OBLIGATION TO SHOULDER THE
BURDEN OF EUROPE-S POLICEMAN OF PEACE
MARCHANDEAU IS BELIEVED TO HAVE EXPRESSED
OPTIMISM WITH REGARD TO THE IMMEDIATE
1938
FUTURE CALLING ATTENTION TO THE SATISFACTORY
25
INITIAL RESPONSE TO THE NEW SHORT TERM DEFENSE
BONDS
HOWEVER HE IS BELIEVED TO HAVE DISCUSSED
THE QUESTION OF CONTINUED AMERICAN AID IN
THE EVENTUALITY THAT RENEWED PRESSURE SHOULD
MAKE THE FRANC UNTENABLE AT THE 179 FRANC TO THE
POUND LEVEL
THE FRENCH MINISTER ALSO STRESSED THAT DOUBT
REGARDING THE MAINTENANCE OF THE PRESENT GOLD
PARITY FOR THE DOLLAR IS AN ADDITIONAL
DIFFICULTY FOR THE FRENCH FRANC
LEADING CABINET MINISTERS PLUS LEON BLUM
FORMER PREMIER AND THE GOVERNOR OF THE BANK OF
FRANCE WERE GUESTS AT THE MARCHANDEAU
LUNCHEON IN HONOR OF SECRETARY MORGENTHAU
294
COPY
Via Coast Guard
July 25, 1938
FOR SECRETARY MORGENTHAU
FOLLOWING TELEGRAM RECEIVED QUOTE USS HOUSTON
JULY TWENTY FOUR FOR HENRY MORGENTHAU JUN IOR COLON IN
GALAPAGOS THERE ARE NO COMPTROLLERS OF CURRENCY OR OTHERWISE
PERIOD ARE THERE ANY IN PARIS PERIOD HAVING A GRAND TRIP
PERIOD MY BEST TO YOU ALL SIGNED ROOSEVELT UNQUOTE
CHAUNCEY
Regraded Uclassified
whate
295
Under date of October T. 1937. n memorandum wis given to the
Secretary outlining the policy of the Burseu of Harostics in
handling narcotic work in Enrope prior to November 1, 1936, and
recommending that this policy be continued. This policy was
First, to close foreign sources of illicit supply.
Second, to break up international rings which feed American mar-
kets as well as Canadian, Egypties and Par Eastern markets,
Third, to effect seiveres and arrests of violators engaged in
smuggling destined for the United States or in the United States.
Under date of October 12, 1937. the Secretary approved the recom-
mendation, stating:
Effort should be made to discover the principal sources of
narceties in Europe, and effort also should be made to trace
shipments of such supelies as they may occur in going through
Europe to the United States. It 10 comential that the ini-
tial inquiries be made in the countries in which the produe-
tion occurs.
Since my return to Paris from Washington about November 1, 1937. an
attempt has been mde to follow out the policies montioned. The
principal cases which have been successful, are as follows:
BACULA-LTON: The arrest of BACULA and LYON and the outstanding
achievement. For several months investigations were conducted with
the help of the police in England, Italy, Switzerland and Vienna,
during which time correspondence between members of the game was in-
tercepted. All information obtained was cleared through this office
and furnished the police at Paris and Vienna. Finally, the Vienna
bolice announced they had sufficient evidence to justify the arrest
of BACULA as a narsotic trafficker and having been involved in the
300 kilos of opium soiged at Vienna, in December 1937. The police
give full credit to this office for having obtained the necessary
avidence. BACULA was arrested in May. in Turich, where he to being
neld rending extradition proceedings.
Regraded Uclassified
296
Regraded Uclassified
with respect to LION, this office prevailed upon CHERAT, who the
convicted as as secomplice in the Fanby, 8t. Homore affair. is
1935, to tell the truth about the whole matter, No implicated
LYON, BACULA, and others, and his oridance with other evidence
furnished by this office, fimally led to the arreet of LTON. The
evidence of Chebat. documentary and oral, and that gathered by
this office is emple to secure a conviction, if the case is pro-
perly presecuted, net ealy of LYON but also of RACULA and Mrs.
SALTI.
The importance of this case - be emphasized by stating that It
would be similar is importance to the arrest of SALLY GORDON as!
the WYOMAN brothers in New York.
The details relative to BLAUAUG which appeared in the
BACULA-SALTI correspondence furnished through this office helped
greatly is the efforte of the Vieaness pelice against this man.
He is now in prioon in Vieuns, though not being held on a nareotic
charge.
NUMBER: Then 300 kilos of opine were seined in Vienna Inst Decem-
ber, 1t was through the correspondence obtained through the work
of this office that MUELLER was involved in the affair: also BACULA.
DE TOLNDO: DE TOLEDO THE arrested in connection with the LYON mt-
ter, This office know that he had worked with LYON, but be had
discrestly withdrawn within the last few months, sad it was in-
possible to find his address. Glovie VAVIADIS, who was being con-
tacted by DAS of our informers, me prevailed noon to go to Louis
LYON, without knowledge himself that this office was interested in
his visit. LION ovidently became frightened end denourced VAPIA-
DIS, a mistake on his part which has proven costly, for it 10-
sulted is the arrest of VANIADIS. whose papers were not in order, and
is the interrogetory of VAFIADIS which, we think, will link very
definitely Lovie LYON and DE TOLEDO.
VAVIADIS, As explained is the preceding paragraph, be is now in
jail. Re had agreed to address a written demunsiation of LYON to
the judge, but we arrested before this md accomplished.
297
-}-
CONDOR Through - informer, information concerning the activities
of QUKDON use given this office - time before Christmas. It was
known definitely that he - marefacturing in quantities. For some
months this office worked with the Surate - the mitor. giving
good information and obtaining RETURNDOSE that the Surate was about
to close in on him. Novever in retrospect 11 world appear that
there was lack of loyalty, very likely due to the fast that QUEDON
was manufacturing for CARBONE and his cousin HORETTI. GURDON has
now been arrested is commention with the LYON matter.
PESSIS (or PESSID: Bernard PESSIB to thoucht to be an individual
whom this office described to the Surete months age as as invalid
who had been working with GUEDON and who left for the Riviers. The
villa is which be lived, it 10 thought, they need as a storehouse,
removing the manufactured drugs from GUEDON's house where the labor-
story was, to PESSIS' house. As in the case of unfortunate-
ly, there is doubt in our winds as to how dicinterected work the
French police did on this mtter.
MADRID: Definite svidence was obtained that Francisco MADRID,
Minister of Chile at Ducharest furnished a false passport to
CHEBAT, under M. false name, through BACULA. It is thought that
the Bucharest authorities may request his removal B.P. Minister of
Chile. Letters exchanged between MADRID and BACULA. which -
to the hands of this office. have also bown of great help, for
they leave no doubt as to the relationship which has existed be-
trem the two men. In February MADRID once to Paris. The plane
for his trip were known to this office. and he we watched during
bio burried trip. It proved to be, however, a question of securi-
ties which he we evidently trying to remove for someone in Roumania
under cover of his diplomatic passport. As a entter of fact, this
activity on his part and on the part of BACULA and his associates
is thought not to be . new one,
DOMEZ: Elisee Ricardo GONEZ, Minister of Uraguay at Progoe, 18
known, from information given W an informer and also from the
BACULA correspondence, to be an old associate of this Troup. 10-
cently be has been under surveillance during several trips he has
made from Prague to Ansterdam. From reports received from the
Datch police, we presume his present visits are to connection
with amggled securities.
ANAVI Brothers: Despite the assurances of the Sofia volice that
the AMAVI brothers vero not . for months age any longer in this
traffic, information free an informer indicated otherwise. w
sause of their commention with the LYUE-BACULA matter. - have
Regraded Uclassified
288
endorsed to follow up their activities, and recently, through
another informer, - have certitude that at least can of them 10
actively la the business. AS present IN are working OR 8. senl
in which they will be involved.
LANDOSOD: Information was furnished the Turete by this office
that resulted is the arrest of LANDOSCO en a marostic charge.
He - released on bail of 50,000 france. While out on ball,
he left Francé for Cube. & Surete officer told us of IAND0500's
departure several days after be left, giving no information as to
the bost on which he me travelling. This me learned by this of-
fice and the Puress advised. information indicates that IARDOSCO
www permitted to depart from France because LYON had indicated to
a Surete officer be wished this to happen, probably because be
(1yon) WE afraid of becoming inclicated in the affair. It will
to recalled that while en route to Revena, received
wireless messages signed "Mixo". the Surete - asked to ascer-
Bein the name of the sender. Inquiry WI mde several times as
to whether they had Identified the sender, and the revouse always
WGF in the negative. Recently information will received from other
sources that the Barete had identified sometime ago that the -
organ were cent by oze COLDFARD. Ye then requested the Turete to
advise us what information they had concerning GOLDFAND, and in
reply to the inquiry 90 were adviced that GOLDFARD use the sender
of thomasanges is question.
The Bureau will recall that when It we notified IANDOSCO me on
route to Havana, it unde arrangements to have his expelled from
Cabe and he US arrested at New York for violation of his parele.
AS the request of the Bursas, was loonsed
is Roumnia. Arrangements were nate to bive his expelled from
that country and placed on a bant going to Athens. At the latter
place he was arrosted and hald for extradition to the United States,
to be tried on all indictment for conscireay to violate the nercotic
laws.
SCHWANTZ: This office cooperated with the Surete in the arrent
and artradition of SCHEARTZ from France to New York, to answer
an indictment for complimey to violate the mrcotic laws.
MAXIALISI,
GAOLIANO, CARUSO, MARRALIST and GAGLIANO ware reported to the French
pelice, who entabed them on their arrival from the United States
until their departure for Italy. Their return to Paris become
known to this office by a chance meeting on the street, and OTHER
Regraded Uclassified
299
then their address could not be obtained from the French pelice,
jempite intensive offorts. It - eventually through the stom-
ship company that they were found. Although the French police
knew of the identity of CARUSO, having been motified of Me In-
tended visit, when he put in his appearance at the hotel of
MASSALISI and GAGLIANO, he vas not followed, and despite our of-
forte to learn his address 10 vote unducosseful and he sailed,
as the Dureen know, on the same day MANALISI and GAGLIANO do-
parted, but es another heat.
Through the initiative of agents of this office,
BORRELLO - arrested recently in Come, when he endonvored to
sell 7 tiles of merchandise. The affair has opened the my to
obtaining information of great value relative to the Italian
traffic and the arrest of a manufacturer who was supplying
MORRELLO. There have been seiged conditionally, se far (that 10,
ve are not yet formally aswared by the Italian Government that
part of the merchandise will not be returned to the manufacturer),
53 kiles of herein. BORRELLO 10 supposed to be one of the leading
suppliers of narootics sungeled into the United States by the
Italian Lines.
FAILLA,
PROVENTANO= Three men, who, it is thought, send narcotics 70(1)-
larly to the United States. have been followed from time to time
is the last months, and it 10 hoped that when the Surete has a
little 8070 time to give to the affair FAILLA can be apprehended.
COULOME: Meari COULOME le said by the Surete to be the biggest
trafficker in Transe at the present time. Intensive work on his
and en his right-hand man, Mariano SCHEBLER, who is at present in
Porie under a false name, will be continued. It 19 thought that
180 viles of optim recently volved at Marseille my have been Is-
tended for COULOME.
This ma, as associate of ANDERANI, CARBONY. COULOME
and GUIDON, and arrected recently. This office is working at
present en 6 empply of morehandise, the seurce of which to not
yet definitely known, but which " have reason to suspect is
PARETTI or COULOMB. Information concerning FERETTI has less
given the Surete on several occasions during the past year.
the cubarbe of Pario was ascertained. It necessitated considerable
PLANE BLASTAK, Through as informer. the address of this will in
difficulty and 11 - only after discussion with the French police
Regraded Uclassified
300
+
and indication ON their part that they world follow - the matter
that he was taken in hand. It resulted in his being expelled from
France. Newever, se - indication of the cooperation of the French
Pelice, it VAS learned - months later that BLASTAK had returned
to France, had been arrested and was about to be released after
having served & sentence: no notification of his arrest was N-
ceived from the Presch police, despite the assistance given them
just previously esseerning him.
5.4 F. This company has a factory et Skoplje,
Tuposlavia. Through an informer details of production vera ob-
tained which indicate that production 10 wuch In excess of amounts
reported to the Tugeslav Government, the exeres going into the
illicit traffic. too employees of the factory have made state-
monts these Irregularition. The matter has been N-
ported to the Tago-law Government, which recently placed an 10-
spector in the factory to see that A proper account is kept of
all purchases of crode opius and all manafactures.
Desiel TOMASOVITOR: Probably the largest supplier of narcetics
from the Balkans, He has been arrected many times and fined.
Hecently, for the first time, he served a jail contence, 15 days.
It is believed that the activities of agents of this effice and
representations to the Government brought about this sentence,
the marious under Tugeslav law.
COUNT OPSIC.
TACOO et N.1 M the result of information given by this office
to the Vienns pelies, the above and four other persons were ar-
rested and 70 kiles of opius mm entend. This opium was destined
for Paris, where it probably was to be made into heroin for the
United States.
JOBN WAGNERS Arrested, with an accemplice, by the Vienna nelice.
and two kilos of onlys solmed, on information furnished by agents
of this office.
USTA IOVANOVIC: with KOVAES and TTXRY, vero arrested
by the Viems police and two kilos of opins noiged. The arrests
were nade -- information furnished by this office.
In addition to these specific mees, such information has been
obtained from informers and given to the police of countries
interested.
Another phase has been obtaining information of one country to
do net exchange information between themenlves. This 10 possible
give to the police of another country, where the two countries
because all constries feel the Treasury Department has - notive
Regraded Uclassified
301
÷
other than to work against the anreetic traffic. while they -
times tions. distrest the notives of each other. the is political conti-
International corporation le secontial to produce results. M
Hapresentatives of the Treasury Department are trusted by all
countries they - perform Add important service se linison of-
ficers between the different countries. They also can keep -
the interest of the police in continuing their activities with
respect to the marcetic traffic. This is very essential, M
without sose incentive the police are apt to do very little will
to prevent the suppling of marestics.
treasury Representatives are placed in a position of trying to
enforce the laws of other countries, 02 at least of trying to
get the officers of European countries to enforce their own
laws. The latter expression is more emot, as our represents-
tives de not enforce any laws abroad: in fact they cannot make
investigations beyond a certain point which may be called got-
time information free informers. Under the conventions or agree-
sents made with the different countries of Marope, the Interchange
of information concerning violations of aareetic laws is to be
only between the Commissioner of Marcoties, at Washington, nad
a designated person is each country of Europe. In some countries
police officials are designated: in other countries. public health
or other officials. It 10 useless to Any to do effective work
through public health ministers. Police work must be done through
elice officers. Police efficials are willing to work with this
office: M are not supposed to work directly with them In -
countries on accurent of the agreements noted above. In such 100
stences the agreements are handlemps to the work the office is
trying to de. In some countries the authority named as COTTRE-
pondent under the agreements has acreed orally that we deal
directly with the police, realising that the best results as
be obtained by main action.
In practically all countries. agents of this office have received
excellent cooperation from the police. In Italy. where little
support THE received in the part, excellent cooperation 10 belog
given, Instructions have been terred by the government at Ima
to police, customs and throughout Italy to cooperate
Regraded Uclassified
302
+
with agents of this office in margotic mess. The arrosts and
outsures at Genos and Wilm of truffickers who supplied Italian
ships ties. going to the United States wes brought about by this coopera-
In Germany, England, Belgium, Holland at Tugeslavia, cless coopera-
ties with officials has existed, also at Maresilles, in Presce. 110-
fortunately, thgattitude of the Serete, in Paris, has left másh to
be destred. There has been but little evidence of any roal seopers-
ties on the part of the Darete, and at times considerable evidence
of passive resistance against prosecuting marcotic cases. this of-
fiee has given all information in its peesession concerning French
CARGE to the Sureter beyond assering specific inquiries neked by
this office, nothing has been received free the Surete. AS times
I believe the fact that the United States Government has aguate
in Marepe to work on marcetic cassa 10 recented, and 11 would be
most pleasing to the Surste to ⑉ such agests withdrawn. If the
Fresch police would take a desided stand against the narcotic
traffic, investigating and prosecuting without fear or favor, all
at the same time take this office into its confidence 80 our asti-
vities could be coordinated with their activities, the result
would be meet beneficial is stepping the marcotic traffic from
France to the United States.
During the past year the agents working on narostic ..... have
confined their activities montly to the following territory:
less Station, Paris. Worked in Navro, United States Lines w
twoen Havre and Numberg, and Hasburg.
Promott Station Paris, worked is Switzerland, Italy, instria,
Pugeslavia ead Roumanis.
Butler: Paris. at station.
D1 Lucias Station, Wilam. Work in Italy and South Switeerland.
Dyer: Station interp. York in Belgium, Holland and Hamburg.
Paglies: Station Viensa. York is Vienna and
Station Paris. fort is Paris and French ports.
Marawilles and betters Tranco, Densa, Poumaia and Creece.
Violatt Station Pario, until July 1 at Marseilles. Worked is
Regraded Uclassified
303
It is believed that the stations of the employees should not be
changed except as follows:
Trensfer Dyar from Antwern to Paris, from which point he would
continue to make regular visite to Belgiva and Holland. treas-
for Bruner from Paris to Sofia or Import. There is considerable
activity in the Balkan countries and Turkey. It 1e believed an
agest stationed is one of these countries one handle the situation
better if he 1e located et a petat nearer than Parts. This would
insure closer contact with officials dad informers, now interrupted
by returning to Paris. From the stamipoint of the agent, 11 would
be more agreeable to have & permant home nearer his assignment.
with these changes the set-up will be as follows:
1. Parie: Antler, Bears, Dyer. Tachon, Violatt
2. Sofia or budspest: Bruner
3. Wilons De Insta
b, Vienmar Poglies
1. PARIS, General direction of work and records. During the
past year Mr. Butler has been in charge of this notivity. He
also has contacted infersers, collee. and handled the BACULA-
LYON affair. the transfer of MP. Violett from Marceilles to
Paris was to have emother contact - here to relieve Mr. Butler,
thas giving his nore time for general direction, and for the
time being. more time to devote to bacula-LYon.
Narcotic work alone does not justify keeping a nan in Antworp.
Contact with police cas be maintained by visits of M ente from
Paris. These agents our take care of both Belgium and Holland.
It will be recomended, therefore, that Mr. Dyar be transferred
to Paris November 1, which will give him ample time to give the
required notice to terminate his lease. Im the measshile his
services will be used is Paris for & part of the time, especially
to relieve My, Batler, who will take annual leave as 1000 as there
is an opportunity to do so.
All Prench ports, Belgium and Holland, will be covered from Paris.
For the time being Mr. Bears will continue to cover ships from
Hamburg and his activities will be extended to Oydamia, Dantsig
and Riga.
Regraded Uclassified
304
-10-
2. SOFIA or EUDAPEST: Druner to GOVGE work in the Bellow States,
Greece and Purkey. Mr. Druner speake both French and German nad
10 fairly preficient in the Serbian language. Belgrade world w
the ideal place for as agest. Novever, the Tugoslav Government
dose not wish to have envens stationed there. Softs Le next dr
sirable: then Dedapost. If the Bureau approves having an agent
stationed in either of these places, 11 is recommended that steps
be taken to accertain if the Bulgarian Government, referably. or
the Bungarias Government, will approve of mch a station and, If
so, that Mr. Bruser be traferred to the new post,
3. MILAM: All work in Italy 10 covered from the Vilan office by
Mr. DI Lasta, maristed by Kr. Paterniti, when necessary. up. D1
Lucia has done exceptionally good wrk. Plans have been laid for
work in Rest Italy, where 11 is believed supplies of marcetics
cose in from Tugeslavia. In the event Nr. Di Incia is not returned
to the foreign service, it 10 recomended that Vr. Bruser be sent
to Milan for the time being and the recommendation made under -
ber 2 above be held in absyance for the time being.
4. VIRMAL KF. Paglies is stationed at Viema, where he has
exceptionally class relations with the police. It is desirable
to leave his there for the line being. Re can work in Austria,
Rungary, Csechoslevakia, Pelend and Housenia. Re speaks French,
German and Jussian.
Mr. Peglies 10 not as American citizen. He is a good worker
interested is bis work. Re bee been paid a clerr's salary of
$1500, which 10 inadaquate for the work he is doing. & promo-
tion of $55 to $900 would be deserved and very much appreciated.
It is believed that the force named above, stationed as indiented,
will be sufficient for the coming year. If er. De Locia 10 not
returned to Europe, smother Itelian speaking agent will be needed.
As agente travel a good share of the the and work on their own
recommibility, great care met be exercised is choosing a -
who will make the meet of his time without being under supervision.
Regraded Uclassified
305
-11-
Comments from the Bureen on this a of what has been done
by the agents is foreign service, and what they are attempting
to de, will be welcome. Perhaps the Bureau - make some practi-
ml suggestions that will be of assistance, or point out things
that are being done that might be left undone, or that could be
handled better in another manner,
BERNARD VAIT,
Supervising Treasury Attache.
Copies enclosed for:
Mr. Gibbene
Mr. Iray
Mr. Anelinger
Mr. Fuller
bw/be
BR134 134
306
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: July 26, 1938, 5 p.m.
NO.: 1166
The following is strictly confidential for the
information of the Secretary:
This morning Secretary Morgenthau was visited by
Wellington Koo, the Chinese Ambassador. I was present
at the meeting. During the course of the discussion,
Wellington Koo mentioned that it was 8. matter of vital
importance for the Chinese Government to obtain financial
aid, since the financial resources of China were becom-
ing exhausted. However, he said, the morale of the
Chinese army and the civilian population was admirable.
There had been a collapse of the loan negotiations
with Great Britain. There had been an indication from
the French that if a loan or credit were given to China
by Great Britain and the United States, the French would
be willing to give China a loan also.
Secretary Morgenthau told Wellington Koo that he
could not make promises of any kind, but said that it
might be advisable if Mr. I. P. Chen - he had negotiated
with him in the past with pleasure - were to be sent
to
Regraded Uclassified
307
- 2 -
to the United States by the Chinese Government, for
the purpose of looking into the possibilities of getting
a credit for purchasing flour and grain products.
The suggestion was also put forward by Secretary
Morgenthau that if Mr. K. P. Chen should visit the
United States, he should inquire into the Chinese Gov-
ernment's present purchasing methods.
These suggestions were most gratefully received
by Wellington Koo, who said that he would immediately
get in touch with the Chinese Government.
BULLITT.
OFFICER
ares 18 give
EA: LWW
-
and - and -
noved - -
Regraded Uclassified
363
10.27
-MORGENTHAU AND BONNET CONFER
24 1938
PARIS - HENRY MORGENTHAU JR US SECRETARY
OF TREASURY CONFERRED FOR HALF AN HOUR WITH
FOREIGN MINISTER GEORGES BONNET PRIOR TO A
LUNCHEON IN MORGENTHAU-S HONOR AT THE FOREIGN
OFFICE
-0-
PARIS--SECRETARY MORGENTHAU CONVERSED FOR HALF AN HOUR TODAY WITH
FOREIGN MINISTER GEORGES BONNET PRIOR TO A LUNCHEON IN MORGENTHAU'S
HONOR AT THE FOREIGN OFFICE.
MORGENTHAU TALKED YESTERDAY WITH PAUL MARCHANDEAU, FINANCE
MINISTER, AND DISCUSSED MONETARY MATTERS, INCLUDING THE BRITISM-
FRENCH-UNITED STATES EQUALIZATION AGREEMENT. A COMMUNIQUE SAID THAT
THE TWO "ONCE AGAIN ACKNOWLEDGED THE PERFECT FUNCTIONING OF THE
TRI-PARTITE ACCORD AND ASCERTAINED THEIR COMMON DESIRE TO ASSURE
ITS CONTINUANCE."
7/26/W958A
Regraded Uclassified
309
STRICTLY CONFIDENTIAL
Paris, July 26, 1938.
Dear Archie:
Yesterday Secretary Morgenthau talked
over with Butterworth and myself certain
events which have transpired in the past few
months. For our information on this side he
suggested that I write this letter to you
asking that you extract from his confidential
files, and send one copy to Butterworth and
one to me, of those entries which indicated
the attitude of the British monetary authori-
ties as revealed to us when the question of
France's imposing some sort of exchange
control, as opposed to further devaluation,
arose.
Thanking you for this favor, and with
very warmest regards, I am
Sincerely yours,
Archie Lochhead, Esquire,
Treasury Department,
Washington, D. C.
K. m.h.
Regraded Uclassified
310
August 10, 1938
Then Mr. Authorwerth:
On July 26, Mr. Cochren wrote A letter to Archie, which was
approved by the Secretary. instructing that be sená to Mr. Cochran
and yearself extracts of those entries which indicated the atti-
trude of the British monetary authorities as revealed to us when
the question of France's imposing some sort of exchange control,
as opposed to further devaluation, arose.
In Archie's absence on vacation, I enclose copies of excerpte
from the Secretary's file and excerpts from cables which I think
will provide you with the ascessary information.
I do hope that you and Mrs. Butterworth enjoyed your vacation
La the south of France, and with wars personal regards.
Sincerely yours,
Frank Districh
FDrek
Emolosure
Mr. William 1. Buttervorth, Jr.,
American Imbassy.
London. Regland.
Regraded Uclassified
311
FROM MEETING IN SECRETARY'S OFFICE, SEPTEMBER 21, 1937.
Butterworth: Sir, this note is much weaker than the
previous communications that the British sent the
French, but which they showed us, remember, at the last
crisis. This note is milk and honey as compared with
those others. And I think the reason that they have -
I was surprised that it was as moderate in tone as it was;
I think that is due to the present political situation
in the Mediterranean. But Phillips made clear, I thought,
yesterday, that even if the frone went to 170 to the pound,
where was nothing that Great Britain could really do except
read them out of the tripartite, and that he was against that
because he was against exchange control. Well, that more
or less showed his hand. What they are really trying to
do is trying to bring moderate pressure on the French,
because they really couldn't use a big stick.
Regraded Uclassified
312
CONVERSATION BETWEEN SIR FREDERICK PHILLIPS
AND SECRETARY, september 21, 1937.
Phillips defined the British attitude towards the
French situation briefly, as follows:
(1) That in their view the frenc would probably
60 through repeated steps of slipping and rellying, the
general trend being decidedly downward.
(2) That in their opinion as long us the French
Government had the support which the prestige of member-
ship in the Tripartite Agreement gave them, they could
resist the pressure from groups both within and without
the Government favoring the institution of en exchange
control system.
(3) That the United Kingdom was most anxious that
exchange controls in France shou be avoided; the 1a-
position of such a control system in France would not
merely effect the substantial United Kingdom trade with
France, but would further stimulate the retrogressive
exchange control movement. Also in their opinion,
unlike Germany, France would not be able to conduct
suca e system efficiently.
(4) Therefore, the British Government W/S of the
opinion that France should be allowed to remain in the
Tripartite Agreement despite frone fluctuations and,
If it were necessary, a public statement should be
made that France was considered 05 remaining in the
Tripartite Agreement.
In response to a question from Phillips, the Sec-
retory expressed agreement with the proposition that,
in the circumstances, France should be kept within the
Tripartite arrangement.
Regraded Uclassified
313
CONVERSATION BETWEEN SIX FREDERICK PHILLIPS
AND SECRETARY, SEPTEMBER 23, 1937.
Phillips made it clear that he felt sure that
the British Government would view the imposition of
exchange controls in France 88 constituting É breach
of the Triportite Agreement. He expressed strongly the
view that, in their opinion, exchange controls were
inconsistent with the terms MB well is the intent of the
Tripartite understanding.
Phillips than said that be felt ne could clarify
the British attitude on this whole question still further
by stating that 11, for example, & country like the Argen-
tine should a ply for membership in the Club, the British
attitude would be to says de welcome you, but je take it
to mean that you intend to abandon your control system,
for otherwise admission would not be possible. Phillips
went on to BEY that should 11 De considered desirable or
necessary, the British Government would, Me thought, be
*illing to wern France, in advance, that the imposition
or E control system would in their view eliminate her from
the Tripartite agreement.
Phillips then in, wired whether, in view of the Sec-
retery's previous remarks, De would be willing to reply to
Bonnet's message by noting with tisfaction nis continued
opposition to the imposition of exchange controls in France
and, with reference to the franc rate problem, to take note
also of Donnet's statement to Cochran that from the budget-
Dry and economic standpoint e frine of from 140 to 150 to
the pound is adequate. To tuis the Secretary agreed L8
being in line with nis Ideas.
Regraded Uclassified
314
CABLE 31 FROM BUTTERWORTH, JANUARY 14, 1938.
Phillips said that he was afraid his previous
gloomy predictions were now about to be realized but that
there was nothing to do until it could be seen what was to
be expected in the way of a new French Government. The
situation W&S as we had discussed it in Washington last
autumn -- either the franc would be further depreciated
or exchange control would have to be tried. In his opinion
exchange control would create" hell of a mess"; aside even
(this?)
from their injurious effects, in the case obviously they
would prove administratively unworkable.
315
CABLE 80 FROM BUTTERWORTH, FEBRUARY 1, 1938.
I asked him whether be still held to the
opinion expressed in Washington (see memorandum of
conversation of September 21, 1937) that perticipation
in the tripartite agreement was a sufficient domestic
political asset to ensure successful resistance to the
imposition of exchange control. He (Phillips) said
he did: that the Redical Socialists held the balance
of power in the French Chamber of Deputies and he
thought they would continue to hold out for 21 liberal
form of an economy. de (*) on to reiterste how futile
as a remedy the imposition of exchange controls would
be in much the same terms reported in my 31, January 14,
1 P. B.
Regraded Uclassified
316
CABLE 133 FROM BUTTERWORTH, FEBRUARY 16, 1938.
My informant said that the British Treasury was
equally mystified both as regards this extraordinary
procedure and what would come out of it #
#
*
#
#
;
that exchange control in France should be avoided by the
French not for any mystical reason, democratic or otherwise,
but for the very sound and adequate one that it W&S
definitely in France's own interest to do so.
Regraded Uclassified
J17
TELEGRAM SENT
May 2, 1938
12 p.m.
AMEMBASSY
LONDON, ENGLAND
RUSH
188
FROM THE SECRETARY OF THE TREASURY.
Have fully informed Bewley this evening of course of
interchanges today between myself and French treasury. Have
suggested to British that no take no action until opportunity
afforded for further consultation end examination of text of
French decree.
I also asked Bewley informally to ascertain whether the
British Treasury did not think that introduction by the French
Government of modified supervision of capital movement might
not be preferable alternative policy for the French Government
to pursue rather than prospective continued decline of franc.
I withheld direct comment upon Simon's message as conveyed
in Butterworth's 364 of May 2.
HULL
(HF)
EA:HF:EDA
Same to: Amembassy, Paris, France as Department's No. 247,
May 2, midnight.
Regraded Uclassified
318
EDA
PLAIN
LONDON
Dated May 2, 1938
Received 6:10 p.m.
Secretary of State
Washington
RUSH
364, May 2, 11 p.m.
STRICTLY CONFIDENTIAL FOR THE SECRETARY OF THE
TREASURY FROM BUTTERWORTH.
Sir Frederick Phillips sent for me tonight to say
that about seven o'clock the French Ambassador had
sought an interview with the Chancellor of the Exchequer
to present the French aide memoire.
At the same time Monick, French Financial Attache
had called upon him.
Phillips said that he understood a copy of the
.rench aide memoire was likewise being presented at
Washington.
The Chancellor of the Exchequer nad reminded the
French Ambassador that the tripartite agreement was a
triangular matter and that he could not give him a
definite answer until after he had consulted Washington.
Phillips handed me the following document which
he said had been approved by Simon in substance before
it
Regraded Uclassified
319
EDA - 2 - #364, May 2, 11 p.m. from London
it aus actually drafted but of course not in phraseology:
"His Unjesty's Government have studied the aide
memoire left by the French Ambessador with the Chen-
cellor of the Exchequer on the 2nd May and regret to
learn that despite the additional taxation they have
decided to impose the French Government have reached
the conclusion that it is not possible to defend the
current rate of the franc by the use of the equaliza-
tion fund.
At the same time the French Government have no
doubt maturely considered all possibilities and have the
responsibility for reaching a decision.
His Majesty's Government note that it is the
intention of the French Government to achieve as the
eventual result of their policy a rate corresponding to
the economic position of France which will give to France
no competitive trade advantage.
It is for the French Government to determine what
is the best procedure for schieving stability at such
a rate, and His Majesty's Government are prepared in
the circumstances not to take exception to what is
proposed as being inconsistent with the tripartite
agreement though they feel it right to make it clear
that
Regraded Uclassified
320
EDA - 3- #364, May 2, 11 p.m. from London
that they do not regard present economic circumstances
69 justifying 8 rate more fevorable to the franc than
about 160."
Phillips pointed out that paragraph three above
did not arise out of the French aide memoire but out
of Bonnet's statement reported in peragraph numbered
four of my 356, April 29, 9 p.m.
Phillips also said that note should be taken of
the fact that the reply did not contain en unequivocal
yes to the Question in the last paragraph of the side
memoire, that the steps "entirely conformed to the
terms of the triportite accord." Phillips went on to
quote Monick to the effect that the French national
income was now not more than 220 milliards while
state and municipal requirements were 115 milliards:
that such & condition could not go on indefinitely
and unless rectified would continue to require the
remedy of depreciation.
Phillips pointed out that of course the figure
220 milliards did not depend solely 01) the price level
but on the state of business activity multiplied by the
price level.
de
Regraded Uclassified
321
EDA - 4 - #364, May 2, 11 p.m. from London.
He said that the French had not revealed to the
British Treasury the whole of their decree program but
quota
that it contained severe tariff and "/read justments" which
in some respects were ES, if not more, serious to Great
Britain than the proposed currency action.
Nevertheless, this would constitute the first
occasion when & tripartite country had deliberately
depreciated its currency as an instrument of policy
and there was no blinding the fact that it directly
contravened the provisions of the tripartite agreement.
AS indicated in paragraph one of my 335, April 22,
8 p.m. Phillips holds that the suitable rate is not 175
but between 155 and 160 to the pound.
However, he said he thought exchange control WIS
the greater evil but he did not conceal that he had no
great confidence in this being the final depreciation.
I asked whether in his opinion a good face could
be put upon the French action or whether the tripar-
tite accord would in effect disappear into a tissue
of fictions.
He said, speaking personally, it seemed 2. large
order at the moment to rewrite the declarations and that
he believed that the franc would gradually move to the
indicated level, the leaks from governmental sources
in
Regraded Uclassified
322
EDA - 5 - #364, May 2, 11 p.m. from London
in Paris being what they were.
He hoped that Simon would not be asked a question
in the House of Commons tomorrow, that no doubt he would
be on Wednesday and that if it was agreesble he would
reply along the lines indicated in the text quoted above.
Phillips said that he did hope that it might be
possible for Washington to reach & decision tonight
but if not the Chancellor would very much appreciate
it if reply could be had early tomorrow.
An added reason for an immediate reply lies in the
fact that the Ambassador has an appointment to see Sir
John Simon at noon tomorrow.
KENNEDY
NPL
Regraded Uclassified
323
MG
GRAY
London
Dated May 3, 1938,
Ree'd 12:25 p.m.
Secretary of State,
Washington.
RUSH
366, May 3, 5 P.M.
FOR TREASURY FROM BUTTERWORTH.
For purposes of record there is briefly set forth below
the main points of the Ambassador's telephone report of his
conversations with the Chancellor of the Exchequer and the
Prime Minister:
(one) The British Government is definitely against the
imposition of an exchange control by France, that they are
opposed to it not only because it cuts across basic liberal
principles but because they do not believe the French can work
such a system. In their view it would mean the worst of both
worlds, for despite exchange control the franc in their opinion
would be depreciated any way.
(Two) The British maintain that they are just as
annoyed as we are about the French action, but they are pre-
pared to overlook it because they are profoundly convinced
that it would be a grave mistake for political as well as
financial
Regraded Uclassified
324
Page 2, #366 from London
financial reasons to break up the Tripartite Agreement,
particularly on the occasion of Hitler's visit to Mussolini.
They point out that British trade will be much more adversely
affected than American trade and that *it won't cost us any
money" to acquiesce in the French action.
(Three) At the same time the British state that they
will not do anything unless ve agree and they expressed the
hope that in our reply to the French we would urge France
to take steps to put her house in order.
The British want very such our answer by this after-
noon or tonight.
KENNEDY
CSB
Regraded Uclassified
325
MD
GRAY
London
Dated May 3, 1938,
Ree'd 12:25 p.m.
Secretary of State,
Washington.
RUSH
366, May 3, 5 p.m.
FOR TREASURY FROM BUTTERWORTH,
For purposes of record there is briefly set forth below
the main points of the Ambassador's telephone report of his
conversations with the Chancellor of the Exchequer and the
Prime Minister:
(One) The British Government is definitely against the
imposition of an exchange control by France, that they are
opposed to it not only because it cuts across basic liberal
principles but because they do not believe the French can work
such a system. In their view it would mean the worst of both
worlds, for despite exchange control the franc in their opinion
would be depreciated any way.
(Two) The British maintain that they are just as
annoyed as we are about the French action, but they are pro-
pared to overlook it because they are profoundly convinced
that it would be a grave mistake for political as well as
financial
Regraded Uclassified
Page 2, #366 from London
328
financial reasons to break up the Tripartite Agreement,
particularly on the oceasion of Hitler's visit to Mussolini.
They point out that British trade will be such more adversely
affected than American trade and that "it won't cost us any
money" to acquiesce in the French action.
(Three) At the same time the British state that they
will not do anything unless we agree and they expressed the
hope that in our reply to the French we would urge France
to take steps to put her house in order.
The British want very much our answer by this after-
noon or tonight.
KENNEDY
CSB
Regraded Uclassified
327
FROM MEETING AT SECRETARY'S HOUSE, MAY 2, 1938.
Bewley:
Well, when I left England - well, that's six weeks
now - the attitude certainly was that we were afraid
that exchange control was pretty likely, but "
regretted - Te'd rather see them fight without it.
Things have gone further since then, and the attitude
may have changed.
328
MEMORANDUM FROM BRITISH EMBASSY, MAY 4, 1938.
(1) They (His Majesty's Government) thought
that any decision which led to France leaving or being
expelled from the Tripartite Agreement might bring about
& government by the large party in France which wants
exchange control and would in any case be a heavy blow
to the present French Government. They thought that
exchange control could not be satisfactorily worked in
France, that it would seriously hemper legitimate trade
and business but sould probably fail to stop illegitimate
activity, and further that the effect would spread to other
countries. Moreover, they did not think that exchange
control would in fact prove an alternative to a lower value
of the franc but would be in addition.
Regraded Uclassified
329
CABLE 633 FROM BUTTERBORTH, JULY 14, 1938.
My informant was of the opinion that exchange control
could not be instituted in France without causing disorganiza-
tion end disturbance and therefore ne feared the immobilizing
which this sould entail bad the opportunity it would afford
to Germany.
In view of the bove I questioned Phillips as to his
view of the trend of events in France and of the desirability
or otherwise of the institution of exchange control by France.
Phillips said that ne saw no signs that a movement towards
control was gaining momentum, that it would be part and parcel
of a resurgence of as Left politicalswing and that if anything
the trend of political opinion in France secording to British
sources W:S towards the Center. Phillips also felt that most
of the French Cabinet would not stand for any such seasure
and that the Senate was now no more prepared to a ccept such
a development than 1t had been during the second Blum
Government.
Phillips again reiterated his profound conviction
that for France the institution of exchange control would
prove both futile and vicious:
(1) It would not be run effectively - 8 black market
in francs would immediately develop, capital would continue
-2-
330
to be exported and the worst of both possible sorlds would
ensue, namely »11 the disadvantagen of exchange control
would be followed by the disedvantages of a further
depreciation of the franc.
(2) Not only would capital continue to seek refuge
abroad but French capital now abroad would certainly not
return.
(3) Likewise exchange control could not be instituted
over night and during D period in which the matter would be
ublicly debated and legislative power sought enormous sums
would leave the country. This would accentuate both the
fiscal and exchange problems.
(4) while exchange control would hinder to a certain
extent French exports it rould by no means rectify the
balance of trade by reducing sufficiently French imports
for the basic armsment demands would nove to be satisfied.
(5) Furthermore the setting up of a control system
would mean an extension of political corruption and coercion
Inssmuch = $ the allocation of the available foreign exchange
for imports which could not in France be kept out of those
realms.
Regraded Uclassified
331
August 10, 1938
Dear Mr. Cechrant
In Archie's absence on vacation, I have received your
letter of July 26, which was approved by the Secretary, relative
to the attitude of the British menetory authorities regarding the
French situation.
I 48 seclesing copies of excerpts from the Secretary's file
and excerpts from cables which I think will provide you with the
necessary information. be requested, I an sending 10 Mr.
Butterworth B duplicate not of the copies enclosed.
I ás hope that Mrs. Cochran and yourself are having & pleasant
summer, and wish to send you my ware personal regards.
Sincerely yours.
Trank Districh
FDick
Enclosure
Mr. 1. Marle Coohran,
First Secretary, American Babase7,
Paris, France
Regraded Uclassified
332
FROM MEETING IN SECRETARY'S OFFICE, SEPTEMBER 21, 1937.
Butterworth: Sir, this note is much w eaker than the
previous communications that the British sent the
French, but which they showed us, remember, at the last
crisis. This note is milk and honey as compared with
those others. And I think the reason that they have -
I was surprised that it was 63 moderate in tone AS it was;
I think that is due to the present political situation
in the Mediterranean. But Phillips made clear, I thought,
yesterday, that even if the franc went to 170 to the pound,
there was nothing that Great Britain could really do except
read them out of the tripartite, and that he was against that
because he was against exchange control. Well, that more
or less showed his hand. What they are really trying to
do is trying to bring moderate pressure on the French,
because they really couldn't use a big stick.
333
CONVERSATION BETWEEN SIR FREDERICK PHILLIPS
AND SECRETARY, SEPTEMBER 21, 1937.
Phillips defined the British sttitude towards the
French situation briefly, AD follows:
(1) That in their view the franc would probably
80 through repeated steps of slipping and rellying, the
general trend being decidedly downward.
(2) That in their opinion as long ES the French
Covernment had the support which the prestige of member-
ship in the Tripartite Agreement gave them, they could
resist the pressure from groups both within end without
the Government favoring the institution of on exchange
control system.
(3) That tue United Kingdom WSS most enxious that
exchange controls in France should be avoided; the is-
position of such 8 control system in France would not
merely effect the substantial United Kinguom trade with
France, but would further stimulate the retrogressive
exchange control movement. Also in their opinion,
unlike Germany, France would not be able to conduct
such 8 system efficiently.
(4) Therefore, the British Government WIS of the
opinion that France should be allowed to remain in the
Tripartite Agreement despite franc fluctuations and,
if it were necessary, a public statement should be
made that France was considered DS remaining in the
Tripartite Agreement.
In response to to question from Phillips, the Sec-
retory expressed agreement with the roposition that,
in the circumstances, France should be zept within the
Tripartite arrangement.
Regraded Uclassified
334
CONVERSATION BATWEEN BIR PREDERICK PHILLIPS
AND SECRETARY, SEPTEMBER 23, 1937.
Phillips made it clear that De felt sure that
the British Government would view the imposition of
exchange controls in France AS constituting & breach
of the Triportite Agreement. de expressed strongly the
view that, in their opinion, exchange controls were
inconsistent with the terms : 8 well 08 the intent of the
Tripartite understanding.
...... -
Phillips then said that he felt ne could clarify
the British attitude on this whole question still further
by stating that ir, for example, & country like the Argen-
tine should a ply for membership in the Club, the British
attitude would be to say: 28 welcome you, but 38 taxe it
to mean that you intend to abandon your control system,
for otherwise sumission would not be possible. Phillips
sent on to asy that snould it be considered desirable or
necessary, the British Government would, ne thought, be
willing to wern France, in advance, tust the imposition
of to control system would in their view eliminate her from
the Tripertite Agreement.
Phillips then inquired mether, in view of the Sec-
retery's previous remorks, be would be willing to reply to
Bonnet's message by noting with satisfaction his continued
opposition to the imposition of exchange controls in France
end, with reference to the franc rate problem, to take note
also of Donnet's statement to Cochran that from the budget-
ary and economic standpoint & franc of from 140 to 150 to
the pound is adequate. To this the Secretary agreed N8
being in line with his ideas.
335
CABLE 31 FROM BUTTERWORTH, JANUARY 14, 1938.
Phillips said that he was afraid his previous
gloomy predictions were now about to be realized but that
there was nothing to do until it could be seen what was to
be expected in the way of a new French Government. The
situation W&S as we had discussed it in Washington last
autumn -- either the frane would be further depreciated
or exchange control would have to be tried. In his opinion
exchange control would create* hell of & mess"; aside even
(this?)
from their injurious effects, in the case obviously they
would prove administratively unworkable.
Regraded Uclassified
336
CABLE 80 FROM BUTTERWORTH, FEBRUARY 1, 1938.
I asked his whether be still held to the
opinion expressed in Washington (see memorandum of
conversation of September 21, 1937) that participation
in the tripartite agreement WDS & sufficient domestic
political asset to ensure successful resistance to the
imposition of exchange control. He (Phillips) said
he did: that the Redical Socialists held the balance
of power in the French Chamber of Deputies and he
thought they would continue to hold out for 2 liberal
form of en economy. He (*) on to reiterate how futile
as & remedy the imposition of exchange controls would
be in much the same terms reported in my 31, January 14,
1 P. 2.
Regraded Uclassified
337
CABLE 133 FROM BUTTERWORTH, FEBRUARY 16, 1938.
My informant said that the British Treasury was
equally mystified both as regards this extraordinary
procedure and what would come out of it
*
;
that exchange control in France should be avoided by the
French not for any mystical reason, democratic or otherwise,
but for the very sound and adequate one that it was
definitely in France's own interest to do so.
338
TELEGRAM SENT
May 2, 1938
12 p.m.
AMEMBASSY
LONDON, ENGLAND
RUSH
188
FROM THE SECRETARY OF THE TREASURY.
Have fully informed Bewley this evening of course of
interchanges today between myself and French treasury. Have
suggested to British that we take no action until opportunity
afforded for further consultation and examination of text of
French decree.
I also asked Bewley informally to ascertain whether the
British Treasury did not think that introduction by the French
Government of modified supervision of capital movement might
not be preferable alternative policy for the French Government
to pursue rather than prospective continued decline of franc.
I withheld direct comment upon Simon's message as conveyed
in Butterworth's 364 of May 2.
HULL
(HF)
KA:HFIEDA
Same to: Amenbassy, Paris, France as Department's No. 247,
May 2, midnight.
Regraded Uclassified
339
EDA
PLAIN
LONDON
Dated May 2, 1938
Received 6:10 p.m.
Secretary of State
Washington
RUSH
364, May 2, 11 p.m.
STRICTLY CONFIDENTIAL FOR THE SECRETARY OF THE
TREASURY FROM BUTTERWORTH.
Sir Frederick Phillips sent for se tonight to say
that about seven o'clock the French Ambassador had
sought an interview with the Chancellor of the Exchequer
to present the French side memoire.
At the same time Monick, French Financial Attache
had called upon him.
Phillips said that he understood II copy of the
French aide memoire was likewise being presented at
Washington.
The Chancellor of the Exchequer had reminded the
French Ambassador that the tripartite agreement WAS a
triangular matter and that he could not give him 8.
definite answer until after he had consulted Washington.
Phillips handed me the following document which
he seid had been approved by Simon in substance before
it
Regraded Uclassified
310
RDA - 2 - #364, May 2, 11 p.m. from London
it did actually drafted but of course not in phraseology:
"His Nejesty's Government have studied the vide
memoire left by the French Ambassedor with the Chen-
cellor of the Exche,uer on the 2nd May end regret to
learn tast despite the additional taxation they have
decided to impose the French Government have reached
the conclusion that it is not possible to defend the
current rate of the franc by the use of the equalize-
tion fund.
At the same time the French Covernment have no
doubt maturely considered ell possibilities and have the
responsibility for reaching B decision.
His Majesty's Government note that it is the
intention of the French Government to achieve as the
eventual result of their policy 41 rate corresponding to
the economic position of France which will give to France
no competitive trade advantage.
It is for the French Covernment to determine what
is the best procedure for menieving stability at such
4 rate, end His Mojesty's Government are prepared In
the circumstances not to take exception to what is
proposed 05 being inconsistent with the tripartite
agreement though they feel it right to make it clear
that
341
EDA - 3 - #364, May 2, 11 p.m. from London
tast they do not regard present economic circumstances
18 Justifying n. rate more fevorable to the franc than
about 160."
Phillips pointed out that paragraph three above
did not wrise out of the French wide memoire but out
of Bonnet's statement reported in poregraph numbered
four of ay 356, April 29, 7 with
Pulllips Also sold that note should be taken of
the fact that the reply die not contain an unequivocal
yes to the question in the last poragraph of the side
memoire, that the steps "entirely conformed to the
terms of the tripartite doccrd." Phillips went on to
quote Monick to the effect that the French national
Income Wes now not more then 220 milliards while
state and municipal requirements were 115 milliards:
that such 4) condition could not go on indefinitely
and unless rectified would continue to require the
remedy of depreciation.
Phillips pointed out tast of course the figure
220 milliards J1d not depend solely on the price level
but on the state of business sotivity multiplied by the
price level,
He
342
EDA - 4- - #364, May 2, 11 p.m. from London.
de said that the French had not revealed to the
British Treasury the whole of their decree program but
quota
that it contained severe teriff and "/reedjustments" which
in some respects were as, If not more, serious to Great
Britain than the proposed currency action.
Nevertheless, this would constitute the first
occasion when a tripartite country had deliberately
depreciated its currency as on instrument of policy
and there 953 no blincing the fact that it directly
contravened the provisions of the tripartite agreement.
AS indicated in carograph one of By 335, April 22,
8 p.m. Phillips holds that the suitable rate is not 175
but between 155 and 160 to the pound.
However, ne said he thought exchange control was
the greater evil but he did not conceal that he had no
great confidence in this being the final depreciation.
I salted whether in his opinion D good face could
be put upon the French action or whether the tripar-
tite accord would in effect disappear into R tissue
of fictions.
He 201d, speaking personally, it seemed 0 large
order at the moment to rewrite the declarations and that
he believed that the franc would gradually MOVE to the
indicated level, the leaks from governmental sources
in
Regraded Uclassified
343
EDA - 5 - #364, May 2, 11 p.m. from London
in Paris being whot they were.
He hoped that Simon would not be asked a question
in the House of Commons tomorrow, that no doubt he would
be on Wednesday and that if it was agreeable he would
reply along the lines indicated in the text quoted above.
Phillips said that he did hope that it might be
possible for Washington to reach & decision tonight
but if not the Chancellor would very much appreciate
it if reply could be had early tomorrow.
An added reason for an immediate reply lies in the
fact that the Ambassador has an appointment to see Sir
John Simon at noon tomorrow.
KENNEDY
NFL
Regraded Uclassified
344
MG
GRAY
London
Dated May 3, 1938,
Rec'd 12:25 p.m.
Secretary of State,
Washington.
RUSH
366, May 3, 5 p.m.
FOR TREASURY FROM BUTTERWORTH.
For purposes of record there is briefly set forth below
the main points of the Ambassador's telephone report of his
conversations with the Chancellor of the Exchequer and the
Prime Minister:
(One) The British Government is definitely against the
imposition of an exchange control by France, that they are
opposed to it not only because it cuts across basic liberal
principles but because they do not believe the French can work
such a system. In their view it would uean the worst of both
worlds, for despite exchange control the franc in their opinion
would be depreciated any way.
(Two) The British maintain that they are just as
annoyed as we are about the French action, but they are pre-
pared to overlook it because they are profoundly convinced
that it would be a grave mistake for political as well us
financial
Regraded Uclassified
345
Page 2, #366 from London
financial reasons to break up the Tripartite Agreement,
particularly on the occasion of Hitler's visit to Mussolini.
They point out that British trade will be much more adversely
affected than American trade and that "it won't cost us any
money" to acquiesce in the French action.
(Three) At the same time the British state that they
will not do anything unless we agree and they expressed the
hope that in our reply to the French we would urge France
to take steps to put her house in order.
The British want very much our answer by this after-
noon or tonight.
KENNEDY
CSB
Regraded Uclassified
346
FROM MEETING AT SECRETARY'S HOUSE, MAY 2, 1938.
Bewley:
Well, when I left England - well, that's six weeks
now - the attitude certainly was that we were afraid
that exchange control was pretty likely, but we
regretted - we'd rather see them fight without it.
Things have gone further since then, and the attitude
may have changed.
347
MEMORANDUM FROM BRITISH EMBASSY, MAY 4, 1938.
(1) They (His Majesty's Government) thought
that any decision which led to France leaving or being
expelled from the Trip -tite Agreement mignt bring about
4. government by the large party in France which wants
exchange control and would in any case be & heavy blow
to the present Frenen Government. They thought that
exchange control could not be satisfactorily worked in
France, that it would seriously hemper legitimate trade
and business but sould probably fail to stop illegitimate
activity, and further that the effect would spread to other
countries. Moreover, they did not think that exchange
control would in fact prove an altern tive to all lower value
of the franc but would be in addition.
348
CABLE 033 FROM BUTTERBORTH, JULY 14, 1938.
My informant was of the opinion that exchange control
could not be instituted in France without causing disorganize-
tion and disturbance and therefore he feared the immobilizing
which this would entail and the opportunity it would afford
to Germany.
In view of the have I questioned Phillips as to his
view of the trend of events in France and of the desirability
or otherwise of the institution of exchange control by France.
Phillips skid that ne 38W no signs that a movement towards
control was gaining momentum, that it would be part and parcel
of El resurgence of B Left politicalswing and that if anything
the trend of political opinion in France according to British
sources WAS towards the Center. Phillips also felt that most
of the French Cabinet would not stand for any such accoure
and that the Senate was now no more prepared to a ecept such
a development than it had been during the second Blum
Government.
Phillips again reiterated his profound conviction
that for France the institution of exchange control would
prove both futile and vicious:
(1) It would not be run effectively - B black If rket
in francs would immediately develop, capital would continue
-2-
349
to be exported end the worst of both possible worlds sould
ensue, namely oll the disadvantages of exchange control
would be follosed by the disadvantages of a further
depreciation of the franc.
(2) Not only would capital continue to seek refuge
abroad but French capital now abroad would certainly not
return.
(3) Likewise exchange control could not be instituted
over night and during a period in which the matter would be
ublicly debated and legislative power sought enormous sums
would leave the country. This would accentuate both the
fiscal end exchange problems.
(4) While exchange control would hinder to & certain
extent French exports it would by no means rectify the
balance of trade by reducing sufficiently French imports
for the basic armsment demands would have to be satisfied.
(5) Furthermore the setting up of a control system
would mean an extension of political corruption and coercion
Inasmuch 15 the allocation of the available foreign exchange
for imports which could not in France be kept out of those
realms.
350
REB
GRAY
London
Dated July 27, 1938
Rec'd 2:30 P. D.
Secretary of State,
Washington.
689, July 27, 6 P. m.
FOR TREASURY FROM BUTTERWORTH.
Since the debate in the House of Lords in which
Britain's war debt was discussed, reported in my telegram
No. 670 of July 22nd, the financial press has reported that
Lord Samuel's proposal has "met with unanimous approval in
banking circles" and that city opinion favors the reopening
of the question "without further delay".
In the HOUSE of Commons yesterday the leader of opposi-
tion--liberals referred to the matter in the debate on
foreign affairs. HE stressed the importance to Great
Britain of American friendship and said that three things
were needed to strengthen it, firstly to strike the same
note as the President and Mr. Hull regarding the need to
uphold PERCE and democracy and EXTEND trade, secondly to
push on with the Anglo-American trade treaty and to Extend
its general principles and thirdly "to tackle the question
of the war debt. Do not let it lie festering under the
bondage
351
REB
2-#689, From London, July 27, 6p.m.
bondage of polite diplomacy. Cauterize it EVEN if it hurts
a little and Anglo-American friendship will be all the
healthier and stronger for the great part it will play in
the preservation of peace and freedom in the world".
The Prime Minister's reply to this was as follows:
"I agree very much with the right honorable gentlemen
in the value that he attaches to our relations with the
United States of America. I am happy to think that they
have never been better than they are at the present moment.
With regard to the debt I am not quite sure what the right
honorable gentlemen meant by cauterizing it. The settle-
ment of the debt has to bE a settlement between two parties
and cannot bE settled by one alone. As for the attitude of
the British Government I would like to refer the right
honorable gentleman to the debate which took place on this
subject only a few days ago in another place when the
spokesman of His Majesty's Government made it perfectly
clear what our attitude was".
KENNEDY
KLP
DDM
352
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris
DATE: July 27, 4 p.m.
NO.: 1176
FROM COCHRAN.
Only light trading on the French market has been witnessed
during the past three days. No evidence of intervention by
the control in the spot franc has taken place, the spot franc
position being somewhat improved with higher tax returns for
May, Mr. Morgenthau's visit to Paris, and a better international
outlook. However, the control is apparently operating in the
forward market. It was thought by some observers today that
they saw the first signs of operations under the new open mar-
ket policy. Japanese purchases of sterling with dollar proceeds
of gold shipments to the United States is considered partly
responsible for the fluotuation in the dollar-sterling rate.
Belgas are being purchased for the French control by Paris-
American Bank, presumably for application on French railway
obligations in Belgium, but the belga's strength in sympathy
with the dollar makes this a costly operation.
Please refer to my telegram 1105 of July 13, 4 p.m., in
which I quoted a press report of & loan of 75,000,000 florin
to the French Government by a banking group headed by
Mendelssohn and Company. I am informed by Paris-American
banker
353
-2-
banker that today the Banque de Paris et des Pays Bas has
offered his institution French Treasury bonds at 3 1/4%
net for this loan. The above-mentioned bonds are for three
months with privilege of five extensions of three months
each and are payable, at the option of the holder, in
either Dutoh florins or United States dollars. I am inclined
to believe, in the absence to date of any public or private
information from French officials that this operation in-
volves new money, that it is partly or wholly B. replacement
loan with the French Treasury substituting itself for the
French railways as debtor vis-à-vis the bankers at the early
maturity date of the railway loan.
There is a slackening in the demand for gold coins.
Sales are being pushed abroad by Swiss bankers of Swiss gold
coins at three percent premium which is less than the our-
rent premium on French, British and American coins. These
latter three are soarce on the market while the Swiss National
Bank is actively minting to make this profit and disseminate
its gold.
BULLITT
EA:DJW
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE
July 28, 1938
CONFIDENTIAL FILES
TO:
SUBJECT
Telephone Conversation
J. ". McKeon
with Banque de France
I called Mr. Cariguel of the Banque de France at
10:30 an our time today and, in his absence, spoke with
Mr. Kogan. I asked Mr. Kogan how things were and he said
foreign exchanges had been extremely dull for the past two
weeks; there had been considerable hoarding of gold, but he
thought that during the past two or three days the demand
had subsided. I told Mr. Kogan foreign exchanges had also
been very quiet with us for the past two weeks, although
stocks had been rather active. Mr. Kogan was very happy to
state that the political situation on the continent was very
much brighter, particularly in Czechoslovakia, and that the
French Stabilization Fund had been very quiet during the past
week with the result that they had neither gained nor lost
foreign exchange on balance.
355
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: July 28, 1938, 4 p.m.
NO.: 1183
FROM COCHRAN.
Today the stabilization fund has had to give up
possibly 200,000 pounds to hold the franc at a rate of
178.14 following the report of German reaction to the
proposals by the Czechs. The outlook has darkened a
little because of this, but there is no serious weakening
in the market's confidence in the British ability to keep
peace in Europe. During August things are expected to
be comparatively quiet as many traders will be out of
town. The July 21 statement of the Bank of France showed
47.61
no important changes. Coverage was 47.56 versus 40.61.
At B. press conference yesterday the President of
the French National Defense Fund gave a statement to en-
courage subscription to the issue of eight months bonds
which was recently opened. This official indicated that
sales were satisfactory. The impression was gained that
this issue - for an unfixed amount - will be kept open
indefinitely in the hope that subscriptions will keep up
with national defense expenditures.
BULLITT.
EA:LWW
TODAY FOR A VACATION.
CAP D'ANTIBES, FRANCE.-SECRETARY MORGENTHAU AND HIS FAMILY ARRIVED
MORGENTHAU HAS HELD INFORMAL TALKS WITH FRENCH GOVERNMENT LEADERS
SINCE ARRIVING IN FRANCE SATURDAY NIGHT,
7/27--R851A
PARIS.--MINISTER OF FINANCE PAUL MARCHANDEAU REPORTED TO THE
CABINET TODAY THAT CONVERSATIONS WHICH HE HAD HELD WITH SECRETARY
MORGENTHAU HAD ENABLED HIM TO ASCERTAIN THAT THERE WAS PERFECT AGREE-
MENT BETWEEN THE FRENCH AND AMERICAN GOVERNMENTS TO APPLY THE
AMERICAN-FRENCH-BRITISH MONETARY AGREEMENT "IN A SPIRIT OF CONFIDENT
COOPERATION."
MORGENTHAU SAW MARCHANDEAU AND OTHER GOVERNMENT LEADERS DURING
A VISIT HERE ON HIS WAY TO THE RIVIERA FOR A VACATION.
A CABINET COMMUNIQUE MENTIONING MARCHANDEAU'S STATEMENT MADE NO
REFERENCE TO WAR DEBTS.
THE CABINET APPROVED A DECREE ORGANIZING NATIONAL PASSIVE
DEFENSE, OR PROTECTION OF THE CIVILIAN POPULATION AGAINST AIR RAIDS
AND OTHER ATTACKS. GENERAL AUBE WAS NAMED INSPECTOR GENERAL OF
PASSIVE DEFENSE IN ADDITION TO HIS DUTIES AS INSPECTOR GENERAL
OF AIR DEFENSE.
7/29--R958A
357
- MINISTER OF FINANCE PAUL MARCHANDEAU
REPORTED TO THE FRENCH CABINET TODAY IN PARIS
THAT CONVERSATIONS WHICH HE HAD HELD WITH
UL 29 1938
HENRY MORGENTHAU JR UNITED STATES SECRETARY OF
TREASURY HAD ENABLED HIM TO ASCERTAIN THAT
THERE WAS PERFECT AGREEMENT BETWEEN THE FRENCH
AND AMERICAN GOVERNMENTS TO APPLY THE AMERICAN-
FRENCH-BRITISH MONETARY AGREEMENT -IN A SPIRIT
7.45
OF CONFIDENT COOPERATION- - MORGENTHAU SAW
MARCHANDEAU AND OTHER GOVERNMENT LEADERS DURING
%
A VISIT HERE ON HIS WAY TO THE RIVIERA FOR A
VACATION - A CABINET COMMUNIQUE MENTIONING
MARCHANDEAU-S STATEMENT MADE NO REFERENCE TO
WAR DEBTS
Regraded Uclassified
:
FEDERAL RESERVE BANK
DE NEW YORK
308
OFFICE CORRESPONDENCE
DATE July 29, 1988
TO
CONFIDENTIAL FILES
SUBJECT
Telephone Conversation
J.V. McKeon
FROM
with Bank of England.
Mr. Bawker of the Bank of England telephonedme at
11:02 am, our time, today. There had been a great deal of
excitement over there today in foreign exchanges, and he thought
we would like to know about it. There were three important Fac-
tors that contributed to the weakness of the pound.
1. The same old story of rumors of the
dollar-sterling stabilization between
the United States and Great Britain.
It had been reported in one of the
British newspapers that when Mr.
Morgenthau was asked about the rumor
he said that he could say nothing
"orally."
2. Continental commercial demand for
dollars due to England's adverse
balance of trade.
3. People were not feeling very happy
about the Czechoslovakian situation.
For a time the people had been very
pleased over the appointment of
Runciman as mediator, but now the
situation was not very good.
Mr. Hawker asked me if there had been reports in the
New York newspapers sbout the dollar-pound stabilization. They
had heard in England that the rumors were circulating very freely
in New York today. I told him that now and then some reference
was made to it but that the report was not circulating freely, and
that personally I did not believe there was anything to it. Hawker
agreed that it mi all "ponsense."
At the time of our telephone conversation sterling was
quoted at 401 3/8 but Mr. Hawker said that if sterling weakened
Regraded Uclassified
-
FEDERAL RESERVE BANK
359
OF NEW YORK
OFFICE CORRESPONDENCE
DATE July 29, 1938
To
CONFIDENTIAL FILES
SUBJECT
Telephone Conversation
J. N. McKeon
FROM
with Bank of England
+
to 491 1/4, it would be necessary to go in and sall four or
five million dollars and that would mean he would be working
on our dollar gold order. I told his that would be all right
with us.
During the course of our conversation I mentioned to
Mr. Hawker that during the past two weeks the Japanese had
reported shipments of gold to the United States amounting to
about $17,500,000. Mr. Hawker informed as that on August 11
the Japanese Central Bank would take over all foreign exchange
holdings from commercial banks in Japan. That probably means
that the Japanese are short considerable foreign exchange.
I asked Mr. Hawker if he knew anything about two gold
shipments, totaling about $2,000,000, which had been shipped
from London to Paris and reshipped from Paris to New York by
parcel post and whichwere reported due to arrive in New York
about August 1. I told his that I was interested in finding
out bout the exact costs, insurance, etc. He said he did not
know about these particular shipments but would look into the
catter and tell no more about it in our next telephone conversation.
I told ain that the net short-term capital movement
for the week Visa ended July 20 showed a moderate inflow of funds for
the first time since the latter part of April. I thanked his for
calling and promised to call his ner: week.
JUNCX:BOC
360
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: July 29, 1938, 5 p.m.
NO.: 1188
FROM COCHRAN.
This morning the French stabilization fund held the
franc rate at 178.14, and upon shifting rate to 15 at
bourse opening had to give up an increasing amount of
sterling. Slightly more offering of forward franc.
Continental hoarders are actively seeking gold coins.
This morning the Credit Suisse bought at London 75 bars
of gold. Opinion here is that the dollar strength comes
mainly from purchases thereof by the Swiss and British.
Better market for French rentes. However, little
public enthusiasm is evidenced for renewing Treasury bills
and two year national defense bonds as their maturity date
is reached.
Tight day to day money. Most of the banks in Paris
had to rediscount importantly today at the Bank of France
to meet requirements for the end of the month. Today the
French Council of Ministers discussed the financial and
1939 budgetary problems and plans of Marchandeau.
Vigorous recommendations have been made by the Bank of
France Governor to the Minister of Finance for budgetary
savings.
Today
361
- 2 -
Today I had a telephone conversation with Jacobsson
at the Bank for International Settlements. Jacobsson said
he had been expecting a break in the market in New York.
He is much encouraged by the way it was received and by
yesterday's reaction. In his opinion, the retail price
rise in Great Britain in June constitutes a second favorable
factor.
Jacobsson talked about the following four points re
prospects of war -
First, he believed that the spilling of German blood
in Czechoslovakia would be the one most potentially
dangerous cause of war. This might incite Hitler to mad
in
action as/the incident in Almeria.
Second, in his opinion the fact that the British are
concentrating on air defense has effectively put out of
the minds of those Germans who have extreme confidence in
their own air force the idea that Germany could exact
peace terms from the British after a very short conflict
merely by a mass bombing attack on London.
Third, he hopes that French financial difficulties
may be postponed until November, since France is having
a prosperous tourist season, a good wheat crop, and
the labor situation is more pacific; also, the French
Parliament is not likely to convene until after senatorial
elections. Jacobsson believes that such postponement
would
362
- 3 -
would make the situation less tempting to Germany than if
a crisis came earlier in the autumn when marching is still
good.
Fourth, in view of the growing financial difficulties
of Germany and Italy, and the possibility that domestic
public opinion might, under adverse circumstances, so
turn against the leaders that they would consider risking
war in desperation, Jacobsson believes that countries which
desire peace should not be too severe in pressure on
Germany and Italy.
END MESSAGE.
BULLITT.
03213238
EA:LWW
ARE: OF MIL
like
j
363
ML
GRAY
London
Dated July 30, 1938
Rec'd 10 s.m.
Secretary of State
Washington
706, July 30, 1 P. m.
FOR TREASURY FROM BUTTERWORTH
Both the President of the Board of Trade and the
Prime minister made in yesterday's closing session
of the House of Commons what the TESS calls "re-
assuring statements".
In the course of a description of the progress
being made with the projected Anglo-American trade
agreement, Stanley stated "The right honorable
gentlemen referred at some length to the adverse
balance of trade which, of course, is a matter that
must give the Government cause for constant and anx-
ious attention. The right honorable gentleman will
realize although I am not sure that the public gener-
ally realizes- that the course of overseas trade has
altered completely as between the first and second
quarters of the year. Whereas during the first quarter
of the year there was a monthly increase in the adverse
balance
Regraded Uclassified
364
ML -2- London July 30, 1938 10 s.m, #706
balance of visible trade as compared with the year
before in the three months of the second quarter the
adverse visible balance of trade has month by month
been lower than & year ago. Although the fall has not
yet been sufficient in the second quarter to make up
for the increase in the first quarter yet the tendency
now is towards improvement at any rate in the visible
bolance of trade". In answering n question regarding
the placing of armament orders in the depressed areas
the Prime Minister stated "The honorable gentleman
knows that the Government have throughout done their
very best to direct expenditure upon armuments to
those areas where unemployment is most prevolent. "YE
have indeed on numerous occusions taken action in
CASES where if WE had considered simply the desirubility
of getting the work out in the quickest time WE should
have sent the work Elsewhere but it has been deliber-
ately diverted to places where it V/DS most required.
There agai n I think the general question of trade is
one to which WE have to direct our attention. I de-
precate any suggestion that WE are on the Edge of a
slump or of a return to any such conditions as Existed
in 1931".
THE
365
ML -3- London July 30, 1938 10 a.m. #706
The foreign Exchange and other markets have been
under holiday influences. All markets are closed on
Monday.
KENNEDY
DDM :CDP
07413033
ARAI SEX 1
YRURATHI
all will
notion par si Insure 1