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Volume 228, December 10 – December 13, 1939
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Volume 228, December 10 – December 13, 1939
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 228
December 10 - December 13, 1939
- A -
Book Page
Agriculture
Certificate Plan discussed by Wallace and HMJr -
12/12/39
228
131
a) HMJr states that he will fight to keep taxing
power within the Treasury
b) Wallace states that FDR has led him to believe
he is interested in Certificate Plan "because
it would be outside the budget"
1) HMJr states he does not approve of
this philosophy
2) Wallace also states that he thinks
it is misleading to the public
Appointments and Resignations
Sullivan, John L.: HMJr consults Leon Henderson concerning,
as Assistant Secretary - 12/11/39
38
Foley, Edward H.: Offered Assistant Secretaryship and
refused
40
- B -
Balance of Payments (Estimated)
Comparison of first three quarters of 1938 and 1939 -
FDR asks HMJr to discuss memorandum with him -
12/11/39
111-A
Berle, Adolph A.
Expresses his opinion of trend of philosophy of American
people as the war develops: Cairne memorandum
a) HMJr shows to FDR - 12/12/39
126
b) Farley and HMJr discuss - 12/14/39:
See Book 229, page 4
- C -
China
See War Conditions: Strategic War Materials
Colombia
See War Conditions: Latin America
- D -
Dozenberg, Nick
Secret Service picks up in Bend, Oregon; reputed Communist,
OGPU agent - - 12/11/39
47
- F -
Book Page
Farm Credit Administration
Hill and HMJr again discuss Hill's resignation;
HMJr advises "sitting tight" until FDR himself
asks for resignation - 12/12/39
228
158
a) Carl Ladd discusses with HNJr - 12/13/39
286
b) Hill again discusses situation with HMJr after
seeing Wallace - 12/13/39
292
1) Wallace calls Early for appointment for Hill
with FDR
Financing, Government
March Notes, Refunding of:
HMJr consults with Discount Corporation, First Boston
Corporation, et cetera - 12/11/39
66,72
Open Market Committee meeting - 12/11/39
77
Announcement of offering - - 12/12/39
115
a) Cabled to Paris and Berlin - 12/11/39
106
Closing of subscription books - - 12/13/39
124
Foley, Edward H.
See Appointments and Resignations
- 0 -
Open Market Committee
See Financing, Government
Ottley, John K., Sr.
Opening of account discussed with HMJr - - 12/13/39
312
- S -
Statements by HMJr
Before subcommittee of Committee on Appropriations,
House of Representatives (Executive Session) -
12/13/39
262
a) HMJr discusses at 9:30 meeting - 12/14/39:
See Book 229, page 22
Sullivan, John L.
See Appointments and Resignations
- WI -
War Conditions
Belgium:
Belgian Ambassador presents Theunis; conditions in Belgium
thoroughly discussed with HMJr and Cochran - 12/13/39
254
Business Conditions:
Business situation for week ending 12/11/39:
Haas memorandum
11
Haas forecast for 1940 - 12/12/39
192
- W - (Continued)
Book
Page
War Conditions (Continued)
Closing Agreements:
Consolidated Aircraft Corporation: Major Fleet,
President, calls; HMJr prefers not to see him
until after agreement has been reached -
12/11/39
228
46
Exchange market resume - 12/12/39, et cetera
187,260
Finland:
Loan through Export-Import Bank discussed by HMJr
and Jones - 12/10/39
1,32
a) Cotton memorandum on Export-Import Bank credit -
12/13/39
238
Cochran and Procope discuss possible loan after
Procope's conferences with Jones and Pierson -
12/11/39
9
Fraser (Leon) consulted personally by Cochran concerning
any possible negotiations in New York for private
banking credits to Finland - 12/11/39
10
Airplanes, guns, et cetera: Woodring tells HMJr he is
opposed to supplying "when it's comparable to our
own interest" - 12/11/39
25
Japan:
Financial Attache confers with HMJr and Cochran on
gold shipments - 12/13/39
220
Latin America:
Colombia:
Foreign Bondholders Protective Council: Traphagen asks
to see HMJr alone concerning "irreducible minimum"
formulated by Council in connection with debt
adjustment - 12/13/39
251
a) HMJr transmits memorandum of interview and
copy of Traphagen memorandum to Jones and
Welles - 12/15/39: See Book 229, page 228
Samuel Lewisohn asks HMJr for appointment - 12/13/39.
303,306
Neutrality Act of 1939:
Cochran memorandum after HMJr's talks with Purvis,
Butterworth, et cetera - 12/11/39
B
a) Feels that FDR definitely desires to stop
exports of molybdenum to Germany, Russia,
and Japan; "HMr's highly confidential task
to explore possibilities with industrial
leaders concerned"
b) Cochran hopes responsibility for publicity
may not be Treasury's and that matter will
not be handled through Liaison Committee
of three for foreign purchasing missions
- W - (Continued)
Book
Page
War Conditions (Continued)
Purchasing Mission (British-French):
Financial Agreement: text obtained by American
Embassy, Paris, from Couve de Murville - 12/11/39.. 228
51
a) Reynaud's discussion with press reported
by American Embassy, Paris - 12/12/39
137,240
b) Summary presented by British Embassy -
12/12/39
185
1) Pinsent regrets that delay in transmission
has prevented his giving United States
Treasury first word
161
o) American Embassy, London, comments on text
as circulated in Parliament - 12/13/39
230
Great Britain:
Butterworth and Cochran confer at HMJr's home -
(12/9/39): Cochran memorandum - 12/11/39
6
a) Butterworth reports on interview between
Whigham and Kennedy; British representatives
in United States arranging for disposal of
British-owned dollar securities hampered by
lack of precise instructions: British Treasury
prefers to hold securities and Governor Norman,
of Bank of England, prefers to hold gold
1) HMJr agrees with Governor Norman
2) HMJr instructs Butterworth to report
to British Treasury that delay in
handling securities has made bad
impression in United States
b) Molybdenum discussed; Hochschild and two other
members of the industry join the group
1) Industrialists promise memorandum
setting forth position concerning
exports and possible offsets by
European governments - Butterworth
to discuss entire matter in Paris
next week
a) HMJr thinks this places British
face to face with question of
sacrificing certain business
interests to prevent necessary
motals reaching enemy
b) Butterworth does not think that
British will adopt economic
sanctions against U.S.S.R.
Special Account:
HMJr asks Federal Reserve Bank of New York for weekly
confidential report; Harrison states instructions
do not include authority for such report - 12/12/39
191
a) HMJr discusses refusal with Harrison
280
b) Pinsent to be asked to arrange
o) Pinsent confers with Cochran - 12/13/39
256
d) Authorization received from Bank of England -
12/14/39: See Book 229, pages 56,101
- W - (Continued)
Book
Page
War Conditions (Continued)
Ship Movements:
French Trawlers: Duffield aska Justice Department
to clear Treasury for escape since Treasury was
acting under contrary instructions from Justice
(Pearson-Allen column) - 12/11/39
228
73
a) Justice later reports they consider column
best ignored - 12/11/39
74
Strategic War Materials:
Metals: Stewart memorandum - 12/13/39
248
Molybdenum: See War Conditions: Neutrality Act of 1939;
Purchasing Mission (British-French) - Great Britain
Tungsten: White memorandum on uses, world production,
United States imports, et cetera - 12/12/39
129
Tungsten and Tin: Chinese production reported by Kung
to Chen for HMJr; shown to FDR - 12/11/39
98
a) Map of sources
99
b) Cochran memorandum on conference with Chen -
12/13/39
253
Switzerland:
Somary (Felix) calls on Cochran after return from
New York and Ottawa - 12/12/39
163
a) Cochran repeats that Treasury policy since
outbreak of hostilities has been to accept
gold only upon delivery in United States
War Purchases Board:
HMJr's memorandum of visit from Feis who asked HMJr to
do something about the Collins Board - 12/12/39
125
a) Collins and HMJr discuss - 12/12/39
195
b) Exchange of correspondence between FDR, War, and
Navy on objections to Collins Board - 12/13/39
200
1
December 10,1939
(Dictated December 11th)
Saturday night the Finnish Minister talked to
me and asked me to talk to Jesse Jones Sunday about
his loan as Jones was going to leave town Sunday night.
I spoke to Jones at noon about the Finnish loan
and he said he thought he would lend them three or four
millions through the Export-Import Bank and would I go
along with him? I said yes. He was going to talk to
the President on the telephone or see him at one o'clock.
Evidently the President must have given Jones definite
orders to make it $10,000,000.
o0o-o0o
(FE(EN:COPT)
2
Air Mail
AMERICAN CONSULATE GENERAL
Hanoi, Indochins, December 10, 1939.
No. 26
Subject: Recent Reports as to Caobang Road.
The Honorable
The Secretary of State,
Washington.
Str:
I have the honor to refer to my despatches nos. 8 and 17 of October
20 and November 25. 1935, in regard to the possible utilization of the
Caobang road as B. route of transportation to China. The Department vill
recall that the majority of observers are far from being convinced that
that road vill ever be of great value in the transportation scheme. Recent
observations strengthen that conviction, although certain elements saiz-
tain that the road will be available for traffic in the not too distant
future.
Among the various indications that the idea of using the Caobang
road for heavy traffic is being abandoned is the report that Xr. S. I.
Chang, connected with the Chinese Ministry of Var through his employment
with the Chinese Diesel Engineers and Renault, has left for Pangoon by
air to emaine the possibility of transferring all truck assembly
activities to Burma. It is known that Mr. Chang vent to Caobang with
a mumber of trucks, in an endenvor to push through into China, and it
is understood that he reported unfavorably as to this routs. Dr the
other hand, the French commanding officer at Caobang wrote recently to
one of the oil representatives and stated that within a few veebs the
road will be ready for traffic up to 2 to 3 tons. He added that
additional ferries had been placed at Caobang, that adequate parking
lots and storage dumps (including a godown) were being prepared, and
that all bridges were being strengthened.
I an still unconvinced that the Caobang road will be of great and
imediate value to the Chinese National Government. The road my be
usable for light traffic and for carrying coolies and ponies. &
maximus of 3 thousand tons 8. month is too small to be more than of
supplementary value. Even if the French section is completed as stated,
the construction of roads beyond Pingaa is reputedly a matter of may
months. With other commentators, I believe that road transportation to
China via Indochina is practically finished unless the Chinese retake
Nanning and drive the Japanese out of Kwangsi. A strong Chinese effort
is reported at this time and may be successful - but whether the success
vill be sufficiently lasting to enable the utilization of the Dong Deng-
Famning road is open to question.
At
3
- 2 -
At this time there is an unconfirmed rumor that troops from
Yunnan are taking part in the Chinese drive.
Respectfully yours,
CHARLES S. REED II,
American Consul
Original and 2 copies to the Department
Copies to Embassy, Chungking and Peiping
Copy to Consulate General, Hong Kong
Copy to Consulate, Saigon
815.4
CSR:cer
All
4
BC
Gray
Berlin
Dated December 10,1939
RECEIVED 6:41
7%
Secretary of State,
Washington.
2293 DECEMBER 10, noon.
Berlin's press features today the addre 3 given in
Munich yesterday by Economics Minister Funk on the National
Socialist war economy in which the most interesting dis-
closure WAS that the Germen Government has renounced further
tax increases and will finance the budgetary increases
necessitated by the war through borrowing. unk stated that
pressure of taxation should not be unduly increased since
the result would bE to perolyze business initiative which
in spite of all the state regulations "ve do not wish
especially now to dispense with". FE CS arted that the
Reich's borrowing would not be accompanied by inflation
nince the necessary restrictions on Expenditure for con-
sumption goods had resulted in a great volume of savings
which could be utilized by the Reich and that *ice and
vage controls would bE strictly enforced in order to mcin-
tain the value of the mrk.
Funk
5
Page 2 No 2293 DEC 10 1939 from Berlin,
Funk repeated the customery assertions C.S to Germany's
invulnerability to British blocknde mensures and declared
that Russia would furnish a good part of t'm supplies
formerly obtained overseas. Referring to the recent
arrangement for one million tons of feed grains he asserted
that agreement had also been reached for important
deliveries of Russian metals, oil, cotton, and 7001,
and that these quantities would bE stendily increased with
the passage of time. With supplies of Essential imported
rew materials assured and an increasing production of
synthetic materials bE declared that time WCS working for
Germany and made its eventual viotory certain.
Inform Treasury.
21°X
CSB
DEC =
Ecei name s + <<< V /
6
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 11, 1939.
TO Secretary Morgentism
FROM Mr. Cochren
STRICTLY CONFIDENTIAL
it 11:20 Saturday norming, December 9. Mr. Cochran and Mr. Butterworth
vest to the Secretary's residence. The Secretary asked Mr. Butterworth for
$ reporting the interview between Mesers. Whigham and Kennedy
which yr. Butterworth attended. The memorandum which Mr. Butterworth pre-
tented covered only bis ove conversation with Mr. Purvis in regard to another
vabject. Mr. Butterworth explained that he had/ understood my request, which
T W made at the Secretary's instruction, for a full report of his converse-
times in Sev York, and most particularly of the above indicated interview
between Ambassador Immedy and Mr. Whigham. I had relayed the instruction to
Yr. Patterworth nost clearly when he came to the Treasury Saturday morning
toward 10:00 o'clock. Be had at that time said the interview with the Ambes-
endor tad not been very long and that he had been obliged to leave before it
VIA concluded. : had stated that be should report it in writing. nevertheless.
To the Secretary be gave orally about the same information which he had given
DE Saturity norning and earlier by telephone from New York. That is, that the
tvo representatives vhc had come to the United States from London to arrange
for disposal of British owned dollar securities were having difficulty in
obtaining precise instructions, since London had evidently not made up its
DVS zind, the Treasury preferring to hold securities, and Governor Norman of
the 3azk of England preferring to hold gold. The Secretary remarked that he
YES happy tc see coe occasion on which he thoroughly agreed with Governor
Irm. In answer to the Secretary's question, Mr. Butterworth stated that
Anbersador Imely had, while Xr. Butterworth was present, only brought the
British 5 to date with respect to the situation in England. Mr. Butterworth
explained that be hat left the conference in order to keep an appointment with
Kr. Todd is regard to tir. It will be recalled that Mr. Butterworth has been
the officer on Antesseder Iennedy's staff who has worked on barter arrange-
ments, such as that involving American cotton. The Secretary instructed
Xr. that be should tell the British Treasury upon his return that
their delay sa the handling of their securities had "left a bitter taste in
tis particularly after the tvo agents had come over here presumably
vità some authority and had been given such full cooperation by the Treasury.
Purthersore, the Secretary thought that unfavorable press comment would in-
crease as the delay goes OZ.
At 11:40 VE were joined by three industrialists from New York: Mr.
Harold Sochschield, President of American Metals Corporation, Mr. Schott (1).
President of Climax Molybiemum, and Kr. Loeb (7) Metallurgist of Climax
Kolybdamm.
The Secretary referred to his previous talks with Mr. Hochschield, and
also reported his conversation with International Nickel toward checking nickel
exports to Pussia and Ispan, if sales of molybdenum are stopped. The visitors
7
- 2 -
reported that Kennscott and & second of the three important concerns, includ-
ing Climax, exporting molybdenum. were ready to 80 along with Climax in such
arrangement as might be made with this Government. The gentlemen desired,
however, that the Administration give them a definite expression of its policy
with respect to holding up exporte to the above mentioned countries and also
indicate what explanations should be given foreign customers for molybdomum ex-
ports.
The question arose as to what action should be expected from France and
England to offset the measures taken by the metal exporters. The President of
Climax expressed the view that his company did not desire to force France and
other countries to build up unnecessary stocks of molybdenum, which might be
embarrassing later. He preferred that the foreign Governments learn the utility
of molybdenum and change their specifications in Government contracts to call
for its incorporation in alloys. The hint was also broadly made that American
Government contracts should favor American molybdenum rather than Canadian
nickel.
The metallurgist gave some technical explanations with regard to steel
alloys. He explained that manganese was required in all steel to make it forge-
able. Molybdemum and nickel are used to toughen it. Both molybdenum and nickel
are required in the stoutest armor plate. Tungsten is required in high speed
steel used in outting other steel. Vanadium follows as the next important metal
in steel alloys. Climax Molybdenum has developed an important export trade in
molybdenum to Russia which country has understood the usefulness of this metal,
and its comparatively cheep price, and has utilized it more extensively than
most steel manufacturing countries. The point was raised, however, that it would
be of little use to stop the export of molybdenum to Russia and, via Russia, to
Germany if nickel could still reach those destinations. During the World War,
it is believed that Canadian exports of nickel were not controlled. Norway was
in the last war an important provider of nickel to Germany, and it is believed
will continue to be & supplier of Germany in the present war.
The three visitors showed the Secretary a memorandum, of which they will
provide an original copy this week; and also promised to send him a second
memorandum setting forth their position on the question of molybdenum exports,
and possible offsets by European Governments, and possibly outlining & draft
cablegram to be dispatched to Paris for consideration when Mr. Butterworth arrives
there Thursday.
After the three visitors left, the Secretary talked further with Butterworth
and myself. Butterworth was instructed to let Paris know the progress made here
to date in our study of this question, which had originally been raised by
Prof. Rist. We would endeavor to have the memorandus of the molybdenum people
cabled to Paris by the time Butterworth reached that capitel. The Secretary
thought that this was & matter in which V0 might be definitely helpful, but that
the whole proposition would put the British face to face with the question as to
whether they were willing to sacrifice certain business interests to prevent neces-
sary metals reaching their enemy. I had spoken to the Secretary previously in
regard to British still letting rubber go to Bussia. Butterworth thought that the
British would not be likely to adopt economic senctionsagninst Russis.
TREASURY DEPARTMENT
Office of the Secretary
Technical Assistant to the Secretary
Date
TO:
The Secretary
Room
Please sèe next
page for bac t-seat
driving
not
From: MR. COCHRAN
8
- -
It is 4 understanding, from the above narrated conversation and from the
Secretary's talk with Mr. Purvis, that the President is definitely in favor of
stopping exports of nolybleme to Germany, Russia and Japan if this can be et-
fectively carried out, end If such steps can be so coordinated with stopping
of exports of other metals that the result on Germany's economy may be such as
is desired. I understand that it is the Secretary's highly confidential task
to explore the possibilities of such steps with the industrial leaders who weald
be concerned.
It is presured that the President will decide upon the manner in which his
plan should become move to the public, provided it is carried out. This Napos-
sibility should certainly not be the Treasury's. Furthermore, it is not a
matter that should be handled through the Lisison Committee of three which has
recently been created to met foreign purchasing missions. If it were B. question
of this Government desiring to buy up and conserve all molybdemum stocks as
material necessary to our OVE defense, the VAT would be clear. To differentiste,
however, between foreign purchasers of molybdems, fevoring certain belligerents
(France and England) while denying exports to two countries (Enssia and Japan)
which are not recognized under international lew as belligerents, raises scae
doubt as to our neutrality. It is understandable that airplane exports to Japan
have been stopped by American producers on the Government's appeal to their sense
of propriety of providing such equipment to Governments utilizing them in the
bombing of civilian populations. Whether unmamisctured metale could be placed
on the same basis, 1s 5. question for the President and his responsible cabinet
officers to determine. * point is that this is 8 problem of Administration
policy which night the Treasury if this Department is given sole respos-
sibility therefor.
From Rist's various cablegrams on the blockade of Germany, it is apparent
that he is disposed to ask & lot of us. One cable is in today on soy beans. I
an not entirely convinced of his socurate understanding of German economy. With
Geraan experience in estallurgy and chemistry, they are the world's best develop-
ars of substitutes.
B.m.S.
9
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 11, 1939
TO
Secretary Margenthan
CONFIDENTIAL
FROM
Mr. Cochran
Sunday noon the Finnish Minister, Mr. Procope, telephoned to ask if he
could see 28 and an appointment was arranged for 1:30 P.M. He came by my
hotel shortly after this hour on Sunday afternoon and talked with me while
we walked for forty nimtes. Be stated that be was expecting to get menist-
ance for Finland from liesurs. Jones and Pierson through a credit for the ex-
port of American nonsilitary commodities. The amount would probably be
$10,000,000. The Minister had Julius Ilein, Aric Warburg and a Finn named
Somelius helping him study the use that could be made of such a credit. It
vas to be granted to the Fimish-American Corporation, which was to be con-
stituted with a paid-up capital of $1,000,000, guaranteed by the Bank of
Finland or the Finnish Government.
The Minister told = that the Guaranty Trust was drawing in its
Scandinavian credit lines; that the National City (Rentschler) and other banks
had been sympathetic in receiving his but had not offered any financial assist-
ance. The Minister told De that be was to see Jesse Jones a little before 3
c'clock and would call me back later in the day to let me know the results
of his interview.
The Minister wanted DE to learn from the Secretary what arrangements
should be made as to an hour for Ma to come here on December 15 to turn over
the telegram announcing the payment of the December installment on the Finnish
debt to this country.
The Vinister also inquired whether the press statement of the President
the other day concerns only the payment which Finland is to make on December
15, or whether there was some likelihood of earlier payments being refunded.
I told him that By only knowledge concerned the December installment, and
that the procedure described by the President of instructing the Secretary of
the Treasury to hold this payment as a suspense item, was the only thing this
Department could do now, Any further action must be Congressional. I re-
minded his that Secretary Margenthan had been active in pushing this matter,
as the Minister knew, with both the President and Mr. Jones. In answer to
the Minister's further question as to whether Congress would be willing to
approve a direct loan to Finland, I told him that it WSS entirely impossible
to forecast Congressional action on such & matter, irrespective of such general
sympathy in our country for Fialmed. Ee said that his country needed $60,000,000.
not $10,000,000. and that if Finland had the money and munitions they could
hold off Russia.
At 7:30 P.M. the Minister telephoned me at my hotel to the effect that he
had seen Mr. Jones and that the latter W&S issuing & communique announcing a.
$10,000,000 credit along the lines ve had anticipated. Mr. Jones was then
10
leaving for Houston and the Minister was to continue arrangements with Mr.
Pierson. For this purpose, the three gentlemen from New York mentioned here-
inabove as helping the Minister work out details of handling the credit are
to meet with the Minister at Mr. Piereon's office this afternoon at 3 o'clock.
The Minister was still trying to develop some system whereby he could either
sell all or part of the commodities for which export credits would be given
him, and utilize the foreign exchange, since commodities to the full extent
of the $10,000,000. such as cotton and wheat, are not immediately needed and
could not be transported with much speed considering actual circumstances.
He hoped come arrangement could be worked out whereby American private banks
would be willing to provide banking credits to Finland, now that the Export-
Import Bank and R.F.C. are granting this credit, provided such private bank-
ing credits are guaranteed by Ryti's Bank of Finland. The Minister did not
know, however, whether such guarantees by Ryti were possible.
While most appreciative of the action of the President, Secretary
Morgenthau and Mr. Jones, in pushing this present credit, the Minister feels
that it will be more of a gesture than an actual help in the immediate
future, considering the restrictions tied to its use. He is anxious, there-
fore, to see whether Congress may give some more direct material assistance
to Finland after the first of the year. In the meantime he will continue his
studies as to the best method of utilizing the credit now granted, and as to
possibilities for private banking credits. I let the Minister know that I
had not talked with any private bankers on this subject. I was sure they
would all be sympathetic, but I was pessimistic as to whether they could
actually lend their banks' funds in the circumstances without proper security
therefor.
In talking by telephone last night with my friend Leon Fraser, I in-
quired confidentially whether he knew of any negotiations in New York toward
granting private banking credits to Finland, Be told me that he had been
present at a meeting of bankers which Mr. Procope had addressed last week in
an effort to raise charitable funda for Finland. After the meeting the
Minister had gotten three or four bankers to one side, including Fraser,
Straus of Kuhn Loeb and Jollie of Ripley Harriman, and had raised the direct
question as to banking loans to Finland. The bankers, in tura, asked whether
these loans would be secured, and when being informed negatively, were obliged
to give the Minister little encouragement. I told Fraser that he was the
only one I could ask about such a matter, since I knew he WBS not in foreign
lending business, and would tell me confidentially as an old friend what he
know, He definitely understood that I was not speaking as 8 Treasury
officer soliciting for Finland,
Smil
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
CONFIDENTIAL
DATE
December 11, 1939
TO
Secretary Mergenthau
Mr. Haaa OA
230 pm
FROM
Subject:
The Business Situation,
Week ending December 9, 1939
My
Conclusions
(1) A continuing improvement in sensitive commodity prices,
perhaps the most significant business development of the past
week, reflects a growing belief that the Russian-Finnish war
has extended the probable duration and activity of the European
conflict, thereby foreshadowing a more active demand for commodi-
ties than had been envisaged a few weeks ago. The rise has af-
fected principally agricultural products, some of which have been
influenced by improved statistical situations and by the bullish
effects of the mid-western drought.
(2) The price upturn, if continued, may provide the incen-
tive for another upturn in new ordering. Some indication of
this was seen last week in a heavy buying movement in textiles.
Recent weakness in prices of certain industrial materials, how-
ever, has not been encouraging, but it may be significant that
our index of confidence" turned up slightly last week for the
first time since the beginning of its extensive decline two
months ago,
(3) An analysis of the make-up of the current recovery shows
clearly its concentration in the steel industry, which makes it
vulnerable to declines. At this juncture, one must therefore look
largely to the consumer goods industries for increased activity.
The basis for an expansion in the production of consumer goods
1s provided by a sharp increase in real incomes in recent months.
(4) Any rise in the FRB index in December above the November
figure of around 125 will be almost entirely due to seasonal ad-
justments, and therefore misleading as a measure of actual in-
dustrial activity.
12
Secretary Morgenthau - 2
The general situation
Perhaps the most important development of the past week
has been a continuation of the rise in sensitive commodity
prices that began two weeks ago on the outbreak of the Russian-
Finnish war. Apparent first in the futures markets and in
British prices, the upturn has now extended to the spot markets
in this country, as indicated by Moody's index. (See Chart 1)
The price upturn reflects a growing belief that the
Russian-Finnish war has marked a change in the European war
outlook toward a more prolonged and more active conflict than
had earlier been envisaged, with a correspondingly greater
prospective demand for commodities. The possibility of an
early settlement of the war, which had contributed to uncer-
tainty in the speculative markets, has receded to the more
distant future.
For some commodities, notably wheat and certain other
farm products, more bullish statistical situations have con-
tributed to the rise in prices. The continued drought over
a large section of the Middle West has become an active bullish
factor for farm products 8.8 a group. Private estimates now
suggest that the winter wheat crop may be 30 percent smaller
than last year and the smallest since 1904, with the exception
of the drought-stricken crop of 1933. The sharp upturn in
wheat prices this week has also been stimulated by reduced
private estimates for Argentina, due to frosts early last week,
some of which suggest that the Argentine wheat crop to be
harvested within the next month may be the smallest in 23 years.
Certain industrial materials lower
On the other hand, a reduced demand for industrial materi-
als seems reflected in weakening price trends for such products
as steel scrap, tin, zinc, rubber and tallow. It may be of
some significance, however, that our "index of confidence",
which provides some measure of current sentiment toward the
outlook for industrial profits and probably reflects in some
degree the attitude of industrial buyers, turned up slightly
last week for the first time since the beginning of its recent
extensive decline. (See Chart 2, lower section)
13
Secretary Morgenthau - 3
The price rise has already had some effect in stimulating
industrial buying. The rise in cotton prices to new highs for
the year has broken the long decline in textile orders, and
print cloth sales last Friday alone are estimated to have
reached 30,000,000 yarde or more, exceeding a full week's pro-
duction of such goods. The buying was not unexpected in the
trade, since many users were known to have exhausted the stocks
bought in September.
Our new orders index (see Chart 3) has not yet reflected
the influence of the price upturn. A slight further decline
in the combined index is shown for the first week of December,
when & reduction in steel orders outweighed minor upturns in
textile and other orders.
Recovery concentrated in steel industry
Ve have endeavored in Chart 4 to show graphically the
extent to which the industrial recovery since last summer has
been concentrated in the steel industry, by showing the actual
number of index points which each major industrial group has
contributed to the combined FRB index. Of the 28-point gain
in the FRB index from a low of 92 last May to the 120 figure
reached in October, 18 points were due to the steel industry
components of the index (including production of iron and
steel, iron ore, and coke).
This comparison suggests the vulnerability of the recovery
to any influences affecting new orders for steel. Possible
declines in steel activity may be partly offset by increased
production in the consumers' goods industries, which 80 far
have lagged. The automobile and textile groups, which have not
yet reached their 1937 production peaks, appear to offer pos-
sibilities of taking the lead in the next phase of the recov-
ery. Industries associated with these groups, together with
those associated with the construction industry, apparently
have furthest to go to reach their previous high levels. This
is indicated by a comparison of the October indices with the
production peaks reached in 1929 and in 1937. (See Chart 5)
Evidence of a strengthening outlook for the consumers'
goods industries 18 indicated by a further sharp rise in the
purchasing power of national income to above the 1937 level.
(See Chart 6) Although the actual level of national income
14
Secretary Morgenthau - 4
has not yet reached that of the peak months of 1937, reduced
living costs have brought a more rapid upturn in real incomes.
Among the components of national income, the agricultural
group (as indicated in lower section of chart) occupies B. leas
favored position with respect to 1937 than do other groups.
The effect of the current high level of real incomes is
becoming apparent in retail sales. A strong trend of new car
buying this fall has been noted by the automobile industry.
The adjusted index of department store sales (in dollar values)
rose from 90 in October to 94 in November, the highest figure
for recent years with the exception of 95 reached in February
1937. Since retail prices now are somewhat lower than in
February 1937, department store sales on a physical volume basis
are doubtless showing an even more favorable comparison with
earlier years.
Year-end business indices misleading
Due to the effect of seasonal adjustments, which are
based on the assumption of a "normal" year with respect to
unfilled orders end other factors, the various adjusted busi-
ness indices are likely to be misleading as measures of the
underlying business trend during the latter part of the year.
The F.R.B. index has been tentatively estimated at 125 for
November. Any further increase in December will probably be
due largely or entirely to seasonal adjustment, which has
little actual significance when operations are at a high
level because of large unfilled orders, and will require a
downward correction in following months. If steel output in
December remains unchanged from the October level, the seasonal
adjustment for this industry alone would add 3 points to the
combined F.R.B. adjusted index.
For similar reasons, the trend of the adjusted New York
Times business index will have less actual significance during
the latter part of the year. This index for the week ended
December 2 was off 0.1 point from the previous week. A large
decline in the index of cotton mill production, and smaller
downturns in steel and electric power production, were not
quite offset by upturns in the carloadings indices and in
automobile and lumber production.
15
Secretary Morgenthau - 5
In the following week, the New York Times index will
be affected by the contrasting influences of a sharp upturn
in the index of automobile production, and a downturn in
the steel production index. The output of automobiles last
week, following the settlement of the Chrysler strike, was
stepped up to a new high for the season at 115,488 units,
which compares with the previous high of 93,638 units
reached the week before. Steel operations, on the other
hand, were reduced to 92.8 per cent of capacity from 94.4
per cent the previous week. During the current week, a
further reduction in steel output to 91.2 per cent of capa-
city has been scheduled.
Other
1
16
COMMODITY PRICE INDEXES IN U.B. AND U.E.
Daily
1939
1940
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
JANUARY
FEBRUARY
MARCH
2
9
to
23
30
6
13
20
27
3
10
17
24
I
e
15
22
29
5
12
19
26
3
10
17
24
31
7
14
21
26
4
il
18
25
3
10
17
24
31
PER
PER
CENT
CENT
REUTER, MOODY
200-JONES
156
C
183
as
180
8
177
59
COMMODITY FUTURES (DOW-JONES)
1924 - *26 = 100
174
58
(7)
57
56
168
55
165
54
162
53
159
MOODY INDCX IN U.S.
DEC. 31, 1931 - 100
52
156
153
51
150
50
REUTER'S INDEX IN U.S.
SEPT. 18, 1931 = 100
147
$
144
48
141
47
136
46
135
45
132
44
129
43
2
9
16
23
30
6
13
20
27
3
10
17
24
I
6
15
22
29
5
12
19
26
3
10
17
24.
31
7
14
21
28
4
"
18
X
3
10
17
24
31
JULY
AUGUST
SEPTEMBER
OCTOBER
NOVEMBER
DECEMBER
JAMUARY
FEBRUARY
MARCH
1939
1940
Office of the Secretary of the Transury
I of - - -
P - 181 #
17
INDEX OF CONFIDENCE* AND BUSINESS ACTIVITY
Chart 2
TVILNECIANOS
1933
1934
1935
1936
1937
1938
1939
RATIO
PER CENT
(PER CENT)
Monthly
75
120
70
110
65
100
60
90
INDEX OF CONFIDENCE
55
80
50
70
INDUSTRIAL PRODUCTION, F.R.B.
1923-'25 - 100, ADJ.
45
60
40
50
1933
1934
1935
1936
1937
1938
1939
1937
1938
1939
RATIO
PER CENT
(PER CENT)
Weekly
70
110
65
100
BUSINESS ACTIVITY, N.Y. TIMES
EST. NORMAL - 100, ADJ.
60
90
55
80
INDEX OF CONFIDENCE
50
70
45
60
J , M A M J J A 5 o N D J F MAMJUASONDUFMAM J J A 5 o N D
1937
1938
1939
.
RATIO OF YIELD ON MOODY'S AM BONDS TO VIELD ON BAA BONDS.
Office el the Secretary of the Treasury
United of - - -
C - 264
18
Chart m
CONFIDENTIAL
INDICES OF NEW ORDERS
Combined Index of New Orders and Selected Components
1938
1939
1940
A
M
J
J
A
$
o
N
D
J
,
M
A
M
J
J
A
$
o
a
D
J
,
a
PERCENTAGE
PERCENTAGE
POINTS
POINTS
160
160
150
150
140
140
130
130
120
120
TOTAL (COMBINED INDEX)
1936 - 100
110
n
110
100
100
90
90
80
80
70
70
60
60
TOTAL EXCLUDING STEEL AND TEXTILES
50
50
40
40
STEEL ORDERS
30
30
20
20
10
10
TEXTILE ORDERS
o
o
A
M
J
J
A
5
o
#
D
J
,
as
A
as
J
J
A
$
o
N
D
J
,
#
1938
1939
1940
Office of the Secretary of the Traasury
- of - and -
I 85 - B
FEDERAL RESERVE BOARD INDEX OF INDUSTRIAL PRODUCTION
SEASONALLY ABJUSTED
1937
1930
1539
1940
PER
PER
CENT
CERT
INDUSTRIAL PRODUCTION
1923 -125 . 100
120
120
100
100
80
8
3
60
40
40
1937
1938
1939
1940
Components by Industrial Groups
1937
1938
1939
1940
1937
1938
1939
1940
PER
NO
PER
PLA
CENT
CENT
CENT
CENT
STEEL INDUSTRY
TEXTILE AND LEATHER
35
35
35
35-
30
30
30
30
25
25
25
25
20
20
20
20
15
15
is
15
10
10
10
10
5
5
5
5
o
o
a
o
1937
1938
1939
1940
1937
1938
1939
1940
10
10
is
IS
BUILDING MATERIALS
FOODS MD TOBACCO
5
5
10
10
o
0
1937
1940
5
$
1938
1939
20
20
AUTOMOBILE INDUSTRY
o
0
is
15
1937
1938
1939
1940
8
20
PETSOLOM PRODUCTS
BI
10
is
is
3
5
iD
10
0
o
1937
1940
5
1938
1939
5
10
10
METALS
o
0
5
5
1937
1930
1939
1940
20
20
o
o
MISCELLARESUS
1937
1938
1939
1940
is
15
15
IS
DOAL
of
10
10
10
5
1
5
5
0
o
0
o
1939
1940
1937
1938
1939
1940
19
1937
1938
- of the Secretary of the Transity
Regraded Uclass
- - - -
INDUSTRIAL PRODUCTION BY INDUSTRIES,
AT SELECTED PEAK MONTHS IN 1029, 1937, AND 1939
F.R.B. Indices
VER
PER
CENT
CENT
200
1929
200
1937
Oct. 1039
IBO
180
160
160
140
140
120
120
100
100
BO
60
60
60
40
40
20
20
D
IRON AND
LUNDER
COAL
:
0
CRUDE
PETROLEUM
AUTOMOBILES
STONE. CLAY
STEEL
PETHOLEUM
REF INING
AND GLASS
PER
PER
CENT
CENT
160
160
140
140
120
120
100
100
80
80
60
8
40
40
20
20
o
0
COTTON
WOOLEN AND
SILE
FOOD
LEATHER
PAPER AND
BURDER
GOODS
WORSTEDS
MANUFACTURES
PRODUCTS
:
AND PRODUCTS
PRINTING
PRODUCTS
RELATIVE WEIGHTS OF INDUSTRIES IN F.R.B. INDEX
P C R CENT
o
20
40
60
80
100
PETROLEUM
CUTTOM
SILE
LEATNER AND
1808 AND STECL
COAL
REFINING
AUTOMOBILES
GOODS
MANUFACTURES
PRODUCTS
ALL OTHER
PERCENTAGE
17.82
83%
76%
5.02
20
14%
2.9
67%
5.5%
3.6%
13%
142
34219
=
1362
or tesics
LUMBER
\
CRUDE
STORE, CLAY
WOOLER AND
FOOD
PAPER AME,
BUBRER
PETROLEUM
AND GLASS
NORSTEDS
PRODUCTS
PRINTING
PRODUCTS
, High in 1936
, HIGH IN 1928
THIGH is SEPTEMBER 1939
Chart
4 October DATA NOT AVAILABLE
2
Office of the Secretary of the Treasury
Regraded Uclassified
- of Bassarch and Statestics
NATIONAL INCOME AND ITS EQUIVALENT PURCHASING POWER
Monthly Figures on Annual Basis"
1933
1934
1935
1936
1937
1930
1939
1940
1941
1929
1930
1931
1932
DOLLARS
DOLLARS
Billions
Billions
as
as
80
so
Purchasing Power of
National Income'
75
78
70
70
45
65
60
60
National Income
55
55
so
50
45
45
40
40
35
35
1929
1030
1931
1932
1933
1934
1935
1936
1937
1930
1939
1940
1941
FARM INCOME AND ITS EQUIVALENT PURCHASING POWER
Monthly Figures on Annual Basis"
1939
1940
1941
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
DOLLARS
DOLLARS
Billions
Billions
12
12
Purchasing Power of
Form Income¹
=
"
10
10
.
9
a
8
7
7
&
6
Farm Income
5
5
.
4
1
3
3
#
2.
1920
1930
1931
1932
1,33
1934
1935
1936
1937
1930
1939
1940
1941
21
"leasonally Adjusted Monthly Figures Multiplied by
Board - Cost of Living inder of Med / Ind Canf Be
'Based - Prices Paid by Formers, 1929 *100
- # - - # - -
C-184
-
Chart 6
December 11, 1939.
9:38 a.m.
22
H.M.Jr:
Hello.
Operator:
Mr. Schram.
H.M.Jr:
All right.
O:
Go ahead.
H.M.Jr:
Hello.
Schram:
Good morning Mr. Secretary.
H.M.Jr:
How are you?
S:
Fine, thank you sir. Say, we have an offer, 8. pretty
good offer, we think, on another ten million of these
Pennsylvania road bonds.
H.M.Jr:
Yes.
S:
And I was wondering if that interferes with your -
anything you have over there, they'd be offered, I
think, tomorrow or the next day.
H.M.Jr:
Well now, just a minute, Danny Bell 18 here.
S:
I see.
H.M.Jr:
Just a minute. Did you make a public offering?
S:
Yes. It'll be a public offering.
H.M.Jr:
Could you make it Friday?
S:
On Friday?
H.M.Jr:
Yes.
S:
Yes, I think we could.
H.M.Jr:
Friday's O.K.
S:
We could - well not earlier than Friday you mean.
H.M.Jr:
No. Not earlier than Friday.
S:
Not earlier than Friday, you mean.
H.M.Jr:
Yes.
Regraded Uclassified
23
- 2 -
S:
Yes, I think that'll be possible. This 18 the 11th,
that'll be the 15th.
H.M.Jr:
Yes.
S:
All right, I'll check that with them.
H.M.Jr:
That's a good day anyway. That's the day the fellows -
it's a tax date.
S:
Yes. All right. Fine. I didn't want to do - I
didn't want to throw out ten million.
H.M.Jr:
No, it - it - it's the principle and that - I mean
we had this argument with Straus and I'd like to hold
it - I mean if you tell me you're going to lose the
sale, call me back.
S:
Yes, all right. Fine.
H.M.Jr:
I see you got big hearted with Finland.
S:
Yes, we're trying to work something out. I don't -
H.M.Jr:
Well isn't it done. In the papers it's all done.
S:
Oh yes, yes. I say, we've been trying for some time,
several days, trying to work something out. I think
this will let them buy 8 lot of things of course
that we can finance.
H.M.Jr:
Could you tell Joe Cotton, who 1s the Treasury
Director of Export-Import just what you have done?
S:
Yes, 'you bet.
H.M.Jr:
He could tell me.
S:
Yes, sure.
H.M.Jr:
Thank you.
S:
Joe Cotton, you say.
H.M.Jr:
Yes.
S:
All right, fine,
H.M.Jr:
Thank you.
- 3 -
24
S:
And I'll call you back if this doesn't work out
right.
H.M.Jr:
If you lose your sale call me back.
S:
All right, fine. Thank you.
BK225
December 11, 1939.
10:35 a.m.
Harry
Woodring:
Hello.
25
H.M.Jr:
Yes, Harry.
V:
Henry?
E.V.Jr:
Yes.
Y:
I tried to get you Saturday morning.
H.M.Jr:
Yes.
V:
And then I tried to get Hanes, then I talked to
Captain Collins. I think I ought to tell you what
I was trying to do - have you heard anything about it?
R.V.Jr:
Not 8. thing.
Y:
Well -
H.M.Jr:
I was available, I don't know - I didn't get your
message.
Y:
Well they said you were out and wouldn't be in until
twelve or twelve-thirty and I had a twelve-thirty
appointment and had to leave.
B.M.Jr:
I see.
Y:
So I think that's where I missed you. Now,
I mean Joe Green, at the State Department, called me
up and said that Procope, the Finnish Minister was
there, and talking about aeroplanes and guns and
thirty-seven milometers and 8 hundred and five and
hundred and fifties and 80 on, and I said, "Yes, I
know about 1t", and he said, "Well he's here and
he wants to come over and talk to you."
H.M.Jr:
Yes.
Y:
"Well", I said, "He was over last week or week before,
and I went over the whole thing with him, talked to
him about it, and he said that when he got ready that
he"- he was Just doing some preliminary work, visiting
with me on it. So I said, "I don't see any reason
that I should see him" and told Joe about this new
letter and he said, "Yes, ve have E copy of 1t".
But he wants to come over and I said, "Well, all right,
send him over and I'll visit with him and make him -
26
- 2 -
just make the gesture and then I'll have to - be
enforced under this letter and I want to do this, and
I want to - I'll contact him with Gibbons who's our
representative and Just let him Bee him but then I'm
going to instruct Gibbons to tell him, as I'm going
to tell him that he should first go to the Treasury
and let this thing go through regular channels".
Now, he came over and I visited and I had, to save
time, had Gibbons and our Deputy Chief of Staff in
here. Ve talked over the whole thing and they are
very much against giving him aeroplanes because
our Air Corps tells us that we're short of aeroplanes
according to our pilote now, and it would set us
back - he wants fifty pursuit planes and some attack.
If we gave his our pursuit it would set us back
six months on our training. Well now, so I finally
told him though - he has a. new - he also had a law
in which be had it all red underlined and in which he
says that we can crate back pursuit ships to a company
and get credit on - if they have another plane in
the making on their line that's better which we
could use.
R.Y.Jr:
The Finns.
V:
Yes - no that's our statutory law.
P.N.Jr:
Oh yes.
W:
And it 16 B. lew.
P.M.Jr:
Yes.
V:
But even If it 1s 8. law why that doesn't make any
difference whether we use one law or another law,
the fact still remains that we're against letting
them have them.
H.V.Jr:
Yes.
Y:
I mean when it's comparable to our own interest.
H.M.Jr:
Yes.
V:
We're pro-Finnish. Don't misunderstand me.
H.M.Jr:
Yes.
Y:
Now, well he said that it wouldn't do any good to
27
- 3 -
have - I said maybe they could make arrangements
whereby if there's any production on the line now
that you could get one and we'd get two or vice versa,
like has been done. Oh, he said, that wouldn't do
him any good because they couldn't wait that long.
H.".Jr:
No.
W:
Well I said, I'm not in - I can't tell you about that
decision. That 16 B. decision of policy that'll have
to be determined by this committee and you should
go and, and I'm instructing Mr. Secretary, Gibbons
to call Collins and tell him.
H.M.Jr:
Yes.
M:
That he 18 here, come to us and that under the
regulations we're delivering him to this committee
and then they can send him back to us or to the Navy
or get any information that they want.
H.M.Jr:
That's right.
W:
Now, I - in talking - first let me go back in telling
Collins. When I talked to Colline - and I told him
this that he was coming over. He said, "Well send
him over to Gibbons and Gibbons can get all of this
information and give it to him" and I said, "No,
Collins, I don't want him coming here first and
turning - and getting the information, I want him
to come through channels to this committee and then
if you want to direct him to Gibbons why that's the
way - that's the letter and the spirit of the letter".
H.M.Jr:
That's right.
W:
Now I come back to - so he came over and I instructed
Gibbons, and Gibbone called Collins and made - and
they had some kind of B. deal made whereby they'd meet
and meet with Procope and with this Colonel somebody
of the Finnish Legation.
H.M.Jr:
Yes.
W:
Now I come to the office this morning and I find
that, the staff comes and tells me that Saturday,
right after noon, that General
of the Air Corps,
who's acting for Arnold, was out at the golf course,
and that the Assistant Secretary had called him
and called him back, told him he was having a conference
28
4
I
at the direction of the President with the Finnish
Minister at two o'clock, and he wanted
to come back from the golf course and be there.
So, - and
tells me this morning that he
went to it and that the Assistant Secretary tells
him that Pa Watson called him and told him that
the Minister had been to see the President after
he had been to see me and I guess he must have told
him that I wasn't very encouraging and anyhow the
President told Paul to call Johnson and make an
appointment for the Finnish Minister to see him
about this matter and about turning old planes back
for new ones.
H.M.Jr:
Yes.
W:
Well 1t seems to me like that's just - you just as
well do away with this new Board if you're going to
handle the old one.
H.M.Jr:
That's why I was so tickled that the President set
up something because it leaves me out, and under this
arrangement Collins reports directly to the President.
W:
Yes.
H.M.Jr:
And I can attend to Treasury business.
W:
Yes.
H.M.Jr:
Because I can't follow this and that's why I was so
delighted to see that he sent somebody up who could
sit with the Army and Navy. On these matters they're
leaving me completely out, because I've asked the
President please to leave me out,
W:
Yes.
H.M.Jr:
So that's why I've refused to see these people and I
won't see them any more.
W:
of course the setup, this new setup I think 1s
all right except that it should have been the Deputy
Chief Staff instead of the Quartermaster General
who knows nothing about ordinance nor aeroplanes.
H.M.Jr:
But I just want to explain to you that for over a whole
month now or more, I just won't see any of these
fellows and haven't.
29
- 5 -
Y:
Uhhuh.
E.V.Jr:
And the State Department knows It so they've stopped
sending them over here.
V:
Thhuh.
9.V.Jr:
So I'm out of it entirely.
Y:
Vell I only wanted you to know that - that - so I
called Pa Watson, no he called me this morning about
another matter and BO I told him and I said, "Well
Pa, this 18 out of channels again, no use setting
up this quartermaster corns - quartermaster general,
paymaster and the Procurement officer et the Treasury."
Yes.
Y:
As a Board. Now, three days after you set 1: up,
the first thing that comes along you put it back under
the old munitions.
That did Pa say?
Y:
Well he said, the Minister was over there and he wanted
to see about this thing and so he said, all I know the
President told me to call up Johnson and - "Well," I
said, "I'm not objecting to that. All I'm objecting to
1s that - I'm not objecting, say that you're out of
bounds again".
Vell I appreciate your calling but I don't have to be
over - hit over the head more than once.
V:
Yell all I wanted to tell you vas - and oh yes, so
Pa said, I think he was the one that told me this
morning, somebody told me that Johnson vss having -
oh yes, he's called for & study in which to tell
how - although we're against it how it could be done
in case it were ordered to be done and be's taking
that study and having B conference with Yelles and in
which they are then having B conference later with
the President.
R.V.Jr:
I see.
V:
I don't care, I'm not interested one ver, I'm like you,
it's a mess, 8 criticism if you try to do anything
right, you get into trouble one way or the other so
I don't care myself, but I did think that after our
30
- 6 -
conversation and having this letter and all I would
like to just tell you that - what had happened in
our department.
H.M.Jr:
Thank you very much for calling me, I appreciate it.
V:
All right Henry.
H.M.Jr:
Thank you.
Y:
Goodbye.
December 11, 1939.
12:10 p.m.
31
J.
Cotton:
This business and I wondered what -
H.M.Jr:
I'm for 1t.
C:
You're for it.
H.M.Jr:
Yes.
C:
I mean, you've thought about it no doubt, it may be
throwing money down the drain, being too late and
80 on.
H.M.Jr:
I was for it a month ago, I can't help it that Jones
delayed 60 much.
C:
I see, well I'll, then I'll - those are your
instructions, I'm just wondering.
H.M.Jr:
Really the President's instructions.
0:
Yes.
H.M.Jr:
Something the President wants, I'd like to 20 along
with him.
C:
Well if it comes to 8. vote I'll take that position,
I mean -
H.M.Jr:
Jones asked me yesterday about it and I told him that
we were for it.
C:
Right.
H.M.Jr:
If you would representing the Treasury vote yes,
you'd be expressing my views.
C:
All right, sir. That's all I wanted. Thank you.
Uclassified
December 11, 1939.
2:25 p.m.
H.M.Jr:
Hello.
32
Operator: Go ahead.
Jesse
Jones:
Hello Henry.
H.M.Jr:
Hello, Jesse.
J:
How are you?
H.M.Jr:
I'm all right, how are you?
J:
All right. How did that Finnish thing go?
H.M.Jr:
Well it was in the front page of all the papers but it
was - mentioned ten million dollars.
J:
Yes.
H.M.Jr:
Is that what you decided?
J:
Well that's what - yes, including both the bank and
the RFC.
H.M.Jr:
I see. I see.
J:
Did it have a - did it sound all right?
H.M.Jr:
Yes, it's a good story. All right.
J:
Huhhuh.
H.M.Jr:
Marren Pierson, he was over at that luncheon, he said,
"I see I'm to be the burnt offering", and I said, "No,
you're to be the hero".
J:
How's that?
H.M.Jr:
Warren Pierson. said that he was to be sacrificed on the
altar.
J:
Huh-huh.
H.M.Jr:
And I said, no, he was to be today's hero.
J:
Why certainly, he is the hero.
H.M.Jr:
Yes.
33
- 2 -
J:
That's all right. I'm glad they handled it all right.
H.M.Jr:
Now I think you'd be satisfied. I told our boys to
vote for it at the meeting this afternoon.
J:
That's good.
H.M.Jr:
Yes.
J:
Well I told our boys that you were for it and that you'd
go along with it.
H.M.Jr:
You bet.
J:
O.K. Everything all right with you?
H.M.Jr:
Yes, we're going to get out a refunding tomorrow.
J:
Huh-huh.
H.M.Jr:
Hope it'll go all right.
J:
I'll be back
about Friday and look forward to
seeing you.
H.M.Jr:
Thank you for calling.
J:
Goodbye.
December 11, 1939.
4:26 p.m.
H.M.Jr:
Hello.
34
Operator: Mr. Hochschild. Go ahead.
H.M.Jr:
Hello.
Harold
Hochschild: Hello, Henry?
H.M.Jr:
Yes Harold.
H:
How are you?
H.M.Jr:
I actually remembered and sent you by mail those
figures that you gave me.
H:
Oh well, thanks very much Henry. Henry, I just want
to tell you that Dr. Merica, whom I know very well,
came around to see me today, and he told me that they
had received intimation along the same line, and that
he was going to Washington tomorrow.
H.M.Jr:
That's right.
H:
And that he wanted to check up with me on molybdenum.
H.M.Jr:
That's right.
H:
So I told him that I had seen you.
H.M.Jr:
Yes.
BE
And that you had made that request of us.
H.M.Jr:
Yes.
H:
And that I told him quite frankly that we felt if it
applied to molybdenum it should apply to any metals
that might be substituted for that.
H.M.Jr:
That's right.
H:
He said he thought that was entirely fair.
H.M.Jr:
Yes.
H:
He 1s, as you had already mentioned, he takes their
position/different toward Japan than it 18 towards
Russia.
H.M.Jr:
That's right.
35
- 2 -
H:
And I think they were rather concerned about the
Japanese end of the thing.
H.M.Jr:
Yes, well I don't - that I haven't heard yet.
H:
They have, as I mentioned to you, sales office in Japan
and they've devoted quite a lot of effort and time to
that market.
H.M.Jr:
Yes.
H:
Over the past few years.
H.M.Jr:
Yes.
H:
He also - he seemed to think that as long as the,
especially as long as the Russians could get chrome
and manganese and tungsten that it wasn't going to be
much use excluding nickel and molybdenum. So he asked
me how I felt about that. I said, that as we had told
you they could make, they could go on making steel
but it wouldn't be as good.
H.M.Jr:
Yes.
H:
As the steel if they could get nickel and molybdenum
and that cutting them off, we told you quite frankly
that cutting off nickel and molybdenum would be 8.
serious handicap.
H.M.Jr:
That's right.
H:
I only saw him for about fifteen minutes and that was
all. I did not say anything to him about the national
considerations of molybdenum versus nickel or -
H.M.Jr:
No.
H:
Or possibilities of increasing the uses of molybdenum.
H.M.Jr:
Well that wouldn't particularly interest them, would
it?
H:
No it wouldn't but I Just didn't want to -
H.M.Jr:
Well put it the other way around, I mean it's one thing
for me to help United States Company increase its
business, it'd be something else again -
H:
Naturally.
- 3 -
36
H.M.Jr:
To do something for a Canadian Company.
H:
Naturally.
H.M.Jr:
And - but he's coming down and I'm lunching with the
President tomorrow and I'll bring him up to date at
that time.
H:
Yes.
H.M.Jr:
But the messare I got directly from Purvis was that
they would not sell Russia international nickel.
H:
Yes.
H.M.Jr:
But the Japanese question, they'd have to take up with
the British Foreign Office.
E:
Yes. Well that's practically, that's virtually what he
said to me.
H.M.Jr:
Yes. Well -
H:
And I just wanted to let you know that he had talked to
me.
H.M.Jr:
And then on the other - well I appreciate that. Now -
BY
The other thing we're working Henry and I saw Schott
today and he thought that they might have it ready by
tomorrow.
H.M.Jr:
How do you spell Schott?
Bi
S for Samuel - chott.
H.M.Jr:
Oh, it's almost - I see. All right. Well thank's
very much for calling Harold.
H:
All right Henry, and I think you'll get that dope by
Wednesday at the latest.
H.M.Jr:
Righto.
H:
All right, Henry.
R.N.Jr:
Thank you.
H:
Goodbye.
37
December 11, 1939.
4:33 p.m.
H.M.Jr:
Herbert?
Herbert
Feis:
Yes.
H.M.Jr:
I don't know whether you still want to talk to me or
not about that matter.
F:
Oh yes, hello Henry.
H.M.Jr:
What?
F:
I didn't realize who it was. Of course Henry, whenever
you -
H.M.Jr:
Well how about ten-thirty tomorrow morning?
F:
Ten-thirty is fine.
H.M.Jr:
What?
F:
Ten-thirty's fine.
H.M.Jr:
Well that -
F:
I'd like to.-
H.M.Jr:
I'll have plenty of time then.
F:
All right, I'll be there at ten-thirty.
H.M.Jr:
Righto.
F:
Thanks a lot.
December 11, 1939.
4:34 p.m.
Leon
38
Henderson: - a lot of statistical work on steel prices.
H.M.Jr:
Yes.
H:
And Jake Viner knows quite a bit about it.
H.M.Jr:
Yes.
H:
And Ted
talked to me today and I said I had
talked to you to Bee whether if he had some free
time he could quietly and obscurely help our staff
out, and I wouldn't want to do it if he were re-
luctant, or you reluctant.
H.M.Jr:
Well I'm not reluctant if he has the time, how's that?
H:
Well that's fine. I think it's something that he's
got a technical interest in and we've got - we need
all the brains we can get on the thing in order to get
an adequate presentation.
H.M.Jr:
Sure. I'm always willing to help out.
H:
Well that's swell.
H.M.Jr:
Do you want me to tell him that you called?
H:
Yes, if you would and if it's O.K.
H.M.Jr:
Sure.
H:
And then we'll pick un from there. It's not to make
him a witness or anything like that, but he can help
our technical staff so that - sort of guide some parts
of it.
H.M.Jr:
Right.
H:
All right.
H.M.Jr:
Leon, are you at your office?
H:
Yes.
H.M.Jr:
How well do you know John L. Sullivan, the Assistant
Commissioner of Internal Revenue.
H:
Well I just know him socially over a long period of time.
I met him in 19 -
39
- 2 -
H.M.Jr:
21.
H:
21.
E.M.Jr:
He told me, but you don't know him as to his work.
H:
No. I used to get up into New Hampshire and I found
that everybody up there hed 8. very high regard for him.
H.M.Jr:
Yes.
H:
And his - his Poppy - and he's carried on the firm
tradition, had a - well an excellent standing as a sub-
stantial citizen and a very honest man and then Wynatt
told me, he ran I think against Wynatt or was on the
opposite side from Wynatt a couple of times, and Wynatt
expressed himself as thinking he was a very fine
gentlemen, then I BBW him in connection with some RFC
cases he had down here, just casually in the evening,
and I know that he worked very hard and that he did an
able piece of presentation, and I know that Jim Farley
thinks - thought highly of him on the matter of the
way he handled things up there although he got
licked.
H.M.Jr:
Yes.
H:
Jim felt he was a good organizer and certain there was
never any scandals or anything like that. He did most
of the work himself and BO on ballote I'd say everything
I know 16 good but I've not Just had a chance to
review 1t - - reviewing.
H.M.Jr:
Well nov I tell you. He's made an outstanding success
for us in battling the Army and Navy on these de-
preciations contracts you see.
H:
Yes.
H.M.Jr:
And he's made a great hit with me. And I tell you,
you've always kept my confidences I - we had him at
the house last night, he said he was a friend of
yours - socially I mean, that he'd met you and told
me about the sidecar incident and all that -
H:
(laughs)
H.M.Jr:
What I want to ask you I'm thinking of recommending
him to the President as Assistant Secretary to watch
Procurement for me, see?
4C
- 3 -
H:
Huhhuh.
H.M.Jr:
Because there's 80 damned much going on these days
and I just want to - when I got to look at this
Navy stuff I was terribly shocked.
H:
Yes.
H.M.Jr:
I want to make sure there's nothing like that going
on in the Treasury.
H:
Yes. Well I think - I think you certainly need a man
on that job.
H.M.Jr:
Yes.
H:
Some of the things that we're hearing about from
time to time just in TNEC.
H.M.Jr:
- next day or two or three you could have on some
excuse and have him sort of talk and see how good a
Roosevelt man he is, see?
H:
Yes. I'll - I'll do that.
H.M.Jr:
Will you?
H:
I'll give you a report on it.
H.M.Jr:
Will you do it, because he's made an awful good
impression with us here. Ed Foley knows what I've
got in mind and it was Ed that really first brought
him to my attention, but the fact that I'm asking
you to do this I'd like to keep between you and me,
but - I want you to know Ed knows I'm offering him
this position.
H:
Yes.
H.M.Jr:
And I - I first offered it to Ed and Ed didn't want it,
80 I mean I want you to know it's no reflection on Ed.
H:
Well I'll arrange to get in touch with him.
H.M.Jr:
I mean I offered it first to Ed and Ed said no he'd
rather be General Counsel, so that's the situation.
H:
O.K. Well I'll move in on him.
- 4 -
41
H.M.Jr:
Will you do that?
H:
Yes.
H.M.Jr:
Because he's made a great impression on me - he made
such a fight against this consolidated that nine o'clock
that night this fellow Fleet called him up and tried
to hire him.
H:
(laughs)
H.M.Jr:
And we - on the electric boat business where they
wanted a six hundred thousand dollar right off on
their plant, we turned them down here in the office
and the next day they signed a contract and decided
to build a building of their own, but he seems to be
a real guy and that's what we need around here.
H:
Certainly do, and I think you'd make a good move.
H.M.Jr:
Righto. I'll tell Jake Viner right away.
H:
All right Henry.
H.M.Jr:
Righto.
42
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 11, 1939
TO
Secretary Morgenthau
FROM
Mr. Haas MA
The attached tables and chart show an increase in Works
Progress Administration employment of 37,000 persons, from
1,987,000 for the week ended November 22, 1939, to 2,024,000
for the week ended November 29, 1939. The increase over the
figure for the end of October was 122,000 employes.
Attachments
WORKS PROGRESS ADMINISTRATION
43
Number of Workers Employed - Monthly
United States
Number of Workers
1937
(In thousands)
January
2,138
February
2,146
March
2,115
April
2,070
May
1,999
June
1,821
July
1,569
August
1,480
September
1,451
October
1,476
November
1,520
December
1,629
1938
January
1,901
February
2,075
March
2,395
April
2,582
May
2,678
June
2,767
July
3,053
August
3,153
September
3,219
October
3,346
November
3,319
December
3,094
1939
January
2,986
February
3,043
March
2,980
April
2,751
May
2,600
June
2,551
July
2,200
August
1,842
September
1,790
October
1,902
November
2,024
Source: Works Progress Administration.
Monthly figures are weekly figures for the latest
week of the month.
They include certified and noncertified workers.
WORKS PROGRESS ADMINISTRATION
Number of Workers Employed - Weekly
44
United States
Week Ending
Number of Workers
1939
(In thousands)
April 5
2,906
April 12
2,761
April 19
2,752
April 26
2,751
May 3
2,736
May 10
2,660
May 17
2,623
May 24
2,609
May 31
2,600
June 7
2,593
June 14
2,590
June 21
2,578
June 28
2,551
July 5
2,388
July 12
2,289
July 19
2,250
July 26
2,200
August 2
2,082
August 9
2,054
August 16
1,977
August 23
1,898
August 30
1,842
September 6
1,662
September 13
1,696
September 20
1,735
September 27
1,790
October 4
1,903
October 11
1,875
October 18
1,898
October 25
1,902
November 1
1,901
November OR
1,930
November 15
1,962
November 22
1,987
November 29
2,024
Source: Works Progress Administration.
WORKS PROGRESS ADMINISTRATION
Number of Workers Employed
United States
Monthly W.P.A. Employment
Weekly V.P.A. Employment
1935
1936
1937
1930
1939
1938
1539
-
#
J
-
M
$
.
$
.
J
M
-
a
a
N
MAR.
MAY
JULY
SEPT.
NOV.
JAN.
MAP,
MAY
JULY
SEPT.
NOV,
J.
I
N.
J
M
M
J
&
,
#
M
.
HILLIONS
WILLIONS
TRILLIONS
MILLIONS
of
or
OF
or
WALERS
WRICKS
WORKERS
WORKERS
3.5
3.5
3.4
3.4
3.2
3.2
3.3
3.3
3.2
3.2
2.8
2.8
3.1
3.1
3.0
3.0
2.4
2.4
2.9
2.9
2.8
2.8
2.0
2.0
2.7
2.7
2.6
2.6
1.5
2.5
1,5
2.5
2.4
2.4
2.3
142
2.3
1.2
2.2
2.2
2.1
-8
2.1
.8
2.0
2.0
1.9
1.9
,4
.4
1,8
1.8
1.7
0
à
$
.
M
M.
.
1935
-
N
M
o
M
1.6
1936
.
1
JAN.
MAR,
MAY
JULY
SEPT.
NOV.
JAN-
MAR,
MAY
JULY
SEPT.
1937
1936
1938
1939
1939
SOURCE: WORKS PROGRESS ADMINISTRATION
Office of the Secretary of the Trunary
*
- of - - -
2-221-B
46
December 11, 1939
MEMORANDUM FOR MRS. KLOTZ:
Major Fleet, President of the Consolidated Aircraft
Corporation, San Diego, California, called to see the
Secretary. The Secretary said that while the discussion
is going on between his company and the Bureau of Internal
Revenue he would rather not see Major Fleet, but just as
soon as they have come to an agreement he will be very
glad to see him.
The Secretary also requested Mr. Sullivan, Assistant
Commissioner of Internal Revenue, be informed of the above
incident. Mr. Sullivan was not in his office this after-
noon but his secretary has been advised and she will tell
Mr. Sullivan either tonight or first thing in the morning.
L.Henricks
47
December 11, 1939.
MEMORANDUM
TO: Secretary Morgenthau var
FROM: Mr. Gaston
The newspapers yesterday and today have stories of the arrest
in Bend, Oregon, Saturday of Nick Dosenberg, Communist and reputed
OGPU agent, on the charge of passport fraud. Most of the stories
say that the arrest was made by F.B.I. agents. The fact is that
Secret Service had been trailing Dozenberg for several days at the
request of Bannerman of the State Department and located him in Bend,
Oregon, where he was operating a general store under the name of
Dallant. William McSwain, Secret Service Agent in Charge at Port-
land, drove over to Bend, which is about two hundred miles, on Saturday,
arrested Dosenberg and confiscated a lot of records, said to be in-
portant. Fitch of Bannerman's office of investigation in the State
Depar tment flew out to Portland and met McSwain there Sunday and
McSwain turned the prisoner over to him. Dozenberg had been living
under another alias at the Alban Towers Apartment, Wisconsin and
Massachusetts Avenues, for some months off and on but recently left
there. Secret Service traced him through Bell and Howell, Chicago
movie camera manufacturers, for whom he had formerly worked as a
salesman. Presumably Secret Service was called in by the State De-
partment because F.B.I. had not produced results. It took our men
less than a week to nail him. I know this because it was early
last week that Frank Wilson asked my permission to take on the case.
Regraded Uclassified
12-11-30
48
you might want Io consider
a 2 n8 % bond for 13 to 14
yrs. this probably sell
around 101½ to 101 1/2
12-11-30
in Secretary
49
the March fifteenth
naturity has a Coupon
of 15/8%
DWBell
12-11-39
REFUNDING $1,378,000,000 MARCH 15, 1940
50
MATURITY
1. Treasury Notes -
(a) New 5-year note 1-1/8% and possibly 1% (1½% will all at 10144)
(b) Reopen March 15, 1944 1% at par (now selling at 101)
2. Intermediate Bond -
(a) New bond at 2-1/4% for 11 or 12 years. This area
already crowded.
(b) Reopen 2% 1948-50 at 100-1/4 to 100-1/2 (now selling
at 101-21/32)
3. Long Bonds -
(a) New bond at 2-1/2% for 17 to 18 years (would probably
sell for about 101-1/2)
In refunding March maturities, it may be advisable
to make a three-way offering in view of its size.
PARTIAL PARAFHRASE OF TELEGRAM RECEIVED
51
FROM: American Embassy, Paris, France
DATE: December 11, 1939, 4 p.m.
NO.: 2951
FOR THE TREASURY.
RUSH.
Reference 18 made to telegram No. 2924 of December 7
from the Embassy.
The Embassy has continued to press for information
about the financial agreement between Great Britain and
France, and obtained the text thereof, in strict confidence,
from Couve de Murville this afternoon. When he handed it
to us he said that Minister Reynaud desired that it be
communicated to the Secretary of the Treasury as an indica-
tion that the spirit of the Tripartite 1s still in full
force.
The Financial Agreement has been signed, and it 1s
not (repeat not) to be published; however, in London and in
Paris announcement that it has been reached, and 8. resume
thereof, are to be given out at three o'clock tomorrow
afternoon. We are told that it will be discussed in Parliament
by the Chancellor of the Exchequer on Wednesday.
Apparently the last question on which there was 8.
difference of opinion was that of the proportionate shares
of the two Allies in extending foreign credits to allied or
guaranteed countries; the two countries finally reached agreement
thereon on the basis of 40 percent for France and 60 percent
for Great Britain. We give below the text of the agreement, in
52
- 2 -
translation from the French; the agreement is backdated to
December 4.
END SECTION ONE.
BULLITT.
EA:LMV
53
JT
GRAY
PARIS
Dated DECEMBER 11, 1939
REc'd 9 p.m.
Secretary of State,
Washington.
RUSH
2951, December 11, 4 p.m. (SECTION TWO)
"Franco-British Financial Accord.
The undersigned duly authorized by their respective
governments have agreed as follows:
Article I. The Government of the French REpublic and
the Government of the United Kingdom consider that it is in
their com on interest to avoid modifications in the official
parities between the franc and the pound.
No modifications of this nature will take place without
prior agreement between the two governments.
Article II. Each stabilization fund shall continue to
bE solely responsible for the quotations of its mone] on the
markets of third countries. In any EVENT the monetary au-
thorities of the two countries will consult on the policy to
bE followed in this respect and with respect to any inter-
vention which may appear necessary.
Article III. The British Equalization fund and the
French
54
-2- #2951, DEC. 11 (SEC TWO) from Paris
French stabilization fund shall continue reciprocally to
Exchange their own currencies at the official rates,
If the British fund needs francs (Either for govern-
ment Expenditures, such as the costs of the British Expedi-
tionary forces in France or for any other reason) these
francs will bE sold by the French fund against pounds at
the official rate. If the French fund has for any reason
whatsoever need of pounds these pounds will bE sold by the
British fund against francs at the official rate.
Article IV. No limit shall bE placed on the purchases
of Exchange stip lated in the previous article,
If the French fund holds at any time pacts in pounds
in EXCESS of 50,000,000 pounds, the EXCESS will bE utilized
for the purchase of British Treasury notes (bons due tresor)
Expressed in francs with a pound Equivalent Established as
prescribed in the following artole. These notes shall bear
interest at 3% and shall bE repegable one year after the End
of the war. They shall bE renewable at the option of either
of the two govern ents for two SUCCESSIVE supplementary
periods of a yEar each.
The same rule shall bE followed by the British fund
for the investment of sums in francs which it may acquire
in EXCESS of 9,000,000,000 francs, It will bE given French
Treasury
55
-3- 2951, DEC. 11 (SEC TWO) from Paris
Treasury notes (bons du tresor) EXPRESSED in pounds with a
franc Equivalent.
The Treasury notes (bons due tresor) envisaged n the
two preceding paragraphs must bE repurchased by the British
Treasury or by the French Treasury at any rate if the total
of pounds or of francs held by ONE of the two funds becomes
less than 50,000,000 pounds or 9,000,000,000 francs.
The pounds and the francs acquired by the two funds
shall be up to 50,000,000 pounds and 9,000,000,000 francs
7
invested (plains) by each central bank with the approval
and through the intermediary of the other central tank.
BULLITT
NPL:EMB
56
g
GRAY
PARIS
Dated December 11, 1939
Rec'd 5:47 p.m.
Secretary of State,
ashington.
ROSE
2951, December 11, 4 p.m. ( BECTION TEREE)
Article V. No gold guaranty nor material security
shall bE requested for all the foreign exchange acquired,
under the C nditions and above, by the two stabilization
funds. The conversion into 30ld of this foreign Exchange
shall likevise not bE requested
If t'm two governments should agree to change the of-
ficial francs-sterling parity the total francs to bE rE-
imbursed b- the British fund for pounds held by the French
fund shall be calculated at the rate in Effect on the date of
acquisition of these pounds. The same rule shall bE followed
with respect to francs held by the British fund.
The Equivalent in francs or in pounds of the Precery
notes (bons du tresor) mentioned in the prectding article
shall bE unilarly calculated.
Article VI. The pounds held by the French fund may bE
utilized to pay all Expenditures in pounds in the stepling
area
57
-2- #2951, December 11, 4 p.m., SEC. Three from Paris
area that is to say in the British Empire (excluding Canada,
Newfoundland, and Hong Kong) in Egypt in the Soudan and in
Iraq. The francs held by the British fund may bE utilized
to pay all expenditures in francs in French territory and in
the French Empire
Payments in other countries in pounds or in francs
shall be carried out in agreement between the two govern-
ments, 1t being understood that the facilities for utiliza-
tion of pounds or of francs by these countries shall bE
equitably divided.
Bullitt
NPL
58
JT
GRAY
PARIS
Dated December 11, 1939
REC'd 6:12 p.m.
SECRETARY of State,
Washington.
RUSH
2951, December 11, 4 pame (SECTION FOUR)
Article VII. For all payments in the sterling area
and in the Tranch Empire the Exchange stabilization funds
shall furnish if necessary against sterling or against francs
the local curvency which the other fund needs.
Lrtole VIII. The i:wo Treasuries shall Examine and
shall follow constantly all questions relative to the equit-
able division of charges in dollars or in gold borne by
Each allied nation and made necessary by the conduct of the
war.
Article IX. The Treasuries shall periodically Examine
at least once EVERY three months the amount of and causes
for movements of gold or foreign Exchange and shall suggest
measures of any (*) conducive to mintaining the conditions
of a durable monetary Equilibrium,
Article %. In CBSE raw materials and products necessary
for the conduct of hostilities found in the sterling area
and
59
-2- #2951, DEC. 11, 4 p.m. (SEC POUR) from Paris
and in the French Empire cannot bE materially distributed
pro rata for the respective needs of the two countries, 6
compensation in gold or in fortign Exchange will be paid
by the other to the country which does not receive its
proportionate share.
Article XI. In their relations with third countries
the two governments will keep each other mutually informed
will cooperate and will COME to anagreement before takin,
any measure of a financial or monetary order likely to
affect directly or indirectly the interests of the other
country.
(END SECTION FOUR)
BULLITT
JRL
60
JT
GRAY
PARI3
Dated December 11, 1939
REC'd 6:35 p.m.
Secretary of State,
Vash ngton.
RUSH
2951, December 11, 4 p.m. (SECTION FIVE)
Article XII. The two governments shall consult ES-
pecially in be circumstances envisaged in the precid: ng
article:
OnE. 11th a view to fixing the currency of settlement
for imports originating in third countries. The payments
should bE Effected as far as possible in francs or in
pounds. or in the currency of the exporting country. The
two governments shall lend each other any necessary assistance
in the negotiation of payment agreements with third coun-
tries;
Two. 3th a view to obtaining as oftenas possible in
third countries agreements for settlement by means of blocked
exchange.
Article XIII. The two governments shall consult in the
circumstances envisaged in Article XII here above before
proceeding to the mobilization, on the market of a third
country,
61
-2- "2951, DEC. 11 4 pame (SEC FIVE) from Paris
country, of all or of part of their holdings of foreign
securities.
NEither of the two governments shall sell securities
Expressed in the currency of the other country without prior
agreement of the other government.
Article XIV. The two governments agree not to issue
a loan on the market of a third country without prior 4
mutual agreement. They shall Endeavor to float joint loans.
Article XV. The two governments shall not lay down
any restriction on the commercial interchange between their
two countries with a view to protecting their national in-
dustries or for reasons of a monetary nature. They shall
Endeavor to create the same solidarity between their two
Empires.
(END SECTION FIVE)
BULLITT
JRL:INFL
62
JT
GRAY
PARIS
Dated DECEMBER 11, 1939
Rec'd 8:05 p.m.
Secretary of State,
Washington.
RUSH
2951, DECEMBER 11, 4 p.m. (SECTION SIX)
Article XVI. The two governments shall consult on all
questions relative to price policy with a view to avoiding
disparities which would bE of a nature to weaken the mone-
tary solidarity established by the present agreement.
Any di ficulties which may arise in this respect shall
bE Examined by the two treasuries.
Article MII. The two governments agree to share the
burden of all loans to which they shall in common grant to
neutral or allied powers in the proportion of two for France
to three for the United Kingdom.
If the development of the war should involve extra-
ordinary Expenditures in third countries for the common cause
which she uld weigh EXCESSIVELY on one of the two countries,
the foregoing ratio skall bE applied to these Expendi tures
for sums which shall be fixed by agreement between the two
governments.
Article
63
-2- #2951, December 11, 4 Dame (3EC 31%) from Paris
Article XVIII, The bas 8 of division established in
the preceding article shell be adopted for the expenditures
of the Polish and Czechoslovak armies fighting for the common
cause.
Article XIX. The basis of division established in
Article XVII shall bE followed with a VIEW to distributing
the losses resulting from blockade purchases.
(There?)
These shall bE considered as blockade purchases those
purchasts Effected b one of the two governments on the
basis of a COLL odities decision from a neutral country and
at quotations considerably above world prices.
Article X. The present agreement shall remain in
Effect for the whole period of the war and for a period of
six months after the signing of the treaty of DEACE.
Done in duplicate in Frenols and in English, both
texts authentic. Paris December, 4, 1939.
For the Government of the Inited Kinzdom of Great
Britain 913938 end Northern Ireland, John Simon.
For the Government of the French Republic, Paul
Reynoud" 030
(EVD CF ESSAGE)
BULLITT
NPL:EMB
64
DEC 11 1939
my dear Mr. Atterney General:
Receipt is admovledged of your letter of December
4. 1989, is which you concur is the conclusion reached by
the General Counsel of this Department in his opinion on
the question whether Treasury Department officers may. with-
out violation of sestions 88(f)(1) and 4047(a)(1) of the
Internal Revenue Code. issue a press release setting forth
certain matters centained in a closing agreement consluded,
under section 3760 of the Internal Revenue Code, with the
Celt's Patent Pirearms Manufacturing Company in commestion
with a For Department contract. To approciate the expedi-
tieus handling of this matter.
Very truly yours,
(Signed) H. Morgenthau. Jr.
Secretary of the Treasury.
the Nonorable
the Atterney General of the United States.
ORIGINAL FORWARDED TO ADDRESSEE
FROM OFFICE OF THE SECRETARY
By Messenger
HBP/avp
12/11/39 3:50 P.M.
Typed: 12/7/39.
File to Mr. Thompson
Regraded Uclassified
TREASURY DEPARTMENT
65
INTER OFFICE COMMUNICATION
DATE December 11, 1 939
TO
Secretary Morgenthau
FROM
T. H. Hadley
X TREASURY BONDS
Offering
Market
Coupon
Terms
Yield
Price
Price
Premium
19/32
24
91-111 yrs.
1.81
100
101.2519
1 pt. 26/02
(3/15/49-51)
1.82
100
101.22/6
1 pt. 22/32 16/32
91-11 yrs.
1.84
100
101.13
1 pt. 13/32
(6/15/49-51)
1,85
100
OT*TOT
1 pt. 10/32
92-113 yrs.
1.87
100
101.5
1 pt. 5/32
(9/15/49-51)
1.88
100
101.2
1 pt. 2/32
66
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 11, 1939.
TO
Secretary Morgenthau
FROM
Mr. Haas JOA
Subject: Report of Secretary Morgenthau's interviews, held in
his office on Monday morning, December 11, 1939, with
regard to the method of refunding the 1 5/8 percent
Treasury notes maturing March 15, 1944.
The following people were interviewed separately:
Discount Corporation
C. J. Devine and Company, Ino.
Mr. Repp
Mr. Devine
Mr. Mills
First Boston Corporation
National City Bank of New York
Col. Pope
Mr. Burgess
Present during the interviews:
Mr. Rouse, Vice President,
Mr. Bell
Federal Reserve Bank of New York
Mr. Haas
-
-
-
Mr. Repp and Mr. Mills
Mr. Repp opened his discussion by saying the problem of re-
funding the March notes was relatively simple. He outlined his
proposal, as follows: (1) He would reopen the old March note of
1944. This, he indicated, would provide the safety measure and
protection against decline in the market. He would save the Septem-
ber 1944 date for a note offered for cash. (2) He would also
offer an intermediate bond. He pointed out that the market would
like more of the 2 percents of 1948-50, and suggested that these
bonds be opened at a one-half point premium. Refunding, he thought,
could be done with the use of these two issues.
Mr. Repp went on to say that a long bond would go quite well,
but if priced attractively it would be taken up and resold, leaving
the market with a good deal of secondary distribution. The real
long term demand, he indicated, comes mostly from the insurance
Secretary Morgenthau - 2
67
companies. He would be inclined to leave the long term demand
that is now in the market to support the now outstanding long
term issues.
Mr. Repp concluded his discussion by saying that either a
two-way or three-way offering would go in this market.
Mr. Mille opened his discussion by stating that the new
offering must include 8 note. He gave the following three reasons
for believing this: safety, economy, and the tax exemption fea-
ture. He estimated that $200 to $500 millions of the rights were
held by tax exemption holders.
Mr. Mille suggested reopening the 1 percent note of March
1944. The Secretary asked, why use the old note? Mr. Mills sald
that if B. new note were offered it might result in a very small
issue outstanding. Otherwise, he said, it did not make any
difference. The Secretary pointed out that the note wes utilized
mainly as a safety provision, and that if the market were adversely
affected during the refunding period $1 billion might be turned in
on the note which would make the outstanding 1ssue $1.5 billions.
Mr. Mills said, all right, use the September 1944 note and add to
it later. Mr. Repp commented that with the present market very
little may be turned in on the new note which would result in a
very small new note issue.
Mr. Mills continued, stating that in addition to a note he
would also reopen the 2 percent 1948-50 bonds at about one-half
point premium. He expressed the view that the majority of the
turn-in would be into this issue.
The Secretary said he did not like to reopen issues when he
did not have to. He pointed out that when an iseue 16 reopened
the premium offered ie readily seen and a point may be made of it
by unfriendly politicians.
The Secretary then said he would like to get Mr. Mills'
reaction to & proposition he had been thinking about. The
Secretary suggested a 2 1/4 percent bond of 1951-53 and a new
1 percent note. Mr. Mills said he thought that would go well,
Mr. Repp said he thought it would solve the problem nicely and
would "straddle" both markets - the banks and the insurance com-
panies.
In response to a question from the Secretary, Mr. Repp
expressed his belief that the banke would take a twelve year
bond, particularly with 1/4 percent more added to the coupon.
E8
Secretary Morgenthau - 3
On second thought, Mr. Mille felt that the market would be our-
prised and that the Treasury might get a lot of notes. The
Secretary said he thought this could be handled by 8 good
balancing in the pricing.
In response to B question from the Secretary, Mr. Repp
said he thought the market now was discounting the financing
and is in & position to move ahead.
The Secretary then asked Mr. Mills and Mr. Repp if they
thought the banks would take the 2 1/4 percent bond. Mr. Mills
expressed some apprehension, indicating that he had some honest
doubts and felt that it was pushing the banks 8. little. He
pointed out that you must rely on the banks for subscriptions
and that if the bond offered 18 not acceptable the notes will
be taken. Mr. Repp said he did not share Mr. Mills' apprehen-
sion. Mr. Mills then countered by saying he did not oppose the
proposal but he would approach it with caution. Mr. Repp repeated
again that he was not worried.
After Mr. Mills and Mr. Repp left, Mr. Rouse told the
Secretary that the 2 1/4 percent bond would be his second choice,
and thought the Secretary might consider a new 2 percent bond
pushed out about six months longer than the present 2's of
1948-50.
Mr. Devine
Mr. Devine said his suggestion was the same as last Friday
and he had not changed his mind. He suggested a 2 1/4 percent
1951-54 bond.
Mr. Devine went on to discuss the general market situation,
emphasizing that the strength in the market was in the inter-
mediate area. To illustrate, he said that since the 2 percent
bond was offered that he had sold $185 millions of the 1948-51
bond group as compared with $54 millions in the 2 7/8 percent
long term bonds. This, he said, indicated that there was three
times as much demand in the intermediate group. He added further
that the long term demand was largely an insurance company demand
and that since the 2 percent bonds were offered insurance companies
had purchased $85 millions of Government bonds and that they are
not in the market now. The $85 millions, he said, were purchased
largely by three companies - The Mutual, The New York Life, and
The Metropolitan. He said that he had made B. survey of thirty
89
Secretary Morgenthau
-
4
insurance companies and that the thirty companies held only
360 millions of the March note rights.
The Secretary said that he was also considering offering
8 note. Mr. Devine then suggested the 7/8 percent five year note.
The Secretary asked him what he would think of the note and a
new 2 percent bond. Mr. Devine said that would bring the bond
nearer the point of heavy demand in the market end would fit the
market demand more closely. He pointed out that his suggestion
of a 2 1/4 percent bond was what he felt was the furtherest the
bond could be extended and be within the range of the large volume
demand in the market.
Mr. Bell then asked Mr. Devine if he would give the Secretary
his explanation of how the market W&B held up by the favorable
reception given the new 2 percent bond. Mr. Devine pointed out
that in the last ten days, out of a total of 8185 millions in bonds
which he sold, $93 millions were the new 2 percent bonds.
Col. Pope
Col. Pope opened his discussion by calling the Secretary's
attention to the wide daily fluctuations in the market. He showed
the Secretary a chart on which the fluctuations had been plotted.
He said that the present market was "thin". In view of this, he
felt that & substantial premium should be placed on the new issues
offered. He felt that this was not a time to cut too much.
Col. Pope proposed a three-way offering, consisting of a
note, an intermediate bond, and B. long bond. He would reopen the
March 1944 note, giving as his argument that if there were only a
small conversion into the note the Treasury would not be left with
a small issue outstanding. The, second issue would be the 2 percent
1948-50 bond reopened. He pointed out that the strong market W&B
in this area. He then went on to say that there was a market for
a long bond. This market consists of the insurance company demand
and the banks, he thought, were now about evenly divided in their
desire for a long bond. He advised making the premium on the long
bond and the intermediate bond the same, Bo as not to favor the
long bond which, he indicated, would merely result in secondary
distribution. As a long bond, he suggested a 2 1/2 percent 19 to
22 years bond. He pointed out that he suggested the three year
call option rather than a. five year call option because more people
were now considering maturity of the bond rather than the first
option date on low coupon bonds.
Regraded Uclassified
70
Secretary Morgenthau - 5
The Secretary then said he would like to get Col. Pope's
reaction to an alternative plan in which none of the outstanding
bonds would be reopened - a two-way proposition rather than &
three-way deal. The Secretary asked him what he thought of
offering a note of September 1944 and a 2 1/4 percent 1951-53
bond. Col. Pope said there was some possibility of getting a
small subscription into the note, and repeated that he does not
hold the same view as some do, that the market would not be recep-
tive to a long term bond. Considering the proposal further, Col.
Pope said he did not think it dangerous and that he thought it
would go well, but that he liked the three-way proposition the
best.
The Secretary then asked him for his preference a6 between
a new 2 percent bond and a new 2 1/4 percent bond. Col. Pope
said that the banks do not want to go over ten years, and that
many boards of directors have disapproved going over ten years.
He would prefer meeting this situation by offering a ten year
proposition and a longer term issue. He said, however, that the
2 1/4 percent bond would probably go but the public would be
better served, he thought, by offering the three-way proposition.
The Secretary asked Col. Pope what he thought of the tone
of the bond market. Col. Pope said the market on Friday W&B
pretty good, there were enough orders in it to keep it up, and
there was no pessimistic note.
Mr. Burgess
Mr. Burgess opened his discussion by saying you can do any-
thing you please, but suggested a three-way proposition. He
proposed: (1) reopening the March 1944 notes; (2) reopening the
2 percent bonds of 1948-50 - he said that the market was expect-
ing this; (3) provide an issue for insurance companies who want
a long bond. He would suggest reopening the 2 3/4 percent bonds
of 1958-63 or 1956-59. Mr. Burgess said he thought it inadvisable
to put out long bonds with low coupons, 86 a break in the market
would result in their going below par.
The Secretary said that his suggestions did not appeal to
him, as he did not like to reopen old issues.
The Secretary then said he was considering a new note of
September 1944 and either a new 2 percent bond or a 2 1/4 percent
bond with & two year spread. Mr. Burgess said there was no question
that such a proposal would go.
Secretary Morgenthau - 6
71
The Secretary then asked him what was his preference as
between a 2 percent bond and a 2 1/4 percent bond. Mr. Burgess
said he would favor the 2 1/4 percent bond, as he did not think
much of the 1dea of dropping a new 2 percent bond along side
the 2's which have just been issued. Mr. Burgess said he also
thought the 1 percent note of September 1944 was good. He went
on to say B. 2 1/4 percent 1951-53 bond would be vulnerable in
a market decline, pointing out when the market goes below par
it becomes a 1953 bond rather than a 1951 bond. He also gave
another reason for his preference for the 2 1/4 percent rather
than the 2 percent bond, 1.0., it would put the bond out in a
less congested area.
The Secretary then asked him if the banks would accept the
2 1/4 percent bond which was somewhat outside the ten year area.
Mr. Burgess said with the 1/4 percent more interest the banks
would go twelve years and said that his bank's limit was 1951-54
and that the 2 1/4 percent bond fell within that range.
Mr. Burgess then went on to say that he felt there was no
question about the 2 1/4 percent bond going well, but he was
fearful of it going "sour" in a market break, as he felt that the
old issues with higher premiums would wear better in adverse
markets.
72
has count.
Refp -
Respens march 4 y note
review 48-50
long Band so well
Mills Took mykes suggestion same doubt well
Refh says might shortant
3 months.
Dennie march 51-54 - 24
7/8 note 5ys. -
(over)
CR.Pope
referen march x4-
3- way
referr 2% 48-50-
2'2% 19-22
(over)
Buyers,
3 - way
old.
reopen all, issues
73
December 11, 1939
FOR THE SECRETARY:
After talking with Mr. Gaston about the Pearson
and Allen column, I called Mr. Mulcahy at the Justice
Department and told him that we very much wanted to be
cleared of the implication that we had failed to do some-
thing which the Justice Department had asked us to do.
I told him that we were particularly disturbed about the
statement since the facts were quite the contrary.
Mr. Mulcahy said of course he did not know where the
information originated and asked me what suggestion I had.
I replied that I thought the Justice Department ought to
clear the Treasury of any responsibility for having let
the trawlers escape at a time when the Treasury was under
contrary instructions from the Justice Department.
I suggested that he issue a statement setting this matter
straight. He replied that he thought this could be done
and that he would discuss it with the Attorney General.
ESD
74
Regraded Uclas
MEMORANDUM
December 11, 1939.
TO:
Secretary Morgenthau
FROM: Mr. Duffield
A Mr. Williams in the Attorney General's office
called me and said that the Attorney General regarded the
matter in the Pearson and Allen column as picayunish and
best ignored. Therefore, there would be no statement from
them.
He made some further rather vague remarks indi-
cating that he thought the Attorney General had given you
an oral opinion before the trawlers had left our territorial
waters, but when he questioned me on this point, he admitted
that he could not be sure. I told him that we did not believe
a statement saying that we had failed in our duty was picayunish,
but that since the Attorney General had taken this position,
all I could do was report to you.
ESD
75
December 11, 1939.
Following sent to Dr. Viner in Room 194} per Secretary's
request:
1. Molybdenum, by Alice V. Petan, published by U. S. Depart-
ment of Commerce, Bureau of Mines.
2. Reports on Tungsten and Molybdenum, by Mineral Advisory
Committee, Army and Navy Munitions Board.
3. Procurement Study for Molybdenum, by Commodities Division,
O.A.S.W. to Army and Navy Munitions Board.
4. Molybdenum in Steel, Climax Molybdenum Co. (leather-bound
book).
5. Molybdenum in Cast Iron, Climax Molybdenum Co. (leather-bound
book).
JacdViner
76
December 11, 1939.
Following requests sent to Dr. Viner in Room 1941 per Secretary's
1. Molybdemum, by Alice 1. Petan, published by U. S. Depart-
ment of Commerce, Bureau of Mines,
2. Reports on Tungsten and Molybdemm, by Mineral Advisory
Committee, Army and Mary Amitions Board.
3. Procurement Study for Nolybdenum, by Commodities Division,
O.A.S.W. to Any and Havy Aunitions Board.
4. Nolybdemum in Steel, Climax Molybdenum co. (leather-bound
book).
5. Nolybdemum in Cast Iron, Climax Molybdenum Co. (leather-bound
book).
77
OPEN MARKET COMMITTEE
December 11, 1939.
11:15 a.m.
Present:
Mr. Eccles
Mr. Harrison
Mr. Haas
Mr. Goldenweiser
Mr. Rouse
Mr. Leach
Mr. Murphy
Mr. Hadley
Mr. Piser
Mr. Bell
Mr. Draper
H.M.Jr:
Mr. Eccles, we are facing the refunding of these
March one and five-eighths notes, and we asked you
yesterday to meet with us to get the benefit of
your advice.
Eccles:
We have been discussing it a little this morning
about half or three-quarters of an hour before we
came over and I don't know that we came to any
definite agreement. We didn't make an effort to
do that so much as to discuss it. It seems that
the problem is a comparatively easy one, at least
we feel it is, being a refunding, and the situation
of the money market is such that we feel that the
Treasury can do just about what it wants, as far
as the Treasury is concerned. It is a question
of whether they want to satisfy the market or
-
whatever they want to do, I think they can do.
I think the amount of excess reserves, as well 8.8
investment funds in excess of the opportunity for
investment - that corporations and banks are
going to be glad to take almost whatever is
offered the bond market. The Government market,
generally, as well as the high-grade market, I
think, has a good deal of underlying strength to
it.
Personally, I would favor as B. first choice an
option of a note opening up the March '44 notes,
the me percent notes, and opening up the '48-'50
bonds.
I know there has been some discussion of a three-
way offer and possibly there is some argument
for it, looking at it from the standpoint of the
78
- 2 -
Treasury. It is my feeling that the two-way
offering would be successful. It would be
easier to price a two-way offering so as to
avoid a secondary market, possibly, than it
would if B. very long bond were put out. I
would like to see it confined to the existing
issues, rather than open up some new issue at
this time. I would also like to see the
securities priced 30 that a premium will be
kept down, as far as possible.
Harrison:
Will be kept down?
Eccles:
What I meant - I see you misunderstood me.
Harrison:
Excuse me.
Eccles:
I misstated what I meant to state, George. I
would like to see them priced 80 that a premium
would be put sufficiently high so that they are
not over-priced. I think that in the past in
some of the issues there has possibly been maybe
a little more profit than was necessary. I
think a premium here, or B. profit of from three
quarters, not to exceed one point on it, to
assure E. successful operation on this refunding
issue.
Now that, in general, is my feeling about it,
Mr. Secretary.
H.M.Jr:
Shall we kind of go around the room? George?
Harrison:
I agree substantially with the Chairman. I agree
first that you can do pretty nearly anything that
you want to do on a reasonable basis. I first
thought that with the size of the issue involved
there might be some advantage in doing what you
have done before, that is, the three-way offering.
I think the real difficulty with that is probably
the question of pricing, and I would succumb to
the argument for a two-way issue largely on the
ground that you could price it better and perhaps
more successfully arrange for a lower profit to
the subscriber than you would have to give if
you had the three-way.
79
3
I agree with the Chairman to this extent, that
I have had a feeling for some while - and I think
the volume of subscriptions support this - that
the offerings have been B. little too rich and
possibly with a two-way offering you could afford -
that is, with a note and an intermediate bond - you
could afford to give & smaller profit than you
would probably have to give if you wanted to put
out the long bond, too.
I am just wondering whether the volume of sub-
scriptions on recent offerings, offered direct on
guaranteed applications, isn't an indication some-
what that perhaps you may have been a little too
liberal in the light of present circumstances.
Or, put it the other way around, I am not mention-
ing that as a criticism but rather as a suggestion
that you could consider being a little less liberal
than you have felt wise to be in the past. I
would personally, too, favor opening up existing
issues if you can find the right ones. If you
had 8. three-way issue, I certainly would not make
more than one new issue. If you had 8. two-way
issue, I think It would be preferable to have
two existing ones if you can find the right ones.
H.M.Jr:
How about Richmond?
Leach:
From the standpoint of what the market wants, or
rather what investors want, I think they want the
three-way option, an additional issue of the 1944
notes and an additional issue of the three percent
bonds which they expect to pay a premium for and
a long-term bond. I think the banks wouldn't
object particularly to a premium of around a half
or a little bit more, but they tell me they don't
care for the premium of above a point, because B.
good many banks write it down for par and they
wouldn't have to write it down very much at that
time. I think the banks would rather pay a
reasonable premium on that '40 and '50 bond than
to have it & little longer without a premium,
though there is some difference of opinion on
that. Some don't like anything that sells at
a premium. I think a three-way option would give
a lot of people a chance to fit in something that
they need in their portfolio without having to
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- 4 -
take something that they didn't want, and then
selling it afterwards, so altogether I would be
in favor of 8 three-way issue, though it wouldn't
worry me much if you made it two-way.
H.M.Jr:
Mr. Draper?
Draper:
I prefer the two-way issue, Mr. Secretary, the
March 1944 notes and the '48-'50 bond. It is more
generous than the present issue of all notes and
also it avoids the issuance of long bonds, which
seemed to cause so much trouble in the last crisis
market. You will remember the difficulty that we
had in trying to stabilize the market, practically
centered in the long-term bonds, and finally the
Treasury will save some money by that.
E.K.Jr:
Did you say three ways?
Draper:
No, two ways.
Szymczak:
From the standpoint of the Treasury getting out as
far as possible, of course a three-way offering
would be best and also provide some security for
the insurance companies. There is also a possi-
bility the banks, buying some of these long bonds
and then turning them over as quickly as possible
the second day on the market - it would be pre-
ferable to have a two-way issue in notes and bonds
opening up those that are now in existence, March
notes.
E.N.Jr:
Dr. Coldenweiser?
Goldn'r:
I an in agreement with that in general, that it
seems to me that a two-way issue is all you need,
and e note and an intermediate bond. We have in-
creased the amount of long-term bonds by two and
a half billions within recent time, and it seems
to me unnecessary to have a long bond, and since
you can issue almost anything, I think that that
would probably meet the situation as well as any-
thing.
Harrison:
Mr. Secretary, may I say one more - in explanation
of my own change of mind from the three-way issue
to perhaps a preference for the two-way. I felt
Regraded Iclassified
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that the long bond was the wise thing to put
out, first generally from the point of view
of the Treasury and second because I thought
that the insurance investors would much prefer
that and that they ought to be given an oppor-
tunity to be taken, that when I find that the
estimates are that the insurance companies
only own about five percent of the rights, I
don't know that that is enough to influence you
to put out an issue that otherwise might not be
the most desirable.
H.M.Jr:
Mr. Piser, have you been around?
Piser:
I would be in favor of the two-way offering for
the reasons that have been mentioned. As far
as what banks would prefer is concerned, I think
the bulk of them like the '48-'50 bond which
was recently put out and would like to get more
of that particular issue, whereas the note issue
would be especially for the individuals who, I
understand, hold a substantial amount of this
particular issue. I think the one percent note
with the '48-'50 bond would be the best offering.
Eccles:
This note is an unusually large amount of - a lot
of it is held by individuals, due to the fact that
it was a refunding of a totally tax-exempt bond.
Piser:
That is right.
H.K.Jr:
Mr. Rouse?
Rouse:
It might be worth while to review the market a
little bit from the meeting held here two weeks
ago today. The '48-'50s were priced as nearly
as could be gauged, I think, right in line with
the market to yield about a premium of 101 and
a quarter to three-eighths. It turned out to be
exactly what the market wanted and it was heavily
over-subscribed. The market moved up on buying
in long bonds and intermediate bonds and notes
at the time. Another half point above that. It
seemed very strong. The Russian-Finnish War
developed on Thursday following the Tuesday
offering and I think the new twos, the '48-'50,
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held and stimulated the market in the interim.
Long bonds dropped off three-quarters of a
point from their high that we had preceding the
war. That whole thing seems to have been ab-
sorbed. I think this is a. general feeling
throughout the country today that there is very
little likelihood of our becoming embroiled in
the European war, that the market both fundamentally
and technically is quite strong. This will complete
the problem of the Treasury that it has been facing
for the past three months, of the refunding of the
December notes. Money was needed and obtained
through the RFCs and the cash offering two weeks
ago. This refunding, if there is any blanket
due to the requirements of the Treasury, this will
remove it. As far as one can "X" out European
developments, the market seemed in a strong posi-
tion to receive any offering the Treasury chooses
to make, either two-way or three-way. I think
there has been more demand in the last three or
four days for longer bonds and & greater indica-
tion to exchange for long bonds than was apparent
a week or ten days ago, which I think 1s a natural
development.
E.M.Jr:
Well, we have seen some of the people this morning
and I don't look at it just the way these people
in the street do or the way you gentlemen do. Te
will have no argument on the two ways. I would
like to do a note and a bond. The note is a hedge
in case the news should be unsatisfactory, that is
what we have always done, but I can't overcome my
prejudices against reopening old issues, which
you know I have very strongly. In order to put
the thing on the table, what I would like to bring
to your attention is this, that we are thinking
seriously of a September '44 one percent note and
a 24 percent bond running '51-'53.
Draper:
That 18 practically the same. We said '48-'50
and you say '51-'53.
Eccles:
Doesn't that give & pretty good - what would the
premium be on that figure, Pisert What would be
the profit?
83
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Piser:
I'm afraid I will have to do a little figuring
on that.
H.M.Jr:
Here, Marriner, this sheet will help you. That
is the bond and the one below is the notes. We
have checked that with New York. Is that right?
Hadley:
Yes.
H.M.Jr:
We are in agreement, aren't we?
Hadley:
Yes, we are fairly close to those estimates.
H.M.Jr:
When I say New York, I mean the Federal Reserve
of New York.
Draper:
It is hard to get up any argument on that, Mr.
Secretary.
H.M.Jr:
Well, I like the new issues, always have, against
the old ones, except when times are hard we have
got to fall back on some of the old ones. But you
have got this note that we are talking about, the
March '44, and we have a little over 500 million
of that outstanding. If the note is ahead and
they shouldn't take the bond, you might get a
billion dollars worth of notes and then a billion
and a half of one issue. That wouldn't be any
nicer than what we have got right now with the
one and five-eighths, and I personally think
500 million of one note issue is just about the
right size.
Draper:
Yes.
H.M.Jr:
The premium between this note and the bond would
be just a little bit better for the bond than the
note, because it would give a nice balance.
Eccles:
You say '51 and '53 on the bond?
H.M.Jr:
Yes.
Eccles:
Yes, that figures
Szymczak:
....three and a quarter.
84
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Eccles:
The premium on that is a little better than one
percent. It would be 101 and 5/32nds, wouldn't
it?
Hadley:
Possibly twelve.
Eccles:
That is September. They are talking about December
on the bond.
H.M.Jr:
The one with the asterisk in front of it.
Eccles:
From five to twelve, is that right?
Hadley:
Yes.
accles:
Now, on the note you have got one to eight, one
to five. What is the objection on the note to
making it December 15 on account of the maturities?
H.M.Jr:
There is a big maturity, four percent, isn't there?
Crouse:
'54 and '44?
H.M.Jr:
With a four percent coupon?
Piser:
Yes, sir.
Harrison:
But I thought that was the one you were talking
about. Didn't you say a five-year note? Didn't
you suggest a five-year note?
H.M.Jr:
Dated September, to avoid that four percent issue.
Sccles:
Six months longer than the proposed one. If you
opened up the present one you would either have
to give them too much profit or you would have
to sell at 8. premium.
H.M.Jr:
Yes.
Sceles:
So we had thought of a premium. of course, on a
note I think I agree with you, that it is possibly
better to put out a new note issue than opening
up an existing note issue. With a bond, I think
it is maybe a little different.
H.M.Jr:
Well
85
B I I
Szymczak:
It just gives you that many more issues.
Sccles:
By putting a new one out you can price it so
as to get away from selling it at a premium.
H.M.Jr:
That is the thing, and I don't like it.
Eccles:
The market doesn't either.
H.M.Jr:
Whatever you price it at, I don't know - it is
hard to explain from the Government's standpoint.
Sccles:
Well, you would put out a two and a. quarter then.
Where would a two percent one go if it was priced..
H.N.Jr:
Here you are (handing paper to Mr. Eccles).
Piser:
Couldn't that issue be stretched out a little
further into about June '52, which would cut
the premium down some and also would get a
little further away from your existing maturities?
Hadley:
It would be considerably under a point in premium
if you went out that far, probably somewhere from
a half to three-quarters, and then it wouldn't
be adequate.
H.M.Jr:
In discussing this with Mr. Rouse, he made a
point which I thought was - a technical point
which was good, that if we price the note and
the bond almost the same, there is less churn-
ing afterward, because the people won't buy the
bond at a big profit and sell it and then buy
the note because it 1s cheap.
Eccles:
There is too much profit on that.
H.M.Jr:
Then these other fellows said, "If you get within
six months, it is crowding the other thing and
that '48-'50 is awfully crowied."
Sccles:
In other words, you haven't got anything except
in this range in maturity and when you go into
that range you have got to go into a little higher
rate.
H.N.Jr:
And that '48-'50 range is pretty well crowded now.
86
- 10 -
Let's say the thing was priced attractively for
the market. You might get a billion dollars
and then you would have another billion in that
particular area which is pretty well crowded now.
Rouse:
I think they also expressed the opinion that the
market would regard going from the two, '48-'50,
to a two and a quarter, '51-'53, as the logical
progression in this period from September on.
Scoles:
What about two and an eighth, where would that
come?
Craper:
That is shaving them pretty fine.
Recles:
You have got some eighths, haven't you? You have
got some three-sighths and bonds, showing that
you have gone into the eighths.
Hadley:
On the '50-'52 issues, they already have one of
those.
Bocles:
The 2gs.
H.M.Jr:
All of these fellows agree that their Board of
Directors, who said they couldn't buy more than
ten years, they could stretch it again to do
this one. The Board of Directors would be willing
to stretch it.
Sccles:
I think that is a good - I wouldn't have any
strong feeling against that.
H.V.Jr:
It certainly isn't priced too rich, Marriner, is
it?
Sceles:
Well, it is on the note but I don't know what
you can do about it. For the bond, it isn't so
bad, but for a little four and three-quarter
year note, a little better than a one point
underwriting is, of course, pretty sweet, but
I don't know what else you can do unless you
give less on the bond. I think you really -
this thing would go over, seeing it 1s a re-
funding, if it was not more than about three-
quarters. I would like to see about a three-
quarters on the note profit and about seven-
eighths on the bond. I think the sooner we get
87
- 11 -
to the point where we get these - get away
from the speculation on rights - but just as
long as we are giving a point or more premium
there, it is going to make these rights pretty
desirable.
Piser:
I think if the maturity could be stretched out
three or six months to cut that premium down to
around a. point or a point and an eighth, it
might be desirable.
H.M.Jr:
On the bond?
Piser:
Yes.
Eccles:
What are you going to do on the note, then,
Piser? You would let them both be in line, then?
Piser:
The note is about a point premium, isn't it?
That would give them exactly the same premium.
Bell:
I think we are all desirous of cutting down the
right values but I don't think we want to do it
on the refunding where the values have already
been established in the market. If you are
going to out down the rights, I think it ought
to be down on a cash issue. Then you can fix
your own rights. These rights are now established
and to cut them off at a quarter of a point - I
think you are going to get more kick on that than
putting out something you don't - do you agree
with that, Bob?
Rouse:
On a small issue or refunding.
Sccles:
They will kick if they are not getting very much
profit, as much as they expected. But if they
did - if they weren't getting the profit they
expected, in the future I think they would be
more cautious or more careful in buying rights,
wouldn't they?
Bell:
If they could be sure of the Treasury policy,
sure, that is true. We cut down the rights
last spring but something happened right after
that, we had a war. We had to go back to being
a little generous.
88
- 12 -
H.M.Jr:
I don't think that is priced out of line.
Bell:
I don't think so either.
H.M.Jr:
A billion four is still a lot of money.
Eccles:
This is less premium than we have ever given.
H.M.Jr:
It is definitely cutting down.
Bell:
A little less on the long bonds.
Eccles:
You have had as much as one and a half, even
three-quarters, haven't you?
H.M.Jr:
Yes.
What do you two gentlemen think?
Draper:
As far as I am concerned, I agree with your
suggestion.
H.M.Jr:
How about you?
Szymczak:
I think we have got to go along on that sug-
gestion of yours.
Leach:
I think it is all right.
H.M.Jr:
What do you think, George?
Harrison:
I think it will go over all right. I go back
to my original statement, which is fundamentally
a different approach from your own, and that is
about the reopening of existing issues.
H.M.Jr:
I know.
Harrison:
I am sorry that you have got to have two new
issues. I wish that you could have only one,
somehow.
H.M.Jr:
That doesn't bother me at all, B. couple of more
issues. I never could agree - we are picking
them up pretty fast.
Harrison:
The reason I favored - as I said at the outset,
I favored 8 three-way and I have switched because
89
- 13 -
I was afraid you would end up with a very
small long-term issue and you would have just
another issue with a small - maybe 200 or 250
millions
H.M.Jr:
Supposing we do it the way we are just talking
now.
Harrison:
I should think you would have a pretty good
division. You would have enough of the notes.
H.M.Jr:
It is balanced?
Harrison:
Yes.
Eccles:
I bet you get more of the bonds than you do the
notes. You will have eight or nine hundred
million or maybe a billion of bonds.
Leach:
You are stretching a little what the banks want,
but they will take it.
H.M.Jr:
There is one fellow - gosh, he said this, "This
is no present from heaven." I said, "Well, that
makes me think maybe we are on the right track."
Draper:
Ought to make you feel good.
Harrison:
I must say I like the fact that the premium or
the profit is cut down somewhat on this offering,
from what I was afraid you might have to do if
you had a three-way. I mean it runs down to
one point five to eight, doesn't it, approximately?
Bell:
In that range.
Hadley:
The rights are selling for 1 and 1/13th now, which
is about 1 point 12/32nds premium.
Rouse:
It has been in that range of a point and a quarter
to three-eighths this past few weeks.
H.M.Jr:
The market isn't going to like this first crack.
Rouse:
It is going to take a little thinking over. I
was just going to add, I think there is a little
90
- 14 -
forcing of the market in the sense of this
ten-year demand but it will come up to it.
They will take it and be glad to get it.
Harrison:
What would be the maturity of a fixed 21, no
callable feature?
H.M.Jr:
We haven't figured that, and I don't see why
we should. They won't give us the two year
spread.
Piser:
It would probably be about the December '53
date.
Harrison:
I have always argued for the callable feature
on the ground it gives you a chance to open
up again a little later.
H.M.Jr:
We have opened up issues when times got bad.
Piser:
I have been doing a little rough figuring on
this issue. It seems to me it might sell at
about a point and a half rather than a point
and three-eighths, as has been suggested, which
would lead me to think that you might be able
to stretch it out another three months and
cut that premium down.
Rouse:
You get into another year then; it is called
a 152 instead of a '51. You may well be right
about the price, because I think there is a
real possibility that the whole market may
move with the removal of the blanket.
Eccles:
Yes.
H.M.Jr:
Well, gentlemen, unless somebody is really dis-
pleased with this, I would kind of like to do
it this way,
Eccles:
What would you think of giving the extra three
months?
H.M.Jr:
I think it is an unnecessary risk.
Eccles:
It would reduce the premium or the profit. How
much would 1t reduce the profit, Piser?
91
- 15 -
Piser:
I will have to do & little figuring on it there.
H.M.Jr:
We figured this and we checked it with the Fed
in New York. We figured It would sell between
101 and 5/32nds and 12/32nds. They have checked
that with New York,
Eccles:
This morning's market?
Hadley:
Yes.
H.M.Jr:
I don't think that....
Eccles:
Piser was talking about 16/32nds.
H.M.Jr:
I don't know how he gets that way.
Bell:
You are figuring on the market going up a little,
aren't you?
Piser:
What I was figuring on particularly was the fact
that it has a shorter call period than either
of the 51 issues that we are comparing it with
and in addition that it would be at a lower
price, which would attract some buying, so I
think it would sell a little out of line, having
a slightly lower yield than you would get from
merely using the line that you draw through
those issues.
Hadley:
We have made our estimates on that basis already.
Bell:
I think there is a possibility, as Mr. Rouse says,
that this market may go up a little and you might
get better than one.
H.M.Jr:
I have a press conference at 4:00 o'clock on
Mondays. I don't think we would release this
until tomorrow morning.
Bell:
I was going to ask you whether you wanted to do
that this afternoon or tomorrow morning.
H.M.Jr:
I think for tomorrow morning, and then Bell has
asked us - thought we ought to leave this open
three days this time on account of such a wide
distribution.
92
- 16 -
Bell:
We think there is a pretty wide distribution
in view of the fact it was a refunding of the
Liberty 3t, and maybe you'd better leave open
that extra day to get them in.
Eccles:
What objection could there be to leaving it
open?
Bell:
Just the period of uncertainty, and the big
bondholders won't turn them in until the last
day, that is the only objection.
Hadley:
Would an announcement tonight - give them two
days from that?
H.M.Jr:
We have been letting it out every afternoon.
Rouse:
A little variation doesn't do any harm.
H.M.Jr:
No, and this is a refunding. The others are
always just cash, which is one day.
Rouse:
Figuring three days, I think tomorrow morning
is all right.
H.M.Jr:
The other thing Bell mentioned, we would like
to put in a hundred million dollars for our
trust fund.
Eccles:
We have got - have we got 160?
H.M.Jr:
Trust funds.
Eccles:
Open market?
H.M.Jr:
No. Last time we took 50 million for trust funds
at par. This time we thought on the 21 we would
say between now and the fifteenth of March the
Treasury may absorb a hundred million dollars, of
these - its trust funds.
Eccles:
In other words
H.M.Jr:
Give us three months.
Eccles:
Instead of putting the - borrowing the funds like
you have in the past, you will sell the funds,
the bonds?
93
- 17 -
H.M.Jr:
Yes. We still have over 200 million special
twos and we have all of these funds needing
money and instead of having them go to the
market, we can take any amount up to a hundred.
It doesn't necessarily mean we will take 8.
hundred but anything up to that.
Sccles:
You are giving them a security that is ready
for the market in case they want to sell them,
whereas your special twos are not ready for
them.
Bell:
That 1s right. We have to refund those.
H.M.Jr:
And it keeps these special funds out of the
market. I mean they don't have to go on the
market.
Eccles:
It is a good thing for the funds to have the
type of security, too, that is ready for the
market.
H.M.Jr:
That is right.
Rccles:
Whereas if they have got to space the twos, they
are not
H.M.Jr:
Take F.D.I.C., they have a special two and if
they should need some money they could sell it
in the market instead of selling it to us, so
it gives them that additional flexibility.
Eccles:
That, of course, doesn't mean any new money at
all, all that means is merely a transfer of -
I mean it means giving this form of security
instead of the form of security that you have
given them in the past.
Harrison:
Giving them more interest.
H.M.Jr:
With the possible exception that - the last time
we canceled twos for the new issue. In this
case, if the Government Life or some teachers'
fund or something like that comes in and wants
to invest money anytime during the next three
months, instead of going to the market, we will
just give them some of this, or Home Owners
Loan. We have got so many requests from
94
- 18 -
Government agencies that want to buy and they
get rather cranky with us when we won't let
them go to the market.
Harrison:
You sell it to them at par?
H.M.Jr:
Yes,
Harrison:
That is a nice little present.
Bell:
We are selling them to the market at par.
Harrison:
That is different.
Eccles:
George, I am just the opposite. I think you
are least justified in selling to the market.
I think you are less justified than you are
to the fund.
H.M.Jr:
If it was any argument. Now, one other thing
we would like to - sometime after the first of
January, the Treasury would like to meet at
some Federal Reserve Bank and ask the Federal
Reserve to bring in the people who have to do
with the policing, because we feel that there
is not uniformity between Federal Reserve dis-
tricts as to how they police, and if & meeting
could be held at some one place
Bell:
Where it is warm.
H.M.Jr:
Dallas.
Szymczak:
You want those people policing all of the Federal
Reserve banks to come in at once?
H.M.Jr:
And have a meeting and have everybody come in
at some one place and let Bell and whoever he
wants go there and meet with them and have a
two or three day session and go into this whole
question.
Eccles:
The operating people?
H.M.Jr:
Yes.
Bell:
I would like to make that a one year proposition,
do it every year.
S5
- 19 -
Socles:
The bank presidents will be here tomorrow. We
are having a conference of the bank presidents,
so that if there is anything that wants to be
taken up with them - I don't suppose there is,
in connection with this.
Szymczak:
Dan can come over and make a statement to them
and later on they will have an idea of what he
wants. How about that, George? He can make a
statement to the presidents tomorrow as to what
he has in mind, just generally, and then whenever
the meeting is called, they will already have that
information beforehand.
Harrison:
All right.
Bell:
I will be glad to come over.
Sccles:
They may have some suggestions to make. Maybe
they would like you to go to each one of them.
Bell:
That is what I would like to do, over a period
of years, because I think we ought to get acquainted.
Recles:
Why over a period of years? It looks to me like if
you are going to
Szymczak:
What Dan has in mind is to meet with all these
fellows at the Federal Reserve banks at different
times.
Bell:
Yes. In other words, you would have a conference
in some district every year but not the same dis-
trict.
Leach:
We would like to see that, because we are not at
all satisfied with the way we are handling it.
The banks in Baltimore complain that corporations
and individuals get advantages over them.
Eccles:
As long as there is a good profit on this, you
will get complaints.
Bell:
In many of these fiscal problems, naturally we
have to leave discretion in the Federal Reserve
banks and you are so far apart you just can't
get together on those discretions, and we think
it would be a. fine thing if we could just get
96
- 20 -
around a table, have an agenda and discuss the
various phases of all these fiscal problems.
Harrison:
We already have it on our program for the
President's conference tomorrow, and if it 1s
agreeable to you we will get you to come over.
H.M.Jr:
Is there anything you have on your mind, Marriner?
Eccles:
No, I haven't anything else.
H.M.Jr:
Anybody got any afterthoughts?
Thank you all very much.
87
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Berlin, Germany
DATE: December 11, 1939, 3 p.m.
NO.: 2304
AM
On the twenty-sixth of November Polish currency in
denominations greater than one zloty ceased to be legal
tender in those districts of former Poland which are how
a part of Germany. Until further notice, Polish coin of
one zloty, fifty, twenty, ten, and five groschens remain
legal tender at the rate of 50 reichpfennigs to one zloty.
In that section of German-occupied Poland comprised
in the so-called general government whose capital 1s now
at Krakow, the zloty remains legal tender. There 1e being
carried on gradual retirement of the Reichskreditkasse marks,
issued in the early days of the occupation by the Reichskredit-
kasse, which performs the function of a central bank for the
general government. This institution 1s now maintaining all
its accounts in zlotys. So far as we know, there have been
no new issues of zloty currency by the Reichskreditkasse,
which is using the currency remaining in the area and the
zlotys which are being withdrawn from circulation in districts
which have now been definitely incorporated in Greater Germany.
It 18 requested that this information be transmitted
to the Treasury Department.
KIRK.
EA:LWW
Regraded Uclassified
Translation from
Chinese 2ts
of
December 11, 1939
98
Cablegram received from Dr. H. E. Kung, Chungking, China
To Mr. K. P. Chen, Washington, D. C.
Telegram December 8th received. Based on present mining
and transportation conditions, total production of tungsten is
estimated at minimum 10,000 tons for next year. This may possibly
reach 12,000 tons if conditions are favorable.
Sometime ago the National Resources Commission appointed
the Peking Syndicate, a British firm in China, as selling agents of
tungsten abroad. Sales were to be limited to the amount not needed
by the Government. Any amount may be reserved by the Government for
its disposal.
Next year about 5,500 tons will be required for barter
purposes for delivery to Russia; 500 tons earmarked for Great Britain
under the British credit arrangement; and 1,000 tons contracted to
sell to France for cash. This le leaves an estimated balance of
about 3,000 tons. All the available balance, if any, may be shipped
to the United States for sale.
At present the principal port of shipment is Haiphong.
Small quantities can also be shipped from the ports of Kwantung
and Chekiang Provinces.
Total annual production of tin is about 10,000 tons, and
has been entirely turned over to the Central Government. Inasmuch
as Kwoh-Chiu, the producing center of Chinese tin, lies close to
the Yunnan- Indo-China Railway, transportation is convenient and
regular delivery of tin is assured.
Please convey this information to Secretary Morgenthau.
Translation from
Chineso Presidents a st.
December 11, 1939
88
Cablegram received from Dr. H. H. Kung, Chungking, China
To Mr. K. P. Chen, Washington, D. C.
Telegram December 8th received. Based on present mining
and transportation conditions, total production of tungsten is
estimated at minimum 10,000 tons for next year. This may possibly
reach 12,000 tons if conditions are favorable.
Sometime ago the National Resources Commission appointed
the Peking Syndicate, a British firm in China, as selling agents of
tungsten abroad. Sales were to be limited to the amount not needed
by the Government. Any amount may be reserved by the Government for
its disposal.
Next year about 5,500 tons will be required for barter
purposes for delivery to Russia; 500 tons earmarked for Great Britain
under the British credit arrangement; and 1,000 tons contracted to
sell to France for cash. This leaves an estimated balance of
about 3,000 tons. All the available balance, if any, may be shipped
to the United States for sale.
At present the principal port of shipment is Haiphong.
Small quantities can also be shipped from the ports of Kwantung
and Chekiang Provinces.
Total annual production of tin is about 10,000 tons, and
has been entirely turned over to the Central Government. Inasmuch
as Kwoh-Chiu, the producing center of Chinese tin, lies close to
the Yunnan- Indo-China Railway, transportation is convenient and
regular delivery of tin is assured.
Please convey this information to Secretary Morgenthau.
TSINGHAI
KANSU
too AND
HONAN
DOES
SHENSI
KIANGSU
ANHWEI
-
I
HUPEH
Y/WND
ISS
NAME
-
SIKANG
CHENTU
SZECHWAN
CHEKIANG
NANCHANG
I
HUNAN
KIANGSI
KWEICHOW
FUKIEN
-
STATE
INVOICE
toig
LIVENOW
YUNNAN
KWANOSI
KWANGTUNG
CANTON
BURM
A
e
MAP OF HIGHWAYS AND
RAILROADS IN
-
SOUTH-WESTERN CHINA
-
LEGEND:
HIGHWAY COMPLETED
7178
INDO-CHINA
INTERNATIONAL
HANAN
PROVINCIAL ENVIRY
SCALE H A,000,00€ "
Regraded Uclassified
100
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: December 11, 1939, 6 p.m.
AM
NO.: 2953
FOR THE TREASURY DEPARTMENT.
This morning we again received a visit from Professor
Rist. He told us, as an indication that Germany is suffering
a shortage of molybdenum, that information was in the hands
of the French Blockade Ministry that Germany had proposed
to sell a substantial amount of vanadium, which in German
smelters is recovered from pig iron, to an Italian firm in
exchange for such quantities of ferro-nickel and ferro-
molybdenum as could be obtained by Italy.
END SECTION ONE.
BULLITT.
EA:LWW
101
AC
GRAY
Paris
Dated December 11, 1939
Rec'd 9:15 p.m.
Secretary of State
Washington
2953, DECEMBER 11, 6 p.m. (Section Two).
Under a decree published in the Journal Official
of December 9, procedure is outlined under which
declarations must bE made by those who possess,
administer or hold in deposit stocks of raw metals
and alloys for smelting; metals and alloys in ingots,
bars, et cetera, metallic carbides; abrasive raw
material; crude rubber; chemicals utilized for the
manufacture of glass ceramic and paint and old metals.
Under an arrete published in the same Journal
Official the Minister of Armament is authorized to
SET up a fund for the purpose of Equalizing the
import and domestic price of certain metallurgical
products such as steel bars, mils, girders, Et cetera
(SEE despatch No. 4304 of November 17, 1939).
The full powers law approved by Parliament on
DECEMBER 1 (telegram No. 2887, DECEMBER 2, 5 p.m.)
promulgated in the Journal Official of DECEMBER 10.
The
102
- 2 - #2953, DECEMBER 11, 5 p.m. (Section Two) from Paris
The further decree published in the same Journal
Official provides that during the period of the war
foreign merchandise liable to the general tangible
tariff may upon the request of the pertinent Minister
and after approval by the Ministers of Finance and
Commerce bE Exceptionally admitted under the minimum
tariff when indispensable for the Economic life of
the nation or for the supply or Equipment of manu-
facturers working for national defense.
BULLITT
HTM:RR
103
AC
GRAY
Paris
Dated December 11, 1939
Rec'd 9:05 p.m.
Secretary of State
Washington
2953, December 11, 6 p.m. (SECTION THREE).
A further decree provides that after December 15
next fresh, frozen or conserved meat may not bE sold
on Fridays nor may restaurants SERVE meat on that day.
Under two decrees published in the Journal
Official of December 11 declarations must be made
to the authorities by those who possess, detain or
hold on deposit more than 100 kilogrems of old paper
or paper containers of all kind, chiffons and waste
of textile products. The preamble to these decrees
stresses the urgent necessity for the Government to
reduce imports of such material to the lowest possible
amount on account of the cost as well as tonnage
required for transport.
Normal and permanent budgetary revenue for October
1939 totaled 500,048,000,000,000 francs which is
1,259,000,000,000 more than for September but
362,349,000 francs less than for the corresponding
month
104
- 2 - #2453, December 11, 6 p.m. (SECTION THREE) from Paris
month of 1938. REVENUE from indirect taxation,
monopolies and domain is 797,000,000 lESS than budgetary
Estimates (the only category of revenue which can be
immediately compared with Estimates). Combined August
and September revenue was reported in telegram No.
2882 of December 19, 6 p.m.
BULLITT
RR
105
JT
GRAY
PARIS
Dated December 11, 1939
REC'd 7:20 p.m.
Secretary of State,
Washington.
2953, December 11, 5 pain. (SECTION FOUR)
ThE Swiss national bank statement for December 7 shows
gold hol/ings down 2,300,000 to 2,807,500,000. Foreign
exchange holdings WERE down 7,300,000 to 334,500,000.
Note circulate 788 down 21,100,000 to 1,990,500,000,
and sigt obligations WETE up 5,800,000 to 833,600,000.
Gold COVER 18 81.70 68 against 81.74.
The financial press carries reports that Holland is
about to float a twenty year loan of 300,000,000 florins
with an interest rate of 4% and an issue price of 99.
The Faris securities market was strong today and rente
issues WEDE certi cularly in depand. The dollar ExchangE
guaranty issue advanced 5.10 francs and the 1925 Exchange
guaranty issue 1.40 francs. Other issues rose from 50
centimes to 2.50 francs. Official exchange rates WEre
unchanged.
(E) ESSAÑE)
SULLITT
Eira
106
TELEGRAM SENT
CK
GRAY
DECEMBER 11, 1939
8 p.m.
NEMBASSY
LONDON
1588.
From the Secretary of the Treasury for your information
end to be repented to Paris and Berlin.
The Secretary of the Treasury will annnounce offering
tomorrow December 12 of 12-14 year 2-1 percent Treasury
Bonds of 1951-53, and of 1 percent 4 year and 9 month
Treasury Notes of Series C-1944, both in Exchange for 1-5/8
percent Treasury Notes of Series A-1940, maturing March 16,
1940. The amount of smoh offering to the public will DE
limited to the mount of maturing notes tendered and nooept-
Ed in Exchange therefor, and in addition up to $100,000,000
of the bonds mcv be sold to Government Investment Accounts
for cash during the next three months, et par and accrued
interest, Both issues will bE dnted December 22, 1939, and
vill bear Interest from that date.
The new Treasury bonds and notes will be accorded the
some Exemptions from taxation as are accorded other issues
of Trensury bonds and Treasury notes now outstanding.
1-5/8 percent Treasury Notes of Series A-1940, maturing
March 15, 1940, Are now outstanding in the amount of
$1,378,364,200. The present offering will bE the only
opportunity afforded the holders of these maturing notes to
exchange them for other interest-bearing obligations of the
United States. Any maturing notes not so exchanged at
this time will bE paid in cash when they meture.
HULL
(HF)
E..:HF:MEG
Regraded Uclassified
M
107
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: December 11, 1939, 10 a.m.
NO.: 2944
FOR THE TREASURY DEPARTMENT.
It is stated in a December 8 press despatch from
Washington that the Federal Reserve Board has "issued an
unprecedented compilation here today showing the disposable
financial resources of Great Britain, France, Germany and several
neutral nations including Russia"; it would be of help to
the Embassy if you could cable us a breakdown of this
"compilation", especially with regard to Great Britain and
France.
BULLITT.
EA:LWW
HA
TELEGRAN SENT
:1
PLAIN
December 11, 1939
AMERICAN EMBASSY
PARIS
1507, Eleventh.
From Treasury Department.
In reply to your 2944 December 11, 10 a.m.
Information released by Federal RESERVE Board relates
to gold reserves of foreign countries, dollar balances and
investments of foreign countries in the United States. It
summarizes already published information. The figures
released in millions of dollars as of End of August 1939
are as follows: United Kingdom, gold two thousand, dollar
balances five hundred and ninety-five, holdings of American
securities seven hundred and thirty-five, direct and other
investments in the United States nine hundred. France, gold
three thousand, dollar balances three hundred and fifteen,
holdings of American securities one hundred and sighty-five,
direct and other investments in the United States Eighty.
Total British and French Empires, gold five thousand SEVEN
hundred and fifty-five, dollar balances one thousand two
hundred end sixty-five, holdings of American securities one
thousand
109
-2- #1507, Decrebty.11, to Paris
thousand four hundred and twenty, direct and other invest-
ments in the United States one thousand five hundred and
forty. Germany, gold one hundred and fifty, dollar balances
ten, no other figures are shown. U.S.S.R., gold one thou-
sand, no other figures are shown. Total neutral countries,
gold five thousand SEVEN hundred and seventy-five, dollar
balances one thousand six hundred and thirty, holdings of
American securities one thousand three hundred and ninety-
five, direct and other investments eight hundred and sixty,
Total all foreign countries, gold eleven thousand six hun-
dred and tighty, dollar balances two thousand nine hundred
and five, holdings of American securities two thousand
Eight bundred and fifteen, direct and other investments in
the United States two thousand four hundred.
HULL
(F)
EA:TP:1EG
110
TELEGRAM SENT
JT
PLAIN
December 11, 1939
AMERICAN EMBA3SY
PARIS
1507, sleventh.
From Treasury Department.
In reply to your 2944 December 11, 10 a.m.
Information released by Federal RESERVE Board relates
to gold reserves of foreign countries, dollar balances and
investments of foreign countries in the United States. It
summarizes already published information. The figures
released in millions of dollars as of End of August 1939
are as follows: United Kingdom, gold two thousand, dollar
balances five hundred and ninety-five, holdings of American
securities SEVEN hundred and thirty-five, direct and other
investments in the United States nine hundred. France, gold
three thousand, dollar balances three hundred and fifteen,
holdings of American securities one hundred and sighty-five,
direct and other investments in the United States eighty.
Total British and French Empires, gold five thousand seven
hundred and fifty-five, dollar balances one thousand two
hundred and sixty-five, holdings of American securities one
thousand
Regraded Uclassified
111
-2- #1507, to Paris
thousand four hundred and twenty, direct and other invest-
ments in the United States one thousand five hundred and
forty. Germany, gold one hundred and fifty, dollar balances
ten, no other figures are shown. U.S.S.R., gold one thou-
sand, no other figures are shown. Total neutral countries,
gold five thousand seven hundred and seventy-five, dollar
balances one thousand six hundred and thirty, holdings of
American securities one thousand three hundred and ninety-
five, direct and other investments eight hundred and sixty,
Total all foreign countries, gold Eleven thousand six hun-
dred and lighty, dollar balances two thousand nine hundred
and five, holdings of American securities two thousand
eight bundred end fifteen, direct and other investments in
the united States two thousand four hundred.
BULL
(F)
Regraded Uclassified
THE WHITE HOUSE
WASHINGTON
December 11, 1939
CONFIDENTIAL MEMORANDUM
FOR
H. N., I Jr.
To speak to me about.
F.D.R.
Enclosure
8
DOMESTIC ECONOMIC DEVELOPMENTS
ESTIMATED BALANCE OF PAIMENTS of the United States for the first three
quarters of 1939 with comparative figures for the corresponding
period of 1938 is attached.
ITEMS OF SIGNIFICANCE:
1. The net gain of $2,382,000,000 of gold from foreign sources
to our gold stocks during the first nine months of 1939 is of
unprecedented proportions after almost continuous gold imports
of high magnitude since 1934. It represents in large part the
flight of capital from Europe to the United States prior to and
since the outbreak of war, although the substantial excess of
merchandise exports was also a factor.
2. The merchandise export balance for the first nine months
was almost $300,000,000 less than during the same period in 1938
(the change in the balance on current account was of approxi-
mately the same size). This was about in line with what should
be expected when domestic business is expending relative to the
movement throughout the rest of the world. In such a period
imports tend to move up more sharply than exports. AB a matter
of fact, exports for the first nine months of this year were
below the corresponding period of 1938 primarily B.B. P1 result of
reduced shipments of grains, cotton, tobacco, and crude petro-
leun. Exports of semimanufactures and fintshed products gen-
erally were higher this year then last.
3. The usual seasonal expension of the export balance during
the fourth quarter will probably raise the merchandise balance
for the year as a whole to something in excess of three quarters
of a billion dollars. Such a figure on trade account, together
with the likelihood of continued release of carmarked gold and
the possibility of further gold shipments on foreign (parti-
cularly British) account will bring the not gold additions from
foreign sources close to 3 billion dollars by the end of the year.
It can not be assumed that the British will continue to use only
security sales as a source of funds, especially in view of pre-
sent indications of increasing gold shipments to this country
on British account. Tie understand that there is at prosent some
disagreement between the British Treasury and the Bank of Eng-
land upon the type of assets that should be used to meet the
continued decend for dollars. The Treasury is for using gold
while the Bank is for using securities. It should be noted
that this 1s a controverty within our sphere of interest and
that continued gold shipments would be e less satisfactory solu-
tion from our point of view than security tr insfers.
BRITISH DOLLAR BALANGES have been built up for 20de months through the
net liquidation of American securities. This novement mLS in pro-
gress for some months prior to the Defence (Finance) Regulations
which came into operation soon after the outbreak of var and -P-
quired all residents of the United Kingdom to offer to the govern-
ment their holdings of gold and of certain specified currency sa-
sets, the same to be peid for in starling at the prevailing ex-
change rates. While this liquidation has not been of 8. magnitude
to affect the general level of stock prices to the degree sug-
gested in the daily press, it does perhaps offer some evidence
that the British contemplate B. need for the enlarged dollar bal-
ances to pay for imports from us of war materials.
FRENCH DOLLAR BALANCES have been less well maint Ined, presuanbly be-
cause of the fact that the decrea of aid-September allows French
holders of foreign assets until December 1 to declare their hold-
ings. During September when the British were engaging in net
liquidation of American securities, the French wore buying on
balance and apparently have not yet engaged in any net liquida-
tion. It may be noted in this connection that the French bel-
ances in the United States constitute a much higher percentage
of total dollar assets than do those of any other country.
SUI ARY OF VIEWS on business prospects expressed at a meeting in New
York on Tuesday of about forty business analysts-mainly repre-
sentatives of financial houses and statistical services but in-
cluding a few from industrial and mercantile corporations (United
States Steel Corporation, General Electric, etc.).
Some decline in business activity expected during early months of
1940 but extensive recession in not anticipated. The group may
be said to have been reasonably optimiatic but they did not sup-
port their appraisal of the situation very convincingly. In
general, they did not seom optimistic about prospects for capital
expenditures or exports and when pressed, were inclined to rely on
prospects in the consumers' goods field which would generate some
investment activity.
Estimates for the Federal Reserve indox for 1940 - Shaw (Standard
Statistics) 112; Ragner-Ness (Tricontinental) 105-110. These
estimates compare with the 1939 average of 206 and the current
rate of above 125.
The group agreed that Inventorles were accumulating but no one
had data relating to the magnitudo of this movement (they were
much interested in hearing that the Department was attempting
rate at which steel was being consumed nt present was 80-35 per-
to get information on this score). Most optimistic Guess of
cent of capacity compared with the production rate of 94 percent.
Regraded Uclassified
112
JR
PLAIN
London
Dated DECEMBER 11, 1939
Rec'd 1:43 Dame
Secretary of State,
Washington.
2584, December 11.
FOR TREASURY.
1. Please substitute the following quotation for that
contained in the third paragraph of No. 2570 of DECEMBER 8:
"I can only say on behalf of myself
...
and all my
collengues concerned with Economic offairs, that should
the Prime Minister decide to appoint such a Minister to
coordinate our Efforts WE should work with him loyally,
helpfully and in the most friendly spirit.", but such
in appointment "would not bE in substitution for the
system of committees but in addition to it."
2. Please substitute for last sentence of No. 2570:
"next week's tender for pounds 65 million will bE only
pounds 10 million in EXCESS of maturities and, 1f fully
allotted, will bring the tender issue to pounds 750 million
in the following week."
3. The November clearing bank returns show a rise of
pounds 17.3 million in deposits bringing the figure to
pounds 2,344.6 million, an nll-time high. The increase
increase
113
-2- 2584, December 11, from London.
increase compares, however, with one of pounds 49.2 million
in October and suggests that inflationary tendencies are
being kept under some control. A rise of pounds 64.3
million in bill portfolios compares with c. four WEEKS
rise between October 26 and November 25 of pounds 104
million in the outstanding tender issue of treasury
bills, while call money was pounds 17.3 million down on
October, indicating that the balance of tender bills
was not carried by the discount market. This suggests
that a substantial portion of the increase, in the
tender issue vas absorbed by Government departments and
for the Exchange equaliz tion account. Meanwhile the tap
issue declined from pounds 701.8 million on October 28 to
pounds 679.5 million on November 25. The figures of the
component party of the flonting debt thus become leon
revenling of the authorities methods of managing the money
market. A decline in advances of pounds 17.9 million to
pounds 995.2 million is regarded as surprising since it
was EXPECTED that the reduction in the demand for locns
for financing commodity positions pleaed under government
control, special needs during Evacuntion, Etc., would bE
offset by now by increased demand for accommodation for
financing
114
⑉3⑉ #2584, DECEMBER 11, from London.
financing armament production. The shrinkage in advances
tended to force banks to increase their investments which
rose by pounds 5.7 million to pounds 610.8 million. Cash
declined by pounds 10.3 million to pounds 245.2 million
which, with the increase in deposits, brought down the cash
ratio to 10.46 per cent as compared with 10.98 per cent in
October. HOWEVER, the combined ratio of cash, call money
and bills to deposits W19 31.57 per cent 08 compared with
30.23 per cent in October.
4. With reference to the first section of No. 2570 of
December 8, the weekend and this morning's press still
reflect dissntisfaction with Stanley's description of
government measures to push Exports, Emphasis bEing bloced
on the fact that the Leith-Ross committee's afforts are
evidently confined to Economic warfare measures while
no coordinated drive SEEMS to bE made to increase ordinary
Export trade to acquire foreign Exchange.
5. The Swedish and Norwegian Exchange rates were
both fixed five points wenker today being 16.75-95 and
17.55-75 resprotively. Other official rates remain
unchanged since my No. 2551 of December 6 (paragraph 5),
The Finnish mark holds at 215 buyers with practically no
business.
JOHNSON
CSB
115
TREASURY DEPARTMENT
Washington
FOR RELEASE, MORNING NEWSPAPERS,
Press Service
Tuesday, December 12, 1939.
No. 19-59
12/11/39.
Secretary of the Treasury Morgenthau announced today the offering,
through the Federal Reserve Banks, of 12-14 year 2-1/4 percent Treasury
Bonds of 1951-53, and of 1 percent 4 year and 9 month Treasury Notes of
Series C-1944, both in exchange for 1-5/8 percent Treasury Notes of Series
A-1940, naturing March 15, 1940. The amount of each offering to the public
will be limited to the amount of aturing notes tendered and accepted in
exchange therefor, and in addition up to $100,000,000 of the bonds may be
sold to Government Investment Accounts for cash during the next three months,
at par and accrued interest.
The Treasury Bonds of 1951-53, now offered in exchange for Treasury
notes naturing March 15, 1940, will be dated December 22, 1939, and will bear
interest from that date at the rate of 2-1/4 percent per annum, payable semi-
annually on June 15 and December 15, with the first coupon, however, covering
a period slightly less than six months, The bonds will nature December 15,
1953, but may be redeemed at the option of the United States on and after
December 15, 1951. They will be issued in two forms; bearer bonds with inter-
est coupons attached, and bonds registered both as to principal and interest.
Both forms will be issued in the denominations of $50, $100, $500, $1,000,
$5,000, $10,000 and $100,000.
The Treasury Notes of Series C-1944, now offered in exchange for Treasury
notes naturing March 15, 1940, will be dated December 22, 1939, and will bear
interest from that date at the rate of 1 percent per annum, payable semiannually
116
- 2 -
on March 15 and September 15, with the first coupon, however, covering the
fractional period from December 22, 1939, to March 15, 1940. The notes will
nature Sentember 15, 1944, and will not be subject to call for redemption be-
fore that date. They will be issued only in bearer form with coupons attached,
in denominations of $100,$500, $1,000, $5,000, $10,000 and $100,000.
The new Treasury bonds and notes will be accorded the same exemptions
from taxation as are accorded other issues of Treasury bonds and Treasury notes
now outstanding. These provisions are specifically set forth in the official
circulars released today.
Subscriptions will be received at the Federal Reserve banks and branches,
and at the Treasury Department, and should be accompanied by a like face amount
of 1-5/8 percent Treasury Notes of Series A-1940, naturing arch 15, 1940, with
final coupon due March 15, 1940, attached. The maturing notes will be accepted
at nar, and accrued interest on such notes from September 15 to Lecember 22,
1939, (04.375 per $1,000 face amount) will be paid following their acceptance.
The right is reserved to close the books as to any or all subscriptions
at any time without notice, and, subject to the reservations set forth in the
official circulars, all subscriptions will be allotted in full.
1-5/8 percent Treasury Notes of Series A-1940, maturing March 15, 1940,
are now outstanding in the amount of $1,378,364,200. The present offering will
be the only opportunity afforded the holders of these maturing notes to exchange
them for other interest-bearing obligations of the United States. Any maturing
notes not so exchanged at this time will be paid in cash when they mature.
The texts of the official circulars follow:
UNITED STATES OF AMERICA
117
2-1/4 PERCENT TREASURY BONDS OF 1951-53
Dated and bearing interest from December 22, 1939
Due December 15, 1953
REDEEMABLE AT THE OPTION OF THE UNITED STATES AT PAR AND ACCRUED INTEREST ON AND
AFTER DECEMBER 15, 1951
Interest payable June 15 and December 15
1939
TREASURY DEPARTMENT,
Department Circular No. 627
Office of the Secretary,
Washington, December 12, 1939.
Public Debt Service
I. OFFERING OF BONDS
1. The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, approved September 24, 1917, as amended, invites subscriptions,
st par, from the people of the United States for 2-1/4 percent bonds of the United
States, designated Treasury Bonds of 1951-53. The amount of the public offering
under this circular will be limited to the amount of Treasury Notes of Series A-1940,
naturing March 15, 1940, tendered in payment and accepted, in addition to which
$100,000,000, or thereabouts, of these bonds may be allotted to Government invest-
sent accounts against cash payment.
II. DESCRIPTION OF BONDS
1. The bonds will be dated December 22, 1939, and will bear interest from
that date at the rate of 2-1/4 percent per annum, payable on a semiannual basis on
June 15 and December 15 in each year until the principal amount becomes payable.
They will mature December 15, 1953, but may be redeemed at the option of the United
States on and after December 15, 1951, in whole or in part, at par and accrued int-
erest, on any interest day or days, on 4 months' notice of redemption given in such
manner as the Secretary of the Treasury shall prescribe. In case of partial re-
demption the bonds to be redeemed will be determined by such method as may be pre-
scribed by the Secretary of the Treasury. From the date of redemption designated
in any such notice, interest on the bonds called for redemption shall cease,
- 2 -
118
2. The bonds shall be exempt, both BE to principal and interest, from
all taxation now or hereafter imposed by the United States, any State, or any
of the possessions of the United States, or by any local taxing authority,
except (a) estate or inheritance taxes, or gift taxes, and (b) graduated addi-
tional income taxes, commenly known as surtaxes, and excess-profits and war-
profits taxes, now or hereafter imposed by the United States, upon the income
or profits of individuals, partnerships, associations, or corporations. The
interest on an amount of bonds authorized by the Second Liberty Bond Act,
appreved September 24, 1917, as amended, the principal of which does not exceed
in the aggregate 05,000, owned by any individual, partnership, association,
or corporation, shall be exempt from the taxes provided for in clause (b) above.
3. The bonds will be acceptable to secure deposits of public moneya,
but will not bear the circulation privilege and will not be entitled to any
privilege of conversion.
4. Bearer bonds with interest coupons attached, and bonds registered B.B.
to principal and interest, will be issued in denominations of $50, $100, $500,
$1,000, $5,000, $10,000, and $100,000. Provision will be made for the inter-
change of bonds of different denominations and of coupon and registered bonds,
and for the transfer of registered bends, under rules and regulations prescribed
by the Secretary of the Treasury.
5. The bonds will be subject to the general regulations of the Treasury
Department, now or hereafter prescribed, governing United States bonds.
III. SUBSCRIPTION AND ALLOTMENT
1. Subscriptions will be received at the Federal Reserve banks and
branches and at the Treasury Department, Washington. Banking institutions
generally may submit subscriptions for account of customers, but only the
119
- 3 -
Federal Reserve banks and the Treasury Department are authorized to act AS
official agencies. The Secretary of the Treasury reserves the right to close
the books as to any or all subscriptions or classes of subscriptions at any
time thout notice.
2. The Secretary of the Treasury reserves the right to reject any sub-
scription, in whole or in part, to allot less than the amount of bonds applied
for, to make allotments in full upon applications for smaller emounts and to
take reduced allotments upon, or to reject, applications for larger amounts,
or to sciept any or all of said methods or such other methods of allotment and
classification of allotments as shall be deemed by him to be in the public
interest; and his action in any or all of these respects shall be final. Sub-
ject to these reservations, all subscriptions will be allotted in full. Allot-
ment notices will be sent out promptly upen allotment.
IV. PAYMENT
1, Payment at par for bonds allotted to the public hereunder must be
cade or completed on or before December 22, 1939, or en later allotment, and
may be made only in Treasury Notes of Series A-1940, maturing March 15, 1940,
which will be accepted at par, and should accompany the subscription. Coupons
dated March 15, 1940, must be attached to the notes when surrendered, and
accrued interest from September 15, 1939, to December 22, 1939 ($4.375 per
$1,000), -All be paid following acceptance of the notes.
V. GENERAL PROVISIONS
1. As fiscal agents of the United States, Federal Reserve banks are
authorized and requested to receive subscri tions, to make allotments on the
basis and up to the amounts indicated by the Secretary of the Treasury to the
Federal Reserve banks of the respective districts, to issue allotment notices,
120
- 4 -
to receive payment for bonds allotted, to make delivery of bonds on full-paid
subscriptions allotted, and they may issue interim receipts pending delivery of
the definitivo bonds.
2. The Secretary of the Treasury may at any time, or from time to time,
prescribe supplemental or amendatory rules and regulations governing the offer-
ing, which will be communicated promptly to the Federal Reserve banks.
HENRY MORGENTRAU, JR.,
Secretary of the Treasury.
121
UNITED STATES OF AMERICA
1 PERCENT TREASURY NOTES OF SERIES C-1944
Dated and bearing interest from December 22, 1939
Due September 15, 1944
Interest payable March 15 and September 15
1930
TREASURY DEPARTMENT,
Department Circular 10,628
Office of the Secretary,
Washington, December 12, 1939,
Public Debt Service
I. OFFERING OF NOTES
1, The Secretary of the Treasury, pursuant to the authority of the Second
Liberty Bond Act, approved September 24, 1917, as anended, invites subscriptions,
at par, from the people of the United States for 1 percent notes of the United
States, designated Treasury Notes of Series C-1944, in payment of which only
Treasury Notes of Series A-1940, maturing March 15, 1940, may be tendered. The
amount of the offering under this circular will be limited to the amount of
Treasury Notes of Series A-1940 tendered and accepted.
II. DESCRIPTION OF NOTES
1. The notes will be dated December 22, 1939, and will bear interest from
that date at the rate of 1 percent per annum, payable on a semiannual basis on
March 15 and September 15 in each year until the principal amount becomes payable.
Theywill nature September 15, 1944, and will not be subject to call for redemption
prior to maturity.
2. The notes shall be exempt, both as to principal and interest, from all
taxation (except estate or inheritance taxes, or gift taxes) now or hereafter in-
posed by the United States, any State, or any of the possessions of the United
States, or by any local taxing authority.
3. The notes will be accepted at par during such time and under such rules
122
- 2 -
and regulations as shall be prescribed or approved by the Secretary of the Treasury
in payment of income and profits taxes payable at the maturity of the notes,
4. The notes will be acceptable to secure deposits of public noneys, but will
not bear the circulation privilege.
5. Bearer notes with interest coupons attached will be issued in denominations
of $100, $500, $1,000, $5,000, $10,000 and $100,000. The notes will not be issued
in registered form.
6. The notes will be subject to the general regulations of the Treasury De-
partment, now or hereafter prescribed, governing United States notes,
III. SUBSCRIPTION AND ALLOTTENT
1, Subscriptions will be received at the Federal Reserve banks and branches
and at the Treasury Department, Mashington. Banking institutions generally may
submit subscriptions for account of customers, but only the Federal Reserve banks
and the Treasury Department are authorized to act as official agencies. The
Secretary of the Treasury reserves the right to close the books as to any or all
subscriptions or classes of subscriptions at any time without notice.
2, The Secretary of the Treasury reserves the right to reject any subscription,
in whole or in part, to allot less than the amount of notes amlied for, to make
allotments in full upon applications for smaller amounts and to rake reduced allot-
ments upon, or to reject, applications for larger amounts, or to adopt any or all
of said methods or such other methods of allotment and classification of allotments
as shall be deemed by him to be in the vublic interest; and his action in any or
all of these respects shall be final. Subject to these reservations, all subscrip-
tions will be allotted in full. Allotment notices will be sent out promptly upon
allotment.
123
- 3 -
IV. PATIENT
1. Payment at par for notes allotted bereunder must be made or corpleted on
or before leonber 22, 1939, or on later allotment, and TRY be made only in
Tearly lictes of Series A-1940, raturing March 15, 1940, which will be accepted
et X, in should accornary the subscription. Coupons dated 'arch 15, 1940,
not be attached to the notes when surrendered, and accrued interest from September
15, 1939, to December 22, 1039, (34,375 xr, $1,000), will be paid following ac-
certiance of the notes.
T. PROTEST'S
1. to fiscal agents of the Thited States, Federal Reserve tanks are author-
tized and requested to receive subscriptims, to make allotments on the basis and
Pr to the amits indicated by the Secretary of the Treasury to the Federal Reserve
banks of the respective districts, to isne allotment notices, to receive payment
for notes allotted, to take delivery of notes on full-paid subscriptions allotted,
and they 327 issue interis receipts pending delivery of the definitive notes,
2. The Secretary of the Treasury 187 at any time, or from time to time,
prescribe suplemental CT anendatory miles and regulations governing the offering,
which = 1 be promptly to the Federal Reserve Seris,
BELRY &
Secretary of the Treasury
124
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE,
Press Service
Tuesday, December 12, 1939.
No. 19-65
Secretary of the Treasury Morgenthau announced today that the
subscription books for the current offering of 2-1/4 percent Treasury
Bonds of 1951-53 and of 1 percent Treasury Notes of Series C-1944
will close at the close of business Wednesday, December 13, 1939,
This offering is open only to the holders of Treasury Notes of
Series A-1940, maturing March 15, 1940.
Subscriptions addressed to a Federal Reserve bank or branch
or to the Treasury Department and placed in the mail before 12 o'clock
midnight, Wednesday, December 13, will be considered as having been
entered before the close of the subscription books,
Announcement of the amount of subscriptions and their division
among the several Federal Reserve districts will be made later.
oûo
DRIVE
_25
December 12, 1939
10:45 am
Dr. Feis was just here and he wanted me to do
something about this fight over setting up the new
Collins Board. I told him I would not do anything.
It seems that Joe Green in the State Department 16
in on this thing and that Woodring told Joe Green that
he, Woodring, thought that the President's new Board
was a mistake (which, of course, 1s just the opposite
of what Woodring told me).
Feis said that the State Department, through
Welles, had finally sold the Collins Board idea to
the President and that they were not going to recede,
but couldn't they use the Munitions Board which had
a fine set-up, and 80 forth and 80 on.
As soon as I heard Joe Green's name I decided
whatever Joe Green wants, I am against.
Then Feis stayed behind and gave me what I think
1s B. very good idea and I told him to see Viner, namely,
that without going into the whole question of the gold
discussion and looking forward to the possibility that
after we have got most of the gold that England and France
might not want any more, that under the Tripartite Agree-
ment we now ask the English and French to agree that they
will put no import quotas on gold and no special taxes
and I think that 18 a very good idea.
000-000
Regraded Uclassified
126
December 12, 1939
HM,Jr showed this to the President at lunch
today and the President read it.
27
December 8, 1939
FOR THE SECRETARY'S DIARY
In a telephone conversation with ne on December 6,
Mr. Berle stated that the philosophy of the American people
towards the war was as follows: When war broke out the
American people did not like either side, but their sympathies
were all one way. With the development of the Finnish situa-
tion and the Balkan situation, which would come to a head
within the nert few weeks or, certainly, by spring, the
attitude of the American people would change. They would
recognize the vital interests of the United States at stake
in the European struggle, and anyone who had followed 8. policy
of non-involvement would be abolished. It would be recognized
that, by his past acts with respect to non-involvement, he had
BO committed himself that he would be unable to adapt himself
to the new policy. He stated that this was not his own personal
view but merely his estimate of the trend.
My secretary, Mrs. Poole, listened to this conver-
sation and has initialed the copy to indicate that it is in
accordance with her recollection.
Huntington Carns
Regraded Uclassified
TREASURY DEPARTMENT
128
INTER OFFICE COMMUNICATION
DATE December 12, 1939
TO
Secretary Morgenthau
FROM V. H. Hadley
Price of New Issue Relative to
Outstanding Issues
The following table shows the changes in price of out-
standing issues from 2:00 P. M. Monday, December 11 to the
opening on Tuesday, December 12. Our estimate of 101.12 on
the new 2-1/4% bond was based on prices prevailing at 2:00 P. M.
on Monday. The market until that time was unchanged from the
close on Friday, December 8th. As can be seen from the table,
the opening price of 101.22 was in line with outstanding issues
taking into account the gains in the market from 2:00 o'clock
on Monday.
Market Prices
Opening Prices
Change
Issues
2:00 PM Dec, 11
10:00 AM Dec, 12
in Price
2-3/48 1951-54
106.13
106.18
+ 5/32
2-3/40 1951-55
109.12
109.19
+ 7/32
2-1/4s 1951-53 (New)
101.12 .
101.22
+ 10/32
2-3/40 1956-59
105.11
105.24
+ 13/32
2-3/4s 1960-65
105.5
105,19
+ 14/32
. Estimated price based on market at 2:00 P.M.
Treasury Department
Division of Monetary Research
Date 12/12/39
19
To:
Miss Chauncey
From: 3. D. White
The Secretary requested this
information for today.
B11228
TREASURY DEPARTMENT
129
INTER OFFICE COMMUNICATION
DATE December 12, 1939
TO
Secretary Morgenthau
FROM
Mr. White
Subject: Tungsten
MA
Conclusion:
Tungsten 18 probably not a military or economic problem
to any major country of the world.
(a) England and France have adequate sources of supply
in the Empire and in Portugal.
(b) Germany and Russia have accumulated large stocks
of tungsten. In addition, China has pledged
5,500 tons out of her annual production of
10,000 tons to Russia in a barter arrangement.
(China has also pledged 500 tons to England.)
(c) Japan produces 2,000 tons of tungsten per year
which is probably enough for her needs. (Japan
has not imported tungsten in recent years.)
(a) The United States produces B. large proportion of
her domestic needs and the balance can be obtained
from Bolivia. The United States also produces
over 90 percent of the world's production of
molybdenum which is reported to be a substitute
for tungsten for most purposes.
1. Tungsten -- used principally in the manufacture of high-
speed tools, filaments for electric lights, radio tubes, in
preparing various chemicals, in tanning white leather, and in
alloys. In recent years molybdenum has been used increas-
ingly 8.8 & substitute for tungsten.
2.
World Production
World production of tungsten has increased very rapidly
during the past five years.
World Production of Tungsten
1933
12,000 tons
1936
25,000 tons
1934
1937
38,000 tons
16,000 tons
22,000 tons
1938
32,000 tone (est.)
1935
- 2 -
Division of Monetary
Research
130
China exports one-third to one-half of the world's con-
sumption. The only other countries that produce tungsten on
any large scale are Burma, 5,000 tons; United States, 3,000
tons; Bolivia, 2,000 tons; Japan, 2,000 tons; and Portugal,
3,000 tons.
Tungsten is produced in parts of China which are still
under Chinese control in Hunan, Kiangsi and Kwangtung provinces.
Prior to the outbreak of hostilities in July 1937 tungsten ore
198 exported through Shanghai. With the closing of Shanghai
the outlets moved southward until the last path left for ex-
port was through Indo-China.
3. United States Imports and Production
The United States produced about 2,000 tons of tungsted
from 1934 to 1936 and about 3,000 tons in 1937 and 1938.
Our imports were less than 1,000 tons in 1934 end 1935,
4,000 tona in 1936, and 5,500 tone in 1937. In 1938 and
during the first nine months of 1939, our imports were very
small, 162 tons in 1938 and 422 tons in 1939.
4. Prices of Tungsten in Recent Years
The price of tungsten ore of specified grade was slightly
more than $10,00 a. ton during the period from 1927 until 1934.
From 1934 to the beginning of 1937 the price was at the higher
level of $14.00 to $16.00 per ton, due, in part, to the
occumulation of stock piles by Russia and Germany. Germany
WAS acquiring tungsten from China on barter arrangements
while Ruesia was supposedly buying tungsten in the open market.
The price of tungsten rose sharply early in 1937, after
the British announced their rearmament program. In January
1937 the price was $15.00 per ton; it rose in March to $19.00
and in Aoril to $22.00. The price rose again to more than
25.00 a ton in the Fall of 1937 when the Chinese tungsten
supplies were cut off temporerily through the closing of
Shanghai. In 1938 the price declined from January to June to
a low of $17.50. In the 1set half of 1938 the price rose to
$20.00 and stayed at this level or elightly below throughout
the first eight months of 1939. With the outbreak of wer in
September of this year the price rose to $23.00.
3. Do Germany and Russia need Tungsten?
Germany and Russie have probably secumulated large stock
piles of tungeten. Whether Russia produces tungsten is not
known but in 1937 she imported 2,000 tons. The War Department
Lise sported that Germeny has stock pile which 18 equivalent
to 60 percent of the world's stock of tungsten ore.
Regraded Uclassified
131
December 12, 1939
Walked down with Henry Wallace.
We talked about the so-called Certificate Plan.
Wallace said that he had told the President he was
going out in the Weet and try to sell it to the country
as each year the President asked Congress to find a
means of financing the processing taxes and that the
President had made no comment when he told him he was
going out to do this selling Job.
I told Wallace that this year with the Budget
entirely out of the Treasury, my interest was solely
in the raising of taxes; that I felt that this was
entirely B. Treasury matter and that I would fight to
keep the control of the taxing power within the Treasury.
He said he was sorry to hear that. I said, however,
I wasn't going to get into a personal row with him over
this; that it was very nice for the President to drop
the two of us into a pit like a couple of cooks and say
whoever comes out aline he will support.
Then, to my amazement, Wallace said, of course
the President had led him to believe that he was inter-
ested in the certificate plan because it would be out-
side of the Budget and the President thought that was
All right. I said, "I don't.' He said, "I know you
don't and I don't blame you because, after all, it's
dishonest." On second thought, he said, "Well, maybe
I wouldn't put it as dishonest, but it 1s misleading
the public." I said, "It 18 not only misleading the
public, but it 18 circumventing the Supreme Court," and
he made no answer to that.
He said at a discussion at Cabinet between him-
self and Hanes he had asked to come before this advisory
group and he had received no such invitation and I said
that I would arrange it and I found the group he had in
mind was the Fiscal and Monetary group.
I also asked him to let us have 8. detailed plan
of the Certificate Plan and to my surprise he said it
had not been worked out in detail, but only as to prin-
ciple. So I said, well, let us have as much as you
Regraded Uclassified
132
-2-
have got. He said, "Shall I send it to Harry White?"
and I said, "No, send it to me direct."
We then got on Berle and I told him that I
would show him Berle's memorandum on neutrality and
I said, "You can have your Berles and your Tugwells
and your Moleys. They are all the same." And I
said, "You can add Taussig too." He said, "Did you
know whenever you talked to Sumner Welles it's the
same as talking to Taussig?" He said, "It 1s." He
said, "Taussig, who is interested in sugar, more or
less seems to control Sumner Welles' thinking along
these lines.'
He then said that Farley told Wallace that
Berle tried to sell the idea to Farley that LaGuardia
should run as Vice President with either Hull or Garner.
It was Berle who told this to Wallace who told it to me.
I said, "You know, Berle belongs to the Labor
Party in New York; that he really 1s much more of a
Labor Party man than he is a Democrat." And I said,
"You know Berle 1s also very close to the La Follettes."
000-000
133
JR
PLAIN
London
Dated DECEMBER 12, 1939
Rec'd 2 pam.
Secretary of State,
Washington.
2599, DECEMBER 12, 6 p.m.
Please send copy to Treasury.
1. With reference to the fourth paragraph of
No. 2378 of November 16, 6 p.m., Einzig's Lombard Street
column in the FINANCIAL NEWS today states that the gold
not yet actually delivered to Germany by the B.I.S. which
is now withheld as a result of the protest by Malik,
Foreign manager of the Czechoslovak National Bank, is now
learned to bE over pounds 1,600,000 of which SOME
pounds 700,000 is in Amsterdam and over pounds 900,000 in
Bern,
2. The Prime "inister's refusal to appoint & Minister
for Economic Questions urged last night by a deputation
from the federation of British industries has caused
disappointment, only mitigated by his intimation that
under var conditions no decisions could bE regarded as
fixed and final. The FINANCIAL ME'S hints in an Editorial
that
134
-2- 2599, December 12, 6 p.m., from London.
that cartain phrases used by Stanley in his speech reported
In No. 257° of December 8th and 2584 of December 11th
indicate that hE would not bE unwilling to SEE such a
step taken. Perhaps the fact that Stanley is to consult
with the federation to discuss improvements in existing
machinery by the appointment of an advisory panel is
significant in view of the federation's proposal that
such a panel should bE available to advise the proposed
inister for Economic Questions in efforts to Expand
normal Export trade.
3. "inancial writers in this morning's press are
unanimous in pointing out the foreign exchange advantage
in the decontrol of the tin price, EXCEPT that the DAILY
HERALD condemns the profiteering involved and asserts
that the British Government should have taken over the
entire output at the control price and resold the tin
at the world market price thus acquiring the dollar
Exchange and the profit too. There is also unanimity on
the advantage of retaining output control machinary against
the day when restocking is completed and a price slump
likely, the importance of the long-term foreign Exchange
advantage being implied.
4. The Chancellor of the Exchequer in the House of
Commons today stated that the Government had decided,
subject to parliamentary approval, that the unexpended
balance
Regraded Uclassified
135
-3- 2599, December 12, 6 pem., from London.
balance of the free gift to Czechoslovakia should bE paid
over as and when required to the trustees of the Czech
refugee fund, and that the unexpended balance of the
advance to Czechoslovakia should be used for the payment
of coupons of the External debt and for payments in respect
of cash debts. HE stated that a detailed scheme would
be prepared and the necessary legislation introduced soon
after the recess of Parliament.
5. In reply to a parliamentary question Simon stated
that in the applications of the principle of monetary
solidarity between Great Britain and France it had been
agreed that "1t is in our common interest to avoid during
the war alterations in the existing rate of Exchange
between the pound and the franc. WE have further made
mutual arrangements which will Enable each country to
cover 1ts requirements for the currency of the other
country and to utilize such currency freely as agreed
between us without any question between ourselves of
having to find gold." Neither Government will raise 8
foreign loan or credit EXCEPT in agreement with or
jointly with the other Government, or impose restrictions
on the imports from the other country during the war for
protective purposes or for Exchange reasons. The two
Governments
136
-4- #2599, December 12, 6 p.m., from London.
Governments will also share certain items of Expenditure
such as financial assistance to other countries and the
cost of the armed forces of their Polish ally, "in
proportion which have been worked out between us". The
two treasuries are to hold frequent consultations on
technical questions and to Examine such problems as price
policy in the two countries, and the position as regards
gold and foreign Exchange resources, the whole arrangement
is t remain in force until six months after the
signature of the peace treaty.
JOHNS ON
CSB
BECEINED
and 01
TELEVERY N. INSTANT
nation an to so.0
result 1/1 at 1 was
137
PARTIAL PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Paris, France
DATE: December 12, 1939, 6 p.m.
NO.: 2963
FOR THE TREASURY.
Our telegram No. 2951, December 11, 4. p.m.
Reynaud received the press this afternoon and issued
the following statement concerning the Franco-British
financial agreement:
"The agreement in question was concluded on December 4
between Sir John Simon and myself during the stay at Paris
of the Chancellor of the Exchequer. (In a sense this is
correct; however, it was yesterday before several pointe
at issue were finally agreed upon.)
This agreement is without precedent in the course of
history.
It is vast in time because it covers the whole period
of the war and (entered into en agreement?) six months after
the signature of the treaty of peace. It is vast in space
because it covers the British Empire and the French Empire
entirely.
Distrust and disagreements have often characterized
alliances in the past. All this has been rendered impos-
sible by this agreement which represents a unity for victory.
END SECTION ONE.
BULLITT.
EA:LWV
138
JT
GRAY
PARIS
Dated DECEMBER 12, 1939
REC'd 4:52 p.m.
Secretary of State,
Washington.
2963, DECEMBER 12, 6 p.m. (SECTION TWO)
If it was necessary to furnish proof of the common
determination of the Allies to carry on the fight until the
end and to devote thereto all their resources of adaptation
and of organization WE would find the proof in this agree-
ment. This financial and Economic agreement is inspired
by the same spirit as that which inspired the decision of
unity of command.
It is the pooling of common Energies of the two peoples
and to the greatest Extent possible of all their resources
for the final victory,
TEXT 03 TE COMMUNIQUE.
Accepting the invitation addressed to him by Monsigur
Paul REynaud during the recent meeting of the two ministers
at London Sir John Simon Chancellor of the Exchequer came to
Paris
on DECEMBER 4 to confer with the Frenoh
Minister of Finance.
During the conversations which took place Sir John
Simon
139
-2- #2963, DEC. 12, 6 p.m. (SEC TWO) from Paris
Simon and Honsieur Paul Reynaud reached complete agreement
upon the astablishment of monetary solidarity between the
two countries, the principle of which had been raised at
the time of their first meeting at London.
BULLITT
NPL
140
JT
GRAY
PARIS
Dated December 12, 1939
Rec'd 5:40 p.m.
3ecretary of State,
Washington.
2965, DECEMBER 12, 6 p.m. (3ECTION THREE)
The two ministers have passed in review all the special
arrangements necessary to give full Effect to this principle
of monetary solidarity.
It was agreed that it was to the common interests of the
two countries to avoid during the whole period of hostilities
modifications of the parity actually existing between the
franc and sterling. Each of the two countries will have all
facilities for supplying themselves with the currencies of
the other country and to utilize them freely within the
framework of the agreement concluded.
The two ministers have fixed, in a spirit of unreserved
cooperation, time proportion in which certain common charges
of the war will bE distributed between France and Great
Britain.
The Chancellor of the Exchequer indicated to M. Pa'l
Reynaud derogations which the British Government had granted
to French export trade in England.
Finally,
141
-2- #2963, DECEMBER 12, 6 p.m. (SEC THREE) from Paris
Finally, it was agreed that the two treasuries would
continue to maintain close contact and that frequent meetings
would take place for the settlement of technical questions
as well as for the Examination of more general problems such
as price policy in the two countries.
BULLITT
NPI:EMB
142
JI
GRAY
Paris
Dated December 12, 1939
Rec'd 4:45 Pello
SECRETARY of State
Washington
2963, December 12, 6 p.m. (SECTION FOUR)
ANALYSIS OF THE AGREEMENT.
The two Government's have agreed that it is
in the interest of the two countries to avoid
modifications in the official rates of Exchange in
force between the franc and the pound.
The france which the United Kingdom requires
(including the requirements of the British
Expeditionary forces) will bE furnished against
pounds and the pounds required by the French (including
those for purchases of raw materials in the British
Empire) will bE furnished against francs. During
the period of the war the two countries will bE in
0 position to cover their total requirements in the
currency of the other by furnishing their own currency
and without having to deliver gold,
The pounds held by the French monetary authorities
will
143
-2-2963, DECEMBER 12, 6 p.m. (SECTION FOUR) from Paris
will bE Employable for all Expenditures in the sterling
area and francs hEld by the monetary authorities of
the United Kingdom will bE Employable for all Expendi-
tures in the French Empire."
BULLITT
NPL
144
PARAPHRASE OF SECTION FIVE, TELEGRAM NO. 2963 OF DECEMBER 12,
1939, FROM PARIS.
Today we lunched with our friend at the Bank of France.
He again mentioned the heavy French expenditures in the
United States, and said that for airplane purchases he had
just this morning paid out $20,000,000.
Efforts of the Allies to conserve doller exchange
which we have stressed, and which was one of the main purposes
of the Anglo-French economic (?) (references, telegrame
No. 2852 of November 28 and 2896 of December 4 from the
Embassy) are taking stronger shape gradually. With reference
to the Goodrich case mentioned in the latter telegram, we
have learned today that Swift and Company in addition have
obtained an import authorization for packing house products of
considerable size only to have the Foreign Exchange Office
decline to put up the dollar exchange necessary for the
transaction. The Foreign Exchange Office told Swift and
Company that the transaction would be approved if they would
accept payment in other currency than dollars - the Foreign
Exchange Office would, curiously enough, agree to using
Swiss france in payment.
END SECTION FIVE.
BULLITT.
EA:LWW
Regraded
Uclassified
145
GRAY
JI
Paris
Dated DECEMBER 12, 1939
Rec'd 6 pame
SECRETARY of State
Washington
2963, December 12, 6 p.m. (SECTION SIX)
WE have Emphasized to you in the past the
semi-paralyzed state of French industry and
commerce as a result of war conditions and the
mobilization of 5,000,000 men. Owing to the censor
there has been little opportunity for public criticism
of the governmental restrictions in this connection,
but the same restraint does not apply to deputies.
According to yesterday's JOURNAL OFFICIAL during the
hearings on the budget of the Ministry of Commerce,
the vital necessity to revive Export trade WAS again
Emphasized and the administration of state control over
wartime trade and industry was bitterly criticized.
Deputy Marescaux (Democratic LEft) quoted from a
circular issued by one of the national groups of
producers SET up under the law of July 11, 1938
(organization of the nation in wartime) in which the
statement
146
-2-2963, December 12, 6 p.m. (SECTION SIX) from Paris
statement appeared that (concerns which do not ally
themselves with the national groups of producers or
distributors will bE abandoned, deprived of orders,
of raw material and personnel, as well as means of
transport, and they will therefore bE forced to
close."
BULLITT
NPL
147
JI
GRAY
Paris
Dated December 12, 1939
Rec'd 7:30 p.m.
Secretary of State
Washington
2963, DECEMBER 12, 6 P.M. (SECTION SEVEN)
Deputy Bedin, Socialist, told the Chamber that
investigation revealed that French concerns had been
forced in many instances to nbtudon foreign orders
because of the length of time required to secure
Export and import authorization, difficulties with
the foreign exchange office, look of rew material
and labor and in general too "dictatorial" control
by the ministries concerned, Further there WERE
complaints of delay in payment by the Government
for requisitions of material and of property of
difficulties Experienced by exporters in securing
the necessary assurances covering shipments to Holland
and to the Scandinavian countries and of foreign
debtors unable to fulfill their contracts on account
of war (Export credit facilities provided under law of
Kny 22, 1936). Briefly stated the critics contented
that
148
-2-2963, DECEMBER 12, 6 pame (SECTION SEVEN) from Paris
that the mochinery net up by the Government while
fine in theory had fallen down in application.
l'inister of Commerce Gentin Explained some of
the difficulties which faced the Government and gave
somewhat timid and vague assurances that it would do
all it could to ameliorate conditions. Henceforth,
he said, import and export licenses would in general
be made available in lESS than three days. In spite
of what had been claimed he insisted that Exporters
vere receiving the benefit of the law regarding export
credits but it was necessary for the Government to
EXERCISE caution in according guarantees for payment
of merchandise shipped to certain countries.
BULLITT
EMB
149
CORRECTED COPY
HSM
GRAY
Paris
Dated December 12, 1939
Rec'd 7 D. me
Secretary of State,
Washington.
2963, December 12, 6 D. n. (SECTION EIGHT)
With reference to statements on unemployment
Labor Minister Pomaret declared that "out of 325,000
registered unemployed about 60% were unemployables
and 20% WERE more than 65 years old".
The Belgian National Bank statement for the WEEK
ended DECEMBER 7 shows gold holdings at 17,951.8 millions
up 5.1 millions; foreign Exchange holdings at 3,317
millions down 65 millions; domestic commercial advances
are up 457 millions to 4,545 millions. Advances on oub-
lic funds are down 27.45 millions to 954 millions. Note
circulation again increased by 139 millions to 27,839
millions. The Treasury account was reduced by 884,000
to 6.3 millions. Gold coverage is 62.55 as against
63.10 the previous WEEK.
The Paris securities market was again strong and
rente issues repeated their substantial advances of
yesterday. Most issues WETE up from 85 centimes to 1.20
francs
ham -2- No. 2963, December 12, 6 p.m. (Section 8) from Paris
francs and the dollar Exchange guaranty issue advanced
a further two francs. Official Exchange rates were
150
unchanged. (END OF MESSAGE).
BULLITT
NPL
03V13038
December 12, 1939.
12:15 p.m.
H.M.Jr:
Hello.
151
Bob
Rouse:
Good morning, sir.
H.M.J::
Hello Rouse.
R:
Yes, sir.
R.M.J.:
It looks like a good day doesn't It?
R:
It looks like a fine day, all the vay along the line
even the two and and a halfs, the fifty fifty two,
the fifty-one fours and the fifty-one fives are back
to about even on last night.
S.M.Jr:
I see.
R:
The rest of the market is up to eight thirty-seconds.
The volume of trading has been quite substantial and
the reaction I've had from all around the country
is that everybody likes it.
Y.V.Jr:
I see.
R:
There is some feeling again, the same thing vas
expressed to you yesterday that it caused a little
straining on the part of some of the ten year people,
but they're glad to have it.
H.M.Jr:
Yell it's good for them to be strained isn't it?
a:
It doesn't hurt them any.
H.M.Jr:
No.
R:
Not a bit.
H.M.Jr:
I don't know - when they used to put them on the
rack in the old days and stretch them whether they
went back to normalcy or not afterwards.
R:
(laughs) Well I'm glad you're pleased with it.
H.M.Jr:
Oh yes, now what's going through my head, I don't
see why we should leave this open more than two
days.
R:
Nor do I Mr. Secretary.
H.M.Jr:
What?
- 2 -
152
M
Nor do I Mr. Secretary.
I think If we announce tomorrow morning we close it
on Wednesday night that that's enough.
M
Well you see, no, that's - you'd have to announce
tonight that you close tomorrow night.
That's right.
at
Yes.
E.M.In:
I think SO.
at
I think 60. I think most of the small holders of
the old three and a halfs and the first liberty
loan must have been pretty well taken care of at
the time of the last exchange.
E.Y.Jr:
Yes.
is
I'd be inclined to do that.
O.K. I'll give Bell that instructions now.
Fine.
E.V.In:
Thank you.
of
Thank you sir.
E.M.Jr:
Thanks for the help.
at
I'm glad to be a help, I hope it was.
E.M.Jr:
Yes you were very helpful.
Al
That's fine.
R.M.Jr:
Yes.
M
Thank you sir.
E.M.Jr:
Goodbye.
December 12, 1939.
12:18 p.m.
H.M.Jr:
Hello.
153
Operator:
Mr. Bell. Go ahead.
Daniel
Bell:
Yes.
H.M.Jr:
Dan?
3:
Yes, sir.
H.M.Jr:
This thing 18 going 80 beautifully, I just spoke to
Rouse. Is that Bob Rouse?
B:
Yes.
H.M.Jr:
And I said, "How would you feel if we announced
tonight we're going to close this thing Wednesday
night".
B:
Huhhuh.
H.M.Jr:
He said O.K.
B:
Really.
H.M.Jr:
Yes. Yes. Just spoke to him.
B:
Huhhuh. Then you want to close 1t?
H.M.Jr:
Yes.
B:
Well I suppose that's all right. I just don't know
where these things are, that's what worries me a
little.
H.M.Jr:
Well -
B:
Whether they're in the hands of individuals in
trust that have to have meetings and -
H.M.Jr:
Don't let's fly in the face of fate.
B:
Well, I'll have to admit that I'd like to get them
in.
H.M.Jr:
Well, that's all right.
B:
All right. We close it tomorrow night.
H.M.Jr:
Ralph said O.K.
154
- 2 -
B:
Huhhuh. That's announced immediately this
afternoon.
H.M.Jr:
Yes.
B:
That you'll close at twelve o'clock tomorrow night.
H.M.Jr:
O.K.
B:
All right. Thanks.
December 12, 1939.
3:05 p.m.
H.M.Jr:
Hello.
155
Operator: Mr. Berle
A.
Berle: :
Hello.
9.4.3r:
Hello.
3:
Oh, Mr. Secretary?
E.M.Jr:
Yes,
B:
I wanted to bother you about the one matter.
H.M.Jr:
Please.
B:
The - this - sub-committee 1s meeting again tomorrow.
H.W.Jr:
Yes.
B:
Your men were courteous enough to get un a questionnaire
which we are transmitting to the various Governments.
H.M.Jr:
Did you like that?
B:
It's a first rate job. There 18 however one question
which now comes up and the purpose of calling you 18 to
ask whether you have any objection to one of your men
coming down and sitting with the connittee.
R.M.Jr:
Which one?
3:
Well I - whoever you suggest, I should suppose Mr. White
for choice, because he's been acting more or less as
informal spokesman.
H.M.Jr:
I'd be delighted to have White come over to -
B:
I thought if you didn't object likewise I - it might
not be a bad idea to have the Federal Reserve man,
I guesa Walter Gardiner down there, although that's not,
by any means necessary. Really what they propose to do
was to go over some of the questions and try to separate
out the questions of fact from the questions of
opinion and try to get the various hypothesis that they
have in mind. I have a design
likewise of
getting them to know each other BO that gradually
as this works along, if it does, they have some personal
acquaintances and more of less appraise for themselves
what these people have in mind, but I didn't want to
ask that until I had asked you.
156
- 2 -
E.M.Jr:
Sure, and by all means have the Federal Reserve.
3:
Well what do you think of it as an idea, has it -
well I merely thought that in case they -
E.M.Jr:
It can't do any harm.
is
Well that's what I thought to.
E.M.Jr:
And it might make them feel happy, it might take them -
give them something else to worry about.
in
Aside from
and something may be said for that.
As long as you're talking to me if, I think the head of
their Economic Section should be asked even though he
didn't come.
B:
Goldenweiser?
H.M.Jr:
Yes.
at
I'll do it that way then.
H.M.Jr:
I think you'd get better support and less - you
wouldn't have Goldenweiser working against you.
is
No. Goldenweiser and I happen to be old friends, 60
we certainly ought to agree about things, makes it very
simple. While I have you on the wire, if I may say, the
Department, about those French trawlers that you may
remember slipping through the press.
E.M.Jr:
Never heard about them.
B:
No.
E.V.Jr:
Well what's up now?
B:
Well I merely -
E.V.Jr:
Somebody get away safely.
B:
Well they are getting away I suppose if your men sent
out a wire they were getting away this afternoon.
The French Ambassador sent over assurances that they
were not going to Join the armed forces of France and
the Attorney General has ruled that that's good enough
- 3 -
157
assurance BO they don't violate the law BO if your
people send out a telegram, I can't think of anybody
else that ought to approve it unless it might be God.
I should think they could go.
H.M.Jr:
Well, I don't think it would be fair to ask God.
B:
Well I agree that would out him on the spot.
H.M.Jr:
I tell you Gaston 18 in here now and the minute he
leaves the room I'll tell him to call you because
he handles that.
B:
Well I've been talking to Cairns in Gaston's absence,
you see? Cairns has been doing the leg work so I
asked Norman Thompson to telephone Cairns which he
did and I telephoned BO that -
H.M.Jr:
Well 1f you don't mind -
3:
Would you rather I'd clear this through Gaston. I
happened to have been talking to Cairns right along
but that's merely an accident and he -
H.Y.Jr:
I'd a little bit rather you handled it through
Gaston. You see it's - Gaston was down in Guatemala
when all this happened but Coastguard is his
responsibility.
B:
I'll talk to Gaston, this 1s merely inertia because
we've been talking to Cairns while Gaston was away
and just kept on doing it from habit, that's all.
H.M.Jr:
I told Gaston, when he goes back to his office, to
call you.
B:
Thank you very much.
H.M.Jr:
O.K. And White - I'll tell White, when he gets a
call, to go over.
B:
Well I'm very much obliged.
H.M.Jr:
Righto.
B:
Thank you.
December 12, 1939.
3:09 p.m.
Operator: Governor Hill. Go ahead.
158.
Governor
Fill:
Hello.
Hello.
::
Hello, Mr. Secretary.
H.M.Jr:
Yes.
H:
This is Frosty Hill over at the Farm Credit Adminis-
tration.
H.".Jr:
Oh are you still there?
R1
Well at this writing, ten minutes after three, I was
just calling you on B. purely personal matter in
connection with this whole situation to get just your
personal advice. Mr. Wallace called for one of our men,
Mr. Lands, over this afternoon, at noon to be exact,
and indicated that he asked - the President had asked
Mr. Brownlow to review the whole situation and
Mr. Brownlow had done so and had recommended again in
favor of the Farm Credit continuing as an integral part
of the Department of Agriculture and then the Secretary -
Secretary Wallace went on to say that that being the
case he felt that 1f it were to be in the Department
that he should run it - with which position of course
I can't disagree and felt that he ought to have some-
body in to put somebody in as Governor who was more
familiar with the policies and setup in the Department
of Agriculture than I was on the thing and con-
secuently the upshot of the thing was that I'm to 20
over at four o'olock to discuss it presumably again
with the view to requesting my resignation which I
understand from Mr. Lands, in B. discussion with
Mr. Wallace have been the approval of asking for my
resignation has been approved by the President. Now
of course that just gets down to 8. point - it sort of
looks as though the whole thing was over 88 far 8.6
I was concerned. I don't know whether there's
anything could be done or whether there's anything
should try to be done.
Well -
M:
I Just thought I would call and check to see if you
had any - off the record or personal suggestions to
make in the situation.
159
- 2 -
H.M.Jr:
Well I - via McReynolds, I thought that the President
told you not to resign.
E:
That - that was right, that was - I got, via McReynolds,
about - oh that was about, oh that was three or four
weeks ago that I got that message not to resign.
P.M.JP:
Well then why resign?
6
Well then, presumably again through Mr. Vallace, who
apparently says that he has contacted the President
again and that the President has again cleared with
him.
R.M.Jr:
Well I wouldn't do it unless I - unless the President
asks you in writing to resign.
H:
I see. O.K.
I mean that's my advice, 1f the President wants to ask
you to resign let him do 80 in writing.
is
Yes.
H.M.Jr:
And - uh - that's - didn't he appoint you?
61
Yes, that's right.
".".Jr:
Well then let him ask you for a resignation.
=
Yes, yes.
R.V.Jr:
What?
H:
Well I think that's all right. I Juet - I didn't want
to -
H.M.Jr:
Now didn't they appoint B. committee of fifteen or
twenty people to -
H:
Well I guess they did, but I didn't hear anything more
about that.
H.M.Jr:
Well I understood that the committee was to be appointed
to consider the thing.
H:
Well that was my understanding too. This last story
was that Mr. Brownlow had considered it.
Regraded Uclassified
- 3 -
160
H.M.Jr:
Well I understood. that I was on that committee also.
6:
Well I had gotten the same word but I hadn't heard any
more about it.
H.M.Jr:
Well besides talking to me this advice you said 18
personal so I don't want it spread around the town.
in
Oh my goodness no.
H.M.Jr:
But that's my advice and I'd also call up McReynolds.
H:
I see.
H.M.Jr:
But, strictly off the record, I wouldn't move unless
the President gave it to you in writing.
to
O.K. Fine. Thanks a lot.
H.M.Jr:
O.K.
H:
O.K.
TREASURY DEPARTMENT
161
INTER OFFICE COMMUNICATION
DATE December 12, 1939
TO Secretary Morgenthau
FROM Vr. Cochran
STRICTLY CONFIDENTIAL
At 10:15 this morning there came to my desk Cablegram #2951 from Paris,
providing the text of the Financial Agreement between France and Great Britain.
At 11:30 the Ticker began carrying a summary of the Agreement.
At 11:35 Mr. Pinsent, Financial Counselor of the British Embassy, tele-
phoned me that he had just received B. message from his Government which he
desired personally to present to the Secretary of the Treasury at the
earliest possible moment since the subject matter might be announced shortly
in the British Parliament. I asked if he referred to the British-French
Financial Agreement. He said he did, and asked what I knew about it. I read
his the item that had just appeared on the Ticker, and also let him know that
we had received the full text of the Agreement from Paris. He confirmed his
understanding that the French Minister of Finance was to present the text to
the American Embassy in Paris. He regretted, however, that a delay in trans-
mission had prevented his giving us first word. He has not the full text, but
e missary thereof. He would like to present this at the Treasury's convenience.
Pinsent inquired whether Walter Stewirt was here. He would like to come
down at an early date to discuss with Stewart and myself the departure of our
Scotch friends. I read to him Article 13 of the Agreement under reference and
inquired whether this had anything to do with their departure. He doubted
this, but said he would give us B. little more information whenever we could get
together.
Regraded Uclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
Misz
182
DATE December 12, 1939.
TO Secretary Morgenthau
STRICTLY CONFIDENTIAL
FROM Mr. Cochran
Mr. Knoke telephoned me late yesterday evening that the Federal Reserve
Bank had just received B. cablegram from London to the effect that the Federal
would receive shortly $50,000,000 of gold from Canada to be sold on arrival.
Knoke assumed that this was gold which has Just arrived from England by war-
ship. We have not yet this morning had word of the arrival of gold in New
York, and have no more definite knowledge than that here indicated. The
British dollar balance in New York is down to around $80,000,000. 60 this sun
will undoubtedly be used to replenish the account. Knoke telephoned this mes-
sage B.6 soon as it was decoded.
Mr. Knoke also told me that the Federal Reserve Bank was making a payment
of $4,000,000 to the French-American Banking Corporation, under instructions
from the Bank of France, this amount to be taken from the latter's account with
the Federal. Since the French-American Banking Corporation has been used in
making payment for French war material purchases, it is assumed that this new
transaction merely carries on this system until the special account of the
Bank of France is established with the Federal. This, Leroy-Beaulisu, has told
us will be not later than Jamary 1.
From the Bank of Finland account with the Federal Reserve Bank there vas
yesterday made a payment of $50,000. to the Reichsbank.
R.M.R.
Regraded Uclassified
TREASURY DEPARTMENT
"C3
INTER OFFICE COMMUNICATION
DATE December 12, 1939.
TO Secretary Morgentham
FROM Mr. Cochran
Dr. Felix Somary, the Swise banker who called some days ago in regard to
the purchases which be is commissioned to make in the United States for ac-
count of the Svise Government, cass to see as yesterday afternoon. He had
just finished 8 visit to New York and Ottawa.
Dr. Sonary asked DO if it vas worthwhile for the Swies to present officially
the suggestion which he had advanced personally to me of paying for American 005-
polities through gold held in Switzerland until after the war, with & corresponding
amount of gold earuarked in the Federal Reserve Bank of New York in our favor to
guarantee payment. I reminded the visitor that I had told him when we first
:Lecussed this matter that the Treasury uniformly followed the policy since the
ritbreak of hostilities of accepting gold only upon delivery in the United States.
with such sympathy toward our Tripartite partner, Switzerland, and realizing the
Importance of the business which we may now have with Switzerland, we have
studied this cuestion quite thoroughly. I feel. however, that there is no pos-
smility of the Stabilization Fund acting 8.8 intermediary to hold this gold in
Svitrerland, and take dollars available to the exporters here. Dr. Somary
realized that the Federal Reserve Bank of Bew York made advances against gold
only for sessonal transactions, and that interest was naturally charged thereon.
" said that he had made inquiry in New York and had learned that it would be
impassible under our law for private American bankers to make loans to Switserland
accident gold held by the Bank of Switzerland with the Federal Reserve Bank of
IN York. I confirmed that private banks were not permitted to have & claim on
gold enruarked here with the Federal Reserve Bank. Dr. Somary thought this limited
the use of gold and that it would be in the general interest to amend this practice.
4d also to put gold coins into circulation. We then digressed on the common
problems of the United States and Switzerland with respect to gold. Dr. Somary
to prepare and send to me, with the cooperation of the Bank of Switzerland,
ut RETRAPS through that bank, an informal memorandum setting forth the Swies
problem and views on gold.
pas forward officially the above outlined suggestion. Dr. Somary admitted that the
Returning to our immediate problem, it vas agreed that the Swine should not
win yurpose was to avoid present high freight and insurance charges. I reminded
Mr that various European Central Banks continue to ship gold to us in spite of
the havy cost.
Dr, Somary had appointment with Secretary Hull for 3:45 yesterday after- last
Mon. I let his know an that linison comittee had been set up since he was
end it understood 8. that he was to be placed in touch therewith through I
Secretary Eull WAS or one of his assistants. 11 Dr. Somary's request, however.
Regraded Uclassified
- 2 -
164
telephoned Captain Collins to give him the background of the Swiss plans and to
let him know that Dr. Somary might be referred to him, as chairman of the com-
mittee, through the Department of State.
76.mg
GROUP MEETING
December 12, 1939.
9:30 a.m.
Present:
Mr. Gaston
Mr. Bell
Mr. Duffield
105
Mr. Thompson
Mr. White
Mr. Harris
Mr. Foley
Mr. Haas
Mr. Graves
Mr. Cotton
Mr. Viner
Mr. Cochran
Mrs Klotz
H.M.Jr:
Herbert?
Gaston:
In connection with that pair of decisions on
wire tapping by the Supreme Court yesterday,
you might not like to know that we have no
wire taps.
H.M.Jr:
I might not like to know?
Gaston:
You might like to know that we have no wire
taps at this time, whatever, and don't propose
to have any.
H.M.Jr:
I take full credit for that, thanks to Herman
Oliphant.
Gaston:
Vincent Astor would like to see you Thursday
morning, if you will be here. He is coming
up Wednesday night and he would like to see you.
H.M.Jr:
Will you get word to him that I will' have you
and he for lunch?
Gaston:
Yes, I will ask him about that.
Klotz:
When?
Gaston:
Thursday. He hopes to 800 the President during
the day. It might be that he will say that he
wanted to see you early in the morning.
H.M.Jr:
I don't want him.
Gaston:
I will tell him for lunch.
- 2 -
166
We got our bad news from the Budget Bureau on
the supplemental Coast Guard budget. We didn't
get any boats whatever. The word was that the
Navy can build the boats. We don't build boats.
We get thirteen planes, which is pretty good,
but no new stations.
Thompson:
Fifteen planes.
H.M.Jr:
All right, what else?
Gaston:
Elmer has got Palmer from Atlanta and Frank Burke
on Harold's Job of the New York assay office.
H.M.Jr:
Oh, all right.
Gaston:
One Intelligence Unit man and one Secret Service
man.
H.M.Jr:
I told Elmer yesterday that the report I got on
the man in charge of the Upper New York District,
Allen, was the worst report that I have received
since I have been in the Treasury.
Gaston:
What service - Secret Service?
Thompson:
Internal revenue agent in charge.
Gaston:
I will look into that.
H.M.Jr:
I told him to put new men on it and - it was just
another complete whitewash of the fellow. He is
the fellow, you see, the agent whom we are con-
vinced - was assigned to a case contrary to my
orders.
Gaston:
You told Elmer that?
H.M.Jr:
Yes. He is an Internal Revenue man. They cer-
tainly gave him B. nice whitewash.
Gaston:
Do you think there would be favorable reception
to a suggested reorganization of the Bureau of
Marine Inspection and Navigation?
H.M.Jr:
Well, personally, I am all sour on all the or-
ganizations, as far as I am concerned. I am
not really interested.
Regraded Uclassified
187
- 3 -
Gaston:
I an not terribly keen about it at this time.
H.M.Jr:
If interested. you are, all right, but I am not personally
Gaston:
I think it will have to be done sooner or later.
H.M.Jr:
If you are hot for it, 0. K., but I am sour on
it.
Gaston:
Well, I will see what the atmosphere is, whether
there is anything likely to be done.
H.M.Jr:
Talk to Basil Harris about it and see which side
he is on.
Gaston:
Bureau of Marine Inspection.
H.M.Jr:
Talk to him about it. He used to be with a steam-
boat company. I don't know whether they had
paddle wheels or what.
Gaston:
We have B. situation in the Alcohol Tax that is
not my bailiwick, only - the Alcohol Tax people
don't admit it, but the fact is that everywhere
except in the prohibition states, they have got
an excess of men, they have got a good many more
men than they need. We had thought of remedying
that situation by modification of the law which
would permit us to use - divert Alcohol Tax men
to other services and still let them be paid on
Alcohol Tax. It would just take one little slight
amendment to a statute that we have now.
H.M.Jr:
Try it.
Gaston:
Instead of giving up the men.
H.M.Jr:
0. K., try it. What else?
Gaston:
That is all.
H.M.Jr:
Gene?
Gaston:
Except a couple of things I would like to speak
to you about afterward, if I may.
188
- 4 -
H.M.Jr:
Sure. Will it take long?
Gaston:
No, it will take about two minutes - one minute.
E.M.Jr:
I will give you three minutes, and I want to
see Basil Harris.
Gene, I see that you put the thing in the lap
of the Attorney General and he left town with -
what 18 her name?
Duffield:
I didn't see that.
H.M.Jr:
For Honolulu. He had his picture taken. What
is the name of the girl?
Foley:
Cromwell.
S.M.Jr:
Yes.
Duffield:
I just saw that we put it in his lap.
H.M.Jr:
It was in the paper this morning, he and Doris
left town, plus Mr. Cromwell.
Duffield:
There is some expectancy - the boys are trying
to get us to do something about the Attorney
General's opinion and Mr. Gaston said last night
that he would think about telling them the whole
story today for a background.
Gaston:
Well, I thought that today we might have the
final decision on the thing from Justice and if
they don't press us, I think we will let it go.
We may get that final decision today.
H.M.Jr:
All right.
Cochran:
Leroy-Beaulieu telephoned down yesterday evening
just when this thing came out and wanted to know
what it was. I read him the ticker story and
suggested he get in touch with Mr. Duffield.
Duffield:
I forgot to mention that. One of the secretaries
of the Embassy called me about 6:00 o'clock last
night. The only thing that perturbed him was the
statement on the UP ticker that these had been
sold to the French Government, which I told him
109
- 5 -
you did not say. He was pleased at your comment
on the French doing everything openly and above-
board.
H.M.Jr:
Did he know that I said that?
Duffield:
I told him.
H.M.Jr:
That is right.
Cochren:
I would like just a minute sometime this morning.
H.M.Jr:
I loved your back-seat driving, Cochran.
Cochran:
That can be detached if you don't want it.
H.M.Jr:
Oh no, that is fine.
Cochran:
I have nothing else.
Cotton:
I wonder if you have & moment to discuss this
Finnish thing.
H.M.Jr:
Do it right now, out in the open.
Foley:
Like the French do.
Cotton:
I prefer not to.
H.M.Jr:
Come on, be a little men now. I will make you
feel happy, or at least easier. At lunch yes-
terday, Warren Pierson said, "What am I going to
be, the burnt offering on the altar," and I said,
"No, a hero for one day."
Cotton:
I suppose you just wanted to know what happened.
Nobody knew what the proposition was exactly at
the Bank and the State Department came with no
definite ideas on the thing at all, so nothing
was done except to consider the proposition so
far as Warren Pierson knew it and to recommend
to Mr. Jones to get the RFC to do it as every-
body thought they would go to jail if they lent
10 million dollars from the Bank. That was about
the size of it.
B.M.Jr:
Do you still want your couple of minutes?
170
- 6 -
Cotton:
Well, I would like to know - they don't really
know what the proposition 18.
B.M.Jr:
I will tell you all that I know. Sunday about
noon, Jesse Jones called me up and said - he
said, "My thought is that we will loan the
Finnish Government, for the purchase of food-
stuffs, either three or four million dollars."
I think he said that they can do a little bit
better than the RFC. He said, "I am either
going to 366 or talk to the President at 1:00
o'clock." He said, "Will you go along on a
loan of three or four million dollars by the
Export-Import Bank for food stuffs," and I
said, "Yes, I will."
Cotton:
The total 1a ten, the division between the Bank
and
H.M.Jri
I am just repeating my end of the conversation
and what I said yesterday. And then the next
thing that I knew about it was the publicity
in the paper. Then Jones called me up yesterday
and said, "How was the publicity, how did it
read," and I said, "All right." He said, "You
are sure the publicity 1s all right, and I
said, "Yes, the publicity is all right." So
that is my end of it.
Cotton:
If it 18 & popular thing, it may be all right.
If it isn't, it may wreck the Bank.
H.M.Jr:
Well, he said three or four million dollars, but
I think that is the legal limit of the Bank,
isn't 1t?
Cotton:
Well, it all depends on what he will do. If he
will take over things
H.V.Jr:
Well
Cotton:
There is always a question, 8.8 I understand it,
that it looks like sentimentality and hypocrisy.
In doing it, I understand the cotton would be
sold in England. In some way or other, this
money might help the Finns. Nobody really knows
the position of the Bank.
- 7 -
171
H.M.Jr:
Doesn't Warren Pierson know?
Cotton:
He doesn't know.
H.M.Jr:
I would say the matter is something between the
President and Mr. Jones.
Cotton:
I understand Mr. Jones has gone away for a few
days.
H.M.Jr:
He won't be back until Friday.
Cotton:
Anyway, you will want to know that the Bank didn't
take any action at all except to recommend that
the RFC consider, in view of the position of the
Bank, whether it couldn't do the whole thing.
H.M.Jr:
I have no instructions on it other than my con-
versation with Mr. Jones.
Cotton:
Well, one would hope, I think, speaking frankly
about it, that if the money was going to go to
the Finns, it might do them some good, and I
suppose it was - it was suggested the only way
it would do good if it was an arrangement for
selling the cotton immediately 80 they would get
sterling to buy some airplanes. If the way had
been fixed up with the British so they can do
that, it might help them 8 little bit. Otherwise,
it won't help at all.
White:
Can't England sell them three million dollars
worth of planes on credit?
Cotton:
They have already sold them some planes, but no-
body in connection with this Bank knows what the
deal is.
H.M.Jr:
That is why we have these 9:30 meetings and I
try to tell you people everything that I am
doing and
Cotton:
I assume the decision has been made to do it.
White:
It certainly is democracy at its worst. It has
been completely misrepresented in the papers,
if that is the case. The funds are supposed to
be for food and supplies to Finland. If you
Regraded Uclassified
172
- 8 -
send them planes, I don't know quite how it is
going to help them except to kill 8. few more
Finns - just prolong it.
R.M.Jr:
K111 a few more Finns?
White:
Finns and Russians.
Cotton:
Nothing can get from this country to Finland,
probably, in under & month and is it going to
do any good? If the plan is to allow virtually
the use of this money to get airplanes from
Great Britain, it is being put up in a terribly
hypocritical way, which is the implication I
got.
H.M.Jr:
Keep me posted, that is all I can say. I can
say this must be something between the President
and Jones and I have told you everything that I
know.
Cotton:
Well, I have told you all I was able to speculate
on the basis we were on yesterday.
H.M.Jr:
I have heard nothing from the State Department or
Mr. Traphagen.
Cotton:
I have heard that - not through Mr. Traphagen,
but the Colombians did make an offer.
H.M.Jr:
Ed, could you come in at 11:30 and put on my
desk everything that is pending in regard to the
Bank of America?
Foley:
Yes.
H.M.Jr:
And I want Viner in on that, on that appraisal,
see. Have you had a chance to look at it?
Viner:
Yes.
H.M.Jr:
Then I thought if we cleared the thing - is
Delano in town?
Foley:
He 18 in this morning.
H.M.Jr:
Well....
273
- 9 -
Foley:
Do you want Leo Crowley?
H,%,Jr:
Yes,
What else?
Foley:
Sam Clark came over yesterday and brought back
the Maney and Perini cases, those Boston cases,
for reinvestigation.
H.2.Jr:
I am not familiar with those.
Poley:
They have pretty serious political implications
that I think I ought to tell you about sometime
and Brandon, the U. S. Attorney up there, sent
them back with a recommendation not to present
the evidence to a Grand Jury. Sam has talked
with the Attorney General and the Attorney Gen-
eral sent him over to talk to me and if upon
reinvestigation we feel that our original recom-
mendation 1s correct in the light of this new
theory, new defense theory that has been put
forward by attorneys representing the contractors,
Sam will force Brandon to present the cases to
the Grand Jury, but before TO get that far I
think we ought to tell you what the implications
are.
B.M.Jr:
Who is Brandon?
Poley:
He is the U. S. Attorney up there.
5,%,Jr:
Is this a Curley matter?
Soley:
It arose out of the investigation of Curley, and
while he is not directly involved, it 1s his
crowd that is involved.
S.I.Jr:
Well, the old rule still holds good.
Poley:
That is what I think.
H.W.Jr:
have to talk to me. Go right ahead. I mean there
Let the chips fall where they may. So you don't
1s nothing to talk to me about.
Poley:
Well, I knew - I thought you would like to hear
this slant on it.
Regraded
174
- 10 -
H.M.Jr:
No, I don't want to hear it. Go ahead on it.
If you get to a point where the Attorney
General won't act, that is time enough to tell
me, but go ahead and press whatever you think
is legally correct.
Foley:
All right. Well, Elmer has the cases and he is
going to make a quick check now and
H.M.Jr:
Up to the time that you are stopped, don't bother
me with it. If you are stopped, come and see
papa.
What else?
Foley:
Sometime this afternoon, perhaps right after the
Bank of America meeting, I will have the letter
to the Secretary of War and the Secretary of
Navy and the memorandum for the President on
obsolescence.
H.M.Jr:
All right.
Foley:
Which will be the wind-up....
H.M.Jr:
And I want that to go through Viner before it
comes to me. I mean I don't want to crowd you
too much. If necessary, we will do it tomorrow.
Foley:
He is a tough guy.
H.M.Jr:
Who, Viner?
Foley:
Sure. It took me a week to get this letter cleared
and now he wants to rewrite it.
H.M.Jr:
The obsolescence?
Foley:
No, Bank of America.
H.M.Jr:
He wants to rewrite it?
Foley:
Yes. I started out with a good letter, too. He
doesn't like what I got.
Viner:
No, I didn't see the one you say was a good letter.
This one isn't a good letter.
175
- 11 -
Foley:
No, I said I started out with a good letter.
You want to reduce this to a good letter now,
By the time you get through six people and
get everybody in agreement, you don't have
what you started out with.
Viner:
This letter is about like an old man reminiscing
about his vacation. He catches the same fish
three times.
H.M.Jr:
When you come in at 11:30 ask me to tell the
President's favorite story about, "'appy 'oliday",
a summer vacation story.
Now, you know when I invite Viner to go over 8.
proposed letter, I just thought it would save
Preston Delano a mental strain not to be here.
I knew what I was doing when I had Preston
Delano - I think I will tell Crowley also to
wait until afternoon.
How is your desk, Jake?
Viner:
Well, I have taken most of it to my hotel room
so my desk will look better.
E.M.Jr:
All right. What else?
Foley:
That is all.
H.M.Jr:
Is Walter Stewart
Viner:
This morning's Times says the Germans have an-
nounced that aski marks must be used by December
31 or they are cancelled and I think there are
lots of Latin American holdings and some Bra-
zilian, possibly.
White:
They have written them off mostly and if they
use them, how are they going to get the stuff
out of Germany? They can only use them for
purposes which
Gaston:
They are trying to get some stuff out by way of
Italy, shipped as neutral shipments out of
Italy.
176
- 12 -
H.V.Jr:
Well, along that idea, I have got an idea which
may be perfectly cockeyed, and if 1t 1a, I don't
mind somebody saying so, but this Jaramillo -
you will have to spell it, that 1s the nearest
I can come to it - informed me, maybe stupidly,
that the price of coffee had dropped five cents
a. pound, which I think he said meant 25 million
dollars less revenue to the Republic of Colombia.
White:
When did this drop take place?
Just recently.
White:
Oh no, that would be all over the front page.
B.V.Jr:
I am Just quoting Mr. Jaramillo. It dropped
five cents a pound quite recently. Let's say
for argument's sake that he knows what he is
talking about. I sat next to the President of
Haiti yesterday and all these people - I think
they sold four or five hundred thousand bags of
coffee, of which 125,000 came to America and
the rest went to Europe. Again, let's say that
he was approximately correct. Well, all of
these people - if this thing of Jaramillo's 1a
correct - the thing that is going through my
brain is that we organize through the Export=
Import Bank B. coffee pool and - to keep this
price from going through the floor before these
people - and decide what is a fair price and
we will - and get all of these South American
countries around the table and let's say, "Now,
look, 75 percent of your sales went to Europe,
25 percent went here. We will have an allotment
and not have everybody drive this price down,"
and then it is not entirely altruistic because
if he is correct, it means 25 million dollars
less revenue in Colombia, and by the time we get
through and they drive this price down, any loan
we make to them becomes either pretty sour or
pretty impossible and I don't see why it isn't
at least worth while looking into.
White:
Definitely.
H.Z.JP:
The President of Haiti said they have only one
the whole thing, and you take a thing like this -
coffee buyer from the United States who controls
Regraded Uclassified
177
- 13 -
if United Fruit Company is not in coffee, and
I don't think they are in coffee, the President
of that company might be very helpful in ad-
vising us. I don't think they are in coffee.
White:
Let's explore it preliminary now. It will take
only a day or two to get up a memorandum and
then you can move from there, but I think the
idea is very worth examining because there are
six countries that would be involved in B. very
serious way, so if it is possible to do anything,
it should be done. It presents possibilities but
1t also presents a great deal of difficulties.
I think it is definitely worth examining.
H.M.Jr:
You take this idea, if there 18 something to it,
and lay it - give it to Berle and lay it before
these people. There is something we can really
do for these people.
White:
Let's first get up something here and see what it
looks like to you.
H.M.Jr:
I know, but I am giving it to you to explore.
White:
It would be an idea - if you could work out some-
thing - for them to consider, because that is
what they are up here for during the duration
of the war, to tackle problems that relate to
the war.
E.M.Jr:
I have a memorandum here and I wish somebody would
tell me who gave it to me.
"Domestic economic developments, balance of pay-
ments to the U. S. for the first three quarters
of '39, comparative figures for the corresponding
period in '38."
Who gave me this?
White:
Doesn't sound like ours.
H.M.Jr:
"Merchandise export balance for the first..." I
know. At Cabinet, Ed Noble gave it to me.
Haas?
178
- 14 -
(Mr. Haas handed report to Secretary)
H.M.Jr:
See, this is when I get memoranda, Jake, like
this.
Viner:
That is George. Let George do it.
Haas:
You probably will be asked that question to-
morrow and that is just a suggestion.
H.M.Jr:
Is this for the President?
Haas:
No, I am working on that.
H.M.Jr:
What about this thing for the President?
Haas:
I was thinking that sometime before noon today
I will have it in.
H.M.Jr:
I don't want to get it until Viner has seen it.
Haas:
Oh, I see. 0. K. I won't have it done for
about an hour.
H.M.Jr:
I don't want it unless it is all right. Has
White seen it?
Haas:
No.
H.M.Jr:
Well, this is 8. question of the business survey
for 1940. I want White and Viner - and I don't
want it to come to me until either they have
licked you or you have licked them, but let the
best man who is left bring it to se.
Klotz:
You will never get it.
Haas:
I thought this....
H.M.Jr:
This is for the President.
Haas:
I thought this was just a summary of these people
we had called in, both the departments - what
they thought.
H.M.Jr:
Right, and the President said, "All right, Henry,
that is what they think; what do you think?"
179
- 15 -
Baas:
The thing I was working on was a very brief
thing, just two pages.
E.M.Jr:
He said, "Doesn't the Treasury have an opinion?"
Bass:
Tie have to, we made the estimates,
H.M.Jr:
All right. Now, before it comes to me I want
it filtered through Viner and White.
Eass:
What is your deadline?
E.M.Jr:
What?
Hass:
Do you have to have it at noon today?
H.M.Jr:
No, I will tell you - well, I ought to have it
when I go up on the Hill tomorrow.
Eass:
As far as I an concerned, you can have it before
noon.
B.V.Jr:
I ought to get it tonight so I can read it tonight.
You give me this - give this back to Haas because
I don't know by the time Viner and White get through
with it whether they agree with you.
Esas:
That one is foolproof.
H.M.Jr:
That is why he is going to give it to me.
Eaas:
No, I was thinking of your reply.
S.M.Jr:
Let it ride, it is too good to spoil.
Basil?
Harris:
No, I have nothing, Mr. Secretary.
H.M.Jr:
Harry?
White:
Here is that petroleum report. We can separate
it into a summary if you don't want to use the
whole report.
S.M.Jr:
Thank you.
White:
That has been okayed by the men who were on it.
- 16 -
180
H.M.Jr:
All right.
White:
Here are a couple of telegrams I think you
ought to read and here is a letter that you
might want to read. You may have heard of
the law that has just passed in Colombia,
giving the President unusual powers with which
to settle the debt.
Viner:
May I speak to you a moment about this?
H.M.Jr:
Yes.
Viner:
This letter is dated December 1, 1939. It
says that we shall probably set the first
meeting of this committee late in this month
or early in January. The committee has already
met. The newspapers have reports of the meeting
and the Treasury is not mentioned on that com-
mittee, according to newspaper reports.
H.M.Jr:
Look on the back when I got it. There is a
time stamp.
Viner:
They have
H.M.Jr:
Where is the time stamp?
Viner:
December second. You see, somebody at their
office apparently didn't send this letter out
and they have appointed their committees and I
noticed that Treasury was not represented and
Alcohol has a special interest there. They
should be represented.
H.M.Jr:
Would you prepare an answer for me to that
letter?
Viner:
Yes.
H.M.Jr:
Good boy. Just remember that Hopkins is in
bed when you write that. I mean if he was well
we could give it to him with both barrels,
but he is in bed.
White:
Here 1s the story on the Russian stuff. This
18 the stuff we are going to give each week.
181
- 17 -
We have got a man up there now. You might
have noticed that unemployment in England
1a 170,000 more than it was three months
ago, notwithstanding the fact that there is
8. million and a quarter men under arms.
We have a suggestion here for a quarterly
bulletin for the American treasuries. It is
written up in sort of & dumny form.
H.M.Jr:
Is it foolproof, the dummy? What are you
going to do, hand it over to Berle?
White:
I thought that might be the idea, although this
is part of the Treasury, this is purely Treasury
business, but I think the only organization to
carry it through would be the committee that is
meeting up there.
H.M.Jr:
Give me a letter of transmittal to Mr. Hull.
Gaston:
We adopted a resolution, you know.
White:
This is in pursuance thereof.
Gaston:
At Guatemala,
H.M.Jr:
What will I do about it?
White:
That 18 what I think ought to be done, that it
ought to be indicated that it is in pursuance
of that.
H.M.Jr:
Give it to Mr. Gaston and let him fix up some
kind of 8. letter of transmittal to somebody for
me to sign.
White:
All right.
H.M.Jr:
Let Mr. Gaston fix up a. letter of transmittal
for me. All right, Harry?
White:
There are at couple of other things, things that
I would like to see you about and this one thing
about that list that you had asked us to do
some thing on with Mr. Collins on that Russian
matter, list of names and 80 on. Well, you
182
- 18 -
gave us some - we had some material to go
over and take some names off and 80 on.
H.2.Jr:
Oh, well, Gaston is my Russian man. It is
entirely in his hands. He is handling that.
Tell Herbert; he has got that.
White:
Yes, I will tell Herbert.
H.M.Jr:
Harold?
Graves:
When it is convenient to you, I would like to
have a few minutes on this thing.
H.M.Jr:
4:15?
Graves:
All right. I would like to bring Captain Collins.
H.M.Jr:
0. K. I am sorry, but the other day I just - I
was going through financing.
Dan?
Bell:
The National City has instructions to pay over
the sum of money due on the fifteenth on account
of the Finnish debt. I understood you wanted to
put on a show on Friday. Now, last year they
did the same thing. We didn't have the check
down here; it was sort of a dumy check you used,
taking it from the Finnish Ministry. Is that
all right this time?
H.K.Jr:
If you and Mr. Cochran took a walk with the
Finnish Minister on Sunday, they are the fellows
really responsible for all this loan business.
Sunday he had & long talk with him. He went
out walking with him.
You really ought to know the fellow, Joe; you
are sitting right next to him. If you and
Cochran and Duffield would get together and
arrange it with the Finnish Minister.
Sell:
All right.
Duffield:
Finland has one of these publicity men from
New York they have hired and he is down around
- 19 -
183
town trying to arrange something.
B.M.Jr:
I will give you the time the Finnish Minister
tackled no on this thing at the Gridiron. I
first turned him down, but now that Cochran
and all these fellows are doing things with
Finland, I guess I had better get on board
before 10:30. Cochran and Herbert grab it all. Say,
Duffield:
I am trying to get the newsreel people to
agree to do these things on time, but I am
not having much success and I am afraid it
is going to take the usual long time.
H.M.Jr:
If it is the newsreel people who are always
late, let's make it 11:00 o'clock.
Duffield:
Tell them 10:30 and make it 11:00?
B.M.Jr:
Yes, and I will put it on my calendar at 11:00.
Tell the Finnish Minister, 11:00; the newsreel
people, 10:30.
Bell:
Checks are still rolling in. We have between
40 and 50 checks now for the Finns.
E.X.Jr:
We will do that the same way.
Bell:
The regulations of the Postal Savings System
require that the bonds we purchased be regis-
tered in the name of the Postal Savings System
and lodged with the Treasury of the United
States. I have asked them to change that 80
we can put these securities in New York in
case we want to sell them.
H.M.Jr:
Norman?
Thompson:
I have a statement for tomorrow's hearing. It
is not one-half as long as the last one you
gave.
H.M.Jr:
What is this?
Thompson:
That is that Sullivan thing.
- 20 -
184
Klotz:
Do you want to read from this?
H.M.Jr:
Yes.
Klotz:
Do you want it on bigger type?
Duffield:
We will do it on the regular speech machine.
H.M.Jr:
The line of people who want to see me forms
at the right.
105
The two Governments consider it is in
the common interest to avoid alterstions in franc-
sterling rate and no such change will be made
without prior agreement between them.
Each exchange equalization fund will
continue to be solely responsible as regards
quotation of its currency in market in third
countries, but there will be close consultation.
British fund and French fund will continue
to sell to one another sterling for franc and franc
for sterling at official rates. French fund will
be thus sellers to United Kingdom fund of all francs
required for our expenditure.
If French fund holds sterling in excess
of fifty million pounds excess will be funded in
form of Treasury bills repayable one year after
war and renewable for two further years. Franc
value of these Treasury bills will be guaranteed.
Same system will apply to france held by United
Kingdom fund.
No request will be made by either fund
for conversion of currency of other countries into
gold. Sterling held by French fund will have 8.
guarantee of its accounted franc value, and france held
by United Kingdom fund of their sterling value.
French may use their sterling in sterling
areas/
Regraded Uclassified
186
-8-
areas and by agreement in special cases elsewhere,
and we may use our francs in French Empire and by
agreement elsewhere.
These are main monetary clauses. Agreement
also provided for contact between the two
Treasuries and cooperation in all questions of
common interest. Certain items of war expenditure
in common cause, such as expenses of Polish armed
forces, financial assistance to third countries
and losses resulting from blockade delays, will
be shared in proportion two for the French and
three for the United Kingdom. Agreement is to
remain in force for war period and for six months
after signature of peace.
BRITISH EMBASSY,
WASHINGTON, D. C.,
December 12th, 1939
TREASURY DEPARTMENT
M
187
INTER OFFICE COMMUNICATION
DATE December 12, 1939
TO
Secretary Morgenthmu
FROM Mr. Cochran
The foreign exchange market was quiet although there was a slightly increased
volume of sterling transactions. The opening quotation for sterling was 3.93.
It was reported that there were substantial orders in the market to both buy and
sell sterling. As is usually the case when the sterling rate strengthens, the
Japanese were sellere. The rate gradually moved downward to 3.92-1/4. Shortly
before noon it started to improve and by mid-afternoon the quotation vas 3.92-5/8.
The rate remained steady at about this level for the rest of the day.
Sales of spot sterling by the four reporting banks and the Federal Reserve
Bank of New York totaled L727,000, from the following sources:
By commercial concerns
La 141,000
By foreign banks (Europe, Far East and South America)
I 476,000
By Federal Reserve Bank of New York (For B.I.S.)
1 110,000
Total
1 727,000
Purchases of spot sterling amounted to L535,000. as indicated below:
By commercial concerns
1 205,000
By foreign banks (Far East and Europe)
1 330,000
Total
1 535,000
The Bank of Manhattan reported that it had sold cotton bills totaling 260,000
to the British Control at the official rate of 4.02.
Mr. McKeon of the Federal Reserve Bank of New York informed Mr. Dietrich that
some of the banks reported that the British Control would only purchase, at the
official rate, sterling cotton bills which are ready for prompt and immediate
mailing. Previously, the market sold such bills to the Control and mailed them
within ten days from the time the bills were sold. He also said that the Control
would no longer buy cotton bills drawn for payment at a future date.
The other important currencies closed as follows:
French france
.0222-3/4
Guilders
.5309
Swies france
.2243
Belgas
1644-1/2
Canadian dollars
13% discount
CONFIDENTIAL
Regraded Uclassified
- 2 -
188
The discount for the Cuban peso continued to widen and it vas quoted today
at 12-3/8%
We purchased the following amounts of gold from the earmarked accounts of
the banks indicated:
$15,000,000 from the Bank of France
1,018,000 from the National Bank of Belgium
1,000,000 from the Netherlands Bank
$17,018,000 Total
In the report of yesterday. mention was made that the Central Bank of Turkey
would liquidate, on December 13. loans totaling $3,309,000 at the Federal Reserve
Bank of New York: also that it would procure A new loan from that bank amounting
to $4,325,000. The Federal Reserve Bank informed us today that the Turkish Bank
changed its instructions and that on December 13 a now loan will be made for only
$3,500,000 which will be secured by $3,886,917.12 in gold earmarked at the Federal,
At the close of business on December 13, loans to the Central Bank of Turkey by the
Federal Reserve Bank will amount to $5,020,000 secured by gold valued at $5,584,493.06.
The Federal Reaerve Bank received a cable from the B.I.S. requesting it to
obtain a license to transfer approximately $420,000 in gold from its Account to to
its Account 4. Gold in Account k is owned by the B.I.S. The gold in Account A
is gold sold by the B.I.S. to the Turkish Bank, which 18, in turn, pledged to the
B.I.S. to cover commercial credits granted by that bank to the Central Bank of
Turkey. Permission to make this transfer was granted.
The B.I.S. also requested the Federal to obtain & license to transfer approxi-
nately $563,000 in gold from its Account #2 to the Account of the Netherlands
Bank at the Federal Reserve Bank of New York. Permission to make this transfer vas
also granted.
The Federal Reserve Bank of New York reported the following gold shipments:
$5,586,000 from Italy. shipped by the Bank of Rome, for the account of the State
Bank, U.S.S.R., consigned to the Chase National Bank for sale to the
U. S, Assay Office at New York.
2,086,000 from South Africa, shipped by the South African Reserve Bank, consigned
to Federal Reserve Bank of New York, to be earmarked for the account of
1,699,000 from Switserland, shipped by the National Bank of Switzerland for account
the Netherlands Bank.
of the B.I.S., to be earmarked for account of the B.I.S.
89,371,000 Total
CONFIDENTIAL
189
- 3 -
The State Department forwarded to us copies of cables received from the
American Consul at Sydney, Australia and the American Consulate General at
Stockholm, Sweden, stating that invoices were certified for the following ship-
cests of gold to the U. S.:
$5,870,000 from Anstralia, shipped by the Commonwealth Bank of Australia, Sydney,
consigned to the Federal Reserve Bank of San Francisco.
137,000 from Australia, shipped by the Bank of Nov South Vales, Sydney, to
American Trust Company, San Francisco.
12,000 from Australia, shipped by the Electrolytic Refining Company to
Canadian Bank of Commerce, San Francisco.
613,000 from Sweden, shipped by the Bank of Sweden, consigned to the Chase
National Bank of New York for account of the State Bank U.S.S.E.
$6,682.000 Total
The first three shipments listed above will be sold to the U. S. Mint at San Francisco,
and the last one will be sold to the U. 5. Assay Office at New York.
On the report of December 6, received from the Federal Reserve Bank of New York,
giving the foreign exchange position of banks and bankers in its district, the
total position of all currencies was short the equivalent of $17,090,000, an
increase of $3,118,000 in the short position. The net changes in positions are
as follows:
SHORT POSITION
SHORT POSITION
INCREASE IN
COUNTRY
NOVEMBER 22
DECEMBER 6
SHORT POSITION
Ingland
$3,451,000
$ 5,923,000
$2,472,000
Europe
8,249,000
8,493,000
244,000
Canada
905,000 (Long)
257,000 (Long)
648,000 Reduction in
long position
Latin America
421,000
34,000
387,000 Reduction in
short position
Far East
2,732,000
2,870,000
138,000
All Others
24,000
27,000
3,000
Total
$13,972,000
$17,090,000
$3,118,000
The spot and forward prices for silver in London were fixed st 23-7/16a and
23-5/8d respectively. The U. 8. equivalents were 41.37# and 41,224.
In New York we made three purchases of silver totaling 175,000 ounces under
the Silver Purchase Act. All of this silver wes now production from foreign
countries and it vas purchased by us for forward delivery.
Ve talked spoke in the Mexican peso. Knoke thought this probably
I with Mr. Knoke of the Federal Reserve Bank at 2:30 this afternoon.
case from about the recent the weakness removal of the Mexican 4% tax on export of capital from that
country.
CONFIDENTIAL
- 4 -
190
is of the opening of business this morning, the balance of the State Bank
of Russia with the Chase Bank was $6,000,000, as compared with $11,000,000 on
November 7: confirmed commercial credits amounted to $4,000,000, against
$2,000,000 on November 7. A payment of $1,500,000 from the Russian State Bank
account to the Rotterdam Bank has been made during the period under review,
together with one of $700,000 to Amtorg. The Amtorg balance with the Chase Bank
is up $700,000 to $1,800,000.
B.W.R.
CONFIDENTIAL
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
S1
DATE December 12, 1939
TO
Secretary Morgenthau
STRICTLY CONFIDENTIAL
Mr. Cochran
FROM
The Secretary spoke with me this noon in regard to our questions with
the British, and particularly that of access by the Secretary to the special
account opened a few days Ago by the Bank of England with the Federal Re-
cerve Bank of New York to cover British purchases of war materials on this
market.
At 3 P.M. this afternoon I asked Mr. Knoke if Governor Harrison W&E in
New York, since I desired to speak with him about the account. Upon being
informed by Mr. Knoke that Governor Harrison was in Mashington, I reached
the latter at the Federal Reserve Board. I referred to the recently opened
account and asked if the Governor would prepare and mail for the Secretary's
confidential information a weekly report on the Bank of England Special
Account, the weekly period to correspond with the ordinary statement
period of the Federal Regerve Bank.
Governor Harrison told me that the instruction which he had received
from the Bank of England did not include such authority. In the absence of
such authority he mist politely decline, He and Mr. Knoke had both reminded
ne when I spoke with them on this point last week that the Secretary had
undertaken, when we all met here in October to discuss the question of the
account, to take up through diplomatic channels and the British Chancellor
of the Exchequer, the question of obtaining this authority. When Governor
Harrison was in Washington ten days ago we had discussed this question and I
had shown him the note delivered to the Treasury on October 30 by the
Financial Counselor of the British Embassy wherein the Chancellor of the
Exchequer agreed that the Secretary of the Treasury should have confidential
access to the account. In the circumstances Meesrs. Harrison and Knoke
have thought it appropriate that the Treasury should invite Pinsent's
attention to the fact that the instructions from the Bank of England to
the Federal Reserve Bank of New York for the opening of the account did not
include the authorization under discussion. I agree with this, and feel
that the attitude of the Federal Recerve Bank of New York on this point
is quite correct. It is auggested, therefore, that when ne next 000 Pinsent,
who decires an interview with the Secretary at the earliest possible moment,
he should be reminded of the note under reference, and should be asked to
ace that this matter is definitely arranged.
B.M.
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 12, 1939
TO
Secretary Morgenthau
FROM
Mr. Hass WA
192
Subject:
Forecast of business for 1940
In forecasting the business trend for 1940 we have given
consideration to the unusual degree of uncertainty in the pres-
ent outlook due to the unpredictable course which the European
wer may take. It is recognized that conditions may change
overnight either to the advantage or to the disadvantage of
business in this country.
Certain facts seem sufficiently clear, however, to warrant
our belief that the forecast outlined below 1a a reasonable
expectation for 1940, and neither too optimistic nor too con-
servative. It 16 clear that industrial production in the last
quarter of 1939 has exceeded actual consumption; that new orders
in recent weeks have shown B. steep decline; that the bunching
of orders for steel and other products this fall, due to war-
stimulated fears, has taken considerable potential business from
1940; and that this foreshadows a corrective decline. Such a
decline can be avoided only if large war orders come in soon,
or if expenditures for capital equipment in early 1940 should
undergo a marked expansion. Neither of these possibilities can
at present be anticipated.
On the other hand, no maladjustments have as yet occurred that
would warrant a business setback comparable to that of 1937. The
business situation WE.6 sound before the war began and remeins
fundementally sound. Following the expected decline, an improving
business trend seems probable during the second half of the year.
After a careful weighing of these diverse influences we have
accepted as a reasonable expectation an average of 111 for the
Federal Reserve Board index for the calender year 1940. In other
words, if this forecast 1s realized, it will mean that the average
index in 1940 will be higher than the 1939 average, and higher
than the average for any other year since 1929, but not RB
high as in the last quarter of the current year.
193
Secretary Morgenthau - 2
Forecasts of advisory group
The forecast of the business level for 1940 is the eame
as an average of the estimates of eleven economists engaged
in forecasting business trends (names given in Appendix) --
eight representing business and banking institutions and
three representing Government agencies -- whose opinions were
solicited as an aid in appraising the business outlook. The
average expectation of the eleven economists was that indus-
trial production, as measured by the FRB index, would be lower
in 1940 than during the closing months of 1939, but would be
higher than in any other year since 1929. An FRB index of 111
WGB the average expectation for 1940, as compared with an index
of 105 for 1939. The current level of the index (November) 18
about 125.
Each of the individual estimates of industrial production
in 1940, given in the table below, represents a considered
opinion made with the assistance of an independent research
staff.
Individual estimates of average FRB index in 1940
Calendar year
lst 6 months
2nd 6 months
Meears:
Lichtenstein
121
115-120
125
Crews
96
100-105
90
Hayford
114
110-115
116
Andrew
118
115
120
Naess
105
110
100
Ayres
110
115
105
Roberts
109
109
109
Crum
107
116
98
Thomsen
112
109
115-116
Nathan
110
112-114
108
Garfield
116
113
120
Average
111
112
110
194
Appendix
Personnel of advisory group on business outlook
The names of those from outside the Treasury who attended
conferences on the business outlook on November 28 and 30 are
listed below:
Business and banking group (November 28)
Mr. Seymour L. Andrew, Chief Statistician,
American Telephone and Telegraph Company.
Col. Leonard P. Ayres, Vice President,
Cleveland Trust Company.
Mr. Joseph 8. Crews,
Barrett Associates.
Mr. F. Leelie Hayford, Economist,
General Motors Corporation.
Mr. Walter Lichtenstein, Vice President,
First National Bank of Chicago.
Mr. Ragnar Naess, Vice President,
Tri-Continental Corporation.
The following, who were unable to attend,
submitted their estimates in writing:
Dr. W. L. Crum, Professor of Economics,
Harvard University.
Mr. George B. Roberts, Vice President,
National City Bank of New York.
Government group (November 30)
Executive Offices of the President:
Lauchlin Currie, Administrative Assistant
to the President.
Bureau of the Budget: Frederick J. Lawton,
Morris A. Copeland.
Federal Reserve System: Frank Garfield,
Senior Economist.
Bureau of Agricultural Economics:
Eric Englund, Assistant Chief;
Frederick L. Thomsen, Principal
Agricultural Economist; Louis Bean,
Head Agricultural Economist.
Bureau of Foreign and Domestic Commerce:
Robert Nathan, Economic Analyst.
Bureau of Labor Statistics:
Isador Lubin, Commissioner.
BX225
December 12, 1939.
10:32 a.m.
H.M.Jr:
Hello.
195
Centain
Collins:
Good morning Mr. Secretary.
H.M.Jr:
Yes.
C:
Mr. Secretary I reported
to you Saturday evening concerning the action that
had been taken Saturday afternoon at the meeting.
H.M.Jr:
Yes.
C:
This morning I contacted Admiral Speer, and he told
me that there had been a meeting yesterday in
Mr. Edison's office concerning the list of materials
that had been given to his representative at the
Saturday meeting.
H.".Jr:
Yes.
C:
That Mr. Edison and Mr. Johnson had jointly drawn
up a letter of protest to the President on the
appointment of this Board, that they had pointed out
the fact that the President was paralleling the
action he had taken in his letter of July 1, 1939,
and I thought I'd want to post you about that because
I understand that would go over there today.
H.M.Jr:
Well supposing you give me - ought I to have a memorandum
on that or not.
C:
I don't think so, sir.
H.M.Jr:
No, let's see what happens.
C:
Yes, sir.
H.M.Jr:
I mean it's up to the President.
C:
That's right, sir.
H.M.Jr:
Woodring called me up and talked to me for fifteen
or twenty minutes yesterday protesting what Johnson
had done and I kept saying, "Well that's not uo to
me, tell it to the President".
C:
That's right.
H.M.Jr:
He knew all about it and how Johnson called in
somebody off the golf course on Saturday - do
this sort of thing and BO forth and BO on, but
- 2 -
196
the President - it's entirely in his hands what
he wants to do,
C:
Yes, sir.
H.M.Jr:
And I - after all I've laid it in his lap. I think
I'll let it lay there, don't you think 80?
C:
Yes, sir, I think so, sir.
H.M.Jr:
This is a fight between Johnson and Woodring, and
I'm not going to get in on it again.
C:
Yes, sir. Well I spoke to Mac about the same matter
this morning, sir, very casual, and I asked him if he'd
give me a tip when he got to New York what had
happened. He said he would.
F.".Jr:
Well the thing is that Johnson is definitely bucking
Woodring on it. They'll have to straighten it out.
C:
Yes, sir.
H.M.Jr:
Well thanks for the call.
C:
Entirely welcome, sir. Goodmorning sir.
MEMORANDUM
12-13-39
Whenchen
197
Under date of October 2, 1939 a cable me received from
Dr. H. H. Kung presenting the following credit plan for the kind considera-
tion of the United States Secretary of the Treasury, Mr. Henry Morgenthau,
Jr.1
1. A new credit of 08875,000,000 to be granted to
Chima;
2. Credit to be used for the purchase of American
agricultural and manufactured products;
3. Repayment by instalments within ten years;
4. Pledged delivery of Chinese Tin, 10,000 tons &
year for ten years;
5. Out of sales proceeds of Tin delivered each year,
0886,500,000 be reserved for payment of Tin to
Yunnan Provincial Government, and certain acount
for freight and insurance on Tin shipments, and
balance entirely devoted to repayment of the new
credit.
China's determination to resist Japan's aggression to the last
- is again reaffirmed by Generalissimo Chieng Kai-shek's declaration
before the Plenary Session of the Sixth Convention of Kussintang hald at
Chimgicing - November 12, 1939. In order to continue this resistance
suserous materials and supplies which are essential for the maintanance of
China's national economy must be continuously supplied. It is estimated
that anong other essential materials and supplies, the following are urgent-
ly required and must be purchased M soon as possible:
Regraded Uclassified
+
198
Consification Materials Supplise
Price
1. Automotive Equipment
8 16,748,000
II.
Gaseline and Lubricants
11,452,300
ш.
Ferrous and Non-Ferrous Metals
24,683,300
IV.
Electrical Equipment
5,600,000
V.
Medical Supplies
3,600,000
VI.
Textile Materials
3,440,000
VII.
General Machinery
2,151,000
VIII.
Railway Equipment
4,000,000
II.
Machinery for Tin Mining
3,000,000
8 74,674,600
Under the first credit of $25,000,000, granted by the Export-
Import Bank, purchases have been made of diversified lines and wide
distribution has taken place among the various industries and many states.
Importation of trung eil has been kept up to the promised tonnage in spite
of over-insreasing transportation difficulties, and the distribution of
this oil w the Universal Trading Corporation has preven to be of real
benefit to the paint, varnish and other weed-eil~using industries as
spenly recognized w The National Paint, Vernish and Laequer Association
of the United States. The credit of $25,000,000 has been entirely
allocated and practically used up.
A MY credit en Tim, to be concluded at this time, will net
only supply the urgently needed new funds for the continuation of purchases
of assessary materials to the sutual benefit of United States nanufsoturers
and Chinese producers, but may serve as encouragement of immeasurable
value in helping the nerale of the Chinese people at a time when it would
189
appear that other democratic countries are too buay or indifferent to
China's struggle against aggression.
THE WHITE HOUSE
WASHINGTON
CONFIDENTIAL
VENORA
Regraded Uclassified
o
December 17, 1979
MEMORANDUM TOP
"12" OF V.A.R.
T have your juint memorandia with the Secretary
of the Namy in regard to on informel committee to deal
with the maject of nurchase of war materials by foreign
governounts.
1 tistnk you "sil to realize that the greater part
of such purchases is not, is 2. strict sense of the word,
munitions -- prohably -011 over cirty per cent of the
purchases will consist 0r articles em rew or semi-row
materials which are primarily of civil use rether than
military nee.
with all one deference to the Army and Navy
Munitions Board, it is not 6.5 experienced in making
purchases 6º to the Procurement Division of the
Government. In any event, the coordinating compittee
which has be-n vet up will have representatives of
the Army and News- on it, and T am perfectly willing to
have the Ceneral and the "eymaster General
represented 10 of "icers who Are 6100 mumbers of the
Army and Navy Musitions Boare -- especially when it
comes to "wely allitery or nevel materials.
Finally It must be remembered that we are not
at war, that we are trying to keepprices in this
country corn, that the work of the committee Gesls
with civilians, And tast the general fiscal and
purchasing nolicies of the Treasury Tree are very definitely
involved.
That is n/a T think T should let the present
arrangement stand.
F. D. R.
Regraded Uclassified
December 11, 1939
Dear Pa:
Here is the memorandum about
which Secretary Edison and myself desired
to talk with the President, which this
morning you asked us to send up so that
he might look at it tonight. It is most
important.
Sincerely yours,
General E. M. Watson
Secretary to the President
The White House
Enclosure
Regraded Uclassified
ARMY AND NAVY MUNITIONS BOARD
MUNITIONS BUILDING
WASHINGTON, C.
December 9, 1937.
MEMORANDUM FOR THE PRESIDENT.
SUBJECT: White House letter of December 6, 1939, creating an in-
formal committee to represent the American Government
in its contacts with interested foreign governments in
all matters relating to the purchase of war materials.
Action Recommended:
That the letter in question be reconsidered and the prea-
ant Army and Navy Munitions Board Clearance Committee continue to
function in accordance with the approved action of July 6, 1939
(copy herewith), and your Military Order of July 5, 1939 (copy here-
with).
Reasons:
1. The Var and Navy Departments have primary interest in
the munition program pertaining to national defense,
2. Coordination of the Army end Navy procurement programs
is being obtained through the joint Army end Navy Munitions Board,
which has been functioning in close cooperation with other interest-
ed United States Government agencies since 1922.
3. All joint Army and Navy Boards were nlaced under your
direction and supervision by Military Order, dated at the White
Bouse July 5, 1939. Since that date cooperation between those joint
boards has been close, and action expedited on questions arising
during the present emergency.
4. The mission given the new Committee by your letter of
December 6, 1939 appears to duplicate the mission previously assign-
ed by you to the Army and Navy Munitions Board, and a Clearance Com-
mittee of that Board has been satisfactorily cerrying out the same
mission since July 6, 1939. The present Committee setup, with its
alles and Policies, is attached. These rules and policies have al-
ady been approved by the Secretaries of Ther and the Navy, and con-
form to the action desired by the National Munitions Control Board
the State Department.
Regraded Uclassified
5. Close cooperation hrs been established between the
Army and Navy Munitions Board and the State, Treasury, Commerce, and
the Interior Departments, in f.ll matters affecting munitions of wer
and basic raw materials.
6. Close livison has been retablished with representatives
of all foreign governments and the Committee has been assisting many
of these govermments during the pest six months.
7. The State Department has already requested all foreign
governments to furnish the Army end Navy Munitions Board all perti-
nent data pertaining to their contemplated purchases in the United
States. Copy of the instructions already sent by the State Depart-
ment to foreign governments attached hereto.
8. Congress has also placed the execution of Public No.
117, relative to stock niles of strategic and critical meterials,
under the Army and Navy Munitions Board and the Department of the
Interior. This action is effectuated by this Board with close coop-
eration and advice from the Departments of State, Commerce and Treas-
ury.
9. The Ner and Navy Procurement Plans are already being
coordinated, and the records pertaining to such plans are a part of
the Army and Navy Munitions Board's confidential files. To assign
this duty to any other agency or committee will cause confusion, de-
lay, and inefficiency, since munitions requests from foreign powers
will be mainly for items not normally produced commercially and dis-
tinctly of n. highly tecenten] character. The production of such
items is of vital interect to our national defense and must be close-
ly coordinated with our over rearmement program. The setup for such
coordination already exists and the responsibility is definitely
fixed. The proposed setin hrs not the technical date available to
administer the enticly ted foreign requests, non the knowledge of
whet military infor - tion DAY be released without detriment to the
national defense. The present Board sugmented by linison officers of
all Supply Forvices and lurenus, and its close cooperation with the
Joint Aeronantical Board, has impodiate access to procurement plans,
current technical Dite, production schodules, and current orders. It
also has the confidence and cooperation of injustry and numerous
trade associations, chich ve already been contacted and are furnish-
ing confidential informal tim concerning foreirn mirchases and the
ability of this coverney 10 neet their desends.
in. the State lemistment, La resoonsible for the ex-
ocution of the decisions of the National junitions Control Board, is
Regraded Uclassified
By ignored. The closest liaison must be maintained between the
Sw
Department and the Intelligence Sections of the Mar and Navy
Departments in regard to military secrecy and the disclosure of such
4
the sales of munitions to foreign Dowers. The Rules and Policies
**tanhed have been drawn up in accordance with the present practice
of
procedure within the War, Navy, and State De artments.
houis Johnson
Children
LOUIS JOHNSON,
CHARLES EDISON,
The Assistant Secretary of Nar. The Assistant Secretary of the Navy.
5 Incls.
vil. Order 7-5-39
Approved action 7-6-39
Le (Rules and Policies) 12-1-39
Cy instructions to foreign
governments.
Cy le 12-6-39.
CONTROLNTIAL
Regraded Uclassified
WAR
TARY
June 1939
IDUIA
repients from foreign
for
In this country
*8
will increase
desirable to establish
11y
ite
organized cooperation
curtine for our own
Har
from these
will be criefly in obtain-
and aircraft
thorit
for the desired items can best
el
led
julicious distribution of such
to serve a very useful purpose
to
defence.
ancin,
pertains to the work of the
It
therefore recoumended that you
and
Nnz.
mainlster these requests for
[zo
serve approved policies. It is
tance
erred to the Board through
tood
will Board will confer freely with other
mal
out its functions in this respect,
namest
of Controls of the Department of
been suon and approved by the Under
Test
LOUIS JOHNSON
The Assistant Secretary of Mar.
Annist-
the Navy.
July
Affirment
Information
refericted
Regraded Uclassified
HILITARY UNDER
By virtue of authority vested in ne as President or the United
States and BY Cc. Sor-in-C.iaf of the Amy and Hav of the United States,
it is hereby ordered that (1) t'.) Joint Arty end Novy Board, organized to
sooure complete cooperation and coordination in all matters and policies
involving joint action of the APT the Navy relative to the national defense,
(2) the Joint Economy Board organized for the purpose of effecting economies
without loss of efficiency, by the elimination of overlap or the simplifi-
cation of functions in those activities of the War and Navy Departments con-
cerned with joint operations 05" the two services or which have approxi-
mtoly parallel functions, (3) the Aeronautical Board organized for the
purpose of securing e more completo neasure of cooperation and coordination
in the development o." avintion of the Army and of the Navy, and to provide
an agency for consideration of aeronautical matters, and (4) the Joint Army
and Havy Munitions Board organized for the purpose of harmonizing the plans
of the Army and Navy for the procurement of munitions and supplies for war
purposes, now functioning by understanding betwoon the Scoretary of War and
the directary of the Navy, shall hereafter exerciso thoir functions for the
purpose aforossid under the diroction and suporvision of the Prosident as
-in-Chiof of the Army and Navy of the United Statoo.
This order chall become offectivo on July 1, 1939.
FRANKLIN D. ROOSEVELT
C. in C.
The White Houso,
July 5, 1939.
(F. R. Doc. 39-2343; Filed, July 6, 1939; 11:06 c.m.)
Regraded Uclassified
NIT ACC HAVY 30AD
INTERNS nos
Tax. :, :.
CONFIDESTIAL
Derenze :,
730la
The Army and JATY Emitions 3card.
10:
Colonel Charles Elnes, D.S.A., Secretary of the - and
Sary Invitions 3card, (Chairman).
Lieut. Colonel George S. Garren, A.C., Office, Chief of Air Corps.
Lieut. Colorel 3. i. Lacibriand, D.D., CAS Division,
(Secretary of the Committee).
liajor L. á. Miller, O.D., Office, Chief of Orinance.
Captain J. :. Syrnes, Jr., U.S.S. (3et.) (3) Ord.
Commander 1. 3. Anderson, C.S.R., Office of Chief of Taval
Operations.
Commander 3. C. Date (SC), Bureau of Supplies and
Lieut. Comander =. = Logan, T.S.Y., Bareas of
SUBJECT: Army and Savy Unitions 3oard Committee for Clearance of linitions.
1. The above-named officers are hereby desigated 6.7 representatives
of the 1mg and Savy Italtions Scard == 1 comittee for clearance of mini-
tions,
2. The duties of en Board will be to carry out the intect ad the
for the President, dated June 20, 1933, 0098 et which appears
below, LS follows:
203 NE RESIDE.
June 30, 1929.
"In the past :ew the mater of reports from forçign
sources for assistance in procuring military supplies is this restri tos
mltiplied. It is probable that these requests will increase materially
to the near future and it now appears desirable == establish - definite
procedure on the subject, to assure organized cooperation is meeting these
requires and to rentralize toe securing for our OWN use of such allitary
information AS 26/ de disainable from these
"The rooperation required from 13 will be caisfly :- staining
authority to use non-serret travings of ordnance and almost aterial
Y
la suggesting where orders for the desired items ZAL be filled
for
domestic sources, is judirious distribution of rz. orders to
de industry can :e rate to serve - very useful purpose in strate-
lag
ar own plans (or cational
"The matter is question clearly pertains to the wark of the Any
Biry Minitions 3cart. :: is therefore recomended that you authorize La
the
ard to upon and to these requests for assistance that
manner pass AS test to servi under policies. It is
Regraded Uclassified
theme
sto will be reforred to the Board through the usual channela
and
the Board will confer freely with other Government departments
in
out its functions in this respect, and particularly with the
Divil
Controls of the Department of Stato.
"This momorandum has beon seen and approved by the Under Socro-
tary
into.
(Ded) CHARLES EDISON
(Sgd) LOUIS JOHNSON
The asistant Secretary of the Navy. The Assistant Secretary of Var.
Approved
July 6, 1939,
FRANKLIN D. ROOSEVELT."
3. Copy of the initial "Rules and Policios for the Army and Havy
Innitions Board Clearance Committee" is attached. These rules and pol-
icios have been approved by the Tar and Navy Departments.
4. Lieutenant Jolonel E. 3. lackorland, O.D., will be on full-time
duty as Secretary of this Committee, and will not as the steering member
in order to insure uniform and expoditious action.
5. Copies of this memorandum will be furnished all Supply Arms and
Services of the War Department and Bureaus of the Navy Department in
order that they may be acquinted with the mission of this Committee and
be prepared to give the members such information and návice as come with-
in the scope of their department.
6. This memorandum replaces = similar one detod November 10, 1939,
subject, establishing a joint committee for the clearaneo of muni-
tions.
7. The records and files of this Committee will be mintained 0.8
a part of the Office of the Secretary of the Army and may !Munitions
Bocard,
For the Army and Savy !unitions Board:
CHARLES HINES,
Colonel, U. S. Army,
Secretary.
1
CONFIDENTIAL
Regraded Uclassified
any AND mavi BOAD
IMMITIONS JUILDING
Washington, D. C.
CONFIDENTIAL
December is 1979,
RULES AND POLICIES POR ARIY AD SAVY
ITUTIVIONS BOARD CIEARANCE COMMITTEE
1. Authority - Under date of July 6, 1939, the President approved
& joint recommendation of the Assistant Secretaries of War and Davy that
the Army and Navy Funitions Board be authorized to pase upon, and admin-
ister requests from foreign sources for assistance in procuring military
supplies in the United States in such manner as best to serve approved
policies.
2. Joint Committee This particular task of the Army and Navy
Funitions Board will be exercised through & joint committee consisting of
four Army and four havy officers, The Arcy members consist of two of-
ficers of the Office of The Assistant Secretary of 7ar, one officer, office,
the Chief of the Air Corps, and one officer of the Office of the Chief of
Ordnance. The Navy members consist of one otficer each from the Office
of the Chief of Naval Operations, the Burcau of Ordnance, the Bureau of
Aeronautico and the Bureau of Supplies and Accounts. T.e official desig-
nation of this group is "Army and havy Munitions 3oard Clearance Committee".
3. Mission of Committee - The mission of the committee is defined
as follows:
a. To cooperate with foreign representatives who have obtained
authority to use drawings, specifications, and other technical informa-
tion connerning American military cateriel in connection with orders to
be placed with American manufacturers.
b. To suggest where foreign orders for munitions of all kinds
should be placed in this country to serve the best interests of our own
national defense, first ascertaining from interested Bureaus whether that they
contemplate placing orders before suggesting placing foreign orders
night take up capacity of the plants that interested Burcaus contemplate
using,
c. To secure such military information 83 is obtainable from
these foreign sources.
d. To confer freely with other Government departments in carry-
ing ISS its functions.
Basic Policies - The following basic policies will govern the
activities of the committee:
a. Friendly foreign states are to be advised concerning the
CONFIDENTIAL
Regraded Uclassified
procurement of munitions In this a.4 will -- fish :-
s Lone and specifications =. === nateriel -- - Le stated sur EX-
1sting law and approved dists, POTICES AM une orders
are placed with American tender rers.
5. Orders all De deced by foreign with =
ready engaged in production of for me account provided =
procurement program is not delayed therety, and provided all Information
relating to confidential asterials then under namianture is the :00-
cerns is safeguarded La accordance with the instructions =1 the Luited
States Departments or thereof having asterials antered
therein.
C. The augmentation of Industrial cipacity for get-
duction by means of foreign oriers operates to streegues our DE an
tional defense position.
d. Our designs of mierial should not te released to 1 foreign
power unless minufacture LE to Se undertaken by - reputable fire
in the United States and in such substantial quantities os to name the
firm a dependable national defense asset for the carly of
these items in time of war.
C. The United States will assume no responsibility for the it-
spection of materiel produced for a foreign power, but advice say be
given If solicited. T..o inspection of materials by foreign inspectors -
plants manufacturing equipment DE classified contracts will be dose as
heretofore in a manner satisfactory to the departments or bureaus having
such contracts in those
f. In every case, careful study will be given DO 1. sure that
release of information Aces not violate the Espionage dat.
E- All minufunturers, exporters, and importers of items de-
fined by Executive Order as Area, ammunition, and implements of K.: are
subject to registration with the lational Munitions Control Board, whose
operating agency .3 the Division of Controls, State Department.
h. Export and import licenses, issued by the Division of Com-
trols, State Department, are furnished to registered miltions and
turere, except where the LOSUN of such liechaus will violate some law of
the United States or = treaty to which the United States is - party.
i. The following policica regarding military secrets of 10-
terms to the national are quoted from the purphict
time Traffic in Arca" riblicard by the DO artment of State:
"SPECIAL PROVISIONS IS POGARD 10 VILITARY SECRETS
"Title 1 of the Lapienage Act, approved June 15, 1917,
reads in part as follows:
"Thoover, with Intest or roason to boltown that it is to
-2-
CONFIDENTIAL
Regraded Uclassified
to and to the injury of the United States or to the strange
of 1 foreign cation, communicates, delivers, or transmits, or
as stampts to, or AIGS or induces another to, communicate, deliver,
w transmit, to any foreign government, or to any faction or
party by or military or raval force within 1 foreign country, wheth-
# recognised or unrecognised by the United States, or to any
representative, officer, agent, employee, subject, == :itizen
thereof, either directly or indirectly, any document, writing,
code book, signal book, sketch, photograph, photographic regative,
blue print, plan, may, model, note, instrument, applicance, or in-
formation relating to the national defense, shall be penished by
imprisonment for not more than twenty years
"The Secretary of State will not issue B license authoris-
ing the exportation of any arms, amminition, or implements of was
considered by the Secretary of War or by the Secretary of the
Havy as instruments DE appliances included among to: articles
covered by those terms as used in this act if, in tair spinion,
they involve military secrets of interest to the cational defense.
The articles which "A" be so considered are articles failing with-
in one of the following categories:
((a) articles, the whole or any features of with have
been or are being developed or manufactured by or for the WAR X-
partment or the Dary Department or with the participation of
either of those Departments; and
(b) Articles, the whole or any features of which have
been used OF are being used by the War Department or the Sary X-
partment or which either Department has contracto4 to procure.'
"Included among articles developed of or der the HAT Depart-
ment or the Havy Department are articles the development of which
has been contracted for by either of those departments, or which
have been developed in accordance with Army or specifications
and submitted to elther department for evaluation for procurement.
"Prospective exporters of arms, ammunition, and implements
of war should, before analying for a license to authorite the ex-
portation of any article falling within the above cutegories antional which
may defense, communicate vita the Secretary of State -:. Aven store
possibly involve military secrets of interest to the of the
proposed shipment in Dreat that 20 may be in a position 11 licrets
tain for the prospective exporter whether or not and
are, in fact, involved turolu."
Release articles ::: foreit s.le coming vituta the 0:300 nd of service the
abrie 02 is rase = the action of the Socretarios of for with
the thist paragraphs of the reguly - = service concerned, after corrdination to the
unlig or SAVING 1,3 the C.SC == 24,
Antistant ares and the dr.] C-2, or to the Tiructor of level Intelligenco, will by
de ation Chief to to or Staff, TAB industrial [datures of the propied
-3-
CONFIDENTIAL
Regraded Uclassified
presented by the Army and Navy Munitions Board. The matter is then re-
rerred for final decision to the Secretary of War or the Secretary of the
sary.
2. Where an agreement with a foreign power limits some feature
of age of our own designs to use by our Government only, foreign buyers
will be advised to make their own arrangements with the foreign power with
which the United States has an agreement.
k. There is no general authority of law to sell any government-
and stocks of munitions direct to a foreign power nor for production in
. government plant for foreign account. Action by Congress in each case is
secessary.
1. Foreign buyers will be informed that they must make their
- arrangements for use of patents applying to the material being pur-
chased.
n. Any information divulged will be given directly to officials
of the foreign governments and not to middlemen. Where it in necessary to
turn over drawings and specifications to an American manufacturer to enable
No to bid on a foreign order, copies of this information will be furnished
raly to the manufacturer concerned, and then in a confidential status. After
a. firs and substantial order is placed, copies may bo furnished to the for-
sign inspectors and to the foreign government concerned 50 that the materiel
say be subsequently maintained.
5, Procedure of Clearance Committee - The general procedure of the
Clearance Committee will be LE follows:
3. Each interested Burcau of the Navy and Supply Arm or Service
of the Army will designate a contact officer who will obtain decisions from
bis own chief and transmit same to the Committoe.
b, Foreign buyers will first catablish contact with the State
Department. After spproving their credentials, the State Department will
refer the foreign buyers to G-2, For Department General Staff, or Office of
Karal Intelligence, Navy Department. After proper identification by the
intelligence services, foreign buyers will be referred to the chairman of
the Committee.
c. The Clearance Committee will refor all itoms desired by for-
cign buyers to the chief of the supply irm, service or burcau concerned for
commideration of the release status of the itums with respect to military
information. The thief of the suggly arm, service or burcau will notify
the Clearance Committo diroct concerning all itoms of American dosign
which have previously boon released. Itoms not proviously rolomod will be
prod wed in accordance with present practice, the industrial features of
the Typlem being présented by the Army and Navy Munitions Board in accord-
MODE with the recommendation of the chief of the supply arm, service or
bure concerned. The lecision of the Secretaries of Your and Navy on items
and Date not already bear. released will be transmitted to the Clearance
CONFIDENTIAL
Regraded Uclassified
Come
by the Office of Naval Intelligence or the Military Intelli-
genos
ision, General Staff. It will then be the duty of this Commit-
100
tain the final action by the State Department on the specific
squil
involved.
de After clearance of design is settled, the Clearance Com-
after ll then suggest, on the recommendation of the interested supply
agent 14 of the War and Navy Departments, several sources for placement
of orders, due regard being given to our procurement program and the bost
of industrial preparedness.
1. Foreign buyers will be informed that munitions ordors must
be plaased with registered manufacturers who will be required to obtain ex-
part )Sconses, both of which functions are administered by the Division of
Controls, State Department.
1. Close liaison will be maintained with the Division of Con-
trols to keep informed as to export licenses issued and to secure such
other military information on minitions transactions as may come into the
hands of the State Department.
& For commercial items covered by military specifications,
clearance for release of specifications only will be required.
The Clearance Committee will also lend every assistance to
foreign buyers, if so solicited, by recommending reputable sources for such
ordinary commercial items as machine tools, whore development of productive
expecity has a vital effect on industrial preparedness.
he The military intelligence services will act on requests to
visit Government plants, proving grounds, commercial plants in which
Government orders are in process, or to examine military items, in conform-
ity with their usual routine in these matters; the Clearance Committee will
arrange for contacts and visite to commercial plants not executing Govern-
- orders.
1. The Clearance Committee will gather information concerning
foreign orders in this country from the State Department and other sources
and Turnish same to interested agencies of our Government.
The Office of the Secretary of the Army and Havy Munitions
Boxe will be the office of record for the activities of the Clearance
C
the, The files of the Army and Navy Munitions Board covering plant
allegar lone will also be posted with such information as is applicable.
&
Matistics as are necessary will be prepared by the Statistics Di-
*34
Army and Navy Munitions Board.
k. A file will be kept by the Clearance Committee containing
&
record of all conferences, agreements reached, and other business
Sed. It is essential that all verbal conferences, in particular,
rately reported in the files.
and Navy itéms by the Havy mombers In accordance with the policies
1. In general, army items will be considered by the Army FOR-
dedure outlined above.
CONFIDENTIAL
Regraded Uclassified
COPY 02 COPY
The Secretary of State to research DOE Itments to their
Excellencise and Wessieurs the Chiefa of Mission and :at the
honor to inform than that the and Savy Munitions board,
which is charged with the duty of coordinating governmental
action in connection with purchase in this country to the extent
necessary to safeguard the regress of the Par and Savy Depart-
ments, to create additional manufacturing capacity in the United
States and to rotact TOCAS of receive or critical materials
accumilated in this country, 1, desirous of learning of orders
which have been or may be placed in - country by foreign 10Pm
eruments for all mipy liss for military or navel ase. It desires
this information in order that it may fulfill its duties as out-
lined above without causing any understary inconvaniance to for-
eign purchasers.
It would be greatly appreciated, therefore, if the Chiefs
of Mission could find it possible informally to communicate to
the Division of Controls, Department of State, for transmission
to the Army end Navy Munitions Board, information in regard to any
varilled orders for all supplies for military or neval use which
may have been placed in the United States by any purchasing agents
Regraded Uclassified
Mair governments. It would also be appreciated if the Chiefs
Masion could from time to time informally comminicate to the
Rivision of the Department information in regard to orders
-
my be placed here in the future by any purchasing agents of
Visir governments. All such information submitted to the Depart-
and the the use of the Army and Navy Munitions Board will, of
energo, be considered as strictly confidential.
Department of State,
Bashington, Nevember 6, 1939.
811,24/1170
COPY
COPY OF COPY
N En BOTSE
December 6, 1939.
My dear Mr. Secretary:
I have created AT informal committee to represent the
American Government in its contacts with the interested foreign
governments in all matters relating to the purchase of war
asterials in the United States, consisting of the following:
(a) The Director of Procurement, Treasury
Department; (b) The General of the
Army; (c) The Paymenter General of the Navy,
This committee will NETE as the exclusive lisison with
reference to procurement miters between this Government and
the interested foreign governments. It will hold sessions
at least once weekly, and at net more frequent intervals as
any be necessary. it these sessions, it will receive an
ascredited representative of the embasey of any interested
foreign government for the pur ,084 of giving consideration to
the requirements of such government for supplies, equipment,
and materials, in relation to: (e) availability of the desired
articles, (b) priorities, and (c) prices. The Committee will
submit a. complete report of :Le proceedings, acts and recom-
mendations, at least wetly, 20 the President through Mr.
Melaynolds.
The Secretary of State informed the British and French
imbessadors of this amount.
Will you please Lifore the Paymenter General of his
designation as e nember of this committee,
Translin n. Roosevalt,
Charles Edison,
Asting Secretary of Yery.
Regraded
Uclassified
TREASURY DEPARTMENT
218
INTER OFFICE COMMUNICATION
DATE December 13, 1939
TO
Secretary Morgenthau
FROM
Mr. Haas JOH.
Subject:
Wheat export sales and other market data from the
Federal Surplus Commodities Corporation.
Dec. 1: Export demand was very disappointing today, but
there were rumors that Great Britain was planning
on further heavy purchases of Canadian wheat. It
was estimated by Winnipeg grain people that
15,000,000 bushels of Canadian wheat and flour had
been sold for export the past week.
Dec. 2:
The Buenos Aires National Grain Elevators Board re-
ported today that Argentina exported 500,000 tons
of wheat, about 16,666,600 bushels, in November, the
largest month's total since 1919. All but 100,000
tone went to Europe.
The International Institute of Agriculture in Rome
estimates that exporting countries have a surplus
of 1,313,000,000 bushels, of which only 600,000,000
bushels will be required by importers during the
current season. The carryover at the end of the
season 18 expected to exceed 700,000,000 bushels,
establishing 8. new high record.
Sales of Canadian wheat and flour last week are esti-
mated at 15,000,000 bushels, making about 50,000,000
bushels sold in the past six weeks,
Dec. 4:
Week-end sales of grain for export were rather light.
It was estimated that sales included 400,000 bushels
of Manitobas, 100,000 bushels of Canadian barley,
and 120,000 bushels of American rye, worked to the
Continent and Denmark. Weekly world shipments of
wheat and flour totaled 12,213,000 bushels compared
with 10,448,000 bushels a week ago and 11,769,000
bushels a year ago,
Dec. 6: Export sales of Manitoba wheat were estimated at
close to 1,000,000 bushels to the Continent. This
included about 450,000 bushele to Norway.
219
Secretary Morgenthau - 2
Exporte of grain from the United States in the week
ended December 2 totaled 373,000 bushels, which com-
pares with 958,000 bushels shipped in the previous
week and 1,004,000 bushele exported in the like week
in 1938, the Department of Commerce reported. In-
cluded in the December 2 shipments were 277,000 bush-
els of wheat and 93,000 bushels of corn. Grain ex-
ports this season thus far totaled only 20,346,000
bushels against 57,425,000 bushels exported in the
same period of last season. Included in the Beason's
exports were 11,874,000 bushels of wheat and
5,875,000 bushels of corn.
Dec. 7:
Winnipeg was strong on good export business, eeti-
mated at over 1,000,000 bushels of Manitobas to
neutral nations, and buying by mills helped to force
the market to new high levels.
Freight was booked for 60,000 bushels of heavy grain
to Copenhagen from New York.
Dec. 8:
Winnipeg reported the sale of 250,000 bushels of
Manitobas and about 100,000 bushels worked by New
York exporters.
Denmark bought 360,000 bushels of No. 1 yellow corn
for shipment from the Gulf. There were also inqui-
ries for corn from Continental countries, including
Belgium and Holland.
Export flour sales this week are the best since the
first two weeks in September.
Dec. 9:
Export sales of 250,000 bushels to 500,000 bushels
of Canadian cash wheat were reported, but business
was restricted by inability to secure ocean freight.
New York exporters reported that they could have
sold several million bushels if freight space could
have been booked.
Regraded Uclassified
December 13, 1939
20
3 pm
Present:
Xr. Teutomu Nishiyama, Financial Attache
Mr. Cochran
Mr.T: Thank you very much for seeing me.
HM,Jr: We have met before. Won't you sit
down? You have been talking with Mr. Cochran?
Mr:T: Yes.
HM,Jr: Have you been in Washington all the
time?
Mr. T: No. No. I always stay in New York.
It is very fortunate to have Mr. Cochran here because
I want to offer some explanation because we are ship-
ping some gold, e. little more than usual at this time.
HM,Jr: I see.
Mr. T: In general our trade 18 much better
this year than it was last year. But since outbreak
of the war
HM,Jr: which war?
Mr. T: European war, Great Britain made some
exchange control and then India, Singapore, has this
exchange control, over the Far East, 80 that our money
tied up everywhere in Great Britain Dominion. It 1a
pretty difficult to get money from London to New York.
And furthermore our export bills cannot be paid on
account of the blockade of business. We can't be
paying. So we are short of funds in New York. And
I think we started to ship about two or three weeks
ago just about twice the amount we usually ship. It
will continue for sometime. We must have strength
221
-2-
in our balances this year in New York. But in Japan
since last year the Government was buying from private
gold. It WB.6 wonderfully successful and we are pretty
comfortable. The amount is not
....
HM,Jr: Buying gold from whom?
Mr. T: Japanese people. Private hoard. Bo
we are pretty comfortable. We need sell certain amount
of gold to tide over this temporary difficulty without
drawing upon the reserve of Bank of Japan. I don't
know how much it will come to, but, anyhow, I think we will
ship for one, two, three months rather big amount, then
it will stop, because perhaps, we anticipate, we can
draw money from around Singapore, Australia, everywhere
from British Dominion.
HM,Jr: But now it 18 blocked.
Mr. T: Yes. Certain amount of money tied up,
and this difficulty 18 only temporary and it will be
all right after few months, I guess.
HM,Jr: Well, have you any idea as to the amount
of gold you will be shipping here for the next few months?
Mr. T: I think about 200 million yen, about
$50,000,000. I think we will ship just about the amount
we shipped in last year.
HM,Jr: I see.
Mr. T.: Yes; roughyl. But for this war, this
European war, we might have been much more comfortable.
HM,Jr: I see.
Mr. T: Yes.
HM,Jr: I see. Well, I appreciate your coming
in to tell me.
Mr. T: Yes. Yes.
HM,Jr: I have no comment to make. Our policy
18, as you know, until further notice we will buy gold
222
-3-
at $35.00 less 1/4%.
Mr. T: Yes.
HM,Jr: And that 1s still our policy.
Mr. T: I hope BO.
HM,Jr: But there is a lot of gold coming
this way from all directions. That's our worry,
isn't it?
Mr. T: Yes.
HM,Jr: If I might ask 8. question as long as
you are here ...
Mr. T: Yes.
HM,Jr: Are the proceeds of the sale of this
gold
Mr. T: Yes.
HM,Jr:
....
what proportion of that is used
in the United States?
Mr. T: Practically all the money is spent
in this country.
HM,Jr: It 1s.
Mr. T: Yes. And we must make provision for
paying our coupons of Government bonds, municipal
bonds and utility bonds issued in this country. It
1s pretty
.....
HM.Jr: .... heavy?
Mr. T: .... yes, heavy.
Mr. Cochran: May I ask, were you not with
the Yokohama Specie Bank in New York?
Mr. T: I was asked to resign that Job and
I have separate office.
223
-4-
Mr. Cochran: But you were with it?
Mr. T: Yes. Yes.
HM,Jr: But you have only been in this country
six months? Nine months?
Mr. T: Yes. Six months, but I was here about
three years ago. I was Manager of Yokohama Bank.
HM,Jr: There 18 nothing we can say other than
thank you forthe information.
Mr. Cochran: Yes.
HM,Jr: We like to know what's coming. It
18 helpful and now that you know Mr. Cochran come
down oftener. Don't wait 80 long.
Mr. Cochran: I will be very glad to see you.
Mr. T: Thank you very much, Mr. Secretary.
000-000
Dearsded
24
COPY
No. 248
AMERICAN
CONSULATE
Rangoon, Burma, December 13, 1939.
STRICTLY CONFIDENTIAL
Subject: War materials for China; statistics of imports at Rangoon.
THE HONORABLE
THE SECRETARY OF STATE,
WASHINGTON.
Sir:
I have the honor to report, supplementing information
which has been transmitted to the Department, that imported war
materials for China shipped from Rangoon during the period from
October 14 to October 27, 1939, were valued for Customs purposes
at Rupees 3,243,399, or $1,135,189 at exchange of 35 cents to
the rupee. Statistics relating to these materials are transmitted
herewith.
At the end of the period mentioned the total value of all
war supplies for China shipped in transit through Burma stood at
Rupees 82,264,894, or approximately $28,792,712.
Respectfully yours,
Austin C. Brady
American Consul
In quintuplicate to the Department.
800
ACB
- 2 -
225
WAR MATERIALS FOR CHINA
Statistics of imports at Rangoon inspected and passed for transit during the
period from October 14 to October 27, 1939.
Type of
Number
Description
Country of
Value
Material
pkgs.
and Quantity
origin
Rupees
Aeronlane parts
1
No description
Great Britain
2,653
28
II
If
United States
121,085
Machine guns
101
Madsen 7.9 mn. guns
and accessories, ma-
chinery and parts; 100
Denmark
196,860
34
Madsen 20 mm. machine
cannon with mountings
and accessories; 14
Il
152,893
Rifles
680
Mauser 7.9mm.; 17,000
Belgium
936,321
Fuses
12
Safety, with 5. Y. V.
No. 30; 3,600 coils
Great Britain
2,115
Nortars
8
81 mm. with accesso-
ries and 51 rounds
shells; 1
United States
8,530
50
Brandt 60 mm. with ac-
cessories; 50
France
67,000
Cartridges
460
Madsen 20 m.; 21,000
rounds
Denmark
188,745
11,500
7.9 mm.; 13,000,000
Belgium
1,567,197
Total
3,243,399
- 3 -
226
WAR MATERIALS FOR CHINA
Imports at Rangoon inspected and passed for transit during the period from
October 14 to October 27, 1939.
RECAPITULATION BY COUNTRIES OF ORIGIN
Country of
Value
Equivalent
origin
Rupees
U. S. Dollars
1. Belgium
2,503,518
876,231
2. Denmark
538,498
188,474
3. United States
129,615
45,365
4. France
67,000
23,450
5. Great Britain
4,768
1,669
Totals
3,243,399
1,135,189
RECAPITULATION BY TYPES OF MATERIAL
Type of
Value
Equivalent
Material
Unit
Quantity
Rupees
U.S. Dollars
1. Cartridges
No.
13,021,000
1,755,942
614,580
2. Rifles
"
17,000
936,321
327,712
3. Machine guns
#
114
349,753
122,414
4. Airplane parts
---
123,738
43,308
5. Mortars
No.
51
75.530
26,435
6. Fuses
If
3,600
2,115
740
Totals
3,243,399
1,135,189
COPY
No. 243
227
AMERICAN CONSULATE
Yunnanfu, China, December 13,1939.
SUBJECT: Highways of Northwest China.
The Honorable
The Secretary of State,
Washington.
Sir:
I have the honor to enclose for the Department's
information a copy of the pertinent parts of a letter
received from the Reverend Paul 1. Contento, reporting
on the conditions of the highways in Northwest China.
Mr. Contento, an American missionary, was transferred
from Tunnanfu to Liangchow, Kansu, and traveled from
Yunnanfu to that place by motor truck. The letter is
dated November 9. 1939, at Liangchow.
With respect to Mr. Contento's statement that
the Russian trucks used in the northwest all burn gaso-
line, it should be noted that according to information
received by this Consulate from an employee of the
Dunlop Rubber Company who has contacts in the northwest,
gasoline is cheaper in Sian than in Chungking. Accord-
ing to the same source, trucks arrive in Sian from the
220
- 2 -
Russian border at the rate of 80 to 100 per day.
Respectfully yours,
/s/ Paul W. Meyer,
American Consul.
Enclosure:-
Copy of letter from Mr.
Contento, dated November
9. 1939.
In quintuplicate.
Copy to Embassy at Peiping.
Copy to Embassy at Chungking.
800
SCB:Epy
Enclosure to despatch No. 243, dated December 13, 1939,
from Paul V. Meyer, American Consul, Tunnanfu, China, to
74
the Department of State. Washington, on the subject:
Highways of Northwest China.
"We had quite & thrilling trip getting here. From Kunming to
Uhungking we went on Red Cross trucks but from Changicing to Lanchow,
I drove a two ton 1935 Ford truck which belongs to our Mission.
Contrary to expectations, I had no trouble at all.
*From Chungicing to Changtu, the road surface 1s quite bad, but
from there right on to the Shenei border, it steadily gets worse And worse.
For about a stretch of fifty miles, just beyond Kwangyuan, the road
is simply avful. It is out out of the side of rocky cliffs and so
narrow that B. truck has to scrape the rocks in order to keep from
going over. And there is a drop of about one thousand feet to the
dry river bed below!! The roads in Shensi are splendid. but once ve
turned at Swang Shih Pu, (some 200 kilomater south of Pu Chi, rail-
head) to go into Kansu, the road vas quite poor again. It is B. Dev
road they have put in which goes direct to Tienshui. The road is
well engineered and the bridges all in but the surface is pretty bad,
The road continues about the same in quality right to Rus Chia Ling,
(near Ting Hai) where the Tienshui road meets the Lanchow-Sian road.
Here the road is very good. Of course, it rains 80 seldom in these
parts that they do not bother to put in a. stone foundation like in
the Yunnan-Eweichow roads. The road from Lanchow to here is fairly
good and continues the same right to the Sinkiang border. I say
very good, but I should qualify that because while the road in very
wide, the section stoned is only about the width of B truck wheel
base. The stoned section 1s about six or eight inches higher than
the rest of the road. This makes very difficult driving and accounts
for many accidents as once the truck geta off the stoned surface, the
drivers seen to make for the ditches. All the trucks used in the
northwest are of Russian make and AN very clumsy. They all use 6280-
line.
"Well now, when are we going to have the pleasure of entertain-
ing you in Linngchow? You could easily nake the trip from Hunming
to here in 8 days even though there are 10 ferries to crose between
Chongtu and Hanchung. & WATE velcome avaits you here."
Regraded
JR
PLAIN
MA
230
London
Dated DECEMBER 13, 1939
Rec'd 12:05 p.o.
Secretary of State,
Washington.
2610, December 13.
FOR TREASURY.
1. The text of the statement on the Anglo-French
financial agreement circulated in Parliament last night
after Simon's announcement reported in the fifth paragraph
of No. 2599 of DECEMBER 12, 6 p.z. follows:
"1. The two Governments have agreed that it is in the
interest of both countries to avoid clterations in the
existing offici-1 rate of exchange between the pound
and the franc,
"2, The francs required by the United Kingdom (including
those for the B,E,F.) will bE provided against payment in
starling, and the sterling required by France (including
that required for the purchase of rav materials in the
British Empire) vill bE provided against francs, Both
countries will for the duration of the the bE in n. position
to cover the whole of their requirements in the currency of
the other country by payment in their own currency without
"ny question of their having to find gold.
"3. The sterling held by the French monetary
authorities
Regraded Uclassified
231
⑉2⑉ 2610, December 13, from London.
authorities will be avoilable for Expenditure throughout
the sterling open, end the francs hEld by the United
Fingdom monetary authorities will bE available for
Expenditure throughout the French Empire.
"4. The question of sharing Equitably the Expenses
necessitated by the conduct of the wer hich the two
Governments have to defray in gold end doll ro will bE
kept under review.
"5. The United Mingdom and French Trensuries will have
frequent meetings to review the position of the /.111ed
Governments 15 regards their resources in gold and foreign
Exchange.
"6. Neither Government will raise 2 foreign loan
or credit EXCEPT in agreement with (or jointly ith) the
other Government.
"7. Neither Government vill impose fresh restrictions
on the imports from the other country during the ver for
protective purposes or for Exchange reasons.
"8. The two Governments till unintain controt as
regards their policy in regard to prices.
"e. Finally the two Governments 111 share certain
items of Expenditure in the corrion cause such ns financial
resistance to other countries and the cost of the armed
forces
232
-3- #2610, DECEMBER 13, from London.
forces of their Polish ally. The contribution of the
two Governments will bE fixed on c. basis which "ill take
due account of the national wealth of Ench. In general,
the French contribution will bE 40 per cent and the United
Kingdom contribution 60 per cent of the total.
"10. These arrangements vill remain in force till
six months after the signature of the treaty of PERCE,"
Press comment this morning, which unanimously
welcomes the agreement, Emphasizes the importance of
the fact that the Exchange clearing arrangements Extend
to the whole French and Britich Empires, and also the
significance of the fact that Equitable sharing of gold
-nd dollar resources Are to bE kept under review, The
two nost interesting comments are in the NEWS CHRONICLE
end the FINANCIAL NE S. The latter states that discussion
is centered on the reference to price levels in the two
countries since if the sterling-franc rate is stabilized for
the duration of the war it will bE Essential that idention]
policies should bE pursued regarding the trend of the
respective national price levels. This crticle points out
that up to nov prices in France have been kept down with n
firm hand while in the United Kingdom they have risen
considerably 30 that unless nessures TE taken more
drastically
233
-4- #2610, December 13, from London.
drastically to stabilize prices in Britain the two Economic
systems may get out of Equilibrium. The NEWS CHRONICLE
financial Editor stresses the SOME point 1th greater force,
pointing out that keeping the pound-franc rate stable
without resort to settlement of belances in gold or by
tariff notion involves "-- Sir John Simon soid, subsequent
discussion of the more gener^1 problems of price policy and
also (which hE did not mention) of LOBE policy." The NEWS
CHRONICLE writer 30ED on to point out that wage rates have
been stabilized in France by government ordinance while in
Britain they TE undergoing idesprend rise, and that
continued divergence must finally break down the currency
agreement. In this connection it in significant that SEVEN
British trade union lenders go to Paris this week for the
first of a series of monthly meetings with their French
counterports to discuss war-time labor legislation, with
special attention to the French labor decrees stabilizing
Hages, Et cetera, the results of this meeting, following
that of the National Joint Advisory Council with Simon and
other ministers reported in the second section of No. 2562
of December 7, on the British trade union attitude to var-
time HAgE problems will bE of for renching importance.
Incidentally
134
-5- #2610, December 13, from London.
Incidentally since my No. 2167 of October 25, VAgE
increases have been numerous. On December 2 the DAILY
HERALD bonsted on behalf of trade union leaders that they
had negotisted wage increases Equal to pounds 30 million
= year for four million orkers during the 13 WEEKS since
var began. This covered, mong others, workers in the shoe,
rubber, paper, drug, bacon curing, linen, furniture,
engineering, building trades and agricultural workers.
Meanyhile transport Workers md local government Employees
and others are pressing for VAGE increases.
2. Government returns for the YEEK ended December 9
sho = drop from lost week's park in Expenditure (reported
in No. 2551 of DECEMBER 6) of pounds 76.3 million to
pounds 43.8 million. The proportion required for national
dsbt interest WSS pounds 22.6 illion and pounds 9 million
reconstively. Ordinary revenue totalled pounds 13 million.
Receipts (net) from national sevings certificates were
pounds 5.2 Million -nd subscriptions to baby defense bonds
yielded pounds 6.35 -illion. These ith the mounds 25 million
Expansion in the tender Treasury bill issue to pounds 700
million cmounted to pounds 5.8 million core than the week's
deficit of pounds 30.7 million and consequently the tap
issue the reduced by pound 4.5 million and and means
advances by pounds 1.3 million, making the total floating
debt
46
235
⑉6⑉ #2610, December 13, from London.
debt pounds 1,473 million, or pounds 19.3 million up on
December 2.
3. The official belga rate was fixed weaker at
24.30-55 today and the Argentine peso at 17.30-80, but the
Swedish and Norwegian rates were unchanged.
JOHNS ON
HSM
79(e)
FEDERAL RESERVE BANK
OF NEW YORK
EFFICE CORRESPONDENCE
DATE
December 13, 1989.
CORFIDENTIAL FILES
SUBJECT TELEPHONE CONVERSATION WITH
L. W. Knoke
BANK OF ENGLAND,
230
I called Mr. Bolton at 12:50 today. There was 0 good
deal of confused and confusing information in this market about a
changed attitude on the part of the British Exchange Control towards
cotton bills for forward delivery. What could he tell me in this
connection? Under the present arrangement, Bolton replied, exchange
WAS given at the official rate against bills covering merchandise
"actually on the move". In order to protect themselves against
being handed clean bills, that is, non-documentary bills which
had nothing to do with actual merchandise operations, they were
now insisting that any bill offered to the British Control for
settlement at the official rate was guaranteed to have documents
sttached within 10 days) this was considered a reasonable time for
the 5 ippers to move the merchandise out of the warehouse, load it,
obtain shipping documents, attach the documents to their draft
and have it collected through their bank. If the exchange trans-
action had to do with a sale of merchandise for forward delivery,
the foreign seller could easily protect himself on the exchange
risk by arrenging with the British buyer to apply through his
bank in England for foreign exchange for forward delivery at the
official rate. The Briti sh buyer would describe the merchandise,
would produce the import license and on the bank's knowledge of the
business, the exchange would be allocated. This was the only way
the British Control could make certain that the foreign exchange
applied for did not 6° into the wrong hands and did not serve
Regraded Uclassified
a
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE correspondence
DATE December 13, 1930.
CONFIDENTIAL FILES
SUBJECT. TELEPHONE CONVERSATION WITH
TO
Lae W. Knoke
BANK OF ENGLAND.
FROM
237
8
speculative purposes. The foreign seller who had a contract for
the sale of merchandise for
/forward delivery could protect himself as to the exchange rate
in the future as he had in the past but instead of doing it in
his own market as heretofore, the buyer would do it for him in
London. The fact of the matter was that this was the kind of
arrangement that had been contemplated from the outset but it had
taken a long time for the British importers to realize that that
was the way in which the business should be done. There had been
a great deal of confusion particularly in Lancaster due to the
fact that cotton dealers there were trying to do their business
in war times as they had done it in peace times:
According to Bolton, then, the foreign shipper continues
to have the same protection as in the past but instead of covering
his forward exchange in his own market hereafter it will be up
to the British buyer to do it in London. The official rate, of
course, remains unchanged.
LWK:KW
BECEINED
THE is
- % M - -
- - w
of
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
238
DATE December 13, 2939
TO
Secretary Morgenthau
FROM
Joseph P. Cotton, Jr.
Es: Dxyort-Ingart as Credit
to
At a meeting of the Board of Trustves this E resulution
destel, subject to the recording of the tou State Department votes
- pure not yet been cast in favor thereof, mode L 3 millions 000-
- IA flvor of the Finnish-Anericen Corporation, = corpora-
11. Lelag organized today, to be used to finance the export of American
- other than armazents and munitions, the purchase of which shall
by - by the Bank, disbursements to be mide against shipping doca-
The matter was considered yesterday at an Executive Committee
of at which no decision was reached except to request the President of
the Bank to find out 10 the FFC, in view of the present financial condition
of the 3822, would not be milling to assure the nucle $10 aillions comit-
next sublicized by Mr. Jones. This sorning approval DUE requested of a.
03 recommitment, it being assumed, although the EFC Board has not
ecter, that Vr. Jones will secure their approval of the 57 millions coult-
vert. Sather violent objection RES takes by Tels to the fact that the TSC
as not committed and that disbursements would te zade first IT: the 300
with - issurance of RFC participation in current disbursements. in the
of Terren Pierson's review of the positiva of the Sank 100 the reduction
1. the Account to $3 millions, I did not lisist CO there objections.
The substance of the transection received little discussion. 12
X to however, it seems clesr that the credit cannot produce
Vwitive all to Finland unless through agrangements vità Crest gritals
a No: powers in a position to render effective help, hereby the X-
:- = =2 goods for export here by the Plans could be name 4. tasis for is-
export of armanents and other gooda from countries close to Plaint.
I === it, OL the basis of our conversation yesterday, that this is E. atter
Late thich you did not vish ne to inquire too closely and 1 = also indicated
it is = matter which Mr. Hull does not vish 20 take wi dità the
Under the circumstances, however, I should like to polit xt that
2/ the set-up designed by Vr. Jones (1) there little likelihood Is of
b credit teing of immediate, effective aid to Pinizai, ad (2) there
239
- 2 -
@4 possibility, if the Plans seve quickly in making purchases here,
= 33 millions being thrown any and the whole onus of the transaction
- the Export-Import 3012, although I suspect fr. Jones hopes
that the credit will not be largely drawn upon before the situation in
becomes clearer one Tay or the other.
Inder the circusstances I registered my vote in favor of the
indicating in so doing that : W&S acting under special 10-
from you.
18.C
240
MA
GRAY
Paris
Dated DECEMBER 13, 1939
REC 'd 5:40 p.m.
Secretary of State
Washington
2970, December 13, 7 p.m.
M
FOR THE TREASURY.
Our telegram Number 2963, DEVEMBER 12, 6 p.m.
The Franco-British financial accord has been
the subject of Enthusiastic comments in financial
circles today and has received the unanimous approval
of the French press. The latter has given it quite a
play and it shares with "Russia versus the League"
most of the front pages. While most Editorial comment
is largely in the nature of paraphrases of Reynaud's
statement and praise of his atle handling of the
negotiations Prederic Jenny has a leading article in this
morning's AGENCE ECONOMIQUE FINANCIERE in somewhat
more serious vein. Asserting that the financial accord is
fully as important as the recent Franco-British Economic
accord and that it implies "total monstary solidarity" It
BEEMS: "this means first that for the duration of
hostilities and six months following the signature of
the PERCE treaty French currency and the pound will bE stabil-
ized in practice in their relationship to Each other apparentl
on the basis of present quotations. (END BULLITT SECTION ONE).
NPL
241
JT
GRAY
PARIS
Dated December 13, 1939
Rec'd 5:30 pame
Secretary of State,
Washington.
2970, December 13, 7 p.m. (SECTION TWO)
The Essential point is that stabilization will be
Effected without gold movements. The French Government
will furnish the English Government against pounds the
francs which the latter may need for its expenditures and
its purchases in France and our Colonial Empire and re-
ciprocally the English Government will place at the disposal
of ours against francs the necessary pounds for settlement
of French purchases in the United Kingdom and in the starling
area that is to say, the entire British Empire EXCEPT Canada,
But monetary solidarity does not Exist only in the TE-
lationship between the franc and the pound. It is equally
manifest in the relations of the two countries with other
states and that in two respects: (first) the two govern-
ments have decided that they will share fairly expenditures
to bE made in gold or in dollars. That means that just as
Economic resources of the two countries have been pooled
their foreign Exchange resources - which furthermore will
bE
242
-2- #2970, DECEMBER 13, 7 p.m. (SEC TWO) from Paris
bE the object of frequent surveys - will form in Effect
one sole mass 'as sole' war treasure.
BULLITT
NPL
n.
243
GRAY
PARIS
Dated December 13, 1939
Rec'd 5:43 p.m.
Secretary of State,
Washington,
2970, December 13, 7 p.m. (SECTION THREE)
(Secondly) Each of the two governments will refrain from
contracting foreign loans or from soliciting credits without
prior accord with the other, thus in the common interest
competition al ready set aside in ourchased of raw material 3
or of war materials will be equally 30 in the field of
international credits." The psychological aspects of the
agreement as a further answer to Germany's efforts to separe
ate the two allies are also stressed in the comments WE have
heard, as well as hopes that some of its principal features
and the cractical cooperation which It demonstrates may
long survive the war. Nor has the importance of the mutual
agreement to impose no new protecting tariff measures been
overlocked. There is pleasure too that early press reports
from Washington indicate that "the agreement has received
favorable comment there" and that it is not considered as
infringing "the functioning of the tripartite monetary
accord".
BULLITT
NK:N PL
244
JT
GRAY
PARIS
Dated DECEMBER 13, 1939
Rec'd 6:08 p.m.
Secretary of State,
Washington.
2970, December 13, 7 p.m. (SECTION FOUR)
One despatch states "political circles add that relative
stabilization between London, Paris and Washington of their
respective currencies may SERVE to restore to the world at
the appropriate time the bases of a future Economic order
in conformity with the 1dea so dear to President ROOSEVELT
and Monsisur Cordell Hull".
The Natherlands Bank statement for the week ending
December 11 shows gold reserves down 6,000,000 florins to
1,019,000,000. Total liabilities are 1,345,000,000 as
against 1,353,000,000 the previous WEEK. Gold coverage
is down from 75.08% to 75.01%. It is commented locally that
this small further reduction in gold reserves indicated
continued demand in dollars but largely for commercial needs;
there is no indication of any important flight of capital.
BULLITT
NPL
245
JT
GRAY
PARIS
DatEd December 13, 1939
Rec'd 6:18 Dalla
Secretary of State,
Washington.
2970, December 13, 7 p.m. (SECTION FIVE)
The B 1 S statement for November shows a slight re-
versal of the previous downward trend. Gold holdings are
up 4,500,000 Swiss francs to 22,100,000. Rediscountable
bills and acceptances are up 1,600,000 to 159,700,000
and cash is up 12,800,000 to 28,600,000. Short term de-
posits are up 7,500,000 to 27,600,000 and total resources
are 460,000,000 compared wi th 452,000,000 on October 31.
The Paris securities market was subject to profit
taking and turned heavy toward the close. Moderate gains
and losses were the rule EXCEPT for rentes most issues of
which continued to gain on the everage 1,50 francs. The
Exchange guaranty issues WERE weaker, however, the 1937
issue losing 1.20 francs. The continued gain in rentes
without exchange guaranty is apparently due to the feeling
that the Franco-British financial accord has strengthened
the franc. Suez was down 500. Official Exchange rates
WERE unchanged EXCEPT for the belga which improved from
714-720 to 717-723.
(END OF ME33AGE)
BULLITT
NPL
246
The two Governments consider it is in
the common interest to avoid alterations in franc-
sterling rate and no such change will be made
without prior agreement between then.
Each exchange equalization fund will
continue to be solely responsible as regards
quotation of its currency in market in third
countries, but there will be close consultation.
British fund and French fund will continue
to sell to one another sterling for franc and frane
for sterling at official retes. French fund will
be thus sellers to United Kingdom fund of all france
required for our expenditure.
If French fund holds sterling in excess
of fifty million pounds excess will be funded in
form of Treesury bills repayable one year after
war and renewable for two further years. Frane
value of these Treasury bills will be guaranteed.
Same system will apply to france held by United
Kingdom fund.
No request will be usdo by either fund
for conversion of currency of other countries into
gold. sterling held by French fund will have 8
guarantee of its accounted franc value, and france held
by United Kingdom fund of their sterling value.
French may use their sterling in sterling
aream/
Regraded Uclassified
247
areas and by agreement in special cases elsewhere,
and " may use our france in French Rmpire and by
agreement elecwhere.
These are main monetary clauses. Agreement
also provided for contact between the two
Treasuries and cooperation in all questions of
common interest. Certain items of war expenditure
in common cause, such as expenses of Polish armed
forces, financial assistance to third countries
and losses resulting from blockade delays, will
be shared in proportion two for the French and
three for the United Kingdom. Agreement is to
remain in force for war period and for six months
after signature of peace.
BRITISH EMBASSY,
WASHINGTON, D. C.,
December 18th, 1939
BECEIAED
TRANTMANN YAURA38T
Regraded Uclassified
BR225
248
December 13, 1939.
Memorandum to The Secretary
From
Mr. Stewart.
Subject: Strategic Metals.
Questions:
How can the "moral embargo" of strategic metals be made
an effective method of restricting the war activities of
certain countries?
What 18 the best organization for assembling the necessary
information and for taking action based upon it?
What are some of the immediate and longer term conse-
quences of "moral embargo" of these metals, and what problems
can be foreseen?
- o -
The more highly "localized" metals are easiest to control.
These are molybdenum (U. S. A.), nickel (Canada), and vanadium
(Peru). Some degree of international cooperation would be
necessary to effective control. The less localized metals
(chromium and manganese) are to some extent substitute for
molybdenum, and manganese is & required alloy in all steels.
The information concerning present and prospective supplies
of manganese is therefore of first rate importance.
The extent of damage that can be done by withholding
certain of these alloys differs by countries:
Russia - Most nearly self-sufficient,- since it is
the chief producer of manganese and has adequate
supplies of chromium.
Germany - Most dependent upon outside sources, but
highly skilled in the art of substitution, and
under existing circumstances may draw upon Russian
supplies of alloys.
Japan - Most uncertain. Information concerning its
own production of chromium not available, but it also
2.
249
importe from the Philippines and supplies are
available in New Caledonia. Pressure on Japan
might result in that country making an agreement
with Russia concerning manganese.
U. S. A., Great Britain and France are all importers
of manganese, largely from Russia. The present and
potential supplies from other sources (such as Brazil
and Cuba) need to be investigated with particular
reference to present capacity and the time and money
required to increase supplies from these other
sources. It 16 also important to know how many
months supply of manganese is now stocked in the
U. S. A., Great Britain and France and whether these
stocks are adequate to bridge over a period during
which Russian supplies might be shut off. While the
U. S. A. might be able to meet its current requirements
from Brazil and Cuba, such action might shift the
deficiency to Great Britain and France.
General Considerations:
1. As an alternative to a "moral embargo" aimed at
complete withholding of embargoed metals it may be desirable
to consider a scheme of rationing. This could be supervised
by the trade after an understanding with the U. S. Government,
under/the Which amounts made available to any single country was
restricted to some pre-war basie.
2. Understanding reached with the trade will be subject
at some time to public explanation. For example, the manage-
ment of Climax Molybdenum will presumably be called upon to
explain to the stockholders the decline in exporte of molybdenum
to Russia. Is the company to Bay this was done at the request
of the U. S. Government, and upon what basis, - or is there
an alternative form of explanation to the public, No matter
how confidential the information may be regarded, the fact of
& moral embargo will soon be known in trade channels,
Sources of Information:
sources of information be used to the fullest extent before
In existing circumatances I recommend that Government
asking private industry for the facts. I suggeet that Harry
White and his division, possibly with the help of Mr. Kanarok,
now working under Captain Puleston's direction, be used to
collect and interpret the information.
3.
250
Others of us would be available for such consultation and
advice as seemed desirable. The reports of the Munitions
Board are said to contain basic information on these metals,
and some of these reports are already in the Treasury. On
existing stocks of manganese in this country the American
Iron and Steel Institute is probably the best source.
Information most urgently required concerns manganese.
I would be inclined to suspend further action on "moral embargo"
of strategic metals until manganese position was assessed.
Whatever the efficacy and risks of the "moral embargo" may be,
it is clearly desirable to have a full understanding of
international position of the strategic metals. This can be
justified as part of a preparedness program. It is less clear
that it is the function of the Treasury to assemble and
interpret this information.
TO:
12/13/39
MRS. KLOTZ
I would appreciate it if you would bring
this to the Secretary's attention 65 soon
LE possible, DE I ought to cell E. Trap-
hagen this ofternoon.
JPC,Jr.
From: MR. COTTON
TREASURY DEPARTMENT
251
INTER OFFICE COMMUNICATION
DATE December 13, 1939
TO
Secretary Morgenthau
FROM
Joseph P. Cotton, Jr.
Re: Colombian debt.
Mr. Traphagen called me this morning to say that, as & result
of his meeting with Jaramillo and Turbay in Washington last week and
E meeting which he arranged yesterday in New York to have them meet
the executive committee of the Bondholders' Council, the Council has
EE
Formulated an "irreducible minimum" in connection with any adjustment
of the Colombian debt. Mr. Traphagen would like to come to Washington
to see you personally in order to inform you of the situation either
Thursday, Friday or Saturday of this week - preferably Friday. He
would prefer to see you personally rather than the committee consisting
of Mr. Jones, Mr. Welles and yourself. He would like to explain the
situation to you before communicating the "irreducible minimum" to the
Colombians, because he sees little reason for so doing unless the
Council could be assured of the backing of the Government in this
position.
I told him I would communicate the above to you and call him
back as soon as possible.
I.P.C.P.
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
252
DATE December 13, 1939
TO Secretary Morgenthau
STRICTLY CONFIDENTIAL
FROM Mr. Cochran
The Canadian Minister talked with me by telephone at 12:10 this noon.
Ee stated that Colonel Ralston would be here on December 20. Since his
time is short, his schedule calling for departure by plane about 4 c'clock
in the afternoon, after arriving only in the midforenoon, it WEB desired to
learn whether there should be an arrangement for a conversation at the
Treasury before or after the luncheon which the Secretary 1s giving here
for Colonel Ralston and the Minister. When I reminded the Minister that
in his conversation with the Secretary a few days ago the decision had been
left to the Canadians a.e to whether they preferred to lunch at the Secretary's
residence, in the event that no publicity should be given their visit, or at
the Treasury, the Minister said he had informed the Secretary's private
secretary that they were not endeavoring to keep the visit confidential and
would be glad to come to the Treasury.
The Minister explained that they had no specific questions or anything
to ask of Secretary Morgenthau. The main purpose was to become acquainted.
Colonel Ralston might be accompanied by Dr. Clark. The Minister will inform
us definitely later.
Shortly after talking with the Canadian Minister, I reported my con-
versation to the Secretary who had me call back the Minister shortly before
1 o'clock, and tell him that the best time for an extended conversation would
be immediately after the luncheon.
The Minister raised the further question as to a communication to the
press. He suggested that he draft something along general lines which could
be given out and that he then submit his draft to us. I told him that if
be telephoned me after his draft was finished I would see that we got to-
gether with him.
H.M.R
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
A
DATE December 13, 1939
TO
Secretary Morgenthau
253
Mr. Cochran
STRICTLY CONFIDENTIAL
FROM
At 4o'clock the Secretary received Mr. K. P. Chen. Mr. Cochran and
Mr. Cotton were present. Mr. Chen read to the Secretary, and handed to
him, the copy, of a memorandum providing the information with respect to
Chinese production and export of tungsten which the Secretary had re-
quested some days ago. It appeared that only about 3,000 tons per annum
night be available for export to the United States, since the other WSB
pledged for barter to Russia or for sale to England or France, after local
needa were taken care of. The Secretary said to Mr. Chen that this
material night be made the basis for & loan more easily than tin. Chen re-
marked about the small amount, calculating that at $1400 per ton a loan of
only between $4,000,000 and $5,000,000 could be figured on. The Secretary
said that this amount was something.
The Secretary then referred to the list which Mr. Chen had handed him
on his last visit, and which the Secretary had passed on to the President.
The Secretary suggested that the Chinese Ambassador, who has not seen the
President since September 8, ask for an appointment and stay with the
President until he talked him into doing something for China's urgent needs.
Re told Chen that the Finnish Minister Procope had followed this policy
successfully, as evidenced by the $10,000,000 loan which has just been
arranged.
Mr. Chen had talked with the President of American Metale in regard
to sinc, and has had instructions to buy an increased quantity thereof, but
but has not yet made any arrangements, particularly because of the high
price.
The Secretary raised the question of the services of Mr. Sheahan. Mr.
Chen said that this man had rendered service of value, due importantly to
the fact that his influence was strengthened by the understanding that be
had been recommended by Secretary Morgenthau, Mr. Chen does not know how
fully his technical recommendations have been adopted or found practicable,
but he has been pleased to nee him working toward a coordination of trans-
portation in China which was corely needed. The Secretary voiced his dis-
pleasure at Sheahan's having charged Chen for time spent in calling on the
Secretary in Chen's behalf. The Secretary reminded Chen that ne intermediary
NBS necessary between them, and that he thought the money should be returned
to Chen. The latter deprecated the importance of this matter.
Regraded Uclassified
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE December 13, 1939
254
TO
Secretary Morgenthau
Mr. Cochran
FROM
STRICTLY CONFIDENTIAL
At 3:30 this afternoon the Secretary received the Belgian Ambassador
in Tashington and M. Theunis, who is here as "Ambassador at Large" for
Jelgium, and who has in the past visited the United States on various
missions and held important poste in the Belgian Government, including
that of Minister of Finance. Mr. Cochran WBS also present.
Mr. Theunis explained that he merely wished to pay his respects.
It had been thought sometime ago that it might be well for some Belgian
to cone to the United States who was familiar with the economic situation
in Belgium and who could speak on this as well as study the American
situation. Mr. Theunie reminded the Secretary that he had visited the
United States to effect the Belgian debt refunding agreement, following
after the British, and unfortunately having to pay a rate of interest
which has been found too high. He contrasted that rate of interest with
the present cost of money.
Vr. Theunis stressed the hardships now being imposed upon Belgium
by the war, While Belgium has an advantageous position in time of peace,
favoring it as a trading country, this same position of so small a
country reacts greatly to its disadvantage during B war such as this
where it is between two devils fighting and the deep sea which Britain
controle. He said that the port of Antwerp had suffered badly, as re-
sult of the allied blockude and Belgium is having much difficulty in
procuring raw materials. He said that while the British had held up
for B. few weeks certain vessels bringing American cotton to Belgium,
France had not only taken such vessels into the Port of Havre, but had
actually confiscated the cotton without making any payment therefor. Ee
said the Belgian Government had protested, but ineffectively. "That can
TE really do, when we Belgians are as sympathetic as the Americans with
the allied cause."
The Minister said that the Secretary of the Treasury would realize
what a problem his colleague in Belgium has in meeting the heavy expendi-
bure for keeping 600,000 men under colors, while suffering B. lack of
income from paralyzed shipping and business. V. Theunis mentioned the
problems of the Netherlande as being equally serious with those of
Belgium, the Port of Rotterdam suffering even more, From a military
standpoint, Switzerland had an easinr problem than these two flat countries, afford
because of the natural protection which the Rhine and the mountains
Switzerland.
Regraded Uclassified
255
-2-
The Secretary asked where Belgium was obtaining her iron ore. M.
Theunis said part of this came from France, while Belgium in turn
shipped coal to France. He added that some metallurgical coke had
been obtained from Germany, but that Germany insists on obtaining
materials from Belgium which England will not permit Belgium to
have and sell to Germany. This complicates Belgium's problem very
much. Questioned by the Secretary as to what materials Germany
needed most, M. Theunis thought her food supplies ample for some-
time. The greatest need was for materials such as copper, manganese
and various metals required in steel alloys. He did not think Russia
should normally provide foodstuffs for export to Germany, but admitted
if this seemed to be a necessary national policy, the Russians would
simply export the food and let their own people starve as they have
in the past when desiring foreign exchange and selling wheat there-
for. Theunis could not believe that Hitler was happy over his partner-
ship with Stalin. At this point the Belgian Ambassador remarked that
he had word through Italy that sentiment in Germany was anything but
favorable to the present connection with Russia. The Ambassador thinks
that various factors give & hope for peace in the Spring. Theunis
recalled that during his only conversation with Hitler, which was for
five minutes two years ago, they found they had one common hatred,
namely, that against Bolsheviam.
STRICTLY CONFIDENTIAL
TREASURY DEPARTMENT
M
INTER OFFICE COMMUNICATION
DATE December 13. 1939
TO
Secretary Morgenthan
FROM Kr. Cochran
256
The Secretary spoke to me at 9:00 o'clock this morning about the failure
of the Bank of England to authorize the Federal Reserve Bank of New York, in
its cablegram setting up the special account, to permit confidential access
thereto to the Secretary of the Treasury, as specifically promised in the No 6-
sage from the Chancellor of the Exchequer which was delivered to the Secretary
or October 30. 1939. by Mr. Pinsent. The Secretary then telephoned Governor
Earrison at the Carlton Hotel. Governor Harrison told the Secretary that it
VSIII his understanding, particularly after talking with Mesars. Stewart and
Cochran, that he should 5° ahead and accept the Bank of England account, even
if prior arrangements were not made with him by the Bank of England to give the
Secretary access thereto. He thought from his earlier understanding with the
Secretary and from his recent talks with the Secretary's assistants that the
Treasury had already cabled London in regard to the condition in question, end
that it YBS this Department's task to remind the British of their undertaking,
es communicated to the Treasury through Pinsent.
After this conversation, I was directed by the Secretary to have Mr. Pinsent
Come to the Treasury as soon as possible and to deliver to him 8. from
the Secretary.
I called Mr. Pinsent at his house at 9:15 and asked him to come and see no
at once. He said be vas not quite ready but would come down as soon as he
could. He reminded me that he had three or four things to take up with us and
anked if he could see Walter Stewart this morning. I told him that we must
first clear the matter on which I wished to see him.
Kr. Pinsent arrived shortly after 10:00 o'clock. I told him that the
cablegram of December 6 from the Bank of England to the Federal Reserve Bank of
Ser York, setting up the special account of the Bank of England, did not contain
an authorization for the Secretary of the Treasury to have personal and con-
fidential access thereto, as had been definitely promised in the message from
the Chancellor of the Exchequer which Pinsent had delivered to us on October 30.
I showed Pinsent a copy of this message. and he had in his brief case a copy of
the cablegram from the British Foreign Office to the Embassy upon which this
note Vas based. I told Pinsent that the Secretary vas disappointed because this
arrangement had not been carried out. Re felt that the account should not have
been opened without this point being covered in the instructions. Furtherwore,
the Secretary had instructed ne to ask Pinsent to telephone London and get this
after definitely straightened out before the Secretary would receive him again.
Finsent stated that this must have been simply an oversight by the British
authorities, and he was sure it could be promptly adjusted since so definite 02
undertaking had been received from the British Chancellor of the Exchaquer.
Regraded Uclassified
2
257
Yhon he stated that it was his practice not to use the telephone to the Treasury
in London, and that be understood the Ambassador was the only one in their 02-
tablishment who vas permitted to telephone to London, I offered our telephone
facilities if he desired to utilise them. Mr. Pinsent accepted this offer and
I put through a call for him to Mr. Waley of the British Treasury (Whitehall 1234),
and Mr. Pinsent spoke with him at 11:50. With the cablegram from the Foreign
office before him, Pinsent identified the mossage to Waley and told him that the
Secretary of the Treasury vas quite insistent that the instruction be immediately
transmitted from the Bank of England to the Federal Reserve Bank of New York to
put into effect the part of the agreement which was identified, and which con-
cerned the confidential access to the account by the Secretary of the Treasury.
Valey promised Pinsent to attend to this matter at once.
While waiting for the phone call to go through, Pinsent asked if he could
discuss some other matters. I told him there could be no discussion with the
Secretary until this bank account matter vas cleared up, but that be could men-
tion anything to me that he desired. Re first handed to ne the attached third
person note, dated December 12, 1939. which provides A summary of the Anglo-
French financial agreement, to which Pineent referred yesterday in his telephone
conversation with no. Pinsent had not yet received the full taxt of the agree-
ment and saked if I could make available to him a. copy of our text B.S. received
from Paris. I promised to do this, but reminded him that it was probably a
translation, and evidently contained some garbles.
Mr. Pinsent than moved to the subject of the departure of Measrs. Whigham
and Gifford for London without any final steps being taken toward liquidating
British owned dollar securities on this market. I told Pineent that the Secre-
tary had been concerned over this and would want an explanation from Pinsent.
The latter told an that there were certain points which he did not feel like
elaborating to me when he told ne over the telephone last Friday evening that
the two gentlemen were sailing back to England the following morning.
In the first place, Pinsent assured me that Mesers. Whigham and Gifford and
been most earnest and emphatic in their cablegrams recommending that vesting of
securities be not delayed. In New York they had consulted various bankers and
technicians on this subject and received in particular the views of Mr. George
Whitney of J. P. Morgan and Company, which were to the effect that while the
vesting might cause some trouble, this is a hurdle that must be passed, and that
It should be taken as soon as possible. That is, Mr. Whitney, whose opinion
the visitors considered most valuable because of his experience in this busi-
noss, agreed with the views of Mesers. Whigham and Gifford, who likevise realized
that the initial vesting might for a while cause some upset.
With considerable hesitancy, Mr.Pinsent then stated that we must know that
Ambassador Kennedy had some influence in the decision to postpone the vesting.
Kennedy had talked with Whigham in Sev York and had also discussed the subject
with the British authorities in London after Whigham had sailed. Mr. Kennedy
thought that the vesting at this time would be very bad. He did not agree that
sixty odd securities should be taken over at the first step. He thought only 5.
small number, perhaps, twenty should be vested to begin with. Pinsent reminded
as that Ambassador Kennedy YES & very persuasive individual. The two Scotch
258
representatives who had come to America had hoped to accomplish the arrange-
signts quickly, and Mr. Whigham in particular had desired to return home because
of the serious illnese of his wife. When the fact VAB brought home to them in
New York that the British officials in London were hesitating to make up their
mind in favor of early vesting (the word having been received that eince vost-
ing did not take place on December 9. it could not be arranged, at earliest,
before December 30) and then realising that Ambausador Kennedy had perhaps more
influence in London during their absence than they could bring to bear through
telegrams sent some 3000 miles away, they had taken the quick decision to return
to London.
Mr. Pinsent told ne that the foregoing was off the record, mince he did
not desire to get mixed up in our matters. I told him, on the other hand, that
the Secretary had taken a great interest in endeavoring to facilitate the visit
and arrangements of the British experts: that he would naturally seek all in-
formation that could be obtained in regard to the circumstances attending their
departure. At this point. Mr. Pinsent hedged a little and said that perhaps the
iscision to return to London had, to a large extent, been determined before
Xr. Kennedy arrived in New York. He confidentially added that the two Scotchmen
thought they might have & clear field for putting across their program in London
during the absence of Ambassador Kennedy from his post.
Mr. Pinsent brought up one question. He said that just when Whigham was
departing he remarked that there vas really no need for his coming back since he
and Gifford had now 80 completely prepared the way: that the liquidation could be
carried out under telegraphic instructions from London to New York, when once it
is decided upon. Pinsent vas concerned over this point, since be felt that it
was the tacit, although perhaps not the formal, understanding with the Treasury
that a British expert should be in this country to oversee the liquidation. I
reminded him of the arrangement discussed and approved in our exchange of cable-
grans with London with respect to a brench of & Canadian bank in New York acting
es the liquidating agent. I told him that I was sure the Secretary expected to
have some British or Canadian authority on securities in New York who could talk
to us on any problems incidental to liquidation. I preferred, however, that
Pinsent bring this matter up with the Secretary himself at the next opportunity.
Pinsent said it was his understanding that technical advice and market assistance
in liquidating the British securities could be freely obtained and added that
J. P, Morgan and Company had been consulted importantly during the visit of
MOUSTE. Whigham and Gifford. The question will likely arise on Pinsent's visit,
therefore, as to whether he should follow out his inclination to have the British
Ambassador urgently cable his Government to send back Whigham or Gifford or a
successor to look after the disposal of the securities, or whether we would be
entisfied with the New York branch of the Bank of Montreal serving as the depositary
of the securities and obtain the assistance of New York banks in the actual a01-
ling. all under cabled instructions from London. The contact with the Treasury
would then be presumably through the British Embassy.
Pinsent also brought up the question of British gold sales to us. Be said
that he had checkedwith Osborne and had found that the Bank of England and the Bank
of Canada had given the Federal Reserve Bank of New York at least the customary
two days notice with respect to the arrival and sale of the $50,000.000 gold ship-
nent which the Secretary mentioned to the British representatives when they called
259
- 4
on him. I told Pinsent that & notice of & second $50,000.000 shipment and
sale had been received day before yesterday. He said holmew nothing about
this. I told him that we had not objected to the technical inter-bank steps,
but had been surprised to see a sale of $50,000,000 of gold to us just on the
day vesting of securities was postponed. The inference would be somewhat
naturally that the British had decided to sell us gold and postpons liquidation
of their securities. Pinsent insisted that no such desision had been taken.
He explained that even if the vesting of securities does take place it will bo
necessary to continue to dispose of some gold to us, because selling securities
to meet the full requirements, figuring that the British will have to spend
100,000,000 pounds with us the first year of the war, would unduly depress the
security market.
Pinsent mentioned that there was some difficulty already with respect to
the account in New York, since of the four officials authorized to sign checks.
against it, only one is regularly in New York, the other three making head-
quarters at Ottawa. Since any check must be signed by any two of the officials,
It is necessary after the official in New York has signed, to send the check to
Ottawa for the second signature. It is hoped that this may shortly be remedied.
Mr. Pinsent desired to talk with Mr. Stewart about the sale of securities
on this market, but Mr. Stewart and I agreed that no such conversation should
be held until after the Secretary has received Pinsent.
B.M.R.
TREASURY DEPARTMENT
Att
260
INTER OFFICE COMMUNICATION
DATE December 13. 1939
TO
Secretary Morgssthau
FROM
Mr. Cochras
CONFIDENTIAL
The foreign exchange market had the appearance of being quiet but the
volume of sterling transactions was greatly increased over that of the previous
day. Sterling opened at 3.92-5/8 bid in New York. During the day there vas &
fair commercial demand for sterling which included rabber, tin and burlap con-
cerns. Shortly after noon, the rate was quoted at 3.94- At that time the
Federal Reserve Bank of New York received an order from the Bank of Latrin to
sell for its account 4504,000 at 3.92 or better. The Federal disposed of
1410,000 and held the remaining 194,000 for execution tomorrow, pending con-
firmation of the exact amount of sterling to be sold. About mid-efternoon,
the rate started to ease off and it closed at 3.93-3/4.
Sales of spot sterling by the four reporting banks and the Federal Reserve
Bank of New York totaled L1,227,000, from the following sources:
By commercial concerns
I 382,000
By foreign banke (Burops, Par East and South America)
1 435,000
By Federal Reserve Bank of New York (for Latvia)
: 410,000
Total
1 1,227,000
Purchases of spot sterling amounted to 2731,000, as indicated below:
By commercial concerns
1 367,000
By foreign banks (Europe, Australia and Far East)
16 364,000
Total
I 731,000
From the turnover figures given, sales exceeded purchases by 1496,000 and
it is difficult to conclude what disposition was made of this amount as the No
porting banks do not supply figures showing changes in their own sterling
positions or sterling transactions with other domestic banks.
Yesterday, mention was made in the report that the British Control was
purchasing sterling cotton bills at the official rate of 4.02 in A selective
manner. In view of this change by the British Control, It is interesting to
note that today the reporting banks did not sell any cotton bills to the
Control.
The rate for the belgs showed considerable strength today and improved
to .1651 from yesterday's close of .1644-1/2. It was reported that there use
RD order in the market to purchase 350,000 belgas. This order, coming on &
thin markot, had the effect of moving the rate higher.
- 2 -
The other important currencies closed as follows:
281
French france
.0223-1/4
Guilders
+5309-1/2
Swies francs
.2242-1/2
Canadian dollars
12-7/8% discount
Both the Ouban and the Mexican peso continued to decline, being quoted
at 12-3/16% discount and .1755 respectively.
In the report of December 11, mention was made that the Bank of Sweden
sold $2,350,000 in gold from its earmarked account. Testerday, the Federal
Reserve Bank transferred from the account of the Bank of Sweden $2,250,000 to
the account of the Finlands Bank. Taking these two transactions together. it
appears that the Bank of Sweden purchased gold, deposited abroad, from the
Finlands Bank and released its own gold here, in order to provide the dollars
to pay to Finland.
Ve purchased the following amounts of gold from the earmarked accounts
of the banks indicated:
$1,125,000 from the Bank of Mexico
790,000 from the National Bank of Belgium
$1,915,000 Total
The Federal Reserve Bank informed us that the Bank of Norway shipped
$2,405,000 in gold to the Federal Reserve Bank of New York, the disposition
of which is unknown at the present time.
The State Department forwarded to us & cable received from the American
Consulate General at Ottawa stating that the Bank of Montreal shipped gold
valued at $30.766 to the Bank of Montreal, New York. This shipment will be
sold to the U. S. Assay Office.
The London fixing prices for spot and forward silver were 23-1/2d and
23-11/16d, respectively, up 1/16a for each delivery. The U. S. equivalents
were 41.51# and 41.364. Handy and Harman's price for foreign silver was un-
changed at 34-3/44. The Treasury's price was also unchanged at 35#-
In New York, we made four purchases of silver totaling 275,000 ounces,
under the Silver Purchase Act. All of this silver was now production from
foreign countries and it was purchased by us for forward delivery.
H.M.
Before Subammitter of
12-13-39
Committee on Agegrogriations, House of 12/13/39.
262
STATEMENT BY SECRETARY MORGENTHAU
Appropriations under the Treasury Department, as set
forth in the 1941 Budget, may be classified as follows:
(a) Annual appropriations for operating
expenses of the Department;
(b) Annual appropriations for non-operating
expenses of the Department, including
internal revenue and customs refunds;
(c) Indefinite appropriations and trust funds;
and
(d) Interest on and retirements of the public
debt payable from ordinary receipts.
- 2 -
263
with reference to the first class, which covers the
annual appropriations for operating expenses, it should
be explained that the estimates now before this Committee
do not include the additional requirements of the Coast
Guard to meet extraordinary expenditures estimated to be
incurred in 1941 in connection with the enforcement of
neutrality under the President's proclamation of September
8, 1939. Such additional requirements are now being
reviewed by the Bureau of the Budget, and will, it is
understood, be separately considered by the Committee. A
further exception should be noted with respect to the annual
estimate for salaries and expenses of the Procurement Division.
Under plans recently developed, the scope of work to be
performed by this Division will be substantially increased.
- 3 -
264
The preparation of the 1941 estimate for the Procurement
Division, on the basis of such increased operations, has
involved considerable investigation and study, rendering
it impossible to include this item in the estimates now
before your Committee. The estimate 1s now being considered
by the Bureau of the Budget, however, and final allowance
1s expected to be made within 2 few days.
With the two exceptions noted, the 1941 estimates
of annual appropriations for operating expenses of the
Department aggregate about $146,881,000. The
appropriations available in 1940 for operating expenses,
(exclusive of the Procurement Division and after deducting
$14,598,000 provided for administrative expenses under
the Emergency Relief Act) aggregate $146,186,000.
- 4 -
285
The 1941 estimates for operating expenses, therefore,
when compared with similar appropriations for 1940, show
a net increase of $695,000.
The gross increase under this class of appropriations
includes the following major items:
Administrative Promotions
The Bureau of the Budget has instructed the Department
to allocate in the 1941 estimates sufficient funds for the
granting of one-step administrative promotions, within the
average of the respective grades, to eligible employees
who, on June 30, 1940, with respect to positions in grades
having a minimum salary of $3,200 or above, shall not have
received a promotion since June 30, 1936, or, with respect
to positions in grades having a minimum salary of less
than $3,200, shall not have received a promotion since
June 30, 1938.
- 5 -
206
The gross amount required by Treasury Bureaus to
effect this promotion program will be over $1,250,000,
of which the bureaus will absorb $340,000 from lapses
or savings. The remaining $910,000 is being requested
as specific items of increase in the appropriation
estimates of the bureaus concerned.
Permanent Work Performed by Emergency Employees
Under the Office of the Secretary (including the
Personnel Division), the Office of the Chief Clerk, the
Office of the General Counsel, the Office of the
Commissioner of Accounts and Deposits, the Office of
the Treasurer of the United States, the Coast Guard,
and the Secret Service, the Department is requesting
funds for 152 permanent positions, with salaries totaling
over $266,000, in lieu of positions now paid from
emergency funds.
9 I I
267
Your Committee 18 familiar, I believe, with the
situation with respect to the use of these emergency
employees in the performance of regular permanent
functions of Treasury bureaus. This matter was brought
to your attention a year ago in connection with our 1940
estimates. The Bureau of the Budget has again approved
the inclusion of these positions in our estimates, and
it is my earnest hope that you will find it possible to
accord them favorable consideration.
In this connection I should like to point out,
as I have done upon previous occasions, that the duties
of the Treasury Department include certain service
functions, such as accounting, disbursing, procurement,
and check clearance, which expand proportionately as the
general activity of the Federal Government expands.
- 7 -
268
In other words, any increase in the Government's operations
as a whole is reflected almost immediately in one or more
branches of the Treasury. In recent years this increased
burden of permanent work has been borne in part through the
temporary assignment of such emergency personnel as could
be made immediately available. Obviously, such an arrangement
is undesirable and wholly unsatisfactory from the standpoint
of proper administration, since it involves not only the
problem of acquiring competent personnel in the first instance,
but the further problem of retaining their services after
they have been trained.
With these facts before you, I hope that you will
recognize the situation with which we are faced, and that
you will provide us with permanent personnel to do the
job.
- 8 -
269
Division of Personnel
An item of $185,000 has been submitted to cover
the gross personnel requirements of the proposed
Division of Personnel, to be established in accordance
with the Executive Order of June 24, 1938. Of this
amount, $26,000 represents new positions, the remainder
consisting of the emergency positions previously referred
to and permanent personnel transferred from other bureaus
of the Department.
Contingent Expenses
I cannot too strongly urge your Committee's approval
of an increase of $29,000 requested under "Contingent
Expenses". This appropriation is the only source from
which funds are made available for the equipment and
supplies required by a number of Treasury bureaus.
- 9 -
270
It provides, in addition, funds for the payment of
certain recurring charges, such as electric current,
rent, travel and communication service. This appropriation
has not been adequate in the past to meet the Department's
needs, and there have been occasions during recent months
when the lack of funds for the purchase of these contingency
items has actually hampered the Department's operations.
I trust, therefore, that your Committee will find it
possible to allow the $29,000 increase which we have
requested.
Other Increases
Under the Office of the Treasurer of the United
States, an increase of over $50,000 18 required to
enable that office to handle an increased volume of
accounting, security, check and cash transactions.
Regraded Uclassified
- 10 -
271
The additional personnel is made necessary principally
because of the large number of check clearances estimated
to be handled.
The estimate for "Collecting the Internal Revenue"
includes an increase of $388,000 due to the additional
duties imposed upon that bureau by the Vinson-Trammell
Act and the National Defense Act. Both the collection
of excess profits taxes under the Acts nentioned and the
handling of legal problems arising in the same connection
require additional personnel, including 100 field agents.
A further increase of $50,000 is being requested by the
Bureau of Internal Revenue to meet additional requirements
of rented quarters in the field.
Regraded Jclassified
- 11 -
272
Under the appropriation "Public Debt Service" an
increase of over $52,000 is requested principally for
the purpose of handling increased transactions relating
to United States Savings Bonds.
The Bureau of the Mint is requesting about $17,000
for additional departmental personnel, and $58,000 for
the adjustment of salaries of certain field employees.
For increased production of coins an item of $264,000,
has been submitted, together with a request for $23,500
to provide additional mechanical equipment in Mint
institutions. In addition, the estimate for transporting
bullion and coin is $285,000 above the current year's
appropriation.
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273
Coast Guard
The estimates under Coast Guard include certain
items which in prior years have been separately submitted
under the Light House Service, Department of Commerce.
In addition, and with the approval of the Director of
the Budget, it 1s proposed to consolidate two groups of
Coast Guard appropriations, one group covering "General
Expenses" of the Service, and the other covering
"Civilian Employees". Disregarding the necessary
additional funds allowed by the Bureau of the Budget
in the 1941 estimates to meet increased activities and
mandatory provisions of law, the consolidation of these
appropriations will make possible a saving of over
$960,000.
- 13 -
274
However, if the consolidation is not approved, and as
a result it should not be possible to operate a single,
integrated service, additional appropriations will have
to be provided, and one of the principal purposes of the
reorganization of the Light House and Coast Guard services
will have been defeated.
For "Pay and Allowances, Coast Guard", the 1941
estimate is $884,000 above the 1940 appropriation.
Practically all of this amount represents mandatory
increases over which the Service has no control. The
item for "Special Projects, Light House Service, Coast
Guard", shows a reduction of $130,000 under the 1940 funds.
Due to an increase in the retired list, $160,000 additional
is requested for "Retired Pay, Light House Service, Coast
Guard".
- 14 -
275
Summarizing the foregoing Coast Guard items, and
including certain non-recurring expenditures for
airplanes and construction, the total requested for
Coast Guard in the estimates now before your Committee
for consideration is approximately $75,000 less than the
appropriations for the current fiscal year.
Reductions in Operating Expense Items
The foregoing items constitute the major increases
in the estimates submitted by the several Bureaus for
operating expenses. They are off-set to a considerable
extent by those items which for 1941 reflect a reduction
as compared with the amounts available for 1940, as
for example, (1) a reduction of $1,250,000 under
"Salaries and Administrative Expenses for Refunding
Processing and Related Taxes";
- 15 -
276
(2) a reduction of over $104,000 in the estimate for
"Collecting the Revenue from Customs", to be
accomplished through the curtailment of operations
throughout the Customs Service wherever the circumstances
will permit; (3) a reduction of over $51,000 under
"Distinctive Paper for United States Securities"; and
(4) a reduction of $50,000 under "Recoinage of Silver Coins".
Annual Appropriations for Non-Operating Expenses
The estimates of annual appropriations to meet
non-operating expenses of the Department include
(a) $42,000,000 for "Refunding Internal Revenue Collections",
representing an increase of $4,000,000 over the current
year's appropriation for this purpose; and
(b) $14,200,000 for "Refunds and Drawbacks, Customs",
representing a reduction of $2,800,000 below the amount
appropriated for the current year.
- 16 -
277
Indefinite Appropriations
Under the indefinite appropriation "Expenses of Loans"
(Public Debt Service), an estimate of $4,032,420 is
submitted. This represents an increase of about
$437,000 above the limitation fixed for the current year
under this head, the additional amount being due largely
to increased reimbursements to the Post Office Department
and to Federal Reserve Banks incident to the issue and
redemption of bonds by those agencies.
Sinking Fund
and
Interest on the Public Debt
The Sinking Fund will require $584,000,000 for 1941,
an increase of $2,000,000, as compared with the revised
estimates for 1940.
- 17 -
278
Tentative estimates of the interest on the Public
Debt indicate that it will require $1,120,000,000 for
1941, an increase of $70,000,000, as compared with the
revised estimate for 1940, the additional amount being
necessary because of an increase in the estimated amount
of obligations which will be outstanding.
This concludes my general statement, Mr. Chairman.
I believe I have covered, in a general way, the
outstanding items of the Treasury's estimates for 1941.
I can assure you that we have attempted to confine our
requirements to the minimum amounts which we believe to
be necessary for the efficient operation of the Department.
- 18 -
279
The representatives of the various bureaus and
divisions will appear before you to present a complete
justification in support of their estimates. However,
1f any additional explanation is desired, and you will
so advise me, I shall be pleased to see that the
information is promptly furnished.
December 13, 1939.
280
9:01 a.m.
H.M.Jr:
Hello
Operator:
George Harrison. Go ahead.
H.V.Jr:
Hello.
George
Marrison: Hello.
H.H.Jr:
George?
H:
Good morning Henry.
R.M.Jr:
How are you?
H:
First rate, thank you.
7,M.Jr:
George, I'm very much upset over this refusal of yours
to the Secretary of the Treasury that he can't have the
information in regard to the British accounts. Now I
realize that the authorization from the Bank of England
has not come through.
Yes.
H.M.Jr:
On the other hand I think you've got to realize that
you and Eccles and I agreed as to what the conditions
would be when I decided that we would not make it a
fiscal agency account and let it TO directly to you.
H:
Yes.
H.M.Jr:
And part of the conditions was that the Treasury would
have access to those figures.
H:
Yes, but I think Henry you'll remember that I pointed
out that I said each time I talked to you and to
Cochran and Mr. Stewart too, that of course we'd have
to get permission of the Bank of England.
R.M.Jr:
Granted. But the point that I'm making 18 that the
account should not have been opened until the condi-
tions which you and Eccles and I had entered into
had been fulfilled B. hundred per cent.
H:
Well my understanding of that may be 8 bit wrong but
it says very definite with Stewart and Cochran and I
talked with you too, that that would be arranged through
you and the British Government. In fact Cochran told
me that you cabled the British Government about it.
- 2 -
281
H.M.Jr:
Well I didn't cable them -
R:
Well somebody did.
H.M.Jr:
But - that is again correct but I - go back again,
there's a three cornered agreement, and I say until
those conditions were fulfilled the account shouldn't
be opened.
H:
Well, you see, I had every reason to believe that you
or your officers there were taking the necessary steps
through the British Government. I don't think there
would be any question about it, if somebody puts a
spare under them.
F.M.Jr:
Well Cochran 18 going to do it this morning.
Yes.
H.M.Jr:
And I'm not going to see Pinsent again until those
conditions are fulfilled.
H:
Yes, well I think -
H.M.Jr:
But I still feel that you, Ecoles and I had en agreement -
Well I think - I agree with you Henry that we had an
agreement but I'm positive and the record would show it
that I had to condition mine upon the Bank of England
giving consent.
H.M.Jr:
Well now, I'm not looking for more trouble than I got and
I'm keeping this for the next twenty-four hours between
you and me.
F:
Yes.
H.M.Jr:
Because if I call this Eccles up he'd simply come down
like a ton of bricks.
H:
Yes.
H.M.Jr:
So I'm not going to do it and I'm - Cochran is in the
room here now.
H:
Yes,
H.M.Jr:
And I told him, I mean it's just the same thing, I
enter into an agreement with these men over here that
want to sell their securities,
- 3 -
282
Yes.
H.V.Jr:
And I tell them, "Gentlemen you give us this information
every day and you've got my word it will not be released
unless you give me your permission."
H:
Yes.
H.M.Jr:
Well I enter into a condition. Then if Frank of SEC
wants a release, they could say, "Well we entered into
it with you".
H:
Yes, Well I understood frankly I made a. mistake in
letting the Treasury agree with me. It would be much
better for that part of the arrangement to be conducted
through you or your men there.
H.M.Jr:
That's correct. But the only point I'm making George,
1s, and all of these things that we do for years and
years, it's a matter of confidence, a matter of word
of mouth, and I just think that this condition would -
not having been fulfilled, I think that you should have
said wait.
H:
Well
by everybody to be sure and get
that account open.
H.V.Jr:
Now I want you to know Cochran doesn't agree with me.
Yes, I thought it'd be most important thing for us and
having been jibed by everybody -
H.M.Jr:
Well now George -
H:
To be sure and get the account open.
H.M.Jr:
You put yourself in my place. The account 18 open -
H:
Yes,
H.M.Jr:
The President sends for me this afternoon and says,
"Henry, what is the Mission account?", and I've got
to say, "George Harrison won't let me have 1t."
H:
Well Henry that isn't - I'm just living up to what I
thought was & bargain we all had.
H.M.Jr:
Yes, but I -
H:
As a matter of fact Henry, you know perfectly well that
283
- 21. -
what we are talking about now, and I thought I WAS
putting you in the proper position as far AB the
British are concerned, that 1e to enable you to come
back and say why won't you Five us this permission
if the Bank won't give it to you.
Well I'm -
Now I've given you and I do give you, from time to time,
information about all those accounts and if you want
that specific information 28 of today I'll get It for you.
H.M.Jri
Well now that's -
H:
But you don't want me to tell you that.
H.M.Jr:
No, but I did want you to tell 1t to me and then I
don't ask you, darn you.
Well of course, I've always done that, but I gathered
from my conversation with Cochran that what you wanted
was B. negative answer so you could put B. bomb under
those people, EO officially I give you the negative
answer and if you want the specific information Henry,
I'll give it to you.
H.M.Jr:
Well now look, I got it right here and I got it in
writing, on the seal of the British Embassy.
Yes.
E.M.Jr:
And here it is, a message from the Chancellor of the
Exchequer to the Secretary, United States, it's on
their stationery. "The Chancellor of the Excheruer
wishes to convey to Mr. Morgenthau his personal
thanks for advice and assistance and to Bay he
readily accepts the proposal to open B. special account
with the Federal Reserve Bank of New York and agrees
that Mr. Morgenthau should personally and confidentielly
have access to it." Now what more do you want then that.
Well I think that - I think the Bank 16 the one that
ought to give me the information.
Well here it 18 from the British Embassy, from Sir John
Simon.
Yes but theoretically the Chancellor heen't anything to
do with the Bank.
- 5 -
284
H.M.Jr:
Oh my God.
H:
Well I'm in the position - I - I think what you want
me to do is to say no on the regular routine of it.
If you want the information this afternoon I'll be
glad to get it for you.
H.M.Jr:
Well I'm going to show this thing to Pinsent this
morning.
H:
Yes.
H.M.Jr:
I mean, here it is signed October 30th on their
stationery, saying that I should have it.
H:
Yes.
H.M.Jr:
Well he can show this - Pinsent knows about this and
I'm going to tell him if they can't telephone, he
should telephone from here and say that they should
instruct you on this today.
R:
Well I think they should. Now frankly I took this up
over B. week ago with both Walter and Coohran.
H.M.Jr:
Yes.
50
And told them I didn't want a Jam - I'd get the account
open but it was understood between all of us that the
question of getting authority would be done through -
H.M.Jr:
There's no argument on that, I mean, Cochran - that's
perfectly correct, but I just - I take the different
position that you and I got a bargain and until the
conditions which you and I entered/are 1110 lived up to -
if I was here, which I wasn't or wasn't available,
I would have said, well we won't open it.
#:
Well I understood on the other hand that everybody's
in a hurry to get that account open.
H.M.Jr:
Well with this thing of the Chancellor of the Exchequer
I - you still want instructions from the Bank of England.
All
I think 80.
H.M.Jr:
What?
- 6 -
285
H:
For the protection of all of us, yes.
H.M.Jr:
Well, I'm - unless -
H:
Except that I again reiterate that I'll give you
the information as of this afternoon if you want it.
H.M.Jr:
Well that's - that's what I - I wasn't going to say -
insist, but I thought if I called you up and said
"George I'd like to take a look at it, I wanted to
hear you say I could have it".
H:
Sure. Well, but I gave you the other answer because
I frankly thought, officially, that was the answer
you wanted in order to get after the British.
H.M.Jr:
No. Well, Cochran's here and I'm going to have him
send for Pinsent immediately.
H:
Yes.
H.M.Jr:
And get that and one other thing while I have you on
the wire, have you had any talks or did you have any
talks with Whigham and Fleming before he left?
H:
No I did not. I had one with Whigham, when he first
called.
H.M.Jr:
Yes
-
you don't know why they went back.
H:
No I do not.
H.M.Jr:
Neither do I.
H:
Thank you.
December 13, 1939.
9:18 a.m.
286
H.M.Jr:
Hello
Operator: Mr. Ladd.
Carl
Ladd:
Hello
H.M.Jr:
Hello.
L:
Hello Henry.
H.M.Jr:
Yes.
L:
This 18 Carl Ladd.
H.M.Jr:
Good morning.
L:
Could I talk with you a minute?
H.M.Jr:
Sure.
L:
I'm very much concerned over this Farm Credit
situation.
H.M.Jr:
Yes.
L:
You know that the President apparently isn't even going
to have his Committee meet, that Wallace has asked
Hill to leave or step down and that Black is going to
be put in charge.
H.M.Jr:
Well Hill talked to me yesterday and I advised him what
to do.
L:
Yes. Of course it means an awful lot to us in the
colleges, it means a lot to those of us who are on
the various Farm Credit Boards in the District.
H.M.Jr:
Yes.
L:
And we just don't know how much to blow up, whether
all to resign, how much to blow up or what to do.
H.M.Jr:
Well as far as I know I'm the only person that's
written the President about it, and when I spoke to
Myers and Babcock, oh two or three weeks ago, and
told them what I had done, neither of them seemed
to know that I had had any part in it. I not only
wrote the President but I gave him a plan how to
handle Farm Credit to make it an independent agency.
- 2 -
287
L:
What can we do to help with that plan?
H.M.Jr:
I don't know, I don't know. I told Hill yesterday,
on B. strictly personal basis, he asked me what to do
before he went over and I said not to resign unless
the President asked him to do it in writing.
L:
Yes.
H.M.Jr:
But I can't fight the President. I can write him a
letter and give him my opinion and also give him B.
plan and beyond that I can't go.
L:
I - it comes to me at once because Hill will come back
here when he resigns.
H.M.Jr:
Yes.
L:
We can get our finances in shape 80 he can.
H.M.Jr:
Yes.
L:
But it just Beems too darned bad to hand this thing
over to B. Department where - you know what will
happen to it.
P.Y.Jr:
Well, I agree with you and I - - the day I heard about
it, the next morning the President had it in writing
from me.
L:
Yes.
H.M.Jr:
Now I can give it to him in writing and I can't go
any further than that.
L:
Well I wondered if you - if you see anything that we
can do. I feel very strongly about this whole
Department of Agriculture. I've been living with it
now for six years with the problem and the land grant
colleges all over the United States are just terribly
upset, the relations are very bad, they're feeling
very bitter towards Wallace, and for all these things
that he's done, he's constantly centralizing more
power in trying to build up his own political
machine instead of playing loyal to his Chief and to
the party and it's just got to the point where I think
the President ought to know that the relationships
are terribly bad.
H.M.Jr:
Well I don't know what your lines are but the way I
- 3 -
288
tell all these people, I just say, would be for you
to ask - to see the President yourself.
L:
Well, would I get kicked out if I told him that.
H.M.Jr:
Well, it would be in a worthy cause.
L:
(laughs) Well, I don't know - I Just - I don't know
how quick to fight on it, whether this 1s the time
to fight or whether to take it laying down.
H.M.Jr:
Well I can't advise you because I can't advise anybody
to. fight the President.
L:
Sure,
E.M.Jr:
And wouldn't.
L:
Yes.
H.M.Jr:
I mean it's one thing to do what I've done in A per-
fectly formal manner to file my protests.
A
Yes.
5.M.Jr:
I don't know anybody else that's done as much.
L:
Yes. of course these boys have felt that their hands
were tied.
H.W.Jr:
Who?
L:
Bill and Babcock more or less, because the stuff
18 all kept confidential and they don't feel free to
say anything much to other people.
H.V.Jr:
Well that isn't what Babcook told me. He said he wes
going out to organize Agriculture to fight it.
L:
Well but I don't think he did. I think -
H.M.Jr:
Well that's what he told me.
L:
I think they felt that finally that his hands were
tied and he couldn't - of course we can talk with him.
H.M.Jr:
Well when I told him what I'd done he said, "Don't
worry, we're going to back you up a hundred per cent".
L:
Yes,
- 4 -
289
H.M.Jr:
And now you tell me he didn't do anything.
L:
Well I haven't seen him in a week, he may have done
more than I think:
H.M.Jr:
Well he told me, don't worry, we won't let you out on
an end of the limb. We're going to fight and 80 forth
and 80 on.
L:
Yes.
H.M.Jr:
I still come back. I think I'm the only person who's
spoken to the President.
L:
Yes.
E.V.Jr:
And I did it formally.
L:
Well I guess I see some things a way, some ways in
which we can move then.
E.M.Jr:
Well I mean Babcock was going to put up this great
big fight, Myers and everything else and where 16 1t.
L:
Yes.
H.M.Jr:
What's happened since - it's three or four weeks old
now,
L:
Yes.
H.M.Jr:
And nothing happened. The President most likely didn't
hear from anybody except myself, he just thought this
was my former child and I was interested, he didn't
hear from anybody, O.K.
L:
Yes,
H.M.Jr:
And this is what the result 18.
L:
Well I guess that gives us what we want Henry.
H.M.Jr:
Well I don't know what I gave you, but I know how I
feel. I've done my job and evidently nobody else has
done his.
L:
Yes, well I guess it's up to the rest of us to move.
H.M.Jr:
Well I - yes, but it's most likely too late.
L:
Yes.
- 5 -
230
4.M.Jr:
The time to move was when the first time Wallace sent
for Hill.
L:
Yes, But, you know the President appointed a committee,
which we supposed was going to operate on this.
R.M.J.:
Well you don't know yet that it won't. If Hill stuck
by his guns yesterday end -
L:
Well of course 1f the committee 18 going to operate
why we don't want to start a thing.
H.M.Jr:
Well -
L:
That's - but if the committee -
M.Y.Jp:
I never got any notice that I was on the committee.
I heard about the committee but I was never notified.
L:
You weren't.
H.M.Jr:
Never.
N
Yes. All right. Well thanks ever so much Henry.
H.M.Jr:
Well I don't know what you're thanking me for, but at
least you know where I stand. I'm not going to change
and I told Frosty Hill yesterday to stick by his guns
and not to resign unless the President gave it to him
in writing.
L:
Yes.
H.W.Jr:
Now, that was my advice, that's what I think he ourht
to do.
L:
Yes.
M.M.Jr:
But I'd fight and I'll stick by my friends, I always
have.
L:
That's right.
3.Y.Jr:
Always will.
L:
Yes. Maybe we haven't shown good judgment since the start,
but I reckon promptly we'd better start pretty quick,
now.
H.".Jr:
Well, don't ask me -
- 6 -
291
L:
No, no.
H.M.Jr:
You can always find out, Carl, where I am and what I've
done and I'll always tell you.
L:
Yes. I appreciate it very much Henry.
H.M.Jr: O.K.
L:
Thank you, goodbye.
December 13, 1933.
9:27 8.7.
292
H.Y.Jr:
Hello
Operator:
Governor Hill.
R.M.Jr:
Yello.
Hello.
V.M.Jr:
Henry Morgenthau.
Yes, sir.
H.V.Jr:
What happened?
Well I went over to see Mr. Wallace yesterday afternoon.
We had cuite a long discussion on the whole situation.
His attitude on the thing was about this, that he
hadn't asked the Farm Credit in the first place, that
he wasn't very fussy whether I stayed over there now
or not, but that the President or somebody had asked
Mr. Brownlow to look into the situation again end
that he had reaffirmed his former position that he
thought it belonged with Agriculture end that he, the
Secretary, I mean Secretary Wallace felt that 1f it
was to be over there that he ought to run it, with
which I couldn't take very great exception. But I
told him that I thought in view of all the circumstances
if it was appropriste that I'd like to discuss the
matter with the President before I took any final
action. He concurred in that and tried to arrange
an appointment -
H.M.Jr:
I didn't hear, I'm sorry.
What's that?
I didn't hear what you said.
I told him that I thought, in view of all the
circumstances, that I'd very much like to discuss the
situation personally with the President, that that was
in the cards. He said he had absolutely no objection
to that, would be glad if it would be helpful or to
try to arrange en appointment at the White House.
He called Steve Early, I don't know whether I'll get
an appointment or not, but he more or less indicated
that as far as he W&S concerned, that If the President
had changed his mind it W&B O.K. by him, but A8 I say,
Regraded Uclassified
- 2 -
293
he hadn't asked for it and he wasn't particularly
fussy whether he had it or not, but that if it was to
be over there why he felt that he ought to name the
man that was to head it up. Well that's about the
way the thing was last.
H.M.Jr:
But he didn't ask for your resignation.
H:
Well, yes, he had indicated yes. He'd indicated he
wanted my resignation which I didn't offer. I told
him before I took any such action 8.8 that I'd want to
discuss the whole thing with the President.
H.M.Jr:
Well, then you took my advice.
H:
That's right.
H.M.Jr:
So far it's good.
H:
So far I'm still over here.
H.M.Jr:
Well Carl Ladd just got through talking with me and
wanted to know about this and that. I told him what
I had done.
H:
Yes.
H.M.Jr:
And how Babcock said he'd - this W&8 three or four
weeks ago, go out and fight 80 forth and so on.
H:
Yes.
H.M.Jr:
Now I understand that Babcock hasn't done anything.
So I said, most likely the President hasn't heard
from any Farm organizations and he thinks that this
1s all right.
R:
Well the - he must have heard from some. The Grange,
I know, or at least they told me, had sent in resolutions
on the thing. I know the Cooperative Counsel took
action on the matter in their executive committee
meeting, last week, and I understood that B. resolution,
8. copy of which they sent me, had gone to the President,
and that very definitely indicated their interest in
the matter, and the fact that they thought it should be
reestablished. The Farm Bureau, last week, in Chicago,
sort of straddled the fence on the thing. Frankly
there was quite 8. bit of sentiment down the line in
294
- 3 -
favor of reestablishing It as an independent agency.
Their resolution, as I say, kind of straddled the
fence. They talked about the desirability of retaining
the cooperative features and of keeping It operating
on a sound basis and then went on to suggest that it
be set up under an independent Federal Board, I think
their language was either vithin the Department or
closely correlated with the Department.on that.
H.M.Jr:
Hill, you know what Wallace does when he wants to out
across a certificate plan.
50
Yes.
H.".Jr:
You know how he organizes that.
Yes, yes.
S.M.Jr:
Well -
On this Farm Bureau thing, of course I didn't frankly
expect that they would, I didn't frankly expect that
the Farm Bureau would 20 down the line on the thing.
E.V.Jr:
Well I just - interested, and I told Carl Ladd, 18 for
B.B I know, I'm the only person who put it in writing
to the President.
6:
Yes.
E.".Jr:
And I gave him a plan too.
Yes, yes.
P.".Jr:
But I'd stick by my guns until the President asked
you personally to resign.
it
Well that's what I had planned on doing. I wanted to
go over and talk the whole thing over, give him my
point of view on the thing and indicate that the
Secretary had asked for my resignation and then ask
him if that's what he had in mind, I mean.
E.M.Jr:
Yes. What about this committee that was going to study
the thing.
Well that, I wondered about that too.
R.M.Jr:
I've never had any notice.
- 4 -
295
Neither have I. I've had absolutely no notice on
that, and I got from Wallace that Brownlow had been
down and that he had discussed it presumably with
Wallace and presumably with the President.
MA
Well that's -
of course he's just merely reaffirmed his foruer
position on the thing which I don't know, Brownlow
maybe discussed the matter with him, It looks like
his - as far 08 I know he's never been near Farm Credit
- I don't know how much he even knows about the
operation.
8.1.77:
Most likely he doesn't know anything about 11.
I expect that's right. I am quite certain that there's
two angles of it, that he's given very little attention
to, one is
Vell why don't you ask to see Brownlow?
Yell I thought I might reach that question with the
President.
R.V.Jr:
All right Hill, well good luck.
O.K. fine. Well I appreciate your interest in the
matter, but I think it's right up to the President
now, because the Secretary - Secretary Wallace has
indicated, well he more or less put it this way,
just between you and me, that if he could sell the
President bill of goods on pulling It out why he'd
be perfectly happy about it.
All right.
O.K. fine. Thank you for calling.
E.Y.Ja:
Goodbye.
December 13, 1939.
12:00 noon.
296
E.M.Jr:
Hello.
Operator: Mr. Smith. Go ahead.
R.M.Jr:
Hello, Harold Smith.
Verold
Smith:
Yes.
E.M.Jr:
Morgenthau.
::
Yes.
E.M.Jr:
Two things, three. First how are you?
S:
Fine. A little worried and a little overworked at
the moment but still surviving.
H.M.Jr:
You have no monopoly on that.
S:
(laughs)
E.M.J.:
TNEC will look into that.
S:
That's right.
E.V.In:
What I'm calling up about 18, oh I walked down with
Henry Wallace. The President has been suggesting we
get together for months on this certificate plan,
tax plan. Now Wallace asked when he can come before
this so-called monetary group, you know, yourself
and Eccles.
S:
Yes.
R.V.Jr:
And Delano, and he'd like to have 2. hearing. So I said,
"Sure, I'll get them together." So I'm calling you
to know whether you can do it next Monday or Tuesday.
S:
I think BO. Do you think that - 1s that the - good to
go into this thing?
E.M.Jr:
Well -
S:
Did the President suggest that that group to hear Wallace?
R.M.Jr:
-
3:
Have you explored that?
- 2 -
297
H.M.Jr:
I haven't with the President, but Wallace gave me
the impression that he understood that group was
opposed them. to it 60 he'd like to have B chance to hear
.S:
I see.
H.M.Jr:
So I said -
S:
Well it's all right with me, I mean, whatever 18 your
judgment on it.
H.M.Jr:
Well -
S:
I Just wondered. I hadn't thought about it. I just
wondered if you - you thought whether that was the
right group or whether there was some other - well
that could be pulled together.
H.M.Jr:
Well I don't know of any other group that we could
add anybody to it that you thought, on 8. hearing.
S:
Huh-huh. Just a quick question that I raised and I
don't have the answer to.
B.M.Jr:
Well I tell you what let's do. Supposing I say
tentatively ten o'clock Monday?
S:
All right.
H.M.Jr:
And we'll call up the others and find out if it's
agreeable and if you have any after thoughts of
anybody who ought to be added let me know.
S:
Yes. All right, ten o'clock Monday.
H.M.Jr:
That's that. Now the other thing is -
S:
I, by the way, do have a proposed legislation which I -
has come clearance through here on this very certificate
thing. We wrote it up to not commit the President in
any way but I have not signed it yet, rather I did
sign it and then changed my mind and held it up because
I was afraid to let go of it, and maybe this will help
clear that up.
H.M.Jr:
Well was this something that came over from Agriculture?
S:
Oh yes. on yes.
- 3 -
298
H.M.Jr:
Well now, let me Just - Henry Wallace told ne point
blank yesterday when I asked him for the details that
he couldn't give it to me because it hadn't been
worked out in detail.
S:
Well maybe it hasn't, but I don't know where this bill
comes from, whether it's B. hangover from the last
Session or not, it's all - I'll look it over eggin but
I know that's exactly what's proposed, the certificate
plan.
E.M.Jr;
Well.
S:
Yes.
E.V.JP:
Now -
5;
I just thought I'd tell you that.
H.M.Jr:
What - well I won't repeat it. Just for me. And the
other thing 18, you remember you and I talked about
letting the Procurement Division of the Treasury buy
for all the Departments other than the -
S:
Yes.
N.M.Jr:
Var and Navy.
S:
Yes.
E.M.Jr:
And they're having 8 little tough sledding they think
over with some of the boys down the line, and I Just
wanted to remind you that this is one of the things
that I'm really interested in.
S:
Yes, Well now I'll tell you on that we've had 8. number
of sessions and hearings and we agree of course, with the
principle of the thing and it's Just B. question of
how many steps we can take now if you had time to sit
in on any of it although I'm sure Graves has B. very
good view of the whole picture now.
R.M.Jr:
Yes.
5:
I think you would be convinced that we were going
along with Graves pretty much on the safe side of it
for the moment. The other thing is that it means
yanking money out of the other budgets and we got
caught rather late with that and we're trying to get
- 1 -
299
language, well I think the language 1s there now which
will permit you to 80 along at = pretty good clip
doing what you propose to do there anyway, you see?
I nean we're trying to clear TO some brush. It's
really quite complicated because this sur-charge
involved, we would have to 70 through and bull funds
out of all the other departments and make adjustments,
and it seens pretty difficult to do as fast, I think,
as you had in mind or Graves had in mind in the
beginning.
R.M.Jr:
Well we only had it this fast that we wanted to do
them all except on Army and Nawbecause I'm sure we
can save money.
S:
Yes.
H.M.Jr:
But if what you have in mind -
S:
It's practically impossible to get it done from our
point of view by January 1, you see. You've talked to
Graves about that.
H.M.Jr:
I have, that's why I'm calling you.
S:
Well we've done about the best we can with it.
H.M.Jr:
But don't expect us to 20 around with our hat in our
hand and ask these other Departments for the money
because I'm not going to do it.
S:
Well we're going - you'll have to make some transfers
anyway and we're going to arrange for that.
H.M.Jr:
Well if you arrange -
S:
That's in the law already, you see?
E.M.Jr:
Well if you arrange for It so that it comes under the
Budget, that's one thing, but don't expect ne to go
around and say please to these people.
S:
No, no, we'll take care of that.
H.M.Jr:
Because I - I -
S:
All sales would be transferred with the approval of
the Director of the Budget, that BoeTa to be -
H.M.Jr:
Well if you'll do that, fine, but I wanted to make my
5 -
300
position because I'm not going around and say,
"Mister can you spare ne E dine?"
S:
No, that's right, and we've really spent en swill lot
of time on this with Graves and I think when you see
after all.
it all shaped up, you'll feel we've done pretty well
Yell I felt that, on account of your emerience to
Michigan, that you were Just ST enthusisstic steut that
ES I.
S:
That's right. That's right. But one of the things we've
found and you, I think, should know this is that
Procurement Division has almost no statistical section
at all. We're recommensing an increase to CATAD that
because the Procurement Division can not tell or en
the volume of these things are.
Yes.
S:
At the present time, and : think there's F. 7977
important deficiency that we're trying to 78/28 T.
Fine.
3:
Yes,
Well, Just 28 long as we get the authority from the
President through you I'm satisfied but don't emect
me to go beyond what directions I ret from you people,
S:
We're - we're not going to enbarrass you in EAT ver
on that, I'm sure.
Because you know how generous other Cabinet officers
are.
(laughs) Oh do I. Yes.
Now have you got another minute or are you in 5 con-
ference?
3:
No.
Now this 18 strictly between the President, you and me,
what I'm going to say now. The President asked me
yesterday to find four billion dollars for his,
non-interest bearing securities to offset the deficit
so that he could say that the deficit would be Less
- 6 -
301
on July 1st, .21 would be on January 1, .40.
S:
Yes.
H.M.Jr:
The debt rather.
S:
Yes.
H.M.Jr:
Did you know about this?
S:
Well not except in very general terms. Ee didn't talk
to me about it.
H.M.Jr:
Do you know where this is coming from?
S:
No, no.
H.M.Jr:
Well what I'm doing is this. By Friday night, we'll
send you over our revenue estimates.
S:
All right.
H.M.Jr:
Then I'm going to write 8. very carefully written and
carefully thought out letter to the President telling
him why I think that this 18 a mistake, - on the debt.
S:
Yes.
H.M.Jr:
See?
S:
Well I don't know & thing about it except just very
round about way, I heard that Currie vas working on
something in connection with debt, and he has been
hounding me for figures on the overall expenditures
for next year which we couldn't obviously give because
we don't have them yet, but by the end of the week I
think ve vill have them in the rough, I have just
two more budgets to clear with the President.
H.M.Jr:
Yell -
S:
And then I can get those figures to you.
H.M.Jr:
Yes.
S:
And give you some 1dea what this thing 18 all about.
H.M.Jr:
Yell I Just happen to be one of those old fashioned
people that can't change and that is If I spend ten
million dollars and raise six and I have a deficit
302
- 7 -
of four it makes four billion dollars and by issuing
Thomas currency It doesn't make it 8. bit less.
5:
Yes.
I mean I just can't - I can't see that kind of
arithmetic.
S:
Yes.
And nobody else will - I nean they'll call It 1f it's
a ten million dollar deficit - budget, It's a ten
million dollar budget no matter whether we use paper,
silver certificates or Thomas currency.
Yes. Well I've read something in the paper and I've
heard various kind of tricks discussed and in general
I think that it's bad, perhaps bad finance end bad
politics to seem to be pulling tricks. There's always -
there's always repercussions and you know better than I.
T.M.Jr:
Not only aren't there going to be any here but we're
going to lay it right on the line as long as the President
asks me to give him an enswer.
::
Yes.
And I'll send you a copy of it.
All right, fine.
Thank you.
Thank you.
December 13, 1939.
1:14 p.m.
303
H.M.Jr:
Hello.
S.
Lewisohn:
Hello, 1s this Mr. Morgenthau's secretary?
H.M.Jr:
Who?
L:
Hello,1s this Mr. Morgenthau's secretary?
H.M.Jr:
No, is this Mr. Lewisohn?
L:
Yes.
H.M.Jr:
Sam?
:
Are you Mr. Morgenthau's secretary?
Operator: Just a minute.
H.M.Jr:
What 1s the matter?
o;
Go ahead.
H.M.Jr:
Hello
Lewisohn:
Hello Henry
H.M.Jr:
Yes.
L:
Sam.
H.M.Jr:
How are you?
L:
I'mswell, how are you?
H.M.Jr:
Very well.
L:
Henry, I'd like to come down and see you tomorrow
some time.
H.M.Jr:
Sure, why not.
L:
Could I come - what time would suit you, eleven
o'clock? Or ten o'clock. How about ten o'clock?
H.M.Jr:
What have you got, income tax trouble?
L:
What?
H.M.Jr:
Got income tax trouble?
- 2 -
304
L:
No, no, this 18 something entirely different.
H.M.Jr:
Metal?
L:
No, this is - I'll talk to you about 1t, it's -
this Colombian situation.
R.M.Jr:
Ohi
L:
I just wanted to tell you something.
E.M.Jr:
Oh!
I:
For your own private consumption.
H.M.Jr:
I see.
L:
To do something - just, I went to tell you the
situation.
H.M.Jr:
Well now I tell you what I cen do, I can make It
eleven o'clock tonorrow.
1:
Eleven o'clock.
H.M.Jr:
Is that all right?
L:
Fine. Suit - I'm taking the midnight down and I'll
be there at eleven o'clock.
F.N.Jr:
Eleven o'clock by office.
L:
Eleven o'clock in your office.
H.M.Jr:
On the Columbian -
L:
What?
H.M.Jr:
On the Columbian situation.
L:
Yes. But don't - well I want to Just talk to you
about it and tell you, certainsituation there.
H.M.Jr:
I won't have more than six people here when you are
here.
L:
Don't have more than six and maybe just us two.
H.M.Jr:
Well, that's kind of difficult you know. You're a
suspicious character.
- 3 -
305
-
L:
(laughs)
H.M.Jr:
Ha, ha, ha.
L:
Well, - by the way Ellie looked pretty well.
H.M.Jr:
Yes, she's fine.
I:
She had a good looking hat on.
H.M.Jr:
(laughs) I see you still have an eye.
L:
I've got an eye I still haven't - have you?
H.M.Jr:
Well the children say I've got the eye but I have
no follow through.
L:
(laughs) You're not getting me to connit myself
over the wire.
H.M.Jr:
O.K.
L:
Whether I follow through and then get me in trouble,
I won't do that.
H.M.Jr:
All right.
L:
All right, eleven o'clock.
H.M.Jr: Righto. Goodbye.
December 13, 1939.
2:46 p.m.
306
Sam
Henry this 18 B. coincidence. I had it in mind to
Levisohn:
call you in the next minute or two.
H.M.Jr:
Good. Shall I talk first?
L:
Please.
H.M.Jr:
I have a message from Cotton, who talked to Traphagen,
and Traphagen asked whether he could come down and
see me, that he'd like to talk.
L:
Yes.
E.N.Jr:
Now he asked whether he could see me alone.
L:
Yes.
E.M.Jr:
But I don't want to do it if you have any feeling
about it.
L:
Not the slightest. Not a bit of it.
E.M.Jr:
Well, Jones is away so that the thing doesn't rise with
him.
L:
Yes.
H.M.Jr:
But it's immaterial to me whether I see him alone or
not,
L:
I think it's much better for you to see him alone, Henry.
F.M.Jr:
Well then as soon as he leaves, I'll call you up and
tell you what he said.
L:
When 1s he coning?
H.M.Jr:
Well he - I haven't communicated with him yet.
L:
I see.
E.M.Jr:
I Just got this message via Cotton and I didn't want to
communicate - he said he'd like to come Friday. He
said he'd come Thursday, Friday or Saturday.
L:
Yes.
H.M.Jr:
Now if there's any rush I'll tell him Thursday.
L:
I think it would be helpful if you did.
- 2 -
307
H.M.Jr:
I'll 800 him Thursday.
L:
I'd appreciate it very much, but - what you say, but
I think it's much easier probably if you'd see him
alone.
H.M.Jr:
Well I don't know but I'll tell him Thursday and when
he gets through I'll call you,
L:
Thank you Henry.
H.M.Jr:
Right.
L:
What I wanted to talk to you about 18 the same matter.
H.M.Jr:
Right.
L:
I saw Dr. Jaramillio, the Colombian representative this
morning. He told me that at the meeting which took
place in New York yesterday -
H.M.Jr:
Yes.
L:
That to his surprise and to that of the Colombian
Ambassador, they were confronted with the entire member-
ship of the executive committee, and also Francis White -
H.M.Jr:
Oh my.
L:
And he said that Mr. Traphagen's attitude in New York,
as it had been here, was extremely comprehensive,
intelligent, constructive and friendly.
H.M.Jr:
Yes.
L:
But that they got e. very different impression from
the other members of the committee.
H.M.Jr:
I see.
L:
And he has returned here not nearly as optimistic
as he was after talking with Traphagen.
H.M.Jr:
I see,
L:
I merely commented to him that my understanding had
been that Traphagen alone was to conduct these con-
versations.
H.M.Jr:
That's what I understood.
308
- 3 -
L:
He said they'd gone to New York with that understanding.
H.M.Jr:
Well that's my understanding.
L:
So perhaps when you see him on Thursday that'll be
cleared up.
H.M.Jr:
Yes, that's tomorrow isn't it?
L:
Yes, tomorrow, that's right. Well that's the
situation from the Columbian angle.
H.M.Jr:
Right. What else do you know?
L:
That's about all.
H.M.Jr:
Well I have nothing else for the moment.
L:
All right. Thanks for calling and then I'll hear
from you tomorrow.
H.M.Jr:
Yes I'll see him at eleven-thirty and as soon as he
leaves I'll give you a ring.
L:
Thanks a lot Henry.
H.M.Jr:
Goodbye.
L:
Goodbye.
December 13, 1939.
3:23 p.m.
H.M.Jr:
Hello
309
Operator:
Mr. Crowley.
1.M.Jr:
Hello
Leo
Crowley:
Hello Mr. Secretary.
H.M.Jr:
Hello Leo. I tried to get you yesterday. I
didn't get your message about your lunching com-
panion before I saw you, you see?
C:
Oh I see.
H.M.Jr:
So I didn't have the advantage of knowing
Gene had it, I didn't get to Gene you see.
C:
Well I think it's all right anyway, don't you?
H.M.Jr:
Yes. I don't - what I didn't understand is his
interest, the result of his being to the White
House.
C:
That's my idea because he called me up apparently
right after he left there and wanted to know if
he couldn't please have lunch with me.
H.M.Jr:
I see.
C:
Then he started to tell ne how his objectives on
that thing was the same 88 yours and mine.
H.M.Jr:
I see.
C:
And I have an 1dea that he must have been told over
there that - how the President felt about it, don't
you see?
H.M.Jr:
I see.
C:
And he told me that he was very much afraid that the
Hill might feel that they hadn't done their part
in cooperating on this thing.
H.M.Jr:
Yes.
0:
Bo that I don't think we have to worry about any
trouble from that side.
310
- 2 -
H.M.Jr:
Well he didn't try to indicate that he'd been kept
out of it, did he?
C:
No as a matter of fact I told him Just what you told
him that very definitely the request WEB made to
keep out of it.
H.M.Jr:
Yes, that's right.
C:
And I think our record 12 very clear on that.
W.N.Jr:
I think it 1s.
D:
I don't think we have to worry about that a particle.
S.M.Jr:
I think they'd have 8. tough time explaining why they
hadn't been in on it for a year.
C:
That's right, and I think they've been kind of
sulking and giving the enemy B lot of consideration.
R.M.Jr:
Yes.
S:
Now I think that they see that the thing 1s going to
work out and they want to back into the thing.
H.V.Jr:
Well you wouldn't, if you were me, taking 8 sheet of
paper with no heading and no signatures on it would
you?
C:
Positively not. Let them write a letter and out
their names to it.
H.M.Jr:
I haven't got it yet.
8:
All right. I have an 1dea when it does come it'll
just be one of those things.
H.M.Jr:
Well, when they do, if they're going to put MoXee on
it, he's a good man.
C:
Yes, well isn't he - we can handle that, he's not
cuite in sympathy with what you and I want to do but
that's all right.
R.M.Jr:
Well you'll have to hendle him that's all.
C:
The record speaks for itself.
T.V.Jr:
Well, after all we can listen to him but We don't
have to do what they -
311
- 3 -
C:
That's right. That's right.
H.M.Jr:
I'm not going to change the course for some fellow
that gets on the band wagon just before election.
C:
That's right. That's right. And if he has anything
to present he can present it and we'll go right on
our own way.
H.M.Jr:
That's right.
C:
Goodbye.
H.M.Jr:
O.K. Thank you.
Note:
Copy of this given to Mr. Bell last
ght at 5:15, on instructions of the
Secretary.
McH
Dec. 13/39
December 13, 1939.
4:32 p.m.
312
H.M.Jr:
Hello.
Operator:
Secretary Morgenthau.
H.M.Jr:
Yes.
John
Ottley:
Mr. Secretary, this 18 John Ottley.
H.M.Jr:
Yes.
0:
I got your long letter and all those documents and
I've been out of town, just got back yesterday.
H.M.Jr:
Yes.
O:
And we put up the bonds in that account, as suggested
in the regular routine way.
H.M.Jr:
Yes.
0:
Now, I told you small favors thankfully received.
H.M.Jr:
Yes.
O:
What I had in mind and that is that I understood
that it was in your discretion and one you wanted to
that you just had an independent account as
Secretary of the Treasury.
H.M.Jr:
Not that I know of.
0:
And if this account we have, of course we're glad to
have it but that's what you'd call run of the mine.
Now I didn't want to ask you to do anything that
you couldn't do or that you didn't do.
H.M.Jr:
No, well the trouble is you see, you happen to be
in a city of a Federal Reserve city.
O:
Yes.
H.M.Jr:
And 80 what I am doing 18 out of the ordinery and
exceptional and we - as I understand from Mr. Bell,
heretofore, we've turned everybody down in a
Federal Reserve City.
O:
Well I mean - well I didn't understand that.
H.M.Jr:
I tell you - let me do - may It Let me switch you
over to Mr. Bell, see?
- 2 -
313
0:
Well I'll Just leave it with you. I - you're the
boas and if - I mean if I ask you to do something
that you don't do or that would emberrass you to do,
why then I'll Just get off - I'll get off the
sidewalk.
"0. I've already done something for you which 18
not the ordinary run of the mine,
0:
I see,
H.M.Jr:
And I've gone as fer as I can Mr. Ottley.
0:
O.K.
H.M.Jr:
See. Well I mean - I don't think you'll find any
account in any other bank in Atlanta.
0:
Well of course I wouldn't - that wouldn't be my
business to find out about that.
R.V.Jr:
Yes. Well the next time you come up I'll have Bell
in and he'll explain the whole thing to you.
How's that?
0:
That's O.K. In other words you're my boss and
whatever you say - in other words I just thought -
I mean I asked you for something that I thought
that was in your line, that you did some time when
you wanted to do it.
H.M.Jo:
No, I don't think that's right.
0:
Well then -
H.M.Jr:
But when you come up we'll have Mr. Bell come in
and we'll 20 over the whole thing and maybe there's
something about it that I don't know that's
happened before.
0:
All right sir. That's fine enough.
H.M.Jr:
If there's anything which 18 purely my discretion,
I'll give it to you cheerfully.
0:
O.K. Thet's fair enough.
H.M.Jr:
If it's simply up to me you can have the Treasury
and the lot too.
0:
(laugha) Well that's just fine enough.
- 3 -
314
H.M.Jr:
I'll throw in one chair and coca-cola, just to
make it good.
0:
All right now, I tell you that would cost you
something and I wouldn't accept that. I never
let anybody give me anything that cost them
anything.
H.M.Jr:
Listen, the thing that doesn't cost anything is
no good.
0:
I know but that coca-cola sounds good and it's
worth something. You'd better keep that instead
of giving it away.
H.M.Jr:
Well I'd have to go out and buy it, because I
don't own any.
0:
I see. Well I thank you and I just want - I mean -
H.M.Jr:
No. If it's anything in the Treasury, a bank
balance, which 19 purely discretary with me you
can have it but Bell tells me it isn't so, but
we'll have him come in the next time you come in.
0:
Well you just - I tell you what you do, you just
let him study his lesson, so he knows it the next
time we come up and then he'll teach me mine.
H.M.Jr:
All right.
0:
Well thank you a thousand times.
H.M.Jr:
Thank you.
0:
Goodbye.
H.M.Jr:
Goodbye.