Volume 233, January 1 – January 8, 1940

DIARY Book 233 January 1- 8, 1940 and 1 M/ - & - Book Page Agriculture Income Cartificate Flan: Magill, Viner, and Ayers (Cornell Iniversity) asked for comment - 1/2/40 233 8: a) lagill unswer - 1/4/40 221 b) lymn - - 1/6/40 367 c) The # - 1/8/40 431 Export of agrinitural products hindered by lack of shipping intilities: Hass memoranium - 1/5/40 316 American Securities Imad Abroad See Mar Conditions Annuities, Government See Social Security Argentina See latin lawin (1) I I Bank of America Federal Item Board asked by Bank to make examination on their THE responsibility; copy of request sent to Treasury by Buard - 1/4/40 197 a) Discussed = 9:30 meeting Trial Lawyer to act for Treasury discussed by 32: and Judge - 1/4/40 208 a) Partier discussion at 9:30 meeting - 1/5/40 345 Budget FDH's message transuitting 1941 budget - 1/3/40 141 Business Confitions Haas m situation for week ending 12/30/39 22 a) FOR seart may with compent that it does not paint IND good E picture: index of sew orders falling 19 Haas restructive IN situation for week ending 1/6/40. 437 - C - China Antimony and Durgster: French claim right of preemption of supplies emiting shipment in Indo-China reported by Chinese to State and Treasury Departments.. 108,233,465 s) HATE units Dochran to secure further information - 1/2/40 106 1) laster received - 1/4/40 219 Colombia See Latin larin A I I Dollar Securities Iraned formi See War Conditions: American Securities Owned Abroad Regraded Uclassified - F - Book Page Federal Savings and Loan Associations See Financing, Government Financing, Government Currie (Lauchlin) nenorandum asking whether Secretary possesses authority to sell Treasury's holdings of shares in Federal Savings and Loan Associations and whether Home Owners Loan Corporation has authority to purchase such shares from Treasury a) Currie letter - - 12/27/39 233 504 b) Foley opinion - 1/8/40 498 c) Treasury answer - 1/10/40: Book 234, page 397 d) Currie asks for copy of opinion if one is prepared - 1/12/40: Book 235, page 135-A 1) Treasury answer: Book 238, page 105-A 2) Currie's further letter - - 1/31/40: Book 238, page 423 3) Copy of opinion sent: Book 240, page 395-A Finland See lar Conditions France See iar Conditions - G - Germany See lar Conditions Government Anmuities See Social Security - En - Hanes, John I. Address at Jackson Day Dinner at Dallas, Texas - - 1/8/40 489 Home Owners Loan Corporation See Financing, Government Hungary See Mar Conditions - I- Ickes, Harold Copy of letter sent to Bell (Chief of Bureau, Associated Press) concerning article "Five in Cabinet Face Roosevelt Reelection or Political Oblivion" given H&Jr - - 1/3/40. 135 Inter-American Bank See Latin America Italy See lar Conditions Regraded Uclassified - L - Book Page Latin America Argentina: Turns down exchange control article of proposed trade treaty; demands greater concessions - 1/2/40 233 1 Memorandus to be presented to FDR by HWr if Hull puts up fight - 1/4/40 246 Colombia: HMr suggests to Traphagen (Foreign Bondholders Protective Council) that he see Ambassador who has informed Welles that attitude of President of Colombia has been misinterpreted - 1/2/40 51,122 a) Riefler nesorandum and additional background on debt situation sent to Traphagen 144 b) Welles reports that arrangements have been made for Traphagen to visit Embassy - 1/4/40 235 1) Traphagen reports to HWr on conference - 1/8/40 425 Conference; present: HWr, Jones, White, Cotton, Gaston, Cochran, Welles, and Feis - 1/8/40 469 a) Cotton aesorandum 487 Inter-American Bank (Proposed): Drafts of by-laws, convention and charter - 1/5/40 249 Lepke, Louis See Narcotics - M - Mexico Ambassador and Suarez (Minister of Finance) call on HWr - 1/8/40 445 Monaco See Mar Conditions Morgenthau, Robert Judge Lehman and EWr discuss working in Lehman's office - 1/4/40 207 Movie Cases See Tax Evasion - I - Narcotics Lepke case: H&Jr wants Treasury to issue factual statement after conviction as in Pendergast case, et cetera - 1/5/40 343 - 1- Book Page Revenue Revision Sumary of recommeniations made by taxpayers, et cetera, transuitted to Doughton by HWr - 1/4/40 233 228 a) Doughton tells HWr he thinks entire project a great mistake - 1/5/40 266 Roumania See Mar Conditions - S - - Scandinavia See War Conditions Securities Markets (High-Grade) See har Conditions Social Security Government Annuities: Amendment to Social Security Act to permit sale of - Bell memorandum - - 1/8/40 449 Speeches by HWr Proposed speech on Capitalism discussed at 9:30 meeting - - 1/2/40 5 a) Jonathan Nitchell's availability to assist discussed with Gardner Jackson - 1/2/40 46 b) White and HWT discuss - 1/4/40 179 State Department H&Tr again asks that all transactions involving Treasury and State Departments clear through one person to him - 2/1/40 2 a) Gaston selected - 1/3/40 150 b) Instructions to staff members 204 1) Copy sent to Hull 230 Surplus Commodities Wheat Export Sales: Hass memoranium - 1/2/40 37 Wheat Situation: Haas memorandum - 1/5/40 319 H I I Tax Evasion Movie Cases: Bioff and Schenck cases discussed by H&Jr and Attorney General - 1/2/40 56,428 Taxation See also Revenue Revision Publicity on those getting $75,000 and over discussed at 9:30 meeting - 1/3/40 151 Tyler, Royall See lar Conditions: Sungary; Italy D I I Unemployment Belief Works Progress Administration: Haas memorandum showing increase of employed persons - 1/2/40; 1/8/40 40;433 U.S.S.R. See for Conditions Regraded Uclassified - Book Page War Conditions Airplanes: Curtiss-Aright contracts for French and United States Army delivery reported by Collins - 1/2/40 233 95 a) Collins and Bir discuss - 1/2/40 97 Discouraging situation discussed by H&Jr and Collins- 1/4/40 234 Progress report - 1/5/40 267 Airplane production in Great Britain and France: Estimate as prepared by Har Department general staff 1/5/40 273 Curtiss P-40: Supplemental information on deliveries - 1/6/40 365 HMJr asks Collins to prepare charts showing monthly deliveries to Army, Lavy, English, and French so that FDR may be kept informed - 1/8/40 393 a) See Wr's aemorandum in his own handwriting 377 Memorandum of meeting held in FDR's office - 1/8/40 394 HMJr tells Purvis FIR has given instructions that 25 of the P-40 planes be delivered to the French between April 1st and June 30th - 1/8/40 396 American Securities Owned Abroad: HMJr suggests to Lercy-Seaulieu that American companies be given opportunity to purchase their own securities - 1/5/40 244 a) HMr reports conversation to Feis and Cotton 264 Cochran and SWr discuss further: Jerome Frank to be asked whether or not these companies may have a provision against buying in their own securities - 1/6/40 374 a) HWr's own nenorandum in longhand 377 Blockade (Economie): Progress explained by Pernot (French Minister of Blockade) to Bullitt - 1/3/40 123 a) Rist, together with British representative Gratkin, will visit United States to discuss further 1) Postpoment of visit discussed by Hull and HAIR at White House judiciary reception - 1/4/40 241 a) FDH informed of HWr's desire to postpone - 1/5/40 278 1) Copy of Bullitt message attached b) American Embassy, Paris, reports on conversation with Rist - 1/8/40 404 1) Dealings with Greeks, Turks, Swiss, Belgians, et cetera, discussed Exchange market result - 1/2/40, et cetera 17,223,414 Finland: Funds for relief sent to Treasury turned over to Procope- 1/2/40 83 Resume of bills introduced in House of Representatives providing for financial assistance - 1/3/40 314 Regraded Uclassified - - (Continued) Book Page War Conditions (Continued) Germany: Reorganization of lar Remony Administration reported by American Embassy, Berlin - 1/5/40 233 275 Reichsbank report for last week of December - 1/5/40 2% Hungary: Royall Tyler's report on conditions transmitted by Bullitt - 1/2/40 112 a) Public "surprisingly well informed of Nazi double-dealing" b) Rist discusses with American Embassy Tyler's desire that Allies buy substantial quantities of the exports of that country - 1/8/40 406 Italy: Royall Tyler's report on conditions transmitted by Bullitt - 1/2/40 114 Pennachio (representative, Bank of Italy) reports to Matthews (American Embassy, Paris) on conditions - 1/4/40 171 Liaison Committee: Report of meeting 1/3/40 forwarded to FDR and HWr 129 Monaco: Opening of Federal Seserve Bank of New York account discussed by Incke and Cochran - 1/5/40 335 Purchasing Mission (British-French): See also War Conditions: American Securities Owned Abroad France: Purchasing Mission Account with Federal Reserve Bank of New York: Rousseau long-distances Bank of France that instructions be clarified so that Secretary of Treasury my have personal and confidential access to account, et ceters - 1/2/40 13,134,168, 225,227 Romania: American Legation, Bucharest, asked for report on trade between Roumania and Germany - 1/2/40 105,120 Scandinavia: Greene (through American Legation, Stockholm) instructed to ask Rooth (Governor, Sveriges Riksbank) for confidential sumary of views on present economic situation in Sweden, Finland, and Norway - 1/2/40 at a) Rooth's report - 1/8/40 400 Securities Markets Grade): Current Developments: Sees memorandum - 1/5/40 R Strategic Materials: HMJr informs FOR of appreciation of British and French Governments of efforts to establish control over export and re-export of essential alloys - 1/2/40 15 a) Rist to visit United States in this connection b) HMJr gives Nelles copy of report to FOR for Hull 35,111 Regraded Uclassified - If - (Continued) in hage is Conditions (Continued) Stratagic Materials (Continued): Columbium and Tantalum: White preliminary report - 1/8/40. F2 of Copper: Collins and HWr discuss filtering trup of United States purchases from Russia to lessay - 1/2/40 % a) Purvis asks HMJr to investigate - 1/2/19 30% Lampblack: Wollner menorandum (supplemental) - 1/2/40 is Molyboenum: Purvis reports on Cananea line in leim 1/2/40 in Tungsten and Antimony: Purvis nemorandum - 1/2/40 102 Senden: Agreement between Bank of England and Smerigas copy sent to Treasury by American Imin - 1/5/40 308 T.S.S.B.: FIR shown White memorandum "No exports from Initad Butes from December 19, 1939, through January 3, 1940, although monthly exports for three preceiling worths exceeded $17 million" - 1/8/40 SEE locks Progress Administration See Imemployment Relief January 2, 1940. GROUP MEETING 9:30 a.m. 1 Present: Mr. Bell Mr. Haas Mr. Cochran Mr. Schwarz Mr. Cotton Mr. Gaston Mr. Sullivan Mr. Glasser Mr. Thompson Mr. Foley Mrs. Klotz E.K.Jr: Herbert? Gaston: I don't believe I have anything new. H.M.Jr: Ed? Foley: Here 1s the memorandum you asked for Saturday morning about the movie cases. I have given 8 copy to Sullivan. H.K.Jr: Some time this morning I will go over this with you. I don't know when, but I will. Will you (Cochran) see that the cables which used to go to Hanes, go to Bell? Cochran: Yes. B.K.Jr: Sullivan? Sullivan: Nothing. H.M.Jr: Any snow up in your country? Sullivan: Yes, sir, Just right. E.M.Jr: I wanted you and Gaston to stay behind. There is something I want to go over with you. Glasser? What 18 this that happened Sunday at the State Department on the Argentine Trade Treaty? Glasser: They had a trade agreement meeting. It was a meeting of the Trade Agreement Committee on the Argentine and they there took up a cable which the Argentines had sent up Regraded Uclassified 2 2 I 1 practically refusing all of the requests of the United States in the negotiations. So for BE it refers to the Treasury, they turned down the exchange control article - H.M.Jr: Vac did? Glasser: Argentine, turned down the exchange control article that the State Department has been trying to get then to accept, which ve objected to as well. Negotiations were evidently in a very bad state and the Trade Agreement Committee felt they had to nake another concession, additional concessions to Argentine, in order to - If they were to have an agreement at all. Then they proceeded to draw up E. revision of the exchange control article that would mich more nearly meet the Treasury's position and that was cabled down to Argentina. H.M.Jr: Bell and you (Thompson), in the administrative procedure here, I write to Xr. Velles and tell hin that - very politely that this thing of durping this Cuban thing on ay desk and ny not having time, he turns it over to Grady and Grady writes a letter in which be says, "You bad anole time. You have had since September. You were represented on the trade thing,' and SO forth and BO on and if we didn't like it, vity didn't we say SQ and he throws it right back into our lap, and I don't know what the answer 1s, but you see here we have got Vnite 00 the trade agreement - be represents the Treasury. Cotton is on South America and debt settlements, Basil Harris and Herbert Gaston on neutrality, Merle Cochran doing - clearing all cables, and then for some unknown reason I get a message - a menorandum from Ed Foley giving me the latest word on the Argentinian thing and the exchange. Vell, it 1s ridiculous. I can't work that vay. I mean, I get 8 memo. Saturday night from Ed. I speak to Harry and he tells me this fellow was over Sunday on the trade agreement thing. Joe Cotton 18 on the thing. Harris goes over, Gaston goes over. Nov, some how 07 other ve have got to have one person to whom everything will flow that has to do with Regraded Uclassified 3 - 3 the State Department and from that person to De. I can't do it any more this way. I just can't function that way. Some one person will have to be - everything from the State Department will have to flow through that person and when they can't decide, then they can come to me with the problem, but I all not going to have six people reporting to no on contacts with the State Department and then when something like the Cuban Trade Treaty or this matter with foxes in Canada and Mr. Hull has to call ne up and say, "Why hasn't It come to me - - this is a matter of Just a question of procedure and I think that Bell and you fellows ought to get together and work & vay out and decide on one person who should know everything that goes on between the Treasury and State Department and let's pin it on one person, but the way it 1s now it is just impossible. Ye get all excited and this nan says be doesn't know this - I can't work like that any more. It is very bad procedure, so will the two of you go in and do it fairly quickly, because I do the best I can for I know like this afternoon I an going to see Summer Velles on Colombia. Cotton and I function all right because I let him know pretty well what I an doing and he lets me know what be is doing but this trade agreement thing, some of these other - this business about the foxes in Canada, I signed it completely blind. I haven't the slightest 1dea what I signed. I don't know yet what the Cuban Trade Agreement cost the Treasury. I know it cost us something. So see if you can't - there is a good job for a couple of these Civil Service boys, see how good you are. Bell: We will tackle it today. E.L.Jr: Because whoever the person is, when they are stuck they can come to me, but unless they are stuck I don't want then to come to me, but the final straw was when the General Counsel writes me a memorandum on the foreign exchange thing. I know who wrote it, and it was all right, but there were about six people Regraded Uclassified® - 4 in on it. Bernie was right on this whole thing. Bernie saved the show against the economists this time. Glasser: That 1s correct, he caught it. H.K.Jr: And incidentally, you fellows have got to clean up that Ecuador business lov. Glasser: I an afraid I shocked the whole Inter- Governmental Committees by indicating that ve wanted to move quickly on Impior. H.M.Jr: It is too much on me and too much confusion. Well, some time within a reasonable time these men will go to work and give ne something on that. And then when I say I don't want to read all these cables and all this junk that comes in from Nicholson and all the rest of the stuff, I want to make sure that somebody does read it. Cotton: Do you want to bring up the status of tids Pan American Bank idea in White's absence? - Is he going to be here? Glasser: The status is that we are to trensfe 2. provisional draft of organization and control and functions of the proposed bank and that this is to be discussed on Wednesday with the informal committee consisting of the Federal Reserve people and people in the Treasury and I think the time schedule is on Thursday it 1s to be given to Berle for discussion at his committee. Cotton: The significance of it 1s that Berie is asking'- - virtually asking the Treasury to to the whole thing now. Was that your intention? H.K.Jr: I don't know. I heard - I pess you told me, didn't you, that you had worked m this thing? I think that is important enough so that I ought to have a peak at it before 1: goes over and on things like this where you know they are coming, you ought to ask for at appointment E day in advance 80 that I tall give It plenty of time. Regraded Uclassified 5 5 I I Cotton: Well, that would be - Glasser: We did. Cotton: Some time tomorrow. Plasser: I should think after the informal committee had its discussion, we could show it to you some time late in the afternoon. E.M.Jr: Some time in the morning, Cotton, I want to talk to you about this thing with Welles. Cotton: What time is he coming over? E.K.Jr: Not until this afternoon. But if you will be around this morning, I will Bee Foley first and then Cotton. Incidentally, on this thing that you (Glasser) are working for me on, if we use 124 to 129 inclusive, then in order to make the story you have got to show how the thing went down from January 1, '30, to December 31, '33. Then start in on July 1, 134, and go as far as you can and as far as we have statistics. Glasser: That 1s right. E.K.Jr: You have got to have three periods. I have set 3:00 for tomorrow afternoon - I am very serious about this thing. This 1s number one. Glasser: Yes, sir. E.K.Jr: It is this speech that they have been working on for a month and I have decided I am going to give it some time in January, on capitalism. Bell: Sounds like Eccles. H.M.Jr: I happen to be for it. Bell: Oh, you are for it. That 1s O.K., then. H.M.Jr: If I can prove what we are trying to prove, I think it will be a real contribution. I don't know whether we can prove it. Think we can prove it? Regraded Uclassified 6 - 6 - Glasser: Some things might be used for proof. I an afraid it 1s a very clouded statistical picture. H.M.Jr: I sketched it to Mrs. Roosevelt the other night and she said, "If you can prove it on the thesis that you are going, it would be marvelous," so let's see. Maybe we vill have to do a little high flying and a little ground strafing, both. I got a call from Lowell Mellett. I think there 1s an old order around somewhere that you might look up that anybody who goes on the air should clear through Lowell Mellett. I don't think anybody lived up to it, but at least I am going to start with it. In talking it over with the boys at home about where I should give it and so on, Henry said, "After all, Daddy, if you do give it to an audience with only two or three hundred people to see you, why not give it at your desk, because after all you are not running for anything." So I think that if we could give it right here at some meeting we have when we have the air it is just as good as trying to give it before the audience. Schwarz: You promised the Press Club. H.M.Jr: Yes, but I can't get the air, can IT Schwarz: It would be better to give it here in the evening. Gaston: It has been done, a broadcast of a speech from the Press Club. Hull did one last year and delivered his speech to the Press Club and it was broadcast. Schwarz: It is not as good as an audience. If it was noon time -- Gaston: That is true. It should be about 1:00 o'clock. Schwarz: If you gave it from your desk in the evening - H.M.Jr: The kind of speech I an going to give, I don't think I will get 8. very good press on it and I would like to get the air. Regraded Uclassified 7 - 7 - Foley: How about the forum of the air that the Star runs? Gaston: They have a standing request. H.M.Jr: But for some reason or other all the news- papers kill it then, don't they? Schwars: It depends on what is said. If it 1s news- worthy, they use it. E.K.Jr: They give it to one newspaper then, don't they? Gaston: Not exactly. The Star doesn't cover it until the following day. Schwarz: The other papers in town here don't play it up much because the Star runs the whole text, but around the country if it has good neat in it it will be used. E.M.Jr: What time of night is it? Schwarz: Currently they are running at 10:00 p.m., 10:00 p.m. Monday. Foley: It is a half hour. E.K.Jr: I need a half hour. Schwarz: That makes your talk run about twenty-two minutes. E.M.Jr: What about the other eight minutes? Schwarz: They have music. H.M.Jr: I thought I would get Lowell over and ask his first. But maybe it would be better in order to keep faith, say to the Press Club that I all going to give a talk but that I want the air. Klots: Don't you want to do it in the middle of the day? Schware: If it is to go to the people, it ought to be in the evening. Regraded Uclassified 8 - 8 - Gaston: The request from the Star antedates any request from the Press Club and this 18 not a speech before an audience. Schwarz: You could go right up to the studio in the Trans-Lux Building. H.M.Jr: I have never asked the broadcasting stations for a national hookup. Schwarz: They would give you one direct, right from here. Your own fireside. H.M.Jr: Well, think about it. Ve have been fussing with this talk for over a month. Glasser: More than a month. Cotton: Wouldn't it make it more weighty to give it before one of these learned societies? Foley: It doesn't need that, Joe. Cotton: It depends on what sort of 8 thing it 1s. H.M.Jr: It is going to be a distinctly New Deal speech and I have got an invitation to & up before the School of Social Research in New York any time on their form. As Henry says, what 1s the use in going to all of that trouble if I'm not trying to sell myself. It is the idea I vant to get across. Cotton: Yes, it 18 a question of what portion of the population it will reach. H.M.Jr: If we go up to some learned society, there might be two hundred people. Gaston: We had long ago a very insistent request from Chicago, I think the Association of Commerce, that wanted you to come out there most any time and deliver a speech under their auspices. H.M.Jr: They have got an over-all association in Chicago? Regraded Uclassified 9 - 9 - Schwarz: That 1s right. Gaston: They would arrange a radio hookup for you. H.M.Jr: But that is in the middle of the day. Gaston: They can arrange an evening event for you. Schwarz: That would be ideal to go out in that territory. Bell: It would be swell from the standpoint of time, too. You would gain an hour. H.M.Jr: Pardon? Bell: It would be swell from the standpoint of time. Gaston: It has some other advantages, going out in the Middle West. H.M.Jr: I want to go to Chicago in two weeks anyway to see Henry. Gaston: I think that would be fine. Schwarz: They would arrange an evening dinner. H.M.Jr: It is an over-all association, a joint thing in Chicago? Schwarz: Chicago Association of Commerce. It is all business in Chicago. Gaston: I think that is the best thing. Schwarz: Right in the Chicago Tribune, the only morn- ing paper. H.M.Jr: Do you like that? Bell: I think it 1s a pretty good suggestion, yes. Gaston: Arrange a little entertainment out at the University. Schwarz: It won't be in Washington. Regraded Uclassified 10 - 10 - H.M.Jr: That 1s all. If this goes well, we will have more - well, think about it. Dan? Bell: I have a number of things here. Would you like me to wait and give me ten minutes? H.M.Jr: Yes. Well, you can listen to what I am going to say right after this meeting and then you can talk. Bell: All right. H.M.Jr: Then you stay when I see Gaston and Sullivan. Have you (Mr. Thompson) heard anything about Mr. Kieley? Thompson: He says the doctor 1s coming out tomorrow and he thinks everything is all right and he will decide definitely whether he is coming back some time this week. STRICTLY CONFIDENTIAL 11 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 2, 1940 TO Secretary Morgenthan FROM Mr. Cochren With reference to my memorandum dated December 29 on this subject, I told Mr. Inoke by telephone this morning that it would be satisfactory to the Secretary that the transcripts of the special accounts of the Bank of England and of the Bank of France with the Federal Reserve Bank cover the week ended with Tuesday evening. I also told Mr. Knoke to substitute for the written letter requiring his signature a memorandum of transmission, merely indicating the period covered by the attached transcript. I told him that ve at this end would adopt a brief form of memorandum of acknowledg- ment, not requiring the Secretary's signature. B.M.S. 12 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION A DATE December 29, 1939 TO Secretary Morgenthau FROM Mr. Cochran STRICTLY CONFIDENTIAL lt. Inoke telephoned this afternoon. He asked if I could not devise some simeographed or printed form to accompany and to acknowledge the weekly transcript of the special account of the Bank of England which the Federal Reserve Bank is now providing confidentially for the Secretary. Knoke also explained to me that the British Purchasing Commission requires the Federal Reserve Bank to provide a full transcript of its account each Tuesday night 30 that this may be cabled to the Bank of England in time for the latter's closing on Tednesday. Mr. Knoke inquired as to whether it would be agreeable to the Secretary if the transcript provided him also cover a week ending with Tuesday, instead of Wednesday, as I had originally suggested to Mr. Knoke. The Federal is quite prepared to make the statement as of any day the Secretary requests, but simply points out that if Tuesday evening would be agreeable, this would obviate the necessity of the bank preparing two separate statements each week. I told Mr. Knoke that I would consult the Secretary on the two points herein covered. Cochran Tuesday P.M. OK for me 1hrth Regraded Uclassified STRICTLY CONFIDENTIAL 13 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Jamary 2, 1940 TO Secretary Morgenthan FROM Mr. Cochran At 11:40 a.e. Saturday, December 30. Mr. Cameron telephoned me that the following cablegram had just been received by the Federal Reserve Bank of Sev York: "Paris, December 30, #1293 Please transfer from our T Account to Bank of France Special Account to be opened upon your books $6,000,000 value January 2. Kindly advise Rousseau. (Signed) Cariguel" Mr. Cameron informed ne that he had notified Mr. Rousseau of this message. In answer to my inquiry, Mr. Cameron said that no instructions had been re- ceived from the Bank of Prance authorizing the Federal Reserve Bank to give Secretary Morgenthan personal and confidential access to this special account. I told him that I would take this matter up with Mr. Leroy-Beaulieu and would call him back early on Tuesday morning. I spoke to the Secretary after talking with Mr. Cameron and he agreed that I should talk directly with the French Financial Counselor. I was not able to reach Mr. Leroy-Beaulieu by telephone until 3:45 Saturday afternoon. He knew of the above quoted cablegram. Be read to me cables ex- changed between himself and his Government in which he had properly set forth Mr. Morgenthau's desire for "personal and confidential access", but wherein the French authorities had provided that Mr. Roussesu should be responsible for making the details of the account available to the Secretary of the Treasury. Mr. Leroy-Beauliou had sent a further cablegram to the French insisting that this matter be straightened out through a direct cablegram of instruction from the Bank of France to the Federal Reserve Bank of New York. Ee assured me that be would have the necessary authority in the hands of the Federal Reserve Bank before his departure, which has now been delayed from January 2 to Jamuary 5. Vhen I telephoned Mr. Knoke at 10 o'clock this morning I immediately brought up the above subject. Knoke was familiar with all of the details and added new information. He stated that Rousseau had been in the Bank this morning and was quite disappointed because the account was to be opened for only $6,000,000, while be expected $25,000,000, and has important payments to make today. The Federal vss prepared to open the account upon the above quoted authority. provided the Treasury would not insist upon it being held up pending the receipt of the agree- mat being carried out with respect to giving Secretary Morgenthan confidential and personal access to the account. I told Incks to go ahead with the opening of the account, and that we would depend upon Lercy-Beauliou straightening out the authority. Inoke informed me that the Bank has not yet received suitable authority Regraded classified 14 - 2 - for checks to be drawn on the new account by Rousseau. The latter presented as unsigned copy of a. letter from Governor Fournier to Governor Harrison when he arrived some days ago, setting forth this anthority, but the signed original. presumably delayed in airmail, has not yet arrived. Consequently, urgent efforts are being made to have 8 cablegram setting forth this authority come from the 3ank of France to the Federal Reserve Bank of New York today. At 12:30 Knoke telephoned ne that Rousseau had spoken by long distance with the Bank of France and had insisted upon receiving by 3 p.z. this after- noon: (1) instructions in regard to opening the special account; (2) advice to the Federal Reserve Bank that he may drav on this account; and (3) definite authority for the Secretary of the Treasury to have confidential and personal access to the account. Mr. Knoke and I agreed that Messrs. Leroy-Beaulieu and Housseau were doing everything they could from their side, but ve doubted whether the officials in the French Ministry of Finance and in the Bank of France would be back on the job in sufficient force and form to get out the necessary instruc- tions today. HUS Regraded Uclassified 25 lamary 2, 1940 STRICTLY CONFIDENT Dest Xr. President: On inturday morning, December 30. Resers. Purvis, Pleven and Collins, whom you had been good enough to perait se to present at the White Issue ca Priday. CODE 10 the Treasury and we studied further the question of resential V12 materials. M. Purvis provided - with nenoranda upon this question. and 1 copy of a cablegram received by his 00 December 23 from Mr. Monnet, from which I mote: "folegrams 894, 895 and 902 from His Majesty's Ambassador it Vashington regarding molybiesum etc., have been referred by British and French Covernments to Angle-Fremah Coordinating Committee 02 behalf of whose I have been requested to send you following reply. British and Prench Governments very mc) velcome approach which Mr. Norgenthau has mde to you ast varaly appreciate spirit in which President 10 considering question. It would be of greatest service to Democratic Powers if United States Government would establish control over export or re-export of corential alloys and ve have that this night lead to similar var materials such as oil, comper and carbon black. Policy which Secretary for the Treasury has studented, with the Allied co- operation it would certainly receive, night will shorten var considerably vithout in any vay săilag to sufferings of German people. Ve therefore strach staest importance to any steps which United States Administration can take Is prevent these alloys reaching langerous destinations". Mr. also indicated his readiness to send experts to this country to assist la technical discussions. Is this commection. the folloving paragraph is quoted free Aubussador Millitt's cablegram 30. 3047 of December 28, 1939, *Nomet tells Be that is view of the great complication is the whole question of economic warfere that oz his suggestion Daladier has approved realing Net to the United States ia the 1487 future is order to explain the objectives of the Allies is economic varfore and the mechanism which 11 is proposed to use is sitaining then, Rist would also be able to get the French a clearer pleture of our position. Mommet has also been authorised by Deladier to take 10 with Chamberlain art veek the matter of having a qualified Dritish subject sent with a similar mission". Regraded Uclassified 16 - 2 - Captain Collins and other unders of w staff are sentinuing their survey of the problems involved, particularly is the light of the assoriate reselved from Mr. Purvis, is order that the possibilities to effective action a our part my be wighed carefully prior to the consemplated arrival of the Allied emports. Yours sincerely. the President, the White House. HMR 17 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 2, 1940 TO Secretary Norgenthau FROM Mr. Cochran The foreign exchange market continued the quiet trend of the past few days. with the volume of sterling transactions less than normal. Sterling opened at 3.95-1/2 and remained at that quotation all day. Sales of spot sterling by the four reporting banks totaled L274,000 from the following sources: Y commercial concerns I 100,000 & foreign banks (Europe) 1 174,000 Total 6 274,000 Purchases of spot sterling amounted to L219,000, as indicated below: by commercial concerns 1 192,000 w foreign banks (Europe) 18 27,000 Total 6 219,000 The other important currencies closed as follows: French francs .0224-1/4 Guilders .5324-1/2 Swiss france .2243 Belgas .1686 Canadian dollars 11-1/4% discount The rates for the Cuban and Mexican pesos were unchanged at 11-5/8% discount and .1695, respectively. Ye purchased the following amounts of gold from the earmarked accounts of the banks inlicated: $20,000,000 from the Bank of France 2,500,000 from the National Bank of Argentina $22,500,000 Total With reference to the purchase from the National Bank of Argentina, that Bank has been a consistent purchaser of gold from us and this transaction represents the first reverse operation since July 1939. In an endeavor to ascertain the reason for this sale of gold, ve communicated with the Federal Reserve Bank of New York and vere informed that up to the present time Argentina had not given it instructions as to the disposal of the funds representing the proceeds of the gold. CONFIDENTIAL 18 - 2 - The London fixing prices for silver vere lower on small Zastern selling and an absence of buying orders. The spot price vas fixed at 22d, off 1/21. and the forward price was 22-3/16d, also off 1/2a. The U. S. equivalents vere 39.13# and 39.16#, respectively. Silver in Bombay, less the import tax, vis slightly higher at 43.20$. Both Handy and Harman and the Treasury maintained their buying prices for foreign silver at 34-3/4 and 35#, respectively. We made five purchases of silver totaling 350,000 ounces under the Silver Purchase Act. Of this amount, 100,000 ounces represented inventory silver and the remaining 250,000 ounces vas nevly produced silver from foreign countries, = chased for forward delivery. BMS. CONFIDENTIAL 19 - 2, 1940 w dear m. Presidents I - inclecing Coorge Same' used report - the business at 1 i $ a . Ent in with, plature. - of the trais that 1 is not 192m at present is the my - Later of me extere to falling off. This is - a of $ s I a date = Yours sisserely, the President, the Unite Inc. 20 Problems 1 I I $ when. I -at- apt- - 1 4 Yours I ---- 21 demory 2, 1940 n door m. Presidents I M inclesing herewith George lass' mettly report ⑉ the business sit- utin. b does not paint too good a I - of the trends that 1 do not 19th at present Le the my our inles of ⑉ is falling off. This is 10- dated at the bettem of Chart M. 2. Yours sincerely, a President, the Bite Inc. Regraded Uclassified COPY 22 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION CONFIDENTIAL DATE January 2, 1940 TO Secretary Morgenthau FROM Mr. Hass Subject: The Business Situation, Yeek ending December 30, 1939. Conclusions (1) The business trend has flattened out, soparently foreshadowing FORM decline in industrial production during the early part of next year. (2) The prospect of a downturn in business activity is indicated by our basic business indices for November, which show that the underlying demand at present 18 sufficient to support 82 FRE index level of about 115, as concered with a November production index of 124. An increase in the ratio of durable to nondurable production to approximately the level reached in the SUNDATE of 1929 and 1937 also suggests caution, particularly in appraising the immediate outlook for the heavy industries. The present large backlog of unfilled orders, how- ever. 227 continue for some time to sustain production above the level of demand. (3) The recent improvement in prices of certain commodities has brought an appreciable upturn in the FLS all-commodities index during the week ended December 23, but the price rise so fer has not been extensive enough to bring 8 material increase in new orders, nor to improve our index of confidence. Seasonal influences, however, may bring en increase in new orders during January. The general situation Business activity has stopped improving, and in recent weeks the trend has flattened out. The Nev York Times index (shown in Chart 1) has remained for six weeks below the peak reached early in November. The unad justed weekly business index of the you York Journal of Commerce shows that 8 seasonal downturn In actual business activity has been under way since the aiddle of October. Regraded Uclassified 23 Secretary Morgenthau - 2 The rate of gain in the FRB index likewise slackened during November, the composite index of 124 for that month represent- ing an increase of 4 points over the previous month, as compared with 9-point and 8-point gains, respectively, in October and September. The FRB adjusted index of nondurable goods pro- duction actually declined 1 point in November. This downturn, coupled with a further gain in the production of durable goods, has further increased the disproportionate share of the latter in the current volume of industrial production. The ratio of durable to nondurable production in November rose nearly to the previous peaks reached in the summers of 1937 and 1929. while this ratio under present conditions may have lost some of its earlier significance, nevertheless its current high level suggests the need of caution in appraising the immediate outlook for the heavy industries. Basic indices less optimistic Our usual monthly calculations of basic business indices likewise show evidence that business activity 18 making 8. tea- porary top. (See Chart 2). The composite index of basic demand turned down 3 points to 118 in November, chiefly due to en indicated reduction in the demand for steel, following exceptionally sharp increases for three successive months. The composite index of sales, representing the offtake of manufactured goods, rose 3 points in November, but the figure of 113 is still substantially below the production level. These two indices suggest that the under- lying demand at present 18 strong enough to support industrial production around an index level of about 115, 88 compared with an actual index of 124 in November. The volume of unfilled orders appears sufficiently large, however, to hold production for some time longer above the level of demand. Our index of new orders (lower section of chart) shows a sharp decline for the month of November, bearing out indications previously given by our less-inclusive weekly index. This latter index (see Chart 3) has improved somewhat during the past two weeks, owing to an upturn in new orders for textiles, and more recently for steel products. All-commodities price index higher The recent rise in prices of certain commodities, prio- cipally agricultural products, has been extensive enough to cause an appreciable upturn in the BLS all-commodities index 24 Secretary Korgenthau - 3 during the veek ended December 23, (See Chart 4) The upturn, so far, has affected chiefly the TEW materials component of the index (lower section of chart) carrying it to a new high since March 1938. Eventually, If the price improvement continues, it will tend to strengthen business confidence and to stimulate new ordering. So far, tower, it has had little influence in that direction, perhaps because the price rise has not yet extended to most of the important industrial materials, and because it has come it E the when interest in placing new orders has been restricted by inventory taking and holiday influences. The volume of industrial buying, as neasured by our composite inder of DEV orders, normally shows a 10 per cent increase in Jamary ITEM December. No increase in business confidence has so far been regis- tered by our "Inder of confidence", based on the ratio between prices of second grade mais and of high grade bonds. (See Chart 5) Buying apparently has continued to be directed into high grade bonds (for safety) rather than into securities which would benefit more directly by an improved business outlook. & sharp upture 12 prices of second grade railroad bonds during the last three trading LETS of the old year, however, may indi- cate some revival of speculative confidence. The National Association of Purchasing Agents says that buying policies of its members have been revised recently from a procedure of liberal coverage ahead to that of keeping yr chases only one to three months ahead of manufacturing require- ments for most materials. The consensus of business views of the members of this association, according to the report, 'seems to be that indus- trial turnover in the Inited States and Canada should continue on a sound and satisfactory basis well into the spring period, and while there is no definite indication of any serious let- down beyond that time, the possibilities in the situation suggest a careful and conservative attitude in buying circles while further developments are taking form." 25 Secretary Morgenthau - - Steel activity shows holiday influences A drop of 16.3 points lest week in the rate of steel ingot production to 73.7 per cent of capacity, due to the Christmas holiday, was partly regained this week when pro- duction, according to reports from various districts, use stepped up to near its pre-holiday rate. Demand for steel 18 apparently holding up better than had been expected in the trade for this time of year. Orders re- ported last week by the U. 3. Steel Corporation increased to the equivalent of 62 per cent of capacity, as compared with 8 low of 51 per cent reported in the previous week. The Iron Age mentions that while orders have tenered off during the past few weeks, they are still at 8 level that holds consider- able promise for the first quarter, and that buying on a larger scale 18 expected by mid-January. Steel scrap prices, which are closely watched in the steel trade, have not yet provided favorable indications for next quarter. Scrap prices have turned weaker in several markets, and the Iron Age composite price has declined for the eighth comsecutive week. Of interest in the steel outlook has been 9 continued rise in new orders for machine tools during Sovember. Accord- ing to 8.7 index compiled by the Machine Tool Builders' Asso- cistion, machine tool orders increased to 91.2 per cent of capacity during November, which compares with 84.9 per cent in October, 74.6 per cent in September, and an everage around 65 per cent during April through July. The export outlook While export orders for certain types of goods have in- creased since the outbreak of var, it has recently become more evident that the efforts of Great Britain and France to maintain their export markets, and to limit imports from out- side countries are contributing toward a less optimistic picture of export possibilities for the United States than had previously been expected by many. Regraded Uclassified 26 Secretary Morgentheu - 5 British imports incressed sharply during November to above the August volume, doubtless reflecting increased imports of foodstuffs end other war supplies after orgenize- tion of the convoy system. (See Chart 6) Of perhaps greater interest to us 1s the feet that British exports during November made E better showing than night have been expected under war conditions. (Shown et left of chart) Thile increased prices, and the holding beck of shipments during Sectember and October, have doubtless tended to raise the November total, the figures provide some indication of Great Britein's sucress in maintein- ing her export volume. Evidence is becoming more clear that under the dictator- ship economy permitted by the war emergency, Great Britein and Frence are planning to take adventage of the export markets in South America end other parts of the world, at the expense of Germany end perhaps of the United States. In the 1ssue of November 27, the London Financial Times says, "As Letin America was probably Germany's chief export market the opportunity for Britain to recepture South American markets 18 therefore unique; but, 88 business nowsdays is essentially reciprocal, it is to be hoped that our export drive will be accompanied by efforts to purchase large cuantities of NW products formerly taken by Germany." As on example of the carrying out of this policy, the Financial Times of December 7 states that "In order to save using up dollars or incurring doller credits, the Government 18 proposing to purchase considerable cuantities of cotton from Brazil. In order to pay for these purchases in the cheep- est possible may, the Government 1s hoping to mobilize all the milreis belances belonzing to British end Canadian owned com- panies in Brazil. These balances are blocked at the present time." The large volume of foreign incuiries for steel end other products received by menufscturers in this country during September and October, and which they were unable to accept because of the pressure of domestic budness, now sppears to have been activated certly by E speculative desire to accumu- late stocks at that time rather than by actual needs. To what extent these orders will be placed with our menufacturere later remains problematical. 27 Secretary Morgenthau - 6 In the textile markets, however, inquiry for cotton goods for export is reviving, according to trade reports, and some observers look for substantial foreign orders in the next few weeks. Great Britain and France are said to be in the market for heavy cotton goods for war purposes, and increased inqui- ries from South America, South Africa, and the Scandinavian countries have been noted. New York Times index lower The decline of 0.9 point in the New York Times index to 105.7 for the week ended December 23 (refer to Chart 1) was largely due to rather important downturns in the adjusted indices for steel production, lumber production, and miscel- laneous carloadings, which were offset in part by a substan- tial increase in the index of automobile production. Other components showed minor changes. For the week ended December 30, the adjusted indices for both steel production and automobile production will be somewhat higher. BUSINESS ACTIVITY PER CENT Seasonally Adjusted Eet. Normal - 100 110 '37 100 '39 90 80 38 70 N r Times 60 JAN MAR MAY JULY SEPT. NOV, BY Dart 1 Office of the Secretary of the Franciscry C-233 Motales of Research and Hamelia Regraded Uclassifi INDICES OF BABIC BUSINESS TRENDS COMPARED WITH INDUSTRIAL PRODUCTION 1923 - 125 4 100, SEASONALLY ADJUSTED* PER PER CENT CENT 120 120 INDISTRIAL PRODUCTION, F.H.B. 110 110 100 ENTIMATED UASID DEMAND 100 90 90 BO 80 70 70 1935 1936 1937 1938 1939 FER PER CENT CENT 120 120 FINDUSTRIAL PRODUCTION, F.M.D. 110 110 100 INDEX or SALES 100 90 90 60 ao 70 70 1935 1936 1937 1938 1939 PER DENT PER CENT (NEW UNDERS) IND. PROD.) 160 135 Now ORDERS #1930 . 100, URAGJUSTED 140 125 120 115 105 100 95 80 INDUSTRIAL PRODUCTION. F.R.O. 45 8 78 40 1935 1936 1937 1938 1939 PEACEPT NEW ORDERS 29 'REPRESENTS "OFFTASE" of MAINIF ADTURED 00001, in PHYSICAL VOLUME Office of the Secretary of the Treasury AT Division of - and Regraded Uclass COST IDENTIAL 20 thant TOMPS DENTI INDICES OF ⑉ ORDERS Celted Into of for Orders and Solected Ompossants 1938 1939 EXCENTARE - POINTS 160 - 150 de 140 ME 130 120 LZ0 TOTAL (COMBINED INDEX) 1936 - 100 110 RED 100 90 so 80 - R 70 60 4d in DCLOIS STEEL 40 TEXTILES 50 R & 40 STIRL Diaces 30 M 20 De G 10 o I A s 1938 1939 the of the Summy di the - 1-5-1 1 1 . I I Regraded Uclassified 31 B.L.S. ALL COMMODITY PRICE INDEX AND COMPONENT GROUPS : . # Chart 2 CENT a:1 Commodity Pricess az M / 76 74 at F BAT JAY SEPT. a n 1 MAY JALY SEPT. 6 1938 1939 PER CENT Component Groups X 62 PRIDUCTS 80 F of / 72 a - & 50 1 BY JAY sent. d ( at, BIT JULY SEPT. i 1938 1939 leg # . - inj / - e has - - P-1734 D 32 Chart 5 CONFIDENTIAL INDEX OF CONFIDENCE* AND BUBINESS ACTIVITY 1933 1934 1935 1936 1937 1938 1939 NATIO PER CENT (PER CENT) Monthly 75 120 2 110 65 100 60 90 INDEX OF Complacace 55 80 50 70 INDUSTRIAL PRODUCTION, F.R.B. 1923-'25 - 100, ADJ. 45 8 40 50 1933 1934 1935 1936 1937 1938 1939 1937 1938 1939 RATIO PER CENT (PER CENT) Weekly 2 110 65 100 BUSINESS ACTIVITY, N.Y. TIMES EST. NORMAL - 100, ADJ. 60 90 55 80 Ima OF COMPIDENCE 70 50 60 45 J F - A . J J a $ o . a J F M - . J J A $ o . 2 - F - A . J , A $ o . D 1937 1938 1939 - BATIO or VIELD ON MODDY'S AM BONDS TO TIELD on SAA 100% Via of be Sentary of the Transary C - 254 - of - and Chart 6 33 EXPORTS AND IMPORTS OF THE UNITED KINGDOM For the Months of August, September, October, and November; 1937 to 1939 L STEALING &STERLIM MILLIONS MILLIONS Exports of British Merchandise Total Imports 100 100 90 90 80 80 70 70 8 60 50 50 40 40 30 30 20 20 10 10 o o ASON ASSO ASON ASON ASOH ASON 1937 1938 1939 1937 1938 1939 24kg - the Secretary of the Treasury Insure of - and ΓO-133 1/31/40 speed 34 January 2, 1940 9:30 Group Meeting. Talked to Foley about "movie" cases. Classer reported on Trade Agreement with Argentine. Discussed with the group the fact that there ought to be one channel of communication between Treasury and State Departments, because White represents Treasury on trade agreements, Cottón on South America and debt settlements, Basil Harris and Herbert Gaston on neutrality and Merle Cochran clearing all the cables, and now Ed Foley reports on the Argentine Trade Agreement. Arrangements made that all contacts with the State Department should clear through one person and from that person to the Secretary, to avoid having six people re- porting to me on contacts with the State Department. Discussion with Classer on Equador. Discussion of Pan-American Bank 1dea. Tells the group that he 18 working on & speech. Cochran furnished the Secretary with various memoranda, 18 follows: Discussion on the British Purchasing Mission Opening of Bank of France Account with Federal Reserve Bank of New York Conversations with Chinese Embassy on quantities of antimony and tungsten in Indo-China Daily report of operations in foreign exchange Regraded Uclassified 35 -3- Discussion with George Hass of the latter's weekly report on the business situation. Sent a copy of Hass' report on the business situation to the President and called attention to the way new orders are falling off. Discussion with Haas on Whest Export Sales and Other Market Data from the Federal Surplus Commodities Corporation. Haas' memorandum showing increase of 21,000 persons employed by Works Progress Administration over previous week. Wrote Magill, Myers and Viner on Vallace's "Inoome Certifi- cate Plan for Agriculture." Wrote to the Minister of Finland transmitting sontributions received by the Treasury for the relief of Finland. Communications from Purvis on molybdemm, copper, tungsten, antimony and lamp black. Cable from Ambassador Bullitt reporting on Royal Tyler's visit to Hungary and Italy. Cable to Roumania asking for report of current var-time trade and goods traffic between Rounania and Germany, particularly 011. Report to the President (following the latter's conference with Purvis, Pleven, Secretary Morgenthau and Capt. Collins on December 30th) giving further report on study being race in regard to essential war materials. Welles met with the Secretary at three c'oloot, HM,Jr g.w him a copy of his report to the President on essential var materials and asked Velles to inform Secretary Full. Phone conversations during the days Ben Cohen Gardner Jackson, for suggestion of someone to collaborate on HK,Jr's proposed most Traphagen, on the Columbian debt settlement Regraded Uclassified -30 36 Attorney General on "movie" cases. Got. Gollins on sale of copper to Russia; sale of-40's; HH,Jr told Collins he had discussed this with Welles and the President. Preston Delano on Bank of America. 37 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 2, 1940 TO FROM Mr. Haas Secretary AM Morgenthau Subject: Wheat export sales and other market data from the Federal Surplus Commodities Corporation. Dec. 11: Export sales of about 200,000 bushels of Canadian wheat were reported, It was also reported that 60,000 bushels of United States Pacific Coast wheat, in store at Antwerp, have been taken by foreign buy- ers. Canada exported 572,810 barrels of wheat flour last month against 477,875 barrels & year ago Flour ex- ports in the twelve-month period ending November 70 reached 4,804,543 barrels against 3,884,479 barrels in the preceding year. In the twelve-month period ending November 30, Canada exported 144,472,664 bush- ele of wheat compared with 104,832,036 bushels the previous year. Dec. 12: Winnipeg reported sales of about 250,000 bushels of Manitobas, and New York exporters sold about 100,000 bushele. Ireland took some wheat and Canadian oate for shipment from St. John. Holland WBS reported to have bought 8. careo of corn for shipment from the Gulf, Ded. 13: There were indications that Finland would buy some wheat next week. It was estimated that 500,000 tueh- els of Canadian whest were sold to neutral countries. Ottawa, Canada, reports that the British government has rejected an offer from Canada of 100,000,000 bush- ele of whest at a fixed price between 90 and 95 cente a bushel, it was unofficially reported today. The British have decided to buy in the open market. Since the Canadian minister went to England the situation has changed considerably as far as Canada is concerned, as shipping difficulties have arisen in connection with Australian wheat and unfavorable crop reports from the United States and Argentina have strengthened their position. Regraded Uclassified 38 Secretary Morgenthau - 2 In the last three weeks Holland has purchased six cargoes of United States corn. Dec. 14: Winnipeg reported sales of wheat at around 650,000 bushels. Five hundred thousand bushels of corn were sold for export from Atlantic and Gulf ports. Dec. 15: Final estimates indicated that Canada had sold about 2,000,000 bushels of wheat for export, mostly to the United Kingdom. It was thought that about 1,000,000 bushels of corn were sold to Europe today. Dec. 18: There 18 very little export business going on at this time, mostly due to recent heavy purchases of Canadian wheat. Dec. 19: Chicago May wheat continues to sell at & premium over July, with considerable wheat under the Government loan which will probably be liquidated at the present level of price between now and the maturity date of the loans, which is April 30. Flour mills report the slowest trade in 8. long, long while, with flour jobbers short flour, and the bakers having hardly any booked ahead. Dec. 20: The Minneapolis market continues to show considerable weakness; much of it is because farmers are selling their loan wheat, together with fair amounts of mois- ture in the spring wheat area during the past two days. Minneapolis, which usually sells about 2 cente over Chicago, is now as much as 6 7/8 under Chicago. All markets throughout the country yesterday reported rather heavy offerings of repossessed wheat by farmers who are selling the wheat at the market and paying off their loans with the Commodity Credit Corporation. Farmers throughout the country were realizing from 10 cents per bushel net over the government loan in the Minneapolis area to as much as 25 cents per bushel net in Ohio. egraded Uclassified 39 Secretary Morgenthau - 3 The export business has been fair up to the recent advance but foreigners absolutely refuse to follow these advances, carticularly in the carn market with 80 such core available at this time. Sed. 23: So far as cash markets are concerned they are stag- nant with little or no demand for either cash or ex- port. Dec. 26: The export business is exceptionally slow. There has not been any American corn worked for export this week. Canada 1s also experiencing a very dull demand for wheat because England 16 not buying at the moment. They have purchased enough Canadian wheat to take care of then for the month of January; however, they should be in for their February supplies of wheat within the next two veeks. Today there was a little business to Holland end the Continent, but sales did not total much more that 500,000 bushels of wheat. Canada still has a tremendous amount of whest to dis- DOSE of between nov and the new crop and weekly ship- tents, which to date have only been averaging about 8 3/4 million bushels of wheat from all markets, vill have to increase considerably If Canada 1s to dispose of good quantities of wheat, and If import countries are to use the 584, 000,000 bushels estimated 8.9 import requirements at the beginning of the crop year. All indications, however, point that this figure will be revised dovovard in spite of the var. Dec. 27: Export business in American flour is at E standstill due to very severe competition from Canada, with mills to that country operating day and night to fill large orders received from the United Zingdom. The import duty of 10 per cent at valoren 15 still 12- posed 00 American flour entering England, while Canadian flour continues to come In duty free. 40 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 2, 1940 TO Secretary Morgenthau FROM Mr. Haas AM Reports of the Works Projects Administration show 2,144,000 employes for the week ended December 20, 1939, an increase of 21,000 persons over the 2,123,000 reported for the previous week. Attachments 41 WORKS PROJECTS ADMINISTRATION Number of Workers Employed - Weekly United States Yeek Ending Number of Workers 1939 (In thousands) 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 2,290 July 19 2,250 July 26 2,200 August 2 2,082 August 9 2,054 August 16 1,977 August 23 1,897 August 30 1,842 September 6 1,662 September 13 1,696 September 20 1,735 September 27 1,790 October 4 1,834 October 11 1,875 October 18 1,898 October 25 1,901 November 1 1,901 November 8 1,929 November 15 1,961 November 22 1,987 November 29 2,024 December 6 2,075 December 13 2,123 December 20 2,144 Source: Works Projects Administration. VOINS PROJECTS ADMINISTRATION 42 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 1,901 November 2,024 Source: Works Projects 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 United States Hunthly U.P.A. Employment Weekly W.P.A. Employment 1938 1937 SEPT. MONTHS 2.5 J.4 - 3.3 : 2.2 1 200 3.1 3.0 - 2.4 2.9 2.8 - 2.7 9+7 14 2.6 2.3 1,5 2.5 2.4 2.4 2.2 2.3 1.2 2.2 2.2 2.1 4-1 2.0 2.2 1.3 1.9 4 1,8 1.2 1,7 1.7 1.6 a 1.6 I 1926 1939 SOURCE: MORKS MUNTS ADMINISTRATION 2 . I / 1 inj / 2-221-8 - . - - - January 2, 1940. 44 11:59 a.w. H.M.Jr: Fello. Operator: Mr. Cohen. Go ahead. F.V.Jr: Hello. Benjamin Cohen: Hello. H.M.Jr: How are you? 0: All right. A Happy New Year to you. H.M.Jr: Same to you. C: Thanks. H.M.Jr: I called you up to congratulate you. C: Well, it's only about ten per cent of what I was striving for, but I suppose you don't reach your objective in & single jump. H.M.Jr: Well I thought - I see they divided it up and made two gestures in one. C: Yes. H.M.Jr: What? C: I think it's swfully good, particularly as it sort of fits in with the President's letter. H.M.Jr: That's right. And - C: It's & little too bad that we couldn't precede rather than follow. H.M.Jr: Vell - C: After all I suppose we should yield first place to the first citizens. H.M.Jr: Well I listened that night over the radio it seemed to me that you were hitting for - trying to bit three bulls eyes in one shot. :: Well we don't like to waste our ammunition. H.M.Jr: Well I'm glad that they at last saw the light. 45 - 2 - 5: I an too. That is I was awfully worried because I thought it vaa at least necessary that something be done in view of the fact that the suggestion came from the other side. H.M.Jr: Right. Well again wishing you Happy New Year. C: Well thank you and also to Mrs. Morgenthau. H.M.Jr: Thank you. C: Hope to see you soon. H.M.Jr: Hope to see you also. Goodbye Ben. C: Goodbye. 46 January 2, 1940. 2:17 p.m. Gardner Jackson: Happy New Year to you. H.M.Jr: Bame to you. J: How are you? R.M.Jr: Fine. J: Good. H.M.Jr: I want to ask your advice. I've got to get me some fellow to help me do a little writing, see? J: Yes. H.M.Jr: I'm getting bold and think I may make B. speech. J: Yes. H.M.Jr: And a fellow that came to my mind was Jonathan Mitchell. Do you know him at all? J: I know him very intimately. H.M.Jr: How much can you endorse him as to principle, character, etc? J: Oh just unequivocally. H.M.Jr: You can. J: Oh lord, yes. He went to Amherst and he was about - let's see two or three years behind me, I - he's lived with me out at the house two summers while my family was away. I'll tell you this, there's this one - if it 18 a shortcoming - H.M.Jr: I haven't mentioned it to anybody. J: There's this one shortcoming about him. He's gone in pretty heavily for psycho-analysis. H.M.Jr: I see. Jt Has been psycho-analyzed himself and is now in the process of writing 8. book with a psycho- analyst here in Washington. H.M.Jr: I see. 2 I I 47 J: On a psycho-analytical approach to Government. H.M.Jr: I see. J: But as an - he and George Sohl are very close buddies. E.M.Jr: Yes. J: And he has very much of George Schl's analytic powers. H.M.Jr: I don't know George Sohl. I know who he 16. J: Well he's a good one. H.M.Jr: Yes. J: Oh I think Jonathan 1s an excellent fellow. H.M.Jr: Well I read his column. J: Yes. H.M.Jr: I like it. I think he packs ! lot of stuff into a small space. J: Yes he does. H.M.Jr: And he seems to know how to use words. J: Yes. Oh uncuestionably, he's a thoroughly principled fellow. H.N.Jr: Well, I tell - I think - I haven't the slightest idea. Gaston knows him, he vas on the New York World with him, I think. J: Yes. That's right, that's right. E.M.Jr: And I think what I might do is to sound him out, try him out on one speech - I only do one in two years. J: (laughs) H.M.Jr: And before it's through I'm going to ask you to give me an hour or two and R over it with me. J: Oh swell. 48 - 3 - H.N.Jr: I think you'll be ihterested. I'm a little bit - taking a new slant on things, and when it's - oh, 80 I'm satisfied I want you to go over it with me. J: Oh well that's - I'd like to very much. You know I was going to call you today at my wife's suggestion. E.M.Jr: Yes. J: Partly hers, partly mine. First off to tell you how thoroughly ve appreciate the other evening. B.M.Jr: Well it was fun. J: It was lots of fun. I only regret that the opportunity of carrying conversation with the boss was not longer. H.M.Jr: That's right. J: I hope it can be again. H.M.Jr: Well I'm sure it can be. J: Because I- - before you came across the desk there, we got into a very good conversation. H.M.Jr: I see. J: That seemed to click awfully well I thought. Now the other thing is I suppose you and Mrs. Morgenthau are heavily dated away ahead. H.M.Jr: No we're not. Not when we don't want to be. J: I'd like to call her, have Do call her and see if we could get together Friday of this week. H.M.Jr: Vell Friday she's going to be on the farm. J: Oh she 1s. H.M.Jr: She's going to be on the farm Friday and I hope to be too. J: I Bee. 49 # I H.M.Jr: But prior - I-In - sure - that we'd have the some time NIT week. J: Yes. If me particular reason, By oldest sister who vas in millege at Vassar when your wife YES, is going = be down here the latter part of this week. H.M.Jr: No, 311ner If going up to the farm either Thursday or Priday. J: Well, will Thursday be out do you think? H.M.Jr: Yes, benefits that's the reception at the White House. J: Oh lari, Sate right. H.M.Jr: So there you ENE. J: Wall 18/24 Just out of luck, then. H.M.Jr: Vell :: 1st happens, but normally ve'ze not fixed that my. J: And = X you whom I want to - whom I went to get - this Allor who is - as I told you, By closest friend up on the Hill, Lou Schwellembash. E.M.Jr: Oh, yes. : Because the like him to know you better. E.M.Jr: I'd Item to get to know him. J: And he's a peach. H.M.Jr: I'd lite may much to get to know him. J: Well will in 1: next week, then. H.M.Jr: I don't but He at all. J: O.L H.M.Jr: All right. J: Thanks $ Ist, H.M.Jr: Goodbye_ 50 - 5 - J: Oh, look. H.M.Jr: Yes. J: Can I send you over a copy of a letter that I sent Mrs. Roosevelt at her request regarding a successor to Silcox? H.N.Jr: Sure. J: Ve had quite a long talk about that over in our corner and she asked me to put it in writing, and I would like you to see it, if I - if that's O.K. H.M.Jr: I'd love to see it. J: O.K. H.M.Jr: Righto. J: Thanks a lot. E.M.Jr: Goodbye. J: Goodbye. 51 January 2, 1940 3:16 p.m. John Traphagen: Hello Mr. Secretary. H.M.Jr: How are you? :: I'm fine. I hope you're well. H.M.Jr: I'm very well. Mr. Yelles and I are sitting here talking about Republican Colombia. T: Yes. E.Y.Jr: Last week the Ambassador called on Mr. Welles and informed him that we had been misinformed about the attitude of the President of Colombia, and that the President of Colombia had not changed his position. i: The President has not changed his position. H.M.Jr: No. I mean - and that the information that we'd had that - or the Anbassador or whoever it was who gave us the information today had changed their offer vas incorrect. T: Yes. H.M.Jr: Their offer stands as it vas - well when they were - when you were down here. 7: Yes. That's the offer of two million dollars. H.M.Jr: Well, some slight variations in it, but he now has got, as I understand it, powers from his Congress to do whatever he wants to do, you see? T: Yes. H.M.Jr: Talking in terms of paying less than that the first year, but then stepping it up in 141 or 12. T: Yes. H.M.Jr: Now, we think that it is again, the situation 18 right for you to contact the Ambessador from Colombia. ?: You feel it is all right nov. 52 N 1 I H.V.Jr: Yes, in fact we'd like to see you do it. T: Yes. H.M.Jr: And the Ambassador would like very much to see you. :: Well, does he understand our position, do you think, Mr. Morgenthau? E.N.Jr: I think 80, although I've had no communication with him. ?: Yes. H.M.Jr: But both Mr. Welles and I think it would be ad- visable if the two of you got together again. 7: Right. E.M.Jr: And this thing is from me. I don't know whether anybody talked to you about the so-called flexible formula. T: No. R.M.Jr: The idea that they pay a fixed amount and then ten per cent of the increase in their exports and they've gone back for the last ten years and figured out what it would be if that was done. T: Well I think someone did mention - H.M.Jr: Well, I tell you what I'd like to do. Strictly off the record, I'd like to send to you the memorandum Professor Riefler prepared for me, see? T: Yes. H.M.Jr: And let you read it. T: I'd like to very much. E.M.Jr: Let me send it to you, it's from Riefler. :: Yes. R.M.Jr: And I'll send it to you without any comments. !: Fine. H.M.Jr: And this 18 for you only, you see, for your guidance. 53 - 3 - :: Right. E.M.2:: And it might or night not be useful. You the other thing, if I may make the suggestion, B feel here we've got at triangular arrangement which ve are again hopeful of, namely you representing the bondholders, 16 three people representing the administration and the Anbassador of Colombia. :: Yes. And the thing which has been 2 little bit upsetting is the - to me, anyway, is the efforts of the Rublee firs, you see, on behalf of the Colombian Government. ?: Yes. E.M.Jr: And If I wight just sort of tow nt the hist, If they attempt to do any negotiating 12 this debt matter, By own feeling 1s I think they'd better wait until the thing is agreed and ready for draving ID: legal papers and not try to do any megotiating. I don't know whether they've contacted you or not. :: No, no, they haven't contacted me. R.V.Jr: Vell, then you're fortunate. They've been very busy down here. ?: 30 - I - I didn't quite get that 00 the phone, there was some - Vell this young attorney, Jack Laylin - :: of the triangular group of the bondholders committee. E.V.Jr: The bondholders committee. : And your group of three and the Columbians. H.M.Ir: Yes, that's the three cornered triangle. T: Yes. Well I missed visit you said after that. H.M.Jr: Vell, the Colombian Government is represented by the fire of Mr. Rublee. 54 - by - T: Tes, yes I know that. E.N.Jr: And Jack Leylin who was handling = de E very busy young fellow. T: Yes. E.V.Jr: He used to work for me SC I Imm Inv busy he can be. T: Yes I imagine he is. H.M.Jr: And I just felt in a three entered triangle there wasn't room for a fourth mms. T: Yes. E.M.Ir: That was all. T: Yes, : see. Because he hasn't - they haven't belned, it just makes it that much more difficult... :: Yes. E.V.Ir: And I'm Just - if you don't and throwing that out ES a hint. 7: Right. Well of course as : it, Leylin is engaged by the Antessaire. H.M.Jr: That's right. :: And I presume as long ES he vante leylin around, vity he's got to be around. H.M.Jr: Vell true, but Leylin 1sn't seetng the Treasury, I just wanted to let you know tr. :: Fe 1sn't seeing the Treasury. E.M.Ir: No. :: To. I see. All right sir, I understand Er. Ambassador. E.M.Jr: Fr. Ambassador - I've been called E lot of things. 55 - 5 - T: If I can get down there - I'm & little afraid that I can't get down this week. I'm in a terrible jan here at the end of the year. H.M.Jr: Yes. T: I have a lot of committee meetings and - get in touch with the Ambassador. Vay don't you. call up the Ambassador on the phone. T: I'll do that. H.M.Jr: And - well I'll leave it to the two of you. T: Fine, I'll get him on the telephone and tell him I want to come down and see him. H.M.Jr: But we think the situation is right for you to make another move. T: Fine. First rate. Thank you very much. H.M.Jr: Thank you. T: Goodbye. 56 January 2, 1940. 3:44 p.m. H.M.Jr: Hello. Operator: Attorney General. Go ahead. H.M.Jr: Hello. Frank Marphy: Hanry, this 18 Tradic. E.K.Jr: How are you? M: Fine. Fow are you Henry? 5.M.Jr: I'm O.K. Did you have a satisfactory talk with Sam Clarke? H.M.Jr: Yes, I did, and Ed Foley gave me a memorandum this morning. As 8 result of it I'm satisfied. M: Well I'm roing to get after the - they're coming to my place tonight. I'm having Clarke and some of those others in and I want to press that Bioff thing right through immediately. H.M.Jr: Well that's - I - that's important but I think some of the other things are even more important, but the way we have it now 18 - M: of course the Bioff thing 18 sort of a national scandal. R.M.Jr: Yes. ": It's looking bad all over the country. I won't feel right about it unless we can get some action, but I want you to be satisfied about it. B.M.Jr: Well the way - the memorandum that I have in the Bioff case, the 0669 against Schenck, the reorganization case, the way they've left 1t, why I'm satisfied. I marked it down and take it up again on January 10th. Yes. E.M.Jr: But again you people are going to more, 18 it on or before the 15th on the Bioff case? MI Yes. 57 N I I E.V.Jr: And ve'reto 20. ahead with the Schenck case. M: That's right. If you've got any other suggestion, get in touch with me. H.M.Jr: Right. IS I vast you satisfied about it Henry. E.M.Jr: Vell I feel much better today. M: All right Fenry. H.M.Jr: Thank pr. 58 January 2, 1940. 4:55 p.m. Preston Delano: This is Delano, Mr. Secretary. H.M.Jr: Yes. How do you do? D: How do you do sir? We've got a communication here from the Bank of America about the distribution out there, and we want to get a reply off to it, right away, wire reply - H.M.Jr: The distribution. D: About' the distribution of that letter we sent out there you know. H.M.Jr: Oh yes. D: And we wondered if Ed and Cy and I could just drop around for a minute. H.M.Jr: Sure. D: We don't like to bother you at the end of a day but we would like to have you informed on this. H.M.Jr: That's all right. D: Can we come around? H.M.Jr: Immediately. D: Thanks. 53 January 2, 1940 Dear Rost I at inclesing herewith copy of the statement prepared by the Treasury Department on the Certificate Plan, together with a supplemental assorander es the distribution of the burden of the Certificate fax: also, a memorandum submitted to the Fiscal and Monetary - mittes by Secretary Vallace. I should like to have your criticisms and mg- gestions and would appreciate hearing from you, if pos- sible, not later than Monday, January 8th. Please feel free to show these to any of your associates at the University. Yours sincerely, by. Regull Regill, Columbia University, les York, 1. T. Regraded Uclassified 60 Junuary 2, 1949 but Julies I - inclesing herewith m of the statement propared w the Treasury Department w the Certificate Plan, together with a expelomental - - the distribution of the burden of the Certificate Your also, a submitted to the Please al Heastary - nittes w Secretary Valless. I should like to have your criticisms and mp- gustions and would approciate hearing from you, if pes- sible, not later than Menday, Junuary our Please feel free to show these to my of your inseciated at the University. Toers sincerely, 1 Vianz, á University of Chicago, Chicago, Illinois. 61 demary 3, 1940 Dear Bills I - inclosing herewith copy of the statement propared by the Treasury Department on the Certificate Plan, together with a supplemental w the distribution of the burden of the Certificate fax: also, a submitted so the Fiscal and Memotary (es- sittee W Secretary Vallace. I should like to have your criticisms and mp gestions and would appreciate hearing from you, if yes- sible, not later then Menday, Jamery 8th. Please feel free to the these to any of your associates at the University. Yours sincerely, Dr. Villiam 1. Hyers, Germall University, Ithem, les York. January 10, 1940. 62 ISSUES RELATING TO THE INCOME CERTIFICATE PLAN FOR AGRICULTURE The choice of a policy with respect to the income certificate plan for agriculture involves the considera- tion of a number of issues. It is the purpose of this memorandum to clarify certain of these issues and to present some facts bearing on then. I. CONSIDERATIONS IN SUPPORT OF THE CERTIFICATE PLAN The considerations advanced in support of the income certificate plan fall into three parts: (1) More agricultural aids are necessary, particularly for cotton and wheat farmers; (2) The aids should be adopted as a permanent policy which will not have to be scrutinized annually by Congress; (3) Only the income certificate plan has the essential characteristics for achieving this result. (1) With respect to the point that more agricultural aids are necessary, an intelligent evaluation would require a lengthy factual and analytical discussion beyond the scope of this memorandum. The matter is an extremely important one, however, since adoption of the Regraded Uclassified S3 - 2 - income certificate plan would not only reaffirm the desirability of the present agricultural program, but would enlarge that program and seek to make it more per- manent. Accordingly, certain questions say properly be raised. Some of these are: (a) Does "parity price" measure the kind of parity which it is in the public interest to provide agricultural producers at government and public expense? (b) Should agricultural subsidies go to the agricultural group as such, that is, should the subsidies go to all farmers producing a given erop, including corpora- tions, without regard to need for family income? (e) Does the present distribution of parity payments and that proposed under the income certificate plan give an adequate share of assistance to tenants, share- croppers, farm laborers and small fars units? (a) In view of the benefits of all kinds paid them by government, are the agricultural - 3 - 64 groups in greater relative need for further aid to achieve "parity" than such industries as railroads and coal mining, or such groups as the unemployed? (2) The second point, that parity payments should be adopted as a permanent policy which will not have to be reconsidered and reviewed by each succeeding session of Congress, conflicts with another consideration indicated below, namely, that sound budgetary practice requires expenditures to be scrutinized periodically. The democratic process assumes that Congressional determination represents the nearest possible approach to the expression of the public will. This 18 recognized in certain parts of the Department of Agriculture's memorandum. In respect to the parity payments, however, a contrary position appears to be taken, namely, that while the present Congress represents the public will, succeeding Congresses may not. represent it. Although there is thus an apparent anomaly, those taking this position hold that agricultural aids should be adopted as & permanent policy outside the budget, because other economic and industrial groups have pro- tective legislation of various kinds which need not be - 4 - 65 reconsidered at each session of Congress. The tariff is the principal example mentioned. Many agricultural commodities are protected by tariffe and, in recent years, even the tariff on wheat has been effective in raising the farm price. Aside from this con- sideration, however, the observation may be made that the tariff is either a policy or a disease. If it 18 & policy intended to achieve 8. certain result the measures should not be taken which would operate to nullify it. If instead the tariff 1s 8. disease, the cure would seem to be its elimination rather than to spread the disease by measures which in no respect reduce the economic loss caused by the tariff in misdirecting the use of the nation's productive resources. The tariff hits primarily consumers. This proposal would hit them again. The type of tax pressure afforded by the tariff is very different from the payment of governmental cash benefits financed from taxes. The distribution of burdens 18 different, the distribution of benefits 1s different, and the effect on internal competition and productive efficiency is different. A line must be drawn somewhere between the incidental effects of governmental policy on the fortunes of people and the direct payments of money foreibly collected from 66 - 5 - the people. The latter is more susceptible to the dangers of misuse, and accordingly requires more careful scrutiny to achieve an allocation of governmental burdens and benefits in accordance with the public interest. Although similar scrutiny should no doubt be accorded to tariffs, the fact that it has not been given does not varrant extending the lack of scrutiny to direct governmental payments. (3) The third point raised in favor of the income certificate plan is that only that plan has the essential characteristics necessary to achieve larger and more per- manent parity payments. It is probably true that agri- cultural aids would be larger and more permanent with than without the income certificate plan. However, there 1s also the possibility that the existence of these special taxes falling on the masses of the population would present a constant target for political action which might lead to 8 reaction against both the tax and the benefits. With reference to the above points raised in favor of the income certificate plan, the possibility must always be kept in mind that some other method my afford results sufficiently approximating those expected of the certificate plan but without its inherent disadvantages as to be on balance preferable. 87 - 6 - II. FISCAL CONSIDERATIONS AGAINST THE CERTIFICATE PLAN The fiscal considerations against the income certifi- cate plan as a method of financing agricultural parity payments are mainly the following: (1) Any plan for the payment of agricultural benefits would be less subject to abuse and would be more likely to promote the public interest over the long run if the tax collections and benefits were included in the budget and handled in the same manner 8.6 other taxes and appropriations. (2) The processing taxes constitute BO highly regressive a method of financing benefite as to be less desirable than other sources of revenue. (3) Even if processing taxes were to be used for financing benefits, the income certifi- cate tax would be inferior to the type of processing taxes which were in operation from 1933 to 1936. (1) There 1s need for a better general comprehension rather than & concealment or confusion of the detailed receipts and expenditures of the Federal Government. EB - 7 - The adoption of the income certificate plan would make it more difficult to determine the amount of actual public expenditures and the actual tax burden of the various groups of taxpayers. Only by the inclusion of all public expendi- tures in the budget and by the submission of all publie expenditures to periodic executive and legislative review can there be any assurance that the proper allocation of public funds among the many public uses is approximated. Furthermore, the elimination of such an important item as this from the budget would limit the effective use of fiscal policy 8.6 an instrument of economic control. In the memorandum submitted by the Department of Agriculture the view is expressed that "It is more appropriate to compare the Certificate Program with tariff legislation or minimum wage and collective bargaining legislation than with expenditures under the Budget. The issue 16 primarily one of agricultural policy rather than fiscal policy, except as it may affect other appropriations." In point of fact, however, the certificate plan involves many aspects of fiscal policy. Under its pro- visions taxes would be collected and revenues would be distributed by an agency of the government. The operation of the plan would not differ materially from the processing taxes and benefit payments provided under the Agricultural Adjustment Ast of 1933. The fact that in this instance Regraded 59 80 I I some of the actual operations would be conducted by & special revolving fund and not the general fund does not alter the fact that the fiscal aspects of agricultural benefit payments are substantially similar to those of other governmental services or expenditures. Furthermore, the parity payments provided the pro- ducers of the 3 or 4 commodities covered by the certifi- cate plan would not differ significantly (excepting perhaps in amounts) from the parity payments which are now provided through the budget and from the general fund to the growers of agricultural commodities and would no doubt be continued for the commodities not covered by the plan. In the Department of Agriculture's memorandum the view 1a expressed that "under existing circumstances," an increase in direct governmental payments "10 neither practical nor desirable." It 1e urged that since Congress is not likely to continue to make direct appropriations for the benefit of a particular group, an indirect subsidy should be provided; that such indirect subsidy is already being provided industry. In addition to what has already been said on this point, it should be noted that the pursuit of the proposed policy would logically involve the granting of indirect subsidies to numerous additional groups. Regraded Uclassified 70 - 9 - In the interest of fiscal planning and and fistal management parity payments to farmers should be unde within the budget. (2) In regard to the secont point bearing upon to merits of processing taxes, it should be noted that the certificate plan would place the burden of parity payamte DI the consumers of the products affected. Underlying this method of financing is the assumption that the existence of low agricultural prices bestows an unfair advantage on consumers, end that such st aiventage det properly be recaptured for the benefit of agricultural producers. It presupposes that the revards accorded by the market place to the producers of certain commulities are not just and require supplementation to raise the to some specified but variable levels. Although it my be agreed that "the farter is entitled to a fair price," that does act dispose of the question as to what is the fair price. Even defining = as E price which will give the producer E fair income leaves undetermined the essential question of what is fair. Furthermore, 5 price that will give as fair income to the producer is act necessarily 8 fair price to the consumer. The consumer mght not be required to m more than the price resulting unier 8. sound organisation 71 10 I I of agriculture. A sound organization of agriculture giving fair returns to those engaged in farming would almost certainly afford lower prices to consumers than 'parity' " now computed. To impose on the consumers through & processing tax the burden of giving the farmer a fair price -- whatever that may be found to be - may the result in serious unfairness to consumers. Such concepts as parity price and parity income cannot be accepted without reservation. While Congress has on several occasions endorsed parity income and parity price as a legislative objective, these endorse- ments have been qualified. The 1933 Agricultural Adjustment Act, for example, instructed the Secretary of Agriculture to assist farmers to obtain parity prices and parity incomes "insofar as practicable" at the same time that it instructed him to assist "consumers to obtain M adequate and steady supply of such commodities at fair prices." Actual parity payments to the farmers are to be nade only when, as, and if, and to the extent that, appropriations are made for that purpose. Even if the present concept of parity price and income be accepted, the fiscal methods of providing them are subject to further comsideration. The question immediately at hand is whether 8. tax on the consumer of certain agricultural Regraded Uclassified 72 - 11 - commodities 10 the desirable method of financing parity payments to the growers of these commodities. The certificate plan would impose a tax on certain necessities. It would tax the consumption of wheat, cotton and rice. Experience with the processing taxes under the Agricultural Adjustment Act of 1933, invalidated in 1936, indicates that the burden of taxes on these commodities would fall, in large part, on consumers. Inasmuch as the consumer expenditures for the products of these agricultural commodities account for a much greater proportion of the total expenditures of indivi- 5 duals and families with small incomes than of the total expenditures of those with larger incomes, the burden of the tax would be regressive. It would bear more heavily on those with small incomes than on those with larger incomes. The tax would be unusually regressive for it would be imposed on physical units of an agricultural comodity, without regard to the price of the product consumed. Unlike & sales tax which is imposed on the basis of price, the certificate tax would be imposed on the basis of weight or volume. Low income consumers purchasing lov- priced cotton articles would pay a higher tax with each dollar spent than higher income consumers purchasing high- priced cotton articles. 73 12- I # It may be that in some cases processors would find it necessary and practical to transfer some of the tax burden from their low-priced to their high-priced products. Under the invalidated processing taxes cigarettes, for instance, appear to have borne more than their share of the tobacco taxes. This type of adjustment, however, is very uncertain and cannot be predicted as a likely occurrence in the case of other products. The rate of taxation contemplated by the proposed certificate plan would be far heavier than the rates which in the past usually have been applied to necessities in the United States. The general sales taxes imposed by states in no instance exceed 3 percent of the amount of the transaction, and moreover, in many cases, exempt farm products from taxation. The rate of the tax under the proposed certificate plan would be equal to the difference between estimated parity prices and the average farm prices of the particular agricultural commodities affected. In some instances, the rates of these taxes would be even higher than those imposed under the invalidated processing taxes. Even on the basis of United States average farm prices prevailing on December 15, 1939, the difference between parity prices 74 = I I and fars prices amounts to 30.5 cents per. bushel of whest, 6.2 cents per pound of estate end 31.5 cents per bushel of rough rice. 1 6-cent tar III 10-cent attm, for instance, would be equal to 60 percent of the furners' selling price. The imposition of indirect taxes of this magnitude, experimposed = E already regressive Federal- state-local tax eystem, would severaly affect the already limited purchasing power of the low-ineume families. The effects of the certificate plan would be especially burdensome to those who, just like whest, cotton and rice farmers, EN receiving less that "partty" incomes. There LN large numbers of riser persons = farms and in the cities who here incomes and standards of living as low II the given of steat, attor and rice. The whole body of the unemployed and the under-employed laborers in all industries in less than "partty" incomes and would be subjectai to a havy burden 12 account of the ter. In the Department of Agriculture it is recognized that the certificate plan wild constitute, in effect, a tax on consumption. It has been maintained, however, that the regressive effects of the tax wald be affect by the "progressive" effects of the expenditures at that 75 - 14 - Regraded Uclassi the net result would be "progressive." Underlying this position 10 the assumption that the plan would benefit a low-income farm group largely at the expense of a higher-income non-farm group. At the outset, it should be noted that this distinction between fare and non-farm population is not wholly relevant to the issue. The certificate plan has been designed for the benefit of wheat, cotton and rice (and possibly some tobacco) growers only. It probably cannot be employed successfully, and it is not proposed, for the benefit of the growers of the many other farm commodities. In con- sequence, the plan does not propose to benefit the entire farm population at the expense of the entire non-farm population. It proposes, rather, to benefit wheat, cotton at rice grovers as distinct from all other farm groups 18 well as all the non-farm groups. There are at present in the United States approximately 7 million farm families. About 3 million of these are engaged, to a small or large extent, in the growing of whest, cotton and rice. Thus, even if all wheat, cotton and rice growers cooperated in the AAA production and soil conservation program and were eligible for parity payments, the certificate plan would benefit not more than 3 million farm families, at the expense of another group consisting 76 15 I I of 4 million farm families, more than 22 million non-farm families, and several million single individuals. Moreover, the plan, if adopted, may not be of much help to some wheat and cottom growers. That likelihood is indicated by the fact that a portion of the wheat and cotton growers produce these commodities in such small quantities that the benefits they would receive from their share of the certificates, if they complied with the farm program, would be offset largely by their share of the tax burden as purchasers of wheat, cotton and rice products. The certificate plan 1s said to have "progressive" effects because the average income of the farm population which would be benefited is lower than the average income of the non-farm population which would be taxed. However, a comparison between farm and non-farm population on the basis of per capita incomes is subject to misinterpreta- tion. The incomes of the two groups are not comparable. & dollar of income in & rural area is something entirely different from a dollar of income in an industrial area. Its purchasing power 18 different because the cost of living generally is lower in rural than in urban areas. For those on farms, food, housing and clothing, three important elements in the budget of the low-income group #, require a smaller expenditure than for those in the cities. 77 - 16 - In comparing the income of the farm and the non-farm population it is emphasized that a larger proportion of the farm population falls in the low-income group than is the case in the non-farm population. It 18 pointed out, for instance, that a considerably larger percentage of the families on cotton farms have low annual incomes than 18 the case with an industrial population. Such use of percentages, however, does not bring out some of the important aspects of the low-income problem. The percentages relate to entirely different magnitudes. The adoption of the certificate plan would result in the taxation of at least 5 million non-relief families with incomes of less than $780, for the benefit of wheat, cotton and rice growers, only part of whom have such low 78 - 17 - incomes. In addition, there were 4,500,000 relief families, of whom 600,000 were fare families. 1/ In other words, it 18 not evident that the net effect of the plan would be 8. distribution of income from higher to low income groups. Moreover, we are here dealing with families whose incomes range from minus quantities upward. Therefore, even if, on the average, the families taxed had & higher income than those which received the benefits, the families taxed would still include a number whose incomes would be lower than the incomes of many receiving the benefits. 1/ In 1935-36, one-third of American families are estimated to have had incomes of less than $780. No information is available on the income distribution among wheat, cotton and rice farmers specifically. However, in that year, 37.6 percent of all non-relief farm families were estimated to have had annual incomes under $750. For all non-relief families, the corresponding proportion was only 23.5 percent. However, in actual numbers, over 6 million non-relief families had incomes less than $780. Non-relief farm families accounted for a little over 2 million of the six. However, families of wage earners also accounted for over 2 million. Even if the percentage of wheat, cotton and rice growers falling in this low income group were much larger than that reported for all farm families, the adoption of the certificate plan would result in the taxation of at least 5 million non-relief families with incomes of less than $780, for the benefit of wheat, cotton and rice growers, only part of whom have such low incomes. In addition, there were 4,500,000 relief families, of whom 600,000 were farm families. In other words, it is not evident that the net effect of the plan would be a distribution of income from higher to low income groups. 79 - 18 - In other words, despite the fact that on the average farm families have lower incomes than urban families, the plan would tax some consumers with little or no income for the benefit of some farmers with relatively larger incomes. To this extent the effect of the plan would be the converse of "progressiveness." Finally, it should be noted that, aside from limitations on maximum payments to individual farmers, the benefite under the certificate plan would be dis- tributed among farmers approximately in proportion to the present distribution of incomes. Wheat, cotton and rice growers would benefit in proportion to their normal production. Therefore, in general, farmers with large farms, producing large amounts of wheat, cotton or rice would receive more money from the plan than small farmers producing smaller amounts. These considerations indicate that (1) the cost of the plan would be distributed inversely to tax- paying ability, (2) the benefits of the plan for these commodities would be apportioned roughly according to the present distribution of incomes among the growers, and (3) some purchasing power would be transferred from low income families to higher income families. 80 19 - to all events, even if it could be agreed that the certificate plan tax on consumers for the benefit of producers night have 'progressive' effects, it would still be true that the degree of such "progresslvemes" would be less then would be achieved nie practically any other method of taxation. (3) The third consideration against the certificate plan is that even in the event that it is deemed destrable to finance parity payments from taxes falling largely on the outsumers of the commodities concerned, processing taxes of the type employed from 1933 to 1936 would be prefershle administratively to the certificate plan taxes. i processing tax can be administered readily by the regular tax-collecting agency of the government. It the be more carefully integrated in technical details (with respect to definitims of tax base, and comptime, deductions and refunding provisions) than is the CERE with the certificate plan. the effective application of processing taxes requires the imposition of empensatory taxes. Floor stock taxes are a case in point. Inder the invalidated processing taxes provision NE mis for compensatory floor stock taxes at any article that on the date the processing tax because effective mes hald for sale or other disposition. 81 - 20 - Such compensatory taxes are essential to prevent undue profiteering. The need for such taxee is especially present when rate changes are likely to occur from time to time. Moreover, in those instances where on occasions reductions in tax rates are likely, provision should also be made for refunds on floor stocks. In the absence of such provisions, processors and distributors are exposed to heavy losses merely because of a change in the tax rate. Under the processing tax, the Secretary of Agriculture was instructed to ascertain whether 'the payment of the processing tax upon any basic agricultural commodity 18 causing or will cause to the processors thereof disadvantages in competition with competing commodities by reason of excessive shifts in consumption between such commodities or products thereof." If he BO found, be vas to proclaim & tax at a rate necessary to prevent such disadvantages in competition" on the first domestic processing of the competing commodity. The need for this type of compensatory levy is particularly important in a commodity, such as cotton, for which important competitive substitutes are available, such as paper, jute and rayon. This problem asy be more serious in the case of the industrial uses of oottan. 82 21 I I Conceivably, B. certificate plan of the type proposed could be supplemented by compensatory taxes within the internal revenue system. Whether such compensatory taxes are in fact contemplated by the proponents of the plan has not yet been indicated. It would appear that the imposition and administration of compensatory taxes as well as the disposition of the revenues raised would be less cumbersome as an integral part of processing taxes than as adjuncts of the certificate plan. To these should be added the previously discussed considerations: that if processing taxes were employed they would be included in the budget, that they would be less hidden from the public, and that they are more likely to be currently scrutinized than the taxes inherent in the certificate plan. 83 JAN 1940 n dear Kr. Minister: You vill recell that upon occasion of your call at the Treasury 01 December 15, 1939, to deliver a check in payment of the sent-ansual installment of the Finnish indebtedness to the lated States, I told you that a. number of contributions had been received from persons wishing to help your Deversment repay its debt to the laited States, and that since I have no atherity to receive such contributions, arrangements were - in unde with the consent of the donors, for the to be turned over to you The Treasury received directly, or through the thite House nad the Department of State, more than fifty contributions. Is searly every case, in which authorizations have been received, the donors have asked that their contributions be tursed ever to you, M representative of your Government, end in the fev 01007- tione to this procedure, the donors have requested that their contributions be turned over to the Committee in Yes York City with which Fanorable Herbert Boover 10 identified and with is accepting contributions for the relief of the 7ignish people. Accordingly, as requested by the donors, I - enclosing letters and the necempanying contributions from the following demore whose - are included in the attached list. In the cases listed as "mongraous" the donors and not reveal their 1/011. There are about ten to fifteen additional cases where the denore have net yet authorized the Treasury to depose of their contributions, and as soon as the necessary authorizations are received is such cases, I shall forward these Items to you. Very truly yours Signed 4 Morgenthau, Jr Secretary of the Treasury, Rr. :. Proceps, lavey interentinary sal Minister Pleaipotentiary, 2146 Vysing Avenue, 3. N. Vashington, 3. c. Inclosure Vfi:vi December 28, 1939 Regraded Uclassified 84 list of denore who have authorised the Secretary of the Treasury to in one to Hjolmar i. Proceps, Flanish their emiributions vhich vere forwarded to the Treasury for the benefit of Finkend. - I & of I Datk in fever of Henry Margenthan, dies Templine Certy Trust Co., Branch freeding New York. $ 5.00 - 1 of form. 4 I s I of 1 1 of $ - New York. 2.00 1 - of Check is furer of Beary Margestham, dies Marine trut Company, I 11. like 1.00 4a L Conford, Det is favor of Intry Morgenthan, in Centy National Benk & Trust can ledgert, New York, 10.00 hrs. Plude Valler I 1.00 to Drima I 1.00 Regraded Uclassified Regraded 85 Uclassi - 2 - Oust. E. Karlstoon Check in favor of Juney Margestham, Jr. X & , Trest Company, Riverside Breash, Buffale, New York. $1.00 Inc. .. & Check in favor of Houry Margentham, st.. Marine Trust Company, Buffale, for York 2.00 6. 7. Schult that is favor of Heary Margenthau, JT., Marias Trust Company, Buffale, Bev York. 1.00 D. v. Herrisk Check in faver of Heary Margentham, Jr., Germanbern Trust Company, Philadelphia, Pennsylvania. 2.00 Kennedy Researchl, Check is funer of Heavy Margentham, Jr., The Chase National Bank, Kleven Broad Street Branch, Bev Tark, New York. 2.00 Togal, mi wi Check in favor of Heavy Morgenthan, st., Marine Trest Company, Buffals, New York, 2.00 s. Check in favor of Heary Margestham, dr., Marine Trust Company, Beffals, New York, 2.00 Amy I of Check in favor of Mary Margentham, Item Marias Trust Company, Deffale, New York, 1.00 Adele Plansa Currency 1.00 I of of Check in favor of Mary Margentham, 35., I Itres 1 Duffale, New York, 3.00 86 - 3 - 1 K. Currenty $1.00 $ L 7. Tax Valksaburgh, Check in favor of Juney Jr., 1 Intes buffals, lev York. 2.00 Plain Dealing Liens Club, George 1. Aston, President, United States Postal Money Order is favor of the " 1, Treasury Department 20.00 Corden 1. Pish, Check is favor of the Treasure of the United States Bround lask and Trest Company, Port Landardale, Florida. 1.00 2 I of of Check is favor of of 5. Treasury Department, I Mail 1 1 I s j I 1.00 c. 3. Alkiem, I 1.00 Krs. F. do fortune, I of The = s any 1 the Third National last s trast Co., Daytem, Chis. 5.00 I 1 of Check in furer of truster of the United States, Depositors Trust Company, Dectibey Harbon, Ralas. 5.00 is I w I 1.00 Quarchill Villiams, Check is favor of United States Government, the Pennsylvania Company, Phildielphia, Pennsylvania. 5.00 Regraded Uclassified - 2 - 1. J. Valoh, Currency. $2.00 tranville 1, Brutengh, Chesk is favor of Secretary of Treasury, Central Bank and Trust Company, lev Terk, Tev York, 5.00 Harry Currency. 1.00 1 s : United States Postal Heavy Order is favor of the Secretary of the Treasury. 7.00 Oligin, of of Check is faver of the Treasurer of the United States, National Bank of Commerce of Partland, Partland, Maine. 1.00 Anemymous (an American Citizen) Currency. 1.00 Amergence (Mailed from Summerville, Georgia) Currency. 1.00 - (Mr. and Mrs.) Derman, 2.00 Impress (An stairer of %ittle Finlend") 1.00 - (in inverious Bassion) Currency. 5.00 Hollandle Retaily an Vestern Union Honey Order is favor of Heary Jr. 26.00 1 - I Check is faver of Heary Margentham, stop Marine Trust Company, Buffalo, lev York, 1.00 Regraded Uclassified 07 Regraded Uclassified JAN 2 - 1940 4 ter 4. (inister: Tou vill recell that upon securion of your call at the TRANSURY on Security 15, 193% to follow 1 check in payment of the returned installment of the Planish indebtedness to the lated States, I tel: you that = of contributions had been received from persons visita to help your Government repay its debt to the laited States, at that since 1 have no authority to receive mail contributions, amagests very - INC sis with the document of the tonors, for the to be turned CTRT to you The Treasury received (treetly, : through the Thite House not the Department of late, 2020 time fifty entributions. In serrly every case, in which nat/orizations have been received, the leases have asked that their contributions be turned over to 104 28 representative of your rail in the fev time to tide procedure, the tonory have requested that their contributions be turned over to the Committee in Sex York City with which Renarable Herbert loover is Identified and with is interving contributions for the relief of the /innish people. Accordingly. as requested by the conors, I M enclosing letters not the contributions from the following contro vbose MDFS are included is the attached list. In the cases listed as the leners As not revenl their vm. Then 5 about ten to fillem additional Date where the tomore have net 791 authorized the Treatury to dispose of their contributions, not If 1000. " the MONTH mathorizations are received in ruch esser, I shall favori these 1:ems to you. Tery traly years Supped Secretary of the Treasury, Ar. Union i. Proceps, laway interesting sn! as tyming inclu, 5. ", instington, D. C. Inclosure filing December 28, 1939 88 List of denore who have authorised the Secretary of the Treasury to time ever to Mjolmar s. Preceps, Finnish Minister, their emtributions which were forwarded to the Treasury for the benefit of Finkent. - Neward 11. Babasek, dr., Check in faver of Heary Mergenthaus Jr., Tempirine County Trust Co., Trumansburg Branch Trunsnsburge New York. $ 5.00 2. I. Overle Chesk in favor of Kenry Morgentham, Jr., State Bank of Kumare, Kenners, New York. 2.00 N. L. Cornell, Check in favor of Heavy Margenthaus Jres Marine Trust Company. Butfale, New York, 1.00 02am 1. Crewferd, Check in favor of Heary Morgentham. Jree Magara Centry National Benk & Trust Coss Leckpert, New York, 10.00 Mrs. Vinnie Valleer I 1.00 Sam Kletaman Oursenty 1.00 Regraded Uclassified 89 - 2 - Amount Ours. K. Karlsteen Check in faver of Heary Margentham, Jr. X a ? Trust Company, liverside Bransh, Buffale, New Tesk. $1.00 A. 3. Howe, Check in favor of Houry Margentham, Jr., Marine Trust Company, Buffalo, New York 2.00 6. 7. Schutt Check in faver of Henry Morgentheu, Jr., Marine Trust Company. Buffale, New York. 1,00 D. V. Merrick Check in favor of Heary Margenthem, Jr., Cormentown Trust Company, Philadelphis, Pennsylvania. 2.00 Kennedy Masseasable Check in faver of Heavy Margenthan, JT., The Chase National Bank, Eleven Brend Street French, New Tark, New York. 2.00 E. x. Fegal, Check in faver of Henry Margenthau, JT., Marine Trust Company, Buffalo, New York. 2.00 Mauries J, Buschmen, Check in favor of Heary Margentham, Jr., Marine Trust Company, Buffalo, New Tark. 2.00 Harry D. Sanderf, Check is favor of Seary Norgentham, JT.. Marine Trust Company Buffale, New York. 1.00 Adele Plants Ourrancy 1.00 Holden, d of Check in favor of Heary Morgentham, Jt., Marine Trust Company, Buffalo, New Terk. 3.00 Regraded Uclassified 90 m 0 . I % Currently $ 1.00 1. 7. in Vallenburgh, & I I = the as 3 Company, I kda luffale, New Taste 2.00 Plain Dealing Lices Club, George 1, Acton, President, United States Postal Money Order is favor of the ", 5, Treasury Department 20.00 terden 1. Pish, Check in from of the Treasurer of the lited States treat Bask and Trust Company, Part Landerdale, Flerida. 1.00 In Inc. - of Coeck is fune of ", : Treasury Department, 1 Inc. 1 1 I J 1 1.00 I of d I 1.00 129. 1. 4 Hardman, I of The = s any 1 90 Third National Task & Trust Coop Tayton, Chie. 5.00 I 1 of Qualt is fiver of - of the Third Nates, 1 The Postibley Marber, Pains. 5.00 % of 1 1.00 Charahill Villiams, Check in favor of United States - the Pennsylvania Company, Phild4elphia, Pennsylvania. 5.00 Regraded Uclassified 91 1 - 1. s. Valah, Currency. $ 2.00 I of Check is farer of Secretary of Treasury, Central fearner Bank at Trust Company, Yes Tark, Yes Tark. 5.00 Harry Currency. 1.00 1 of % United States Postal Honey Order is fame of the Secretary w the freesury. 7.00 I of of Check is favor of the Treasurer of the United States, National Bank of Common of Partland, Partland, Mains. 1.00 Anenymous (in imrian Citizen) Currency. 1.00 insurers (Neiled from Summerville, Georgia) I 1.00 Anamyments (Mr. and Mrs.) I 2.00 3 quite and = I I 1.00 - we imrian insulan) Currency. 5.00 I 1 Voolern Union - Order is from of I é I 25.00 1 I Check is favor of Heary Margestham, step Marine trust Company, Buffale, New Test. 1.00 Regraded Uclassified 92 in I - 1 N. L. Corsell, Check in favor of Henry Morgenthau, Jr., Marine Trust Company. Buffale, New York. $1.00 Glean H. Crawford, Check in favor of Henry Morgenthau, 37.0 Ningura County National Bank & Trust Co., Lockport, Hew York, 10.00 Tery truly yours, Secretary of the Treasury. Mr. Kjalmer J. Prosepe, Ravey Extraordinary and Minister Plenipotentiary, 2146 Vyoming Avenue, 1. Wes Washington, D. c. WTH:Vf December 27. 1939. Regraded Uclassified 93 TREASURY DEPARTMENT WASHINGTON January 2, 1910 Supplemental Memorandum on Lamblack Additional information on uses: (Obtained from the Department of Commerce). Lampblack is used 65 an ingredient in the manufacture of rayon, varnishes, paint and varaish removers, rubber solvent, cold vulcanis- ing agent, rubber cements, gutta-percha solvent, preservative and insecticide, refrigerant, degreasing wool, resin and NEX solvent, extracting medium for resins and waxes, essential oils from flowers, fats and oils from oilseeds, germicides, soil disinfectant, cyanides and carbon tetrachloride, synthetic hydrocarbons, amonium sulfocyanide, matches, general solvent, laboratory reagent, motor fuels, noth exterui- nator, vermin killer, solvent of alkaloids, and extracting aromatic nb- stances and pharmaceutical products from seeds, root, etc., purifying paraffin, spectroscopy and blue flame for photography. No statistical information is available on distribution of rele- tive amounts for the lampblack consumed in each of the above uses. It is safe, however, to estimate that the use of lampblack in paints and cheap inks is its most extensive application. U. S. Production: (Bureau of the Census). 1931 1933 1935 1937 No. of plants 4 - - - Pounds 3,424,048 3,012,226 3,902,076 5,309,376 Value ($) 320,989 210,054 385,541 472,533 Aside from its higher quality one of the reasons that carbon black has so drastically competed with lampblack in this country can be traced to the fact that this country possesses large reserves of natural (is from which carbon black is produced. N/Wollaw H.Y. Wollner, Consulting Chemist. 94 2. 1940 Dr. Peis Mr. Cockren It is requested that a cablegram in the following - w and to 'AMERICAN LIMATION STOCKHOLM the Secretary of the Treasury would approciate the consuration of Mr. Greeno, who vas se helpful to the Secretary last - is octablish- ing contacts with Svedish officials including Inverser Booth of the Sveriges likebank, if Groens would see Reoth ai ask the latter to be good enough to provide his, for confidential transmission to Secretary Margantham. a summary of kis view on the present commis situation is Sundan, Finland and Jermy. The report should be called at treasury expense". (Init.) is L is 10mg Regraded Uclassified Confidential TREASURY DEPARTMENT 95 PROCUREMENT DIVISION and F THE WASHINGTON January 2, 1940 MEMOBAND POR IS SECRETARY 2 Pranch contract with the Curtiss-Wright Corporation is for 100 P-40s, to De calivered through the following schedule: 1940 - July - 9 August - 9 September - 11 October - 18 Sovember - 23 December - 30 y in has a contract for 524 of these planes, deliveries of which will be be rain under the following schedule: 1940 - Earch - 5 April - 12 Eag - 27 to - 40 July - 46 Ingust - 44 September - 02 October - 45 Tovember - 45 December - 49 1941 - January - - 50 February - 44 March - 45 April - 51 It present tests are continuing 02 the production model, and injuiry today elicited the information that 80 for the trug is very well pleased with this stip and that all of the tests have proven more than satisfactory. Arector of Procurement 96 January 2, 1940. 3:50 p.s. R.M.Jr: Hello. Operator: Captain Collins calling you. R.M.Jr: All right. 0: Go ahead. H.M.Jr: Hello. Captain Collins: Good afternoon, sir. H.M.Jr: Good afternoon. C: Mr. Secretary. E.V.Ir: Yes. C: Purvis phoned me at ago, and in the course of conversation stated that be had received a cable this morning from Furnet. H.M.Jr: Yes. C: Who said that he had from very authoritative sources the information that sixty thousand tons of copper had been solf to Russie. S.M.Jr: Yes. :: That they were fearful that HODE of that night filter to Germany. E.V.Jr: Yes. ¿ Fe asked me to pass that word DI to you, and asked me also if I could check 11. Well of course I have no means of checking it. Be said be's sending you this dispatch to $ letter tonight. E.M.Jr: Well I'll wait until I take E look at it. ÷: Yes, sir. H.M.Jr: I don't think we can Br enything about copper. I Just had a talk with Summer Welles. He just left here, and he doem't see how we can do anything on those things, 32 sopper or oil. And I wrote a menorandum to the President - I mean I'm bringing his up to date on what we did last week. - 2 - 97 :: Yes, sir. So I vast to - I'm on this ice on this stuff and I want to make sure that I don't go, through. :: Yes, sir. E.V.Jr: 3ut Velles says I'm all right as far as I've gone. 6: Yell that's fine. E.V.Jr: So be said - and I gave his a copy of this nenorandun, which he said he'd show to Nr. Full and I said if Mr. Hull or he had any doubt at the present status of things let ne know and I'd come over there. ⑇: Yes, sir. B.V.Ir: So I don't expect any trouble from that angle. ¿ That's fine Mr. Secretary. 5.M.Jr: So - where are you on planes? C: Vell I'm coming along. I have the - I have those deliveries on the P-40's. You have the what? : I have the delivery schedule on P-40's. E.M.In h yes, what's that? :: Vell that's the one ve were discussing Saturday. E.M.Jr: Yes, I know but I mean what's the situation? ¿ Vell the Aray's total order is five hundred and twenty-four. Bor many? 2: ?ive Intred and tventy-four. M.In Yes. is And in March 3. and in April 12 - 98 - 3 - H.M.Jr: Wait a minute. Wait a minute, let me - in March how many? is Three. H.M.Jr: My God. C: April twelve. It goes up rapidly. E.V.Jr: Yes. C: May twenty-seven. H.N.Jr: Yes. C:- June forty. S.M.Jr: June - C: Forty - H.M.Jr: Yes. Well that's far enough. C: And then it goes through, January, February, March, April of forty-one. H.M.Jr: Yes. is Now - E.M.Jr: That's for the Army. 8: That's right sir. Well those are the - they're the big buyers on that boat. Yes. 8: Now on the - I talked quite at length this morning with some of the air corps mob and they say this that they do not share the fears at all apparently that are expressed by H.M.Jr: Yes. C: That their test, the production model that they've had out there, they've been giving it the works and it's just performed beautifully to date. H.M.Jr: Yes. 99 - 4 - C: So I don't know. Maybe he worries about the maneuverability of it in combat. That may be what's bothering him most, R.M.Jr: Well I don't blame him. C: No I don't either. H.M.Jr: But on this schedule basis - to get twenty-five out of that - just let's see what you've got here. Three - twelve - C: You couldn't do it till the end of May. H.M.Jr: Ninety-two. Yes. C: End of June. If you're going to split it every other one, it'd be the end of June. H.M.Jr: Yes. Well when would the French begin. They've got & hundred of these orders haven't they? ⑆ That's right. H.M.Jr: Well when are they going to get theirst C: Well their orders start in this Spring too. I've got that figure in the other room. Do you want to hold & minute? H.M.Jr: No. What you might do. You might send it over or when you're ready bring it over tomorrow sometime. C: Yes, sir. Vell I'm giving you a complete dope sheet that's right up to the sinute on all this stuff. I think you should have it only - not only the French but the British as well. H.M.Jr: Right. C: Just one second sir. On the - let ne see if I can get my figure on that P-40. No I haven't any here of Paris. H.M.Jr: Well that's all right. C: I thought I did, but I - it is included. It will be included in the statement No I haven't it, but I'll have it tomorrow. 100 - 5 - H.M.Jr: All right. C: Anything else new sir? H.M.Jr: No, I have nothing else. :: All right sir. H.M.Jr: Good night. C: Thank you sir. Good night. - 101 25 BROADWAY, NEW YORK TELEPHONE BOWLING Gener 9-4800 BRITISH PURCHASING COMMISSION January 2, 1940 Dear Vr. Secretary: MAYEDE THE I have sscertained the following information in regard to the Cananas Wine in Mexico: The Greene Cananea Copper Company (Minn) re- covers Molybienite 35 Ell by-product of its copper operations. Production for 1938 accunted to approx- imately 500 tons of Molytdemum in the form of high grade concentrates, comparing with 575 toos in 1937, This slight decrease is probably due to curtailed corper output. Apparently Englane is under the impression that the Greene Cananes Copper Company (which is a subsidiary of Anaconds) has 2 sales arrangement with the Climax Moly:demm Corporation. It is possible therefore that this company's operations are covered by the discussions you have already had with Climax. Personnel is given as follows: President Villiam D. Thoraton Vice Presidents. William Kraith louis D. Ricketts Directors Ls above, and Joseph 3. Cotton Robert 8. Dwyer Cornelius F. Kelley Yours sincerely, arthur Rhon Secretary of the Treasury Washington, D. C. Regraded Uclassified 25 BROADWAY. NEW TORE TELEPHONE BOWLING GREEN 9-4800 102 BRITISH PURCHASING COMMISSION January 2, 1940 Dear Mr. Secretary: TUNGSTEN Since I SEX N. on Saturday morning, I have received cable advice in regard to the message I sent after our talk of December 22 which had = particular bear- ing on the Tungsten situation. This cable seems to amplify somethat the information which you advised 26 on Saturday that you had receive! from Paris. First 23 regurés the stock of 7,000 tons of Tungsten and Antimony, the signation as it TES available so H. Monnet as et December 6. is that - 3500 50018 of Tungsten 700 = = Antimony were stopped at Haiphong ax subsequently bought for impor- tation into France by French groups acting under authority for the French Government. Furthermore, the Collowing stores which on December 6 were lying st Dongiang Station et the Inio-Chine frontier - 2200 tons of Tungsten 8800 = - Antinony have been since that date bought under the same conditions. I am aivised that the stove will be supplemented by more up-to-date information at the egrliest possible codent. I unierstand these alloys have beet stopped by the French to take care of French requirements and to pre- vent their reaching Russia and probably also Germany via Regraded Uclassified 103 - 2 - Russia. The French Government will be prepared, in agree- ment with the British Government, and in order to 00- operate fully with the United States administration, to consider the possibility of supplying America with part of the alloys bought from China if so desired - that is after Allied requirements have been met. They would wish to make a proviso that any alloys so provided are reserved for internal consumption in the United States. M. Monnet expressed further appreciation of the useful action which you have been taking in your con- tacts with the Chinese in connection with Tungsten. Yours sincerely, Cames D. Secretary of the Treasury Washington, D. C. 25 broadway, NEW YORK TELEPHONE BOWLING GREEN 9-4800 104 BRITISH PURCHASING COMMISSION January 2, 1940 Dear Mr. Secretary: COPPER I have been in touch with Captain Collins today in regard to a report which M. Monnet states has been received in London from a source usually reliable. It is that various United States pro- ducers have recently sold 60,000 tons of copper to Russia, and it is felt that some at least of this may reach Germany. Would you be willing to make inquiries with a view to ascertaining whether this report is true? Yours sincerely, arthur P Secretary of the Treasury Washington, D. C. 105 PAP TELEGRAM SENT GRAY January 2, 1940 7 p.m. AMERICAN LEGATION BUCHAREST (RUMANIA) One. At the request of the Secretary of the Treasury you are instructed to cable at Treasury expense & review and summary of current wartime trade and goods traffic between Rumania and Germany, with particular regard to oil. The Treasury ventures to suggest that Mr. Edson would be interested in preparing such a report and states that his cooperation would be much appreciated. HULL (GSI) EA:HF:LWW EU 03413938 STRICTLY CONFIDENTIAL 106 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION X January 2, 1940 TO Secretary Morgenthau FROM Mr. Cochran In accordance with the Secretary you instructions DI to of December 20, I telephoned the Stiness laterary the mining. The Ambassador ver absent and not expected back is tom in te in Imsequently, 3 spoke with his private secretary. Mr. It. : explained to Mr. Yu that the IN information with respect to the 7,000 tons of Chinese start mil mentioned in the telegram from the Chinese Ministry accorpazied the intesendor's letter of December 29 = kere Investa. The three points == which supplemental information is intri D: be pert of the 7,000 teas is tungsten and what part 13 be is - situated and (3) Eare the French moved any part : time would be necessary to cable China for the desired ista. me product to = as som as 22 asswer could be given. A: 11:15 this morning the Piest : a Date Inbassy called ne back is regard to the message which : mi per = the private secretary. The First Secretary stated 3 2 If alx da the Ambassador by telephone, but that the Entassy tax Il = the problem further than that already given Secretary : of bez learned from Kr. Coez, Severez, that two or three thousand tax É the = = sestin is tungsten and the remainder antimony. All is IN In - - is ind beer stored for shipment. The secretary gave us this plater and will cable China for information to cover fully = - = misst the Secretary. 345 Iclassified. STRICTLY CONFIDENTIAL TREASURY DEPARTMENT 107 INTER OFFICE COMMUNICATION DATE Detember 20, 1939 TO Secretary Morgenthsu FROM kr. Cochran it the Secretary's request, I telephoned the Crizese Ambustador at 10:15 this morning. I referred to the letter of December 19. with which there VISE enclosed a translation of a telegram from the Chinese Hinistry of Foreign Affairs. I told the Ambassador that Secretary Morgerthan asked that the cablegram in question be placed in the hands of Ambassador Bullitt in Paris through the Chinese Antessador in that city: furthermore, that E. Bullitt be informed that this has been isne at Secretary Margenthan's instance, mi that the Secretary will telephone Er. Bullitt is regard thereto, The Chinese said that he vould set imediately upon this suggestion. Cochran please ask chinese amt. what hert of 7000 This is tengsten and what Vantis antiming end where it is beated and have French newed any fit yet. mL. 108 CHINESE EMBASSY WASHINGTON, D.C. December 19, 1939 IV dear Mr. Secretary: I as sending you 8 translation of & telegram which I have received from the Ministry of Foreign Affairs, which reports that the French Indo-Chine Government has recently been instructed by the Paris Government to claim the right of preemption of all the Chinese antimony and tungsten which are awaiting shipment in Indo-China. I have talked over this matter rith lr. L. 3. Chen on the telephone. Both he and I are antions to bring this matter to your kind attention. I sm bringing the same to the attention of the State Department. Any effort which the American Government can make on China's behalf in this matter, I an sure. will be gratefully appreciated. I an, 17 dear Ir. Secretary, Tery sincerely yours, Hh 8hit Eu Shih Enclosure Honorable Beary Morgenthan, 2. Department of the Treasury Washington, D.C. 109 Translation of Telegram from Ministry of Foreign Affairs. December 17. The French Indo-China Government has recently received instruction from the Paris Government to claim the right to buy up all the Chinese antimony and tungsten (over 7000 tons altogether) which are in Indo-China await- ing shipment. These commodities are among the important exports to England, the United States, France and Soviet Russia with which China discharges her obligation under barter agreements and with which to secure foreign ex- change. A part of this has been contracted to sell to Britain. The French are proposing to preempt all this. That would incapacitate our ability to carry out con- tractual obligations, lower our commercial credit abroad, and decrease our power of resistance. Te are making a strong presentation to the French Government, and hope you will request the American Government to use its influence 80 that the French Government may cancel its preemption proposal and continue to give us the right of way to ship same abroad. 110 Translation of Telegram from Ministry of Foreign Affairs. Decemb er 17. The French Indo-China Government has recently received instruction from the Paris Government to claim the right to buy up all the Chinese antimony and tungsten (over 7000 tons altogether) which are in Indo-China arait- ing shipment. These commodities are asong the important exports to England, the United States, Prance and Soviet Ruesia with which China discharges her obligation under barter agreements and with which to secure foreign CI- change. A part of this has been contracted to sell to Britain. The French are proposing to preempt all this. That would incapacitate our ability to carry out con- tractual obligations, lower our commercial credit abroad, and decrease our power of resistance. Te are making a strong presentation to the French Government, and hope you will request the American Government to use its influence B0 that the French Government may cancel its preemption proposal and continue to give us the right of my to ship same abroad. kao Dec ià be 15 111 January 2, 1940 3:30 pa (Dictated by HI,Jr, F. Cochran present, after E. Welles had left from his 3:00 appointment with the Secretary.) I let b. Welles read the letter which I wrote the President in regard to strategic ver naterials (see letter dated 1/2/40) and suggested that he 18t F. Bull read it and Welles gave ne his word of honor that after that be would burn it himself. Ee said that he felt, 80 far, everything vas all right, but that when we got into talking about oil and copper and carbon black, that that would be an - neutral act. I said that I wanted Hull and Welles to know everything I vas doing at the President's request and that I realized anything like oil or copper was out of the question unless Congress would want to to it itself. Ee agreed. I particularly emphasized the fact that I did not want anybody but Hull and Welles to see it and that I did not vast Feis to see it. He said 0. L be he left be said, "I will burn it". I assured him that I was not going to do anything along these lines unless I was directed to do it by the President and first discussing it with F. Ball and any time Ir. Hall had any doubts as to what I was doing along these lines, if he would give ne & telephone call I would be plad to come over and talk to him. 112 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France DATE: January 2, 1940, 6 p.m. NO.: 3 FROM MATTHEWS FOR THE TREASURY DEPARTMENT. This morning Mr. Royal L. Tyler came in to see no. He had been on a trip to Huhgary and Italy, and had just come back to Paris. He had found that Teleki is stronger than ever there, and expressed delight with the "improvement" regarding the attitude of Hungary toward Germany which has taken place since he was there in May; he believed this was due partly to the "contradictory promises' which had been given to the Hungarians and Rumanians by the Nazis - they would hold out the "fait" of Transylvania to the Magyars on the one hand, while almost simultaneously they were intimating a readiness to the Rumanians to "guarantee" frontiers which exist at present. END SECTION ONE. BULLITT. PA:LWV 113 PARAPHRASE, SECTIONS TWO TO FIVE, INCLUSIVE NO. 3 OF JANUARY 2, 1940, FROM AMERICAN EMBASSY, PARIS The Hungarian public he said is surprisingly well informed of this "Nazi double dealing". He said that today "at least four out of five Hungarians desire an Allied victory", their opinion having been changed because of the action of the Nazis and in view of the Russo-German "alliance", the traditional Hungarian friendship for their Finnish cousins, and the failure of the Germans to score an early victory on the western front. He went on to say that the finances of the Hungarian Government are in & deplorable state, in view of military expenditures being greatly increased. Hungariam did not have any trouble in the early stages of the war in traveling through Austria and Germany. However, every possible obstacle and delay are being put in their way nov, it being necessary for them to indicate the names of the people they wish to see, giving their exact times of travel and itineraries. The Hungarian people are on the other hand being flooded with thousands of letters each day from relatives or friends, living in Germany, who beg for gifts of foods, and other things. Mr. Tyler himself has seen some of these letters; since the latter obviously are passed by the German censor, it is presumed that the Nazis believe the material return in gifts outweighs the adverse propaganda effect of the picture of shortages in Germany. At one time six tons of food 114 - 2 - food were being shipped to Germany each day as a result of the letters; however, this has been cut down to the present rate of three tons daily through action of the Hungarian financial authorities. Reference: 37 telegram No. 3056 of December 29. Mr. Tyler definitely is not of the same opinion as Pennachio with regard to improved economic conditions in Italy. Mr. Tyler says that not much prosperity has been brought to Italy because of the var, despite & certain number of important French contracts. He said that the standard of living is constantly decreasing, on the contrary, and there are material rises in prices. Bank of Italy officials have told him confidentially that Italian expenditures are running at the rate of & hundred billion lire a year; this would be roughly half of the expenditures of a France at war, he said, and must be regarded as somewhat staggering considering the poverty of Italy. He said that material concessions have been given to Hungary by the Italians, for political reasons; airplanes and ares are being fur- nished, and Italy 1s accepting payment under clearing agreements in existence. Italians are furthermore permitting payment in lire for freight on all exports from and imports into Hungary through Italy. He said that even when contracts are held by Italian shipping companies calling for payment in Regraded Uclassified 115 - 3 - in devisen, a way is found by the Government to arrange for returning such foreign exchange to Hungary. Substantial quantities of foodstuffs and oils are being acquired by Germany through Italy, Germany using coal for payment for the most part. Incidentally, he remarked that it was his opinion that the British and the French were indulging in a lot of vishful thinking regarding the attitude of Italy towards the var. Mr. Tyler is inclined to share the belief of others that an early peace note my be made by Mussolini, the latter not desiring a German defeat. Fantastic as the story may seen, he said that be knew the Italians are bringing some pressure on Hungary looking toward the establishment of the Duke of Aosta M king of some sort of Danubian monarchy - - apparently to include at least parts of Slevenia and Croatis; of course, he said, the Hungarians do not take kindly to the thought that an Italian head might bear the ancient erown of St. Stephen! BULLITT. KA:LNW 116 NC GRAY PARIS Dated January 2, 1940 Rec'd 4:35 p.m. Secretary of State Washington 3, January 2, 6 p.m. (SECTION SIX) Parliament unanimously voted the 1940 (?) budget in the early morning hours of DECEMBER 31 with xpenditures totaling 79,889,000,000 francs and revenue 79,961,000,000 thus leaving an ostensible surplus of 72,000,000. In the course of the progress of the bill Parliament added 894,000,000 francs to the original estimate of approvals and 930,000,000 to the original estimate of revenue. These increases were due chiefly to a last minute decision to make the provisions of the so called "family code" applicable immediately (Embassy's despatches Numbers 4835 of August and 5464 of DECEMBER 19). The family CODE is designed to offer financial inducements to increase the country's birth rate. BULLITT EMB RL 117 PAP GRAY PARIS Dated January 2, 1940 Rec'd 6:45 p.m. Secretary of State Dishington 3, January 2, 6 p.m. (SECTION SEVEN). under As usual/the finance law for 1940, the Finance Minister is authorized to fix by decree conditions for renewal or funding operations equal to the total of the floating debt of the Treasury and of the automous National Defense Board as well as maturing loans of the Treasury and of the Credit National, The Minister is likewise authorized to cover other Treasury charges through the issue of ordinary Treasury bills up to & limit of 10,000,000,000 francs (the limitation does not of course apply to amament bonds - by telegram No. 2625, October 31, 7 p.m.) The finance law likewise provides a strong tax of 20 centimes per liter on gasoline and abrogates the decree law of September 1, 1939 which instituted a solidarity fund to assist mobilized soldiers or their families (Embassy's despatch No. 4959, September 6, 1939). Parliament apparently felt the creation of the fund contrary to the administration of public finances but the Ministry of Public Health budget contains, 118 PAP -2- 3, January 2, 6 p.m. (SECTION SEVEN) from Paris contains, as you are aware, appropriations of approximately 14,000,000,000 francs to cover the same purpose. BULLITT CFW Regraded Uclassified 119 PAP GRAY PARIS Dated January 2, 1939 Roc'd 7 p.m. Secretary of State sshington 3, January 2, 6 p.m. (SECTION EIGHT). After approval of the budget Parliament adjourned until January 9. The Pranco-Yugoslav commercial and payment agreements were published in the Journal Officiel of December 31 (my telegram No. 3065, December 30, 8 p.m.). The Paris securities market was strong and active today and zains were registered throughout the list. Rentes rose fractionally with the exception of the 1937 dollar exchange guaranty issue which gained of full three francs. The carry over rate for the month end settlement was 21% compared with 15 at the middle of December and 11% at the end of November. The outside market rate was fixed at 51% as against- 5% at the end of November. (END OF MESSAGE. was HAL BULLITT CFW 120 1980 I of Dr. Feis Mr. Cochren The Secretary of the Treasury would appreciate a used missing along the following lines being cabled to *AMERIGAN LEGATION DUCHAREST At the request of the Secretary of the Treasury m an instructed to cable at Treasury expense a review and number of curret writing trade and goods traffic between Rumania and Germary, with particular regard to oil. the Treasury ventures to suggest that Mr. Mom would be interested in preparing such a report and states that his occupation wald be má approciated." (Init.) E. 1. Co 75mg 121 PLAIN Stockhola Dated Jamary 2, 1940 Rec'd 9:35 pollo Secretary of State Washington One, 2nd. Effective Jamary 2, 1940, minimu rates for securities quoted on Stockholm Stock Exchange sholished. Same date no foreign selling orders for Swedish Stock Exchange securities will be executed. Proclamation published requiring all physical ai legal persons resi- dent Sweden report to Riksbank data covering haldings of gold, gold coin and foreign valuables and debts to foreign countries in excess of 500 kreacr off equivalent in foreign currency as of December 31. 1953. Declarations must be made before February 15, 1940. Inform Commerce. STEHLING LMS ZB 122 January 2, 1940 3:40 pm (Dictated while Cochran and Cotton were present.) Mr. Welles told me of his talk with the Ambas- sador. The President of Colombia was ready to go ahead; that there had been a complete misunderstand- ing; that they had never changed their position; they thought they could pay 3% the first year plus $400,000 or $500,000 amortization, or & total of $1,700,000; by 1941 or 1942 they could pay $2,200,000 or $2,300,000, and that the Ambassador is now waiting to hear from Mr. Traphagen. I called up Traphagen. He said he was too busy now. Mr. Welles, at my suggestion, said that he would be glad to take the Colombian Ambassador out for lunch and tell him that he felt that with three corners to the present triangle -- Traphagen, the Administration and the Ambassador -- we did not need & fourth angle in the form of an attorney. Mr. Welles insists that Colombia was misrepre- sented through a misunderstanding when they said they wanted to modify their former offer. Mr. Welles said that he was upset to learn for the first time, from Mr. Aranha I gathered, that the Bondholders Protectice Committee had withdrawn their representative from Brazil and that Aranha felt if he had stayed down there they might have gotten somewhere and the minute this Colombian matter 18 through, Mr. Welles would like us to take up the Brazilian debt. He hopes that Mr. Jones will not contact the Colombians. I told him I could make no promises. 123 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France DATE: January 3, 1940, 7 p.m. NO.: ? The following is personal and strictly confidential. For the Secretary of State and the Secretary of the Treasury. Reference is made to telegram No. 3059 of December 30 from the Embassy. Had lunch privately today with the Minister of Blockade, Pernot, his Chef de Cabinet Dayras, and Rist. Ee vas shown the one-page telegram of December 31 from Purvis to Monnet; in this Purvis reported his interviews with Secretary Morgenthau on December 27 and December 30, and his reception # by the President( on December 29. The stmosphere vas described by Purvis as having been very cordial, and said that in the matter of ferro-alloys he found & desire to extend all possible cooperation; he also found a willingness to consider an extension of our list of "ver reserves' or the list of ares and materials of var for which export licenses are required. However, he did not smit to emphasize the delicate nature of the problem. Purvis said that he found enthusiasm for the idea of sending over several allied experts, provided this were done quite unofficially and privately. He had been told, he said, that Rist would be decidedly persona grata; Permot said that in a few days Rist would be sent via clipper along with the British rep- 124 et 1 resentative, Ashtun fastin. Dr. Priday Rist will leave for London, and a telegram to that effect has been sent to Butterworth by lettime. Only one brief reference to nickel was mde by Purvis; he mentioned that Canada should be consulted, and that V8 were agreeable to senting E representative from Canada for the purpose of Elementing the matter. NOTE: Do you 800 the telegrams the Purvis before they are transmitted - if you do, TO shall of must refrain from cabling the substance of these cables to you. The suggestim WE mis by Matthews that probably you would be much intental in at outline of the policy of the Allies regarding union 88 concerns the neutrals of Europe and of negottations et them in this regard. An attempt was sais by his to explain the importance from the American point of riew of having E complete picture of the situation. Than the Rate of Blockade turned to Rist and said that size the tal last talked he had changed his mind; that be thrught E full resume of their position towards the neutrals doit be given by Ir. Rist to the President, Secretary Hill and Secretary Morgenthan, and said he could get such I THE the the confidential exposé he (Pernot) had mis before the Foreign Affairs Committee of the Chasher I to in + In Enister vat on to say that the Allies N fully propered to give to the neutrals 125 - 3 - everything they needed for their own use provided sufficient guarantees against reexportation were provided. These guarantees in some cases took the form of governmental assurance, and that of important industrial syndicates in others. The Allies, he said, have their "little system of surveillance" within the neutral countries, with "a somewhat larger system' in the case of Italy.Far the most part he said that the neutrals were reluctant to sign agreements for fear there would be reaction from Germany, or in the face of threats from Germany. He declared, likevise, that when, for example, in the case of Switzerland, the individual negotiators did not always take 'the broader point of view - that 1s, a realization of the allies' insurance of the continued independent existence of the country concerned - it is pot necessary to 8º over the head of the negotiature. According to Dayras, the only difficulty they were having with any neutral VBA with the Netherlands, though be said there vas 8. general tendency for the neutrals to think only with longing of the boon prosperity of the days before the blockade during the last war - which he sald bad really continued until the United States entered. Empe was expressed by the Blockade Kinister that repudiations similar to the Franco-Belgiam one signed several veeks age would be entered into by other neutrals, but he feared that Germany TM Regraded Uclassified 126 - 4 - 8. powerful deterrent. Ae for the Scandinavian countries, the French are leaving the negotiating to the British. Reference was also made by Pernot to the differences regarding questions of blockade within the French Government itself. Included in the Blookade Committee are representatives of the Ministry of Blockade, of the Navy, Foreign Affairs, Colonies, et cetera; within the Committee it 1s usually possible to reach agreement, but subsequently the separate ministries frequently make attempts to overrule the decision, and the "final authority" has not been (omission) as yet. The Minister said that of course the Navy wants to seize everything, saying that they didn't realize you couldn't upset a whole diplomatic game for a few bags of coffee. The Minister confirmed the freedom with which coal exports are being made to Italy from Germany by sea - partly because of the lack of allied or neutral transport facilities - but he expressed the hope that such freedom would not last long. In a report they received from Rome this morning, from Ambassador Francois-Poncet, the Ambassador had indicated that particular efforts were being made by Germany to get fats and oils in Italy; he also said that recently there were resumed shipments of soya beans from Manchukuo for Germany via Italy. There were expressions of general annoyance at the attitude of the French press (center of information) in 127 - 5 - in playing up alleged shortages and dissensions in Germany and in publishing fantastic figures in the newspapers. The Minister said it was "nonsense" to believe what was written in an article in the Paris SOIR today, by its Zurich correspondent, to the effect that Germany has sufficient petroleum to last only three months; he said he was quite opposed to giving the public such continually misleading ideas with regard to the weakness of the Germans. A talk was had by Matthews with Kott Pist? with regard to the desirability that his visit to the United States be handled with the utmost discretion and the minimum of publicity; Kott seemed to be in full accord with this idea. Before he leaves for Lisbon he will call at the Embassy. A reply had been received by Dayras to his cable to the French authorities in Indo-China, indicating that there are actually in French Indo-China now 4500 tons of tungsten and 4200 tons of antimony. Dayras said that he cabled again asking for a list of the consignees on these materials. However, it seemed he felt more confident that as regards shipments to the United States there would be no difficulty. He indicated that for the most part the fears that one or more brokers in New York would reexport to Siberia came from the British, and they would leave it to the British to clear up the matter. END OF MESSAGE. BULLITT. EA:LWV TREASURE Afice of the Secretary Technical Assistant tab the Secretary 0 Date 1/4/40 The Sacretory TO: Rount Corrections hire been asked on the groups indicated in pencil SMV From: ME. COCHEAN I 128 - 5 DEPARTMENT OF STATE WASHINGTON January 4, 1940. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses for his confidential information one copy of paraphrase of telegram No. 7 of January 8 from the American Embassy, Paris. HF 129 r₁ TREASURY DEPARTMENT PROCUREMENT DIVISION INFRUE OF THE DIRECTOR WASHINGTON January 3, 1940 M MEMORADOM FOR THE SECRETARY There is attached hereto a copy of memorandum forwarded to the President, via Mr. MeReynolds, concerning meet- ing of the Liaison Committee, held on Tuesday, January 2, 1940 Director Affrein of Procurement 130 January 3, 1940 THE PRESIDENT Via t. Heleynolds n I seeting of the Maism Committee on Tuesday, January i, 1940, the following setion ⑉ taken: 1. The Chairman reed I veriale addressed to bis by General Rivin Natace, Secretary to the President, in which the President directed, the mtters dealing with implemate of var are brought before the Committee by a daly secredited representative of # help present, that 4. representative of the Army 125 lev: Tumitions loand be designated to att la on the Board will the with are being discussed and out. Colomel 1. 1. Vac Worland, T.E. ME designated by the Board to attend today's meeting. B. The statement submitted § a. Artier Furvis, Chairma of the Ppenco-Pritist Purchasing Condittee, indicating the quantities of Duralumin restre by the Prench Government, 143 discussed. So action was taken on this astier because e sinilar statement as to the requirements of the Britist Government 118 expected in the sear future. C. A letter from the Adjustant General, concerning = request mée of the Ver Department by the Minister for the delivery of fabricated almina was read st the meeting, The letter stated that the Par Department had DO objection to the export of almism to for emstruction of strplaces, provided there is no interference with present or future orders of almism for the United States Government. It was indicated, hower, that 3 preferential or priority treatment for Rumania is a diplomatic witer which should be decided by the State w partent in conference with representatives of the Company of Amrica, Action on this exter - caforred pating receipt of full requirements of Prence and Grest Britain, which are to be balanced sgainst the requirements of the Duited States Regraded Uclassified 131 Regraded Uclassif L the Gairas relatited a copy of a letter addressed to the Clearance Committee of the by and May Buitims Board, from the Acking Secretary of the May, - IN a list of possible of ester- ial to be furnished to the Reders Government. Action - the request was withheld punding further information from the kny and Bevy Institions Board. F. the Chairma read the letter from Major B. Jacobasce, of the Swedish Control Comission, emerging the 4 livery of engines. It we determined that the amourted the delivery between the Empublic Avistion Corporation and Pritt and Whitney and - not - - stdek action could be taken by this Comittee. 6 is 8 astter of information, a copy of letter from the Assistent Director of Naval Intelligence to the Prench Neval Attache, concerning sources of supply of submarine sines, vas read. L 1 letter from the French Sevel Attache us given to the Paymenter General of the lavy, for check with the Chief of Ordnance, relative to torpedoes and Flasks for which the French Government had a contract with the L 1. Elies Company. I. 1 letter was directed to the Enister of Finland, relative to aids to procurement of commition. Copy of this letter us transmitted to the State Department. J. 1 letter was forwarded to the Exister of Finiand, 000- cerning sources of nanufacture of Treach Nortar Sights. Copy of this letter was also forwarded to the Department of State. L Pervarded a letter to the Raister of Finland concerning the securing of specifications for sirent meterials. 1 copy of the letter was sest to the State Department. L Advised the Risister of Portage] by letter, information concerning bellistic data a amount - Copy of letter use transmitted to the State Department. alla 1 1 lirector of Procurement 132 PARAPHRASE OF TELEGRAM SENT TO: American Legation, Stockholm, Sweden DATE: January 3, 1940, noon N.: 1 It would be appreciated by the Secretary of the Treasury If Mr. Greene, (who helped the Secretary so such last summer in making contacts with officials in Sweden including the Governor of the Sveriges Riksbank, Rooth,) would see Governor Rooth and ask him to be good enough to give $ summary of his views on the present economic situation in Finland, Norway and Sweden, for transmitting confidentially to the Secretary of the Treasury. The Treasury will pay for the expense of cabling the report. HULL (GSM) gents IFFICIAL COMERURICATIONS TO THE SECRETARY OF STATE al di I 133 DEPARTMENT OF STATE WASHINGTON January 4, 1940. The Secretary of State presents his compliments to the Honorable the Secretary of the Treasury, and encloses a copy of telegram No. 1 of January 3, 1940 to the American Legation, Stockholm. 03V1303A only you 20(f) 134 FEDERAL RESERVE BANK OF NEW YORK ICE CORRESPONDENCE DATE January & 1940. CONFIDENTIAL FILES SUBJECT: TELEPHONE CONVERSATION WITH 1 - 3 BANK OF FRANCE I called lr. Cariguel at 11:45 L. with reference to our cable le. 6 of this norning dispatched in reply to Governor Fournier's eable k. 10 of last night. Governor Fournier's zessage, I said, spoke of detailed stipulations concerning the Banque de Prace special account and Mr. Boussean's authority to operate it follow in Ir. Fournier's letters of December 8 and 28. lr. louses had handed us copy of the letter of December 8 but the original had not cose to hand nor had we received the letter of December 25. Could be confirs to ne over the telephone that the instructions dre in tr. Fournier's letter of December 28 were the same as those emtained in his letter of December 8. To had asked this mestim by uget cable this soming and requested argent cable reply but it wuld help ne if he could give ne this assurance over the telephone. Ir. Carigual, evidently after communicating with Governor Fournier's office, replied that "the letter of December 28 nerely encloses & copy of that of the 8th." Ee added that be could definitely confirs to If that Mr. Roussean had full power to run the special securent. It as for that purpose that he was kept is Sev York IS 1 special representative of the Banque de France. 17. Cariguel repeated this statement later on and added *in the restire you should act upon Rouseem's instructions." 18:0 Regraded Uclassified 135 OF or THE SECRETARY OF THE INTERIOR WASHINGTON Jamary 3, 1940. My dear Henry: You may be interested in the enclosures. Sincerely yours, Housed >Sehes Secretary of the Interior. Son. Henry Morgenthau, Jr., Secretary of the Treasury, Washington, D.C. Incs, 136 THE SECRETARY OF THE INTERIOR WASHINGTON 196, of I " ear Ir. Bellt by sitestion has tem called to at insociated Press story 10b- lished is the fashington Star - December 26, unler the heating, Tin is Cubinet The Account Reelection or Political Oblivies". Inder this beading, which appeared presinently on page & vas s sub-tand, *They of locresity Vill is ont Then President less'. to w anyrise I food that the heading was not, " is usually the case, - emergentism of the 2009 story, but a fair reflection of mapperied statements of conclusions of M editorial claracter min is the - item Iteelf univer the legatype "By the Associated the story starts off, "A (TVD) of esbinet officers find thes- selves impelled by natives to whistle for . third term EVER If the question of leyalty to their chief - not involved." This is ast entited to say swares other then the Associated Press, at It is a conclusion which is mest unfair to the five monters of the exhinst and below, the choice of Isagence 083 m - stretch of the indestion be regarded as objective news reporting. the editorial (there is - other word for it) also shaws a need use of the and "polition". the five Cabinet makers singled est by the a are described as intividuals who were "lifted out of non-palition] wittings." This is net a factual statement, It is ITEMS since st least fear of the five used have political beek- prods and experience, Secretary forgestion, for example, formaly surved M Consention Consissioner of the State of les York and as Dulmas of Governor howelt's Agricultural Mylesty Commission. Secretary Hopicies bad hald at lesst half a dosen administrative positions, including that of of the les York State Temperary inlief Administration, before being appointed to de >hirt by President the - It true of Secretary Parkins, vie had less active in public life for note the to incain visa the Predident amotated let Secretary of Labor. ALL this - hardly be decoribed at "non-politienl". is for synolf, I law been noet is matelpal, state and antional polities since 1897. If, sm I because a nember sf Provi- lest lowerwit's Cabinet I MW7 held a political job that paid - . Regraded Uclassified 237 salary and domunded all of My time, 11 - have I ase net cheese $5 to de. And yet, is a very real man, palities has been w eklef interest all of my life. Fithert plaz into detail, I reaind you that I was a delegate-ci-large to the Progressive Intional Convention in 1916 and a delegate-si-large be the Intional Commention in 1920. in - - be said to be "lifted out of (a) non-politionl setting(s)" visa has less 1 delegate-st-large to to antional conventions, FYEE If this the - of de political activities, which it was far from doing in KY case, The AP release also meriagly und that as other President would do these flw mobers of the Celdent the hour of appointing the to office, Apart from the enter compties - in a - posed 2071 story! -, her does your writer ber that my of us will mat to stay is the Cakinst lenger the the present term? Going ⑉ with the quistion, 'I'm in pm, they P at of mean- city." I subjt that this is a flught example of . emelusion inm W a vriter and unempported by anything easays do ORD opinion. It is not the type of reporting which I the Associated Prése seeks to adhere to, The sert sentence reads, 'Im of the Ins the pelitical lacking needed to pash then within reach of my important plus from a new demeratic edministration." fore again is in opinion at forth as MVS, and It my or my net be Jet la the next paragraph, the affterial continues, "This fact right be expected net only to cuse the to met for e third term, but to pre-dispose then against 127 other dementic candidate - Tim- Product larmer, And 1. Melhit, sr my ⑉ of the millions imsters will Governors." Here at the logisting of this sentence appareatly all of the spinion cited is the first too paragraphs le referred to as "fact", I believe that this is artise and unfair reporting. the writer seught to Impater the metives of five members of the Cabinet vitient I going be the treakle of planting the stary or of curring It shout - obviously partiens individual. Spenking for syself saly, I must to point est to you that your staff efiterial writer ins Igant the probable mures of setion I will tabe If I vishet to continue in office. If tist ware my desire, I mild play safe by net guing est - a list for a single candidate, I wald not Mtch my not to - star, 0m the centrary, I would is 11p service to all possible emilistes, protenting to be deaply and personally Interested in the - of each, I would be ever aleri - a - Regraded Uclassified 138 to - the approviding in order to be among the first w less should it to produin w leyalty and up personal secrifices for the 'casso', the 12 eliterial-stery, informer, seeks to convey the impression that, while them + support Procident Reservelt are actuated w selfish milles, them to appear his remonisation are notivated by the pareet patristion, It is clear that the release intended to deliver a blow at the President Moself, but 18 was diaguised in the form of as attack - the mttive of de supporters, 11 are - entering a empaile period in this country, and if an important proce consistion is going to disseminate partiess editerials under protection of its respected by-line in this fashion, I do net feel that the almost general respect it has commated - past per- formaces can calure, for to I believe that citizens of this country vill have such opportunity to mb intelligent judgests if they have to be fearned - not "facts" as them. This stary iss truelled m. It I to - that it is net a healthy sign due a great - gathering agency leads itself to partiess and untile Very truly yours, (Sgd.) Harold L Ickes Secretary of the Interior. Mr. Irin Bell, Cadef of know, Associated Press, Breading Har Building, Haskington, D.C. - 3 - Regraded Uclassified WESTERN 1201. SYMBOLS CLASS OF STAVICS DL Clarge Come This is - full-rate Telegram or Cable- NE - Less - unless las de- serred character la in- UNION Cable discond by a esizable symbol above enr pre- NLT -Calle - - adva the address. R. n WHITE NEWCCHS CARLTON c WILLEVER The Radions PRESIDENT CHARRIN 7 BOARD - SINCE PRESIDENT The filed time shewn in the date Date AG telegrami and day jetters as STANDARD TIME = - of and Tax of 1 of TERIOR FHA7 74 NT 4 EXTRA=NORFOLK VIR 26 RECE HON HAROLD ICKES= DEC 27 1939 (FI) SECRETARY OF INTERIOR WASHDC= III. SEC 1 HAVE LOBBIED CONGRESS TWENTY YEARS THINK TODAYS AP STORY ABOUT SECRETARIES ICKES, MORGENTHAU. WALLACE, HOPKINS, PERKINS IS LOW JOURNALISM. INFORMED GENERAL WATSON WHAT TO EXPECT. SUGGEST YOU CALL CONFERENCE WITH SECRETARIES MENTIONED ALSO VATSON, EARLY AND ELMER THOMAS START RADIO BARRAGE TO COUNTERACT LOW JOURNALISM AND GARNER SABBOTAGE. REPUBLICANS VILL NOMINATE HANFORD MACNIDER. ROOSEVELT WILL CARRY EVERYTHING EXCEPT FEW REACTIONARY NEWENGLAND AND SOUTHERN TATES IF NOMINATED. AT YOUR COMMAND= W B SHAFER ORIGINATOR OF SOLDIER BONUS. EGRAM NO Regraded Uclassified I E 5 the s ? [ is 1. Or Political Oblivion Roesevelt Re-election Five in Cabinel Face Regraded Uclassified 1-3-40 141 CONFIDENTIAL! To be held in STRICT CONFIDENCE and no portion, synopsis, or intimation to be published or given out until the READING of the President's Budget Message has been begun in the Senate or House of Representatives. While the Message and the Budget d the United States are dated JANUARY 1, 1940, some com- ingency may arise to prevent its delivery to the Houses of Congress - that date, and extreme care must therefore be exer- cised to avoid premature publication. CAUTION: This Budget Message must not be confused with the President's Annual Message. A separate release is necessary. STEPHEN EARLY, Secretary to the President. MESSAGE TRANSMITTING THE BUDGET FOR 1941 I Date 9 I of : BUDGET MESSAGE OF THE PRESIDENT To the Congress of the United States: I transmit herewith the Budget of the United States Government for the fiscal year ending June 30, 1941. Estimated expenditures at $8,424,000,000 are down $675,000,000 from the fiscal year 1940. Estimated normal receipts at $5,548,000,000 are up $382,000,000 from the fiscal year 1940. Recovery of excess capital funds from Government corporations is estimated at $700,000,000 The net deficit is estimated at $2,176,000,000 as compared with an estimated $3,933,000,000 in the fiscal year 1940. If the tax recommendations totaling $460,000,000 herein made are adopted, the deficit will be further decreased to $1,716,000,000. Appropriations, excluding those for debt retirement, as distinguished from actual expenditures, are estimated at $8,101,000,000, as contrasted with $8,889,000,000 in the fiscal year 1940. REVIEW OF FISCAL POLICY The Budget of the United States Government is a statement that reflects in money terms what the Government does for the people and what the people contribute to the Government. In these figures over a course of years are mirrored the changing attitudes of the people toward the growing needs which they expect their Government to meet. The relatively low and constant level of expenditures throughout the nineteen-twenties accurately reflected the relatively minor role played by the Government in those years. The substantial increase in the past decade is a reflection of the de- gree to which the country, in response to changing economic and international conditions and changing attitudes, has turned to the Government to meet social needs recognized by our citizenship. Nowhere are our democratic processes so faithfully depicted. In the early thirties-prior to 1933-fiscal policy was exceedingly simple in theory and extraordinarily disastrous in practice. It con- sisted in trying to keep expenditures as low as possible in the face of shrinking national income. Persistence in this attempt came near to bankrupting both our people and our Government THE BUDGET, 1941 Following 1933 the fiscal policy of the Government was more realisti- cally adapted to the needs of the people. All about were idle men, its factories. and idle funds, and yet the people were in desperate need of more goods than they had the purchasing power to acquire. The Government deliberately set itself to correct these conditions by berrowing idle funds to put idle men and idle factories to work. The deliberate use of Government funds and of Government credit to energize private enterprise-to put purchasing power in the hands of those who urgently needed it and to create a demand for the products of factory and farm-had a profound effect both on Govern- mest and on private incomes. The national income in four years rose @ percent, from 42 billion dollars in 1933 to 72 billion dollars in 1937, the largest absolute rise for any four-year period in our bistory, not even excepting the rise during the World War. Tax revenues rose from : billine dollars in the fiscal year 1933 to over 5 billion dollars in the fiscal year 1937, primarily because the people had more income out of which to pay taxes. The people paid 3 billion dollars more in tases but they had nearly 10 times more than that, or 30 billion dollars, to spend on other things. This statement deserves a headline. Rapid progress was made toward a balanced budget. By the calendar year 1937 excess of Government cash outgo over Government and income had dropped to 331 million dollars. Unfortunately, just at the time when it seemed that the Federal Government would be able safely to balance its budget on the beis of a national income of approximately 75 billion dollars, malad- joints in the economic system began to appear and caused a weice in economic activity. The recession was due to a variety of rases stemming in the main from over-optimism which led the Gov- effillent to curtail its net expenditures too abruptly, and business to expand production and raise prices too sharply for consumers' chasing If the power to keep pace. A large volume of unsold goods piled pur- in, for buying power of the people, which constitutes the the recession were not to feed on itself and become another depres- up. To the products of industry and agriculture, had market Government be The this washes end, need credit in the Vai of and spring this again the realistic of strikingly Congress 1938, approach I demonstrated. recommended acted to on a my fiscal to recommendation. a be further policy maintained. related use of la 1932, decline in national income that In place of the dollars. In the decline from 1937 to 1938 searcely occurred from 1929 place of a four-year period of liquidation exceeded and defation, 8 billion Regraded Uclassified MESSAGE TRANSMITTING THE BUDGET productive activity turned up within nine months. By 1939, in terms of dollars, the national income closely approached, and, in Ims of real production and consumption, making allowance for the lower level of prices, was equal to that of 1937. The experience of 1938-1939 should remove any doubt as to the effectiveness of a fiscal policy related to economic need. The wise exercise of such a fiscal policy imposes grave responsibility es the Gov- emment. Government must have the wisdom to use its credit to sustain economic activity in periods of economic recession and the courage to withhold it and retire debt in periods of economic pros- perity. And let us not forget that the withholding of Government credits in time of need for political advantage is no less reprehensible than its profligate use at any time. In approaching the Budget for the fiscal year 1941 I have sought, as in the past, to relate fiscal policy to probable economic necessities. As the Budget is being prepared we are achieving the highest levels of production and consumption in our history. The extent to which recovery has progressed, and the degree to which speculation and price increases have, on the whole, been kept in check, have made is possible for us to consider a substantial lessening of Government expenditures on activities not immediately essential for national defense. On the other hand employment still lags considerably below the levels of 1929. Many of our younger workers have not found employ- ment, and many others have been displaced by the machine. We must not only guard the gains we have made but we must press on to attain full employment for those who have been displaced by machines as well as for the 5,000,000 net addition to the labor force since 1929. We must, therefore, avoid the danger of too drastic or los sudden a curtailment of Government support. Against this background of aims substantially but not fully strained, I propose in the field of fiscal policy that we adopt the following course: We should count upon a. natural increase in receipts from current tax and a decrease in emergency expenditures, and we should try to offset the unavoidable increase in expenditures for national delense by special tax receipts, and thus hope to secure, for the over-all picture, a gradual tapering off, rather than an abrupt cessation, of the deficit. In the proposed Budget I have tried to interpret the vides of or people. They want to strengthen our national defenses and 57 pre- pared to pay additional taxes for this purpose. They with to attain, if possible, an over-all decrease in expenditures. They would like to Regraded Uclassified THE BUDGET, 1941 - 1 reduction in the deficit birt not of a magnitude that would imperil le mere of neuvery. EXPENDITURES To translate the consideration of the Budget from forensies to na- and I submit . summary for the fiscal year 1941 of approxi- min espenditures required to meet these needs: National defense $1, 800, 000, 000 Work relief programs 1,300,000,000 Agrinitural programs 900,000,000 Public works and investments 1,100,000,000 Pensions, retirements, and assistance 1,200,000,000 Internet (1) the public debt 1,100,000,000 Regular operating 1,000,000,000 Total 8,400,000,000 This talér presents in a simple form which any layman can under- and the principal divisions into which Government expenditures W I constantly marvel at the glib generalities to the effect that if vse tas but the will to do so anybody can reduce Government expendi- in by vest sums sufficient immediately to "balance the Budget." b no webing to make such statements and they can be decorated - is nin de applause of many audiences. But in IS the old, old story of the man who loves to utter generalities w/ changes the subject abruptly when he is pinned down to hard facts. in Shese beadings, for example, I do not believe that the majority of de prople in this country want to reduce the budgeted estimate of Sex national defense. This is an increase, of course, me the nurrent year, but it is far less than many experts on national view dinit should be spent, though it is in my judgment a sufficient Ire the coming year. I de are befiere that the majority of people in this country want - - the wet relief programs for the coming year reduced below This sum, in itself, covering the activities of the In Projects Administration, the National Youth Administration, the Grino Conservation Corps. and grants of the Farm Security represents & large-perhaps too large-reduction of a expeditions I de to imbere that the majority of people feel that the agricul- tool (nom dould be reduced below the figure of $900,000,000 beause this ligure. in itself 8. large reduction below the current year, Regraded Uclassified MISSAGE TRASSMITTING THE BUDGET Regraded Uclass will be barely suficient to any soil protection and surplus removal operations. I do not believe that the majority of people think the item for public works and investments of $2,300,000,000 can be further re- dueed because this amount entains practically no money for new projects in any part of the emiltry. I do not believe that the majority of people feel that the Govern- ment can possibly mine, by any substantial sum, the figure of $1,200,000,000 for pensions, minuments, and assistance of many kinds, including public-besith wins and for dependent children and the blind, and reterans' benefits. The item of $1,100.00 sue in interest on the public debt cannot, of course, be reduced at al and we sibrould remember that the rate of interest paid by the Government is today one-third lower than it was in 1929. All of these items amount to estimated expenditures of $7,400,000,000 and there remains only me other item of $1,000,000,000-12 percent of the total-for the operating custs of the regular departments of the Government. These are drwn to the bedrock of the activities and functions ordered by the Compress. If further savings are to be made in these operating custs, the Congress will have to direct by statute the elimination of many functions. And even if they should do so, the amount saved in this Buiget could only be a small percentage of the total Therefore, the who call be furder cuis should have the courage and the honesty to specify where they should be made. National defense-These etimites represent expenditures needed to develop and mintain THE menal defense preparations. They also include, in view of the current world situation, the emergency ex- penditures required for the Ts and Navy Departments, the Coast Guard, Department of Austin, and the Panama Canal. In order that these emergency requirements may be clearly shown I have segregated them fir hid the fiscal years 1940 and 1941. They call for supplemental appropriations of $272,000,000 in the fiscal year 1940, and appropriations of $302,000,000 in the fiscal year 1941. Expenditures are estimated at $160,000,000 and $300,000,000 in these two years. This will, I hope, help to focus atten- tion on our emergency definse expenditures, and the problem of financing them. It will also factinate the return to a normal defense program when the current emergency has passed. THE BEDGET, IMI Regraded Uclassifie Work-refief programs.-For the purpose of this summary I have in- cluded the activities of the Work Projects Administration, the No- tional Youth Administration. the Civilian Conservation Corps, and the grants of the Farm Security Administration. ln submitting estimates for these agencies 1 have taken into con- sideration the current improvement in business conditions. The first effects of increased business activity have not resulted in a propor- timate reduction in relief needs. This is because the increase in em- ployment has affected principally those who have had casual or part- time work. But there is reason to hope that a continued expansion of business would diminish relief requirements substantially. While the estimates are appreciably less than those for the current year, I am hopeful that they will prove adequate, The Work Projects Administration will be able to provide employment for an average of 1,350,000 persons. The National Youth Administration can employ an average of nearly 600,000 American youths, and the Civilian Con- servation Corps will operate 1,227 camps and provide for a monthly average of 230,000 enrollees. The Farm Security Administration will operate on about so percent of its 1940 level. Relief expendi- tures should be closely geared to actual needs. If conditions fail to meet our hopes additional funds may be necessary. I may, therefore, submit revised estimates later in the session. Agricultural programs.-Under the broad beading of agricultural programs I have included agricultural adjustment benefits, the surplus removal program and parity payments arising from 1940 appropria- times. Despite a gratifying general increase in farm income, agriculture is still not receiving its proper share of the national income. 1 am, there- fore, proposing to continue substantially undiminisbed the various agricultural programs. 1 have not, however, included estimates for new appropriations for parity payments in 1941. I an infrassed by the hope that next year's crops can be sold by their producers for at least 75 percent of parity. I do not suggest in any vay abundomment of the policy of parity payments heretofore adopted, and future events may call for sume appropriation to this end I note, however, in passing, that the Congress has failed to make any provision See the financing of these payments already made or obligated for 1938 and 1939 crops. Public who and inrestments.-This broad class of expenditure represents the use of Federal capital for investment in useful public works. for ship construction, and for loans largely for aid to agriculture. MESSAGE TRANSMITTING THE BUDGET Regraded Uclass While the expenditures for these purposes in 1941 remain large, & substantial portion of them arises from existing appropriations or takes the form of reimbursable loans. The estimated expenditure for the general public works program is $641,000,000, but the proposed new appropriation for this item to carry on already authorized projects is only $498,000,000. To obtain this relatively low figure the starting of important new projecta has had to be postponed and the purchase of additional land has had rigidly to be limited. This action brings the public-works program down to the minimum goal of $500,000,000 a year suggested by me on several previous occasions, and conserves the reservoir of public projects for a time when private construction declines. Last year, in the interests of more accurate and intelligible state- ments of the financial operations of the Government, I invited the attention of the Congress to the desirability of capitalizing certain capital expenditures of the Government that have proved to be self- liquidating. I renew that recommendation at this time. As before, I would confine this principle to projects that are definitely capable of yielding revenues sufficient to defray, with interest, their cost of con- struction. In accordance with this principle, 1 propose that the requirements for new self-liquidating loans of the Rural Electrification Administration be met though funds advanced by the Reconstruction Finance Corporation instead of by direct appropriation. Pensions, retirements, and assistance.-This category includes grants to the States under the Social Security Act for old-age assistance, for maternal and child welfare, for public health work, and for aid to dependent children and the blind, as well as veterans' benefits, railroad retirement benefits, and contributions to Federal employee retirement funds. It does not include insurance benefits paid out of the old-age and unemployment trust funds. This general category stiects the individual security and health of millions of citims. 16 growth reflects mainly the beginning of as comprehensive social-security program. Interest on the public debt.-Obviously no reduction in this item can be made in the next year. The average interest rate paid on the public debt for the fiscal year 1929 was 3.9 percent. The present com- puted rate is 2.6 percent. Regular operating expenses.-This item represents the basic financial requirements of the Government. Blue pencil inroads are not easy to make. In the face of large and appealing requesta ke increases I have THE BUDGET, 1941 boad apprepriations and estimates of expenditures generally to the 1940 ind or below. Where legislation has added new activities I have del de onet by reductions in old activities. I bate carefully checked the individual estimates under these broad rategities and 1 am satisfied that no lower figures can be attained estept at the expense of impairing the efficiency with which laws are listed or of working undue hardship on individuals and eco- yes pours. I refuse to accept the responsibility of adopting either altenatire. THE OTHER SIDE OF THE BUDGET Base informational tax revenues are estimated at $6,151,000,000. Tax revenues, after deducting appropriations to the old-age security fund. are estimated at $5,548,000,000. Although net new collections for the fiscal year 1941 are estimated to exceed by $352,000,000 the estimated collections for the fiscal year 1940, the bene is not - large as some might have expected. This is owing parth to the mevitable lag of tax collections behind increasing in- 108, and also partly, it is feared, to an impairment of the produc- base of the tax base arising from the revisions in 1938 and 1939 of requeste and individual income and capital-gains taxes. Eaten of surplax funds from Government corporations.-At various ins in the past as emergencies have arisen, the Federal Government has established credit corporations and has invested substantial in their capital structures. Although these expenditures NAME nonwarring and extraordinary costs, they were reflected in the email Budgets as charges against current receipts and increased the béin of prior years. With the lessening need for loans in some cases and the growing surpluses in other cases, it appears that some of the respotations will have excess capital funds. Currently, in **** to Senate Resolution 150, Seventy-sixth Congress, a is besire survey and appraisal of assets of Government corporations compre- that has and out. On the basis of preliminary studies, I estimate it vil proce feasible to reduce the capital funds of some of these expectives by an aggregate figure of $700,000,000, without in any impoding their operations. mines of stock vill be credited to revolving funds in the Treasury Is the case of certain lending agencies, any funds received from the Regraded Uclassified MEMAGE TRANSMITTING THE BUDGET Regraded Uclass and will be available for new subscriptions to stock when, as, and if needed. In these cases payments to the Treasury will appear as credits under certain expenditure items. In other cases, payments will be reflected in miscellaneous receipts. National defense lam-1 am convinced that specific tax legislation should be enacted to finance the emergency national defense expendi- tures. Although these expenditures appear unavoidable, they will not increase the permanent wealth-producing capacity of our citizens. I believe that it is the general sense of the country that this type of emergency expenditure be met by a special tax or taxes. Moreover, this course will make for greater assurance that such expenditures will cease when the emergency has passed. I strongly recommend to the Congress, therefore, that additional taxes be imposed to yield in the fiscal year 1941 at least enough to cover the emergency national defense expenditures in the fiscal years 1940 and 1941. In seeking additional sources of revenue, I hope that the Congress will follow the accepted principle of good taxation of taxing according to ability to pay and will avoid taxes which decrease con- sumer buying power. The deficit.-The deficit for the fiscal year 1941 is estimated at $2,176,000,000, as contrasted with $3,933,000,000 for the fiscal year 1940. It is expected that these deficits will be met in normal course partly by additional tax collections, partly by carrying lower balances, and partly by borrowing. If the Congress adopts my recommends- tions with reference to taxes the deficit for 1941 will be reduced to $1,716,000,000. Financing the cost of certain services.-1 have always believed that many Incilities made available to our citizens by the Government should be paid for, at least in part, by those who use them. For example, I believe that in the case of parks, national forests, historic monuments, and so forth, small fees, as low as 5 or 10 cents per person, should be charged to those who enjoy them. A start on this policy has been made. In such a way a substantial part of the annual cost of maintenance of roads, trails, and grounds in forests and parks will come back to the Treasury and reduce the annual cost of government. Another example is the $50,000,000 the Government spends annually in the maintenance of dredged channels, buoys, lighthouses, lifesaving stations, and so forth. it would seem reasonable that some portion of these annual expenditures should come back in the form of small fees from the users of our lakes, channels, harbors, and cossts. If the Congress would make a THE BEDGET, INI Regraded Uclassifie eral state of the further publities sing des ines I al be pal , nie in sd . only naterial im racime depends Fermal INDISTRATION Here exemition of the Federal priean in the foral RM, BE ni the propert of enmomies 30 be referted in the estimates in inco m. - directly rélated to the quality of Federal administra- in a emimies refected in the 1941 sins 5 the result of to expensive efiort of the entire administrative enin Generally R an prepared to sure forward = mini extions. h end management agencies I have recognized a endition of definite - I have, in example, provided increases for the low d the Budget mè the Civil Service Commission. I believe = at - will be making $ modest investment which vil in from 165. pay large dividmis. Furthern, as I have suggested in III and me. it is important in good administration that lege number of positions I/W exempt should be placed under the require- MD of the evil erin. has privered in accordance viá Plans I and II by a mult, $11,000,000 of surings already have been impounded this per and defurned from the estimate has for 1941. With further mi pan it to markinery and besiness partices of the Government, arings vil be realized. is is imphs the Buman di the Budget into the Executive Office. Tá the añó- time appropriation in this Bureau, our budgetary providure - be paily strugthened The and begining to pt me derive min of estimate. Via the help of Congress we CHE miz further press in improving ONE amounting and appropriation procedures. This is a me) produde to here budgetary The Bureaux of the Buige $ propuring itelf to be ocreasingly belpful in the supplying of w the appropriation of the THE Prace Due le tos - - mum brain about the puhãe debs that I ind the with murining devia theme wodd be my appropriate at to the in is 200 subject or visa be is the IF émpla than the public üste. People who work liner ban of - the (WI) positive dely in in of be liabilities in 9 maturally in discussing the Government's - MESSAGE TRANSMITTING THE budget I Pagrade The do state baidly that the Government's debt is e billier do-ai stop there-are stating a deceptive half-trath calculated to make our people apprebensive. For - thing, it world darily the public mind If it were pointed out that of the figure the account incurred between June 30, 1933, and December 31, 1939, is just over 19 billion dollars. For another the it would be more Imest and more honorable for them to my that vile - line in the national budget shows a national debt of 42 line dollars, other Ines indente that the Government has 7 billine dollars of cash, gold milk in debt redemption, and proprietary interest in Government which reduces the net debt to 35 like dollars. In within, of course, there are the billions of dollars' worth of dumble, tangible amets constructed or purchased by the Govern- ment that - a real offert to the debt, though are listed as such. During the period between has 30, 1933, and June 30, 1940, nearly H bilien dollars of Federal funds d have - into recoverable loans esd investments and durable improvements. Furthermore, during the see period, the burden of the combined total d public and private debta has decreased. The interest on the public debt alone in the calendar year 1539 constituted only 1.45 permit of the national income as reatrasted with a corresponding percentage of 1.62 percent for the year 1933. The increase in the national income over 1932 for the year 1939 alone is is in excess of the total increase in the delt for the whole period since 1933. The endit el the Federal Government has lever been higher. The debt accumulated since 1933 represents a far more prodent and productive use of our people's surings then mach of the enormous private debts piled up in the treaties. The bellions that were bor- revel inr speculation, for foreign loans, for second and third martgages - enverproduced commercial oustruction, hardly represented the met prudent ISP of our people's arings. It is true that isalated debts can be defsulted without great harm - the ground economy. But this is not true when, as in 1933, a her part d our private debt W in danger of defanlt, and the suvings d the whole commity, as vd as the general credit of industry and agriculture, were imperiled. 1 part of the existing public debt and of agency loss is in fact amounted in by the necessary - by the through the funiliar "hailing of prom-of private debts on the 4 ef debutt. in considering the porth of the Federal debt, à ml finally be bee in mind that in receit yes, the Federal Government has had THE BUDGET, 1941 Regraded Uclassified to take over sm of the burdens which had theretofore fallen upon our States and municipalities. By 1933 the strain of the depression upon the finances of local governments had become unbearable. From June 1929 to June 1933, States and municipalities had to increase their net debt by over 4 billion dollars and their credit in many cases had approached the breaking point. By 1933 there THE an insistent demand that the National Government come to the financial aid of local governments. Consequently, between June 1933 and June 1940, the Federal Government vill have made available for local relief, work relief, and local public weeks the sum of 17 billion dollars. In addition, during this same period, the Federal Government increased its grants for public made by I billion dollars over the preceding seven years. By masco of these Federal expenditures it became possible for the States and municipalities during this period to rehabilitate their credit, and ein to reduce slightly their aggregate indebtedness. If they had continued to discharge the responsibilities that were formerly theirs to # degree commensurate with the Federal Govern- ment's effort, the aggregate indebtedness of our States and municipal- ities would have been increased by not less than 18 billion dollars and their taxes would have been enormously increased. Debt, whether individual, corporate, or governmental, cannot be judged in a recume; it must be considered in light of earnings, assets, and credit standing. When the increase in the national debt is viewed apinst the hackground of what was accomplished by the growth of useful physical assets, and of effective national earning power, and by the strengthning of the Nation's credit and morale, there is no economic good for anxiety, so far as the national debt is concerned, as to the Nation's future. And if our citizens understand the capacity of the Nation to produce increased national income and act thereon with all possible faith and practical energy, they will be in a position to antio- ipate balanced bodgets without curtailing essential social programs. FRANKLIN D. ROOSEVELY. JANTARY 1. 1940. 142 12:20 pm 1/3/40 White House message: General Watson asked that Sedretary Morgenthau be notified to be at the White House executive offices at 3:30 pm today for a Budget conference along with Lauch Currie and Banny Bell. n.m.c. 1 143 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE January 3, 1940. TO Secretary Morgenthau FROM Mr. Haas and Dr. Goldenweiser informs me that their latest estimate of the F.R.B. Index of Industrial Production for December is 128. This compares with their revised figure of 124 for November. 144 Regraded Uclassified Junuary " 2960 John c. Traphagen, Enq., President, Bank of In York, 48 Wall Street, In York, New York. Dear Mr. Traphagen: Mr. Morgenthau has asked as to and to you is your personal 1> formation the Fiefler menorandum about eld be - to you me the telephone yesterday, a copy of which is excluse, and to give you is your own use something more of the beckgreent of the Colonbian dabt die- ation as se see it. As the Secretary told you, the statin is considered form able and it is hoped that you, parsonally, el NM suptistion with the Colombian Ambassador. by use of background, the equate of mate here was as follows: Last month after you came to Instington to tall R. the position which the Council w dispossi to tab, be usked you to "sit tight" in view of information N received LE to the Colochian size of the picture. le sere led to balieve the histen had No ceived instructions from President Surbas - would mirest the R millions offer made to you and which mult mie a settlement bls. On the basis of Mr. Valles' talk a to last seak, it is DOB felt that there was & at that President Santos has not changed his position el to: then is . real disposition on the Colombian side to go forward in the has of reaching a settlement with the Council. 80 far as the facta of to pasition an - known to us, it appears that Coloubia has into hipital to 2940 the sum of $1,750,000 for service of the steal Intel at of the 1 lic. This sun includes service of the stally as mill as of the dollar dabt, but only in the first year - 1940. heate, during the life of any settlement which wight be agreed to, the £1,750,000, stid muld be stepped up in 1941 or 1942 to R millions = store, would amir a clusively to the service of the dollar birt. is sititional reason is 145 the d 9a to - to dilla artis x # Я to 8 a $ du dir a a - - the E - their - 1 in mgk), to a a 1 17 If 1 4 and $ III 18 t $ Daier the dreamstime, - - tot are spidie # 1 - # - a I at a 15 a e Inc. 5 the - to tale a right with : - I r - 1 - 1 500 M É - = a in 5 If W I - # 5 in I 3 lice I a nid stall has aire him 4 ato die I - di the - il " a a I 3 a il - a MM If 1 dir a N I 18 ill a # Jost 5 a B. 4 ⑆ the is a atter 1 XII unr) R, I - stand It, this are w If is drug nie : to - , E M - 34 1 1 a 1 If a I 5 1 - 10 a se I 4 15 a K 1 in ortails tat be usid in dilling * as ets - futter in this ate. I X - - D M - you sa to to inportance d trying to - to - st 18 at wind - M 3 mult in at tax - in # - in " clauring - the all the himite - 2 to an e 35 5 I a @ 1 1 E des $ state 3 III V a and a of a - - M n il - I Insur M 1 . I if $ has . 7 a a I signature @ a 1 a I 4 des potal - 1 d 1 V a any JM 21 a É 1 5 a $ - w * 18 a if 7 I I n to use mintis to N5 to W dis - I E 1 il 1 H 12 I - . a his to 400 to a attimst d to note - to basts of the sold quiter has as information the bad 4 be propared = 1 k to = the Regraded Uclassified 146 +)- a 1 - n R 1 1 a der 8 1 1 38 M I or If É 11 1 á a 18 R a 1 a I # 1 a 20 I a 1 a E as 4 a a - 1 11. M MIN as # 100 - a a 1 of 1 3 I 1 18 s just a 9as I I $ 1 a I E 1 # a 1 June Inc. I 1 . - . 1 = 1 n - d, m, 1 a to in nië ₫ n - partid 1 pm W X 1 . ? x Us Injury I U 1 4 1 1 - a If, 1 - I x 1 a Inc. a - 1 1 1 I I - If á e 5 - I and 1 X 11. K 1 * a - n a a e W die IL 1 I 1 a n $ I e I trut fat - of to in - I - mb to you IfI que 1 # 48 X 16 di I Ir r Injury - 4 I I - - a to bester). Regraded Uclassified CONFIDENTIAL 147 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION Regraded Uclassifi DATE Junuary 3. 1940 TO Secretary largethsm FROM lb. Cockran In E quiet foreign emisage market, the rate for sterling noved within & un rege. Shortly der the opening quotation of 3.95-1/4, the Federal is serve Bank received 82 order fros the Bank for International Settlements to pur- - 2350,000. it that time saze small Continental selling vas in evidence and by islaying its is the mist for 2 fer nduntes, the Federal Reserve VIS shle to stample pert. of the trier st the lov for the day of 3.94-7/8 not the balance st 1/164 higher. the closing quotation for sterling VIS 3.95. Sales of spot sterling = the for reporting banks totaled 4335,000 from the Collowing 3 comercial concerns 1 140,000 by foreign banks sal South America) : 195,000 Total : 335,000 Purchases of spot sterling by the four reporting banks and the Federal Reserve 3tal: of in Total: anounted to $423,000 as indicated below: 37 commercial : 140,000 : foreign banks (Tear last, Par last and Europe) : 133,000 & Federal isserve Bank of Tev York (for 3.1.5.) : 150,000 Total : 423,000 Cotton bills totaling 542,000 VETE sold to the British Control at the official rate Y the following banks: Intional City Bank (728,000), Guaranty Trust Company (710,000) and the Bank of the (I4,000) In the report of December 29 last, sention was mie of a Dov Jones ticker despatch from London citing = DEV Swedish restriction on the transfer of capital that, 1 London despatch appearing 02 today's Dev Jones ticker reported the issurance of 2 proclamation in Stockheln yesterlay providing that all individuals of firm in Streden mist make E declaration to the Bank of Sweden of all their holdings of gold and gold coin, foreign currency and foreign securities. They must also state their obligations toverás foreign countries. the patatice for the Cuben peso incored to 11-1/8% discount. The rate for be Verican peso dropped to ,1672, marking the lov for the current downard movement, be other Important currencies closed as follows: Prench france .0224 kiliers -5327 NE Iriss france ,2243 Belgas -1683-1/2 Canadian fallars 11-1/26 discount - 2 - 148 There were no gold transactions consummented by If today, The Federal Reserve Bank of New York reported to us the following shipments of gold: 13,204,000 from the Netherlands, shipped by the Netherlands Bank to the Federal Reserve Bank of New York, to be earmarked for the account of the Nether- lands Bank. 1,000,000 from India, shipped by the National City Bank, Borbay, to the National City Bank, San Francisco, for sale to the U. S. list there. 564,000 from India, representing two shipments by the Netherlands Trading Society to the Chase National Bank, San Francisco, for sale to the U. S. Mint there. 96,000 from India, shipped by the Netherlands Trading Society to the Chase National Bank, New York for sale to the U. 5. Assay Office, $4,854,000 Total The State Department forwarded to us cables from the American Consulate General in Calcutta stating that the following gold shipments would be made from Bombay: $1,971,000 representing four shipments consigned to the Chase Intional Bank, San Francisco. 1,049,000 representing two shipments consigned to the American Trust Company, San Francisco. 181,000 shipped by the Mercantile Bank of India to the Swiss Bank Corporation, San Francisco. 124,000 shipped by an Australian Bank to the Bank of California, San Francisco. 384,000 shipped by the National City Bank to the National City Bank, New York. 140,000 shipped by the National Bank of India to the Sviss Bank Corporation, New York. $3,849,000 Total the first four items listed above will be sold to the U. S. list at San Francisco and the last two shipments will be sold to the U. S. Assay Office at Sev York. On the report of December 27 received from the Federal Esserve Bank of New Tark, giving the foreign exchange position of banks and bankers in its district, the total position of all currencies was short the equivalent of $16,945,000, an increase of $772,000 in the short position. The net changes in positions are as follows: SHORT POSITION SHIRT POSITION INCREASE IN COUNTRY DECEMBER 20 DECEMBER 27 SHORT POSITION England 5.745,000 $ 6,408,000 $ 663,000 Europe 7,068,000 7,322,000 254,000 Canada 4,000 93,000 89,000 Letin America 287,000 231,000 56,000 (Decrease) Far last 3,044,000 2,859,000 185,000 (Decrease) All Others 25,000 32,000 7,000 Total $16,173,000 $16,945,000 $ 772,000 CONFIDENTIAL + 149 The London fixing price for spot silver further declined today to 21-5/8d (off 3/5d) and the forward price dropped to 21-3/48 (off 7/16d). The U. S. equive- lents vere 38.46# and 38.37#. respectively. be Ter Tark banks attribute the current dovererd movement in London silver prices (both spot and forward quota- tions have fallen about 34 since December 22) to liquidation by Indian operators of silver stocks held in London. These Ter Tark hants believe that Indian traders 20 longer expect an uncontrolled silver boom is India and are consequently liqui- dating long positions built up in London. The silver quotation in Bombay, less the import the, worked out to 43.26#. 30th Fandy and Harman and the Treasury contimed to quote 34-3/44 and 35#. respectively, as buying prices for foreign silve. Ye rede seven purchases of silver totaling 525,000 DUNDES under the Silver Purchase Act, of which 100,000 ounces represented inventory silver. The retain- ing 425,000 ounces was newly produced silver from foreign countries, purchased in forward delivery. 10.m.8 CONFIDENTIAL January 3, 1940. 2017 MEXTING 9:30 L.S. 150 Present: Kr. Bell E. Cotton F. Thompson Kr. Glasser b. Harris E. Schwars E. Foley k. Sullivan Mr. Eass b. Gaston Mr. Cochran Mrs. Ilotz E.L.In: Norman, do you have anything? Thomson: No, I have nothing. E.Y.Ir: Bell? Bell: I have a letter from the State Department enclosing a note tax the Finnish Minister asking for a staty the dollar credit. Mto should handle II, Incirred You. Bell: All right. The sitmili to R. to first? E.K.Jr: You. Just handle II. Bell: All right. On that matter of considination, Mr. Thompson and I suggest that any nne who is scheduled to attend the conference in the State Department on these various atten vill first get in touch with Mr. Gastan mi clear with his and be should decide vitetter the matter 1s 12- portant enough for lim to 20 also and then when they come back = the übesn't go they will write him a retornatur giving full 10- formation concerning the conference and whether or not there y anything Treasury would have to do later IL and then he will keep the various permile In the Department advised as to vist to going on and whether they should be information on the subject. That will Include also the 3 E's. LLr: I think it is important enough that we ought to have a little nameda, R. Thompson. - 2 - 151 Bell: If that suggestion is all right. LLr: I will take it if Mr. Gaston vill. Bell: Ve consulted his before. He is already, you see, a the neutrality question. LLJr: Herbert is willing? Bell: Yes. Sestom: I at willing to try it. LLJR I think I crught to have something to write to E. Hill. Bell: All right. LLJr: That is service. What else? Bell: That is all I have. E.K.Jr: I thought this publicity on the so-called simplified tax form was very good. I don't know if you had anything to do with it. Schwarz: Ve asked the Commissioner for it and turned it out. b. Sullivan helped us on it. E.K.Jr: I thought it vas good. Whenever w get publicity on taxes which is favorable, it is good. Anything else? Schwarz: The salary list question has to come up pretty soon, but I don't know whether you would prefer to have it discussed outside the meeting. E.L.Jr: 30, just the my we always do. Schwarz: This year for the first time the Treasury has to make it public. Ve use the same method that the Committee used. Paston: Seventy-five thousand, 1sn't it? Schwarz: That is right. There are only seven hundred fifty names this year. 152 - 3 - H.M.Jr: Who are getting seventy-five thousand? Schwarz: Yes. Gaston: I think we should consider seriously whether we ought to nineograph that thing, because we get nany requests and it will be very inconvenient for the newspaper men to have to consult one copy. We will have to supply them, because it 1s our job. E.M.Jr: All right. Basil? Earris: No. H.K.Jr: George? I sent your business report to the President yesterday. Eass: Thank you. I hope it will cheer him up. H.M.Jr: You had better wait. Hass: Here is this thing. I nade a draft here of a suggested reply (handing paper to Secretary). E.K.Jr: I had better take this and read it. It sounds like a good letter but I think I had better read that at home. Somebody at the head of the Consumers Division in Agriculture writes the President -- Eass: That 1s right. H.M.Jr: And the President wants ne to tell him whether it is good or not. What 1s the plan, George? Haas: Oh, he has also testified over at the Monopoly Committee. It is this whole question of the distributors having a monopoly on distribution and his point is that it creates an inflexible price situation 80 that it prevents milk from going into consumption. Be had a 153 - 4 - proposal for trying to eliminate that structual defect in the industry and he wants to take the District B.B an experimental place to try out his plan. I think the objectives are good. Whether the details of how he proposes to handle it - I don't know. E.M.Jr: Fortune Magazine along in November, somewhere, had two articles on milk, one on this very question of flexible price and they show where the labor unions permitted them to go in and drop the price. For some reason or other, the labor unions are opposed to the tremendous increase in the consumption. I will take a look at it. Sounds all right to me. Eass: You may not like the method. You know a good deal more about that. E.V.Jr: I don't know whether I do or not. George, Ed Noble gets a weekly business review which is terribly good. If I asked him for his, he would want mine. Would you have any objection to his having 1t? Saas: No, but you would want to take out those - you have a relationship with those people that send you those orders. You promised them you would keep them absolutely con- fidential. Many times that is the heart of your - R.M.Jr: Well, if you take it out, you would have to rewrite the whole thing. Haas: Well, a piece of it, at least. E.M.Jr: I tell you what you do, Dan. Call up Ed Noble and say that he did give ne once a review of his business thing, that if he has a weekly review which 1s prepared for him, would be care to let me have it, because I VS.8 impressed with it. He goes into this whole foreign situation every week. It is awfully good. 154 - 5 - Ask him if he would let us use it. He may not ask for this other thing in return. Will you? Bell: All right. H.M.Jr: It is terribly good. I think you would like it youself. After you (Glasser) see what the people in Noble's shop do for him, I think White's division ought to do on the foreign thing what Haas does on the domestic class. Glasser: Yes, sir. May I see the copy when it comes in? H.M.Jr: What, what Commerce has? Glasser: Yes. H.M.Jr: But you see Haas' every week, don't you? Glasser: Yes, we do. H.M.Jr: Weren't you writing a letter for ne? Cotton: Yes, I am going to produce it. H.M.Jr: Where 1s it? Cotton: It isn't done. H.M.Jr: Where were you yesterday afternoon? Cotton: Doing something else. H.M.Jr: I just wanted to make sure it wasn't in my office. I think that ought to go down today. Cotton: I want to get a transcript of your talk, too. H.M.Jr: All right. Glasser? You will be ready for me at 3:00? Glasser: I am trying ay best. H.M.Jr: You had better. I am holding it at 3:00 o'clock. What else have you got? 155 - 6 - Glasser: I am just working on that. S.K.Jr: How does it look? Glasser: The figures don't look very good from our point of view, but I think we can show pretty well that we have found the solutions to these problems and that is the path to continue, even though we have done, perhaps, no more than to reverse the trends that have been present before. E.M.Jr: Would you stay behind? I want to talk to you 8 ninute. When are you leaving? Bullivan: Mr. Gastom and I have been going through that report. I think we were unduly alarmed. It is $ very well done factual report of the opinions and recommendations that were offered by this narticular group. The opinion isn't sufficiently unanimous to carry very much weight, I don't believe. In some points they have as many as seventeen different recommendations and it goes all the way from abolishing the vote on the return to suggesting a national lottery, so I think ve were unduly concerned yesterday. H.M.Jr: Could you and Xr. Gaston come over at 4:30 and let's settle it? Sullivan: Yes. E.M.Jr: At 4:30. Let's settle it at 4:30. Gaston: Yes. I have a preliminary draft of a letter which Roy Blough made some suggestions on and Mr. Sullivan hasn't yet seen. I think it 1s about along those lines. E.M.Jr: Will you bring Blough and Tarleau along with you? Then Chick, will you be here? Schwarz: Yes, sir. 156 - 7 - H.K.Jr: Anything else? Do pm has visat is going on in Indianal Sullivan: Yes, sir. E.L.Jr: Iou are = on that? Sullivan: Yes. E.M.Jr: What's of interest in that Sullivan: Yes, sir. Oh, did Kr. Tarleau talk to you yesterday about Congressman Boeine's request to make public that Hanes letter? E.K.Jr: Yes. Chick, what is the answer? Schware: Be has the letter and If be ürem't make it public soon, be vill - or else. Gaston: Isn't there an accompanying letter from Mr. Eanes that said we tad m objections to making it public? Schwarz: There was 8 personal accompanying letter telling his that this was E. democracy and everything be sent to to mult nake public. E.K.Jr: The letter only went up last night. Schwarz: It was sent up last night and we weren't sure whether be was in the office to receive it, but be certainly will DBC it. Sullivan: E. Tarlesu called le and I understood him to say that Congressman Boxime phoned him and wanted to know If the WE free to publish it. S.M.Jr: Tarlesu 1s all stred u. Be came in here and we had Rademacher in hare and Tarleau for some reason 12 the was confused. They straightened It mt. Tyrleau for some reason or other me and up. I don't know vity. b. Redemacher took care of it and I asked to to talk to hr. Hanes and find out if it we agreestile to Mr. Hanes 157 no I I to let If know and about 5:00 o'clock he sald everything WES all right. Schwarz: That 11 right. ELIN I said to clear it with Mr. Hanes. But for SCIDE TEEROD or other Tarleau was all confused. Schware: I have order of both letters, the formal and the informal one. E.K.Jr: There m no telephone call, was there? Schware: Ir. Estes' office called the Congressman's office : find out if be would be there to receive it and that is where the con- fusice erose. LLIN But there is no confusion in Hanes' office, because I talked to Rademacher myself and emlained it to him and said, "Now, please get is truch with Mr. Hanes, but I want Fedes to know and I want Hanes satisfied." At 5:00 o'rlock he told ne that everything WE all right. Schwers: That 1s right. Bullivan: Then the letter is going to be published? E.M.In: Yes. Sullivan: Ye vill Late the number of stockholders and all of the information on those thirteen cases for you tomorrow. ELIN Good. Sullivan: I think they would be interesting. E.K.Jr: Those LN the ones under - Sullivan: Thirteen nt of thirty-two thousand six hundred ninety where the provisions of sectim 102 were held to apply. LLIn Ret 1s the matter, Chick? Schwarz: I all trying to figure percentages. 158 - 9 - H.M.Jr: I thought you were looking at a birdie. Cochran: We were speaking of Sweden yesterday. Here 1s something that came in over the ticker this morning. H.M.Jr: I've forgotten, Merle, about you yesterday. I am sorry. Cochran: That is all right. H.M.Jr: O.K. Anything else? Ed? Foley: I had a petition from Indiana this morning with some questions, if you want to go over it. I want to talk to you about it later in the day. H.M.Jr: Who is petitioning? Foley: Mr. Sullivan. H.M.Jr: Is there more than one Sullivan? Foley: Yes, sir. Sullivan: Yes and no. Foley: This is the Indiana branch. Sullivan: I had a letter from a gentleman named John Torio thanking me for my having helped him with his '36 and '37 income tax returns and if I happened to be out Leavenworth way to drop in, because he 1s having trouble with his '38 one. H.M.Jr: This 1s Torio who wrote you? Sullivan: Yes. H.M.Jr: The famous Torio? Sullivan: Yes. Schwarz: There 1s even a town in Indianapolis named Sullivan. 159 - 10 - Sullivan: What do you mean, even? H.M.Jr: What is this? Foley: Well, this is the petition to be filed with the judge asking for an order to compel Elder to testify. H.M.Jr: It is the Internal Revenue Agency? Foley: Yes. H.M.Jr: Do I have to go into that? Foley: No. H.M.Jr: Why can't you handle that? Foley: I can. H.M.Jr: Why can't you and John Sullivan handle it? Foley: Sure. H.M.Jr: What else? Foley: Cy Upham said Everard called him when he got home last night, the Secretary of the Board of Directors, and wanted to know why he hadn't heard, because he was terribly anxious to know how to dispose of the communications. Cy told him the substance of the telegram which he hadn't received at the time. H.M.Jr: That is all right. Anything else? Herbert? Gaston: No, I haven't anything. You have my letter about - H.M.Jr: Yes. I don't like any of those suggestions. I will talk to you about it later on. Gaston: Right. H.M.Jr: If you would stay, Glasser, I would like to talk to you. 160 ESM PLAIN London Dated January 3, 1940 Rec'd 2:04 P. n. Secretary of State, Washington. 16, January 3. FOR TREASURY PRON BUTTERWORTH. The National Exchequer returns for the nine nonths ending December 31 indicate that tax yields are better than Estimated while the rate of Expenditure thus far is such ES to allow for an acceleration to COVER payments for BOCE of the heavy DEW supply orders maturing before the End of the fiscal year. REVENUE increased by 654 million as compared with the corresponding nine nonths of the year before and reached 6544.5 million which represents only 613.8 million less than the expansion for the full financial year anti- cipated in the 122 budget of September. The increase in PEVENUE is due largely to customs receipts which have already increased by more than twice the estimated increase for the full fiscal year: EXCISE receipts WERE also up while N.D.C. which NES Estimated to yield 65 million nore than last year in the full year, has already increased by IS million in the nine months. Expenditure 161 ist + No. 15, January 3, from London Expenditure for the nine months was 61,185 million if de 6325 million was "borrowed for defence". Expenditure has naturally increased very heavily since the beginning of the mar, the workly figures varying mesiderably but tending generally to rist. The average verify expenditure for the 18 weeks of war was L38.8 millim and for the last quarter of 1939, 641.2 million, If is September war budget figure of 61,953 million for crediture is reached, (ani that figure was stated to If not the maximum) the everage weekly rate of expendi- the for the remainder of the fiscal year would be 657 million, Recripts from the DEW savings securities to the End If Depenber amounting to L45 million and an increase in the flooting debt of about 6370 million since the outbreak = 12 have covered the nounting deficit. The tender USE of Treasury bills has risen by 5250 million and the tap issue by 191 million since September 2, the total floting debt standing on the 31st of December at $1,535 million 18 compared with 61,167 million on September 2, of £1,037 million On December 31, 1938. The deficit, which is always high at the year-end the the bulk of income and surtax is collected, stood st 5804.5 million as concered with $265.4 million a year 4. 3imm's estimate of 6938 million as the anount which 162 hsm -3- No. 16, January 5, from London which would have to be borrowed in the year may not be reached if the yield from the direct taxes still largely to be collected should prove as good as that already coming in from the indirect taxes, and/or if the nature of the war continues to Drove less costly in terms of destruction than was evidently Expected at the outset. It SEEMS probable, however, that the direct taxes may not prove as resilient 8.9 the indirect taxes, which must have been swollen by a certain amount of customs receipts from goods being stored against future shortages. These figures cannot, in the circumstances, give much indication of the longer-term outlook--they merely indicate the prolongation of the Indian summer of British war finance. JOHNSON FLP 163 Dov Jones Jan. 3. 1940 8:30 1.2. Swedes Must Declare Exchange Assets LONDON - According to an announcement over the Stockholm Radio, a proclamation vss issued in Stockholm yesterday providing that all individuals and firm in Sweden must make & declaration to the Bank of Sveden of all their holdings of gold and gold coin, foreign currency and foreign securities. They must also state their obligations towards foreign countries. Dov Jones Jan. 3. 1940 8:30 2.2. Special Session for Swedish Parliament LOIDON - in extraordinary session of the Swedish Riksdag will be held January E and vill last for two days. According to the Swedish Radio, on Jamary 10, the Riksdag will resume its ordinary session. (PSS) 164 a W 4.5 CONSULATE arice Serivos, Sanci. Indochine. Junuary 3. 1940, MI large transported to China bring December, 1939. S S SHE Y as, LEN. = I time to hmot to refer to ay despatch IC. 24 of leste in 2539. in repart to the quantity of cargo trans- partal = China ril Indochine during the menth of Scresher, 3. at to the following preliminary report is part to to partity of cargo transported during the mth = lember, 2933. len detailed information will be available = = inti the 22 of this meth. be total traffic of the Indochire-Tunnas Bailway enounted = general 15 thousand teas. of this, approximately 25 truend total represent cargo transmitted to China im ni to represents material transported for the needs of the ut margo from internediate stations. in this estated basis, the milway transported about 2 through vas IN is Ins needs than during the previous mt. less 1 to Department activities is Imangsi, to cargo NES traportal = China via the Dong Dang-Hanning road. is E. zz of fact, up previously transported to China vis this nd estimal to stan to Indochine. chiefly gasoline and products products from and zur Imagchow. It is reported, but the identis is not confirmed, that a very sall and of = med Daine Till the Carbang road. Perhaps E. higher percentage of the cargo transported to to is destimed for the Chinese National Covernment or for agencies than during previous make. by - or = as Mgh as 90 per cest. All shippers of pala ni produces F oducts are understood to lett increased to very considerably over the previous mth. Comitions 165 - 2 - Conditions at Haiphong remained approximately as in the past menths, although arrivals of cargo fell short of ship- sents to China. There my have been a net gain of from 2 to 3 thousand tabs. This, however, is insignificant in relation to the accumlation at Haiphong of cargo awaiting shipment to China. Vesther conditions were umsually favorable, thus prevent- ing further deterioration of carge. Respectfully yours, For the Consul at Saigon, (Signed) Charles S. Reed II Charles S. Reed II, American Consul. Original and 2 copies to the Department Copies to Embasay, Chungking and Peiping Copies to Consulates, Kanning and Saigon Copy to Consulate General, Hongkong 815.4 CSR:car (COPY:FE:HES) AIR MAIL No. 36 AMERICAN CONSULATE American Foreign Service, Hanoi, January 4, 1940. SUBJECT: Number of Automobiles and Trucks at Haiphong. THE HONORABLE THE SECRETARY OF STATE, WASHINGTON. SIR: I have the honor to refer to previous reports in de mention is made of the number of automobiles and truis # Haiphong amaiting shipment to China and to submit, as of sible interest to the Department, the following information in regard to this matter. On the first of this year, the number of sutomobiles ni trucks at Haiphong was approximately 3000. both in tass mi assembled, purchased under the Universal Trading Company M and independently of that loan. In other words, insufar 50 = have been able to ascertain, the number of automobiles ni trucks at Haiphong on the first of the year was roughly to same as on the first of December, 1939. Of this number, 1568 automobiles and trucks represent pt. chases under the Universal Trading Company loan - 572 in - and 996 assembled. I have been informed in confidence that the In Shing Trading Company is negotiating, or is planning to regotista, transahipment to Rangoon of at least a large mber if the automobiles and trucks. This action appears to inlicate Its optimiem in the imediate future of both the Dong and Caobang roads. In this connection, reference is nie to my despatch no. 28 of December 19, 1939. 167 -2- Present Tagame builing activities almg the Indochian- Transa ## D ates: to = this last realning 20025 of transportation the are reputadly stimlet- ing greater interest: to to possibilities of transshipment to imgon. yours, le the Donsul st Saigen, (Signed) Charles S. Reed II Charles 5. 3md II, American Consul. Original and 2 registere to the Department Copies to Indusary, Paining Copies to Consulates, Imig mi Saign Copy to Commlate injury 515.6/815.4 in 168 a(f) PERMAL birth : OF NEW YORK OFFICE CORRESPONDENCE DATE Junuary 4, 1940. CONFIGUATIAL FILES SUBJECT TELEPHONE CONVERSATION WITH L 1, Incks BANK OF PRANCE, kr. Cariguel called at 11 o'clock to inquire other m had received Governor Fournier's to cables of today addressed to b. Burrison; if not they should come to hand at my ment. : replied that SO far I had not see: anything. Ir. Cariguel explained that the cables dealt with the special account; that the Governor confirmed that Ir. loussem had full power to in upon this special account. Altogether it was a full reply to our cable Bo. 6 of Junuary & 100 169 REB PLAIN London Dated January 4, 1940 Rec'd 2:30 P. 2, Secretary of State, Washington. 25, January t. FOR TREASTRY FROM BUTTERWORTH. Interest in the city is largely taken up at the moment with the gilt-edged market which is Enjoying quite of boomlet, var loan, for example, closed today at 94 5/8 as compared with E level around 92 before Christmas and 95 1/2 on the last working day of the year. (The minimum price fixed for this stock was 68 1/2 above which level It did not nove until October 12). Banks, investment trusts and insurance companies, et cetera, are now buying government securities and some special buying by the government brokers is also reported. kranwhile the obvious measures taken to ESSE the year- End credit situation made it unnecessary for the market to borrow from the bank. There is a growing criticism of the banks for not reducing their call money rate to the discount market from 1 percent to 1/2 percent. The level at which it stood during the chaap money era between 1932 and the Regraded Uclassified 170 REB -#25, From London, Jan. 4. the last week of August 1939, Especially since the Treasury bill rate would bE immediately affected and the cost of the growing floating debt would be materially reduced. Some in the city are EVEN wondering if there is any possibility of a reduction in bank rate to 1 1/2 percent. (It has never been below 2 percent). Such a move would in Effect force the banks to reduce their call money rate. The idea that this move might bE taken to coincide with and give a fillip to the launching of the first war loan has been talked of for some time. HOWEVER, with the tender Treasury bill issue still under 1770 million, heavy tax collections now coming in and savings certificates and baby bonds selling well, there is no imediate need for a long-term war loan, the timing of which will doubtless depend upon the Treasury's assessment of the most favorable moment. This week's bank return, showing a further shift from public to bankers' deposits and a small increase in govern- ment securities in the banking department at a time when notes are returning from circulation indicates no move by the authorities to tighten credit after the special needs of the year-end. JOHNSON KLP 171 PARAPHRASE OF TELEGRAM RECEIVED FROM: American Embassy, Paris, France DATE: January 4, 1940, 6 p.m. NO.: 14 FROM MATTHEWS. FOR THE TREASURY DEPARTMENT. Today the Bank of Italy representative, Pennachio, had lunch with 30 at KY house. He said that 8. number of minor exchange matters had kept him busy lately. For example, he said, the Foreign Exchange Office in Paris is anxious to reduce the amount of French bank notes which leave the country to a minimum; therefore the Office does not want travelers going to Italy to carry but very small amounts, while on the other hand Italy will not permit anyone to bring into that country more than 300 lire. For another thing, Rueff had told Pennachio that in the future the French would maintain a stricter control over the importation of French banknotes into France, although up to the present such importation had not been greatly restricted - reference: the second paragraph of telegram No. 2801 of November 21 from the Embassy. Therefore Pennachio had advised his principals against purchasing quantities of French banknotes as had been done freely before, for remission to Paris periodically. In general, he vas not critical of the French administration of exchange control. As I reported in n. previous telegram (No. 3056 of December 29) Pannachio is frankly impressed with the surcess 272 - 2 - success of French efforts BO far in keeping prices down. lie die not express surprise that the French authorities had not fully realized the importance of the losphale which the original exchange control measures provided through the omission of restrictions on deposits of francs to foreigners' accounts, and that blocking the loophole Impference: telegram No. 2882 of December 1 from the Embassy) not been delayed so long. He did not foresse that there vould be any difficulty during the next few months for the French or British to keep the frame and sterling at their present rates. It is his inclination to share the view of Douve de Murville and others here that before pressure nite the franc it will hit sterling - reference, telegram Mr. 2485 of October 16 from the Embassy. Pennachio appeared to hedge somewhat on the optimism in had expressed to ne previously M to the properity of his country to be derived from the nr. Ee usis reference to the loss of tourist revenue which was serious, saying narmally each year it had amounted to about 3,000,000,000 line, Substantial orders are received from the French, but such orders have not yet reached more the about one-half of the five billion lire sart which m provided for in the clearing agreement which the tvo countries signed recently. Horeover, he reaarked that his country would pde to get markets giving thes nome assurance of permanence - with Regraded Uclassified 173 - 3 - with particular reference to the Balkans and the recent trada negotiations Italy has had with Pertagal - rather than to concentrate on orders which are wholly temperary because of the war. END SECTIONS ONE, TWO AND THREE. BULLITT. EA:LNV 174 n GRAY PARIS Dated January 4, 1940 Rec'd 5:57 pam. Secretary of State, Washington. 14, January 4, 6 pame (SECTION FOUR) I have mentioned in previous telegrams the complete lack of statistics in France since the outhreak of the war and the general complaints in this respect of those whose job it is to take the pulse of France transmically. The crumbs of in- formation therefore that Minister of Commerce Gentin let fall in the COURSE of the recent budget debetes my be of SOME interest. In October he said, French exports reached the lowest point since the outbreak of the war but in November an improvement took place, raising the proportion of exports in relation to imports to 745 with "brought the difference between imports and exports to about the same level as for the first SEVEN nonths of 1939". BILLITT EMB 175 II GRAY PARIS Dated January 4, 1940 Rec'd 4:54 pam. Secretary of State, "Isslington, 14, hmary 4, 6 p.m. (SECISION FIVE) The be results for December WERE, he said, "Encouraging". November experts, however, in value represent but some 61% of the experts for November, 1938 (which latter amounted to 3,069,000,000) owing in part to the embargo on the export of certain TAX materials. Agricultural exports in 1939 WERE almost equal to the previous year, he said, and those of manufactured goods WERE "more than 75% of the 1938 figure". 3 talked optimistically (probably too much so) of the future of French exports of manufactured products on the basis of lover French prices on foreign markets and the dis- appearance of "cartain Enemy competition". BULLITT 8 176 JT GRAY PARIS Dated January 4, 1940 Rec'd 6:45 p.m. Secretary of State, Washington. 14, January 4, 6 p.m. (SECTION SIX) The Parliament probably having in mind the futility of sini- lar expenditures in the past few years rejected Gentin's re- quest, however, for a 5,250,000 franc additional credit to make "certain reforms" in the Ministry of Commerce with a view to rendering more Effective aid to French Exports. The Paris securities market was weak yesterday and price changes today were insignificant most rentes declining frac- tionally with the Exception of the 1937 dollar exchange guaranty issue which gained 1.70 francs. The AGENCE ECONOMIQUE ET FINANCIERE index (end of DECEMBER, 1930, equals 100) shows French rentes at 83.4 on December 29 and 85.4 on January 2 as against 79.7 on September 4, 1939. BULLITT ENB 177 a GRAY PARIS Dated January 4, 1940 Rec'd 7:44 p.m. Secretary of State, Mashington. 14, January 4, 6 p.m. (SECTICE SEVEN) The figures for exchange guaranty issues are 151.1 on December 29, 152.3 on January 2 and 114.2 on SEptember 4. The corresponding figures of the general index are 114.2 on December 29, 116.5 on January 2 as against 89.6 on September 4. These substantial rises since the outbreak of the war are indicative in part of the employment of re- patriated cavital. The 3ank of France statement for the week ending Decem- ber 28 shows that the Treasury, partly for year-end needs, drew a further 2,400,000,000 franes on its advance account, thus raising total withdrawels to 14,200,000,000. Note circulation was up approximately 2,000,000,000 francs to 151,300,000,000 and gold coverage down from 59.02 to 57.90. The price of gas in Paris has been increased by 13 per cent. (END C? ESSAGE) BULLITT LMS:EXB Regraded Uclassified 178 address on never Capitalion given 179 January 4, 1940. 3:15 p.m. 5: ADDRESS ON CAPITALISM Present: Mr. White Mrs. Flotz Phite: Have you an idea specifically as to the time? -.1.2m I feel that if I 80 eighteen hundred words, which is fifteen ninutes, that is all I have to have. Whatever it is going to be, it is going to be over the radio. We decided we wouldn't look for an audience until I had 8. speech and got it by the President. In other words, I don't want to set a definite time and then have to change my plans. Last night I was thoroughly decided I would not make any speech. Bite: I think your general principle is right; the shorter speech the better. ....2r: These speeches usually go up to eighteen hundred words. T2. Flots: Yes, I think 30. White: Eighteen hundred words in fifteen minutes? Yes, I go a. hundred and twenty. Then you will find they always have to take out time for annourcements and so on. You go about thirteen minutes on 8 fifteen minute program. re. Rotz: Yes, one hundred fifty times twelve is eighteen hundred. White: This forces upon you the necessity of cutting out the nonessentials. The cutting down insures that what you have is apt to have more meat. F.V.7m That :0 why I have got this planned. I have got E man to work with me and he is coming to see me Saturday afternoon. I don't want you to work Saturday, but if you could do this tomorrow coming - I don't want you to do any more today. This fellow's name is John Nitchell. I think you know him. He packs everything into it. Bite: He is good. Regraded Uclassified 180 - 2 - H.M.Jr: What? White: He would be good. Then you should also get that publicity man's approval. H.M.Jr: Lowell Mellett? White: Yes. H.M.Jr: He is coming tomorrow morning. I want to talk to him. White: Yes. H.M.Jr: I thought -- 1 White: His comment will be good. E.M.Jr: But I don't want you to work tonight. I an responsible for all of this material at the top of page 5, the hierarchy of guilds and so forth. White: Yes, you told me about that and I think that is pretty good. I like this note, particularly, "Capitalism exists in a purer form in the United States than any other country in the world." H.M.Jr: Mrs. Morgenthau said, "What about Sweden?" White: No, capitalism doesn't exist in nearly as pure a form in Sweden. H.M.Jr: I see. White: And of course you might say that Sweden is more democratic than the United States, although I think neither one would be better than the other, but I mean that, I take it, brings out one of the thoughts that is in your mind. It ties the two up together which, I gather, is - E.M.Jr: The thing I wanted to express in this speech is, everytody else - there have been hundreds of speeches on democracy. What I want to talk about -- White: This tie-up -- H.M.Jr: What I want to talk about is capitalism. White: Unless you pursue some such thread as tying up capitalism with democracy -- - 3 - 181 E.I.IN I do. Thite: The interpretation my be different than what you want to give it and I think the strength and the novelty - novelty is too pretty a word, but I mean the worthwhileness of a speech of this kind lies in the identification of those two, which paves the way - which is what you want to do - which shows that the New Deal is attempting to revivify capitalism, is giving it real life and by so doing is perpetuating democracy. I think that is not-all and I don't think that idea has been sounded. E.E.In If you don't mind, I am not thinking in terms of the New Deal revivifying capitalism. White: I thought you gave it that term twice. I didn't think that was the original intent. E.M.Jr: I will tell you, Harry, what I was trying to do. White: It begins to be a little bit pro-New Deal. 182 E.K.Jr: One of the things that I vant to bring out 18 the cause of the attacks on the New Deal. One of the focal points of the constant attack on the New Deal is that it discourages the profit maker, it discourages private enterprise, discourages savings. Vitte: More Government interference in business. E.K.Jr: More Government interference in business. Now, instead of saying, "We don't discourage this, this, or this,' what I am trying to say is that from 1929 to 1934, as everybody knows, this country took E terrific setback and we have gradually come out of this terrific four year depression and during this process people have been encouraged to own their own homes, they have been encouraged to buy their own farms, they have been encouraged to go ahead and make money. Now, it 18 perfectly true that ve haven't gone very far and the reason, I feel, that we haven't gone 90 far is because we were BO far down. Ve have had such 8 long way to come, you see, and while it 1s perfectly true we have only come part way, it is all the more necessary that this little start that we have made be con- tinued without any setback, because the plant 1s so young that it can't stand much of a setback. Therefore, the kind of things which the Government has fostered to encourage private enterprise and 80 forth and so on must continue. That 1s the whole thesis that I have in mind. I as talking about capitalism, all I not? White: Very definitely. E.M.Jr: In America we are doing everything that we can to encourage capitalism under this kind of Government, which 18 called democracy, while all the rest of the world are moving in the opposite direction due to one reason or another. Viten I asked Glasser to nake these checks, he found how little ve have really come up the ladder and therefore he became frightened and pulled away from it, you see. 183 - 5 - I am perfectly willing to say, too, that the tendency must be away from monopolies and more toward the individual. Yhite: More toward competition. H.M.Jr: Yes. I said to him last night, "Didn't it sort of scare you how little we have done," and he said, "Yes," but I think that when one finds we have come so short a distance up the ladder above the surface, he should consider how far below the surface we were due to an accumulation of malpractices under our present system. Now, there is nothing in the speech that scares me about all the things which you saw about the reforms of the New Deal. I am willing to say every one of them and say every one of them must continue, but I think we have got too many thoughts in there, too many Latin words. White: I can understand what you mean. H.M.Jr: And too -- White: Too few Anglo-Saxon words. H.M.Jr: And too few word pictures and too few examples. The thing 18 much too high- brow. Now that you and I know what the premises are, what are thesis 1s, what we are trying to prove, it seems to me 80 easy to prove and I don't think that we have to be very apologetic about it. White: No, I don't think we should be apologetic. I do agree that there are too many ideas for a fifteen minute talk. I agree also that it must be put in a language which is not 80 academic, which 18 another way of saying more Anglo-Saxon terms, more effective. It 1s not true that the longer and more academic the word 18, the better; in fact, the contrary is true. I think it 18 an inevitable condition in a draft, however, because those of us who have done most of this writing, which 1e Adler, Glasser and Regraded Uclassified 184 - 6 - myself, are inclined to think in those terms, but it is a question that 1s a very different thing from saying that that is the most effective or ineffective style. That has to be worked over. I think B. number of ideas have to be cut out. I think it 1s always excellent if you can get good illustrations. It 1s difficult, but I think some of those that are used here that I read through this, I think are good. I think it should be possible to get more. It may not be 88 possible to get in quantity the terms, the kind of measurements which would indicate the kind of progress which we are making about many things, because it doesn't lend itself to that and we haven't the figures or it 1sn't possible to get that type of figure, but there are a good many more illustrations that could be used and after all, one good illustration 1s worth a half a dozen poor ones, I mean, if you could get a few good illustrative points, it 1s more effective. I do think, however - I all not sure whether you feel this way and that is why I all repeating it - that there must be an unquestioned tieup of the strength of capitalism and the strength of democracy, because unless that 1s done it would be the speech of 2. conservative, which I take it is not what you want. You want, rather, to indicate that liberalism demands - liberalism in a democracy, which affects our way of living more than the way we make our living, demands a strengthening and a going forward of these capitalistic essentials, private enterprise, com- petition and 80 on, that if, in other words, one of the driving strong reasons why we want to strengthen these capitalism institutions 1s because we want to go forward under democracy, then I think it gives it just that difference which stamps it BB the difference between a liberal and a conservative speech. 155 - 7 - E.M.Jr: Well, that I an trying to do through this speech is to explain to the people in this country in all walks of life that there has been a pattern for the last five or six years, BE far as the profit motive goes. White: That in itself is 2. good thought, that it last't been a haphazard hit and niss proposition but that there has been a basic pattern along which the moves are taken. The pattern 1s not always obvious. H.M.Jr: And not always coordinated. White: But stow them that they have followed a general - E.M.Jr: Pattern. Now, just as you said somewhere here in the talk, in Europe they have taken the unemployed youths and put them in the Army; in this country we devise other means of taking care of our unemployed youths. I think that whole thing could be expanded, that the rearmament program of this country is twelve percent or whatever it 1s, in sterages, as compared to fifty or sixty or seventy percent in other countries. The thing I tried to explain the other day to John Bosttiger, who went after me for two hours on this thing to find out where I stood 18 this: The reason, in the first place, for the speech is to encourage people to think that there 18 a pattern and that this administration 1s so tired of putting reassurances on the record. The President has never coordinated his OWN thinking along those lines. The reason I think it is 80 important 1s this: Regraded Uclassified - 8 - 186 Some day one or two things are going to happen in the next comple of years, either we are going to have a complete chaos and complete disruption of all forms of government in the world and you are going to have the people in the world saying what they are in Spain, that they wont till the fields or anything because they are so stunned from continuous bombing that they haven't got over it, or this country will have to continue doing what it has done in at nore orderly fashion and in greater quantity in order that ve can isolate curselves against the terrific disruption of government which is going on all over the world. After I had finished 77 talk with Boettiger he said, That is your suggestion," and I said, The only suggestion I have is 8 suggestion which ! have made to your father-in-law, that ve have never had in this country & committee for the study of the conservation of the human resources of this country. There is nothing in this government or no group which is doing that, because the National Resources Committee does the soil and the minerals and so forth. Te have to have S. group which will study the conservation of the human resources under our present form of government so that this will continue. You, there are just the two alternatives and the way the thing is going in the rest of the world, that chaos is gaining steadily and as It gains and the pressure on = to rears and do all of the things necessary to hold our own increase, it is going to be zore and more difficult for us to keep this country 20 8. healthy basis. I told then what 10 needed 1s 5 study which would show at the end of some period every able-bodied tan 07 vonan who wanted & job, as having one. That is the thing to aim for and that is what encouraged his so greatly. There isn't anything like that going on in this government. It just doesn't exist. White: Ey wouldn't that be 5 good thesis to end on, some three OF four 07 five paragraphs developing just that idea, the conservation of human resources, and around that you can build several of these ideas. - 9 - 187 E.M.Jr: You see, he is an awfully smart fellow. Ee thought I was just 8 conservative and he sort of stuck pins in me, you see. He 18 greatly disturbed because at this period the President is so interested in foreign affairs that for the time being he has lost interest in unemploy- ment, which Boettiger and I think are the most important things in the country. He has been after the President for the last week to forget the trade treaties and all the rest of that and concentrate on the unemployment problem. At this time I have a really great opportunity, in that I may be able to change the President's thinking. White: Directing him against the fundamental problems -- H.M.Jr: Not against, towards. White: Yes, among other things because it is so intimately 8. consequence and result of anything that will happen in the international affair. The best method of deflection of international conditions, as he said a year ago, is to eliminate unemployment in this country, put your house in order here. H.V.Jr: We didn't have a stenographer there the other night. I put it to the man like that as an able person, so that he and his wife went away very happy. What they are so afraid of, and I am too, you see, is that the next four years are so very important that if you get in the middle of the row by the end of those four years we most likely will fall by the wayside. Now, the most difficult thing to say 1s that we never have put our teeth in the unemployment problem and you and I know that where you and I have had our principal difficulties is that every time it looks as though we are going to balance the budget, at that time business begins to get bad again, everybody gets frightened, and we spend a couple of billion dollars more with no plan and then we go along for twelve or fifteen or eighteen months following this spending and we are right back again, because nothing has been thought out. Now, you and I agree on that. White: Yes. - 10 - 188 S.X.Jr: The extra spending by England and Prance will continue for perhaps S. year 22 $2 and when their gold is exhausted 02 their securities are exhausted we will be back in the position where we are with no plan to take an of the unemployment. It is like $ person who is sick, if you have three 07 four relapses, everytime you have another relayse it is that much more difficult to get will. : think it is much more important at this particular junetion where everybody is floating and nobody really sees clearly to say est I said to these people the other night, renaly, that the important thing is to try to dit in and think this out. I think there should be a three-way committee, one-third administrative, one-third from Congress, and one-third from the outside world, three groups, you see, and let this comittee sit down - I told him how I asked the President to give three afternoons 1 veeic atil be solved this thing. You will remember those memoranda I sent. I would like to say that it is far more important to solve or unemployment problems for 8. long period and conserve our human resources than It is to tax = bothering - more important than it is to get the French some planes. in. Clats: That isn't what the President said to Imgress. E.Y.Jz: And that is what bothers Bettiger 50. Dr. Nota: You see, he just took the opposite rism. Whiter Something is happening. Be has become inter- nationally minded at a peculiar sale. : isn't as though he became internationally minded in addition but he is imoring the fundamental problems at home, partly I used to think, in the hope that be thought that the world would take us out of our imadiate problems and he wouldn't have to solve then, but I am a little bit afraid 107 that the thing looks to 20 as though be is getting E. little bit too such of a. complex that be is going to save the world by III del of E peace settlement or something like that, play E major part or role in the well situation. E.V.Ir: that is a Messiah complex. White: I en afraid that the indications 179 - 189 - 11 - Well, that is why - I can say this to you and I didn't want to say it in front of Glasser, because you have ny confidence and these two people are certainly 20 more sincere people than Boettiger and his wife. The thing that they are afraid of is just the thing ve are talking about. Mrs. Morgenthau heard se when I talked to them. Boettiger said, "Can't vs do something to get the President to think about our domestic situation rather than to get ourselves ready!" He said, "Out Test 19 are not interested in anything but the unemployment problem. That is all we are interested in and TE are interested in the young people and SO forth." Then he tested me. Ee said, "Sor far are you willing to go!" I said, "Bor far at I willing to go? For instance, if they recommend that the only way out is to consolidate all the railroads and the government take them over, D. E." He said, "Are you willing to do that on public utilities?" I said, Tes, anything." I said, "Suppose ve have to take the railroads, the public utilities, and something else, then the rest of the enterprises should remain for private business." Be said, That will be one, to try to define est the government would do and what is to be left for private enterprise so that the people are't afraid all of the time and they won't pet their money into this and that venture for fear at the next step the government is going to take It over, and S. lot of people are afraid of that." But it doesn't frighten me that If eighty percent of the railroads in this country IN OVER- capitalized and bankrupted and the only my to do is to consolidate them and the government to take then over. There is nothing frightening in that. France owns all its railmoads. The British Government controls all its utility systems. There is nothing frightening in that. Thite: Tou have given this thing a little different twist. I think, myself, it is 5 little unimportant twist. I also think that - MM I think it is more important - I will fast say one word - on account of the President's DED thinking. Because he is the President doesn't mean he is right. Yrs. Bots: You didn't know what he was going to say in his message to Congress, did you! 190 - 12 H.M.Jr: All I knew was that it me largely foreign Regraded Uclas affairs. Did you 1861 that if I had seen it I would have made this speech before? I had no idea. I just knew that it use concentrated on foreign affairs. I thit SBC it. White: I think you have get a very important thing. I think it is evez I mich sure important duty that you have in this mtter. Some people my not feel this NET 02 haven't the courage or can't afford to say SD the political reasons, all of which makes it IN important for you to do so. I think the lises that you have outlined in general are mine than called for and are too mercus to 3 adequately and effectively handled in one speech. I think that probably a series of three in which you build up or develop 02 take E. different aspect of the situation would be desirable, but I think the first thought is the thrught that you want to sound in directing the stiention to the major problem at home, which is partly handled here but it is also with other lõeas. Whether you can do that at the sene tim, including some of the other ideas that pour stressed, I don't know. I an a. little bit skeptical, but you might try it. H.M.Jr: Fortunately, I started nt di the original ideas that I ng't going to have any date- line to talk to and Irs. Data reminded me, again the other day net to min $ date. White: Since we are hot an this thing, let's keep at it. Mrs. Klotz: But not pin it down and SET, "I will speak on the 22nd." H.N.Jr: No, I an hot CIL the thing and I En seeing this fellow Saturday afternom and I think what I will do is, I not the in my - I will just talk to him like this and see that be can put down, you see. To question shout his liberality. White: No, that is a good idea. H.M.Jr: You see, I an going to de me or two things. Either I continue on and not get bogged down over a fight with Beary Wallace OVER the certificate plan - well, that is in the making. I mean the boys have gt It and SD forth and 16. 1 1 18 # a 18 Let down on so may of these planyme things. 191 - 13 - White: You are a hundred percent right. 1.2.2m See, and -- Prite: Those other things will be Long Surgotten after the major issues are made, just the same as these were the major issues two and three and four years ago. Irs. Elots: More important than all, I this, is that et this time the public should know where you stand, what your views are. They finn't know and if they are opposite to the President, the President won't stand in your my. You really should let the world know. Min Boettiger was amazed, because in ins been to see every liberal group in this Administration, trying to find out where they stand. Re is one of the smartest reportars I - in the country. Re has made a success if his own paper out there, irrespective if the I will never forget the day he and Imast Lindley went after me when I THE in e Irst. John Boettiger is just moody in Washington today to put the pressure on you = get E story, because he is E. tarms. In you remember that time? Irs. Elotz: I remember it very definitely. : nen't remember for the noment what that story was. L.M.IN It was on that grain cooperative. Tie thought the thing was crocked and we finally give him all our records to 80 over. Ers. Flots: I remember. E.M.In Ee prodded me on and the thing invellated in my mind and -- Inc. Flotz: I was going to ask you, VII 1829 you SD enthuriastic about draft Ic. 1 and not about draft No. 2. Are they 30 ifferent! No, I am. M. Elets: That is what I wanted to inc. The trinking has changed Thite: The objective has changed. Regraded Uclassified 192 - 14 - H.N.Jr: The prime motives haven't changed, but they are gradually taking form. Irs. Klotz: I didn't remember either of them, but I heard you speaking about it. E.M.Jr: Now, Full could only think as far as this trade treaty. Wallace has got something else. Everyone of those people have an ax to grind. White: There is no question about it. H.M.Jr: With the possible exception of Ickes. White: You are in the fortunate position of not having a host of speeches behind you. It isn't as though you make one every Monday and Wednesday, so that I should be inclined to prefer not a radio speech but to make it to some more appropriate group and I believe it would be more effective. 193 15 I , E.K.Jri But look at the dribble that comes out of Commerce two or three times a week. nots: That is right. E.M.IN As to the audience, it 1s easy to get an audience. Thite: I think that what you have got there is two, anyway, and possibly three speeches, but they are worth spending as much time as is necessary on to make them as powerful, as meaty, as possible and to really say something, and I think that you will find that there will be a lot of important people that will rally around that thesis if you can get it over and even if you can't, the mere fighting it out with the President in itself 1s very worthwhile, so that I am a hundred percent for it. I think you ought to stick with this thing as much as you possibly can until you get one speech out. E.M.Jr: I do too, but I think the thing that we have talked about here, our own domestic situation and the preparedness against social unrest at home due to continuance of unemployment and so forth and so on, 1s far more important than trying to defend ourselves from attack from outside. Vhite: Well, let's just think what it would mean to the rest of the world, as far as the road in which they want to travel and will be able to travel if they were able to point to the United States as a country maintaining democratic processes and main- taining capitalism is concerned. That in itself would be the most powerful point. Blots: It 1s the best reason. Vhite: It would be B. directive towards shaping the way for the other Governments of the world. B.M.Jr: And again you have a rallying point for what I call "forward looking people." Regraded Uclassified - 16 - 194 White: Yes. The note has not been sounded. There is no question about that. The clarion call has not been sounded, no question about that. The President has not sounded it. He 1s very obviously struggling, struggling - H.M.Jr: He is groping. Certainly he 1sn't going to rally the Democrate plus the Liberals which would be necessary to elect a Democrat over the Trade Treaty Program. Vnite: And I would go further. Even if it is not 8 question of election, it is important that there must be shaping in his ONE aind as well as in the public mind visit the real problems are before they hit it. Klots: Has he pushed the Trade Treaties and talked about then as much as he did last time? E.M.Jr: I think be got the thing mixed up. There YES this article by Kintner also, but they got the wrong signature and said J. Franklin in last night's Star. Ve got the one on Hull last night and signed by J. Franklin, but unquestionably written by Kintner explaining vist he 1e doing and using Bull as 8 stalking horse. Did you read 1: last night? White: No. E.K.Jr: They got just BE near 85 I got and Ernest Lindley came out Sunday with 8 terrific blast on this Trade Treaty, said this 16 8 battle with blank shots over the Trade Treaties. Klotz: That is vist I carried away with ze, I nean after listening to the President, just vity, vist is back of it. E.M.Jr: How can he get excited over 8. thing like that? D1d you read the article by this fellow on the treaty with the Argentine? White: One of the boys called my attention to it, saying that in Argentine they vanted to throw it over. Regraded Uclassified 195 - 17 - H.M.Jr: They not only want to throw it over but ridicule us just as nobody's business and say they haven't got time to fues with us. They are sending a commission tomorrow to Japan to get a good treaty. That is all the more reason that I have no at to grind other than that of By country, and here is a grand chance. White: It must be done. H.M.Jr: All right. Now, I wa't expect anything from you until Monday but I would like something Monday. 196 January 4, 1940 9:30 a.m. GROUP MEETING Present: Mr. Earris Fr. Haas Kr. Cotton Fr. Thompson Fr. Sullivan Mr. Sell Mr. Gaston fr. Cochran Mr. White fr. Schwarz Mr. Foley Mrs. Klotz E.K.Jr: Herbert! Gaston: Admiral Waesche said that matter you spoke to ne about would be all right. Just let him know whenever you want the arrangements made. H.V.Jr: Let's start him in this morning and then he can sit there with the young lady for a couple of days. Let him start with Krs. Klotz, see. Let him get his affairs arranged today and then come over tomorrow. Geston: John Mitchell will probably be in town Sunday and call me up. Would you want to see him Sunday or wait until Monday? E.N.Jr: I tell you what I would like to do. I would like him to call me. I thought I might see him up there. Gaston: Are you going up there? E.N.Jr: Yes, either Friday night or Saturday morning. Gaston: Be could probably go over there Saturday or Sunday. It isn't far from Groton. B.V.Jr: It is only an hour. Gaston: I will tell him this morning. E.N.Jr: Ask him to call me up at 12:45 Saturday and I night want to meet him Saturday afternoon or Sunday morning. 197 - 2 - Gaston: Right. I will do that. H.M.Jr: Quarter of one Saturday. Gaston: He had planned to be down here Sunday, but I will tell him that and I think he can arrange it and I will let you know. H.M.Jr: Anything else? Gaston: Nothing else. Foley: John and I decided that that petition should not be filed. H.V.Jr: John? Foley: Sullivan and I. We decided that the petition to compel Elder to testify should not be filed because they weren't ready. E.M.Jr: 0. K. Foley: You might want to consider bringing the bankers and the lawyers in for 8 conference on the Bank of America. E.M.Jr: For next Monday. Don't you think we ought to be ready for them by Monday! Ey not have them on notice, you see, so that - Bell: Who do you mean, Tom Smith and -- H.M.Jr: And Ottley and Spencer and then the three attorneys. Bell: That is all right. H.M.Jr: It is quite a job. This cme will have this and this one will have that, so I think DE had better start in with them. Fell: While you are on it, counsel for the bank has sent quite a long letter to the Board of Governors in the Federal Reserve System citing all of these various letters, exchange of letters between Delano and Giannini and he winds by asking the Board of Governors to make an examination of the bank on its ONL responsibility. They have sent a copy of that letter to you. 198 MAIN to int 30 :: to Delano. It Secretary of the Pederal term hart. Day in't ast you to do acything ent is far as : DES see at the moment ON Int't anything It read to do about it. Dep tave e. right to date the bank. Also No 278 had some carrespondence, : believe, ritt Socies about the nembers of the Board getting in 12 this. Line Tes. 3: Se called Delane posterday evening and said that be believe that the members eight to 297 :: = it st the time but be would like :: tare the techniciers get together and have 11 the endor and as Folger get together and = 1142 the material and Delano said he had = rhjection to tist but be would like to have E lawyer present. TELL, 27, lock. = in't like that Et all. the the 30m ⑆ lirectors are going to do est sali tis] mated to do in writing :: - IV they tame changed the plan. They said - 15 - then recending then that the Scart if Instructions salt they shouldn't be in because they will X contaminated. They came back and all, That is ill right, we want to at :-, 19 LM give to send somebody over." Ser, due they TEXT to àin that or they don't. Day ast a copy of È latter - they get copies of all to reports of the beh. Either the 30th does = drest't, and : 57 not going to let the be not viz 15, see. They told ne that 12. - to him that come from Chio 07 Pennsylvania, est is is name? laster: MAIN TSM us ping = get 17 = this thing. - = suppose, is in charge of the Fank livision. MAIN lither they de 12 they in't. This letter came ITEM and all they àt, that they 1879 going to telephone ni sent smezoe CTEZ. - 4 199 Bell: Maybe Delane has get it wrong and mybe they are sending smoboly, but that somebody is the chief examine. is I understood your last letter, you und then that - M.D. That is right. Bell: That they were liable to get this -- M.In And they said, % want to do it." Bell: Oh, they did! LI.M. the yes. For, I dm't and to - I certainly would talk it 1952 with Poley and my own feeling is that I would say, "All right, you still yes would sent a - over. We are waiting for this NO to come over," but I wouldn't let then use up back-door method. Either they do want to get in, and they said they did -- now here is the history. Ecoles comes over and E it a late dans El 1 the I M of piece of paper. I said, % good, I want It in writing from the Board." It comes back and the F in Back = a 1 this the the at letter back and pointed out, "Have you changed your position!" To, R want to get ' If they want to get in, let E Brard mbe come in, but, you see, I E not going to let them SET, "Well, no Board muster knows this but - àn it this other MJ.' for they have get everything. Bell: All right. I think 30 and I had better go dom to Delano's office right after this meeting. Mr. I certainly would and I certainly would either insist = & Board must getting in or else. In see what they EN duing. Poley: Yes. MM I E not satisfied to 4 an mind that when the two Eleminis set dom with five members of the Board, they dismased the question of the bank examination. to Giaminis set down with five Board members and I an not satisfied that at that time they newt encouraged to do just this. the they sit dom at Sky, "Te have never done anything, but 02 staff does," and than the staff reports to the It is too important 200 - 5 - to let them trick us. I hated to use the word. If & Board member wants to sit down with Delano, yes, openly. But no back-door stuff. Bell: All right. I think we had better have 8. conference right afterward. I don't know whether you feel that way or not, but that is the way I feel. I am tired of all this slick business and all of this kind of trying to out-jockey us. It has been going on too long, Dan. Bell: le will fix it. M.In Ir. EcZee can walk over here as a representative of the Board of Directors and sit down vi th the Treasury people, yes, but nothing less than that. I would hold them to that. Bell: 0. L. MM That is the way I feel. You fellows - if you are not satisfied after thinking it over, come in and we will talk it over. Fell: I didn't think that last letter was answered. Tou say it is answered in the affirmative? M.In in I right? Foley: Tes. M.In You pointed out the Section 32 thing and they came back and said - Foley: That they would like to be advised anyway. Bell: Then they ought to take it as 8. matter of responsibility of the Board. Mr. That is the thing. And not sit back and say, "Ch, the Board has never seen it." The chief examiner has. Well, the chief examiner has got the report now. Bell: All right. MM In other words, they have suddenly now seen that they are wrong. Let then be men enough to say so, If they can. What I would do - why don't you go - 6 - 201 ahead with the three bankers and let him (Foley) get the three lawyers, so as to divide the responsibility, because you will have a terrible time as it is. I mean, getting those six fellows down here. Bell: Who is the other fellow? H.M.Jr: Charley Spencer, First National, Boston. And when you call Ottley, he will ask you for an increased deposit. Bell: Is that all he is going to get? He had better produce results on what he has. H.M.Jr: I am thoroughly fed up on this Federal Reserve. It is bad enough having 8. difficult thing like the Bank of America without having the Federal Reserve trying to mansuver us. Bell: All right. Sullivan: Here is the report on those tax cases. H.M.Jr: This is the introduction? Sullivan: You wanted that to show what changes had been made and what we haven't made. E.K.Jr: Thank you. Well, I an seeing Hanes at 10:00 and you be here at 10:25. Sullivan: Yes, sir. H.M.Jr: Please. Sullivan: I don't know whether M. Thompson discussed with you the Philadelphia municipal income tax situation. They are requesting under the law, the employer retains out of all salaries the amount of the tax and pays it direct to the city. They had made such a demand upon the Federal offices there and of course it puts us in a rather embarrassing position, because we employ the same technique in the collection of several types of our taxes. H.M.Jr: I am not familiar with it. Foley: I have it, Mr. Secretary, and one of our lawyers -- H.M.Jr: Did I get in on it? - 202 Foley: No. B.N.Jr: Thank you. Inst is enrough. Poley: We are taking care of it. the of our lawyers is calling Cm the city attorney this morning. E.N.Jr: If you get stuck, let 1 Inc. Anything class, John! Sullivan: No sir. Cochran: Leroy-Beaulieu telephaned 28 last night. I think I told you be had planned to fly on the 22 of December and the plane didn't come in and be changed to the 2nd of January. Now they tall the the 10th, unless they can get passage for his = the 7th. 30 wanted us to help in, SD I EZ going to telephone up to Ir. Choper of the Pan-Amarican. E.K.Jr: Before he goes, what I teld his, the message I told his to carry to Bullitt, the whole thing has changed. Cochran: Ee is coning iom here III Priday. B.V.Jr: You had better see se, because the whole picture has changed. Cochran: Then should I telephone the air people! E.K.Jr: Good heavens, can't the Frenchmen de that themselves! Cochran: He said be bain't gotten it S far. It is only three days difference. I don't like to interfere very meh. E.M.Jr: I don't think I would. I should think the French line rught to have some influence with Pan-American. Cochran: Do you wat to give tim E hour for Priday! H.V.Jr: 10:15. Dall his to start early enough to get here in time. Anything elset Cochran: No sir. - B - 203 E.1.2% I will see pm (Dotton) - your letter came out too late last right. I couldn't clear it last night. It - Et twenty minutes of six. lottom: I sent the Befor memorandum, just 8. note, anyway. MIN Then there is no hurry to see me! Ortton: To, unless pust think be ought to have something. I tell you what let's do, a quarter of three. Chick! George! Bas: I have nothing this morning. EM Basill Earris: Jc. 3.1.27: Earry, if you ENE up to it, could you come around shmit three o'clock? Thite: Certainly. That is it? M.I.I. Speech. Crulin't you rest before then? thy don't just $ home for lunch or something. Thite: the 1 came hare I came ready for work. M.M. Tell, save I little energy for me. Thite: I vill. I will be here. You 129 stre! White: Quite. E.M.I.: I told your office if they had anything for Berle to let THE know, and I haven't heard anything SI I take it they haven't got anything. Thite: I find = sme this morning. The legal staff had been preparing something and I told them that before E would do anything beyond the Treasury, I DEED - we had reached the stage at which it voli have to clear through you, so that the pullury step was to get agreement within the Treasury, among the techniciams and then then It reaches the stage where there is agreement, than we'd present it to you and I understand that that is going forward. - 9 - 204 In the interim, we asked a couple of men from the Federal Reserve Board to sit in more in an advisory capacity and so on 30 that we can get as much agreement as possible with them, too, and yet they would have no responsibility for what is being prepared here. It would be a Treasury product. After that point, how you would want to handle It remains to be seen. Cotton: In your absence yesterday, Harry, I told Berle that nothing could be produced for him this morning. Thite: So, that is right. I take it at this stage of the game we will need at least S. week to get agreement on the fundamentals and to present it to you. Dan't Bell: I have nothing. Thompson: I have the State Department coordination letter. 3.1.2m ":00 Staff Members Concerned: "The following plan will be made effective at once for the coordination of information and actions on matters dealt with jointly by the State and Treasury Departments relating to trads agreements, neutrality enforcement, commercial policy, cooperation with American republics, reciprocity information, foreign debts and similar subjects. n. Any staff member prior to attending any meeting or conference with State Department officials will notify fr. Geston in order that be may determine whether he or any other members of the staff also will attend such conference. "2. Immediately upon completion of B. conference or meeting with State Department officials, staff nembers will prepare and transmit to Mr. Gaston E memorandum outlining the subjects which have been discussed and decisions, if any, which may have been reached. Ir. Gaston will see that such information is distributed to all staff members concerned. "3. Mr. Gaston will in his judgment keep the Secretary informed on matters covered by this order, dealt with by staff members. - 10 - 205 "4. Cable messages received by Mr. Cochran will be distributed directly by him to the Secretary, Mr. Bell, and other staff members concerned." In other words, that still leaves the cables with Cochran. White: Are you making an announcement or will we hear more about this! H.M.Jr: Everybody heard about it except when Glasser was here and you were out. White: Are you now giving instructions, because there were some things said in there that I take it were not clear and probably arise from 8. misunderstanding. H.M.Jr: Will you talk with Norman Thompson or Bell? They have handled it. White: All right. H.M.Jr: The reason for this, Harry, is this: I wrote a letter to Mr. Welles saying why wouldn't they give ne the Cuban thing in time and there was 8. long letter back which has been referred to you and Sarris in which Grady puts it right back on you. White: The Cuban thing? S.M.Jr: Yes. White: I don't know what you have reference to. E.M.Jr: Right back on you. Harris: I think we can knock that answer over, Mr. Secretary. White hasn't seen that yet. H.M.Jr: A case came up of six people contacting the State Department and I am getting it from six different sources. White: I think it is an excellent 1dea to handle it that way. Ky only thought was there are 8. very large number of small subcommittee meetings and meetings, atc. H.M.Jr: Will you talk with Mr. Bell, Mr. Thompson and Kr. Gaston! Te are not trying to railroad anything through. 206 = , I White: I think it is & good idea. H.M.Jr: Will you talk to those three men? White: I will do that. E.M.Jr: And see whether you can come in under it. White: Yes. You see there were some thirty sub- committees of the trade agreements alone. E.Y.Jr: Will you talk to those three ment White: I will do that. L.V.Jo: This is to Yr. Bull. "I enclose for your information & memorandum order which has been issued today to staff members for the purpose of establishing E. coordinating control of matters dealt with by the State and Treasury Departments and which are handled largely through conferences. This centralized control in the hands of Assistant Secretary Gaston will I believe give Treasury officials concerned the best possible opportunity to keep currently advised In matters between our two Departments." White: I think it is an excellent idea. H.M.Jr: I just say, there WES a case where there were six different people on the same thing and I don't know whether the Grady memorandum is right OF wrong, but I am looking to you and Sarris to answer it for me. But you have got plenty of time. Te are still all friends. 207 January 4, 1940. 11:07 1.2. H.M.Jr: Hello Operator: Judge Lehmann. E.M.Jr: Thank you. 0: Go ahead. H.M.Jr: Hello. Hello. Judge Lehmann: Hello Henry. E.M.Jr: Bov are you? :: Fine thank. How are you and your family? H.M.Jr: Fine. We're all so pleased at your new high office. L: Thank you. I've had a very good time so far Henry. E.M.Jr: Fine. L: I think I'm going to enjoy it, and I'm going to enjoy very much having Bobby work with M. E.M.Jr: Well that's - L: Ee's a grand boy. H.M.Jr: Fe is a nice - L: I don't know where he gets it from Henry. E.M.Jr: Well he gets it all from his Mother. :- (laughs) I tell you I don't quite know what kind of a case you were discussing. I mean - 16 it at case in which you - want somebody to oppose & banking custom - I mean in other words that the SAZ recomended has no banking connections. H.M.Jr: Vell now - I'll tell you what it 1s. L: Yes. B.M.Jr: It's the office of the Comptroller of the Currency. 208 - 2 - 1: Yes. Trying to enforce his laws, rules and regulations on the Bank of America. It Yes. And we expect to have & show cause order in which we will have & triel examiner and a lawyer who'll present the case as to why we shouldn't publish their statements you see, and then subsequently it leads into a cuestion of removal of the officers of the Bank of America. Now, what we need 18 a trial lawyer who 18 competent in the financial field. Well what I - meant was - practically every trial lawyer that : have come in contact with, who 18 really outstanding, has some banking connection. F.Y.Jr: or he can have banking connection. L: Have some banking connection. Now would that be objectionable? To. I: Well Henry, the best man that I know of, the younger men are all going - are connected with the office where Robert Benjamin 18 B. partner, Parker and Dayyea. E.M.Ir: I didn't quite get that Irving. What is the first : Parker and Datyes. Parker. I: P-a-r-k-e-r. Yes. :- And Dayyea. D-R-Y-Y-C-A. Yes. L: But I want to tell you. It used to be the firs of Parker, Finley and Benjamin. E.M.In Yes. 209 - 3 - 1: Parker is 8. son-in-law of the President of the City Bank. Henry 18 a son of Dr. Finley. Lloyd Garrison used to be a member of that fire at one time. H.M.Jr: Vell Lloyd Garrison is advising us on this matter now. L: Vell ask him whether he doesn't think that that firs has three or four men who would be fine. H.M.Jr: That firm. L: Yes. It was his own firm at one time, 80 he would probably give you the same names. H.M.Jr: Well is there any particular person in that firm that you know off L: No, I'd rather out it generally. I mean I know I would prefer Robert Benjamin to anybody else. H.M.Jr: Yes. L: But the difficulty is that Robert Benjamin 18 doing some work for Herbert. H.M.Jr: I see. L: In connection with administrative court. H.M.Jr: Yes. L: He's acting as Commissioner. H.M.Jr: Yes. L: And I think that's taking up all his time. H.M.Jr: I see. L: Practically all. And that's the same firm you know from which Cleveland's Senator. H.M.Jr: Yes. L: Ie taking for Herbert's investigation. H.M.Jr: Over in Brooklyn. - 4 - 210 L: Over in Brooklyn. Yes. E.M.Jr: Amon. L: It's a grand firm. E.M.Jr: I see. Amon was with that firm. L: Ch yes, Amon 18 with - Amon 18 still a partner there. E.M.Jr: X see. L: And now, Henry, if that firm doesn't - if you don't think that that firm will do, ask Garrison what he would think of Whitney Seymour. E.M.Jr: Whitney Seymour. L: Yes. We found the objection of Whitney Seymour is this. That he's - he is in you know used to be Solicitor General. H.M.Jr: Yes. L: Fe vas an assistant of in the Solicitor General's office. E.M.Jr: I see. 1: I don't know whether that's a disadvantage. Otherwise he's a grand man. E.M.Jr: Whitney Seymour. :: Yes. He's a liberal. E.M.Jr: Yes. :: Re's very much & liberal, and he's done some very fine court work. E.M.Jr: I see. L: - Whitney Seymour 18 an outstanding man. Is 8. coming man. E.M.Jr: Ee 1s. L: There's no doubt about that. I'm booming him for Dean of the Yale Law School. 211 - 5 - H.M.Jr: You did - you did what? L: I say I am booming him for Dean of the Yale Law School. H.M.Jr: I see. L: I - just to show how much I think of him. H.M.Jr: Right. L: I - he's E. great friend of the Liberal group. I know him through his friendship with Judge H.M.Jr: Oh yes. L: That's how I know him. H.M.Jr: I see. L: And then Henry, there is also in H.M.Jr: Yes. L: A man named Henry Friendly. H.M.Jr: Henry Friendly. L: Who 1s an extraordinary man. H.M.Jr: He 1s. L: He's a young Jew. He's married to a daughter of Judge Stern of the Supreme Court of Pennsylvania, and he made the best record at the Harvard Lew School in fifty years. E.N.Jr: oh - L: And he's now & partner in the H.M.Jr: I Bee. L: And those men - I think you'll find one of them good and I know Garrison would know all of them. H.M.Jr: I see. Well I'm ever 80 much obliged. 212 - - 6 - L: All right Henry. H.M.Jr: And I hope to see you - L: Good luck to you. H.M.Jr: Thank you. L: Goodbye. H.M.Jr: Goodbye. Regraded Uclassified 213 January 4, 1940. 12:47 p.m. Senstor Timg: Good morning By deer friend. E.Y.Jr: For are you! I: Oh, bully. S.M.J:: Senator, de you remember we were talking to each other about a week ago. : Yes, sir. F.N.Jr: And you said you wanted to talk some time about taxes. :: That = die my dear brother. I have such - I'm scrry to say - I'm glad you - I rely upon you absolutely. Vell - = hope I - I: If you should say anything I'd believe it, I don't need any corroborative evidence. E.M.Ir: Vell here's the thing. As the matter stands right nov. I zeen we're sort of marking time. T: Yes. To see what Congress 16 going to do, but If you have something special on mind I'd be delighted to get together with you at your convenience. I: Well I shall - I've had several interviews with Stam and I'm going to have another, you know. E.M.Jr: Yes. I: Our expert. M.D: Yes. 7: Are : vent to tell 11th him again tonorrov or next day and the latter part of the week or early sext reek I'm going to claim the privilege of calling you TO. E.M.Jr: I would enjoy that very much. I: I don't vant to increase taxes but ve're got to, 214 - 2 - it seems to me, and I didn't like the President's suggestion yesterday that we'd sort of label the war relief taxes separately and levy them separately, I don't believe in that. The moment that you begin to segregate, say we'll be so much for this and so much for that, and 80 much for the other, everybody in a given category will try to get all that he can, when you add up all the categories, it's a great deal more than if you had just one general fund from which state. E.M.Jr: Vell, whenver you're ready, I'm at your service. : Thank you a thousand times. Good luck to you. E.M.Jr: Goodbye. 215 January 4, 1940. 3:05 p.m. E.M.Jr: Hello. Senator Serrison: Hello Henry. E.H.Jr: I hear you were in this morning. AT Yes, I dropped by. I'd been over with Cordell Hull most of the morning. F.M.Ir: Oh yes. ii And I dropped in just to speak to you and Johnny, and Danny Bell, but you weren't in your office. When I got through I had to come back to the Senate. F.M.Jr: Oh! How'd you like - in It was nothing important, merely I wanted to talk to you some time. H.V.Jr: How'd you like to come and have lunch with me next week? iii Well Henry, just don't fix any day certain because I've got a lot of things here on my hands that I'm trying to particularly now on these trade agreements. R.Y.Jr: Right. F: And for a few days I'm going to be awfully tied in. E.V.Jr: Well - iii I'm Just now trying to read this budget. I haven't gotten into it all yet. H.M.Jr: Well, when you've got a little time, will you give me a ringt BE Yes. E.M.Jr: What? 6° Yes. H.M.Jr: Supposing you de that. at I think you 616 & great job on the sppointment of Danny Bell. 216 - 2 - H.M.Jr: Yes, he's & good fellow. H: Oh yes. Well good luck to you Henry. H.M.Jr: Thank you. Regraded Uclassified 217 Jamary 4, 1940. 3:09 p.m. H.M.Jr: Hello Bill? Yr. R. Myers: Hello Henry. H.M.Jr: For are you? X: Fine. Sorry to bother you, but I vanted to be more sure just what you vanted. Did you vant comments primarily on Blough's memorandum or did you went any criticisms or comments on the whole certificate plan? H.M.Jr: Yell I think or the whole plan. Blough's memorandum 1s just - well is just a guidance, that's all. F: Yes, I see. E.M.Jr: Seet M: It's an awfully good statement. I think that his statement 1s excellent. H.M.Jr: Yes. M: I'm - got to be out of town tonorrow. H.M.Jr: Yes. M: Are you going to be in Washington over Sunday? H.M.Jr: Ho, no. M: You're going home. H.M.Jr: Yes. M: Then I've either got to get it to you Saturday. H.M.Jr: No, Fenday will be time enough. M: Monday? H.M.Jr: Yes. M: All right. I'll have it there Monday. H.M.Jr: Thank you BO much. X: I my not be such good, but we're doing our best on it, 218 - 2 - H.M.Jr: Thank you FO much. M: Is there any hope? S.M.Jr: of what? M: Killing it. H.M.Jr: oh yes, good hope. M: Well, I do my best. F.Y.Jr: Yes. All right then. M: Thank you Henry. F.M.Jr: Thank you. 50 Goodbye. STRICTLY CONFIDENTIAL 219 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION - # I I TO Secretary legation FROM E. Codem the - Many telephoned at n e'clock this and to IN = - that a cableges had has reselved from China giving the information *** I a I Y as 1 a Department w 1 T June the antimony selsei r the Franch is Indo-thima, 4000 true - ad 3m, are antiony. All of this is stored at Hafphong. In date the but address have not rusel my part of it. HMS Coohran flease check This against us her allies and cuformation given let me CA 220 Receipt acknowledged and copy of material sent to Blough 1/6/40. 221 Columbia University SCHOOL LAW January 4, 1940 Dear Henry: I have read through carefully the three and enclosed with your letter of leary 2nd and have also discussed the screwhat with two of 47 colleagues. My reactions to the proposed income certificate plan are briefly as follows: 1. It is not possible to pass upon the legality or constitutionality of the proposed plan without E emmination of the actual bills themealves. Novertheless, it is libely that the legislation could be BC tran as to be valid within the principles which the Supreme Court laid does in Mulford v. Smith, 307 U.S. 38 (1939). 2. Without passing upon the desirability of the payment of a subsidy to some bet not all funers, the proposed plan, in X) opinion, is E undestrable authod of providing the funds necessary for the instrud payments. The persons who will be called upon to lear the charge, in general, the - of the products brought miss the plan, are by no - an ideal group upon which to impose additional taxes. The charge in question would bear no relation whatever to the consumer's ability to pay and many, indeed most, of the persons who would be called upon to bear it are persons who should not be subjected to additional taxes at this time. 3. The proposed charges are very heavy with respect to the market prices of the complities involved and the charge 1a severely regreesive in that it does not take into account the sales price of the product, but neraly the partity of rew material going into it. In this respect the proposed charges are less desirable M & in of taxation then a general males tax. 4. The fact that those farmers who come min the plan would be considerably benefitted and night obtain a. larger share of the national income does not mine the charge into s "progressive" tax. There 18 so assurance whatever that addition- al expenditures by the benefitted furners would serve to increase the incomes of the under-privileged persons who are being heavily taxed to pay the benefits. Regraded Uclassified 222 Non. Henry Morgenthau, Jr. page 2. Jan. 4, 1940 5. Finally there 18 strong objection to the operation of a plan of this sort outside of the budget. We need a better general comprehension of the detailed receipts and expenditures of the Federal government rather than conceal- ment or confusion regarding Federal fiscal affairs. The institution of this plan would make it much more difficult to determine what the actual tax burdens of our various citizens are and what our actual expenditures are. As you know, I vas strongly opposed to a reenactment of the old processing tax with reasons akin to those stated above. The income certificate plan is an ingenious idea but in its taxing features is subject to all of the objections that vere mde against processing taxes. I have tried to summarize in short form the principal objec- tions to the new plan as I nee them, since the memoranda prepared in the Treasury are excellent statements of the various other objections. Sincerely yours, Rosmell masice Non. Henry Morgenthau, Jr. Secretary of the Treasury Washington, D. C. Regraded Iclassified CONFIDENTIAL 223 TREASURY DEPARTMENT INTER OFFICE COMMENICATION DATE Jenuary 4, 1940. TO Secretary Morgenthau FROM ltr. Cochran In The foreign exchange market ves fairly puiet today with the volume of sterling transactions greater than that of pesteriar. In sterling opened at 3.94-7/8 and by the time of the specing : the ler Inrk murket it had receded to 3.94. It vas reported that this townsel revent reflected selling in insterdan for Continental account. In Dev Tazic the first transaction wert through st 3-93-3/4 and during the norning it and off further to a law for the day of 3.92-3/4. In the course of this decline - offering of sterling grain bills appeared in the New Tark market. During the the sterling noved within a mrror range and closed at 3.92-3/4. Sales of spot sterling w the for mating benks totaled 5515,000, from the following sources: By commercial concerns L 281,000 by foreign banks (Europe and let 3est) L 237,000 Total.... 18,000 Purchases of spot sterling and to 2420,000, as indicated below: By commercial concerns 1279,000 by foreign banks (Europe, laz lest and South America) $ 141,000 Total.... L 420,000 The following reporting benks sold esttm bills totaling $38,000 to the British Control at the afficial rate : 4,02; - 26,000 4 the Guaraty Trust Co. 10,000 by the Chase Intional Bank 2,000 by the Intinal City last 1 38,000 Total The rate for the Cuben peso father informed to 10-13/16% discount. the Xexican peso remained at its current Inc level d 1672. The other important currencies clased as follows: French franes -0822-3/4 Guilders Syles frates Belgas _1660 Qualism dollars 12-3/166 discount CONFIDENTIAL 224 -2- in en = mill transactions consumated by 25 tring. is Mini inco 30% of Jer Tark reported to IS to filming sitipments 15% = lett Africa, shipped w the South African in 3mit to the himi in 3mb of Iev York, to be end the et of the - En = Into representing tvt shipments to the has Inimi 3mt, in have to sale to the I. S. list there, - 3ml : late Inches Serviced to 23 8 cable tra the Imviste : If imig 22 of the following mild - to Emproge -1,10 X Y the Suried Bank of Inita, of = Include, = to is = Cultifornia I, -, Sez --- = : to 3mpa Belge your 1'Itrage, Inging, = 2 3mlt of zeis 12. 6 S.A., Sez Prencisco. 7400 = : to Entional City Bank, Bonging, to to ertor Inst M If I use 3ml 2 in - = Se mli to the U. S. list at in here. y Ins = In intend = Daily Bline be of Imarts is las 3 INC tor the Chase Instional in Ier Tark a at £76,000 = = Cre = = - consignee in Lisben, httpl : Islend Reserve - == di the Conse Detional 3 to: in latter NE e the in accordance with instructions = to 30 of Partugal. Cirp = - = = the notive for the purchase, to be Inimi 3mt Kind is to the - = be used for coinage purvises. = de - in to Lonion at 21-5/16d (aff 5/18 mi to form price les X it 342 e 1/42). For both eyet = fourt de to I, £. ex = = 57.814. from London received : la Int benire the the to to : belings in the London diver ariat MI - all 31 H 5 21 III If a If If il Into Cre it 3-34 mi 35d respectively. Te à the - of silver totaling 225,000 name is the Have - e. L of the doe was new troduction from trip of was - in ind billing. p.m.). Regraded Uclassified STRICTLY CONFIDENTIAL 22 TREASURY DEPARTMENT Regraded Uclass INTER OFFICE COMMIUNICATION DATE Junuary L, 1940 a Sentey FROM t. E. Financial Commler = the he labury, telephoned If last right at 5:40 1.1. is stated the size all of the required instru- tiem in april to upendag the quelal - # the Federal luen 3mail: of Sev Int bill art ben montral yestering mis, be had telephoned directly to the Irnat of that Eride of the Trant Plaintry of Finance. 3 bad less informat that all of the patata IT? to be cerried through in complete and with the unierstanding to be had restal with ze, but the dalay visa any at unsvuldable - malting the the an that Einister of Pinance leyand vas = notice and that the Bank of has, particularly in the brief absence of long have, onli at mile the destred instructions to the Federal insure 3 of Tes Int, lacting a. signt from Minister leymant. Date - certain 1 in For Tack with the French Government vsa supposed to ab pritering, we ball the = 3 stated that be had product that all beginning in 1940 will be unde under the 200 of by « at - to the all quien of payments. ,71 "II a a und a 1 12 a 23 Il 5 É tarily. restioned that in mill depart Y diger plane - Saturday, January =, if in = at - = state = Junuary 11. Shere has bem delay because = 1 being half = by vatier both in the Arores ni 3enia. In M met, legistin paint to be in Marington - Triday, January 5, to 11 s'elneic this arring, I spote ét by telephone and told to that If be planni to = to - the Secretary would be dai to notive is st 20c15 term mmlg, especially since the picture ind changed sizze the Secretary W dre 2 ml may for commission to Information Militt. accepted this appointment. is had in incided to moneyt - = the plane in - 10, so be did not the with = his artie request the I isem di the Airways time Time Prediest Dooper them all 6-7100) to get for his a reservation si à A In comection with b. equation in regard to the account, there stould be mi the repart of b. Indo of His telephone coa- = Junuary 3 with b. Carigtal of the 3mt of Presce, which currersa- tim b. Indo tald = des det - spoke by talegiame late posteriar realing, R.S. 226 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Jan. 4. 1940 Secretary Morgenthau FROM kr. Cochran STRICTLY CONFIDENTIAL E. Incime telephoned BS that the Royal Bank of Canada branch in In Tet bei informed his that the Royal Bank of Canada branch in Earas had inquired whether the Treasury Department might be interested in bearing the expense of bringing to this country $500,000 of U. S. gold certificates INV in the deposit of a "valued client* of the institution in Cabe. It is mierstood that the certificates are in denomination from $10 to $100. After reading the order of the Secretary of the Treasury of December X, 1933, requiring the delivery of gold coin, gold bullion, and gold cer- tificates to the Treasurer of the United States, and after talking with it. Daniel Bell, I informed Mr. Knoke that we interpreted this order as applying only to gold certificates within the jurisdiction of the United States and that reimbursement for expenses incurred in transporting car- tificates from without the jurisdiction of the United States should not be borge by the freasury, I suggested to Mr. Knoke that this present trans- action might arise from the necessity of some British subject being obliged nise present British regulations to declare his foreign exchange holdings, at that we night be faced with a number of such propositions. if " mis- took to pay the expenses in the present instance. I - not aware whether the Secret Service would have any interest in such a case. 13.m.R. Regraded Uclassified 227 TREASURY DEPARTMENT INTER OFFICE COMMUNICATION DATE Junuary a. 1940 TO Secretary FROM Mr. Cochran STRICTLY CONFIDENTIAL Mr. Knoke telephoned 200 this afternoon that a cablegram had fast boen received from Governor Fouraier of the Bank of France to President Harrison of the Federal Reserve Bank in Sev York, reading as follows: "In agreement with French Government I authorise M to communicate to the Secretary of the Treasury of the United States Mr. Morgenthan personally and confidentially the special account opened on your books for the Bank of Prance in accordance with letter of December 8 of which Insure has shown you copy. Kind remembrances. Signed P. Mr. Inoks added that another cablegram had been received by Barrison from Fournier today confirming the letter of December & the original where- of has not yet been received, that Rousseau has full powers to draw OR the Bank of France Special Account. It appears, therefore, that all of the conditions have been net and the technical arrangements consummed for the Special Account of the lank of France with the Federal Reserve Bank of Sev York. Mr. Incice has promised to send a transcript of this account as of the close of business of each Tuesday. 228 Regraded Uclassified I - AU kr. Astress: : - transmitting harevith for the information of per Desdite a rest which the recommendations mde w a Large - of and officers of organizations to later learnary Knaws sad other officers of the treasury Department. this name) is based on Letters received nat a. series of - hald is the Treasury Department in reduct with following credit w ambere of 7002 consittee of the belief that 11 would M instruble to obtain from texpayers (mmerally their rien if to changer that should be nade La the toz rination. he report is unal to your request and that of No. in Cooper, him of the on laternal loveme batie, - to later incretary lisses st the neeting of the Inhermittee, lender 7. 1939. n should be understand that this name) does aet M the rica of the Treasury Department on a of the mhjorts Purther, 15 should be employized that while the report is Insel M same with statemate and on interview with a very considerable maler of interers 11 cannot be und to represt I cross-section of the rieve of all insurers, and 30 attempt has we unde to determine to what extent the views expressed 5 hald n Inform state ITAL a you - in I in MM at the the before the treasury representative and - time of wittes statements VITO voluntary and st the - el individuals and organizations vishing to present their views, nd is Le believed that ealy those vith M active Laterest responded M the Department's videopreed Invitation. film latygram of relatively Large Locemes eac important bustases my 5 and lossly conscious of to problems, it 10 quite natural that the provier unless of ngesties for changes is the reverse gates should - from them. foreover, the experience of this on vith the siministration nd application of the Invoice loss is, of news, vider than that of other segments of the temaring public. is - MAM implar the value of the experience est the sincerity of these texpayers' representatives, allowance, is 1 visits, should be made for these faste is appraising the report. 229 n . . h eptio of this limitation the must will, I him, be food r I 1 I 1 $ $ 1 J a - s a 1 1 I I 1 = I I I 1 s s s I to smirt is in statiss of the tot - I I = a I the Insurable I I al I I I ] 9 1 I By measenger 1: to for 1/4/20 Regraded Uclassified 230 JM4 M w I July I use to - information & - - 1 $ , I I it a I # a I 11 I I I - # # # 1 - a $ I I 1 # i de I ] 1 # 6 setud to the hants of indicted Inter I 4 - des & I i I a 1 I I 1 a I I a I I 1 J # 1 (Signed) H. Morgentham = I to I a the 1 be - of - Original 7 In litter sent by He Manager 1-4-40. / Regraded Uclassified 231 JRN 4 1940 1 des % - 2 following the will be nb distr d - the to urtima of information al de a nim doult n I Reduction I $ I a 1 e I 1 i 1 1 a à 1 $ I I ( I I $ I I 1 1 % me . I I - I s I I 1 $ I i I y I - is der that be my - date be er my other - w the staff also will - nt adven, I I - of I 1 $ # TIPS $ I 1 I 1 1 I i I 1 1 I I 3 1 - I a Janes 1 = I a J # f i I $ 4 1 E 1 5 a If il is distributed to all off use I # * 1 s I il a I I I - a siten W this etc, dault with w $ 1 , & = n I w I I 2 I al s I 1 I a a - a I $ - 1 I (Rigal) I Jr. I - a I e Regraded Uclassified 232 % earles mile and delivered to n. Thompson's office. deples distributed to the following: Bell, D, 1. Coston Earris Exite $ these distributed personally w w Poley Read Cuires Dvan Johnson Item Analinger Cystom Viser Riefler I $ 1 I Cochren Letter to may. of Mate with copy w minoagraph sent w fyl, 140 232.A THE SECRETARY OF B THANK Washington issury 4, 2940 To Staff Members Concerned: The following plan will be made effective at 0208 for the coordination of information at actions = matters dealt with jointly by the State and treasury Departmento relating to trade agreements, neutrality enforcement, cumercial policy, cooperation with American republics, reciprocity in- formation, foreign dabta and timilar subjects, 1, Any staff member prior to attanding 4 mosting oz conference with State Department officials will notify Xr. Gaston in order that he may determine whather be or aty other members of the staff also will attend nch conference, 2. Immediately upon completion of a conference or meeting with State Department officials, staff missing will prepare and transmit to Xr. Gaston 3. outlining the subjects which have been discussed and decisions, if ci. which may have been reached, L. Gester will 983 that and information is distributed to all staff concerned, 3. Mr. Gaston will in his plant keep the Secretary informed on matters covered by the order, dealt with by staff members, 4. Cable cassages received à E. Cochran will be is tributed directly by him to the Secretary, 1:, Ball, and other staff members concerned. et not Secretary of the Treasury. 233 (Comfidential) for PARAPHRASH 1 confidential telegram (no. 10) of Junuary x, 1940, from the American Inhassy st 2mgking reads substantially as follows: According to information received by the Tubesay, strements efforts are being mis 4 the Oriness Government to relieve the congestion at Hadphong of shipments destined for the Chinese Government. On January 3 there was adupted 8 proposed method, a brief sumary of which follows: Civil government mels skipped from Imaing will be handled by the China Transport Corporation ml ailitary noods will be handled by the Southmest Transportation Company. here will be M assessed of other freight. The French Tunnan Railway will receive unist lease for the exclusive THE of the Chinese Government all of the rolling stock and by that Government. these SITER and one-half miles (near Kimming) of built track of the Inc. Suecimen Bailway is to be turned over to the French Hailway so that leading stations for outward and inward cargo my be distributed with a view to sufety and speed. Is order to sale the greatest possible use of the Fresch failmy is the shipment of vital materials, there will be no shipments of railmy materials, Fith a view to rapid transfer to trucks at Kamsing civil and military freight is to be set apart at Halphong. To further freight for the Chinese Government will be imported at Haighong: Rungoon will be used instead. For its guidence is rerenting and shipping, & list of essential shipments in order of urgency will be given to the Southment Transportation Company which will have sole authority at Haipbong including - shipment to In of freight which has arrived already. the gualise supply will be give strict attention and all gasoline at Kussing will is allocated " the Liquid Fuel Centrol Commission. 234 Jamary 4, 1940 Collins caze :- it 9:15 this serains and told 26 that it will take around $400,000,000 for plant expension, etc., to get England and France the 20,000 notars that they want, but that 10 could not begin de- livery before September, BO I arreed to his suggestion that be ast the French and Inclish bow much money they late got to spend and then let's see what we could give then for their may. The General Motors tar, :- charge of Allison optors, says that be thinks it would be 2. great mis- the to try to use the automotive industry to build stoplane engines; that they, 1: the Allison Motors, Late tried to get help from Cadillar at have been unable to do so. COMENT: It seems very discureging. Another bottleneck will be the of the tools and des, ES he said that Allison Notes find that they care : will DOW for six ponths for DER tools. The American industry will cot be the to give the Allies ést they met, manely, 20,000 airplanes in the calen- car year 1940. It just cannot be done. Regraded Uclassified 235 January 4, 1940. 2:50 p.m. Sumner Welles: The Colombian told me yesterday, Dr. Jaramillo. H.M.Jr: Yes. V: That Traphagan had called up and made arrangements to see him at the Colombian Embassy on Saturday. H.M.Jr: Fine. V: And they were going to suggest to him that they continue sitting around the table until the matter was settled. H.M.Jr: Wonderful. V: And that they'd keep me posted as to what happened, and I've no doubt that Traphagen will keep you posted. H.M.Jr: Fine. V: Fould it be possible for you to have a meeting with Jesse Jones and myself early next week? H.M.Jr: Surely. We could set it for three o'clock for Monday. W: Three o'clock Monday afternoon. H.M.Jr: Yes. V: Well that'll be grand. H.M.Jr: I'll get in touch with Jesse. V: I think it might be helpful. We haven't net for some time. H.M.Jr: Fine. V: All right, thank you Henry. H.M.Jr: Thank you. W: Goodbye. H.M.Jr: Goodbye. Regraded Uclassified 236 January 4, 1940 If Hull had made & fight on the question of the Argentine Trade Agreement, then this would have been presented to the President. The Secretary asked to have this put on file, and if a fight should develop then the Secretary will ask for this memoran- dum with the idea of presenting it to the President, but in the meantime it is to be filed. 237 THE SECRETARY OF THE TREASURY WASHINGTON FOR THE PRESIDENT: The State Department wishes to include in a proposed Argentime trade agreement a provision with respect to exchange controls somewhat along the following lines: If the Government of either country estab- lishes or maintaine any form of control of the means of international payment, it shall impose no prohibition or restriction on the transfer of payments for articles the growth, produce or manufacture of the other country or of payments necessary or incidental to the importation of such articles, etc. It is my understanding that Argentina prefers that the exchange control provision simply involve 5. guarantee of most-favored nation treatment (which appears generally in our trade agreements), but that State Department believes that the American exporter will receive greater protection against discrimination if Argentina will agree to place no restrictions upon the granting of foreign exchange for goods imported into Argentina from the United States. If the above provision is included in the Argentine trade agreement, and if, by reason of the "most-favored nation" clause, it is generalized to all countries with whom we have agreements, then the power DOW possessed by the President and the Secretary of the Treasury to employ exchange control for the purpose of controlling imports is seriously curtailed. In view of what I believe to be your instructions to maintain a free hand to move on & twenty-four hour basis with respect to foreign exchange control, I am reluctant to 4 prove the inclusion of the above provision in the Argentine trade agreement without taking this opportunity of calling your attention specifically to this matter and obtaining your express approval to this restriction of our foreign exchange powers. To can not be certain at this time that the occasion my not arise necessitating foreign exchange control here sought to be limited by the Argentine agreement. 238 . 2 - The Esuador trade agreement signed in August, 1938, contains a limitation on foreign exchange control similar to that proposed to be included in the Argentine agreement. However, if you agree with the views which I have expressed in this memorandum, it would seen desirable for the State Department to take appropriate action to modify the per- tinent provision in the Evador agreement and in any other agreement where it my appear. we were not consulted (3) In the case of Ecuader 239 MEMORANDUM FOR THE PRESIDENT: The State Department wishes to include is a proposed Argentine trade agreement & provision with respect to exchange controls somewhat along the following lines: If the Government of either country sotab- lishes or maintains any form of centrol of the MARS of international payment, it shall impose no prohibition or restriction on the transfer of payments for articles the growth, produce 07 manufacture of the other country or of payments necessary or incidental to the importation of much articles, etc. It is ay understanding that Argentina prefere that the exchange control provision simply involve a guarantee of most-favored nation treatment (which appears generally in our trade agreements), but that State Department believes that the American exporter will receive greater protestion against diserimination If Argentina will agree to place no restrictions upon the granting of foreign exchange for goods imported into Argentina from the United States. If the above provision is included in the Argentine trade agreement, and if, by reason of the "nost-favored nation clause, 11 is generalized to all countries with whom " have agreements, then the power now possessed by the President and the Secretary of the Treasury to employ exchange control for the purpose of controlling imports 10 seriously curtailed. In view of what I believe to be your instructions to maintain e free hand to sove on a twenty-four hour basis with respect to foreign exchange control, I as reluctant to ap- prove the inclusion of the above provision in the Argentine trade agreement without taking this opportunity of calling your attention specifically to this matter and obtaining your express approval to this restriction of our foreign exchange powers. No can not be certain at this time that the occasion may not arise necessitating foreign exchange control here sought to be limited by the Argentine agreement. Regraded Uclassified 240 2 The Studer trade agreement signed is ingust, 1998, centains a limitation ⑉ foreign exchange centrol dallar to that propesed to be included is the Argentine agreement. Nevever, If you agree with the visus which I have expressed in this memorandum, 18 wild ⑉ desirable for the State Department to take appropriate setten to secify the w- timent provision in the Bounder agreement and in m other agreement where 18 my appear. 241 Dictated January 5, 1940 At 9 o'clock last night, at the Judiciary Re- ception at the White House, I told Secretary Hull that I had sent word to Purvis and asked him to get work to Monnet to postpone the coming to this country of Professor Rist and lb. Owatkin. Kr. Hull said, "Well, what are they coming over for?" I said, "They were coming over to talk to 28 about enbargo in connection with copper and cil.' 'Ch,' he said, "For Heaven's sake don't let then code over here to discuss anything of that nature. So I said, "Well, that's the way I felt, but I at sure you will hear more about it," meaning that be would most likely hear from Bullitt.