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Volume 283, July 16 – July 17, 1940
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Volume 283, July 16 – July 17, 1940
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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 283
July 16 and 17, 1940
- A -
Book Page
Appointments and Resignations
FDR to approve all appointments as long as HMJr
remains Secretary: HMJr again explains this at
9:30 meeting in connection with Commissionership
of Customs - 7/17/40
283 174
a) W. R. Johnson given commission - 7/19/40:
See Book 284, page 198
- 0 -
Chile
See Latin America
Customs, Commissioner of
See Appointments and Resignations
- F -
France
See War Conditions
Freight Shipments
Haas memorandum - 7/17/40
217
- G -
Gold
Japan: Exports decreasing - report from American
Consulate, Kobe - 7/17/40
154
Great Britain
See War Conditions: United Kingdom
Grunewald, Henry
Federal Bureau of Investigation report - 7/17/40
186
- J -
Japan
See War Conditions
Johnson, W. R.
See Appointments and Resignations
- K - -
Kelsey, Benjamin F. (Captain, United States Air Corps)
See Puleston, William D. (Captain)
- L-
Book Page
Latin America
Chile: Hochschild transmits copy of report concerning
defense law - 7/16/40
283
137,140
- N -
Mexico
Hochschild transmits report - 7/17/40
138
- N -
Nye, Gerald P. (Senator, North Dakota)
See Grunewald, Henry
- P -
Procurement Division
Good publicity desired by HMJr - 7/17/40
182
Puleston, William D. (Captain)
Report based on conversation with Captain Kelsey,
United States Air Corps, just back from visiting
air squadrons throughout England - 7/17/40
290
- R -
Revenue Revision
Amortization (Vinson-Trammell Act) feature of special
additional facilities: Budget alteration of letter to
FDR prepared in Treasury establishing cooperation
between War Department and Bureau of Internal Revenue
rejected by HMJr - 7/16/40
24
Outside lawyers' acceptability to Treasury discussed by
HMJr, McReynolds, Biggers, etc. - 7/17/40
316,318
- S -
Stimson, Henry L.
Explains to HMJr steps leading to acceptance of
Secretaryship of War 7/17/40
164
a) HMJr tells Stimson he must get rid of Louis Johnson
b) General Arnold also discussed
- U -
Unemployment Relief
Works Progress Administration: Unemployment decrease of
55,000, week ending July 3, 1940
95
United Kingdom
See War Conditions
- V -
Vinson-Trammell Act
See Revenue Revision
Regraded Unclassified
- R
Book Page
War Conditions
Airplanes:
Engines:
Rolls Royce Griffon: Beaverbrook's permission
for release to Knudsen - War Department informed -
7/16/40
283
135
a) Correspondence with Stimson:
See Book 284, page 59
b) Copy of letter to Kaudsen
132
1) Knudsen promises to guard carefully:
See Book 284, page 55
Aviation:
French Technicians: Employment of suggested by HMJr
to FDR
5
a) Louis Johnson points out restrictions
forbidding employment of aliens in
United States Government
Blast Furnaces:
Map showing number in United States and distribution
by districts - 7/16/40
82
Exchange market resume - 7/16-17/40
92,215
France:
Employment of aviation and ordnance experts
suggested by HMJr to FDR.
5
a) Louis Johnson points out restrictions
forbidding employment of aliens in
United States Government
2
Purchasing Mission personnel and plans:
Bloch-Laine and Purvis wish to discuss with HMJr -
7/16/40
6
Federal Bureau of Investigation representative
reports on French plans and specifications -
7/25/40: See Book 286, page 249
General Situation: Resume by American Embassy -
7/16/40
67
Japan:
Yonai Cabinet falls; Konoye to form new Cabinet:
Commercial Attache, Shanghai, report - 7/17/40
143
Gold exports decreasing: Report from American
Consulate, Kobe - 7/17/40
154
Purchasing Mission:
See also War Conditions: France; United Kingdom
Vesting Order: Official sales of British-owned
dollar securities - 7/16/40
91
Reports of money spent by months based on actual
contracts already left to be filed monthly from
now on: HMJr's instructions to Hass - 7/17/40
168
Resume of accounts with Federal Reserve Bank of
New York. - 7/17/40
275
Securities Markets (High-Grade):
Current Developments: Haas memorandum - 7/16/40
108
Strategic Materials:
Supplies built up as result of cooperation between
Reconstruction Finance Corporation and Treasury:
Stettinius release - 7/16/40
40
Regraded Unclassified
- W - (Continued)
Book Page
War Conditions (Continued)
United Kingdom:
Military Situation: Reports from London transmitted
by Lothian - 7/16-17/40
283
127,198
Phillips, Sir Frederick:
Conference; present: HMJr, Phillips, Bell, Viner,
Cochran, White, Stewart, Bewley, and Pinsent -
7/16/40
121
a) Conjectural balance of payments between
United Kingdom and United States -
July 1940 - June 1941
119,125
Luncheon and discussion later with Bewley, Pinsent,
White, and Cochran - 7/17/40
203,229
a) Dollar requirements of United Kingdom
exchange control
205,222
b) Pinsent memorandum prepared for Phillips
concerning "possible apprehension on the
part of American banks with respect to
their credits extended to British concerns" -
7/17/40
209,211
o) Bewley memorandum giving detailed items of
foreign exchange assets - 7/17/40
226
d) Bell memorandum on luncheon conference
229
Purchasing Mission: Payments (conjectural balance)
between United Kingdom and United States -
memorandum presented by Sir Frederick Phillips -
7/16/40
119,125
Woodring, Harry H.
Federal Bureau of Investigation report - 7/17/40
186
Works Progress Administration
See Unemployment Relief
OFFICE OF
THE SECRETARY OF THE TREASURY
July 16, 1940.
1 copy of translation of documents
from German White Paper No. 6.
Received by maLHanS
THE WHITE HOUSE
WASHINGTON
July 16, 1940.
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY
FOR YOUR INFORMATION
F. D. R.
Regraded Unclassified
WAR DEPARTMENT
WASHINGTON
July 5, 1940.
MEMORANDUM FOR GENERAL K. IX, WATSON:
Subject: Employment of French avistion and
ordnance experts.
Mr. Morgenthau's memorandum on this subject has been
given very careful consideration by the THE Department. Selected
technicians of unquestioned loyalty and discretion could un-
doubtedly be used to adventage at this time. However under
present lawe aliens cannot be employed by the Government, and
unless this restriction is removed the services of foreign
experts would have to be utilized by commercial firms engaged
in airplane and arainent production rather than by the War
Department, Foreign ordnance experts are hendicapped initially
by difficulties in language, systems of menufacture and labor
relations; and B.S. a matter of fact those who were brought to
this country during the World War proved to be a source of
considerable embarrassment because of their tendency to pub-
licise information and engage in unnecessary political activi-
ties.
je are Soubtiul 1f such can be accomplished by the
proposal at the present time, except possibly in the case of
a few outstanding experts whose services might be of such
value as to outweigh the complications involved in their
employment.
houis Johnson
Acting Secretary of Mar,
THE WHITE HOUSE
WASHINGTON
June 20, 1949.
IN:
To take this subject use visa
Have and Advisory Council.
7.0.7.
Regraded Unclassified
5
THE SECRETARY OF THE TREASURY
WASHINGTON
June 24, 1940
JUN 24 RECEIVED 2 45 45PM
THE WHITE HOUSE "40
My dear Mr. President:
The French have unquestionably learned a lot at
a tragic cost. There must be a number of top flight
aviators, aviation engineers, ordnance engineers,
and designers who know through bitter experience what
they should have had. France, as you well know, has
been in the ordnance business for a lifetime.
It seems to me that if a number of these men
could be brought over here immediately and put at
the disposal of the "Nar and Navy Departments that
we could profit greatly by their experience.
Yours sincerely,
The President,
The White House.
Regraded Unclassified
Purno meeting
6
notision
Hing has
only P.4. cof
7/16/40
Memorandum for C.T. Ballantyne
(Not to be left in writing but you can
make suggestion verbally)
Mr. Bloch-Laine would be very happy
to respond to an invitation from Mr. Morgenthau
to spend five minutes with him on the subject if
Mr. Morgenthau feels it is desirable.
Thereafter Mr. Bloch-Laine would be only
too willing to ask the French Ambassador to agree
to the course proposed.
Mr. Bloch-Laine would in any case, I believe,
appreciate the opportunity of having a few minutes
with Mr. Morgenthau as he is now in process of
affecting his break with the Mission.
July 15, 1940
A.B.P.
appointment made for 2. 7/18/40 45 pm
P4.
Stan
7/16/40
MEMORANDUM
French Purchasing Commission
Personnel and Plans
(a)
It has come to our knowledge that a
group of French production engineers of high calibre
arrived in the United States just after the armistice
was signed. They have with them full plans and
specifications for the manufacture of tanks. In view
of the new situation they propose to sail for France
In the very early future.
(b)
Amongst the members of the French
Purchasing Commission was General Salmon who arrived
just before the French armistice. He has very full
plans and specifications of guns and amminition used
by the French, including such working drawings as
will be necessary for manufacture. General Salmon
was asked by Mr. Monnet to hand these plans to the
British Purchasing Commission which he only did to the
extent of & very small part of them. In certain
instances the French have on this side actual guns, for
example the 20 m.m. Hispano Suiza gun, which was sent
over for the purpose of testing ammunition made in this
country. This gun is also to be packed in the early
future and sent back to France.
(c)
Under the French assignment agreement
the British Purchasing Commission is taking over a
torpedo contract for the manufacture of torpedoes with
B.W. Bliss and Co. The firm of Bliss have in their
possession certain plans, drawings and gauges without
which the contract cannot be successfully implemented.
Regraded Unclassified
8
2.
In regard to (a) and (b), it is suggested
that it might be very valuable to the new defence
programme if an invitation could be extended by the
United States Administration to these men to enter
U.S. employ. It is believed that they would possibly
welcome the opportunity provided it was acceptable to
their Ambassador and they could be obtained no doubt
for very reasonable remineration.
As regards (b) it is suggested that it
might be well if an invitation could be given by
Mr. Morgenthau to the French Purchasing Commission to
leave the plans on this side of the water, available
for use in connection with the United States defence
programme, and particularly to permit the 20 n.m. gun to
remain here for purposes of testing the 20 m.m. ammuni-
tion, in which both the United States and the United
Kingdom are immediately interested.
As regards (c), it would be appreciated
very much if word could be passed to Bliss suggesting
that they should not give up the plans, drawings, gauges
etc. but should retain them in order to permit of the
proper implementation of the contract in question.
The matter is one of extreme urgency as it
is understood that the 20 n.m. guns and certain plans
may be removed in the immediate future. Additionally,
it is believed the tank unit personnel will begin to
go back to France later this week.
DEV
A.B.P.
July 15, 1940
Regraded Unclassified
9
RE EXCESS PROFITS TAX
July 16, 1940
10:00 a.m.
Present:
Mr. Foley
Mr. Sullivan
Mr. Paul
Sullivan:
Invested capital, three hundred thousand;
income, six hundred thousand. Percent net
income, two percent.
Paul:
I should think we should try to summarize
those.
H.M.Jr:
I think so, too. Thank you.
Sullivan:
Mr. Paul and I are not entirely in accord
on this matter. We share the belief that
the smaller corporation should be given
some preferential treatment over the larger
corporations. Mr. Paul feels that that should
be done by giving them all an advantage, both
the successful ones and those that have not
been so successful. I think that the problem
can be solved by giving a lift to the small
corporation that has not been doing 50 well
and I see no reason why the small corporation
that has been doing very well should be given
an advantage over the large corporation that
has been doing equally well.
Now, under his system he proposes to have the
rates which, in the case of the large cor-
porations, are not less than four nor more
than ten, increased for the small corpora-
tions - not less than four nor more than ten -
increased to not less than six nor more than
twelve and in between there, raising all the
rates of those that are in between by multi-
plying the percentage of their earnings to
invested capital by one and a quarter per-
cent; in other words, raising their rate by
25 percent. In other words, the company that
has been making six percent in the pre-emer-
gency period would be entitled to seven and
a half percent.
H.M.Jr:
I am sorry, I don't get it. I am looking
at Ed's socks.
Regraded Unclassified
10
- 2 -
Sullivan:
Take your socks off, Ed, we have got to work
here.
H.M.Jr:
I don't get it, gentlemen.
Paul:
One and & quarter is 25 percent of six. If 8.
corporation has been making six and it is a
small corporation, I would raise it to seven
and B. half. I would raise the ten to twelve.
I would raise the four to six. Mr. Sullivan
and I are in agreement on the lower ones,
raising the four to six. Where we depart
from strict accord in view 13 with respect to
the corporations above six, that 1s, the more
prosperous pre-emergency period corporations.
Now, I think they ought to be given better
treatment than the very large pre-emergency
corporations for the simple reason that a
small corporation's pre-emergency earnings
are not as reliable an index of their condi-
tion as in the case of B. large corporation.
H.M.Jr:
I still don't get it.
Sullivan:
We are not waiting for anybody to change their
socks.
H.M.Jr:
Go ahead.
Paul:
In other words, I think that 1f you are going
to make pre-emergency earnings a standard,
then you ought to recognize the fact that the
small corporation's pre-emergency earnings
are not as reliable an index as is the case
with the bigger corporation. That is a well
established economic fact. Now, I think
Mr. Foley feels that the question depends
on the rates.
Foley:
I have no disagreement with either John or
Randolph, in so far as increasing the exemption
from four to six on the first hundred thousand
dollars. I think that ought to be done. But
when they go from ten to twelve, it seems to
me that would depend on the rate you are
going to use. I think if you are going to
Regraded Unclassified
11
- 3 -
recapture at 40 or 50 percent, it makes a
hell of a lot of difference whether you
give an exemption to a corporation that has
12 percent earnings, over 2 percent.
On the other hand, if the rate isn't going
to be high, then I don't think it is so
important whether you give the exemption -
increase the exemption from ten to twelve
and I think until we know what the rate
is going to be, Mr. Secretary, it is aw-
fully hard to give an intelligent answer
to this.
H.M.Jr:
I agree with Foley.
Sullivan:
May I just make one remark, sir?
H.M.Jr:
Socks or no socks, I agree with him.
Foley:
I will put them down.
H.M.Jr:
Aren't they woolen?
Foley:
No, they are not --
Sullivan:
Insulated.
Foley:
I put on a brown tie. They are the only ones
I could find that had any brown in them and
they are not wool.
H.M.Jr:
I feel better now. I thought they were wool.
Paul:
It takes B. General Counsel for the Treasury
to wear them, though. I don't think an
ordinary tax lawyer could walk around Washing-
ton with them.
Foley:
I agree with you.
Sullivan:
I don't agree with Ed in his last observation
for this reason: If we were to enact now
the rates that were to apply 80 long as the
excess profits tax was on the books, I would
agree with Ed, but here is why I am reluctant
12
- 4 -
to raise the upper bracket. As the emergency
becomes worse and as we need to raise more
money, there will be two different ways of
doing it, increasing the rates or lowering
the exemption. Now, if these smaller corpora-
tions are given an advantage in the exemption
over the big corporations, when the time comes
when you want to reduce that exemption with
every Congressman and every Senator having
several small corporations in his district,
we are going to have great difficulty in
lowering the exemption, far more difficulty
in lowering the exemption than we would ever
have in raising the rates. That is why I am
reluctant to go up on the ceiling.
H.M.Jr:
But why don't you begin to talk rates with me?
Why are you all so --
Paul:
I have some very definite rates in mind, but
we haven't reached that problem.
Foley:
I think you have got to have specific rates
to talk about when you begin to talk about
exemptions.
H.M.Jr:
Well now, Paul, tell me what you have in mind.
Paul:
Well, I have in mind the rates, ten, twenty,
thirty and forty percent instead of twenty-forty,
which was in the 1918 Act, that is, a more
graduated --
H.M.Jr:
Ten, twenty, thirty, forty?
Paul:
Yes.
H.M.Jr:
How would that work?
Sullivan:
That is after the twenty percent has been taken
out on the corporation tax.
Paul:
of course, --
H.M.Jr:
Then a man would pay ten percent on the first
twenty --
Regraded Unclassified
13
- 5 -
Paul:
No, ten percent on the first given per-
centage of his earnings above his exemption.
H.M.Jr:
Well, let's just say a fellow earns $500,000
and how much will he pay on that?
Sullivan:
Twenty-one percent.
Paul:
A hundred thousand.
H.M.Jr:
He would pay a hundred thousand, roughly,
though he has got earnings left at 400,000.
Sullivan:
That is right.
H.M.Jr:
Now, this company is one that has - well,
let's put it, to make it easy, it is in the
four percent class.
Sullivan:
That is right.
H.M.Jr:
So the first four percent you deduct, 18 that
right?
Sullivan:
Not the four percent of that. He has an
exemption that is equal to four percent of
his capital investment.
Paul:
Suppose his capital investment is a million.
He would get forty thousand off before - well,
that is all right.
H.M.Jr:
Three hundred sixty, what?
Sullivan:
That is right.
H.M.Jr:
Now, do the rates still go on the capital in-
vestment thing?
Paul:
That is right.
H.M.Jr:
Not on the earnings?
Paul:
No, the rates go on the earnings but they are
bracketed with reference to the invested
capital.
Regraded Unclassified
14
- 6 -
Sullivan:
In other words, that three sixty is 36
percent of his capitalization. Now, on
the first block --
Paul:
The first fellow would undoubtedly strike
the 40 percent rate.
Sullivan:
Oh, yes, without question.
H.M.Jr:
I still don't get how the ten, twenty, thirty,
forty works.
Paul:
I can put that on a piece of paper for you.
H.M.Jr:
With that example, how would it work?
Paul:
I am just giving you --
Sullivan:
We haven't had the slightest indication yet
as to how much --
H.M.Jr:
I know, but let me just play with this.
Paul:
Let's assume his capital is a million dollars.
H.M.Jr:
He earned a half million.
Paul:
And he has got three hundred sixty that is
subject to tax, that is after his exemption
is off. Now, on those earnings above ten
percent and not above twenty percent of his
invested capital - ten and not above fifteen,
let's say ten percent - that 1s, the first
is on the earnings above the exemption up
to ten percent. Now, he has got - up to
ten percent, that would be a hundred thou-
sand. The tax would be $10,000. Ten per-
cent on the earnings up to ten percent,
above the exemption up to ten percent --
H.M.Jr:
We can learn together.
Paul:
Twenty percent on the earnings between ten
and fifteen percent, we will say. That is
$50,000. Twenty percent of that is $10,000.
15
- 7 -
Thirty percent on the earnings from fifteen
to twenty percent, let's say. That is
$50,000 more. Thirty percent of that is
$15,000. Now, on the earnings, about twenty
percent of his invested capital, forty per-
cent. Now, his earnings above - that is
on $160,000. Now, forty percent of 160
is $64,000. He would have a tax of $99,000
at those rates.
Sullivan:
Plus the 49.
Paul:
These total 360 that you have there in your
example. This is ten percent on the earnings
above the exemption up to ten percent of the
invested capital. That is 8. hundred thousand.
H.M.Jr:
Well, let me see. Ten percent above - you
are taking ten percent on the what?
Paul:
Ten percent on the earnings - on the first
ten percent of the earnings above the exemption -
the first ten percent of the invested capital.
H.M.Jr:
That is ten percent on 360?
Paul:
No, this is our lowest bracket. The first
hundred thousand - the first ten percent of
the invested capital above the exempt earn-
ings --
H.M.Jr:
I see.
Paul:
A hundred thousand is the income - is ten per-
cent of the invested capital. That is the
first ten thousand. You attach that at ten
percent.
H.M.Jr:
You are not giving him the benefit of any
exemption.
Paul:
I have given that up here in giving him 360.
H.M.Jr:
So you would get ten percent on the first
hundred.
16
- 8 -
Paul:
On the first ten percent of the invested
capital.
H.M.Jr:
That is a hundred thousand dollars.
Paul:
That is right. Then the tax over here
would be ten thousand if you tax a hundred
thousand at ten percent.
H.M.Jr:
I see. Where do you get this ten from?
Paul:
That is just an assumed - where you bracket
it on the earnings with respect to the in-
vested capital.
H.M.Jr:
You are taking the first ten percent, which
is a hundred thousand dollars.
Paul:
And putting the lowest rate on that.
H.M.Jr:
And that is ten percent?
Paul:
That is right.
H.M.Jr:
So you get ten thousand dollars tax?
Paul:
Yes.
H.M.Jr:
And twenty percent on the next hundred thou-
sand?
Paul:
No, twenty percent on the earnings between
ten percent and fifteen percent of his in-
vested capital.
H.M.Jr:
Oh.
Paul:
Which is between a hundred and a hundred and
fifty.
H.M.Jr:
Yes.
Paul:
That 1s $50,000 and you take twenty percent
of that, that is ten. Now, between fifteen
percent and twenty percent is another fifty,
fifteen thousand there. Now, all the balance
17
- 9 -
of his earnings out of the 360 would be at
the top rate. That is the usual type of
rate structure.
H.M.Jr:
But I don't see how you get the first ten.
Paul:
Well, that is the earnings above the exemption
up to ten percent. It is just assumed, Mr.
Morgenthau. You can take fifteen, if you want.
H.M.Jr:
I see, but you use up the 360.
Paul:
It is a way of graduating the --
H.M.Jr:
And so on top of the forty which he paid -
what is the exemption?
Paul:
A hundred.
H.M.Jr:
He would be paying a hundred thousand dollars
excess profits tax.
Paul:
That is right. He would pay two hundred thou-
sand dollars tax out of five hundred thousand
earnings.
H.M.Jr:
Where would you grab the other hundred thousand?
Foley:
On the twenty-one percent. This is normal
tax.
H.M.Jr:
That is right. So he would be paying roughly
two hundred thousand --
Paul:
$200,000 on $500,000 earnings.
H.M.Jr:
Yes.
Paul:
It is about forty percent, which of course is
pretty high but that is because --
Foley:
You took a case where you went all the way up,
you see.
H.M.Jr:
Well, but he would be practically doubling
his tax.
18
- 10 -
Paul:
Just about.
H.M.Jr:
Well, let me ask you something which may be
rank heresy. Aren't we - Just using this
as an example - this may be an unfortunate
example - aren't we trying to do what might
be A very simple thing in & most difficult
way? I mean, instead of doing it with all
this rigmarole, you men just doing it on the
rates.
Sullivan:
Well, the answer is yes and then there is a
long explanation.
H.M.Jr:
Aren't we --
Paul:
I don't agree with that.
H.M.Jr:
Just take 8. minute. I mean, I realize the
psychological effect and all that, but I
mean supposing you just said to them, "Well,
we are going to double your rates."
Paul:
Well, the answer to that question in my mind
depends upon the answer to the question, which
corporations do you want to tax? You have a
certain amount of money to collect. If you
use a straight increase in the income tax,
you tax them all. If you use this method,
you tax the most prosperous.
H.M.Jr:
Now, let's just be political in B. sense. I
don't mean party politics, see. I think
it was you, Paul, that drew my attention to
this the first time. Let's just philosophize
Et minute. I sum terribly serious on this.
Let's say that England loses and the whole
burden is on us and there would be two
schools of thought. There would be those
who would say, "We don't have to tax our-
selves," and those who would say, "We have
got to fight that fellow to keep him off
our shores. Now, we have got to tax our-
selves," Is that right?
Paul:
We certainly do.
Regraded Unclassified
19
- 11 -
H.M.Jr:
Now, that will come the minute England loses.
Paul:
That is right.
H.M.Jr:
Because the people in this country have still
got their heads in the sands and the big busi-
ness fellows, the phalanx of which are down
here now, represent the kind of fellows who
in large part say, "Let's sit down. What is
the use of us taxing ourselves forty percent
when we could make a deal with this bird?"
I mean, as between making a deal and taxing
themselves, they are going to make the deal
with him.
Paul:
That is what I am afraid of.
H.M.Jr:
Now, for the man on the street, which one is
he going to understand the best, that is the
point.
Sullivan:
I know we are in accord on that.
Foley:
The excess profits.
Paul:
He is going to say, "Let that burden come out
of the rich fellow."
H.M.Jr:
Because I don't know --
Sullivan:
Wait a minute.
H.M.Jr:
Just a minute, then you can have a chance.
I don't know whether any of you people saw
the Whaley-Eaton letter last Saturday. That
was a vicious letter.
Foley:
I did.
H.M.Jr:
That was absolutely vicious. You see, this
thing has got to be sold in a big way, in a
way we have never sold a tax program since
I have been here.
Paul:
I agree with you absolutely.
20
- 12 -
H.M.Jr:
We have never gone out to sell a tax pro-
gram because - well, the country - what the
hell, we could get it through Congress but
the country wasn't ready for it. Let's be
frank. You couldn't make a profit on this
tax stuff, you just couldn't do it, but the
thing that bothers me so much here is that
I am for this sort of thing a hundred per-
cent, I don't care how steep it is. We have
got to get the money to keep this thing sol-
vent and therefore - this is what I am think-
ing of - we will undoubtedly be accused of
being social. You remember Harrison asked
that. So we are going to do it and be
damned for it and we might as well do a
bang-up job.
Paul:
That is right.
H.M.Jr:
If we are going to do it, let's go the whole
hog and not be mealy-mouthed about it. Now,
the only thing I am talking here that this
Administration has ever done on bigness was
that intercorporate dividend tax, but it is
the only thing you can point to. You point
to anything else, & tax against big business
except that, and when we put that in that
was to have been the start and it was gradu-
ally to have been increased, but with that
exception, you tell me anything that this
Administration has done to curtail bigness.
I don't know of anything, do you?
Foley:
No.
H.M.Jr:
I think if we are going to go - in this room
here - we can't have the National Defense
Council telling us how to write this.
Paul:
I agree absolutely. Just let me show you
these figures.
H.M.Jr:
We can't have them telling us how to write
this. If we are going to do it, there is
no use doing it half way. We might just
as well be damned and do & good job as to
21
- 13 -
do a half of one. I am talking out loud,
Foley:
That 1s right.
Paul:
Here is General Motors --
Foley:
They are going to holler like hell but they
are not the fellows who are with us.
H.M.Jr:
Who the hell is with us these days?
Paul:
The majority will be with us.
Foley:
There are more our kind than there are their
kind, that is what I say.
H.M.Jr:
I can't play with that kind. It is too late
in life for me. I can't change just because
they have got a lot of Floyd Odlums down here.
Maybe Jerome Frank can, but I can't.
Paul:
I think we are going to get into a lot of
trouble - I wanted to show you the figures
on the General Motors. They have an invested
capital of & billion dollars. They made last
year 190 million. Their exempt earnings will
be a hundred million. The taxable earnings
will be 90 million for that one corporation.
If you take a tax of 40 or 50 million --
Sullivan:
You get about 325 million - I mean about 32
million.
Paul:
32 or 35 million.
H.M.Jr:
Let me ask you a question while we are talk-
ing here in percentages. Can anybody tell
me what this would raise? What are we
talking about, that is what I want. I mean,
let's put it this way. Supposing in connection
with this last five billion dollar program,
I want to raise another billion dollars in
taxes,
Paul:
You can raise a billion easily by this tax.
22
- 14 -
H.M.Jr:
Could you fellows give me a little something,
what the percentages would be per billion,
per billion and a half, and two billion?
Foley:
On present income? The income is going to be
much higher,
H.M.Jr:
Well, on the present income.
Paul:
Mr. Morgenthau, I want to emphasize the fact
that we must be careful in this bill to - even
from the political standpoint, not to subject
ourselves to criticism from the small corpora-
tion. There are a good many of them.
H.M.Jr:
I agree with you.
Paul:
And that is what I am working toward here.
H.M.Jr:
wid you get anywhere in the half hour you have
been here or didn't you? Have I helped at all?
I have helped myself. All I have agreed to as
of this morning is, I am with Ed. All I have
done this morning is to agree --
Foley:
To go from four to six.
H.M.Jr:
But that is as far as --
Paul:
Is your mind open on the rest of it?
H.M.Jr:
Oh, surely. Listen, you have got the beauty
of working with a fellow that has no tax
hobbies.
Paul:
Well, I know, but I just didn't know whether
you were deciding it finally or -
H.M.Jr:
No, we have - at least, I have covered B. lot
of ground this morning. I have talked myself
out and you fellows can't make this thing too
tough to suit me.
Sullivan:
I think we should tell you it is contemplated
that consolidated returns will be permitted
under the excess profits tax.
23
- 15 -
H.M.Jr:
You have got to do a job on me there. You
can't do that in a few minutes.
Sullivan:
Well, when will we do it?
H.M.Jr:
Well, leave word with - you will have to --
Foley:
Do it tomorrow.
Sullivan:
We are in the drafting stage.
H.M.Jr:
Well, I haven't time now.
Foley:
Tomorrow is enough, sure.
H.M.Jr:
I can't do it. The President has got me over
there with the National Defense Council at
2:00.
Paul:
Tomorrow, Mr. Morgenthau?
H.M.Jr:
Yes.
Sullivan:
Magill will be here tomorrow; too.
H.M.Jr:
If you need more time - 10:00 o'clock, taxes.
24
JUL 16 1940
my dear - Smith,
I have your letter of July 12, 1940 in which you suggest
a different form of letter be subsitted ter the President's
signature addressed to the Secretary of for from that which I
formarded to you on July 20
The revised draft is not agreeable to M. the letter which
I subditied educately took care of the situation,
n the - time that the Acting Secretary of for were the
President, he wrote - and I regaired to his letter a July 2. 4
much time has elspeed since the - to the President -
submitted have for reply that there - to be w point - in
uniting my - back if there were the proper my to Instia the
would be for the operating submittante of the Secretary of Yes
(who arteally handles the engest netwer of the Incombire order)
to communicate with Mr. Timerthy Co Montay of the have of
Internal - rether than with - which is what I suggetal
in the draft of letter you did not submit to the President.
Sincerely years,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury
the Samarable
the Idvester of the Budget
cc to ms. Thompson
CLEST
By Messenger 11"
7-25-40
Regraded Unclassified
25
EXECUTIVE OFFICE OF THE PRESIDENT
BUREAU OF THE BUDGET
Regraded Uncla
WASHINGTON. D.C.
JUL 12 1940
My dear Mr. Secretary:
I have the memorandum of your Administrative Assistant,
Mr. Thompson, trensmitting, for the President's signature,
a draft of letter addressed to the Acting Secretary of War
with respect to the procedure to be followed with reference
to the certification of the percentage of special additional
facilities to be charged to the cost of performing contracts
covered by the Vinson-Trammell Act. This draft of letter
was prepared by the Treasury Department in response to the
President's memorandum of June 28, 1940 requesting that this
office and the Treasury Department prepare 8. reply for the
President's signature to the memorandum of June 25, 1940
(enclosed herewith) to the President from the Acting Secre-
tary of War.
In lieu of the draft of letter prepared by the Treasury
Department, I would suggest that, if agreeable to you, the
enclosed form of letter, as revised in this office, be for-
warded to the President for his consideration.
Very truly yours,
The Homorable,
The Secretary of the Treasury.
Enclosures.
26
My dear Mr. Secretary:
I have the memorandum of the Acting Secretary of Veg
of Im 25, 1940 seking certain suggestions e the procedure
to be followed with reference to the certification of the
persentage of special edditional facilitive to be charged
to the not of performing contrato covered by the Visses-
Treasell an.
It is believed that the Executive Order which I have
issued parenest to E. 1. 9822 takes late account the eng-
gastions contained is the amerisha of the Acting Secretary,
If the procedure estlined therein my, is your judgest, prove
a cerieus hindrunce to the expeditions handling at clesing
of contracts under which special additional facilities met be
sequired, it is requested that you consult immediately with
the Secretary of the Treasury and together work out as an
reagement that will avoid cerious and unnessesery delay in
the letting of contracts and suitably protest the interests
of the Government.
Sincerely yours,
The Nemerable,
The Secretary of Ver.
HDS
2:
EXECUTIVE OFFICE OF THE PREMIDENT
Burease of the Dudget
Washington, Do C.
July 12, 1940
ky dear No. Secretary:
I have the monata of year Administrative Assistant,
Mr. Thompson, treasmitting, for the President's signature,
a draft of letter addressed to the Acting Secretary of Var
with respect to the presedure to be followed with reforence
to the certification of the percentage of sposial additional
facilities to be charged to the cest of performing contracto
overed by the Vinson-Tramell Act. This draft of letter
was prepared by the Treasury Department in response to the
President's - of Jess 28, 1940 requesting that this
office and the Treasury Department propare a reply for the
President's signature to the of June 25, 1940
(enslosed horewith) to the President from the Acting Beare-
tary of Mar.
In lion of the draft of latter prepared by the treasury
Department, I would suggest that, if agreeable to you, the
enclosed form of latter, as revised in this office, be for-
warded to the President for his consideration.
Very truly yours,
(signed) Harold D. Smith
Director.
The
the Secretary of the Treasury.
Inclosures.
Copieds
7-25-40 .
Regraded Unclassified
28
THE WHITE HOUSE
Washington
By dear Mr. Secretary:
I have the of the Acting Secretary of w
of June 25, 2940 making sertain suggestions on the procedure
to he followed with reference to the certification of the
percentage of special additional facilities to be charged
to the cost of performing contrasts covered by the Visam-
Transfll ser.
It is believed that the Executive Order which I have
Leased parent to n. & 9822 take into account the suge
gestions contained in the emerandes of the Acting tometary.
If the presedure outlined therein my, in your judgement, prove
a serious Identince to the copeditions handling and cleaing
of contracts under which special additional met be
asquired, 11 is requested that you consult imediately with
the Secretary of the Treasury and together work out an w
rengement that will avoid cartous and - delay in
the letting of contracts at suitably protect the Luternote
of the Government.
Sincerely yours,
The Remorable,
The Secretary of Name
Capieds
7-15-40
(original returned to Director of Budget 7/16/40)
Regraded Unclassified
29
Proposed draft of letter for President's
signature sent to Director of Budget
on July 1st with Mr. Thompson's
memo. of transmittal.
30
My dear Mr. Secretary:
X have your - of - as midng certain mp
gestions as the procedure to be followed with reference to
the certification of the persontage of special additional
facilities to be charged to the cost of performing contracts
corred by the Asto
the Insentive Order asbedying the regulations preserib-
Amg such presedure which I have insued purment to HeRe 9022
takes Late account the suggestime contained in your
If you have my doubt - this, the Secretary
of the Treasury suggests that you have a representative
commissio at - with Mr. Timethy a Memory of the Irress
of Internal - in order that there my be as stownder-
standing as to the my these mathers will be handled,
Sincerely yours,
President's signature
The Emerable
the Anting touretary of -
CIX,t
7-2-40
Regraded Unclassified
31
7/16'40
of
Miss Frazier: Room 285
Here is the set
attached to the letter of 7/2'40.
I understand that the day this
went out Mr. Thompson handled
and it was one of those things
that was extra rush.
McGuire
me
Regraded
I
32
C
0
P
July 2, 1940.
Y
My dear Mr. Secretary:
I have your letter of June 25, in which you state that
it is highly desirable that every step possible be taken by
the Treasury Department to expedite final action on the
certifications of the percentage of special additional facil-
ities to be made by the Secretary of War pursuant to the
Vinson-Trammell Act, as amended by H. R. 9822.
I think that the recently issued Executive Order setting
forth the procedure to be followed by the War Department and
by the Commissioner of Internal Revenue is adequate to assure
rapid handling in the Bureau of all such certifications. Your
cooperation in this matter has been very much appreciated.
Very truly yours,
(Signed) H. Morgenthau, Jr.
Secretary of the Treasury.
The Honorable,
The Acting Secretary of War.
CLK:akm 7/1'40
copied fm 7/16'40
33
C
0
THE WHITE HOUSE
P
Y
Washington
My dear Mr. Secretary:
I have your memorandum of June 25 making certain sug-
gestions on the procedure to be followed with reference to
the certification of the percentage of special additional
facilities to be charged to the cost of performing contracts
covered by the Vinson-Trammell Act.
The Executive Order embodying the regulations prescrib-
ing such procedure which I have issued pursuant to H.R. 9822
takes into account the suggestions contained in your
memorandum. If you have any doubt on this, the Secretary
of the Treasury suggests that you have a representative
communicate at once with Mr. Timothy C. Mooney of the Bureau
of Internal Revenue in order that there may be no misunder-
standing as to the way these matters will be handled.
Sincerely yours,
FRANKLIN D. ROOSEVELT.
The Honorable
The Acting Secretary of War.
CLK:t 7/1'40
copied fm 7/15'40
Regraded Unclassified
34
of
THE WHITE HOUSE
WASHINGTON
June 28, 1940.
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY
THE DIRECTOR OF THE BUDGET
FOR PREPARATION OF REPLY
FOR MY SIGNATURE.
F.D.R.
5V
35
C
o
P
Y
THE WHITE HOUSE
WASHINGTON
JUNE 28 1940
MEMORANDUM FOR
THE SECRETARY OF THE TREASURY
THE DIRECTOR OF THE BUDGET
FOR PREPARATION OF REPLY
FOR MY SIGNATURE.
F. C. R.
copded fa 7/15'40
38
C
0
P
WAR DEPARTMENT
Y
WASHINGTON
June 25, 1940
MEMORANDUM FOR THE PRESIDENT:
Subject: Certifications regarding special
additional equipment and facilities.
Reference is made to your memorandum dated June
15, 1940, concerning the anticipated enactment of H.R. 9822
and the certificates which would be required to be made by
the Secretary of War pursuant thereto regarding special addi-
tional equipment and facilities acquired to facilitate com-
pletion of Army aircraft. Steps were taken promptly to bring
to the attention of the chiefs of the supply arms and services
concerned the information and suggestions contained in your
memorandum.
The War Department has not yet received B. draft of
the regulations which will govern the procedure in the matter
of these certifications. I am, however, in receipt of a letter
from the Secretary of the Treasury under date of June 20, 1940,
copy attached, advising me of the proposed organization and pro-
cedure in that Department to handle the matter.
The main objective sought by Section 4, H. R. 9822,
was to facilitate and expedite the entering into of contracts
in cases necessitating the acquiring by contractors and sub-
contractors of special additional equipment and facilities.
The War Department will do everything in its power and will
cooperate in every way with the Treasury Department and with
the contractors and subcontractors to accomplish that end.
It is not understood to be the intent of the bill in
question to make final action on the certifications in question
mandatory before contracts are executed, the law being purposely
37
- 2 -
drawn so as to allow fasxibility in this respect. In view
of the time that may be required to process the detailed
certifications and clear them with the Treasury Department,
and in order not to set up any possible impediment to ex-
pediting execution of important contracts involved in the
defense program, it is proposed, unless otherwise instructed,
to prepare contracts and pertinent certifications concurrently
in all applicable cases and take up the question of certifi-
cations with the Treasury Department at the earliest possible
time with a view to prompt final determination of the matter.
It is believed that the foregoing is in substantial
agreement with the views of the Treasury Department and with
the spirit of your memorandum of June 15th.
(signed) Louis Johnson
Louis Johnson,
Acting Secretary of War.
1. Encl.
Copy of letter
from the Sec. of Treasury
dated 6/20'40.
(original Returned to Dir of Budget 7/16/40)
38
e
TREASURY DEPARTMENT
0
?
Washington
Y
June 20, 1940
my dear Mr. Secretary:
Under existing law the Treasury Department determines what por-
tion of the cost of special additional equipment and facilities shall
be charged against a contract of the War or Navy Department for the
construction or manufacture of a complete navul vessel or army or
navy aircraft or any portion thereof. Under a procedure for closing
agreements provided for by section 3760 of the Internal Revenue Code,
a procedure was adopted whereby the Treasury would, prior to the
execution of the contract, fix the emount which under existing law
may be determined in advance as chargeable to the contract. Such 8
closing agreement WBB entered into only after certification by the
Secretary of War or the Secretary of the Navy, as the case may be.
In such cases the contractor filed his request for e closing agree-
ment with the Commissioner of Internal Revenue, and a copy thereof
was filed with the War Department or the Navy Department, as the case
my bo, in order to facilitate certification of such department. If
section 4 of H. R. 9822 (76th Cong., 3d sess.) becomes law, this
practice of entering into closing agreements with respect to special
equipment and facilities will be discontinued.
Section 4 of H. R. 9822 would modify this existing practice by
requiring the Secretary of War or the Secretary of the Navy, as the
case may be, to determine in advance what portion of the cost of
the special additional equipment and facilities shall be borne by
the government and charged against the particular contract. The
Secretary concerned will make certification as required by such
section 4 to the Commissioner of Internal Revenue. Such certifica-
tion would be binding upon the Commissioner of Internal Revenue,
subject to such regulations as the President may prescribe. The
President has indicated that Treasury approval of the certification
will be necessary. In the Treasury Department the duty of consider-
ing such certification and of recommending Treasury action thereon
will be performed by a Treasury Committee composed of Timothy C.
Mooney, Chairman, Herman T. Reiling, Vice Chairman, John T. Burrus,
C. A. Appel, and Dean W. Martin. Under the new procedure the
pontractor's request for B. determination by the Secretary of Wer or
the Secretary of the Navy, as the case may be, shall be filed with
the Secretary of the Department concerned. In order to facilitate
notion along the lines indicated by the President, it is suggested
that -
Regraded Unclassified
39
-2-
(1) Copies of the contractor's request should be forwarded
immediately to Mr. Timothy C. Mooney, Chairman,
Room 4002, Internal Revenue Building;
(2) Three copies of the certification by the Secretary concerned
(agreed to by the contracting party), together with a copy
of the contract or proposed contract shall be transmitted
directly to the above-mentioned Chairman;
(3) The certification shall itemize the special additional
equipment and facilities, state the necessity and cost
(or estimated cost) of each item thereof, and the
percentage of cost of each item to be charged against the
contract or subcontract;
(4) A certificateion shall not be approved by the Treasury
unless a certification has been made with respect to the
first contract or subcontract on which such special
additional equipment and facilities are used, and has been
made successively thereafter on any intervening contracts
or subcontracts.
Following consideration by the Treasury Committee referred to
above, the Chairman or Acting Chairman thereof will make his recom-
mendátion for approval or disapproval of the certificate direct to
the Secretary of the Treasury whose decision will be forwarded in-
mediately to you.
Very truly yours,
(signed) H. Morgenthau, Jr.
Secretary of the Treasury.
The Honorable
The Secretary of War.
copied 7/16'40 by fa
FOR TES PRESS
IMEDIATE RELEASE
JULY 16, 1940
40
The following progress reports by the seven members
of the National Defense Advisory Commission were presented to
the President today at his conference with the Commissioners,
the Secretaries of Mar, Havy and Treasury and officials of the
throe departments:
FROM EDWARD R. STETTINIUS, JR. -- MATERIALS DIVISION
Through the prompt cooperation of the RFC and the
Treasury with this Division, substantial supplies of strategic
and criticol rew materials are being acquired. Actual pur-
cheses have been negotiated and the material loaded aboard ship
within a period of three or four days after the availability of
the product was modo known. This Division, through the 00-
operation between experts in various Government agencies and
specialists on the staff of this Division, has mode surveys of
the entire field of stratogic and critical matorials. Where
bottlenecks which might develop in connection with a total de-
fonse effort have been discovered, "rod flags" have been marked
on the chart end a detailed study is then made to explore every
nossible menno of relieving the prossuro that night develop.
For example, we have a always been dependent upon im-
ports for rubber. By the end of the month, it is expected
that EL plan will have been worked out whereby it would be poss-
ible in nn emergency to supply most of our noods through the
manufacture of synthotic rubber.
One point of concentration, at present, involves the
production of 100 octane gasoline. This product is essential
to the airplano program and substantially increased production
is being worked out to assure the air services of adequate
supplies. Plans are under way for the storage of large quan-
titios of this gasolino at stratogic locations underground.
This Division is working on plans to relieve our de-
pendence upon foreign smelters for our tin supply and has ob-
tained the cooperation of industry to this ond.
Mr. Stottinius, Pr. Knudson and Pr. Gano Dunn, the
Division Hond's Senior Consultant, went before Committees of
the House and Sonat. to urge expansion of the TVA's power pro-
duoing facilities in the total amount of $65,000,000, of which
$25,000,000 was to be available for construction during the
current fiscal year. Both Committous reported out the pro-
possl favorably but Representative Donald H. MoLain (R., N.J.)
objected to consideration by the House and was supported by
contative John Taber (R., N.Y.) and Representative Everett
L. Dirkeon (R., III.). This medo passage impossible bofore
recording for the convention. This Division has taken the
position that it is absolutely essential to the national defense
that the TVA power production be increased in the amount askod.
Delay of a for weeks in authorizing this undertaking might mean
dolay of D, year in filling the dam for the goneration of power
as It is nocessary to oatch the flood waters next spring.
Considerable of the work of this Division is highly
tochnical and of a strictly confidential nature, making it im-
possible at this time to tioologo a member of ito activities.
Regraded Unclassified
- 2 -
FROM WILLIAM S. KNUDSEN -- PRODUCTION DIVISION
From June 6 to date, this Division has cleared contracts in
the amount of $1,661,891,494, which represents $1,390,575,404.87 for
the Navy and $271,316,089.13 for the Army. Material covered under these
contracts includes airplanes, tanks, battleships, ammunition, anti-tank
guns, anti-aircraft searchlights, machine guns, various fire-control
precision instruments, tractors, trucks, blankets, overcoating, serge
cloth, worsted shirting, service shoes, ship propulsion machinery,
storage batteries for submarines, airport and airstation construction,
barracks and many other items necessary in equipping the United States
Army and Navy.
Production of this material is being undertaken in plants from
Maine to California.
Awarding of contracts by the Army for tank construction has
begun through a commitment with the American Car and Foundry Company
for 627 units. Mr. Knudsen has inspected at Aberdeen the light tanks
and the revised designs for the heavy tanks which have been changed in
certain respects on the basis of combat experience in Europe.
The contract for the production by Packard Motor Company of
Detroit of 9,000 Rolls Royce liquid-cooled aircraft engines is about
to be signed, the Company having stated that it is propared to undertake
this project.
Evidence has developed indicating progress toward solution, for
the time being at least, of the bottlenecks in the nachine tool industry.
The embargo authority has contributed substantially to the retention
in this country of vital machine tool units which otherwise would have
been exported. Plens have been worked out to a point where tomorrow
(July 17) a meeting of the Machine Tool Defense Committee, H. S. Vance,
Head of the Machine Tool Section of the Production Division, and Donald M.
Nelson, Coordinator of Defense Purchases, will be held to take up El
cooperative plan under which a definite percentage of machine tool
manufacturing facilities will be reserved for dofense needs.
Regraded Unclassified
42
- 3 -
FROM SIDNEY HILLMAN - DIVISION OF LABOR SUPPLY
This Division has emphasized formulation of plans
for training skilled workers in industry under the direction
of Mr. Owen D. Young as advisory aid to Mr. Sidney Hillman.
Already between 30,000 end 40,000 enrolless are actively
taking training through facilities provided by this program.
In the vocational schools being utilized, training is made
available to workers on WPA and NYA rolls and others interested
in securing such courses, particularly those who feel the need
for refresher training to retrieve their varlior skill.
Combined facilities of the NYA, ccc, and Office of
Education are being ooordinated to assure maximum use of exist-
ing facilities and agonoios of the Government. All training is
in anticipation of meeting such domende for labor ss may ariso
in connection with the defense program. The first end major
consideration is to provide employment to those who are employable
and now without jobs. The unemployed, in the opinion of this
Division, constitute the greatest labor resource which can be
used nost expeditiously in this connsotion. It is interosting
to noto that up to the present there have boen no specific requests
for skillod labor mode to the Defonse Commission. It is ovident
that thus far needs of private industry for skillod and other labor
are being not.
This Division has organized n. labor advisory board con-
sisting of representatives of the Amorican Federation of Labor and
the Congross of Industriel Organizations, together with the Reilrood
Brotherhoods. It moots ench week with Mr. Hillmon and has pledged
complete occperation of its ocmbined mombership to the national de-
fense program.
Through the intervention of the lubor supply division not-
ing with the Conciliation Service of the Department of Labor, soveral
serious production stoppngus have boon cverted in the General Motors
Corporation, on Pacific Coest Shipping, in shipbuilding on the Gulf
Coset, in the ocppur Industry in Utah, end in the cluminum industry.
Regraded Unclassified
- 4 -
43
FROM LEON HENDERSON - DIVISION OF PRICE STABILIZATION
The primary effort of this Division during the past
few weeks has been directed toward the determination of the effects
of the Rearmement Program on the nation's price structure,
A central Bureau of Research and Statistics has been
organized under the direction of Stacy May as a clearing house for
information required by the various divisions of the Commission,
particularly in respect to information developed from other
government agencies. Much of this information deals with the
determination of materials and facilities required by the armed
forces and the nature of the resources of the nation available to
fill both military and civilian requirements.
Analysis of both the materials and resources have been
coupled with consideration of measures for control and price
stabilization. Numerous proppsals for price regulation are being
studied. With Donald Nelson, Coordinator of Defense Purchases,
consideration is being given application of priorities from the
viewpoint of their impact on prices. Surveys are also being made
by this Division of the economic organization and controls within
the belligerent countries.
Standards are being formulated to guide procurement
agencies in connection with recent legislation authorizing negotiated
contracts in lieu of competitive bidding.
The domestic price structure is under constant surveillance.
When price increases appear unjustified conferences have been held
and will continue to be arrenged. Voluntary agreement is sought in
this connection, and thus far business has evidenced its desire
to cooperate.
The complicated problems involved in amortization for
income tax purposes, as well 05 those inherent in the government
policy for lending through the RFC to expedite plant expansion,
have occupied considerable time in this Division. The whole problem
of plant expansion is being studied in cooperation with Commissioners
Knudsen and Stettinius as well as representatives of other government
agencies involved.
Regraded Unclassified
44
- 5 -
FROM CHESTER DAVIS - AGRICULTURAL DIVISION
Development of a unit of this Division has been undertaken
to work on the problem of new plant location for defense purposes with
the view to utilizing surplus labor particularly in agricultural areas
and thus avoid uneconomic concentration of industry.
Under the new powers created by Congress to the Recon-
struction Finance Corporation, advance payments can be made against
future deliveries of strategic materials. Funds thus made available
can be used for the purchase of agricultural commodities. A substantial
project in this connection is now in the process of preliminary
negotiation.
This division has collaborated with Mr. Hillman in connection
with the development of plans for training American youth with a view
to affording equal opportunities to farm youth and those of the cities
in the program soon to be inaugurated.
Extensive collaboration with the Department of Agriculture
has been undertaken in developing plans to:
(a) Promote increased use of surplus farm products at home
and, where possible, abroad to minimize the effect of curtailed export
outlets.
(b) Maintain agricultural production at most favorable levels
for national defense and health needs, promoting simultaneously the
objective of parity prices for farm products.
(c) Work out in advance specific plans to protect producers
from unfavorable effects or changes that may result from international
developments.
Regraded Unclassified
45
-6-
From MISS HARRIET ELLIOTT,-DIVISION OF CONSUMER PROTECTION
This Division has laid the ground work for an extensive
educational campaign to mobilize public sentiment behind the idea
that the civilian population must be prepared physically to meet the
defense responsibilities placed upon it by any emergency. To this
end the Commission has approved emphasizing the importance of health
and public welfare in the defense program. A coordinating committee
has been organized to facilitate development of these aspects of the
program. The committee includes: Surgeon-General Thomas Parran, Dr.
M. L. Wilson, Director, Extension Service, Department of Agriculture,
Miss Katherine Lenroot, Head of the Children's Bureau, Department of
Labor, and Arthur J. Altmeyer, Chairman, Social Security Board.
Definite plans have been prepared for meetings with: (1)
leaders of civic organizations called together to mobilize human
resources and direct them into constructive channels; (2) retailers,
organized consumer groups, manufacturers of consumer goods and whole-
salers.
Protection of the public from unjustifiable increases in
consumer goods prices is a major project of this Division.
The staff in cooperation with economists of other govern-
ment agencies is on the alert in this connection and continuing studies
are under way to form the basis for whatever recommendations may be
needed.
Regraded Unclassified
FROM RALPH BUDD, - DIVISION OF TRANSPORTATION
46
Emphasis has been placed by this Division upon securing a
suitable car supply to meet emergency demands upon rail transportation.
To this end this Division is working closely with the Association of
American Railroads and the American Short Line Railroad Association.
There is, at present, a dislocation of car loadings in the country.
Certain areas are confronted with definite increases while others are
experiencing a decrease,
Concrete recommendations have already been drawn up for acquisi-
tion of very substantial numbers of special rolling stock for handling
troops and their equipment. Conferences have been held with representa-
tives of railway car shops in Illinois, Indiana, Missouri and Pennsylvania
to discuss cost and types of cars.
As a result of the study of the availability of serviceable
freight cars, Mr. Budd has ur ed upon the Association of American Railroads,
"the need for full performance by all lines of the repair work necessary
to reduce cars in bad order to not more than 65, as was agreed."
The entire subject of rail transportation, including special
reference to army maneuvers scheduled later this year, is receiving earnest
and intelligent consideration by Mr. Budd and his entire staff.
Special attention is being given by the Consultant to the
Commissioner of Transportation representing the Great Lakes Carriers in
connection with the movement of iron oΓe, a basic factor in the defense
program.
Four consultants representing the highway users are making a.
study of defense program requirements in their fields to estimate demands
which may be make upon that form of transportation in an emergency.
Studies involving the inland waterways and pipe line problems
are being surveyed. Action has been taken to interest the various
pipe line operators in effecting the most efficient transportation of
petroleum and its by-products by pipe line for emergency requirements.
Regraded Unclassified
47
AC
PLAIN
Budapest
Dated July 16, 1940
Rec'd 1:20 p.m.
SECRETARY of State
Washington
161, July 16, 4 p.m.
The following is sent at the request of
the Futura (grain buying agency of the Hungarian
Government).
On June 13, 1940, the sum of 134,145 dollars
was credited BQ the Chase National Bank of NEW York
to the Qanque Franco-Bulgare by order of the Banque
Commercial Roumaine. According to a letter from the
Hungarian General Bank and to & statement from
Futura this money is the property of the Futura and
is earmarked for the purchase of maize from Bulgarian
grain monopoly for importation into Hungary due to
fodder shortage here. The Futura has certified in
writing that this money was credited to the Futura by
the Hungarian National Bank for the purchase of
maize abroad and also certified that maize will
not bE recxported from Hungary. As it has been
and now is necessary for Hungary to import maize
the Department is requested to ask the Chase Bank
to release
48
- 2 - #161, July 16, 4 p.m. from Budapest
to release this sum which will assist Hungarian
farmers; also to request that Chase notify the
Franco Bulgare Bank by cable of release.
MONTGOMERY
WSB
1> ACA Der RR de sure
Jain
YRS SHT OF SHORT
49
July 16, 1940
My dear Mr. Ward:
I am returning herewith the report
which you were good enough to leave
with me yesterday se that I might make
a copy for my files.
with many thanks,
Sincerely yours,
(Signed) e Morganthan, ds.
Mr. J. Carlton Ward, Jr.,
Hay-Adams House,
Washington, D.C.
By Messenger
Doaraded Unclassified
50
July 16, 1940
My dear Mr. Ward:
I an returning herewith the report
which you were good enough to leave
with me yesterday se that I night make
$ copy for my files.
with many thanks,
Sincerely yours,
ai I à
Mr. J. Carlton Ward, Jr.,
Hay-Adams House,
Washington, D.C.
n
/
Regraded Unclassified
51
July 18, 1940
My dear Mr. Ward:
I an returning herewith the report
which you were good enough to leave
with me yesterday so that I might make
& copy for my files.
with many thanks,
Sincerely yours,
(hagmed) a Morgenthau, Jr.
Mr. J. Carlton Ward, Jr.,
Hay-Adams House,
Washington, D.C.
Enclosure
By 435
Regraded Unclassified
52
Dated at Bordeaux
June 14, 1940.
TO:
Colonel Jules Meny, Sous-Secretaire de l'Air
via General Martinot Lagarde - Inspecteur General
de l'Aeronautique.
In accordance with our understanding with you, this
memorandum will serve to present to you a brief summary of
the work, the observations, and the recommendations of the
group of American representatives sent to France in res-
ponse to your request directed to Mr. Alfred P. Sloan, Chair-
man of the Board of the General Motors Company, and who were
gathered together in the United States by the General Motors
Company for this purpose.
Upon our arrival in France, at Paris, on the morning of
May 29th, we received your summary of the general production
plan of the Air Ministry for the production of aviation motors
and also the understanding that production of aviation motors
in France constituted the limiting feature for the production
of complete airplanes. It was also made clear that training
planes and motors for training were not a serious production
problem. It was also explained to us that the Ministry was
concerned with improving the quality as well as the quantity
of completed aviation engines.
53
2.
This was followed by a succession of visits to various
manufacturing and allied facilities, as follows:
May 30th - S.N.C.M. Factory, Argenteuil.
May 31st - Conferences at Hotel Meurice (S.N.C.M.)
June 1st - S.N.C.M. Factory, Argenteuil
Talbot Motors, Suresnes.
June 2nd - Chantilly - Air Headquarters.
June 3rd - Hispano-Suiza - Bois-Colombes
June 4th - Ford Air - Poissy
Hispano-Suiza, Laboratory
June 5th - Gnome-Rhone - Gennevilliers.
B.G., Paris.
June 6th - Conference, Hotel Meurice (Talbot)
June 7th - Ford, Asniwres
Turbomeca, Billancourt.
June 8th - To Le Mans - Gnome-Rhone
June 9th - Gnome-Rhone (under construction)
To Bordeaux.
June 10th - Ford Air - Bordeaux
Bloch S.N.C.A.S.C. - Bordeaux, Merignac.
June 11th - Ford Air - Conference.
June 12th - To Tarbes and return
Hispano-Suiza - Tarbes
June 13th - Bordeaux, Repair and overhaul Depot.
Before entering into the enumeration of the recommendations
or suggestions of the Commission, it might be well to set down a
54
3.
few general observations.
Thus, in general, it may be said that the volumne of
aircraft engine motor production, as well as the facilities
for production and the methods used, both for technical
processes and for plant management, were on the whole better
than the Commission had been led to expect through informa-
tion which had reached it in America. It could be generally
said that each of the various works visited showed unusual
ingenuity with respect to certain phases of its operations.
It is likewise true, as will be pointed out later, that in
nearly all cases, specific improvements could be made which
would tend to increase the general production and improve
quality in accordance with the desires of the Air Ministry.
Secondly, it should be pointed out that conditions
changed very greatly from those in existence at the time of
the Commission's arrival, due to military operations which,
in turn, necessitated movement of many of the manufacturing
units, as well as outting off a large number of suppliers.
Thus, the character of the problem changed daily. Naturally,
this affected the ability of this Commission to follow through
your original request as it was primarily outlined. Consequent-
ly, while the present unstabilized military situation persists,
with the resulting necessity for evacuation of plants from day
to day, it is the considered opinion of the Committee that pro-
55
4.
duction cannot be stabilized.
Thirdly, in view of your statements that the American
aviation equipment now being used in your military operations
is superior in nearly all cases to the remainder of the
available equipment, it is obvious that the greatest assist-
ance can come through speeding up production of American
aviation equipment in the United States and perhaps supple-
menting this production by furnishing necessary raw materials
or partly fabricated materials to take the place of supplies
which are now out off from your plants due to the advance
in military operations.
As the Committee has already intimated to you, it is
the private opinion of this Commission that any equipment
made in America and furnished as complete equipment should,
in accordance with the above, be made to American designs.
It does not seem necessary herein to give all of the reasons
for this Commission's opinion with regard to the above, since
the discussions were covered in detail with you in Asnieres,
and again informally during a discussion held at the Hispano
works in Tarbes, on June 12th.
It seems unnecessary at this moment to repeat the recom-
mendations given to you with respect to the Government's
S.N.C.M. works at Argenteuil and the Government's Pratt-Whitney
1830 engine license at the Talbot Motors in Suresnes. These
56
5.
have already been submitted to you in detail 8.8 well as
to the management of the S.N.C.M. and, through you, to
the Talbot organization as well.
It is interesting to point out, however, that the Commis-
sion's recommendation with respect to moving the new American
machine tool equipment from the Paris area has now been borne
out by the military situation existing at present. It is also
felt that the Committee's recommendation that the Talbot
equipment be kept intact for the furnishing of spare parts and
later on for the manufacturing of motors of Pratt-Whitney
design will be more desirable than ever before in view of the
fact that the French engine industry will now have to rely
to a greater extent on American sources of raw materials. It
is further supported by the fact that the Pratt-Whitney engine
has been evaluated by those of your military authorities who
were contacted as the most satisfactory and useful of its various
engine equipment now in use at the front.
The most important specific recommendations follow:
Technical Design and Engine Considerations.-
1) Wherever required engineering design tolerances should be
readjusted to provide interchangeability. Hand fitting
(adjusting) is now required in order to assemble the finished
product. (Note: By studying the conditions in the Bordeaux
Overhauling Shop with respect to new parts furnished by Pratt and
57
6.
Whitney for motors, it will be clear what is meant by the above).
2) Process grinding should be substituted for hand opera-
tions wherever possible in manufacturing highly stressed parts.
Such parts can then be readily polished without the necessity
of removing much metal.
3) Highly stressed parts should be highly finished, end
all tool marks eliminated. (Note: In many of the plants vis-
ited it was observed that highly stressed parts were highly
finished, but this was not a universal practice in all
factories).
4) Eliminate unnecessary operations contributing to
appearance only. Thus, to conserve man hours much painting,
matching of surfaces on parting lines, particularly on
castings and the hand polishing of relatively unstressed parts
can be dispensed with, subject to engineering approval.
5) Avoid putting engineering changes into effect in
such a manner as to delay production. Carefully schedule
them for this purpose.
6) As was suggested in connection with the operation
drawings submitted at the S.N.C.M. factory, it would be well
to study the elimination of such drawings and the substitution
of operation sheets wherever possible, thus conserving engineer-
ing facilities under the present conditions.
58
7.
7) In a great many factories more attention to keeping
parts clean during assembly operations is urgently needed.
Thus, it was noticed that ball bearings were frequently seen
lying on benches without being properly covered. Floors
should be cleaned and dust reduced to a minimum. Between
shifts, partly assembled mechanisms should be carefully
covered.
8) Parts should be carried in wood containers or con-
tainers lined with soft material and should not be set down on
steel shelves or plates, or they will be scratched.
9) Engineering designs should be reviewed to see where
manufacturing can be simplified by minor engineering design
changes.
Manufacturing.-
1) Where automatic machines have been provided, a study
should be made to see how many machines can be operated by one
operator at the same time. It was observed in one factory
that one man operated a single automatic machine which was
timed to operate on a twenty-minute cycle. Adjacent to the
machine was another automatic machine with a separate operator
approximately on the same cycle. A single operator could have
readily operated both machines. Similar conditions were noted
in many places.
2) Spare sets of outting tools should be provided for each
important operation. This will eliminate the down time observed
59
8.
where machines are idle waiting for tools to be re-sharpened.
3) In certain factories highly flexible machines were
used for relatively simple operations. Equipment in such cases
should be studied with a view to reallocation and the use of
single purpose machinery on such operations, thereby releasing
the more flexible machine for more complicated operations.
Thus a brand new Hendey tool room lathe was seen operating
on a relatively simple operation which could have been done by
a manufacturing lathe, releasing the tool room machine for badly
needed tool room equipment.
4) In one factory there was observed a wide difference
between the time study or standard time for an operation and the
actual time. Factories lacking specialists for speeding up
such laggard operations should institute an activity of this
character.
5) In certain factories, machines were not placed to avoid
unnecessary material handling. In other factories this feature
was admirably taken care of. In some of the newer units this
feature seemed to be well studied.
6) It is suggested that plenty of coolent - i.e., outting
oils - should be flooded on the work in order to prevent burning
up the tools and increasing machine down time caused thereby.
7) Tools should be ground on a periodical basis and not
allowed to run until they produce bad work. When the latter is
done, the tool life is much shorter and the loss of time on the
Regraded Unclassified
60
9.
machine is greater.
8) In many shops attention has been given to work
containers. However, those were not universal in all factories,
and should be adopted.
9) Lighting should be carefully checked. Some factories
were poorly lighted for night work, thereby running the risk
of poor work and lost time.
Menagement.-
1) It is recommended that, if there does not at this time
exist 8 strong planning unit in the Ministry with coordinated
planning agencies in the various production units, such a
function be set up without delay. The detail planning functions
within the manufacturing organizations should be left largely
to the local managements, in order to adapt them to local con-
ditions. However, the system as a whole should be carefully
coordinated.
2) Professional workers, engineers and supervisors, where
urgently needed for vital machine production should not be sub-
jeot to draft in the army, without careful consideration of all
the circumstances. Evidence existed in certain plants that or-
ganizations were being crippled as to supervisors, executives,
tool makers, engineers and the like.
3) Liberalized contractual relations with private organiza-
tions by the Government, in order to meet the unusual production
conditions now existing are needed. Everything should be done
by the Ministry to prevent loss of production through inability
Regraded Unclassified
62
10.
of local managements to make decisions to adapt themselves to
the quickly changing conditions.
4) The above is particularly true due to the disorganiza-
tion of the telegraph and telephone systems under present
conditions. If conditions cannot be improved, then greater
initiative should be permitted for individual organizations
to make emergency decisions.
5) As has been pointed out above, many efficient processes
and operating methods have been viewed in certain plants, and
are not general in others. Greater freedom of interchange of
information should be provided for if possible. A good example,
is the tinning of cylinder sleeves to be nitrided. In one
plant this was done by hot tinning, hand wiped, and in another
plent by an efficient hot metal spray gun.
6) In view of moving large bodies of workmen, organiza-
tions should be set up in each manufacturing plant to effi-
ciently cooperate with local authorities in the matter of
housing employees who are suddenly transferred. No doubt
this has already received much consideration as is evidenced
by the City in the Pines at Le Mans.
7) Many difficulties have been experienced in servicing
and installing American manufacturing equipment due to not
receiving specific information from the Air Ministry represen-
tatives. It has been suggested that the various American
62
11.
service, installation and engineering representatives should be
put in touch with each other, with the idea of freely interchang-
ing information for the use of all American companies, in order
to promote a more efficient servicing of the French operated
American aviation equipment. It is also suggested that the
Air Ministry institute a coordinating bureau for the purpose
of contacting the various American representatives 80 that
the work may be done in the English language, owing to the
unfamiliarity of many of the American representatives with
the French language.
A headquarters location should be established for all
these units, instead of each American company establishing
its own location independently of each other and of that of
the Ministry representative.
General
As has been stated in various places in the above, many
capable and efficient arrangements have been inspected and
especially notable is that of the use of women workers and
young men on precision operations. At one plant women were
found in supervisory positions as job setters, and vestibule
schools were also in evidence for the training of unskilled
workers in preparation to machine operation. Thus, the
Commission feels that if quick decisions can be furnished or
63
12.
made by local managements and also if there is the free interchange
of information together with the quick procurement outside of
France of needed raw materials plus the purchase complete of Amer-
ican units to supplement French production, that much can be
accomplished. The Commission concludes with the thought that
it can be of more service by returning to America without further
delay than by any further advice it can give or action it can
take here, where the situation is so involved.
The Commission is particularly indebted to the executives
of the various plants it has visited for their unfailing cour-
tesy and their freedom in answering questions of every nature.
It is equally indebted to the Air Ministry representatives who
have made all of the necessary arrangements and, lastly, for
the unfailing care taken of the members and the many courtesies
extended to them by the Ministry's representative, General
Martinot Lagarde.
In view of the inability of the Commission to make contact
with you since leaving Paris, a copy of this report is being
delivered to General Lagarde in person, in turn for delivery
to you and on your behalf.
W. J. Davidson
B. D. Kunkle
Arthur Nutt
J. Carlton Ward, Jr.
Chairman
Regraded Unclassified
64
July 16, 1940
ky dear General Marshall:
I thought you would be interested
in having a copy of the report which
Mr. Carl Ward gave me upon his return
from France.
I an sending this to you for your
confidential information.
Yours sincerely,
(Signed) E. Morgesthan, Jr.
General George C. Marshall,
Chief of Staff,
Munitious Building,
Washington, D.C.
Enclosure
9"on7/18 7/18
65
July 16, 1940
My dear General Marshall:
I thought you would be interested
in having a copy of the report which
Mr. Carl Ward gave me upon his return
from France.
I an sending this to you for your
confidential information.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
General George c. Marshall,
Chief of Staff,
Munitions Building,
Washington, D.C.
66
July 16, 1940
My dear General Marshall:
I thought you would be interested
in having a copy of the report which
Mr. Carl Ward gave me upon his return
from France.
I an sending this to you for your
confidential information.
Yours sincerely,
(Signed) H. Morgenthau, Jr.
General George c. Marshall,
Chief of Staff,
Munitions Building,
Washington, D.C.
67
atp
GRAY
(PARIS)
La Bourboule
Dated July 16, 1940
Ree'd 7:45 a.m. 18th
Secretary of State,
Washington.
82, July 16, 10 p.m.
FOR THE TREASURY FROM MATTHEWS
I saw today Cariguel at Clermont Ferrand, Rueff,
Robert Masson of the Credit Lyonnais, Chadenet of the
Societe Generale, Arragon of Morgan at Chatel Guyon,
and Barrett of the Guardian Trust at Vichy. The
consensus of opinion SEEMS to be that there will be an
early return of the Government, the Bank of France and
other French banks to Paris. The administrative problems
of trying to operate from this area and difficulties
accasioned by lack of means of communication are of
course increasing pressure for the return. The French
are endervoring to obtain certain "guarantees" from the
Germans_regarding free communication with the United
States unoccupied zone and some of them are not indulging
in a lot of wishful thinking in this respect. A meeting
of the representatives of ten French banks was held at
Peris shortly after the arrival of the first "convoy"
(my
68
-2- #82, July 16, 10 p.m. from (Paris) La Bourboule
(my telegram no. 59. July 12, 10, p.m.) under the
lendership of Ardant of the Societe Generale and Escara
of the Credit Lyonnais following conversations with German
officials. Ardant stated that the Germane had declared
their readiness to remove all possible difficulties and
he therefore raised with them four problems a solution
of which would bE necessary to resumption of Paris banking
operations on a soale sufficiently large to permit some
return of Economic activity. These points are (one)
interpretation of the word "valeurs (?) ques" on "Wirt-
schnfflichwert" as it appears in Article 17 of the
crmistics agreement (you will recall that transfer of
"wirtsohofflichwert" from occupied to Schafflichwert"
was
from occupied to unoccupied territory/forbiddan thereunder;
(two)- the question of the return of personnel to Paris
and freedom of movement of bank officials from head
offices at Paris to branches in occupied and unoccupied
territory; (thres) the question of means of transport
not the least of which is the gasoline problem which is
becoming daily more coute. Gasoline, EXCEPT that in
possession of the Germans, has become literally liquid
gold: I have been informed of more than ONE CASE where
a thousand francs was paid for two gallons;
(four)
69
-3- #82, July 16, 10 p.m. from (Paris) La Bourboule
(four)- the question of postal, telephone and telegraph
communications. Ardant reported to the mesting that the
Germans have requested to general management of the
banks to return to Paris and he takes the view that such
return is absolutely imperative "even if the occupied
zone is a (?) to specify for those who go back". They
advocated however that "certain documents and confidential
accounts as WELL as certain of their banking SERVICES" on
other unocoupied territory though all current accounts
should be brought back immediately. The banks represented
at the meeting thereupon decided to reopen in occupied
territory and requested the suppression of the legal
moratorium existing in Paris since June 25--a moratorium
which I understand WAS requested by the Bank of France
which had destroyed its bank notes and not by the other
banks. END SECTION ONE.
MURPHY
IR 12 and
70
JT
GRAY
(PARIS)
VICHY
Dated July 16, 1940
Rec'd 5:10 p.m., 17th
Secretary of Statz,
Washington.
82, July 16, 5 p.m.
Department's 44, tenth.
The situation in France today is Bo confused and 80
fluid with various governmental departments and agencies
scattered throughout thisearea of France and resultant
division of responsibilities that it is impossible at
the present time to give more than the following trnta-
tive outline in this changing situation.
One. Bank deposite of American residents in un-
occupied France and of American concerns with represen-
tatives in unoccupied France are subject to no unusual
restrictions. As to means of transferring funds from the
United States to unoccupied Franoe you are probably better
informed than the Embasey. For transfers of funds to
the United States to cover commercial debte and other
authorized transactions the Office des Changes is still
functioning in unoccupied France and it is understood
will grant the necessary applications. In fact govern-
ment
71
-2- No. 82, July 16, 5 p.m., from Vichy
ment contracts placed in the United States are in B OME
cases of which the Embassy has learned, being paid
(BEGIN UNDERLINING) before (END UNDERLINING) the due
date. An effort is being made by at least one American
bank to obtain authority from the Bank of France to
transfer dollar accounts of their nonresident clients
from France to head office in NEW York, but it SEEMS
doubtful that this will bE permitted. There are no
restrictions on utilization of franc accounts in un-
occupied France by nonresidents. Funds may be trans-
ferred from one to another in unoccupied France and EVEN
to Bordeaux and La Rochelle at present--though the latter
two are uncertain. The National City Bank located at
Lepuy, Haute-Loire, Morgan and Chatel Guyon, the
Guaranty Trust no Vichy, and presumably the Chase Bank
at Jurancon are continuing to conduct business on a
small scale and to look after their cliente! interests.
(END SECTION ONE)
MURPHY
NPL
72
JT
GRAY
(PARIS)
VICHY
Dated July 16, 1940
Rec'd 3:11 p.m., 17th
Secretary of State,
Washington.
82, July 16, 5 p.m. (SECTION TWO)
The question of their return to Parie (the first two have
left a small organization there to cash depositor's checks)
is under consideration, The belief appears to prevail
that gradually the distinction between unoccupied and
occupied territory will become of less and less practical
importance.
Two. As to real and personal property in unoccupied
France, there 8:6 no restrictions other than that of
military or government requisition similar to that to
which French properties are subject. Requisitioned pro-
perty is, in theory at least, subject to reimbursement:
Requisition orders may bE redeemed locally for payment
ont-third in cash and two-thirds in treasury bills due
one year after the date of requisition. No cases of TE-
quisitioned American property have yet been brought to
the Embassy's attention. In occupied France, the German
authorities
73
-2- No. 82, July 16, 5 p.m. (SEO ONE) from Vichy
authorities appear in general to have respected American
property where the latter bore one of the notices of
ownership furnished by the Embassy.
Three. With respect to merchandise on consignment
and claims for merchandise delivered there appear to be
no general restrictions on payment but either CASE will
bE decided presumably on the basis of circumstances in-
volved. As indicated above, remittanoss of dollars OWED
in the United States continue to be permitted. Chief
obstaólès to payment are, of course, (a) the difficulty
of locating the individual debtor or EVEn the company
concerned, with millions of the population completely
out of touch with their normal relationships, and,
(b) the difficulty for EVEn the most solvent debtors to
obtain funds for remittance in the present confusion and
breakdown of normal means of communication.
MURPHY
NPL
74
JT
GRAY
(PARIS)
VICHY
Dated July 16, 1940
Rec'd 4:30 p.m., 17th
Secretary of State,
Washington.
82, July 16, 5 p.m. (SECTION THREE)
Four. With respect to inheritance and insurance
payments in France there is no moratorium though the
question of remittances to the United States therefrom
is less clear. Exchange control regulations previously
in axistance continue to apply and it appears that the
tendency will bE towards an increased tightening rather
than relaxation thereof.
Five. The moratorium on payment of dabta, counter-
foil deposits, et cetera, Existing in Paris since June
25 is due to be lifted tomorrow.
Six. While ACCESS to safe deposit boxes in Jerman-
occupied territory has hithsrto been forbidden it is now
being permitted in the presence of some German officials
ans subject to the requirement that any foreign currency,
foreign securities, or gold must be placed in the custody
of the Bank of France or of the bank of deposit on the
latter's behalf.
The
75
-2- No. 82, July 16, 5 p.m. (SEO THREE) from Vichy
The Embasay will endeavor to report fully and prompt-
ly pertinent developments AB they occur.
(END OF MESSAGE)
away
MURPHY
NPL
76
BOOKESS OFFICIAL COMMUNICATIONS TO
THE SECRETARY OF STATE
WASHINGTON, D.C.
DEPARTMENT OF STATE
WASHINGTON
reply refer to
840.51 Frozen Credits/271
July 16, 1940.
The Secretary of State presents his compliments
to the Honorable the Secretary of the Treasury, and
encloses for his information four copies of despatch
No. 559 of May 9, 1940 from the American Consulate
General, Amsterdam, Netherlands, reporting on the
delivery of a personal message from the Secretary of
the Treasury to the President of the Netherlands Bank.
YRAT38038 SHT OT
SS 2 MR at 1116 one
DELAWATERS
ДЕОНИЮУЕ
SAVID
SECEIVED
Enclosures:
4 copies, No. 559 of
May 9, 1940 from
Amsterdam.
rs
17
THE FOREIGN SERVICE
NO. 559
or THE
UNITED STATES OF AMERICA
AMERICAN CONSULATE GENERAL,
Amsterdem, Netherlands.
May 9, 1940.
Delivery of a personal message from the
SUBJECT: Secretary of the United States Treasury
to the President of the Netherlands
Bank.
THE HONORABLE
THE SECRETARY OF STATE,
WASHINGTON.
SIR:
I have the honor to acknowledge the receipt of
the Department's telegram no. 29 dated May 8, 6 D. Me,
which directed as to deliver a quoted personal message
to Mr. Trip, President of the Netherlands Bank, from
the Secretary of the Treasury regarding the release
to the press in Washington of information relative
to the appointment of the Netherlands Minister in
Washington as this government's fiscal agent abroad.
Following the Department's directive in the case,
I obtained an interview at 3 o'cleak this afternoon
with Mr. trip, at which time I personally delivered
to him the message in question incorporated in a
letter of this date. Mr. Trip seemed to be most
approciative of the Secretary's concern and his
immediate...
Regraded Unclassified
78
imediate reaction ww that a leakage of the develop-
ment sould only have occurred through their -
Minister in Washington or the Legation. He explained
that at first the Netherlands Bank had thought that
the Federal Reserve Bank in New York had been respon-
sible for giving the information to the pross. now-
ever, he then showed - a copy of a telegram received
today from the Federal Reserve Bank which categorically
denied any such suggestion. Therefore, Mr. Trip said,
as there were only three possible places in the United
States from which the information could have been &
tained at the time stated, the inference is desidedly
that it must have been given out by the Netherlands
Legation in Washington.
Mr. Trip said that he would like very such to
transmit the information contained in the Treasury
Secretary's message to the Notherlands Foreign Office
all the latter had been somewhat disturbed by the
incident, and I took the liberty to tell him that
such action would seen to follow naturally.
I night and that in the course of our converse-
ties Mr. Trip also said, although net in a critical
sease in any way, that it we rather difficult
newadays for his Bank to judge as to the general
attitude of the United States Government regarding
its fiscal matters abroad. He had in mind the
various laws and the policy of our government in
general and referred to the manner in which they
are ocunsated with the international financial
transcoRegracea Unclassified
79
transactions and relations of the two countries.
No heyed, however, that as time west on many of the
confusing points would be cleared 4.
It was for this reason, I believe, that be w
pecially appreciated the reasourance contained in
the last sentence of the Treasury Secretary's manage
to the effect that in all of these matters the
Treasury desires to mayorate mest effectively with
the authorities of the Netherlands.
Respectfully yours,
Frank 4. Lee
American Geasul General
File No. 102.1
FOL/fie
In quintuplicate to Department.
dogy to the American Legation,
the Magne,
À
Irue copy of
the signed
K
10 THE
ДЕОНИГУГ
OFFICE OE THE
are nnr le bW 2 55
16EV20BA DEPARTMENT
BECEINED
Regraded Unclassified
80
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Embassy, Berlin, Germany
DATE: July 16, 1940, 9 a.m.
NO.: 2967
Reference 1s made to telegram of June 23, noon,
No. 2039 from the Embassy.
The following is for the Treasury from Heath, and also
for the Department's information:
Today I had a talk with Puhl. He said that the Reichsbank
was proceeding with studies of economic and monetary problems
in the hope and belief that after the war an economic structure
may be established in Europe on lines more moderate and
more free than has been the case during the past 10 years.
The Reichsbank he said is cooperating toward reestablishing
the Bank of France in Paris, looking toward its resuming
its activities in full in the occupied part of France as
well as the unoccupied part. He asserted that cordial
relations existed between the representative of the Reichsbank
on the Armistice Commission at Wiesbaden and the French
financial representative.
Puhl remarked that in view of the military occupation,
the Reichsbank would have to maintain an official in the
Bank of France. The functions of this individual would be
somewhat similar to those of the French representative who
was formerly stationed at the Reichsbank in accordance with
the
81
- 2 -
the Dawes plan terms.
Puhl said that the Reichsbank's research division had
undertaken studies looking forward to future international
monetary arrangements. The tentative conclusion reached was
that the present purchasing power parity of the Reichsmark
in relation to the dollar was almost exactly the same as
the prevailing rate before dollar devaluation - 4.20 marks.
In purchasing power, on the other hand, the relation between
sterling and German currency should be about one pound to
22 marks, whereas the parity before the depression was about
one pound to 20.40 marks.
In the above regard, recently I had a talk with the
chief of a research section in another branch of the
Government, who said that he had just started studies as
to the proper parity for the dollar and mark. He had not
gone into the matter very far, but he was of the impression
at that time that in regard to parity of purchasing power,
the rate should be about one dollar to 3.5 marks.
END OF MESSAGE.
KIRK.
= F 5 = 3
EA:LWW
Regraded Unclassified
82
NUMBER OF BLAST FURNACES IN THE U.S.
7-16-X0
/
Distribution by Districts
MONT
N.D.A.s.
I
MINN
OREG
Deliver
-
V1
a. DAS
20
AYD
MICH
⑉
CALIF
MASS
-
NEW
ISAHU
Bulfalo
M
y
N.Y.
COMM
ICWA
UTAM
#
NEED
- *None -
-
WII
II
11
-
-
ILL
Chicago
-
11
V
/
COLB
:
in
III
-
Wheeling
MD
to
1
MO
08/-
KANS
-
-
OHIO
%
-
-
VA
/
VA
I
MRX
"
DALA
TEXAS
TENN.
ARE
- and
se
4A.
MISS
ALA
Birmingham
-
LA.
PLA
LEGEND
Furnace in blost
Furnace /d/a
Furnace blown in since lost report
Furnace blown out since lost report
As of July 16. 1940
Total Furnessa in blest
188
Each chos represents one furnace
Total Furness idle
:
Total Purness blawn in
since less report
Total Purnaces blown our
since / report
a
Other et the Secretary of the Triasury
Preliminary
#
of
Regraded Unclassified
83
GROUP MEETING
July 16, 1940
9:30 a.m.
Present:
Mr. Haas
Mr. Thompson
Mr. Graves
Mr. Harris
Mr. Young
Mr. Sullivan
Mr. Schwarz
Mr. Cochran
Mr. Foley
Mr. Bell
Mr. White
Mr. Viner
Mrs Klotz
Mr. Stewart
H.M.Jr:
Did you know that Mrs. Harris would be here
for lunch today?
Harris:
I know that.
H.M.Jr:
Of course, everybody else in the room is
invited. I am sorry I ran out of champagne.
Harris:
I am a dry, anyhow.
H.M.Jr:
It has taken me & long time to find it out.
Ed, are you boys staying at 10:00 o' 'clock to
tell me what is what?
Sullivan:
Yes.
Foley:
We have a ship, the Examelia, in Newport News.
She is American Export Lines. She has a
cargo of coal and steel pipe and she wants
to clear for Lisbon, Portugal. She is chartered
by the Consolidation Coal Company. She wants
to depart today.
H.M.Jr:
What has she got on board?
Foley:
Coal and steel pipe for Portugal.
H.M.Jr:
Let her go. This ship holding committee seems
to move around the room all the time. Are
you it now?
Regraded Unclassified
84
- 2 -
Foley:
Cairns gave me this and asked me to bring
it up.
H.M.Jr:
Okay.
Young:
There is no reason why this ship in Phila-
delphia shouldn't get B. license, the one
with the peculiar captain.
H.K.Jr:
Here is'a letter to Smith. The President
sent over a letter and asked us to prepare
a reply on the first of July. Smith kept
it two weeks and then he changed the letter.
The way he changed it isn't acceptable.
What is it all about?
Foley:
It is one of those letters from the War
Department that the President sent over
here and asked us to prepare B. reply for.
H.M.Jr:
Is this Navy?
Klotz:
Yes.
H.M.Jr:
Phil, you can get a copy of this but don't copy
it verbatim. Do it while you are in here.
You say that ship with the unusual captain --
Young:
With the unusual captain in Philadelphia,
should she get clearance papers or should
perhaps someone investigate him a little
further.
H.M.Jr:
What is the answer? Are you telling me or
asking me?
Young:
I am asking you what your ideas are.
H.M.Jr:
Well, I told you how to handle it.
Young:
Yes, I did that.
H.M.Jr:
Well, haven't you heard?
Young:
I haven't heard anything on it.
Regraded Unclassified
85
- 3 -
H.M.Jr:
Well, tell them if we don't hear from them
by this afternoon to let her go. Has that
Philadelphia Swedish ship - is she waiting?
Foley:
Yes.
H.M.Jr:
Well, tell them if we don't hear by noon
today to let her go.
Young:
Do you know, Ed, whether she has formally
applied yet? I don't think she has.
Foley:
I don't think she has formally applied but
it was expected she would make application
today or tomorrow.
Harris:
Mr. Secretary, I was telling Phil the fact
that the captain stated he intends to go
somewhere else from where he is clearing
is violation in itself which is perfect
grounds to hold the ship if you want.
H.M.Jr:
But if the people who are chartering the
ship are satisfied, why should I worry? If
they don't worry, would you worry? They have
been told.
Harris:
It depends on how busy they are.
H.M.Jr:
7,000 tons of ingots. Somebody could give it
five minutes.
Harris:
I believe, though - I am not clear. Ed pro-
bably knows the law, but I should think they
would have a perfect right to ask them to
remove that captain.
Foley:
It would have to be done by the local police.
Harris:
You see, you can seize the ship if a fellow
clears for one place and goes somewhere else.
That is very bad.
H.M.Jr:
Under Maritime law, who would do that?
Harris:
Ed, I guess.
Regraded Unclassified
86
- 4 -
Cochran:
Only an American Consulate could remove the
captain of an American ship in & foreign
port.
H.M.Jr:
Is this a Swedish ship? Could a Swedish
Consul remove him?
Young:
She is owned by the Norwegian Government
under charter to B. British company. It is
owned by Norway.
Foley:
Well, if there was a riot on board or if there
was a violation of our --
H.M.Jr:
Look, Phil, this isn't the place to bring this
thing up. I told you to tell the English
about it and if the English can't handle it,
it is just too darned bad. I can't hold it
up. If they can't act on 24 hours notice,
it 18 just too bad. I can't be holding their
hand day and night. Somebody has got to be
responsible. Talk to them before you actually
let her go. Talk to me between now and 12:00,
will you? If somebody over there can't act,
it 1s just too bad.
Harris:
There is just one further thought, 1f I might
intrude, and that is if you have reason to
suspect she is going to other than where she
clears for, then you can exact a bond for the
amount of value of the ship.
H.M.Jr:
On a foreign flag?
Harris:
On any flag.
H.M.Jr:
Well, Phil, when you go out of here, call up
Ballantyne and ask him what he knows, will
you?
Young:
Yes.
H.M.Jr:
Merle?
Cochran:
Irigoyen of the Argentine is going to phone
this morning and wanted an appointment with
you for Wednesday or Thursday.
Regraded Unclassified
87
- 5 -
H.M.Jr:
Let Mr. Bell see him. I can't see all these
people. I am just sunk with this man here.
Cochran:
I don't think it is necessary.
H.M.Jr:
It is just impossible.
Cochran:
That is all I have.
H.M.Jr:
Chick?
Schwarz:
I have here 8. request for a statement from
you endorsing the 1940 community mobilization
for human needs, which I think 1s the only
outside effort to have - this 1s from Charles
Francis Adams, the former Secretary of the
Navy.
H.M.Jr:
This is Community Chest?
Schwarz:
Yes. I will prepare something and send it
up to you.
H.M.Jr:
Phil?
Young:
I have talked to Morris Wilson since I saw
you at 9:00 o'clock and I have two letters
prepared. He said, of course you can have
anything you want of those plans but he
would like to have you call Mr. Purvis on
the telephone before you actually release
them to get his 1deas on the safety factor,
as to how it should be handled.
H.M.Jr:
Well, you do it, will you?
Young:
Yes.
H.M.Jr:
You call up Purvis and tell him that I recom-
mend they be turned over to Knudsen today
and as soon as you have got it, let me know.
I want to give Knudsen service on that this
morning, please.
What else?
Young:
That is all.
88
- 6 -
Haas:
I have nothing.
H.M.Jr:
Harry? Have you got that translation?
White:
Yes.
H.M.Jr:
Can I have it?
White:
Do you want the original?
H.M.Jr:
Which is the original? Give it to Mrs. Klotz,
Did they have to work all night?
White:
Some of them did.
H.M.Jr:
How many people did it?
White:
A couple of men and four girls.
H.M.Jr:
A couple of men?
White:
A couple of men and about three or four girls.
H.M.Jr:
Will you thank them for me?
White:
I will. It was extremely difficult. It was
unusual. There were a lot of errors in the
original.
H.M.Jr:
Is it interesting?
White:
Parts of it. Parts of it are not. It seems
to be & lot of padding.
H.M.Jr:
I will try to get to you today.
Graves:
All right.
H.M.Jr:
Dan?
Bell:
Under this National Defense Program, the War
Department will probably be calling out a
number of people in the Government service
who are Reserve Officers and they wanted
some indication as to policy.
Regraded Unclassified
89
- 7 -
H.M.Jr:
Who does?
Bell:
War Department. I told them I thought we
would like to cooperate, certainly, on the
14-day training, but if it went over that
that we might want to consider each indivi-
dual case, as to whether or not we could
spare the man beyond the 14-day period.
H.M.Jr:
Do they want them just 14 days?
Bell:
Fourteen days is the usual training period
for a Reserve Officer. Under this program
they can take them in for months and I
should say if they were going over 14 days,
you might want to consider each individual
case.
H.M.Jr:
But you gave them a blanket okay on the 14
days?
Bell:
Yes, I said on the 14 days they could take
anybody who 18 a Reserve Officer. Do you
want to talk today a little bit about Com-
modity Credit financing? You said to do it
Thursday. I think the docket is a little
bit crowded this week.
H.M.Jr:
I say these foolish things, don't If
Bell:
I think we had better try to do it next
Wednesday.
H.M.Jr:
Okay. "Manana, manana," the day after to-
morrow.
Bell:
I think next Wednesday will be all right.
Thompson:
We are moving the Comptroller of the Currency
today.
H.M.Jr:
Don't let McReynolds know about it.
Thompson:
We have sent over to the Advisory Council
about 50 Treasury employees, many of whom
had already been dismissed. By these place-
ments, we have been able to avoid dismissals
90
- 8 -
in our own reduction of force.
One of the men we sent over is Griesbauer.
H.M.Jr:
Should that ring a bell?
Thompson:
Yes. About three months ago I brought him
in, a crippled boy, and you then gave him
a five dollar promotion. He was in the
Appointment Division.
On this retirement case of Samuel Cohn,
here is & memorandum. He is an expert
estate and gift tax man down in the Internal
Revenue Bureau.
H.M.Jr:
How did that ever go to the President?
Thompson:
Mr. Helvering recommended it and it went
to the Civil Service Commission.
H.M.Jr:
Then just handle it your own way.
What else?
Thompson:
That is all.
H.M.Jr:
We will do it right now.
Dan, what I thought I would do with you
gentlemen is that I would see Mr. Phillips
alone for a few minutes the way I did last
time and then phone you gentlemen to come
in again. I will be ready for you at
10:00 o'clock.
Sullivan:
All right, sir.
91
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 16, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
Official sales of British owned dollar securities under the vesting order
effective February 19:
No. of Shares
$ Proceeds of
Nominal Value
$ Proceeds of
Sold
Shares Sold
of Bonds Sold
Bonds Sold
July 8
5,000
18,537
34,000
22,979
9
Nil
Nil
1,000
1,072
10
50
2,860
2,000
2,145
11
Nil
Nil
48,000
30,586
12
50
2,860
39,000
31,137
13
2,800
10,403
Nil
Nil
7,900
34,660
124,000
87,919
Sales from
February 22 to
July 6
1,371,848*
48,050,353
2,295,000
2,064,660
TOTAL FEBRUARY
22 TO JULY 13
1,379,7485
48,085,013
2,419,000
2,152,579
Mr. Gifford reported that sales of non-vested securities for the week ended
July 6 totaled $500,000.
92
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 16, 1940
TO
Secretary Morgenthau
confidential
FROM Mr. Cochran
After opening at 3.82-1/2, three cents lower than last night's close,
sterling developed & firmer tone this morning. The noontime quotation was 3.84.
During the afternoon, sterling touched 3.84-1/4 and closed at 3.84.
The reported turnover figures shown below reveal that orders to purchase
sterling exceeded selling orders by L236,000. More than offsetting the preponderance
of reported buying orders were sales of sterling by the New York agency of the Bank
of China. We learned that this Bank sold about L320,000 in the open market today.
Our informant stated that it made sales only on bids, withdrawing from the market
whenever other banks appeared with offers. While we were unable to ascertain
definitely what this sterling represented, it is believed that the Bank of China
kept approximately half of its reserves in London and that these sales of sterling
represent a transference of the reserves from London to New York. We also learned
that the Bank of China, New York, disposed of L165,000 in yesterday's market.
Sales of spot sterling by the six reporting banks totaled L413,000, from the
following sources:
By commercial concerns.
1 71,000
By foreign banks (Far East, Europe and South America)
L342,000
Total
L413,000
Purchases of spot sterling amounted to L649,000, as indicated below:
By commercial concerns
L493,000
By foreign banks (South America, Europe and Far East)
L156,000
Total
L649,000
The following reporting banks sold cotton bills totaling L15,000 to the British
Control on the basis of the official rate of 4.02-1/2:
111,000 by the Guaranty Trust Company
4,000 by the Irving Trust Company
L15,000 Total
Sterling in the amount of L9,000 was purchased from the British Control at
the official rate of 4.03-1/2 by the following banks:
1 8,000 by the Guaranty Trust Company (for rubber)
1,000 by the Bankers Trust Company (for whisky)
1 9,000 Total
Regraded Unclassified
93
- 2 -
The other currencies closed as follows:
Swise franc
.2271
Canadian dollar
12-1/4% discount
Lira
.0505
Reichamark
.4004
Cuban peso
10% discount
Mexican peso
.1990 bid, .2020 offered
There were no gold transactions consumated by us today.
The Federal Reserve Bank of New York reported that the following gold ship-
ments were consigned to it:
$4,230,000 from Canada, shipped by the Bank of Canada for its account, for sale to
the U.S. Assay Office.
3,439,000 from Colombia, shipped by the Central Bank of the Colombian Republic, to
be sarmarked for its account.
$7,669,000 Total
The State Department forwarded cables to us stating that the following gold
shipments would be made:
$ 574,000 from Hong Kong, shipped by the National City Bank, Hong Kong, to the
American Trust Company, San Francisco.
313,000 from England, shipped by the Swiss Bank Corporation, London, to its New
York agency.
279,000 from Hong Kong, shipped by the Chartered Bank of India, Australia and
China, Hong Kong, to the Bank of California N.A., San Francisco.
35,000 from England, shipped by the Midland Bank, London, to the National Bank,
New York.
$1,201,000 Total
The shipments from Hong Kong will be sold to the U.S. Mint at San Francisco, and
those coming from England are for sale to the U.S. Assay Office at New York.
The report of July 10 received from the Federal Reserve Bank of New York
giving the foreign exchange positions of banks and bankers in its district, revealed
that the total position of all currencies was short the equivalent of $13,319,000,
a decrease of $1,030,000 in the short position. The net changes in the positions are
as follows:
Short Position
Short Position
Decrease in
Country
July 3
July 10
Short Position
England
$ 2,276,000
$ 1,434,000
$ 842,000
Europe
7,484,000
7,590,000
106,000 (Increase)
Canada
39,000 (Long)
253,000 (Long)
214,000 (Increase in
Long Position)
Latin America
243,000
326,000
83,000 (Increase)
Japan
3,502,000
3,192,000
310,000
`her Asia
862,000
1,056,000
193,000 (Increase)
$11 others
21,000
25,000 (Long)
46,000 (Increase in
Long Position)
$14,349,000
$13,319,000
$1,030,000
CONFIDENTIAL
94
- 3 -
The Bombay gold price was equivalent to $33.78, a gain of SP over the
quotation of July 13.
Spot silver in Bombay worked out to the equivalent of 44.164, up 7/164 from
the July 13 price.
In London, spot silver was fixed at 22-3/16d, up 1/84. The forward price was
unchanged at 21-3/40. The U.S. equivalents were 40.34# and 39.54# respectively.
Handy and Harman's settlement price for foreign silver was unchanged at 34-3/44.
The Treasury's purchase price for foreign silver was also unchanged at 35#.
To más one purchase of silver amounting to 300,000 cunces under the Silver
Purchase Act. This consisted of new production from foreign countries, for forward
delivery.
Smil
CONFIDENTIAL
95
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE July 16, 1940
TO
Secretary Morgenthau
FROM
Mr. Haad AAA
For the week ended July 3, 1940, Work Projects
Administration reports show that 1,611,000 persons were
employed, a decrease of 55,000 from the 1,666,000 persons
employed during the last week of June.
Attachments
96
WORK PROJECTS ADMINISTRATION
Number of Workers Employed - Weekly
United States
Week Ending
Number of Workers
1939-40
(In thousands)
December 6
2,075
December 13
2,123
December 20
2,144
December 27
2,152
January 3
2,160
January 10
2,190
January 17
2,222
January 24
2,244
January 31
2,266
February 7
2,288
February 14
2,306
February 21
2,319
February 28
2,324
March 6
2,324
March 13
2,319
March 20
2,312
March 27
2,288
April 3
2,204
April 10
2,162
April 17
2,118
April 24
2,092
May 1
2,059
May OR
2,008
May 15
1,970
May 22
1,945
May 29
1,925
June 5
1,859
June 12
1,785
June 19
1,714
June 26
1,666
July 3
1,611
Source: Work Projects Administration.
97
WORK PROJECTS ADMINISTRATION
Number of Workers Employed - Monthly
United States
Number of Workers
1938
(In thousands)
January
1,901
February
2,075
March
2,445
April
2,582
May
2,678
June
2,807
July
3,053
August
3,171
September
3,228
October
3,346
November
3,287
December
3,094
1939
January
2,986
February
3,043
March
2,980
April
2,751
May
2,600
June
2,551
July
2,200
August
1,842
September
1,790
October
1,902
November
2,024
December
2,152
1940
January
2,266
February
2,324
March
2,288
April
2,092
May
1,925
June
1,666
Source: Work Projects Administration.
Monthly figures are weekly figures for the latest
week of the month.
They include certified and noncertified workers.
98
WORK PROJECTS ADMINISTRATION
Number of Workers Employed
United States
Monthly W.P.A. Employment
Weekly W.P.A. Employment
1935
1936
1937
1938
1939
1940
41
1939
1940
1941 I
MAIL
MAY
JULY
MPL
BOX
JAM
MAR
MAY
MAY
MAR
NOV.
MAR.
MILIONS
WILLIONS
WILLIONS
or
of
or
or
WORKERS
WORKERS
WORKERS
3.4
3.4
3.3
3,3
3-2
3.2
3.2
3.2
3.1
3.1
2.8
2.8
3.0
3.0
2.9
2.9
2.4
2.4
2.0
2.0
2.7
2.7
2.0
2.0
2.6
2.6
2.5
2.5
2.4
2.4
1.4
1.6
2.3
2.3
2.2
2.2
12
1.2
2.1
2.1
2.0
2.0
J.
.0
1.9
1.9
1.0
1.8
it
.4
1.7
1.7
1.6
1.6
0
1.5
0
1.5
BAY
JULY
SEPT.
MDV.
JAM.
MAR.
1.
-
.
.
.
,
.
JAN.
MAR.
MAY
JULY
SEPT.
NOV.
-
MI.
1533
1936
1937
1936
1939
1940
41
1939
1940
1941
-
SOURCE: MORE PROJECTS AMIRISTRATION
Office el - Secretary of the Treasury
1-221-02
Ima - - -
Regraded Unclassified
99
COPY OF TELEGRAM RECEIVED
FROM: American Legation, Stockholm
NO.: 733
DATE: July 16, 1940
Von Bayer Swedish subject desires approval transfer
his account John Melady Company, New York, $432.46
remitted by Henriques, Copenhagen, to Bank Manhattan,
New York. We recommend. Cable action.
STERLING
et MR 11 38 NO
014
diving
TRATE DT
THE VISA
COPY:EA:EB
Received by phone from Mr.McKson's office - July 17/40 - in
100
CABLE
From: London
To: Federal Reserve Bank of New York
Date: July 16, 1940
#723/40
FOR KNOKE.
PARAGRAPH ONE
Referring to previous conversations and cables regarding
arrangements now completed with New York Exchange Market
Committee to deal in sterling at official rate of exchange
PARAGRAPH TWO
Regulations governing the opening of registered accounts
in the names of banks in the United States and dependencies
will be issued on July 17 and will COMO into force at the
opening of business in New York on July 18
PARAGRAPH THREE Balances of such accounts are convertible on demand into
United States dollars at the official rate of 4.02-1/2
PARAGRAPH FOUR In order to bring this arrangement into force would you be
good enough to advise the New York market that you have
received the following instructions from the Bank of England
PARAGRAPH FIVE Until further notice please buy sterling at 4.02-1/2 and
sell sterling at 4.03-1/2 without limit as to amount of the
dollar proceeds of these transactions to be passed through
His Majesty's Government Account G the sterling so dealt in
must be passed through the registered accounts of United States
banks.
PARAGRAPH SIX
Ve ask you to carry out these instructions on our behalf but
without responsibility on your part
BOLTON
BANK OF ENGLAND
3 copies to TREASURY
16702 101
JT
PLAIN
SHANGHAI VIA N.R.
Dated July 16, 1940
Rec'd 8:55 p.m.
Secretary of State,
Washington.
648, July 16, 5 pame
FROM COMMERCIAL ATTACHE.
Special Financial. Shanghai open market foreign
Exchange rates erratic, interbank selling spot opening
yesterday jorning Easier at five and SEVEN eighths cents
and three and twenty SEVEN thirty seconds pence due to
press reports of pending British acquiesoence in Japanese
demands for prohibition of freight transshipments to China
through Burma, but rates firmed yesterday afternoon and
this morning to a high of six and five sixteenth cents and
three twenty nine thirty seconds pence due to press reports
or British offers of mediation for Sino-Japanese pesce,
Currency RESERVE Board Chungking has announced outstanding
DOTE issues of the four government banks as of End June
in million yuan: Central Bank one six two three point
four, Bank China Eleven hundred point two, Bank Communi-
oations SEVEN two SEVEN point six, Farmers Bank five Eleven,
total three nine six two point two against announced cash
reserve
102
-2- #648, July 16, 5 p.m., from Shanghai
reserve of one nine one seven point five. Increase
of Eight Eighty in note issues for half year or one four
six per month is unprecedentedly large representing
accelerated inflation as result financial strain of long
continued hostilities. Comparison with yen bloc note issues
of interest same totalling also in millions yen four nine
six naught as of End June which includes official Japan
and Manchurian figures, F.R.B. other Japanese sponsored
North China issues and Hua Haing notes but not military
scrip circulated in China which believed to bE over five
hundred.
INFORM COMMERCE.
BUTRICK
NPL
mr 103
FEDERAL RESERVE BANK
OF NEW YORK
OFFICE CORRESPONDENCE
DATE July 16, 1940
COMPIDENTIAL YILES
SUBJECT TELEPHONE CONVERSATION WITH
J. W.
BANK OF ENGLAND
400
I telephoned Mr. Belton at If - today and told his that yesterday ear
banks had received now regulations, in connection with registered assounts, and other
notices which our Fereign Exchange Condittee had reseived from the Londen Committee.
As these are very lengthy the banks have net yet had time to fully digest these
Shortly before calling Mr. Bolton I had spoken with Mr. Lores and be
suggested that I mention to Mr. Bolton that the banks here would like to follow
the custom of the Lenden market and deal 408-604, thereby giving the banks one-half
cent on either side for their compensation. Belten said it would be perfectly all
right with hime
I asked Mr. Beltom if he expected to send us a cable in semestion with
the now official rates. Bolton replied that Mr. Insire had said come time age that
we would be Blad to net M their agent, and ha, Bolten, was sending us a cable this
afternoon to the effect that we would deal for their account without any responsi-
bility whatever on our part, and that we would be acting solely as their agent. I
assured Mr. Bolton that we would be very happy to do this. I also asked Mr. Balten
If he planned to send us a daily sable to operate, and he said 19 would receive a
daily cable from him.
Bolten then saked about the mrket, and I gave him 6 very detailed resume
of the market yesterday and today. Then I told him that the only efferings today
were from the Par East, he said that after Thursday, sterling efferings from Shanghai
would not be eligible for sale is this mrket.
Telton wished me to express to Mr. Laree est the Committee his hearty thanks
for their cooperation, which he said had been extraordinarily helpful.
I asked Selten about conditions in general and be said he had been having a
sesparatively penceful life. He comed mest optimistic and hopeful, ending with
% will get through."
Regraded-Undassified
104
AS
PLAIN
London
Dated July 16, 1940
Rec'd 1:45 p.m.
Secretary of State,
Washington.
2208, July 16.
FOR TREASURY FROM BUTTERWORTH.
Such has been the press criticism of the decision to
discontinue publication of debt items in the Exchequer
returns, Excerpts from which were quoted in my 2094 of
July 10, that in answer to a parliamentary question
Sir Kingsley Wood stated today that hE intends to make the
full figures available at monthly intervals. In the course
of his reply he said that it is his present intention to
continue the separate weekly publication of receipts from
national savings certificates, national war bonds and loans
free of interest but that with regard to the floating debt,
Treasury bonds, ways and means advances and other items,
these are to a large extent interchangeable and "fluctuations
from week to WEEK are unimportant and likely to be mislead-
ing".
KENNEDY
WSB
105
Translation of memorandum in French handed by Mr. Pinsent of the
British Embassy to Mr. Cochran at 10:30 A. M. July 16, 1940.
Banque Societe Generale, 29 Boulevard Hanssman, Paris.
The Devisenschutzkommando in France has assumed in that part
of French territory occupied by the German troops the control of
foreign exchange and each bank therein, its branches and agencies
in Paris and in the department of the Seine must file its statement
on June 14 as follows:
(a) Foreign exchange with the exception of reichamarks, Dutch
crowns, Belgian france, Danish and Norwegian crowns, sloty.
(b) Gold, coin of all kinds, gold scraps and gold bars.
(c) Securities, shares and bonds (foreign).
(d) French securities specified in foreign currencies are not
included with securities specified in foreign currencies.
(e) Those in reichsmarks, Dutch crowns, Belgian francs, Danish
and Norwegian crowns and in sloty, in foreign currencies in foreign
banks and credit institutions.
(f) Securities of trust in foreign currencies other than those
mentioned in paragraph (a).
(g) Precious stones and rough diamonds.
(b) Bank notes in reichsmarks.
It is forbidden to dispose of the currencies mentioned in paragraph 1
until further orders.
The strong-boxes of all clients are closed and cannot be opened
emept in the presence of a representative of the Devisenschutskommando
in Frace. The date of the opening of the strong-boxes will be not by
the latter after agreement with the bank concerned and the bank must
106
- 2 -
submit to the Devisenschutzkommando in France until July 5. 1940, a
statement in triplicate of the currencies mentioned by name, (*)
(July 5. 1940) a list in triplicate of all clients having & strong-
box either at the head bank or (1 words omitted: e.g. "at a branch.
This list must") set forth (a) the name of the client (b) his address
if the bank knows it and the date of the client's last visit to his
box. Violations of this (? regularis) will be punished.
(Sgd.) HARTMANN.
*(In the text: "mentionees au nom")
107
daily 16, 1940
Mir Secretary Ball
Mr.
Mr. Pinsest, Financial Overneler of the British Minery, telephoned no
this afternoon. be ml observed a natice to the Britime Comlecter's
- of July 12. the last to Item whereaf dealt with the
ing of to vessels, the s. 1. Malentis and the a. s. Matrush be Br.
Incrition of for tripe to South America ml nin. a. Places
hoped that w - wishing sub immetime, class Me people stately
use not desiress of Death - whing profite through such operations.
(Init.) H. 1. Ga
I
108
Mr.
Turner
Y department
Prepared by:
Mr. Murphy
Mr. Pass
CE COMMUNICATION
DATE July 16, 1940
TO
Secretary Morgenthau
FROM
Mr. Haas YOA
Subject: Current Developments in the High-grade Security Markets
SUMMARY
(1) Prices of Treasury bonds and notes show net increases for
the first half of this month, 3 to 5 year notes making
the largest gain for the period as & whole (Chart I).
The new 2-1/4 percent bond was well received and went to
a premium in excess of two points. It is now selling to
yield somewhat less - 1.0., is selling at a. somewhat
higher price - than might be expected from a comparison
with outstanding issues (Chart II).
(2) High-grade corporate and municipal bonds have improved
on balance BO far this month. Municipals have about re-
covered their losses since the invasion of the Low Coun-
tries (Chart III). New corporate financing experienced
8. sharp revival last week.
(3) United States Government security holdings of weekly re-
porting member banks in New York City increased by
$635 millions in the first half of 1940, and are now
substantially above the previous peak of June 1936.
Only three among nine of the largest banks in New York
City now hold a smaller volume of Governments than at
that time. Six of these nine banks increased their hold-
inge in the first half of this year, three of them by
more than 25 percent each (Chart IV). Holdings of Govern-
ment securities per dollar of deposits range from 52 cents
for J. P. Morgan and Company to 21 cents for Irving Trust
Company (Chart V).
(4) Dollar bonds of Australia and Canada are elightly higher
than they were at the end of June. German dollar bonds
have declined almost continuously during the first half
of July (Chart VI).
109
Secretary Morgenthau - 2
I. United States Government Securities
The prices of all classes of Treasury bonds and notes
have increased on balance 80 far this month (Chart I). The
volume of trading has been relatively light. The net price
increase of 3 to 5 year notes since the end of June has been
greater than that of other groups of Treasury securities.
This is indicated in the following table, which shows net
price changes, by maturity classes, from the end of June
through the close yesterday, July 15:
: Average price change
: July 1 through 15
(In thirty-seconds)
Notes
1 to 3 years
+ 1
3 to 5 years
+ 8
Bonds
5 to 15 years to call
+ 2
15 years and over to call
+ 4
The new 2-1/4 percent, 14 to 16 year bond, offered on
Thursday, was well received by the market. Unofficial quo-
tations on Thursday opened at 101-8/32 and moved up to
101-12/32 during the day. On Friday, the premium was in ex-
cess of two points. There was a slightly lower tendency in
outstanding Treasury bonds occasioned in part by switches
into the new issue. Chart II compares the yield, based on
when-issued prices, of the new bond with the yields of out-
standing Treasury issues. It will be seen that the new 16-
sue is somewhat out of line, selling on a lower yield basis
-- 1.0., at a higher price - than might be expected from a
comparison with outstanding issues with two-year call periods.
II. Other Domestic High-grade Securities
High-grade corporate securities have risen in price on
net balance since the end of June. Our average yield of
such bonds (moving inversely to prices) decreased from
Regraded Unclassified
110
Secretary Morgenthau - 3
2.87 percent on June 30 to 2.83 percent at the close yester-
day, July 15.
Municipal securities have been improving somewhat more
rapidly this month than have either long-term Treasury bonds
or high-grade corporates. A decrease of nine basis points
in the Dow-Jones average yield of twenty 20-year bonds for
the two weeks ended last Saturday (Chart III) compares with
decreases of one and three basis points, respectively, in
the average yields of Treasurys and corporates during the
same period. Municipals have now recovered almost to the
level of May 4, the Saturday before the invasion of the Low
Countries.
Encouraged presumably by the absence in recent weeks of
large movements in the market prices of high-grade bonds,
the market for new security issues staged a sharp revival
last week, especially in the corporate field. New corporate
bond offerings in New York last week amounted to about
$110 millions, comprising four issues. The largest issue
consisted of $60 millions of 3 percent debentures of The
Texas Corporation, due in 1965, which were priced at 103 to
yield about 2.83 percent. All four issues were well received.
New municipals offered in the New York market last week
amounted to about $4 millions.
III. Assets of New York City Banks
The United States Government security holdings of weekly
reporting member banks in New York City increased by $635 mil-
lions in the first half of 1940. Early last November they
passed the previous peak established in June 1936, and at
the end of last month had attained & new high of $5,238 mil-
lions.
Chart IV shows the Government security holdings of nine
large banks in New York City and of all weekly reporting
member banks in New York City on June 30, 1936, the date of
the previous high of such holdings of weekly reporting new-
ber banks in New York City; on September 30, 1937, the date
of the subsequent low; and on the three most recent quarterly
report dates. J. P. Morgan and Company, it should be noted,
is not & weekly reporting bank.
It will be seen that only three of the nine banks hold
a smaller volume of Governments now than they did in June
1936, but that the holdings of two others are only alightly
Regraded UInclassified
111
Secretary Morgenthau - 4
greater now than at that time. The remaining four -- National
City, First National, Guaranty Trust, and notably Chase
National -- show fairly substantial increases.
Three of the nine banks have shared in marked degree,
in proportion to the size of their holdings last December,
in the growth during the past six months. Only one, J. P.
Morgan and Company, shows any large decrease in Governments
for the first half of this year. Despite this decline,
J. P. Morgan and Company still has the largest volume
(52 cents) of Governments per dollar of deposits of any of
the nine banks shown in the chart, and their holdings of
United States securities are twelve times 8.8 great as their
loans.
The net changes for the first half of 1940 in the Govern-
ment security holdings of the several banke and of all weekly
reporting member banks in New York City are shown (arranged
in order of percentage increase) in the following table:
Change December 31, 1939 -
:
June 30, 1940
: Millions of:
Percent
:
dollars :
Guaranty Trust
+ 229
+ 31.4
First National
+ 90
+ 31.1
Chase National
+ 219
+ 26.7
All New York City Reporting Banks
+ 635
+ 13.8
Central Hanover
+ 36
+ 10.9
Bankers Trust
+ 46
+ 9.2
Manufacturers Trust
+ 24
+ 8.6
National City
- 8
- 1.1
Irving Trust
- 10
- 5.8
J. P. Morgan and Company
- 76
- 18.3
It is also interesting to compare the distribution of the
various types of assets of each of the banks with the distri-
bution for all weekly reporting banks in New York City. The
basic facts are presented in Chart V, which shows, for each
bank and for the weekly reporting group, selected assets 0%-
pressed in cents per dollar of deposits.
Regraded Unclassified
112
Secretary Morgenthau - 5
Cash per dollar of deposits ranged from 32 cents in the
case of Manufacturers Trust Company to 65 cents for Irving
Trust Company. Only two of the nine banks, however, have
more than 50 cents in cash per dollar of deposits.
As was noted previously, J. P. Morgan and Company leads
in holdings of Governments per dollar of deposits with
52 cents. First National Bank follows closely with 51 cents
in Governments for each deposit dollar, while at the opposite
end of the scale is Irving Trust with 21 cents.
Loans continue to provide small use for deposit dollars,
ranging from 4 cents in the case of J. P. Morgan and Company
to 26 cents in the case of Manufacturers Trust. All weekly
reporting members in New York City hold 19 cents of loans
per dollar of deposits.
IV. Foreign Government Securities
Australian and Canadian dollar bonds are now slightly
higher in price than they were at the end of June, although
both groups have receded moderately from the levels of last
week (Chart VI). Italian dollar bonds, after recovering
somewhat last week from the declines occasioned by the de-
fault on July 1 of interest on the bonds of the Italian Pub-
lio Utility Credit Institute, fell nearly four points yester-
day. The course of German dollar bonds since the end of June
has been almost continuously downward.
British Government internal securities rose slightly in
the first week of July, but remained fairly stable last week.
The 2-1/2 percent consols closed yesterday at 72-1/4 to yield
3.48 percent.
Attachments
113
Chart I
CHANGES IN THE PRICES OF U.S. SECURITIES
Points Plotted Represent the Difference from June 5, 1930 Price of Each Maturity Class
1940
1939
1940
JUNE
JULY
AUGUST
NOV,
JAN.
MAS.
SEPT.
MAY
JULY
22
29
6
13
20
27
2
10
74
24
JULY
POINTS
POINTS
(NET CHANGE)
(MY Nom -
Daily
(NET CHARGE)
Saturday Quotations
+1
+
#3
el
+
+
+1
+à
&
a2
o
o
et
T
+
al
NOTES,
4.
+
3-5 Yes.
NOTES,
0
3-5 Yes.
0
4
1
NOTES
1-3 Yes.
+)
-1
-1
4
-I#
-16
NOTES.
1-3 Yes,
4
+1)
&
4
41
-16
&
+3
to
4
toms,
5-15 YEST
&
4
TO CALL
T
4
&
&
tomes,
Over 15 Yes.
Boxes, 5-15 Yes.
TO CALL
TO CALL
&
-28
-5
4
&
-3
Bomps, OVER 15 Yes.
1
TO CALL
4
-34
-Né
$
&
-7
=7
of
-M
+
T
-8
9
7
₺
+
6
7
t
7
₺
-10
-10
*
&
I
-54
é
-11
+
$
É
-12
3
-51
JULY
SEPT.
BOY.
JAB.
MAR.
MAY
JULY
SEPT.
22
20
6
13
20
27
3
10
17
24
1939
1940
JUL
JULY
AGGUST
1940
Mes of the Secretary of The Treasury
- el - and Statestics
-
Regraded Unclassified
114
Chart II
YIELDS OF TREASURY BONDS WITH 2 year, 3 YEAR AND
5 YEAR CALL PERIODS*
Based on Closing Bids, July 15, 1940
1942
1944
1946
1948
1950
1952
1954
1956
1958
1960
1962
PERCENT
PERCENT
5 YEAR CALL)
2.4
2.4
0
2.2
2.2
3 YEAR CALL
2.0
2.0
New Issue
1.8
1.8
1.6
1.6
1.4
1.4
V YEAR CALL
1.2
1.2
:
1.0
1.0
0
.8
.8
.6
.6
1942
1944
1946
1948
1950
1952
1954
1956
1958
1960
1962
e EXCLUDING ISSUES WITH 3% OR HIGHER COUPONS
Office of the Secretary of the Treasury
F - 161 - A
Division of Research and Statistics
Regraded Unclassified
115
Chart III
COMPARATIVE YIELDS OF AVERAGE OF ALL LONG TERM U.S. TREASURY
AND Dow-JONES AVERAGE OF MUNICIPAL BONDS
Yields Based on Saturday Quotations
1939
JAN.
FEB
MAR
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
1940
NOV.
DEC.
18
18
is
29
u
17
is
24
JAN.
==
19
FEB.
MAR.
is
so
14
APR.
MAY
26
JUNE
JULY
"
19
AUG.
SEPT.
OCT.
20
NOV.
DEC.
17
inverted Scale
10
30
a
17
n
26
"
to
17
II
14
11
is
14
28
PER CENT
Inverted Scale
PER CENT
2.0
Long Term Treasury* (12 years or more to earliest cell date)
2.0
2.2
2.2
2.4
2.4
2.6
2.6
2.8
2.8
3.0
3.0
Twenty 20-Year Municipal Bonds
3.2
3.2
3.4
3.4
PER
CENT
PER
CENT
60
.60
40
40
Differential
20
20
0
,
a
4
-
4
JAN
18
I
is
29
FEB MAR. APR. MAY JUNE 24 JULY e 22 . AUG. 19 a SEPT. 16 30 OCT. 14 19 NOV. = as DEC. , as a JAN. ao a FEB. 17 I MAR. is as APR. 13 27 MAY = = JUNE e " JULY 6 20 a AUG. 17 = SEPT. 14 20 OCT. it N NOV. + 19 DEC. as
13
27
0
IO
1939
1940
Office of the Secretary of the Treasury
"Break in line indicates change in composition of Long Term Treasury average.
- of - and -
F-134-A
Regraded Unclassified
NEW YORK CITY BANK HOLDINGS OF U.S. SECURITIES
Including Guaranteed Obligations
DOLLARS
DOLLARS
Billions
All Weekly Reporting Member
Billions
Banks in NYC
5
5.
4
4
3
3
2
2
I
I
0
o
June
Sept
Dec
Mar
June
1936
1937
1939
1940
1940
Selected New York City Banks
DOLLARS
DOLLARS
DOLLARS
Millions
DOLLARS
Chase National
Millions
National City
Millions
Guaranty Trust
Millions
900
900
900
900
800
800
800
800
700
700
700
700
600
600
600
600
500
500
500
500
400
400
400
400
300
300
300
300
200
200
200
200
100
100
100
100
o
o
June
Seps
Dec
o
Mar
June
June
Sept
Dac
o
Mar
June
June
Sept
Dec
Mar
1936
1997
June
1939
1940
1940
1936
1937
1939
1940
1946
1936
1937
1939
1940
1940
600
600
600
600
Bankers Trust
J.P. Morgan & Co
Central Hanover
500
500
Including Dressi + Ce
500
500
through Des 1939
400
400
400
400
300
100
300
300
200
200
200
I
200
100
100
100
100
o
o
0
June
Sept
Date
Mir
Juns
June
Sept
Dec
o
Mar
June
June
Sept.
Dec
Mar
June
1936
1437
1939
1940
1940
1936
1937
1930
1940
1640
1930
1937
1939
1940
1940
400
400
400
400
Manufacturers Trust
First National
Irving Trust
100
300
300
300
200
200
200
200
100
100
100
100
o
o
Juna
Sept
Dat
Mar
o
June
June
Sept
Dec
Mar
Ans
o
June
Sapt
Dec
1937
1939
1940
1982
1937
Mar
1936
1936
1939
1940
June
1940
1936
19.97
1934
1940
1940
Ners Figures are for and of menth indicated
I 5 / = A = ,
Regraded'Unclassified
PRINCIPAL ASSETS OF NEW YORK CITY BANKS
Expressed in Cents Per Dollar of Deposits
JUNE 30, 1940
CENTS PER
CENTS PER
DOLLAR
All Weekly Reporting Member
DOLLAR
Banks in N.V.C
50
50
40
40
30
30
20
20
10
10
0
0
Cash
U.S. Secu-
Other
Loans
rities"
Securities
Selected New York City Banks
CENTS PLR
CENTS PER
CENTE PER
DOLLAR
Chase National
CENTS PER
DOLLAR
National City
DOLLAR
Guaranty Trust
DOLLAR
50
50
50
50
40
40
40
40
30
30
30
30
20
20
20
20
10
10
10
10
o
o
Case
us -
Other
o
issue
Com
MA lass
Other
a
Leans
I
Cash
us Sets-
Other
-
Insurance
Legan
FREE
Security
70
70
70
70
Bankers Trust
J.P. Morgan & Co.
Central Hanover
60
60
60
60
50
50
50
50
40
40
40
40
10
30
30
30
20
20
20
20
10
10
10
10
a
0
Com
" Ser
Other
o
Licens
Cosh
us Secu-
Diner
Learn
nies
Cash
o
Securitas
us -
Other
Securities
Litens
visa
Requestive
10
70
70
70
Menufacturers Trust
First National
60
Irving Trust
60
60
60
50
50
50
50
40
40
40
40
10
30
30
30
20
20
20
20
10
-
10
10
10
o
0
Cash
« lass
Date
o
-
o
F
Cash
-
-- -
Other
Usem
Sain
wa lacy
Other
Loans
him
Serunkes
ritues
.
Including Guarantaed
(Mas - - bein é " -
- # - -
F-129-A
Regraded Unclassified
118
Chart VI
PRICES OF DOLLAR BONDS OF SELECTED FOREIGN GOVERNMENTS
1940
1939
1940
MAY
JUNE
JULY
OCT,
BEC.
FEB.
APR.
JUNE
AIG.
ocT.
DEC.
4
AUG.
11
18
25
I
8
15
22
29
6
DOLLARS
DOLLARS
DOLLARS
Weekly, Saturday Quotations
Daily
110
110
110
GANADA
5's 1952
100
100
100
CANADA
5's 1952
90
90
90
AUSTRALIA
5's 1957
80
BO
80
70
70
JAPAN
5t's 1965
70
60
60
60
JAPAN
AUSTRALIA
5j's 1965
5's 1957
50
50
50
40
ITALY
7's 1951
40
40
ITALY
7's 1951
30
30
30
20
20
20
GERMANY
5f's 1965
10
10
GENMANY
10
54's 1965
0
0
AUG,
OCT.
DEC.
FD.
APR.
JUNE
AUG.
OCT.
DEC.
4
II
18
25
I
8
15
22
29
6
o
13
1939
1940
MAY
JUNE
JULY
1940
of the Serviary of the Transury
- of - w -
FO - 150
Regraded Unclassified
SECRET
July 1940 119
Conjectural balance of payments between United Kingdom and U.S.A.
July 1940 - June 1941.
£ million.
1
Admiralty
11
U.K. exports
40
Purchase of merchant
U.K. invisible exports 5
ships
2
Air Ministry 2
179
Munitions³
85
Adverse balance
of payments
428
Iron and Steel 4
100
Other Materials 5
33
Petroleum
6
17
Food and Tobacco⁷
21
Manufactures
8
25
473
473
1. Existing orders 4, new orders 7. No allowance for any
purchase of completed warships.
2. Aircraft, British programme 621; aircraft French programme
100; machine tools, materials, etc. 161.
3. Machine-tools 12, production sanctioned by end June 1940, 25,
new proposals of June 30th, 38, Anglo-French purchase of
goods 10. Nothing known about any other French contracts.
4. Steel 74, alloy steel 18, pig-iron 5, scrap 7, ferro-alloys 2.
5. Timber 9, paper pulp etc. 11, sulphur and phosphate rock 2,
non-ferrous metals 3, cotton 3, miscellaneous 5.
6. Excludes 8 for dollar oil from Aruba (N.W.I.)
7. Cereals 4, starch 21, lard and dairy produce 4, canned fish
21, tobacco 6, other 2.
8. Includes machinery 10.
120
Conjectural balance of payments between sterling area
and U.S.A.
Net adverse balance
Exports (Rest of
of U.K.
428
sterling area):
new gold
20
Imports (rest of
rubber
45
sterling area)
65
other
65
Net invisible
Adverse balance (U.K.
imports
5
and sterling area
368
-
-
498
498
I
-
121
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 16, 1940
TO
Secretary Morgenthan
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
Shortly after 11 o'alock this morning the Secretary received Sir Frederick
Phillips and & conference followed in which participated: Messrs. Bell, Bevley,
Pinsent, Stewart, Viner, White and Cochran.
Sir Frederick Phillips presented to the Secretary the attached secret state-
ment. He explained that these figures were estimates. It was, moreover, difficult
to break them down because of certain factors which are unknown. is an example, he
cited the figure of L179,000,000 for the Air Ministry expenditures, which total does
not take into consideration what part of the French program of purchases the British
vill have to pay, and, secondly, there is nothing included therein for the purchase
of the Merlin engines which will be mamifactured in this country under the arrange-
ment with Rolls Royce.
As to the item on munitions, Phillips suggested that ve talk further with Mr.
Purvis. In discussing the allotment for iron and steel, Phillips explained that the
British naturally would have preferred to purchase scrap iron and do the manufacturing
themselves. Because of the urgency of obtaining finished products, however, and con-
sidering the possibility of increasing difficulties in landing supplies in British
ports, they are going in for the purchase of more highly manufactured articles,
Phillips placed at L428,000,000 or $1,700,000,000 the prospective adverse
balance of payments between the United Kingdom and the United States for the fiscal
year July 1940 - June 1941. The adverse balance of payments between the sterling
area and the United States for the same period is estimated at 368,000,000 storling
or $1,500,000,000.
Sir Frederick stated, in answer to the Secretary's question, that considering
sterling area payments to South America and Canada, the adverse balance would approach
$400,000,000 or $410,000,000 for the period under reference.
Granted that the attached schedule above the program of purchases, the Secretary
asked Phillips whether he would be inclined to explain how the British would pay for
this program involving the adverse balance cited. Phillips replied that they would pay
in gold and through liquidating securities. Be stated that if the liquidation of
securities proves impossible, the British would have to ask us to help out BOTHS vay.
By June 1941 Phillips estimated that the British Exchange Fund would be down to a
point where the British could not carry on without a substantial credit, By that date
Phillips figures that his assets will be down 400,000,000 sterling from the present
estimate,
The Secretary told Sir Trederick that he hoped to be allo to present his at
the White House on Wednesday between 11 and 1 o'clock. He will give his & call el the
Imbassy tomorrow morning in time to come down for such an appointment, to be followed
to a luncheon at the Treasury at 1 o'aleck where Mr. Purvis also will be n guest.
122
- 2 -
Regraded Unclas
Following the luncheon the group which has net today will convens for further
discussions.
With the view to meeting our own requirements, and also to satisfy the
questions which the Secretary is confident the President will ask, it was suggested
to Sir Frederick that Hr. Bevley come to the Treasury this afternoon and work with
Dr. White toward getting down such figures as the British can provide in a form to
which ve are accustomed, and which will give us 6. complete picture, The idea will
be to incorporate in this table figures on the asset side, comparable to the proposed
out-payment for the 1940-1941 fiscal year.
In describing to Sir Frederick what the Treasury wants, the Secretary said
it was a British balance sheet with the whole world. Expanding on this topic it
developed that the most helpful procedure would be for the Rritiah to estimate &
balance sheet for the whole sterling area, in which Canada could either be included.
or to which Canadian figures could be added. The Secretary wants to know when the
point will be reached, at which, if securities are unsalable, something else will
have to be done. The Secretary was sure the President would want to know how much
gold is available, how any securities, and how much British investments abroad, such
as public utilities in Argentina.
Sir Frederick said that gold and American dollar security totale were pretty
sccurately known, except for the errors remulting from what be believed would be only
a limited number of evasions of the British law requiring & census of dollar securities.
la to fixed investments abroad, such as public utilities in Argentina, Sir Frederick
vanted to know who would buy than. He pointed out that while debentures could usually
be counted on as being salable, the national or local authorities in the country of
investment can through their own laws control or greatly affect ordinary shares. Ee
said that the two alternatives for investments in Argentina, for instance, would be
for Argentina to take them over, or for the United States, the only outside possible
purchaser, to step in.
In stressing the point that vs should like to know what the assets of the
British are that could be sold or against which they could borrow, by July 1941, the
Secretary stressed that he vanted to be helpful and that his questions ware not in-
spired by curiosity. It my be up to the United States to decide what w can do, but
ve must know what the British have on both sides of the ledger. This involves putting
all cards on the table. Estimating that the British assets will decline between
6400,000,000 and I410,000,000 pounds, the Secretary asked what would be the position
with respect to liabilities on contracts standing as of July 1, 1941. Phillips and
Bewley roughly estimated this between 1300,000,000 and £400,000,000. The Secretary
made the point that he had some responsibility in answering inquiries of American
manufacturers involved in British contracts as to the availability of foreign exchange
to pay therefor.
Mr. Bell described the eystem followed during the last war whereby the British
kept this Treasury informed as to commitments. This was, however, at a period vhm the
United States Treasury vas actending credite to Great Britain.
123
- 3 -
In checking over the attached sheet, the question arose as to why the
British cotton purchases here would be only around $12,000,000. The answer was that
Great Britain has great cotton stocks on hand and is getting important quantities
through barter arrangements.
One of the points which the sub-committee of Dr. White and Mr. Bowley was
asked to work on vas that of explaining the discrepancy between British and American
estimates of British owned dollar securities. Sir Frederick thought that the latest
estimate was around L150,000,000 to L175,000,000 sterling. It vas explained that this
calculation was difficult because of shifting market values.
Dr. Stewart made the suggestion that the table showing assets reveal gross
instead of net figures, particularly with respect to receipts of gold from South
Africa end the balancing offsets.
The Secretary stressed the desirability of the British dominions pooling
their purchases in the United States with the Anglo Purchasing Mission. This makes
it simpler for this Government to handle, and should also guarantee better contracts
for the buyers.
In speaking of British investments in Latin America, Phillips stated that the
best British authority on the subject came over with him and is now at Ottawa. This is
Sir Otto Niemeyer. The Secretary stated that he did not know Sir Otto but would be
pleased to receive him here if he desires to call. He left to Phillips the question
as to whether Niemeyer should be invited down here or whether Phillips should request
a report from him on the subject under reference.
124
4
After the visitors departed the Secretary read from & penciled memorandum
which Phillips had given him and which purported to contain data not even known to
high British officials. This estimated present British holdings of gold and securities
at $2,200,000,000. The rate of loss for the whole sterling area for the fiscal year
1940-1941 is estimated at $1,600,000,000. Within six months the British will be short
of gold and may have to borrow against securities not readily salable. One year from
now the assets will be down to $600,000,000.
18.ms.
125
SECRET
Conjectural balance of payments between United Kingdom and U.S.A.
July 1940 - June 1941.
is million.
Admiralty]
11
U. X. exports
40
Purchase of merchant
U. I. invisible exports 5
ships
2
2
Air Ministry
179
Munitions
85
Adverse balance
Iron and Steel4
of payments
428
100
Other Materials5
33
Petroleum6
17
Food and Tobacco7
21
Manufactures8
25
473
473
-
1. Existing orders 4, new orders 7. No allowance for any
purchase of completed warships.
2. Aircraft, British programme 62); aircraft French programme
100; machine tools, materials, etc. 161.
3. Machine-tools 12, production sanctioned by end June 1940, 25,
new proposals of June 30th, 38, Anglo-French purchase of
goods 10. Nothing known about any other French contracts.
4. Steel 74. alloy steel 12, pig-iron 5. scrap 7. ferro-alloys 2.
5. Timber 9. paper pulp etc. 11, sulphur and phosphate rook 2,
non-ferrous metals 3. cotton 3. miscellaneous 5.
6. Excludes 8 for dollar oil from Aruba (N.W.I.)
7. Cereals 4, starch 2). lard end dairy produce 4. canned fish
21. tobacco 6, other 2.
8. Includes machinery 10.
126
-2-
Conjectural balance of payments between sterling area
and U.S.A.
Net adverse balance
Exports (Rest of
of U. K.
428
sterling area):
new gold
20
Imports (rest of
rubber
45
sterling area)
65
other
65
Net invisible
Adverse balance
imports
5
(U. K. and
sterling area
368
-
-
498
498
-
I
(Copy)
127
BRITISH EMBASSY,
WASHINGTON, D.C.
July 16th, 1940
Personal and Secret
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a copy
of the latest report received from
London on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Lowan
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.
Telegram despatched from London
on the evening of July 15th.
1.
The channel convoy was bombed yeeterday
afternoon. H. M. ship "Vanessa", escorting
destroyer, hit in engine room, no casumlties.
One small British merchant ship, 780 tona, eunk;
one Norwegian, one Dutch merchant ship damaged.
Same day; armed merchant cruiser
"Esperance Bay" bombed and badly damaged western
approaches, has safely arrived Plymouth. How
Turkish sloop under British delivery crew
attacked off Portland by enemy aircraft, slight
casualties. Two southward bound British transports
escorted by two destroyers bombed west of Ushant
without result. M.T.B.s made sweep to mouth of
Texel Mass and Scheldt during night.
2.
During the night of 13th to 14th majority
of R.A.F. aircraft which were despatched to
northwest Germany successfully attacked primary
targets or alternatives. Observation of results
in most cases difficult owing to weather,
intense anti-aircraft aearchlight activity. sain
attacks were against aircraft factories and parks,
railway targets and oil installations. Out of
69 aircraft one Wellington, no fighters, out of
12 Blenheims which attacked oil plant and petrol
tenica in Ghent ares, one clasing. Mino-laying
cerried/
Regraded Unclassified
carried out Copenhagen - Aaleborg areas, all
machines returned. Day operations on July
14th not completed owing to bad weather.
3.
Yesterday afternoon about 40 dive-
bombers escorted by single seater fighters
attacked Dover harbour and convoy in Straits.
Three fighters and three bombers, one by anti-
aireraft, were destroyed, (confirmed). One
fighter, one bomber (uncomfirmed). Our casualty
one Hurricane. Hostile air reconnaissances over
Portland and Flymouth afternoon of July 14th. No
bombs dropped. Last night two air attacks at
Avonmouth. Some damage to main line station and
dook's railway line, ineffective attacks by H.E.
and incendiaries near Colchester and in Isle of
Sheppey: a fire at Duke of York's school success-
fully extinguished, full information not yet
available. At 06.30 hours today attacks delivered
on Brighton and Hove. Preliminary reports
indicate several casualties and damage to Hove.
Mine-laying carried out, probably in Thames estuary
and between Wash and Middlesborough. Large amount
of air transport continues from northwest Germany
to Oalo and Stavanger via Copenhagen or Aaleborg.
4.
July 14th Panamanian 8. 8. "Beme" 3,039
tone sunk by gunfire from enemy submarine 120
miles west of Beirut; crew saved.
50
Malta. Enemy aircraft attacked Malta
night of 13th to 14th. Bo damage or casualties.
Egypt
Regraded Unclassified
Heypt. On night of 12th to 13th July
air attacks 0 rried out on Bardia, shipping. at
Tobruk harbour, and aerodromes at Bladem and
Elgubbi; fires caused at Bardia. Following night
six British aircraft again attacked Tobruk
harbour. All aircraft returned from these
operations.
Sudan. Wine Wellesleys made dive bombing
attacks on Messawa aerodrome July 12th; bursts
seen amonget hangers. One aircraft shot down by
enemy fighters.
Libya. Light and ineffective air raids
on Mersamatruh 12th and 13th July. Further
reinforcement of Italian C. R. 42 fightere has be
sent to Libye. Rumoured air force is also now
using German Henschel 126 aircraft probably boug
by Italy operated by Itelian pilots.
Aden. Enemy aircraft bombed Aden, dount
and casualties slight.
On night of July 13th to 14th British
machine attacked naval stores and barracks sout
of Assab and returned safely. Large fires etar
Kenya. Aircraft of South African Air
Force attacked enemy concentrations moyale area
July 11th with bombs and machine guns. There
indications that Italian East Africe will shor
bal
Regraded Unclassified
131
be reinforced by a squadron of 8 79 bombers.
Somaliland. Secend battalion, King's
African Rifles and one light battery have arrived
at Berbera.
6.
Extensive damage caused by explosion
High Alloys Limited, Slough, night of July 13th
to 14th, production will be seriously affected
for some days, three persons killed, forty-eight
injured. Cause of explosion under investigation.
7.
Connection between three Baltic States
and Germany has been severed for last two days;
frontier traffic stopped and no telephone
communication.
Regraded Unclassified
132
July 16, 1940
Dear Mr. Knudsen:
Attached herewith is a copy of a letter
which I have transmitted to the Secretary of
War, with respect to the release of the
Rolls Royce Griffon engine plans.
Sincerely yours,
(bigned) H. Morgenthau, Jr.
Honorable William S. Knudsen, Member,
The Advisory Commission to the
Council of National Defense,
Federal Reserve Building,
Washington, D. C.
By Memorager 405
Regraded Unclassified
133
July 16, 1940
Dear Mr. Knudsen:
Attached herewith is a copy of a letter
which I have transmitted to the Secretary of
War, with respect to the release of the
Rolls Royce Griffon engine plans.
Sincerely yours,
(Stgned) E. Morgenthau, sr.
Honorable William S. Knudsen, Member,
The Advisory Commission to the
Council of National Defense,
Federal Reserve Building,
Washington, D. C.
die
I
Regraded Unclassified
134
THE SECRETARY OF THE TREASURY
WASHINGTON
July 16, 1940
Dear Mr. Knudsen:
Attached herewith is a copy of a letter which
I have transmitted to the Secretary of War, with
respect to the release of the Rolls Royce Griffon
engine plans.
I have been advised by Mr. Morris W. Wilson,
Representative of the British Ministry of Aircraft
Production, that Mr. Arthur Purvis Chairman of
the British Purchasing Commission, is the person in
the United States who is directly responsible, not
only for the safekeeping of the plans released, but
also for the plans remaining in the custody of the
War Department.
Sincerely,
AMouthan
Honorable William S. Knudsen, Member,
The Advisory Commission to the
Council of National Defense,
Federal Reserve Building,
Washington, D. c.
pl 135
July 16, 1940
My dear Mr. Secretary:
I have been advised by Mr. Morris V. Vilson,
Representative of the British Ministry of Aircraft
Production, that Lord Neaverbrook has no objection
to the release of the Rolls Royee Griffen engine
plans for inspection and engineering purposes to
Mr. Villiam 8. Krudsen, Member of the Advisory
Commission to the Council of National Defense.
Sincerely,
(Signed) H. Morgenthau, Jr.
The Nonorable,
The Secretary of Var.
Filej
P.4.
By Mumber 405
Regraded Unclassified
136
July 16, 1940
My dear Mr. Secretary:
I have been advised by Mr. Morris V. Wilson,
Representative of the British Ministry of Aircraft
Production, that lard Beaverbrook has no objection
to the release of the Rolls Royce Oriffon engine
plans for inspection and engineering purposes to
Mr. Villiam S. Indeen, Member of the Advisory
Commission to the Council of National Defense.
Sincerely,
(Signed) H. Morgenthau, Jt.
The Honorable,
The Secretary of Var.
FY:bj
n
Measenger
Regraded Unclassified
137
Letter from Santiago, Chile, July 16, 1940.
CHILEAN DEFENSE LAW
I seem to have been correct in my assumption that the Germans
were behind this proposed law, about which I wrote you on 12th and
18th inst., more clearly I think that this can definitely be asserted.
I have today heard from reliable quarters that the proposition was
made to deliver Chile old armaments beginning October of this year,
and that the proposition was made in Paris to the Chilean Minister
to France, Senor Gabriel Gonzalez Videla. The feeling in official
circles seems to be however that accepting this proposition would be
somewhat unloyal to U.S. and would certainly be interpreted this way,
and that consequently it would be better to purchase the armaments in
U.S. Also there is the feeling that U.S. would not release the
copper, which, so far as the major productions are concerned, is in
their hands, and that consequently the agreement might prove un-
precticable. This latter idea makes me believe that the tonnage of
copper which Germany wants in compensation and which would probably
not only be compensated against armaments, is considerable; this is
moreover likely for the reason that Chile needs other imports against
the copper, and moreover is understandable from the German point
of view since this would divert the source of Chilean imports into
their channels, to the detriment of U.S.
The fact that the Mining dollar has not come through as yet
in spite of all promises and definite statements made by responsible
people (Caja, Soc.Nac.de Mineris etc.) may have relation with the
above, for, if copper were exported to Germany, more export dollars
would be required and it might then not suit the Government to allow
gold products to be sold as "disponibilidades".
Spain has just cut relations with Chile. Axis policy? or
course grave insults against Franco have been uttered publicly by
Chilean left politiciens from the balcony of the main Government
building.
From Mr. H. K. Hochschild
Regraded Unclassified
From H. 3. Hochschfld
138
Extract of letter from B, Mexico City,
July 17. 1940.
The President is discussing two reorganization
schemes concerning two vital branches of industry: oil and
railroads, both of which have not been as prosperous in
the workmen's hands as had been anticipated. These dis-
cussions have now been going on for some time without any
visible results. As a matter of fact the Railroads seem
to be going from bad to worse. Lack of discipline is still
causing constant accidents with the consequent loss of life
and material. Service is bad and rates are high, and the
public is getting pretty tired of these conditions.
Lic. Suarez and Subsecretary of Foreign Affairs,
Lic. Beteta, heading the Mexican delegation to the Havana
conference, are said to have left last night for Cuba to be
in time for the inauguration on the 20th. Mr. Sumrez wanted
to hear propositions from the Mining Industry by which help
could be extended through the proposed Inter-american Cartell
to be discussed at Havana. The uncertainty and vagueness
surrounding the Havana Meeting made it impossible to talk
about suggestions. So, what was given to Mr. Suarez were
merely the facts about the present situation. Before expecting
help from the outside, especially in regard to financing the
country, they should endeavor to bring some relief from the
inside. Lowering of taxes, stabilized labor conditions, a
stabilized exchange, etc., would be the most essentials. But
in that respect nothing has been done. On the contrary, the
exchange is showing a tendency again towards a lower dollar.
It went again to-day to 4.96 and someone claims to have heard
the President say that he will get exchange back to 3.60 before
leaving office.
There has been no change in the status of the
Cananea strike, but the agitation for sympathetic strikes in
the industry seems to hage died down.
(The last paragraph refers to the strike at the
Anaconda4Copper Mines, which is of several months duration)
Sondra
Regraded Unclassified
139
Copies of letters of July 12th and 18th from
Santiago, Chile, on proposed Chilean Defense Law.
July 18th
I enclose for your information an excerpt from a
project of law just presented to Congress in Chile whereunder
additional taxes will be raised with the purpose of strengthen-
ing military defense. It is of course possible that there
will be strong opposition on account of the fact that the
rights still have a majority in Congress but, 80 far, in the
end some of them have always given way and eventually the
law in some form or other may be approved.
I have translated literally some passages due to
the fact that it seemed to me that this law might be inspired
by prospective sellers of armaments which might very well be
the Germans since they seem to calculate anyhow that the war
might be over in a few months and behave accordingly in export/
import business, i.e., are already trying to place orders.
The law does not by itself show any partiality, but the suggestion
that compensation might be the way of settlement of the cost of
the armaments seems to fit in very well with the idea of 1938 of
compensating armaments with metals. I have no definite indication
that there is such an intention and investigations made have not
proved anything, SQ I pass on my suggestions for what they may
be worth.
July 13th
With reference to my letter of yesterday would
mention that the explanation which I received in regard to the
defense law, plausible, is the following: As you know there was
discontent in army circles, and there is a project pending approval
by Congress giving the army 20 million pesos more per year to be
spent to a large extent in salaries; at the same time they seem
to have been promised armaments, which, it is true, they need.
The defense law might thus be a political move and, at the same
time, a fresh source of income to the Government. This, however,
does not exclude the possibility which I mentioned in my last
letter and indeed, reading in the papers that there has been
German influence at work in other South and Central American
countries with the object of predisposing these countries
unfavorably to the Habana Conference called by U.S., I cannot
get away from ky first impression that the Germans have also
been at work here.
Regraded Unclassified
140
PROJECT OF A NATIONAL DEFERSE LAW PROPOSED TO CONGRESS BY THE
CHILEAN GOVERNMENT - JULY 18th. 1940. (excernt)
Events in Europe have induced some governments of America to
adopt measures of & reasonable provision for security. Our country
which has maintained and wishes to conserve honest neutrality, which
it has followed up to this date and its policy of peace and lawful
friendship towards all nations of the world, may be disturbed in these
noble objectives if it does not adopt with sufficient anticipation
measures to safeguard its sovereignty. (I copy this passage in full
for certain reasons).
Article 1 of the project provides the creation of a national
defense council including the Minister of Defense, Finance and Foreign
Relations, superiors of the Army and Navy, etc.
In article 2 there is a provision according to which this council
is to study the different foreign markets in order to determine the
most advantageous compensation which might be obtained from Chilesm
exports to a determined country in relation to value of the belliooss
equipment which may be purchased in that country, purchase and export
of such national products necessary to establish that compensation.
(For similar reasons as above, I also translated this passage in full).
Article 8 authorizes the President to contract one or several
internal or external loans totaling not above one billion pesos at an
interest rate which should not exceed5%.
Article 4 increases corporation and individual taxes by one to
four percent of income (NOTE: 4% for any practical purpose) and creates
an additional purchase and sales tax of one per cent.
Articles 5 and six dwell on the same subject and contemplate
that these additional taxes will enter into forow on July 1, 1940.
Articles 7, 8 and 9 provide that the President of the Republic
will be authorized to declare indispensable for the defense of the
country any industry, commerce or activity and direct such activities
as he may esteem convenient or necessary within and for the purpose of
the defense law; public utility services will have to establish defense
protection for their installations and the same obligation will apply
to any private enterprises which the defense council may desire to
include. The State may cover part of the cost of such defense installe-
tions.
Article 10 provides that the personael of public utility mrvices
must be Chilean with the exception of special technicians, inclusion
of which would have to be authorised by the President, A similar
obligation may be imposed upon any fiscal, semi-fiscal or private
enterprises in any activities which may be important for the security
or progress of the country and these provisions will have to be
complied with within six months of the date of establishment of this law.
UInclassified
141
Article 11 provides that any foreigners, natural or juridical
persons or companies owned in part by foreigners will not be allowed
to lease, work or administrate agricultural property, industrial
and mining concessions or own property except such as the national
defense council may designate at less than 50 kilometers from the
territorial boundaries or 15 kilometers from the coast. (NOTE: The
Braden copper mines should be in this situation but will surely be
authorized. The Tojo iron mines and the Disputada mine, also Volcan,
are in this situation as well, but not Chuquicamata or Poterillos)
In case of any operations in contravention of this article, the
President may decree that corresponding property be sold at public
auction.
Article 12, establishes fines against actions which might
compromise neutrality.
Article 13 authorizes the President to declare of public utility
and decree expropriation of any properties, consessions, industrial
and mineral exportations, etc, situated less than 50 kilometers from
the territorial boundary and 15 kilometers from the coast, such
expropriations to be paid from the funds provided for in this law.
Articles 14 and 15 provides that the President may expropriate
any invention interesting for the national defense.
Regraded Unclassified
CONFIDENTIAL
To
142
Confidential
PARAPERARE
A telegres of July 19, 1940, from the American Consul
at Salgen reads substantially as follows:
The prese of July 29 carries an announcement by the
Government General to the offeet that there will begin
seea negotistions for a commercial agreement with Japan.
As a result of action taken en July 13 w the British
blooking credits of French Intechine, an order dated
July 14 has been issued to the Danque " l'Indechine
making experts to Singapore, Beeg Keng and the the whose
currency 10 sterling subject to payment in United States
dollars and requiring transfer of the dollars telegraphically
before chipment, as least in the ..... of Heng Kong. It
10 Secrety that the purpose of the action taken by the
British
BECEINED
АЗИНЗ
help in foreing the Government General to
make a decision as to its position, since Leader has 100
ТИЗМТЯА930
TNO
forms OF 1 the Hritich banks in Salgen that the Danque 40
Y-W
head office 10 in France) 10 not -
sidered as as enemy bank and that French Indechine 10
not considered enemy territory.
Regraded Unclassified
THEASURY
143
17046
JR
PLAIN
Shanghai via Tokyo & N. R.
Dated July 17, 1940
Rec'd 11:40 neme, 20th.
Secretary of State,
Washington.
NOT TO BB ATMD WITHOUT
PAYM EN NSMNT 3F 00MMPRGR
Attache COMMERCE.
"Three. July seventeenth. Yonai Cabinet resigned
July sixteenth and PrinceFuninaro Konoe, who has been
active in single party movement which has caused business
leaders adopt cautious attitude during past few WEEKS was
entrusted task forming new Cabinet July 17. Business
circles favor internal political unity which ain new party
but they are frankly apprthensive over future trend
government regulation all phases commercial, industrial,
financial activity which new party will institute. No
indication yet given regarding new Cabinst economic and
financial policies and business world has and suspended
activity Pending clarification of party's ains. Meanwhile,
industrial and financial leaders admit need for reform in
certain phases of commercial and industrial activities but
they fear the methods which will bE Employed by new
Cabinet. It is generally believed that new Cabinet will
favor trend towards planned Economy. Private financial
circles reportedly concerned over downward trend leading
stock
144
-2- Three, July 17, from Shanghai.
stock prices during past few months and are negotiating
with directors Tokyo Stock Exchange to draft practical
measures to check further slump in quotations. RECENT
survey shows that during period from April to middle July
leading short term issues have suffered losses of from
twelve to thirty points. Meanwhile, official circles appear
unrioved by decline stock quotations. Tokyo Stock Exchange
officials reportedly intend USE fifteen million yen funds
raised from brokers association and Exchange financing
company to support share prices. DUE continual firmess
money market Government reportedly intends distribute EXCESS
payments throughout month particularly towards close when
funds most urgently required. During week Ending July
thirtisth Tokyo money market remained firm with overnight
rates quoted uniform level SEVEN rin. Government intends
strength control OVEr distribution bank dividends and
will henceforth restrict dividends to SEVEN per cent
instead present eight per cent level according press reports
Finance authorities have reportedly introduced new
regulations restricting loans by Japanese bank's operating
North China, measure Effective from July Eleventh
provides approval Japanese Corrisrcial Attache at Peiping
required all loans between five naught thousand and five
naught naught thousand yen. Approval Japanese finance
authorities still required all loans EXCESS five hundred
thousand
Regraded Unclassified
145
-3- Three, July 17, from Shanghai.
thousand
Measure reportedly designed check
inflationary trend North China, strengthen position
North China Federal RESErVE Bank, and divert surplus
funds national bond purchases. Yen block investments and
indications point to further restrictions on outward
movement funds to North China and Hanchuria during current
year. DUE prospects that industrial expansion Manchuria
vill be restricted due shortage funds, Manchurian firms
reportedly disposing of construction materials to obtain
ready cash. Tokyo wholesale prices declined by one point
one DEP cent during June according Bank Japan survey.
Of one hundred ten items survey DEVEN advanced, twenty
declined, balance renained unchanged. None issue
Bank Japan July thirtisth totalled three two three six
million, decline one four four million during past WEEKS.
Bank Japan loans amounted SEVEN naught nine Eight naught
six million on thirteenth, decline one one six million
during WEEK. Yen sterling exchange rates fluctuated
between one two SEVEN Eighths and one three three eighths.
Yen dollars rates remained unchanged at two three and SEVEN
sixteenths but rumored that finance authorities are consider-
ing raising value of yen to twenty-five cents. Cabinet
formally approved plan for administrative reorganization
functions Ministry Commerce Industry and Ministry Agriculture
Forestry in order strengthen control over foodstuffs and
fortign trade policies. NEW plans provide for transfer all
administrative
Regraded Unclassified
146
-4- Three, July 17, from Shanghai,
administrative affairs relating production distribution
agriculture forestry dairy and aquatic products and
beverages, including supervision over commercial
associations handling such products, to Ministry
Agriculture and Forestry. All matters relating
promotion fortign trade these products will henceforth
bE concentrated in Ministry Connerce Industry which also
supervise production chemical fertilizers in future.
Farmers and merchants reportedly welcome proposed
administrative change due probability coordination
activities two ministries will smooth distribution
farm products and materials required by rural
communities. lieanwhile Ministry Agriculture Forestry has
announced plans for nationwide survey covering production
and consumption Eleven important food products and one
four naught thousand yen requested this purpose. Cabinet
approved plan liinistry Agriculture Forestry disburce one
one SEVEN two five thousand yen for Encouragement increased
production rice other agricultural products current fiscal
year although Ministry has originally requested six five
million JEN this purpose.
Money which will bE
obtained from second reserve fund to be utilized as follows
SEVEN three five five thousand 28 bounty increased rice
acreage, three seven.DEVEn thousand prevent USE arable
rice
147
-5- Three, July 17, from Shanghai,
rice land other purposes, one naught one SEVEN thousand
for reportedly young rice studlings destroyed by drought
during May June, eight naught naught thousand for bounties
for purchase irrigation purips, one nine SEVEN SEVEN thousand
for development miscellaneous agricultural resources,
one Eight thousand niscellaneous, Expenses. Record wheat
crop forecast by latest government estimate of one two
one five SEVEN thousand koku, increase four three thousand
over consumper. Current barley crop estimated SEVEN
naught one two thousand kcku, SEVEN five two thousand
kolcu decline from consumper. Naked barley estimated six
one four naught thousand koku, decline five nine naught
koku less than consumper. Despite official assurance
of anple rice supply and favorable prospects for current
rice crop concerned movement has started large cities to
totally ban serving rice in department store restaurants
and other Eating places where foreign style food obtainable
During past two weeks fears of drought have been dispelled
as rainfall has been general throughout country. Continued
slump cotton yarn and textile exports leading to belief
that further voluntary restriction should bE inposed on
yarn production. According press reports Japan cotton
spinning association favors forty four per cent reduction
compared with previous year Effective from September first.
Present
148
-6- Three, July 17, from Shanghai.
and
Present restriction between twenty/twenty five per cent
below consumper. Row silk market depressed during past
week with prices falling to one three five naught yen
level on twelfth which brought Government into market
in Effort stabilize quotations. Government agents reported-
17 purchased two thousand four hundred ten bales during
past two days last WEEK. RDW silk shipments first ten
days July Exceedingly low, exports to United States amount-
ing only two three four five bales, decline three naught
one naught bales compared consumper while exports to
Europe totalled only twenty bales compared with nine
four one during DOILE period last year. beanwhile Board
Trusteso, Japan Silk REELERS Association, approved sealing
of twenty-five per cent of silk riling basing throughout
country with view to curtailing production. Prior
downfall Yonci Cabinet, Minister Commerce and industry
in press interview clained Japan only country in position
supply goods Latin American, African, Indian, and South
SEAS markets. HE furthermore stated that he was convinced
that it would not bE difficult to expand Japan's export
trade from present five billion yen level to ten or fifteen
billion yen. Foreign Trade first ten days read thousand
Exports one one one two five six imports nine two SEVEN
naught seven. Industrial share index WEEK ending July six
incorrectly
Regraded Unclassified
149
-7- Three, July 17, from Shanghai.
incorrectly reported since index should have been based
usual forty stocks. REVISED indices for WEEK Ending
July sixth average on July sixth Eight SEVEN point naught
four index Eight nine point two naught, WEEKS average
Eight SEVEN point naught eight Eight nine point two four.
Industrial share prices July thirteenth average Eight four
point nine nine index Eight SEVEN point one naught, weeks
average Eight five point four naught index Eight seven
point five two. End. Signed Smith". Inform Commerce.
BUTRICK
ALC
150
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATE July 17, 1940
TO
Secretary Morgenthau
FROM
Mr. Foley
The London Economist in its issue of June 15, 1940 has an article entitled
"A Check on Production" which criticizes the use of business men in England
where their experience prevents them from being open-minded and where their
inescapable self-interest is a drag on the ruthlessness which is needed to raise
the production of materials of war. A good deal of what is said about the
necessity of giving orders to industry instead of issuing appeals, and about the
complete failure of ideas which "transformed the trade association from a body of
doubtful legality, a conspiracy in the restraint of trade into a favoured instru-
mentality of the state" is applicable to our present problem of national defense.
Speaking of the set of ideas which has dominated the economic philosophy of the
Conservative Party, the Economist concludes:
** It is a set of ideas that is admirable for obtaining security,
'orderly development' and remunerative profits for those already estab-
lished in the industry-at the cost of an irreducible body of general
unemployment. It is emphatically not a set of ideas that can be expected
to yield the maximum of production, or to give the country wealth in
peace and strength in war.
"Nevertheless, when the war broke out and it became obvious to all
but the purblind that maximum production had become the one object that
superseded all others, this anti-productive system was carried to its
highest point. The noble army of controllers was recruited from organised
industry; the rings, from being tolerated, became endowed with all the
power of the State. The result has been what could have been, and was,
predicted-not so much an unfair advantage to certain private pockets
as a sluggish tempo of advance and a low limit to what was considered
possible. British industry, by and large, has, until recent weeks, been
making the maximum effort compatible with no disturbance to its customs
now or to its profit-making capacity hereafter. There is no accusation
of unpatriotism in this; on the contrary, business men, placed in an
impossible position of divided loyalties and contradictory intentions,
have done their best. But the result has been what we see-a startling
151
-2-
inadequacy of production. What was formerly prophecy is now fact:
the men who run the existing organisations of their industries have
not been the best men to organise their industries for war. The best
of them have been only partial successes; the worst have been fail-
ures. Both in tanks and in aircraft (to take only the two outstand-
ing cases) the existing rings have failed to produce the goods and,
nine months too late, outsiders have had to be brought in."
The above quotation suggests that the activities of John Biggers, Blacky
Smith and Lawyer Alvord had their counterparts in England, with sorry results
with which we are all familiar.
futh
152
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE,
Press Service
Wednesday, July 17, 1940.
No. 21-61
Secretary of the Treasury Morgenthau today announced the
subscription figures and the basis of allotment for the cash
offering of 2-1/4 percent Treasury Bonds of 1954-56.
Reports received from the Federal Reserve Banks show that
subscriptions aggregate $6,609,000,000. Subscriptions in amounts
up to and including $5,000, totaling about $39,000,000, where the
subscribers specified that delivery be made in registered bonds
90 days after the issue date, were allotted in full. All other
subscriptions were allotted 9 percent, on a straight percentage
basis, with adjustments, where necessary, to the $100 denomination.
Details as to subscriptions and allotments will be announced
when final reports are received from the Federal Reserve Banks.
-o0o-
Regraded Unclassified
153
Outgoing cablegram to Bank of England
Sent: July 17. 1940
Our No. 870/40
For Bolton
Reference your No. 723/40
The following are the terms upon which we are at present willing
as your agent and for your account and risk to buy at 4.02-1/2 and
well at 4.03-1/2 registered sterling for spot delivery:
(a) Forms of contract will indicate that ve are acting as your
agent and for your account and that contracts are made solely in your
behalf and do not involve any obligation on our part.
(b) In case of contract to buy sterling you authorize and instruct
us to transfer when contract is made the full amount of dollar cost
from His Britannic Majosty's Government current account G to an
account payable from which payment of dollar cost vill be made when
due under contract STOP Under contract to buy sterling the delivery
of sterling to you will be due three days after date of contract and
payment of dollar cost by us will be due one business day prior to
delivery of sterling, for example if contract made on Saturday payment
of dollar cost will be due on Monday, and delivery of sterling on
Tuesday STOP Feregoing arrangements respecting contracts to buy
sterling are desirable in view of provisions of Neutrality Act.
(c) In case of contract to sell sterling you authorize and
instruct us to credit full amount of dollar proceeds when received
to an account payable from which transfer will be made to His
Britannic Majesty's Government current account G upon receipt by
us of confirmation from you that sterling has been delivered STOP
If for any reason the sterling should not be delivered you authorize
us to cancel contract and repay purchase price to buyer by debit to
such account payable STOP Under contracts to sell sterling both
the delivery of sterling by you and receipt of dollar proceeds by
us will be due on third day after date of contract.
(a) Confirming your paragraph 6.1t is understood that you agree
to reimburse the for our expenses and hold us harmless from and
indemnify us against all loes and liability in connection with
contracts.
(a) You will confirm by cable and letter your agreement to fore-
going terms.
We will telephone to you July 18 at 3 o'olook p.m. your time to
obtain your oral agreement to foregoing terms.
We propose to inform Chairman New York Foreign Exchange Committee
July 18 that we are willing to receive applications for purchases and sales
of registered sterling from New York banks having registered sterling accounts.
(Signed) Federal Reserve Bank of New York.
(By phone from Mr. McKeon's office, Fed. Res. Bk. of N.Y.-1mc.7-18-40 11:30 a.m.
Regraded Unclassified
154
FOR DEPARTMENT OF STATE.
7-17-40
VOLUNTARY
JAPAN'S DECREASING GOLD EXPORTS
From
L. H. Gourley
American Consul
American Consulate,
Date of Completion: July 16, 1940
Kobe, Japan
Date of Mailing:
July 17, 1940
155
TABLE OF CONTENTS
Page
Decreasing Gold Exports from Japan
1
Exports of Gold in Recent Years
1
1940 Exports Compared with Production
1
No Longer Any Important Voluntary Sales of
Gold by Private Individuals
2
Gold Reserve Holdings of the Government
2
Notes in Circulation
4
156
-1-
Decreasing Gold Exports from Japan
Japan's gold exports are on the decrease and 1t unlikely
that during 1940 they will amount to anything like the totals for
the previous three years. Exports during the first half of 1940 were
less than one sixth of the total quantity of exports for the calender
year 1939, only about one seventh of the 1938 experts, and only about
one ninth of the 1937 exports.
Exports of Gold in Recent Tears
In round numbers® Japan's gold exports to the United States in
recent years have been as shown below:
Year
Million Troy Ounces
Metric Tons
Million Ten
1937
7.1
220.3
851.6
1938
5.6
175.0
686.25
1939
4.9
153.9
676.6
1940 (Jan. to
July 15)
0.8
25.4
120.84
Total
18.4
574.6
#2,335.29
1940 Exports Compared with Production
At the present rate of exportation of 25 metric tons a half
year it would not be impossible for newly wined gold to represent
the entire exports. Before the policy of secrecy in regard to
gold was established since the "China Incident", gold production
in the Japanese Empire** was officially reported to have amounted to
41 metric tons in 1936. With all the Japanese Government's efforts
to
*More detailed figures are given in an attachment to this report.
**Including Japan Proper, Chosen and Taima.
157
-2-
to encourage an increase in production* it can be safely assumed that
production is now greater than in 1936. It is hard to my how such
greater it is. Hopes of getting any umsual quantities in Taimn** or
elsewhere appear, from occasional public admissions*, to have been too
great.
No Longer Any Important Voluntary Sales of Gold by Private Individuals
The prospects of getting gold from voluntary sales of old gold
and gold objects by private individuals are not at all promising.
Most of the Japanese who really wanted the Government to receive or
buy their gold let the Government have it as a result of previous
campaigns and censuses.
As voluntary offerings of gold as gifts or for sale are not now
being made in quantities in spite of official urgings, there have
been indications in recent weeks that the Government my insist on
compulsory sales of gold by persons who are definitely known
through censuses to have gold holdings.
Gold Reserve Holdings of the Government
The gold specie reserve of the Bank of Japan was shown on
July 16, 1940, to be ¥501,287,000. Since the policy of secrecy
regarding
*See previous reports from the Kobe Consulate.
**At the end of 1939 discoveries of alluvial gold in Taiwan received
much publicity in the newspapers but an investigating commission found
that no fabulous quantities could be obtained and it could be inferred
that the obtention of even normally large quantities in the mountainous
wilds of Taiwan might prove, in general, to be unrewardingly costly.
Regraded Unclassified
158
-3-
regarding gold has been in force, no foreigner is known to have over
seen this quantity of gold, In foreign banking circles in Japan
there is some doubt whether all this gold could be shown in the form
of bullion in this country.
It was interesting to note that in December, 1939, when ship-
ments of gold were being hurried out of Japan in noticeably larger
quantities, the gold specie reserve was shown for a few days during
the latter part of December by THE JAPAN TIMES AND MAIL to have been
reduced to ¥369,780,000. The Kobe branch of the Tokohama Specie
Bank stated by telephone that this figure was correct. Other
leading newspapers in the English language, however, contimed to
show the old figure of ¥501,287,000.
The new figure of less than ¥370 million as & gold reserve
may have been an error. On the other hand, there may have been
some change in the gold holdings of the Bank of Japan in
December, 1939, to have justified giving out the lower figure.
Perhaps gold reserves actually left the vaults of the Bank of
Japan and went to the United States. If earmarked there, it might
have been correct to keep on showing the gold reserves at the old
figure of somewhat more than 501-1/4 million yen.
With the policy of secrecy that followed the revaluing of
the gold reserves in the summer of 1937 and & reduction in the
reserves in 1938 it is impossible to know the exact situation.
01d gold trinkets and ornaments might take the place of some of
the
Regraded Unclassified
159
+
the gold bullion as reserves. With the you at a lower value today
could it be possible that the gold reserves might be revalued and
partly used without the publicity of the summers of 1937 and 19387
Back in the summer of 1938 & reserve of ¥501,286,000* represented
perhaps 145,385 kilograms* of gold bullion, It my represent the
same quantity today. Yet there has been some temptation to ship
some temptation to ship some of this gold to the United States for
carmarking and even for use, This temptation my have been resisted
in spite of Japan's needs of imports, especially those for use in
its plans on the Asiatic mainland,
Notes in Circulation
In the meantime the Bank of Japan notes in circulation have
risen from & little over 2 billion in July, 1938, to almost 3-1/4
million on July 15, 1940.
Attachment:
No. 1 Gold Exports from Japan
to United States.
851
IHG/mh
In quintuplicate to Department of State.
Copy to Embassy, Tokyo.
A true copy
Copy to Consulate, Osaka.
of the signed
Copy to Consulate, Tokobana,
original
See the Kobe Consulate's report, "Japan's Gold Problem" of
February 28, 1939.
The
COPY
160
CHIEF SOURCES OF INFORMATION
American consular records in Japan.
THE ORIENTAL ECONOMIST.
Press reports.
VICE
161
Attachment No. 1 to report (voluntary)
dated July 16, 1940, from
L. H. Gourley, American Consul at
Kobe, Japan, on the title:
"Japan's Decreasing Gold Exports".
GOLD EXPORTS FROM JAPAN TO UNITED STATES
162
GOLD EXPORTS FROM JAPAN IN 1937, 1938, 1939 AND
FIRST HALF OF 1940
(From consular records of American consular offices in Kobe,
Osaka and Tokyo. Shipments were made chiefly through the
port of Kobe.)
Year
Troy Ounces
Grams
Net Value in Yen
1937
7,082,659.286
220,295,529
851,602,433.49
1938
5,626,746.034
175,011,473.7625
686,248,598.39
*1939
4,932,664.891
153,850,115.9
676,596,345.57
1940
(Jan.
to
Jul.16)
818,187.069
25,448,481.5
120,839,230.49
TOTAL
18,460,257.280
574,605,600.1625
2,335,286,607.94
*This includes a December 27, 1939 shipment which was not shown
in the Kobe Consulate's report of December 22, 1939.
COPY
bj
163
1940 GOLD SHIPMENTS TO UNITED STATES
HY MONTHS
(January 1, 1940 to July 16, 1940, Inclusive)
(From consular records of the American Consulate at Osaka
and the American Consulate General at Tokyo. The shipments
shown with * were declared at Tokyo. The others were
declared at Osaka.)
Date
De-
Date
Net
Net Value
clared
Shipped
Troy Ounces
Net Grams
in Yon
Feb. 1
Feb. 5
142,088.739
4,419,457.1
₹20,984,836.36
# 16
. 21
31,823.788
989,831.2
4,699,860.02
# 21
- 24
127,802.556
3,975,106.8
18,874,941.74
. . 23
#
7
7,853.631
244,275.4
1,160,080.25
February Total
309,568.714
9,628.670.5
$45,719,718.37
Mar.19
Mar.23
73,160.638
2,275,551.9
¥10,804,946.44
* ⑉ 22
#
1
62,891.642
1,956,150.2
9,290,699.09
March Total
136,052.280
4,231,702.1
¥20,095,645.53
Apr.18
Apr.23
137,011.086
4,261,524.3
¥20,234,975.15
03VI3039 TREATMENT
May 14
May 18
137,365.203
4,272,538.6
¥20,287,323.09
. 16
. 18
98,189.786
3,054,046.0
14,501,568.35
May Total
235,554,989
7,326,584.6
¥34,788,891.44
GRAND TOTAL
818,187.069 25,448,481.5 ¥120,839,230.49
164
July 17, 1940
Secretary Stimson told me that it was Felix
Frankfurter and Grenville Clark who first called him
and asked him whether he would take the post of Sec-
retary of War if it were offered to him. This was
on June 1.
He never heard from the President again until
the day after he made his speech at New Haven. When
the President talked to him, he reminded the President
that in the original talk with Felix Frankfurter, it
was they who had suggested Judge Patterson because the
President suggested Bob Lovett of Harriman's firm.
He has had a number of talks with Johnson and
Johnson told Colonel Julius Adler and Stimson that
Judge Patterson was to be special assistant to Stimson,
and he (Johnson) was to continue. I suggested that
he make out the nomination for Judge Patterson and
send it over Friday 80 that it can go up on the Hill
Monday. He did not know that he could do that.
I said, "You have just got to get rid of
Johnson." He said the President offered to make John-
son one of his special administrative assistants but
Johnson didn't want it. I told him how Johnson said
that Farley had promised to make him Secretary of
War and Farley said it was 8. lie. Stimson knew the
story. Stimson was most appreciative of my talk and
I told him to call on me at any time.
Before accepting, Stimson told the President,
first, that he was for selective conscription; second,
had the President read his New Haven speech, and the
President said he had read every word and approved; and,
third, he wanted to be able to pick his own assistant,
and the President approved of that. At no time did I
indicate to Stimson the President's reluctance of ever
firing anybody, but I did impress upon him the importance
of pushing the President. He said the President had
asked Steve Early to smooth down Johnson, and I said
Steve Early was Johnson's friend and would never smooth
him down to resign. It will be interesting to see what
happens.
Regraded Unclassified
165
- 2 -
I also warned him about General Arnold and told
him the story about Arnold's being Mitchell's assistant
and handling the publicity of Mitchell at the time that
Mitchell was fighting the then Secretary of War on
a unified Air Corps. He said he knew all about that,
too. Stimson said if he didn't get his own assistant
he would go home.
EBG
is
"We should open our Isnds as &
E
Stimson Advocates
refuge for the children and old peo-
le
pie of Britain," he added,
n
"We should at once adopt a system
n
of universal compulsory training and
U.S. Open Ports to
it
service, which would not only be
h
the most potent evidence that WE are
9.
in carnest but which la at the press
All Allied Vessels
ent moment imporative if we are to
have men ready to operate the
blanes and other munitions, the CTE-
Mashingive No
ation of which Congress has just
Former Secretary OT State
authorised by a practically unani-
DOUS vote."
Says Fleet May Need Bases
Stimson said America "should not
be fooled by the evident bluff of
In America
Hitler's so called fifth column
movements In Bouth America."
Br the Associated Press.
"They are, on the face of them. at-
NEW HAVEN, June 10-Henry L:
tempts to frighten us from sending
Stimson, Secretary of State during
help where It will be most effec-
the Hoover administration. last
Live," be sald. "We should combat
night advocated that the United
the defentist arguments which are
States "throw open all of our porta
being made in this enuntry as to
to the British and French naval and
the unconquerable power of Ger-
merchant marine for all repairs, re-
many.
fueling and other services."
"I believe that If we use our brains
In & speech broadcast nationally
and curb our prejudices we cao, by
Stimson declared sucressive air at-
keeping command of the sen, beat
tacks on naval bases in Great Brit-
ber again as we did In 1018.
ain might force its fleet from the
"In these ways and with the old
1
1
Atlantic and deprive it of power.
American spirit of churage and
.
"On the other hand," be contin-
leadership behind them I believe
I
ued, "If assured of our supplies, and
we should find our people ready
of the use of our bases, it could in
to take their proper part in this
:
all probability continue to command
threatened world and to carry
that ocean and our own Rest could
through to victory. freedom and re-
-
devote itself to holding the Pacific
construction."
e
against the manifest dangers which
,
may face us there."
He contended the United States
I
Navy and maritime forces of France
1
and Britain should work to "har-
0
monlous co-operation."
"We should not be compelled help-
e
leasly to await attack." Stimson as-
serted. "while a powerful aggressor
e
chose his own opportunity."
Stimion recommended also that
the United States repeal provisions
of "our ill-starred an-called neutral-
e
Ity venture, accelerate by every
means the sending of planes and
*
other munitions to Britain and
France, If necessary In our OWN ships
and under convoy."
Regraded Unclassified
167
TREASURY DEPARTMENT
Washington
FOR IMMEDIATE RELEASE,
Press Service
Wednesday, July 17, 1940.
No. 21-61
Secretary of the Treasury Morgenthau today announced the
subscription figures and the basis of allotment for the cash
offering of 2-1/4 percent Treasury Bonds of 1954-56.
Reports received from the Federal Reserve Banks show that
subscriptions aggregate $6,609,000,000. Subscriptions in amounts
up to and including $5,000, totaling about $39,000,000, where the
subscribers specified that delivery be made in registered bonds
90 days after the issue date, were allotted in full. All other
subscriptions were allotted 9 percent, on a straight percentage
basis, with adjustments, where necessary, to the $100 denomination.
Details as to subscriptions and allotments will be announced
when final reports are received from the Federal Reserve Banks.
-o0o-
Regraded Unclassified
168
GROUP MEETING
July 17, 1940
9:30 a.m.
Present:
Mr. Bell
Mr. Foley
Mr. Graves
Mr. Haas
Mr. Thompson
Mr. Cochran
Mr. White
Mr. Young
Mr. Sullivan
Mr. Schwarz
Mrs Klotz
H.M.Jr:
Phil, Mr. Knudsen called me up a few minutes
ago and as soon as Mr. Purvis is through with
his 2:30 meeting at your office, he would like
you to bring Purvis over to see him to talk
about airplane contracts which he is proposing
to place. Is that clear?
Young:
I got the same story from Mead this morning.
He called me up on it. They are pretty hot
under the collar.
H.M.Jr:
Knudsen wasn't hot. He just wanted to talk
to him.
Young:
I will make the appointment with Knudsen.
H.M.Jr:
Well, we - he said whenever you are through.
I said I thought they were meeting at your
office at 2:30 with Vance on machine tools.
Is that right?
Young:
That is right.
H.M.Jr:
Whenever you are through, you are to phone
him and to take Purvis over there.
Now, one other thing I want to get off my
chest, George. What I want from you is
this: From now by months, beginning with
the first of July and through until June 30th,
I want a statement for England, the amount
of money by months of contracts "let, running
through June 30th. In other words, how much
money are they going to spend each month,
169
- 2 -
contracts already let, starting July first,
and I want to know how much money did they
spend in July, but I want it forward, too,
you see.
Haas:
You want their estimate?
H.M.Jr:
Estimate based on actual contracts let and
if you don't understand it, ask me,
Haas:
Yes. Well, I will repeat it. You want by
months, beginning July, 1940, the actual
amount of money spent in this country by
the British and estimated by months - how
far do you want that to run?
H.M.Jr:
To June 30, 1941.
Young:
Just for England?
H.M.Jr:
No, just a minute.
Haas:
Just for England?
H.M.Jr:
No. Beginning with the British Empire. Get
that cleaned up first. After you have got
that, then we will take on all the other
countries that are doing any sizable amount
of business.
White:
Where will you get the figures of the actual
amount spent? We don't have the totals.
Does he have access to the totals?
H.M.Jr:
Well, we are supposed to have and if we haven't
got it, certainly England - one account where
they check out all their money.
White:
I will show him later what we have, but our
information is that that figure does still
not include their total expenditures.
H.M.Jr:
Well, if it isn't, then that is a. thing for
this afternoon after lunch, when we talk
with what's-his-name. I am not going to have
any monkey business from now on. I am just
170
- 3 -
not going to stand for it. But every dollar
for any item that any country that belongs
to the British Empire spends has got to go
through one checking account in the Federal
Reserve.
White:
Mr. Secretary --
H.M.Jr:
There is no possible loophole. They have
got to pay through this one account from now
on.
White:
You are speaking now only of Government purchases,
aren't you?
H.M.Jr:
Well, whatever enters into this estimate that
they are going to give us.
Cochran:
Then there would be private purchases, you see.
White:
Those include private purchases.
H.M.Jr:
Let's get Government purchases first, I don't
know how you are going to do the other.
White:
Because their estimates include the amount of
foreign exchange they will have to have avail-
able and that includes private purchases.
H.M.Jr:
Well, you fellows will have to think that up.
George can't do that unless there is some other
way. You will have to think that up.
White:
Well, we will figure out what we need to know
in order to get, A, the total Government pur-
chases and expenditures on those purchases,
whether they all go through that account; B,
then we will have to estimate what the private
expenditures will be and we can get figures
of the actual payments by either requesting
it and checking up on their balances here -
but we haven't yet asked them for that second
information.
H.M.Jr:
Well, George is in a position to get the
contracts, aren't you, George?
171
- 4 -
Haas:
Yes, sir.
H.M.Jr:
And this goes for England, Canada, Australia,
India, South Africa and New Zealand.
Haas:
There will be some difficulties immediately,
but I think we had better get a figure which
18 the bulk and then improve it.
H.M.Jr:
I want something. That is all right. You
see, Phillips is here and Bewley is here and
we haven't got it and Purvis is here and we haven't
got it. At 1:00 o'clock at lunch, I am going
to put down that ultimatum.
White:
There is one other figure, Mr. Secretary.
H.M.Jr:
Just a minute.
Haas:
Here is the difficulty, Mr. Secretary, that
I have run into. That brings up this ques-
tion of Harry's about private purchases.
There are steel purchases that come over here
that look like a private purchase, that come
from a private steel company, but that British
firm has a British Government contract. There
is that difficulty.
H.M.Jr:
Well, we will have to just clean it up. They
can't - they have got to do it for me. I have
been asking for this thing for months now and
I am not in any frame of mind to do any more
asking, I am going to tell them, but --
Haas:
How soon do you want this?
H.M.Jr:
Well, I want the set-up just as soon as it is
physically possible and this man is only going
to be here this week, so you and White and
Young better immediately after this meeting
put your heads together, immediately after
this meeting, and Cochran. Bell, do you want
to pull it together or what?
Bell:
I will if you want me to.
H.M.Jr:
Why don't you right after this meeting have
White and Haas and Young and Cochran in your
room, see?
172
- 5 -
Bell:
All right.
H.M.Jr:
You see what I am getting at, don't you?
Bell:
Yes, I do. I don't think it operates through
one account, but we can get something on it.
H.M.Jr:
Well, I am so tired of being kidded.
White:
You also want the total of all outstanding
contracts, the total - I mean the total.
H.M.Jr:
I want every contract which is on their
books. That leaves out options. They
have got & lot of options, but firm con-
tracts which means obligations, irrespective
of how long ago.
White:
There will be a lot of contracts which
George won't be able to split up in months,
but can give you totals.
H.M.Jr:
Well, he gets the deliveries. He gets the
plane deliveries and machine tool deliveries.
But a lot of this stuff runs until September,
'41. That is & sort of cut-off date.
Haas:
There are some of their contracts that run
that far, say engines, for example, and say
500 runs - as long as the war should last.
H.M.Jr:
Well, George, we have got to get what are
their contractual relationships with Ameri-
can manufacturers, because I am in this
position, that I tell Knudsen - he asks
me can they pay and I have been telling
him yes. Now, I am taking a new look-see
at this thing to see whether they can
pay.
Now, what I am saying - it mustn't get out
of this room. I can't always have separate
groups, but - I mean, I don't want any in-
timation of what I am saying, but I want
to know what are their contractual obliga-
tions to American manufacturers; in other
173
- 6 -
words, how much have they obligated them-
selves to pay over whatever the period is.
Right? And George is the fellow to get
that on that end.
Haes:
I have been working on it. You told me
about this before, so I think we will have
something very soon.
H.M.Jr:
Yes, but I want to be able to have - I want
on one sheet - that I can say, "Well, England,
here, total obligations to American manu-
facturers," and then string It out, if possi-
ble over the months. Under that, Canada,
India, South Africa, Australia and New Zealand.
And there is a. grand total for the British
Empire column here and the months they - how-
ever it spreads up and then we have got to
figure what they are. I mean, what are the -
what have they obligated themselves to buy
from the American manufacturers in dollars,
total, and over how many months does it run.
That is 8, clean out statement of what I want,
isn't it?
Bell:
That is right. Wouldn't the months of that
come from Purvis?
H.M.Jr:
Let George tell you some of his troubles.
Bell:
I should think they would.
H.M.Jr:
Well, South Africa 1s in here. They won't
tell you and this steel cartel won't tell
you, but they have got to from now on. They
have just got to. If a few minutes before
1:00 0' 'clock you could give me 8. rough
sheet to put on the table at 1:00 o'clock
at lunch - Bell and Young are eating with
me and Purvis and Phillips - so I could say,
"Now, gentlemen, this is a rough sheet --"
Dan, bring down a rough sheet at 1:00
o'clock that I can say, "This is what I
want on the British Empire." It will be
all right if it is in pencil.
Bell:
All right.
174
- 7 -
H.M.Jr:
Norman?
Thompson:
I have prepared a letter to the President
on the Customs Commissionership.
H.M.Jr:
Oh, yes.
Thompson:
I was just going to say it is an appointment
by the Secretary.
H.M.Jr:
Yes, but I want to give the President that
courtesy. Somebody for me should have had
me - knowing this fellow, should have - I
should have got this over to the President
last week.
Thompson:
I didn't know whether you would want it to
go over. I will get it right over.
H.M.Jr:
All right. He is not an economist.
White:
Is that supposed to be in his favor?
Bell:
He is a World War veteran.
H.M.Jr:
This doesn't say that. Now, you don't write
down here, "Approved," so we will get it
back.
Thompson:
I will fix that up.
Bell:
I question whether you want to start that.
H.M.Jr:
Would I appoint a head of a Bureau? I want
the President's initials. What is the
difference? As long as I am here, I am not
going to appoint anybody unless it is agree-
able with the President.
Thompson:
It is an unusual position.
H.M.Jr:
I know. It is the same thing like the
Comptroller of the Currency, when that
fellow was here, tried to say that he
was appointed by the President and not by
me. I had a little raw meat for breekfast
this morning.
175
- 8 -
Thompson:
That is the appointment of Snyder, the
economist for Harry White.
H.M.Jr:
That was funny. Poor old Jake, As soon
as he was out from under Jake's wing, he
was in & position where Jake could criticize
him.
Anything else?
Thompson:
That is all.
H.M.Jr:
Dan?
Bell:
I just wanted to let you know that there is
an Executive Order going through to make
you one of the people who purchase for the
Red Cross under this 50 million dollar appro-
priation recently made by Congress.
H.M.Jr:
How do you mean, one of the people?
Bell:
Wallace is the other. Wallace will take care
of the agricultural supplies. Harold has
been working with the Budget people and I
understand there is only about six million
dollars of the fifty that will go to the Pro-
curement Division.
H.W.Jr:
Do I sign anything?
Bell:
No, Budget is going to do it.
We have an application for Mr. Loree, who is,
as you know, Vice President of the Guaranty
and also head of that exchange group of
Harrison's, to get B. license to send five
hundred dollars to 8. sister-in-law in France
who has six minor children. This brings up
the whole question of sending money abroad.
And I also have en application from 8. gentle-
man by the name of Morgan Davis in New York
who wants to send five hundred dollars to &
niece in Norway who is married and whose hus-
band has been thrown out of work as a result
of the invasion. She has a youngster with
infantile paralysis and the last word he had
from her she had nothing to eat, and I tell
176
- 9 -
you, you get some wild stories on this.
We have heard nothing from the State Depart-
ment other than they are considering the
whole policy of sending money abroad.
H.M.Jr:
Didn't I write a letter to Mr. Hull on that?
Bell:
Yes.
H.M.Jr:
(To Lieutenant McKay) Mac, will you call up
the British Embassy and leave word for Sir
Frederick Phillips that the President of the
United States will receive him and me at
3:00 o'clock this afternoon.
Number two, I agreed that the Coast Guard
should send B. cutter and plane to Greenland
and take this Army captain with them. General
Watson said something about taking & gun off.
I don't have to get into that. The gun 1s
already off, isn't it, to make a place for
the plane?
McKay:
They will send up another ship in place of
the Comanche. In other words, the Duane is
going up. She will be ready to go Monday.
H.M.Jr:
They are sending a plane to make an aerial
survey and they are sending an Army captain
as an observer to see whether there are any
German bases up there. It is thought there
may be a submarine base up there.
I have been trading just to try to get an
appointment for Admiral Waesche to see the
President on this appropriation.
Bell:
We have about 250 to 300 applications of
this character and we are holding them up
waiting for the determination of this policy.
I think it is a little inconsistent to hold
up these kind of applications and allow the
Red Cross to take donations from the American
people and also take money out of the Treasury
and send supplies to these people. I recommend
that you grant these licenses on these appli-
cations until this policy is settled.
177
- 10 -
H.M.Jr:
Isn't Professor Chamberlain going to be here
today?
White:
Yes.
Bell:
I don't think you would establish a precedent
that you couldn't change at the end of three
months if the policy changes. I think it is
going to get'pretty hot in a few days.
H.M.Jr:
Do you know when Professor Chamberlain is
going to be here?
Foley:
Tomorrow morning at 9:00 o'clock.
H.M.Jr:
Well, let's have a meeting on this thing at
11:00 tomorrow.
Bell:
All right.
H.M.Jr:
I will ask Mr. Hull if he wants to send some-
body and let Professor Chamberlain know in
advance what it is going to be.
Bell:
The total subscriptions in the recent Treasury
bond issue are now six billion six hundred
nine million. That is less than the six, seven
we gave out. The Federal Reserve Banks --
(Telephone conversation with Secretary Hull
follows:)
178
July 17, 1940
10:07 a.m.
H.M.Jr:
Hello.
Mr. Hull's
Secretary: Just a minute, Mr. Secretary.
H.M.Jr:
Hello.
Cordell
Hull:
Hello.
H.M.Jr:
Cordell?
H:
Yes, sir.
H.M.Jr:
Good morning.
H:
How're you?
H.M.Jr:
Oh, I'm all right. How are you?
H:
Good.
H.M.Jr:
Cordell, there's one thing which I'd like
if you can't settle before you go, if you'd
designate somebody
......
H:
Yeah.
H.M.Jr:
Some time ago, I wrote you a letter about
a number of these applications we have from
American citizens who want to send their own
money over to Norway.
H:
Oh.
H.M.Jr:
Now we have also applications from American
citizens who want to send their own money to
France.
H:
Their own money.
H.M.Jr:
Yes.
H:
Yeah.
179
- 2 -
H.M.Jr:
And we've just got to fish or out bait, and
I wondered if you were going away whether you
wanted to leave that with somebody.
H:
Yes. We've been prohibiting it?
H.M.Jr:
We have -- we just sat tight. I wrote you
& letter about it, I think it was, oh, maybe
two weeks ago.
H:
I think I was away at that time.
H.M.Jr:
Yeah, about two weeks ago, asking for your
advice.
H:
Yeah. Well, I'm sorry. I think I was away
because I haven't seen that letter.
H.M.Jr:
Well, I think you'll find it on this matter
of Norway.
H:
Yeah. I'll look into the matter.
H.M.Jr:
Could you and either give no some advice
before you go, or else tell me with whom you'd
like me to take it up while you're gone within
the next day or BO.
H:
Yes. Would our man Livesey be of any help
do you think?
H.M.Jr:
No, he isn't ......
H:
He's not up on that.
H.M.Jr:
Well, I don't think he's important enough
in a policy matter.
H:
Yeah.
H.M.Jr:
This is a matter of major policy whether we're
going to let this money go into this occupied
area.
H:
Yes, I know. Well, what I meant was whether
he'd be the expert we'd want to use over here.
H.M.Jr:
No.
180
- 3 -
H:
Feis is away.
H.M.Jr:
Is Sumner Welles going to be here right along?
H:
He'll be here Thursday and be here right
along.
H.M.Jr:
Well, if you could take a look at it yourself
and if you could indicate how you felt and
if you didn't have time why then if you could
ask Sumner Welles to take it up with me the
minute he gets back.
H:
All right. I'll do both.
H.M.Jr:
Would you, please?
H:
Yes, sir.
H.M.Jr:
Because I'm really terribly worried about it.
H:
All right, Henry.
H.M.Jr:
Thank you 80 much.
H:
Good-bye.
181
- 11 -
H.M.Jr:
He never saw the letter. He was away.
Bell:
The Federal Reserve Banks have done a little
better job piecing this time, particularly
the banks outside of New York. We had quite
a talk with them at our Dallas conference
and told them they were falling down on the
job and Dallas alone, I think, cut 50 million
dollars out of that. It is quite an item.
That taking out the 39 million of the 5,000
preferred brings it down to six billion
five seventy, at nine percent. That makes
you 591 million. Add the 39 back, you get
630 million dollars as the public allotment.
Adding 50 for investment accounts makes a
total issue of 680 million dollars. Nine
percent is all you can do, because one per-
cent is 65 million dollars and the 630 is a
nice figure.
H.M.Jr:
Let her ride. Has she already gone out?
Bell:
Oh no. It is ready, though.
This is a telegram to New York, approving
that thing on subscriptions. That is all
I have.
Graves:
You asked me to bring up this morning a matter
of Procurement Division publicity.
H.M.Jr:
We don't get any publicity on Procurement.
Schwarz:
What we have got lately hasn't been so good,
of course. We have dropped employees. But
we can. There is plenty of good constructive
activity there. The President yesterday in
his defense report thanked the Procurement
Division on strategic materials.
H.M.Jr:
But I don't - well, he didn't. Mr. Stettinius
did.
Schwarz:
Mr. Stettinius did in a report made public
by the President. We can push it, because
there is enough --
H.M.Jr:
Who is going to do it?
182
- 12 -
Schwarz:
I will do it.
H.M.Jr:
Well, I met with Mr. Mac and Graves this
morning and there is a lot of stuff over
there.
Schwarz:
With your reorganization now and the volume
of stuff that they are purchasing and now
that you have 8. new set-up, there is a good
story there.
H.M.Jr:
Well, there is a story every day.
Schwarz:
We have had considerable activity during the
time they were purchasing strategic materials.
There was 8. lot of interest.
H.M.Jr:
There is a lot of stuff over there. My golly,
they do all kinds of stuff over there.
Thompson:
Ed Mayl is on the Procurement payroll.
Schwarz:
We know the division well.
H.M.Jr:
Yes, but does the public.
Schwarz:
I think it has learned during the past year
considerably more than it did know and we
will see that it knows more.
H.M.Jr:
Ed Mayl is on that payroll?
Schwarz:
Yes, sir. He was over there full time for
some time.
H.M.Jr:
I would like to see one story in the last
six months that he has written on Procure-
ment.
Schwarz:
All right, sir.
H.M.Jr:
One.
Schwars:
He has several. I will send you some.
H.M.Jr:
It is a big enough job. A fellow ought to
183
- 13 -
be over there looking after that all the
time.
Schwarz:
He gets over there frequently and we keep
in very close contact by telephone.
H.M.Jr:
There is something happening over there all
the time. I just don't want Stettinius to
say, "Nice little boy, Procurement Division.
They cooperate."
Schwarz:
For the past month - is that right, Mr. Graves? -
they were not buying anything on the strategic
material program.
Graves:
That is right; our money has just become
available.
H.M.Jr:
They are buying 15 or 20 million dollars a
month for unemployed.
Schwarz:
Textiles for WPA.
H.M.Jr:
A lot of stuff. And there are all kinds of
things going on over there.
Schwarz:
The bulk of that, the financial papers pay
the principal interest. The Wall Street
Journal and the Journal of Commerce con-
stantly have stories of that nature.
H.M.Jr:
See what you can do.
Schwarz:
Certainly.
Graves:
We have just finished the fiscal year, of
course, and I think that in a few days we
will have available the results --
H.M.Jr:
I mean little unusual stories of things that
they do. There must be things over there.
Schwarz:
The magazines are always interested in the
variety of stuff that they buy.
H.M.Jr:
See what you can do.
184
- 14 -
Schwarz:
We will produce something.
H.M.Jr:
Harry?
White:
Sometime before you see the President, I
wonder whether you don't want to go over
the results of the meeting that we had
last night. If we could have either a
little meeting on it or I could take it
up at 11:00 o' o'clock, if you have no other
time.
H.M.Jr:
Better bring it to me at 11:00.
White:
And I will write it out for the other men.
H.M.Jr:
George?
Haas:
(Handing report to Secretary) I have this
report again.
H.M.Jr:
Is that the airplane stuff for me today?
Haas:
Yes.
H.M.Jr:
Phil?
Chick?
Schwarz:
I take it you wish to wait until you hear
back on W. R. Johnson's appointment before
we --
H.M.Jr:
Yes. I don't want - sure. I don't want a.
lot of candidates.
Schwarz:
Two of the newspaper boys know about Mr. Harris'
departure. I will wait until I get the John-
son appointment.
H.M.Jr:
Just sit on it.
Schwarz:
Yes, sir.
H.M.Jr:
Merle?
Cochran:
Nothing.
185
- 15 -
H.M.Jr:
Ed?
Foley:
Mr. Moricca of the Texas Company was in
this morning. He was supposed to bring
back the material we asked him for.
H.M.Jr:
Who reports on ship movements?
Foley:
Cairns.
H.M.Jr:
Anything moving today?
Foley:
He didn't say anything this morning.
H.M.Jr:
If there is, tell him to give a little
memorandum to Mac in the next half hour.
I want to know what ships we are holding
as of today. You are going to stay on
this tax business?
Foley:
Yes.
H.M.Jr:
All right, gents.
106
July 17, 1940
My dear Mr. Neover:
Thank you for your letter of
July 9th transmitting the results
of your Bureau's investigation of
Mr. Weedring and Mr. Heary Grunowald.
I have given this careful
reading.
Sincerely years,
(Stgned) W. Jr.
Mr. J. Edgar Neever, Director,
Federal Bureau of Investigation,
Washington, D.C.
187
July 17, 1940
My dear Mr. Hoover:
Thank you for your letter of
July 9th transmitting the results
of your Bureau's investigation of
Mr. Woodring and Mr. Heary Grunewald.
I have given this careful
reading.
Sincerely yours,
(Signed) H. Morgenthau, Jr.
Mr. J. Edgar Hoover, Director,
Federal Bureau of Investigation,
Washington, D.C.
188
July 17, 1940
w dear Mr. Hoover:
Thank you for your letter of
July 9th transmitting the results
of your Bureau's investigation of
Mr. Weodring and Mr. Heary Grunewald.
I have given this careful
reading.
Sincerely yours,
(Signed) E. Mongrathan, Jr.
Mr. J. Edgar Hoover, Director,
Federal Bureau of Investigation,
Washingtom, D.C.
Regraded Unclassified
189
JOHN EDGAR HOOVER
DIRECTOR
Federal Burrau of Imentigation
ack.
United States Department of Justice
Washington, D. C.
Personal and
Confidential
July 9, 1940
The Honorable
The Secretary of the Treasury
Washington, D. C.
yy dear Mr. Secretary:
Apropos of our recent discussion concern-
ing former Secretary of War Woodring, I wanted to
advise you that I have caused a detailed investiga-
tion to be made into the several allegations which
involve both Mr. Woodring and Henry Grunewald of
Washington, D. C. As of interest to you in connec-
tion with this situation I an transmitting herewith
copy of a memorandum dated July 8, 1940, which
summarizes the results of the Bureau's inquiries
in this matter. It may be noted that the investi-
gation has failed to substantiate any of the charges
that have been made.
Sincerely yours,
J. abover
Enclosure
- EDGAR HOOVER
INVECTOR
Federal Bureau of Investigation
Regraded Unclassified
United States Department of Justice
Mashington, D.C.
July e, 19.60
MENORANDUN
Under date of June 18, 1940, Rotorable Stephen Early,
Secretary to the President, furnished a memorandos to the Director
of the Federal Bureeu of Investigation setting out information
which had been received at Ir. Rarly's office on June 15, 1940,
from Mr. Smith T. Brookhart, former United States Senator. Mr.
Brookhart's information vas to the effect that Henry Gruenwald
(correct spelling later determined to be Grunswald), a German-
American living at the Testchester Apartments, Washington, D. C.,
was believed to be in cahoots with Senator Gerald P. Nyes that
D. H. MeArthur, former Secretary to Senator Nyo, had told Brookhart
Grunewald on two occasions had given Mr. MeArthur, for Senator Rye,
two checks in the sum of $4,000.00 each, Granewald having stated
that this money came through former Secretary of War Harry H.
ootring, Brookhart intimating that the money was in connection
with certain Var Department negotiations; and, that Grunewald had
frequently telephoned Mr. Woodring from Senator Nye's office,
talking in more or less intimate terms and sometimes reprimenting
Vr. Foodring, apparently in connection with Her Department activi-
tips, Mr. Early requested a careful and thorough investigation of
the matter complained of by former Senator Brookhart.
There was also received by the Federal Bureau of Investi-
getion & copy of a. memorandum dated June 25, 1940, from Lieutement
Colonel C. M. Busbee, General Staff Executive Officer, G-2, for the
Acting Assistant Chief of Staff, 0-2, with reference to a conference
Colonel Busbee attended on June 24, 1940, with Homorable Louis
Johnson, Acting Secretary of Mar, and former Senater Smith V.
Brockhart at Mr. Johnson's office, Mr. Brookhart at that time
having advised that Major Thomas C. McDonald, E. friend of long
standing of the former Senator and an alleged nember of the Frensh-
English Intelligence Service in 1917 and 1918, informed that the
head of the Nasi esploase service in Washington, D. c., was one
Prederich Filhels Granswald, also known as Henry William Grunwwald,
. resident of the same spartment building as Major MeDonald, to wit,
the Mestabester Apartments, Tashington, D. c. Former Senator
191
Brookhart stated that McDonald claimed Granswald has three
mlisted telephones in his spartment) that Orenswald has a close
tio-in with the Curtime-Rright Corporation) and, that Grunswald
has an espienage tie-in in the Mar Department in Weshington,
D. e., with Mrs. Kate Deskingham.
On June 22 and 26, 1940, Colonel Immenuel Lembard,
Military Attache of the French Embassy, and Meutenant P. L
Broton, Assistant Military Attachs, communicated with the Federal
Bureau of Investigation, advising that during about September,
1939, the French Government from Paris, France, had requested
them to endervor to secure about 100,000 rifles; that, thereafter,
Colonel Lembard contacted the Mar Department of the United States
and learned there were no rifles for sale through that source)
and, that from about November, 1939, to April, 1940, Edwin J.
O'Malley, 79 Wall Street, New York City, 4. L. Jeffee, 100 Yest
42nd Street, New York City, and Francis 1. danford of New York
City, through correspondence with the French Military Commission
at les York City and through personal contact with the French
Military Attache at Weshington, D. c., endervered to negotiate &
sale of approximately 2,000,000 Lee-Nafield military rifles to
the Frensh Government, various of these three representatives
claiming from time to time that they could secure these rifles
from the United States Government through their contacts with
various hd.gh Covernmental officials, including President Receevelt,
Postmaster General Farley, former Secretary of Mar Woodring and
Junes Receivelt, con of the President. In this connection Colemel
Lembard advised that during these negotigtions be had personally
conferred with Honorable Harry 1. Woodring, then Secretary of War,
with a view to determining the authenticity of such negotiations,
whereupon Mr. Woodring informed that there were no such guns for
sale and further remarked that if such a supply of guns were
svailable for sale by the War Department, the United States
Government would deal directly with the purchasing governments
and not through any secondary or internediary parties.
Investigation of this matter has revealed that Henry
William Orunewald, age so, was apparently born in Now York City,
New York. 30 served five years in the United States Havy from
1909 to 1914, having been honorably discharged, and in connection
with that enlistment the official papers indicate that he exhibited
svidence of bis United States citisenship. For about two years
during the last World Ver Granswald THE employed as I Special Agent
of the Federal Bureeu of Investigation, assigned to the New York
City Office, and during that time be was engaged in counter-
explanage work, Ms former superiors in that work, who are M longer
commested with the Federal Bureau of Investigation, having advised
that Granswald performed meritorious services during the World Nar,
- 2 -
Regraded Unclassified
Regraded Unclassified
including the successful performance of an assigment wherein
Grunewald and a fellow Agent secured certain German documents
from a onfo in the Swine Consulate at New York City. Subsequent
to his service with the FAT, Granswald ddd various investigating
work, including employment as - Federal Prohibition Agent for
about fifteen months in 1921 and 1922, from which service he was
dismissed with prejudies as a result of an indictment secured
against his and other prohibition agents on a charge of falsely
making, forging and uttering fraudulent Customer permite covering
the unlewful removal of 4,900 cases of whiskey and 295 cases of
champagne from the Customs bonded warehouse in Now York City
without paying the Customs duty and Internal Revenue tax due
thereon, A motion to dismiss as to all defendants having been
granted at the conclusion of the Government's trial which started
on November 13, 1923. Records of the FRI reflect that during
the course of this investigation in about 1923, Grunswald paid
£1,000.00 to an FRI Agent as an attempted bribe. Subsequently,
during the years 1924 and 1927, Grunswald applied for reinstatement
in the Federal Bureau of Investigation however, no appointment
as tendered to him. From approximately 1925 up to and including
the present time Grunewald has been employed as a private and
confidential secretary by Henry 1. Marsh, a realthy insurance
broker who is Chairman of the Board of Directors of March and
We Lannan at 70 Pine Street, New York City. In that capacity
Grunewald receives $1,000.00 a month compensation from Mr. Marsh.
Grunswald is said to make a daily report to Hr. Marsh concerning
various happenings in the Nation's Capital and alsewhere, and, also,
from time to time Grunewald effects the introduction of Mr. Marsh
to various Governmental officials in Rashington, D. C. Emorable
Arthur C. Robinson, a former Senator who was interviewed by an
agent of the Treasury Department during about the fall of 1939
at a time when an investigation was conducted concerning 5 complaint
that Grunewald might be dealing in narcotics due to various suit-
cases he carried to New York City, remarked that Mr. Marsh,
Crunewald's employer, has a very marked eccentricity with B: fervent
desire to know just what La going on and consequently had employed
Granewald on a substantial salary. Mr. Hobinson further remarked
that Grunewald claims to have many friends "on the hill." Mr.
Hobinson stated he had visited Grunawald on various occasions at
de apartment and that Orderwald has a beautiful wife and two
charming daughters. Mr. Robinson resarked that care who had not
visited at Orunewald's home might got the wrong impression of
Grunswald's secretive actions and very confidential manner in which
be eends his daily reports to Mr. March. Mr. Robinson further
remarked that Granwald is very secretive and on many occasions
stope friends un the street and tells them that he has DOBR "dope",
which he often whispers to these friends. It is noted that for
a period of approximately one year in 1937 and 1938 Granwald had
office space in the suite of offices occupied by Mr. Robinson, above
M 3 -
193
Regraded Unclas
named, and Major Thomas 0. McDomald, one of the informante in this
sutter to Mr. Brookhart as mentioned hereinabove,
During the source of instant investigation by FM Agenta,
interviews were had with former Semator Breckhart and the tap
intividuals from whom be stated be reseived all of bis information
in this matter, Mr. D. H. MaArther and Major Thomas c. MeDomald,
Mr. Freekhart stating that be had no information except hearsey
in comestion with the reports which he made to the White Home and
to the War Department.
Mr. MaArthur, age 73, former Secretary to Senster Hys, is
an affidavit furnished to FBI Agents on June 27, 1940, stated that
during the year 1938 either Mr. Ormewald or de employer, Mr. March,
or both of them agreed to make - contribution to the compaign
fund of Senator Rye with reference to his campaign for re-alection
as United States Senater, Mr. MeArther also remarking at this time
as at other times that Senater Eye me also trying to build up a
campaign for the Presidency. MeArthur stated that during the year
1938 Granswald had brought to Senater Hye's effice and turned over
to MeArthur on several occasions envelopes which contained currency,
which maney was for the purpose of helping defray the empaign
expenses of Semator Eye, Mr. MeArthur having turned this maney over
to a clerk in the Senator's office who in turn forwarded the same
to & representative of the Senator in Worth Daketa. Mr. Mairther
stated that about this time Bary Granowald had remarked that
$8,000.00 was to be est aside to assist Senater Nye in his compaign
for re-alection. It was this - of maney that MeArthur believed
Grunswald had delivered from time to time in envelopes to the
Senater's effice, though at no time did MeArther over count the
may reseived, nerely having noticed on - cocasions that there
was currency in the envelopes delivered to his by transuld for the
Senstor's compaign fund. Mairthur advised that on - cocasion he
personally asked Granewald, jekingly, where this maney we soming
from, and in some NEME during this servernation the - of
Woodring we nantioned by Orwnswald, this having occurred during
the year 1938. WeArther stated that Granswald did net definitely
and seriously state that the then Secretary of Ner Woodring had
been the source of this money for Senator Hye's easpaign fund and
that Granswald had never presented any check for $8,000.00 or two
checks for $4,000.00 each to the Semater se far as Mairther bad
knowledge, Mr. Marther further stated that to had so knowledge
of Senator Eye's receiving any may from drunswald R Marsh than
that reselved for Senator Myo's compaign fund, Mr. MeArther stated
that a various cocasions Granswald had más telephone calls from
Senster Hye's Office in Mr. Mairther's process, st which times
Oranswald inferred that these calls were to the then Secretary of
War Wesdring. However, Mr. MeArther did not hear the conversations
and does not knew that the calls ware actually to Mr. Woodring, with
the exception of the inference be drew from statements by Granswald.
Mr. Marther stated that be know no improper acts counitted w
- & -
194
Regraded Uncla
Senster Rye or by former Secretary of Var Weodring and that he Increase
of M influence exerted - them W to consit such asts.
Mr. hirther did remark that be had information that too Devertment
exployees working under Senater Rye had on various cosarious
"kisked bask part of their salaries from the Government to Smater
Eye. However, Mr. Mairtine stated that both of these individuals
are new deseased and advised that he is the only individual
presently living who could furnish information conserning these
refunds. It is the epinion of the m Agents who conducted this
investigation, as a result of their conversation with Mr. Mairther,
that he is now rather bitter at Senator Rye, No former employer,
Major Thomas c. McDonald, up 65, who was a Major in the
Intelligenes Department of the in York National Guard from about
1924 to 1934 and who claims to have been in the intelligence service
of the French and British Governments during the last World Mar,
upon interview claimed that he folt Granswald night be the hand of
the Masi espiemage system w reason of lds secretive actions,
McDonald remarking that on occasions when he, McDonald, had born
in Grunswald's apartment in the Westchoster Apartments, Weshington,
D. c., Granswald, upon placing or reseiving a telephone call, would
& into another room and not talk in the presence of WeDomald,
McDomald also remarked that Granswald was reported to leave his
apartment in his automobile at various old hours of the right and
early morning, adding that during the fall of 2937 or 1938, while
Granswald was coeupying space in the offices of MeDenald and formar
Senator Rebinson in the Humany Building, Washington, D, c., M
incident had taken place which impressed b. MeDomald, At that time
Mr. McDonald was representing the Carborunden Company, a Hallon
corporation of Miagare Falls, Now York. This Company had a
subsidiary named the Meltene Company, located sembere in Germany,
possibly in lissburg, and the parent company wanted to obtain -
of its money from the subsidiary company. Mr. MeDenald and Mr.
Robinson were discussing this matter wherespen Granswald jeined the
conversation, and subsequently Orwarwald brought Calenel Edis
Barroon into the office of McDonald and Rebinson and introduced Ma
to Major McDonald and George McGaire, a representative of the
Carborunden Company. McDonald remarked that Colomal Enereon was &
close friend of Ritler and Schacht u the German Government. Colonal
Ratroon and Granswald then engaged in a conversation in the German
language which Mr. MeGuire we shie to understand according to
MeDenald and which related to the return of this may from Commany.
Major MeDonald remarked that be 10 certain nothing ent of the my
transpired during this conversation or MoOrd.re would have adviced Ma.
Subsequently Colonal Emergen advised that Scheckt would not permit
the withdrownl of my of this many from Germany. McDomald stated
that Colonel Imme THE a Gorman off during the last we I'm
this sequaintence between Granswald and Colemal Bearson, Major
MeDemald draws the conclusion that dranswald is apparently engaged
- $ -
195
Regraded Unclassifi
is the Masi espiemage service in Washington, D. c. It is noted that
this insident occurred several years age and that nothing happened
at that time which would indicate any explonage activities on the
part of Emergen or Granswald, it appearing to be morely a commercial
deal.
The files of the Federal Bureau of Investigation contain
considerable information on Emerson, DOW age 72, a. resident of
Alexandria, Virginia. These files indicate that Emergen, apparently
I graduate of Harvard University, has been a newsyaper man, 8 soldier
of fortune and a propagandist in behalf of Germany M far back as the
beginning of the last World Mar. He is said to have office space
with the German Censul at New York City.
At the invitation of Grunewald to check his telephone
line at the Westchester Apartments, Washington, D. c., with I view
to determining whether the came night be tapped, representatives of
the Federal Bureau of Investigation, believing this was a good
opportunity to clesely serutinise Grunswald's apartment, 40 July 2,
1940, appeared at his spartment. Grunswald has ans unlisted
telephone number and from this main telephone in his reception hall
he has an extension in his bedress and another extension in his
living room. There is a switch on the main instrument of his
telephone permitting his to make phone calls through the regular
Westchester Apartment switchboard. He doss net have three phones
as claimed by Major McDonald, merely having care phone with two ex-
tensions. Nothing was observed in the spartment of Mr. Grunswald
which would indicate that be was pro-Gersan or anti-imerican in
any manner in his sympathies.
Throughout the instant investigation by FMI representatives
various individuals stated that Grunewald was sequinted with
various Governmental officials, including former Secretary of Mar
Foodring, Comissioner of Internal Revenue Halvering, Mrs. Este
Buckingham of the War Department, Senator Hye, the late Senstor
Borah and mmerous other individuals, many of when be called by their
given name and they in turn called his by his given DARD. Inform-
tion was received that Granswald frequently entertains at Washington
hotels various groups of individuals high in Government official
circles, including former Attorney General Cussings, Henorable Marvis
H. MoIntyre, Secretary to the President, and other individuals.
Interviews were had during the course of this investigation
with O'Malley, Joffee and Sanford, the individuals who endoxvered to
negotiate & sale of military rifles to the French Government, and in
addition to these am other individuals who bad knowledge of these
negotiations were also interviewed. These three negotiators admitted
- 6 -
198
that they had 20 contact with any Deverment official, including
tormer Secretary of War Woodring, bet stated they hoped that in
the event they could obtain a purchaser for & quality of
military riflee and could pet - a sufficient m of may to
handle the deal, they would be successful in getting the United
States Government to net eside a quantity of riflee as resplas,
which riflee could be purchased by these negotiaters or which
they, If agents, could negotiate the sale of to - foreign country.
Certain of these negotiators, as well as other individuals inter-
viewed, admitted that in their negotiations they had used the names
of President Roosevelt, Postmaster General Farley, former Secretary
of for Woodring and James Ressevelt, son of the President, M
contacts of theirs in an endorver to make the negotiations appear
important, admitting, however, that they had not had any contact
with these Covernmental officials at any time,
It is noted that O'Malley me previously investigated w
the Federal Bureau of Investigation in connection with his
activities during March, 1940, in association with George Edward
Oliver and Charles James Domin, in & similar attempt to sell such
rifles, at which time they were endervoring to negotiate with
John 8. Siegel, a broker of New York City, Insurush as O'Malley
and bis associates, particularly Donin, claimed that during that
deal they were making a sale for an undiselosed principal and further
that they represented a personal agent of the President of the United
States and four cabinet nembers, the substance of the investigation
in memorandum form was furnished by letter of May 23, 2940, by the
Director of the Federal Bureau of Investigation to Brigadier General
Edwin M. Watson, Secretary to the President. the evidence obtained
during the investigation of O'Malley, Oliver and Down during March,
1940, was discussed with an Assistant United States Atterney for the
Southern District of In York, who advised that these individuals
in their negotiations to sell these rifles had net violated my
Federal Statute,
It is further noted that Arthur Lee Jeffee, one of the
negotistors, is one of approximately seventy-five individuals who
were indicted in the United States District Court for the Southern
District of New York en September 30, 1938, on mil fraud charges
growing out of a stesk switching racket by the Underwriters Group,
Inserporated, resulting in a loss of approximately $5,000,000.00 to
the known victims. Jeffee plead net guilty to this charge on
November 17, 1938, and was released en $2,000.00 bail, the mill
frund charges still being outstanding against Jeffee and may of his
co-defendants,
Insuranch as the purpose of the inquiries w the Federal
Bureau of Investigation w to determine whether Neary William
7
Regraded Unclassified
197
terms we the hand of a Mast esplanage system in Washington,
46, or was connected with such a system and to determine
visither fermer Secretary of Mar Weedring had bom guilty of
wing his influence in my my to assist dransuald in activities
ininical to the best interests of the United States and the
investigation of the original allegations revealed they were
based upon survice and susplaten and net - definite imewledge
of the complainante of urongdeing and has net revealed any such
emitions as were alleged, no further investigation is conton-
plated.
- 8 -
198
BRITISH EMBASSY,
WASHINGTON, D.C.
July 17th, 1940
ecret and Personal
Dear Mr. Secretary,
I enclose herein for your
personal and secret information a copy
of the latest report received from
London on the military situation.
Believe me,
Dear Mr. Secretary,
Very sincerely yours,
Lokeran
The Honourable
Henry Morgenthau, Jr.,
United States Treasury,
Washington, D. C.
199
Telegram despatched from London
on the evening of July 16th.
2+
Northbound convey attacked w about
15 Dermiers off Orfordness yesterday afternoon.
British ship "Howorth" (2855 tome) and Polish ship
"Shareg" (2088 tons) set on fire. Our three ascort-
ing Harricence claimed two energy aircraft
(unsenfirmed).
Reference to telegram of July 13th,
paragraph 1. He No ship "Drake" being shore
establishment: this paragraph implies that ships
nentioned have been placed under the commend of
Commander in Chief at Plymouth.
₫
Results of night bombing by heavy bonters
July 24th to 15th, to Gelsenkirchen synthetic oil
plants fires and large explosion, red glow visible
for 40 miles. Ham reilway target; large and
extensive fires accompanied w heavy explosions.
doest reilway target; large fires, black smoke
visible for 50 miles. Brenen sirfrans factory)
Large fire. Buer Vught Huntlosen and Borkum
acrodrement hits registered, satisfectory results
reported.
Attack by Blenhoims on oil tanks at Ghent;
4 direct hite on tanks and storage buildings
searchlights machine-gunned and large fires observed
200
Yesterday afternoon Blenhoise visited
aerodromes at st. Inglebert, Chartres, 10
Tréport and aluminium factory at Ludwigshafen.
Last night despite unfavourable weather 20 heavy
bombers attacked Paderborn mircraft park and oil
refinery at Strasse Mine laying operations
carried out in Copenhagen area. From these
night operations, all machines returned. Reports
are awaited.
3.
Enemy air raid on Brighton and Hove
previously reported resulted in three persons
killed five wounded only, though considerable
damage to houses.
Normal railway traffic resumed at
Avonmouth.
Yesterday light bombarding of Barry
docks, Plymouth, Angmering, Pembroke dook, st.
Athen and Llandow, only minor damage and no
cusualties reported. Last night weather
unfavourable and little enemy activity. Aircraft
reported mine-laying in Liverpool Bay and today
this port is closed. Bristol Channel partially
closed following report of unknown vessel being
mined.
Enemy air training has begun again
after a period of apparent inactivity in Keltwig
and Vienna areas. Considerable training still
continues in East Prussia and the Bultic.
Transport aircraft show increase from
northwestern Germany to northern Dermark and
southern Borway, also to Bruxelles and paris.
Regraded Unclassified
201
Two enery aircraft destroyed, two more probably
destroyed and one Hurricane brought down off
Plymouth during period under review.
40
Yesterday afternoon patrolling
aircraft sighted British ship "City of Limerick"
(1260 tons) and Portuguese "Alpha" (850 tons).
Both ships have been abandoned by crews after
bombing, destroyers are standing by. Neither
was in convoy.
5.
Molta. on July 10th R. N. hospital
at Bigelow - bombed; a protest is to be made,
Egypt. At Cappusso an ammunition
and petrol dump were set on fire by our shelling;
an enemy column trying to enter Cappuaso withdrew
under our shell-fire.
Sest Africa. At 20 hours on July 14th
garrison of one company withdrew from Moyale
owing to lack of water. Company brought back
rifles, individual mechine-gune complete and come
ammunition, any equipment left behind was dea-
troyed. Our total casualties since attack started
10 killed, 35 wounded, 9 missing. North of Lake
Rudolf 2 companies of our troops supported by
Ethiopian battalion raided enemy post at
Nameraput driving off strong force of enemy
tribesmen with loss; our forces now withdrawing to
British territory.
Regraded Unclassified
20-
Somaliland. Our frontier post west
of Dobo Pase montioned in paragraph 6 of
telegram of July 14th was recccupied on July 14th.
Regraded Unclassified
203
TREASURY DEPARTMENT
Regraded Un
INTER OFFICE COMMUNICATION
DATE July 17, 1940
TO Secretary Morgenthau
FROM Mr. Cochran
The Secretary entertained at luncheon Frederick
STRICTLY CONFIDENTIAL
Phillips, Mr. Purvis and Under Secretary Bell. Following the luncheon and after the
departure of Mr. Purvis the Secretary had the following officers join the group in
his office: Measrs. Bewley, Pinsent, White and Cochran.
While waiting to be called into the Secretary's office, Messrs. Bewley and
Pinsent had been waiting in the office of Mr. Cochran. At this time Mr. Pineent gave
the following figures in regard to French assets in Canada, which he had obtained
by cablegram from Ottawa to meet our inquiries on this subject, French gold held
with the Bank of Canada totals 376,000,000 United States dollars. Bank of France
balances with the Bank of Canada amount to 3,000,000 United States dollars. Private
French balances in Canada are not more than 1,000,000 United States dollars. Canadian
securities held by France are not more than 3,000,000 United States dollars.
When our group was assembling in the Secretary's office I questioned Sir
Prederick Phillips with respect to the location of the French gold held under earnark
with the British, since his intimation on Monday that this still remained in London,
conflicted with the impression of Messrs. Bowley and Pineent that practically all
gold, including that under earmark, has now left Ingland. Phillips said that while
he could not say what had been the exact destination of the gold that would be con-
sidered French gold, he could my that by this date practically all of the gold had
left London. The French gold presumably had reached North America, South Africa or,
possibly, Martinique.
Sir Prederick Phillips presented to the Secretary the attached memorandum
entitled "Dollar Requirements of the United Kingdom Exchange Control", which extends
and amplifies the data previously given to the Secretary by the British. After
studying this document and asking for certain explanations, the Secretary found it to
be quite a good report, giving considerable more detail than the first one. After
a brief discussion, the Secretary took Sir Frederick to the White House to present our
visitor to the President.
During the above discussion, Sir Frederick Phillips explained that at the
present rate Canada is contributing around 145,000,000 annually to England in the
vay of Canadian dollars. This comes partly through Canada repatriating sterling
securities issued on the London market, giving Canadian dollars therefor, and partly
through the Canadian Exchange Fund holding sterling,
204
- 2 -
In reply to Mr. Bell's question in regard to sources of British foodstuffs,
Sir Frederick explained that a large part thereof came from the British dominions;
that special arrangements were in operation with Argentina, with which a regular
refrigeration service is maintained; that consumption of foodstuffs in the United
Kingdom is rationed; and that the home production of foodstuffs has been speeded up.
Messrs. Bowley and Pinsent remained behind for a few minutes with Messrs.
Bell, White and Cochran. They could give us no more information on Belgian and
Polish central bank gold, except to state that the ship on which these reserves
reportedly left France sailed from Lorient. In reply to our question as to how much
gold the British had actually loaned to Turkey some months ago, Bewley stated that
Great Britain provided L11,000,000 and France £4,000,000. This gold was actually
delivered to Turkey.
B.M.R.
COPY
205
DOLLAR REQUIREMENTS OF THE UNITED KINGDOM EXCHANGE CONTROL
Summary.
A provisional forecast of the drain on the gold exchange resources
of the United Kingdom in the twelve months from the 1st instant suggests
a figure of say $1632 million as a minimum. Details of this forecast are
given below.
As against there requirements the exchange assets of the United
Kingdom are set out in paragraph 4. They include:
(a) Gold to & total of $1444 million, of which say $600 million is
about the minimum gold balance with which the fund could work;
(b) United States dollars: $108 million.
(c) Dollar securities at current prices, say, $700 million. Other
assets are of a much less liquid type such as some direct investments in
the U.S.A. and sterling investments elsewhere.
The available assets would thus be very low at the end of twelve
months and some help in liquidating dollar securities may be wanted long
before then.
1. The sterling area consists of the United Kingdom, India, Australia,
New Zealand, South Africa, Eiro and the British Colonies and Dependencies.
It includes also Egypt and Iraq. Purchases by the United Kingdom in my
part of the sterling area do not affect the foreign exchange resources of
the British Control as payment is made in sterling. On the other hand,
transactions between any part of the sterling area and countries outside it
do affect the British Control. For example, if Australia buys motor-care
in the U.S.A. it is the British Control which finds the dollars and, sini-
larly, if Malaya sells tea or rubber to the U.S.A. the British Control
receives the dollar proceeds.
- 2 -
208
Canada is not included in the sterling area, and for the present
purpose is in & position similar to that of & foreign country.
2. Conjectural balance of payments between the sterling area, including
the United Kingdom, and the United States of America.
July 1940 - - June 1941
$ million
United Kingdom imports
United Kingdom exports,
from U.S.A.
1892
visible and
invisible
180
Rest of sterling area
imports from U.S.A.,
Rest of sterling area
visible and
exports
440
invisible
280
Adverse balance
1552
2172
2172
The figures are, of course, estimates made in advance, and to be treated
with the greatest reserve. They are based on the latest information avail-
able but it will be appreciated that the major buying programes, which
were vastly altered as a result of the events of May and June, have hardly
yet reached a settled state.
The direct purchases by the United Kingdom in the U.S.A. during the
twelve months, totalling $1892 million, include for aircraft and aircraft
materials $716 millions, for munitions $340 millions, for iron and steel
$400 millions, for other raw materials $132 millions, for manufactures
$100 millions, for food and tobacco $54 millions, for petroleum $68 millions,
with some smaller items.
3. The adverse balance with the United States 10 by far the greatest drain
on our exchange resources. There 1s, however, in addition a large adverse
balance with Canada and a smaller adverse balance with foreign countries.
207
- 3 -
Against this must be set the receipts from the sale of newly mined gold
and the proceeds of any loans which we obtain from Canada and other
countries. A rought conjecture of the total drain in twelve months on
the Exchange Control would stand as follows:
$ million.
Adverse balance
Proceeds of sale of
between sterling
newly mined gold:
area and U.S.A.
as shewn above
1552
sent direct to
U.S.A.
80
Adverse balance
with Canada.
560
sent to United
Kingdom
400
Adverse balance
with foreign
Loans and credits
countries.
220
from Canada and
other countries
220
Net drain on
exchange resourses
1632
2332
2332
Having regard to the course of events in June it is believed that the
final figure of $1632 million is much more likely to prove an under- than
an over-estimate.
4. Assets:
Gold.
$14444 million
Note. This is the figure of the gold still held in the
United Kingdom Exchange Equalization Fund: it does not
include the gold reserves held by the Central Banks of
India and South Africa, since that gold is at the die-
posal of the Governments of those Dominions and not at
the disposal of the United Kingdom authorities. On the
other hand the Exchange Control, which is in the position
of a bank and like a bank must carry & substantial cash
reserve, cannot divest itself of all its gold and the
necessary balance could hardly be put at less than $600
million.
208
Dollars.
$108 million.
Note. These are dollars held by the United Kingdom
Exchange Equalization Fund. There were fairly sub-
stantial private dollar deposits in the United States
at the outbreak of war but these have been in large
part requisitioned. Under the exchange control arrange-
ments in force in the United Kingdom remaining private
dollar deposits are kept to the minimum amounts required
for carrying on business and these deposits can there-
fore properly be regarded as nothing more than necessary
working capital.
Dollar securities
$700 million.
Note. In addition to these dollar securities there
are fairly substantial direct investments in the United
States, but it is impossible to give at the present
stage any figure on which reliance could be placed for
the liquidation value of such direct investments. The
matter is being looked into. In addition there are of
course large British investments in the rest of the
world in sterling. It is impossible to give any reliable
figure for such investments in present circumstances and
their value for the purpose under consideration would
depend on finding a willing purchaser or lender in the
United States.
It will be seen that at the end of the twelve months the available
assets will be very low, whereas it is certain that there will still be very
substantial commitments in respect of long-term contracts still outstanding.
No figure can be given for this, but it might be anywhere in the neighbor-
hood of $1,000 million, and if the war continues the net drain in the
following year could not be much less than $1600 million.
Long before twelve months are out the question of finding some more
rapid method than market sales for converting dollar securities into cash
may become acute.
TREASURY DEPARTMENT
209
INTER OFFICE COMMUNICATION
DATE July 17, 1940
TO
Secretary Morgenthau
FROM Mr. Cochran
STRICTLY CONFIDENTIAL
Mr. Pinsent, Financial Counselor of the British Embassy, called on no at
11:30 today. During the visit he handed to no the attached memorandum which he has
addressed to Sir Frederick Phillips on the subject of possible apprehension on the
part of American banks with respect to their credits extended to British concerns.
Mr. Pineent had prepared this memorandum for the information of Phillips, with the
idea that the latter night see fit to discuss the question with the Secretary of the
Treasury while here in Washington.
I told Mr. Pinsent that on July 2 and July 6 Ve had received cablegrams from
Ambassador Kennedy at London reporting that the Manhattan, Irving, Oursenty and
National City were canceling credits extended to the London market, the National City
having called $19,000,000 on one day. I told Pinsent that the Treasury had considered
it unwise for it to take the initiative and make any inquiry in banking circles in
New York on this point. If we had done this, ve might have caused the movement to
become contagious. That is, the banks would have been curious as to the reason for
ur inquiry and would undoubtedly have asked assurances from us as to the vision of
Continuing their credit lines. Since the Treasury itself could not take the responsi-
bility of giving definite assurances in the premises, the nervousness wight conceivably
have been augmented. Consequently ve had cabled Ambassador Kennedy that vo hesitated
to make any inquiries pending the early arrival of Sir Frederick Phillips.
Pinsent agreed that our attitude had been entirely correct, and he is somevhat
nervous over opening too such of an inquiry in Nov York at the present time. I told
him that there might be & possibility of a leak, if Sir Prederick himself should take
this matter up with different banks while in this country. I suggested that discrest
inquiries could be made through the Federal Reserve Bank of New York, at our instance,
Just to see what actually is being done. On the other hand, if the British Government
is villing to make the arrangement suggested in the attached memorandum, an approach
night be made through Morgans to get an idea as to what the reaction in banking circles
would be thereto. Such an inquiry, and any subsequent arrangements, could be mão by
either Sir Frederick or by Hr. Pinsent.
I did not mention that the Ambasandor's inquiry in regard to canceling of
credits had been inspired by Governor Norman of the Bank of Ingland. Neither did I
sention the Governor's interest in sending gold to this country by warship. However,
I did let Pinsent know that Kennedy had raised the latter question, and I read Pinsent
our reply to this suggestion. Pinsent confirmed that the British themselves had made
arrangements to clear out all gold from London and that he had some time ago let no know
that all of it probably would be out within a fortnight. Today he confirms that all
of it has been removed. He based this on Bewley's statement to the effect that the
latter thought the last bar of gold had come out from Lendon on the convey with which
210
- 2 -
Bewley travelled to Halifax. I reminded Pinsent on this point that Phillips had
told us on Monday that the French still had $300,000,000 in gold in London. I have
asked Pinsent to clear up this discrepancy, since we would really like to know
whether there is still any French gold in London. I thought that there might be some
chance that part of the French gold was on the French cruiser at Martinique, but he
will endeavor to learn more about this. Likewise I told him that we should appreciate
any further data that may be given us in regard to the fate of the Polish and Belgisa
central bank gold which had been held in France.
10m.8;
(Handed by Mr. Pinsent of the British Embassy to Mr. Coohran
21.
in the Treasury at 12:15, July 17, 1940)
MINUTE SHEET
Reference
Sir Prederick Phillips.
Mr. Auburn, an English friend of mine who
is European representative of the Manufacturers' Trust
Company, but is now working for his Bank in New York, has
mentioned to me once or twice the apprehension felt by some
of the Sew York banks lest, in the event of emergency, the
short-term credite which they have outstanding in England
could not be covered. I asked a question about this in
a letter I addressed to Waley on June 10th, and heard in
reply by telegraph on June 30th that this question had not
yet been considered.
I understand that the position 1a that,
while the balances held here by British banks in the
aggregate are probably sufficient to cover the outstanding
credits given by American banks to their British clients.
this does not hold in individual cases. The Manufacturers'
Trust, for example, has given a considerable amount of
credit, nearly half a million dollars, for the purchase of
machine tools, the largest item being direct to Messre.
Herbert (the British machine tool makers). In all, the
credits granted by the Manufacturers' Trust are uncovered
to the extent of $1-1/2 million at present.
The suggestion made to no vas that each
British bank should keep B. balance with its American corres-
pondent banks at least equal to the outstanding confirmed
and unconfirmed credits, and that each American bank should
have & lien on this balance, to be exercised only if
essential. I explained, however, that for various reasons
I understood it was the policy of H.M.G. at present that the
balances held in U.S. banks, all of which were due sooner
or later to be paid to the British Exchange Control, should
be kept at the lowest convenient point. The suggestion
WBB then made to me that ve should let it be known that in
the last resort, o.g. if communications were out off, ve
would provide for covering these bank credits out of our
funds at the Federal Reserve Bank.
I think there must be & certain amount of
genuine apprehension among the American banks as to the
position if 8 German invasion of England were really
attempted. I am sold that the First National Bank of
Boston actually has got a lien on the balances held with it
by British banks. The Manufacturers' Trust would hardly
like to ask direct for this arrangement. In the last
resort it is presumably the obligation of the British
Regraded Unclassified
212
- 2 -
Exchange Control to provide that these credits shall be
covered, and I think there is a good deal to be said for
the view that if we could let the American banks know
quietly that we accept this view it would on the whole tend
to protect us against the risk of the outstanding volume of
credit being withdrawn. It is, of course, difficult to
assess what is this risk without putting ideas into the
heads of the banks, and it might be worth while to ask what
are Mr. Morgenthau's views on the point.
(Initialed) G.H.S.P.
16th July 1940.
GHSP;KIP
213
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 17, 1940
TO
Secretary Morgenthau
Mr. Cochran
FROM
STRICTLY CONFIDENTIAL
Dr. Somary, Financial Adviser to the Swies Legation in Washington, called on
me yesterday at 2:30 p.m. by appointement. I had arranged that Dr. Walter Stewart
be present, since he has known Dr. Somary for many years. Dr. Somary had come to
gee me because of telephone calls which be had yesterday received from both the
President of the Swine National Bank and an officer of the Swies Government,
inquiring in regard to conversations between the American and British Treasuries.
Somary said that Germany was issuing propaganda to the effect that both our coun-
tries were worried over the outlook for gold, and that TO were discussing this sub-
ject. Certain German propaganda was said to carry the suggestion that this question
of gold was one on which Germany might be willing to treat with Great Britain on
peace settlement. I told Dr. Somary confidentially, as the representative of our
Tripartite partner, that we had not discussed the future of gold. I reminded him
that the United States, as the largest holder of gold, and Great Britain, as the
largest producer of gold, have a joint and common interest in the future of this
metal, and certainly will do nothing to prejudice it. Dr. Somary gave no quite a
urvey of the Swies situation, but nothing of exceptional importance. He admitted
that certain control regulations had been instituted in the Swise financial system
recently, but this was principally with respect to invaded areas. He expects the
Swiss franc to be held at its present level. In spite of there being 150,000 French
refugees already in Switzerland, he thinks food supplies now available will take
care of the situation for at least another year. American coal and certain other
imports are coming to Switzerland via the Italian port of Savona, following the
special arrangements made by the Swiss with both the British and Italian officials.
Switzerland 1s practically cut off from England and thus loses an important trade.
There is the likelihood of certain Swise factories being moved to Canada in order
that they may supply British contracts for instruments of precision. etc. Dr. Somary
stressed the difficulty of travel and transportation in France. He said that the
Swise army WBQ being demobilized to the extent of approximately eaventy percent.
JMY
Regraded Unclassified
214
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
July 17, 1940
TO
Secretary Morgenthau
FROM
Mr. Cochran
STRICTLY CONFIDENTIAL
As our group on Control of Foreign Funds is particularly interested in the
accounts of the Deutsche Gold Discount Bank with the Chase Bank of New York,
would you be good enough to let me see, for the next few days, any reports that
you may receive in confidence upon the German balances with the Chase or other
banks in New York.
B.M.S.
215
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 17, 1940
Secretary Morgenthau
TO
FROM Mr. Cochran
confidential
The open market rate for sterling moved downward today. From an opening of
3.81-1/4, the pound fell to 3.75 by noontime. It recovered to 3.80-1/4, but then eased to
close at 3.77. 8 loss of 74 when compared to yesterday's final rate.
Heavy purchases of sterling by commercial concerns again led to an appreciable
excess of reported buying orders. In contrast to the large amount of sterling sold by
the Rew York agency of the Bank of China yesterday, that Bank disposed of only I60,000
in today's trading. Several other non-reporting New York banks, however, had orders
to sell sterling, we were informed.
Sales of spot sterling by the six reporting banks totaled L180,000, from the
following sources:
By commercial concerns
1 52,000
By foreign banks (Europe, Far East and South America)
L128,000
Total
L180,000
Purchases of spot sterling amounted to L580,000, as indicated below:
By commercial concerns
L454,000
By foreign banks (South America and Europe)
L126,000
Total
L580,000
The Guaranty Trust Company reported that it had sold cotton bills totaling 13,000
to the British Control on the basie of the official rate of 4.02-1/2.
Sterling in the amount of L48,000 vas purchased from the British Control at the
official rate of 4.03-1/2 by the following banks:
634,000
by the Guaranty Trust Company (for rubber and whisky)
12,000
by the Bank of Manhattan (for rubber)
2,000
by the Chase National Bank (for furs)
146,000
Total
The other currencies closed as follows:
Swies franc
.2270
Canadian dollar
12-1/4% discount
Lira
.0505
Reichemark
4004
Ouban peso
9-15/16% discount
Mexican peso
.1990 bid. .2020 offered.
Regraded Unclassified
216
- 2 -
There were no gold transactions consumnated by us today.
The Federal Reserve Bank of New York reported that the Swies Bank Corporation,
London, shipped $52,000 in gold from England to its New York agency, for sale to the
U. S. Assay Office.
The State Department forwarded cables to us stating that the following gold
shipments would be made:
$346,000 from England, shipped by Chase National Bank, London, to its head office at
New York, for sale to the U. S. Assay Office.
252,000 from Mexico, shipped by the Bank of Mexico, Monterrey, to the Federal Recerve
Bank of New York, disposition unknown.
$598,000 Total
Gold in Bombay was slightly higher at the equivalent of $33.80.
The Bombay spot silver quotation vas squivalent to 43.97#. off 3/16#.
In London, spot silver vas fixed at 22-3/84, up 3/16d. The forward quotation
vas 21-13/16d, up 1/16d. The U. S. equivalents were 40.684 and 39.66₫ respectively.
Handy and Harman's settlement price for foreign silver vas unchanged at 34-3/44.
The Treasury's purchase price for foreign silver was also unchanged at 35#.
Ve made four purchases of silver totaling 350,000 ounces under the Silver Purchase
Act. Of this amount, 275,000 ounces represented sales from inventory, and the remain-
ing 75,000 ounces consisted of new production from foreign countries, for forward
delivery.
Ye also purchased 300,000 ounces of silver from the Bank of Canada under our
regular monthly agreement.
CONFIDENTIAL
B.M.S.
217
TREASURY DEPARTMENT
INTER-OFFICE COMMUNICATION
DATEJULY 17, 1940
TO
Secretary Mergenthau
FROM
Mr. Haas JOA
Subject: Railroad freight movement for export.
Receipts of freight for export at New York declined
sharply again last week following the decline of the previ-
ous week which included the Fourth of July. (See Chart 1
and table attached.)
The volume of freight exported from New York totalled
4,503 carloads and showed little change from the preceding
week in contrast to a steep decline a week earlier. (See
Chart 2.) Since the volume of freight exported exceeded
receipts by a substantial margin, the lighterage freight in
storage and on hand for unloading in New York declined for
the first time since the week ended May 11. The drop of
499 carloads brought the total to 9,436 carloads. (See
Chart 3.)
218
RECEIPTS OF FREIGHT FOR EXPORT AT NEW YORK
Week ended
New York 1/
1940
(In carloads)
February 3
4,274
February 10
4,617
February 17
3,974
February 24
4,550
March 2
4,577
March 9
4,059
March 16
4,072
March 23
4,424
March 30
4,150
April 6
3,979
April 13
3,957
April 20
4,133
April 27
4,346
May 4
4,255
May 11
3,793
May 18
4,165
May 25
4,794
June 1
5,071
June 8
4,888
June 15
4,726
June 22
5,334
June 29
5,323
July 6
4,548
July 13
4,054
Source: General Managers' Association
of New York, Daily Report of Operating
Conditions in New York Harbor.
RECEIPTS OF FREIGHT FOR EXPORT AT NEW YORK
AND AT o OTHER NORTH ATLANTIC PORTS
1939
1940
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
CARLOADS
CARLOADS
THOUSANDS
THOUSANDS
5.5
5.5
5.0
5.0
4.5
4.0
Amm
4.5
4.0
3.5
3.5
3.0
3.0
2.5
2.5
9 OTHER PORTS
2.0
2.0
1.5
1.5
1.0
1.0
.5
.5
0
o
28
11
25
9 23
6
20
3
17
2
16
30
13
27
11
25
8
22
6
20
3
17
31
14
28
12
26
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
1939
1940
-
Figure for week ending July 13 not available by July 17.
219 Chart 1
Office of the Secretary of the Treasury
Division of Research and Statistics
C - 304 - I
Regraded Unclas
CARLOADS OF FREIGHT EXPORTED FROM NEW YORK*
1939
1940
NOV.
DEC.
JAN.
FCB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
ocT.
CARLOADS
CARLOADS
THOUSANDS
THOUSANDS
5.5
5.5
5.0
5.0
4.5
4.0
www.n
4.5
4.0
3.5
3.5
3.0
3.0
220
2.5
2.5
2
11
25
9
23
6
20
3
17
2
16
30
13
27
11
25
8
22
6
20
3
17
31
14
28
12
26
NOV.
DEC.
JAM.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
OCT.
1939
1940
e
AS ESTIMATED FROM DATA or GENERAL MANAGERS' ASSOCIATION or - YORK.
Office of the Secretary of the Treasury
Chart 2
Division of Research and Distriction
C - 308 - I
Regraded Uncla
LIGHTBRAGE FREIC T IN STORAGE
AND ON HAND FOR UNLOADING IN NEW YORK HARBOR*
1939
1940
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AMS.
SEPT.
ocT.
CARLOADS
CARLOADS
THOUSANDS
THOUSANDS
10
10
9
9
8
8
7
7
6
6
5
5
221
4
4
28
11
25
9
23
6
20
3
17
2
16
30
13
27
II
25
8
22
6
20
3
17
31
14
28
12
26
NOV.
DEC.
JAN.
FEB.
MAR.
APR.
MAY
JUNE
JULY
AUG.
SEPT.
ocT.
1939
1940
e, LARGELY EXPORT FREIGHT, BUT ABOUT 10% REPRESENTS FREIGHT FOR LOCAL
AND COASTAL SHIPMENT. FIGURES EXCLUDE GRAIN.
Chart 3
Office of the Secretary of the Treasury
Division of Remarch and Nation
C - 303 - I
Regraded Unc
222
7-17-42
Secret
DOLLAR REQUIREMENTS OF THE UNITED KINGDOM EXCHANGE CONTROL
Summary.
A provisional forecast of the drain on the gold
exchange resources of the United Kingdom in the twelve
months from the 1st instant suggests a figure of say $1632
million as a minimum.
Details of this forecast are
given below.
As against these requirements the exchange
assets of the United Kingdom are set out in paragraph 4.
They include:
(a) Gold to a total of $1444 million, of which say $600
million is about the minimum gold balance with which
the fund could work;
(b) United States dollars: $108 million.
(c) Dollar securities at current prices, say, $700 million.
Other assets are of a much less liquid type such as some
direct investments in the U.S.A. and sterling investments
elsewhere.
The available assets would thus be very low at
the end of twelve months and some help in liquidating dollar
securities may be wanted long before then.
1.
The sterling area consists of the United Kingdom,
India, Australia, New Zealand, South Africa, Eire and the
British Colonies and Dependencies.
It includes also Egypt
and Iraq.
Purchases by the United Kingdom in any part of
the sterling area do not affect the foreign exchange
resources of the British Control as payment is made in
sterling.
On the other hand, transactions between any
part of the sterling area and countries outside it do affect
the British Control.
For example, if Australia buys
lor-cars in the U.S.A. it is the British Control which
Ands the dollars and, similarly, if Malaya sells tea or
guhber to the U.S.A. the British Control receives the
dullar proceeds.
Canada is not included in the sterling area,
and for the present purpose is in a position similar to
that 02 a foreign country.
2.
Conjectural balance of payments between the
sterling area, including the United Kingdom, and the United
States of America.
July 1940 - June 1941
million
United Kingdom Imports
United Kingdom exports,
from U.S.A.
1892
visible and
invisible
IBO
Rest of sterling area
imports from U.S.A.,
Rest of sterling area
visible and
exports
440
invisible
280
Adverse balance
1552
2172
2172
Vile figures are, of course, estimates made in advance, and
TU be treated with the greatest reserve.
They are based
on the latest information available but it will be appre-
stated that the major buying programmes, which were vastly
ultered NS a result of the events of May and June, have
hardly yet reached B. settled state.
The direct purchases by the United Kingdom in the
U.S.A. during the twelve months, totalling $1892 million,
include for aircraft and aircraft materials 716 millions,
Cop minitions 340 millions, for iror. and steel 400 millions,
for other raw materials 132 millions, for manufactures 100
alllions, for fooù and tobacco V84 millions, for petroleum
millions, with gome smaller items.
3.
The adverse balance with the United States is
Regraded Unclassified /oy
224
by far the greatest drain on our exchange resources. There
is, however, in addition a large adverse balance with
Canada and B. smaller adverse balance with foreign countries.
Against this must be set the receipts from the sale of
newly mined gold and the proceeds of any loans which we
obtain from Canada and other countries.
A rough conjec-
ture of the total drain in twelve months on the Exchange
Control would stand as follows:
$ million.
Adverse balance
Proceeds of sale of
between sterling
newly mined gold:
area and U. S.A.
as shewn above
1552
sent direct to
U.S.A.
80
Adverse balance
with Canada.
560
sent to United
Kingdom
400
Adverse balance
with foreign
Loans and credits
countries.
220
from Canada and
other countries
220
Net drain on
exchange resources
1632
2332
2332
Having regard to the course of events in June
it is believed that the final figure of 1632 million is
much more likely to prove an under- than an over-estimate.
4.
Assets:
Gold.
$1444 million
Note. This is the figure of the gold
still held in the United Kingdom
Exchange Equalization Fund: it does
not include the gold reserves held by
the Central Banks of India and South
Africa, since that gold is at the dis-
posal of the Governments of those
Dominions and not at the disposal of
the United Kingdom authorities. On
the other hand the Exchange Control,
which is in the position of a bank and
like a bank must carry a substantial
cash reserve, cannot divest itself of
/all
Regraded Unclassified
all its gold and the necessary balance
could hardly be put at less than $600
million.
Dollars.
108 million.
Note.
These are dollars held by the
United Kingdom Exchange Equalization
Fund. There were fairly substantial
private dollar deposits in the United
States at the outbreak of war but
these have been in large part requisi-
tioned. Under the exchange control
arrangements in force in the United
Kingdom remaining private dollar
deposits are kept to the minimum amounts
required for carrying on business and
these deposits can therefore properly
be regarded as nothing more than
necessary working capital.
Dollar securities.
4700 million.
Note. In addition to these dollar
securities there are fairly substantial
direct investments in the United States,
but it 1s impossible to give at the
present stage any figure on which
reliance could be placed for the liquida-
tion value of such direct investments.
The matter is being looked into.
In
addition there are of course large
British investments in the rest of the
world in sterling. It is impossible to
give any reliable figure for such in-
vestments in present circumstances and
their value for the purpose under con-
sideration would depend on finding a
willing purchaser or lender in the
United States.
It will be seen that at the end of the twelve
months the available assets will be very low, whereas it
is certain that there will still be very substantial
commitments in respect of long-term contracts still out-
standing. No figure can be given for this, but it might
be anywhere in the neighbourhood of $1,000 million, and if
the war continues the net drain in the following year
could not be much less than $1600 million.
Long before twelve months are out the
question of finding some more rapid method than market
sales for converting dollar securities into cash may become
acute.
Regraded Unclassified
228
July 17, 1940
Mr. Bewley submitted the following figures and
comments on detailed items of their foreign exchange
assets:
1. Gold - $1,450,000,000
This did not include Canadian holdings, nor did it
include any gold held in England under earmark for foreign
countries. Mr. Bewley also stated that the dominions and
colonies, excluding Canada, had negligible amounts of gold.
(I later showed him the figures in the Federal Reserve
Bulletin which give the Central Bank holdings of South
Africa and India alone as being over $500 million. He
said he was quite surprised at that because he had thought
they had only negligible amounts.)
2. Dollar Balances - $105,000,000
This figure is the amount held on British government
account alone in the United States. It is somewhat larger
than our figure, but he has more recent data and he said
the balances have increased since the date of our figures.
He said they do not include in their assets the
dollar balances held here on private account (our figures
show them to be about $290 million) inasmuch as the British
government had already reduced these dollar balances to
the minimum essential for the conduct of private business.
He also stated that the dollar balances of the dominions
and colonies would, he thought, be negligible. (Our data
shows about $120 million balances of British dominions and
colonies, exclusive of Canada, in the United States, #75 mil-
lion of which 1s reported as balances of Hong Kong.)
He stated that British balances in Canada are less
than Canadian balances in England, and British balances
in non-Empire countries outside of the United States were
negligible.
3. U.S. securities - $615,000,000
British holdings of American securities at current
market prices are about #615 million. In addition, Mr. Bewley
said, they have about $100 million of American securities
that are not readily marketable here.
227
- 2 -
He estimated that there might be $100 million of
Canadian securities held by the British that might be
marketable in New York. They have other Canadian securi-
ties, but their marketability he said was very doubtful.
In any case, England, he said, needs Canadian securities
to obtain Canadian dollars with which to help pay her
adverse balance to Canada.
3. British Direct Investments in the United States.
Mr. Bewley had no idea how much British investments
in American plants (not included in their security hold-
ings) amounted to and was dubious whether their liquidation
value would be substantial. He was also sceptical whether
such investments should be included among British foreign
exchange assets.
(Our Department of Commerce data estimated that British
direct investments as of September 1, 1939, amounted to
$833 million. These direct investments include ownership
of such concerns as American Viscose, Shell Union 011, Lever
Brothers, Dunlop Tire and Rubber Co., American Thread Co.,
American Potash and Chemical, Brown Williamson Tobacco Co.,
J. and P. Coates Co.)
4. British Holdings of Non-Empire Securities.
Mr. Bewley has no idea what these might amount to.
He said he did not believe his government had the informa-
tion. He doubted whether the liquidation value of such hold-
ings would be at all significant. He further was very doubt-
ful whether such holdings should be included in the foreign
exchange assets of the British Empire. He expressed doubt
whether anybody could tell how much such securities would be
worth.
(Our information is that such holdings are substantial.
One of the leading British authorities on this subject esti-
mated the liquidation value of British foreign investments
outside of the United States to have been at the end of 1938
over $10 billion. And these figures did not include direct
investments that the British had in various parts of the
world, and also excluded some other items that we might be
inclined to include.)
Regraded Unclassified
228
- 3 -
What the liquidation value of those securities would
be during the coming year is obviously a matter about which
there could be & good deal of difference of opinion. Their
investments in Latin America alone were estimated to have
been almost a billion and a half dollars by one authority,
and more than twice that amount by another source. The value
of their foreign holdings would, of course, be greatly modi-
fied by their prospects of victory.
5. Their estimate of the net outpayments for the coming
year seems rather high, but we do not have enough informa-
tion to check on it.
Their estimates of Empire gold production (exclusive
of Canada) is over $100 million less for the coming year
than our own estimates.
Their estimate that their income from service income
and interest account will not exceed their outgo on invisible
items is rather surprising, but again we do not as yet have
the information necessary to check their estimates.
229
July 17, 1940
MEMORANDUM FOR THE FILES:
Luncheon conference in the Secretary's office between
Sir Frederick Phillips, Mr. Purvis, Mr. Philip Young,
and Mr. Bell
The Secretary stated that he had been trying for some time to
bring together the loose ends of the British purchases in this
country as they are related to our National defense program. He has
found it rather difficult at times because of the lack of information
on foreign commitments in this country, and the insistence on the part
of our own National defense people that they go ahead with our program.
He said that Mr. Purvis has furnished him complete information as to
his activity, but all of the payments for account of the British
Government in the United States are not made through Purvis nor are they
charged to the special accounts of the British Government set up on the
books of the Federal Reserve Bank of New York. He asked me to explain
some of these discrepancies.
I explained that at the time we set up these British accounts
with the Federal Reserve Bank of New York, it was our purpose to
secure information from such accounts if we ever found ourselves in
a situation such as now exists. We thought that we would be able to
obtain complete information concerning British payments in this country.
but we now find that the figures which the Federal furnishes the Treasury
on the transactions in these accounts represent only from one-third to
one-half of the total expenditures which are reported from other sources.
Regraded Unclassified
230
- 2 -
Mr. Knoke pute these other figures in his weekly letter but we have not
yet ascertained from the Federal Just what are the sources of this
information.
I then explained the character of information in reports which
Mr. Purvis' organization furnishes Mr. Bass - that it is practically
the same information with respect to contracts entered into as was
furnished the Treasury during the World War, except that additional
information was furnished the Treasury in 1918 showing the payments
that had been made on account of the contracts entered into. I then
showed the Secretary a form I had drawn up during the morning which
will show (a) the total commitments in this country outstanding and
unliquidated as of July 1, 1940, for the countries of Great Britain,
Canada, Australia, South Africa, New Zealand, and India; (b) the net
changes from month to month in these contracts, that is, new contracts
and cancellations; (c) total commitments to be liquidated; (d) the
payments made on account since July 1, 1940; (a) the total amount due to
be liquidated in the future. Then there would be a number of columns
where the estimated payments for each month up to June 30, 1941, could
be included.
Mr. Purvis told Sir Frederick that it was quite important that
all of the British purchasing activities in the United States he
concentrated in his organization or that there be proper liaison with
his Commission. It could then furnish all the information that the
Secretary needs. He indicated quite plainly that he had had complete
cooperation from the Secretary of the Treasury and that if he had not
had this friend at Court where he could come for advice and counsel,
Regraded Unclassified
- 3 -
231
he would have been lost and would not have made as good progress as he
has. He told Sir Frederick that his organization was prepared to
compile the information the Secretary needed and submit it to him on
a monthly basis, if the other organizations not now operating through
the British Purchasing Commission could be brought under that organisa-
tion in some form or other.
The Secretary told Sir Frederick that it was quite important that
he have this information and he thinks it is something that he should
not be denied, in view of his responsibility in the matter. He said
he was being asked almost daily by Mr. Knudsen of the National Defense
Council whether the British can pay for the contracts that they were
allowing to go through. The Secretary stated that he does not see how
he can continue accepting this responsibility unless he has the informa-
tion asked for.
While there was nothing definite as to what could be done in the
matter, Sir Frederick intimated that he would look into it and sue what
could be done and straighten it out. He said he was quite aware of the
problems and thought it might be even necessary to establish an airline
between England and Canada 80 that the officials could get back and forth
to exchange information and straighten out problems of this kind. He
knew that Canada was having somewhat the same difficulty in its war
purchases and that there was a great need for concentration and
coordination of effort.
AWB
Regraded Unclassified
232
RE EXCESS PROFITS TAX
July 17, 1940
10:00 a.m.
Present:
Mr. Magill
Mr. Paul
Mr. Sullivan
Mr. Foley
Mrs Klotz
H.M.Jr:
This 1s the thought that I had on your
proposal yesterday. In order to give the
little fellow & break, it makes sense to
me that - to let the man with a hundred
thousand dollars capital or less have his
six percent but start - I would let it go
back.
Paul:
How about new money, Mr. Secretary?
H.M.Jr:
Do you see the point? I wouldn't raise it
to 12 percent. In other words, if we let
him have the six and the ten --
Paul:
On new money, the ten instead of the eight.
Sullivan:
He means six.
H.M.Jr:
Let it be between six and ten. In other
words, you are talking about a small fellow -
do you like it?
Foley:
Yes.
H.M.Jr:
You are talking about a small fellow - you
see, what they were going to do, they were
going to say the floor would be six in-
stead of four percent and let them make
twelve percent. I don't think twelve per-
cent - you talk about twelve percent - fits
so well with the country just now. I am
perfectly willing to make the distinction
that before - on the small man - you can
have your six percent, your overhead is
greater, and so forth and so on, and that
gives you that much edge on the big fellow,
but I can't quite see raising it from ten
to twelve before this thing is over. That
is the effect it has on me after I have
slept on it.
233
- 2 -
Paul:
What is your position, Mr. Morgenthau --
Magill:
I think that makes sense.
H.M.Jr:
Do you see what I mean, Mrs. Klotz?
Klotz:
Yes, I think it makes sense.
H.M.Jr:
Ed? In other words, the small man, sure,
"We will give you the edge on the big fellow
by two percent, but you all start - if you
have been making ten percent or more you
are all in the same class."
Paul:
Or if you have been making six percent or
more.
H.M.Jr:
Yes, but you give him an edge of two per-
cent.
Paul:
You give the man a two percent edge and if
he has been making less than six --
H.M.Jr:
Yes.
Klotz:
That is right.
Paul:
What about new money?
H.M.Jr:
You didn't talk about this yesterday.
Sullivan:
No, we didn't.
Paul:
The economists feel very strongly --
H.M.Jr:
But that wasn't mentioned yesterday. Before
we go on new money, what do you think of
this, what I am talking about, you, Randolph
Paul?
Paul:
I think we ought to do that. I am not in
disagreement at all. I am inclined to think
we should do B. little more than that, but
I am in the minority party, I think, on
that.
H.M.Jr:
Let me throw that at you and you can chew
that over. I can't quite stomach the
234
- 3 -
twelve percent but I think it is fair - in
other words, before he goes in we give him
a two percent better break than the big
fellow, I mean, the little fellow has more
expenses. He has got less --
Paul:
I think an argument applies to the man above
six, if he is small.
H.M.Jr:
Well, when it leaves my shop I would like the
jumping off place to be ten percent. I don't
want to go up and make & speech about it if
the small man pays any excess profits - that
if he pays them he is entitled to twelve per-
cent. I can't do it. You can't argue very
much with me on that.
Magill:
I think you are all right on that when you
see what that really means. Your six per-
cent in the case of somebody who has earnings
for three out of four years prior to 1940,
in which he has been making this record.
Now, if a smaller or larger corporation for
three years prior to 1940 has been making
ten percent every year, I don't weep any more
tears for them than you do. If he now starts
in making twelve or fifteen or something, why
shouldn't he come under this?
H.M.Jr:
That is right. I couldn't see - just because
a man is small, I don't see why he should be
permitted to make twelve percent before he
contributes anything, but I do think he should
get the break at the other end. What do you
think, Ed?
Foley:
I agree.
H.M.Jr:
John?
Sullivan:
Oh, I have been fighting all week for just
that position. Nobody else agreed with me
until you did.
H.M.Jr:
Well, I didn't understand you to say that
yesterday.
Regraded Unclassified
235
- 4 -
Sullivan:
I beg your pardon, sir,
Paul:
That is right.
Sullivan:
That has been my position all along.
H.M.Jr:
What?
Sullivan:
Raise the four to six and leave the top the
same.
Foley:
I think that was John's position.
H.M.Jr:
Did you say that yesterday?
Sullivan:
Yes. I couldn't have said anything else,
because that has been my position.
H.M.Jr:
Just for my own curiosity, would you (Reporter)
read it over and 800 whether Mr. Sullivan said
it in my office? Will you?
Sullivan:
I think that is the time I was competing with
the socks.
H.M.Jr:
Well anyway, if you did say it, you see how
it gradually soaks through 80 that I gradually
come around. I have been tossing in my bed
thinking about what Sullivan said.
Now, what about borrowed money? It takes a
little time for me --
Paul:
I don't wonder. I don't see how you get it
as quickly as you do.
H.M.Jr:
It is just - I don't --
Sullivan:
Now, there is one other phase of this that we
should clean up, I think, before we go on
borrowed money. Do you recall we discussed
yesterday the proposal of the economists in
which Mr. Paul shared that on earnings be-
tween the floor and the ceiling or the first
five hundred thousand dollars of capital,
there should be allowed one and B. half times --
236
- 5 -
H.M.Jr:
I couldn't get that. It is too complicated.
Paul:
That is out now, anyway.
Sullivan:
Well, I don't know. I just wanted to make
sure that it is.
Paul:
I understand the Secretary ruled that out.
Sullivan:
I have been against that all along, but you
came along with one and a quarter.
Magill:
His is quite simpler and much better.
H.M.Jr:
What?
Magill:
Yours is much simpler and much better.
H.M.Jr:
I think it is simpler and I would like to
have it leave the Treasury in that shape.
What they do upon the Hill is something else,
but I don't want - I would like to leave it
that way when it leaves the Treasury.
Sullivan:
Fine. Now, on borrowed money, the original
proposal was that new money was to be ad-
mitted at the rate of eight percent. The
economists in the case of the small corpora-
tions would like to have the eight raised
to twelve.
Paul:
This is on all money, John, borrowed or not.
Sullivan:
Whether it is borrowed or new money come in.
H.M.Jr:
I don't see why you make a distinction, just
as long a8 it is new capital.
Sullivan:
Well, a distinction has to be made later on
in the discussion, because we have different
treatment of borrowed money.
Pail:
I think we have to make & distinction, but
I think we ought to talk first about new
money, irrespective of whether it 1s borrowed.
Regraded Unclassified
237
- 6 -
Bullivan:
They say the small corporation should be
allowed to get in new money and have the
twelve percent exemption rather than the
eight in the case of the larger corpora-
tions.
You have two problems there. One is inducing
now money into small business where the risk
is admittedly greater and on the other side
you have the evasion problem, because if B.
concern can borrow for four percent or less
and you are allowing them twelve percent
exemption, then they are making eight per-
cent on whatever they borrow.
E.M.Jr:
What is the answer to that?
Sullivan:
Well, I would be willing to go along to ten
but I wouldn't be willing to go along to
twelve and I think the economists and I
think Randolph feels that it should be
twelve, don't you!
Paul:
Well, I don't feel very strongly about that,
I think ten is probably a good compromise
there.
H.N.Jr:
For & corporation of B. hundred thousand or
less.
Sullivan:
Well, we hadn't determined on the size.
E.S.Jr:
Give them a two percent break. Give them B.
two percent advantage.
Paul:
On the first hundred thousand - 1f it 1s a
borrowed capital question, but this applies
whether it 18 borrowed money or equity money.
In any event, if it is borrowed money, we
come to that question whether 1f it should
be borrowed money you would give them ten
percent exemption and they may be borrowing
at four or five percent.
Supposing B. man has a hundred thousand dollars
capital. That puts him in that class. But
supposing he borrows B. million dollars.
Regraded Unclassified
238
- 7 -
Paul:
Oh well, we are only talking about the first
hundred thousand dollars or whatever it may
be.
H.M.Jr:
Wait a minute, the man has & hundred thousand
dollars capital. How much are you going to
let him borrow under this special exemption?
Sullivan:
It would be until his assets get up to that
level.
H.M.Jr:
So that his combined assets and borrowed money
do not exceed a hundred thousand?
Sullivan:
That 1a right, and of course a hundred thousand
is too low for that. Wouldn't --
Magill:
I think the difficulty on this new money thing
is that we have got a head-on conflict between
two propositions. Personally, I don't see
how we can arrive at any compromise. On the
one hand, you know, as Randolph has said, that
whether by means of borrowing or by raising
equity, there is going to be an incentive to
corporations that are earning a higher rate
to get in more capital so that the rate will
be lower. If you encourage them to take in
new money, you just accelerate a movement that
will take place anyway and that you don't want.
On the other side of it, it is also true that
there are some corporations that you would
like to encourage to get in new money for
defense work and otherwise.
H.M.Jr:
You have brought out something new. Have you
people thought it through?
Magill:
No.
H.M.Jr:
Could I talk to you about this again when I
come back from the White House? I am going
over at 3:00. When I come back, Mrs. Klotz --
Paul:
I think your mind would be clearer on this
issue if we told you, provided you have
time at the moment, our borrowed capital
problem.
239
- 8 -
H.M.Jr:
I haven't, but I would have when I come
back from the White House.
Paul:
All right.
H.M.Jr:
All right?
Magill:
Okay.
H.M.Jr:
It will be sometime around half past 3:00.
Sullivan:
Now, should I give you --
H.H.Jr:
No. I would rather do it then. I would
rather take, if necessary, half or three
quarters of an hour at that time.
Magill:
I think it would be well - and this borrowed
capital 1s a thing we have discussed a good
deal, so if you could give us enough time
so that you could get it thoroughly in your
own mind --
H.M.Jr:
You can have all the time you need. I won't
make any other appointments.
Foley:
You will probably want to sleep on it, too,
but if you could give us the answer, what
you think it is, tomorrow morning --
H.M.Jr:
Well, if you let me soak it up this after-
noon and see how I get it - but these things
are terribly important.
Paul:
It is important that we get that borrowed
capital problem settled, because that is
holding up the drafting.
H.M.Jr:
Maybe we can settle it this afternoon. I
think you men ought to talk amongst your-
selves.
Sullivan:
If you have a half minute, there is one
thing I think I should tell you now. They
called up again from the National Defense
Council yesterday afternoon. They have
Regraded Unclassified
240
- 9 -
hired your friend Alvord and Prettyman and
they had a meeting yesterday. Ginsberg
called me and he is entirely with us and
he said that the purpose of the meeting was
so that the National Defense Council crowd
would have a united front when we sent the
bill over for approval before it went up
to the Hill and I told him we had no in-
tention of doing that.
H.M.Jr:
Wait a minute. Alvord and Prettyman? I
hired Prettyman.
Magill:
of course, you can't put the Treasury in
the position of submitting its work to the
Defense Council for approval.
H.M.Jr:
Who told you that?
Sullivan:
Ginsberg.
H.M.Jr:
Who is Ginsberg?
Sullivan:
He is an attorney over there.
Foley:
He is Ben Cohen's man.
Sullivan:
He is with us a hundred percent. He is a
grand fellow.
Paul:
I think --
H.M.Jr:
Well, I won't have to mention it. He said
that we are going to submit our own bill?
Sullivan:
They were told over there - Carl Adams is
the head of a committee to pass on our
excess profits bill. Now, Adams is the
fellow who was 80 unpleasant with Ed and
was unpleasant with Randolph.
Paul:
He tried to blitskrieg me over there.
H.M.Jr:
Carl Adams?
Sullivan:
That is right.
241
- 10 -
Faul:
He was pretty ugly.
(Telephone conversation with Mr. McReynolds
follows:)
Regraded Unclassified
242
July 17, 1940
10:35 a.m.
H.M.Jr:
Hello.
Wm. H.
McReynolds:
Good morning, sir.
H.M.Jr:
Mac, how are you?
McR:
First rate, thank you.
H.M.Jr:
Mac, I've just been told by the grapevine
that they've got a Committee over there which
Carl Adams is the Chairman of on taxation and
they have employed Mr. Alvord and Prettyman
as tax consultants 60 that when the Treasury
sends its excess profits bill over there they
can pass on it. Well, they're just crazy.
See?
MoR:
Yeah.
H.M.Jr:
And if they're going to hire Alvord and
Prettyman -- you were with me
.....
McR:
Yes, sir.
H.M.Jr:
and as we
......
McR:
I'll find out about it.
H.M.Jr:
Well, if they think we're going to send a
bill over there for their approval, they're
just crazier than I think they are.
McR:
Of course. I'll find out about it.
H.M.Jr:
And if they -- we'll treat them as we will
any other of the 130 million people. If they
want to come over and see Mr. Sullivan, he'll
see them.
McR:
Yeah.
H.M.Jr:
But for them to employ -- I've gone all through
that onee with a man by the name of Eccles
Regraded Unclassified
243
- 2 -
and I haven't got the time or disposition
to go through it and you'd better kill it
before I get angry.
MoR:
0. K.
H.M.Jr:
Because I haven't got time, Mac.
MoR:
Well, I don't want you to burn yourself up
80 I'll try and kill it before you get mad.
(Laughs).
H.M.Jr:
You know me.
MoR:
Yes, I do.
H.M.Jr:
Thank you.
McR:
Right-o.
244
- 11 -
Sullivan: Biggers phoned from Toledo and he wanted to
bring some fellow --
H.M.Jr:
Is that telling him?
Sullivan:
That is telling them swell.
245
RE EXCESS PROFITS TAX
July 17, 1940
4:15 p.m.
Present:
Mr. Magill
Mr. Sullivan
Mr. Paul
Mr. Foley
H.M.Jr:
If you fellows want a good laugh, Mr. Biggers
called me up that he wanted me to know per-
sonally that he was in charge of that tax
business and that some little fellow down
the line that sent for a couple of the boys
just to talk to them - but everything was
all right and he wasn't going to have anybody
like that running around the place and that
he was so appreciate of what we have done
that if we wanted anything - if they wanted
anything more done, they would just look to
me, but they weren't having any of these tax
fellows running around. So the little person
just made a mistake. He mentioned the man's
name. They were coming over to see you at
10:00 tomorrow.
Sullivan:
That is right.
Foley:
Who made the mistake, not Ginsberg?
H.M.Jr:
No, his name was mentioned but it was not
Ginsberg.
Sullivan:
Carl Adams?
H.M.Jr:
Yes, Carl Adams just didn't know what it was
all about. Now, when McReynolds called me
back at 2:30, he never talked to Biggers.
He talked to Stettinius and Knudsen about
this thing and told them there wasn't going
to be any monkey business, I wasn't going to
stand for it, and they said they were with
me, but Biggers sort of left the impression
that he would be very glad to have me submit
the stuff to him but nobody else was going
to interfere with it.
Sullivan:
He put that up to me, too, in a very smooth
way. He said, "I wouldn't think of having
those fellows look at an excess profits tax,
because they are really not with the Govern-
ment. He said, "I think it would be nice
- 2 -
if this fellow I spoke of from Toledo would
go over it," and I said, "I would be very
glad to go over the amortization with any-
body you name.
H.M.Jr:
Now, if we are going to show it to them we
might as well show it to Associated Press
and all the rest.
Sullivan:
I tization." guess you didn't hear me. I said "amor-
H.M.Jr:
I heard you. Did you hear me?
Sullivan:
Yes, I heard you. If you think you are
tough, take a look at my transcript when
I talked with these fellows.
H.M.Jr:
All right, I just wanted to make sure.
Sullivan:
Yes.
H.M.Jr:
All right. Who is teacher?
Magill:
Well, we have talked about - - Professor Sulli-
van is teacher. We have talked about --
H.M.Jr:
All right, go on, Magill.
Sullivan:
He is my substitute. I am on sabbatical.
Magill:
The Professor is still shuffling his papers,
H.M.Jr:
And they keep coming in in driblets. That
is what disturbs me.
Sullivan:
My God, you have never been able to take
care of what we bring in. You always say,
"Bring them back tomorrow."
H.M.Jr:
I wanted to give you a chance to get ready.
Sullivan:
We have been waiting a week.
Magill:
The thing we have talked mostly about that
needs B. decision is borrowed capital.
Regraded Unclassified
247
- 3 -
H.M.Jr:
Decision or incision?
Magill:
It needs an incision, too. The boys up
at the Capitol are apparently working on
the incision part.
The other thing we have talked about this
afternoon is consolidated returns. I
think the borrowed capital is the best one
to bring to your attention at this time
today, probably. I will tell it this way.
H.M.Jr:
These fellows who have worked for me a
little while know after 4:00 o'clock I
run downhill.
Magill:
We have no such idea at all.
Paul:
I am not 80 sure they don't run downhill
pretty fast, too.
Magill:
We have been running down since 2:00 o'clock.
H.M.Jr:
And I am running down easier than I used to.
Magill:
And Randolph Paul and I had lobster for lunch,
80 we have been in bad shape all afternoon.
H.M.Jr:
What did you wash it down with?
Sullivan:
Buttermilk.
H.M.Jr:
And lobster? Gentlemen, that is terrible.
Magill:
It is very good.
H.M.Jr:
Is it?
Magill:
Sure, it is just churning around there in
good shape.
Sullivan:
Listen, I have got a deadline on Monday on
this bill.
Magill:
To digress for a moment, speaking of borrowed
capital, the economists have been of the
248
- 4 -
view, I think, Blough and Shoup, that
borrowed capital clearly should be in-
cluded in invested capital, certainly
in the case of the smaller concerns --
H.M.Jr:
(Smoking one of Mr. Sullivan's cigarettes)
Wowt Gentlemen, this is mouth wash. That
18 a dirty trick.
Sullivan:
That got rid of that 4:00 o'clock feeling
quick, didn't it?
Magill:
They think that borrowed capital ought to
be a part of the invested capital, cer-
tainly in the case of the small concern.
The points, I think, are essentially these,
that first of all - I had better add this.
By borrowed capital, we mean capital that
was borrowed on an interest-bearing obliga-
tion of some sort, whether it is a note or
a bond or anything like that, but whether
a short term note or bond, but we do not
mean to include such things as accounts
payable. It would be simply interest-bear-
ing obligations of one sort or another.
It appears that, looking at the figures,
concerns in the various income classes
borrow a pretty uniform amount in relation
to their invested capital straight along
through, no matter what their size. The
hardship of excluding borrowed capital,
borrowed money, from invested capital would
apparently be greater in the case of the
smaller concerns than in the case of the
larger ones and another thing they have
in mind is the fact that if we have got
a small corporation of some sort that
wants to expand, we share the view that it
would be very difficult in these times for
it to expand in any other way than by
borrowing money, that it probably couldn't
acquire additional capital in any consider-
able amount by means of stock issues.
Well, that has lead us, I think, to &
reasonably clear agreement. Paul has
Regraded Unclassified
249
- 5 -
some reservations but I think the rest of
us are pretty well --
Paul:
My reservations are only on the bigger --
Magill:
The plan we have in mind to offer to you
is this, that if the corporation has less
than a hundred thousand dollars in capital --
Sullivan:
Including borrowings.
Magill:
I was going to state it the other way. If
it has under a hundred thousand dollars,
it shall be able to include its borrowings
and interest-bearing obligations up to &
hundred thousand dollars, a hundred per-
cent, in invested capital.
H.M.Jr:
Say that again, will you, Ros?
Magill:
If the company has less than a hundred thou-
sand dollars in its capital stock, we will
say that it shall be able to include borrowed
money up to a hundred thousand dollars.
H.M.Jr:
A hundred thousand of borrowed money in addi-
tion or the two together?
Sullivan:
If the company has sixty thousand, it can
borrow forty.
Magill:
Then between a hundred thousand and a million,
allow borrowed money to be included to the
extent of two-thirds the amount and above
a million, the extent is only one-third.
H.M.Jr:
Now wait a second. A hundred thousand or
under, you allow what?
Magill:
A hundred percent.
H.M.Jr:
A hundred percent what?
Magill:
Includes borrowed capital.
250
- 6 -
H.M.Jr:
So it would be six percent?
Sullivan:
No sir, it would be - in the case of the
large --
H.M.Jr:
I mean, if it is a hundred thousand dollars.
It wouldn't begin to pay until it was six.
Sullivan:
No --
Magill:
Put it this way. If a company had sixty
thousand dollars of capital stock and forty
thousand dollars of notes and bonds so it
had a total of a hundred thousand dollars,
you would let them treat that as their
base for invested capital purposes 80 if
they had earned, let's say, eight percent -
well, I will put it this way. If they
had earned eight thousand dollars a year,
you would treat them as earning eight per-
cent on their investment, you see.
H.M.Jr:
I see.
Magill:
As distinguished from treating them - what-
ever eight thousand dollars on sixty thou-
sand dollars capital stock would be. Then
from a hundred thousand to a million, out
them down to two-thirds of the borrowed
money. The reason for the outting down is
this, that it is the consensus that companies
find it easier to borrow money as they get
bigger and further, can borrow money at
lower rates of interest than we --
Paul:
Also they aren't so unable to get money by
equity financing.
Magill:
Yes, they can get equity financing more
easily and we want to try to draw this
thing in such a way that we don't too much
encourage firms to go out and borrow money
which they don't need, for the sake of
reducing their excess profits.
H.M.Jr:
I think it sounds good.
Regraded Unclassified
251
- 7 -
Paul:
One-half is your figure.
Sullivan:
No, above one-third. You see, new money
for big corporations comes in at eight
percent and if you are only allowing it at
one-third, there is two and two-thirds
percent, so nobody is borrowing money
much cheaper than that.
H.M.Jr:
I think it sounds all right.
Sullivan:
Now, in addition to that, we are allowing
them to deduct the interest on that part
of the borrowings which we do not admit
to the base.
H.M.Jr:
Why do you do that?
Sullivan:
To even it up.
H.M.Jr:
Explain it, give me an example.
Sullivan:
All right. Here is a company that is in
this class that is over the million dollars
and it borrows three million dollars. Now,
we are allowing one million dollars of that
to be admitted to the base and we are allow-
ing their interest charges on the other two
million to be deducted.
H.M.Jr:
As what?
Magill:
Well, the interest deduction for income tax
purposes at present is, you might say, a
hundred percent deduction.
H.M.Jr:
The interest on what?
Sullivan:
On the two million, on the two-thirds, which
is not --
H.M.Jr:
Do you allow that to be deducted --
Sullivan:
As a charge against the current expenditures.
Paul:
Put it the other way, to the extent that a
person is getting borrowed capital, he is
252
- 8 -
not allowed an interest deduction. In
other words, a man can't get out of the
two. If he is going to take borrowed
capital and invested capital to that ex-
tent, he must be denied the interest de-
duction on that borrowed capital.
Magill:
Take the - I think we will start with a
little case first. We are going to let
them include it a hundred percent if they
are under a hundred thousand dollars, see.
Well now, suppose you had here a fellow
that had eighty thousand dollars invested
in capital stock in his company and he
didn't have any loans at all. Well now,
if you said to him, "If you borrow money
you can include that in your invested
capital and you can also deduct the in-
terest on the loan," there would be that
double incentive to borrow money.
H.M.Jr:
I am not going to take time. Do you fellows
all say it is fair?
Sullivan:
Yes.
Paul:
I just want to say this. There is one place --
H.M.Jr:
I okay it now if you all say it is fair.
Are you together?
Foley:
Yes.
Paul:
I just want you to understand that I have
some few misgivings. I would be inclined
to be a little tougher in the upper amounts,
particularly above a million. I just have
a general feeling that 8. third is too large
and it ought to be a quarter, but the general
idea, I would accept.
H.M.Jr:
Well, Randolph, if I may say it, all of these
things, if they are fairly fair, when we get
down to whether it is a third or a quarter
and an eighth, I think all we can do is get
the principle right.
Paul:
The principle is all right.
Regraded Unclassified
253
- 9 -
H.M.Jr:
If it is all right - a third sounds all
right, a quarter sounds all right; I don't
give a damn. This other thing - I want
to understand it tomorrow and I am not
going to hold you up tonight.
Sullivan:
There is just one other wrinkle in this
phase of the work and that is that on
corporations --
H.M.Jr:
I want that explained to me tomorrow. I
don't have time tonight.
Sullivan:
Yes, sir. On corporations with less than
a hundred thousand dollars, the rate at
which the borrowed money is to be admitted
is to be ten percent as against the eight
percent on the larger corporations.
H.M.Jr:
Say it again.
Sullivan:
The company with less than a hundred thou-
sand is --
H.M.Jr:
The rate is to be eight.
Sullivan:
Is to be ten percent, rather than the eight
percent that we agreed to.
H.M.Jr:
That is all right. I said that this morning.
Paul:
That is the same thing.
Sullivan:
The other two matters we wanted to discuss
with you were the consolidated returns for
excess profits tax purposes and the exemption
of intercorporate dividends on these consoli-
dated companies.
H.M.Jr:
I can't see why that has to be changed now.
Sullivan:
This isn't changing the income tax. They
still do not file consolidated returns for
any --
H.M.Jr:
But they must --
Regraded Unclassified
254
- 10 -
Magill:
The question, I think - I gave this illus-
tration in there and I think it makes a
point for your purposes. I presume the
DuPont Company has a number of operating
subsidiaries of one sort or another.
H.M.Jr:
They make one return, don't they?
Magill:
No, they don't now. The Treasury has
taken the position, as we were saying up
at the farm, I think, that consolidated
returns should be allowed for income tax
purposes but they are not at present except
in the case of railroads and one or two
other classes of companies.
H.M.Jr:
Make a return for each subsidiary?
Paul:
That is the way they do now.
Magill:
Now, for invested capital purposes I think
it is even more important that they should
be allowed to make consolidated returns
and we discussed that with you, you remem-
ber --
H.M.Jr:
Let me just - letting them do it for excess,
wouldn't that be a lever to make them do
it the other way, too?
Sullivan:
Yes.
Magill:
Now, the question of the intercorporate
dividends, you can see it in this way.
Suppose then we say that if the DuPont
organization consists of companies A, B,
C and D, those should be allowed to make a
consolidated return. Now, DuPont is re-
puted to own about 25% of General Motors
stock. Well, that wouldn't be in the con-
solidated group because it is too small an
ownership where you require 95% ownership.
Should you say, however, that the inter-
corporate dividend tax is to apply, so
that when General Motors declares divi-
dends to its stockholders, including
Regraded Unclassified
Regraded 255 Un
- 11 -
DuPont, that DuPont has to pay a tax to
some degree on these General Motors divi-
dends, even though it distributes them at
once to --
H.M.Jr:
I never could see a consolidated return
but I always felt that it was & method of
tax avoidance.
Paul:
It started as a way of preventing tax
avoidance. That is the reason in the
committee reports for allowing consolidated
returns under the old excess profits tax.
H.M.Jr:
Let me ask you again, because I don't want
to hold you up unnecessarily. Is everybody
for this thing?
Foley:
For consolidated returns.
Magill:
We are for consolidated returns, I think,
isn't that so?
Paul:
Yes, we all are.
Sullivan:
I don't think Ed is, though.
Foley:
I am not completely sold, but these fellows
know & lot more about it than I do, Mr. Secre-
tary.
H.M.Jr:
Are you for this, Paul?
Paul:
I am for consolidated returns and I an for
not taxing intercorporate dividends but not
permitting the stock to be admissible assets.
I don't think that question of intercorporate
dividends amounts to much.
H.M.Jr:
Let me put it this way. I am not - if you
can get a three to four vote out of this
crowd, that is good enough, and you can
leave me out of it. That is fair, isn't it?
Foley:
If three of you are for it, I will have to
go along. This thing has got to keep flowing.
256
- 12 -
I can't give it the time.
Sullivan:
Blough and Shoup and Tarleau and Ros and
Randolph were all for it when we met in
New York. I was the only one who had any
reservations on it and I deferred to their
good judgment.
H.M.Jr:
You have got to sell Ed on this thing. He
has got a 25% vote.
Paul:
Well, he is easy.
H.M.Jr:
Well --
Magill:
We will give it some thought, Ed.
H.M.Jr:
I will leave it this way with you. If you
can get a three to four vote on this thing,
that is fair enough. I don't need to have
it unanimous, but get a three to four vote
and if Ed feels strongly enough about it,
then I am going to ask you to hold it up
and I will go over it myself. If you think
this is a major mistake, Ed, I want to go
into it. If you feel, well, like that,
all right, but if you think it is a major
mistake - because I want to know. If you
say, "Well, the boss ought to know this
thing, this is a real mistake and I can't
go along," I will sit in with you tomorrow,
but if you are just undecided, let her go,
Some time I want to know what it is all
about.
Paul:
When do you want us to go into that ques-
tion? You said you wanted to discuss
tomorrow the question of the interest on
this borrowed capital.
H.M.Jr:
Oh, you fellows do it. I can't. Just go
ahead. I have been holding you up too
much.
Sullivan:
Have you any idea when we are going to
know how much money is wanted to be
raised?
257
- 13 -
H.M.Jr:
No.
Magill:
I don't see how you can tell them.
Paul:
You can tell them very approximate figures.
H.M.Jr:
I would say between one and two billion
dollars.
Sullivant
That looks pretty high from the figures
given us.
Magill:
Why can't you tell them this --
H.M.Jr:
Let me do that again tomorrow.
Magill:
Why can't you tell them it all depends on
how tough they want to be?
H.M.Jr:
I will do it tomorrow.
258
MEMORANDUM
July 17, 1940.
TO:
Secretary Morgenthau
FROM: Mr. Sullivan
After meeting with you this afternoon Messrs.
Foley, Magill, Paul and I discussed the question of
consolidated returns and the exemption of inter-
corporate dividends for purposes of excess profits
taxes only.
We unanimously agreed that for excess profits
tax purposes consolidated returns should be permitted
and that inter-corporate dividends should not be taxed.
The reason we are adverse to taxing inter-corporate divi-
dends is that if we do, we will then have to admit to
invested capital the value of the stock upon which the
dividends are being paid. Such an increase in the in-
vested capital would seriously reduce the revenue we
hope the excess profits tax act will yield.
JLS
259
RE DEPARTURE PERMITS
July 17, 1940
4:00 p.m.
Present:
Mr. Foley
Mr. Thompson
Mrs. Klots
H.M.Jr:
I have got one fellow I can count on to do
this shipping business and he isn't here
now. I can't switch five times a day to
somebody else. Where is he? Herbert is
sick. Every day I get a new man on this
shipping business.
Foley:
Well, I don't know about every day getting
a new man. Huntington has been doing it
ever since --
H.M.Jr:
Every day somebody else gives me another
report.
Foley:
That is because he doesn't attend your meet-
ings, sir.
H.M.Jr:
Where is he?
Foley:
He asked me if he could take the afternoon
off.
H.M.Jr:
But Gaston is sick and he should be here.
When Mr. Gaston comes back, who is there,
some one person who will work the same hours
that I do on this shipping business? I want
some one person to show enough interest.
Thompson:
Well, Mr. Gaston headed it up and in his
absence it was to be headed up by Huntington
and Foley.
H.M.Jr:
I have no report on what happened on that
business in Texas.
Foley:
There it is. There is a report attached to
that memorandum.
H.M.Jr:
He should be here. You work the same hours
that I do. What is all this, boiled down?
Foley:
Well, they said they were still considering
the question of reimbursement through sale
260
- 2 -
of lubricating products. They submitted
their requirements under the contract.
They submitted what they thought were normal
peacetime requirements for Spain and they
left it all with us. They said they would
go along with anything we wanted.
H.M.Jr:
I didn't know Huntington was away. I just
was called in a conference to decide that
Huntington - should he do this when Gaston
came back or not. I didn't know that. That
is why Norman Thompson is here. Then I get
the answer he is gone for the day.
Foley:
Well, his father is very sick. He is dying
over in Baltimore and he had to go. He said
he would like to get out in the country and
get freshened up a little bit and I said it
was all right.
H.M.Jr:
Who should do this when Gaston gets back? I
want any time during the day or night to be
able to call on somebody and I don't think
Gaston can do it.
Thompson:
Well, I think probably we can arrange between
Gaston and Cairus.
H.M.Jr:
Yes, but I want one person to follow this
for me. How busy is Cairns?
Foley:
Oh, he is not too busy that he can't do this.
H.M.Jr:
Well, I think until we get this thing
straightened out, he ought to do it.
Foley:
All right.
H.M.Jr:
Don't you?
Thompson:
I think he is the best man --
H.M.Jr:
He can report to Gaston and me, but I can't
put the pressure on Gaston. He can't take
1t.
(Telephone conversation with J. Edgar Hoover
follows:)
Regraded Unclassified
261
July 17, 1940
4:11 p.m.
H.M.Jr:
Hello.
J. Edgar
Hoover:
Hello.
H.M.Jr:
Mr. Hoover.
H:
Yes.
H.M.Jr:
How-do-you-do.
H:
How're you today?
H.M.Jr:
Say, I've got a nice one for you.
H:
What is that?
H.M.Jr:
The Allied Purchasing Mission.
H:
Yeah.
H.M.Jr:
The French are packing up some guns that
we need and some plans and I want -- Mr. Purvis,
who's chairman of it, has agreed that he'll
take one of your top men as his assistant
to watch this thing for us, and we just don't
want that stuff to get out of the country.
H:
Yes.
H.M.Jr:
Now, the point is, they're going to move it
over to the French Consulate and when it
gete over there, it's too late. How about it?
Do you want to take this on?
H:
I think we can do it.
H.M.Jr:
Well, at least - I don't know. Maybe when
the guns and the plans move they may never get
to the Consulate -- they may get down to the
War Department or something, and that's where
I want them to go.
H:
Exactly. Exactly.
262
- 2 -
H.M.Jr:
Something. A little highway robbery or .....
H:
I think I can -- I think almost anything is
justified at this time.
H.M.Jr:
I think 80 because this 1s stuff that we
want and I want to keep it here for the
Army.
H:
Certainly. Well, now, who shall we get in
touch with, Mr. Secretary.
H.M.Jr:
Well, he's here in town -- in the Treasury
now.
H:
That 1s, Purvis is.
H.M.Jr:
Purvis is -- he's in the Treasury in a
conference down my hall.
H:
What I have in mind, I'd have Mr. Forworth
of my office here who is handling the Foreign
Intelligence for me now to see him.
H.M.Jr:
Well, if Foxworth could come here immediately
H:
I'll have him come to your office right away.
H.M.Jr:
To my office.
H:
To your office. He's the Assistant Director
here that I've put in charge of this special
intelligence work.
H.M.Jr:
Well, I could have the two of them if he could
come over at once.
H:
I'll have him right away.
H.M.Jr:
I'll have Mr. Purvis in. He's down the hall
in a meeting.
H:
I'll have his there right away.
H.M.Jr:
Two of them could arrange it, but a little
something like what you -- you know -- Panama.
263
- 3 -
H:
Yes. Well, exactly and the same thing we
did in the last war with regard to the Swiss
know. documents down at the Swies Consulate, you
H.M.Jr:
But they'll cooperate and they'll know
what's important and what isn't.
H:
Yes, yes. Well, it may just accidentally
get lost somewhere, you know.
H.M.Jr:
Yeah. But it's just silly to have these
things shipped over there.
H:
Well, it certainly 1s. To my mind that kind
of thing is just fatal to our future defense.
H.M.Jr:
Right.
H:
The isolationists or not to the contrary.
We've got to realize that this is on a world-
wide basis, I think. Now, this other situation
here at Washington - -- you know, the one you
spoke to me about.
H.M.Jr:
Right.
H:
We're working on both of those places, 80
we'll be getting material now.
H.M.Jr:
Oh, are they in effect?
H:
Yes, they're in effect today.
H.M.Jr:
Good.
H:
Yes. We had some technical difficulty of
actually making the connection there because
it had to be done very quietly, but we've got
that thing now well sewed up. Bo we ought to
have some angle on that end this next week --
that is not later than Monday, I hope to have
this whole radio thing ironed out.
H.M.Jr:
Fine.
H:
Is Gaston back on the job, Mr. Secretary.
H.M.Jr:
He'll be back Monday morning.
264
- 4 -
H:
Fine, because I naturally want his -- I would
like to have him sit in for your Department
on it.
H.M.Jr:
He'll be back Monday.
H:
My idea was that those of us who are really
thinking the same way get together and get
a united plan and then we may do a Blitzkrieg
on the F.C.C.
H.M.Jr:
Fine.
H:
Because if we are not in unity on what we
want done before we go after that F.C.C.,
they'll try all kinds of things on us.
H.M.Jr:
Right.
H:
I don't think they have any ulterior motive,
but they're just not practical, you know.
H.M.Jr:
Will you let Fox -- what's -- Foxeroft
......
H:
No. Foxworth.
H.M.Jr:
Foxworth -- let his come over?
H:
I'll have him over at your place within the
next ten minutes.
H.M.Jr:
Thank you.
H:
Fine. Good-bye.
265
- 3 -
H.M.Jr:
They have got some plans and some guns
there and these fellows are going to
get this stuff out tonight or tomorrow.
That is what that man is coming for. I
am not going to wait. I am going to put
an FBI man in there tomorrow morning.
Klots:
Is that what he wanted to see you about?
H.M.Jr:
I think 80.
Klotz:
It is just as well you postponed it.
H.M.Jr:
If it is by tomorrow morning, there will
be somebody in there and when these plans
and guns move out - they have got the latest
French Hotchkiss and they have actually got
the guns. They are moving it over to the
French Consulate.
Foley:
Where, New York?
H.M.Jr:
Yes. It will arrive up at - what is the
island down there?
Foley:
Ellis?
H.M.Jr:
No, the other one.
Foley:
Oh, Governor's?
H.M.Jr:
Governor's. Needless to say, I don't expect
to read about this in Pearson and Allen.
Klotz:
Alsop and Kintner.
H.M.Jr:
Don't you tell this to Alsop; I want to tell
it to him.
Foley:
Do you see him today?
H.M.Jr:
No.
Foley:
Well, there is a man at Cairns' desk. He is
there and he knows everything that Cairns
is doing.
Regraded Unclassified
266
- 4 -
H.M.Jr:
All right.
Foley:
Cairns has been here every Saturday.
H.M.Jr:
All right. We will fix up a little something
that Cairns will service Mr. Foley and me.
I want a memorandum and also something 80 it
will also go to Gaston, but the point is, I
don't know how well Gaston is. Foley takes
it and he gets fat on me and I don't know
whether Gaston can take it or not. All right.
267
PARAPHRASE OF TELEGRAM RECEIVED
FROM: American Legation, Kaunas
NO.: 156
DATE: July 17, 1940, 9 a.m.
I have received confidential information to the
effect that it is possible that England will follow the
example of the United States and freeze the $5,000,000
in gold which is on deposit in London. On July 16
after announcement was made here that Baltic credits
in the United States had been frozen, Dekanosov,
Assistant Commissar for Foreign Affairs of the Soviet
Union, hurried to Moscow to secure instructions.
When business was opened this morning, a rate for
the dollar was not quoted by local banks.
A copy of this message has been sent to Moscow.
NOREM
EA:EB
268
DEPARTMENT OF STATE
Washington
July 17. 1940
My dear Mr. Secretary:
Let me acknowledge your letter of July 6th
relating to the applications received by the
Treasury Department for licenses which would per-
mit the transfer to Norway, and in a few cases to
the other countries covered by Executive Order No.
8389 of April 10, 1940, as amended, of funds belong-
ing to persons residing in this country, which funds
are to be used for the support of relatives and
friends in the countries covered by that Executive
Order. I note that in most of the cases the amount
to be sent to any one person is not in excess of
$100 per month.
In the view of the Department of State, there is
no objection to the licensing of such transactions,
especially if precautions can be taken to assure that
the funds in question reach the individuals for whom
they are intended.
Sincerely yours,
(Signed) Cordell Hull
The Honorable
Henry Morgenthau, Jr.,
Secretary of the Treasury.
(COPY)
el
269
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 17, 1940
TO
Secretary Morgenthau
FROM
Mr. Cairns
MERCHANT SHIP MOVEMENTS
Closed Cases
1. A departure permit was refused for the American Tanker
ARYAN, carrying petroleum products to Spain. This vessel is
owned by the Texas Company, and 1a at Port Arthur, Texas.
2. A departure permit was refused for the American Tanker
NEVADA, carrying petroleum products to Spain. This vessel is
owned by the Texas Company, and is at Port Arthur, Texas.
Pending Cases
1. The Texas Company has submitted a request to export
610,000 tons of petroleum products to Spain for the balance of
the year 1940. This would make a grand total of 1,076,000 tons
for the year 1940. A memorandum of a conference with representa-
tives of the Texas Company held on July 17, 1940, is attached.
This matter is under consideration.
2. The Texas Company has requested advice as to whether or
not the SS MONTE JAVALON, under Spanish registry, will be permitted
to carry 5,000 tons of asphalt to Spain. The vessel will be loaded
at Port Neches, Texas, some time between August 10 and the early
part of September. This matter is under consideration.
3. Suspicious circumstances have arisen in connection with
the departure of the SIMLA, a Norwegian vessel now at the port
of Philadelphia. No departure permit has been requested, but a
stop order has been placed against such a request when it is
received.
4. The Lithuanian Steamship DENNY is now in Boston. The
Lithuanian-American Import & Export Corporation, 157 Chambers
Street, New York City, has requested that it be advised if a
departure permit is asked for this vessel. The corporation
desires to submit certain facts to the Treasury Department before
such permit is granted. This matter is under consideration.
Hurtington Came
270
Regraded Un
July 17, 1940
A conference was held in Mr. Cairns' office at 9:30 a.m.
with T. E. Buchanan, General Manager, Marine Department, Texas
Company, L. A. Morioca, Assistant to the Management, Export Depart-
ment, Texas Company, and Mr. Feidler. Mr. Moricoa stated that
Spanish imports of petroleum products for the years 1930 to 1935
were as follows:
1930
725,000 tons
1931
759,000 tons
1932
799,000 tons
1933
758,000 tons
1934
815,000 tons
1935
881,000 tons
He stated that for the first six months of 1940 the Teras Company had
sent 432,000 tons, and that during the present month, 34,000 tona had
been sent. The estimated requirements for the balance of the year 1940
are 610,000 tons, making a grand total of 1,076,000 for the year 1940.
The balance of 610,000 tons for the remaining six months of 1940 will
probably be spread evenly, depending upon the availability of ships and
the requirements of the Spanish Government.
The Texas Company wishes to know if the SS MONTE JAVALON
under Spanish registry will be permitted to carry 5,000 tons of asphalt
to Spain. The vessel will be loaded at Port Neches, Texas, at some
time between August 10 and the early part of September. Preparations
for loading, however, have to be made well in advance, and the company
does not wish to embark upon the work without an assurence that departure
permit will be issued.
Mr. Buchanan stated that the offer to mitigate any loss arising
out of the refusal to issue departure permits for the NEVADA and the
ARYAN was still under consideration by the Texas Company, but he did
not believe it would be accepted. He said that the company was not so
much interested in disposing of additional oil as in fulfilling the
obligations of the contract with the Spanish monopoly. Mr. Buchanan
added that, if the Texas Company lost this contract, it would be
probable that the Spanish monopoly would look to Russia and Rumania
for oil supplies.
The representatives of the Texas Company were advised that 4
decision would be made as promptly as possible.
271
Secretary Morgesthen
July 17, 1940
Mr. Cairus
MERCHANT SHIP NOVEMENTS
Closed Cases
1. A departure permit - refused for the American Tasker
AREAN, carrying petrolem products to Spain. This vessel is
emed by the Texas Company, at is at Port Artimer, Temas.
2. A departure permit w refused for the American Teaker
NEVADA, carrying petroleum products to Spain. This vessel is
enned by the Texas Company, and is at Fort Arthur, Tems.
Pending Onces
1. The Terms Company Ins. submitted a request to export
610,000 tome of petroleum products to Spain for the balance of
the year 1940. This would make a gread total of 1,076,000 tous
for the year 1940. A american of a sunference with represents-
tives of the Teams Company hald en July 17, 1940, is attenhed.
This matter is under consideration.
2. The Taxas Company has requested advice as to whether or
not the as MONTH JAVALON, under Spenish registry, will be permitted
to earry 5,000 tons of asphalt to Spain. The vessel will be loaded
at Pert Neeber, Terms, - time between August 10 end the early
part of Boytomber. This matter is under consideration.
2 Surpleious eizematences have arisen is connection with
the departure of the SINLA, a Normagian vessel now at the part
of Philadelphia. No departure pendit has boen requested, but a
step erder has been placed against sush a request when it is
reseived.
4. The Lithmaine Steenship DESIGNT is new in Boston. The
Import & Export Corporation, 157 Chambers
Street, Rev York City, has requested that it be advised if a
departure permit is asket for this vessel. The corporation
desires to submit certain facts to the Treasury Department before
such permit is granted. This natter is under consideration.
MS/ep
(Signed) Huntington Cairna
Regraded Unclassified
21 272
July 17. 1940
In behalf of the Import 4 Export
Corporation, of New York 02270 I would like to appriso the Department
of the Treasury of the following factor
that the said corporation is the general agent representing
the original cupers of the Steenship DEMONT, now lying in the Sector
Harber. This vessel had been asquired in New Orlems in March, 1940,
with the funds furnished by the Import & Export
Corporation. Since that time, the ship has mot been out of American
and is has been is the Booton Harber since April, 1940, to
to the inability to call to its port of destination - Riga, Latvis,
During that period, the wages of the - expenses and
repaire and other expenditures in the upicsep of that ship had been
furnished by the Import end Export Corporation.
Before that ship is permitted to leave the port at Booton, you would
like to be netified so that - opportunity may be given to present
all the cerential faste in semession with the purchase, the upkeep,
and the preservation of the said steemship. No believe that the tuote
we have is our pessecsion say be of extreme importance before &
decision is nute w your Department permitting the deporture of that
ship to any other part, to therefore request you to send a notice of
my application to your Department for the sailing of that ship out
of the Deston part, to Mr. Leepold Origonis, President of the
Lithmanism-Amerions Import à Export Corporation, 157 Chambers Street,
New York city, of Mr. Authony Oswald Shallan, Atterney end Counceller
at Law, 366 5. Broodmy, Borton, Massachusetts.
It night be added that the said corporation had furnished the
twis, care and interest for the safety of the said skip and the pro-
cervation of the assets in commertion with that investment is the
purchase of the stay from that date to the present time.
Regraded Unclassified
#0273
Bouretary begation
JUL 17 194G
If Rear
the Landon Nonember in its 1 of June 25, 2000 has - critide entitled
% theck - Production* which criticines the use of Instruct - in Registed
- their expectance provents them tre being and them their
insempable solf-interust to a any on - which to unded to rales
- production of asteriate of - & - doal of watt is and about the
I I # I % 1 I re I s I I
complete failure of Ideas which the trate asseciation from & body of
logality, a complete is the restrict of - date a furrewed -
sentality of the nate* is applicable to our prosect problems of antional defence.
Specing of the not of Issue - has destinated - esmante philosophy of the
decomentive Party, - consitures
49 n to a - of I that is advirable to obtaining already consulty,
at
I
1
for
these
I
in
the
industry-nt
of
an
involusible
bady
of
1
1
a
not
of
Mate
$
-
to
expected
w the endown of production, w to give the combry wealth is
yease and strength is -
- the - beste 1 and 10 I object to that all
1
the
1
I
had
become
the
-
I
I
carried
the
Wishout
politive
the
1
organized
industry)
the
(
from
¥
I
of
the
State.
the
1
i
I
8
1
-
cortain
as
a
diaggish
targe
of
I
prosible.
with
interesty,
i
-
I
tem
the
3
there
I
- of unpatation or w the profit-anking in thing - the controry, burdenes
have done their best. m the result has bees was M - startling
impossible position of divided legultine and
Regraded Unclassified
of 274
indepency of production, what - formally propheay to - thats
the - who m the existing organications of their infestries have
not been the best - to organics their industries the - The heat
Instruct Inc. 1 I I s 26 I I I 1 1
uses. Both is taske and is circust (so take only the - outstant-
ing - the extating rings have failed to produce the goods and,
sine nomber too late, outsiders have had to be brought inco
the above quotation ingreets that the activities of John Biggers, Macky
Smith and Lewyer Alward had thair counterparts in Magland, with corry results
with which we are all funiliar.
(Initialed) E.H. F., Jr,
CLKst
7-17-40
Regraded Unclassified
RD 275
JUL 17 1940
my dear Mr.
There are transmitted to you hereith too
expire of letter dated July 15, 1940, and enclosures,
the the Federal Incorre Bank of the York relative to
assomite which 10 has opened 48 the backs is the man
of the British Government. 20 to requested that you
fealsh B copy of such letter and enclosures to the
Britten Government.
Very truly yours,
(Signed) D. W. BELL
Acting Secretary of the Treasury.
The Memorable
The Secretary of State.
Reclesures.
Mallen
7/19/40
Init: BB:HMC
COPY
gl. 276
Federal Receive Bank of Yes York
Regraded Uncla
July 15, 1940
12 A M9
w dear WSS Secretary:
3HT 70 30mg receipt is of the letter of the Asting Secretary
YRAYER dated day 12, 1940, and of its emplosure, a photociatic
- grinter dated July 12, 1940, addressed to the Treasury Department
by the Secretary of state, relative to the opening and minteining of
essente at this bank is the - of the British Gevernment and treasfore
thereto of the deller balances and gold from accounts is the - of the
Denk of Regland.
Is accerdance with the instructions of the Brittsh Government as not
forth is the letter of the Scoretary of state, and is conservance with
cable instructions proviously reselved from the Bank of Ingland is its
eable M. 505/40, of Im 20, 1940, VI eyened assounts on our besite for
and is the name of the Brittsh Government, and mis transfers to as -
commie, at the close of business en July 12, 1940, as follows:
Vs opened a dollar assount designated His Pritencie Majesty's
deverament Current Assess , and credited $2,909,765.12 there-
to w transfer free the servent designated Bank of England
Account 7, this amount being the balance is the latter account
immediately prior to mah transfer:
We eyeand a dollar assesst designated Be Majesty's
Covernment Current Assesst 4 and credited 127,760,902.56 there-
to by transfer from the accurat designated Bank of Regiant
Account 6, this amount being the balance in the latter account
imediately prior to such transfer:
We spened a dollar account designated Me Britennie Majosty's
Government Special Account A and credited $21,146,171.98 theye-
to w transfer from the assess designated Bank of Regless
Account 4. this amount being the belance is the Intter account
imediately prior to each transfer: and
Ve opened a gold account designated Be Dritensic Majesty's
Government - 3 Account and transforred thereto all the 6014
(said to contain 3,624,827.632 - fine (m14) held immediately
prior to rush treasfer is the sessent designated Bank of Ragland
M. 3 Assount.
Ve enclose copies of the following:
(1) Our sable to the Bank of England M. 845/40. deted
July 12, 1940, advising of the opening of the accounts
is the - of the British deverment and of the
transfers thereto as decoribed above.
277
- 2
1 I 1 $ s s =
- so, 1999.
(5) - ashle to the Bests of Sugland See cla/he,
I 1 s $
1 / a = 3 # I E / % I
and of the meleare 6 the #coretury of State viðh n to - that
caping to forniched to the
Depositis
141 Allen Spreak,
Alliem
1 1
1 I i
I / %
I s of
278
INCOMING CARLEGRAM
Leaton, June 20, 1940.
Federal Reserve Bank of New York
New York
No. 506/40 COMMEDENTIAL NOR SPROUL
ONE
Tear No. 668/40 Upon receipt of Brittch Government
request sentioned to your paragraph ONE which to
being transmited to year Deverament through the
American lisberry here please the after under strice
to se balances hold for the following accounts to
an accounts sinilarly designated is the - of
His Britennic Majesty's Government -
Oursency Accounts:
Bank of Regland Current Account 1
Bank of Magland Current Account 6
Bank of Bagland Special Account &
Gold Accounts
Bank of Hagland mater 3 Account.
TWO
After the transfers is our paragraph ⑉ have been
effected any - which my be teadered to you for the
account of the Bank of Incland should benentematically
placed to the credit of He Britannie Majesty's
Government Current Account 4.
Similarly up instructions issued by the Bank of Regiond
which my reach you by mail, after the transfers have
been effected, to receive w pay for the credit of or
by the debit to 8 Bask of Regiand Account should be
Regraded Unclassified
279
e 2 6
curried not w passing the relative entry through
the appropriate accounts is the - of Me
Majasty's -
-
* understand that Brittich deverment request will
authorise you to accept - instructions for all
operation of associate is the - of Me Pritemic
Majoriy's Correnment. the matter that conditions at
signaturies covering w assomite with you will mill
further active apply to the contecting of the esembe
to the - of Me Majostp's Government.
I
Year m. 668/ho yeragraph - Brittich Invoicement
I s 1 5 1
required If this to considered
rive
Tou vill be informed w your government that actification
M is h - our 527/40 my be given to you by
counsellers for the time being to Britten in
Verbington as process Mr. Neville Batter all M alternate
u Me Najesty's
SEX
Yes will staticaly be informed that anthority extended
to Me Rajesty's - all 4, 4 a in -
They 527/40 penumph see instates your 90 delegate
atterity to operato - the assember is rente of only
Regraded-Unclassified
280
3
person or persons when either my specify.
!
Tour D. 606/20 No confirm that upon receipt of
actification is form quoted from ⑉ of the persons
authorized to paragraph not instructions end
anthority contified is paragraphs - TVO and -
of - 527/20 vill w effective and will may to ou
Sullar Assount ,
Dollar Amount . end -
cake Assemb Number 3g
I y 1
I E to
Cable Division
el 281
OUTGOING CABLEGRAM
July 12. 1940
Bask of Regised
Lendon
No. 045/40
CONFIDENTIAL FOR GATTERSE
ONE la assordance with your instructions is paragraph cas
of your cable No. 586/40 and instructions free British
Government reseived through our Searstaries of State
and Treasury we have opened dollar and gold accounts
for and is name of British Government, and have trans-
ferred thereto at clese of business today dollar
balances and gold from accounts in name of Bank of
Regiond designated with correspending letter or smber,
as follows:
dollar accounts opened are designated Rio Britonsis
Majesty's Government Current Account P, His Britennic
upjecty's Government Current Account e. and His
Britemais Majesty's Government Special Account 4,
respectively, and anounts transferred thereto are
$2,909,765.12, $27,760,902.56, and $21,146,171.98,
respectively; gold secount opened is designated
Regraded Unclassified
282
- 2 -
me Systemic Majosty's Government No. 3 Account and
w here transferred thereto gold said to centain
3,884,387.632 - fine cold.
two
Instructions to w from Brittich are to assept
n the behalf instructions of Bank of Regiand an all
matters relating to - assomate will notice of
suppollation. We note your instructions is yeragraphs
two ml three of year eable Se. 586/40. We - also
that we ⑉ anthorised to consider checks in form hereto-
for well for tearing an dallar account A is - of
but of Nagland as - - assount designated Bis
Britemic Majosty's Government Special Account 4. Please
this and at your convenience advise w whether
as is desired to have different form of checks printed
to conform to present designation of account.
Federal Reserve Bank of New Tesk
Form age
Sabite Division
Regraded Unclassified
283
I I
- 8, 1940
Bank of Negland
leases
b. 059/49 CONFISSIONAL FOR CATERRIES
Reference your 436/40 indicating that your government
and yourselves desire to arrange for transfer of accounts -
is your - with - to assesste is - w your government. no
have - been requested and authorised w Secretary of Tyeasury
to open and mistels accounts for Brittich Covernment 40 requested
w and government and W are propared to de ⑉ valor onsit
8 1
(2) Sheet Brittish Government mile the following to
- government through American Releasy is -
(a) Request and instructions that w open and
mistals assemate is - of Brittich Government
and transfer thereto the gold and dollar
balances are is designated accesso with of
to - of lask of Ingland,
(b) Instructions as to who is authorized, is behalf
of Government, to an instructions to
w regarding and withdrawals from, and
otherwise is relation say outh accounts)
Processing these instructions would cover
missing so to your 027/40.
Regraded Unclassified
284
- 2 .
(e) Confirmation that such gold and dollar balances
are the property of British Government.
(2) that yes cable to Federal Reserve Bank of Bee York your
instructions to make transfers as is (1) (a).
(3) That Bydtich Ambessader in Washington, w letter to Secretary
of State, confirm all of foregoing, and certify the
legality and validity thereof.
Be are prepared upon receipt of request, instructions,
and confirmations 40 indicated is (1) and (2) above to mice the
transfers to assounts in - of British Government, and to
accept instructions given M authorized is behalf of British
Government. Letter of British Anbaccador referred to in (s)
could fellow is due course. Please advise British Government
of terms and conditions on which w earnark gold and hold gold
under careark as not forth is our letters to you dated December
1, 1937, at April 11, 1940.
Sproul Federal Reserve Bank of New York
By Post
Cable Division
Regraded Unclassified
285
JR
PLAIN
London
Dated July 17, 1940
Rec'd 12:47 p.m.
Secretary of State,
Washington.
2232, July 17.
FOR TREASURY FROM BUTTER TORTH.
1. There has been much discussion of late in the
British press of the surplus raw material problem as
affecting both Latin America and the British Empire, with
particular interest in the United States' plans for the
forthcoming Pan American Conference. The following
quotation from today's Financial Times is typical:
"While Great Britain has no definite status in a
discussion which is primarily a domestic matter for the
United States and Latin America, the visits of Sir
Frederick Phillips to Washington and Sir Otto Niemeyer
to Ottawa are particularly opportune in view of the
indissoluble interest of this country in the results of
the conference".
2. An increase in the cost of living index of
over 3 per cent in June, made public today, underlings the
importance of the new budget to bE presented on Tuesday.
The increase since the outbreak of war is about 20 per cent,
most of the rise having taken place before Christmas and
the
286
-2- #2232, July 17, from London.
the depreciation of starling being the most important
single cause. Ao indicated in my 1992, July 5, the
index is obsolete and therefore the real rise is
undoubtedly greater. Although the index remained
relatively stable recently, food price increases since
the beginning of June, due to curtailed imports and a
rise in agricultural wages, will insvitably give impetus
to general wage increases which no practicable control
of prices can prevent from having an influence on the
inflationary trend.
KENNEDY
RR
287
AS
PLAIN
Casablanca
Undated
Rec'd July 17, 1940
2:50 a.m.
Secretary of State,
Washington.
55.
Many inquiries as to whether bank accounts French
citizens residing about, off France are blocked and if 80
as to how, from whom permission is obtained to use blocked
accounts for payment of debts to American creditors and
by whom such permissions should bE sought, whether by the
American banks holding the accounts or by French Moroccan
debtors themselves.
GOOLD
EMB
288
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE July 17, 1940
TO
Secretary Morgenthau
STRICTLY CONFIDENTIAL
FROM
Mr. Cochran
While waiting in my office today, Mr. Pinsent stated that his Embassy had
recently been approached by Mr. Pierre Roche with the view to the British Go verment
taking over certain holdings of the Empain financial interests of Belgium. It is
understood that these properties are principally owned by Baron Empain of Belgium.
It is the apparent desire of the owners that Germany should not acquire title to the
properties, following German invasion of Belgium. The British are sympathetic with
the idea of blocking any attempt of Germany to acquire the properties, but the
Embassy here is not sure how far the British can go. It is definitely understood
that the Empain properties in Canada can be blocked by the Alien Property Custodian.
Às far as the properties in Egypt and the Belgian Congo are concerned, there is still
& doubt as to what Great Britain. can do. Furthermore, the British Embassy here is
not sure that Mr. Roche, who is supposed to be the Director General of the Empain
interests in Canada, may have authority to deal with the Empain properties in other
countries.
Pinsent offered the above information gratuitously. I told him it was quite &
coincidence that I had received a little information, covering part of the above
ground, from another source. When I asked whether there was anything he wanted us
to do, Pinsent replied in the negative, but did want to consult with us further if
either of us had any more information.
I am returning herewith the letter on the above subject which the Secretary
handed me this morning.
PM.
289
JOHN EDGAR HOOVER
DIRECTOR
Federal Bureau of Imvestigation
Nutted States Department of Institute
Fashington, B. G.
July 15, 1940
Personal and
Considential
The Honorable
The Secretary of the Treasury
Washington, D. C.
My dear Mr. Secretary:
I thought the following information would be
of interest to you:
The Empain financial interests of Belgium
are working frantically in an effort to maintain their
interests and holdings intact despite German occupation
of Belgtum. Pierre Roche, Director-General of the
Empain interests in North America, with his attorney,
fulfilled a luncheon engagement with the British
Ambassador in Washington on Sunday afternoon, July 14,
1940. The purpose of this engagement was to enable
Pierre Roche to make appropriate arrangements to turn
over to the British Ambassador as the representative of
the British Government a complete power of attorney and
authority to take over all of the assets of the Empain
group actually located outside of Belgium and utilize
these assets for whatever purpose the British Government
desires. It is reported that this group has certain
assets in the United States which have been "frozen"
by the Federal Government and apparently the Empain
group believes that through the British Ambassador they
will be able to effect the release of these financial
interests. The holdings of the Empain organization in
Canada, Belgian Congo, Palestine, and other parts os
the World, will however be included in the power of
attorney executed by Pierre Roche, who appears from
information available to be the only surviving, ranking
official of this group able to act in behalf of the
corporation.
Sincerely yours,
Bu Special Measenger
J. J.2dyn Hoover
290
TREASURY DEPARTMENT
Confidential
INTER OFFICE COMMUNICATION
DATE July 17, 1940
TO
Secretary Morgenthau
FROM
Captain Puleston
Subject: Observations Based on Conversation with
Cantain Benjamin F. Kelsey, United States Air Coros.
1. Caotain Kelsey had visited air squadrons throughout England
that were in actual operation. He had visited the entrance depots
at which candidates for the Air Force were received. He had visited
All the intermediate training stations. He had thus a clear idea
of the training system, the method of squadron operation, and the
whole system of aircraft offense and defense as existing at present
in the United Kingdom. He had been in England since before the
Dunkirk evacuation and remained there until late June or early July.
Rie comments range from technical performance of planes, professional
skill and zeal of the personnel, and his final views on the relative
owers of German and British aviation.
2. His conclusion, as I previously reported, was that, "The
Pritish Air Force has already defeated Germany by gaining a superi-
ority over the German Air Force".
3. The British personnel are not stale. They are worked very
continuously. One group that Captain Kelsey wes with had had eight
missions in seven days. Individual officers had operated on as many
88 three missions during twenty-four hours.
Regraded Unclassified
Secretary Morgenthau - 2
291
4. The same group of planes, frequently 8.8 low as three in EL
formation, would undertake both a bombing and a fighting mission on
the same trip over occupied France and Belgium. It was generally
customary for all planes to carry some bomba, and returning from a
reconnaissance they would drop the bombs on some objective. They
always had orders never to bring a bomb load home.
5. A single British fighter has been known to attack success-
fully a formation of thirty German planes. Similarly, three planes
have been known to attack a German formation of thirty planes. Odds
of one-to-three are regarded in the vernacular as "duck soup".
6. It was to be expected that a sport-loving nation like the
British would be willing to fight against long odds, but Captain
Kelsey also observed that there was great system in selecting the
objectives to be bombed; these objectives were given a definite
priority, and all effort is being made to accomplish definitely one
objective before attempting to undertake another. While a concentrated
effort is being made upon a particular objective, other objectives
are bombed by one or two planes, just to keep the Rhinish workers
from sleeping at night. The British Air Force are now thoroughly
acquainted with German territory, BO that their night raids are be-
coming increasingly effective. Captain Kelsey gained the impression
that the British Air Force were more at home at night over Germany
than the German Air Force, simply because of their greater experience.
292
Secretary Morgenthau - 3
7. Captain Kelsey stressed the psychological factor in avia-
tion warfare, asserting that it was the most powerful single factor
and had more effect than superior numbers or even superior quality
in B. plane. British aviation 18 now using all its planes, even those
whose performance 18 not 8.8 good as the Germans. The personnel of
a particular type of plane attempts to compensate or ameliorate the
poorer performance of the plane. He attributed the advertisement
the Germans gave their dive bombing and the British their turreted
planes to a desire to impress the other side with a feeling of in-
feriority.
8. Captain Kelsey confirmed previous reports that German avia-
tion had not been able to disrupt the British convoys, even those
proceeding in narrow coastal waters. Each convoy has an "umbrella"
of three planes that constantly accompany it. These planes can call
reinforcements from the squadrons stationed ashore, or the call can
be made by the surface ships, so that reinforoemente quickly reach
a convoy under most conditions. This 18 a very important fact. It
has long been Navy opinion that it was unnecessary to invade the
United Kingdom if her supplies were out off. In other words, it is
easier to starve the United Kingdom than to invade it.
(Comment: The British have more merchant ships today than
at the commencement of the war. They have no troops in France that
require supplies, They can concentrate their tonnage on home needs,
Secretary Morgenthau - 4
293
and from Captain Kelsey's report, I should say that in the immediate
future, at any rate, the United Kingdom can be supplied.)
9. Captain Kelsey was convinced that an invasion of the
United Kingdom is practically impossible, and he gave reasons that
I think are conclusive. He did believe that, if the Germans were
willing to lose enough airplanes, they could practically destroy
London, He thought they would lose a very large number of planes in
any such undertaking, and the destruction of London would not be
vital to the defense of the United Kingdom; he did not think it
would cause the capitulation of the British people.
10. Although primarily interested in aviation, Captain Kelsey
took careful note of all preparations, Army, Navy, and civil, to
defend the United Kingdom against a German invasion. He was con-
vinced that finally the entire population realized that they were
taking part in 8 war. Every night there were some reports of 8.
person or persons without the proper papers being killed or wounded
for being in unauthorized places. Far from gaining any sympathy
from the public, if an offender was only wounded, he was further
tried for violating the defense regulations.
11, In reply to the question whether these bombing raids already
staged were preliminary to an invasion, he said he did not think
they were, that they were only being undertaken because the German
Government had advertised an attack and had to make good on it.
Regraded Unclassified
294
Secretary Morgenthau - 5
He does not rule out the possibility of an invasion, but there was
nothing in the pattern or system of attacks to indicate a systematic
preparation for invasion such as happened in Poland, Holland, Belgium
and France. The air attacks frequently were obviously intended to
alarm as wide a stretch of country as possible for psychological
reasons. Instead of frightening the British people, it has made
them more determined to resist, and the whistling bombs no longer
have the terrifying effect desired. Both in England and Germany
the air defense now do not knook off work or send civilians to shel-
ter until they are certain 8. real attack 18 intended.
12. I asked about the feasibility of invading Southern Ireland.
He thought they were less prepared to resist an invasion in Southern
Ireland than in any other place. This led him to comment on the lack
of coordination in certain parts of the British Government and
British services. He said that apparently they were unable to deter-
mine upon a proper course of actionin Southern Ireland, He had
noted the same lack of smoothness in coordination between the
fighters and the higher-ups in the aviation, He said the High Com-
mand and the actual fighters were excellent, but between the two
groups there WAS frequently lost motion.
13. Captain Kelsey will prepare B. report, and Colonel Magruder
agreed to supply us with a copy, but I wished to preserve my first
impressions of his views.
295
Secretary Morgenthau - 6
14. Comment: The views of Captain Kelsey are not entertained
by Major Whitehead, who has observed very closely the operations of
both German and British aviation. I understand from Colonel Magruder
that Captain Kelsey's views are partially corroborated by another
Army observer, a colonel, who is now in England. They agree sub-
stantially with the views of Colonel Frederick Palmer, who, although
not an aviator, is a trained observer. I think you would enjoy 8.
talk with Colonel Palmer sometime in the near future while the pic-
ture 1s still in Colonel Palmer's mind,
20,0, Puleston
W. D. Puleston,
Captain, U.S.N., Retired.
Regraded Unclassified
COPY
296
Rio de Janeiro, Brazil,
July 17, 1940
No. 3288
Subject: Inquiry of Bank of Brasil Re Funds Of The Banco Frances e
Italiano Blocked In New York.
The Honorable
The Secretary of State,
Washington.
Sir:
With reference to the Department's telegram No. 211 of July 11, 1940,
5 P.M., concerning the payment of drafts drawn by the Banco Frances 0
Italiano on the Chase National Bank, I have the honor to report that the
Director of Exchange of the Bank of Brazil has sent the following telegram
to the Chase National Bank of New York:
"Our collections 2956/7 -$17,126.52 -drawn on you by Banco
Frances Italiano and similar collection Bahia ON 82 $2250
for payment of which intervention American Embassy has been
requested were posted s/s Brasil 25/6/40 to your address."
!
Respectfully yours,
For the Ambassador:
MA 120mg
Walter J. Donnelly,
Commercial Attache.
File 851.6
WJD:KF.
297
WAR DEPARTMENT
OFFICE OF THE CHIEF OF STAFF
WASHINGTON
/ have red the few
paragraphs which may
interest you
W.B.S. Is this in diary
your
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298
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M.I.D.,W.D.
Tentative Lessons
Bulletin No. 17.
July 17, 1940
TENTATIVE LESSONS FROM THE RECENT
ACTIVE CAMPAIGN IN EUROPE
The information contained in this series
of Bulletins will be restricted to items
from official sources which are reasonably
confirmed. The lessons necessarily are
tentative and in no sense mature studies,
Contents
1. Information Service, German Army.
2. German Protective Clothing Against Gas,
3. Gas Decontamination,
4. Observation Balloons.
5. German Opinion on Anti-Tank Weapons.
1. Information Service, German Army.
One of the most interesting innovations in the German
methods of conducting the present var has been the establishment of
a monopoly with regard to war information by the Armed Forces. This
monopoly is operated by the newly created Propaganda Companies, which
were established and recruited jointly by the High Command of the
German Army and the Propaganda Ministry. After taking the field, however,
these units are placed under the sole control of the High Command.
The immediate purpose of the Propaganda Companies is to
furnish the German people with the maximum amount of news of the War
consonant with the maintenance of military secrecy. The ulterior
purpose is to unite Army and People in the Prosecution of the Mar.
The course of the liar to date indicates that the German
people are receiving much more and better news of the fighting at the
front than are the French or British people. It should be pointed out,
however, that it has been relatively easy for the Germans to furnish
this information inasmuch as their army has met almost uninterrupted
success, while the Allies were under the necessity of concealing from
their people the extent of their reverses.
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Regraded Unclassified
29.
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The "Propaganda Company" operates in the German Army
a mimber of varied kinds of information services.
The most important of these are:
a. A Radio Service
b. A Press Service
0. A lioving Picture Service,
In addition, paintors and magazine writers are also
members of the company, und their work is then distributed by the Army
to German magazines and newspapers.
After the Propaganda !linistry selects the members of the
Propaganda Companios, the Army enlists them 25 regular members of the
armed forcos. A small proportion of the personnel are given commissioned
rank.
The Propaganda Companies are given six weeks infantry
training before being sent to the front. The platoon appears to be
the largest permanent organisation. A platoon, consisting of a section
each of correspondents, radio broadcasters, and moving picture operators
is generally attached to en army. Individuals are then reattached to
air units, infantry platoons, or betteries, depending on where they are
apt to see the most active service. Members of the Propaganda Companies
then accompany the units to which attached into action and write their
stories, broadcast their accounts, or take their pdotures from the actual
front line. Over forty members of the Propaganda Companies have been
billed in action since the start of the var. Hany more have been wounded,
These casualties have created an exceptional morale in the Propaganda
Companies. The membors feel themselves as soldiers of the Army, not
outsiders, and give their all to fulfill their mission. Recent
broadcasts of men of these companies, heard on the Berlin radio, told
vivid stories of the fighting at NARVIK, the Meuse, Dunkirk, and the
Somme in & military form, quite unlike most of the dispatches of
military-inexperienced war correspondents, Propaganda Company men
have participated in bombing flights over England, have made submarine
cruises in the Atlantic, and have accompanied the Armored Divisions
deep into France. The Gorman Tar movies shown in this country also
have been unusual in that they depict actual front line battle scenes
and are far superior to the general run of Corld Tar battle pictures,
Similarly, the German front dispatches are written in a. military form
and convey to the public n. seemingly occurate and realistic picture of
front line conditions.
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300
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2. German Protective Clothing Against Gas.
In addition to the service respirator, the German soldier
is reported to carry a gas cape (gas plan). This is a rubberised sheet,
5 ft. 4 in., with a circular hole in the center for the head, the cape
reaching to the knees. When not worn, the cape is fastened to the strap
of the gas mask, or carried in the haversack,
Full protective clothing in the German Army 1a stated to
consist of one-piece overall with fixed hood, or separate trousers and
jacket with fixed hood. Either type of suit is made up in rubberized
fabric, of which there are two types, one rubberized on both sides,
resisting mistard gas for seven hours, the other rubberized on one side
only, resisting mustard gas for about two and one-half hours. Hitherto,
only a few specimen suits have been issued to organizations, but recently
large issues are believed to have been made to many units.
3. Gas Decontamination,
The Germans are reputed to prefer dry bleach to bleach
ointment for skin decontamination, and German prisoners have been found
to carry packages of "losantin," a stabilized bleach of high chlorine
content. Work has, however, been carried out on ointments, and it is
believed that a. chlormine type has been developed.
40 Observation Balloons.
It is reliably reported that the Germans are using
captive balloons to a limited extent, especially for general observation
and heavy artillery. In e. fast moving situation, extensive employment
is not necessary. The Germans intend to continue limited use of captive
balloons. A device, it is claimed, has been developed that improves
observation and limits sway.
5. German Opinion on Anti-Tank Weapons.
As a result of the campaign in the West, the general
consensus of opinion among German officers is that the French 25mm.
Anti-Tank Gun is too light, the British 2 pounder and the Belgian
47mm. too large and too heavy, and for mobile use, too unwieldy.
The Germans believe the 37mm, Anti-Tank Gun is very satisfactory
and the best gun of all developed 80 far. It is significant to
note that this opinion makes no mention of the French anti-tank gun,
47 mn.
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M.I.D., W.D.
Tentative Lessons
Bulletin No. 18
July 18, 1940.
TENTATIVE LESSONS FROM THE RECENT
ACTIVE CAMPAIGN IN EUROPE
The information contained in this series
of Bulletins will be restricted to items
from official sources which are reasonably
confirmed. The lessons necessarily are
tentative and in no sense meture studies
1. German Army - Air Force Command and Signal Coordination.
There have recently been received in the War Department a
number of Field Orders of the Sixth German Army (von Reicheneu) which
throw considerable light on the manner of coordination of German air
and ground forces during the Battle of FLANDERS.
These orders confirm the long suspected fact that the
larger units of the Germen Air Force preserved their independence
throughout the campaign and were not attached to groups of armies,
armies, corps, or divisions, except as noted below. The German Air
Force operated throughout the FLANDERS battle as a General Head-
quarters Force. It was divided into two air fleets, each of several
air corpe, and each air corps of several air divisions.
The air squadrons of the Sixth Army were not numerous. Each
of the three corps which composed the Sixth Army possessed a. corps
observation squadron and & battalion of anti-strcraft artillery. (In
Germany, the anti-aircraft artillery is & part of the Air Force.) The
army possessed, in addition, a distant reconnaissance equadron and a
"messenger" 'squadron equipped with "STORCH" slow flying planes. The
Sixth Army possessed, however, three other air installations which are
of considerable interest, in view of the successful cooperation of
German ground and air forces in this battle.
These were:
a. An Air Headquerters known in the Sixth Army as
"KOLUFT" which operated with the Sixth Army or
perhaps under it.
b. An Air Signal Battalion.
c. An Air Telephone and Telegraph Aria of Communi-
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Unclassified
302
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cations reaching back from the front on the LYS
through BELGIUM to Germany and connecting at
the border with the Air Wire Circuit of the
Zone of the Interior, which tapped every German
air field and air headquarters throughout the
country.
The latter axis had been pushed from and by the Air Signal
Battalion of the Sixth Army. In places, five double lines had been
run forward. It was not used in common by the Air Force and Sixth
Army, but vas for exclusive Air Force use. The Sixth Army possessed
its own lines of signal communication. It would seem that the
German Air Force ren from four to six of these signal axes forward
into Belgium, Holland, and Northern France.
The axis behind the zone of operations of the Sixth Army
began at the German-Belgian frontier at AACHEN and ran forward
through ST. TROND, TIRLEMOND, WAVRE, TUBIZE, to ATH.
At WAVRE, a lateral wire branch ran northward to EVERE
where was located a headquarters known as "SPECIAL LUFTO.AU (Air
Corps Area) NO. 12." This headquarters was apparently charged
with the AIR DEFENSE of the occupied area of BELGIUM and was
similar to the "LUFTGAUS" of interior Germany, which are, in reality,
AIR CORPS Areas. These Luftgaus defend the areas under their commend
from hostile air attack and have under their command pursuit units,
anti-aircraft battalions, and the civil passive air defense organiza-
tion. It would seem, therefore, that parallel with the occupation of
Belgium, a similar air defense unit was established for that country.
Further toward the front at TUBIZE, another connection led
to another air headquarters known as the "Commander of Pursuit Forces."
The mission of the pursuit forces 1s not known.
At ENGHTEN, Sixth Army Headquarters, the axis made contact
with "KOLUFT", the special air headquarters of that army.
Beyond ENGHIEN, the air axis continued forward to LEUZE, a
village close to the headquarters of the IIVII corps of the Sixth
Army, and was seemingly, on May 25, in process of being further ex-
tended westward.
This very complete ground communication net of the Air
Force enabled direct wire service from every army headquarters on
the front and many corps as well, and to every German air head-
quarters and air field in Germany. It was doubtless partly re-
sponsible for the close coordination of ground and air forces in
this campaign.
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Paragraph 3 of Field Orders No. 12 of the Sixth Army
dated May 24th, 1940, read, in part, as follows:
"Sub-Paragraph 5.
"Air Corps IV will support the attack of the Army by
attacks against roads, road junctions, and recognized troop con-
centrations in front of the XI and IV Army Corps. A liaison
officer from Air Corps IV will be attached to the IV Army Corps
for the day of May 25th."
This is the only occasion in the three available orders
of the Sixth Army when the Sixth Army received the direct air
support of the German Air Force and no mention is made of the
attachment of air force units to the Sixth Army except as men-
tioned above.
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M.I.D., V.D.
Tentative Lessons
Bulletin No. 19
July 19, 1940
TENTATIVE LESSONS FROM THE RECENT
ACTIVE CAMPAIGN IN EUROPE
The information contained in this series
of Bulletins will be restricted to items
from official sources which are reasonably
confirmed. The lessons necessarily are
tentative and in no sense mature studies
Contents
1. Winter Warfare
a. Introduction.
b. Finnish Ski Troops.
C. Partisans and Patrols.
d. Soviet Use of Tanks.
e. Finnish Rations
f. Finnish Supply and Transportation.
B. Effect of Cold Weather on Arms and Ammunition.
1. Winter Warfare
a. Introdution. This Bulletin deals with the tentative
lessons in specialized winter warfare resulting from a study of the
Soviet-Finnish War, November 30, 1939 to March 13, 1940.
As more information is available about the methods of
winter warfare in the Finnish than in the Soviet Army, most of this
Bulletin relates to the former army. At the beginning of this var,
the Soviet Army eppeared to be very inept in winter warfare, es-
pecially in the use of Ski Troops, which was probably due to the
lack of basic training in skiing and the lack of natural aptitude
for this sport.
The Finnish Army was much more successful in the use of
Ski Troops on the minor fronts north of the Karelian Isthmus than on
the Isthmus itself, due to the terrain peculiarities of the Isthmus;
extremely rocky and dense forest with very few roade.
On the Isthmus, the Soviet Army during the first period
of operations-upon the beginning of the war until the end of January--
made very little progress. During the second and final period, however,
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305
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it carried out mass attacks against the Finnish Army without regard
to losses until the latter finally collapsed on March 13. During
this period, the Soviet Army appears to have been very successful in
supplying its troops with material and munitions, especially Field
Artillery shells.
b. Finnish Ski Troops.
(1) Selection and Training. While all Finns learn to
ski almost from the time they learn to walk, ski troops were very care-
fully selected. Finnish regulations recommended that ski detachments
be selected from a unit not smaller than a battalion and preferably
from an entire regiment or larger unit. These troops underwent inton-
sive training, which consisted mainly of long hikes on comparatively
level ground. Since the terrain in Finland 1a not particularly hilly,
it was thought better to train ski troops in endurance rather than in
mountain climbing and down steep slopes, although a certain amount of
this sort of training Wall included.
(2) Clothing. Ski troops wore warm clothing but were
never encumbered with long overcoats. They generally wore a fur cap
which could be pulled down over the ears and the usual outer garment
was a short canvas jacket lined with shoepskin. Woolen mittens were
usually preferred to gloves with fingers. Ordinarily, boots were worn,
into which the trousers were stuffed, which allowed absolute freedom of
movement for the knees. As a rule, very heavy woolen socks were worn,
although, in some cases, a flat woolen cloth, such as that used by the
ñed Army, vas wrapped around the foot inside the boot. In fitting shoes
for winter weather, it was essential that they not be tight anywhere.
Finnish ski troops were always equipped with an outer
covering of white. This usually consisted of 8. coat, equipped with a
hood, which reached about halfway to the knees, and white trousers
which were pulled on over the ordinary boots and trousers. It was very
difficult to keep these white camouflage garments sufficiently clean to
make them actually effective.
(3) Equipment. The equipment carried by ski troops vas
reduced to a minimum and was usually carried in a very light canvas pack
worn high on the shoulders. The skis themselves were usually made of
hickory, and the bottoms of them were treated with tar, No case was
observed where wax or material other than tar was used on the bottoms of
okie, As a rule, the aki was attached to the boot by the very simplest
method possible, which would not add weight to the ski and could be
easily detached. In some cases, this consisted of nothing more than A
thong which fitted over the toe of the boot.
Ski troops sometimes carried food and other supplies in
Lapp sleds. These sleds somewhat resembled a very small canoe, which
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306
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would be drawn over the snow or ice by one or two nen, depending
upon the size of the load it carried. Troops were furnished with
comparatively small octagonal tents approximately fifteen feet in
diameter. Those tents could be rolled into a compact bundle, which
could be drawn on a Lapp sled by two men. At the center of the tent
was a small, light, rectangular sheet-iron stove in which were packed
the necessary lengths of stove pipe. The tent, at its center, vas
approximately ten feet high. It furnished shelter for eighteen men,
who slept almost shoulder to shoulder. One man remained on watch at
all times in order to keep the fire burning in the stove. Tent poles
and pege were not carried but were cut from the forest at each halt
at which the tent was pitched, as was wood for fuel for the stove. Ven-
tilation was obtained by means of slits in the upper part of the tent,
which could be opened when necessary, and the opening was covered with
a screen net to keep out insects. With the fire going and with the
heat of the bodies of eighteen men, this tent was always extremely
warm, even in the coldest weather. Às it vas a dark green in color,
it was also very difficult to discover, either from the ground or
from the air, when it was set up in the forest.
(4) Armament. Sk1 troops were all equipped with a
Finnish knife called a "puuka", which was used for many purposes.
Most of these troops also carried light rifles and many of them
light automatic rifles or the Suomi machine pistols.
C. Pertisans and Patrols. Much of the success of the
Finnish operations north of the Isthmus was due to the skillful use
of partisans and patrols. Extracts from the instructions issued to
these units are given below.
"When the Soviet lines of communication are extended,
they must be incessantly harassed, for which purpose detachments of
picked ski-runners are most suitable. A condition for the success
of the raid is that such detachments receive clear and frequently
detailed instructions. Orders to such detachments should, therefore,
be issued by an experienced officer, either & battalion commander or,
preferably a regimental commender.
"During very cold weather, night attacks against hostile
troops, which, for lack of bivouses, have to halt in the open, yield
better results than usual. The mere fact that the activities of
petrols and aircraft prevent the Soviets from lighting fires causes
many frostbites and severe colds and makes him more vulnerable to
attacks by major forces. The patrols are equipped with machine
pistols, hand grenades, material for destroying armored vehicles and
for burning trains, supplies, etc.
"The increasing depth of snow impedes hostile mobility
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307
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and favors the possibilities of friendly partisan action. When
partisan troops are detached, special attention should always be
paid to a careful planning of their return.
"Distant raids necessitate careful preparation. The
men selected for a partisan detachment that is to make a distant raid
should be excellent ski-runners and stubborn fellows used to life in
uninhabited country (frequently volunteers) who, if possible, should
also be familier with local conditions. Since it 1e often difficult
to find a sufficient number of suitable men in a minor unit, such as
a battalion, the selection should generally be made within a regiment
and frequently within e larger unit. The unite operating north of
Lake Ladoga can requisition the necessary number of reindeer required
for the transportation of demolition and other materials during a
partisan raid. If the unit bas no reindeer attendants, the regular
attendants should accompany the onimals. Reindeer which eat bread
can be employed farther to the south of the northern Ladoga district."
The light sled made by a tribe of Lappe 18, according to
experience gained at Petsamo, particularly well suited for partisan
activities; it can be drawn by one man.
The Reds have used strong patrols of 10 to 20 men as
security detachments, especially at night, posted at small intervals.
Nevertheless, the Finnish patrols and partisan detachments have
frequently been able to get through the security line.
The scouting activities of the Rade have not been
effective. An improvement was, however, noticeable after the Rede
began to employ sid troope
In woods, Finnish partisan groups and patrols have been
able to operate in the rear of the Red Army for two or three days and
return without losses. Partisan activities must, therefore, be
employed more frequently. Especially on cold nights when the Soviets
have to keep their motore running, partisan groups can discover the
motor vehicles and destroy them. In uninhabited areas where supplies
are difficult to obtain, the Soviets may be harassed by destroying
their train (by killing the horses and setting the supplies on fire).
Several times, the Soviets have attacked on the Isthmus
by night and once even across a water obstacle. Therefore, security
detachmonts must be posted even at such obstacles.
In Northern Finland, the Soviets have been very active
during the night, apparently with the objective of disturbing the
rest of Finnish troops.
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The ski training of the infantry employed by the Soviets
on the Isthmus has generally been very primitive; the men move
awkwardly on skin in their long overcoats. Only part of then are
equipped with skie and white snow cloaks. Infantry armament has COW
sisted of rifles, hand grenades, quick-firing riflee, machine pistols
and guns, grenade projectors and rifle grenades (with both time and
percussion fuses), as well as anti-tank guns.
At Potsamo, the Reds had machine guns mounted on wheels
(Model 1937 - 1938), quick firing rifles heavier than the 1938 Finnish
modele and equipped with a drum containing 47 rounde; moreover, there
were ordinary rifles and, also, riflee with a telescopic sight, Some
egg-shaped grenades were available, but usually were not distributed,
AS the Red soldiers were not trained in their use. It in probable
that the Reds also had small grenade projectors.
d. Soviet Use of Tanks. The Rede used tanks to support
almost all of their infantry attacks on the Isthmue. Tanks were used
usually in mass in close coordination with the infantry, but the
wooded terrain prevented the close support of the tanks by artillery.
The comparative failure of the tanks on the Isthmus vas largely due
to the terrain peculiarities; extremely rocky and dense forest in-
dented with many smell lakes; a scarcity of highways and even forest
roads: the presence of many large boulders which could easily be used
for any tank obstacles. The tanks usually were compelled to advance
along highways or forest roads where their progress was interfered
with by partisans. The tanks also had to contend with mine fielda
concealed by snow; accurate anti-tank fire, and heavy snow, which in-
peded their progress. Frequently, tanks had to withdraw and advance
in the same track in order to avoid unbroken surfaces.
In field orders of a Soviet tank brigade, instructions
were given to the troops pointing out that even in a moderate cold,
the fuel consumption vas three to four times higher than the normal
consumption, because the motors, due to the difficulty of starting,
had to be kept running during halts on the march. The orders stated
that tanks halting for ten or more hours in their assembly positions
should be provided with heating apperatus and that the motors of tanks
and transport trucks should be warmed up for ten to fifteen minutes
every fourth hour.
From the orders it was furthermore noted that the Soviets
had at their disposal heating apperatus and air-pressure starters for
their tanks. However, the starting of tank motors by compressed air
was permitted only during combet action.
Congestions on roads provided good targets for Finnish
pilots and partisan detachments. During calm winter nights, operations
RESTRICTED
Regraded Unclassified
309
RESTRICTED
of partisans against tanks were facilitated by the noise of the run-
Regraded Unc
ning motore.
According to a statement made by a captured Red officer,
the tanks moved easily even in deep snow and on the ice. When a tank
moved on the ice, every twelfth cog of the track was lifted up. In
general, the tanke did not get out of order, and it vas seldom necessary
to repair them. According to other sources, the Reds had much difficulty
in keeping their tanks in order, and their losses were very heavy. It
was also reported that the Red amphibian tanks proved absolutely useless
in operations in snow and icy water.
e. Finnish Retions. Two kinds of rations were issued to
the Finnish troops; the regular ration and the so-called partisan
ration issued to patrols and partisans detailed to operate at long dis-
tances in the rear of the Soviet lines. Occasionally, long distance
raids lasted for several weeks.
Normal Wartime Ration.
Basic Daily Ration
Alternate Ration
in Grams
Bread, dried
500 gr.
French bread,
600
is.
Flour
500 or.
Butter
60 gr.
Cheese
60 gr.
Butter
30
is.
Condensed Milk
225 gr.
Fresh Milk
500 gr.
Sausages
60 gr.
Canned Pork
60 g.
Canned Beef
80 @.
Sugar
50 gr.
Tea
2 gr.
Coffee
20 gr.
Cocoa
5 @.
Grite
125 gr.
Flour
125
É
Potatoes
600 gr.
Cabbage
800
G.
Fresh Veg.
800
is.
Dried Veg.
100 gr.
Peas
175 @.
Macaroni
100 gr.
Grite
100 @.
Meat
200 gr.
Pork
150 F.
Canned Pork
100 F.
Canned Beef
150 gr.
Sausages
175 g.
Fresh Fish
250 @.
Herring or
Baltic Herring 150 gr.
RESTRICTED
+
310
RESTRICTED
Salt and other
condiments
15 gr.
Lard
25 gr.
Butter
25 gr.
Flour
25 gr.
Partisan Retion
Basic Daily Ration
Alternate Ration
in Grams
Bread, dried
600 gr.
Butter
BO gr.
Cream Cheese
100 @.
Sausages, smoked
100 gr.
Hard Boiled Eggs 3 Fr.
Specially Pre-
pared Bacon
100 gr.
Cream Cheese
100 @.
⑉ "Grits
(See below)*
** *Milk, condensed
100 gr.
(See below)*
⑉ *Meat, canned
200 gr.
Specially Pre-
pared Bacon
200 F.
Canned Pork
150 gr.
Cured or Boiled
Beef
300 σ.
Cured or Boiled
Pork
150 er.
Sugar
100 gr.
Coffee
40 gr.
Tea
4 c.
Cocoa
10 @.
Salt
10 gr.
Cigarettes
10 gr.
. Substitute 200 grams of Dried Potatoes on the Alternate Ration for
125 grams of Grits and 100 grams of Condensed Milk on Basic Daily Ration.
-- Substitute 400 grams of Special rations (for instance, liver or blood
pudding, pea- and pork-stew, cabbage pies, beefsteak, etc.) on the
Alternate Ration for 125 grame of Grite and 100 grams of Condensed Milk
and 200 grams of canned Meat on the Basic Daily Ration.
f. Finnish Supply and Transportation.
(1) Distance of DP from railheads. The distance between
the reilheads and distributing points varied between 20 and 80 km.; the
distances from the latter to the firing positions were 10 to 15 be.
Thus the distances from the railheads to the troops varied between 30
and 95 km.; the longest distances occurred naturally in parts of the
country with a sparse railway net.
(2) Vehicles. Supplies were usually transported by 3-
ton trucks from railheads to distributing points but at times supplies
were carried direct to the troops. On the extensive eastern frontier
RESTRICTED
-7-
311
RESTRICTED
where the condition of the roads precluded the employment of motor
vehicles, trucks were replaced by tandem sleighs (two pairs of runners,
in column, the first pair turning on a pivot and connected by a chain
to the second pair), which carried a load of 400-500kg. Although the
distances on the Kerelian Isthmus were very short compared with the
eastern frontier, trucks instead of railway trains had to be used to
forward supplies, due to the Soviet superiority in the air. When the
days grew longer, the supplies had to be forwarded by truck trains
under cover of darkness. Occasionally, supplies were forwarded even
by single trucks. Since the Soviet aircraft continually attacked the
road net in the rear, it was impossible to employ horse-drawn vehicles,
which would have been too slow under the prevailing circumstances.
Railways on all fronts could be used only to a limited extent owing
to the air menace and damages caused by bonging. Unloading had to be
carried out in darkness.
During the winter, each artillery piece was provided
with & detachable sleigh runner which was detached when the piece went
into position.
(3) Roads. The roads were kept open by teams of snow-
ploughs, road companies, and traffic squads. Due to the fact that
war commenced in the fall before snow had fallen, it was possible to
plan the roed net for winter traffic and to make the necessary prepara-
tions. The most important means for keeping the winter roade open to
traffic were: (1) The use of snow ploughs which were pushed in front
of medium (4-6 ton) trucks; then harrows of different types drawn by
trucks were used for levelling the surface: (2) Fences were erected
along the roads to protect them from snow drifts: (3) Snow shovels
were employed by the road companies.
In some places the roads were too narrow, 1.0., they
had been prepared for only one-way traffic, which resulted in conges-
tion.
For the construction of new roads during the winter,
the Finnish army corps had special units equipped with heavy trucks and
tractors.
In northern Finland, the Soviets constructed ice roade
over which a great deal of their traffic was moved. It is believed
that these roads were formed by building up blocks of 1ce and re-
inforcing these with straw or other material. These roads proved very
effective once they had been constructed, and as long as the weather
remained below freezing.
E. Effect of Cold Weather QA Arms and Amminitions. The
efficient functioning of automatic wearons during extremely low tempera-
RESTRICTED
-8-
Regraded Unclassified
312
RESTRICTED
ture was largely dependent upon the kind of lubrication used. Spindle
oil has proved to be the best lubricant, since it coagulates at a
temperature of -50°-60° C. When the weapon has been cleaned of grease
and other lubricants, it must be slightly oiled with spindle oil, the
quantity of which, if required, may be increased during continuous
firing.
Special precautions were taken to prevent the liquid in
weapons with hydraulic recoil brakes from freezing and from getting too
viscous during extremely low temperatures.
The shell and fuses of automatic guns do not seem to have
been affected by frost.
RESTRICTED
-9-
313
July 17, 1940
9:25 a.m.
H.M.Jr:
Good morning.
Wm. S.
Knudsen:
Good morning, sir. Do I -- Mr. Purvis 18
coming down to see you today isn't he?
H.M.Jr:
That's right. He's coming here at 1 o'clock.
K:
I called up for him. That's the reason I
know it.
H.M.Jr:
Yeah.
K:
Now, I'd like to get a hold of him after you
get through with him.
H.M.Jr:
All right.
K:
I'll tell you the reason. We get reports
of 80 many projected purchases of airplanes
that somewhat interfere with our program.
H.M.Jr:
Well, supposing I -- they're having a meeting
here on something or other at 2:30 -- Purvie
and I think Vance and some of the people are
meeting with him. I think that's right on
machine tools.
K:
That's right. Yeah.
H.M.Jr:
At 2:30. Now if you'll tell me a time that
you want to see him, I'll have Philip Young
bring him over.
K:
Yeah, I'd like to see him as soon after 2:30
as he is free.
H.M.Jr:
Well, when they're through with that meeting
should they telephone you?
K:
Yes, thank you.
H.M.Jr:
Supposing I have Phil Young telephone you as
soon as the meeting is though. They're meeting,
I think, it's on machine tools.
314
- 2 -
K:
Yeah. That's right.
H.M.Jr:
What?
K:
Yeah. But I'd like to get a shot at him on
airplanes after that.
H.M.Jr:
Well, I'll tell him -- Phil Young to call you
and I'd like him to bring him over 80 we can
sort of ......
X:
All right, sir. If I can impose on you to
that extent, I'm much obliged.
H.M.Jr:
Well, consider it done.
K:
Now, this Arthurdale business. I looked up --
I found some prints over here of the buildings
and, of course, there's nothing down there but
a woodworking ship which we have and then there's
a couple of empty buildings.
H.M.Jr:
Yeah.
K:
Now, what was your idea -- that the Government
would operate these buildings?
H.M.Jr:
Something like that or get a manufacturer
......
K:
In other words, the place can't be & sop
on anybody. They're going to have a direct
contract. Is that right?
H.M.Jr:
Well, I -- all I was thinking of is if in
these many contracts there was somebody that
could give employment to three or four hundred
people ......
K:
Yeah, but that'll have to be a direct contract
because the Government will have to finance it,
won't it?
H.M.Jr:
I suppose so.
K:
Uh-huh. All right, I just wanted to ask you
that. Thank you.
H.M.Jr:
Yeah. Thank you.
Regraded Unclassified
315
July 17, 1940
3:45 p.m.
H.M.Jr:
...... just returned from England and Military
Intelligence brought his over here. He's
actually seen the English fighting now for
several weeks -- hello?
Wm. H.
McReynolds:
Yeah.
H.M.Jr:
It's the most encouraging thing that I've
listened to, well, in a month.
McR:
Oh, wonderful.
H.M.Jr:
And I thought if he could be invited over to
talk to the people of your Council -- I gave
him forty-five minutes -- and I really think
if they gave him forty-five minutes or half
an hour or an hour that it'd be distinctly
worthwhile, because I haven't listened to
anybody that's as cheerful about the picture
as he 18.
McR:
Yeah. Well, I'll be glad to see that he
gets whatever time he can spend.
H.M.Jr:
And he was brought over here by Colonel --
whatever -- the head of Military Intelligence.
MoR:
Uh-huh. Where can I reach him?
H.M.Jr:
Well, through ......
McR:
Military Intelligence.
H.M.Jr:
Yeah. I can't remember the name.
MoR:
Well, the General in charge.
H.M.Jr:
Yeah, it's Admiral -- General Miles.
MoR:
General Miles.
H.M.Jr:
But it's Captain S. Kelsey and he's just
returned from England and really he ought to
have a chance because it bucked me up so.
316
- 2 -
MoR:
I'll get in touch with him right away and
I'll make dates with these fellows for his
to talk -- to get them together.
H.M.Jr:
Right-o. Thanks, Mao.
MoR:
Thank you for calling. Now, incidentally,
I got hold of Ed and Knudsen this morning
and told them about these tax boys that were
apparently planning to look over your tax
bill and they said, well, they were interested
in one thing and we'll take a careful look at
these consultants and, as a matter of fact,
we'll see that they're kicked out quickly
and -- (laughs) -- Ed was particularly
awfully worried because of the natural
reaction you would have had to that kind
of a proposal and, I think, you'll find
it's entirely properly taken care of. I
said, now, so far as anything that you want
to present that you feel that you have, I'm
all interested insofar as it stays within
your own staff -- it doesn't have any tax
advisors involved in it or any of these tax
consultants on the outside brought into it
at all. Now, I'd like to get in touch with
Johnny Sullivan -- that's the regular course
and if Jack Biggers and Leon Henderson and
any of the boys want to talk to Johnny about
it, why, he's glad to talk to them, but for
Christ's sake don't bring in these fellows
who are working for olients.
H.M.Jr:
Right.
McR:
Well, Ed was terribly distressed about it
but I
H.M.Jr:
When you say Ed, Ed
MoR:
Ed Stettinius.
H.M.Jr:
He was terribly, what?
MoR:
Distressed about it, that the thing had
happened.
H.M.Jr:
It's as stupid a thing as has come my way in
a long time.
317
- 3 -
McR:
The most stupid thing in the world, I mean,
he recognized it as such.
H.M.Jr:
But, I mean, nobody has fought the Treasury
harder than those two birds.
MoR:
Well, I know it.
H.M.Jr:
What?
McR:
I know it, and the hell of it is, he knew it
too.
H.M.Jr:
Who knew it?
MoR:
Stettinius knew it, too, but he didn't know
that they were being brought into it.
H.M.Jr:
Well, I'm very much obliged.
McR:
0. K.
H.M.Jr:
And I guarantee you that whoever listens to
Captain Kelsey will go home and have a good
night's rest.
McR:
Swell. Thank you very much.
H.M.Jr:
Right-o.
MoR:
Good-bye.
318
July 17, 1940
3:50 p.m.
H.M.Jr:
Hello.
Operator:
Mr. Biggers. Go ahead.
H.M.Jr:
Hello.
Mr. John
Biggers:
Mr. Secretary?
H.M.Jr:
Talking.
B:
John Biggers.
H.M.Jr:
Yes.
B:
I called you because Mr. McReynolds mentioned
to Stettinius and me this noon that a couple
of tax lawyers had approached the Treasury
presumably in behalf of the Defense Commission.
H.M.Jr:
No. That isn't quite correct.
B:
Well, anyway, I wanted you to know that our
Committee, of which they claim I an chairman,
has consulted no such people. Apparently one
of the Division did consult those two men
......
H.M.Jr:
Alvord and Prettyman.
B:
Yes. I'd never heard of it until it came to
my attention this noon and I respect very
highly the consideration that you showed us,
and I sense our obligation and I wanted you to
know that I'd cleared that up so that those
men or any other men who might have similar
interest from a personal or partisan stand-
point would not be participants in anything
that you entrusted to us for our consideration.
H.M.Jr:
Good. Good.
B:
I'm going to see Sullivan
......
H.M.Jr:
That's right.
319
- 2 -
B:
..... with the members of our Committee
tomorrow morning at ten o'clock.
H.M.Jr:
He's the man to see. Good.
B:
But I just wanted to
......
H.M.Jr:
Well, I was very much disturbed because it
seemed to me a little bit out of the ordinary.
B:
Well, I find that Mr. Stettinius asked to
have one man added to our Committee and that
man who is, I think, who is Carl Adams
......
H.M.Jr:
Yes, that's the man.
B:
..... in Mr. Stettinius' Division and who
I presume with good intentions consulted these
two men or discussed the general subject with
these two men and that's the extent to which
they have been considered and by an individual
and not by our Committee.
H.M.Jr:
Well, it's better to snuff it while it's
young.
B:
Yes, indeed, and I just felt that you'd been
80 extremely cooperative that I wanted to take
a moment of your time to clear that up personally.
H.M.Jr:
Good. Thank you 80 much.
B:
All right, sir.
H.M.Jr:
Good-bye.
B:
Good-bye.
320
July 17, 1940
4:00 p.m.
H.M.Jr:
Hello.
Operator:
Secretary Stimson.
H.M.Jr:
Hello.
Secretary
Stimson:
Yes, Mr. Secretary.
H.M.Jr:
I'd like to, if you wouldn't take objection,
to send back to you the letter you wrote me
about these engines.
S:
Yes.
H.M.Jr:
I hate to have it in my file and whenever
we've supplied you with the necessary infor-
mation which you've asked for, which we're
getting you, you see?
B:
Yes.
H.M.Jr:
Then I'd like to sit down and discuss it
with you.
S:
Well, I'd be very glad to. It went over my
desk without
H.M.Jr:
Would you mind if I just put it in an envelope
and addressed it to you because you see, the
last sentence is -- "Request that tests be
taken to make available to Aray the surplus
engines referred to above."
8:
Yes.
H.M.Jr:
And I don't want to be in a position that
I have to write, well, they can't do it or
80 forth and 80 on.
8:
Yes.
H.M.Jr:
And I'd much rather when we have the invitation
say now, we've got everything. What arethey
going to do with these engines? May we sit
down and discuss 1t?
321
- 2 -
B:
Yes, well, only this
nothing will be done without letting me
know, will it?
H.M.Jr:
Pardon me?
8:
Nothing will be done without letting me
know at the same time.
H.M.Jr:
oh, no. As soon as I have the information
which Mr. Purvis 1s collecting for me, then
I'm going to ask him to come down and have
an interview with you and me.
8:
And have a further interview. Yes.
H.M.Jr:
And if you want to bring General Arnold or
whoever it is who's on that, we can all sit
down around a table, but I'm pressing him
for the information and I'd just rather not
have the letter in my files.
S:
Yes, I see.
H.M.Jr:
Is that all right?
8:
That'll be all right. Send it back and I'll
consider it again.
H.M.Jr:
But I'm pressing
......
S:
I had caught in my mind -- the only recollection
I had when I spoke to you the other day was
that there was some statement in it to the
effect that those particular type engines
were not needed by the British Government.
H.M.Jr:
Well, that they will attempt to justify
and they're now working on the possibility
of swapping some around.
8:
Yes.
H.M.Jr:
The possibility of releasing some of these
if they could get some others. But they're
taking it very seriously and I'm pushing
them very hard for an answer, but I'd like
to keep it on an informal basis.
322
- 3 -
B:
All right.
H.M.Jr:
Thank you.
8:
All right.
H.M.Jr:
Thank you.
S:
Good-bye.
Recraded Unclassi